[Federal Register Volume 69, Number 219 (Monday, November 15, 2004)]
[Rules and Regulations]
[Pages 66236-66915]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-24758]



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Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 403, 405, 410, et al.



Medicare Program; Revisions to Payment Policies Under the Physician Fee 
Schedule for Calendar Year 2005; 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 Parts 403, 405, 410, 411, 414, 418, 424, 484, and 486

[CMS-1429-FC]
RIN 0938-AM90


Medicare Program; Revisions to Payment Policies Under the 
Physician Fee Schedule for Calendar Year 2005

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

ACTION: Final rule with comment period.

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SUMMARY: This final rule refines the resource-based practice expense 
relative value units (RVUs) and makes other changes to Medicare Part B 
payment policy. These policy changes concern: supplemental survey data 
for practice expense; updated geographic practice cost indices for 
physician work and practice expense; updated malpractice RVUs; revised 
requirements for supervision of therapy assistants; revised payment 
rules for low osmolar contrast media; changes to payment policies for 
physicians and practitioners managing dialysis patients; clarification 
of care plan oversight requirements; revised requirements for 
supervision of diagnostic psychological testing services; 
clarifications to the policies affecting therapy services; revised 
requirements for assignment of Medicare claims; addition to the list of 
telehealth services; and, several coding issues. We are making these 
changes to ensure that our payment systems are updated to reflect 
changes in medical practice and the relative value of services.
    This final rule also addresses the following provisions of the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 
(Pub. L. 108-17) (MMA): coverage of an initial preventive physical 
examination; coverage of cardiovascular (CV) screening blood tests; 
coverage of diabetes screening tests; incentive payment improvements 
for physicians in shortage areas; payment for covered outpatient drugs 
and biologicals; payment for renal dialysis services; coverage of 
routine costs associated with certain clinical trials of category A 
devices as defined by the Food and Drug Administration; hospice 
consultation service; indexing the Part B deductible to inflation; 
extension of coverage of intravenous immune globulin (IVIG) for the 
treatment in the home of primary immune deficiency diseases; revisions 
to reassignment provisions; and, payment for diagnostic mammograms, 
physicians' services associated with drug administration services and 
coverage of religious nonmedical health care institution items and 
services to the beneficiary's home.
    In addition, this rule updates the codes subject to the physician 
self-referral prohibition, discusses payment for set-up of portable x-
ray equipment, discusses the third five-year refinement of work RVUs, 
and solicits comments on potentially misvalued work RVUs.
    We are also finalizing the calendar year (CY) 2004 interim RVUs and 
are issuing interim RVUs for new and revised procedure codes for CY 
2005.
    As required by the statute, we are announcing that the physician 
fee schedule update for CY 2005 is 1.5 percent, the initial estimate 
for the sustainable growth rate for CY 2005 is 4.3, and the conversion 
factor for CY 2005 is $37.8975.

DATES: Effective Date: These regulations are effective on January 1, 
2005.
    Applicability Date: Section 623 of the MMA, that is, the case-mix 
portion of the revised composite payment methodology and the budget 
neutrality adjustment required by the MMA, is applicable on April 1, 
2005.
    Comment Date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on January 3, 2005.

ADDRESSES: In commenting, please refer to file code CMS-1429-FC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of three ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to http://www.cms.hhs.gov/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-1429-
FC, P.O. Box 8012, Baltimore, MD 21244-8012.
    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 800-743-3951 in advance to schedule your arrival with 
one of our staff members. Room 445-G, Hubert H. Humphrey Building, 200 
Independence Avenue, SW., Washington, DC 20201; or 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by mailing your 
comments to the addresses provided at the end of the ``Collection of 
Information Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:
    Pam West (410) 786-2302 (for issues related to Practice Expense, 
Respiratory Therapy Coding, and Therapy Supervision).
    Rick Ensor (410) 786-5617 (for issues related to Geographic 
Practice Cost Index (GPCI) and malpractice RVUs).
    Craig Dobyski (410) 786-4584 (for issues related to list of 
telehealth services or payments for physicians and practitioners 
managing dialysis patients).
    Bill Larson or Tiffany Sanders (410) 786-7176 (for issues related 
to coverage of an initial preventive physical examination).
    Cathleen Scally (410) 786-5714 (for issues related to payment of an 
initial preventive physical examination).
    Joyce Eng (410) 786-7176 (for issues related to coverage of 
cardiovascular screening tests).
    Betty Shaw (410) 786-7176 (for issues related to coverage of 
diabetes screening tests).
    Anita Greenberg (410) 786-0548 (for issues related to payment of 
cardiovascular and diabetes screening tests).
    David Worgo (410) 786-5919, (for issues related to incentive 
payment

[[Page 66237]]

improvements for physicians practicing in shortage areas).
    Angela Mason or Jennifer Fan (410) 786-0548 (for issues related to 
payment for covered outpatient drugs and biologicals).
    David Walczak (410) 786-4475 (for issues related to reassignment 
provisions).
    Henry Richter (410) 786-4562 (for issues related to payments for 
ESRD facilities).
    Steve Berkowitz (410) 786-7176 (for issues related to coverage of 
routine costs associated with certain clinical trials of category A 
devices).
    Terri Deutsch (410) 786-9462 (for issues related to hospice 
consultation services).
    Karen Daily (410) 786-7176 (for issues related to clinical 
conditions for payment of covered items of durable medical equipment).
    Dorothy Shannon (410) 786-3396 (for issues related to outpatient 
therapy services performed ``incident to'' physicians' services).
    Roberta Epps (410) 786-5919 (for issues related to low osmolar 
contrast media or supervision of diagnostic psychological testing 
services).
    Gail Addis (410) 786-4522 (for issues related to care plan 
oversight).
    Jean-Marie Moore (410) 786-3508 (for issues related to religious 
nonmedical health care institution services).
    Diane Milstead (410) 786-3355 or Gaysha Brooks (410) 786-9649 (for 
all other issues).

SUPPLEMENTARY INFORMATION:
    Submitting Comments: We welcome comments from the public on the 
following issues: interim RVUs for selected procedure codes identified 
in Addendum C; zip code areas for Health Professional Shortage Areas 
(HPSAs); the coverage of religious nonmedical health care institution 
items and services to the beneficiary's home; the physician self 
referral designated health services listed in tables 20 and 21; the 
third five-year refinement of work RVUs for services furnished 
beginning January 1, 2007; and, potentially misvalued work RVUs for all 
services in the CY 2005 physician fee schedule. You can assist us by 
referencing the file code CMS-1429-FC and the specific ``issue 
identifier'' that precedes the section on which you choose to comment.
    Inspection of Public Comments: Comments received timely will be 
available for public inspection as they are processed, generally 
beginning approximately 3 weeks after publication of a document, at the 
headquarters of the Centers for Medicare & Medicaid Services, 7500 
Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of 
each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view 
public comments, call 800-743-3951.
    Copies: To order copies of the Federal Register containing this 
document, send your request to: New Orders, Superintendent of 
Documents, P.O. 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.access.gpo.gov/nara/index.html.
    Information on the physician fee schedule can be found on the CMS 
homepage. You can access this data by using the following directions:
    1. Go to the CMS homepage (http://www.cms.hhs.gov).
    2. Place your cursor over the word ``Professionals'' in the blue 
area near the top of the page. Select ``physicians'' from the drop-down 
menu.
    3. Under ``Policies/Regulations'' select ``Physician Fee 
Schedule.''
    To assist readers in referencing sections contained in this 
preamble, we are providing the following table of contents. Some of the 
issues discussed in this preamble affect the payment policies but do 
not require changes to the regulations in the Code of Federal 
Regulations. Information on the regulation's impact appears throughout 
the preamble and is not exclusively in section VII.

Table of Contents

I. Background
    A. Legislative History
    B. Published Changes to the Fee Schedule
    C. Components of the Fee Schedule Payment Amounts
    D. Development of the Relative Value System
II. Provisions of the Proposed Regulation Related to the Physician 
Fee Schedule
    A. Resource-Based Practice Expense Relative Value Units
    1. Resource-Based Practice Expense Legislation
    2. Current Methodology
    3. Practice Expense Proposals for Calendar Year 2005
    B. Geographic Practice Cost Indices (GPCIs)
    C. Malpractice RVUs
    D. Coding Issues
III. Provisions Related to the Medicare Modernization Act of 2003
    A. Section 611--Preventive Physical Examination
    B. Section 613--Diabetes Screening
    C. Section 612--Cardiovascular Screening
    D. Section 413--Incentive Payment for Physician Scarcity
    E. Section 303--Payment for Covered Outpatient Drugs and 
Biologicals
    F. Section 952--Revision to Reassignment Provisions
    G. Section 642--Extension of Coverage of IVIG for the Treatment 
in the Home of Primary Immune Deficiency Diseases
    H. Section 623--Payment for Renal Dialysis Services
    I. Section 731--Coverage of Routine Costs for Category A 
Clinical Trials
    J. Section 629--Part B Deductible
    K. Section 512--Hospice Consultation Service
    L. Section 302--Clinical Conditions for Coverage of Durable 
Medical Equipment (DME)
    M. Section 614--Payment for Certain Mammography Services
    N. Section 305--Payment for Inhalation Drugs
    O. Section 706 Coverage of Religious Nonmedical Health Care 
Institution Services Furnished in the Home
IV. Other Issues
    A. Provisions Related to Therapy Services
    1. Outpatient Therapy Services Performed ``Incident to'' 
Physicians' Services
    2. Qualification Standards and Supervision Requirements in 
Therapy Private Practice Settings
    3. Other Technical Revisions
    B. Low Osmolar Contrast Media
    C. Payments for Physicians and Practitioners Managing Patients 
on Dialysis
    D. Technical Revision--Sec.  411.404
    E. Diagnostic Psychological Tests
    F. Care Plan Oversight
    G. Assignment of Medicare Claims-Payment to the Supplier
    H. Additional Issues Raised by Commenters
V. Refinement of Relative Value Units for Calendar Year 2004 and 
Response to Public Comments on Interim Relative Value Units for 2003
VI. Five-Year Refinement of Relative Value Units VII. Update to the 
Codes for Physician Self-Referral Prohibition
VIII. Physician Fee Schedule Update for Calendar Year 2005
IX. Allowed Expenditures for Physicians' Services and the 
Sustainable Growth Rate
X. Anesthesia and Physician Fee Schedule Conversion Factors for CY 
2005
XI. Telehealth Originating Site Facility Fee Payment Amount Update
XII. Provisions of the Final Rule
XIII. Waiver of Proposed Rulemaking
XIV. Collection of Information Requirements

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XV. Response to Comments
XVI. Regulatory Impact Analysis
Addendum A--Explanation and Use of Addendum B.
Addendum B--2005 Relative Value Units and Related Information Used 
in Determining Medicare Payments for 2005.
Addendum C--Codes With Interim RVUs
Addendum D--2005 Geographic Practice Cost Indices by Medicare 
Carrier and Locality
Addendum E--2006 Geographic Practice Cost Indices by Medicare 
Carrier and Locality
Addendum F--Comparison of 2004 GAFs to 2005 GAFs
Addendum G--Comparison of 2004 GAFs to 2006 GAFs
Addendum H--Specialty Care PSA Zip Codes
Addendum I--2005 Primary Care HSPA Zip Codes
Addendum J--Primary Care PSA Zip Codes
Addendum K--Mental Health HPSA Zip Codes
Addendum L--Updated List of CPT/HCPCS Codes Used To Describe Certain 
Designated Health Services Under the Physician Self-Referral 
Provision

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

AAA Abdominal aortic aneurysm
AAFP American Academy of Family Physicians
AAKP American Association of Kidney Patients
AANA American Association of Nurse Anesthetists
ABI Ankle brachial index
ABN Advanced beneficiary notice
ACC American College of Cardiology
ACLA American Clinical Laboratory Association
ACP American College of Physicians
ACPM American College of Preventative Medicine
ACR American College of Radiology
ADLs Activities of daily living
AFROC Association of Freestanding Radiation Oncology Centers
AGS American Geriatric Society
AHA American Heart Association
AMA American Medical Association
AOA American Osteopathic Association
APA Administrative Procedures Act
APTA American Physical Therapy Association
ASA American Society of Anesthesiologists
ASCP American Society for Clinical Pathology
ASN American Society of Nephrology
ASP Average sales price
ASTRO American Society for Therapeutic Radiation Oncology
ATA American Telemedicine Association
AWP Average wholesale price
BBA Balanced Budget Act of 1997
BBRA Balanced Budget Refinement Act of 1999
BIPA Benefits Improvement and Protection Act of 2000
BLS Bureau of Labor Statistics
BMI Body mass index
BSA Body surface area
CAH Critical access hospital
CAP College of American Pathologists
CAPD Continuous ambulatory peritoneal dialysis
CCPD Continuous cycling peritoneal dialysis
CDC Centers for Disease Control and Prevention
CF Conversion factor
CFR Code of Federal Regulations
CLIA Clinical Laboratory Improvement Amendment
CMA California Medical Association
CMS Centers for Medicare & Medicaid Services
CNMs Certified nurse midwives
CNS Clinical nurse specialist
COPD Chronic obstructive pulmonary disease
CORF Comprehensive outpatient rehabilitation facilities
CPEP Clinical Practice Expert Panel
CPI Consumer Price Index
CPO Care Plan Oversight
CPT [Physicians'] Current Procedural Terminology [4th Edition, 2002, 
copyrighted by the American Medical Association]
CRNAs Certified Registered Nurse Anesthetists
CT Computed tomography
CV Cardiovascular
CY Calendar year
DEXA Dual energy x-ray absorptiometry
DHS Designated health services
DME Durable medical equipment
DMEPOS Durable medical equipment, prosthetics, orthotics, and 
supplies
DMERC Durable medical equipment regional carrier
DOI Departments of Insurance
DRE Digital rectal exam
DRG Diagnosis-related groups
DVT Deep venous thrombosis
EKG Electrocardiogram
E/M Evaluation and management
EPO Erythropoeitin
ESRD End-stage renal disease
FAX Facsimile
FMR Fair market rental
FQHC Federally qualified healthcare center
FR Federal Register
FY Fiscal year
GAF Geographic adjustment factor
GPCI Geographic practice cost index
GTT Glucose tolerance test
HBO Hyperbaric oxygen
HCPAC Health Care Professional Advisory Committee
HCPCS Healthcare Common Procedure Coding System
HHA Home health agency
HHS [Department of] Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996
HOCM High osmolar contrast media
HPSA Health professional shortage area
HRSA Health Resources and Services Administration
HsCRP high sensitivity C-reactive protein
HUD Housing and Urban Development
IDTFs Independent diagnostic testing facilities
IMRT Intensity modulated radiation therapy
IOM Internet Only Manual
IPD Intermittent peritoneal dialysis
IPPE Initial preventive physical examination
IPPS Inpatient prospective payment system
ISO Insurance Services Office
IVIG Intravenous immune globulin
JUAs Joint underwriting associations
KCP Kidney Care Partners
KECC Kidney Epidemiology and Cost Center
LCD Local coverage determination
LMRP Local medical review policies
LOCM Low osmolar contrast media
LUPA Low utilization payment adjustment
MCM Medicare Carrier Manual
MCP Monthly capitation payment
MedPAC Medicare Payment Advisory Commission
MEI Medicare Economic Index
MGMA Medical Group Management Association
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003
MPFS Medicare physician fee schedule
MSA Metropolitan statistical area
NAMCS National Ambulatory Medical Care Survey
NCD National coverage determination
NCIPC National Center for Injury Prevention and Control
NDC National drug code
NIH National Institutes of Health
NP Nurse practitioner
NPP Nonphysician practitioners
OASIS Outcome and Assessment Information Set
OBRA Omnibus Budget Reconciliation Act
OIG Office of Inspector General
OMB Office of Management and Budget
OPPS Outpatient prospective payment system
OT Occupational therapy
OTA Occupational therapist assistant
OTPP Occupational therapists in private practice
PA Physician assistant
PAD Peripheral arterial disease
PC Professional component
PCF Patient compensation fund
PD Peritoneal dialysis
PEAC Practice Expense Advisory Committee
PET Positron emission tomography
PFS Physician Fee Schedule
PHSA Public Health Services Act
PIAA Physician Insurers Association of America
PIN Provider identification number
PLI Professional liability insurance
POS Prosthetics, orthotics and supplies
PPI Producer price index
PPS Prospective payment system
PRA Paperwork Reduction Act
PSA Physician scarcity area
PT Physical therapy
PTA Physical therapist assistant
PTPP Physical therapists in private practice
PVD Peripheral vascular disease
RFA Regulatory Flexibility Act

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RHC Rural health clinic
RHHI Regional home health intermediary
RIA Regulatory impact analysis
RN Registered nurse
RNHCI Religious nonmedical health care institution
RPA Renal Physicians Association
RT Respiratory therapy
RTs Respiratory therapists
RUC [AMA's Specialty Society] Relative [Value] Update Committee
RUCA Rural-Urban commuting area
RVU Relative value unit
SAF Standard analytic file
SCHIP State Child Health Insurance Program
SGR Sustainable growth rate
SHIPs State Health Insurance Assistance Programs
SIR Society for Interventional Radiology
SLP Speech language pathology
SMR Standardized mortality ratio
SMS [AMA's] Socioeconomic Monitoring System
SNF Skilled nursing facility
TC Technical component
UAF Update adjustment factor
URR Urea reduction ratios
USPSTF U.S. Preventive Services Task Force

I. Background

A. Legislative History

    Medicare has paid for physicians' services under section 1848 of 
the Social Security Act (the Act), ``Payment for Physicians' Services'' 
since January 1, 1992. The Act requires that payments under the fee 
schedule be based on national uniform relative value units (RVUs) 
reflecting the resources used in furnishing a service. Section 1848(c) 
of the Act requires that national RVUs be established for physician 
work, practice expense, and malpractice expense. Section 
1848(c)(2)(B)(ii)(II) of the Act provides that adjustments in RVUs may 
not cause total physician fee schedule payments to differ by more than 
$20 million from what they would have been had the adjustments not been 
made. If adjustments to RVUs cause expenditures to change by more than 
$20 million, we must make adjustments to ensure that they do not 
increase or decrease by more than $20 million.

B. Published Changes to the Fee Schedule

    The July 2000 and August 2003 proposed rules ((65 FR 44177) and (68 
FR 49030), respectively), include a summary of the final physician fee 
schedule rules published through February 2003.
    In the November 7, 2003 final rule, we refined the resource-based 
practice expense RVUs and made other changes to Medicare Part B payment 
policy. The specific policy changes concerned: the Medicare Economic 
Index; practice expense for professional component services; definition 
of diabetes for diabetes self-management training; supplemental survey 
data for practice expense; geographic practice cost indices; and 
several coding issues. In addition, this rule updated the codes subject 
to the physician self-referral prohibition. We also made revisions to 
the sustainable growth rate and the anesthesia conversion factor. 
Additionally, we finalized the CY 2003 interim RVUs and issued interim 
RVUs for new and revised procedure codes for CY 2004.
    As required by the statute, we announced that the physician fee 
schedule update for CY 2004 was -4.5 percent; that the initial estimate 
of the sustainable growth rate for CY 2004 was 7.4 percent; and that 
the conversion factor for CY 2004 was $35.1339.
    Subsequent to the November 7, 2003 final rule, the Congress enacted 
the Medicare Prescription Drug, Improvement, and Modernization Act of 
2003 (Pub. L. 108-17) (MMA). On January 7, 2004, an interim final rule 
was published to implement provisions of the MMA applicable in 2004 to 
Medicare payment for covered drugs and physician fee schedule services. 
These provisions included--
    <bullet> Revising the current payment methodology for Medicare Part 
B covered drugs and biologicals that are not paid on a cost or 
prospective payment basis;
    <bullet> Making changes to Medicare payment for furnishing or 
administering drugs and biologicals;
    <bullet> Revising the geographic practice cost indices;
    <bullet> Changing the physician fee schedule conversion factor. 
(Note: The 2004 physician fee schedule conversion factor is $37.3374); 
and
    <bullet> Extending the ``opt-out'' provisions of section 
1802(b)(5)(3) of the Act to dentists, podiatrists, and optometrists.
    The information contained in the January 7, 2004 interim final rule 
concerning payment under the physician fee schedule superceded 
information contained in the November 7, 2003 final rule to the extent 
that the two are inconsistent.

C. Components of the Fee Schedule Payment Amounts

    Under the formula set forth in section 1848(b)(1) of the Act, the 
payment amount for each service paid under the physician fee schedule 
is the product of three factors: (1) A nationally uniform relative 
value unit (RVU) for the service; (2) a geographic adjustment factor 
(GAF) for each physician fee schedule area; and (3) a nationally 
uniform conversion factor (CF) for the service. The CF converts the 
relative values into payment amounts.
    For each physician fee schedule service, there are three relative 
values: (1) An RVU for physician work; (2) an RVU for practice expense; 
and (3) an RVU for malpractice expense. For each of these components of 
the fee schedule, there is a geographic practice cost index (GPCI) for 
each fee schedule area. The GPCIs reflect the relative costs of 
practice expenses, malpractice insurance, and physician work in an area 
compared to the national average for each component.
    The general formula for calculating the Medicare fee schedule 
amount for a given service in a given fee schedule area can be 
expressed as:

Payment = [(RVU work x GPCI work) + (RVU practice expense x GPCI 
practice expense) + (RVU malpractice x GPCI malpractice)] x CF

    The CF for calendar year (CY) 2005 appears in section X. The RVUs 
for CY 2005 are in Addendum B. The GPCIs for CY 2005 can be found in 
Addendum D.
    Section 1848(e) of the Act requires us to develop GAFs for all 
physician fee schedule areas. The total GAF for a fee schedule area is 
equal to a weighted average of the individual GPCIs for each of the 
three components of the service. In accordance with the statute, 
however, the GAF for the physician's work reflects one-quarter of the 
relative cost of physician's work compared to the national average.

D. Development of the Relative Value System

1. Work Relative Value Units
    Approximately 7,500 codes represent services included in the 
physician fee schedule. The work RVUs established for the 
implementation of the fee schedule in January 1992 were developed with 
extensive input from the physician community. A research team at the 
Harvard School of Public Health developed the original work RVUs for 
most codes in a cooperative agreement with us. In constructing the 
vignettes for the original RVUs, Harvard worked with expert panels of 
physicians and obtained input from physicians from numerous 
specialties.
    The RVUs for radiology services were based on the American College 
of Radiology (ACR) relative value scale, which we integrated into the 
overall physician fee schedule. The RVUs for anesthesia services were 
based on RVUs from a uniform relative value guide. We established a 
separate CF for anesthesia services, and we continue to recognize

[[Page 66240]]

time as a factor in determining payment for these services. As a 
result, there is a separate payment system for anesthesia services.
2. Practice Expense and Malpractice Expense Relative Value Units
    Section 1848(c)(2)(C) of the Act requires that the practice expense 
and malpractice expense RVUs equal the product of the base allowed 
charges and the practice expense and malpractice percentages for the 
service. Base allowed charges are defined as the national average 
allowed charges for the service furnished during 1991, as estimated 
using the most recent data available. For most services, we used 1989 
charge data aged to reflect the 1991 payment rules, because those were 
the most recent data available for the 1992 fee schedule.
    Section 121 of the Social Security Act Amendments of 1994 (Pub. L. 
103-432), enacted on October 31, 1994, required us to develop a 
methodology for a resource-based system for determining practice 
expense RVUs for each physician's service. As amended by the Balanced 
Budget Act of 1997 (BBA) (Pub. L. 105-33), enacted on August 5, 1997, 
section 1848(c) required the new payment methodology to be phased in 
over 4 years, effective for services furnished in 1999, with resource-
based practice expense RVUs becoming fully effective in 2002. The BBA 
also required us to implement resource-based malpractice RVUs for 
services furnished beginning in 2000.

II. Provisions of the Proposed Rule Related to the Physician Fee 
Schedule

    In response to the publication of the August 5, 2004 proposed rule 
(69 FR 47488), we received approximately 9,302 comments. We received 
comments from individual physicians, health care workers, professional 
associations and societies, and beneficiaries. The majority of the 
comments addressed the proposals related to ``incident to'' therapy 
services, GPCI, diagnostic psychological testing, and drug issues 
including average sales price (ASP).
    The proposed rule discussed policies that affected the number of 
RVUs on which payment for certain services would be based. The proposed 
rule also discussed policies related to implementation of the MMA. RVU 
changes implemented through this final rule are subject to the $20 
million limitation on annual adjustments contained in section 
1848(c)(2)(B)(ii)(II) of the Act.
    After reviewing the comments and determining the policies we would 
implement, we have estimated the costs and savings of these policies 
and discuss in detail the effects of these changes in the Regulatory 
Impact Analysis in section XIV.
    For the convenience of the reader, the headings for the policy 
issues correspond to the headings used in the August 5, 2004 proposed 
rule. More detailed background information for each issue can be found 
in the August 5, 2004 proposed rule.

A. Resource-Based Practice Expense Relative Value Units

1. Resource-Based Practice Expense Legislation
    Section 121 of the Social Security Act Amendments of 1994 (Pub. L. 
103-432), enacted on October 31, 1994, amended section 
1848(c)(2)(C)(ii) of the Social Security Act (the Act) and required us 
to develop a methodology for a resource-based system for determining 
practice expense RVUs for each physician's service beginning in 1998. 
Until that time, physicians' practice expenses were established based 
on historical allowed charges.
    In developing the methodology, we were to consider the staff, 
equipment, and supplies used in providing medical and surgical services 
in various settings. The legislation specifically required that, in 
implementing the new system of practice expense RVUs, we apply the same 
budget-neutrality provisions that we apply to other adjustments under 
the physician fee schedule.
    Section 4505(a) of the Balanced Budget Act of 1997 (BBA) (Pub. L. 
105-33), enacted on August 5, 1997, amended section 1848(c)(2)(C)(ii) 
of the Act and delayed the effective date of the resource-based 
practice expense RVU system until January 1, 1999. In addition, section 
4505(b) of the BBA provided for a 4-year transition period from charge-
based practice expense RVUs to resource-based RVUs.
    Further legislation affecting resource-based practice expense RVUs 
was included in the Medicare, Medicaid and State Child Health Insurance 
Program (SCHIP) Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 
106-113) enacted on November 29, 1999. Section 212 of the BBRA amended 
section 1848(c)(2)(C)(ii) of the Act by directing us to establish a 
process under which we accept and use, to the maximum extent 
practicable and consistent with sound data practices, data collected or 
developed by entities and organizations. These data would supplement 
the data we normally collect in determining the practice expense 
component of the physician fee schedule for payments in CY 2001 and CY 
2002. (The 1999 and 2003 final rules (64 FR 59380 and 68 FR 63196, 
respectively, extended the period during which we would accept 
supplemental data.)
2. Current Methodology for Computing the Practice Expense Relative 
Value Unit System
    In the November 2, 1998 final rule (63 FR 58910), effective with 
services furnished on or after January 1, 1999, we established at 42 
CFR 414.22(b)(5) a new methodology for computing resource-based 
practice expense RVUs that used the two significant sources of actual 
practice expense data we have available--the Clinical Practice Expert 
Panel (CPEP) data and the American Medical Association's (AMA) 
Socioeconomic Monitoring System (SMS) data. The CPEP data were 
collected from panels of physicians, practice administrators, and 
nonphysicians (for example registered nurses) nominated by physician 
specialty societies and other groups. The CPEP panels identified the 
direct inputs required for each physicians service in both the office 
setting and out-of-office setting. The AMA's SMS data provided 
aggregate specialty-specific information on hours worked and practice 
expenses. The methodology was based on an assumption that current 
aggregate specialty practice costs are a reasonable way to establish 
initial estimates of relative resource costs for physicians' services 
across specialties. The methodology allocated these aggregate specialty 
practice costs to specific procedures and, thus, can be seen as a 
``top-down'' approach.
    Also in the November 2, 1998 final rule, in response to comments, 
we discussed the establishment of the Practice Expense Advisory 
Committee (PEAC) of the AMA's Specialty Society Relative Value Update 
Committee (RUC), which would review code'specific CPEP data during the 
refinement period. This committee would include representatives from 
all major specialty societies and would make recommendations to us on 
suggested changes to the CPEP data.
    As directed by the BBRA, we also established a process (see 65 FR 
65380) under which we would accept and use, to the maximum extent 
practicable and consistent with sound data practices, data collected by 
entities and organizations to supplement the data we normally collect 
in determining the practice expense component of the physician fee 
schedule.

[[Page 66241]]

a. Major Steps

    A brief discussion of the major steps involved in the determination 
of the practice expense RVUs follows. (Please see the November 1, 2001 
final rule (66 FR 55249) for a more detailed explanation of the top-
down methodology.)
    <bullet> Step 1--Determine the specialty specific practice expense 
per hour of physician direct patient care. We used the AMA's SMS survey 
of actual aggregate cost data by specialty to determine the practice 
expenses per hour for each specialty. We calculated the practice 
expenses per hour for the specialty by dividing the aggregate practice 
expenses for the specialty by the total number of hours spent in 
patient care activities.
    <bullet> Step 2--Create a specialty-specific practice expense pool 
of practice expense costs for treating Medicare patients. To calculate 
the total number of hours spent treating Medicare patients for each 
specialty, we used the physician time assigned to each procedure code 
and the Medicare utilization data. The primary sources for the 
physician time data were surveys submitted to the AMA's RUC and surveys 
done by Harvard for the establishment of the work RVUs. We then 
multiplied the physician time assigned per procedure code by the number 
of times that code was billed by each specialty, and summed the 
products for each code, by specialty, to get the total physician hours 
spent treating Medicare patients for that specialty. We then calculated 
the specialty-specific practice expense pools by multiplying the 
specialty practice expenses per hour (from step 1) by the total 
Medicare physician hours for the specialty.
    <bullet> Step 3--Allocate the specialty-specific practice expense 
pool to the specific services (procedure codes) performed by each 
specialty. For each specialty, we divided the practice expense pool 
into two groups based on whether direct or indirect costs were involved 
and used a different allocation basis for each group.
    (i) Direct costs--For direct costs (which include clinical labor, 
medical supplies, and medical equipment), we used the procedure-
specific CPEP data on the staff time, supplies, and equipment as the 
allocation basis. For the separate practice expense pool for services 
without physician work RVUs, we have used, on an interim basis, 1998 
practice expense RVUs to allocate the direct cost pools.
    (ii) Indirect costs--To allocate the cost pools for indirect costs, 
including administrative labor, office expenses, and all other 
expenses, we used the total direct costs, or the 1998 practice expense 
RVUs, in combination with the physician fee schedule work RVUs. We 
converted the work RVUs to dollars using the Medicare CF (expressed in 
1995 dollars for consistency with the SMS survey years).
    <bullet> Step 4--The direct and indirect costs are then added 
together to attain the practice expense for each procedure, by 
specialty. For procedures performed by more than one specialty, the 
final practice expense allocation was a weighted average of practice 
expense allocations for the specialties that perform the procedure, 
based on the frequency with which each specialty performs the procedure 
on Medicare patients.

b. Other Methodological Issues

i. Nonphysician Work Pool
    As an interim measure, until we could further analyze the effect of 
the top-down methodology on the Medicare payment for services with 
physician work RVUs equal to zero (including the technical components 
of radiology services and other diagnostic tests), we created a 
separate practice expense pool. We first used the average clinical 
staff time from the CPEP data and the ``all physicians'' practice 
expense per hour to create the pool. In the December 2002 final rule, 
we changed this policy and now use the total clinical staff time and 
the weighted average specialty-specific practice expense per hour for 
specialties with services in this pool. In the next step, we used the 
adjusted 1998 practice expense RVUs to allocate this pool to each 
service. Also, for all radiology services that are assigned physician 
work RVUs, we used the adjusted 1998 practice expense RVUs for 
radiology services as an interim measure to allocate the direct 
practice expense cost pool for radiology.
    A specialty society may request that its services be removed from 
the nonphysician work pool. We have removed services from the 
nonphysician work pool if the requesting specialty predominates 
utilization of the service.
ii. Crosswalks for Specialties Without Practice Expense Survey Data
    Since many specialties identified in our claims data did not 
correspond exactly to the specialties included in the SMS survey data, 
it was necessary to crosswalk these specialties to the most appropriate 
SMS specialty.
iii. Physical Therapy Services
    Because we believe that most physical therapy services furnished in 
physicians' offices are performed by physical therapists, we 
crosswalked all utilization for therapy services in the CPT 97000 
series to the physical and occupational therapy practice expense pool.
3. Practice Expense Proposals for Calendar Year 2005

a. Supplemental Practice Expense Surveys

i. Survey Criteria and Submission Dates
    As required by the BBRA, we established criteria to evaluate survey 
data collected by organizations to supplement the SMS survey data used 
in the calculation of the practice expense component of the physician 
fee schedule. The deadline for submission of supplemental data to be 
considered in CY 2006 is March 1, 2005.
ii. Survey by the College of American Pathologists (CAP)
    In the August 5, 2004 rule, we proposed to incorporate the CAP 
survey data into the practice expense methodology and to implement a 
change to the practice expense methodology to calculate the technical 
component RVUs for pathology services as the difference between the 
global and professional component RVUs. (This technical change was 
proposed in the June 28, 2002 Federal Register (67 FR 43849), but, at 
the specialty's request, we delayed implementation of this change for 
pathology services to permit evaluation of the combined effects of the 
use of the new survey data along with this technical change to the 
methodology.) We proposed to use the following practice expense per 
hour figures for specialty 69--Independent Laboratory.

[[Page 66242]]

[GRAPHIC] [TIFF OMITTED] TR15NO04.487

    Comment: Specialty organizations representing clinical laboratories 
and pathologists expressed support for the use of the CAP supplemental 
survey data and urged us to finalize this proposal.
    Response: We will incorporate the CAP survey data into the practice 
expense methodology and implement the proposed change to the practice 
expense methodology to calculate the technical component RVUs for 
pathology services as the difference between the global and 
professional component RVUs.
iii. Submission of Supplemental Surveys
    We received surveys from the American College of Cardiology (ACC), 
the American College of Radiology (ACR), and the American Society for 
Therapeutic Radiation Oncology (ASTRO). Our contractor, The Lewin 
Group, evaluated the data and recommended that we accept the data from 
the ACC and the ACR, but indicated that the survey from ASTRO did not 
meet the precision criteria established for supplemental surveys and, 
thus, did not recommend using the ASTRO survey results at this time. We 
agreed with these recommendations. However, as explained in the August 
5, 2004 proposed rule, the ACR and the ACC requested that we not use 
the data until we have a stable and global solution that is workable 
for all specialties that are currently paid using the nonphysician work 
pool. We agreed with these requests and proposed delaying use of these 
supplemental surveys until issues related to the nonphysician work pool 
can be addressed.
    Comment: The ACR expressed appreciation for our acceptance of the 
supplemental data and for our proposal to delay implementation until 
next year, as they had requested, to allow further time to examine the 
issue of the nonphysician work pool. The Society for Interventional 
Radiology (SIR) also expressed support for the use of the ACR data and 
the delay in implementation.
    Response: We look forward to working with these and other 
specialties as we seek a permanent solution to practice expense issues 
associated with the nonphysician work pool.
    Comment: ASTRO stated that they appreciate the opportunity to 
submit data and, that they understand we will not be using the data in 
2005. ASTRO further commented that, due to the specific practice 
patterns and practice environment of radiation oncology, new data, 
regardless of the response rate, may not meet the criteria. ASTRO 
further stated that they will continue to work with CMS and with the 
Lewin Group as this issue is analyzed. The Association of Freestanding 
Radiation Oncology Centers (AFROC) expressed concern that freestanding 
centers that have higher costs than hospital-based centers were 
underrepresented by the ASTRO survey. They also expressed concern about 
the reference in the Lewin Group report to crosswalking radiation 
oncology costs from another specialty. In addition, AFROC argued that 
we should not average costs associated with freestanding centers with 
those that are hospital-based, because the costs would be understated. 
They urged us to ensure that any assumption regarding 
representativeness of any survey data is justified.
    Response: We will take these comments into consideration as we 
continue to work with these groups concerning the supplemental survey 
data. We currently have no plans to propose a practice expense 
crosswalk for radiation oncology.
    Comment: The ACC expressed appreciation that we are not eliminating 
the nonphysician workpool until methodologic issues are addressed. 
While they support the delay in implementing their supplemental survey 
data, they believe that the contractor's suggestion that the ACC survey 
data could be blended with the existing SMS survey data is invalid for 
two reasons: (1) The suggestion that similar changes to physician 
practice (for example, increased use of technology) may have occurred 
throughout all physician services is an unfounded speculation because 
few other specialties are as technologically driven as cardiology; and 
(2) other supplemental data has not been blended and all specialties 
must be treated consistently.
    Response: We will take these comments into consideration as part of 
the evaluation and discussion of the cardiology survey data in next 
year's proposed rule.
    Comment: The American Urological Association requested that, as we 
explore alternate sources of data and consider how to incorporate new 
practice expense data into the methodology, we find a way to 
incorporate recently collected specialty supplemental data into the new 
efforts. They also requested that we clarify whether we would apply the 
budget neutrality exemption to any increases in drug administration PE 
RVUs that result from the use of urology survey data that will be 
submitted under the supplemental survey process.
    Response: We anticipate that we would incorporate all accepted 
supplemental survey data into any comprehensive changes to the 
nonphysician work pool.
    As we explained in the January 7, 2004 Federal Register (69 FR 1093 
through 1094), section 303(a)(1) of the MMA modifies section 
1848(c)(2)(B) of the Act to provide an exemption from the budget 
neutrality requirements in 2006 for further increases in the practice 
expense RVUs for drug administration that may result from using survey 
data from specialties meeting certain criteria. The survey must include 
expenses for the administration of drugs and biologicals and be 
submitted by a specialty that receives more than 40 percent of its 2002 
Medicare revenues from drugs. Urology received more than 40 percent of 
its 2002 Medicare revenues from drugs. Therefore, if we were to receive 
a practice expense survey of urologists by March 1, 2005

[[Page 66243]]

that included expenses for the administration of drugs and biologicals 
and the survey met the criteria we have established (and those of 
section 1848(c)(2)(I)(ii) of the Act), we would exempt the change in 
the practice expense RVUs for drug administration services from the 
budget neutrality requirements of section 1848(c)(2)(B) of the Act.

b. Practice Expense Advisory Committee (PEAC)

Recommendations on CPEP Inputs for 2005
    <bullet> CPEP Refinement Process.
    In the August 5, 2004 proposed rule, we included the PEAC 
recommendations from meetings held in March and August 2003 and January 
and March 2004, which accounted for over 2,200 codes from many 
specialties. We also stated that future practice expense issues, 
including the refinement of the remaining codes not addressed by the 
PEAC, would be handled by the RUC.
    Comment: We received comments from the AMA that future practice 
expense issues, including the refinement of the remaining codes not 
addressed by the PEAC, would be handled by the RUC with the help of a 
new ad hoc committee, now termed the Practice Expense Review Committee 
(PERC), comprised of former PEAC members. The RUC also noted that their 
Practice Expense Subcommittee remains committed to reviewing 
improvements to the practice expense methodology.
    The AMA and the RUC, as well as the specialty society representing 
neurological surgeons, noted their appreciation of our continued 
efforts to improve the direct practice expense data and to establish a 
reasonable methodology for determining practice expense relative 
values.
    Response: We look forward to our continuing work with the AMA, the 
RUC and all the specialty societies on the refinement of the remaining 
codes and with ongoing practice expense issues.
    Comment: The National Association for the Support of Long Term Care 
expressed concern about the dissolution of the PEAC and requested that 
we require the RUC to expand its membership to include a broad array of 
providers who are reimbursed under the physician fee schedule.
    Response: Because the RUC is an independent committee, we are not 
in a position to set the requirements for RUC membership. However, we 
are confident that the RUC and the Health Care Professional Advisory 
Committee, which also sends practice expense recommendations directly 
to us, together represent two broad ranges of practitioners, both 
physician and nonphysician.
    Comment: A specialty society suggested that there should be a 
process for fixing minor errors that are identified outside of the 
refinement process. The commenter also suggested that there should be a 
system to address individual exceptions to PEAC standard packages.
    Response: If we have made errors, major or minor, in any part of 
our calculation of practice expense RVUs in this final rule, inform us 
as soon as possible so that we are able to correct them in the 
physician fee schedule correction notice. Any other revisions would 
have to be made in the next physician fee schedule rule. If a specialty 
society believes that a RUC decision is not appropriate, the society 
can always request that the decision be revisited or can discuss the 
issue with us at any time. For the concern with the standard packages 
adopted by the PEAC, it is our understanding that all presenters at the 
RUC have the opportunity to demonstrate that something other than the 
standard would be more appropriate.
    <bullet> PEAC Recommendations.
    We proposed to adopt nearly all of the PEAC recommendations. 
However, we disagreed with the PEAC recommendation for clinical labor 
time for CPT code 99183, Physician attendance and supervision of 
hyperbaric oxygen therapy, per session, and proposed a total clinical 
labor time of 112 minutes for this service.
    Comment: Specialty societies representing interventional radiology 
and neurological surgeons, as well as the AMA, expressed appreciation 
for our acceptance of well over 2,000 PEAC refinements in this rule. 
However, the specialty society representing orthopaedic surgeons 
commented that some of our proposals appeared to be circumventing the 
PEAC process, in that we changed the PEAC recommendation for hyperbaric 
oxygen (HBO) therapy and proposed in-office inputs for two services 
rather than referring these to the RUC.
    Response: We appreciate the hard work and perseverance on the part 
of the PEAC and the specialty societies that produced the recommended 
refinements for so many services. In addition, we do not believe that 
we circumvented the PEAC process in any way. We have the greatest 
respect for the PEAC and RUC recommendations that we received. However, 
we do have the final responsibility for all payments made under the 
physician fee schedule, and this can lead to disagreement with a 
specific recommendation. The RUC itself has always demonstrated its 
understanding and respect for our responsibility in this regard. With 
regard to the two services that we priced in the office, we stated 
explicitly in the proposed rule that we were requesting that the RUC 
review the practice expense inputs.
    Comment: The specialty society representing family physicians 
disagreed with our proposed changes to the PEAC recommendations for the 
clinical labor time for CPT code 99183, Physician attendance and 
supervision of hyperbaric oxygen therapy, per session. The commenter 
contended that a physician providing this service would probably have 
multiple hyperbaric oxygen chambers; therefore, staff would not be in 
constant attendance. However, the specialty society representing 
podiatrists supported this change in clinical staff time.
    Response: Based on our concern that the PEAC recommendation of 20 
minutes of clinical staff time during the intra-service period 
undervalued the clinical staff time, we proposed increasing this time 
to 90 minutes in the proposed rule. This was, of course, subject to 
comment. We believe there is some merit to the claim that the clinical 
staff may be monitoring more than one chamber at a time. Therefore, we 
are adjusting the time for the intra-service period from the proposed 
90 minutes to 60 minutes in recognition of this point. We will continue 
our examination of this issue and entertain ongoing dialog with all 
interested organizations and individuals familiar with this service to 
assure the accuracy of the intra-service time.
    Comment: The Cardiac Event Monitoring Provider Group Coalition 
expressed concern about the PEAC recommendations that would 
substantially reduce the clinical staff time associated with cardiac 
monitoring services. Of particular concern to the Coalition was the 70 
percent reduction in time for CPT code 93271, the code for cardiac 
event monitoring, receipt of transmissions, and analysis. Although all 
these services are currently priced in the nonphysician work pool and 
this decrease in the staff times has no immediate impact, the commenter 
was concerned that, when the nonphysician work pool is eliminated, 
these services will be undervalued. The commenter also believed that 
the PEAC recommendations may not have reflected all the supplies and 
equipment utilized in these services and included a complete list of 
necessary supplies

[[Page 66244]]

and equipment. The American College of Cardiology (ACC) presented these 
services at the PEAC meeting and commented they had been unable to 
collect sufficient data so that the PEAC could make an appropriate 
recommendation.
    Response: It is clear from the Coalition and ACC comments that more 
information is needed in order to ensure that the appropriate practice 
expense inputs are assigned to these services in the event that they 
are removed from the nonphysician work pool. We would be glad to work 
with the Coalition and the specialty society so that they can make a 
new presentation to the RUC this coming year.
    <bullet> Adjustments To Conform With PEAC Standards
    We also reviewed those codes that are currently unrefined or that 
were refined early in the PEAC process to apply some of the major PEAC-
agreed standards. For the unrefined 10-day global services, we proposed 
to substitute for the original CPEP times the PEAC-agreed standard 
post-service office visit clinical staff times used for all 90-day and 
refined 10-day global services. We also proposed to eliminate the 
discharge day management clinical staff time from all but the 10 and 
90-day global codes, substituting one post-service phone call if not 
already in the earlier data. Lastly, we proposed to delete any extra 
clinical staff time for post-visit phone calls for 10 and 90-day global 
service because that time is already included in the time allotted for 
the visits.
    Comment: A specialty society representing family physicians 
supported the elimination of the discharge day management time assigned 
in the facility setting for all 0-day global services, as well as all 
the other adjustments we made to apply PEAC standards. However, several 
specialty societies representing gastroenterology and orthopaedics, as 
well as the American College of Physicians, did not agree with the 
deletion of the discharge day management time. These groups requested 
restoration of the six minutes allocated to the discharge day 
management for 0-day global services and argued that most 0-day 
services require as much staff time as do many 10-day global services 
performed in the outpatient setting. One of these commenters did not 
believe a rationale was provided for this change. Another commenter, 
although recommending that any future refinements take into account all 
of the PEAC standards, expressed concern regarding all of the above 
changes, suggesting that this could lead to additional anomalies and 
recommending that the revisions should be reviewed by the RUC.
    Response: The PEAC recommended that the discharge day management 
time apply only to 10-day and 90-day global services and we were 
complying with this recommendation. We also believe that this PEAC 
recommendation is reasonable; it is hard to imagine what tasks a 
physician's clinical staff back in the office is performing for a 
patient during the period that the patient is undergoing a same-day 
procedure in the hospital outpatient department. However, the point 
made about 10-day global procedures is pertinent. We would suggest that 
the RUC reconsider whether the discharge day management clinical staff 
time should apply only to services that are typically performed in the 
inpatient setting. We also believe that it was appropriate to apply the 
PEAC standards to codes that were not refined or that were refined 
before the standards were developed. The application of these standards 
is not only fair, but can also help to avoid the possible rank order 
anomalies cited by the commenter.

Methacholine Chloride

    The PEAC recommendations for CPT codes 91011 and 91052 included a 
supply input for methacholine chloride as the injected stimulant for 
these two services. In discussions with representatives from the 
gastroenterology specialty society subsequent to receipt of the PEAC 
recommendations, we learned this is incorrect. For the esophageal 
motility study, CPT code 91011, we proposed to include edrophonium as 
the drug typically used in this procedure. For the gastric analysis 
study, CPT code 91052, we were unable to identify the single drug that 
is most typically used with this procedure. We requested that 
commenters provide us with information on the drug that is most 
typically used for CPT code 91052, including drug dosage and price, so 
that it could be included in the practice expense database.
    Comment: Several specialty societies representing allergists, 
pulmonologists and chest physicians, as well as the AMA, requested that 
the additional cost of methacholine be reflected in the RVUS for the 
bronchial challenge test, CPT code 95070. As an alternative, the 
specialty society representing allergists suggested that a HCPCS code 
could be created so that methacholine could be billed separately.
    In response to our request for information about the supply inputs 
for CPT codes 91011 and 91052, the American Gastroenterological 
Association (AGA) indicated that edrophonium may be an appropriate 
supply proxy for CPT code 91011, but, in practice, other agents are 
more commonly used. However, they provided no additional information 
regarding these other agents. AGA also stated that the most commonly 
used drug for CPT code 91052 is pentagastrin, but betazole or histamine 
may also be used. Again, they did not provide further specific 
information.
    Response: Because CPT code 95070 is valued in the nonphysician work 
pool, the PEAC's addition of methacholine to this procedure could not 
be captured by the practice expense RVUs. However, a J-code was 
established, J7674, Methacholine chloride administered as inhalation 
solution through nebulizer, per 1mg, so that this drug can be billed 
separately. Accordingly, we have deleted methacholine from the practice 
expense database.
    For CPT code 91011, we have retained the drug edrophonium, and our 
proposed price of $4.67 per ml, as a supply in the practice expense 
database. However, we were not able to include a price for pentagastrin 
in the supply practice expense database for CPT code 91052. We will be 
happy to work with the specialty societies involved with both of these 
procedures to obtain accurate drug pricing for the 2006 fee schedule.
    <bullet> Nursing Facility and Home Visits.
    We proposed to adopt the direct practice expense input 
recommendations from the March 2003 PEAC meeting for CPT codes 99348 
and 99350, two E/M codes for home visits, as well as the March 2004 
PEAC recommendations for E/M codes for nursing home services (CPT codes 
99301 through 99316).
    Comment: A specialty group representing family physicians supported 
the acceptance of the PEAC recommendations for nursing facility visits, 
even though this resulted in a decrease for these services. The 
commenter stated that the decrease occurred because the original CPEP 
data was flawed and the clinical staff times were too high. The 
commenter also stated that the payments in the facility setting will 
increase for these services and that setting has the higher volume of 
visits. Other commenters representing long term care physicians, 
geriatricians and podiatrists expressed disappointment in these PEAC 
recommendations and stated that, while the PEAC did consider the views 
of long term care physicians, the PEAC failed to accept these views 
even though they were supported by data. These commenters believe the 
PEAC did not

[[Page 66245]]

recommend an appropriate increase based on a false assumption that the 
nursing home provides the staff. Another commenter contended that the 
new values do not adequately account for work performed by the 
physician's clinical staff. The commenter stated that the pre- and 
post-times for these codes are less than for the comparable office 
visit codes, even though it is clear that more clinical staff time is 
required for the nursing facility resident. One commenter suggested 
that these concerns would need to be addressed within the framework of 
the 5-year review. The specialty society representing homecare 
physicians also commented that, rather than challenging a flawed 
system, they will use the 5-year review process to have work and 
practice expense re-valuated for the home visit codes.
    Response: While sympathetic to the concerns expressed by the long-
term care physicians regarding the overall decrease in clinical staff 
time in the nursing facility E/M procedures, we believe the PEAC 
recommendations for these services to be reasonable. We also agree with 
commenters regarding the upcoming 5-year review process as a means to 
address the physician work component of these codes. To the extent that 
there is overlap between the physician time and the clinical labor 
practice expenses involved in a particular procedure, the 5-year review 
process can be utilized to address these issues. We encourage the home 
care physicians and the long-term care physicians to consider using the 
5-year review process for these codes.
    <bullet> Suggested Corrections to the CPEP Data.
    Comment: The RUC and American Podiatric Medical Association 
identified a number of PEAC refinements from the August 2003 meeting 
that were not reflected in the practice expense database and asked that 
these be implemented. The RUC also asked us to correct the equipment 
times for all of the 90-day global services to correspond with the 
PEAC-refined clinical staff times for these codes.
    Response: We have made the recommended corrections to our practice 
expense database.
    Comment: The specialty society representing hematology noted the 
supply items missing from the practice expense database for CPT codes 
36514 through 36516 that had been included in the CMS-accepted PEAC 
refinements.
    Response: We regret the error. These items are incorporated into 
the practice expense database.
    Comment: The specialty society representing pediatrics as well as 
the RUC commented that the PEAC recommendations also included a 
recommendation for a change in the global period for CPT code 54150, 
Circumcision, using clamp or other device; newborn, from a 10-day 
global to an ``xxx'' designation, which would mean the global period 
does not apply. This issue was not discussed in the proposed rule and 
the commenters requested that this change be reflected in the final 
rule.
    Response: As stated by the commenters, this request was included in 
the PEAC recommendations but was inadvertently omitted from the 
proposed rule. We agree that the 10-day global period currently 
assigned to this procedure may not be appropriate because the physician 
performing the procedure most likely does not see the infant for a 
post-procedure visit. However, we believe that a 0-day global period 
rather than ``xxx'' should be assigned to this procedure. We generally 
use the ``xxx'' designation for diagnostic tests and no surgical 
procedure currently is designated as an ``xxx'' global service. We 
believe this will accomplish the same end because most any other 
service performed at the same time as the circumcision could be billed 
with the appropriate modifier. We are adjusting the practice expense 
database to delete any staff time, supplies and equipment associated 
with the post-procedure office visit.
    Comment: Specialty societies representing dermatology stated that 
there was an error in the nonfacility practice expense RVUS for the 
Mohs micrographic surgery service, CPT code 17307, due to the omission 
of clinical staff time from the practice expense database.
    Response: We have corrected the practice expense database to 
reflect the appropriate clinical staff time.
    Comment: We received comments from the American College of 
Radiology (ACR) and Society of Nuclear Medicine noting that some of the 
codes used by their specialty were omitted from the listing of PEAC-
refined codes that appeared in Addendum C in our proposed rule. They 
submitted a complete list of the codes that had gone through PEAC 
refinement, beginning at the first PEAC meeting in April 1999, and 
asked that we include these codes on the Addendum.
    Response: We appreciate the specialty societies bringing to our 
attention that some of their codes were omitted from Addendum C and we 
have reviewed the codes on their submitted list. Addendum C was meant 
to list only those codes that were refined in this year's rule, and 
thus, only listed those refined by the PEAC from March and August 2003 
and January and March 2004. However, it does appear that there is some 
confusion regarding what codes were refined during this period, 
particularly from the March 2004 meeting. We will work with all medical 
societies and the RUC to clarify the status of all the codes in 
question.
    <bullet> Other Issues.
    Comment: The RUC requested that we publish practice expense RVUs 
for all Medicare noncovered services for which the RUC has recommended 
direct inputs. We also received a request from the American Academy of 
Pediatrics to publish work and practice expense RVUs for the noncovered 
nasal or oral immunization services (CPT codes 90473 and 90474) and the 
visual acuity test (CPT code 99173).
    Response: In the past, we have published the practice expense RVUs 
for only a small number of noncovered codes which are listed in our 
national payment files that can be accessed via our physician web page 
under ``Medicare Payment Systems'' as part of the public use files at 
www.cms.hhs.gov/physicians/. Because we have not yet established a 
consistent policy regarding the publication of RVUs for noncovered 
services, we will need to examine this issue further to carefully weigh 
the pros and cons of publishing these RVUs for noncovered services.
    Comment: The American Speech-Language Hearing Association (ASHA) 
and the American Academy of Audiology (AAA), expressed concern about 
the reduction of practice expense RVUs for CPT code 92547, Use of 
vertical electrodes (List separately in addition to code for primary 
procedure), which resulted after the PEAC refinement. The commenters 
asked for our assistance to clarify a CPT instruction regarding this 
procedure because they believe it prevents the multiple billings of CPT 
92547 in a given patient encounter.
    Response: While we are sympathetic to the concerns expressed by 
ASHA and AAA, we also want to note that CPT code descriptors and 
accompanying coding instructions are proprietary to CPT. We would 
encourage these organizations to discuss this issue directly with the 
CPT editorial committee.
    Comment: A specialty society representing vascular surgery 
expressed concern about the wide variations in practice expense RVUs 
that are sometimes derived under the current methodology. The commenter 
suggested that some outliers require additional focus to determine 
whether these are errors in the direct inputs or if they

[[Page 66246]]

reflect problems inherent in the methodology. According to the 
commenter, it would appear that some of the extreme variation is due to 
the high costs of certain disposable supplies in the office setting as 
well as high scaling factors. A few examples of outlier codes were 
provided. The commenter suggested that we consider an alternative 
methodology for payment of high-priced single-use items in the 
nonfacility setting.
    Response: We agree with the commenter that the issue raised is one 
worth study and analysis. Unfortunately, this is not a task that can be 
accomplished in time for discussion in this final rule. We will be very 
willing to work with the specialty society and with the Practice 
Expense Subcommittee of the RUC, as well as any other interested 
parties, to work further on this issue that will only be magnified as 
more complex procedures are moved into the office setting.
    Comment: A provider of radiology services questioned the reductions 
in practice expense for CPT code 77370, Special medical radiation 
physics consultation.
    Response: The practice expense RVUs for CPT code 77370 decreased by 
0.02 RVUs between last year's final rule and this year's proposed rule. 
This small decrease is due to the normal fluctuations resulting from 
updating our practice expense data.

c. Repricing of Clinical Practice Expense Inputs--Equipment

    We use the practice expense inputs (the clinical staff, supplies, 
and equipment assigned to each procedure) to allocate the specialty-
specific practice expense cost pools to the procedures performed by 
each specialty. The costs of the original equipment inputs assigned by 
the CPEP panels were determined in 1997 by our contractor, Abt 
Associates, based primarily on list prices from equipment suppliers. 
Subsequent to the CPEP panels, equipment has also been added to the 
CPEP data, with the costs of the inputs provided by the relevant 
specialty society. We only include equipment with costs equal to or 
exceeding $500 in our practice expense database because the cost per 
use for equipment costing less than $500 would be negligible. We also 
consider the useful life of the equipment in establishing an equipment 
cost per minute of use.
    We contracted with a consultant to assist in obtaining the current 
price for each equipment item in our CPEP database. The consultant was 
able to determine the current prices for most of the equipment inputs 
and clarified the specific composition of each of the various packaged 
and standardized rooms or ophthalmology ``lanes'' currently identified 
in the equipment practice expense database (for example, mammography 
room or exam lane). We proposed to delete the current ``room'' 
designation for the radiopharmaceutical receiving area and, in its 
place, list separately the equipment necessary for each procedure as 
individual line items.
    Also, we proposed to replace all surgical packs and trays in the 
practice expense database with the appropriate standardized packs that 
were recommended by the PEAC, either the basic instrument pack or the 
medium pack.
    The useful life for each equipment item was also updated as 
necessary, primarily based on the AHA's ``Estimated Useful Lives of 
Depreciable Hospital Assets'' (1998 edition). We noted in the August 5, 
2004 proposed rule that AHA would be publishing updated guidelines this 
summer and that we would reflect any updates in our final rule.
    In addition, we proposed the following database revisions:

Assignment of Equipment Categories

    We proposed that equipment be assigned to one of the following six 
categories: documentation, laboratory, scopes, radiology, furniture, 
rooms-lanes, and other equipment. These categories would also be used 
to establish a new numbering system for equipment that would more 
clearly identify them for practice expense purposes.

Consolidation and Standardization of Item Descriptions

    We proposed combining items that appeared to be duplicative. For 
example, for two cervical endoscopy procedures, our contractor 
identified that the price of the LEEP system includes a smoke 
evacuation system but that system is also listed separately. We 
proposed to merge these two line items and reflect both prices in the 
price of the LEEP system.
    These changes were reflected in Addendum D of the proposed rule.
    Additionally, there were specific equipment items for which a 
source was not identified or for which pricing information was not 
found that were included in Table 2 of the August 5 proposed rule. 
Items that we proposed to delete from the database were also identified 
in this table. We requested that commenters, particularly the relevant 
specialty groups, provide us with the needed pricing information, 
including appropriate documentation. Also, we stated that if we were 
not able to obtain any verified pricing information for an item, we 
might eliminate it from the database.
    Comment: The Society of Nuclear Medicine agreed with the deletion 
of the current room designation for radiopharmaceutical area and 
designation of categories for equipment. However, the society 
recommended that the category designation of ``radiology'' be changed 
to ``imaging equipment'' and ``other equipment'' be changed to ``non-
imaging equipment'' to be inclusive of these modalities. The American 
College of Radiology also concurred with the elimination of the current 
room designation for radiopharmaceutical area.
    Response: We agree that the term ``imaging equipment'' rather than 
the term ``radiology'' more accurately reflects current practice and 
have changed the practice expense database accordingly. However, it 
would be inappropriate to change the ``other equipment'' category to 
``non-imaging equipment'' because there are items in other categories 
that would not be encompassed in the proposed title change.
    Comment: The Society of Nuclear Medicine supplied information on 
the equipment item E51076 with the requested documentation.
    Response: We have revised the practice expense database to reflect 
the information provided.
    Comment: The American Society for Therapeutic Radiology and 
Oncology (ASTRO) submitted information and the requested documentation 
for fifteen items, often supplying two or more pricing sources.
    Response: We greatly appreciate the information and have revised 
the practice expense database to reflect the information provided.
    Comment: Commenters representing manufacturers and providers 
expressed concern about the reduction in payment (9 percent) for 
external counterpulsation (ECP), G0166. The commenters questioned the 
proposed change made to the life of the ECP equipment, from seven to 
five years, used for this service. Commenters did not believe this was 
supported by the AHA information (which indicated that similar 
diagnostic cardiovascular equipment has an equipment life of five 
years) and requested that this timeframe be applied to the ECP 
equipment for this service. The American College of Cardiology also 
questioned the change to the ECP equipment life. The commenters also 
questioned the allocation for maintenance and indirect costs applied 
under the practice expense methodology

[[Page 66247]]

as well as the time allocated for this service. As a final point, some 
of the commenters requested that we adjust the work RVUs assigned to 
this G-code to that of an echocardiogram (CPT code 93307) and include 
it in the nonphysician work pool.
    Response: Based upon review of the information provided we have 
revised the equipment life to five years. The methodology used for the 
allocation for maintenance and indirect costs is consistent with our 
methodology. For the request to adjust the work RVUs for this service, 
we refer the commenters to section VI of this final rule where we are 
soliciting comments on services where the physician work may be 
misvalued.
    Comment: The College of American Pathologists provided information 
on items listed in table 2: the DNA image analyzer (ACIS), and image 
analyzer (CAS system) code E13652. They noted that the CAS system is no 
longer marketed and that the ACIS system would be used in its place. 
Thus, they provided documentation on the price for the ACIS system.
    Response: We appreciate the information and have made the necessary 
changes to the database.
    Comment: The American College of Cardiology (ACC) agreed with the 
pricing for the ambulatory blood pressure monitor, provided prices for 
the ECG signal averaging system (E55035), but provided no documentation 
for these prices. They stated that the echocardiography digital 
acquisition ultrasound referenced in table 2 was no longer in the 
marketplace and that a digital workstation was now typically used. They 
requested that an appropriate equipment code be available for this item 
and provided a price range for this item (although without the 
supporting documentation). ACC also recommended that the pacemaker 
programmer (E55013) be removed from the equipment list because it is 
provided at no cost to the physician. Removal of this item from the PE 
database was also supported by a manufacturer that commented on the 
rule.
    Response: We have removed the pacemaker programmer from the 
practice expense database. We will temporarily retain other items and 
prices for the 2005 physician fee schedule and request that ACC forward 
the documentation as soon as possible.
    Comment: The American College of Radiology (ACR) provided partial 
information for the CAD processor unit and software. ACR also submitted 
information regarding the computer workstation for MRA and the 
mammography reporting software, but with insufficient documentation. 
For the various equipment items ACR listed for the mammography room, 
updated information was provided for a few of the items. ACR noted that 
they would submit documentation for all outstanding pieces of equipment 
when it is available. ACR did not agree with the room price for MRI and 
CT that was referenced in Addendum D and requested an extension so that 
they can work with us to accurately price these items.
    Response: We will maintain current pricing for all equipment items 
and the mammography room on an interim basis, until sufficient 
documentation is provided.
    Comment: The American Ophthalmology Association (AOA) and American 
Optometric Association both supplied pricing information along with the 
requested documentation for the computer, VDT, and software (E71013) 
listed in table 2. AOA also provided pricing information for the 
ophthalmology drill listed in this table, indicating a cost of $57. 
They expressed their appreciation for the recategorization and 
standardization of descriptions for equipment and supplies.
    Response: We appreciate the documentation forwarded by these two 
organizations and have incorporated into the practice expense database 
the pricing information provided for the computer, VDT, and software. 
Because the ophthalmology drill is less than $500 (the standard 
established for equipment), we are removing it from the equipment list 
for the practice expense database.
    Comment: The American Gastroenterological Association (AGA) 
expressed concern about the reduction in RVUs for CPT code 91065, a 
breath hydrogen test. They believe that the newer equipment listed in 
the practice expense database does not reflect the analyzer that is 
typically used, which is more expensive, and noted that the costs for 
the reagents have also increased.
    Response: We are sympathetic to the concerns of the AGA regarding 
the typical equipment used for CPT code 91065 and would like to work 
with them to ascertain updated pricing information about the equipment 
most physicians utilize for this service. However, the majority of the 
decrease (76 percent) in practice expense RVUs for this procedure is 
due to the PEAC refinement for the clinical labor time that was reduced 
by nearly 50 percent.
    Comment: The American Academy of Sleep Medicine indicated that most 
typical CPAP/BiPAP remote unit is a bilevel positive airway pressure 
unit and provided documentation for the price of this item.
    Response: This price is reflected in the practice expense database.
    Comment: The Society for Vascular Surgery (SVS), Society for 
Vascular Ultrasound and Society of Diagnostic Medical Sonography all 
expressed appreciation for the refinement to the inputs that apply to 
vascular ultrasound services. However, the commenters requested that we 
incorporate the requested refinements for the other ancillary equipment 
present in a vascular ultrasound room into other similar procedures. 
SVS specifically listed the following CPT codes: 93875-9 and 93990.
    Response: In addition to the three new CPT codes for 
cerebrovascular arterial studies CPT 93890, 93892 and 93893, we have 
added the vascular ultrasound room to the codes indicated in the SVS 
comment noted above.
    Comment: The American Psychiatric Association provided 
documentation for the cost of the ECT machine and the American 
Psychological Association provided information on the neurobehavioral 
status exam and testing, as well as the biofeedback equipment listed in 
table 2, along with the requested documentation.
    Response: We appreciate this information. The practice expense 
database was revised to reflect this cost information.
    Comment: The American Society of Clinical Oncology requested that 
the biohazard hood be substituted for the ventilator and hood blower as 
a practice expense input for the chemotherapy codes.
    Response: We revised the database to reflect this change.
    Comment: American Academy of Neurology supplied information and the 
necessary documentation on several equipment items listed in table 2 
associated with neurology services.
    Response: We have made the revisions to the prices for the 
ambulatory EEG recorder (E54008), ambulatory review station (E54009), 
and portable digital EEG monitor based on the documentation provided. 
Based on the documentation provided, we note that the price for the 
ambulatory review station was substantially reduced ($44,950 to 
$7,950).
    Comment: The American Clinical Neurophysiology Society (ACNS) 
stated that the payment for CPT code 95819, an EEG service, was 
substantially reduced. The Society believes it is due to a price 
reduction for the EEG equipment (E54006) used in this service that was 
listed in Addendum D of the

[[Page 66248]]

proposed rule. The commenter indicated that the proposed price does not 
include the review station and software which is needed for this 
service and provided documentation for appropriately pricing this item.
    Response: Based on the documentation provided, we have changed, on 
an interim basis for the 2005 fee schedule, the price for this item and 
note that this equipment price is associated only with CPT code 95819. 
We would be happy to work with ACNS in order to resolve any issues 
surrounding the RVUs for CPT code 95819. Reviewing the direct inputs 
for this code, we note that the largest contributor to the reduction of 
practice expense RVUs is the PEAC's refinement of this code's supply 
items.
    Comment: The National Association for Medical Direction of 
Respiratory Care and the American College of Chest Physicians were in 
agreement with the proposed prices for equipment except for the pulse 
oximeter (including printer), E55003. The commenters referenced a price 
that is $83 more than that listed in the table, but provided no 
documentation.
    Response: We appreciate the comments from these organizations 
regarding the repricing of the equipment items in the practice expense 
database. We have retained our price of $1,207 for the pulse oximeter 
and note that it is an average from two different available sources.
    Comment: We received a comment from a consumer regarding the price 
of the electromagnetic therapy machine for HCPCS code G0329 with 
concerns about the low payment for this modality. While no 
documentation was submitted, the commenter noted that the cost for this 
equipment ranged from $25,000 to $35,000.
    Response: We appreciate the commenter's remarks about the price of 
the electromagnetic therapy equipment, Diapulse. We have retained our 
price of $25,000 in the practice expense database because we do not 
have documentation that any higher-priced equipment is typically used. 
Similar to other modalities used in rehabilitation, including those 
used in wound care, we note that this procedure reflects comparable 
practice expense values.
    Comment: Several specialty organizations questioned our 
substitution of the two standardized packs for previously PEAC-approved 
packs and trays, as discussed in our proposed rule. One specialty 
society suggested we consult with the AMA before proceeding on this 
point.
    Response: We uniformly applied the PEAC-approved values for the 
packs and trays to all packs and trays, regardless of whether the codes 
had previously been refined by the PEAC. To the extent that a specialty 
society feels that it was disadvantaged by this policy, we would 
encourage them to bring the specific codes that should be excluded from 
this policy to the newly formed PERC (formerly PEAC) at the next RUC 
meeting in February 2005.
    Comment: Several specialty organizations indicated that they were 
in the process of obtaining pricing information on equipment items and 
would provide it as soon as possible. One commenter also asked that we 
retain the items proposed for deletion as they are necessary in 
providing their services, but provided no documentation.
    Response: In the proposed rule, we noted that we might eliminate 
those items from the database for which documented pricing information 
was not received. Due to the number of outstanding equipment prices, 
and the number of societies that are underway in their search for this 
data, we have decided to extend the submission deadline. We would 
encourage specialty societies to submit price information soon to help 
ensure that it can be used to establish practice expense RVUs in next 
year's proposed rule.
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d. Miscellaneous Practice Expense Issues

    <bullet> Pricing for Seldinger Needle.
    We proposed to average two prices of this supply item to reflect a 
cost of $5.175. We requested that, if commenters disagreed with this 
change in price, the comment should provide documentation to support 
the recommended price, as well as the specific type of needle that is 
most commonly used.
    Comment: Commenters were in agreement with the proposed pricing of 
the seldinger needle.
    Response: We will use the proposed price of $5.175 for this supply 
item in the practice expense database.

[[Page 66255]]

    <bullet> Hysteroscopic Endometrial Ablation.
    We proposed to assign, on an interim basis, the following direct 
practice expense inputs in the nonfacility setting for CPT code 58563, 
Hysteroscopy, surgical; with endometrial ablation. (Note: In the August 
5, 2004 proposed rule this code was erroneously identified as 56853, 
which does not exist.) We also stated we would request that the RUC 
review these inputs as part of the practice expense refinement process.
    + Clinical Staff: RN/LPN/MTA--72 minutes (18 pre-service and 54 
service)
    + Supplies: PEAC multispecialty visit supply package, pelvic exam 
package, irrigation tubing, sterile impervious gown, surgical cap, shoe 
cover, surgical mask with face shield, 3x3 sterile gauze (20), cotton 
tip applicator, cotton balls (4), irrigation 0.9 percent sodium 
chloride 500-1000 ml (3), maxi-pad, mini-pad, 3-pack betadine swab (4), 
Monsel's solution (10 ml), lidocaine jelly (1000 ml), disposable 
speculum, spinal needle, 18-24 g needle, 20 ml syringe, bupivicaine 
0.25 percent (10 ml), 1 percent xylocaine (20 ml), cidex (10 ml), 
Polaroid film-type 667 (2), endosheath, and hysteroscopic ablation 
device kit.
    + Equipment: power table, fiberoptic exam light, endoscopic-rigid 
hysteroscope, endoscopy video system, and hysteroscopic ablation 
system.
    Comment: Commenters, including many individual practitioners, were 
supportive of this proposed change. The specialty society also stated 
that they plan to present the inputs for this service at the RUC 
meeting in February 2005
    Response: With the exception of the post incision care kit that we 
deleted because this procedure does not require an incision, we will 
finalize these inputs as proposed.
    <bullet> Photopheresis.
    We proposed to assign, on an interim basis, the following 
nonfacility practice expense inputs for the photopheresis service, CPT 
code 36522:
    + Clinical Staff: RN--223 minutes (treatment is for approximately 4 
hours)
    + Supplies: multispecialty visit supply package, photopheresis 
procedural kit, blood filter (filter iv set), IV blood administration 
set, 0.9 percent irrigation sodium chloride 500-1000 ml (2), heparin 
1,000 units-ml (10), povidone solution-betadine, methoxsalen (UVADEX) 
sterile solution-10 ml vial, 1 percent-2 percent lidocaine-xylocaine, 
paper surgical tape (12), 2x3 underpad (chux), nonsterile drapesheet 40 
inches x 60 inches, nonsterile Kling bandage, bandage strip, 3x3 
sterile gauze, 4x4 sterile gauze, alcohol swab pad (3), impervious 
staff gown, 19-25 g butterfly needle, 14-24g angiocatheter, 18-27 g 
needle, 20 ml syringe, 10-12 ml syringe, 1 ml syringe, 22-26 g syringe 
needle-3 ml.
    + Equipment: plasma pheresis machine with ultraviolet light source, 
medical recliner.
    We also stated we would request that the RUC review these inputs.
    Comment: One commenter supplied information on practice expense 
inputs for this code and indicated that an oncology nurse should be 
used, instead of an RN, to perform the procedure. A specialty society 
also stated that they would be providing information on this service at 
the September RUC meeting.
    Response: We appreciate the information submitted by the 
commenters. This code was discussed at the September RUC meeting and 
recommended practice expense inputs for this service were provided to 
us. We do not agree with the RUC recommended clinical staff procedure 
(intra) time of 90 minutes. We believe that this time, which is half of 
the proposed intra time, does not accurately reflect the total time 
involved in performing this procedure. Our understanding is that the 
filtration rate and the procedures performed by the nurse for 
photopheresis are similar to those that are reflected in the selective 
apheresis services, CPT code 36516, with a PEAC-approved intra time of 
240 minutes. Based on this, and the absence of specialty representation 
at the RUC familiar with the process, we are assigning 180 minutes for 
the intra time, as proposed. We are also assigning the RN/LPN staff 
type to this procedure, because we believe it is similar to other 
apheresis procedures. We will continue our examination of this issue 
and entertain ongoing dialog with all interested organizations and 
individuals, including the AMA and the RUC, the industry, and those 
physicians and individuals familiar with the photopheresis procedure in 
order to assure the accuracy of the intra time.
    <bullet> Pricing of New Supply Items.
    As part of last year's rulemaking process, we reviewed and updated 
the prices for supply items in our practice expense database. During 
subsequent meetings of both the PEAC and the RUC, supply items were 
added that were not included in the supply pricing update. The August 
5, 2004 proposed rule included Table 3 Proposed Practice Expense Supply 
Item Additions for 2005, which listed supply items added as a result of 
PEAC or RUC recommendations subsequent to last year's update of the 
supply items and the proposed associated prices that we will use in the 
practice expense calculation.
    We also identified certain supply items for which we were unable to 
verify the pricing information (see Table 4, Supply Items Needing 
Specialty Input for Pricing, in the August 5, 2004 proposed rule). We 
requested that commenters provide pricing information on these items 
along with documentation to support the recommended price. In addition, 
we also requested information on the specific contents of the listed 
kits, so that we do not duplicate any supply items.
    Comment: Several commenters representing providers of these 
services stated that table 3 incorrectly associated ``gold markers'' 
with the brachtherapy intracavity codes. They were all in agreement 
that these markers are typically used in external beam treatments and 
payment is associated with unlisted procedure codes and should be paid 
for at cost.
    Response: We have deleted the gold markers from CPT codes 77761-
77763 and removed this supply from the practice expense database.
    Comment: The American Urology Association noted that we should 
exclude the vasotomy kit from CPT codes 55200 and 55250.
    Response: We have deleted the vasotomy kit from CPT codes 55200 and 
55250.
    Comment: The American College of Chest Physicians agreed with 
pricing of items used in their practices in table 3 and stated that the 
bronchogram tray does not need to be included in the practice expense 
database, as the procedure is seldom performed and, when it is, the 
procedure is performed in a facility.
    Response: We have deleted the bronchogram tray from the practice 
expense database and corrected the direct inputs for CPT code 31708 
accordingly.
    Comment: We received comments from the American College of 
Cardiology (ACC) that included price quotes and names of sources for 
supply items listed on table 3.
    Response: Unfortunately, ACC did not include the requested 
sufficient documentation, such as invoices or catalog web page links. 
We have asked ACC to forward this pricing documentation to us as soon 
as possible because it will be required for supplies to remain valued 
in the practice expense database. In the interim, for the 2005 fee 
schedule, we will maintain the prices currently in the practice expense 
database for the following supplies:

[[Page 66256]]

blood pressure recording form at $0.31, pressure bag (infuser) 500cc or 
1000cc at $8.925, sterile, non-vented, tubing at $1.99.
    Comment: Noting that a $15 supply item, needle-wire for 
localization of lesions in the breast (used preoperatively in CPT codes 
19290 and 19291) was no longer used, a manufacturer requested that we 
replace this supply with an anchor-guide device valued at $245. The 
commenters also stated that this device is used in over 70 offices and 
imaging centers.
    Response: We appreciate the comments from the manufacturer. 
However, during last year's rulemaking process we repriced all of our 
supplies, and the needle-wire price of $15 was an average of prices 
from two different sources ($17 and $13). This price was proposed and 
accepted by the medical specialty societies that we depend on to verify 
typical items in our practice expense database. We have retained the 
$15 needle-wire for localization because we believe it is typically 
used for this procedure.
    The following table lists the items on which we requested input, 
the comments received, and the action taken.
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    <bullet> Addition of Supply Item to CPT 88365, Tissue In Situ 
Hybridization.
    We proposed to add, on an interim basis, a DNA probe to the CPEP 
database for CPT 88365, tissue in situ hybridization, with the 
understanding that the inclusion of the item would be subject to 
forthcoming RUC review.

[[Page 66259]]

    Comment: Commenters were supportive of this proposal. The College 
of American Pathologists also encouraged us to include updated 
information on practice expense inputs from the September RUC meeting, 
while another commenter suggested that we run the information by the 
specialty society.
    Response: The direct practice expense inputs for this code and two 
other codes in the same family were discussed at the September RUC 
after a presentation made by the specialty society. We have reviewed 
and accepted the RUC recommendations, and these practice expense inputs 
will be included in the practice expense database.
    <bullet> Ophthalmology Equipment.
    In cases where both the screening and exam lanes are included in 
the equipment list for the same ophthalmology service, we proposed to 
include only one lane because the patient could only be in one lane at 
a time. We proposed defaulting to the exam lane and, thus, we proposed 
deleting the screening lane from the practice expense inputs for these 
procedures. For the services where a lane change was made, time values 
were assigned to the exam lane in accordance with our established 
standard procedure.
    Comment: The American Academy of Ophthalmology requested that we 
specifically identify the codes for which we deleted the screening 
lane, so that they can ensure that the correct lane was deleted.
    Response: This information can be obtained by comparing the direct 
inputs in the practice expense database files for the 2004 and 2005 fee 
schedules that are posted on our Web site (http://www.cms.hhs.gov/physicians/pfs). However, we would be happy to work with the specialty 
organization to verify the accuracy of the information.
    <bullet> Parathyroid Imaging, CPT code 78070.
    Based on comments received from the RUC and the specialty society 
representing nuclear medicine, we proposed to crosswalk the charge-
based RVUs from CPT 78306, Bone and/or joint imaging; whole body, to 
CPT 78070, Parathyroid imaging.
    Comment: Several specialty societies expressed appreciation for 
this proposed change.
    Response: We will finalize our proposal and crosswalk the charge-
based RVUs from CPT code 78306 to CPT code 78070.
    <bullet> Additional PE concerns.
    Comment: We received information from the American Academy of 
Ophthalmology that two biometry devices (a-scan ultrasonic biometry 
unit and an optical coherence biometer) were listed as equipment for 
the ophthalmic biometry service, CPT code 92136. Only the optical 
coherence biometer should be included for this code.
    Response: As requested by the specialty society, we have deleted 
the a-scan biometry unit from the equipment list for CPT code 92136.
    Comment: We received comments from manufacturers, specialty 
societies representing renal physicians and vascular surgeons, and 
individual providers questioning the decrease in nonfacility practice 
expense RVUS for CPT code 36870, Percutaneous thrombectomy, 
arteriovenous fistula, autogenous or nonautogenous graft (includes 
mechanical thrombus extraction and intra-graft thrombolysis. Some 
commenters believe this reduction occurred because the supplies listed 
in the database for this service reflect only one method of providing 
this service. While commenters acknowledged that the database includes 
the supplies used in approximately 50 percent of the instances this 
procedure is performed, the commenters claimed that other supplies may 
be used in the remaining occasions. Commenters requested that we add 
these other specific supplies to the database.
    Response: Because there are a variety of supplies and equipment 
that can be used in performing a service, under the practice expense 
methodology, the supplies and equipment that are used in determining 
payment are those that are most typical for the procedure. Although 
there may be alternative supplies used, the inputs in the database 
reflect what is typically used (which is acknowledged by the 
commenters) and thus we are not adding the requested supplies to the 
practice expense database. However, we did note that the list of 
equipment did not reflect the cost of the angiography room that is used 
during the procedure, and this has been added to our database for this 
code.
    Comment: Societies representing dermatologic specialties expressed 
concern about the reduction in practice expense RVUs for a photodynamic 
therapy service, CPT code 96567. The commenters believe that this 
reduction is due to the application of the dermatology scaling factor 
based on updated practice expense utilization and requested that this 
be reconsidered. These commenters also expressed appreciation that 
there is now a separate HCPCS code to bill for levulan that is needed 
for this procedure, but stated that there are two medical supplies that 
need to be included in the practice expense database: bacitracin, and a 
topical anesthetic cream.
    Response: The practice expense RVUs for photodynamic therapy 
decreased only slightly in this year's proposed rule due to the 
proposed repricing of equipment. The decrease referred to by the 
commenter occurred after the first year that the code was established. 
At that time we obtained the utilization data that demonstrated that 
dermatologists performed the service and we then applied the same 
scaling factors to the code that we do for all dermatology services. 
Therefore, the scaling factor we now apply is correct. We will add the 
requested amount of bacitracin to the supply list for the code. 
Unfortunately, the topical anesthetic requested is not in our database 
and the commenters did not include pricing information so we are not 
able to include the item in our practice expense calculation.
    Comment: A society representing interventional pain physicians 
expressed concern that the practice expense RVUs for CPT code 95990, 
Refilling and maintenance of implantable pump or reservoir for drug 
delivery, spinal (intrathecal, epidural) or brain (intraventricular), 
are understated when compared to the RVUs for CPT code 95991, the same 
service administered by a physician. According to the commenter, CPT 
code 95991 includes a total of 47 minutes of nonphysician labor and 37 
minutes of physician labor or total professional time of 84 minutes. 
This is the total time spent with the patient before, during and after 
the refill. The commenter requested that the number of minutes of 
direct labor for CPT code 95990 should be a minimum of 84 minutes, 
since the nonphysician practitioner would be performing all the 
services associated with CPT code 95991 that are performed by both the 
physician and clinical staff. In addition, the commenter stated that 
CPT code 95990 should also be assigned physician work RVUs because 
there is physician oversight of the service even when performed by 
clinical staff. Two other commenters stated that both CPT codes 95990 
and 95991 should be valued the same as the chemotherapy implanted pump 
refill service, CPT code 96530. The commenters state that this was the 
code originally used to report the above services, that CPT codes 95990 
and 95991 originally were assigned higher RVUs than CPT code 96530 and 
that the MMA adjustments that increased the payment for CPT code 96530 
should be applied to CPT codes 95990 and 95991.

[[Page 66260]]

    Response: The commenter is correct that the clinical staff times 
for CPT codes 95990 and 95991 are the same (50 minutes of clinical 
staff time), although the clinical staff is performing the procedure in 
one case and assisting the physician in the other. However, the 
assumption underlying these times is that, in the cases where it is 
necessary for the physician to personally perform the procedure, the 
nurse is assisting for the entire time. If this assumption is not 
correct, then the clinical staff time for CPT code 95991 is overstated. 
Because CPT codes 95990 and 95991 are not considered drug 
administration codes under section 303 of the MMA, we will not apply 
the adjustments made for CPT code 96530 to these services. Therefore, 
we will not be revising the staff time for either code at this time, 
but would suggest that the RUC look further at this issue. We would 
also suggest that the society bring CPT code 95990 to the 5-year 
review, if they wish to make the case that work RVUs should be 
assigned.
    Comment: The society representing interventional pain physicians 
questioned the ``professional component only'' designation we assigned 
to the codes for the analysis of an implanted intrathecal pump, CPT 
codes 62367 and 62368, and the subsequent low RVUs for these services. 
The commenter stated that if the payment is left as proposed, more 
physicians would stop offering intrathecal pumps to patients.
    Response: This was an inadvertent error on our part that we have 
corrected for the final rule. These services are physicians' services 
that do not have separate professional and technical components. We 
thank the commenter for pointing out this error.
    Comment: The Joint Council of Allergy, Asthma and Immunology 
expressed concern about the reduction in the proposed rule in practice 
expense RVUs for a number of allergy codes, in particular the venom 
therapy CPT codes, 95145 through 95149. The commenter stated that 
Medicare reimbursement for these services does not cover the 
physician's supply expense, due to the expensive venom antigens that 
are part of the service, and believes this is a result of the scaling 
factor being used.
    Response: We are sympathetic to the commenter's concern about the 
high cost of the venom antigens and the specialty's low scaling factor. 
We would be happy to work with JCAAI further to see if a remedy can be 
identified regarding this subset of the allergy codes.
    Comment: Two commenters stated that the practice expense RVUs for 
HCPCS code G0329, Electromagnetic Therapy for ulcers, were too low and 
supplied information on the supplies, equipment and clinical staff time 
for this service.
    Response: Based on the information provided by the commenters, we 
added diapulse asetips and chux to the supplies in the practice expense 
database for this service. We also increased the equipment time to 30 
minutes.
    Comment: We received comments from the North American Spine Society 
(NASS) stating that the specific needle used for CPT codes 22520 and 
22522, which was originally recommended by NASS, is the most expensive 
needle and may not be the most typical. The specialty noted that 
available needles range from $26 to $1,295, which represent the needle 
(termed vertebroplasty kit) in the practice expense database. NASS 
indicated that the specialties involved in performing these procedures 
are conducting a survey to determine the most commonly used needles and 
their costs.
    Response: We appreciate the comments from NASS and look forward to 
receiving the survey results. In the interim, we have averaged the 
needle costs for the range indicated above by the specialty and have 
entered this figure, $660.50, as a placeholder for the 2005 fee 
schedule. Because of the large disparity between the lowest and highest 
needle costs, it is not reasonable to consider $660.50 as a true 
average cost for this supply item. We will continue to work with the 
specialty organizations in order to ensure that the 2006 fee schedule 
practice expense database reflects the value for the most typical 
needle used in these procedures.
    Comment: We received comments from two medical societies with 
concerns about a decrease in practice expense RVUs for CPT code 95819, 
which is part of the EEG sleep study series of codes. These two 
organizations noted their willingness to bring this code to the 
February 2005 RUC meeting in order to rectify the direct practice 
expense inputs for this procedure.
    Response: We have reviewed the family of EEG sleep-study codes and 
believe that a rank order anomaly exists relating primarily to the 2004 
PEAC recommendation to delete the 25 reusable electrodes from CPT code 
95819. We support and encourage these organizations to bring the entire 
EEG family of codes to the February 2005 RUC to ensure that this rank 
order anomaly can be resolved and the correct direct inputs can be 
identified for these procedures.
    Comment: The Coalition for Advancement of Prosthetic Urology 
expressed concern about the continuing decline in practice expense RVUs 
for prosthetic urology procedures. They believe that this is due in 
part to the number of post service visits assigned to these services. 
They stated that information from a survey they conducted shows there 
are typically four to five post service visits rather than three as 
reflected in the database. The commenter also provided a copy of the 
survey information.
    Response: The number of post service visits for these services was 
established based on recommendations from the RUC or by using the 
Harvard data. If they believe that the information regarding the number 
of post service visits for specific procedures is incorrect, the 
Coalition must request that the codes be examined as part of the 5-year 
refinement of work RVUs. An explanation of this process and the 
information that must be provided is found in section VI. of this rule.

B. Geographic Practice Cost Indices (GPCIs)

    We are required by section 1848(e)(1)(A) of the Act to develop 
separate GPCIs to measure resource cost differences among localities 
compared to the national average for each of the three fee schedule 
components. While requiring that the practice expense and malpractice 
GPCIs reflect the full relative cost differences, section 
1848(e)(1)(A)(iii) of the Act requires that the physician work GPCIs 
reflect only one-quarter of the relative cost differences compared to 
the national average.
    Section 1848(e)(1)(C) of the Act requires us to review and, if 
necessary, to adjust the GPCIs at least every 3 years. This section of 
the Act also requires us to phase-in the adjustment over 2 years and to 
implement only one-half of any adjustment if more than 1 year has 
elapsed since the last GPCI revision. The GPCIs were first implemented 
in 1992. The first review and revision was implemented in 1995, the 
second review was implemented in 1998, and the third review was 
implemented in 2001. We reviewed and revised the malpractice GPCIs as 
part of the November 7, 2003 (68 FR 63196) physician fee schedule final 
rule. We were unable to revise the work and practice expense GPCIs at 
the time of the publication of the November 2003 final rule because the 
U.S. Census data, upon which the work and practice expense GPCIs are 
based, were not yet available.

[[Page 66261]]

    In addition, section 412 of the MMA amended section 1848(e)(1) of 
the Act and established a floor of 1.0 for the work GPCI for any 
locality where the GPCI would otherwise fall below 1.0. This 1.0 work 
GPCI floor is used for purposes of payment for services furnished on or 
after January 1, 2004 and before January 1, 2007. Section 602 of the 
MMA further amended section 1848(e)(1) of the Act for purposes of 
payment for services furnished in Alaska under the physician fee 
schedule on or after January 1, 2004 and before January 1, 2006, and 
sets the work, practice expense, and malpractice expense GPCIs at 1.67 
if any GPCI would otherwise be less than 1.67.
    In the August 5, 2004 proposed rule, we proposed to revise the work 
and practice expense GPCIs for 2005 through 2007 based on updated U.S. 
Census data and Department of Housing and Urban Development (HUD) fair 
market rental (FMR) data. The same data sources and methodology used 
for the development of the 2001 through 2003 GPCIs were used for the 
proposed 2005 through 2007 work and practice expense GPCIs.
    The relative respective weights for the 2004 work, practice expense 
and malpractice GPCIs, as well as the proposed 2005 through 2007 GPCI 
revisions, were derived using the same weights that were used in the 
Medicare Economic Index (MEI) revision discussed in the November 2003 
physician fee schedule final rule (68 FR 63245).
1. Work Geographic Practice Cost Indices
    As explained in the August 5, 2004 proposed rule, we used data from 
the 2000 decennial U.S. Census, by county, of seven professional 
occupations (architecture and engineering; computer, mathematical, and 
natural sciences; social scientists, social workers, lawyers; 
education, library, training; registered nurses; pharmacists; writers, 
artists, editors) in the development of the proposed work GPCIs. 
Physicians' wages are not included because Medicare payments are 
determinant of the physicians' earnings. Including physician wages in 
the physician work GPCI would, in effect, make the index dependent upon 
Medicare payments. Based on analysis performed by Health Economics 
Research, we believe that, in the majority of instances, the earnings 
of physicians will vary among areas to the same degree that the 
earnings of other professionals vary.
    The U.S. Census Bureau has very specific criteria that tabulations 
must meet in order to be released to the public. To maximize the 
accuracy and availability of the data collection, the nonphysician 
professional wage data were aggregated by county and a median wage by 
county was calculated for each occupational category. These median 
wages were then weighted by the total RVUs associated with a given 
county to ultimately arrive at locality-specific work GPCIs. This 
geographic aggregation of Census data is the same methodology that was 
used in previous updates to the GPCIs.
    The proposed work GPCIs reflected one-fourth of the relative cost 
differences, as required by statute, with the exception of those areas 
where MMA requires that the GPCI be set at no lower than 1.00 and that 
the Alaska GPCIs be set at 1.67.
2. Practice Expense GPCIs
    As in the past, we proposed that the practice expense GPCI would be 
comprised of several factors that represent the major expenses incurred 
in operating a physician practice. The impact of each individual factor 
on the calculation of the practice expense GPCI is based on the 
relative weight for that factor consistent with the calculation of the 
MEI. The specific factors included:
    <bullet> Employee Wage Indices--The employee wage index is based on 
special tabulations of 2000 Census data and is designed to capture the 
median wage by county of the professional labor force. The employee 
wage index uses the median wages of four labor categories that are most 
commonly present in a physician's private practice (administrative 
support, registered nurses, licensed practical nurses, and health 
technicians). Median wages for these occupations were aggregated by 
county in the same manner as the data for the work GPCI.
    <bullet> Office Rent Indices--The HUD FMR data for the residential 
rents were again used as the proxy for physician office rents as they 
are in the current practice expense GPCIs. The proposed 2005 through 
2007 practice expense GPCIs reflect the final fiscal year 2004 HUD FMR 
data. We believe that the FMR data remain the best available source for 
constructing the office rent index. The FMR data are available for all 
areas, are updated annually, and retain consistency from area-to-area 
and from year-to-year. A reduction in an area's rent index does not 
necessarily mean that rents have gone down in that area since the last 
GPCI update. Since the GPCIs measure area costs compared to the 
national average, a decrease in an area's rent index means that that 
area's rental costs are lower relative to the national average rental 
costs. Addendum X illustrates the changes in the rental index based 
upon the new FMR data.
    <bullet> Medical Equipment, Supplies, and other Miscellaneous 
Expenses--The GPCIs assume that items such as medical equipment and 
supplies have a national market and that input prices do not vary among 
geographic areas. We were again unable to find any data sources that 
demonstrated price differences by geographic areas. As mentioned in 
previous updates, some price differences may exist, but these 
differences are more likely to be based on volume discounts rather than 
on geographic areas. The medical equipment, supplies, and miscellaneous 
expense portion of the practice expense geographic index will continue 
to be 1.000 for all areas in the proposed GPCIs, except for Alaska 
which will have an overall practice expense GPCI set at 1.67 for 2005 
and 2006.
3. Fee Schedule Payments
    All three of the indices for a specific fee schedule locality are 
based on the indices for the individual counties within the respective 
fee schedule localities. As in the past, fee schedule RVUs are again 
used to weight the county indices (to reflect volumes of services 
within counties) when mapping to fee schedule areas and in constructing 
the national average indices.
    Fee schedule payments are the product of the RVUs, the GPCIs, and 
the conversion factor. Updating the GPCIs changes the relative position 
of fee schedule areas compared to the national average. Because the 
changes represented by the GPCIs could result in total payments either 
greater than or less than what would have been paid if the GPCIs were 
not updated, it is necessary to apply scaling factors to the proposed 
GPCIs to ensure budget neutrality (prior to applying the provisions of 
MMA that change the work GPCIs to a minimum of 1.0 and increase the 
Alaska GPCIs to 1.67 because these provisions are exempted from budget 
neutrality). We determined that the proposed work and practice expense 
GPCIs would have resulted in slightly higher total national payments. 
Because the law requires that each individual component of the fee 
schedule--work, practice expense, and malpractice expense--be 
separately adjusted by its respective GPCI, we proposed to scale each 
of the GPCIs separately. To ensure budget neutrality prior to applying 
the MMA provisions, we have made the following adjustments:
    <bullet> Decreased the proposed work GPCI by 0.9965;

[[Page 66262]]

    <bullet> Decreased the proposed practice expense GPCI by 0.9930; 
and
    <bullet> Increased the malpractice GPCIs that were published in the 
November 7, 2003 final rule by 1.0021.
    Because all geographic payment areas will receive the same 
percentage adjustments, the adjustments do not change the new relative 
positions among areas indicated by the proposed GPCIs. After the 
appropriate scaling factors are applied, the MMA provision setting a 
1.0 floor has been applied to all work GPCIs falling below 1.0. 
Additionally, the GPCIs for Alaska have been set to 1.67 in accordance 
with MMA.
    Comment: A specialty society representing family physicians 
recommended that we work with the Congress to eliminate the GPCIs or 
set them all at 1.00. The society stated that they understand the 
statutory requirement to apply the GPCIs, but that all geographic 
adjustment factors should be eliminated from the physician fee 
schedule, except for those designed to achieve a specific policy good, 
such as adjustment to encourage physicians to practice in underserved 
areas. The commenter contended that elimination of the GPCIs would have 
a positive effect on the availability of medical care to rural 
beneficiaries. Other commenters suggested that we should no longer 
apply the work GPCI to the work RVUs.
    We also received numerous comments on the subject of the source of 
the data we use in the development of the GPCIs. Commenters suggested 
that we find data sources other than Census Bureau data. They believe 
the census data become obsolete very quickly and want us to use data 
that reflect up-to-date prices for inputs. This would, they argue, make 
the GPCI values more realistic.
    A medical specialty group commented that the index is flawed 
because--
    <bullet> It is based on the tenuous assumption that the relative 
differences in the prices of the input proxies accurately reflect 
relative changes in prices of corresponding physician practice cost 
components; and,
    <bullet> It applies uniform weights to practice cost components, 
despite evidence of geographic variation in component shares.
    Several commenters had specific concerns about the proxies used for 
the work and practice expense GPCIs, for example--
    <bullet> Using data for four employee classes to measure relative 
compensation differences for all physicians' office staff which does 
not reflect the changes in medical practice that have occurred since 
the index was developed;
    <bullet> Using residential real estate prices to reflect relative 
differences in physicians' office costs; and
    <bullet> Using nationally uniform prices for supplies, equipment, 
and other expenses.
    Another particular concern among commenters is the use of HUD 
apartment rental data as the source of costs for physicians' rents. 
Instead, they argue, we should find, or carry out, a national study of 
retail and business rents.
    Another commenter asserts that these indices have not been verified 
by peer-reviewed published research since they were instituted and that 
we should replace the indices with data from nationwide studies that 
validate and update actual cost of practice data.
    Response: As noted by a commenter, we are required by the Congress 
to adjust for geographic differences in the operational cost of 
physicians' practices by applying geographic price indices to each 
component of the Physician Fee Schedule. However, we also believe it 
appropriate in our resource based payment system to account for real 
differences in physicians' costs in different geographical areas. We 
share the concern about access to care for our rural beneficiaries and, 
in this rule, we are finalizing our proposals on payment adjustments to 
physicians in underserved areas through the HPSA Incentive Payment 
Program. For the commenters who object to the GPCI adjustment to the 
work RVUs, we would note that for 2005 and 2006 the floor for the work 
GPCI will be 1.00.
    With reference to the issue of the GPCI data source, we are always 
open to suggestions about possible data sources; however, we believe 
the most reliable source of national, comparable data at the county 
level is the Census Bureau. Other data sources that we have examined 
either fail to produce the data at the county level, cannot be compared 
nationally, or offer no means of comparability over time.
    We believe that the proxies, while not perfect, are the best tools 
available for the development of the GPCIs. For example, if we were to 
eliminate all proxies, we would have to collect actual physicians' 
office data from a sufficiently large sample in each locality to 
calculate the GPCIs. This would place a substantial burden on the 
office staff and would be prohibitively expensive. Also, the benefits 
from that approach would be uncertain.
    The question of applying uniform weights to practice components is 
an area where more research could lead to better information about the 
variation attributable to case mix and the availability of other health 
resources, input prices, and practice styles. However, it is important 
to note that much of the variation associated with case and specialty 
mix is accounted for by the varying RVUs for different services. 
However, we are open to exploring this issue.
    On the issue of which employee categories are included in the 
employee wage index component of the practice expense GPCI calculation, 
we included those that have been determined in the past to be most 
commonly present in a physician's private practice. We are considering 
the suggestion that we include a broader group of employment categories 
in the future.
    While we recognize that apartment rents are not a perfect proxy for 
physician office rents, there are no existing national studies that 
present reliable retail and business rentals data. We would welcome any 
nationally consistent data that could be used for this purpose.
    We noted in the proposed rule that we were unable to find any data 
sources that demonstrate price differences by geographic areas for 
medical equipment and supplies. Once again, however, we welcome any 
nationally consistent data for this purpose.
    We appreciate the concern expressed by the commenter who suggested 
our GPCI methodology has not been subjected to peer-review validation 
since its inception, but we are not aware of any currently available 
data that could replace our methodology. Furthermore, we believe the 
process of updating the GPCIs periodically through notice and comment 
rulemaking affords an opportunity for a thorough review of the GPCI 
calculation methodology.
    Comment: A member of a medical society suggested that we make the 
floor of 1.00 permanent for the work GPCI and incrementally increase 
both the practice expense GPCI and the professional liability insurance 
GPCI to 1.00 over the next ten years.
    Response: We have no authority to extend the floor of the work 
GPCI, or to create a 1.00 floor for the practice expense and 
professional liability insurance GPCIs. Section 1848(c)(1)(A) of the 
Act requires that the index reflect resource costs relative to the 
national average, indicating that, aside from the MMA provision 
establishing a floor on the work GPCI through 2006, localities with 
costs below the national average have GPCIs below 1.00.
    Comment: A specialty organization representing the long term care 
industry suggested that we phase in the new

[[Page 66263]]

GPCI values over a three-year period to minimize the impact of the 
changes.
    Response: We are required by section 1848(e)(1)(C) of the Act to 
review and adjust the GPCIs every 3 years. This section of the Act also 
requires us to phase in the adjustment over 2 years and implement only 
one-half of any adjustment if more than 1 year has elapsed since the 
last GPCI revision. We believe this phase-in appropriately balances any 
negative impacts of the changes with the positive impacts on those 
localities where the GPCIs increase.
4. Payment Localities
    As discussed in the August 5, 2004 proposed rule, we have 
considered, and are continuing to examine, alternatives to the 
composition of the current 89 Medicare physician payment localities to 
which the GPCIs are applied.
    While we have considered alternatives, we have been unable to 
establish a policy and criteria that would satisfactorily apply to all 
situations. Any policy that we would propose would have to apply to all 
States and payment localities. If, for example, we were to establish a 
policy that when adjacent county geographic indices exceeded a 
threshold amount the lower county could be moved to the higher county 
or that a separate locality could be created, redistributions would be 
caused within a State.
    Because there will be both winners and losers in any locality 
reconfiguration, the State medical associations should be the impetus 
behind these changes. The support of State medical associations has 
been the basis for previous changes to statewide areas, and continues 
to be equally important in our consideration of other future locality 
changes.
    Comment: We received numerous comments from physicians and 
individuals, including members of the Congress, living in and around 
Santa Cruz County, California. Their comments uniformly expressed the 
opinion that Santa Cruz be taken out of the ``Rest of California'' 
payment locality and placed in a separate payment locality.
    Additionally, the California Medical Association (CMA) submitted a 
``placeholder'' proposal to move any county with a county-specific 
geographic adjustment factor (GAF) that is 5 percent greater than its 
locality GAF to its own individual county payment locality. Under their 
proposal, any reductions in payments to maintain budget neutrality in 
light of the higher payments to physicians in the counties that are 
moved into the new independent county localities would be divided 
equally among all payment localities within the State of California. 
Additionally, for 2005 and 2006, the GAFs in localities from which the 
high-cost counties are removed would not be reduced as a result of 
removing the counties.
    Response: We greatly appreciate the efforts of the CMA and many 
others toward addressing this difficult issue. We also recognize the 
concerns expressed by the residents of Santa Cruz County about the 
impact of the current payment disparities upon physicians in their 
community. Our consistent position has been that we will be responsive 
to requests for locality changes when there is a demonstrated consensus 
within the State medical association for the change. Due to the re-
distributive impacts of these types of changes, we believe this 
approach helps ensure the appropriateness of any such change.
    We are required, however, to publish the final 2005 GPCIs and GAFs 
in this rule, and we have applied the current definitions for all 
California localities.
    On October 21, 2004, the CMA Board of Trustees voted without 
objection to support the placeholder proposal submitted in the CMA's 
comment with the amendment to limit the time period to the years 2005 
through 2006. However, we have determined that we do not have the 
authority under section 1848(e) of the Act to reduce the GPCIs of some 
localities in a State to offset higher payments to other localities. 
Nonetheless, we are eager to work with CMA and its Congressional 
Representatives to resolve this difficult problem as quickly and fairly 
as possible.
    Comment: We received comments from physicians, individuals and the 
Texas Medical Association regarding locality payments. These commenters 
request that we regard all counties in a metropolitan statistical area 
(MSA) as being in a single payment locality. This would, they argue, 
equalize payments in those areas where growth has expanded city 
boundaries across county lines.
    Response: As noted above, we will be responsive to requests for 
locality changes when there is a demonstrated consensus within the 
State medical association for the change.

Result of Evaluation of Comments

    We will finalize the GPCIs as proposed.

C. Malpractice Relative Value Units (RVUs)

1. Proposed Methodology for the Revision of Resource-based Malpractice 
RVUs
    The methodology used in calculating the proposed resource-based 
malpractice RVUs is the same methodology that was used in the initial 
development of resource-based RVUs, the only difference being the use 
of more current data. The proposed resource-based malpractice expense 
RVUs are based upon:
    <bullet> Actual 2001 and 2002 malpractice premium data;
    <bullet> Projected 2003 premium data; and
    <bullet> 2003 Medicare payment data on allowed services and 
charges.
    As in the initial development of resource-based malpractice expense 
RVUs in the November 2, 1999 final rule, we proposed to revise 
resource-based malpractice expense RVUs using specialty-specific 
malpractice premium data because they represent the actual malpractice 
expense to the physician. In addition, malpractice premium data are 
widely available. We proposed using actual 2001 and 2002 malpractice 
premium data and projected 2003 malpractice premium data for three 
reasons:
    <bullet> These are the most current national claims-made premium 
data available.
    <bullet> These data capture the highly publicized and most recent 
trends in the specialty-specific costs of professional liability 
insurance.
    <bullet> These are the same malpractice premium data that were used 
in the development of revised malpractice GPCIs in the November 7, 2003 
final rule.
    We were unable to obtain a nationally representative sample of 2003 
malpractice premium data for the following two reasons:
    <bullet> The premium data that we collected from the private 
insurance companies had to ``match'' the market share data that were 
provided by the respective State Departments of Insurance (DOI). 
Because none of the State DOI had 2003 market share information at the 
time of this data collection, 2003 premium data were not usable; and
    <bullet> The majority of private insurers were not amenable to 
releasing premium data to us. In the majority of instances, the private 
insurance companies would release their premium data only to the State 
Department of Insurance.
    Discussions with the industry led us to conclude that the primary 
determinants of malpractice liability costs remain physician specialty, 
level

[[Page 66264]]

of surgical involvement, and the physician's malpractice history. 
Malpractice premium data were collected for the top 20 Medicare 
physician specialties measured by total payments. Premiums were for a 
$1 million/$3 million mature claims-made policy (a policy covering 
claims made, rather than services provided during the policy term). We 
attempted to collect premium data from all 50 States, Washington, DC, 
and Puerto Rico. Data were collected from commercial and physician-
owned insurers and from joint underwriting associations (JUAs). A JUA 
is a State government-administered risk pooling insurance arrangement 
in areas where commercial insurers have left the market. Adjustments 
were made to reflect mandatory patient compensation funds (PCFs) (funds 
to pay for any claim beyond the statutory amount, thereby limiting an 
individual physician's liability in cases of a large suit) surcharges 
in States where PCF participation is mandatory. The premium data 
collected represent at least 50 percent of physician malpractice 
premiums paid in each State.
    For 2001, we collected premium data from 48 States (for purposes of 
this discussion, State counts include Washington, DC and Puerto Rico). 
We were unable to obtain premium data from Kentucky, New Hampshire, New 
Mexico, and Washington, DC. To calculate a proxy for the malpractice 
premium data for these four areas in 2001, we began with the most 
current malpractice premium data collected for these areas, 1996 
through 1998 (the last premium data collection that was undertaken). We 
calculated an average premium price (using 1996 through 1998 data) for 
all States except Kentucky, New Hampshire, New Mexico, and Washington, 
DC. Similarly, we calculated an average premium price for the 1999 
through 2001 period for all States except Kentucky, New Hampshire, New 
Mexico, and Washington, DC. We calculated the percentage change in 
these premium prices as the percent difference between the 1999 to 2001 
calculated average premium price and the 1996 to 1998 calculated 
average premium price. We then applied this percentage change to the 
weighted average 1996 to 1998 malpractice premium price for these four 
areas to arrive at a comparable 1999 to 2001 average premium price.
    For 2002, we were able to obtain malpractice premium data from 33 
States. Many State Departments of Insurance had not yet obtained 
premium data from the primary insurers within their States at the time 
of this data collection. For those States for which we were unable to 
obtain malpractice premium data, we calculated a national average rate 
of growth for 2002 and applied this national rate of growth to the 
weighted average premium for 2001 to obtain an average premium for 2002 
for each county for which we were unable to obtain malpractice premium 
data for 2002.
    We projected premium values for 2003 based on the average of 
historical year-to-year changes for each locality (when locality level 
data were available) or by State (when only statewide premium data 
projections were available). First, we calculated the percentage 
changes in the premiums from the 1999 through 2000, 2000 through 2001, 
and 2001 through 2002 periods for each payment locality. Next, we 
calculated the geometric mean of these three percentages and applied 
the mean to the 2002 premium to obtain the forecasted 2003 malpractice 
premium. We used the geometric mean to calculate the forecasted 2003 
premium data because the geometric mean is commonly used to derive the 
mean of a series of values that represent rates of change. Because the 
geometric mean is based on the logarithmic scale, it is less impacted 
by outlying data. Alternative methods, such as linear extrapolation 
tended to yield more extreme values that were the result of outlying 
data.
    Malpractice insurers generally use five-digit codes developed by 
the Insurance Services Office (ISO), an advisory body serving property 
and casualty insurers, to classify physician specialties into different 
risk classes for premium rating purposes. ISO codes classify physicians 
not only by specialty, but in many cases also by whether or not the 
specialty performs surgical procedures. A given specialty could thus 
have two ISO codes, one for use in rating a member of that specialty 
who performs surgical procedures and another for rating a member who 
does not perform surgery. We use our own system of specialty 
classification for payment and data purposes. It was therefore 
necessary to map Medicare specialties to ISO codes and insurer risk 
classes. Different insurers, while using ISO codes, have their own risk 
class categories. To ensure consistency, we used the risk classes of 
St. Paul Companies, one of the oldest and largest malpractice insurers. 
Although St. Paul Companies have recently terminated writing 
professional liability insurance policies at the time of this data 
collection they were still the largest and most nationally 
representative writer of professional liability insurance policies in 
the nation. The crosswalks for Medicare specialties to ISO codes and to 
the St. Paul risk classes used are reflected in Table 4.
    Some physician specialties, nonphysician practitioners, and other 
entities (for example, independent diagnostic testing facilities) paid 
under the physician fee schedule could not be assigned an ISO code. We 
crosswalked these specialties to similar physician specialties and 
assigned an ISO code and a risk class. These crosswalks are reflected 
in Table 5.
    In the development of the proposed resource-based malpractice RVU 
methodology, we considered two malpractice premium-based alternatives 
for resource-based malpractice RVUs: the dominant specialty approach 
and the specialty-weighted approach.

Dominant Specialty Approach

    The dominant specialty approach bases the malpractice RVUs upon the 
risk factor of only the dominant specialty performing a given service 
as long as the dominant specialty accounted for at least 51 percent of 
the total utilization for a given service. When 51 percent of the total 
utilization does not comprise the dominant specialty, this approach 
uses a modified specialty-weighted approach. In this modified 
specialty-weighted approach, two or more specialties are collectively 
defined as the dominant specialty. Starting with the specialty with the 
largest percentage of allowed services, the modified specialty-weighted 
approach successively adds the next highest specialty in terms of 
percentage of allowed services until a 50 percent threshold is 
achieved. The next step is to sum the risk factors of those specialties 
(weighted by utilization) in order to achieve at least 50 percent of 
the total utilization of a given service and then to use the factors in 
the calculation of the final malpractice RVU.
    The dominant specialty approach produces modest increases for some 
specialties and modest decreases for other specialties. The largest 
increase for any given specialty, over the specialty-weighted approach, 
is less than 1.5 percent of total RVUs, while the largest decrease for 
any given specialty is less than 0.5 percent of total RVUs. The 
dominant specialty approach also fails to account for as much as 49 
percent of the utilization associated with a given procedure.

Specialty-Weighted Approach

    The approach that we adopted in the November 1999 final rule and 
proposed

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to use for 2005 bases the final malpractice RVUs upon a weighted 
average of the risk factors of all specialties performing a given 
service. The specialty-weighted approach ensures that all specialties 
performing a given service are accounted for in the calculation of the 
final malpractice RVU. Under the proposed methodology, we--
    <bullet> Compute a national average premium for each specialty. 
Insurance rating area malpractice premiums for each specialty are 
mapped to the county level. The specialty premium for each county is 
then multiplied by the total county RVUs (as defined by Medicare claims 
data), which were divided by the malpractice GPCI applicable to each 
county to standardize the relative values for geographic variations. If 
the malpractice RVUs were not normalized for geographic variation, the 
locality cost differences (as reflected by the GPCIs) would be counted 
twice. The product of the malpractice premiums and standardized RVUs is 
then summed across specialties for each county. This calculation is 
then divided by the total RVUs for all counties, for each specialty, to 
yield a national average premium for each specialty. As stated 
previously, we used an average of the 3 most current years, 2001 to 
projected 2003 malpractice premiums, in our calculation of the proposed 
malpractice RVUs. See Table 6 for a display of the average premiums for 
the top 20 Medicare specialties;
    <bullet> Calculate a risk factor for each specialty. Differences 
among specialties in malpractice premiums are a direct reflection of 
the malpractice risk associated with the services performed by a given 
specialty. The relative differences in national average premiums 
between various specialties can be expressed as a specialty risk 
factor. These risk factors are an index calculated by dividing the 
national average premium for each specialty by the national average 
premium for the specialty with the lowest average premium, nephrology. 
The risk factors used in the development of the resource-based 
malpractice RVUs are displayed in Table 7;
    <bullet> Calculate malpractice RVUs for each code. Resource-based 
malpractice RVUs were calculated for each procedure. In order to 
calculate malpractice RVUs for each code, we identified the percentage 
of services performed by each specialty for each respective procedure 
code. This percentage was then multiplied by each respective 
specialty's risk factor as calculated in Step 2. The products for all 
specialties for the procedure were then summed, yielding a specialty-
weighted malpractice RVU reflecting the weighted malpractice costs 
across all specialties for that procedure. This number was then 
multiplied by the procedure's work RVUs to account for differences in 
risk-of-service. Since we were unable to find an acceptable source of 
data to be used in determining risk-of-service, work RVUs were used. We 
welcome any suggestions at any time for alternative data sources to be 
used in determining risk-of-service.
    Certain specialties may have more than one ISO rating class and 
risk factor. The surgical risk factor for a specialty was used for 
surgical services and the nonsurgical risk factor for evaluation and 
management services. Also, for obstetrics/gynecology, the lower 
gynecology risk factor was used for all codes except those obviously 
surgical services, in which case the higher, surgical risk factor was 
used.
    Certain codes have no physician work RVUs. The overwhelming 
majority of these codes are the technical components (TCs) of 
diagnostic tests, such as x-rays and cardiac catheterization, which 
have a distinctly separate technical component (the taking of an x-ray 
by a technician) and professional component (the interpretation of the 
x-ray by a physician). Examples of other codes with no work RVUs are 
audiology tests and injections. Nonphysicians, in this example, 
audiologists and nurses, respectively, usually furnish these services. 
In many cases, the nonphysician or entity furnishing the TC is distinct 
and separate from the physician ordering and interpreting the test. We 
believe it is appropriate for the malpractice RVUs assigned to TCs to 
be based on the malpractice costs of the nonphysician or entity, not 
the professional liability of the physician.
    Our proposed methodology, however, would result in zero malpractice 
RVUs for codes with no physician work, since we proposed the use of 
physician work RVUs to adjust for risk-of-service. We believe that zero 
malpractice RVUs would be inappropriate because nonphysician health 
practitioners and entities such as independent diagnostic testing 
facilities (IDTFs) also have malpractice liability and carry 
malpractice insurance. Therefore, we proposed to retain the current 
charge-based malpractice RVUs for all services with zero work RVUs. We 
also solicited comments and suggestions for constructing resource-based 
malpractice RVUs for codes with no physician work.
    <bullet> Rescale for budget neutrality. The law requires that 
changes to fee schedule RVUs be budget neutral. The current resource-
based malpractice RVUs and the proposed resource-based malpractice RVUs 
were constructed using entirely different malpractice premium data. 
Thus, the last step in this process is to adjust for budget neutrality 
by rescaling the proposed malpractice RVUs so that the total proposed 
resource-based malpractice RVUs equal the total current resource-based 
malpractice RVUs. The proposed resource-based malpractice RVUs for each 
procedure were then multiplied by the frequency count for that 
procedure to determine the total resource-based malpractice RVUs for 
each procedure. The total resource-based malpractice RVUs for each 
procedure were summed for all procedures to determine the total fee 
schedule proposed resource-based malpractice RVUs. The total fee 
schedule proposed resource-based malpractice RVUs were compared to the 
total current resource-based malpractice RVUs. The total current and 
proposed malpractice RVUs were equal and, therefore, budget neutral. 
Thus, no adjustments were needed to ensure that expenditures remained 
constant for the malpractice RVU portion of the physician fee schedule 
payment.
    The proposed resource-based malpractice RVUs were shown in Addendum 
B of the August 5, 2004 proposed rule. The values did not reflect any 
final budget-neutrality adjustment, which we stated would be made in 
the final rule based upon the more current Medicare claims data. The 
malpractice RVUs identified in this final rule did not require the 
application of a scaling factor to retain budget neutrality.
    Because of the differences in the sizes of the three fee schedule 
components, the implementation of the updated resource-based 
malpractice RVUs has a smaller payment effect than the previous 
implementation of resource-based practice expense RVUs. On average, 
work represents about 52.5 percent of the total payment for a 
procedure, practice expense about 43.6 percent of the total payment, 
and malpractice expense about 3.9 percent of the total payment. Thus, a 
20 percent change in practice expense or work RVUs would yield a change 
in payment of about 8 to 11 percent. In contrast, a corresponding 20 
percent change in malpractice values would yield a change in payment of 
only about 0.6 percent.
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Comments and Responses

    We received public comments on several malpractice issues. The 
comments and our responses are stated below.
    Comment: Several comments were received that requested revisions to 
the data sources utilized in the development of resource-based 
malpractice RVUs. Specifically, commenters requested that we remove 
utilization for assistant-at-surgery claims from the calculation of 
resource-based malpractice RVUs because the utilization of assistant-
at-surgery services artificially lowers the average risk associated 
with surgical services. Additionally, we also received comments that 
raised questions related to the ISO crosswalks and resulting risk 
factors that we used.
    Response: We agree that assistants at surgery should not be 
reflected in the malpractice RVUs because they are not primarily 
responsible for performing the surgical procedures, and we are removing 
the assistant-at-surgery utilization, and associated risk factors, from 
the data that are used to calculate the resource-based malpractice 
RVUs. The inclusion of the lower assistant-at-surgery risk factors into 
the overall determination of some complex surgical services 
artificially lowers the average risk factor and resulting resource-
based malpractice RVUs of these services.
    Regarding the ISO Classifications and resulting risk factors that 
were applied to specialties, the majority of comments received did not 
offer substantive reasons or alternative methodologies for the proposed 
ISO crosswalks. We derived the ISO crosswalks, and resulting risk 
factors, based upon the review by both our contractor and CMS medical 
officers. Due to the lack of substantive alternatives in the comments 
received, we will retain the crosswalks that were proposed in the 
August 4, 2004 proposed rule (see Table 7) with the exception of 
orthopedic surgery and dermatology.
    Comment: Several commenters believed that the August 2004 proposed 
rule that established risk factors of 7.46 for orthopedic surgery with 
spinal and 8.06 for orthopedic surgery without spinal were 
counterintuitive and needed revision.
    Response: We agree with these comments and have revised the 
orthopedic surgery with spinal risk factor to reflect the risk factor 
identified in the rating manuals (8.89). In the proposed rule, the risk 
factors for orthopedic surgery with spinal and without spinal were 
taken from two separate sources (premium data and rating manuals, 
respectively) thus causing the anomalous result. See Table 7 for the 
revised orthopedic surgery risk factors.
    Comment: Two commenters, including the American College of 
Dermatology believe that the use of the higher risk class of major 
surgery is inappropriate for dermatological services as the typical 
dermatological practice does not encompass major surgery but instead 
focuses on minor surgery in the office setting.
    Response: We agree with these comments and will use the minor 
surgery and no-surgery risk classifications for dermatological 
services. See Table 7 for the revised dermatology risk factors. The 
impact of removing the assistant at surgery claims and revising the 
risk factor associated with orthopedic surgery with spinal is a 0.9 
percent increase for neurosurgery and a 0.4 percent increase for 
orthopedic surgery over the malpractice RVUs shown in proposed rule. 
The effect of replacing the major surgery risk factor with the minor 
surgery risk factor for dermatology is a 0.9 percent decrease in total 
payments relative to the proposed rule.
    Comment: One commenter states that the resource-based malpractice 
RVU methodology underestimates the cost of PLI for physicians who 
perform obstetric and gynecologic services. According to the commenter, 
eighty percent of OB/GYNs perform both obstetric and gynecologic 
services yet the risk factor for most services these physicians provide 
to Medicare beneficiaries is based on the much lower premiums paid by 
physicians who offer only gynecologic services.
    Response: Although obstetricians and gynecologists' malpractice 
premiums can be appreciably different, most Medicare OB/GYN services 
are gynecological. Therefore, all Medicare OB/GYN procedures will be 
assigned a gynecology risk factor except in those instances where the 
service provided is clearly obstetrical in nature. CPT codes in the 
range of 59000-59899 are clearly obstetrical services and use the 
obstetrics risk factor (11.30).
    Comment: One commenter felt that it was inappropriate to assign 
0.00 malpractice RVUs to services that have physician work and have 
historically had a small amount of malpractice RVUs associated with 
them.
    Response: We agree with this comment and will adjust these services 
in the final rule. All payable fee schedule services have some amount 
of PLI associated with their performance.
    Comment: One commenter requested that we consider the 
implementation of the resource-based malpractice expense RVUs interim 
until the agency has worked with the medical community to ensure that 
the data and methodology utilized to calculate the malpractice RVUs are 
appropriate.
    Response: We are continuing to work with the medical community to 
ensure that the methodology and data used to calculate the malpractice 
RVUs appropriately reflect the actual resource costs associated with 
professional liability insurance for physicians. Section 
1848(c)(2)(B)(i) of the Act states that the Secretary is required to 
review the relative values not less often than every 5 years. If 
substantive information becomes available subsequent to the publication 
of the final malpractice RVUs, the statute allows us flexibility to 
review that information for possible inclusion in future malpractice 
RVU updates.
    Comment: Several commenters requested that we use a methodology 
that would only account for the dominant specialty in the calculation 
of the service-specific resource-based malpractice RVUs. Commenters 
stated that a dominant specialty approach would be consistent with the 
``typical'' service approach that we use throughout the resource-based 
physician payment system. Commenters also feel that a dominant 
specialty approach would more appropriately reflect the actual premium 
resource costs associated with the performance of individual services.
    Response: We continue to believe that accounting for all 
specialties that perform a given service is the more appropriate and 
equitable methodology in establishing resource-based malpractice RVUs. 
Basing payment upon all specialties that perform a given service 
ensures that the actual professional liability insurance resource costs 
of all specialties are included in the calculation of the final 
malpractice RVUs. Using only the dominant specialty does not capture 
the true resource costs associated with a given service and under a 
relative value based system, results in the redistribution of RVUs 
based upon only partial data.
    The dominant specialty approach is particularly vulnerable for 
calculating resource-based malpractice RVUs in services that are multi-
disciplinary in nature. An example that illustrates the potentially 
distorting effect of the dominant specialty approach on multi-
disciplinary services is the specialty utilization associated with a 
level III established office visit. Although over 35 different 
specialties perform a significant number of these services, a dominant 
specialty approach would base the malpractice RVUs on

[[Page 66274]]

approximately 2 specialties. High risk specialties such as 
neurosurgery, thoracic surgery, general surgery, and obstetrics and 
gynecology, which account for a small percentage of the total 
utilization but a large amount of total dollars, would no longer factor 
into the calculation of the malpractice RVU for this service. These 
four specialties alone account for nearly $300 million of the total 
dollars associated with a level III established office visit. The 
effect of removing these four high-cost, high-risk specialties from the 
calculation of the malpractice RVUs for this service would be an 
overall decrease in the malpractice RVUs, because the calculation would 
be based upon lower-cost, lower-risk specialties.
    We disagree that a dominant specialty approach is consistent with 
the typical service approach used in the RUC survey process. 
Irrespective of the specialty performing a given service, we require 
that the typical service be the measurement tool for the calculation of 
final payments. The typical service approach utilized in the RUC survey 
process has never referred to the typical specialty performing a 
service, but instead to the typical type of service furnished. This 
typical service would encompass such things as the condition of the 
patient, the extent of the work, the staff needed to accomplish the 
service, and the respective resource inputs associated with the typical 
service.
    We will continue to work with the RUC PLI Workgroup to identify 
alternatives to the dominant specialty approach. One alternative that 
we are currently exploring with the RUC PLI Workgroup is removing 
aberrant data from low utilization services.
    Comment: One commenter suggested that we determine the exponential 
rate of growth in the PLI premium data from 2001 through 2003 to 
predict the 2004 premium data. This commenter believes that we should 
use only this predicted 2004 premium data in the calculation of 
resource-based malpractice RVUs.
    Response: We disagree with the commenter's recommendation that 
predicted 2004 professional liability insurance premium data be 
utilized in the calculation of resource-based malpractice RVUs. The 
data sources that are currently used in the calculation of the 2005 
resource-based malpractice RVUs consist of actual 2001 and 2002 premium 
data (when available) and projected 2003 premium data. Professional 
liability insurance has proven to be the most volatile data source that 
is used in the calculation of resource-based physician fee schedule 
RVUs. For this reason, we believe that it is inappropriate to use only 
one year of projected premium data.
    Comment: Various specialty organizations request that we work with 
the RUC's Professional Liability Insurance (PLI) Workgroup to ensure 
that the medical community has input into the refinement of the 
malpractice RVUs.
    Response: Over the course of the past year, we have been working 
with the RUC PLI Workgroup to solicit input on the methodology and data 
sources utilized to calculate resource-based malpractice RVUs. We 
continue to actively participate in the PLI Workgroup to keep both the 
workgroup and the various specialty organizations aware of our progress 
in the development and refinement of resource-based malpractice RVUs. 
We have forwarded all requested contractor reports, which outline both 
our methodology and data sources, to the RUC for review and comment. We 
agree with these comments and plan to continue our cooperative 
relationship with the RUC PLI Workgroup and various specialty 
organizations to ensure that the necessary specialty organizations are 
involved with both the premium collection efforts and the development 
and refinement of resource-based malpractice RVUs.
    Comment: Tail coverage is designed to cover any claims that may be 
made against a new employee for services furnished on behalf of his or 
her old employer during the time that he or she is employed by the new 
employer. Several commenters suggested that we incorporate the cost of 
tail coverage in the determination of PLI annual premium data.
    Response: Although we agree with the commenters that it might be 
desirable to use tail coverage premium data in addition to the annual 
premium data that are currently used in the revisions to resource-based 
malpractice RVUs, we have been unable to identify a nationally 
representative source of tail coverage premium data. We are continuing 
to work with the RUC PLI Workgroup, the AMA, and the various specialty 
organizations to identify a nationally representative source of tail 
coverage premium data for future rulemaking.
    Comment: One commenter recommended that professional liability 
insurance data for all specialties should be used rather than the data 
from the top 20 Medicare specialties.
    Response: Although it might be desirable to obtain premium data 
from every conceivable specialty in the practice of medicine, it is not 
possible to obtain this scope of data under the time constraints 
associated with collecting the most current premium data. In order to 
conduct surveys that collect the maximum amount of premium data from 
all geographic areas without being too intrusive to the State 
Departments of Insurance and private insurance companies, we chose to 
limit the scope of the data collection to the top 20 Medicare 
specialties. Further, utilizing PLI data from the top 20 Medicare 
specialties encompasses 80 percent of fee schedule services.
    Comment: Several commenters requested that we use data from the 
Physician Insurers Association of America (PIAA) in the development of 
resource-based malpractice RVUs. This commenter further requested that 
we provide concise requirements for those data collection efforts.
    Response: We did explore the use of data from PIAA in the 
development of resource-based malpractice RVUs. Unfortunately, the PIAA 
does not include actual physician claims-made premium data by insurer 
and specialty classification. The information that was available from 
PIAA ranged from insured demographics information to medical 
malpractice claims trends.
    Regarding our criteria for premium data collection efforts, we have 
shared the criteria for those premium data collection efforts with the 
RUC PLI Workgroup.
    Comment: Several commenters recommended that the malpractice RVUs 
should remain stable. Commenters suggested that any budget neutrality 
adjustments, positive or negative, that might occur due to the 5-year 
review of malpractice RVUs should be made to the conversion factor and 
not to the malpractice RVUs.
    Response: We acknowledge the comments that suggest that any 
adjustments for budget neutrality not be performed on the RVUs, but we 
note that any budget neutrality adjustments to the RVUs do not change 
the relative relationship among the values for the services but instead 
uniformly change all relative values. Regarding malpractice RVUs 
specifically, malpractice RVUs are by nature not ``stable.'' When the 
malpractice RVUs are reviewed and updated, the malpractice RVUs 
associated with all services could potentially change. Additionally, 
for 2005, we are mandated by statute to apply at least a 1.5 percent 
increase to the conversion factor. Thus, if the budget neutrality 
associated with updated malpractice RVUs were negative, it would not be 
possible to ensure budget neutrality and comply with the statutory 1.5 
percent update.

[[Page 66275]]

    Comment: One commenter recommended that the exceptions to the 
surgical risk factor be modified to include coding changes since the 
initiation of the resource-based malpractice RVUs in 2000. The previous 
update to the malpractice RVUs made service-specific exceptions, 
whereby certain codes were assigned the higher surgical risk factor in 
the calculation of their final malpractice RVU. The commenter 
specifically requested that due to CPT coding modifications, the 
following codes should also receive this same coding modification and 
receive the greater of their actual average risk factor or the risk 
factor for cardiac catheterization: 92973-92974, 93501-93533, 93580-
93581, 93600-93613, and 93650-93652.
    Response: In order to retain the exceptions that were identified in 
the previous malpractice RVU update for this new series of services, we 
will assign the greater of the actual average risk factors or the risk 
factor for cardiac catheterization services.
    Comment: Several commenters agreed with our use of the work RVUs as 
the best available data source for adjusting the malpractice RVUs for 
risk of service. These commenters noted, as we did, that the work RVUs 
are not a perfect proxy for risk of service, but are the best available 
source at this time. Commenters requested that we continue our use of 
work RVUs as the adjuster to malpractice RVUs for risk of service, but 
also requested that we be responsive to potential anomalies that may be 
identified.
    Response: We agree with these comments and look forward to 
continuing our work with the various organizations to identify all 
potential anomalies in the malpractice RVUs.
    Comment: One commenter expressed concern that, although malpractice 
premiums have increased for all specialty practices, some specialty 
practices will experience a decline in payments as a result of the 5-
Year Review of malpractice RVUs. This commenter suggested that 
additional dollars need to be added to the system to account for rising 
PLI costs.
    Response: The impact of the malpractice RVU revisions on an 
individual specialty organization is not a direct reflection of the 
increases or decreases in their malpractice premiums but instead 
reflects increases or decreases in a specific state's premiums as 
compared to the national average. In some instances, specialty 
organizations might have experienced slight increases in their 
respective malpractice premiums since the last malpractice RVU update, 
but these increases have occurred at a slower rate than the national 
average increase for all specialty organizations. The result is a 
negative impact on these specialties. Specialty organizations that have 
increased at a rate higher than the national average will experience 
positive impacts.
    Comment: One commenter believes that additional dollars should be 
added to the Medicare physician fee schedule to account for escalating 
professional liability insurance premiums.
    Response: The Medicare Economic Index (MEI) is the device by which 
additional dollars are added to the physician fee schedule. For 2005, 
the cost category associated with professional liability insurance has 
increased by 23.9 percent. However, for 2004 and 2005, section 601 of 
the MMA established an update of 1.5 percent.
    Comment: The American College of Radiology (ACR) commented that 
there is an imbalance between the distribution of malpractice RVUs to 
the professional component and technical component of a service. The 
ACR requested that we work with ACR staff to identify alternative 
methodologies for the more appropriate valuation of technical component 
services.
    Response: Physician work RVUs are used to adjust for risk of 
service. Because technical component services do not have physician 
work RVUs, they are still valued using charge-based RVUs instead of the 
resource-based malpractice RVU methodology. We look forward to working 
with the ACR and other interested specialty organizations to examine 
alternative methodologies that would allow technical component services 
to also reflect resource-based malpractice RVUs.

Final Decision

    We are implementing the revised 2005 malpractice RVUs as proposed 
with the modifications noted in the discussions above. Additionally, we 
are continuing to work with the AMA's RUC to--
    <bullet> Consider the appropriateness of a dominant specialty 
approach;
    <bullet> Identify the most current nationally representative 
professional liability insurance premium data;
    <bullet> Review the current ISO crosswalks; and
    <bullet> Review aberrant data patterns in low-utilization services 
for possible inclusion in a future rulemaking cycle.

D. Coding Issues

1. Change in Global Period for CPT Code 77427, Radiation Treatment 
Management, Five Treatments
    This code was included in the November 2, 1999 physician fee 
schedule final rule (64 FR 59380) and was effective for services 
beginning January 1, 2000. In that rule, and subsequent rules, we have 
applied a global indicator of ``xxx'' to this code, meaning that the 
global concept does not apply. It was brought to our attention that 
this global indicator is incorrect and that the code should be assigned 
a 90-day global period because the RUC valuation of this service 
reflected a global period of 90 days which we had accepted. Therefore, 
we proposed to correct the global indicator for this service to reflect 
a global period of 90 days (090).
    Comment: Specialty organizations representing radiation oncology 
and radiology as well as individual physicians and providers, and the 
AMA, all expressed concern about this proposal to change the global 
period for CPT code 77427. The commenters stated that this code is 
universally recognized as a recurring service that can be provided 
multiple times during a course of radiation. This code is usually 
submitted once for each group of five treatments (or fractions) and 
represents substantial services furnished during that group (typically 
1 week) of five treatments. Commenters believe this proposed change 
would--
    <bullet> Contradict the current CPT definitions;
    <bullet> Not reflect the process of care for radiation;
    <bullet> Countervene the essence of the RUC valuations; and
    <bullet> Negate the guidelines that we previously issued.
    Because a change in the global period could have a significant 
impact on the process of care for radiation oncology, commenters urged 
us to withdraw this proposal or to delay implementation until there is 
further discussion with the specialty organizations and the RUC, and 
clarification of billing matters related to this proposed change are 
provided.
    Response: Based on the concerns raised by the commenters, we are 
not changing the global period for this service as proposed.

Result of Evaluation of Comments

    We are retaining the global period of ``xxx'' for CPT code 77427.

[[Page 66276]]

2. Requests for Adding Services to the List of Medicare Telehealth 
Services
    As discussed in the proposed rule (69 FR 47510), section 1834(m) of 
the Act defines telehealth services as professional consultations, 
office and other outpatient visits, and office psychiatry services 
defined as of July 1, 2000 by CPT codes 99241 through 99275, 99201 
through 99215, 90804 through 90809, and 90862. In addition, the statute 
requires us to establish a process for adding services to, or deleting 
services from, the list of telehealth services on an annual basis. In 
the CY 2003 final rule, we established a process for adding to or 
deleting services from the list of Medicare telehealth services (67 FR 
79988). This process provides the public an opportunity on an ongoing 
basis to submit requests for adding a service. We assign any request to 
add a service to the list of Medicare telehealth services to one of the 
following categories:
    <bullet> Category 1: Services that are similar to office and other 
outpatient visits, consultation, and office psychiatry services. In 
reviewing these requests, we look for similarities between the proposed 
and existing telehealth services in terms of the roles of, and 
interactions among, the beneficiary, the physician (or other 
practitioner) at the distant site and, if necessary, the telepresenter. 
We also look for similarities in the telecommunications system used to 
deliver the proposed service, for example, the use of interactive audio 
and video equipment.
    <bullet> Category 2: Services that are not similar to the current 
list of telehealth services. Our review of these requests includes an 
assessment of whether the use of a telecommunications system to deliver 
the service produces similar diagnostic findings or therapeutic 
interventions as compared with the face-to-face ``hands on'' delivery 
of the same service. Requestors should submit evidence showing that the 
use of a telecommunications system does not affect the diagnosis or 
treatment plan as compared to a face-to-face delivery of the requested 
service.
    Requests for adding services to the list of Medicare telehealth 
services must be submitted and received no later than December 31st of 
each calendar year to be considered for the next proposed rule. For 
example, requests submitted in CY 2003 are considered for the CY 2005 
proposed rule. For more information on submitting a request for 
addition to the list of Medicare telehealth services, visit our Web 
site at http://www.cms.hhs.gov/physicians/telehealth.
    We received the following public requests for addition in CY 2003:
    <bullet> Inpatient hospital care (as represented by CPT codes 99221 
through 99223 and 99231 through 99233).
    <bullet> Emergency department visits (as defined by CPT codes 99281 
through 99285).
    <bullet> Hospital observation services (as represented by CPT codes 
99217, 99218 through 99220).
    <bullet> Inpatient psychotherapy (as defined by CPT codes 90816 
through 90822).
    <bullet> Monthly management of patients with end-stage renal 
disease (ESRD), (as represented by HCPCS codes G0308 through G0319).
    <bullet> Speech and audiologist services (as defined by CPT code 
range 92541 through 92596).
    <bullet> Case management (as identified by CPT codes 99361 and 
99362)
    <bullet> Care plan oversight services (as represented by CPT codes 
99374 and 99375).
    After reviewing the public requests for addition, we proposed to 
add ESRD-related services as described by G0308, G0309, G0311, G0312, 
G0314, G0315, G0317, and G0318 to the list of Medicare telehealth 
services. However, we specified that the required clinical examination 
of the vascular access site must be furnished face-to-face ``hands on'' 
(without the use of an interactive telecommunications system) by a 
physician, certified nurse specialist (CNS), nurse practitioner (NP), 
or physician's assistant (PA). An interactive telecommunications system 
may be used for providing additional visits required under the 2 to 3 
visit Monthly Capitation Payment (MCP) code and the 4 or more visit MCP 
code.
    Moreover, we proposed to add the term ``ESRD-related visits'' to 
the definition of Medicare telehealth services at Sec.  410.78 and 
Sec.  414.65 as appropriate.
    We did not propose to add any additional services to the list of 
Medicare telehealth services for CY 2005.
    For further information on the addition to the list of telehealth 
services, see the Federal Register dated August 5, 2004 (69 FR 47510).

Inpatient Hospital Care, Hospital Observation Services, Inpatient 
Psychotherapy, and Emergency Department Services

    Comment: We received conflicting comments on our proposal not to 
add inpatient hospital care, hospital observation services, inpatient 
psychotherapy, and emergency department services to the list of 
approved telehealth services. For example, one professional society 
supported our proposal not to add inpatient hospital care, hospital 
observation services, inpatient psychotherapy, and emergency department 
services to the list. That commenter believes conclusive efficacy data 
is necessary before adding the aforementioned services. Likewise, an 
association representing emergency department management agreed that 
emergency department visits should not be added to the list of Medicare 
telehealth services. That commenter believes that hospitals in rural 
areas have physicians with sufficient experience to handle the 
complexities of emergent care.
    An association representing family physicians agreed with our 
proposal not to add inpatient hospital care and hospital observation 
services. However, they disagreed with our proposal not to add 
emergency department visits to the list of Medicare telehealth 
services. The commenter stated that emergency department visits should 
not be assigned to category 2 based on the acuity of the patient. The 
commenter believes that the range of potential acuity is the same in 
the emergency room as it is in the office setting and noted that office 
and other outpatient visits are currently on the list of Medicare 
telehealth services. A professional society encouraged us to reexamine 
the request to add inpatient hospital care, observation services, and 
inpatient psychotherapy to the list of Medicare telehealth services in 
the future.
    Response: We agree that the acuity for some patients may be the 
same in the emergency department as in a physician's office. However, 
we also believe that more acutely ill patients are more likely to be 
seen in the emergency department. Although telehealth is an acceptable 
alternative to face-to-face ``hands on'' patient care in certain 
settings, the potential for misdiagnosis and/or mismanagement, with 
more serious consequences, exists in high acuity environments like the 
emergency department when telehealth is used as a replacement for an 
onsite physician or practitioner. The practice of emergency medicine 
often requires frequent patient reassessments, rapid physician 
interventions, and sometimes the continuous physician interaction with 
ancillary staff and consultants. We do not have evidence suggesting the 
use of telehealth could be a reasonable surrogate service for this type 
of care. In the absence of sufficient evidence that illustrates that 
the use of a telecommunications system produces

[[Page 66277]]

similar diagnoses or therapeutic interventions as would the face-to-
face delivery of inpatient hospital care, emergency department visits, 
hospital observation services, and inpatient psychotherapy, we do not 
plan to add these services to the list of approved telehealth services. 
As discussed in the proposed rule, we believe that the current list of 
Medicare telehealth services is appropriate for hospital inpatients, 
emergency room cases, and patients designated as observation status. If 
guidance or advice is needed in these settings, a consultation may be 
requested from an appropriate source.
    Comment: A telehealth association and a telehealth network 
requested that we clarify what consultation codes could be used for 
hospital inpatients, emergency room cases, and patients designated as 
observation status.
    Response: The appropriate consultation code depends on the 
admission status of the beneficiary. When the beneficiary is an 
inpatient of a hospital, the physician or practitioner at the distant 
site bills an initial or follow-up inpatient consultation as described 
by CPT codes 99251 through 99263. For the hospital observation setting 
and emergency department, the appropriate office or other outpatient 
consultation code is CPT codes 99241 through 99245.
    Comment: Some commenters believe that hospital inpatient care, 
inpatient psychotherapy, observation services, and emergency department 
visits should all be assigned to category 1 because they are clinically 
the same as a consultation. Moreover, the commenters expressed their 
opinion that a telecommunications system would not substitute for an 
in-person practitioner for the requested hospital services.
    Response: We agree that the key components of a consultation are 
similar to inpatient hospital care, observation services, and emergency 
department visits. However, a consultation service is distinguished 
from the requested hospital services because it is provided by a 
physician or practitioner whose opinion or advice regarding evaluation 
and management of a specific problem is requested by another physician 
or appropriate source. The ongoing management of the patient's 
condition remains the responsibility of the practitioner who requested 
the consultation. As discussed in our response to another comment, a 
consultation may be provided as a Medicare telehealth service for 
hospital inpatients, emergency room cases, and patients designated in 
observation status.
    In furnishing a consultation as a telehealth service, the physician 
at the distant site provides additional expertise, to ensure optimal 
patient outcomes. For consultation services, a practitioner is 
available to manage the patient at the originating site. However, 
adding the requested hospital services would permit a 
telecommunications system to be used as a substitute for an onsite 
practitioner because the physician or practitioner at the distant site 
assumes responsibility for the ongoing management of the patient's 
condition.

End Stage Renal Disease--Monthly Management of Patients on Dialysis

    Comment: Many commenters, including a telehealth association, a 
nephrology nurses association, a renal physicians association, a health 
system, a community hospital, a telemedicine law group, and others 
applauded our proposal to add the ESRD-related services with 2 or 3 
visits per month and ESRD-related services with 4 or more visits per 
month to the list of Medicare telehealth services. For example, two 
commenters believe that adding these services will help provide 
dialysis patients living in rural areas sufficient access to nephrology 
specialists and will save both patients and practitioners a significant 
amount of travel time. Additionally, many commenters expressed strong 
support for not permitting the visit that includes a clinical 
examination of the vascular access site to be added to the list of 
Medicare telehealth services and agreed that this exam should be 
furnished in person.
    Response: We agree with the comments.
    Comment: With regard to furnishing ESRD-related visits under the 
MCP, a nephrology association suggested that we permit the use of e-
mail and telephone conferencing for one year. The commenter believes 
this grace period would enable physicians and originating sites to 
acquire the necessary technology and execute their implementation 
plans. Additionally, an association of kidney patients questioned 
whether telehealth services would be available to ESRD patients in non-
rural areas.
    Response: Services added to the list of Medicare telehealth 
services are subject to the requirements and conditions of payment in 
the law and regulations. Under the Medicare telehealth provision, the 
use of an interactive audio and video telecommunications system that 
permits real-time interaction between the patient, physician or 
practitioner at the distant site, and telepresenter (if necessary) is a 
substitution for the face-to-face requirements under Medicare. 
Electronic mail systems and telephone calls are specifically excluded 
from the definition of an interactive telecommunications system. 
Moreover, we do not have the legislative authority to expand the 
geographic areas where telehealth services may be furnished. Telehealth 
services may only be furnished in non-Metropolitan Statistical Area 
counties or rural health professional shortage areas.
    Comment: An association representing kidney patients questioned 
whether we plan to evaluate the provision of telehealth services to 
ESRD patients to determine best practices.
    Response: We believe that most physicians and practitioners will 
use telehealth services for providing additional visits required under 
the MCP as appropriate to manage their patients on dialysis. However, 
we would welcome specific data on best practice methods for furnishing 
ESRD-related services as telehealth services.
    Comment: Some commenters indicated a belief that the ESRD-related 
services were assigned to category 2 for review. For example, one 
telehealth group believed that a discrepancy exists between the 
rationale we used to add ESRD-related services to the list of 
telehealth services and our decision not to add inpatient hospital 
care, observation services, inpatient psychotherapy, and emergency 
department visits. The commenter stated that ESRD-related services were 
added in the absence of randomized clinical trials or comparison 
studies and mentioned that the same level of evidence was submitted for 
ESRD-related services as for other requests (for example, inpatient 
hospital services). The commenter requested clarification on the method 
used to assign services to category 1 or category 2.
    Response: As discussed in the proposed rule, the MCP represents a 
range of services provided during the month, including various 
physician and practitioner services, such as the establishment of a 
dialyzing cycle, outpatient evaluation and management of the dialysis 
visit(s), telephone calls, and patient management as well as clinically 
appropriate physician or practitioner visit(s) during the month. At 
least one of the visits must include a clinical examination of the 
vascular access site furnished face-to-face, ``hands-on'' by a 
physician, CNS, NP, or PA.
    We considered the outpatient evaluation and management of the 
dialysis visits to be similar to an office

[[Page 66278]]

visit and other outpatient visits currently on the list of Medicare 
telehealth services. However, we believe that the clinical examination 
of the vascular access site is not similar to the existing telehealth 
services, and, therefore, it meets the criteria for a category 2 
request. We did not propose to add a comprehensive visit including a 
clinical examination of the vascular access site, to the list of 
Medicare telehealth services because the requestor did not provide 
comparative analyses illustrating that the use of a telecommunications 
system is an adequate substitute for a face-to-face clinical 
examination of the vascular access site. However, as discussed in the 
proposed rule, we do believe that the subsequent visits to monitor the 
patient's condition met our criteria for approving a category 1 
request. For category 1 services, we look for similarities between the 
proposed and existing telehealth services in terms of the roles of, and 
interactions among, the beneficiary, the physician or practitioner at 
the distant site, and, if necessary, the telepresenter.
    Therefore, we proposed that the MCP physician, that is, the 
physician or practitioner responsible for the evaluation and management 
of the patient's ESRD, and other practitioners within the same group 
practice or employed by the same employer or entity, may furnish 
additional ESRD-related visits as telehealth services using an 
interactive audio and video telecommunications system. However, for 
purposes of billing the MCP, at least one visit must include a clinical 
examination of the vascular access site, and must be furnished face-to-
face, ``hands on'' by a physician, CNS, NP, or PA each month.
    Comment: One commenter requested that we allow a physician or 
surgeon located at the originating site (who is not the MCP physician) 
to furnish ESRD-related visits involving the clinical examination of 
the vascular access site. The commenter stated that having a physician 
or surgeon skilled in vascular access management available to work in 
coordination with the MCP physician is necessary for geographically 
remote areas such as Alaska and in severe weather conditions. The 
commenter believes that this type of arrangement is well suited for 
telehealth.
    Response: The MCP physician may use another physician to provide 
some of the visits during the month however, the non-MCP physician must 
have a relationship with the billing physician such as a partner, 
employees of the same group practice or an employee of the MCP 
physician, for example, the physician at the originating site is either 
a W-2 employee or 1099 independent contractor.

Case Management and Care Plan Oversight (Team Conferences and Physician 
Supervision)

    A telehealth association and a network of clinics requested 
clarification on--
    <bullet> The scope of authority relating to the addition of 
services that do not require a face-to-face encounter with the patient; 
and
    <bullet> Whether our policy for care plan oversight is similar to 
the interpretation of an x-ray and other services that do not require a 
face-to-face encounter.
    Additionally, a neurological society urged us to reconsider our 
decision not to add medical team conferences to the list of telehealth 
services. The commenter argued that adding medical team conferences as 
a telehealth service would improve the quality of the care plan and 
save time for all physicians involved in the patient's care.
    Response: We add services to the list of Medicare telehealth 
services that traditionally require a face-to-face physician or 
practitioner encounter. The use of an interactive audio and video 
telecommunications system, permitting real time interaction between the 
beneficiary, physician or practitioner at the distant site, and 
telepresenter (if necessary) is a substitute for face-to-face 
requirements under Medicare. Services not requiring a face-to-face 
encounter with the patient that may be furnished through the use of a 
telecommunications system are already covered under Medicare. As 
discussed in chapter 15, section 30 of the Medicare Benefit Policy 
Manual, payment may be made for physicians' services delivered via a 
telecommunications system for services that do not require a face-to-
face patient encounter. The interpretation of an x-ray, 
electrocardiogram, electroencephalogram and tissue samples are listed 
as examples of these services. The Medicare Benefit Policy Manual may 
be found on our Web site at http://www.cms.hhs.gov/manuals/ by 
selecting the internet-only manuals link.
    Medical team conferences and monthly physician supervision do not 
require a face-to-face encounter with the patient, and, thus, a 
telecommunications system may be used to accomplish them. However, 
Medicare payment for CPT codes 99361, 99362, and 99374 are bundled; no 
separate payment is made under the Medicare program for these services, 
and CPT code 99375 (physician supervision; 30 minutes or more) is 
invalid for Medicare payment purposes. We pay for monthly physician 
supervision as described by HCPCS codes G0181 and G0182.

Process for Adding Services to the List of Medicare Telehealth Services

    Comment: We received conflicting comments on our process for adding 
services to the list of Medicare telehealth services. For example, a 
surgeons' association supported the evidence-based approach for adding 
category 2 services. However, a school of medicine and a telemedicine 
and electronic health group believe that we should consider changing 
our categorical system for adding a service to the list of Medicare 
telehealth services, specifically, in relation to the requested 
hospital services for hospital inpatients, emergency room cases, and 
patients designated as observation status.
    One of the commenters believes that the decision to use a 
telehealth system should be up to the physician or practitioner at the 
distant site. The commenter argues that, if the physician or 
practitioner at the distant site is not comfortable in making a 
clinical judgment, the patient may be asked to travel to the 
physician's office for further examination.
    Moreover, the commenter contends that the nature of telehealth 
services is not well suited for clinical trials and that the evidence 
that we require under category 2 may never be obtained because of the 
lack of reimbursement. As an alternative, the commenters recommended a 
method of review that considers--
    <bullet> Clinical utilization of the requested telehealth service;
    <bullet> The opinions of physicians and practitioners furnishing 
the telehealth service; and
    <bullet> The opportunity for the physicians and practitioners to 
prove the service is being delivered appropriately via 
telecommunications system.
    Response: We believe that the current method for reviewing requests 
for addition already considers the criteria mentioned by the commenter. 
The process for adding services to the list of Medicare telehealth 
services provides the public an ongoing opportunity to propose services 
that they believe are appropriate for Medicare payment. Requestors may 
submit data showing that patients who receive the requested service via 
telecommunications system are satisfied with the service delivered and 
that the use of a telecommunications system does not change the 
diagnosis or therapeutic

[[Page 66279]]

interventions for the requested service. Additionally, we believe that 
having different categories of review allows us to add requested 
services that are most like the current telehealth services (for 
example, office visits, consultation, and office psychiatry) without 
subjecting these requests to a comparative analysis.
    Since establishing the process to add services to the list of 
Medicare telehealth services, we have added the psychiatric diagnostic 
interview examination and have proposed specific ESRD-related services 
for the CY 2005 rule.
    Comment: One commenter recommended that we replace the term face-
to-face with ``in-person''. The commenter believes that the term ``in-
person'' is a better description of an encounter where the practitioner 
is in the same physical location as the beneficiary.
    Response: The commenter's suggestion to use the term ``in-person'' 
to describe an encounter where the physician or practitioner and the 
beneficiary are physically in the same room has been noted. We will 
consider the commenter's suggestion as we discuss Medicare telehealth 
payment policy in the future.

Report to Congress

    Comment: An audiology society and a language and hearing 
association strongly believe that most audiology services and speech 
therapy can be furnished remotely as telehealth services. To that end, 
many commenting groups and associations requested that we complete the 
report to Congress (as required by section 223(d) of the BIPA) and 
urged us to recommend adding speech language pathologists and 
audiologists as medical professionals that may provide and receive 
payment for Medicare telehealth services.
    Moreover, in light of the proposed addition of ESRD-related 
services to the list of telehealth services, many of these same 
commenters along with a nephrology society requested that we recommend 
adding dialysis facilities to the list of originating sites. One 
commenter requested that we add the patient's home to the definition of 
an originating site.
    Response: The report to Congress on additional sites and settings, 
practitioners, and geographic areas that may be appropriate for 
Medicare telehealth payment is under development. We are considering 
the suggestions raised by the commenters as we formulate our 
recommendations to the Congress.

Result of Evaluation of Comments

    We are adding ESRD-related services as described by G0308, G0309, 
G0311, G0312, G0314, G0315, G0317, and G0318 to the list of Medicare 
telehealth services. However, we will require that the complete 
assessment must include a face-to-face clinical examination of the 
vascular access site furnished ``hands on'' (without the use of an 
interactive telecommunications system) by a physician, clinical nurse 
specialist, nurse practitioner, or physician's assistant. An 
interactive telecommunications system may be used for providing 
additional visits required under the 2 to 3 visit MCP code and the 4 or 
more visit MCP code. Additionally, we are adding the term ``ESRD-
related visits'' to the definition of Medicare telehealth services at 
Sec.  410.78 and Sec.  414.65, as appropriate.
3. National Pricing of G0238 and G0239 Respiratory Therapy Service 
Codes.
    In the 2001 final rule, we created the following three G codes for 
respiratory therapy services:
    <bullet> G0237 Therapeutic procedures to increase strength or 
endurance of respiratory muscles, face-to-face, one-on-one, each 15 
minutes (includes monitoring).
    <bullet> G0238 Therapeutic procedures to improve respiratory 
function, other than ones described by G0237, one-on-one, face-to-face, 
per 15 minutes (includes monitoring).
    <bullet> G0239 Therapeutic procedures to improve respiratory 
function or increase strength or endurance of respiratory muscles, two 
or more individuals (includes monitoring).
    We assigned RVUs to one of the codes (G0237), and indicated that 
the other two codes (G0238 and G0239) would be carrier-priced. Since 
the services represented by these codes are frequently being performed 
in comprehensive outpatient rehabilitation facilities (CORFs), paid 
under the physician fee schedule through fiscal intermediaries, there 
has been some uncertainty surrounding the payment for the carrier-
priced services. We believe assigning RVUs to G0238 and G0239 will 
provide needed clarity. Since these services are typically performed by 
respiratory therapists, we did not assign physician work to G0237, and 
we did not propose work RVUs for either G0238 or G0239.
    Therefore, we proposed to value nationally the practice expense for 
these services using the nonphysician work pool. We proposed to 
crosswalk practice expense RVUs for G0238 to those for G0237 based on 
our belief that the practice expense for the activities involved is 
substantially the same for both services.
    For G0239, we believe a typical group session to be 30 minutes in 
length and to consist of 3 patients. Therefore, for the practice 
expense RVUs for G0239, we proposed using the practice expense RVUs of 
G0237 reduced by one-third to account for the fact that the service is 
being provided to more than one patient simultaneously and each patient 
in a group can be billed for the services of G0329.
    We also proposed a malpractice RVU of 0.02, the malpractice RVU 
assigned to G0237, for these two G-codes.
    Comment: Commenters supported the national pricing for these 2 G-
codes, G0238 and G0239. However, these organizations disagree with our 
RVU assignment. Specifically, most commenters disagreed with the lack 
of physician work RVUs and also believed that the malpractice RVU is 
inadequate to reflect the costs associated with the delivery of the 
services. These organizations contend that pulmonary rehabilitation 
services ``include a physician-directed individualized plan of care 
using multidisciplinary qualified health professionals to enhance the 
effective management of pulmonary diseases and resultant functional 
deficits.'' They believe that beneficiaries may receive pulmonary 
rehabilitation services at physician offices, outpatient departments of 
acute care hospitals, CORFs and rehabilitation clinics. The commenters 
noted that physicians and qualified nurse practitioners (NPs) and PAs 
order, supervise, and approve the plans of care for patients receiving 
respiratory therapy services, irrespective of the delivery setting.
    Because respiratory rehabilitation is often furnished in a 
physician office, these organizations believe the malpractice RVU 
assigned is inadequate to account for the physician involvement and 
requested that a more appropriate risk factor be used.
    Response: Because we believe that respiratory therapists (RTs) 
typically deliver these services, it would be inappropriate to assign a 
physician work RVU to these services. The malpractice RVU of 0.02 is 
similar to RVUs of therapeutic procedures delivered by physical and 
occupational therapists for similar services, including procedures 
performed one-on-one and in groups. We believe that the 0.02 
malpractice RVU fairly represents the risk value inherent in the 
provision of these procedures. However, because the commenters 
expressed concerns about work and malpractice RVUs, we are assigning 
these RVUs on an interim

[[Page 66280]]

basis, and we are requesting that the RUC or HCPAC consider this series 
of three G-codes at an upcoming meeting.
    Because RTs cannot directly bill Medicare for their services, these 
G-codes can only be billed as incident to services in physician offices 
and outpatient hospital departments or as CORF services. When performed 
in the CORF setting, these services must be delivered by qualified 
personnel, that is, RTs and respiratory therapy technicians, as defined 
at Sec.  485.70. The CORF benefit requires the physician to establish 
the respiratory therapy plan of care and mandates a 60-day 
recertification for therapy plans of care, including physical therapy 
(PT), occupational therapy (OT), speech language pathology (SLP), and 
respiratory therapy. As we stated in the December 31, 2002 final rule, 
we believe that specially trained professionals (that is, registered 
nurses, physical therapists and occupational therapists) can also 
provide these services.
    These respiratory therapy G-codes were designed to provide more 
specific information about the medically necessary services being 
provided to improve respiratory function and to substitute for the 
physical medicine series of CPT codes 97000 through 97799, except when 
services are furnished and meet all the requirements for physical and 
occupational therapy services.
    Comment: While three commenters voiced concerns about the 
significant undervaluing of these codes, one commenter noted that the 
practice expense RVUs fail to recognize the intensity of services and 
the cost of monitoring and other equipment associated with providing 
these services.
    Response: We agree that the practice expenses, particularly the 
equipment, for G0237 and G0238 are not equivalent and that there are 
more resources required to provide the medically necessary services of 
G0238. The necessary monitoring equipment referenced by commenters were 
considered at the time G0327 was originally valued. The appropriate 
direct inputs will be added to the practice expense database. However, 
we identified the omission of therapeutic exercise equipment for G0238 
and G0239 and we will also add this to the practice expense database.

Result of Evaluation of Comments

    We are assigning practice expense and malpractice RVUs to G0238 and 
G0239 and will add the additional items to the practice expense 
database. These codes are being valued in the nonphysician work pool as 
proposed. We will also ask the RUC or HCPAC to consider these codes.
4. Bone Marrow Aspiration and Biopsy through the Same Incision on the 
Same Date of Service.
    In the August 5, 2004 rule, we proposed a new add-on G-code, G0364 
(proposed as G0XX1): Bone marrow aspiration performed with bone marrow 
biopsy through same incision on same date of service. The physician 
would use the CPT code for bone marrow biopsy (38221) and G0364 for the 
second procedure (bone marrow aspiration).
    We believe that there is minimal incremental work associated with 
performing the second procedure through the same incision during a 
single encounter. We estimated that the time associated with this G-
code is approximately 5 minutes based on a comparison to CPT code 38220 
bone marrow aspiration which has 34 minutes of intraservice time and a 
work RVU of 1.08 work when performed on its own. We proposed 0.16 work 
RVUs for this new add-on G-code and malpractice RVUs of 0.04 (current 
malpractice RVUs assigned to CPT code 38220). For practice expense, we 
proposed the following practice expense inputs:

-- Clinical staff time: Registered nurse--5 minutes Lab technician--2 
minutes
-- Equipment: Exam table

    We also proposed a ZZZ global period (code related to another 
service and is always in the global period of the other service) for 
this add-on code since this code is related to another service and is 
included in the global period of the other service.
    In the August 5, 2004 proposed rule, we also stated that if the two 
procedures, aspiration and biopsy, are performed at different sites 
(for example, contralateral iliac crests, sternum/iliac crest or two 
separate incisions on the same iliac crest), the -59 modifier, which 
denotes a distinct procedural service, is appropriate to use and 
Medicare's multiple procedure rule will apply. In this instance, the 
CPT codes for aspiration and biopsy are each being used.
    Comment: Many commenters supported creation of this G-code; 
however, all commenters stated that the time for this procedure (5 
minutes) was substantially underestimated. Commenters recommended 
increasing the added incremental time associated with the aspiration to 
15 minutes. One commenter noted that this time is needed for the actual 
aspiration procedure, approving the quality of the aspiration, 
collecting flow cytometry and chromosome studies, preparing additional 
slides, ordering appropriate lab tests on the slides, and performing 
the added recordkeeping and documentation. Another commenter provided a 
detailed description of the activities involved in this procedure. 
Commenters also recommended that the practice expense input for the 
nurse assisting with the procedure should be increased to 15 minutes.
    Response: We continue to believe that the proposed 5 minutes of 
physician time, 5 minutes of registered nurse time, and 2 minutes of 
lab technician time reflect the additional effort involved when a bone 
marrow aspiration is performed in conjunction with a bone marrow biopsy 
through the same incision during a single encounter. It is our 
understanding that some of the activities attributed to the additional 
15 minutes of physician work generally are performed by ancillary 
staff, for example, preparing slides. While we appreciate the 
information provided, we believe that the majority of the effort and 
specific tasks discussed are accounted for in the CPT code for bone 
marrow biopsy (38221) which is the primary code being billed.
    Comment: Two physician specialty societies, representing 
radiologists and interventional radiologists, questioned the need for 
the proposed code, because the multiple surgical discount rule that 
reduces payment for a subsequent lower valued service applies, thereby 
taking into account any savings in physician work. If we choose to 
proceed with the proposal, the commenter recommended the RVUs be 
consistent with those determined using the current values for CPT codes 
38220 and 38221 and the multiple surgical discount rule.
    Response: One of the primary reasons for our proposal for this G-
code was that we believe that, even with the application of the 
multiple procedure reduction, we would be overpaying for these services 
when they are performed on the same day, at the same encounter and 
using the same incision.

Result Of Evaluation of Comments

    We are finalizing our proposal and using new G-code G0364, Bone 
marrow aspiration performed with bone marrow biopsy through the same 
incision on the same date of service. Payment is based on the work and 
malpractice RVUs and practice expense inputs proposed and the global 
period for this service is ``ZZZ''.

[[Page 66281]]

5. Q-Code for the Set-Up of Portable X-Ray Equipment
    The Q-code for the set-up of portable x-ray equipment, Q0092, is 
currently paid under the physician fee schedule and is assigned an RVU 
of 0.33. In 2004, this produces a national payment of $12.32. This set-
up code encompasses only a portion of the resources required to provide 
a portable x-ray service to patients. In 2003, portable x-ray suppliers 
received total Medicare payments of approximately $208 million. More 
than half of these payments (approximately $116 million) were for 
portable x-ray transportation (codes R0070 and R0075). The portable x-
ray set-up code (Q0092) generated approximately $19 million in 
payments. The remainder of the Medicare payments for portable x-ray 
services (approximately $73 million) were for the actual x-ray services 
themselves.
    As discussed in the August 5, 2004 proposed rule, the Conference 
Report accompanying the Consolidated Appropriations Bill, H.R. 2673, 
(Pub. L. 108-199, enacted January 23, 2004) urged the Secretary to 
review payment for this code, and the portable x-ray industry has also 
requested that we reexamine payments for this code.
    Q0092 is currently priced in the nonphysician work pool. At the 
time we modeled this change for the proposed rule, removing this code 
from the nonphysician work pool had an overall negative impact on 
payments to portable x-ray suppliers (as a result of decreases to 
radiology codes that remain in the nonphysician work pool) and a 
negative impact on many of the codes remaining in the nonphysician work 
pool. An alternative to national pricing of portable x-ray set-up would 
be to require Medicare carriers to develop local pricing as they do 
currently for portable x-ray transportation. We requested comments on 
whether we should pursue national pricing for portable x-ray set-up 
outside of the nonphysician work pool or local carrier pricing for 
2005, or whether we should continue to price the service in the 
nonphysician work pool.
    Comment: Most commenters recommended removing portable x-ray from 
the nonphysician work pool, using the ``existing data'' from the 
American College of Radiology (ACR) supplemental practice expense 
survey as the practice expense per hour proxy. However, the National 
Association of Portable X-Ray Suppliers (NAPXP) requested additional 
time to review information they received from us just 3 days before the 
close of the comment period. This association requested that they be 
allowed to submit supplemental comments.
    Response: ACR requested that we delay incorporating their survey 
data for 1 year. Using the data for one code, as proposed by 
commenters, would be inconsistent with that request. We believe it is 
inappropriate to use the new survey data for this code but no other 
code. Even if we removed the set-up code from the nonphysician work 
pool and calculated its practice expense RVU using the ACR data, the 
increase in payment for the portable x-ray set-up code would be largely 
offset by lower payment for x-ray services. Payments for other services 
in the nonphysician work pool would also decline affecting other 
specialties, such as radiology, radiation oncology, cardiology, 
allergy, audiology and others. Further, the portable x-ray set-up code 
is yet to be refined, and we believe that the 45 minutes of staff time 
that is used to determine its value is likely overstated. We believe it 
is preferable to address refinement of the code and pricing the service 
outside of the nonphysician work pool together. Therefore, in 2005, we 
are continuing to price this service within the nonphysician work pool.
    The NAPXP requested more time to review the data we supplied them. 
NAPXP's comment implying that we withheld ``data'' from them is simply 
wrong. In an effort to explain the theoretical reasons for our 
statements that removing this service from the nonphysician work pool 
could lower overall payments to portable x-ray suppliers, we prepared 
an illustration for another association as a follow-up request after a 
meeting, where we were asked to explain our proposed rule analysis. The 
explanation contained no new data. Moreover, we provided the 
explanatory information to NAPXP as soon as they requested it. Since 
the information NAPXP complains about was illustrative only, we do not 
believe NAPXP has been prejudiced in any way. Moreover, we are willing 
to explain the information to NAPXP and to consider any comments they 
may have as we consider changes to the practice expense methodology for 
2006.
6. Venous Mapping for Hemodialysis
    In the August 5, 2004 rule, we proposed a new G-code (G0XX3: Venous 
mapping for hemodialysis access placement (Service to be performed by 
operating surgeon for preoperative venous mapping prior to creation of 
a hemodialysis access conduit using an autogenous graft). Autogenous 
grafts have longer patency rates, a lower incidence of infection and 
greater durability than prosthetic grafts. Use of autogenous grafts can 
also result in a decrease in hospitalizations and morbidity related to 
vascular access complications. We stated that creation of this G-code 
will enable us to distinguish between CPT code 93971 (Duplex scan of 
extremity veins including responses to compression and other maneuvers; 
unilateral or limited study) and G0XX3 in order to allow us to track 
use of venous mapping for quality improvement purposes.
    We also proposed that this G-code be billed only by the operating 
surgeon in conjunction with CPT codes 36819, 36821, 36825, and 36832 
and that we would not permit payment for CPT code 93971 when this G-
code is billed, unless code CPT 93971 was being performed for a 
separately identifiable clinical indication in a different anatomic 
region.
    We proposed to crosswalk the RVUs for the new G-code from those of 
CPT code 93971 and also assigned this new G-code a global period of 
``XXX,'' which means that the global concept does not apply.
    Comment: Commenters representing specialty societies and individual 
providers were generally supportive of the proposal for this new code, 
but expressed the following three primary concerns:
    <bullet> Commenters did not agree with restricting this code to the 
operating surgeon, stating that such a restriction could limit access 
and serve as a barrier in providing this service. They also stated that 
this proposed restriction is not reflective of current practice, since 
nonsurgeons often perform this procedure.
    <bullet> Commenters did not agree with the proposed descriptor. 
They indicated that the proposed descriptor did not reflect the 
procedure as it is now performed and suggested (a) alternate wording, 
such as ``vascular mapping,'' ``autogenous AV fistula,'' and 
``prosthetic graft,'' ``vessel mapping;'' (b) that two G-codes should 
be created to distinguish between a complete bilateral and unilateral 
or limited studies. Other commenters noted that the proposal did not 
distinguish between mapping by venography or ultrasound (duplex), and 
some commenters suggested creating an additional G-code to distinguish 
between these procedures.
    <bullet> Commenters stated that the comparison to CPT code 93971 in 
the proposed rule undervalues the service. While there are differences, 
the closer analogue in terms of time and resources required is CPT code 
93990, Duplex scans of hemodialysis access.
    Response: We proposed the G-code to create the opportunity for us 
to analyze

[[Page 66282]]

the relationship between venous mapping utilization and fistula 
formation.
    Based on the comments we received, we are revising the code 
descriptor to enable clinicians, other than the operating surgeon, who 
provide care to ESRD patients the opportunity to bill for this service.
    We believe that vessel mapping requires the assessment of the 
arterial and venous vessels in order to provide the information 
necessary for the creation of an autogenous conduit. Therefore, we are 
also revising payment for this code and will crosswalk it to CPT code 
93990 for work, malpractice, and practice expense RVUs because these 
RVUs more appropriately reflect the work and resources of this new G-
code. The G-code and descriptor for this service will be G0365, Vessel 
mapping of vessels for hemodialysis access (Services for preoperative 
vessel mapping prior to creation of hemodialysis access using an 
autogenous hemodialysis conduit, including arterial inflow and venous 
outflow). This code can only be used in patients who have not had a 
prior hemodialysis access prosthetic graft or autogenous fistula and is 
limited to two times per year.
    We will not permit separate payment for CPT code 93971 when this G-
code is billed, unless CPT code 93971 is being performed for a 
separately identifiable indication in a different anatomic region. We 
also note that other imaging studies may not be billed for the same 
site on the same date of service unless an appropriate ``KO'' modifier 
indicating the reason or need for the second imaging study is provided 
on the claim form.
    We will follow the utilization closely this year to better 
understand whether this code is used as intended.

III. Provisions Related to the Medicare Modernization Act of 2003

A. Section 611--Preventive Physical Examination

    Section 611 of the MMA provides for coverage under Part B of an 
initial preventive physical examination (IPPE) for new beneficiaries, 
effective for services furnished on or after January 1, 2005, subject 
to certain eligibility and other limitations.
    In the August 5, 2004 proposed rule, we described a new Sec.  
410.16 (Initial preventive physical examination: conditions for and 
limitations on coverage) that would provide for coverage of the various 
IPPE services specified in the statute. As provided in the statute, 
this new coverage allows payment for one IPPE within the first 6 months 
after the effective date of the beneficiary's first Part B coverage 
period, but only if that coverage period begins on or after January 1, 
2005. To implement the statutory provisions, we proposed definitions of 
the following terms:
    <bullet> Eligible beneficiary;
    <bullet> An initial preventive physical examination;
    <bullet> Medical history;
    <bullet> Physician;
    <bullet> Qualified NPP;
    <bullet> Social History, and
    <bullet> Review of the individual's functional ability and level of 
safety.
    In keeping with the language of section 611 of the MMA, we defined 
the term ``eligible beneficiary'' to mean individuals who receive their 
IPPEs within 6 months after the date of their first Medicare Part B 
coverage period, but only if their first Part B coverage period begins 
on or after January 1, 2005. This section also defines the term 
``Initial Preventive Physical Examination'' to mean services provided 
by a physician or a qualified NPP consisting of: (1) A physical 
examination (including measurement of height, weight, blood pressure, 
and an electrocardiogram, but excluding clinical laboratory tests) with 
the goal of health promotion and disease detection; and (2) education, 
counseling, and referral for screening and other covered preventive 
benefits separately authorized under Medicare Part B.
    Specifically, section 611(b) of the MMA provides that the 
education, counseling, and referral of the individual by the physician 
or other qualified NPP are for the following statutory screening and 
other preventive services authorized under Medicare Part B:
    <bullet> Pneumococcal, influenza, and hepatitis B vaccine and their 
administration;
    <bullet> Screening mammography;
    <bullet> Screening pap smear and screening pelvic exam services;
    <bullet> Prostate cancer screening services;
    <bullet> Colorectal cancer screening tests;
    <bullet> Diabetes outpatient self-management training services;
    <bullet> Bone mass measurements;
    <bullet> Screening for glaucoma;
    <bullet> Medical nutrition therapy services for individuals with 
diabetes or renal disease;
    <bullet> Cardiovascular screening blood tests; and
    <bullet> Diabetes screening tests.
    Based on the language of the statute, our review of the medical 
literature, current clinical practice guidelines, and United States 
Preventive Services Task Force (USPSTF) recommendations, we interpreted 
the term ``initial preventive physical examination'' for purposes of 
this benefit to include all of the following service elements:
    1. Review of the individual's comprehensive medical and social 
history, as those terms are defined in proposed Sec.  410.16(a);
    2. Review of the individual's potential (risk factors) for 
depression (including past experiences with depression or other mood 
disorders) based on the use of an appropriate screening instrument, 
which the physician or other qualified NPP 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 individual's functional ability and level of 
safety, as described in proposed Sec.  410.16(a), (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 
other qualified NPP 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 individual's 
height, weight, blood pressure, a visual acuity screen, and other 
factors as deemed appropriate by the physician or qualified NPP, based 
on the individual's comprehensive medical and social history and 
current clinical standards;
    5. Performance and interpretation of an electrocardiogram;
    6. Education, counseling, and referral, as appropriate, based on 
the results of the first five elements of the initial preventive 
physical examination; and
    7. Education, counseling, and referral, including a written plan 
provided to the individual for obtaining the appropriate screening and 
other preventive services, which are separately covered under Medicare 
Part B benefits; that is, pneumococcal, influenza, and hepatitis B 
vaccines and their administration, screening mammography, screening pap 
smear and screening pelvic examinations, prostate cancer screening 
tests, colorectal cancer screening tests, diabetes outpatient self-
management training services, bone mass measurements, screening for 
glaucoma, medical nutrition therapy services, cardiovascular (CV) 
screening blood tests, and diabetes screening tests.

[[Page 66283]]

    The proposed ``medical history'' definition includes the following 
elements:
    <bullet> Past medical history and surgical history, including 
experience with illnesses, hospital stays, operations, allergies, 
injuries, and treatment.
    <bullet> Current medications and supplements, including calcium and 
vitamins.
    <bullet> 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.
    The proposed ``physician'' definition means for purposes of this 
provision a doctor of medicine or osteopathy (as defined in section 
1861(r)(1) of the Act).
    The proposed ``qualified nonphysician practitioner'' for purposes 
of this provision means a PA, NP, or clinical nurse specialist (CNS) 
(as authorized under sections 1861(s)(2)(K)(i) and 1861(s)(2)(K)(ii) of 
the Act and defined in section 1861(aa)(5) of the Act, or in 
regulations at Sec.  410.74, Sec.  410.75, and Sec.  410.76).
    The proposed ``social history'' definition includes, at a minimum, 
the following elements:
    <bullet> History of alcohol, tobacco, and illicit drug use.
    <bullet> Work and travel history.
    <bullet> Diet.
    <bullet> Social activities.
    <bullet> Physical activities.
    The proposed definition of ``Review of the individual's functional 
ability and level of safety'' includes, at a minimum, a review of the 
following areas:
    <bullet> Hearing impairment.
    <bullet> Activities of daily living.
    <bullet> Falls risk.
    <bullet> Home safety.
    We also proposed conforming changes to specify an exception to the 
list of examples of routine physical examinations excluded from 
coverage in Sec.  411.15(a)(1) and Sec.  411.15(k)(11) for IPPEs that 
meet the eligibility limitation and the conditions for coverage that we 
are specifying under Sec.  410.16, Initial preventive physical 
examinations.
    With regards to the issue of payment for the IPPE, in the August 5, 
2004 proposed rule we stated that there is no current CPT code that 
contains the specific elements included in the IPPE and proposed to 
establish a new HCPCS code to be used for billing for the initial 
preventive examination. As required by the statute, we indicated that 
this code includes an electrocardiogram, but does not include 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 must be identified 
using the existing appropriate codes.
    Proposed payment for this code was based on the following:
    <bullet> Work RVUs: We proposed a work value of 1.51 RVUs for G0344 
(G0XX2 in proposed rule) based on our determination that this new 
service has equivalent resources and work intensity to those contained 
in CPT E/M code 99203, new patient, office or other outpatient visit 
(1.34 RVUs), and CPT code 93000 electrocardiogram, complete (0.17 
RVUs), which is for a routine ECG with the interpretation and report.
    <bullet> Malpractice RVUs: For the malpractice component of G0344, 
we proposed malpractice RVUs of 0.13 in the nonfacility setting based 
on the malpractice RVUs currently assigned to CPT code 99203 (0.10) and 
CPT code 93000 (0.03). In the facility setting, we proposed malpractice 
RVUs of 0.11 based on the current malpractice RVUs assigned to CPT code 
99203 (0.10) and 93010 (an EKG interpretation with a value of 0.01).
    <bullet> Practice Expense RVUs: For the practice expense component 
of G0344, we proposed practice expense RVUs of 1.65 in the nonfacility 
setting based on the practice RVUs assigned to CPT code 99203 (1.14) 
and CPT code 93000 (0.51). In the facility setting, we proposed 
practice expense RVUs of 0.54 based on the practice expense RVUs 
assigned to CPT code 99203 (0.48) and 93010 (0.06).
    Because some of the components for a medically necessary Evaluation 
and Management (E/M) visit are reflected in this new G code, we also 
proposed, when it is appropriate, to allow a medically necessary E/M 
service no greater than a level 2 to be reported at the same visit as 
the IPPE. That portion of the visit must be medically necessary to 
treat the patient's illness or injury or to improve the function of a 
malformed body member and should be reported with modifier--25. We also 
stated the physician or qualified NPP could also bill for the screening 
and other preventive services currently covered and paid by Medicare 
Part B under separate provisions of section 1861 of the Act, if 
provided during this IPPE.
    The MMA did not make any provision for the waiver of the Medicare 
coinsurance and Part B deductible for the IPPE. Payment for this 
service would be applied to the required deductible, which is $110 for 
CY 2005, if the deductible is not met, and the usual coinsurance 
provisions would apply.

Analysis of and Response to Comments

    We specifically solicited public comments on the definition of the 
term ``initial preventive physical examination,'' with supporting 
documentation. For example, we indicated that we chose not to define 
the term, ``appropriate screening instrument,'' for screening 
individuals for depression, functional ability, and level of safety, as 
specified in the rule, because we anticipated that the examining 
physician or qualified NPP may want to use the test of his or her 
choice, based on current clinical practice guidelines. We believe that 
any standardized screening test for depression, functional ability, and 
level of safety recognized by the American Academy of Family 
Physicians, the American College of Physicians-American Society of 
Internal Medicine, the American College of Preventive Medicine, the 
American Geriatrics Society, the American Psychiatric Association, or 
the USPSTF, or other recognized medical professional group, would be 
acceptable for purposes of meeting the ``appropriate screening 
instrument'' provision. We asked that commenters making specific 
recommendations on this or any related issue provide documentation from 
the medical literature, current clinical practice guidelines, or the 
USPSTF recommendations.
    We received 71 public comments on the proposed rule regarding IPPE. 
Commenters included national and State professional associations, 
medical societies and medical advocacy groups, hospital associations, 
hospitals, managed care plans, physicians, senior advocacy groups, 
health care manufacturers, and others. Although a number of commenters 
expressed concern that the proposed rule was too prescriptive and not 
sufficiently targeted to prevention, a large majority of the commenters 
enthusiastically supported most of the coverage provisions of the 
proposed rule. Many of the commenters, however, suggested clarification 
and revision of the rule in a number of different areas, including the 
proposed definitions of ``initial preventive physical examination,'' 
``physician,'' and ``qualified nonphysician practitioner.'' Commenters 
also raised questions regarding other issues, such as those relating to 
the need for us to educate Medicare beneficiaries and providers with 
respect to the new benefit, and to monitor the implementation of the 
new benefit. Finally, commenters offered suggestions and questions with 
regards to payment issues, evaluation and

[[Page 66284]]

management services (E/M) and coinsurance and Part B deductible issues.
    A summary of the comments and our responses are presented below.
    Comment: A number of commenters expressed concern that in the 
proposed rule, we had gone beyond the coverage criteria that were 
specified in the statute for the new benefit. They noted that the 
additional criteria was too prescriptive and would only add confusion 
and an additional burden for physicians in determining what medical 
services are necessary for each beneficiary they evaluate. Several 
commenters indicated that while the proposed definition for the scope 
of the benefit was well-intentioned, the beneficiary's physician or 
other provider was the best person to determine what medical services 
are necessary in providing a thorough physical and to be responsive to 
the individual's age, gender, and particular health risks. In general, 
they suggested that we not interfere in a physician's judgment by 
attempting to standardize by Federal regulations the specific medical 
services to be included under the new benefit.
    Response: Section 611 of the MMA defines the scope of the IPPE 
benefit as physicians' services consisting of a physical examination 
(including measurement of height, weight, and blood pressure and an 
electrocardiogram) with the goal of health promotion and disease 
detection, as well as certain education, counseling, and referral 
services with respect to other statutory screening and preventive 
services also covered under the Medicare statute. We believe that the 
statutory parenthetical language, (including measurement of height, 
weight, and blood pressure and an electrocardiogram) recognizes that 
other services could be contained within the IPPE benefit. We are using 
the authority under section 1871(a) of the Act through the rulemaking 
process to provide clarity as to the specific services that are to be 
included under the new benefit.
    We believe that adding these additional services will help to 
ensure that a full and complete IPPE is provided to each beneficiary 
who chooses to take advantage of the service and that all beneficiaries 
who decide to do this are treated in a relatively uniform manner 
throughout the country. With an estimated 200,000 individuals expected 
to enroll in Medicare Part B each month starting in January 2005, who 
will be eligible to receive the IPPE benefit, we believe that it is 
paramount that we promulgate a minimum list of required services 
important to the goals of health promotion and disease detection that 
must be included in the new benefit, and we are specifying those 
service elements in the final rule.

The ``Initial Preventive Physical Examination'' Definition (IPPE) 
(Sec.  410.16(a))

    Comment: Three commenters indicated that this new benefit presents 
a unique opportunity to offer Medicare beneficiaries with a visit 
focused on prevention at the start of their Part B enrollment. They 
suggested, that we shift our focus in service element 1 of the 
definition of the new IPPE from a comprehensive to a more targeted 
priority list of modifiable risk factors, screening tests, and 
immunizations that are supported by the strongest evidence of 
effectiveness, and have been proven to improve the health of 
beneficiaries.
    Response: We agree that the intent of the new benefit is to deliver 
clinical preventive services that are accepted and effective in helping 
to keep people healthy and reduce the burden of disease whenever 
possible. Therefore, we agree to revise the language in service element 
1 to read as follows: ``Review of the individual's medical and social 
history with particular attention to modifiable risk factors for 
disease.''
    Comment: Three commenters indicated that the collection of 
information on a beneficiary's social history such as social 
activities, work and travel history, is a distraction and is not needed 
by the physician or other qualified NPP who is performing the 
preventive physical examination. The commenters suggest that we 
eliminate the proposed definition and not require the collection of 
this information.
    Response: We agree that information on work and travel history, and 
social activities may not be necessary for purposes of the new 
preventive physical examination and thus we are removing those elements 
from the minimum requirements for the ``social history'' definition. 
However, we believe it is important to retain three elements of the 
Social history definition in the final rule and they will be reflected 
in that document as follows:
    <bullet> History of alcohol, tobacco, and illicit drug use.
    <bullet> Diet.
    <bullet> Physical activities.
    Comment: Several commenters requested that we add language to 
service element 1 to allow practitioners to ascertain information from 
individuals about additional disease or other diagnoses such as 
including questions regarding past diagnoses or treatment of cancer, 
diabetes, elevated blood sugar, height loss, previous fractures, and 
medical conditions that may increase a person's risk of coagulopathic 
disorders such as deep venous thrombosis (DVT).
    Response: In applying our definition of ``past medical history'' we 
expect that physicians and qualified NPPs performing the IPPE will be 
able to ask about an array of medical illnesses, including prior 
diagnoses and treatment of conditions such as cancer, diabetes, risk 
factors for osteoporosis such as height loss or previous fractures, and 
history of coagulopathic disorders such as DVT. Therefore, we do not 
see a need to expand the proposed definition as the commenters have 
suggested, and we have decided to leave it unchanged in the final rule.
    Comment: Three commenters asked us to add language to either 
service element 1 or 3 to allow practitioners to screen individuals for 
memory impairment.
    Response: Currently, the USPSTF has found insufficient evidence to 
recommend for or against routine screening for dementia with 
standardized instruments in asymptomatic persons. However, the USPSTF 
notes that patients with problems in performing daily activities should 
have their mental status evaluated and clinicians should remain alert 
for possible signs of declining cognitive function. We included as part 
of the definition for service element 3, ``Review of the individual's 
functional ability and level of safety,'' a review of the patient's 
activities of daily living. While not exhaustive, this review will 
primarily aid physicians in identifying a patient's problems with 
regard to performing these activities and the role cognitive impairment 
may play in these deficits.
    Comment: One commenter proposed that we not use the NCD process to 
revise the content of the IPPE in the future. The NCD process would be 
too slow or cumbersome to allow us to keep the content of the 
examination consistent with current clinical practice.
    Response: For service elements 2 and 3, which discuss the future 
use of the NCD process in determining appropriate screening instruments 
we will delete the following: ``unless the appropriate instrument is 
defined through the NCD process.'' We will add language that states 
available standardized screening tests must be recognized by national 
medical professional organizations.
    Comment: Several commenters requested that we clarify our intent as 
to whether the depression screening assessment in service element 2 
will include consideration of the potential for depression as well as 
an assessment

[[Page 66285]]

of an individual's current depression status. Another commenter asked 
us to clarify our intent with respect to the use of a screening 
instrument for persons with a current diagnosis of depression.
    Response: We agree with the commenters that the regulation language 
on depression screening needs to be clarified. We are revising service 
element 2 to read ``review of the individual's potential (risk factors) 
for depression, including current or past experience with depression or 
other mood disorders, based on the use of an appropriate screening 
instrument for persons without a current diagnosis of depression, which 
the physician or other qualified NPP may select from various available 
standardized screening tests designed for this purpose and recognized 
by national medical professional organizations.''
    Comment: Three commenters expressed the view that the proposed 
screening tests for falls risk and home safety in service element 3 
were not supported by direct scientific evidence, and should be dropped 
from the IPPE benefit in the final rule.
    Response: Falls are among the most common and serious problems 
facing elderly persons. They are associated with considerable morbidity 
such as hip fractures and overall reduced level of functioning. The 
USPSTF also notes that falls are the second leading cause of 
unintentional injury deaths in the United States. The death rate due to 
falls increases as a person ages. According to the National Center for 
Injury Prevention and Control, approximately one-half to two-thirds of 
all falls occur in and around a person's home. Therefore, discussing 
with patients home safety tips may reduce some home hazards. In 
addition, the USPSTF recommends counseling patients on specific 
measures to reduce the risk of falling, although direct evidence of 
effectiveness has not yet been established. Therefore, we believe that 
questioning and counseling patients to determine their risk of falling 
and home safety is warranted as part of the IPPE benefit.
    Comment: Several commenters from the audiology community have asked 
us to clarify the meaning of the proposed requirement in service 
element 3, which includes (among other things) a review of any hearing 
impairment. In addition, several commenters have requested that we 
clarify whether a hearing assessment is required as part of service 
element 3, or whether questions (or a questionnaire) advanced to an 
individual about any possible hearing problems would suffice for 
purposes of this part of the new benefit. The commenters ask for 
provider flexibility in meeting this requirement.
    Response: The regulatory intent of service element 3 is that we 
expect that the physician or qualified NPP will engage in a dialogue 
with patients concerning these issues by asking the individual 
appropriate questions or using a written questionnaire to address 
hearing impairment, activities of daily living, falls risk, and home 
safety. We do not intend for actual screening instruments such as 
audiometric screening tests to be used. After questioning the 
individual, if abnormalities are identified, additional follow-up 
services may be warranted and may include education, counseling, and 
referral (if appropriate.)
    Therefore, we are revising the language of service element 3 to 
read ``review of the individual's functional ability and level of 
safety, based on the use of appropriate screening questions or a 
screening questionnaire which the physician or qualified NPP may select 
from various available screening questions or standardized 
questionnaires designed for this purpose and recognized by national 
medical professional organizations.''
    Medically necessary diagnostic hearing tests, including hearing and 
balance assessment services, performed by a qualified audiologist are 
covered as other diagnostic tests under section 1861(s)(3) of the Act 
and would be separate from the new IPPE benefit. These services may be 
appropriate when a physician or other qualified NPP orders a diagnostic 
hearing test for the purpose of obtaining information necessary for the 
physician's diagnostic evaluation or to determine the appropriate 
medical or surgical treatment of a hearing deficit or related medical 
problem. However, coverage of this testing is excluded by virtue of 
section 1862 (a)(7) of the Act when the diagnostic information required 
to determine the appropriate medical or surgical arrangement is already 
known to the physician, or the diagnostic services are performed only 
to determine the need for the appropriate type of hearing aid. For 
further information about the application of the hearing test exclusion 
to diagnostic hearing tests and payment for these services, we suggest 
review of section 80.3 to 80.3.1 of the Medicare Benefit Policy Manual.
    Comment: Several commenters suggested that we expand the services 
to be included as part of service element 4 that was proposed for 
coverage under the IPPE benefit to include: (1) Palpitation/
auscultation of carotid arteries; (2) palpitation/auscultation of 
abdominal aorta; and (3) the ankle-brachial index (ABI) test for 
peripheral arterial disease (PAD).
    Response: Currently, routine screening of asymptomatic persons for 
carotid artery stenosis via palpation/auscultation of the carotid 
arteries or carotid ultrasound is not recommended by organizations such 
as the USPSTF, which provides guidelines on this issue. Therefore, we 
are not adding routine screening of asymptomatic individuals for 
carotid artery stenosis to service element 4 in the absence of evidence 
of the effectiveness of the screening. In addition, the USPSTF has 
determined that there is insufficient evidence to recommend for or 
against routine screening of asymptomatic adults for abdominal aortic 
aneurysm (AAA) by palpation/auscultation or ultrasound of the abdominal 
aorta so we are not adding that type of screening to service element 4.
    Finally, the USPSTF does not recommend routine screening for PAD in 
asymptomatic persons. However, they also state that clinicians, should 
be aware of symptoms and risk factors for PAD and evaluate patients 
accordingly. Therefore, routine screening for PAD with the use of the 
ABI will not be required as part of the initial preventive physical 
examination.
    Comment: One commenter asked for clarification on whether the 
proposed regulatory language ``and other factors deemed appropriate by 
the physician or qualified nonphysician practitioner,'' as specified in 
service element 4, would permit inclusion of coverage of a screening 
for chronic obstructive pulmonary disease (COPD) through spirometric 
testing under the IPPE benefit.
    Response: The intent of this language for the actual physical 
examination portion of the IPPE benefit is to leave to the discretion 
of the physician or other qualified NPP whether to perform commonly 
utilized physical examination measures such as auscultation of the 
heart or lungs on a particular patient, if needed. Spirometry as a 
screening test for COPD, however, would not be considered to fall 
within the scope of the physical examination element of the IPPE 
benefit.
    Comment: A number of commenters suggested that we add an assessment 
of abdominal obesity or alternatively the calculation of the body mass 
index (BMI) to the vital signs part of service element 4 to help in 
determining if an individual is at risk for a heart attack, diabetes, 
or other medical problems.
    Response: By requiring measurement of height and weight as part of 
the IPPE in element 4 (an examination to include

[[Page 66286]]

measurement of an individual's height, weight, blood pressure), we 
believe that the physician or other qualified NPP performing the IPPE 
will use that information to determine an individual's BMI if 
necessary.
    Comment: Three commenters expressed concern about the wide latitude 
given to physicians and other qualified NPPs providing the IPPE benefit 
to select whichever screening test they prefer to use in connection 
with the assessment of visual acuity. The commenters believe that 
setting vague boundaries around what constitutes an appropriate 
screening instrument could open the door for inappropriate use of 
preventive services. To avoid this, the commenters recommend narrowly 
defining the appropriate screening instrument for visual acuity in 
service element 4 by specifying the use of the Snellen test for that 
purpose.
    Response: We agree that the Snellen test is a widely available test 
used to assess a person's visual acuity. Other similarly available 
tests for visual acuity also exist, however, and may convey similar 
results for individual physicians and other clinicians. While we expect 
that many physicians will utilize the Snellen test in assessing a 
beneficiary's visual acuity for the purpose of this new benefit, we are 
not mandating the use of the Snellen test or any other specific visual 
acuity test in order to meet the requirements of element 4 in the final 
rule.
    Comment: One commenter noted that the proposed rule allows for 
coverage of the assessment in service element 4 of ``other factors as 
deemed appropriate based on the individual's comprehensive medical and 
social history.'' The commenter expressed the view that the quoted 
language might result in the possibility that virtually any patient's 
abnormality identified during the preventive physical examination might 
lead to further evaluation of the patient and a cascade of diagnostic 
workup of questionable health benefit to the patient and potentially of 
great cost to the Medicare program. In view of these concerns, the 
commenter recommended using more restrictive language that would allow 
for additional assessment of other factors only when they are supported 
by evidence-based clinical practice guidelines.
    Response: Our purpose in proposing the specific quoted language 
referenced in service element 4 was to allow for the physician or other 
qualified NPP to perform a limited physical examination of those key 
elements such as height, weight, blood pressure, and a visual acuity 
screen that may be important in detecting disease. However, we have 
specified that additional physical examination measures may be 
performed if deemed appropriate based on the issues identified by the 
physician or other clinician in the review of service elements 1 to 3. 
While we will not specify in the final rule that these additional 
measures must be supported by evidence-based practice guidelines, we 
will state that the practitioner performing the preventive examination 
follow current clinical standards and those guidelines, of course, may 
include the evidence-based guidelines referenced by the commenter.
    Comment: One commenter recommends that we include in our guidelines 
for the IPPE benefit information that informs the physician or other 
qualified NPP of: (1) The need to refer patients to occupational 
therapists when a more extensive evaluation of activities of daily 
living, falls risk, and home safety is warranted; and, (2) when, such 
referrals would be medically appropriate.
    Response: As part of the final rule, service element 6 of the IPPE 
benefit will require, education, counseling, and referral, as 
appropriate, based on the individual's results of the previous 5 
elements of the IPPE benefit. However, appropriate referral of a 
patient to an occupational therapist is left to the discretion of the 
physician or other qualified NPP who is treating the patient for the 
medical problem that is identified, subject to contractors' medical 
necessity review. We do not believe there is a need for us to issue 
guidelines to our contractors on this point.
    Comment: Several commenters indicated that they were concerned 
about use of the term ``counseling'' in service elements 6 and 7 of the 
definition of the IPPE because it lacked sufficient clarity. The 
commenters indicated that counseling may include varying amounts of 
time depending upon the intensity of the type of service provided, the 
ability of the individual receiving the counseling to understand the 
information that is being communicated, etc. The commenters suggested 
that either we not use the term counseling or clarify its meaning in 
the final rule.
    Response: Use of the term counseling in connection with service 
element 7 is mandated by section 611 of the MMA, and thus, it is 
appropriate to use the term in the final rule. However, we would like 
to clarify this issue in connection with both service elements 6 and 7 
of the new benefit. In most cases, we do not expect that the physician 
or other qualified NPP performing the service should need to spend more 
than a few minutes of brief education and counseling with a new 
beneficiary on appropriate topics as required by element 7. 
Nonetheless, it is possible that it may be necessary to spend more than 
a few minutes on the education and counseling required by element 6. As 
the commenters have indicated, the education and counseling required 
may involve varying amounts of time depending upon the medical problem 
or problems that are being considered, based on the results of elements 
1 to 5, and the intensity of the service that is believed to be 
medically necessary at that time.
    Comment: Three commenters indicated that they support proposed 
service element 6 on ``education, referral, and counseling deemed 
appropriate based on the results of the review and evaluation of 
services,'' in service elements 1 to 5 because it offers an 
unprecedented opportunity to counsel beneficiaries about health 
behaviors (for example, stopping smoking, losing weight). Nonetheless, 
they were concerned about possible over-utilization of services that 
might result from that provision, and suggest that we clarify that 
these education, counseling and referral efforts be concordant with 
evidence-based practice guidelines.
    Response: We will not specify in the final rule that education, 
counseling, and referral efforts must be consistent with evidence-based 
practice guidelines. We expect that physicians and other qualified NPPs 
will provide appropriate education, counseling, and referral that 
utilizes evidence-based practice guidelines and current clinical 
standards. In addition, follow-up care obtained outside of the IPPE 
Benefit must be reasonable and necessary based on Section 1862(a)(1)(A) 
of the Act.
    Comment: A number of commenters requested that we clarify the 
written plan provision of service element 7 that was included in the 
proposed rule. Several commenters indicated that two problems they see 
with this requirement are: (1) It is not clearly defined and thus could 
impose a significant burden on physicians and other clinicians, if it 
is not more carefully written; and, (2) it does not acknowledge that 
alternative mechanisms may already be in place that could better 
facilitate coordination of care for these beneficiaries than the 
proposed written plan requirement. For example, one commenter suggests 
that some physicians and other clinicians may currently be using 
electronic technology to track the delivery of preventive services and 
should not be

[[Page 66287]]

required to file written plans. Instead, the commenter recommends that 
we craft language to require physicians to demonstrate a system for 
ensuring that beneficiaries receive recommended screening and 
preventive services and allow physicians flexibility to determine the 
design and medium that such a system would employ.
    Response: We agree that the term written plan may not offer a 
sufficiently clear description of our intentions in requiring the 
physician or other qualified NPP who also performs the IPPE to carry 
out the statutory mandate that eligible beneficiaries be provided with 
education, counseling, and referral for screening and other preventive 
services described in section 1861(ww)(2) of the Act. Our intent in the 
proposed rule was that each physician or other qualified NPP provide 
their eligible beneficiaries at the time of the examination with 
appropriate education, counseling, and referral(s), including a brief 
written plan such as a checklist, which is provided to the beneficiary 
for obtaining the appropriate screening and/or other preventive 
services that are covered as separate Medicare Part B benefits to which 
he or she is entitled. We acknowledge that physicians or qualified NPPs 
may have an alternative mechanism in place to ensure that beneficiaries 
receive recommended screening and other preventive services that does 
not provide for a written plan to be provided to the beneficiary. 
However, the intent of the written plan requirement is to promote and 
encourage beneficiary participation in the health care process by 
making them aware, briefly in writing of the screening and prevention 
services for which they are entitled under the Medicare Part B program.
    In conclusion, we will revise service element 7 to read 
``education, counseling, and referral, including a brief written plan 
such as a checklist, be provided to the individual for obtaining 
appropriate screening and other preventive services, which are 
separately covered under Medicare Part B benefits.''

The ``Physician'' Definition (Sec.  410.16(a))

    Comment: One commenter expressed concerns regarding the definition 
of a physician. The commenter expressed concern that the proposed rule 
limits the type of practitioner who is considered qualified to perform 
the new preventive physical examination. The commenter states that this 
restriction was not specified by the Congress in section 611 of the MMA 
or its accompanying conference committee report, and suggests that it 
should be revised to allow all practitioners, including doctors of 
podiatric medicine, who are defined as a physician under section 
1861(r) of the Act, to be considered qualified to perform the 
preventive physical examination.
    Response: Section 611 of the MMA amended the statute to provide 
that payment for the IPPE must be made under the Medicare physician fee 
schedule, as provided in section 1848(j)(3) of the Act, but it did not 
specifically define what type of physician is eligible for performing 
this examination. In developing the proposed rule on which physicians 
are considered qualified to perform the IPPE, we considered the various 
types of physicians that are identified in section 1861(r)(2), (r)(3), 
(r)(4), and (r)(5) of the Act. These include doctors of dental surgery, 
doctors of podiatric medicine, doctors of optometry, and chiropractors, 
whose scope of medical practice is generally limited by State law to a 
particular part (or parts) of the human anatomy.
    These state licensing restrictions would likely make it difficult 
for those practitioners to perform all of the services required. Based 
on this information, we are leaving the definition of a physician 
unchanged in the final rule.

The ``Qualified Nonphysician Practitioner'' Definition (Sec.  
410.16(a))

    Comment: One commenter indicated concern that in the proposed rule 
certified nurse-midwives (CNMs) are not eligible to furnish the new 
preventive physical examinations, but physicians and certain other NPPs 
are eligible to provide those services to Medicare beneficiaries. The 
commenter indicates that CNMs are fully qualified to provide physical 
examination and checkups covered by the statute and that they do so on 
a daily basis as a basic component of the care they provide their 
clients. The commenter states that we may be constrained by the statute 
as enacted by Congress on this subject, but suggests that we should 
review the issue and if possible revise the proposed rule to include 
CNMs among those who are considered to be eligible to provide the new 
service in the final rule.
    Response: Section 611 of the MMA amended the statute to provide 
that in addition to physicians certain NPPs, that is, PAs, NPs, and CNS 
(as authorized under section 1861(s)(2)(K)(i) and (ii) of the Act, and 
defined in section 1861(aa)(5) of the Act, or in regulations at Sec.  
410.74, Sec.  410.75, and Sec.  410.76) will be able to furnish the new 
preventive physical examination to eligible beneficiaries effective 
January 1, 2005. Thus, Congress did not specifically authorize CNMs to 
perform the IPPE. Unless CNMs are able to qualify as one of these other 
types of NPPs designated by the statute for purposes of the new IPPE 
benefit, they will not be eligible to provide this service to 
beneficiaries for Medicare Part B coverage purposes.

Other Issues

    Comment: One commenter requested that we clarify application of the 
proposed IPPE definition to managed care plans where preventive 
physical examinations are available to Medicare enrollees on an annual 
basis and they are not limited to a one-time benefit. Generally in the 
case of managed care plans, it is indicated that the extent of their 
typical annual preventive examination is determined by the enrollee's 
physician or other treating physician, depending upon the patient's 
history and clinical indications. The commenter asks that we allow 
managed care plans greater flexibility in providing their Medicare 
enrollees with the various service elements described in the proposed 
rule. Alternatively, the commenter requests that we clarify in the 
final rule that managed care plans will need to provide their Medicare 
enrollees with all elements of the new benefit only if requested to do 
so by a particular Medicare enrollee.
    Response: Section 611 of the MMA requires that IPPEs be made 
available to all Medicare beneficiaries who first enroll in Medicare 
Part B on or after January 1, 2005, and who receive that benefit within 
6 months of the effective date of their initial Part B coverage period. 
The new statute does not allow for any exceptions to be made to the 
coverage of IPPEs for beneficiaries who are members of managed care 
plans. In fact, section 1852(a) of the Act provides that generally each 
managed care plan must, at a minimum, provide to its Medicare members 
all of those items and services (other than hospice care) for which 
benefits are available under Parts A and B for individuals residing in 
the area served by the plan. Nonetheless, if a particular Part B member 
of the plan chooses not to take advantage of the IPPE benefit, for 
example, because it would duplicate an annual preventive physical exam 
that has already been provided to that member, the plan would not be 
obligated to provide the IPPE to that member.
    Comment: One commenter noted that while the screening benefits 
listed in paragraph (A)(1) on Federal Register

[[Page 66288]]

page 47514 (vol. 69, No. 150) includes ``(5) colorectal cancer 
screening test,'' the list of screening benefits described in the same 
section, paragraph (7) on page 47515 does not include that type of 
cancer screening test. The commenter requests that we include 
colorectal cancer screening in the list of screening services described 
on page 47515 of the Physician Fee Schedule Proposed Rule and any other 
sections of any proposed rule in which covered screening benefits are 
listed to ensure there is no confusion regarding what services should 
discussed with patients during the IPPE.
    Response: We agree with the commenter that there was an error of 
omission relative to colorectal cancer screening in the language in the 
preamble to the proposed rule in the list of screening benefits 
described on page 47515 of the Physicians Fee Schedule, and we have 
corrected that oversight in this final rule.
    Comment: One commenter requests that we clarify the part of the 
definition of the IPPE (service element 7) that refers to the provision 
of education, counseling, and referral of the individual for coverage 
of bone mass measurements by adding the term ``Dual Energy X-Ray 
Absorptiometry'' (DEXA) to that provision. The commenter states that 
DEXA testing is the most accurate method available for diagnosis of 
osteoporosis and that early detection of this condition paramount for 
preventing further bone loss and eventual fractures. The commenter is 
concerned that unless this is clarified in the final rule, local 
Medicare contractors may exclude coverage for the DEXA test as part of 
the IPPE benefit.
    Response: Our existing regulations governing bone mass measurements 
are published in Sec.  410.31. While we agree that the DEXA scan is a 
very commonly used method for the initial diagnosis of osteoporosis, we 
do not believe that it would be appropriate to add any specific 
reference to the DEXA test in the IPPE definition because it may be 
perceived as endorsing one test over another. We do not believe this 
would be appropriate. Physicians and other qualified NPPs who perform 
IPPE services may provide appropriate education, counseling, and 
referral of their Medicare patients for the bone density tests. The 
counseling and referral may include choosing the appropriateness of the 
diagnostic modalities for the particular patient.
    Comment: A number of commenters have asked us to provide 
information to Medicare physicians and qualified NPPs performing the 
IPPE for appropriate referral of their patients when treatment or a 
more extensive evaluation of patients is needed as part of service 
element 6.
    Response: As part of the final rule, under service element 6, 
providers are required to furnish their patients with education, 
counseling, and referral, as appropriate, based on the individual's 
results of service elements 1-5 of the IPPE service. However, 
appropriate referral of a patient, of course, is left to the discretion 
of the physician or other qualified NPP who is treating the patient for 
the medical problem that is identified.
    Comment: One commenter asked us how we plan to monitor the 
effectiveness of the IPPE benefit over the next several years.
    Response: As indicated in the final rule, we have established 
unique billing codes for the IPPE service which physicians and other 
qualified NPPs must use in billing Medicare Part B for the new service. 
Establishing those codes will allow us to monitor over time the extent 
to which the eligible Medicare Part B population is utilizing the new 
service, which will be of interest to our program administrators, 
members of the Congress, and the general public.
    Comment: One commenter asked how providers of IPPE 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 IPPE 
benefit that must be performed for new beneficiaries by qualified 
physicians or certain specified NPPs within the first 6 months period 
following the effective date of the beneficiary's first Part B 
coverage. Since physicians or other qualified NPPs 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 
IPPE benefit is still available to a particular individual and was not 
performed by another qualified practitioner. Since a second IPPE 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 IPPE. The beneficiary will always be liable for a second 
IPPE 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 other qualified NPP should issue an ABN 
indicating that Medicare may not cover and pay for the service. If the 
physician or other qualified NPP does not issue an ABN and Medicare 
denies payment because the statutory time limitation for conducting the 
initial IPPE has expired, then the physician or other qualified NPP may 
be held financially liable.
    Comment: Several commenters asked that we provide explicit 
instructions and guidelines, respectively, to providers and 
beneficiaries regarding the details of what will be included in the new 
benefit, the eligibility requirements, and how providers must bill 
Medicare for the new service.
    Response: Medicare will release appropriate manual and transmittal 
instructions and information from our educational components for the 
medical community, including a MedLearn Matters article and fact sheets 
like the ``2005 Payment Changes for Physicians and Other Providers: Key 
News From Medicare for 2005''. The medical community can join this 
effort in educating physicians, qualified NPPs, and beneficiaries by 
distributing their own communications, bulletins or other publications.
    In addition, we have specifically included information on the new 
IPPE benefit in the 2005 version of the Medicare and You Handbook and 
the revised booklet, Medicare's Preventive Services. A new 2-page fact 
sheet on all of the new preventive services, including the IPPE 
benefit, is currently under development, and a bilingual brochure for 
Hispanic beneficiaries will also be available in the new future. This 
information will be disseminated by our 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 medicare.gov, the cms.gov 
partner Web site, 1-800-MEDICARE, numerous forums hosted by CMS, and 
conference exhibits and presentations.
    Comment: Many of the major physician specialty societies believe 
the payment, as proposed, is undervalued for what is believed to be a 
labor-intensive IPPE. They request that we use the existing CPT 
preventive medicine services code series rather than creating a new G-
code. These codes have higher RVUs than the office or other outpatient 
visit code 99203. For example, preventive medicine services visit code 
99387 has total nonfacility RVUs of 4.00 while the corresponding value 
for 99203 is 2.58.
    Response: The existing CPT preventive medicine services codes

[[Page 66289]]

(99381-99397) are not covered by Medicare. In accordance with section 
1862(a)(1)(A) of the Act that requires us to pay only for services that 
are reasonable and necessary for the treatment of an illness or injury 
or to improve the function of a malformed body member, we have not 
covered E/M visits for screening purposes.
    The IPPE is intended to target selected modifiable risk factors and 
secondary prevention opportunities shown by evidence to improve the 
health and welfare of the beneficiary, and is less focused on a 
comprehensive physical examination compared to the typical service 
provided in accordance with CPT code 99397. We equated the resources 
anticipated with this service to the existing new office or other 
outpatient visit. For CPT code 99203 the RUC survey data shows 53 
physician minutes (including pre-service time, intra-service time and 
post-service time) with 51 minutes of staff time. We believe the IPPE 
will reflect these time approximations. We will be looking at the data 
and consulting with the medical community after initial experience with 
this new benefit to determine if this payment has been valued 
appropriately.
    Comment: Two commenters suggested that we allow the IPPE either on 
a yearly basis or every decade after the initial evaluation.
    Response: The IPPE was specifically legislated as a one time only 
benefit for the beneficiary newly enrolled in the Medicare program. 
This visit familiarizes the beneficiary with a physician or qualified 
NPP who will highlight the assessments available to help prevent and 
detect disease and also make available the educational, counseling and 
referral opportunities to the new Medicare recipient. Our policy 
anticipates physicians will make appropriate and individualized 
referrals for the beneficiary. Expanding the number of routine 
physicals would require additional legislation (See section 1862(a)(7) 
of the Act).
    Comment: Many commenters asked if the IPPE may be provided without 
performing the EKG at the same visit. They asked to have the EKG 
component unbundled from the evaluation and management component that 
had been specified in the proposed rule for the IPPE service since a 
physician may not have the equipment and capability of providing EKG 
services to their patients in the office suite or clinic. Additionally, 
others asked if a physician would be denied payment for the IPPE if the 
screening EKG was not performed because a diagnostic EKG was performed 
in a recent visit or if a diagnostic EKG was warranted at the IPPE 
visit.
    Response: Section 611 of the MMA does require a screening EKG to be 
performed as part of the IPPE visit. We recognize that there are a 
number of primary care physicians or other clinicians furnishing the 
service who may want to refer their beneficiaries to outside 
practitioners or entities for performance and interpretation of the EKG 
service rather than performing it themselves. Therefore, if an 
individual physician or other qualified NPP does not have the capacity 
to perform the EKG in the office suite, then alternative arrangements 
will need to be made with an outside physician or other entity in order 
to make certain that the EKG is performed. In circumstances where the 
primary care physician or qualified NPP refers the beneficiary to an 
outside physician or entity for the EKG service, we expect that the 
primary care physician or qualified NPP will incorporate the results of 
the EKG into the beneficiary's medical record to complete the IPPE. 
Both components of the IPPE, the examination portion and the EKG, must 
be performed for either of the components to be paid. Billing 
instructions for physicians, qualified NPPs and providers will be 
issued. In order to address these potentially occurring scenarios to 
complete the IPPE and EKG we have created the following HCPCS codes:
    <bullet> G0344: Initial preventive physical examination; face-to-
face visit services limited to new beneficiary during the first six 
months of Medicare enrollment
    <bullet> G0366: Electrocardiogram, routine ECG with at least 12 
leads with interpretation and report, performed as a component of the 
initial preventive physical examination
    A physician or qualified NPP performing the complete service would 
report both G0344 and G0366.
    <bullet> G0367: tracing only, without interpretation and report, 
performed as a component of the initial preventive physical examination
    <bullet> G0368: interpretation and report only, performed as a 
component of the IPPE
    RVUs for payment for these new HCPCS codes will be crosswalked from 
the following CPT codes:
    <bullet> G0344 will crosswalk from CPT code 99203 (Office or other 
outpatient visit)
    <bullet> G0366 will crosswalk from CPT code 93000 
(Electrocardiogram, routine ECG with at least 12 leads; with 
interpretation and report)
    <bullet> G0367 will crosswalk from CPT code 93005 
(Electrocardiogram, routine ECG with at least 12 leads; tracing only, 
without interpretation and report)
    <bullet> G0368 will crosswalk from CPT code 93010 
(Electrocardiogram, routine ECG with at least 12 leads; interpretation 
and report only)
    Note that HCPCS codes G0366 and G0367 are not payable under the 
physician fee schedule in the facility setting.
    To comply with MMA the IPPE must include the EKG regardless of 
whether a diagnostic EKG was recently performed. An EKG performed by 
the physician or qualified NPP during the IPPE visit must be reported 
with HCPCS code G0366. Medicare does not cover a screening EKG alone.
    Comment: One commenter asked if physicians and qualified NPP who 
see patients in Federally Qualified Healthcare Centers (FQHCs) will be 
able to provide and bill under the FQHC all-inclusive rate.
    Response: Physicians and other qualified NPPs in RHCs and FQHCs may 
provide this new benefit and follow normal procedures for billing for 
RHCs and FQHC services. Payment for the professional services will be 
made under the all-inclusive rate.
    Comment: Many physician specialty societies did not agree with our 
proposal to limit the level of a medically necessary E/M visit when 
performed and billed with the IPPE. They contend that most Medicare 
patients, even if known to their physician, come to the IPPE visit with 
multiple chronic problems often necessitating immediate evaluation and 
treatment at a level of care equal to a level 4/5 E/M visit code. They 
also state that current Medicare policy does permit a medically 
necessary E/M visit at whatever level is appropriate when the 
noncovered preventive medicine services (CPT codes 99381-99397) are 
performed. They ask that we eliminate the restriction for the level of 
service for a medically necessary E/M visit performed at the same visit 
as the IPPE visit.
    Response: The physician will need to schedule time with the 
beneficiary identifying the available preventive and educational 
opportunities. A level 2 new or established patient office or other 
outpatient visit code was proposed because we believe there is a 
substantial overlap of practice expense, malpractice expense and 
physician work in both history taking and examination of the patient 
with the IPPE and another E/M service. We do not want to prohibit the 
use of an appropriate level of service when it is necessary to evaluate 
and treat the beneficiary for acute and chronic

[[Page 66290]]

conditions. At the same time, we believe the physician is better able 
to discuss health promotion, disease prevention and the educational 
opportunities available with the beneficiary when the health status is 
stabilized and the beneficiary is physically receptive.
    We will remove the restriction limiting the medically necessary E/M 
service to a level 2 visit code. CPT codes 99201 through 99215 may be 
used depending on the circumstances and appended with CPT modifier ``25 
identifying the E/M visit as a separately identifiable service from the 
IPPE code G0344 reported.
    We do not believe this scenario will be the typical occurrence and, 
therefore, we will monitor utilization patterns for the level 4/5 new 
or established office or other outpatient visit codes being reported 
with the IPPE. If there are consistent data that demonstrate high usage 
of level 4/5 E/M codes we may need to revise the policy.
    Comment: Two commenters asked if we would permit separate payment 
for a digital rectal exam (DRE) when performed on the same day as the 
initial preventive physical examination.
    Response: Currently Medicare does not make separate payment for DRE 
(code G0102) when performed on the same day as an E/M service. We will 
maintain the current policy and not pay separately for a DRE performed 
during the IPPE visit. A DRE is usually furnished as part of an E/M 
service and is bundled into the payment for an E/M service when a 
covered E/M service is furnished on the same day as a DRE. It is a 
relatively quick and simple procedure and if it is the only service 
furnished or is provided as part of an otherwise noncovered service it 
would be payable if coverage requirements are met.
    Comment: Several commenters requested guidance on documentation.
    Response: It is expected that the physician will use the 
appropriate screening tools. As for all E/M services, the 1995 and 1997 
E/M documentation guidelines must be followed for recording information 
in the patient's medical record. The screening tools used, EKG 
documentation, referrals and a written plan for the patient also must 
be included in the patient's medical record. These forms and methods of 
documentation mirror those that would be used in typical physician 
practice with patient visits and do not add an additional burden to the 
physician.
    Comment: Several commenters expressed concern that the non-waived 
deductible and coinsurance will be a disincentive to the beneficiary 
having the IPPE. They are concerned that some beneficiaries will not 
avail themselves of the opportunity of the IPPE visit because of the 
beneficiary's cost share.
    Response: The MMA did not waive the deductible and coinsurance, 
therefore, we must implement the provision as written.

Result of Evaluation of Comments

    In view of the comments, we have decided to make several revisions 
in Sec.  410.16(a) relative to service elements 1, 2, and 3. We are 
revising Sec.  410.16(a)(1)(i) language in service element 1 to read as 
follows: ``Review of the individual's medical and social history with 
particular attention to modifiable risk factors for disease.''
    We are clarifying the regulation language on depression screening 
(service element 2) by revising Sec.  410.16(a)(1)(ii) to specify that 
review of the individual's potential (risk factors) for depression, 
including current or past experience with depression or other mood 
disorders, based on the use of an appropriate screening instrument for 
persons without a current diagnosis of depression, which the physician 
or other qualified NPP may select from various available standardized 
screening tests designed for this purpose and recognized by national 
medical professional organizations. To allow for a certain amount of 
provider flexibility in meeting the requirements of the regulatory 
intent of service component 3 we are revising Sec.  410.16(a)(1)(iii) 
to specify that review of the individual's functional ability and level 
of safety, based on the use of appropriate screening questions or a 
screening questionnaire, which the physician or qualified NPP may 
select from various available screening questions or standardized 
questionnaires designed for this purpose and recognized by national 
medical professional organizations.
    To clarify the requirements of the regulatory intent of service 
component 7 we are revising Sec.  410.16(a)(1)(vii) to specify that 
education, counseling, and referral, including a brief written plan 
such as a checklist be provided to the individual for obtaining the 
screening and other preventive services for the individual that are 
covered as separate Medicare Part B benefits.
    The ``social history'' definition in the final rule will be revised 
to include 3 elements:
    <bullet> History of alcohol, tobacco, and illicit drug use.
    <bullet> Diet.
    <bullet> Physical activities.
    With regard to payment of the IPPE, we will use the new HCPCS codes 
and payment will be based on the RVUs of the CPT codes crosswalked as 
stated above. We will not finalize our proposal to allow a medically 
necessary E/M service no greater than a level 2 to be reported at the 
same visit as the IPPE.

B. Section 613--Diabetes Screening

    Section 613 of the MMA adds section 1861(yy) to the Act and 
mandates coverage of diabetes screening tests.
    The term ``diabetes screening tests'' is defined in section 613 of 
the MMA as testing furnished to an individual at risk for diabetes and 
includes a fasting blood glucose test and other tests. The Secretary 
may modify these tests, when appropriate, as the result of 
consultations with the appropriate organizations. In compliance with 
this directive, we consulted with the American Diabetes Association, 
the American Association of Clinical Endocrinologists, and the National 
Institute for Diabetes and Digestive and Kidney Diseases.
1. Coverage
    We proposed in Sec.  410.18 that Medicare cover--
    <bullet> A fasting blood glucose test; and
    <bullet> Post-glucose challenge tests; either an oral glucose 
tolerance test with a glucose challenge of 75 grams of glucose for non-
pregnant adults, or a 2-hour post-glucose challenge test alone.
    We would not include a random serum or plasma glucose for persons 
with symptoms of uncontrolled diabetes such as excessive thirst or 
frequent urination in this benefit because it is already covered as a 
diagnostic service. This language is not intended to exclude other 
post-glucose challenge tests that may be developed in the future, 
including panels that may be created to include new diabetes and lipid 
screening tests. We also would include language that would allow 
Medicare to cover other diabetes screening tests, subject to a NCD 
process.
    The statutory provision describes an ``individual at risk for 
diabetes'' as having any of the following risk factors:
    <bullet> Hypertension.
    <bullet> Dyslipidemia.
    <bullet> Obesity, defined as a body mass index greater than or 
equal to 30 kg/m2.
    <bullet> Previous identification of an elevated impaired fasting 
glucose.
    <bullet> Previous identification of impaired glucose tolerance.
    <bullet> A risk factor consisting of at least two of the following 
characteristics:
    + Overweight, defined as a body mass index greater than 25 kg/m2, 
but less than 30.
    + A family history of diabetes.

[[Page 66291]]

    + A history of gestational diabetes mellitus or delivery of a baby 
weighing greater than 9 pounds.
    + 65 years of age or older.
    For individuals previously diagnosed as diabetic, there is no 
coverage under this statute.
    The statutory language directs the Secretary to establish standards 
regarding the frequency of diabetes screening tests that will be 
covered and limits the frequency to no more than twice within the 12-
month period following the date of the most recent diabetes screening 
test of that individual.
    We proposed that Medicare beneficiaries diagnosed with pre-diabetes 
be eligible for the maximum frequency allowed by the statute, that is, 
2 screening tests per 12 month period. We defined ``pre-diabetes'' as a 
previous fasting glucose level of 100-125 mg/dL, or a 2-hour post-
glucose challenge of 140-199 mg/dL. This definition of pre-diabetes was 
developed with the assistance of the American Association of Clinical 
Endocrinologists, concurs with the Centers for Disease Control and 
Prevention (CDC) definition, and complements the definition of diabetes 
that we published November 7, 2003 (68 FR 63195).
2. Payment
    We proposed to pay for diabetes screening tests at the same amounts 
paid for these tests when performed to diagnose an individual with 
signs and symptoms of diabetes. We would pay for these tests under the 
clinical laboratory fee schedule. We proposed to pay for these tests 
under CPT code 82947 Glucose; quantitative, blood (except reagent 
strip), CPT code 82950, post glucose dose (includes glucose), and CPT 
code 82951 Glucose; tolerance test (GTT), three specimens (includes 
glucose). To indicate that the purpose of the test is for diabetes 
screening, we would require that the laboratory include a screening 
diagnosis code in the diagnosis section of the claim. We proposed V77.1 
special screening for diabetes mellitus as the applicable ICD-9-CM code 
for this purpose. Because laboratories are required and accustomed to 
submitting diagnosis codes when requesting payment for testing, we 
believe including a screening diagnosis code is appropriate for this 
benefit.
    Comment: One commenter questioned whether there is statutory 
authority to expand eligibility for individuals. Adding that, section 
613 of the MMA gives authority for additional test and frequency, not 
additional individuals.
    Response: There is no statutory authority to expand eligibility for 
individuals. Section 613 of the MMA establishes coverage for 
beneficiaries who are at risk for developing diabetes. Beneficiaries 
who are pre-diabetic fall within 1861(yy)(2)(D) or (E) and are at an 
increased risk for developing diabetes. This increased risk separates 
them from the general at-risk population and requires the course of 
their care to be managed closer and more frequently.
    For individuals not meeting the ``pre-diabetes'' criteria, we 
proposed that one diabetes screening test be covered per individual per 
year.
    Comment: Several comments were received that recommended we provide 
physicians with clear guidance about Medicare's covered services to 
help patients control their diabetes. The commenters also asked that we 
inform providers about other covered services, such as Hgb1AC tests, 
that will help patients avoid painful diabetes-related complications.
    Response: We will be releasing two publications. The Dear Doctor 
Package publication, which includes the ``2005 FACT SHEET'', will be 
sent to the contractors on a CD on or about October 15, 2005 and 
distributed to the providers by November 15, 2005. The Medicare 
Coverage of Diabetes Services and Supplies publication was originally 
written in 2002. It was revised in 2003 to update the Part B premium 
amount and is being revised again this year to update the premium 
amount and to include any information relevant to the MMA. This 
document will be available on the CMS Web site and at 1-800-MEDICARE.
    Comment: We received several comments suggesting that screening 
should not require a physician's prescription or referral in order to 
be covered under Medicare Part B. This approach would follow the 
successful precedent established by us with other screening tests such 
as mammograms.
    Response: The legislative history on mammography did result in us 
allowing self-referral for mammograms. However, Medicare rules have 
required that laboratory tests for screening or other diagnoses must be 
ordered by licensed health care practitioners, specifically physicians, 
PAs, NPs, or CNSs.
    Comment: Comments were received recommending that the final rule 
include coverage of one annual diabetes screening for all Medicare 
beneficiaries.
    Response: The benefit of screening all Medicare beneficiaries is 
not supported by current evidence. We plan risk-based frequency 
limitations of coverage for diabetes screening based upon the statute 
requirements. Furthermore, we believe beneficiaries with pre-diabetes 
may warrant a more frequent follow-up and this is permitted at the 
professional judgment of the health care practitioner.
    Comment: We received a few comments suggesting the addition of the 
C-peptide test, as it is sometimes useful in Type 1 or Type 2 diabetes.
    Response: We believe that C-peptide testing is appropriate for 
diagnostic evaluation, but not for screening. It is currently covered 
under the general lab benefit as a diagnostic test when it is medically 
necessary.
    Comment: The American Society for Clinical Pathology (ASCP) has 
urged us to add CPT 82950 glucose; post glucose dose (includes 
glucose). This test is more frequently used to screen for diabetes. GTT 
is a more definitive test usually requested when questionable results 
from random, fasting or postprandial glucose levels are obtained. As 
written, the proposed rule appears to exclude 82950 as a screening 
test.
    Response: We appreciate attention being drawn to the apparent 
exclusion of CPT code 82950, which was not our intention and we have 
corrected that omission.
    Comment: A commenter suggested that due to increased incidence of 
obesity in recent years that family history of diabetes be defined as 
persons with Type 2 Diabetes in one or more first or second-degree 
relatives.
    Response: The comments received did not provide a clear consensus 
on the definition of family history of diabetes. Thus the definition of 
family history of diabetes will be left to the professional judgment of 
the treating physician or qualified non-physician practitioner based on 
the beneficiary's medical history and best practice standards.
    Comment: The American Clinical Laboratory Association (ACLA) 
believes that the other codes on the NCD routine screening list that 
currently result in a diabetes denial on the basis of routine screening 
should be covered under the new diabetes screening benefit.
    Response: We believe the majority of individuals who will seek care 
under this benefit will conform to the V77.1 code. We are willing to 
review a sample of claims and determine if other specific codes are 
appropriate code for this benefit. Codes that need to be considered for 
this new benefit can be brought to our attention through the national 
coverage determination process for laboratories.
    Comment: A comment was received recommending that the proposed rule 
be clarified to refer to a ``fasting blood glucose test'' rather than a 
``fasting plasma glucose test'' since the CPT code

[[Page 66292]]

does not differentiate between blood and plasma.
    Response: We agree with the recommendation to change the term 
``fasting plasma glucose test'' to ``fasting blood glucose test''.
    Comment: A comment was received recommending additional diabetes 
screening tests be added through a less formal process of consultation 
with manufacturers, health care providers, patients, and other 
stakeholders, as contemplated by Congress. The commenter further stated 
that the NCD process is complex and time consuming, delaying the 
coverage of new tests.
    Response: We believe the evidence-based NCD process is an effective 
process to review and analyze items and services as potential benefits 
for Medicare beneficiaries. Because the NCD process allows for public 
comment before we make any changes, we believe this is the appropriate 
process for any future changes. Further, we may not be able to accept 
every stakeholder's recommendation because of instructional, coding, or 
claims issues which must be resolved before any benefit can be 
implemented.

Result of Evaluation of Comments

    Our review of the comments has led to the elimination of the word 
``plasma'' from the term ``fasting plasma glucose test.'' The word 
``plasma'' will be replaced with the term ``blood''. We have corrected 
the unintentional omission of CPT code 82950, post glucose dose 
(includes glucose) as a diabetes screening test. The providers and 
beneficiaries are reassured that there will be clear guidance on 
covered services by way of two publications: The Dear Doctor Package, 
which includes the ``2005 Fact Sheet'' and Medicare Coverage of 
Diabetes Services and Supplies. We continue to promote healthcare 
practitioner autonomy with our policy of risk-based frequency 
limitations on items and services provided to our beneficiaries. We 
recognize the differing opinions with regard to the usage of the NCD 
process to review potential new items and services such as new diabetes 
screening tests for our beneficiaries. To provide transparency, 
timeliness and fairness, a formal process is necessary. Historically, 
the NCD process has been open to all interested parties and has proven 
to be an effective process.
    Based on reasoning from the responses to the comments we received, 
at this time we will not be accepting the following suggestions.
    <bullet> Reversing policy requiring a physician's or a qualified 
non-physician's prescription or referral for diabetes screening tests.
    <bullet> Providing coverage of one annual diabetes screening test 
for all Medicare beneficiaries.
    <bullet> Adding coverage of C-peptide test as a screening test.
    <bullet> Bypassing the current NCD process for a less formal 
process to add additional diabetes screening tests.

C. Section 612--Cardiovascular Screening

    Section 612 of the MMA adds section 1861(xx) to the Act and 
provides for Medicare coverage of cardiovascular (CV) screening blood 
tests for the early detection of CV disease or abnormalities associated 
with an elevated risk for that disease effective on or after January 1, 
2005.
    Upon reviewing the USPSTF reports, the scientific literature and 
comments of professional societies, trade associations, the industry, 
and the public, we proposed in the August 5, 2004 Federal Register, 
that the benefit for CV screening would include the use of three 
clinical laboratory tests to detect early risk for CV disease. Since 
the three tests, a total cholesterol, a HDL-cholesterol, and a 
triglycerides test, could be ordered as a lipid panel or individually, 
the frequency was limited to one of each individual test or combination 
as a panel every 5 years.
    When we researched the benefit, some scientific experts proposed 
that the use of only the total cholesterol test as a single test every 
2 years was adequate. After reviewing the literature and comments, we 
concluded that each test in the lipid panel is important since each 
test predicts the risk for CV disease independently. It would be 
prudent, therefore, to promote the benefit as three separate tests 
every 5 years. The decision to limit the frequency to 5 years, rather 
than more frequent testing every 2 years was due to information found 
in the Clinical Considerations of the USPSTF which indicate that the 
cholesterol values of elderly persons, who are the majority of the 
Medicare population, change slowly as they age. We also proposed that 
any changes to the list of tests could be made after a review of 
recommendations by the USPSTF and the use of the NCD process.
    We proposed that for the claims processing and payment system, the 
coding of the tests would be made using the CPT codes available for the 
lipid panel or the three tests individually coded with the use of V 
codes to identify the tests were ordered for screening purposes. We 
also stated that we would pay for these CV screening tests at the same 
amounts paid for these tests to diagnose an individual with signs of CV 
disease and that these would be paid under the clinical laboratory fee 
schedule. The proposed coverage requirements were set forth in new 
Sec.  410.17.
    In response to the proposed rule, we received letters and e-mails 
from 28 commenters representing professional societies, trade groups, 
the industry, and individuals, who wrote on 26 different issues. One 
commenter represented 14 medical societies. Each commenter had many 
concerns and the comments were grouped into 26 areas of concern.
    Comment: Three commenters expressed concern that many laboratories 
perform direct measurement LDL reflexively when triglycerides exceed 
certain parameters. The commenters are concerned that if screening 
direct measurement LDL is statutorily excluded then the Medicare 
beneficiaries would be liable for these tests without prior notice.
    Response: Section 410.32 requires that tests be ordered by a 
treating physician and used in the management of the patient. We have 
interpreted this provision to restrict the furnishing of reflex testing 
to situations where it is clear that the physician is ordering reflex 
testing at specific parameters and where the physician has an option to 
order the test without the reflex portion. Thus, laboratories must 
offer physicians the ability to order a lipid panel without the option 
to perform the direct measurement LDL. We strongly encourage physicians 
to order lipid panels without the direct measurement LDL reflex option 
to protect Medicare beneficiaries from incurring a charge for this 
service without advanced notice.
    If the screening lipid panel results indicate a triglyceride level 
that indicates the need for a direct measurement LDL, the physician may 
order this test once the results of screening lipid panel are reported. 
The NCD for lipid testing includes coverage of direct measurement LDL 
for patients with hyperglyceridemia. [http://www.cms.hhs.gov/ mcd/
viewncd.asp ?ncd--id=190.23&ncd-- version=1&show=all]
    We do not require the patient to physically return to the treating 
physician for an office visit and ordering of subsequent testing. 
Physicians may order such tests based on the results of the CV 
screening. The Medicare law and regulations do not prohibit the use of 
the same sample of blood to be used for direct measurement LDL 
following a lipid panel with very high triglycerides. Laboratories may 
archive the initial specimen and use it

[[Page 66293]]

for subsequently ordered medically necessary direct measurement LDL.
    Comment: One commenter suggested that if the direct LDL cholesterol 
is included in the CV risk screening benefit, we must provide guidance 
to laboratories regarding whether or not the direct LDL must be billed 
with the -59 modifier for the charge to be reimbursed.
    Response: Since the direct LDL cholesterol is not being added to 
the CV screening benefit, there is no change to the billing.
    Comment: One commenter requested that the V codes (V81.0, V81.1, 
and V81.2) be added to the Lipid NCD and that the NCD Edit Software be 
modified to accept these V codes (V81.0, 81.1, and 81.2) on a frequency 
basis.
    Response: The Laboratory NCD Edit Module will be modified to accept 
the V codes for matching the CPT codes with the ICD-9-CM code for those 
tests within the lipid NCD that are part of this statutory benefit. The 
entire lipid NCD is not open for modification. The frequency is 
determined by the NCD process and implemented through changes to the 
claims processing system to edit the patient history and coding.
    Comment: One commenter asked that Medicare contractors provide 
explicit instructions to physicians to provide the necessary V codes 
(or their corresponding narratives) since screening is normally non-
covered.
    Response: We will release the appropriate manual, transmittal 
instructions and information from our 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: 
Key News From Medicare for 2005.'' Laboratories can join this effort to 
educate physicians and beneficiaries by distributing their own 
communication, bulletins or other publications. Some of this 
information will also be part of the ``Welcome to Medicare Preventive 
Services Package.''
    Comment: Three commenters recommended that high sensitivity C-
reactive protein (hsCRP) be considered as a test for this benefit since 
the AHA and CDC issued a Class IIa recommendation stating that hsCRP 
measurements for risk stratification add important information to the 
``classic'' cholesterol and HDL measurement. They cited that given 
Congressional intent, we should include this measure in its list of 
``approved'' screening tests and, if not, that we immediately request 
that USPSTF conduct a formal review of hsCRP as a screening test. Four 
commenters recommended the addition of the ABI test. Another requested 
the inclusion of the 12-lead ECG, the echocardiogram, and tests for 
carotid artery disease. Another requested the coverage of blood 
pressure screening. Finally, another commenter suggested that we allow 
the broadest access and maximize the potential for tests.
    Response: We appreciate the commenters' suggestions to include 
hsCRP and the other tests. In our efforts to develop the proposed rule, 
many tests were considered for inclusion in the list of screening tests 
for this benefit. There was insufficient evidence to include any 
additional tests beyond the lipid panel tests. The information we 
received in the development of the proposed rule did not support the 
inclusion of these additional tests but we invite the public to submit 
scientific literature for our consideration. Other new types of CV 
screening blood tests may be added under this new screening benefit if 
we determine them appropriate through a subsequent NCD. 68 FR 55634 
(Sept 26, 2003) or http://www.cms.hhs.gov/coverage/8a.asp].
    Comment: Two commenters recommended that we add HCPCS codes for the 
Lipid Panel and components as waived tests since they are performed in 
physician offices and other sites with Clinical Laboratory Improvement 
Amendments (CLIA) Certificates of Waiver.
    Responses: Under CLIA, a facility with a CLIA certificate of waiver 
can only perform those tests that are approved by the FDA as waived 
tests. We update the list of waived tests and their appropriate CPT 
codes on a quarterly basis through our program transmittal process. 
When we program the claims system to look for the AMA CPT codes for 
Lipid Panel or any of the three tests which make up the panel, the 
system will recognize those waived tests performed using the same code 
plus the QW modifier that are medically necessary.
    Comment: Two commenters requested clarification of the frequency 
limits for the three tests considered for this benefit. They asked if 
we would cover: (1) A lipid panel; (2) one or more component tests 
making up the lipid panel once every 5 years; or (3) each of the 4 
HCPCS codes listed every 5 years.
    Response: The intent of the benefit is to screen for CV disease. 
Since we believe most physicians would order the Lipid Panel as a 
single test, our intention was to cover the panel. We recognize that 
physicians may have different approaches to reaching their decision to 
treat, and therefore, we have to make available the possibility that 
physicians could order the individual tests which make up the panel. No 
matter how the physician(s) order the tests, our intention is to cover 
each of the 3 component tests (that is, a total cholesterol, a 
triglycerides test, and an HDL cholesterol) once every 5 years.
    Comment: Two commenters asked that we clarify the reasons for 
having V codes for screening tests added from the MMA rather than the 
past practice of developing G codes (unique HCPCS codes; temporary 
codes). This commenter believed that the change to V codes would cause 
confusion to the databases like the Physician/Supplier Procedure 
Summary Master File. This confusion would result in improperly filed 
provider claims and this would lead to a different and confusing method 
of processing claims.
    Response: The decision to use ICD-9-CM codes rather than continue 
to add G codes was made because we try to utilize existing coding 
structures where possible and create G codes if there is a specific 
programmatic need. The laboratory community has lobbied against the use 
of G codes for a few years. Also the Health Insurance Portability and 
Accountability Act of 1996 (HIPAA) Standardization Requirements are 
working toward phasing out G codes, which are CMS only codes. The 
claims processing and editing systems are expected to be adjusted to 
manage this change.
    Comment: Five commenters questioned the reasons for establishing 
limits on the frequency of this benefit since this places great legal, 
administrative, and financial burden for providers to manage this type 
of information. One commenter suggested the use of a chit that 
beneficiaries would receive and redeem for testing so laboratories 
would not need to keep records.
    Response: The statute requires a frequency limit. Since 
laboratories may not have the complete medical history for individuals, 
including their history of CV screening tests, they are largely relying 
on the physician's order in establishing whether the test is medically 
necessary and covered by Medicare. However, relying on the physician's 
order does not provide the laboratory with proof that the CV screening 
test is medically necessary since the beneficiary may be treated by 
multiple physicians who may have ordered these tests independently 
within the 5 year coverage window. If the laboratory has sufficient 
doubt, the laboratory may issue an Advanced Beneficiary Notice (ABN) to 
the beneficiary indicating that Medicare may not cover the CV screening 
test. If the laboratory does not issue an ABN to

[[Page 66294]]

the beneficiary who has received more that one CV screening test during 
the previous five years, the laboratory may be financially liable for 
the cost of the test. Laboratories are not required to issue an ABN if 
the physician has already issued one.
    In addition, section 40.3.6.4(C) titled ``Frequency Limited Items 
and Services'' of Chapter 30 of Pub 100-4 of the ``Internet Only 
Manual'' provides additional guidance for those instances where 
Medicare has imposed frequency limitations on items or services. This 
section instructs providers that the provider may routinely give ABNs 
to beneficiaries and that whenever such a routine ABN is provided to a 
beneficiary, the ABN must include the frequency limitation as the 
reason for which Medicare will deny coverage.
    Comment: Several commenters, including the ACR and the SIR, offered 
their assistance to us when we determine whether noninvasive testing 
for CV disease is necessary.
    Response: Since the organizations that suggested noninvasive tests 
for inclusion in this benefit provided the materials for our review, it 
is not necessary for us to seek outside assistance. We appreciate the 
commenters' offer of assistance.
    Comment: Four commenters suggested that the CV screening benefit 
stipulate an age for the population to be tested. We reviewed the 
USPSTF recommendation that promoted testing for men 35 years and older 
and women 45 years and older. The commenters believe this age range 
should be lowered to include those aged 20 years and older and asked us 
to consider including younger people in this benefit.
    Response: The statutory change for this benefit did not include an 
age for the person to be tested. While some of the USPSTF 
recommendations included an age or an age range, none was selected for 
the proposed rule. Since the majority of the individuals in Medicare 
are generally 65 and older, the belief was that we are looking at an 
older population rather than concentrating our resources on the younger 
beneficiaries who may also be disabled and Medicaid eligible or could 
be eligible for other services due to other complications of CV 
disease. While there may be individuals younger than 65 years of age 
that could benefit from this testing, this benefit is intended for 
those entitled to Medicare. Therefore, any patient entitled to Medicare 
would be covered for this benefit as specified in this rule.
    Comment: One commenter noted that if the patient did not fast for 
the screening test (fasting may be difficult for some patients), the 
calculation of LDL cholesterol may be inaccurate. This commenter 
recommended that for screening purposes, an alternative to repeating 
the full lipoprotein profile in the fasting state would be a follow-up 
direct measurement of LDL cholesterol.
    Response: If a patient cannot fast and the physician believes the 
patient's medical history and circumstances suggest the beneficiary is 
at risk of CV disease, then any additional testing beyond an initial 
screening would need to be done under the diagnostic clinical 
laboratory benefit. Under the screening benefit, a repeated full 
lipoprotein profile (fasting) or a second LDL cholesterol (fasting) 
would not be covered for anyone who failed to fast when they had their 
first set of tests.
    Comment: Several commenters suggested that the tests that the 
USPSTF approves for CV screening blood tests be automatically adopted 
and covered by Medicare for the purposes of this benefit. We would not 
need to use the NCD process to add tests to this benefit. Immediate 
adoption of USPSTF recommendations will remove us from our own lengthy 
review.
    Response: While the USPSTF process is well established, we believe 
it is prudent to review any recommendations from the USPSTF before 
implementing them. In the proposed rule, we asked the public how we 
should make changes for this benefit. Because the national coverage 
determination process allows for public comment before we make any 
changes, we believe this is the most appropriate basis for any future 
changes. Further, we may not be able to accept every USPSTF 
recommendation because of instructional, coding or claims issues that 
must be resolved before any benefit can be implemented.
    Comment: Several commenters questioned whether the screening 
benefit for CV disease included noninvasive tests or whether it was 
limited only to blood tests. Further, they recommended that the 
adoption of noninvasive tests be tied to recommendations of the USPSTF 
or to an NCD.
    Response: We interpreted this portion of the screening benefit to 
permit noninvasive tests for which there was a blood test recommended 
by the USPSTF (for example, there is a blood test for cholesterol and 
if a noninvasive test was developed that detected characteristics of 
cholesterol, could provide a meaningful (comparison) result and 
accurate reading) then the noninvasive test could be considered for 
inclusion in the screening benefit. Noninvasive tests would not be 
immediately included but would be subject to a review before adoption. 
When it is time to consider the addition of tests or changes to the 
list of tests, we will consider any changes through an NCD. This 
benefit is not limited only to blood tests.
    Comment: One commenter recommended that we include a fasting blood 
glucose test as part of the CV screening blood benefit and that we 
cover this test every 2 years for beneficiaries over 45 and for younger 
beneficiaries who are obese or have a family history of diabetes. 
Fasting blood glucose is inherently a CV screening test because 
diabetes carries increased risk of CV disease.
    Response: While some people who have diabetes exhibit other factors 
associated with CV disease, we do not see the necessity to adjust the 
CV screening benefit to include a fasting blood glucose test. The 
diabetes screening benefit should be able to identify these 
individuals. Medicare does not plan to duplicate tests when they are 
available through other screening programs.
    Comment: One commenter requested the inclusion of V70.0 for routine 
examination to be added as one of the ICD-9-CM codes to be covered for 
screening for CV screening blood tests. They asked that the NCD on 
lipid panel be reviewed for any codes that were previously denied as 
routine screening in the past, and that these codes be considered for 
inclusion under this new benefit.
    Response: We believe the majority of individuals who will seek care 
under this benefit will fit the V81.0, V81.1, or V 81.2 codes. We are 
willing to review a sample of claims and determine if V70.0 is an 
appropriate code for this benefit. At this time, we are unable to add 
V70.0 to the instructions being cleared. Codes that are to be 
considered for this new benefit must be brought to our attention 
through the national coverage determination process for laboratories.
    Comment: One commenter suggested that the proposed Sec.  410.17 
include reference to whether beneficiaries will incur out-of-pocket 
costs for CV screening blood tests.
    Response: Section Sec.  410.17 is specific to coverage instructions 
for screening tests for the early detection of CV disease. We do not 
believe it is necessary to revise Sec.  410.17 to include payment 
instructions. We have indicated that Medicare would pay for the tests 
under the clinical laboratory fee schedule. Currently under this 
payment system, beneficiaries do not incur copayments and deductibles 
in accordance with section 1833(a)(1)(D)(i) of the Act, and is included 
in

[[Page 66295]]

instructions at Medicare Claims Processing Manual, Pub. 100-04, chapter 
16, Sec.  30.2.
    Comment: Two commenters asked us to clarify why we chose 5 years as 
the timeframe for the benefit, rather than the 2 years allowed by the 
statute.
    Response: Our primary goal was to allow testing for the population 
that needed to be screened. In the preamble to the proposed rule, we 
stipulated that the Clinical Considerations of the USPSTF indicate, 
while screening may be appropriate in older people, repeated screening 
is less important because lipid levels are less likely to increase 
after age 65. Screening individuals more often than necessary might 
lead to unnecessary expenses and treatment. The scientific literature 
indicates that lipid levels in the elderly are fairly stable. 
Therefore, we proposed screening once every 5 years and have not 
received sufficient evidence to change this position.
    Comment: Two commenters suggested that a two-tiered benefit be 
developed that would allow lipid profile screening tests at least every 
5 years for beneficiaries when risk factors are not evident and a 
second group be screened at least every 2 years. The second group would 
include individuals who have modifiable risk factors (for example, 
tobacco smoking, high blood pressure, physical inactivity, obesity, and 
diabetes mellitus) and non-modifiable risk factors (such as age, 
gender, race, and family history).
    Response: While the CV screening benefit could be expanded to 
include individuals other than those mentioned in the proposed rule, 
preventive benefits were added to the Medicare Program on a limited 
basis as science and technology permit them. Since some of the 
individuals in the second group already would be screened through the 
IPPE and the Diabetes Screening Benefit, we are not developing a second 
tier at this time. We believe expanding this to a second tier would 
waste precious resources of time and money and not contribute to 
lowering the risk factors for individuals with CV disease.
    Comment: One commenter questioned why we proposed to use the NCD 
process as the method of making changes to the list of tests covered by 
the CV screening blood test benefit. The commenter wrote that the MMA 
does not require that the NCD process be utilized. They indicated that 
there is no need for us to conduct our own assessment since a thorough 
evaluation of the test was to be done by the USPSTF in determining that 
the test is one that it recommends. The commenter objected to the use 
of the NCD process for consideration of new tests because of the 
significant delays that mark this process. The commenter also stated 
that all that would be needed for us to approve the coverage of 
additional CV screening tests is the recommendation of the USPSTF.
    Response: In establishing the benefit for CV screening blood tests, 
the Congress gave the Secretary the authority to determine which tests 
would be covered by this benefit. We do not believe it would be proper 
to delegate this function to USPSTF or any other entity. In the 
proposed rule, we proposed the tests to be covered for the new benefit 
when it becomes effective January 1, 2005 and at the same time, we 
offered the NCD process for changes to this benefit. We proposed that 
future tests would be added after reviewing the recommendations of the 
USPSTF and the use of the NCD process. The NCD process actually has 
several methods for evaluating which tests we may eventually cover. The 
NCD process includes an application for a new coverage issue, a 
reconsideration of an existing policy, or a coding change for 
laboratory tests. We believe the use of the NCD process is a worthwhile 
endeavor since it is a public process and less time consuming than 
rulemaking. The use of an NCD is authorized by Section 1871 of the Act.
    Comment: One commenter suggested that we include triglycerides as a 
test for the CV screening blood test benefit since the 2001 USPSTF 
recommendations for screening for lipid disorders associated with CV 
disease only includes measurement of total cholesterol and high-density 
lipoprotein cholesterol (HDL-C).
    Response: We have included the triglycerides test as one of the 
tests for screening for CV disease. For some individuals, triglycerides 
may detect a risk factor for CV disease. That is why it was more 
prudent to select a lipid profile that includes the three tests (total 
cholesterol, HDL-C, and the triglycerides) rather than to indicate the 
use of individual tests with different test intervals and different 
ordering patterns.
    Comment: One commenter requested that the frequency limit for lipid 
testing of 5 years be waived if the patient develops a risk factor, 
such as diabetes, a marked weight gain, etc. in the interval.
    Response: A patient screened for lipid testing could also meet the 
requirements for screening under the diabetes screening benefit. If a 
patient developed further risk factors which negate the need for 
continued screening under the CV screening blood test benefit, their 
additional signs or symptoms would probably cause the person to need to 
seek treatment which would be covered under other benefits including 
diagnostic clinical laboratory testing.
    Comment: One commenter questioned whether Sec.  410.16 that permits 
qualified nurse practitioners and others to order CV screening tests 
under the physical examination (section 611 of the MMA) is inconsistent 
with Sec.  410.17 that requires that the laboratory tests be ordered by 
the treating physician (Sec.  410.32(a)).
    Response: Section 410.16 addresses services by NPs because of 
conforming changes made in section 611(d) of the MMA. Section 
410.32(a)(3) permits certain NPPs to furnish services that would be 
physicians' services if furnished by a physician and who are operating 
within the scope of their authority under State law and within the 
scope of their Medicare statutory benefit. We believe that the statute 
permits the use of NPPs to order tests described under Sec.  410.17 
without a change in the statute. The general rule for laboratory tests 
is that the tests must be ordered by the treating physician and in the 
instance of screening tests, the treating NPP may be regarded as a 
physician for this purpose.
    Comment: One commenter believed that screening every 5 years was 
too long a period between tests and that the data we collect be used to 
allow more frequent testing.
    Response: We have heard from commenters that the frequency 
limitation of keeping records for the 5 years is difficult because of 
storage, access and retrieval, and orders from multiple physicians. 
Change in the frequency (that is, the number of times a patient can be 
tested during a given timeframe) will be considered if the scientific 
literature supports it. We do not believe we are permitted to change 
the frequency based solely upon the logistical difficulties in 
collecting, consolidating, and maintaining administrative data. 
Modifying the benefit to permit more frequent testing will not resolve 
these administrative difficulties. However, we will take this 
recommendation under advisement as we continue to consider the 
associated clinical data, but will not make any changes for the final 
rule.
    Comment: One commenter requested that blood be removed from the 
title of this benefit for the final rule. The commenter believed the 
narrow focus on blood would restrict the types of tests that would be 
administered for detecting CV disease.
    Response: In developing the proposed rule, we included blood in the 
title of this benefit to be consistent with the

[[Page 66296]]

history of this benefit and to distinguish the tests in the benefit. We 
believe that noninvasive tests could be covered and this benefit is not 
limited only to blood tests.
    Comment: One commenter suggested that the CV screening benefit 
include an appropriate screening instrument. As with depression, the 
examining physician has a test based on clinical practice guidelines to 
use as a tool for assessing the patient. Since the American Heart 
Association (AHA) and the ACC Guidelines for PAD are expected to be 
published in 2005, the commenter is requesting that we adapt the 
patient assessment and include these guidelines under the CV screening 
benefit.
    Response: Since the publication of the AHA and ACC Guidelines has 
not taken place, it would be difficult to evaluate this document and 
how physicians would use this in the course of examining a patient. 
Physicians may use their best judgment for how they assess an 
individual patient and whether additional specific tests from the AHA 
and ACC guidelines would be more helpful than what is already included 
in the screening benefit for CV disease is not something we can 
conclude at this time. The NCD process is available when additional 
tests should be considered.

Result of Evaluation of Comments

    After reviewing all the comments, we have plans to include the V 
codes (V81.0, V81.1 and V81.2) in the Laboratory Edit Module, and to 
release manual and transmittal instructions and information to smooth 
the transition for the new benefit. Providers who routinely give ABNs 
to beneficiaries must include in the ABN that the frequency limitation 
is the reason for which Medicare will deny coverage. A patient who has 
an ABN and exceeds the frequency limitation may incur out-of-pocket 
charges. We will finalize the changes to Sec.  410.17 as proposed.

D. Section 413--Physician Scarcity Areas and Health Professional 
Shortage Areas Incentive Payments

    [If you choose to comment on issues in this section, please include 
the caption ``HPSA Zip Code Areas'' at the beginning of your comments.]
    Section 413(a) of the MMA provides a new 5 percent incentive 
payment to physicians furnishing services in physician scarcity areas 
(PSAs). The MMA added a new section 1833(u) of the Act that provides 
for paying primary care physicians furnishing services in a primary 
care scarcity county and specialty physicians furnishing services in a 
specialist care scarcity county an additional amount equal to 5 percent 
of the amount paid for these services.
    Section 1833(u) of the Act defines the two measures of physician 
scarcity as follows:
    1. Primary care scarcity areas--determined by the ratio of primary 
care physicians to Medicare beneficiaries. A primary care physician is 
a general practitioner, family practice practitioner, general 
internist, obstetrician, or gynecologist.
    2. Specialist care scarcity areas--determined by the ratio of 
specialty care physicians to Medicare beneficiaries. The specialist 
care PSA ratio includes all physicians other than primary care 
physicians as defined in the definition of primary care scarcity areas.
    To identify eligible primary care and specialist care scarcity 
areas, we ranked each county by its ratio of physicians to Medicare 
beneficiaries. In accordance with the statute, in the list of primary 
care and specialist care scarcity counties, only those counties with 
the lowest ratios that represent 20 percent of the total number of 
Medicare beneficiaries residing in the counties were considered 
eligible for the 5 percent incentive payment. In accordance with the 
section 1833(u) of the Act, we also treated a rural census tract of a 
metropolitan statistical area (as determined under the most recent 
modification of the Goldsmith Modification) as an equivalent area (that 
is, equal to a full county).
    Consistent with section 1833(u)(4)(C) of the Act, all PSAs were 
assigned their 5-digit zip code area so that we may automatically 
provide the 5 percent incentive payment to eligible physicians. For zip 
codes that cross county boundaries, we used the dominant county of the 
postal zip code (as determined by the U.S. Postal Service) to identify 
areas eligible to receive the 5 percent payment. Section 1833(u)(4)(C) 
of the Act also requires us to publish a list of eligible areas as part 
of the proposed and final physician fee schedule rules for the years 
for which PSAs are identified or revised and to post a list of PSAs on 
our Web site. See Addenda J and H for the zip codes of primary care and 
specialist care PSAs. The PSA lists by zip code and county are also 
available on our Web site at http://www.cms.hhs.gov/providers/bonuspayment. Since we are publishing these lists for the first time in 
this final rule with comment period, we are accepting comments for 60 
days after the date of publication of this regulation on the zip codes 
and counties qualifying as physician scarcity areas and will address 
the comments in next year's fee schedule.
    In addition to creating of the 5 percent PSA incentive payment, 
section 413 of the MMA amended section 1833(m) of the Act to mandate 
that we pay the 10 percent health professional shortage areas (HPSA) 
incentive payment to eligible physicians in full county HPSAs without 
any requirement that the physician identify the HPSA area. We can only 
achieve this result by assigning zip codes to eligible areas. See 
Addenda I and K for the lists of eligible primary care and mental 
health HPSAs by zip code. Consistent with the Act, we have also posted 
a list of links on our Web site at http://www.cms.hhs.gov/providers/bonuspayment to assist those physicians located in eligible areas where 
automation is not feasible, that is, the eligible area could not be 
assigned a zip code.
    In the August 5, 2004 proposed rule, we proposed conforming changes 
to our regulations to add Sec.  414.66 to provide a 5 percent incentive 
payment to eligible physicians furnishing covered services in eligible 
PSAs. We also proposed conforming changes to our regulations to add 
Sec.  414.67 to codify the 10 percent incentive payment to eligible 
physicians furnishing covered services in eligible HPSAs, established 
under the Omnibus Budget Reconciliation Act of 1987 (OBRA) (Pub. L. 
100-203), previously implemented through manual issuance.
    We received 23 letter comments on the bonus payment provisions of 
section 413 of the MMA. A summary of those comments and our responses 
follows:
    Comment: One commenter questioned the rationale behind using zip 
codes for the purpose of identifying eligible areas for physician 
bonuses. The commenter believes that zip codes are less accurate than 
political boundaries (counties, census civil divisions, and census 
tracts).
    Response: The statute requires the identification of PSAs on a 
county basis, except for rural areas (using the Goldsmith 
Modification). At this time, we can only determine physician scarcity 
for Goldsmith areas at the zip code level since the Medicare 
beneficiary data is currently unavailable at the census tract level.
    Automation of physician bonus payments can only be achieved by 
assigning zip codes to eligible areas. That is, the zip code place of 
service is the only data element reported on the Medicare claim form 
that would allow automation.
    Comment: A commenter believes that our proposal to identify 
qualified PSAs and HPSAs by zip code for automatic payment purposes is 
problematic

[[Page 66297]]

because zip codes cross county lines. The commenter suggested that a 
more user-friendly option would be to add a county identifier to the 
claim form.
    Response: The addition of a county code would not resolve the issue 
of identifying the claims that would have a bonus because not all 
designated HPSAs and PSAs are full counties. We cannot identify, for an 
automated payment, services furnished in counties that are only 
partially designated and Goldsmith areas that are not full counties. In 
addition, there currently is no place on the standard electronic claims 
form to accommodate the entry of a county code.
    Comment: A commenter requested clarification regarding 
circumstances when automation of bonus payments is not feasible.
    Response: When the boundaries of zip code areas precisely overlay 
with the boundaries of eligible HPSAs and PSAs, automation of bonus 
payments is feasible. In other words, eligible physicians furnishing 
services to Medicare patients within these zip code areas will 
automatically receive their bonus payments. We can also automate bonus 
payments within zip code areas that cross outside of qualified county 
boundaries as long as the zip code, as determined by the U.S. Postal 
Service, is dominant to the qualified scarcity county. We cannot 
automate bonus payments when boundaries of zip code areas only 
partially coincide with the boundaries of HPSAs and PSAs.
    Comment: One commenter requested clarification regarding the 
application of the billing modifier in determining physician 
eligibility. The commenter inferred from the proposed rule that, if the 
zip code is not posted as a qualified area, an eligible physician could 
still receive a bonus payment if a modifier is used.
    Response: Eligible physicians furnishing covered services in a 
portion of an eligible PSA, which cannot be properly assigned a zip 
code to permit automation of the bonus payment, would need to include 
the new physician scarcity modifier on the Medicare claim in order to 
receive the bonus payment. Lists of the zip codes that are eligible for 
the automated payment, as well as a list of the counties that are 
eligible to receive the PSA bonus are available on our Web site at 
http://www.cms.hhs.gov/providers/bonuspayment. If a service is provided 
in a zip code area that is not listed on the automated payment files, 
but is within a designated physician scarcity county, the physician 
must submit the ``AR'' billing modifier with the service in order to 
receive the bonus payment. Separate lists for the primary care PSAs and 
the specialty care PSAs are provided on our Web site for both the 
automated zip codes and the counties.
    Comment: A commenter requested clarification on what ratios would 
be used to identify PSAs. The Health Resources and Services 
Administration (HRSA) uses a national ratio of 3,500:1, or 3,000:1 if 
high needs are shown. The commenter requested information on which 
ratios would be used to determine PSAs for specialty providers, and 
whether the ratios would be different for different specialty care 
providers.
    Response: Only those counties with the lowest primary care ratios 
that represent 20 percent of the total number of Medicare beneficiaries 
residing in the counties will be considered eligible for the 5 percent 
incentive payment. In other words, we ranked each county by its ratio 
of physicians to beneficiaries and then designated counties as scarcity 
areas with the lowest ratios until 20 percent of the Medicare 
population was reached. A separate specialist physician ratio was 
calculated to identify specialist care PSAs using the same methods 
stated. The statutory mandate precludes us from adopting a national 
physician-to-patient ratio similar to the HPSA designations. By 
statute, the 20 percent population threshold must serve as the 
qualifying condition for all counties/rural areas.
    For calculating the ratios, section 1833(u)(6) of the Act, as added 
by the MMA, defines a primary care physician as a general practitioner, 
family practice practitioner, general internist, obstetrician, or 
gynecologist. In accordance with the statute, all other physicians were 
grouped together as specialists for purposes of determining the 
specialist care PSA list.
    Comment: A commenter requested clarification regarding the 
frequency of updating the eligible zip code list for automatic HPSA 
bonus payments and its impact on otherwise eligible physicians.
    Response: Determination of zip codes eligible for automatic HPSA 
bonus payment will be made on an annual basis, and there will not be 
any mid-year updates. We will effectuate revisions made to designations 
by HRSA the following year for purposes of automatic bonus payments. 
Consequently, if HRSA changes to the HPSA designations remove 
physicians in those areas from receiving automatic payment, the zip 
code areas will remain eligible until the next year when we remove the 
zip code from our approved list.
    Eligible physicians furnishing covered services in newly-designated 
HPSAs are permitted to add a modifier to their Medicare claims to 
collect the HPSA incentive payment until our next annual posting of 
eligible zip codes for automation of bonus payments. In cases where a 
zip code cannot be properly assigned to the newly-qualified HPSA, 
physicians furnishing services in the area must continue to bill for 
the incentive payments using the appropriate modifier.
    Comment: A commenter requested that we provide FQHCs with the 5 
percent PSA incentive payment. Since the statute does not explicitly 
exclude other physicians' services (that are billed on an all-inclusive 
basis), such as those provided in FQHCs or RHCs, the commenter stated 
that we should extend the new 5 percent bonus payment to FQHC 
physicians.
    Response: As defined in section 1861(aa) of the Act, FQHC and RHC 
services are not physicians' services, even though physicians' services 
are frequently a component of the services furnished in these 
facilities. The services are rather identified as FQHC services. 
Therefore, services furnished by these providers are not eligible for 
the incentive payment.
    Comment: A commenter has questioned our proposal not to apply the 
new 5 percent physician incentive payment to the technical component of 
physicians' services. The commenter stated that extending the new bonus 
payment to both the professional and technical component of the 
physicians' services is consistent with Congressional intent and would 
simplify claims processing.
    Response: Section 1833(u) of the Act provides for incentive 
payments for physicians' services furnished in PSAs. We note that the 
statute contains two definitions of physicians' services. The first, 
which appears at section 1861(q) of the Act, defines physicians' 
services as ``professional services performed by physicians including 
surgery, consultation, and home, office, and institutional calls.'' The 
second, which refers to services paid under the physician fee schedule, 
is found at section 1848(j)(3) of the Act and contains a broader 
definition of physician services. However, that definition applies only 
for purposes of section 1848 of the Act.
    Since the incentive payment is not included in section 1848 of the 
Act, the definition of physicians' services specified in section 
1861(q) of the Act is the definition that applies. Thus, we believe the 
best reading of the statute is that only professional services 
furnished

[[Page 66298]]

by physicians are eligible for incentive payments.
    Comment: A commenter recommended that we extend the HPSA bonus 
payment to all physicians, regardless of their specialty, when their 
services are furnished within a mental health HPSA. The commenter 
believes there is no statutory basis to limit incentive payments just 
to psychiatrists within mental health HPSAs.
    Response: We provide HPSA bonus payments in primary medical care 
HPSAs to all physicians regardless of specialty (including 
psychiatrists) in light of the fact that there is significant overlap 
between primary medical care HPSAs and mental health HPSAs. 
Furthermore, most primary medical HPSAs, especially in rural areas, 
also have shortages of specialists. Consequently, there is no apparent 
need to distinguish between physician specialties within primary 
medical care HPSAs for determining physician eligibility for bonus 
payment purposes. However, in the situation where the mental health 
HPSA does not overlap with a primary medical care HPSA, we allow only 
psychiatrists to collect the incentive payment. Within these stand-
alone mental health HPSAs, there is an adequate supply of physicians 
for the provision of medical services and a shortage only of those 
providing mental health services. Therefore, it would be inconsistent 
with the HPSA incentive payment provisions, as well as an inappropriate 
use of the Medicare Trust Fund, to pay bonuses to physicians who 
furnish medical services in service areas without shortages of primary 
medical services.
    Comment: A commenter requested that we count only those practicing 
physicians who treat Medicare patients when determining the ratio of 
beneficiaries to practicing physicians. To count all practicing 
physicians, including those who do not treat Medicare patients would 
undermine the intent of the provision.
    Response: The statute does not permit us to count only Medicare 
participating physicians to determine PSAs. The statute explicitly 
requires that we calculate the primary and specialist care ratio by the 
number of physicians in the active practice of medicine or osteopathy 
within the county or rural area. Therefore, we must include in the 
physician tally all actively practicing physicians when determining 
PSAs.
    Comment: A commenter asked that we clarify our methods for 
determining the number of primary care and specialty care physicians to 
calculate the physician-to-beneficiary ratio for identifying PSAs. The 
commenter suggested that we use only the number of practicing 
physicians when determining the beneficiary to physician ratio, that 
is, distinguish between licensed physicians and practicing physicians 
when determining ratios of primary care and specialty care since some 
physicians continue to be licensed after they retire.
    Response: As required by section 413 of the MMA, the determination 
of eligible PSAs is based on the ratio of ``active practice'' 
physicians to Medicare beneficiaries within a county or rural area 
(using the Goldsmith Modification). The physician data source used in 
calculating scarcity areas is contained in the following:
    <bullet> The 2001 Physician Characteristics file; and
    <bullet> The 2001 Physician Address file.
    These data are a compilation of:
    <bullet> The December 2001 AMA Master file;
    <bullet> The December 2001 American Osteopathic Association (AOA) 
Physician file; and
    <bullet> The National Health Service Corps 2001 participant 
listing.
    These physician data files allow for the identification of the 
physician's active status. Some of the key status indicators to 
identify practicing physicians include ``clinically active'' and 
``Federal employment'' status. Clinically active status was determined 
using the type of practice, professional employment, and major 
professional activity fields from AMA and AOA. For example, determining 
non-active status is based on physicians who--
    (1) Are involved in administration, medical teaching, research, and 
other non-patient care activities; or
    (2) Have self-identified as fully retired or otherwise inactive.
    We believe that the indicator field of ``fully retired or otherwise 
inactive'' addresses the specific issue of a physician maintaining his 
or her license after he or she retires.
    Comment: A commenter expressed concern about our use of the AMA 
database to determine the number of licensed physicians engaged in 
direct patient care in each State. The commenter claims that the AMA 
database overstates the number of practicing physicians in the State of 
California by at least 10,000 physicians. In light of this concern, the 
commenter stated that we should use State medical board licensing 
information rather than the AMA database in determining the physician 
counts.
    Response: The physician data source used in calculating scarcity 
areas is contained in the 2001 Physician Characteristics file and the 
2001 Physician Address file. These data are a compilation of the 
December 2001 AMA Master file, the December 2001 AOA Physician file, 
and the National Health Service Corps 2001 participant listing. We made 
the decision to use the AMA Master file as well as the other files as 
the sources of physician data in scarcity calculations because there is 
no other adequate source of national physician data. It may be possible 
to obtain physician data from each individual State agency, but doing 
so would entail considerable administrative and technical difficulties. 
Furthermore, methods of gathering and compiling data may be 
inconsistent in different States. State agencies may vary greatly in 
terms of the methods used to update physician databases, the frequency 
of updates, how the data are stored, the type of information collected, 
and so forth. In addition, States may use their own classification 
systems for physician specialties, types of practice, and other key 
information, and these systems may change over time.
    Comment: A commenter encouraged us to implement similar incentive 
payment programs for non-physician practitioners, for example, 
Certified Registered Nurse Anesthetists and physician assistants.
    Response: We do not have the authority to provide bonus payments to 
non-physicians. Sections 1833(m) and 1833(u) of the Act authorize bonus 
payments only to physicians.
    Comment: A commenter requested that we immediately publish the 
already identified PSAs by zip code and specify the specialties in 
short demand within each eligible PSA.
    Response: Lists of the zip codes that are eligible for the 
automated payment, as well as a list of the counties that are eligible 
to receive the PSA bonus, are now available on our Web site at http://www.cms.hhs.gov/providers/bonuspayment. See Addenda J and H for the zip 
code list of PSAs for primary care and specialist care.
    We have forwarded to the Health Resources and Services 
Administration the request for identification of specialties in short 
supply within PSAs. That Agency has responsibility for physician 
manpower issues.
    Comment: A commenter requested that the list of scarcity areas 
should be made interim in the final fee schedule rule in order to give 
physicians sufficient time to review and comment on the proposal.
    Response: Although we made these lists public on our Web site on 
October 1, 2004, we will accept comments for 60 days after the date of 
publication of this regulation on the zip codes and counties

[[Page 66299]]

qualifying as physician scarcity areas and will address the comments in 
next year's fee schedule.
    Comment: A commenter expressed appreciation for our effort to 
fairly implement the incentive payments to physicians in scarcity 
areas. As this new incentive payment program is implemented, physicians 
must be informed that this bonus is available, and it must be simple 
for them to receive the bonus.
    Response: We have already made available on our Web site at http://www.cms.hhs.gov/providers/bonuspayment the lists of the zip codes that 
are eligible for the automated payment, as well as a list of the 
counties that are eligible to receive the PSA bonus. We have also 
issued a Medlearn article to educate the physician community regarding 
Medicare physician incentive payment programs. For a copy of this 
provider education article go to: http://www.cms.hhs.gov/medlearn/matters/mmarticles/2005/SE0449.pd. Lastly, Medicare's contractors have 
established their own Web site links for the HPSA incentive payment 
program to facilitate the payment of these bonuses to eligible 
physicians.
    Comment: A commenter expressed support of our proposed changes 
relating to incentive payments for services provided in areas 
designated as HPSAs and PSAs. The commenter also commended us for our 
prompt implementation of section 413 of the MMA. Another commenter 
expressed appreciation that the new 5 percent incentive is available to 
specialists in counties with short supply of these physicians.
    Response: We appreciate this positive feedback from the provider 
community.
    Comment: A commenter has questioned the rationale for our policy of 
imposing, as a condition of eligibility, the requirement that the 
specific location at which the service is furnished must be considered 
a HPSA or PSA. Since physicians do not always reside in the county 
where they provide services, identifying PSAs on one basis and paying 
for them on another basis may be problematic.
    Response: According to section 1833 of the Act, we make bonus 
payments for physicians' services furnished in an eligible HPSA or PSA. 
Thus, the place of service controls the availability of the bonus. A 
physician providing a service in his or her office, a patient's home, 
or in a hospital may receive the incentive payment only if the service 
occurs within an eligible shortage or scarcity area.
    Comment: One commenter believes that podiatric physicians, who are 
considered specialists, should be among those eligible to receive the 
additional 5 percent incentive payment.
    Response: Section 1833(u) of the Act, as added by the MMA, 
specifically defines ``physician'' as one described in section 
1861(r)(1) of the Act. Therefore, we do not have authority to make 
bonus payments to podiatrists.
    Commenter: A commenter expressed concern that our systems had 
trouble implementing the HPSA bonuses under Method II for Critical 
Access Hospital (CAH) participation, and some providers have waited 
more than two years for increased Medicare payments.
    Response: Although some fiscal intermediaries may not have been 
accustomed to processing physician claims, these systems were updated 
and the problems resolved as of July 1, 2004.
    Comment: A commenter from California requested that physicians who 
provide Medicare services only through managed care not be included in 
our calculations. The commenter believes that including physicians who 
only treat managed care patients in the count to determine physician 
scarcity areas will lead to a gross overstatement of the number of 
physicians available to provide care to fee-for-service Medicare 
patients.
    Response: We do not believe that we have the legal authority to 
exclude managed care physicians from the ratio calculations. Moreover, 
excluding managed care physicians in the county-wide physician tally 
would not change PSAs in California based on our calculations. In fact, 
excluding the managed care physicians would make five eligible areas 
ineligible.

Result of Evaluation of Comments

    We are finalizing Sec.  414.66 and Sec.  414.67 as proposed. We are 
accepting public comments on the zip code areas.

E. Section 303--Payment for Covered Outpatient Drugs and Biologicals

1. Average Sales Price (ASP) Payment Methodology

a. Background

    Medicare Part B covers a limited number of prescription drugs and 
biologicals. For the purposes of this proposed rule, the term ``drugs'' 
will hereafter refer to both drugs and biologicals. Medicare Part B 
covered drugs generally fall into the following three categories:
    <bullet> Drugs furnished incident to a physician's service.
    <bullet> Durable medical equipment (DME) drugs.
    <bullet> Drugs specifically covered by statute (for example, 
immunosuppressive drugs).
    Section 303(c) of the MMA revises the payment methodology for Part 
B covered drugs that are not paid on a cost or prospective payment 
basis. In particular, section 303(c) of the MMA amends Title XVIII of 
the Act by adding section 1847A, which establishes a new ASP drug 
payment system. In 2005, almost all Medicare Part B drugs not paid on a 
cost or prospective payment basis will be paid under this system.
    The new ASP drug payment system is based on data submitted to us 
quarterly by manufacturers. Payment amounts will be updated quarterly 
based on the manufacturer's ASP calculated for the most recent calendar 
quarter for which data are available. We intend to implement the 
quarterly pricing changes through program instructions or otherwise, as 
permitted under Section 1847A(c)(5)(C). For calendar quarters beginning 
on or after January 1, 2004, the statute requires manufacturers to 
report their ASP data to us for almost all Medicare Part B drugs not 
paid on a cost or prospective payment basis. Manufacturers' submissions 
are due to us not later than 30 days after the last day of each 
calendar quarter.
    The methodology for developing Medicare drug payment allowances 
based on the manufacturer's submitted ASP data is described in this 
final rule and reflected in final revisions to the regulations at Sec.  
405.517 and new Subpart K in part 414. Several comments discussed 
aspects of the manufacturers' calculation of ASP that are beyond the 
scope of this final rule. We did not propose any changes to the 
regulations concerning the manufacturer's calculation of ASP. We also 
received other comments regarding the use of the least costly 
alternative (LCA) methodology when pricing drugs, and requests for new 
HCPCS codes for drugs and coverage of compounded drugs. These comments 
are also outside the scope of this final rule. We did not propose any 
changes to the LCA policy, the HCPCS process, or coverage of compounded 
drugs.

b. Provisions of the Final Rule

i. The ASP Methodology
    Effective 2005, payment for certain drugs and biologicals not paid 
on a cost or prospective payment basis furnished on or after January 1, 
2005 will be based on an ASP methodology.
    As described in section 1847A(b)(3)(A) of the Act for multiple 
source drugs and section 1847A(b)(4)(A) for single source drugs, the 
ASP for all

[[Page 66300]]

drug products included within the same billing and payment code [or 
HCPCS code] is the volume-weighted average of the manufacturers' 
average sales prices reported to us across all the NDCs assigned to the 
HCPCS code. Specifically, section 1847A(b)(3)(A) of the Act and section 
1847A(b)(4)(A) of the Act require that this amount be determined by--
    <bullet> Computing the sum of the products (for each National Drug 
Code assigned to those drug products) of the manufacturer's average 
sales price and the total number of units sold; and
    <bullet> Dividing that sum by the sum of the total number of units 
sold for all NDCs assigned to those drug products.
    Section 1847A(b)(1)(A) of the Act requires that the Medicare 
payment allowance for a multiple source drug included within the same 
HCPCS code be equal to 106 percent of the ASP for the HCPCS code. This 
payment allowance is subject to applicable deductible and coinsurance. 
The payment limit is also subject to the two limitations described 
below in section III.E.1.b.v of this preamble concerning widely 
available market prices and average manufacturer prices in the Medicaid 
drug rebate program. As described in section 1847A(e) of the Act, the 
payment limit may also be adjusted in response to a public health 
emergency under section 319 of the Public Health Service Act in which 
there is a documented inability to access drugs and a concomitant 
increase in the price of the drug which is not reflected in the 
manufacturer's average sales price.
    Section 1847A(b)(1)(B) of the Act requires that the Medicare 
payment allowance for a single source drug HCPCS code be equal to the 
lesser of 106 percent of the average sales price for the HCPCS code or 
106 percent of the wholesale acquisition cost of the HCPCS code. This 
payment allowance is subject to applicable deductible and coinsurance. 
The payment limit is also subject to the two limitations described 
below in section III.E.1.b.v concerning widely available market prices 
and average manufacturer prices in the Medicaid drug rebate program. As 
described in section 1847A(e) of the Act, the payment limit may also be 
adjusted in response to a public health emergency under section 319 of 
the Public Health Service Act.
    Comment: One commenter suggested that we implement the ASP 
methodology on a pilot basis prior to a national rollout. A physician 
interest group recommended that we delay the implementation of the ASP 
payment system for at least one year. The interest group stated that we 
should inform physicians of the ASP for all covered drugs before the 
final rule is issued and allow physicians to comment on the proposed 
rates after an informed and complete review process.
    Response: The law requires that the new ASP-based drug pricing 
system be implemented January 1, 2005. The January 1, 2005 prices will 
be based on the data submitted to us no later than 30 days after the 
end of the third calendar year quarter of 2004. Given the requirements 
surrounding the timing of the promulgation of the physician fee 
schedule final rule, we will not have the January 1, 2005 prices 
available before the publication of the final rule. However, our goal 
is to provide as much information on Medicare Part B drug payment rates 
as possible as early as possible prior to the January 1, 2005 effective 
date of those rates.
    Comment: A provider asked that we earmark funds to enable 
physicians to transition from the AWP-15 percent payment system to the 
ASP + 6 percent payment system.
    Response: We do not have statutory authority to create such a 
transition fund.
    Comment: One commenter stated that the ASP plan does not account 
for price increases in a timely manner. Another commenter expressed 
concern that because ASP modifications lag by at least two calendar 
quarters, market prices would not be reflected in a drug's payment 
limit for at least six months after a pricing adjustment.
    Response: The ASP methodology is based on average sales prices 
reported by manufacturers quarterly. Manufacturers must report to us no 
later than 30 days after the close of the quarter. We implement these 
new prices through program instructions or otherwise at the first 
opportunity after we receive the data, which is the calendar quarter 
after receipt.
    Comment: Some commenters expressed concern that the ASP + 6 percent 
payment methodology would discourage providers from using generic drugs 
and would increase the tendency to use newer or more expensive agents.
    Response: It is true that the higher the average sales price of a 
drug, the greater amount of money represented by 6 percent of that 
price. However, Section 1847A specifies that payment is at 106 percent 
of ASP. The law requires the use of the new ASP + 6 percent payment 
system except in the limited instances described below in Sections V 
and VI.
    Comment: Several commenters suggested that we should establish a 
mechanism to provide the public with an opportunity to identify errors 
in the ASP-based payment rates before the start of the calendar quarter 
in which the rates are effective. They believe that this mechanism 
would minimize errors by permitting posting of the rates several weeks 
prior to the effective date.
    Response: Our goal is to provide as much information on Medicare 
Part B drug payment rates as possible as early as possible prior to the 
effective date of those rates.
    Comment: A physician specialty group recommended that we use our 
inherent reasonableness authority to increase drug payments up to 15 
percent where necessary to make the Medicare payment level sufficient 
to cover the price of drugs charged by specialty distributors that 
service the physician office market.
    Response: We do not have sufficient data to determine whether our 
inherent reasonableness authority would apply in this instance. Even if 
our inherent reasonableness authority were triggered, our data are 
insufficient to determine whether the adjustment the commenters request 
would be appropriate.
    Comment: Several commenters urged us to weigh the full range of 
potential consequences to patient care, especially in the oncology 
setting, with the implementation of the ASP payment methodology. They 
recommended that we take into consideration concerns such as the 
potential inability of providers to purchase drugs below the new 
reimbursement rate, the inability of oncologists to provide access to 
important under-reimbursed support services, and the disproportionate 
impact of these changes on rural providers necessitating a shift in 
care of sick cancer patient from community settings to the hospital. 
Some commenters suggested that we place a form on its Web site enabling 
beneficiaries to identify access problems. One commenter suggested that 
we perform a 1-year monitoring study to evaluate the quality of care 
issues and delay implementation until the results of the study are 
known.
    Response: Although we do not expect access problems under the new 
ASP + 6 percent payment system, we will be monitoring patient access 
through our 1-800-MEDICARE line, regional office staff, claims 
analysis, and other environmental scanning activities. We will work 
with Congress if access issues arise. The law requires that the new 
ASP-based drug pricing system be implemented January 1, 2005.
    Comment: Several commenters expressed concern regarding the 
statements on joining group purchasing organizations (GPOs) to improve 
their purchasing power. They indicate that

[[Page 66301]]

the size of the discount is based on the individual GPO member's 
purchases, not the combined purchases of the GPO members. Thus, 
membership in a GPO would not necessarily result in a greater discount. 
They also point out that retail pharmacies do not have access to GPO 
purchasing arrangements. One commenter requested that we offer more 
tangible suggestions for obtaining drugs at the ASP +6 percent price 
other than encouraging physicians to participate in purchasing groups.
    Response: The law requires that the new ASP-based drug pricing 
system be implemented January 1, 2006. A recent survey of oncology 
practices performed by the American Society of Clinical Oncology 
indicated that the purchase price of drugs is not necessarily driven by 
practice size. It would appear that smaller purchasers are on average 
sometimes able to achieve similar drug pricing to larger purchasers. 
The OIG is conducting a study due not later than October 1, 2005, on 
the ability of different size physician practices in the specialties of 
hematology, hematology/oncology, and medical oncology to obtain drugs 
at 106 percent of the average sales price. We are currently conducting 
another MMA-mandated study of sales of drugs to large volume purchasers 
that is due not later than January 1, 2006. We will seek to work with 
physicians, providers, and suppliers on ways to encourage prudent 
purchasing, including to the extent practicable the dissemination of 
information on lower cost suppliers of Medicare Part B drugs. We would 
welcome suggestions on ways to accomplish this goal.
    Comment: One commenter suggested that classes of trade should be 
taken into account when establishing ASP payment rates.
    Response: The law does not permit the exclusion of or 
differentiation by classes of trade in the calculation of the ASP 
payment rates, except for the specific statutory exceptions described 
in the Medicaid best price calculation under sections 1927(c)(1)(C)(i) 
and 1927(c)(1)(C)(ii)(III) of the Act. The statute specifies a payment 
rate of 106 percent of ASP.
    Comment: A drug manufacturer urges us to reject any requests to 
publish the NDC-specific ASPs as the publishing of the rates would 
facilitate inappropriate conduct.
    Response: The law does not permit the disclosure of NDC level ASPs 
in a form that discloses the identity of a specific manufacturer or 
prices charged by the manufacturer except in accordance with Section 
1927(b)(3)(D) of the Act. That provision permits the disclosure of such 
data as the Secretary determines to be necessary to effectuate the 
provisions of section 1847A of the Act.
v. Limitations on ASP
    Section 1847A(d)(1) of the Act states that ``The Inspector General 
of the Department of Health and Human Services shall conduct studies, 
which may include surveys, to determine the widely available market 
prices of drugs and biologicals to which this section applies, as the 
Inspector General, in consultation with the Secretary, determines to be 
appropriate.'' Section 1847A(d)(2) of the Act states that ``Based upon 
such studies and other data for drugs and biologicals, the Inspector 
General shall compare the average sales price under this section for 
drugs and biologicals with--
    <bullet> The widely available market price for such drugs and 
biologicals (if any); and
    <bullet> The average manufacturer price (as determined under 
section 1927(k)(1)) for such drugs and biologicals.''
    Section 1847A(d)(3) of the Act states that ``The Secretary may 
disregard the average sales price for a drug or biological that exceeds 
the widely available market price or the average manufacturer price for 
such drug or biological by the applicable threshold percentage (as 
defined in subparagraph (B)).'' Section 1847A(d)(3)(B) states that 
``the term `applicable threshold percentage' means--
    <bullet> In 2005, in the case of an average sales price for a drug 
or biological that exceeds widely available market price or the average 
manufacturer price, 5 percent; and
    <bullet> In 2006 and subsequent years, the percentage applied under 
this subparagraph subject to such adjustment as the Secretary may 
specify for the widely available market price or the average 
manufacturer price, or both.''
    Section 1847A(d)(3)(C) of the Act states that ``If the Inspector 
General finds that the average sales price for a drug or biological 
exceeds such widely available market price or average manufacturer 
price for such drug or biological by the applicable threshold 
percentage, the Inspector General shall inform the Secretary (at such 
times as the Secretary may specify to carry out this subparagraph) and 
the Secretary shall, effective as of the next quarter, substitute for 
the amount of payment otherwise determined under this section for such 
drug or biological the lesser of--
    <bullet> The widely available market price for the drug or 
biological (if any); or
    <bullet> 103 percent of the average manufacturer price (as 
determined under section 1927(k)(1)) for the drug or biological.''
    Comment: One commenter urged us to provide further guidance on the 
widely available market price (WAMP) methodology, specifically how the 
OIG will compare ASP to WAMP. The commenter also requested guidance on 
how WAMP will be determined in the case of multiple drugs represented 
by a single J-code. Other commenters stated that we should provide 
greater guidance for how it will substitute WAMP for ASP. These 
commenters also suggested that we provide guidance on how it will treat 
quarterly oscillations between ASP and WAMP.
    Response: The OIG is developing its methodology regarding the 
widely available market price. Because the determination of WAMP is 
within OIG's purview, we believe it is premature to address the 
implementation issues prior to the OIG establishing its methodology and 
conducting its first review.
    Comment: Several commenters recommend that we make adjustments 
where there is a disparity between the ASP-based payment limit and the 
physician acquisition cost. These commenters recommended that we raise 
the payment rate if the WAMP is higher than ASP.
    Response: Section 1847A of the Act does not provide authority to 
increase the ASP-based payment system based on the review of the OIG.
vi. Payment Methodology in Cases Where the Average Sales Price During 
the First Quarter of Sales Is Unavailable
    Section 1847A(c)(4) of the Act states that ``In the case of a drug 
or biological during an initial period (not to exceed a full calendar 
quarter) in which data on the prices for sales for the drug or 
biological is not sufficiently available from the manufacturer to 
compute an average sales price for the drug or biological, the 
Secretary may determine the amount payable under this section for the 
drug or biological based on--
    <bullet> The wholesale acquisition cost; or
    <bullet> The methodologies in effect under this part on November 1, 
2003, to determine payment amounts for drugs or biologicals.''
    Comment: Several commenters requested that we provide guidance on 
how the payment rate for a new drug in its second calendar quarter will 
be determined. They recommend that we utilize the same methodology for 
the 2nd quarter payment as for the 1st quarter; that is, use the WAC or 
methodologies in effect on November 1, 2003.

[[Page 66302]]

    Response: Pursuant to section 1847A(c)(4) of the Act, during an 
initial period (not to exceed a full calendar quarter) where data on 
prices for sales for a drug are not sufficiently available from the 
manufacturer to compute an ASP, we will pay based on WAC or the 
methodologies in effect on November 1, 2003 for a limited period. This 
time period will start on the date that sales of the drug begin and end 
at the beginning of the quarter after we receive information from the 
manufacturer regarding ASP for the first full quarter of sales.

c. Payment for Influenza, Pneumococcal, and Hepatitis B Vaccines

    Section 1841(o)(1)(A)(iv) of the Act requires that influenza, 
pneumococcal, and hepatitis B vaccines described in subparagraph (A) or 
(B) of section 1861(s)(10) of the Act be paid based on 95 percent of 
the average wholesale price (AWP) of the drug. The AWP payment rates 
for these vaccines will be updated quarterly. No commenters objected.

d. Payment for Drugs Furnished During 2005 in Connection With the 
Furnishing of Renal Dialysis Services if Separately Billed by Renal 
Dialysis Facilities

    Section 1881(b)(13)(A)(ii) of the Act indicates that payment for a 
drug furnished during 2005 in connection with the furnishing of renal 
dialysis services, if separately billed by renal dialysis facilities, 
will be based on the acquisition cost of the drug as determined by the 
Inspector General(IG) report to the Secretary required by section 
623(c) of the MMA or, insofar as the IG has not determined the 
acquisition cost with respect to a drug, the Secretary shall determine 
the payment amount for the drug. In the report, ``Medicare 
Reimbursement for Existing End-Stage Renal Disease Drugs,'' the IG 
found that, on average, in 2003 the four largest chains had drug 
acquisition costs that were 6 percent lower than the ASP of 10 of the 
top drugs, including erythropoietin. A sample of the remaining 
independent facilities had acquisition costs that were 4 percent above 
the ASP. Based on this information, the overall weighted average drug 
acquisition cost for renal dialysis facilities is 3 percent lower than 
the ASP. Therefore, we proposed that payment for a drug or biological 
furnished during 2005 in connection with renal dialysis services and 
separately billed by renal dialysis facilities will be based on the ASP 
of the drug minus 3 percent. We proposed to update this quarterly based 
on the ASP reported to us by drug manufacturers.
    We received numerous comments regarding our proposed payments rate 
of ASP minus 3 percent. Those comments and responses are provided 
below.
    Comment: Commenters questioned the basis for our decision to pay 
for separately reimbursed drugs at a rate of ASP minus three percent. 
These commenters stated that ASP minus 3 percent was not acquisition 
cost as determined by OIG and did not reflect the acquisition cost 
relationship between these drugs. Some commenters questioned the 
relationship between the ASP definition used by the OIG and the current 
definition. Commenters stated that we should base the payment rates on 
the acquisition cost of each drug as reported by the OIG updated to 
2005 rather than an ASP-based formula. Some commenters indicated that 
the acquisition cost should be updated to 2005 and suggested an update 
using the same annual factor used for budget neutrality calculations. 
For drugs not included in the OIG report, some commenters suggested 
that we use the same methodology for most other Medicare Part B drugs, 
namely ASP plus 6 percent. Commenters indicated we should consider two 
tiers of payment based on provider size to minimize the discrepancy 
between large and small providers or in the absence of two tiers base 
the payment on the acquisition cost of the facilities not owned or 
managed by the four largest providers. Commenters also asked for 
clarification of the payment basis for separately billable ESRD drugs 
other than EPO billed by hospital based ESRD facilities since these 
drugs historically were not paid based on AWP but rather based on 
reasonable cost.
    Response: We agree with the commenters who suggested we base the 
2005 payment rates for separately billable ESRD drugs on the actual 
dollar value of the acquisition costs as determined by the IG rather 
than the acquisition costs relative to the ASP. We also agree that we 
should update the IG acquisition costs to calculate 2005 rates. After 
consideration of the available price data, we have determined that the 
Producer Price Index (PPI) for prescription preparations is the most 
appropriate price measure for updating EPO and other separately 
billable drugs from 2003 to 2005. The PPI for prescription preparations 
is released monthly by the Bureau of Labor Statistics, and reflects 
price changes at the wholesale or manufacturer stage. By comparison, 
the Consumer Price Index (CPI) for prescription drugs reflects price 
changes at the retail stage. Because EPO and many of the separately 
billable drugs used by dialysis facilities are purchased directly from 
the manufacturer, the use of a price index that measures wholesale 
rather than retail prices is more appropriate. The PPI for prescription 
drugs is the measure used in the various market baskets that update 
Medicare payments to hospitals, physicians, skilled nursing facilities, 
and home health agencies. In addition, the PPI for prescription drugs 
was recommended for use in the proposed composite rate market basket 
detailed in the 2003 Report to Congress.
    Based on historical data through the second quarter of 2004, we 
used the Global Insight Inc. forecast of the PPI for prescription drugs 
to determine the update factors for 2004 and 2005. We feel the use of 
an independent forecast, in this case from Global Insight Inc., is 
superior to using the Naational Health Expenditure projections for drug 
prices (which is the CPI for prescription drugs) and is consistent with 
the methodology used in projecting market basket increases for Medicare 
prospective payment systems.
    We also agree with those commenters who suggested that the drugs 
not contained in the IG study should be paid at ASP plus 6 percent. We 
believe it is appropriate for the payment amount for these drugs when 
separately billed by ESRD facilities during 2005 to be the same as the 
payment amount for other entities that are paid by Medicare on other 
than a cost or prospective payment basis. We do not agree with 
commenters that we should establish separate drug payment rates for 
large and small providers. For reasons discussed in the section of this 
final rule on the ESRD composite rate, we believe it is appropriate to 
establish a single add-on payment to the composite rate and therefore 
appropriate to establish the same drug payment rates for both large and 
small providers. We do not believe it is appropriate to base the 
payment amount on only the higher acquisition cost of the facilities 
not owned or managed by the four largest providers and not take into 
account the acquisition costs of the largest four providers who 
represent the majority of the drug expenditures. Section 
1881(b)(13)(A)(ii) of the Social Security Act refers to ``the 
acquisition cost of the drug or biological'' and not the acquisition 
costs of the drug or biological. In accordance with the statute and our 
understanding of Congressional intent for 2005, we believe it is more 
appropriate to base the 2005 payment amounts on a weighted average of 
the acquisition costs of the four largest providers and the other

[[Page 66303]]

facilities rather than base the 2005 payment amounts solely on the 
acquisition costs of the other facilities.
    In response to the commenters who requested clarification of the 
payment basis for separately billable ESRD drugs other than EPO billed 
by hospital-based ESRD facilities, we did not propose changes to the 
reasonable cost payment basis for these drugs. The OIG did not study 
separately billable ESRD drugs other than EPO billed by hospital-based 
ESRD facilities and accordingly, we did not propose to change the 
payment basis for these drugs.

e. Payment for Infusion Drugs Furnished Through an Item of DME

    In 2005, section 1841(o)(1)(D)(i) of the Act requires that an 
infusion drug furnished through an item of DME covered under section 
1861(n) of the Act be paid 95 percent of the average wholesale price 
for that drug in effect on October 1, 2003. No commenters objected.
2. Drug Administration Payment Policy and Coding Effective in 2005
    Section 1848(c)(2)(J) of the Act (as added by section 303(a) of the 
MMA) requires the Secretary to promptly evaluate existing drug 
administration codes for physicians' services to ensure accurate 
reporting and billing for those services, taking into account levels of 
complexity of the administration and resource consumption. According to 
section 1848(c)(2)(B)(iv) of the Act (as amended by section 303(a) of 
the MMA), any changes in expenditures in 2005 or 2006 resulting from 
this review are exempt from the budget neutrality requirement of 
section 1848(c)(2)(B)(ii) of the Act. The statute further indicates 
that the Secretary shall use existing processes for the consideration 
of coding changes and, to the extent changes are made, shall use those 
processes to establish relative values for those services. The 
Secretary is also required to consult with physician specialties 
affected by the provisions that change Medicare payments for drugs and 
drug administration.
    The AMA's CPT Editorial Panel established a workgroup, with 
representatives from affected specialties that met earlier this year to 
develop recommendations to the CPT Editorial Panel in August. Based on 
these recommendations, that panel adopted several new drug 
administration codes and revised several existing codes. Subsequently, 
the AMA's Relative Value Update Committee (RUC) met at the end of 
September to make recommendations to us on the practice expense 
resource inputs and work relative values for the new and revised drug 
administration codes.
    We indicated in the proposed rule that we would consider whether it 
is necessary for us to make coding changes effective January 1, 2005 
through the use of G-codes (because the 2005 CPT book will have already 
been published), and we requested public comment. As described in 
detail below, we are establishing new G-codes for 2005 that correspond 
with the new CPT codes that will become active in 2006. These new G-
codes are interim until 2006.
    The new CPT codes can be categorized into the following three 
categories of drug administration services: infusion for hydration; 
nonchemotherapy therapeutic/diagnostic injections and infusions other 
than hydration; and chemotherapy administration (other than hydration) 
which includes infusions/injections. There are some important changes 
in the new codes relative to current drug administration coding. The 
infusion of substances such as monoclonal antibody agents or other 
biologic response modifiers is reported under the chemotherapy codes, 
instead of the nonchemotherapy infusion codes, as is currently the 
case. There are also new codes in both the chemotherapy and 
nonchemotherapy sections for reporting the additional sequential 
infusion of different substances or drugs.
    As we stated in the proposed rule, we plan to analyze any shift or 
change in utilization patterns once the payment changes for drugs and 
drug administration required by MMA go into effect. While we do not 
believe the changes will result in access problems, we plan to continue 
studying this issue. We also note that the MMA requires the Medicare 
Payment Advisory Commission (MedPAC) to study how the changes in 
payments for drugs and drug administration affect other specialties.
    We received many comments on various aspects of coding and payment 
for drug administration services in response to the proposed rule. We 
are also responding below to comments we received on the January 7, 
2004 interim final rule with comment period that announced the 
provisions of section 303 of the MMA affecting drug administration 
services that took effect in 2004 (69 FR 1094). Specifically, section 
303 of the MMA required the following changes in 2004: a transitional 
adjustment that increases payments for specific drug administration 
services by 32 percent in 2004 (and 3 percent in 2005); establishing 
work RVUs for certain drug administration services equal to the work 
RVUs for a level 1 office medical visit for an established patient; the 
incorporation of supplemental survey data in the calculation of the 
practice expense RVUs for drug administration codes; and allowing 
oncologists to bill for multiple drug administrations by the ``push'' 
technique on a single day.
    Comment: Many commenters supported the efforts to promptly evaluate 
existing drug administration codes to ensure accurate reporting and 
billing for services. They support our proposal to use G-codes until 
the new CPT codes are active. They asked us to adopt the 
recommendations of the CPT Editorial Panel for new drug administration 
codes.
    Response: We appreciate the support of the commenters of all of the 
efforts to expeditiously review and update these codes. We also would 
like to specifically recognize the efforts of the CPT Editorial Panel's 
Drug Administration Workgroup to develop the new CPT codes, the 
Editorial Panel for its consideration and approval of the new codes, 
and the RUC for its similar efforts to develop recommendations for the 
inputs for the new codes.
    We have reviewed the recommendations of the CPT Editorial Panel 
and, with one exception noted below, agree with their new and revised 
codes for drug administration for 2005. Because the new CPT codes will 
not be included in the 2005 CPT, we have decided to establish G-codes, 
where applicable. At this time, we anticipate these new G-codes will be 
temporary until the new CPT codes become active January 1, 2006.
    A listing of the old CPT codes and their corresponding G-codes are 
in the table below. Some of the old CPT codes will correspond to more 
than one G-code, and there are codes that will allow physicians to bill 
for services that previously did not have a code or were bundled into 
other services.
    The drug administration codes are divided into three categories: 
infusion codes for hydration; codes for therapeutic/diagnostic 
injections; and chemotherapy administration codes. The descriptions of 
the codes below are taken primarily from the AMA CPT Editorial Panel. 
We are including these specific descriptions here in order to provide 
as much information as possible about the new G-codes prior to their 
implementation on January 1, 2005. However, we anticipate that we will 
issue further instructions regarding the appropriate use of these G-
codes, including clarifications, interpretations, and other 
modifications to the following guidance (apart from the G-codes

[[Page 66304]]

themselves) as part of any instructions issued through a subregulatory 
process.
    The codes for hydration (G0345 and G0346 in the table below) are 
for reporting hydration intravenous (IV) infusions consisting of a 
prepackaged fluid and electrolytes. These codes are not used to report 
infusion of drugs or other substances. The codes for chemotherapy 
administration are to be used for reporting the administration of non-
radionuclide anti-neoplastic drugs, and anti-neoplastic agents provided 
for treatment of noncancer diagnoses, or substances such as monoclonal 
antibody agents and other biologic response modifiers. The remaining 
codes are for reporting injections and infusions for all drug 
administrations that were previously reported using CPT codes 90780-
90788, 96400, and 96408-96414 (other than those described above as 
hydration or chemotherapy).

[[Page 66305]]

[GRAPHIC] [TIFF OMITTED] TR15NO04.503


[[Page 66306]]


[GRAPHIC] [TIFF OMITTED] TR15NO04.504

    The following coding guidance is based on the CPT Editorial Panel's 
explanatory language for the new CPT codes. As noted above, we plan to 
issue further guidance as needed.
    Infusions that were previously reported under CPT code 90780 (non-
chemotherapy infusion, 1st hour) will be billed under one of three G-
codes beginning January 1, 2005. The first hour of a hydration infusion 
will be billed under G0345. The first hour of infusion of a 
nonchemotherapy drug other than hydration will be billed under G0347. 
The first hour of infusion of anti-neoplastic agents provided for 
treatment of noncancer diagnoses or substances such as monoclonal 
antibody agents and other biologic response modifiers is billed under 
G0359.
    Similarly, services that were previously reported under CPT code 
90781 (non-chemotherapy infusion, each additional hour) will be billed 
under one of four G-codes beginning January 1, 2005. Each additional 
hour of a hydration infusion will be billed under G0346. Each 
additional hour of a nonchemotherapy infusion will be billed under 
G0348. Currently, if a second (or other subsequent) nonchemotherapy 
drug is administered sequentially, the physician would bill code 90781 
for the additional hour of infusion. Under the new G-codes, the 
physician will bill G0349, the sequential administration of a second or 
subsequent nonchemotherapy drug. In addition, each additional hour of 
the infusion of anti-neoplastic agents for the treatment of noncancer 
diagnoses or substances such as monoclonal antibodies and other 
biological modifiers is billed under G0360.
    Injections that were previously billed under CPT code 90782 will 
now be billed under HCPCS code G0351. Physicians should use HCPCS code 
G0352 for injections previously billed under CPT code 90783. 
Nonchemotherapy drugs administered by IV push (currently using CPT code 
90784) should now be billed under HCPCS code G0353. The CPT book does 
not currently contain a code for physicians to bill a second (or other 
subsequent) nonchemotherapy drug administered by IV push. The CPT 
Editorial Panel created a new code for each additional nonchemotherapy 
drug administered by IV push. For 2005, the physician should bill HCPCS 
code G0354.
    The CPT coding system will be deleting code 90788 (Intramuscular 
injection of antibiotic) in 2006. We are maintaining CPT code 90788 as 
an active code until it is changed in the CPT coding system and 
instructions are provided on the code to bill in its place beginning 
January 1, 2006.
    Chemotherapy injections, previously billed under the CPT code 
96400, will now be billed using one of two new G-codes. For injection 
of nonhormonal anti-neoplastic drugs, the physician should bill HCPCS 
code G0355. For injection of hormonal anti-neoplastic drugs, the 
physician should bill HCPCS code G0356. CPT is not recommending any 
changes to CPT codes 96405 (Chemotherapy administration; intralesional, 
up to and including 7 lesions) and 96406 (more than 7 lesions), and 
these codes will remain active for Medicare in 2005.
    Chemotherapy drugs administered by IV push (currently billed under 
CPT code 96408, or, if the drug meets the expanded definition of 
chemotherapy including monoclonal antibodies or other biologic response 
modifiers, currently billed under CPT code 90784) should be billed 
using G0357 for the initial drug administered. In 2004, Medicare paid 
for the second (or other subsequent) chemotherapy drug administered by 
IV push under CPT code 96408. CPT will be establishing a code that 
recognizes the resource inputs associated with each additional 
chemotherapy drug administered by IV push. For 2005, the analogous code 
to bill the second (or other subsequent) chemotherapy drug administered 
by IV push is G0358.
    The first hour of chemotherapy administration, previously billed 
under CPT code 96410, should now be billed under CPT code G0359. Each 
additional hour of chemotherapy (previously billed under CPT code 
96412) should now be billed under CPT code G0360. CPT is also 
recommending a new code for the first hour of a different chemotherapy 
drug administered sequentially by infusion. If a second chemotherapy 
drug is administered sequentially, the physician should bill for HCPCS 
G0362 for the first hour of infusion of the second drug. All additional 
hours (up to eight total hours) of chemotherapy infusion should be 
billed using HCPCS code G0360. Prolonged chemotherapy infusions (8 
hours or more, previously billed under code 96414) should be billed in 
2005 using HCPCS code G0361.
    For three codes (G0350, G0354, G0363), the table above has an ``N/
A'' listed in the ``Old CPT'' column, meaning there were no CPT codes 
that existed explicitly for these services. These services will now be 
billable under the new coding system. For instance, CPT will be 
establishing a code for a ``concurrent infusion.'' A concurrent 
infusion refers to the simultaneous infusion of two nonchemotherapy 
drugs. We are using temporary code G0350 for this service. Code G0350 
is an add-on code. It must be reported as an ``add-on'' or with another 
code and our payment reflects the incremental resources associated with 
infusing the second drug. For example, if two nonchemotherapy drugs are 
infused concurrently, the physician bills G0347 for the initial drug 
infused and G0350 as an add-on.

[[Page 66307]]

    As indicated above, HCPCS code G0354 is a new code for each 
additional sequentialnonchemotherapy drug administered by IV push. 
HCPCS code G0354 is also an add-on code. In general, G0354 will be an 
add-on to G0353. However, it is possible that a nonchemotherapy drug 
administered by IV push may follow the administration of a chemotherapy 
drug administered by IV push, and HCPCS code G0354 would then be an 
add-on to HCPCS code G0357.
    HCPCS code G0363 is a new code for irrigation of an implanted 
venous access device. There is currently no code to describe this 
service. Medicare will pay for G0363 if it is the only service provided 
that day. If there is a visit or other drug administration service 
provided on the same day, payment for this service is bundled into 
payment for the other service.
    We are creating the following new add-on G-codes: G0346, G0348, 
G0349, G0350, G0354, G0358, G0360 and G0362. As indicated above, add-on 
codes must be billed with other codes, and our payment reflects the 
incremental resources associated with providing the additional service. 
The initial codes that these add-on codes could potentially be billed 
with include: G0345, G0347, G0353, G0357 and G0359. If a combination of 
chemotherapy, nonchemotherapy drugs, and/or hydration is administered 
by infusion sequentially, the initial code that best describes the 
service should always be billed irrespective of the order in which the 
infusions occur.
    Comment: In the January 7, 2004 interim final rule with comment, we 
revised our payment policy for pushes of chemotherapy drugs to allow 
for payment of multiple pushes of different chemotherapy agents in one 
day. A commenter asked that we revise our policy for multiple pushes of 
nonchemotherapy agents, to allow multiple billings on a single day.
    Response: The CPT/RUC recommendations address this comment. New 
codes have been created to account for the resources associated with 
multiple chemotherapy and nonchemotherapy drugs administered by IV 
push. HCPCS code G0353 is used for the initial IV push of a 
nonchemotherapy drug, while HCPCS code G0354 is used for each 
additional push of a nonchemotherapy drug. For chemotherapy drugs 
administered by IV push, HCPCS code G0357 is used for the first drug 
administered, while HCPCS code G0358 is used for each additional drug.
    We also note that existing CPT codes 90782-90788 (Therapeutic, 
prophylactic or diagnostic injections) currently have a status 
indicator of ``T'', which means that payment for the service is bundled 
unless it is the only service billed by the physician for the patient 
that day. However, based on the RUC recommendations and the resulting 
values for the injection services, we are making the status indicator 
on HCPCS codes G0351--G0354 an ``A'', which will allow them to be 
separately paid even if another physician fee schedule service is 
billed for the same patient that day.
    Comment: A commenter stated that, given the increased work and 
practice expense RVUs for drug administration codes, it follows that 
both the work and practice expense RVUs for the immunization 
administration codes (90471, 90472, 90473, and 90474) should also be 
increased. The commenter argued that the service involved in 
administering vaccines is more intense/complex than the service 
involved in the drug infusion codes.
    Response: We agree with the commenter that the physician work and 
practice expenses associated with administering injections are similar 
to immunizations. In addition, we would point out that we currently pay 
for vaccine administrations (G0008-G0010) based on crosswalking the 
RVUs to CPT code 90471. Therefore, any changes to the physician work 
and practice expense RVUs for code 90471 would also affect payments for 
vaccine administrations.
    Because we agree these services should be similar in the amount of 
physician work involved, we are assigning the physician work value 
recommended by the RUC for code 90782 (G-code G0351) to code 90471 and 
HCPCS G-codes G0008-G0010. We are combining the utilization data for 
all of these codes to determine a single practice expense RVU that will 
be applied to each of these codes.
    We are also assigning a work RVU of 0.15 to code 90472. Codes 90473 
(Immunization administration by intranasal or oral route; one vaccine 
(single or combination vaccine/toxoid)) and 90474 (Each additional 
vaccine (single or combination vaccine/toxoid)) are currently not 
covered. We are changing the status of these codes to ``R'', or 
restricted, meaning they are payable under some circumstances after 
carrier review. These codes will be carrier priced.
    Comment: If a patient receives chemotherapy infusions, CPT code 
96410 is used to report the infusion of the first drug up to one hour. 
Chemotherapy drugs are usually administered sequentially. Thus, if a 
patient receives the administration of a second chemotherapy drug at 
the same treatment session, CPT code 96412 is used to report the 
infusion of the second drug for each additional hour of infusion. In 
2004, the national payment, including the transitional payment 
adjustment of 32 percent, for CPT code 96410 is $217. The comparable 
payment for CPT code 96412 is $48.
    Commenters pointed out that this policy does not take into account 
the levels of complexity of administration and resource consumption. 
The administration of multiple drugs requires additional preparation 
time, supplies, and patient education, not currently accounted for in 
CPT code 96412.
    Response: The CPT/RUC recommendations addressed this issue. We are 
implementing new code G0362, Chemotherapy administration, intravenous 
technique; each additional sequential infusion, up to one hour. This 
code will allow, effective January 1, 2005, physicians to begin to bill 
for the first hour of chemotherapy of the second chemotherapy drug 
administered.
    Comment: Several commenters requested clarification that the 
changes to the drug administration codes resulting from the CPT changes 
and our G-codes would be exempted from budget neutrality by the 
provision at section 1848(c)(2)(B)(iv)(III), as added by MMA section 
303(a)(1). This provision stipulates that the evaluation of the 
existing drug administration codes described above as leading to the 
interim G-codes and the new CPT codes for 2006, is to be exempt from 
budget neutrality.
    Response: The commenters are correct that the additional 
expenditures that result from the interim G-code changes we are 
implementing in this rule are exempt from budget neutrality.
    Comment: Several commenters asked that we continue payment for drug 
administration codes at the 2004 levels, which included the 32 percent 
transitional payment adjustment, instead of paying at the 3 percent 
transitional payment adjustment for 2005, or adopt other measures. For 
example, commenters suggested temporary codes to offset the large 
reductions that would otherwise go into effect in 2005.
    Response: Section 303(a)(4) of the MMA is very specific on the 
application of the transitional payment adjustments in 2004 and 2005. 
We do not have the legal authority to continue payments based on the 
2004 payment levels. In 2005, the transitional adjustment percentage 
for drug administration

[[Page 66308]]

decreases from 32 percent to 3 percent. No transitional percentage is 
applied in 2006 or subsequent years.
    Comment: One commenter requested additional temporary G-codes to 
offset the payment reductions for oncologists that would otherwise go 
into effect in 2005. According to this commenter, the payment amount 
associated with each of these codes would be a percentage add-on amount 
sufficient to offset the reductions in drug margins and payments for 
drug administration services.
    Response: We have worked extensively with the major associations 
representing oncologists and their patients to ensure that Medicare 
continues to pay appropriately for these extremely critical services. 
The payment changes we made for 2004, the new G-codes, and allowing 
additional payment for injections and additional infusions, either have 
already increased, or will increase, payments for drug administration 
services. The impacts of these changes are discussed extensively in the 
impact analysis section of this final rule.
    In addition, as we indicated above, we plan to analyze any shift or 
change in utilization patterns once the payment changes for drugs and 
drug administration required by MMA go into effect. While we do not 
believe the changes will result in access problems, we plan to continue 
studying this issue.
    Comment: One commenter expressed concern that the reductions in 
payments to oncologists described in the proposed rule could make it 
difficult, if not impossible, for many patients to continue to access 
cancer care in nonhospital community settings.
    Response: As noted above, we have taken several steps to increase 
payments for drug administration services in this final rule. We 
recognize that oncology patients in the Medicare population undergoing 
chemotherapy face serious and unique issues and problems related to 
quality of care throughout the life cycle of their disease process; 
from the time of first diagnosis, through treatment, until the patient 
experiences an end to medical (including hospice) care. Patients, 
national cancer organizations, and medical providers have identified 
certain factors that they believe affect the comfort and ultimately the 
care for cancer patients in the physician office setting.
    We believe that the goals and objectives of optimal treatment 
include reviewing and analyzing pain control management, minimization 
of nausea and vomiting, explaining treatment options, outlining 
existing chemotherapy regimens, assessing quality of life, assessing 
patient symptoms and complaints, supporting and educating caregivers, 
and avoidance of unnecessary Emergency Department visits and inpatient 
hospitalizations. Further, we believe that clinicians armed with 
appropriate assessments can proactively intervene with medical 
treatment and nonmedical assistance to help ameliorate some of the 
distressing and unpleasant, but frequent and predictable, events that 
may accompany certain cancers and chemotherapeutic regimens used to 
combat cancer.
    The Secretary has been given the authority under sections 
402(a)(1)(B) and 402(a)(2) of the Social Security Act Amendments of 
1967 (Pub. L. 90-248), as amended, to develop and engage in experiments 
and demonstration projects to provide incentives for economy, while 
maintaining or improving quality in provision of health services. In 
order to identify and assess certain oncology services in an office-
based oncology practice that positively affect outcomes in the Medicare 
population, we will initiate a one-year demonstration project for CY 
2005. While we encourage optimal care in all facets of treatment, the 
focus of the demonstration project will be on three areas of concern 
often cited by patients: pain control management, the minimization of 
nausea and vomiting, and the reduction of fatigue.
    Practitioners participating in the project must provide and 
document specified services related to pain control management and 
minimization of nausea and vomiting, and the reduction of fatigue. To 
facilitate the collection of this information, we have established 12 
new G-codes to be reported by program participants.

G-Codes for Assessment of Nausea and/or Vomiting

    G9021: Chemotherapy assessment for nausea and/or vomiting, patient 
reported, performed at the time of chemotherapy administration; 
assessment level one: not at all (for use in a Medicare-approved 
demonstration project).
    G9022: Chemotherapy assessment for nausea and/or vomiting, patient 
reported, performed at the time of chemotherapy administration; 
assessment level two: a little (for use in a Medicare-approved 
demonstration project).
    G9023: Chemotherapy assessment for nausea and/or vomiting, patient 
reported, performed at the time of chemotherapy administration; 
assessment level three: quite a bit (for use in a Medicare-approved 
demonstration project).
    G9024: Chemotherapy assessment for nausea and/or vomiting, patient 
reported, performed at the time of chemotherapy administration; 
assessment level four: very much (for use in a Medicare-approved 
demonstration project).

G-Codes for Assessment for Pain

    G9025: Chemotherapy assessment for pain, patient reported, 
performed at the time of chemotherapy administration, assessment level 
one: not at all (for use in a Medicare-approved demonstration project).
    G9026: Chemotherapy assessment for pain, patient reported, 
performed at the time of chemotherapy administration, assessment level 
two: a little (for use in a Medicare-approved demonstration project).
    G9027: Chemotherapy assessment for pain, patient reported, 
performed at the time of chemotherapy administration assessment level 
three: quite a bit (for use in a Medicare-approved demonstration 
project).
    G9028: Chemotherapy assessment for pain, patient reported, 
performed at the time of chemotherapy administration, assessment level 
four: very much (for use in a Medicare-approved demonstration project).

G-Codes for Assessment for Lack of Energy (Fatigue)

    G9029: Chemotherapy assessment for lack of energy (fatigue), 
patient reported, performed at the time of chemotherapy administration, 
assessment level one: not at all (for use in a Medicare approved 
demonstration project).
    G9030: Chemotherapy assessment for lack of energy (fatigue), 
patient reported, performed at the time of chemotherapy administration, 
assessment level two: a little (for use in a Medicare approved 
demonstration project).
    G9031: Chemotherapy assessment for lack of energy (fatigue), 
patient reported, performed at the time of chemotherapy administration, 
assessment level three: quite a bit (for use in a Medicare approved 
demonstration project).
    G9032: Chemotherapy assessment for lack of energy (fatigue), 
patient reported, performed at the time of chemotherapy administration, 
assessment level four: very much (for use in a Medicare-approved 
demonstration project).
    The codes correspond to four patient assessment levels (``not at 
all,'' ``a little,'' ``quite a bit,'' or ``very much'') for each of the 
following three patient status factors: nausea and/or vomiting;

[[Page 66309]]

pain; and lack of energy (fatigue). These levels, based on the 
Rotterdam scale, were chosen since they appear to be less burdensome 
for the practitioner and more easily understood by the patient. 
Participating practitioners must bill the applicable G-codes for each 
patient status factor (that is, one G-code each for patient comfort 
assessment factors: nausea and/or vomiting; pain; and fatigue) assessed 
during a chemotherapy encounter in order to receive payment under the 
demonstration. A G-code for each patient status factor must appear on 
the claim for payment to be made under the demonstration project. A 
patient chemotherapy encounter is defined as chemotherapy administered 
through intravenous infusion or push, limited to once per day. During 
the course of the demonstration, an additional payment of $130 per 
encounter will be paid to participating practitioners for submitting 
the patient assessment data as described above.
    Any office-based physician or nonphysician practitioner operating 
within the State scope of practice laws who takes care of and 
administers chemotherapy to oncology patients in an office setting is 
eligible to participate in this demonstration project. By billing the 
designated G-codes, the practitioner self-enrolls in the project and 
agrees to all of the terms and conditions of the demonstration project.
    This information will help us to work with those who care for 
cancer patients to determine ways to improve the quality of care and 
quality of life for patients as demonstrated by measuring objective 
parameters and the medical response to those standardized measurements. 
The evaluation of the project will be based on data reported to us by 
the practitioners and the use of our administrative claims data to 
examine Emergency Department visits and inpatient hospitalizations.
    We anticipate that further information regarding this demonstration 
project will be forthcoming after publication of this final rule.
    Comment: Commenters pointed out that, under the MMA, we added 
physician work RVUs to specified drug administration codes equivalent 
to a level 1 established office visit. They indicated that we should 
also have increased the practice expense inputs for the same drug 
administration codes to account for the practice expense inputs 
associated with a level 1 established office visit.
    Response: Section 1848(c)(2)(H)(iii) of the Act (as added by 
303(a)(1)(B) of the MMA) specified that we increase the work RVUs for 
drug administration services equal to the work RVUs for a level 1 
established patient office visit (CPT code 99211). As indicated in the 
January 7, 2004 Federal Register (69 FR 1093), we established work RVUs 
of 0.17 for specific CPT codes that met the statutory definition of 
``drug administration services.''
    However, the legislation did not direct us to also increase the 
practice expense RVUs of the drug administration codes to include the 
clinical staff time associated with a level 1 office visit. The 
practice expense inputs of the existing CPT codes for drug 
administration were refined in 2002. We believe the recommendations 
from the PEAC included the typical clinical staff time associated with 
each drug administration service.
    The CPT Editorial Panel approved new and revised codes for drug 
administration services for 2005. Depending upon the service, the RUC 
is recommending work RVUs for the new drug administration codes that 
may equal, exceed or be less than 0.17. Although section 
1848(c)(2)(H)(iii) of the Act requires that the work RVUs for drug 
administration services shall equal those of a level 1 office medical 
visit, new subparagraph (J) requires the Secretary to ``promptly 
evaluate existing drug administration codes for physicians' services''. 
The statute further indicates that the ``Secretary shall use existing 
processes for the consideration of coding changes and * * * in 
establishing relative values * * * ''
    Because we typically use the CPT and RUC processes to establish 
codes and relative values, we believe the statute gives us authority to 
establish work RVUs at a level other than those of a level 1 
established patient office visit. Therefore, for 2005, we are accepting 
the RUC recommendations for the interim G-codes even though they result 
in work RVUs that are different than 0.17.
    Comment: Several organizations and physicians commented that the 
Medicare payments for the chemotherapy codes do not include payment for 
many services provided by an oncology practice. These services include 
support services such as nutrition counseling, social work services, 
case management, psychosocial counseling, and educational services 
provided by an oncology nurse to the patient.
    Response: Under certain circumstances, Medicare does make explicit 
payment for clinical social worker and medical nutrition therapy 
services. Medicare can pay separately for the services of clinical 
psychologists (CPs), clinical social workers (CSWs), and nurse 
practitioners (NPs), clinical nurse specialists (CNS) and physician 
assistants (PAs).
    CPs can bill directly for services and supplies they are legally 
authorized by the State to perform that could also be furnished by a 
physician or incident to a physician's service. Payment for CP services 
is made at 100 percent of the physician fee schedule for services they 
are authorized to provide that are comparable to those of a physician.
    CSWs can furnish services for the diagnosis and treatment of mental 
illnesses that they are legally authorized by the State to provide. 
Payment for CSW services is made at 75 percent of the CP fee schedule, 
which is 100 percent of the physician fee schedule.
    NPs, CNSs and PAs can bill for mental health services consistent 
with their authority under law to furnish physician services. They may 
also bill for services furnished incident to their own professional 
services that fall under the State scopes of practice. Payment for 
these services is made at 85 percent of the physician fee schedule. 
Medicare will pay for medical nutrition therapy services provided by a 
registered dietitian or nutrition professional for a beneficiary with 
diabetes or renal disease. Based on a comment on our August 20, 2003 
proposed rule (68 FR 50428), we understand that social worker services 
could involve different tasks (``helping patients with their health 
insurance, filling and refilling prescriptions'') than those that are 
explicitly paid for by Medicare. However, we believe Medicare does pay 
for these services indirectly through the practice expense RVUs for 
drug administration services. If these services are typically provided 
to cancer patients, we believe the RUC could consider whether it is 
possible for resource inputs for these types of staff to be 
incorporated into the new drug administration codes. We also believe 
that the RUC could consider whether these types of staff activities are 
unique to physicians who provide drug administration or if they apply 
to other physicians' services as well.
    Comment: Current CPT code 96412 (infusion techniques, one to 8 
hours, each additional hour) is an add-on code, billed in addition to 
the primary code, 96410 (the first hour of chemotherapy). There is no 
national coding policy that explains how this add-on code is to be 
reported if less than a full hour of chemotherapy infusion is provided. 
A commenter pointed out that the Medicare carriers have different 
policies for reporting this service. Some carriers require the infusion 
to extend at least 16 minutes into the subsequent hour before

[[Page 66310]]

an add-on code can be billed, and others impose a 31 minute 
requirement. The commenter asked that we establish a uniform policy for 
the carriers to follow.
    Response: The CPT Editorial Panel addressed this issue as part of 
its review of the drug administration codes. Effective in 2006, the 
add-on code is to be used for ``infusion intervals of greater than 
thirty minutes beyond one hour increments''. We are adopting this 
policy for chemotherapy administration codes furnished on or after 
January 1, 2005.
    Comment: The nonchemotherapy subcutaneous injection is currently 
reported and paid under CPT code 90782, while a chemotherapy 
subcutaneous injection is currently reported under CPT code 96400. Some 
commenters recommended that we permit billing for nonchemotherapy 
injections for cancer patients to be made under CPT code 96400. They 
believe this code more appropriately reflects the practice expenses 
related to supportive care for chemotherapy.
    Response: The CPT Editorial Panel explicitly addressed this issue 
by creating separate drug administration codes for hydration, 
nonchemotherapy infusions and injections, and chemotherapy infusions 
and injections. It further expanded the definition of chemotherapy to 
include those drugs where the resource costs associated with the drug 
administration are similar to those administered as anti-neoplastics. 
Other drugs administered in support of chemotherapy, such as anti-
emetics and drugs to prevent anemia, are billed using the injection 
code, G0351, which replaces CPT code 90782 (consistent with the CPT 
recommendations). We have reviewed the practice expense inputs for this 
code from the RUC and accepted their recommendation.
    Comment: Some commenters asked that complex non-oncology infusions, 
such as Remicade, be paid at the same level as chemotherapy infusions. 
They indicate that these nonchemotherapy infusions have similar 
complexity and resource use as chemotherapy infusions.
    Response: The CPT recommendations address this issue. The codes for 
chemotherapy administration are for reporting the administration of 
non-radionuclide, anti-neoplastic drugs, anti-neoplastic agents 
provided for treatment of noncancer diagnoses or substances such as 
monoclonal antibody agents, and other biologic response modifiers.
    Comment: Some commenters inquired about the recognition of a severe 
drug reaction management code that could be used during the 
administration of high complexity biologic medications and less 
frequently during other drug administrations or chemotherapy services. 
While the CPT Drug Administration Workgroup supported the creation of a 
severe drug reaction management code, the CPT Editorial Panel did not 
approve this code.
    Response: We recognize that considerable physician effort may be 
required to monitor and attend to patients who develop significant 
adverse reactions to chemotherapy drugs, or otherwise have 
complications in the course of chemotherapy treatment. Physicians may 
not be aware that these services can be billed using existing CPT 
codes. The following scenarios are examples where existing codes may be 
used in addition to the routine billing for the physician's care of a 
cancer patient:
    <bullet> Bill for the Physician Visit. If a patient has a 
significant adverse reaction to drugs during a chemotherapy session and 
the physician intervenes, the physician could bill for a visit in 
addition to the chemotherapy administration services.
    <bullet> Bill for the Higher-Level Physician Visit. If the patient 
had already seen the physician prior to a chemotherapy session for a 
problem that is unrelated to the supervision of the administration of 
chemotherapy drugs, the physician may bill a visit for a significant 
adverse drug reaction. The total time, resources, and complexity of the 
physician's interaction with the patient may justify a higher level of 
visit service.
    <bullet> Bill for a Prolonged Service. If the patient had a 
physician visit prior to the chemotherapy session and experienced a 
significant adverse reaction to drugs on the same day, the physician 
can bill a prolonged service code in addition to the physician visit. 
There are several code combinations to use depending on the number of 
minutes involved. The physician must have a face-to-face encounter with 
the patient and must spend at least 30 minutes beyond the threshold or 
typical time for that level of visit for the physician to bill for the 
prolonged service code.
    <bullet> Bill for Critical Care Service. If the patient had a 
physician visit prior to the chemotherapy session and experienced a 
life-threatening adverse reaction to the drugs, the physician could 
bill for a critical care service in addition to the visit if the 
physician's work involves at least 30 minutes of direct face-to-face 
involvement managing the patient's life-threatening condition. Examples 
of life-threatening conditions are: central nervous failure, 
circulatory failure, shock, renal, hepatic, metabolic, and/or 
respiratory failure.
    These instructions are published here for informational purposes, 
and we anticipate that we will issue further instructions regarding the 
appropriate use of these G-codes including clarifications, 
interpretations and other modifications to the following guidance as 
part of any instructions issued through a subregulatory process.
    Comment: The American Urological Association (AUA) commented in 
response to the January 7, 2004 interim final rule to ask us to include 
the following codes in the MMA-mandated evaluation of existing drug 
administration codes for physicians' services to ensure accurate 
reporting and billing for such services: CPT codes 11980, 11981, 11982, 
11983, 51700, 51720, 54200, 54231, and 54235. The AUA asked that we 
consider applying the transitional adjustment payment to these codes 
for 2005.
    Response: We presented these codes to the CPT Drug Administration 
Workgroup. After subsequent discussion with representatives of the AUA, 
the AUA withdrew these codes from consideration by the workgroup.
    These codes are not subject to the ``transitional adjustment 
payment provision'' because they are not included in the definition of 
``drug administration codes.''
    Comment: Ophthalmologists frequently perform the procedure 
photodynamic therapy (CPT code 67221 and 67225) by infusing the drug 
Visudyne. While separate payment is allowed for the drug, the infusion 
is considered an integral part of the photodynamic therapy code. Thus, 
the physician is not allowed to bill a separate code for the infusion 
of the drug.
    According to one commenter, Visudyne is also a drug used in cancer 
chemotherapy. The commenter pointed out that when Visudyne is provided 
for photodynamic therapy, ophthalmologists incur drug administration 
costs similar to oncologists who use infused drugs.
    The AAO asked why we did not include CPT codes 67221 and 67225 
among the drug administration codes that benefited under the MMA.
    Response: In this instance, the infusion of the drug is an integral 
part of the surgical procedure and it was valued by the RUC and CMS 
that way. The code of which it is a part is not considered a drug 
administration code under section 303 of the MMA.
3. Blood Clotting Factor
    For clotting factors furnished on or after January 1, 2005, we 
proposed to establish a separate payment of $0.05

[[Page 66311]]

per unit to hemophilia treatment centers, homecare companies and other 
suppliers for the items and services associated with the furnishing of 
blood clotting factor. Section 303(e)(1) of the MMA requires the 
Secretary, after review of the January 2003 report to the Congress by 
the Comptroller General of the United States, to establish a furnishing 
fee for the items and services associated with the furnishing of blood 
clotting factor.
    Based on a review of the Government Accountability Office (GAO) 
report and data received from various clotting factor providers, we 
proposed a furnishing fee in order to cover the administrative costs 
associated with supplying the clotting factor. As outlined in the MMA, 
any separate payment amount established may include the mixing and 
delivery of factors, including special inventory management and storage 
requirements, as well as ancillary supplies and patient training 
necessary for the self-administration of these factors. The MMA states 
that, in determining the separate payment, the total amount of payments 
and these separate payments must not exceed the total amount of 
payments that would have been made for the factors if the amendments in 
section 303 of the MMA had not been enacted.
    As indicated in the GAO report, ``[w]hen Medicare's payment for 
clotting factor more closely reflects acquisition costs, we recommend 
that the Administrator establish a separate payment for providers based 
on the costs of delivering clotting factor to Medicare beneficiaries.'' 
Effective upon implementation of the ASP-based payment rates, payment 
for blood clotting factors will more closely reflect acquisition costs, 
since payment will be based on the average sales price as reported by 
drug manufacturers plus 6 percent.
    Therefore, we stated in the August 5, 2004 proposed rule that in 
the absence of additional data we believe that a furnishing fee of 
$0.05 per unit for the cost of delivering clotting factor is an 
appropriate amount. However, we also sought updated data and comments 
on the GAO report, as well as information on the fixed and variable 
costs of furnishing clotting factor. We recognized that there may be 
alternatives to a fee, which varies entirely based on the number of 
units of clotting factor furnished. We indicated we would closely 
examine all data and information submitted in order to make a final 
determination with respect to the appropriateness of the $0.05 per unit 
amount.
    We received comments from various sources including, but not 
limited to, hemophilia treatment centers, hemophilia coalitions, and 
other suppliers of clotting factors regarding our request for 
additional data and information on the appropriateness of our proposed 
fee. The comments and responses are provided below.
    Comment: Many commenters recommended that we incorporate cost 
information received from homecare providers and any updated cost data 
from hemophilia treatment centers in determining the separate 
furnishing fee payment amount for 2005. The commenters cited an 
industry-sponsored survey of full-service hemophilia homecare companies 
that recommended a furnishing fee of $0.20 per unit. This survey 
collected CY 2003 data from three hemophilia homecare suppliers that 
the commenter indicated supplied 42 percent of all Medicare hemophilia 
patients. Commenters also stated that the GAO report was inadequate to 
serve as the basis for determining the separate payment for clinically 
appropriate items and services related to furnishing blood clotting 
factor. They questioned the accuracy of the recommended payment range 
in the GAO report, given what they viewed as an insufficient sample 
size; that is, the GAO report received data from only 4 hemophilia 
treatment centers and lacked any cost data from national or regional 
full-service hemophilia homecare providers. These commenters also 
indicated that the GAO survey may have included homecare companies that 
purchase clotting factor at a lower price through the Public Health 
Service's 340B program. More information on the 340B program is 
available on the Health Resources and Services Administration's Web 
site at http://bphc.hrsa.gov/opa/howto.htm. The commenters also stated 
that the GAO report focused solely on estimating providers' blood 
clotting factor delivery costs, which the GAO defined as inventory 
management, storage, shipping, and the provision of ancillary supplies. 
According to the commenters, the MMA directed us to establish a 
separate payment for items and services related to the furnishing of 
blood clotting factor that takes into consideration a wider range of 
items and services than the delivery costs addressed in the GAO report, 
for example patient education.
    Response: We agree with the commenters that full-service hemophilia 
homecare companies provide services that may be of benefit to Medicare 
beneficiaries with hemophilia, such as disease and patient management 
activities. However, we do not believe that the scope of the furnishing 
fee includes these services. As noted above, Section 303(e) specifies 
the items and services that may be taken into consideration in setting 
the furnishing fee. Disease and patient management activities are not 
included in the items and services specified in Section 303(e). 
However, these activities may be more appropriately addressed through a 
future phase of the new Medicare Chronic Care Improvement Program.
    The new Medicare Chronic Care Improvement Program is an important 
component of the MMA and demonstrates a commitment to improving and 
strengthening the traditional fee-for-service Medicare program. This 
program is the first large-scale chronic care improvement initiative 
under the Medicare fee-for-service program. We will select 
organizations that will offer self-care guidance and support to 
chronically ill beneficiaries. These organizations will help 
beneficiaries manage their health and adhere to their physicians' plans 
of care, and help ensure that they seek or obtain medical care that 
they need to reduce their health risks. More information regarding this 
program is available on the CMS Web site at http://www.cms.hhs.gov/medicarereform/ccip/.
    With regard to the other costs identified in the comments and in 
the industry-sponsored survey, we also do not believe the scope of a 
furnishing fee includes costs associated with sales and marketing. We 
do not believe it is appropriate to build an explicit profit margin 
into the furnishing fee, but rather have the margin associated with the 
furnishing fee result from efficient furnishing of clotting factor. We 
agree with the commenters that the GAO report did not include amounts 
for education and that these are appropriate for the furnishing fee. 
Therefore, after removing the costs associated with sales and 
marketing, an explicit profit margin, and patient management, the 
resulting figure from the homecare survey is $0.14 per unit of clotting 
factor. We are establishing the furnishing fee for 2004 at $0.14 per 
unit of clotting factor. For years after 2005, the MMA specifies that 
the furnishing fee for clotting factor must be updated by the 
percentage increase in the consumer price index for medical care for 
the 12-month period ending with June of the previous year.
    Comment: One commenter recommended that the beneficiary's 20 
percent coinsurance not be applicable to this separate payment. The 
commenter indicated that the additional financial

[[Page 66312]]

burden would limit many beneficiaries' access to this lifesaving 
product.
    Response: Under provisions designed to protect the Medicare program 
from fraud and abuse, a broad waiver of beneficiary cost sharing of the 
type the commenter recommends would not be permitted. However, we make 
no statement regarding the applicability of existing statutory and 
regulatory provisions that may allow for the waiver of cost sharing in 
certain cases.
4. Supplying Fee
    Section 1842(o)(6) of the Social Security Act requires the 
Secretary to pay a supplying fee (less applicable deductible and 
coinsurance) to pharmacies for immunosuppressive drugs described in 
section 1861(s)(2)(J) of the Act, oral anticancer chemotherapeutic 
drugs described in section 1861(s)(2)(Q) of the Act, and oral anti-
emetic drugs used as part of an anticancer chemotherapeutic regimen 
described in section 1861(s)(2)(T) of the Act, as determined 
appropriate by the Secretary. In the interim final rule published on 
January 7, 2004 (69 FR 1084), we considered this fee to be bundled into 
the current payment for these drugs for 2004 and did not establish a 
separately billable supplying fee.
    Effective January 1, 2005, we proposed to establish a separately 
billable supplying fee of $10 per prescription for immunosuppressive 
drugs, oral anti-cancer chemotherapeutic drugs and oral anti-emetic 
drugs. We based this proposed fee on information provided by retail 
chain pharmacies on the costs of supplying these drugs to non-Medicare 
patients combined with steps to reduce the administrative burden 
associated with billing Medicare.
    We also sought data and information on the additional services 
pharmacies provide to Medicare beneficiaries, the extent to which oral 
drugs can be furnished without these additional services and the extent 
to which such services are covered under Medicare. Additionally, we 
requested comments concerning whether the supplying fee should be 
somewhat higher during the initial month following a Medicare 
beneficiary's transplant to the extent that additional resources are 
required for example, due to more frequent changes in prescriptions for 
immunosuppressive drugs.
    Comment: Several commenters stated that they were not in a position 
to determine whether the proposed $10.00 supplying fee was adequate 
since they did not know the actual 2005 payment rates for Part B drugs. 
These commenters indicated that the supplying fee needed to cover 
return on investment, the costs of supplying the drugs, and make up for 
any differences between the product costs and the ASP based payment for 
the drug. Some commenters indicated that aside from the adequacy of the 
ASP-based payment for the drug, a $10.00 supplying fee appeared to be 
too low. These commenters indicated that the average cost to a retail 
pharmacy to dispense a non-Medicaid third party or cash paying 
prescription ranges anywhere from $7.50-$8.00. The commenters indicated 
that Medicare should pay at least $2.00-$2.50 more per prescription 
since costs associated with supplying Medicare prescriptions are 
higher.
    We received a comment from a large retail pharmacy indicating that 
a supplying fee of $25 would be adequate to cover the higher costs of 
dispensing Medicare Part B oral drugs.
    We received comments from specialty immunosuppressive pharmacies 
that included information from a recent survey of their supplying 
costs. The survey indicated that the cost for specialty pharmacies to 
dispense Medicare Part B immunosuppressants is $35.48 per prescription. 
The specialty immunosuppressive pharmacies indicated that they provide 
services not typically provided by retail chain drug stores or large 
mail-order pharmacy benefit management companies. These services 
include direct patient care through pro-active pharmacist contact, 
expeditious processing and turnaround of medication orders, direct 
billing of Medicare and coordination of benefits on behalf of 
transplant patients to reduce the costs to the patients, and 
maintaining expensive immunosuppressant in stock to ensure timely 
receipt when needed by beneficiaries. These pharmacies also indicated 
that the retail chains typically do not supply immunosuppressive drugs 
or file Medicare claims.
    Several commenters indicated that the lack of on-line adjudication 
for Medicare claims was one of the major drivers, among other reasons, 
for the additional costs of supplying Medicare prescription.
    Response: We agree that the cost of supplying Medicare Part B oral 
drugs is higher than many other payers because of the lack of on-line 
adjudication for Medicare Part B oral drug claims. Due to operational 
issues, we do not anticipate the establishment of an on-line 
adjudication system in the near future. Accordingly, we believe it is 
appropriate to establish a supplying fee higher than the fees paid by 
some other payers with on-line adjudication. We note that many other 
payers with on-line adjudication have fees in the range of $5-$10 per 
prescription. We note that this is consistent with the approximately $8 
cost for non-Medicaid dispensing stated by some commenters and 
described earlier. Other than administrative costs associated with 
billing Medicare Part B for oral drugs, we do not agree with commenters 
that the supplying fee for these drugs should exceed the dispensing 
fees of other payers because we do not believe there are other 
significant differences between supplying Medicare Part B and other 
oral drugs. We also do not agree that the supplying fee should include 
product costs. Product costs are paid through the ASP + 6 percent drug 
payment system. For the additional burden associated with billing 
Medicare Part B for oral drugs, we note the commenters who suggested an 
additional fee of approximately $2 for Medicare billing costs. Added to 
the $8 non-Medicaid fee described above, this would result in a 
supplying fee of approximately $10. We also note the survey of the 
specialty immunosuppressive pharmacies that indicated Medicare claims 
processing costs of approximately $8. This same survey also indicated 
total personnel costs of approximately $9, a portion of which we assume 
is attributable to the additional work associated with Medicare 
billings because the comments indicated Medicare billing was labor-
intensive. Using the $5 to $10 figures for payers with on-line 
adjudication described above, the specialty pharmacy data on Medicare 
claims processing costs and personnel costs, we developed a range of 
possible supplying fees based on the specialty pharmacy data. Depending 
upon the portion of the personnel costs associated with Medicare 
billings, this would result in a supplying fee between a minimum of $13 
(= $5 + $8) and a maximum of $27 (= $10 + $8 + $9). The comment of the 
large chain pharmacy recommending a $25 supplying fee indicated that 
this amount would be adequate to cover the costs of supplying Medicare 
Part B drugs including the additional costs of processing Medicare 
claims; however, this amount included a margin for profit. We do not 
believe it is appropriate to build an explicit profit margin into the 
supplying fee, but rather have the margin associated with the supplying 
fee result from efficient supplying of these drugs. Although the profit 
margin included in the $25 was not explicitly stated in the comment, if 
we assume a 5 percent margin, then a supplying fee of approximately $24 
would cover the large chain pharmacy's

[[Page 66313]]

costs of supplying Medicare Part B drugs. We are not indicating that 5 
percent is an appropriate margin.
    There was variability in the submitted comments with respect to an 
appropriate supplying fee. On the low end, analysis of the submitted 
comments would indicate a supplying fee of $10. On the high end, the 
analysis would indicate a supplying fee of $27. Given the variability 
in the values and assumptions included in various calculations, we do 
not think it is appropriate to simply take the rounded midpoint of this 
range, $19, as the supplying fee. However, we do not think it 
appropriate to take the maximum amount of this range, $27, given that 
it is unlikely that all of the personnel costs indicated in the 
specialty pharmacy survey are related to the costs of billing for oral 
Medicare Part B drugs. The amount in the comment from the large chain 
pharmacy, after adjusting for a possible profit margin, or $24, is 
consistent with our belief that not all of the additional personnel 
costs identified in the specialty pharmacy survey are related to the 
costs of billing for oral Medicare Part B drugs. We are therefore 
establishing a per prescription supplying fee of $24 as the value 
consistent with both the large retail pharmacy comment (after making an 
adjustment for built-in profit margins) and the higher end of the broad 
range of the specialty pharmacy survey. Although we believe that a $24 
supplying fee coupled with the ASP-based drug payment will not result 
in any access problems for Medicare beneficiaries, we will monitor 
access as we implement the new ASP-based payment system.
    Comment: Some commenters recommended that we update the supplying 
fee annually. Some commenters indicated this fee should be updated by 
the average annual increase in the costs of pharmacies supplying these 
drugs to Medicare beneficiaries (costs such as rent, utilities and 
salaries), but no less than the increase in the medical care inflation 
index for the most recent twelve months for which it can be calculated 
before the next calendar year.
    Response: We will study the issue of appropriate future increases 
for the supplying fee and proceed, as necessary, through notice and 
comment rulemaking.
    Comment: A specialty organization suggested that we develop a 
sliding supplying fee, which would be calculated as a percentage of the 
cost that the pharmacy incurred in acquiring a particular drug.
    Response: We do not agree that the supplying fee should vary by 
product costs. Product costs are paid through the ASP-based drug 
payment system.
    Comment: Several commenters agreed with our suggestion to increase 
the supplying fee in the first month following a transplant, but 
recommended that we extend this increase to at least the first 3 months 
following the transplant. One commenter suggested that extra resources 
are associated with frequent changes in prescriptions during the 
initial month following a beneficiary's organ transplant. One commenter 
recommended a fee of $50 for an initial prescription fill. However, one 
commenter advocated against a supplying fee that distinguished between 
new and refill prescriptions stating that it would be impractical, of 
questionable benefit and would discourage long-term pharmacy-patient 
relationships as pharmacy providers would only have an incentive to 
serve patients in the short term.
    Response: We agree that additional costs are most likely to occur 
nearer the time when the beneficiary has a transplant. In order to 
recognize these costs, we are establishing a higher supplying fee of 
$50 for the supplying of the initial oral immunosuppressive 
prescription in the first month after a beneficiary has a transplant 
because the costs of supplying immunosuppressives are likely to be 
higher immediately following a transplant, when the practitioner is 
adjusting the dose of immunosuppressive drugs. With regard to the 
comment opposing higher supplying fees for new patients regardless of 
their transplant date, we agree with the commenter that it would result 
in inappropriate incentives and are not implementing any such fee.
    Comment: Commenters recommended that the supplying fee should 
account for the different prices paid by pharmacies and physicians, 
recognizing that these are separate classes of trade that may not have 
access to comparable pricing. Thus, we should increase the supplying 
fee associated with providing and overseeing the use of oral anti-
cancer drugs.
    Response: We do not agree that the supplying fee should vary by 
product costs. Product costs are paid through the ASP based drug 
payment system.
    Comment: Commenters recommended that we extend the supplying fee to 
physicians that directly supply covered oral anti-cancer, 
immunosuppressive and oral anti-emetic drugs to patients, as well as 
create a dose management and compliance fee for physicians that 
prescribe oral chemotherapy products. These commenters state that we 
could use the premise that the MMA does not provide a definition of the 
word ``pharmacy'' and we could permit payment of a supplying fee to 
include a physician acting in the capacity of a pharmacist. 
Alternatively, commenters suggested that we use its inherent 
reasonableness authority to extend the supplying fee to physicians.
    Response: Given our current understanding of Congressional intent, 
we do not believe it would be appropriate to pay a supplying fee to 
physicians. Moreover, we do not have sufficient data to determine 
whether our inherent reasonableness authority would apply in this 
instance. However, we will study these issues further.
5. Billing Requirements
    In the proposed rule, we proposed the following changes to certain 
billing requirements and clarified policy for other billing 
requirements in an effort to reduce a pharmacy's costs of supplying 
covered immunosuppressive and oral chemotherapy drugs to Medicare 
beneficiaries:
    <bullet> Original signed order. We clarified Medicare's policy 
regarding the necessity of an original signed order before the filling 
of a prescription. According to the Medicare Program Integrity Manual 
(section 5.1 of Chapter 5), which addresses the ordering requirement 
for durable medical equipment, prosthetics, orthotics and supplies 
(DMEPOS), including drugs, most DMEPOS items can be dispensed based on 
a verbal order from a physician. A written order must be obtained 
before submitting a claim, but that written order may be faxed, 
photocopied, electronic, or pen and ink. The order for the drug must 
specify the name of the drug, the concentration (if applicable), the 
dosage, and the frequency of administration. The clarification of this 
requirement should reduce a pharmacy's costs of supplying covered 
immunosuppressive and oral drugs to Medicare beneficiaries to the 
extent that pharmacies are currently applying an original signed 
prescription requirement.
    Comment: Commenters recommended that a prescription be filled and 
billed based solely on a verbal order from a physician and an actual 
signed written prescription should not be necessary before billing.
    Response: The policy that allows dispensing based on a verbal order 
but requires a written order for billing applies to all DMEPOS items. 
This policy balances fraud and abuse concerns with prompt dispensing of 
DMEPOS items to beneficiaries. We

[[Page 66314]]

point out that the written order from the physician can be faxed, 
photocopied, electronic, or pen and ink. We currently allow pharmacies 
to accept electronic prescriptions from physicians.
    <bullet> Assignment of Benefits Form. We proposed to eliminate use 
of the Assignment of Benefits form for Part B items and services, 
including drugs, where Medicare payment can only be made on an assigned 
basis. For Part B covered oral drugs, this would be a means of reducing 
a pharmacy's costs of supplying these drugs to Medicare beneficiaries. 
Currently, pharmacies must obtain a completed Assignment of Benefits 
form in order to receive payment from Medicare. This requirement 
increases a pharmacy's cost of supplying covered drugs to Medicare 
beneficiaries, as other payers do not impose this requirement. Thus, we 
do not believe that it is necessary for an assignment of benefits form 
to be filled out for drugs covered under Part B, since payment for them 
can only be made on an assignment-related basis.
    Comment: Some commenters suggested that the Assignment of Benefits 
form be eliminated for diabetic supplies dispensed by pharmacy 
suppliers.
    Response: Our proposal to eliminate the Assignment of Benefits form 
applied to services where Medicare payment can only be made on an 
assigned basis. That is not the case with diabetic supplies. Thus, we 
are not eliminating the AOB form for diabetic supplies.
    <bullet> DMERC Information Form (DIF). The DIF is a form created by 
the DMERC Medical Directors that contains information regarding the 
dates of the beneficiary's transplant and other diagnosis information. 
This form is a one-time requirement that pharmacies must complete in 
order to receive payment. Since section 1861(s)(2)(J) of the Act no 
longer imposes limits on the period of time for coverage of 
immunosuppressive drugs, we believe that the information on transplant 
diagnosis can be captured through other means (for example, diagnosis 
codes on the Part B claim form).
    Comment: Several commenters applauded our efforts to eliminate use 
of the DIF in an effort to reduce the cost that the billing 
requirements imposed. These commenters asked that we ensure that this 
requirement is applied uniformly by all the DMERCs.
    Response: We appreciate the support regarding the elimination of 
the DIF form. Action is being taken to eliminate the DIF form, 
including accommodating systems issues and providing for notifications. 
We anticipate resolution of issues to occur soon and elimination would 
occur next year.
    <bullet> Other Billing Issues. We also received other comments 
regarding other billing issues related to the supplying of 
immunosuppressive, oral anti-cancer, and oral anti-emetic drugs.
    Comment: Commenters suggested that we allow physicians to bill the 
carrier when oral drugs are provided directly by the physician in his 
office rather than having the physician bill the DMERC for the oral 
anti-cancer drug. Others stated that we should allow for billing for 
pharmaceutical products to be conducted on current electronic 
platforms, because ``batch billing'' creates operational and patient 
care problems, and adds significant participation costs. Commenters 
also stated that we should eliminate the requirement for a diagnosis 
code to be present on the prescription; while, at the same time, adopt 
the usage of the physician's DEA number instead of the UPIN number when 
submitting claims.
    Response: We thank the commenters for identifying these issues. We 
plan to examine these aspects of billing.
6. Shipping Time Frame
    In the proposed rule, we highlighted the fact that the guidelines 
regarding the time frame for subsequent deliveries of refills of DMEPOS 
products had been revised. Effective February 2, 2004, the shipping of 
refills of DMEPOS products may occur ``approximately'' on the 25th day 
of the month in the case of a month's supply. In the proposed rule, we 
emphasized the word ``approximately''; while we indicated that normal 
ground service shipping would allow delivery in 5 days, if there were 
circumstances where ground service could not occur in 5 days, the 
guideline would still be met if the shipment occurs in 6 or 7 days. 
This change should eliminate the need for suppliers to utilize 
overnight shipping methods and would permit the shipping of drugs via 
less expensive ground service.

F. Section 952--Revision to Reassignment Provisions

    As discussed in the August 5, 2004 proposed rule, section 
1842(b)(6)(A)(ii) of the Act, as amended by section 952 of the MMA, 
allows, in many circumstances, a physician or NPP to reassign payment 
for Medicare-covered services, regardless of the site of service, 
providing there is a contractual arrangement between the physician or 
NPP and the entity through which the entity submits the bill for those 
services. Thus, the services may be provided on or off the premises of 
the entity receiving the reassigned payments. The MMA Conference 
Agreement states that entities that retain independent contractors may 
enroll in the Medicare program. The expanded exception created by 
section 952 of the MMA applies to those situations when an entity seeks 
to obtain the medical services of a physician or NPP.
    Section 952 of the MMA states that reassignment is permissible if 
the contractual arrangement between the entity that submits the bill 
for the service and the physician or NPP who performs the service meets 
the program integrity and other safeguards as the Secretary may 
determine to be appropriate. The Conference Agreement supports 
appropriate program integrity efforts for entities with independent 
contractors that bill the Medicare program, including joint and several 
liability (that is, both the entity accepting reassignment and the 
physician or NPP providing a service are both liable for any Medicare 
overpayments). The Conference Agreement also recommends that physicians 
or NPPs have unrestricted access to the billings submitted on their 
behalf by entities with which they contract. We incorporated these 
recommended safeguards in a change to the Medicare Manual, implementing 
section 952 of the MMA that was published on February 27, 2004. In the 
August 5, 2004 rule, we proposed to revise Sec.  424.71 and Sec.  
424.80 to reflect these safeguards, as well as the expanded exception 
established by section 952 of the MMA.
    Section 952 of the MMA revises only the statutory reassignment 
exceptions relevant to services provided in facilities and clinics 
(section 1842(b)(6)(A)(ii) of the Act). Section 952 of the MMA does not 
alter an individual or entity's obligations under any other applicable 
Medicare statutes or regulations governing billing or claims 
submission.
    In addition, physician group practices should be mindful that 
compliance with the physicians' services exception and the in-office 
ancillary services exception to the physician self-referral prohibition 
in section 1877 of the Act requires that a physician or NPP who is 
engaged by a group practice as an independent contractor may provide 
``designated health services'' to the group practice's patients only in 
the group's facilities. See the definition of physician in the group at 
42 CFR 411.351.
    We also cautioned that parties must be mindful that contractual 
arrangements involving reassignment may not be used to camouflage 
inappropriate fee-splitting arrangements

[[Page 66315]]

or payments for referrals. In the August 5, 2004 proposed rule, we 
solicited comments on potential program vulnerabilities and on possible 
additional program integrity safeguards to guard against those 
vulnerabilities.
    Comment: We received positive comments for the proposed changes to 
the reassignment rules from two physician associations and one 
association representing non-physician practitioners.
    Response: We are pleased to receive positive feedback to the 
changes to the reassignment rules. We believe these changes balance the 
need to respond to the changing business arrangements in the delivery 
of health care services with the need to protect the Medicare trust 
funds from fraudulent and abusive billing practices.
    Comment: An association representing emergency medicine physicians 
and numerous members of that association commented that requiring 
independent contractor physicians to have unrestricted access to the 
billings submitted on their behalf is not sufficient to ensure such 
access. The commenters requested that we revise our regulations to 
require the entity submitting the bills to provide duplicates of the 
Medicare remittance notices (which indicate the services billed and the 
amounts paid for those services) to the independent contractor 
physicians. Some of the commenters requested that we require 
independent contractor physicians to receive itemized monthly reports 
of the claims submitted and remittances received on their behalf.
    Response: We believe that requiring independent contractors to have 
unrestricted access to the billings submitted on their behalf is 
sufficient to satisfy the independent contractors' need to review the 
claims information.
    We recognize that some independent contractors may not wish to 
receive copies of all bills submitted on their behalf. It would place 
an unnecessary burden on entities if we require them to furnish 
duplicate remittance notices to independent contractors on a routine 
basis. Similarly, it would place a significant burden on our claims 
processing systems if we were obligated to provide duplicate remittance 
notices to those who have reassigned their payments. We note that the 
method and frequency of obtaining access to billing records is an issue 
that the independent contractor and the entity to which the independent 
contractor is reassigning payments can resolve in their written 
contract.
    Comment: A commenter asked whether or not the new reassignment 
exception (which essentially expanded or revised the previous 
exceptions pertaining to independent contractors), established by 
section 952 of the MMA, is available when one entity contracts with a 
second entity, which in turn contracts with a physician or non-
physician practitioner to furnish services for the first entity.
    Response: We refer to this situation as an indirect contractual 
arrangement between the independent contractor furnishing the service 
and the entity doing the billing and receiving payment (excluding 
billing agents). Thus, the reassignment is between the individual 
furnishing the service and the entity receiving the reassigned 
benefits. Indirect contractual arrangements were permissible prior to 
passage of section 952 of the MMA and remain permissible. The CMS-855-R 
enrollment form would need to be completed by the entity receiving the 
reassigned benefits and the person furnishing the service. In 
accordance with section 952 of the MMA, the contractual arrangement and 
any program integrity safeguard requirements deemed appropriate by the 
Secretary are between the independent contractor and the entity 
receiving the reassigned payments, with the program integrity 
safeguards applying to both parties. If the parties involved also wish 
to include the intermediary entity in a similar contract, and apply 
standards identical or similar to the program integrity safeguards to 
their arrangement, they have that option; but, it is not required or 
necessary to comply with the exception to the reassignment prohibition 
for contractual arrangements.
    Comment: Several members of the Congress urged us not to delay the 
enrollment process of providers or suppliers while implementing section 
952 of the MMA.
    Response: We do not expect any delays in provider or supplier 
enrollment to result from implementing the reassignment provisions of 
this regulation. We are sensitive to the need for an efficient and 
timely enrollment process. If the new reassignment exception results in 
the submission of a particularly high volume of claims, or if a 
Medicare contractor has to process a large number of new enrollment 
applications, it is possible that delays may occur in some cases. A 
provider or supplier whose enrollment was delayed must contact the 
appropriate Medicare contractor's provider or supplier enrollment 
office to discuss the reasons for the delay.
    Comment: A trade association of physician specialists asked that we 
clarify our definitions of onsite and off-site services. This trade 
association also requested that we further describe the potential 
program vulnerabilities that the revised Medicare reassignment 
exception might create.
    Response: We consider onsite services to be services of an 
independent contractor that are performed in space owned or leased by 
the entity billing and receiving the reassigned payments. We consider 
offsite services to be services of an independent contractor that are 
performed in space that is not owned or leased by the entity billing 
and receiving the reassigned payments, that is, services performed off 
the premises.
    The Congress originally passed the prohibition on reassignment 
provision due to experience with fraudulent and abusive billing 
practices. As we discussed in the preamble to the August 5, 2004 
proposed rule, the new reassignment exception for contractual 
arrangements will potentially permit myriad relationships and financial 
arrangements. Some of these relationships may have the potential to 
increase fraudulent and abusive billing practices that the reassignment 
rules were designed to prevent. We also stated in the proposed rule 
that the new reassignment exception does not alter an individual's or 
entity's obligations under existing Medicare statutes and regulations 
(for example, the physician self-referral prohibition, the anti-
kickback statute, purchased diagnostic test rules, incident to rules, 
etc.).
    Comment: Several commenters expressed concern over the recent 
growth of so-called pod, salon, turnkey, mini-mall, or condo labs, 
especially since section 952 of the MMA appears to liberalize the 
Medicare reassignment rules.
    As we understand the situation, some entities have created a 
building or a floor of a building that contains a number of cubicles, 
each of which is equipped with a microscope and other supplies that 
enable a pathologist to go to a particular cubicle or pod to analyze 
any tissue sample that is submitted by the group practice that rents 
pod space on a full-time basis. Apparently, some of the owners of these 
anatomical laboratories assert that each pod is a centralized location 
for a laboratory that is owned by a group practice. Other owners assert 
that each pod serves as an offsite office of a pathologist who works 
for a group practice as an independent contractor.
    These entities market their services to specialists in certain 
disciplines, such as gastroenterology, urology, and dermatology, which 
rely on a high

[[Page 66316]]

volume of anatomic pathology services. The commenters stated that these 
lab arrangements are subject to excess, waste, and abuse, including, 
but not limited to: (a) Generation of medically unnecessary biopsies; 
(b) kickbacks; (c) fee-splitting; and, (d) referrals that would 
otherwise be prohibited under the physician self-referral statute.
    The commenters agree with us that safeguards are necessary to 
prevent the increased incidence of fraudulent and abusive billing 
practices resulting from the new reassignment exception for contractual 
arrangements. To reach the goal of closing any loophole for excess, 
waste, and abuse opened by the new independent contractor reassignment 
exception, the commenters provided several suggestions. One commenter 
recommends that we add language to proposed Sec.  424.80(d) that would 
prohibit a physician from making a reassignment to another physician, 
under the independent contractor exception, if the physicians do not 
practice in substantially the same medical specialty. This limitation 
would not apply if the entity accepting the assignment is a bona fide 
multi-specialty physician practice, meaning that it employs (on a W-2 
basis) physicians who regularly practice in two or more specialties of 
medicine.
    The commenters believe that the regulations need to state more 
clearly that all requirements of the purchased diagnostic test rules 
and purchased test interpretation rules need to be met. In other words, 
the commenters want to prevent the new reassignment exception from 
applying to services furnished by independent contractor pathologists.
    These commenters are urging us to review these practices to see if 
they fail to meet existing obligations under the physician self-
referral prohibition or anti-kickback statute. The commenters believe 
that these business arrangements are exploiting the in-office ancillary 
services exception and other exceptions to the physician self-referral 
prohibition.
    Response: We appreciate comments that specify situations where 
fraud and abuse may occur and propose solutions to prevent such 
occurrences. While we decline to incorporate the commenters' suggested 
regulatory revisions at this time, we share the commenters' concerns. 
We will be paying close attention to this issue, and may initiate 
future rulemaking to address arrangements that are fraudulent or 
abusive.
    To respond to commenters' concerns, we are amending the regulations 
governing reassignment at Sec.  424.80(a) to clarify that nothing in 
Sec.  424.80 alters an individual or entity's obligations under other 
Medicare statutes or rules, including, but not limited to, the 
physician self-referral prohibition (section 1877 of the Act), the 
anti-kickback statute (section 1128(B)(b)(1) of the Act), the 
regulations regarding purchased diagnostic tests, and regulations 
regarding services and supplies provided incident to a physician's 
services.
    In response to the concerns expressed by the commenters, we wish to 
further expand on the fact that section 952 of the MMA did not affect 
the obligation of an individual or entity to comply with the physician 
self-referral prohibition (section 1877 of the Act and the 
corresponding regulations). As stated in the proposed rule, ``physician 
group practices should be mindful that compliance with the in-office 
ancillary services exception to the physician self-referral prohibition 
requires that a physician who is engaged by a group practice on an 
independent contractor basis must provide services to the group 
practice's patients in the group's facilities. As noted in the Phase I 
physician self-referral final rule (66 FR 887), ``we consider an 
independent contractor physician to be `in the group practice' if: (1) 
He or she has a contractual arrangement to provide services to the 
group's patients in the group practice's facilities; (2) the contract 
contains compensation terms that are the same as those that apply to 
group members under section 1877(h)(4)(iv) of the Act or the contract 
fits in the personal services exception; and, (3) the contract complies 
with the reassignment rules * * * '' See also 66 FR 886.'' This test is 
specified at Sec.  411.351 in the definition of physician in the group 
practice, which contains a premises requirement independent of the 
reassignment rules.
    In addition, the use of independent contractors at off-premises 
locations may impact the ability of a group practice to meet the 
definition of a group practice at Sec.  411.352 for purposes of 
complying with section 1877 of the Act. Accordingly, some group 
practices may need to be careful about the number of physician-patient 
encounters that independent contractors perform off-premises to ensure 
that they meet the 75 percent patient-physician encounters test as set 
forth in Sec.  411.352(h).
    We will continue to monitor compliance with the reassignment rules 
and we will analyze the impact of the physician self-referral 
prohibition on ``pod'' labs. If we determine that changes to the 
physician self-referral prohibition are necessary, these changes will 
be made in a separate rulemaking document.
    Comment: We received a number of comments and recommendations from 
three organizations that utilize the services of independent contractor 
emergency department physicians. One of the three organizations 
represents management companies that employ independent contractor 
emergency department physicians. The commenters believe that the 
changes to the reassignment rules necessitated by section 952 of the 
MMA should be implemented in a manner that does not impose additional 
burdens on the Medicare enrollment process. They believe that 
implementation of the proposed regulations could impede the enrollment 
process. They expressed concern that amendments to current contracts 
might be necessary to incorporate the program integrity safeguards 
included in the proposed regulations. Since they believe requiring 
contract amendments would be burdensome and costly to hospitals, they 
are urging us not to require parties to amend their contracts to 
reflect the program integrity safeguards that we proposed.
    Response: We do not believe that implementation of the proposed 
regulations will impede the enrollment process. Our proposed 
regulations would not require parties to amend their contracts to 
reflect the program integrity safeguards. We plan to include the 
program integrity safeguard requirements on the CMS-855-R enrollment 
form. The program integrity safeguards will apply to arrangements 
entered into pursuant to the new reassignment exception for contractual 
arrangements, regardless of whether the parties reference the 
safeguards in their contracts.
    Comment: Three commenters representing groups that utilize 
independent contractor emergency physicians strongly oppose our 
implementation of the two proposed program integrity safeguard 
requirements: (1) Joint and several liability/responsibility for 
Medicare overpayments; and (2) unrestricted access to the billings for 
services provided by independent contractors. The commenters believe 
that establishing program integrity safeguards is premature and that we 
should first formally assess the need for such safeguards. These 
commenters also ask us to clearly define joint and several liability/
responsibility. They express concern over our attempt to impose joint 
and several liability/responsibility on both the contracting entity and 
practitioner furnishing the services and

[[Page 66317]]

note that the CMS-855-R enrollment form certification holds the 
enrolling provider or supplier responsible for any Medicare 
overpayments. The commenters argue that we should impose these program 
integrity safeguards on employer/employee relationships if we are going 
to impose them on contractual arrangements. The commenters ask how we 
would monitor compliance with joint and several liability/
responsibility. The commenters also have concerns about regulating 
access to claims submitted by an entity for services furnished by an 
independent contractor. In their view, this type of requirement should 
be part of the compliance programs of entities and employers rather 
than mandated as part of the reassignment rules.
    Response: We disagree with the commenters' assertion that it is 
premature to implement the proposed program integrity safeguards. 
Section 952 of the MMA specifically authorizes the Secretary to 
implement program integrity safeguards. Further, in the Conference 
Report to the MMA, the Congress specifically highlighted the two 
program integrity safeguards that we have proposed.
    Our assessment of the need for program integrity safeguards is 
based upon prior experience with certain types of entities and their 
subsidiary billing companies. For example, on April 6, 2000, Lewis 
Morris, Assistant Inspector General for Legal Affairs, Office of 
Inspector General (OIG), U.S. Department of Health and Human Services, 
testified before the House Committee on Commerce, Subcommittee on 
Oversight and Investigations regarding Medicare and third-party billing 
companies. Mr. Morris of the OIG detailed the upcoding activities of 
two firms that provided billing services for entities contracting with 
emergency department physicians. One firm paid $15 million and the 
other paid $15.5 million to settle their respective liabilities. 
Moreover, as we have noted, we have received numerous comments from 
physicians stating that they have been prevented from seeing the 
Medicare remittance notices for services they furnished, on penalty of 
termination.
    In addition, we understand the commenters' concerns that if the 
Agency plans to implement the two proposed program integrity 
safeguards, we should apply these same program integrity safeguards to 
employees, as well as to independent contractors. Joint and several 
responsibility/liability and unrestricted access to billings may or may 
not be appropriate for employees and employers as it is for the parties 
involved in contractual arrangements. CMS will study this issue 
further, and if necessary will address it in a separate rulemaking 
document.
    We use the words responsibility and liability interchangeably, and 
in the context of claims filing and payment, they both have the same 
meaning. We define joint and several liability/responsibility to mean 
that both the person furnishing a service and the entity billing for 
that service (and to which payments have been reassigned) can be held 
liable or responsible for any errors in billing that result in a 
Medicare overpayment, including, but not limited to, upcoding and 
billing for services never rendered.
    We will monitor the program integrity safeguards as we monitor all 
other program integrity requirements. We also believe that entities and 
independent contractors will report violations to us, since both may be 
held responsible for any Medicare overpayments. If an independent 
contractor is refused access to the billings submitted on his or her 
behalf, the independent contractor may report this to the appropriate 
Medicare contractor.
    Comment: An organization representing entities that use independent 
contactor emergency department physicians believes if we retain the 
proposed program integrity requirements, then these requirements should 
be clarified and included in other reassignment exceptions and in other 
Medicare conditions of participation.
    Response: It is our goal to have the program integrity requirements 
identified and included on the appropriate CMS-855-R enrollment form. 
As we have discussed above, while we will study whether it is 
appropriate to extend the program integrity safeguards to employer/
employee relationships, we do not believe it is necessary to include 
the program integrity requirements in other reassignment exceptions (or 
in other Medicare conditions of participation) at this time.
    Comment: Three commenters representing organizations that use 
independent contractor emergency physicians recommend that we revise 
our definition of entity to specifically identify the types of entities 
that are listed in the Conference Report to section 952 of the MMA. 
They believe that our existing definition which defines entity as a 
person, group or facility enrolled in the Medicare program is ambiguous 
and inconsistent with Congressional intent. Therefore, they are 
recommending that we add the language to the definition that specifies 
that an entity includes but is not limited to, a hospital, clinic, 
medical group, a physician practice management organization, or a 
staffing company. One of the commenters opposes stating that entities 
need to be enrolled in Medicare in the definition of entity because the 
commenter believes it is not necessary to include such information in 
the regulations on reassignment. This commenter believes that 
instructions on enrollment should be addressed in an enrollment 
regulation. The commenter also states that our current reassignment 
regulation does not define facility as a hospital or other institution 
enrolled in the Medicare program. These groups believe that their 
proposed definition of entity more accurately reflects the language 
from the Statement of the Managers filed by the MMA Conference 
Committee and is included in the Conference Report (Conference 
Agreement). Finally, these groups do not believe that a definition of 
entity is necessary, since we do not define employer in the 
reassignment regulations definition section.
    Response: We continue to believe that our definition of entity in 
the proposed rule is appropriate. We believe that defining entity as a 
person, group, or facility that is enrolled in Medicare encompasses all 
entities that are allowed to bill and receive payment from Medicare, 
and does not prevent those entities that were specifically identified 
in the Conference Report from benefiting from the new contractual 
arrangement reassignment exception. We will not specifically include a 
staffing company in the definition of entity because a staffing company 
cannot enroll in Medicare as a staffing company. Staffing companies can 
enroll as either a group practice or clinic, depending on how they are 
licensed or allowed to do business in the state where they are located. 
We further believe that a definition of entity is necessary to 
distinguish between entities that are allowed to reassign their right 
to payment and to receive reassigned payments from entities that are 
not allowed to reassign their right to payment or to receive reassigned 
payments (for example, billing agents, entities that provide services 
under arrangements, and substitute physicians, (for example, locum 
tenens physicians or physicians working on a reciprocal basis) all of 
which are not required to enroll in Medicare).
    Comment: Three commenters representing organizations that use 
independent contractor emergency physicians found our use of the term 
supplier confusing when denoting the physician or non-physician 
practitioner

[[Page 66318]]

that contracts with an entity and reassigns his or her right to bill 
and receive payment. Specifically, the commenters found the proposed 
revision to Sec.  424.80(c) (Prohibition on reassignment of claims by 
suppliers) confusing because it refers to a hospital or facility as the 
supplier of services for purposes of the reassignment revision when 
Medicare already has regulations that separately define provider and 
supplier. The commenters recommend that we clarify our intent regarding 
the use of the term supplier.
    Response: In instances of reassignment, the supplier is the person 
furnishing the service and reassigning his or her right to bill and 
receive payment to another entity. This is consistent with our 
definition of supplier in Sec.  400.202. In our proposed revision to 
Sec.  424.80(c), we state that the employer or entity is considered to 
be the supplier of the services for subparts C, D, and E of this part, 
subject to the provisions of paragraph (d) of the section. Once a 
supplier reassigns his or her right to receive Medicare payments, the 
entity receiving the reassigned payments essentially takes the place of 
the supplier. We have revised Sec.  424.80(c) to reflect the new 
contractual arrangement reassignment exception. The existing Sec.  
424.80(c) includes the same formulation and we have simply proposed to 
replace the words ``facility'' and ``system'' with ``entity,'' because 
the new exception for payment to an entity under a contractual 
arrangement now replaces the previous exceptions for payment to a 
facility or health care delivery system.
    Comment: Three commenters that use independent contractor emergency 
physicians expressed concern about our statement in the preamble to the 
proposed rule that the new reassignment exception may create fraud and 
abuse vulnerabilities, which may not become apparent until the program 
has experience with the range of contractual arrangements permitted by 
the new reassignment exception. These groups do not believe that the 
new reassignment exception will result in an increase in violations of 
the types addressed in the preamble to the proposed rule. The groups 
also disagree with our statement in the preamble to the proposed rule 
that contractual arrangements with independent contractor physicians 
may be used to camouflage inappropriate fee-splitting arrangements or 
payment for referrals. These groups state that Medicare does not govern 
fee-splitting arrangements, that policing such arrangements is a matter 
of State law, and that Medicare reassignment policy has no direct 
effect on this issue. They question why we have expressed concern over 
potential violations of the physician self-referral prohibition, 
because section 952 of the MMA does not affect or otherwise change the 
obligation of providers and suppliers to comply with the physician 
self-referral prohibition and its accompanying regulations.
    Response: The Congress originally passed the prohibition on 
reassignment provision because of increasing fraud and abuse in billing 
practices. Since the new reassignment exception has expanded the 
circumstances under which suppliers can reassign their right to receive 
Medicare payments, we are concerned that the potential exists for an 
increased incidence of fraud and abuse, which may not become apparent 
until the program has experience with the range of contractual 
arrangements permitted by the new reassignment exception. Fee-splitting 
arrangements may violate the physician self-referral prohibition and 
the anti-kickback statute. Preventing fraudulent and abusive billing 
practices continues to be the primary purpose of the reassignment 
rules, even as they are amended to reflect changing practices in the 
delivery of health care.
    We agree that section 952 of the MMA does not change the 
obligations of providers and suppliers under the physician self-
referral prohibition, and all other Medicare statutes and regulations. 
We are incorporating this clarification in Sec.  424.80(a).
    Comment: Three organizations that use independent contractor 
emergency physicians raised procedural concerns regarding the timing of 
the final rule, which is effective January 1, 2005. The commenters 
claim that providers and suppliers do not have time to comply with the 
new program integrity safeguards. They are asking us to provide 
providers and suppliers with an additional time frame of at least six 
months for compliance with the program integrity safeguards, if they 
are finalized. They recommend that we make the new safeguards 
applicable to enrollment applications submitted on or after the 
effective date of the final rule.
    Response: We do not believe additional time is necessary for 
compliance with the program integrity safeguards. Providers and 
suppliers will not have to amend contracts to include the proposed 
program integrity requirements. Thus, enrollment applications are not 
affected by this regulation. The program integrity safeguards will be 
effective on the effective date of this final rule and these 
requirements will be applicable to all Medicare providers and suppliers 
affected by the section 952 change to the reassignment rules.
    Comment: One commenter believes that the public comment period for 
this rule was shortened to 50 days instead of the 60-day comment period 
required by statute. The proposed rule was published in the Federal 
Register on August 5, 2004 and the public comment period ended at 5 
p.m. on September 24, 2004.
    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 our Web site 
on the date of display of the proposed rule at the Office of the 
Federal Register, 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 Office of 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 used for independent analysis. Therefore, we 
believe that beginning the comment period for the proposed rule with 
the display date at the Office of 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.

G. Section 642--Extension of Coverage of IVIG for the Treatment of 
Primary Immune Deficiency Diseases in the Home

    In the August 5, 2004 proposed rule, we stated that for dates of 
service beginning on or after January 1, 2004, Medicare would pay for 
IVIG administered in the home. The benefit is for the drug and not for 
the items or services related to the administration of the drug when 
administered in the home, if deemed medically appropriate. The 
implementing instructions for this benefit were provided in a 
transmittal released on January 23, 2004. We received several comments 
regarding this new benefit. The comments and our responses are provided 
below.

[[Page 66319]]

    Comment: Several commenters expressed concern regarding the lack of 
coverage for the items and services needed to administer IVIG. These 
commenters urged us to use our authority to pay for the items that are 
necessary for the effective use of IVIG.
    Response: The MMA provided coverage for the approved pool plasma 
derivative for treatment in the home; however, new section 1861(zz) of 
the Act specifically precludes coverage for the items and services 
related to the administration of the derivative.
    Comment: The commenter stated that on January 23, 2004, we released 
a transmittal implementing the new IVIG coverage. The transmittal 
contained the following language: ``for coverage of IVIG under this 
benefit, it is not necessary for the derivative (IVIG) to be 
administered through a piece of durable medical equipment.'' Commenters 
stated that this language has resulted in the denial of coverage of 
IVIG for patients because providers are using the rationale that it is 
medically unnecessary to infuse IVIG through an infusion pump and 
therefore IVIG is medically unnecessary. The commenters recommended 
that we issue a new transmittal stating that IVIG is to be covered even 
when administered through durable medical equipment (DME), as 
determined necessary by a physician.
    Response: It was not our intention to deny any beneficiary the 
coverage of IVIG in the home. It appears that the sentence that 
references the use of DME for the administration of IVIG is both 
confusing and misleading. Therefore, we will issue a new transmittal 
removing the apparent DME restriction.

Result of Evaluation of Comments

    We are finalizing the proposed revisions to Sec.  410.10 without 
alteration.

H. Section 623--Payment for Renal Dialysis Services

    Section 623 of the MMA amended section 1881(b) of the Act and 
directed the Secretary to revise the current renal dialysis composite 
rate payment system. The MMA included several major provisions that 
require the development of revised composite payment rates for ESRD 
facilities.
    The following is a summary of the proposed revisions to the 
composite payments rate methodology implementing provisions in section 
623 of the MMA that are required to be effective January 1, 2005.
    <bullet> The proposed rule provides for a 1.6 percent increase to 
the current composite payment rates effective January 1, 2005.
    <bullet> The proposed rule included an add-on to the composite rate 
for the difference between current payments for separately billable 
drugs and payments based on a revised drug pricing methodology using 
acquisition costs. For purposes of this adjustment, in the proposed 
rule, we defined acquisition costs as the ASP minus 3 percent. We 
proposed a single adjustment to the composite payment rates for both 
hospital-based and independent facilities, equal to 11.3 percent.
    <bullet> In the proposed rule, we discussed the reinstatement of 
the ESRD exceptions process for pediatric facilities as provided in 
section 623(b) of MMA. The statute defines pediatric ESRD facilities as 
renal facilities at least 50 percent of whose patients are under age 
18. Since April 1, 2004, we have accepted ESRD composite rate exception 
requests from ESRD facilities that believe they qualify for exceptions 
as pediatric ESRD facilities.
    <bullet> Section 1881(b)(12)(D) of the Act, added by section 
623(d)(1) of the MMA gives the Secretary discretionary authority to 
revise the current wage indexes and the urban and rural definitions 
used to develop them. In the proposed rule, we proposed to take no 
action at this time to revise the current composite rate wage indexes. 
Because of the potential payment implications of recently revised 
definitions of urban areas, we believe further study is required.
    <bullet> The proposed rule described the proposed methodology for a 
case-mix adjustment to a facility's composite payment rate based on the 
statutorily required limited number of patient characteristics. We used 
co-morbidity data for all Medicare ESRD patients obtained from the Form 
CMS-2728, supplemented with co-morbidity information obtained from 
Medicare claims. We measured the degree of the relationship between 
specified co-morbidities and ESRD facility per treatment costs, 
controlling for the effects of other variables, using standard least 
square regression. The source of the per treatment costs was the 
Medicare cost report. The result, after all necessary statistical 
adjustments, was a set of eight case-mix adjustment factors based on 
age, gender, AIDS, and peripheral vascular disease (PVD). Section 
623(d)(1) of the MMA requires that aggregate payments under the case-
mix adjusted composite payment system be budget neutral. Therefore, the 
proposed rule provided an adjustment 0.8390 to be applied to a 
facility's composite payment rate to account for the effects of the 
case-mix adjustments.

A. Composite Rate Increase

    The current composite payment rates applicable to urban and rural 
hospital-based and independent ESRD facilities were effective January 
1, 2002. Section 623(a)(3) of the MMA requires that the composite rates 
in effect on December 31, 2004 be increased by 1.6 percent. The updated 
wage adjusted rates were published in Tables 18 and 19 of the proposed 
notice.
    The tables reflected the updated hospital-based and independent 
facility composite rate of $132.41 and $128.35, respectively, adjusted 
by the current wage index. The rates shown in the tables do not include 
any of the basic case-mix adjustments required under section 623 of the 
MMA.
    Comment: Although there were no specific comments on the 1.6 
percent adjustment, several commenters wanted to emphasize the 
importance of providing an annual adjustment to the composite rate in 
order to recognize the increased costs that face renal dialysis 
facilities. They stated that failure to increase the composite rate on 
a regular basis has caused dialysis providers to suffer a significant 
loss of income from their Medicare reimbursement and that dialysis 
facilities are the only Medicare entities that do not receive a 
statutorily mandated annual increase in their reimbursement rates.
    Response: We do not have the authority to establish an annual 
update to the composite payment rates. Section 4201(a)(2) of Pub. L. 
101-508 effectively froze the methodology for calculation of the rates, 
including the data and definitions used as of January 1, 1991. Since 
that time, the Congress has set the composite payment rate for ESRD 
services furnished to Medicare beneficiaries. As a result, we do not 
have the authority to update the composite payment rate.

B. Composite Rate Adjustments To Account for Changes in Pricing of 
Separately Billable Drugs and Biologicals

    Section 623(d) of MMA provides for an add-on to the composite rate 
for thedifference between current payments for separately billable 
drugs and payments based on a revised drug pricing methodology using 
acquisition costs.
    In the proposed notice we proposed to pay for separately billable 
ESRD drugs using ASP minus 3 percent based on the average relationship 
of acquisition costs to average sales prices from the drug 
manufacturers as outlined in the OIG report. We developed the proposed 
drug add-on adjustment using the ASP minus

[[Page 66320]]

3 percent drug prices. As discussed below, the drug add-on adjustment 
for this final rule is based on average acquisition costs for the top 
ten ESRD drugs updated to 2005 and ASP plus 6 percent for the remaining 
separately billable ESRD drugs. See section III.E, Payment for Covered 
Outpatient Drugs and Biologicals, for a discussion of the final payment 
methodology for ESRD separately billable drugs.
    In the proposed notice, we outlined the methodology and data used 
to develop the proposed drug add-on adjustment to the composite rate of 
11.3 percent for both hospital-based and independent ESRD facilities. 
Since the composite rate payment for hospital-based facilities is 
higher than the composite rate for independent facilities, the proposed 
adjustment results in a higher payment rate for hospital-based 
facilities. The 2005 composite rates (including the 1.6 percent 
increase) would be $132.41 for hospital-based facilities and $128.35 
for independent facilities with the hospital-based facilities' rate 
higher by $4.06. We found this result consistent with section 
1881(b)(7) of the Act, which requires that our payment methods 
differentiate between hospital-based facilities and others. We also 
indicated that the proposed methodology for making this drug add-on 
adjustment to the composite rate is designed to ensure that the 
aggregate payments to ESRD facilities for separately billable drugs 
would be budget neutral with what would have been paid absent the MMA 
provisions.
    The proposed rule also discussed an alternative approach that 
produced separate adjustments to the composite rate of 2.7 percent for 
hospital-based and 12.8 percent for independent facilities. In contrast 
to a single add-on, separate add-on adjustments would result in a 
significantly higher composite payment rate for independent facilities 
than hospital-based facilities, of $8.79 more per treatment.
    Comment: We received many comments from independent facilities, 
chain organizations and groups objecting to our proposal to establish a 
single add-on adjustment to the composite payment rate. Several 
commenters expressed concern that since hospital-based facilities are 
paid reasonable cost for their separately billed drugs other than EPO, 
those facilities should receive an adjustment based only on the spread 
related to EPO payments. They stated that our proposal to spread the 
drug savings to all facilities does not comply with the provision in 
the statute that they believe is intended to hold facilities harmless 
with respect to their drug payment profit margins. The commenters also 
contend that since hospital-based facilities already receive about 
$4.00 per treatment more than independent facilities, they should not 
share in the drug add-on adjustment for other than their specific EPO 
usage.
    Response: As we indicated in the proposed rule, we believe that the 
statutory language supports one uniform drug add-on adjustment to 
composite payment rates set forth in section 1881(b)(7) of the Act 
after updating by 1.6 percent. The provision speaks of one ``difference 
between payment amounts'' and ``acquisition costs * * * as determined 
by the Inspector General.'' It is reasonable to infer that the Congress 
intended us to compute one ``difference'' based only on the payment 
amounts under sections 1842(o) and 1881(b)(11) of the Act.
    Although the language of section 1881(b)(7) contemplates 
differential composite rates for hospital-based facilities and 623(d) 
contemplates existing composite rates as the starting point for 
application of the new rate adjustments prescribed under section 
1881(b)(12)(A) of the Act, the MMA language does not suggest that these 
adjustments would be applied differentially across facilities. 
Otherwise, all of the adjustments, including case-mix and budget 
neutrality would have to be developed separately based on facility 
type.
    We note that the amount of the drug add-on has decreased 
significantly from the proposed rule as a result of our revised policy 
of paying for ESRD drugs for 2005. Since the drug payment amounts 
increased, the amount of the drug add-on to the composite rate 
decreased. The resulting drug add-on amount is now 8.7 percent.
    We also note that there is not a significant difference in 
composite rates for independent facilities under single and separate 
add-ons. With a single add-on of 8.7 percent, the 2005 composite rate 
for independent facilities would be $139.52. Under a separate add-on 
approach, the 2005 composite rate for independent facilities would be 
$140.93, a difference of $1.41 or about 1 percent before taking other 
considerations into account. This difference is about 27 percent less 
than the difference based on the approach and figures in the proposed 
rule.
    While a composite rate difference of $1.41 is important, such 
difference does not take into account two other factors: (1) Since 
Medicare's 2005 payments for ESRD drugs will be a weighted average of 
the acquisition costs determined by the Inspector General, the payment 
amounts for the most utilized ESRD drugs (such as EPO) will be 
significantly higher than payment based on ASP-3 percent; and (2) 
Beginning with 2005, Medicare will pay separately for syringes that are 
currently included in the EPO payments.
    With separate add-ons, the composite rate for the independent 
facilities would be $7.33 higher than the composite rate for hospital-
based facilities. However, the composite rate for hospital-based 
facilities would be $10.33 lower under separate add-ons than under a 
single add-on approach. We believe the current difference in composite 
rates where the hospital-based rate is about $4.00 higher than the 
independent facility rate would effectively be preserved with a single 
add-on and significantly reversed with separate add-ons.
    Finally, we note that a key purpose of the MMA legislation was to 
eliminate the cross-subsidization of composite rate payments by drug 
payments. If the composite rate was inadequate before the MMA 
provision, it was inadequate for both hospital-based and independent 
facilities. As such, increasing the composite rate by relatively 
greater amounts for independent facilities than hospital-based 
facilities would place the latter facilities at a competitive 
disadvantage relative to the former facilities.
    Comment: One comment from a drug manufacturer suggested that in 
order to preserve high quality care to ESRD patients and prevent cost 
shifting behavior, we should require a facility to provide the full 
range of separately reimbursable drugs and biologicals in order to 
receive the drug add-on adjustment.
    Response: We do not believe the statute permits imposing such a 
requirement as a condition for receiving the add-on adjustment to the 
composite rate. However, other regulations require that ESRD facilities 
provide appropriate care to each patient based on a plan of care that 
would include the administration of medically necessary drugs as 
prescribed by the patient's dialysis physician.
1. Growth Factors Used To Update Drug Expenditures and Prices
    Comment: One commenter noted that, in the proposed rule, we updated 
the 2004 ASP drug prices to 2005 prices by using the projected annual 
growth factor for National Health Expenditures prescription drugs of 
3.39 percent. This commenter wanted to know why we did not use the 
actual growth factors for separately billable drugs that are furnished 
by ESRD facilities to ESRD

[[Page 66321]]

patients. The commenter states that this factor is currently running 
about 39 percent.
    Response: After consideration of the available price data, as 
discussed in the section on payment for ESRD separately billable drugs, 
we have determined that the Producer Price Index (PPI) for prescription 
preparations is the most appropriate price measure for updating EPO and 
other separately billable drugs from 2003 to 2005. The PPI for 
prescription preparations is released monthly by the Bureau of Labor 
Statistics, and reflects price changes at the wholesale or manufacturer 
stage. By comparison, the Consumer Price Index (CPI) for prescription 
drugs reflects price changes at the retail stage. Because EPO and many 
of the separately billable drugs used by dialysis facilities are 
purchased directly from the manufacturer, the use of a price index that 
measures wholesale rather than retail prices is more appropriate. The 
PPI for prescription drugs is the measure used in the various market 
baskets that update Medicare payments to hospitals, physicians, and 
skilled nursing facilities, and home health agencies. In addition, the 
PPI for prescription drugs was recommended for use in the proposed 
composite rate market basket detailed in the 2003 Report to the 
Congress.
    Based on historical data through the second quarter of 2004, we 
used the Global Insight Inc. forecast of the PPI for prescription drugs 
to determine the update factors for 2004 and 2005. We feel the use of 
an independent forecast, in this case from Global Insight Inc., is 
superior to using the NHE projections for drug prices (which is the CPI 
for prescription drugs) and is consistent with the methodology used in 
projecting market basket increases for Medicare prospective payment 
systems.
    Comment: One comment questioned the 3 percent growth rate that we 
used in the proposed rule to estimate 2005 Medicare AWP payment amounts 
for purposes of calculating the drug add-on amount. Specifically, the 
commenter asked whether the 3 percent figure represented the AWP growth 
trends for all drugs as opposed to the AWP growth trends for only ESRD 
separately billable drugs and biologicals. The commenter also asked for 
clarification of the timeframe used to establish the historical trend.
    Several comments also expressed concern that we used a 10-quarter 
average as an approximation for 2002 expenditures, and as a result, the 
projected 2005 drug expenditures were understated. These comments 
strongly recommended that we establish an accurate baseline using 
actual 2002 expenditures. A study performed for commenters by an 
industry consultant was cited as confirming that our base year estimate 
is materially below actual drug spending computed using CMS's 2002 
Outpatient Five Percent Standard Analytic File (SAF). Commenters were 
also concerned that the drug add-on does not reflect the true 
difference between payments under the current system and acquisition 
costs described by the OIG.
    Response: We have taken all these comments into consideration and 
have re-evaluated our 2005 projection of aggregate ESRD facility drug 
expenditures. We did not use an average over 10 quarters to determine 
aggregate drug payments. The 10 quarters of data were used only to 
establish historical growth trends. However, we determined that our 
estimates of aggregate drug payment amounts were in fact understated 
because they did not include deductibles and coinsurance. Since drug 
payment rates are set at 100 percent of the allowable payment, we 
incorrectly calculated the aggregate drug payment for 2005. We revised 
our calculation to ensure that we capture the allowable payment before 
deductible and coinsurance are removed. In addition, we updated our 
estimates to incorporate the June 2004 update to the 2003 standard 
analytical file. The 3 percent growth represents our best estimate of 
the expected growth rate in AWP prices. In addition, due to numerous 
coding changes for the various ESRD drugs, we were unable to do direct 
comparisons for each of the AWP prices from year-to-year. Therefore, we 
believe the 3 percent inflation factor we used to update the AWP prices 
is appropriate.
    Comment: One comment expressed concern that the projected number of 
dialysis treatments in 2005 would be overstated if home peritoneal 
dialysis (PD) treatments for home patients are included because 
facilities do not bill for non-EPO drugs in that setting.
    Response: Since ESRD facilities also receive composite rate 
payments for their Method I home patients, the drug add-on would also 
apply to composite rate payments for those patients. Therefore, it is 
appropriate for us to count those treatments in projecting the number 
of dialysis treatments for computation of the drug add-on amount. We 
did not, however, count treatments attributable to Method II home 
patients since payment for these patients is made based on reasonable 
charges as opposed to the composite rate.
    Comment: One comment from a patient organization raised concern 
that the add-on provision would remove any incentives the current 
payment policy creates for facilities to provide separately billable 
drugs and biologicals to dialysis patients. This comment suggested that 
we establish new clinical guidelines or indicators to ensure that 
dialysis patients receive necessary drugs and biologicals. This 
commenter also asked whether we have longer term plans to revise 
payment for dialysis treatment and ancillary services.
    Response: We share this commenters concern that changes in payments 
to dialysis facilities could produce perverse incentives for dialysis 
facilities to skimp on care to ESRD patients. In order to ensure that 
patients continue to receive quality care, we are revising the ESRD 
facility conditions for coverage so that they are more patient-centered 
and outcome-oriented. We will publish proposed ESRD conditions by the 
end of 2004. We note that section 623 of MMA also requires us to 
develop a bundled, case-mix adjusted payment system and report to the 
Congress by October 1, 2005. This section also requires the 
establishment of a demonstration to test the revised payment system 
over a 3-year period beginning January 1, 2006.
2. Update Methodology for Drug Add-on Adjustment in 2006
    Comment: Several commenters recommended that we publish the 
methodology that we intend to use to update the drug add-on component 
of the basic case-mix adjusted payment amounts, beginning in 2006, and 
that we provide the opportunity for public comment.
    Response: We did not propose a mechanism for updating the 2006 
payments in this document since this rule addresses payment for 2005. 
It is our intent to publish a proposed rule in mid-2005 to address 
payment changes for 2006. The public will be given an opportunity to 
comment on those proposals at that time.
3. Computation of Final Drug Add-On Adjustment to the Composite Payment 
Rate
    To develop the final drug add-on adjustment we used historical 
total aggregate payments for separately billed ESRD drugs for half of 
2000 and all of 2001, 2002 and 2003. For EPO, these payments were 
broken down according to type of ESRD facility (hospital-based versus 
independent). We also used the 2003 data on dialysis treatments 
performed by these two types of facilities over the same period.

[[Page 66322]]

I. 2005 Average Acquisition Payment (AAP) Amounts

    The OIG report contained 2003 average acquisition costs for the top 
ten drugs supplied by the four largest dialysis chain organizations and 
by a sample of those facilities not managed by the four largest chain 
organizations. According to the OIG report, these ten drugs accounted 
for about 98 percent of total expenditures for separately billed drugs 
furnished by ESRD facilities. The report also indicated that payment to 
the four largest dialysis chains accounted for 73 percent of Medicare 
drug reimbursement in 2002. Therefore, we weighted the average 
acquisition costs using a 73-27 split. As discussed earlier, we then 
updated the 2003 weighted average acquisition costs to arrive at the 
2005 AAP amounts by using the PPI for prescription drugs. These factors 
were 4.81 percent and 3.72 percent for 2004 and 2005, respectively.
[GRAPHIC] [TIFF OMITTED] TR15NO04.505

II. Estimated 2005 Medicare Payment Amounts Based on 95 Percent of AWP

    We estimated what Medicare would pay for ESRD drugs in 2005 if the 
MMA had not been enacted. We adjusted the first quarter 2004 Medicare 
payment amounts (95 percent of AWP), based on the prices from the 
January 2004 Single Drug Pricer, for drugs other than EPO, to estimate 
2005 prices by using an estimated AWP growth of 3 percent. As discussed 
earlier, these growth factors are based on historical trends of AWP 
pricing over years. We did not increase the price for Epogen since 
payment was maintained at $10.00 per thousand units prior to MMA.
[GRAPHIC] [TIFF OMITTED] TR15NO04.506


[[Page 66323]]



III. Dialysis Treatments

    We updated the number of dialysis treatments based on 2003 data by 
actuarial projected growth in the number of ESRD beneficiaries. Since 
Medicare covers a maximum of three treatments per week, utilization 
growth is limited, and therefore any increase in the number of 
treatments will be due to enrollment. In 2005, we project there will be 
a total of 34.8 million treatments performed.

IV. Estimated Drug Spending

    We updated the total aggregate 2003 Epogen drug spending for 
hospital-based and independent facilities using historical trend 
factors. For 2004 and 2005, we increased the 2003 spending levels by 
trend factors of 1.0 percent for hospital-based facilities and by 10.0 
percent for independent facilities based on historical growth from 2000 
to 2003.
    We also updated the aggregate AWP based spending for separately 
billed drugs, other than EPO, for independent facilities by using the 
10 percent growth factor for Epogen. Since aggregate spending in this 
category show extremely varied growth in recent history, we could not 
establish a clear growth trend. For this reason we decided to apply the 
Epogen growth rate to the other separately billed drugs. Given the 
problems establishing growth trends for the other drugs, plus the fact 
the expenditures for Epogen account for about 70 percent of the total 
spending for the top ten ESRD drugs, we believe this approach to 
updating all of the separately billed drugs is appropriate.
    Additionally, we deducted 50 cents for each administration of 
Epogen from the total Epogen spending for both hospital based and 
independent facilities, to account for payment for syringes that is 
currently included in the EPO payments. Payment for syringes used in 
administering EPO will be made separately beginning January 1, 2005. In 
2005, we estimate that the total spending for syringes associated with 
the administration of Epogen will amount to $1.6 million for hospital-
based facilities and $27 million for independent facilities. For 2005, 
we estimate that the total spending for Epogen provided in hospital-
based facilities will be $210 million, and $2.913 billion for drugs 
provided in independent facilities ($2.003 billion for Epogen and $910 
million for other drugs).

V. Add-On Calculation and Budget Neutrality

    For each of the ten drugs in the previous tables, we calculated the 
percent by which 2005 AAP amounts are projected to be different from 
the payment amounts under the pre-MMA system. For Epogen, this amount 
is 2 percent. We applied this 2 percent figure to the total aggregate 
drug payments for Epogen in hospital-based facilities, resulting in a 
difference of $5 million.
    Since the top 10 ESRD drugs will be paid at 2005 AAP amounts and 
the remainder will be paid at ASP plus six percent, we then calculated 
a weighted average of the percentages by which AAP amounts would be 
below current Medicare prices, for the top 10 drugs, and the percentage 
by which ASP plus 6 percent would be below current Medicare payment 
amounts. For other than the top ten drugs, we do not have detailed data 
on expenditures for drugs billed by ESRD facilities. Therefore, we 
computed the percentage by which ASP plus 6 percent is below the 
estimated 2005 pre-MMA payment amounts for those drugs, using the 
average of the comparable ASP prices for the top 10 ESRD drugs. This 
procedure resulted in a weighted average of 13 percent by which the 
overall revised 2005 drug payment amounts applicable to independent 
facilities is projected to be less than the 2005 estimated pre-MMA 
system (that is, 95 percent of AWP). We then applied the 13 percent 
weighted average to total aggregate drug spending projections for 
independent facilities, producing a projected difference of $385 
million.
    Combining the 2005 estimates of $5 million and $385 million, for a 
total of $390 million and then distributing this over a total projected 
34.8 million treatments would result in an add-on to the per treatment 
composite rate of 8.7 percent. We estimate that an 8.7 percent 
adjustment to the ESRD composite payment rate would be needed to 
achieve budget neutrality with respect to drug expenditures for ESRD 
facilities.

A. Patient Characteristic Adjustments

    As explained in the proposed rule, the current ESRD composite 
payment rates are not adjusted for variation in patient characteristics 
or case-mix. Section 623(d)(1) of the MMA added section 1881(b)(12)(A) 
of the Act to require that the outpatient dialysis services included in 
the composite rate be case-mix adjusted. Specifically, the statute 
requires us to establish a basic case-mix adjusted prospective payment 
system for dialysis services. Also, the statute requires adjustments 
under this system for a limited number of patient characteristics. In 
the proposed notice, we described the development of the methodology 
for the proposed patient characteristic case-mix adjusters required 
under the MMA.
    In summary, we proposed to use a limited number of patient 
characteristics that explain variation in reported costs for composite 
rate services, consistent with the legislative requirement. The 
proposed adjustment factors are as follows:

[[Page 66324]]

[GRAPHIC] [TIFF OMITTED] TR15NO04.507

    Although the magnitude of some of the patient-specific case-mix 
adjustments appears to be significant, facility level variation in 
case-mix is limited because of the overall similarity of the 
distribution of patients among the eight case-mix classification 
categories across facility classification groups.
    We received a significant number of comments regarding the case-mix 
adjustment factors, which are summarized in this section with our 
corresponding responses.
1. Sample Data Used To Develop the Basic Case-Mix System
    Comment: Comments regarding the sample or universe used to derive 
the proposed basic case-mix adjustments in the proposed rule expressed 
concerns about the size of the sample, the number of hospitals and 
freestanding facilities included, as well as the number of facilities 
excluded from the data.
    Response: We used the database established by our contractor to 
develop the basic case-mix system in the proposed rule. Facility cost 
report data were matched to the corresponding facility billing data to 
insure that the sample reflected the most valid and reliable data 
available. The specific methodology used to develop the database is 
discussed in Kidney Epidemiology and Cost Center's (KECC's) Phase I 
report. The Phase I report entitled: ``An Expanded Medicare Outpatient 
End Stage Renal Disease PPS--Phase I'' is available on the University 
of Michigan Web site: http://www.sph.umich.edu/kecc. The contractor has 
been updating the data files for subsequent phases of their research 
and is beginning to analyze these data for the bundled prospective 
payment system. The data used for the basic case-mix proposed system 
were also assessed in terms of consistency. Data from 2000, 2001, and 
2002 were examined separately as well as combined to determine if there 
were consistent trends over the 3-year period. The data were updated to 
include the latest 2002 data that was available as of September 2004. 
The updated data reflect an increase of approximately 10 percent in the 
number of facilities represented in the database.
    Comment: Several comments expressed concerns regarding the 
timeliness of the data used to develop the proposed case-mix measures. 
These concerns focused on the availability of cost reports for 2002. In 
the proposed notice we acknowledged we were delayed in obtaining cost 
reports for 2002 and that the final rule would reflect the most recent 
data on the number of cost reports available.
    Response: Table 12 indicates the number of dialysis facilities with 
at least one cost report for 2000 to 2002. This table also reflects the 
availability of the most recent cost reports data for 2002 and reflects 
an increase from the proposed rule of an additional 564 cost reports 
for the independent facilities in 2002.
[GRAPHIC] [TIFF OMITTED] TR15NO04.508

    The availability of cost reporting data may be delayed because of a 
number of factors including late submissions by facilities and 
necessary reconciliation and verification of data by fiscal 
intermediaries prior to submission to our data systems. The comment on 
delays and availability of data is also related to concerns expressed 
by other comments regarding the reporting of co-morbid conditions. 
Several comments addressed potential inconsistencies in

[[Page 66325]]

facility reporting of co-morbid conditions, specifically with the 
impact of the variation of the reporting of AIDs noted in the 2000 data 
compared to other years. This variation, coupled with the potential 
incompleteness of the 2002 data, led us to examine options for 
selecting the time period to be used for determining the case-mix 
adjustments.
    In this final rule, we have decided to use combined data for the 3-
year period 2000-2002, to determine the case-mix adjustment factors. 
The use of combined data enables us to eliminate any impact caused by 
annual variation in reporting, delays in the availability of 
administrative files, and overemphasizing the predictive significance 
of selected variables, because case-mix variables are combined and 
averaged over a 3-year period, thus representing a more stable 
database.
    Comment: Several comments focused on the number of facilities that 
were excluded from the study sample in the development of the proposed 
case-mix adjustments. For the proposed regulation, we excluded from our 
sample facilities where cost report data could not be matched to claims 
data and vice versa, or where key data elements were missing. In 
addition we excluded outlier facilities (those with high or low average 
costs, or high or low proportions of co-morbid conditions.) Data from 
small facilities (fewer than 20 patients) and those with existing 
composite rate exceptions were also excluded.
    Response: We concurred with the recommendation to reassess the 
sample. For the final rule, we are including, within the sample, data 
for facilities with existing exceptions. However, we have continued to 
exclude data for small facilities, outliers, and facilities with 
missing or unusable data. Missing data excluded approximately 11 
percent of the sample, and not including small facilities or outlier 
facilities eliminated approximately 9 percent of the study sample.
    We did not accept the suggestion that smaller sized facilities were 
proxies for rural facilities, however, and we will continue to study 
the rural and urban issue in future research and in updates to the wage 
index.
    Overall, including those facilities with exceptions provides a more 
robust study sample. In this way any effects on the case-mix values due 
to fluctuations in the data from year to year are greatly diminished.
    Comment: Several commenters objected that the database used to 
develop the basic case mix was not available. One commenter indicated 
that not having the data made it difficult to evaluate the impact of 
the proposed case-mix variables on specific facilities.
    Response: The database developed for the basic case-mix system is 
the same database that was developed by the University of Michigan for 
the ongoing research project to develop a bundled payment system. This 
database was compiled using our administrative data. We make available 
for purchase data available in the form of public use files or standard 
analytic files. Commenters can use the same data files that were used 
by the University of Michigan to develop the database used. The 
proposed rule provides the factors necessary to determine impact on 
individual facilities based on the case-mix within that facility. In 
addition, we have expanded our discussion of the impact of the case-mix 
adjustments and have provided a more detailed example to assist 
facilities in evaluating the impact of the case mix on their specific 
facilities.
2. Including Co-Morbid Conditions in the Case-Mix Adjustment
    Comment: A number of comments expressed concerns regarding the 
coding of co-morbid conditions. Some comments acknowledged that limited 
time has been spent by ESRD facilities in coding multiple conditions. 
Some stressed that training should be provided to ensure that 
facilities understand this reporting requirement. One commenter 
attributed the proposed delay in implementation of the case-mix 
adjustments to potential difficulties in coding co-morbid conditions 
and in integrating these coded conditions into the payment.
    Response: We considered the commenters concerns regarding 
incorporating co-morbid conditions and the findings from analyzing more 
recent data. Although our regression modeling suggests that the 
inclusion of co-morbidities in the case-mix system would be 
appropriate, we are concerned that the data available to determine 
patient level co-morbidities may not accurately reflect diagnoses 
relevant to the dialysis patient population. Therefore, in this final 
rule we are not including co-morbidities as case-mix adjustments. As 
discussed later in this section, we are establishing the case-mix 
adjustments based on the following variables: age, body mass index 
(BMI) and body surface area (BSA). More recent analysis of the data and 
clinical concerns expressed regarding the inclusion of AIDs and 
selected PVD diagnoses support this decision. However, while co-morbid 
conditions are not currently part of the basic case-mix system, we 
encourage all facilities to more thoroughly report and code co-morbid 
conditions on their claims. This will enable appropriate refinements to 
the basic case-mix adjustments and also provide a better database from 
which we can develop case-mix measures for a bundled payment system.
    Comment: One commenter representing a chain of ESRD facilities 
stated that we overstated the prevalence of patients with peripheral 
vascular disease (PVD). The commenter maintained that overstating the 
incidence of PVD in the ESRD outpatient population results in an 
overstatement of the offset for budget neutrality because of the 
proposed 1.07 case-mix adjuster for PVD patients, thereby decreasing 
the otherwise applicable composite payment rate prior to case-mix 
adjustments. The commenter identified 51 diagnoses from the list of PVD 
diagnosis codes included in the proposed rule that he believed were 
either not reflective of PVD in ESRD patients, were not usually 
considered as a cause of PVD in ESRD patients, or were poorly 
differentiated clinically and could occur even in the absence of PVD. 
The commenter believed that these 51 diagnoses should be excluded from 
our list of PVD diagnoses for purposes of determining the case-mix and 
budget neutrality adjustments to the composite payment rates. Another 
commenter pointed out that there is substantial clinical disagreement 
about the definition of PVD and that the ESRD claims data presently do 
not contain sufficient information to implement the proposed PVD 
adjustor.
    Response: The selection of specific co-morbid conditions for 
purposes of adjusting the composite payment rates to reflect the 
patient characteristics associated with cost differences across 
facilities is an important issue, and we appreciate the commenter's 
suggestions. However, we disagree with the recommendation that we 
exclude certain diagnoses because they are not usually considered a 
cause of ESRD in patients. We believe that whether a particular co-
morbid condition caused the onset of ESRD is irrelevant. The important 
factor is whether a particular co-morbid condition is associated with 
facility differences in composite rate costs, regardless of their role 
in the etiology of ESRD.
    We agree with the commenter's suggestion that diagnoses which can 
occur in the absence of PVD will be excluded for purposes of applying a 
case mix adjustment based on PVD. In addition, there is apparent 
disagreement among clinicians as to whether certain

[[Page 66326]]

diagnoses are reflective of PVD in ESRD patients, and we will try to 
achieve as much consensus as possible before proceeding to implement a 
case mix adjuster which purports to reflect PVD. Accordingly, we are 
eliminating the case mix adjustment for PVD as set forth in the 
proposed rule. We point out that further analyses with more restricted 
sets of diagnostic codes revealed that the omitted codes were still 
strong predictors of costs. We intend to revisit the issue of 
appropriate co-morbidity adjustments as we continue our research to 
develop the bundled ESRD payment system.
    We point out that our case mix model that included PVD explained 
about 35.7 percent of the variation in facility composite rate costs. 
By comparison, our model using five age groups without co-morbidities 
explains about 35.6 percent of the cost variations. Although PVD was a 
statistically significant case mix variable, its contribution to the 
model's performance overall in explaining facility differences in costs 
was minimal. While co-morbidity adjustments will be excluded under the 
basic case mix adjusted composite payment system, accuracy in the 
reporting of co-morbid conditions on the bills will become increasingly 
important because of the likelihood that a bundled ESRD payment system 
will include co-morbidities associated with differences in patient 
resource consumption.
    Comment: Two commenters recommended that we exclude AIDS as a co-
morbidity warranting case-mix adjustment. These commenters stated that 
because of State laws requiring that a patient's AIDS status be kept 
confidential, most facilities do not know whether their patients have 
AIDS. This does not pose a risk to other patients or caregivers because 
of the universal precautions which dialysis facilities are required to 
use in order to prevent exposure and infection.
    Response: Because the claims data contain primarily the patient's 
primary diagnosis, AIDS is not likely to be recorded as a claims 
diagnosis for outpatient dialysis patients. Requiring the recording of 
the AIDS diagnosis on the bills would create powerful incentives for 
ESRD facilities to circumvent confidentiality restrictions. In those 
States with AIDS confidentiality requirements, the diagnosis is not 
likely to be recorded at all. Given the relatively low incidence of 
AIDS patients in the outpatient dialysis population, the fact that 
facilities in States with AIDS confidentiality requirements would be 
potentially disadvantaged if AIDS were included as a payment adjuster, 
and the fact that the relationship between AIDS and dialysis costs was 
not stable from year to year, we have decided to eliminate AIDS as a 
basis for case-mix adjustment to the composite payment rates at the 
present time.
3. Case-Mix Adjustment for Gender
    Comment: One commenter suggested that we eliminate gender as one of 
the patient characteristic variables used to case-mix adjust the 
composite payment rates. The commenter stated that gender was 
essentially a surrogate for differences in height and weight measures 
that would yield a superior case-mix adjustment.
    Response: Although height and weight are much better predictors of 
facility variation in composite rate costs, these data were only 
available on the Form CMS 2728, not on the bills submitted for payment. 
Accordingly, we used gender as a surrogate measure in proposing 
adjustments, because gender is reported on the outpatient bill (for 
example, UB92 or the equivalent electronic form). However, the National 
Uniform Billing Committee has approved the use of two new value codes 
for reporting weight and height (A8--weight in kilograms, A9--height in 
centimeters) on the billing forms effective January 1, 2005.
    The mandatory reporting of height and weight permits the 
development of case mix measures that reflect both variables, such as 
BMI and BSA, each of which are superior to weight alone as predictors 
of resource use. Given the impending availability of height and weight 
data on the outpatient dialysis bill, we examined the predictive power 
of weight, BMI, and BSA in lieu of gender based on data reported on the 
Form 2728 from 2000 through 2002. We found that both BMI and BSA are 
superior predictors to weight alone and that BSA, coupled with a 
variable for low BMI, is the best predictor of facility differences in 
composite rate costs. Accordingly, we have eliminated gender in this 
final rule as a patient classification variable for purposes of case 
mix adjustment. Instead we are substituting BSA, and a variable for low 
BMI, each of which are explained in another section of this final rule.
4. Age Groupings Used in Proposed Case-Mix Adjustment
    Comment: Several comments indicated that the proposed age groups 
were too broad. Some of the comments recommended that we create more 
age categories for purposes of the case-mix adjustments.
    Response: In the proposed rule we established three age categories 
for example: less than 65, 65-79, and greater than 79. In reassessing 
the study sample and the proposed case mix adjusters, we also explored 
the age categories. We concur with the comments to expand the number of 
age categories. For the final rule, there will be five age groupings. 
These are: 18-44, 45-59, 60-69, 70-79, and 80+. Patients under 18 are 
discussed in the following section on pediatrics. We believe that the 
revisions to the age groupings more accurately describe the 
distribution of the patient population and reflect more refined 
predictors of age for payment purposes.
    Comment: One commenter asked what would happens under our proposed 
adjustment if during the course of a month, an ESRD patient's age 
changed and they cross the line into another case-mix adjustment 
factor. For example, on August 15 a 64-year-old ESRD patient turns 65. 
They questioned how is this situation is handled and is the age used as 
of the last day of the month.
    Response: We believe it is appropriate to handle this situation as 
it is handled for enrollment. Thus, for a month when the patient has a 
birthday that puts him or her into another age category, the first of 
the month would be the effective date of the patient's new age 
category.
5. Case-Mix Adjustment for Pediatric Patients
    Comment: Several commenters expressed concern over the lack of a 
case-mix adjustment for pediatric ESRD patients. The commenters stated 
that although section 623(b) of the MMA provided for an exception 
process for pediatric ESRD facilities, qualification for a pediatric 
exception is limited to those facilities where pediatric patients 
(those under age 18), comprise at least 50 percent of the caseload. The 
commenters pointed out that ESRD pediatric patients are unusually 
resource intensive and costly and are widely scattered among 
facilities, most of which would not qualify as pediatric facilities 
under the definition set forth in the statute. The commenters 
recommended that we develop a case-mix adjuster for pediatric ESRD 
patients using other data sources.
    Response: Using the same regression methodology described in the 
proposed rule, we attempted to develop a case-mix adjuster for 
outpatient ESRD patients under age 18. However, based on the 
approximately 600 Medicare patients for whom bills were available each 
year from 2000 through 2002, the results were highly variable, 
statistically

[[Page 66327]]

unstable, and therefore inappropriate for development of a case-mix 
adjuster in accordance with the proposed rule's methodology. However, 
because of the costliness of pediatric ESRD patients, we believe that 
an alternative case-mix adjustment is warranted, particularly for those 
facilities, which do not meet the definition of a pediatric facility 
under section 623(b) of the MMA.
    As the commenter correctly pointed out, some facilities would not 
qualify for consideration for the pediatric exception provided in the 
law because their pediatric caseload does not constitute 50 percent of 
their patients. These facilities may still incur substantial costs for 
the treatment of pediatric ESRD patients. Pending the development of 
more refined case-mix adjustments that are more sensitive to individual 
variation in treatment costs under a fully bundled ESRD PPS, we are 
providing for a single adjustment to a facility's otherwise applicable 
composite payment rate, developed based on the methodology described 
below, for outpatient ESRD pediatric treatments. We want to emphasize 
that the pediatric adjustment factor resulting from this methodology is 
intended to be a temporary measure. It will only apply until we can 
develop an adjustor under the bundled ESRD PPS that is more similar 
with the case-mix adjustments that would apply to non-pediatric ESRD 
patients.
    During the period from November 1, 1993 to the present time, we 
identified 19 hospital-based and one freestanding ESRD facility, each 
of which sought and received an atypical services exception based on 
the higher costs incurred for the treatment of outpatient pediatric 
patients. For each of these facilities we obtained the number of 
treatments at the time the exception was submitted and determined the 
unadjusted composite payment rate that would have applied beginning 
January 1, 2005 without regard to any exception amount, that is, each 
facility's unadjusted composite payment rate was inflated to January 1, 
2005 to reflect the statutory increases of 1.2 percent effective 
January 1, 2000, 2.4 percent effective January 1, 2001, and 1.6 percent 
effective January 1, 2005.
    We then subtracted the inflated January 1, 2005 unadjusted 
composite rate from each facility's composite payment rate, including 
the exception amount granted, to obtain the estimated amount of the 
exception projected to 2005. This amount was multiplied by the number 
of treatments previously provided, summed for all 20 facilities, and 
then divided by the number of treatments for all 20 providers to yield 
an average atypical services exception amount per treatment. The 
average exception amount for ESRD facilities that received exceptions 
due to their pediatric caseload, adjusted to 2005, was $86.79 per 
treatment. The average unadjusted composite payment rate for these same 
20 facilities projected to 2005, similarly weighted by the number of 
treatments, was $139.32. Thus, the average composite payment rate 
adjusted to January 1, 2005, including the average exception amount of 
$86.79, was $139.32 + $86.79 or $226.11. Because the average exception 
amount was calculated from facilities located in areas with differing 
wage levels, we converted the average pediatric exception amount to a 
ratio, $226.11/$139.32 or 1.62.
    This is the case-mix adjustment factor that will be applied to each 
facility's composite payment rate per treatment for outpatient 
maintenance dialysis services furnished to pediatric patients. This 
includes both in-facility and home dialysis. Applying the adjuster 
multiplicatively in this manner recognizes the wage index variation in 
labor costs among urban and rural areas built into the composite rates. 
Notwithstanding this case-mix adjustment per treatment for ESRD 
pediatric patients, facilities who otherwise qualify as a pediatric 
facility under section 623(b) of the MMA will be permitted to seek an 
exception to this rate if they believe their circumstances warrant a 
higher payment rate under the atypical services exception provisions 
set forth in the regulations. We intend the pediatric adjustment factor 
of 1.62 to be a temporary measure. We anticipate its elimination once 
the case-mix methodology that will apply in the context of the bundled 
ESRD PPS is developed. We want the same methodology to apply to both 
pediatric and non-pediatric ESRD patients.
6. Facility Level Control Variables Used in the Proposed Regression 
Model
    In developing the regression model used to derive the case-mix 
adjustments, we included variables reflective of facility 
characteristics. Because facility characteristics do account for 
differences in facility composite rate costs, we included them in the 
regression model through the use of facility control variables, so that 
the patient characteristic case-mix adjusters are not distorted. The 
facility control variables included the wage index, facility size 
(based on the annual number of treatments), facility status as 
hospital-based or freestanding, percent of patients with urea reduction 
ratios greater than or equal to 65 percent, chain ownership, year of 
cost report, and percent of pediatric patients treatments. These 
variables were not used to calculate the basic case-mix adjustment 
factors.
    Comment: One comment questioned the inclusion of the proportion of 
patients with urea reduction ratios (URRs) greater than 65 as a 
facility control variable in the least squares regression model used to 
develop the case-mix adjustment factors. The comment maintained that 
because a patient's URR may be correlated with other co-morbid 
conditions, the coefficients for the variables tested in the model 
might be distorted. The comment recommended an evaluation of the degree 
of association between URR and the main co-morbid conditions to 
determine the extent of any multicolinearity. The comment further 
stated that if URR is appropriate as a facility control variable, then 
other surrogates of dialysis efficiency, such as standardized mortality 
ratio and proportion of patients with hemoglobin readings above 
specified target levels, should also be considered as control 
variables.
    Response: We believe that case-mix adjustments to the composite 
payment rate must be determined by patient and not by facility 
characteristics. To the extent that facility differences in costs are 
statistically explained by facility and not patient characteristics, we 
account for them in the regression model through the use of control 
variables, so that the potential case-mix adjusters are not distorted. 
Facility control variables were not used to develop the adjustment 
factors to the composite payment rates.
    For example, chain affiliation, facility size, and status as a 
hospital-based or freestanding facility were associated with 
statistically significant differences in facility costs. However, it 
would be inappropriate to object to the payment rates based on a 
facility belonging to a particular chain, or based on the number of 
annual treatments.
    To test for multicolinearity, that is, to ensure that each co-
morbidity tested for inclusion in the regression model was not 
correlated with other variables, we ran a correlation matrix. The 
correlation matrix included URR. URR was found not to correlate with 
any of the co-morbidities tested; in statistical parlance, it was 
orthogonal. Accordingly, low URR was not a surrogate of co-morbidity. 
Therefore, we believe it was appropriate to treat URR as a quality of 
care outcome measure at each facility. The effect of using URR as a 
facility control variable was to ensure that the case-mix adjustment 
factors were not distorted for facilities with similar URR outcomes. 
For example, if

[[Page 66328]]

larger patients receive lower doses of dialysis, not controlling for 
URR could impart a downward bias on the coefficient for patient size. 
The comment also suggested the use of other variables as facility 
control variables such as standardized mortality ratio (SMR) and 
hemoglobin count. Because SMR standardizes or controls for the effect 
of case mix on the ratio, we would have to ensure consistency in the 
reporting of specified co-morbidities on the bills in order to ensure 
the validity of each facility's SMR. That consistency currently does 
not exist. Facilities are only required to report hematocrit/hemoglobin 
on the claims available for those patients receiving erythropoeitin 
(EPO). However, because the proportion of patients receiving EPO is 
high, the use of hematocrit/hemoglobin as another outcome facility 
control variable is feasible, but mainly in the context of the bundled 
payment system. Since the drugs and lab tests associated with anemia 
management are paid outside the composite payment rate, hematocrit/
hemoglobin level would not be appropriate as a control variable 
applicable to composite rate costs.
7. Propriety of Case-Mix Adjustment
    Comment: Several commenters expressed reservations about our 
proceeding with the implementation of a case-mix adjustment to the 
composite payment rates using the methodology set forth in the proposed 
rule. One commenter cited the May 19, 2004 report prepared by the KECC 
of the University of Michigan, which pointed out that the proposed 
case-mix variables collectively explained less than 1 percent of the 
facility variation in composite rate costs, although the addition of 
facility control variables increased this proportion to about 33 
percent. One commenter stated that the low explanatory power of the 
proposed case-mix variables indicated that they do not accurately 
predict cost variation and are flawed. The commenter suggested that we 
defer applying a case-mix model until the results of the demonstration 
project mandated under section 623(e) of the MMA are available.
    Response: We would have preferred to develop a case-mix adjustment 
in the context of a bundled outpatient ESRD PPS. In a fully bundled 
PPS, which section 623(f) of the MMA anticipates, routine and 
separately billable dialysis related services, drugs, and clinical 
laboratory tests would be included in the payment bundle. KECC's 
previous research revealed that, for separately billable services, 
case-mix explained about 23 percent of the variation in cost across 
dialysis facilities. (See Hirth, et al., Is Case-Mix Adjustment 
Necessary for an Expanded Dialysis Bundle?, Health Care Financing 
Review, 2003, 24, pages 77-88).
    However, the enactment of Pub. L. No. 108-173 foreclosed the option 
of deferring implementation of a casemix adjusted composite rate based 
on a limited number of patient characteristics effective January 1, 
2005. We do not believe that the statutory directive set forth in 
section 623(d) of the MMA permits us to defer the development of a 
basic case-mix measure, one based on a ``limited number of patient 
characteristics.''
    We do not agree with the statement that, because the proposed case-
mix adjusters collectively account for about 1 percent of the facility 
variation in composite rate costs, the variables used are fundamentally 
flawed. In fact, when data is combined over three years, each of the 
proposed case-mix variables is highly significant statistically, 
despite the low proportion of facility variation in costs explained. A 
more important indicator of the importance of the case mix factors 
identified is the size of the adjustments. If the identified case mix 
variables did not have a meaningful relationship with costs, the 
magnitude of the adjustment factors would be insignificant or trivial. 
They are not. As explained in this final rule, based on our analysis of 
the comments we received, we have revised the case-mix variables used 
to adjust the composite payment rates. Our research to develop a 
statistically robust clinically coherent case-mix measure in the 
context of the fully bundled ESRD PPS will continue.
8. Alternative Case-Mix Variables
    Comment: Several commenters suggested alternative case-mix 
variables which they believe account for patient differences in 
resource consumption and would better distinguish facility differences 
in composite rate costs. The patient characteristics proposed by 
commenters included quarterly serum albumin values, cancer, limb 
amputation, gastrointestinal disorders, body mass index, weight, 
revised age groupings, hypertension, duration of dialysis treatment, 
and others. The commenters indicated that, based on their clinical 
judgment, the suggested factors were more likely to be predictors of 
variability in the cost of care than the proposed AIDS and PVD co-
morbidities. A few commenters recommended a delay in the implementation 
of the case-mix adjusted composite payment rates pending evaluation of 
the suggested variables. A number of comments indicated that BMI was a 
significant predictor of cost and recommended that BMI be included in 
the case-mix adjustment. Another commenter recommended BSA be examined 
as a potential case-mix predictor.
    Response: We appreciate all of the comments we received proposing 
alternative case-mix variables. We welcome suggestions for case-mix 
refinement based on sound clinical judgment, especially when analyses 
including separately billable ESRD services are performed as our 
research for development of the bundled ESRD payment system progresses. 
However, we point out, that unless the existence of a suggested co-
morbidity or patient characteristic could be determined from either the 
Form CMS 2728 or claims data which could be linked to a specific ESRD 
dialysis patient, we were unable to evaluate its potential to predict 
facility differences in composite rate costs. Furthermore, unless a 
patient characteristic can be reported on the UB 92 claim form (or the 
equivalent electronic version), it cannot be used to adjust a 
facility's composite payment rate. These limitations eliminate for 
consideration many of the commenters' suggested alternative patient 
characteristic variables.
    Nonetheless, our regression model evaluated 35 patient 
characteristics including weight, BMI, BSA, seven types of cancer, 
diabetes, chronic obstructive pulmonary disease, four types of heart 
disease, and race. Co-morbidities selected for inclusion in the model 
with significant negative coefficients were removed from subsequent 
iterations of the stepwise regression model. The inclusion of such co-
morbidities would have resulted in reductions in the otherwise 
applicable composite rate payments. Because we can now require the 
reporting of height and weight on the claim form beginning January 1, 
2005, we have adopted the commenters' suggestions to use either BMI or 
BSA as a predictor variable. We selected BSA and low BMI because they 
improve the model's ability to predict the costs of composite rate 
service compared to using BMI or weight alone. In addition, we have 
increased the number of age groups from three to five and eliminated 
gender as a payment variable entirely.
    As explained later in the ``Implementation Date'' section, we do 
not believe it would be appropriate to further delay the implementation 
of the basic case-mix adjustment. We proposed delaying implementation 
of the case-mix payments until April 1, 2005 in order to ensure all 
systems, programming, and other operational requirements are in place. 
Between publication of this final rule and the

[[Page 66329]]

implementation date, we will conduct training programs to ensure that 
facilities understand both the payment methodology and reporting 
requirements necessary to ensure appropriate payment to ESRD 
facilities.
9. Continuing Research To Develop a More Fully Bundled Case-Mix System
    Comment: Several comments requested additional detail regarding the 
continuing research for the development of a more fully bundled system.
    Response: The research activities for the fully bundled system have 
focused on updating the database. Research efforts since the passage of 
MMA have focused on supporting the Congressional mandate for the 
development of a limited number of case-mix variables. Following the 
publication of this rule, we anticipate that the emphasis will return 
to the development of a bundled prospective payment system that 
includes bundling of drugs, clinical laboratory tests, and other items 
that are separately billed by such facilities. This research will be 
reflected in an October 1, 2005 Report to the Congress.
    In addition, the MMA requires us to establish the fully case-mix 
adjusted demonstration which will bundle into the payments both 
separately billable drugs and biologicals and clinical labs. Both the 
Report to the Congress and the demonstration will be supported by 
continuing research.
10. Body Measurements as Case-Mix Adjusters
    In the proposed rule, we had discussed the importance of the BMI as 
a measure of resource consumption related to the composite payment 
rate. At that time, our analysis indicated that patients with very low 
or high BMI were more costly to treat. At the time of the publication 
of the proposed rule, we had no mechanism to obtain indicators for 
height and weight on the claims form. We had indicated that we would be 
exploring adding height and weight to the bills.
    Comment: A number of commenters endorsed the use of low BMI as an 
appropriate surrogate for the severity of morbid conditions associated 
with malnourishment in the dialysis population, and some suggested that 
a BMI below 20.0 kg/m\2\ is generally considered in the underweight 
range. In addition, we also received comments regarding the inclusion 
of a measure of BSA.
    Response: We concur with the comments to include BMI and BSA as 
case-mix adjusters reflecting patient characteristics that explain 
variation in the reported costs for composite rate services. We have 
obtained approval to collect both height and weight on the bill through 
the use of two new value codes. ESRD facilities will be required to 
report height and weight using these value codes, so that payment can 
be based on the case-mix adjusted composite rate payment system on 
April 1, 2005.
    For the implementation of the basic case-mix payments, we are 
providing an adjustment for low BMI, that is, any patient with a BMI 
less than 18.5 kg/m\2\. We included this variable because our 
regression analysis indicated that those patients who are underweight 
and malnourished consume more resources than other patients. Although 
we received one comment suggesting defining low BMI as 20 kg/m\2\, we 
chose the measure of low BMI that is consistent with the CDC and NIH 
definition for malnourishment. Furthermore, our exploration of 
alternative BMI thresholds did not improve the model's ability to 
predict the costs of composite rate services.
    In addition, we are providing case-mix adjustments based on BSA. 
Our research into this body measurement indicated that BSA (meters\2\) 
is a good predictor of composite rate resource consumption. We examined 
all of the formulas for BSA. While we found very little differences 
between the formulas in predictive power, we are adopting the Dubois 
and Dubois formula for BSA since our literature search revealed that 
this particular formula was the most widely known and accepted. This 
formula is: BSA=W\0.425\ * H\0.725\ * 0.007184 (DuBois D. and DuBois, 
EF. ``A Formula to Estimate the Approximate Surface Area if Height and 
Weight be Known'': Arch. Int. Med. 1916 17:863-71.), where w and h 
represent weight in kilograms and height in centimeters, respectively.
    In addition, we explored a number of options for setting the 
reference values for the BSA. We examined the distributions for both 
the midpoint of the BSA and the count of dialysis patients by age, body 
surface and low BMI. Based on this analysis, we are setting the 
reference point at a BSA of 1.84 (the average BSA among dialysis 
patients in 2002). By setting the reference point at the average BSA, 
the adjusters will reflect the relationship of a specific patient's BSA 
to the average BSA of all patients. Therefore, some adjusters will be 
greater than 1.0 and some will be less than 1.0. In this way, we are 
able to minimize the magnitude of the budget neutrality offset to the 
composite payment rate.
    The following presents an example of the method for calculating 
patient level multipliers that were derived from the coefficients 
resulting from the regression model that includes control variables, 
expanded age groups, BSA, and an indicator for low BMI (<18.5 kg/m\2\). 
The model excluded small facilities, and outliers.

Case-mix adjuster = Age factor * low BMI factor * BSA factor

    Although we could have selected any increment, we believed an 
increment of 0,1 provided and appropriate degree of precision of the 
calculation of the exponent used to compute the BSA case-mix 
adjustment. The BSA factor is defined as an exponent equal to the value 
of the patient's BSA minus the reference BSA of 1.84 divided by 0.1. 
The BSA adjustment factor of 1.037 is then exponentiated based on the 
calculated BSA factor as 1.037 ((BSA - 1.84)/0.1)
    For Example: The case-mix adjuster for a 47-year old person who is 
underweight (BMI<18.5 kg/m\2\) and has a body surface area of 2.0 m\2\ 
is calculated by using the 1.84 BSA reference point:

Age Factor = 1.055
Low BMI Factor = 1.112
BSA Factor = 1.037 ((2.0-1.84)/0.1) = 1.037 \(1.6)\ = 1.060
Case-Mix Adjuster = 1.055 * 1.112 * 1.06 = 1.244

    The resulting case-mix adjustment factor of 1.244 for this patient 
would be applied to the facility's composite payment rate that is 
adjusted for area wage index, drug add-on, and budget neutrality.
11. Budget Neutrality for Case-Mix Adjustment
    Section 1881(b)(12)(E)(i) of the Act, as added by section 623(d)(1) 
of the MMA, requires that the basic case-mix adjusted composite rate 
system be designed to result in the same aggregate amount of 
expenditure for such services, as estimated by the Secretary, as would 
have been make for 2005 if that paragraph did not apply. Therefore, the 
patient characteristics case-mix adjustment required by section 
623(d)(1) of the MMA must result in the same aggregate expenditures for 
2005 as if these adjustments were not made.
    In order to account for the payment effect related to the case-mix 
adjustment, we proposed to standardize the composite rate by dividing 
by the average case-mix modifier of 1.1919. The proposed budget 
neutrality adjustment to the composite rate was 0.8390. However, we 
were not able to simulate case-mix effects at the bill level

[[Page 66330]]

because co-morbidities are generally not reported on the ESRD bill. We 
still intend to refine our case-mix adjustments once we have more 
complete patient data on the ESRD bill. In this final rule, we have 
refined our adjustment for budget neutrality related to the case-mix 
factor. We simulated payment for each ESRD provider by applying a 
facility-specific case-mix multiplier to the composite rate applicable 
for that facility. Since the pediatric case-mix adjustment was 
developed outside the regression model, we simulated payments 
separately for those treatments. The results of these tow computations 
were then combined to arrive at the total case-mix adjusted payments. 
We also simulated payment for each provider as if they did not receive 
any case-mix adjustments. We then compared the total simulated payments 
with case-mix adjustment to total simulated payments without case-mix 
adjustment. The resulting budget neutrality adjustment to the composite 
rate is 0.9116.

B. Revised Patient Characteristic Adjustments

    The following section discusses in detail the final case-mix 
adjustments to the ESRD composite rate payment.
    In summary, based on the comments that we received on the proposed 
case-mix and additional analyses prepared by our contractor, KECC, in 
this final rule, we are modifying the proposed case-mix adjustments. We 
have broadened the number of age groups to include five age categories 
and added low BMI and BSA as measures. We have also included a specific 
case-mix adjustment for pediatric patients under age 18. We excluded 
the proposed categories gender and co-morbid conditions. We will be 
using a limited number of patient characteristics for the basic case 
mix system; however, we believe that these adjustments adequately 
explain variation in the reported costs per treatment for the composite 
rate services consistent with the legislative requirement. The 
adjustment factors for the basic case mix are listed in Table 13 below.
[GRAPHIC] [TIFF OMITTED] TR15NO04.509

    The following table illustrates the average case-mix adjustment by 
type of provider based on the 2002 data that was used to develop the 
adjustment factors.

[[Page 66331]]

[GRAPHIC] [TIFF OMITTED] TR15NO04.510

    As illustrated in table 14, regardless of the type of provider, the 
projected average case-mix adjustments for patient characteristics do 
not vary significantly.

C. Rural Facilities

    Comments: Some commenters focused on the potential impact the 
revised composite rate payment system could have on rural facilities. 
They were initially concerned that excluding small facilities from the 
overall sample actually reflected the elimination of rural facilities 
from the sample. As a means of resolving this issue, they suggested 
that a rural facility exception be restored.
    Response: The MMA provision for composite rate exceptions limited 
the availability of exceptions only to pediatric facilities. To the 
extent that a qualifying pediatric facility is located in a rural area, 
it would be able to apply for an exception to its composite payment 
rate.

D. Dual Eligible Dialysis Population

    Comment: One commenter expressed concerns regarding potential 
impact on the dual eligible population, specifically with respect to 
coverage of deductibles and coinsurance amounts. Concern was expressed 
regarding the impact of this proposal on the Medicaid population on a 
state-by-state basis.
    Response: We recognize that this is an important issue for ESRD 
facilities and can be particularly problematic for chain organizations 
that own facilities in multiple States. While we cannot direct States 
for payment for dual eligible beneficiaries, we will take appropriate 
action to ensure that States are aware of the changes we are 
implementing so they can take steps to adjust their payments for dual 
eligible dialysis patients.

E. Budget Neutrality

    Section 623(d)(1) of the MMA added section 1881(b)(12)(E)(i) of the 
Act, which requires that the basic case-mix adjusted composite rate 
system be designed to result in the same aggregate amount of 
expenditure for services, as estimated by the Secretary, as would have 
been made for 2005 if that paragraph did not apply. Therefore, the drug 
add-on adjustment and the patient characteristics case-mix adjustment 
required by section 623(d)(1) of the MMA must result in the same 
aggregate expenditures for 2005 as if these adjustments were not made.
    For the proposed drug payment add-on adjustment, we indicated in 
the proposed rule that the methodology we used to estimate the 
difference between the current and proposed drug payments was designed 
so that aggregate payments would be budget neutral.
    In addition, the proposed rule provided for a budget neutrality 
adjustment to the composite payment rate of 0.8390 to account for the 
effects of the proposed case-mix adjustments on aggregate expenditures.
    Comment: We received a number of comments concerning our 
application of the budget neutrality provision of section 623 of MMA. 
Specifically, many comments suggested that we did not comply with 
Congressional intent that facilities would be held harmless by this 
provision, that is, that facilities would not receive lower payments 
then they otherwise would have.
    Response: Section 623 of MMA requires that aggregate payments in 
2005 not exceed payments that would otherwise be paid. The budget 
neutrality provision is to ensure that total aggregate payments from 
the Medicare trust fund will not increase or decrease as a result of 
changes in the payment methodology. As with other Medicare payment 
systems, changes in the payment mechanism will result in the 
redistribution of Medicare dollars across facilities. There is no 
provision (nor any implication) in section 623 of the MMA that 
guarantees that individual facilities would receive the same amount of 
payment under a case-mix adjusted system as they did previously.
    The final budget neutrality adjustment to the ESRD composite 
payment rate applicable to the case mix adjustments (including the 
pediatric adjustment) is 0.9116. Also in the proposed rule, the 
calculation of the drug add-on adjustment was designed to ensure budget 
neutrality with respect to aggregate drug payments.

F. Geographic Index

    Comment: Several comments expressed disappointment that we did not 
propose revisions to the current outdated wage indexes reflected in the 
composite payment rates, despite the discretionary authority set forth 
in section 623(d)(1) of the MMA to replace them. These comments stated 
that this decision likely would have the greatest impact on facilities 
located in high cost and high wage areas, where competitive labor 
market pressures are more

[[Page 66332]]

pronounced. Comments generally were in favor of using the most up-to-
date information available for developing a revised composite rate wage 
index.
    Response: The wage index currently used in the composite rates is a 
blend of two wage index values, one based on hospital wage data from 
fiscal year 1986 and the other developed from 1980 data from the Bureau 
of Labor Statistics. The wage index is calculated for each urban and 
rural area based on 1980 U.S. Census definitions of metropolitan 
statistical areas (MSAs) and areas outside of MSAs. Restrictions apply 
to the wage index values used to develop the composite payment rates. 
Payments to facilities in areas where labor costs fall below 90 percent 
of the national average, or exceed 130 percent of that average, are not 
adjusted below the 90 percent or above the 130 percent level. This 
effectively means that facilities located in areas with wage index 
values less than 0.90 are paid more than they would receive if we fully 
adjusted for area wage differences. Conversely, facilities in locales 
with wage index values greater than 1.30 are paid less than they would 
receive if we fully adjusted payment for these higher wage levels.
    We agree that the current ESRD composite rate wage indexes, and the 
definitions of the geographic areas on which they are based, need to be 
updated. On June 6, 2003, OMB issued Bulletin 03-04, which announced 
new geographic areas based on the 2000 Census. The extent to which we 
use the new OMB geographic definitions, incorporate them into the 
various prospective payment systems (PPSs) we administer, and whether 
we rely on hospital wage and employment data to develop new composite 
rate wage index values will have the potential to significantly 
redistribute payments among ESRD facilities.
    In the August 11, 2004 Federal Register (69 FR 48916), we announced 
how we were revising the hospital wage index used in connection with 
inpatient PPS. Although one comment stated that we should adopt the 
same wage index used in connection with the inpatient PPS, several of 
the hospital wage index revisions stem from specific provisions of law 
(for example, geographic reclassification of hospitals) and would not 
necessarily be appropriate to apply to a revised ESRD wage index for 
the composite payment rates. Because of the discretion afforded the 
Secretary in developing a new wage index for ESRD payment purposes, we 
are carefully assessing the propriety and payment implications of 
policy options before recommending revisions to the current measure. We 
will not take action to replace the current composite rate wage index 
at this time. We point out that, in accordance with section 623(d)(1) 
of the MMA, any revisions to the wage index ultimately adopted must be 
phased in over a multiyear period.

G. Payment Exceptions and the Revised Composite Payment Rate

1. Application of Statutory Increases to Exception Amounts
    Comment: Several comments were critical of our policy of not 
applying increases to composite rates, mandated by the Congress, to 
amounts paid under exceptions. The comments maintained that this policy 
is inequitable, precludes the proper application of inflation updates 
to costs that we had recognized as appropriate in granting the 
exception, and over time erodes the value of the exception because of 
the cumulative impact of an effective ``historical freeze.''
    Response: The commenters are correct that we have only applied the 
Congressionally mandated statutory increases to the basic wage index 
adjusted composite payment rates, not to exception payments. For 
example, a provider which was authorized a $12.00 atypical services 
exception amount per treatment in addition to its otherwise applicable 
composite payment rate of $125.00 effective August 12, 2000 would not 
be entitled to the 2.4 percent increase applicable to composite rate 
payments on January 1, 2001, because its exception rate of $137.00 
exceeded its basic rate of $125.00 increased by 2.4 percent or $128.00. 
While the commenter believes that our policy of not applying the 
Congressional mandated increases to exception amounts is unfair, we 
believe that the policy is consistent with the law. Section 
422(a)(2)(C) of SCHIP, enacted December 21, 2000, states as follows in 
pertinent part:

    Any exception rate under such section in effect on December 31, 
2000 * * * shall continue in effect so long as such rate is greater 
than the composite rate as updated * * *.

    Thus, the statute seems to distinguish between an exception rate 
and the composite rate, as ``updated'' by the Congress. The clear 
implication of the text is that the exception rate is not so updated. 
Accordingly, we believe that our policy of not applying mandated 
composite rate increases to exception amounts is consistent with the 
statute. Moreover, we point out that section 422(a)(2) of SCHIP 
prohibited the granting of new exceptions and that we are providing 
facilities the option of either retaining their exception rates, or at 
any time, electing payment under the case-mix adjusted composite 
payment rates. We do not believe providers, given this option, will be 
disadvantaged.
2. Home Dialysis Training Exceptions
    Comment: We received comments asking for clarification concerning 
home dialysis training exceptions since the proposed rule only 
addressed exceptions in a very general way. They stated that the rule 
proposes that each facility with an exception rate would compare their 
exception rate to the new basic case-mix adjusted prospective payment 
and then decide if it wishes to withdraw the exception rate and be 
subject to the basic case-mix adjusted composite rate. The commenters 
stated that this language does not consider a facility that would 
choose to accept the basic case-mix adjusted prospective payment for 
its chronic treatments, but continue its exception rates for the 
training of home patients. The home training exception is the most 
widely used exception and provides a higher rate for the higher cost of 
training a patient in fewer than the maximum number of allowed 
treatments.
    Response: We agree and are providing that a home training exception 
rate may be continued. Facilities with home training exceptions will be 
able to retain their current exception training rates as well as take 
advantage of the case-mix adjusted rate for non-training dialysis.
3. New Exception Window
    Comment: One commenter requests that a new ``exceptions window'' 
for pediatric facilities be opened in early 2005. It will not be until 
after this rule is final that its members will be able to determine the 
exact impact of this new methodology on their operations.
    Response: Section 623(b) of MMA reinstated exceptions for 
qualifying pediatric facilities defined as facilities with at least 50 
percent of their patients under 18 years of age. The current exception 
window for pediatric facilities closed on September 27, 2004. At this 
time, future exception windows will be open only for pediatric 
facilities. The exceptions process is opened each time there is a 
legislative change in the composite payment rate or when we open the 
exception window. The fiscal intermediary will notify the ESRD 
pediatric facilities when a new exception window opens. However, it is 
our intent to open pediatric exception windows on an annual basis.

[[Page 66333]]

4. Home Dialysis Training Rates
    Comment: One commenter asked if the training rate add-on to the 
composite rate would still be applied.
    Response: Yes, the following rates will apply for self-dialysis or 
home dialysis training sessions:
    <bullet> For intermittent peritoneal dialysis (IPD), continuous 
cycling peritoneal dialysis (CCPD) and hemodialysis training, the 
facility's case-mix adjusted payment excluding any approved exception 
rates will be increased by $20 per training session, furnished up to 
three times per week.
    <bullet> For continuous ambulatory peritoneal dialysis (CAPD), the 
facility's case-mix adjusted payment excluding any approved exception 
rates will be increased by $12 per training session, furnished up to 
three times per week.
    Based on the example for John Smith in section L (Example of 
Payment Calculation Under the Case-Mix Adjusted Composite Rate System), 
the hemodialysis (IPD & CCPD) training rate would be his case-mix 
adjusted rate of $170.80, increased by the training add-on of $20 for a 
total training rate of $190.80. For CAPD training, the training rate 
would be $182.80 ($170.80+$12)

H. Implementation Date

    Comment: We received a number of comments supporting our proposed 
delay in implementing the case-mix portion of the revised composite 
payment methodology. Many comments maintained that the proposed April 
1, 2005 effective date was overly ambitious, and some suggested that a 
July 1, 2005 implementation date would be more realistic given the need 
for facility and fiscal intermediary training and education.
    Response: The MMA requires that the basic case-mix adjusted 
composite payment rates be effective for services beginning January 1, 
2005. Despite the statute's specificity, we pointed out in the proposed 
rule that all of the numerous systems, programming, and operational 
changes necessary to implement the case-mix adjusted payments cannot be 
completed in time for a January 1, 2005 implementation date.
    As presented in the proposed rule, we considered two options that 
we believed effectively complied with the statute's January 1, 2005 
implementation date. While we stated in the proposed rule that either 
of these options substantively complies with the January 1, 2005 
implementation date requirement of the statute, we rejected both 
alternatives.
    The likelihood of payment error, potential disruption of facility 
payments, and the cost of reprocessing bills militated against either 
option. We proposed instead an April 1, 2005 implementation date for 
the basic case-mix adjustments to the composite payment rates, 
including the budget neutrality reduction. This option avoids the need 
for reprocessing of bills and applies the budget neutrality adjustment 
applicable to the case-mix adjustments effective April 1, 2005. 
Although we agree with the comment that a July 1, 2005 effective date 
would be ideal in light of the systems and operational changes required 
to implement the case-mix provisions, we believe that an April 1, 2005 
effective date for the case-mix adjustments is feasible, and have 
decided not to revise that date. We have concluded based on our 
evaluation of ESRD claims processing systems that the April 1, 2005 
implementation date is achievable. As we stated in the proposed rule, 
the 1.6 percent increase to the composite payment rates and drug add-on 
will be effective January 1, 2005.

I. Summary of Final Rule Implementing Changes to the ESRD Composite 
Payment Rate (Section 623 of MMA)

    As set forth in this final rule, we will increase the ESRD 
composite payment rates by 1.6 percent effective January 1, 2005 in 
accordance with section 623(a) of the MMA. Also, the composite payment 
rates will be increased January 1, 2005 by 8.7 percent to reflect 
revisions to the drug pricing methodology for separately billable 
drugs, as discussed previously in this rule (Composite Rate Adjustments 
to Account for Changes in Pricing of Separately Billable Drugs and 
Biologicals). This section explains the development and computation of 
the revised drug add-on, which differs from the 11.3 percent amount 
described in the proposed rule, and our response to comments which 
advocated separate add-on amounts for hospital-based and independent 
facilities.
    Despite the discretionary authority set forth in section 623(d)(1) 
of the MMA to replace the current outdated wage index used in the 
composite payment rates, we are taking no action to revise the wage 
index at the present time. A revised wage index will potentially 
significantly redistribute ESRD payments. We believe that further study 
is warranted before we revised the current index. Those assessments are 
presently underway.
    We have also adopted a revised basic case-mix methodology for 
adjusting the composite payment rates based on a limited number of 
patient characteristics, as prescribed in section 623(d) of the MMA. 
The development and application of the revised case-mix adjusters were 
previously explained in the ``Revised Patient Characteristic 
Adjustments'' section of this final rule. The variables for which 
adjustments will be applied to each facility's composite payment rate 
include age, BSA, and low BMI. In response to comments, we eliminated 
gender in this final rule as a patient classification variable for 
purposes of case-mix adjustment, substituting BSA and a low BMI 
variable instead. We have also increased the number of age categories 
from three to five, and eliminated co-morbidities pending further 
study. Because height and weight are necessary to compute each 
patient's BSA and BMI, those measurements, in centimeters and 
kilograms, respectively, will be required on the UB 92 for outpatient 
ESRD services furnished on and after January 1, 2005. This final rule 
also provides for a case-mix adjustment of 1.62 to a facility's 
composite payment rate for pediatric ESRD patients (that is, under age 
18). The methodology used to develop the pediatric case-mix adjustment 
factor of 1.62 is described in the ``Case-Mix Adjustment for Pediatrics 
Patients'' section of this rule. Although the MMA requires that the 
basic case-mix adjusted composite payment rates be effective for 
services beginning January 1, 2005, the systems and operational changes 
necessary to implement them cannot be completed in time for a 
prospective January 1, 2005 effective date. The case-mix adjustments 
and the applicable budget neutrality adjustment of 0.9116 will be 
effective April 1, 2005.

Example of Payment Calculation Under the Case-Mix

Example 1

Adjusted Composite Rate System
    The following example presents 2 patients dialyzing at Neighbor 
Dialysis, an independent ESRD facility located in Baltimore, MD.

Calculation of Basic Composite Rate for Neighbor Dialysis

Wage adjusted composite rate for independent facilities in Baltimore, 
MD: $134.93
Wage adjusted composite rate increased by drug add-on adjustment 
$134.93 x 1.087: $146.67
Adjusted Facility Composite Rate after budget neutrality adjustment 
($146.67 x 0.9116): $133.70

Patient <greek-i>1

    John Smith attains age 18 on April 10, 2005 and undergoes 
hemodialysis. John

[[Page 66334]]

weighs 75.5 kg. and is 181.5 cm. in height. Because John Smith attains 
age 18 April 10, he is considered age 18 for the entire month of April, 
and would not be classified as a pediatric patient.

Calculation of Case Mix Adjusted Payment

    The BSA and BMI for John Smith will be calculated by the PRICER 
program used to compute the composite payment for each patient based on 
the height and weight reported on the UB 92. However, the computations 
of the BSA and BMI for John Smith are shown below:

BSA = 0.007184 x (height) \0.725\ x (weight) \0.425\
BSA = 0.007184 x 181.5 \0.725\ x 75.5\0.425\
BSA = 0.007184 x 43.4196 x 6.2824 = 1.960
BMI = weight/height(m) \2\
John Smith is 181.5 cm. in height, which converts to 1.815 meters.
BMI = 75.5/1.815 \2\ = 22.919

    The case mix adjustment factor for John Smith, an 18 year old whose 
BMI exceeds 18.5 kg/m\2\ and has a BSA of 1.960 is calculated as 
follows:

Age adjustment factor (age 18-44) 1.223
BMI adjustment factor (BMI >= 18.5 kg/m\2\) 1.000
BSA adjustment factor (1.037<SUP>1.960-1.84/0.1</SUP>) 1.0446
Case mix adjustment factor (1.223 x 1.000 x 1.0446) 1.2775
Basic case mix adjusted composite payment ($133.70 x 1.2775) $170.80

Patient 2

    Jane Doe is a 82 year old malnourished patient who undergoes 
hemodialysis. Jane is 158.0 cm. in height.

Calculation of Case Mix Adjusted Payment

    The BSA and BMI for Jane Doe, which will be automatically computed 
by the PRICER program, are calculated as follows:

BSA = 0.007184 x (height) \0.725\ x (weight) \0.425\
BSA = 0.007184 x 158.0 \0.725\ x 31.25 \0.425\
BSA = 0.007184 x 39.2669 x 4.3183 = 1.2182
BMI = weight/height(m) \2\
Jane Doe is 158 cm. in height, which converts to 1.580 meters.
BMI = 31.25/1.580 \2\ = 12.5180

    The case mix adjustment factor for Jane Doe, an 82 year old whose 
BMI is less than 18.5 kg/m\2\ and has a BSA of 1.2182, is calculated as 
follows:

Age adjustment factor (age 80+) 1.174
BMI adjustment factor (BMI <= 18.5 kg./m\2\) 1.112
BSA adjustment factor (1.037 <SUP>1.2182-1.84/0.1</SUP>) 0.7978
Case-mix adjustment factor (1.174 x 1.112 x 0.7978) 1.0415
Basic case mix adjusted composite payment ($133.70 x 1.0415) $139.24

Example 2

    Linda Jones is age 16 and undergoes peritoneal dialysis at 
Community Hospital, a hospital-based facility in New York City. Linda 
weighs 35 kg and is 160.0 cm in height. The basic composite rate for 
Linda Jones is calculated as follows:

Wage adjusted composite rate for hospital-based facilities in New York, 
New York: $146.35
Wage adjusted composite rate increased by drug adjustment factor 
($146.35 x 1.087): $159.08
Adjusted Facility Composite Rate after budget neutrality adjustment 
($159.08 x 0.9116) $145.02

    Because Linda is a pediatric ESRD patient, the automatic pediatric 
adjustment factor of 1.62 applies. Neither the age, BMI, nor BSA 
adjustments are applicable because Linda is less than age 18.

Pediatric adjusted composite rate ($145.02 x 1.62) $234.93

    If Community Hospital were entitled to a composite rate exception, 
then the provider could elect to retain its exception rate in lieu of 
receiving the otherwise applicable pediatric payment rate of $234.93.

Impact Analysis

    Comment: One commenter observed that the budgetary impact on the 
Medicare program of proposed section 623 changes (impact table) 
generally indicates an ``overall'' neutral or modest reimbursement 
increase for all types of dialysis facilities (independent and rural, 
for profit and non-profit, urban and rural). This commenter requested 
data that indicate the number of dialysis facilities that are operating 
at a loss in the U.S., by corresponding facility characteristics shown 
in the impact table.
    Response: The purpose of the impact table is to simulate what ESRD 
facilities will receive in payments under the MMA section 623 changes 
compared to what ESRD facilities would receive without any changes to 
the current composite payment rates. We do not have data to determine 
whether or not a facility may operate at a loss under MMA section 623.

J. Section 731--Coverage of Routine Costs for Category A Clinical 
Trials

    Before the enactment of the MMA, Medicare did not cover services 
related to a noncovered Category A device. The MMA authorizes Medicare 
to cover the routine costs associated with certain Category A clinical 
trials for services furnished on or after January 1, 2005. For a trial 
to qualify for payment, it must meet certain criteria to ensure that 
the trial conforms to appropriate scientific and ethical standards. In 
addition, the MMA established additional criteria for trials initiated 
before January 1, 2010 to ensure that the devices involved in these 
trials are intended for use in the diagnosis, monitoring, or treatment 
of an immediately life-threatening disease or condition. Seven 
commenters were in favor of this provision. Of them, four had 
additional comments. One commenter was against the provision.
    Comment: One commenter stated that this provision would result in 
money being taken away from the pool of money for physician payments of 
non-experimental procedures.
    Response: We considered this issue in determining the SGR for 2005. 
Since we have made a regulatory change to allow for coverage of routine 
costs associated with Category A clinical trials, we are required by 
statute to reflect any increased costs of this policy in the 2005 SGR. 
At this time, we are estimating that the costs associated with coverage 
of routine costs of Category A clinical trials will increase Medicare 
spending for physicians' services by less than 0.1 percent. However, we 
are reviewing this issue and we will adjust our estimates once we have 
actual spending data for 2005.
    Comment: One commenter specifically requested that we define 
routine costs.
    Response: We discuss and define routine costs in section 310.1 of 
the Medicare National Coverage Determination Manual (pub 100.3). We 
will take this comment into consideration if we decide to revise 
section 310.1 in the future.
    Comment: Two commenters recommended that we adopt a definition of 
``immediately life-threatening'' that would allow contractors some 
level of flexibility when they apply this criteria to evaluate trials.
    Response: We will consider the importance of some level of 
flexibility in defining ``immediately life-threatening.'' Although we 
are not defining this term in our regulation, we intend to provide 
guidance through implementing instructions.
    Comment: Another commenter suggested that contractors determine in 
advance if trials satisfy the immediately life threatening requirement.

[[Page 66335]]

    Response: We are considering implementation requirements and will 
take this suggestion under advisement.

Result of Evaluation of Comments

    We are finalizing the changes to Sec.  405.207 as proposed.

K. Section 629--Part B Deductible

    Section 629 of the MMA provides for regular updates to the Medicare 
Part B deductible in consideration of inflationary changes in the 
nation's economy. Since 1991, the Medicare Part B deductible has been 
$100 per year. The MMA stipulates that the Medicare Part B deductible 
will be $110 for calendar year 2005, and, for a subsequent year, the 
deductible will be the previous year's deductible increased by the 
annual percentage increase in the monthly actuarial rate under section 
1839(a)(1) of the Act, ending with that subsequent year (rounded to the 
nearest dollar). Section 1839(a)(1) of the Act requires the Secretary 
of Health and Human Services to calculate the monthly actuarial rate 
for Medicare enrollees age 65 and over.
    We proposed to update Sec.  410.160(f), ``Amount of the Part B 
annual deductible,'' to conform to the MMA and to reflect that the 
Medicare Part B deductible is $100 for calendar years 1991 through 
2004.
    Comment: Commenters stated that they understand that we are 
following the statute in implementing this provision, but encouraged us 
to educate Medicare beneficiaries regarding this change.
    Response: We agree that it is important to educate beneficiaries 
about the deductible, as well as the other provisions of the MMA, such 
as the new screening benefits, and we will be using publications such 
as the ``Medicare and You Handbook'' for this purpose.

Result of Evaluation of Comments

    We are finalizing the proposed changes to Sec.  410.160(f).

L. Section 512--Hospice Consultation

1. Coverage of Hospice Consultation Services
    As discussed in the proposed rule published August 5, 2004, 
effective January 1, 2005, section 512 of the MMA provides for payment 
to a hospice for specified services furnished by a physician who is 
either the medical director of, or an employee of, a hospice agency. 
Payment would be made on behalf of a beneficiary who is terminally ill 
(which is defined as having a prognosis of 6 months or less if the 
disease or illness runs its normal course), has not made a hospice 
election, and has not previously received the pre-election hospice 
services specified in section 1812(a)(1)(5) of the Act as added by 
section 512 of the MMA. These services comprise an evaluation of an 
individual's need for pain and symptom management, counseling the 
individual regarding hospice and other care options, and may include 
advising the individual regarding advanced care planning.
    We believe that most individuals will seek this type of service 
from their own physicians. Thus, we do not expect that the services of 
a hospice physician would be necessary for all individuals who elect 
hospice. However, a beneficiary, or his or her physician, may seek the 
expertise of a hospice medical director or physician employee of a 
hospice to assure that a beneficiary's end-of-life options for care and 
pain management are discussed and evaluated.
    Currently, beneficiaries are able to receive this evaluation, pain 
management, counseling, and advice through other Medicare benefits. For 
example, physicians who determine the beneficiary's terminal diagnoses 
can provide for these E/M services as well as for pain and symptom 
management under the physician fee schedule. Beneficiaries may also 
obtain assistance with decisions pertaining to end-of-life issues 
through discharge planning by social workers, case managers, and other 
health care professionals. To the extent that beneficiaries have 
already received Medicare-covered evaluation and counseling for end-of-
life care, the hospice evaluation and counseling would seem 
duplicative. We plan to monitor data regarding these services to assess 
whether Medicare is paying for duplicative services.
    In the proposed rule, we proposed to cover the services described 
above for a terminally ill beneficiary when the services are requested 
by a beneficiary or the beneficiary's physician. The service would, in 
accordance with the statute, be available on a one-time basis to a 
beneficiary who has not elected or previously used the hospice benefit, 
but who might benefit from evaluation and counseling with a hospice 
physician regarding the beneficiary's decision-making process or to 
provide recommendations for pain and symptom management. The 
beneficiary or his or her physician decides to obtain this service from 
the hospice medical director or physician employee. Thus, the 
evaluation and counseling service may not be initiated by the hospice, 
that is, the entity receiving payment for the service.
    The statute specifies that payment be made to the hospice when the 
physician providing the service is an employee physician or medical 
director of a hospice. Therefore, other hospice personnel, such as 
nurse practitioners, nurses, or social workers, cannot furnish the 
service. The statute requires that the physician be employed by a 
hospice; therefore, the service cannot be furnished by a physician 
under contractual arrangements with the hospice or by the beneficiary's 
physician, if that physician is not an employee of the hospice. 
Moreover, if the beneficiary's physician is also the medical director 
or physician employee of a hospice, that physician already possesses 
the expertise necessary to furnish end-of-life evaluation, management, 
and counseling services and is providing these services to the 
beneficiary and receiving payment for these services under the 
physician fee schedule through the use of E/M codes.
    In the event that the individual's physician initiates the request 
for services of the hospice medical director or physician, we indicated 
in the proposed rule that we would expect that appropriate 
documentation guidelines would be followed. The request or referral 
would be in writing, and the hospice medical director or employee 
physician would be expected to provide a written note on the patient's 
medical chart. The hospice employee physician providing these services 
would be required to maintain a written record of this service. If the 
beneficiary initiates the services, we would expect that the hospice 
agency would maintain a written record of the service and that 
communication between the hospice medical director or physician and the 
beneficiary's physician would occur, with the beneficiary's permission, 
to the extent necessary to ensure continuity of care.
    We proposed to add new Sec.  418.205 and Sec.  418.304(d) to 
implement section 512 of the MMA.
    Comment: Several commenters requested that this provision be 
extended to contracted physicians and nurse practitioners.
    Response: Section 1812(a)(5) of the Act explicitly indicates that a 
physician employed by a hospice agency must provide the services under 
this provision. We recognize that contractual relationships are 
permitted by hospice agencies for medical director and physicians' 
services under the hospice benefit as described in section 1861(dd) of 
the Act. However, the plain language of section 1812(a)(5) provides 
only for employees of the hospice to furnish the service.

[[Page 66336]]

    Section 1812(a)(5) of the Act also requires that this service be 
provided by a physician as defined in section 1861(r)(1) of the Act. 
While nurse practitioners may serve as attending physicians for 
beneficiaries who have elected the hospice benefit, this provision does 
not permit non-physicians to provide this pre-hospice service.
    Comment: We received several comments that supported this provision 
as beneficial for end-of-life care.
    Response: We believe that this provision supports and supplements 
options available to beneficiaries as they make end-of-life decisions 
when the individual's health care provider and community resources are 
not able to provide the expertise and information.
    Comment: We received a comment suggesting that the certification of 
a terminal illness, with a 6-month prognosis if the disease runs its 
normal course, be eliminated and that this service should be available 
to any individual deemed to be terminal.
    Response: Section 1812(a)(5) of the Act explicitly indicates that 
this one-time service is available to Medicare beneficiaries who are 
terminally ill and have not previously elected the hospice benefit. 
Section 1861(dd)(3)(A) of the Act defines the phrase ``terminally ill'' 
as denoting a medical prognosis that the individual's life expectancy 
is 6 months or less. Since section 1812(a)(5) of the Act specifies that 
the beneficiary must have a terminal illness, which includes the 6-
month prognosis, we have no authority to eliminate this definition.
    Since the benefit is a pre-hospice one, we have not required that a 
certification be completed before this service is provided. 
Nonetheless, in the judgment of the individual's physician, the 
individual must be terminally ill, that is, having a 6-month or less 
life expectancy if the disease or illness runs its normal course.
2. Payment for Hospice Consultation Services
    Section 512(b) of the MMA amends section 1814(i) of the Act and 
establishes payment for this service at an amount equal to an amount 
established for an office or other outpatient visit for E/M associated 
with presenting problems of moderate severity and requiring medical 
decision-making of low complexity under the physician fee schedule, 
other than the portion of such amount attributable to the practice 
expense component. No existing CPT or HCPCS code specifically 
represents these services. We proposed establishing a new HCPCS code, 
G0337 (proposed as G0xx4) Hospice--evaluation and counseling services, 
pre-election. The hospice would use this new HCPCS code to submit 
claims to the Regional Home Health Intermediary (RHHI) for payment for 
this service. Utilization of the code would allow us to provide payment 
for the service, as well as enable us to monitor the frequency with 
which the code is used and assess its appropriate use. Payments by 
hospices to physicians or others in a position to refer patients for 
services furnished under this provision may implicate the Federal anti-
kickback statute.
    In accordance with the statute, we proposed that the payment amount 
for this service would be based on the work and malpractice expense 
RVUs for CPT code 99203 multiplied by the CF (1.34 Work RVU + 0.10 
Malpractice RVU) * (CF). The CPT code for an office or outpatient visit 
for the E/M of a new patient represents a detailed history, detailed 
examination and medical decision making of low complexity. We believe 
that this E/M service is quite similar to the components of the new 
service provided by a medical director or physician employed by the 
hospice agency. Assuming that there are no changes in RVUs for CPT code 
99203, and that the CY 2005 update to the physician fee schedule is the 
1.5 percent specified in the MMA, the national payment amount for this 
service would be $54.57 for this service (1.44 * $37.8975).
    Comment: We received several comments indicating that CPT Code 
99203, a mid-level office visit with a new patient, does not accurately 
reflect the complexity associated with the hospice consultation. One 
commenter suggested using CPT code 99205. In addition, commenters 
stated that payment for this benefit should reflect the length and 
intensity of each consultation.
    Response: Section 1814(i)(4) of the Act explicitly states that the 
payment for this service be equal to an amount established for an 
office or outpatient visit with presenting problems of moderate 
severity and requiring low complexity medical decision-making. We 
believe that CPT code 99203, rather than CPT code 99205, most closely 
conforms to the statutory language. However, in order to establish a 
payment rate that excludes the practice expense component and to ensure 
that we pay for the service only once, we established a G code.
    Comment: We received one comment that indicated that existing 
consultation codes coupled with a place of service should be used.
    Response: We appreciate the concern about introducing another code 
into a complex system of codes. While the title of the provision 
indicates that this is a consultative service, we believe that, unlike 
other consultations, beneficiaries are able to seek this service 
without a referral. Moreover, we need to be able to distinguish this 
service so that we can ensure that it is furnished only once to an 
individual. In addition, existing E&M codes are billed by physicians. 
This provision is billed by the hospice agency and is not a result of 
reassignment of payment by a physician to a hospice agency. Finally, 
the G code will allow us to track utilization of this new benefit.

Result of Evaluation of Comments

    We are adopting our proposed policy and revising the regulations at 
Sec.  418.205 and Sec.  418.304(d). We are also finalizing our proposal 
to pay for this service using a G code (G0337) Hospice--evaluation and 
counseling services, pre-election, with the payment based on the work 
and malpractice expense RVUs for CPT code 99203.

M. Section 302--Clinical Conditions for Coverage of Durable Medical 
Equipment (DME)

    Section 1832(a)(1)(E) of the Act, as added by section 302(a)(2) of 
the MMA, requires the Secretary to establish clinical conditions of 
coverage standards for items of DME. The statute requires the Secretary 
to establish types or classes of covered items that require a face-to-
face examination of the individual by a physician or specified 
practitioner. Due to the timeframe and the extensive number of public 
comments received, we will implement this provision at a later date. We 
will address all public comments in a future Federal Register document.

N. Section 614--Payment for Certain Mammography Services

    Medicare covers an annual screening mammogram for all beneficiaries 
who are women age 40 and older and one baseline mammogram for 
beneficiaries who are women age 35 through 39. Medicare also covers 
medically necessary diagnostic mammograms. Payment for screening 
mammography, regardless of setting, is paid under the physician fee 
schedule, but diagnostic mammography performed in the hospital 
outpatient department is currently paid under the hospital outpatient 
prospective payment system (OPPS).
    As stated in the August 5, 2004 proposed rule, section 614 of the 
MMA amended section 1833(t)(1)(B)(iv) of the

[[Page 66337]]

Act to exclude payment for screening and diagnostic mammograms from the 
OPPS. Beginning January 1, 2005, we will pay for diagnostic mammograms 
under the OPPS based on the payments established under the physician 
fee schedule. Thus, both diagnostic and screening mammography services 
provided in the OPPS setting will now be paid based on the physician 
fee schedule.
    Comment: Commenters expressed support for this proposed change in 
payment and believe it will assist in ensuring that these services are 
available to women at risk for breast cancer.
    Response: We agree that it is important to ensure access to these 
services. Additional discussion of the MMA provision can also be found 
in the OPPS final rule, ``Medicare Program; Changes to the Hospital 
Outpatient Prospective Payment System and CY 2005 Payment Rates'' 
currently under development.

O. Section 305--Payment for Inhalation Drugs

    The August 5, 2004 proposed rule contained the ASP plus 6 percent 
payment amounts based on data received from manufacturers' ASP for the 
first quarter of 2004 for albuterol sulphate and ipratropium bromide. 
We indicated that such payment amounts were not the payment rates for 
2005 and specified that Medicare payment rates for the first quarter of 
2005 would be based on data submitted by manufacturers from the third 
quarter of 2004.
    We proposed to establish a separate dispensing fee for inhalation 
drugs. We noted that Medicare currently pays a monthly dispensing fee 
of $5 for each inhalation drug used in a nebulizer. We requested 
information about an appropriate dispensing fee amount.
    We also proposed to make several changes related to billing for 
inhalation drugs. We proposed to allow a prescription for inhalation 
drugs written by a physician and filled by a pharmacy to be increased 
from 30-day to a 90-day period. We indicated that we had recently 
revised the guidelines regarding the time frame for delivery of refills 
of DMEPOS products to occur no sooner than ``approximately five days'' 
prior to the end of usage for the current product. We emphasized the 
word ``approximately'' in this time frame. The change allows shipping 
of inhalation drug refills on ``approximately'' the 25th day of the 
month in the case of a 30-day supply and on ``approximately'' the 85th 
day in the case of a 90-day supply. We indicated our belief that such 
revision eliminates the need for suppliers to use overnight shipping of 
inhalation drugs and allows shipping of inhalation drugs by less 
expensive ground service.
    We also clarified the ordering requirements for DMEPOS items, 
including drugs. Drugs, including, inhalation drugs, can be dispensed 
with a verbal physician order and without a written prescription. 
Although a written prescription must be obtained before submitting a 
claim, we reiterated that we allowed photocopied, electronic, or pen 
and ink prescriptions. We pointed out the recent revision to the 
Program Integrity Manual of acceptable proof of delivery requirements 
for DMEPOS items. Finally, we proposed to eliminate the requirement 
that pharmacies have a signed Assignment of Benefits (AOB) form from a 
beneficiary in order for Medicare to make a payment. Our proposal would 
eliminate a billing requirement for all drugs, including inhalation 
drugs and other items where Medicare payment is only made on an 
assigned basis.
    Comment: A number of commenters, particularly retail pharmacies, 
indicated that they are not able to obtain albuterol sulfate at the 
$0.04 per milligram and ipratropium bromide at the $0.30 per milligram 
rates specified in the proposed rule based on manufacturer submissions 
of data for the first quarter of 2004. A large company indicated that 
the ASPs stated in the proposed rule for albuterol sulfate and 
ipratropium bromide were extremely close to its own acquisition costs 
and inferred that the payment amount would be below smaller providers' 
purchase prices. A commenter questioned the suggestion in the proposed 
rule that because albuterol sulfate and ipratropium bromide are generic 
drugs with multiple manufacturers a pharmacy might be able to obtain 
them at a price below the average. The commenter suggested that this is 
highly speculative because we have not yet received the information 
from manufacturers to set the ASP for the first quarter of 2005.
    Response: The ASP plus 6 percent prices for drugs in the proposed 
rule were calculated based on manufacturer submissions of data covering 
the first quarter of 2004. We indicated that such ASP plus 6 percent 
figures were not actual payment rates for the first quarter of 2005. 
ASP data submitted by manufacturers for the second quarter of 2004 show 
some significant changes for inhalation drugs. The data show that the 
ASP plus 6 percent would be $0.05 per milligram for albuterol sulfate, 
a 25 percent increase, and $0.45 per milligram for ipratropium bromide, 
a 50 percent increase. We also note that in its recent study, 
``Medicare: Appropriate Dispensing Fee Needed for Suppliers of 
Inhalation Therapy Drugs'' (GAO-05-72), the GAO found that acquisition 
costs of inhalation drugs varied widely. The GAO found that acquisition 
costs of albuterol sulfate ranged from $0.04 to $0.08 and ipratropium 
bromide ranged from $0.23 to $0.64. Based on the submission of 
manufacturer's average sales price data for the second quarter of 2004, 
Medicare's payment rates for ipratropium bromide and albuterol sulfate 
are within the acquisition cost range found by the GAO. The GAO also 
found that acquisition cost was not necessarily related to the size of 
the supplier.
    Comment: One commenter suggested that we should consider delaying 
the implementation of cuts in Medicare reimbursement for inhalation 
drugs until 2006. The commenter suggested that a delay would ensure 
that physicians and beneficiaries have a range of options available for 
managing respiratory diseases.
    Response: We do not believe that we can delay the implementation of 
the ASP payment system until 2006 because the MMA provides for the 
implementation of the ASP payment system in 2005.
    Comment: Commenters strongly supported our proposal to pay a 
separate dispensing fee for inhalation drugs, but we received varied 
comments on the scope of services appropriately included in a 
dispensing fee. Commenters indicated that an appropriate dispensing fee 
is necessary because the costs associated with dispensing these drugs 
typically exceed ASP plus six percent. Without adequate compensation, 
commenters argued that Medicare beneficiary access to inhalation drugs 
would be harmed. Commenters referenced an August 2004 report prepared 
for the American Association of Homecare (AAH) by a consultant that 
surveyed 109 homecare pharmacies between the end of May and the middle 
of July 2004. Commenters cited survey results from the report 
suggesting that 89 percent of suppliers would discontinue providing 
inhalation drugs to Medicare beneficiaries in the absence of adequate 
compensation. One commenter believes it is reasonable to expect that 
reducing Medicare payment for inhalation drugs will trigger an increase 
in emergency room visits, doctor visits, and hospital admissions. Other 
commenters suggested a dispensing fee that is too low would result in a 
concentrated market, thereby adversely affecting beneficiary choice and 
access.

[[Page 66338]]

    The AAH study indicated that in order to maintain 2004 levels of 
service to Medicare beneficiaries and provide an operating margin of 7 
percent, Medicare would have to pay an additional payment of $68.10 per 
service encounter. This figure includes an average of the costs 
reported as being incurred during the first quarter of 2004 for the 
pharmacies that responded to the AAH survey. The study defined a 
service encounter as each instance one or more billing codes were 
submitted to Medicare for payment. The study reported that the typical 
Medicare beneficiary has 8.8 service encounters each year, or one 
service encounter every 42 days. Most commenters who cited the AAH 
study supported a fee of $68.10 per service encounter.
    Commenters also cited another AAH report, dated September 2001 (and 
updated to 2003) from a different consultant, who surveyed a sample of 
19 homecare pharmacies and found that drug acquisition costs accounted 
for 26 percent of costs incurred by homecare pharmacies. Facility, 
labor, delivery, patient care and education, billing and collection 
costs and other direct costs were found to account for 46 percent; 
indirect costs such as management information systems, regulatory 
compliance programs, professional liability insurance and field and 
corporate administration was 25 percent; and bad debt was 3 percent. 
The study concluded that homecare pharmacies generated after-tax 
returns of 9.2 percent.
    A retail pharmacy commented that a dispensing fee five to six times 
the current dispensing fee of $5 is necessary to cover its costs. 
Another retail pharmacy indicated that a dispensing fee of $25 would be 
an adequate dispensing fee, including the additional costs of 
processing Medicare claims and instructing the patient on using the 
drugs, and would be profitable for it.
    A manufacturer urged CMS to conduct a study of the appropriate 
pharmacy activities and their costs in calculating a dispensing fee. 
The commenter believes such a study would yield a more accurate amount 
than data and information provided as part of comments to proposed 
rules does. One inhalation company indicated that the costs of rent, 
delivery and salary had recently increased by specific percentages. 
Several commenters opposed the inclusion in the dispensing fee of a 
transitional payment. Another commenter strongly urged establishing a 
dispensing fee that include an appropriate transitional payment, given 
the significant payment reductions scheduled to begin in 2005.
    On the scope of services, commenters indicated that various 
services involved with dispensing inhalation drugs to Medicare 
beneficiaries such as: (i) Training beneficiaries and caregivers on 
proper use of drugs with nebulizers; (ii) establishing and revising a 
plan of care and coordinating care; (iii) providing in-home visits; 
(iv) providing 24-hours/7-days a week on-call personnel; (v) contacting 
physicians and beneficiaries regarding dispensing of inhalation drugs; 
(vi) providing follow-up contact with beneficiaries, including 
compliance monitoring and refill calls. Commenters indicated that they 
felt CMS has the authority to pay for costs associated with delivering 
inhalation drugs under the durable medical equipment (DME) benefit.
    An association representing pharmacists recommended an expansion of 
Part B to include compensation for therapy management services 
furnished by pharmacists. An association representing respiratory 
therapists recommended a separate payment for beneficiary training by 
practitioners with documented evidence of education, clinical training 
and competency testing, such as respiratory therapists. A company 
suggested that we establish a basic dispensing fee and separately 
reimbursable codes for those who provide additional services, 
reflecting the range of management services involved with inhalation 
drugs. Another association acknowledged that although limited peer 
reviewed studies exist on the role of homecare providers and the 
respiratory practitioners in furnishing care to COPD patients, 
significant anecdotal data and a consensus within the pulmonary 
medicine and respiratory therapy professional communities support the 
role and contribution of home respiratory care providers. Several 
commenters indicated that training a beneficiary on using a nebulizer 
should also be reimbursed. However, they pointed out that training 
cannot be done by the physician or physician's staff because many 
physicians do not have a nebulizer on which to train the beneficiary 
and the Medicare payment is not sufficient to cover the physician's 
staff time.
    Response: We appreciate the support for our proposal to establish a 
dispensing fee as well as the information about the levels and 
components of such a fee.
    The October 12, 2004 GAO report is based on a survey of 12 
companies representing 42 percent of the inhalation therapy market. The 
GAO found wide variation in suppliers' monthly costs associated with 
dispensing inhalation drugs. In addition, the GAO found that large 
suppliers do not necessarily have lower costs and do not necessarily 
realize economies in costs associated with dispensing inhalation 
therapy drugs. The GAO indicated that the wide range is due in part to 
the range of services offered by suppliers and that some costs incurred 
by suppliers may not be necessary to dispense inhalation drugs, for 
example marketing, overnight shipping, and 24-hour hotlines for 
beneficiary questions. The GAO report indicates that the range of costs 
suppliers are incurring is a good starting point for a dispensing fee 
amount, but that the appropriate dispensing fee Medicare pays must take 
into account how excess payments affect the costs.
    We note the extreme variation that the GAO found in the costs of 
dispensing nebulized drugs to Medicare beneficiaries: GAO found that 
per patient monthly costs of dispensing these medications ranged from a 
low of $7 to a high of $204 in 2003. Because it appears that the GAO 
survey and the 2004 AAH survey may have included different costs and 
services, further research is needed to understand these differences. 
In addition to the GAO and AAH studies, we note the wide range of 
comments indicating what services a dispensing fee should cover. We 
believe that before a determination can be made as to an appropriate 
dispensing fee for inhalation drugs after 2005, we need to more fully 
understand the components of and the reasons behind the current 
variability in the costs of furnishing of these drugs and the services 
being provided. We intend to work with the AAH, others concerned with 
inhalation therapy and our partners in the Department of Health and 
Human Services to explore these issues more fully.
    In the interim, for 2005, we are establishing a $57 monthly fee and 
an $80 90-day fee for furnishing inhalation drugs using data in the AAH 
study and the GAO report. We established the monthly fee based on the 
weighted average of the costs for new and established patients from the 
2004 AAH study after excluding sales and marketing, bad debt, and an 
explicit profit margin. Because the AAH study did not establish a fee 
for the 90-day period, we applied the methodology used in the GAO 
report to the data in the AAH study to calculate the 2005 90-day fee. 
Accordingly, we assumed that direct costs associated with a monthly fee 
are similar to the direct costs associated with the 90-day fee and then 
we tripled the indirect costs. We intend to further examine the 
conversion of per

[[Page 66339]]

encounter costs as reported in the AAH study to comparable monthly and 
90-day cost figures.
    We note that although the AAH study contained costs related to 
services that may be of potential benefit to our beneficiaries, and 
many commenters indicated that we should provide payment for these and 
the other services described above, we are concerned that these 
services may be outside the scope of a dispensing fee. We are 
continuing to study these services and associated cost categories as 
the new payment systems are implemented and we gain experience with 
them. We intend to revisit this issue and proceed through notice and 
comment rulemaking in order to establish an appropriate dispensing fee 
for 2006.
    Comment: A commenter suggested that the dispensing fee be 
established on a per dose basis. It was argued that this would provide 
Medicare with protection against pharmacies dispensing partial 
shipments or shipments more frequently than 30 or 90 days in order to 
increase the number of dispensing fees. We received comments in support 
of a need-based dispensing fee to accommodate additional drugs when 
beneficiaries suffer from disease flare-ups. We also received comments 
indicating that beneficiary's prescriptions change, often during the 
first month. Other commenters cited the AAH study, which calculated 
different costs associated with dispensing inhalation drugs for new 
patients and established patient.
    Response: The dispensing fee we are establishing covers all drugs 
shipped to a beneficiary during a month (or 90-day period) regardless 
of the number of times a supplier ships inhalation drugs to a 
beneficiary. If a supplier does not supply the prescription in full, it 
is the supplier's responsibility to fill and deliver the remainder of 
the prescription, but Medicare will not pay additional monthly 
dispensing fees. We will monitor the issue about partial shipments and 
potentially erroneous billing for multiple monthly dispensing fees. We 
also are concerned that a per-dose dispensing fee could provide an 
incentive to supply more drugs.
    The 2005 fee is an average across all beneficiaries, new and 
established, and covers additional drugs shipped during a month if a 
beneficiary's prescription changes. We will study the issue further of 
different dispensing fees for new and established beneficiaries and the 
frequency that additional drugs are shipped for prescription changes.
    Comment: A manufacturer recognized that compounded products can be 
covered under certain circumstances and that compounding could be 
included appropriately in a dispensing fee. Another manufacturer 
expressed concern about including compounding in the activities that a 
dispensing fee covers. A suggestion was made that a HCPCS modifier be 
used for inhalation drugs that are compounded.
    Response: The costs of compounding are included in the AAH study 
but are not separately identified in the direct cost line items. 
Because the 2005 fee is based on the AAH study, we need to avoid 
duplicate payment. With compounding bundled into the fee for 2005, we 
have concerns about paying separately for compounding in 2005.
    Comment: A commenter recommended that we address compounding 
circumstances that might be inconsistent with FDA's policy prohibiting 
pharmacy compounding of two or more separate FDA-approved products when 
a combination product approved by the FDA is commercially available and 
compounding that might be done without the necessary controls to ensure 
drug product sterility and potency.
    Response: The fact that we consider compounding to be included in 
the 2005 fee to furnish inhalation drugs does not in any way support 
practices that are inconsistent with FDA guidelines.
    Comment: The commenter also suggested that we consider creating a 
HCPCS modifier for drugs that a prescribing physician intends to be 
compounded but which a pharmacy dispenses separately in non-compounded 
form. The commenter believes that such a modifier would help discourage 
pharmacies from leaving the responsibility for compounding to the 
beneficiary who would be combining the drugs in non-sterile, 
uncontrolled conditions.
    Response: We understand the commenter's concerns and will study 
this issue.
    Comment: We received comments suggesting that the actual savings 
attributable to MMA section 305 may be both higher and lower than the 
November 20, 2003 Congressional Budget Office (CBO) estimate for MMA 
section 305. One company suggested that the actual savings could be 
less than estimated by CBO because the ASP model potentially motivates 
drug manufacturers to increase drug costs, which will be directly 
passed on to the government. Other commenters cited two different 
estimates from the AAH report. Using one calculation, the commenters 
argued that a dispensing fee of $68.10 per encounter would still enable 
Medicare to achieve savings of $350 million per year or more than $4 
billion over 10 years. Using another calculation, the commenters argued 
that the savings would be $7 billion over the 10-year budget-scoring 
window. The commenters indicated that the $4 billion savings figure was 
comparable to the initial projections made by the Congressional Budget 
Office (CBO) in 2003 and the $7 billion figure was in excess of the CBO 
estimated savings. Commenters cited these figures to argue that 
establishment of a per service encounter fee of $68.10 would set the 
payment at the level originally envisioned by Congress. Another 
commenter suggested that a dispensing fee of $0.85 per 2.5 mg dose for 
albuterol sulfate and $0.97 per dose for a blended mix of other 
inhalation drugs including ipratropium bromide would be consistent with 
what they believe are the 17.7 percent savings assumed by CBO. One 
commenter indicated that CBO underestimated the savings from section 
305.
    Response: MMA specifically requires the use of the ASP methodology 
to establish more appropriate payment rates for drugs. MMA explicitly 
requires the establishment of a supplying fee for Part B covered oral 
drugs as determined to be appropriate by the Secretary. MMA also 
explicitly requires establishment of a furnishing fee for blood 
clotting factors. However, MMA does not specify a particular dispensing 
fee amount for inhalation drugs, nor does MMA specify a method to 
determine a dispensing fee for inhalation drugs. Accordingly, CMS used 
existing authority to propose in the NPRM that an appropriate 
dispensing fee be established. Because MMA did not require a specific 
method or amount for a dispensing fee for inhalation drugs, we find the 
arguments unpersuasive that a dispensing fee of a particular amount was 
envisioned by Congress or consistent with Congressional intent as 
reflected in a CBO estimate.
    Comment: We received comments that supported and opposed the use of 
90-day prescriptions. One commenter supporting the proposed change 
indicated that most beneficiaries who receive nebulized medications 
suffer from chronic lung diseases and will require medication to manage 
their disease for prolonged periods. The commenter indicated that 
allowing a prescription for 90-days would reduce paperwork and 
redundant effort for beneficiaries, physicians and DME suppliers. A 
commenter indicated that there would be modest savings in dispensing, 
billing and shipping costs with allowance of a 90-day supply of

[[Page 66340]]

refills. One company suggested savings of 12.5 percent, most notably in 
shipping. Commenters opposing 90-day prescriptions gave various 
reasons, including that beneficiaries may experience side effects and 
change prescriptions within the first month and a certain percent of 
beneficiaries die each month resulting in non-returnable product. In 
addition, some argued that pharmacy savings for a 90-day shipment would 
not be significant because shipping costs account for only an estimated 
16 percent of supplier's non-acquisition costs associated with 
providing inhalation drugs. Another company argued that a 90-day 
shipment would substantially increase provider's expenses for boxes and 
shipping. Some commenters agreed that certain chronic use medications 
should be provided in larger quantities, but urged caution due to the 
practices of some suppliers who automatically ship additional product 
without knowing whether the patient's current supply is exhausted. Some 
comments suggested that a 60-day supply might be more cost-effective in 
the long-term because there would be a reduced risk that large 
quantities of medications might be wasted. Another commenter suggested 
that the policy be defined to cover only drugs that are proven to be 
stable for at least 90 days following dispensing.
    Response: As we indicated in the proposed rule, we believe that 
reasonableness should govern filling a monthly vs. 90-day prescription 
depending on the circumstances of the beneficiary. We agree with the 
commenter that the initial prescription for a new patient should be 
written for a 30-day period because of the potential for adverse 
reactions or changes in the treatment regimen. We would expect 
prescriptions for new patients to be for 30-day periods. In addition, 
we believe that it is reasonable for physicians to write a 30-day 
prescription for those beneficiaries who they believe are less stable. 
Similarly, we believe that refill prescriptions for 90-day periods are 
reasonable, particularly for stable beneficiaries. Although the 
Medicare program would achieve savings from the appropriate use of 30-
day and 90-day prescriptions, we believe that given the comments it 
would be prudent for us to monitor the 90-day supply issue. Section 
4.26.1, the Proof of Delivery Methods section of the Program Integrity 
Manual, instructs that suppliers of DMEPOS product refills contact the 
beneficiary prior to dispensing the refill to ensure that the refilled 
item is necessary and confirm any changes or modifications to the 
order. Suppliers who ship either a 30-day or 90-day supply of 
inhalation drugs without knowing the beneficiary's current supply is 
exhausted would be in violation of this policy. The 90-day period 
should not be of concern for inhalation drugs because most of these 
drugs are stable for at least 90-days and thus can be dispensed for 
such period. We would revisit this issue if additional inhalation drugs 
that are unstable after 90-days become available.
    Because we received limited data on costs of furnishing a 90-day 
supply, it is more difficult to determine a 2005 fee for furnishing a 
90-day supply of inhalation drugs. However, given that this is an 
optional payment arrangement for beneficiaries whose course of 
treatment has stabilized to the point that the required dosage can be 
predicted with a reasonable degree of certainty over a 90-day period, 
we believe that it is important to establish a 90-day fee. As described 
earlier, we are establishing a 90-day fee for furnishing inhalation 
drugs by applying the methodology from the GAO report to the data in 
the AAH study. We assumed all of the direct costs associated with a 
monthly fee are similar to the direct costs associated with a 90-day 
fee and we tripled the indirect costs. We plan to study this issue 
further.
    Comment: Many commenters acknowledged that most DMEPOS items, 
including drugs, can be dispensed based on verbal orders. Several 
commenters objected to the requirement that a written order from the 
physician still must be obtained before billing. They suggested that we 
revise policy so that a prescription could be both filled and billed 
based solely on a verbal order from a physician. They pointed out that 
the requirement that a pharmacy still obtain a written order for a 
prescription in order to be able to bill Medicare creates a significant 
administrative burden for a pharmacy because it often requires 
persistent follow-up with a physician. Another commenter suggested that 
we consider accepting electronic transmissions of prescriptions, for 
example, e-scripts. Another commenter requested clarification of the 
rule for dispensing based on a verbal order for inhalation drugs and 
the proposed requirement that an order for an item of DMEPOS be signed 
and dated within 30 days of a face-to-face examination of a 
beneficiary.
    Response: The policy that allows dispensing based on a verbal order 
but requires a written order for billing applies to all DMEPOS items. 
This policy balances fraud and abuse concerns with prompt dispensing of 
DMEPOS items to beneficiaries. Written orders from the physician can be 
faxed, photocopied, or provided via electronic or pen and ink forms. In 
accordance with current policy, pharmacies may accept electronic 
prescriptions from physicians.
    Beneficiaries receiving inhalation drugs are having face-to-face 
exams routinely and generally do not need additional visits to re-order 
their drugs. A single face-to-face exam is generally sufficient for 
items ordered, that is, we would not require a separate face-to-face 
exam for the nebulizer and for the inhalation drugs. We assume that 
physicians would order them at the same time because they are used 
together.
    Comment: One commenter supported the revision made earlier this 
year that provides flexibility regarding the timeframe for refilling 
Medicare prescriptions. The commenter noted that most third party plans 
allow pharmacies to refill prescriptions within five days of the end of 
usage for the previous prescription quantity dispensed. Another 
commenter recommended that the time frame for subsequent deliveries be 
expanded beyond five days. The commenter indicated that they believe a 
five-day time frame is too short a period for ground service and would 
not eliminate the need for overnight shipping. This is based on the 
commenter's experience that beneficiaries do not respond to calls to 
confirm that they need additional supply until the beneficiary has only 
a few days' supply left.
    Response: As we indicated in the proposed rule, the revised time 
frame for delivery of refills of DMEPOS products provides for refills 
to occur no sooner than ``approximately five days prior to the end of 
the usage for the current product.'' In the proposed rule we emphasized 
the word ``approximately.'' While we believe that normal ground service 
would allow delivery in five days, if there were circumstances where 
ground service could not occur in five days, the guideline would still 
be met if the shipment occurs in six or seven days. As another 
commenter noted, the five-day standard is consistent with the time 
frame for shipping used by most third party plans. Given the 
consistency with private sector plans, because the requirement applies 
to all DMEPOS product refills, and because the standard is not a firm 
five-day limit, we do not believe that it is necessary to lengthen the 
standard. We will study further the ability of a supplier to contact 
beneficiaries for refills compared with its ability to provide

[[Page 66341]]

beneficiary and caregiver training on a monthly basis.
    Comment: One commenter indicated that the DMERCs have not 
consistently implemented the revised proof of delivery provisions but 
that they are engaged in dialogue with CMS and the DMERCs to clarify 
the requirements and standardize their interpretation across the four 
DMERCs. Other commenters suggested that the proof of delivery 
requirement be eliminated.
    Response: We encourage dialogue to ensure consistent understanding 
and application of the proof of delivery requirements. The proof of 
delivery requirements have recently undergone an extensive review and 
revision and, based on the need to prevent fraud and abuse, we see a 
need to continue them.
    Comment: Those commenters who addressed our proposed elimination of 
the Assignment of Benefits (AOB) form for items and services, including 
drugs, where assignment is required by statute, supported our proposed 
change. Commenters agreed that obtaining an AOB in each instance is 
redundant because the supplier is required by statute to accept the 
assignment. Some commenters suggested that a onetime AOB be obtained 
from the beneficiary that will be valid for every DMEPOS item he or she 
receives during the period of his or her medical necessity.
    Response: We appreciate the support for our proposal. As discussed 
in section IV of this final rule, we are adopting our proposal to 
eliminate the requirement for AOB form for items and services, 
including drugs, where assignment is required by statute. We do not 
agree with the suggestion to allow for a one-time AOB form to cover 
items and services provided in the future because there could be fraud 
and abuse issues.
    Comment: We received conflicting comments about the impact of the 
changes and clarifications relating to billing requirements on the 
costs of dispensing inhalation drugs.
    Commenters differed on the impact of the revisions to the proof of 
delivery requirements that we pointed out in the proposed rule that 
went into effect in early 2004. One company that currently uses 
automated systems indicated that the revision to the proof of delivery 
requirements would not generate savings for them. Commenters indicated 
that the DMERCs have not consistently implemented the changes, and that 
consequently there has not been significant administrative relief and 
subsequent savings.
    We received conflicting comments about the impact of the revised 
time frame for shipping guidelines. While one commenter indicated that 
savings had already been achieved because the provision had already 
been implemented, another commenter indicated that the revision would 
have negligible effect because the commenter would not change its 
existing business practice of using overnight shipping.
    One commenter said it had already adopted the provision of 
prescriptions being filled by verbal order, followed up by a written 
order for the claim submission and that these changes did not generate 
any additional savings for the commenter. Some suggested that the 
elimination of the AOB form for drugs would have limited savings 
because some suppliers currently obtain the AOB form at the same time 
that they obtain other forms that would be continued. Retail pharmacies 
agreed that elimination of the AOB form and verbal prescription order 
would reduce their paperwork. However, inhalation companies did not 
agree.
    Response: We understand the commenters concerns and will study the 
impact of these billing changes on the different suppliers' costs as 
the new payment system is implemented.
    Comment: Several commenters suggested that we review and consider 
changing several aspects of billing that might have cost-savings 
potential for suppliers of drugs. Several commenters indicated that 
Medicare's lack of on-line adjudication represented a significant cost 
and burden to them. One retail pharmacy commented that pharmacies face 
higher than normal rejection rate on claims because Medicare claims are 
not processed on-line, resulting in higher administrative costs. Others 
commented that pharmacies that dispense Medicare prescriptions must 
obtain documentation that is typically provided by the physician. For 
example, one company indicated that suppliers are held responsible for 
the appropriate medical necessity documentation in the patient's 
medical record but that the supplier has no control over physician 
records. Some suggested that we consider eliminating the requirement 
that a diagnosis code be required on the prescription. One pharmacy 
commented that pharmacies should not be expected to verify that the 
physician has in fact performed a face-to-face exam for the purpose of 
treating and evaluating the patient's medical condition or whether the 
physician has created appropriate documents in his records. Rather, the 
pharmacy believes that this responsibility should be left to the 
physician, and the creation of a prescription should be all that is 
needed to verify that the physician has complied with all Medicare 
requirements. A commenter noted that Medicare requires that suppliers 
submit claims with the physician's Unique Physician Identification 
Number (UPIN) while most third party plans require the physician's DEA 
number and suggested that we consider adopting usage of the physician's 
DEA number instead of UPIN. A pharmacy commented that dispensing units 
are different than current National Council for Prescription Drug 
Programs (NCPDP) standards; Medicare reimburses products based on a per 
mg price while the NCPDP standard suggests reimbursement on a per ml 
price. The pharmacy indicated that this makes it more difficult for the 
pharmacy to calculate proper reimbursement for these Medicare claims. 
Other commenters suggested that the Medicare enrollment and 
reenrollment process for suppliers be significantly streamlined. A 
retail pharmacy indicated that Medicare requires pharmacy suppliers to 
submit extensive and often duplicative pharmacy-specific paperwork that 
is more voluminous than any other third party plan in which retail 
pharmacies participate. One inhalation company suggested certain 
aspects of billing such as the requirement that the supplier query the 
physician and beneficiary to find out if the beneficiary had already 
received a same or similar item from another supplier. The company also 
identified what it claimed are several other labor-intensive, costly 
aspects of Medicare billing including electronic claims filing 
requirements; information system programming and testing; paperwork and 
new business procedures required to be compliant with HIPAA; Medicare 
and secondary insurance benefits verification and qualification; 
responding to significantly increased pre-payment audit activities; 
administering the Patient Financial Hardship Waiver prior to billing 
deductible and coinsurance amounts; billing and writing off beneficiary 
cost-sharing as bad debts; and differing DMERC policies concerning 
documentation needed to support home inhalation therapies.
    Response: We thank the commenters for identifying these items. We 
plan to examine these aspects of billing. To the extent that there are 
different interpretations or applications of national policy by DMERCs, 
our goal is increased standardization.
    Comment: A comment from a group focused on respiratory care 
indicated that there may be over utilization of albuterol sulfate. The 
comment indicated that a large amount of scientific evidence concludes 
that high albuterol sulfate use is indicative of

[[Page 66342]]

poor overall disease management. The commenter further indicated that 
Medicare's costs related to the use of albuterol sulfate may result 
from the fact that alternative drug treatment regimes are not 
adequately considered in the management of the patient's disease. The 
commenter urged us to examine the underlying causes of high utilization 
rates of albuterol sulfate.
    Response: Our goal is to ensure that Medicare beneficiaries have 
access to the appropriate drugs to treat their diseases. We believe 
that the availability of discounts through the Medicare drug card and 
the implementation of the Part D drug benefit beginning in 2006 promote 
treatment decisions being made based on the best clinical evidence, 
rather than being influenced by differential coverage.
    Comment: We received many comments addressing the issue of 
nebulizers versus metered dose inhalers (MDIs). Most commenters 
questioned whether a significant shift of Medicare beneficiaries to 
MDIs would occur when MDIs are covered in the Part D drug benefit 
beginning in 2006. We received many comments, studies and literature 
reviews on nebulizers and MDIs. Some commenters identified the specific 
disadvantages of MDIs and holding chambers or spacers. Some commenters 
questioned the conclusion of the literature review mentioned in the 
proposed rule that nebulizers are not clinically superior in delivering 
inhalation drugs than MDIs and the commenters asserted that the two are 
not fully substitutes. Some commenters quantified the costs to 
beneficiaries of nebulizers and MDIs. One commenter pointed out that 
MDIs would increase in 2006 based on the ban of the propellent 
chlorofluorocarbon. Another commenter questioned the point in the 
proposed rule that MDIs are more portable than nebulizers since 
advances in nebulizer technology have included additional portability. 
The commenter noted that since Medicare covers only one standard 
nebulizer, many of their patients have purchased portable nebulizers on 
an out-of-pocket basis to use as a second device while outside of their 
home.
    Response: A number of drugs are available to treat the persons with 
asthma or who develop COPD. These include drugs, often inhaled, that 
expand the bronchial tubes and allow the patient to breathe more 
freely. Depending on the needs of the individual patient, these 
medications can be delivered using nebulizers or MDIs. Although 
nebulizers have long been covered under Medicare Part B, the MMA 
expanded access to MDIs beginning in 2006 through the new Medicare Part 
D drug benefit. While two meta-analyses cited by one commenter are 
consistent with the literature review mentioned in the proposed rule 
that found a lack of overall clinical superiority of MDIs over 
nebulizers, we recognize that even after coverage of MDIs begins in the 
Part D drug benefit in 2006, due to their particular circumstances, 
many beneficiaries will require the use of nebulizers and that 
nebulizers will continue to play an important role in inhalation 
therapy. Part B does not currently cover MDIs and we will gain 
experience with the costs of MDIs as the Part D drug benefit is 
implemented.
    Comment: Comments were received from respiratory drug distributors 
and homecare providers addressing drugs that are supplied from the 
manufacturer in more than one form. One company suggested that since 
inhalation drugs are provided by the manufacturer in two forms, a 
premixed solution or as a powder (or other concentrate) that is diluted 
by the pharmacist, the ASP should be calculated separately for each of 
these two forms in order to reflect the different acquisition costs to 
the pharmacy for the different forms. The company suggested use of a 
modifier for the J-code to distinguish between these two forms for 
reimbursement purposes.
    Response: We disagree. Consistent with the statute, the ASP is 
calculated by the HCPCS codes rather than the NDC code. This allows 
flexibility in appropriate drug delivery.
    Comment: We received letters from individual beneficiaries and 
their family members indicating that the beneficiary has tried MDIs 
unsuccessfully and that inhalation drugs administered through a 
nebulizer were a successful treatment. They asked us not to assume that 
everyone on a nebulizer could be switched to inhalers and asked that we 
allow inhalation medications administered through nebulizers to remain 
funded by Medicare.
    Response: We recognize that nebulizers are required by many 
beneficiaries due to their particular health circumstances. We did not 
propose to eliminate Medicare funding for inhalation medications 
administered through nebulizers.
    Comment: Several commenters questioned why there should be public 
funding for COPD treatments for persons who chose to smoke cigarettes. 
The commenters indicate that it may be too harsh a policy to cease all 
reimbursement for COPD treatments, but they suggested two alternatives: 
(1) No individual who currently smokes should receive any Medicare 
benefit for the treatment of any respiratory condition, and (2) Any 
individual who historically smoked heavily and receives treatment for 
respiratory disorders should face an annual deductible equal to the 
cost of smoking a pack of cigarettes a day.
    Response: As we indicated in the proposed rule, smoking has been 
linked to a large number of health problems and is the leading cause of 
cancer and pulmonary disease. The Department of Health and Human 
Services (HHS) has been actively encouraging Americans to quit smoking 
through its smoking cessation initiatives. Americans who quit smoking 
will enjoy longer, healthier lives and avoid diseases such as COPD. 
However, the Medicare law does not limit benefits to persons who do not 
currently smoke, nor does the Medicare law impose a deductible that is 
different for smokers and non-smokers. This regulation implements the 
law as it is currently written.

Result of Evaluation of Comments

    In the proposed rule, we requested comments on the appropriate 
separate dispensing fee for inhalation drugs used in a nebulizer. In 
this final rule we are establishing 2005 fees of $57.00 for furnishing 
a 30-day prescription and $80.00 for furnishing a 90-day prescription 
for inhalation drugs. This fee would be paid in addition to the 
Medicare payment amount for the drug.
    As discussed in section IV, we are finalizing our proposal to 
eliminate the Assignment of Benefits (AOB) form for items and services, 
including drugs, where assignment is required by statute. We reiterate 
language in the recently updated guidelines for DMEPOS refills, 
emphasizing the word ``approximately''. This allows for refill 
prescriptions to be shipped by ground service on ``approximately'' the 
25th or 85th day of the respective prescription period. In addition, we 
clarified the ordering requirements for DMEPOS items, including drugs, 
which can be dispensed with just a verbal physician order.

P. Section 706--Coverage of Religious Nonmedical Health Care 
Institution Services Furnished in the Home

1. Background
    Section 706(a) of the MMA amended section 1821(a) of the Act by 
adding home health services to the list of services furnished to an 
individual by a religious nonmedical health care institution (RNHCI). 
Section 706(b) added section 1861(aaa) to the Act to expand the term 
``home health agency'' (HHA) to include a RNHCI. However,

[[Page 66343]]

this expansion is limited to RNHCI items (specified durable medical 
equipment) and services furnished in the beneficiary's home when the 
items and services are comparable to those provided by a HHA that is 
not a RNHCI. Moreover, payment may not be in excess of $700,000 per 
calendar year, and may not be made after December 31, 2006. 
Accordingly, we are implementing changes to the RNHCI regulation to 
include services furnished in the home that result from the enactment 
of the MMA and that are becoming effective January 1, 2005.
    The new time-limited home health services benefit will be referred 
to as ``home benefit'' or ``home services'' throughout this rule. The 
RNHCI home benefit may only be provided to an eligible beneficiary who 
is confined to the home for health reasons and who has a condition that 
makes the beneficiary eligible to receive services under Medicare home 
health. Additionally, the beneficiary must have an effective RNHCI 
election and receive his or her home services from the RNHCI. The home 
benefit is not a substitute for hospice care. As in the original RNHCI 
benefit, Medicare will pay only for nonmedical services in the home, 
but not for those religious items or services provided by the RNHCI. 
Additionally, RNHCI home service patients who have a documented need 
for a specified DME item can obtain that item with the applicable 
deductible and coinsurance.
2. Legislative History
    In 1965, payments to Christian Science sanatoria (inpatient 
nonmedical care facilities for bedfast patients) were included in the 
initial provisions of Medicare under title XVIII of the Act. In 1996, 
in Children's Healthcare Is a Legal Duty, Inc. v. Vladeck, 938 F. Supp. 
1466 (D. Minn. 1996) (``CHILD I''), a Federal district court held that 
some of the provisions pertaining to Christian Science sanatoria were 
unconstitutional on the grounds that they were sect specific, in 
violation of the Establishment Clause of the U.S. Constitution.
    Section 4454 of the BBA amended section 1861(a)(1) of the Act, 
deleting Christian Science sanatoria from the Act and creating instead 
the RNHCI benefit to provide Medicare Part A and Medicaid access for 
all religious groups whose belief structure does not include medical 
intervention. We note that, in the Conference Report to the BBA (H.R. 
Conference Report, No. 105-217, at 768 (1997)), the Congress specified 
that the RNHCI provisions were a sect-neutral accommodation available 
to any person who is relying on a religious method of healing and for 
whom the acceptance of medical health services would be inconsistent 
with his or her religious beliefs. Further, the Congressional conferees 
were convinced that the RNHCI provisions fully responded to and 
satisfied the constitutional concerns that had been addressed by the 
district court in CHILD I.
    Besides adding the new RNHCI benefit, section 4454 of the BBA also 
added sections 1861(ss) and 1821 to the Act. Section 1861(ss) sets 
forth:
    <bullet> The ten requirements that a provider must meet in order to 
be considered a RNHCI;
    <bullet> Parameters for oversight and monitoring;
    <bullet> Authority for Federal review of items and services 
provided for excessive or fraudulent claims; and
    <bullet> Parameters for ownership/affiliations.
    As in the past, the new provisions do not mention the use of a 
religious counselor or practitioner; we consider that to be the 
responsibility of the patient.
    Section 1821 of the Act provides for conditions for coverage of 
RNHCI services including:
    <bullet> The election, revocation, and limitations of the RNHCI 
benefit (section 1821(b));
    <bullet> The monitoring and safeguarding against expenditures 
(section 1821(c)); and
    <bullet> The sunset provisions for the RHNCI benefit (section 
1821(d)).
    Section 1821(a) of the Act, as amended by the MMA, provides for 
Part A payment for inpatient hospital services, post-hospital extended 
care services, or home health services furnished to a beneficiary in, 
or by, a RNHCI only when the beneficiary has:
    <bullet> A valid election for the RNHCI benefit in effect; and
    <bullet> A condition that would qualify for inpatient hospital, 
extended care services, or home health if the beneficiary were an 
inpatient or resident in a hospital or skilled nursing facility, or was 
a patient residing at home under the care of a HHA that was not a 
RNHCI.
    The election of the RNHCI benefit becomes effective immediately 
after execution and remains in effect for a lifetime or until revoked. 
As described in section 1821(b) of the Act, the election is a written 
statement signed by the beneficiary or the beneficiary's legal 
representative which states that:
    <bullet> The individual is conscientiously opposed to the 
acceptance of nonexcepted medical treatment;
    <bullet> The individual's acceptance of that nonexcepted treatment 
would be inconsistent with the individual's sincere religious beliefs; 
and
    <bullet> The individual's receipt of nonexcepted medical care 
constitutes a revocation of the election.
    The RNHCI election may be revoked by voluntarily notifying the 
Secretary in writing of the revocation or the election may be revoked 
by simply receiving nonexcepted medical care for which payment is 
sought under Medicare. Once a RNHCI election is revoked twice, the next 
election may not take place until a date that is at least one year from 
the date of the most recent revocation. Any election thereafter does 
not become effective before a date that is at least five years after 
the date of the previous revocation. The receipt of excepted medical 
care does not result in a revocation of the election. As stated in 
Sec.  403.702 of the regulations, the following definitions apply--
    <bullet> Excepted medical care or treatment for purposes of the 
RNHCI benefit is defined as medical care or treatment (including 
medical or other health care services) received involuntarily (for 
example, following an accident), or required by any level of government 
(for example, immunizations).
    <bullet> Nonexcepted medical care or treatment refers to all 
medical care or treatment that is not defined as excepted medical care 
or treatment. The beneficiary always retains the right to receive 
medical care under Medicare based on his or her level of coverage (for 
example, Part A, Parts A and B). However, using nonexcepted care will 
result in the revocation of the RNHCI election.
    On November 30, 1999, we published the RNHCI interim final rule 
with comment period in the Federal Register (64 FR 67028), effective on 
January 31, 2000. The final RNHCI regulations were published on 
November 28, 2003 (68 FR 66710). There are currently 16 RNHCIs in the 
United States: Three in California; two each in Florida and Ohio; and 
one each in: Colorado, Illinois, Indiana, Massachusetts, New York, 
Texas, Virginia, Washington, and Wisconsin.
3. Summary of Section 706 of the MMA
    Section 706 of the MMA amended the Act to extend Medicare coverage 
of RNHCI items and services to the RNHCI beneficiary's home when the 
items and services are comparable to those provided by a HHA that is 
not a RNHCI.
    Specifically, section 706(a) of the MMA amended section 1821(a) of 
the Act by adding home health services to the list of services 
furnished to an individual by a RNHCI. Section 706(b) of the MMA added 
section 1861(aaa) to the Act to expand the term ``home

[[Page 66344]]

health agency'' to include a RNHCI as defined in section 1861(ss)(1) of 
the Act, but only for items and services that are ordinarily furnished 
by a RNHCI to individuals in their homes, and that are comparable to 
items and services furnished to individuals by a HHA that is not a 
RNHCI. Section 1861(aaa)(2)(A) of the Act states that, subject to 
section 1861(aaa)(2)(B), payment may be made for services provided by a 
RNHCI only to the extent and under the conditions, limitations, and 
requirements that are in regulations consistent with section 1821 of 
the Act. Section 1861(aaa)(2)(B) states that payment may not be made 
for RNHCI home services under section 1861(aaa)(2)(A) of the Act in 
excess of $700,000 per calendar year, or after December 31, 2006.
    This interim final rule amends the existing RNHCI regulations in 
Subpart G to implement section 706 of the MMA.
4. Discussion

a. Implementation of Section 706 of the MMA

    As stated above, section 706 of the MMA added section 1861(aaa)(1) 
to the Act to expand the term ``home health agency'' to include a 
RNHCI, as defined in section 1861(ss)(1) of the Act, but only for items 
and services that are ordinarily furnished by that institution to 
individuals in their homes, and that are comparable to items and 
services furnished by a HHA that is not a RNHCI. This posed a number of 
implementation challenges as a RNHCI does not conform to the statutory 
definition or requirements of a HHA in section 1861(m) of the Act, 
which is based on a medical model. Some of these challenges result from 
the fact that--
    <bullet> RNHCIs were established to accommodate those religious 
groups that do not believe in the use of physicians to direct or 
supervise health care; and
    <bullet> RNHCI nursing does not correspond to the statutory or 
regulatory parameters established by Medicare for ``skilled care'' in 
the home setting.
    In addition, the RNHCI payment methodology does not readily lend 
itself to payment to the RNHCI for items and services under the RNHCI 
home benefit. Therefore, in an effort to implement the intent of the 
amendment, we will generally use the definition and requirements for a 
RNHCI, rather than a HHA (with some exceptions), in order to extend 
RNHCI services into the home environment. However, in order to aid in 
determining comparability, we are also utilizing, when appropriate, 
some of the home health requirements set forth in section 1861(m) of 
the Act.
    The presence of physician orders and oversight is a keystone in the 
operational viability of a HHA and nonexistent in the RNHCI, where the 
religious practitioner (noncovered by Medicare) is the primary focal 
person in establishing the course for the religious method of healing. 
In addition, the RNHCI nurse further assists the patient in navigating 
the course established for the religious method of healing. To address 
the need for oversight for the RNHCI home benefit as with the current 
inpatient RNHCI benefit, we are implementing section 706 of the MMA by 
continuing to require that the RNHCI utilization review committee 
review the need for care (expanded now to include both admission to the 
home benefit and continued care in the home setting), and to oversee 
the utilization of items and services in the time-limited home benefit. 
The utilization review committee, however, cannot act in place of a 
physician in ordering items and services other than those designated 
specifically for the purpose of this time-limited RNHCI home benefit. A 
claim from any other individual or provider attempting to seek Medicare 
payment for non-designated RHNCI home benefit items and services 
without a physician order will be disallowed.
    We also recognize that implementing section 706 is particularly 
challenging in light of the fact that no sophisticated physical 
treatments or procedures are provided in RNHCIs, while conventional 
medical care becomes more technical every year, making the care 
delivered by HHA personnel increasingly complex. The major challenge 
was determining comparability between home health services for HHAs 
defined in part 409 subpart E, and RNHCI services which are nonmedical 
in nature.
    Medicare pays for supportive care or dependent services under the 
home health benefit only when under the orders and direction of a 
licensed physician if there is a medical need for skilled health care 
by a registered nurse, physical therapist, speech-language therapist, 
occupational therapist, or medical social worker. Under the Medicare 
home health benefit, when there is no longer a need for the ``skilled'' 
health care services, the supportive dependent services no longer 
qualify for payment. Based on section 1861(m) of the Act, we believe 
that Medicare home health care benefits are skilled-care oriented. 
These benefits were not designed to provide coverage for care related 
to help with activities of daily living unless the patient requires 
skilled nursing care or physical or speech therapy. The RNHCI nurse may 
be skilled in ministering to a beneficiary's religious needs (not 
covered by Medicare), but does not have the training or nursing skill 
sets required of credentialed/licensed health care professionals (for 
example, a registered nurse). While the RNHCI nurse may provide 
supportive care, that care is focused primarily on religious healing 
and meeting basic beneficiary needs for assistance with activities of 
daily living (for example, bathing, toileting, dressing, ambulation), 
as part of creating an environment for religious healing. The care 
provided by a RNHCI nurse is not at the level of either a registered 
nurse or a licensed practical nurse. The physical care provided by a 
RNHCI nurse is at a level that could be considered as supportive, but 
is decidedly not skilled nursing care as that term is understood under 
the Medicare home health program.
    In the search for comparability of services, we considered the 
requirements and functions of the home health aide contained in 
sections 1861(m) and 1891(a)(3)(A) of the Act and in the regulations at 
42 CFR 484.36. We performed a parallel review of the activities and 
skills utilized by home health aides and RNHCI nurses to determine 
comparability at an operational level. We determined that both the 
RNHCI nurse and the home health aide perform the following basic 
tasks--
    <bullet> Assisting with activities of daily living (ADLs) that 
include: ambulation, bed-to-chair transfer, and assisting with range of 
motion exercises; bathing, shampoo, nail care, and dressing; feeding 
and nutrition; and toileting;
    <bullet> Performing light housekeeping, incident to visit; and
    <bullet> Documenting the visit.
    However, the home health aide is also responsible for--
    <bullet> Care of catheters and drainage equipment;
    <bullet> Checking oxygen and other respiratory equipment;
    <bullet> Communicating with nurse or other skilled team members;*
    <bullet> Assisting with exercises as ordered by PT, OT or speech 
language therapist;
    <bullet> Observation and reporting of existing medical conditions;*
    <bullet> Recognizing and responding to emergency situations 
(including CPR);
    <bullet> Routine care of prosthetics and orthotics;
    <bullet> Taking and reporting vital signs;*
    <bullet> Using basic infection control procedures;* and
    <bullet> Care of wound/stoma dressings.
    The home health aide during a home visit will usually perform at 
least three of the four skills marked with an

[[Page 66345]]

asterisk (*) from the ten skills listed. The remaining areas of 
responsibility are carried out as indicated by the patient's needs and 
the patient's care plan.
    In analyzing the outcomes of the home health aide/RNHCI nurse 
review, we found that both groups engaged in the comparable tasks of 
assisting with activities of daily living, performing light 
housekeeping (incident to visit), and documenting the visit. Therefore, 
we will pay for the performance of these tasks by a RNHCI nurse in the 
home under the home benefit established by section 706 of the MMA. 
However, in reviewing for comparability of these services, we also 
found that the Medicare requirements for a home health aide exceed the 
preparation and skills of the RNHCI nurse for furnishing physical care. 
The home health aide performs activities that support the patient's 
prescribed medical therapeutic regimen and contribute to the Outcome 
and Assessment Information Set (OASIS) data collection effort. 
Moreover, we assumed that a significant portion of each RNHCI nurse 
visit is focused on religious activity (noncovered by Medicare). 
However, in spite of the difference in skill levels and the 
incorporation of non-covered religious activity into a visit, Medicare 
payment for the RNHCI home benefit is based on a fixed payment per 
visit, rather than on a total number of hours or number of caregivers 
involved. Unlike the home health benefit, the RNHCI benefit does not 
involve multiple levels of covered caregivers. Under the home health 
PPS only the low utilization payment adjustment (LUPA) rate provides 
for payment for individual home health visits. Due to the uniqueness of 
the RNHCI and RNHCI nurses in the Medicare program, we have developed a 
payment rate that is a percentage of the PPS LUPA rate for home health 
aide visits provided under the home health PPS, which we believe 
adequately represents the percentage of comparable tasks performed by 
the RNHCI nurse. Only a visit by a RNHCI nurse to a home is payable by 
Medicare. The cost for the religious portion of the visit continues to 
be the responsibility of the individual patient or the specific RNHCI.
    Another challenge was posed by the provision of DME items for RNHCI 
patients in the home, since all DME is covered for Medicare payment 
only when ordered by a physician. That physician order may provide the 
RNHCI patient with the desired DME item, but will also revoke the 
patient's election for RNHCI care. We addressed the issue of DME by 
reviewing those items that are routinely found in a RNHCI that are 
comparable to those used by a HHA that is not a RNHCI. This resulted in 
a list of DME items that one could normally buy or rent off the shelf 
from a community pharmacy or health care supply store. For purposes of 
this time-limited benefit, we are permitting the RNHCI nurse to order 
from this list of designated items under the oversight of the RNHCI 
utilization review committee. A listing of these items is provided in 
Table 15 below.
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    We will provide the specifics for implementing the DME items and 
payment under this time-limited benefit in later Medicare program 
instructions.
    Under section 1861(aaa)(2)(B) of the Act, payments for the RNHCI 
home benefit may not be made that exceed $700,000 per calendar year, 
and not after December 31, 2006. Under the RNHCI home benefit, Medicare 
will pay only for nonmedical health services in the home, as well as 
for those DME items included in Table 15 of this preamble. Medicare 
will not pay for religious items or services provided by the RNHCI. We 
have developed a special billing system for those RNHCI providers 
offering the home benefit to monitor expenditures on home services and 
items for purposes of staying within the statutory calendar year 
expenditure limit.
5. RNHCI Regulatory Provisions--RNHCI Medicare Benefits, Conditions of 
Participation, and Payment
    As noted previously, to implement section 706 of the MMA, we 
reviewed the requirements for both HHAs and RNHCIs to identify the most 
feasible approach. Accordingly, we have made the following changes to 
the RNHCI regulations:

a. Basis and Purpose of Religious Non-Medical Health Care Institutions 
Providing Home Services--Sec.  403.764

    We added Sec.  403.764 to set forth the basis and purpose of the 
RNHCI home benefit. Specifically, we added subsection (a) to include a 
reference to section 1861(aaa) of the Act to the general RNHCI 
authority noted in Sec.  403.700 and a description of the provisions of 
section 1861(aaa). We also added subsection (b) to describe the home 
benefit, the statutory annual fiscal limitation, and the sunset 
provision.

b. Definitions and Terms--Sec.  403.702

    We made no changes to the regulation.

c. Conditions for Coverage--Sec.  403.720

    We made no changes to the regulation.
    We wish to emphasize that the RNHCI home benefit is an option 
available to each RNHCI, and the facility is not required to offer this 
service to either gain or maintain RNHCI status.
    The RNHCI home benefit is not to be confused with hospice care that 
may involve more frequent visits and can involve institutional 
services. If, for some reason, the RNHCI home-serviced patient requires 
more than what is provided under the RNHCI home benefit, RNHCI or other 
institutional services may be required.

d. Valid Election Requirements--Sec.  403.724

    We made no changes to the regulation because no modification or 
clarification to this requirement is needed to implement the RNHCI home 
benefit. Section 1821(b) of the Act addresses the issues involved in 
beneficiary election of RNHCI services.

e. Conditions of Participation--Sec.  403.730 through Sec.  403.746

    We have not changed the following conditions of participation, as 
they do not require any modification or clarification for implementing 
the RNHCI home benefit:
    <bullet> Patient Rights (Sec.  403.730)
    <bullet> Quality Assessment and Performance Improvement (Sec.  
403.732)
    <bullet> Administration (Sec.  403.738)
    <bullet> Staffing (Sec.  403.740)
    We have not changed the following conditions of participation, as 
they are specific to institutions and are not applicable to the 
implementation of the RNHCI home benefit:
    <bullet> Food Services (Sec.  403.734)
    <bullet> Discharge Planning (Sec.  403.736)
    <bullet> Physical Environment (Sec.  403.742)
    <bullet> Life Safety From Fire (Sec.  403.744)
    The following condition of participation requires the addition of a 
new standard to reflect the additional responsibility necessary for 
implementing the RNHCI home benefit:
    <bullet> Utilization Review (Sec.  403.746)
    As explained previously, the utilization review committee will 
review the need for care and oversee the utilization of items and 
services for the RNHCI home benefit. Accordingly, Sec.  403.746 will be 
revised to reflect the additional responsibility necessary for 
implementing the RNHCI home benefit. Specifically, Sec.  403.746 will 
be modified to add a new subsection (c) to read as follows:
    (c) Standard: Utilization review committee role in RNHCI home 
services. In addition to the requirements in (b), the utilization 
review committee is responsible for the admission and continued care 
review (at least every 30 days) of each patient in the RNHCI home 
services program. The utilization review committee is responsible for 
oversight and monitoring of the home services program, including the 
purchase and utilization of designated durable medical equipment (DME) 
items for beneficiaries in the program.
    We again note that under the RNHCI home benefit, one of the tasks 
of the RNHCI nurse is to order from a selected group of DME items that 
meet the documented needs presented by a patient, if that need is 
presented by the patient. The utilization review committee will provide 
oversight for the DME orders and utilization of the items. The 
utilization review committee cannot act as a physician in ordering DME 
items other than those items designated specifically for the purpose of 
this time limited RNHCI benefit. A claim from any other individual or 
provider attempting to seek Medicare payment for non-designated RNHCI 
home benefit DME items without a physician order will be disallowed.
    In implementing section 706 of the MMA, we have also revised the 
regulations to add the following provisions:

a. Requirements for Coverage and Payment of RNHCI Home Services (Sec.  
403.766)

    The RNHCI home benefit is an option available to each RNHCI, but it 
is not a service that the facility must offer to gain or maintain RNHCI 
status. With the exception of limited DME items, we have determined 
that services that RNHCI nurses provide are generally covered for 
Medicare payment under the time limited RNHCI home benefit as these 
services (for example, assistance with ADLs, light housekeeping 
incident to the visit, and documentation of the visit), are comparable 
to the services of home health aides in HHAs that are not RNHCIs.

[[Page 66348]]

    To reflect the requirements of this limited benefit, we are adding 
a new section 403.766. Specifically, in Sec.  403.766(a), we are 
requiring the RNHCI provider to submit a notice of intent if it is 
interested in providing RNHCI home services. This will help us 
facilitate the implementation of the RNHCI home benefit by letting us 
focus our efforts on those providers interested in providing this new 
benefit. The RNHCI provider is also responsible for providing RNHCI 
home services to eligible beneficiaries. We are imposing this 
requirement because we believe the RNHCI provider itself is responsible 
for providing the RNHCI home services, directly or under arrangement, 
to the eligible beneficiary. This means that the beneficiary cannot 
contract directly with a supplier or RNHCI nurse, but that the RNHCI 
provider itself is responsible for provision of the RNHCI home benefit 
services. This requirement conforms to the ``under arrangement'' 
requirement that home health agencies generally have to comply with to 
receive payment under the home health prospective payment system (see 
Sec.  409.100(a)(2)). Furthermore, because the RNHCI is not a supplier, 
we are explicitly requiring the RNHCI provider to make arrangements for 
suppliers to furnish the designated RNHCI home benefit DME items. 
Likewise, the RNHCI provider will have to arrange for the RNHCI nursing 
services. While the RNHCI regulations currently require the RNHCI 
provider to have a utilization review plan and committee in place, we 
believe it would be prudent in the RNHCI home benefit regulation to 
explicitly require the RNHCI home benefit provider to have a 
utilization review committee that assumes the additional responsibility 
for the oversight and monitoring of the items and RNHCI nursing 
services provided under the home benefit. Lastly, because the RNHCI 
home benefit does not supersede or otherwise replace the existing RNHCI 
benefit, the provider will continue to have to meet all the existing 
applicable RNHCI regulatory requirements in subpart G of part 403.
    We will also define an ``eligible beneficiary'' for the RNHCI home 
benefit in Sec.  403.766(b). First, the beneficiary must elect to 
receive RNHCI services. Clearly, the RNHCI home benefit can only be 
provided to a beneficiary who has elected RNHCI services. Second, we 
believe that the purpose of providing a home benefit by a RNHCI 
provider was not to expand the basic eligibility criteria for receiving 
home health services. In fact, section 1821(a) of the Act, as amended 
by the MMA, now states that payment for RNHCI home services be made 
only if the individual has an election in effect and has a condition 
such that the individual would otherwise qualify for Medicare home 
health services. Specifically, this means that the individual must be 
confined to the home, as defined in section 1814(a) of the Aft and have 
a condition that would make him or her eligible to receive Medicare 
home health services. Third, much like the requirement that the RNHCI 
provider is responsible for providing RNHCI home services directly or 
under arrangement to the beneficiary, the beneficiary can only receive 
RNHCI home services through the RNHCI. The purpose of this requirement 
is to provide Medicare payment for the RNHCI home benefit only to 
beneficiaries who receive these services through the RNHCI. This 
requirement is consistent with section 1821(a) of the Act, as amended, 
which provides Medicare payment for home services furnished an 
individual by a RNHCI. We note that under the home health benefit 
beneficiaries are responsible for the deductible and coinsurance for 
DME furnished as a home health services. We see no reason to modify 
that requirement for beneficiaries receiving RNHCI home services. As 
this is a new benefit for RNHCI beneficiaries, we wish to make it clear 
that they are responsible for deductible and coinsurance for the 
designated RNHCI home benefit DME items in the same manner as Medicare 
beneficiaries receiving DME under the home health benefit.

b. Excluded Services (Sec.  403.768)

    Under the home health benefit, certain items and services are 
excluded under the benefit. The RNHCI home benefit will exclude the 
same items and services, which are:
    <bullet> Drugs and biologicals;
    <bullet> Transportation;
    <bullet> Services that would not be covered as inpatient services;
    <bullet> Housekeeping services;
    <bullet> Services covered under the ESRD program;
    <bullet> Prosthetic devices; and
    <bullet> Medical social services provided to family members.
    Accordingly, we are adding a new Sec.  403.768 to reflect the 
services excluded under the RNHCI home benefit.
    In addition, we note that the statute does not provide for the 
provision of the RNHCI home benefit in a home health agency that is not 
a RNHCI, and we will provide for this exclusion in the regulation. We 
wish to reiterate that items and services not provided by a RNHCI but 
instead provided by a supplier or RNHCI nurse not under arrangement 
with the RNHCI are not included under the RNHCI home benefit. The 
regulation will also note this exclusion.

c. Payment for RNHCI Home Services (Sec.  403.770)

    As discussed above, providing home services in the RNHCI 
environment incorporates many of the same components of the provision 
of home health aide services under the Medicare home health benefit. 
Because this is a new benefit not contemplated under the original RNHCI 
legislation, an appropriate payment methodology needed to be developed. 
As explained previously, we believe that an appropriate proxy for the 
cost of providing RNHCI home services can be found in the low 
utilization payment amount for home health aide visits under the 
Medicare home health PPS. Generally, Medicare home health services are 
reimbursed a prospectively set payment amount for a 60-day episode of 
care, adjusted for case mix. This 60-day episode payment includes costs 
for non-routine medical supplies, as well as costs for the six major 
home health disciplines, including home health aide services. The home 
health episode payment rate does not include reimbursement for durable 
medical equipment, which is paid through a separate DME fee schedule. 
The home health PPS rates were required to be budget neutral to what 
would have been expended under the reasonable cost system. The 60-day 
episode rate is updated annually by some percentage of the home health 
market basket, as dictated by law, and is adjusted by the hospital wage 
index to account for geographic variations in labor costs.
    Medicare home health services may also be paid on a visit basis if 
the home health episode has four or fewer visits. Medicare pays on the 
basis of a national per-visit amount by discipline, referred to as low 
utilization payment adjustment (LUPA), adjusted for case mix. As 
mentioned previously, the LUPA rate for home health aide services is a 
very close approximation of the cost of providing home services in the 
RNHCI environment. However, due to the difference in skill levels and 
the incorporation of RNHCI religious activities that are not covered by 
Medicare, payment for the RNHCI home benefit is set at 80 percent of 
the per visit rate for a home health aide visit under the Medicare home 
health benefit.

[[Page 66349]]

    The policies and rationale governing LUPA payments under the 
Medicare home health benefit are described in the July 3, 2000 HH PPS 
final rule (65 FR 41127). Generally, low utilization episodes are paid 
at a standardized average per visit amount, adjusted for geographic 
differences in wages, which will be the basis of calculating payment 
under the RNHCI home benefit program. These amounts are updated 
annually by the home health market basket percentage as dictated by 
statute and are being used for the RNHCI home benefit. For CY 2005, the 
Medicare HHA PPS rates were updated by the home health market basket 
minus 0.8 percent. The HHA PPS LUPA amount for CY 2005 is $44.76 for a 
home health aide visit, as published in the Federal Register October 
23, 2004 (69 FR 62124). Because we believe the intent is to provide 
comparable home health services to a beneficiary at home provided by a 
RNHCI, we believe it is similarly necessary to develop a payment 
methodology to reflect the provision of these comparable services. As 
previously mentioned, we have determined that the LUPA payment, as 
calculated under the home health PPS and adjusted for geographic 
differences in wages is an appropriate payment methodology for the 
RNHCI home benefit. We further note that as the LUPA will be updated by 
the applicable market basket percentage under the home health PPS, we 
will also adopt the updated LUPA payment for CY 2006 as the basis of 
payment for the RNHCI home benefit in CY 2006. An update of the HHA 
payment rates is published annually in the Federal Register, with CY 
2006 updated figures available in Fall 2005. As mentioned above, the 
beneficiary receiving the RNHCI home benefit will be responsible for 
deductible and coinsurance for the designated RNHCI home benefit DME 
items. The regulation will indicate that payment for DME as a RNHCI 
home item is made less the deductible and coinsurance amount.
    In view of the small size and low volume of most RNHCIs, we will 
use a 30-day cycle for the submission of RNHCI home benefit claims. 
Unlike standard HHAs that use a 60-day cycle, the RNHCI will use a 30-
day cycle for both payment request and as a minimum for continued care 
home benefit review by the utilization review committee. Specific 
instructions on the processing of RNHCI home benefit payments will be 
issued in separate Medicare instructions.
    Example of LUPA Payment Adapted for RNHCI Home Benefit Payment:
    A RNHCI in Baltimore, Maryland is providing the RNHCI home benefit 
to a patient with a RNHCI election. The RNHCI has provided 12 visits 
within a 30-day cycle. The RNHCI would determine the payment for the 
home benefit visits as follows:
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IV. Other Issues

A. Provisions Related to Therapy Services

1. Outpatient Therapy Services Performed ``Incident To'' Physicians' 
Services
    Section 1862(a)(20) of the Act permits payment for therapy services 
furnished incident to a physician's professional services only if the 
practitioner meets the standards and conditions that would apply to the 
therapy services if they were furnished by a therapist, with the 
exception of any licensing requirement. We proposed to amend the 
regulations at Sec.  410.26, Sec.  410.59, Sec.  410.60, and Sec.  
410.62 to reflect the statutory prohibition on payment for ``therapy'' 
services of individuals who do not meet the existing qualification and 
training standards for therapists (with the exception of licensure) as 
these standards are set out in Sec.  484.4.
    As discussed in the August 5, 2004 proposed rule, section 
1862(a)(20) of the Act refers only to PT, OT, and SLP services and not 
to any other type of therapy or service. This section applies to 
covered services of the type described in sections 1861(p), 1861(g) and 
1861(ll) of the Act; it does not, for example, apply to therapy 
provided by qualified clinical psychologists. This section also does 
not apply to services that are not covered either as therapy or as E/M 
services provided incident to a physician or NPP, such as recreational 
therapy, relaxation therapy, athletic training, exercise physiology, 
kinesiology, or massage therapy services.
    In the following discussion, the phrase ``therapy services'' means 
only PT, OT, and SLP. Also, ``therapist'' means only a physical 
therapist, occupational therapist, and speech-language pathologist.
    Section 1861(s)(2)(K) of the Act permits certain NPPs, specifically 
PAs, NPs, and CNSs, to function as physicians for the purposes of 
furnishing therapy services which they are legally authorized to 
perform by the State in which the services are performed. Therefore, in 
our responses to comments in the following discussion, the statements 
concerning therapy services that apply to physicians also apply to PAs, 
NPs, and CNSs.
    We received many comments on this proposal from professionals and 
associations for audiologists, speech-language pathologists, physical 
therapists, occupational therapists, long term care facilities, 
kinesiotherapists, massage therapists, athletic trainers, nurses, and 
physicians such as physiatrists, neurologists, podiatrists, 
chiropractors, osteopaths, medical groups, and family practitioners.
    The proposal describes covered Medicare services and is not 
intended to affect the policies of other insurers who may cover 
services that Medicare does not, for example, therapy services 
performed by massage therapists or athletic trainers.
    Comment: Several associations believe that this proposal is based 
on an incorrect interpretation of the intent of section 1862(a)(20) of 
the Act. Some claim that the proposed clarification is prohibited by 
the statute. They note the lack of any elaboration upon the Congress' 
intent in the Conference Report accompanying section 4541(b) of the 
BBA, but suggest the provision was based on a 1994 OIG report, 
``Physical Therapy in Physicians' Offices'' (OEI-02-90-00590, March 
1994). In the view of some commenters, the intended effect of section 
1862(a)(20) of the Act was to apply to incident to therapy services the 
standards and conditions related to treatment plans, the need for 
goals, and the requirement that therapy is to be restorative. This 
position is based on the fact that these standards were the focus of 
the 1994 OIG report. The commenters point out that the report did not 
compare therapist services to services furnished by nontherapists in a 
physician's office, but it only compared the services billed by 
therapists to those billed by physicians.
    Commenters argued that the plain meaning of section 1862(a)(20) of 
the Act indicates that incident to services are not necessarily 
furnished by therapists. They point to the parenthetical exclusion of 
licensure requirements in the statutory language as evidence that the 
Congress did not intend to apply the personnel requirements applicable 
to therapists in private practice to incident to therapy services. Some 
commenters believe this exclusion was intended to preserve the right of 
physicians to supervise auxiliary personnel that were not licensed as 
therapists. They suggest that we are creating a de facto licensure 
requirement.
    Comments from the two members of the Congress who introduced the 
act that resulted in section 1862(a)(20) of the Act support the 
proposed rule, stating that the proposed clarification meets the intent 
of the law when it was passed by the Congress in 1997. These commenters 
confirm that the legislation was based in part on the 1994 OIG report 
and the intent was to establish ``a consistent standard for the 
delivery for PT services to ensure quality patient care.'' Two 
additional comments were received from the Congress in support of the 
proposal.

[[Page 66352]]

    Response: Our interpretation is based on the plain language of the 
law: no payment may be made for incident to therapy services ``that do 
not meet the standards and conditions (other than any licensing 
requirement specified by the Secretary) under the second sentence of 
section 1861(p) * * * ''
    The second sentence of section 1861(p) of the Act reads as follows:

    ``The term `outpatient physical therapy services' also includes 
PT services furnished an individual by a physical therapist (in his 
office or in such individual's home) who meets licensing and other 
standards prescribed by the Secretary in regulations, otherwise than 
under an arrangement with and under the supervision of a provider of 
services, clinic, rehabilitation agency, or public health agency, if 
the furnishing of such services meets such conditions relating to 
health and safety as the Secretary may find necessary.''

    It is evident then, that the standards and conditions referenced in 
section 1862(a)(20) of the Act encompass qualifications of the 
individual providing the therapy. Consequently, we disagree with those 
commenters who suggest that it was not the intent of section 
1862(a)(20) of the Act to apply the personnel qualifications of the 
second sentence of section 1861(p) of the Act to therapy provided 
incident to a physician's service. We believe our interpretation of the 
law is further supported by the comment received from the Congress 
members who sponsored the original bill that became section 1862(a)(20) 
of the Act.
    According to the proposed requirements, a person who is trained in 
therapy, but has not completed the further requirements of therapy 
licensure, may provide services incident to a physician's services. 
These individuals are not therapists, since they are not licensed, but 
they are qualified personnel who may, under direct supervision, provide 
therapy services incident to a physician.
    A physician may utilize supervised unlicensed staff and may bill 
for a covered therapy service incident to the physician's service if it 
is provided according to Medicare policies, including coverage and 
incident to policies.
    Comment: Commenters also note that qualifications at Sec.  484.4 
are in the home health agency section of the regulations, while the 
second sentence of section 1861(p) of the Act (referenced by section 
1862(a)(20) of the Act) does not apply to therapy provided in home 
health agencies.
    Response: The statute specifies therapy services provided incident 
to a physician must meet the standards and conditions that would apply 
to a therapist, except licensure. For the history of the qualifications 
for the private practice setting, please see the discussion in this 
rule as described below in section IV.A.2, ``Qualification Standards 
and Supervision Requirements in Therapy Private Practice Settings.'' We 
proposed to apply to all settings the qualifications in Sec.  484.4 
because they are standards that currently apply to therapists in 
provider settings. It is our intent to make therapist qualifications 
consistent in all settings (unless otherwise required by statute). 
Therefore, unless a person meets the standards in Sec.  484.4, except 
licensure, their services may not be billed as therapy services 
incident to a physician's service, regardless of any other training, 
other licensure or certification or other experience they may have. For 
example, the services of chiropractors or athletic trainers who do not 
meet the requirements in Sec.  484.4 except licensure, cannot be billed 
as therapy services incident to a physician's service.
    Comment: Several associations indicated that we are changing our 
interpretation of the statute. They assumed any instruction relevant to 
the law was made in 1998 through Transmittal 1606. That transmittal 
provided guidance for therapy services, but did not address the 
qualification of the people who furnish therapy incident to physician 
services. It was also suggested that we delay implementation to allow 
further study and comment from interested parties. The AMA urged us to 
withdraw proposed changes and reissue a later proposal after consulting 
with all affected physician and other health professional 
organizations.
    Also, the commenters note that the Administrative Procedure Act 
(APA) requires that we characterize this as a change rather than a 
clarification.
    Response: In the past, we did not discuss the plain language of the 
law ecause we did not believe it needed extensive clarification. 
However, it has become clear to us that contractors have varied in 
their policies.
    Some contractors created local policies that paid only for services 
provided by licensed therapists in all settings including incident to a 
physician's service. Others had no policies that assured the 
qualifications of personnel furnishing services billed as therapy 
services incident to a physician.
    Study of the utilization of therapy services, internal discussions 
with contractors and medical review of claims for the purpose of error 
rate analysis all suggested that the services being performed in the 
offices of physicians did not consistently meet the standards and 
conditions we applied to therapy services in private practice or in 
provider settings. Problems associated with an imprecise definition of 
therapy services were discussed at length in Section 4.1 of the ``Study 
and Report on Outpatient Therapy Utilization'' (the DynCorp utilization 
study) found at http://www.cms.hhs.gov/medlearn/therapy. Review of 
medical records following this report reinforced the personnel 
qualification problem.
    In Pub. 100-04, the Medicare Claims Processing Manual at chapter 5, 
section 20, there is a list of codes that represent services that are 
always therapy services (available online at http://www.cms.hhs.gov/manuals/104_claims/clm104c05.pdf). Whenever these codes are billed, 
they must have a modifier that identifies the type of therapy (PT, OT, 
or SLP) and the services provided must meet the standards and 
conditions that apply to outpatient therapy services. In the medical 
review of therapy claims, there were frequent observations of ``always 
therapy'' services performed by persons other than therapists, which 
were billed inappropriately as therapy.
    Since the qualifications of therapists and therapy services 
continued to be problematic, we chose to raise the subject of therapist 
qualifications last year. Last year's comments made it clear that there 
is widespread use of nontherapists, particularly athletic trainers, in 
the offices of physicians and those services are being billed as 
therapy services. The volume of similar comments this year made it 
evident to us that the clarification was needed.
    We characterize this statement as a clarification because it merely 
restates the law. Moreover, we announced our clarification in the 
proposed rule, and it has been subject to comment in last year's 
proposed rule and again this year. So, assuming that it did change 
policy, its promulgation meets the requirements of the APA.
    In addition, we note that we continue to pay only for covered 
services whether they are therapy or other services. Coverage rules in 
the Program Integrity Manual, chapter 13.5.1, require, for example, 
that the service be safe, effective, in accordance with accepted 
standards of medical practice, and furnished by qualified personnel.
    We recognize there has been inconsistent application of this 
statutory requirement. Therefore, in order to allow sufficient time for 
physicians to adjust their practices, and to avoid disrupting ongoing 
therapy in affected practices, we will delay implementation

[[Page 66353]]

until manual instructions are published. We anticipate publication of 
manual instructions on or after March 1, 2005.
    Comment: Many commenters offered the opinion that restricting 
payment for therapy services to those performed by therapists would 
reduce access and quality of care and increase costs. They noted that 
it is more convenient for therapy to be available in a physician's 
office than at another site. Also, there was concern that therapists 
may not work in rural areas, especially because there is a shortage of 
qualified therapists.
    Response: The statute requires that those who provide therapy 
services meet therapy standards. It provides an exception for licensure 
in an incident to setting, but it does not provide an exception for 
rural areas. Since recent changes allow physical and occupational 
therapists that are enrolled in Medicare to work for physicians, there 
is no legal impediment to physicians being able to provide therapy 
services in their offices without the use of nontherapists. The 
Department of Labor Bulletin 2572, titled ``Occupational Projections 
and Training Data 2004-05 Edition'', suggests no shortage of 
therapists.
    Nor do we find evidence to suggest the quality of care will be 
decreased by the use of personnel trained in therapy services as 
opposed to those trained in other disciplines. The cost of therapy 
services to Medicare will not be changed by the use of appropriately 
trained personnel.
    Comment: Many comments from physical therapists and PT associations 
agreed in principle with consistently defining the qualifications for 
therapists in all settings. They point out that, although the statute 
allows unlicensed people to provide therapy services incident to the 
services of a physician, the purpose of licensure is to assure that 
services are safely and effectively furnished by professionals who have 
demonstrated the necessary knowledge and skills. The statute permits 
the use of therapists who have not met licensing requirements and those 
whose licenses were revoked due to malpractice or fraud. The 
supervision requirement that the physician be present somewhere in the 
suite, but not in line of sight, is insufficient to assure the safety 
and quality of service provided by unlicensed staff.
    Response: Although the law permits unlicensed individuals to 
provide services incident to the services of a physician, we believe 
physicians will be motivated to screen employees to weed out sanctioned 
or incompetent people who have training in therapy since physicians 
would be liable for the actions of an incompetent employee. We require 
direct supervision of the employee by the physician as a minimum 
standard, but a physician will provide whatever guidance and 
supervision is required to assure the safety, effectiveness and quality 
of the service.
    Comment: Many comments were received from individuals such as 
athletic trainers, kinesiotherapists, massage therapists and 
chiropractors describing their training as equal or superior to 
therapists' and suggesting that they provide care similar to 
therapists.
    Response: The statute allows Medicare to pay only for PT, OT and 
SLP services. Comments from therapists and nontherapists agreed that 
their training and licensure is unique to their professions, and they 
are separately trained and licensed for those unique professions. It is 
clear that many nontherapist health care practitioners are well-trained 
professionals dedicated to the provision of quality treatment for their 
patients. However, their training is not in PT, OT, or SLP, but in the 
other disciplines for which they are licensed or accredited.
    Comment: A number of physicians and associations for physicians 
wrote to tell us that they believe it is their right and within their 
authority to decide who can provide effective therapy services in their 
offices.
    Response: The statute requires Medicare to pay only for services 
that meet the standards and conditions, except licensure, that apply to 
therapists. It is the right and responsibility of a physician to 
recommend services for patients that in the physician's judgment are 
needed and effective. Medicare, however, need not pay for all services 
that a physician recommends. We are required to pay for services that 
are covered in the statute and to deny payment for services that are 
not covered, even if the physician considers those services necessary 
and effective.
    Comment: Some physicians wrote to tell us they are currently 
billing Medicare for therapy services when athletic trainers perform 
services in their offices. Several commenters asked what services may 
be billed to Medicare when provided by auxiliary staff who are 
qualified as athletic trainers, or who have certification in fields 
other than therapy.
    Response: While some carriers may have paid claims for incident to 
therapy services furnished by individuals without therapy training, we 
have never had a policy that permits athletic trainers or any other 
staff who do not have training in PT to provide services that are 
billed as PT services. Carrier payment for a service is not conclusive 
evidence that the service was appropriately rendered. Billing with a 
code that does not accurately represent the service provided is 
inappropriate. If identified by carrier medical review, these claims 
must be denied, and further development of the claim may be indicated 
to determine if there was intent to bill improperly.
    Medicare defines PT, OT and SLP as services that require the skills 
of a physical therapist, occupational therapist or speech-language 
pathologist. Therapy codes are priced based on the salaries and 
expenses of therapists and we expect that therapy claims are made for 
services of therapists (or, for incident to services by someone with 
their training, except for licensure).
    When a service is not a covered service, it is inappropriate to 
bill Medicare for that service as a service incident to a physician, or 
as an E/M service. For example, if a service is appropriately described 
as acupuncture or athletic training or massage therapy, Medicare will 
not pay for that service because it is not covered.
    A physician may not bill Medicare for a service that is on the list 
of ``always therapy'' services (see Pub. 100-04, the Medicare Benefit 
Policy Manual, chapter 5, section 20) if the service was done by staff 
that is not qualified to provide a skilled therapy service, because 
that is not a covered therapy service. The ``always therapy'' codes 
always require a modifier to describe whether the service was PT, OT or 
SLP.
    There are covered services that other staff, such as athletic 
trainers, may perform with other training, however, these are not 
therapy services. Other codes on the therapy list are ``sometimes 
therapy'' services and require modifiers only when they are therapy 
services rather than physician services. For example, a physician may 
apply a surface neurostimulator (CPT 64550) as an isolated service, 
outside of a therapy plan of care and appropriately bill the code 
without a therapy modifier. That service is not a therapy service. If 
that physician supervises auxiliary personnel in the provision of that 
same nontherapy service, the auxiliary personnel does not have to be 
qualified as a therapist because the service rendered is not therapy. 
In any case, when Medicare is billed for a service, the person 
providing the service must be qualified to provide the service, as 
determined by the contractor in accordance with coverage requirements

[[Page 66354]]

in Pub. 100-08, the Medicare Program Integrity Manual, chapter 13.5.1. 
However, if a therapist provides the service under any circumstance, or 
if either the physician or qualified personnel provides the service as 
part of a therapy plan of care, it is a therapy service and it requires 
a modifier. In cases where there is doubt, the contractor will 
determine whether the service is therapy or is not therapy.
    Further information about services that may be completed by non-
therapists will be available in implementing instructions.
    Comment: The American Chiropractic Association commented that 
doctors of chiropractory are authorized to perform PT services in all 
but two States, Michigan and Washington. They request that we note that 
fact in our commentary and in the regulation. They note that Doctors of 
Chiropractic are included in the definition of ``physician'' and they 
propose language in addition to that in Sec.  484.4 to define the 
qualifications of chiropractors, in order to recognize the State-
authorized practice privileges of Doctors of Chiropractic.
    Response: Chiropractors may bill services to Medicare as 
physicians, but only for the purposes of providing manipulation of the 
spine for the correction of a subluxation, which is a chiropractor 
service, and not a therapy service. For these manipulation services, 
chiropractors may directly supervise employees who provide incident to 
services. However, as Medicare physicians, chiropractors are not 
authorized to order therapy services or to perform any other services. 
To qualify to provide therapy services incident to a physician, 
chiropractors must meet all of the criteria set forth at Sec.  484.4 
except licensure.
    Comment: Several associations and some individuals commented that 
we are creating a monopoly for therapists to provide therapy services 
and unnecessarily restricting other professions from providing therapy 
services.
    Response: We are bound by the statutory authority given to us in 
section 1832 of the Act to pay only for services for which there are 
benefits enumerated in the statute. PT, OT and SLP have benefits in 
section 1861 of the Act. Therefore, Medicare pays only for those 
services.
    Comment: Several commenters noted that some NPPs, specifically PAs, 
NPs, and CNSs, may perform therapy services billable under Medicare as 
therapy services if their State scope of practice allows. The 
commenters question whether those NPPs may also perform therapy 
services incident to a physician or NPP.
    Response: Medicare does not impose therapy training requirements on 
physicians whose State scope of practice allows them to perform therapy 
services. Section 1861(s)(2)(K) of the Act permits PAs, NPs, and CNSs, 
to furnish services which would be physicians' services, that is, to 
function as physicians for purposes of furnishing services, including 
therapy services, which they are legally authorized to perform by the 
State in which the services are performed. Therefore, this final rule 
has been modified to reflect that in States that authorize physicians, 
PAs, NPs, and CNSs to provide one or more of the therapy services (PT, 
OT, or SLP services), those NPPs may provide the services incident to 
the services of a physician or NPP under the same conditions as 
physicians, that is, without meeting the training requirements 
applicable to therapists.

Results of Evaluation of Comments

    To the extent that this policy is different from current manual 
text, we proposed this rule and received comments. We are finalizing 
the proposal in this final rule with the changes noted above in 
accordance with the APA. We will implement this regulation through 
manual guidance on or after March 1, 2005.
2. Qualification Standards and Supervision Requirements in Therapy 
Private Practice Settings
    Sections 1861(g) and (p) of the Act include services furnished to 
individuals by physical and occupational therapists meeting licensing 
and other standards prescribed by the Secretary if the services meet 
the necessary conditions for health and safety. These services include 
those furnished in the therapist's office or the individual's home. By 
regulation, we have defined therapists under this provision as physical 
or occupational therapists in private practice (PTPPs and OTPPs).
    Under Medicare Part B, outpatient therapy services, including 
physical and occupational therapy services, are generally covered when 
reasonable and necessary and when provided by physical and occupational 
therapists meeting the qualifications set forth at Sec.  484.4. 
Services provided by qualified therapy assistants, including physical 
therapist assistants (PTAs) and occupational therapy assistants (OTAs), 
may also be covered by Medicare when furnished under the level of 
supervision by the therapist that is required for the setting in which 
the services are provided (institutions and private practice therapist 
offices). For PTPPs and OTPPs, the regulations now specify only that 
the PT or OT meet State licensure or certification standards; the 
regulations and do not currently refer to the professional 
qualification requirements at Sec.  484.4.
    Since 1999, when therapy services are provided by PTAs and OTAs in 
the private practice of a PT or OT, the services must be personally 
supervised by the PTPP or OTPP. In response to a requirement to report 
to the Congress on State standards for supervision of PTAs, we 
contracted with the Urban Institute. The Urban Institute found that no 
State has the strict, full-time personal supervision requirement, for 
any setting, that Medicare places on PTAs in PTPPs. (The report 
examined only PTAs, who are more heavily regulated by the States than 
OTAs).
    To provide a consistent therapy assistant supervision policy, we 
proposed to revise the regulations at Sec.  410.59 and Sec.  410.60 to 
require direct supervision of PTAs and OTAs when PTs or OTs provide 
therapy services in private practice. We also specifically solicited 
comments regarding the proposed PTA supervision policy, and whether or 
not it would have implications for the quality of services provided, or 
for Medicare spending, either through increased capacity to provide 
these services, or, in the event that the Congress again extends the 
moratorium on the implementation of the limits on Medicare 
reimbursement for therapy services imposed by the BBA of 1997.
    In addition, as discussed in the August 5, 2004 proposed rule, the 
current OTPP or PTPP regulations at Sec.  410.59(c) and Sec.  410.60(c) 
do not reference qualification requirements for therapy assistants or 
other staff working for PTs and OTs in private practices. In order to 
create consistent requirements for therapists and for therapy 
assistants, we proposed to restore the qualifications by adding the 
cross-reference to the qualifications at Sec.  484.4 for privately 
practicing therapists and their therapy assistants at Sec.  410.59 and 
Sec.  410.60.
    Comment: Commenters representing therapy organizations, as well as 
individual providers, were supportive of our proposal to revise the 
regulations at Sec.  410.59 and Sec.  410.60 to require direct, rather 
than personal, supervision of PTAs and OTAs when therapy services are 
provided by PTs or OTs in private practice.

(We use the 3 supervision levels defined at Sec.  410.32, personal, 
direct, and

[[Page 66355]]

general, to describe the supervision requirements for various Medicare 
services and settings.)

    Many commenters also stated that this is consistent with the 
Medicare requirements in other provider settings, such as hospitals, 
HHAs and rehabilitation agencies and is also consistent with the 
Medicare requirements for therapists in private practice that were in 
place prior to 1999. Commenters also believe that this will assist in 
ensuring access to therapy services and in protecting patient privacy.
    Response: Requiring direct supervision of therapy assistants in PT 
and OT private practice settings is consistent with the supervision 
requirements that PTs and OTs in independent practice were required to 
meet, prior to 1999, at Sec.  410.59(c) and Sec.  410.60(c). This 
direct supervision requirement in PT and OT private practices requiring 
the therapist to be on site or ``in the office suite'' differs from our 
therapy assistant supervision requirements in institutional settings 
(for example, outpatient hospital departments, HHAs, and rehabilitation 
agencies). In those settings, PTs and OTs may provide general 
supervision of therapy assistants without being on-site.
    We agree that changing the level of supervision of therapy 
assistants from personal to direct will help to improve access to 
medically necessary services.
    Comment: A few commenters stated they believe permitting general 
supervision, rather than direct, is more consistent with State therapy 
supervision requirements. While State requirements vary, this variation 
may be due to the fact that PTAs are not licensed in some States. Other 
commenters stated that therapy assistants are qualified to provide 
services without having therapists in-the-room to provide personal 
supervision.
    Response: A review of State practice acts revealed that Medicare's 
personal in-the-room supervision requirement for therapy assistants in 
PT and OT private practices was more stringent than any State 
supervision requirement for any setting. The Urban Institute report 
also found that most States permit a supervision level similar to our 
general supervision requirement for institutional settings. However, we 
believe that services delivered by therapy assistants in private 
practices require a higher level of therapist supervision than those 
provided in institutional settings where stringent standards for 
Medicare participation are enforced through State survey and 
certification programs, rather than the simplified carrier enrollment 
process for the PT or OT private practice offices.
    Comment: One commenter stated that only licensed therapists should 
be allowed to provide and bill for therapy and another commenter 
demanded that therapy services only be reimbursed when provided by a 
therapist, not any other professional, including nurses, PAs, or 
chiropractors, and not by therapy assistants. They suggested that 
without this requirement there would be program abuses.
    Response: We concur with the therapy associations and the 
overwhelming majority of commenters that therapy assistants are 
qualified by their training and education to provide services without 
the personal in-the-room supervision in the private practice setting. 
This does not mean, however, that therapy assistants may bill for the 
services they provide. Under the law, only PTs and OTs in private 
practice may bill Medicare for the therapy services provided by PTAs 
and OTAs. These therapists enroll in the Medicare program and receive a 
provider identification number (PIN) in order to file claims for the 
therapy services provided as a PTPP or OTPP. Institutional therapy 
providers bill Medicare on behalf of the PTs, OTs, and speech language 
pathologists who provide therapy services in these settings.
    Other professionals, including nurses, athletic trainers, and 
chiropractors do not meet the statutory requirements for therapists in 
section 1861(p) of the Act and as implemented at Sec.  484.4. We 
proposed to amend the regulations at Sec.  410.59 and Sec.  410.60 to 
specify that only individuals meeting the qualification standards and 
training consistent with Sec.  484.4 may bill and receive Medicare 
payment for therapy services. In addition, a State license or 
certification in PT or OT will continue to be required for therapist 
providing services as PTPPs or OTPPs.
    When PAs, NPs, or CNSs are authorized by their State practice acts 
to provide physical or occupational therapy services, and these NPPs 
are acting within their capacity to provide physician services under 
section 1861(s)(2)(K) of the Act, their services are considered therapy 
services.
    Comment: One commenter stated that allowing lesser trained 
individuals such as therapist assistants to provide services if a 
therapist supervises, but prohibiting physicians from delegating 
performance of these services to doctors of chiropractic 
inappropriately gives therapists more authority than physicians.
    Response: Medicare law recognizes chiropractors as physicians, but 
only for the limited purpose of providing manipulation of the spine for 
the correction of a subluxation. In order to qualify as a PT or OT for 
Medicare purposes, chiropractors would need to meet all of the criteria 
set forth at Sec.  484.4.
    Comment: In response to our request for information on the impact 
of this proposed change on the quality of services and Medicare 
spending, several individuals stated that the proposed change would not 
affect the way therapists practice, since they are fully accountable 
for services provided under their direction and, therefore, the change 
would not diminish the quality of services. Furthermore, commenters 
believe the change would also allow the appropriate and efficient 
utilization of therapist assistants because the in-the-room supervision 
unnecessarily drives up the cost of health care without providing 
additional consumer protection.
    The American Physical Therapy Association (APTA) anticipates there 
will be little, if any, increase in spending as a result of this policy 
and believes that any increases would be due to improving access to 
medically necessary outpatient therapy services provided by qualified 
practitioners. For spending implications, the APTA believes it is 
highly unlikely that physical therapists would significantly alter 
their staffing patterns and thereby increase spending as a result of 
this change in policy. The majority of States have laws that establish 
limits on the number of PTAs that a PT can supervise (referred to as 
``supervision ratios''). For example, a large number of States have a 
supervision ratio of one PT to two PTAs. There are also a limited 
number of PTAs whom PTs could supervise, and APTA does not anticipate 
substantial growth in the number of PTAs in the foreseeable future. To 
the contrary, the number of PTA education programs is declining.
    Furthermore, services of PTs in private practice comprise a 
relatively small percentage of services billed under the Medicare 
program. Therefore, the overall financial impact of any change in the 
supervision requirement in this setting would be minimal.
    Response: We appreciate the information provided by the commenters. 
Other opportunities already exist for therapists to provide services 
under Medicare in rehabilitation agencies and CORFs where the therapy 
assistant supervision level is general. Therapists opting to utilize 
therapy assistants might be more

[[Page 66356]]

likely to own a rehabilitation facility where the physical or 
occupational therapy assistant supervision level is general, rather 
than a private practice office where the therapist is required to be 
on-site to supervise services of the therapy assistant. The Urban 
Institute Report confirmed the limited number of therapy assistants 
available to be hired and found that workforce and distribution 
percentages of PTs and PTAs parallel each other, with nearly 25 percent 
of PTAs employed by PTPPs. We believe that the State supervision 
requirements and the limited number of PTAs are likely to limit the 
financial implications of this change. We plan to monitor this area to 
determine whether volume changes occur and, if so, in what settings 
they occur.
    Comment: Commenters supported our proposal to revise Sec.  410.59 
and Sec.  410.60 to cross-reference the qualifications at Sec.  484.4 
for privately practicing therapists and their therapy assistants.
    Response: We appreciate the numerous letters of support for this 
proposal, including the national and State-level therapy organizations, 
other professional organizations, and many therapists and therapy 
assistants.

Result of Evaluation of Comments

    We will finalize the proposed revisions to Sec.  410.59 and Sec.  
410.60 to require direct supervision of PTAs and OTAs when therapy 
services are provided by PTs or OTs in private practice and also to 
cross-reference the qualifications at Sec.  484.4 for privately 
practicing therapists and their therapy assistants.
3. Other Technical Revisions
    We proposed technical corrections to Sec.  410.62 to refer 
consistently to SLP (currently the terms ``speech pathology'' and 
``speech-language pathology'' are used interchangeably) and proposed 
revisions to Sec.  410.62(a)(2)(iii) to appropriately reference Sec.  
410.61 (the current reference is to Sec.  410.63).
    We also proposed removing subpart D, Conditions for Coverage: 
Outpatient Physical Therapy Services Furnished by Physical Therapists, 
from part 486. Our November 1998 rule (63 FR 58868) discussed replacing 
this subpart with a simplified carrier enrollment process for physical 
or occupational therapists in private practice; however, the conforming 
regulatory change to remove subpart D was never made.
    In addition, we proposed a technical change at Sec.  484.4 to 
correct the title ``physical therapy assistant'' to ``physical 
therapist assistant'' and proposed amending Sec.  410.59(e) and Sec.  
410.60(e) to include a reference to the 2-year moratorium on the 
therapy caps established by section 624 of the MMA.
    Comment: Commenters representing therapy specialty organizations 
supported these changes.
    Response: We will finalize these changes as proposed.

Result of Evaluation of Comments

    We are finalizing the changes as proposed.

B. Low Osmolar Contrast Media

    High osmolar and low osmolar contrast media (LOCM) are used to 
enhance the images produced by various types of diagnostic radiological 
procedures. When the Medicare physician fee schedule was established, 
findings of studies of patients receiving both types of contrast media 
had been published, and the ACR had adopted criteria for the use of 
LOCM. At that time, we determined that the older, less expensive high 
osmolar contrast media (HOCM) could be used safely in a large 
percentage of the Medicare population. However, we also decided that 
separate payment for LOCM may be made for patients with certain medical 
characteristics. We adopted the ACR criteria, with some modification, 
as the basis for a policy that separate payments are made for the use 
of LOCM in radiological procedures for patients meeting certain 
criteria. These criteria were established at Sec.  414.38. Under these 
conditions, we pay for LOCM, utilizing HCPCS codes A4644 through A4646.
    In the August 5, 2004 rule, we proposed to revise the regulations 
at Sec.  414.38 to eliminate the restrictive criteria for the payment 
of LOCM. This proposal would make Medicare payment for LOCM consistent 
across settings since, under the OPPS, there is no longer a payment 
difference between LOCM and other contrast materials.
    We also proposed that, effective January 1, 2005, payment for LOCM 
would be made on the basis of the ASP plus six percent in accordance 
with the standard methodology for drug pricing established by the MMA. 
However, because the technical portions of radiology services are 
currently valued in the nonphysician work pool and the CPEP inputs for 
these services are not used in calculating payment, we also indicated 
we would continue to reduce payment for LOCM by eight percent to avoid 
any duplicate payment for contrast media.
    Comment: Commenters representing radiology, interventional 
radiology, and imaging contrast manufacturers were supportive of this 
proposed change; however, our payment methodology of ASP plus six 
percent minus eight percent was questioned. Two commenters also believe 
that the implementation date for the application of ASP methodology 
should be changed from January 1, 2005. One requested an effective date 
of April 1, 2005 and the other requested an effective date of January 
1, 2006.
    Response: We appreciate the commenters' support for this change. We 
stated in the proposed rule that effective January 1, 2005, payment for 
LOCM would be made on the basis of the ASP plus six percent. However, 
there is an October 30, 2004 deadline for submission of the ASP data 
used for the January 1, 2005 payment, and this date occurred prior to 
our finalizing the proposed payment methodology for LOCM. Therefore, 
the ASP payment methodology for LOCM will be made effective April 1, 
2005. Manufacturers of LOCM will be required to submit their fourth 
quarter 2004 (4Q04) ASP information to us on or before January 30, 
2005. Subsequent data must be submitted within 30 days after the end of 
each calendar quarter. The 4Q04 data will be used to determine the 
April 1, 2005 ASP plus six percent payment limits. Further information 
on the specific format of the data submission and the address to which 
the information can be sent is found on the CMS ASP Web site, 
specifically at http://www.cms.hhs.gov/providers/drugs/asp.asp.
    Our policy to reduce payment for LOCM by 8 percent stems from the 
fact that the technical component RVUs for these procedures took into 
account the use of (and expenses for) HOCM in the (see the November 25, 
1991 final rule (56 FR 59502)). However, since that time, the price 
differential between HOCM and LOCM has declined. In addition, upon 
further review, we are not able to determine accurately the degree of 
duplicate payment that might occur when both the imaging procedure and 
LOCM are billed. Therefore, we are not applying the eight percent 
reduction to the LOCM payment as proposed. The payment for LOCM will be 
consistent with the payment rate for the majority of drugs administered 
by physicians.
    Comment: One contrast agent industry association suggested that we 
issue additional codes for the reporting of contrast media.
    Response: For 2005, we are continuing to use the current three 
HCPCS codes in the reporting of low osmolar contrast agents. However, 
we are exploring the possibility of additional codes to accurately 
capture the cost differences among all contrast agents as well as the 
differing clinical

[[Page 66357]]

uses, concentration, and dose administrations. We welcome input from 
the medical community and the manufacturers of contrast media on this 
issue.
    Comment: A commenter suggested that we use a model to capture 
volume and concentration variances of LOCM. In this model, ASP would be 
calculated as ASP = Total Sales/Total Volume.
    Response: This suggested methodology does not take into account the 
weighted average for each national drug code (NDC) within a HCPCS code 
that must be used to derive an appropriate ASP code price.

Result of Evaluation of Comments

    We are revising the regulations at Sec.  414.38 to eliminate the 
criteria for the payment of LOCM. In addition, effective April 1, 2005, 
payment for LOCM will be made on the basis of the ASP plus six percent.

C. Payments for Physicians and Practitioners Managing Patients on 
Dialysis

1. ESRD-Related Services Provided to Patients in Observation Settings
    In response to comments received on billing procedures for 
physicians and practitioners managing patients on dialysis when the 
dialysis patient is hospitalized during the month, we stated in the 
November 7, 2003 Federal Register (68 FR 63220) that ESRD-related 
visits furnished to patients in observation status would not be counted 
as visits under the MCP but would be paid separately. Prior to this, 
long-standing Medicare policy had included ESRD-related visits 
furnished in the observation setting within the MCP. However, upon 
further review of this issue, in the proposed rule published August 5, 
2004, we proposed a revision to this policy and stated that ESRD-
related visits provided to patients by the MCP physician in an 
observation setting would be counted as visits for purposes of billing 
the MCP codes.
    Comment: Several commenters expressed support for allowing ESRD-
related visits provided to patients by the MCP physician in the 
observation setting to be counted for purposes of billing the MCP 
codes. However, Kidney Care Partners (KCP) and the Renal Physicians 
Association (RPA) requested clarification as to how a physician or 
practitioner who is not part of the MCP practice team should bill for 
visits furnished in the hospital observation setting. The RPA suggested 
that a hemodialysis procedure with single physician evaluation as 
described by CPT code 90935 be used.
    Response: Physicians or practitioners who are not part of the MCP 
practice team but who furnish a visit to an ESRD beneficiary in the 
observation setting can bill the appropriate observation codes that 
accurately describe the service (CPT codes 99217 through 99220). A 
hemodialysis procedure with single physician visit as described by CPT 
code 90935 will only be used when the beneficiary is an inpatient or 
for outpatient dialysis services for a non-ESRD patient.
2. Payment for Outpatient ESRD-Related Services for Partial Month 
Scenarios
    Since changing our payments for physicians and practitioners 
managing patients on dialysis, we have received a number of comments 
from the nephrology community requesting guidance on billing for 
outpatient ESRD-related services provided to transient patients and in 
partial month scenarios (for example, when the patient is hospitalized 
during the month or receives a kidney transplant). To address this 
issue, we proposed to change the description of the G codes for ESRD-
related home dialysis services, less than full month, as identified by 
G0324 through G0327. The new descriptor would include other partial 
month scenarios, in addition to patients dialyzing at home. The 
proposed descriptors for G0324 through G0327 are as follows:
    <bullet> G0324, End stage renal disease (ESRD) related services for 
dialysis less than a full month of service, per day; for patients under 
two years of age;
    <bullet> G0325, End stage renal disease (ESRD) related services for 
dialysis less than a full month of service, per day; for patients 
between two and eleven years of age;
    <bullet> G0326, End stage renal disease (ESRD) related services for 
dialysis less than a full month of service, per day, for patients 
between twelve and nineteen years of age.
    <bullet> G0327, End stage renal disease (ESRD) related services for 
dialysis less than a full month of service, per day, for patients 
twenty years of age and over.
    In the August 5, 2004 proposed rule, we stated that these G codes 
would provide a consistent way to bill for outpatient ESRD-related 
services provided under the following circumstances:
    <bullet> Transient patients--Patients traveling away from home 
(less than full month);
    <bullet> Home Dialysis Patients (less than full month);
    <bullet> Partial month where there were one or more face-to-face 
visits without the comprehensive visit and either the patient was 
hospitalized before a complete assessment was furnished, dialysis 
stopped due to death, or the patient had received a kidney transplant.
    However, we noted that this proposed change to the descriptions of 
G0324 through G0327 was intended to accommodate unusual circumstances 
when the outpatient ESRD-related services would not be paid for under 
the MCP and that use of the codes would be limited to the circumstances 
listed above. Physicians who have an on-going formal agreement with the 
MCP physician to provide cursory visits during the month (for example 
``rounding physicians'') could not use the per diem codes.

Clarification on Billing for Transient Patients

    In the August 5, 2004 proposed rule, we stated that, for transient 
patients who are away from their home dialysis site and at another site 
for fewer than 30 consecutive days, the revised per diem G codes (G0324 
through G0327) would be billed by the physician or practitioner 
responsible for the transient patient's ESRD-related care. Only the 
physician or practitioner responsible for the traveling ESRD patient's 
care would be permitted to bill for ESRD-related services using the per 
diem G codes (G0324 through G0327).
    If the transient patient is under the care of a physician or 
practitioner other than his or her regular MCP physician for a complete 
month, the physician or practitioner responsible for the transient 
patient's ESRD-related care would not be able to bill using the per 
diem codes. We also solicited comments on when a patient will be 
considered transient.
    Comment: Several commenters, including the ASN, KCP, and the RPA, 
supported our proposed change to the description of HCPCS codes G0324-
G0327 (per diem codes). The KCP believed that this change would provide 
a consistent billing method when the patient is transient, furnished 
home dialysis (less than full month), and for other partial month 
scenarios when the patient is hospitalized, has a transplant or when 
the patient expires. Additionally, several commenters praised us for 
our willingness to work with the renal community to address the 
multitude of issues surrounding the way physicians and practitioners 
are paid for managing patients on dialysis.
    However, the RPA and KCP suggested that, in addition to the 
situations described in the proposed rule, the per diem codes as 
described by G0324 through G0327 should be used to bill whenever one or 
more visits occurred

[[Page 66358]]

during the month regardless of whether the complete monthly assessment 
was furnished.
    Response: As explained in the proposed rule, we believe the per 
diem codes will only be used for unusual circumstances where the 
ongoing management of an ESRD patient would not be paid through the 
MCP. As discussed earlier, we proposed to allow the per diem codes only 
in specific circumstances. However, after further review of this issue, 
we believe that it would also be appropriate to use the per diem codes 
when the beneficiary's MCP practitioner changes permanently during the 
month. For example, the ESRD beneficiary moves from one State to 
another and a new MCP physician or practitioner has the ongoing 
responsibility for the E/M of the patient's ESRD-related care who is 
not part of the same group practice as an employee of the previous MCP 
physician. We addressed this issue in a recent instruction published on 
September 17, 2004 (CR 3414 ``Payment for Outpatient ESRD-Related 
Services'', Transmittal 300). For more information on this instruction 
please visit our Web site at http://www.cms.hhs.gov/manuals/ and select 
2004 transmittals under the program transmittals link.
    However, we will not permit the use of per diem codes (HCPCS codes 
G0324 through G0327) for all instances when the MCP physician or 
practitioner furnishes at least one visit during the month without 
regard to the status of a complete monthly assessment of the patient. 
We are concerned that permitting the per diem codes to be used in this 
manner may undermine the MCP. For example, the ESRD MCP includes 
various physician and practitioner services such as the establishment 
of a dialyzing cycle, outpatient E/M of the dialysis visit(s), 
telephone calls, patient management as well as clinically appropriate 
physician or practitioner visit(s) during the month. At least one of 
the visits must include a clinical examination of the vascular access 
site furnished face-to-face by a physician, CNS, NP or PA. When a 
practitioner bills for the MCP, the medical record must document that 
all of these services are furnished. By using the per diem codes in the 
manner suggested by the commenter, it would not be necessary for the 
practitioner to provide a complete monthly assessment of the ESRD 
beneficiary to receive payment for the ongoing management of patients 
on dialysis.
    Comment: With regard to the ESRD-related services for home dialysis 
patients, less than full month, one healthcare corporation believes 
that the proposed coding changes continue to penalize nephrologists for 
prescribing home therapy because a per diem (pro-rated) payment is made 
when a hospitalization occurs. The commenter believes that this policy 
results in an inequity as compared to a physician providing 2-3 visits 
per month for center-based dialysis patients. Additionally, the 
commenter argues that the pro-rated methodology used for home dialysis 
patients (partial month) is inconsistent with how we pay the MCP 
physician for patients undergoing dialysis treatments in a dialysis 
facility.
    The commenter believes that we should increase the payment for 
ESRD-related services for home dialysis patients to a level that is at 
least as high as the ESRD-related services (for full month) with 4 or 
more visits per month. The commenter contends that raising the payment 
amount for home-based dialysis patients would result in revenue 
opportunities similar to those available in the center-based scenario 
and would provide a greater incentive for home dialysis treatment.
    Response: We do not agree with the commenter's statement that an 
inconsistency exists in the way we pay the MCP physician for managing a 
home dialysis patient (less than full month) and center dialysis 
patient (less than full month).
    Our proposed change to the description of HCPCS codes G0324 through 
G0327 would apply to dialysis patients who receive dialysis in a 
dialysis center or other facility during the month as well as to home 
dialysis patients. For example, if a center dialysis patient is 
hospitalized during the month, has a transplant, or expires before a 
complete assessment is furnished (including a face-to-face examination 
of the vascular access site), the MCP physician would use the per diem 
rate to bill for ESRD-related care. When either a home dialysis patient 
or a patient who receives dialysis in a dialysis facility is 
hospitalized, the MCP physician or practitioner may bill for inpatient 
hemodialysis visits as appropriate (for example CPT codes 90935 and 
90937).
    Additionally, we believe the current payment level for physicians 
managing patients on home dialysis for a full month already provides an 
incentive for an increased use of home dialysis. For instance, payment 
for the monthly management of home dialysis patients is made at the 
same rate as the MCP with 2 to 3 visits. However, a monthly visit is 
not required as a condition of payment for physicians and practitioners 
managing home dialysis patients. Essentially, a physician or 
practitioner managing ESRD patients who receive dialysis in a dialysis 
facility would be required to furnish 2 to 3 face-to-face visits in 
order to receive the same level of payment as he or she would have 
received for managing a home dialysis patient. We do not believe it 
would be appropriate to pay physicians managing home dialysis patients 
at the highest MCP amount when no visits are required as a condition of 
payment.

Definition of a ``Transient Patient''

    Comment: The RPA and KCP believe that it would be more appropriate 
to refer to these patients as ``visiting patients''. The RPA suggested 
that a ``visiting patient'' be defined as a ``patient receiving 
dialysis or renal-related care whose care is temporarily supervised 
(for less than one month's time) by a physician who is not a member of 
the practice that usually charges under the MCP or G codes''.
    Response: We believe the term ``transient patients'' better 
describes a beneficiary who is away from his or her home dialysis site 
for less than a full month.

General Comments on Our Changes in Payments for Physicians and 
Practitioners Managing Patients on Dialysis

    Comment: One commenter requested clarification as to how ESRD-
related visits furnished to beneficiaries residing in a skilled nursing 
facility (SNF) adjacent to a hospital should be handled. The commenter 
explained that his SNF patients with ESRD usually receive dialysis 
treatments in an independent dialysis facility connected to a 
hospital's SNF. However, in cases when the patient is ``too ill'' to be 
transported to the independent dialysis facility, the dialysis 
treatment occurs in the inpatient dialysis treatment area (but the 
patient is not admitted to the hospital as an inpatient). The commenter 
noted that ESRD-related visits may be furnished while the patient is 
dialyzing or at the SNF when the patient is not dialyzing.
    Response: Although we have not issued specific instructions on this 
issue, we believe that ESRD-related visits furnished to SNF residents 
are similar to other ongoing management services under the MCP. As 
such, ESRD-related visits furnished to patients residing in a SNF will 
be counted for purposes of billing the MCP codes. However, if the 
beneficiary is admitted to the hospital as an inpatient, the 
appropriate inpatient visit code will be used, for example, CPT code 
90935.

[[Page 66359]]

    Comment: With regard to our revisions to the MCP (as published in 
the CY 2004 final rule), the American Association of Kidney Patients 
(AAKP) questioned if we have any current data on or future plans to 
study whether access to nephrologists or the quality of medical care 
for ESRD patients has been improved or impaired. Additionally, AAKP 
questioned whether we have any plans to develop additional proposals 
(beyond the telehealth proposal) to address access needs in rural and 
other underserved areas.
    Response: In evaluating the MCP, we will be looking for trends in 
hospitalization rates and resource utilization for ESRD patients. 
Moreover, we understand the challenges nephrologists face in visiting 
all patients on dialysis. To that end, we believe that our policy to 
allow clinical nurse specialists, nurse practitioners and physician 
assistants to furnish visits under the MCP, along with our addition of 
specific ESRD-related services to the list of Medicare telehealth 
services, will help ameliorate access issues.
    Comment: The RPA and the ASN continued to express concerns with the 
changes made in the CY 2004 final rule to the way physicians are paid 
for managing patients on dialysis. The RPA strongly believes that many 
of the underlying principles of the new HCPCS codes for managing ESRD 
patients need to be changed. The RPA cited the impact on rural 
providers, the lack of gradation in payment amounts between furnishing 
2 and furnishing 3 visits per month, and the premise that more visits 
will equate to better quality of care as major shortcomings of the new 
ESRD MCP.
    The RPA and ASN emphasized their belief that more physician and 
practitioner visits per month does not correlate to efforts to improve 
the quality of care for ESRD patients. RPA contends that a stratified 
MCP system based on the number of monthly physician and practitioner 
visits is unnecessarily complicated and believes that the vast majority 
of nephrologists provided appropriate ESRD-related care under the 
previous MCP. To that end, the RPA urged us to implement a simpler 
system based on a minimum number of patient visits and a new 
documentation requirement for the services provided under the MCP.
    Response: We appreciate the commenters' suggestions and will 
consider these comments as we continue to refine how we pay for 
physicians and practitioners managing patients on dialysis.

Results of Evaluation of Comments

    ESRD-related visits provided to patients by the MCP physician or 
practitioner in an observation setting will be counted as visits for 
purposes of billing the MCP codes.
    Moreover, we will change the description of the G codes for ESRD-
related home dialysis services, less than full month, as identified by 
G0324 through G0327. The new descriptor will include other partial 
month scenarios, in addition to patients dialyzing at home. The 
descriptors for G0324 through G0327 will be as follows:
    <bullet> G0324: End stage renal disease (ESRD) related services for 
dialysis less than a full month of service, per day; for patients under 
two years of age.
    <bullet> G0325: End stage renal disease (ESRD) related services for 
dialysis less than a full month of service, per day; for patients 
between two and eleven years of age.
    <bullet> G0326: End stage renal disease (ESRD) related services for 
dialysis less than a full month of service, per day; for patients 
between twelve and nineteen years of age.
    <bullet> G0327: End stage renal disease (ESRD) related services for 
dialysis less than a full month of service, per day; for patients 
twenty years of age and over.
    The revised per diem ESRD-related services G codes will be used for 
outpatient ESRD-related services provided in the following scenarios:
    <bullet> Transient patients--Patients traveling away from home 
(less than full month);
    <bullet> Home dialysis patients (less than full month);
    <bullet> Partial month where one or more face-to-face visits 
without the comprehensive visit and either the patient was hospitalized 
before a complete assessment was furnished, dialysis stopped due to 
death, or the patient had a transplant.
    <bullet> Patients who have a permanent change in their MCP 
physician during the month.

D. Technical Revision--Sec.  411.404

    In Sec.  411.404, Medicare noncoverage of all obesity-related 
services is used as an example. Since we are currently revising this 
coverage policy, we proposed to omit this example.
    Commenters were supportive of this proposed change and we are 
finalizing it as proposed.

E. Diagnostic Psychological Tests

    All diagnostic tests covered under section 1861(s)(3) of the Act 
and payable under the physician fee schedule must be furnished under 
the appropriate level of supervision by a physician as defined in 
section 1861(r) of the Act. Section 410.32(b)(2)(iii) states an 
exception to these physician supervision requirements for clinical 
psychologists and independently practicing psychologists (who are not 
clinical psychologists) which allows them to personally perform 
diagnostic psychological testing services without physician 
supervision. However, diagnostic psychological tests performed by 
anyone other than a clinical psychologist or an independently 
practicing psychologist must be provided under the general supervision 
of a physician as defined in section 1861(r) of the Act. Accordingly, 
clinical psychologists and independently practicing psychologists have 
not been permitted to supervise others in the administration of 
diagnostic psychological tests.
    As discussed in the August 5, 2004 proposed rule, we were asked to 
re-evaluate our regulations regarding clinical psychologists' 
supervision of diagnostic psychological tests, and additional 
information concerning provision of these services was also supplied. 
Based upon our review of this issue, we determined that clinical 
psychologists possess knowledge sufficient to direct test selection and 
interpret test data. Therefore, we proposed to change the requirements 
at Sec.  410.32(b)(2)(iii) to permit clinical psychologists to 
supervise the performance of diagnostic psychological and 
neuropsychological testing services.
    Comment: Two specialty societies representing psychologists and 
many individual commenters were in support of the change. One major 
association representing psychiatrists and a few individual commenters 
opposed the proposal. According to the association, expanding the 
supervision requirements will not lessen the burden on physicians and 
healthcare facilities within rural areas. In addition, this association 
asked that we provide data showing that the change to the supervision 
requirements will reduce the burden on physicians and health care 
facilities, and that access will be improved in rural areas.
    Response: We appreciate the positive comments in support of this 
proposal.
    In response to the request for evidence that this change will 
reduce burden and improve access, we would first note that our primary 
reason for proposing this change was that we believe clinical 
psychologists possess the core knowledge to sufficiently supervise the 
administration of these tests. By enabling them to do so, this change 
will allow greater flexibility in their practices.

[[Page 66360]]

    With regard to improved access in rural areas, we noted previously 
in this rule that we recognize mental health HPSAs for incentive 
payments for psychiatrists. Accordingly, we believe that the expansion 
of the supervision requirements will help improve access in these 
areas.

Result of Evaluation of Comments

    As proposed, we are revising Sec.  410.32(b)(2)(iii) to permit 
clinical psychologists to supervise the performance of diagnostic 
psychological and neuropsychological testing services.

F. Care Plan Oversight

    Care Plan Oversight (CPO) refers to the supervision of patients 
receiving Medicare-covered home health or hospice services requiring 
complex multidisciplinary care modalities, including regular 
development and review of plans of care. In the August 5, 2004 rule, we 
proposed to revise Sec.  414.39 to clarify that NPPs can perform home 
health CPO; however, they cannot certify a patient for home health 
services and sign the plan of care. We also proposed the conditions 
under which NPP services may be billed for CPO and explained that the 
proposed conditions are meant to ensure that the NPP has seen and 
examined the patient and that the appropriate and established 
relationship exists between the physician who certifies the patient for 
home health services and the NPP who will provide the home health CPO.
    Comment: Several commenters support the proposed revision and 
conditions of coverage. They support the integrated practice 
arrangements required by proposed Sec.  414.39(c)(2)(iii). They believe 
the proposed conditions ensure appropriate, ongoing supervision of both 
the patient's condition and the NPP.
    Response: We appreciate the commenters' support for this proposal.
    Comment: We received a comment from an association representing 
home care physicians requesting that we include PAs in the 
clarification because PAs increasingly play the same role as NPs in 
home health care and bill under the same house call codes.
    Response: We agree with the commenter that we include PAs in the 
clarification. The definition of NPPs in proposed Sec.  414.39(a) 
includes NPs, CNSs, and PAs. However, we also note that PAs cannot bill 
directly for their own services.
    Comment: We received a comment requesting that we clearly state the 
definition of the appropriate relationship between the physician and 
the NPP. The commenter requested that we cross-reference applicable 
State standards because the meaning of collaboration varies across 
States and some States require employment relationships. Also, the 
commenter recommended that we require a written agreement regarding the 
responsibilities for managing care when the NP or PA is not from the 
same organization as the physician who has certified the skilled home 
care services.
    Response: We agree that State laws or regulations governing 
collaborative relationships, where applicable, would be useful in this 
regard. In the absence of State laws or regulations, NPs and CNSs will 
be required to document their scope of practice and indicate the 
relationships they have with physicians to handle issues outside their 
scope of practice. If the NPP is a PA, the physician signing the plan 
of care also must be the physician who provides general supervision of 
PA services for the practice.
    Comment: We received a comment requesting that this clarification 
be made retroactive to at least FY 2000 to allow denied claims to be 
resubmitted. The commenter stated that many claims for CPO services by 
NPs were denied over the past several years, despite CMS and 
legislative intent to have these claims reimbursed.
    Response: We clarified in the November 1, 2000 final rule (65 FR 
65407) that CPO services of NPPs, practicing within the scope of State 
law applicable to their services, could be paid under Medicare. 
However, our policy has also been that the physician who bills for CPO 
must be the same physician who signs the plan of care.
    Appeal rights are available for these claims for CPO services 
provided by NPPs in HHAs if the appeal is requested within 120 days of 
the date of the claim denial. If appeal rights have expired, the 
physician or supplier may request a reopening for any reason within 12 
months of the date of the notice of initial determination. After the 
12-month period, but within 4 years from the date of the initial 
determination, a reopening may be requested for good cause. The 
decision on whether to reopen a claim at the request of the physician 
or supplier is at the discretion of the Medicare contractor.
    Comment: We received comments noting that this clarification does 
not allow NPs, CNSs, or PAs to certify a patient for home health care 
services or to sign the plan of care. The commenters noted that 
certification by NPPs is not currently permitted under the statute. One 
of the commenters recommended that we revise the rules on certification 
and recertification to allow NPs, CNSs, or PAs to perform them.
    Response: The commenters are correct that the statute (sections 
1814(a)(2)(C) and 1835(a)(2)(A) of the Act) requires a physician to 
certify a patient for home health care services or to sign the plan of 
care. Therefore, the issue of whether to allow NPs, CNSs, or PAs to 
certify a patient for home health care services or to sign the plan of 
care is not within the purview of this rule.

Result of Evaluations of Comments

    We are adopting the proposed changes to Sec.  414.39 that clarify 
that NPPs can provide care plan oversight for beneficiaries who receive 
home health services.

G. Assignment of Medicare Claims--Payment to the Supplier

    The current regulation requires the beneficiary (or the person 
authorized to request payment on the beneficiary's behalf) to assign a 
claim to the supplier for an assignment to be effective. However, over 
time, the Act was amended in various sections to require that Medicare 
payment for certain services would only be made on an assigned basis 
regardless of whether or not the beneficiary actually assigns the claim 
to the supplier. In these instances, the current requirement in Sec.  
424.55(a), which specifies that the beneficiary assign the claim to the 
supplier, is now unnecessary. Therefore, we proposed to create an 
exception to the general rule in Sec.  424.55(a). New Sec.  424.55(c) 
would eliminate the requirement that beneficiaries assign claims to 
suppliers in situations when payment under the Act can only be made on 
an assignment-related basis or when payment is for services furnished 
by a participating physician or supplier.
    Comment: The ACLA supports the proposal and agrees that this new 
exception to the requirement for beneficiaries to assign benefits in 
situations where benefits can, by statute, only be paid on an assigned 
basis will reduce the paperwork burden on beneficiaries and suppliers.
    Response: We agree that the proposed regulation will reduce the 
paperwork burden on beneficiaries and suppliers and we are finalizing 
the revisions as proposed.

Result of Evaluation of Comments

    We are finalizing Sec.  424.55(c) as proposed.

H. Additional Issues Raised by Commenters

    Comment: Two specialty societies representing plastic surgeons and

[[Page 66361]]

podiatrists, as well as the RUC, recommended that the global period for 
CPT 15342, Application of bilaminate skin substitute/neodermis; 25 sq 
cm, be changed from a 10-day global period to a 0-day global period. 
The commenters stated that the plastic surgeons generally perform this 
procedure on more severely injured patients, such as burn patients, who 
are often seen in the inpatient setting. The podiatrists, on the other 
hand, typically treat patients with diabetic foot ulcers in the 
outpatient setting. Therefore, the commenters contend that though the 
work required to perform the procedure is the same for both 
specialties, the post-surgical work and time are not and the change in 
the global period would allow both scenarios to be paid appropriately.
    Response: We understand that this code can represent differing 
scenarios. However, while podiatrists perform approximately 45 percent 
of the procedures and general surgeons 17 percent, plastic surgeons 
perform only 7 percent. In addition, only 9 percent are performed in 
the inpatient hospital setting. Our general approach and the one 
adopted by the RUC for valuing all services is to base our review on 
the typical patient. In this case, the podiatric scenario would clearly 
dominate and applying a 10-day global period to capture the post-
procedure office visit appears appropriate. However, we would be 
willing to discuss this issue further with the specialties involved and 
with the RUC.
    Comment: The American Society of Anesthesiologists (ASA) provided 
comments asking that we consider revising the current teaching 
regulations to place teaching anesthesiologists' reimbursements on par 
with the teaching of resident physicians in surgery and other high-risk 
specialties. Also, that we redefine the HCPCS claims service modifier 
``AA'' to include both the personal administration of the anesthesia by 
the physician and teaching up to two resident physicians concurrently. 
In its comments, the ASA stated that it believes we possess the 
authority under the terms of section 1871 of the Medicare statute to 
make the requested change in its teaching reimbursement rules, 
effective January 1, 2005, as follows: the agency can treat the rule as 
a logical outgrowth of a prior proposal; it can issue a final rule with 
comment period as part of the 2005 physician payment final rule; or, it 
can promptly issue a free-standing rule proposing the change and allow 
for public comment and subsequent effectiveness along with the 2005 
physician payment rule. The American Association of Nurse Anesthetists 
(AANA) asked that, if we review proposed revisions to the teaching 
anesthesiologist rules, that we carefully consider how these revisions 
might impact teaching Certified Registered Nurse Anesthetists (CRNAs). 
The AANA commented that our rules should not favor one type of provider 
over another.
    Response: Surgical services are paid differently than anesthesia 
services. For example, surgical codes usually have global periods and 
payment includes the payment for the surgical procedure and 
postoperative visits during the global period. Anesthesia services 
include the preanesthesia examination and evaluation, the anesthesia 
service associated with the surgical service, and immediate 
postanesthesia care. Currently, the teaching physician's presence 
during the key or critical period criteria applies to both the services 
of the teaching surgeon and the teaching anesthesiologist. The key or 
critical services are different for the service of each specialty.
    We plan to explore these issues further prior to deciding whether 
to include this change in the proposed rule for 2006.
    Comment: We received comments from a manufacturer, many providers 
and individuals requesting that new HCPCS codes be created for a 
specific laser surgery treatment for benign prostatic hyperplasia. 
Commenters stated that current CPT codes used for billing this service 
under the physician fee schedule are not specific to the unique 
technology involved with this laser surgery treatment and result in 
underpayment when this technology is used. They noted that under the 
hospital OPPS, this treatment was assigned to a new technology code.
    We also received requests from other individuals for new G codes 
and payment for other specific services, and for certain HCPCS codes 
that currently are paid only under OPPS.
    Response: We do not believe that it is necessary to create new 
HCPCS codes for these services. Commenters that believe the existing 
CPT codes do not reflect their technology or services, may contact the 
AMA's CPT Editorial Panel to review these matters, particularly since 
the CPT Editorial Panel has a new coding classification specifically 
for new and emerging technologies.
    There will be situations where codes are used under OPPS but not 
recognized under the physician fee schedule (PFS) because of the 
different payment methodologies.
    Comment: A specialty society urged us to discontinue use of the 
HCPCS codes for positron emission tomography (PET) procedures and to 
instruct physicians to use the available CPT codes. They also urged us 
to adopt RUC recommendations for new PET codes rather than carrier 
price these services. The commenter stated they would like to meet to 
discuss these new codes and PET/computed tomography (CT) technology.
    Response: We will continue to use HCPCS codes and carrier price 
these services at this time. We will be examining the overall issue of 
Medicare coding, payment, and coverage of PET services and would be 
happy to meet with the specialty society to discuss this issue.

General Issues

    We also received comments on issues and concerns that were beyond 
the scope of the proposed rule. These include: The need for quality 
standards for diagnostic imaging; concerns about outreach and access; 
requests for revisions to current policy; and, concerns about the 
accuracy of code descriptors. While we will try to ensure these 
comments are provided to appropriate CMS components, commenters should 
also feel free to contact the appropriate CMS components about their 
concerns. To the extent that these comments involved valuation of 
services under the physician fee schedule, we are also soliciting 
comments on services for which the physician work may be misvalued. See 
section VI for additional information on this process.

V. Refinement of Relative Value Units for Calendar Year 2005 and 
Response to Public Comments on Interim Relative Value Units for 2004

[If you choose to comment on issues in this section, please include the 
caption ``Interim Work Relative Value Units'' at the beginning of your 
comments.]

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

    Section V.B. and V.C. of this final rule describes the methodology 
used to review the comments received on the RVUs for physician work and 
the process used to establish RVUs for new and revised CPT codes. 
Changes to codes on the physician fee schedule reflected in Addendum B 
are effective for services furnished beginning January 1, 2005.

B. Process for Establishing Work Relative Value Units for the 2004 
Physician Fee Schedule

    Our November 7, 2003 final rule (69 FR 1084) contained the work 
RVUs for Medicare payment for existing

[[Page 66362]]

procedure codes under the physician fee schedule and interim RVUs for 
new and revised codes beginning January 1, 2004. We considered the RVUs 
for the interim codes to be subject to public comment under the annual 
refinement process. (Note that the November rule was subsequently 
revised on January 7, 2004 to reflect revisions to procedure codes 
required by the MMA.) In this section, we summarize the refinements to 
the interim work RVUs published in the November 7, 2003 rule and our 
establishment of the work RVUs for new and revised codes for the 2005 
physician fee schedule.

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

1. Methodology (Includes Table Titled ``Work Relative Value Unit 
Refinements of the 2003 Interim and Related Relative Value Units'')
    Although the RVUs in the January 2004 final rule were used to 
calculate 2004 payment amounts, we considered the RVUs for the new or 
revised codes to be interim. We accepted comments for a period of 60 
days. We received substantive comments on approximately 12 CPT codes 
with interim work RVUs.
    To evaluate these comments we used a process similar to the process 
used since 1997. (See the October 31, 1997 final rule (62 FR 59084) for 
the discussion of refinement of CPT codes with interim work RVUs.) We 
convened a multispecialty panel of physicians to assist us in the 
review of the comments. The comments that we did not submit to panel 
review are discussed at the end of this section, as well as those that 
were reviewed by the panel. We invited representatives from the 
organizations from which we received substantive comments to attend a 
panel for discussion of the code on which they had commented. The panel 
was moderated by our medical staff, and consisted of the following 
voting members:
    <bullet> One or two clinicians representing the commenting 
organization.
    <bullet> One primary care clinician nominated by the American 
College of Physicians and American Society of Internal Medicine.
    <bullet> Four carrier medical directors.
    <bullet> Four clinicians with practices in related specialties who 
were expected to have knowledge of the service under review.
    The panel discussed the work involved in the procedure under review 
in comparison to the work associated with other services under the 
physician fee schedule. We assembled a set of 300 reference services 
and asked the panel members to compare the clinical aspects of the work 
of the service a commenter believed was incorrectly valued to one or 
more of the reference services. In compiling the set, we attempted to 
include: (1) Services that are commonly performed whose work RVUs are 
not controversial; (2) services that span the entire spectrum from the 
easiest to the most difficult; and (3) at least three services 
performed by each of the major specialties so that each specialty would 
be represented. The intent of the panel process was to capture each 
participant's independent judgment based on the discussion and his or 
her clinical experience. Following the discussion, each participant 
rated the work for the procedure. Ratings were individual and 
confidential, and there was no attempt to achieve consensus among the 
panel members.
    We then analyzed the ratings based on a presumption that the 
interim RVUs were correct. To overcome this presumption, the inaccuracy 
of the interim RVUs had to be apparent to the broad range of physicians 
participating in each panel.
    Ratings of work were analyzed for consistency among the groups 
represented on each panel. In addition, we used statistical tests to 
determine whether there was enough agreement among the groups of the 
panel and whether the agreed-upon RVUs were significantly different 
from the interim RVUs published in Addendum C of the final rule. We did 
not modify the RVUs unless there was a clear indication for a change. 
If there was agreement across groups for change, but the groups did not 
agree on what the new RVUs should be, we eliminated the outlier group 
and looked for agreement among the remaining groups as the basis for 
new RVUs. We used the same methodology in analyzing the ratings that we 
first used in the refinement process for the 1993 physician fee 
schedule. The statistical tests were described in detail in the 
November 25, 1992 final rule (57 FR 55938).
    Our decision to convene multispecialty panels of physicians and to 
apply the statistical tests described above was based on our need to 
balance the interests of those who commented on the work RVUs against 
the redistributive effects that would occur in other specialties.
    We also received comments on RVUs that were interim for 2004, but 
for which we did not submit the RVUs to the panel for review for a 
variety of reasons. These comments and our decisions on those RVUs 
commented upon are discussed in further detail below.
    Table 17 below lists those interim codes reviewed under the 
refinement panel process described in this section. This table includes 
the following information:
    <bullet> CPT Code. This is the CPT code for a service.
    <bullet> Description. This is an abbreviated version of the 
narrative description of the code.
    <bullet> 2004 Work RVU. The work RVUs that appeared in the January 
2004 rule are shown for each reviewed code.
    <bullet> Requested Work RVU. This column identifies the work RVUs 
requested by commenters.
    <bullet> 2005 Work RVU. This column contains the final RVUs for 
physician work.

[[Page 66363]]

[GRAPHIC] [TIFF OMITTED] TR15NO04.515

2. Interim 2004 Codes
    CPT code 43752 Naso- or oro-gastric tube placement, requiring 
physician's skill and fluoroscopic guidance (includes fluoroscopy, 
image documentation and report).
    The RUC recommended a work RVU of 0.82 for this service based on a 
comparison of this procedure to CPT code 44500, Introduction of long 
gastrointestinal tube. While we agreed that CPT code 43752 is similar 
in work intensity to CPT code 44500, we believed the intra-service time 
is more appropriately valued at the 25th percentile (15 minutes of 
intra-service time vs. 20 minutes of intra-service time). This reduced 
the total time associated with CPT code 43752 from 30 minutes to 25 
minutes. We applied the ratio of the RUC recommended value of 0.82 work 
RVU over 30 minutes to the revised intra-service time of 25 minutes and 
assigned 0.68 interim work RVUs for CPT code 43752.
    Comment: Commenters disagreed with our decision not to accept the 
RUC recommended WRVU of 0.82 and with our rejection of the survey time, 
particularly since this service involves both tube placement and 
imaging. Based on these comments, we referred this code to the 
multispecialty validation panel for review.
    Response: As a result of the statistical analysis of the 2004 
multispecialty validation panel ratings, we have assigned 0.81 work 
RVUs to CPT code 43752.
    CPT code 63103 Vertebral corpectomy (vertebral body resection), 
partial or complete, lateral extracavitary approach with decompression 
of spinal cord and/or nerve root(s) (for example, for tumor or 
retropulsed bone fragments); thoracic or lumbar, each additional 
segment (List separately in addition to code for primary procedure).
    The RUC recommended a work RVU of 5.00 for this service based on a 
comparison of this procedure to CPT code 63088, the add-on code for the 
vertebral corpectomy, thoracic lumbar approach. We stated that it was 
unclear from the clinical vignettes supplied by the specialty society 
whether the additional corpectomy would more commonly involve the 
lumbar or the thoracic region of the spine. There is a significant 
difference in work intensity associated with the resection of an 
additional corpus in the thoracic region as opposed to the lumbar 
region. For this reason we applied the ratio of the reference service 
(CPT code 63088) to its primary service (CPT code 63087) to CPT code 
63101 (primary service associated with CPT 63103) to assign 3.90 
interim work RVUs for CPT code 63103.
    Comment: Commenters requested that we withdraw the arbitrary 
reduction of the work RVU for CPT code 63103 stating that the unique 
aspects of the lateral extracavitary approach make the location in the 
lumbar and thoracic spine less relevant than the actual exposure of an 
additional level itself. The commenters stated that in contrast to 
anterior thoracic or lumbar approaches for vertebral corpectomy, the 
lateral extracavitary approach requires an unrelated and significantly 
greater muscle dissection of spinal/paraspinal tissues, as well as an 
additional rib, transverse process, and pedicle removal with isolation 
and division of another pair of segmental vessels. Based on these 
comments, we referred this code to the multispecialty validation panel 
for review.
    Response: As a result of the statistical analysis of the 2004 
multispecialty validation panel ratings, we have assigned 4.82 work 
RVUs to CPT code 63103.
    CPT codes 38207 Transplant preparation of hematopoietic progenitor 
cells; cryopreservation and storage, 38208 Transplant preparation of 
hematopoietic progenitor cells; thawing of previously frozen harvest, 
without washing, 38209 Transplant preparation of hematopoietic 
progenitor cells; thawing of previously frozen harvest, with washing 
38210 Transplant preparation of hematopoietic progenitor cells; 
specific cell depletion within harvest, T-cell depletion, 38211 
Transplant preparation of hematopoietic progenitor cells; tumor cell 
depletion, 38212 Transplant preparation of hematopoietic progenitor 
cells; red blood cell removal, 38213 Transplant preparation of 
hematopoietic progenitor cells; platelet depletion, 38214 Transplant 
preparation of hematopoietic progenitor cells; plasma (volume) 
depletion, 38215 Transplant preparation of hematopoietic progenitor 
cells; cell concentration in plasma, mononuclear, or buffy coat 
layer.--These codes were new for CY 2003 but we did not receive the 
final RUC recommendations in time for inclusion in the final rule. In 
the December 31, 2002 rule we discussed the interim RUC recommendations 
and our concerns for removing these codes from the laboratory fee 
schedule, and paying them instead on the physician fee schedule (67 FR 
80007). We received the final RUC recommendations in May 2003 and in 
the November 7, 2003 final rule we stated we were maintaining a status 
indicator ``I'' for these services making them not valid for payment 
under the physician fee schedule. (Note: In the December 31, 2002 rule, 
as part of the discussion about these CPT codes, we discussed the 
creation of HCPCS codes G0265, Cryopreservation, freezing and storage 
of cells for therapeutic use, each cell line; G0266 Thawing and 
expansion of frozen cells for therapeutic use, each aliquot; and G0267, 
Bone marrow or peripheral stem cell harvest,

[[Page 66364]]

modification or treatment to eliminate cell type(s) (for example, T-
cells, metastic carcinoma). We stated that these HCPCS codes are paid 
under the laboratory fee schedule.)
    Comment: We received comments regarding these codes in response to 
the 2002 and 2003 final rules. Commenters expressed concern, which was 
shared by the RUC about the CMS decision pertaining to these CPT codes. 
They stated that CMS was invited to conduct site visits to observe and 
have a better understanding of these services. They believe such visits 
would provide additional information on these services and allow for a 
more informed decision about their placement on the physician fee 
schedule.
    Response: CPT codes 38207, 38208, 38209, 38210, 38211, 38212, 
38213, 38214 and 38215 reflect services that are typically provided by 
laboratory personnel who require general oversight and supervision by a 
laboratory physician, analogous to a physician providing oversight in a 
blood banking facility. Based on site visits, we continue to believe 
that these services are not typically provided by a physician. We 
recognize that variability pertaining to the clinical and laboratory 
management of patients does exist and that in some bone marrow 
transplant centers these laboratory services are closely supervised and 
managed by physicians. These centers, however, do not reflect the 
typical practice pattern for the majority of bone marrow transplant 
centers. Therefore, we will continue to allow use of HCPCS codes G0265 
Cryopreservation, freezing and storage of cells for therapeutic use, 
each cell line and G0266 Thawing and expansion of frozen cells for 
therapeutic use, each aliquot to report these services, and G0267 Bone 
marrow or peripheral stem cell harvest, modification or treatment to 
eliminate cell type(s) (for example, T-cells, metastatic carcinoma). 
These services are currently on the laboratory fee schedule. We welcome 
additional comments to help us better determine whether to place CPT 
codes 38207 through 38215 on either the physician or laboratory fee 
schedule.
    Note: We identified the services provided within transplant centers 
as clinical services typically provided by a physician in conjunction 
with the following codes: CPT codes 38205--Blood-derived hematopoietic 
progenitor cell harvesting for transplantation, per collection; 
allogenic, CPT 38206--Blood-derived hematopoietic progenitor cell 
harvesting for transplantation, per collection; autologous, CPT codes 
38240--Bone Marrow or bone derived peripheral stem cell 
transplantation; allogenic, CPT code 38241--Bone Marrow or bone derived 
peripheral stem cell transplantation; autologous, and CPT code 38242--
Bone Marrow or bone derived peripheral stem cell transplantation; 
allogeneic lymphocyte donor infusions. We believe the physician work 
RVUs assigned by the RUC to these codes (CPT code 38205-1.50, CPT code 
38206-1.50, CPT code 38240-2.24 RVUs, CPT code 38241-2.24 RVUs, and CPT 
code 38242-1.71 RVUs) appropriately reflect the physician work 
intensity for each of these services and reaffirm our prior decision 
announced in 2002. CPT code 38204--Management of recipient 
hematopoietic progenitor cell donor search and cell acquisition was 
valued at 2.00 RVUs by the RUC in 2002. We believe there may be 
physician work when providing this service. However, information 
obtained during our site visits revealed that the bulk of the service 
was provided by the transplant coordinator, who worked closely with the 
physician. It is unclear at this point what the appropriate value will 
be for the physician who provides this service. We welcome comments on 
this issue.
    CPT code 76514 Ophthalmic ultrasound, echography, diagnostic; 
corneal pachymetry, unilateral or bilateral (determination of corneal 
thickness).--We accepted the RUC recommendation of 0.17 work RVUs.
    Comments: The American Academy of Ophthalmology commented that the 
assigned work RVU does not accurately reflect the value intended by the 
RUC or CPT; the value should be doubled. The Academy stated that the 
problem arose when the RUC recommended to CPT that the descriptor 
should be changed from unilateral to unilateral or bilateral. The 
commenter suggested that either the descriptor be changed to reflect 
only the unilateral, which will take a while to accomplish, or that we 
increase valuation to correctly reflect valuation by RUC.
    Response: Because we have no data that indicates whether the 
unilateral or bilateral procedure is more typical, we are not changing 
the RVUs at this time. We would suggest that the Academy contact the 
CPT Editorial Panel if a change to the descriptor would be helpful to 
the specialty.

Establishment of Interim Work Relative Value Units for New and Revised 
Physician's Current Procedural Terminology (CPT) Codes and New 
Healthcare Common Procedure Coding System Codes (HCPCS) for 2005 
(Includes Table Titled ``American Medical Association Specialty 
Relative Value Update Committee and Health Care Professionals Advisory 
Committee Recommendations and CMS's Decisions for New and Revised 2005 
CPT Codes'')

    One aspect of establishing RVUs for 2005 was to assign interim work 
RVUs for all new and revised CPT codes. As described in our November 
25, 1992 notice on the 1993 physician fee schedule (57 FR 55983) and in 
section III.B. of the November 22, 1996 final rule (61 FR 59505 through 
59506), we established a process, based on recommendations received 
from the AMA's RUC, for establishing interim work RVUs for new and 
revised codes.
    This year we received work RVU recommendations for 149 new and 
revised CPT codes from the RUC. Our staff and medical officers reviewed 
the RUC recommendations by comparing them to our reference set or to 
other comparable services for which work RVUs had previously been 
established. We also considered the relationships among the new and 
revised codes for which we received RUC recommendations and agreed with 
the majority of the relative relationships reflected in the RUC values. 
In some instances, although we agreed with the relationships, we 
nonetheless revised the work RVUs to achieve work neutrality within 
families of codes. That is, the work RVUs have been adjusted so that 
the sum of the new or revised work RVUs (weighted by projected 
frequency of use) for a family will be the same as the sum of the 
current work RVUs (weighted by projected frequency of use) for the 
family of codes. We reviewed all the RUC recommendations and accepted 
approximately 99 percent of the RUC recommended values. For 
approximately 1 percent of the recommendations, we agreed with the 
relativity established by the RUC, but needed to adjust work RVUs to 
retain budget neutrality.
    We received four recommendations from the HCPAC. We agreed with two 
of these recommendations and disagreed with two of them.
    Table 18, titled ``AMA RUC and HCPAC Recommendations and CMS 
Decisions for New and Revised 2005 CPT Codes,'' lists the new or 
revised CPT codes, and their associated work RVUs, that will be interim 
in 2005. This

[[Page 66365]]

table includes the following information:
    <bullet> A ``<greek-i>'' identifies a new code for 2005.
    <bullet> CPT code. This is the CPT code for a service.
    <bullet> Modifier. A ``26'' in this column indicates that the work 
RVUs are for the professional component of the code.
    <bullet> Description. This is an abbreviated version of the 
narrative description of the code.
    <bullet> RUC recommendations. This column identifies the work RVUs 
recommended by the RUC.
    <bullet> HCPAC recommendations. This column identifies the work 
RVUs recommended by the HCPAC.
    <bullet> CMS decision. This column indicates whether we agreed or 
we disagreed with the RUC recommendation. Codes for which we did not 
accept the RUC recommendation are discussed in greater detail following 
this table. An ``(a)'' indicates that no RUC recommendation was 
provided.
    <bullet> 2005 Work RVUs. This column establishes the interim 2005 
work RVUs for physician work.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR15NO04.516


[[Page 66366]]


[GRAPHIC] [TIFF OMITTED] TR15NO04.517


[[Page 66367]]


[GRAPHIC] [TIFF OMITTED] TR15NO04.518


[[Page 66368]]


[GRAPHIC] [TIFF OMITTED] TR15NO04.519

BILLING CODE 4120-01-C
    Table 19, which is titled ``AMA RUC ANESTHESIA RECOMMENDATIONS AND 
CMS DECISIONS FOR NEW AND REVISED 2005 CPT CODES'', lists the new or 
revised CPT codes for anesthesia and their base units that will be 
interim in 2005. This table includes the following information:
    <bullet> CPT code. This is the CPT code for a service.
    <bullet> Description. This is an abbreviated version of the 
narrative description of the code.
    <bullet> RUC Recommendations. This column identifies the base units 
recommended by the RUC.
    <bullet> CMS decision. This column indicates whether we agreed or 
we disagreed with the RUC recommendation. Codes for which we did not 
accept the RUC recommendation are discussed in grreater detail 
following this table.
    <bullet> 2005 Base Units. This column establishes the 2005 base 
units for these services.
[GRAPHIC] [TIFF OMITTED] TR15NO04.520


[[Page 66369]]



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

    The following is a summary of our rationale for not accepting 
particular RUC work RVU or base unit recommendations. It is arranged by 
type of service in CPT order. Additionally, we discuss those CRP codes 
for which we received no RUC recommendations for physician work RVUs. 
This summary refers only to work RVUs or base units.

New and Revised Codes for 2005

    CPT mode 97605 Negative pressure wound therapy (for example, vacuum 
assisted drainage collection), including topical application(s), wound 
assessment, and instruction(s) for ongoing care, per session; total 
wound(s) surface area less than or equal to 50 square centimeters and 
CPT code 97606 Negative pressure wound therapy (for example, vacuum 
assisted drainage collection), including topical application(s), wound 
assessment, and instruction(s) for ongoing care, per session; total 
wound(s) surface area greater than 50 square centimeters.--The RUC 
HCPAC review board recommended 0.55 work RVUs for CPT code 97605 and 
0.60 work RVUs for CPT code 97606, which we did not accept. We disagree 
with their recommendation that these services contain physician work 
and will not assign work RVUs. Further, when the negative pressure 
wound therapy service does not encompass selective debridement, we 
consider this service to represent a dressing change and will not make 
separate payment. When the negative pressure wound therapy service 
includes the need for selective debridement, we consider the services 
represented by CPT codes 97605 and 97606 to be bundled into CPT codes 
97597 or 97598, the new debridement codes, which will be appropriately 
billed. We are assigning a status indicator of ``B'' to these two new 
CPT codes (97605 and 97606), meaning that we will not make separate 
payment for these services.
    CPT code 57282, Colpopexy, vaginal; extra-peritoneal approach 
(sacrospinous, iliococcygeus) and CPT code 57283 Colpopexy, vaginal; 
intra-peritoneal approach (uterosacral, levator myorrhaphy).--The CPT 
Editorial Panel revised an existing code (57282) and created a new code 
(57283) to describe vaginal extra and intraperitoneal colpopexies. The 
RUC recommended maintaining the current work PVUs of 8.85 for 57282 and 
recommended 14.00 work PVUs for 57283. Previously, both the extra-
peritoneal approach and intra-peritoneal approach were billed under CPT 
code 57282. Effective January 1, 2005, CPT code 57282 will be used to 
report colpopexy, vaginal; extra-peritoneal approach, while CPT code 
57283 will be used to report colpopexy vaginal; intraperitoneal 
approach. Although we agree with the relativity established by the RUC, 
we believe that the work RVUs for CPT code 57282 should have been 
adjusted to reflect that the intra-peritoneal approach is now being 
reported using CPT code 57283. In order to retain work neutrality 
between these two services, we adjusted the work RVUs using the 
utilization crosswalks provided by the specialty survey to account for 
the work that was previously associated with performing these 
procedures when only one code existed. This results in work RVUs of 
6.86 for CPT code 57282 and 10.84 work RVUs for CPT code 57283.
    We have not received the final recommendations from the RUC on 
these services and carriers will price these services in 2005.
    CPT Code 32855 Backbench standard preparation of cadaver donor lung 
allograft prior to transplantation, including dissection of allograft 
from surrounding soft tissues to prepare pulmonary venous/atrial cuff, 
pulmonary artery, and bronchus; unilateral; CPT Code 32856 Backbench 
standard preparation of cadaver donor lung allograft prior to 
transplantation, including dissection of allograft from surrounding 
soft tissues to prepare pulmonary venous/atrial cuff, pulmonary artery, 
and bronchus; bilateral; CPT Code 33933 Backbench standard preparation 
of cadaver donor heart/lung allograft prior to transplantation, 
including dissection of allograft from surrounding soft tissues to 
prepare aorta, superior vena cava, inferior vena cava, and trachea for 
implantation; CPT Code 33944 Backbench standard preparation of cadaver 
donor heart allograft prior to transplantation, including dissection of 
allograft from surrounding soft tissues to prepare aorta, superior vena 
cava, inferior vena cava, pulmonary artery, and left atrium for 
implantation; CPT Code 44715 Backbench standard preparation of cadaver 
or living donor intestine allograft prior to transplantation, including 
mobilization and fashioning of the superior mesenteric artery and vein; 
CPT Code 47143 Backbench standard preparation of cadaver donor whole 
liver graft prior to allotransplantation, including cholecystectomy, if 
necessary, and dissection and removal of surrounding soft tissues to 
prepare the vena cava, portal vein, hepatic artery, and common bile 
duct for implantation; without trisegment or lobe spilt; CPT Code 47144 
Backbench standard preparation of cadaver donor whole liver graft prior 
to allotransplantation, including cholecystectomy, if necessary, and 
dissection and removal of surrounding soft tissues to prepare the vena 
cava, portal vein, hepatic artery, and common bile duct for 
implantation; with trisegment split of whole liver graft into two 
partial liver grafts (that is, left lateral segment (segments II and 
III) and right trisegment (segments I and IV through VIII)); CPT Code 
47145 Backbench standard preparation of cadaver donor whole liver graft 
prior to allotransplantation, including cholecystectomy, if necessary, 
and dissection and removal of surrounding soft tissues to prepare the 
vena cava, portal vein, hepatic artery, and common bile duct for 
implantation; with lobe split of whole liver graft into two partial 
liver grafts (that is, left lobe (segments II, III, and IV) and right 
lobe (segments I and V through VIII)); CPT Code 48551 Backbench 
standard preparation of cadaver donor pancreas allograft prior to 
transplantation, including dissection of allograft from surrounding 
soft tissues, splenectomy, duodenotomy, ligation of bile duct, ligation 
of mesenteric vessels, and Y-graft arterial anastomoses from iliac 
artery to superior mesenteric artery and to splenic artery, CPT Code 
50323 Backbench standard preparation of cadaver donor renal allograft 
prior to transplantation, including dissection and removal of 
perinephric fat, diaphragmatic and retroperitoneal attachments, 
excision of adrenal gland, and preparation of ureter(s), renal vein(s), 
and renal artery(s), ligating branches, as necessary; CPT Code 50325 
Backbench standard preparation of living donor renal allograft (open or 
laparoscopic) prior to transplantation, including dissection and 
removal of perinephric fat and preparation of ureter(s), renal vein(s), 
and renal artery(s), ligating branches, as necessary; and CPT Code 
93745 Initial set-up and programming by a physician of wearable 
cardioverter-defibrillator includes initial programming of system, 
establishing baseline electronic ECG, transmission of data to data 
repository, patient instruction in wearing system and patient reporting 
of problem or events.

[[Page 66370]]

Establishment of Interim Practice Expense RVUs for New and Revised 
Physician's Current Procedural Terminology (CPT) Codes and New 
Healthcare Common Procedure Coding System (HCPCS) Codes for 2005

    We have developed a process for establishing interim practice 
expense RVUs for new and revised codes that is similar to that used for 
work RVUs. Under this process, the RUC recommends the practice expense 
direct inputs (the staff time, supplies and equipment) associated with 
each new code. We then review the recommendations in a manner similar 
to our evaluation of the recommended work RVUs.
    The RUC recommendations on the practice expense inputs for the new 
and revised 2005 codes were submitted to us as interim recommendations.
    We have accepted, in the interim, the practice expense 
recommendations submitted by the RUC for the codes listed in the table 
titled ``AMA RUC and HCPAC RVU Recommendations and CMS Decisions for 
New and Revised 2005 CPT Codes.'' However, we will be reviewing the 
supplies, including the DNA probes, for the new and revised in situ 
hybridization codes (CPT 88365, 88367 and 88368) to ensure that the 
practice expense database accurately reflects the supplies associated 
with these services.

Other Issues

    Comment: The RUC requested that we modify the definition of the 
``preservice'' portion for the 0-, 10- and 90-day global periods to 
state, ``The preservice period includes the physicians' services 
following the visit at which the decision for surgery is finalized 
until the time of the operative procedure.'' The current definition of 
the preservice time for the 0 and 10-day global periods includes the 
preservice work occurring on the day of surgery, while the 90-day 
global period includes the preservice work occurring the day before 
surgery.
    Response: We are reluctant to revise the definition of preservice 
until there is further review of the issue. Though the suggested change 
in preservice definition for physician work would correspond to the 
change made in the definition for practice expense purposes, that 
revision was made at the beginning of the practice expense refinement. 
It is not clear to us how the relativity would be maintained between 
existing codes valued under the current definition and new codes valued 
using an expanded definition of preservice work. In addition, among 
different procedures, there is most likely much variation in the time 
period between the decision to perform surgery and the time of the 
operative procedure. The absence of a specific timeframe could result 
in an inconsistent application of the definition. However, we would 
look forward to further discussion with the RUC concerning this issue.
    Comment: Solid compensator-based intensity modulated radiation 
therapy (IMRT) is one of the IMRT technologies currently paid using the 
radiation therapy CPT code 77418, Intensity modulated treatment 
delivery. For 2005, CPT created a Category III tracking code 0073T, 
Compensator-based beam modulation treatment delivery of inverse planned 
treatment using three or more high resolution (milled or cast) 
compensatory convergent beam modulated fields, per treatment session. 
CPT instructions for CPT code 77418 now specifically exclude this 
technology.
    Physicians performing compensator-based IMRT expressed concern that 
we generally carrier price tracking codes and that carriers often will 
not pay for them, considering services reported with a tracking code to 
be experimental. One commenter requested that, in order to allow 
payment for solid compensator-based IMRT under the physician fee 
schedule, we assign RVUs to the new CPT tracking code 0073T.
    Response: As noted by the commenters, we generally do not 
nationally price tracking codes, which are most often used to report 
new or experimental services. Rather, we designate them as carrier 
priced until there is sufficient volume and information to develop 
appropriate RVUs. However, solid compensator based IMRT is an 
established technology that is currently paid both under the physician 
fee schedule and in the hospital outpatient department. We are 
concerned that having this service be reported using a carrier-priced 
tracking code could have an adverse effect on access to this 
technology. Therefore, we are assigning interim RVUs to this tracking 
code. For payment under the physician fee schedule, we will crosswalk 
the practice expense and malpractice RVUs assigned to CPT code 77418 to 
the Category III tracking code 0073T. (Note that this is a technical 
component only service and there are no associated physician work 
RVUs.)
    Comment: For 2005, CPT has eliminated CPT code 79900, Provision of 
Therapeutic Radiopharmaceuticals. We received comments from several 
organizations and individuals concerning elimination of this CPT code. 
Commenters requested we either grant a grace period for the CPT code or 
reinstate the HCPCS code Q3001, Radioelements for brachytherapy, any 
type, each, so that payment can be made under the physician fee 
schedule.
    Response: We are reinstating HCPCS code Q3001 under the physician 
fee schedule. This service will be carrier priced.
    Note that there have been new HCPCS drug administration codes for 
physicians' services established for CY 2005. Please see section 
III.E.2 for specific information related to these new HCPCS codes.

VI. Five-Year Refinement of Relative Value Units

[If you choose to comment on issues in this section, please include the 
caption ``Five Year Refinement of Work Relative Value Units for 
Calendar Year 2004'' at the beginning of your comments.]

A. Background

    The work RVUs were originally developed by a research team at the 
Harvard School of Public Health in a cooperative agreement with us. 
Harvard established the work RVUs for almost all fee schedule codes. 
The RVUs for anesthesia services were based on relative values from the 
American Society of Anesthesiology. The original RVUs for radiology 
codes were based on the American College of Radiology relative value 
scale. The work RVUs reflect the physician's effort in providing a 
service by accounting for: the physician's time; the technical 
difficulty of the procedure; the average severity of illness among 
patients receiving the procedure; and the degree of physical and mental 
effort required of the physician to perform the procedure.
    Section 1848(c)(2)(B)(i) of the Act requires that we review all 
RVUs no less than every 5 years. We initiated the first 5-year review 
in 1994 and refinements went into effect beginning in 1997. The second 
5-year review began in 1999 and refinements went into effect beginning 
in 2002. It is now time to begin the third 5-year review of the 
physician work RVUs with the resulting changes being effective 
beginning in 2007.
    As part of the final rule published December 8, 1994 (59 FR 63453), 
we solicited public comment on all work RVUs for approximately 7,000 
CPT and HCPCS codes. The scope of the 5-year review was limited to work 
values, since at that time, the statute required practice expense and 
malpractice RVUs be calculated based on 1991 allowed charges and 
practice expense and malpractice expense shares for the specialties 
performing the services. Also, the December 8, 1994 final rule

[[Page 66371]]

outlined the proposed process for refinement of the work RVUs and 
provided a suggested format for submission of comments.
    We indicated that we were particularly interested in receiving 
comments on physicians' services for which medical practice had changed 
since the Harvard surveys were performed, but for which there were no 
code changes and, therefore, no reconsideration of whether the work 
RVUs were still accurate. As a result of the December 8, 1994 final 
rule, we received more than 500 comments on approximately 1,100 codes. 
Subsequent to review of the comments by our medical staff, comments on 
approximately 700 codes were forwarded to the AMA's Specialty Society 
RUC for review. An additional 300 codes identified by our staff as 
potentially misvalued were also forwarded to the RUC. A process similar 
to that used for the annual physician fee schedule update was used for 
evaluating the proposed changes to the work RVUs and a notice 
discussing these proposed changes was published in the May 3, 1996 
Federal Register (61 FR 19992). As outlined in this notice, we proposed 
to increase the work RVUs for 28 percent of the codes; we proposed to 
maintain the work RVUs for 61 percent of the codes and we proposed to 
decrease the work RVUs for 11 percent of the codes. (Our proposed work 
RVUs agreed with the RUC recommendations for 93 percent of the codes.) 
In response to the May 3, 1996 proposed notice, we received more than 
2,900 comments on approximately 133 codes plus all anesthesia services. 
In order to address these comments, we convened multi-specialty panels 
of physicians. A detailed discussion of this process, as well as the 
results of the 5-year review were included in the final rule with 
comment period published November 22, 1996 (61 FR 59490).
    We initiated the second 5-year review by soliciting comments on 
potentially misvalued work RVUs for all services in the CY 2000 
physician fee schedule in the November 2, 1999, final rule (64 FR 
59427). We indicated that the scope of the second 5-year review would 
be restricted to work RVUs, since resource-based malpractice RVUs had 
only just been implemented in CY 2000, and we were in the middle of 
transitioning to a fully resource-based system for practice expense 
RVUs.
    In our July 17, 2000 proposed rule (66 FR 31028), we explained the 
process used to conduct the second 5-year review of work, beginning 
with the solicitation of comments on services that were potentially 
misvalued, in our November 2, 1999 final rule with comment period.
    We received comments from approximately 30 specialty groups, 
organizations, and individuals involving over 900 procedure codes. 
After review by our medical staff, we shared all of the comments we 
received concerning potentially misvalued services with the RUC.
    The RUC submitted work RVU recommendations for all of the codes we 
forwarded with the exception of the anesthesia codes and conscious 
sedation codes. We analyzed all of the RUC recommendations and 
evaluated both the recommended work RVUs and the rationale for the 
recommendations. If we had concerns about the application of a 
particular methodology, but thought the recommended work RVUs were 
reasonable, we verified that the recommended work RVUs were appropriate 
by using alternative methodologies. We announced our proposed decisions 
on the revised work RVUs in the proposed notice published June 8, 2001 
(66 FR 31028).
    Overall, we proposed to accept 92 percent of RUC recommended work 
RVUs (RVUs or 792 services). Of the RUC recommendations we disagreed 
with, we proposed to increase the work RVUs for 37 services and 
decrease the work RVUs for 22 services. We did not accept the RUC 
recommendations of an increase for 6 services that were previously 
reviewed by a multi-specialty physician panel in 2000. The Health Care 
Professional Advisory Committee (HCPAC), an advisory committee to the 
RUC representing non-physician health professionals, also reviewed a 
total of 12 services as part of the 5-year review. For 5 of the 
services reviewed, the HCPAC did not offer a recommendation. Of the 
remaining 7 services, we proposed to accept the HCPAC recommendations.
    Comments received on the June 8, 2001 proposed notice generally 
supported our proposed changes. In addition, we received more than 125 
comments on approximately 39 specific codes plus all the anesthesia 
services. The majority of these comments addressed the gastrointestinal 
endoscopy codes and anesthesia services. As with the first 5-year 
review, we convened a multi-specialty panel of physicians to assist us 
in the review of the comments. For additional information about this 
process, the comments received, and the results of the second 5-year 
review, see the final rule with comment period published November 2, 
2001 (66 FR 55285).

B. Scope of the 5-Year Refinement

    As with the second 5-year review, we are soliciting comments only 
on the work RVUs that may be inappropriately valued. The malpractice 
RVUs were implemented in CY 2000 and revisions to these RVUs are 
addressed as part of this final rule.
    We are not including the practice expense RVUs as part of this 
refinement. The PEAC, an advisory committee of the RUC, has been 
providing us with recommendations for refining the direct practice 
expense inputs (clinical staff, supplies, and equipment) used in 
calculating the practice expense RVUs for established codes. As 
discussed in the August 5, 2004 proposed rule, the PEAC held its last 
meeting March 2004 and future practice expense issues, including the 
refinement of the remaining codes not addressed by the PEAC, would be 
handled by the RUC. As we determine the process that will be used to 
refine the remaining codes, we will also be considering how to address 
future review of practice expense RVUs. We would also welcome comments 
on how this might be addressed. However, to the extent that there are 
changes in physician time or in the number or level of post procedure 
visits as a result of the 5-year review of work, there would be a 
potential impact on the practice expense inputs, and we would revise 
the inputs accordingly.

C. Refinement of Work Relative Value Units

    During the first and second 5-year reviews, we relied on public 
commenters to identify services that were potentially misvalued.
    For the third 5-year review, we are again requesting comments on 
potentially misvalued work RVUs for all services in the CY 2005 
physician fee schedule. However, we recognize that this process 
generally elicits comments focusing on undervalued codes. Therefore, in 
addition to the codes submitted by commenters, we will also identify 
codes (especially high-volume codes across specialties) that:
    <bullet> Are valued as being performed in the inpatient setting, 
but that are now predominantly performed on an outpatient basis; and
    <bullet> Were not reviewed by the RUC, (that is, Harvard RVUs are 
still being used, or there is no information).
    Public comments must include the appropriate CPT code (for example, 
CPT code 90918) and the suggested RVUs (for example, 11.00 RVUs), and 
evidence that the current work RVU is misvalued. Failure to provide 
this information may result in our inability

[[Page 66372]]

to evaluate the comments adequately. We will consider all comments on 
all work RVUs in the development of a proposed rule that we intend to 
publish in 2006. In that rule, we will propose the revisions to work 
RVUs that we believe are needed. We will then review and analyze the 
comments received in response to our proposed revisions and publish our 
decisions in the 2006 final rule.
    In addition to internal review and analysis, we propose to share 
comments we receive on all work RVUs with the RUC, which currently 
makes recommendations to us on the assignment of RVUs to new and 
revised CPT codes. This process was used during the last 5-year review, 
and we believe that it was beneficial. The RUC's perspective will be 
helpful because of its experience in recommending RVUs for new and 
revised CPT codes since we implemented the physician fee schedule. 
Furthermore, the RUC, by virtue of its multispecialty membership and 
consultation with approximately 65 specialty societies, involves the 
medical community in the refinement process.

D. Nature and Format of Comments on Work Relative Value Units

    While all written public comments are welcomed, based on our past 
experience we have found it particularly beneficial if the comments 
include certain information: the CPT code or codes recommended for 
review, a clinical description of the service(s), the current work RVUs 
and the suggested work RVUs. Because our initial assumption will be 
that each code is currently appropriately valued, the commenter may 
also include some rationale to support the need for review. For 
example, one approach would be to compare the physician work of each 
nominated code to the work involved in an analogous service that has 
higher or lower work RVUs. In other situations, the commenter could 
demonstrate that there is a rank order anomaly within a family of 
codes. Another reason for reviewing the physician work involved in a 
service could be that the physician time or intensity required by the 
procedure has changed since it was last reviewed, perhaps because of a 
change in technology or in patient characteristics.
    The RUC has also developed more detailed ``Compelling Evidence 
Standards'' which are used by the RUC as part of their process to 
determine if a recommendation to change the work RVUs is warranted for 
a given code. We are including these standards below solely for 
informational purposes so that commenters are aware what kind of 
information will be needed to make a successful argument to the RUC for 
changing work RVUs.

RUC Compelling Evidence Standards

    The RUC operates with the initial presumption that the current 
values assigned to the codes under review are correct. This presumption 
can be challenged by a society or other organization presenting a 
compelling argument that the existing values are no longer rational or 
appropriate for the codes in question. The argument for a change must 
be substantial and meet the RUC's compelling evidence standards. This 
argument must be provided in the comment letter to us, and then later 
to the RUC in writing on the Summary of Recommendation form. The 
following guidelines may be used to develop a ``compelling argument'' 
that the published relative value for a service is inappropriately 
valued:
    <bullet> Documentation in the peer-reviewed medical literature or 
other reliable data that there have been changes in physician work due 
to one or more of the following:

+ Technique
+ Knowledge and technology
+ Patient population
+ Site-of-service
+ Length of hospital stay
+ Physician time

    <bullet> An anomalous relationship between the code being valued 
and other codes. For example, if code A describes a service that 
requires more work than codes B, C, and D, but is nevertheless valued 
lower. The specialty would need to assemble evidence on service time, 
technical skill, patient severity, complexity, length of stay and other 
factors for the code being considered and the codes to which it is 
compared. These reference services may be both inter- and intra-
specialty.
    <bullet> Evidence that technology has changed physician work that 
is, diffusion of technology.
    <bullet> Analysis of other data on time and effort measures, such 
as operating room logs or national and other representative databases.
    <bullet> Evidence that incorrect assumptions were made in the 
previous valuation of the service, as documented, such as:
    + A misleading vignette, survey or flawed crosswalk assumptions in 
a previous evaluation;
    + A flawed mechanism or methodology used in the previous valuation, 
for example, evidence that no pediatricians were consulted in assigning 
pediatric values; and
    + A previous survey was conducted by one specialty to obtain a 
value, but in actuality that service is currently provided primarily by 
physicians from a different specialty according to utilization data.
    We emphasize, however, as we reiterated for the last 5-year review, 
that we retain the responsibility for analyzing the comments on the 
suggested work RVU revisions, developing the proposed rule, evaluating 
the comments on the proposed rule, and deciding whether to revise RVUs. 
We are not delegating this responsibility to the RUC or any other 
organization.

VII. Update to the Codes for Physician Self-Referral Prohibition

[If you choose to comment on issues in this section, please include the 
caption ``Physician Self-Referral Designated Health Services'' at the 
beginning of your comments.]

A. Background

    Section 1877 of the Act prohibits a physician from referring a 
Medicare beneficiary for certain designated health services (DHS) to a 
health care entity with which the physician (or a member of the 
physician's immediate family) has a financial relationship, unless an 
exception applies. The following services are DHS, as specified in 
section 1877 of the Act and in regulations at Sec.  411.351:

    <bullet> Clinical laboratory services.
    <bullet> Physical therapy, occupational therapy, and speech-
language pathology services.
    <bullet> Radiology and certain other imaging services.
    <bullet> Radiation therapy services and supplies.
    <bullet> Durable medical equipment and supplies.
    <bullet> Parenteral and enteral nutrients, equipment, and supplies.
    <bullet> Prosthetics, orthotics, and prosthetic devices and 
supplies.
    <bullet> Home health services.
    <bullet> Outpatient prescription drugs.
    <bullet> Inpatient and outpatient hospital services.
    In Sec.  411.351, the entire scope of the first four of these DHS 
categories is defined in a list of CPT/HCPCS codes (the Code List), 
which is updated annually to account for changes in the most recent CPT 
and HCPCS publications. The updated Code List appears as an addendum to 
the physician fee schedule final rule and is available on our Web site 
at http://cms.hhs.gov/medlearn/refphys.asp. We also include in the Code 
List those items and services that may qualify for either of the 
following two exceptions to the physician self-referral prohibition:

[[Page 66373]]

    <bullet> EPO and other dialysis-related drugs furnished in or by an 
ESRD facility (Sec.  411.351(g)).
    <bullet> Preventive screening tests, immunizations or vaccines 
(Sec.  411.351(h)).
    The Code List was updated in the physician fee schedule final rule 
published in the Federal Register on November 7, 2003 (68 FR 63196). It 
was subsequently corrected in a notice that was published in the 
Federal Register on March 26, 2004 (69 FR 15729). We also published the 
Phase II physician self-referral interim final rule with comment period 
on March 26, 2004 in the Federal Register (69 FR 16054), which made 
several additional changes to the Code List, effective July 26, 2004.
    The updated all-inclusive Code List effective January 1, 2005 is 
presented in Addendum L of this final rule.

B. Response to Comments

    We received two public comments relating to the Code List published 
in the November 7, 2003 physician fee schedule final rule. One 
commenter supported the exclusion of interventional radiology services 
from the definition of radiology and certain other imaging services, as 
reflected on the Code List. The other commenter raised a concern over 
the exclusion of nuclear medicine services as a DHS.
    Additionally, the proposed physician fee schedule rule that was 
published on August 5, 2004 in the Federal Register (69 FR 47488) 
generated one comment relating to the Code List. That comment and our 
response also are provided below. We note that we will address in a 
separate Federal Register document those public comments relating to 
the Code List that were received in response to the Phase II physician 
self-referral final rule published on March 26, 2004.
    Comment: One commenter requested that we include nuclear medicine 
services as DHS. The commenter is concerned that physicians may engage 
in lucrative financial relationships associated with nuclear medicine 
studies such as PET scans.
    Response: We are mindful of the issue raised by the commenter, and 
we continue to consider the application of section 1877 of the Act to 
nuclear medicine procedures. However, we note that the purpose of this 
update is merely to conform the Code List to the most recent 
publications of HCPCS and CPT codes. Substantive changes to DHS 
definitions, such as that advocated by the commenter, are beyond the 
scope of this rulemaking.
    Comment: One commenter asked us to clarify that the Code List does 
not define all DHS and that we indicate where providers can obtain more 
information on the remaining categories. Additionally, the commenter 
suggested that we define all DHS in the Code List and that the 
definitions be included in the quarterly updated Microsoft Excel 
spreadsheet of RVU values, global periods and supervision levels for 
Medicare covered services posted on our Web site.
    Response: We believe that most readers are aware that the Code List 
does not define every DHS category. Nevertheless, we will add a 
footnote to the Code List indicating that Sec.  411.351 defines those 
DHS categories not reflected on the Code List.
    The comment advocating that we define all DHS by CPT or HCPCS code 
on the Code List would require a substantive change to existing DHS 
definitions and is therefore beyond the scope of this rulemaking. We 
will explore the possibility of identifying certain DHS in the National 
Physician Fee Schedule Relative Value File (http://www.cms.hhs.gov/providers/pufdownload/rvudown.asp).

C. Revisions Effective for 2005

    Tables 20 and 21, in this section, identify the additions and 
deletions, respectively, to the comprehensive Code List included in the 
Phase II physician self-referral interim final rule published March 26, 
2004. Tables 20 and 21 also identify the additions and deletions to the 
lists of codes used to identify the items and services that may qualify 
for the exceptions in Sec.  411.355(g) (regarding EPO and other 
dialysis-related outpatient prescription drugs furnished in or by an 
ESRD facility) and in Sec.  411.355(h) (regarding preventive screening 
tests, immunizations and vaccines).
    We will consider comments for the codes listed in Tables 20 and 21 
below, if we receive them by the date specified in the DATES section of 
this final rule. We will not consider any comment that advocates a 
substantive change to any of the DHS defined in Sec.  411.351.
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    The additions specified in Table 20 generally reflect new CPT and 
HCPCS codes that become effective January 1, 2005 or that became 
effective since our last update. It also reflects the addition of codes 
that will be recognized by Medicare for payment purposes effective 
January 1, 2005.
    Additionally, we are adding HCPCS code Q0092 to the category of 
radiology and certain other imaging services since it may be billed in 
conjunction with the provision of portable x-ray services and had been 
inadvertently omitted.
    We are also adding two existing brachytherapy codes (CPT 57155 and 
58346) to the category of radiation therapy services and supplies. As 
noted in the March 26, 2004 Phase II physician self-referral interim 
final rule (69 FR at 16104-16105), brachytherapy is a DHS. We 
inadvertently omitted these codes when compiling the Code List.
    Table 20 also reflects the addition of a flu vaccine code (CPT 
90656), CV screening blood tests (CPT 80061, 82465, 83718 and 84478) 
and diabetes screening tests (CPT 82947, 82950 and 82951) to the list 
that identifies preventive screening tests, immunizations and vaccines 
that may qualify for the exception described in Sec.  411.355(h) for 
such items and services. The physician self-referral prohibition will 
not apply to these services if the conditions set forth in Sec.  
411.355(h) are satisfied. We note that CPT codes 80061, 82465, 83718, 
84478, 82947, 82950, and 82951 are eligible for the exception at Sec.  
411.355(h) only when billed with the appropriate screening diagnosis 
codes specified on the Code List for each test.
    Table 21 reflects the deletions necessary to conform the Code List 
to the most recent publications of CPT and HCPCS codes.

VIII. Physician Fee Schedule Update for Calendar Year 2005

A. Physician Fee Schedule Update

    The physician fee schedule update is determined using a formula 
specified by statute. Under section 1848(d)(4) of the Act, the update 
is equal to the product of 1 plus the percentage increase in the MEI 
(divided by 100) and 1 plus the update adjustment factor (UAF). For CY 
2005, the MEI is equal to 3.1 percent (1.031). The UAF is -7.0 percent 
(0.930). Section 1848(d)(4)(F) of the Act requires an additional 0.8 
percent (1.008) increase to the update for 2005. The product of the MEI 
(1.031), the UAF (0.930), and the statutory adjustment factor (1.008) 
equals the CY 2005 update of -3.3 percent (0.967). However, section 601 
of the MMA amended section 1848(d) of the Act to specify that the 
update to the single CF for 2005 cannot be less than 1.5 percent. 
Because the statutory formula will yield an update of -3.3 percent, 
consistent with section 601 of the MMA, we are establishing a 2005 
physician fee schedule update of 1.5 percent.
    Our calculations of all of the above figures are explained below.

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

    The MEI measures the weighted-average annual price change for 
various inputs needed to produce physicians' services. The MEI is a 
fixed-weight input price index, with an adjustment for the change in 
economy-wide multifactor productivity. This index, which has 2000 base 
year weights, is comprised of two broad categories: physician's own 
time and physician's practice expense.
    The physician's own time component represents the net income 
portion of business receipts and primarily reflects the input of the 
physician's own time into the production of physicians' services in 
physicians' offices. This category consists of two subcomponents: wages 
and salaries, and fringe benefits.
    The physician's practice expense category represents nonphysician 
inputs used in the production of services in physicians' offices. This 
category consists of wages and salaries and fringe benefits for 
nonphysician staff and other nonlabor inputs. The physician's practice 
expense component also includes the following categories of nonlabor 
inputs: office expense, medical materials and supplies, professional 
liability insurance, medical equipment, professional car, and other 
expenses. The components are adjusted to reflect productivity growth in 
physicians' offices by the 10-year moving average of multifactor 
productivity in the private nonfarm business sector. The Table 22 below 
presents a listing of the MEI cost categories with associated weights 
and percent changes for price proxies for the 2005 update. For calendar 
year 2005, the increase in the MEI is 3.1 percent, which includes a 0.9 
percent change in the 10-year moving average of multifactor 
productivity. This result is the result of a 3.0 percent increase in 
Physician's Own Time and a 5.2 percent increase in Physician's Practice 
Expense. Within the Physician's Practice Expense, the largest increase 
occurred in Professional Liability Insurance, which increased 23.9 
percent.
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C. The Update Adjustment Factor

    Section 1848(d) of the Act provides that the physician fee schedule 
update is equal to the product of the MEI and a UAF. The UAF is applied 
to make actual and target expenditures (referred to in the statute as 
``allowed expenditures'') equal. Allowed expenditures are equal to 
actual expenditures in a base period updated each year by the 
sustainable growth rate (SGR). The SGR sets the annual rate of growth 
in allowed expenditures and is determined by a formula specified in 
section 1848(f) of the Act.
1. Calculation Under Current Law
    Under section 1848(d)(4)(B) of the Act, the UAF for a year 
beginning with 2001 is equal to the sum of the following--
    <bullet> Prior Year Adjustment Component. An amount determined by--
    + Computing the difference (which may be positive or negative) 
between the amount of the allowed expenditures for physicians' services 
for the prior year (the year prior to the year for which the update is 
being determined) and the amount of the actual expenditures for those 
services for that year;
    + Dividing that difference by the amount of the actual expenditures 
for those services for that year; and
    + Multiplying that quotient by 0.75.

[[Page 66382]]

    <bullet> Cumulative Adjustment Component. An amount determined by--
    + Computing the difference (which may be positive or negative) 
between the amount of the allowed expenditures for physicians' services 
from April 1, 1996, through the end of the prior year and the amount of 
the actual expenditures for those services during that period;
    + Dividing that difference by actual expenditures for those 
services for the prior year as increased by the sustainable growth rate 
for the year for which the update adjustment factor is to be 
determined; and
    + Multiplying that quotient by 0.33.
    Section 1848(d)(4)(E) of the Act requires the Secretary to 
recalculate allowed expenditures consistent with section 1848(f)(3) of 
the Act. Section 1848(f)(3) specifies that the SGR (and, in turn, 
allowed expenditures) for the upcoming CY (2005 in this case), the 
current CY (2004) and the preceding CY (2003) are to be determined on 
the basis of the best data available as of September 1 of the current 
year. Allowed expenditures are initially estimated and subsequently 
revised twice. The second revision occurs after the CY has ended (that 
is, we are making the final revision to 2003 allowed expenditures in 
this final rule). Once the SGR and allowed expenditures for a year have 
been revised twice, they are final.
    Table 23 shows annual and cumulative allowed expenditures for 
physicians' services from April 1, 1996 through the end of the current 
CY, including the transition period to a CY system that occurred in 
1999. Also shown is the SGR corresponding with each period. The 
calculation of the SGR is discussed in detail below.
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    Consistent with section 1848(d)(4)(E) of the Act, Table 23 includes 
our final revision of allowed expenditures for 2003, a recalculation of 
allowed expenditures for 2004, and our initial estimate of allowed 
expenditures for 2005. To determine the update adjustment factor for 
2005, the statute requires that we use allowed and actual expenditures 
from April 1, 1996 through December 31, 2004 and the 2005 SGR. 
Consistent with section 1848(d)(4)(E) of the Act, we will be making 
further revisions to the 2004 and 2005 SGRs

[[Page 66385]]

and 2004 and 2005 allowed expenditures. Because we have incomplete 
actual expenditure data for 2004, we are using an estimate for this 
period. Any difference between current estimates and final figures will 
be taken into account in determining the update adjustment factor for 
future years.
    We are using figures from Table 23 in the statutory formula 
illustrated below:
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UAF = Update Adjustment Factor
Target<INF>04</INF> = Allowed Expenditures for 2004 or $77.1 billion
Actual<INF>04</INF> = Estimated Actual Expenditures for 2004 = $84.9 
billion
Target <INF>4/96-12/04</INF> = Allowed Expenditures from 4/1/1996-12/
31/2004 = $531.8 billion
Actual <INF>4/96-12/04</INF> = Estimated Actual Expenditures from 4/1/
1996-12/31/2003 = $545.5 billion
SGR<INF>05</INF> = 4.3 percent (1.043)
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    Section 1848(d)(4)(D) of the Act indicates that the UAF determined 
under section 1848(d)(4)(B) of the Act for a year may not be less than 
-0.070 or greater than 0.03. Since -0.120 is less than -0.070, the UAF 
for 2005 will be -0.070.
    Section 1848(d)(4)(A)(ii) of the Act indicates that 1 should be 
added to the UAF determined under section 1848(d)(4)(B) of the Act. 
Thus, adding 1 to -0.070 makes the update adjustment factor equal to 
0.930.

IX. Allowed Expenditures for Physicians' Services and the Sustainable 
Growth Rate

A. Medicare Sustainable Growth Rate

    The SGR is an annual growth rate that applies to physicians' 
services paid by Medicare. The use of the SGR is intended to control 
growth in aggregate Medicare expenditures for physicians' services. 
Payments for services are not withheld if the percentage increase in 
actual expenditures exceeds the SGR. Rather, the physician fee schedule 
update, as specified in section 1848(d)(4) of the Act, is adjusted 
based on a comparison of allowed expenditures (determined using the 
SGR) and actual expenditures. If actual expenditures exceed allowed 
expenditures, the update is reduced. If actual expenditures are less 
than allowed expenditures, the update is increased.
    Section 1848(f)(2) of the Act specifies that the SGR for a year 
(beginning with 2001) is equal to the product of the following four 
factors:
    (1) The estimated change in fees for physicians' services.
    (2) The estimated change in the average number of Medicare fee-for-
service beneficiaries.
    (3) The estimated projected growth in real GDP per capita.
    (4) The estimated change in expenditures due to changes in law or 
regulations.
    In general, section 1848(f)(3) of the Act requires us to publish 
SGRs for 3 different time periods, no later than November 1 of each 
year, using the best data available as of September 1 of each year. 
Under section 1848(f)(3)(C)(i) of the Act, the SGR is estimated and 
subsequently revised twice (beginning with the FY and CY 2000 SGRs) 
based on later data. (There were also provisions in the Act to adjust 
the FY 1998 and FY 1999 SGRs. See the February 28, 2003 Federal 
Register (68 FR 9567) for a discussion of these SGRs). Under section 
1848(f)(3)(C)(ii) of the Act, there are no further revisions to the SGR 
once it has been estimated and subsequently revised in each of the 2 
years following the preliminary estimate. In this final rule, we are 
making our preliminary estimate of the 2005 SGR, a revision to the 2004 
SGR, and our final revision to the 2003 SGR.

B. Physicians' Services

    Section 1848(f)(4)(A) of the Act defines the scope of physicians' 
services covered by the SGR. The statute indicates that ``the term 
``physicians' services'' includes other items and services (such as 
clinical diagnostic laboratory tests and radiology services), specified 
by the Secretary, that are commonly performed or furnished by a 
physician or in a physician's office, but does not include services 
furnished to a Medicare+Choice plan enrollee.'' We published a 
definition of physicians' services for use in the SGR in the Federal 
Register (66 FR 55316) on November 1, 2001. We defined physicians' 
services to include many of the medical and other health services 
listed in section 1861(s) of the Act. For purposes of determining 
allowed expenditures, actual expenditures, and SGRs through December 
31, 2002, we have specified that physicians' services include the 
following medical and other health services if bills for the items and 
services are processed and paid by Medicare carriers (and those paid 
through intermediaries where specified):
    <bullet> Physicians' services.
    <bullet> Services and supplies furnished incident to physicians' 
services.
    <bullet> Outpatient PT services and outpatient OT services.
    <bullet> Antigens prepared by, or under the direct supervision of, 
a physician.
    <bullet> Services of PAs, certified registered nurse anesthetists, 
CNMs, clinical psychologists, clinical social workers, NPs, and CNSs.
    <bullet> Screening tests for prostate cancer, colorectal cancer, 
and glaucoma.
    <bullet> Screening mammography, screening pap smears, and screening 
pelvic exams.
    <bullet> Diabetes outpatient self-management training services.
    <bullet> Medical nutrition therapy services.
    <bullet> Diagnostic x-ray tests, diagnostic laboratory tests, and 
other diagnostic tests (including outpatient diagnostic laboratory 
tests paid through intermediaries).
    <bullet> X-ray, radium, and radioactive isotope therapy.
    <bullet> Surgical dressings, splints, casts, and other devices used 
for the reduction of fractures and dislocations.
    <bullet> Bone mass measurements.
    Sections 611 through 613 of the MMA, respectively, modified section 
1861(s) of the Act to add Medicare coverage for an initial preventive 
exam,

[[Page 66386]]

CV screening blood tests, and diabetes screening tests. We believe that 
these services are commonly performed or furnished by a physician or in 
a physician's office and are including them in the definition of 
physicians' services for purposes of the SGR.
    Comment: We received a number of comments requesting that we use 
our administrative authority to remove drugs from the SGR. According to 
one of these comments, drugs are not physicians' services and should 
never have been included in the SGR. One of these comments indicated 
that the SGR ``is a seriously flawed formula that will continue to 
require frequent Congressional intervention to avoid payment cuts * * 
*'' According to this comment, ``the Administration should reduce the 
price tag and help pave the way for an appropriate long-term solution 
by removing drugs from the SGR pool.'' We also received a number of 
comments suggesting that we use our administrative authority to adjust 
the SGR for changes in spending associated with national coverage 
determinations (NCDs).
    Response: We remain concerned about forecasts of reductions in 
physician fees and will carefully consider the issues raised by the 
comments when we make changes to the physician fee schedule for 2006. 
We believe that the physician payment system should be structured to 
control costs and achieve predictable and stable changes to Medicare's 
rates while being equitable to physicians. We note that administrative 
changes affecting the SGR would have significant long-term cost 
implications but will not have an impact on the update for 2006 or the 
subsequent few years. Therefore, without a statutory change, there will 
still be a reduction in physicians' fee schedule rates for 2006 and 
subsequent years. Towards those goals, we have already taken several 
actions that will improve Medicare's physician payment system:
    <bullet> Using multifactor productivity in place of labor 
productivity in the MEI beginning in 2003. This change increased the 
physician fee schedule update by 0.7 percentage points for 2003 and was 
estimated to increase Medicare spending by $14.5 billion over 10 years.
    <bullet> Increasing the weight of malpractice costs in the MEI from 
3.2 to 3.9 percent, a 21 percent increase beginning in 2004.
    <bullet> Incorporating an increase in malpractice premiums of 16.9 
percent into the 2004 MEI and 23.9 percent into the 2005 MEI. The 
increased weight for malpractice in the MEI makes the index a more 
accurate representation of inflation in physician office costs.

C. Preliminary Estimate of the SGR for 2005

    Our preliminary estimate of the 2005 SGR is 4.3 percent. We first 
estimated the 2005 SGR in March and made the estimate available to the 
Medicare Payment Advisory Commission and on our Web site. Table 24 
shows that March 2004 and our current estimates of the factors included 
in the 2005 SGR.
[GRAPHIC] [TIFF OMITTED] TR15NO04.531


    Note: Consistent with section 1848(f)(2) of the Act, the 
statutory factors are multiplied, not added, to produce the total 
(that is, 1.013 x 0.997 x 1.022 x 1.010 = 1.37). A more detailed 
explanation of each figure is provided below in section H.1.

D. Revised Sustainable Growth Rate for 2004

    Our current estimate of the 2004 SGR is 7.0 percent. Table 25 shows 
our preliminary estimate of the 2004 SGR that was published in the 
Federal Register on November 7, 2003 (68 FR 63249) and our current 
estimate.
[GRAPHIC] [TIFF OMITTED] TR15NO04.532

A more detailed explanation of each figure is provided below in section 
H.2.

E. Final Sustainable Growth Rate for 2003

    The SGR for 2003 is 7.3 percent. Table 26 shows our preliminary 
estimate of the SGR published in the Federal Register on December 31, 
2002 (67 FR 80027), our revised estimate published in the Federal 
Register on November 7, 2003 (67 FR 63249) and the final figures

[[Page 66387]]

determined using the latest available data.
[GRAPHIC] [TIFF OMITTED] TR15NO04.533

A more detailed explanation of each figure is provided below in section 
H.2.

F. Calculation of 2005, 2004, and 2003 Sustainable Growth Rates

1. Detail on the 2005 SGR
    All of the figures used to determine the 2005 SGR are estimates 
that will be revised based on subsequent data. Any differences between 
these estimates and the actual measurement of these figures will be 
included in future revisions of the SGR and allowed expenditures and 
incorporated into subsequent physician fee schedule updates.

Factor 1--Changes in Fees for Physicians' Services (Before Applying 
Legislative Adjustments) for CY 2005

    This factor is calculated as a weighted average of the 2005 fee 
increases for the different types of services included in the 
definition of physicians' services for the SGR. Medical and other 
health services paid using the physician fee schedule are estimated to 
account for approximately 83.9 percent of total allowed charges 
included in the SGR in 2005 and are updated using the MEI. The MEI for 
2005 is 3.1 percent. Diagnostic laboratory tests are estimated to 
represent approximately 7.1 percent of Medicare allowed charges 
included in the SGR for 2005. Medicare payments for these tests are 
updated by the Consumer Price Index for Urban Areas (CPI-U). However, 
section 629 of the MMA specifies that diagnostic laboratory services 
will receive an update of 0.0 percent from 2004 through 2008.
    Drugs are estimated to represent 9.0 percent of Medicare allowed 
charges included in the SGR in 2005. As indicated earlier in this final 
rule, sections 303 and 304 of the MMA require Medicare to pay for most 
drugs at 106 percent of ASP beginning January 1, 2005. We estimated a 
weighted average change in fees for drugs included in the SGR using the 
ASP plus 6 percent pricing methodology of -14.7 percent for 2005. Table 
27 shows the weighted average of the MEI, laboratory and drug price 
changes for 2005.
[GRAPHIC] [TIFF OMITTED] TR15NO04.534

    We estimate that the weighted-average increase in fees for 
physicians' services in 2005 under the SGR (before applying any 
legislative adjustments) will be 1.3 percent.

Factor 2--The Percentage Change in the Average Number of Part B 
Enrollees From 2004 to 2005

    This factor is our estimate of the percent change in the average 
number of fee-for-service enrollees from 2004 to 2005. Services 
provided to Medicare+Choice (M+C) plan enrollees are outside the scope 
of the SGR and are excluded from this estimate. OACT estimates that the 
average number of Medicare Part B fee-for-service enrollees will 
decrease by 0.3 percent from 2004 to 2005. Table 28 illustrates how 
this figure was determined.

[[Page 66388]]

[GRAPHIC] [TIFF OMITTED] TR15NO04.535

    An important factor affecting fee-for-service enrollment is 
beneficiary enrollment in M+C plans. Because it is difficult to 
estimate the size of the M+C enrollee population before the start of a 
calendar year, at this time we do not know how actual enrollment in M+C 
plans will compare to current estimates. For this reason, the estimate 
may change substantially as actual Medicare fee-for-service enrollment 
for 2005 becomes known.

Factor 3--Estimated Real Gross Domestic Product Per Capita Growth in 
2005

    We estimate that the growth in real per capita GDP from 2004 to 
2005 will be 2.2 percent. Our past experience indicates that there have 
also been large changes in estimates of real per capita GDP growth made 
before the year begins and the actual change in GDP computed after the 
year is complete. Thus, it is likely that this figure will change as 
actual information on economic performance becomes available to us in 
2005.

Factor 4--Percentage Change in Expenditures for Physicians' Services 
Resulting From Changes in Law or Regulations in CY 2005 Compared With 
CY 2004

    There are a number of statutory provisions that will affect the 
2005 SGR. As indicated above, sections 303 and 304 of the MMA changed 
Medicare payment for drugs. These provisions also changed Medicare 
payments for the administration of drugs. Section 303(a)(1) amended 
section 1848(c)(2) of the Act to require the Secretary to make a number 
of changes that increased Medicare payment for drug administration 
beginning January 1, 2004. These changes permanently increased Medicare 
payments for drug administration by a weighted average of 110 percent. 
Section 303(a)(4) of the MMA required an additional transitional 
adjustment (temporary increase) to Medicare's payment for drug 
administration of 32 percent for 2004 and 3 percent for 2005. The 
change in the transitional adjustment of 32 percent for 2004 to 3 
percent for 2005 would reduce Medicare payments for drug administration 
between 2004 and 2005. However, some of this reduction will be lessened 
because we are also adopting changes to the codes and payment amounts 
for drug administration based on recommendations from the AMA's CPT 
Editorial Panel and Relative Value Update Committee (RUC), under the 
authority of section 1848(c)(2)(J) of the Act. We are further 
increasing physician fee schedule payments by paying separately for 
injections provided on the same day as another physician fee schedule 
service. We are further increasing physician fee schedule payments by 
paying separately for injections provided on the same day as another 
physician fee schedule service. We estimate that changes to our policy 
on injections and the changes to our drug administration payments taken 
together will increase physician spending by 0.2 percent.
    We are also adjusting the SGR to account for OACT's assumptions 
about predicted physician behavior in response to the payment 
reductions. OACT assumes that reduced fees are likely to be met by a 
combination of an increase in volume and a shift in the mix or 
intensity of services furnished to Medicare beneficiaries so as to 
offset 30 percent of the payment reduction that would otherwise occur. 
Because OACT assumes that physicians will offset some of the loss in 
payments that will occur from changes in Medicare payments for drugs 
(as described earlier) and drug administration and the change in 
payment can be attributed to a change in law, we are increasing the SGR 
by 0.4 percent for this factor. (Discussion may change based on recent 
decisions.)
    There are several other statutory provisions that are estimated to 
increase Medicare spending for physicians' services under the SGR. 
Section 413(a) of the MMA establishes a 5 percent increase in the 
physician fee schedule payment for services provided in physician 
scarcity areas. Section 413(b) improves the procedures for paying the 
10 percent physician fee schedule bonus payment for services provided 
in health professional shortage areas. We estimate that the provisions 
of section 413 will increase Medicare physician fee schedule payments 
by 0.1 percent.
    Sections 611 through 613 of the MMA, respectively, provide Medicare 
coverage for an initial preventive physical examination, CV and 
diabetes screening tests. We estimate that new Medicare coverage for 
these preventive services will increase spending for physicians' 
services under the SGR by 0.3 percent. Taken together, we estimate that 
all of the statutory provisions for 2005 will increase Medicare 
spending for physicians' services by 0.5 percent.
    Comment: We received comments concerned that we will underestimate 
the costs associated with the initial preventive physical examination. 
These comments suggested that we should account for ``both spending due 
to use of the new or expanded benefit, as well as additional services 
triggered by implementation of the new benefit.'' We received other 
comments concerned that we will underestimate the cost of CV and 
diabetes screening tests because we will use the national coverage 
determination (NCD) process to decide if any additional tests may be 
eligible for coverage. The commenters have this concern because we do 
not adjust the SGR for NCDs.
    Response: Our estimates of the costs of the initial preventive 
physical exam and the CV and diabetes screening tests account for 
utilization of other Medicare services (preventive and nonpreventive) 
that may result from coverage of the new preventive services. We also 
note that our current estimates of the initial preventive examination 
and CV and diabetes screening tests are based only on our projections 
without any data on actual use of the benefits. The statute requires us 
to revise our current estimate of the 2005 SGR no later than November 
1, 2005 and to make a final revision to our estimate no later than 
November 1, 2006. At the time we make the final revision to the 2005 
SGR, we will have complete data on use of the new preventive services 
that will enable us to more accurately reflect these costs in the SGR.
    With respect to the comments about use of the NCD process to 
establish additional CV and diabetes screening tests that will be 
eligible for Medicare coverage, the regulation lists the common types 
of tests that are currently

[[Page 66389]]

used to screen patients for these conditions. Our adjustment to the SGR 
will cover all of the costs associated with these new Medicare covered 
screening tests. However, if we use the NCD process to cover additional 
tests, we will consider this issue further.
2. Detail on the 2004 SGR
    A more detailed discussion of our revised estimates of the four 
elements of the 2004 SGR follows.

Factor 1--Changes in Fees for Physicians' Services (Before Applying 
Legislative Adjustments) for 2004

    This factor was calculated as a weighted average of the 2004 fee 
increases that apply for the different types of services included in 
the definition of physicians' services for the SGR.
    We estimate that services paid using the physician fee schedule 
account for approximately 83.7 percent of total allowed charges 
included in the SGR in 2004. These services were updated using the 2004 
MEI of 2.9 percent. We estimate that diagnostic laboratory tests 
represent approximately 7.1 percent of total allowed charges included 
in the SGR in 2004. Medicare payments for these tests are updated by 
the CPI-U. However, section 629 of the MMA specifies that diagnostic 
laboratory services will receive an update of 0.0 percent from 2004 
through 2008. We estimate that drugs represent 9.2 percent of Medicare 
allowed charges included in the SGR in 2004. Historically, Medicare 
paid for drugs under section 1842(o) of the Act at 95 percent of 
average wholesale price (AWP). However, with some exceptions, sections 
303 and 304 of the MMA generally require Medicare to pay for drugs at 
85 percent of the AWP determined as of April 1, 2003 or a specified 
percentage of AWP based on studies by the Government Accountability 
Office and the Office of the Inspector General in 2004. (We implemented 
section 303 and 304 of the MMA in an interim final rule published in 
the Federal Register on January 7, 2004 (see 69 FR 1086). Taking 
sections 303 and 304 of the MMA into account, we estimate a weighted 
average change in fees for drugs included in the SGR of -11.7 percent 
for 2004. Table 29 shows the weighted average of the MEI, laboratory 
and drug price changes for 2004.
[GRAPHIC] [TIFF OMITTED] TR15NO04.536

    After taking into account the elements described in Table 29, we 
estimate that the weighted-average increase in fees for physicians' 
services in 2004 under the SGR (before applying any legislative 
adjustments) will be 1.4 percent. Our November 7, 2003 estimate of this 
factor was 2.7 percent. The reduction from 2.7 percent to our current 
estimate of 1.4 percent is primarily due to application of the drug 
pricing changes required by sections 303 and 304 of the MMA.

Factor 2--The Percentage Change in the Average Number of Part B 
Enrollees From 2003 to 2004

    OACT estimates that the average number of Medicare Part B fee-for-
service enrollees (excluding beneficiaries enrolled in M+C plans) 
increased by 1.7 percent in 2004. Table 30 illustrates how we 
determined this figure.
[GRAPHIC] [TIFF OMITTED] TR15NO04.537

    OACT's estimate of the 1.7 percent change in the number of fee-for-
service enrollees, net of M+C enrollment for 2004 compared to 2003, is 
the same as our original estimate published in the November 7, 2003 
final rule (68 FR 63250). While our current projection based on data 
from 8 months of 2004 is the same as our original estimate when we had 
no data, it is still possible that our final estimate of this figure 
will be different once we have complete information on 2004 fee-for-
service enrollment.

Factor 3--Estimated Real Gross Domestic Product Per Capita Growth in 
2004

    We estimate that the growth in real per capita GDP will be 2.2 
percent for 2004. Our past experience indicates that there have also 
been large differences between our estimates of real per capita GDP 
growth made prior to the year's end and the actual change in this 
factor. Thus, it is likely that this figure will change further as 
complete actual information on 2004 economic performance becomes 
available to us in 2005.

[[Page 66390]]

Factor 4--Percentage Change in Expenditures for Physicians' Services 
Resulting From Changes in Law or Regulations in 2004 Compared With 2003

    There are four statutory provisions that are increasing 2004 
Medicare spending relative to 2003. Section 412 of the MMA established 
a floor of 1.0 on adjustments to the physician work relative value unit 
for the geographic practice cost index (GPCI) for the years 2004 
through 2006. Section 602 of the MMA increases the GPCIs for work, 
practice expense, and malpractice in Alaska to 1.67. Because these 
provisions increase the work GPCIs that are below 1.0 to 1.0 and, for 
services in Alaska, we estimate that sections 412 and 602 of the MMA 
are increasing 2004 Medicare spending included in the SGR by 0.6 
percent. Sections 303 and 304 of the MMA increased Medicare's payments 
for drug administration in 2004. It further exempted the increases in 
payment from the budget neutrality provisions of section 1848(c)(2) of 
the Act. We estimate the section 303 and 304 provisions will increase 
spending for physicians' services by 0.8 percent in 2004. Taken 
together, we estimate that statutory provisions are increasing 2004 
spending for physicians' services by 1.5 percent (after accounting for 
rounding).
3. Detail on the 2003 SGR
    A more detailed discussion of our revised estimates of the four 
elements of the 2003 SGR follows.

Factor 1--Changes in Fees for Physicians' Services (Before Applying 
Legislative Adjustments) for 2003

    This factor was calculated as a weighted average of the 2003 fee 
increases that apply for the different types of services included in 
the definition of physicians' services for the SGR.
    Services paid using the physician fee schedule accounted for 
approximately 83.0 percent of total Medicare allowed charges included 
in the SGR for 2003 and are updated using the MEI. The MEI for 2003 was 
3.0 percent. Diagnostic laboratory tests represent approximately 7.2 
percent of total Medicare allowed charges included in the SGR and are 
updated by the CPI-U. The CPI-U applied to payments for laboratory 
services for 2003 was 1.1 percent. Drugs represented approximately 9.8 
percent of total Medicare allowed charges included in the SGR for 2003. 
According to section 1842(o) of the Act, Medicare pays for drugs based 
on 95 percent of AWP. Using wholesale pricing information and Medicare 
utilization for drugs included in the SGR, we estimate a weighted 
average fee increase for drugs of 1.9 percent for 2003. Table 31 shows 
the weighted average of the MEI, laboratory, and drug price increases 
for 2003.
[GRAPHIC] [TIFF OMITTED] TR15NO04.538

    After taking into account the elements described in Table 31, we 
estimate that the weighted-average increase in fees for physicians' 
services in 2003 under the SGR (before applying any legislative 
adjustments) was 2.8 percent.

Factor 2--The Percentage Change in the Average Number of Part B 
Enrollees From 2002 to 2003

    We estimate the increase in the number of fee-for-service enrollees 
(excluding beneficiaries enrolled in M+C plans) from 2002 to 2003 was 
2.3 percent. Our calculation of this factor is based on complete data 
from 2003. Table 32 illustrates the calculation of this factor.
[GRAPHIC] [TIFF OMITTED] TR15NO04.539

Factor 3--Estimated Real Gross Domestic Product Per Capita Growth in 
2003

    We estimate that the growth in real per capita GDP was 2.0 percent 
in 2003. This figure is a final one based on complete data for 2003.

Factor 4--Percentage Change in Expenditures for Physicians' Services 
Resulting From Changes in Law or Regulations in 2003 Compared With 2002

    There are no statutory or regulatory changes that affect Medicare 
expenditures for services included in the SGR in 2003.

X. Anesthesia and Physician Fee Schedule Conversion Factors (CF) for 
Calendar Year 2005

    The 2005 physician fee schedule CF will be $37.8975. The 2005 
national average anesthesia conversion factor is $17.7594.

[[Page 66391]]

Physician Fee Schedule Conversion Factor

    Under section 1848(d)(1)(A) of the Act, the physician fee schedule 
CF is equal to the CF for the previous year multiplied by the update 
determined under section 1848(d)(4) of the Act. Using this formula 
would result in a 3.3 percent reduction to the physician fee schedule 
CF for 2005. However, section 601 of the MMA amended section 1848(d) of 
the Act to specify that the update to the single CF for 2004 and 2005 
will not be less than 1.5 percent. Because the statutory formula will 
yield a 3.3 percent reduction to the 2005 physician fee schedule CF and 
the amendments to the statute indicate that the update for 2005 cannot 
be less than 1.5 percent, we are increasing the physician fee schedule 
conversion factor by 1.5 percent.
    We illustrate the calculation for the 2005 physician fee schedule 
CF in Table 33 below.
[GRAPHIC] [TIFF OMITTED] TR15NO04.540

<bullet> Anesthesia Fee Schedule Conversion Factor

    Anesthesia services do not have RVUs like other physician fee 
schedule services. Therefore, we account for any necessary RVU 
adjustments through an adjustment to the anesthesia fee schedule CF. 
The only adjustment we are applying to the anesthesia fee schedule CF 
for 2005 is the physician fee schedule update. We used the following 
figures to determine the anesthesia fee schedule CF (see Table 34).
[GRAPHIC] [TIFF OMITTED] TR15NO04.541

XI. Telehealth Originating Site Facility Fee Payment Amount Update

    Section 1834(m) of the Act establishes the payment amount for the 
Medicare telehealth originating site facility fee for telehealth 
services provided from October 1, 2001 through December 31, 2002, at 
$20. For telehealth services provided on or after January 1 of each 
subsequent calendar year, the telehealth originating site facility fee 
is increased by the percentage increase in the MEI as defined in 
section 1842(i)(3) of the Act. The MEI increase for 2005 is 3.1 
percent.
    Therefore, for CY 2005, the payment amount for HCPCS code ``Q3014, 
telehealth originating site facility fee'' is 80 percent of the lesser 
of the actual charge or $21.86. The Medicare telehealth originating 
site facility fee and MEI increase by the applicable time period is 
shown in Table 35.
[GRAPHIC] [TIFF OMITTED] TR15NO04.542

XII. Provisions of the Final Rule

    The provisions of this final rule restate the provisions of the 
August 2004 proposed rule, except as noted elsewhere in the preamble.

XIII. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite public comment on the proposed rule. The 
notice of proposed rulemaking includes a reference to the legal 
authority under which the rule is proposed, and the terms and 
substances of the proposed rule or a description of the subjects and 
issues involved. This procedure can be waived, however, if an agency 
finds

[[Page 66392]]

good cause that a notice-and-comment procedure is impracticable, 
unnecessary, or contrary to the public interest and incorporates a 
statement of the finding and its reasons in the rule issued.
    We believe that providing a notice and comment procedure with 
regard to the RNHCI home benefit would be contrary to the public 
interest. The RNHCI home benefit provisions were added by the Congress 
to get a RNHCI benefit to those beneficiaries who are confined to the 
home. We believe that the Congress intended to provide the benefit to 
the homebound RNHCI beneficiaries as means of providing a similar home 
option as is offered to the general Medicare population. However, this 
expanded benefit is, by statute, a time limited benefit. Any delay in 
implementation could prevent beneficiaries from utilizing this expanded 
benefit at all or could seriously impinge on the amount of time they 
can use the benefit. Therefore, we find good cause to waive notice and 
comment procedures as contrary to the public interest with regard to 
the RNHCI home benefit. We are, however, providing a 60-day period for 
public comment.

XIV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA), we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether OMB should approve an information 
collection, section 3506(c)(2)(A) of the PRA requires that we solicit 
comment on the following issues:
    <bullet> The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    <bullet> The accuracy of our estimate of the information collection 
burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.

Section 403.766 Requirements for Coverage/Payment of Home Services

    In summary, Sec.  403.766 states the RNHCI provider must submit a 
written letter of intent to us if they choose to participate in 
offering the home service benefit.
    The burden associated with this requirement is the time and effort 
of the RNHCI provider to prepare and submit a letter of intention. It 
is estimated that this two-sentence letter should take no longer than 
15 minutes to prepare and submit. There are currently 16 RNHCI 
providers and, if all elected to participate, it would result in a one-
time burden of 4 hours.
    We have submitted a copy of this final rule with comment to OMB for 
its review of the information collection requirements described above. 
These requirements are not effective until they have been approved by 
OMB.

Section 410.16 Initial Preventive Physical Examination: Conditions for 
Limitations on Coverage

    In summary, Sec.  410.16 requires the furnishing of education, 
counseling and referral services as part of an initial preventive 
physical examination, a written plan for obtaining the appropriate 
screening and other preventive services which are also covered as 
separate Medicare B Part services.
    The burden associated with this requirement is the time required of 
the physician or practitioner to provide beneficiaries with education, 
counseling, and referral services and to develop and provide a written 
plan for obtaining screening and other preventive services.
    While these requirements are subject to the PRA; we believe the 
burden associated with these requirements to be usual and customary 
business practice; therefore, the burden for this collection 
requirement is exempt under 5 CFR 1320.3(b)(2)&(3).

Section 411.404 Criteria for Determining That a Beneficiary Knew That 
Services Were Excluded From Coverage as Custodial Care or as Not 
Reasonable and Necessary

    In summary, Sec.  411.404 requires that written notice must be 
given to a beneficiary, or someone acting on his or her behalf, that 
the services were not covered because they did not meet Medicare 
coverage guidelines.
    Although this section is subject to the PRA, the burden associated 
with this requirement is currently captured and accounted for in two 
currently approved information collections under OMB numbers 0938-0566 
and 0938-0781.

Section 418.205 Special Requirements for Hospice Pre-Election 
Evaluations and Counseling Services

    In summary, Sec.  418.205 states that written documentation is 
required and must be maintained for referral requests and services 
furnished.
    While these information collection requirements are subject to the 
PRA, the burden associated with them is exempt as defined in 5 CFR 
1320.3(b)(2).
    If you comment on these information collection and recordkeeping 
requirements, please mail copies directly to the following: Centers for 
Medicare & Medicaid Services Office of Strategic Operations and 
Regulatory Affairs, Attn: Melissa Musotto (CMS-1429-FC) Room C5-13-28, 
7500 Security Boulevard, Baltimore, MD 21244-1850; and Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
Room 10235, New Executive Office Building, Washington, DC 20503, Attn: 
Christopher Martin, CMS Desk Officer (CMS-1429-P), Christopher 
<a href="/cdn-cgi/l/email-protection#75381407011c1b351a18175b101a055b121a03"><span class="__cf_email__" data-cfemail="8dc0ecfff9e4e3cde2e0efa3e8e2fda3eae2fb">[email protected]</span></a>. FAX (202) 395-6974.

XV. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the ``DATES'' section of this 
preamble, and, when we proceed with a subsequent document, we will 
respond to the comments in the preamble to that document.

XVI. Regulatory Impact Analysis

    We have examined the impact of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 16, 1980 Pub. L. 96-354), 
section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
    Executive Order 12866 (as amended by Executive Order 13258, which 
merely reassigns responsibilities of duties) directs agencies to assess 
all costs and benefits of available regulatory alternatives and, when 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). A 
regulatory impact analysis must be prepared for final rules with 
economically significant effects (that is, a final rule that would have 
an annual effect on the economy of $100 million or more in any 1 year, 
or would adversely affect in a material way the economy, a sector of 
the economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities).

[[Page 66393]]

    As indicated in more detail below, we expect that the physician fee 
schedule provisions included in this final rule will redistribute more 
than $100 million in 1 year. We also anticipate that the combined 
effect of several provisions of the MMA implemented in this final rule 
will increase spending by more than $100 million. Other MMA provisions 
implemented in this final rule are expected to reduce spending by more 
than $100 million. We are considering this final rule to be 
economically significant because its provisions are expected to result 
in an increase, decrease or aggregate redistribution of Medicare 
spending that will exceed $100 million. Therefore, this final rule is a 
major rule and we have prepared a regulatory impact analysis.
    The RFA requires that we analyze regulatory options for small 
businesses and other entities. We prepare a regulatory flexibility 
analysis unless we certify that a rule would not have a significant 
economic impact on a substantial number of small entities. The analysis 
must include a justification concerning the reason action is being 
taken, the kinds and number of small entities the rule affects, and an 
explanation of any meaningful options that achieve the objectives with 
less significant adverse economic impact on the small entities.
    Section 1102(b) of the Act requires us to prepare a regulatory 
impact analysis for any final rule that may have a significant impact 
on the operations of a substantial number of small rural hospitals. 
This analysis must conform to the provisions of section 603 of the RFA. 
For purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside a Metropolitan 
Statistical Area and has fewer than 100 beds. We have determined that 
this final rule would have minimal impact on small hospitals located in 
rural areas. Of 517 hospital-based ESRD facilities located in rural 
areas, only 40 are affiliated with hospitals with fewer than 100 beds.
    For purposes of the RFA, physicians, nonphysician practitioners, 
and suppliers are considered small businesses if they generate revenues 
of $6 million or less. Approximately 95 percent of physicians are 
considered to be small entities. There are about 875,000 physicians, 
other practitioners and medical suppliers that receive Medicare payment 
under the physician fee schedule. There are in excess of 20,000 
physicians and other practitioners that receive Medicare payment for 
drugs. As noted previously in this final rule and described further 
below, we are implementing significant changes to the payments for 
drugs.) The 20,000 physicians that receive payments for drugs are 
generally concentrated in the specialties of oncology, urology, 
rheumatology and infectious disease. Of the physicians in these 
specialties, approximately 40 percent are in oncology and 45 percent in 
urology.
    For purposes of the RFA, approximately 98 percent of suppliers of 
durable medical equipment (DME) and prosthetic devices are considered 
small businesses according to the Small Business Administration's (SBA) 
size standards. We estimate that 106,000 entities bill Medicare for 
durable medical equipment, prosthetics, orthotics, and supplies 
(DMEPOS) each year. Total annual estimated Medicare revenues for DME 
suppliers exceed approximately $4.0 billion. Of this amount, 
approximately $1.6 billion are for DME drugs. These suppliers will be 
affected by the payment changes being made in this final rule for 
drugs.
    In addition, most ESRD facilities are considered small entities, 
either based on nonprofit status, or by having revenues of $29 million 
or less in any year. We consider a substantial number of entities to be 
affected if the rule is estimated to impact more than 5 percent of the 
total number of small entities. Based on our analysis of the 785 
nonprofit ESRD facilities considered small entities in accordance with 
the above definitions, we estimate that the combined impact of the 
changes to payment for renal dialysis services included in this rule 
would have a 1.6 percent increase in payments relative to current 
composite rate payments.
    The analysis and discussion provided in this section, as well as 
elsewhere in this final rule, complies with the RFA requirements. 
Section 202 of the Unfunded Mandates Reform Act of 1995 also requires 
that agencies assess anticipated costs and benefits before issuing any 
rule that may result in expenditures in any year by State, local, or 
tribal governments, in the aggregate, or by the private sector, of $110 
million. Medicare beneficiaries are considered to be part of the 
private sector for this purpose. The net impact of the provisions of 
this rule, including those related to the MMA, are estimated to result 
in a savings to beneficiaries of nearly $485 million for FY 2005. 
However, we note that this savings figure compares FY 2005 beneficiary 
costs occurring as a result of provisions of this final rule to FY 2005 
estimated beneficiary costs in the absence of final rule implementation 
(that is, the savings figure compare beneficiary costs with 
implementation of the ASP drug payment provisions to continuing the AWP 
drug payment methodology). The specific effects of the provisions being 
implemented in this final rule are explained in greater detail below.
    We have examined this final rule in accordance with Executive Order 
13132 and have determined that this regulation would not have any 
significant impact on the rights, roles, or responsibilities of State, 
local, or tribal governments.
    We have prepared the following analysis, which, together with the 
information provided in the rest of this preamble, meets all assessment 
requirements. It explains the rationale for and purposes of the rule; 
details the costs and benefits of the rule; analyzes alternatives; and 
presents the measures we use to minimize the burden on small entities. 
As indicated elsewhere in this final rule, we are refining resource-
based practice expense RVUs and making a variety of other changes to 
our regulations, payments, or payment policy to ensure that our payment 
systems are updated to reflect changes in medical practice and the 
relative value of services. We are also implementing several changes 
resulting from the MMA, including changes to Medicare payment rates for 
outpatient drugs, changes to the payment for renal dialysis services, 
creating new preventive health care benefits and creating incentive 
payment program improvements for physician scarcity.
    We are providing information for each of the policy changes in the 
relevant sections of this final rule. We are unaware of any relevant 
Federal rules that duplicate, overlap or conflict with this final rule. 
The relevant sections of this final rule contain a description of 
significant alternatives if applicable.

A. Resource-Based Practice Expense and Malpractice Relative Value Units

    Under section 1848(c)(2) of the Act, adjustments to RVUs may not 
cause the amount of expenditures to differ by more than $20 million 
from the amount of expenditures that would have resulted without such 
adjustments. We are implementing several changes that would result in a 
change in expenditures that would exceed $20 million if we made no 
offsetting adjustments to either the conversion factor or RVUs.
    With respect to practice expense RVUs, our policy has been to meet 
the budget-neutrality requirements in the statute by incorporating a 
rescaling adjustment in the practice expense methodologies. That is, we 
estimate the aggregate number of practice expense RVUs that will be 
paid under current and revised policy in CY 2005. We

[[Page 66394]]

apply a uniform adjustment factor to make the aggregate number of 
revised practice expense RVUs equal the number estimated that would be 
paid under current policy. While we are continuing to apply this policy 
for general changes in coding and RVUs, we are increasing aggregate 
physician fee schedule payments to account for the higher payments for 
drug administration. These increases in payment are being made under 
the authority of section 1848(c)(2)(J) of the Act that exempts the 
changes in payments for drug administration from the budget neutrality 
requirements of section 1848(c)(2)(B)(iv) of the Act.
    Table 36 shows the specialty level impact on payment of the 
practice expense and malpractice RVU changes being implemented for CY 
2005. Our estimates of changes in Medicare revenues for physician fee 
schedule services compare payment rates for 2005 with payment rates for 
2004 using 2003 Medicare utilization for both years. We are using 2003 
Medicare claims processed and paid through June 30, 2004, that we 
estimate are 98.5 percent complete, and have adjusted the figures to 
reflect a full year of data. Thus, because we are using a single year 
of utilization, the estimated changes in revenues reflect payment 
changes only between 2004 and 2005. To the extent that there are year-
to-year changes in the volume and mix of services provided by 
physicians, the actual impact on total Medicare revenues will be 
different than those shown here. The payment impacts reflect averages 
for each specialty based on Medicare utilization. The payment impact 
for an individual physician would be different from the average, based 
on the mix of services the physician provides. The average change in 
total revenues would be less than the impact displayed here because 
physicians furnish services to both Medicare and non-Medicare patients 
and specialties may receive substantial Medicare revenues for services 
that are not paid under the physician fee schedule. For instance, 
independent laboratories receive approximately 80 percent of their 
Medicare revenues from clinical laboratory services that are not paid 
under the physician fee schedule. The table shows only the payment 
impact on physician fee schedule services.
    The column labeled ``NPRM Impacts'' shows the effect of the changes 
in payment attributable to practice expense and malpractice RVUs from 
the proposed rule. (See 69 FR 47556 through 47559 for a complete 
description of the payment changes shown in this column). We have also 
made some additional changes to the practice expense and malpractice 
RVUs since the proposed rule in response to comments and additional 
information that became available to us during the comment period. The 
additional changes in payment based on further refinements of the 
practice expense RVUs generally have no specialty level impact. The 1 
percent increase in payment for vascular surgery shown in the practice 
expense refinements column is attributed to substitution of a vascular 
ultrasound room for a general ultrasound room in the equipment 
resources for CPT code 93880. Similarly, the increase in practice 
expense RVUs for diagnostic testing facilities is also attributable to 
the increase in payment for 93880 and 93925 due to the substitution of 
a vascular ultrasound room for a general ultrasound room in the 
equipment resources.
    The column labeled ``Additional Malpractice RVU Refinements'' show 
the additional impact of changes in the malpractice expense RVUs since 
the proposed rule on total payment for physician fee schedule services. 
As explained earlier, we are making several changes to malpractice RVUs 
that will change the impacts we illustrated in the proposed rule. We 
are removing assistants-at-surgery from the Medicare utilization that 
goes into determining the malpractice RVUs. Relative to the proposed 
rule, this change will increase total payments to neurosurgeons by 
nearly 1 percent. We also increased the ISO risk classification for the 
all physician crosswalk used for podiatry increasing their payments by 
1 percent relative to the proposed rule. Several specialty groups, 
including dermatology commented that the major surgery risk factor 
should not be used for the dermatology codes. Relative to the proposed 
rule, payments to dermatologists will decrease by approximately 1 
percent as a result of this change. The changes also increase payment 
to the specialty of allergy/immunology by nearly 1 percent relative to 
the proposed rule. This increase occurs because we are setting a 
minimum value of 0.01 malpractice RVUs. In the proposed rule, we did 
show malpractice RVUs in Addendum B if the rounded RVU equaled 0.0.
    The column labeled ``Immunizations/Injections'' shows the impact of 
making separate payment for injections provided on the same day as 
another physician fee schedule service and the increase in payment for 
immunizations. These changes generally benefit those specialties that 
provide injections and immunizations in their offices. The provision is 
estimated to increase payment by 2 percent to family practice and by 1 
percent to general practice, geriatrics, internal medicine and 
pediatrics. The column labeled ``Total'' shows the combined percentage 
change in payments resulting from the practice expense and malpractice 
RVU changes including those that were described in the proposed rule 
and the additional changes we are making in this final rule.
    As explained in the proposed rule, the practice expense refinements 
will reduce payments to audiologists by approximately 4 percent. 
Virtually all of the reduction in payment is due to the refinement of 
procedure code 92547. We accepted the PEAC recommendation to reduce the 
clinical staff time of the audiologist involved in this service from 71 
minutes to 1 minute. The refinement of clinical staff and equipment 
resulted in a reduction from 1.15 to 0.08 practice expense RVUs 
producing the 4 percent reduction in payments shown in table 37. 
However, this impact assumes no change in how frequently these services 
are performed. While we received comments suggesting that the code was 
valued based on only one occurrence of the service, the commenter 
asserted that it is typically performed more than once per day. 
Currently, CPT allows it only to be billed once per day. If CPT were to 
change its policy and the service was billed more frequently, the 
impact shown in table 37 would be less than shown here.
    In the proposed rule, we estimated that payments to vascular 
surgeons would increase by 3 percent as a result of the repricing of 
medical equipment used in performing noninvasive vascular diagnostic 
tests. As indicated above, the total increase in payments including the 
additional refinements we made to equipment will make the total 
increase in payment from RVU changes equal to 4 percent. We originally 
estimated that payments to interventional radiology would increase by 2 
percent due practice expense refinements and the establishment of 
nonfacility pricing for procedure codes 35470 to 35476. Due to 
additional practice expense RVU refinements, we are now estimating that 
the total increase in payments will be 3 percent. We are estimating 
slightly less than a 3.5 percent increase in payment to oral and 
maxillofacial surgeons from the refinement of medical supplies for 
procedure codes 21210 and 21215. The estimated impact for this 
specialty is slightly less than we were estimating for the proposed 
rule. As we indicated in the proposed rule, the 1 percent decrease in 
payment to nurse practitioners and geriatricians is

[[Page 66395]]

attributed to the refinement of the nonfacility practice expense RVUs 
for nursing facility visits (procedure codes 99301 through 99316). 
These impacts are unchanged from the proposed rule.
    As we indicated in the proposed rule, the increases for pathology 
and independent laboratories result from use of a practice expense 
survey provided by the College of American Pathology (CAP). The 
increases in the final rule are similar to the figures we estimated for 
the proposed rule. We further note that independent laboratories 
receive approximately 20 percent of their total Medicare revenues from 
physician fee schedule services. The remaining 80 percent of their 
Medicare revenues are from clinical diagnostic laboratory services that 
will be unchanged by use of the CAP survey data. Thus, total Medicare 
revenues to independent laboratories as a result of using the CAP 
survey will increase by slightly more than 1 percent (or 20 percent of 
the 6 percent increase in physician fee schedule revenues). There will 
be little or no impact on all other specialties from use of the CAP 
survey.
BILLING CODE 4120-01-P
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BILLING CODE 4120-01-C
    As discussed in section II.C of this rule, we are making changes to 
the malpractice RVUs based on more current malpractice premium data. As 
anticipated from past revisions to the malpractice RVUs, use of more 
current malpractice premium data results in minimal impacts on the 
specialty level payments. The table below shows the impact on total 
physician fee schedule revenues from the changes to the malpractice 
RVUs, the additional changes resulting from this final rule and the 
total impact. See Table 37, ``Impact of Malpractice RVU Changes 
Proposed Rule and Final Rule'', for a breakdown of the impacts of these 
revisions on individual specialties. As described above, policies we 
are adopting in this final rule will increase payments for allergy, 
neurosurgery and podiatry and decrease payments for dermatology 
relative to the proposed rule. These changes will also slightly 
increase payments to cardiac surgery, orthopedic surgery, thoracic 
surgery and result in a smaller increase in payment for vascular 
surgery.

[[Page 66398]]

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[[Page 66399]]


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    Section 1848(d) and (f) of the Act requires the Secretary to set 
the physician fee schedule update under the sustainable growth rate 
(SGR) system. For 2004 and 2005, the statute requires the update to be 
no less than 1.5 percent. Using the statutory formula in section 
1848(d)(4) will produce an update of less than 1.5 percent for 2005. 
Therefore, the physician fee schedule update for 2005 will be 1.5 
percent. We have included a complete discussion of our methodology for 
calculating the SGR and physician fee schedule update in another 
section of this final rule. Table 38 below shows the estimated change 
in average payments by specialty resulting from changes to the practice 
expense and malpractice RVUs and the 2005 physician fee schedule 
update. (Please note that the table does not include the specialties of 
Hematology/Oncology, Urology, Rheumatology, Obstetrics/Gynecology and 
Infectious Disease. There are unique issues related to drug 
administration that will further affect these specialties that are 
presented in detail below).

[[Page 66400]]

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[[Page 66401]]


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    Table 39 shows the impact on payments for selected high-volume 
procedures of all of the changes previously discussed. We selected 
these procedures because they are the most commonly provided procedures 
by a broad spectrum of physician specialties, or they are of particular 
interest to the physician community (for example, the initial 
preventive physical exam and EKG, codes G0344, G0366, G0367 and G0368). 
We note that the table below shows Medicare payment for the 
administration of an influenza vaccine, G0008, increasing from $8.21 to 
$18.57, or 126 percent. As explained earlier, we are establishing the 
same RVUs for the administration of a vaccine and an injection. For 
2005 only, we will pay 3 percent more for the injection ($19.13) 
because of the transitional adjustment required by section 303. After 
2005, the payment for the administration of a vaccine and an injection 
will be the same. This table shows the combined impact of the change in 
the practice expense and malpractice RVUs and the estimated physician 
fee schedule update on total payment for the procedure. There are 
separate columns that show the change in the facility rates and the 
nonfacility rates. For an explanation of facility and nonfacility 
practice expense RVUs refer to Sec.  414.22(b)(5)(i). The table shows 
the estimated change in payment rates based on provisions of this final 
rule and the estimated physician fee schedule update.
BILLING CODE 4120-01-P

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[[Page 66403]]


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BILLING CODE 4120-01-C
    Section 303(a)(1) of the MMA amended section 1848(c)(2) of the Act 
to require increased work and practice expense RVUs for drug 
administration services. Section 303(a)(4) of the MMA required an 
additional temporary increase in payment to specific drug 
administration services of 32 percent for 2004 and 3 percent for 2005. 
Table 41 shows the payment amounts for selected high-volume drug 
administration CPT codes from 2002 to 2006 including the effect of the 
transition adjustment of 32 percent required for 2004 and 3 percent for 
2005. Because we may also pay an additional $130 per encounter under 
the national demonstration project in 2005, we are also including the 
effect of this additional payment where applicable. Table 42 that 
follows table 41 shows the payment amount for 2004 and 2005 without the 
additional transition adjustment required by the MMA and national 
demonstration payment amount. By showing the payment amounts without 
the transition and demonstration, we can isolate the permanent change 
in the payment amounts that is occurring as a result of the MMA, the 
CPT/RUC review and the physician fee schedule update. The amounts shown 
in the table include the effect of the 1.5 percent update for 2004 and 
2005. As described above, the CPT and RUC have recommended changes to 
the coding and payment for drug administration services. The CPT/RUC 
review was undertaken at our request under the authority of section 
1848(c)(2)(J) of the Act that requires the Secretary to promptly 
evaluate existing drug administration codes using existing processes. 
While this review was completed expeditiously, CPT did not have 
sufficient time to adopt the coding recommendations into the 2005 
version of CPT. For this reason, we are establishing new G-codes for 
2005 that correspond with the new CPT codes that will become active in 
2006.
    Tables 41 and 42 show the payment amounts for the most frequently 
performed drug administration services from 2002 to 2004 under the CPT 
codes and payment for the comparable service in 2005 using the G code. 
For instance, a therapeutic injection was previously billed under the 
CPT code 90782. This same service will now be billed using HCPCS code 
G0351. As a result of the RUC review, our acceptance of their 
recommendations for refinements to the practice expense inputs, our 
policy of pooling the utilization for the injection with vaccine 
administration, and the required reduction in the transitional 
adjustment, payment for this service will be reduced from $24.64 in 
2004 to $19.13 in 2005. However, the 2004 transition adjustment largely 
accounts for the decline. If the transitional adjustment of 32 percent 
for 2004 and 3 percent for 2005 were not applied, payment for the 
injection would be virtually the same in 2005 as in 2004, a decline of 
$0.10 from $18.67 to $18.57. This table shows the permanent large 
increase in payment for this code from 2002 to 2005. The payment for a 
therapeutic injection increased from $3.98 in 2002 to $19.13 in 2005, a 
381

[[Page 66404]]

percent increase (or $18.57 if the transitional adjustment were not 
applied, a 367 percent increase).
    CPT is also recommending separate codes for the administration of 
hormonal anti-neoplastic subcutaneous/intramuscular (SC/IM) injections 
from other anti-neoplastic injections. Under the current CPT codes, all 
anti-neoplastics administered SC/IM are billed using CPT code 96400. 
HCPCS code G0356 will be used for the administration of hormonal anti-
neoplastic injections. CPT code 96400 is currently paid $64.07. Its 
comparable code for 2005 (G0356) will be paid $36.69 or a reduction of 
43 percent. Without the transition, payment for the code would have 
been reduced from $48.54 to $35.62 or 27 percent between 2004 and 2005. 
However, payment for this code increased from $5.07 to $35.62 (without 
the transition) between 2002 and 2005 or by 603 percent.
    There is currently one CPT code for anti-neoplastic drugs 
administered by intravenous (IV) push (96408). In 2004, physicians are 
receiving $154.76 for CPT code 96408. Payment in 2005 for G0351 (the 
comparable code) will be $125.69. In addition, Medicare may also pay an 
additional $130.00 per encounter under the demonstration increasing the 
total payment to $255.69 or an increase of 65 percent between 2004 and 
2005. Without the transitional adjustments or the demonstration, 
payment for this service would have increased from $117.24 in 2004 to 
$122.03 in 2003 or by 4 percent. From 2002 to 2005, payment will have 
increased from $35.11 to $122.03 (without the transition), or a 248 
percent increase.
    CPT will be creating new codes that distinguish between the first 
and subsequent administration of a drug by IV push to the same patient 
on the same day. The RUC is recommending fewer inputs for the 
subsequent administration of a drug by IV push than the initial drug. 
We are creating code G0358 for each subsequent drug administered by IV 
push for 2005. Before the enactment of the MMA, Medicare allowed CPT 
code 96408 to be paid only once per patient per day. However, as a 
result of the MMA, we changed our policy and allowed physicians to bill 
and be paid for more than one administration of a chemotherapy drug by 
IV push to the same patient on a single day (see 69 FR 1094-1095). 
Thus, because separate codes do not currently exist for the multiple 
administrations of chemotherapy drugs by IV push on a single day, 
physicians currently are paid at the rate for 96408 (or $154.76) for 
each subsequent administration. Using the CPT's and RUC 
recommendations, we will pay $72.99 for subsequent drugs administered 
by IV push using HCPCS code G0358. While the payment is less in 2005 
and 2004, payment remains higher in 2005 than in 2003 and prior years 
when Medicare provided no payment for the subsequent administration of 
a drug by IV push.
    We are creating HCPCS codes G0359 and G0360 for the initial and 
subsequent hour respectively of chemotherapy drugs administered by IV 
infusion. As described in the drug administration section, CPT has 
changed its definition of chemotherapy to include infusion of 
substances such as monoclonal antibody agents or other biologic 
response modifiers in addition to anti-neoplastic drugs. Thus, services 
previously billed under the CPT code 90780 (initial hour) and 90781 
(each additional hour) that meet this new definition of chemotherapy 
will now be billed under CPT code G0359 (initial hour) and G0360 (each 
additional hour). Payment for the infusion of substances such as 
monoclonal antibody agents or other biologic response modifiers paid 
under CPT code 90780 will be increasing from $117.79 in 2004 to $177.61 
in 2005 using HCPCS code G0359, a 51 percent increase. Without 
including the transition adjustment, payment for these services will 
have increased by 93 percent from $89.24 in 2004 to $172.43 in 2005 or 
by 325 percent from the 2002 rate of $40.54. Payment for the subsequent 
hour infusion under CPT code 90781 will increase from $33.02 in 2004 to 
$40.21 in 2005 under HCPCS code G0360 or by 22 percent. Without 
including the transition adjustment, payment for the subsequent hour 
infusion will have increased 56 percent from $25.02 in 2004 to $39.03 
in 2005 or 93 percent from its 2002 rate of $20.27.
    Anti-neoplastic agents that were previously billed under CPT code 
96410 (initial hour) and 96412 (each additional hour) will also be 
billed under codes G0359 and G0360. We have listed codes G0359 and 
G0360 twice to reflect that Medicare payment for each respective code 
is paid under two different CPT codes for services rendered prior to 
January 1, 2005. Payment for the initial hour of an anti-neoplastic 
agent administered by infusion under CPT code 96410 will be going from 
$217.35 in 2004 to $177.61 in 2005. Including the $130.00 per encounter 
demonstration payment in this amount brings the total payment to 
$307.61, an increase of 65 percent. Without including the transition 
adjustment, payment for these services will have increased by 5 percent 
from $164.66 in 2004 to $172.43 in 2005 or by 209 percent from the 2002 
rate of $55.75. Payment for the subsequent hour infusion under CPT code 
96412 will decrease from $48.30 in 2004 to $40.21 in 2005 under HCPCS 
code G0360 or by 17 percent. Without including the transition 
adjustment, payment for the subsequent hour infusion will have 
increased 7 percent from $36.59 in 2004 to $39.03 in 2005. Payment for 
the subsequent hour infusion of an anti-neoplastic agent has been 
reduced by 6 percent from its 2002 rate of $41.63. The reduction in 
payment is occurring because resource-based pricing replaced the use of 
charge-based RVUs when the services were removed from the nonphysician 
work pool in 2004.
    The CPT is also recommending a new code for the initial hour of a 
subsequent chemotherapy drug administered by infusion. The new code 
would recognize that there are higher resources associated with the 
first hour of infusion of a subsequent drug than there are in the 
subsequent hour of the initial drug. Under current CPT coding, the 
first hour of a subsequent drug administered by IV infusion is paid 
under CPT code 96412. In 2004, Medicare pays $48.30 for this service. 
In 2005, we will pay $86.66 or 79 percent more for HCPCS code G0362 
that will be used for the initial hour of a subsequent drug 
administered by IV infusion. Without including the transition 
adjustment, payment for this service will have increased 130 percent 
from $36.59 in 2004 to $84.13 in 2005 or 102 percent from the 2002 rate 
of $41.63.
    The volume-weighted average permanent increase in payment among all 
drug administration services is approximately 117 percent from 2003 to 
2005 including the effect of the CPT/RUC recommendations but excluding 
the effect of the transition adjustment. Including the effect of the 
transition (but not the demonstration payment) makes the volume-
weighted increase in payment for these codes more than 120 percent from 
2003 to 2005.
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BILLING CODE 4120-01-C
    Table 42 below shows the impact of physician fee schedule changes 
for selected specialties that receive a significant portion of their 
total Medicare revenues from drugs. Table 43 that follows table 42 
shows the combined impact of the physician fee schedule and drug 
payment changes on total Medicare revenues. Our estimates of changes in 
Medicare revenues for drugs and physician fee schedule services compare 
payment rates for 2005 with payment rates for 2004 using 2003 Medicare 
utilization for both years. For physician fee schedule services, we 
mapped the 2003 Medicare utilization to the code set in use for 2005 
based on assumptions about how the new drug administration codes will 
be billed. These assumptions are based on our consultations with the 
American Society of Clinical Oncology and other physician specialty 
societies that participated in the CPT's Drug Administration workgroup. 
We are using 2003 Medicare claims processed and paid through June 30, 
2004 that we

[[Page 66407]]

estimate are 98.5 complete and have adjusted the figures to reflect a 
full year of data. Thus, because we are using a single year of 
utilization, the estimated changes in revenues reflect payment changes 
only between 2004 and 2005. To the extent that there are year-to-year 
changes in the volume and mix of drugs and physician fee schedule 
services provided by physicians, the actual impact on total Medicare 
revenues will be different than those shown here.
    The column labeled ``NPRM Impacts'' shows the impact of the 
practice expense and malpractice RVU changes described earlier. The 
refinements of the practice expense RVUs and 5-year review of 
malpractice will have little or no impact on physician fee schedule 
payments for the 5 specialties shown. The column labeled ``Coding and 
RVU Changes'' shows the impact of our adoption of the CPT/RUC 
recommended revisions to the codes and payment amount for drug 
administration services. We estimate that the changes from the CPT/RUC 
process will increase physician fee schedule payments for oncologists 
by 5 percent. This impact is generally attributable to higher permanent 
increases in payment for the administration of drugs by IV push 
(G0357), infusion (G0359 and G0360) and the ability to be paid at a 
higher rate for the initial hour of infusion of a subsequent drug 
administered. We estimate that the changes from the CPT/RUC process 
will increase payments to rheumatologists by 4 percent. This impact is 
due to the change in the definition of the chemotherapy that will allow 
rheumatologists to bill substances such as monoclonal antibody agents 
or other biologic response modifiers using the chemotherapy 
administration codes. The CPT/RUC changes will have little or no 
specialty level impact on other specialties that administer drugs.
    The next column shows the effect of the drug administration 
transition on Medicare physician fee schedule revenues for the 
specialties shown. As explained earlier, section 303(a)(4) requires 
that the transition adjustment percentage be reduced from 32 percent in 
2004 to 3 percent in 2005. The change to the transition payment 
percentage will reduce payments for the specialties that provide drug 
administration services. The reduction has a larger impact on 
oncologists than the other physician specialties shown because drug 
administration services represent a larger proportion of their 
physician fee schedule revenues.
    The column labeled ``Additional Payments for Injections'' shows the 
effect of paying for injections (as well as non-chemotherapy drugs 
administered by IV push) provided on the same day as other physician 
fee schedule services. We estimate that this policy change will 
increase payment an estimated 3 percent for oncologists and 1 percent 
for other specialties. This policy change will also modestly increase 
payment to other specialties that provide injections (primarily family 
practitioners and internists) and has been incorporated into the 
earlier impact tables.
    The next column shows the impact of the 1.5 percent physician fee 
schedule update. The column labeled ``One-Year Demonstration Project'' 
shows the impact of our plan to establish a national demonstration 
project that will pay oncologists $130 for providing specific services 
to their patients and reporting patient quality data. If oncologists 
participate in this demonstration project and provide the required 
services and requested information, we estimate that their payments 
will increase by 15 percent. Taken together, we estimate that the 
coding and RVU changes, the change to the transition amount for drug 
administration, the additional payments for injections, the physician 
fee schedule update and the national demonstration project will 
increase physician fee schedule payments to oncologists by 10 percent. 
The combined impact of these factors (other than the national 
demonstration project) will increase physician fee schedule payments by 
1 percent urologists, 5 percent for rheumatologists, 1 percent for 
obstetrics/gynecologists and 0 percent for infectious disease.
    Table 43 shows the combined impact of changes we are making to 
Medicare drug and physician fee schedule payments for the same 
specialties shown in table 42. The payment impacts for drugs are based 
on the 2nd quarter ASP submissions from drug manufacturer's and reflect 
\3/4\ of an annualized increase in drug prices between the 2nd quarter 
of 2004 and the 1st quarter of 2005 of 3.39 percent or 2.54 percent. 
The drug payment impacts are based on ASP prices for drugs accounting 
for approximately 94 percent of Medicare's total drug payments. Of 
Medicare's total payments for drugs, at least 4 percent are paid under 
``not otherwise classified (NOC)'' codes (i.e. J3490 and J0999). Thus, 
we based our impacts on ASP prices for drugs accounting for 
approximately 98 percent of Medicare revenues that are not in the NOC 
category.
    The column labeled ``% of Total Medicare Revenues from Fee 
Schedule'' shows the proportion of total Medicare revenues received 
from physician fee schedule services. The following column shows the 
physician fee schedule payment impact. All of the payment impacts are 
the same as those shown in Table 43. The following column shows the 
proportion of total Medicare revenues received from drugs, while the 
next column shows the payment impact from adoption of the ASP drug 
payment methodology. The next 3 columns show combined Medicare revenues 
from all sources and the combined Medicare payment impact from the 
earlier described changes being adopted for 2005.
    Our estimates of changes in Medicare revenues for both drugs and 
drug administration services compare payment rates for 2005 with 
payment rates for 2004 using the same utilization in both years. We 
used 2003 utilization for these comparative impacts since they are the 
latest data available. Thus, the estimated changes in revenues reflect 
purely price changes between 2004 and 2005. We note that these impacts 
and percentages represent averages for each specialty or supplier. The 
percentages and impacts for any individual physician are dependent on 
the mix of drugs and physician fee schedule services they provide to 
Medicare beneficiaries. For this analysis, we are also supplementing 
the data showing the change in revenues with volume growth based on 
historical trends.
    As indicated in Table 43, physician fee schedule services account 
for approximately 28 percent of oncology's 2004 Medicare revenues. The 
changes we are adopting in this final rule are estimated to increase 
Medicare payments for physician fee schedule services by 10 percent 
from 2004 to 2005. We estimate that approximately 69 percent of total 
2004 Medicare revenues for oncologists are attributed to drugs and the 
adoption of the ASP pricing methodology will reduce these revenues by 
13 percent. We based our analysis on drugs accounting for approximately 
92 percent of total oncology drug revenues (and 99 percent of oncology 
drug revenues not paid under NOC codes). The actual impact on 
oncologists' total Medicare revenues will be different from these 
estimated impacts to the extent that utilization of drugs and drug 
administration services does increase. In recent years, increasing 
utilization, for example, drug spending growth in excess of 20 percent 
per year, has occurred. The weighted average of the drug and physician 
fee schedule changes assuming no change in utilization would decrease 
Medicare revenues to oncology by 6 percent. However, if the volume of 
drugs and physician fee schedule services

[[Page 66408]]

increased at historical rates, total Medicare revenues for oncologists 
are estimated to increase by 4 percent between 2004 and 2005, excluding 
the demonstration project. If we include the demonstration project, 
Medicare revenues to oncologists are estimated to increase by 8 percent 
between 2004 and 2005. We note that our actuaries' estimates of section 
303 with the drug prices and policy changes in this final rule match 
earlier estimates of the FY 2005 and 10-year savings figures.
    We estimate that urology receives approximately 57 percent of their 
2004 total revenues from physician fee schedule services and 35 percent 
from drugs. We estimate that physician fee schedule revenues for 
urologists will increase by approximately 1 percent from 2004 to 2005. 
Based on ASP prices for drugs accounting for 100 percent of urologists' 
drug revenues, we estimate a 40 percent reduction assuming no growth in 
the volume of services provided. In this scenario, combined Medicare 
payments to urologists would decline approximately 14 percent. However, 
if the volume of physician fee schedule services and drugs were to grow 
at historical rates, we estimate that Medicare revenues to urologists 
would decline by 8 percent.
    We estimate that physician fee schedule revenues account for 
approximately 49 percent of rheumatology's total revenues. Drugs 
account for approximately 44 percent rheumatology's total revenues. 
Physician fee schedule revenues are estimated to increase 5 percent for 
rheumatology and revenues from drugs are estimated to decline by 8 
percent. Assuming no growth in utilization, the combined reduction in 
rheumatologists' revenues would be 1 percent. If the volume of drugs 
and physician fee schedule services grew at historical rates, 
rheumatologists' revenues from Medicare would increase by 9 percent.
    We estimate that physician fee schedule revenues account for 
approximately 87 percent of total revenues for obstetrics/gynecology. 
These revenues are anticipated to increase by 1 percent. Drug revenues 
represent 13 percent of total Medicare revenues for obstetrics/
gynecology and are estimated to decline by 21 percent. Assuming no 
growth in utilization, we estimated that obstetrics/gynecology's 
combined Medicare revenues would decline by 2 percent. Using the 
historical projected rates of growth for the volume of drugs and 
physician fee schedule services would make the estimated change in 
revenues equal an increase of 4 percent.
    We estimate that physician fee schedule revenues account for 
approximately 94 percent of total revenues for infectious disease 
physicians. These payments are not estimated to change. The remainder 
of Medicare revenues for infectious disease physicians can be 
attributed to drugs. These payments are expected to decline by 25 
percent. The weighted average change in infectious disease revenues 
from the changes we are adopting in this final rule is -2 percent 
assuming no growth in the volume of drugs and physician fee schedule 
services. If future growth in the volume of drugs and physician fee 
schedule services were to grow at historical rates, revenues to 
infectious disease physicians would increase would increase 7 percent.
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[[Page 66410]]


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BILLING CODE 4120-01-C

B. Geographic Practice Cost Indices

    As discussed in section II.B, in this rule, we are proposing 
changes to the work and practice expense GPCIs based on new census 
data. The resulting geographic redistributions would not result in an 
overall increase in the current geographic adjustment indices by more 
than 3.5 percent or a decrease by more than 1.6 percent for any given 
locality in 2005. These geographic redistributions would not result in 
an overall increase in the current geographic adjustment indices by 
more than 7 percent or a decrease by more than 3.5 percent for any 
given locality in 2006. Addenda F and G illustrate the

[[Page 66411]]

locality specific overall impact of this proposal. The GAF, as 
displayed in Addenda F and G is a weighted composite index of the 
individual revisions to the work, practice expense, and malpractice 
expense GPCIs, respectively. The malpractice GPCI was updated as part 
of the November 7, 2003 final rule, and the MMA provisions were 
addressed in the final rule published on January 7, 2004.

C. Coding Issues

1. Additions to the List of Medicare Telehealth Services
    In section II.D, we are adding end stage renal disease (ESRD) 
services, as represented by HCPCS codes G0308, G0309, G0311, G0312, 
G0314, G0315, G0317, G03178 to the list of telehealth services. We 
believe that this change will have little effect on Medicare 
expenditures.
2. National Pricing of G0238/G0239 (Respiratory Therapy Service Codes)
    As discussed earlier in the preamble, we are using the nonphysician 
workpool to value two respiratory therapy service codes (G0238 and 
G0239) that are currently carrier priced. We believe that this change 
will eliminate the uncertainty surrounding payment of these codes when 
performed in comprehensive outpatient rehabilitation facilities that 
are paid under the physician fee schedule through fiscal 
intermediaries. We do not anticipate that nationally pricing these 
services will have a significant impact on Medicare expenditures.
3. New HCPCS Code for Bone Marrow Aspiration
    We are implementing a new HCPCS add-on code, GO367 for instances 
when a bone marrow aspiration and a bone marrow biopsy are performed on 
the same day through a single incision. While this coding change will 
allow for a small additional payment for the second procedure performed 
through a single incision on the same day, we anticipate that the costs 
will be insignificant.
4. New HCPCS Code for Venous Mapping
    As stated earlier in the preamble, we are implementing a new HCPCS 
code G0365, for mapping of vessels for hemodialysis access. Payment for 
this code will be crosswalked by CPT code 93990, Doppler Flow Testing. 
We anticipate that the costs of this change will be minor and may 
result in improved care to Medicare beneficiaries and less long-term 
costs to Medicare.

D. MMA Provisions

1. Section 611--Preventive Physical Examination
    As discussed earlier in this preamble, the MMA authorizes coverage 
of an initial preventive physical examination effective January 1, 
2005, subject to certain eligibility and other limitations. This new 
benefit will result in an increase in Medicare expenditures for new 
payments made to physicians and other practitioners who provide these 
examinations and for any medically necessary follow-up tests, 
counseling, or treatment that may be required as a result of the 
coverage of these examinations. The impact of this provision is shown 
in the following table.
[GRAPHIC] [TIFF OMITTED] TR15NO04.556

2. Section 613--Diabetes Screening
    Section 613 of the MMA adds subsection (yy) to section 1861 of the 
Social Security Act and mandates coverage of diabetes screening tests, 
effective on or after January 1, 2005. We expect that this change in 
coverage for certain beneficiaries will result in an increase in 
Medicare payments. These payments will be made to physicians' office 
laboratories and other laboratory suppliers who perform these tests as 
a result of the increased frequency of coverage of these tests. The 
impact of this provision is shown in Table 45 that follows.
3. Section 612--Cardiovascular Screening
    Section 612 of the MMA provides for Medicare coverage for 
cholesterol and other lipid or triglyceride levels of cardiovascular 
screening blood tests for the early detection of abnormalities 
associated with an elevated risk for such diseases effective on or 
after January 1, 2005. We estimate that this change in coverage for 
certain beneficiaries will result in an increase in Medicare payments. 
These payments will be made to physician office laboratories and other 
laboratory suppliers who perform these tests as a result of the 
increased frequency of coverage of these tests. Increased Medicare 
program expenditures for this provision are shown in Table 45 below.

[[Page 66412]]

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4. Section 413--Incentive Payment for Physician Scarcity

a. Physician Scarcity Areas

    Section 413(a) of the MMA provides a new 5-percent incentive 
payment to physicians who furnish services in physician scarcity areas. 
The MMA provides for paying primary care physicians furnishing services 
in a primary care scarcity area, and specialty physicians furnishing 
services in a specialist care scarcity county, an additional amount 
equal to 5 percent of the amount paid for their professional services 
under the fee schedule from January 1, 2005 to December 31, 2007. We 
estimate that this new incentive payment for physicians' services will 
result in an increase in Medicare payments that are shown in Table 46.

b. Improvement to Medicare HPSA Incentive Payment Program

    Section 413(b) of the MMA amended section 1833(m) of the Act to 
mandate that we automate payment of the 10 percent HPSA incentive 
payment to eligible physicians. Since the inception of the HPSA 
incentive payment program, physicians have been required to determine 
their eligibility and correctly code their Medicare claims using 
modifiers. We estimate that this change to the HPSA incentive payment 
program to provide for automation of payment will result in an increase 
in Medicare payments because many eligible physicians are not applying 
for bonuses due to the burden of verifying eligibility. The impact of 
this provision is shown in Table 46.
[GRAPHIC] [TIFF OMITTED] TR15NO04.558

5. Sections 303-304--Payment for Covered Outpatient Drugs and 
Biologicals and Section 305--Payment for Inhalation Drugs
    Sections 303 and 304 of the MMA make changes to Medicare payment 
for covered outpatient drugs and biologicals and changes to the 
administration of those drugs. Section 305 makes changes to payment for 
inhalation drugs. We implemented provisions of sections 303 through 305 
changing payments in 2004 for drugs and their administration in the 
January 7, 2004 Federal Register (69 FR 1084). In this final rule, we 
are making further changes to Medicare's payment for drugs and drug 
administration for 2005 required by sections 303 through 305 of the 
MMA. As indicated earlier in this final rule, we are revising the codes 
and payments for drug administration based on recommendations of the 
CPT Editorial Board and the Relative Value Update Committee. Consistent 
with section 1848(c)(2)(J) of the Act (as amended by section 303(a) of 
the MMA), the increase in payment resulting from this review are exempt 
from the budget neutrality requirements that apply to changes in RVUs. 
We are further increasing payments to physicians that treat patients 
with cancer who participate in a national demonstration project. In 
addition, we are also paying a supplying fee of $50 per month for the 
first month and $24 for each subsequent month for Medicare Part B oral 
drug prescriptions. We are also proposing to pay a furnishing fee of 
$0.14 per unit of clotting factor and a dispensing fee of $57 per month 
for inhalation drugs. Taking all of these provisions into account, we 
estimate Medicare savings for section 303-305 as follows:

[[Page 66413]]

[GRAPHIC] [TIFF OMITTED] TR15NO04.559

6. Section 952--Reassignment
    The reassignment provisions discussed in section III.F is currently 
estimated to have no significant impact on Medicare expenditures.
7. Section 623--Payment for Renal Dialysis Services

a. Effects on the Medicare Program (Budgetary Effect)

    Because the basic case mix adjusted composite payment rate and the 
revised payment for ESRD drugs must be budget neutral in accordance 
with section 623(d)(1) of the MMA, except for the statutorily required 
1.6 percent increase set forth in section 623(a), we estimate that 
there would be no budgetary impact for the Medicare program beyond this 
increase. The impact of this provision (net of beneficiary liability) 
is shown in the following table:
[GRAPHIC] [TIFF OMITTED] TR15NO04.560

b. Impact on ESRD Providers

    To understand the impact of the changes affecting payments to ESRD 
facilities that result from enactment of the MMA on different 
categories of ESRD facilities, it is necessary to compare estimated 
payments under the current payment system (current payments) to 
estimated payments under the revisions to the composite rate payment 
system as set forth in this final rule (MMA payments). To estimate the 
impact among various classes of ESRD facilities, it is imperative that 
the estimates of current payments and MMA payments contain similar 
inputs. Therefore, we simulated MMA payments only for those ESRD 
facilities for which we are able to calculate both current payment and 
MMA payment.
    Due to data limitations, we are unable estimate current and MMA 
payments for 461 facilities that bill for ESRD drugs. ESRD providers 
were grouped into the categories based on characteristics provided in 
the Online Survey and Certification and Reporting (OSCAR) file and the 
most recent cost report data from HCRIS. We also used the June 2004 
update of CY 2003 Standard Analytical File (SAF) claims as a basis for 
Medicare dialysis treatments and separately billable drugs and 
biologicals. As we stated in the proposed rule, this final rule impact 
on providers uses updated OSCAR, cost report and claims data.
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[[Page 66415]]


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BILLING CODE 4120-01-C
    Table 49 shows the impact of MMA Section 623 on hospital based and 
independent facilities. We have included both composite rate payments 
as well as payments for separately billable drugs and biologicals 
because both are effected by section 623 of the MMA. The first column 
of Table 49 identifies the type of ESRD provider, the second column 
indicates the number of ESRD facilities for each type, and the third 
column indicates the number of dialysis treatments.
    The fourth column shows the effect of the changes in drug payments 
to ESRD

[[Page 66416]]

providers. The overall effect of changes in drug payments is budget-
neutral as required by MMA. The drug add-on adjustment is designed to 
result in the same aggregate amount of expenditures as would have been 
made without the statutory policy change.
    Current payments for drugs represent 2005 Medicare reimbursement 
using 95 percent of AWP prices for the top ten drugs. Medicare spending 
for drugs other than EPO is estimated using 2004 AWP prices updated by 
a 3 percent inflation factor times actual drug utilization from 2003 
claims. EPO is priced $10 per 1000 units (EPO units are estimated using 
payments because the units field on bills represents the number of EPO 
administrations rather than the number EPO units). Medicare spending 
under the MMA is 2003 average acquisition cost for the top ten drugs 
updated to 2005 figures (using the PPI for prescriptions drugs) times 
actual drug utilization from 2003 claims. These inflation factors were 
4.81 percent and 3.72 percent for 2004 and 2005, respectively.
    Payment for drugs under MMA also includes the 8.7 percent drug add-
on to the composite rate. This amount is computed by multiplying the 
composite rate for each provider (with the 1.6 percent increase) times 
dialysis treatments from 2003 claims. Column 4 is computed by comparing 
spending under MMA provisions for drugs including the 8.7 percent drug 
add-on amount to spending under current payments for drugs. In order to 
make column 4 comparable with rest of Table 49, current composite rate 
payments to ESRD facilities were included in both current and MMA 
spending calculations.
    Column 5 shows the effect of the 1.6 percent increase to the 
composite rate on total payments to ESRD providers. While all ESRD 
providers will get a 1.6 percent increase to their composite rate, this 
table shows the net effect of this increase on ESRD providers' total 
Medicare revenues (both drug and composite rate payments combined), and 
therefore does not show a 1.6 percent increase.
    On average, ESRD providers receive an average of 39 percent of 
their total revenues from separately billable drugs and 61 percent of 
their total revenues from composite rate payment. Since the 1.6 percent 
increase is applied to the 61 percent portion of their total Medicare 
revenues, the 1.6 percent composite rate increase is also 
arithmetically equal to a 1.0 percent increase in ESRD providers' total 
Medicare revenues. Column 5 is computed by combining MMA payment for 
drugs (including the 8.7 percent drug add-on amount) with: (1) current 
composite rate times dialysis treatments from 2003 claims or (2) 
composite rate with 1.6 percent increase times dialysis treatments from 
2003 claims. The difference between these two combinations is the net 
effect of the 1.6 percent increase on total payments to ESRD providers. 
In order to isolate the effect of the 1.6 percent increase, the 
computation in Column 5 assumes that drug payments to ESRD providers 
remain constant.
    Column 6 shows the impact of the case-mix adjustments as described 
earlier in this preamble of this final rule. Because MMA requires this 
adjustment to be budget-neutral in the aggregate, there is no overall 
impact on ESRD providers as a whole. While the case-mix adjustment will 
have an impact within the various provider types, Column 6 shows that 
the effect between provider groupings is minimal. Column 6 is computed 
as the difference between payments to ESRD providers with the case-mix 
adjustments compared to payments to providers without the case-mix 
adjustments. As described earlier in this preamble, we developed a 
case-mix budget neutrality factor to meet the MMA requirement that 
payment be budget-neutral with respect to aggregate payments. 
Therefore, there is no change for ESRD providers in the aggregate. We 
note that when applying the case-mix adjustments, we did so at the 
facility level.
    Column 7 shows the overall effect of all changes in drug and 
composite rate payments to ESRD providers. The overall effect of 
payments to ESRD facilities is measured as the difference between 
payment with and without application of MMA section 623 as described in 
this final rule and current payment. MMA payment is computed by 
multiplying the composite rate for each provider (with both 1.6 percent 
increase and the 8.7 percent add-on) times dialysis treatments from 
2003 claims times the appropriate case-mix adjustment by provider. In 
addition, MMA payment includes payments for separately billable drugs 
under the revised pricing methodology as described in this preamble. 
Current payment is the current composite rate for each provider times 
dialysis treatments from 2003 claims plus current drug payments for 
separately billable drugs.
    The overall impact to ESRD providers in aggregate is 1.0 percent. 
Among the three separately shown effects, the effect of changes in drug 
payments has the most variation among provider type and contributes 
most to the overall effect. Separately billable ESRD drugs are paid 
differently to hospital-based and independent ESRD providers. As 
discussed earlier in this preamble, we are using a single drug add-on 
to the composite rates for both hospital based and independent 
facilities. The 6.6 percent increase in payments to hospital-based 
providers is largely due to the single drug add-on to the composite 
rate.
8. Section 731--Coverage of Routine Costs for Category A Clinical 
Trials
    The coverage of routine costs associated with certain Category A 
clinical trials as discussed in MMA section 731(b) will have no 
significant impact on Medicare expenditures.
9. Section 629--Part B Deductible
    As explained earlier in the preamble, section 629 of the MMA 
provides for annual updates to the Medicare Part B deductible. The MMA 
stipulates that the Medicare Part B deductible will be $110 for 
calendar year 2005, and, for subsequent years, the deductible will be 
the previous year's deductible increased by the annual percentage 
increase in the monthly actuarial rate under section 1839(a)(1) of the 
Act, ending with that subsequent year (rounded to the nearest dollar). 
We note that while this MMA provision results in a savings to the 
Medicare program, it also increases beneficiary costs by an equal 
amount and was implemented in a Federal Register notice published on 
September 9, 2004 (69 FR 54675).

                           TABLE 50: Estimated Medicare Savings for MMA Provision 629
                                                  [in millions]
----------------------------------------------------------------------------------------------------------------
               MMA provision                   FY 2005       FY 2006       FY 2007       FY 2008       FY 2009
----------------------------------------------------------------------------------------------------------------
Sec. 629..................................          110           290           440           590           770
----------------------------------------------------------------------------------------------------------------


[[Page 66417]]

10. Section 512--Hospice Consultation Service
    As explained in section III.K of this preamble, effective January 
1, 2005, section 512 of the MMA provides for payment to be made to a 
hospice for specified services furnished by a physician who is either 
the medical director of, or an employee of, a hospice agency. We 
estimate that this MMA provision will increase Medicare expenditures by 
$10 million per year beginning in 2005.
11. Section 706 Coverage of Religious Nonmedical Health Care 
Institution (RNHCI) Services Furnished in the Home
    We anticipate that the time limited RNHCI home benefit will either 
meet or fall short of the annual $700,000 per calendar year statutory 
spending limit and therefore will not have a significant financial 
impact on the Medicare program.

E. Other Issues

1. Outpatient Therapy Services Performed ``Incident To'' Physicians' 
Services
    As discussed in section IV.A, we are amending the regulations to 
include the statutory requirement that only individuals meeting the 
existing qualification and training standards for therapists (with the 
exception of licensure) consistent with Sec.  484.4 qualify to provide 
therapy services incident to physicians' services. We believe that 
while this will have little impact on Medicare expenditures, it will 
assist in ensuring the quality of services provided to beneficiaries.
2. Supervision Requirements for Therapy Assistants in Private Practice
    As discussed earlier in section IV.A, we are revising the 
regulations at Sec.  410.59 and Sec.  410.60 to replace a requirement 
to provide personal supervision and instead require direct supervision 
of physical therapist assistants and occupational therapy assistants 
when therapy services are provided by physical therapists or 
occupational therapists in private practice. This policy change will 
provide beneficiaries access to medically necessary therapy services, 
under a physician-certified plan of care. We believe that this change 
could result in a 5 percent increase in therapy billing in therapy 
private practice settings with an estimated cost of $9 million for FY 
2005. Projected costs for FY 2006 are $17 million while each subsequent 
year would only increase by $1 million each year, assuming the therapy 
caps are applied.
3. Low Osmolar Contrast Media
    As discussed earlier in the preamble, we are revising the 
regulations at Sec.  414.38 to eliminate the restrictive criteria for 
the payment of LOCM. This regulation will make payment for LOCM 
consistent across Medicare payment systems. Shown in the following 
table are estimates of program costs due to the removal of the 
restrictive criteria for administering LOCM, assuming increased 
utilization and removal of the 8 percent reduction. Without current ASP 
data, we could not include the additional impact of the change in 
payment for LOCM to ASP plus 6 percent, effective April 1, 2005. 
Contrast-enhanced procedures that most commonly use LOCM, the typical 
ranges of LOCM amounts used by modality, and the cost ranges for LOCM 
in the marketplace were considered in valuing the additional program 
costs.
[GRAPHIC] [TIFF OMITTED] TR15NO04.563

4. Payments for Physicians and Practitioners Managing Patients on 
Dialysis
    We believe that the proposals with respect to ESRD-related services 
furnished to patients in observation settings and payment for 
outpatient ESRD-related services for partial month scenarios discussed 
earlier in section xx provide clarification of current policy 
surrounding these issues. We do not believe these proposals will have a 
significant impact on Medicare expenditures.
5. Supervision of Clinical Psychological Testing
    We are changing the supervision requirements regarding who can 
supervise diagnostic psychological testing services. As previously 
discussed, having ancillary staff supervised by clinical psychologists 
will enable these practitioners with a higher level of expertise to 
oversee psychological testing and potentially relieve burdens on 
physicians and healthcare facilities.
    Additionally, in rural areas, we anticipate that permitting 
psychologists to supervise diagnostic psychological testing services 
will reduce delays in testing, diagnosis, and treatment that could 
result from the unavailability of physicians to supervise the tests. We 
believe that this revision to the supervision requirements will have 
little impact on Medicare expenditures.
6. Care Plan Oversight
    As discussed earlier in the preamble, we are revising Sec.  414.39 
to clarify that NPPs can perform home health care plan oversight even 
though they cannot certify a patient for home health services and sign 
the plan of care. We do not expect that this change will have an impact 
on Medicare expenditures, since it is primarily a clarification in 
policy.
7. Assignment of Medicare Claims
    The changes with respect to assignment of Medicare claims are 
currently estimated to have no significant impact on Medicare 
expenditures. However, as stated earlier in this preamble at section 
IV.G, we believe the changes will reduce the paperwork burden on 
beneficiaries and suppliers.

F. Alternatives Considered

    This final rule contains a range of policies, including proposals 
related to specific MMA provisions. The preamble provides descriptions 
of the statutory provisions that are addressed, identifies those 
policies when discretion has been exercised and presents rationale for 
our decisions and, when possible, alternatives that were considered.

G. Impact on Beneficiaries

    There are a number of changes made in this rule that would have an 
effect on

[[Page 66418]]

beneficiaries. In general, we believe these changes will improve 
beneficiary access to services that are currently covered or will 
expand the Medicare benefit package to include new services. As 
explained in more detail below, the MMA or regulatory provisions may 
increase beneficiary liability in some cases. Any changes in aggregate 
beneficiary liability from a particular provision will be a function of 
the coinsurance (20 percent if applicable for the particular provision 
after the beneficiary has met the deductible) and the effect of the 
aggregate cost (savings) of the provision on the calculation of the 
Medicare Part B premium rate (generally 25 percent of the provision's 
cost or savings).
    The MMA provisions that expand Medicare benefits include: Section 
611, adding an initial preventive physical exam for newly eligible 
Medicare beneficiaries; section 612 providing coverage of 
cardiovascular screening blood tests; and section 613, providing 
coverage for diabetes screening tests for Medicare beneficiaries at 
risk for diabetes. While the initial preventive physical examination 
for newly eligible Medicare beneficiaries is subject to deductible and 
coinsurance, we believe Medicare beneficiaries will continue to benefit 
from expanded coverage for this service. We believe many beneficiaries 
have supplemental insurance coverage or Medicaid that pays the Medicare 
deductible on their behalf and there will be no immediate additional 
out-of-pocket cost. Further, even if a beneficiary pays nearly all of 
the costs of this new benefit, the preventive office visit will 
substitute for another service a beneficiary may need to meet the 
annual deductible and the beneficiary will receive more covered 
benefits at little additional cost. There are no out-of-pocket costs to 
the beneficiary for the cardiovascular screening blood tests and 
diabetes screening tests.
    Other proposals in this rule related to the MMA will also impact 
beneficiary liability, with the most significant related to indexing of 
the part B deductible (section 629 of the MMA) and the drug 
administration payment changes (sections 303 and 305 of the MMA). MMA 
provisions that improve administration of the 10 percent HPSA bonus and 
provide an additional 5 percent bonus payment to physicians in Medicare 
scarcity areas will have no impact on beneficiary liability because the 
bonus payments are applied to the amount Medicare pays the physician 
net of beneficiary liability. These provisions will also improve access 
for Medicare beneficiaries by increasing payments to physicians in 
areas that traditionally have had a low ratio of physicians to 
population.
    We are summarizing the impact of all of the changes we are adopting 
in this rule in table 52. We note that Medicare savings estimates are 
relative to projected expenditures that would occur if the provisions 
of the MMA and this final regulation were not implemented. Thus, the 
savings figures are reductions in beneficiary liability relative to the 
amounts they otherwise would have paid. The figures do not necessarily 
mean that we are estimating that beneficiaries will have lower out-of-
pocket costs in 2005 than 2004.
[GRAPHIC] [TIFF OMITTED] TR15NO04.564

    The implementation of MMA provisions related to drugs and drug 
administration will reduce Medicare beneficiary liability for Medicare 
covered services even after including the additional increases in 
payment for drug administration and establishing a supplying fee for 
immunosuppressive drugs, a furnishing fee for the clotting factor and a 
dispensing fee for immunosuppressive drugs. We do not believe that the 
drug and drug administration payment changes required by the MMA are 
intended to lessen beneficiary access to care. As indicated earlier, 
the changes we are making to Medicare payments for the administration 
of drugs are permanently increasing them by a weighted average of more 
than 117 percent between 2003 and 2005 and they are being increased by 
an additional 3 percent for 2005 only. While payments for drugs are 
being reduced between 2004 and 2005, the statute requires Medicare to 
pay for them at 6 percent more than their average sales price or the 
price they are purchased at in the market after taking into account 
rebates and discounts. Nevertheless, we acknowledge that there is a 
concern among physicians and others that the large changes in 
Medicare's payments may affect their ability or willingness to continue 
making drugs and related services available. CMS' Office of Research

[[Page 66419]]

Demonstrations and Information is analyzing Medicare utilization for 
drugs and drug administration beginning in 2002 and plans to continue 
to analyze the data for shifts or changes in utilization patterns as 
the information becomes available to us. To date, we have no evidence 
that beneficiaries are having any problems with access to drugs. While 
we do not believe the payment changes for drugs and drug administration 
will result in access problems, we plan to continue studying this 
issue. We also note that the MMA requires the Medicare Payment Advisory 
Commission (MedPAC) to study related issues. Specifically, section 
303(a)(5) of the MMA requires MedPAC to study items and services 
furnished by oncologists and drug administration services furnished by 
other specialists.
    We are also undertaking several changes using our administrative 
authority that will affect Medicare beneficiaries. Our proposal to 
remove restrictions that limit Medicare payment for use of low osmolar 
contrast material to specific indications would update Medicare's 
payment policy to be consistent with the standard practice of medicine 
and will improve the quality of care for beneficiaries.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 403

    Grant programs-health, Health insurance, Hospitals, 
Intergovernmental relations, Medicare, Reporting and recordkeeping 
requirements.

42 CFR Part 405

    Administrative practice and procedure, Health facilities, Health 
professions, Kidney diseases, Medical devices, Medicare, Reporting and 
recordkeeping requirements, Rural areas, X-rays.

42 CFR Part 410

    Health facilities, Health professions, Kidney diseases, 
Laboratories, Medicare, Reporting and recordkeeping requirements, Rural 
areas, X-rays.

42 CFR Part 411

    Kidney diseases, Medicare, Reporting and recordkeeping 
requirements.

42 CFR Part 414

    Administrative practice and procedure, Health facilities, Health 
professions, Kidney diseases, Medicare, Reporting and recordkeeping 
requirements.

42 CFR Part 418

    Health facilities, Hospice care, Medicare, Reporting and 
recordkeeping requirements.

42 CFR Part 424

    Emergency medical services, Health facilities, Health professions, 
Medicare, Reporting and recordkeeping requirements.

42 CFR Part 484

    Health facilities, Health professions, Medicare, Reporting and 
recordkeeping requirements.

42 CFR Part 486

    Grant programs-health, Health facilities, Medicare, Reporting and 
recordkeeping requirements, X-rays.

0
For the reasons set forth in the preamble, the Centers for Medicare & 
Medicaid Services amends 42 CFR chapter IV as follows:

PART 403--SPECIAL PROGRAMS AND PROJECTS

Subpart G--Religious Nonmedical Health Care Institutions--Benefits, 
Conditions of Participation, and Payment

0
1. The authority citation for part 403 continues to read as follows:

    Authority: 42 U.S.C. 1359b-3 and secs 1102 and 1871 of the 
Social Security act (42 U.S.C. 1302 and 1395hh).


0
2. Section 403.746 is amended by adding a new paragraph (c) to read as 
follows:


Sec.  403.746  Condition of participation: Utilization review.

* * * * *
    (c) Standard: Utilization review committee role in RNHCI home 
services. In addition to the requirements in paragraphs (a) and (b) of 
this section, the utilization review committee is responsible for:
    (1) The admission, and at least every 30 days, the continued care 
review of each patient in the RHNCI home services program.
    (2) Oversight and monitoring of the home services program, 
including the purchase and utilization of designated durable medical 
equipment items for beneficiaries in the program.

0
3. In subpart G, Sec.  403.764 through Sec.  403.770 are added to read 
as follows:


Sec.  403.764  Basis and purpose of religious nonmedical health care 
institutions providing home service.

    (a) Basis. This subpart implements sections 1821, 1861, 1861(e), 
1861(m), 1861(y), 1861(ss) and 1861(aaa), 1869 and 1878 of the Act 
regarding Medicare payment for items and services provided in the home 
setting furnished to eligible beneficiaries by religious nonmedical 
health care institutions (RNHCIs).
    (b) Purpose. The home benefit provides for limited durable medical 
equipment (DME) items and RNHCI services in the home setting that are 
fiscally limited to $700,000 per calendar year, with an expiration date 
of December 31, 2006, or the date on which the 2006 spending limit is 
reached.


Sec.  403.766  Requirements for coverage and payment of RNHCI home 
services.

    (a) Medicare Part B pays for RNHCI home services if the RNHCI 
provider does the following:
    (1) Submit a notice of intent to CMS to exercise the option of 
providing home service.
    (2) Provide RNHCI services to eligible beneficiaries,
    (3) Arrange with suppliers to furnish appropriate DME items as 
required to meet documented eligible beneficiary needs.
    (4) Arrange for RNHCI nurse home visits to eligible beneficiaries.
    (5) Have a utilization committee that assumes the additional 
responsibility for the oversight and monitoring of the items and RNHCI 
nursing services provided under the home benefit.
    (6) Meet all applicable requirements set forth in subpart G of this 
part.
    (b) To be an eligible beneficiary to RNHCI home services the 
beneficiary must:
    (1) Have an effective election in place.
    (2) Be confined to the home, as specified in Sec.  409.42(a) of 
this chapter.
    (3) Have a condition that makes him or her eligible to receive 
services covered under Medicare home health.
    (4) Receive home services and DME items from a RNHCI.
    (5) Be responsible for deductible and coinsurance for DME, as 
specified in Sec.  409.50 of this chapter.


Sec.  403.768  Excluded services.

    In addition to items and services excluded in Sec.  409.49 of this 
chapter, items and services are also excluded if they are provided by:
    (a) A HHA that is not a RNHCI.
    (b) A supplier who is not providing RNHCI designated items under 
arrangement with a RNHCI.
    (c) A nurse who is not providing RNHCI home nursing services under 
arrangement with a RNHCI.


Sec.  403.770  Payments for home services.

    (a) The RNHCI nursing visits are paid at the modified low 
utilization payment

[[Page 66420]]

adjusted (LUPA) rate used under the home health prospective payment 
system at Sec.  484.230 of this chapter.
    (b) Appropriate DME items are paid as priced by Medicare, minus the 
deductible and coinsurance liability of the beneficiary.

PART 405--FEDERAL HEALTH INSURANCE FOR THE AGED AND DISABLED

0
4. The authority citation for part 405 continues to read as follows:

    Authority: Secs. 1102, 1861, 1862(a), 1871, 1874, 1881, and 
1886(k) of the Social Security Act (42 U.S.C. 1302, 1395x, 1395y(a), 
1395hh, 1395kk, 1395rr, and 1395ww(k)), and sec. 353 of the Public 
Health Service Act (42 U.S.C. 263a).


0
5. Section 405.207 is amended by revising paragraph (b) to read as 
follows:


Sec.  405.207  Services related to a noncovered device.

* * * * *
    (b) When payment is made. Medicare payment may be made for--
    (1) Covered services to treat a condition or complication that 
arises due to the use of a noncovered device or a noncovered device-
related service; or
    (2) Routine care services related to experimental/investigational 
(Category A) devices as defined in Sec.  405.201(b); and furnished in 
conjunction with an FDA-approved clinical trial. The trial must meet 
criteria established through the national coverage determination 
process; and if the trial is initiated before January 1, 2010, the 
device must be determined as intended for use in the diagnosis, 
monitoring or treatment of an immediately life-threatening disease or 
condition.
    (3) Routine care services related to a non-experimental/
investigational (Category B) device defined in Sec.  405.201(b) that is 
furnished in conjunction with an FDA-approved clinical trial.
0
6. Section 405.517 is amended by adding a new paragraph (a)(3) to read 
as follows:


Sec.  405.517  Payment for drugs and biologicals that are not paid on a 
cost or prospective payment basis.

    (a) Applicability. * * *
    (3) Payment for drugs and biologicals on or after January 1, 2005. 
Effective January 1, 2005, payment for drugs and biologicals that are 
not paid on a cost or prospective payment basis are paid in accordance 
with part 414, subpart K of this chapter.
* * * * *

PART 410--SUPPLEMENTARY MEDICAL INSURANCE (SMI) BENEFITS

0
7. The authority citation for part 410 continues to read as follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).


0
8. Section 410.1 is amended by adding a new paragraph (a)(6) to read as 
follows:


Sec.  410.1  Basis and scope.

    (a) * * *
    (6) Section 1842(o)--Payment for drugs and biologicals not paid on 
a cost or prospective payment basis.
* * * * *

0
9. Section 410.10 is amended by adding new paragraph (y) to read as 
follows:


Sec.  410.10  Medical and other health services: Included services.

* * * * *
    (y) Intravenous immune globulin administered in the home for the 
treatment of primary immune deficiency diseases.

0
10. Section 410.16 is added to read as follows:


Sec.  410.16  Initial preventive physical examination: Conditions for 
and limitations on coverage.

    (a) Definitions. As used in this section, the following definitions 
apply:
    Eligible beneficiary means an individual who receives his or her 
initial preventive physical examination within 6 months after the 
effective date of his or her first Medicare Part B coverage period, but 
only if that first Part B coverage period begins on or after January 1, 
2005.
    Initial preventive physical examination means all of the following 
services furnished to an eligible beneficiary by a physician or other 
qualified nonphysician practitioner with the goal of health promotion 
and disease detection:
    (1) Review of the beneficiary's medical and social history with 
attention to modifiable risk factors for disease, as those terms are 
defined in this section.
    (2) Review of the beneficiary's potential (risk factors) for 
depression, including current or past experiences with depression or 
other mood disorders, based on the use of an appropriate screening 
instrument for persons without a current diagnosis of depression, which 
the physician or other qualified nonphysician practitioner may select 
from various available standardized screening tests designed for this 
purpose and recognized by national professional medical organizations.
    (3) Review of the beneficiary's functional ability, and level of 
safety as those terms are defined in this section, as described in 
paragraph (4) of this definition, based on the use of appropriate 
screening questions or a screening questionnaire, which the physician 
or other qualified nonphysician practitioner may select from various 
available screening questions or standardized questionnaires designed 
for this purpose and recognized by national professional medical 
organizations.
    (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 medical and 
social history, and current clinical standards.
    (5) Performance and interpretation of an electrocardiogram.
    (6) Education, counseling, and referral, as deemed appropriate by 
the physician or qualified nonphysician practitioner, based on the 
results of the review and evaluation services described in this 
section.
    (7) Education, counseling, and referral, including a brief written 
plan such as a checklist provided to the beneficiary for obtaining the 
appropriate screening and other preventive services that are covered as 
separate Medicare Part B benefits as described in section 1861(s)(10), 
section 1861(jj), section 1861(nn), section 1861(oo), section 1861(pp), 
section 1861(qq)(1), section 1861(rr), section 1861(uu), section 
1861(vv), section 1861(xx)(1), and section 1861(yy) of the Act.
    Medical history is defined to include, at a minimum, the following:
    (1) Past medical and surgical history, including experiences with 
illnesses, hospital stays, operations, allergies, injuries, and 
treatments.
    (2) Current medications and supplements, including calcium and 
vitamins.
    (3) Family history, including a review of medical events in the 
beneficiary's family, including diseases that may be hereditary or 
place the individual at risk.
    A physician for purposes of this section means a doctor of medicine 
or osteopathy (as defined in section 1861(r)(1) of the Act).
    A qualified nonphysician practitioner for purposes of this section 
means a physician assistant, nurse practitioner, or clinical nurse 
specialist (as authorized under section 1861(s)(2)((K)(i) and section

[[Page 66421]]

1861(s)(2)((K)(ii) of the Act and defined in section 1861(aa)(5) of the 
Act, or in Sec.  410.74, Sec.  410.75, and Sec.  410.76).
    Review of the beneficiary's functional ability and level of safety 
must include, at a minimum, a review of the following areas:

    (1) Hearing impairment.
    (2) Activities of daily living.
    (3) Falls risk.
    (4) Home safety

    Social history is defined to include, at a minimum, the following:

    (1) History of alcohol, tobacco, and illicit drug use.
    (2) Diet.
    (3) Physical activities.

    (b) Condition for coverage of an initial preventive physical 
examination. Medicare Part B pays for an initial preventive physical 
examination provided to an eligible beneficiary, as described in this 
section, if it is furnished by a physician or other qualified 
nonphysician practitioner, as defined in this section.
    (c) Limitations on coverage of initial preventive physical 
examinations. Payment may not be made for an initial preventive 
physical preventive examination that is performed for an individual who 
is not an eligible beneficiary as described in this section.

0
11. A new Sec.  410.17 is added to read as follows:


Sec.  410.17  Cardiovascular disease screening tests.

    (a) Definition. For purposes of this subpart, the following 
definition apply:
    Cardiovascular screening blood test means:
    (1) A lipid panel consisting of a total cholesterol, HDL 
cholesterol, and triglyceride. The test is performed after a 12-hour 
fasting period.
    (2) Other blood tests, previously recommended by the U.S. 
Preventive Services Task Force (USPSTF), as determined by the Secretary 
through a national coverage determination process.
    (3) Other non-invasive tests, for indications that have a blood 
test recommended by the USPSTF, as determined by the Secretary through 
a national coverage determination process.
    (b) General conditions of coverage. Medicare Part B covers 
cardiovascular disease screening tests when ordered by the physician 
who is treating the beneficiary (see Sec.  410.32(a)) for the purpose 
of early detection of cardiovascular disease in individuals without 
apparent signs or symptoms of cardiovascular disease.
    (c) Limitation on coverage of cardiovascular screening tests. 
Payment may be made for cardiovascular screening tests performed for an 
asymptomatic individual only if the individual has not had the 
screening tests paid for by Medicare during the preceding 59 months 
following the month in which the last cardiovascular screening tests 
were performed.

0
12. A new Sec.  410.18 is added to read as follows:


Sec.  410.18  Diabetes screening tests.

    (a) Definitions. For purposes of this section, the following 
definitions apply:
    Diabetes means diabetes mellitus, a condition of abnormal glucose 
metabolism diagnosed using the following criteria: a fasting blood 
sugar greater than or equal to 126 mg/dL on two different occasions; a 
2-hour post-glucose challenge greater than or equal to 200 mg/dL on two 
different occasions; or a random glucose test over 200 mg/dL for a 
person with symptoms of uncontrolled diabetes.
    Pre-diabetes means a condition of abnormal glucose metabolism 
diagnosed using the following criteria: a fasting glucose level of 
100--125 mg/dL, or a 2-hour post-glucose challenge of 140--199 mg/dL. 
The term pre-diabetes includes the following conditions:
    (1) Impaired fasting glucose.
    (2) Impaired glucose tolerance.

    (b) General conditions of coverage. Medicare Part B covers diabetes 
screening tests after a referral from a physician or qualified 
nonphysician practitioner to an individual at risk for diabetes for the 
purpose of early detection of diabetes.
    (c) Types of tests covered. The following tests are covered if all 
other conditions of this subpart are met:
    (1) Fasting blood glucose test.
    (2) Post-glucose challenges including, but not limited to, an oral 
glucose tolerance test with a glucose challenge of 75 grams of glucose 
for non-pregnant adults, a 2-hour post glucose challenge test alone.
    (3) Other tests as determined by the Secretary through a national 
coverage determination.
    (d) Amount of testing covered. Medicare covers the following for 
individuals:
    (1) Diagnosed with pre-diabetes, two screening tests per calendar 
year.
    (2) Previously tested who were not diagnosed with pre-diabetes, or 
who were never tested before, one screening test per year.
    (e) Eligible risk factors. Individuals with the following risk 
factors are eligible to receive the benefit:
    (1) Hypertension.
    (2) Dyslipidemia.
    (3) Obesity, defined as a body mass index greater than or equal to 
30 kg/m\2\.
    (4) Prior identification of impaired fasting glucose or glucose 
intolerance.
    (5) Any two of the following characteristics:
    (i) Overweight, defined as body mass index greater than 25, but 
less than 30 kg/m\2\.
    (ii) A family history of diabetes.
    (iii) 65 years of age or older.
    (iv) A history of gestational diabetes mellitus or delivery of a 
baby weighing more than 9 pounds.

0
13. Section 410.26 is amended by revising paragraph (c) to read as 
follows:


Sec.  410.26  Services and supplies incident to a physician's 
professional services: Conditions.

* * * * *
    (c) Limitations. (1) Drugs and biologicals are also subject to the 
limitations specified in Sec.  410.29.
    (2) Physical therapy, occupational therapy and speech-language 
pathology services provided incident to a physician's professional 
services are subject to the provisions established in Sec.  
410.59(a)(3)(iii), Sec.  410.60(a)(3)(iii), and Sec.  410.62(a)(3)(ii).

0
14. Section 410.32 is amended by revising paragraph (b)(2)(iii) to read 
as follows:


Sec.  410.32  Diagnostic x-ray tests, diagnostic laboratory tests, and 
other diagnostic tests: Conditions.

* * * * *
    (b) * * *
    (2) * * *
    (iii) Diagnostic psychological testing services when--
    (A) Personally furnished by a clinical psychologist or an 
independently practicing psychologist as defined in program 
instructions; or
    (B) Furnished under the general supervision of a physician or a 
clinical psychologist.
* * * * *

0
15. Section 410.59 is amended by--
0
A. Revising paragraph (a) introductory text and paragraph (a)(3)(ii).
0
B. Adding new paragraph (a)(3)(iii).
0
C. Revising paragraph (b) heading.
0
C. Revising paragraph (c)(2).
0
D. Adding new paragraph (e)(1)(iii).
    The additions and revisions read as follows:


Sec.  410.59  Outpatient occupational therapy services: Conditions.

    (a) Basic rule. Except as specified in paragraph (a)(3)(iii) of 
this section, Medicare Part B pays for outpatient occupational therapy 
services only if they are furnished by an individual meeting the 
qualifications in Sec.  484.4 of

[[Page 66422]]

this chapter for an occupational therapist or by an appropriately 
supervised occupational therapy assistant but only under the following 
conditions:
* * * * *
    (3) * * *
    (ii) By, or under the direct supervision of, an occupational 
therapist in private practice as described in paragraph (c) of this 
section; or
    (iii) By, or incident to the service of, a physician, physician 
assistant, clinical nurse specialist, or nurse practitioner when those 
professionals may perform occupational therapy services within the 
scope of State law. When an occupational therapy service is provided 
incident to the service of a physician, physician assistant, clinical 
nurse specialist, or nurse practitioner, by anyone other than a 
physician, physician assistant, clinical nurse specialist, or nurse 
practitioner, the service and the person who furnishes the service must 
meet the standards and conditions that apply to occupational therapy 
and occupational therapists, except that a license to practice 
occupational therapy in the State is not required.
    (b) Conditions for coverage of outpatient therapy services 
furnished to certain inpatients of a hospital or a CAH or SNF. * * *
    (c) * * *
    (2) Supervision of occupational therapy services. Occupational 
therapy services are performed by, or under the direct supervision of, 
an occupational therapist in private practice. All services not 
performed personally by the therapist must be performed by employees of 
the practice, directly supervised by the therapist, and included in the 
fee for the therapist's services.
* * * * *
    (e) * * *
    (1) * * *
    (iii) The limitation is not applied for services furnished from 
December 8, 2003 through December 31, 2005.
* * * * *

0
16. Section 410.60 is amended by--
0
A. Revising paragraph (a) introductory text.
0
B. Revising paragraph (a)(3)(ii).
0
C. Adding new paragraph (a)(3)(iii).
0
D. Revising paragraph (b) heading.
0
E. Revising paragraph (c)(2).
0
F. Adding new paragraph (e)(1)(iii).
    The additions and revisions read as follows:


Sec.  410.60  Outpatient physical therapy services: Conditions.

    (a) Basic rule. Except as specified in paragraph (a)(3)(iii) of 
this section, Medicare Part B pays for outpatient physical therapy 
services only if they are furnished by an individual meeting the 
qualifications in Sec.  484.4 of this chapter for a physical therapist 
or by an appropriately supervised physical therapist assistant but only 
under the following conditions:
* * * * *
    (3) * * *
    (ii) By, or under the direct supervision of a physical therapist in 
private practice as described in paragraph (c) of this section; or
    (iii) By, or incident to the service of, a physician, physician 
assistant, clinical nurse specialist, or nurse practitioner when those 
professionals may perform physical therapy services under State law. 
When a physical therapy service is provided incident to the service of 
a physician, physician's assistant, clinical nurse specialist, or nurse 
practitioner, by anyone other than a physician, physician assistant, 
clinical nurse specialist, or nurse practitioner, the service and the 
person who furnishes the service must meet the standards and conditions 
that apply to physical therapy and physical therapists, except that a 
license to practice physical therapy in the State is not required.
    (b) Condition for coverage of outpatient physical therapy services 
furnished to certain inpatients of a hospital or a CAH or SNF. * * *
    (c) * * *
    (2) Supervision of physical therapy services. Physical therapy 
services are performed by, or under the direct supervision of, a 
physical therapist in private practice. All services not performed 
personally by the therapist must be performed by employees of the 
practice, directly supervised by the therapist, and included in the fee 
for the therapist's services.
* * * * *
    (e) * * *
    (1) * * *
    (iii) The limitation is not applied for services furnished from 
December 8, 2003 through December 31, 2005.
* * * * *

0
17. Section 410.62 is amended by--
0
A. Revising paragraph (a) introductory text and (a)(2)(i), (a)(2)(iii) 
and (a)(3).
0
B. Revising paragraphs (b) and (c).
    The revisions read as follows:


Sec.  410.62  Outpatient speech-language pathology services: Conditions 
and exclusions.

    (a) Basic rule. Except as specified in paragraph (a)(3)(ii) of this 
section, Medicare Part B pays for outpatient speech-language pathology 
services only if they are furnished by an individual who meets the 
qualifications for a speech-language pathologist in Sec.  484.4 of this 
chapter and only under the following conditions:
* * * * *
    (2) * * *
    (i) Is established by a physician or, effective January 1, 1982, by 
either a physician or the speech-language pathologist who provides the 
services to the particular individual;
    (ii) * * *
    (iii) Meets the requirements of Sec.  410.61.
    (3) They are furnished--
    (i) By a provider as defined in Sec.  489.2 of this chapter, or by 
others under arrangements with, and under the supervision of, a 
provider; or
    (ii) By, or incident to the service of, a physician, physician 
assistant, clinical nurse specialist, or nurse practitioner when those 
professionals may perform speech-language pathology services under 
State law. When a speech-language pathology service is provided 
incident to the services of a physician, physician assistant, clinical 
nurse specialist, or nurse practitioner, by anyone other than a 
physician, physician assistant, clinical nurse specialist, or nurse 
practitioner, the service and the person who furnishes the service must 
meet the standards and conditions that apply to speech-language 
pathology and speech-language pathologists, except that a license to 
practice speech-language pathology services in the State is not 
required.
    (b) Condition for coverage of outpatient speech-language pathology 
services to certain inpatients of a hospital, CAH, or SNF. Medicare 
Part B pays for outpatient speech-language pathology services furnished 
to an inpatient of a hospital, CAH, or SNF who requires the services 
but has exhausted or is otherwise ineligible for benefit days under 
Medicare Part A.
    (c) Excluded services. No service is included as an outpatient 
speech-language pathology service if it is not included as an inpatient 
hospital service if furnished to a hospital or CAH inpatient.
* * * * *

0
18. Section 410.63 is amended by--
0
A. Revising paragraph (b) heading.
0
B. Adding a new paragraph (c).
    The revision and addition reads as follows:


Sec.  410.63  Hepatitis B vaccine and blood clotting factors: 
Conditions.

* * * * *
    (b) Blood clotting factors: Conditions. * * *

[[Page 66423]]

    (c) Blood clotting factors: Furnishing Fee.
    (1) Effective January 1, 2005, a furnishing fee of $0.14 per unit 
of clotting factor is paid to entities that furnish blood clotting 
factors unless the costs associated with furnishing the clotting factor 
are paid through another payment system, for example, hospitals that 
furnish clotting factor to patients during a Part A covered inpatient 
hospital stay.
    (2) The furnishing fee for blood clotting factors furnished in 2006 
or a subsequent year is be equal to the furnishing fee paid the 
previous year increased by the percentage increase in the consumer 
price index for medical care for the 12-month period ending with June 
of the previous year.

0
19. Section 410.78 is amended by--
0
A. Revising paragraph (a)(4).
0
B. Revising paragraph (b) introductory text.
    The revisions read as follows:


Sec.  410.78  Telehealth services.

    * * *
    (4) Originating site means the location of an eligible Medicare 
beneficiary at the time the service being furnished via a 
telecommunications system occurs. For asynchronous store and forward 
telecommunications technologies, the only originating sites are Federal 
telemedicine demonstration programs conducted in Alaska or Hawaii.
    (b) General rule. Medicare Part B pays for office and other 
outpatient visits, professional consultation, psychiatric diagnostic 
interview examination, individual psychotherapy, pharmacologic 
management and end stage renal disease related services included in the 
monthly capitation payment (except for one visit per month to examine 
the access site) furnished by an interactive telecommunications system 
if the following conditions are met:
* * * * *

0
20. Section 410.160 is amended by revising paragraph (f) to read as 
follows:


Sec.  410.160  Part B annual deductible.

* * * * *
    (f) Amount of the Part B annual deductible. (1) Beginning with 
expenses for services furnished during calendar year 2006, and for all 
succeeding years, the annual deductible is the previous year's 
deductible plus the annual percentage increase in the monthly actuarial 
rate for Medicare enrollees age 65 and over, rounded to the nearest 
dollar.
    (2) For 2005, the deductible is $110.
    (3) From 1991 through 2004, the deductible was $100.
    (4) From 1982 through 1990, the deductible was $75.
    (5) From 1973 through 1981, the deductible was $60.
    (6) From 1966 through 1972, the deductible was $50.
* * * * *

PART 411--EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON MEDICARE 
PAYMENT

0
21. The authority citation for part 411 continues to read as follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

0
22. Section 411.15 is amended by--
0
A. Revising paragraph (a)(1).
0
B. Adding paragraph (k)(11).
    The revision and addition read as follows:


Sec.  411.15  Particular services excluded from coverage.

* * * * *
    (a) * * *
    (1) Examinations performed for a purpose other than treatment or 
diagnosis of a specific illness, symptoms, complaint, or injury, except 
for screening mammography, colorectal cancer screening tests, screening 
pelvic exams, prostate cancer screening tests, glaucoma screening 
exams, or initial preventive physical examinations that meet the 
criteria specified in paragraphs (k)(6) through (k)(11) of this 
section.
* * * * *
    (k) * * *
    (11) In the case of initial preventive physical examinations, with 
the goal of health promotion and disease prevention, subject to the 
conditions and limitations specified in Sec.  410.16 of this chapter.
* * * * *

0
23. Section 411.404 is amended by revising paragraph (b) to read as 
follows:


Sec.  411.404  Criteria for determining that a beneficiary knew that 
services were excluded from coverage as custodial care or as not 
reasonable and necessary.

* * * * *
    (b) Written notice. (1) Written notice is given to the beneficiary, 
or to someone acting on his or her behalf, that the services were not 
covered because they did not meet Medicare coverage guidelines.
    (2) A notice concerning similar or reasonably comparable services 
furnished on a previous occasion also meets this criterion.
    (3) After a beneficiary is notified that there is no Medicare 
payment for a service that is not covered by Medicare, he or she is 
presumed to know that there is no Medicare payment for any form of 
subsequent treatment for the non-covered condition.
* * * * *

PART 414--PAYMENT FOR PART B MEDICAL AND OTHER HEALTH SERVICES.

0
24. The authority citation for part 414 continues to read as follows:

    Authority: Secs. 1102, 1871, and 1881(b)(1) of the Social 
Security Act (42 U.S.C. 1302, 1395hh, and 1395rr(b)(1)).


Sec.  414.38  [Removed]

0
25. Section 414.38 is removed.
0
26. Section 414.39 is amended by--
0
A. Revising paragraph (a).
0
B. Adding paragraph (c).
    The revision and addition read as follows:


Sec.  414.39  Special rules for payment of care plan oversight.

    (a) General. Except as specified in paragraphs (b) and (c) of this 
section, payment for care plan oversight is included in the payment for 
visits and other services under the physician fee schedule. For 
purposes of this section a nonphysician practitioner (NPP) is a nurse 
practitioner, clinical nurse specialist or physician assistant.
* * * * *
    (c) Special rules for payment of care plan oversight provided by 
nonphysician practitioners for beneficiaries who receive HHA services 
covered by Medicare.
    (1) An NPP can furnish physician care plan oversight (but may not 
certify a patient as needing home health services) if the physician who 
signs the plan of care provides regular ongoing care under the same 
plan of care as does the NPP billing for care plan oversight and 
either:
    (i) The physician and NPP are part of the same group practice; or
    (ii) If the NPP is a nurse practitioner or clinical nurse 
specialist, the physician signing the plan of care also has a 
collaborative agreement with the NPP; or
    (iii) If the NPP is a physician assistant, the physician signing 
the plan of care is also the physician who provides general supervision 
of physician assistant services for the practice.
    (2) Payment may be made for care plan oversight services furnished 
by an NPP when:
    (i) The NPP providing the care plan oversight has seen and examined 
the patient;
    (ii) The NPP providing care plan oversight is not functioning as a

[[Page 66424]]

consultant whose participation is limited to a single medical condition 
rather than multi-disciplinary coordination of care; and
    (iii) The NPP providing care plan oversight integrates his or her 
care with that of the physician who signed the plan of care.

0
27. Section 414.65 is amended by revising paragraph (a)(1) to read as 
follows:


Sec.  414.65  Payment for telehealth services.

    (a) * * *
    (1) The Medicare payment amount for office or other outpatient 
visits, consultation, individual psychotherapy, psychiatric diagnostic 
interview examination, pharmacologic management and end stage renal 
disease related services included in the monthly capitation payment 
(except for one visit per month to examine the access site) furnished 
via an interactive telecommunications system is equal to the current 
fee schedule amount applicable for the service of the physician or 
practitioner.
* * * * *

0
28. Section 414.66 is added to subpart B to read as follows:


Sec.  414.66  Incentive payments for physician scarcity areas.

    (a) Definition. As used in this section, the following definitions 
apply.
    Physician scarcity area is defined as an area with a shortage of 
primary care physicians or specialty physicians to the Medicare 
population in that area.
    Primary care physician is defined as a general practitioner, family 
practice practitioner, general internist, obstetrician or gynecologist.
    (b) Physicians' services furnished to a beneficiary in a Physician 
Scarcity Area (PSA) for primary or specialist care are eligible for a 5 
percent incentive payment.
    (c) Primary care physicians furnishing services in primary care 
PSAs are entitled to an additional 5 percent incentive payment above 
the amount paid under the physician fee schedule for their professional 
services furnished on or after January 1, 2005 and before January 1, 
2008.
    (d) Physicians, as defined in section 1861(r)(1) of the Act, 
furnishing services in specialist care PSAs are entitled to an 
additional 5 percent payment above the amount paid under the physician 
fee schedule for their professional services furnished on or after 
January 1, 2005 and before January 1, 2008.
0
29. Section 414.67 is added to subpart B to read as follows:


Sec.  414.67  Incentive payments for Health Professional Shortage 
Areas.

    (a) Physicians' services furnished to a beneficiary in a 
geographic-based Health Professional Shortage Area (HPSA) are eligible 
for a 10 percent incentive payment above the amount paid for their 
professional services under the physician fee schedule.
    (b) Physicians furnishing services in a geographic-based primary 
medical care HPSA are entitled to a 10 percent incentive payment above 
the amount paid for their professional services under the physician fee 
schedule.
    (c) Psychiatrists furnishing services in a mental health HPSA are 
entitled to a 10 percent incentive payment above the amount paid for 
their professional services under the physician fee schedule. (The only 
physicians eligible to receive the 10 percent incentive payment in 
mental health HPSAs that do not overlap with primary care HPSAs are 
psychiatrists.)

0
30. Part 414 is amended by adding a new subpart K to read as follows:

Subpart K--Payment for Drugs and Biologicals in 2005

Sec.
414.900 Basis.
414.902 Definitions.
414.904 Basis of payment.

Subpart K--Payment for Drugs and Biologicals in 2005


Sec.  414.900  Basis.

    (a) This subpart implements section 1842(o) of the Act by 
specifying the methodology for determining the payment allowance limit 
for drugs and biologicals covered under Medicare Part B that are not 
paid on a cost or prospective payment system basis.
    (b) Examples of drugs that are subject to the requirements 
specified in this subpart are:
    (1) Drugs furnished incident to a physician's service; durable 
medical equipment (DME) drugs.
    (2) Separately billable drugs at independent dialysis facilities 
not under the ESRD composite rate.
    (3) Statutorily covered drugs, for example--
    (i) Influenza.
    (ii) Pneumococcal and hepatitis vaccines.
    (iii) Antigens.
    (iv) Hemophilia blood clotting factor.
    (v) Immunosuppressive drugs.
    (vi) Certain oral anti-cancer drugs.


Sec.  414.902  Definitions.

    As used in this subpart, unless the context indicates otherwise--
    Drug means both drugs and biologicals.
    Manufacturer's average sales price means the price calculated and 
reported by a manufacturer under part 414, subpart J of this chapter.
    Multiple source drug means a drug described by section 
1847A(c)(6)(C) of the Act.
    Single source drug means a drug described by section 1847A(c)(6)(D) 
of the Act.
    Unit is defined as in part 414, subpart J of this chapter.
    Wholesale acquisition cost (WAC) means the price described by 
section 1847A(c)(6)(B) of the Act.


Sec.  414.904  Basis of payment.

    (a) Method of payment. Payment for a drug for calendar year 2005 is 
based on the lesser of--
    (1) The actual charge on the claim for program benefits; or
    (2) 106 percent of the average sales price, subject to the 
applicable limitations specified in paragraph (d) of this section or 
subject to the exceptions described in paragraph (e) of this section.
    (b) Multiple source drugs. (1) Average sales prices. The average 
sales price for all drug products included within the same multiple 
source drug billing and payment code is the volume-weighted average of 
the manufacturers' average sales prices for those drug products.
    (2) Calculation of the average sales price. The average sales price 
is determined by--
    (i) Computing the sum of the products (for each National Drug Code 
assigned to the drug products) of the manufacturer's average sales 
price and the total number of units sold; and
    (ii) Dividing that sum by the sum of the total number of units sold 
for all NDCs assigned to the drug products.
    (c) Single source drugs. (1) Average sales price. The average sales 
price is the volume-weighted average of the manufacturers' average 
sales prices for all National Drug Codes assigned to the drug or 
biological product.
    (2) Calculation of the average sales price. The average sales price 
is determined by computing--
    (i) The sum of the products (for each National Drug Code assigned 
to the drug product) of the manufacturer's average sales price and the 
total number of units sold; and
    (ii) Dividing that sum by the sum of the total number of units sold 
for all NDCs assigned to the drug product.
    (d) Limitations on the average sales price. (1) Wholesale 
acquisition cost for a single source drug. The payment limit for a 
single source drug product is the lesser of 106 percent of the average 
sales price for the product or 106 percent of

[[Page 66425]]

the wholesale acquisition cost for the product.
    (2) Payment limit for a drug furnished to an end-stage renal 
disease patient. (i) Effective for drugs and biologicals furnished in 
2005, the payment for such drugs and biologicals, including 
erythropoietin, furnished to an end-stage renal disease patient that is 
separately billed by an end-stage renal disease facility and not paid 
on a cost basis is acquisition cost as determined by the Inspector 
General report as required by section 623(c) of the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 inflated 
by the percentage increase in the Producer Price Index.
    (ii) Except as provided in paragraph (a) of this section, the 
payment for drugs and biologicals, furnished to an end-stage renal 
disease patient that is separately billed by an end-stage renal disease 
facility, is based on 106 percent of the average sales price.
    (3) Widely available market price and average manufacturer price. 
If the Inspector General finds that the average sales price exceeds the 
widely available market price or the average manufacturer price by 5 
percent or more in calendar year 2005, the payment limit in the quarter 
following the transmittal of this information to the Secretary is the 
lesser of the widely available market price or 103 percent of the 
average manufacturer price.
    (e) Exceptions to the average sales price. (1) Vaccines. The 
payment limits for hepatitis B vaccine furnished to individuals at high 
or intermediate risk of contracting hepatitis B (as determined by the 
Secretary), pneumococcal vaccine, and influenza vaccine and are 
calculated using 95 percent of the average wholesale price.
    (2) Infusion drugs furnished through a covered item of durable 
medical equipment. The payment limit for an infusion drug furnished 
through a covered item of durable medical equipment is calculated using 
95 percent of the average wholesale price in effect on October 1, 2003 
and is not updated in 2005.
    (3) Blood and blood products. In the case of blood and blood 
products (other than blood clotting factors), the payment limits are 
determined in the same manner as the payment limits were determined on 
October 1, 2003.
    (4) Payment limit in a case where the average sales price during 
the first quarter of sales is unavailable. In the case of a drug during 
an initial period (not to exceed a full calendar quarter) in which data 
on the prices for sales of the drug are not sufficiently available from 
the manufacturer to compute an average sales price for the drug, the 
payment limit is based on the wholesale acquisition cost or the 
applicable Medicare Part B drug payment methodology in effect on 
November 1, 2003.
    (f) Except as otherwise specified (see paragraph (e)(2) of this 
section) for infusion drugs, the payment limits are updated quarterly.
    (g) The payment limit is computed without regard to any special 
packaging, labeling, or identifiers on the dosage form or product or 
package.
    (h) The payment amount is subject to applicable deductible and 
coinsurance.

0
31. Part 414 is amended by adding a new subpart L to read as follows:

Subpart L--Supplying and Dispensing Fees

Sec.
414.1000 Purpose.
414.1001 Basis of Payment.


Sec.  414.1000  Purpose.

    This subpart implements section 1842(o)(2) and section 1842(o)(6) 
of the Act, as added by section 303(e)(2) of the MMA, by specifying a 
supplying fee for drugs and biologicals covered under Part B of Title 
XVIII of the Act that are described in sections 1861(s)(2)(J), 
1861(s)(2)(Q), and 1861(s)(2)(T) of the Act.


Sec.  414.1001  Basis of payment.

    (a) A supplying fee of $24 shall be paid to a pharmacy for each 
supplied prescription of drugs and biologicals described in sections 
1861(s)(2)(J), 1861(s)(2)(Q), and 1861(s)(2)(T) of the Act.
    (b) A supplying fee of $50 is paid to a pharmacy for the initial 
supplied prescription of drugs and biologicals described in sections 
1861(s)(2)(J) of the Act provided to a patient during the first month 
following a transplant.
    (c) During 2005, a dispensing fee of $57 is paid to a supplier for 
each dispensed 30-day supply of inhalation drugs furnished through 
durable medical equipment covered under section 1861(n) of the Act, 
regardless of the number of partial shipments of that 30-day supply.
    (d) During 2005, a dispensing fee of $80 is paid to a supplier for 
each dispensed 90-day supply of inhalation drugs furnished through 
durable medical equipment covered under section 1861(n) of the Act, 
regardless of the number of partial shipments of that 90-day supply.

PART 418--HOSPICE CARE

0
32. The authority citation for part 418 continues to read as follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).


0
33. Section 418.205 is added to subpart F to read as follows:


Sec.  418.205  Special requirements for hospice pre-election evaluation 
and counseling services.

    (a) Definition. As used in this section the following definition 
applies.
    Terminal illness has the same meaning as defined in Sec.  418.3.
    (b) General. Effective January 1, 2005, payment for hospice pre-
election evaluation and counseling services as specified in 
Sec. 418.304(d) may be made to a hospice on behalf of a Medicare 
beneficiary if the requirements of this section are met.
    (1) The beneficiary. The beneficiary:
    (i) Has been diagnosed as having a terminal illness as defined in 
Sec.  418.3.
    (ii) Has not made a hospice election.
    (iii) Has not previously received hospice pre-election evaluation 
and consultation services specified under this section.
    (2) Services provided. The hospice pre-election services include an 
evaluation of an individual's need for pain and symptom management and 
counseling regarding hospice and other care options. In addition, the 
services may include advising the individual regarding advanced care 
planning.
    (3) Provision of pre-election hospice services.
    (i) The services must be furnished by a physician.
    (ii) The physician furnishing these services must be an employee or 
medical director of the hospice billing for this service.
    (iii) The services cannot be furnished by hospice personnel other 
than employed physicians, such as but not limited to nurse 
practitioners, nurses, or social workers, physicians under contractual 
arrangements with the hospice or by the beneficiary's physician, if 
that physician is not an employee of the hospice.
    (iv) If the beneficiary's attending physician is also the medical 
director or a physician employee of the hospice, the attending 
physician may not provide nor may the hospice bill for this service 
because that physician already possesses the expertise necessary to 
furnish end-of-life evaluation and management, and counseling services.
    (4) Documentation. (i) If the individual's physician initiates the 
request for services of the hospice medical director or physician, 
appropriate documentation is required.
    (ii) The request or referral must be in writing, and the hospice 
medical

[[Page 66426]]

director or physician employee is expected to provide a written note on 
the patient's medical record.
    (iii) The hospice agency employing the physician providing these 
services is required to maintain a written record of the services 
furnished.
    (iv) If the services are initiated by the beneficiary, the hospice 
agency is required to maintain a record of the services and 
documentation that communication between the hospice medical director 
or physician and the beneficiary's physician occurs, with the 
beneficiary's permission, to the extent necessary to ensure continuity 
of care.

0
34. Section 418.304 is amended by adding paragraph (d) to read as 
follows.


Sec.  418.304  Payment for physician services.

* * * * *
    (d) Payment for hospice pre-election evaluation and counseling 
services. The intermediary makes payment to the hospice for the 
services established in Sec.  418.205. Payment for this service is set 
at an amount established under the physician fee schedule, for an 
office or other outpatient visit for evaluation and management 
associated with presenting problems of moderate severity and requiring 
medical decision-making of low complexity other than the portion of the 
amount attributable to the practice expense component. Payment for this 
pre-election service does not count towards the hospice cap amount.

PART 424--CONDITIONS FOR MEDICARE PAYMENT

0
35. The authority citation for part 424 continues to read as follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).


0
36. Section 424.55 is amended by adding new paragraph (c) to read as 
follows:


Sec.  424.55  Payment to the supplier.

* * * * *
    (c) Exception. In situations when payment under the Act can only be 
made on an assignment-related basis or when payment is for services 
furnished by a participating physician or supplier, the beneficiary (or 
the person authorized to request payment on the beneficiary's behalf) 
is not required to assign the claim to the supplier in order for an 
assignment to be effective.

0
37. Section 424.71 is amended as follows:
0
A. The definition of ``Health care delivery system or system'' is 
removed.
0
B. The definition of the term ``Entity'' is added in alphabetical 
order.
    The addition reads as follows:


Sec.  424.71  Definitions.

* * * * *
    Entity means a person, group, or facility that is enrolled in the 
Medicare program.
* * * * *

0
38. Section 424.80 is amended by--
0
A. Revising paragraph (a).
0
B. Revising paragraph (b)(2).
0
C. Removing paragraph (b)(3).
0
D. Redesignating paragraphs (b)(4) through (6) as paragraphs (b)(3) 
through (5), respectively.
0
E. Revising paragraph (c).
0
F. Adding a new paragraph (d).
    The revisions and addition read as follows:


Sec.  424.80  Prohibition of reassignment of claims by suppliers.

    (a) Basic prohibition. Except as specified in paragraph (b) of this 
section, Medicare does not pay amounts that are due a supplier under an 
assignment to any other person under reassignment, power of attorney, 
or any other direct arrangement. Nothing in this section alters a 
party's obligations under the anti-kickback statute (section 1128B(b) 
of the Act), the physician self-referral prohibition (section 1877 of 
the Act), the rules regarding physician billing for purchased 
diagnostic tests (Sec.  414.50 of this chapter), the rules regarding 
payment for services and supplies incident to a physician's 
professional services (Sec.  410.26 of this chapter), or other laws, 
rules, and regulations.
    (b) * * *
    (1) * * *
    (2) Payment to an entity under a contractual arrangement. Medicare 
may pay an entity enrolled in the Medicare program if there is a 
contractual arrangement between the entity and the supplier under which 
the entity bills for the supplier's services, subject to the provisions 
of paragraph (d) of this section.
* * * * *
    (c) Rules applicable to an employer or entity. An employer or 
entity that may receive payment under paragraph (b)(1) or (b)(2) of 
this section is considered the supplier of those services for purposes 
of subparts C, D, and E of this part, subject to the provisions of 
paragraph (d) of this section.
    (d) Reassignment to an entity under a contractual arrangement: 
Conditions and limitations. (1) Liability of the parties. An entity 
enrolled in the Medicare program that receives payment under a 
contractual arrangement under paragraph (b)(2) of this section and the 
supplier that otherwise receives payment are jointly and severally 
responsible for any Medicare overpayment to that entity.
    (2) Access to records. The supplier furnishing the service has 
unrestricted access to claims submitted by an entity for services 
provided by that supplier.

PART 484--HOME HEALTH SERVICES

0
39. The authority citation for part 484 continues to read as follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).


Sec.  484.4  [Amended]

0
40. In Sec.  484.4 in the definition of physical therapy assistant the 
term ``physical therapy assistant'' is removed and the term ``physical 
therapist assistant'' is added in its place wherever it appears.

PART 486--CONDITIONS FOR COVERAGE OF SPECIALIZED SERVICES FURNISHED 
BY SUPPLIERS

0
41. The authority citation for part 486 continues to read as follows:

    Authority: Sections 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

Subpart D--[Removed and Reserved]

0
42. Part 486 subpart D, consisting of Sec.  486.150 through Sec.  
486.163, is removed and reserved.
(Catalog of Federal Domestic Assistance Program No. 93.774, 
Medicare--Supplementary Medical Insurance Program)

    Dated: November 1, 2004.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.

    Dated: November 1, 2004.
Tommy G. Thompson,
Secretary.

    Note: These addenda will not appear in the Code of Federal 
Regulations.

Addendum A--Explanation and Use of Addenda B

    The addenda on the following pages provide various data 
pertaining to the Medicare fee schedule for physicians' services 
furnished in 2005. Addendum B contains the RVUs for work, non-
facility practice expense, facility practice expense, and 
malpractice expense, and other information for all services included 
in the physician fee schedule.
    In previous years, we have listed many services in Addendum B 
that are not paid under the physician fee schedule. To avoid 
publishing as many pages of codes for these services, we are not 
including clinical laboratory codes and most alphanumeric

[[Page 66427]]

codes (Healthcare Common Procedure Coding System (HCPCS) codes not 
included in CPT) in Addendum B.

Addendum B--2005 Relative Value Units and Related Information Used in 
Determining Medicare Payments for 2005

    This addendum contains the following information for each CPT 
code and alphanumeric HCPCS code, except for alphanumeric codes 
beginning with B (enteral and parenteral therapy), E (durable 
medical equipment), K (temporary codes for nonphysicians' services 
or items), or L (orthotics), and codes for anesthesiology.
    1. CPT/HCPCS code. This is the CPT or alphanumeric HCPCS number 
for the service. Alphanumeric HCPCS codes are included at the end of 
this addendum.
    2. Modifier. A modifier is shown if there is a technical 
component (modifier TC) and a professional component (PC) (modifier 
-26) for the service. If there is a PC and a TC for the service, 
Addendum B contains three entries for the code: one for the global 
values (both professional and technical); one for modifier -26 (PC); 
and one for modifier TC. The global service is not designated by a 
modifier, and physicians must bill using the code without a modifier 
if the physician furnishes both the PC and the TC of the service.
    Modifier -53 is shown for a discontinued procedure. There will 
be RVUs for the code (CPT code 45378) with this modifier.
    3. Status indicator. This indicator shows whether the CPT/HCPCS 
code is included in the physician fee schedule and whether it is 
separately payable if the service is covered.
    A = Active code. These codes are separately payable under the 
fee schedule if covered. There will be RVUs for codes with this 
status. The presence of an ``A'' indicator does not mean that 
Medicare has made a national decision regarding the coverage of the 
service. Carriers remain responsible for coverage decisions in the 
absence of a national Medicare policy.
    B = Bundled code. Payment for covered services is always bundled 
into payment for other services not specified. If RVUs are shown, 
they are not used for Medicare payment. If these services are 
covered, payment for them is subsumed by the payment for the 
services to which they are incident. (An example is a telephone call 
from a hospital nurse regarding care of a patient.)
    C = Carrier-priced code. Carriers will establish RVUs and 
payment amounts for these services, generally on a case-by-case 
basis following review of documentation, such as an operative 
report.
    E = Excluded from physician fee schedule by regulation. These 
codes are for items or services that we chose to exclude from the 
physician fee schedule payment by regulation. No RVUs are shown, and 
no payment may be made under the physician fee schedule for these 
codes. Payment for them, if they are covered, continues under 
reasonable charge or other payment procedures.
    I = Not valid for Medicare purposes. Medicare uses another code 
for the reporting of, and the payment for these services. (Code not 
subject to a 90-day grace period.)
    N = Noncovered service. These codes are noncovered services. 
Medicare payment may not be made for these codes. If RVUs are shown, 
they are not used for Medicare payment.
    P = Bundled or excluded code. There are no RVUs for these 
services. No separate payment should be made for them under the 
physician fee schedule.

--If the item or service is covered as incident to a physician's 
service and is furnished on the same day as a physician's service, 
payment for it is bundled into the payment for the physician's 
service to which it is incident (an example is an elastic bandage 
furnished by a physician incident to a physician's service).
--If the item or service is covered as other than incident to a 
physician's service, it is excluded from the physician fee schedule 
(for example, colostomy supplies) and is paid under the other 
payment provisions of the Act.
    R = Restricted coverage. Special coverage instructions apply. If 
the service is covered and no RVUs are shown, it is carrier-priced.
    T = Injections. There are RVUs for these services, but they are 
only paid if there are no other services payable under the physician 
fee schedule billed on the same date by the same provider. If any 
other services payable under the physician fee schedule are billed 
on the same date by the same provider, these services are bundled 
into the service(s) for which payment is made.
    X = Exclusion by law. These codes represent an item or service 
that is not within the definition of ``physicians' services'' for 
physician fee schedule payment purposes. No RVUs are shown for these 
codes, and no payment may be made under the physician fee schedule. 
(Examples are ambulance services and clinical diagnostic laboratory 
services.)
    4. Description of code. This is an abbreviated version of the 
narrative description of the code.
    5. Physician work RVUs. These are the RVUs for the physician 
work for this service in 2005. Codes that are not used for Medicare 
payment are identified with a ``+.''
    6. Facility practice expense RVUs. These are the fully 
implemented resource-based practice expense RVUs for facility 
settings.
    7. Non-facility practice expense RVUs. These are the fully 
implemented resource-based practice expense RVUs for non-facility 
settings.
    8. Malpractice expense RVUs. These are the RVUs for the 
malpractice expense for the service for 2005.
    9. Facility total. This is the sum of the work, fully 
implemented facility practice expense, and malpractice expense RVUs.
    10. Non-facility total. This is the sum of the work, fully 
implemented non-facility practice expense, and malpractice expense 
RVUs.
    11. Global period. This indicator shows the number of days in 
the global period for the code (0, 10, or 90 days). An explanation 
of the alpha codes follows:
    MMM = The code describes a service furnished in uncomplicated 
maternity cases including antepartum care, delivery, and postpartum 
care. The usual global surgical concept does not apply. See the 1999 
Physicians' Current Procedural Terminology for specific definitions.
    XXX = The global concept does not apply.
    YYY = The global period is to be set by the carrier (for 
example, unlisted surgery codes).
    ZZZ = Code related to another service that is always included in 
the global period of the other service. (Note: Physician work and 
practice expense are associated with intra-service time and in some 
instances the post-service time.)

BILLING CODE 4120-01-P

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[FR Doc. 04-24758 Filed 11-2-04; 4:45 pm]
BILLING CODE 4120-01-C


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