66918 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Notices 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

[CMS–1267–N] 

RIN 0938–AN20 

Medicare Program; Coverage and 

Payment of Ambulance Services; 

Recalibration of Conversion Factor; 

Inflation Update for CY 2005

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS.

ACTION: Notice.

SUMMARY: This notice sets forth: (1) A 

discussion of the annual review of the 

conversion factor (CF) used to calculate 

the Medicare program ambulance fee 

schedule; and (2) the annual ambulance 

inflation factor for ambulance services 

for calendar year 2005.

EFFECTIVE DATE: The revised CF is 

effective for services furnished on or 

after January 1, 2005.

FOR FURTHER INFORMATION CONTACT:

Anne E. Tayloe, (410) 786–4546.

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Legislative and Regulatory History 

The Secretary will annually review 

the conversion factor (CF) and will 

adjust the CF if actual experience under 

the fee schedule is significantly 

different from the assumptions used to 

determine the initial CF, as stated in 

§ 414.610(g). Additionally, the 

ambulance inflation factor (AIF) must be 

adjusted annually, as stated in section 

1834(l)(3)(B) of the Social Security Act 

(the Act) and in § 414.610(f). 

Under section 1861(s)(7) of the Act, 

Medicare Part B (Supplementary 

Medical Insurance) covers and pays for 

ambulance services, to the extent 

prescribed in regulations at 42 CFR 

parts 410 and 414, when the use of other 

methods of transportation would be 

contraindicated for the beneficiary. The 

House Ways and Means Committee and 

Senate Finance Committee Reports that 

accompanied the 1965 legislation 

creating the Act suggest that the 

Congress intended that: (1) The 

ambulance benefit cover transportation 

services only if other means of 

transportation are contraindicated by 

the beneficiary’s medical condition; and 

(2) only ambulance service to local 

facilities be covered unless necessary 

services are not available locally, in 

which case, transportation to the nearest 

facility furnishing those services is 

covered (H.R. Rep. No. 213, 89th Cong., 

1st Sess. 37 and S. Rep. No. 404, 89th 

Cong., 1st Sess., Pt I, 43 (1965)). The 

reports indicate that transportation may 

also be provided from one hospital to 

another, to the beneficiary’s home, or to 

an extended care facility.

Our regulations relating to ambulance 

services are located at 42 CFR part 410, 

subpart B, and 42 CFR part 414, subpart 

H. Section 410.10(i) lists ambulance 

services as one of the covered medical 

and other health services under 

Medicare Part B. Ambulance services 

are subject to basic conditions and 

limitations set forth at § 410.12 and to 

specific conditions and limitations 

included at § 410.40. Part 414, subpart 

H describes how payment is made for 

ambulance services covered by 

Medicare. 

Ambulance services (air and ground) 

are divided into different levels of 

services based on the medically 

necessary treatment provided during 

transport. These services include the 

levels of service as follows: 

For Ground:

• Basic Life Support (BLS) 

• Advanced Life Support, Level 1 

(ALS1) 

• Advanced Life Support, Level 2 

(ALS2) 

• Specialty Care Transport (SCT) 

• Paramedic ALS Intercept (PI) 

For Air:

• Fixed Wing Air Ambulance (FW) 

• Rotary Wing Air Ambulance (RW) 

Historically, payment levels for 

ambulance services depended, in part, 

upon the entity that furnished the 

services. Prior to implementation of the 

ambulance fee schedule on April 1, 

2002, providers (hospitals, including 

critical access hospitals, skilled nursing 

facilities, and home health agencies) 

were paid on a retrospective reasonable 

cost basis. Suppliers, which are entities 

that are independent of any provider, 

were paid on a reasonable charge basis. 

The Balanced Budget Act of 1997 

(BBA) (establishing section 1834(l) of 

the Act) mandated the development of 

an ambulance fee schedule (AFS) 

through negotiated rulemaking. On 

February 27, 2002, we published a final 

rule in the Federal Register (Fee 

Schedule for Payment of Ambulance 

Services and Revisions to the Physician 

Certification Requirements for Coverage 

of Nonemergency Ambulance Services, 

67 FR 9100) that established a fee 

schedule for the payment of ambulance 

services under the Medicare program, 

effective for services furnished on or 

after April 1, 2002. The fee schedule 

replaced the retrospective reasonable 

cost payment system for providers and 

the reasonable charge system for 

suppliers of ambulance services. 

Additionally, the final rule: (1) 

Implemented a statutory requirement 

that ambulance suppliers accept 

Medicare assignment; (2) codified the 

establishment of new HealthCare 

Common Procedure Coding System 

(HCPCS) codes to be reported on claims 

for ambulance services; (3) established 

increased payment under the fee 

schedule for ambulance services 

furnished in rural areas based on the 

location of the beneficiary at the time 

the beneficiary is placed on board the 

ambulance; (4) revised the certification 

requirements for coverage of nonemergency ambulance services; and (5) 

provided for a 5-year transition period 

during which program payment for 

Medicare covered ambulance services 

would be based upon a blended rate 

comprised of a fee schedule portion and 

a reasonable cost (providers) or 

reasonable charge (suppliers) portion. 

We are now in the third year of that 

transition over to full payment based 

solely on the fee schedule amount. 

B. Ambulance CF Review 

The February 27, 2002 final rule also 

provided that we would annually 

review rates and adjust the CF and air 

ambulance rates if actual experience 

under the fee schedule is significantly 

different from the assumptions used to 

determine the initial CF and air 

ambulance rates. The CF and air 

ambulance rates would not be adjusted 

solely because of changes in the total 

number of ambulance transports 

(§ 414.610(g)). This notice describes the 

claims data for the first 9 months of the 

AFS (April 1, 2002 through December 

31, 2002) and explains the calculations 

used to determine whether the existing 

CF has resulted in a significant 

discrepancy between assumptions and 

actual experience under the AFS. These 

2002 claims data were used because 

they were the most recent complete 

period of claims data under the AFS 

that were available for this analysis.

C. Ambulance Inflation Factor for CY 

2005 

Section 1834(l)(3)(B) of the Act 

(implemented by regulation at 

§ 414.610(f)) provides the basis for 

updating payment amounts for 

ambulance services. This provision 

requires that the AFS be updated by the 

AIF annually, based on the percentage 

increase in the consumer price index 

(CPI) for all urban consumers (U.S. city 

average) for the 12-month period ending 

with June of the previous year 

(§ 414.610(f)). 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Notices 66919

II. Data and Methodology for 

Recalibration 

As stated in section I.B. of this notice, 

we used claims data from the period 

April 1, 2002 through December 31, 

2002 because this was the latest 

complete period for which we had 

claims data during which the AFS was 

in effect. We used a similar 

methodology to set the original CF as 

described in the February 27, 2002 final 

rule. We counted the number of trips at 

each level and determined the 

percentage of utilization of each to the 

total number of trips, then we compared 

these percentages to the same 

percentages from the original data used 

to set the CF. This method provided a 

means to evaluate the accuracy of the 

assumptions that were used to set the 

original CF. We also examined the 

degree to which ambulance billers’

charges were less than the AFS 

amounts. This gave the actual amount of 

‘‘low billing.’’ We then determined the 

conversion factor for ground services 

based on the actual claims data and 

compared that amount to the CF that 

has been in use based on the 

assumptions. The resulting CF was only 

eight-tenths of 1 percent (0.8 percent) 

lower than the CF that was in use. We 

then performed a similar analysis using 

the 9-month 2002 claims data to 

evaluate the payment rates for air 

ambulance services. This resulted in 

payment rates that were 2.8 percent 

lower than the rates currently in use. 

We have determined that this is not a 

significant difference. Therefore, in 

accordance with § 414.610(g), we have 

determined that no adjustment to the 

existing payment rate structure is 

warranted. 

The February 27, 2002 final rule also 

stated that we would review the basis 

for the bonus amounts paid for 

ambulance transports that originate in a 

rural area. Given that the Congress, 

through enactment of section 414 of the 

Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003, has provided for significant 

additional spending for these services, 

we have determined that no further 

adjustment in the payment amounts for 

these rural ambulance services is 

warranted. 

III. Provisions of the Notice 

A. AFS CF Update 

In accordance with § 414.610(g), we 

have reviewed actual claims data and 

determined that actual experience under 

the AFS is not significantly different 

than the assumptions used to set the CF. 

Therefore, we are not revising the 

existing CF as a consequence of actual 

experience. 

B. AIF for 2005 

Section 1834(l)(3)(B) of the Act, as 

specified in § 414.610(f), provides for an 

update in payments for CY 2005 that is 

equal to the percentage increase in the 

CPI for all urban consumers (CPI–U) for 

the 12-month period ending with June 

of the previous year (that is, June 2004). 

We will use the actual percentage 

increase and not an estimate or 

projection. The AIF for 2005 is 3.3 

percent. 

During the transition period (see 

§ 414.615), the AIF is applied to both 

the fee schedule portion of the blended 

payment amount and to the reasonable 

charge or cost portion of the blended 

payment amount separately for each 

ambulance provider or supplier. Then, 

these two amounts are added together to 

determine the total payment amount for 

each provider or supplier. 

IV. Waiver of Proposed Rulemaking 

We ordinarily publish a notice of 

proposed rulemaking in the Federal 

Register to provide a period of public 

comment before the provisions of a 

notice such as this take effect. We can 

waive this procedure, however, if we 

find good cause that a notice and 

comment procedure is impracticable, 

unnecessary, or contrary to the public 

interest and incorporate a statement of 

finding and its reasons in the notice 

issued. 

We find it unnecessary to undertake 

notice and comment rulemaking 

because the statute and regulation 

specify the methods of computation of 

annual updates, and we have no 

discretion in this matter. Further, this 

notice does not change substantive 

policy, but merely applies the update 

methods specified in statute and 

regulation. Therefore, for good cause, 

we waive notice and comment 

procedures. 

V. Collection of Information 

Requirements

This document does not impose 

information collection and 

recordkeeping requirements. 

Consequently, it need not be reviewed 

by the Office of Management and 

Budget under the authority of the 

Paperwork Reduction Act of 1995. 

VI. Regulatory Impact Analysis 

We have examined the impact of this 

notice as required by Executive Order 

12866 (September 1993, Regulatory 

Planning and Review), the Regulatory 

Flexibility Act (RFA) (September 19, 

1980, Pub. L. 96–354), section 1102(b) of 

the Act, the Unfunded Mandates Reform 

Act of 1995 (Pub. L. 104–4), and 

Executive Order 13132. 

Executive Order 12866 directs 

agencies to assess all costs and benefits 

of available regulatory alternatives and, 

if regulation is necessary, to select 

regulatory approaches that maximize 

net benefits (including potential 

economic, environmental, public health 

and safety effects, distributive impacts, 

and equity). A regulatory impact 

analysis (RIA) must be prepared for 

major rules with economically 

significant effects ($100 million or more 

in any 1 year). As stated above, the AIF 

(equal to the percentage increase in the 

CPI–U of June 30, 2004 as compared to 

June 30, 2003) for 2005 is 3.3 percent. 

We estimate that the application of the 

AIF will result in this notice being 

considered a major rule because it will 

result in an additional total program 

expenditure of approximately $100 

million in CY 2005. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses. For purposes of the RFA, 

small entities include small businesses, 

nonprofit organizations, and 

government agencies. Most hospitals 

and most other providers and suppliers 

are small entities, either by nonprofit 

status or by having revenues of $6 

million to $29 million in any 1 year. For 

purposes of the RFA, all ambulance 

providers or suppliers are considered to 

be small entities. Individuals and States 

are not included in the definition of a 

small entity. 

We consider that a substantial number 

of entities are affected if the rule 

impacts more than 5 percent of the total 

number of small entities as it does in 

this notice. This notice will impact 

every ambulance provider and supplier 

in the same way because all ambulance 

payment rates for all ambulance services 

furnished by all types of ambulance 

suppliers and providers are increased by 

the same ambulance inflation factor. We 

estimate the impact of this notice will 

be an approximate 3 percent increase in 

Medicare revenues for all ambulance 

suppliers and providers that furnish 

services to Medicare beneficiaries. This 

will be a somewhat less than 2 percent 

increase in total revenues (that is, 

Medicare plus non-Medicare revenues). 

This estimated impact does not meet the 

threshold established by HHS to be 

considered a significant impact. 

Nonetheless, we have prepared the 

analysis below to describe the impact of 

this notice. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

66920 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Notices 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 604 of the 

RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital 

as a hospital that is located outside of 

a Metropolitan Statistical Area and has 

fewer than 100 beds. This notice applies 

to small rural hospitals that furnish at 

least one Medicare covered ambulance 

service to at least one Medicare 

beneficiary. 

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 expenditure in 

any 1 year by State, local, or tribal 

governments, in the aggregate, or by the 

private sector, of $110 million. This 

notice does not result in an expenditure 

in any 1 year by State, local, or tribal 

governments of $110 million.

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it publishes a proposed 

rule (and subsequent final rule) that 

imposes substantial direct requirement 

costs on State and local governments, 

preempts State law, or otherwise has 

Federalism implications. This notice 

will not have a substantial effect on 

State or local governments. 

We estimate that the total program 

expenditure for CY 2005 for ambulance 

services covered by the Medicare 

program is approximately $3.7 billion. 

This estimate of program spending 

includes application of an AIF assumed 

to be approximately 3 percent. This 

assumption results in an additional total 

program expenditure of approximately 

$100 million distributed over 16,000 

suppliers and providers that furnish 

ambulance services to Medicare 

beneficiaries. 

For recalibrating the AFS, there are 

two alternatives: (1) To make an 

adjustment to the AFS, if actual 

experience is significantly different 

from our initial assumptions; or (2) to 

make no adjustment to the AFS because 

actual experience is not significantly 

different from our initial assumptions. 

As discussed in section II.A. of this 

notice, we have decided not to make an 

adjustment to the AFS because actual 

experience is not significantly different 

from our initial assumptions; however, 

we note that making the adjustment 

would have lowered payments to 

suppliers and providers of ambulance 

services. Therefore, payments to 

suppliers and providers of ambulance 

services are slightly higher than would 

otherwise be made if we were to make 

these adjustments to the AFS. We 

estimate the impact of this action will 

be an approximate 0.8 percent increase 

in Medicare revenues for all ambulance 

suppliers and providers that furnish 

ground ambulance services to Medicare 

beneficiaries and an approximate 2.8 

percent increase in Medicare revenues 

for all ambulance suppliers and 

providers that furnish air ambulance 

services to Medicare beneficiaries. This 

will be a 0.5 percent and 1.5 percent 

increase in total revenues for ground 

and air ambulance services respectively 

(that is, Medicare plus non-Medicare 

revenues). The estimated impact of this 

action is, therefore, not significant. 

In accordance with the provisions of 

Executive Order 12866, this notice was 

reviewed by the Office of Management 

and Budget.

Authority: Section 1834(l) of the Social 

Security Act (42 U.S.C. 1395m(l)).

(Catalog of Federal Domestic Assistance 

Program No. 93.774, Medicare—

Supplementary Medical Insurance Program)

Dated: July 29, 2004. 

Mark B. McClellan, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: September 21, 2004. 

Tommy G. Thompson, 

Secretary.

[FR Doc. 04–24757 Filed 11–2–04; 4:45 pm] 

BILLING CODE 4120–01–P