Tuesday, 

August 3, 2010 

Book 3 of 3 Books 

Pages 46169–46836 

Part II—Continued 

Department of 

Health and Human 

Services 

Centers for Medicare and Medicaid 

42 CFR Parts 410, 416 and 419 

Medicare Program: Changes to the 

Hospital Outpatient Prospective Payment 

System and CY 2010 Payment Rates; 

Changes to the Ambulatory Surgical 

Center Payment System and CY 2010 

Payment Rates; Corrections; Final Rule, 

Notice, and Proposed Rule 

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46170 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 410, 411, 412, 413, 416, 

419, 482, and 489 

[CMS–1504–P] 

RIN 0938–AP82 

Medicare Program; Proposed Changes 

to the Hospital Outpatient Prospective 

Payment System and CY 2011 Payment 

Rates; Proposed Changes to the 

Ambulatory Surgical Center Payment 

System and CY 2011 Payment Rates; 

Proposed Changes to Payments to 

Hospitals for Certain Inpatient Hospital 

Services and for Graduate Medical 

Education Costs; and Proposed 

Changes to Physician Self-Referral 

Rules and Related Changes to 

Provider Agreement Regulations 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

revise the Medicare hospital outpatient 

prospective payment system (OPPS) to 

implement applicable statutory 

requirements and changes arising from 

our continuing experience with this 

system and to implement certain 

provisions of the Patient Protection and 

Affordable Care Act, as amended by the 

Health Care and Education 

Reconciliation Act of 2010 (Affordable 

Care Act). In this proposed rule, we 

describe the proposed changes to the 

amounts and factors used to determine 

the payment rates for Medicare hospital 

outpatient services paid under the 

prospective payment system. These 

proposed changes would be applicable 

to services furnished on or after January 

1, 2011. 

In addition, this proposed rule would 

update the revised Medicare ambulatory 

surgical center (ASC) payment system to 

implement applicable statutory 

requirements and changes arising from 

our continuing experience with this 

system and to implement certain 

provisions of the Affordable Care Act. In 

this proposed rule, we set forth the 

proposed applicable relative payment 

weights and amounts for services 

furnished in ASCs, specific HCPCS 

codes to which these proposed changes 

would apply, and other pertinent 

ratesetting information for the CY 2011 

ASC payment system. These proposed 

changes would be applicable to services 

furnished on or after January 1, 2011. 

This proposed rule also includes 

proposals to implement provisions of 

the Affordable Care Act relating to 

payments to hospitals for direct 

graduate medical education (GME) and 

indirect medical education (IME) costs; 

and new limitations on certain 

physician referrals to hospitals in which 

they have an ownership or investment 

interest. 

DATES: To be assured consideration, 

comments on all sections of this 

proposed rule must be received at one 

of the addresses provided in the 

ADDRESSES section no later than 5 p.m. 

EST on August 31, 2010. 

ADDRESSES: In commenting, please refer 

to file code CMS–1504–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (no duplicates, please): 

1. Electronically. You may submit 

electronic comments on this regulation 

to http://www.regulations.gov. Follow 

the instructions under the ‘‘More Search 

Options’’ tab. 

2. By regular mail. You may mail 

written comments to the following 

address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–1504– 

P, P.O. Box 8013, Baltimore, MD 21244– 

1850. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments to the 

following address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–1504– 

P, Mail Stop C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments before the close 

of the comment period to either of the 

following addresses: 

a. For delivery in Washington, DC— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Room 445–G, Hubert 

H. Humphrey Building, 200 

Independence Avenue, SW., 

Washington, DC 20201. 

(Because access to the interior of the 

Hubert H. Humphrey Building is not 

readily available to persons without 

Federal Government identification, 

commenters are encouraged to leave 

their comments in the CMS drop slots 

located in the main lobby of the 

building. A stamp-in clock is available 

for persons wishing to retain a proof of 

filing by stamping in and retaining an 

extra copy of the comments being filed.) 

b. For delivery in Baltimore, MD— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, 

please call the telephone number (410) 

786–7195 in advance to schedule your 

arrival with one of our staff members. 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

Submission of comments on 

paperwork requirements. You may 

submit comments on this document’s 

paperwork requirements by following 

the instructions at the end of the 

‘‘Collection of Information 

Requirements’’ section in this document. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Alberta Dwivedi, (410) 786–0378, 

Hospital outpatient prospective 

payment issues. 

Paula Smith, (410) 786–0378, 

Ambulatory surgical center issues. 

Michele Franklin, (410) 786–4533, 

and Jana Lindquist, (410) 786–4533, 

Partial hospitalization and community 

mental health center issues. 

James Poyer, (410) 786–2261, 

Reporting of quality data issues. 

Tzvi Hefter, (410) 786–4487, and IngJye Cheng, (410) 786–4548, Hospital 

preadmission services and direct 

graduate medical education and indirect 

medical education payments issues. 

Jacqueline Proctor, (410) 786–8852, 

Physician ownership and investment in 

hospitals issues. 

SUPPLEMENTARY INFORMATION: 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http:// 

www.regulations.gov. Follow the search 

instructions on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, MD 21244, on Monday 

through Friday of each week from 8:30 

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a.m. to 4 p.m. EST. To schedule an 

appointment to view public comments, 

phone 1–800–743–3951. 

Electronic Access 

This Federal Register document is 

also available from the Federal Register 

online database through GPO Access, a 

service of the U.S. Government Printing 

Office. Free public access is available on 

a Wide Area Information Server (WAIS) 

through the Internet and via 

asynchronous dial-in. Internet users can 

access the database by using the World 

Wide Web; the Superintendent of 

Documents’ home page address is 

http://www.gpoaccess.gov/index.html, 

by using local WAIS client software, or 

by telnet to swais.access.gpo.gov, then 

login as guest (no password required). 

Dial-in users should use 

communications software and modem 

to call (202) 512–1661; type swais, then 

login as guest (no password required). 

Alphabetical List of Acronyms 

Appearing in This Proposed Rule 

ACEP American College of Emergency 

Physicians 

AHA American Hospital Association 

AHIMA American Health Information 

Management Association 

AMA American Medical Association 

AMP Average manufacturer price 

AOA American Osteopathic Association 

APC Ambulatory payment classification 

ASC Ambulatory Surgical Center 

ASP Average sales price 

AWP Average wholesale price 

BBA Balanced Budget Act of 1997, Public 

Law 105–33 

BBRA Medicare, Medicaid, and SCHIP 

[State Children’s Health Insurance 

Program] Balanced Budget Refinement Act 

of 1999, Public Law 106–113 

BCA Blue Cross Association 

BCBSA Blue Cross and Blue Shield 

Association 

BIPA Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection Act 

of 2000, Public Law 106–554 

CAH Critical access hospital 

CAP Competitive Acquisition Program 

CBSA Core-Based Statistical Area 

CCR Cost-to-charge ratio 

CERT Comprehensive Error Rate Testing 

CMHC Community mental health center 

CMS Centers for Medicare & Medicaid 

Services 

CoP Conditions of Participation 

CORF Comprehensive outpatient 

rehabilitation facility 

CPT [Physicians’] Current Procedural 

Terminology, Fourth Edition, 2009, 

copyrighted by the American Medical 

Association 

CY Calendar year 

DMEPOS Durable medical equipment, 

prosthetics, orthotics, and supplies 

DMERC Durable medical equipment 

regional carrier 

DRA Deficit Reduction Act of 2005, Public 

Law 109–171 

DSH Disproportionate share hospital 

EACH Essential Access Community 

Hospital 

E/M Evaluation and management 

EPO Erythropoietin 

ESRD End-stage renal disease 

FACA Federal Advisory Committee Act, 

Public Law 92–463 

FAR Federal Acquisition Regulations 

FDA Food and Drug Administration 

FFS Fee-for-service 

FSS Federal Supply Schedule 

FTE Full-time equivalent 

FY Federal fiscal year 

GAO Government Accountability Office 

GME Graduate medical education 

HCERA Health Care and Education 

Reconciliation Act of 2010, Public Law 

111–152 

HCPCS Healthcare Common Procedure 

Coding System 

HCRIS Hospital Cost Report Information 

System 

HHA Home health agency 

HIPAA Health Insurance Portability and 

Accountability Act of 1996, Public Law 

104–191 

HOPD Hospital outpatient department 

HOP QDRP Hospital Outpatient Quality 

Data Reporting Program 

ICD–9–CM International Classification of 

Diseases, Ninth Edition, Clinical 

Modification 

ICD–10–CM International Classification of 

Diseases, Tenth Revision, Clinical 

Modification 

ICD–10–PCS International Classification of 

Diseases, Tenth Revision, Procedure 

Coding System 

IDE Investigational device exemption 

IHS Indian Health Service 

IME Indirect medical education 

I/OCE Integrated Outpatient Code Editor 

IOL Intraocular lens 

IPPE Initial preventive physical 

examination 

IPPS [Hospital] Inpatient prospective 

payment system 

IVIG Intravenous immune globulin 

MAC Medicare Administrative Contractor 

MedPAC Medicare Payment Advisory 

Commission 

MDH Medicare-dependent, small rural 

hospital 

MIEA–TRHCA Medicare Improvements and 

Extension Act under Division B, Title I of 

the Tax Relief Health Care Act of 2006, 

Public Law 109–432 

MIPPA Medicare Improvements for Patients 

and Providers Act of 2008, Public Law 

110–275 

MMA Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003, Public Law 108–173 

MMSEA Medicare, Medicaid, and SCHIP 

Extension Act of 2007, Public Law 110–173 

MPFS Medicare Physician Fee Schedule 

MSA Metropolitan Statistical Area 

NCCI National Correct Coding Initiative 

NCD National Coverage Determination 

NTIOL New technology intraocular lens 

OIG [HHS] Office of the Inspector General 

OMB Office of Management and Budget 

OPD [Hospital] Outpatient department 

OPPS [Hospital] Outpatient prospective 

payment system 

PHP Partial hospitalization program 

PM Program memorandum 

PPACA Patient Protection and Affordable 

Care Act, Public Law 111–148 

PPI Producer Price Index 

PPPS Personalized preventive plan services 

PPS Prospective payment system 

PR Pulmonary rehabilitation 

PRA Paperwork Reduction Act 

QAPI Quality Assessment and Performance 

Improvement 

QIO Quality Improvement Organization 

RAC Recovery Audit Contractor 

RFA Regulatory Flexibility Act 

RHQDAPU Reporting Hospital Quality Data 

for Annual Payment Update [Program] 

RHHI Regional home health intermediary 

SBA Small Business Administration 

SCH Sole community hospital 

SDP Single Drug Pricer 

SI Status indicator 

TEFRA Tax Equity and Fiscal 

Responsibility Act of 1982, Public Law 

97–248 

TOPS Transitional outpatient payments 

USPDI United States Pharmacopoeia Drug 

Information 

USPSTF United States Preventive Services 

Task Force 

WAC Wholesale acquisition cost 

In this document, we address two 

payment systems under the Medicare 

program: The hospital outpatient 

prospective payment system (OPPS) and 

the revised ambulatory surgical center 

(ASC) payment system. In addition, we 

are addressing provisions of the 

Affordable Care Act, relating to 

payments to hospitals for direct 

graduate medical education (GME) and 

indirect medical education (IME) costs; 

we are also addressing provisions 

relating to new limitations on certain 

physician referrals to hospitals in which 

they have an ownership or investment 

interest and proposing related changes 

to provider agreement regulations. The 

provisions relating to the OPPS are 

included in sections I. through XIV., 

XVI, and XIX. through XXII. of this 

proposed rule and in Addenda A, B, C 

(Addendum C is available on the 

Internet only; we refer readers to section 

XIX.A. of this proposed rule), D1, D2, E, 

L, and M to this proposed rule. The 

provisions related to the revised ASC 

payment system are included in 

sections XV., XVI., and XIX. through 

XXII. of this proposed rule and in 

Addenda AA, BB, DD1, DD2, and EE to 

this proposed rule. (Addendum EE is 

available on the Internet only; we refer 

readers to section XIX.B. of this 

proposed rule.) The provisions related 

to payments to hospitals for direct 

graduate medical education (GME) and 

indirect medical education (IME) costs 

are included in section XVII. of this 

proposed rule. The provisions relating 

to the new limitations on certain 

physician referrals to hospitals in which 

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46172 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 

they have an ownership or investment 

interest and proposed related changes to 

provider agreement regulations are 

included in section XVIII. of this 

proposed rule. 

Table of Contents 

I. Background and Summary of the CY 2011 

OPPS/ASC Proposed Rule 

A. Legislative and Regulatory Authority for 

the Hospital Outpatient Prospective 

Payment System 

B. Excluded OPPS Services and Hospitals 

C. Prior Rulemaking 

D. The Affordable Care Act 

E. Advisory Panel on Ambulatory Payment 

Classification (APC) Groups 

1. Authority of the APC Panel 

2. Establishment of the APC Panel 

3. APC Panel Meetings and Organizational 

Structure 

F. Background and Summary of This 

Proposed Rule 

1. Proposed Updates Affecting OPPS 

Payments 

2. Proposed OPPS Ambulatory Payment 

Classification (APC) Group Policies 

3. Proposed OPPS Payment for Devices 

4. Proposed OPPS Payment Changes for 

Drugs, Biologicals, and 

Radiopharmaceuticals 

5. Proposed Estimate of OPPS Transitional 

Pass-Through Spending for Drugs, 

Biologicals, Radiopharmaceuticals, and 

Devices 

6. Proposed OPPS Payment for 

Brachytherapy Sources 

7. Proposed OPPS Payment for Drug 

Administration Services 

8. Proposed OPPS Payment for Hospital 

Outpatient Visits 

9. Proposed Payment for Partial 

Hospitalization Services 

10. Proposed Procedures That Would Be 

Paid Only as Inpatient Procedures 

11. Proposed OPPS Nonrecurring 

Technical and Policy Changes and 

Clarifications 

12. Proposed OPPS Payment Status and 

Comment Indicators 

13. OPPS Policy and Payment 

Recommendations 

14. Proposed Updates to the Ambulatory 

Surgical Center (ASC) Payment System 

15. Reporting Quality Data for Annual 

Payment Rate Updates 

16. Proposed Changes Relating to Payments 

to Hospitals for Preadmission Services 

and GME and IME Costs 

17. Proposed Changes to Whole Hospital 

and Rural Provider Exceptions to the 

Physician Self-Referral Prohibition and 

Related Changes to Provider Agreement 

Regulations 

18. Regulatory Impact Analysis 

II. Proposed Updates Affecting OPPS 

Payments 

A. Proposed Recalibration of APC Relative 

Weights 

1. Database Construction 

a. Database Source and Methodology 

b. Proposed Use of Single and Multiple 

Procedure Claims 

c. Proposed Calculation of CCRs 

(1) Development of the CCRs 

(2) Charge Compression 

2. Proposed Data Development Process and 

Calculation of Median Costs 

a. Claims Preparation 

b. Splitting Claims and Creation of 

‘‘Pseudo’’ Single Procedure Claims 

(1) Splitting Claims 

(2) Creation of ‘‘Pseudo’’ Single Procedure 

Claims 

c. Completion of Claim Records and 

Median Cost Calculations 

d. Proposed Calculation of Single 

Procedure APC Criteria-Based Median 

Costs 

(1) Device-Dependent APCs 

(2) Blood and Blood Products 

(3) Single Allergy Tests 

(4) Hyperbaric Oxygen Therapy (APC 0659) 

(5) Payment for Ancillary Outpatient 

Services When Patient Expires (APC 

0375) 

(6) Pulmonary Rehabilitation 

e. Proposed Calculation of Composite APC 

Criteria-Based Median Costs 

(1) Extended Assessment and Management 

Composite APCs (APCs 8002 and 8003) 

(2) Low Dose Rate (LDR) Prostate 

Brachytherapy Composite APC (APC 

8001) 

(3) Cardiac Electrophysiologic Evaluation 

and Ablation Composite APC (APC 8000) 

(4) Mental Health Services Composite APC 

(APC 0034) 

(5) Multiple Imaging Composite APCs 

(APCs 8004, 8005, 8006, 8007, and 8008) 

3. Proposed Changes to Packaged Services 

a. Background 

b. Packaging Issues 

(1) Packaged Services Addressed by the 

February 2010 APC Panel 

Recommendations 

(2) Other Service-Specific Packaging Issues 

4. Proposed Calculation of OPPS Scaled 

Payment Weights 

B. Proposed Conversion Factor Update 

C. Proposed Wage Index Changes 

D. Proposed Statewide Average Default 

CCRs 

E. Proposed OPPS Payment to Certain 

Rural and Other Hospitals 

1. Hold Harmless Transitional Payment 

Changes Made by Pub. L. 111–148 

2. Proposed Adjustment for Rural SCHs 

Implemented in CY 2006 Related to 

Public Law 108–173 (MMA) 

F. Proposed OPPS Payments to Certain 

Cancer Hospitals Described by Section 

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

1. Background 

2. Study of Cancer Hospital Costs Relative 

to Other Hospitals 

3. Proposed Adjustment for Certain Cancer 

Hospitals 

G. Proposed Hospital Outpatient Outlier 

Payments 

1. Background 

2. Proposed Outlier Calculation 

H. Proposed Calculation of an Adjusted 

Medicare Payment From the National 

Unadjusted Medicare Payment 

I. Proposed Beneficiary Copayments 

1. Background 

2. Proposed OPPS Copayment Policy 

3. Proposed Calculation of an Adjusted 

Copayment Amount for an APC Group 

III. Proposed OPPS Ambulatory Payment 

Classification (APC) Group Policies 

A. Proposed OPPS Treatment of New CPT 

and Level II HCPCS Codes 

1. Proposed Treatment of New Level II 

HCPCS Codes and Category I CPT 

Vaccine Codes and Category III CPT 

Codes for Which We Are Soliciting 

Public Comments in This Proposed Rule 

2. Proposed Process for New Level II 

HCPCS Codes and Category I and 

Category III CPT Codes for Which We 

Are Soliciting Public Comments in the 

CY 2011 OPPS/ASC Final Rule With 

Comment Period 

B. Proposed OPPS Changes—Variations 

Within APCs 

1. Background 

2. Application of the 2 Times Rule 

3. Proposed Exceptions to the 2 Times Rule 

C. New Technology APCs 

1. Background 

2. Proposed Movement of Procedures From 

New Technology APCs to Clinical APCs 

D. Proposed OPPS APC-Specific Policy: 

Skin Repair (APCs 0134 and 0135) 

IV. Proposed OPPS Payment for Devices 

A. Proposed Pass-Through Payments for 

Devices 

1. Expiration of Transitional Pass-Through 

Payments for Certain Devices 

2. Proposed Provisions for Reducing 

Transitional Pass-Through Payments To 

Offset Costs Packaged Into APC Groups 

a. Background 

b. Proposed Policy 

B. Proposed Adjustment to OPPS Payment 

for No Cost/Full Credit and Partial Credit 

Devices 

1. Background 

2. Proposed APCs and Devices Subject to 

the Adjustment Policy 

V. Proposed OPPS Payment Changes for 

Drugs, Biologicals, and 

Radiopharmaceuticals 

A. Proposed OPPS Transitional PassThrough Payment for Additional Costs of 

Drugs, Biologicals, and 

Radiopharmaceuticals 

1. Background 

2. Drugs and Biologicals With Expiring 

Pass-Through Status in CY 2010 

3. Proposed Drugs, Biologicals, and 

Radiopharmaceuticals With New or 

Continuing Pass-Through Status in CY 

2011 

4. Proposed Provision for Reducing 

Transitional Pass-Through Payments for 

Diagnostic Radiopharmaceuticals and 

Contrast Agents To Offset Costs 

Packaged Into APC Groups 

a. Background 

b. Proposed Payment Offset Policy for 

Diagnostic Radiopharmaceuticals 

c. Proposed Payment Offset Policy for 

Contrast Agents 

B. Proposed OPPS Payment for Drugs, 

Biologicals, and Radiopharmaceuticals 

Without Pass-Through Status 

1. Background 

2. Proposed Criteria for Packaging Payment 

for Drugs, Biologicals, and 

Radiopharmaceuticals 

a. Background 

b. Proposed Cost Threshold for Packaging 

of Payment for HCPCS Codes That 

Describe Certain Drugs, Nonimplantable 

Biologicals, and Therapeutic 

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Radiopharmaceuticals (‘‘ThresholdPackaged Drugs’’) 

c. Proposed Packaging Determination for 

HCPCS Codes That Describe the Same 

Drug or Biological But Different Dosages 

d. Proposed Packaging of Payment for 

Diagnostic Radiopharmaceuticals, 

Contrast Agents, and Implantable 

Biologicals (‘‘Policy-Packaged’’ Drugs and 

Devices) 

3. Proposed Payment for Drugs and 

Biologicals Without Pass-Through Status 

That Are Not Packaged 

a. Proposed Payment for Specified Covered 

Outpatient Drugs (SCODs) and Other 

Separately Payable and Packaged Drugs 

and Biologicals, Including Therapeutic 

Radiopharmaceuticals 

b. Proposed Payment Policy 

4. Proposed Payment for Blood Clotting 

Factors 

5. Proposed Payment for Nonpass-Through 

Drugs, Biologicals, and 

Radiopharmaceuticals With HCPCS 

Codes, But Without OPPS Hospital 

Claims Data 

VI. Proposed Estimate of OPPS Transitional 

Pass-Through Spending for Drugs, 

Biologicals, Radiopharmaceuticals, and 

Devices 

A. Background 

B. Proposed Estimate of Pass-Through 

Spending 

VII. Proposed OPPS Payment for 

Brachytherapy Sources 

A. Background 

B. Proposed OPPS Payment Policy 

VIII. Proposed OPPS Payment for Drug 

Administration Services 

A. Background 

B. Proposed Coding and Payment for Drug 

Administration Services 

IX. Proposed OPPS Payment for Hospital 

Outpatient Visits 

A. Background 

B. Proposed Policies for Hospital 

Outpatient Visits 

1. Clinic Visits: New and Established 

Patient Visits 

2. Emergency Department Visits 

3. Visit Reporting Guidelines 

X. Proposed Payment for Partial 

Hospitalization Services 

A. Background 

B. Proposed PHP APC Update for CY 2011 

C. Proposed Changes to Regulations To 

Incorporate Provisions of HCERA of 2010 

D. Proposed Separate Threshold for Outlier 

Payments to CMHCs 

XI. Proposed Procedures That Will Be Paid 

Only as Inpatient Procedures 

A. Background 

B. Proposed Changes to the Inpatient List 

XII. Proposed OPPS Nonrecurring Technical 

and Policy Issues 

A. Physician Supervision 

1. Background 

a. Outpatient Therapeutic Services 

b. Outpatient Diagnostic Services 

2. Issues Regarding the Supervision of 

Hospital Outpatient Services Raised by 

Hospitals and Other Stakeholders 

3. Proposed Policies for Supervision of 

Outpatient Therapeutic Services in 

Hospital and CAHs 

4. Supervision of Hospital Outpatient 

Diagnostic Services 

B. Proposed Payment for Preventive 

Services 

1. Definition of ‘‘Preventive Services’’ 

2. Coinsurance and Deductible for 

Preventive Services 

3. Extension of Waiver of Deductible to 

Services Furnished in Connection With 

or in Relation to a Colorectal Cancer 

Screening Test That Becomes Diagnostic 

or Therapeutic 

C. Payment for Pulmonary Rehabilitation, 

Cardiac Rehabilitation, and Intensive 

Cardiac Rehabilitation Services 

Furnished to Hospital Outpatients 

D. Expansion of Multiple Procedure 

Payment Reduction Under the Medicare 

Physician Fee Schedule (MPFS) to 

Therapy Services 

XIII. Proposed OPPS Payment Status and 

Comment Indicators 

A. Proposed OPPS Payment Status 

Indicator Definitions 

1. Proposed Payment Status Indicators To 

Designate Services That Are Paid Under 

the OPPS 

2. Proposed Payment Status Indicators To 

Designate Services That Are Paid Under 

a Payment System Other Than the OPPS 

3. Proposed Payment Status Indicators To 

Designate Services That Are Not 

Recognized Under the OPPS But That 

May Be Recognized by Other 

Institutional Providers 

4. Proposed Payment Status Indicators To 

Designate Services That Are Not Payable 

by Medicare on Outpatient Claims 

B. Proposed Comment Indicator 

Definitions 

XIV. OPPS Policy and Payment 

Recommendations 

A. MedPAC Recommendations 

B. APC Panel Recommendations 

C. OIG Recommendations 

XV. Proposed Updates to the Ambulatory 

Surgical Center (ASC) Payment System 

A. Background 

1. Legislative Authority for the ASC 

Payment System 

2. Prior Rulemaking 

3. Policies Governing Changes to the Lists 

of Codes and Payment Rates for ASC 

Covered Surgical Procedures and 

Covered Ancillary Services 

B. Proposed Treatment of New Codes 

1. Proposed Process for Recognizing New 

Category I and III CPT Codes and Level 

II HCPCS Codes 

2. Proposed Treatment of New Level II 

HCPCS Codes and Category III CPT 

Codes Implemented in April and July 

2010 

C. Proposed Update to the List of ASC 

Covered Surgical Procedures and 

Covered Ancillary Services 

1. Covered Surgical Procedures 

a. Proposed Additions to the List of ASC 

Covered Surgical Procedures 

b. Proposed Covered Surgical Procedures 

Designated as Office-Based 

(1) Background 

(2) Proposed Changes to Covered Surgical 

Procedures Designated as Office-Based 

for CY 2011 

c. ASC Covered Surgical Procedures 

Designated as Device-Intensive 

(1) Background 

(2) Proposed Changes to List of Covered 

Surgical Procedures Designated as 

Device-Intensive for CY 2011 

d. ASC Treatment of Surgical Procedures 

Proposed for Removal From the OPPS 

Inpatient List for CY 2011 

2. Covered Ancillary Services 

D. Proposed ASC Payment for Covered 

Surgical Procedures and Covered 

Ancillary Services 

1. Proposed Payment for Covered Surgical 

Procedures 

a. Background 

b. Proposed Update to ASC Covered 

Surgical Procedure Payment Rates for CY 

2011 

c. Proposed Adjustment to ASC Payments 

for No Cost/Full Credit and Partial Credit 

Devices 

d. Proposed Waiver of Coinsurance and 

Deductible for Certain Preventive 

Services 

2. Proposed Payment for Covered Ancillary 

Services 

a. Background 

b. Proposed Payment for Covered Ancillary 

Services for CY 2011 

E. New Technology Intraocular Lenses 

(NTIOLs) 

1. Background 

2. NTIOL Application Process for Payment 

Adjustment 

3. Classes of NTIOLs Approved and New 

Requests for Payment Adjustment 

a. Background 

b. Request To Establish New NTIOL Class 

for CY 2011 and Deadline for Public 

Comment 

4. Proposed Payment Adjustment 

5. Proposed ASC Payment for Insertion of 

IOLs 

F. Proposed ASC Payment and Comment 

Indicators 

1. Background 

2. Proposed ASC Payment and Comment 

Indicators 

G. ASC Policy and Payment 

Recommendations 

H. Calculation of the Proposed ASC 

Conversion Factor and the Proposed ASC 

Payment Rates 

1. Background 

2. Calculation of the Proposed ASC 

Payment Rates 

a. Updating the Proposed ASC Relative 

Payment Weights for CY 2011 and 

Future Years 

b. Updating the ASC Conversion Factor 

With Application of a Productivity 

Adjustment to the Update Factor 

3. Display of Proposed ASC Payment Rates 

XVI. Reporting Quality Data for Annual 

Payment Rate Updates 

A. Background 

1. Overview 

2. Hospital Outpatient Quality Data 

Reporting Under Section 109(a) of Public 

Law 109–432 

3. Reporting ASC Quality Data for Annual 

Payment Update 

4. HOP QDRP Quality Measures for the CY 

2009 Payment Determination 

5. HOP QDRP Quality Measures for the CY 

2010 Payment Determination 

6. HOP QDRP Quality Measures, Technical 

Specification Updates, and Data 

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46174 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 

Publication for the CY 2011 Payment 

Determination 

a. Quality Measures 

b. Maintenance of Technical Specifications 

for Quality Measures 

c. Publication of HOP QDRP Data 

B. Proposed Expansion of HOP QDRP 

Quality Measures for the CY 2012, CY 

2013, and CY 2014 Payment 

Determinations 

1. Considerations in Expanding and 

Updating Quality Measures Under the 

HOP QRDP Program 

2. Retirement of HOP QDRP Quality 

Measures 

3. Proposed HOP QDRP Quality Measures 

for the CY 2012 Payment Determination 

a. Proposed Retention of Existing HOP 

QDRP Measures for the CY 2012 

Payment Determination 

b. Proposed New Structural Measure for 

CY 2012 Payment Determination 

c. Proposed New Claims-Based Measures 

for CY 2012 Payment Determination 

d. Proposed New Chart-Abstracted 

Measures for CY 2012 Payment 

Determination 

4. Proposed HOP QDRP Quality Measures 

for the CY 2013 Payment Determination 

a. Proposed Retention of CY 2012 HOP 

QDRP Measures for the CY 2013 

Payment Determination 

b. Proposed New Structural Measure for 

the CY 2013 Payment Determination 

c. Proposed New Chart-Abstracted 

Measures for the CY 2013 Payment 

Determination 

5. Proposed HOP QDRP Quality Measures 

for the CY 2014 Payment Determination 

a. Proposed Retention of CY 2013 HOP 

QDRP Measures for the CY 2014 

Payment Determination 

b. Proposed New Chart-Abstracted 

Measures for the CY 2014 Payment 

Determination 

6. Possible Quality Measures Under 

Consideration for Future Inclusion in 

HOP QDRP 

C. Proposed Payment Reduction for 

Hospitals That Fail To Meet the HOP 

QDRP Requirements for the CY 2011 

Payment Update 

1. Background 

2. Proposed Reporting Ratio Application 

and Associated Adjustment Policy for 

CY 2011 

D. Proposed Requirements for HOPD 

Quality Data Reporting for CY 2012 and 

Subsequent Years 

1. Administrative Requirements 

2. Data Collection and Submission 

Requirements 

a. General Data Collection and Submission 

Requirements 

b. Extraordinary Circumstance Extension 

or Waiver for Reporting Quality Data 

3. HOP QDRP Validation Requirements for 

Abstracted Data: Data Validation 

Approach for CY 2012 and Subsequent 

Years 

a. Background 

b. Proposed Data Validation Requirements 

for CY 2012 

c. Additional Data Validation Conditions 

Under Consideration for CY 2013 and 

Subsequent Years 

E. Proposed HOP QDRP Reconsideration 

and Appeals Procedures 

F. Reporting of ASC Quality Data 

G. Electronic Health Records 

XVII. Proposed Changes Relating to Payments 

to Hospitals for Preadmission Services 

and for Direct Graduate Medical 

Education (GME) and Indirect Medical 

Education (IME) Costs 

A. Proposed Changes Relating to Payments 

to Hospitals for Direct GME and IME 

Costs 

1. Background 

2. Counting Resident Time in Nonprovider 

Settings (Section 5504 of the Affordable 

Care Act) 

a. Background and Changes Made by the 

Affordable Care Act 

b. Elimination of the ‘‘All or Substantially 

All of the Costs for the Training Program 

in the Nonhospital Setting’’ Requirement 

and New Cost Requirements for 

Hospitals 

c. Proposed Revision to Regulations To 

Allow More Than One Hospital To Incur 

the Costs of Training Programs at 

Nonhospital Settings, Either Directly or 

Through a Third Party 

d. Proposed Changes to Regulations 

Regarding Recordkeeping and 

Comparison to a Base Year 

3. Counting Resident Time for Didactic and 

Scholarly Activities and Other Activities 

(Section 5505 of the Affordable Care Act) 

a. Background and Changes Made by the 

Affordable Care Act 

b. Definition of ‘‘Nonprovider Setting That 

Is Primarily Engaged in Furnishing 

Patient Care’’ 

c. Distinguishing Between Allowed 

‘‘Nonpatient Care Activities’’ and 

Nonallowable Research Time 

d. Approved Leave of Absence 

4. Reductions of and Increases in 

Hospitals’ FTE Resident Caps for GME 

Payment Purposes 

a. General Background on Methodology for 

Determining the FTE Resident Count 

b. Reduction of Hospitals’ FTE Resident 

Caps Under the Provisions of Section 

5503 of the Affordable Care Act 

c. Hospitals Subject to the FTE Resident 

Cap Reduction 

d. Exemption From FTE Resident Cap 

Reduction for Certain Rural Hospitals 

e. Application of Section 5503 to Hospitals 

That Participate in Demonstration 

Projects or Voluntary Reduction 

Programs and Certain Other Hospitals 

f. Determining the Estimated Number of 

FTE Resident Slots Available for 

Redistribution 

g. Reference Cost Reports That Are Under 

Appeal 

h. Determining the Possible Reduction to a 

Hospital’s FTE Resident Cap 

i. Application of Section 5503 to Hospitals 

That File Low Utilization Medicare Cost 

Reports 

j. Treatment of Hospitals With Caps That 

Have Been Reduced or Increased Under 

Section 422 of Public Law 108–173 

k. Criteria for Determining Hospitals That 

Will Receive Increases in Their FTE 

Resident Caps 

l. Application Process for the Increases in 

Hospitals’ FTE Resident Caps 

m. CMS Evaluation of Applications for 

Increases in FTE Resident Caps 

n. CMS Evaluation of Application for 

Increases in FTE Resident Caps 

o. Exception If Positions Are Not 

Redistributed by July 1, 2011 

p. Application of Direct GME PRAs for 

Primary Care and Nonprimary Care 

Residents and Conforming Changes for 

the IME Multiplier 

q. Other Issues Related to a Request for 

Increase in the FTE Caps Under Section 

5503 

5. Preservation of Resident Cap Positions 

From Closed Hospitals (Section 5506 of 

the Affordable Care Act) 

a. Background 

b. Definition of a ‘‘Closed Hospital’’ 

c. Priority for Hospitals in Certain Areas 

d. Application Process 

e. Ranking Criteria 

f. Demonstrated Likelihood of Filling the 

Positions Within a Certain Time Period 

g. No Duplication of FTE Cap Slots 

h. Other Payment Issues Regarding 

Hospitals That Receive Slots From 

Closed Hospitals 

i. Application—No Reopening of Settled 

Cost Reports 

XVIII. Proposed Changes to Whole Hospital 

and Rural Provider Exceptions to the 

Physician Self-Referral Prohibition and 

Related Changes to Provider Agreement 

Regulations 

A. Background 

B. Changes Made by the Affordable Care 

Act Relating to the Whole Hospital and 

Rural Provider Exceptions to Ownership 

and Investment Prohibition 

C. Proposed Changes to Physician SelfReferral Regulations 

1. Physician Ownership and Provider 

Agreement 

2. Limitation on Expansion of Facility 

Capacity 

3. Preventing Conflicts of Interest 

4. Ensuring Bona Fide Investment 

5. Patient Safety 

6. Conversion From Ambulatory Surgery 

Center (ASC) 

7. Publication of Information Reported 

8. Enforcement 

D. Proposed Related Changes to Provider 

Agreement Regulations 

XIX. Files Available to the Public via the 

Internet 

A. Information in Addenda Related to the 

Proposed CY 2011 Hospital OPPS 

B. Information in Addenda Related to the 

Proposed CY 2011 ASC Payment System 

XX. Collection of Information Requirements 

A. Legislative Requirements for 

Solicitation of Comments 

B. Requirements in Regulation Text 

C. Associated Information Collections Not 

Specified in Regulatory Text 

1. Hospital Outpatient Quality Data 

Reporting Program (HOP QDRP) 

2. Proposed HOP QDRP Quality Measures 

for the CY 2011 and CY 2012 Payment 

Determinations 

3. Proposed HOP QDRP Validation 

Requirements 

4. Proposed HOP QDRP Reconsideration 

and Appeals Procedures 

5. Additional Topics 

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XXI. Response to Comments 

XXII. Regulatory Impact Analysis 

A. Overall Impact 

1. Executive Order 12866 

2. Regulatory Flexibility Act 

3. Small Rural Hospitals 

4. Unfunded Mandates 

5. Federalism 

B. Effects of OPPS Changes in This 

Proposed Rule 

1. Alternatives Considered 

2. Limitations of Our Analysis 

3. Estimated Effects of This Proposed Rule 

on Hospitals 

4. Estimated Effects of This Proposed Rule 

on CMHCs 

5. Estimated Effects of This Proposed Rule 

on Beneficiaries 

6. Conclusion 

7. Accounting Statement 

C. Effects of ASC Payment System Changes 

in This Proposed Rule 

1. Alternatives Considered 

2. Limitations of Our Analysis 

3. Estimated Effects of This Proposed Rule 

on Payments to ASCs 

4. Estimated Effects of This Proposed Rule 

on Beneficiaries 

5. Conclusion 

6. Accounting Statement 

D. Effects of Proposed Requirements for 

Reporting of Quality Data for Annual 

Hospital Payment Update 

E. Effects of Proposed Changes in Payments 

to Hospitals for Direct GME and IME 

Costs 

F. Effects of Proposed Changes to Physician 

Self-Referral Regulations and Related 

Proposed Changes to Provider 

Agreement Regulations 

G. Executive Order 12866 

Regulation Text 

Addenda 

Addendum A—Proposed OPPS APCs for CY 

2011 

Addendum AA—Proposed ASC Covered 

Surgical Procedures for CY 2011 

(Including Surgical Procedures for 

Which Payment Is Packaged) 

Addendum B—Proposed OPPS Payment by 

HCPCS Code for CY 2011 

Addendum BB—Proposed ASC Covered 

Ancillary Services Integral to Covered 

Surgical Procedures for CY 2011 

(Including Ancillary Services for Which 

Payment Is Packaged) 

Addendum D1—Proposed OPPS Payment 

Status Indicators for CY 2011 

Addendum DD1—Proposed ASC Payment 

Indicators for CY 2011 

Addendum D2—Proposed OPPS Comment 

Indicators for CY 2011 

Addendum DD2—Proposed ASC Comment 

Indicators for CY 2011 

Addendum E—Proposed HCPCS Codes That 

Would Be Paid Only as Inpatient 

Procedures for CY 2011 

Addendum L—Proposed CY 2011 OPPS OutMigration Adjustment 

Addendum M—Proposed HCPCS Codes for 

Assignment to Composite APCs for CY 

2011 

I. Background and Summary of the CY 

2011 OPPS/ASC Proposed Rule 

A. Legislative and Regulatory Authority 

for the Hospital Outpatient Prospective 

Payment System 

When Title XVIII of the Social 

Security Act (the Act) was enacted, 

Medicare payment for hospital 

outpatient services was based on 

hospital-specific costs. In an effort to 

ensure that Medicare and its 

beneficiaries pay appropriately for 

services and to encourage more efficient 

delivery of care, the Congress mandated 

replacement of the reasonable costbased payment methodology with a 

prospective payment system (PPS). The 

Balanced Budget Act (BBA) of 1997 

(Pub. L. 105–33) added section 1833(t) 

to the Act authorizing implementation 

of a PPS for hospital outpatient services. 

The OPPS was first implemented for 

services furnished on or after August 1, 

2000. Implementing regulations for the 

OPPS are located at 42 CFR part 419. 

The Medicare, Medicaid, and SCHIP 

Balanced Budget Refinement Act 

(BBRA) of 1999 (Pub. L. 106–113) made 

major changes in the hospital outpatient 

prospective payment system (OPPS). 

The following Acts made additional 

changes to the OPPS: the Medicare, 

Medicaid, and SCHIP Benefits 

Improvement and Protection Act (BIPA) 

of 2000 (Pub. L. 106–554); the Medicare 

Prescription Drug, Improvement, and 

Modernization Act (MMA) of 2003 (Pub. 

L. 108–173); the Deficit Reduction Act 

(DRA) of 2005 (Pub. L. 109–171), 

enacted on February 8, 2006; the 

Medicare Improvements and Extension 

Act under Division B of Title I of the 

Tax Relief and Health Care Act (MIEA– 

TRHCA) of 2006 (Pub. L. 109–432), 

enacted on December 20, 2006; the 

Medicare, Medicaid, and SCHIP 

Extension Act (MMSEA) of 2007 (Pub. 

L. 110–173), enacted on December 29, 

2007; the Medicare Improvements for 

Patients and Providers Act (MIPPA) of 

2008 (Pub. L. 110–275), enacted on July 

15, 2008; and most recently the Patient 

Protection and Affordable Care Act 

(Pub. L. 111–148), enacted on March 23, 

2010, as amended by the Health Care 

and Education Reconciliation Act of 

2010 (Pub. L. 111–152), enacted on 

March 30, 2010. We refer readers to 

section I.D. of this proposed rule for a 

summary of the provisions of Public 

Law 111–148, as amended by Public 

Law 111–152, that we are proposing to 

implement in this proposed rule. 

Under the OPPS, we pay for hospital 

outpatient services on a rate-per-service 

basis that varies according to the 

ambulatory payment classification 

(APC) group to which the service is 

assigned. We use the Healthcare 

Common Procedure Coding System 

(HCPCS) codes (which include certain 

Current Procedural Terminology (CPT) 

codes) and descriptors to identify and 

group the services within each APC 

group. The OPPS includes payment for 

most hospital outpatient services, 

except those identified in section I.B. of 

this proposed rule. Section 

1833(t)(1)(B)(ii) of the Act provides for 

payment under the OPPS for hospital 

outpatient services designated by the 

Secretary (which includes partial 

hospitalization services furnished by 

community mental health centers 

(CMHCs)) and hospital outpatient 

services that are furnished to inpatients 

who have exhausted their Part A 

benefits, or who are otherwise not in a 

covered Part A stay. 

The OPPS rate is an unadjusted 

national payment amount that includes 

the Medicare payment and the 

beneficiary copayment. This rate is 

divided into a labor-related amount and 

a nonlabor-related amount. The laborrelated amount is adjusted for area wage 

differences using the hospital inpatient 

wage index value for the locality in 

which the hospital or CMHC is located. 

All services and items within an APC 

group are comparable clinically and 

with respect to resource use (section 

1833(t)(2)(B) of the Act). In accordance 

with section 1833(t)(2) of the Act, 

subject to certain exceptions, items and 

services within an APC group cannot be 

considered comparable with respect to 

the use of resources if the highest 

median cost (or mean cost, if elected by 

the Secretary) for an item or service in 

the APC group is more than 2 times 

greater than the lowest median cost for 

an item or service within the same APC 

group (referred to as the ‘‘2 times rule’’). 

In implementing this provision, we 

generally use the median cost of the 

item or service assigned to an APC 

group. 

For new technology items and 

services, special payments under the 

OPPS may be made in one of two ways. 

Section 1833(t)(6) of the Act provides 

for temporary additional payments, 

which we refer to as ‘‘transitional passthrough payments,’’ for at least 2 but not 

more than 3 years for certain drugs, 

biological agents, brachytherapy devices 

used for the treatment of cancer, and 

categories of other medical devices. For 

new technology services that are not 

eligible for transitional pass-through 

payments, and for which we lack 

sufficient data to appropriately assign 

them to a clinical APC group, we have 

established special APC groups based 

on costs, which we refer to as New 

Technology APCs. These New 

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Technology APCs are designated by cost 

bands which allow us to provide 

appropriate and consistent payment for 

designated new procedures that are not 

yet reflected in our claims data. Similar 

to pass-through payments, an 

assignment to a New Technology APC is 

temporary; that is, we retain a service 

within a New Technology APC until we 

acquire sufficient data to assign it to a 

clinically appropriate APC group. 

B. Excluded OPPS Services and 

Hospitals 

Section 1833(t)(1)(B)(i) of the Act 

authorizes the Secretary to designate the 

hospital outpatient services that are 

paid under the OPPS. While most 

hospital outpatient services are payable 

under the OPPS, section 

1833(t)(1)(B)(iv) of the Act excludes 

payment for ambulance, physical and 

occupational therapy, and speechlanguage pathology services, for which 

payment is made under a fee schedule. 

It also excludes screening 

mammography, diagnostic 

mammography, and effective January 1, 

2011, an annual wellness visit providing 

personalized prevention plan services. 

The Secretary exercised the authority 

granted under the statute to also exclude 

from the OPPS those services that are 

paid under fee schedules or other 

payment systems. Such excluded 

services include, for example, the 

professional services of physicians and 

nonphysician practitioners paid under 

the Medicare Physician Fee Schedule 

(MPFS); laboratory services paid under 

the clinical diagnostic laboratory fee 

schedule (CLFS); services for 

beneficiaries with end-stage renal 

disease (ESRD) that are paid under the 

ESRD composite rate; and services and 

procedures that require an inpatient stay 

that are paid under the hospital 

inpatient prospective payment system 

(IPPS). We set forth the services that are 

excluded from payment under the OPPS 

in § 419.22 of the regulations. 

Under § 419.20(b) of the regulations, 

we specify the types of hospitals and 

entities that are excluded from payment 

under the OPPS. These excluded 

entities include: Maryland hospitals, but 

only for services that are paid under a 

cost containment waiver in accordance 

with section 1814(b)(3) of the Act; 

critical access hospitals (CAHs); 

hospitals located outside of the 50 

States, the District of Columbia, and 

Puerto Rico; and Indian Health Service 

(IHS) hospitals. 

C. Prior Rulemaking 

On April 7, 2000, we published in the 

Federal Register a final rule with 

comment period (65 FR 18434) to 

implement a prospective payment 

system for hospital outpatient services. 

The hospital OPPS was first 

implemented for services furnished on 

or after August 1, 2000. Section 

1833(t)(9) of the Act requires the 

Secretary to review certain components 

of the OPPS, not less often than 

annually, and to revise the groups, 

relative payment weights, and other 

adjustments that take into account 

changes in medical practices, changes in 

technologies, and the addition of new 

services, new cost data, and other 

relevant information and factors. 

Since initially implementing the 

OPPS, we have published final rules in 

the Federal Register annually to 

implement statutory requirements and 

changes arising from our continuing 

experience with this system. These rules 

can be viewed on the CMS Web site at: 

http://www.cms.gov/ 

HospitalOutpatientPPS/. The CY 2010 

OPPS/ASC final rule with comment 

period appears in the November 20, 

2009 Federal Register (74 FR 60316). In 

that final rule with comment period, we 

revised the OPPS to update the payment 

weights and conversion factor for 

services payable under the CY 2010 

OPPS on the basis of claims data from 

January 1, 2008, through December 31, 

2008, and to implement certain 

provisions of Public Law 110–173 and 

Public Law 110–275. In addition, we 

responded to public comments received 

on the provisions of the November 18, 

2008 final rule with comment period (73 

FR 68502) pertaining to the APC 

assignment of HCPCS codes identified 

in Addendum B to that rule with the 

new interim (‘‘NI’’) comment indicator, 

and public comments received on the 

July 20, 2009 OPPS/ASC proposed rule 

for CY 2010 (74 FR 35232). 

D. Provisions of the Patient Protection 

and Affordable Care Act (Pub. L. 111– 

148), as Amended by the Health Care 

and Education Reconciliation Act of 

2010 (Pub. L. 111–152) 

On March 23, 2010, the Patient 

Protection and Affordable Care Act, 

Public Law 111–148, was enacted. 

Following the enactment of Public Law 

111–148, the Health Care and Education 

Reconciliation Act of 2010, Public Law 

111–152 (enacted on March 30, 2010), 

amended certain provisions of Public 

Law 111–148. (These two public laws 

are collectively known as the Affordable 

Care Act.) A number of the provisions 

of the Affordable Care Act affect the 

OPPS and the ASC payment system and 

the providers and suppliers addressed 

in this proposed rule. Listed below are 

the provisions of the Affordable Care 

Act that we are proposing to implement 

in this proposed rule. We note that, due 

to the timing of the passage of the 

legislation, we were unable to address 

some of the provisions of the Affordable 

Care Act that affect the IPPS and the 

LTCH PPS in the FY 2011 IPPS/LTCH 

PPS proposed rule published in the 

Federal Register on May 4, 2010. 

Therefore, we also are including some 

proposals to implement certain 

provisions relating to the IPPS and 

LTCH PPS in this proposed rule. In 

addition, we note that we have issued 

or plan to issue separate documents in 

the Federal Register addressing other 

provisions of the Affordable Care Act 

(75 FR 30756 and 75 FR 31118). 

• Section 1301 of the Affordable Care 

Act amended sections 1861(ff)(3)(A) and 

(B) of the Act to establish new 

additional requirements for CMHCs 

applicable to items or services furnished 

to Medicare beneficiaries on or after the 

first day of the first calendar quarter that 

begins at least 12 months after the date 

of enactment of Public Law 111–152 

(that is, beginning April 1, 2011). The 

new requirements specify that a CMHC 

provide at least 40 percent of its services 

to individuals who are not eligible for 

Medicare benefits under Title XVIII of 

the Act and that a partial hospitalization 

program must be a distinct and 

organized intensive ambulatory 

treatment service offering less than 24- 

hour daily care ‘‘other than an 

individual’s home or in an inpatient or 

residential setting.’’ This provision is 

addressed in section X. of this proposed 

rule. 

• Section 3121(a) of the Affordable 

Care Act amended section 

1833(t)(7)(D)(i) of the Act to extend hold 

harmless payment adjustments (called 

transitional corridor payments or 

transitional outpatient payments 

(TOPS)) to rural hospitals with 100 or 

fewer beds and that are not sole 

community hospitals for covered OPD 

services furnished on or after January 1, 

2006 and before January 1, 2011. 

Section 3121(b) amended section 

1833(t)(7)(D)(i)(III) of the Act to provide 

that, for SCHs, in the case of covered 

OPD services furnished on or after 

January 1, 2010, and before January 1, 

2011, the hold harmless TOPS 

provisions shall be applied without 

regard to the 100-bed limitation. These 

provisions are addressed in section II.E. 

of this proposed rule. 

• Section 3138 of the Affordable Care 

Act amended section 1833(t) of the Act 

to direct the Secretary to conduct a 

study to determine if costs incurred by 

cancer hospitals (described in section 

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

outpatient hospital services with respect 

to APC groups exceed those costs 

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incurred by other hospitals furnishing 

these services. In so far as the Secretary 

determines that such costs exceed those 

costs incurred by other hospitals, the 

Secretary shall provide for an 

appropriate adjustment under the 

authority of section 1833(t)(2)(E) to 

reflect those higher costs effective for 

services furnished on or after January 1, 

2011. This provision is addressed in 

section II.F. of this proposed rule. 

• Section 3401(i) of the Affordable 

Care Act amended section 1833(t)(3) of 

the Act by, among other things, adding 

new paragraphs (C)(iv)(F) and (G) to 

reduce the OPD fee schedule increase 

factor by a productivity adjustment and 

an additional adjustment for payments 

to hospital OPDs beginning in various 

years from CY 2010 through CY 2019 as 

applicable. These hospital OPD 

provisions are addressed in section 

II.B.1. of this proposed rule. Section 

3401(k) of the Affordable Care Act 

amended section 1833(i)(2)(D) of the Act 

by adding a new subsection (iv) to 

provide for a similar productivity 

adjustment for payment for ASC 

services. This ASC provision is 

addressed in section XV.H.2.b. of this 

proposed rule. 

• Section 4103(a) of the Affordable 

Care Act amended section 1861(s)(2) of 

the Act by adding a new subsection (FF) 

to provide Medicare coverage of 

‘‘personalized prevention plan services,’’ 

beginning January 1, 2011. Section 

4103(b) of the Affordable Care Act 

amended section 1861 of the Act by 

adding a new subsection (hhh) to define 

‘‘personalized prevention plan services’’ 

(also cited as the ‘‘annual wellness 

visit’’). Section 4103(c) of the Affordable 

Care Act excludes the annual wellness 

visit from payment under the OPPS and 

provides for the elimination of 

beneficiary coinsurance requirements 

for these preventive services in 

outpatient hospital settings and for 

waiver of application of the deductible 

for these services. These provisions are 

addressed in section XII.B. of this 

proposed rule. 

• Section 4104(a) of the Affordable 

Care Act amended section 1861(ddd) of 

the Act to define ‘‘preventive services’’ 

under Medicare to include screening 

and preventive services described under 

subsection (ww)(2) of the Act (other 

than services under subparagraph (M)); 

an initial preventive physical 

examination as defined in subsection 

(ww) of the Act; and personalized 

prevention plan services as defined in 

subsection (hhh)(1) of the Act. Section 

4104(b) of the Affordable Care Act 

amended section 1833(a)(1) of the Act, 

as amended by section 4103(c)(1) of the 

Affordable Care Act, to provide for the 

elimination of coinsurance for most 

preventive services, and section 4104(c) 

amended section 1833(b) of the Act to 

provide for the waiver of the application 

of the deductible for most preventive 

services and, specifically, for colorectal 

cancer screening tests that become 

diagnostic and any related services 

performed with that diagnostic 

colorectal cancer screening test 

performed in the same clinical 

encounter, effective for items and 

services furnished on or after January 1, 

2011. These provisions are addressed in 

section XII.B. of this proposed rule. 

• Sections 5503, 5504, 5505, and 

5506 of the Affordable Care Act made a 

number of changes to various sections of 

the Act relating to payment for direct 

GME and IME costs to hospitals. 

(1) Section 5503 amended the Act to 

add a provision to redistribute medical 

residency positions that have been 

unfilled during a prior cost reporting 

period to other hospitals and to direct 

slots for training primary care 

physicians beginning July 1, 2011. 

(2) Section 5504 amended sections 

1886(h)(4)(E) and 1886(d)(5)(B)(iv) of 

the Act to allow any time spent by 

residents training in a nonprovider 

setting to count toward direct GME and 

IME costs if the hospital incurs the costs 

of residents’ salaries and fringe benefits, 

effective for cost reporting periods 

beginning on or after July 1, 2010, for 

direct GME, and for discharges 

occurring on or after July 1, 2010, for 

IME. 

(3) Section 5505 amended section 

1886(h) and section 1886(d)(5)(B) of the 

Act to add a provision to allow hospitals 

to count resident time spent in certain 

non-patient care activities while 

training in certain nonhospital settings 

for direct GME purposes, effective for 

cost reporting periods beginning on or 

after July 1, 2009; to allow hospitals to 

count resident time spent in certain 

non-patient care activities while 

training in certain hospital settings for 

IME purposes for cost reporting periods 

beginning on or after January 1, 1983; 

and to prohibit the counting of time 

spent by residents in research not 

associated with the treatment or 

diagnosis of a particular patient for IME 

purposes effective October 1, 2001 (with 

certain limitations). 

(4) Section 5506 amended section 

1886(h)(4)(H) and section 

1886(d)(5)(B)(iv) of the Act to add a 

provision to allow for the redistribution 

to other hospitals in the same or 

contiguous areas of FTE resident 

positions from a hospital that closes (on 

or after the date that is 2 years before the 

date of enactment of Pub. L. 111–148). 

These provisions are addressed in 

section XVII.B. of this proposed rule. 

• Section 6001 of the Affordable Care 

Act amended section 1877 of the Act to 

add provisions under new subsection (i) 

relating to the prohibition against 

referrals to a hospital by a physician 

who has an ownership or investment 

interest in the hospital. This provision 

is addressed in section XVIII. of this 

proposed rule. 

• Section 10324(b) of the Affordable 

Care Act amended section 1833(t) of the 

Act by adding a new subsection (19) to 

provide for a floor on the area wage 

adjustment factor for hospital outpatient 

department services furnished on or 

after January 1, 2011, in a State in which 

at least 50 percent of the counties in the 

State are frontier counties, that is, a 

county in which the population per 

square mile is less than 6. This 

provision is addressed in section II.C. of 

this proposed rule. 

E. Advisory Panel on Ambulatory 

Payment Classification (APC) Groups 

1. Authority of the Advisory Panel on 

Ambulatory Payment Classification 

(APC) Groups (the APC Panel) 

Section 1833(t)(9)(A) of the Act, as 

amended by section 201(h) of Public 

Law 106–113, and redesignated by 

section 202(a)(2) of Public Law 106–113, 

requires that we consult with an outside 

panel of experts to review the clinical 

integrity of the payment groups and 

their weights under the OPPS. The Act 

further specifies that the panel will act 

in an advisory capacity. The APC Panel, 

discussed under section I.E.2. of this 

proposed rule, fulfills these 

requirements. The APC Panel is not 

restricted to using data compiled by 

CMS, and it may use data collected or 

developed by organizations outside the 

Department in conducting its review. 

2. Establishment of the APC Panel 

On November 21, 2000, the Secretary 

signed the initial charter establishing 

the APC Panel. This expert panel, which 

may be composed of up to 15 

representatives of providers (currently 

employed full-time, not as consultants, 

in their respective areas of expertise) 

subject to the OPPS, reviews clinical 

data and advises CMS about the clinical 

integrity of the APC groups and their 

payment weights. The APC Panel is 

technical in nature, and it is governed 

by the provisions of the Federal 

Advisory Committee Act (FACA). Since 

its initial chartering, the Secretary has 

renewed the APC Panel’s charter four 

times: on November 1, 2002; on 

November 1, 2004; on November 21, 

2006; and on November 2, 2008. The 

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current charter specifies, among other 

requirements, that: the APC Panel 

continues to be technical in nature; is 

governed by the provisions of the 

FACA; may convene up to three 

meetings per year; has a Designated 

Federal Official (DFO); and is chaired by 

a Federal official designated by the 

Secretary. 

The current APC Panel membership 

and other information pertaining to the 

APC Panel, including its charter, 

Federal Register notices, membership, 

meeting dates, agenda topics, and 

meeting reports, can be viewed on the 

CMS Web site at: http:// 

www.cms.hhs.gov/FACA/05_Advisory

PanelonAmbulatoryPayment

ClassificationGroups.asp#TopOfPage. 

3. APC Panel Meetings and 

Organizational Structure 

The APC Panel first met on February 

27 through March 1, 2001. Since the 

initial meeting, the APC Panel has held 

17 meetings, with the last meeting 

taking place on February 17 and 18, 

2010. Prior to each meeting, we publish 

a notice in the Federal Register to 

announce the meeting and, when 

necessary, to solicit nominations for 

APC Panel membership and to 

announce new members. 

The APC Panel has established an 

operational structure that, in part, 

includes the use of three subcommittees 

to facilitate its required APC review 

process. The three current 

subcommittees are the Data 

Subcommittee, the Visits and 

Observation Subcommittee, and the 

Packaging Subcommittee. The Data 

Subcommittee is responsible for 

studying the data issues confronting the 

APC Panel and for recommending 

options for resolving them. The Visits 

and Observation Subcommittee reviews 

and makes recommendations to the APC 

Panel on all technical issues pertaining 

to observation services and hospital 

outpatient visits paid under the OPPS 

(for example, APC configurations and 

APC payment weights). The Packaging 

Subcommittee studies and makes 

recommendations on issues pertaining 

to services that are not separately 

payable under the OPPS, but whose 

payments are bundled or packaged into 

APC payments. Each of these 

subcommittees was established by a 

majority vote from the full APC Panel 

during a scheduled APC Panel meeting, 

and the APC Panel recommended that 

the subcommittees continue at the 

February 2010 APC Panel meeting. We 

accept those recommendations of the 

APC Panel. All subcommittee 

recommendations are discussed and 

voted upon by the full APC Panel. 

Discussions of the other 

recommendations made by the APC 

Panel at the February 2010 meeting are 

included in the sections of this 

proposed rule that are specific to each 

recommendation. For discussions of 

earlier APC Panel meetings and 

recommendations, we refer readers to 

previously published hospital OPPS/ 

ASC proposed and final rules, the CMS 

Web site mentioned earlier in this 

section, and the FACA database at: 

http://fido.gov/facadatabase/public.asp. 

F. Summary of the Contents of This 

Proposed Rule 

In this proposed rule, we set forth 

proposed changes to the Medicare 

hospital OPPS for CY 2011 to 

implement statutory requirements and 

changes arising from our continuing 

experience with the system and to 

implement certain provisions of Public 

Law 111–148, as amended by Public 

Law 111–152 (collectively known as the 

Affordable Care Act). In addition, we set 

forth proposed changes to the revised 

Medicare ASC payment system for CY 

2011, including proposed updated 

payment weights, covered surgical 

procedures, and covered ancillary items 

and services based on the proposed 

OPPS update. We set forth proposed 

quality measures for the Hospital 

Outpatient Quality Data Reporting 

Program (HOP QDRP) for reporting 

quality data for annual payment rate 

updates for CY 2012 and subsequent 

calendar years, the proposed 

requirements for data collection and 

submission for the annual payment 

update, and a proposed reduction in the 

OPPS payment for hospitals that fail to 

meet the HOP QDRP requirements for 

the CY 2011 payment update, in 

accordance with the statutory 

requirement. We also set forth proposed 

changes to implement provisions of the 

Affordable Care Act relating to 

payments to hospitals for direct GME 

and IME costs and the rules relating to 

physician self-referrals to hospitals in 

which they have an ownership or 

investment interest. In addition, we are 

setting forth proposals affecting certain 

payments under the Medicare IPPS. The 

following is a summary of the major 

proposed changes that we are proposing 

to make: 

1. Proposed Updates Affecting OPPS 

Payments 

In section II. of this proposed rule, we 

set forth— 

• The methodology used to 

recalibrate the proposed APC relative 

payment weights. 

• The proposed changes to packaged 

services. 

• The proposed update to the 

conversion factor used to determine 

payment rates under the OPPS. In this 

section, we set forth proposed changes 

in the amounts and factors for 

calculating the full annual update 

increase to the conversion factor. 

• The proposed retention of our 

current policy to use the IPPS wage 

indices to adjust, for geographic wage 

differences, the portion of the OPPS 

payment rate and the copayment 

standardized amount attributable to 

labor-related cost. This proposal 

addresses the provisions of section 

10324 of the Affordable Care Act 

relating to the establishment of a floor 

for the area wage adjustment factor for 

OPD services furnished in frontier 

States. 

• The proposed update of statewide 

average default CCRs. 

• The proposed application of hold 

harmless transitional outpatient 

payments (TOPs) for certain small rural 

hospitals, extended by section 3121 of 

the Affordable Care Act. 

• The proposed payment adjustment 

for rural SCHs. 

• The proposed calculation of the 

hospital outpatient outlier payment. 

• The calculation of the proposed 

national unadjusted Medicare OPPS 

payment. 

• The proposed beneficiary 

copayments for OPPS services. 

2. Proposed OPPS Ambulatory Payment 

Classification (APC) Group Policies 

In section III. of this proposed rule, 

we discuss— 

• The proposed additions of new 

HCPCS codes to APCs. 

• The proposed establishment of a 

number of new APCs. 

• Our analyses of Medicare claims 

data and certain recommendations of 

the APC Panel. 

• The application of the 2 times rule 

and proposed exceptions to it. 

• The proposed changes to specific 

APCs. 

• The proposed movement of 

procedures from New Technology APCs 

to clinical APCs. 

3. Proposed OPPS Payment for Devices 

In section IV. of this proposed rule, 

we discuss the proposed pass-through 

payment for specific categories of 

devices and the proposed adjustment for 

devices furnished at no cost or with 

partial or full credit. 

4. Proposed OPPS Payment Changes for 

Drugs, Biologicals, and 

Radiopharmaceuticals 

In section V. of this proposed rule, we 

discuss the proposed CY 2011 OPPS 

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payment for drugs, biologicals, and 

radiopharmaceuticals, including the 

proposed payment for drugs, 

biologicals, and radiopharmaceuticals 

with and without pass-through status. 

5. Proposed Estimate of OPPS 

Transitional Pass-Through Spending for 

Drugs, Biologicals, 

Radiopharmaceuticals, and Devices 

In section VI. of this proposed rule, 

we discuss the estimate of CY 2011 

OPPS transitional pass-through 

spending for drugs, biologicals, and 

devices. 

6. Proposed OPPS Payment for 

Brachytherapy Sources 

In section VII. of this proposed rule, 

we discuss our proposal for payment for 

brachytherapy sources. 

7. Proposed OPPS Payment for Drug 

Administration Services 

In section VIII. of this proposed rule, 

we set forth our proposed policy 

concerning coding and payment for 

drug administration services. 

8. Proposed OPPS Payment for Hospital 

Outpatient Visits 

In section IX. of this proposed rule, 

we set forth our proposed policies for 

the payment of clinic and emergency 

department visits and critical care 

services based on claims data. 

9. Proposed Payment for Partial 

Hospitalization Services 

In section X. of this proposed rule, we 

set forth our proposed payment for 

partial hospitalization services, 

including the proposed separate 

threshold for outlier payments for 

CMHCs. We also set for our proposals to 

implement the new requirements for 

CMHCs established by section 1301 of 

the Affordable Care Act. 

10. Proposed Procedures That Would Be 

Paid Only as Inpatient Procedures 

In section XI. of this proposed rule, 

we discuss the procedures that we are 

proposing to remove from the inpatient 

list and assign to APCs for payment 

under the OPPS. 

11. Proposed OPPS Nonrecurring 

Technical and Policy Changes and 

Clarifications 

In section XII. of this proposed rule, 

we discuss nonrecurring technical 

issues and proposed policy changes 

relating to physician supervision of OPD 

services in hospitals, including CAHs. 

We also are proposing to implement the 

provisions of sections 4103 and 4104 of 

the Affordable Care Act relating to 

payment for preventive services, 

including personalized prevention plan 

services, and the waiver of beneficiary 

coinsurance and deductibles. 

12. Proposed OPPS Payment Status and 

Comment Indicators 

In section XIII. of this proposed rule, 

we discuss our proposed changes to the 

definitions of status indicators assigned 

to APCs and present our proposed 

comment indicators for the final rule 

with comment period. 

13. OPPS Policy and Payment 

Recommendations 

In section XIV. of this proposed rule, 

we address recommendations made by 

the Medicare Payment Advisory 

Commission (MedPAC) in its March 

2010 report to Congress, by the Office of 

Inspector General (OIG), and by the APC 

Panel regarding the OPPS for CY 2011. 

14. Proposed Updates to the Ambulatory 

Surgical Center (ASC) Payment System 

In section XV. of this proposed rule, 

we discuss the proposed updates of the 

revised ASC payment system and 

payment rates for CY 2011. 

15. Reporting Quality Data for Annual 

Payment Rate Updates 

In section XVI. of this proposed rule, 

we discuss the proposed quality 

measures for reporting hospital 

outpatient (HOP) quality data for the 

annual payment update factor for CY 

2012 and subsequent calendar years; set 

forth the requirements for data 

collection and submission for the 

annual payment update; and discuss the 

reduction in the OPPS payment for 

hospitals that fail to meet the HOP 

Quality Data Reporting Program (QDRP) 

requirements for CY 2011. 

16. Bundling of Payments for Inpatient 

and Outpatient Services and Payments 

to Hospitals for Direct GME and IME 

Costs 

In section XVII. of this proposed rule, 

we discuss our proposed 

implementation of the provisions of 

section 5503, 5504, 5505, and 5506 of 

the Affordable Care Act relating to 

redistribution of FTE resident slots of 

closed hospitals and policy changes for 

the counting of FTE residents in 

determining payments to hospitals for 

direct GME and IME costs. 

17. Physician Self-Referrals to Hospitals 

In section XVIII. of this preamble, we 

discuss our proposal to implement the 

changes made by section 6001 of the 

Affordable Care Act relating to the rules 

governing the prohibition on referrals to 

a hospital by a physician who has an 

ownership or investment interest in the 

hospital. 

18. Regulatory Impact Analysis 

In section XXII. of this proposed rule, 

we set forth an analysis of the impact 

that the proposed changes would have 

on affected entities and beneficiaries. 

II. Proposed Updates Affecting OPPS 

Payments 

A. Proposed Recalibration of APC 

Relative Weights 

1. Database Construction 

a. Database Source and Methodology 

Section 1833(t)(9)(A) of the Act 

requires that the Secretary review and 

revise the relative payment weights for 

APCs at least annually. In the April 7, 

2000 OPPS final rule with comment 

period (65 FR 18482), we explained in 

detail how we calculated the relative 

payment weights that were 

implemented on August 1, 2000 for each 

APC group. 

For CY 2011, we are proposing to use 

the same basic methodology that we 

described in the November 20, 2009 

OPPS final rule with comment period to 

recalibrate the APC relative payment 

weights for services furnished on or 

after January 1, 2011, and before January 

1, 2012 (CY 2011). That is, we are 

proposing to recalibrate the relative 

payment weights for each APC based on 

claims and cost report data for hospital 

outpatient department (HOPD) services. 

We are proposing to use the most recent 

available data to construct the database 

for calculating APC group weights. 

Therefore, for the purpose of 

recalibrating the proposed APC relative 

payment weights for CY 2011, we used 

approximately 133 million final action 

claims for hospital outpatient 

department services furnished on or 

after January 1, 2009, and before January 

1, 2010. (For exact counts of claims 

used, we refer readers to the claims 

accounting narrative under supporting 

documentation for this proposed rule on 

the CMS Web site at: http:// 

www.cms.gov/HospitalOutpatientPPS/ 

HORD/.) 

Of the 133 million final action claims 

for services provided in hospital 

outpatient settings used to calculate the 

CY 2011 OPPS payment rates for this 

proposed rule, approximately 102 

million claims were the type of bill 

potentially appropriate for use in setting 

rates for OPPS services (but did not 

necessarily contain services payable 

under the OPPS). Of the 102 million 

claims, approximately 4 million claims 

were not for services paid under the 

OPPS or were excluded as not 

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appropriate for use (for example, 

erroneous cost-to-charge ratios (CCRs) or 

no HCPCS codes reported on the claim). 

From the remaining 98 million claims, 

we created approximately 95 million 

single records, of which approximately 

64 million were ‘‘pseudo’’ single or 

‘‘single session’’ claims (created from 24 

million multiple procedure claims using 

the process we discuss later in this 

section). Approximately 696,000 claims 

were trimmed out on cost or units in 

excess of +/¥ 3 standard deviations 

from the geometric mean, yielding 

approximately 95 million single bills for 

median setting. As described in section 

II.A.2. of this proposed rule, our data 

development process is designed with 

the goal of using appropriate cost 

information in setting the APC relative 

weights. The bypass process is 

described in section II.A.1.b. of this 

proposed rule. This section discusses 

how we develop ‘‘pseudo’’ single 

procedure claims, with the intention of 

using more appropriate data from the 

available claims. In some cases, the 

bypass process allows us to use some 

portion of the submitted claim for cost 

estimation purposes, while the 

remaining information on the claim 

continues to be unusable. Consistent 

with the goal of using appropriate 

information in our data development 

process, we only use claims (or portions 

of each claim) that are appropriate for 

ratesetting purposes. Ultimately, we 

were able to use for CY 2011 ratesetting 

some portion of 95 percent of the CY 

2009 claims containing services payable 

under the OPPS. 

The proposed APC relative weights 

and payments for CY 2011 in Addenda 

A and B to this proposed rule were 

calculated using claims from CY 2009 

that were processed before January 1, 

2010, and continue to be based on the 

median hospital costs for services in the 

APC groups. We selected claims for 

services paid under the OPPS and 

matched these claims to the most recent 

cost report filed by the individual 

hospitals represented in our claims data. 

We continue to believe that it is 

appropriate to use the most current full 

calendar year claims data and the most 

recently submitted cost reports to 

calculate the median costs 

underpinning the APC relative payment 

weights and the CY 2011 payment rates. 

b. Proposed Use of Single and Multiple 

Procedure Claims 

For CY 2011, in general, we are 

proposing to continue to use single 

procedure claims to set the medians on 

which the APC relative payment 

weights would be based, with some 

exceptions as discussed below in this 

section. We generally use single 

procedure claims to set the median costs 

for APCs because we believe that the 

OPPS relative weights on which 

payment rates are based should be 

derived from the costs of furnishing one 

unit of one procedure and because, in 

many circumstances, we are unable to 

ensure that packaged costs can be 

appropriately allocated across multiple 

procedures performed on the same date 

of service. 

We agree that, optimally, it is 

desirable to use the data from as many 

claims as possible to recalibrate the APC 

relative payment weights, including 

those claims for multiple procedures. As 

we have for several years, we continued 

to use date of service stratification and 

a list of codes to be bypassed to convert 

multiple procedure claims to ‘‘pseudo’’ 

single procedure claims. Through 

bypassing specified codes that we 

believe do not have significant packaged 

costs, we are able to use more data from 

multiple procedure claims. In many 

cases, this enables us to create multiple 

‘‘pseudo’’ single procedure claims from 

claims that were submitted as multiple 

procedure claims spanning multiple 

dates of service, or claims that 

contained numerous separately paid 

procedures reported on the same date 

on one claim. We refer to these newly 

created single procedure claims as 

‘‘pseudo’’ single procedure claims. The 

history of our use of a bypass list to 

generate ‘‘pseudo’’ single procedure 

claims is well documented, most 

recently in the CY 2010 OPPS/ASC final 

rule with comment period (74 FR 60324 

through 60342). In addition, for CY 

2008, we increased packaging and 

created the first composite APCs. We 

have continued our packaging policies 

and the creation of composite APCs for 

CY 2009 and 2010, and we are 

proposing to continue them for CY 

2011. This also increased the number of 

bills that we were able to use for median 

calculation by enabling us to use claims 

that contained multiple major 

procedures that previously would not 

have been usable. Further, for CY 2009, 

we expanded the composite APC model 

to one additional clinical area, multiple 

imaging services (73 FR 68559 through 

68569), which also increased the 

number of bills we were able to use to 

calculate APC median costs. We have 

continued the composite APCs for 

multiple imaging services for CY 2010, 

and we are proposing to continue to 

create them for CY 2011. We refer 

readers to section II.A.2.e. of this 

proposed rule for discussion of the use 

of claims to establish median costs for 

composite APCs. 

We are proposing to continue to apply 

these processes to enable us to use as 

much claims data as possible for 

ratesetting for the CY 2011 OPPS. This 

methodology enabled us to create, for 

this proposed rule, approximately 64 

million ‘‘pseudo’’ single procedure 

claims, including multiple imaging 

composite ‘‘single session’’ bills (we 

refer readers to section II.A.2.e.(5) of 

this proposed rule for further 

discussion), to add to the approximately 

31 million ‘‘natural’’ single procedure 

claims. For this proposed rule, ‘‘pseudo’’ 

single procedure and ‘‘single session’’ 

procedure bills represent approximately 

67 percent of all single procedure bills 

used to calculate median costs. 

For CY 2011, we are proposing to 

bypass 448 HCPCS codes for CY 2011 

that are identified in Table 1 of this 

proposed rule. Since the inception of 

the bypass list, we have calculated the 

percent of ‘‘natural’’ single bills that 

contained packaging for each HCPCS 

code and the amount of packaging on 

each ‘‘natural’’ single bill for each code. 

Each year, we generally retain the codes 

on the previous year’s bypass list and 

use the update year’s data (for CY 2011, 

data available for the February 2010 

APC Panel meeting from CY 2009 

claims processed through September 30, 

2009, and CY 2008 claims data 

processed through June 30, 2009, used 

to model the payment rates for CY 2010) 

to determine whether it would be 

appropriate to propose to add additional 

codes to the previous year’s bypass list. 

For CY 2011, we are proposing to 

continue to bypass all of the HCPCS 

codes on the CY 2010 OPPS bypass list. 

We updated HCPCS codes on the CY 

2010 bypass list that were mapped to 

new HCPCS codes for CY 2011 

ratesetting by adding the new 

replacement codes and also removing 

the deleted codes, which are listed in 

Table 2. None of these deleted codes 

were ‘‘overlap bypass codes’’ (those 

HCPCS codes that are both on the 

bypass list and are members of the 

multiple imaging composite APCs). We 

also are proposing to add to the bypass 

list for CY 2011 all HCPCS codes not on 

the CY 2010 bypass list that, using both 

CY 2010 final rule data (CY 2008 

claims) and February 2010 APC Panel 

data (first 9 months of CY 2009 claims), 

met the same previously established 

empirical criteria for the bypass list that 

are summarized below. The entire list 

proposed for CY 2011 (including the 

codes that remain on the bypass list 

from prior years) is open to public 

comment. Because we must make some 

assumptions about packaging in the 

multiple procedure claims in order to 

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assess a HCPCS code for addition to the 

bypass list, we assume that the 

representation of packaging on ‘‘natural’’ 

single procedure claims for any given 

code is comparable to packaging for that 

code in the multiple procedure claims. 

The proposed criteria for the bypass list 

are: 

• There are 100 or more ‘‘natural’’ 

single procedure claims for the code. 

This number of single procedure claims 

ensures that observed outcomes are 

sufficiently representative of packaging 

that might occur in the multiple claims. 

• Five percent or fewer of the 

‘‘natural’’ single procedure claims for the 

code have packaged costs on that single 

procedure claim for the code. This 

criterion results in limiting the amount 

of packaging being redistributed to the 

separately payable procedures 

remaining on the claim after the bypass 

code is removed and ensures that the 

costs associated with the bypass code 

represent the cost of the bypassed 

service. 

• The median cost of packaging 

observed in the ‘‘natural’’ single 

procedure claims is equal to or less than 

$50. This criterion also limits the 

amount of error in redistributed costs. 

Throughout the bypass process, we do 

not know the dollar value of the 

packaged cost that should be 

appropriately attributed to the other 

procedures on the claim. Ensuring that 

redistributed costs associated with a 

bypass code are small in amount and 

volume protects the validity of cost 

estimates for low cost services billed 

with the bypassed service. 

In response to comments to the CY 

2010 OPPS/ASC proposed rule 

requesting that the packaged cost 

threshold be updated, we noted that we 

would consider whether it would be 

appropriate to update the $50 packaged 

cost threshold for inflation when 

examining potential bypass list 

additions (74 FR 60328). For the CY 

2011 OPPS, based on CY 2009 claims 

data, we are proposing to apply the final 

market basket of 3.6 percent published 

in the CY 2009 OPPS/ASC final rule 

with comment period (73 FR 26584) to 

the $50 packaged cost threshold used in 

the CY 2010 OPPS/ASC final rule with 

comment period (74 FR 60325) that we 

initially established in the CY 2005 

OPPS final rule based on our analysis of 

the data (69 FR 65731), rounded to the 

nearest $5 increment. This calculation 

would lead us to a proposed packaged 

cost threshold for bypass list additions 

of $50 ($51.80 rounded to $50). We 

believe that applying the market basket 

from the year of claims data to the 

packaged cost threshold, rounded to the 

nearest $5 increment, would 

appropriately account for the effects of 

inflation when considering additions to 

the bypass list because the market 

basket increase percentage reflects the 

extent to which the cost of inputs for 

hospital services has increased 

compared to the cost of inputs for 

hospital services in the prior year. As 

discussed in the CY 2010 OPPS/ASC 

final rule with comment period (74 FR 

60328), the real value of this packaged 

cost threshold criterion has declined 

due to inflation, making the packaged 

cost threshold more restrictive over time 

when considering additions to the 

bypass list. Therefore, adjusting the 

threshold by the market basket would 

prevent continuing decline in the 

threshold’s real value. The dollar 

threshold would not change for CY 2011 

under this proposed policy, because 

when rounded to the nearest $5 

increment after adjustment for the 

market basket increase, the threshold 

would for CY 2011 remain at $50. 

Therefore, we are not proposing to add 

any additional bypass codes for CY 2011 

as a result of this proposed policy. 

• The code is not a code for an 

unlisted service. 

In addition, we are proposing to 

continue to include, on the bypass list, 

HCPCS codes that CMS medical 

advisors believe have minimal 

associated packaging based on their 

clinical assessment of the complete CY 

2011 OPPS proposal. Some of these 

codes were identified by CMS medical 

advisors and some were identified in 

prior years by commenters with 

specialized knowledge of the packaging 

associated with specific services. We 

also are proposing to continue to 

include on the bypass list certain 

HCPCS codes in order to purposefully 

direct the assignment of packaged costs 

to a companion code where services 

always appear together and where there 

would otherwise be few single 

procedure claims available for 

ratesetting. For example, we have 

previously discussed our reasoning for 

adding HCPCS code G0390 (Trauma 

response team associated with hospital 

critical care service) and the CPT codes 

for additional hours of drug 

administration to the bypass list (73 FR 

68513 and 71 FR 68117 through 68118). 

As a result of the multiple imaging 

composite APCs that we established in 

CY 2009, the program logic for creating 

‘‘pseudo’’ single procedure claims from 

bypassed codes that are also members of 

multiple imaging composite APCs 

changed. When creating the set of 

‘‘pseudo’’ single procedure claims, 

claims that contain ‘‘overlap bypass 

codes’’ (those HCPCS codes that are both 

on the bypass list and are members of 

the multiple imaging composite APCs), 

were identified first. These HCPCS 

codes were then processed to create 

multiple imaging composite ‘‘single 

session’’ bills, that is, claims containing 

HCPCS codes from only one imaging 

family, thus suppressing the initial use 

of these codes as bypass codes. 

However, these ‘‘overlap bypass codes’’ 

were retained on the bypass list 

because, at the end of the ‘‘pseudo’’ 

single processing logic, we reassessed 

the claims without suppression of the 

‘‘overlap bypass codes’’ under our 

longstanding ‘‘pseudo’’ single process to 

determine whether we could convert 

additional claims to ‘‘pseudo’’ single 

procedure claims. (We refer readers to 

section II.A.2.b. of this proposed rule for 

further discussion of the treatment of 

‘‘overlap bypass codes.’’) This process 

also created multiple imaging composite 

‘‘single session’’ bills that could be used 

for calculating composite APC median 

costs. ‘‘Overlap bypass codes’’ that are 

members of the proposed multiple 

imaging composite APCs are identified 

by asterisks (*) in Table 1 below. 

Table 1 below includes the proposed 

list of bypass codes for CY 2011. The list 

of bypass codes contains codes that 

were reported on claims for services in 

CY 2009 and, therefore, includes codes 

that were in effect in 2009 and used for 

billing but were deleted for CY 2010. 

We retain these deleted bypass codes on 

the proposed CY 2011 bypass list 

because these codes existed in CY 2009 

and were covered OPD services in that 

period. Since these bypass codes were 

deleted for billing in CY 2010, we will 

not need to retain them for the CY 2010 

bypass list. Keeping these deleted 

bypass codes on the bypass list 

potentially allows us to create more 

‘‘pseudo’’ single procedure claims for 

ratesetting purposes. ‘‘Overlap bypass 

codes’’ that are members of the proposed 

multiple imaging composite APCs are 

identified by asterisks (*) in the third 

column of Table 1 below. HCPCS codes 

that we are proposing to add for CY 

2011 also are identified by asterisks (*) 

in the fourth column of Table 1. Table 

2 contains the list of codes that we are 

proposing to remove from the CY 2011 

bypass list because they were deleted 

from the HCPCS before CY 2009. None 

of these proposed deleted codes were 

‘‘overlap bypass’’ codes. 

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BILLING CODE 4120–01–C 

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

For CY 2011, we are proposing to 

continue to use the hospital-specific 

overall ancillary and departmental CCRs 

to convert charges to estimated costs 

through application of a revenue codeto-cost center crosswalk. To calculate 

the APC median costs on which the 

proposed CY 2011 APC payment rates 

are based, we calculated hospitalspecific overall ancillary CCRs and 

hospital-specific departmental CCRs for 

each hospital for which we had CY 2009 

claims data from the most recent 

available hospital cost reports, in most 

cases, cost reports beginning in CY 

2008. For the CY 2011 OPPS proposed 

rates, we used the set of claims 

processed during CY 2009. We applied 

the hospital-specific CCR to the 

hospital’s charges at the most detailed 

level possible, based on a revenue codeto-cost center crosswalk that contains a 

hierarchy of CCRs used to estimate costs 

from charges for each revenue code. 

That crosswalk is available for review 

and continuous comment on the CMS 

Web site at: http://www.cms.gov/ 

HospitalOutpatientPPS/ 

03_crosswalk.asp#TopOfPage. 

To ensure the completeness of the 

revenue code-to-cost center crosswalk, 

we reviewed changes to the list of 

revenue codes for CY 2009 (the year of 

the claims data we are using to calculate 

the CY 2011 OPPS proposed payment 

rates). For CY 2009, there were several 

changes to these revenue codes. The 

National Uniform Billing Committee 

(NUBC) is the organization that is 

responsible for the data specifications 

for the Uniform Bill (currently the UB– 

04). For CY 2009, the NUBC changed 

the title of revenue code series 076X 

from ‘‘Specialty Room—Treatment/ 

Observation Room’’ to ‘‘Specialty 

Services’’ and changed the title of 

subclassification revenue code 0762 

from ‘‘Observation Room’’ to 

‘‘Observation Hours’’. We are not 

proposing to change the revenue codeto-cost center crosswalk as a result of 

this change because we believe that 

hospitals have historically reported 

charges for observation based on hours 

of care and that this change reflects 

existing practices. In addition, for CY 

2009, NUBC removed a note that 

indicated that subcategory revenue 

codes 0912, Behavioral Health 

Treatment/Services (also see 091X, an 

extension of 090X), and 0913, 

Behavioral Health Treatment/Services— 

Extension of 090X, were designed as 

zero-billed revenue codes (that is, no 

dollar in the amount field). This change 

has no impact on the revenue code-tocost center crosswalk. We note that the 

addition of revenue codes with effective 

dates in CY 2010 is not relevant to this 

process because the revenue codes were 

not applicable to claims for services 

furnished during CY 2009. 

We calculated CCRs for the standard 

and nonstandard cost centers accepted 

by the electronic cost report database. In 

general, the most detailed level at which 

we calculated CCRs was the hospitalspecific departmental level. For a 

discussion of the hospital-specific 

overall ancillary CCR calculation, we 


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refer readers to the CY 2007 OPPS/ASC 

final rule with comment period (71 FR 

67983 through 67985). One 

longstanding exception to this general 

methodology for calculation of CCRs 

used for converting charges to costs on 

each claim is the calculation of median 

blood costs, as discussed in section 

II.A.2.d.(2) of this proposed rule and 

which has been our standard policy 

since the CY 2005 OPPS. 

For the CCR calculation process, we 

used the same general approach that we 

used in developing the final APC rates 

for CY 2007 and thereafter, using the 

revised CCR calculation that excluded 

the costs of paramedical education 

programs and weighted the outpatient 

charges by the volume of outpatient 

services furnished by the hospital. We 

refer readers to the CY 2007 OPPS/ASC 

final rule with comment period for more 

information (71 FR 67983 through 

67985). We first limited the population 

of cost reports to only those for 

hospitals that filed outpatient claims in 

CY 2009 before determining whether the 

CCRs for such hospitals were valid. 

We then calculated the CCRs for each 

cost center and the overall ancillary 

CCR for each hospital for which we had 

claims data. We did this using hospitalspecific data from the Hospital Cost 

Report Information System (HCRIS). We 

used the most recent available cost 

report data, in most cases, cost reports 

with cost reporting periods beginning in 

CY 2007. For this proposed rule, we 

used the most recently submitted cost 

reports to calculate the CCRs to be used 

to calculate median costs for the 

proposed CY 2011 OPPS payment rates. 

If the most recent available cost report 

was submitted but not settled, we 

looked at the last settled cost report to 

determine the ratio of submitted to 

settled cost using the overall ancillary 

CCR, and we then adjusted the most 

recent available submitted but not 

settled cost report using that ratio. We 

then calculated both an overall ancillary 

CCR and cost center-specific CCRs for 

each hospital. We used the overall 

ancillary CCR referenced in section 

II.A.1.c. of this proposed rule for all 

purposes that require use of an overall 

ancillary CCR. 

Since the implementation of the 

OPPS, some commenters have raised 

concerns about potential bias in the 

OPPS cost-based weights due to ‘‘charge 

compression,’’ which is the practice of 

applying a lower charge markup to 

higher-cost services and a higher charge 

markup to lower-cost services. As a 

result, the cost-based weights may 

reflect some aggregation bias, 

undervaluing high-cost items and 

overvaluing low-cost items when an 

estimate of average markup, embodied 

in a single CCR, is applied to items of 

widely varying costs in the same cost 

center. 

To explore this issue, in August 2006 

we awarded a contract to RTI 

International (RTI) to study the effects of 

charge compression in calculating the 

IPPS cost-based relative weights, 

particularly with regard to the impact 

on inpatient diagnosis-related group 

(DRG) payments, and to consider 

methods to better capture the variation 

in cost and charges for individual 

services when calculating costs for the 

IPPS relative weights across services in 

the same cost center. RTI issued a report 

in March 2007 with its findings on 

charge compression, which is available 

on the CMS Web site at: http:// 

www.cms.gov/reports/downloads/ 

Dalton.pdf. Although this report was 

focused largely on charge compression 

in the context of the IPPS cost-based 

relative weights, because several of the 

findings were relevant to the OPPS, we 

discussed that report in the CY 2008 

OPPS/ASC proposed rule (72 FR 42641 

through 42643) and reiterated them in 

the CY 2008 OPPS/ASC final rule with 

comment period (72 FR 66599 through 

66602). 

In August 2007, we contracted with 

RTI to evaluate the cost estimation 

process for the OPPS relative weights 

because its 2007 report had 

concentrated on IPPS DRG cost-based 

relative weights. The results of RTI’s 

analyses had implications for both the 

OPPS APC cost-based relative weights 

and the IPPS MS–DRG (Medicare 

severity) cost-based relative weights. 

The RTI final report can be found on 

RTI’s Web site at: http://www.rti.org/

reports/cms/HHSM-500-2005-0029I/

PDF/Refining_Cost_to_Charge_Ratios_

200807_Final.pdf. For a complete 

discussion of the RTI recommendations, 

public comments, and our responses, 

we refer readers to the CY 2009 OPPS/ 

ASC final rule with comment period (73 

FR 68519 through 68527). 

We addressed the RTI finding that 

there was aggregation bias in both the 

IPPS and the OPPS cost estimation of 

expensive and inexpensive medical 

supplies in the FY 2009 IPPS final rule. 

Specifically, we finalized our proposal 

for both the OPPS and IPPS to create 

one cost center for ‘‘Medical Supplies 

Charged to Patients’’ and one cost center 

for ‘‘Implantable Devices Charged to 

Patients,’’ essentially splitting the then 

current CCR for ‘‘Medical Supplies and 

Equipment’’ into one CCR for low-cost 

medical supplies and another CCR for 

high-cost implantable devices in order 

to mitigate some of the effects of charge 

compression. Accordingly, in 

Transmittal 20 of the Provider 

Reimbursement Manual, Part II (PRM– 

II), Chapter 36, Form CMS–2552–96, 

which was issued in July 2009, we 

created a new subscripted Line 55.01 on 

Worksheet A for the ‘‘Implantable 

Devices Charged to Patients’’ cost center. 

This new subscripted cost center, 

placed under the standard line for 

‘‘Medical Supplies Charged to Patients,’’ 

is available for use for cost reporting 

periods beginning on or after May 1, 

2009. A subscripted cost center is the 

addition of a separate new cost center 

line and description which bears a 

logical relationship to the standard cost 

center line and is located immediately 

following a standard cost center line. 

Subscripting a cost center line adds 

flexibility and cost center expansion 

capability to the cost report. For 

example, Line 55 of Worksheet A on 

Form CMS 2552–96 (the Medicare 

hospital cost report) is ‘‘Medical 

Supplies Charged to Patients.’’ The 

additional cost center, which isolates 

the costs of ‘‘Implantable Medical 

Supplies Charged to Patients’’, was 

created by adding subscripted Line 

55.01 to Worksheet A. 

Because there is approximately a 3- 

year lag in the availability of cost report 

data for IPPS and OPPS ratesetting 

purposes in a given calendar year, we 

believe we will be able to use data from 

the revised cost report form to estimate 

costs from charges for implantable 

devices for the CY 2013 OPPS relative 

weights. For a complete discussion of 

the rationale for the creation of the new 

cost center for ‘‘Implantable Devices 

Charged to Patients,’’ public comments, 

and our responses, we refer readers to 

the FY 2009 IPPS final rule (73 FR 

48458 through 45467). 

In the CY 2009 OPPS/ASC final rule 

with comment period, we indicated that 

we would be making some OPPSspecific changes in response to the RTI 

report recommendations. Specifically, 

these changes included modifications to 

the cost reporting software and the 

addition of three new nonstandard cost 

centers. With regard to modifying the 

cost reporting preparation software in 

order to offer additional descriptions for 

nonstandard cost centers to improve the 

accuracy of reporting for nonstandard 

cost centers, we indicated that the 

change would be made for the next 

release of the cost report software. These 

changes have been made to the cost 

reporting software with the 

implementation of CMS Transmittal 21, 

under Chapter 36 of the Provider 

Reimbursement Manual—Part II, 

available online at http:// 

www.cms.hhs.gov/Manuals/PBM/, 

which is effective for cost reporting 

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periods ending on or after October 1, 

2009. 

We also indicated that we intended to 

add new nonstandard cost centers for 

Cardiac Rehabilitation, Hyperbaric 

Oxygen Therapy, and Lithotripsy. We 

note that in January 2010, CMS issued 

Transmittal 21 which updated the 

PRM–II, Chapter 36, Form CMS–2552– 

96. One of the updates in this 

transmittal established nonstandard cost 

centers for Cardiac Rehabilitation, 

Hyperbaric Oxygen Therapy, and 

Lithotripsy for use on Worksheet A. 

These three new nonstandard cost 

centers are now available for cost 

reporting periods ending on or after 

October 1, 2009. 

Furthermore, we noted in the FY 2010 

IPPS/LTCH PPS final rule (74 FR 43781 

through 43782) that we were updating 

the cost report form to eliminate 

outdated requirements, in conjunction 

with the Paperwork Reduction Act 

(PRA), and that we had proposed actual 

changes to the cost reporting form, the 

attending cost reporting software, and 

the cost report instructions in Chapters 

36 and 40 of the PRM–II. The new draft 

hospital cost report Form CMS–2552–10 

was published in the Federal Register 

on July 2, 2009, and was subject to a 60- 

day review and comment period, which 

ended on August 31, 2009. We received 

numerous comments on the draft 

hospital cost report Form CMS–2552– 

10, specifically regarding the creation of 

new cost centers from which data might 

be used in the OPPS cost-based relative 

weights calculation. We had proposed 

to create new standard cost centers for 

Computed Tomography (CT), Magnetic 

Resonance Imaging (MRI), and Cardiac 

Catheterization in Form CMS–2552–10. 

If these standard cost centers are 

finalized, when the data become 

available, we would analyze the cost 

and charge data to determine if it is 

appropriate to use those data to create 

distinct CCRs from these cost centers in 

setting the relative weights. For a 

discussion of these cost centers, we refer 

readers to the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 23878 through 

23880). Comments will be addressed in 

detail in the Federal Register notice that 

will finalize Form CMS–2552–10. The 

revised draft of hospital cost report 

Form CMS–2552–10 went on public 

display on April 23, 2010, and appeared 

in the Federal Register on April 30, 

2010 (75 FR 22810) with a 30-day public 

comment period. The public comment 

period ended on June 1, 2010. 

We believe that improved cost report 

software, the incorporation of new 

standard and nonstandard cost centers, 

and the elimination of outdated 

requirements will improve the accuracy 

of the cost data contained in the 

electronic cost report data files and, 

therefore, the accuracy of our cost 

estimation processes for the OPPS 

relative weights. We will continue our 

standard practice of examining ways in 

which we can improve the accuracy of 

our cost estimation processes. 

2. Proposed Data Development Process 

and Calculation of Median Costs 

In this section of this proposed rule, 

we discuss the use of claims to calculate 

proposed OPPS payment rates for CY 

2011. The hospital OPPS page on the 

CMS Web site on which this proposed 

rule is posted provides an accounting of 

claims used in the development of the 

proposed payment rates at: http:// 

www.cms.gov/HospitalOutpatientPPS. 

The accounting of claims used in the 

development of this proposed rule is 

included on the CMS Web site under 

supplemental materials for the CY 2011 

OPPS/ASC proposed rule. That 

accounting provides additional detail 

regarding the number of claims derived 

at each stage of the process. In addition, 

below in this section, we discuss the file 

of claims that comprises the data set 

that is available for purchase under a 

CMS data use agreement. Our CMS Web 

site, http://www.cms.gov/

HospitalOutpatientPPS, includes 

information about purchasing the ‘‘OPPS 

Limited Data Set,’’ which now includes 

the additional variables previously 

available only in the OPPS Identifiable 

Data Set, including ICD–9–CM diagnosis 

codes and revenue code payment 

amounts. This file is derived from the 

CY 2009 claims that were used to 

calculate the proposed payment rates for 

the CY 2011 OPPS. 

We used the methodology described 

in sections II.A.2.a. through II.A.2.e. of 

this proposed rule to calculate the 

median costs we use to establish the 

relative weights used in calculating the 

proposed OPPS payment rates for CY 

2011 shown in Addenda A and B to this 

proposed rule. We refer readers to 

section II.A.4. of this proposed rule for 

a discussion of the conversion of APC 

median costs to scaled payment 

weights. 

a. Claims Preparation 

We used the CY 2009 hospital 

outpatient claims processed before 

January 1, 2010 to calculate the median 

costs of APCs that underpin the 

proposed relative weights for CY 2011. 

To begin the calculation of the relative 

weights for CY 2011, we pulled all 

claims for outpatient services furnished 

in CY 2009 from the national claims 

history file. This is not the population 

of claims paid under the OPPS, but all 

outpatient claims (including, for 

example, critical access hospital (CAH) 

claims and hospital claims for clinical 

laboratory services for persons who are 

neither inpatients nor outpatients of the 

hospital). 

We then excluded claims with 

condition codes 04, 20, 21, and 77. 

These are claims that providers 

submitted to Medicare knowing that no 

payment would be made. For example, 

providers submit claims with a 

condition code 21 to elicit an official 

denial notice from Medicare and 

document that a service is not covered. 

We then excluded claims for services 

furnished in Maryland, Guam, the U.S. 

Virgin Islands, American Samoa, and 

the Northern Mariana Islands because 

hospitals in those geographic areas are 

not paid under the OPPS. 

We divided the remaining claims into 

the three groups shown below. Groups 

2 and 3 comprise the 102 million claims 

that contain hospital bill types paid 

under the OPPS. 

1. Claims that were not bill types 12X, 

13X (hospital bill types), 14X 

(laboratory specimen bill types), or 76X 

(CMHC bill types). Other bill types are 

not paid under the OPPS and, therefore, 

these claims were not used to set OPPS 

payment. 

2. Claims that were bill types 12X, 

13X or 14X. Claims with bill types 12X 

and 13X are hospital outpatient claims. 

Claims with bill type 14X are laboratory 

specimen claims, of which we use a 

subset for the limited number of 

services in these claims that are paid 

under the OPPS. 

3. Claims that were bill type 76X 

(CMHC). 

To convert charges on the claims to 

estimated cost, we multiplied the 

charges on each claim by the 

appropriate hospital specific CCR 

associated with the revenue code for the 

charge as discussed in section II.A.1.c. 

of this proposed rule. We then flagged 

and excluded CAH claims (which are 

not paid under the OPPS) and claims 

from hospitals with invalid CCRs. The 

latter included claims from hospitals 

without a CCR; those from hospitals 

paid an all-inclusive rate; those from 

hospitals with obviously erroneous 

CCRs (greater than 90 or less than 

.0001); and those from hospitals with 

overall ancillary CCRs that were 

identified as outliers (3 standard 

deviations from the geometric mean 

after removing error CCRs). In addition, 

we trimmed the CCRs at the cost center 

(that is, departmental) level by removing 

the CCRs for each cost center as outliers 

if they exceeded +/¥ 3 standard 

deviations from the geometric mean. We 

used a four-tiered hierarchy of cost 

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center CCRs, which is the revenue codeto-cost center crosswalk, to match a cost 

center to every possible revenue code 

appearing in the outpatient claims that 

is relevant to OPPS services, with the 

top tier being the most common cost 

center and the last tier being the default 

CCR. If a hospital’s cost center CCR was 

deleted by trimming, we set the CCR for 

that cost center to ‘‘missing’’ so that 

another cost center CCR in the revenue 

center hierarchy could apply. If no other 

cost center CCR could apply to the 

revenue code on the claim, we used the 

hospital’s overall ancillary CCR for the 

revenue code in question as the default 

CCR. For example, if a visit was 

reported under the clinic revenue code 

but the hospital did not have a clinic 

cost center, we mapped the hospitalspecific overall ancillary CCR to the 

clinic revenue code. The revenue codeto-cost center crosswalk is available for 

inspection and comment on the CMS 

Web site: http://www.cms.gov/ 

HospitalOutpatientPPS. Revenue codes 

that we do not use to set medians or to 

model impacts are identified with an 

‘‘N’’ in the revenue code-to-cost center 

crosswalk. 

At the February 17–18, 2010 APC 

Panel Meeting, the Panel recommended 

that CMS present to the Data 

Subcommittee an analysis of the effect 

of using a different lower-level 

threshold in the overall CCR error trim 

as part of the standard methodology. 

The Panel members were concerned that 

our current CCR trimming policy 

(excluding providers with an overall 

ancillary CCR greater than 90 or less 

than .0001 or above and then excluding 

remaining providers with overall 

ancillary CCRs beyond +/¥ 3 standard 

deviations from the geometric mean) 

could result in the exclusion of claims 

from providers that could otherwise be 

used for ratesetting and modeling. We 

are accepting this recommendation. We 

will study the issue and provide the 

relevant data to the Data Subcommittee 

at an upcoming meeting. 

We applied CCRs as described above 

to claims with bill type 12X, 13X, or 

14X, excluding all claims from CAHs 

and hospitals in Maryland, Guam, the 

U.S. Virgin Islands, American Samoa, 

and the Northern Mariana Islands and 

claims from all hospitals for which 

CCRs were flagged as invalid. 

We identified claims with condition 

code 41 as partial hospitalization 

services of hospitals and moved them to 

another file. We note that the separate 

file containing partial hospitalization 

claims is included in the files that are 

available for purchase as discussed 

above. 

We then excluded claims without a 

HCPCS code. We moved to another file 

claims that contained nothing but 

influenza and pneumococcal 

pneumonia (PPV) vaccines. Influenza 

and PPV vaccines are paid at reasonable 

cost and, therefore, these claims are not 

used to set OPPS rates. 

We next copied line-item costs for 

drugs, blood, and brachytherapy sources 

(the lines stay on the claim, but are 

copied onto another file) to a separate 

file. No claims were deleted when we 

copied these lines onto another file. 

These line-items are used to calculate a 

per unit mean and median cost and a 

per day mean and median cost for drugs 

and nonimplantable biologicals, 

therapeutic radiopharmaceutical agents, 

and brachytherapy sources, as well as 

other information used to set payment 

rates, such as a unit-to-day ratio for 

drugs. 

To implement our proposed policy to 

redistribute some portion of total cost 

for packaged drugs and biologicals to 

the separately payable drugs and 

biologicals as acquisition and pharmacy 

overhead and handling costs discussed 

in section V.B.3. of this proposed rule, 

we used the line-item cost data for drugs 

and biologicals for which we had a 

HCPCS code with ASP pricing 

information to calculate the ASP+X 

values, first for all drugs and biologicals, 

and then for separately payable drugs 

and biologicals and for packaged drugs 

and biologicals, respectively, by taking 

the ratio of total claim cost for each 

group relative to total ASP dollars (per 

unit of each drug or biological HCPCS 

code’s April 2010 ASP amount 

multiplied by total units for each drug 

or biological in the CY 2009 claims 

data). These values are ASP+14 percent 

(for all drugs and biologicals with 

HCPCS codes, whether separately paid 

or packaged), ASP+0 percent (for drugs 

and biologicals that are separately paid), 

and ASP+283 percent (for drugs and 

biologicals that have HCPCS codes and 

that are packaged), respectively. As we 

discuss in section V.B.3. of this 

proposed rule, we are proposing a 

policy to redistribute $150 million of 

the total cost in our claims data for 

packaged drugs and biologicals that 

have an associated ASP from packaged 

drugs with an ASP to separately payable 

drugs and biologicals. We also are 

proposing a policy to redistribute an 

additional $50 million of the total cost 

in our claims data for drugs and 

biologicals lacking an ASP, largely for 

estimated costs associated with uncoded 

charges billed under pharmacy revenue 

code series 025X (Pharmacy (also see 

063X, an extension of 025X)), 026X (IV 

Therapy), and 063X (Pharmacy— 

Extension of 025X). We observe about 

$623 million for drugs lacking an ASP 

in our CY 2009 claims data. This total 

excludes the cost of diagnostic and 

therapeutic radiopharmaceuticals 

because they are not reported under 

pharmacy revenue codes or under the 

pharmacy cost center on the hospital 

cost report. 

Removing a total of $150 million in 

pharmacy overhead cost from packaged 

drugs and biologicals reduces the $593 

million to $443 million, approximately 

a 25 percent reduction. Removing $50 

million from the cost of drugs lacking an 

ASP reduces the $623 million to $573 

million, approximately an 8 percent 

reduction. To implement our proposed 

CY 2011 policy to redistribute $150 

million in claim cost from packaged 

drugs and biologicals with an ASP to 

separately payable drugs and biologicals 

and $50 million in claim cost from 

packaged drugs and biologicals lacking 

an ASP, including uncoded pharmacy 

revenue code charges, we multiplied the 

cost of each packaged drug or biological 

with a HCPCS code and ASP pricing 

information in our CY 2009 claims data 

by 0.75, and we multiplied all other 

packaged drug costs in our CY 2009 

claims data, excluding those for 

diagnostic radiopharmaceuticals, by 

0.92. We also added the redistributed 

$200 million to the total cost of 

separately payable drugs and biologicals 

in our CY 2009 claims data, which 

increased the relationship between the 

total cost for separately payable drugs 

and biologicals and ASP dollars for the 

same drugs and biologicals from ASP+0 

percent to ASP+6 percent. We refer 

readers to section V.B.3. of this 

proposed rule for a complete discussion 

of our proposal to pay for separately 

paid drugs and biologicals and 

pharmacy overhead for CY 2011. 

We then removed line-items that were 

not paid during claim processing, 

presumably for a line-item rejection or 

denial. We added this process to our 

median cost calculation methodology 

for the CY 2010 OPPS, as discussed in 

the CY 2010 OPPS/ASC final rule with 

comment period (74 FR 60359). The 

number of edits for valid OPPS payment 

in the Integrated Outpatient Code Editor 

(I/OCE) and elsewhere has grown 

significantly in the past few years, 

especially with the implementation of 

the full spectrum of National Correct 

Coding Initiative (NCCI) edits. To 

ensure that we are using valid claims 

that represent the cost of payable 

services to set payment rates, we 

removed line-items with an OPPS status 

indicator for the claim year and a status 

indicator of ‘‘S,’’ ‘‘T,’’ ‘‘V,’’ or ‘‘X’’ when 

separately paid under the prospective 

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year’s payment system. This logic 

preserves charges for services that 

would not have been paid in the claim 

year but for which some estimate of cost 

is needed for the prospective year, such 

as services newly proposed to come off 

the inpatient list for CY 2010 that were 

assigned status indicator ‘‘C’’ in the 

claim year. 

For CY 2011, we are proposing to 

expand the application of this trim to 

exclude line-item data for pass-through 

drugs and biologicals (status indicator 

‘‘G’’ for CY 2009) and nonpass-through 

drugs and biologicals (status indicator 

‘‘K’’ for CY 2009) where the charges 

reported on the claim for the line were 

either denied or rejected during claims 

processing. Removing lines that were 

eligible for payment but were not paid 

ensures that we are using appropriate 

data. The trim avoids using cost data on 

lines that we believe were defective or 

invalid because those rejected or denied 

lines did not meet the Medicare 

requirements for payment. For example, 

edits may reject a line for a separately 

paid drug because the number of units 

billed exceeded the number of units that 

would be reasonable and, therefore, is 

likely a billing error (for example, a line 

reporting 55 units of a drug for which 

5 units is known to be a fatal dose). For 

approximately 90 percent of the codes 

with status indicators ‘‘G’’ and ‘‘K’’ in 

their claims year, to which the 

expansion of the trim would apply, 

between 0 and 10 percent of lines would 

be removed due to receiving zero 

payment. As with our trimming in the 

CY 2010 OPPS/ASC final rule with 

comment period (74 FR 60359) of line 

items with a status indicator of ‘‘S,’’ ‘‘T,’’ 

‘‘V,’’ or ‘‘X’’, we believe that unpaid lineitems represent services that are 

invalidly reported and, therefore, 

should not be used for ratesetting. We 

believe that removing lines with valid 

status indicators that were edited and 

not paid during claims processing 

increases the accuracy of the single bills 

used to determine the mean unit costs 

for use in the ASP+X calculation 

described in section V.B.3. of this 

proposed rule. 

b. Splitting Claims and Creation of 

‘‘Pseudo’’ Single Procedure Claims 

(1) Splitting Claims 

We then split the remaining claims 

into five groups: Single majors; multiple 

majors; single minors; multiple minors; 

and other claims. (Specific definitions 

of these groups follow below.) For CY 

2011, we are proposing to continue our 

current policy of defining major 

procedures as any HCPCS code having 

a status indicator of ‘‘S,’’ ‘‘T,’’ ‘‘V,’’ or ‘‘X;’’ 

defining minor procedures as any code 

having a status indicator of ‘‘F,’’ ‘‘G,’’ ‘‘H,’’ 

‘‘K,’’ ‘‘L,’’ ‘‘R,’’ ‘‘U,’’ or ‘‘N,’’ and classifying 

‘‘other’’ procedures as any code having a 

status indicator other than one that we 

have classified as major or minor. For 

CY 2011, we are proposing to continue 

assigning status indicator ‘‘R’’ to blood 

and blood products; status indicator ‘‘U’’ 

to brachytherapy sources; status 

indicator ‘‘Q1’’ to all ‘‘STVX-packaged 

codes;’’ status indicator ‘‘Q2’’ to all ‘‘Tpackaged codes;’’ and status indicator 

‘‘Q3’’ to all codes that may be paid 

through a composite APC based on 

composite-specific criteria or paid 

separately through single code APCs 

when the criteria are not met. As 

discussed in the CY 2009 OPPS/ASC 

final rule with comment period (73 FR 

68709), we established status indicators 

‘‘Q1,’’ ‘‘Q2,’’ and ‘‘Q3’’ to facilitate 

identification of the different categories 

of codes. We are proposing to treat these 

codes in the same manner for data 

purposes for CY 2011 as we have treated 

them since CY 2008. Specifically, we 

are proposing to continue to evaluate 

whether the criteria for separate 

payment of codes with status indicator 

‘‘Q1’’ or ‘‘Q2’’ are met in determining 

whether they are treated as major or 

minor codes. Codes with status 

indicator ‘‘Q1’’ or ‘‘Q2’’ are carried 

through the data either with status 

indicator ‘‘N’’ as packaged or, if they 

meet the criteria for separate payment, 

they are given the status indicator of the 

APC to which they are assigned and are 

considered as ‘‘pseudo’’ single procedure 

claims for major codes. Codes assigned 

status indicator ‘‘Q3’’ are paid under 

individual APCs unless they occur in 

the combinations that qualify for 

payment as composite APCs and, 

therefore, they carry the status indicator 

of the individual APC to which they are 

assigned through the data process and 

are treated as major codes during both 

the split and ‘‘pseudo’’ single creation 

process. The calculation of the median 

costs for composite APCs from multiple 

procedure major claims is discussed in 

section II.A.2.e. of this proposed rule. 

Specifically, we divided the 

remaining claims into the following five 

groups: 

1. Single Procedure Major Claims: 

Claims with a single separately payable 

procedure (that is, status indicator ‘‘S,’’ 

‘‘T,’’ ‘‘V,’’ or ‘‘X,’’ which includes codes 

with status indicator ‘‘Q3’’); claims with 

one unit of a status indicator ‘‘Q1’’ code 

(‘‘STVX-packaged’’) where there was no 

code with status indicator ‘‘S,’’ ‘‘T,’’ ‘‘V,’’ 

or ‘‘X’’ on the same claim on the same 

date; or claims with one unit of a status 

indicator ‘‘Q2’’ code (‘‘T-packaged’’) 

where there was no code with a status 

indicator ‘‘T’’ on the same claim on the 

same date. 

2. Multiple Procedure Major Claims: 

Claims with more than one separately 

payable procedure (that is, status 

indicator ‘‘S,’’ ‘‘T,’’ ‘‘V,’’ or ‘‘X,’’ which 

includes codes with status indicator 

‘‘Q3’’), or multiple units of one payable 

procedure. These claims include those 

codes with a status indicator ‘‘Q2’’ code 

(‘‘T-packaged’’) where there was no 

procedure with a status indicator ‘‘T’’ on 

the same claim on the same date of 

service but where there was another 

separately paid procedure on the same 

claim with the same date of service (that 

is, another code with status indicator 

‘‘S,’’ ‘‘V,’’ or ‘‘X’’). We also include, in this 

set, claims that contained one unit of 

one code when the bilateral modifier 

was appended to the code and the code 

was conditionally or independently 

bilateral. In these cases, the claims 

represented more than one unit of the 

service described by the code, 

notwithstanding that only one unit was 

billed. 

3. Single Procedure Minor Claims: 

Claims with a single HCPCS code that 

was assigned status indicator ‘‘F,’’ ‘‘G,’’ 

‘‘H,’’ ‘‘K,’’ ‘‘L,’’ ‘‘R,’’ ‘‘U,’’ or ‘‘N’’ and not 

status indicator ‘‘Q1’’ (‘‘STVX-packaged’’) 

or status indicator ‘‘Q2’’ (‘‘T-packaged’’) 

code. 

4. Multiple Procedure Minor Claims: 

Claims with multiple HCPCS codes that 

are assigned status indicator ‘‘F,’’ ‘‘G,’’ 

‘‘H,’’ ‘‘K,’’ ‘‘L,’’ ‘‘R,’’ ‘‘U,’’ or ‘‘N;’’ claims 

that contain more than one code with 

status indicator ‘‘Q1’’ (‘‘STVX-packaged’’) 

or more than one unit of a code with 

status indicator ‘‘Q1’’ but no codes with 

status indicator ‘‘S,’’ ‘‘T,’’ ‘‘V,’’ or ‘‘X’’ on 

the same date of service; or claims that 

contain more than one code with status 

indicator ‘‘Q2’’ (T-packaged), or ‘‘Q2’’ 

and ‘‘Q1,’’ or more than one unit of a 

code with status indicator ‘‘Q2’’ but no 

code with status indicator ‘‘T’’ on the 

same date of service. 

5. Non-OPPS Claims: Claims that 

contain no services payable under the 

OPPS (that is, all status indicators other 

than those listed for major or minor 

status). These claims were excluded 

from the files used for the OPPS. NonOPPS claims have codes paid under 

other fee schedules, for example, 

durable medical equipment or clinical 

laboratory tests, and do not contain a 

code for a separately payable or 

packaged OPPS service. Non-OPPS 

claims include claims for therapy 

services paid sometimes under the 

OPPS but billed, in these non-OPPS 

cases, with revenue codes indicating 

that the therapy services would be paid 

under the Medicare Physician Fee 

Schedule (MPFS). 

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The claims listed in numbers 1, 2, 3, 

and 4 above are included in the data file 

that can be purchased as described 

above. Claims that contain codes to 

which we have assigned status 

indicators ‘‘Q1’’ (‘‘STVX-packaged’’) and 

‘‘Q2’’ (‘‘T-packaged’’) appear in the data 

for the single major file, the multiple 

major file, and the multiple minor file 

used in this proposed rule. Claims that 

contain codes to which we have 

assigned status indicator ‘‘Q3’’ 

(composite APC members) appear in 

both the data of the single and multiple 

major files used in this proposed rule, 

depending on the specific composite 

calculation. 

(2) Creation of ‘‘Pseudo’’ Single 

Procedure Claims 

To develop ‘‘pseudo’’ single procedure 

claims for this proposed rule, we 

examined both the multiple procedure 

major claims and the multiple 

procedure minor claims. We first 

examined the multiple major procedure 

claims for dates of service to determine 

if we could break them into ‘‘pseudo’’ 

single procedure claims using the dates 

of service for all lines on the claim. If 

we could create claims with single 

major procedures by using dates of 

service, we created a single procedure 

claim record for each separately payable 

procedure on a different date of service 

(that is, a ‘‘pseudo’’ single). 

We also used the bypass codes listed 

earlier in Table 1 and discussed in 

section II.A.1.b. of this proposed rule to 

remove separately payable procedures 

that we determined contained limited or 

no packaged costs or that were 

otherwise suitable for inclusion on the 

bypass list from a multiple procedure 

bill. As discussed above, we ignore the 

‘‘overlap bypass codes,’’ that is, those 

HCPCS codes that are both on the 

bypass list and are members of the 

multiple imaging composite APCs, in 

this initial assessment for ‘‘pseudo’’ 

single procedure claims. The proposed 

CY 2011 ‘‘overlap bypass codes’’ are 

listed in Table 1 in section II.A.1.b. of 

this proposed rule. When one of the two 

separately payable procedures on a 

multiple procedure claim was on the 

bypass list, we split the claim into two 

‘‘pseudo’’ single procedure claim 

records. The single procedure claim 

record that contained the bypass code 

did not retain packaged services. The 

single procedure claim record that 

contained the other separately payable 

procedure (but no bypass code) retained 

the packaged revenue code charges and 

the packaged HCPCS code charges. We 

also removed lines that contained 

multiple units of codes on the bypass 

list and treated them as ‘‘pseudo’’ single 

procedure claims by dividing the cost 

for the multiple units by the number of 

units on the line. Where one unit of a 

single, separately payable procedure 

code remained on the claim after 

removal of the multiple units of the 

bypass code, we created a ‘‘pseudo’’ 

single procedure claim from that 

residual claim record, which retained 

the costs of packaged revenue codes and 

packaged HCPCS codes. This enabled us 

to use claims that would otherwise be 

multiple procedure claims and could 

not be used. 

We then assessed the claims to 

determine if the criteria for the multiple 

imaging composite APCs, discussed in 

section II.A.2.e.(5) of this proposed rule, 

were met. Where the criteria for the 

imaging composite APCs were met, we 

created a ‘‘single session’’ claim for the 

applicable imaging composite service 

and determined whether we could use 

the claim in ratesetting. For HCPCS 

codes that are both conditionally 

packaged and are members of a multiple 

imaging composite APC, we first 

assessed whether the code would be 

packaged and, if so, the code ceased to 

be available for further assessment as 

part of the composite APC. Because the 

packaged code would not be a 

separately payable procedure, we 

considered it to be unavailable for use 

in setting the composite APC median 

cost. Having identified ‘‘single session’’ 

claims for the imaging composite APCs, 

we reassessed the claim to determine if, 

after removal of all lines for bypass 

codes, including the ‘‘overlap bypass 

codes,’’ a single unit of a single 

separately payable code remained on 

the claim. If so, we attributed the 

packaged costs on the claim to the 

single unit of the single remaining 

separately payable code other than the 

bypass code to create a ‘‘pseudo’’ single 

procedure claim. We also identified 

line-items of overlap bypass codes as a 

‘‘pseudo’’ single procedure claim. This 

allowed us to use more claims data for 

ratesetting purposes. 

We also examined the multiple 

procedure minor claims to determine 

whether we could create ‘‘pseudo’’ 

single procedure claims. Specifically, 

where the claim contained multiple 

codes with status indicator ‘‘Q1’’ 

(‘‘STVX-packaged’’) on the same date of 

service or contained multiple units of a 

single code with status indicator ‘‘Q1,’’ 

we selected the status indicator ‘‘Q1’’ 

HCPCS code that had the highest CY 

2010 relative weight, set the units to one 

on that HCPCS code to reflect our policy 

of paying only one unit of a code with 

a status indicator of ‘‘Q1.’’ We then 

packaged all costs for the following into 

a single cost for the ‘‘Q1’’ HCPCS code 

that had the highest CY 2010 relative 

weight to create a ‘‘pseudo’’ single 

procedure claim for that code: 

Additional units of the status indicator 

‘‘Q1’’ HCPCS code with the highest CY 

2010 relative weight; other codes with 

status indicator ‘‘Q1’’; and all other 

packaged HCPCS codes and packaged 

revenue code costs. We changed the 

status indicator for selected codes from 

the data status indicator of ‘‘N’’ to the 

status indicator of the APC to which the 

selected procedure was assigned for 

further data processing and considered 

this claim as a major procedure claim. 

We used this claim in the calculation of 

the APC median cost for the status 

indicator ‘‘Q1’’ HCPCS code. 

Similarly, where a multiple procedure 

minor claim contained multiple codes 

with status indicator ‘‘Q2’’ (‘‘Tpackaged’’) or multiple units of a single 

code with status indicator ‘‘Q2,’’ we 

selected the status indicator ‘‘Q2’’ 

HCPCS code that had the highest CY 

2010 relative weight, set the units to one 

on that HCPCS code to reflect our policy 

of paying only one unit of a code with 

a status indicator of ‘‘Q2.’’ We then 

packaged all costs for the following into 

a single cost for the ‘‘Q2’’ HCPCS code 

that had the highest CY 2010 relative 

weight to create a ‘‘pseudo’’ single 

procedure claim for that code: 

Additional units of the status indicator 

‘‘Q2’’ HCPCS code with the highest CY 

2010 relative weight; other codes with 

status indicator ‘‘Q2;’’ and other 

packaged HCPCS codes and packaged 

revenue code costs. We changed the 

status indicator for the selected code 

from a data status indicator of ‘‘N’’ to the 

status indicator of the APC to which the 

selected code was assigned, and we 

considered this claim as a major 

procedure claim. 

Lastly, where a multiple procedure 

minor claim contained multiple codes 

with status indicator ‘‘Q2’’ (‘‘Tpackaged’’) and status indicator ‘‘Q1’’ 

(‘‘STVX-packaged’’), we selected the 

status indicator ‘‘Q2’’ HCPCS code (‘‘Tpackaged’’) that had the highest relative 

weight for CY 2010 and set the units to 

one on that HCPCS code to reflect our 

policy of paying only one unit of a code 

with a status indicator of ‘‘Q2.’’ We then 

packaged all costs for the following into 

a single cost for the selected (‘‘T 

packaged’’) HCPCS code to create a 

‘‘pseudo’’ single procedure claim for that 

code: Additional units of the status 

indicator ‘‘Q2’’ HCPCS code with the 

highest CY 2010 relative weight; other 

codes with status indicator ‘‘Q2;’’ codes 

with status indicator ‘‘Q1’’ (‘‘STVXpackaged’’); and other packaged HCPCS 

codes and packaged revenue code costs. 

We favor status indicator ‘‘Q2’’ over ‘‘Q1’’ 

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HCPCS codes because ‘‘Q2’’ HCPCS 

codes have higher CY 2010 relative 

weights. If a status indicator ‘‘Q1’’ 

HCPCS code had a higher CY 2010 

relative weight, it would become the 

primary code for the simulated single 

bill process. We changed the status 

indicator for the selected status 

indicator ‘‘Q2’’ (‘‘T-packaged’’) code from 

a data status indicator of ‘‘N’’ to the 

status indicator of the APC to which the 

selected code was assigned and we 

considered this claim as a major 

procedure claim. 

In public comments received on the 

CY 2010 OPPS/ASC proposed rule, a 

public commenter suggested that CMS 

could use more claims data to develop 

medians for these conditionally 

packaged codes if CMS applied the 

‘‘pseudo’’ single creation process to the 

conditionally packaged codes in the 

multiple major claims that still 

contained unusable data. We agree and, 

for this CY 2011 OPPS/ASC proposed 

rule, we are proposing to use the 

otherwise unusable multiple procedure 

claims data that remain after the 

standard pseudo single creation process 

is applied to them, in order to create 

more pseudo single procedure claims. 

We would do this by treating the 

conditionally packaged codes that do 

not meet the criteria for packaging as if 

they were separately payable major 

codes and applying the pseudo single 

process to the claims data to create 

single procedure claims from them if 

they meet the criteria for single 

procedure claims. Conditionally 

packaged codes are identified using 

status indicators ‘‘Q1’’ and ‘‘Q2,’’ and are 

described in section XIII.A.1. of this 

proposed rule. Using the February 2010 

APC Panel data, we estimate that the 

impact of adding this proposed 

additional step to the pseudo single 

creation process would result in a small 

increase in the number of claims usable 

for ratesetting in most cases, but with 

more significant increases of between 5 

to 10 percent of claims for a few codes. 

For most of the codes affected by adding 

this proposed additional step to the 

‘‘pseudo’’ single creation process, we 

found no significant changes to the APC 

medians. Some HCPCS codes do 

experience some fluctuations, with the 

impact of additional claims causing 

their APC median to decrease. We 

believe that this change is consistent 

with our goal of using more available 

data from within the existing set of 

claims information and results in a more 

accurate estimation of the APC median 

cost for conditionally packaged services. 

We excluded those claims that we 

were not able to convert to single 

procedure claims even after applying all 

of the techniques for creation of 

‘‘pseudo’’ single procedure claims to 

multiple procedure major and to 

multiple procedure minor claims. As 

has been our practice in recent years, we 

also excluded claims that contained 

codes that were viewed as 

independently or conditionally bilateral 

and that contained the bilateral modifier 

(Modifier 50 (Bilateral procedure)) 

because the line-item cost for the code 

represented the cost of two units of the 

procedure, notwithstanding that 

hospitals billed the code with a unit of 

one. 

c. Completion of Claim Records and 

Median Cost Calculations 

We then packaged the costs of 

packaged HCPCS codes (codes with 

status indicator ‘‘N’’ listed in Addendum 

B to this proposed rule and the costs of 

those lines for codes with status 

indicator ‘‘Q1’’ or ‘‘Q2’’ when they are 

not separately paid), and the costs of the 

services reported under packaged 

revenue codes in Table 3 that appeared 

on the claim without a HCPCS code into 

the cost of the single major procedure 

remaining on the claim. 

As noted in the CY 2008 OPPS/ASC 

final rule with comment period (72 FR 

66606), for the CY 2008 OPPS, we 

adopted an APC Panel recommendation 

that CMS should review the final list of 

packaged revenue codes for consistency 

with OPPS policy and ensure that future 

versions of the I/OCE edit accordingly. 

As we have in the past, we will 

continue to compare the final list of 

packaged revenue codes that we adopt 

for CY 2011 to the revenue codes that 

the I/OCE will package for CY 2011 to 

ensure consistency. 

In the CY 2009 OPPS/ASC final rule 

with comment period (73 FR 68531), we 

replaced the NUBC standard 

abbreviations for the revenue codes 

listed in Table 2 of the CY 2009 OPPS/ 

ASC proposed rule with the most 

current NUBC descriptions of the 

revenue code categories and 

subcategories to better articulate the 

meanings of the revenue codes without 

changing the proposed list of revenue 

codes. In the CY 2010 OPPS/ASC final 

rule with comment period (74 FR 60362 

through 60363), we finalized changes to 

the packaged revenue code list based on 

our examination of the updated NUBC 

codes and public comment to the CY 

2010 proposed list of packaged revenue 

codes. For this CY 2011 OPPS proposed 

rule, we reviewed the changes to 

revenue codes that were effective during 

CY 2009 for purposes of determining the 

charges reported with revenue codes but 

without HCPCS codes that we would 

propose to package for the CY 2011 

OPPS. As we discuss in the context of 

the revenue code-to-cost center 

crosswalk in section II.A.1.c. of this 

proposed rule, for CY 2009, the NUBC 

changed the title of revenue code series 

076x from ‘‘Specialty Room— 

Treatment/Observation Room’’ to 

‘‘Specialty Services’’ and changed the 

title of subclassification revenue code 

0762 from ‘‘Observation Room’’ to 

‘‘Observation Hours’’. In addition, the 

NUBC deleted an explanatory note 

following revenue code 0913, 

‘‘Behavioral Health Treatment 

Services—Extension of 090x.’’ We are 

proposing to revise the title for revenue 

code 076x, Observation Hours, in Table 

3 to comport to the CY 2009 revenue 

code title for revenue code 076x. There 

is no need to revise the table as a result 

of the deletion of the explanatory note. 

We believe that the charges reported 

under the revenue codes listed in Table 

3 continue to reflect ancillary and 

supportive services for which hospitals 

report charges without HCPCS codes. 

Therefore, we are proposing to continue 

to package the costs that we derive from 

the charges reported under the revenue 

codes displayed in Table 3 below for 

purposes of calculating the median costs 

on which the CY 2011 OPPS would be 

based. 

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BILLING CODE 4120–01–C 

In accordance with our longstanding 

policy, we are proposing to continue to 

exclude: (1) Claims that had zero costs 

after summing all costs on the claim; 

and (2) claims containing packaging flag 

number 3. Effective for services 

furnished on or after July 1, 2004, the 

I/OCE assigned packaging flag number 3 

to claims on which hospitals submitted 

token charges less than $1.01 for a 

service with status indicator ‘‘S’’ or ‘‘T’’ 

(a major separately payable service 

under the OPPS) for which the fiscal 

intermediary or MAC was required to 

allocate the sum of charges for services 

with a status indicator equaling ‘‘S’’ or 

‘‘T’’ based on the relative weight of the 

APC to which each code was assigned. 

We do not believe that these charges, 

which were token charges as submitted 

by the hospital, are valid reflections of 

hospital resources. Therefore, we 

deleted these claims. We also deleted 

claims for which the charges equaled 

the revenue center payment (that is, the 

Medicare payment) on the assumption 

that where the charge equaled the 

payment, to apply a CCR to the charge 

would not yield a valid estimate of 

relative provider cost. We are proposing 

to continue these processes for the CY 

2011 OPPS. 

For the remaining claims, we then 

standardized 60 percent of the costs of 

the claim (which we have previously 

determined to be the labor-related 

portion) for geographic differences in 

labor input costs. We made this 

adjustment by determining the wage 

index that applied to the hospital that 

furnished the service and dividing the 

cost for the separately paid HCPCS code 

furnished by the hospital by that wage 

index. As has been our policy since the 

inception of the OPPS, we are proposing 

to use the pre-reclassified wage indices 

for standardization because we believe 

that they better reflect the true costs of 

items and services in the area in which 

the hospital is located than the postreclassification wage indices and, 

therefore, would result in the most 

accurate unadjusted median costs. 

In accordance with our longstanding 

practice, we also excluded single and 

pseudo single procedure claims for 


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which the total cost on the claim was 

outside 3 standard deviations from the 

geometric mean of units for each HCPCS 

code on the bypass list (because, as 

discussed above, we used claims that 

contain multiple units of the bypass 

codes). 

After removing claims for hospitals 

with error CCRs, claims without HCPCS 

codes, claims for immunizations not 

covered under the OPPS, and claims for 

services not paid under the OPPS, 

approximately 98 million claims were 

left. Using these 98 million claims, we 

created approximately 96 million single 

and ‘‘pseudo’’ single procedure claims, 

of which we used 95 million single bills 

(after trimming out approximately 

696,000 claims as discussed above in 

this section) in the proposed CY 2011 

median development and ratesetting. 

We used these claims to calculate the 

proposed CY 2011 median costs for each 

separately payable HCPCS code and 

each APC. The comparison of HCPCS 

code-specific and APC medians 

determines the applicability of the 2 

times rule. Section 1833(t)(2) of the Act 

provides that, subject to certain 

exceptions, the items and services 

within an APC group cannot be 

considered comparable with respect to 

the use of resources if the highest 

median (or mean cost, if elected by the 

Secretary) for an item or service in the 

group is more than 2 times greater than 

the lowest median cost for an item or 

service within the same group (the 2 

times rule). Finally, we reviewed the 

median costs for the services for which 

we are proposing to pay separately 

under this proposed rule, and we 

reassigned HCPCS codes to different 

APCs where it was necessary to ensure 

clinical and resource homogeneity 

within the APCs. Section III. of this 

proposed rule includes a discussion of 

many of the HCPCS code assignment 

changes that resulted from examination 

of the median costs and for other 

reasons. The APC medians were 

recalculated after we reassigned the 

affected HCPCS codes. Both the HCPCS 

code-specific medians and the APC 

medians were weighted to account for 

the inclusion of multiple units of the 

bypass codes in the creation of ‘‘pseudo’’ 

single procedure claims. 

As we discuss in sections II.A.2 d. 

and II.A.2.e. and in section X.B. of this 

proposed rule, in some cases, APC 

median costs are calculated using 

variations of the process outlined above. 

Specifically, section II.A.2.d. of this 

proposed rule addresses the proposed 

calculation of single APC criteria-based 

median costs. Section II.A.2.e. of this 

proposed rule discusses the proposed 

calculation of composite APC criteriabased median costs. Section X.B. of this 

proposed rule addresses the 

methodology for calculating the 

proposed median cost for partial 

hospitalization services. 

At the February 2010 APC Panel 

Meeting, we provided the APC Panel a 

list of all APCs decreasing by more than 

5 percent and increasing by more than 

15 percent when comparing the 

proposed CY 2011 median costs based 

on data available for the February 2010 

APC Panel meeting from CY 2009 

claims processed through September 30, 

2009, to those based on CY 2010 OPPS/ 

ASC final rule data (CY 2008 claims). 

The APC Panel reviewed these 

fluctuations in the APC median costs 

but did not express particular concerns 

with the median cost changes. 

As we stated earlier, at the February 

2010 APC Panel Meeting, the APC Panel 

also recommended that the Data 

Subcommittee continue its work. We are 

proposing to accept that 

recommendation. 

d. Proposed Calculation of Single 

Procedure APC Criteria-Based Median 

Costs 

(1) Device-Dependent APCs 

Device-dependent APCs are 

populated by HCPCS codes that usually, 

but not always, require that a device be 

implanted or used to perform the 

procedure. For a full history of how we 

have calculated payment rates for 

device-dependent APCs in previous 

years and a detailed discussion of how 

we developed the standard devicedependent APC ratesetting 

methodology, we refer readers to the CY 

2008 OPPS/ASC final rule with 

comment period (72 FR 66739 through 

66742). Overviews of the procedure-todevice edits and device-to-procedure 

edits used in ratesetting for devicedependent APCs are available in the CY 

2005 OPPS final rule with comment 

period (69 FR 65761 through 65763) and 

the CY 2007 OPPS/ASC final rule with 

comment period (71 FR 68070 through 

68071). 

For CY 2011, we are proposing to 

continue to use the standard 

methodology for calculating median 

costs for device-dependent APCs that 

was finalized in the CY 2010 OPPS/ASC 

final rule with comment period (74 FR 

60365). This methodology utilizes 

claims data that generally represent the 

full cost of the required device. 

Specifically, we are proposing to 

calculate the median costs for devicedependent APCs for CY 2011 using only 

the subset of single procedure claims 

from CY 2009 claims data that pass the 

procedure-to-device and device-toprocedure edits; do not contain token 

charges (less than $1.01) for devices; do 

not contain the ‘‘FB’’ modifier signifying 

that the device was furnished without 

cost to the provider, supplier, or 

practitioner, or where a full credit was 

received; and do not contain the ‘‘FC’’ 

modifier signifying that the hospital 

received partial credit for the device. 

The ‘‘FC’’ modifier became effective 

January 1, 2008, and was present for the 

first time on claims that were used in 

OPPS ratesetting for CY 2010. We 

continue to believe the standard 

methodology for calculating median 

costs for device-dependent APCs gives 

us the most appropriate proposed 

median costs for device-dependent 

APCs in which the hospital incurs the 

full cost of the device. 

The median costs for the majority of 

device-dependent APCs that are 

calculated using the CY 2011 proposed 

rule claims data are generally stable, 

with most median costs increasing 

moderately compared to the median 

costs upon which the CY 2010 OPPS 

payment rates were based. However, the 

median costs for APC 0225 

(Implantation of Neurostimulator 

Electrodes, Cranial Nerve) and APC 

0418 (Insertion of Left Ventricular 

Pacing Electrode) demonstrate 

significant fluctuation. Specifically, the 

proposed CY 2011 median cost for APC 

0225 increased approximately 40 

percent compared to its final CY 2010 

median cost, while the proposed CY 

2011 median cost for APC 0418, which 

had increased approximately 53 percent 

from CY 2009 to CY 2010, showed a 

decrease of approximately 27 percent 

based on the claims data available for 

this CY 2011 proposed rule. We believe 

the fluctuations in median costs for 

these two APCs are a consequence of the 

small number of single bills upon which 

the median costs are based and the 

small number of providers of these 

services. As we have stated in the past, 

some fluctuation in relative costs from 

year to year is to be expected in a 

prospective payment system for low 

volume device-dependent APCs, 

particularly where there are small 

numbers of single bills from a small 

number of providers. The additional 

single bills available for ratesetting in 

the CY 2011 final rule data and updated 

cost report data may result in less 

fluctuation in the median costs for these 

APCs for CY 2011. 

Table 4 below lists the APCs for 

which we are proposing to use our 

standard device-dependent APC 

ratesetting methodology for CY 2011. 

We refer readers to Addendum A to this 

proposed rule for the proposed payment 

rates for these APCs. 

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(2) Blood and Blood Products 

Since the implementation of the OPPS 

in August 2000, we have made separate 

payments for blood and blood products 

through APCs rather than packaging 

payment for them into payments for the 

procedures with which they are 

administered. Hospital payments for the 

costs of blood and blood products, as 

well as for the costs of collecting, 

processing, and storing blood and blood 

products, are made through the OPPS 

payments for specific blood product 

APCs. 

For CY 2011, we are proposing to 

continue to establish payment rates for 

blood and blood products using our 

blood-specific CCR methodology, which 

utilizes actual or simulated CCRs from 

the most recently available hospital cost 

reports to convert hospital charges for 

blood and blood products to costs. This 

methodology has been our standard 

ratesetting methodology for blood and 

blood products since CY 2005. It was 

developed in response to data analysis 

indicating that there was a significant 

difference in CCRs for those hospitals 

with and without blood-specific cost 

centers, and past comments indicating 

that the former OPPS policy of 

defaulting to the overall hospital CCR 

for hospitals not reporting a bloodspecific cost center often resulted in an 

underestimation of the true hospital 

costs for blood and blood products. 

Specifically, in order to address the 

differences in CCRs and to better reflect 

hospitals’ costs, we are proposing to 

continue to simulate blood CCRs for 

each hospital that does not report a 

blood cost center by calculating the ratio 

of the blood-specific CCRs to hospitals’ 

overall CCRs for those hospitals that do 

report costs and charges for blood cost 

centers. We would then apply this mean 

ratio to the overall CCRs of hospitals not 

reporting costs and charges for blood 

cost centers on their cost reports in 

order to simulate blood-specific CCRs 

for those hospitals. We calculated the 

median costs upon which the proposed 

CY 2011 payment rates for blood and 

blood products are based using the 

actual blood-specific CCR for hospitals 

that reported costs and charges for a 

blood cost center and a hospital-specific 

simulated blood-specific CCR for 

hospitals that did not report costs and 

charges for a blood cost center. 

We continue to believe the hospitalspecific, blood-specific CCR 

methodology better responds to the 

absence of a blood-specific CCR for a 

hospital than alternative methodologies, 

such as defaulting to the overall hospital 

CCR or applying an average bloodspecific CCR across hospitals. Because 

this methodology takes into account the 

unique charging and cost accounting 

structure of each provider, we believe 

that it yields more accurate estimated 

costs for these products. We believe that 

continuing with this methodology in CY 

2011 would result in median costs for 

blood and blood products that 

appropriately reflect the relative 

estimated costs of these products for 

hospitals without blood cost centers 

and, therefore, for these blood products 

in general. 

We refer readers to Addendum B to 

this proposed rule for the proposed CY 

2011 payment rates for blood and blood 

products, which are identified with 

status indicator ‘‘R.’’ For more detailed 

discussion of the blood-specific CCR 

methodology, we refer readers to the CY 

2005 OPPS proposed rule (69 FR 50524 

through 50525). For a full history of 

OPPS payment for blood and blood 

products, we refer readers to the CY 

2008 OPPS/ASC final rule with 

comment period (72 FR 66807 through 

66810). 

(3) Single Allergy Tests 

We are proposing to continue with 

our methodology of differentiating 

single allergy tests (‘‘per test’’) from 

multiple allergy tests (‘‘per visit’’) by 

assigning these services to two different 

APCs to provide accurate payments for 

these tests in CY 2011. Multiple allergy 

tests are currently assigned to APC 0370 

(Allergy Tests), with a median cost 

calculated based on the standard OPPS 

methodology. We provided billing 

guidance in CY 2006 in Transmittal 804 

(issued on January 3, 2006) specifically 

clarifying that hospitals should report 

charges for the CPT codes that describe 

single allergy tests to reflect charges ‘‘per 

test’’ rather than ‘‘per visit’’ and should 

bill the appropriate number of units (as 

defined in the CPT code descriptor) of 

these CPT codes to describe all of the 

tests provided. Our CY 2009 claims data 

available for this proposed rule for APC 

0381 do not reflect improved and more 

consistent hospital billing practices of 

‘‘per test’’ for single allergy tests. The 

median cost of APC 0381, calculated for 

this proposed rule according to the 

standard single claims OPPS 

methodology, is approximately $52, 

significantly higher than the CY 2010 

median cost of APC 0381 of 

approximately $29 calculated according 

to the ‘‘per unit’’ methodology, and 

greater than we would expect for these 

procedures that are to be reported ‘‘per 

test’’ with the appropriate number of 

units. Some claims for single allergy 

tests still appear to provide charges that 

represent a ‘‘per visit’’ charge, rather 

than a ‘‘per test’’ charge. Therefore, 

consistent with our payment policy for 

single allergy tests since CY 2006, we 

are proposing to calculate a ‘‘per unit’’ 

median cost for APC 0381, based upon 

595 claims containing multiple units or 

multiple occurrences of a single CPT 

code. The proposed CY 2011 median 

cost for APC 0381 using the ‘‘per unit’’ 

methodology is approximately $29. For 

a full discussion of this methodology, 

we refer readers to the CY 2008 OPPS/ 

ASC final rule with comment period (72 

FR 66737). 

(4) Hyperbaric Oxygen Therapy (APC 

0659) 

Since the implementation of OPPS in 

August 2000, the OPPS has recognized 

HCPCS code C1300 (Hyperbaric oxygen 

under pressure, full body chamber, per 

30 minute interval) for hyperbaric 

oxygen therapy (HBOT) provided in the 

hospital outpatient setting. In the CY 

2005 final rule with comment period (69 

FR 65758 through 65759), we finalized 

a ‘‘per unit’’ median cost calculation for 

APC 0659 (Hyperbaric Oxygen) using 

only claims with multiple units or 

multiple occurrences of HCPCS code 

C1300 because delivery of a typical 

HBOT service requires more than 30 

minutes. We observed that claims with 

only a single occurrence of the code 

were anomalies, either because they 

reflected terminated sessions or because 

they were incorrectly coded with a 

single unit. In the same rule, we also 

established that HBOT would not 

generally be furnished with additional 

services that might be packaged under 

the standard OPPS APC median cost 

methodology. This enabled us to use 

claims with multiple units or multiple 

occurrences. Finally, we also used each 

hospital’s overall CCR to estimate costs 

for HCPCS code C1300 from billed 

charges rather than the CCR for the 

respiratory therapy or other 

departmental cost centers. The public 

comments on the CY 2005 OPPS 

proposed rule effectively demonstrated 

that hospitals report the costs and 

charges for HBOT in a wide variety of 

cost centers. Since CY 2005, we have 

used this methodology to estimate the 

median cost for HBOT. The median 

costs of HBOT using this methodology 

have been relatively stable for the last 5 

years. For CY 2011, we are proposing to 

continue using the same methodology to 

estimate a ‘‘per unit’’ median cost for 

HCPCS code C1300. This methodology 

results in a proposed APC median cost 

of approximately $109 using 328,960 

claims with multiple units or multiple 

occurrences for HCPCS code C1300 for 

CY 2011. 

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(5) Payment for Ancillary Outpatient 

Services When Patient Expires (APC 

0375) 

In the November 1, 2002 final rule 

with comment period (67 FR 66798), we 

discussed the creation of the new 

HCPCS modifier –CA to address 

situations where a procedure on the 

OPPS inpatient list must be performed 

to resuscitate or stabilize a patient 

(whose status is that of an outpatient) 

with an emergent, life-threatening 

condition, and the patient dies before 

being admitted as an inpatient. HCPCS 

modifier –CA is defined as a procedure 

payable only in the inpatient setting 

when performed emergently on an 

outpatient who expires prior to 

admission. In Transmittal A–02–129, 

issued on January 3, 2003, we instructed 

hospitals on the use of this modifier. For 

a complete description of the history of 

the policy and the development of the 

payment methodology for these 

services, we refer readers to the CY 2007 

OPPS/ASC final rule with comment 

period (71 FR 68157 through 68158). 

For CY 2011, we are proposing to 

continue to use our established 

ratesetting methodology for calculating 

the median cost of APC 0375 (Ancillary 

Outpatient Services When Patient 

Expires) and to continue to make one 

payment under APC 0375 for the 

services that meet the specific 

conditions for using HCPCS modifier 

–CA. We are proposing to calculate the 

relative payment weight for APC 0375 

by using all claims reporting a status 

indicator ‘‘C’’ (inpatient procedures) 

appended with HCPCS modifier –CA, 

using estimated costs from claims data 

for line-items with a HCPCS code 

assigned to status indicators ‘‘G,’’ ‘‘H,’’ 

‘‘K,’’ ‘‘N,’’ ‘‘Q1,’’ ‘‘Q2,’’ ‘‘Q3,’’ ‘‘R,’’ ‘‘S,’’ ‘‘T,’’ 

‘‘U,’’ ‘‘V,’’ and ‘‘X’’ and charges for 

packaged revenue codes without a 

HCPCS code (we refer readers to section 

XIII.A.1. of this proposed rule for a 

complete listing of status indicators). 

We continue to believe that this 

methodology results in the most 

appropriate aggregate median cost for 

the ancillary services provided in these 

unusual clinical situations. 

We believe that hospitals are 

reporting the HCPCS modifier –CA 

according to the policy initially 

established in CY 2003. We note that the 

claims frequency for APC 0375 has been 

relatively stable over the past few years. 

Although the median cost for APC 0375 

has increased, the median in the CY 

2009 OPPS claims data used for 

development of proposed rates for CY 

2011 was only slightly higher than that 

for CY 2010. Variation in the median 

cost for APC 0375 is expected because 

of the small number of claims and 

because the specific cases are grouped 

by the presence of the HCPCS modifier 

–CA appended to an inpatient 

procedure and not according to the 

standard APC criteria of clinical and 

resource homogeneity. Cost variation for 

APC 0375 from year to year is 

anticipated and acceptable as long as 

hospitals continue judicious reporting 

of the HCPCS modifier –CA. Table 5 

below shows the number of claims and 

the final median costs for APC 0375 for 

CYs 2007, 2008, 2009, and 2010. For CY 

2011, we are proposing a median cost of 

approximately $6,566 for APC 0375 

based on 117 claims. 

(6) Pulmonary Rehabilitation 

Section 144(a)(1) of Public Law 110– 

275 (MIPPA) added section 1861(fff) to 

the Act to provide Medicare Part B 

coverage and payment for a 

comprehensive program of pulmonary 

rehabilitation services furnished to 

beneficiaries with chronic obstructive 

pulmonary disease, effective January 1, 

2010. Accordingly, in the CY 2010 

OPPS/ASC final rule with comment 

period, we established a policy to pay 

for pulmonary rehabilitation (PR) 

services furnished as a part of the 

comprehensive PR program benefit (74 

FR 60567). We created new HCPCS code 

G0424 (Pulmonary rehabilitation, 

including exercise (includes 

monitoring), one hour, per session, up 

to two sessions per day) and assigned it 

to new APC 0102 (Level II Pulmonary 

Treatment). 

For CY 2011, we are proposing to 

continue to require hospitals to report 

PR services provided under the 

comprehensive PR benefit in section 

1861(fff) of the Act using HCPCS code 

G0424. We also are proposing to 

continue to use the methodology 

described in the CY 2010 OPPS/ASC 

final rule with comment period (74 FR 

60567 through 60570) to calculate the 

median cost on which the proposed 

payment rate for CY 2011 is based. 

Specifically, we are proposing to 

continue to assign HCPCS code G0424 

to APC 0102 and to calculate a median 

‘‘per session’’ cost simulated from 

historical hospital claims data for 

similar pulmonary therapy services for 

the CY 2011 OPPS. 

To simulate the proposed ‘‘per 

session’’ median cost of HCPCS code 

G0424 from claims data for existing 

services, we used only claims that 

contained at least one unit of HCPCS 

code G0239 (Therapeutic procedures to 

improve respiratory function or increase 

strength or endurance of respiratory 

muscles, two or more individuals 

(includes monitoring)), the group code 

that is without limitation on time 

duration, and one unit of HCPCS code 

G0237 (Therapeutic procedures to 

increase strength or endurance of 

respiratory muscles, face to face, one on 

one, each 15 minutes (includes 

monitoring)) or G0238 (Therapeutic 

procedures to improve respiratory 

function, other than described by 

G0237, one on one, face to face, per 15 

minutes (includes monitoring)), the 

individual, face-to-face codes that report 

15 minutes of service on the same date 

of service. We continue to believe that 

patients in a PR program would 

typically receive individual and group 

services in each session of 


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approximately 1 hour in duration. This 

proposal is consistent with public 

comments on the CY 2010 OPPS/ASC 

proposed rule that were addressed in 

the CY 2010 OPPS/ASC final rule with 

comment period (74 FR 60569) that 

suggested that PR is often provided in 

group sessions in the HOPD, although 

patients commonly require additional 

one-on-one care in order to fully 

participate in the program. We note that 

our use of ‘‘per session’’ claims reporting 

one unit of HCPCS code G0237 or 

G0238 and one unit of HCPCS code 

G0239 in this simulation methodology 

is also consistent with our overall 

finding of approximately 2.4 service 

units of the HCPCS G-codes per day on 

a single date of service, usually 

consisting of both individual and group 

services, for patients receiving 

pulmonary therapy services in the 

HOPD based upon CY 2008 claims used 

for CY 2010 OPPS final rule ratesetting. 

We continue to believe that the typical 

session of PR is 1 hour based on public 

comments that indicated that a session 

of PR is typically 1 hour and based on 

our findings that the most commonly 

reported HCPCS code for pulmonary 

treatment is HCPCS code G0239, which 

has no time definition for this group 

service. 

In the calculation of the proposed 

median cost for APC 0102, we included 

all costs of the related tests and 

assessment services, including CPT 

codes 94620 (Pulmonary stress testing, 

simple (e.g. 6-minute walk test, 

prolonged exercise test for 

bronchospasm with pre- and postspirometry and oximetry)), 94664 

(Demonstration and/or evaluation of 

patient utilization of an aerosol 

generator, nebulizer, metered dose 

inhaler or IPPB device), and 94667 

(Manipulation chest wall, such as 

cupping, percussing, and vibration to 

facilitate lung function; initial 

demonstration and/or evaluation and all 

the costs of all CPT codes for 

established patient clinic visits) on the 

same date of service as the HCPCS codes 

in the claims we used to simulate the 

median cost for HCPCS code G0424, 

which is the only HCPCS code in APC 

0102. After identifying these ‘‘per 

session’’ claims, which we believe 

represent 1 hour of care, we summed 

the costs and calculated the median cost 

for the set of selected claims. In light of 

the cost and clinical similarities of PR 

and the existing services described by 

HCPCS codes G0237, G0238, and G0239 

and the CPT codes for related 

assessments and tests, and the 

significant number of ‘‘per session’’ 

hospital claims we found, we are 

confident that the proposed simulated 

median cost for HCPCS code G0424 and 

APC 0102 of approximately $68 is a 

valid estimate of the expected hospital 

cost of a PR session. We note that this 

proposed median cost is higher than the 

CY 2010 final rule median cost for 

HCPCs code G0424 and APC 0102 of 

approximately $50 on which the CY 

2010 payment is based. 

e. Proposed Calculation of Composite 

APC Criteria-Based Median Costs 

As discussed in the CY 2008 OPPS/ 

ASC final rule with comment period (72 

FR 66613), we believe it is important 

that the OPPS enhance incentives for 

hospitals to provide only necessary, 

high quality care and to provide that 

care as efficiently as possible. For CY 

2008, we developed composite APCs to 

provide a single payment for groups of 

services that are typically performed 

together during a single clinical 

encounter and that result in the 

provision of a complete service. 

Combining payment for multiple 

independent services into a single OPPS 

payment in this way enables hospitals 

to manage their resources with 

maximum flexibility by monitoring and 

adjusting the volume and efficiency of 

services themselves. An additional 

advantage to the composite APC model 

is that we can use data from correctly 

coded multiple procedure claims to 

calculate payment rates for the specified 

combinations of services, rather than 

relying upon single procedure claims 

which may be low in volume and/or 

incorrectly coded. Under the OPPS, we 

currently have composite APC policies 

for extended assessment and 

management services, low dose rate 

(LDR) prostate brachytherapy, cardiac 

electrophysiologic evaluation and 

ablation services, mental health 

services, and multiple imaging services. 

We refer readers to the CY 2008 OPPS/ 

ASC final rule with comment period for 

a full discussion of the development of 

the composite APC methodology (72 FR 

66611 through 66614 and 66650 through 

66652). 

At its February 2010 meeting, the APC 

Panel recommended that, in order to 

support stem cell transplantation, CMS 

consider creating a composite APC or 

custom APC that captures the costs of 

stem cell acquisition performed in 

conjunction with recipient 

transplantation and preparation of 

tissue. We are accepting this APC Panel 

recommendation to consider creating a 

composite APC or custom APC that 

captures the costs of stem cell 

acquisition performed in conjunction 

with recipient transplantation and 

preparation of tissue, and will report the 

results of our assessment to the APC 

Panel at a future meeting. 

For CY 2011, we are proposing to 

continue our established composite APC 

policies for extended assessment and 

management, LDR prostate 

brachytherapy, cardiac 

electrophysiologic evaluation and 

ablation, mental health services, and 

multiple imaging services, as discussed 

in sections II.A.2.e.(1), II.A.2.e.(2), 

II.A.2.e.(3), II.A.2.e.(4), and II.A.2.e.(5), 

respectively, of this proposed rule. 

(1) Extended Assessment and 

Management Composite APCs (APCs 

8002 and 8003) 

For CY 2011, we are proposing to 

continue to include composite APC 

8002 (Level I Extended Assessment and 

Management Composite) and composite 

APC 8003 (Level II Extended 

Assessment and Management 

Composite) in the OPPS. For CY 2008, 

we created these two composite APCs to 

provide payment to hospitals in certain 

circumstances when extended 

assessment and management of a patient 

occur (an extended visit). In most 

circumstances, observation services are 

supportive and ancillary to the other 

services provided to a patient. In the 

circumstances when observation care is 

provided in conjunction with a high 

level visit or direct referral and is an 

integral part of a patient’s extended 

encounter of care, payment is made for 

the entire care encounter through one of 

two composite APCs as appropriate. 

As defined for the CY 2008 OPPS, 

composite APC 8002 describes an 

encounter for care provided to a patient 

that includes a high level (Level 5) 

clinic visit or direct referral for 

observation services in conjunction with 

observation services of substantial 

duration (72 FR 66648 through 66649). 

Composite APC 8003 describes an 

encounter for care provided to a patient 

that includes a high level (Level 4 or 5) 

Type A emergency department visit, a 

high level (Level 5) Type B emergency 

department visit, or critical care services 

in conjunction with observation services 

of substantial duration. HCPCS code 

G0378 (Observation services, per hour) 

is assigned status indicator ‘‘N,’’ 

signifying that its payment is always 

packaged. As noted in the CY 2008 

OPPS/ASC final rule with comment 

period (72 FR 66648 through 66649), the 

Integrated Outpatient Code Editor (I/ 

OCE) evaluates every claim received to 

determine if payment through a 

composite APC is appropriate. If 

payment through a composite APC is 

inappropriate, the I/OCE, in conjunction 

with the OPPS Pricer, determines the 

appropriate status indicator, APC, and 

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payment for every code on a claim. The 

specific criteria that must be met for the 

two extended assessment and 

management composite APCs to be paid 

are provided below in the description of 

the claims that were selected for the 

calculation of the proposed CY 2011 

median costs for these composite APCs. 

We are not proposing to change these 

criteria for the CY 2011 OPPS. 

When we created composite APCs 

8002 and 8003 for CY 2008, we retained 

as general reporting requirements for all 

observation services those criteria 

related to physician order and 

evaluation, documentation, and 

observation beginning and ending time 

as listed in the CY 2008 OPPS/ASC final 

rule with comment period (72 FR 

66812). These are more general 

requirements that encourage hospitals to 

provide medically reasonable and 

necessary care and help to ensure the 

proper reporting of observation services 

on correctly coded hospital claims that 

reflect the full charges associated with 

all hospital resources utilized to provide 

the reported services. We also issued 

guidance clarifying the correct method 

for reporting the starting time for 

observation services sections 290.2.2 

through 290.5 in the Medicare Claims 

Processing Manual (Pub. 100–4), 

Chapter 4, through Transmittal 1745, 

Change Request 6492, issued May 22, 

2009 and implemented July 6, 2009. We 

are not proposing to change these 

reporting requirements for the CY 2011 

OPPS. 

For CY 2011, we are proposing to 

continue the extended assessment and 

management composite APC payment 

methodology for APCs 8002 and 8003. 

We continue to believe that the 

composite APCs 8002 and 8003 and 

related policies provide the most 

appropriate means of paying for these 

services. We are proposing to calculate 

the median costs for APCs 8002 and 

8003 using all single and ‘‘pseudo’’ 

single procedure claims for CY 2009 

that meet the criteria for payment of 

each composite APC. 

Specifically, to calculate the proposed 

median costs for composite APCs 8002 

and 8003, we selected single and 

‘‘pseudo’’ single procedure claims that 

met each of the following criteria: 

1. Did not contain a HCPCS code to 

which we have assigned status indicator 

‘‘T’’ that is reported with a date of 

service 1 day earlier than the date of 

service associated with HCPCS code 

G0378. (By selecting these claims from 

single and ‘‘pseudo’’ single claims, we 

had already assured that they would not 

contain a code for a service with status 

indicator ‘‘T’’ on the same date of 

service.); 

2. Contained 8 or more units of 

HCPCS code G0378; and 

3. Contained one of the following 

codes: 

• In the case of composite APC 8002, 

HCPCS code G0379 (Direct referral of 

patient for hospital observation care) on 

the same date of service as G0378; or 

CPT code 99205 (Office or other 

outpatient visit for the evaluation and 

management of a new patient (Level 5)); 

or CPT code 99215 (Office or other 

outpatient visit for the evaluation and 

management of an established patient 

(Level 5)) provided on the same date of 

service or one day before the date of 

service for HCPCS code G0378. 

• In the case of composite APC 8003, 

CPT code 99284 (Emergency department 

visit for the evaluation and management 

of a patient (Level 4)); CPT code 99285 

(Emergency department visit for the 

evaluation and management of a patient 

(Level 5)); CPT code 99291 (Critical 

care, evaluation and management of the 

critically ill or critically injured patient; 

first 30–74 minutes); or HCPCS code 

G0384 (Level 5 hospital emergency 

department visit provided in a Type B 

emergency department) provided on the 

same date of service or one day before 

the date of service for HCPCS code 

G0378. (As discussed in detail in the CY 

2009 OPPS/ASC final rule with 

comment period (73 FR 68684), we 

added HCPCS code G0384 to the 

eligibility criteria for composite APC 

8003 for CY 2009.) 

As discussed further in section IX. of 

this proposed rule, and consistent with 

our CY 2008, CY 2009, and CY 2010 

final policies, when calculating the 

median costs for the clinic, Type A 

emergency department visit, Type B 

emergency department visit, and critical 

care APCs (0604 through 0617 and 0626 

through 0630), we utilize our 

methodology that excludes those claims 

for visits that are eligible for payment 

through the two extended assessment 

and management composite APCs, that 

is APC 8002 or APC 8003. We believe 

that this approach results in the most 

accurate cost estimates for APCs 0604 

through 0617 and 0626 through 0630 for 

CY 2011. 

At its February 2010 meeting, the APC 

Panel recommended that CMS study the 

feasibility of expanding the extended 

assessment and management composite 

APC methodology to include services 

commonly furnished in conjunction 

with visits and observation services, 

such as drug infusion, 

electrocardiogram, and chest X-ray. We 

are accepting this recommendation, and 

we will share our assessment with the 

APC Panel at a future meeting. 

In summary, for CY 2011, we are 

proposing to continue to include 

composite APCs 8002 and 8003 in the 

OPPS. We are proposing to continue the 

extended assessment and management 

composite APC payment methodology 

and criteria that we finalized for CYs 

2009 and 2010. We also are proposing 

to calculate the median costs for APCs 

8002 and 8003 using the same 

methodology that we used to calculate 

the medians for composite APCs 8002 

and 8003 for the CY 2008 OPPS (72 FR 

66649). That is, we used all single and 

‘‘pseudo’’ single procedure claims from 

CY 2009 that met the criteria for 

payment of each composite APC and 

applied the standard packaging and 

trimming rules to the claims before 

calculating the proposed CY 2011 

median costs. The proposed CY 2011 

median cost resulting from this 

methodology for composite APC 8002 is 

approximately $401, which was 

calculated from 17,398 single and 

‘‘pseudo’’ single bills that met the 

required criteria. The proposed CY 2011 

median cost for composite APC 8003 is 

approximately $743, which was 

calculated from 201,189 single and 

‘‘pseudo’’ single bills that met the 

required criteria. 

(2) Low Dose Rate (LDR) Prostate 

Brachytherapy Composite APC (APC 

8001) 

LDR prostate brachytherapy is a 

treatment for prostate cancer in which 

hollow needles or catheters are inserted 

into the prostate, followed by 

permanent implantation of radioactive 

sources into the prostate through the 

needles/catheters. At least two CPT 

codes are used to report the composite 

treatment service because there are 

separate codes that describe placement 

of the needles/catheters and the 

application of the brachytherapy 

sources: CPT code 55875 (Transperineal 

placement of needles or catheters into 

prostate for interstitial radioelement 

application, with or without cystoscopy) 

and CPT code 77778 (Interstitial 

radiation source application; complex). 

Generally, the component services 

represented by both codes are provided 

in the same operative session in the 

same hospital on the same date of 

service to the Medicare beneficiary 

being treated with LDR brachytherapy 

for prostate cancer. As discussed in the 

CY 2008 OPPS/ASC final rule with 

comment period (72 FR 66653), OPPS 

payment rates for CPT code 77778, in 

particular, had fluctuated over the years. 

We were frequently informed by the 

public that reliance on single procedure 

claims to set the median costs for these 

services resulted in use of mainly 

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incorrectly coded claims for LDR 

prostate brachytherapy because a 

correctly coded claim should include, 

for the same date of service, CPT codes 

for both needle/catheter placement and 

application of radiation sources, as well 

as separately coded imaging and 

radiation therapy planning services (that 

is, a multiple procedure claim). 

In order to base payment on claims for 

the most common clinical scenario, and 

to further our goal of providing payment 

under the OPPS for a larger bundle of 

component services provided in a single 

hospital encounter, beginning in CY 

2008, we provide a single payment for 

LDR prostate brachytherapy when the 

composite service, reported as CPT 

codes 55875 and 77778, is furnished in 

a single hospital encounter. We base the 

payment for composite APC 8001 (LDR 

Prostate Brachytherapy Composite) on 

the median cost derived from claims for 

the same date of service that contain 

both CPT codes 55875 and 77778 and 

that do not contain other separately paid 

codes that are not on the bypass list. In 

uncommon occurrences in which the 

services are billed individually, 

hospitals continue to receive separate 

payments for the individual services. 

We refer readers to the CY 2008 OPPS/ 

ASC final rule with comment period (72 

FR 66652 through 66655) for a full 

history of OPPS payment for LDR 

prostate brachytherapy and a detailed 

description of how we developed the 

LDR prostate brachytherapy composite 

APC. 

For CY 2011, we are proposing to 

continue paying for LDR prostate 

brachytherapy services using the 

composite APC methodology proposed 

and implemented for CYs 2008, 2009, 

and 2010. That is, we are proposing to 

use CY 2009 claims on which both CPT 

codes 55875 and 77778 were billed on 

the same date of service with no other 

separately paid procedure codes (other 

than those on the bypass list) to 

calculate the payment rate for composite 

APC 8001. Consistent with our CY 2008 

through CY 2010 practice, we are 

proposing not to use the claims that 

meet these criteria in the calculation of 

the median costs for APCs 0163 (Level 

IV Cystourethroscopy and Other 

Genitourinary Procedures) and 0651 

(Complex Interstitial Radiation Source 

Application), the APCs to which CPT 

codes 55875 and 77778 are assigned, 

respectively. The median costs for APCs 

0163 and 0651 would continue to be 

calculated using single and ‘‘pseudo’’ 

single procedure claims. We continue to 

believe that this composite APC 

contributes to our goal of creating 

hospital incentives for efficiency and 

cost containment, while providing 

hospitals with the most flexibility to 

manage their resources. We also 

continue to believe that data from 

claims reporting both services required 

for LDR prostate brachytherapy provide 

the most accurate median cost upon 

which to base the composite APC 

payment rate. 

Using partial year CY 2009 claims 

data available for this proposed rule, we 

were able to use 788 claims that 

contained both CPT codes and 55875 

and 77778 to calculate the median cost 

upon which the proposed CY 2011 

payment for composite APC 8001 is 

based. The proposed median cost for 

composite APC 8001 for CY 2011 is 

approximately $3,265. This is an 

increase compared to the CY 2010 

OPPS/ASC final rule with comment 

period in which we calculated a final 

median cost for this composite APC of 

approximately $3,084 based on a full 

year of CY 2008 claims data. The 

proposed CY 2011 median cost for this 

composite APC is slightly less than 

$3,604, the sum of the proposed median 

costs for APCs 0163 and 0651 ($2,606 + 

$998), the APCs to which CPT codes 

55875 and 77778 map if one service is 

billed on a claim without the other. We 

believe the proposed CY 2011 median 

cost for composite APC 8001 of 

approximately $3,265, calculated from 

claims we believe to be correctly coded, 

would result in a reasonable and 

appropriate payment rate for this service 

in CY 2011. 

(3) Cardiac Electrophysiologic 

Evaluation and Ablation Composite 

APC (APC 8000) 

Cardiac electrophysiologic evaluation 

and ablation services frequently are 

performed in varying combinations with 

one another during a single episode-ofcare in the hospital outpatient setting. 

Therefore, correctly coded claims for 

these services often include multiple 

codes for component services that are 

reported with different CPT codes and 

that, prior to CY 2008, were always paid 

separately through different APCs 

(specifically, APC 0085 (Level II 

Electrophysiologic Evaluation), APC 

0086 (Ablate Heart Dysrhythm Focus), 

and APC 0087 (Cardiac 

Electrophysiologic Recording/ 

Mapping)). As a result, there would 

never be many single bills for cardiac 

electrophysiologic evaluation and 

ablation services, and those that are 

reported as single bills would often 

represent atypical cases or incorrectly 

coded claims. As described in the CY 

2008 OPPS/ASC final rule with 

comment period (72 FR 66655 through 

66659), the APC Panel and the public 

expressed persistent concerns regarding 

the limited and reportedly 

unrepresentative single bills available 

for use in calculating the median costs 

for these services according to our 

standard OPPS methodology. 

Effective January 1, 2008, we 

established APC 8000 (Cardiac 

Electrophysiologic Evaluation and 

Ablation Composite) to pay for a 

composite service made up of at least 

one specified electrophysiologic 

evaluation service and one specified 

electrophysiologic ablation service. 

Calculating a composite APC for these 

services allowed us to utilize many 

more claims than were available to 

establish the individual APC median 

costs for these services, and we also saw 

this composite APC as an opportunity to 

advance our stated goal of promoting 

hospital efficiency through larger 

payment bundles. In order to calculate 

the median cost upon which the 

payment rate for composite APC 8000 is 

based, we used multiple procedure 

claims that contained at least one CPT 

code from group A for evaluation 

services and at least one CPT code from 

group B for ablation services reported 

on the same date of service on an 

individual claim. Table 9 in the CY 

2008 OPPS/ASC final rule with 

comment period (72 FR 66656) 

identified the CPT codes that are 

assigned to groups A and B. For a full 

discussion of how we identified the 

group A and group B procedures and 

established the payment rate for the 

cardiac electrophysiologic evaluation 

and ablation composite APC, we refer 

readers to the CY 2008 OPPS/ASC final 

rule with comment period (72 FR 66655 

through 66659). Where a service in 

group A is furnished on a date of service 

that is different from the date of service 

for a code in group B for the same 

beneficiary, payments are made under 

the appropriate single procedure APCs 

and the composite APC does not apply. 

For CY 2011, we are proposing to 

continue to pay for cardiac 

electrophysiologic evaluation and 

ablation services using the composite 

APC methodology proposed and 

implemented for CY 2008, CY 2009, and 

CY 2010. Consistent with our CY 2008 

through CY 2010 practice, we are 

proposing not to use the claims that 

meet the composite payment criteria in 

the calculation of the median costs for 

APC 0085 and APC 0086, to which the 

CPT codes in both groups A and B for 

composite APC 8000 are otherwise 

assigned. Median costs for APCs 0085 

and 0086 would continue to be 

calculated using single procedure 

claims. We continue to believe that the 

composite APC methodology for cardiac 

electrophysiologic evaluation and 

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ablation services is the most efficient 

and effective way to use the claims data 

for the majority of these services and 

best represents the hospital resources 

associated with performing the common 

combinations of these services that are 

clinically typical. Furthermore, this 

approach creates incentives for 

efficiency by providing a single 

payment for a larger bundle of major 

procedures when they are performed 

together, in contrast to continued 

separate payment for each of the 

individual procedures. 

Using partial year CY 2009 claims 

data available for this proposed rule, we 

were able to use 8,964 claims containing 

a combination of group A and group B 

codes and calculated a proposed median 

cost of approximately $10,834 for 

composite APC 8000. This is an increase 

compared to the CY 2010 OPPS/ASC 

final rule with comment period in 

which we calculated a final median cost 

for this composite APC of 

approximately $10,026 based on a full 

year of CY 2008 claims data. We believe 

the proposed median cost of $10,834 

calculated from a high volume of 

correctly coded multiple procedure 

claims would result in an accurate and 

appropriate proposed payment for 

cardiac electrophysiologic evaluation 

and ablation services when at least one 

evaluation service is furnished during 

the same clinical encounter as at least 

one ablation service. Table 6 below list 

the groups of procedures upon which 

we are proposing to base composite APC 

8000 for CY 2011. 

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(4) Mental Health Services Composite 

APC (APC 0034) 

We are proposing to continue our 

longstanding policy of limiting the 

aggregate payment for specified less 

resource-intensive mental health 

services furnished on the same date to 

the payment for a day of partial 

hospitalization, which we consider to be 

the most resource-intensive of all 

outpatient mental health treatment for 

CY 2011. We refer readers to the April 

7, 2000 OPPS final rule with comment 

period (65 FR 18452 through 18455) for 

the initial discussion of this 

longstanding policy. We continue to 

believe that the costs associated with 

administering a partial hospitalization 

program represent the most resourceintensive of all outpatient mental health 

treatment. Therefore, we do not believe 

that we should pay more for a day of 

individual mental health services under 


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the OPPS than the partial 

hospitalization per diem payment. 

As discussed in detail in section X. of 

this proposed rule, for CY 2011, we are 

proposing to use a provider-specific two 

tiered payment approach for partial 

hospitalization services that 

distinguishes payment made for services 

furnished in a CMHC from payment 

made for services furnished in a 

hospital. Specifically, we are proposing 

one APC for partial hospitalization 

program days with three services 

furnished in a CMHC (APC 0172, Level 

I Partial Hospitalization (3 services) for 

CMHCs) and one APC for days with four 

or more services furnished in a CMHC 

(APC 0173, Level II Partial 

Hospitalization (4 or more services) for 

CMHCs). We are proposing that the 

payment rates for these two APCs be 

based upon the median per diem costs 

calculated using data only from CMHCs. 

Similarly, we are proposing one APC for 

partial hospitalization program days 

with three services furnished in a 

hospital (APC 0175, Level I Partial 

Hospitalization (3 services) for HospitalBased PHPs), and one APC for days with 

four or more services furnished in a 

hospital (APC 0176, Level II Partial 

Hospitalization (4 or more services) for 

Hospital-Based PHPs). We are proposing 

that the payment rates for these two 

APCs be based on the median per diem 

costs calculated using data only from 

hospitals. 

Because our longstanding policy of 

limiting the aggregate payment for 

specified less resource-intensive mental 

health services furnished on the same 

date to the payment rate for the most 

resource-intensive of all outpatient 

mental health treatment, we are 

proposing to set the CY 2011 payment 

rate for APC 0034 (Mental Health 

Services Composite) at the same rate as 

we are proposing for APC 0176, which 

is the maximum partial hospitalization 

per diem payment. We believe this APC 

payment rate would provide the most 

appropriate payment for composite APC 

0034, taking into consideration the 

intensity of the mental health services 

and the differences in the HCPCS codes 

for mental health services that could be 

paid through this composite APC 

compared with the HCPCS codes that 

could be paid through partial 

hospitalization APC 0176. When the 

aggregate payment for specified mental 

health services provided by one hospital 

to a single beneficiary on one date of 

service based on the payment rates 

associated with the APCs for the 

individual services exceeds the 

maximum per diem partial 

hospitalization payment, we are 

proposing that those specified mental 

health services would be assigned to 

APC 0034. We are proposing that APC 

0034 would have the same payment rate 

as APC 0176 and that the hospital 

would continue to be paid one unit of 

APC 0034. The I/OCE currently 

determines, and we are proposing for 

CY 2011 that it would continue to 

determine, whether to pay these 

specified mental health services 

individually or to make a single 

payment at the same rate as the APC 

0176 per diem rate for partial 

hospitalization for all of the specified 

mental health services furnished by the 

hospital on that single date of service. 

(5) Multiple Imaging Composite APCs 

(APCs 8004, 8005, 8006, 8007, and 

8008) 

Prior to CY 2009, hospitals received a 

full APC payment for each imaging 

service on a claim, regardless of how 

many procedures were performed 

during a single session using the same 

imaging modality. Based on extensive 

data analysis, we determined that this 

practice neither reflected nor promoted 

the efficiencies hospitals can achieve 

when performing multiple imaging 

procedures during a single session (73 

FR 41448 through 41450). As a result of 

our data analysis, and in response to 

ongoing recommendations from 

MedPAC to improve payment accuracy 

for imaging services under the OPPS, we 

expanded the composite APC model 

developed in CY 2008 to multiple 

imaging services. Effective January 1, 

2009, we provide a single payment each 

time a hospital bills more than one 

imaging procedure within an imaging 

family on the same date of service. We 

utilize three imaging families based on 

imaging modality for purposes of this 

methodology: (1) Ultrasound; (2) 

computed tomography (CT) and 

computed tomographic angiography 

(CTA); and (3) magnetic resonance 

imaging (MRI) and magnetic resonance 

angiography (MRA). The HCPCS codes 

subject to the multiple imaging 

composite policy, and their respective 

families, are listed in Table 13 of the CY 

2010 OPPS/ASC final rule with 

comment period (74 FR 60403 through 

60407). 

While there are three imaging 

families, there are five multiple imaging 

composite APCs due to the statutory 

requirement at section 1833(t)(2)(G) of 

the Act that we differentiate payment 

for OPPS imaging services provided 

with and without contrast. While the 

ultrasound procedures included in the 

policy do not involve contrast, both CT/ 

CTA and MRI/MRA scans can be 

provided either with or without 

contrast. The five multiple imaging 

composite APCs established in CY 2009 

are: 

• APC 8004 (Ultrasound Composite); 

• APC 8005 (CT and CTA without 

Contrast Composite); 

• APC 8006 (CT and CTA with 

Contrast Composite); 

• APC 8007 (MRI and MRA without 

Contrast Composite); and 

• APC 8008 (MRI and MRA with 

Contrast Composite). 

We define the single imaging session 

for the ‘‘with contrast’’ composite APCs 

as having at least one or more imaging 

procedures from the same family 

performed with contrast on the same 

date of service. For example, if the 

hospital performs an MRI without 

contrast during the same session as at 

least one other MRI with contrast, the 

hospital will receive payment for APC 

8008, the ‘‘with contrast’’ composite 

APC. 

Hospitals continue to use the same 

HCPCS codes to report imaging 

procedures, and the I/OCE determines 

when combinations of imaging 

procedures qualify for composite APC 

payment or map to standard (sole 

service) APCs for payment. We make a 

single payment for those imaging 

procedures that qualify for composite 

APC payment, as well as any packaged 

services furnished on the same date of 

service. The standard (noncomposite) 

APC assignments continue to apply for 

single imaging procedures and multiple 

imaging procedures performed across 

families. For a full discussion of the 

development of the multiple imaging 

composite APC methodology, we refer 

readers to the CY 2009 OPPS/ASC final 

rule with comment period (73 FR 68559 

through 68569). 

At its February 2010 meeting, the APC 

Panel recommended that CMS continue 

providing analysis on an ongoing basis 

of the impact on beneficiaries of the 

multiple imaging composite APCs as 

data become available. We are accepting 

this recommendation and will provide 

the requested analysis to the APC Panel 

at a future meeting. 

In summary, for CY 2011, we are 

proposing to continue paying for all 

multiple imaging procedures within an 

imaging family performed on the same 

date of service using the multiple 

imaging composite payment 

methodology. The proposed CY 2011 

payment rates for the five multiple 

imaging composite APCs (APC 8004, 

APC 8005, APC 8006, APC 8007, and 

APC 8008) are based on median costs 

calculated from the partial year CY 2009 

claims available for this proposed rule 

that would have qualified for composite 

payment under the current policy (that 

is, those claims with more than one 

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procedure within the same family on a 

single date of service). To calculate the 

proposed median costs, we used the 

same methodology that we used to 

calculate the final CY 2010 median costs 

for these composite APCs. That is, we 

removed any HCPCS codes in the OPPS 

imaging families that overlapped with 

codes on our bypass list (‘‘overlap 

bypass codes’’) to avoid splitting claims 

with multiple units or multiple 

occurrences of codes in an OPPS 

imaging family into new ‘‘pseudo’’ single 

claims. The imaging HCPCS codes that 

we removed from the bypass list for 

purposes of calculating the proposed 

multiple imaging composite APC 

median costs appear in Table 8 of this 

proposed rule. (We note that, consistent 

with our proposal in section II.A.1.b. of 

this proposed rule to add CPT code 

70547 (Magnetic resonance 

angiography, neck; without contrast 

material(s)) to the list of bypass codes 

for CY 2011, we also are proposing to 

add CPT code 70547 to the list of 

proposed OPPS imaging family services 

overlapping with HCPCS codes on the 

proposed CY 2010 bypass list.) We 

integrated the identification of imaging 

composite ‘‘single session’’ claims, that 

is, claims with multiple imaging 

procedures within the same family on 

the same date of service, into the 

creation of ‘‘pseudo’’ single procedure 

claims to ensure that claims were split 

in the ‘‘pseudo’’ single process into 

accurate reflections of either a 

composite ‘‘single session’’ imaging 

service or a standard sole imaging 

service resource cost. Like all single 

bills, the new composite ‘‘single session’’ 

claims were for the same date of service 

and contained no other separately paid 

services in order to isolate the session 

imaging costs. Our last step after 

processing all claims through the 

‘‘pseudo’’ single process was to reassess 

the remaining multiple procedure 

claims using the full bypass list and 

bypass process in order to determine if 

we could make other ‘‘pseudo’’ single 

bills. That is, we assessed whether a 

single separately paid service remained 

on the claim after removing line-items 

for the ‘‘overlap bypass codes.’’ 

We were able to identify 1.7 million 

‘‘single session’’ claims out of an 

estimated 2.7 million potential 

composite cases from our ratesetting 

claims data, or well over half of all 

eligible claims, to calculate the 

proposed CY 2011 median costs for the 

multiple imaging composite APCs. 

Table 7 below lists the HCPCS codes 

that would be subject to the proposed 

multiple imaging composite policy and 

their respective families for CY 2011. 

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BILLING CODE 4120–01–C 

3. Proposed Changes to Packaged 

Services 

a. Background 

The OPPS, like other prospective 

payment systems, relies on the concept 

of averaging, where the payment may be 

more or less than the estimated cost of 

providing a service or bundle of services 

for a particular patient, but with the 

exception of outlier cases, the payment 

is adequate to ensure access to 

appropriate care. Packaging payment for 

multiple interrelated services into a 

single payment creates incentives for 

providers to furnish services in the most 

efficient way by enabling hospitals to 

manage their resources with maximum 

flexibility, thereby encouraging longterm cost containment. For example, 

where there are a variety of supplies 

that could be used to furnish a service, 

some of which are more expensive than 

others, packaging encourages hospitals 

to use the least expensive item that 

meets the patient’s needs, rather than to 

routinely use a more expensive item. 

Packaging also encourages hospitals to 

negotiate carefully with manufacturers 

and suppliers to reduce the purchase 

price of items and services or to explore 

alternative group purchasing 

arrangements, thereby encouraging the 

most economical health care. Similarly, 

packaging encourages hospitals to 

establish protocols that ensure that 

necessary services are furnished, while 

carefully scrutinizing the services 

ordered by practitioners to maximize 

the efficient use of hospital resources. 

Packaging payments into larger payment 

bundles promotes the stability of 

payment for services over time. Finally, 

packaging also may reduce the 

importance of refining service-specific 

payment because there is more 

opportunity for hospitals to average 

payment across higher cost cases 

requiring many ancillary services and 

lower cost cases requiring fewer 

ancillary services. For these reasons, 

packaging payment for services that are 

typically ancillary and supportive to a 

primary service has been a fundamental 

part of the OPPS since its 

implementation in August 2000. 

We assign status indicator ‘‘N’’ to 

those HCPCS codes that we believe are 

always integral to the performance of 

the primary modality; therefore, we 

always package their costs into the costs 

of the separately paid primary services 

with which they are billed. Services 

assigned status indicator ‘‘N’’ are 

unconditionally packaged. 

We assign status indicator ‘‘Q1’’ 

(‘‘STVX–Packaged Codes’’), ‘‘Q2’’ (‘‘T– 

Packaged Codes’’), or ‘‘Q3’’ (Codes that 

may be paid through a composite APC) 

to each conditionally packaged HCPCS 

code. An ‘‘STVX-packaged code’’ 


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describes a HCPCS code whose payment 

is packaged when one or more 

separately paid primary services with 

the status indicator of ‘‘S,’’ ‘‘T,’’ ‘‘V,’’ or 

‘‘X’’ are furnished in the hospital 

outpatient encounter. A ‘‘T-packaged 

code’’ describes a code whose payment 

is packaged when one or more 

separately paid surgical procedures with 

the status indicator of ‘‘T’’ are provided 

during the hospital encounter. ‘‘STVXpackaged codes’’ and ‘‘T-packaged 

codes’’ are paid separately in those 

uncommon cases when they do not 

meet their respective criteria for 

packaged payment. ‘‘STVX-packaged 

codes’’ and ‘‘T-packaged codes’’ are 

conditionally packaged. We refer 

readers to section XIII.A.1. of this 

proposed rule for a complete listing of 

status indicators. 

We use the term ‘‘dependent service’’ 

to refer to the HCPCS codes that 

represent services that are typically 

ancillary and supportive to a primary 

diagnostic or therapeutic modality. We 

use the term ‘‘independent service’’ to 

refer to the HCPCS codes that represent 

the primary therapeutic or diagnostic 

modality into which we package 

payment for the dependent service. In 

future years, as we consider the 

development of larger payment groups 

that more broadly reflect services 

provided in an encounter or episode-ofcare, it is possible that we might 

propose to bundle payment for a service 

that we now refer to as ‘‘independent.’’ 

Hospitals include HCPCS codes and 

charges for packaged services on their 

claims, and the estimated costs 

associated with those packaged services 

are then added to the costs of separately 

payable procedures on the same claims 

in establishing payment rates for the 

separately payable services. We 

encourage hospitals to report all HCPCS 

codes that describe packaged services 

that were provided, unless the CPT 

Editorial Panel or CMS provide other 

guidance. The appropriateness of the 

OPPS payment rates depend on the 

quality and completeness of the claims 

data that hospitals submit for the 

services they furnish to our Medicare 

beneficiaries. 

In the CY 2008 OPPS/ASC final rule 

with comment period (72 FR 66610 

through 66659), we adopted the 

packaging of payment for items and 

services in seven categories into the 

payment for the primary diagnostic or 

therapeutic modality to which we 

believe these items and services are 

typically ancillary and supportive. The 

seven categories are: (1) Guidance 

services; (2) image processing services; 

(3) intraoperative services; (4) imaging 

supervision and interpretation services; 

(5) diagnostic radiopharmaceuticals; (6) 

contrast media; and (7) observation 

services. We specifically chose these 

categories of HCPCS codes for packaging 

because we believe that the items and 

services described by the codes in these 

categories are typically ancillary and 

supportive to a primary diagnostic or 

therapeutic modality and, in those 

cases, are an integral part of the primary 

service they support. 

In addition, in the CY 2008 OPPS/ 

ASC final rule with comment period (72 

FR 66650 through 66659), we finalized 

additional packaging for the CY 2008 

OPPS, which included the 

establishment of new composite APCs 

for CY 2008, specifically APC 8000 

(Cardiac Electrophysiologic Evaluation 

and Ablation Composite), APC 8001 

(LDR Prostate Brachytherapy 

Composite), APC 8002 (Level I Extended 

Assessment & Management Composite), 

and APC 8003 (Level II Extended 

Assessment & Management Composite). 

In the CY 2009 OPPS/ASC final rule 

with comment period (73 FR 68559 

through 68569), we expanded the 

composite APC model to one new 

clinical area—multiple imaging 

services. We created five multiple 

imaging composite APCs for payment in 

CY 2009 that incorporate statutory 

requirements to differentiate between 

imaging services provided with contrast 

and without contrast as required by 

section 1833(t)(2)(G) of the Act. The 

multiple imaging composite APCs are: 

APC 8004 (Ultrasound Composite); APC 

8005 (CT and CTA without Contrast 

Composite); APC 8006 (CT and CTA 

with Contrast Composite); APC 8007 

(MRI and MRA without Contrast 

Composite); and APC 8008 (MRI and 

MRA with Contrast Composite). We 

discuss composite APCs in more detail 

in section II.A.2.e. of this proposed rule. 

We recognize that decisions about 

packaging and bundling payment 

involve a balance between ensuring that 

payment is adequate to enable the 

hospital to provide quality care and 

establishing incentives for efficiency 

through larger units of payment. 

Therefore we welcome public comments 

regarding our packaging proposals for 

calendar year (CY) 2011 OPPS. 

b. Packaging Issues 

(1) CMS Presentation of Findings 

Regarding Expanded Packaging at the 

February 2010 APC Panel Meeting 

In deciding whether to package a 

service or pay for a code separately, we 

have historically considered a variety of 

factors, including whether the service is 

normally provided separately or in 

conjunction with other services; how 

likely it is for the costs of the packaged 

code to be appropriately mapped to the 

separately payable codes with which it 

was performed; and whether the 

expected cost of the service is relatively 

low. 

As discussed in section I.E. of this 

proposed rule, the APC Panel advises 

CMS on the clinical integrity of 

payment groups and their weights, and 

the APC Panel has a Packaging 

Subcommittee that studies and makes 

recommendations on issues pertaining 

to services that are not separately 

payable under the OPPS, but whose 

payments are bundled or packaged into 

APC payments. The APC Panel has 

considered packaging issues at several 

earlier meetings. For discussions of 

earlier APC Panel meetings and 

recommendations, we refer readers to 

previously published hospital OPPS/ 

ASC proposed and final rules on the 

CMS Web site at: http://www.cms.gov/

FACA/05_AdvisoryPanelonAmbulatory

PaymentClassification

Groups.asp#TopOfPage. 

During the August 5–6, 2009 meeting 

of the APC Panel, we agreed to continue 

to provide the Panel with information 

on the impact of increased packaging on 

Medicare beneficiaries building on the 

analyses we had presented at the 

February 2009 APC Panel meeting. We 

did not share additional packaging data 

with the APC Panel at the August 2009 

meeting because we had already 

presented analysis comparing CY 2007 

and CY 2008 claims data and believed 

the APC Panel’s discussions would 

benefit from analyses of CY 2007 and 

CY 2009 claims data. We indicated that 

we planned to incorporate analysis of 

CY 2009 claims into the information we 

would bring to the APC Panel for its 

review at the winter 2010 meeting. 

At the February 17–18, 2010 APC 

Panel meeting, we presented subsequent 

analyses that compared CY 2007 claims 

processed through September 30, 2007 

to CY 2009 claims processed through 

September 30, 2009. Similar to the 

initial analysis that we presented to the 

APC Panel in 2009, the HCPCS codes 

that we compared are the ones that we 

identified in the CY 2008 OPPS final 

rule with comment period as fitting into 

one of the packaging categories, 

including HCPCS codes that became 

effective for CY 2009. As noted above, 

the seven packaging categories in our 

CY 2008 packaging proposal are 

guidance services, image processing 

services, intraoperative services, 

imaging supervision and interpretation 

services, diagnostic 

radiopharmaceuticals, contrast media, 

and observation services. We note that, 

similar to the initial analysis, we did not 

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make any adjustments for inflation, 

changes in the Medicare population, 

changes in payment due to APC 

recalibration, changes in frequency due 

to known changes in code definitions 

and coding practices, or changes in the 

population of hospitals paid under the 

OPPS. A summary of these data 

analyses is provided below. 

Analysis of the diagnostic 

radiopharmaceuticals category showed 

that the diagnostic 

radiopharmaceuticals were billed 1 

percent more often during the first 9 

months of CY 2009 as compared to the 

first 9 months of CY 2007. We noticed 

very little change in the frequency of 

hospitals reporting one or more 

diagnostic radiopharmaceutical between 

CY 2007 and CY 2009. Beginning in CY 

2008, we required reporting of a 

radiolabeled product (including 

diagnostic radiopharmaceuticals) when 

billing a nuclear medicine procedure, 

and we believe that the modest 

increases in frequency of reporting 

diagnostic radiopharmaceuticals and the 

percentage of reporting hospitals 

generally reflects hospitals adhering to 

our reporting requirements. 

We also found that nuclear medicine 

procedures (into which diagnostic 

radiopharmaceuticals were packaged) 

and associated diagnostic 

radiopharmaceuticals were billed 

approximately 3 million times during 

the first 9 months of both CY 2007 and 

CY 2009. Further analysis revealed that 

we paid hospitals over $637 million for 

nuclear medicine procedures and 

diagnostic radiopharmaceuticals during 

the first 9 months of CY 2007, when 

diagnostic radiopharmaceuticals were 

separately payable, and approximately 

the same amount for nuclear medicine 

procedures and diagnostic 

radiopharmaceuticals during the first 9 

months of CY 2009, when payment for 

diagnostic radiopharmaceuticals was 

packaged. This suggests that frequency 

and payment for nuclear medicine 

procedures remained fairly steady 

between the first 9 months of CY 2007 

and the first 9 months of CY 2009. 

We conducted the same analysis for 

guidance services that were packaged 

beginning in CY 2008. Analysis of the 

guidance category (which includes 

image-guided radiation therapy 

services) showed that guidance services 

were billed 8 percent more often during 

CY 2009 as compared to CY 2007 and 

that the number of hospitals reporting 

guidance services declined by 1 percent 

between CY 2007 and CY 2009. 

We also analyzed the same data for all 

contrast services that were packaged 

beginning in CY 2008. Analysis of this 

category showed that contrast services 

were billed 9 percent more often during 

CY 2009 as compared to CY 2007 and 

that the number of hospitals reporting 

contrast media increased by 1 percent 

between CY 2007 and CY 2009. 

Analysis of the data for image 

supervision and interpretation services 

showed that these services were billed 

10 percent more often during CY 2009 

as compared to CY 2007 and, similar to 

guidance services and contrast agents, 

the number of hospitals reporting image 

supervision and interpretation services 

declined by 1 percent between CY 2007 

and CY 2009. 

We also analyzed the first 9 months 

of CY 2007 and CY 2009 data related to 

all image processing services that were 

packaged beginning in the CY 2008 

OPPS. This analysis was difficult 

because there were significant changes 

to the CPT codes in this category for CY 

2009. For example, the intraoperative 

procedures described by CPT codes 

93320 (which describes spectral 

Doppler) and 93325 (which describes 

color flow Doppler) are now reported 

using one comprehensive code, CPT 

93306, which describes complete 

transthoracic echocardiogram with 

spectral and color flow Doppler. In an 

effort to isolate the effects of the changes 

to coding from our analysis, we 

removed the data for any codes 

experiencing significant modifications 

and observed a 7 percent decrease from 

CY 2007 to CY 2009 in the frequency of 

image processing services billed. 

However, as we pointed out to the APC 

panel, these numbers are not necessarily 

the majority of services in the category 

or reflective of behavioral changes for 

the services of interest. When we 

included the image processing services 

with the revised coding for CY 2009, the 

data showed a 61-percent decrease in 

the billing of these services between CY 

2007 and CY 2009 and a 6-percent 

decrease in the number of hospitals 

reporting these services during the same 

timeframe. 

Our analysis of changes in 

intraoperative services between CY 2007 

and CY 2009 showed a 5-percent 

decrease in the billing of these services 

and a 5-percent decrease in the number 

of hospitals reporting these services 

during the same timeframe. 

As we did for our presentation at the 

February 2009 APC Panel meeting, we 

also found that cardiac catheterization 

and other percutaneous vascular 

procedures that would typically be 

accompanied by Intravascular 

Ultrasound (IVUS), Intracardiac 

echocardiography (ICE), and Fractional 

flow reserve (FFR) (including IVUS, ICE, 

and FFR) were billed approximately 

376,000 times in CY 2007 and 

approximately 473,000 times in CY 

2009, representing an increase of 26 

percent in the number of services and 

items billed between CY 2007 and CY 

2009. IVUS, ICE, and FFR are 

intraoperative and image supervision 

and interpretation services that have 

received a lot of attention. Further 

analysis showed that the OPPS paid 

hospitals over $912 million for cardiac 

catheterizations, other related services, 

and IVUS, ICE, and FFR in CY 2007, 

when IVUS, ICE, and FFR were paid 

separately. In the first 9 months of CY 

2009, the OPPS paid hospitals 

approximately $1.4 billion for cardiac 

catheterization and other percutaneous 

vascular procedures and IVUS, ICE, and 

FFR, when payments for IVUS, ICE, and 

FFR were packaged. This is a 58-percent 

increase in payment from CY 2007. 

Using the first 9 months of claims data 

for both CY 2007 and CY 2009, we 

calculated an average payment per 

service or item provided of $2,430 in CY 

2007 and $3,048 in CY 2009 for cardiac 

catheterization and other related 

services, an increase of 25 percent in 

average payment per item or service. 

This observed increase in average 

payment per service is most likely 

attributable to the observed increase in 

the frequency of these cardiac 

catheterization and other percutaneous 

vascular procedures that would 

typically be accompanied by IVUS, ICE, 

and FFR (including IVUS, ICE, and FFR) 

billed in CY 2009. 

We also cannot determine how much 

of the 58-percent increase in aggregate 

payment for these services may be due 

to the packaging of payment for IVUS, 

ICE, and FFR (and other services that 

were newly packaged for CY 2008) and 

how much may be due to annual APC 

recalibration and typical fluctuations in 

service frequency. However, we believe 

that all of these factors contributed to 

the notable increase in aggregate 

payment between CY 2007 and CY 

2009. 

We further analyzed the first 9 

months of CY 2007 and CY 2009 claims 

data for radiation oncology services that 

would be accompanied by radiation 

oncology guidance. We found that 

radiation oncology services (including 

radiation oncology guidance services) 

were billed approximately 4 million 

times in CY 2007 and 3.8 million times 

in CY 2009, representing a decrease in 

frequency of approximately 6 percent 

between CY 2007 and CY 2009. These 

numbers represented each instance 

where a radiation oncology service or a 

radiation oncology guidance service was 

billed. Our analysis indicated that 

hospitals were paid over $811 million 

for radiation oncology services and 

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radiation oncology guidance services 

under the OPPS during the first 9 

months of CY 2007, when radiation 

oncology guidance services were 

separately payable. During the first 9 

months of CY 2009, when payments for 

radiation oncology guidance were 

packaged, hospitals were paid over $827 

million for radiation oncology services 

under the OPPS. This $827 million 

included packaged payment for 

radiation oncology guidance services 

and represented a 2-percent increase in 

aggregate payment from CY 2007 to CY 

2009. Using the first 9 months of claims 

data for both CY 2007 and CY 2009, we 

calculated an average payment per 

radiation oncology service or item billed 

of $199 in CY 2007 and $216 in CY 

2009, representing a per service increase 

of 8 percent from CY 2007 to CY 2009. 

At the February 2009 meeting, the 

APC panel also requested that CMS 

provide separate analyses of radiation 

oncology guidance, by type of radiation 

oncology service, specifically, intensity 

modulated radiation therapy (IMRT), 

stereotactic radiosurgery (SRS), 

brachytherapy, and conventional 

radiation therapy. The results from 

these analyses are discussed below: 

We conducted these analyses on the 

specified categories using the first 9 

months of claims and cost report data 

from CY 2007, before the expanded 

packaging went into effect, and the first 

9 months of claims and cost report data 

from CY 2009—the second year of 

packaged payment for the radiation 

guidance services. We found that IMRT 

services were billed approximately 670 

thousand times during the first 9 

months of CY 2007. During this same 

timeframe, Medicare paid hospitals 

approximately $227 million for IMRT 

services. In comparison, during the first 

9 months of CY 2009, IMRT services 

were billed 713 thousand times, 

representing an increase in frequency of 

6 percent. Further, during the first 9 

months of CY 2009, when payments for 

radiation oncology guidance were 

packaged into the payments for the 

separately paid IMRT procedures, we 

paid hospitals over $298 million, 

representing a 31-percent increase in 

payments from CY 2007 to CY 2009. 

We further analyzed the data for SRS 

services and found that, for the first 9 

months of CY 2007 and CY 2009, SRS 

services were billed approximately 9 

thousand and 13 thousand times, 

respectively, representing an increase in 

frequency of 43 percent. Aggregate 

Medicare payments for these SRS 

services increased by 24 percent from 

$34 million in CY 2007 to $42 million 

in CY 2009. 

Our review of the data for 

brachytherapy services revealed that, for 

the first 9 months of CY 2007 and CY 

2009, these services were billed 

approximately 10 thousand and 11 

thousand times, respectively, 

representing an increase in frequency of 

8 percent. During this timeframe, 

aggregate Medicare payments for these 

brachytherapy services increased by 1 

percent from $9.8 million in CY 2007 to 

$9.9 million in CY 2009. 

Our review of the data for 

conventional radiation therapy services 

revealed that conventional radiation 

therapy services were billed 1.4 million 

times and 1.1 million times, in the first 

9 months of CY 2007 and CY 2009, 

respectively, representing a decrease in 

frequency of 20 percent. During this 

timeframe, aggregate Medicare 

payments for these conventional 

radiation services decreased by 10 

percent from $189 million in CY 2007 

to $169 million in CY 2009. 

In reviewing our early CY 2009 claims 

data, which reflect the second year of 

packaged payment for services in the 

packaged categories identified in the CY 

2008 OPPS/ASC final rule with 

comment period, we generally observed 

increases in the billing and reporting of 

packaged services described by these 

categories, with the caveat that we are 

not able to untangle the various causes 

of declines in the image processing 

category, indicating steady beneficiary 

access to these categories of supporting 

and ancillary services. In aggregate, 

hospitals do not appear to have 

significantly changed their reporting 

patterns as a result of the expanded 

packaging policy nor do the analyses 

suggest that hospitals have stopped 

offering these supporting and ancillary 

services with the primary diagnostic 

and therapeutic modalities that they 

support. 

(2) Packaging Recommendations of the 

APC Panel at Its February 2010 Meeting 

During the February 2010 APC panel 

meeting, the APC Panel accepted the 

report of the Packaging Subcommittee, 

heard several presentations related to 

packaged services, discussed the 

deliberations of the Packaging 

Subcommittee, and made 6 

recommendations. The Report of the 

February 2010 meeting of the APC Panel 

may be found at the Web site at: 

http://www.cms.gov/FACA/05_Advisory

PanelonAmbulatoryPayment

ClassificationGroups.asp. 

To summarize, the APC Panel made 

the following recommendations 

regarding packaging of payment under 

the CY 2011 OPPS: 

1. That CMS consider whether CPT 

code 31627 (Bronchoscopy, rigid or 

flexible, including fluoroscopic 

guidance, when performed; with 

computer-assisted, image-guided 

navigation) (also known as 

electromagnetic navigational 

bronchoscopy (ENB)) should be 

packaged or paid separately; if it should 

be paid separately, CMS should 

investigate the appropriate APC 

assignment. The Panel suggests CMS 

use bronchoscopic ultrasonography 

(EBUS) as a clinical example for 

comparison. (Recommendation 1) 

2. That CMS make CPT code 96368 

(Intravenous infusion, for therapy, 

prophylaxis, or diagnosis (specify 

substance or drug); concurrent infusion) 

and CPT code 96376 (Therapeutic, 

prophylactic, or diagnostic injection 

(specify substance or drug); 

subcutaneous or intramuscular, each 

additional sequential intravenous push 

of the same substance/drug provided in 

the facility (List separately in addition 

to code for primary procedure)) 

separately payable in the CY 2011 

OPPS/ASC final rule with comment 

period at an appropriate payment rate as 

determined by CMS. (Recommendation 

2) 

3. That CMS conditionally package 

payment for the guidance procedures 

that would accompany breast needle 

placement (specifically CPT code 19290 

(Preoperative placement of needle 

localization wire, breast); CPT code 

19291 (Preoperative placement of 

needle localization wire, breast; each 

additional lesion (List separately in 

addition to code for primary 

procedure)); CPT code 19295 (Image 

guided placement, metallic localization 

clip, percutaneous, during breast 

biopsy/aspiration (List separately in 

addition to code for primary 

procedure)); CPT code 77031 

(Stereotactic localization guidance for 

breast biopsy or needle placement (e.g., 

for wire localization or for injection)), 

each lesion, radiological supervision 

and interpretation); CPT code 77032 

(Mammographic guidance for needle 

placement, breast (e.g., for wire 

localization or for injection), each 

lesion, radiological supervision and 

interpretation); CPT code 76942 

(Ultrasonic guidance for needle 

placement (e.g., biopsy, aspiration, 

injection, localization device), imaging 

supervision and interpretation)) when 

these guidance services are performed 

separately. (Recommendation 3) 

4. The Panel encourages the public to 

submit common clinical scenarios 

involving currently packaged HCPCS 

codes and recommendations of specific 

services or procedures for which 

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payment would be most appropriately 

packaged under the OPPS for review by 

the Packaging Subcommittee members. 

(Recommendation 4) 

5. That CMS continue providing 

analysis on an ongoing basis of the 

impact on beneficiaries of the multiple 

imaging composite APCs as data become 

available. (Recommendation 5) 

6. That the work of the Packaging 

Subcommittee continue. 

(Recommendation 6) 

We address each of these 

recommendations in the discussion that 

follows: 

Recommendation 1 

At the APC Panel’s February 2010 

meeting, the manufacturer asserted that 

use of ENB technology during a 

bronchoscopy procedure enables access 

to distal lesions that are otherwise not 

accessible without use of the ENB 

technology. The manufacturer also 

argued that without separate payment 

for ENB, hospitals would likely not 

adopt the technology and the 

population that would likely benefit 

from ENB would not have access to this 

technology. In response to the 

manufacturer’s assertion, the APC Panel 

asked CMS to consider whether CPT 

code 31627, which describes 

Electromagnetic Navigational 

Bronchoscopy (ENB), should be 

packaged or paid separately; and if it 

should be paid separately, the APC 

Panel asked CMS to investigate the 

appropriate APC assignment. CPT code 

31627 is new for CY 2010, and we 

assigned it a new interim status 

indicator of ‘‘N’’ in our CY 2010 OPPS/ 

ASC final rule with comment period 

based on our packaging policies 

(discussed in section II.A.3.a. of this 

proposed rule). We have considered the 

information available to us for CPT code 

31627 and believe that the code 

describes a procedure that is supportive 

of and ancillary to the primary 

diagnostic or therapeutic modality, in 

this case, bronchoscopy procedures (for 

example, CPT code 31622 

(Bronchoscopy, rigid or flexible, 

including fluoroscopic guidance, when 

performed: diagnostic, with cell 

washing, when performed (separate 

procedure)). We currently package 

payment for CPT code 31627, and we 

continue to believe that this is the 

appropriate treatment of that code. 

Therefore, we are proposing to package 

payment for CPT code 31627. As we 

have discussed in past rules, in making 

our decision on whether to package a 

service or pay for it separately we 

consider a variety of factors, including 

whether the service is normally 

provided separately or in conjunction 

with other services because it supports 

those services. By proposing to 

packaging payment for this procedure, 

we would be treating it in the same 

manner as similar computer-assisted, 

navigational diagnostic procedures that 

are supportive of and ancillary to a 

primary diagnostic or therapeutic 

modality. In its recommendation 

regarding whether to make separate 

payment under an APC for CPT code 

31627, the APC Panel suggested that we 

use bronchoscopic ultrasonography as a 

clinical example for comparison. We 

consider CPT code 31620 

(Endobronchial ultrasound (EBUS) 

during bronchoscopic diagnostic or 

therapeutic intervention(s) (List 

separately in addition to code for 

primary procedure)) to be a suitable 

comparison because it describes another 

bronchoscopic procedure in which a 

guidance technology (that is, 

ultrasonography) is used to achieve the 

therapeutic benefit of the procedure. 

Similar to our proposed payment for 

CPT code 31627, payment for CPT code 

31620 is currently packaged into the 

primary modality with which it would 

be appropriately billed. In CY 2008, as 

part of our increased packaging 

proposal, we identified the EBUS 

procedure as an intraoperative ancillary 

service that would typically be reported 

in conjunction with an independent 

service. In addition, similar to CPT code 

31627, CPT code 31620 is an add-on 

code that, per CPT reporting guidelines, 

would only be appropriately reported in 

conjunction with specified 

bronchoscopy procedures with which it 

would be performed. Based on these 

general comparisons of CPT code 31627 

to the EBUS procedure described by 

CPT code 31620, we believe that our 

proposal to package payment for CPT 

code 31627 is consistent with the 

packaging approach that we have 

adopted in recent years. As we have 

stated in past rules with regard to EBUS, 

we also fully expect that, to the extent 

these services are billed appropriately, 

payment for the primary service would 

reflect the cost of the packaged ENB 

procedure. For example, in the CY 2009 

OPPS/ASC final rule with comment 

period (73 FR 68584), we discussed 

packaging of CPT code 31620; we state 

that we observed increased packaged 

costs associated with the services into 

which CPT code 31620 had been 

packaged, which increased the APC 

payment rates for bronchoscopy 

procedures. 

In summary, we continue to believe 

that CPT code 31627 describes a 

procedure that is ancillary to and 

supportive of the primary service with 

which it is often billed. Therefore, for 

CY 2011, we are proposing to maintain 

CPT code 31627 as a packaged service. 

Recommendation 2 

We are not accepting the APC Panel’s 

recommendation that CMS make CPT 

code 96368 and CPT code 96376 

separately payable for the CY 2011 

OPPS. We consider a variety of factors 

in making a decision whether to 

package a service or pay for it 

separately, including whether the 

service is normally provided separately 

or in conjunction with other services 

and how likely it is for the costs of the 

packaged code to be appropriately 

mapped to the separately payable codes 

with which it was performed. CPT 

codes 96376 and 96368 describe 

concurrent and sequential drug 

administration services that have always 

been packaged under the OPPS. From 

the inception of the OPPS through CY 

2006, we paid for drug administration 

under the OPPS using HCPCS 

alphanumeric codes that packaged 

payment for concurrent infusions and 

administration of new drugs into the 

payment for the alphanumeric codes for 

drug administration. In CY 2007, we 

adopted CPT codes for drug 

administration services. The CY 2007 

CPT codes did not separately recognize 

administration of new drugs during the 

same encounter with a separate CPT 

code. Therefore, administration of a new 

drug continued to be packaged into 

payment for the service of which it was 

a part. Moreover, for CY 2007, CPT code 

90768 (Intravenous infusion, for 

therapy, prophylaxis, or diagnosis; 

concurrent infusion), which was 

replaced by CPT code 96368, was 

packaged under the OPPS, continuing 

the longstanding practice of not making 

separate payment for concurrent 

infusion. We also pointed out that, 

during our implementation of this new 

CPT code, while it was new for CY 

2007, it represented the same 

procedures as described by the previous 

drug administration HCPCS code set, 

and, as a result, the payment data for 

these procedures would be captured in 

the claims that were available to us for 

ratesetting purposes. 

Similarly, CPT codes 96368 and 

96376, which were created by CPT in 

2008, are replacement codes for those 

same procedures that were described by 

the previous drug administration code 

sets and their associated data would be 

captured in our claims database. The 

costs for these services, concurrent 

infusion and additional push of the 

same drug, would continue to be 

packaged into payment for the drug 

administration codes with which they 

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are reported. In making our decision 

whether to package a service or pay for 

it separately, we consider a variety of 

factors, including whether the service is 

normally provided separately or in 

conjunction with other services. CPT 

codes 96368 and 96376 describe 

concurrent and sequential drug 

administration services that, per CPT 

guidelines, are always provided in 

association with an initial drug 

administration service. Therefore, they 

continue to be appropriately packaged 

into the payment for the separately 

payable services that they usually 

accompany. For example, CPT code 

96376 would be billed with CPT code 

96374 (Therapeutic, prophylactic, or 

diagnostic injection; intravenous push, 

single or initial substance/drug), which 

describes an initial intravenous push 

code and, as a result, the cost for CPT 

code 96376 would be reflected in the 

total cost for CPT code 96374. Moreover, 

payment for these services has always 

been packaged into payment for the 

drug administration services without 

which they cannot be correctly reported. 

These two codes each describe 

services that, by definition, are always 

provided in conjunction with an initial 

drug administration code. These 

services have been packaged since the 

inception of the OPPS, and we continue 

to believe they are appropriately 

packaged into the payment for the 

separately payable services without 

which, under CPT guidelines and 

definitions, they cannot be 

appropriately reported. Therefore, for 

CY 2011, we are proposing to make 

packaged payment for CPT code 96368 

and CPT code 96376 and assign them a 

status indicator of ‘‘N.’’ 

Recommendation 3 

We are not accepting the APC Panel’s 

recommendation that we conditionally 

package CPT codes 19290, 19291, 

19295, 77031, 77032, and 76942. During 

the APC Panel’s February 2010 meeting, 

we shared with the Packaging 

Subcommittee our most recent claims 

data for the guidance procedures that 

would accompany breast needle 

placement, demonstrating that, for some 

of these services, the code was billed by 

itself up to 25 percent of the time. While 

the Packaging Subcommittee broadly 

discussed clinical scenarios in which 

these services may be billed separately, 

it remains unclear to us why these 

services are being performed separately 

and whether they should be paid 

separately. We believe that these 

services typically are performed in 

conjunction with surgical procedures 

involving the breast and, therefore, are 

appropriately packaged. Therefore, we 

are not accepting the APC panel’s 

recommendation that we conditionally 

package payment for these guidance 

procedures when they are performed 

separately. For CY 2011, we are 

proposing to maintain the unconditional 

packaged payment status for these 

procedures. Specifically, we are 

proposing to package payment, 

indicated by a status indicator of ‘‘N,’’ 

for CPT codes 19290, 19291, 19295, 

77031, 77032, and 76942, into the 

primary modality with which they 

would be appropriately billed. However, 

observing such a sizable percentage of 

services that are the only service 

appearing on a claim for a packaged 

item, especially when these services do 

not receive separate payment, leads us 

to encourage the public to submit any 

clinical scenarios in their public 

comments involving these services that 

show the circumstances under which 

these services may be appropriately 

billed without a primary procedure that 

is furnished on the same date. 

Recommendation 4 

We are accepting the APC Panel’s 

recommendation to continue to 

encourage submission of common 

clinical scenarios involving currently 

packaged HCPCS codes to the Packaging 

Subcommittee for its ongoing review. 

We also encourage recommendations 

from the public on specific services or 

procedures whose payment would be 

most appropriately packaged under the 

OPPS. Additional detailed suggestions 

for the Packaging Subcommittee should 

be submitted by e-mail to 

APCPanel@cms.hhs.gov with Packaging 

Subcommittee in the subject line. 

Recommendation 5 

We are accepting the APC Panel’s 

recommendation that CMS provide 

information to the APC Panel on the 

impact of the creation of the imaging 

composite APCs on services to 

beneficiaries. Our proposal with regard 

to the imaging composite APCs is 

discussed in detail in section II.A.2.e.(5) 

of this proposed rule. 

Recommendation 6 

The Packaging Subcommittee of the 

APC Panel was established to review 

packaging issues. We are accepting the 

APC Panel’s recommendation that the 

Packaging Subcommittee remain active 

until the next APC Panel meeting. We 

note that the APC Panel Packaging 

Subcommittee is currently active and 

that we will share additional issues and 

new data concerning the packaged 

status of codes with the APC Panel 

Packaging Subcommittee as that 

information becomes available. 

4. Proposed Calculation of OPPS Scaled 

Payment Weights 

Using the proposed APC median costs 

discussed in sections II.A.1. and II.A.2. 

of this proposed rule, we calculated the 

proposed relative payment weights for 

each APC for CY 2011 shown in 

Addenda A and B to this proposed rule. 

In years prior to CY 2007, we 

standardized all the relative payment 

weights to APC 0601 (Mid Level Clinic 

Visit) because mid-level clinic visits 

were among the most frequently 

performed services in the hospital 

outpatient setting. We assigned APC 

0601 a relative payment weight of 1.00 

and divided the median cost for each 

APC by the median cost for APC 0601 

to derive the relative payment weight 

for each APC. 

Beginning with the CY 2007 OPPS (71 

FR 67990), we standardized all of the 

relative payment weights to APC 0606 

(Level 3 Clinic Visits) because we 

deleted APC 0601 as part of the 

reconfiguration of the clinic visit APCs. 

We selected APC 0606 as the base 

because APC 0606 was the mid-level 

clinic visit APC (that is, Level 3 of five 

levels). Therefore, for CY 2011, to 

maintain consistency in using a median 

for calculating unscaled weights 

representing the median cost of some of 

the most frequently provided services, 

we are proposing to continue to use the 

median cost of the mid-level clinic visit 

APC (APC 0606) to calculate unscaled 

weights. Following our standard 

methodology, but using the proposed 

CY 2011 median cost for APC 0606, for 

CY 2011 we assigned APC 0606 a 

relative payment weight of 1.00 and 

divided the median cost of each APC by 

the proposed median cost for APC 0606 

to derive the proposed unscaled relative 

payment weight for each APC. The 

choice of the APC on which to base the 

proposed relative weights for all other 

APCs does not affect the payments made 

under the OPPS because we scale the 

weights for budget neutrality. 

Section 1833(t)(9)(B) of the Act 

requires that APC reclassification and 

recalibration changes, wage index 

changes, and other adjustments be made 

in a budget neutral manner. Budget 

neutrality ensures that the estimated 

aggregate weight under the OPPS for CY 

2011 is neither greater than nor less 

than the estimated aggregate weight that 

would have been made without the 

changes. To comply with this 

requirement concerning the APC 

changes, we are proposing to compare 

the estimated aggregate weight using the 

CY 2010 scaled relative weights to the 

estimated aggregate weight using the 

proposed CY 2011 unscaled relative 

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weights. For CY 2010, we multiply the 

CY 2010 scaled APC relative weight 

applicable to a service paid under the 

OPPS by the volume of that service from 

CY 2009 claims to calculate the total 

weight for each service. We then add 

together the total weight for each of 

these services in order to calculate an 

estimated aggregate weight for the year. 

For CY 2011, we perform the same 

process using the proposed CY 2011 

unscaled weights rather than scaled 

weights. We then calculate the weight 

scaler by dividing the CY 2010 

estimated aggregate weight by the 

proposed CY 2011 estimated aggregate 

weight. The service-mix is the same in 

the current and prospective years 

because we use the same set of claims 

for service volume in calculating the 

aggregate weight for each year. For a 

detailed discussion of the weight scaler 

calculation, we refer readers to the 

OPPS claims accounting document 

available on the CMS Web site at: 

http://www.cms.gov/ 

HospitalOutpatientPPS/. We included 

payments to CMHCs in our comparison 

of estimated unscaled weight in CY 

2011 to estimated total weight in CY 

2010 using CY 2009 claims data, 

holding all other components of the 

payment system constant to isolate 

changes in total weight. Based on this 

comparison, we adjusted the unscaled 

relative weights for purposes of budget 

neutrality. The proposed CY 2011 

unscaled relative payment weights were 

adjusted by multiplying them by a 

proposed weight scaler of 1.3650 to 

ensure budget neutrality of the proposed 

CY 2011 relative weights. 

Section 1833(t)(14) of the Act 

provides the payment rates for certain 

‘‘specified covered outpatient drugs.’’ 

That section states that ‘‘Additional 

expenditures resulting from this 

paragraph shall not be taken into 

account in establishing the conversion 

factor, weighting and other adjustment 

factors for 2004 and 2005 under 

paragraph (9) but shall be taken into 

account for subsequent years.’’ 

Therefore, the cost of those specified 

covered outpatient drugs (as discussed 

in section V.B.3. of this proposed rule) 

was included in the proposed budget 

neutrality calculations for the CY 2011 

OPPS. 

The proposed scaled relative payment 

weights listed in Addenda A and B to 

this proposed rule incorporate the 

proposed recalibration adjustments 

discussed in sections II.A.1. and II.A.2. 

of this proposed rule. 

B. Proposed Conversion Factor Update 

Section 1833(t)(3)(C)(ii) of the Act 

requires us to update the conversion 

factor used to determine payment rates 

under the OPPS on an annual basis by 

applying the OPD fee schedule increase 

factor. Under the authority in section 

1833(t)(3)(C)(iv) of the Act, for CY 2010, 

the OPD fee schedule increase factor is 

equal to the hospital inpatient market 

basket percentage increase applicable to 

hospital discharges under section 

1886(b)(3)(B)(iii) of the Act. The 

proposed hospital market basket 

increase for FY 2011 published in the 

FY 2011 IPPS/LTCH PPS proposed rule 

(75 FR 24062) prior to changes required 

by the Affordable Care Act and the 

HCERA is 2.4 percent. New section 

1833(t)(3)(F)(iii) and (G)(i) of the Act (as 

added by 3401(i) of the Affordable Care 

Act and as amended by 10319(g) of such 

Act and section 1105(e) of HCERA) 

require a .25 percentage point reduction 

to the CY 2011 OPD fee schedule 

increase factor, resulting in a proposed 

CY 2011 OPPS market basket update of 

2.15 percent. To set the proposed OPPS 

conversion factor for CY 2011, we 

increased the CY 2010 conversion factor 

of $67.241 by 2.15 percent. We 

announced the CY 2010 OPPS 

conversion factor of $67.241 in the 

Federal Register Notice CMS 1504–N, 

entitled ‘‘Medicare Program; Changes to 

the Hospital Outpatient Prospective 

Payment System and Ambulatory 

Surgical Center Payment System for CY 

2010, and Extension of Part B Payment 

for Services Furnished by Hospitals or 

Clinics Operated by the Indian Health 

Service, Indian Tribes, or Tribal 

Organizations Made by the Affordable 

Care Act and ASC Changes Made By 

Previous Correction Notices,’’ which is 

being published around the time of this 

proposed rule. Hospitals that fail to 

meet the reporting requirements of the 

Hospital Outpatient Quality Data 

Reporting Program (HOP QDRP) are 

subject to a reduction of 2.0 percentage 

points from the OPD fee schedule 

increase factor adjustment to the 

conversion factor. For a complete 

discussion of the HOP QDRP 

requirements and the payment 

reduction for hospitals that fail to meet 

those requirements, we refer readers to 

section XVI. of this proposed rule. 

In accordance with section 

1833(t)(9)(B) of the Act, we further 

adjusted the proposed conversion factor 

for CY 2011 to ensure that any revisions 

we are proposing to make to our updates 

for a revised wage index and rural 

adjustment are made on a budget 

neutral basis. We calculated a proposed 

overall budget neutrality factor of 

1.0011 for wage index changes by 

comparing total payments from our 

simulation model using the FY 2011 

IPPS proposed wage indices to those 

payments using the current (FY 2010) 

IPPS wage indices, as adopted on a 

calendar year basis for the OPPS, as 

indicated in the Federal Register notice 

announcing Affordable Care Act 

changes to the wage indices (See CMS 

1504–N referenced above). For CY 2011, 

we are not proposing a change to our 

rural adjustment policy. Therefore, the 

proposed budget neutrality factor for the 

rural adjustment is 1.0000. In addition, 

to accommodate the proposed cancer 

hospital adjustment described in section 

II.F. of this preamble, we calculated an 

additional proposed budget neutrality 

factor of 0.9934 by comparing total 

payments from our simulation model for 

CY 2011 including the proposed 

adjustment for cancer hospitals to total 

payments from our simulation model for 

CY 2011 without the proposed 

adjustment for cancer hospitals. 

For this proposed rule, we estimated 

that pass-through spending for both 

drugs and biologicals and devices for 

CY 2011 would equal approximately 

$86.9 million, which represents 0.20 

percent of total projected CY 2011 OPPS 

spending. Therefore, the conversion 

factor would also be adjusted by the 

difference between the 0.14 percent 

estimate of pass-through spending for 

CY 2010 and the 0.20 percent estimate 

of CY 2011 pass-through spending. 

Finally, estimated payments for outliers 

remain at 1.0 percent of total OPPS 

payments for CY 2011. 

The proposed OPD fee schedule 

increase factor of 2.15 percent for CY 

2011, the required proposed wage index 

budget neutrality adjustment of 

approximately 1.0011, the proposed 

cancer hospital budget neutrality 

adjustment of 0.9934, and the proposed 

adjustment of 0.06 percent of projected 

OPPS spending for the difference in the 

pass-through spending resulted in a 

proposed conversion factor for CY 2011 

of $68.267, which reflects the full 

proposed OPD fee schedule increase. To 

calculate the proposed CY 2011 reduced 

market basket conversion factor for 

those hospitals that fail to meet the 

requirements of the HOP QDRP for the 

full CY 2011 payment update, we made 

all other adjustments discussed above, 

but used a proposed reduced market 

basket increase update factor of 0.15 

percent (that is, an unadjusted OPD fee 

schedule increase factor of 2.4 percent 

reduced by 0.25 percentage point as 

required by the Affordable Care Act and 

HCERA and further reduced by 2.0 

percentage points as required by section 

1833(t)(17)(A)(i) of the Act for failure to 

comply with the OPD quality reporting 

requirements). This resulted in a 

proposed reduced conversion factor for 

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CY 2011 of $66.930 for those hospitals 

that fail to meet the HOP QDRP 

requirements. 

OPD Fee Schedule Increase Factor 

In accordance with section 

1833(t)(3)(C)(iv) of the Act, each year we 

update the OPPS conversion factor by 

an OPD fee schedule increase factor. For 

purposes of section 1833(t)(3)(C)(iv) of 

the Act, subject to 1833(t)(17) and 

1833(t)(F), the OPD fee schedule 

increase factor is equal to the market 

basket percentage increase applicable 

under section 1886(b)(3)(B)(iii) to 

hospital discharges occurring during the 

fiscal year ending in such year, reduced 

by 1 percentage point for such factor for 

services furnished in each of 2000 and 

2002. For hospitals that do not meet the 

HOP QDRP reporting requirements 

discussed in section XVI of this 

proposed rule, the update is equal to the 

OPD fee schedule increase factor less an 

additional 2.0 percentage points. In 

accordance with these statutory 

provisions, in the CY 2010 OPPS final 

rule (74 FR 60419), we finalized an OPD 

fee schedule increase factor equal to the 

IPPS full market basket update of 2.1 

percent. Hospitals that failed to meet the 

HOP QDRP reporting requirements were 

subject to a reduced OPD fee schedule 

increase factor of 0.1 percent. 

We note that section 1833(t)(3)(F)(ii) 

and (G)(i) of the Act as added by section 

3401(i) of Public Law 111–148 

(Affordable Care Act) and as amended 

by section 10319(g) of such Act and 

section 1105(e) of Public Law 111–152 

(HCERA) require that after determining 

the OPD fee schedule increase factor, 

the Secretary shall reduce such factor 

for CY 2010 by 0.25 percentage point. 

Therefore, the reduction of 0.25 

percentage point applied to the full IPPS 

hospital operating market basket 

increase factor of 2.1 percent results in 

a revised OPD fee schedule increase 

factor of 1.85 percent. For hospitals that 

do not meet the HOP QDRP reporting 

requirements, the update is equal to the 

OPD fee schedule increase factor, less 

the additional 0.25 percentage point 

required by section 1833(t)(F)(ii) and 

(G)(i) of the Act, minus 2.0 percentage 

points. New section 1833(t)(3)(F) of the 

Act further states the application of 

1833(t)(3)(F) may result in the OPD fee 

schedule increase factor under 

1833(t)(3)(C)(iv) of the Act being less 

than zero for a year. Thus, the CY 2010 

OPD fee schedule increase factor was 

1.85 percent (that is, 2.1 percent minus 

0.25 percentage point) for hospitals that 

met the HOP QDRP reporting 

requirements and negative 0.15 percent 

(2.1 percent, less the 0.25 percentage 

point, minus the 2.0 percentage points) 

for hospitals failing to meet the HOP 

QDRP reporting requirements. 

As with the CY 2010 OPD fee 

schedule increase factor, new section 

1833(t)(3)(F)(ii) and (G)(i) of the Act 

requires that the CY 2011 OPD fee 

schedule increase factor be reduced by 

0.25 percentage point, subject to the 

hospital submitting quality information 

under rules established by the Secretary 

in accordance with section 1833(t)(17) 

of the Act. For hospitals that do not 

meet the HOP QDRP reporting 

requirements, the update is equal to the 

OPD fee schedule increase factor minus 

0.25 percentage point minus 2.0 

percentage points. Section 1833(t)(3)(F) 

of the Act further states that this 

amendment may result in the applicable 

percentage increase being less than zero. 

In the FY 2011 IPPS proposed rule, 

consistent with current law, based on 

IHS Global Insight, Inc.’s first quarter 

2010 forecast, with historical data 

through the 2009 fourth quarter, we 

estimated that the FY 2011 IPPS market 

basket update would be 2.4 percent (75 

FR 24016). However, consistent with the 

amendments to section 1833(t)(3)(F)(ii) 

and (G)(i) of the Act, we are required to 

reduce the OPD fee schedule increase 

factor by 0.25 percentage point. 

Therefore, the proposed market basket 

update to the CY 2011 OPD fee schedule 

increase factor is 2.15 percent (that is, 

the CY 2011 estimate of the OPD fee 

schedule increase factor of 2.4 percent 

minus 0.25 percentage point). For 

hospitals that do not meet the HOP 

QDRP reporting requirements, the 

proposed update to the OPPS 

conversion factor is 0.15 percent (that is, 

the adjusted CY 2011 estimate of the 

market basket rate-of increase of 2.15 

percent minus 2.0 percentage points). 

We are proposing to revise 42 CFR 

419.32 to reflect the Affordable Care Act 

and HCERA requirements for 0.25 

percentage point reductions to the OPPS 

fee schedule increase factor for CY 2010 

and CY 2011 respectively in revised 

paragraph 42 CFR 419.32(b)(1)(iv). 

C. Proposed Wage Index Changes 

Section 1833(t)(2)(D) of the Act 

requires the Secretary to determine a 

wage adjustment factor to adjust, for 

geographic wage differences, the portion 

of the OPPS payment rate, which 

includes the copayment standardized 

amount, that is attributable to labor and 

labor-related cost. This adjustment must 

be made in a budget neutral manner and 

budget neutrality is discussed in section 

II.B. of this proposed rule. 

The OPPS labor-related share is 60 

percent of the national OPPS payment. 

This labor-related share is based on a 

regression analysis that determined that 

approximately 60 percent of the costs of 

services paid under the OPPS were 

attributable to wage costs. We confirmed 

that this labor-related share for 

outpatient services is still appropriate 

during our regression analysis for the 

payment adjustment for rural hospitals 

in the CY 2006 OPPS final rule with 

comment period (70 FR 68553). 

Therefore, we are not proposing to 

revise this policy for the CY 2011 OPPS. 

We refer readers to section II.H. of this 

proposed rule for a description and 

example of how the wage index for a 

particular hospital is used to determine 

the payment for the hospital. 

As discussed in section II.A.2.c. of 

this proposed rule, for estimating 

national median APC costs, we 

standardize 60 percent of estimated 

claims costs for geographic area wage 

variation using the same FY 2011 prereclassified wage index that the IPPS 

uses to standardize costs. This 

standardization process removes the 

effects of differences in area wage levels 

from the determination of a national 

unadjusted OPPS payment rate and the 

copayment amount. 

As published in the original OPPS 

April 7, 2000 final rule with comment 

period (65 FR 18545), the OPPS has 

consistently adopted the final IPPS 

wage index as the wage index for 

adjusting the OPPS standard payment 

amounts for labor market differences. 

Thus, the wage index that applies to a 

particular acute care short-stay hospital 

under the IPPS would also apply to that 

hospital under the OPPS. As initially 

explained in the September 8, 1998 

OPPS proposed rule, we believed and 

continue to believe that using the IPPS 

wage index as the source of an 

adjustment factor for the OPPS is 

reasonable and logical, given the 

inseparable, subordinate status of the 

HOPD within the hospital overall. In 

accordance with section 1886(d)(3)(E) of 

the Act, the IPPS wage index is updated 

annually. Therefore, in accordance with 

our established policy, we are proposing 

to use the final FY 2011 version of the 

IPPS wage index used to pay IPPS 

hospitals to adjust the CY 2011 OPPS 

payment rates and copayment amounts 

for geographic differences in labor cost 

for all providers that participate in the 

OPPS, including providers that are not 

paid under the IPPS (referred to in this 

section as ‘‘non-IPPS’’ providers). 

The Affordable Care Act contains a 

number of provisions affecting the FY 

2011 IPPS wage index values, including 

revisions to the reclassification wage 

comparability criteria that were 

finalized in the FY 2009 IPPS final rule 

(73 FR 48568 through 48570), and the 

application of rural floor budget 

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neutrality on a national, rather than 

State-specific, basis through a uniform, 

national adjustment to the area wage 

index. These specific provisions are 

discussed in more detail in the 

supplemental FY 2011 IPPS/LTCH PPS 

proposed rule published June 2, 2010 in 

the Federal Register (75 FR 30920). The 

Affordable Care Act also required CMS 

to establish an adjustment to create a 

wage index floor of 1.00 for hospitals 

located in States determined to be 

frontier States (section 10324). We 

discuss this provision and how it 

applies to hospital outpatient 

departments in more detail below. 

Section 10324 of the Affordable Care 

Act specifies that, for services furnished 

beginning CY 2011, the wage 

adjustment factor applicable to any 

hospital outpatient department that is 

located in a frontier State (as defined in 

section 1886(d)(3)(E)(iii)(II) of the Act) 

may not be less than 1.00. Further, 

section 10324 states that this adjustment 

to the wage index for these outpatient 

departments should not be made in a 

budget neutral manner. As such, for the 

CY 2011 OPPS, we are proposing to 

adjust the wage index for all HOPDs, 

including those providers that are not 

paid under the IPPS, which are 

identified as being located in a frontier 

State, in the manner specified in the 

Affordable Care Act. Specifically, we 

would adjust the FY 2011 wage index, 

as adopted on a calendar year basis for 

the OPPS, for all hospitals paid under 

the OPPS, including non-IPPS hospitals, 

located in a frontier State to 1.00 in 

instances where the assigned FY 2011 

wage index (that reflects MGCRB 

reclassifications, application of the rural 

floor and rural floor budget neutrality 

adjustment) for these hospitals is less 

than 1.00. Similar to our current policy 

for HOPDs that are affiliated with 

multicampus hospital systems, we fully 

expect that the HOPD would receive a 

wage index based on the geographic 

location of the specific inpatient 

hospital with which it is associated. 

Therefore, if the associated hospital is 

located in a frontier state, then the wage 

index adjustment applicable for the 

hospital would also apply for the 

affiliated HOPD. We refer readers to the 

FY 2011 supplemental proposed rule 

published subsequent to the FY 2011 

IPPS/LTCH proposed rule for detailed 

discussion regarding this provision, 

including our proposed methodology for 

identifying which areas meet the 

definition of frontier States as provided 

for in section 1886(d)(3)(E)(iii)(II)) of the 

Act. 

In addition, we are proposing to 

revise § 419.43(c) of the regulations to 

incorporate the amendments made by 

section 10324 of the Affordable Care 

Act. Specifically, we would include a 

provision under a new paragraph (c)(2) 

to state that for services furnished 

beginning January 1, 2011, the wage 

adjustment factor referenced in the 

existing regulations applicable to any 

HOPD that is located in a frontier State, 

as defined in the statute and regulations, 

may not be less than 1.00. We also are 

proposing to add a new paragraph (c)(3) 

to § 419.43 to not consider these 

additional payments in budget 

neutrality. 

In addition to the changes required by 

the Affordable Care Act, we note that 

the proposed FY 2011 IPPS wage 

indices continue to reflect a number of 

adjustments implemented over the past 

few years, including revised Office of 

Management and Budget (OMB) 

standards for defining geographic 

statistical areas (Core-Based Statistical 

Areas or CBSAs), reclassification of 

hospitals to different geographic areas, 

rural floor provisions, an adjustment for 

out-migration labor patterns, an 

adjustment for occupational mix, and a 

policy for allocating hourly wage data 

among campuses of multicampus 

hospital systems that cross CBSAs. We 

refer readers to the FY 2011 IPPS/LTCH 

PPS proposed rule (75 FR 23936 

through 23956) and the supplemental 

proposed rule (75 FR 30918) for a 

detailed discussion of all proposed 

changes, including changes required by 

the Affordable Care Act, to the FY 2011 

IPPS wage indices. In addition, we refer 

readers to the CY 2005 OPPS final rule 

with comment period (69 FR 65842 

through 65844) and subsequent OPPS 

rules for a detailed discussion of the 

history of these wage index adjustments 

as applied under the OPPS. 

The IPPS wage index that we are 

proposing to adopt in this proposed rule 

includes all reclassifications that are 

approved by the Medicare Geographic 

Classification Review Board (MGCRB) 

for FY 2011. We note that 

reclassifications under section 508 of 

Public Law 108–173 and certain special 

exception wage indices that were 

extended by section 106(a) of Public 

Law 109–432 (MIEA–TRHCA) and 

section 117(a)(1) of Public Law 110–173 

(MMSEA) were set to terminate 

September 30, 2008, but were further 

extended by section 124 of Public Law 

110–275 (MIPPA) through September 

30, 2009 and, most recently, by section 

3137 as amended by section 10317 of 

Public Law 111–148 (Affordable Care 

Act) through September 30, 2010. We 

did not make any proposals related to 

these provisions for the CY 2010 OPPS 

wage index because Public Law 111– 

148 (Affordable Care Act) was enacted 

after issuance of the CY 2010 OPPS/ASC 

proposed and final rules. In accordance 

with section 10317 of Public Law 111– 

148, for CY 2010, we adopted all section 

508 geographic reclassifications through 

September 30, 2010. Similar to our 

treatment of section 508 

reclassifications extended under Public 

Law 110–173 (MMSEA) as described in 

the CY 2009 OPPS/ASC final rule with 

comment period (73 FR 68586), 

hospitals with section 508 

reclassifications will revert to their 

home area wage index, with outmigration adjustment if applicable, or a 

current MGCRB reclassification, from 

October 1, 2010 to December 31, 2010. 

In addition, as we did for CY 2009, we 

will recognize the revised wage index 

values for certain special exception 

hospitals from January 1, 2010 through 

December 31, 2010, under the OPPS, in 

order to give these hospitals the special 

exception wage indices under the OPPS 

for the same time period as under the 

IPPS. We refer readers to the FY 2010 

section 508 reclassification Federal 

Register notice published on June 2, 

2010 (75 FR 31118) for a detailed 

discussion of the changes to the wage 

indices as required by section 10317 of 

the Affordable Care Act. We also discuss 

the impact of the extension of 

reclassifications under section 508 and 

special exception wage indices in the 

Federal Register notice CMS–1504–N, 

entitled ‘‘Medicare Program; Changes to 

the Hospital Outpatient Prospective 

Payment System for CY 2010, Changes 

to the Ambulatory Surgical Center 

Payment System for CY 2010, and 

Extension of Payment under Part B for 

Services Furnished by Hospitals or 

Clinics Operated by the Indian Health 

Service or Tribal Organizations Made by 

the Affordable Care Act and the Health 

Care and Education Reconciliation Act 

of 2010 and Changes to the Ambulatory 

Surgical Center Payment System for CY 

2010 Made By Previous Correction 

Notices’’ that will be published around 

the same time as this proposed rule. 

Because the provisions of section 10317 

of the Affordable Care Act expired in 

2010 and are not applicable to FY 2011, 

we are not making any proposals related 

to those provisions for the OPPS wage 

indices for CY 2011. However, we note 

that Congress is currently considering 

legislation that may further extend 

section 508 reclassifications and wage 

indexes for special exception providers 

for FY 2011, which would be applicable 

for the CY 2011 OPPS. We will 

implement any extension occurring 

before or during the comment period for 

this proposed rule in our final rule. 

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For purposes of the OPPS, we are 

proposing to continue our policy in CY 

2011 to allow non-IPPS hospitals paid 

under the OPPS to qualify for the outmigration adjustment if they are located 

in a section 505 out-migration county. 

We note that because non-IPPS 

hospitals cannot reclassify, they are 

eligible for the out-migration wage 

adjustment. Table 4J in the Federal 

Register for the supplemental FY 2011 

IPPS proposed rule (75 FR 31049), 

identifies counties eligible for the outmigration adjustment and providers 

receiving the adjustment. As we have 

done in prior years, we are reprinting 

Table 4J as Addendum L to this 

proposed rule with the addition of nonIPPS hospitals that would receive the 

section 505 out-migration adjustment 

under the CY 2011 OPPS. 

As stated earlier in this section, we 

continue to believe that using the IPPS 

wage index as the source of an 

adjustment factor for the OPPS is 

reasonable and logical, given the 

inseparable, subordinate status of the 

HOPD within the hospital overall. 

Therefore, we are proposing to use the 

final FY 2011 IPPS wage indices for 

calculating OPPS payments in CY 2011. 

With the exception of the out-migration 

wage adjustment table (Addendum L to 

this proposed rule), which includes 

non-IPPS hospitals paid under the 

OPPS, we are not reprinting the FY 2011 

IPPS proposed wage indices referenced 

in this discussion of the wage index. We 

refer readers to the CMS Web site for the 

OPPS at: http://www.cms.gov/ 

HospitalOutpatientPPS/. At this link, 

readers will find a link to the FY 2011 

IPPS proposed wage index tables. 

D. Proposed Statewide Average Default 

CCRs 

In addition to using CCRs to estimate 

costs from charges on claims for 

ratesetting, CMS uses overall hospitalspecific CCRs calculated from the 

hospital’s most recent cost report to 

determine outlier payments, payments 

for pass-through devices, and monthly 

interim transitional corridor payments 

under the OPPS during the PPS year. 

Medicare contractors cannot calculate a 

CCR for some hospitals because there is 

no cost report available. For these 

hospitals, CMS uses the statewide 

average default CCRs to determine the 

payments mentioned above until a 

hospital’s Medicare contractor is able to 

calculate the hospital’s actual CCR from 

its most recently submitted Medicare 

cost report. These hospitals include, but 

are not limited to, hospitals that are 

new, have not accepted assignment of 

an existing hospital’s provider 

agreement, and have not yet submitted 

a cost report. CMS also uses the 

statewide average default CCRs to 

determine payments for hospitals that 

appear to have a biased CCR (that is, the 

CCR falls outside the predetermined 

ceiling threshold for a valid CCR) or for 

hospitals whose most recent cost report 

reflects an all-inclusive rate status 

(Medicare Claims Processing Manual 

(Pub. 100–04), Chapter 4, Section 

10.11). We are proposing to update the 

default ratios for CY 2011 using the 

most recent cost report data. We discuss 

our policy for using default CCRs, 

including setting the ceiling threshold 

for a valid CCR, in the CY 2009 OPPS/ 

ASC final rule with comment period (73 

FR 68594 through 68599) in the context 

of our adoption of an outlier 

reconciliation policy for cost reports 

beginning on or after January 1, 2009. 

For CY 2011, we are proposing to 

continue to use our standard 

methodology of calculating the 

statewide average default CCRs using 

the same hospital overall CCRs that we 

use to adjust charges to costs on claims 

data for setting the CY 2011 proposed 

OPPS relative weights. Table 9 below 

lists the proposed CY 2011 default 

urban and rural CCRs by State and 

compares them to last year’s default 

CCRs. These proposed CCRs represent 

the ratio of total costs to total charges for 

those cost centers relevant to outpatient 

services from each hospital’s most 

recently submitted cost report, weighted 

by Medicare Part B charges. We also 

adjusted ratios from submitted cost 

reports to reflect final settled status by 

applying the differential between settled 

to submitted overall CCR for the cost 

centers relevant to outpatient services 

from the most recent pair of final settled 

and submitted cost reports. We then 

weighted each hospital’s CCR by the 

volume of separately paid line-items on 

hospital claims corresponding to the 

year of the majority of cost reports used 

to calculate the overall CCRs. We refer 

readers to the CY 2008 OPPS/ASC final 

rule with comment period (72 FR 66680 

through 66682) and prior OPPS rules for 

a more detailed discussion of our 

established methodology for calculating 

the statewide average default CCRs, 

including the hospitals used in our 

calculations and our trimming criteria. 

For this proposed rule, approximately 

87 percent of the submitted cost reports 

utilized in the default ratio calculations 

represented data for cost reporting 

periods ending in CY 2008 and 12 

percent were for cost reporting periods 

ending in CY 2007. For Maryland, we 

used an overall weighted average CCR 

for all hospitals in the nation as a 

substitute for Maryland CCRs. Few 

hospitals in Maryland are eligible to 

receive payment under the OPPS, which 

limits the data available to calculate an 

accurate and representative CCR. In 

general, observed changes in the 

statewide average default CCRs between 

CY 2010 and CY 2011 are modest and 

the few significant changes are 

associated with areas that have a small 

number of hospitals. 

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BILLING CODE 4120–01–C 

E. Proposed OPPS Payment to Certain 

Rural and Other Hospitals 

1. Hold Harmless Transitional Payment 

Changes Made by Public Law 110–275 

(MIPPA) 

When the OPPS was implemented, 

every provider was eligible to receive an 

additional payment adjustment (called 

either transitional corridor payments or 

transitional outpatient payment (TOPs)) 

if the payments it received for covered 

OPD services under the OPPS were less 

than the payments it would have 

received for the same services under the 

prior reasonable cost-based system 

(referred to as the pre-BBA amount). 

Section 1833(t)(7) of the Act provides 

that the transitional corridor payments 

are temporary payments for most 

providers and were intended to ease 

their transition from the prior 

reasonable cost-based payment system 

to the OPPS system. There are two 

exceptions to this provision, cancer 

hospitals and children’s hospitals, and 

those hospitals receive the transitional 

corridor payments on a permanent 

basis. Section 1833(t)(7)(D)(i) of the Act 

originally provided for transitional 

corridor payments to rural hospitals 

with 100 or fewer beds for covered OPD 

services furnished before January 1, 

2004. However, section 411 of Public 

Law 108–173 amended section 

1833(t)(7)(D)(i) of the Act to extend 

these payments through December 31, 

2005, for rural hospitals with 100 or 

fewer beds. Section 411 also extended 

the transitional corridor payments to 

sole community hospitals (SCHs) 

located in rural areas for services 

furnished during the period that began 

with the provider’s first cost reporting 

period beginning on or after January 1, 

2004, and ended on December 31, 2005. 

Accordingly, the authority for making 

transitional corridor payments under 

section 1833(t)(7)(D)(i) of the Act, as 

amended by section 411 of Pub. L. 108– 

173, for rural hospitals having 100 or 

fewer beds and SCHs located in rural 

areas expired on December 31, 2005. 

Section 5105 of Public Law 109–171 

reinstituted the TOPs for covered OPD 

services furnished on or after January 1, 

2006, and before January 1, 2009, for 

rural hospitals having 100 or fewer beds 

that are not SCHs. When the OPPS 

payment was less than the provider’s 

pre-BBA amount, the amount of 

payment was increased by 95 percent of 

the amount of the difference between 

the two amounts for CY 2006, by 90 

percent of the amount of that difference 

for CY 2007, and by 85 percent of the 

amount of that difference for CY 2008. 

For CY 2006, we implemented section 

5105 of Public Law 109–171 through 

Transmittal 877, issued on February 24, 

2006. In the Transmittal, we did not 

specifically address whether TOPs 

apply to essential access community 

hospitals (EACHs), which are 

considered to be SCHs under section 

1886(d)(5)(D)(iii)(III) of the Act. 

Accordingly, under the statute, EACHs 

are treated as SCHs. In the CY 2007 

OPPS/ASC final rule with comment 

period (71 FR 68010), we stated that 

EACHs were not eligible for TOPs under 

Public Law 109–171. However, we 

stated they were eligible for the 

adjustment for rural SCHs. In the CY 

2007 OPPS/ASC final rule with 

comment period (71 FR 68010 and 

68228), we updated § 419.70(d) of our 

regulations to reflect the requirements of 

Public Law 109–171. 


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In the CY 2009 OPPS/ASC proposed 

rule (73 FR 41461), we stated that, 

effective for services provided on or 

after January 1, 2009, rural hospitals 

having 100 or fewer beds that are not 

SCHs would no longer be eligible for 

TOPs, in accordance with section 5105 

of Public Law 109–171. However, 

subsequent to issuance of the CY 2009 

OPPS/ASC proposed rule, section 147 of 

Public Law 110–275 amended section 

1833(t)(7)(D)(i) of the Act by extending 

the period of TOPs to rural hospitals 

with 100 beds or fewer for 1 year, for 

services provided before January 1, 

2010. Section 147 of Public Law 110– 

275 also extended TOPs to SCHs 

(including EACHs) with 100 or fewer 

beds for covered OPD services provided 

on or after January 1, 2009, and before 

January 1, 2010. In accordance with 

section 147 of Public Law 110–275, 

when the OPPS payment is less than the 

provider’s pre-BBA amount, the amount 

of payment is increased by 85 percent 

of the amount of the difference between 

the two payment amounts for CY 2009. 

For CY 2009, we revised our 

regulations at §§ 419.70(d)(2) and (d)(4) 

and added a new paragraph (d)(5) to 

incorporate the provisions of section 

147 of Public Law 110–275. In addition, 

we made other technical changes to 

§ 419.70(d)(2) to more precisely capture 

our existing policy and to correct an 

inaccurate cross-reference. We also 

made technical corrections to the crossreferences in paragraphs (e), (g), and (i) 

of § 419.70. 

For CY 2010, we made a technical 

correction to the heading of 

§ 419.70(d)(5) to correctly identify the 

policy as described in the subsequent 

regulation text. The paragraph heading 

now indicates that the adjustment 

applies to small SCHs, rather than to 

rural SCHs. 

In the CY 2010 OPPS/ASC final rule 

(74 FR 60425), we stated that, effective 

for services provided on or after January 

1, 2010, rural hospitals and SCHs 

(including EACHs) having 100 or fewer 

beds would no longer be eligible for 

TOPs, in accordance with section 147 of 

Pub. L. 110–275. However, subsequent 

to issuance of the CY 2010 OPPS/ASC 

final rule, section 3121(a) of the 

Affordable Care Act, Public Law 111– 

148, amended section 

1833(t)(7)(D)(i)(III) of the Act by 

extending the period of TOPs to rural 

hospitals that are not SCHs with 100 

beds or fewer for 1 year, for services 

provided before January 1, 2011. Section 

3121(a) of Public Law 111–148, 

amended section 1833(t)(7)(D)(i)(III) of 

the Act and extended the period of 

TOPs to SCHs (including EACHs) for 1 

year, for services provided before 

January 1, 2011, with Section 3121(b) of 

Public Law 111–148 removing the 100- 

bed limitation applicable to such SCHs 

for covered OPD services furnished on 

and after January 1, 2010 and before 

January 1, 2011. In accordance with 

section 3121 of Public Law 111–148, 

when the OPPS payment is less than the 

provider’s pre-BBA amount, the amount 

of payment is increased by 85 percent 

of the amount of the difference between 

the two payment amounts for CY 2010. 

Accordingly, we are proposing to 

update section 419.70(d) of the 

regulations to reflect the TOPs 

extensions and amendments described 

in section 3121 of Public Law 111–148. 

Effective for services provided on or 

after January 1, 2011, rural hospitals 

having 100 or fewer beds that are not 

SCHs and SCHs (including EACHs) will 

no longer be eligible for hold harmless 

TOPs, in accordance with section 3121 

of Public Law 111–148. 

2. Proposed Adjustment for Rural SCHs 

Implemented in CY 2006 Related to 

Public Law 108–173 (MMA) 

In the CY 2006 OPPS final rule with 

comment period (70 FR 68556), we 

finalized a payment increase for rural 

SCHs of 7.1 percent for all services and 

procedures paid under the OPPS, 

excluding drugs, biologicals, 

brachytherapy sources, and devices paid 

under the pass-through payment policy 

in accordance with section 

1833(t)(13)(B) of the Act, as added by 

section 411 of Public Law 108–173. 

Section 411 gave the Secretary the 

authority to make an adjustment to 

OPPS payments for rural hospitals, 

effective January 1, 2006, if justified by 

a study of the difference in costs by APC 

between hospitals in rural areas and 

hospitals in urban areas. Our analysis 

showed a difference in costs for rural 

SCHs. Therefore, for the CY 2006 OPPS, 

we finalized a payment adjustment for 

rural SCHs of 7.1 percent for all services 

and procedures paid under the OPPS, 

excluding separately payable drugs and 

biologicals, brachytherapy sources, and 

devices paid under the pass-through 

payment policy, in accordance with 

section 1833(t)(13)(B) of the Act. 

In CY 2007, we became aware that we 

did not specifically address whether the 

adjustment applies to EACHs, which are 

considered to be SCHs under section 

1886(d)(5)(D)(iii)(III) of the Act. Thus, 

under the statute, EACHs are treated as 

SCHs. Therefore, in the CY 2007 OPPS/ 

ASC final rule with comment period (71 

FR 68010 and 68227), for purposes of 

receiving this rural adjustment, we 

revised § 419.43(g) to clarify that EACHs 

are also eligible to receive the rural SCH 

adjustment, assuming these entities 

otherwise meet the rural adjustment 

criteria. Currently, fewer than 10 

hospitals are classified as EACHs and as 

of CY 1998, under section 4201(c) of 

Public Law 105–33, a hospital can no 

longer become newly classified as an 

EACH. 

This adjustment for rural SCHs is 

budget neutral and applied before 

calculating outliers and copayment. As 

stated in the CY 2006 OPPS final rule 

with comment period (70 FR 68560), we 

would not reestablish the adjustment 

amount on an annual basis, but we may 

review the adjustment in the future and, 

if appropriate, would revise the 

adjustment. We provided the same 7.1 

percent adjustment to rural SCHs, 

including EACHs, again in CY 2008 and 

CY 2009. Further, in the CY 2009 OPPS/ 

ASC final rule with comment period (73 

FR 68590), we updated the regulations 

at § 419.43(g)(4) to specify, in general 

terms, that items paid at charges 

adjusted to costs by application of a 

hospital-specific CCR are excluded from 

the 7.1 percent payment adjustment. 

For the CY 2011 OPPS, we are 

proposing to continue our policy of a 

budget neutral 7.1 percent payment 

adjustment for rural SCHs, including 

EACHs, for all services and procedures 

paid under the OPPS, excluding 

separately payable drugs and 

biologicals, devices paid under the passthrough payment policy, and items paid 

at charges reduced to costs. We intend 

to reassess the 7.1 percent adjustment in 

the near future by examining differences 

between urban and rural hospitals’ costs 

using updated claims, cost reports, and 

provider information. 

F. Proposed OPPS Payments to Cancer 

Hospitals Described in Section 

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

1. Background 

Since the inception of the hospital 

outpatient prospective payment system 

(OPPS), which was authorized by the 

Balanced Budget Act of 1997 (BBA), 

Medicare has paid cancer hospitals 

identified in section 1886(d)(1)(B)(v) of 

the Act (cancer hospitals) under the 

OPPS for covered outpatient hospital 

services. There are 11 cancer hospitals 

that meet the classification criteria in 

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

These 11 cancer hospitals are exempted 

from payment under the inpatient 

prospective payment system (IPPS). 

With the Medicare, Medicaid and 

SCHIP Balanced Budget Refinement Act 

of 1999, Congress created section 

1833(t)(7) of the Act, ‘‘Transitional 

Adjustment to Limit Decline in 

Payment,’’ to serve as a permanent 

payment floor by limiting cancer 

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hospitals’ potential losses under the 

OPPS. Through 1833(t)(7)(D)(ii) of the 

Act, a cancer hospital receives the full 

amount of the difference between 

payments for covered outpatient 

services under the OPPS and a pre-BBA 

amount. That is, cancer hospitals are 

permanently held harmless to their ‘‘preBBA’’ amount, and they receive 

transitional outpatient payments (TOPs) 

to ensure that they do not receive a 

payment that is lower under the OPPS 

than the payment they would have 

received before implementation of the 

OPPS, as set forth in section 

1833(t)(7)(F) of the Act. The pre-BBA 

payment amount is an amount equal to 

the product of the reasonable cost of the 

hospital for such services for the 

portions of the hospital’s cost reporting 

period (or periods) occurring in the year 

and the base payment to cost ratio (base 

PCR) for the hospital. The pre-BBA 

amount, including the determination of 

the base PCR, are defined at 42 CFR 

419.70(f). TOPs are calculated on 

Worksheet E Part B of the Hospital and 

Hospital Health Care Complex Cost 

Report (form CMS–2552–96) each year. 

Section 1833(t)(7)(I) of the Act exempts 

TOPs from budget neutrality 

calculations. Almost all of the 11 cancer 

hospitals receive TOPs each year. The 

volume weighted average payment to 

cost ratio (PCR) for the cancer hospitals 

is 0.83, or outpatient payment with 

TOPs to cancer hospitals is 83 percent 

of reasonable cost. 

Section 3138 of the Affordable Care 

Act instructs the Secretary to conduct a 

study to determine if, under the OPPS, 

outpatient costs incurred by cancer 

hospitals described in section 

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

respect to ambulatory classification 

groups exceed the costs incurred by 

other hospitals furnishing services 

under this subsection (section 1833(t) of 

the Act) as determined appropriate by 

the Secretary. In addition, section 3138 

of the Affordable Care Act requires the 

Secretary to take into consideration the 

cost of drugs and biologicals incurred by 

such hospitals when studying cancer 

hospital costliness. Further, section 

3138 of the Affordable Care Act states 

that if the cancer hospitals’ costs are 

determined to be greater than the costs 

of other hospitals paid under the OPPS, 

the Secretary shall provide an 

appropriate adjustment to reflect these 

higher costs. Section 3138 of the 

Affordable Care Act also requires that 

this adjustment be budget neutral, and 

it would be effective for outpatient 

services provided at cancer hospitals on 

or after January 1, 2011. Cancer 

hospitals described in section 

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

eligible for TOPs payment (which are 

not budget neutral) and outlier 

payments (which are budget neutral). 

2. Study of Cancer Hospitals’ Costs 

Relative to Other Hospitals 

It has been our standard analytical 

approach to use a combination of 

explanatory and payment regression 

models to assess the costliness of a class 

of hospitals while controlling for other 

legitimate influences of costliness, such 

as ability to achieve economies of scale, 

to ensure that costliness is due to the 

type of hospital and to identify 

appropriate payment adjustments. We 

used this approach in our CY 2006 

OPPS final rule with comment period to 

establish the 7.1 percent payment 

adjustment for rural sole community 

hospitals (70 FR 68556 through 68561). 

In our discussion for the CY 2006 OPPS 

proposed rule we stated that a simple 

comparison of unit costs would not be 

sufficient to assess the costliness of a 

class of hospitals because the costs 

faced by individual hospitals, whether 

urban or rural, are a function of many 

varying factors, including local labor 

supply and the complexity and volume 

of services provided (70 FR 42699). 

In constructing our analysis of cancer 

hospitals’ costs relative to other 

hospitals, we considered whether our 

standard analytical approach to use a 

combination of explanatory and 

payment regression models would lead 

to valid results for this particular study, 

or whether we should develop a 

different or modified analytic approach. 

We note that the analyses presented in 

the CY 2006 OPPS proposed and final 

rules were designed to establish an 

adjustment for a large class of rural 

hospitals. In contrast, section 3138 of 

the Affordable Care Act is specifically 

limited to identifying an adjustment for 

11 cancer hospitals. With such a small 

sample size (11 out of approximately 

4,000 hospitals paid under the OPPS), 

we are concerned that the standard 

explanatory and payment regression 

models used to establish the rural 

hospital adjustment would lead to 

imprecise estimates of payment 

adjustments for this small group of 

hospitals. Further, Section 3138 of the 

Affordable Care Act specifies explicitly 

that cost comparisons between classes 

of hospitals must include the cost of 

drugs and biologicals. In our CY 2006 

analysis of rural hospitals, we excluded 

the cost of drugs and biologicals in our 

model because the extreme units 

associated with proper billing for some 

drugs and biologicals can bias the 

calculation of a service mix index, or 

volume weighted average APC relative 

weight, for each hospital (70 FR 42698). 

Therefore, we chose not to pursue our 

standard combination of explanatory 

and payment regression modeling to 

identify costliness and determine a 

cancer hospital adjustment. 

While we chose not to use our 

standard models to calculate a proposed 

cancer hospital adjustment, we 

determined it still would be appropriate 

to construct our usual provider-level 

analytical dataset consisting of variables 

related to assessing costliness including 

average cost per unit for a hospital and 

the hospitals average APC relative 

weight as an indicator of the hospitals 

resource intensity, as measured by the 

APC relative weights. We used these 

variables to calculate univariate 

statistics that describe the costliness and 

related aspects of cancer hospitals and 

other hospitals paid under the OPPS. 

While descriptive statistics cannot 

control for the myriad factors that 

contribute to observed costs, we believe 

that we can assume that stark 

differences in cost between cancer 

hospitals and other hospitals paid under 

the OPPS that would be observable by 

examining descriptive univariate 

statistics would provide some 

indication of relative costliness. We 

began our analysis of the cancer 

hospitals as we did for the rural 

hospitals by creating an analytical 

dataset of hospitals billing under the 

OPPS for CY 2009 (a total of 3,933) that 

were included in our claims dataset for 

establishing the CY 2011 OPPS 

proposed APC relative weights 

(discussed in detail in section II.A. of 

this proposed rule). This analytical 

dataset includes the 3,933 OPPS 

hospitals’ total estimated cost (including 

packaged cost), total lines, total 

discounted units as modeled for CY 

2011 OPPS payment, and the average 

weight of their separately payable 

services (total APC weight divided by 

total units) as modeled for CY 2011 

OPPS. We create this dataset from the 

hospital specific service utilization files 

that we use to model budget neutrality 

and to perform impact analyses after we 

complete estimating a median cost (or 

equivalent amount depending on 

unique APC methodologies as discussed 

in section II of this proposed rule) for 

each APC. Using the CY 2009 claims 

that we use to model the CY 2011 

proposed OPPS, we use the utilization 

on those claims to model APC payment 

under the CY 2011 proposed payment 

policies, such as proposed payment for 

drugs and biologicals at ASP+6 percent 

and proposed reassignment of some 

HCPCS codes to different APCs. We 

then summarized this estimated 

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utilization and payment for each 

hospital (‘‘hospital-level’’). These files 

consist of hospital-level aggregate costs 

(including the cost of packaged items 

and services), total estimated 

discounted units under the modeled 

proposed CY 2011 OPPS, total estimated 

volume of number of occurrences of 

separately payable HCPCS codes under 

the modeled proposed CY 2011 OPPS, 

and total relative weight of separately 

payable services under the modeled 

proposed CY 2011 OPPS. The 

calculation of these summary files are 

discussed in Stage 6 of our claims 

accounting narrative available under 

supporting documentation for this 

proposed rule on the CMS Web site at: 

http://www.cms.gov/ 

HospitalOutpatientPPS/HORD/. After 

summarizing modeled payment to the 

hospital-level, we removed 48 hospitals 

in Puerto Rico from our dataset, because 

we do not believe that their cost 

structure reflects the costs of most 

hospitals paid under the OPPS and 

because they could bias the calculation 

of hospital-weighted statistics. We then 

removed an additional 66 hospitals with 

a cost per unit of more than 3 standard 

deviations from the geometric mean 

(mean of the natural log) because 

including outliers in hospital-weighted 

descriptive statistics also could bias the 

those statistics. This resulted in a 

dataset with 11 cancer hospitals and 

3,808 other hospitals. 

We included the following standard 

hospital-level variables that describe 

hospital costliness in our analysis file: 

Outpatient cost per discounted unit 

under the modeled CY 2011 OPPS 

(substituting a cost per administration, 

rather than a cost per unit, for drugs and 

biologicals); each hospital’s proposed 

CY 2011 wage index as a measure of 

relative labor cost; the service mix 

index, or volume-weighted average 

proposed CY 2011 APC relative weight 

(including a simulated weight for drugs 

and biologicals created by dividing the 

CY 2010 April ASP-based payment 

amount at ASP+6 percent appearing in 

Addendum A and B of this proposed 

rule by the proposed conversion factor 

of $68.267); outpatient volume based on 

number of occurrences of HCPCS codes 

in the CY 2009 claims data; and number 

of beds. We use these variables because 

they are key indicators of costliness 

under the modeled OPPS system, and 

they allow us to assess the relative 

costliness of classes of hospitals under 

the proposed CY 2011 OPPS. We further 

discuss these variables in our CY 2006 

proposed rule analysis (70 FR 42698 

through 42701). A hospital’s service mix 

index is a measure of resource intensity 

of the services provided by the hospital 

as measured by the proposed CY 2011 

OPPS relative weights, and 

standardizing the cost per discounted 

unit by the service mix index creates an 

adjusted cost per unit estimate that 

reflects the remaining relative costliness 

of a hospital remaining after receiving 

the estimated payments that we are 

proposing to make under the CY 2011 

OPPS. In short, if a class of hospitals 

demonstrates higher cost per unit after 

standardization by service mix it is an 

early indication that the class of 

hospitals may be significantly more 

costly in the regression models. We 

used this data to calculate the 

descriptive univariate statistics for 

cancer hospitals appearing in Table 10 

below. We note that because drugs and 

biologicals are such a significant portion 

of the services that the cancer hospitals 

provide, and because Section 3138 of 

the Affordable Care Act explicitly 

requires us to consider the cost of drugs 

and biologicals, we included the cost of 

these items in our total cost calculation 

for each hospital, counting each 

occurrence of a drug in the modeled 

proposed CY 2011 data (based on units 

in CY 2009 claims data). That is, we 

sought to treat each administration of a 

drug or biological as one unit. 

In reviewing these descriptive 

statistics, we observe that cancer 

hospitals had a standardized cost per 

discounted unit of $150.12 compared to 

a standardized cost per discounted unit 

of $94.14 for all other hospitals. That is, 

cancer hospitals’ average cost per 

discounted unit remains high even after 

accounting for payment under the 

modeled proposed CY 2011 payment 

system, which is not true for all other 

hospitals. Observing such differences in 

standardized cost per discounted unit 

lead us to conclude that cancer 

hospitals are more costly than other 

hospitals paid under the OPPS, even 

without the inferential statistical models 

that we typically employ. 


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3. Proposed Adjustment for Certain 

Cancer Hospitals 

Having reviewed the cost data from 

the standard analytic database and 

determined that cancer hospitals are 

more costly than other hospitals within 

the OPPS system, we decided to 

examine hospital cost report data from 

Worksheet E Part B (where TOPs are 

calculated on the Hospital and Hospital 

Health Care Complex Cost Report each 

year) in order to determine whether our 

findings were further supported by cost 

report data and to determine an 

appropriate proposed payment 

adjustment methodology. Analyses on 

our standard analytic database and 

descriptive statistics presented in Table 

10 above, did not consider TOPs in 

assessing costliness of cancer hospitals 

relative to other hospitals furnishing 

services under section 1833(t) of the 

Act. This is because section 3138 of the 

Affordable Care Act requires that any 

cancer adjustment be made within the 

budget neutral system. In making a 

determination about a payment 

adjustment subject to budget neutrality, 

we believe it is appropriate to assess 

costliness and payments within the 

budget neutral payment system. We 

note that TOPs are based on reasonable 

cost and are not part of the budget 

neutral payment system. Further, TOPs 

have no associated relative weight that 

could be included in an assessment of 

APC-based payment. TOPs are paid at 

cost report settlement on an aggregate 

basis, not a per service basis, and we 

would have no way to break these 

payments down into a relative weight to 

incorporate these retrospective aggregate 

payments in the form of relative weight 

under the proposed modeled CY 2011 

OPPS. The cost report data we selected 

for the analysis was limited to the 

OPPS-specific payment and cost data 

available on Worksheet E Part B, which 

is also where TOPs are calculated 

including aggregate OPPS payments, 

including outlier payments and the cost 

of medical and other health services. 

These aggregate measures of cost and 

payment also include the cost and 

payment for drugs and biologicals and 

other adjustments that we typically 

include in our regression modeling, 

including wage index adjustment and 

rural adjustment, if applicable. While 

this cost report data cannot provide an 

estimate of cost per unit after 

controlling for other potential factors 

that could influence cost per unit, we 

can use this aggregate cost and payment 

data to examine the cancer hospitals’ 

OPPS PCR and OPPS PCR with TOPs, 

and compare these to the OPPS PCR for 

other hospitals. 

PCRs calculated from the most recent 

cost report data also indicate that costs 

relative to payments at cancer hospitals 

are higher than those at other hospitals 

paid under the OPPS (that is, cancer 

hospitals have lower PCRs). In order to 

calculate PCRs for hospitals paid under 

the OPPS (including cancer hospitals), 

we used the same extract of cost report 

data from the Hospital Cost Report 

Information System (HCRIS), as 

discussed in section II.A. of this 

proposed rule, that we used to calculate 

the CCRs that we used to estimate 

median costs for this proposed CY 2011 

OPPS. Using this cost report data, we 

included data from Worksheet E Part B 

for each hospital, keeping data from 

each hospital’s most recent cost report, 

whether as submitted or settled. We 

then limited the data set to the hospitals 

with CY 2009 claims data that we used 

to model the CY 2011 proposed APC 

relative weights (3933 hospitals) 

because we used the claims from these 

hospitals to calculate the estimated 

costs we used for the descriptive 

statistics in our first analysis and 

because it is appropriate to use the same 

set of hospitals that we are using to 

calibrate the modeled proposed CY 2011 

OPPS. The cancer hospitals in this data 

set largely had cost report data from cost 

reporting periods ending in FY 2008 

and FY 2009. The cost report data for 

the other hospitals were from cost report 

periods with fiscal year ends ranging 

from 2005 to 2009. We then removed 

the cost report data for 48 hospitals from 

Puerto Rico from our data set because 

we do not believe that their cost 

structure reflects the costs of most 

hospitals paid under the OPPS and 

therefore may bias the results of the 

study. We also removed 301 hospitals 

with cost report data that was not 

complete (missing OPPS payments 

including outliers, missing aggregate 

cost data, or both) so that all cost reports 

in the study would have both the 

payment and cost data necessary to 

calculate a PCR for each hospital, 

leading to a final analytic file of 3584 

hospitals with cost report data. We 

believe that the costs, PPS payments, 

and TOPs reported on Worksheet E part 

B for the hospitals included in our CY 

2011 modeling should be sufficiently 

accurate for assessing hospitals’ relative 

costliness because all of the key 

elements that we believe to be necessary 

for the analysis (payment, cost and 

TOPs) are contained on this worksheet. 

Using this much smaller dataset of 

cost report data, we estimate that on 

average, the OPPS payments to the 11 

cancer hospitals, not including TOPs, 

are approximately 62 percent of 

reasonable cost (that is, we calculate a 

PCR of 0.615 for the cancer hospitals), 

whereas, we estimate that, on average, 

the OPPS payments to other hospitals 

paid under the OPPS are approximately 

87 percent of reasonable cost (resulting 

in a PCR of 0.868). Individual cancer 

hospitals’ OPPS PCRs range from 

approximately 48 percent to 

approximately 82 percent. When TOPS 

are included in the calculation of the 

PCR, cancer hospitals, as a group, 

receive payments that are approximately 

83 percent of reasonable cost, which is 

still lower than the average PCR of other 

OPPS hospitals of approximately 87 

percent of reasonable cost. Considering 

this data, we find that the cancer 

hospitals are more costly than other 

hospitals paid under the OPPS. The 

dataset of hospital cost report data that 

we used to model this proposed 

adjustment is available under 

supporting documentation for this 

proposed rule on the CMS Web site at: 

http://www.cms.gov/ 

HospitalOutpatientPPS/HORD/. 

Based on our findings that cancer 

hospitals, as a class, have a significantly 

lower volume weighted average PCR 

than the volume weighted PCR of other 

hospitals paid under the OPPS and our 

findings above that the cancer hospitals 

cost per discounted unit standardized 

for service mix remains much higher 

than the standardized cost per 

discounted unit of all other hospitals, 

we are proposing an adjustment for 

cancer hospitals to reflect these higher 

costs effective January 1, 2011, as 

mandated by section 3138 of the 

Affordable Care Act. For purposes of 

calculating a proposed adjustment, we 

chose to rely on this straightforward 

assessment of payments and costs from 

the cost report data because of the 

concerns outlined above with respect to 

the small number of hospitals, and 

because of the challenges associated 

with accurately including drug and 

biological costs in our standard 

regression models. We believe that an 

appropriate adjustment would 

redistribute enough payments from 

other hospitals paid under the OPPS to 

the cancer hospitals to give cancer 

hospitals a PCR that is comparable to 

the average PCR for other hospitals paid 

under the OPPS. Therefore, we propose 

a hospital-specific payment adjustment 

determined as the percentage of 

additional payment needed to raise each 

cancer hospital’s PCR to the weighted 

average PCR for all other hospitals paid 

under OPPS (0.868) in the CY 2011 

dataset. This would be accomplished by 

adjusting each cancer hospital’s OPPS 

payment by the percentage difference 

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between their individual PCR (without 

TOPs) and the weighted average PCR of 

the other hospitals paid under OPPS. 

This proposed methodology would 

result in the proposed percentage 

payment adjustments for the 11 cancer 

hospitals appearing in Table 11. We 

propose that this hospital-specific 

adjustment would be applied to the 

wage adjusted payments for all items, 

except for items and services paid at 

charges adjusted to cost or devices 

receiving pass-through status defined in 

42 CFR 419.66. The proposed cancer 

hospital adjustment would not be 

applied to items and services paid at 

charges adjusted to cost because these 

items and services are always paid the 

estimated full cost of the item or service. 

We are proposing to amend 42 CFR to 

add new section 419.43(i)(2) which 

would establish the amount of the 

adjustment to cancer hospitals. We also 

propose that this adjustment would be 

budget neutral as set forth in proposed 

new section 42 CFR 419.43(i)(3), 

consistent with section 3138 of the 

Affordable Care Act. We note that 

outlier payments would be 

appropriately assessed after application 

of the cancer adjustment and that TOPs 

would continue to apply. The changes 

made by section 3138 of the Affordable 

Care Act do not affect the existing 

statutory provisions that provide for 

outlier payment for all hospitals paid 

under the OPPS, including cancer 

hospitals and TOPs payments for cancer 

hospitals. Further, both outlier 

payments and TOPs serve as a safety net 

for hospitals, although outliers are 

budget neutral and TOPs are not, and 

TOPs are limited to certain hospitals. As 

a means of buffering the financial risk 

associated with a prospective payment 

system, both adjustments (outliers and 

TOPs) only should be assessed after 

final payments have been made. 

Because outlier payments are made 

within the budget neutrality, outlier 

payments should be assessed after all 

budget neutral payments for an 

individual service have been made, 

including the cancer adjustment. The 

TOPs payments would be assessed after 

all payments have been made for a cost 

reporting period. We note that the 

proposed adjustment for all cancer 

hospitals would result in an estimated 

aggregate increase in OPPS payments to 

cancer hospitals of 41.2 percent for CY 

2011, based on cost report data. 

BILLING CODE 4120–01–P 

We propose to recalibrate the ‘‘other 

hospital’’ PCR target amount and the 

hospital-specific percentage adjustment 

for each cancer hospital periodically, 

but not every year, because we do not 

believe that these amounts will change 


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so drastically in any given year to 

warrant annual recalculation. In the 

event that a cancer hospital has a PCR 

that is higher than the volume weighted 

average PCR for all hospitals, we 

propose that the specific hospital would 

not be eligible for this adjustment. We 

believe that this would indicate that the 

hospital’s costs do not exceed the costs 

incurred by other hospitals furnishing 

services under the OPPS and, therefore, 

an adjustment would not be required 

and would be unnecessary. We note that 

the TOPS provision remains in effect 

and that we will continue to make TOPS 

to cancer hospitals that continue to have 

all final OPPS payments (including but 

not limited to outlier payments, the 

wage adjustment, and this new cancer 

hospital adjustment), that are lower than 

their pre-BBA payment amount. If this 

proposed adjustment is finalized, we 

estimate that only one cancer hospital 

would continue to receive TOPS. We 

propose to update the hospital-specific 

cancer hospital payment adjustments in 

Table 11 using the more recent cost 

reports that become available for the CY 

2011 OPPS/ASC final rule with 

comment period. 

G. Proposed Hospital Outpatient Outlier 

Payments 

1. Background 

Currently, the OPPS pays outlier 

payments on a service-by-service basis. 

For CY 2010, the outlier threshold is 

met when the cost of furnishing a 

service or procedure by a hospital 

exceeds 1.75 times the APC payment 

amount and exceeds the APC payment 

rate plus a $2,175 fixed-dollar 

threshold. We introduced a fixed-dollar 

threshold in CY 2005 in addition to the 

traditional multiple threshold in order 

to better target outliers to those high 

cost and complex procedures where a 

very costly service could present a 

hospital with significant financial loss. 

If the cost of a service meets both of 

these conditions, the multiple threshold 

and the fixed-dollar threshold, the 

outlier payment is calculated as 50 

percent of the amount by which the cost 

of furnishing the service exceeds 1.75 

times the APC payment rate. Before CY 

2009, this outlier payment had 

historically been considered a final 

payment by longstanding OPPS policy. 

We implemented a reconciliation 

process similar to the IPPS outlier 

reconciliation process for cost reports 

with cost reporting periods beginning 

on or after January 1, 2009 (73 FR 68594 

through 68599). 

It has been our policy for the past 

several years to report the actual amount 

of outlier payments as a percent of total 

spending in the claims being used to 

model the proposed OPPS. Our current 

estimate of total outlier payments as a 

percent of total CY 2009 OPPS payment, 

using available CY 2009 claims and the 

revised OPPS expenditure estimate for 

the President’s Budget for FY 2011, is 

approximately 1.0 percent of the total 

aggregated OPPS payments. Therefore, 

for CY 2009, we estimate that we paid 

at the CY 2009 outlier target of 1.0 

percent of total aggregated OPPS 

payments. 

As explained in the CY 2010 OPPS/ 

ASC final rule with comment period (74 

FR 60426 through 60427), we set our 

projected target for aggregate outlier 

payments at 1.0 percent of the aggregate 

total payments under the OPPS for CY 

2010. The outlier thresholds were set so 

that estimated CY 2010 aggregate outlier 

payments would equal 1.0 percent of 

the total aggregated payments under the 

OPPS. Using CY 2009 claims data and 

CY 2010 payment rates, we currently 

estimate that the aggregate outlier 

payments for CY 2010 would be 

approximately 0.85 percent of the total 

CY 2010 OPPS payments. The 

difference between 1.0 percent and 0.85 

percent is reflected in the regulatory 

impact analysis in section XXIII. of this 

proposed rule. We note that we provide 

estimated CY 2011 outlier payments for 

hospitals and CMHCs with claims 

included in the claims data that we used 

to model impacts in the HospitalSpecific Impacts—Provider-Specific 

Data file on the CMS Web site at: 

http://www.cms.hhs.gov/ 

HospitalOutpatientPPS/. 

2. Proposed Outlier Calculation 

For CY 2011, we are proposing to 

continue our policy of estimating outlier 

payments to be 1.0 percent of the 

estimated aggregate total payments 

under the OPPS for outlier payments. 

We are proposing that a portion of that 

1.0 percent, specifically 0.04 percent, 

would be allocated to CMHCs for PHP 

outlier payments. This is the amount of 

estimated outlier payments that would 

result from the proposed CMHC outlier 

threshold as a proportion of total 

estimated outlier payments. As 

discussed in section X.D. of this 

proposed rule, for CMHCs, we are 

proposing to continue a policy, that if a 

CMHC’s cost for partial hospitalization 

services, paid under either APC 0172 

(Level I Partial Hospitalization (3 

services)) or APC 0173 (Level II Partial 

Hospitalization (4 or more services)), 

exceeds 3.40 times the payment for APC 

0173, the outlier payment would be 

calculated as 50 percent of the amount 

by which the cost exceeds 3.40 times 

the APC 0173 payment rate. For further 

discussion of CMHC outlier payments, 

we refer readers to section X.D. of this 

proposed rule. 

To ensure that the estimated CY 2011 

aggregate outlier payments would equal 

1.0 percent of estimated aggregate total 

payments under the OPPS, we are 

proposing that the hospital outlier 

threshold be set so that outlier payments 

would be triggered when the cost of 

furnishing a service or procedure by a 

hospital exceeds 1.75 times the APC 

payment amount and exceeds the APC 

payment rate plus a $2,025 fixed-dollar 

threshold. This proposed threshold 

reflects the methodology discussed 

below in this section, as well as the 

proposed APC recalibration for CY 

2011. 

We calculated the proposed fixeddollar threshold for this proposed rule 

using largely the same methodology as 

we did in CY 2009 (73 FR 41462). For 

purposes of estimating outlier payments 

for this proposed rule, we used the 

hospital-specific overall ancillary CCRs 

available in the April 2010 update to the 

Outpatient Provider-Specific File 

(OPSF). The OPSF contains providerspecific data, such as the most current 

CCR, which are maintained by the 

Medicare contractors and used by the 

OPPS Pricer to pay claims. The claims 

that we use to model each OPPS update 

lag by 2 years. For this proposed rule, 

we used CY 2009 claims to model the 

CY 2011 OPPS. In order to estimate the 

proposed CY 2011 hospital outlier 

payments for this proposed rule, we 

inflated the charges on the CY 2009 

claims using the same inflation factor of 

1.1059 that we used to estimate the IPPS 

fixed-dollar outlier threshold for the FY 

2011 IPPS/LTCH PPS proposed rule (75 

FR 24068). We used an inflation factor 

of 1.0516 to estimate CY 2010 charges 

from the CY 2009 charges reported on 

CY 2009 claims. The methodology for 

determining this charge inflation factor 

was discussed in the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 24068). 

As we stated in the CY 2005 OPPS final 

rule with comment period (69 FR 

65845), we believe that the use of this 

charge inflation factor is appropriate for 

the OPPS because, with the exception of 

the inpatient routine service cost 

centers, hospitals use the same ancillary 

and outpatient cost centers to capture 

costs and charges for inpatient and 

outpatient services. 

As noted in the CY 2007 OPPS/ASC 

final rule with comment period (71 FR 

68011), we are concerned that we could 

systematically overestimate the OPPS 

hospital outlier threshold if we did not 

apply a CCR inflation adjustment factor. 

Therefore, we are proposing to apply the 

same CCR inflation adjustment factor 

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that we proposed to apply for the FY 

2011 IPPS outlier calculation to the 

CCRs used to simulate the proposed CY 

2011 OPPS outlier payments that 

determine the fixed-dollar threshold. 

Specifically, for CY 2011, we are 

proposing to apply an adjustment of 

0.9890 to the CCRs that were in the 

April 2010 OPSF to trend them forward 

from CY 2010 to CY 2011. The 

methodology for calculating this 

adjustment is discussed in the FY 2011 

IPPS/LTCH PPS proposed rule (75 FR 

24068 through 24070). 

Therefore, to model hospital outlier 

payments for this proposed rule, we 

applied the overall CCRs from the April 

2010 OPSF file after adjustment (using 

the proposed CCR inflation adjustment 

factor of 0.9890 to approximate CY 2011 

CCRs) to charges on CY 2009 claims that 

were adjusted (using the proposed 

charge inflation factor of 1.1059 to 

approximate CY 2011 charges). We 

simulated aggregated CY 2011 hospital 

outlier payments using these costs for 

several different fixed-dollar thresholds, 

holding the 1.75 multiple threshold 

constant and assuming that outlier 

payment would continue to be made at 

50 percent of the amount by which the 

cost of furnishing the service would 

exceed 1.75 times the APC payment 

amount, until the total outlier payments 

equaled 1.0 percent of aggregated 

estimated total CY 2011 OPPS 

payments. We estimated that a proposed 

fixed-dollar threshold of $2,025, 

combined with the proposed multiple 

threshold of 1.75 times the APC 

payment rate, would allocate 1.0 

percent of aggregated total OPPS 

payments to outlier payments. We are 

proposing to continue to make an 

outlier payment that equals 50 percent 

of the amount by which the cost of 

furnishing the service exceeds 1.75 

times the APC payment amount when 

both the 1.75 multiple threshold and the 

proposed fixed-dollar $2,025 threshold 

are met. For CMHCs, if a CMHC’s cost 

for partial hospitalization services, paid 

under either APC 0172 or APC 0173, 

exceeds 3.40 times the payment for APC 

0173, the outlier payment would be 

calculated as 50 percent of the amount 

by which the cost exceeds 3.40 times 

the APC 0173 payment rate. 

Section 1833(t)(17)(A) of the Act, 

which applies to hospitals as defined 

under section 1886(d)(1)(B) of the Act, 

requires that hospitals that fail to report 

data required for the quality measures 

selected by the Secretary, in the form 

and manner required by the Secretary 

under 1833(t)(17)(B) of the Act, incur a 

2.0 percentage point reduction to their 

OPD fee schedule increase factor, that 

is, the annual payment update factor. 

The application of a reduced OPD fee 

schedule increase factor results in 

reduced national unadjusted payment 

rates that will apply to certain 

outpatient items and services furnished 

by hospitals that are required to report 

outpatient quality data and that fail to 

meet the HOP QDRP requirements. For 

hospitals that fail to meet the HOP 

QDRP requirements, we are proposing 

to continue our policy that we 

implemented in CY 2009 that the 

hospitals’ costs would be compared to 

the reduced payments for purposes of 

outlier eligibility and payment 

calculation. For more information on 

the HOP QDRP, we refer readers to 

section XVI. of this proposed rule. 

In the CY 2009 OPPS/ASC final rule 

with comment period (73 CFR 68599), 

we adopted as final policy a process to 

reconcile hospital or CMHC outlier 

payments at cost report settlement for 

services furnished during cost reporting 

periods beginning in CY 2009. OPPS 

outlier reconciliation ensures accurate 

outlier payments for those facilities 

whose CCRs fluctuate significantly 

relative to the CCRs of other facilities, 

and who receive a significant amount of 

outlier payments. As under the IPPS, we 

do not adjust the fixed-dollar threshold 

or amount of total OPPS payment set 

aside for outlier payments for 

reconciliation activity because such 

action would be contrary to the 

prospective nature of the system. Our 

outlier threshold calculation assumes 

that overall ancillary CCRs accurately 

estimate hospital costs based on the 

information available to us at the time 

we set the prospective fixed-dollar 

outlier threshold. For these reasons, we 

are not incorporating any assumptions 

about the effects of reconciliation into 

our calculation of the proposed OPPS 

fixed-dollar outlier threshold. 

H. Proposed Calculation of an Adjusted 

Medicare Payment From the National 

Unadjusted Medicare Payment 

The basic methodology for 

determining prospective payment rates 

for HOPD services under the OPPS is set 

forth in existing regulations at 42 CFR 

part 419, subparts C and D. The 

payment rate for most services and 

procedures for which payment is made 

under the OPPS is the product of the 

conversion factor calculated in 

accordance with section II.B. of this 

proposed rule and the relative weight 

determined under section II.A. of this 

proposed rule. Therefore, the proposed 

national unadjusted payment rate for 

most APCs contained in Addendum A 

to this proposed rule and for most 

HCPCS codes to which separate 

payment under the OPPS has been 

assigned in Addendum B to this 

proposed rule was calculated by 

multiplying the proposed CY 2011 

scaled weight for the APC by the 

proposed CY 2011 conversion factor. 

We note that section 1833(t)(17) of the 

Act, which applies to hospitals as 

defined under section 1886(d)(1)(B) of 

the Act, requires that hospitals that fail 

to submit data required to be submitted 

on quality measures selected by the 

Secretary, in the form and manner and 

at a time specified by the Secretary, 

incur a 2.0 percentage point reduction 

to their OPD fee schedule increase 

factor, that is, the annual payment 

update factor. The application of a 

reduced OPD fee schedule increase 

factor results in reduced national 

unadjusted payment rates that apply to 

certain outpatient items and services 

provided by hospitals that are required 

to report outpatient quality data and 

that fail to meet the Hospital Outpatient 

Quality Data Reporting Program (HOP 

QDRP) requirements. For further 

discussion of the payment reduction for 

hospitals that fail to meet the 

requirements of the HOP QDRP, we 

refer readers to section XVII.D. of this 

proposed rule. 

We demonstrate in the steps below 

how to determine the APC payments 

that would be made in a calendar year 

under the OPPS to a hospital that fulfills 

the HOP QDRP requirements and to a 

hospital that fails to meet the HOP 

QDRP requirements for a service that 

has any of the following status indicator 

assignments: ‘‘P,’’ ‘‘Q1,’’ ‘‘Q2,’’ ‘‘Q3,’’ ‘‘R,’’ 

‘‘S,’’ ‘‘T,’’ ‘‘U,’’ ‘‘V,’’ or ‘‘X’’ (as defined in 

Addendum D1 to this proposed rule), in 

a circumstance in which the multiple 

procedure discount does not apply, the 

procedure is not bilateral, and 

conditionally packaged services (status 

indicator of ‘‘Q1’’ and ‘‘Q2’’) qualify for 

separate payment. We note that 

although blood and blood products with 

status indicator ‘‘R’’ and brachytherapy 

sources with status indicator ‘‘U’’ are not 

subject to wage adjustment, they are 

subject to reduced payments when a 

hospital fails to meet the HOP QDRP 

requirements because the national 

unadjusted payment rates for these 

services are updated by the OPD fee 

schedule increase factor. 

Individual providers interested in 

calculating the payment amount that 

they would receive for a specific service 

from the national unadjusted payment 

rates presented in Addenda A and B to 

this proposed rule should follow the 

formulas presented in the following 

steps. For purposes of the payment 

calculations below, we refer to the 

national unadjusted payment rate for 

hospitals that meet the requirements of 

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the HOP QDRP as the ‘‘full’’ national 

unadjusted payment rate. We refer to 

the national unadjusted payment rate 

for hospitals that fail to meet the 

requirements of the HOP QDRP as the 

‘‘reduced’’ national unadjusted payment 

rate. The reduced national unadjusted 

payment rate is calculated by 

multiplying the reporting ratio of 0.980 

times the ‘‘full’’ national unadjusted 

payment rate. The national unadjusted 

payment rate used in the calculations 

below is either the full national 

unadjusted payment rate or the reduced 

national unadjusted payment rate, 

depending on whether the hospital met 

its HOP QDRP requirements in order to 

receive the full CY 2011 OPPS increase 

factor. 

Step 1. Calculate 60 percent (the 

labor-related portion) of the proposed 

national unadjusted payment rate. Since 

the initial implementation of the OPPS, 

we have used 60 percent to represent 

our estimate of that portion of costs 

attributable, on average, to labor. We 

refer readers to the April 7, 2000 OPPS 

final rule with comment period (65 FR 

18496 through 18497) for a detailed 

discussion of how we derived this 

percentage. We confirmed that this 

labor-related share for hospital 

outpatient services is still appropriate 

during our regression analysis for the 

payment adjustment for rural hospitals 

in the CY 2006 OPPS final rule with 

comment period (70 FR 68553). 

The formula below is a mathematical 

representation of Step 1 and identifies 

the labor-related portion of a specific 

payment rate for a specific service. 

X is the labor-related portion of the 

national unadjusted payment rate. 

X = .60 * (national unadjusted payment 

rate) 

Step 2. Determine the wage index area 

in which the hospital is located and 

identify the wage index level that 

applies to the specific hospital. The 

wage index values assigned to each area 

reflect the geographic statistical areas 

(which are based upon OMB standards) 

to which hospitals are assigned for FY 

2011 under the IPPS, reclassifications 

through the MGCRB, section 

1886(d)(8)(B) ‘‘Lugar’’ hospitals, 

reclassifications under section 

1886(d)(8)(E) of the Act, as defined in 

§ 412.103 of the regulations, and 

hospitals designated as urban under 

section 601(g) of Public Law 98–21. We 

note that the reclassifications of 

hospitals under section 508 of Public 

Law 108–173, as extended by section 

3137 of the Affordable Care Act, expires 

on September 30, 2010, and, therefore, 

are not applicable under the IPPS for FY 

2011. Therefore, these reclassifications 

will not apply to the CY 2011 OPPS. 

(For further discussion of the changes to 

the FY 2011 IPPS wage indices, as 

applied to the CY 2011 OPPS, we refer 

readers to section II.C. of this proposed 

rule.) In section II.C. of this proposed 

rule, we also discuss our proposal to 

implement section 10324 of the 

Affordable Care Act, which establishes 

a wage index floor of 1.00 for frontier 

States, effective for services furnished 

on and after January 1, 2011. 

Step 3. Adjust the wage index of 

hospitals located in certain qualifying 

counties that have a relatively high 

percentage of hospital employees who 

reside in the county, but who work in 

a different county with a higher wage 

index, in accordance with section 505 of 

Public Law 108–173. Addendum L to 

this proposed rule contains the 

qualifying counties and the associated 

proposed wage index increase 

developed for the FY 2011 IPPS and 

published as Table 4J in the FY 2011 

IPPS/LTCH PPS proposed rule (75 FR 

24182). This step is to be followed only 

if the hospital is not reclassified or 

redesignated under section 1886(d)(8) or 

section 1886(d)(10) of the Act. 

Step 4. Multiply the applicable wage 

index determined under Steps 2 and 3 

by the amount determined under Step 1 

that represents the labor-related portion 

of the national unadjusted payment rate. 

The formula below is a mathematical 

representation of Step 4 and adjusts the 

labor-related portion of the national 

payment rate for the specific service by 

the wage index. 

Xa is the labor-related portion of the 

national unadjusted payment rate (wage 

adjusted). 

Xa = .60 * (national unadjusted payment 

rate) * applicable wage index. 

Step 5. Calculate 40 percent (the 

nonlabor-related portion) of the 

proposed national unadjusted payment 

rate and add that amount to the 

resulting product of Step 4. The result 

is the wage index adjusted payment rate 

for the relevant wage index area. 

The formula below is a mathematical 

representation of Step 5 and calculates 

the remaining portion of the national 

payment rate, the amount not 

attributable to labor, and the adjusted 

payment for the specific service. 

Y is the nonlabor-related portion of 

the national unadjusted payment rate. 

Y = .40 * (national unadjusted payment 

rate) 

Adjusted Medicare Payment = Y + Xa

Step 6. If a provider is a SCH, set forth 

in the regulations at § 412.92, or an 

EACH, which is considered to be a SCH 

under section 1886(d)(5)(D)(iii)(III) of 

the Act, and located in a rural area, as 

defined in § 412.64(b), or is treated as 

being located in a rural area under 

§ 412.103, multiply the wage index 

adjusted payment rate by 1.071 to 

calculate the total payment. 

The formula below is a mathematical 

representation of Step 6 and applies the 

rural adjustment for rural SCHs. 

Adjusted Medicare Payment (SCH or 

EACH) = Adjusted Medicare 

Payment * 1.071 

We have provided examples below of 

the calculation of both the proposed full 

and reduced national unadjusted 

payment rates that would apply to 

certain outpatient items and services 

performed by hospitals that meet and 

that fail to meet the HOP QDRP 

requirements, using the steps outlined 

above. For purposes of this example, we 

use a provider that is located in 

Brooklyn, New York that is assigned to 

CBSA 35644. This provider bills one 

service that is assigned to APC 0019 

(Level I Excision/Biopsy). The proposed 

CY 2011 full national unadjusted 

payment rate for APC 0019 is $335.76. 

The proposed reduced national 

unadjusted payment rate for a hospital 

that fails to meet the HOP QDRP 

requirements is $329.04. This reduced 

rate is calculated by multiplying the 

reporting ratio of 0.980 by the full 

unadjusted payment rate for APC 0019. 

The proposed FY 2011 wage index for 

a provider located in CBSA 35644 in 

New York is 1.3154. The proposed 

labor-related portion of the full national 

unadjusted payment is $264.99 (.60 * 

$335.76 * 1.3154). The proposed laborrelated portion of the reduced national 

unadjusted payment is $259.69 (.60 * 

$329.04 * 1.3154). The proposed 

nonlabor-related portion of the full 

national unadjusted payment is $134.30 

(.40 * $335.76). The proposed nonlaborrelated portion of the reduced national 

unadjusted payment is $131.62 (.40 * 

$329.04). The sum of the labor-related 

and nonlabor-related portions of the full 

national adjusted payment is $399.29 

($264.99 + $134.30). The sum of the 

reduced national adjusted payment is 

$391.31 ($259.69 + $131.62). 

I. Proposed Beneficiary Copayments 

1. Background 

Section 1833(t)(3)(B) of the Act 

requires the Secretary to set rules for 

determining the unadjusted copayment 

amounts to be paid by beneficiaries for 

covered OPD services. Section 

1833(t)(8)(C)(ii) of the Act specifies that 

the Secretary must reduce the national 

unadjusted copayment amount for a 

covered OPD service (or group of such 

services) furnished in a year in a 

manner so that the effective copayment 

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rate (determined on a national 

unadjusted basis) for that service in the 

year does not exceed a specified 

percentage. As specified in section 

1833(t)(8)(C)(ii)(V) of the Act, for all 

services paid under the OPPS in CY 

2010, and in calendar years thereafter, 

the percentage is 40 percent of the APC 

payment rate. 

Section 1833(t)(3)(B)(ii) of the Act 

provides that, for a covered OPD service 

(or group of such services) furnished in 

a year, the national unadjusted 

copayment amount cannot be less than 

20 percent of the OPD fee schedule 

amount. Until CY 2011, sections 

1834(d)(2)(C)(ii) and 1834(d)(3)(C)(ii) of 

the Act further require that the 

copayment for screening flexible 

sigmoidoscopies and screening 

colonoscopies be equal to 25 percent of 

the payment amount. Since the 

beginning of the OPPS, we have applied 

the 25 percent copayment to screening 

flexible sigmoidoscopies and screening 

colonoscopies. However, section 4104 of 

the Affordable Care Act eliminated the 

coinsurance (to which section 

1833(t)(2)(B) refers as the ‘‘copayment’’) 

for preventive services that meet certain 

requirements, including flexible 

sigmoidoscopies and screening 

colonscopies, and waived the Part B 

deductible for screening colonoscopies 

that become diagnostic during the 

procedure. We discuss our proposal to 

implement this provision in section 

XII.B. of this proposed rule. 

2. Proposed OPPS Copayment Policy 

For CY 2011, we are proposing to 

determine copayment amounts for new 

and revised APCs using the same 

methodology that we implemented 

beginning in CY 2004. (We refer readers 

to the November 7, 2003 OPPS final rule 

with comment period (68 FR 63458).) In 

addition, we are proposing to use the 

same standard rounding principles that 

we have historically used in instances 

where the application of our standard 

copayment methodology would result in 

a copayment amount that is less than 20 

percent and cannot be rounded, under 

standard rounding principles, to 20 

percent. (We refer readers to the CY 

2008 OPPS/ASC final rule with 

comment period (72 FR 66687) in which 

we discuss our rationale for applying 

these rounding principles.) The national 

unadjusted copayment amounts for 

services payable under the OPPS that 

would be effective January 1, 2011, are 

shown in Addenda A and B to this 

proposed rule. As discussed in section 

XVI.D. of this proposed rule, for CY 

2011, the Medicare beneficiary’s 

minimum unadjusted copayment and 

national unadjusted copayment for a 

service to which a reduced national 

unadjusted payment rate applies would 

equal the product of the reporting ratio 

and the national unadjusted copayment, 

or the product of the reporting ratio and 

the minimum unadjusted copayment, 

respectively, for the service. 

3. Proposed Calculation of an Adjusted 

Copayment Amount for an APC Group 

Individuals interested in calculating 

the national copayment liability for a 

Medicare beneficiary for a given service 

provided by a hospital that met or failed 

to meet its HOP QDRP requirements 

should follow the formulas presented in 

the following steps. 

Step 1. Calculate the beneficiary 

payment percentage for the APC by 

dividing the APC’s national unadjusted 

copayment by its payment rate. For 

example, using APC 0019, $67.16 is 20 

percent of the full national unadjusted 

payment rate of $335.76. For APCs with 

only a minimum unadjusted copayment 

in Addendum A and B of this proposed 

rule, the beneficiary payment 

percentage is 20 percent. 

The formula below is a mathematical 

representation of Step 1 and calculates 

national copayment as a percentage of 

national payment for a given service. 

B is the beneficiary payment 

percentage. 

B = National unadjusted copayment for 

APC/national unadjusted payment 

rate for APC 

Step 2. Calculate the appropriate 

wage-adjusted payment rate for the APC 

for the provider in question, as 

indicated in Steps 2 through 4 under 

section II.H. of this proposed rule. 

Calculate the rural adjustment for 

eligible providers as indicated in Step 6 

under section II.H. of this proposed rule. 

Step 3. Multiply the percentage 

calculated in Step 1 by the payment rate 

calculated in Step 2. The result is the 

wage-adjusted copayment amount for 

the APC. 

The formula below is a mathematical 

representation of Step 3 and applies the 

beneficiary percentage to the adjusted 

payment rate for a service calculated 

under section II.H. of this proposed rule, 

with and without the rural adjustment, 

to calculate the adjusted beneficiary 

copayment for a given service. 

Wage-adjusted copayment amount for 

the APC = Adjusted Medicare 

Payment * B 

Wage-adjusted copayment amount for 

the APC (SCH or EACH) = 

(Adjusted Medicare Payment * 

1.071) * B 

Step 4. For a hospital that failed to 

meet its HOP QDRP requirements, 

multiply the copayment calculated in 

Step 3 by the reporting ratio of 0.980. 

The proposed unadjusted copayments 

for services payable under the OPPS 

that would be effective January 1, 2011, 

are shown in Addenda A and B to this 

proposed rule. We note that the national 

unadjusted payment rates and 

copayment rates shown in Addenda A 

and B to this proposed rule reflect the 

full market basket conversion factor 

increase, as discussed in section XVI.D. 

of this proposed rule. 

III. Proposed OPPS Ambulatory 

Payment Classification (APC) Group 

Policies 

A. Proposed OPPS Treatment of New 

HCPCS and CPT Codes 

CPT and Level II HCPCS codes are 

used to report procedures, services, 

items, and supplies under the hospital 

OPPS. Specifically, CMS recognizes the 

following codes on OPPS claims: (1) 

Category I CPT codes, which describe 

medical services and procedures; (2) 

Category III CPT codes, which describe 

new and emerging technologies, 

services, and procedures; and (3) Level 

II HCPCS codes, which are used 

primarily to identify products, supplies, 

temporary procedures, and services not 

described by CPT codes. CPT codes are 

established by the American Medical 

Association (AMA) and the Level II 

HCPCS codes are established by the 

CMS HCPCS Workgroup. These codes 

are updated and changed throughout the 

year. CPT and HCPCS code changes that 

affect the OPPS are published both 

through the annual rulemaking cycle 

and through the OPPS quarterly update 

Change Requests (CRs). CMS releases 

new Level II HCPCS codes to the public 

or recognizes the release of new CPT 

codes by the AMA and makes these 

codes effective (that is, the codes can be 

reported on Medicare claims) outside of 

the formal rulemaking process via OPPS 

quarterly update CRs. This quarterly 

process offers hospitals access to codes 

that may more accurately describe items 

or services furnished and/or provides 

payment or more accurate payment for 

these items or services in a timelier 

manner than if CMS waited for the 

annual rulemaking process. We solicit 

comments on these new codes and 

finalize our proposals related to these 

codes through our annual rulemaking 

process. In Table 12 below, we 

summarize our proposed process for 

updating codes through our OPPS 

quarterly update CRs, seeking public 

comments, and finalizing their 

treatment under the OPPS. 

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This process is discussed in detail 

below and we have separated our 

discussion into two sections based on 

whether we are proposing to solicit 

public comments in this CY 2011 OPPS/ 

ASC proposed rule on a specific group 

of the CPT and Level II HCPCS codes or 

whether we are proposing to solicit 

public comments on another specific 

group of the codes in the CY 2011 

OPPS/ASC final rule with comment 

period. We note that we sought public 

comments in the CY 2010 OPPS/ASC 

final rule with comment period on the 

new CPT and Level II HCPCS codes that 

were effective January 1, 2010. We also 

sought public comments in the CY 2010 

OPPS/ASC final rule with comment 

period on the new Level II HCPCS codes 

effective October 1, 2009. These new 

codes with an effective date of October 

1, 2009, or January 1, 2010, were flagged 

with comment indicator ‘‘NI’’ (New 

code, interim APC assignment; 

comments will be accepted on the 

interim APC assignment for the new 

code) in Addendum B to the CY 2010 

OPPS/ASC final rule with comment 

period to indicate that we were 

assigning them an interim payment 

status and an APC and payment rate, if 

applicable, which were subject to public 

comment following publication of the 

CY 2010 OPPS/ASC final rule with 

comment period. We will respond to 

public comments and finalize our 

proposed OPPS treatment of these codes 

in the CY 2011 OPPS/ASC final rule 

with comment period. 

1. Proposed Treatment of New Level II 

HCPCS Codes and Category I CPT 

Vaccine Codes and Category III CPT 

Codes for Which We Are Soliciting 

Public Comments in This Proposed Rule 

Effective April 1 and July 1 of CY 

2010, we make effective a total of 22 

new Level II HCPCS codes, 4 new 

Category I CPT vaccine codes, and 11 

new Category III CPT codes that were 

not addressed in the CY 2010 OPPS/ 

ASC final rule with comment period 

that updated the OPPS. Twenty-two 

new Level II HCPCS codes are effective 

for the April and July 2010 updates, and 

of the 22 new HCPCS codes, a total of 

14 Level II HCPCS codes are newly 

recognized for separate payment under 

the OPPS. 

Through the April 2010 OPPS 

quarterly update CR (Transmittal 1924, 

Change Request 6857, dated February 

26, 2010), we allowed separate payment 

for a total of six of the 22 Level II 

HCPCS codes. Specifically, as displayed 

in Table 13 below, these included 

HCPCS code C9258 (Injection, 

telavancin, 10 mg), C9259 (Injection, 

pralatrexate, 1 mg), C9260 (Injection, 

ofatumumab, 10 mg), C9261 (Injection, 

ustekinumab, 1 mg), C9262 (Fludarabine 

phosphate, oral, 1 mg), and C9263 

(Injection, ecallantide, 1 mg). 

In addition to the six HCPCS C-codes, 

five new HCPCS G-codes were made 

effective on April 1, 2010. We did not 

recognize the five new HCPCS G-codes 

for separate payment under the OPPS 

because they were either paid under 

another Medicare payment system or 

were noncovered services under 

Medicare. Specifically, we assigned 

HCPCS G0432 (Infectious agent antigen 

detection by enzyme immunoassay 

(EIA) technique, qualitative or semiquantitative, multiple-step method, 

HIV–1 or HIV–2, screening), G0433 

(Infectious agent antigen detection by 

enzyme-linked immunosorbent assay 


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(ELISA) technique, antibody, HIV–1 or 

HIV–2, screening), G0435 (Infectious 

agent antigen detection by rapid 

antibody test of oral mucosa transudate, 

HIV–1 or HIV–2, screening), and G9143 

(Warfarin responsiveness testing by 

genetic technique using any method, 

any number of specimen(s)), to status 

indicator ‘‘A’’ (Not paid under OPPS. 

Paid by fiscal intermediaries/MACs 

under a fee schedule or payment system 

other than OPPS) to indicate that these 

services are paid under the Medicare 

Clinical Laboratory Fee Schedule 

(CLFS). Further, we did not recognize 

for separate payment HCPCS G9147 

(Outpatient Intravenous Insulin 

Treatment (OIVIT) and assigned it to 

status indicator ‘‘E’’ (Not paid by 

Medicare when submitted on outpatient 

claims (any outpatient bill type)) 

because this service is nationally a 

noncovered service under Medicare. 

Through the July 2010 OPPS quarterly 

update CR (Transmittal 1980, Change 

Request 6996, dated June 4, 2010), 

which included HCPCS codes that were 

made effective July 1, 2010, we allowed 

separate payment for 8 of the 22 new 

Level II HCPCS codes. Specifically, as 

displayed in Table 14, we provided 

separate payment for HCPCS codes 

C9264 (Injection, tocilizumab, 1 mg), 

C9265 (Injection, romidepsin, 1 mg), 

C9266 (Injection, collagenase 

clostridium histolyticum, 0.1 mg), 

C9267 (Injection, von Willebrand factor 

complex (human), Wilate, per 100 IU 

VWF: RCO), C9268 (Capsaicin, patch, 

10cm2), C9367 (Skin substitute, 

Endoform Dermal Template, per square 

centimeter), Q2025 (Fludarabine 

phosphate oral, 10mg), and C9800 

(Dermal injection procedure(s) for facial 

lipodystrophy syndrome (LDS) and 

provision of Radiesse or Sculptra 

dermal filler, including all items and 

supplies). 

We note that HCPCS code C9262 was 

made effective April 1, 2010, and 

deleted June 30, 2010, when it was 

replaced with HCPCS code Q2025. As 

discussed in section V.A.3. of this 

proposed rule, pass-through status 

began for this drug on April 1, 2010. 

Because HCPCS code Q2025 describes 

the same drug as HCPCS code C9262, 

we are continuing its pass-through 

status and assigning the HCPCS Q-code 

to the same APC and status indicator as 

its predecessor HCPCS C-code, as 

shown in Table 14. Specifically, HCPCS 

code Q2025 is assigned to APC 9262 

and status indicator ‘‘G.’’ 


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Of the 12 HCPCS codes that were 

made effective July 1, 2010, we did not 

recognize for separate payment four 

HCPCS codes. Specifically, we did not 

recognize HCPCS codes G0428 

(Collagen Meniscus Implant procedure 

for filling meniscal defects (e.g., CMI, 

collagen scaffold, Menaflex)), G0429 

(Dermal filler injection(s) for the 

treatment of facial lipodystrophy 

syndrome (LDS) (e.g., as a result of 

highly active antiretroviral therapy), 

Q2026 (Injection, Radiesse, 0.1 ml), and 

Q2027 (Injection, Sculptra, 0.1 ml). 

Under the hospital OPPS, we have 

assigned HCPCS code G0428 to status 

indicator ‘‘E’’ (Not paid by Medicare 

when submitted on outpatient claims 

(any outpatient bill type)) because this 

service is nationally noncovered by 

Medicare. Further, because HCPCS code 

C9800 describes both the injection 

procedure and the dermal filler 

supplies, we have assigned HCPCS 

codes G0429, Q2026, and Q2027 to 

status indicator ‘‘B’’ to indicate that 

these HCPCS codes are not recognized 

by OPPS when submitted on an 

outpatient hospital Part B bill type 12x 

and 13x. Specifically, hospitals must 

report HCPCS code C9800 to report the 

dermal filler supplies and the dermal 

filler injection procedure. Under the 

hospital OPPS, we have assigned 

HCPCS code C9800 to APC 0135 with a 

status indicator ‘‘T’’. We refer readers to 

Table 14 below for a complete list of the 

HCPCS codes that were made effective 

July 1, 2010. 

For CY 2011, we are proposing to 

continue our established policy of 

recognizing Category I CPT vaccine 

codes for which FDA approval is 

imminent and Category III CPT codes 

that the AMA releases in January of 

each year for implementation in July 

through the OPPS quarterly update 

process. Under the OPPS, Category I 

vaccine codes and Category III CPT 

codes that are released on the AMA Web 

site in January are made effective in July 

of the same year through the July 

quarterly update CR, consistent with the 

AMA’s implementation date for the 

codes. Through the July 2010 OPPS 

quarterly update CR, we allow separate 

payment for 10 of the 11 new Category 

III CPT codes effective July 1, 2010. 

Specifically, as displayed in Table 15 

below, we allow separate payment for 

CPT codes 0223T (Acoustic 

cardiography, including automated 

analysis of combined acoustic and 

electrical intervals; single, with 

interpretation and report), 0224T 

(Multiple, including serial trended 

analysis and limited reprogramming of 

device parameter—AV or VV delays 

only, with interpretation and report), 

0225T (Multiple, including serial 

trended analysis and limited 

reprogramming of device parameter— 

AV and VV delays, with interpretation 

and report), 0226T (Anoscopy, high 

resolution (HRA) (with magnification 

and chemical agent enhancement); 

diagnostic, including collection of 

specimen(s) by brushing or washing 

when performed), 0227T (Anoscopy, 

high resolution (HRA) (with 

magnification and chemical agent 

enhancement); with biopsy(ies)), 0228T 

(Injection(s), anesthetic agent and/or 

steroid, transforaminal epidural, with 

ultrasound guidance, cervical or 

thoracic; single level), 0229T 

(Injection(s), anesthetic agent and/or 

steroid, transforaminal epidural, with 

ultrasound guidance, cervical or 

thoracic; each additional level (List 

separately in addition to code for 

primary procedure)), 0230T 

(Injection(s), anesthetic agent and/or 

steroid, transforaminal epidural, with 

ultrasound guidance, lumbar or sacral; 

single level), 0231T (Injection(s), 


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anesthetic agent and/or steroid, 

transforaminal epidural, with 

ultrasound guidance, lumbar or sacral; 

each additional level (List separately in 

addition to code for primary 

procedure)), and 0232T (Injection(s), 

platelet rich plasma, any tissue, 

including image guidance, harvesting 

and preparation when performed). We 

note that CMS has issued a noncoverage 

determination (NCD) specifically for 

chronic, non-healing cutaneous wounds 

and acute surgical wounds when the 

autologous platelet rich plasma (PRP) is 

applied directly to the closed incision or 

for dehiscent wounds. Category III CPT 

code 0232T has been assigned to APC 

0340 to provide a payment amount 

when payment is appropriate, both 

under the NCD provisions and any local 

coverage determinations. Under the 

hospital OPPS, Category III CPT code 

0233T (Skin advanced glycation 

endproducts (AGE) measurement by 

multi-wavelength fluorescent 

spectroscopy) has been assigned to 

status indicator ‘‘A’’ and hospital 

payment for this test will be made under 

the MPFS. 

Further, CMS does not recognize the 

four new H1N1 Category I CPT vaccine 

codes that are effective on July 1, 2010, 

for separate payment under the OPPS 

because we already recognize an 

existing HCPCS G-code for reporting the 

H1N1 vaccine, specifically HCPCS code 

G9142 (Influenza a (h1n1) vaccine, any 

route of administration), which is 

effective September 1, 2009. We have 

assigned HCPCS code G9142 to status 

indicator ‘‘E’’ under the OPPS because 

the vaccine is expected to be free. 

Consequently, Category I CPT vaccine 

codes 90664 (Influenza virus vaccine, 

pandemic formulation, live, for 

intranasal use), 90666 (Influenza virus 

vaccine, pandemic formulation, split 

virus, preservative free, for 

intramuscular use), 90667 (Influenza 

virus vaccine, pandemic formulation, 

split virus, adjuvanted, for 

intramuscular use), and 90668 

(Influenza virus vaccine, pandemic 

formulation, split virus, for 

intramuscular use), are assigned to 

status indicator ‘‘E’’ (Not paid under 

OPPS or any other Medicare payment 

system). These codes and their status 

indicators are listed in Table 15 below. 

BILLING CODE 4120–01–P 

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BILLING CODE 4120–01–C 


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For CY 2011, we are soliciting public 

comments on the proposed status 

indicators and the proposed APC 

assignments and payment rates, if 

applicable, for the Level II HCPCS codes 

and the Category I vaccine codes and 

Category III CPT codes that are newly 

recognized in April or July 2010 through 

the respective OPPS quarterly update 

CRs. These codes are listed in Tables 13, 

14, and 15 of this proposed rule. We are 

proposing to finalize their status 

indicators and their APC assignments 

and payment rates, if applicable, in the 

CY 2011 OPPS/ASC final rule with 

comment period. Because the July 2010 

OPPS quarterly update CR is issued 

close to the publication of this proposed 

rule, the Level II HCPCS codes and the 

Category I vaccine and Category III CPT 

codes implemented through the July 

2010 OPPS quarterly update CR could 

not be included in Addendum B to this 

proposed rule, but these codes are listed 

in Tables 14 and 15, respectively. We 

are proposing to incorporate them into 

Addendum B to the CY 2011 OPPS/ASC 

final rule with comment period, which 

is consistent with our annual OPPS 

update policy. The Level II HCPCS 

codes implemented or modified through 

the April 2010 OPPS update CR and 

displayed in Table 13 are included in 

Addendum B to this proposed rule, 

where their proposed CY 2011 payment 

rates also are shown. 

2. Proposed Process for New Level II 

HCPCS Codes and Category I and 

Category III CPT Codes for Which We 

Will Be Soliciting Public Comments on 

the CY 2011 OPPS/ASC Final Rule With 

Comment Period 

As has been our practice in the past, 

we incorporate those new Category I 

and III CPT codes and new Level II 

HCPCS codes that are effective January 

1 in the final rule with comment period 

updating the OPPS for the following 

calendar year. These codes are released 

to the public via the CMS HCPCS (for 

Level II HCPCS codes) and AMA Web 

sites (for CPT codes), and also through 

the January OPPS quarterly update CRs. 

In the past, we also have released new 

Level II HCPCS codes that are effective 

October 1 through the October OPPS 

quarterly update CRs and incorporated 

these new codes in the final rule with 

comment period updating the OPPS for 

the following calendar year. All of these 

codes are flagged with comment 

indicator ‘‘NI’’ in Addendum B to the 

OPPS/ASC final rule with comment 

period to indicate that we are assigning 

them an interim payment status which 

is subject to public comment. 

Specifically, the status indicator and the 

APC assignment, and payment rate, if 

applicable, for all such codes flagged 

with comment indicator ‘‘NI’’ are open 

to public comment in the final rule with 

comment period, and we respond to 

these comments in the OPPS/ASC final 

rule with comment period for the next 

calendar year’s OPPS/ASC update. We 

are proposing to continue this process 

for CY 2011. Specifically, for CY 2011, 

we are proposing to include in 

Addendum B to the CY 2011 OPPS/ASC 

final rule with comment period the new 

Category I and III CPT codes effective 

January 1, 2011 (including those 

Category I vaccine and Category III CPT 

codes that were released by the AMA in 

July 2010) that would be incorporated in 

the January 2011 OPPS quarterly update 

CR and the new Level II HCPCS codes, 

effective October 1, 2010, or January 1, 

2011, that would be released by CMS in 

its October 2010 and January 2011 OPPS 

quarterly update CRs. These codes 

would be flagged with comment 

indicator ‘‘NI’’ in Addendum B to the CY 

2011 OPPS/ASC final rule with 

comment period to indicate that we 

have assigned them an interim OPPS 

payment status. Their status indicators 

and their APC assignments and payment 

rates, if applicable, would be open to 

public comment in the CY 2011 OPPS/ 

ASC final rule with comment period 

and would be finalized in the CY 2012 

OPPS/ASC final rule with comment 

period. 

B. Proposed OPPS Changes—Variations 

Within APCs 

1. Background 

Section 1833(t)(2)(A) of the Act 

requires the Secretary to develop a 

classification system for covered 

hospital outpatient department services. 

Section 1833(t)(2)(B) of the Act provides 

that the Secretary may establish groups 

of covered OPD services within this 

classification system, so that services 

classified within each group are 

comparable clinically and with respect 

to the use of resources (and so that an 

implantable item is classified to the 

group that includes the services to 

which the item relates). In accordance 

with these provisions, we developed a 

grouping classification system, referred 

to as APCs, as set forth in § 419.31 of the 

regulations. We use Level I and Level II 

HCPCS codes and descriptors to identify 

and group the services within each APC. 

The APCs are organized such that each 

group is homogeneous both clinically 

and in terms of resource use. Using this 

classification system, we have 

established distinct groups of similar 

services, as well as medical visits. We 

also have developed separate APC 

groups for certain medical devices, 

drugs, biologicals, therapeutic 

radiopharmaceuticals, and 

brachytherapy devices. 

We have packaged into payment for 

each procedure or service within an 

APC group the costs associated with 

those items or services that are directly 

related to and supportive of performing 

the main independent procedures or 

furnishing the services. Therefore, we 

do not make separate payment for these 

packaged items or services. For 

example, packaged items and services 

include: (1) Use of an operating, 

treatment, or procedure room; (2) use of 

a recovery room; (3) observation 

services; (4) anesthesia; (5) medical/ 

surgical supplies; (6) pharmaceuticals 

(other than those for which separate 

payment may be allowed under the 

provisions discussed in section V. of 

this proposed rule); (7) incidental 

services such as venipuncture; and (8) 

guidance services, image processing 

services, intraoperative services, 

imaging supervision and interpretation 

services, diagnostic 

radiopharmaceuticals, and contrast 

media. Further discussion of packaged 

services is included in section II.A.3. of 

this proposed rule. 

In CY 2008, we implemented 

composite APCs to provide a single 

payment for groups of services that are 

typically performed together during a 

single clinical encounter and that result 

in the provision of a complete service 

(72 FR 66650 through 66652). Under CY 

2010 OPPS policy, we provide 

composite APC payment for certain 

extended assessment and management 

services, low dose rate (LDR) prostate 

brachytherapy, cardiac 

electrophysiologic evaluation and 

ablation, mental health services, and 

multiple imaging services. Further 

discussion of composite APCs is 

included in section II.A.2.e. of this 

proposed rule. 

Under the OPPS, we generally pay for 

hospital outpatient services on a rateper-service basis, where the service may 

be reported with one or more HCPCS 

codes. Payment varies according to the 

APC group to which the independent 

service or combination of services is 

assigned. Each APC weight represents 

the hospital median cost of the services 

included in that APC relative to the 

hospital median cost of the services 

included in APC 0606 (Level 3 Hospital 

Clinic Visits). The APC weights are 

scaled to APC 0606 because it is the 

middle level hospital clinic visit APC 

(that is, where the Level 3 hospital 

clinic visit CPT code of five levels of 

hospital clinic visits is assigned), and 

because middle level hospital clinic 

visits are among the most frequently 

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furnished services in the hospital 

outpatient setting. 

Section 1833(t)(9)(A) of the Act 

requires the Secretary to review not less 

often than annually and revise the 

groups, the relative payment weights, 

and the wage and other adjustments to 

take into account changes in medical 

practice, changes in technology, the 

addition of new services, new cost data, 

and other relevant information and 

factors. Section 1833(t)(9)(A) of the Act, 

as amended by section 201(h) of the 

BBRA, also requires the Secretary, 

beginning in CY 2001, to consult with 

an expert outside advisory panel 

composed of an appropriate selection of 

representatives of providers to review 

(and advise the Secretary concerning) 

the clinical integrity of the APC groups 

and the relative payment weights (the 

APC Panel recommendations for 

specific services for the CY 2011 OPPS 

and our responses to them are discussed 

in the relevant specific sections 

throughout this proposed rule). 

Finally, section 1833(t)(2) of the Act 

provides that, subject to certain 

exceptions, the items and services 

within an APC group cannot be 

considered comparable with respect to 

the use of resources if the highest 

median cost (or mean cost as elected by 

the Secretary) for an item or service in 

the group is more than 2 times greater 

than the lowest median cost (or mean 

cost, if so elected) for an item or service 

within the same group (referred to as the 

‘‘2 times rule’’). We use the median cost 

of the item or service in implementing 

this provision. The statute authorizes 

the Secretary to make exceptions to the 

2 times rule in unusual cases, such as 

low-volume items and services (but the 

Secretary may not make such an 

exception in the case of a drug or 

biological that has been designated as an 

orphan drug under section 526 of the 

Federal Food, Drug, and Cosmetic Act). 

2. Application of the 2 Times Rule 

In accordance with section 1833(t)(2) 

of the Act and § 419.31 of the 

regulations, we annually review the 

items and services within an APC group 

to determine, with respect to 

comparability of the use of resources, if 

the median cost of the highest cost item 

or service within an APC group is more 

than 2 times greater than the median of 

the lowest cost item or service within 

that same group. We are proposing to 

make exceptions to this limit on the 

variation of costs within each APC 

group in unusual cases, such as lowvolume items and services for CY 2011. 

During the APC Panel’s February 2010 

meeting, we presented median cost and 

utilization data for services furnished 

during the period of January 1, 2009 

through September 30, 2009, about 

which we had concerns or about which 

the public had raised concerns 

regarding their APC assignments, status 

indicator assignments, or payment rates. 

The discussions of most service-specific 

issues, the APC Panel 

recommendations, if any, and our 

proposals for CY 2011 are contained 

mainly in sections III.C. and III.D. of this 

proposed rule. 

In addition to the assignment of 

specific services to APCs that we 

discussed with the APC Panel, we also 

identified APCs with 2 times violations 

that were not specifically discussed 

with the APC Panel but for which we 

are proposing changes to their HCPCS 

codes’ APC assignments in Addendum 

B to this proposed rule. In these cases, 

to eliminate a 2 times violation or to 

improve clinical and resource 

homogeneity, we are proposing to 

reassign the codes to APCs that contain 

services that are similar with regard to 

both their clinical and resource 

characteristics. We also are proposing to 

rename existing APCs or create new 

clinical APCs to complement proposed 

HCPCS code reassignments. In many 

cases, the proposed HCPCS code 

reassignments and associated APC 

reconfigurations for CY 2011 included 

in this proposed rule are related to 

changes in median costs of services that 

were observed in the CY 2009 claims 

data newly available for CY 2011 

ratesetting. We also are proposing 

changes to the status indicators for some 

codes that are not specifically and 

separately discussed in this proposed 

rule. In these cases, we are proposing to 

change the status indicators for some 

codes because we believe that another 

status indicator would more accurately 

describe their payment status from an 

OPPS perspective based on the policies 

that we are proposing for CY 2011. 

Addendum B to this proposed rule 

identifies with comment indicator ‘‘CH’’ 

those HCPCS codes for which we are 

proposing a change to the APC 

assignment or status indicator that were 

initially assigned in the April 2010 

Addendum B update (via Transmittal 

1924, Change Request 6857, dated 

February 26, 2010). 

3. Proposed Exceptions to the 2 Times 

Rule 

As discussed earlier, we may make 

exceptions to the 2 times limit on the 

variation of costs within each APC 

group in unusual cases such as lowvolume items and services. Taking into 

account the APC changes that we are 

proposing for CY 2011 based on the 

APC Panel recommendations discussed 

mainly in sections III.C. and III.D. of this 

proposed rule, the other proposed 

changes to status indicators and APC 

assignments as identified in Addendum 

B to this proposed rule, and the use of 

CY 2009 claims data to calculate the 

median costs of procedures classified in 

the APCs, we reviewed all the APCs to 

determine which APCs would not 

satisfy the 2 times rule. We used the 

following criteria to decide whether to 

propose exceptions to the 2 times rule 

for affected APCs: 

• Resource homogeneity 

• Clinical homogeneity 

• Hospital outpatient setting 

• Frequency of service (volume) 

• Opportunity for upcoding and code 

fragments. 

For a detailed discussion of these 

criteria, we refer readers to the April 7, 

2000 OPPS final rule with comment 

period (65 FR 18457 and 18458). 

Table 16 of this proposed rule lists 17 

APCs that we are proposing to exempt 

from the 2 times rule for CY 2011 based 

on the criteria cited above. For cases in 

which a recommendation by the APC 

Panel appeared to result in or allow a 

violation of the 2 times rule, we 

generally accepted the APC Panel’s 

recommendation because those 

recommendations were based on 

explicit consideration of resource use, 

clinical homogeneity, hospital 

specialization, and the quality of the CY 

2009 claims data used to determine the 

APC payment rates that we are 

proposing for CY 2011. The median 

costs for hospital outpatient services for 

these and all other APCs that were used 

in the development of this proposed 

rule can be found on the CMS Web site 

at: http://www.cms.gov/ 

HospitalOutpatientPPS/ 

01_overview.asp. 

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C. New Technology APCs 

1. Background 

In the November 30, 2001 final rule 

(66 FR 59903), we finalized changes to 

the time period a service was eligible for 

payment under a New Technology APC. 

Beginning in CY 2002, we retain 

services within New Technology APC 

groups until we gather sufficient claims 

data to enable us to assign the service 

to a clinically appropriate APC. This 

policy allows us to move a service from 

a New Technology APC in less than 2 

years if sufficient data are available. It 

also allows us to retain a service in a 

New Technology APC for more than 2 

years if sufficient data upon which to 

base a decision for reassignment have 

not been collected. 

We note that the cost bands for New 

Technology APCs range from $0 to $50 

in increments of $10, from $50 to $100 

in increments of $50, from $100 through 

$2,000 in increments of $100, and from 

$2,000 through $10,000 in increments of 

$500. These cost bands identify the 

APCs to which new technology 

procedures and services with estimated 

service costs that fall within those cost 

bands are assigned under the OPPS. 

Payment for each APC is made at the 

mid-point of the APC’s assigned cost 

band. For example, payment for New 

Technology APC 1507 (New 

Technology—Level VII ($500–$600)) is 

made at $550. Currently, there are 82 

New Technology APCs, ranging from 

the lowest cost band assigned to APC 

1491 (New Technology—Level IA ($0– 

$10)) through the highest cost band 

assigned to APC 1574 (New 

Technology—Level XXXVII ($9,500– 

$10,000). In CY 2004 (68 FR 63416), we 

last restructured the New Technology 

APCs to make the cost intervals more 

consistent across payment levels and 

refined the cost bands for these APCs to 

retain two parallel sets of New 

Technology APCs, one set with a status 

indicator of ‘‘S’’ (Significant Procedures, 

Not Discounted when Multiple. Paid 

under OPPS; separate APC payment) 

and the other set with a status indicator 

of ‘‘T’’ (Significant Procedure, Multiple 

Reduction Applies. Paid under OPPS; 

separate APC payment). These current 

New Technology APC configurations 

allow us to price new technology 

services more appropriately and 

consistently. 

Every year we receive many requests 

for higher payment amounts under our 

New Technology APCs for specific 

procedures under the OPPS because 

they require the use of expensive 

equipment. We again are taking this 

opportunity to reiterate our response in 

general to the issue of hospitals’ capital 

expenditures as they relate to the OPPS 

and Medicare. 

Under the OPPS, one of our goals is 

to make payments that are appropriate 

for the services that are necessary for the 

treatment of Medicare beneficiaries. The 

OPPS, like other Medicare payment 

systems, is budget neutral and increases 

are limited to the hospital inpatient 

market basket. We believe that our 

payment rates generally reflect the costs 

that are associated with providing care 

to Medicare beneficiaries in costefficient settings, and we believe that 

our rates are adequate to ensure access 

to services. 

For many emerging technologies there 

is a transitional period during which 

utilization may be low, often because 

providers are first learning about the 

techniques and their clinical utility. 

Quite often, parties request that 

Medicare make higher payment 

amounts under our New Technology 

APCs for new procedures in that 

transitional phase. These requests, and 

their accompanying estimates for 

expected total patient utilization, often 

reflect very low rates of patient use of 

expensive equipment, resulting in high 

per use costs for which requesters 

believe Medicare should make full 

payment. Medicare does not, and we 

believe should not, assume 

responsibility for more than its share of 


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the costs of procedures based on 

Medicare beneficiary projected 

utilization and does not set its payment 

rates based on initial projections of low 

utilization for services that require 

expensive capital equipment. For the 

OPPS, we rely on hospitals to make 

informed business decisions regarding 

the acquisition of high cost capital 

equipment, taking into consideration 

their knowledge about their entire 

patient base (Medicare beneficiaries 

included) and an understanding of 

Medicare’s and other payers’ payment 

policies. 

We note that in a budget neutral 

environment, payments may not fully 

cover hospitals’ costs in a particular 

circumstance, including those for the 

purchase and maintenance of capital 

equipment. We rely on providers to 

make their decisions regarding the 

acquisition of high cost equipment with 

the understanding that the Medicare 

program must be careful to establish its 

initial payment rates, including those 

made through New Technology APCS, 

for new services that lack hospital 

claims data based on realistic utilization 

projections for all such services 

delivered in cost-efficient hospital 

outpatient settings. As the OPPS 

acquires claims data regarding hospital 

costs associated with new procedures, 

we regularly examine the claims data 

and any available new information 

regarding the clinical aspects of new 

procedures to confirm that our OPPS 

payments remain appropriate for 

procedures as they transition into 

mainstream medical practice. 

2. Proposed Movement of Procedures 

From New Technology APCs to Clinical 

APCs 

As we explained in the November 30, 

2001 final rule (66 FR 59902), we 

generally keep a procedure in the New 

Technology APC to which it is initially 

assigned until we have collected 

sufficient data to enable us to move the 

procedure to a clinically appropriate 

APC. However, in cases where we find 

that our original New Technology APC 

assignment was based on inaccurate or 

inadequate information (although it was 

the best information available at the 

time), or where the New Technology 

APCs are restructured, we may, based 

on more recent resource utilization 

information (including claims data) or 

the availability of refined New 

Technology APC cost bands, reassign 

the procedure or service to a different 

New Technology APC that most 

appropriately reflects its cost. 

Consistent with our current policy, for 

CY 2011, we are proposing to retain 

services within New Technology APC 

groups until we gather sufficient data to 

enable us to assign the service to a 

clinically appropriate APC. The 

flexibility associated with this policy 

allows us to move a service from a New 

Technology APC in less than 2 years if 

sufficient data are available. It also 

allows us to retain a service in a New 

Technology APC for more than 2 years 

if sufficient data upon which to base a 

decision for reassignment have not been 

collected. 

Table 17 below lists the HCPCS codes 

and associated status indicators that we 

are proposing to reassign from a New 

Technology APC to a clinically 

appropriate APC or to a different New 

Technology APC for CY 2011. For CY 

2010, there are four services described 

by a HCPCS G-code receiving payment 

through a New Technology APC. 

Specifically, HCPCS code G0416 

(Surgical pathology, gross and 

microscopic examination for prostate 

needle saturation biopsy sampling, 1–20 

specimens), is assigned to New 

Technology APC 1505 (New 

Technology—Level V ($300–$400)); 

HCPCS code G0417 (Surgical pathology, 

gross and microscopic examination for 

prostate needle saturation biopsy 

sampling, 21–40 specimens), is assigned 

to New Technology APC 1507 (New 

Technology—Level VII ($500–$600)); 

G0418 (Surgical pathology, gross and 

microscopic examination for prostate 

needle saturation biopsy sampling, 41– 

60 specimens), is assigned to New 

Technology APC 1511 (New 

Technology—Level XI ($900—$1000)); 

and HCPCS code G0419 (Surgical 

pathology, gross and microscopic 

examination for prostate needle 

saturation biopsy sampling, greater than 

60 specimens), is assigned to New 

Technology APC 1513 (New 

Technology—Level XIII ($1100–$1200)). 

Based on the CY 2009 OPPS claims data 

available for this proposed rule, we 

believe that we have sufficient claims 

data to propose reassignment of HCPCS 

codes G0416 and G0417. Specifically, 

for HCPCS code G0416, our claims data 

show a median cost of approximately 

$113 based on 251 single claims out of 

1,373 total claims for this service in CY 

2009. For HCPCS code G0417, our 

claims data show a median cost of 

approximately $489 based on 5 single 

claims out of 135 total claims. We 

discuss our identification of single 

procedure claims, including ‘‘pseudo’’ 

single procedure claims, for ratesetting 

in section II.A.2. of this proposed rule. 

We believe we have sufficient claims 

data to propose the reassignment of 

HCPCS G-codes G0416 and G0417 to 

more appropriate APCs for CY 2011. 

Therefore, for CY 2011, we are 

proposing to reassign these procedures 

to more appropriate APCs. Specifically, 

we are proposing to reassign HCPCS Gcode G0416 from New Technology APC 

1505 to clinical APC 0661 (Level V 

Pathology), which has an APC median 

cost of approximately $165, and HCPCS 

G-code G0417 from New Technology 

APC 1507 (New Technology—Level VII 

($500 to $600)) to New Technology APC 

1506 (New Technology—Level VI 

($400–$500)). We believe that HCPCS Gcode G0416 is comparable clinically and 

with respect to the use of resources as 

other pathology services currently 

assigned to APC 0661. We also believe 

that HCPCS G-code G0417 would be 

more appropriately placed in New 

Technology APC 1506 in light of the 

median cost data available to us. 

Specifically, the HCPCS median cost of 

approximately $489 for HCPCS code 

G0417 closely aligns with the APC 

median cost of approximately $489 for 

APC 1506. We believe that HCPCS code 

G0417 would be more appropriately 

placed in APC 1506 based on clinical 

and resource considerations. These 

services and their proposed APC 

assignments are displayed in Table 17 

below. 

For CY 2011, we are proposing to 

continue the New Technology APC 

assignments for HCPCS G-codes G0418 

and G0419, which is based on our 

understanding of the clinical and cost 

characteristics of the procedures 

described by these HCPCS codes. We do 

not believe we have enough claims data 

to assign these codes to a different APC. 

Specifically, our claims data show no 

single claims, out of 29 total claims, for 

HCPCS code G0418. Similarly, our data 

show no single claims, out of 3 total 

claims, for HCPCS code G0419. While 

we believe that these services always 

will be low volume, given the number 

of specimens being collected, we believe 

that we should continue their New 

Technology payments for another year 

to see if more claims data become 

available for HCPCS codes G0418 and 

G0419. Specifically, we are proposing to 

continue to assign HCPCS G-code G0418 

to New Technology APC 1511 (New 

Technology—Level XI ($900–$1,000)) 

and HCPCS G-code G0419 to New 

Technology APC 1513 (New 

Technology—Level XIII ($1,100– 

$1,200)). 

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D. Proposed OPPS APC-Specific Policy: 

Skin Repair (APCs 0134 and 0135) 

At the August 2009 APC Panel 

meeting, one public presenter requested 

that the APC Panel recommend that 

CMS reassign the Apligraf application 

CPT codes, specifically CPT codes 

15340 (Tissue cultured allogeneic skin 

substitute; first 25 sq cm or less) and 

15341 (Tissue cultured allogeneic skin 

substitute; each additional 25 sq cm, or 

part thereof), from APC 0134 (Level II 

Skin Repair) to APC 0135 (Level III Skin 

Repair). The same presenter requested 

that CMS continue to assign the 

Dermagraft application CPT codes, 

specifically CPT codes 15365 (Tissue 

cultured allogeneic dermal substitute, 

face, scalp, eyelids, mouth, neck, ears, 

orbits, genitalia, hands, feet, and/or 

multiple digits; first 100 sq cm or less, 

or 1% of body area of infants and 

children) and 15366 (Tissue cultured 

allogeneic dermal substitute, face, scalp, 

eyelids, mouth, neck, ears, orbits, 

genitalia, hands, feet, and/or multiple 

digits; each additional 100 sq cm, or 

each additional 1% of body area of 

infants and children, or part thereof), to 

APC 0134. The public presenter 

believed that the CY 2010 proposal to 

continue to assign both the Apligraf and 

the Dermagraft application CPT codes to 

APC 0134 would create a financial 

incentive favoring the Dermagraft 

application. Specifically, the presenter 

explained that CPT instructions allow 

the separate reporting of the CPT codes 

for site preparation and debridement 

when Dermagraft is applied, while the 

CPT instructions for Apligraf 

application codes specify that site 

preparation and debridement cannot be 

separately reported. The presenter 

believed that this reporting difference 

and the resulting expected differences 

in the associated application procedure 

costs could be addressed by assigning 

the Apligraf application CPT codes to a 

higher paying APC than the Dermagraft 

application CPT codes, instead of the 

same APC as CMS proposed for CY 

2010. 

During the discussion, the APC Panel 

members were provided with the 

historical information on the coding and 

APC assignments for the skin substitute 

application procedures assigned to 

APCs 0134 and 0135. Specifically, the 

Apligraf application CPT codes 15340 

and 15341, the Dermagraft application 

CPT codes 15365 and 15366, as well as 

the Oasis application CPT codes 15430 

(Acellular xenograft implant; first 100 sq 

cm or less, or 1% of body area of infants 

and children) and 15431 (Acellular 

xenograft implant; each additional 100 

sq cm, or each additional 1% of body 

area of infants and children, or part 

thereof), were at one time assigned to 

the same APC level (Level II Skin 

Repair). However, because of violations 

of the two times rule, CMS reconfigured 

the skin repair APCs and reassigned the 

Oasis application CPT codes 15430 and 

15431 to APC 0135 (Level III Skin 

Repair) in CY 2008. 

At the August 2009 APC Panel 

meeting, panel members debated 

whether the differences in sizes in each 

product’s application CPT codes and the 

ability to bill separately for site 

preparation and debridement for 

Dermagraft application required 

different APC placement for any of the 

skin substitute application codes. We 

note that the long descriptors for the 

Apligraf application CPT codes 15340 

and 15341 are scaled to ‘‘25 sq cm,’’ 

whereas the Oasis application CPT 

codes 15430 and 15431 and the 

Dermagraft application CPT codes 

15365 and 15366 are scaled to ‘‘100 sq 

cm.’’ After review of median cost data 

from the CY 2008 hospital outpatient 

claims available at that time (those 

processed from January 1, 2008 through 

December 31, 2009), the APC Panel 

recommended that CMS continue to 

assign all six skin substitute application 

CPT codes to their existing APCs for CY 

2010. In addition, because of the 

variable sizes associated with the skin 

repair application CPT codes, the Panel 

requested that CMS provide data at the 

next Panel meeting on the frequency of 

primary and add-on CPT codes billed 

for the Apligraf, Oasis, and Dermagraft 

applications in order to assess the 

variability in billing for the application 

of these products. In addition, because 

of the CPT instructions allowing site 

preparation and debridement to be 

reported separately only for the 

Dermagraft application, the Panel 

requested median cost data for site 

preparation and debridement. 

We accepted the APC Panel’s 

recommendation to continue to assign 

the skin repair CPT codes for the 

application of Apligraf, Oasis, and 

Dermagraft skin substitutes to the same 

procedural APCs for CY 2010 as their 

CY 2009 assignments. As a result, we 

continued to assign the Apligraf 

application CPT codes 15340 and 15341 

and the Dermagraft application CPT 

codes 15365 and 15366 to APC 0134 

and assigned the Oasis application CPT 

codes 15430 and 15431 to APC 0135 for 

CY 2010. 

At the February 2010 APC Panel 

meeting, CMS presented the results of 

the data requested at the August 2009 

meeting to the APC Panel. In response 

to data on the frequency of primary and 

add-on CPT codes, based on our 

analysis of the available CY 2009 

hospital outpatient claims data on 

frequency of primary and add-on CPT 

codes billed for the Apligraf, Oasis, and 

Dermagraft applications (claims 

processed from January 1 through 

September 30, 2009), we found that 

hospitals report the application of 

Apligraf with only the primary code 

(CPT code 15340) on 77 percent of 

claims, while the add-on CPT code 

15341 is billed in addition to the 

primary code on another 23 percent of 

claims. Specifically, our data showed 

that for the Apligraf application, there 

were a total of 8,614 claims with only 

the primary CPT code 15340 reported, 

and 2,545 claims with the add-on CPT 

code 15341 also reported on the same 

date of service. We note that each unit 

of the add-on CPT code is paid at 50 

percent of the payment for the primary 

code in addition to the full payment for 

the primary code. We also found in our 

analysis that, on claims with the 

Dermagraft and Oasis application CPT 

codes, hospitals report the primary code 

only in approximately 98 to 99 percent 

of the cases. In addition, in response to 

the request for data for site preparation 

and debridement that may be reported 


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separately for the Dermagraft 

application, we found that 

approximately 87 percent of procedures 

for the application of Dermagraft were 

reported without debridement or site 

preparation on the same day. Similarly, 

we found that the Apligraf and Oasis 

procedures were rarely reported with 

the site preparation or debridement CPT 

procedure codes on the same day. 

Specifically, we found that the CPT 

procedure code for the application of 

Apligraf was reported without site 

preparation or debridement in 

approximately 94 percent of these cases, 

and that the CPT procedure code for 

application of Oasis was reported 

without site preparation or debridement 

in approximately 95 percent of these 

cases. Our data analysis also showed 

that the CPT median costs for the 

Apligraf application CPT code 15340 

and the Dermagraft application CPT 

code 15365 are very similar. 

Specifically, the CPT code-specific 

median cost of CPT code 15340 is 

approximately $234 for the Apligraf 

application and approximately $237 for 

CPT code 15365 for the Dermagraft 

application. In contrast, the CPT median 

cost for the Oasis application primary 

CPT code 15430 of approximately $299 

is higher. 

At the February 2010 APC Panel 

meeting, a public presenter again 

requested that the APC Panel 

recommend that CMS reassign the 

Apligraf application CPT codes 15340 

and 15341 from APC 0134 to APC 0135. 

The presenter indicated that the 

additional payment for site preparation 

and debridement procedures that may 

be reported separately with the 

Dermagraft application can significantly 

affect the total payment for the 

procedure. The presenter also provided 

data on the use of each product in 

relation to the size of the wounds 

treated, and concluded that the size of 

the wound treated does not affect the 

resources used. After further review of 

the available CY 2009 hospital 

outpatient claims data, the APC Panel 

recommended that CPT codes 15340 

and 15341 remain in APC 0134. 

We are accepting the recommendation 

of the APC Panel and are proposing to 

continue to assign the CPT skin repair 

codes for the application of Apligraf, 

Dermagraft, and Oasis skin substitutes 

to the same procedural APCs as their CY 

2010 assignments for CY 2011. We also 

are proposing to continue to pay 

separately for the Apligraf, Dermagraft, 

and Oasis products themselves in CY 

2011. Specifically, we are proposing to 

continue to assign the Apligraf 

application CPT codes 15340 and 15341 

and the Dermagraft application CPT 

codes 15365 and 15366 to APC 0134, 

with a proposed APC median cost of 

approximately $222. We are proposing 

to continue to assign the Oasis 

application CPT codes 15430 and 15431 

to APC 0135, with a proposed APC 

median cost of approximately $325. 

For CY 2011, we also are proposing to 

create two new Level II HCPCS G-codes 

to report the application of Apligraf or 

Dermagraft specific to the lower 

extremities in order to provide 

appropriate and consistent payment for 

these services as they are commonly 

furnished, consistent with the CY 2011 

proposal for the MPFS. (We refer 

readers to the CY 2011 MPFS proposed 

rule for additional information 

regarding the MPFS proposal.) The 

proposed HCPCS codes are: GXXX1 

(Application of tissue cultured 

allogeneic skin substitute or dermal 

substitute; for use on lower limb, 

includes the site preparation and 

debridement if performed; first 25 sq cm 

or less); and GXXX2 (Application of 

tissue cultured allogeneic skin or 

dermal substitute; for use on lower limb, 

includes the site preparation and 

debridement if performed; each 

additional 25 sq cm). As indicated in 

the HCPCS G-code descriptors, these 

codes would not allow separate 

reporting of CPT codes for site 

preparation or debridement. We believe 

the descriptors of these proposed 

HCPCS G-codes more specifically reflect 

the characteristics of the application of 

Apligraf or Dermagraft to the lower limb 

so that reporting would result in more 

accurate cost data for OPPS ratesetting 

and, ultimately, more appropriate 

payment. Consistent with the proposed 

CY 2011 APC assignment for the 

Apligraf and Dermagraft application 

CPT codes, we are proposing to assign 

new HCPCS codes GXXX1 and GXXX2 

to APC 0134, with a proposed APC 

median cost of approximately $222. We 

are specifically interested in public 

comment on the appropriateness of 

recognizing these proposed new HCPCS 

G-codes under the OPPS and their 

proposed APC assignments. 

IV. Proposed OPPS Payment for Devices 

A. Pass-Through Payments for Devices 

1. Expiration of Transitional PassThrough Payments for Certain Devices 

Section 1833(t)(6)(B)(iii) of the Act 

requires that, under the OPPS, a 

category of devices be eligible for 

transitional pass-through payments for 

at least 2, but not more than 3, years. 

This pass-through payment eligibility 

period begins with the first date on 

which transitional pass-through 

payments may be made for any medical 

device that is described by the category. 

We may establish a new device category 

for pass-through payment in any 

quarter. Under our established policy, 

we base the pass-through status 

expiration dates for the category codes 

on the date on which a category is in 

effect. The date on which a category is 

in effect is the first date on which passthrough payment may be made for any 

medical device that is described by such 

category. We propose and finalize the 

dates for expiration of pass-through 

status for device categories as part of the 

OPPS annual update. 

We also have an established policy to 

package the costs of the devices that are 

no longer eligible for pass-through 

payments into the costs of the 

procedures with which the devices are 

reported in the claims data used to set 

the payment rates (67 FR 66763). 

Brachytherapy sources, which are now 

separately paid in accordance with 

section 1833(t)(2)(H) of the Act, are an 

exception to this established policy. 

There currently are no device 

categories eligible for pass-through 

payment, and there are no categories for 

which we would propose expiration of 

pass-through status in CY 2011. If we 

create new device categories for passthrough payment status during the 

remainder of CY 2010 or during CY 

2011, we will propose future expiration 

dates in accordance with the statutory 

requirement that they be eligible for 

pass-through payments for at least 2, but 

not more than 3, years from the date on 

which pass-through payment for any 

medical device described by the 

category may first be made. 

2. Proposed Provisions for Reducing 

Transitional Pass-Through Payments to 

Offset Costs Packaged Into APC Groups 

a. Background 

We have an established policy to 

estimate the portion of each APC 

payment rate that could reasonably be 

attributed to the cost of the associated 

devices that are eligible for pass-through 

payments (66 FR 59904). We deduct 

from the pass-through payments for 

identified device categories eligible for 

pass-through payments an amount that 

reflects the portion of the APC payment 

amount that we determine is associated 

with the cost of the device, defined as 

the device APC offset amount, as 

required by section 1833(t)(6)(D)(ii) of 

the Act. We have consistently employed 

an established methodology to estimate 

the portion of each APC payment rate 

that could reasonably be attributed to 

the cost of an associated device eligible 

for pass-through payment, using claims 

data from the period used for the most 

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recent recalibration of the APC rates (72 

FR 66751 through 66752). We establish 

and update the applicable device APC 

offset amounts for eligible pass-through 

device categories through the 

transmittals that implement the 

quarterly OPPS updates. 

We currently have published a list of 

all procedural APCs with the CY 2010 

portions (both percentages and dollar 

amounts) of the APC payment amounts 

that we determine are associated with 

the cost of devices, on the CMS Web site 

at: http://www.cms.gov/ 

HospitalOutpatientPPS/ 

01_overview.asp. The dollar amounts 

are used as the device APC offset 

amounts. In addition, in accordance 

with our established practice, the device 

APC offset amounts in a related APC are 

used in order to evaluate whether the 

cost of a device in an application for a 

new device category for pass-through 

payment is not insignificant in relation 

to the APC payment amount for the 

service related to the category of 

devices, as specified in our regulations 

at § 419.66(d). 

As of CY 2009, the costs of 

implantable biologicals without passthrough status are packaged into the 

payment for the procedures in which 

they are inserted or implanted because 

implantable biologicals without passthrough status are not separately paid 

(73 FR 68633 through 68636). For CY 

2010, we finalized a new policy to 

specify that the pass-through evaluation 

process and pass-through payment 

methodology for implantable biologicals 

that are surgically inserted or implanted 

(through a surgical incision or a natural 

orifice) and that are newly approved for 

pass-through status beginning on or 

after January 1, 2010, be the device passthrough process and payment 

methodology only. As a result, for CY 

2010, we included implantable 

biologicals in our calculation of the 

device APC offset amounts (74 FR 

60476). We calculated and set the 

device APC offset amount for a newly 

established device pass-through 

category, which could include a newly 

eligible implantable biological, 

beginning in CY 2010 using the same 

methodology we have historically used 

to calculate and set device APC offset 

amounts for device categories eligible 

for pass-through payment (72 FR 66751 

through 66752), with one modification. 

Because implantable biologicals are 

considered devices rather than drugs for 

purposes of pass-through evaluation and 

payment under our established policy, 

the device APC offset amounts include 

the costs of implantable biologicals. For 

CY 2010, we also finalized a policy to 

utilize the revised device APC offset 

amounts to evaluate whether the cost of 

an implantable biological in an 

application for a new device category 

for pass-through payment is not 

insignificant in relation to the APC 

payment amount for the service related 

to the category of devices. Further, for 

CY 2010, we also no longer used the 

‘‘policy-packaged’’ drug APC offset 

amounts for evaluating the cost 

significance of implantable biological 

pass-through applications under review 

and for setting the APC offset amounts 

that would apply to pass-through 

payment for those implantable 

biologicals, effective for new passthrough status determinations beginning 

in CY 2010 (74 FR 60463). 

b. Proposed Policy 

For CY 2011, we are proposing to 

continue our policy that the passthrough evaluation process and passthrough payment methodology for 

implantable biologicals that are 

surgically inserted or implanted 

(through a surgical incision or a natural 

orifice) and that are newly approved for 

pass-through status beginning on or 

after January 1, 2010, be the device passthrough process and payment 

methodology only. The rationale for this 

policy is provided in the CY 2010 

OPPS/ASC final rule with comment 

period (74 FR 60471 through 60477). We 

also are proposing to continue our 

established policies for calculating and 

setting the device APC offset amounts 

for each device category eligible for 

pass-through payment. We also are 

proposing to continue to review each 

new device category on a case-by-case 

basis to determine whether device costs 

associated with the new category are 

already packaged into the existing APC 

structure. If device costs packaged into 

the existing APC structure are 

associated with the new category, we 

would deduct the device APC offset 

amount from the pass-through payment 

for the device category. As stated earlier, 

these device APC offset amounts also 

would be used in order to evaluate 

whether the cost of a device in an 

application for a new device category 

for pass-through payment is not 

insignificant in relation to the APC 

payment amount for the service related 

to the category of devices (§ 419.66(d)). 

We also are proposing to continue our 

policy established in CY 2010 to include 

implantable biologicals in our 

calculation of the device APC offset 

amounts. In addition, we are proposing 

to continue to calculate and set any 

device APC offset amount for a new 

device pass-through category that 

includes a newly eligible implantable 

biological beginning in CY 2011 using 

the same methodology we have 

historically used to calculate and set 

device APC offset amounts for device 

categories eligible for pass-through 

payment, and to include the costs of 

implantable biologicals in the 

calculation of the device APC offset 

amounts, as we did for CY 2010. 

In addition, we are proposing to 

update, on the CMS Web site at 

http://www.cms.gov/ 

HospitalOutpatientPPS, the list of all 

procedural APCs with the final CY 2011 

portions of the APC payment amounts 

that we determine are associated with 

the cost of devices so that this 

information is available for use by the 

public in developing potential CY 2011 

device pass-through payment 

applications and by CMS in reviewing 

those applications. 

In summary, for CY 2011, consistent 

with the policy established for CY 2010, 

we are proposing to continue the 

following policies related to passthrough payment for devices: (1) 

Treating implantable biologicals, that 

are surgically inserted or implanted 

(through a surgical incision or a natural 

orifice) and that are newly approved for 

pass-through status on or after January 

1, 2010, as devices for purposes of the 

OPPS pass-through evaluation process 

and payment methodology; (2) 

including implantable biologicals in 

calculating the device APC offset 

amounts; (3) using the device APC offset 

amounts to evaluate whether the cost of 

a device (defined to include implantable 

biologicals) in an application for a new 

device category for pass-through 

payment is not insignificant in relation 

to the APC payment amount for the 

service related to the category of 

devices; and (4) reducing device passthrough payments based on device costs 

already included in the associated 

procedural APCs, when we determine 

that device costs associated with the 

new category are already packaged into 

the existing APC structure. 

B. Proposed Adjustment to OPPS 

Payment for No Cost/Full Credit and 

Partial Credit Devices 

1. Background 

In recent years, there have been 

several field actions on and recalls of 

medical devices as a result of 

implantable device failures. In many of 

these cases, the manufacturers have 

offered devices without cost to the 

hospital or with credit for the device 

being replaced if the patient required a 

more expensive device. In order to 

ensure that payment rates for 

procedures involving devices reflect 

only the full costs of those devices, our 

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standard rate-setting methodology for 

device-dependent APCs uses only 

claims that contain the correct device 

code for the procedure, do not contain 

token charges, do not contain the ‘‘FB’’ 

modifier signifying that the device was 

furnished without cost or with a full 

credit, and do not contain the ‘‘FC’’ 

modifier signifying that the device was 

furnished with partial credit. As 

discussed in section II.A.2.d.(1) of this 

proposed rule, we are proposing to 

continue to use our standard rate-setting 

methodology for device-dependent 

APCs for CY 2011. 

To ensure equitable payment when 

the hospital receives a device without 

cost or with full credit, in CY 2007 we 

implemented a policy to reduce the 

payment for specified device-dependent 

APCs by the estimated portion of the 

APC payment attributable to device 

costs (that is, the device offset) when the 

hospital receives a specified device at 

no cost or with full credit (71 FR 68071 

through 68077). Hospitals are instructed 

to report no cost/full credit cases using 

the ‘‘FB’’ modifier on the line with the 

procedure code in which the no cost/ 

full credit device is used. In cases in 

which the device is furnished without 

cost or with full credit, the hospital is 

instructed to report a token device 

charge of less than $1.01. In cases in 

which the device being inserted is an 

upgrade (either of the same type of 

device or to a different type of device) 

with a full credit for the device being 

replaced, the hospital is instructed to 

report as the device charge the 

difference between its usual charge for 

the device being implanted and its usual 

charge for the device for which it 

received full credit. In CY 2008, we 

expanded this payment adjustment 

policy to include cases in which 

hospitals receive partial credit of 50 

percent or more of the cost of a specified 

device. Hospitals are instructed to 

append the ‘‘FC’’ modifier to the 

procedure code that reports the service 

provided to furnish the device when 

they receive a partial credit of 50 

percent or more of the cost of the new 

device. We reduce the OPPS payment 

for the implantation procedure by 100 

percent of the device offset for no cost/ 

full credit cases when both a specified 

device code is present on the claim and 

the procedure code maps to a specified 

APC. Payment for the implantation 

procedure is reduced by 50 percent of 

the device offset for partial credit cases 

when both a specified device code is 

present on the claim and the procedure 

code maps to a specified APC. 

Beneficiary copayment is based on the 

reduced payment amount when either 

the ‘‘FB’’ or the ‘‘FC’’ modifier is billed 

and the procedure and device codes 

appear on the lists of procedures and 

devices to which this policy applies. We 

refer readers to the CY 2008 OPPS/ASC 

final rule with comment period for more 

background information on the ‘‘FB’’ and 

‘‘FC’’ payment adjustment policies (72 

FR 66743 through 66749). 

2. Proposed APCs and Devices Subject 

to the Adjustment Policy 

For CY 2011, we are proposing to 

continue to apply the existing policy of 

reducing OPPS payment for specified 

APCs by 100 percent of the device offset 

amount when a hospital furnishes a 

specified device without cost or with a 

full credit and by 50 percent of the 

device offset amount when the hospital 

receives partial credit in the amount of 

50 percent or more of the cost for the 

specified device. Because the APC 

payments for the related services are 

specifically constructed to ensure that 

the full cost of the device is included in 

the payment, we continue to believe it 

is appropriate to reduce the APC 

payment in cases in which the hospital 

receives a device without cost, with full 

credit, or with partial credit, in order to 

provide equitable payment in these 

cases. (We refer readers to section 

II.A.2.d.(1) of this proposed rule for a 

description of our standard rate-setting 

methodology for device-dependent 

APCs.) Moreover, the payment for these 

devices comprises a large part of the 

APC payment on which the beneficiary 

copayment is based, and we continue to 

believe it is equitable that the 

beneficiary cost sharing reflects the 

reduced costs in these cases. 

We also are proposing to continue 

using the three criteria established in 

the CY 2007 OPPS/ASC final rule with 

comment period for determining the 

APCs to which this policy applies (71 

FR 68072 through 68077). Specifically, 

(1) all procedures assigned to the 

selected APCs must involve implantable 

devices that would be reported if device 

insertion procedures were performed; 

(2) the required devices must be 

surgically inserted or implanted devices 

that remain in the patient’s body after 

the conclusion of the procedure (at least 

temporarily); and (3) the device offset 

amount must be significant, which, for 

purposes of this policy, is defined as 

exceeding 40 percent of the APC cost. 

We are proposing to continue to restrict 

the devices to which the APC payment 

adjustment would apply to a specific set 

of costly devices to ensure that the 

adjustment would not be triggered by 

the implantation of an inexpensive 

device whose cost would not constitute 

a significant proportion of the total 

payment rate for an APC. We continue 

to believe these criteria are appropriate 

because free devices and device credits 

are likely to be associated with 

particular cases only when the device 

must be reported on the claim and is of 

a type that is implanted and remains in 

the body when the beneficiary leaves 

the hospital. We believe that the 

reduction in payment is appropriate 

only when the cost of the device is a 

significant part of the total cost of the 

APC into which the device cost is 

packaged, and that the 40-percent 

threshold is a reasonable definition of a 

significant cost. 

We examined the offset amounts 

calculated from the CY 2011 proposed 

rule data and the clinical characteristics 

of APCs to determine whether the APCs 

to which the no cost/full credit and 

partial credit device adjustment policy 

applies in CY 2010 continue to meet the 

criteria for CY 2011, and to determine 

whether other APCs to which the policy 

does not apply in CY 2010 would meet 

the criteria for CY 2011. Based on the 

CY 2009 claims data available for this 

proposed rule, we are not proposing any 

changes to the APCs and devices to 

which this policy applies. Table 18 

below lists the proposed APCs to which 

the payment adjustment policy for no 

cost/full credit and partial credit 

devices would apply in CY 2011 and 

displays the proposed payment 

adjustment percentages for both no cost/ 

full credit and partial credit 

circumstances. We are proposing that 

the no cost/full credit adjustment for 

each APC to which this policy would 

continue to apply would be the device 

offset percentage for the APC (the 

estimated percentage of the APC cost 

that is attributable to the device costs 

that are packaged into the APC). We also 

are proposing that the partial credit 

device adjustment for each APC would 

continue to be 50 percent of the no cost/ 

full credit adjustment for the APC as 

shown in Table 18. Table 19 below lists 

the proposed devices to which this 

policy would apply in CY 2011. We will 

update the lists of APCs and devices to 

which the no cost/full credit and partial 

credit device adjustment policy would 

apply for CY 2011, consistent with the 

three selection criteria discussed earlier 

in this section, based on the final CY 

2009 claims data available for the CY 

2011 OPPS/ASC final rule with 

comment period. 

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<FNP> 

V. Proposed OPPS Payment Changes for 

Drugs, Biologicals, and 

Radiopharmaceuticals 

A. Proposed OPPS Transitional PassThrough Payment for Additional Costs 

of Drugs, Biologicals, and 

Radiopharmaceuticals 

1. Background 

Section 1833(t)(6) of the Act provides 

for temporary additional payments or 

‘‘transitional pass-through payments’’ for 

certain drugs and biological agents. As 

enacted by the Medicare, Medicaid, and 

SCHIP Balanced Budget Refinement Act 

(BBRA) of 1999 (Pub. L. 106–113), this 

provision requires the Secretary to make 

additional payments to hospitals for 

current orphan drugs, as designated 

under section 526 of the Federal Food, 

Drug, and Cosmetic Act (Pub. L. 107– 

186); current drugs and biological agents 

and brachytherapy sources used for the 

treatment of cancer; and current 

radiopharmaceutical drugs and 

biological products. For those drugs and 

biological agents referred to as ‘‘current,’’ 

the transitional pass-through payment 

began on the first date the hospital 

OPPS was implemented. 

Transitional pass-through payments 

also are provided for certain ‘‘new’’ 

drugs and biological agents that were 

not being paid for as an HOPD service 

as of December 31, 1996, and whose 

cost is ‘‘not insignificant’’ in relation to 

the OPPS payments for the procedures 

or services associated with the new drug 

or biological. For pass-through payment 

purposes, radiopharmaceuticals are 

included as ‘‘drugs.’’ Under the statute, 

transitional pass-through payments for a 

drug or biological described in section 

1833(t)(6)(C)(i)(II) of the Act can be 

made for at least 2 years but not more 

than 3 years after the product’s first 

payment as a hospital outpatient service 

under Part B. Proposed CY 2011 passthrough drugs and biologicals and their 

designated APCs are assigned status 

indicator ‘‘G’’ in Addenda A and B to 

this proposed rule. 

Section 1833(t)(6)(D)(i) of the Act 

specifies that the pass-through payment 

amount, in the case of a drug or 

biological, is the amount by which the 

amount determined under section 

1842(o) of the Act for the drug or 

biological exceeds the portion of the 

otherwise applicable Medicare OPD fee 

schedule that the Secretary determines 

is associated with the drug or biological. 

If the drug or biological is covered 

under a competitive acquisition contract 

under section 1847B of the Act, the 

pass-through payment amount is 

determined by the Secretary to be equal 

to the average price for the drug or 

biological for all competitive acquisition 

areas and the year established under 

such section as calculated and adjusted 

by the Secretary. 

This methodology for determining the 

pass-through payment amount is set 

forth in § 419.64 of the regulations, 

which specifies that the pass-through 

payment equals the amount determined 

under section 1842(o) of the Act minus 

the portion of the APC payment that 

CMS determines is associated with the 

drug or biological. Section 1847A of the 

Act establishes the use of the average 

sales price (ASP) methodology as the 

basis for payment for drugs and 

biologicals described in section 

1842(o)(1)(C) of the Act that are 

furnished on or after January 1, 2005. 

The ASP methodology, as applied under 

the OPPS, uses several sources of data 

as a basis for payment, including the 

ASP, wholesale acquisition cost (WAC), 

and average wholesale price (AWP). In 

this proposed rule, the term ‘‘ASP 

methodology’’ and ‘‘ASP-based’’ are 

inclusive of all data sources and 

methodologies described therein. 

Additional information on the ASP 

methodology can be found on the CMS 

Web site at: http://www.cms.hhs.gov/ 

McrPartBDrugAvgSalesPrice. 

As noted above, section 

1833(t)(6)(D)(i) of the Act also states that 

if a drug or biological is covered under 

a competitive acquisition contract under 

section 1847B of the Act, the payment 

rate is equal to the average price for the 

drug or biological for all competitive 

acquisition areas and the year 

established as calculated and adjusted 

by the Secretary. Section 1847B of the 

Act establishes the payment 

methodology for Medicare Part B drugs 

and biologicals under the competitive 

acquisition program (CAP). The Part B 

drug CAP was implemented on July 1, 

2006, and included approximately 190 

of the most common Part B drugs 

provided in the physician’s office 

setting. As we noted in the CY 2009 

OPPS/ASC final rule with comment 

period (73 FR 68633), the Part B drug 

CAP program was suspended beginning 

in CY 2009 (Medicare Learning Network 

(MLN) Matters Special Edition 0833, 

available via the Web site: http:// 

www.medicare.gov). Therefore, there is 

no effective Part B drug CAP rate for 

pass-through drugs and biologicals as of 

January 1, 2009. Consistent with what 

we indicated in the CY 2010 OPPS/ASC 

final rule with comment period (74 FR 

60466), if the program is reinstituted 

during CY 2011 and Part B drug CAP 

rates become available, we would again 

use the Part B drug CAP rate for passthrough drugs and biologicals if they are 

a part of the Part B drug CAP program. 

Otherwise, we would continue to use 

the rate that would be paid in the 

physician’s office setting for drugs and 

biologicals with pass-through status. 

For CYs 2005, 2006, and 2007, we 

estimated the OPPS pass-through 

payment amount for drugs and 

biologicals to be zero based on our 

interpretation that the ‘‘otherwise 

applicable Medicare OPD fee schedule’’ 

amount was equivalent to the amount to 

be paid for pass-through drugs and 

biologicals under section 1842(o) of the 

Act (or section 1847B of the Act, if the 

drug or biological is covered under a 

competitive acquisition contract). We 

concluded for those years that the 

resulting difference between these two 

rates would be zero. For CYs 2008 and 

2009, we estimated the OPPS passthrough payment amount for drugs and 

biologicals to be $6.6 million and $23.3 

million, respectively. For CY 2010, we 

estimated that the OPPS pass-through 

payment estimate for drugs and 

biologicals to be $35.5 million. Our 

proposed OPPS pass-through payment 

estimate for drugs and biologicals in CY 

2011 is $15 million, which is discussed 

in section VI.B. of this proposed rule. 

The pass-through application and 

review process for drugs and biologicals 

is explained on the CMS Web site at: 

http://www.cms.hhs.gov/ 

HospitalOutpatientPPS/ 

04_passthrough_payment.asp. 

2. Proposed Drugs and Biologicals With 

Expiring Pass-Through Status in CY 

2010 

We are proposing that the passthrough status of 18 drugs and 

biologicals would expire on December 

31, 2010, as listed in Table 20 of this 

proposed rule. All of these drugs and 

biologicals will have received OPPS 

pass-through payment for at least 2 

years and no more than 3 years by 

December 31, 2010. These items were 

approved for pass-through status on or 

before January 1, 2009. With the 

exception of those groups of drugs and 

biologicals that are always packaged 

when they do not have pass-through 

status, specifically diagnostic 

radiopharmaceuticals, contrast agents, 

and implantable biologicals, our 

standard methodology for providing 

payment for drugs and biologicals with 

expiring pass-through status in an 

upcoming calendar year is to determine 

the product’s estimated per day cost and 

compare it with the OPPS drug 

packaging threshold for that calendar 

year (which is proposed at $70 for CY 

2011), as discussed further in section 

V.B.2 of this proposed rule. If the drug’s 

or biological’s estimated per day cost is 

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less than or equal to the applicable 

OPPS drug packaging threshold, we 

would package payment for the drug or 

biological into the payment for the 

associated procedure in the upcoming 

calendar year. If the estimated per day 

cost of the drug or biological is greater 

than the OPPS drug packaging 

threshold, we would provide separate 

payment at the applicable relative ASPbased payment amount (which is 

proposed at ASP+6 percent for CY 2011, 

as discussed further in section V.B.3. of 

this proposed rule). Section V.B.2.d. of 

this proposed rule discusses the 

packaging of all nonpass-through 

contrast agents, diagnostic 

radiopharmaceuticals, and implantable 

biologicals. 

3. Proposed Drugs, Biologicals, and 

Radiopharmaceuticals With New or 

Continuing Pass-Through Status in CY 

2011 

We are proposing to continue passthrough status in CY 2011 for 31 drugs 

and biologicals. None of these products 

will have received OPPS pass-through 

payment for at least 2 years and no more 

than 3 years by December 31, 2010. 

These items, which were approved for 

pass-through status between April 1, 

2009 and July 1, 2010, are listed in 

Table 21 below. The APCs and HCPCS 

codes for these drugs and biologicals 

were assigned status indicator ‘‘G’’ in 

Addenda A and B to this proposed rule. 

Section 1833(t)(6)(D)(i) of the Act sets 

the amount of pass-through payment for 

pass-through drugs and biologicals (the 

pass-through payment amount) as the 

difference between the amount 

authorized under section 1842(o) of the 

Act (or, if the drug or biological is 


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covered under a CAP under section 

1847B of the Act, an amount determined 

by the Secretary equal to the average 

price for the drug or biological for all 

competitive acquisition areas and the 

year established under such section as 

calculated and adjusted by the 

Secretary) and the portion of the 

otherwise applicable OPD fee schedule 

that the Secretary determines is 

associated with the drug or biological. 

Payment for drugs and biologicals with 

pass-through status under the OPPS is 

currently made at the physician’s office 

payment rate of ASP+6 percent. We 

believe it is consistent with the statute 

to continue to provide payment for 

drugs and biologicals with pass-through 

status at a rate of ASP+6 percent in CY 

2011, the amount that drugs and 

biologicals receive under section 

1842(o) of the Act. Thus, for CY 2011, 

we are proposing to pay for passthrough drugs and biologicals at ASP+6 

percent, equivalent to the rate these 

drugs and biologicals would receive in 

the physician’s office setting in CY 

2011. We are proposing that a $0.00 

pass-through payment amount would be 

paid for most pass-through drugs and 

biologicals under the CY 2011 OPPS 

because the difference between the 

amount authorized under Section 

1842(o) which is ASP+6 percent and the 

portion of the otherwise applicable OPD 

fee schedule that the Secretary 

determines is appropriate, proposed at 

ASP+6 percent is $0. In the case of passthrough contrast agents, diagnostic 

radiopharmaceuticals, and implantable 

biologicals, their pass-through payment 

amount would be equal to ASP+6 

percent because, if not on pass-through 

status, payment for these products 

would be packaged into the associated 

procedures. 

In addition, we are proposing to 

continue to update pass-through 

payment rates on a quarterly basis on 

the CMS Web site during CY 2011 if 

later quarter ASP submission (or more 

recent WAC or AWP information, as 

applicable) indicate that adjustments to 

the payment rates for these pass-through 

drugs or biologicals are necessary. For a 

full description of this policy, we refer 

readers to the CY 2006 OPPS/ASC final 

rule with comment period (70 FR 42722 

and 42723). If the Part B drug CAP is 

reinstated during CY 2011, and a drug 

or biological that has been granted passthrough status for CY 2011 becomes 

covered under the Part B drug CAP, we 

are proposing to provide pass-though 

payment at the Part B drug CAP rate and 

to make the appropriate adjustments to 

the payment rates for these drugs and 

biologicals on a quarterly basis as 

appropriate. As is our standard 

methodology, we annually review new 

permanent HCPCS codes and delete 

temporary HCPCS C-codes if an 

alternate permanent HCPCS code is 

available for purposes of OPPS billing 

and payment. 

In CY 2011, as is consistent with our 

CY 2010 policy for diagnostic 

radiopharmaceuticals, we are proposing 

to provide payment for both diagnostic 

and therapeutic radiopharmaceuticals 

that are granted pass-through status 

based on the ASP methodology. As 

stated above, for purposes of passthrough payment, we consider 

radiopharmaceuticals to be drugs under 

the OPPS and, therefore, if a diagnostic 

or therapeutic radiopharmaceutical 

receives pass-through status during CY 

2011, we are proposing to follow the 

standard ASP methodology to determine 

its pass-through payment rate that drugs 

receive under section 1842(o) of the Act, 

that is, ASP+6 percent. If ASP data are 

not available for a radiopharmaceutical, 

we are proposing to provide passthrough payment at WAC+6 percent, the 

equivalent payment provided to passthrough drugs and biologicals without 

ASP information. If WAC information is 

also not available, we are proposing to 

provide payment for the pass-through 

radiopharmaceutical at 95 percent of its 

most recent AWP. 

As discussed in more detail in section 

V.B.2.d. of this proposed rule, over the 

last 3 years, we implemented a policy 

whereby payment for all nonpassthrough diagnostic 

radiopharmaceuticals, contrast agents, 

and implantable biologicals is packaged 

into payment for the associated 

procedure, and we are proposing to 

continue the packaging of these items, 

regardless of their per day cost, in CY 

2011. As stated earlier, pass-through 

payment is the difference between the 

amount authorized under section 

1842(o) of the Act (or, if the drug or 

biological is covered under a CAP under 

section 1847B of the Act, an amount 

determined by the Secretary equal to the 

average price for the drug or biological 

for all competitive acquisition areas and 

the year established under such section 

as calculated and adjusted by the 

Secretary) and the portion of the 

otherwise applicable OPD fee schedule 

that the Secretary determines is 

associated with the drug or biological. 

Because payment for a drug that is 

either a diagnostic radiopharmaceutical 

or a contrast agent (identified as a 

‘‘policy-packaged’’ drug, first described 

in the CY 2009 OPPS/ASC final rule 

with comment period (73 FR 68639)) or 

for an implantable biological (which we 

do consider to be a device for all 

payment purposes as discussed in 

sections V.A.4. and V.B.2.d. of the CY 

2010 OPPS/ASC final rule with 

comment period (74 FR 60458)) would 

otherwise be packaged if the product 

did not have pass-through status, we 

believe the otherwise applicable OPPS 

payment amount would be equal to the 

‘‘policy-packaged’’ drug or device APC 

offset amount for the associated clinical 

APC in which the drug or biological is 

utilized. The calculation of the ‘‘policypackaged’’ drug and device APC offset 

amounts are described in more detail in 

sections IV.A.2. of this proposed rule. It 

follows that the copayment for the 

nonpass-through payment portion (the 

otherwise applicable fee schedule 

amount that we would also offset from 

payment for the drug or biological if a 

payment offset applies) of the total 

OPPS payment for those drugs and 

biologicals would, therefore, be 

accounted for in the copayment for the 

associated clinical APC in which the 

drug or biological is used. According to 

section 1833(t)(8)(E) of the Act, the 

amount of copayment associated with 

pass-through items is equal to the 

amount of copayment that would be 

applicable if the pass-through 

adjustment was not applied. Therefore, 

as we did in CY 2010, we are proposing 

to continue to set the associated 

copayment amount for pass-through 

diagnostic radiopharmaceuticals, 

contrast agents, and implantable 

biologicals that would otherwise be 

packaged if the item did not have passthrough status to zero for CY 2011. The 

separate OPPS payment to a hospital for 

the pass-through diagnostic 

radiopharmaceutical, contrast agent, or 

implantable biological, after taking into 

account any applicable payment offset 

for the item due to the device or ‘‘policypackaged’’ APC offset policy, is the 

item’s pass-through payment, which is 

not subject to a copayment according to 

the statute. Therefore, we are proposing 

to not publish a copayment amount for 

these items in Addenda A and B to the 

proposed rule. 

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4. Proposed Provisions for Reducing 

Transitional Pass-Through Payments for 

Diagnostic Radiopharmaceuticals and 

Contrast Agents to Offset Costs 

Packaged Into APC Groups 

a. Background 

Prior to CY 2008, diagnostic 

radiopharmaceuticals and contrast 

agents were paid separately under the 

OPPS if their mean per day costs were 

greater than the applicable year’s drug 

packaging threshold. In CY 2008 (72 FR 

66768), we began a policy of packaging 

payment for all nonpass-through 

diagnostic radiopharmaceuticals and 

contrast agents as ancillary and 

supportive items and services into their 

associated nuclear medicine procedures. 

Therefore, beginning in CY 2008, 

nonpass-through diagnostic 

radiopharmaceuticals and contrast 

agents were not subject to the annual 

OPPS drug packaging threshold to 

determine their packaged or separately 

payable payment status, and instead all 

nonpass-through diagnostic 

radiopharmaceuticals and contrast 

agents were packaged as a matter of 

policy. For CY 2011, we are proposing 

to continue to package payment for all 

nonpass-through diagnostic 

radiopharmaceuticals and contrast 

agents as discussed in section V.B.2.d. 

of this proposed rule. 

b. Proposed Payment Offset Policy for 

Diagnostic Radiopharmaceuticals 

As previously noted, 

radiopharmaceuticals are considered to 

be drugs for OPPS pass-through 

payment purposes. As described above, 

section 1833(t)(6)(D)(i) of the Act 

specifies that the transitional passthrough payment amount for passthrough drugs and biologicals is the 

difference between the amount paid 

under section 1842(o) (or the Part B 

drug CAP rate) and the otherwise 

applicable OPD fee schedule amount. 

There is currently one 

radiopharmaceutical with pass-through 

status under the OPPS, HCPCS code 

A9582 (Iobenguane, I–123, diagnostic, 

per study dose, up to 10 millicuries). 

HCPCS code A9582 was granted passthrough status beginning April 1, 2009 

and will continue on pass-through 

status in CY 2011. We currently apply 

the established radiopharmaceutical 

payment offset policy to pass-through 

payment for this product. As described 

earlier in section V.A.3. of this proposed 

rule, new pass-through diagnostic 

radiopharmaceuticals will be paid at 

ASP+6 percent, while those without 

ASP information will be paid at WAC+6 

percent or, if WAC is not available, 

payment will be based on 95 percent of 

the product’s most recently published 

AWP. 

As a payment offset is necessary in 

order to provide an appropriate 

transitional pass-through payment, we 

deduct from the payment for passthrough radiopharmaceuticals an 

amount that reflects the portion of the 

APC payment associated with 

predecessor radiopharmaceuticals in 

order to ensure no duplicate 

radiopharmaceutical payment is made. 

In CY 2009, we established a policy to 

estimate the portion of each APC 

payment rate that could reasonably be 

attributed to the cost of predecessor 

diagnostic radiopharmaceuticals when 

considering a new diagnostic 

radiopharmaceutical for pass-through 

payment (73 FR 68638 through 68641). 

Specifically, we utilize the ‘‘policypackaged’’ drug offset fraction for APCs 

containing nuclear medicine 

procedures, calculated as 1 minus (the 

cost from single procedure claims in the 

APC after removing the cost for ‘‘policypackaged’’ drugs divided by the cost 

from single procedure claims in the 

APC). In the CY 2010 OPPS/ASC final 

rule with comment period (74 FR 60480 

through 60484), we finalized a policy to 

redefine ‘‘policy-packaged’’ drugs as 

only nonpass-through diagnostic 

radiopharmaceuticals and contrast 

agents, as a result of the policy 

discussed in sections V.A.4. and 

V.B.2.d. of the CY 2010 OPPS/ASC final 

rule with comment period (74 FR 60471 

through 60477 and 60495 through 60499 

respectively) that treats nonpassthrough implantable biologicals that are 

surgically inserted or implanted 

(through a surgical incision or a natural 

orifice) and implantable biologicals that 

are surgically inserted or implanted 

(through a surgical incision or a natural 

orifice) with newly approved passthrough status beginning in CY 2010 or 

later as devices, rather than drugs. To 

determine the actual APC offset amount 

for pass-through diagnostic 

radiopharmaceuticals that takes into 

consideration the otherwise applicable 

OPPS payment amount, we multiply the 

‘‘policy-packaged’’ drug offset fraction 

by the APC payment amount for the 

nuclear medicine procedure with which 

the pass-through diagnostic 

radiopharmaceutical is used and, 

accordingly, reduce the separate OPPS 

payment for the pass-through diagnostic 

radiopharmaceutical by this amount. 

The Integrated Outpatient Code Editor 

processes claims for nuclear medicine 

procedures only when they are 

performed with a radiolabeled product. 

Therefore, the radiolabeled product 

edits in the Integrated Outpatient Code 

Editor require a hospital to report a 

diagnostic radiopharmaceutical with a 

nuclear medicine scan in order to 

receive payment for the nuclear 

medicine scan. We have received 

questions from hospitals on how to bill 

for a nuclear medicine scan when they 

receive a diagnostic 

radiopharmaceutical free of charge or 

with full credit. Currently, if a hospital 

receives a diagnostic 

radiopharmaceutical free of charge or 

with full credit and uses it to provide a 

nuclear medicine scan, the hospital 

could choose not to bill for both the 

nuclear medicine scan and the 

diagnostic radiopharmaceutical in order 

to bypass the radiolabeled product edits, 

but the hospital clearly would not 

receive OPPS payment for the scan or 

the diagnostic radiopharmaceutical. The 

hospital also could report the diagnostic 

radiopharmaceutical with the nuclear 

medicine scan and receive an APC 

payment that includes payment for the 

diagnostic radiopharmaceutical, but this 

would lead to inaccurate billing and 

incorrect payment. This is because the 

OPPS should not pay for a free item. We 

believe neither of the above alternatives 

is satisfactory. 

In order to ensure that the OPPS is 

making appropriate and equitable 

payments under such circumstances 

and that a hospital can comply with the 

required radiolabeled product edits, we 

are proposing for CY 2011 to instruct 

hospitals to report the ‘‘FB’’ modifier on 

the line with the procedure code for the 

nuclear medicine scan in the APCs 

listed in Table E3 in which the no cost/ 

full credit diagnostic 

radiopharmaceutical is used. Modifier 

-FB is ‘‘Item Provided Without Cost to 

Provider, Supplier or Practitioner, or 

Credit Received for Replacement Device 

(Examples, but not Limited to: Covered 

Under Warranty, Replaced Due to 

Defect, Free Samples).’’ Although this 

modifier is specific to devices, it 

captures the concept of the hospital 

receiving a key component of the 

service without cost. In cases in which 

the diagnostic radiopharmaceutical is 

furnished without cost or with full 

credit, we are proposing to instruct the 

hospital to report a token charge of less 

than $1.01. We refer readers to the CY 

2008 OPPS/ASC final rule with 

comment period for more background 

information on the ‘‘FB’’ payment 

adjustment policies (72 FR 66743 

through 66749). We are proposing that 

when a hospital bills an -FB with the 

nuclear medicine scan, the payment 

amount for procedures in the APCs 

listed in Table 20 would be reduced by 

the full ‘‘policy-packaged’’ offset amount 

appropriate for diagnostic 

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radiopharmaceuticals. As discussed in 

our CY 2009 OPPS/ASC final rule with 

comment period, the ‘‘policy packaged’’ 

offset amount that we calculate 

estimates the portion of each APC 

payment rate that could reasonably be 

attributed to the cost of predecessor 

diagnostic radiopharmaceuticals when 

considering a new diagnostic 

radiopharmaceutical for pass-through 

payment (73 FR 68638 through 68641). 

As in our offset policy, discussed below, 

we believe it is appropriate to remove 

the ‘‘policy packaged’’ offset amount 

from payment for a nuclear medicine 

scan with a diagnostic 

radiopharmaceutical received at no cost 

or full credit which is billed using one 

of the APCs appearing in Table 22 

below because it represents the portion 

of the APC payment attributable to 

diagnostic radiopharmaceuticals used in 

the performance of a nuclear medicine 

scan. Using the -FB modifier with 

radiolabeled products will allow the 

hospital to bill accurately for a 

diagnostic radiopharmaceutical received 

free of charge and will allow the 

hospital to comply with the 

radiolabeled product edits to ensure 

appropriate payment. 

At this time, we are not proposing to 

recognize modifier FC, which is defined 

as ‘‘Partial credit received for replaced 

device,’’ because we were unsure of the 

circumstances in which hospitals would 

receive a diagnostic 

radiopharmaceutical at reduced cost to 

replace a previously provided 

diagnostic radiopharmaceutical. We 

invite public comment on when a 

diagnostic radiopharmaceutical is 

provided for a significantly reduced 

price and whether the ‘‘FC’’ modifier is 

appropriate for radiolabeled products. 

We will continue to post annually on 

the CMS Web site at http:// 

www.cms.gov/HospitalOutpatientPPS, a 

file that contains the APC offset 

amounts that would be used for that 

year for purposes of both evaluating cost 

significance for candidate pass-through 

device categories and drugs and 

biologicals, including diagnostic 

radiopharmaceuticals, and establishing 

any appropriate APC offset amounts. 

Specifically, the file will continue to 

provide, for every OPPS clinical APC, 

the amounts and percentages of APC 

payment associated with packaged 

implantable devices, including 

implantable biologicals; ‘‘policypackaged’’ drugs, including diagnostic 

radiopharmaceuticals and contrast 

agents; and ‘‘threshold-packaged’’ drugs 

and biologicals, which are all other 

drugs, therapeutic 

radiopharmaceuticals, and 

nonimplantable biologicals. 

Table 22 below displays the proposed 

APCs to which nuclear medicine 

procedures would be assigned in CY 

2011 and for which we expect that an 

APC offset could be applicable in the 

case of new diagnostic 

radiopharmaceuticals with pass-through 

status. 


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c. Proposed Payment Offset Policy for 

Contrast Agents 

As described above, section 

1833(t)(6)(D)(i) of the Act specifies that 

the transitional pass-through payment 

amount for pass-through drugs and 

biologicals is the difference between the 

amount paid under section 1842(o) (or 

the Part B drug CAP rate) and the 

otherwise applicable OPD fee schedule 

amount. There is currently one contrast 

agent with pass-through status under 

the OPPS, HCPCS code A9583 

(Injection, gadoxetate disodium, per ml). 

HCPCS code A9583 was granted passthrough status beginning January 1, 

2010, and will continue with passthrough status in CY 2011. As described 

earlier in section V.A.3. of this proposed 

rule, new pass-through contrast agents 

would be paid at ASP+6 percent, while 

those without ASP information would 

be paid at WAC+6 percent or, if WAC 

is not available, payment would be 

based on 95 percent of the product’s 

most recently published AWP. 

We believe that a payment offset is 

necessary in order to provide an 

appropriate transitional pass-through 

payment for contrast agents because all 

of these items are packaged when they 

do not have pass-through status. In 

accordance with our standard offset 

methodology, for CY 2011 we are 

proposing to deduct from the payment 

for pass-through contrast agents an 

amount that reflects the portion of the 

APC payment associated with 

predecessor contrast agents in order to 

ensure no duplicate contrast agent 

payment is made. 

In CY 2010, we established a policy 

to estimate the portion of each APC 

payment rate that could reasonably be 

attributed to the cost of predecessor 

contrast agents when considering new 

contrast agents for pass-through 

payment (74 FR 60482 through 60484). 

For CY 2011, we are proposing to 

continue to apply this same policy to 

contrast agents. Specifically, we are 

proposing to utilize the ‘‘policypackaged’’ drug offset fraction for 

clinical APCs calculated as 1 minus (the 

cost from single procedure claims in the 

APC after removing the cost for ‘‘policypackaged’’ drugs divided by the cost 

from single procedure claims in the 

APC). As discussed above, in CY 2010, 

we finalized a policy to redefine 

‘‘policy-packaged’’ drugs as only 

nonpass-through diagnostic 

radiopharmaceuticals and contrast 

agents (74 FR 60495 through 60499). To 

determine the actual APC offset amount 

for pass-through contrast agents that 

takes into consideration the otherwise 

applicable OPPS payment amount, we 

are proposing to multiply the ‘‘policypackaged’’ drug offset fraction by the 

APC payment amount for the procedure 

with which the pass-through contrast 

agent is used and, accordingly, reduce 

the separate OPPS payment for the passthrough contrast agent by this amount. 

We are proposing to continue to post 

annually on the CMS Web site at http: 

//www.cms.gov/HospitalOutpatientPPS, 

a file that contains the APC offset 

amounts that would be used for that 

year for purposes of both evaluating cost 

significance for candidate pass-through 

device categories and drugs and 

biologicals, including contrast agents, 

and establishing any appropriate APC 

offset amounts. Specifically, the file will 

continue to provide, for every OPPS 

clinical APC, the amounts and 

percentages of APC payment associated 

with packaged implantable devices, 

‘‘policy-packaged’’ drugs, and 

‘‘threshold-packaged’’ drugs and 

biologicals. 

Proposed procedural APCs for which 

we expect a contrast agent offset could 

be applicable in the case of a passthrough contrast agent have been 

identified as any procedural APC with 

a ‘‘policy-packaged’’ drug amount greater 

than $20 that is not a nuclear medicine 

APC identified in Table 20 above, and 

these APCs are displayed in Table 23 

below. The methodology used to 

determine a proposed threshold cost for 

application of a contrast agent offset 

policy is described in detail in the CY 

2010 OPPS/ASC final rule with 

comment period (70 FR 60483 through 

60484). For CY 2011, we are proposing 

to continue to recognize that when a 

contrast agent with pass-through status 

is billed with any procedural APC listed 

in Table 23, a specific offset based on 

the procedural APC would be applied to 

payment for the contrast agent to ensure 

that duplicate payment is not made for 

the contrast agent. 

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<FNP> 

B. Proposed OPPS Payment for Drugs, 

Biologicals, and Radiopharmaceuticals 

Without Pass-Through Status 

1. Background 

Under the CY 2010 OPPS, we 

currently pay for drugs, biologicals, and 

radiopharmaceuticals that do not have 

pass-through status in one of two ways: 

Packaged payment into the payment for 

the associated service; or separate 

payment (individual APCs). We 

explained in the April 7, 2000 OPPS 

final rule with comment period (65 FR 

18450) that we generally package the 

cost of drugs and radiopharmaceuticals 

into the APC payment rate for the 

procedure or treatment with which the 

products are usually furnished. 

Hospitals do not receive separate 

payment for packaged items and 

supplies, and hospitals may not bill 

beneficiaries separately for any 

packaged items and supplies whose 

costs are recognized and paid within the 

national OPPS payment rate for the 

associated procedure or service. 

(Transmittal A–01–133, issued on 

November 20, 2001, explains in greater 

detail the rules regarding separate 

payment for packaged services.) 

Packaging costs into a single aggregate 

payment for a service, procedure, or 

episode-of-care is a fundamental 

principle that distinguishes a 

prospective payment system from a fee 

schedule. In general, packaging the costs 

of items and services into the payment 

for the primary procedure or service 

with which they are associated 

encourages hospital efficiencies and 

also enables hospitals to manage their 

resources with maximum flexibility. 

Section 1833(t)(16)(B) of the Act, as 

added by section 621(a)(2) of Public 

Law 108–173, set the threshold for 

establishing separate APCs for drugs 

and biologicals at $50 per 

administration for CYs 2005 and 2006. 

Therefore, for CYs 2005 and 2006, we 

paid separately for drugs, biologicals, 

and radiopharmaceuticals whose per 

day cost exceeded $50 and packaged the 

costs of drugs, biologicals, and 

radiopharmaceuticals whose per day 

cost was equal to or less than $50 into 

the procedures with which they were 

billed. For CY 2007, the packaging 

threshold for drugs, biologicals, and 

radiopharmaceuticals that were not new 

and did not have pass-through status 

was established at $55. For CYs 2008 

and 2009, the packaging threshold for 

drugs, biologicals, and 

radiopharmaceuticals that were not new 

and did not have pass-through status 

was established at $60. For CY 2010, the 

packaging threshold for drugs, 

biologicals, and radiopharmaceuticals 

that were not new and did not have 

pass-through status was established at 

$65. The methodology used to establish 

the $55 threshold for CY 2007, the $60 

threshold for CYs 2008 and 2009, the 

$65 threshold for CY 2010, and our 

proposed approach for CY 2011 are 

discussed in more detail in section 

V.B.2.b. of this proposed rule. 

2. Proposed Criteria for Packaging 

Payment for Drugs, Biologicals, and 

Radiopharmaceuticals 

a. Background 

As indicated in section V.B.1. of this 

proposed rule, in accordance with 

section 1833(t)(16)(B) of the Act, the 

threshold for establishing separate APCs 

for payment of drugs and biologicals 

was set to $50 per administration during 

CYs 2005 and 2006. In CY 2007, we 

used the fourth quarter moving average 

Producer Price Index (PPI) levels for 

prescription preparations to trend the 

$50 threshold forward from the third 

quarter of CY 2005 (when the Pub. L. 

108–173 mandated threshold became 

effective) to the third quarter of CY 

2007. We then rounded the resulting 

dollar amount to the nearest $5 

increment in order to determine the CY 

2007 threshold amount of $55. Using 

the same methodology as that used in 

CY 2007 (which is discussed in more 

detail in the CY 2007 OPPS/ASC final 

rule with comment period (71 FR 68085 

through 68086)), we set the packaging 

threshold for establishing separate APCs 

for drugs and biologicals at $60 for CYs 

2008 and 2009. For CY 2010 we set the 

packaging threshold at $65. 

Following the CY 2007 methodology, 

for CY 2011, we used updated fourth 

quarter moving average PPI levels to 

trend the $50 threshold forward from 

the third quarter of CY 2005 to the third 

quarter of CY 2011 and again rounded 

the resulting dollar amount ($70.64) to 

the nearest $5 increment, which yielded 

a figure of $70. In performing this 

calculation, we used the most up-to-date 

forecasted, quarterly PPI estimates from 

CMS’ Office of the Actuary (OACT). As 

actual inflation for past quarters 

replaced forecasted amounts, the PPI 

estimates for prior quarters have been 

revised (compared with those used in 

the CY 2007 OPPS/ASC final rule with 

comment period) and have been 

incorporated into our calculation. Based 

on the calculations described above, we 

are proposing a packaging threshold for 

CY 2011 of $70. (For a more detailed 

discussion of the OPPS drug packaging 

threshold and the use of the PPI for 

prescription drugs, we refer readers to 

the CY 2007 OPPS/ASC final rule with 

comment period (71 FR 68085 through 

68086).) 

b. Proposed Cost Threshold for 

Packaging of Payment for HCPCS Codes 

that Describe Certain Drugs, 

Nonimplantable Biologicals, and 

Therapeutic Radiopharmaceuticals 

(‘‘Threshold-Packaged Drugs’’) 

To determine their proposed CY 2011 

packaging status, for this proposed rule, 

we calculated the per day cost of all 

drugs on a HCPCS code-specific basis 

(with the exception of those drugs and 

biologicals with multiple HCPCS codes 

that include different dosages as 

described in section V.B.2.c. of this 

proposed rule and excluding diagnostic 

radiopharmaceuticals, contrast agents, 

and implantable biologicals that we are 

proposing to continue to package in CY 

2011 as discussed in section V.B.2.d. of 

this proposed rule), nonimplantable 

biologicals, and therapeutic 

radiopharmaceuticals (collectively 

called ‘‘threshold-packaged’’ drugs) that 

had a HCPCS code in CY 2009 and were 

paid (via packaged or separate payment) 

under the OPPS, using CY 2009 claims 

data processed before January 1, 2010. 

In order to calculate the per day costs 

for drugs, nonimplantable biologicals, 

and therapeutic radiopharmaceuticals to 

determine their proposed packaging 

status in CY 2011, we used the 

methodology that was described in 

detail in the CY 2006 OPPS proposed 

rule (70 FR 42723 through 42724) and 

finalized in the CY 2006 OPPS final rule 

with comment period (70 FR 68636 

through 70 FR 68638). 

To calculate the CY 2011 proposed 

rule per day costs, we used an estimated 

payment rate for each drug and 

nonimplantable biological HCPCS code 

of ASP+6 percent (which is the payment 

rate we are proposing for separately 

payable drugs and nonimplantable 

biologicals in CY 2011, as discussed in 

more detail in section V.B.3.b. of this 

proposed rule). We used the 

manufacturer submitted ASP data from 

the fourth quarter of CY 2009 (data that 

were used for payment purposes in the 

physician’s office setting, effective April 

1, 2010) to determine the proposed rule 

per day cost. 

As is our standard methodology, for 

CY 2011, we are proposing to use 

payment rates based on the ASP data 

from the fourth quarter of CY 2009 for 

budget neutrality estimates, packaging 

determinations, impact analyses, and 

completion of Addenda A and B to this 

proposed rule because these are the 

most recent data available for use at the 

time of development of this proposed 

rule. These data are also the basis for 

drug payments in the physician’s office 

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setting, effective April 1, 2010. For 

items that did not have an ASP-based 

payment rate, such as some therapeutic 

radiopharmaceuticals, we used their 

mean unit cost derived from the CY 

2009 hospital claims data to determine 

their per day cost. We are proposing to 

package items with a per day cost less 

than or equal to $70 and identified 

items with a per day cost greater than 

$70 as separately payable. Consistent 

with our past practice, we crosswalked 

historical OPPS claims data from the CY 

2009 HCPCS codes that were reported to 

the CY 2010 HCPCS codes that we 

displayed in Addendum B to this 

proposed rule for payment in CY 2011. 

Our policy during previous cycles of 

the OPPS has been to use updated ASP 

and claims data to make final 

determinations of the packaging status 

of HCPCS codes for drugs, 

nonimplantable biologicals, and 

therapeutic radiopharmaceuticals for 

the final rule with comment period. We 

note that it is also our policy to make 

an annual packaging determination for a 

HCPCS code only when we develop the 

OPPS/ASC final rule for the update 

year. Only HCPCS codes that are 

identified as separately payable in the 

final rule with comment period are 

subject to quarterly updates. For our 

calculation of per day costs of HCPCS 

codes for drugs and nonimplantable 

biologicals in the CY 2011 OPPS/ASC 

final rule with comment period, we are 

proposing to use ASP data from the first 

quarter of CY 2010, which is the basis 

for calculating payment rates for drugs 

and biologicals in the physician’s office 

setting using the ASP methodology, 

effective July 1, 2010, along with 

updated hospital claims data from CY 

2009. We note that we also would use 

these data for budget neutrality 

estimates and impact analyses for the 

CY 2011 OPPS/ASC final rule with 

comment period. Payment rates for 

HCPCS codes for separately payable 

drugs and nonimplantable biologicals 

included in Addenda A and B to that 

final rule with comment period would 

be based on ASP data from the second 

quarter of CY 2010, which are the basis 

for calculating payment rates for drugs 

and biologicals in the physician’s office 

setting using the ASP methodology, 

effective October 1, 2010. These rates 

would then be updated in the January 

2011 OPPS update, based on the most 

recent ASP data to be used for 

physician’s office and OPPS payment as 

of January 1, 2011. For items that do not 

currently have an ASP-based payment 

rate, we would recalculate their mean 

unit cost from all of the CY 2009 claims 

data and updated cost report 

information available for the CY 2011 

final rule with comment period to 

determine their final per day cost. 

Consequently, the packaging status of 

some HCPCS codes for drugs, 

nonimplantable biologicals, and 

therapeutic radiopharmaceuticals in the 

CY 2011 OPPS/ASC final rule with 

comment period using the updated data 

may be different from the same drug 

HCPCS code’s packaging status 

determined based on the data used for 

this proposed rule. Under such 

circumstances, we are proposing to 

continue the established policies 

initially adopted for the CY 2005 OPPS 

(69 FR 65780) in order to more equitably 

pay for those drugs whose median cost 

fluctuates relative to the CY 2011 OPPS 

drug packaging threshold and the drug’s 

payment status (packaged or separately 

payable) in CY 2010. Specifically, we 

are proposing for CY 2011 to apply the 

following policies to these HCPCS codes 

for drugs, nonimplantable biologicals, 

and therapeutic radiopharmaceuticals 

whose relationship to the $70 drug 

packaging threshold changes based on 

the final updated data: 

• HCPCS codes for drugs and 

nonimplantable biologicals that were 

paid separately in CY 2010 and that 

were proposed for separate payment in 

CY 2011, and then have per day costs 

equal to or less than $70, based on the 

updated ASPs and hospital claims data 

used for the CY 2011 final rule with 

comment period, would continue to 

receive separate payment in CY 2011. 

• HCPCS codes for drugs and 

nonimplantable biologicals that were 

packaged in CY 2010 and that were 

proposed for separate payment in CY 

2011, and then have per day costs equal 

to or less than $70, based on the 

updated ASPs and hospital claims data 

used for the CY 2011 final rule with 

comment period, would remain 

packaged in CY 2011. 

• HCPCS codes for drugs and 

nonimplantable biologicals for which 

we proposed packaged payment in CY 

2011 but then have per day costs greater 

than $70, based on the updated ASPs 

and hospital claims data used for the CY 

2011 final rule with comment period, 

would receive separate payment in CY 

2011. In the CY 2010 OPPS/ASC final 

rule (74 FR 60485 through 60489), we 

implemented a policy to treat oral and 

injectable forms of 5–HT3 antiemetics 

comparable to all other threshold 

packaged drugs, nonimplantable 

biologicals, and therapeutic 

radiohpharmaceuticals under our 

standard packaging methodology of 

packaging drugs with a per day cost less 

than $70. For CY 2011, we are 

proposing to continue our policy of not 

exempting these 5–HT3 antiemetic 

products from our standard packaging 

methodology and to package payment 

for all of the 5–HT3 antiemetics except 

palonosetron hydrochloride, consistent 

with their estimated per day costs from 

the CY 2009 claims data. 

c. Proposed Packaging Determination for 

HCPCS Codes That Describe the Same 

Drug or Biological But Different Dosages 

In the CY 2008 OPPS/ASC final rule 

with comment period (72 FR 66776), we 

began recognizing, for OPPS payment 

purposes, multiple HCPCS codes 

reporting different dosages for the same 

covered Part B drugs or biologicals in 

order to reduce hospitals’ administrative 

burden by permitting them to report all 

HCPCS codes for drugs and biologicals. 

In general, prior to CY 2008, the OPPS 

recognized for payment only the HCPCS 

code that described the lowest dosage of 

a drug or biological. We extended this 

recognition to multiple HCPCS codes for 

several other drugs under the CY 2009 

OPPS (73 FR 68665). During CYs 2008 

and 2009, we applied a policy that 

assigned the status indicator of the 

previously recognized HCPCS code to 

the associated newly recognized code(s), 

reflecting the new code(s)’ packaged or 

separately payable status. In the CY 

2008 OPPS/ASC final rule with 

comment period (72 FR 66775), we 

explained that once claims data were 

available for these previously 

unrecognized HCPCS codes, we would 

determine the packaging status and 

resulting status indicator for each 

HCPCS code according to the general, 

established HCPCS code-specific 

methodology for determining a code’s 

packaging status for a given update year. 

However, we also stated that we 

planned to closely follow our claims 

data to ensure that our annual packaging 

determinations for the different HCPCS 

codes describing the same drug or 

biological did not create inappropriate 

payment incentives for hospitals to 

report certain HCPCS codes instead of 

others. 

In the CY 2010 OPPS/ASC final rule 

with comment period (74 FR 60490 

through 60491), we finalized a policy to 

make a single packaging determination 

for a drug, rather than an individual 

HCPCS code, when a drug has multiple 

HCPCS codes describing different 

dosages. We analyzed CY 2008 claims 

data for the HCPCS codes describing 

different dosages of the same drug or 

biological that were newly recognized in 

CY 2008 and found that our claims data 

would result in several different 

packaging determinations for different 

codes describing the same drug or 

biological. Furthermore, we found that 

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our claims data would include few units 

and days for a number of newly 

recognized HCPCS codes, resulting in 

our concern that these data reflected 

claims from only a small number of 

hospitals, even though the drug or 

biological itself may be reported by 

many other hospitals under the most 

common HCPCS code. Based on these 

findings from our first available claims 

data for the newly recognized HCPCS 

codes, we believed that adopting our 

standard HCPCS code-specific 

packaging determinations for these 

codes could lead to payment incentives 

for hospitals to report certain HCPCS 

codes instead of others, particularly 

because we do not currently require 

hospitals to report all drug and 

biological HCPCS codes under the OPPS 

in consideration of our previous policy 

that generally recognized only the 

lowest dosage HCPCS code for a drug or 

biological for OPPS payment. For CY 

2011, we continue to believe that 

adopting the standard HCPCS codespecific packaging determinations for 

these codes could lead to payment 

incentives for hospitals to report certain 

HCPCS codes for drugs instead of 

others. Making packaging 

determinations on a drug-specific basis 

eliminates these incentives and allows 

hospitals flexibility in choosing to 

report all HCPCS codes for different 

dosages of the same drug or only the 

lowest dosage HCPCS code. Therefore, 

we are proposing to continue our policy 

to make packaging determinations on a 

drug-specific basis, rather than a HCPCS 

code-specific basis, for those HCPCS 

codes that describe the same drug or 

biological but different dosages in CY 

2011. 

For CY 2011, in order to propose a 

packaging determination that is 

consistent across all HCPCS codes that 

describe different dosages of the same 

drug or biological, we aggregated both 

our CY 2009 claims data and our pricing 

information at ASP+6 percent across all 

of the HCPCS codes that describe each 

distinct drug or biological in order to 

determine the mean units per day of the 

drug or biological in terms of the HCPCS 

code with the lowest dosage descriptor. 

HCPCS codes J9093 (cyclophosphamide, 

lyophilized, 100 mg), J9094 

(cyclophosphamide, lyophilized, 200 

mg), J9095 (cyclophosphamide, 

lyophilized, 500 mg), J9096 

(cyclophosphamide, lyophilized, 1g), 

and J9097 (cyclophosphamide, 

lyophilized, 2g) did not have pricing 

information available for the ASP 

methodology and, as is our current 

policy for determining the packaging 

status of other drugs, we used the mean 

unit cost available from fourth quarter 

CY 2009 claims data to make the 

packaging determinations for these 

drugs. For all other drugs and 

biologicals that have HCPCS codes 

describing different dosages, we then 

multiplied the weighted average ASP+6 

percent or mean unit cost payment 

amount across all dosage levels of a 

specific drug or biological by the 

estimated units per day for all HCPCS 

codes that describe each drug or 

biological from our claims data to 

determine the estimated per day cost of 

each drug or biological at less than or 

equal to $70 (whereupon all HCPCS 

codes for the same drug or biological 

would be packaged) or greater than $70 

(whereupon all HCPCS codes for the 

same drug or biological would be 

separately payable). The proposed 

packaging status of each drug and 

biological HCPCS code to which this 

methodology would apply is displayed 

in Table 24. 

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d. Proposed Packaging of Payment for 

Diagnostic Radiopharmaceuticals, 

Contrast Agents, and Implantable 

Biologicals (‘‘Policy-Packaged’’ Drugs 

and Devices) 

Prior to CY 2008, the methodology of 

calculating a product’s estimated per 

day cost and comparing it to the annual 

OPPS drug packaging threshold was 

used to determine the packaging status 

of drugs, biologicals, and 

radiopharmaceuticals under the OPPS 

(except for our CYs 2005 through 2009 

exemption for 5–HT3 antiemetics). 

However, as established in the CY 2008 

OPPS/ASC final rule with comment 

period (72 FR 66766 through 66768), we 

began packaging payment for all 

diagnostic radiopharmaceuticals and 

contrast agents into the payment for the 

associated procedure, regardless of their 

per day costs. In addition, in CY 2009 

we adopted a policy that packaged the 

payment for nonpass-through 

implantable biologicals into payment for 

the associated surgical procedure on the 

claim (73 FR 68633 through 68636). We 

refer to diagnostic radiopharmaceuticals 

and contrast agents collectively as 

‘‘policy-packaged’’ drugs and to 

implantable biologicals as devices 

because, in CY 2010, we began to treat 

implantable biologicals as devices for all 

OPPS payment purposes. 

According to our regulations at 

§ 419.2(b), as a prospective payment 

system, the OPPS establishes a national 

payment rate that includes operating 

and capital-related costs that are 

directly related and integral to 

performing a procedure or furnishing a 

service on an outpatient basis including, 

but not limited to, implantable 

prosthetics, implantable durable 

medical equipment, and medical and 

surgical supplies. Packaging costs into a 

single aggregate payment for a service, 

encounter, or episode-of-care is a 

fundamental principle that 

distinguishes a prospective payment 

system from a fee schedule. In general, 

packaging the costs of items and 

services into the payment for the 

primary procedure or service with 

which they are associated encourages 

hospital efficiencies and also enables 

hospitals to manage their resources with 

maximum flexibility. 

Prior to CY 2008, we noted that the 

proportion of drugs, biologicals, and 

radiopharmaceuticals that were 

separately paid under the OPPS had 

increased in recent years, a pattern that 

we also observed for procedural services 

under the OPPS. Our final CY 2008 

policy that packaged payment for all 

nonpass-through diagnostic 

radiopharmaceuticals and contrast 

agents, regardless of their per day costs, 

contributed significantly to expanding 

the size of the OPPS payment bundles 

and is consistent with the principles of 

a prospective payment system. 

As discussed in more detail in the CY 

2009 OPPS/ASC final rule with 

comment period (73 FR 68645 through 

68649), we presented several reasons 

supporting our initial policy to package 

payment of diagnostic 

radiopharmaceuticals and contrast 

agents into their associated procedures 

on a claim. Specifically, we stated that 

we believed packaging was appropriate 

because: (1) The statutory requirement 

that we must pay separately for drugs 

and biologicals for which the per day 

cost exceeds $50 under section 

1833(t)(16)(B) of the Act has expired; (2) 

we believe that diagnostic 

radiopharmaceuticals and contrast 

agents function effectively as supplies 

that enable the provision of an 

independent service; and (3) section 

1833(t)(14)(A)(iii) of the Act requires 

that payment for specified covered 

outpatient drugs (SCODs) be set 

prospectively based on a measure of 

average hospital acquisition cost. For 

these reasons, we believe it is 

appropriate to continue to treat 

diagnostic radiopharmaceuticals and 

contrast agents differently from other 

SCODs for CY 2011. Therefore, we are 

proposing to continue packaging 

payment for all contrast agents and 

diagnostic radiopharmaceuticals, 

collectively referred to as ‘‘policypackaged’’ drugs, regardless of their per 

day costs, for CY 2011. We also are 

proposing to continue to package the 

payment for diagnostic 

radiopharmaceuticals into the payment 

for the associated nuclear medicine 

procedure and to package the payment 

for contrast agents into the payment of 

the associated echocardiography 

imaging procedure, regardless of 

whether the contrast agent met the 

OPPS drug packaging threshold. We 

refer readers to the CY 2010 OPPS/ASC 

final rule with comment period for a 

detailed discussion of nuclear medicine 

and echocardiography services (74 FR 

35269 through 35277). 

In CY 2009 (73 FR 68634), we began 

packaging the payment for all nonpassthrough implantable biologicals into 

payment for the associated surgical 

procedure. Because implantable 

biologicals may sometimes substitute for 

nonbiological devices, we noted that if 

we were to provide separate payment 

for implantable biologicals without 

pass-through status, we would 

potentially be providing duplicate 

device payment, both through the 

packaged nonbiological device cost 

already included in the surgical 

procedure’s payment and separate 

biological payment. We concluded that 

we saw no basis for treating implantable 

biological and nonbiological devices 

without pass-through status differently 

for OPPS payment purposes because 

both are integral to and supportive of 

the separately paid surgical procedures 

in which either may be used. Therefore, 

in CY 2009, we adopted a final policy 

to package payment for all nonpassthrough implantable biologicals that are 

surgically inserted or implanted 

(through a surgical incision or a natural 

orifice), like our longstanding policy 

that packages payment for all 

implantable nonbiological devices 

without pass-through status. We 

finalized a policy in CY 2010 to package 

payment for nonpass-through 

implantable biologicals that are 

surgically inserted or implanted 

(through a surgical incision or a natural 

orifice) into the body, known as devices. 

For CY 2011, we are proposing to 

continue to package payment for 

nonpass-through implantable 

biologicals that are surgically inserted or 

implanted (through a surgical incision 

or a natural orifice) into the body, 

referred to as devices. In accordance 

with this proposal, two of the products 

with expiring pass-through status for CY 

2011 are biologicals that are solely 

surgically implanted according to their 

FDA-approved indications. These 

products are described by HCPCS codes 

C9356 (Tendon, porous matrix of crosslinked collagen and glycosaminoglycan 

matrix (TenoGlide Tendon Protector 

Sheet), per square centimeter) and 

C9359 (Porous purified collagen matrix 

bone void filler (Integra Mozaik 

Osteoconductive Scaffold Putty, Integra 

OS Osteoconductive Scaffold Putty), per 

0.5 cc). Like the two implantable 

biologicals with expiring pass-through 

status in CY 2010 that were discussed 

in the CY 2010 OPPS/ASC final rule 

with comment period (74 FR 60459 

through 60499), we believe that the two 

biologicals specified above with 

expiring pass-through status for CY 

2011 differ from other biologicals paid 

under the OPPS in that they specifically 

function as surgically implanted 

devices. As a result of the CY 2010 

packaged payment methodology for all 

nonpass-through implantable 

biologicals, we are proposing to package 

payment for HCPCS codes C9356 and 

C9359 and assign them status indicator 

‘‘N’’ for CY 2011. In addition, any new 

biologicals without pass-through status 

that are surgically inserted or implanted 

(through a surgical incision or a natural 

orifice) would be packaged in CY 2011. 

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Moreover, for nonpass-through 

biologicals that may sometimes be used 

as implantable devices, we continue to 

instruct hospitals to not bill separately 

for the HCPCS codes for the products 

when used as implantable devices. This 

reporting ensures that the costs of these 

products that may be, but are not 

always, used as implanted biologicals 

are appropriately packaged into 

payment for the associated implantation 

procedures. 

3. Proposed Payment for Drugs and 

Biologicals without Pass-Through Status 

That Are Not Packaged 

a. Proposed Payment for Specified 

Covered Outpatient Drugs (SCODs) and 

Other Separately Payable and Packaged 

Drugs and Biologicals 

Section 1833(t)(14) of the Act defines 

certain separately payable 

radiopharmaceuticals, drugs, and 

biologicals and mandates specific 

payments for these items. Under section 

1833(t)(14)(B)(i) of the Act, a ‘‘specified 

covered outpatient drug’’ is a covered 

outpatient drug, as defined in section 

1927(k)(2) of the Act, for which a 

separate APC has been established and 

that either is a radiopharmaceutical 

agent or is a drug or biological for which 

payment was made on a pass-through 

basis on or before December 31, 2002. 

Under section 1833(t)(14)(B)(ii) of the 

Act, certain drugs and biologicals are 

designated as exceptions and are not 

included in the definition of ‘‘specified 

covered outpatient drugs,’’ known as 

SCODs. These exceptions are— 

• A drug or biological for which 

payment is first made on or after 

January 1, 2003, under the transitional 

pass-through payment provision in 

section 1833(t)(6) of the Act. 

• A drug or biological for which a 

temporary HCPCS code has not been 

assigned. 

• During CYs 2004 and 2005, an 

orphan drug (as designated by the 

Secretary). 

Section 1833(t)(14)(A)(iii) of the Act 

requires that payment for SCODs in CY 

2006 and subsequent years be equal to 

the average acquisition cost for the drug 

for that year as determined by the 

Secretary, subject to any adjustment for 

overhead costs and taking into account 

the hospital acquisition cost survey data 

collected by the Government 

Accountability Office (GAO) in CYs 

2004 and 2005. If hospital acquisition 

cost data are not available, the law 

requires that payment be equal to 

payment rates established under the 

methodology described in section 

1842(o), section 1847A, or section 

1847B of the Act, as calculated and 

adjusted by the Secretary as necessary. 

Most physician Part B drugs are paid 

pursuant to ASP+6 percent pursuant to 

section 1842(o) of the Act and section 

1847A of the Act. 

Section 1833(t)(14)(E) of the Act 

provides for an adjustment in OPPS 

payment rates for overhead and related 

expenses, such as pharmacy services 

and handling costs. Section 

1833(t)(14)(E)(i) of the Act required 

MedPAC to study pharmacy overhead 

and to make recommendations to the 

Secretary regarding whether, and if so 

how, a payment adjustment should be 

made to compensate hospitals for them. 

Section 1833(t)(14)(E)(ii) of the Act 

authorizes the Secretary to adjust the 

weights for ambulatory procedure 

classifications for SCODs to take into 

account the findings of the MedPAC 

study. 

In the CY 2006 OPPS proposed rule 

(70 FR 42728), we discussed the June 

2005 report by MedPAC regarding 

pharmacy overhead costs in HOPDs and 

summarized the findings of that study: 

• Handling costs for drugs, 

biologicals, and radiopharmaceuticals 

administered in the HOPD are not 

insignificant; 

• Little information is available about 

the magnitude of pharmacy overhead 

costs; 

• Hospitals set charges for drugs, 

biologicals, and radiopharmaceuticals at 

levels that reflect their respective 

handling costs; and 

• Hospitals vary considerably in their 

likelihood of providing services which 

utilize drugs, biologicals, or 

radiopharmaceuticals with different 

handling costs. 

As a result of these findings, MedPAC 

developed seven drug categories for 

pharmacy and nuclear medicine 

handling costs based on the estimated 

level of hospital resources used to 

prepare the products (70 FR 42729). 

Associated with these categories were 

two recommendations for accurate 

payment of pharmacy overhead under 

the OPPS. 

1. CMS should establish separate, 

budget neutral payments to cover the 

costs hospitals incur for handling 

separately payable drugs, biologicals, 

and radiopharmaceuticals. 

2. CMS should define a set of 

handling fee APCs that group drugs, 

biologicals, and radiopharmaceuticals 

based on attributes of the products that 

affect handling costs; CMS should 

instruct hospitals to submit charges for 

these APCs and base payment rates for 

the handling fee APCs on submitted 

charges reduced to costs. 

In response to the MedPAC findings, 

in the CY 2006 OPPS proposed rule (70 

FR 42729), we discussed our belief that, 

because of the varied handling resources 

required to prepare different forms of 

drugs, it would be impossible to 

exclusively and appropriately assign a 

drug to a certain overhead category that 

would apply to all hospital outpatient 

uses of the drug. Therefore, our CY 2006 

OPPS proposal included a proposal to 

establish three distinct Level II HCPCS 

C-codes and three corresponding APCs 

for drug handling categories to 

differentiate overhead costs for drugs 

and biologicals (70 FR 42730). We also 

proposed: (1) To combine several 

overhead categories recommended by 

MedPAC; (2) to establish three drug 

handling categories, as we believed that 

larger groups would minimize the 

number of drugs that may fit into more 

than one category and would lessen any 

undesirable payment policy incentives 

to utilize particular forms of drugs or 

specific preparation methods; (3) to 

collect hospital charges for these HCPCS 

C-codes for 2 years; and (4) to ultimately 

base payment for the corresponding 

drug handling APCs on CY 2006 claims 

data available for the CY 2008 OPPS. 

In the CY 2006 OPPS final rule with 

comment period (70 FR 68659 through 

68665), we discussed the public 

comments we received on our proposal 

regarding pharmacy overhead. The 

overwhelming majority of commenters 

did not support our proposal and urged 

us not to finalize this policy, as it would 

be administratively burdensome for 

hospitals to establish charges for HCPCS 

codes for pharmacy overhead and to 

report them. Therefore, we did not 

finalize this proposal for CY 2006. 

Instead, we established payment for 

separately payable drugs and biologicals 

at ASP+6 percent, which we calculated 

by comparing the estimated aggregate 

cost of separately payable drugs and 

biologicals in our claims data to the 

estimated aggregate ASP dollars for 

separately payable drugs and 

biologicals, using the ASP as a proxy for 

average acquisition cost (70 FR 68642). 

Hereinafter, we refer to this 

methodology as our standard drug 

payment methodology. We concluded 

that payment for drugs and biologicals 

and pharmacy overhead at a combined 

ASP+6 percent rate would serve as the 

best proxy for the combined acquisition 

and overhead costs of each of these 

products. 

In the CY 2007 OPPS/ASC final rule 

with comment period (71 FR 68091), we 

finalized our proposed policy to provide 

a single payment of ASP+6 percent for 

the hospital’s acquisition cost for the 

drug or biological and all associated 

pharmacy overhead and handling costs. 

The ASP+6 percent rate that we 

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finalized was higher than the equivalent 

average ASP-based amount calculated 

from claims of ASP+4 percent according 

to our standard drug payment 

methodology, but we adopted payment 

at ASP+6 percent for stability while we 

continued to examine the issue of the 

costs of pharmacy overhead in the 

HOPD. 

In the CY 2008 OPPS/ASC proposed 

rule (72 FR 42735), in response to 

ongoing discussions with interested 

parties, we proposed to continue our 

methodology of providing a combined 

payment rate for drug and biological 

acquisition and pharmacy overhead 

costs. We also proposed to instruct 

hospitals to remove the pharmacy 

overhead charge for both packaged and 

separately payable drugs and biologicals 

from the charge for the drug or 

biological and report the pharmacy 

overhead charge on an uncoded revenue 

code line on the claim. We believed that 

this would provide us with an avenue 

for collecting pharmacy handling cost 

data specific to drugs in order to 

package the overhead costs of these 

items into the associated procedures, 

most likely drug administration 

services. Similar to the public response 

to our CY 2006 pharmacy overhead 

proposal, the overwhelming majority of 

commenters did not support our CY 

2008 proposal and urged us to not 

finalize this policy (72 FR 66761). At its 

September 2007 meeting, the APC Panel 

recommended that hospitals not be 

required to separately report charges for 

pharmacy overhead and handling and 

that payment for overhead be included 

as part of drug payment. The APC Panel 

also recommended that CMS continue 

to evaluate alternative methods to 

standardize the capture of pharmacy 

overhead costs in a manner that is 

simple to implement at the 

organizational level (72 FR 66761). 

Because of concerns expressed by the 

APC Panel and public commenters, we 

did not finalize the proposal to instruct 

hospitals to separately report pharmacy 

overhead charges for CY 2008. Instead, 

in the CY 2008 OPPS/ASC final rule 

with comment period (72 FR 66763), we 

finalized a policy of providing payment 

for separately payable drugs and 

biologicals and their pharmacy 

overhead at ASP+5 percent as a 

transition from their CY 2007 payment 

of ASP+6 percent to payment based on 

the equivalent average ASP-based 

payment rate calculated from hospital 

claims according to our standard drug 

payment methodology, which was 

ASP+3 percent for the CY 2008 OPPS/ 

ASC final rule with comment period. 

Hospitals continued to include charges 

for pharmacy overhead costs in the lineitem charges for the associated drugs 

reported on claims. 

For CY 2009, we proposed to pay 

separately payable drugs and biologicals 

at ASP+4 percent, including both 

SCODs and other drugs without CY 

2009 OPPS pass-through status, based 

on our standard drug payment 

methodology, and we also proposed to 

split the ‘‘Drugs Charged to Patients’’ 

cost center into two cost centers: One 

for drugs with high pharmacy overhead 

costs and one for drugs with low 

pharmacy overhead costs (73 FR 41492). 

We noted that we expected that CCRs 

from the proposed new cost centers 

would be available in 2 to 3 years to 

refine OPPS drug cost estimates by 

accounting for differential hospital 

markup practices for drugs with high 

and low overhead costs. After 

consideration of the public comments 

received and the APC Panel 

recommendations, we finalized a CY 

2009 policy (73 FR 68659) to provide 

payment for separately payable 

nonpass-through drugs and biologicals 

based on costs calculated from hospital 

claims at a 1-year transitional rate of 

ASP+4 percent, in the context of an 

equivalent average ASP-based payment 

rate of ASP+2 percent calculated 

according to our standard drug payment 

methodology from the final rule claims 

and cost report data. We did not finalize 

our proposal to split the single standard 

‘‘Drugs Charged to Patients’’ cost center 

into two cost centers largely due to 

concerns raised to us by hospitals about 

the associated administrative burden. 

Instead, we indicated in the CY 2009 

OPPS/ASC final rule with comment 

period (73 FR 68659) that we would 

continue to explore other potential 

approaches to improve our drug cost 

estimation methodology, thereby 

increasing payment accuracy for 

separately payable drugs and 

biologicals. 

In response to the CMS proposals for 

the CY 2008 and CY 2009 OPPS, a group 

of pharmacy stakeholders (hereinafter 

referred to as the pharmacy 

stakeholders), including some cancer 

hospitals, some pharmaceutical 

manufacturers, and some hospital and 

professional associations, commented 

that CMS should pay an acquisition cost 

of ASP+6 percent for separately payable 

drugs, should substitute ASP+6 percent 

for the packaged cost of all packaged 

drugs and biologicals on procedure 

claims, and should redistribute the 

difference between the aggregate 

estimated packaged drug cost in claims 

and payment for all drugs, including 

packaged drugs at ASP+6 percent, as 

separate pharmacy overhead payments 

for separately payable drugs. They 

indicated that this approach would 

preserve the aggregate drug cost 

observed in the claims data, while 

significantly increasing payment 

accuracy for individual drugs and 

procedures by redistributing drug cost 

from packaged drugs. Their suggested 

approach would provide a separate 

overhead payment for each separately 

payable drug or biological at one of 

three different levels, depending on the 

pharmacy stakeholders’ assessment of 

the complexity of pharmacy handling 

associated with each specific drug or 

biological (73 FR 68651 through 68652). 

Each separately payable drug or 

biological HCPCS code would be 

assigned to one of the three overhead 

categories, and the separate pharmacy 

overhead payment applicable to the 

category would be made when each of 

the separately payable drugs or 

biologicals was paid. 

In the CY 2010 OPPS/ASC proposed 

rule (74 FR 35332), we proposed to 

redistribute between one-third and onehalf of the estimated overhead cost 

associated with coded packaged drugs 

and biologicals with an ASP which 

resulted in our proposal to pay for the 

acquisition and pharmacy overhead 

costs of separately payable drugs and 

biologicals that did not have passthrough payment status at ASP+4 

percent. We calculated estimated 

overhead cost for coded packaged drugs 

and biologicals by determining the 

difference between the aggregate claims 

cost for coded packaged drugs and 

biologicals with an ASP and the ASP 

dollars (ASP multiplied by the drug’s or 

biological’s units in the claims data) for 

those same coded drugs and biologicals; 

this difference was our estimated 

overhead cost for coded packaged drugs 

and biologicals. In our rationale 

described in the CY 2010 OPPS/ASC 

proposed rule (74 FR 35326 through 

35333), we stated that we believed that 

approximately $150 million of the 

estimated $395 million total in 

pharmacy overhead cost included in our 

claims data for coded packaged drugs 

and biologicals with reported ASP data 

should be attributed to separately 

payable drugs and biologicals and that 

the $150 million serves as the 

adjustment for the pharmacy overhead 

costs of separately payable drugs and 

biologicals. As a result, we also 

proposed to reduce the cost of coded 

drugs and biologicals that is packaged 

into payment for procedural APCs to 

offset the $150 million adjustment to 

payment for separately payable drugs 

and biologicals. In addition, we 

proposed that any redistribution of 

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pharmacy overhead cost that may arise 

from CY 2010 final rule data would 

occur only from coded packaged drugs 

and biologicals with an ASP to 

separately payable drugs and 

biologicals, thereby maintaining the 

estimated total cost of drugs and 

biologicals. 

Using our CY 2010 proposed rule 

data, and applying our longstanding 

methodology for calculating the total 

cost of separately payable drugs and 

biologicals in our claims compared to 

the ASP dollars for the same drugs and 

biologicals, without applying the 

proposed overhead cost redistribution, 

we determined that the estimated 

aggregate cost of separately payable 

drugs and biologicals (status indicators 

‘‘K’’ and ‘‘G’’), including acquisition and 

pharmacy overhead costs, was 

equivalent to ASP–2 percent. Therefore, 

under the standard methodology for 

establishing payment for separately 

payable drugs and biologicals, we 

would have paid for those drugs and 

biologicals at ASP–2 percent for CY 

2010, their equivalent average ASPbased payment rate. We also determined 

that the estimated aggregate cost of 

coded packaged drugs and biologicals 

with an ASP (status indicator ‘‘N’’), 

including acquisition and pharmacy 

overhead costs, was equivalent to 

ASP+247 percent. 

While we had no way of assessing 

whether this current distribution of 

overhead cost to coded packaged drugs 

and biologicals with an ASP was 

appropriate, we acknowledged that the 

established method of converting billed 

charges to costs had the potential to 

‘‘compress’’ the calculated costs to some 

degree. Further, we recognized that the 

attribution of pharmacy overhead costs 

to packaged or separately payable drugs 

and biologicals through our standard 

drug payment methodology of a 

combined payment for acquisition and 

pharmacy overhead costs depends, in 

part, on the treatment of all drugs and 

biologicals each year under our annual 

drug packaging threshold. Changes to 

the packaging threshold may result in 

changes to payment for the overhead 

cost of drugs and biologicals that do not 

reflect actual changes in hospital 

pharmacy overhead cost for those 

products. For these reasons, we stated 

that we believed some portion, but not 

all, of the total overhead cost that is 

associated with coded packaged drugs 

and biologicals (the difference between 

aggregate cost for those drugs on the 

claims and ASP for the same drugs), 

based on our standard drug payment 

methodology, should, at least for CY 

2010, be attributed to separately payable 

drugs and biologicals. 

We acknowledged that the observed 

combined payment for acquisition and 

pharmacy overhead costs of ASP–2 

percent for separately payable drugs and 

biologicals may be too low and 

ASP+247 percent for coded packaged 

drugs and biologicals with reported ASP 

data in the CY 2010 claims data may be 

too high (74 FR 35328). We stated that 

a middle ground of approximately onethird to one-half of the total pharmacy 

overhead cost currently associated with 

coded packaged drugs and biologicals in 

the CY 2008 claims data would 

represent the most accurate 

redistribution of pharmacy overhead 

cost. We included a discussion of 

indirect overhead costs, such as 

administrative and general costs, capital 

costs, staff benefits, and other facility 

costs that do not vary across drugs, and 

direct overhead costs, including staff, 

supplies, and equipment that are 

directly attributable only to the storage, 

handling, preparation, and distribution 

of drugs and biologicals and which do 

vary, sometimes considerably, 

depending upon the drug being 

furnished. We presented analyses that 

modeled the redistribution of overhead 

costs in the packaged drugs to all drugs 

and biologicals based on overhead 

relative weights derived from industry 

and from MedPAC’s recommended 

overhead relative weights and by 

assigning each drug, both packaged and 

separately paid, to a category of 

overhead complexity. Analyses relying 

on both sets of weights suggest that 

indirect costs are a sizable component of 

the overhead costs associated with all 

drugs and biologicals (74 FR 60505 to 

60508). 

Within the one-third to one-half 

parameters, we proposed that 

reallocating $150 million in drug and 

biological cost observed in the claims 

data from coded packaged drugs and 

biologicals with an ASP to separately 

payable drugs and biologicals for CY 

2010 would more appropriately 

distribute pharmacy overhead cost 

among packaged and separately payable 

drugs and biologicals. Based on this 

redistribution, we proposed a payment 

rate for separately payable drugs and 

biologicals of ASP+4 percent. Thus, we 

proposed a pharmacy overhead 

adjustment for separately payable drugs 

and biologicals in CY 2010 that would 

result in their payment at ASP+4 

percent. Redistributing $150 million 

represented a reduction in cost of coded 

packaged drug and biologicals with 

reported ASP data in the CY 2010 

proposed rule claims data of 27 percent. 

We also proposed that any 

redistribution of pharmacy overhead 

cost that may arise from CY 2010 final 

rule data would occur only from some 

drugs and biologicals to other drugs and 

biologicals, thereby maintaining the 

estimated total cost of drugs and 

biologicals in our claims data (no 

redistribution of cost would occur from 

other services to drugs and biologicals 

or vice versa). We further proposed that 

the claims data for 340B hospitals be 

included in the calculation of payment 

for drugs and biologicals under the CY 

2010 OPPS and that 340B hospitals 

would be paid the same amounts for 

separately payable drugs and biologicals 

as hospitals that do not participate in 

the 340B program. Finally, we proposed 

that, in accordance with our standard 

drug payment methodology, the 

estimated payments for separately 

payable drugs and biologicals would be 

taken into account in the calculation of 

the weight scaler that would apply to 

the relative weights for all procedural 

services (but would not apply to 

separately payable drugs and 

biologicals) paid under the OPPS, as 

required by section 1833(t)(14)(H) of the 

Act. 

In the CY 2010 OPPS final rule with 

comment period, we adopted a 

transitional payment rate of ASP+4 

percent based on a pharmacy overhead 

adjustment methodology for CY 2010 

that redistributed $200 million from 

packaged drug cost to separately 

payable drug cost. This $200 million 

included the proposed $150 million 

redistribution from the pharmacy 

overhead cost of coded packaged drugs 

and biologicals for which an ASP is 

reported and an additional $50 million 

dollars from the total uncoded drug and 

biological cost to separately payable 

drugs and biologicals as a conservative 

estimate of the pharmacy overhead cost 

of uncoded packaged drugs and 

biologicals that should be appropriately 

associated with the cost of separately 

payable drugs and biologicals (74 FR 

60517). We noted that our final CY 2010 

payment policy for separately payable 

drugs and biologicals at ASP+4 percent 

fell within the range of ASP–3 percent, 

that would have resulted from no 

pharmacy overhead cost redistribution 

from packaged to separately payable 

drugs and biologicals, to ASP+7 percent, 

that would have resulted from 

redistribution of pharmacy overhead 

cost based on expansive assumptions 

about the nature of uncoded packaged 

drug and biological cost. We 

acknowledged that, to some unknown 

extent, there are pharmacy overhead 

costs being attributed to the items and 

services reported under the pharmacy 

revenue code without HCPCS codes that 

are likely pharmacy overhead for 

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separately payable drugs. With regard to 

uncoded packaged drug costs, we 

redistributed $50 million and stated that 

we could not know the amount of 

overhead associated with these drugs 

without making significant further 

assumptions about the amount of 

pharmacy overhead cost associated with 

the drugs and biologicals captured by 

these uncoded packaged drug costs. We 

finalized a policy of redistributing 

pharmacy overhead cost from some 

drugs and biologicals to other drugs and 

biologicals, thereby maintaining the 

estimated total cost of drugs and 

biologicals in our claims data (no 

redistribution of cost would occur from 

other services to drugs and biologicals 

or vice versa). 

b. Proposed Payment Policy 

Section 1833(t)(14)(A)(iii) of the Act, 

as described above, continues to be 

applicable to determining payments for 

SCODs for CY 2011. This provision 

requires that payment for SCODs be 

equal to the average acquisition cost for 

the drug for that year as determined by 

the Secretary, subject to any adjustment 

for overhead costs and taking into 

account the hospital acquisition cost 

survey data collected by the GAO in 

CYs 2004 and 2005. If hospital 

acquisition cost data are not available, 

section 1833(t)(14)(A)(iii)(II) of the Act 

requires that payment be equal to 

payment rates established under the 

methodology described in section 

1842(o) of the Act, section 1847A of the 

Act (ASP+6 percent as paid for 

physician Part B drugs), or section 

1847B of the Act (CAP), as the case may 

be, as calculated and adjusted by the 

Secretary as necessary. In accordance 

with sections 1842(o) and 1847A, 

payment for most Medicare Part B drugs 

furnished on or after January 1, 2005, 

are paid based on the ASP methodology. 

Medicare Part B drugs generally fall into 

three categories: Physician drugs (drugs 

furnished incident to a physician’s 

service), DME drugs (drugs furnished 

under the durable medical equipment 

benefit), and drugs specifically covered 

by statute (certain oral anti-cancer and 

immunosuppressive drugs). In addition, 

section 1833(t)(14)(E)(ii) of the Act 

authorizes, but does not require, the 

Secretary to adjust APC weights to take 

into account the 2005 MedPAC report 

relating to overhead and related 

expenses, such as pharmacy services 

and handling costs. As discussed in 

V.B.3.a. of this proposed rule, since CY 

2006, we have used ASP data and costs 

estimated from charges on hospital 

claims data as a proxy for both the 

average hospital acquisition cost that 

the statute requires for payment of 

SCODs and the associated pharmacy 

overhead cost to establish a combined 

payment rate for acquisition cost and 

pharmacy overhead. Until CY 2010, we 

applied this methodology to payment 

for all separately payable drugs and 

biologicals without pass-through status, 

including both SCODs and other drugs 

and biologicals that do not meet the 

statutory definition of SCODs. 

However, for the CY 2010 OPPS, we 

revised the standard methodology to 

include an adjustment for pharmacy 

overhead. We acknowledged that the 

established method of converting billed 

charges to costs had the potential to 

‘‘compress’’ the calculated costs to some 

degree. We recognized that the 

attribution of pharmacy overhead costs 

to packaged or separately payable drugs 

and biologicals through our standard 

drug payment methodology of a 

combined payment for acquisition and 

pharmacy overhead costs depends, in 

part, on the treatment of all drugs and 

biologicals each year under our annual 

drug packaging threshold. To some 

unknown extent, we believe that some 

pharmacy overhead costs are being 

attributed to packaged drugs and 

biologicals that are likely pharmacy 

overhead costs for separately payable 

drugs. 

For this CY 2011 OPPS/ASC proposed 

rule, using our standard methodology 

for determining the total cost of 

separately payable drugs in our CY 2009 

claims data and comparing these costs 

to the ASP dollars (April 2010 ASP 

quarterly payment rates multiplied by 

units for the separately payable drugs 

and biologicals in the claims data) for 

the same drugs, we determined that the 

total payment for separately payable 

drugs (status indicators ‘‘K’’ and ‘‘G’’), 

including acquisition and pharmacy 

overhead costs, is ASP+0 percent, 

which also would be the ASP-based 

payment rate under the standard 

methodology that we established in CY 

2006. Additionally, we determined that 

the total aggregate cost for packaged 

drugs with a HCPCS code for which 

manufacturers report ASP data (status 

indicator ‘‘N’’), including acquisition 

and pharmacy overhead costs, is 

equivalent to ASP+283 percent. Finally, 

we determined that the total cost for 

both packaged drugs with a HCPCS code 

and separately payable drugs (status 

indicators ‘‘N’’, ‘‘K’’ and ‘‘G’’) for which 

we also have ASP data, including 

acquisition and pharmacy overhead 

costs, is ASP+14 percent. Table 25 

below displays our findings with regard 

to the percentage of ASP in comparison 

to the cost for packaged coded drugs 

and for separately payable coded drugs 

before application of the overhead 

adjustment methodology. 

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We believe that the combined 

payment for average acquisition and 

pharmacy overhead costs under our 

standard methodology may understate 

the cost of separately payable drugs and 

biologicals and related pharmacy 

overhead for those drugs and 

biologicals. Specifically, we believe 

payment at ASP+0 percent for such 

costs may not be sufficient. We also 

acknowledge that ASP+283 percent may 

overstate the combined acquisition and 

pharmacy overhead cost of packaged 

drugs and biologicals. Therefore, for CY 

2011, we are proposing to continue our 

CY 2010 pharmacy overhead adjustment 

methodology. We are proposing to 

redistribute $150 million from the 

pharmacy overhead cost of coded 

packaged drugs and biologicals with 

reported ASP data and to redistribute 

$50 million from the cost of uncoded 

packaged drugs and biologicals without 

an ASP, for a total redistribution of $200 

million in drug cost from the cost of 

coded and uncoded packaged drugs to 

the cost of separately payable drugs, as 

we did for the CY 2010 final rule. We 

estimate the overhead cost for coded 

packaged drugs to be $438 million ($593 

million in total cost for coded packaged 

drugs and biologicals with a reported 

ASP less $155 million in total ASP 

dollars for coded packaged drugs and 

biologicals with a reported ASP). 

Similar to the CY 2010 proposal, we are 

proposing that any redistribution of 

pharmacy overhead cost would occur 

only among drugs and biologicals in our 

claims data, that no redistribution of 

cost would occur from other services to 

drugs and biologicals or vice versa. We 

continue to believe that redistributing 

$200 million from packaged to 

separately payable drugs and biologicals 

is an appropriate redistribution of 

pharmacy overhead costs to address any 

charge compression in the standard 

methodology. This would result in a 

proposed CY 2011 payment rate for 

separately payable drugs and biologicals 

of ASP+6 percent. We emphasize that 

we are proposing a pharmacy overhead 

adjustment methodology based on a 

redistribution of overhead cost and that 

our proposal for payment at ASP+6 

percent is a coincidental outcome of the 

proposed methodology to redistribute 

$200 million from packaged drugs to 

separately payable drugs. We are not 

proposing payment of ASP+6 percent 

for separately payable drugs as an 

alternative to payment of average 

acquisition costs based on a survey 

under section 1833(t)(14)(A)(iii)(I) of the 

Act. We continue to believe that the 

average sales price information 

collected under section 1847A (b)(1)(A) 

of the Act and our hospital claims data 

is a suitable proxy for the acquisition 

cost data. For a full explanation of our 

rationale for using ASP data and our 

hospital claims data as a suitable proxy 

for acquisition cost data we refer readers 

to the CY2010 OPPS/ASC final rule 

with comment period (74 FR 60515). We 

further note that, in past years, the 

proposed ASP+X amount decreased by 

at least 1 percentage point when we 

updated the ASP data, claims data, and 

cost report data between the proposed 

rule and the final rule with comment 

period, from ASP+5 to ASP+4 for 

example. Therefore, it is possible that 

this proposed methodology would result 

in an ASP+X amount that is different 

from ASP+6. 


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As indicated in Table 25 above, if we 

were to propose to establish payment for 

separately payable drugs and biologicals 

under the standard methodology 

established in CY 2006 without 

applying a pharmacy overhead 

adjustment, we would propose to pay 

for separately payable drugs and 

biologicals at ASP+0 percent. However, 

because we are concerned about 

underpaying separately payable drugs 

and biologicals, we believe a pharmacy 

overhead adjustment using a 

redistribution methodology for 

determining the amount of payment for 

drugs and biologicals as we did for CY 

2010 is appropriate. We believe the 

observed ASP+0 percent reflects some 

amount of charge compression and 

variability attributable to choice of a 

packaging threshold. 

We continue to believe that the 

methodology to redistribute $200 

million in drug overhead cost from 

packaged coded and uncoded drugs to 

separately payable drugs, while keeping 

the total cost of drugs in the claims data 

constant, continues to be appropriate for 

the reasons set forth in the CY 2010 

OPPS/ASC final rule with comment 

period (74 FR 60501 through 60517). 

Therefore, we are proposing to 

redistribute $200 million in drug 

overhead costs from coded and uncoded 

packaged drugs to separately payable 

drugs while keeping the total cost of 

drugs in the claims data constant. Table 

26 presents the ASP+X amount after 

redistribution of $150 million from the 

estimated overhead of $438 million for 

coded packaged drugs with reported 

ASP data to separately payable drugs 

and biologicals and $50 million from 

uncoded packaged drug cost for which 

an estimate of overhead cannot be 

calculated, resulting in a total 

redistribution of $200 million in cost 

from packaged drugs and biologicals to 

separately payable drugs and 

biologicals. 

We generally received positive 

comments on our CY 2010 proposal to 

redistribute $150 million of drug cost 

from packaged drugs and biologicals to 

separately payable drugs and biologicals 

to establish their final combined 

payment level. The general comment we 

received on our pharmacy overhead 

adjustment methodology was that the 

amount of drug cost that should be 

redistributed should be greater, a 

sentiment reiterated at the February 

2010 APC Panel meeting and discussed 

in greater detail below. Commenters and 

presenters to the APC Panel specifically 

argued that our CY 2010 proposal had 

not acknowledged the potential 

overhead cost available for 

redistribution in the uncoded packaged 

drugs. 

We explain below our rationale for 

why we are not proposing to 

redistribute more cost from uncoded 

packaged drugs. Conversations with 

stakeholders and hospitals over the past 

year suggest that hospitals do not 

always report HCPCS codes for drugs for 

a variety of reasons including an 

internal practice not to code for 

packaged drugs, building the cost of the 

drugs into the associated procedure 

charge, lack of a HCPCS code for some 

drugs and biologicals, and purchased 


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vendor billing software functionality 

that removes codes. A key premise of 

our pharmacy overhead adjustment 

redistribution methodology was our 

assessment of the amount of drug cost 

in the claims data above aggregate ASP 

available as ‘‘overhead’’ for 

redistribution. Knowing the specific 

HCPCS codes for packaged drugs and 

their associated ASP allows us to assess 

the differential between aggregate ASP 

and claim cost for packaged drugs and 

to assess the intensity of pharmacy 

overhead associated with these drugs. 

The inability to know which drugs are 

captured by uncoded drug charges on a 

claim is challenging because we cannot 

know what is being charged or what the 

overhead complexity might be. Further, 

we understand that there is wide 

variation in how hospitals set charges 

for items and services in their 

chargemasters, sometimes charging 

separately for overhead (for example, 

paper cups, gloves, transportation, staff 

consultations) and sometimes including 

charges for those supplies in the charge 

for drugs. Therefore, we cannot be 

certain that the amount of uncoded 

pharmacy overhead cost is as high as 

the public has suggested or that 

hospitals mark up these uncoded drugs 

and biologicals in the same way as 

packaged drugs and biologicals with 

HCPCS codes. 

In addition, at its February 2010 

meeting, the APC Panel recommended 

that CMS reallocate a larger portion of 

the pharmacy overhead costs from 

packaged drugs to separately payable 

drugs for CY 2011. We do not accept the 

APC Panel’s recommendation to 

redistribute a larger portion of the 

pharmacy overhead costs from packaged 

drugs to separately payable drugs 

because we also believe the analysis 

provided by the presenters at the 

February 2010 APC Panel meeting is 

insufficient to determine that it is 

appropriate to propose to redistribute 

more payment from uncoded packaged 

drugs and biologicals to separately paid 

drugs and biologicals. Although 

presenters at the APC Panel meeting 

acknowledged that CMS could not know 

the ASP for these uncoded drug costs, 

they provided analyses examining the 

proportion of estimated coded packaged 

drug cost relative to estimated uncoded 

packaged drug cost out of all packaged 

drug cost (both coded and uncoded) and 

concluded that uncoded and coded 

packaged drugs are probably the same 

drugs because hospitals tend to have 

roughly the same amount of estimated 

packaged drug cost in their claims data 

but wide variation on the proportion of 

coded packaged drugs. They also 

presented analyses stating that the 

relationship between pharmacy 

overhead and handling costs and the 

cost of drugs in the cost report data can 

be interpreted as providing a 

relationship between cost and overhead 

comparable to the ASP+X calculated for 

all drug cost in the claims data, if an 

aggregate ASP amount is assumed to be 

the same for uncoded drugs and 

biologicals as it is for coded packaged 

drugs. The presenters concluded that 

the uncoded packaged drug and 

biological cost accounts for exactly the 

same drugs and biologicals as those in 

the coded packaged drug and biological 

cost and that CMS could assume the 

same proportional amount of overhead 

cost that appears in the uncoded 

packaged drug and biological cost as 

observed in the coded packaged drug 

cost. They asked that CMS assume that 

uncoded packaged drugs and biologicals 

resemble coded packaged drugs and 

biologicals and treat them comparably 

for purposes of estimating ‘‘overhead.’’ 

We reviewed the presenters’ analyses, 

but we believe the information they 

provided is insufficient in order to 

enable us to isolate the portion of the 

uncoded packaged drug and biological 

cost that is pharmacy overhead cost. In 

order to isolate the portion of uncoded 

packaged drug and biological cost that 

is pharmacy overhead cost, we believe 

that we would need more drug-specific 

information reported to us by hospitals, 

either through more reporting of 

packaged drugs on claims or through 

more granular cost centers on the cost 

report. We note that we investigated 

uncoded drugs further. We evaluated 

the services with which uncoded 

packaged drug cost appears in the 

claims data in an effort to assess how 

much uncoded drugs resemble coded 

packaged drugs. We found that most 

uncoded packaged drug costs appear 

with surgical services and that most 

coded packaged drug costs appear with 

medical services. In light of this 

information, we are not confident that 

the drugs captured by uncoded drug 

cost are the same drugs captured by 

coded packaged drug cost. Therefore, 

we do not believe we can assume that 

they are the same drugs, with 

comparable overhead and handling 

costs. Without being able to calculate an 

ASP for these drugs and without being 

able to gauge the magnitude of the 

overhead complexity associated with 

these drugs, we do not believe we 

should assume that the same amount of 

proportional overhead is available for 

redistribution for this proposed rule. We 

are not convinced that the same 

proportionate amount of overhead cost 

should be redistributed from the 

packaged uncoded drugs as the amount 

of overhead cost that is appropriate to 

redistribute for packaged coded drugs. 

In addition, we remain committed to 

using hospital claims data reported to us 

by hospitals to set the OPPS payment 

rates because it provides more 

specificity about the provided drugs and 

biologicals and would allow us to assess 

an overhead amount for those drugs.and 

biologicals. Therefore, we continue to 

propose to redistribute a conservative 

estimate, $50 million, in cost from 

uncoded packaged drugs to separately 

payable drugs and biologicals. 

Based on the reasons set forth above, 

and consistent with our rationale 

outlined in the CY 2010 OPPS/ASC 

final rule with comment period (74 FR 

60511 through 60512), we cannot be 

certain that we know what portion of 

the uncoded drugs and biologicals cost 

is acquisition cost versus pharmacy 

overhead costs, and we have no 

compelling reason to redistribute a 

greater amount of drug cost. Therefore, 

our proposal to redistribute $200 

million in drug cost from packaged 

drugs to separately payable drugs, while 

maintaining the total cost of drugs in 

our claims data, consists of 

redistributing $150 million in 

‘‘overhead’’ cost from packaged coded 

drugs and biologicals with reported ASP 

data to separately payable drugs and 

biologicals and redistributing $50 

million in drug cost from uncoded 

packaged drugs and biologicals to 

separately payable drugs and biologicals 

as a conservative estimate of potential 

overhead cost appearing in uncoded 

packaged drugs that should have been 

associated with separately payable 

drugs and biologicals. 

We have indicated that the basis for 

this CY 2011 proposal to redistribute 

$150 million dollars from packaged 

coded drugs and biologicals to 

separately payable drugs and biologicals 

as a pharmacy overhead adjustment is 

the same as our CY 2010 final policy. 

The CY 2010 policy was based on our 

assessment that between one-third and 

one-half of the overhead cost in coded 

packaged drugs could be attributable to 

charge compression due to our cost 

estimation methodology and our choice 

of a packaging threshold. We continue 

to believe that a precise amount of drug 

cost attributable to charge compression 

cannot be known precisely, but that 

$150 million is an appropriate 

adjustment. The current proposal for 

$150 million falls within the 

approximate one-third to one-half range 

established in CY 2010 with updated CY 

2009 claim and cost report data, and we 

anticipate that the $150 million would 

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continue to roughly approximate onethird to one-half or thereabouts of 

overhead cost in the coded packaged 

drugs with updated ASP data, and claim 

and cost report data for the final rule. In 

order to redistribute the $150 million in 

pharmacy overhead from packaged costs 

of drugs and biologicals for which a 

HCPCS code was reported, we reduced 

the costs attributable to these items and 

services by multiplying the costs 

derived from the revenue center charges 

for packaged HCPCs codes by 0.75 (a 25 

percent reduction). 

To redistribute the $50 million in 

total cost from packaged costs of drugs 

and biologicals for which no HCPCS 

code was reported, we reduced the costs 

attributable to these items and services 

by multiplying the costs derived from 

revenue center charges for pharmacy by 

0.92 (an 8 percent reduction). We note 

that for this CY 2011 OPPS/ASC 

proposed rule, the $50 million in drug 

overhead cost that we propose to 

redistribute from packaged uncoded 

drugs and biologicals to separately 

payable drugs and biologicals is 8 

percent, comparable to the CY 2010 

final rule amount. We note that $50 

million as a percent of uncoded drug 

cost may be close to the 8 percent range 

or thereabouts of uncoded drug and 

biological cost in the final rule with 

updated claim and cost data. In 

addition, although we have arrived at a 

proposed payment rate of ASP+6 

percent, we emphasize that the ASP+6 

percent amount may change when 

ASP+X is recalculated using updated 

ASP data and claims and cost report 

data for the CY 2011 OPPS/ASC final 

rule with comment period. 

We also note that, although it is CMS’ 

longstanding policy under the OPPS to 

refrain from instructing hospitals on the 

appropriate revenue code to use to 

charge for specific services, we continue 

to encourage hospitals to bill all drugs 

and biologicals with HCPCS codes, 

regardless of whether they are 

separately payable or packaged. We 

believe that a practice of billing all 

drugs and biologicals with HCPCS codes 

under revenue code 0636 (Pharmacy— 

Extension of 025X; Drugs Requiring 

Detailed Coding) would be consistent 

with NUBC billing guidelines and 

would provide us with the most 

complete and detailed information for 

ratesetting. We note that we make 

packaging determinations for drugs 

annually based on cost information 

reported under HCPCS codes, and the 

OPPS ratesetting is best served when 

hospitals report charges for all items 

and services with HCPCS codes when 

they are available, whether or not 

Medicare makes separate payment for 

the items and services. 

The APC Panel also recommended 

that CMS evaluate the impact of changes 

in its drug payment policy on hospitals 

(categorized by type and size) of such a 

reallocation and present this analysis to 

the APC Panel at its next meeting. We 

accept this recommendation and will 

present this analysis to the APC Panel 

at its next meeting. 

The APC Panel also recommended 

that CMS continue to evaluate the 

impact of its drugs and biologicals 

overhead payment policy on hospitals. 

We accept this recommendation. We 

note that our regulatory impact analysis 

presented in section XXIII of this 

proposed rule includes some of the 

analysis requested in these last two 

recommendations. 

In conclusion, we are proposing for 

CY 2011 to continue our CY 2010 

redistribution methodology, to 

redistribute $150 million from the 

pharmacy overhead cost of coded 

packaged drugs and biologicals with an 

ASP and to redistribute $50 million 

from the cost of uncoded packaged 

drugs and biologicals for a total of $200 

million from cost in coded and uncoded 

packaged drugs to separately payable 

drugs. We are proposing to redistribute 

pharmacy overhead cost among drugs 

and biologicals, thereby maintaining the 

estimated total cost of drugs and 

biologicals in our claims data (no 

redistribution of cost would occur from 

other services to drugs and biologicals 

or vice versa). The result of the 

proposed methodology when applied 

using April 2010 ASPs, data for claims 

for services furnished during CY 2009 

and processed through the common 

working file before January 1, 2010, and 

the most current submitted cost reports 

as of January 1, 2010, is a proposed 

ASP+6 percent amount for CY 2011. We 

are further proposing to continue to 

include the claims data for 340B 

hospitals in the calculation of payment 

for drugs and biologicals under the CY 

2011 OPPS because excluding data from 

hospitals that participate in the 340B 

program from our ASP+X calculation, 

but paying those hospitals at that 

derived payment amount, would 

effectively redistribute payment to drugs 

or biologicals from payment for other 

services under the OPPS, and we do not 

believe this redistribution would be 

appropriate (74 FR 35332). In addition, 

we are proposing that 340B hospitals 

continue to be paid the same amounts 

for separately payable drugs and 

biologicals as hospitals that do not 

participate in the 340B program for CY 

2011 because commenters have 

generally opposed differential payment 

for hospitals based on their 340B 

participation status. In addition, we are 

proposing to include claims from 340B 

hospitals in our assessment of average 

acquisition cost under section 

1833(t)(14)(A)(iii) of the Act. We are 

proposing that the estimated payments 

for separately payable drugs and 

biologicals be taken into account in the 

calculation of the weight scaler that 

would apply to the relative weights for 

all procedural services (but would not 

apply to separately payable drugs and 

biologicals) paid under the OPPS, as 

required by section 1833(t)(14)(H) of the 

Act. 

Finally, we note that we continue to 

pursue the most appropriate 

methodology for establishing payment 

for drugs and biologicals under the 

OPPS and that we will continue to 

evaluate the appropriateness of this 

methodology in future years. 

c. Proposed Payment Policy for 

Therapeutic Radiopharmaceuticals 

From the implementation of the 

collection of ASP information in CY 

2005, CMS exempted 

radiopharmaceutical manufacturers 

from reporting ASP data for all 

radiopharmaceuticals for payment 

purposes under the OPPS. (For more 

information, we refer readers to the CY 

2005 OPPS final rule with comment 

period (69 FR 65811) and the CY 2006 

OPPS final rule with comment period 

(70 FR 68655).) Consequently, we did 

not have ASP data for 

radiopharmaceuticals for consideration 

for OPPS ratesetting until we began 

collecting ASP for therapeutic 

radiopharmaceuticals for CY 2010. In 

accordance with section 

1833(t)(14)(B)(i)(I) of the Act, we have 

classified radiopharmaceuticals under 

the OPPS as SCODs. As such, we have 

paid for radiopharmaceuticals at average 

acquisition cost as determined by the 

Secretary and subject to any adjustment 

for overhead costs. For CYs 2006 and 

2007, we used mean unit cost data from 

hospital claims to determine each 

radiopharmaceutical’s packaging status 

and implemented a temporary policy to 

pay for separately payable 

radiopharmaceuticals based on the 

hospital’s charge for each 

radiopharmaceutical adjusted to cost 

using the hospital’s overall CCR. The 

methodology of providing separate 

radiopharmaceutical payment based on 

charges adjusted to cost through 

application of an individual hospital’s 

overall CCR for CYs 2006 and 2007 was 

finalized as an interim proxy for average 

acquisition cost. 

In CY 2008, we packaged payment for 

all diagnostic radiopharmaceuticals and 

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we proposed and finalized a 

methodology to provide prospective 

payment for therapeutic 

radiopharmaceuticals (defined as those 

Level II HCPCS codes that include the 

term ‘‘therapeutic’’ along with a 

radiopharmaceutical in their long code 

descriptors) using mean costs derived 

from the CY 2006 claims data, where the 

costs were determined using our 

standard methodology of applying 

hospital-specific departmental CCRs to 

radiopharmaceutical charges, defaulting 

to hospital-specific overall CCRs only if 

appropriate departmental CCRs were 

unavailable (72 FR 66772). Following 

issuance of the CY 2009 OPPS/ASC 

proposed rule, section 142 of the 

Medicare Improvements for Patients and 

Providers Act of 2008 (Pub. L. 110–275) 

amended section 1833(t)(16)(C) of the 

Act, as amended by section 106(a) of the 

Medicare, Medicaid, and SCHIP 

Extension Act of 2007 (Pub. L. 110– 

173), to further extend the payment 

period for therapeutic 

radiopharmaceuticals based on 

hospital’s charges adjusted to cost 

through December 31, 2009. Therefore, 

for CY 2009, we finalized a policy to 

continue to pay hospitals for therapeutic 

radiopharmaceuticals at charges 

adjusted to cost through the end of CY 

2009. 

For CY 2010, we proposed and 

finalized a policy to pay for separately 

paid therapeutic radiopharmaceuticals 

under the ASP methodology adopted for 

separately payable drugs and 

biologicals. We allowed manufacturers 

to submit the ASP data in a patientspecific dose or patient-ready form in 

order to properly calculate the ASP 

amount for a given HCPCS code. This 

resulted in payment for therapeutic 

radiopharmaceuticals at ASP+4 percent 

for CY 2010 for products for which the 

manufacturer submitted ASP. We also 

finalized a policy to base therapeutic 

radiopharmaceutical payment on CY 

2008 mean unit cost data derived from 

hospital claims if ASP information was 

unavailable. 

We believe that the rationale outlined 

in the CY 2010 OPPS/ASC final rule 

with comment period (74 FR 60524 

through 60525) continues to be 

appropriate in for nonpass-through 

separately payable therapeutic 

radiopharmaceuticals in CY 2011. 

Therefore, we are proposing to continue 

to pay all nonpass-through, separately 

payable therapeutic 

radiopharmaceuticals under the ASP+X 

payment level established using the 

proposed pharmacy overhead 

adjustment based on a redistribution 

methodology to set payment for 

separately payable drugs and biologicals 

(as discussed in section V.B.3.b.) based 

on ASP information, if available, for a 

‘‘patient ready’’ dose and updated on a 

quarterly basis for products for which 

manufacturers report ASP data. For a 

full discussion of how a ‘‘patient ready’’ 

dose is defined, we refer readers to the 

CY 2010 OPPS/ASC final rule with 

comment period, 74 FR 60520 through 

60521. We also are proposing to rely on 

CY 2009 mean unit cost data derived 

from hospital claims data for payment 

rates for therapeutic 

radiopharmaceuticals for which ASP 

data are unavailable and to update the 

payment rates for separately payable 

therapeutic radiopharmaceuticals, 

according to our usual process for 

updating the payment rates for 

separately payable drugs and 

biologicals, on a quarterly basis if 

updated ASP information is available. 

4. Proposed Payment for Blood Clotting 

Factors 

For CY 2010, we provided payment 

for blood clotting factors under the same 

methodology as other nonpass-through 

separately payable drugs and biologicals 

under the OPPS and continued paying 

an updated furnishing fee. That is, for 

CY 2010, we provided payment for 

blood clotting factors under the OPPS at 

ASP+4 percent, plus an additional 

payment for the furnishing fee. We note 

that when blood clotting factors are 

provided in physicians’ offices under 

Medicare Part B and in other Medicare 

settings, a furnishing fee is also applied 

to the payment. The CY 2010 updated 

furnishing fee is $0.170 per unit. 

For CY 2011, we are proposing to pay 

for blood clotting factors at ASP+6 

percent, consistent with our proposed 

payment policy for other nonpassthrough separately payable drugs and 

biologicals, and to continue our policy 

for payment of the furnishing fee using 

an updated amount. Because the 

furnishing fee update is based on the 

percentage increase in the Consumer 

Price Index (CPI) for medical care for 

the 12-month period ending with June 

of the previous year and the Bureau of 

Labor Statistics releases the applicable 

CPI data after the MPFS and OPPS/ASC 

proposed rules are published, we are 

not able to include the actual updated 

furnishing fee in this proposed rule. 

Therefore, in accordance with our 

policy as finalized in the CY 2008 

OPPS/ASC final rule with comment 

period (72 FR 66765), we would 

announce the actual figure for the 

percent change in the applicable CPI 

and the updated furnishing fee 

calculated based on that figure through 

applicable program instructions and 

posting on the CMS Web site at: 

http://www.cms.hhs.gov/ 

McrPartBDrugAvgSalesPrice/. 

5. Proposed Payment for NonpassThrough Drugs, Biologicals, and 

Radiopharmaceuticals With HCPCS 

Codes, But Without OPPS Hospital 

Claims Data 

The Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (Pub. L. 108–173) does not address 

the OPPS payment in CY 2005 and after 

for drugs, biologicals, and 

radiopharmaceuticals that have assigned 

HCPCS codes, but that do not have a 

reference AWP or approval for payment 

as pass-through drugs or biologicals. 

Because there is no statutory provision 

that dictated payment for such drugs, 

biologicals, and radiopharmaceuticals in 

CY 2005, and because we had no 

hospital claims data to use in 

establishing a payment rate for them, we 

investigated several payment options for 

CY 2005 and discussed them in detail 

in the CY 2005 OPPS final rule with 

comment period (69 FR 65797 through 

65799). 

For CYs 2005 to 2007, we 

implemented a policy to provide 

separate payment for new drugs, 

biologicals, and radiopharmaceuticals 

with HCPCS codes (specifically those 

new drug, biological, and 

radiopharmaceutical HCPCS codes in 

each of those calendar years that did not 

crosswalk to predecessor HCPCS codes) 

but which did not have pass-through 

status, at a rate that was equivalent to 

the payment they received in the 

physician’s office setting, established in 

accordance with the ASP methodology 

for drugs and biologicals, and based on 

charges adjusted to cost for 

radiopharmaceuticals. For CYs 2008 and 

2009, we finalized a policy to provide 

payment for new drugs (excluding 

contrast agents and diagnostic 

radiopharmaceuticals) and biologicals 

(excluding implantable biologicals for 

CY 2009) with HCPCS codes, but which 

did not have pass-through status and 

were without OPPS hospital claims 

data, at ASP+5 percent and ASP+4 

percent, respectively, consistent with 

the final OPPS payment methodology 

for other separately payable drugs and 

biologicals. New therapeutic 

radiopharmaceuticals were paid at 

charges adjusted to cost based on the 

statutory requirement for CY 2008 and 

CY 2009 and payment for new 

diagnostic radiopharmaceuticals was 

packaged in both years. For CY 2010, we 

continued to provide payment for new 

drugs (excluding contrast agents), and 

nonimplantable biologicals with HCPCS 

codes that do not have pass-through 

status and are without OPPS hospital 

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claims data, at ASP+4 percent, 

consistent with the CY 2010 payment 

methodology for other separately 

payable nonpass-through drugs, and 

nonimplantable biologicals. We also 

finalized a policy to extend the CY 2009 

payment methodology to new 

therapeutic radiopharmaceutical HCPCS 

codes, consistent with our final policy 

providing separate payment for 

therapeutic radiopharmaceuticals in the 

CY 2010 OPPS/ASC final rule with 

comment period (74 FR 60581 through 

60526), that do not crosswalk to CY 

2009 HCPCS codes, do not have passthrough status, and are without OPPS 

hospital claims data, at ASP+4 percent. 

For CY 2011, we are proposing to 

continue the CY 2010 payment 

methodology for new drugs (excluding 

contrast agents and diagnostic 

radiopharmaceuticals), nonimplantable 

biologicals, and therapeutic 

radiopharmaceuticals that meet the 

following conditions: those drugs, 

biologicals and therapeutic 

radiopharmaceuticals that have HCPCS 

codes that do not crosswalk to CY 2010 

HCPCS codes, those that do not have 

pass-through status, and those that are 

without OPPS hospital claims data. We 

are proposing to provide payment for 

new CY 2011 drugs (excluding contrast 

agents and diagnostic 

radiopharmaceuticals), nonimplantable 

biologicals, and therapeutic 

radiopharmaceuticals, at ASP+6 

percent, consistent with the proposed 

CY 2011 payment methodology for other 

separately payable nonpass-through 

drugs, nonimplantable biololgicals, and 

therapeutic radiopharmaceuticals. We 

believe this proposed policy would 

ensure that new nonpass-through drugs, 

nonimplantable biologicals, and 

therapeutic radiopharmaceuticals would 

be treated like other drugs, 

nonimplantable biologicals, and 

therapeutic radiopharmaceuticals under 

the OPPS, unless they are granted passthrough status. Only if they are passthrough drugs, nonimplantable 

biologicals, or therapeutic 

radiopharmaceuticals would they 

receive a different payment for CY 2011, 

generally equivalent to the payment 

these drug and biologicals would 

receive in the physician’s office setting, 

consistent with the requirements of the 

statute. 

We are proposing to continue our CY 

2010 policy of packaging payment for 

all new nonpass-through diagnostic 

radiopharmaceuticals, contrast agents, 

and implantable biologicals with 

HCPCS codes but without claims data 

(those new CY 2011 diagnostic 

radiopharmaceutical, contrast agent, 

and implantable biological HCPCS 

codes that do not crosswalk to 

predecessor HCPCS codes), consistent 

with the proposed packaging of all 

existing nonpass-through diagnostic 

radiopharmaceuticals, contrast agents 

and implantable biologicals, as 

discussed in more detail in section 

V.B.2.d and IV.A.2. of this proposed 

rule. 

In accordance with the OPPS ASP 

methodology, in the absence of ASP 

data, for CY 2011, we are proposing to 

continue the policy we implemented 

beginning in CY 2005 of using the WAC 

for the product to establish the initial 

payment rate for new nonpass-through 

drugs and biologicals with HCPCS 

codes, but which are without OPPS 

claims data. However, we note that if 

the WAC is also unavailable, we would 

make payment at 95 percent of the 

product’s most recent AWP. We also are 

proposing to assign status indicator ‘‘K’’ 

to HCPCS codes for new drugs and 

nonimplantable biologicals without 

OPPS claims data and for which we 

have not granted pass-through status. 

We further note that, with respect to 

new items for which we do not have 

ASP data, once their ASP data become 

available in later quarter submissions, 

their payment rates under the OPPS 

would be adjusted so that the rates 

would be based on the ASP 

methodology and set to the finalized 

ASP-based amount (proposed for CY 

2011 at ASP+6 percent) for items that 

have not been granted pass-through 

status. This proposed policy would 

ensure that new nonpass-through drugs, 

nonimplantable biologicals, and 

therapeutic radiopharmaceuticals would 

be treated like other drugs, 

nonimplantable biologicals, and 

therapeutic radiopharmaceuticals under 

the OPPS, unless they are granted passthrough status. Only if they are passthrough drugs, nonimplantable 

biologicals, or therapeutic 

radiopharmaceuticals would they 

receive a different payment for CY 2010, 

generally equivalent to the payment 

these drugs and biologicals would 

receive in the physician’s office setting, 

consistent with the requirements of the 

statute. 

We also are proposing to continue our 

CY 2010 policy to base payment for new 

therapeutic radiopharmaceuticals with 

HCPCS codes, but which do not have 

pass-through status and are without 

claims data, on the WACs for these 

products if ASP data for these 

therapeutic radiopharmaceuticals are 

not available. If the WACs are also 

unavailable, we are proposing to make 

payment for a new therapeutic 

radiopharmaceutical at 95 percent of the 

product’s most recent AWP because we 

would not have mean costs from 

hospital claims data upon which to base 

payment. Analogous to new drugs and 

biologicals, we are proposing to 

continue our policy of assigning status 

indicator ‘‘K’’ to HCPCS codes for new 

therapeutic radiopharmaceuticals 

without OPPS claims data for which we 

have not granted pass-through status. 

Consistent with other ASP-based 

payments, for CY 2011, we are 

proposing to announce any changes to 

the payment amounts for new drugs and 

biologicals in the CY 2011 OPPS/ASC 

final rule with comment period and also 

on a quarterly basis on the CMS Web 

site during CY 2011 if later quarter ASP 

submissions (or more recent WACs or 

AWPs) indicate that changes to the 

payment rates for these drugs and 

biologicals are necessary. The payment 

rates for new therapeutic 

radiopharmaceuticals would also be 

changed accordingly, based on later 

quarter ASP submissions. We note that 

the new CY 2011 HCPCS codes for 

drugs, biologicals, and therapeutic 

radiopharmaceuticals are not available 

at the time of development of this 

proposed rule. However, they will be 

included in Addendum B to the CY 

2011 OPPS/ASC final rule with 

comment period. They will be assigned 

comment indicator ‘‘NI’’ in Addendum B 

to reflect that their interim final OPPS 

treatment is open to public comment on 

the CY 2011 OPPS/ASC final rule with 

comment period. 

There are several nonpass-through 

drugs and biologicals that were payable 

in CY 2009 and/or CY 2010, for which 

we do not have CY 2009 hospital claims 

data available for this proposed rule and 

for which there are no other HCPCS 

codes that describe different doses of 

the same drug. These drugs and 

biologicals do have pricing information 

available for the ASP methodology. We 

note that there are currently no 

therapeutic radiopharmaceuticals in this 

category. In order to determine the 

packaging status of these products for 

CY 2011, we calculated an estimate of 

the per day cost of each of these items 

by multiplying the payment rate for 

each product based on ASP+6 percent, 

similar to other nonpass-through drugs 

and biologicals paid separately under 

the OPPS, by an estimated average 

number of units of each product that 

would typically be furnished to a 

patient during one administration in the 

hospital outpatient setting. We are 

proposing to package items for which 

we estimated the per administration 

cost to be less than or equal to $70, 

which is the general packaging 

threshold that we are proposing for 

drugs, nonimplantable biologicals, and 

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therapeutic radiopharmaceuticals in CY 

2011. We are proposing to pay 

separately for items with an estimated 

per day cost greater than $70 (with the 

exception of diagnostic 

radiopharmaceuticals, contrast agents 

and implantable biologicals, which we 

are proposing to continue to package 

regardless of cost (as discussed in more 

detail in section V.B.2.d of this 

proposed rule) in CY 2011. We are 

proposing that the CY 2011 payment for 

separately payable items without CY 

2009 claims data would be ASP+6 

percent, similar to payment for other 

separately payable nonpass-through 

drugs and biologicals under the OPPS. 

In accordance with the ASP 

methodology used in the physician’s 

office setting, in the absence of ASP 

data, we are proposing to use the WAC 

for the product to establish the initial 

payment rate. However, we note that if 

the WAC is also unavailable, we would 

make payment at 95 percent of the most 

recent AWP available. 

The proposed estimated units per day 

and status indicators for these items are 

displayed in Table 27 below. 

Finally, there were five drugs and 

biologicals, shown in Table 28 below, 

that were payable in CY 2009, but for 

which we lacked CY 2009 claims data 

and any other pricing information for 

the ASP methodology for this proposed 

rule. In CY 2009, for similar items 

without CY 2007 claims data and 

without pricing information for the ASP 

methodology, we previously stated that 

we were unable to determine their per 

day cost and we packaged these items 

for the year, assigning these items status 

indicator ‘‘N.’’ 

For CY 2010, we finalized a policy to 

change the status indicator for drugs 

and biologicals to status indicator ‘‘E’’ 

(Not paid by Medicare when submitted 

on outpatient claims (any outpatient bill 

type)) that we understood were not 

currently sold or had been identified as 

obsolete. In addition, we noted that we 

would provide separate payment for 

these drugs and biologicals if pricing 

information reflecting recent sales 

becomes available mid-year in CY 2010 

for the ASP methodology. If pricing 

information became available, we would 

assign the products status indicator ‘‘K’’ 

and pay for them separately for the 

remainder of CY 2010. 

For CY 2011, we are proposing to 

continue our CY 2010 policy to assign 

status indicator ‘‘E’’ to drugs and 

biologicals that lack CY 2009 claims 

data and pricing information for the 

ASP methodology. All drugs and 

biologicals without CY 2009 hospital 

claims data and data based on the ASP 

methodology that are assigned status 

indicator ‘‘E’’ on this basis at the time of 

this proposed rule for CY 2011 are 

displayed in Table 26 below. If pricing 

information becomes available, we are 

proposing to assign the products status 

indicator ‘‘K’’ and pay for them 

separately for the remainder of CY 2011. 


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VI. Proposed Estimate of OPPS 

Transitional Pass-Through Spending 

for Drugs, Biologicals, 

Radiopharmaceuticals, and Devices 

A. Background 

Section 1833(t)(6)(E) of the Act limits 

the total projected amount of 

transitional pass-through payments for 

drugs, biologicals, 

radiopharmaceuticals, and categories of 

devices for a given year to an 

‘‘applicable percentage’’ (defined below) 

of total program payments estimated to 

be made under section 1833(t) of the Act 

for all covered services furnished for 

that year under the hospital OPPS. For 

a year (or portion of a year) before CY 

2004, the applicable percentage means 

2.5 percent; for CY 2004 and subsequent 

years, the applicable percentage means 

a percentage specified by the Secretary 

up to (but not to exceed) 2.0 percent. 

If we estimate before the beginning of 

the calendar year that the total amount 

of pass-through payments in that year 

would exceed the applicable percentage, 

section 1833(t)(6)(E)(iii) of the Act 

requires a uniform reduction in the 

amount of each of the transitional passthrough payments made in that year to 

ensure that the limit is not exceeded. 

We make an estimate of pass-through 

spending to determine not only whether 

payments exceed the applicable 

percentage, but also to determine the 

appropriate reduction to the conversion 

factor for the projected level of passthrough spending in the following year 

in order to ensure that total estimated 

pass-through spending for the 

prospective payment year is budget 

neutral as required by section 

1883(t)(6)(E) of the Act. 

For devices, developing an estimate of 

pass-through spending in CY 2011 

entails estimating spending for two 

groups of items. The first group of items 

consists of device categories that were 

recently made eligible for pass-through 

payment and that would continue to be 

eligible for pass-through payment in CY 

2011. The CY 2008 OPPS/ASC final rule 

with comment period (72 FR 66778) 

describes the methodology we have 

used in previous years to develop the 

pass-through spending estimate for 

known device categories continuing into 

the applicable update year. The second 

group contains items that we know are 

newly eligible, or project would be 

newly eligible, for device pass-through 

payment in the remaining quarters of 

CY 2010 or beginning in CY 2011. As 

discussed in section V.A.4. of the CY 

2010 final rule with comment period (74 

FR 60529), beginning in CY 2010, the 

pass-through evaluation process and 

pass-through payment for implantable 

biologicals newly approved for passthrough payment beginning on or after 

January 1, 2010, that are always 

surgically inserted or implanted 

(through a surgical incision or a natural 

orifice) is the device pass-through 

process and payment methodology only. 

Therefore, we are proposing that the 

estimate of pass-through spending for 

implantable biologicals newly eligible 

for pass-through payment beginning in 

CY 2011 be included in the passthrough spending estimate for this 

second group of device categories. The 

sum of the proposed CY 2011 passthrough estimates for these two groups 

of device categories equals the total 

proposed CY 2011 pass-through 

spending estimate for device categories 

with pass-through status. 

For devices eligible for pass-through 

payment, section 1833(t)(6)(D)(ii) of the 

Act establishes the pass-through 

payment amount as the amount by 

which the hospital’s charges for the 

device, adjusted to cost, exceeds the 

portion of the otherwise applicable 

Medicare OPD fee schedule that the 

Secretary determines is associated with 

the device. As discussed in section 

IV.A.2. of this proposed rule, we deduct 

from the pass-through payment for an 

identified device category eligible for 

pass-through payment an amount that 

reflects the portion of the APC payment 

amount that we determine is associated 

with the cost of the device, defined as 

the device APC offset amount, when we 

believe that predecessor device costs for 

the device category newly approved for 

pass-through payment are already 

packaged into the existing APC 

structure. For each device category that 

becomes newly eligible for device passthrough payment, including implantable 

biologicals from CY 2010 forward, we 

estimate pass-through spending to be 

the difference between payment for the 

device category and the device APC 

offset amount, if applicable, for the 

procedures that would use the device. If 

we determine that predecessor device 

costs for the new device category are not 

already included in the existing APC 

structure, the pass-through spending 

estimate for the device category would 

be the full payment at charges adjusted 

to cost. 

For drugs and biologicals eligible for 

pass-through payment, section 

1833(t)(6)(D)(i) of the Act establishes the 

pass-through payment amount as the 

amount by which the amount 

authorized under section 1842(o) of the 

Act (or, if the drug or biological is 

covered under a competitive acquisition 

contract under section 1847B of the Act, 

an amount determined by the Secretary 

equal to the average price for the drug 

or biological for all competitive 

acquisition areas and year established 

under such section as calculated and 

adjusted by the Secretary) exceeds the 

portion of the otherwise applicable fee 

schedule amount that the Secretary 

determines is associated with the drug 

or biological. Because we are proposing 

to pay for most nonpass-through 

separately payable drugs and 

nonimplantable biologicals under the 

CY 2011 OPPS at ASP+6 percent, which 

represents the otherwise applicable fee 

schedule amount associated with most 

pass-through drugs and biologicals, and 


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because we are proposing to pay for CY 

2011 pass-through drugs and 

nonimplantable biologicals at ASP+6 

percent or the Part B drug CAP rate, if 

applicable, our proposed estimate of 

drug and nonimplantable biological 

pass-through payment for CY 2011 

would be zero. Furthermore, payment 

for certain drugs, specifically diagnostic 

radiopharmaceuticals, contrast agents, 

and implantable biologicals without 

pass-through status, would always be 

packaged into payment for the 

associated procedures because these 

products would never be separately 

paid. However, all pass-through 

diagnostic radiopharmaceuticals, 

contrast agents, and those implantable 

biologicals with pass-through status 

approved prior to CY 2010 would be 

paid at ASP+6 percent or the Part B drug 

CAP rate, if applicable, like other passthrough drugs and biologicals. 

Therefore, our proposed estimate of 

pass-through payment for all diagnostic 

radiopharmaceuticals and contrast 

agents and those implantable biologicals 

with pass-through status approved prior 

to CY 2011 is not zero. 

In section V.A.4. of this proposed 

rule, we discuss our policy to determine 

if the cost of certain ‘‘policy-packaged’’ 

drugs, including diagnostic 

radiopharmaceuticals and contrast 

agents, are already packaged into the 

existing APC structure. If we determine 

that a ‘‘policy-packaged’’ drug approved 

for pass-through payment resembles 

predecessor diagnostic 

radiopharmaceuticals or contrast agents 

already included in the costs of the 

APCs that would be associated with the 

drug receiving pass-through payment, 

we are proposing to offset the amount of 

pass-through payment for diagnostic 

radiopharmaceuticals and contrast 

agents. For these drugs, the APC offset 

amount would be the portion of the APC 

payment for the specific procedure 

performed with the pass-through 

diagnostic radiopharmaceutical or 

contrast agent that is attributable to 

diagnostic radiopharmaceuticals or 

contrast agents, which we refer to as the 

‘‘policy-packaged’’ drug APC offset 

amount. If we determine that an offset 

is appropriate for a specific diagnostic 

radiopharmaceutical or contrast agent 

receiving pass-through payment, we 

would reduce our estimate of passthrough payment for these drugs by this 

amount. We have not established a 

policy to offset pass-through payment 

for implantable biologicals when 

approved for pass-through payment as a 

drug or biological, that is, for CY 2009 

and earlier, so we would consider full 

payment at ASP+6 percent for these 

implantable biologicals receiving 

biological pass-through payment as of 

CY 2011 in our proposed estimate of CY 

2011 pass-through spending for drugs 

and biologicals. 

We note that the Part B drug CAP 

program has been suspended beginning 

January 1, 2009. We refer readers to the 

Medicare Learning Network (MLN) 

Matters Special Edition article SE0833 

for more information on this 

suspension. As of the publication of this 

proposed rule, the Part B drug CAP 

program has not been reinstituted. 

Therefore, for this proposed rule, we are 

proposing to continue to not have an 

effective Part B drug CAP rate for passthrough drugs and biologicals. Similar 

to pass-through estimates for devices, 

the first group of drugs and biologicals 

requiring a pass-through payment 

estimate consists of those products that 

were recently made eligible for passthrough payment and that would 

continue to be eligible for pass-through 

payment in CY 2011. The second group 

contains drugs and nonimplantable 

biologicals that we know are newly 

eligible, or project would be newly 

eligible, in the remaining quarters of CY 

2010 or beginning in CY 2011. The sum 

of the CY 2011 pass-through estimates 

for these two groups of drugs and 

biologicals would equal the total CY 

2010 pass-through spending estimate for 

drugs and biologicals with pass-through 

status. 

B. Proposed Estimate of Pass-Through 

Spending 

We are proposing to set the applicable 

pass-through payment percentage limit 

at 2.0 percent of the total projected 

OPPS payments for CY 2011, consistent 

with our OPPS policy from CY 2004 

through CY 2010 (74 FR 60530). 

For the first group of devices for passthrough payment estimate purposes, 

there currently are no device categories 

receiving pass-through payment in CY 

2010 that would continue for payment 

during CY 2011. Therefore, we are 

proposing a device pass-through 

payment estimate for the first group of 

pass-through device categories of $0. 

We also are proposing for CY 2011 to 

continue to employ the device passthrough process and payment 

methodology for implantable biologicals 

that are always surgically inserted or 

implanted (through a surgical incision 

or a natural orifice) that we used for CY 

2010. We are proposing to consider 

existing implantable biologicals 

approved for pass-through payment 

under the drugs and biologicals passthrough provision prior to CY 2010 as 

drugs and biologicals for pass-through 

payment estimate purposes until they 

expire from pass-through status. 

Therefore, the proposed pass-through 

spending estimate for the first group of 

pass-through devices does not include 

implantable biologicals that were 

granted pass-through status prior to CY 

2010. Finally, we are proposing to 

continue to provide payment for 

implantable biologicals newly eligible 

for pass-through payment beginning in 

CY 2010 or CY 2011 based on hospital 

charges adjusted to cost that is 

applicable for pass-through device 

categories, rather than the ASP 

methodology that is applicable to passthrough drugs and biologicals. 

Therefore, we are proposing that the 

estimate of pass-through spending for 

implantable biologicals first paid as 

pass-through devices in CY 2011 would 

be based on the payment methodology 

for pass-through devices and would be 

included in the device pass-through 

spending estimate. 

In estimating our proposed CY 2011 

pass-through spending for device 

categories in the second group, that is, 

device categories that we knew at the 

time of the development of the proposed 

rule would be newly eligible for passthrough payment in CY 2011 (of which 

there are none), additional device 

categories (including categories that 

describe implantable biologicals) that 

we estimated could be approved for 

pass-through status subsequent to the 

development of the proposed rule and 

before January 1, 2011, and contingent 

projections for new categories 

(including categories that describe 

implantable biologicals in the second 

through fourth quarters of CY 2011), we 

are proposing to use the general 

methodology described in the CY 2008 

OPPS/ASC final rule with comment 

period (72 FR 66778), while also taking 

into account recent OPPS experience in 

approving new pass-through device 

categories. While there are no new 

device categories (including categories 

that describe implantable biologicals) 

for CY 2011 of which we are aware at 

the time of development of this 

proposed rule, there are possible new 

device categories for pass-through 

payment based on current applications. 

Therefore, the estimate of CY 2011 passthrough spending for this second group 

of device categories is $72.1 million. 

Employing our established 

methodology that the estimate of passthrough device spending in CY 2011 

incorporates CY 2011 estimates of passthrough spending for known device 

categories continuing in CY 2011, those 

known or projected to be first effective 

January 1, 2011, and those device 

categories projected to be approved 

during subsequent quarters of CY 2010 

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or CY 2011, our proposed CY 2011 

estimate of total pass-through spending 

for device categories is $72.1 million. 

To estimate CY 2011 proposed passthrough spending for drugs and 

biologicals in the first group, 

specifically those drugs (including 

radiopharmaceuticals and contrast 

agents) and biologicals (including 

implantable biologicals) recently made 

eligible for pass-through payment and 

continuing on pass-through status for 

CY 2011, we are proposing to utilize the 

most recent Medicare physician’s office 

data regarding their utilization, 

information provided in the respective 

pass-through applications, historical 

hospital claims data, pharmaceutical 

industry information, and clinical 

information regarding those drugs or 

biologicals, in order to project the CY 

2011 OPPS utilization of the products. 

For the known drugs and biologicals 

(excluding diagnostic 

radiopharmaceuticals, contrast agents, 

and implantable biologicals) that would 

be continuing on pass-through status in 

CY 2011, we then estimate the proposed 

pass-through payment amount as the 

difference between ASP+6 percent or 

the Part B drug CAP rate, as applicable, 

and ASP+6 percent, aggregated across 

the projected CY 2011 OPPS utilization 

of these products, which is zero for this 

group of drugs and biologicals. Because 

payment for a diagnostic 

radiopharmaceutical or contrast agent 

would be packaged if the product were 

not paid separately due to its passthrough status, we include in the passthrough estimate the difference between 

payment for the drug or biological at 

ASP+6 percent (or WAC+6 percent, or 

95 percent of AWP, if ASP information 

is not available) and the ‘‘policypackaged’’ drug APC offset amount, if 

we determined that the diagnostic 

radiopharmaceutical or contrast agent 

approved for pass-through payment 

resembles predecessor diagnostic 

radiopharmaceuticals or contrast agents 

already included in the costs of the 

APCs that would be associated with the 

drug receiving pass-through payment. 

Because payment for an implantable 

biological eligible for pass-through 

payment in CY 2009 and continuing on 

pass-through status in CY 2011 would 

be packaged if the product were not 

paid separately due to its pass-through 

status and because we had not 

established a pass-through payment 

offset policy for implantable biologicals 

when approved for pass-through 

payment as biologicals, that is, for CY 

2009 and earlier, we are including in the 

proposed pass-through spending 

estimate the full payment for these 

implantable biologicals at ASP+6 

percent (or WAC+6 percent or 95 

percent of AWP, if ASP information is 

not available). Based on these results, 

we are proposing the spending estimate 

for this first group of drugs and 

biologicals to be $9 million, while we 

are proposing our spending estimate for 

the second group of drugs and 

biologicals to be $5.8 million. 

To estimate CY 2011 pass-through 

spending for drugs and nonimplantable 

biologicals in the second group (that is, 

drugs and nonimplantable biologicals 

that we knew at the time of 

development of this proposed rule 

would be newly eligible for passthrough payment in CY 2011, additional 

drugs and nonimplantable biologicals 

that we estimated could be approved for 

pass-through status subsequent to the 

development of this proposed rule and 

before January 1, 2011, and projections 

for new drugs and nonimplantable 

biologicals that could be initially 

eligible for pass-through payment in the 

second through fourth quarters of CY 

2011), we are proposing to use 

utilization estimates from pass-through 

applicants, pharmaceutical industry 

data, clinical information, recent trends 

in the per unit ASPs of hospital 

outpatient drugs, and projected annual 

changes in service volume and intensity 

as our basis for making the CY 2011 

proposed pass-through payment 

estimate. We also are considering the 

most recent OPPS experience in 

approving new pass-through drugs and 

nonimplantable biologicals. Consistent 

with our policy established in CY 2010 

(74 FR 60531 through 60532), we also 

are proposing to include new 

implantable biologicals that we expect 

to be approved for pass-through status 

as devices beginning in CY 2011 in the 

second group of items considered for 

device pass-through estimate purposes. 

Therefore, we are not proposing to 

include implantable biologicals in the 

second group of items in the proposed 

drug and biological pass-through 

spending estimate. 

Based on the results of these analyses, 

we are proposing that the spending 

estimate for this second group of drugs 

and biologicals to be $5.8 million. 

As described in the CY 2010 OPPS/ 

ASC final rule with comment period (74 

FR 60476), under our current policy, 

beginning in CY 2010, implantable 

biologicals that are surgically inserted or 

implanted (through a surgical incision 

or a natural orifice) and that were not 

receiving pass-through payment as 

biologicals prior to January 1, 2010, will 

be evaluated under the device passthrough process and paid according to 

the device payment methodology. We 

are proposing to continue to consider 

implantable biologicals approved for 

pass-through payment under the drug 

and biological pass-through provision 

prior to CY 2010 as drugs and 

biologicals for pass-through payment 

estimate purposes. These implantable 

biologicals that have been approved for 

pass-through status prior to CY 2010 

continue to be considered drugs and 

biologicals until they expire from passthrough status. Therefore, the passthrough spending estimate for the first 

group of pass-through device categories 

does not include implantable biologicals 

that have been granted pass-through 

status prior to CY 2010. 

Consistent with the current policy 

established in the CY 2010 OPPS/ASC 

final rule with comment period (74 FR 

60476), we are proposing to continue to 

provide that payment for implantable 

biologicals newly eligible for passthrough payment beginning in CY 2011 

is based on hospital charges adjusted to 

cost, rather than the ASP methodology 

that is applicable to pass-through drugs 

and biologicals. Therefore, we are 

proposing that the estimate of passthrough spending for implantable 

biologicals first paid as pass-through 

devices in CY 2011 would be based on 

the payment methodology for passthrough devices, and would be included 

in the proposed CY 2011 device passthrough spending estimate for the 

second group of pass-through device 

categories. 

The proposed CY 2011 pass-through 

spending estimate for the first group of 

pass-through device categories is $0. 

The proposed estimate of CY 2010 passthrough spending for the second group 

of pass-through device categories is 

$72.1 million. Our proposed CY 2011 

estimate of total pass-through spending 

for device categories is $72.1 million. 

The estimate for pass-through 

spending for the first group of drugs and 

biologicals is $9.0 million for CY 2011. 

The estimate for pass-through spending 

for the second group of drugs and 

biologicals is $5.8 million for CY 2011. 

As discussed in section V.A. of this 

proposed rule, radiopharmaceuticals are 

considered drugs for pass-through 

purposes. Therefore, we have included 

radiopharmaceuticals in our proposed 

CY 2011 pass-through spending 

estimate for drugs and biologicals. Our 

proposed CY 2011 estimate of total passthrough spending for drugs and 

biologicals is $14.8 million. 

In summary, in accordance with the 

methodology described above in this 

section, we estimate that total passthrough spending for the device 

categories and the drugs and biologicals 

that are continuing to receive passthrough payment in CY 2011 and those 

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device categories, drugs, and 

nonimplantable biologicals that first 

become eligible for pass-through 

payment during CY 2011 would be 

approximately $86.9 million, which 

represents 0.20 percent of total OPPS 

projected total payments for CY 2011. 

We estimate that pass-through spending 

in CY 2011 would not amount to 2.0 

percent of total projected OPPS CY 2011 

program spending. 

VII. Proposed OPPS Payment for 

Brachytherapy Sources 

A. Background 

Section 1833(t)(2)(H) of the Act, as 

added by section 621(b)(2)(C) of Public 

Law 108–173 (MMA), mandated the 

creation of additional groups of covered 

OPD services that classify devices of 

brachytherapy consisting of a seed or 

seeds (or radioactive source) 

(‘‘brachytherapy sources’’) separately 

from other services or groups of 

services. The additional groups must 

reflect the number, isotope, and 

radioactive intensity of the 

brachytherapy sources furnished and 

include separate groups for palladium103 and iodine-125 sources. 

Section 1833(t)(16)(C) of the Act, as 

added by section 621(b)(1) of Public 

Law 108–173, established payment for 

brachytherapy sources furnished from 

January 1, 2004 through December 31, 

2006, based on a hospital’s charges for 

each brachytherapy source furnished 

adjusted to cost. Under section 

1833(t)(16)(C) of the Act, charges for the 

brachytherapy sources may not be used 

in determining any outlier payments 

under the OPPS for that period in which 

payment is based on charges adjusted to 

cost. Consistent with our practice under 

the OPPS to exclude items paid at cost 

from budget neutrality consideration, 

these items were excluded from budget 

neutrality for that time period as well. 

In our CY 2007 annual OPPS 

rulemaking, we proposed and finalized 

a policy of prospective payment based 

on median costs for the 11 

brachytherapy sources for which we had 

claims data. We based the prospective 

payment rates on median costs for each 

source from our CY 2005 claims data (71 

FR 68102 through 71 FR 68115). 

Subsequent to publication of the CY 

2007 OPPS/ASC final rule with 

comment period, section 107 of Public 

Law 109–432 (MIEA–TRHCA) amended 

section 1833 of the Act. Specifically, 

section 107(a) of Public Law 109–432 

amended section 1833(t)(16)(C) of the 

Act by extending the payment period for 

brachytherapy sources based on a 

hospital’s charges adjusted to cost for 

one additional year, through December 

31, 2007. Therefore, we continued to 

pay for brachytherapy sources based on 

charges adjusted to cost for CY 2007. 

Section 107(b)(1) of Public Law 109– 

432 amended section 1833(t)(2)(H) of 

the Act by adding a requirement for the 

establishment of separate payment 

groups for ‘‘stranded and non-stranded’’ 

brachytherapy sources furnished on or 

after July 1, 2007, in addition to the 

existing requirements for separate 

payment groups based on the number, 

isotope, and radioactive intensity of 

brachytherapy sources under section 

1833(t)(2)(H) of the Act. Section 

107(b)(2) of Public Law 109–432 

authorized the Secretary to implement 

this requirement by ‘‘program 

instruction or otherwise.’’ We note that 

public commenters who responded to 

the CY 2007 OPPS/ASC proposed rule 

asserted that stranded sources, which 

they described as embedded into the 

stranded suture material and separated 

within the strand by material of an 

absorbable nature at specified intervals, 

had greater production costs than nonstranded sources (71 FR 68113 through 

68114). 

As a result of the statutory 

requirement to create separate groups 

for stranded and non-stranded sources 

as of July 1, 2007, we established several 

coding changes through a transmittal, 

effective July 1, 2007 (Transmittal 1259, 

dated June 1, 2007). Based on public 

comments received on the CY 2007 

OPPS/ASC proposed rule and industry 

input, we were aware of three sources 

available in stranded and non-stranded 

forms at that time: iodine-125; 

palladium-103; and cesium-131 (72 FR 

42746). We created six new HCPCS 

codes to differentiate the stranded and 

non-stranded versions of iodine, 

palladium, and cesium sources. 

In Transmittal 1259, we indicated that 

if we receive information that any of the 

other sources now designated as nonstranded are also FDA-approved and 

marketed as a stranded source, we 

would create a code for the stranded 

source. We also established two ‘‘Not 

Otherwise Specified’’ (NOS) codes for 

billing stranded and non-stranded 

sources that are not yet known to us and 

for which we do not have sourcespecific codes. We established HCPCS 

code C2698 (Brachytherapy source, 

stranded, not otherwise specified, per 

source) for stranded NOS sources and 

HCPCS code C2699 (Brachytherapy 

source, non-stranded, not otherwise 

specified, per source) for non-stranded 

NOS sources. 

In the CY 2008 OPPS/ASC final rule 

with comment period (72 FR 66784), we 

again finalized prospective payment for 

brachytherapy sources, beginning in CY 

2008, with payment rates determined 

using the CY 2006 claims-based costs 

per source for each brachytherapy 

source. Consistent with our policy 

regarding APC payments made on a 

prospective basis, we finalized the 

policy in the CY 2008 OPPS/ASC final 

rule with comment period (72 FR 

66686) to subject the cost of 

brachytherapy sources to the outlier 

provision of section 1833(t)(5) of the 

Act, and also to subject brachytherapy 

source payment weights to scaling for 

purposes of budget neutrality. 

Therefore, brachytherapy sources could 

receive outlier payments if the costs of 

furnishing brachytherapy sources met 

the criteria for outlier payment, that is, 

if brachytherapy sources are paid 

prospectively. In addition, as noted in 

the CY 2008 OPPS/ASC final rule with 

comment period (72 FR 66683), 

implementation of prospective payment 

for brachytherapy sources would 

provide opportunities for hospitals to 

receive additional payments under 

certain circumstances through the 7.1 

percent rural SCH adjustment 

(discussed in section II.E. of this 

proposed rule). 

For CY 2008, we also proposed and 

finalized a policy regarding payment for 

new brachytherapy sources for which 

we have no claims data (72 FR 42749 

and 72 FR 66786, respectively). We 

indicated we would assign future new 

HCPCS codes for new brachytherapy 

sources to their own APCs, with 

prospective payment rates set based on 

our consideration of external data and 

other relevant information regarding the 

expected costs of the sources to 

hospitals. Finally, we proposed and 

finalized our policy to discontinue 

using status indicator ‘‘H’’ (Pass-Through 

Device Categories. Separate cost based 

pass-through payment; not subject to 

copayment) because we would not be 

paying charges adjusted to costs after 

December 31, 2007, and instead adopted 

a policy of using status indicator ‘‘K’’ 

(which includes, among others, 

‘‘Brachytherapy Sources. Paid under 

OPPS; separate APC payment’’) for CY 

2008 (72 FR 42749 and 72 FR 66785, 

respectively). 

After we finalized these policies for 

CY 2008, section 106(a) of Public Law 

110–173 (MMSEA) extended the 

charges-adjusted-to-cost payment 

methodology for brachytherapy sources 

for an additional 6 months, through 

June 30, 2008. Because our final CY 

2008 policies paid for brachytherapy 

sources at prospective rates based on 

median costs, we were unable to 

implement these policies during this 

extension. 

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In the CY 2009 OPPS/ASC proposed 

rule (73 FR 41502), we again proposed 

prospective payment rates for 

brachytherapy sources for CY 2009. We 

proposed to pay for brachytherapy 

sources at prospective rates based on 

their source-specific median costs as 

calculated from CY 2007 claims data 

available for CY 2009 ratesetting. 

Subsequent to issuance of the CY 2009 

OPPS/ASC proposed rule, Public Law 

110–275 (MIPPA) was enacted on July 

15, 2008. Section 142 of Public Law 

110–275 amended section 1833(t)(16)(C) 

of the Act, as amended by section 106(a) 

of Public Law 110–173 (MMSEA), to 

further extend the payment period for 

brachytherapy sources based on a 

hospital’s charges adjusted to cost from 

July 1, 2008 through December 31, 2009. 

Therefore, we continued to pay for 

brachytherapy sources at charges 

adjusted to cost in CY 2008 from July 1 

through December 31, and we 

maintained the assignment of status 

indicator ‘‘H’’ to brachytherapy sources 

for claims processing purposes in CY 

2008. For CY 2009, we continued to pay 

for all separately payable brachytherapy 

sources based on a hospital’s charges 

adjusted to cost. Because brachytherapy 

sources are paid at charges adjusted to 

cost, we did not subject them to outlier 

payments under section 1833(t)(5) of the 

Act, or subject brachytherapy source 

payment weights to scaling for purposes 

of budget neutrality. Moreover, during 

the CY 2009 period of payment at 

charges adjusted to cost, brachytherapy 

sources were not eligible for the 7.1 

percent rural SCH adjustment (as 

discussed in detail in section II.E. of this 

proposed rule). 

Furthermore, for CY 2009, we did not 

adopt the policy we established in the 

CY 2008 OPPS/ASC final rule with 

comment period of paying stranded and 

non-stranded NOS codes for 

brachytherapy sources, HCPCS codes 

C2698 and C2699, based on a rate equal 

to the lowest stranded or non-stranded 

prospective payment for such sources. 

Also, for CY 2009, we did not adopt the 

policy we established in the CY 2008 

OPPS/ASC final rule with comment 

period regarding payment for new 

brachytherapy sources for which we 

have no claims data. NOS HCPCS codes 

C2698 and C2699 and newly established 

specific source codes were paid at 

charges adjusted to cost through 

December 31, 2009, consistent with the 

provisions of section 142 of Public Law 

110–275. 

For CY 2009, we finalized our 

proposal to create new status indicator 

‘‘U’’ (Brachytherapy Sources. Paid under 

OPPS; separate APC payment) for 

brachytherapy source payment, instead 

of using status indicator ‘‘K’’ as proposed 

and finalized for CY 2008 for 

prospective payment, or status indicator 

‘‘H,’’ used during the period of charges 

adjusted to cost payment. As noted in 

the CY 2009 OPPS/ASC final rule with 

comment period (73 FR 68670), 

assigning a status indicator, such as 

status indicator ‘‘K,’’ to several types of 

items and services with potentially 

differing payment policies added 

unnecessary complexity to our 

operations. Status indicator ‘‘U’’ is used 

only for brachytherapy sources, 

regardless of their specific payment 

methodology for any period of time. 

Under section 142 of Public Law 110– 

275, payment for brachytherapy sources 

was mandated at charges adjusted to 

cost only through CY 2009. In the CY 

2010 OPPS/ASC final rule with 

comment period (74 FR 60533 through 

60537), we adopted for CY 2010 the 

general OPPS prospective payment 

methodology for brachytherapy sources, 

consistent with section 1833(t)(2)(C) of 

the Act. 

B. Proposed OPPS Payment Policy 

As we have previously stated (72 FR 

66780, 73 FR 41502, and 74 FR 60533 

and 60534), we believe that adopting the 

general OPPS prospective payment 

methodology for brachytherapy sources 

is appropriate for a number of reasons. 

The general OPPS payment 

methodology uses median costs based 

on claims data to set the relative 

payment weights for hospital outpatient 

services. This payment methodology 

results in more consistent, predictable, 

and equitable payment amounts per 

source across hospitals by eliminating 

some of the extremely high and low 

payment amounts resulting from 

payment based on hospitals’ charges 

adjusted to cost. We believe the OPPS 

prospective payment methodology 

would also provide hospitals with 

incentives for efficiency in the provision 

of brachytherapy services to Medicare 

beneficiaries. Moreover, this approach is 

consistent with our payment 

methodology for the vast majority of 

items and services paid under the OPPS. 

We are proposing to use the median 

costs from CY 2009 claims data for 

setting the proposed CY 2011 payment 

rates for brachytherapy sources, as we 

are proposing for most other items and 

services that will be paid under the CY 

2011 OPPS. We are proposing to 

continue the other payment policies for 

brachytherapy sources we finalized in 

the CY 2010 OPPS/ASC final rule with 

comment period (74 FR 60537). We are 

proposing to pay for the stranded and 

non-stranded NOS codes, HCPCS codes 

C2698 and C2699, at a rate equal to the 

lowest stranded or non-stranded 

prospective payment rate for such 

sources, respectively, on a per source 

basis (as opposed, for example, to a per 

mCi), which is based on the policy we 

established in the CY 2008 OPPS/ASC 

final rule with comment period (72 FR 

66785). The proposed payment 

methodology for NOS sources would 

provide payment to a hospital for new 

sources, and at the same time encourage 

interested parties to quickly bring new 

sources to our attention so that specific 

coding and payment could be 

established. 

We also are proposing to continue the 

policy we implemented in the CY 2010 

OPPS/ASC final rule with comment 

period (74 FR 60537) regarding payment 

for new brachytherapy sources for 

which we have no claims data, based on 

the same reasons we discussed in the 

CY 2008 OPPS/ASC final rule with 

comment period (72 FR 66786; which 

was superseded by section 142 of Pub. 

L. 110–275). That policy is intended to 

enable us to assign future new HCPCS 

codes for new brachytherapy sources to 

their own APCs, with prospective 

payment rates set based on our 

consideration of external data and other 

relevant information regarding the 

expected costs of the sources to 

hospitals. 

Consistent with our policy regarding 

APC payments made on a prospective 

basis, as we did for CY 2010, we are 

proposing to subject brachytherapy 

sources to outlier payments under 

section 1833(t)(5) of the Act, and also to 

subject brachytherapy source payment 

weights to scaling for purposes of 

budget neutrality. Therefore, 

brachytherapy sources could receive 

outlier payments if the costs of 

furnishing brachytherapy sources meet 

the criteria for outlier payment, that is, 

if they are prospectively paid. In 

addition, as noted in the CY 2010 OPPS/ 

ASC final rule with comment period (74 

FR 60534), implementation of 

prospective payments for brachytherapy 

sources would provide opportunities for 

hospitals to receive additional payments 

in CY 2010 under certain circumstances 

through the 7.1 percent rural 

adjustment, as described in section II.E. 

of this proposed rule. 

Therefore, we are proposing to pay for 

brachytherapy sources at prospective 

payment rates based on their sourcespecific median costs for CY 2011. The 

separately payable brachytherapy source 

HCPCS codes, long descriptors, APCs, 

status indicators, and approximate APC 

median costs that we are proposing for 

CY 2011 are presented in Table 29 

below. 

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We continue to invite hospitals and 

other parties to submit 

recommendations to us for new HCPCS 

codes to describe new brachytherapy 

sources consisting of a radioactive 

isotope, including a detailed rationale to 

support recommended new sources. 

Such recommendations should be 

directed to the Division of Outpatient 

Care, Mail Stop C4–05–17, Centers for 

Medicare and Medicaid Services, 7500 

Security Boulevard, Baltimore, MD 

21244. We will continue to add new 

brachytherapy source codes and 

descriptors to our systems for payment 

on a quarterly basis. 

VIII. Proposed OPPS Payment for Drug 

Administration Services 

A. Background 

In CY 2005, in response to the 

recommendations made by public 

commenters and the hospital industry, 

OPPS transitioned from Level II HCPCS 

Q-codes to the use of CPT codes for drug 

administration services. These CPT 

codes allowed specific reporting of 

services regarding the number of hours 

for an infusion and provided 

consistency in coding between Medicare 

and other payers. (For a discussion 

regarding coding and payment for drug 

administration services prior to CY 

2005, we refer readers to the CY 2008 

OPPS/ASC final rule with comment 

period (72 FR 66787).) 

While hospitals began adopting CPT 

codes for outpatient drug administration 

services in CY 2005, physicians paid 

under the MPFS were using HCPCS Gcodes in CY 2005 to report office-based 

drug administration services. These 

HCPCS G-codes were developed in 

anticipation of substantial revisions to 

the drug administration CPT codes by 

the CPT Editorial Panel that were 

expected for CY 2006. 

In CY 2006, as anticipated, the CPT 

Editorial Panel revised its coding 

structure for drug administration 

services and incorporated new concepts, 

such as initial, sequential, and 

concurrent services, into a structure that 

previously distinguished services based 

on type of administration 

(chemotherapy/nonchemotherapy), 

method of administration (injection/ 

infusion/push), and for infusion 

services, first hour and additional hours. 

For CY 2006, we implemented the CY 

2006 drug administration CPT codes 

that did not reflect the concepts of 

initial, sequential, and concurrent 

services under the OPPS, and we 

created HCPCS C-codes that generally 

paralleled the CY 2005 CPT codes for 

reporting these other services. 

For CY 2007, as a result of public 

comments on the proposed rule and 

feedback from the hospital community 

and the APC Panel, we implemented the 

full set of CPT codes for drug 

administration services, including codes 

incorporating the concepts of initial, 

sequential, and concurrent services. In 

addition, the CY 2007 update process 

offered us the first opportunity to 

consider data gathered from the use of 

CY 2005 CPT codes for purposes of 

ratesetting. For CY 2007, we used CY 

2005 claims data to implement a sixlevel APC structure for drug 

administration services. In CY 2008, we 

continued to use the full set of CPT 

codes for drug administration services 

and continued our assignment of drug 

administration services to this six-level 

APC structure. 

For CY 2009, we continued to allow 

hospitals to use the full set of CPT codes 

for drug administration services but 

moved from a six-level APC structure to 

a five-level APC structure. We note that, 

while there were changes in the CPT 

numerical coding for nonchemotherapy 

drug administration services in CY 

2009, the existing CPT codes were only 

renumbered, and there were no 

significant changes to the code 

descriptors themselves. As we discussed 

in the CY 2009 OPPS/ASC final rule 

with comment period (73 FR 68672), the 

CY 2009 ratesetting process afforded us 

the first opportunity to examine hospital 

claims data for the full set of CPT codes 

that reflected the concepts of initial, 

sequential, and concurrent services. For 

CY 2009, we performed our standard 

annual OPPS review of the clinical and 

resource characteristics of the drug 

administration CPT codes assigned to 

the six-level CY 2008 APC structure 

based on the CY 2007 claims data 

available for the CY 2009 OPPS/ASC 

proposed rule. As a result of our 

hospital cost analysis and detailed 

clinical review, we adopted a five-level 

APC structure for CY 2009 drug 

administration services to more 

appropriately reflect their resource 

utilization in APCs that also group 

clinically similar services. As we noted 

in the CY 2009 OPPS/ASC final rule 

with comment period (73 FR 68671), 

these APCs generally demonstrated the 

clinically expected and actually 

observed comparative relationships 

between the median costs of different 

types of drug administration services, 

including initial and additional 

services; chemotherapy and other 

diagnostic, prophylactic, or therapeutic 

services; injections and infusions; and 

simple and complex methods of drug 

administration. 

After analyzing the assignment of CPT 

codes for drug administration into the 

five-level APC structure by utilizing our 

standard annual OPPS review for 

clinical cohesiveness and resource 

homogeneity, we continued our fivelevel APC structure for payment for 

drug administration services in the 

HOPD for CY 2010. In addition, we used 

the full set of CPT codes for drug 

administration and included all 

separately payable drug administration 

add-on codes on the CY 2010 bypass list 

in order to create pseudo single claims 

for these codes that would enable us to 

use the claims data to set payment rates 

for them. As we stated in the CY 2010 

OPPS/ASC final rule with comment 

period (74 FR 60538) since CY 2007, we 

continue to update the bypass 

methodology to reflect changing drug 

administration HCPCS codes that are 

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B. Proposed Coding and Payment for 

Drug Administration Services 

For CY 2011, we are proposing to 

continue to use the full set of CPT codes 

for reporting drug administration 

services and to continue to pay 

separately for the same set of drug 

administration codes under the CY 2011 

OPPS as were paid separate in the CY 

2010 OPPS. As a part of our standard 

annual review, we analyzed the CY 

2009 claims data that reflect 

assignments of CPT codes for drug 

administration into the five-level APC 

structure and have found that the 

assignment of separately paid drug 

administration codes to five APCs 

continues to appropriately reflect the 

relative resources required to furnish 

these services. In addition, as has been 

our standard policy since the CY 2007 

OPPS (71 FR 68117), we are proposing 

to continue to include all separately 

payable drug administration add-on 

codes on the bypass list so that we can 

use the cost data we derive from claims 

for these codes to establish payment 

rates for them. 

Since this approach was first adopted 

for CY 2007, we have updated and 

expanded the bypass methodology to 

reflect changing drug administration 

HCPCS codes that are recognized under 

the OPPS. We placed all of the add-on 

CPT codes for drug administration 

services, including the sequential 

infusion and intravenous push codes, 

on the bypass list in CY 2009 (73 FR 

68513) in order to continue this 

framework for transforming these 

otherwise unusable multiple bills into 

‘‘pseudo’’ single claims that can be used 

for OPPS ratesetting purposes. We 

believe that this longstanding 

methodology results in appropriate 

payment rates for the add-on CPT codes 

for drug administration; therefore, we 

are proposing to continue to use this 

methodology for the CY 2011 OPPS 

because we believe this methodology 

takes into account all of the packaging 

on claims for drug administration 

services and therefore provides a 

reasonable framework for developing 

median costs for drug administration 

services that are often provided in 

combination with one another (74 FR 

60539). 

At its February 2010 meeting, the APC 

Panel recommended that CMS make 

CPT code 96368 (Intravenous infusion, 

for therapy, prophylaxis, or diagnosis 

(specify substance or drug); concurrent 

infusion (List separately in addition to 

code for primary procedure) and CPT 

code 93676 (Therapeutic, prophylactic, 

or diagnostic injection (specify 

substance or drug); each additional 

sequential intravenous push of the same 

substance/drug provided in a facility 

(List separately in addition to code for 

primary, separately payable procedure) 

separately payable for the CY 2011 

OPPS at an appropriate payment rate as 

determined by CMS. We are not 

proposing to accept this APC Panel 

recommendation because these two 

codes each describe services that, by 

definition, are always provided in 

conjunction with an initial drug 

administration code and therefore are 

appropriately packaged into the 

payment for the separately payable 

services that they usually accompany. 

These services have been packaged 

since the inception of the OPPS, and we 

continue to believe they are 

appropriately packaged into the 

payment for the separately payable 

services without which, under CPT 

guidelines and definitions, they cannot 

be appropriately reported. We refer 

readers to section II.A.3. of this 

proposed rule for a more detailed 

discussion of payment for packaged 

services. 

Table 30 below displays the proposed 

configuration of the five drug 

administration APCs for CY 2011 and 

the proposed median cost for each of the 

proposed drug administration APCs. We 

believe the updated CY 2009 claims 

data and the most recent cost report data 

for the drug administration CPT show 

that these codes share sufficiently 

similar clinical and resource 

characteristics to justify their continued 

placement in the five levels of drug 

administration APCs that were in effect 

in the CY 2010 OPPS. The median cost 

for each of the separately paid drug 

administration CPT codes is contained 

in the CPT median cost file that is 

provided as supporting documentation 

to this proposed rule at the Web site at: 

http://www.cms.hhs.gov/ 

HospitalOutpatientPPS/. The proposed 

CY 2011 payment rate for each of the 

proposed drug administration APCs is 

contained in Addendum B of this 

proposed rule. 

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IX. Proposed OPPS Payment for 

Hospital Outpatient Visits 

A. Background 

Currently, hospitals report visit 

HCPCS codes to describe three types of 

OPPS services: clinic visits; emergency 

department visits; and critical care 

services. For OPPS purposes, we 

recognize clinic visit codes as those 

codes defined in the CPT code book to 

report evaluation and management (E/ 

M) services provided in the physician’s 

office or in an outpatient or other 

ambulatory facility. We recognize 

emergency department visit codes as 

those codes used to report E/M services 

provided in the emergency department. 

Emergency department visit codes 

consist of five CPT codes that apply to 

Type A emergency departments and five 

Level II HCPCS codes that apply to Type 

B emergency departments. For OPPS 

purposes, we recognize critical care 

codes as those CPT codes used by 

hospitals to report critical care services 

that involve the ‘‘direct delivery by a 

physician(s) of medical care for a 

critically ill or critically injured 

patient,’’ as defined by the CPT code 

book. In Transmittal 1139, Change 

Request 5438, dated December 22, 2006, 

we stated that, under the OPPS, the time 

that can be reported as critical care is 

the time spent by a physician and/or 

hospital staff engaged in active face-toface critical care of a critically ill or 

critically injured patient. Under the 

OPPS, we also recognize HCPCS code 

G0390 (Trauma response team 

associated with hospital critical care 

service) for the reporting of a trauma 

response in association with critical 

care services. 

We are proposing to continue to 

recognize these CPT and HCPCS codes 

describing clinic visits, Type A and 

Type B emergency department visits, 

critical care services, and trauma team 

activation provided in association with 

critical care services for CY 2011. These 

codes are listed below in Table 31. 

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During the February 2010 APC Panel 

meeting, the APC Panel recommended 

that CMS continue to report on clinic 

and emergency department visits and 

observation services in the claims data, 

and that if CMS identifies changes in 

patterns of utilization or cost, it bring 

those issues before the Visits and 

Observation Subcommittee for future 

consideration. The APC Panel also 

recommended that the work of the 

Visits and Observation Subcommittee 

continue. We are adopting these 

recommendations and plan to provide 

the requested data and analyses to the 

APC Panel at an upcoming meeting. 

B. Proposed Policies for Hospital 

Outpatient Visits 

1. Clinic Visits: New and Established 

Patient Visits 

As reflected in Table 31, hospitals use 

different CPT codes for clinic visits 

based on whether the patient being 

treated is a new patient or an 

established patient. Beginning in CY 

2009, we refined the definitions of a 

new patient and an established patient 

to reflect whether or not the patient has 

been registered as an inpatient or 

outpatient of the hospital within the 

past 3 years. A patient who has been 

registered as an inpatient or outpatient 

of the hospital within the 3 years prior 

to a visit would be considered to be an 

established patient for that visit, while 

a patient who has not been registered as 

an inpatient or outpatient of the hospital 

within the 3 years prior to a visit would 

be considered to be a new patient for 

that visit. We refer readers to the CY 

2009 OPPS/ASC final rule with 

comment period (73 FR 68677 through 

68680) for a full discussion of the 

refined definitions. 

We continue to believe that defining 

new or established patient status based 

on whether the patient has been 

registered as an inpatient or outpatient 

of the hospital within the 3 years prior 

to a visit will reduce hospitals’ 

administrative burden associated with 

reporting appropriate clinic visit CPT 

codes. For CY 2011, we are proposing to 

continue recognizing the refined 

definitions of a new patient and an 

established patient, and applying our 

policy of calculating median costs for 

clinic visits under the OPPS using 

historical hospital claims data. As 

discussed in section II.A.2.e.(1) of this 

proposed rule and consistent with our 

CY 2010 policy, when calculating the 

median costs for the clinic visit APCs 

(0604 through 0608), we would utilize 

our methodology that excludes those 

claims for visits that are eligible for 

payment through the extended 

assessment and management composite 

APC 8002 (Level I Extended Assessment 

and Management Composite). We 

continue to believe that this approach 

results in the most accurate cost 

estimates for APCs 0604 through 0608 

for CY 2011. 

2. Emergency Department Visits 

Since CY 2007, we have recognized 

two different types of emergency 

departments for payment purposes 

under the OPPS—Type A emergency 

departments and Type B emergency 

departments. As described in greater 

detail below, by providing payment for 

two types of emergency departments, 

we recognize, for OPPS payment 

purposes, both the CPT definition of an 

emergency department, which requires 

the facility to be available 24 hours, and 

the requirements for emergency 

departments specified in the provisions 

of the Emergency Medical Treatment 

and Labor Act (EMTALA) (Pub. L. 99– 

272), which do not stipulate 24-hour 

availability but do specify other 

obligations for hospitals that offer 

emergency services. For more detailed 

information on the EMTALA provisions, 

we refer readers to the CY 2009 OPPS/ 

ASC final rule with comment period (73 

FR 68680). 

In the CY 2007 OPPS/ASC final rule 

with comment period (71 FR 68132), we 

finalized the definition of a Type A 

emergency department to distinguish it 

from a Type B emergency department. A 

Type A emergency department must be 

available to provide services 24 hours a 

day, 7 days a week, and meet one or 

both of the following requirements 

related to the EMTALA definition of a 

dedicated emergency department 

specified at 42 CFR 489.24(b), 

specifically: (1) It is licensed by the 

State in which it is located under the 

applicable State law as an emergency 

room or emergency department; or (2) it 

is held out to the public (by name, 

posted signs, advertising, or other 

means) as a place that provides care for 

emergency medical conditions on an 

urgent basis without requiring a 

previously scheduled appointment. For 

CY 2007 (71 FR 68140), we assigned the 

five CPT E/M emergency department 

visit codes for services provided in Type 

A emergency departments to five 

created Emergency Visit APCs, 

specifically APC 0609 (Level 1 

Emergency Visits), APC 0613 (Level 2 

Emergency Visits), APC 0614 (Level 3 

Emergency Visits), APC 0615 (Level 4 

Emergency Visits), and APC 0616 (Level 

5 Emergency Visits). We defined a Type 

B emergency department as any 

dedicated emergency department that 

incurred EMTALA obligations but did 

not meet the CPT definition of an 

emergency department. For example, a 

hospital department that may be 

characterized as a Type B emergency 

department would meet the definition 

of a dedicated emergency department 

but may not be available 24 hours a day, 

7 days a week. Hospitals with such 

dedicated emergency departments incur 

EMTALA obligations with respect to an 

individual who presents to the 

department and requests, or has a 

request made on his or her behalf, 

examination or treatment for a medical 

condition. 

To determine whether visits to Type 

B emergency departments have different 

resource costs than visits to either 

clinics or Type A emergency 

departments, in the CY 2007 OPPS/ASC 

final rule with comment period (71 FR 

68132), we finalized a set of five HCPCS 

G-codes for use by hospitals to report 

visits to all entities that meet the 

definition of a dedicated emergency 

department under the EMTALA 

regulations but that are not Type A 

emergency departments. These codes 

are called ‘‘Type B emergency 

department visit codes.’’ In the CY 2007 

OPPS/ASC final rule with comment 

period (71 FR 68132), we explained that 

these new HCPCS G-codes would serve 

as a vehicle to capture median cost and 

resource differences among visits 

provided by Type A emergency 

departments, Type B emergency 

departments, and clinics. We stated that 

the reporting of specific HCPCS G-codes 

for emergency department visits 

provided in Type B emergency 

departments would permit us to 

specifically collect and analyze the 

hospital resource costs of visits to these 

facilities in order to determine if, in the 

future, a proposal for an alternative 

payment policy might be warranted. We 

expected hospitals to adjust their 

charges appropriately to reflect 

differences in Type A and Type B 

emergency department visit costs. 

As we noted in the CY 2009 OPPS/ 

ASC final rule with comment period (73 

FR 68681), the CY 2007 claims data 

used for that rulemaking were from the 

first year of claims data available for 

analysis that included hospitals’ cost 

data for these new Type B emergency 

department HCPCS visit codes. Based 

on our analysis of the CY 2007 claims 

data, we confirmed that the median 

costs of Type B emergency department 

visits were less than the median costs of 

Type A emergency department visits for 

all but the level 5 visit. In other words, 

the median costs from the CY 2007 

hospital claims represented real 

differences in the hospital resource 

costs for the same level of visits in a 

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Type A or Type B emergency 

department. Therefore, for CY 2009, we 

adopted the August 2008 APC Panel 

recommendation to assign levels 1 

through 4 Type B emergency 

department visits to their own APCs and 

to assign the level 5 Type B emergency 

department visit to the same APC as the 

level 5 Type A emergency department 

visit. 

As discussed in the CY 2010 OPPS/ 

ASC final rule with comment period (74 

FR 60548 through 60551), analyses of 

CY 2008 hospitals’ cost data from claims 

data used for CY 2010 ratesetting for the 

emergency department HCPCS G-codes 

demonstrated that the pattern of relative 

cost differences between Type A and 

Type B emergency department visits 

was largely consistent with the 

distributions we observed in the CY 

2007 data, with the exception that, in 

the CY 2008 data, we observed a 

relatively lower HCPCS code-specific 

median cost associated with level 5 

Type B emergency department visits 

compared to the HCPCS code-specific 

median cost of level 5 Type A 

emergency department visits. As a 

result, for CY 2010, we finalized a 

policy to continue to pay levels 1 

through 4 Type B emergency 

department visits through four levels of 

APCs, and to pay for level 5 Type B 

emergency department visits through 

new APC 0630 (Level 5 Type B 

Emergency Department Visit), to which 

the level 5 Type B emergency 

department visit HCPCS code is the 

only service assigned. 

Based on the CY 2009 claims data 

available for this proposed rule, we note 

that the pattern of relative cost 

differences between Type A and Type B 

emergency department visits is 

consistent with the distributions we 

observed in the CY 2008 claims data, as 

demonstrated in Table 32 below. 

Therefore, we are proposing to continue 

to pay for Type B emergency 

department visits in CY 2011 based on 

their median costs through five levels of 

APCs: APC 0626 (Level 1 Type B 

Emergency Department Visit), APC 0627 

(Level 2 Type B Emergency Department 

Visit), APC 0628 (Level 3 Type B 

Emergency Department Visit), APC 0629 

(Level 4 Type B Emergency Department 

Visit), and APC 0630. As we stated in 

the CY 2010 OPPS/ASC final rule with 

comment period (74 FR 60550), we 

continue to believe that this 

configuration pays appropriately for 

each level of Type B emergency 

department visits based on estimated 

resource costs from more recent claims 

data. We also note that, as discussed in 

section II.A.2.e.(1) of this proposed rule 

and consistent with our CY 2010 policy, 

when calculating the median costs for 

the emergency department visit and 

critical care APCs (0609 through 0617 

and 0626 through 0630), we are 

proposing to utilize our methodology 

that excludes those claims for visits that 

are eligible for payment through the 

extended assessment and management 

composite APC 8002. We believe that 

this approach will result in the most 

accurate cost estimates for APCs 0604 

through 0608 for CY 2011. 

Table 32 below displays the proposed 

median costs for each level of Type B 

emergency department visit APCs under 

the proposed CY 2011 configuration, 

compared to the proposed median costs 

for each level of clinic visit APCs and 

each level of Type A emergency 

department visit APCs. 

During the February 2010 APC Panel 

meeting, the APC Panel requested that 

CMS provide information about the 

common diagnoses and services 

furnished with critical care services. We 

are accepting the APC Panel’s 

recommendation and will provide the 

requested information at an upcoming 

meeting of the APC Panel. 

3. Visit Reporting Guidelines 

Since April 7, 2000, we have 

instructed hospitals to report facility 

resources for clinic and emergency 

department hospital outpatient visits 

using the CPT E/M codes and to develop 

internal hospital guidelines for 

reporting the appropriate visit level. 

Because a national set of hospitalspecific codes and guidelines do not 

currently exist, we have advised 

hospitals that each hospital’s internal 

guidelines that determine the levels of 

clinic and emergency department visits 

to be reported should follow the intent 

of the CPT code descriptors, in that the 

guidelines should be designed to 

reasonably relate the intensity of 

hospital resources to the different levels 

of effort represented by the codes. 

As noted in detail in the CY 2008 

OPPS/ASC final rule with comment 

period (72 FR 66802 through 66805), we 

observed a normal and stable 

distribution of clinic and emergency 

department visit levels in hospital 

claims over the past several years. The 

data indicated that hospitals, on 

average, were billing all five levels of 

visit codes with varying frequency, in a 

consistent pattern over time. Overall, 

both the clinic and emergency 

department visit distributions indicated 

that hospitals were billing consistently 

over time and in a manner that 

distinguished between visit levels, 

resulting in relatively normal 

distributions nationally for the OPPS, as 

well as for specific classes of hospitals. 

The results of these analyses were 

generally consistent with our 


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understanding of the clinical and 

resource characteristics of different 

levels of hospital outpatient clinic and 

emergency department visits. In the CY 

2008 OPPS/ASC proposed rule (72 FR 

42764 through 42765), we specifically 

invited public comment as to whether a 

pressing need for national guidelines 

continued at this point in the 

maturation of the OPPS, or if the current 

system where hospitals create and apply 

their own internal guidelines to report 

visits was currently more practical and 

appropriately flexible for hospitals. We 

explained that, although we have 

reiterated our goal since CY 2000 of 

creating national guidelines, this 

complex undertaking for these 

important and common hospital 

services was proving more challenging 

than we initially anticipated as we 

received new and expanded information 

from the public on current hospital 

reporting practices that led to 

appropriate payment for the hospital 

resources associated with clinic and 

emergency department visits. We stated 

our belief that many hospitals had 

worked diligently and carefully to 

develop and implement their own 

internal guidelines that reflected the 

scope and types of services they 

provided throughout the hospital 

outpatient system. Based on public 

comments, as well as our own 

knowledge of how clinics operate, it 

seemed unlikely that one set of 

straightforward national guidelines 

could apply to the reporting of visits in 

all hospitals and specialty clinics. In 

addition, the stable distribution of clinic 

and emergency department visits 

reported under the OPPS over the past 

several years indicated that hospitals, 

both nationally in the aggregate and 

grouped by specific hospital classes, 

were generally billing in an appropriate 

and consistent manner as we would 

expect in a system that accurately 

distinguished among different levels of 

service based on the associated hospital 

resources. 

Therefore, we did not propose to 

implement national visit guidelines for 

clinic or emergency department visits 

for CY 2008. Since publication of the CY 

2008 OPPS/ASC final rule with 

comment period, we have again 

examined the distribution of clinic and 

Type A emergency department visit 

levels based upon updated CY 2009 

claims data available for this CY 2011 

proposed rule and confirmed that we 

continue to observe a normal and stable 

distribution of clinic and emergency 

department visit levels in hospital 

claims. We continue to believe that, 

based on the use of their own internal 

guidelines, hospitals are generally 

billing in an appropriate and consistent 

manner that distinguishes among 

different levels of visits based on their 

required hospital resources. As a result 

of our updated analyses, we are 

encouraging hospitals to continue to 

report visits during CY 2011 according 

to their own internal hospital 

guidelines. In the absence of national 

guidelines, we will continue to regularly 

reevaluate patterns of hospital 

outpatient visit reporting at varying 

levels of disaggregation below the 

national level to ensure that hospitals 

continue to bill appropriately and 

differentially for these services. As 

originally noted in detail in the CY 2008 

OPPS/ASC final rule with comment 

period (72 FR 66648), we continue to 

expect that hospitals will not purposely 

change their visit guidelines or 

otherwise upcode clinic and emergency 

department visits for purposes of 

extended assessment and management 

composite APC payment. 

In addition, we note our continued 

expectation that hospitals’ internal 

guidelines will comport with the 

principles listed in the CY 2008 OPPS/ 

ASC final rule with comment period (72 

FR 66805). We encourage hospitals with 

more specific questions related to the 

creation of internal guidelines to contact 

their servicing fiscal intermediary or 

MAC. 

We appreciate all of the comments we 

have received in the past from the 

public on visit guidelines, and we 

encourage continued submission of 

comments throughout the year that 

would assist us and other stakeholders 

interested in the development of 

national guidelines. Until national 

guidelines are established, hospitals 

should continue using their own 

internal guidelines to determine the 

appropriate reporting of different levels 

of clinic and emergency department 

visits. While we understand the interest 

of some hospitals in having us move 

quickly to promulgate national 

guidelines that would ensure 

standardized reporting of hospital 

outpatient visit levels, we believe that 

the issues and concerns identified both 

by us and others are important and 

require serious consideration prior to 

the implementation of national 

guidelines. 

Because of our commitment to 

provide hospitals with 6 to 12 months 

notice prior to implementation of 

national guidelines, we would not 

implement national guidelines prior to 

CY 2012. Our goal is to ensure that 

OPPS national or hospital-specific visit 

guidelines continue to facilitate 

consistent and accurate reporting of 

hospital outpatient visits in a manner 

that is resource-based and supportive of 

appropriate OPPS payments for the 

efficient and effective provision of 

services to beneficiaries during visits in 

hospital outpatient settings. 

X. Proposed Payment for Partial 

Hospitalization Services 

A. Background 

Partial hospitalization is an intensive 

outpatient program of psychiatric 

services provided to patients as an 

alternative to inpatient psychiatric care 

for individuals who have an acute 

mental illness. Sections 1861(ff)(1) and 

(ff)(2) of the Act specify the items and 

services that are defined as partial 

hospitalization services and the 

conditions under which Medicare 

payment for the items and services will 

be made. Section 1861(ff)(3) of the Act 

specifies that a partial hospitalization 

program (PHP) is one that is furnished 

by a hospital or community mental 

health center (CMHC) that meets the 

requirements specified under that 

subsection of the Act. 

Section 1301(a) of the recently 

enacted Health Care and Education 

Reconciliation Act of 2010 (HCERA 

2010) (Pub. L. 111–152, enacted on 

March 30, 2010) revised the definition 

of a CMHC set forth at section 

1861(ff)(3)(B) of the Act by adding a 

provision that the CMHC, effective on 

the first day of the first calendar quarter 

that begins at least 12 months after the 

date of enactment (that is, April 1, 

2011), must provide at least 40 percent 

of its services to individuals who are not 

eligible for benefits under Title XVIII of 

the Act (Medicare). Section 1301(b) of 

HCERA 2010 amended the description 

of a PHP to specify that the program 

must be a distinct and organized 

intensive ambulatory treatment service 

offering less than 24-hour daily care 

‘‘other than in an individual’s home or 

in an inpatient or residential setting.’’ 

We discuss our proposal to incorporate 

these two provisions of HCERA 2010 in 

our regulations under section X.C. of 

this proposed rule. 

Section 1833(t)(1)(B)(i) of the Act 

provides the Secretary with the 

authority to designate the HOPD 

services to be covered under the OPPS. 

The existing Medicare regulations at 42 

CFR 419.21 that implement this 

provision specify that payments under 

the OPPS will be made for partial 

hospitalization services furnished by 

CMHCs as well as those services 

furnished by hospitals to their 

outpatients. Section 1833(t)(2)(C) of the 

Act requires the Secretary to establish 

relative payment weights for covered 

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HOPD services (and any APCs) based on 

median (or mean, at the election of the 

Secretary) hospital costs using data on 

claims from 1996 and data from the 

most recent available cost reports. 

Because a day of care is the unit that 

defines the structure and scheduling of 

partial hospitalization services, we 

established a per diem payment 

methodology for the PHP APCs, 

effective for services furnished on or 

after August 1, 2000 (65 FR 18452 

through 18455). 

From CY 2003 through CY 2006, the 

median per diem cost for CMHCs 

fluctuated significantly from year to 

year (from a high of $685 in CY 2003 to 

a low of $154 in CY 2006), while the 

median per diem cost for hospital-based 

PHPs remained relatively constant 

($177–$225). We believe that CMHCs 

may have increased and decreased their 

charges in response to Medicare 

payment policies. 

Due to these significant fluctuations 

and declines in CMHC PHP median per 

diem costs, in developing the CY 2008 

update, we began an effort to strengthen 

the PHP benefit through extensive data 

analysis and policy and payment 

changes (72 FR 66670 through 66676). 

Specifically, we proposed and finalized 

two refinements to the methodology for 

computing the PHP median. First, we 

remapped 10 revenue codes that are 

common among hospital-based PHP 

claims to the most appropriate cost 

centers. Secondly, we refined our 

methodology for calculating PHP per 

diem costs by computing the median 

using a per day methodology. A 

complete discussion of these 

refinements can be found in the CY 

2008 OPPS/ASC final rule with 

comment period (72 FR 66671 through 

66672). 

In CY 2009, we implemented several 

regulatory, policy, and payment 

changes, including a two-tiered 

payment approach for PHP services 

under which we pay one amount for 

days with 3 services (APC 0172 (Level 

I Partial Hospitalization)) and a higher 

amount for days with 4 or more services 

(APC 0173 (Level II Partial 

Hospitalization)). We refer readers to 

section X.C.2. of the CY 2009 OPPS/ 

ASC final rule with comment period (73 

FR 68688 through 68693) for a full 

discussion of the two-tiered payment 

system. In addition, for CY 2009, we 

finalized our policy to deny payment for 

any PHP claims for days when fewer 

than 3 units of therapeutic services are 

provided. As noted in the CY 2009 

OPPS/ASC final rule with comment 

period (73 FR 68694), we believe that 3 

services should be the minimum 

number of services allowed in a PHP 

day because a day with 1 or 2 services 

does not meet the statutory intent of a 

PHP. Three services are a minimum 

threshold that will take into 

consideration unforeseen 

circumstances, such as medical 

appointments, while maintaining the 

integrity of the PHP benefit. 

Furthermore, for CY 2009, we revised 

the regulations at 42 CFR 410.43 to 

codify existing basic PHP patient 

eligibility criteria and to add a reference 

to current physician certification 

requirements at 42 CFR 424.24 to 

conform our regulations to our 

longstanding policy (73 FR 68694 

through 68695). We believe these 

changes have helped to strengthen the 

PHP benefit. We also revised the partial 

hospitalization benefit to include 

several coding updates. We refer readers 

to section X.C.2. of the CY 2009 OPPS/ 

ASC final rule with comment period (73 

FR 68694 through 68697) for a full 

discussion of these requirements. 

For CY 2010, we retained the twotiered payment approach for PHP 

services and used only hospital-based 

PHP data in computing the per diem 

payment rates. We used only hospitalbased PHP data because we were 

concerned about further reducing both 

PHP APC per diem payment rates 

without knowing the impact of the 

policy and payment changes we made 

in CY 2009. Because of the 2-year lag 

between data collection and rulemaking, 

the changes we made in CY 2009 are 

reflected for the first time in the claims 

data that we are using to determine 

proposed payment rates for this CY 

2011 rulemaking. 

B. Proposed PHP APC Update for CY 

2011 

For CY 2011, we used CY 2009 claims 

data and computed median per diem 

costs in the following three categories: 

(1) All days; (2) days with 3 services; 

and (3) days with 4 or more services. 

These proposed median per diem costs 

were computed separately for CMHC 

PHPs and hospital-based PHPs and are 

shown in Table 33 below. 

Using CY 2009 data and the refined 

methodology for computing PHP per 

diem costs that we adopted in the CY 

2008 OPPS/ASC final rule with 

comment period (72 FR 66672), we 

computed a median per diem cost from 

all claims for CY 2011 of $132.28. The 

data indicate that, although CMHCs 

provided more days with 4 or more 

services in CY 2009 than in CY 2008, 

their median per diem cost for 4 or more 

services ($123.35) is substantially lower 

than the median per diem cost for the 

same units of service provided in 

hospital-based PHPs ($235.58). The 

median per diem cost for claims 

containing 4 or more services for all 

PHP claims, regardless of site of service, 

is $131.56. Medians for claims 

containing 3 services is $118.19 for 

CMHC PHPs, $184.47 for hospital-based 

PHPs, and $140.96 for all PHP service 

claims, regardless of site of service. 

These data, along with data from 

previous years, show the shift in cost 

and utilization for CMHCs and hospitalbased PHPs under the two-tiered 


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payment system. Since CY 2009 (using 

2007 data), CMHC costs decreased from 

$139 in CY 2009 to $118 in CY 2011 for 

Level I services (3 services) and from 

$172 in CY 2009 to $123 in CY 2011 for 

Level II services (4 or more services). 

For hospital-based PHPs, costs 

increased from $157 in CY 2009 to $184 

in CY 2011 for Level I services (3 

services) and from $200 in CY 2009 to 

$236 in CY 2011 for Level II services (4 

or more services). For the past two 

years, we have based the PHP APC per 

diem payment rates on only hospitalbased PHP data because including the 

CMHC data would have lowered the 

PHP APC per diem rates and raised 

concerns about appropriate payment for 

PHP services. Specifically, we were 

concerned about paying hospital-based 

PHP programs a rate that is lower than 

what their cost structure reflects, which 

in turn could lead to hospital-based 

program closures and possible access 

problems. We also were concerned 

about further reducing the payment 

rates without knowing the impact of the 

policy and payment changes we made 

in CY 2009. 

Because the CMHC cost data has 

significantly decreased again this year, 

we believe that we can no longer ignore 

the pattern and continue to base the 

PHP payment rates using only hospitalbased data. We are confident that the CY 

2009 claims data reflect that CMHCs 

continue to have a lower cost structure 

than hospitals and not the impact of CY 

2009 policies. Therefore, we believe that 

we cannot continue to treat these two 

provider types the same in terms of 

payment, particularly because their cost 

differences continue to be so disparate. 

We also believe that we need to 

continue to protect hospital-based PHPs 

from receiving inadequate payments, 

given that they offer the widest access 

to PHP services because they are located 

across the country. We believe that the 

results of our analysis of the claims data 

indicate a need to establish payment 

rates for each provider type based on its 

own unique cost structures. 

Therefore, for CY 2011, we are 

proposing to compute four separate PHP 

APC per diem payment rates, two for 

CMHC PHPs (for Level I and Level II 

services using only CMHC data) and two 

for hospital-based PHPs (Level I and 

Level II services using only hospitalbased PHP data). Creating the proposed 

four payment rates (two for CMHC PHPs 

and two for hospital-based PHPs) would 

support continued access to the PHP 

benefit, including a more intensive level 

of care, while also providing 

appropriate payment based on the 

unique cost structures of CMHC PHPs 

and hospital-based PHPs. We request 

public comments on our proposal to 

provide four separate PHP APC per 

diem payment rates, two for CMHC 

PHPs and two for hospital-based PHPs. 

The proposed APCs median per diem 

costs for PHP services for CY 2011 are 

as follows: 

We note that this proposal is 

consistent with the recommendation by 

several commenters in the CY 2010 

OPPS/ASC final rule with comment 

period that CMS adopt two additional 

payment rates that are site specific APCs 

for PHP services, where the hospitalbased PHP APCs for Level I services (3 

services) and Level II services (4 or more 

services) would be established using 

only hospital-based data and the CMHC 

PHP APCs for Level I services (3 

services) and Level II services (4 or more 

services) would be established using 

only CMHC data (74 FR 60557). 

C. Proposed Changes to Regulations To 

Incorporate Provisions of HCERA 2010 

As stated in section X.A. of this 

proposed rule, section 1301 of HCERA 

2010 made a change to the statutory 

definition of a CMHC and a change to 

the description of what constitutes a 

PHP. Specifically, section 1301(a) of 

HCERA 2010 revised the definition of a 

CMHC set forth at section 1861(ff)(3)(B) 

of the Act by adding a provision to the 

existing provisions under which a 

CMHC, effective on the first day of the 

first calendar quarter that begins at least 

12 months after the date of enactment 

(that is, April 1, 2011), must provide at 

least 40 percent of its services to 

individuals who are not eligible for 

benefits under Title XVIII of the Act 

(Medicare). Section 1301(b) of HCERA 

2010 amended the description of a PHP 

to specify that the program must be a 

distinct and organized intensive 

ambulatory treatment service offering 

less than 24-hour daily care ‘‘other than 


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in an individual’s home or in an 

inpatient or residential setting.’’ 

Our existing regulations at 42 CFR 

410.2 incorporate the statutory 

definitions of ‘‘Community mental 

health center (CMHC)’’ and ‘‘Partial 

hospitalization services.’’ We are 

proposing to revise the definition of a 

CMHC in § 410.2 to include the 

additional requirement provided for 

under the amendment made by section 

1301(a) of HCERA 2010. Under existing 

§ 410.2, we define ‘‘partial 

hospitalization services’’ to mean ‘‘a 

distinct and organized intensive 

ambulatory treatment program that 

offers less than 24-hour daily care and 

furnishes the services described in 

§ 410.43.’’ We are proposing to revise 

this definition to incorporate the 

amendment made by section 1301(b) of 

HCERA 2010 to describe partial 

hospitalization services as a distinct and 

organized intensive ambulatory 

treatment program that offers less than 

24-hour daily care ‘‘other than in an 

individual’s home or in an inpatient 

residential setting’’ and furnishes the 

services described in § 410.43. 

D. Proposed Separate Threshold for 

Outlier Payments to CMHCs 

In the November 7, 2003 final rule 

with comment period (68 FR 63469 

through 63470), we indicated that, given 

the difference in PHP charges between 

hospitals and CMHCs, we did not 

believe it was appropriate to make 

outlier payments to CMHCs using the 

outlier percentage target amount and 

threshold established for hospitals. Prior 

to that time, there was a significant 

difference in the amount of outlier 

payments made to hospitals and CMHCs 

for PHP services. In addition, further 

analysis indicated that using the same 

OPPS outlier threshold for both 

hospitals and CMHCs did not limit 

outlier payments to high cost cases and 

resulted in excessive outlier payments 

to CMHCs. Therefore, beginning in CY 

2004, we established a separate outlier 

threshold for CMHCs. The separate 

outlier threshold for CMHCs has 

resulted in more commensurate outlier 

payments. 

In CY 2004, the separate outlier 

threshold for CMHCs resulted in $1.8 

million in outlier payments to CMHCs. 

In CY 2005, the separate outlier 

threshold for CMHCs resulted in $0.5 

million in outlier payments to CMHCs. 

In contrast, in CY 2003, more than $30 

million was paid to CMHCs in outlier 

payments. We believe this difference in 

outlier payments indicates that the 

separate outlier threshold for CMHCs 

has been successful in keeping outlier 

payments to CMHCs in line with the 

percentage of OPPS payments made to 

CMHCs. 

As noted in section II.F. of this 

proposed rule, we are proposing to 

continue our policy of identifying 1.0 

percent of the aggregate total payments 

under the OPPS for outlier payments for 

CY 2011. We are proposing that a 

portion of that 1.0 percent, an amount 

equal to 0.04 percent of outlier 

payments (or 0.0004 percent of total 

OPPS payments), would be allocated to 

CMHCs for PHP outliers. As discussed 

in section II.F. of this proposed rule, we 

are proposing to set a dollar threshold 

in addition to an APC multiplier 

threshold for OPPS outlier payments. 

However, because the PHP APC is the 

only APC for which CMHCs may receive 

payment under the OPPS, we would not 

expect to redirect outlier payments by 

imposing a dollar threshold. Therefore, 

we are not proposing to set a dollar 

threshold for CMHC outliers. As noted 

in section II.F. of this proposed rule, we 

are proposing to set the outlier 

threshold for CMHCs for CY 2011 at 

3.40 times the APC payment amount 

and the CY 2011 outlier payment 

percentage applicable to costs in excess 

of the threshold at 50 percent. 

Specifically, we are proposing to 

establish that if a CMHC’s cost for 

partial hospitalization services, paid 

under either APC 0172 or APC 0173, 

exceeds 3.40 times the payment for APC 

0173, the outlier payment would be 

calculated as 50 percent of the amount 

by which the cost exceeds 3.40 times 

the APC 0173 payment rate. 

XI. Proposed Procedures That Will Be 

Paid Only as Inpatient Procedures 

A. Background 

Section 1833(t)(1)(B)(i) of the Act 

gives the Secretary broad authority to 

determine the services to be covered 

and paid for under the OPPS. Before 

implementation of the OPPS in August 

2000, Medicare paid reasonable costs for 

services provided in the HOPD. The 

claims submitted were subject to 

medical review by the fiscal 

intermediaries to determine the 

appropriateness of providing certain 

services in the outpatient setting. We 

did not specify in our regulations those 

services that were appropriate to 

provide only in the inpatient setting and 

that, therefore, should be payable only 

when provided in that setting. 

In the April 7, 2000 final rule with 

comment period (65 FR 18455), we 

identified procedures that are typically 

provided only in an inpatient setting 

and, therefore, would not be paid by 

Medicare under the OPPS. These 

procedures comprise what is referred to 

as the ‘‘inpatient list.’’ The inpatient list 

specifies those services for which the 

hospital will be paid only when 

provided in the inpatient setting 

because of the nature of the procedure, 

the underlying physical condition of the 

patient, or the need for at least 24 hours 

of postoperative recovery time or 

monitoring before the patient can be 

safely discharged. As we discussed in 

that rule and in the November 30, 2001 

final rule with comment period (66 FR 

59856), we may use any of a number of 

criteria we have specified when 

reviewing procedures to determine 

whether or not they should be removed 

from the inpatient list and assigned to 

an APC group for payment under the 

OPPS when provided in the hospital 

outpatient setting. Those criteria 

include the following: 

• Most outpatient departments are 

equipped to provide the services to the 

Medicare population. 

• The simplest procedure described 

by the code may be performed in most 

outpatient departments. 

• The procedure is related to codes 

that we have already removed from the 

inpatient list. 

In the November 1, 2002 final rule 

with comment period (67 FR 66741), we 

added the following criteria for use in 

reviewing procedures to determine 

whether they should be removed from 

the inpatient list and assigned to an 

APC group for payment under the 

OPPS: 

• A determination is made that the 

procedure is being performed in 

numerous hospitals on an outpatient 

basis; or 

• A determination is made that the 

procedure can be appropriately and 

safely performed in an ASC, and is on 

the list of approved ASC procedures or 

has been proposed by us for addition to 

the ASC list. 

The list of codes that we are 

proposing to be paid by Medicare in CY 

2011 only as inpatient procedures is 

included as Addendum E to this 

proposed rule. 

B. Proposed Changes to the Inpatient 

List 

For the CY 2011 OPPS, we are 

proposing to use the same methodology 

as described in the November 15, 2004 

final rule with comment period (69 FR 

65835) to identify a subset of procedures 

currently on the inpatient list that are 

being performed a significant amount of 

the time on an outpatient basis. Using 

this methodology, we identified three 

procedures that met the criteria for 

potential removal from the inpatient 

list. We then clinically reviewed these 

three potential procedures for possible 

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removal from the inpatient list and 

found them to be appropriate candidates 

for removal from the inpatient list. 

During the February 2010 meeting of the 

APC Panel, we solicited the APC Panel’s 

input on the appropriateness of 

removing the following three 

procedures from the CY 2011 inpatient 

list: CPT codes 21193 (Reconstruction of 

mandibular rami; horizontal, vertical, C, 

or L osteotomy; without bone graft); 

21395 (Open treatment of orbital floor 

blowout fracture; periorbital approach 

with bone graft (includes obtaining 

graft)); and 25909 (Amputation, forearm, 

through radius and ulna; reamputation). 

Following the discussion at its February 

2010 meeting, the APC Panel 

recommended that CMS remove from 

the CY 2011 inpatient list the three CPT 

codes that we had identified: CPT codes 

21193, 21395, and 25909. 

For the CY 2011 OPPS, we are 

proposing to accept the APC Panel’s 

recommendations to remove the 

procedures described by CPT codes 

21193, 21395, and 25909 from the 

inpatient list because we agree with the 

APC Panel that the procedures may be 

appropriately provided as hospital 

outpatient procedures for some 

Medicare beneficiaries. The three 

procedures that we are proposing to 

remove from the inpatient list for CY 

2011 and their CPT codes, long 

descriptors, and proposed APC 

assignments are displayed in Table 36 

below. 

XII. Proposed OPPS Nonrecurring 

Technical and Policy Changes and 

Clarifications 

A. Physician Supervision 

1. Background 

In the CY 2000 OPPS final rule with 

comment period (65 FR 18524–18526), 

we amended our regulations to 

establish, as a condition of payment, the 

requirements for physician supervision 

of diagnostic and therapeutic services 

provided to hospital outpatients 

incident to a physician’s service. We 

adopted physician supervision policies 

as a condition of payment to ensure that 

Medicare pays for high quality hospital 

outpatient services provided to 

beneficiaries in a safe and effective 

manner and consistent with Medicare 

requirements. We clarified and restated 

the various payment requirements for 

physician supervision of therapeutic 

and diagnostic services through notice 

and comment rulemaking in the CY 

2009 OPPS/ASC proposed rule and final 

rule with comment period (73 FR 41518 

through 41519 and 73 FR 68702 through 

68704, respectively). In response to 

concerns about our policy restatement 

that were expressed following the 

publication of the CY 2009 final rule 

with comment period, we met with 

stakeholders and further delineated our 

physician supervision policies for both 

therapeutic and diagnostic services in 

the CY 2010 OPPS/ASC proposed rule 

and final rule with comment period (74 

FR 35365 and 74 FR 60679 through 

60680, respectively). 

While we received and responded to 

many comments in the course of the CY 

2010 rulemaking, addressing 

supervision for both diagnostic and 

therapeutic services, it was not until 

after publication of the CY 2010 OPPS/ 

ASC final rule with comment period 

that we received substantial comments 

from the CAH community in response to 

a technical correction we made to codify 

our long standing view that CAHs are 

subject to the supervision policy for 

payment of therapeutic services in the 

regulations at 42 CFR 410.27. In 

addition, the broader hospital 

community continues to indicate that it 

would prefer that we modify the current 

supervision policy to permit a lower 

level of supervision for therapeutic 

services. 

By way of introduction, we have 

defined supervision in the hospital 

outpatient setting by drawing on the 

three levels of supervision that we 

defined for the physician office setting 

at § 410.32(b): general, direct and 

personal supervision. Over time, we 

have tailored these definitions to apply 

them in the hospital outpatient setting, 

but we have maintained the following 

premises. General supervision means 

that a service is furnished under the 

overall direction and control of the 

physician, but his or her physical 

presence is not required during the 

performance of the procedure. Direct 

supervision means that the physician is 

physically present on site and is 

immediately available to furnish 

assistance and direction throughout the 

performance of the procedure. However, 

it does not mean the physician must be 

present in the same room when the 

procedure is being performed. Personal 

supervision means the physician is 

present in the room when the service is 

being performed. 

a. Outpatient Therapeutic Services 

As set forth in the CY 2000 OPPS final 

rule with comment period establishing 

the hospital outpatient prospective 

payment system, direct supervision is 

the standard for supervision of hospital 

outpatient therapeutic services covered 

and paid by Medicare in hospitals and 

provider based departments (PBDs) of 

hospitals. In that rule, we defined 

‘‘direct supervision’’ to mean that ‘‘the 


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physician must be present and on the 

premises of the location and 

immediately available to furnish 

assistance and direction throughout the 

performance of the procedure. It does 

not mean that the physician must be 

present in the room when the procedure 

is performed.’’ In the CY 2000 OPPS 

final rule with comment period, we 

finalized regulation text in § 410.27(f) 

specifying that direct supervision is 

required in PBDs of hospitals. In the 

preamble discussion we emphasized the 

importance of the direct supervision 

requirement for off-campus provider 

based departments. We also stated that 

the language of § 410.27(f) ‘‘applies to 

services furnished at an entity that is 

located off the campus of a hospital that 

we designate as having provider-based 

status as a department of a hospital in 

accordance with § 413.65.’’ We 

disagreed with commenters that the 

requirement for direct supervision in 

the off campus provider-based hospital 

department was more stringent than that 

required on the hospital campus. We 

noted that section 1861(s)(2)(B) of the 

Act authorizes payment for hospital 

services incident to physicians’ services 

furnished to outpatients. We stated that 

‘‘we require that hospital services and 

supplies furnished to outpatients that 

are incident to physician services be 

furnished on a physician’s order by 

hospital personnel and under a 

physician’s supervision’’ (65 FR 18525). 

We further stated that ‘‘we assume the 

physician supervision requirement is 

met on hospital premises because staff 

physicians would always be nearby 

within the hospital.’’ 

In manual guidance, we have clarified 

that we expect services incident to 

physicians’ services to be performed 

under direct supervision. We provide in 

Section 20.5.1, Chapter 6, of the 

Medicare Benefit Policy Manual (Pub. 

100–04) that services and supplies must 

be furnished on a physician’s order and 

delivered under supervision. Section 

20.5.1 indicates further that each 

occasion of a service by a nonphysician 

does not need to also be the occasion of 

the actual rendition of a personal 

professional service by the physician 

responsible for the care of the patient. 

Nevertheless, as stipulated in that same 

section of the Manual ‘‘during any 

course of treatment rendered by 

auxiliary personnel, the physician must 

personally see the patient periodically 

and sufficiently often enough to assess 

the course of treatment and the patient’s 

progress and, where necessary, to 

change the treatment regimen.’’ 

In the CY 2009 OPPS/ASC proposed 

rule and final rule with comment 

period, we provided a restatement and 

clarification of the requirements for 

physician supervision of hospital 

outpatient diagnostic and therapeutic 

services that were set forth in the CY 

2000 OPPS final rule with comment 

period. We chose to restate the existing 

physician supervision policy for 

hospital outpatient therapeutic services 

in part because we were concerned that 

some stakeholders may have 

misunderstood our use of the term 

‘‘assume’’ in the following statement, 

‘‘We assume the physician requirement 

is met on hospital premises because 

staff physicians would always be nearby 

within the hospital. The effect of the 

regulations in this final rule is to extend 

this assumption to a department of a 

hospital that is located on the campus 

of the hospital’’ (65 FR 18525). We were 

concerned that stakeholders might 

believe that this statement meant that 

we do not require any supervision in the 

hospital or in an on-campus PBD for 

hospital outpatient therapeutic services, 

or that we only require general 

supervision for those services. 

In our policy restatement in the CY 

2009 OPPS/ASC rulemaking, we 

reiterated that direct supervision is the 

standard for physician supervision, as 

set forth in the CY 2000 OPPS final rule 

with comment period, for supervision of 

hospital outpatient therapeutic services 

covered and paid by Medicare in 

hospitals and PBDs of hospitals. We 

stated clearly that we expect direct 

physician supervision of all hospital 

outpatient therapeutic services, 

regardless of their on-campus or offcampus location, but indicated that we 

would continue to emphasize the 

physician supervision requirements in 

off-campus PBDs as we did in the CY 

2000 OPPS final rule with comment 

period. We noted that if there were 

problems with outpatient care in a 

hospital or in an on-campus PBD where 

direct supervision was not in place (that 

is, the expectation of direct supervision 

was not met), we would consider that to 

be a quality concern. 

After we published the CY 2009 

OPPS/ASC final rule with comment 

period, we received significantly more 

public feedback than during the 

rulemaking cycle about our restatement 

of our supervision policy for both 

diagnostic and therapeutic services. We 

met with stakeholders in the early part 

of 2009 as we prepared for the CY 2010 

rulemaking cycle, as well as reviewed 

all public input that we received, to 

craft a response to these concerns 

regarding the supervision requirements. 

For therapeutic services, we considered 

the concerns of various stakeholders 

along with our position that direct 

supervision for therapeutic services is 

appropriate and aligned with the 

statutory requirement that Medicare 

only makes payment for therapeutic 

services in the hospital outpatient 

setting that are ‘‘incident to’’ physician 

services. 

In the CY 2010 OPPS/ASC final rule 

with comment period, we finalized our 

proposal to allow, in addition to clinical 

psychologists, certain other 

nonphysician practitioners to directly 

supervise services that they may 

perform themselves under their State 

license and scope of practice and 

hospital-granted or CAH-granted 

privileges. The nonphysician 

practitioners that were permitted to 

provide direct supervision of 

therapeutic services under the CY 2010 

OPPS/ASC final rule with comment 

period are physician assistants, nurse 

practitioners, clinical nurse specialists, 

certified nurse-midwives, and licensed 

clinical social workers. These 

nonphysician practitioners may directly 

supervise outpatient therapeutic 

services that they may personally 

furnish in accordance with State law 

and all additional requirements, 

including the Medicare coverage rules 

relating to their services specified in our 

regulations at 42 CFR 410.71, 410.73, 

410.74, 410.75, 410.76, and 410.77 (for 

example, requirements for collaboration 

with, or general supervision by, a 

physician). In implementing the new 

benefits for pulmonary rehabilitation, 

cardiac rehabilitation, and intensive 

cardiac rehabilitation added by the 

Medicare Improvements for Patients and 

Providers Act of 2008 (MIPPA, Pub. L. 

110–275), we required that direct 

supervision of services furnished in the 

hospital outpatient department must be 

provided by a doctor of medicine or 

osteopathy as required by statute. 

For services furnished on a hospital’s 

main campus, we finalized a 

modification of our proposed definition 

of ‘‘direct supervision’’ in new paragraph 

(a)(1)(iv)(A) of § 410.27 that allows for 

the supervisory physician or 

nonphysician practitioner to be 

anywhere on the hospital campus. 

Therefore, as of CY 2010, direct 

supervision on the hospital or CAH 

campus or in an on-campus PBD means 

that ‘‘the supervisory physician or 

nonphysician practitioner must be 

present on the same campus and 

immediately available to furnish 

assistance and direction throughout the 

performance of the procedure.’’ Because 

the term ‘‘in the hospital or CAH’’ 

applies broadly to ‘‘incident to’’ 

requirements such as the site-of-service 

requirement for therapeutic services 

provided by the hospital directly and 

under arrangement, we also established 

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a definition of ‘‘in the hospital’’ in new 

paragraph § 410.27(g) as meaning areas 

in the main building(s) of a hospital or 

CAH that are under the ownership, 

financial, and administrative control of 

the hospital or CAH; that are operated 

as part of the hospital; and for which the 

hospital bills the services furnished 

under the hospital’s or CAH’s CMS 

Certification Number (CCN). In the 

preamble to the CY 2010 OPPS/ASC 

final rule with comment period, as part 

of the discussion of various public 

comments on the definition of the 

hospital campus, and on the supervision 

requirement specifically, we stated that 

we would recognize other areas or 

structures of the hospital’s campus that 

are not part of the hospital, such as 

physician offices, rural health centers, 

skilled nursing facilities, or other 

entities that participate separately under 

Medicare to be part of the hospital’s 

campus. 

In the CY 2010 OPPS/ASC final rule 

with comment period, we also finalized 

our proposal to add paragraph 

(a)(1)(iv)(B) to § 410.27. This paragraph 

updated our previous regulation at 

§ 410.27(f) to reflect that, for off-campus 

PBDs of hospitals, the physician or 

nonphysician practitioner must be 

present in the off-campus PBD, as 

defined in § 413.65, and immediately 

available to furnish assistance and 

direction throughout the performance of 

the procedure. It does not mean that the 

physician or nonphysician practitioner 

must be in the room when the 

procedure is performed. In addition, we 

finalized the proposed technical change 

to clarify the language in § 410.27(f) by 

removing the phrase ‘‘present and on the 

premises of the location’’ and replacing 

it with the phrase ‘‘present in the offcampus provider-based department.’’ 

Finally, we finalized a technical 

correction to the title of § 410.27 to read 

‘‘Outpatient hospital or CAH services 

and supplies incident to a physician 

service: Conditions,’’ to clarify in the 

title that the requirements for payment 

of hospital outpatient therapeutic 

services incident to a physician or 

nonphysician practitioner service in 

that section apply to both hospitals and 

CAHs. Similarly, we included the 

phrase ‘‘hospital or CAH’’ throughout 

the text of § 410.27 wherever the text 

referred only to ‘‘hospital.’’ We viewed 

this as a technical correction because 

the statute applies the same regulations 

to hospitals and CAHs when 

appropriate. Specifically, the definition 

of ‘‘hospital’’ in section 1861(e) of the 

Act expressly excludes CAHs ‘‘unless 

the context otherwise requires.’’ 

Accordingly, we do not believe it is 

necessary for a regulation to reference 

specifically the applicability to CAHs 

for those regulations to be appropriate 

given the ‘‘context’’ for CAHs. Although 

payment to CAHs is authorized under 

section 1834(g) of the Act, many of the 

payment rules applicable to hospitals 

paid under sections 1886(d) and 1833(t) 

of the Act apply to CAHs. 

We believe that the supervision 

requirements should apply in the 

context of CAHs because they represent 

appropriate safety and quality 

requirements for Medicare payment of 

outpatient services. In the early part of 

this year, the CAH community asserted 

that the CAH CoPs offer more flexibility 

in staffing requirements than the rule 

requiring direct supervision, and that 

the CAH CoPs address the general 

availability of physician and 

nonphysician practitioners on the CAH 

campus. The hospital CoPs at 42 CFR 

482.22 require hospital medical staff to 

be composed of doctors of medicine or 

osteopathy and, in accordance with 

State law, may also be composed of 

other practitioners appointed by the 

governing body. They also require 24 

hour nursing services that are provided 

by or supervised by a registered nurse. 

Under section 1820(c)(2)(B) of the Act, 

among other criteria, a CAH must meet 

the same staffing requirements as would 

apply under section 1861(e) of the Act 

to a hospital located in a rural area. 

However, there are some exceptions to 

these staffing requirements. Section 

1820(c)(2)(B)(iv) of the Act specifies that 

the CAH need not meet hospital staffing 

requirements under section 1861(e) of 

the Act regarding the days and hours in 

which it is open and fully staffed; the 

facility may provide certain services 

under arrangement at an off-site 

location; that inpatient care may be 

provided by a physician assistant, nurse 

practitioner, or clinical nurse specialist 

subject to the oversight of a physician, 

who need not be present in the facility. 

The CAH CoPs in 42 CFR 485.631 are 

specific in recognizing the statutory 

authority to be staffed by nonphysician 

practitioners rather than physicians, 

provided a doctor of medicine or 

osteopathy, nurse practitioner, clinical 

nurse specialist, or physician assistant 

is available to furnish patient care 

services at all times the CAH operates. 

The requirement that the practitioner 

‘‘be available’’ in § 485.631 has been 

interpreted to mean that the 

nonphysician practitioner or physician 

is available by phone, but not 

necessarily physically present on the 

CAH campus. The CAH CoPs also 

specify standards for emergency 

personnel under § 485.618, requiring 

that a doctor of medicine or osteopathy, 

or a nonphysician practitioner such as 

a physician assistant, a nurse 

practitioner, or a clinical nurse 

specialist, with training or experience in 

emergency care, be on call and 

immediately available by telephone or 

radio contact, and available on site 

within 30 minutes, on a 24-hour a day 

basis in most areas. 

However, in the Medicare program, 

payment requirements are frequently 

different from those identified in the 

CoPs because the two sets of rules serve 

very separate and distinct purposes. 

CoPs apply largely at the facility level, 

while payment regulations apply at the 

service level. Payment regulations, such 

as requirements for how contracted 

entities providing services to hospital 

patients, support program goals of 

appropriate and accurate payment for 

quality services. In contrast, for all 

providers including CAHs, the CoPs 

authorize hospitals to participate in the 

Medicare program. We establish CoPs as 

minimum standards for patient health 

and safety, and CoPs focus on creating 

a foundation to ensure quality and safe 

care for beneficiaries throughout a given 

facility, irrespective of the payment 

system or service provided. CoPs do not 

ensure that payment is appropriate for 

specific types of purchased services nor 

can they substitute for payment 

requirements since that is not their 

function. 

In summary, requirements established 

for purposes of payment frequently 

differ from the requirements established 

by the CoPs for many providers, 

including hospitals and CAHs. Whereas 

payment regulations establish basic 

parameters defining the services being 

purchased, CoPs (including both the 

hospital CoPs and the CAH CoPs) 

establish standards to ensure a 

minimum level of quality and safety for 

operating as a hospital or a CAH. The 

minimum standards established as CoPs 

are not always adequate to address the 

particular quality, safety and other 

requirements for payment for a service 

or group of services. 

b. Outpatient Diagnostic Services 

As we stated in the CY 2009 OPPS/ 

ASC and CY 2000 OPPS proposed rules 

and final rules with comment period, 

section 1861(s)(2)(C) of the Act 

authorizes payment for diagnostic 

services that are furnished to a hospital 

outpatient for the purpose of diagnostic 

study. We have further defined the 

requirements for diagnostic services 

furnished to hospital outpatients, 

including requirements for physician 

supervision of diagnostic services, in 

§§ 410.28 and 410.32 of our regulations. 

For CY 2010, we finalized a proposal to 

require that all hospital outpatient 

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diagnostic services provided directly or 

under arrangement, whether provided 

in the hospital, in a PBD of a hospital, 

or at a nonhospital location, follow the 

physician supervision requirements for 

individual tests as listed in the MPFS 

Relative Value File in order to receive 

payment. The existing definitions of 

general and personal supervision as 

defined in §§ 410.32(b)(3)(i) and 

(b)(3)(iii) also apply. For services 

furnished directly or under arrangement 

in the hospital or on-campus PBD, 

‘‘direct supervision’’ means that the 

physician must be present on the same 

campus and immediately available to 

furnish assistance and direction 

throughout the performance of the 

procedure. For the purposes of § 410.28, 

as for the general purposes of § 410.27, 

the definition of ‘‘in the hospital’’ as 

incorporated in § 410.27(g) applies. 

These policies are an extension of the 

supervision requirements for outpatient 

diagnostic tests performed in a providerbased department that were adopted at 

the inception of the OPPS in the CY 

2000 OPPS final rule with comment 

period. The MPFS Relative Value File is 

updated quarterly and is available on 

the CMS Web site at: http:// 

www.cms.gov/PhysicianFeeSched/. For 

diagnostic services not listed in the 

MPFS, we have indicated that Medicare 

contractors, in consultation with their 

medical directors, would define 

appropriate supervision levels in order 

to determine whether claims for these 

services are reasonable and necessary. 

We note that the current requirement 

in §§ 410.28(e)(1) and (e)(2) that 

physician supervision of diagnostic 

services provided in the hospital or in 

any provider-based department follow 

the levels for diagnostic services 

established under the MPFS explicitly 

applies to hospitals that are paid 

pursuant to section 1833(t) of the Act, 

which is the statutory authority for the 

OPPS. Because Medicare makes 

payments to CAHs pursuant to section 

1834(g) of the Act, at this time, CAHs 

are not subject to this supervision 

requirement. 

2. Issues Regarding the Supervision of 

Hospital Outpatient Services Raised by 

Hospitals and Other Stakeholders 

Following the adoption of our policies 

in the CY 2010 OPPS/ASC final rule 

with comment period (74 FR 60575 

through 60591), beginning in January 

2010, we began to receive a sizable 

amount of correspondence, as well as 

numerous phone calls, and questions 

through other public avenues, including 

the regular open door forum calls, from 

the rural hospital and CAH community 

indicating its belief that the requirement 

for direct supervision for therapeutic 

services finalized in that rule is at odds 

with longstanding and prevailing 

practice in rural communities. These 

hospitals and their representatives 

stated that they generally function with 

a reduced level of supervision for the 

provision of therapeutic services and 

that while they furnish services under a 

physician’s or appropriate nonphysician 

practitioner’s order, frequently no 

physician or nonphysician practitioner 

is physically present anywhere in the 

CAH or small rural hospital while the 

therapeutic services are being furnished. 

CAHs, in particular, noted that the 

provisions in their CoPs allow a CAH to 

operate under the reduced staffing 

requirements specified above. 

Specifically, under the CoPs, CAHs 

must have a physician or one of several 

types of nonphysician practitioners 

available by phone at all times, but not 

on campus, and in most areas of the 

country, for emergencies, the CAH must 

have a physician or certain other 

nonphysician practitioners with training 

or experience in emergency care 

physically available onsite within 30 

minutes. 

Both CAHs and rural hospitals have 

stated that the flexibility to allow 

nonphysician practitioners to supervise 

services that we authorized in the CY 

2010 OPPS/ASC final rule with 

comment period is helpful for meeting 

the direct supervision requirement for 

all therapeutic services, but that a 

shortage of qualified practitioners in 

rural areas continues to make it difficult 

to staff a physician or nonphysician 

practitioner for supervision purposes. 

They also noted that a practitioner 

retained on the campus of a small rural 

hospital or CAH to meet supervision 

requirements may not have other 

patients or medical activities to 

complete. In an urban or large urban 

hospital, a practitioner would be able to 

see other patients or engage in other 

activities so long as those activities 

could be interrupted, such that they 

would be immediately available to 

supervise. 

In a series of questions and answers 

about supervision on the CMS Web site 

(http://www.cms.gov/ 

HospitalOutpatientPPS/ 

05_OPPSGuidance.asp#TopOfPage), we 

provided additional guidance regarding 

our regulations about who can supervise 

services in order to explain to CAHs and 

small rural hospitals the flexibility we 

believe exists within our requirement 

for direct supervision. For example, in 

that document, we state that we believe 

the emergency physician or nonphysician practitioner, who would be 

the most likely practitioners staffing a 

small rural hospital or CAH, can 

directly supervise outpatient services so 

long as the emergency physician in the 

emergency department of the campus 

meets the other requirements of direct 

supervision. That is, the individual 

needs to be immediately available, so 

that, if needed, he or she could 

reasonably be interrupted to furnish 

assistance and direction in the delivery 

of therapeutic services provided 

elsewhere in the hospital. We believe 

that most emergency physicians can 

appropriately supervise many services 

within the scope of their knowledge, 

skills, licensure, and hospital-granted 

privileges, including observation 

services. With regard to whether an 

emergency physician or a nonphysician 

practitioner could be interrupted, such 

that the individual could be 

immediately available, we have stated 

that each hospital would need to assess 

the level of activity in their emergency 

department and determine whether at 

least one emergency physician or 

nonphysician practitioner could be 

interrupted to furnish assistance and 

direction in the treatment of outpatients. 

In their correspondence and 

discussion in public forums, CAHs and 

small rural hospitals explicitly have 

raised concerns about services that 

extend after regular operating hours, 

especially observation services. They 

also asserted that direct supervision is 

not clinically necessary for some 

services that have a significant 

monitoring component that is typically 

performed by nursing or other auxiliary 

staff typically, including IV hydration, 

blood transfusions, and chemotherapy. 

They stated that their facilities have 

protocols to safely deliver all of these 

services, including chemotherapy, 

relying on nursing or other hospital staff 

to provide the service and having a 

physician or non-physician practitioner 

available by phone to furnish assistance 

and direction throughout the duration of 

the therapeutic service. 

In the early part of this year, small 

rural hospitals and CAHs indicated that, 

regulations notwithstanding, many of 

them did not have appropriate staff 

arrangements to provide the required 

supervision of some services, 

particularly services being provided 

after hours or consisting of a significant 

monitoring component that lasted for an 

extended period of time. In response to 

rising concerns among the rural 

community about these rules and the 

inability of some hospitals to meet the 

direct supervision requirement, we 

issued a statement on March 15, 2010, 

indicating that we would not enforce 

the rules for supervision of hospital 

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furnished in CAHs in CY 2010 (http:// 

www.cms.gov/HospitalOutpatientPPS/ 

01_overview.asp#TopOfPage). We also 

stated that we would proactively revisit 

the rules surrounding the supervision of 

services furnished by CAHs in the CY 

2011 OPPS/ASC proposed rule. 

With regard to diagnostic services, 

unlike supervision of therapeutic 

services, we have had only limited 

dialogue with various stakeholders 

about our CY 2010 policy to recognize 

the supervision levels for diagnostic 

services under the MPFS for the 

provision of diagnostic services in the 

hospital. Individual stakeholders have 

asked about supervision of specific 

diagnostic services and have noted that 

our requirement that the hospitals 

follow the supervision levels for 

diagnostic services in the hospital 

identified in the MPFS Relative Value 

Unit file has required some modest 

changes in hospital staffing practices. 

We also have received questions 

requesting clarification about related 

supervision requirements for 

nonphysician practitioners. We note 

that adopting the supervision levels 

defined under the MPFS for diagnostic 

services in 42 CFR 410.32 means that 

nonphysician practitioners that are not 

specifically excluded under § 410.32(b) 

from the level of supervision required 

by the MPFS are subject to supervision 

by a physician at the level of 

supervision required by the diagnostic 

test. We also discussed in our CY 2010 

OPPS/ASC final rule with comment 

period that diagnostic X-ray and other 

diagnostic tests must be furnished under 

the appropriate level of supervision by 

a physician as defined in section 1861(r) 

of the Act (74 FR 60588 through 60590). 

3. Proposed Policies for Supervision of 

Outpatient Therapeutic Services in 

Hospitals and CAHs 

As indicated in our March 15, 2010 

statement, we are revisiting the issue of 

supervision of outpatient therapeutic 

services in CAHs to ensure a robust 

public discussion about supervision 

requirements for payment in hospital 

outpatient departments, including those 

located in rural communities, and CAH 

outpatient departments. In this 

proposed rule, we are proposing modest 

changes to our supervision policy for 

therapeutic services that reflect our 

continuing commitment to require 

direct supervision for the provision of 

therapeutic services in the hospital 

outpatient setting as a requirement for 

payment. We are proposing these 

changes for all hospitals, including 

CAHs, because we believe that Medicare 

should purchase a basic quality of 

service for all Medicare beneficiaries. 

Specifically, we are proposing to 

identify a limited set of services with a 

significant monitoring component that 

can extend for a sizable period of time, 

that are not surgical, and that typically 

have a low risk of complication after 

assessment at the beginning of the 

service, as ‘‘nonsurgical extended 

duration therapeutic services.’’ We are 

proposing for these services that there 

would be a requirement for direct 

supervision for the initiation of the 

service followed by general supervision 

for the remainder of the service. We are 

proposing to adopt the definition of 

‘‘general supervision’’ in 

§ 410.32(b)(3)(i), which is the same 

definition of general supervision that we 

already recognize as appropriate for 

diagnostic services with a general 

supervision level requirement under the 

MPFS. Finally, at the end of this 

proposal, we include several discussion 

points designed to focus public 

comments and generate sufficient detail 

to assist us in crafting a final policy. 

In the CY 2010 OPPS/ASC final rule 

with comment period, we affirmed our 

belief that direct supervision is the 

appropriate supervision requirement for 

therapeutic services provided in the 

hospital outpatient setting. In that rule, 

we finalized a definition of direct 

supervision in the hospital or in an oncampus department of the hospital to 

mean that the physician or 

nonphysician practitioner is present on 

the same campus and immediately 

available to furnish assistance and 

direction throughout the performance of 

the procedure (74 FR 60591). 

In considering the significant 

correspondence from CAHs and rural 

communities, as well as public 

discussion on the issue of supervision 

through the open door forum and calls 

with individual hospitals and other 

hospital representatives, we sought to 

identify some means of offering 

flexibility within the supervision 

requirement to hospitals and CAHs, 

while continuing to ensure that 

Medicare purchases services delivered 

with a basic level of quality and safety 

and also fulfills the statutory 

requirement for payment of therapeutic 

outpatient services in the hospital that 

are provided ‘‘incident to’’ physician 

services. We recognize the concerns of 

CAHs and rural hospitals that it could 

be difficult to staff a physician or 

nonphysician practitioner on the 

campus of the CAH or small rural 

hospital to supervise services that have 

a significant monitoring component and 

lack an active component being 

performed by the physician or 

nonphysician practitioner, especially 

when these services extend into after 

business hours or overnight. CAHs and 

rural hospitals explicitly identified 

observation services, IV hydration, 

chemotherapy, and blood transfusions 

as the services that are particularly 

challenging to provide under direct 

supervision. Observation services, in 

particular, can extend for a significant 

period of time. Data from the 85X claims 

indicate that most observation care lasts 

longer than 12 hours and almost all 

such care ends within 48 hours, 

suggesting that observation care 

frequently extends after business hours 

and through the night. 

We recognize that any service with an 

extended duration and a significant 

monitoring component could challenge 

hospitals’ ability to ensure direct 

supervision, and we decided to 

concentrate on these services. We set 

out to identify services with a 

significant monitoring component 

extending after business hours as 

identified by the CAHs and hospitals in 

rural communities and for which we 

could offer some flexibility in meeting 

the requirement for direct supervision of 

therapeutic services without 

compromising the quality and safety of 

services for which Medicare makes 

payment. One way to provide flexibility 

would be to allow a reduced level of 

supervision for part of these services. 

CAHs have already stated that their 

longstanding practice has been to 

provide therapeutic services under 

general supervision, which comports 

with the minimum requirements set 

forth in their CoPs to participate in the 

Medicare program that a physician or 

certain nonphysician practitioner must 

be available by phone but not physically 

present on the CAH campus. As defined 

in § 410.32(b)(3)(i), ‘‘general 

supervision’’ means the procedure is 

furnished under the physician’s overall 

direction and control, but the 

physician’s presence is not required 

during the performance of the 

procedure. We have established a 

requirement for direct supervision for 

all hospital outpatient services in our 

CY 2000 and CY 2010 rulemaking 

processes. However, we reasoned that, 

for certain extended duration services, 

we could adopt a general supervision 

requirement for some portion of the 

service, as long as we believed that such 

flexibility would not undermine the 

quality and safety of purchased services. 

Therefore, we are proposing to require, 

for a limited set of nonsurgical extended 

duration therapeutic services, direct 

supervision during the initiation of the 

service followed by general supervision 

for the remainder of the service. 

We are proposing to define ‘‘initiation 

of the service’’ as the beginning portion 

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of a service ending when the patient is 

stable and the supervising physician or 

appropriate nonphysician practitioner 

believes the remainder of the service 

can be delivered safely under their 

general direction and control without 

their physical presence on the hospital 

campus or in the PBD of the hospital. 

We considered further defining the term 

‘‘stable’’ in this definition as there is an 

established definition in the EMTALA 

regulations at section 489.24(b). In those 

regulations, ‘‘stabilized’’ with respect to 

an emergency medical condition means 

‘‘that no material deterioration of the 

condition is likely, within reasonable 

medical probability, to result from or 

occur during the transfer for the 

individual from a facility * * *’’. 

However, this language is set within the 

context of emergency services, not 

hospital outpatient therapeutic services 

generally, and we have been clear that 

supervision is more than emergency 

response. Ultimately, we were not 

certain that this definition would be 

appropriate for a payment requirement 

for supervision of outpatient therapeutic 

services. 

We also are not proposing to further 

define the term ‘‘initiation’’ or to set time 

limits on this portion of the service 

because we believe that the 

determination that a patient is 

sufficiently stable to transfer from direct 

supervision to general supervision, and 

the timing of that decision, are clinical 

judgments. Because some of the services 

identified for this proposed policy have 

the potential for shorter durations, such 

as an hour, we believe it is best to leave 

the determination of when to move from 

direct to general supervision to the 

discretion of the supervising physician 

or nonphysician practitioner. However, 

we are considering whether the point of 

transfer from direct supervision to 

general supervision should be 

documented in the medical record or 

identified in a hospital protocol, and we 

invite public comment on how CMS 

might review the physician or 

nonphysician practitioner’s decision to 

move from direct to general supervision 

to monitor for proper billing should an 

adverse event occur. 

We considered four criteria when 

identifying the list of services to which 

this new policy of direct supervision 

during the initiation of the service 

followed by general supervision for the 

remainder of the service would apply. 

We first accepted the two criteria 

identified in correspondence and 

discussion with CAHs and rural 

hospitals, that the service be of 

extended duration, frequently extending 

beyond normal business hours, and that 

the service largely consist of a 

significant monitoring component 

typically conducted by nursing or other 

auxiliary staff. We added a third 

criterion that the service must be of 

sufficiently low risk, such that the 

service typically would not require 

direct supervision often during the 

service. We believe this criterion is 

appropriate because, as we have 

previously discussed, our requirement 

for direct supervision is grounded in the 

statutory ‘‘incident to’’ payment 

authority, as well as the need to ensure 

that Medicare purchases services that 

represent a basic level of quality and 

safety. We have noted that, unlike an 

inpatient admission, the provision of 

outpatient services lacks certain 

safeguards such as a detailed medical 

history and a plan of care (74 FR 60578 

through 60588). Finally, we excluded all 

surgical services including recovery 

time from potential inclusion because, 

although monitoring of any patient in 

recovery is a key component of surgery, 

it is not the focus or a substantial 

component of the service and because 

we believe the surgeon should 

personally evaluate the patient’s 

medical status during the recovery 

period. 

Using these four criteria, we 

identified a list of nonsurgical 

therapeutic services that have a 

tendency to last for a long period of 

time, that largely consist of monitoring, 

and that have a low risk that the 

physician’s physical presence will be 

needed once the patient is stable. To 

identify this list of potential services, 

we reviewed all medical services, 

including the services and procedures 

specifically identified by CAHs and 

rural hospitals in their correspondence 

and public discussion. The proposed 

list of nonsurgical extended duration 

therapeutic services appears in Table 37 

below. We explicitly did not include 

chemotherapy or blood transfusions in 

our proposed list of nonsurgical 

extended duration therapeutic services 

because we believe that these services 

require the physician’s or nonphysician 

practitioner’s recurrent physical 

presence in order to evaluate the 

patient’s condition in the event it is 

necessary to redirect the service. 

We included observation services on 

the proposed list of nonsurgical 

extended duration services. In Section 

20.6 of Chapter 2 of the Medicare 

Benefit Policy Manual (Pub. 100–02), 

we define observation care as ‘‘a welldefined set of specific, clinically 

appropriate services, which include 

ongoing short term treatment, 

assessment, and reassessment before a 

decision can be made regarding whether 

patients will require further treatment as 

hospital inpatients or if they are able to 

be discharged from the hospital.’’ 

Therefore, the acuity of patients 

receiving observation services and the 

amount of recurrent supervisory review 

that may be necessary for these services 

can vary significantly. Observation 

services can be of low acuity and can 

have a low probability that the 

supervising physician or nonphysician 

practitioner’s physical presence would 

be needed to step in and perform the 

service or otherwise furnish assistance. 

We do note in Section 290.5.1 of 

Chapter 4 of the Medicare Claims 

Processing Manual (Pub. 100–04) that, 

for observation services, (a) ‘‘the 

beneficiary must be in the care of a 

physician during the period of 

observation, as documented in the 

medical record by outpatient 

registration, discharge, and other 

appropriate progress notes that are 

timed, written, and signed by the 

physician, and (b) the medical record 

also must include documentation that 

the physician explicitly assessed patient 

risk to determine that the beneficiary 

would benefit from observation 

services.’’ We would continue to expect 

hospitals and CAHs to fulfill these 

specific requirements associated with 

observation care, so the supervising 

physician or appropriate nonphysician 

practitioner must continue to evaluate 

the patient periodically and include 

written notes in the medical record. 

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In summary, we are proposing to 

require direct supervision as defined in 

§ 410.27(a)(1)(iv) during an initiation 

period, followed by a minimum 

standard of general supervision as 

defined in § 410.32(b)(3)(i) for the 

duration of the service, for a limited set 

of ‘‘nonsurgical extended duration 

therapeutic services’’ identified in Table 

37 above. We are proposing to add a 

new paragraph (a)(1)(v) to § 410.27 for 

this provision. In new 

§ 410.27(a)(1)(v)(A), we are proposing to 

define ‘‘nonsurgical extended duration 

therapeutic services’’ as services that can 

last a significant period of time, have a 

substantial monitoring component, have 

a low risk of requiring the physician’s 

or appropriate nonphysician 

practitioner’s physical presence to 

furnish assistance and direction after 

the initiation of the service, and are not 

primarily surgical in nature. In new 

§ 410.27(a)(1)(v)(B), we are proposing to 

define ‘‘initiation of the service’’ as the 

beginning portion of a service ending 

when the patient is stable and the 

supervising physician or appropriate 

nonphysician practitioner believes the 

remainder of the service can be 

delivered safely under his or her general 

direction and control without needing 

his or her physical presence on the 

hospital campus or in the PBD of the 

hospital. We note that in the CY 2010 

OPPS/ASC final rule with comment 

period, in presenting the regulation text 

changes for § 410.27, paragraph (a)(2) 

(relating to PHP services) was 

inadvertently deleted from the Code of 

Federal Regulations. We are proposing 

to restore paragraph (a)(2) as it 

originally appeared in the regulations. 

In crafting this proposal, we 

considered other avenues to offer 

flexibility within our requirement for 

direct supervision. We summarize 

below the alternatives we considered in 

order to focus public comments and 

generate sufficient detail to assist us in 

developing the final policy. In addition 

to considering the proposed policy to 

permit general supervision after an 

initial period of direct supervision for a 

limited subset of services, we also 

considered offering hospitals the 

flexibility to broaden the list to include 

chemotherapy and blood transfusions, 

which some stakeholders also maintain 

do not require direct supervision. 

Because we were concerned that these 

services had a high probability of 

needing a physician or nonphysician 

practitioner to redirect the service, we 

reasoned that we would have to require 

hospitals to create internal guidelines 

specifying a supervision level and 

protocols for staffing that supervision 

level for every nonsurgical extended 

duration therapeutic service. We 

considered proposing minimum 

requirements for these internal 

supervision guidelines, including 

annual review and approval by a 

governing committee, periodic internal 

evaluation of implementation, and the 

ability to make these guidelines 

available to Medicare program auditors 

if requested. Further, these guidelines 

would be reviewed thoroughly by CMS 

should a quality issue arise. Given the 

complexity of services such as 

chemotherapy and blood transfusions, 

and the probability that the physician’s 

or nonphysician practitioner’s physical 

presence will be required during the 

service, we decided to propose a policy 

to ensure greater safety for these higher 

acuity services. We also chose not to 

pursue this internal guidelines option 

because we believed that hospitals 

would find these requirements onerous 

and that the policy would not 

necessarily provide the flexibility that 

CAHs and rural hospitals desire. We are 

seeking public comment on whether 

hospitals agree with our assessment 

about the challenge of crafting, 

maintaining, and implementing internal 

guidelines about supervision and 

whether general supervision is 

clinically appropriate and safe for 

chemotherapy, blood transfusions, and 

similar services. 

We also considered whether for 

payment purposes we should explicitly 

exclude outpatient CAH services from 

all supervision requirements. As 

discussed above, one of the grounds for 

applying the direct supervision 

requirement to outpatient therapeutic 

services furnished in hospitals is that 

these services are outpatient hospital 

services furnished ‘‘incident to’’ 

physicians’ services under section 

1861(s)(2)(B) of the Act and paid under 

the OPPS pursuant to section 1833(t) of 

the Act. In contrast, ‘‘outpatient critical 

access hospital services’’ are defined 

under section 1861(mm)(3) of the Act, 

and CAHs are reimbursed for outpatient 

CAH services based on their reasonable 

costs pursuant to section 1834(g) of the 

Act. We believe that outpatient CAH 

services are correctly viewed as being 

furnished ‘‘incident to’’ physicians’ 

services. Section 1861(mm)(3) of the Act 

defines ‘‘outpatient critical access 

hospital services’’ as ‘‘medical and other 

health services furnished by a critical 

access hospital on an outpatient basis.’’ 

The term ‘‘medical and other health 

services’’ is defined at section 1861(s) of 

the Act as including ‘‘hospital services 

* * * incident to physicians’ services 

rendered to outpatients.’’ Furthermore, 

the same considerations regarding the 

need to ensure that services furnished to 

Medicare beneficiaries represent a basic 

level of quality and safety that apply to 

outpatient hospital services are equally 

applicable to outpatient CAH services. 

As a result, we believe it is appropriate 

to apply the same supervision 

requirements to outpatient therapeutic 

services furnished in hospitals and 

CAHs. We acknowledge that statutory 

provisions allow CAHs some flexibility 

in their staffing requirements to operate 

with more nursing staff and 

nonphysician practitioners rather than 

physicians if those are the practitioners 

that are available, and that our 

regulations recognize those reduced 

staffing requirements in the CoPs by 

establishing that, at a minimum, the 

physician or nonphysician practitioner 

must be available, but not necessarily on 

the CAH campus. Some have suggested, 

however, that these regulations which 

establish only minimal requirements 

reduce the quality and safety of CAH 

services and that CAHs should be 

required to disclose their reduced 

staffing levels to patients prior to 

providing services. Accordingly, we 

have elected not to propose to exempt 

CAHs from all direct supervision 

requirements because we believe that 

Medicare should purchase from CAHs 

services that are of the same basic level 

of safety and quality as from other 

hospitals, and because we also believe 

that both small rural hospitals paid 

under the OPPS through section 1833(t) 

of the Act and CAHs paid at reasonable 

cost under section 1834(g) of the Act 

have similar staffing and resource 

constraints. In fact, given that CAHs are 

reimbursed based on their reasonable 

costs, we reasoned that CAHs might be 

better able to hire staff to provide direct 

supervision. We welcome public 

comment on the topic of exempting 

CAHs from a direct supervision 

requirement for outpatient therapeutic 

services, including comments in 

response to our concerns about making 

such a proposal. 

4. Supervision of Hospital Outpatient 

Diagnostic Services 

We have received limited 

correspondence and questions on our 

policy finalized in the CY 2010 OPPS/ 

ASC final rule with comment period to 

adopt for outpatient hospital diagnostic 

services the physician supervision 

levels in § 410.32(b)(3) established 

under the MPFS and indicated on the 

Practice Expense Relative Value Unit 

file. As discussed above, the CY 2010 

policy applies to hospitals and not to 

CAHs. However, we have received 

questions asking whether nonphysician 

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practitioners previously performing 

diagnostic tests without physician 

supervision, within their State scope of 

practice and hospital-granted privileges, 

can continue to perform those tests 

without physician supervision. The CY 

2010 policy now requires physician 

supervision of those services, unless the 

nonphysician practitioner is specifically 

exempted under § 410.32(b)(2) or there 

is some other provision addressing 

supervision for that type of 

nonphysician practitioner. As part of a 

broader proposal addressing clinical 

nurse-midwives as defined in 

§ 410.77(b)(2) of the regulations, we are 

making a clarifying proposal in the CY 

2011 MPFS proposed rule that clinical 

nurse-midwives should be excepted 

from requiring physician supervision for 

the diagnostic tests that they are 

authorized to perform under applicable 

State laws. Comments on that proposal 

should be submitted through the 

comment process for that proposed rule 

(CMS–1503–P). 

B. Proposed Payment for Preventive 

Services 

1. Definition of ‘‘Preventive Services’’ 

Section 4104(a) of the Affordable Care 

Act revised section 1861(ddd) of the Act 

by adding a new paragraph (3), which 

defines the term ‘‘preventive services.’’ 

Preventive services are defined as: 

• Screening and preventive services 

currently described in section 

1861(ww)(2) of the Act, except for 

electrocardiograms described in section 

1861(ww)(2)(M) of the Act; 

• An initial preventive physical 

examination (IPPE) as defined in section 

1861(ww) of the Act; and 

• Personalized prevention plan 

services (PPPS), also known as the 

‘‘Annual Wellness Visit,’’ as defined in 

section 1861(hhh) of the Act (which was 

added by section 4103 of the Affordable 

Care Act). 

The services specified in the 

definition of ‘‘preventive services’’ at 

section 1861(ddd)(3)(A) of the Act, as 

cross-referenced to section 1861(ww)(2) 

of the Act, excluding 

electrocardiograms, include the 

following: 

• Pneumococcal, influenza, and 

hepatitis B vaccine and administration. 

• Screening mammography. 

• Screening pap smear and screening 

pelvic examination. 

• Prostate cancer screening tests. 

• Colorectal cancer screening tests. 

• Diabetes outpatient selfmanagement training (DSMT). 

• Bone mass measurement. 

• Screening for glaucoma. 

• Medical nutrition therapy (MNT) 

services. 

• Cardiovascular screening blood 

tests. 

• Diabetes screening tests. 

• Ultrasound screening for abdominal 

aortic aneurysm (AAA). 

• Additional preventive services 

identified for coverage through the 

national coverage determination (NCD) 

process. 

We note that currently the only 

additional preventive service identified 

for coverage through the NCD process is 

HIV testing. A proposed national 

coverage determination for smoking 

cessation services for asymptomatic 

patients (CAG–00420N, ‘‘Proposed 

Coverage Decision Memorandum for 

Counseling to Prevent Tobacco Use’’), 

was released in May 2010 on the CMS 

Web site at: http://www.cms.gov/mcd/ 

index_list.asp?list_type=nca. We will 

address the applicability of section 4104 

of the Affordable Care Act to these 

services if an NCD establishing them as 

additional preventive services is 

finalized before the CY 2011 OPPS/ASC 

final rule with comment period is 

issued. 

We are specifying our proposals to 

implement the coverage and payment 

provisions for PPPS in the CY 2011 

Medicare Physician Fee Schedule 

(MPFS) proposed rule. Therefore, public 

comments on the proposed coverage of 

and payment for PPPS under the 

provisions of the Affordable Care Act 

should be submitted in response to the 

CY 2011 MPFS proposed rule. The 

implementing regulations regarding 

coverage of the IPPE are already 

established under existing 42 CFR 

410.16 and remain unchanged by the 

Affordable Care Act. As discussed 

below in section XII.B.2. of this 

proposed rule, we are presenting our 

proposals for the application or waiver 

of the coinsurance requirements and the 

deductible for preventive services as 

provided for under sections 4104(b) and 

(c) of the Affordable Care Act. 

2. Coinsurance and Deductible for 

Preventive Services 

Sections 4104(b) and 10406 of the 

Affordable Care Act amended section 

1833(a)(1) of the Act to require 100 

percent payment for the IPPE and for 

those preventive services recommended 

by the United States Preventive Services 

Task Force (USPSTF) with a grade of A 

or B for any indication or population 

and that are appropriate for the 

individual. This requirement waives 

any coinsurance or copayment that 

would otherwise be applicable under 

section 1833(a)(1) of the Act for those 

items and services listed in section 

1861(ww)(2) of the Act (excluding 

electrocardiograms) to which the 

USPSTF has given a grade of A or B. In 

addition, section 4103(c) of the 

Affordable Care Act waives the 

coinsurance or copayment for the 

annual wellness visit providing PPPS. 

The coinsurance or copayment 

represents the beneficiary’s share of the 

payment to the provider or supplier for 

furnished services. Coinsurance 

generally refers to a percentage (for 

example, 20 percent) of the Medicare 

payment rate for which the beneficiary 

is liable and is applicable under the 

MPFS and ASC payment system, while 

copayment generally refers to an 

established amount that the beneficiary 

must pay that is not necessarily related 

to a particular percentage of the 

Medicare payment rate, and is 

applicable under the OPPS. We refer 

readers to the CY 2011 MPFS proposed 

rule for the proposed provisions related 

to payment for preventive services, 

including waiver of the deductible and 

copayment, under the MPFS, and to 

section XV.D.1.d. of this proposed rule 

for our proposals to implement the 

provisions related to payment for 

preventive services under the ASC 

payment system. 

Section 4104(c) of the Affordable Care 

Act amended section 1833(b)(1) of the 

Act to waive the Part B deductible for 

preventive services described in section 

1861(ddd)(3)(A) of the Act that have a 

grade of A or B from the USPSTF. In 

addition, section 4103(c)(4) of the 

Affordable Care Act waives the Part B 

deductible for the annual wellness visit 

providing PPPS. These provisions are 

effective for services furnished on and 

after January 1, 2011. We note that 

section 101(b)(2) of the MIPPA 

previously amended section 1833(b) of 

the Act to waive the deductible for the 

IPPE, effective January 1, 2009. 

Not all preventive services described 

in paragraph (A) of section 1861(ddd)(3) 

of the Act are recommended by the 

USPSTF with a grade of A or B, and 

therefore, some of the preventive 

services do not meet the criteria in 

sections 1833(a)(1) and 1833(b)(1) of the 

Act for the waiver of deductible and 

coinsurance. However, the changes 

made by section 4104 of the Affordable 

Care Act do not affect most of the preexisting specific provisions listed in 

existing § 410.160(b) and § 410.152 of 

the regulations (which reflect the 

provisions found in sections 1833(a) 

and 1833(b) of the Act) that waive the 

deductible and coinsurance for specific 

services. For example, section 

1833(a)(1)(D) of the Act waives the 

coinsurance and section 1833(b)(3) of 

the Act waives the deductible for 

clinical laboratory tests (including those 

furnished for screening purposes). 

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Section 4104 of the Affordable Care Act 

does not change this provision and the 

waiver for both the deductible and 

coinsurance remains in place for all 

laboratory tests, regardless of whether 

the particular clinical laboratory test 

meets the criteria of section 4104 for 

waiver of deductible and coinsurance as 

a preventive service. 

The following preventive services 

listed in section 1833(ddd)(3)(A) of the 

Act are not recommended by the 

USPSTF with a grade of A or B for any 

indication or population: digital rectal 

examination provided as a prostate 

cancer screening service; glaucoma 

screening; diabetes outpatient selfmanagement training; and barium 

enema provided as a colorectal cancer 

screening service. 

Specifically, HCPCS code G0102 

(Prostate cancer screening; digital rectal 

exam), which does not have a grade of 

A or B from the USPSTF for any 

indication or population, will continue 

to be subject to the deductible and 

coinsurance. However, the deductible 

and coinsurance for HCPCS code G0103 

(Prostate cancer screening; prostate 

specific antigen test (PSA)) will 

continue to be waived under section 

1833(a)(1)(D) of the Act as a clinical 

laboratory test, even though it also does 

not have a grade of A or B from the 

USPSTF. 

Glaucoma screening services, 

described by HCPCS codes G0117 

(Glaucoma screening for high risk 

patients furnished by an optometrist or 

ophthalmologist) and G0118 (Glaucoma 

screening for high risk patient furnished 

under the direct supervision of an 

optometrist or ophthalmologist), will 

continue to be subject to the deductible 

and coinsurance requirements because 

these services are not recommended 

with a grade of A or B by the USPSTF 

for any indication or population. 

Similarly, diabetes outpatient selfmanagement training is currently not 

rated by the USPSTF; therefore, the 

deductible and coinsurance 

requirements will continue to apply. 

Barium enemas provided as colorectal 

cancer screening tests, described by 

HCPCS codes G0106 (Colorectal cancer 

screening; alternative to G0104, 

screening sigmoidoscopy, barium 

enema) and G0120 (Colorectal cancer 

screening; alternative to G0105, 

screening colonoscopy, barium enema) 

do not have a grade of A or B from the 

USPSTF for any indication or 

population. However, the deductible 

does not apply to barium enemas 

provided as colorectal cancer screening 

tests, because colorectal cancer 

screening tests are explicitly excluded 

from the deductible under section 

1833(b)(8) of the Act. However, there is 

no specific exclusion of barium enemas 

from the coinsurance requirement at 

section 1833(b)(1) of the Act. Therefore, 

this requirement, as applicable, 

continues to apply to barium enemas. 

We note that the USPSTF has given a 

grade of A to colonoscopy, flexible 

sigmoidoscopy, and fecal occult blood 

screening tests, and that, as a result, 

these services qualify for the statutory 

waiver of both the deductible and 

coinsurance. 

We also note that the USPSTF ceased 

to make recommendations with regard 

to vaccines and vaccine administration 

after CY 1996, so as not to conflict with 

the recommendations of the CDC’s 

Advisory Committee on Immunization 

Practices. However, the USPSTF’s most 

recent vaccine recommendations, which 

were never withdrawn by the USPSTF, 

gave a grade of B to the influenza and 

pneumococcal vaccines and their 

administration and a grade of A to the 

hepatitis B vaccine and its 

administration. While sections 

1833(a)(1) and 1833(b)(1) of the Act 

require that the preventive services 

receive a grade of A or B from the 

USPSTF for the coinsurance and 

deductible to be waived, the statute 

does not specify that the recommended 

grade must be furnished within any 

given timeframe. The USPSTF grades 

for these preventive services are the 

most current USPSTF grade and have 

never been withdrawn. Therefore, we 

believe that these preventive services 

meet the requirements of the statute for 

the waiver of the deductible and 

coinsurance. We also note that the 

CDC’s Advisory Committee on 

Immunization Practices currently 

recommends influenza, pneumococcal, 

and hepatitis B vaccines. 

Table 38 below displays the HCPCS 

codes (paid under the OPPS or at 

reasonable cost) that we are proposing 

as ‘‘preventive services’’ under section 

1861(ddd)(3)(A) of the Act. Table 38 

also provides the most recent USPSTF 

grade, if any, that is the basis for our 

proposed policy with regard to waiver 

of the deductible and coinsurance, as 

applicable. In developing 

recommendations regarding preventive 

services, we recognize that the USPSTF 

may make recommendations that are 

specific to an indication or population, 

at times including characteristics such 

as gender and age in its 

recommendations. While we are 

proposing to waive the deductible and 

coinsurance for any Medicare covered 

preventive service recommended with a 

grade of A or B for any indication or 

population, with no limits on the 

indication or population as long as the 

USPSTF has recommended the 

preventive service for at least one 

indication and/or population with a 

grade of A or B, we note that all existing 

Medicare coverage policies for such 

services, including any limitations 

based on indication or population, 

continue to apply. In some cases, 

national coverage policies may currently 

limit Medicare coverage based on the 

indication or population, consistent 

with the USPSTF recommendations 

with a grade of A or B for the indication 

or population. In other cases where 

Medicare does not explicitly noncover 

preventive services for a specific 

population or indication, we would 

expect that, particularly in those cases 

where the USPSTF recommendation 

grade is a D (that is, the USPTF 

recommends against the service because 

there is moderate or high certainty that 

the service has no net benefit or that the 

harms outweigh the benefits), 

practitioners would only order those 

preventive services that are clinically 

appropriate for the beneficiary. If we 

have future concerns about the 

appropriateness of preventive services 

for an indication or population in light 

of the USPSTF’s recommendations, we 

may consider using our authority under 

section 1834(n)(1) of the Act (as added 

by section 4105 of the Affordable Care 

Act) to modify Medicare coverage of any 

preventive service consistent with the 

recommendations of the USPSTF. 

We note that section 4103(c)(3)(A) of 

the Affordable Care Act excludes the 

PPPS from payment under the OPPS 

and establishes payment for the PPPS 

when performed in a hospital outpatient 

department under the MPFS. In this 

OPPS/ASC proposed rule, we are 

proposing to add a new § 419.22(t) to 

the regulations to specify that the PPPS 

is excluded from payment under the 

OPPS. In the process of revising the 

regulations to reflect the exclusion of 

PPPS from the OPPS, we noticed the 

need for existing § 419.21(e) to be 

updated to reflect that an IPPE may be 

performed within 12 months after the 

date of the individual’s initial 

enrollment in Part B effective January 1, 

2009. We also noticed that existing 

§ 419.22(m) of the regulations should be 

updated to reflect that a revised 

payment methodology for end-stage 

renal disease (ESRD) services will go 

into effect on January 1, 2011. 

Therefore, we also are proposing to 

revise §§ 419.21(e) and 419.22(m). We 

refer readers to the CY 2011 MPFS 

proposed rule for a discussion of the 

proposed changes to § 410.160(b) and 

§ 410.152 of the regulations to 

implement the provisions related to the 

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definition of preventive services and the 

waiver of the coinsurance and 

deductible for preventive services as 

specified by sections 4103 and 4104 of 

the Affordable Care Act. 

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<FNP> 

3. Extension of Waiver of Deductible to 

Services Furnished in Connection With 

or in Relation to a Colorectal Cancer 

Screening Test That Becomes Diagnostic 

or Therapeutic 

Section 4104(c) of the Affordable Care 

Act amended section 1833(b) of the Act 

to waive the Part B deductible for 

colorectal cancer screening tests that 

become diagnostic. Specifically, section 

4104(c)(2) of the Affordable Care Act 

waives the deductible with respect to a 

colorectal cancer screening test 

regardless of the code that is billed for 

the establishment of a diagnosis as a 

result of the test, or for the removal of 

tissue or other matter or other procedure 

that is furnished in connection with, as 

a result of, and in the same clinical 

encounter as a screening test. 

We are proposing that all surgical 

services furnished on the same date as 

a planned screening colonoscopy, 

planned flexible sigmoidoscopy, or 

barium enema be viewed as being 

furnished in connection with, as a result 

of, and in the same clinical encounter as 

the screening test. We believe that this 

interpretation is appropriate because we 

believe that it would be very rare for an 

unrelated surgery to occur on the same 

date as one of these scheduled screening 

tests. Moreover, we believe that the risk 

of improper expenditures would be very 

small under this policy because it is the 

deductible, and not the coinsurance, 

that is waived for the related procedures 

other than the screening tests. In the 

event of a legislative change to this 

policy (for example, a statutory change 

that would waive the coinsurance for 

these related services in addition to the 

deductible), we would reassess the 

appropriateness of this proposed 

definition of services that are furnished 

in connection with, as a result of, and 

in the same clinical encounter as the 

colorectal cancer screening test that 

becomes diagnostic. We also note that 

the annual deductible would likely be 

met when any surgical procedure 

(related or not) is performed on the 

same day as the scheduled screening 

test. 

We are proposing to implement this 

provision by creating a HCPCS modifier 

that providers would append to the 

diagnostic procedure code that is 

reported instead of the screening 

colonoscopy or screening flexible 

sigmoidoscopy HCPCS code or as a 

result of the barium enema when the 

screening test becomes a diagnostic 

service. The claims processing system 

would respond to the modifier by 

waiving the deductible for all surgical 

services on the same date as the 

diagnostic test. Coinsurance or 

copayment would continue to apply to 

the diagnostic test and to other services 

furnished in connection with, as a result 

of, and in the same clinical encounter as 

the screening test. 

C. Payment for Pulmonary 

Rehabilitation, Cardiac Rehabilitation, 

and Intensive Cardiac Rehabilitation 

Services Furnished to Hospital 

Outpatients 

In the CY 2010 OPPS/ASC final rule 

with comment period (74 FR 60566 

through 60574), we addressed the 

provisions of section 144(a) of the 

Medicare Improvements for Patients and 

Providers Act (MIPPA, Pub. L. 110– 

275). Section 144(a) provided for 

Medicare Part B coverage and payment 

for pulmonary and cardiac 

rehabilitation services furnished to 

beneficiaries with chronic obstructive 

pulmonary disease and certain other 

conditions, effective January 1, 2010. 

Medicare Part B coverage is provided for 

items and services under a cardiac 

rehabilitation (CR) program, a 

pulmonary rehabilitation (PR) program, 

and an intensive cardiac rehabilitation 

(ICR) program furnished in a physician’s 

office, a hospital on an outpatient basis, 

or in other settings as the Secretary 

determines appropriate. We have 

received questions as to whether a CAH 

outpatient department is a covered 

setting for services furnished under 

these programs because the 

amendments made to the Act by section 

144(a) of the MMA do not specifically 

define CAHs as hospitals for this 

benefit. 

In this proposed rule, we are 

clarifying that a CAH outpatient 

department is considered a covered 

setting for PR, CR and ICR programs, 

provided that the programs meet all of 

the regulatory requirements, including, 

but not limited to, direct supervision of 

all services by a physician, specified in 

42 CFR 410.27(a)(1)(iv)(A) and 

410.47(a)(2)(ii). We can establish that 

CAHs are a covered setting because the 

law and implementing regulations 

specify that PR, CR and ICR services are 

covered in the hospital outpatient 

setting, and we define a hospital 

outpatient in the regulations and 

program instructions as ‘‘a person * * * 

who * * * receives services * * * 

directly from the hospital or CAH’’ (42 

CFR 410.2 and the Medicare Benefit 

Policy Manual, Chapter 6, Section 20.2, 

available at the CMS Web site at: 

http://www.cms.gov/manuals/ 

Downloads/bp102c06.pdf). We also note 

that under section 1861(e) of the Act, 

the context of the term ‘‘hospital’’ as 

used in the coverage provisions for PR, 

CR and ICR reflects the inclusion of 

CAHs. 

D. Expansion of Multiple Procedure 

Reduction Under the Medicare 

Physician Fee Schedule (MPFS) to 

Therapy Services 

Hospitals are paid for outpatient 

physical therapy (which includes 

speech language pathology services) and 

outpatient occupational therapy under 

the Medicare Physician Fee Schedule 

(MPFS). Outpatient physical therapy 

(which includes speech language 

pathology services) and outpatient 

occupational therapy services, as 

described in section 1833(a)(8) of the 

Act, are excluded from the OPPS by 

section 1833(t)(1)(B)(iv) of the Act. 

Section 1833(a)(8) of the Act provides 

that outpatient physical and 

occupational therapy are to be paid as 

provided in section 1834(k)of the Act. 

Section 1834(k)(3) of the Act specifies 

that these services are paid under the 

fee schedule established under section 

1848 of the Act and section 1848 of the 

Act establishes payment under the 

MPFS. 

For CY 2011, we are proposing to 

revise the MPFS to apply a multiple 

procedure reduction to payment for all 

outpatient physical and occupational 

therapy services paid under the MPFS. 

This proposal is contained in the CY 

2011 MPFS proposed rule (CMS–1503– 

P, Medicare Program; Payment Policies 

under the Physician Fee Schedule and 

Other Revisions to Part B for CY 2011). 

To be considered in the development of 

the final policy for CY 2011, public 

comments on this issue should be 

submitted in response to the CY 2011 

MPFS proposed rule. 

XIII. Proposed OPPS Payment Status 

and Comment Indicators 

A. Proposed OPPS Payment Status 

Indicator Definitions 

Payment status indicators (SIs) that 

we assign to HCPCS codes and APCs 

play an important role in determining 

payment for services under the OPPS. 

They indicate whether a service 

represented by a HCPCS code is payable 

under the OPPS or another payment 

system and also whether particular 

OPPS policies apply to the code. Our 

proposed CY 2011 status indicator 

assignments for APCs and HCPCS codes 

are shown in Addendum A and 

Addendum B, respectively, to this 

proposed rule. 

For CY 2011, we are not proposing to 

make any changes to the status 

indicators that were listed in 

Addendum D1 of the CY 2010 OPPS/ 

ASC final rule with comment period. 

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These status indicators are listed in the 

tables under sections XIII.A.1., 2., 3., 

and 4. of this proposed rule. 

1. Proposed Payment Status Indicators 

To Designate Services That Are Paid 

Under the OPPS 

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Section 142 of Public Law 110–275 

(MIPPA) required CMS to pay for 

therapeutic radiopharmaceuticals for 

the period of July 1, 2008, through 

December 31, 2009, at hospitals’ charges 

adjusted to the costs. The status 

indicator ‘‘H’’ was assigned to 

therapeutic radiopharmaceuticals to 

indicate that an item was paid at 

charges adjusted to cost during CY 2009. 

In the CY 2010 OPPS/ASC final rule 

with comment period (74 FR 60593), we 

changed our policy to pay prospectively 

and separately for therapeutic 

radiopharmaceuticals with average per 

day costs greater than the CY 2010 drug 

packaging threshold of $65 under the 

OPPS. Therefore, we changed the status 

indicator for HCPCS codes used to 

report separately payable therapeutic 

radiopharmaceuticals from ‘‘H’’ to ‘‘K,’’ 

which indicated that an item is 

separately paid under the OPPS at the 

APC payment rate established for the 

item. We refer readers to section V.B.5. 

of the CY 2010 OPPS/ASC final rule 

with comment period for discussion of 

the final CY 2010 changes to our 

payment policy for therapeutic 

radiopharmaceuticals (74 FR 60593). 

For CY 2011 OPPS, we are proposing to 

continue to pay for therapeutic 

radiopharmaceuticals under the OPPS at 

the APC payment rate established for 

the item. (We refer readers to our 

discussion of this proposal for payment 

of therapeutic radiopharmaceuticals in 

section V.B.3. of this proposed rule.) 

For CY 2010, we established a policy 

to consider implantable biologicals that 

are not on pass-through status as a 

biological before January 1, 2010, as 

devices for pass-through evaluation and 

payment beginning in CY 2010. 

Therefore, pass-through implantable 

biologicals were assigned a status 

indicator of ‘‘H,’’ while nonpass-through 

implantable biologicals were assigned a 

status indicator of ‘‘N’’ beginning in CY 

2010. Those implantable biologicals that 

have been granted pass-through status 

under the drug and biological criteria 

prior to January 1, 2010, continued to be 

assigned a status indicator of ‘‘G’’ until 

they are proposed for expiration from 

pass-through status during our annual 

rulemaking cycle. In the CY 2010 OPPS/ 

ASC final rule with comment period (74 

FR 60593), we assigned status indicator 

‘‘K’’ to nonimplantable biologicals and 

adjusted the definition of status 

indicator ‘‘K’’ accordingly. For CY 2011, 

we are not proposing any changes to 

current policy. We discuss our proposed 

treatment of drugs, biologicals, and 

radiopharmaceuticals with new or 


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continuing pass-through status in CY 

2011 in section V.A.3. of this proposed 

rule, and we discuss our proposed 

treatment of drugs and biologicals with 

expiring pass-through status in CY 2010 

including the specific implantable 

biologicals to which this policy is 

proposed to apply for CY 2011 OPPS in 

section V.A.2. of this proposed rule. 

The proposed CY 2011 status 

indicators are displayed in both the 

table above and in Addendum D1 to this 

proposed rule. 

2. Proposed Payment Status Indicators 

To Designate Services That Are Paid 

Under a Payment System Other Than 

the OPPS 

We are not proposing any changes to 

the status indicators listed below for the 

CY 2011 OPPS. 

The proposed CY 2011 status 

indicators displayed in the table above 

are also displayed in Addendum D1 to 

this proposed rule. 

3. Proposed Payment Status Indicators 

To Designate Services That Are Not 

Recognized Under the OPPS But That 

May Be Recognized by Other 

Institutional Providers 

We are not proposing any changes to 

the status indicators listed below for the 

CY 2011 OPPS. 


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The proposed status indicators are 

also displayed in Addendum D1 to this 

proposed rule. 

4. Proposed Payment Status Indicators 

To Designate Services That Are Not 

Payable by Medicare on Outpatient 

Claims 

We are not proposing any changes to 

the payment status indicators listed 

below for the CY 2011 OPPS. 

Addendum B, with a complete listing 

of HCPCS codes including proposed 

payment status indicators for each code 

and proposed APC assignments for CY 

2011, is available electronically on the 

CMS Web site under supporting 

documentation for this proposed rule at: 

http://www.cms.hhs.gov/ 

HospitalOutpatientPPS/HORD/ 

list.asp#TopOfPage. 

B. Proposed Comment Indicator 

Definitions 

For the CY 2011 OPPS, we are 

proposing to use the same two comment 

indicators that are in effect for the CY 

2010 OPPS. 

• ‘‘CH’’—Active HCPCS codes in 

current and next calendar year; status 

indicator and/or APC assignment have 

changed or active HCPCS code that will 

be discontinued at the end of the 

current calendar year. 

• ‘‘NI’’—New code for the next 

calendar year or existing code with 

substantial revision to its code 

descriptor in the next calendar year as 

compared to current calendar year, 

interim APC assignment; comments will 

be accepted on the interim APC 

assignment for the new code. 

We are using the ‘‘CH’’ indicator in 

this proposed rule to call attention to 

proposed changes in the payment status 

indicator and/or APC assignment for 

HCPCS codes for CY 2011 compared to 

their assignment as of June 30, 2010. We 

believe that using the ‘‘CH’’ indicator in 

this proposed rule will help facilitate 

the public’s review of the changes that 

we are proposing for CY 2011. The use 

of the comment indicator ‘‘CH’’ in 

association with a composite APC 

indicates that we have proposed a 


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change to the configuration of the 

composite APC in this proposed rule. 

We are proposing to use the ‘‘CH’’ 

comment indicator in the CY 2011 

OPPS/ASC final rule with comment 

period to indicate HCPCS codes for 

which the status indicator or APC 

assignment, or both, would change in 

CY 2011 compared to their assignment 

as of December 31, 2010. 

We are not proposing any changes to 

our policy regarding the use of comment 

indicator ‘‘NI.’’ In our CY 2010 OPPS/ 

ASC final rule with comment period, we 

expanded the definition of comment 

indicator ‘‘NI’’ to include an existing 

code with a substantial revision to its 

code descriptor in the next calendar 

year as compared to the current 

calendar year to indicate that the code’s 

CY 2010 OPPS treatment was open to 

public comment on the CY 2010 OPPS/ 

ASC final rule with comment period. 

In the CY 2010 OPPS/ASC final rule 

with comment period, there are 

numerous instances in which the 

descriptor of a previously existing 

Category I CPT code was substantially 

revised for the next calendar year so that 

it described a new service or procedure 

that could have been assigned a new 

code number by the CPT Editorial Panel 

and that new code number would then 

had been assigned the ‘‘NI’’ comment 

indicator. We anticipate that, for CY 

2011, not all new services or procedures 

will be assigned a new CPT code 

number, but instead will be described 

by an existing CPT code number with a 

substantially revised code descriptor. 

We are proposing to continue to assign 

the comment indicator ‘‘NI’’ to these 

codes in order to allow for comment on 

our proposed payment for these 

substantially revised codes. Like all 

codes labeled with comment indicator 

‘‘NI,’’ in a final rule, we will respond to 

public comments and finalize their 

OPPS treatment in the CY 2012 OPPS/ 

ASC final rule with comment period. In 

accordance with our usual practice, CPT 

and Level II HCPCS code numbers that 

are new for CY 2011 will also be labeled 

with comment indicator ‘‘NI’’ in 

Addendum B to the CY 2011 OPPS/ASC 

final rule with comment period. 

Only HCPCS codes with comment 

indicator ‘‘NI’’ in the CY 2011 OPPS/ 

ASC final rule with comment period 

will be subject to comment. HCPCS 

codes that do not appear with comment 

indicator ‘‘NI’’ in the CY 2011 OPPS/ 

ASC final rule with comment period 

will not be open to public comment, 

unless we specifically have requested 

additional comments elsewhere in the 

final rule with comment period. The CY 

2011 treatment of HCPCS codes that 

appears in the CY 2011 OPPS/ASC final 

rule with comment period to which 

comment indicator ‘‘NI’’ is not appended 

will be open to public comment during 

the comment period for this proposed 

rule, and we will respond to those 

comments in the final rule with 

comment period. 

We are not proposing any changes to 

the definitions of the OPPS comment 

indicators for CY 2011. Their proposed 

definitions are listed in Addendum D2 

to this proposed rule. 

XIV. OPPS Policy and Payment 

Recommendations 

A. MedPAC Recommendations 

MedPAC was established under 

section 1805 of the Act to advise the 

U.S. Congress on issues affecting the 

Medicare program. As required under 

the statute, MedPAC submits reports to 

Congress not later than March and June 

of each year that contain its Medicare 

payment policy recommendations. This 

section describes recent 

recommendations relevant to the OPPS 

that have been made by MedPAC. 

The March 2010 MedPAC ‘‘Report to 

Congress: Medicare Payment Policy’’ 

included the following recommendation 

relating specifically to the Medicare 

hospital OPPS: 

Recommendation 2A–1: The Congress 

should increase payment rates for the 

acute inpatient and outpatient 

prospective payment systems in 2011 by 

the projected rate of increase in the 

hospital market basket index, 

concurrent with implementation of a 

quality incentive payment program. 

CMS Response: Subsequent to the 

issuance of the MedPAC report, 

Congress enacted the Affordable Care 

Act. Section 1833(t)(3)(F) as added by 

section 3401 of the Affordable Care Act 

and as amended by section 10319 of the 

Affordable Care Act and section 1105 of 

the HCERA provides that after 

determining the OPD fee schedule 

increase factor, the Secretary shall 

reduce such increase factor by 0.25 

percentage point in 2011. As discussed 

in section II.B. of this proposed rule, we 

are proposing to increase the full CY 

2011 conversion factor by the projected 

rate of increase in the hospital market 

basket less the mandated 0.25 

percentage point reduction. 

Simultaneously, we are proposing for 

CY 2011 to reduce the annual update 

factor by 2.0 percentage points for 

hospitals that are defined under section 

1886(d)(1)(B) of the Act and that do not 

meet the hospital outpatient quality data 

reporting required by section 1833(t)(17) 

of the Act. We would make this 

adjustment after the application of the 

0.25 percentage point reduction. For the 

adjustment under section 1833(t)(17) of 

the Act, we are proposing to calculate 

two conversion factors: a full conversion 

factor based on the annual update 

factor, adjusted by the 0.25 percentage 

point reduction required by the 

Affordable Care Act for CY 2011; and a 

reduced conversion factor that reflects 

the 2.0 percentage points reduction to 

the annual update factor, as adjusted by 

the 0.25 percentage point reduction. 

CMS implemented the Hospital 

Outpatient Quality Data Reporting 

Program (HOP QDRP) in CY 2008 and 

is proposing to continue this program in 

CY 2011 (as discussed in section XVI. of 

this proposed rule). 

The full March 2010 MedPAC report 

can be downloaded from MedPAC’s 

Web site at: http://www.medpac.gov/

documents/Mar10_EntireReport.pdf. 

B. APC Panel Recommendations 

Recommendations made by the APC 

Panel at its February 2010 meeting are 

discussed in the sections of this 

proposed rule that correspond to topics 

addressed by the APC Panel. The report 

and recommendations from the APC 

Panel’s February 17–18, 2010 meeting 

are available on the CMS Web site at: 

http://www.cms.gov/FACA/05_

AdvisoryPanelonAmbulatoryPayment

ClassificationGroups.asp. 

C. OIG Recommendations 

The mission of the Office of the 

Inspector General (OIG), as mandated by 

Public Law 95–452, as amended, is to 

protect the integrity of the U.S. 

Department of Health and Human 

Services (HHS) programs, as well as the 

health and welfare of beneficiaries 

served by those programs. This statutory 

mission is carried out through a 

nationwide network of audits, 

investigations, and inspections. As of 

the publication of the proposed rule, 

there were no OIG reports that resulted 

in OIG recommendations for OPPS 

policy changes for CY 2011. 

XV. Proposed Updates to the 

Ambulatory Surgical Center (ASC) 

Payment System 

A. Background 

1. Legislative Authority for the ASC 

Payment System 

Section 1832(a)(2)(F)(i) of the Act 

provides that benefits under Medicare 

Part B include payment for facility 

services furnished in connection with 

surgical procedures specified by the 

Secretary that are performed in an 

Ambulatory Surgical Center (ASC). To 

participate in the Medicare program as 

an ASC, a facility must meet the 

standards specified in section 

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1832(a)(2)(F)(i) of the Act, which are set 

forth in 42 CFR part 416, Subpart B and 

Subpart C of our regulations. The 

regulations at 42 CFR part 416, Subpart 

B describe the general conditions and 

requirements for ASCs, and the 

regulations at Subpart C explain the 

specific conditions for coverage for 

ASCs. 

Section 141(b) of the Social Security 

Act Amendments of 1994, Public Law 

103–432, required establishment of a 

process for reviewing the 

appropriateness of the payment amount 

provided under section 1833(i)(2)(A)(iii) 

of the Act for intraocular lenses (IOLs) 

that belong to a class of new technology 

intraocular lenses (NTIOLs). That 

process was the subject of a final rule 

entitled ‘‘Adjustment in Payment 

Amounts for New Technology 

Intraocular Lenses Furnished by 

Ambulatory Surgical Centers,’’ 

published on June 16, 1999, in the 

Federal Register (64 FR 32198). 

Section 626(b) of the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA), 

Public Law 108–173, added 

subparagraph (D) to section 1833(i)(2) of 

the Act, which required the Secretary to 

implement a revised ASC payment 

system to be effective not later than 

January 1, 2008. Section 626(c) of the 

MMA amended section 1833(a)(1) of the 

Act by adding new subparagraph (G), 

which requires that, beginning with 

implementation of the revised ASC 

payment system, payment for surgical 

procedures furnished in ASCs shall be 

80 percent of the lesser of the actual 

charge for the services or the amount 

determined by the Secretary under the 

revised payment system. 

Section 5103 of the Deficit Reduction 

Act of 2005 (DRA), Public Law 109–171, 

amended section 1833(i)(2) of the Act by 

adding new subparagraph (E) to place a 

limitation on payment amounts for 

surgical procedures furnished in ASCs 

on or after January 1, 2007, but before 

the effective date of the revised ASC 

payment system (that is, January 1, 

2008). Section 1833(i)(2)(E) of the Act 

provides that if the standard overhead 

amount under section 1833(i)(2)(A) of 

the Act for an ASC facility service for 

such surgical procedures, without 

application of any geographic 

adjustment, exceeds the Medicare 

payment amount under the hospital 

OPPS for the service for that year, 

without application of any geographic 

adjustment, the Secretary shall 

substitute the OPPS payment amount 

for the ASC standard overhead amount. 

Section 109(b) of the Medicare 

Improvements and Extension Act of 

2006 of the Tax Relief and Health Care 

Act of 2006 (MIEA–TRHCA), Public 

Law 109–432, amended section 

1833(i)(2)(D) of the Act, in part, by 

redesignating clause (iv) as clause (v) 

and adding a new clause (iv) and by 

adding new section 1833(i)(7)(A). These 

amendments provide the Secretary the 

authority to require ASCs to submit data 

on quality measures and to reduce the 

annual update by 2 percentage points 

for an ASC that fails to submit data as 

required by the Secretary on selected 

quality measures. Section 109(b) of the 

MIEA–TRHCA also amended section 

1833(i) of the Act by adding new section 

1833(i)(7)(B), which requires that, to the 

extent the Secretary establishes such an 

ASC quality reporting program, certain 

quality of care reporting requirements 

mandated for hospitals paid under the 

OPPS, under sections 1833(t)(17)(B), (C), 

(D) and (E) of the Act, as added by 

section 109(a) of the MIEA–TRHCA, be 

applied in a similar manner to ASCs 

unless otherwise specified by the 

Secretary. 

Sections 4104 and 10406 of the 

Affordable Care Act amend sections 

1833(a)(1) and (b)(1) of the Act to waive 

the coinsurance and the Part B 

deductible for those preventive services 

described in section 1861(ww)(2) of the 

Act (excluding electrocardiograms) that 

are recommended by the United States 

Preventive Services Task Force 

(USPSTF) with a grade of A or B for any 

indication or population and that are 

appropriate for the individual. Section 

4104(c) of the Affordable Care Act 

amends section 1833(b)(1) of the Act to 

waive the Part B deductible for 

colorectal cancer screening tests that 

become diagnostic. These provisions 

apply to these items and services 

furnished in an ASC on or after January 

1, 2011. 

Section 3401(k) of the Affordable Care 

Act amends section 1833(i)(2)(D) of the 

Act to require that, effective for CY 2011 

and subsequent years, any annual 

update under the ASC payment system 

be reduced by a productivity 

adjustment, which is equal to the 10- 

year moving average of changes in 

annual economy-wide private nonfarm 

business multi-factor productivity (as 

projected by the Secretary for the 10- 

year period ending with the applicable 

fiscal year, year, cost reporting period, 

or other annual period). Application of 

this productivity adjustment to the ASC 

payment system may result in the 

update to the ASC payment system 

being less than zero for a year and may 

result in payment rates under the ASC 

payment system for a year being less 

than such payment rates for the 

preceding year. 

For a detailed discussion of the 

legislative history related to ASCs, we 

refer readers to the June 12, 1998 

proposed rule (63 FR 32291 through 

32292). 

2. Prior Rulemaking 

On August 2, 2007, we published in 

the Federal Register (72 FR 42470) the 

final rule for the revised ASC payment 

system, effective January 1, 2008 (the 

‘‘August 2, 2007 final rule’’). In that final 

rule, we revised our criteria for 

identifying surgical procedures that are 

eligible for Medicare payment when 

furnished in ASCs and adopted the 

method we would use to set payment 

rates for ASC covered surgical 

procedures and covered ancillary 

services furnished in association with 

those covered surgical procedures 

beginning in CY 2008. We also 

established a policy for treating new and 

revised HCPCS and CPT codes under 

the ASC payment system. This policy is 

consistent with the OPPS to the extent 

possible (72 FR 42533). Additionally, 

we established a standard ASC 

ratesetting methodology that bases 

payment for most services on the list of 

ASC covered surgical procedures on the 

OPPS relative payment weight 

multiplied by an ASC conversion factor. 

We also established modifications to 

this methodology for subsets of services, 

such as device-intensive services (where 

the estimated device portion of the ASC 

payment is the same as that paid under 

the OPPS) and services that are 

predominantly performed in the office 

setting and covered ancillary radiology 

services (where ASC payment may be 

based on the MPFS non-facility practice 

expense (PE) Relative Value Units 

(RVUs)). Additionally, we established a 

policy for updating the conversion 

factor, the relative payment weights, 

and the ASC payment rates on an 

annual basis. We also annually update 

the list of procedures for which 

Medicare would not make an ASC 

payment. 

In the CY 2008 OPPS/ASC final rule 

with comment period (72 FR 66827), we 

updated and finalized the CY 2008 ASC 

rates and lists of covered surgical 

procedures and covered ancillary 

services. We also made regulatory 

changes to 42 CFR Parts 411, 414, and 

416 related to our final policies to 

provide payments to physicians who 

perform noncovered ASC procedures in 

ASCs based on the facility PE RVUs, to 

exclude covered ancillary radiology 

services and covered ancillary drugs 

and biologicals from the categories of 

designated health services (DHS) that 

are subject to the physician self-referral 

prohibition, and to reduce ASC 

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payments for surgical procedures when 

the ASC receives full or partial credit 

toward the cost of the implantable 

device. In the CY 2009 OPPS/ASC final 

rule with comment period (73 FR 

68722), we updated and finalized the 

CY 2009 ASC rates and lists of covered 

surgical procedures and covered 

ancillary services. 

In the CY 2010 OPPS/ASC final rule 

with comment period (74 FR 60596), we 

updated and finalized the CY 2010 ASC 

rates and lists of covered surgical 

procedures and covered ancillary 

services. We also corrected some of 

those ASC rates in a correction notice 

published in the Federal Register on 

December 31, 2009 (74 FR 69502). In 

that correction notice, we revised the 

ASC rates to reflect changes in the 

MPFS conversion factor and PE RVUs 

listed for some CPT codes in Addendum 

B to the CY 2010 MPFS final rule with 

comment period (74 FR 62017), which 

were incorrect due to methodological 

errors and, consequently, were corrected 

in a correction notice to that final rule 

with comment period (74 FR 65449). We 

also are publishing a second correction 

notice in the Federal Register around 

the time of this proposed rule to address 

changes to the ASC rates resulting from 

corrections to the PE RVUs identified 

subsequent to publication of the 

December 31, 2009 correction notice. 

Finally, we are publishing a notice 

around the time of this proposed rule in 

the Federal Register to reflect changes 

to CY 2010 ASC payment rates for 

certain ASC services due to changes to 

the OPPS and MPFS under ACA. It also 

reflects technical changes to the ASC 

payment rates announced in prior 

correction notices. 

3. Policies Governing Changes to the 

Lists of Codes and Payment Rates for 

ASC Covered Surgical Procedures and 

Covered Ancillary Services 

The August 2, 2007 final rule 

established our policies for determining 

which procedures are ASC covered 

surgical procedures and covered 

ancillary services. Under §§ 416.2 and 

416.166 of the regulations, subject to 

certain exclusions, covered surgical 

procedures are surgical procedures that 

are separately paid under the OPPS, that 

would not be expected to pose a 

significant risk to beneficiary safety 

when performed in an ASC, and that 

would not be expected to require active 

medical monitoring and care at 

midnight following the procedure 

(‘‘overnight stay’’). We adopted this 

standard for defining which surgical 

procedures are covered surgical 

procedures under the ASC payment 

system as an indicator of the complexity 

of the procedure and its appropriateness 

for Medicare payment in ASCs. We use 

this standard only for purposes of 

evaluating procedures to determine 

whether or not they are appropriate for 

Medicare beneficiaries in ASCs. We 

define surgical procedures as those 

described by Category I CPT codes in 

the surgical range from 10000 through 

69999, as well as those Category III CPT 

codes and Level II HCPCS codes that 

crosswalk or are clinically similar to 

ASC covered surgical procedures (72 FR 

42478). We note that we added over 800 

surgical procedures to the list of covered 

surgical procedures for ASC payment in 

CY 2008, the first year of the revised 

ASC payment system, based on the 

criteria for payment that we adopted in 

the August 2, 2007 final rule as 

described above in this section. Patient 

safety and health outcomes continue to 

be important to us as more health care 

moves to the ambulatory care setting. 

Therefore, as we gain additional 

experience with the ASC payment 

system, we are interested in any 

information the public may have 

regarding the comparative patient 

outcomes of surgical care provided in 

ambulatory settings, including HOPDs, 

ASCs, and physicians’ offices, 

particularly with regard to the Medicare 

population. 

In the August 2, 2007 final rule, we 

also established our policy to make 

separate ASC payments for the 

following ancillary items and services 

when they are provided integral to ASC 

covered surgical procedures: 

brachytherapy sources; certain 

implantable items that have passthrough status under the OPPS; certain 

items and services that we designate as 

contractor-priced, including, but not 

limited to, procurement of corneal 

tissue; certain drugs and biologicals for 

which separate payment is allowed 

under the OPPS; and certain radiology 

services for which separate payment is 

allowed under the OPPS. These covered 

ancillary services are specified in 

§ 416.164(b) and, as stated previously, 

are eligible for separate ASC payment 

(72 FR 42495). Payment for ancillary 

items and services that are not paid 

separately under the ASC payment 

system is packaged into the ASC 

payment for the covered surgical 

procedure. 

We update the lists of, and payment 

rates for, covered surgical procedures 

and covered ancillary services, in 

conjunction with the annual proposed 

and final rulemaking process to update 

the OPPS and the ASC payment system 

(§ 416.173; 72 FR 42535). In addition, as 

discussed in detail below in section 

XV.B., because we base ASC payment 

policies for covered surgical procedures, 

drugs, biologicals, and certain other 

covered ancillary services on the OPPS 

payment policies, we also provide 

quarterly updates for ASC services 

throughout the year (January, April, 

July, and October), just as we do for the 

OPPS. The updates are to implement 

newly created Level II HCPCS and 

Category III CPT codes for ASC payment 

and to update the payment rates for 

separately paid drugs and biologicals 

based on the most recently submitted 

ASP data. New Category I CPT codes, 

except vaccine codes, are released only 

once a year and, therefore, are 

implemented through the January 

quarterly update. New Category I CPT 

vaccine codes are released twice a year 

and thus are implemented through the 

January and July quarterly updates. 

In our annual updates to the ASC list 

of, and payment rates for, covered 

surgical procedures and covered 

ancillary services, we undertake a 

review of excluded surgical procedures 

(including all procedures newly 

proposed for removal from the OPPS 

inpatient list), new procedures, and 

procedures for which there is revised 

coding, to identify any that we believe 

meet the criteria for designation as ASC 

covered surgical procedures or covered 

ancillary services. Updating the lists of 

covered surgical procedures and 

covered ancillary services, as well as 

their payment rates, in association with 

the annual OPPS rulemaking cycle is 

particularly important because the 

OPPS relative payment weights and, in 

some cases, payment rates, are used as 

the basis for the payment of covered 

surgical procedures and covered 

ancillary services under the revised ASC 

payment system. This joint update 

process ensures that the ASC updates 

occur in a regular, predictable, and 

timely manner. 

B. Proposed Treatment of New Codes 

1. Proposed Process for Recognizing 

New Category I and Category III CPT 

Codes and Level II HCPCS Codes 

CPT and Level II HCPCS codes are 

used to report procedures, services, 

items, and supplies under the ASC 

payment system. Specifically, we 

recognize the following codes on ASC 

claims: (1) Category I CPT codes, which 

describe medical services and 

procedures; (2) Category III CPT codes, 

which describe new and emerging 

technologies, services, and procedures; 

and (3) Level II HCPCS codes, which are 

used primarily to identify products, 

supplies, temporary procedures, and 

services not described by CPT codes. 

CPT codes are established by the 

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American Medical Association (AMA) 

and the Level II HCPCS codes are 

established by the CMS HCPCS 

Workgroup. These codes are updated 

and changed throughout the year. CPT 

and HCPCS code changes that affect 

ASCs are addressed both through the 

ASC quarterly update Change Requests 

(CRs) and through the annual 

rulemaking cycle. CMS releases new 

Level II HCPCS codes to the public or 

recognizes the release of new CPT codes 

by the AMA and makes these codes 

effective (that is, the codes are 

recognized on Medicare claims) outside 

of the formal rulemaking process via 

ASC quarterly update CRs. This 

quarterly process offers ASCs access to 

codes that may more accurately describe 

items or services furnished and/or 

provides payment or more accurate 

payment for these items or services in 

a more timely manner than if we waited 

for the annual rulemaking process. We 

solicit comments on the new codes 

recognized for ASC payment and 

finalize our proposals related to these 

codes through our annual rulemaking 

process. 

We finalized a policy in the August 2, 

2007 final rule to evaluate each year all 

new Category I and Category III CPT 

codes and Level II HCPCS codes that 

describe surgical procedures, and to 

make preliminary determinations in the 

annual OPPS/ASC final rule with 

comment period regarding whether or 

not they meet the criteria for payment 

in the ASC setting and, if so, whether 

they are office-based procedures (72 FR 

42533 through 42535). In addition, we 

identify new codes as ASC covered 

ancillary services based upon the final 

payment policies of the revised ASC 

payment system. 

In Table 39 below, we summarize our 

proposed process for updating the 

HCPCS codes recognized under the ASC 

payment system. 

This process is discussed in detail 

below and we have separated our 

discussion based on whether we are 

proposing to solicit public comments in 

this CY 2011 proposed rule on a specific 

group of the CPT and Level II HCPCS 

codes (and respond to those comments 

in the CY 2011 OPPS/ASC final rule 

with comment period) or whether we 

are proposing to solicit public 

comments on another specific group of 

the codes in the CY 2011 final rule with 

comment period (and respond to those 

comments in the CY 2012 OPPS/ASC 

final rule with comment period). We 

sought public comments in the CY 2010 

OPPS/ASC final rule with comment 

period on the new CPT and HCPCS 

codes that were effective January 1, 

2010. These new codes were flagged 

with comment indicator ‘‘N1’’ in 

Addendum AA and BB to the CY 2010 

OPPS/ASC final rule with comment 

period to indicate that we were 

assigning them an interim payment 

status and payment rate, if applicable, 

which were subject to public comment 

following publication of the CY 2010 

OPPS/ASC final rule with comment 

period. We will respond to public 


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comments and finalize our proposed 

ASC treatment of these codes in the CY 

2011 OPPS/ASC final rule with 

comment period. 

2. Proposed Treatment of New Level II 

HCPCS Codes and Category III CPT 

Codes Implemented in April and July 

2010 for Which We Are Soliciting 

Public Comments in This Proposed Rule 

In the April and July CRs, we made 

effective for April 1 or July 1, 2010, a 

total of 14 new Level II HCPCS codes 

and 7 new Category III CPT codes that 

were not addressed in the CY 2010 

OPPS/ASC final rule with comment 

period. (We note that one Level II 

HCPCS code, C9262, that was added in 

the April 2010 CR, was deleted June 30, 

2010 and replaced with Q2025 effective 

July 1, 2010). The 13 new Level II 

HCPCS codes describe covered ancillary 

services. 

Through the April 2010 ASC quarterly 

update (Transmittal 1943, CR 6866, 

dated April 6, 2010), we added six new 

drug and biological Level II HCPCS 

codes to the list of covered ancillary 

services. Specifically, as displayed in 

Table 40, these included HCPCS codes 

C9258 (Injection, telavancin, 10 mg), 

C9259 (Injection, pralatrexate, 1 mg), 

C9260 (Injection, ofatumumab, 10 mg), 

C9261 (Injection, ustekinumab, 1 mg), 

C9262 (Fludarabine phosphate, oral, 1 

mg), and C9263 (Injection, ecallantide, 1 

mg). 

Through the July 2010 quarterly 

update (Transmittal 1984, Change 

Request 7008, dated June 11, 2010), we 

are adding seven new drug and 

biological Level II HCPCS codes to the 

list of covered ancillary services. 

Specifically, as displayed in Table 41, 

we provide separate payment for HCPCS 

codes C9264 (Injection, tocilizumab, 1 

mg), C9265 (Injection, romidepsin, 1 

mg), C9266 (Injection, collagenase 

clostridium histolyticum, 0.1 mg), 

C9267 (Injection, von Willebrand factor 

complex (human), Wilate, per 100 IU 

VWF: RCO), C9268 (Capsaicin, patch, 

10cm2), C9367 (Skin substitute, 

Endoform Dermal Template, per square 

centimeter), and Q2025 (Fludarabine 

phosphate oral, 10mg). As noted above, 

HCPCS code C9262 was made effective 

April 1, 2010, and deleted June 30, 

2010, when it was replaced with HCPCS 

code Q2025. 

We assigned payment indicator ‘‘K2’’ 

(Drugs and biologicals paid separately 

when provided integral to a surgical 

procedure on the ASC list; payment 

based on OPPS rate) to these 13 new 

Level II to indicate that they are 

separately paid when provided in ASCs. 

In this CY 2011 OPPS/ASC proposed 

rule, we are soliciting public comment 

on the proposed CY 2010 ASC payment 

indicators and payment rates for the 

drugs and biologicals, as listed in Tables 

40 and 41 below. Those HCPCS codes 

became payable in ASCs, beginning in 

April or July 2010, respectively, and are 

paid at the ASC rates posted for the 

appropriate calendar quarter on the 

CMS Web site at http://www.cms.gov/ 

ASCPayment/. 

The codes listed in Table 40 are 

included in Addendum BB to this 

proposed rule. (We note that Level II 

HCPCS code C9262 was deleted June 30, 

2010, and replaced with Q2025 effective 

July 1, 2010, and therefore is not 

included in Addendum BB and is not 

open to public comment. Instead, Level 

II HCPCS code Q2025 is open for public 

comment.) 

However, because HCPCS codes that 

become effective for July (listed in Table 

41) are not available to us in time for 

incorporation into the Addenda to the 

OPPS/ASC proposed rule, our policy is 

to include these HCPCS codes and their 

proposed payment indicators and 

payment rates in the preamble to the 

proposed rule but not in the Addenda 

to the proposed rule. These codes and 

their final payment indicators and rates 

will be included in the appropriate 

Addendum to the CY 2011 OPPS/ASC 

final rule with comment period. Thus, 

the codes implemented by the July 2010 

ASC quarterly update CR and their 

proposed CY 2011 payment rates (based 

on July 2010 ASP data) that are 

displayed in Table 41 are not included 

in Addendum BB to this proposed rule. 

We are proposing to include these 

services reported using the new Level II 

HCPCS codes displayed in Tables 40 

and 41 as covered ancillary services for 

payment to ASCs for CY 2011. The final 

list of covered ancillary services and the 

associated payment weights and 

payment indicators will be included in 

Addendum BB to the CY 2011 OPPS/ 

ASC final rule with comment period, 

consistent with our annual update 

policy. 

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Through the July 2010 quarterly 

update CR, we also implemented ASC 

payment for seven new Category III CPT 

codes and one new Level II HCPCS code 

as ASC covered surgical procedures, 

effective July 1, 2010. These codes are 

listed in Table 42 below, along with 

their proposed payment indicators and 

proposed payment rates for CY 2011. 

Because new Category III CPT and Level 

II HCPCS codes that become effective 

for July are not available to us in time 

for incorporation into the Addenda to 

the OPPS/ASC proposed rule, our 

policy is to include the codes, their 

proposed payment indicators, and 

proposed payment rates in the preamble 

to the proposed rule but not in the 

Addenda to the proposed rule. These 

codes and their final payment indicators 

and rates will be included in the 

Addenda to the OPPS/ASC final rule 

with comment period. The new midyear codes for the covered surgical 

procedures implemented in July 2010 

are displayed in Table 42 below, along 

with their proposed payment indicators 

and proposed payment rates. These 

codes and their final payment indicators 

and rates will be included in 

Addendum AA to the CY 2011 OPPS/ 

ASC final rule with comment period. 


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For CY 2011, we are soliciting public 

comments on the proposed payment 

indicators and the payment rates, if 

applicable, for the new Level II HCPCS 

codes and Category III CPT codes that 

were newly recognized in April or July 

2010 through the respective quarterly 

update CRs. These codes are listed in 

Tables 40, 41, and 42 of this proposed 

rule. We are proposing to finalize their 

payment indicators and their payment 

rates, if applicable, in the CY 2011 

OPPS/ASC final rule with comment 

period. 

3. Proposed Process for New Level II 

HCPCS Codes and Category I and III 

CPT Codes for Which We Will Be 

Soliciting Public Comments in the CY 

2011 OPPS/ASC Final Rule With 

Comment Period 

As has been our practice in the past, 

we incorporate those new Category I 

and Category III CPT codes and new 

Level II HCPCS codes that are effective 

January 1 in the final rule with 

comment period updating the ASC 

payment system for the following 

calendar year. These codes are released 

to the public via the CMS HCPCS (for 

Level II HCPCS codes) and AMA Web 

sites (for CPT codes), and also through 

the January ASC quarterly update CRs. 

In the past, we also have released new 

Level II HCPCS codes that are effective 

October 1 through the October ASC 

quarterly update CRs and incorporated 

these new codes in the final rule with 

comment period updating the ASC 

payment system for the following 

calendar year. All of these codes are 

flagged with comment indicator ‘‘NI’’ in 

Addenda AA and BB to the OPPS/ASC 

final rule with comment period to 

indicate that we are assigning them an 

interim payment status which is subject 

to public comment. Specifically, the 

payment indicator and payment rate, if 

applicable, for all such codes flagged 

with comment indicator ‘‘NI’’ are open 

to public comment in the OPPS/ASC 

final rule with comment period, and we 

respond to these comments in the final 

rule with comment period for the next 

calendar year’s OPPS/ASC update. We 

are proposing to continue this process 

for CY 2011. 

For CY 2011, we are proposing to 

include in Addenda AA and BB to the 

CY 2011 OPPS/ASC final rule with 

comment period the new Category I and 

III CPT codes effective January 1, 2011 

(including those Category III CPT codes 

that were released by the AMA in July 

2010) that would be incorporated in the 

January 2011 ASC quarterly update CR 

and the new Level II HCPCS codes, 

effective October 1, 2010 or January 1, 

2011, that would be released by CMS in 

its October 2010 and January 2011 ASC 

quarterly update CRs. These codes 

would be flagged with comment 

indicator ‘‘NI’’ in Addenda AA and BB 

to the CY 2011 OPPS/ASC final rule 

with comment period to indicate that 

we have assigned them an interim 

payment status. Their payment 

indicators and payment rates, if 

applicable, would be open to public 

comment in the CY 2011 OPPS/ASC 

final rule with comment period and 

would be finalized in the CY 2012 

OPPS/ASC final rule with comment 

period. 

C. Proposed Update to the Lists of ASC 

Covered Surgical Procedures and 

Covered Ancillary Services 

1. Covered Surgical Procedures 

a. Proposed Additions to the List of ASC 

Covered Surgical Procedures 

We are proposing to update the list of 

ASC covered surgical procedures by 

adding five procedures to the list. These 

five procedures were among those 

excluded from the ASC list for CY 2010 

because we believed they did not meet 

the definition of a covered surgical 

procedure based on our expectation that 

they would pose a significant safety risk 

to Medicare beneficiaries or would 

require an overnight stay if performed in 

ASCs. We conducted a review of all 

HCPCS codes that currently are paid 

under the OPPS, but not included on 

the ASC list of covered surgical 

procedures, to determine if changes in 

technology and/or medical practice 

changed the clinical appropriateness of 

these procedures for the ASC setting. 

We determined that these five 

procedures could be safely performed in 

the ASC setting and are therefore 

proposing to include them on the list of 

ASC covered surgical procedures for CY 

2011. 

The five procedures that we are 

proposing to add to the ASC list of 

covered surgical procedures, including 

their HCPCS code long descriptors and 

proposed CY 2010 payment indicators, 

are displayed in Table 43 below. 

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b. Proposed Covered Surgical 

Procedures Designated as Office-Based 

(1) Background 

In the August 2, 2007 ASC final rule, 

we finalized our policy to designate as 

‘‘office-based’’ those procedures that are 

added to the ASC list of covered 

surgical procedures in CY 2008 or later 

years that we determine are performed 

predominantly (more than 50 percent of 

the time) in physicians’ offices based on 

consideration of the most recent 

available volume and utilization data for 

each individual procedure code and/or, 

if appropriate, the clinical 

characteristics, utilization, and volume 

of related codes. In that rule, we also 

finalized our policy to exempt all 

procedures on the CY 2007 ASC list 

from application of the office-based 

classification (72 FR 42512). The 

procedures that were added to the ASC 

list of covered surgical procedures 

beginning in CY 2008 that we 

determined were office-based were 

identified in Addendum AA to that rule 

by payment indicator ‘‘P2’’ (Office-based 

surgical procedure added to ASC list in 

CY 2008 or later with MPFS non-facility 

PE RVUs; payment based on OPPS 

relative payment weight); ‘‘P3’’ (Officebased surgical procedures added to ASC 

list in CY 2008 or later with MPFS nonfacility PE RVUs; payment based on 

MPFS non-facility PE RVUs); or ‘‘R2’’ 

(Office-based surgical procedure added 

to ASC list in CY 2008 or later without 

MPFS non-facility PE RVUs; payment 

based on OPPS relative payment 

weight), depending on whether we 

estimated it would be paid according to 

the standard ASC payment methodology 

based on its OPPS relative payment 

weight or at the MPFS non-facility PE 

RVU amount. 

Consistent with our final policy to 

annually review and update the list of 

surgical procedures eligible for payment 

in ASCs, each year we identify surgical 

procedures as either temporarily or 

permanently office-based after taking 

into account updated volume and 

utilization data. 

(2) Proposed Changes to Covered 

Surgical Procedures Designated as 

Office-Based for CY 2011 

In developing this proposed rule, we 

followed our policy to annually review 

and update the surgical procedures for 

which ASC payment is made and to 

identify new procedures that may be 


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appropriate for ASC payment, including 

their potential designation as officebased. We reviewed CY 2009 volume 

and utilization data and the clinical 

characteristics for all surgical 

procedures that are assigned payment 

indicator ‘‘G2’’ in CY 2010, as well as for 

those procedures assigned one of the 

temporary office-based payment 

indicators, specifically ‘‘P2*,’’ ‘‘P3*,’’ or 

‘‘R2*’’ in the CY 2010 ASC final rule 

with comment period (74 FR 60605 

through 60608). We also examined the 

data for the five procedures that we are 

proposing to add to the ASC list of 

covered surgical procedures for CY 2011 

(listed in Table 43 above) to determine 

if these procedures should be 

designated as office-based. 

Our review of the CY 2009 volume 

and utilization data resulted in our 

identification of six surgical procedures 

that we believe meet the criteria for 

designation as office-based. The data 

indicate that the procedures are 

performed more than 50 percent of the 

time in physicians’ offices. Our medical 

advisors believe the services are of a 

level of complexity consistent with 

other procedures performed routinely in 

physicians’ offices. The six procedures 

we are proposing to permanently 

designate as office-based are listed in 

Table 44 below. We note that four of 

these procedures are procedures that we 

also are proposing to add to the ASC list 

of covered surgical procedures for CY 

2011: CPT code 37205; CPT code 37206; 

CPT code 37210; and CPT code 50593. 

The other two procedures are already on 

the ASC list of covered surgical 

procedures. 

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We also reviewed CY 2009 volume 

and utilization data and other 

information for the six procedures 

proposed for temporary office-based 

status in the CY 2010 OPPS/ASC 

proposed rule (74 FR 35382) and 

finalized for temporary office-based 

status in the CY 2010 OPPS/ASC final 

rule with comment period (74 FR 

60607). Among these six procedures, 

there were almost no claims data for 

three procedures: CPT code 0099T 

(Implantation of intrastromal corneal 

ring segments); CPT code 0124T 

(Conjunctival drug placement); and CPT 

code 67229 (Treatment of extensive or 

progressive retinopathy, one or more 

sessions; preterm infant (less than 37 

weeks gestation at birth), performed 

from birth up to 1 year of age (e.g., 

retinopathy of prematurity), 

photocoagulation or cryotherapy). 

Consequently, we are proposing to 

maintain their temporary office-based 

designations for CY 2011. We also are 

proposing to maintain in CY 2011 the 

temporary office-based designation for 

the four codes that became effective in 

the July 2010 ASC quarterly update: 

CPT code 0226T (Angoscopy, high 

resolution (HRA) (with magnification 

and chemical agent enhancement); 

diagnostic, including collection of 

specimen(s) by brushing or washing 

when performed); CPT code 0227T 

(Angoscopy, high resolution (HRA) 

(with magnification and chemical agent 

enhancement); with biopsy(ies)); CPT 

code 0232T (Injection(s), platelet rich 

plasma, any tissue, including image 

guidance, harvesting and preparation 

when performed); and HCPCS code 

C9800 (Dermal injection procedure(s) 

for facial lipodystrophy syndrome (LDS) 

and provision of Radiesse or Sculptra 

dermal filler, including all items and 

supplies), because no data are available 

for these codes at this time. 

As a result of our review of the 

remaining three procedures that have 

temporary office-based designations for 

CY 2010 for which we do have claims 

data, we are proposing to make 

permanent the office based designations 

for all of them for CY 2011. The three 

surgical procedure codes are: CPT code 

46930 (Destruction of internal 

hemorrhoid(s) by thermal energy (e.g., 

infrared coagulation, cautery, 

radiofrequency)); CPT code 64455 

(Injection(s), anesthetic agent and/or 

steroid, plantar common digital nerve(s) 

(eg, Morton’s neuroma)); and CPT code 

64632 (Destruction by neurolytic agent; 

plantar common digital nerve). The 

volume and utilization data for these 

CPT codes are sufficient to support our 

determination that these procedures are 

performed predominantly in physicians’ 

offices. Therefore, we are proposing to 

make permanent the office-based 

designations for the 3 procedures for CY 

2011. 

The procedures that we are proposing 

to permanently designate as office-based 

for CY 2011 that were temporarily 

designated as office-based procedures in 

CY 2010 are displayed in Table 45 

below. The procedures that we are 

proposing to temporarily designate as 

office-based for CY 2011 are displayed 

in Table 46 below. The procedures for 

which the proposed office-based 

designation for CY 2011 is temporary 

also are indicated by an asterisk in 

Addendum AA to this proposed rule. 

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Displayed in Table 47 below are new 

(or substantially revised) CY 2010 

HCPCS codes to which we assigned 

temporary office-based payment 

indicators in the CY 2010 OPPS/ASC 

final rule with comment period (74 FR 

60608). As explained in section XV.B.1. 

of that final rule with comment period 

(74 FR 60599 and 60607), we reviewed 

all of the newly created HCPCS codes 

that became available after the issuance 

of the CY 2009 OPPS/ASC proposed 

rule that are used to report surgical 

procedures in CY 2010 to evaluate their 

appropriateness for the ASC list of 

covered surgical procedures. Of the 

procedures reported by new or 

substantially revised CY 2010 HCPCS 

codes that we determined should not be 

excluded from the ASC list based on our 

clinical review, including assessment of 

available utilization and volume data for 

any closely related procedures and 

consideration of other available 

information, we determined that 16 of 

the procedures would predominantly be 

performed in physicians’ offices. 

However, because we had no utilization 

data for the procedures specifically 

described by these new HCPCS codes, 

we made the office-based designations 

temporary rather than permanent and 


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stated that we would reevaluate the 

procedures when data become available 

(74 FR 60607 through 60608). The 

temporary payment indicators for the 16 

office-based procedures displayed in 

Table 47 were interim designations and 

were open to public comment during 

the 60-day comment period following 

the release of the CY 2010 OPPS/ASC 

final rule with comment period. We will 

respond to public comments received 

during that 60-day comment period as 

well as the comment period following 

this proposed rule in the CY 2011 

OPPS/ASC final rule with comment 

period. 

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c. ASC Covered Surgical Procedures 

Designated as Device-Intensive 

(1) Background 

As discussed in the August 2, 2007 

final rule (72 FR 42503 through 42508), 

we adopted a modified payment 

methodology for calculating the ASC 

payment rates for covered surgical 

procedures that are assigned to the 

subset of OPPS device-dependent APCs 

with a device offset percentage greater 

than 50 percent of the APC cost under 

the OPPS, in order to ensure that 

payment for the procedure is adequate 

to provide packaged payment for the 

high-cost implantable devices used in 

those procedures. We assigned payment 

indicators ‘‘H8’’ (Device-intensive 

procedure on ASC list in CY 2007; paid 

at adjusted rate) and ‘‘J8’’ (Deviceintensive procedure added to ASC list 

in CY 2008 or later; paid at adjusted 

rate) to identify the procedures that 

were eligible for ASC payment 

calculated according to the modified 

methodology, depending on whether the 

procedure was included on the ASC list 

of covered surgical procedures prior to 

CY 2008 and, therefore, subject to 

transitional payment as discussed in the 

CY 2009 OPPS/ASC final rule with 

comment period (73 FR 68739 through 

68742). The device-intensive procedures 

for which the modified rate calculation 

methodology applies in CY 2010 were 

displayed in Table 68 and in Addendum 

AA to the CY 2010 OPPS/ASC final rule 

with comment period (74 FR 60610 

through 60611 and 60692 through 

60752). 

(2) Proposed Changes to List of Covered 

Surgical Procedures Designated as 

Device Intensive for CY 2011 

We are proposing to update the ASC 

list of covered surgical procedures that 

are eligible for payment according to the 

device-intensive procedure payment 

methodology for CY 2011, consistent 

with the proposed OPPS devicedependent APC update, reflecting the 

proposed APC assignments of 

procedures, designation of APCs as 

device dependent, and APC device 

offset percentages based on the CY 2009 

OPPS claims and cost report data 

available for the proposed rule. The 

OPPS device-dependent APCs are 

discussed further in section II.A.2.d.(1) 

of this proposed rule. The ASC covered 

surgical procedures that we are 

proposing to designate as deviceintensive and that would be subject to 

the device-intensive procedure payment 

methodology for CY 2011 are listed in 

Table 48 below. The CPT code, the CPT 

code short descriptor, the proposed CY 

2011 ASC payment indicator, the 

proposed CY 2011 OPPS APC 

assignment and title, and the proposed 

CY 2011 OPPS APC device offset 

percentage are also listed in Table 48 

below. Each proposed device-intensive 

procedure is assigned payment indicator 

‘‘H8’’ or ‘‘J8’’ depending on whether it 

was subject to transitional payment 

prior to CY 2011, and all of these 

procedures are included in Addendum 

AA to this proposed rule. 

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d. ASC Treatment of Surgical 

Procedures Proposed for Removal From 

the OPPS Inpatient List for CY 2011 

As we discussed in the CY 2009 

OPPS/ASC final rule with comment 

period (73 FR 68724), we adopted a 

policy to include in our annual 

evaluation procedures proposed for 

removal from the OPPS inpatient list for 

possible inclusion on the ASC list of 

covered surgical procedures. We 

evaluated each of the three procedures 

we are proposing to remove from the 

OPPS inpatient list for CY 2011 

according to the criteria for exclusion 

from the list of covered ASC surgical 

procedures. We believe that all of these 

procedures should continue to be 

excluded from the ASC list of covered 

surgical procedures for CY 2011 because 

they would be expected to pose a 

significant risk to beneficiary safety or 

to require an overnight stay in ASCs. A 

full discussion about the APC Panel’s 

recommendations regarding the 

procedures we are proposing to remove 

from the OPPS inpatient list for CY 2011 

and the procedures we are proposing to 

remove from the OPPS inpatient list for 

CY 2011 may be found in section XI.B. 

of this proposed rule. The HCPCS codes 

for these three procedures and their long 

descriptors are listed in Table 49 below. 


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2. Covered Ancillary Services 

Consistent with the established ASC 

payment system policy, we are 

proposing to update the ASC list of 

covered ancillary services to reflect the 

proposed payment status for the 

services under the CY 2011 OPPS. 

Maintaining consistency with the OPPS 

may result in proposed changes to ASC 

payment indicators for some covered 

ancillary items and services because of 

changes that are being proposed under 

the OPPS for CY 2011. For example, a 

covered ancillary service that was 

separately paid under the revised ASC 

payment system in CY 2010 may be 

proposed for packaged status under the 

CY 2011 OPPS and, therefore, also 

under the ASC payment system for CY 

2011. Comment indicator ‘‘CH,’’ 

discussed in section XV.F. of this 

proposed rule, is used in Addendum BB 

to this proposed rule to indicate covered 

ancillary services for which we are 

proposing a change in the ASC payment 

indicator to reflect a proposed change in 

the OPPS treatment of the service for CY 

2011. 

Except for the Level II HCPCS codes 

listed in Table 41 of this proposed rule, 

all ASC covered ancillary services and 

their proposed payment indicators for 

CY 2011 are included in Addendum BB 

to this proposed rule. 

D. Proposed ASC Payment for Covered 

Surgical Procedures and Covered 

Ancillary Services 

1. Proposed Payment for Covered 

Surgical Procedures 

a. Background 

Our ASC payment policies for 

covered surgical procedures under the 

revised ASC payment system are fully 

described in the CY 2008 OPPS/ASC 

final rule with comment period (72 FR 

66828 through 66831). Under our 

established policy for the revised ASC 

payment system, the ASC standard 

ratesetting methodology of multiplying 

the ASC relative payment weight for the 

procedure by the ASC conversion factor 

for that same year is used to calculate 

the national unadjusted payment rates 

for procedures with payment indicator 

‘‘G2.’’ For procedures assigned payment 

indicator ‘‘A2,’’ our final policy 

established blended rates to be used 

during the transitional period and, 

beginning in CY 2011, ASC rates 

calculated according to the ASC 

standard ratesetting methodology. The 

rate calculation established for device 

intensive procedures (payment 

indicators ‘‘H8’’ and ‘‘J8’’) is structured so 

that the packaged device payment 

amount is the same as under the OPPS, 

and only the service portion of the rate 

is subject to the ASC standard 

ratesetting methodology. In the CY 2010 

OPPS/ASC final rule with comment 

period (74 FR 60596 through 60629), we 

updated the CY 2009 ASC payment 

rates for ASC covered surgical 

procedures with payment indicators of 

‘‘A2,’’ ‘‘G2,’’ ‘‘H8,’’ and ‘‘J8’’ using CY 

2008 data, consistent with the CY 2010 

OPPS update. Payment rates for deviceintensive procedures also were updated 

to incorporate the CY 2010 OPPS device 

offset percentages. 

Payment rates for office-based 

procedures (payment indicators ‘‘P2,’’ 

‘‘P3,’’ and ‘‘R2’’) are the lower of the 

MPFS non-facility PE RVU amount (we 

refer readers to the CY 2011 MPFS 

proposed rule) or the amount calculated 

using the ASC standard ratesetting 

methodology for the procedure. In the 

CY 2010 OPPS/ASC final rule with 

comment period (74 FR 60596 through 

60629), we updated the payment 

amounts for office-based procedures 

(payment indicators ‘‘P2,’’ ‘‘P3,’’ and 

‘‘R2’’) using the most recent available 

MPFS and OPPS data. We compared the 

estimated CY 2010 rate for each of the 

office-based procedures, calculated 

according to the ASC standard 

ratesetting methodology, to the MPFS 

nonfacility PE RVU amount (multiplied 

by the conversion factor) to determine 

which was lower and, therefore, would 

be the CY 2010 payment rate for the 

procedure according to the final policy 

of the revised ASC payment system 

(§ 416.171(d)). 

b. Proposed Update to ASC-Covered 

Surgical Procedure Payment Rates for 

CY 2011 

We are proposing to update ASC 

payment rates for CY 2011 using the 

established rate calculation 

methodologies under § 416.171. Under 

§ 416.171(c)(4), the transitional payment 

rates are no longer used for CY 2011 and 

subsequent calendar years for a covered 

surgical procedure designated in 

accordance with § 416.166. Thus, we are 

proposing to calculate CY 2011 

payments for procedures formerly 

subject to the transitional payment 

methodology (payment indicators ‘‘A2’’ 

and ‘‘H8’’) using the proposed CY 2011 

ASC rate calculated according to the 

ASC standard ratesetting methodology, 

incorporating the device-intensive 

procedure methodology, as appropriate, 

for procedures assigned ASC payment 

indicator ‘‘H8.’’ We are not proposing to 

modify the payment indicators for 

procedures that were subject to 

transitional payment prior to CY 2011 

but will consider doing so in future 

rulemaking. We are proposing to 

continue to use the amount calculated 

under the ASC standard ratesetting 

methodology for procedures assigned 

payment indicator ‘‘G2.’’ 

We are proposing that payment rates 

for office-based procedures (payment 

indicators ‘‘P2,’’ ‘‘P3,’’ and ‘‘R2’’) and 

device-intensive procedures that were 

not subject to transitional payment 

(payment indicator ‘‘J8’’) be calculated 

according to our established policies, 

incorporating the device-intensive 

procedure methodology as appropriate. 

Thus, we are proposing to update the 

payment amounts for device-intensive 

procedures based on the CY 2011 OPPS 

proposal that reflects updated OPPS 

device offset percentages, and to make 

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the lesser of the CY 2011 proposed 

MPFS non-facility PE RVU amount or 

the proposed CY 2011 ASC payment 

amount calculated according to the 

standard ratesetting methodology. 

c. Proposed Adjustment to ASC 

Payments for No Cost/Full Credit and 

Partial Credit Devices 

Our ASC policy with regard to 

payment for costly devices implanted in 

ASCs at no cost or with full or partial 

credit as set forth in § 416.179 is 

consistent with the OPPS policy. The 

proposed CY 2011 OPPS APCs and 

devices subject to the adjustment policy 

are discussed in section IV.B.2. of this 

proposed rule. The established ASC 

policy includes adoption of the OPPS 

policy for reduced payment to providers 

when a specified device is furnished 

without cost or with full or partial credit 

for the cost of the device for those ASC 

covered surgical procedures that are 

assigned to APCs under the OPPS to 

which this policy applies. We refer 

readers to the CY 2009 OPPS/ASC final 

rule with comment period for a full 

discussion of the ASC payment 

adjustment policy for no cost/full credit 

and partial credit devices (73 FR 68742 

through 68745). 

Consistent with the OPPS, we are 

proposing to update the list of ASC 

covered device intensive procedures 

and devices that would be subject to the 

no cost/full credit and partial credit 

device adjustment policy for CY 2011. 

Table 50 below displays the ASC 

covered device-intensive procedures 

that we are proposing would be subject 

to the no cost/full credit and partial 

credit device adjustment policy for CY 

2011. Specifically, when a procedure 

that is listed in Table 50 is performed 

to implant a device that is listed in 

Table 51 below, where that device is 

furnished at no cost or with full credit 

from the manufacturer, the ASC would 

append the HCPCS ‘‘FB’’ modifier on the 

line with the procedure to implant the 

device. The contractor would reduce 

payment to the ASC by the device offset 

amount that we estimate represents the 

cost of the device when the necessary 

device is furnished without cost to the 

ASC or with full credit. We would 

provide the same amount of payment 

reduction based on the device offset 

amount in ASCs that would apply under 

the OPPS under the same 

circumstances. We continue to believe 

that the reduction of ASC payment in 

these circumstances is necessary to pay 

appropriately for the covered surgical 

procedure being furnished by the ASC. 

We also are proposing to reduce the 

payment for implantation procedures 

listed in Table 50 by one-half of the 

device offset amount that would be 

applied if a device was provided at no 

cost or with full credit, if the credit to 

the ASC is 50 percent or more of the 

cost of the new device. The ASC would 

append the HCPCS ‘‘FC’’ modifier to the 

HCPCS code for a surgical procedure 

listed in Table 50 when the facility 

receives a partial credit of 50 percent or 

more of the cost of a device listed in 

Table 51 below. In order to report that 

they received a partial credit of 50 

percent or more of the cost of a new 

device, ASCs would have the option of 

either: (1) Submitting the claim for the 

device replacement procedure to their 

Medicare contractor after the 

procedure’s performance but prior to 

manufacturer acknowledgment of credit 

for the device, and subsequently 

contacting the contractor regarding a 

claim adjustment once the credit 

determination is made; or (2) holding 

the claim for the device implantation 

procedure until a determination is made 

by the manufacturer on the partial credit 

and submitting the claim with the ‘‘FC’’ 

modifier appended to the implantation 

procedure HCPCS code if the partial 

credit is 50 percent or more of the cost 

of the replacement device. Beneficiary 

coinsurance would continue to be based 

on the reduced payment amount. 

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d. Proposed Waiver of Coinsurance and 

Deductible for Certain Preventive 

Services 

As discussed in detail in section 

XII.B. of this proposed rule and in the 

CY 2011 MPFS proposed rule, sections 

4104(b) and 10406 of the Affordable 

Care Act amended section 1833(a)(1) of 

the Act, in pertinent part, to waive the 

coinsurance for those preventive 

services described in section 

1861(ww)(2) of the Act (excluding 

electrocardiograms) that are 

recommended by the USPSTF with a 

grade of A or B for any indication or 

population and that are appropriate for 

the individual. Section 4104(c) of the 

Affordable Care Act amended section 

1833(b)(1) of the Act to waive the Part 

B deductible for these preventive 

services. These provisions apply to 

these items and services furnished in 

ASCs on or after January 1, 2011. In 

section XII.B. of this proposed rule and 

in the CY 2011 MPFS proposed rule, we 

are proposing to define the preventive 

services to which this provision applies 

and to apply the criteria specified in 

section 4104 of the Affordable Care Act 

for the waiver of coinsurance and 

deductible. 

Table 52 identifies the ASC covered 

surgical and ancillary services that are 

included in the proposed definition of 

preventive services in section XII.B. of 

this proposed rule and in the CY 2011 

MPFS proposed rule. All of the ASC 

covered surgical and ancillary services 

that are included in the chart below are 

preventive services that are 

recommended by the USPSTF with a 

grade of A or B. Therefore, we are 


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proposing to update § 416.160(a)(4) and 

add new § 416.160(a)(5) on the scope 

and basis of the ASC regulations and to 

update § 410.152(l) in this proposed rule 

to reflect the waiver of coinsurance and 

deductible for these services. We refer 

readers to the CY 2011 MPFS proposed 

rule for a discussion of the proposed 

changes to § 410.160(b) and proposed 

additional changes to § 410.152 of our 

regulations to implement the provisions 

related to the definition of preventive 

services and the waiver of the 

coinsurance and deductible for 

preventive services as specified by 

sections 4103, 4104, and 10406 of the 

Affordable Care Act. 


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Section 4104(c) of the Affordable Care 

Act amended section 1833(b) of the Act 

to waive the Part B deductible for 

colorectal cancer screening tests that 

become diagnostic. Specifically, section 

4104(c)(2) of the Affordable Care Act 

waives the deductible with respect to a 

colorectal cancer screening test 

‘‘regardless of the code that is billed for 

the establishment of a diagnosis as a 

result of the test, or for the removal of 

tissue or other matter or other procedure 

that is furnished in connection with, as 

a result of, and in the same clinical 

encounter as a screening test.’’ As 

discussed in section XII.B. of this 

proposed rule and in the CY 2011 MPFS 

proposed rule, we are proposing that all 

surgical services furnished on the same 

date as a planned screening 

colonoscopy or planned flexible 

sigmoidoscopy would be considered as 

being ‘‘furnished in connection with, as 

a result of, and in the same clinical 

encounter as the screening test.’’ We 

believe that this interpretation is 

appropriate because we believe that it 

would be very rare for an unrelated 

surgery to occur on the same date as one 

of these scheduled screening tests. 

Moreover, we believe that the risk of 

improper expenditures would be very 

small under this policy because it is the 

deductible, and not the coinsurance, 

that is waived for the related procedures 

other than the screening tests. In the 

event of a legislative change to this 

policy (for example, a statutory change 

that would waive the coinsurance for 

these related services in addition to the 

deductible), we would reassess the 

appropriateness of this proposed 

definition of services that are furnished 

in connection with, as a result of, and 

in the same clinical encounter as the 

colorectal cancer screening test that 

becomes diagnostic. We also note that 

the annual deductible would likely be 

met when any surgical procedure 

(related or not) is performed on the 

same day as the scheduled screening 

test. 

We are proposing to implement this 

provision by creating a HCPCS modifier 

that ASCs would append to the 

diagnostic procedure code that is 

reported instead of the screening 

colonoscopy or screening flexible 

sigmoidoscopy HCPCS code. The claims 


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processing system would respond to the 

modifier by waiving the deductible for 

all surgical services on the same date as 

the diagnostic test. Coinsurance or 

copayment would continue to apply to 

the diagnostic test and to other services 

furnished in connection with, as a result 

of, and in the same clinical encounter as 

the screening test. 

2. Proposed Payment for Covered 

Ancillary Services 

a. Background 

Our final payment policies under the 

revised ASC payment system for 

covered ancillary services vary 

according to the particular type of 

service and its payment policy under 

the OPPS. Our overall policy provides 

separate ASC payment for certain 

ancillary items and services integrally 

related to the provision of ASC covered 

surgical procedures that are paid 

separately under the OPPS and provides 

packaged ASC payment for other 

ancillary items and services that are 

packaged under the OPPS. Thus, we 

established a final policy to align ASC 

payment bundles with those under the 

OPPS (72 FR 42495). 

Our ASC payment policies provide 

separate payment for drugs and 

biologicals that are separately paid 

under the OPPS at the OPPS rates, while 

we pay for separately payable radiology 

services at the lower of the MPFS nonfacility PE RVU (or technical 

component) amount or the rate 

calculated according to the ASC 

standard ratesetting methodology (72 FR 

42497). In all cases, ancillary items and 

services must be provided integral to the 

performance of ASC covered surgical 

procedures for which the ASC bills 

Medicare, in order for those ancillary 

services also to be paid. 

ASC payment policy for 

brachytherapy sources generally mirrors 

the payment policy under the OPPS. We 

finalized our policy in the CY 2008 

OPPS/ASC final rule with comment 

period (72 FR 42499) to pay for 

brachytherapy sources applied in ASCs 

at the same prospective rates that were 

adopted under the OPPS or, if OPPS 

rates were unavailable, at contractorpriced rates. Subsequent to publication 

of that rule, section 106 of the Medicare, 

Medicaid, and SCHIP Extension Act of 

2007 (Pub. L. 110–173) mandated that, 

for the period January 1, 2008 through 

June 30, 2008, brachytherapy sources be 

paid under the OPPS at charges adjusted 

to cost. Therefore, consistent with our 

final overall ASC payment policy, we 

paid ASCs at contractor-priced rates for 

brachytherapy sources provided in 

ASCs during that period of time. 

Beginning July 1, 2008, brachytherapy 

sources applied in ASCs were to be paid 

at the same prospectively set rates that 

were finalized in the CY 2008 

OPPS/ASC final rule with comment 

period (72 FR 67165 through 67188). 

Immediately prior to the publication of 

the CY 2009 OPPS/ASC proposed rule, 

section 142 of the Medicare 

Improvements for Patients and 

Providers Act of 2008 (Pub. L. 110–275) 

amended section 1833(t)(16)(C) of the 

Act (as amended by section 106 of the 

Medicare, Medicaid, and SCHIP 

Extension Act of 2007, Pub. L. 110–173) 

to extend the requirement that 

brachytherapy sources be paid under 

the OPPS at charges adjusted to cost 

through December 31, 2009. Therefore, 

consistent with final ASC payment 

policy, ASCs continued to be paid at 

contractor-priced rates for 

brachytherapy sources provided integral 

to ASC covered surgical procedures 

during that period of time. 

Other separately paid covered 

ancillary services in ASCs, specifically 

corneal tissue acquisition and device 

categories with OPPS pass-through 

status, do not have prospectively 

established ASC payment rates 

according to the final policies of the 

revised ASC payment system (72 FR 

42502 and 42509; § 416.164(b)). Under 

the revised ASC payment system, 

corneal tissue acquisition is paid based 

on the invoiced costs for acquiring the 

corneal tissue for transplantation. As 

discussed in section IV.A.1. of this 

proposed rule, new pass-through device 

categories may be established on a 

quarterly basis, but currently there are 

no OPPS device pass-through categories 

that would continue for OPPS passthrough payment (and, correspondingly, 

separate ASC payment) in CY 2011. 

b. Proposed Payment for Covered 

Ancillary Services for CY 2011 

For CY 2011, we are proposing to 

update the ASC payment rates and make 

changes to ASC payment indicators as 

necessary to maintain consistency 

between the OPPS and ASC payment 

system regarding the packaged or 

separately payable status of services and 

the proposed CY 2011 OPPS and ASC 

payment rates. The proposed CY 2011 

OPPS payment methodologies for 

separately payable drugs and biologicals 

and brachytherapy sources are 

discussed in sections V. and VII. of this 

proposed rule, respectively, and we are 

proposing to set the CY 2011 ASC 

payment rates for those services equal to 

the proposed CY 2011 OPPS rates. 

Consistent with established ASC 

payment policy (72 FR 42497), the 

proposed CY 2011 payment for 

separately payable covered radiology 

services is based on a comparison of the 

CY 2011 proposed MPFS non-facility PE 

RVU amounts (we refer readers to the 

CY 2011 MPFS proposed rule) and the 

proposed CY 2011 ASC payment rates 

calculated according to the ASC 

standard ratesetting methodology and 

then set at the lower of the two 

amounts. Alternatively, payment for a 

radiology service may be packaged into 

the payment for the ASC covered 

surgical procedure if the radiology 

service is packaged under the OPPS. 

The payment indicators in Addendum 

BB indicate whether the proposed 

payment rates for radiology services are 

based on the MPFS nonfacility PE RVU 

amount or the ASC standard rate setting 

methodology, or whether payment for a 

radiology service is packaged into the 

payment for the covered surgical 

procedure (payment indicator ‘‘N1’’). 

Radiology services that we are 

proposing to pay based on the ASC 

standard ratesetting methodology are 

assigned payment indicator ‘‘Z2’’ 

(Radiology service paid separately when 

provided integral to a surgical 

procedure on ASC list; payment based 

on OPPS relative payment weight) and 

those for which the proposed payment 

is based on the MPFS non-facility PE 

RVU amount are assigned payment 

indicator ‘‘Z3’’ (Radiology service paid 

separately when provided integral to a 

surgical procedure on ASC list; payment 

based on MPFS non-facility PE RVUs). 

All covered ancillary services and 

their proposed payment indicators are 

listed in Addendum BB to this proposed 

rule. 

E. New Technology Intraocular Lenses 

(NTIOLs) 

1. Background 

In the CY 2007 OPPS/ASC final rule 

with comment period (71 FR 68176), we 

finalized our current process for 

reviewing applications to establish new 

active classes of new technology 

intraocular lenses (NTIOLs) and for 

recognizing new candidate intraocular 

lenses (IOLs) inserted during or 

subsequent to cataract extraction as 

belonging to a NTIOL class that is 

qualified for a payment adjustment. 

Specifically, we established the 

following process: 

• We announce annually in the 

Federal Register a document that 

proposes the update of ASC payment 

rates for the following calendar year, a 

list of all requests to establish new 

NTIOL classes accepted for review 

during the calendar year in which the 

proposal is published and the deadline 

for submission of public comments 

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regarding those requests. In accordance 

with section 141(b)(3) of Public Law 

103–432 and our regulations at 

§ 416.185(b), the deadline for receipt of 

public comments is 30 days following 

publication of the list of requests. 

• In the Federal Register document 

that finalizes the update of ASC 

payment rates for the following calendar 

year, we— 

° Provide a list of determinations 

made as a result of our review of all new 

class requests and public comments; 

and 

° Announce the deadline for 

submitting requests for review of an 

application for a new NTIOL class for 

the following calendar year. 

In determining whether a lens belongs 

to a new class of NTIOLs and whether 

the ASC payment amount for insertion 

of that lens in conjunction with cataract 

surgery is appropriate, we expect that 

the insertion of the candidate IOL 

would result in significantly improved 

clinical outcomes compared to currently 

available IOLs. In addition, to establish 

a new NTIOL class, the candidate lens 

must be distinguishable from lenses 

already approved as members of active 

or expired classes of NTIOLs that share 

a predominant characteristic associated 

with improved clinical outcomes that 

was identified for each class. 

Furthermore, in the CY 2007 OPPS/ASC 

final rule with comment period (71 FR 

68227), we finalized our proposal to 

base our determinations on 

consideration of the following factors 

set out at § 416.195: 

• The IOL must have been approved 

by the FDA and claims of specific 

clinical benefits and/or lens 

characteristics with established clinical 

relevance in comparison with currently 

available IOLs must have been approved 

by the FDA for use in labeling and 

advertising; 

• The IOL is not described by an 

active or expired NTIOL class; that is, it 

does not share the predominant, classdefining characteristic associated with 

improved clinical outcomes with 

designated members of an active or 

expired NTIOL class; and 

• Evidence demonstrates that use of 

the IOL results in measurable, clinically 

meaningful, improved outcomes in 

comparison with use of currently 

available IOLs. According to the statute, 

and consistent with previous examples 

provided by CMS, superior outcomes 

that we consider include the following: 

Æ Reduced risk of intraoperative or 

postoperative complication or trauma; 

Æ Accelerated postoperative recovery; 

Æ Reduced induced astigmatism; 

Æ Improved postoperative visual 

acuity; 

Æ More stable postoperative vision; 

and/or 

Æ Other comparable clinical 

advantages, such as— 

Æ Reduced dependence on other 

eyewear (for example, spectacles, 

contact lenses, and reading glasses); 

Æ Decreased rate of subsequent 

diagnostic or therapeutic interventions, 

such as the need for YAG laser 

treatment; 

Æ Decreased incidence of subsequent 

IOL exchange; and 

Æ Decreased blurred vision, glare, 

other quantifiable symptom or vision 

deficiency. 

For a request to be considered 

complete, we require submission of the 

information that is found in the 

guidance document entitled 

‘‘Application Process and Information 

Requirements for Requests for a New 

Class of New Technology Intraocular 

Lens (NTIOL)’’ posted on the CMS Web 

site at: http://www.cms.gov/ 

ASCPayment/08_

NTIOLs.asp#TopOfPage. 

As we stated in the CY 2007 OPPS/ 

ASC final rule with comment period (71 

FR 68180), there are three possible 

outcomes from our review of a request 

for establishment of a new NTIOL class. 

As appropriate, for each completed 

request for consideration of a candidate 

IOL into a new class that is received by 

the established deadline, one of the 

following determinations is announced 

annually in the final rule updating the 

ASC payment rates for the next calendar 

year: 

• The request for a payment 

adjustment is approved for the 

candidate IOL for 5 full years as a 

member of a new NTIOL class described 

by a new HCPCS code; 

• The request for a payment 

adjustment is approved for the 

candidate IOL for the balance of time 

remaining as a member of an active 

NTIOL class; or 

• The request for a payment 

adjustment is not approved. 

We also discussed our plan to 

summarize briefly in the final rule with 

comment period the evidence that we 

reviewed, the public comments, and the 

basis for our determinations in 

consideration of applications for 

establishment of a new NTIOL class. We 

established that when a new NTIOL 

class is created, we identify the 

predominant characteristic of NTIOLs in 

that class that sets them apart from other 

IOLs (including those previously 

approved as members of other expired 

or active NTIOL classes) and that is 

associated with improved clinical 

outcomes. The date of implementation 

of a payment adjustment in the case of 

approval of an IOL as a member of a 

new NTIOL class would be set 

prospectively as of 30 days after 

publication of the ASC payment update 

final rule, consistent with the statutory 

requirement. 

2. NTIOL Application Process for 

Payment Adjustment 

In CY 2007, we posted an updated 

guidance document to the CMS Web site 

to provide process and information 

requirements for applications requesting 

a review of the appropriateness of the 

payment amount for insertion of an IOL 

to ensure that the ASC payment for 

covered surgical procedures includes 

payment that is reasonable and related 

to the cost of acquiring a lens that is 

approved as belonging to a new class of 

NTIOLs. This guidance document can 

be accessed on the CMS Web site at: 

http://www.cms.gov/ASCPayment/

downloads/NTIOLprocess.pdf. 

We note that we have also issued a 

guidance document entitled ‘‘Revised 

Process for Recognizing Intraocular 

Lenses Furnished by Ambulatory 

Surgery Centers (ASCs) as Belonging to 

an Active Subset of New Technology 

Intraocular Lenses (NTIOLs).’’ This 

guidance document can be accessed on 

the CMS Web site at: http:// 

www.cms.gov/ASCPayment/Downloads/

Request_for_inclusion_in_current_

NTIOL_subset.pdf. 

This second guidance document 

provides specific details regarding 

requests for recognition of IOLs as 

belonging to an existing, active NTIOL 

class, the review process, and 

information required for a request to 

review. Currently, there is one active 

NTIOL class whose defining 

characteristic is the reduction of 

spherical aberration. We accept requests 

throughout the year to review the 

appropriateness of recognizing an IOL 

as a member of an active class of 

NTIOLs. That is, review of candidate 

lenses for membership in an existing, 

active NTIOL class is ongoing and not 

limited to the annual review process 

that applies to the establishment of new 

NTIOL classes. We ordinarily complete 

the review of such a request within 90 

days of receipt of all information that 

we consider pertinent to our review, 

and upon completion of our review, we 

notify the requestor of our 

determination and post on the CMS 

Web site notification of a lens newly 

approved for a payment adjustment as 

an NTIOL belonging to an active NTIOL 

class when furnished in an ASC. 

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3. Classes of NTIOLs Approved and 

New Requests for Payment Adjustment 

a. Background 

Since implementation of the process 

for adjustment of payment amounts for 

NTIOLs that was established in the June 

16, 1999 Federal Register, we have 

approved three classes of NTIOLs, as 

shown in the following table, with the 

associated qualifying IOLs to date: 

b. Request to Establish New NTIOL 

Class for CY 2010 and Deadline for 

Public Comment 

As explained in the guidance 

document on the CMS Web site, the 

deadline for each year’s requests for 

review of the appropriateness of the 

ASC payment amount for insertion of a 

candidate IOL as a member of a new 

class of NTIOLs is announced in the 

final rule updating the ASC and OPPS 

payment rates for that calendar year. 

Therefore, a request for review for a new 

class of NTIOLs for CY 2011 must have 

been submitted to CMS by March 8, 

2010, the due date published in the CY 

2010 OPPS/ASC final rule with 

comment period (74 FR 60621). We 

received one request for review to 

establish a new NTIOL class for CY 

2011 by the March 8, 2010 due date. A 

summary of this request follows. 

Requestor/Manufacturer: Alcon 

Laboratories, Inc. 

Lens Model Number: Acrysof®

Natural IOLs, Models: SN60WF, 

SN60AT, MN60MA, and MN60AC. 

Summary of the Request: Alcon 

Laboratories, Inc. (Alcon) submitted a 

request for CMS to determine that its 

Acrysof® Natural intraocular lenses 

meet the criteria for recognition as 

NTIOL and to concurrently establish a 

new class of NTIOLs for blue light 

filtering to improve driving safety under 

glare conditions, with these lenses as 

members. As part of its request, Alcon 

submitted descriptive information about 

the candidate IOLs as outlined in the 

guidance document that we make 

available on the CMS Web site for the 

establishment of a new class of NTIOLs, 

as well as information regarding 

approval of the candidate IOL by the 


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U.S Food and Drug Administration 

(FDA). This information included the 

approved labeling for the candidate 

lenses, a summary of the IOLs’ safety 

and effectiveness, a copy of the FDA’s 

approval notification, and instructions 

for their use. In addition, Alcon also 

submitted a number of studies in 

support of its claim that the blue light 

filtering design features of the candidate 

lenses would improve driving safety 

under glare conditions. We note that we 

have previously considered another 

candidate IOL for which ASC payment 

review was requested on the basis of 

blue light filtering properties. We 

discussed these lenses in the July 23, 

2004 and March 25, 2005 NTIOL 

proposed and final rules published in 

the Federal Register (69 FR 44029 and 

70 FR 15337, respectively). 

In its CY 2011 request, Alcon asserts 

that its request is based on new research 

and measurement technologies that 

demonstrate that the Acrysof® Natural 

IOLs with a blue light filtering 

chromophore filter light in a manner 

that approximates the human crystalline 

lens in the 400–475 nm blue light 

wavelength range to reduce glare that 

impairs the ability of the eye to 

differentiate objects from the 

background. Alcon further states that 

glare reduction can help beneficiaries 

avoid hazards that can be caused by 

glare. Alcon also states that at present, 

there are no active or expired NTIOL 

classes that describe IOLs similar to its 

IOL. 

We established in the CY 2007 OPPS/ 

ASC final rule with comment period 

that when reviewing a request for 

recognition of an IOL as an NTIOL and 

a concurrent request to establish a new 

class of NTIOLs, we would base our 

determination on consideration of the 

three major criteria that are outlined in 

the discussion above. We have begun 

our review of Alcon’s request to 

recognize its Acrysof® Natural IOLs as 

NTIOLs and concurrently establish a 

new class of NTIOLs. We are soliciting 

public comment on these candidate 

IOLs with respect to the established 

NTIOL criteria as discussed above. 

First, for an IOL to be recognized as 

an NTIOL we require that the IOL must 

have been approved by the FDA and 

claims of specific clinical benefits and/ 

or lens characteristics with established 

clinical relevance in comparison with 

currently available IOLs must have been 

approved by the FDA for use in labeling 

and advertising. We note that FDA 

approval for the candidate lens was 

granted in May 2007 and that Alcon 

provided FDA approval documentation, 

including a copy of the FDA’s approval 

notification, the FDA’s summary of the 

IOL’s safety and effectiveness, and the 

labeling approved by the FDA in its 

request for a new class of NTIOLs. The 

approved labels for the Alcon IOLs all 

state, ‘‘Alcon’s proprietary blue light 

filtering chromophore filters light in a 

manner that approximates the human 

crystalline lens in the 400–475 nm blue 

light wavelength range.’’ The FDA label 

does not otherwise reference specific 

clinical benefits or lens characteristics 

of blue light filtering on glare. We are 

interested in public comments on the 

specific clinical benefits or lens 

characteristics with established clinical 

relevance for the blue light filter effects 

on glare. Specifically, we are interested 

in public comments regarding the 

assertion that the specific blue light 

filter properties associated with the 

candidate IOLs improve driving safety 

via the reduction of glare. 

Second, we also require that the 

candidate IOL not be described by an 

active or expired NTIOL class; that is, it 

does not share the predominant, classdefining characteristic associated with 

improved clinical outcomes with 

designated members of an active or 

expired NTIOL class. As noted in the 

table above regarding active and expired 

NTIOL classes, since implementation of 

the NTIOL review process that was 

established in the June 16, 1999 Federal 

Register, we have approved three 

classes of NTIOLs: Multifocal and 

Reduction in Preexisting Astigmatism 

classes, both of which were created in 

2000 and expired in 2005, and the 

currently active Reduced Spherical 

Aberration class, which was created in 

2006 and will expire in 2011. The classdefining characteristic specific to IOLs 

that are members of these classes is 

evident in the name assigned to the 

class. For example, IOLs recognized as 

members of the reduced spherical 

aberration class are characterized by 

their aspheric design that results in 

reduced spherical aberration. We refer 

readers to the table above for 

information about the NTIOL classes 

that have been created since the 

implementation of the review process. 

Based on this information, the candidate 

lens may not be described by an active 

or expired NTIOL class. Its proposed 

class-defining characteristic and 

associated clinical benefits that were 

described in the submitted request, 

specifically the blue light filtering 

properties, may not be similar to the 

class-defining characteristics and 

associated benefits of the two expired 

NTIOL classes, the Multifocal and 

Reduction in Preexisting Astigmatism 

classes, or to the class-defining 

characteristic and associated benefits of 

the currently active Reduced Spherical 

Aberration class. We welcome public 

comments that address whether the 

proposed class-defining characteristic 

and associated clinical benefits of the 

candidate Alcon IOLs are described by 

the expired or currently active NTIOL 

classes. 

Third, our NTIOL evaluation criteria 

also require that an applicant submit 

evidence demonstrating that use of the 

IOL results in measurable, clinically 

meaningful, improved outcomes in 

comparison to use of currently available 

IOLs. We note that in the CY 2007 

OPPS/ASC final rule with comment 

period, we sought comments as to what 

constitutes currently available IOLs for 

purposes of such comparisons, and we 

received several comments in response 

to our solicitation (71 FR 68178). We 

agreed with commenters that we should 

remain flexible with respect to our view 

of ‘‘currently available lenses’’ for 

purposes of reviewing NTIOL requests, 

in order to allow for consideration of 

technological advances in lenses over 

time. For purposes of reviewing this 

request to establish a new NTIOL class 

for CY 2011, we believe that foldable, 

spherical, monofocal IOLs made of 

acrylic, silicone, or 

polymethylmethacrylate materials 

represent the currently available lenses 

against which the candidate NTIOL to 

establish a new class should be 

compared. The Alcon request asserts 

that the proprietary blue light filtering 

chromophore incorporated into the 

design of the candidate lenses and 

asserted associated benefits makes them 

different from IOLs that are currently 

available in the U.S. market. We are 

again seeking public comment on our 

view of ‘‘currently available lenses’’ for 

the purposes of this CY 2011 review. 

We reviewed the evidence submitted 

as part of the request, including two 

peer-reviewed articles and two related 

clinical studies. The first of the 

submitted articles discussed the effect of 

the candidate lenses on glare disability, 

while the second article discussed the 

effects of glare on driving in simulated 

driving conditions. The requestor also 

submitted data from two clinical studies 

directly related to the submitted articles 

discussed above. One cross sectional 

study with a planned sample size of 70 

subjects evaluated glare disability by 

comparing the candidate lenses against 

control lenses which did not include the 

blue light filtering chromophore. Results 

from this study suggest that subjects 

implanted with the applicant IOLs had 

significantly faster photostress recovery 

times than subjects who had control 

IOLs implanted without the blue light 

filtering chromophore. We note that this 

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cross sectional study is ongoing; 

consequently the preliminary results 

submitted with the request only reflect 

40 subjects from the planned total 

sample size. The requestor also 

submitted data from a second clinical 

study with a total sample size of 34 that 

evaluated the benefit of the blue light 

filtering chromophore on driving 

performance in patients implanted with 

the candidate IOLs compared to patients 

implanted with non blue light filtering 

IOLs. The results from this study 

suggested that incorporation of the 

yellow chromophore into the design of 

the candidate lenses reduce glare 

disability and thereby improve the 

ability of older drivers implanted with 

the candidate lenses to drive safely. 

Overall, the evidence submitted 

provides us with important information 

that is critical to our review of this 

request. However, in making our 

decision as to whether to establish a 

new class of NTIOL based on the 

primary characteristic of the candidate 

lenses, we are also interested in what 

other information the public can 

contribute related to the asserted 

benefits of the blue light filtering optic. 

Specifically, we are seeking public 

comment and relevant data on the 

following: 

• Are there other peer-reviewed data 

that would support or disprove the 

claims of clinical benefit made by the 

applicant? 

• The presented studies compare the 

blue filtering optic to clear IOLs, are 

there other IOLs or other clinical 

alternatives for reducing glare? 

• Is the sample size used in both 

studies sufficient considering all 

confounding variables including, but 

not limited to age, sex, race, time from 

surgery, status of eyes (which eye 

received the IOL or both eyes, for 

example) to conclude that a blue light 

filtering optic would reduce glare in the 

Medicare population? 

• What kind of study design would be 

appropriate to prove the claim of 

significant clinical benefit due to glare 

reduction on which the new class 

would be based? 

• Are the submitted data enough to 

clarify that the blue filtering optic is 

responsible for reduction in glare 

disability as asserted by applicant? 

We welcome public comments and 

relevant data specifically addressing 

whether use of the Alcon Acrysof® 

Natural IOLs result in measurable, 

clinically meaningful, improved 

outcomes in comparison with use of 

currently available IOLs. Additionally, 

in accordance with our established 

NTIOL review process, we are seeking 

public comments on all of the review 

criteria for establishing a new NTIOL 

class that would be based on the ability 

of the Acrysof® Natural IOLs to filter 

blue light and subsequently help 

beneficiaries avoid hazards that can be 

caused by glare while driving. All 

comments on this request must be 

received by September 2, 2010. The 

announcement of CMS’s determination 

regarding this request will appear in the 

CY 2011 OPPS/ASC final rule with 

comment period. If a determination of 

membership of the candidate lens in a 

new or currently active NTIOL class is 

made, this determination will be 

effective 30 days following the date that 

the final rule with comment period is 

published in the Federal Register. 

4. Proposed Payment Adjustment 

The current payment adjustment for a 

5-year period from the implementation 

date of a new NTIOL class is $50. In the 

CY 2007 OPPS/ASC final rule with 

comment period, we revised 

§ 416.200(a) through (c) to clarify how 

the IOL payment adjustment is made 

and how an NTIOL is paid after 

expiration of the payment adjustment, 

and made minor editorial changes to 

§ 416.200(d). For CY 2008, CY 2009, and 

CY 2010, we did not revise the payment 

adjustment amount, and we are not 

proposing to revise the payment 

adjustment amount for CY 2011 in light 

of our limited experience with the 

revised ASC payment system, 

implemented initially on January 1, 

2008. 

5. Proposed ASC Payment for Insertion 

of IOLs 

In accordance with the final policies 

of the revised ASC payment system, for 

CY 2011, payment for IOL insertion 

procedures is established according to 

the standard payment methodology of 

the revised payment system, which 

multiplies the ASC conversion factor by 

the ASC payment weight for the surgical 

procedure to implant the IOL. CY 2011 

ASC payment for the cost of a 

conventional lens is packaged into the 

payment for the associated covered 

surgical procedures performed by the 

ASC. The HCPCS codes for IOL 

insertion procedures were included in 

Table 53 below, and their proposed CY 

2011 payment rates may be found in 

Addendum AA to this proposed rule. 


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F. Proposed ASC Payment and 

Comment Indicators 

1. Background 

In addition to the payment indicators 

that we introduced in the August 2, 

2007 final rule, we also created final 

comment indicators for the ASC 

payment system in the CY 2008 OPPS/ 

ASC final rule with comment period (72 

FR 66855). We created Addendum DD1 

to define ASC payment indicators that 

we use in Addenda AA and BB to 

provide payment information regarding 

covered surgical procedures and 

covered ancillary services, respectively, 

under the revised ASC payment system. 

The ASC payment indicators in 

Addendum DD1 are intended to capture 

policy-relevant characteristics of HCPCS 

codes that may receive packaged or 

separate payment in ASCs, such as 

whether they were on the ASC list of 

covered services prior to CY 2008; 

payment designation, such as deviceintensive or office-based and the 

corresponding ASC payment 

methodology; and their classification as 

separately payable ancillary services 

including radiology services, 

brachytherapy sources, OPPS passthrough devices, corneal tissue 

acquisition services, drugs or 

biologicals, or NTIOLs. 

We also created Addendum DD2 that 

lists the ASC comment indicators. The 

ASC comment indicators used in 

Addenda AA and BB to the proposed 

rules and final rules with comment 

period serve to identify, for the revised 

ASC payment system, the status of a 

specific HCPCS code and its payment 

indicator with respect to the timeframe 

when comments will be accepted. The 

comment indicator ‘‘NI’’ is used in the 

OPPS/ASC final rule with comment 

period to indicate new HCPCS codes for 

the next calendar year for which the 

interim payment indicator assigned is 

subject to comment. The comment 

indicator ‘‘NI’’ is also assigned to 

existing codes with substantial revisions 

to their descriptors such that we 

consider them to be describing new 

services, as discussed in the CY 2010 

OPPS/ASC final rule with comment 

period (74 FR 60622). We will respond 

to public comments and finalize the 

ASC treatment of all codes labeled with 

comment indicator ‘‘NI’’ in the CY 2011 

OPPS/ASC final rule with comment 

period. 

The ‘‘CH’’ comment indicator is used 

in Addenda AA and BB to this CY 2011 

proposed rule to indicate that a new 

payment indicator (in comparison with 

the indicator for the CY 2010 ASC April 

quarterly update) is proposed for 

assignment to an active HCPCS code for 

the next calendar year; an active HCPCS 

code is proposed for addition to the list 

of procedures or services payable in 

ASCs; or an active HCPCS code is 

proposed for deletion at the end of the 

current calendar year. The ‘‘CH’’ 

comment indicators that are published 

in the final rule with comment period 

are provided to alert readers that a 

change has been made from one 

calendar year to the next, but do not 

indicate that the change is subject to 

comment. The full definitions of the 

payment indicators and comment 

indicators are provided in Addenda 

DD1 and DD2 to this proposed rule. 

2. Proposed ASC Payment and 

Comment Indicators 

We are not proposing any changes to 

the definitions of the ASC payment and 

comment indicators for CY 2011. We 

will consider proposing to modify the 

payment indicators for procedures that 

were subject to transitional payment 

prior to CY 2011 in future rulemaking. 

We refer readers to Addenda DD1 and 

DD2 to this proposed rule for the 

complete list. 

G. ASC Policy and Payment 

Recommendations 

MedPAC was established under 

section 1805 of the Act to advise 

Congress on issues affecting the 

Medicare program. Subparagraphs (B), 

(C), and (D) of sections 1805(b)(1 of the 

Act require MedPAC to submit reports 

to Congress not later than March 1 and 

June 15 of each year that present its 

Medicare payment policy reviews and 

recommendations. The following 

section describes a recent MedPAC 

recommendation that is relevant to the 

ASC payment system. 

The March 2010 MedPAC ‘‘Report to 

the Congress: Medicare Payment Policy’’ 

included the following recommendation 

relating specifically to the ASC payment 

system for CY 2011: 

Recommendation 2C: The Congress 

should implement a 0.6 percent increase 

in payment rates for ambulatory surgical 

center services in calendar year 2011 

concurrent with requiring ambulatory 

surgical centers to submit cost and 

quality data. 

CMS Response: In the August 2, 2007 

final rule (72 FR 42518 through 42519), 

we adopted a policy to update the ASC 

conversion factor for consistency with 

section 1833(i)(2)(C) of the Act, which 

requires that, if the Secretary has not 

updated the ASC payment amounts in a 

calendar year, the payment amounts 

shall be increased by the percentage 

increase in the Consumer Price Index 

for All Urban Consumers (CPI–U) as 

estimated by the Secretary for the 12- 

month period ending with the midpoint 

of the year involved. The statute set the 

update at zero for CY 2008 and CY 2009. 

We indicated that we planned to 

implement the annual updates through 

an adjustment to the conversion factor 

under the ASC payment system 

beginning in CY 2010 when the 

statutory requirement for a zero update 

no longer applies. Further, we noted 

that that we would update the 

conversion factor for the CY 2010 ASC 

payment system by the percentage 

increase in the CPI–U, consistent with 

our policy as codified under 

§ 416.171(a)(2). 

As we indicated in the CY 2010 

OPPS/ASC final rule with comment 

period (74 FR 60622), we did not 

require ASCs to submit cost data to the 

Secretary for CY 2010. We explained 

that the 2006 GAO report, ‘‘Medicare: 

Payment for Ambulatory Surgical 

Centers Should Be Based on the 

Hospital Outpatient Payment System’’ 

(GAO–07–86), concluded that the APC 

groups in the OPPS reflect the relative 

costs of surgical procedures performed 

in ASCs in the same way they reflect the 

relative costs of the same procedures 

when they are performed in HOPDs. 

Consistent with the GAO findings, CMS 

is using the OPPS as the basis for the 

ASC payment system, which provides 

for an annual revision of the ASC 

payment rates under the budget neutral 

ASC payment system. In addition, we 

noted that, under the methodology of 

the revised ASC payment system, we do 

not utilize ASC cost information to set 

and revise the payment rates for ASCs 

but, instead, rely on the relativity of 

hospital outpatient costs developed for 

the OPPS, consistent with the 

recommendation of the GAO. 

Furthermore, we explained that we have 

never required ASCs to routinely submit 

cost data and expressed our concern 

that a new Medicare requirement for 

ASCs to do so could be administratively 

burdensome for ASCs. In 2009, MedPAC 

made a similar recommendation to that 

made in Recommendation 2C above. In 

light of that MedPAC recommendation, 

in the CY 2010 OPPS/ASC proposed 

rule (74 FR 35391), we solicited public 

comment on the feasibility of ASCs 

submitting cost information to CMS, 

including whether costs should be 

collected from a sample or the universe 

of ASCs, the administrative burden 

associated with such an activity, the 

form that such a submission could take 

considering existing Medicare 

requirements for other types of facilities 

and the scope of ASC services, the 

expected accuracy of such cost 

information, and any other issues or 

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concerns of interest to the public on this 

topic. 

In the CY 2010 OPPS/ASC final rule 

with comment period (74 FR 60623), we 

summarized and responded to these 

comments. As noted in that final rule 

with comment period, commenters’ 

expressed varied opinions regarding the 

feasibility of requiring ASCs to submit 

cost data to the Secretary. Some 

commenters believed that requiring ASC 

to submit such data would not be an 

insurmountable obstacle and pointed 

out that other small facilities submit 

cost reports to CMS. They stated that 

ASC cost reports are necessary to assess 

the adequacy of Medicare payments and 

evaluate the ASC update. Other 

commenters, however, opposed the 

requirement that ASCs submit cost data 

to CMS because they believed such a 

requirement would be unnecessary and 

administratively burdensome. 

Commenters generally supported a 

requirement that ASCs report quality 

data. We refer readers to the CY 2010 

OPPS/ASC final rule with comment 

period for a full discussion of the 

comments we received on the feasibility 

of requiring ASCs to report cost and 

quality data (74 FR 60623). We 

responded that we would keep the 

commenters’ perspectives in mind as we 

further consider the adequacy of the 

Medicare ASC payment rates and move 

toward implementation of ASC quality 

reporting. 

Consistent with our CY 2010 policy, 

we are proposing not to require ASCs to 

submit cost data to the Secretary for CY 

2011. We continue to believe that our 

established methodology results in 

appropriate payment rates for ASCs. As 

noted in the CY 2010 OPPS/ASC final 

rule with comment period (74 FR 

60623), section 109(b) of the MIEA– 

TRHCA (Pub. L. 109–432) gives the 

Secretary the authority to implement 

ASC quality measure reporting and to 

reduce the payment update for ASCs 

that fail to report those required 

measures. We restate our belief that 

promoting high quality care in the ASC 

setting through quality reporting is 

highly desirable and fully in line with 

our efforts under other payment 

systems. As discussed in section XVI.H. 

of this proposed rule, we are proposing 

not to require ASC quality data 

reporting for CY 2011, but our intention 

is to implement ASC quality reporting 

in a future rulemaking. 

Section 3006(f) of the Affordable Care 

Act, as added by section 10301(a) of the 

Affordable Care Act, requires CMS to 

develop a plan on implementing a 

value-based purchasing program for 

ASCs that will consider measures of 

quality and efficiency in ASCs, among 

other requirements. The Secretary must 

submit a report to Congress containing 

this plan not later than January 1, 2011. 

H. Calculation of the ASC Conversion 

Factor and ASC Payment Rates 

1. Background 

In the August 2, 2007 final rule (72 FR 

42493), we established our policy to 

base ASC relative payment weights and 

payment rates under the revised ASC 

payment system on APC groups and 

relative payment weights. Consistent 

with that policy and the requirement at 

section 1833(i)(2)(D)(ii) of the Act that 

the revised payment system be 

implemented so that it would be budget 

neutral, the initial ASC conversion 

factor (CY 2008) was calculated so that 

estimated total Medicare payments 

under the revised ASC payment system 

in the first year would be budget neutral 

to estimated total Medicare payments 

under the prior (CY 2007) ASC payment 

system. That is, application of the ASC 

conversion factor was designed to result 

in aggregate Medicare expenditures 

under the revised ASC payment system 

in CY 2008 equal to aggregate Medicare 

expenditures that would have occurred 

in CY 2008 in the absence of the revised 

system, taking into consideration the 

cap on ASC payments in CY 2007 as 

required under section 1833(i)(2)(E) of 

the Act (72 FR 42522). 

We note that we consider the term 

‘‘expenditures’’ in the context of the 

budget neutrality requirement under 

section 1833(i)(2)(D)(ii) of the Act to 

mean expenditures from the Medicare 

Part B Trust Fund. We do not consider 

expenditures to include beneficiary 

coinsurance and copayments. This 

distinction was important for the CY 

2008 ASC budget neutrality model that 

considered payments across hospital 

outpatient, ASC, and MPFS payment 

systems. However, because coinsurance 

is almost always 20 percent for ASC 

services, this interpretation of 

expenditures has minimal impact for 

subsequent budget neutrality 

adjustments calculated within the 

revised ASC payment system. 

In the CY 2008 OPPS/ASC final rule 

with comment period (72 FR 66857 

through 66858), we set out a step-bystep illustration of the final budget 

neutrality adjustment calculation based 

on the methodology finalized in the 

August 2, 2007 final rule (72 FR 42521 

through 42531) and as applied to 

updated data available for the CY 2008 

OPPS/ASC final rule with comment 

period. The application of that 

methodology to the data available for 

the CY 2008 OPPS/ASC final rule with 

comment period resulted in a budget 

neutrality adjustment of 0.65. 

For CY 2008, we adopted the OPPS 

relative payment weights as the ASC 

relative payment weights for most 

services and, consistent with the final 

policy, we calculated the CY 2008 ASC 

payment rates by multiplying the ASC 

relative payment weights by the final 

CY 2008 ASC conversion factor of 

$41.401. For covered office-based 

surgical procedures and covered 

ancillary radiology services, the 

established policy is to set the relative 

payment weights so that the national 

unadjusted ASC payment rate does not 

exceed the MPFS unadjusted nonfacility PE RVU amount. Further, as 

discussed in the CY 2008 OPPS/ASC 

final rule with comment period (72 FR 

66841 through 66843), we also adopted 

alternative rate setting methodologies 

for specific types of services (for 

example, device-intensive procedures). 

As discussed in the August 2, 2007 

final rule (72 FR 42518) and as codified 

under § 416.172(c) of the regulations, 

the revised ASC payment system 

accounts for geographic wage variation 

when calculating individual ASC 

payments by applying the pre-floor and 

pre-reclassified hospital wage indices to 

the labor-related share, which is 50 

percent of the ASC payment amount. 

Beginning in CY 2008, CMS accounted 

for geographic wage variation in labor 

cost when calculating individual ASC 

payments by applying the pre-floor and 

pre-reclassified hospital wage index 

values that CMS calculates for payment, 

using updated Core Based Statistical 

Areas (CBSAs) issued by the Office of 

Management and Budget in June 2003. 

The reclassification provision provided 

at section 1886(d)(10) of the Act is 

specific to hospitals. We believe the use 

of the most recent available raw prefloor and pre-reclassified hospital wage 

indices results in the most appropriate 

adjustment to the labor portion of ASC 

costs. In addition, use of the unadjusted 

hospital wage data avoids further 

reductions in certain rural statewide 

wage index values that result from 

reclassification. We continue to believe 

that the unadjusted hospital wage 

indices, which are updated yearly and 

are used by many other Medicare 

payment systems, appropriately account 

for geographic variation in labor costs 

for ASCs. 

We note that in certain instances there 

might be urban or rural areas for which 

there is no IPPS hospital whose wage 

index data would be used to set the 

wage index for that area. For these areas, 

our policy has been to use the average 

of the wage indices for CBSAs (or 

metropolitan divisions as applicable) 

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that are contiguous to the area that has 

no wage index (where ‘‘contiguous’’ is 

defined as sharing a border). We have 

applied a proxy wage index based on 

this methodology to ASCs located in 

CBSA 25980 Hinesville-Fort Stewart, 

GA, and CBSA 22 Rural Massachusetts. 

For CY 2011, we have identified another 

area, specifically, CBSA 11340 

Anderson, SC for which there is no IPPS 

hospital whose wage index data would 

be used to set the wage index for that 

area. Generally, we would use the 

methodology described above; however 

in this situation all of the areas 

contiguous to CBSA 11340 Anderson, 

SC are rural. Therefore, for this type of 

unique situation, we are proposing to 

set the ASC wage index by calculating 

the average of all wage indices for urban 

areas in the state. In other situations, 

where there are no IPPS hospitals 

located in a relevant labor market area, 

we would continue our current policy of 

calculating an urban or rural area’s wage 

index by calculating the average of the 

wage indices for CBSAs (or 

metropolitan divisions where 

applicable) that are contiguous to the 

area with no wage index. 

2. Proposed Calculation of the ASC 

Payment Rates 

a. Updating the ASC Relative Payment 

Weights for CY 2011 and Future Years 

We update the ASC relative payment 

weights each year using the national 

OPPS relative payment weights (and 

MPFS non-facility PE RVU amounts, as 

applicable) for that same calendar year 

and uniformly scale the ASC relative 

payment weights for each update year to 

make them budget neutral (72 FR 42531 

through 42532). Consistent with our 

established policy, we are proposing to 

scale the CY 2011 relative payment 

weights for ASCs according to the 

following method. Holding ASC 

utilization and the mix of services 

constant from CY 2008 for CY 2011, we 

are proposing to compare the total 

payment weight using the CY 2010 ASC 

relative payment weights under the 75/ 

25 blend (of the CY 2007 payment rate 

calculated under the ASC standard 

ratesetting methodology and the ASC 

payment rate calculated under the ASC 

standard methodology) with the total 

payment weight using the CY 2011 ASC 

relative payment weights (calculated 

under the ASC standard rate setting 

methodology) to take into account the 

changes in the OPPS relative payment 

weights between CY 2010 and CY 2011. 

We would use the ratio of CY 2010 to 

CY 2011 total payment weight (the 

weight scaler) to scale the ASC relative 

payment weights for CY 2011. The 

proposed CY 2011 ASC scaler is 0.9090 

and scaling would apply to the ASC 

relative payment weights of the covered 

surgical procedures and covered 

ancillary radiology services for which 

the ASC payment rates are based on 

OPPS relative payment weights. 

Scaling would not apply in the case 

of ASC payment for separately payable 

covered ancillary services that have a 

predetermined national payment 

amount (that is, their national ASC 

payment amounts are not based on 

OPPS relative payment weights), such 

as drugs and biologicals that are 

separately paid or services that are 

contractor-priced or paid at reasonable 

cost in ASCs. Any service with a 

predetermined national payment 

amount would be included in the ASC 

budget neutrality comparison, but 

scaling of the ASC relative payment 

weights would not apply to those 

services. The ASC payment weights for 

those services without predetermined 

national payment amounts (that is, 

those services with national payment 

amounts that would be based on OPPS 

relative payment weights if a payment 

limitation did not apply) would be 

scaled to eliminate any difference in the 

total payment weight between the 

current year and the update year. 

For any given year’s ratesetting, we 

typically use the most recent full 

calendar year of claims data to model 

budget neutrality adjustments. We 

currently have available 98 percent of 

CY 2009 ASC claims data. To create an 

analytic file to support calculation of 

the weight scaler and budget neutrality 

adjustment for the wage index 

(discussed below), we summarized 

available CY 2009 ASC claims by 

provider and by HCPCS code. We 

created a unique supplier identifier 

solely for the purpose of identifying 

unique ASCs within the CY 2009 claims 

data. We used the supplier zip code 

reported on the claim to associate State, 

county, and CBSA with each ASC. This 

file, available to the public as a 

supporting data file for this proposed 

rule, is posted on the CMS Web site at: 

http://www.cms.gov/ASCPayment/ 

01_Overview.asp#TopOfPage. 

b. Updating the ASC Conversion Factor 

Under the OPPS, we typically apply 

a budget neutrality adjustment for 

provider-level changes, most notably a 

change in the wage index values for the 

upcoming year, to the conversion factor. 

Consistent with our final ASC payment 

policy, for the CY 2011 ASC payment 

system, we are proposing to calculate 

and apply the pre-floor and prereclassified hospital wage indices that 

are used for ASC payment adjustment to 

the ASC conversion factor, just as the 

OPPS wage index adjustment is 

calculated and applied to the OPPS 

conversion factor (73 FR 41539). For CY 

2011, we calculated this proposed 

adjustment for the ASC payment system 

by using the most recent CY 2009 claims 

data available and estimating the 

difference in total payment that would 

be created by introducing the CY 2011 

pre-floor and pre-reclassified hospital 

wage indices. Specifically, holding CY 

2009 ASC utilization and service-mix 

and CY 2010 national payment rates 

after application of the weight scaler 

constant, we calculated the total 

adjusted payment using the CY 2010 

pre-floor and pre-reclassified hospital 

wage indices and the total adjusted 

payment using the proposed CY 2011 

pre-floor and pre-reclassified hospital 

wage indices. We used the 50-percent 

labor-related share for both total 

adjusted payment calculations. We then 

compared the total adjusted payment 

calculated with the CY 2010 pre-floor 

and pre-reclassified hospital wage 

indices to the total adjusted payment 

calculated with the proposed CY 2011 

pre-floor and pre-reclassified hospital 

wage indices and applied the resulting 

ratio of 1.0006 (the proposed CY 2011 

ASC wage index budget neutrality 

adjustment) to the CY 2010 ASC 

conversion factor to calculate the 

proposed CY 2011 ASC conversion 

factor. 

Section 1833(i)(2)(C) of the Act 

requires that, if the Secretary has not 

updated the ASC payment amounts in a 

calendar year, the payment amounts 

shall be increased by the percentage 

increase in the CPI–U as estimated by 

the Secretary for the 12-month period 

ending with the midpoint of the year 

involved. Because the Secretary does 

update the ASC payment amounts 

annually, we adopted a policy, which 

we codified at § 416.171(a)(2)(ii), to 

update the ASC conversion factor using 

the CPI–U for CY 2010 and subsequent 

calendar years. Therefore, the annual 

update to the ASC payment system is 

the CPI–U (referred to as the CPI–U 

update factor). Section 3401(k) of the 

Affordable Care Act amends section 

1833(i)(2)(D) of the Act by adding a new 

clause (v) which requires that ‘‘any 

annual update under [the ASC payment] 

system for the year * * * shall be 

reduced by the productivity adjustment 

described in section 

1886(b)(3)(B)(xi)(II)’’ (which we refer to 

as the MFP adjustment) effective with 

the calendar year beginning January 1, 

2011. Section 3401(k) of the Affordable 

Care Act states that application of the 

MFP adjustment to the ASC payment 

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system may result in the update to the 

ASC payment system being less than 

zero for a year and may result in 

payment rates under the ASC payment 

system for a year being less than such 

payment rates for the preceding year. 

We are proposing to revise § 416.160 

and § 416.171 to reflect this provision of 

the Affordable Care Act. 

In accordance with section 

1833(i)(2)(C)(i) of the Act, before 

applying the MFP adjustment, the 

Secretary first determines the 

‘‘percentage increase’’ in the CPI–U, 

which we interpret cannot be a negative 

number. Thus, in the instance where the 

percentage change in the CPI–U for a 

year is negative, we are proposing to 

hold the CPI–U update factor for the 

ASC payment system to zero. Section 

1833(i)(2)(D)(v) of the Act, as added by 

section 3401(k) of the Affordable Care 

Act, then requires that the Secretary 

reduce the CPI–U update factor (which 

would be held to zero if the CPI–U 

percentage change is negative) by the 

MFP adjustment, and states that 

application of the MFP adjustment may 

reduce this percentage change below 

zero. If the application of the MFP 

adjustment to the CPI–U percentage 

increase would result in a MFP-adjusted 

CPI–U update factor that is less than 

zero, then the annual update to the ASC 

payment rates would be negative and 

payments would decrease relative to the 

prior year. 

Table 54 provides illustrative 

examples of how the MFP would be 

applied to the ASC payment system. 

These examples show the implication of 

a positive CPI–U update factor with a 

small MFP, a positive CPI–U update 

factor with a large MFP adjustment, and 

a CPI–U update factor of 0. We discuss 

in greater detail the methodology for 

calculating the MFP for the ASC 

payment system and the other payment 

systems affected by the MFP adjustment 

(found in section 1886(b)(3)(B)(xi)(II) of 

the Act, as added by section 3401(a) of 

the Affordable Care Act) in the CY 2011 

MPFS proposed rule. Comments on the 

specific mathematical calculation of the 

MFP should be made to that proposed 

rule. Comments on the application of 

the MFP to the CPI–U update factor 

under the ASC payment system should 

be made to this proposed rule. 

For this proposed rule, for the 12- 

month period ending with the midpoint 

of CY 2011, the Secretary estimates that 

the CPI–U is 1.6 percent. The Secretary 

estimates that the MFP adjustment is 

1.6. As discussed in the CY 2011 MPFS 

proposed rule, we are proposing to 

reduce the CPI–U of 1.6 percent by the 

MFP adjustment specific to this CPI–U, 

resulting in an MFP-adjusted CPI–U 

updated factor of 0 percent. Therefore, 

we are proposing to apply to the ASC 

conversion factor a 0 percent MFPadjusted update. 

For CY 2011, we also are proposing to 

adjust the CY 2010 ASC conversion 

factor ($41.873) by the wage adjustment 

for budget neutrality of 1.0006 in 

addition to the MFP-adjusted update 

factor of 0 discussed above, which 

results in a proposed CY 2011 ASC 

conversion factor of $41.898. 

3. Display of Proposed ASC Payment 

Rates 

Addenda AA and BB to this proposed 

rule display the proposed updated ASC 

payment rates for CY 2011 for covered 

surgical procedures and covered 

ancillary services, respectively. These 

addenda contain several types of 

information related to the proposed CY 

2011 payment rates. Specifically, in 

Addendum AA, a ‘‘Y’’ in the column 

titled ‘‘Subject to Multiple Procedure 

Discounting’’ indicates that the surgical 

procedure would be subject to the 

multiple procedure payment reduction 

policy. As discussed in the CY 2008 

OPPS/ASC final rule with comment 

period (72 FR 66829 through 66830), 

most covered surgical procedures are 

subject to a 50-percent reduction in the 

ASC payment for the lower-paying 

procedure when more than one 

procedure is performed in a single 

operative session. Display of the 

comment indicator ‘‘CH’’ in the column 

titled ‘‘Comment Indicator’’ indicates a 

proposed change in payment policy for 

the item or service, including 

identifying discontinued HCPCS codes, 

designating items or services newly 

payable under the ASC payment system, 

and identifying items or services with 

changes in the ASC payment indicator 

for CY 2011. 

The values displayed in the column 

titled ‘‘CY 2011 Payment Weight’’ are the 

proposed relative payment weights for 

each of the listed services for CY 2011. 

The payment weights for all covered 

surgical procedures and covered 

ancillary services whose ASC payment 

rates are based on OPPS relative 

payment weights are scaled for budget 

neutrality. Thus, scaling was not 

applied to the device portion of the 

device intensive procedures, services 

that are paid at the MPFS nonfacility PE 

RVU amount, separately payable 

covered ancillary services that have a 

predetermined national payment 

amount, such as drugs and biologicals 

that are separately paid under the OPPS, 

or services that are contractor-priced or 

paid at reasonable cost in ASCs. 

To derive the proposed CY 2011 

payment rate displayed in the ‘‘CY 2011 

Payment’’ column, each ASC payment 

weight in the ‘‘CY 2011 Payment 

Weight’’ column is multiplied by the 

proposed CY 2011 conversion factor of 

$41.898. The conversion factor includes 

a budget neutrality adjustment for 

changes in the wage index values and 

the CPI–U update factor as reduced by 

the productivity adjustment (as 

discussed in section XV.H.2.b. of this 

proposed rule). 

In Addendum BB, there are no 

relative payment weights displayed in 

the ‘‘CY 2011 Payment Weight’’ column 

for items and services with 

predetermined national payment 


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amounts, such as separately payable 

drugs and biologicals. The ‘‘CY 2011 

Payment’’ column displays the proposed 

CY 2011 national unadjusted ASC 

payment rates for all items and services. 

The proposed CY 2011 ASC payment 

rates listed in the Addendum AA for 

separately payable drugs and biologicals 

are based on ASP data used for payment 

in physicians’ offices in April 2010. 

XVI. Reporting Quality Data for Annual 

Payment Rate Updates 

A. Background 

1. Overview 

CMS has implemented quality 

measure reporting programs for multiple 

settings of care. These programs 

promote higher quality, more efficient 

health care for Medicare beneficiaries. 

The quality data reporting program for 

hospital outpatient care, known as the 

Hospital Outpatient Quality Data 

Reporting Program (HOP QDRP), has 

been generally modeled after the 

program for hospital inpatient services, 

the Reporting Hospital Quality Data for 

Annual Payment Update (RHQDAPU) 

program. Both of these quality reporting 

programs for hospital services, as well 

as the program for physicians and other 

eligible professionals, known as the 

Physician Quality Reporting Initiative 

(PQRI), have financial incentives for the 

reporting of quality data to CMS. CMS 

also has implemented quality reporting 

programs for home health agencies and 

skilled nursing facilities that are based 

on conditions of participation, and an 

end-stage renal disease quality reporting 

program that is based on conditions for 

coverage. 

2. Hospital Outpatient Quality Data 

Reporting Under Section 109(a) of 

MIEA–TRHCA 

Section 109(a) of the MIEA–TRHCA 

(Pub. L. 109–432) amended section 

1833(t) of the Act by adding a new 

paragraph (17) which affects the annual 

payment update factor applicable to 

OPPS payments for services furnished 

by hospitals in outpatient settings on or 

after January 1, 2009. Section 

1833(t)(17)(A) of the Act states that 

subsection (d) hospitals (as defined 

under section 1886(d)(1)(B) of the Act) 

that fail to report data required for the 

quality measures selected by the 

Secretary in the form and manner 

required by the Secretary under section 

1833(t)(17)(B) of the Act will incur a 2.0 

percentage point reduction to their 

annual payment update factor. Section 

1833(t)(17)(B) of the Act requires that 

hospitals submit quality data in a form 

and manner, and at a time, that the 

Secretary specifies. Section 

1833(t)(17)(A)(ii) of the Act specifies 

that any reduction would apply only to 

the payment year involved and would 

not be taken into account in computing 

the applicable annual payment update 

factor for a subsequent payment year. 

Section 1833(t)(17)(C)(i) of the Act 

requires the Secretary to develop 

measures appropriate for the 

measurement of the quality of care 

(including medication errors) furnished 

by hospitals in outpatient settings, that 

these measures reflect consensus among 

affected parties and, to the extent 

feasible and practicable, that these 

measures include measures set forth by 

one or more national consensus 

building entities. The National Quality 

Forum (NQF) is a voluntary consensus 

standard setting organization that is 

composed of a diverse representation of 

consumer, purchaser, provider, 

academic, clinical, and other health care 

stakeholder organizations. NQF was 

established to standardize health care 

quality measurement and reporting 

through its consensus development 

process. We generally prefer to adopt 

NQF-endorsed measures for CMS 

quality reporting programs. However, 

we believe that consensus among 

affected parties also can be reflected by 

other means, including: consensus 

achieved during the measure 

development process; consensus shown 

through broad acceptance and use of 

measures; and consensus through public 

comment. We also note that section 

1833(t)(17) of the Act does not require 

that each measure we adopt for the HOP 

QDRP be endorsed by a national 

consensus building entity, or by the 

NQF specifically. 

Section 1833(t)(17)(C)(ii) of the Act 

allows the Secretary to ‘‘[select] 

measures that are the same as (or a 

subset of) the measures for which data 

are required to be submitted under 

section 1886(b)(3)(B)(viii)’’ of the Act 

(the RHQDAPU program). As we stated 

in the CY 2009 OPPS/ASC final rule 

with comment period (73 FR 68758 

through 68759), we do not believe that 

we should, without further analysis, 

adopt the RHQDAPU program measures 

as the measures for the HOP QDRP. We 

continue to believe that it is most 

appropriate and desirable to adopt 

measures that specifically apply to the 

hospital outpatient setting for the HOP 

QDRP. 

Section 1833(t)(17)(D) of the Act gives 

the Secretary the authority to replace 

measures or indicators as appropriate, 

such as when all hospitals are 

effectively in compliance or when the 

measures or indicators have been 

subsequently shown not to represent the 

best clinical practice. Section 

1833(t)(17)(E) of the Act requires the 

Secretary to establish procedures for 

making data submitted under the HOP 

QDRP available to the public. Such 

procedures include providing hospitals 

with the opportunity to review their 

data before these data are released to the 

public. 

3. ASC Quality Data Reporting Under 

Section 109(b) of MIEA–TRHCA 

Section 109(b) of the MIEA–TRHCA 

amended section 1833(i) of the Act by 

redesignating clause (iv) as clause (v) 

and adding new clause (iv) to paragraph 

(2)(D) and by adding new paragraph (7). 

Section 1833(i)(2)(D)(iv) of the Act 

authorizes, but does not require, the 

Secretary to implement the revised ASC 

payment system ‘‘so as to provide for a 

reduction in any annual update for 

failure to report on quality measures’’ 

beginning with payment for ASC 

services furnished on or after January 1, 

2009. 

Section 1833(i)(7)(A) of the Act states 

that the Secretary may provide that any 

ASC that fails to report data required for 

the quality measures selected by the 

Secretary in the form and manner 

required by the Secretary under section 

1833(i)(7) of the Act will incur a 

reduction in any annual payment 

update of 2.0 percentage points. Section 

1833(i)(7)(A) of the Act also specifies 

that a reduction for one year cannot be 

taken into account in computing the 

annual ASC payment update for a 

subsequent year. 

Section 1833(i)(7)(B) of the Act 

provides that, ‘‘[e]xcept as the Secretary 

may otherwise provide,’’ the hospital 

outpatient quality data provisions of 

subparagraphs (B) through (E) of section 

1833(t)(17) of the Act, summarized 

above, shall apply to ASCs in a similar 

manner to the manner in which they 

apply under these paragraphs to 

hospitals under the HOP QDRP. We did 

not implement an ASC quality reporting 

program for CY 2008 (72 FR 66875) or 

for CY 2009 (73 FR 68780), or for CY 

2010 (74 FR 60656). 

We refer readers to section XVI.F. of 

this proposed rule for further discussion 

of ASC quality data reporting. 

4. HOP QDRP Quality Measures for the 

CY 2009 Payment Determination 

For the CY 2009 annual payment 

update, we required HOP QDRP 

reporting using seven quality 

measures—five Emergency Department 

(ED) Acute Myocardial Infarction (AMI) 

Cardiac Care measures and two Surgical 

Care measures. These measures address 

care provided to a large number of adult 

patients in hospital outpatient settings 

across a diverse set of conditions, and 

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were selected for the initial set of HOP 

QDRP measures based on their 

relevance as a set to all HOPDs. 

Specifically, in order for hospitals to 

receive the full OPPS payment update 

for services furnished in CY 2009, in the 

CY 2008 OPPS/ASC final rule with 

comment period (72 FR 66865 and 

66871), we required that subsection (d) 

hospitals paid under the OPPS submit 

data on the following seven measures 

for hospital outpatient services 

furnished on or after April 1, 2008: (1) 

ED–AMI–1: Aspirin at Arrival; (2) ED– 

AMI–2: Median Time to Fibrinolysis; (3) 

ED–AMI–3: Fibrinolytic Therapy 

Received within 30 Minutes of Arrival; 

(4) ED–AMI–4: Median Time to 

Electrocardiogram (ECG); (5) ED–AMI– 

5: Median Time to Transfer for Primary 

PCI; (6) PQRI #20: Surgical Care-Timing 

of Antibiotic Prophylaxis; and (7) PQRI 

#21: Surgical Care-Selection of 

Antibiotic. 

5. HOP QDRP Quality Measures for the 

CY 2010 Payment Determination 

For the CY 2010 payment update, we 

required continued submission of data 

on the existing seven measures 

discussed above (73 FR 68761), and 

adopted four new imaging measures (73 

FR 68766). For CY 2010, we also 

changed the measure designations for 

the existing seven measures to an ‘‘OP- 

#’’ format. For example, the designations 

of ED–AMI–2 and ED–AMI–3 were 

changed to OP–1 and OP–2 so that the 

eleven measures for the CY 2010 

payment update were designated as OP– 

1 through OP–11. This change allowed 

us to maintain a consistent sequential 

designation system that we could 

expand as we add additional measures. 

The four imaging measures that we 

adopted beginning with the CY 2010 

payment determination (OP–8: MRI 

Lumbar Spine for Low Back Pain, OP– 

9: Mammography Follow-up Rates, OP– 

10: Abdomen CT—Use of Contrast 

Material, and OP–11: Thorax CT—Use 

of Contrast Material) are claims-based 

measures that CMS will calculate using 

Medicare Part B claims data without 

imposing upon hospitals the burden of 

additional chart abstraction. For 

purposes of the CY 2010 payment 

determination, we will calculate these 

measures using CY 2008 Medicare 

administrative claims data. 

In the CY 2009 OPPS/ASC proposed 

rule, OP–10 had two submeasures 

listed: OP–10a: CT Abdomen—Use of 

contrast material excluding calculi of 

the kidneys, ureter, and/or urinary tract, 

and OP–10b: CT Abdomen—Use of 

contrast material for diagnosis of calculi 

in the kidneys, ureter, and or urinary 

tract. In the CY 2009 OPPS/ASC final 

rule with comment period (73 FR 

68766), we finalized OP–10 (previously 

known as OP–10a): Abdomen CT—Use 

of Contrast Material. To clarify, we are 

calculating OP–10 excluding patients 

with impaired renal functions because 

they are not candidates for an 

abdominal CT with contrast. This 

exclusion is described in greater detail 

in the Specifications Manual for 

Hospital Outpatient Department Quality 

Measures (HOPD Specifications 

Manual) located at the QualityNet Web 

site (http://www.QualityNet.org). 

The complete set of 11 measures to be 

used for the CY 2010 payment 

determination is listed at 73 FR 68766. 

6. HOP QDRP Quality Measures, 

Technical Specification Updates, and 

Data Publication for the CY 2011 

Payment Determination 

a. Quality Measures 

For the CY 2011 payment 

determination, we required hospitals to 

continue to submit data on the existing 

11 HOP QDRP measures. These 

measures continue to address areas of 

topical importance regarding the quality 

of care provided in HOPDs, and reflect 

consensus among affected parties. Seven 

of these 11 measures are chartabstracted measures in two areas of 

importance that are also measured for 

the inpatient setting: AMI cardiac care 

and surgical care. The remaining four 

measures address imaging efficiency in 

HOPDs. 

For the CY 2011 payment 

determination, we did not add any new 

HOP QDRP measures. We indicated our 

sensitivity to the burden upon HOPDs 

associated with chart abstraction and 

stated that we seek to minimize the 

collection burden associated with 

quality measurement. We also stated 

that we will continue to assess whether 

we can collect data on additional 

quality measures through mechanisms 

other than chart abstraction, such as 

from Medicare administrative claims 

data and EHRs. 

The complete set of 11 measures that 

will be used for the CY 2011 payment 

determination is listed at 74 FR 60637. 

b. Maintenance of Technical 

Specifications for Quality Measures 

Technical specifications for each HOP 

QDRP measure are listed in the HOPD 

Specifications Manual, which is posted 

on the CMS QualityNet Web site at 

http://www.QualityNet.org. We 

maintain the technical specifications for 

the measures by updating this HOPD 

Specifications Manual and including 

detailed instructions and calculation 

algorithms. In some cases where the 

specifications are available elsewhere, 

we may include links to Web sites 

hosting technical specifications. These 

resources are for hospitals to use when 

collecting and submitting data on 

required measures. 

In the CY 2009 OPPS/ASC final rule 

with comment period (73 FR 68766 

through 68767), we established a 

subregulatory process for updates to the 

technical specifications that we use to 

calculate HOP QDRP measures. This 

process is used when changes to the 

measure specifications are necessary 

due to changes in scientific evidence or 

in the measure as endorsed by the 

consensus entity. Changes of this nature 

may not coincide with the timing of our 

regulatory actions, but nevertheless 

require inclusion in the measure 

specifications so that the HOP QDRP 

measures are calculated based on the 

most up-to-date scientific and 

consensus standards. We indicated that 

notification of changes to the measure 

specifications on the QualityNet Web 

site, http://www.QualityNet.org, and in 

the HOPD Specifications Manual that 

occurred as a result of changes in 

scientific evidence or national 

consensus would occur no less than 3 

months before any changes become 

effective for purposes of reporting under 

the HOP QDRP. 

The HOPD Specifications Manual is 

released every 6 months and addenda 

are released as necessary providing at 

least 3 months of advance notice for 

insubstantial changes such as changes to 

ICD–9, CPT, NUBC, and HCPCS codes, 

and at least 6 months notice for 

substantive changes to data elements 

that would require significant systems 

changes. 

c. Publication of HOP QDRP Data 

Section 1833(t)(17)(E) of the Act 

requires that the Secretary establish 

procedures to make data collected under 

the HOP QDRP program available to the 

public. It also states that such 

procedures must ensure that a hospital 

has the opportunity to review the data 

that are to be made public with respect 

to the hospital prior to such data being 

made public. To meet these 

requirements, data that a hospital has 

submitted for the HOP QDRP are 

typically displayed on CMS Web sites 

such as the Hospital Compare Web site, 

http://www.hospitalcompare.hhs.gov 

after a preview period. The Hospital 

Compare Web site is an interactive Web 

tool that assists beneficiaries by 

providing information on hospital 

quality of care. This information 

encourages beneficiaries to work with 

their doctors and hospitals to discuss 

the quality of care hospitals provide to 

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1A registry is a collection of clinical data for 

purposes of assessing clinical performance, quality 

of care, and opportunities for quality improvement. 

patients, thereby providing an 

additional incentive to hospitals to 

improve the quality of care that they 

furnish. 

In general, we strive to display 

hospital quality measures on the 

Hospital Compare Web site as soon as 

possible after they have been adopted 

and are available to CMS for reporting. 

However, information that may not be 

easily understood by the public and 

information with unresolved display 

issues or pending design considerations 

may be made available on other noninteractive CMS Web sites such as 

http://www.cms.hhs.gov/ 

HospitalQualityInits/. Publicly reporting 

the information in this manner, though 

not on the Hospital Compare Web site, 

allows CMS to meet the requirement 

under section 1833(t)(17)(E) of the Act 

for establishing procedures to make 

quality data submitted available to the 

public following a preview period. We 

are proposing that, under circumstances 

when we have to display hospital 

quality information on non-interactive 

CMS Web sites for reasons discussed 

earlier, affected parties would be 

notified via CMS listserves, CMS e-mail 

blasts, national provider calls, and 

QualityNet announcements regarding 

the release of preview reports followed 

by the posting of data on a Web site 

other than Hospital Compare. The 

release of preview reports allows CMS 

to meet the requirement under section 

1833(t)(17)(E) of the Act for establishing 

procedures to make quality data 

submitted available to the public 

following a preview period. 

CMS also requires hospitals to 

complete and submit a registration form 

(‘‘participation form’’) in order to 

participate in the HOP QDRP. With 

submission of this form, participating 

hospitals agree that they will allow CMS 

to publicly report the quality measures, 

including those that CMS calculates 

using Medicare claims, as required by 

the Act and the HOP QDRP. 

In the CY 2009 OPPS/ASC final rule 

with comment period (73 FR 68778), we 

established that, for CY 2010, hospitals 

sharing the same CMS Certification 

Number (CCN, previously known as the 

Medicare Provider Number (MPN)) must 

combine data collection and submission 

across their multiple campuses for the 

clinical measures for public reporting 

purposes. We finalized the policy that, 

under the HOP QDRP, we will publish 

quality data by the corresponding CCN. 

This approach is consistent with the 

approach taken under the RHQDAPU 

program. In the CY 2009 OPPS/ASC 

final rule with comment period, we also 

stated that we intend to indicate 

instances where data from two or more 

hospitals are combined to form the 

publicly reported measures on the Web 

site. 

In the CY 2010 OPPS/ASC final rule 

with comment period, we finalized our 

CY 2010 policy regarding publication of 

HOP QDRP data (74 FR 60652 through 

60654). Section 1833(t)(17)(E) of the Act 

requires that the Secretary establish 

procedures to make data collected under 

the HOP QDRP available to the public; 

however, this section does not require 

that such data be validated before it is 

made public. We explained that, 

initially, we decided not to post 

‘‘[i]nformation from non-validated data, 

including the initial reporting period 

(April—June 2008)’’ as discussed in the 

CY 2008 OPPS/ASC final rule with 

comment period (72 FR 66874). We 

noted, however, that data submitted by 

hospitals are publicly reported 

regardless of whether those data are 

successfully validated for payment 

determination purposes under existing 

procedures for the RHQDAPU program. 

We also noted that, in the CY 2009 

OPPS/ASC final rule with comment 

period, we stated that we intended to 

make the information collected under 

the HOP QDRP available to the public 

in 2010 (73 FR 68778). 

In the CY 2010 OPPS/ASC proposed 

rule (74 FR 35404), we proposed to 

make data collected for quarters 

beginning with the third quarter of CY 

2008 (July—September 2008) under the 

HOP QDRP publicly available, 

regardless of whether those data have 

been validated for payment 

determination purposes. In the CY 2010 

OPPS/ASC final rule with comment 

period (74 FR 60654), we finalized our 

proposal to publicly report HOP QDRP 

data on Hospital Compare in 2010 with 

some modifications in the periods of 

time to be reported. For measures OP– 

1 through OP–5, we will publicly report 

data periods beginning with the 3rd 

quarter of 2008. For measures OP–6 and 

OP–7, we will publicly report data 

periods beginning with the 3rd quarter 

of 2009. For measures OP–8 through 

OP–11, we will report CY 2010 payment 

determination calculations using CY 

2008 claims. 

B. Proposed Expansion of HOP QDRP 

Quality Measures for the CY 2012, CY 

2013, and CY 2014 Payment 

Determinations 

1. Considerations in Expanding and 

Updating Quality Measures Under the 

HOP QDRP 

In general, when selecting measures 

for the HOP QDRP program, we take 

into account several considerations and 

goals. These include: (a) Expanding the 

types of measures beyond process of 

care measures to include an increased 

number of outcome measures, efficiency 

measures, and patients’ experience-ofcare measures; (b) expanding the scope 

of hospital services to which the 

measures apply; (c) considering the 

burden on hospitals in collecting chartabstracted data; (d) harmonizing the 

measures used in the HOP QDRP 

program with other CMS quality 

programs to align incentives and 

promote coordinated efforts to improve 

quality; (e) seeking to use measures 

based on alternative sources of data that 

do not require chart abstraction or that 

utilize data already being reported by 

many hospitals, such as data that 

hospitals report to clinical data 

registries, or all-payer claims data bases; 

and (f) weighing the relevance and 

utility of the measures compared to the 

burden on hospitals in submitting data 

under the HOP QDRP program. 

Specifically, we give priority to 

quality measures that assess 

performance on: (a) Conditions that 

result in the greatest mortality and 

morbidity in the Medicare population; 

(b) conditions that are high volume and 

high cost for the Medicare program; and 

(c) conditions for which wide cost and 

treatment variations have been reported, 

despite established clinical guidelines. 

We have used and continue to use these 

criteria to guide our decisions regarding 

what measures to add to the HOP QDRP 

measure set. 

In the CY 2009 OPPS/ASC final rule 

with comment period, we adopted four 

claims-based quality measures that do 

not require a hospital to submit chartabstracted clinical data (73 FR 68766). 

This supports our goal of expanding the 

measures for the HOP QDRP while 

minimizing the burden upon hospitals 

and, in particular, without significantly 

increasing the chart abstraction burden. 

In addition to claims-based measures, 

we are considering registries 1 and EHRs 

as alternative ways to collect data from 

hospitals. Many hospitals submit data to 

and participate in existing registries. In 

addition, registries often capture 

outcome information and provide 

ongoing quality improvement feedback 

to registry participants. Instead of 

requiring hospitals to submit the same 

data to CMS that they are already 

submitting to registries, we could collect 

the data directly from the registries with 

the permission of the hospital, thereby 

enabling us to expand the HOP QDRP 

measure set without increasing the 

burden of data collection for those 

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hospitals participating in the registries. 

The data that we would receive from 

registries would be used to calculate 

quality measures required under the 

HOP QDRP, and would be publicly 

reported like other HOP QDRP quality 

measures, encouraging improvements in 

the quality of care. In the CY 2010 

OPPS/ASC final rule with comment 

period (74 FR 60633), we responded to 

public comments on such an approach. 

In the CY 2009 OPPS/ASC final rule 

with comment period, we also stated 

our intention to explore mechanisms for 

data submission using EHRs (73 FR 

68769). CMS has adopted the definition 

of Qualified EHR set forth by the Office 

of the National Coordinator for Health 

Information Technology (ONC) which 

has adopted the statutory definition of 

Qualified EHR as follows: Section 

3000(13) of the PHSA defines Qualified 

EHR as an electronic record of healthrelated information on an individual 

that: (A) Includes patient demographic 

and clinical health information, such as 

medical history and problem lists; and 

(B) has the capacity: (i) To provide 

clinical decision support; (ii) to support 

physician order entry; (iii) to capture 

and query information relevant to health 

care quality; and (iv) to exchange 

electronic health information with, and 

integrate such information from other 

sources.’’ CMS has also adopted the 

definition of Certified EHR by ONC as 

follows: Certified EHR technology 

means a complete EHR or a combination 

of EHR Modules, each of which: (1) 

Meets the requirements included in the 

definition of a Qualified EHR; and (2) 

has been tested and certified in 

accordance with the certification 

program established by the ONC as 

having met all applicable certification 

criteria adopted by the Secretary. 

Establishing a data submission 

mechanism using EHRs system will 

require interoperability between EHRs 

and CMS data collection systems, 

additional infrastructure development 

on the part of hospitals and CMS, and 

the adoption of standards for the 

capturing, formatting, and transmission 

of data elements that make up the 

measures. However, once these 

activities are accomplished, the 

adoption of measures that rely on data 

obtained directly from EHRs would 

enable us to expand the HOP QDRP 

measure set with less cost and burden 

to hospitals. In the CY 2010 OPPS/ASC 

final rule with comment period (74 FR 

60633 through 60634), we responded to 

public comments on such an approach. 

In prior years, we have proposed 

measures for one payment 

determination in a given rulemaking 

cycle. In prior rules, we have identified 

measures for future consideration, but 

have not proposed or finalized measures 

beyond those to be collected and used 

for the next sequential payment 

determination. In this CY 2011 

rulemaking cycle, we are proposing the 

addition of new measures over a three 

year period of time for CY 2012, CY 

2013, and CY 2014 payment 

determinations. We believe this 

proposed process would assist hospitals 

in planning, meeting future reporting 

requirements, and implementing quality 

improvement efforts. We also would 

have more time to develop, align, and 

implement the infrastructure necessary 

to collect data on the measures and 

make payment determinations. To the 

extent that we choose to finalize some 

or all of these measures for the CY 2012, 

CY 2013 and CY 2014 payment 

determinations, this would not preclude 

us from proposing additional measures 

or changing the list of measures for 

future payment determinations through 

subsequent rulemaking cycles that affect 

these future payment determinations. 

We invite comments on our intention to 

propose measures for more than one 

payment determination in a single 

rulemaking cycle. 

2. Retirement of HOP QDRP Quality 

Measures 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule, we finalized a 

process for immediate retirement of 

RHQDAPU program measures based on 

evidence that the continued use of the 

measure as specified raises patient 

safety concerns (74 FR 43864 through 

43865). In circumstances such as those 

prompting immediate retirement of the 

AMI–6 measure from the RHQDAPU 

program in December 2008 as discussed 

in the FY 2010 IPPS/LTCH final rule (74 

FR 43864 through 43865) we do not 

believe that it would be appropriate to 

wait for the annual rulemaking cycle to 

retire a measure. We adopted this same 

immediate retirement policy for the 

HOP QDRP in the CY 2010 OPPS/ASC 

final rule with comment period (74 FR 

60635). 

Specifically, we stated that if we 

receive evidence that continued 

collection of a measure that has been 

adopted for the HOP QDRP raises 

patient safety concerns, we would 

promptly retire the measure and notify 

hospitals and the public of the 

retirement of the measure and the 

reasons for its retirement through the 

usual means by which we communicate 

with hospitals, including but not 

limited to hospital e-mail blasts and the 

QualityNet Web site. We also stated that 

we would confirm the retirement of a 

measure retired in this manner in the 

next OPPS rulemaking cycle. However, 

for other circumstances in which we do 

not believe that continued use of a 

measure raises specific patient safety 

concerns, we stated that we intend to 

use the regular rulemaking process to 

retire a measure. 

3. Proposed HOP QDRP Quality 

Measures for the CY 2012 Payment 

Determination 

a. Proposed Retention of Existing HOP 

QDRP Measures for the CY 2012 

Payment Determination 

For the CY 2012 payment 

determination, we are proposing to 

retain the existing 11 HOP QDRP 

measures. These measures continue to 

address areas of topical importance 

regarding the quality of care provided in 

HOPDs, and reflect consensus among 

affected parties. Seven of these 11 

measures are chart-abstracted measures 

in two areas of importance that are also 

measured for the inpatient setting: AMI 

cardiac care and surgical care. The 

remaining four measures are claimsbased measures that address imaging 

efficiency in HOPDs. 

We invite public comment on our 

proposal to retain the existing 11 HOP 

QDRP measures for the CY 2012 

payment determination. 

b. Proposed New Structural Measure for 

CY 2012 Payment Determination 

For the CY 2012 payment 

determination, we are proposing to add 

one structural measure: ‘‘Ability for 

Providers with HIT to Receive 

Laboratory Data Electronically Directly 

into their Qualified/Certified EHR 

System as Discrete Searchable Data’’ 

(NQF # 0489). Structural measures 

allow the assessment of the 

conduciveness of the provider 

environment to processes and 

technologies that enable delivery of high 

quality care. This particular structural 

measure assesses the extent to which a 

provider uses a certified/qualified EHR 

system that incorporates an electronic 

data interchange with one or more 

laboratories allowing for direct 

electronic transmission of laboratory 

data into the EHR as discrete searchable 

data elements. We believe that 

electronic transmission of laboratory 

data into EHRs would enable greater 

timeliness of results reporting, because 

the results of the reports would be 

transmitted to the HOPD as soon as the 

laboratory data are available and be 

merged with clinical information for 

more timely clinical assessments, and 

laboratory value alerts. Electronic 

transmission of laboratory data would 

also lead to cost efficiency, expedite the 

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46364 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 

2The Lewin Group analysis of Medicare Calendar 

Year 2007 claims data prepared for the Centers for 

Medicare & Medicaid Services, HHS Contract No: 

HHSM–500–2005–0024I, Order No. 0002. 

3Levin DC, Rao VM, Parker L, et al. Recent 

payment and utilization trends in radionuclide 

myocardial perfusion imaging: Comparison between 

self-referral and referral to radiologists. J Am Coll 

Radiol 2009;6:437–441. 

4 Gibbons RJ, Miller TD, Hodge D, et al. 

Application of appropriateness criteria to stress 

single-photon emission computed tomography 

sestamibi studies and stress echocardiograms in an 

academic medical center. J Am Coll Cardiology 

2008;51:1283–9. 

5 Brenner DJ, Hall EJ. November 29, 2007. 

Computer Tomography—An Increasing Source of 

Radiation Exposure. New England J of Medicine 

2007:357(22): 2277–84. 

clinical decision process, and reduce 

redundancy of laboratory orders, and 

reduce human errors. Section 

1833(t)(17)(C)(i) of the Act requires the 

Secretary to develop measures 

appropriate for the measurement of the 

quality of care furnished by hospitals in 

outpatient settings, that these measures 

reflect consensus among affected parties 

and, to the extent feasible and 

practicable, that these measures include 

measures set forth by one or more 

national consensus building entities. As 

discussed above, this structural measure 

is appropriate for measuring quality of 

care in the hospital outpatient 

department setting. This measure also 

meets the consensus requirement 

because it was endorsed in 2008 as part 

of an NQF project entitled ‘‘National 

Voluntary Consensus Standards for 

Health Information Technology: 

Structural Measures.’’ Additionally, this 

measure was conditionally adopted by 

the Hospital Quality Alliance (HQA) in 

2010. (The HQA is a public-private 

collaboration to improve the quality of 

care provided by the nation’s hospitals 

by measuring and publicly reporting on 

that care.) 

We are proposing that this structural 

measure would be submitted by HOPDs 

beginning with January 1, 2011 

discharges via a Web-based tool 

available on the QualityNet Web site 

that is currently employed for the 

collection of structural measures for the 

RHQDAPU program. For this structural 

measure, HOPDs would submit the 

number of encounters out of all 

encounters for which laboratory results 

were documented in the EHR. We invite 

comments on our proposal to add this 

new structural measure to the HOP 

QDRP measurement set and the 

submission process for the CY 2012 

payment determination. 

c. Proposed New Claim-Based Measures 

for CY 2012 Payment Determination 

For the CY 2012 payment 

determination, we are proposing to add 

four new claims-based imaging 

efficiency measures to the HOP QDRP 

measurement set, all of which were 

listed as under consideration for CY 

2012 and subsequent years in the CY 

2010 OPPS/ASC final rule with 

comment period (74 FR 60637 through 

60641). Imaging efficiency is a new area 

of measurement that we first 

implemented in the HOP QDRP for the 

CY 2010 payment determination and 

subsequently retained for the CY 2011 

payment determination. There are 

currently four existing claims-based 

imaging efficiency measures in the HOP 

QDRP measurement set (OP–8 through 

OP–11). The four new proposed imaging 

efficiency measures for the CY 2012 

payment determination are: (1) Preoperative Evaluation for Low-Risk NonCardiac Surgery Risk Assessment, (2) 

Use of Stress Echocardiography, SPECT 

MPI, and Cardiac Stress MRI post 

CABG, (3) Simultaneous Use of Brain 

Computed Tomography (CT) and Sinus 

Computed Tomography (CT), and (4) 

Use of Brain Computed Tomography 

(CT) in the Emergency Department for 

Atraumatic Headache. 

Like the current imaging efficiency 

measures in the HOP QDRP 

measurement set, these four measures 

are based on Medicare claims and will 

not require additional data submission 

on the part of hospitals. All four of these 

proposed measures are currently 

undergoing NQF review, and 

specifications for these measures are 

available at www.imagingmeasures.com. 

The first new proposed imaging 

efficiency measure for the CY 2012 

payment determination seeks to 

calculate relative use of stress 

echocardiography, stress MRI, and 

SPECT MPI prior to low-risk noncardiac surgical procedures in the 30 

days preceding the surgery. The second 

new proposed claims-based imaging 

efficiency measure for the CY 2012 

payment determination seeks to 

estimate relative use of stress 

echocardiography and SPECT MPI in 

asymptomatic patients less than five 

years after a coronary artery bypass graft 

(CABG) procedure. 

Cardiac imaging is a gap area that was 

not addressed in CMS’ first set of 

Outpatient Imaging Efficiency measures. 

It is among the most common imaging 

services in the Medicare population. In 

the hospital outpatient setting, 762,419 

SPECT MPI, Stress MRI and Stress 

Echocardiography procedures were 

performed in 2008 alone.2 Further, 

between 1998 and 2006, the rate of 

myocardial perfusion imaging (MPI) use 

in Medicare beneficiaries increased 51 

percent among cardiologists in the 

hospital setting, and by 215 percent in 

private offices. During the same time 

period, total Medicare Part B payments 

for MPI across all settings of care 

increased by 227 percent.3

SPECT MPI, Stress MRI, and Stress 

Echocardiography are specific 

procedures that must be ordered by a 

physician to be performed. Therefore, 

there is a distinct opportunity for the 

physician to order this procedure 

prudently based on best practices. 

While SPECT MPI, Stress MRI, and 

Stress Echocardiography enhance the 

quality of care when used appropriately, 

inappropriate usage of imaging would 

cause unnecessary waste of services, 

contribute no benefit to the quality of 

care, and could increase the patient’s 

risk of cancer. An analysis by Gibbons 

et al.4 found that, of all SPECT MPI 

procedures performed at the Mayo 

Clinic Rochester in May 2005, 14 

percent were considered inappropriate 

using criteria published by the 

American College of Cardiology 

Foundation and the American Society of 

Nuclear Cardiology, and an additional 

11 percent were of indeterminate 

appropriateness.4 This study also found 

that during the same time period, 18 

percent of all stress echocardiograms 

performed were inappropriate, and an 

additional 9 percent were 

indeterminate. 

The third and fourth new proposed 

imaging efficiency measures for the CY 

2012 payment determination pertain to 

appropriate use of Brain CT imaging in 

HOPDs. These are ‘‘Simultaneous Use of 

Brain Computed Tomography (CT) and 

Sinus Computed Tomography (CT),’’ 

and ‘‘Use of Brain Computed 

Tomography (CT) in the Emergency 

Department for Atraumatic Headache.’’ 

A recent report in the New England 

Journal of Medicine 5 raised serious 

concerns about the use and overuse of 

CT scanning, stating that for an 

estimated 62 million CT scans being 

performed per year, a third are 

unnecessary, resulting in patient safety 

issues including unnecessary radiation 

and contrast material exposure, and the 

danger associated with ‘‘false positive’’ 

findings. A CT scan exposes the patient 

to higher doses of radiation than a 

conventional x-ray and increases the 

patient’s risk of cancer. 

Brain CTs are often ordered in 

addition to a sinus CT for patients with 

sinusitis because headache is a common 

symptom related to sinusitis. However, 

simultaneous CT sinus and brain 

imaging for headache without suspected 

complications is generally considered 

inappropriate, as the standard anatomic 

coverage of a CT of the head includes 

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5Brenner DJ, Hall EJ. November 29, 2007. 

Computer Tomography—An Increasing Source of 

Radiation Exposure. New England J of Medicine: 

357(22): 2277–84. 

6Appropriateness Criteria—Headache. Reston, 

VA: American College of Radiology, 2009. Accessed 

November 25, 2009 at http://www.acr.org/ 

SecondaryMainMenuCategories/quality_safety/ 

app_criteria.aspx. 

7Mellion ML, Jayaraman MV. August 2007. Use 

of neuroimaging in the workup of headache. Med 

Health R I.; 90(8):249–50. 

8 Goldstein JN, CA Camargo, AJ Pelletier, JA 

Edlow. 2006. Headache in the United States 

Emergency Departments: demographics, work-up 

and frequency of pathological diagnoses. 

Cephalalgia; 26(6) 684. 

9The Lewin Group analysis of Medicare Calendar 

Year 2007 claims data prepared for the Centers for 

Medicare & Medicaid Services, HHS Contract No: 

HHSM–500–2005–0024I, Order No. 0002. 

10Brenner DJ and Hall EJ. November 29, 2007. 

Computed Tomography—An Increasing Source of 

Radiation Exposure. N Engl J Med;357(22):2277–84. 

11Ward TN, Leven M, Phillips JM. Evaluation and 

management of headache in the emergency 

department. Med Clin N Am 2001; 85(4) 971–85. 

12Howanitz JH, and Howanitz PJ. Laboratory 

results: Timeliness as a quality attribute and 

strategy. Am J Clin Pathol. 2002 Sep; 116 (3):311– 

5. 

13Storrow AB, Zhou C, Gaddis G, Han JH, Miller 

K, Klubert D, Laidig A, and Aronsky D. Decreasing 

lab turnaround time improves emergency 

department throughput and decreases emergency 

medical services diversion: A simulation model. 

Acad Emerg Med. 2008 Nov; 15 (11):1130–5. 

14Holland LL, Smith LL, and Blick KE. Reducing 

laboratory turnaround time outliers can reduce 

emergency department length of stay: An 11- 

hospital study. Am J Clin Pathol. 2005 Nov; 124 

(5):672–4. 

15Falvo T, Grove L, Stachura R, and Zirkin W. 

The financial impact of ambulance diversions and 

patient elopements. Acad Emerg Med. 2007 Jan; 14 

(1):58–62. 

large portions of the paranasal sinuses; 

thus, ordering both procedures is 

duplicative and inefficient.5, 6 The third 

new proposed imaging efficiency 

measure for the CY 2012 payment 

determination ‘‘Simultaneous Use of 

Brain CT and Sinus CT’’ assesses the 

extent to which patients with a 

headache who have a brain CT also have 

a sinus CT performed on the same date 

at the same facility. The measure 

excludes patients with trauma 

diagnoses, tumors or orbital cellulitis. 

The fourth new proposed imaging 

efficiency measure for the CY 2012 

payment determination, ‘‘Use of Brain 

Computed Tomography (CT) in the 

Emergency Department for Atraumatic 

Headache,’’ assesses the extent to which 

patients presenting with a headache 

receive brain CT studies. The measure 

excludes patients admitted or 

transferred to an acute care hospital, 

patients with lumbar punctures, 

dizziness, paresthesia, lack of 

coordination, subarachnoid hemorrhage 

or thunderclap headaches. The lifetime 

prevalence of headache is over 90 

percent for men and women and 

according to some studies, headache 

accounts for 16 million physician visits 

in the U.S. annually.7 According to a 

study conducted by Goldstein et al. 

(2006) on U.S. emergency departments 

(EDs) from 1992 to 2001, headaches 

represent approximately 2 percent of 

U.S. ED visits.8 An analysis of 2007 

Medicare claims data found that 

approximately 200,000 Medicare 

beneficiaries had a visit to an ED with 

a primary diagnosis of headache with 

about half of these patients (not taking 

into account the previously mentioned 

exclusion of lumbar punctures, 

dizziness, paresthesia, lack of 

coordination, subarachnoid hemorrhage 

or thunderclap headaches) receiving a 

Brain CT coincident with the ED visit.9

Unnecessary or duplicative studies are 

inefficient and detrimental to the 

patient because CT exposes the patient 

to higher doses of radiation than 

conventional x-ray and increases the 

patient’s risk for cancer.10

Concern over the inappropriate use of 

CT Imaging in the ED setting has been 

driven by three primary factors: False 

positive interpretations, radiation 

exposure, and cost. There is generally a 

lower threshold for ordering neuroimaging for headache in the ED because 

of physician time constraints and lack of 

ED physician familiarity with headache 

presentation.11 Because of this lower 

threshold, the measurement of the use 

of CT Brain in the ED for patients with 

a diagnosis of atraumatic headache can 

help to raise the awareness of the need 

for quality improvement on the 

appropriate use of CT brain imaging in 

the ED and, as a result improve patient 

safety through reduction in unnecessary 

radiation exposure. 

Section 1833(t)(17)(C)(i) of the Act 

requires the Secretary to develop 

measures appropriate for the 

measurement of the quality of care 

furnished by hospitals in outpatient 

settings, that these measures reflect 

consensus among affected parties and, 

to the extent feasible and practicable, 

that these measures include measures 

set forth by one or more national 

consensus building entities. As 

discussed above, these measures are 

appropriate for measuring quality of 

care in the hospital outpatient 

department setting. These measures also 

meet the consensus requirement 

because these measures underwent 

development through a consensus-based 

measure development process involving 

stakeholder input. We anticipate that 

they will be endorsed by the NQF. 

For the CY 2012 payment 

determination, we are proposing to 

calculate these four measures using 

Medicare claims from CY 2010. We 

invite comments on our proposal to add 

these four new imaging efficiency 

measures to the HOP QDRP 

measurement set based on Medicare 

claims from CY 2010 for the CY 2012 

payment determination. 

d. Proposed New Chart-Abstracted 

Measures for CY 2012 Payment 

Determination 

We are proposing to add one new 

chart-abstracted measure to the HOP 

QDRP measurement set for the CY 2012 

payment determination: ‘‘Troponin 

Results for Emergency Department acute 

myocardial infarction (AMI) patients or 

chest pain patients (with Probable 

Cardiac Chest Pain) Received within 60 

minutes of arrival.’’ Troponin is used to 

help diagnose a heart attack, to detect 

and evaluate mild to severe heart injury, 

and to distinguish chest pain that may 

be due to other causes. 

This measure is based upon the 

existing ED–AMI/Chest Pain 

populations for which we have adopted 

five measures in the current HOP QDRP 

measurement set. This measure is 

currently undergoing NQF review. 

Both patients and clinicians are 

impacted by the timeliness of laboratory 

reporting.12 Decreasing laboratory 

turnaround times increases ED 

efficiency, specifically by decreasing 

diversion time from treatment of 

patients and decreasing length of stay.13

Decreasing the numbers of hours a day 

on diversion as well as decreasing 

patients’ lengths of stay in EDs allows 

for the treatment of a greater number of 

patients. Studies have found 

correlations between the length of stay 

and mean turnaround times.14

Efficiencies in throughput with tasks 

can lead to less diversion, less 

overcrowding, less elopements and less 

financial loss.15 Section 1833(t)(17)(C)(i) 

of the Act requires the Secretary to 

develop measures appropriate for the 

measurement of the quality of care 

furnished by hospitals in outpatient 

settings, that these measures reflect 

consensus among affected parties and, 

to the extent feasible and practicable, 

that these measures include measures 

set forth by one or more national 

consensus building entities. As 

discussed above, this measure is 

appropriate for measuring quality of 

care in the hospital outpatient 

department setting. This measure also 

meets the consensus requirement 

because this measure underwent 

development through a consensus-based 

measure development process involving 

stakeholder input. We anticipate that 

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46366 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 

this measure will be endorsed by the 

NQF. 

If adopted, data collection for this 

measure would begin with January 1, 

2011 discharges, and data would be 

submitted quarterly beginning with the 

first quarter of 2011, as with all other 

chart-abstracted measures. 

We invite public comment on our 

proposal to add this new chartabstracted measure to the HOP QDRP 

measurement set and the submission 

process for the CY 2012 payment 

determination. 

In summary, for the CY 2012 payment 

determination, we are proposing to 

retain the 11 existing HOP QDRP 

measures for the CY 2011 payment 

determination, to add one new 

structural measure, four new claimsbased imaging efficiency measures, and 

one new chart-abstracted measure for 

the ED AMI population. Submission of 

data regarding the new structural 

measure would begin with January 1, 

2011 discharges using a Web-based 

collection tool available on the 

QualityNet Web site. We are proposing 

to calculate the four imaging measures 

using Medicare claims from calendar 

year 2010. Data collection for the chartabstracted measure would begin with 

January 1, 2011 discharges, and data 

would be submitted quaterly beginning 

with the first quarter of 2011, as with all 

other chart-abstracted measures. We 

invite public comment on this proposal 

for the CY 2012 payment determination. 

The complete list of 17 proposed 

measures for the CY 2012 payment 

determination is shown below. 

4. Proposed HOP QDRP Quality 

Measures for the CY 2013 Payment 

Determination 

a. Proposed Retention of CY 2012 HOP 

QDRP Measures for the CY 2013 

Payment Determination 

In general, unless otherwise specified 

in the retirement section of a rule, we 

retain measures from one payment 

determination to another. For the CY 

2013 payment determination, we are 

proposing to retain all of the measures 

adopted for the CY 2012 payment 

determination. We invite public 

comment on this proposal for the CY 

2013 payment determination. 

b. Proposed New Structural Measure for 

the CY 2013 Payment Determination 

We are proposing to add one 

structural measure to the HOP QDRP 

measurement set for the CY 2013 

payment determination: Tracking 

Clinical Results between Visits. EHRs 

enable providers to issue reminders 

when clinical results are not received 

within a predefined timeframe. This 

measure assesses the extent to which a 

provider uses a certified/qualified EHR 

system to track pending laboratory tests, 

diagnostic studies (including common 

preventive screenings) or patient 

referrals. Section 1833(t)(17)(C)(i) of the 

Act requires the Secretary to develop 

measures appropriate for the 

measurement of the quality of care 

furnished by hospitals in outpatient 

settings, that these measures reflect 

consensus among affected parties and, 

to the extent feasible and practicable, 

that these measures include measures 


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set forth by one or more national 

consensus building entities. As 

discussed above, this structural measure 

is appropriate for measuring quality of 

care in the hospital outpatient 

department setting. This measure also 

meets the consensus requirement 

because it was endorsed as part of an 

NQF Project entitled ‘‘National 

Voluntary Consensus Standards for 

Health IT’’ (NQF #0491). Additionally, 

this measure was conditionally 

approved by the HQA in March of 2010. 

Submission of this measure would 

begin with first quarter CY 2012 

discharges to be submitted via the Webbased tool used to collect other 

structural measures, such as the registry 

participation structural measures for the 

RHQDAPU program. We invite 

comments on this proposal to add this 

new structural measure to the HOP 

QDRP measurement set and the 

submission process for the CY 2013 

payment determination. 

c. Proposed New Chart-Abstracted 

Measures for the CY 2013 Payment 

Determination 

We are proposing to add six new 

chart-abstracted measures to the HOP 

QDRP measurement set for the CY 2013 

payment determination. 

The six new chart-abstracted 

measures we are proposing for the CY 

2013 payment determination are: (1) 

Median Time from ED Arrival to ED 

Departure for Discharged ED Patients; 

(2) Transition Record with Specified 

Elements Received by Discharged 

Patients; (3) Door to Diagnostic 

Evaluation by a Qualified Medical 

Professional; (4) ED-Median Time to 

Pain Management for Long Bone 

Fracture; (5) ED-Patient Left Before 

Being Seen; and (6) ED-Head CT Scan 

Results for Acute Ischemic Stroke or 

Hemorrhagic Stroke Who Received 

Head CT Scan Interpretation Within 45 

minutes of Arrival. The topics 

addressed by these measures include ED 

efficiency, Imaging Efficiency, and care 

coordination/transition for hospital 

outpatient departments. Many of these 

measures would expand the chartabstraction population for the HOP 

QDRP measurement set beyond the 

current ED-AMI/Chest Pain, and 

Surgical Care patients for which we 

have currently adopted seven measures 

in the HOP QDRP measurement set. 

However, this population expansion 

would be occurring at a time when 

subsection (d) hospitals would begin 

collection of more global ED population 

measures for the RHQDAPU program. 

Thus, we have timed the expansion of 

the chart-abstracted measures for HOP 

QDRP to coincide with expansions that 

will be occurring for the RHQDAPU 

program in order to reduce the burden 

associated with expansion. We also 

anticipate that, in the future, these 

measures could be captured and 

submitted via EHRs, eliminating the 

chart abstraction burden associated with 

these measures. These measures are 

discussed below: 

(1) Median Time From ED Arrival to ED 

Departure for Discharged ED Patients 

This measure, which was listed as 

under consideration for CY 2012 and 

subsequent years in the CY 2010 OPPS/ 

ASC final rule with comment period (74 

FR 60637 through 60641), addresses ED 

efficiency in the form of the median 

time from emergency department arrival 

to time of departure from the emergency 

room for patients discharged from the 

emergency department. Reducing the 

time patients spend in the ED can 

improve quality of care. Reducing this 

time potentially improves access for 

more patients needing emergency care 

and increases hospitals’ capability to 

provide additional treatment as 

necessary. Overcrowding and heavy 

emergency resource demand have led to 

a number of problems, including 

ambulance refusals, prolonged patient 

waiting times, increased suffering for 

those who wait, rushed and unpleasant 

treatment environments, and potentially 

poor patient outcomes. ED crowding 

may result in delays in the 

administration of medication such as 

antibiotics for pneumonia and has been 

associated with perceptions of delayed 

emergency care. When EDs are 

overwhelmed, their ability to respond to 

community emergencies and disasters 

may be compromised. Section 

1833(t)(17)(C)(i) of the Act requires the 

Secretary to develop measures 

appropriate for the measurement of the 

quality of care furnished by hospitals in 

outpatient settings, that these measures 

reflect consensus among affected parties 

and, to the extent feasible and 

practicable, that these measures include 

measures set forth by one or more 

national consensus building entities. As 

discussed above, this chart-abstracted 

measure is appropriate for measuring 

quality of care in the hospital outpatient 

department setting. This measure also 

meets the consensus requirement 

because it was endorsed in 2009 (NQF 

#0496) as part of an NQF project 

entitled ‘‘National Voluntary Consensus 

Standards for Emergency Care.’’ 

Additionally, this measure was 

conditionally approved by the HQA in 

March of 2010. 

(2) Transition Record With Specified 

Elements Received by Discharged 

Patients 

This chart-abstracted measure 

assesses the percentage of patients, 

regardless of age, discharged from an ED 

to ambulatory care or home healthcare, 

or their caregiver(s), who received a 

transition record at the time of ED 

discharge including at a minimum, the 

following elements: major procedures 

and tests performed during the ED visit; 

principal diagnosis at discharge or chief 

complaint; patient instructions; plan for 

follow-up care (or statement that none is 

required)—including primary physician, 

other health care professional, or site 

designated for follow-up care; and list of 

new medications and changes to 

continued medications that patient 

should take after ED discharge, with the 

quantity prescribed and/or dispensed 

(or intended duration) and instructions 

for each. Transitions of care are a 

weakness in maintaining continuity of 

care and proper adherence/compliance 

with follow up instructions. Hand-offs 

between settings should be 

accompanied by clear instructions for 

medications and follow-up care. 

Information should be provided about 

the care delivered while in each setting, 

and for what reasons, not only for the 

benefit of the patient and their 

caregivers, but for practitioners that will 

be following up with the patient after 

they leave an acute care setting. 

Section 1833(t)(17)(C)(i) of the Act 

requires the Secretary to develop 

measures appropriate for the 

measurement of the quality of care 

furnished by hospitals in outpatient 

settings, that these measures reflect 

consensus among affected parties and, 

to the extent feasible and practicable, 

that these measures include measures 

set forth by one or more national 

consensus building entities. As 

discussed above, this measure is 

appropriate for measuring quality of 

care in the hospital outpatient 

department setting. This measure also 

meets the consensus requirement 

because it was endorsed by the NQF as 

part of a Project entitled ‘‘Endorsing 

Preferred Practices and Performance 

Measures for Measuring and Reporting 

Care Coordination’’ (NQF #0649). This 

measure was conditionally approved by 

the HQA in March of 2010. 

(3) Door to Diagnostic Evaluation by a 

Qualified Medical Professional (Door to 

Provider) 

This measure assesses mean time 

between patient presentation to the ED 

and the first moment the patient is seen 

by a person who can initiate a 

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46368 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 

16Ritsema, T.S., Kelen, G.D., Pronovost, R.J., and 

Pham, J.C.: The national trend in quality of 

emergency department pain management of long 

bone fractures. Acad Emerg Med. 2007 Feb 14; 

14(2):163–9. 

17Brown, J.C., Klein, E.J., Lewis, C.W., Johnston, 

B.D., and Cummings, P.: Emergency department 

analgesia for fracture pain. Ann Emerg Med. 2003 

Aug; 42(2):197–205. 

18Titler, M.G., Herr, K., Brooks, J.M., Xie, X.J., 

Ardery, G., Schilling, M.L., Marsh, J.L., Everett, 

L.Q., Clark, W.R.: Translating research into practice 

intervention improves management of acute pain in 

older hip fracture patients. Health Serv Res. 2009; 

44(1), 264–87. 

19United States General Accounting Office. 

Hospital emergency departments: Crowded 

conditions vary among hospitals and communities. 

Publication GAO–03–460, 2003. 

20Rowe, B.H., Channan, P., Bullard, M., Blitz, S., 

Saunders, L.D., Rosychuk, R.J., Lari, H., Craig, W.R., 

Holroyd, B.R.: Characteristics of patients who leave 

emergency departments without being seen. Acad 

Emerg Med. 2006 Aug; 13(8):848–52. 

21McCaig, L.F., Nawar, E.W.: National hospital 

ambulatory medical care survey: 2004 Emergency 

department summary. Adv Data. 2006 Jun 23; 

(372):1–29. 

22Marquez L.O. Improving medical imaging 

report turnaround times. Radiol Mange. 2005 Jan– 

Feb; 27(1):34–7. 

23National Stroke Association. STROKE the First 

Hours Guidelines for Acute Treatment, 2000. 

24The ATLANTIS, ECASS, and NINDS rt–PA 

Study Group Investigators. Association of Outcome 

with early stroke treatment: pooled analysis of 

ATLANTIS, ECASS, and NINDS rt–PA stroke 

Trials. Lancet 2004; 363:768–774. 

diagnostic evaluation or therapeutic 

plan (for example, medical student, 

resident, nurse practitioner; excludes 

triage personnel). Long wait times in the 

ED before diagnosis increases the 

likelihood that someone will leave the 

ED without treatment for a serious 

condition, and can worsen the severity 

of the condition with which they 

presented. Section 1833(t)(17)(C)(i) of 

the Act requires the Secretary to 

develop measures appropriate for the 

measurement of the quality of care 

furnished by hospitals in outpatient 

settings, that these measures reflect 

consensus among affected parties and, 

to the extent feasible and practicable, 

that these measures include measures 

set forth by one or more national 

consensus building entities. As 

discussed above, this measure is 

appropriate for measuring quality of 

care in the hospital outpatient 

department setting. This measure also 

meets the consensus requirement 

because it gained NQF endorsement as 

part of the project entitled ‘‘National 

Voluntary Consensus Standards for 

Emergency Care’’ (NQF #0498). This 

measure was conditionally approved by 

the HQA in March of 2010. 

(4) ED-Median Time to Pain 

Management for Long Bone Fracture 

This chart-abstracted measure 

addresses the topic of efficient pain 

management in the ED, and is currently 

being reviewed by NQF. Pain 

management in patients with long bone 

fractures is currently undertreated in 

emergency departments.16 Patients with 

bone fractures continue to lack 

administration of pain medication as 

part of treatment regimens.17 When 

standards are implemented for pain 

management of these patients, treatment 

for pain improve.18 Section 

1833(t)(17)(C)(i) of the Act requires the 

Secretary to develop measures 

appropriate for the measurement of the 

quality of care furnished by hospitals in 

outpatient settings, that these measures 

reflect consensus among affected parties 

and, to the extent feasible and 

practicable, that these measures include 

measures set forth by one or more 

national consensus building entities. As 

discussed above, this measure is 

appropriate for measuring quality of 

care in the hospital outpatient 

department setting. This measure also 

meets the consensus requirement 

because it underwent development 

through a consensus-based measure 

development process involving 

stakeholder input. We anticipate that 

this measure will be endorsed by the 

NQF. 

(5) ED-Patient Left Without Being Seen 

This measure is the sum of all 

patients leaving an ED who were not 

seen by a provider (for example, 

medical student, resident, nurse 

practitioner). A patient leaving before 

being seen is an indicator of emergency 

department overcrowding.19 Patients 

who leave before being seen may not 

receive appropriate medical care and 

this lack of care may result in adverse 

outcomes.20 National estimates for 

patients who leave before being seen by 

a provider average 1.9 percent.21

Section 1833(t)(17)(C)(i) of the Act 

requires the Secretary to develop 

measures appropriate for the 

measurement of the quality of care 

furnished by hospitals in outpatient 

settings, that these measures reflect 

consensus among affected parties and, 

to the extent feasible and practicable, 

that these measures include measures 

set forth by one or more national 

consensus building entities. As 

discussed above, this measure is 

appropriate for measuring quality of 

care in the hospital outpatient 

department setting. This measure also 

meets the consensus requirement 

because it was endorsed by the NQF 

(NQF #0499) as part of the National 

Voluntary Consensus Standards for 

Emergency Care. 

(6) ED-Head CT Scan Results for Acute 

Ischemic Stroke or Hemorrhagic Stroke 

Who Received Head CT Scan 

Interpretation Within 45 Minutes of 

Arrival 

This measure assesses whether head 

CT scan results for acute ischemic 

stroke or hemorrhagic stroke patients 

who received head CT scans in the ED 

were interpreted within 45 minutes of 

arrival. This chart-abstracted measure is 

currently under NQF review. Improved 

access to diagnostics assists clinicians 

in decisionmaking. Delayed diagnostic 

imaging and laboratory reports are 

expected to slow down clinical decision 

making process and subsequently 

increase length of stay in the ED. 

Similarly, decreasing radiology report 

turnaround times can have impacts 

across the facility and can assist in 

reducing the length of stay in the ED. It 

also can enhance decisionmaking 

capabilities for patient treatment plans 

because timely diagnostic imaging is 

available.22 The Food and Drug 

Administration (FDA) approved the use 

of tissue plasminogen activator (t–PA) 

for treatment of acute ischemic stroke, 

which comprise 87 percent of stokes, 

when given within three hours of stroke 

symptom onset.23 24 Because of the 

therapeutic time window for treatment 

possibilities, timely completion and 

results of the CT scan are imperative for 

timely clinical decisionmaking and 

favorable outcomes. Section 

1833(t)(17)(C)(i) of the Act requires the 

Secretary to develop measures 

appropriate for the measurement of the 

quality of care furnished by hospitals in 

outpatient settings, that these measures 

reflect consensus among affected parties 

and, to the extent feasible and 

practicable, that these measures include 

measures set forth by one or more 

national consensus building entities. As 

discussed above, this measure is 

appropriate for measuring quality of 

care in the hospital outpatient 

department setting. This measure also 

meets the consensus requirement 

because this measure underwent 

development through a consensus-based 

measure development process involving 

stakeholder input. We anticipate that 

this measure will be endorsed by the 

NQF. 

The submission of the new chartabstracted measures for the CY 2013 

payment determination will begin with 

first quarter 2012 discharges, and data 

would be submitted quarterly, as with 

all other chart-abstracted measures. We 

invite comments on this proposal to add 

these new measures to the HOP QDRP 

measurement set and on the submission 

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Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46369 

process for the CY 2013 payment 

determination. 

In summary, for the CY 2013 payment 

determination, we are proposing to 

retain all of the measures adopted for 

the CY 2012 payment determination, 

and to adopt one new structural 

measure, and six new chart-abstracted 

measures for the CY 2013 payment 

determination on the topics of HOPD 

care transitions and ED efficiency. 

Submission of the new structural 

measure would begin with first quarter 

CY 2012 discharges to be submitted via 

a Web-based tool on the QualityNet Web 

site in 2012. The submission of the new 

chart-abstracted measures for the CY 

2013 payment determination would 

begin with first quarter CY 2012 

discharges, to be submitted in 2012. We 

invite comments on this proposal for the 

CY 2013 payment determination. 

The complete list of 24 proposed 

measures for the CY 2013 payment 

determination is shown below. 

BILLING CODE 4120–01–P 

BILLING CODE 4120–01–C 


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25Huang, E.S., Basu, A., O’Grady, M., Capretta, 

J.C.: Projecting the future diabetes population size 

and related costs for the U.S. Diabetes Care. 

2009;32(12):2225–29. 

26The American Association of Clinical 

Endocrinologists Medical Guidelines for the 

Management of Diabetes Mellitus: The AACE 

System of Intensive Diabetes Self-Management— 

2002 Update. 

27American Diabetes Association. Standards of 

medical care in diabetes. Diabetes Care. 2007 Jan;30 

(Suppl 1):S8–15. 

28 Das, S.R., Vaeth, P.A., Stanek, H.G., de Lemos, 

J.A., Dobbins, R.L., McGuire, D.K.: Increased 

cardiovascular risk associated with diabetes in 

Dallas County. Am Heart J 2006;151:1087–93. 

29Centers for Disease Control and Prevention. 

National diabetes fact sheet: general information 

and national estimates on diabetes in the United 

States, 2007. Atlanta, GA: U.S. Department of 

5. Proposed HOP QDRP Quality 

Measures for the CY 2014 Payment 

Determination 

a. Proposed Retention of CY 2013 HOP 

QDRP Measures for the CY 2014 

Payment Determination 

In general, unless otherwise specified 

in the retirement section of a rule, we 

retain measures from one payment 

determination to another. For the CY 

2014 payment determination, we are 

proposing to retain all of the measures 

adopted for the CY 2013 payment 

determination. We invite comment on 

this proposal. 

b. Proposed New Chart-Abstracted 

Measures for the CY 2014 Payment 

Determination 

We are proposing to adopt six new 

chart-abstracted measures for the CY 

2014 payment determination. Five of 

the six measures are Diabetes Care 

measures for HOPDs, and one measure 

is an additional imaging efficiency 

measure. The six measures we are 

proposing for the CY 2014 payment 

determination are: (1) Hemoglobin A1c 

Poor Control in Diabetic Patients; (2) 

Low Density Lipoprotein (LDL–C) 

Control in Diabetic Patients; (3) High 

Blood Pressure Control in Diabetic 

Patients; (4) Dilated Eye Exam in 

Diabetic Patients; (5) Urine Screening 

for Microalbumin or Medical Attention 

for Nephropathy in Diabetic Patients; 

and (6) Exposure Time Reported for 

Procedures Using Fluoroscopy. We are 

proposing that submission of these 

measures for the CY 2014 payment 

determination begin with the first 

quarter CY 2013 discharges to be 

submitted in 2013. These measures are 

discussed below. 

(1) Diabetes Mellitus: Hemoglobin A1c 

Poor Control in Diabetic Patients 

This NQF-endorsed measure (NQF 

#0059) measures the percentage of adult 

patients with diabetes aged 18–75 years 

with most recent HgA1c level greater 

than 9 percent (poor control). 

Glycosylated hemoglobin (HgA1c) assay 

measures average blood glucose over the 

preceding two to three months, rather 

than just one point in time. HgA1c 

values vary less than fasting glucose 

values and give clinicians a better 

integrated view of the patient’s average 

blood sugar over time. High HgA1c is a 

more reliable indicator of chronic high 

blood sugar. Lowered HgA1c levels are 

associated with reduced microvascular 

and neuropathic complications of 

diabetes. 

In general, diabetes mellitus is a 

chronic disease that impacts the lives of 

a large portion of the population and 

consumes a significant amount of U.S. 

healthcare dollars. With the prevalence 

of diabetes in the Medicare-eligible 

population expected to double, costs are 

expected to increase almost fourfold to 

$171 million.25 Uncontrolled diabetes 

often leads to biochemical imbalances 

that can lead to acute life-threatening 

events, such as diabetic ketoacidosis 

and hyperosmolar, or nonketotic coma. 

In patients with insulin-dependent 

diabetes, the risk of development or 

progression of retinopathy, 

nephropathy, and neuropathy can be 

reduced by 50 to 75 percent by intensive 

outpatient treatment of hyperglycemia 

compared to conventional treatment. 

Early treatment may help slow or halt 

the progression of diabetic 

complications, and following the 

guidelines for screening may assist 

those patients with no outward sign of 

diabetic complications to be identified 

earlier through regular screening tests. 

HgA1c should be performed during an 

initial assessment and during follow-up 

assessments, which should occur at no 

longer than three-month intervals.26

Section 1833(t)(17)(C)(i) of the Act 

requires the Secretary to develop 

measures appropriate for the 

measurement of the quality of care 

furnished by hospitals in outpatient 

settings, that these measures reflect 

consensus among affected parties and, 

to the extent feasible and practicable, 

that these measures include measures 

set forth by one or more national 

consensus building entities. As 

discussed above, this measure is 

appropriate for measuring quality of 

care in the hospital outpatient 

department setting. This measure also 

meets the consensus requirement 

because, as noted above, it has been 

endorsed by the NQF. 

(2) Diabetes Mellitus: Low Density 

Lipoprotein (LDL–C) Control in Diabetic 

Patients 

This NQF-endorsed measure (NQF 

#0064) measures the percentage of adult 

patients with diabetes aged 18–75 years 

whose most recent LDL–C test result 

during the measurement year was <100 

mg/dl. LDL–C measures the 

development of atherosclerotic plague 

which increases cardiac events risks for 

diabetic patients whose heart disease 

death rates are about two to four times 

higher than non-diabetics.27 Improved 

dyslipidemia management helps to 

mitigate the risk for cardiovascular 

disease. Lipid-lowering therapy for 

diabetics has been a consistent 

recommendation in several guidelines, 

prompted by randomized trials 

supporting statin therapy to lower the 

risk of cardiovascular involvement for 

this population. Despite the evidence 

basis and guideline support, only a 

minority of patients with diabetes are 

prescribed statin treatment or achieve 

target LDL–C goals.28 Early treatment 

may help slow or halt the progression of 

cardiovascular disease and impact the 

quality of the life of the diabetic patient, 

affecting the patient’s life expectancy 

and decreasing costs involved in 

treating diabetic complications. Section 

1833(t)(17)(C)(i) of the Act requires the 

Secretary to develop measures 

appropriate for the measurement of the 

quality of care furnished by hospitals in 

outpatient settings, that these measures 

reflect consensus among affected parties 

and, to the extent feasible and 

practicable, that these measures include 

measures set forth by one or more 

national consensus building entities. As 

discussed above, this measure is 

appropriate for measuring quality of 

care in the hospital outpatient 

department setting. This measure also 

meets the consensus requirement 

because, as noted above, it has been 

endorsed by the NQF. We also note that 

this measure was listed as under 

consideration for CY 2012 and 

subsequent years in the CY 2010 OPPS/ 

ASC final rule with comment period (74 

FR 60637 through 60641). 

(3) Diabetes Mellitus: High Blood 

Pressure Control in Diabetic Patients 

This NQF-endorsed measure (NQF 

#0061) measures the percentage of 

patients visits with blood pressure 

measurement recorded among all 

patients visits aged >18 years with 

diagnosed hypertension. Blood pressure 

control reduces the risk of 

cardiovascular disease and 

microvascular complications in patients 

with diabetes. Most importantly, early 

treatment of high blood pressure may 

help slow or halt the progression of 

kidney involvement and damage.29

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Health and Human Services, Centers for Disease 

Control and Prevention, 2008. 30Centers for Disease Control and Prevention. 

National diabetes fact sheet: General information 

and national estimates on diabetes in the United 

States, 2007. Atlanta, GA: U.S. Department of 

Health and Human Services, Centers for Disease 

Control and Prevention, 2008. 

31American Diabetes Association. Standards of 

medical care in diabetes. Diabetes Care. 2007 Jan;30 

(Suppl 1):S8–15. 

32Centers for Disease Control and Prevention. 

National diabetes fact sheet: general information 

and national estimates on diabetes in the United 

States, 2007. Atlanta, GA: U.S. Department of 

Health and Human Services, Centers for Disease 

Control and Prevention, 2008. 

32MedPAC. Outpatient dialysis service: 

Assessing payment adequacy and updating 

payments. Report to the Congress; Medicare 

payment policy. 2009 Mar; 131–56. 

33National Cancer Institute (NCI), The Society for 

Pediatric Radiology (SPR). Brochure: Radiation & 

pediatric computed tomography. A guide for health 

care providers. 2002. Available at; http://www/ 

cancer.gov/cancertopics/cause/radiation-riskspediatric-CT.pdf 

34Amis E Jr, Butler P, Applegate K, Birnbaum S, 

Brateman L, Hevezi J, Mettler F, Morin R, Pentecost 

M, Smith G. American College of radiology white 

paper on radiation dose in medicine. Journal of 

American College of Radiology, 2007:4:272–284 

35National Cancer Institute. Interventional 

fluoroscopy: Reducing radiation risks for patients 

and staff. 2005. Available at: http:// 

www.cancer.gov/cancertopics/ 

interventionalfluoroscopy. 

Blood pressure is a factor that can be 

controlled Well-controlled blood 

pressure impacts the quality of the life 

of the diabetic patient, affects the 

patient’s life expectancy, and decreases 

the costs involved in treating diabetic 

complications. Section 1833(t)(17)(C)(i) 

of the Act requires the Secretary to 

develop measures appropriate for the 

measurement of the quality of care 

furnished by hospitals in outpatient 

settings, that these measures reflect 

consensus among affected parties and, 

to the extent feasible and practicable, 

that these measures include measures 

set forth by one or more national 

consensus building entities. As 

discussed above, this measure is 

appropriate for measuring quality of 

care in the hospital outpatient 

department setting. This measure also 

meets the consensus requirement 

because, as noted above, it has been 

endorsed by the NQF. 

(4) Diabetes Mellitus: Dilated Eye Exam 

in Diabetic Patients 

This NQF-endorsed measure (NQF 

#0055) measures the percentage of adult 

patients with diabetes age 18 to 75 years 

who received a dilated eye exam or 

seven standard field stereoscopic photos 

with interpretation by an 

ophthalmologist or optometrist, or 

imaging to verify diagnosis from 

stereoscopic photos during the reporting 

year, or during the prior year, if patient 

is at low risk for retinopathy. A patient 

is considered low risk if the patient has 

no evidence of retinopathy in the prior 

year. A dilated eye exam helps to detect 

the risk for vision-threatening diabetic 

retinopathy which is prevalent among 

people with diabetes. Data from the 

2007 National Diabetes Fact Sheet 

(using the most recent year of available 

data) shows that diabetic retinopathy 

causes up to 24,000 new cases of 

blindness each year.30 However, dilated 

eye exams for diabetic patients can 

prevent retinopathy through early 

detection.31

Section 1833(t)(17)(C)(i) of the Act 

requires the Secretary to develop 

measures appropriate for the 

measurement of the quality of care 

furnished by hospitals in outpatient 

settings, that these measures reflect 

consensus among affected parties and, 

to the extent feasible and practicable, 

that these measures include measures 

set forth by one or more national 

consensus building entities. As 

discussed above, this measure is 

appropriate for measuring quality of 

care in the hospital outpatient 

department setting. This measure also 

meets the consensus requirement 

because, as noted above, this measure 

has been endorsed by the NQF. We note 

that this measure was listed as under 

consideration for CY 2012 and 

subsequent years in the CY 2010 OPPS/ 

ASC final rule with comment period (74 

FR 60637 through 60641). 

(5) Diabetes Mellitus: Urine Screening 

for Microalbumin or Medical Attention 

for Nephropathy in Diabetic Patients 

This NQF-endorsed measure (NQF 

#0062) measures the percentage of adult 

diabetic patients aged 18–75 years with 

at least one test for microalbumin 

during the measurement year or who 

had evidence of medical attention for 

existing nephropathy (diagnosis of 

nephropathy or documentation of 

microalbuminuria or albuminuria). 

Urine screening for microalbumin 

detects abnormal amount of protein 

albumin leaks in the urine by the 

capillaries of the kidney. High levels of 

blood sugar in uncontrolled diabetes 

can cause damage to the capillaries in 

the kidneys. Early urine screenings for 

microalbumin may prevent kidney 

disease from worsening to end-stage 

renal disease (ESRD). Diabetics 

accounted for 44 percent of new cases 

of kidney disease. In 2005, a total of 

178,689 diabetics with ESRD were on 

dialysis or received a kidney transplant 

in the United States and Puerto Rico.32

In 2009, MedPAC reported costs for the 

330,000 Medicare recipients receiving 

dialysis treatment for ESRD at over 8 

billion dollars.32 Section 

1833(t)(17)(C)(i) of the Act requires the 

Secretary to develop measures 

appropriate for the measurement of the 

quality of care furnished by hospitals in 

outpatient settings, that these measures 

reflect consensus among affected parties 

and, to the extent feasible and 

practicable, that these measures include 

measures set forth by one or more 

national consensus building entities. As 

discussed above, this measure is 

appropriate for measuring quality of 

care in the hospital outpatient 

department setting. This measure also 

meets the consensus requirement 

because, as noted above, it has been 

endorsed by the NQF. We also note that 

this measure was listed as under 

consideration for CY 2012 and 

subsequent years in the CY 2010 OPPS/ 

ASC final rule with comment period (74 

FR 60637 through 60641). 

(6) Exposure Time Reported for 

Procedures Using Fluoroscopy 

This measure documents the 

percentage of final reports for 

procedures using fluoroscopy that 

include documentation of radiation 

exposure or exposure time, an important 

measure for the HOPD setting. This 

measure is currently specified for 

physician level data collection through 

the PQRI program (74 FR 61825), and 

can be used for the hospital outpatient 

facility level. This measure evaluates 

the documentation of radiation 

exposure or radiation time during 

fluoroscopy. Data suggests that the 

lifetime risk for cancer can be increased, 

albeit by a small amount, with frequent 

or repeated exposure to ionizing 

radiation, including procedures using 

fluoroscopy.33 To monitor these long 

term effects, the exposure time or 

radiation dose that a patient receives as 

a result of the procedure should be 

measured and recorded in the patient’s 

record. The American College of 

Radiology (ACR) encourages practices to 

record actual fluoroscopy time for all 

fluoroscopic procedures. The 

fluoroscopy time for various procedures 

(for example, upper gastrointestinal, 

pediatric voiding cystourethrography) 

should then be compared with 

benchmark figures.34 35 The National 

Cancer Institute also recommends 

measuring and recording patient 

radiation dose, fluoroscopy time and 

additional available measures: Dose area 

product, cumulative dose, and skin 

dose. Section 1833(t)(17)(C)(i) of the Act 

requires the Secretary to develop 

measures appropriate for the 

measurement of the quality of care 

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furnished by hospitals in outpatient 

settings, that these measures reflect 

consensus among affected parties and, 

to the extent feasible and practicable, 

that these measures include measures 

set forth by one or more national 

consensus building entities. As 

discussed above, this measure is 

appropriate for measuring quality of 

care in the hospital outpatient 

department setting. This measure also 

meets the consensus requirement 

because it is NQF-endorsed (NQF # 

0510). Additionally, this measure was 

conditionally approved by the HQA for 

the hospital outpatient setting in March 

of 2010. 

In summary, for the CY 2014 payment 

determination, we are proposing to 

retain all of the measures adopted for 

the CY 2013 payment determination, 

and to adopt six new chart-abstracted 

measures for the CY 2014 payment 

determination on the topics of diabetes 

care and exposure time for procedures 

using fluoroscopy. We are proposing 

that submission of the new chartabstracted measures for the CY 2014 

payment determination begin with first 

quarter CY 2013 discharges to be 

submitted in 2013. We invite public 

comment on this proposal for the CY 

2014 payment determination. 

The complete list of 30 proposed 

measures for the CY 2014 payment 

determination is shown below. 

BILLING CODE 4120–01–P 


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6. Possible Quality Measures Under 

Consideration for Future Inclusion in 

HOP QDRP 

In previous years’ rulemakings, we 

have provided lists of quality measures 

that are under consideration for future 

adoption into the HOP QRDP 

measurement set. Below is a list of 

measures under consideration for future 

rulemaking cycles. 

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BILLING CODE 4120–01–C 

We invite public comment on these 

quality measures and topics so that we 

may consider proposing to adopt them 

beginning with the CY 2013 payment 

determination. We also are seeking 

suggestions and rationales to support 

the adoption of measures and topics for 

the HOP QDRP which do not appear in 

the table above. 

In addition, we are concerned about 

the lack of progress in reducing the rates 

of healthcare associated infections that 

was recently reported in the 2009 

National Healthcare Quality Report 

(http://www.ahrq.gov/qual/nhqr09/ 

nhqr09.pdf). For example, the report 

found that rates of postoperative sepsis 

increased by 8 percent. We view 

healthcare associated infections as a 

significant priority for quality 

measurement in order to ensure that 

health care does not result in avoidable 

harm and to inform the public about 

hospitals’ performance with respect to 

these infections. We are inviting public 

comment on the option to include 

among our prioritization criteria quality 

measures that assess performance on 

healthcare associated infections. Also, 

while some HOP QDRP measures cover 

aspects of healthcare associated 

infections, we are inviting suggestions 

on additional measures that could be 

added to those that hospitals would 

report and that we would make 

available to the public in order promote 

improvement in healthcare associated 

infection rates. 

C. Proposed Payment Reduction for 

Hospitals That Fail To Meet the HOP 

QDRP Requirements for the CY 2011 

Payment Update 

1. Background 

Section 1833(t)(17)(A) of the Act, 

which applies to subsection (d) 

hospitals (as defined under section 

1886(d)(1)(B) of the Act), requires that 

hospitals that fail to report data required 

for the quality measures selected by the 

Secretary, in the form and manner 

required by the Secretary under section 

1833(t)(17)(B) of the Act, incur a 2.0 

percentage point reduction to their OPD 

fee schedule increase factor, that is, the 

annual payment update factor. Section 

1833(t)(17)(A)(ii) of the Act specifies 

that any reduction would apply only to 

the payment year involved and would 

not be taken into account in computing 

the applicable OPD fee schedule 

increase factor for a subsequent 

payment year. 

In the CY 2009 OPPS/ASC final rule 

with comment period (73 FR 68769 

through 68772), we discussed how the 

payment reduction for failure to meet 

the administrative, data collection, and 

data submission requirements of the 

HOP QDRP affected the CY 2009 

payment update applicable to OPPS 

payments for HOPD services furnished 

by the hospitals defined under section 

1886(d)(1)(B) of the Act to which the 

program applies. The application of a 

reduced OPD fee schedule increase 

factor results in reduced national 

unadjusted payment rates that apply to 

certain outpatient items and services 

provided by hospitals that are required 

to report outpatient quality data and 

that fail to meet the HOP QDRP 

requirements. All other hospitals paid 

under the OPPS receive the full OPPS 

payment update without the reduction. 

The national unadjusted payment 

rates for many services paid under the 

OPPS equal the product of the OPPS 

conversion factor and the scaled relative 

weight for the APC to which the service 

is assigned. The OPPS conversion 

factor, which is updated annually by the 

OPD fee schedule increase factor, is 

used to calculate the OPPS payment rate 

for services with the following status 

indicators (listed in Addendum B to this 

proposed rule with comment period): 

‘‘P,’’ ‘‘Q1,’’ ‘‘Q2,’’ ‘‘Q3,’’ ‘‘R,’’ ‘‘S,’’ ‘‘T,’’ ‘‘V,’’ 

‘‘U,’’ or ‘‘X.’’ In the CY 2009 OPPS/ASC 

final rule with comment period (73 FR 

68770), we adopted a policy that 

payment for all services assigned these 

status indicators would be subject to the 

reduction of the national unadjusted 

payment rates for applicable hospitals, 

with the exception of services assigned 

to New Technology APCs with assigned 

status indicator ‘‘S’’ or ‘‘T,’’ and 

brachytherapy sources with assigned 

status indicator ‘‘U,’’ which were paid at 

charges adjusted to cost in CY 2009. We 

excluded services assigned to New 

Technology APCs from the list of 

services subject to the reduced national 

unadjusted payment rates because the 

OPD fee schedule increase factor is not 

used to update the payment rates for 

these APCs. 

In addition, section 1833(t)(16)(C) of 

the Act, as amended by section 142 of 

the Medicare Improvements for Patients 

and Providers Act of 2008 (MIPPA) 

(Pub. L. 110–275), specifically required 

that brachytherapy sources be paid 

during CY 2009 on the basis of charges 

adjusted to cost, rather than under the 

standard OPPS methodology. Therefore, 

the reduced conversion factor also was 

not applicable to CY 2009 payment for 

brachytherapy sources because payment 

would not be based on the OPPS 

conversion factor and, consequently, the 

payment rates for these services were 

not updated by the OPD fee schedule 

increase factor. However, in accordance 

with section 1833(t)(16)(C) of the Act, as 

amended by section 142 of the MIPPA, 

payment for brachytherapy sources at 

charges adjusted to cost expired on 

January 1, 2010. Therefore, in the CY 

2010 OPPS/ASC final rule with 

comment period (74 FR 60641), we 

finalized our CY 2010 proposal, without 


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modification, to apply the reduction to 

payment for brachytherapy sources to 

hospitals that fail to meet the quality 

data reporting requirements of the HOP 

QDRP for the CY 2010 OPD fee schedule 

increase factor. 

The OPD fee schedule increase factor, 

or market basket update, is an input into 

the OPPS conversion factor, which is 

used to calculate OPPS payment rates. 

To implement the requirement to reduce 

the market basket update for hospitals 

that fail to meet reporting requirements, 

we calculate two conversion factors: a 

full market basket conversion factor 

(that is, the full conversion factor), and 

a reduced market basket conversion 

factor (that is, the reduced conversion 

factor). We then calculate a reduction 

ratio by dividing the reduced 

conversion factor by the full conversion 

factor. We refer to this reduction ratio as 

the ‘‘reporting ratio’’ to indicate that it 

applies to payment for hospitals that fail 

to meet their reporting requirements. 

Applying this reporting ratio to the 

OPPS payment amounts results in 

reduced national unadjusted payment 

rates that are mathematically equivalent 

to the reduced national unadjusted 

payment rates that would result if we 

multiplied the scaled OPPS relative 

weights by the reduced conversion 

factor. To determine the reduced 

national unadjusted payment rates that 

applied to hospitals that failed to meet 

their quality reporting requirements for 

the CY 2010 OPPS, we multiply the 

final full national unadjusted payment 

rate in Addendum B to the CY 2010 

OPPS/ASC final rule with comment 

period by the CY 2010 OPPS final 

reporting ratio of 0.980 (74 FR 60642). 

In the CY 2009 OPPS/ASC final rule 

with comment period (73 FR 68771 

through 68772), we established a policy 

that the Medicare beneficiary’s 

minimum unadjusted copayment and 

national unadjusted copayment for a 

service to which a reduced national 

unadjusted payment rate applies would 

each equal the product of the reporting 

ratio and the national unadjusted 

copayment or the minimum unadjusted 

copayment, as applicable, for the 

service. Under this policy, we apply the 

reporting ratio to both the minimum 

unadjusted copayment and national 

unadjusted copayment for those 

hospitals that receive the payment 

reduction for failure to meet the HOP 

QDRP reporting requirements. This 

application of the reporting ratio to the 

national unadjusted and minimum 

unadjusted copayments is calculated 

according to § 419.41 of our regulations, 

prior to any adjustment for hospitals’ 

failure to meet the quality reporting 

standards according to § 419.43(h). 

Beneficiaries and secondary payers 

thereby share in the reduction of 

payments to these hospitals. 

In the CY 2009 OPPS/ASC final rule 

with comment period (73 FR 68772), we 

established the policy that all other 

applicable adjustments to the OPPS 

national unadjusted payment rates 

apply in those cases when the OPD fee 

schedule increase factor is reduced for 

hospitals that fail to meet the 

requirements of the HOP QDRP. For 

example, the following standard 

adjustments apply to the reduced 

national unadjusted payment rates: the 

wage index adjustment; the multiple 

procedure adjustment; the interrupted 

procedure adjustment; the rural sole 

community hospital adjustment; and the 

adjustment for devices furnished with 

full or partial credit or without cost. We 

believe that these adjustments continue 

to be equally applicable to payments for 

hospitals that do not meet the HOP 

QDRP requirements. Similarly, outlier 

payments will continue to be made 

when the criteria are met. For hospitals 

that fail to meet the quality data 

reporting requirements, the hospitals’ 

costs are compared to the reduced 

payments for purposes of outlier 

eligibility and payment calculation. 

This policy conforms to current practice 

under the IPPS. In the CY 2010 OPPS/ 

ASC final rule with comment period (74 

FR 60642), we continued this policy. 

For a complete discussion of the OPPS 

outlier calculation and eligibility 

criteria, we refer readers to section II.G. 

of this CY 2011 OPPS/ASC proposed 

rule. 

2. Proposed Reporting Ratio Application 

and Associated Adjustment Policy for 

CY 2011 

We are proposing to continue our 

established policy of applying the 

reduction of the OPD fee schedule 

increase factor through the use of a 

reporting ratio for those hospitals that 

fail to meet the HOP QDRP 

requirements for the full CY 2011 

annual payment update factor. For the 

CY 2011 OPPS, the proposed reporting 

ratio is 0.980, calculated by dividing the 

reduced conversion factor of $66.930 by 

the full conversion factor of $68.267. We 

are proposing to continue to apply the 

reporting ratio to all services calculated 

using the OPPS conversion factor. For 

the CY 2011 OPPS, we are proposing to 

apply the reporting ratio, when 

applicable, to all HCPCS codes to which 

we have assigned status indicators ‘‘P,’’ 

‘‘Q1,’’ ‘‘Q2,’’ ‘‘Q3,’’ ‘‘R,’’ ‘‘S,’’ ‘‘T,’’ ‘‘V,’’ ‘‘U,’’ 

and ‘‘X.’’ We are proposing to continue 

to exclude services paid under New 

Technology APCs. We are proposing to 

continue to apply the reporting ratio to 

the national unadjusted payment rates 

and the minimum unadjusted and 

national unadjusted copayment rates of 

all applicable services for those 

hospitals that fail to meet the HOP 

QDRP reporting requirements. We also 

are proposing to continue to apply all 

other applicable standard adjustments 

to the OPPS national unadjusted 

payment rates for hospitals that fail to 

meet the requirements of the HOP 

QDRP. Similarly, we are proposing to 

continue to calculate OPPS outlier 

eligibility and outlier payment based on 

the reduced payment rates for those 

hospitals that fail to meet the reporting 

requirements. 

D. Proposed Requirements for HOPD 

Quality Data Reporting for CY 2012 and 

Subsequent Years 

In order to participate in the HOP 

QDRP, hospitals must meet 

administrative, data collection and 

submission, and data validation 

requirements (if applicable). Hospitals 

that do not meet the requirements of the 

HOP QDRP, as well as hospitals not 

participating in the program and 

hospitals that withdraw from the 

program, will not receive the full OPPS 

payment rate update. Instead, in 

accordance with section 1833(t)(17)(A) 

of the Act, those hospitals will receive 

a reduction of 2.0 percentage points in 

their annual payment update factor for 

the applicable payment year. We 

established the payment determination 

requirements for the CY 2011 payment 

update in the CY 2010 OPPS/ASC final 

rule with comment period (74 FR 60642 

through 60652). 

For payment determinations affecting 

the CY 2012 payment update, we are 

proposing to implement the 

requirements listed below. Most of these 

requirements are the same as the 

requirements we implemented for the 

CY 2011 payment determination, with 

some proposed modifications. 

1. Administrative Requirements 

To participate in the HOP QDRP, we 

are proposing that several 

administrative steps be completed. 

These steps would require the hospital 

to: 

• Identify a QualityNet security 

administrator who follows the 

registration process located on the 

QualityNet Web site (http:// 

www.QualityNet.org) and submits the 

information to the appropriate CMSdesignated contractor. All CMSdesignated contractors would be 

identified on the QualityNet Web site. 

The same person may be the QualityNet 

security administrator for both the 

RHQDAPU program and the HOP 

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QDRP. From our experience, we believe 

that the QualityNet security 

administrator typically fulfills a variety 

of tasks related to the hospital’s ability 

to participate in the HOP QDRP, such 

as: creating, approving, editing and/or 

terminating QualityNet user accounts 

within the organization; monitoring 

QualityNet usage to maintain proper 

security and confidentiality measures; 

and serving as a point of contact for 

information regarding QualityNet and 

the HOP QDRP. The hospital would be 

required to maintain a current 

QualityNet security administrator for as 

long as the hospital participates in the 

program due to CMS information 

systems security requirements. While 

only a single QualityNet security 

administrator would be required for 

program purposes, we suggest to 

hospitals that it may be beneficial to 

have more than one QualityNet security 

administrator for back-up purposes. 

• Register with QualityNet, regardless 

of the method used for data submission. 

• Complete and submit an online 

participation form if this form (or a 

paper Notice of Participation form) has 

not been previously completed, if a 

hospital has previously withdrawn, or if 

the hospital acquires a new CCN. For 

HOP QDRP decisions affecting the CY 

2012 payment determination, hospitals 

that share the same CCN would be 

required to complete a single online 

participation form. In the CY 2009 

OPPS/ASC final rule with comment 

period (73 FR 68772), we implemented 

an online registration form and 

eliminated the paper form. At this time, 

the participation form for the HOP 

QDRP is separate from the RHQDAPU 

program and completing a form for each 

program is required. Agreeing to 

participate includes acknowledging that 

the data submitted to the CMSdesignated contractor would be 

submitted to CMS and also may be 

shared with one or more other CMS 

contractors that support the 

implementation of the HOP QDRP and 

be publicly reported. 

We are proposing to update and retain 

the following deadlines, which we 

established in the CY 2010 OPPS/ASC 

final rule with comment period (74 FR 

60643), for submitting the participation 

form: 

Hospitals with Medicare acceptance 

dates on or after January 1, 2011: For 

the CY 2012 payment update, we are 

proposing that any hospital that has a 

Medicare acceptance date on or after 

January 1, 2011 (including a new 

hospital and hospitals that have merged) 

must submit a completed participation 

form no later than 180 days from the 

date identified as its Medicare 

acceptance date on the CMS Online 

System Certification and Reporting 

(OSCAR) system. Hospitals typically 

receive a package notifying them of their 

new CCN after they receive their 

Medicare acceptance date. The 

Medicare acceptance date is the earliest 

date that a hospital can receive 

Medicare payment for the services that 

it furnishes. Completing the 

participation form would include 

supplying the name and address of each 

hospital campus that shares the same 

CCN. 

The use of the Medicare acceptance 

date as beginning the timeline for HOP 

QDRP participation allows CMS to 

monitor more effectively hospital 

compliance with the requirement to 

complete a participation form because a 

hospital’s Medicare acceptance date is 

readily available to CMS through its 

data systems. In addition, providing an 

extended time period to register for the 

program would allow newly functioning 

hospitals sufficient time to get their 

operations fully functional before 

having to collect and submit quality 

data. We invite public comment on this 

proposed policy. 

Hospitals with Medicare acceptance 

dates before January 1, 2011: For the CY 

2012 payment update, we are proposing 

that any hospital that has a Medicare 

acceptance date on or before December 

31, 2010 that is not currently 

participating in the HOP QDRP and 

wishes to participate in the CY 2012 

HOP QDRP must submit a participation 

form by March 31, 2011. We are 

proposing a deadline of March 31, 2011, 

because we believe it would give 

hospitals sufficient time to decide 

whether they wish to participate in the 

HOP QDRP, as well as put into place the 

necessary staff and resources to timely 

report data for first quarter CY 2011 

services. This requirement would apply 

to all hospitals whether or not the 

hospital billed for payment under the 

OPPS. We invite public comment on 

this proposed policy. 

Under our current requirements, 

hospitals that want to withdraw from 

participation must follow the same 

deadlines as hospitals that want to 

participate. We are proposing to change 

this requirement. We are proposing to 

lengthen the time during which 

hospitals may withdraw from 

participation because we believe that 

hospitals should be allowed more time 

to consider this decision. In addition, 

this increased time to withdraw is 

comparable programmatically to our 

proposal under the RHQDAPU program 

(75 FR 23996). Specifically, for the CY 

2012 payment update, we are proposing 

that any HOP QDRP participating 

hospital that wants to withdraw may do 

so at any time from January 1, 2011 to 

November 1, 2011. Hospitals that 

withdraw during this time period for the 

CY 2012 payment update would not be 

able to sign up to participate for the CY 

2012 payment update, would have a 2.0 

percentage point reduction in their CY 

2012 payment update, and would be 

required to resubmit a participation 

form in order to participate for purposes 

of any future payment updates. We note 

that once a hospital has submitted a 

participation form, it is considered to be 

an active HOP QDRP participant until 

such time as the hospital submits a 

withdrawal form to CMS or the facility 

is designated as closed in the CMS 

OSCAR system. We invite public 

comment on this proposed policy. 

2. Data Collection and Submission 

Requirements 

a. General Data Collection and 

Submission Requirements 

We are proposing that, to be eligible 

for the full CY 2012 OPPS payment 

update, hospitals would be required to: 

• Submit data: Hospitals that would 

be participating in the HOP QDRP 

would be required to submit data for 

each applicable quarter by the deadline 

posted on the QualityNet Web site; there 

must be no lapse in data submission. 

For the CY 2012 annual payment 

update, the applicable quarters would 

be as follows: 3rd quarter CY 2010, 4th 

quarter CY 2010, 1st quarter CY 2011, 

and 2nd quarter CY 2011. Hospitals that 

did not participate in the CY 2011 HOP 

QDRP, but would like to participate in 

the CY 2012 HOP QDRP, and that have 

a Medicare acceptance date on the 

OSCAR system before January 1, 2011, 

would begin data submission for 1st 

quarter CY 2011 services using the CY 

2012 measure set that would be 

finalized in the CY 2011 OPPS/ASC 

final rule with comment period. For 

those hospitals with Medicare 

acceptance dates on or after January 1, 

2011, data submission must begin with 

the first full quarter following the 

submission of a completed online 

participation form. For the claims-based 

measures, we would calculate the 

measures using the hospital’s Medicare 

claims data. For the CY 2012 payment 

update, we would utilize paid Medicare 

fee-for-service (FFS) claims submitted 

prior to January 1, 2011, to calculate 

these measures. For the structural 

measure to be used for the CY 2012 

payment determination, hospitals 

would be required to submit data 

beginning with January 1, 2011 

discharges using a Web-based tool 

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available on QualityNet beginning in 

2011. 

Sampling and Case Thresholds: It 

would not be necessary for a hospital to 

submit data for all eligible cases for 

some measures if sufficient eligible case 

thresholds are met. Instead, for those 

measures where a hospital has a 

sufficiently large number of cases, it 

would sample cases and submit data for 

these sampled cases rather than 

submitting data from all eligible cases. 

This sampling scheme, which includes 

the minimum number of cases based 

upon case volume, would be set out in 

the HOPD Specifications Manual at least 

three months in advance of the required 

data collection. We have proposed to 

change this notification timeframe for 

this sampling scheme to at least 3 

months from at least 4 months to be 

consistent with the HOPD 

Specifications Manual release schedule. 

Hospitals would be required to meet the 

sampling requirements for required 

quality measures each reporting quarter. 

In addition, in order to reduce the 

burden on hospitals that treat a low 

number of patients but otherwise meet 

the submission requirements for a 

particular quality measure, hospitals 

that have five or fewer claims (both 

Medicare and non-Medicare) for any 

measure included in a measure topic in 

a quarter would not be required to 

submit patient level data for the entire 

measure topic for that quarter. Even if 

hospitals would not be required to 

submit patient level data because they 

have five or fewer claims (both 

Medicare and non-Medicare) for any 

measure included in a measure topic in 

a quarter, we are proposing that they 

may voluntarily do so. 

Hospitals would be required submit 

all required data according to the data 

submission schedule that will be 

available on the QualityNet Web site 

(https://www.QualityNet.org). This Web 

site meets or exceeds all current HIPAA 

requirements. Submission deadlines 

would, in general, be four months after 

the last day of each calendar quarter. 

Thus, for example, the submission 

deadline for data for services furnished 

during the first quarter of CY 2011 

(January–March 2011) would be on or 

around August 1, 2011. The actual 

submission deadlines would be posted 

on the http://www.QualityNet.org Web 

site. 

Hospitals would be required to submit 

data to the OPPS Clinical Warehouse 

using either the CMS Abstraction and 

Reporting Tool for Outpatient 

Department (CART–OPD) measures or 

the tool of a third-party vendor that 

meets the measure specification 

requirements for data transmission to 

QualityNet. 

Hospitals would be required to submit 

quality data through My QualityNet, the 

secure portion of the QualityNet Web 

site, to the OPPS Clinical Warehouse. 

The OPPS Clinical Warehouse, which is 

maintained by a CMS-designated 

contractor, would submit the OPPS 

Clinical Warehouse data to CMS. OPPS 

Clinical Warehouse data are not 

currently considered to be Quality 

Improvement Organization (QIO) data; 

rather, we consider such data to be CMS 

data. However, it is possible that the 

information in the OPPS Clinical 

Warehouse may at some point become 

QIO information. If this occurs, these 

data would also become protected under 

the stringent QIO confidentiality 

regulations in 42 CFR Part 480. 

Hospitals would be required to collect 

HOP QDRP data from outpatient 

episodes of care to which the required 

measures apply. For the purposes of the 

HOP QDRP, an outpatient ‘‘episode of 

care’’ is defined as care provided to a 

patient who has not been admitted as an 

inpatient, but who is registered on the 

hospital’s medical records as an 

outpatient and receives services (rather 

than supplies alone) directly from the 

hospital. Every effort would be made to 

ensure that data elements common to 

both inpatient and outpatient settings 

are defined consistently for purposes of 

quality reporting (such as ‘‘time of 

arrival’’). 

Hospitals would be required to submit 

quality data using the CCN under which 

the care was furnished. 

To be accepted into the OPPS Clinical 

Warehouse, data submissions, at a 

minimum, would be required to be 

timely, complete, and accurate. Data 

submissions are considered to be 

‘‘timely’’ when data are successfully 

accepted into the OPPS Clinical 

Warehouse on or before the reporting 

deadline. A ‘‘complete’’ submission 

would be determined based on whether 

the data satisfy the sampling criteria 

that are published and maintained in 

the HOPD Specifications Manual, and 

must correspond to both the aggregate 

number of cases submitted by a hospital 

and the number of Medicare claims the 

hospital submits for payment. We are 

aware of ‘‘data lags’’ that occur when 

hospitals submit claims, then cancel 

and correct those claims; efforts would 

be made to take such events into 

account that can change the aggregate 

Medicare case counts. To be considered 

‘‘accurate,’’ submissions would be 

required to pass validation, if 

applicable. 

We strongly recommend that 

hospitals review OPPS Clinical 

Warehouse feedback reports and the 

HOP QDRP Provider Participation 

Reports that are accessible through their 

QualityNet accounts. These reports 

enable hospitals to verify whether the 

data they or their vendors submitted 

were accepted into the OPPS Clinical 

Warehouse and the date/time that such 

acceptance occurred. We also note that 

irrespective of whether a hospital 

submits data to the OPPS Clinical 

Warehouse itself or uses a vendor to 

complete the submissions, the hospital 

would be responsible for ensuring that 

HOP QDRP requirements are met. 

Finally, during the past two years of 

the HOP QDRP, the submission of 

population and sampling data was not 

required, though, hospitals could 

submit, on a voluntary basis, the 

aggregate numbers of outpatient 

episodes of care which are eligible for 

submission under the HOP QDRP and 

sample size counts. These aggregated 

numbers of outpatient episodes 

represent the number of outpatient 

episodes of care in the universe of all 

possible cases eligible for data reporting 

under the HOP QDRP. For the CY 2012 

payment update, we are proposing to 

require submission of this population 

and sample size data. Specifically, we 

are proposing that hospitals must 

submit on a quarterly basis, aggregate 

population and sample size counts for 

Medicare and non-Medicare encounters 

for the measure populations for which 

chart-abstracted data must be submitted. 

Under this proposal, hospitals would 

submit aggregate population and sample 

size counts for measure populations 

even if the hospital had not treated 

patients in a specific measure 

population; that is, if a hospital has not 

treated any patients in a specific HOP 

QDRP measure population, the hospital 

would still be required to submit a zero 

for its quarterly aggregate population 

and sample counts to meet the 

requirement. 

We believe that hospitals have had 

sufficient time to become familiar with 

HOP QDRP data and to develop data 

systems necessary to support this 

requirement. We view it as vital for 

quality data reporting for hospitals to be 

able to determine accurately their 

aggregate population and appropriate 

sampling size data to assess their 

completeness of data reporting. We rely 

on hospitals to properly sample cases 

where sampling occurs so that 

representative data are submitted; for 

hospitals to correctly sample, it is 

necessary for them to be able to 

determine their aggregate population 

sizes. In addition, we believe it is highly 

beneficial for hospitals to develop 

systems that can determine whether or 

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not they have furnished services or 

billed for five or fewer cases for a 

particular measure topic on a quarterly 

basis. 

We are proposing that the deadlines 

for the reporting of aggregate numbers of 

outpatient episodes of care and sample 

size counts would be the same as those 

for the reporting of data for the 

measures requiring chart abstraction, 

and these deadlines would be posted on 

the data submission schedule that 

would be available on the QualityNet 

Web site. Hospitals would be permitted 

to submit this information prior to the 

deadline; this would allow CMS to 

advise hospitals regarding their 

incomplete submission status as 

appropriate and give hospitals sufficient 

time to make appropriate revisions 

before the data submission deadline. 

We plan to use the aggregate 

population and sample size data to 

assess data submission completeness 

and adherence to sampling 

requirements for Medicare and nonMedicare patients. 

We invite public comment on these 

proposed requirements. 

b. Extraordinary Circumstance 

Extension or Waiver for Reporting 

Quality Data 

In our experience, there have been 

times when hospitals have been unable 

to submit required quality data due to 

extraordinary circumstances that are not 

within their control. It is our goal to not 

penalize hospitals for such 

circumstances and we do not want to 

unduly increase their burden during 

these times. Therefore, in the CY 2010 

OPPS/ASC final rule with comment 

period (74 FR 60046 through 600647), 

we adopted a process for hospitals to 

request and for CMS to grant extensions 

or waivers with respect to the reporting 

of required quality data when there are 

extraordinary circumstances beyond the 

control of the hospital. We are 

proposing to retain these procedures 

with some proposed modifications. 

Under the process, in the event of 

extraordinary circumstances, such as 

natural disaster, not within the control 

of the hospital, for the hospital to 

receive consideration for an extension 

or waiver of the requirement to submit 

quality data for one or more quarters, a 

hospital would submit to CMS a request 

form that would be made available on 

the QualityNet Web site. The following 

information should be noted on the 

form: 

• Hospital CCN; 

• Hospital Name; 

• CEO and any other designated 

personnel contact information, 

including name, e-mail address, 

telephone number, and mailing address 

(must include a physical address, a post 

office box address is not acceptable); 

• Hospital’s reason for requesting an 

extension or waiver; 

• Evidence of the impact of the 

extraordinary circumstances, including 

but not limited to photographs, 

newspaper and other media articles; and 

• A date when the hospital would 

again be able to submit HOP QDRP data, 

and a justification for the proposed date. 

The request form would be signed by 

the hospital’s CEO. A request form 

would be required to be submitted 

within 45 days of the date that the 

extraordinary circumstance occurred. 

We are proposing to remove the 

requirement found in the CY 2010 

OPPS/ASC final rule with comment 

period (74 FR 60646) that the hospital 

to include an identified reason for 

requesting an extension or waiver in 

addition to the hospital’s reason for 

requesting an extension or waiver as a 

requirement. We believe that this 

requirement is redundant and removing 

it will reduce unnecessary hospital 

burden. 

Following receipt of such a request, 

CMS would— 

(1) Provide a written 

acknowledgement using the contact 

information provided in the request, to 

the CEO and any additional designated 

hospital personnel, notifying them that 

the hospital’s request has been received; 

(2) Provide a formal response to the 

CEO and any additional designated 

hospital personnel using the contact 

information provided in the request 

notifying them of our decision; and 

(3) Complete any CY 2011 request for 

Extraordinary Circumstance Extension 

or Waiver for Reporting Quality Data 

requests reviews and communicate the 

results of these determinations within 

90 days following our receipt of such a 

request. We are proposing to add a 

deadline for CMS response so that 

hospitals can have a designated timeline 

for when they should receive such a 

response. 

This proposal would not preclude us 

from granting waivers or extensions to 

hospitals that have not requested them 

when we determine that an 

extraordinary circumstance, such as an 

act of nature (for example, hurricane) 

affects an entire region or locale. If we 

make the determination to grant a 

waiver or extension to hospitals in a 

region or locale, we would 

communicate this decision to hospitals 

and vendors through routine 

communication channels, including but 

not limited to e-mails and notices on the 

QualityNet Web site. We invite public 

comment on these proposals. 

3. HOP QDRP Validation Requirements 

for Chart-Abstracted Data: Data 

Validation Approach for CY 2012 and 

Subsequent Years 

a. Background 

In the CY 2010 OPPS/ASC proposed 

rule, we solicited public comments on 

our proposed validation methodology 

(74 FR 35403 through 35404). We stated 

that we are considering building upon 

what we proposed as a validation 

approach for CY 2012 and subsequent 

years by, in addition to selecting a 

random sample of hospitals for 

validation purposes, selecting targeted 

hospitals based on criteria designed to 

measure whether the data they have 

reported raises a concern regarding data 

accuracy. These possible targeting 

criteria included identified abnormal 

data patterns, whether a hospital had 

previously failed validation, whether a 

hospital had not been previously 

selected for validation for 2 or more 

consecutive years, and some 

combination of some or all of the 

criteria. 

We solicited public comments on 

whether such criteria, or another 

approach, should be applied in future 

years. We especially solicited 

suggestions for additional criteria that 

could be used to target hospitals for 

validation. We greatly appreciate all the 

public comments we received regarding 

the validation process proposed for CY 

2012 and subsequent years. We 

responded to public comments on our 

proposed methodology for CY 2012 and 

subsequent years but did not finalize a 

validation process in the CY 2010 

OPPS/ASC final rule with comment 

period (74 FR 60650 through 60652). We 

noted that we would take all of the 

comments we received into account 

when we develop our validation 

proposals for CY 2012. 

b. Proposed Data Validation 

Requirements for CY 2012 

Similar to our proposal for the FY 

2012 RHQDAPU program (75 FR 23991 

through 23993), we are proposing to 

validate data from 800 randomly 

selected hospitals (approximately 20 

percent of all participating HOP QDRP 

hospitals) each year, beginning with CY 

2012 payment determination. We are 

proposing to sample 800 hospitals 

because we believe, based upon 

sampling simulation studies using HOP 

QDRP data, that sampling this number 

would provide a sufficient number for a 

representative sample of hospitals on 

various strata (for example, urban, rural, 

bed-size) while significantly reducing 

overall hospital burden. For CY 2012 

payment determinations, we would 

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select only from hospitals participating 

for the CY 2012 payment update, so if 

a hospital submitted data for the CY 

2011, but withdrew, this hospital would 

not be deemed as eligible for selection. 

We note that because 800 hospitals 

would be selected randomly, every HOP 

QDRP-participating hospital would be 

eligible each year for validation 

selection. 

For each selected hospital, we are 

proposing to randomly select up to a 

total of 48 self-reported cases from the 

total number of cases (12 per quarter) 

that the hospital successfully submitted 

to the OPPS Clinical Warehouse. 

However, if a selected hospital has 

submitted less than 12 cases in any 

quarter, only those cases available 

would be validated. We believe that 

validating a larger number of cases per 

hospital, but only for 800 randomly 

selected hospitals, and validating these 

cases at the measure level (rather than 

the data element level) has several 

benefits. We are proposing up to a total 

of 48 cases per hospital because a 

sample size of about 50 is considered 

sufficient for detecting relationships and 

correlations, so a larger sample size is 

not deemed necessary (for reference, see 

Van Voohis, Wilson, Morgan, Carmen R. 

and Betsey L., (2007), Understanding 

Power and Rules of Thumb for 

Determining Sample Sizes, Tutorials in 

Quantitative Methods for Psychology, 

Volume 3(2), Pages 43–50). We believe 

that this approach is suitable for HOP 

QDRP data because it will: produce a 

more reliable estimate of whether a 

hospital’s submitted data have been 

abstracted accurately; provide more 

statistically reliable estimates of the 

quality of care delivered in each 

selected hospital as well as at a national 

level; and reduce overall hospital 

burden because most hospitals will not 

be selected to undergo validation each 

year. 

We would not be selecting cases 

stratified by measure or topic; our 

interest is whether the data submitted 

by hospitals accurately reflect the care 

delivered and documented in the 

medical record, not what the accuracy is 

by measure or whether there are 

differences by topic. Additionally, we 

note that, due to the distribution of HOP 

QDRP data submitted to date by hospital 

size, the data do not lend themselves to 

sampling by topic area. Specifically, 

small hospitals tend to have more AMI 

Cardiac Care cases and fewer Surgical 

Care cases, whereas, larger hospitals 

tend to have few if any AMI Cardiac 

Care cases and more Surgical Care cases. 

Analysis of submitted HOP QDRP 

data indicate that this sampling design 

would provide sufficient case number of 

denominator cases per measure for 

determination of national and 

individual hospital measure estimates 

with acceptable levels of statistical 

certainty. 

We are proposing to sample data for 

April 1, 2010 to March 31, 2011 services 

because this would provide a full year 

of the most recent data possible to use 

for the purpose of completing the 

validation in sufficient time for us to 

make the CY 2012 payment 

determinations. 

A designated CMS contractor would, 

each quarter that applies to the 

validation, ask each of the 800 selected 

hospitals to submit medical 

documentation for up to 12 randomly 

selected cases submitted to and 

accepted by the HOP QDRP Clinical 

Warehouse. The CMS contractor would 

request paper copies of medical 

documentation corresponding to 

selected cases from each hospital via 

certified mail or other trackable method 

that requires a hospital representative to 

sign for the request letter; a trackable 

method would be utilized so that CMS 

would be assured that the hospital 

received the request. The hospital 

would have 45 calendar days from the 

date of the request as documented in the 

request letter to submit the requested 

documentation and have the 

documentation received by the CMS 

contractor. If the hospital does not 

comply within 30 calendar days of 

receipt of the initial medical 

documentation request, the CMS 

contractor would send a second letter by 

certified mail or other trackable method 

to the hospital, reminding the hospital 

that paper copies of the requested 

documentation must be submitted and 

received within 45 calendar days 

following the date of the initial CMS 

contractor request. If the hospital does 

not submit the requested documentation 

and the documentation is not received 

by the CMS contractor within the 45 

calendar days, then the CMS contractor 

would assign a ‘‘zero’’ score to each data 

element for each selected case and the 

case would fail for all measures in the 

same topic (for example, OP–6 and OP– 

7 measures for a Surgical Care case). 

We are proposing that the letter from 

the designated CMS contractor would be 

addressed to the hospital’s medical 

record staff identified by the hospital for 

the submission of records under the 

RHQDAPU program (that is, the 

hospital’s medical records staff 

identified by the hospital to their State 

QIO). If CMS has evidence that the 

hospital received both letters requesting 

medical records, the hospital would be 

deemed responsible for not returning 

the requested medical record 

documentation and the hospital would 

not be allowed to submit such medical 

documentation as part of its 

reconsideration request so that 

information not utilized in making a 

payment determination is not included 

in any reconsideration request. 

Once the CMS contractor receives the 

requested medical documentation, the 

contractor would independently 

reabstract the same quality measure data 

elements that the hospital previously 

abstracted and submitted, and the 

contractor would then compare the two 

sets of data to determine whether the 

two sets of data match. Specifically, the 

contractor would conduct a measures 

level validation by calculating each 

measure within a submitted case using 

the independently reabstracted data and 

then comparing this to the measure 

reported by the hospital; a percent 

agreement would then be calculated. 

Specifically, the validation score for a 

hospital would equal the total number 

of measure matches divided by the total 

number of measures multiplied by 100 

percent. 

This method is the same as 

recommended in the CMS Hospital 

Value-Based Purchasing Report to 

Congress and is illustrated more fully on 

pages 83–84 of this report which can be 

found on our Web site at: http:// 

www.cms.hhs.gov/AcuteInpatientPPS/

downloads/HospitalVBPPlanRTCFINAL

SUBMITTED2007.pdf. We believe that 

this approach is appropriate and it was 

supported by many commenters when 

we requested comment on HOP QDRP 

validation requirements outlined in the 

CY 2010 OPPS/ASC proposed rule (74 

FR 35402 through 35403; 74 FR 60647 

through 60652). 

To receive the full OPPS payment 

update, we are proposing that hospitals 

must attain at least a 75 percent 

validation score, based upon our 

validation process, for the designated 

time period. We have selected 75 

percent as the threshold for the 

validation score because we believe this 

level is reasonable for hospitals to 

achieve while still ensuring accuracy of 

the data. Additionally, this level is 

consistent with what we proposed for 

the RHQDAPU program (75 FR 23993). 

Since we are not validating all hospital 

measures submitted, it is necessary to 

calculate a confidence interval that 

incorporates sampling error. We would 

use the upper bound of a one-tailed 95 

percent confidence interval to estimate 

the validation score. We are proposing 

to use a one-tail confidence interval to 

calculate the validation score because it 

appropriately reflects our concern of 

whether the confidence interval for the 

calculated validation score includes or 

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is above the 75 percent validation 

threshold for a hospital to be considered 

as submitting accurate data. If the 

calculated upper limit is above the 

required 75 percent validation score 

threshold, we would consider a 

hospital’s data to be ‘‘validated’’ for 

payment purposes. The use of a onetailed confidence interval and the 75 

percent and threshold level are the same 

as proposed for the RHQDAPU program 

for FY 2012 payment determinations (75 

FR 23991 through 23993). 

For derivation of the upper bound of 

a one-tailed 95 percent confidence 

interval we are proposing to use a 

binomial distribution approach as we 

are looking at the percentage of 

measures submitted by a hospital 

matching what is calculated from the 

reabstracted data. Since the measure 

match rate for each hospital is a 

proportion, a binomial approach is 

appropriate, see Pagano, Robert R., 

(1990), Understanding Statistics in the 

Behavioral Sciences, 3rd Edition, Pages 

175–188. 

Thus, we are proposing the following 

formula which includes a finite 

population correction factor and a 

continuity correction factor for 

calculating the upper bound of the onetailed 95 percent confidence interval: 

Upper Confidence Limit p p p

n

N n

N

= +

⎛ ( ) −

⎝

⎜

⎜

⎞

⎠

⎟

⎟

−

−

⎛

⎝

⎜

⎜

⎞

⎠

1 645 ⎟ 1

1 . ⎟ +

1

2n

In this formula, N represents the 

population for the reporting year, n 

represents the sample size for the 

reporting year, p (calculated as a 

percentage) represents the validation 

score for the reporting year (that is, the 

percentage of measures matching), and 

1¥p represents the percentage of 

measures not matching. It should be 

noted that a confidence interval would 

not need to be calculated for hospitals 

that did not have enough cases to 

sample as the confidence interval is 

equal to zero (when the value of N is 

equal to n, N minus n equals zero and 

the upper confidence limit is equal to 

the validation score in the above 

formula). In addition, a confidence 

interval would not need to be calculated 

for those hospitals that have a validation 

score, p, that is greater than or equal to 

75 percent because the hospital has 

attained the minimum threshold; the 

upper bound of any calculated 

confidence interval would be 75 percent 

or greater. 

For further information on the 

proposed methodology for calculation of 

a 95 percent confidence interval for a 

binomial distribution utilizing a finite 

population correction, see http:// 

itl.nist.gov/div898/handbook/prc/ 

section2/prc24.htm and http:// 

courses.wcupa.edu/rbove/Berenson/

10th%20ed%20CD-ROM%20topics/ 

section7_3.pdf. 

We solicit public comments on this 

proposed validation methodology. 

c. Additional Data Validation 

Conditions Under Consideration for CY 

2013 and Subsequent Years 

We are considering building upon 

what we are proposing as a validation 

approach for CY 2013 and subsequent 

years. We are considering, in addition to 

selecting a random sample of hospitals 

for validation purposes, selecting 

targeted hospitals based on criteria 

designed to measure whether the data 

they have reported raises a concern 

regarding data accuracy. Because 

hospitals have gained little experience 

with validation under the HOP QDRP, 

we are considering this approach for 

possible use beginning with the CY 

2013 payment determination. Examples 

of targeting criteria could include: 

• Abnormal data patterns identified 

such as consistently high HOP QDRP 

measure denominator exclusion rates 

resulting in unexpectedly low 

denominator counts; 

• Whether a hospital had previously 

failed validation; 

• Whether a hospital had not been 

previously selected for validation for 2 

or more consecutive years; 

• Whether a hospital had low 

submitted case numbers relative to 

population sizes; and/or 

• Whether a hospital had any extreme 

outlier values for submitted data 

elements. 

We invite comment on whether, in 

addition to random sampling for 

validation, we should use targeted 

validation and, if so, what criteria for 

targeting we should adopt. 

E. Proposed HOP QDRP Reconsideration 

and Appeals Procedures 

When the RHQDAPU program was 

initially implemented, it did not include 

a reconsideration process for hospitals. 

Subsequently, we received many 

requests for reconsideration of those 

payment decisions and, as a result, 

established a process by which 

participating hospitals would submit 

requests for reconsideration. We 

anticipated similar concerns with the 

HOP QDRP and, therefore, in the CY 

2008 OPPS/ASC final rule with 

comment period (72 FR 66875), we 

stated our intent to implement for the 

HOP QDRP a reconsideration process 

modeled after the reconsideration 

process we implemented for the 

RHQDAPU program. In the CY 2009 

OPPS/ASC final rule with comment 

period (73 FR 68779), we adopted a 

mandatory reconsideration process that 

will apply to the CY 2010 payment 

decisions. In the CY 2010 OPPS/ASC 

final rule with comment period (74 FR 

60654 through 60655), we continued 

this process for the CY 2011 payment 

update. We are proposing to continue 

this process for the CY 2012 payment 

update with some modification. Under 

this proposed process, the hospitals 

must— 

• Submit to CMS, via QualityNet, a 

Reconsideration Request form that 

would be made available on the 

QualityNet Web site; this form would be 

submitted by February 3, 2012, and 

would contain the following 

information: 

ÆÆ Hospital CCN. 

ÆÆ Hospital Name. 

ÆÆ CMS-identified reason for failure 

(as provided in any CMS notification of 

failure to the hospital). 

ÆÆ Hospital basis for requesting 

reconsideration. This would identify the 

hospital’s specific reason(s) for 

believing it met the HOP QDRP 

requirements and should receive a full 

annual payment update. 

ÆÆ CEO and any additional 

designated hospital personnel contact 

information, including name, e-mail 

address, telephone number, and mailing 

address (must include physical address, 

not just a post office box). 

ÆÆ A copy of all materials that the 

hospital submitted in order to receive 

the full payment update for CY 2012. 

Such material would include, but may 

not be limited to, the applicable Notice 

of Participation form or completed 

online registration form, and quality 

measure data that the hospital 

submitted via QualityNet. 

• Submit paper copies of all the 

medical record documentation that it 

submitted for the initial validation. 

Hospitals would submit this 


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documentation to a designated CMS 

contractor which would have authority 

to review patient level information. We 

would post the address where hospitals 

are to ship this documentation on the 

QualityNet Web site. Final review of all 

mismatched data under a 

reconsideration request would be done 

by CMS. 

• Provide a written justification for 

each appealed data element classified 

during the validation process as a 

mismatch. Only data elements that 

affect a hospital’s validation score 

would be subject to reconsideration. We 

would review the data elements that 

were labeled as mismatched as well as 

the written justifications provided by 

the hospitals, and make a decision on 

the reconsideration request. 

For CY 2011 reconsiderations, we 

required that a reconsideration request 

must be signed by the hospital CEO (74 

FR 60654). However, we have found 

that this requirement increases the 

burden for hospitals as it hampers the 

electronic submission of the HOP QDRP 

reconsideration request form. Thus, we 

are proposing not to include this 

requirement; for CY 2012 

reconsiderations, reconsideration 

request forms would not need to be 

signed by the hospital’s CEO. 

We invite public comment on these 

proposed requirements. 

Following receipt of a request for 

reconsideration, CMS would— 

• Provide an e-mail 

acknowledgement, using the contact 

information provided in the 

reconsideration request, to the CEO and 

any additional designated hospital 

personnel notifying them that the 

hospital’s request has been received. 

• Provide a formal response to the 

hospital CEO and any additional 

designated hospital personnel, using the 

contact information provided in the 

reconsideration request, notifying the 

hospital of the outcome of the 

reconsideration process. 

We intend to complete any CY 2012 

reconsideration reviews and 

communicate the results of these 

determinations within 90 days 

following the deadline for submitting 

requests for reconsideration. In the CY 

2010 OPPS/ASC final rule with 

comment period 74 FR 60654 through 

60655), in response to a comment, we 

indicated that we would ‘‘complete any 

reconsideration reviews and 

communicate the results of these 

determinations within 60 to 90 days 

following the date we receive the 

request for reconsideration.’’ We are 

proposing to refine how we describe the 

time frame for CY 2011 from ‘‘60 to 90 

days’’ to within ‘‘90 days’’ because 

designating a range of dates is 

unnecessary for this provision. 

If a hospital is dissatisfied with the 

result of a HOP QDRP reconsideration 

decision, we are proposing that the 

hospital may file an appeal under 42 

CFR Part 405, Subpart R (PRRB appeal). 

Similar to our proposal for the 

RHQDAPU program (75 FR 23995 

through 23996), the scope of our review 

when a hospital requests 

reconsideration because it failed our 

validation requirement would be as 

follows: 

• Hospital requests reconsideration 

for CMS contractor-abstracted data 

elements classified as mismatches 

affecting validation scores. Hospitals 

would be required to have timely 

submitted requested medical record 

documentation to the CMS contractor 

during the quarterly validation process 

for the requested case to be eligible to 

be reconsidered on the basis of 

mismatched data elements. 

• Hospital requests reconsideration 

for medical records submitted during 

the quarterly validation process and 

classified as invalid record selection. 

Invalid record selections would be 

defined as medical records submitted by 

hospitals during the quarterly validation 

process that do not match the patient’s 

episode of care information as 

determined by the designated reabstracting CMS contractor. In other 

words, the contractor determines that 

the hospital returned medical 

documentation that is different from 

that which was requested. If this 

designated contractor determines that 

the hospital submitted invalid or 

incorrect medical documentation, it 

would award a zero validation score for 

the case. During the reconsideration 

process, our review of invalid record 

selection would initially be limited to 

determining whether the medical 

documentation submitted initially to the 

designated CMS contractor was for the 

designated episode of care. If we 

determine during reconsideration that 

the hospital did submit medical 

documentation corresponding to the 

designated episode of care, then we 

would abstract data elements from the 

medical record documentation 

submitted by the hospital; otherwise, 

the case would not be abstracted. 

• Hospital requests reconsideration 

for medical records not submitted to the 

CMS contractor within the 45 calendar 

day deadline. Our review would 

initially be limited to determining 

whether the CMS contractor received 

the requested medical record 

documentation within 45 calendar days, 

and whether the hospital received the 

initial medical record request and 

reminder notice. If we determine during 

reconsideration that the CMS contractor 

did receive the paper copy of the 

requested, supporting medical record 

documentation within 45 calendar days, 

then we would abstract data elements 

from the medical record documentation 

submitted by the hospital. If we 

determine that the hospital received two 

letters requesting medical 

documentation and still did not submit 

the requested documentation within the 

45 calendar day period, CMS would not 

accept this documentation as part of the 

reconsideration and CMS would not 

abstract data from this documentation. 

In sum, we are initially limiting the 

scope of our reconsideration reviews 

involving validation to information 

already submitted by the hospital 

during the quarterly validation process, 

and we would not abstract submitted 

medical record documentation that was 

not submitted to the CMS contractor 

during the quarterly validation process. 

We would expand the scope of our 

reconsideration reviews involving 

validation only if we find during the 

initial review that the hospital correctly 

and timely submitted the requested 

medical record documentation; only 

then would we abstract data elements 

from the medical record documentation 

submitted by the hospital as part of our 

reconsideration review. 

If a hospital is dissatisfied with the 

result of a HOP QDRP reconsideration 

decision, the hospital would be able to 

file an appeal under 42 CFR part 405, 

Subpart R (PRRB appeal). 

We invite public comment on these 

proposals. 

F. Reporting of ASC Quality Data 

As discussed above, section 109(b) of 

the MIEA–TRHCA amended section 

1833(i) of the Act by redesignating 

clause (iv) as clause (v) and adding new 

clause (iv) to paragraph (2)(D) and by 

adding new paragraph (7). These 

amendments authorize the Secretary to 

require ASCs to submit data on quality 

measures and to reduce the annual 

payment update in a year by 2.0 

percentage points for ASCs that fail to 

do so. However, these provisions 

permit, but do not require, the Secretary 

to take such action. 

In the CY 2008 OPPS/ASC final rule 

with comment period (72 FR 66875), the 

CY 2009 OPPS/ASC final rule with 

comment period (73 FR 68780), and the 

CY 2010 OPPS/ASC final rule with 

comment period (74 FR 60656), we 

indicated that we intend to implement 

the provisions of section 109(b) of the 

MIEA–TRHCA in a future rulemaking. 

While promoting high quality care in 

the ASC setting through quality 

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reporting is highly desirable and fully in 

line with our efforts under other 

payment systems, the transition to the 

revised payment system in CY 2008 

posed significant challenges to ASCs, 

and we determined that it would be 

most appropriate to allow time for ASCs 

to gain some experience with the 

revised payment system before 

introducing other new requirements. 

Further, by implementing quality 

reporting under the OPPS prior to 

establishing quality reporting for ASCs, 

CMS would gain experience with 

quality measurement in the ambulatory 

setting in order to identify the most 

appropriate measures for quality 

reporting in ASCs prior to the 

introduction of the requirement for 

ASCs. Finally, we are sensitive to the 

potential burden on ASCs associated 

with chart abstraction and believe that 

adopting such measures at this time is 

in contrast with our desire to minimize 

collection burden, particularly when 

measures may be reported via EHRs in 

the future. 

We continue to believe that promoting 

high quality care in the ASC setting 

through quality reporting is highly 

desirable and fully in line with our 

efforts under other payment systems. 

However, we continue to have the 

concerns outlined above for CY 2011. 

We intend to implement the provisions 

of section 109(b) of the MIEA–TRHCA 

in a future rulemaking. We invite public 

comment on: (1) The deferral of quality 

data reporting for ASCs; (2) suggestions 

for quality measures geared toward the 

services provided by ASCs; and (3) 

potential reporting mechanisms for ASC 

quality data, including electronic 

submission of these data. In addition, 

we invite public comment on the 

following measures under future 

consideration for ASC quality data 

reporting: 

• Patient Fall in the ASC; 

• Patient Burn; 

• Hospital Transfer/Admission; 

• Wrong Site, Side, Patient, 

Procedure, Implant; 

• Prophylactic IV Antibiotic Timing; 

• Appropriate Surgical Site Hair 

Removal; 

• Surgical site infection (SSI); 

• Medication administration variance 

(MAV); 

• Medication reconciliation; and 

• VTE measures: outcome/ 

assessment/prophylaxis. 

We note that section 3006(f) of the 

Affordable Care Act, as added by section 

10301(a) of the Affordable Care Act 

requires CMS to develop a plan to 

implement a value-based purchasing 

program for ASCs; this plan is due to 

Congress by January 1, 2011. We intend 

to align implementation of ASC quality 

reporting to be consistent with the 

value-based purchasing plan that will be 

developed. We intend to propose 

implementing the provisions of section 

109(b) of the MIEA–TRHCA in CY 2012 

rulemaking. We invite public comment 

on: (1) The timing of implementing 

quality data reporting for ASCs; (2) 

suggestions for quality measures for 

services provided by ASCs; and (3) 

potential reporting mechanisms for ASC 

quality data, including electronic 

submission of these data. 

G. Electronic Health Records 

As we stated in the CY 2010 OPPS/ 

ASC final rule (74 FR 60656), we are 

actively seeking alternatives to manual 

chart abstraction for the collection of 

quality measures for its quality data 

reporting programs. Among these 

alternatives are claims-based measure 

calculations, collection of data from 

systematic registries widely used by 

hospitals, and electronic submission of 

quality measures using EHRs. In the CY 

2009, we received suggestions during 

the public comment period that we 

adopt measures that can be collected via 

EHRs (73 FR 68769). We agree with the 

commenters about the importance of 

actively working to move to a system of 

data collection based on submission 

from EHRs. In section XVI.B.5.b. of this 

proposed rule, for the CY 2014 payment 

determination, we are proposing to 

adopt several chart-abstracted quality 

measures for diabetes mellitus, some of 

which have already been specified for 

EHR-based capture and submission, and 

others that are planned for EHR-based 

submission in the future. We have been 

engaged with health IT standard-setting 

organizations to promote the adoption 

of the necessary standards regarding 

data capture to facilitate data collection 

via EHRs, and have been collaborating 

with such organizations on standards 

for a number of quality measures. We 

encourage hospitals to take steps toward 

the adoption of EHRs that will allow for 

reporting of clinical quality data from 

the EHR directly to a CMS data 

repository. We also encourage hospitals 

that are implementing, upgrading, or 

developing EHR systems to ensure that 

such systems conform to standards 

adopted by HHS. We invite public 

comment on the future direction of 

EHR-based quality measurement 

submission. 

XVII. Proposed Changes Relating to 

Payments to Hospitals for Direct 

Graduate Medical Education (GME) 

and Indirect Medical Education (IME) 

Costs 

A. Background 

Section 1886(h) of the Act, as added 

by section 9202 of the Consolidated 

Omnibus Budget Reconciliation Act 

(COBRA) of 1985 (Pub. L. 99–272) and 

implemented in regulations at 42 CFR 

413.75 through 413.83, establishes a 

methodology for determining payments 

to hospitals for the direct costs of 

approved graduate medical education 

(GME) programs. Section 1886(h)(2) of 

the Act sets forth a methodology for the 

determination of a hospital-specific, 

base-period per resident amount (PRA) 

that is calculated by dividing a 

hospital’s allowable direct costs of GME 

for a base period by its number of 

residents in the base period. The base 

period is, for most hospitals, the 

hospital’s cost reporting period 

beginning in FY 1984 (that is, the period 

of October 1, 1983, through September 

30, 1984). The base year PRA is updated 

annually for inflation. In general, 

Medicare direct GME payments are 

calculated by multiplying the applicable 

PRA by the weighted number of fulltime equivalent (FTE) residents working 

in all areas of the hospital complex (and 

nonhospital sites, when applicable), and 

the hospital’s Medicare share of total 

inpatient days. 

Section 1886(d)(5)(B) of the Act 

provides for an additional payment 

amount under the IPPS for hospitals 

that have residents in an approved GME 

program in order to reflect the higher 

indirect patient care costs of teaching 

hospitals relative to nonteaching 

hospitals. The regulations regarding the 

calculation of this additional payment, 

known as the indirect medical 

education (IME) adjustment, are located 

at 42 CFR 412.105. 

The Balanced Budget Act of 1997 

(Pub. L. 105–33) established a limit on 

the number of allopathic and 

osteopathic residents that a hospital 

may include in its FTE resident count 

for direct GME and IME payment 

purposes. Under section 1886(h)(4)(F) of 

the Act, for cost reporting periods 

beginning on or after October 1, 1997, a 

hospital’s unweighted FTE count of 

residents for purposes of direct GME 

may not exceed the hospital’s 

unweighted FTE count for its most 

recent cost reporting period ending 

during the 1996 calendar year. Under 

section 1886(d)(5)(B)(v) of the Act, a 

similar limit on the FTE resident count 

for IME purposes is effective for 

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discharges occurring on or after October 

1, 1997. 

The recently enacted Patient 

Protection and Affordable Care Act 

(Pub. L. 111–148), as amended by the 

Health Care and Education 

Reconciliation Act of 2010 (Pub. L. 111– 

152) made a number of statutory 

changes relating to the determination of 

a hospital’s FTE resident count for 

direct GME and IME payment purposes 

and the manner in which FTE resident 

limits are calculated and applied to 

hospitals under certain circumstances. 

(These two pieces of legislation are 

collectively referred to in this document 

as the ‘‘Affordable Care Act.’’) Below we 

set forth our proposals to implement the 

provisions of the Affordable Care Act 

relating to Medicare direct GME and 

IME payments. 

B. Counting Resident Time in 

Nonprovider Settings (Section 5504 of 

the Affordable Care Act) 

1. Background and Changes Made by the 

Affordable Care Act 

Effective July 1, 1987, the Social 

Security Act was amended to allow 

hospitals to count the time residents 

spend training in sites that are not part 

of the hospital (referred to as 

‘‘nonprovider’’ or ‘‘nonhospital sites’’) for 

purposes of direct GME payments under 

certain conditions. Specifically, section 

1886(h)(4)(E) of the Act requires that the 

Secretary’s rules concerning the 

computation of FTE residents for 

purposes of direct GME payments 

‘‘provide that only time spent in 

activities relating to patient care shall be 

counted and that all the time so spent 

by a resident under an approved 

medical residency training program 

shall be counted towards the 

determination of full-time equivalency, 

without regard to the setting in which 

the activities are performed, if the 

hospital incurs all, or substantially all, 

of the costs for the training program in 

that setting.’’ (Section 1886(h)(4)(E) of 

the Act, as added by section 9314 of the 

Omnibus Budget Reconciliation Act of 

1986 (Pub. L. 99–509) (OBRA 86).) 

Regulations implementing this 

provision were published in the 

September 29, 1989 final rule (54 FR 

40292) at 42 CFR 413.86(f)(3) (now 

§ 413.78(c)), which stated that a hospital 

may count the time residents spend in 

nonprovider settings for purposes of 

direct GME payment if: (1) The 

residents spend their time in patient 

care activities; and (2) there is a written 

agreement between the hospital and the 

nonprovider entity stating that the 

hospital will incur all or substantially 

all of the costs of the program. The 

regulations at that time defined ‘‘all or 

substantially all’’ of the costs to include 

the residents’ compensation for the time 

spent at the nonprovider setting. We 

also interpreted section 1886(h)(4)(E) of 

the Act to mean that only one single 

hospital was permitted to incur the 

costs of a particular training program 

and count the time residents spend 

training in a particular nonhospital 

setting. 

Prior to October 1, 1997, for purposes 

of the IME payment adjustment, 

hospitals were not permitted to count 

the time residents spent training in 

nonhospital settings. However, section 

4621(b)(2) of the Balanced Budget Act of 

1997 revised section 1886(d)(5)(B) of the 

Act to allow providers to count time 

residents spend training in nonprovider 

sites for IME purposes, effective for 

discharges occurring on or after October 

1, 1997. Specifically, section 

1886(d)(5)(B)(iv) of the Act was 

amended to provide that ‘‘all the time 

spent by an intern or resident in patient 

care activities under an approved 

medical residency program at an entity 

in a nonhospital setting shall be counted 

towards the determination of full-time 

equivalency if the hospital incurs all, or 

substantially all, of the costs for the 

training program in that setting.’’ In the 

July 31, 1998 final rule (63 FR 41005), 

at § 412.105(f)(1)(ii)(C) and 

§ 413.86(f)(4), we specified the 

requirements that a hospital must meet 

in order to include the time spent by 

residents training in a nonhospital site 

in its FTE count for purposes of both 

direct GME and IME payments (we note 

that § 413.86(f)(4) is now redesignated 

as § 413.78(d)). In that final rule, we also 

redefined ‘‘all or substantially all of the 

costs for the training program in the 

nonhospital setting’’ as the residents’ 

salaries and fringe benefits (including 

travel and lodging where applicable), 

and the portion of the cost of teaching 

physicians’ salaries and fringe benefits 

attributable to direct GME. 

In order to implement section 

1886(h)(4)(E) (and later, section 

1886(d)(5)(B)(iv)) of the Act, and to 

assist contractors in determining 

whether a hospital incurred ‘‘all or 

substantially all’’ of the costs of the 

program in the nonhospital setting, we 

required in § 413.86(f)(3) and (4) that 

there must be a written agreement 

between the hospital and the 

nonhospital site stating that the hospital 

will incur ‘‘all or substantially all’’ of the 

costs of training in the nonhospital 

setting (we note that § 413.86(f)(3) and 

(4) is now redesignated as § 413.78(c) 

and (d)). We later specified at 

§ 413.78(d)(2) that the written agreement 

must indicate the amount of 

compensation provided by the hospital 

to the nonhospital site for supervisory 

teaching activities. 

Section 713 of the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA) 

imposed a 1-year moratorium relating to 

certain nonhospital site teaching 

physician costs for the period from 

January 1, 2004, through December 31, 

2004. During this 1-year period, we 

were required to allow hospitals to 

count FTE allopathic or osteopathic 

family practice residents training in 

nonhospital settings for IME and direct 

GME payment purposes without regard 

to the financial arrangement between 

the hospital and the teaching physician 

practicing in the nonhospital setting to 

which the resident was assigned. We 

instructed our contractors (then referred 

to as only ‘‘fiscal intermediaries’’ or 

‘‘FIs’’) regarding the effect of section 713 

of the MMA in the One-Time 

Notification (OTN), ‘‘Changes to the FY 

2004 Graduate Medical Education 

(GME) Payments as Required by the 

Medicare Modernization Act of 2003 

(MMA)’’ (Change Request 3071, 

Transmittal 61, issued on March 12, 

2004). Generally, we stated in the OTN 

that, when settling prior year cost 

reports during this 1-year period, or for 

family practice residents actually 

training in nonhospital settings during 

this 1-year period, contractors should 

allow hospitals to count allopathic and 

osteopathic family practice residents 

training in a nonhospital setting for 

direct GME and IME payment purposes 

without regard to the financial 

arrangement between the hospital and 

the nonhospital site pertaining to the 

teaching physicians’ costs associated 

with the residency program. For further 

information on this provision and for a 

summary of comments and responses 

related to this provision, we refer 

readers to the FY 2005 IPPS final rule 

(69 FR 49176). 

In an effort to respond to concerns 

expressed by hospitals about the 

administrative burden associated with 

meeting the written agreement 

requirements, in the FY 2005 IPPS final 

rule (69 FR 49179), at § 413.78(e), we 

revised our regulations to allow 

hospitals to choose to either enter into 

a written agreement with the 

nonhospital site before the hospital may 

begin to count residents training at the 

nonhospital site, or to pay concurrently 

for the cost of training at the 

nonhospital setting. That is, in the 

absence of a written agreement, 

hospitals are required to pay ‘‘all or 

substantially all’’ of the costs of the 

training program in the nonhospital 

setting by the end of the third month 

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following the month in which the 

training occurs. 

On May 11, 2007, we published a 

final rule (72 FR 26949) that once again 

modified the definition of ‘‘all or 

substantially all of the costs for the 

training program in the nonhospital 

setting.’’ That final rule further defined 

‘‘all or substantially all’’ under 

§ 413.75(b) to mean at least 90 percent 

of the total costs of the residents’ 

salaries and fringe benefits (including 

travel and lodging where applicable) 

and the portion of the cost of the 

teaching physician’s salaries attributable 

to direct GME. Although several public 

commenters had objected to our 

proposed redefinition of the ‘‘all or 

substantially all,’’ we adopted the 90 

percent rule because we believed it 

would substantially address concerns 

that had been voiced previously by the 

industry. With this modification, 

hospitals were no longer required to pay 

100 percent of the residents’ salaries 

and fringe benefits (including travel and 

lodging where applicable) and the 

portion of the teaching physicians’ costs 

attributable to direct GME at the 

nonhospital site. This change in policy 

also allowed providers to use an 

alternative, less burdensome method to 

calculate the GME teaching physician 

costs attributable to direct GME at 

nonhospital sites. In addition to the 

redefinition of ‘‘all or substantially all of 

the costs,’’ the May 11, 2007 final rule 

also modified the regulation text at 

§ 413.78(f)(3)(ii) to clarify that the 

required written agreement between a 

hospital and a nonhospital site must be 

in place before residents begin training 

at the nonhospital site. That final rule 

also specified the information that must 

be included in the written agreement, 

and stated that the amounts specified in 

the written agreement may be modified 

by June 30 of the applicable academic 

year. 

Section 5504(a) of the Affordable Care 

Act made changes to section 

1886(h)(4)(E) of the Act to significantly 

reduce the costs that hospitals must 

incur for residents training in 

nonhospital sites in order to count the 

FTE residents for purposes of Medicare 

direct GME payments. Specifically, 

section 5504(a) amended the statute to 

allow a hospital to count all the time 

that a resident trains in a nonhospital 

site so long as the hospital incurs the 

costs of the residents’ salaries and fringe 

benefits for the time that the resident 

spends training in the nonhospital site. 

Section 5504(b) of the Affordable Care 

Act made similar changes to section 

1886(d)(5)(iv) of the Act for IME 

payment purposes. For direct GME 

payments, the provision is effective for 

cost reporting periods beginning on or 

after July 1, 2010; for IME payments, the 

provision is effective for discharges 

occurring on or after July 1, 2010. The 

changes made by section 5504(a) and (b) 

also specify that if more than one 

hospital incurs the residency training 

costs in a nonhospital setting, those 

hospitals are to count a proportional 

share of the training time as determined 

by written agreement between the 

hospitals. In addition, section 5504(a) 

amended section 1886(h)(4)(E) of the 

Act to require hospitals to maintain 

documents indicating the amount of 

time their residents spend training in 

nonhospital sites relative to a base year, 

and to make those documents available 

to the Secretary. 

Section 5504(c) of the Affordable Care 

Act specifies that the amendments made 

by the provisions of sections 5504(a) 

and (b) shall not be applied in a manner 

that would require the reopening of 

settled cost reports except where the 

provider has a jurisdictionally proper 

appeal pending on the issue of direct 

GME or IME payments as of March 23, 

2010 (the date of the enactment of Pub. 

L. 111–148). We are proposing to 

interpret ‘‘pending, jurisdictionally 

proper appeal on direct GME or IME 

payments’’ to mean that in order for a 

hospital to request a change to its FTE 

count, direct GME or IME respectively, 

the ‘‘pending, jurisdictionally proper 

appeal’’ must be specific to direct GME 

or IME respectively. For example, in 

order for a hospital to increase its FTE 

count with regard to an ACA provision 

that is unique to IME (such as inclusion 

in the IME count of didactic time 

occurring in the hospital as specified by 

new section 1886(d)(5)(B)(x)(II)), the 

hospital’s ‘‘pending, jurisdictionally 

proper appeal’’ must be on an IME issue; 

IME FTEs or the available bed count. 

However, if the hospital’s ‘‘pending, 

jurisdictionally proper appeal’’ is on an 

issue that only affects direct GME 

payments, such as the initial residency 

period or the Medicare patient load, that 

appeal would not be sufficient in order 

for the hospital to increase its FTE count 

with regard to an ACA provision that is 

unique to IME, such as didactic time in 

the hospital setting. 

2. Elimination of the ‘‘All or 

Substantially All of the Costs for the 

Training Program in the Nonhospital 

Setting’’ Requirement and New Cost 

Requirements for Hospitals 

As stated earlier, in the May 11, 2007 

final rule (72 FR 26949), we redefined 

the phrase ‘‘all or substantially all of the 

costs for the training program in the 

nonhospital setting’’ under § 413.75(b) of 

the regulations to mean at least 90 

percent of the total costs of the 

residents’ salaries and fringe benefits 

(including travel and lodging where 

applicable) and the portion of the cost 

of the teaching physicians’ salaries 

attributable to nonpatient care direct 

GME. However, section 5504 of the 

Affordable Care Act revised the Act, 

effective on July 1, 2010, and eliminated 

the requirement that a hospital incur 

‘‘all or substantially all of the costs for 

the training program in the nonhospital 

setting.’’ Under the changes made by 

section 5504, hospitals are only required 

to incur the costs of the resident’s 

salaries and fringe benefits during the 

time the resident spends in the 

nonhospital setting, and they no longer 

have to incur other training costs in the 

nonhospital site in order to count such 

time for direct GME and IME purposes. 

We are proposing to revise our 

regulation at § 413.75(b) accordingly to 

conform to these new statutory 

requirements. Specifically, we are 

proposing to revise the existing 

definition of ‘‘all or substantially all of 

the costs for the training program in the 

nonhospital setting’’ to be effective for 

cost reporting periods beginning on or 

after July 1, 2007, and before July 1, 

2010. We also are proposing to add a 

new § 413.78(g) that details how 

hospitals should count residents that 

train in nonhospital sites for cost 

reporting periods beginning on or after 

July 1, 2010. Specifically, we are 

proposing to require under 

§ 413.78(g)(2) that a hospital or hospitals 

must incur the costs of the salaries and 

fringe benefits of the resident during the 

time the resident spends in the 

nonprovider setting in order to count 

the time spent by those residents for 

direct GME payment purposes. 

§ 412.105(f) has also been revised to 

reflect these changes for the purposes of 

IME payments. 

3. Proposed Revision to Regulations To 

Allow More Than One Hospital To 

Incur the Costs of Training Programs at 

Nonhospital Settings, Either Directly or 

Through a Third Party 

As indicated above, prior to the 

enactment of the Affordable Care Act, 

we had interpreted both section 

1886(h)(4)(E) of the Act (regarding direct 

GME) and section 1886(d)(5)(B)(iv) of 

the Act (regarding IME) as allowing a 

hospital to count the time spent by 

residents training in a nonhospital site 

only when one single hospital incurred 

the costs of a particular training 

program in a particular nonhospital 

setting. We noted that both sections of 

the statute specified that a hospital 

could count the time spent by residents 

training in a nonhospital site ‘‘if the 

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hospital incurs all or substantially all of 

the costs for the training program in that 

setting’’ (emphasis added). While we 

understand that, in some cases, 

hospitals share the costs of training their 

respective residents in the same 

programs at the same nonhospital site, 

we have historically only allowed a 

hospital to count time spent by those 

residents if one single hospital met the 

requirement to incur ‘‘all or 

substantially all’’ of the training program 

costs at a nonhospital site. Accordingly, 

two or more hospitals could not count 

the time spent by their residents 

training in a nonhospital site if they 

shared the training costs at the site or if 

a third party incurred the costs of 

training at a nonhospital site on behalf 

of several hospitals. Examples of third 

parties that might incur nonhospital site 

training program costs are a medical or 

dental school, or a GME administrative 

entity that is established to operate the 

GME program. 

Sections 5504(a) and (b) of the 

Affordable Care Act specifically address 

the situation in which more than one 

hospital incurs the costs of training 

programs at nonhospital settings, either 

directly or through a third party. 

Sections 5504(a) and (b) amend sections 

1886(h)(4)(E) and 1886(d)(5)(B)(iv) of 

the Act, respectively, to provide that 

when more than one hospital incurs 

these costs, either directly or through a 

third party, those hospitals ‘‘shall count 

a proportional share of the time, as 

determined by written agreement 

between the hospitals, that a resident 

spends training in that setting.’’ 

Therefore, these statutory changes now 

allow hospitals to share the costs of 

resident training at nonhospital sites, so 

long as those hospitals divide the 

resident time proportionally pursuant to 

a written agreement, for the purposes of 

determining their respective direct GME 

and IME FTE resident counts at the 

nonhospital site. These provisions of the 

statute are effective for cost reporting 

periods beginning on or after July 1, 

2010 for direct GME, and for discharges 

occurring on or after July 1, 2010 for 

IME. Accordingly, although hospitals 

that shared training costs at nonhospital 

sites could not count any of resident 

time spent training at those nonhospital 

sites prior to July 1, 2010, hospitals can 

count all of that training time beginning 

on or after July 1, 2010, as long as they 

divide the resident training time 

proportionally. 

We are proposing to revise our 

regulations to reflect the statutory 

provision that allows hospitals to 

proportionally share the costs of 

resident training at nonhospital sites 

under a new paragraph (g)(2) of § 413.78 

and to make a conforming crossreference change under 

§ 412.105(f)(1)(ii) of the IME regulations. 

While the statute allows hospitals to 

determine by an agreement the 

proportional share of time that residents 

spend training in the nonhospital site, 

we are proposing that hospitals must 

use some reasonable basis for 

establishing that proportion (proposed 

§ 413.78(g)(2)(ii)). One such reasonable 

basis could be that each hospital counts 

the number of FTEs for which it incurs 

the salaries and fringe benefits. For 

example, if there are 10 FTEs training in 

a nonhospital setting in a particular 

program, and there are two hospitals 

that each incur the costs of the salaries 

and fringe benefits of 5 of those FTEs, 

each hospital could agree to count 50 

percent of the FTEs (even if each 

hospital is not necessarily paying 50 

percent of the cost, due to differences in 

resident salary amounts, this 

arrangement is acceptable, so long as 

100 percent of the required cost is paid). 

In addition to having a reasonable 

basis for establishing the proportion, 

hospitals also must be able to document 

the amount that they are paying 

collectively, and this amount must 

equate to at least the sum of all the 

salaries and fringe benefits of the 

residents for the amount of time that the 

residents are training in that site. The 

salaries and fringe benefits of the 

residents will vary depending upon the 

program year of the residents, and the 

specialty in which they are training. As 

we indicated in the May 11, 2007 final 

rule (72 FR 26961), hospitals must ‘‘take 

into account the actual salary and fringe 

benefits for each FTE resident that trains 

in the nonhospital site, which may vary 

by resident.’’ Therefore, as also 

indicated in the May 11, 2007 final rule 

(72 FR 26970), global agreements that 

cover a variety of issues (GME and nonGME) between the hospital(s) and 

nonhospital site, and that only specify 

a lump sum payment amount with no 

break out of the residents’ salaries and 

fringe benefits, do not provide sufficient 

information for the Medicare contractor 

to determine that ‘‘all or substantially 

all’’ of the costs (or, effective July 1, 

2010, that all of the residents’ salaries 

and fringe benefits) have been paid. 

Accordingly, we would expect that, 

regardless of whether there is one 

hospital paying the cost, or if more than 

one hospital is sharing the costs, 

hospitals would need to determine prior 

to the start of nonhospital rotations 

(with allowance for modification by 

June 30 of that academic year) the total 

cost of the salaries and fringe benefits of 

the residents that are training for the 

proportion of the year spent in each 

nonhospital site. Of course, in the 

instance where the residents remain on 

the payroll of one or more hospitals for 

the entire year, it would be easier to 

document that the hospital(s) continues 

to pay the residents’ salaries and fringe 

benefits when the residents rotate to 

nonhospital sites. Similarly, where the 

residents are on the payroll of the 

medical or dental school, or of a third 

party GME administrative entity, and 

the hospitals reimburse the school or 

the third party for the entire salary and 

fringe benefit costs of the residents for 

both hospital and nonhospital training, 

the hospitals could easily document that 

they have incurred the requisite costs of 

training in nonhospital sites. In some 

circumstances, it may be more laborintensive for a hospital or hospitals to 

document that they have incurred costs 

of training in the nonhospital site that 

equate to at least the sum of the salaries 

and fringe benefits of the FTE residents 

for the proportion of time spent in the 

nonhospital site. This is especially true 

in situations where funds are being 

transferred between one or more 

hospitals and a third party 

administrative entity not simply for 

Medicare GME purposes, but as part of 

global agreements that also address a 

variety of Medicare and non-Medicare 

issues. However, once the total costs for 

the residents’ salaries and fringe 

benefits for time spent in the 

nonhospital site are determined and 

covered by the hospitals, the hospitals 

may decide among themselves the 

proportion of those costs each will 

incur, and may use a reasonable basis to 

allocate among themselves the 

proportion of FTE residents that each 

one will count, as discussed above. 

As specified in section 5504, we are 

proposing further that the hospitals 

must record the proportion of the FTE 

resident time spent training in the 

nonhospital site that will be counted by 

each hospital for purposes of direct and 

indirect GME payment, as well as the 

reasonable basis for the proportion, in a 

written agreement between the 

hospitals. We are proposing to add this 

requirement in regulations at 

§ 413.78(g)(2)(i). If hospitals have in 

place written agreements with the 

nonhospital site in accordance with our 

existing regulations at § 413.78(f)(3)(ii), 

we are proposing that the proportion of 

the FTE resident training time to be 

counted for IME and direct GME 

purposes by each hospital, and the basis 

for the proportion, may be recorded in 

that agreement (proposed 

§ 413.78(g)(2)(iii)). We are proposing 

that if the hospitals choose to pay the 

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training program costs concurrently as 

described in § 413.78(g)(3)(i), that is, 

without a written agreement, the 

hospitals must still agree in writing to 

the proportion of costs and training time 

they plan to incur and count (proposed 

§ 413.78(g)(2)(iv)) in addition to the 

basis for that proportion, as specified by 

the statute. That written agreement 

between the hospitals must be available 

for CMS review and for auditing 

purposes. In addition, we would expect 

that the hospitals’ records of resident 

training time and training costs at 

nonhospital sites, as required by the 

Affordable Care Act and as discussed 

below, reflect the proportions of training 

time and costs as agreed upon and 

documented in whichever type of 

written agreement the hospitals used to 

record the proportional shares of 

resident training time that each will 

count for purposes of direct GME and 

IME payment. 

4. Proposed Changes to Regulations 

Regarding Recordkeeping and 

Comparison to a Base Year 

As stated above, section 5504(a) of the 

Affordable Care Act requires hospitals 

to maintain records of the amount of 

time that their residents spend in 

nonprovider settings, and to compare 

that time to the time spent by their 

residents in nonprovider sites in a base 

year as the Secretary may specify. This 

requirement is effective for cost 

reporting periods beginning on or after 

July 1, 2010. We are proposing to 

incorporate this statutory requirement 

for maintaining records under a new 

paragraph (g)(5) of § 413.78 of the 

regulations, and we anticipate amending 

the cost report for hospitals to include 

lines where hospitals can submit the 

required data, which is described below. 

These data will help CMS identify 

whether barriers to resident training in 

nonhospital sites exist. The original 

allowance of IME payments for training 

in nonhospital sights, as instituted by 

the BBA, was intended to act as an 

incentive to hospitals to increase such 

training. However, we have not seen a 

marked increase in the amount of 

training that occurs in nonhospital 

settings in the years since the 

implementation of the BBA. Advocates 

of expanding training in nonhospital 

sites have alleged that CMS’ rules for 

counting residents in nonhospital sites 

regarding teaching physician salary 

costs were an obstacle to the expansion 

of training in nonhospital settings. The 

recordkeeping and reporting 

requirement added by section 5504(a) of 

the Affordable Care Act will provide the 

Secretary information to assess whether 

nonhospital site resident training 

increases as a result of the statutory 

revision of rules that were viewed as 

burdensome. 

We understand that rotation 

schedules are a primary source of 

information that hospitals supply to 

Medicare contractors for determining 

where and for how much time each 

resident spends training in each 

hospital or nonhospital site. Therefore, 

we are proposing that rotation schedules 

be the source for establishing the 

amount of time that residents spend 

training in nonhospital sites, both in the 

base year and in subsequent years. The 

amendment to section 1886(h)(4)(E) of 

the Act by section 5504(a) of the 

Affordable Care Act states that the 

Secretary shall specify the 

aforementioned base year for the level of 

training at nonhospital sites. We are 

proposing that cost reporting periods 

beginning on or after July 1, 2009 and 

before June 30, 2010 be the base year 

against which we will compare 

subsequent years’ data to determine if 

the amount of nonhospital training that 

occurs in subsequent years increases 

relative to that base year (proposed new 

§ 413.78(g)(5)). We also are proposing 

that, to meet this documentation 

requirement, hospitals only need to 

maintain records of the total 

unweighted direct GME FTE count 

(before application of the direct GME 

FTE resident cap) of resident training 

time in nonhospital settings. 

Section 5504(a) of the Affordable Care 

Act also made changes to require that 

these records be made available to the 

Secretary. In order for CMS to evaluate 

whether nonhospital site training has 

increased as a result of the changes 

made by section 5504 of the Affordable 

Care Act, we are proposing to include 

several additional cost report lines for 

hospitals to submit data for each of their 

primary care programs on a programspecific basis. With respect to hospitals’ 

nonprimary care programs, hospitals 

would only need to supply that data on 

an overall hospital basis, and we are 

proposing to add one line on the cost 

report for hospitals to submit that data. 

We are only requiring program-specific 

data with respect to resident training 

time in nonhospital sites for primary 

care specialties because we believe that 

that is sufficient for the intent of this 

provision. The intent of this 

recordkeeping requirement is to see 

whether, as a result of the policy 

changes required under section 5504(a), 

there is an increase in the volume of 

residency training that takes place in 

nonhospital settings. Since residents at 

nonhospital sites typically train in 

primary care specialties, and in order to 

minimize the documentation burden on 

hospitals, we do not believe it is 

necessary to require program-specific 

data for other specialties that would 

provide only marginally useful 

information. For the purposes of this 

provision, we propose to use the 

definition of primary care resident in 

§ 413.75(b) to identify those programs 

for which we are proposing to require 

program-specific data. 

Once this information is made 

available to CMS, the data would be 

compared to the analogous data from 

the base year of cost reporting periods 

beginning on or after July 1, 2009 and 

before June 30, 2010, in order for CMS 

to determine whether the volume of 

nonhospital site training has increased. 

Specifically, we are proposing to use the 

total direct GME count of FTE training 

time in a primary care specialty in 

nonhospital sites (prior to application of 

direct GME FTE resident limits) as the 

gauge to determine if residency training 

time in nonhospital settings in that 

specialty has increased in an academic 

year relative to the base year. For 

example, if, in the base year, we find 

that 10.5 direct GME FTEs out of a total 

of 15 FTE family practice residents from 

a family practice residency program in 

a teaching hospital trained in 

nonhospital settings (that is, 70 percent 

of the FTE time of the residents in the 

family practice residency program was 

spent training in nonhospital sites), we 

would note the subsequent years’ 

amount of direct GME FTE training time 

in nonhospital sites in that particular 

teaching program to see if that FTE 

proportion increased from 70 percent. 

This would help determine if more 

training time is spent by primary care 

residents in nonhospital sites. Or, for all 

of the nonprimary care teaching 

programs in a hospital, if 100 direct 

GME FTE residents out of 400 FTE 

residents spent time training in 

nonhospital settings (that is, 25 percent 

of the time spent by residents in the 

program is spent training in nonhospital 

sites), we would look to see if in 

subsequent years, more than 25 percent 

of the time spent by nonprimary care 

direct GME FTEs from that hospital is 

spent training in nonhospital sites. 

C. Counting Resident Time for Didactic 

and Scholarly Activities and Other 

Activities (Section 5505 of the 

Affordable Care Act) 

1. Background and Changes Made by the 

Affordable Care Act 

Prior to the enactment of the 

Affordable Care Act, the time that 

residents spend training at a 

nonhospital setting in nonpatient care 

activities, as part of an approved 

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program, could not be included in a 

hospital’s direct GME or IME FTE 

resident count. There were also 

differences in the rules for counting FTE 

resident time during the time that 

residents spend training in the hospital 

for direct GME and IME payments. For 

direct GME payment purposes, under 42 

CFR 413.78(a), ‘‘residents in an 

approved program working in all areas 

of the hospital complex may be 

counted.’’ As explained in the 

September 29, 1989 Federal Register (54 

FR 40286), the hospital complex 

consists of the hospital and the hospitalbased providers and subproviders. 

Therefore, the distinction between 

patient care activities and nonpatient 

care activities is not relevant to direct 

GME FTE count determinations when 

the residents are training in the hospital 

complex. However, for IME payment 

purposes, consistent with the 

regulations at 42 CFR 413.9 and 

412.105(f)(1)(iii)(C), only time spent in 

patient care activities in the hospital is 

counted. It has been our longstanding 

policy that, regardless of the site of 

training, ‘‘we do not include residents in 

the IME count to the extent that the 

residents are not involved in furnishing 

patient care’’ (66 FR 39897, August 1, 

2001). 

Section 5505(a) of the Affordable Care 

Act added new subparagraph (J) to 

section 1886(h)(4) (as amended by 

section 5504) of the Act to allow 

hospitals to count certain nonpatient 

care activities that occur in certain 

nonprovider settings, including didactic 

conferences and seminars, in the 

hospital’s direct GME FTE resident 

counts. The provision added by section 

5505(a) allows a hospital to count the 

time that residents spend training in an 

approved program in a ‘‘nonprovider 

setting that is primarily engaged in 

furnishing patient care’’ for direct GME 

purposes, even if those residents are 

engaged in nonpatient care activities, 

such as didactic conferences and 

seminars (but not including research not 

associated with the treatment or 

diagnosis of a particular patient), during 

that training time at the nonhospital 

site. This statutory change is effective 

for cost reporting periods beginning on 

or after July 1, 2009. We are proposing 

to revise our regulations at § 413.78(f)(1) 

and (g)(1) to reflect the statutory 

provision. 

Section 5505(b) of the Affordable Care 

Act addressed IME and added a new 

clause (x) to section 1886(d)(5)(B) of the 

Act which allows certain nonpatient 

care activities, including didactic 

conferences and seminars (but not 

including research not associated with 

the treatment or diagnosis of a particular 

patient), to be counted for IME purposes 

as well. However, for IME purposes, this 

change only applies to such activities 

during training that occurs in subsection 

(d) hospitals (which are IPPS hospitals), 

subsection (d) Puerto Rico hospitals 

(IPPS hospitals in Puerto Rico), 

hospitals that are reimbursed under a 

reimbursement system authorized under 

section 1814(b)(3) of the Act, or 

provider-based hospital outpatient 

departments. The IME provision is 

applicable to cost reporting periods 

beginning on or after January 1, 1983. 

We are proposing to revise our 

regulations at § 412.105(f)(1)(ii)(A) 

through (f)(1)(ii)(D) and (f)(1)(iii)(B) to 

reflect these statutory provisions. 

As specified in section 

1886(d)(5)(B)(x)(III) of the Act, as added 

by section 5505(b) of the Affordable 

Care Act, research activities that are not 

associated with the treatment or 

diagnosis of a particular patient are 

excluded from the allowable IME count 

of FTE residents, and this specific 

change applies to cost reporting periods 

beginning on or after October 1, 2001. 

We discuss this provision and our 

proposed implementation under section 

XVII.C.3. of this proposed rule. 

Section 10501(j) of Public Law 111– 

152 amended section 5505 of Public 

Law 111–148 to clarify the application 

of the provisions of section 5505. The 

amendment prohibits the provisions of 

section 5505 from being applied in a 

manner that would require the 

reopening of settled cost reports except 

where the provider has a 

jurisdictionally proper appeal pending 

on the issue of direct GME or IME 

payments as of March 23, 2010 (the date 

of the enactment of Pub. L. 111–148). 

We are proposing to reflect this 

provision in the proposed revisions to 

our regulations under § 412.105(f)(1)(ii), 

§ 412.105(f)(1)(iii)(C) and § 413.78(h). 

We are also proposing, as mentioned 

above with respect to Section 5504, to 

interpret ‘‘pending, jurisdictionally 

proper appeal on direct GME or IME 

payments’’ for this section to mean that 

in order for a hospital to request a 

change to its FTE count, direct GME or 

IME respectively, the ‘‘pending, 

jurisdictionally proper appeal’’ must be 

specific to direct GME or IME 

respectively. For example, in order for 

a hospital to increase its FTE count with 

regard to an ACA provision that is 

unique to IME (such as inclusion in the 

IME count of didactic time occurring in 

the hospital as specified by new section 

1886(d)(5)(B)(x)(II)), the hospital’s 

‘‘pending, jurisdictionally proper 

appeal’’ must be on an IME issue; IME 

FTEs or the available bed count. 

However, if the hospital’s ‘‘pending, 

jurisdictionally proper appeal’’ is on an 

issue that only affects direct GME 

payments, such as the initial residency 

period or the Medicare patient load, that 

appeal would not be sufficient in order 

for the hospital to increase its FTE count 

with regard to an Affordable Care Act 

provision that is unique to IME, such as 

didactic time in the hospital setting. 

2. Definition of ‘‘Nonprovider Setting 

That Is Primarily Engaged in Furnishing 

Patient Care’’ 

As stated above, section 5505(a) of the 

Affordable Care Act amended section 

1886(h)(4) of the Act to allow hospitals 

to count the time that residents spend 

in certain nonpatient care activities in 

nonhospital sites towards the hospitals’ 

direct GME resident count for cost 

reporting periods beginning on or after 

July 1, 2009. The amendments made by 

section 5505(a) to section 1886(h)(5) of 

the Act include a definition of the term 

‘‘nonprovider setting that is primarily 

engaged in furnishing patient care’’ to 

mean ‘‘a nonprovider setting in which 

the primary activity is the care and 

treatment of patients, as defined by the 

Secretary.’’ In past discussions regarding 

our policy to disallow time spent by 

residents in didactic nonpatient care 

activities, we have given extensive 

explanations of what we mean by the 

term ‘‘patient care activities.’’ When 

section 1886(h)(4)(E) of the Act was first 

implemented, we specifically stated that 

‘‘only time spent in activities relating to 

patient care may be counted [in 

nonhospital sites]’’ (54 FR 40292, 

September 29, 1989). In 1998, when we 

implemented the statute allowing FTE 

residents to be counted in nonhospital 

sites for IME, we reiterated that a 

hospital may only count resident 

training time ‘‘in nonhospital sites for 

indirect and direct GME, respectively, if 

the resident is involved in patient care’’ 

(63 FR 40986, July 31, 1998). In 

addition, we note that the scope of the 

term ‘‘patient care’’ had been wellestablished in the Medicare program 

even prior to issuance of the first rules 

on counting FTE residents for purposes 

of direct GME and IME payments. For 

example, prior to the IPPS, acute care 

hospitals were paid by Medicare for 

inpatient services based on their 

reasonable operating costs, or costs 

relating to the provision of reasonable 

and necessary ‘‘patient care.’’ The 

longstanding regulation at 42 CFR 413.9 

(Costs related to patient care) specifies 

that Medicare payment is limited to 

those services relating to ‘‘patient care,’’ 

or to those relating to covered services 

for the care of beneficiaries. In the 

August 18, 2006 Federal Register, we 

defined the term ‘‘patient care activities’’ 

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at 42 CFR 413.75 in a way that was 

consistent with these previous, plainlanguage applications of the term (71 FR 

48142). Therefore, we currently define 

‘‘patient care’’ at § 413.75(b) as ‘‘the care 

and treatment of particular patients, 

including services for which a physician 

or other practitioner may bill, and 

orientation activities as defined in this 

section.’’ 

Section 5505(a) of the Affordable Care 

Act added a new subparagraph (K) to 

section 1886(h)(5) which defines the 

term ‘‘nonprovider setting that is 

primarily engaged in furnishing patient 

care’’ to mean ‘‘a nonprovider setting in 

which the primary activity is the care 

and treatment of particular patients, as 

defined by the Secretary.’’ This 

definition uses the term ‘‘patient care’’ 

which we have defined previously, as 

discussed above. We are proposing to 

continue our current construction of the 

term ‘‘patient care’’ as described above 

and in current regulations and other 

guidance. Examples of nonprovider 

settings that would be ‘‘primarily 

engaged in furnishing patient care’’ are 

those settings in which the main 

mission is to provide patient care, such 

as doctors’ offices and community 

health clinics. Nonprovider settings that 

would not meet these criteria include 

those with a main mission other than 

patient care. Examples of such settings 

are medical schools and dental schools, 

even if those schools are part of a larger 

system that includes institutions that 

are primarily engaged in patient care. 

Despite any affiliations with patient care 

settings, medical and dental schools are 

institutions that are primarily engaged 

in educational activities as opposed to 

patient care. Medical and dental schools 

retain their principal mission of 

education regardless of their 

participation in various systems and 

affiliations, parts of which may involve 

settings that are primarily engaged in 

furnishing patient care. Another 

example of a nonprovider setting that 

does not meet the ‘‘primarily engaged in 

furnishing patient care’’ criterion set 

forth in this section would be a hotel or 

convention center. While residents may 

attend didactic conferences and 

seminars in a hotel or convention 

center, that didactic time cannot be 

counted toward a hospital’s direct GME 

FTE count because the main mission of 

a hotel or convention center is the 

provision of hospitality and meeting 

services. Thus, any such time spent in 

a hotel or convention center would not 

occur in a setting that is primarily 

engaged in furnishing patient care. 

The exclusion of medical and dental 

schools from the definition of 

‘‘nonprovider setting that is primarily 

engaged in furnishing patient care’’ is 

consistent with longstanding CMS 

policy, and we have addressed this 

policy several times in the past. We 

explained in response to comments in 

the aforementioned August 18, 2006 

Federal Register that, ‘‘[W]e understand 

that it is quite common for hospitals, 

especially large academic medical 

centers, to be located on the same 

campus as a medical school, where the 

buildings are very closely situated or 

even connected, and the facilities are 

often shared. However * * * hospitals, 

nonhospital sites, and medical schools 

are structured separately for legal and 

financial purposes, and are recognized 

independently for state licensing and 

Medicare cost reporting purposes. As 

we stated in 2006, ‘‘to put it simply, a 

hospital is not a medical school, and a 

medical school is not a hospital’’ (71 FR 

48093). In the August 22, 2007 Federal 

Register, we clarified that, ‘‘[T]he 

commenter is also correct that 

orientation activities in a related 

medical school cannot be counted 

* * * the nonhospital settings we were 

referring to in which orientation may be 

counted are those nonprovider settings 

such as physicians’ offices or clinics, 

where patient care is routinely provided 

and a hospital is permitted to count the 

time spent by residents in accordance 

with our regulations at 

§§ 412.105(f)(1)(ii)(C) and 413.78(f), not 

other nonhospital settings where time 

spent by residents is not permitted to be 

counted for purposes of direct GME and 

IME’’ (72 FR 47382). Thus, while time 

spent by residents in certain nonpatient 

care activities may be counted for direct 

GME payment purposes in a 

nonhospital site primarily engaged in 

furnishing patient care, time spent by 

residents in nonpatient care activities at 

nonhospital sites that are not primarily 

engaged in patient care activities is not 

allowable for direct GME and IME 

payment purposes. 

We are proposing to add, under 

§ 413.75, the statutory definition of 

‘‘nonprovider setting that is primarily 

engaged in furnishing patient care’’ to 

the definition of general terms used 

throughout the GME regulations. 

3. Distinguishing Between Allowed 

‘‘Nonpatient Care Activities’’ and 

Nonallowable Research Time 

As discussed above, research time 

that is not associated with the treatment 

or diagnosis of a particular patient is 

specifically excluded from the 

‘‘nonpatient care activities, such as 

didactic conferences and seminars’’ that 

are otherwise allowable under section 

5505 of the Affordable Care Act for the 

purposes of direct GME in nonhospital 

sites for cost reporting periods 

beginning on or after July 1, 2009, and 

for purposes of IME in certain hospital 

settings for cost reporting periods 

beginning on or after January 1, 1983. 

There are several unique features of 

‘‘research not associated with the 

treatment or diagnosis of a particular 

patient’’ that distinguish it from 

‘‘nonpatient care activities, such as 

didactic conferences and seminars.’’ 

‘‘Research not associated with the 

treatment or diagnosis of a particular 

patient’’ usually comprises activities 

that are focused on developing new 

medical treatments, evaluating medical 

treatments for efficacy or safety, or 

elaborating upon knowledge that will 

contribute to the development and 

evaluation of new medical treatments in 

the future, rather than on establishing a 

diagnosis or furnishing therapeutic 

services for a particular patient. 

Section 5505 further distinguishes 

‘‘research not associated with the 

treatment or diagnosis of a particular 

patient’’ from ‘‘nonpatient care activities, 

such as didactic conferences and 

seminars,’’ by specifying that nonpatient 

care activities include ‘‘didactic 

conferences and seminars.’’ Conferences 

or seminars could include an 

administrative rotation, which would 

include resident training in the 

administrative aspects of medical care 

such as practice management. 

4. Approved Leaves of Absence 

In the FY 2008 IPPS proposed rule (72 

FR 24814), we proposed to remove 

vacation, sick leave and other types of 

leave from the FTE calculation for IME 

and for direct GME purposes. We 

proposed this policy based on our belief 

that such leave time involved neither 

patient care nor nonpatient care 

activities. However, we did not finalize 

this proposed policy after many public 

commenters explained that the 

implementation of the policy would 

involve significant administrative 

burdens (FY 2008 IPPS final rule, 72 FR 

47374). Thus, we did not revise our 

previously existing policy which 

allowed vacation and sick leave 

generally to be counted for direct GME 

and IME purposes. In the FY 2008 IPPS 

proposed rule, we also proposed to 

continue to count the time spent by 

residents in orientation activities in 

both the hospital and nonhospital 

settings. We proposed this policy 

because we recognized the distinct 

character of orientation activities as 

essential to the provision of patient care 

by residents. We did finalize our policy 

on orientation time, and in doing so, we 

specified that patient care activities 

means the care and treatment of 

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particular patients, including services 

for which a physician or other 

practitioner may bill, and orientation 

activities (§ 413.75(b)), effective for cost 

reporting periods beginning on or after 

October 1 2007. 

Section 5505(a) of the Affordable Care 

Act added new subparagraph (K) to 

section 1886(h)(4) to clarify that 

hospitals may count residents’ vacation, 

sick leave, and other approved leave 

time toward the hospitals’ direct GME 

FTE resident count, so long as the leave 

does not prolong the total time the 

resident participates in his or her 

approved program. This direct GME 

provision regarding leave time is 

effective for cost reporting periods 

beginning on or after January 1, 1983. In 

addition, section 5505(b) of the 

Affordable Care Act allows hospitals to 

count residents’ vacation, sick leave, 

and other approved leave time toward 

the hospitals’ IME FTE resident count, 

as long as the leave does not prolong the 

total time the resident participates in his 

or her approved program. This IME 

provision regarding leave time is 

effective for cost reporting periods 

beginning on or after January 1, 1983. 

We are proposing to revise our 

regulations to reflect these statutory 

changes regarding counting residents’ 

vacation, sick leave, and other approved 

leave time toward the hospitals’ direct 

FTE resident count under new 

§ 413.78(h) for GME and under 

§ 412.105(f)(1)(iii)(D) for IME. Please 

note that each hospital is to count the 

proportion of the leave of absence time 

as specified in 72 FR 47382. There, we 

explained that regardless of which 

hospital is paying the resident’s salaries 

and fringe benefits, the hospital to 

which the resident is assigned during 

the time the vacation is taken is the 

hospital that counts that FTE time for 

direct GME and IME. If the rotation 

schedule does not clearly indicate 

where the resident is assigned during 

the time the vacation is taken, the 

hospitals to which the resident rotates 

over the course of the academic year 

would divide and count the resident’s 

vacation time proportionately based on 

the amount of time spent in actual 

training at the respective hospitals. We 

are also proposing to specify that ‘‘other 

approved leave’’ includes those types of 

generally accepted leave of short 

duration (those that do not prolong the 

total time that the resident is 

participating in the approved training 

program) that have not been included in 

our resident leave time policies in the 

past. Examples of such ‘‘other approved 

leave’’ could include jury duty, other 

court leave, or voting leave. 

D. Reductions and Increases to 

Hospitals’ FTE Resident Caps for GME 

Payment Purposes (§§ 412.105(f)(1)(iv) 

and 413.79(m) and (o)) 

1. General Background on Methodology 

for Determining the FTE Resident Count 

As we discuss in section XVII.A. of 

this proposed rule, Medicare makes 

both direct and indirect GME payments 

to hospitals that train residents in 

approved medical residency training 

programs. Direct GME payments are 

made in accordance with section 

1886(h) of the Act, based generally on 

hospital-specific PRAs, the number of 

FTE residents, and the hospital’s 

Medicare patient share. IME payments 

are made in accordance with section 

1886(d)(5)(B) of the Act, based generally 

on the ratio of the hospital’s FTE 

residents to the number of hospital 

beds. Accordingly, the calculation of 

both direct GME and IME payments is 

affected by the number of FTE residents 

that a hospital is allowed to count; 

generally, the greater the number of FTE 

residents a hospital counts, the greater 

the amount of Medicare direct GME and 

IME payments the hospital will receive. 

In an attempt to end the implicit 

incentive for hospitals to increase the 

number of FTE residents, Congress 

instituted a cap on the number of 

allopathic and osteopathic residents a 

hospital is allowed to count for direct 

GME and IME purposes under the 

provisions of section 1886(h)(4)(F) of 

the Act for direct GME and section 

1886(d)(5)(B)(v) of the Act for IME. 

Dental and podiatric residents are not 

included in this statutorily mandated 

cap. 

2. Reduction of Hospitals’ FTE Resident 

Caps Under the Provisions of Section 

5503 of the Affordable Care Act 

Medicare makes direct GME and IME 

payments based on the number of FTE 

residents the hospital is permitted to 

count, as limited by the hospital’s FTE 

resident caps. Some hospitals have 

trained a number of allopathic and 

osteopathic residents in excess of their 

FTE resident caps. Other hospitals have 

reduced their FTE resident counts to 

some level below their FTE resident 

caps. Section 5503 of the Affordable 

Care Act added a new section 1886(h)(8) 

to the Act to provide for reductions in 

the statutory FTE resident caps for 

direct GME under Medicare for certain 

hospitals, and authorizes a 

‘‘redistribution’’ to other hospitals of the 

estimated number of FTE resident slots 

resulting from the reductions. Section 

5503 also amended section 

1886(d)(5)(B)(v) to require application of 

the provisions of 1886(h)(8) ‘‘in the same 

manner’’ to the FTE resident caps for 

IME. A previous redistribution of 

‘‘unused’’ FTE resident slots was 

performed under section 422 of Public 

Law 108–173 (the Medicare 

Modernization Act of 2003). Section 422 

provided for the redistribution of 

unused residency positions effective for 

portions of cost reporting periods 

beginning on or after July 1, 2005. While 

section 5503 of the Affordable Care Act 

is similar to section 422 of Public Law 

108–173, there are substantive 

differences between the two provisions. 

The new section 1886(h)(8)(A) of the 

Act provides that, effective July 1, 2011, 

a hospital’s FTE resident cap will be 

reduced if its ‘‘reference resident level,’’ 

is less than its ‘‘otherwise applicable 

resident limit,’’ as these terms are 

described below. Rural hospitals with 

fewer than 250 acute care inpatient beds 

as well as those hospitals described in 

section XVII.D.5. of this proposed rule 

are exempt from a reduction. For other 

hospitals, any such reduction will be 

equal to 65 percent of the difference 

between the hospital’s ‘‘otherwise 

applicable resident limit’’ and its 

‘‘reference resident level.’’ 

Under the new section 1886(h)(8)(B) 

of the Act, the Secretary is authorized to 

increase the FTE resident caps for 

certain categories of hospitals for 

portions of cost reporting periods 

occurring on or after July 1, 2011, by an 

aggregate number that does not exceed 

the estimated overall reduction in FTE 

resident caps for all hospitals under 

section 1886(h)(8)(A) of the Act. A 

single hospital may receive an increase 

in its FTE resident cap of no more than 

75 additional FTEs. That is, a hospital 

would be allowed to receive up to 75 

additional slots for direct GME and up 

to 75 additional slots for IME. In 

determining which hospitals would 

receive an increase in their FTE resident 

caps, section 1886(h)(8)(B) of the Act 

directs us to— 

• Take into account the demonstrated 

likelihood of the hospital filling the 

additional positions within the first 

three cost reporting periods beginning 

on or after July 1, 2011. 

• Take into account whether the 

hospital has an accredited rural training 

track program. 

• Distribute 70 percent of the resident 

slots to hospitals located in States with 

resident-to-population ratios in the 

lowest quartile. 

• Distribute 30 percent of the resident 

slots to hospitals located in a State, a 

territory of the United States, or the 

District of Columbia that are among the 

top 10 States, territories, or Districts in 

terms of the ratio of the total population 

living in an area designated as a health 

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professional shortage area (HSPA), as of 

March 23, 2010, to the total population, 

and to hospitals located in rural areas. 

In summary, section 5503 of the 

Affordable Care Act added a new 

section 1886(h)(8) of the Act that 

prescribes a methodology for 

determining reductions to certain 

hospitals’ FTE resident caps based on 

unused FTE resident slots, provides for 

certain exceptions to the FTE resident 

cap reductions, and includes general 

criteria that CMS must consider in 

making a ‘‘redistribution’’ to other 

hospitals of the estimated number of 

FTE resident slots resulting from the 

reductions in the FTE resident caps. In 

this proposed rule, we are proposing 

procedures for determining whether, 

and by what amount, a hospital’s FTE 

resident cap is subject to a reduction 

under section 1886(h)(8)(A) of the Act. 

We also are specifying an application 

process for hospitals that seek to receive 

increases in their FTE resident caps and 

the specific criteria that we will use to 

determine which hospitals will receive 

increases in their FTE resident caps 

under section 1886(h)(8)(B) of the Act. 

3. Hospitals Subject to the FTE Resident 

Cap Reduction 

As indicated earlier, section 

1886(h)(8)(A) of the Act, as added by 

section 5503 of the Affordable Care Act, 

provides that if a hospital’s ‘‘reference 

resident level’’ is less than its ‘‘otherwise 

applicable resident limit,’’ its FTE 

resident cap(s) will be reduced by 65 

percent of the difference between its 

‘‘otherwise applicable resident limit’’ 

and its ‘‘reference resident level.’’ Under 

section 1886(h)(8)(H)(i) (as added by 

section 5503 of the Affordable Care Act), 

the ‘‘reference resident level’’ refers to 

the number of unweighted allopathic 

and osteopathic FTE residents who are 

training at a hospital in a given cost 

reporting period. That is, the ‘‘reference 

resident level’’ refers to a hospital’s 

allopathic and osteopathic FTE resident 

count for a specific period. Under 

section 1886(h)(8)(H)(ii) the ‘‘otherwise 

applicable resident limit’’ refers to a 

hospital’s FTE resident cap established 

under sections 1886(h)(4)(F)(i) and 

(h)(4)(H) of the Act for direct GME 

payment purposes and a hospital’s 

resident cap established under section 

1886(d)(5)(B)(v) for IME payment 

purposes. For most hospitals, the 

permanent FTE cap under section 

1886(h)(4)(F)(i) of the Act is based on: 

(1) For an urban hospital, the number of 

unweighted allopathic and osteopathic 

FTE residents in the hospital’s most 

recent cost reporting period ending on 

or before December 31, 1996 (the ‘‘1996 

cap’’); (2) for a rural hospital, 130 

percent of the 1996 cap, adjusted as 

specified under existing § 413.79(c)(2); 

and (3) any adjustments to the hospital’s 

cap under paragraph (7), which 

specifies the previous ‘‘redistribution’’ of 

resident positions required by section 

422 of Public Law 108–173. Section 

1886(h)(4)(H) of the Act specifies that a 

hospital’s FTE resident cap under 

subparagraph (F) may be adjusted for a 

new medical residency training program 

established on or after January 1, 1995, 

participation in a Medicare GME 

affiliated group, and establishment by 

an urban hospital of a separately 

accredited rural training track program. 

We are proposing that, in defining a 

hospital’s ‘‘otherwise applicable resident 

limit’’ for purposes of section 

1886(h)(8)(A) of the Act, we will look at 

the hospital’s 1996 cap during its 

reference year, as adjusted for the 

following criteria: new programs as 

defined at § 413.79(e); participation in a 

Medicare GME affiliation agreement as 

defined at §§ 413.75(b) and 413.79(f); 

participation in an Emergency Medicare 

GME affiliation agreement as defined at 

§ 413.79(f); participation in a hospital 

merger; and whether an urban hospital 

has a separately accredited rural 

training track program as defined at 

§ 413.79(k). We discuss the applicability 

of Medicare GME affiliation agreements 

under section 1886(h)(8)(A) of the Act 

in more detail under section XVII.D.8.c. 

of this proposed rule and the treatment 

of hospital mergers under section 

XVII.D.8.d. of this proposed rule. 

Furthermore, section 1886(h)(8)(H)(iii) 

of the Act requires that, in determining 

a hospital’s ‘‘otherwise applicable 

resident limit,’’ section 1886(h)(7)(A) of 

the Act shall be taken into account. 

Section 1886(h)(7)(A) of the Act refers to 

the reduction to a hospital’s cap(s) 

under section 422 of Public Law 108– 

173. The application of section 422 of 

Public Law 108–173 to the 

implementation of section 5503 of the 

Affordable Care Act is further discussed 

under section XVII.D.10. of this 

proposed rule. 

In our discussion of the provisions of 

section 5503 of the Affordable Care Act 

under this section of this proposed rule, 

we generally refer to a hospital’s 

number of unweighted allopathic and 

osteopathic FTE residents in a particular 

period as a hospital’s ‘‘resident level.’’ 

We also refer to a hospital’s resident 

level in the applicable ‘‘reference 

period,’’ as explained further below, as 

the hospital’s ‘‘reference resident level.’’ 

In addition, we refer to the ‘‘otherwise 

applicable resident limit’’ as the 

hospital’s FTE resident cap that is 

applicable during the relevant cost 

reporting period. Thus, we are 

proposing, effective for portions of cost 

reporting periods beginning on or after 

July 1, 2011, we will permanently 

reduce the hospital’s FTE resident cap 

by 65 percent of the difference between 

the reference resident level and the 

hospital’s otherwise applicable resident 

limit for IME and direct GME 

respectively. For example, if a hospital’s 

otherwise applicable resident limit for 

the reference period is 100, and its 

reference resident level is 80 FTEs, we 

will reduce the hospital’s FTE resident 

cap by 13 FTEs [0.65 (100 ¥ 80)] = 13. 

We are proposing to add new 

regulations at § 412.105(f)(1)(iv)(B)(2) 

for IME and at § 413.79(m) for direct 

GME to reflect our proposals regarding 

reductions to hospitals’ FTE resident 

caps under section 5503. 

4. Exemption From FTE Resident Cap 

Reduction for Certain Rural Hospitals 

Section 1886(h)(8)(A)(ii)(I) of the Act, 

as added by section 5503 of the 

Affordable Care Act, specifically 

exempts rural hospitals (as defined in 

section 1886(d)(2)(D)(ii) of the Act) with 

fewer than 250 acute care inpatient beds 

from reductions to their FTE resident 

caps under section 1886(h)(8)(A). 

Section 1886(d)(2)(D)(ii) of the Act 

defines a rural area as any area outside 

a Metropolitan Statistical Area (MSA). 

Under the existing regulations at 

§ 412.62(f)(ii), an ‘‘urban area’’ means: 

(1) An MSA or New England County 

Metropolitan Area (NECMA), as defined 

by the Executive Office of Management 

and Budget; or (2) the following New 

England counties: Litchfield County, 

Connecticut; York County, Maine; 

Sagadahoc County, Maine; Merrimack 

County, New Hampshire; and Newport 

County, Rhode Island. Under existing 

§ 412.62(f)(iii), a ‘‘rural area’’ means any 

area outside an urban area. We note that 

we no longer use the term MSA, and 

instead use the term Core-Based 

Statistical Area (CBSA) for locality and 

wage index purposes. A hospital’s bed 

size is based on its number of available 

beds, as determined for IME payment 

purposes under § 412.105(b) of the 

regulations. For purposes of 

determining whether a rural hospital 

has fewer than 250 beds, we are 

proposing to use data from the rural 

hospital’s most recent cost reporting 

period ending on or before March 23, 

2010. (This information may be found 

on Worksheet S–3, Part I of the 

Medicare cost report, CMS–2552–96, the 

sum of lines 1 and 6 through 10 in 

column 2, minus line 26 in column 6, 

divided by the number of days in the 

cost reporting period.) We are proposing 

that if a rural hospital has fewer than 

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250 beds in its most recent cost 

reporting period ending on or before 

March 23, 2010, the hospital would not 

be subject to a possible reduction to its 

FTE resident cap(s) under section 

1886(h)(8)(A) of the Act. However, if a 

rural hospital has at least 250 beds in its 

most recent cost reporting period ending 

on or before March 23, 2010, we are 

proposing that the rural hospital would 

be subject to a reduction to its FTE 

resident cap(s). 

5. Application of Section 5503 to 

Hospitals That Participate in 

Demonstration Projects or Voluntary 

Residency Reduction Programs and 

Certain Other Hospitals 

In addition to certain rural hospitals 

as noted above, section 1886(h)(8)(A)(ii) 

of the Act also exempts certain other 

hospitals from a cap reduction. 

Section 1886(h)(8)(A)(ii)(II) of the Act, 

as amended by section 5503 of the 

Affordable Care Act, specifically 

exempts ‘‘a hospital that was part of a 

qualifying entity which had a voluntary 

residency reduction plan approved 

under paragraph (6)(B) or under the 

authority of section 402 of Public Law 

90–248, if the hospital demonstrates to 

the Secretary that it has a specific plan 

in place for filling the unused positions 

by not later than 2 years after the date 

of enactment of this paragraph.’’ This 

language is referring to the National 

Voluntary Residency Reduction Plan 

(VRRP), the New York Medicare GME 

Demonstration (New York 

Demonstration), and the Utah Medicare 

GME Demonstration (Utah 

Demonstration). 

In July 1997, 42 New York teaching 

hospitals participated in the New York 

Demonstration. An additional seven 

hospitals joined the New York 

Demonstration in July 1998. The 

purpose of the New York Demonstration 

was to test reimbursement changes 

associated with residency training to 

determine whether hospitals could use 

time-limited transition funding to 

replace and reengineer the services 

provided by a portion of their residency 

trainees. In exchange for reducing its 

count of residents by 20 to 25 percent 

over a 5-year period, while maintaining 

or increasing its primary care-tospecialty ratio of residents, a 

participating hospital (or consortium of 

hospitals) participating in the New York 

Demonstration would receive ‘‘hold 

harmless payments’’ for 6 years. 

Since 2003, nine Utah teaching 

hospitals have participated in the Utah 

Demonstration to allocate Medicare 

GME funding to Utah hospitals based on 

health professions workforce planning. 

Under the Utah Demonstration, 

Medicare contractors redirect Medicare 

direct GME funds from each of the 

teaching hospitals in Utah and pay 

those amounts to the Utah Medical 

Education Council, an agency of the 

State government. 

Under the VRRP approved under 

section 1886(h)(6)(B) of the Act, 

hospitals could use time-limited 

transition funding to replace the 

services provided by a portion of their 

residents. In exchange for reducing its 

count of residents by 20 to 25 percent 

over a 5-year period, while maintaining 

or increasing its primary care-tospecialty ratio of residents, a VRRP 

participating hospital would receive 

‘‘hold harmless payments’’ for 5 years. 

Based on the language of section 

1886(h)(8)(A)(ii)(II) of the Act, we are 

proposing that hospitals that 

participated in the New York 

Demonstration, the Utah Demonstration, 

or a VRRP could be exempt from a cap 

reduction under section 1886(h)(8)(A) of 

the Act. We are proposing to not 

differentiate between those hospitals 

that withdrew from either 

demonstration prior to its completion 

and those hospitals that completed 

either demonstration. That is, we are 

proposing that any hospital that, at 

some point, participated in the New 

York Demonstration, the Utah 

Demonstration, or the VRRP could be 

exempt from a cap reduction. 

Specifically, consistent with the 

statutory language at section 1886(h)(8) 

of the Act, even though only seven 

hospitals actually completed the New 

York Demonstration, any hospital that 

participated in the New York 

Demonstration could be exempt from a 

cap reduction. As required under 

section 1886(h)(8)(A)(ii)(II) of the Act, to 

be exempt from the cap reduction, 

hospitals that had a VRRP approved 

under section 1886(h)(6)(B) of the Act or 

hospitals that participated in a 

demonstration project approved under 

section 402 of Pub. L. 90–248 must 

demonstrate to the Secretary that they 

have a plan in place for filling their 

unused slots within 2 years after the 

date of enactment of Pub. L. 111–148 

(that is, by March 23, 2012). We are 

proposing that these hospitals must 

submit their plans specifying how they 

would fill their unused slots to CMS by 

December 1, 2010, in order to be exempt 

from a cap reduction. 

In addition to the hospitals described 

under 1886(h)(8)(A)(ii)(II) of the Act, 

section 1886(h)(8)(A)(ii)(III) of the Act 

exempts a hospital described under 

section 1886(h)(4)(H)(v) of the Act from 

a cap reduction. Therefore, we are 

proposing that such hospital described 

under section 1886(h)(4)(H)(v) of the 

Act be exempt from a cap reduction. 

Finally, section 1886(h)(8)(H)(i) of the 

Act provides that the hospital’s 

reference resident level is the resident 

level for the one cost reporting period 

out of the three most recent cost 

reporting periods ending before March 

23, 2010, with the highest resident level. 

Under section 1886(h)(8)(A)(i), that 

reference resident level is used to make 

the determination of whether a 

hospital’s FTE resident cap(s) should be 

reduced. Therefore, we are proposing 

that if a hospital trains at or above its 

otherwise applicable resident level in 

all of its three most recent cost reporting 

periods ending before March 23, 2010, 

the hospital would be exempt from a 

cap reduction. A separate determination 

would be made regarding any reduction 

to the hospital’s direct GME cap and its 

IME cap. 

6. Determining the Estimated Number of 

FTE Resident Slots Available for 

Redistribution 

In accordance with section 

1886(h)(8)(A) of the Act, as added by 

section 5503 of the Affordable Care Act, 

we will determine the number of 

resident positions available for 

redistribution by estimating the 

expected reductions to hospitals’ FTE 

resident caps. We believe that section 

1886(h)(8)(A) of the Act allows us to 

distinguish between the FTE counts that 

are used to determine the number of 

FTE resident slots that are available for 

redistribution (that is, the 

‘‘redistribution pool’’) and the actual 

number of FTE residents by which 

hospitals’ FTE resident caps are 

ultimately reduced. We are proposing to 

estimate the reduction to a hospital’s 

FTE cap under section 1886(h)(8)(A) of 

the Act for purposes of determining the 

number of FTEs that a hospital might 

contribute to the redistribution pool. We 

are proposing to estimate the 

redistribution pool for redistribution in 

accordance with section 1886(h)(8)(B)(i) 

of the Act, as added by section 

5503(a)(4), which states: ‘‘The aggregate 

number of increases in the otherwise 

applicable resident limit under this 

subparagraph shall be equal to the 

aggregate reduction in such limits 

attributable to subparagraph (A) (as 

estimated by the Secretary)’’ (emphasis 

added). Therefore, we are proposing to 

estimate and redistribute the number of 

resident slots in the redistribution pool, 

and to ensure that the aggregate number 

of FTE residents by which we increase 

the FTE resident caps of qualifying 

hospitals under section 1886(h)(8)(B) of 

the Act is not more than CMS’ estimate 

of the redistribution pool. We note if we 

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were subsequently to perform an audit, 

as described further in section XVII.D.7. 

of this proposed rule, in order to make 

a final determination regarding any 

reductions to a hospital’s FTE resident 

cap, and find that the aggregate number 

of FTE resident reductions differed from 

the number CMS had initially estimated 

for the redistribution pool, the number 

of slots that can be redistributed from 

the redistribution pool to qualifying 

hospitals would not be affected. 

To ensure that we will begin making 

payments for most hospitals based on 

the revised FTE resident caps by July 1, 

2011, we are proposing to set a date by 

which we will have determined a 

hospital’s reference resident level and 

compared it to the hospital’s otherwise 

applicable FTE resident cap(s) to 

estimate whether, and by how much, 

the hospital’s FTE cap(s) would be 

reduced. We are proposing that this date 

be May 1, 2011, and that date would 

apply for all hospitals for purposes of 

determining an estimate of whether and 

by how much their FTE resident caps 

should be reduced. In the event that the 

Medicare contractors have not 

completed an audit (explained further 

under section XVII.D.7. of this proposed 

rule) by May 1, 2011, we are proposing 

to estimate by May 1, 2011, the number 

of FTE residents by which a hospital’s 

FTE resident cap is expected to be 

reduced. For example, a Medicare 

contractor may estimate by May 1, 2011, 

that Hospital A’s FTE resident cap 

should be reduced by 10 FTEs. Thus, we 

would place 10 FTEs into the 

redistribution pool. It is possible that 

even after May 1, 2011, the contractor 

may continue to audit Hospital A’s 

relevant cost reports to determine if, in 

fact, 10 FTEs is the appropriate number 

by which to reduce Hospital A’s FTE 

resident cap, and could ultimately 

conclude that Hospital A’s FTE resident 

cap should only be reduced by 8 FTEs. 

If the Medicare contractor does not 

make this revised determination based 

on the audit by May 1, 2011, we would 

reduce Hospital A’s FTE resident cap by 

8 FTEs effective July 1, 2011, but the 

number of FTE residents in the 

redistribution pool attributable to 

Hospital A would remain at 10 FTEs 

(the estimated number as of May 1, 

2011). Similarly, if the Medicare 

contractor ultimately concluded that 

Hospital A’s FTE resident cap should be 

reduced by 12 FTEs, but this final 

determination is not made by May 1, 

2011, Hospital A’s FTE resident cap 

would be reduced by 12 FTEs effective 

July 1, 2011, but the number of FTE 

residents in the redistribution pool 

attributable to Hospital A would remain 

at 10 FTEs. Therefore, because we 

believe that section 1886(h)(8)(B)(i) of 

the Act allows us to distinguish between 

the FTE counts that are used to 

determine the size of the redistribution 

pool, and the actual aggregate number of 

FTE residents by which hospitals’ FTE 

resident caps are ultimately reduced, we 

are proposing to use estimated 

information to determine possible 

reductions to hospitals’ FTE resident 

caps to estimate the number of FTE 

resident slots to be distributed under 

section 1886(h)(8)(B). In addition, we 

note that, as was done when we 

implemented section 422 of Pub. L. 

108–173, Medicare contractors will 

provide hospitals with a time-limited 

opportunity to review cap reduction 

determinations for possible technical 

errors before they are finalized. 

7. Reference Cost Reports That Are 

Under Appeal 

We understand that there may be 

instances where a hospital’s otherwise 

applicable resident limit or a hospital’s 

FTE resident count for a reference cost 

reporting period might be under appeal. 

When implementing section 422 of 

Public Law 108–173, we stated in the 

August 11, 2004 Federal Register (69 FR 

49118) that we believe that it is in the 

best interest of the Medicare program, 

CMS, the contractors, and the hospitals 

to adopt an approach that allows for 

finality as early as possible during the 

process of implementing this provision. 

We stated that we believed Congress 

gave some consideration to the 

challenges we would encounter in 

implementing a provision as complex as 

section 422 in such a short timeframe by 

providing the Secretary with the 

discretion to distinguish between the 

FTE counts that are used to estimate the 

number of FTE resident slots that are 

available for redistribution (that is, the 

‘‘redistribution pool’’), and the actual 

number of FTE residents by which 

hospitals’ FTE resident caps are 

ultimately reduced. 

Furthermore, as we stated in the 

August 11, 2004 Federal Register (69 FR 

49118), the fact that the Congress took 

the unusual step of including the 

language at section 1886(h)(7)(D) of the 

Act which provides that, ‘‘There shall be 

no administrative or judicial review . . 

. with respect to determinations made 

under this paragraph,’’ supports the 

position advocating for finality. If we 

had delayed determinations concerning 

hospital-specific FTE cap 

determinations until all affected cost 

reports are settled, audited, and 

appealed through the various channels 

normally available to providers, the 

language, and in particular the specified 

timeframe, under section 1886(h)(7)(D) 

of the Act would have been rendered 

meaningless. Therefore, despite the 

complexity of section 422 and the 

potential for profound and long-term 

GME payment ramifications, we 

believed that the Congress did not 

expect the implementation of section 

422 provision to linger indefinitely. 

Rather, by limiting appeal rights and 

requiring an effective date of July 1, 

2005, for reductions in FTE resident 

caps (which required implementation in 

a relatively short timeframe), the 

Congress expected section 1886(h)(7) of 

the Act, as added by section 422 of 

Public Law 108–173, to be implemented 

with expediency and finality. 

Similarly, in implementing section 

5503 of the Affordable Care Act, we note 

that determinations under section 

1886(h)(8)(A)(i) of the Act are required 

to be made effective July 1, 2011, and, 

for the same reasons cited when we 

implemented section 422, we believe 

these determinations should be final on, 

or as quickly as possible after, that date. 

We note that section 5503(a)(3) of the 

Affordable Care Act modified section 

1886(h)(7)(E) of the Act by inserting ‘‘or 

paragraph (8)’’ to specify that there shall 

be no administrative or judicial review 

with respect to determinations made 

under section 5503 as well. Therefore, 

as was our final policy when 

implementing section 422, we are 

proposing to not wait for appeals of 

reference period cost reports to be 

resolved before making a final 

determination as to whether and by how 

much a hospital’s FTE resident cap will 

be reduced. However, we do perceive 

the need in certain instances to continue 

audit work for a limited time period 

past July 1, 2011, to promote the 

accuracy of FTE resident cap 

determinations. As under section 422, 

we are proposing to adopt a policy that 

would require the Medicare contractors 

to use the latest available cost report or 

audit data at the time they make their 

determinations. If, as of the time the 

Medicare contractor makes the 

determination as to whether and by how 

much a hospital’s FTE resident cap 

should be reduced, there is a pending 

appeal of the hospital’s otherwise 

applicable resident limit for the 

reference cost reporting period (that is, 

a final decision has not been rendered), 

the Medicare contractor would not wait 

until a decision is rendered, but would 

use the FTE resident cap from the 

initially settled (as indicated in the 

Notice of Program Reimbursement 

(NPR)) reference period cost report. 

Alternatively, if the appeal regarding the 

otherwise applicable resident limit has 

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been resolved as of the time that the 

Medicare contractor makes the 

determination as to whether and by how 

much a hospital’s FTE resident cap 

should be reduced, the Medicare 

contractor would use the FTE resident 

level that will be used in issuing the 

subsequent NPR, as established through 

the appeal. If a reference period cost 

report has been submitted but not 

settled at the time the Medicare 

contractor is making the determination 

as to whether and by how much a 

hospital’s FTE resident cap should be 

reduced, the reference resident level is 

subject to audit by the Medicare 

contractor, and the final determination 

regarding any possible reduction to the 

hospital’s FTE resident cap is not 

subject to appeal. Although we would 

make every effort to provide contractors 

with the resources they need to 

complete as many audits as possible in 

time to notify each hospital by July 1, 

2011, of their FTE cap determinations 

under section 1886(h)(8)(A) of the Act, 

there may be instances where the audits 

of the reference resident levels may not 

be completed by July 1, 2011. We 

anticipate that within the scope of their 

normal audit work, the Medicare 

contractors will complete as many of 

these audits as possible, and some of the 

audits may not be completed until 

December 31, 2011. We are proposing 

that, in accordance with section 

1886(h)(8)(A) all cap determinations 

made after July 1, 2011 and through 

December 2011 will be effective 

retroactively to July 1, 2011. 

8. Determining the Possible Reduction 

to a Hospital’s FTE Resident Cap 

a. Reference Resident Level—General 

In order to determine if a hospital’s 

reference resident level is less than the 

hospital’s otherwise applicable FTE 

resident cap, section 1886(h)(8)(H) of 

the Act, as added by section 5503 of the 

Affordable Care Act, directs the 

Secretary to use one of three reference 

cost reporting periods. Section 

1886(h)(8)(H) of the Act directs the 

Secretary to use a hospital’s most recent 

cost reporting period ending before the 

date of enactment, which is March 23, 

2010, with the highest resident level ‘‘for 

which a cost report has been settled (or, 

if not, submitted (subject to audit)), as 

determined by the Secretary,’’ as the 

reference period. Generally, if the 

hospital’s resident level for either direct 

GME or IME is less than the hospital’s 

otherwise applicable resident limit for 

direct GME or IME, respectively, in the 

reference period, the hospital’s FTE 

resident cap for direct GME and/or IME 

will be reduced by 65 percent of the 

difference between the resident level 

and the otherwise applicable resident 

limit. We note that, for purposes of 

determining a reduction to a hospital’s 

direct GME cap, the unweighted direct 

GME cap will be compared to the direct 

GME FTE resident count. The following 

explanation is an example of how a 

hospital’s cap(s) would be reduced 

under section 1886(h)(8)(A) of the Act. 

For purposes of this example, Hospital 

A’s three most recent cost reporting 

periods ending before March 23, 2010, 

which have been submitted to the 

Medicare contractor are as follows: July 

1, 2006–June 30, 2007; July 1, 2007– 

June 30, 2008; and July 1, 2008–June 30, 

2009. Hospital A’s FTE resident count 

and FTE resident caps (as adjusted for 

those items discussed in section 

XVII.D.3. of this proposed rule) are as 

noted in the table. 

As noted earlier in this preamble, a 

separate determination regarding 

whether and by how much to reduce a 

hospital’s cap will be made for its direct 

GME cap and for its IME cap. In order 

to determine whether Hospital A would 

be subject to a cap reduction, we must 

first determine whether Hospital A was 

training at or above its cap in all three 

most recent (settled or submitted) cost 

reporting periods ending before March 

23, 2010. For purposes of a reduction to 

Hospital A’s IME cap, we note from the 

chart above that in all three cost 

reporting periods, Hospital A is training 

below its otherwise applicable resident 

limit for IME. Therefore, we know that 

Hospital A would be subject to an IME 

cap reduction. In order to determine 

which cost reporting period should be 

used as the reference period to 

determine the FTE cap reduction, we 

would use the cost reporting period 

with the highest FTE resident count for 

IME, which would be July 1, 2006–June 

30, 2007. Therefore, we calculate the 

difference between the otherwise 

applicable resident limit for IME for the 

reference period (July 1, 2006–June 30, 

2007) and the reference resident level 

for IME, and determine the IME cap 

reduction based on 65 percent of the 

difference. For purposes of Hospital A’s 

IME cap reduction, we would determine 

the difference between 18 (the otherwise 

applicable resident limit) and 17 (the 

reference resident level) and multiply 

that difference by 65 percent [(18 ¥ 17) 

× .65] = 0.65. Therefore, the IME FTE 

cap for Hospital A would be reduced by 

0.65 of an FTE. For purposes of a 

reduction to Hospital A’s direct GME 

cap, we note from the chart above that 

Hospital A was training at or above its 

otherwise applicable resident limits for 

direct GME in all three cost reporting 

periods. Because a hospital that is 

training at or above its cap in all three 

cost reporting periods is exempt from a 

cap reduction, we would conclude that 

Hospital A’s direct GME cap would not 

be reduced for direct GME payment 

purposes. We note that, in general, if a 

hospital was not participating in a 

Medicare GME affiliated group during 

any of its three most recent cost 

reporting periods ending before March 

23, 2010, its reference cost reporting 

period will be the cost reporting period 

with the least amount of difference 

between the reference resident level and 

the otherwise applicable resident limit. 

In addition, we are proposing, that if a 

hospital has the same resident level for 

two or more cost reporting periods and 

that resident level is the ‘‘highest’’ 

resident level, we will use the cost 

reporting period of those ‘‘highest’’ cost 

reporting periods in which there is the 

least amount of difference between the 

resident level and the otherwise 

applicable resident limit to determine a 

cap reduction. 

b. Audits of the Reference Cost 

Reporting Periods 

As mentioned under XVII.D.8.a. of 

this proposed rule, to determine a 

possible reduction to a hospital’s FTE 

resident cap, section 1886(h)(8)(H)(i) of 

the Act, as added by section 5503(a) of 


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Affordable Care Act, directs the 

Secretary to use, as the reference cost 

report, the one cost report out of the 

hospital’s three most recent cost 

reporting periods ending before March 

23, 2010, with the highest resident 

count ‘‘for which a cost report has been 

settled (or, if not, submitted (subject to 

audit), as determined by the Secretary’’ 

(emphasis added). We are proposing 

that if a hospital’s cost report for the 

reference cost reporting period has been 

settled, the hospital’s settled cost report, 

without further audit, would be used to 

determine possible reductions to the 

FTE resident caps. We note that the 

‘‘settled’’ cost report does not necessarily 

mean the initial cost report settlement. 

The Medicare contractor may have 

previously settled the cost report, 

reopened it to audit it, and then settled 

the cost report again, issuing a revised 

NPR. Thus, we would refer to the more 

recently issued NPR for that cost 

reporting period. For those cost 

reporting periods that would be used as 

the reference cost reporting period, 

which have been submitted to the 

Medicare contractor but not settled, 

Medicare contractors may perform desk 

or onsite audits related to section 5503. 

In addition, if the reference period cost 

report is for a period other than 12 

months, we are proposing that for direct 

GME, the Medicare contractor would 

prorate the FTE resident caps and 

unweighted FTE resident count to equal 

12-month counts. 

c. Medicare GME Affiliation Agreements 

As described above, some hospitals 

that have resident levels below their 

FTE resident caps may have entered 

into Medicare GME affiliation 

agreements (as permitted under 

§ 413.79(f) of our regulations) with other 

hospitals that would otherwise exceed 

their FTE resident caps. Thus, while 

some hospitals in the Medicare GME 

affiliated group were training a number 

of residents below their FTE resident 

caps prior to entering into a Medicare 

GME affiliation agreement, upon 

affiliating, their FTE resident caps were 

temporarily reduced because some or all 

of their excess FTE slots were 

temporarily added to the FTE resident 

caps of other hospitals as part of the 

affiliation agreement. Under section 422 

of Pub. L. 108–173, the statute directed 

us to apply the provisions to hospitals 

that were members of the same affiliated 

group as of July 1, 2003. In 

implementing section 422, we based the 

FTE resident cap reductions for 

hospitals that were participating in a 

Medicare GME affiliated group on the 

aggregate cap and count data from all 

hospitals participating in the same 

Medicare GME affiliated group(s). If a 

hospital was training a number of 

residents below its FTE resident cap for 

the reference cost reporting period but 

the hospital was part of a Medicare GME 

affiliated group for some or all of that 

reference cost reporting period, the 

Medicare contractor determined if the 

aggregate affiliated count for all 

hospitals in the affiliated group was 

greater than the aggregate affiliated cap. 

If the aggregate affiliated count was 

greater than the aggregate cap, then 

there was no reduction made to the FTE 

caps of any hospital in the affiliated 

group (even for a hospital that was part 

of the affiliated group, but was training 

below its cap). However, we note that, 

in contrast to section 422 of Pub. L. 

108–173, section 5503 of the Affordable 

Care Act does not include language 

specific to affiliated groups. Rather, 

section 1886(h)(8)(H) of the Act, as 

added by section 5503 of the Affordable 

Care Act, defines the reference resident 

level and the otherwise applicable 

resident limit with respect to ‘‘a 

hospital.’’ Similarly, section 

1886(h)(8)(A) refers only to ‘‘a 

hospital’s’’ reference resident level. 

Thus in contrast to section 422 of Public 

Law 108–173, section 5503 is not 

amenable to determinations based on 

the aggregate experience of a Medicare 

GME affiliated group. Therefore, we are 

proposing that Medicare contractors 

would make determinations regarding 

FTE cap reductions under section 

1886(h)(8)(A)(i) by considering the 

relationship of the individual hospital’s 

otherwise applicable resident limit for 

the reference period (which is the FTE 

resident cap for a period as adjusted by 

any affiliation agreement(s)) to the 

individual hospital’s reference resident 

level. That is, we are proposing that in 

a hospital’s reference year, if that 

hospital is participating in a Medicare 

GME affiliated group and is training a 

number of residents below its FTE caps 

as adjusted pursuant to any affiliation 

agreements which can be found on 

Worksheet E, Part A, line 3.06 for IME, 

and Worksheet E–3 Part IV, line 3.03 for 

direct GME, the hospital’s FTE resident 

caps would be subject to a reduction 

under section 1886(h)(8)(A)(i) even if 

the Medicare GME affiliated group as a 

whole may be training a number of 

residents above the group’s aggregate 

FTE resident cap. 

d. Treatment of Hospitals That Have 

Merged 

We note that there may be instances 

where two hospitals merge on or after 

March 23, 2010, but were not merged in 

any or all of their three most recent cost 

reporting periods ending before March 

23, 2010. For these hospitals, we are 

proposing that the Medicare contractors 

identify the hospitals’ three most recent 

cost reporting periods ending before 

March 23, 2010, and treat the hospitals 

for purposes of section 1886(h)(8)(A)(i) 

as if they were merged during those 

periods in determining whether there 

should be a reduction to the merged 

facility’s FTE resident cap(s). That is, 

we are proposing that for each of the 3 

years, we would combine the FTE 

resident counts and caps of the formerly 

separate facilities in order to identify 

the reference period, and to calculate 

the reference resident level and the 

otherwise applicable resident limit for 

the merged facility (for IME and direct 

GME respectively), even if the two 

facilities have different fiscal year ends. 

In addition, if any of the cost reporting 

periods are less than 12 months or 

greater than 13 months, the Medicare 

contractor would prorate the FTE 

resident counts and FTE caps for direct 

GME to equal a 12-month cost reporting 

period. 

9. Application of Section 5503 to 

Hospitals That File Low Utilization 

Medicare Cost Reports 

In general, section 5503 of the 

Affordable Care Act applies to 

Medicare-participating hospitals that 

train residents in approved residency 

training programs. However, some 

Medicare-participating hospitals may 

choose to submit low utilization cost 

reports. These low utilization cost 

reports may not contain the cost report 

worksheet that is used to calculate 

payments for direct GME, Worksheet 

E–3 Part IV. That is, these cost reports 

may not contain FTE resident count and 

cap information. For example, because 

Medicare-participating children’s 

hospitals primarily serve a nonMedicare population and, therefore, 

receive minimal Medicare payments, 

some teaching children’s hospitals 

submit low utilization cost reports. If a 

children’s hospital files a low utilization 

cost report in a given cost reporting 

period, and does not file the Worksheet 

E–3 Part IV, that hospital is not 

considered by Medicare to be a teaching 

hospital for that cost reporting period. 

In addition, although children’s 

hospitals may have an FTE resident 

‘‘cap’’ that is applicable for purposes of 

the Children’s Hospital Graduate 

Medical Education (CHGME) Payment 

Program, administered by HRSA, this 

cap is not necessarily used for Medicare 

payment purposes. Therefore, we are 

proposing that if a low utilization 

hospital does not have a cap for 

Medicare payment purposes, it would 

not be subject to a negative cap 

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reduction under section 5503. In 

addition, we are proposing that if a low 

utilization hospital does have a cap for 

Medicare payment purposes (for 

example, it had filed a regular cost 

report in 1996) but did not file 

Worksheet E–3 Part IV as part of its cost 

report in all three most recent cost 

reporting periods ending before March 

23, 2010, it will be exempt from cap 

reduction. In addition, we are proposing 

that if a low utilization hospital has a 

cap for Medicare payment purposes and 

filed Worksheet E–3 Part IV in at least 

one of its three most recent cost reports 

ending before March 23, 2010, the 

Medicare contractor would determine, 

based on the data of the available cost 

reports with Worksheet E–3 Part IV, 

whether a cap reduction is necessary 

under section 1886(h)(8)(A)(i). 

For those low utilization hospitals 

that have an FTE cap for Medicare 

payment purposes and have filed 

Worksheet E–3 Part IV in any of the 

three most recent cost reporting periods 

ending before March 23, 2010, we are 

proposing that determinations as to 

whether, and by how much, that low 

utilization hospital’s cap may be 

reduced using the same methodology 

that we are proposing to use for other 

Medicare-participating teaching 

hospitals. In addition, for purposes of 

section 1886(h)(8)(B) of the Act, we are 

proposing that, a low utilization 

hospital would be eligible to apply for 

an increase in its FTE resident cap 

under section 1886(h)(8)(B) of the Act, 

subject to the same demonstrated 

likelihood and evaluation criteria 

proposed in this proposed rule for all 

other hospitals. However, as explained 

further below in this preamble, section 

1886(h)(8)(B)(ii) of the Act, as added by 

section 5503(a)(4) of the Affordable Care 

Act, specifies certain requirements and 

thresholds that a hospital that receives 

additional slots must meet in order to 

retain those slots. One requirement is 

that the hospital must ensure for a 

5-year period that its number of FTE 

primary care residents is not less than 

the average number of FTE primary care 

residents during the 3 most recent cost 

reporting periods ending prior to March 

23, 2010. Accordingly, we are proposing 

that an applying children’s hospital 

must meet the same documentation 

requirements to establish this primary 

care average as other applying hospitals, 

which would mean that the children’s 

hospital must have submitted a 

Worksheet E–3, Part IV with its 

Medicare cost report for those 3 most 

recent cost reporting periods ending 

prior to March 23, 2010. Furthermore, 

we are proposing that, in order to 

receive an increase in its FTE resident 

cap under section 1886(h)(8)(B) of the 

Act effective July 1, 2011, in addition to 

complying with the proposed 

application requirements as described 

in this preamble, the hospital would be 

required to file Worksheet E–3, Part IV, 

with its Medicare cost report for its cost 

reporting period that includes July 1, 

2011 through and including its cost 

reporting period that includes June 30, 

2016 (that is, the 5-year period). We are 

proposing that the low utilization 

hospital must meet this requirement 

because section 1886(h)(8)(B) is 

intended to allow a hospital to increase 

its FTE counts for purposes of Medicare 

GME payments. We do not believe it 

would be appropriate to grant an 

increase in a hospital’s FTE resident cap 

under section 1886(h)(8)(B) of the Act if 

the hospital does not use the slots for 

Medicare purposes (but only, for 

example, for purposes of the CHGME 

Payment Program) as would be 

evidenced by not filing a Worksheet 

E–3, Part IV. Moreover, as explained 

further below, we are required under 

section 1886(h)(8)(B)(ii) and (iii) to 

ensure certain levels of primary care or 

general surgery training, and the 

information in Worksheet E–3 Part IV, 

would be necessary for that purpose. 

10. Treatment of Hospitals With Caps 

That Have Been Reduced or Increased 

Under Section 422 of Pub. L. 108–173 

For purposes of implementation of 

section 5503(a) of the Affordable Care 

Act, section 1886(h)(8)(H)(iii) of the Act 

states that the term ‘‘otherwise 

applicable resident limit,’’ means, ‘‘with 

respect to a hospital, the limit otherwise 

applicable under subparagraphs (F)(i) 

and (H) of paragraph (4) on the resident 

level for the hospital determined 

without regard to this paragraph but 

taking into account paragraph (7)(A).’’ 

As noted earlier in this preamble, 

section 1886(h)(7)(A) of the Act, as 

added by section 422 of Pub. L. 108– 

173, provided for reductions to 

hospitals’ caps if the hospitals were 

training a number of residents below 

their FTE resident caps during the 

relevant reference period, and for a 

‘‘redistribution’’ that increased the FTE 

resident caps for certain hospitals. 

Although sections 1886(h)(4)(F)(i) and 

(H) refer to paragraph (7), which 

includes both cap reductions and 

increases made pursuant to section 422 

of Pub. L. 108–173, we believe that 

specific mention of only paragraph 

(7)(A), which refers to cap reductions 

made under section 422, gives the 

Secretary the authority to only take into 

account the reductions made to 

hospitals’ caps under section 

1886(h)(7)(A), for purposes of 

implementing section 1886(h)(8)(A)(i) of 

the Act. That is, we believe specific 

mention of paragraph (7)(A) is meant to 

provide that in determining a hospital’s 

otherwise applicable resident limit, the 

Secretary should take into account any 

reductions to its reference resident level 

made under section 1886(h)(7)(A) to 

determine whether a cap reduction 

under section 1886(h)(8)(A)(i) is 

necessary. Furthermore, section 

1886(h)(8)(H)(i) requires that for 

purposes of determining the reference 

resident level, the Secretary is required 

to consider the hospital’s three most 

recent cost reporting periods ending 

prior to March 23, 2010 that have been 

settled (or, if not, submitted (subject to 

audit)), as determined by the Secretary. 

In addition, we note that increases made 

under section 1886(h)(7)(B) were 

effective for portions of cost reporting 

periods beginning on or after July 1, 

2005, and that some hospitals may still 

be filling their residency training 

programs with FTE resident slots gained 

under section 1886(h)(7)(B), during 

what may be their reference cost 

reporting period for purposes of section 

1886(h)(8)(A)(i). Therefore, we believe 

that it would be inappropriate to 

include increases made under section 

1886(h)(7)(B) in determining the 

hospital’s reference resident level for 

purposes of cap reductions under 

section 1886(h)(8)(A)(i). Hospitals that 

received increases to their caps under 

section 1886(h)(7)(B) may still be 

‘‘building’’ their residency programs 

using the additional FTE resident slots 

they received under section 

1886(h)(7)(B). Therefore, it would be 

premature to remove any of those FTE 

resident slots. Accordingly, we are 

proposing that, in determining whether 

a cap reduction is necessary under 

section 1886(h)(8)(A)(i) we would 

compare the hospital’s FTE resident 

count for its reference period to its FTE 

resident cap, as adjusted under section 

1886(h)(7)(A). We are proposing that we 

would not consider any increases to its 

resident cap a hospital may have 

received under section 1886(h)(7). 

11. Criteria for Determining Hospitals 

That Will Receive Increases in Their 

FTE Resident Caps 

Generally, under section 

1886(h)(8)(A) of the Act, as added by 

section 5503(a)(4) of the Affordable Care 

Act, the Secretary is to reduce the FTE 

resident caps for hospitals that were 

training a number of residents below 

their otherwise applicable resident limit 

in the reference period by 65 percent of 

the ‘‘excess’’ resident slots. Under 

section 1886(h)(8)(B), the Secretary is to 

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‘‘redistribute’’ the estimated number of 

FTE reductions under section 

1886(h)(8)(A) to increase the FTE 

resident caps for use by other hospitals. 

Under section 1886(h)(8)(B)(i) of the 

Act, the Secretary is authorized to 

increase the otherwise applicable FTE 

resident cap for each qualifying hospital 

that submits a timely application by a 

number that the Secretary may approve, 

for portions of cost reporting periods 

occurring on or after July 1, 2011. In 

implementing section 1886(h)(8)(B) of 

the Act, we note the difficulty in 

deciding which teaching hospitals are 

more ‘‘deserving’’ than others to receive 

the redistributed unused resident slots. 

Therefore, in addition to some 

considerations and priorities in 

redistribution that are specified in 

section 5503, we are proposing certain 

additional criteria that we believe will 

allow for an objective decision-making 

process. 

Section 1886(h)(8)(B) of the Act, as 

added by section 5503 of the Affordable 

Care Act, establishes certain parameters 

in the statutory language for hospitals to 

meet to qualify to receive increases in 

their FTE resident caps. First, section 

1886(h)(8)(B)(i) of the Act states that the 

aggregate number of increases in the 

otherwise applicable resident limits 

(caps) shall be equal to the aggregate 

reduction in the resident limits 

determined under section 1886(h)(8)(A) 

of the Act as estimated by the 

Secretary(as discussed in section XVII.D 

of this proposed rule). Section 

1886(h)(8)(F) of the Act states that in no 

case will any hospital receive an FTE 

cap increase of more than 75 FTE 

positions as a result of the 

redistribution. In addition, section 

1886(h)(8)(C) of the Act specifies that, in 

determining which hospitals will 

receive the increases to their FTE 

resident caps, the Secretary is required 

to take into account the demonstrated 

likelihood that the hospital would be 

able to fill the position(s) within the 

first three cost reporting periods 

beginning on or after July 1, 2011, and 

whether the hospital has an accredited 

rural training track program. 

In setting up an application process 

for hospitals to apply for FTE resident 

cap increases from the redistribution 

pool (discussed in section XVII.D.8. of 

this proposed rule), we are proposing to 

consider the ‘‘demonstrated likelihood’’ 

criterion under section 1886(h)(8)(C)(i) 

as an eligibility criterion that a hospital 

must meet in order for CMS to further 

consider the hospital’s application for 

an increase in its FTE resident cap. We 

are proposing that a hospital would 

meet the ‘‘demonstrated likelihood’’ 

criterion by demonstrating that it is 

either already training a number of FTE 

residents at or in excess of its current 

FTE caps (IME and direct GME FTE 

caps, respectively, including any 

applicable section 422 cap add-on), or 

that it does not have sufficient room 

under its current FTE caps to 

accommodate a planned new program 

or expansion of an existing program. We 

believe it is appropriate to consider a 

hospital’s ‘‘demonstrated likelihood’’ as 

a requirement because we believe such 

hospitals will be best positioned to 

make immediate and efficient use of any 

FTE cap increase, and thereby, to use 

any resulting increase in Medicare GME 

payments to train the physician 

workforce that will provide care to 

Medicare beneficiaries. Thus, we are 

proposing that, in order to be eligible for 

consideration for an increase under 

section 1886(h)(8)(B) of the Act, a 

hospital must first demonstrate the 

likelihood that it will able to fill the 

slots within the first three cost reporting 

periods beginning on or after July 1, 

2011, by meeting at least one of the 

following three criteria and by 

providing documentation that it meets 

the criterion in its application for an 

increase to its FTE resident cap: 

• Demonstrated Likelihood Criterion 

1. The hospital does not have sufficient 

room under its current FTE cap for a 

new residency program that it intends to 

establish on or after July 1, 2011 (that 

is, a newly approved program that 

begins training residents at any point 

within the hospital’s first three cost 

reporting periods beginning on or after 

July 1, 2011). Under this criterion, the 

hospital would select one of the 

following: 

(1) Hospital will establish a newly 

approved residency program. (Under 

this selection, the hospital would be 

required to check at least one of the 

following, if applicable): 

• Application for approval of the new 

residency program has been submitted 

to the ACGME, AOA, or the ABMS by 

December 1, 2010. (The hospital would 

be required to attach a copy.) 

• The hospital has submitted an 

institutional review document or 

program information form concerning 

the new program in an application for 

approval of the new program by 

December 1, 2010. (The hospital would 

be required to attach a copy.) 

• The hospital has received written 

correspondence from the ACGME, AOA, 

or ABMS acknowledging receipt of the 

application for the new program, or 

other types of communication from the 

accrediting bodies concerning the new 

program approval process (such as 

notification of site visit). (The hospital 

would be required to attach a copy.) 

(2) Hospital will likely fill the slots 

requested. (The hospital would be 

required to select at least one of the 

following, if applicable.) 

• The hospital does not have 

sufficient room under its FTE cap, and 

the hospital’s existing residency 

programs had a combined resident fill 

rate of at least 85 percent in each of 

program years 2007 through 2009. (The 

hospital would be required to attach 

documentation.) 

• The hospital does not have 

sufficient room under its FTE cap, and 

the specialty program for which the 

hospital is applying has a resident fill 

rate either nationally, within the State, 

or within the CBSA in which the 

hospital is located, of at least 85 

percent. (The hospital would be 

required to attach documentation.) 

• Demonstrated Likelihood Criterion 

2. The hospital does not have sufficient 

room under its FTE cap, and the 

hospital intends to use the additional 

FTEs to expand an existing residency 

training program within the hospital’s 

first three cost reporting periods 

beginning on or after July 1, 2011. 

(1) Hospital intends to expand an 

existing program. Under this selection, 

the hospital would be required to check 

at least one of the following, if 

applicable: 

• The appropriate accrediting body 

(the ACGME, AOA, or ABMS) has 

approved the hospital’s expansion of the 

number of FTE residents in the program. 

(The hospital would be required to 

attach documentation.) 

• The American Osteopathic 

Association Residency Match Program 

has accepted or will be accepting the 

hospital’s participation in the match for 

the existing program that will include 

additional resident slots in that 

residency training program. (The 

hospital would be required to attach 

documentation.) 

• The hospital has submitted an 

institutional review document or 

program information form for the 

expansion of the existing residency 

training program by December 1, 2010. 

(The hospital would be required to 

attach documentation.) 

(2) Hospital will likely fill the slots of 

the expanded existing residency 

program. Under this selection, the 

hospital would be required to check at 

least one of the following, if applicable: 

• The hospital does not have 

sufficient room under its FTE cap, and 

the hospital has other previously 

established residency programs, with a 

resident fill rate of at least 85 percent in 

each of program years 2007 through 

2009. (The hospital would be required 

to attach documentation.) 

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• The hospital does not have 

sufficient room under its FTE cap, and 

the hospital is expanding an existing 

program in a particular specialty with a 

resident fill rate either nationally, 

within the State, or within the CBSA in 

which the hospital is located, of at least 

85 percent. (The hospital would be 

required to attach documentation.) 

• Demonstrated Likelihood Criterion 

3. Hospital is applying for an increase 

in its FTE resident cap because the 

hospital is already training residents in 

an existing residency training 

program(s) in excess of its direct GME 

FTE cap or IME FTE cap, or both. The 

hospital would be required to attach 

copies of each of the following: 

—Copies of the Medicare cost reports 

that have been most recently 

submitted to the Medicare contractor 

by July 1, 2010 documenting on 

Worksheet E, Part A, Worksheet E–3, 

Part VI, and Worksheet E–3, Part VI, 

the resident counts and FTE resident 

caps for both direct GME and IME for 

the relevant cost reporting periods. 

—Copies of the 2010 residency match 

information concerning the number of 

residents at the hospital in its existing 

programs (that is, all programs, not 

only the ones for which the hospital 

may be requesting more slots). 

—Copies of the most recent 

accreditation letters on all of the 

hospital’s training programs in which 

the hospital trains and counts FTE 

residents for direct GME and IME. 

We are proposing that each hospital 

applying for an increase under section 

1886(h)(8)(B)(i) would be required to 

meet at least one of the above criteria in 

order to demonstrate the likelihood that 

it will be able to fill the additional slots 

associated with any increase in the 

hospital’s FTE resident cap within the 

first three cost reporting periods 

beginning on or after July 1, 2012. In 

other words, each hospital that wishes 

to apply for an increase in its FTE 

resident cap, as a preliminary matter, 

would be required to meet the 

‘‘demonstrated likelihood’’ criterion in 

order for CMS to further consider the 

hospital’s application for an increase in 

its FTE resident cap. 

Although a hospital might be 

applying for additional slots for more 

than one specialty program, each 

application by a hospital must be 

program-specific. That is, the hospital 

would be required to complete a 

separate CMS evaluation form for each 

program and to demonstrate the 

likelihood of filling the slots in each 

program. However, in accordance with 

our general policy with respect to FTE 

resident caps, increases in the hospital’s 

FTE resident caps under section 

1886(h)(8)(B)(i) for direct GME and IME, 

once granted to a hospital, would no 

longer be program-specific. Rather, the 

hospital’s adjusted FTE resident caps 

would be applied to the hospital’s FTE 

resident counts, including any residents 

the hospital trains. We note, however, 

that for FTE residents counted as a 

result of an increase in the FTE resident 

caps under section 422 of Pub. L. 108– 

173, payment is calculated separately 

for direct GME purposes using the 

national average PRA and, for IME 

purposes using a multiplier of 0.66. If a 

hospital receives an increase to its FTE 

resident cap(s) under section 5503, and 

also received a cap increase under 

section 422, we are proposing that the 

hospital would first assess whether it is 

training a number of residents in excess 

of its combined 1996 FTE and section 

5503 caps and, only if its number of FTE 

residents still exceeds this combined 

cap would the separate 422 payment 

rates be applied to the excess FTEs for 

IME and direct GME, respectively. 

For purposes of the application for the 

increase to the FTE caps under section 

1886(h)(8)(B)(i) of the Act, we are 

proposing to define ‘‘national fill rate’’ 

for each academic year, as we did when 

implementing section 422 of Public Law 

108–173. That is, we defined ‘‘national 

fill rate’’ as the number of residents 

training in a program nationally as 

compared to the number of accredited 

slots in that program as of June 30 of 

that year. This information is available 

from the ACGME and the AOA. 

Furthermore, we are proposing to 

require that, for the purposes of an 

application for an increase to a 

hospital’s FTE resident cap under 

section 1886(h)(8)(B) of the Act, a 

hospital must use the ‘‘fill rate’’ for the 

most recent academic year for which 

data are available. 

We understand that hospitals may 

train fewer residents than the number of 

available accredited slots in their 

approved programs due to reasons other 

than an inability to fill those slots. 

Furthermore, because we understand 

that a national fill rate is not necessarily 

the only indicator of the ability of 

hospitals to fill residency positions in 

its CBSA or State, and there may be 

characteristics particular to a region, 

such as population density, variety of 

practice settings, or access to technology 

or procedures that may allow a specified 

area to have a fill rate in a specific 

program that exceeds the program’s 

national fill rate, we are proposing 

several options for a hospital to satisfy 

the ‘‘fill rate’’’ criterion. In part, as when 

implementing section 422 of Public Law 

108–173, we specified that the fill rate 

‘‘threshold’’ is 85 percent. We believe 

that this rate will reasonably identify 

those programs that are likely to fill FTE 

resident positions in newly approved or 

expanded programs (while providing 

some latitude to account for other 

factors that affect the national fill rate), 

and to fully utilize an increase in FTE 

resident cap slots that may be available 

under section 1886(h)(8)(B) of the Act as 

added by section 5503. We are 

proposing that a hospital may 

demonstrate the likelihood of filling 

FTE resident positions associated with a 

possible increase in its FTE resident cap 

under section 5503 by documenting that 

any of the following applies to the new 

program or to an expansion of an 

existing program: 

• The specialty program has a 

resident fill rate nationally, across all 

hospitals, of at least 85 percent. 

• The specialty program has a 

resident fill rate within the State in 

which the hospital is located of at least 

85 percent. 

• If the hospital is located within an 

urban CBSA, the specialty program has 

a resident fill rate within the CBSA of 

at least 85 percent. 

For the purposes of demonstrating the 

likelihood of filling FTE resident 

positions under section 1886(h)(8)(C)(i) 

of the Act, as added by section 5503, we 

are proposing that ‘‘national fill rate’’ 

means, for the most recent academic 

year for which data is available, the 

number of residents training in a 

program nationally (combined 

allopathic and osteopathic residents) 

compared to the number of accredited 

slots in that program nationally as of 

June 30 of that year. The proposed 

Demonstrated Likelihood Criterion 1 

and Demonstrated Likelihood Criterion 

2 also allow a hospital to demonstrate 

the likelihood of filling the requested 

slots by demonstrating that the 

hospital’s existing residency programs 

had a ‘‘resident fill rate’’ of at least 85 

percent in each program year from 2007 

through 2009. For the purpose of 

fulfilling these demonstrated likelihood 

criteria, we are proposing to define 

‘‘resident fill rate’’ to mean, for the most 

recent academic year for which data is 

available, the number of residents 

training in each program in total at a 

particular hospital as compared to the 

number of accredited slots in each 

program in total at that hospital as of 

June 30 of that year. 

We also understand that, for certain 

programs, because of the length of the 

accreditation process and a relatively 

long match period, a hospital may be 

unable to accept its first class of PGY– 

1 residents until July 1, 2012. We are 

proposing that the hospital may still 

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apply to receive a full complement of 

residents for the 3 years beginning July 

1, 2012, assuming the applicant hospital 

can demonstrate the likelihood that it 

will fill the slots relating to a possible 

increase in its FTE resident caps under 

section 1886(h)(8)(B)(i). However, if the 

applicant hospital does not demonstrate 

the likelihood that it will fill any FTE 

slots for programs described by the 

hospital on the CMS evaluation form(s) 

at any point within the hospital’s first 

three cost reporting periods beginning 

on or after July 1, 2011, the hospital 

would not be eligible for further 

consideration by CMS of an increase to 

the hospital’s FTE caps under section 

1886(h)(8)(B)(i). Accordingly, our 

proposed Demonstrated Likelihood 

Criterion 1 would reflect that the 

hospital does not have sufficient room 

under its FTE cap to train residents in 

a newly approved residency program 

that it demonstrates it will establish 

within the hospital’s first three cost 

reporting periods beginning on or after 

July 1, 2011 (that is, a newly approved 

program that begins training residents at 

any point within the hospital’s first 

three cost reporting periods beginning 

on or after July 1, 2011) (emphasis 

added). 

Under Demonstrated Likelihood 

Criterion 3, we are proposing to allow 

a hospital that is already training a 

number of FTE residents in an existing 

residency training program(s) in excess 

of its direct GME FTE cap or IME FTE 

cap, or both, to meet the demonstrated 

likelihood requirement. In order to 

document that it meets this criterion, a 

hospital would be required to submit 

copies of the 2010 ‘‘residency match’’ 

information concerning the number of 

residents the hospital has in an existing 

program. We believe the most recent 

match information could indicate that 

the hospital is expected to take in more 

residents than the number of cap slots 

it has available. For purposes of the 

application of this demonstrated 

likelihood criterion, we are defining 

‘‘residency match’’ as a national process 

administered by the National Residency 

Matching Program (NRMP), including 

the NRMP’s Specialties Matching 

Service, the San Francisco Matching 

Program, the American Osteopathic 

Association Residency Match Program, 

or the Urology Matching Program, by 

which applicants to approved medical 

residency programs are paired with 

programs on the basis of preferences 

expressed by both the applicants and 

the program directors. 

We also note that under Demonstrated 

Likelihood Criteria 2 and 3, the hospital 

would be applying for an increase in its 

FTE cap because it is expanding an 

existing residency program, or it is 

already training residents in an existing 

residency training program(s) in excess 

of its FTE caps, respectively. By existing 

program, we are proposing that, as of 

July 1, 2010, the hospital is either 

already training residents in this 

program or programs, or the program 

exists at another hospital prior to July 1, 

2011, but the residents begin to rotate at 

the applying hospital on or after July 1, 

2011. We are providing several 

proposed methods for hospitals to be 

able to demonstrate to CMS under the 

proposed Demonstrated Likelihood 

Criterion 1 that they can fill the slots by 

showing to CMS that they are 

establishing a new residency program 

on or after July 1, 2011. We believe 

hospitals that establish new residency 

programs before July 1, 2011, could 

possibly also meet Demonstrated 

Likelihood Criterion 2, relating to a 

hospital that is expanding an existing 

residency program on or after July 1, 

2011. From the perspective of applying 

for the cap increase under section 

1886(h)(8)(B)(i), the new program that 

starts training residents in 2010 is an 

‘‘existing residency program’’ because it 

began before July 1, 2011, and it is 

‘‘expanding’’ if that program is 

increasing in the number of FTE 

residents in the first three cost reporting 

periods beginning on or after July 1, 

2011. 

We note that the listing of programs 

participating in the AOA Match 

Program will be available on the 

National Matching Services Web site as 

of November 1, 2010. Therefore, we are 

proposing that programs utilizing the 

AOA Match Program may, in addition to 

the two options listed above, 

demonstrate the intent to expand an 

existing program by documenting that 

the AOA has accepted the hospital’s 

participation in the match program by 

the December 1, 2010 application 

deadline. Therefore, we are proposing 

that this method of demonstrating the 

hospital’s intent to expand an existing 

program will be applicable for programs 

participating in the AOA Match 

Program. 

12. Application Process for the Increases 

in Hospitals’ FTE Resident Caps 

In order for hospitals to be considered 

for increases to their FTE resident caps 

under section 1886(h)(8)(B)(i) of the Act, 

as added by section 5503(a)(4) of the 

Affordable Care Act, we are proposing 

to require that each qualifying hospital 

submit a timely application by 

December 1, 2010. As part of the 

requirements that a hospital must fulfill 

in order to complete an application for 

an increase to its FTE resident caps, we 

are proposing to require that the 

applicant hospital must include the 

total number of requested FTE resident 

slots (for all residency programs) for 

direct GME or IME, or both (not to 

exceed 75 FTEs for each, as specified 

under section 1886(h)(8)(F) of the Act). 

Thus, we would require that the 

hospital’s total requests for increases in 

the IME and the direct GME caps (that 

is, the total number of requested FTE 

resident slots increases (for all residency 

programs at the hospitals)) would be 

required to be indicated on the same 

application for an increase under 

section 1886(h)(8)(B)(i). We are 

proposing that each hospital must 

submit the following information on its 

application for an increase in its FTE 

resident cap: 

• The name and Medicare provider 

number of the hospital, and the name of 

the Medicare contractor to which the 

hospital submits its cost report. 

• The total number of requested FTE 

resident slots (for all residency 

programs at the hospital) for direct GME 

or IME, or both (not to exceed 75 FTEs 

each). 

• A completed copy of the CMS 

evaluation form (as described below) for 

each residency program for which the 

applicant hospital intends to use the 

requested increase in the number of FTE 

residents and source documentation to 

support the assertions made by the 

hospital on the evaluation form. (For 

example, if the hospital checks off on 

the evaluation form that the hospital is 

starting a new geriatrics program, the 

hospital would include documentation 

to support that assertion.) 

• FTE resident counts for direct GME 

and IME and FTE resident caps for 

direct GME and IME reported by the 

hospital in the most recent as-filed cost 

report. (The hospital would be required 

to include copies of Worksheets E, Part 

A, E–3, Part IV, and if a hospital 

received an increase to its FTE cap(s) 

under section 422 of Pub. L. 108–173, a 

copy of E–3, Part VI.) 

• An attestation, signed and dated by 

an officer or administrator of the 

hospital who signs the hospital’s 

Medicare cost report, of the following 

information in the hospital’s application 

for an increase in its FTE resident cap: 

‘‘I hereby certify that I understand that 

misrepresentation or falsification of any 

information contained in this application 

may be punishable by criminal, civil, and 

administrative action, fine and/or 

imprisonment under federal law. 

Furthermore, I understand that if services 

identified in this application were provided 

or procured through payment directly or 

indirectly of a kickback or where otherwise 

illegal, criminal, civil, and administrative 

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action, fines and/or imprisonment may 

result. I also certify that, to the best of my 

knowledge and belief, it is a true, correct, and 

complete application prepared from the 

books and records of the hospital in 

accordance with applicable instructions, 

except as noted. I further certify that I am 

familiar with the laws and regulations 

regarding Medicare payment to hospitals for 

the training of interns and residents.’’ 

We are proposing that any hospital 

that wishes to apply for an increase in 

its FTE resident cap(s) under section 

1886(h)(8)(B)(i) must submit a copy of 

its completed application (as described 

above) to the CMS Central Office and to 

the CMS Regional Office for the region 

in which the applicant hospital is 

located, and that the application must 

be received by CMS on or before 

December 1, 2010. (The mailing 

addresses for the CMS offices are 

indicated at the end of this section of 

the preamble.) We note that some 

hospitals’ FTE counts will be subject to 

audit for purposes of possible cap 

reductions under section 

1886(h)(8)(A)(i), and those audits may 

not be completed by December 1, 2010. 

Because the results of such an audit may 

be a factor in a hospital’s decision 

whether to request an increase in its 

FTE resident cap under section 

1886(h)(8)(B)(i) of the Act, we are 

proposing to allow a later date for those 

hospitals to apply for increases in their 

FTE resident caps. Therefore, if a 

hospital’s resident level is audited for 

purposes of section 1886(h)(8)(A) of the 

Act, whether or not the hospital’s FTE 

resident caps are reduced under section 

1886(h)(8)(A) of the Act, if that hospital 

wishes to apply for an increase in its 

FTE resident cap(s) available under 

section 1886(h)(8)(B)(i) of the Act, we 

are proposing that the hospital must 

submit a completed application to CMS 

and that the application must be 

received on or before March 1, 2011. 

We note that, although a hospital 

might be applying for an increase to its 

FTE caps either to start a new program 

or expand a particular program, the FTE 

caps are not program-specific; but 

rather, they are hospital-specific. A 

hospital, and not a particular residency 

training program, would be applying for 

an increase to its FTE caps. We are 

proposing that all completed 

applications that are timely received 

according to the above deadlines would 

be evaluated by CMS according to the 

criteria described under section XVII.D. 

of this proposed rule for determining 

the priority distribution of FTE resident 

slots. Hospitals that satisfy at least one 

of the ‘‘demonstrated likelihood’’ criteria 

would be further evaluated by the 

evaluation criteria described below. 

13. CMS Evaluation of Applications for 

Increases in FTE Resident Caps 

We are proposing to require hospitals 

to submit, with their applications for 

increases in their FTE resident caps, a 

completed copy of the CMS Evaluation 

Form. The CMS Evaluation Form will 

ask the hospital to check off which of 

the ‘‘demonstrated likelihood’’ criteria 

(described above in section XVII.D.11. 

of this proposed rule) the hospital 

meets. We also are proposing to require 

that the hospital provide the 

documentation that supports the 

‘‘demonstrated likelihood’’ criteria it has 

checked off on the Evaluation Form. 

Assuming that the applicant hospital 

meets the ‘‘demonstrated likelihood’’ 

requirement, we are proposing that the 

applicant hospital would indicate on 

the CMS Evaluation Form the 

category(ies) for which it believes it will 

qualify. We would use this indication to 

prioritize the applications. This 

prioritization is derived from section 

1886(h)(8)(C) and (D) of the Act, as 

added by section 5503 of the Affordable 

Care Act. That section established 

considerations in redistribution and a 

priority order that must be applied in 

determining the hospitals that will 

receive increases in their FTE caps. As 

discussed above, the first consideration 

in redistribution is that the applicant 

hospital must demonstrate the 

likelihood of filling the slots requested 

within the first three cost reporting 

periods beginning on or after July 1, 

2011. Another consideration is ‘‘whether 

the hospital has an accredited rural 

training track’’ (as described in section 

1886(h)(4)(H)(iv) of the Act). 

Accordingly, we are proposing that, in 

distinguishing between hospitals within 

a priority category, and determining 

which hospitals will receive FTE cap 

increases, we would give preference to 

a hospital that has an accredited rural 

training track over a hospital that does 

not have such a program. Under section 

1886(h)(4)(H)(iv) of the Act, as 

implemented in the regulations at 

§ 413.79(k), an urban hospital that 

operates a rural training track (often 

known as separately accredited 1–2 

tracks in family medicine) wherein 

residents rotate at the urban hospital for 

less than one-half of the duration of the 

program, and to a rural area for the 

remainder of the program, the urban 

hospital may include in its FTE count 

the FTE resident time spent training in 

the rural track, even if that time would 

be in excess of the hospital’s FTE cap. 

We note that if an urban hospital is 

interested in starting a new rural 

training track, it need not apply for 

additional slots under section 

1886(h)(8)(B)(i). Rather, under the 

existing regulations at § 413.79(k), the 

urban hospital may receive an increase 

to its FTE cap to reflect FTE residents 

training in the rural track. (For more 

details on rural training tracks, and the 

direct GME and IME payment rules 

associated with them, we refer readers 

to 66 FR 39902, August 1, 2001, and 68 

FR 45454, August 1, 2003). However, 

because section 1886(h)(8)(C) of the Act 

states that the Secretary shall take into 

account ‘‘whether the hospital has an 

accredited rural training track’’ 

(emphasis added), we are proposing that 

an applying urban hospital that either 

has a separately accredited rural 

training track, or can document that it 

will have a separately accredited rural 

training track as of July 1, 2011, may 

receive preference over a hospital that, 

all other things being equal, does not 

and will not have a rural training track 

by that date. We note that section 

1886(h)(8)(C) of the Act does not specify 

that a hospital must be applying for 

additional slots in order to expand its 

existing rural training track in order to 

qualify to receive additional slots. 

Rather, section 1886(h)(8)(C) of the Act 

merely states that ‘‘the Secretary shall 

take into account * * * whether the 

hospital has an accredited rural training 

track (as described in paragraph 

(4)(H)(iv))’’ (emphasis added). That is, 

the fact that an urban hospital already 

has (or, under this proposed rule, would 

have as of July 1, 2011) a separately 

accredited rural training track is 

sufficient to give preference in 

redistribution to such a hospital. 

Section 1886(h)(8)(D) of the Act 

instructs the Secretary to ‘‘distribute the 

increase to hospitals based on the 

following factors’’: 

• Whether the hospital is located in a 

State with a resident-to-population ratio 

in the lowest quartile (as determined by 

the Secretary) (section 1886(h)(8)(D)(i) 

of the Act). In order to determine which 

States are in the lowest quartile for 

resident-to-population ratios, we are 

proposing to use three sources of data, 

and the latest data available for each of 

those three sources. First, we are 

proposing to determine the number of 

allopathic residents in each state by 

using data from the ACGME’s Data 

Resource Book for the Academic Year 

2008–2009. As of publication of this 

proposed rule, this is the most recent 

data available from the ACGME. In this 

book, which is available free of charge 

on the ACGME’s Web site, is a table 

titled ‘‘Number of Residents in Core and 

Subspecialty Programs, by State’’ 

(www.acgme.org/acWebsite/dataBook/

2008-2009_ACGME_Data_

Resource_Book.pdf). This table lists 

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each State (including Puerto Rico), and 

includes a column called ‘‘Number of 

Residents.’’ We are proposing to use the 

data from this column called ‘‘Number 

of Residents’’ as part of the numerator to 

determine the resident-to-population 

ratio in each state. However, because 

these data only include residents 

enrolled in ACGME-accredited 

programs, we also are proposing to add 

to these numbers the number of 

residents enrolled in AOA-accredited 

programs. We are proposing to access 

data on the number of osteopathic 

residents in each State from the AOA, 

which was provided to CMS upon 

special request. These data are what is 

generally published in the AOA’s 

Journal of the American Osteopathic 

Association (JAOA). As of the issuance 

of this proposed rule, the most recent 

data published in JAOA was that for the 

2007–2008 academic year. However, 

because we have data from the ACGME 

for the 2008–2009 academic year, we 

requested and received data from the 

AOA for the 2008–2009 academic year 

as well. Although these data will not be 

published in the JAOA for some 

months, we have received permission 

from the AOA to publish it in this 

proposed rule (as indicated at the end 

of the GME discussion). These data are 

also presented in the form of a table 

listing each State (there are no 

osteopathic programs in Puerto Rico), 

and a column for the total number of 

residents in each State. Therefore, we 

are proposing that the numerator for the 

ratio for each State would be the sum of 

the residents from the 2008–2009 

ACGME’s table for that State, and the 

residents from the 2008–2009 AOA 

table for that State. 

We understand that, although 

graduates of allopathic medical schools 

are precluded from training in AOAaccredited programs, there is no similar 

prohibition on osteopathic residents 

training in allopathic programs. Because 

there are osteopathic residents who 

enroll and participate in allopathic 

ACGME-accredited programs, we want 

to ensure that there is no double 

counting of residents in the numerator. 

We have learned from the ACGME that 

their data in the ACGME Data Resource 

Book include osteopaths, but only those 

training in ACGME-accredited 

programs. The AOA data do not include 

osteopathic residents who are training 

in ACGME-accredited programs; AOA 

data only include osteopathic residents 

enrolled and training in AOA-accredited 

programs. Therefore, we do not believe 

there is a concern about double 

counting with respect to osteopathic 

residents training in allopathic 

programs. However, we also are aware 

that there are some programs that are 

dually accredited by the ACMGE, and 

the AOA, and residents completing 

these programs are able to sit for both 

the ABMS and the AOA board 

examination in that specialty. We 

understand that the ACGME will 

include a resident in its resident count 

as long as that resident is training in an 

ACGME-accredited program, even if that 

program is dually accredited. The AOA 

has the same practice of including in its 

total count of residents those who are in 

AOA-accredited programs, even if it is 

a dual eligible program. Therefore, there 

is some degree of unavoidable double 

counting of residents in the total count. 

However, we understand that the 

number of residents in duallyaccredited programs is less than 500, 

and because 500 is only 0.44 percent of 

the combined ACGME and AOA 2008– 

2009 resident count of 114, 416, we 

believe the effect of counting these 

residents by both the ACGME and AOA 

is negligible and would not harm the 

integrity of the data. 

We are proposing to define ‘‘resident’’ 

in ‘‘resident-to-population’’ ratio as 

actual individual residents, as opposed 

to the FTE resident figures that are used 

for Medicare payment purposes. We 

believe it is appropriate to define 

‘‘residents’’ as actual individual 

residents in this instance because the 

intent behind this criterion is to identify 

those States that have low numbers of 

physicians-in-training in relation to the 

general population for which those 

physicians-in-training are providing 

health care services. An ‘‘FTE’’ measure, 

which is the measure used for most 

Medicare payment purposes, does not 

accurately reflect the number of 

individual physicians-in-training 

providing services in a State. 

With regard to State population data 

to be used in the denominator of each 

State’s resident-to-population ratio, we 

again are proposing to use the latest 

available data on State populations. We 

are proposing to use data from the 

Census Bureau that is from the 2000 

Census, but that have been updated 

with the most recent data available as of 

July 1, 2009. We accessed these data 

from the following Web site: http:// 

www.census.gov/popest/datasets.html. 

On this Web page, the following data 

can be found: State population 

datasets—Population, population 

change and estimated components of 

population change: April 1, 2000 to July 

1, 2009 (NST–EST2009–alldata). We are 

proposing to use the CSV file at this 

link. Specifically, we are proposing to 

use the data for State population from 

the column called POPESTIMATE2009 

(column Q of the CSV spreadsheet). 

Therefore, we are proposing to 

determine each State’s resident-topopulation ratio, and specifically those 

States that fall within the lowest 

quartile by using the sum of the 2008– 

2009 ACGME and AOA resident data for 

each State, as described above, in the 

numerator for each State, and by using 

the population data updated as of July 

1, 2009 in the denominator for each 

State from the column called 

POPESTIMATE2009 in column Q of the 

CSV spreadsheet. The following table 

lists each State, and is sorted by 

resident-to-population ratio from lowest 

to highest. The first 13 shaded states are 

the states in the lowest quartile. 

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Based on the foregoing proposed data, 

the following States fall within the 

lowest quartile for resident-topopulation ratios: Montana, Idaho, 

Alaska, Wyoming, Nevada, South 

Dakota, North Dakota, Mississippi, 

Florida, Puerto Rico, Indiana, Arizona, 

and Georgia. Accordingly, we are 

proposing that, consistent with section 

1886(h)(8)(D)(i) of the Act, a hospital 

located in any one of these States that 

applies for an increase to its FTE cap 

under section 1886(h)(8)(B) of the Act 

would receive preference over a hospital 

that is applying for an increase to its cap 

that is not located in one of these States. 

• Whether the hospital is located in a 

State, a territory of the United States, or 

the District of Columbia that is among 

the top 10 States, territories, or Districts 

in terms of (1) the total population of 

the State, territory, or District living in 

an area designated (under such section 

332(a)(1)(A)) as a health professional 

shortage area (as of the date of 

enactment of this paragraph); to (2) the 

total population of the State, territory, 

or District (as determined by the 

Secretary based on the most recent 

available population data published by 

the Bureau of the Census). 

In order to determine which applying 

hospitals fall within this priority 

category, we need to determine the total 

population living in a HPSA in each 

State, territory, or District computed ‘‘as 

of the date of enactment,’’ and we need 

to determine the total population of 

each State, territory, or District ‘‘(as 

determined by the Secretary based on 

the most recent available population 

data published by the Bureau of the 

Census).’’ ‘‘Territory’’ is referring to 

Puerto Rico, which currently has 

teaching hospitals, and ‘‘District of 

Columbia’’ refers to Washington D.C. For 

ease of reference, and consistent with 

the definition of ‘‘State’’ at section 210 

of the Act, we are proposing to refer to 

‘‘State, territory, or District’’ simply as 

‘‘State.’’ We have received data on the 

population of each HPSA from the 

Health Resources and Services 

Administration’s (HRSA) Geospatial 

Warehouse. HRSA’s Shortage 

Designation Branch develops shortage 

designation criteria and uses them to 

decide whether or not a geographic area, 

or population group, is a HPSA. HRSA 

updates HPSA statistics on its Web site 

on a daily basis, and we have requested 

and received the data reflective of the 

‘‘date of enactment’’; that is, March 23, 

2010. Because HRSA updates the data 

on its Web site daily, the data as of 

March 23, 2010 are no longer available 

on its Web site. (General information on 

HPSAs and current data can be found 

on HRSA’s Web site at: http:// 

bhpr.hrsa.gov/shortage/). 

HRSA designates three different kinds 

of HPSAs: Primary Care HPSAs, Dental 

HPSAs, and Mental Health HPSAs. 

While many areas may only be 

designated as one of these kinds of 

HPSAs, some areas may be designated 

as two or three of these kinds of areas. 

Thus, if we were to add the population 

in each State that is in a Primary Care 

HPSA, a Dental HPSA, and a Mental 

Health HPSA, we would be duplicating 

the HPSA populations in each State. 

Therefore, we are proposing to use only 

the population in each State that is in 

a Primary Care HPSA. We believe that 

it is appropriate to choose to recognize 

only the Primary Care HPSAs in each 

State for the purpose of implementing 

section 5503 because section 5503 is 

intended to encourage an increase in the 

number of primary care residents that 

are currently being trained in hospitals, 

as is evidenced by the ‘‘Requirements’’ 

in section 1886(h)(8)(B)(ii) of the Act, as 

added by section 5503(a)(4), which 

requires hospitals that receive 

additional slots under this section to 

maintain a certain average number of 

primary care resident positions, and that 

not less than 75 percent of the 

redistributed positions must be awarded 

for slots used in a primary care or a 

general surgery residency. 

With respect to data on each State’s 

total population ‘‘as determined by the 

Secretary based on the most recent 

available population data published by 

the Bureau of the Census,’’ we are 

proposing to use the same data that we 

are using under the first priority 


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category with regard to determining 

resident-to-population ratios, as 

explained above. These data, which are 

the most recent available, were last 

updated on July 1, 2009. As explained 

above, we accessed these data from the 

following Web site: http:// 

www.census.gov/popest/datasets.html. 

On this Web page, the following data 

can be found: State population 

datasets—population change and 

estimated components of population 

change: April 1, 2000 to July 1, 2009 

(NST–EST2009–alldata). We are 

proposing to use the CSV file at this 

link. Specifically, we are proposing to 

use the data for State population from 

the column called POPESTIMATE2009 

(column Q of the CSV spreadsheet). 

The following table lists each State, 

its Primary Care HPSA population-toState population ratio from highest to 

lowest, and whether that State falls 

within the top 10 States for such 

Primary Care HPSA population-to-State 

population ratios: 

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• Whether the hospital is located in a 

rural area (as defined in section 

1886(d)(2)(D)(ii) of the Act). Section 

1886(d)(2)(D)(ii) of the Act defines a 

rural area as any area outside a MSA. 

Under the existing regulations at 

§ 412.62(f)(ii), an ‘‘urban area’’ means (1) 

a Metropolitan Statistical Area (MSA) or 

New England County Metropolitan Area 

(NECMA); or (2) the following New 

England counties: Litchfield County, 

Connecticut; York County, Maine; 

Sagadahoc County, Maine; Merrimack 

County, New Hampshire; and Newport 

County, Rhode Island. Under existing 

§ 412.62(f)(iii), a ‘‘rural area’’ means any 

area outside an urban area. Thus, for 

purposes of the amendments made by 

section 5503, we are proposing that any 

hospital located in an area that is not in 

a MSA is a rural hospital, regardless of 

any reclassification under § 412.102 or 

§ 412.103. We also point out that, since 

FY 2005, we no longer use the term 

MSA, but instead use CBSA, or CoreBased Statistical Area. There are urban 

CBSAs, and rural CBSAs are areas 

outside of an urban CBSA. We note that 

this definition of ‘‘rural’’ is consistent 

with our policy concerning designation 

of wage index areas. 

We also are proposing that, in 

determining which applicant hospitals 

receive priority within the priority 

category of hospitals located in a State 

in the lowest quartile for resident-topopulation ratios that hospitals in a 

State that is ranked lower in the quartile 

(with number one being the lowest) 

would receive preference over hospitals 

in states that are still within the 

quartile, but ranked higher. For 

example, all other things being equal, a 

hospital located in Montana would 

receive preference over a hospital 

located in Idaho, while this hospital 

would receive preference over a hospital 

located in Alaska, and so on. Similarly, 

we are proposing that, in determining 

which applicant hospitals receive 

priority within the priority category of 

hospitals located in a State that is 

among the top 10 of these areas in terms 

of the ratio of Primary Care HPSA 

population to total population, hospitals 

in an area that is ranked higher in the 

top 10 (with number 1 being highest and 

number 10 being lowest) would receive 

preference over hospitals in an area that 

are still within the top 10, but ranked 

lower. For example, all other things 

being equal, a hospital located in 

Louisiana would receive preference over 

a hospital located in Mississippi, while 

a hospital in Mississippi would receive 

preference over a hospital located in 

Puerto Rico, and so on. 

As we described above, we are 

proposing that an applicant hospital 

indicate on the CMS Evaluation Form 

the category(ies) for which it believes it 

will qualify, and we will use this 

indication to prioritize the applications. 

Each of the categories (described below) 

is derived from the priorities established 

by section 1886(h)(8)(D) of the Act, as 

added by section 5503 of the Affordable 

Care Act. We are proposing to use the 

following categories to determine the 

order in which hospitals would be 

eligible to receive increases in their FTE 

resident caps: 

• First Level Priority Category: The 

hospital is in a State whose resident-topopulation ratio is within the lowest 

quartile, AND the hospital is in a State 

whose Primary Care HPSA to 

population ratio is in the top 10 States, 

AND the hospital is located in a rural 

area. 

• Second Level Priority Category: The 

hospital is in a State whose resident-topopulation ratio is within the lowest 

quartile, AND is either in a State whose 

Primary Care HPSA to population ratio 

is in the top 10 States, or it is located 

in a rural area, or is an urban hospital 

and has or will have as of July 1, 2010, 

a rural training track. 

• Third Level Priority Category: The 

hospital is in a State whose resident-topopulation ratio is within the lowest 

quartile. 

• Fourth Level Priority Category: The 

hospital is in a State whose Primary 

Care HPSA to population ratio is in the 

top 10 States, AND either the hospital 

is located in a rural area or the hospital 

is an urban hospital and has, or will 

have as of July 1, 2010, a rural training 

track. 

• Fifth Level Priority Category: The 

hospital is in a State whose Primary 

Care HPSA to population ratio is in the 

top 10 States, or the hospital is located 

in a rural area. 

We believe it is appropriate to 

establish priority level categories based 

on the fact that some hospitals that 

apply for the additional resident slots 

may fit into more than one of the three 

statutory priority categories listed in 

section 1886(h)(8)(D) of the Act. 

Therefore, we are proposing to give 

consideration first to those hospitals 

that meet more than one of the statutory 

priority categories over those hospitals 

that meet only one of the statutory 

priorities. We are further proposing that 

a hospital that is in a State whose 

resident-to-population ratio is within 

the lowest quartile would receive 

priority over a hospital that is not 

located in one of these States. We 

believe this is consistent with the 

direction established at section 

1886(h)(8)(E)(i) of the Act which 

specifies that the Secretary shall reserve 

70 percent of all positions available for 

distribution for hospitals in a State 

whose resident-to-population ratio is 

within the lowest quartile. Only 30 

percent of the positions are to be 

distributed to hospitals in States whose 

Primary Care HPSA to population ratio 

is in the top 10 States, and hospitals 

located in rural areas. In addition, as 

discussed above, the first consideration 

in redistribution under section 

1886(h)(8)(C) of the Act is that the 

applicant hospital must demonstrate the 

likelihood of filling the slots requested 

within the first three cost reporting 

periods beginning on or after July 1, 

2011. The second consideration is 

‘‘whether the hospital has an accredited 

rural training track’’ (as described in 

section 1886(h)(4)(H)(iv) of the Act). 

Accordingly, we are proposing that, in 

distinguishing between hospitals within 

priority categories, and in determining 

which hospitals qualify to receive 

additional slots, we would give 

preference to a hospital that has an 

accredited rural training track as 

compared to a hospital that does not 

have such a program. 

Because section 1886(h)(8)(E) of the 

Act specifies that 70 percent of the slots 

are to be reserved for hospitals that are 

in a State whose resident-to-population 

ratio is within the lowest quartile, and 

30 percent of the positions are to be 

reserved for hospitals in States whose 

Primary Care HPSA to population ratio 

is in the top 10 States, and hospitals 

located in rural areas, we are proposing 

that no slots would be given to hospitals 

that do not fit within either of these 

categories. 

14. CMS Evaluation of Application for 

Increases in FTE Resident Caps— 

Evaluation Criteria 

We anticipate that there will be a 

limited number of slots available for 

distribution from the redistribution 

pool, while there will be a great demand 

for those limited slots. Therefore, as we 

did when implementing section 422 of 

Public Law 108–173, we are proposing 

to use additional criteria (some of which 

are the same as those used to implement 

section 422) for evaluating the 

applications for increases in hospitals’ 

FTE resident caps within each of the 

seven level priority categories described 

above under section 5503. In addition, 

in implementing section 5503, we are 

proposing to assign a certain number of 

points to each evaluation criterion, such 

that some will be worth more points 

than others. We note that the criteria are 

not mutually exclusive. Hospitals may 

qualify for a number of different criteria 

and their ‘‘score’’ is the total point value 

for all criteria met by the hospital for 

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each program. Because we anticipate 

that the redistribution pool under 

section 5503 will be smaller than that 

under section 422, we believe a more 

rigorous and competitive ranking 

system is appropriate under section 

5503. Thus, we are assigning a different 

amount of points to each Evaluation 

Criterion, rather than just assigning one 

point to each. 

Evaluation Criterion One. The 

hospital that is requesting the increase 

in its FTE resident cap(s) has a 

Medicare inpatient utilization over 60 

percent, as reflected in at least two of 

the hospital’s last three most recent 

audited cost reporting periods for which 

there is a settled cost report. (5 Points) 

We have selected 60 percent utilization 

because we believe that level would 

identify hospitals where Medicare 

beneficiaries will benefit the most from 

the presence of a residency program, 

and it is consistent with the utilization 

percentage required for Medicaredependent, small rural hospitals 

(MDHs) as specified in § 412.108. In 

addition, it identifies a type of hospital 

that warrants atypical treatment by the 

Medicare program because it is so 

reliant on Medicare funding. 

Evaluation Criterion Two. The 

hospital will use the additional slots to 

establish a new geriatrics residency 

program, or to add residents to an 

existing geriatrics program. (5 Points) 

Section 5503 places a particular 

emphasis on increasing the number of 

residency positions in primary care 

specialties, as evidenced by the 

requirement at section 1886(h)(8)(B)(ii) 

of the Act that a hospital that receives 

slots must maintain at least the same 

number of primary care residents as it 

had during the three most recent cost 

reporting periods prior to enactment, 

and that not less than 75 percent of 

additional positions received must be in 

a primary care or a general surgery 

residency. Geriatrics is included in the 

definition of ‘‘primary care resident’’ at 

section 1886(h)(5)(H) of the Act. We 

believe that, of all the medical 

specialties, geriatrics is the one 

specialty that is devoted primarily to the 

care of the elderly, including Medicare 

beneficiaries. As such, we are proposing 

to give special consideration to geriatric 

programs to meet the ‘‘fill rate’’ criterion 

for demonstrating the likelihood of 

filling FTE resident slots under section 

5503. Geriatrics is not a separately 

approved training program; rather, it is 

a subspecialty of another specialty 

program. For example, there is a 

geriatrics subspecialty of family practice 

or internal medicine. We are proposing 

that, for the purposes of meeting the 85 

percent fill rate criterion, we would 

allow hospitals that are starting a new 

geriatrics program or expanding an 

existing geriatric program to use the fill 

rate associated with the overall specialty 

program (rather than the fill rate for the 

geriatric subspecialty) to meet this 

demonstrated likelihood criterion. 

Evaluation Criterion Three. The 

hospital will use additional slots to 

establish a new or expand an existing 

primary care program with a 

demonstrated focus on training 

residents to pursue careers in primary 

care, rather than in nonprimary 

subspecialties of those primary care 

programs (for example, the hospital has 

an internal medicine program with a 

designated primary care track). (3 

Points) As stated previously, section 

5503 places a particular emphasis on 

encouraging the growth in the number 

of primary care residents, and 

specifically, physicians who practice in 

primary care, rather than only 

completing a primary care residency as 

a prerequisite for further subspecialty 

training. Although this proposed 

Evaluation Criterion applies to any 

primary care specialty, according to the 

2010–2011 ACGME Green Book, 30.1 

percent of accredited internal medicine 

programs offer a primary care track. 

However, the ACGME does not have 

separate standards for or does not 

separately accredit primary care tracks 

from categorical primary care programs. 

We understand that, particularly for 

internal medicine residents, these tracks 

are a way for graduating medical 

students who are interested in primary 

care to declare that interest early on, 

and in many cases, actually match into 

an internal medicine program with a 

primary care track through the National 

Residency Match Program. These 

residents may pursue their interest in 

primary care by choosing to do more 

electives in ambulatory and communitybased settings throughout the 3 years of 

primary care training than residents 

with an interest in specialization might 

do. We believe that encouraging growth 

of these programs will increase the 

number of primary care practitioners. 

Therefore, we are proposing to give 

special consideration to hospitals that 

are applying for additional slots to start 

or expand a program(s) that particularly 

focuses on residents who wish to pursue 

careers in primary care, and we would 

prioritize among hospitals that are 

applying for slots in a primary care 

program(s) accordingly. One example of 

a hospital that demonstrates a focus on 

training residents to pursue careers in 

primary care is a hospital that has a 

primary care track in internal medicine. 

We are proposing that one way hospitals 

may qualify for a point under this 

evaluation criterion is by documenting 

that they are advertising that they have 

an internal medicine program with a 

primary care track in the March 2011 

National Residency Match Program. 

Evaluation Criterion Four. The 

hospital will use all the additional slots 

to establish a new or expand an existing 

primary care residency program or 

general surgery program. (5 Points) 

‘‘Primary care resident’’ is defined at 

section 1886(h)(5)(H) of the Act as a 

resident enrolled in an approved 

medical residency training program in 

family medicine, general internal 

medicine, general pediatrics, preventive 

medicine, geriatric medicine, or 

osteopathic general practice. Section 

1886(h)(8)(B)(ii)(II) of the Act states that 

not less than 75 percent of additional 

positions received must be in a primary 

care or a general surgery residency. 

Therefore, we are proposing to award 5 

points to a hospital that goes beyond 

this minimum requirement, and 

documents that it will use all of the 

slots received for either primary care or 

general surgery programs. 

Evaluation Criterion Five. The 

hospital is located in a Primary Care 

HPSA.—2 Points. We believe this 

evaluation criterion is consistent with 

the goal of reducing the shortage of 

primary care physicians, and increasing 

access to care in underserved areas. 

Evaluation Criterion Six. The hospital 

is in a rural area (as defined under 

section 1886(d)(2)(D)(ii) of the Act) and 

is or will be on or after July 1, 2011, a 

training site for a rural track residency 

program (as specified under 

§ 413.79(k)), but is unable to count all of 

the FTE residents training in the rural 

track because the rural hospital’s FTE 

cap is lower than its unweighted count 

of allopathic or osteopathic FTE 

residents as of portions of cost reporting 

periods on or after July 1, 2011. (1 

Point). We understand that there are 

some rural hospitals that serve as 

training sites for an urban hospital’s 

rural training track. The residents in the 

rural track are counted in the urban 

hospital’s FTE count, but because the 

rural training tracks are not necessarily 

considered ‘‘new’’ medical residency 

programs according to the regulations at 

§ 413.79(l), the rural hospital cannot 

receive an increase to its FTE caps 

under § 413.79(e)(3) and, therefore, 

cannot receive direct GME and IME 

payments for training all or some of 

those residents. The rural hospital may 

be training residents in excess of its FTE 

resident cap prior to July 1, 2011 and, 

therefore, cannot receive IME or direct 

GME payment for some or all of the 

FTEs in the rural training track, or it 

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wishes to expand its rural training track 

above its FTE resident cap on or after 

July 1, 2011. We are proposing this 

evaluation criterion as a remedy to these 

scenarios to allow the rural hospital the 

possibility of receiving payment for 

FTEs in its rural training track. 

We are proposing to use these criteria 

to evaluate the applications by hospitals 

for increases in their FTE resident caps 

that fall within each of the seven level 

priority categories. We are proposing to 

place each application in the 

appropriate priority level category based 

on a review of the information a 

hospital checks off on the proposed 

CMS Evaluation Form for each 

allopathic and osteopathic specialty 

program requested by the applicant 

hospital, and the corresponding 

requested FTE cap increase (the 

proposed form appears below). We 

propose to place all of these evaluation 

criteria on the Evaluation Form and to 

ask the hospital to check off which 

criteria on the form apply for each 

specialty program for which an FTE cap 

increase is requested. Based on the 

evaluation criteria checked off on the 

form, we are proposing to score each 

CMS Evaluation Form. The higherscoring CMS Evaluation Form(s) for 

each applicant hospital within each 

level priority category would be 

awarded the FTE resident cap increases 

first. It is possible that a hospital may 

qualify for multiple points for the same 

program. For example, if a hospital 

would be applying for slots to start a 

primary care track within an internal 

medicine program, and also would be 

using all of the slots it receives in that 

internal medicine program, the hospital 

may receive points both for Evaluation 

Criterion Three and Evaluation Criterion 

Four. Similarly, if a hospital would be 

applying for slots to start or expand a 

geriatrics program, and the additional 

slots would all be used for the geriatrics 

program, then the hospital may receive 

points for both Evaluation Criterion 

Two and Evaluation Criterion Four. 

Further, as specified by section 

1886(h)(8)(E) of the Act, 70 percent of 

all positions are reserved to be 

distributed to qualifying hospitals that 

are in States with resident-to-population 

ratios in the lowest quartile, and 30 

percent of the positions are reserved to 

go to hospitals that are located in States 

with HPSA population to State 

population ratios within the top 10 and 

to rural hospitals. As we described 

above, we are proposing to award the 

cap increases in the order of the seven 

specified level priority categories 

because, as a general rule, we believe 

hospitals that meet more than one of the 

statutory priorities should be awarded 

the increases in their FTE resident caps 

first before other hospitals. We also 

believe that hospitals that meet a higher 

statutory priority category should 

receive first consideration over hospitals 

that meet lower statutory priorities. That 

is the reason, for instance, we are 

proposing that the first, second, and 

third level categories give preference to 

hospitals located in States with 

resident-to-population ratios in the 

lowest quartile before considering 

hospitals that are only located in States 

with high Primary Care HPSA 

population to State population ratios or 

to hospitals that are only rural. 

Furthermore, in the case where, for 

example, Hospital A’s application for a 

program falls within the Level Priority 

Category One, but scores no points on 

the evaluation criteria on the CMS 

Evaluation Form for that program, and 

Hospital B’s application for a program 

falls within the Level Priority Category 

Two, and scored 5 points on the 

evaluation criteria on the CMS 

Evaluation Form for the program, 

Hospital A would receive the section 

5503 cap increase before Hospital B, 

because Hospital A qualified to be in the 

higher level priority category. 

Thus, first level priority category 

hospitals that score highest on the 

evaluation criteria on the CMS 

Evaluation Form for a particular 

specialty program would receive the 

increases in their FTE resident caps 

first. For example, if Hospital D is a 

rural hospital that is located in 

Mississippi, thereby falling within the 

first level priority category, and Hospital 

D checks off on the CMS Evaluation 

Form that it has a Medicare utilization 

of 60 percent (5 points), is using all the 

slots to expand a primary care residency 

program (5 points), and is located in a 

Primary Care HPSA (2 points), Hospital 

D would receive a score of 12 points on 

the completed CMS Evaluation Form. 

We are proposing that we would first 

award FTE cap increases to hospitals 

whose CMS Evaluation Forms for a 

particular program receive the most 

points (if there are any), and then to 

those with successively fewer points 

within the level priority category. 

Hospital D would receive the increase in 

its FTE resident cap(s) requested on its 

application only after all the hospitals 

in the first level priority category whose 

applications receive 13 or more points 

are awarded their requests first. We are 

proposing to proceed through each level 

priority category accordingly, and only 

move on to distribute slots to hospitals 

in the next priority level category once 

all the qualifying applicants in the 

previous priority level category have 

received slots. Once we have distributed 

70 percent of the slots to hospitals 

within States with resident-topopulation ratios in the lowest quartile 

in accordance with the Priority Level 

Categories One through Three (or 

awarded increases to all qualified 

applicant hospitals located in States 

with resident to population ratios in the 

lowest quartile), we are proposing to 

then distribute the remaining slots to 

hospitals in the fourth and fifth level 

categories. Because of this requirement 

that 70 percent of the slots be reserved 

for distribution to hospitals within 

States with resident-to-population ratios 

in the lowest quartile, it is possible that 

after first distributing slots to hospitals 

with the highest scores on their CMS 

Evaluation Form, if there are requests 

for slots by those hospitals which in the 

aggregate exceed the 70 percent of slots 

available, there may be some remaining 

qualifying hospitals within the same 

priority level category that receive the 

same score on the CMS Evaluation 

Form. Thus, we would have no way of 

distinguishing among these hospitals of 

equal rank. If this situation occurs, we 

are proposing to prorate the remaining 

amount of slots in the ‘‘70 percent’’ pool, 

and distribute an equal share of slots to 

these hospitals of equal rank. If a similar 

situation occurs within the ‘‘30 percent’’ 

pool, we also are proposing to prorate 

the remaining amount of slots in the ‘‘30 

percent’’ pool, and distribute an equal 

share of slots to hospitals of equal rank. 

For example, assume all applicant 

hospitals in the first and second level 

priority categories receive the requested 

increases in their FTE resident caps, and 

that we have awarded cap increases for 

all the third level priority category 

hospitals that scored 5 or above on their 

CMS Evaluation Forms for each 

residency program. We next evaluate 

hospital applications and accompanying 

CMS Evaluation Forms in the third 

Level Priority Category (The hospital is 

in a State whose resident-to-population 

ratio is within the lowest quartile) with 

fewer than 5 points and we find that 

there is only a sufficient number of 

resident slots remaining in the 

estimated ‘‘70 percent’’ pool to grant half 

of the requests for slots from hospitals 

that scored 4 points. We are proposing 

to prorate all of the remaining FTEs 

among the 4-point CMS Evaluation 

Forms and accompanying applications 

in the third level priority category. 

Thus, after awarding slots to hospitals 

in the third level priority with at least 

5 points, and to hospitals in the first two 

level priority categories, if we could 

have awarded a total of 200 FTE slots 

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for direct GME and 185 FTE slots for 

IME to only 50 percent of the 4-point 

CMS Evaluation Forms in the third level 

priority category (at the point that the 

estimated ‘‘70 percent’’ pool of FTE slots 

is spent), we are proposing to divide all 

of the 200 FTE slots remaining in the 70 

percent pool for direct GME and 185 

FTE slots for IME among all of the 4- 

point CMS Evaluation Forms and 

accompanying applications in that third 

priority category, no matter what level 

of FTE resident cap increase was 

requested on the individual hospital’s 

application, but not to exceed the 

number of slots a hospital requested for 

IME and direct GME respectively. 

We are also considering another 

possible scenario that could occur with 

respect to hospitals that fall into the 

Second Level Priority Category: The 

hospital is in a State whose resident-topopulation ratio is within the lowest 

quartile, AND is either in a State whose 

Primary Care HPSA to population ratio 

is in the top 10 States, or it is located 

in a rural area, or is an urban hospital 

and has or will have as of July 1, 2010, 

a rural training track. Because a hospital 

in this second level priority category is 

located both in a State whose residentto-population ratio is within the lowest 

quartile, AND is either in a State whose 

Primary Care HPSA to population ratio 

is in the top 10 States, or it is located 

in a rural area, we believe that its 

request for additional slots must first be 

fulfilled from the ‘‘70 percent pool.’’ 

However, if there are insufficient slots 

in the ‘‘70 percent pool’’ to satisfy the 

requests of all otherwise qualified 

applicants in the second level priority 

category, then, rather than immediately 

prorating the remaining slots in the ‘‘70 

percent pool’’ among the applicable 

hospitals in the second level priority 

category, we are proposing to draw from 

the ‘‘30 percent pool’’ to grant the full 

FTE cap increases (as applicable) to 

qualifying hospitals in the second level 

priority category. 

Alternatively, although unlikely, we 

recognize that the reverse situation may 

occur, where there may not be a 

sufficient number of qualified 

applicants or requests for FTEs in order 

to distribute at least 70 percent of the 

slots hospitals located in the 13 States 

whose resident-to-population ratios are 

in the lowest quartile (priority level 

categories one through three). Should 

this occur, we are proposing to begin 

evaluating applications from the next 

category of qualifying hospitals (that is, 

those located in States that are among 

the top 10 States for Primary Care HPSA 

to population ratios, and rural 

hospitals—priority level categories four 

and five), and potentially distribute 

more than 30 percent of the slots to 

hospitals in those latter categories. 

We recognize the complexity of the 

proposed evaluation process for the 

award of increases in hospital’s FTE 

resident caps under section 

1886(h)(8)(B) of the Act. Therefore, we 

have included the following examples 

depicting the proposed procedures: 

Example 1 

Hospital H is an urban hospital 

located in a State that is in the lowest 

quartile for resident-to-population 

ratios. Hospital H can demonstrate the 

likelihood that it will fill the requested 

five FTEs resident slots for direct GME 

and IME for expanding a geriatric 

program because it is currently training 

a number of FTE residents that exceeds 

both of its FTE caps, and has attached 

to its application for the increase a copy 

of Hospital H’s past three Medicare cost 

reports (as filed or audited, whichever is 

most recent and available), which 

documents on Worksheet E, Part A, 

Worksheet E–3, Part IV, and Worksheet 

E–3, Part VI that, according to the 

resident counts and the FTE resident 

caps, Hospital H is training residents in 

excess of its caps. Hospital H is also 

located in a Primary Care HPSA (but is 

not located in a State that is among the 

top 10 States in terms of its Primary 

Care HPSA population to State 

population ratio). 

We would evaluate Hospital H’s 

application as follows: Hospital H is in 

the third Level Priority Category (The 

hospital is in a State whose resident-topopulation ratio is within the lowest 

quartile), and receives a score of 12 

(expanding a geriatrics programEvaluation Criterion Two-5 points, 

using all slots for a primary care 

residency program-Evaluation Criterion 

Four-5 points, and is located in a 

Primary Care HPSA-Evaluation 

Criterion Five-2 points). 

Example 2 

Hospital J is a rural hospital located 

in Montana. Hospital J is a rotation site 

for an urban hospital’s family practice 

rural track program, but is unable to 

count all of the FTE residents training 

in the rural track because the rural 

hospital’s FTE cap is lower than its 

unweighted count of allopathic or 

osteopathic FTE residents as of portions 

of cost reporting periods on or after July 

1, 2011. The rural hospital wishes to 

expand the number of FTE residents 

training in the family practice rural 

track. The rural hospital also wishes to 

serve as a training site for one pediatrics 

resident in a pediatrics program that 

already exists at the urban hospital (that 

is, it is not a new pediatrics program). 

Hospital J would need to submit two 

CMS Evaluation Forms; one for family 

practice and another for pediatrics, and 

we would evaluate each accordingly. 

Both requests would put the hospital in 

the second level priority category (The 

hospital is in a State whose resident-topopulation ratio is within the lowest 

quartile, AND is either in a State whose 

Primary Care HPSA to population ratio 

is in the top 10 States, or it is located 

in a rural area, or is an urban hospital 

and has or will have as of July 1, 2010, 

a rural training track), and it can 

demonstrate the likelihood of filling the 

slots (because it is already over its FTE 

caps based on the family medicine 

residents it is training in the rural track, 

and together with the urban hospital, it 

has requested from the ACGME 

accreditation to expand the number of 

family practice residents training in the 

rural track and to receive a pediatrics 

resident). For the family practice 

request, Hospital J would receive 5 

points under Evaluation Criterion Four 

because all the slots it is requesting (that 

is, family practice and pediatrics) are for 

primary care programs, and it would 

receive 1 point under Evaluation 

Criterion Six because it is requesting the 

family practice slots for its rural training 

track, for a total of 6 points for the 

family practice request. For the 

pediatrics request, Hospital J would be 

placed in the second Priority Level 

Category, and receives 5 points under 

Evaluation Criterion Four because all 

the slots it is requesting (that is, family 

practice and pediatrics) are for primary 

care programs. 

15. Exception If Positions Are Not 

Redistributed by July 1, 2011 

Section 1886(h)(8)(E)(iii) of the Act 

states that in the case where, by July 1, 

2011, the Secretary ‘‘does not distribute 

positions to hospitals,’’ the Secretary 

shall distribute such positions to other 

hospitals in accordance with the 

considerations in redistribution 

specified at section 1886(h)(8)(C) of the 

Act (that is, the demonstrated likelihood 

of filling the slots and whether the 

hospital has a rural training track), and 

the priority for certain areas specified at 

section 1886(h)(8)(D) of the Act (that is, 

whether the hospital is located in a 

State with a resident-to-population ratio 

in the lowest quartile, whether the 

hospital is located in a State that is in 

top 10 States in terms of Primary Care 

HPSA population to State population, 

and whether the hospital is rural). We 

believe that the phrase ‘‘does not 

distribute positions to hospitals’’ 

contemplates the scenario where there 

would be more slots available than the 

amount that qualifying hospitals 

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requested, and therefore, CMS would be 

left with slots in the distribution pool as 

of July 1, 2011. The Secretary is directed 

to initiate another round of applications 

after July 1, 2011, in which hospitals 

that could demonstrate that they could 

use the slots would apply and possibly 

receive a portion of the remaining slots, 

until all the slots in the pool are 

redistributed. Should the situation arise 

where there are unused slots available 

as of July 1, 2011, we would propose a 

process for redistributing those slots ‘‘in 

accordance with the considerations in 

redistribution specified at section 

1886(h)(8)(C).’’ We would then alert the 

public through another round of notice 

and comment rulemaking to establish 

the application timeframe, criteria, 

process and other relevant information 

at that time. 

16. Application of Direct GME PRAs for 

Primary Care and Nonprimary Care 

Residents and Conforming Changes for 

the IME Multiplier 

Section 1886(h)(8)(G) of the Act states 

that, ‘‘With respect to additional 

residency positions in a hospital 

attributable to the increase provided 

under this paragraph, the approved FTE 

per resident amounts are deemed to be 

equal to the hospital per resident 

amounts for primary care and 

nonprimary care computed under 

paragraph (2)(D) for that hospital.’’ 

Hospitals that receive increases in their 

FTE resident caps under section 

1886(h)(8)(B)(i) will receive direct GME 

payments associated with those FTE 

residents in the same manner as they 

receive direct GME payments for their 

other (non-section 422) FTE residents, 

that is, using the primary care PRA that 

is reported on Worksheet E–3, Part IV, 

line 3.23, and the nonprimary care PRA 

reported on line 3.17 of the same 

worksheet. This provision in section 

5503 differs from section 422 in that 

hospitals that received additional slots 

under section 422 receive direct GME 

payment for FTE residents attributable 

to those slots using a single localityadjusted national average PRA (42 CFR 

413.77(g)), and the payment 

determination is made on Worksheet 

E–3, Part VI. Thus, if a hospital received 

additional slots under section 422, and 

they train a number of residents that is 

sufficient to require them to count FTE 

residents under those slots, the hospital 

will continue to receive direct GME 

payment for those slots using the 

locality-adjusted national average PRA. 

However, we are proposing that a 

hospital that receives additional slots 

under section 5503 would be paid for 

FTE residents counted under those slots 

using the same primary care and 

nonprimary PRAs for which payment is 

made for FTE residents subject to the 

1996 FTE cap. We are expecting to 

revise Worksheet E–3, Part IV to add a 

line on which hospitals would report 

the number of FTEs by which the 

hospital’s FTE caps were increased for 

direct GME slots received under section 

5503. To create a hospital’s total 

adjusted direct GME FTE cap, the 

increase granted under section 

1886(h)(8)(B)(i) would be added to the 

1996 direct GME FTE cap and would 

include any applicable new program 

adjustment received under § 413.79(e), 

and any applicable adjustments for the 

cost reporting period due to a Medicare 

GME affiliation agreement. In a given 

cost reporting year, we are proposing 

that a hospital would only count FTE 

residents under its direct GME section 

422 cap slots on Worksheet E–3, Part VI 

if the number of unweighted allopathic 

and osteopathic residents it is training 

exceeds the total adjusted direct GME 

cap (including the section 5503 slots) on 

Worksheet E–3, Part IV. 

In addition, with respect to the IME 

adjustment, we are proposing that a 

hospital that receives an increase in its 

FTE cap under section 1886(h)(8)(B)(i) 

will count FTE residents under those 

slots, and payment will be made with 

respect to residents counted under those 

slots, using the same IME multiplier for 

which payment is made for FTE 

residents subject to the 1996 FTE cap 

(that is, currently a multiplier of 1.35). 

This is because section 1886(d)(5)(B)(x) 

of the Act, as added by section 

5503(b)(2), states, ‘‘For discharges 

occurring on or after July 1, 2011, 

insofar as an additional payment 

amount under this subparagraph is 

attributable to resident positions 

distributed to a hospital under 

subsection (h)(8)(B), the indirect 

teaching adjustment factor shall be 

computed in the same manner as 

provided under clause (ii) with respect 

to such resident positions.’’ This 

provision in section 5503 differs from 

section 422 in that hospitals that 

received additional slots under section 

422 receive IME payment for FTE 

residents counted under those slots 

using a special multiplier of 0.66 (42 

CFR 412.105(e)(2)), and the payment 

determination is made on Worksheet E– 

3, Part VI. We also are expecting to 

revise Worksheet E, Part A to add a line 

in which applicable hospitals would 

report the amount of additional IME 

slots received under section 5503. To 

create a hospital’s total adjusted IME 

FTE cap, this additional amount would 

be added to the 1996 IME FTE cap, any 

applicable new program adjustment 

received under § 413.79(e), and any 

applicable adjustments for the period 

due to a Medicare GME affiliation 

agreement. In a given cost reporting 

year, we are proposing that a hospital 

would only use its IME section 422 cap 

slots on Worksheet E–3, Part VI if the 

number of unweighted allopathic and 

osteopathic residents it is training 

exceeds the total adjusted IME cap 

(including the section 5503 slots) on 

Worksheet E, Part A. Finally, under 

section 422 of Pub. L. 108–173, 

hospitals that were members of the same 

Medicare GME affiliated group on or 

after July 1, 2005, and that received 

additional FTE cap slots under section 

422 are precluded from including those 

additional section 422 slots in the 

aggregate affiliated cap. This is in part 

because section 422 specified that a 

hospital would receive direct GME and 

IME payments for additional slots 

awarded under section 422 with rates 

that were different from the non-section 

422 cap slots, and tracking the different 

direct GME and IME payment rates 

associated with FTE residents that are 

counted as a result of the section 422 

cap increases and those that were not 

would be extremely difficult for the 

Medicare contractors. In addition, in 

order to qualify for additional slots 

under section 422, the hospitals had to 

document a need for those slots. 

Similarly, under section 5503, we are 

proposing that hospitals that receive 

additional slots under section 5503 

cannot use these slots as part of the 

aggregate cap in a Medicare GME 

affiliation agreement. This is because we 

believe that once a hospital has 

demonstrated that it truly needs the 

additional slots, has made the effort to 

carefully document that it will fill those 

slots within three years, and once we 

have determined that the characteristics 

of the hospital and its training program 

warrant an increase in the hospital’s 

FTE resident caps under section 

1886(h)(8)(B)(i), we do not believe it 

would be appropriate for the hospital to 

transfer those positions to another 

hospital, albeit temporarily, under the 

terms of a Medicare GME affiliation 

agreement. To do so would be to 

undermine the goals and specifications 

for the redistribution of residency 

positions as set forth under section 

5503. 

We note that section 1886(h)(8)(B) of 

the Act, which addresses the increases 

in hospitals’ FTE resident caps, makes 

no reference to section 1886(h)(4)(G) or 

1886(d)(5)(B)(vi)(II) of the Act, which 

are the provisions concerning the rolling 

average count of FTE residents. 

Furthermore, there is no mention of 

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section 1886(d)(5)(B)(vi)(I) of the Act, 

the provision regarding the cap on the 

IME resident-to-bed ratio, in section 

1886(h)(8)(B) of the Act either. That is, 

the statute does not provide for an 

exclusion from application of the rolling 

average for residents counted as a result 

of FTE cap increases under section 

1886(h)(8)(B)(i) of the Act, nor does the 

statute exempt the residents counted 

pursuant to FTE cap increases under 

section 1886(h)(8)(B)(i) from the 

application of the cap on the IME 

resident-to-bed ratio. In light of the 

absence of a specific directive in section 

1886(h)(8)(B)(i) of the Act exempting 

those residents from application of the 

rolling average for direct GME and IME, 

and the cap on the IME resident-to-bed 

ratio, and with no apparent reason to 

treat residents counted as a result of the 

FTE cap increases under section 

1886(h)(8)(B) of the Act differently, we 

are proposing to require that if a 

hospital increases its direct GME or IME 

FTE count of residents under an 

increase in the hospital’s FTE resident 

cap under section 1886(h)(8)(B)(i) of the 

Act, those FTE residents would be 

immediately subject to the rolling 

average calculation and the cap on the 

IME resident-to-bed ratio. Furthermore, 

we believe that, given potentially 

significant shifts of FTE resident 

positions among hospitals as a result of 

section 1886(h)(8) of the Act, the 

inclusion of FTE residents counted as a 

result of FTE cap increases under 

section 1886(h)(8)(B)(i) of the Act in the 

rolling average would introduce a 

measure of stability and predictability, 

and mitigate radical shifts in GME 

payments from period to period. 

17. Other Issues Related to a Request for 

Increase in the FTE Caps Under Section 

5503 

• Rural Hospitals or Urban Nonteaching 

Hospitals 

Rural hospitals may receive an 

adjustment to their FTE caps for 

establishing a new residency program 

under § 413.79(e)(1)(iii) of the existing 

regulations at any time. Therefore, if a 

rural hospital is interested in starting a 

new program, or interested in 

participating in training residents in a 

new program on or after July 1, 2011, it 

need not apply for slots under section 

5503 for that new program. If a rural 

hospital seeks to expand an existing 

program, and does not have sufficient 

space under its existing FTE caps to 

cover those additional residents, the 

rural hospital may apply for an increase 

to its FTE caps under section 5503. 

Similarly, an urban hospital may 

request additional slots under section 

5503 for the purpose of expanding an 

existing program. A hospital, rural or 

urban, that is not yet a teaching hospital 

and does not have a cap established, 

may not apply for a permanent 

adjustment to their FTE caps under 

section 5503 since a non-teaching 

hospital may apply for a permanent cap 

adjustment under current Medicare 

regulations at § 413.79(e). Also, if an 

urban non-teaching hospital becomes a 

teaching hospital because it begins to 

serve as a rotating site for another 

hospital’s existing program, it may 

apply for additional slots under section 

5503, which would not preempt the 

hospital from later getting a new cap 

adjustment under § 413.79(e) for starting 

a new program. 

• Closed Teaching Hospitals 

We note that under section 5506 of 

Public Law 111–148, as explained 

further in section XVII.E. of this 

proposed rule, the FTE resident caps of 

teaching hospitals that close on or after 

March 23, 2008 are to be redistributed 

to other qualifying hospitals according 

to specific criteria. Assuming a teaching 

hospital closed recently, it is possible 

that based on the closed teaching 

hospital’s three most recent cost 

reporting periods ending prior to March 

23, 2010, its FTE resident caps could be 

subject to reduction under section 5503. 

However, so as to avoid duplication of 

FTE resident slots in the redistribution 

processes under sections 5503 and 5506, 

we are proposing that if a hospital 

closes on or after March 23, 2008, then 

its FTE resident cap slots would not be 

redistributed under section 5503, but 

would be reserved for redistribution 

under section 5506. 

• Requirements for Hospitals That 

Receive Additional Slots Under Section 

5503 

Section 1886(h)(8)(B)(ii) of the Act, as 

added by section 5503(a)(4) of the 

Affordable Care Act, specifies 

requirements and thresholds that a 

hospital that applies for and receives 

additional slots effective July 1, 2011 

must meet in order to retain those slots. 

Under section 422 of Public Law 108– 

173, hospitals that received additional 

slots were not held accountable for 

meeting any requirements once those 

slots were received effective July 1, 

2005, nor did section 422 require that 

CMS conduct any subsequent reviews of 

the hospitals that received the slots in 

order to determine that the hospitals 

were meeting certain thresholds. 

However, section 1886(h)(8)(B)(i) of the 

Act, as added by section 5503 of the 

Affordable Care Act specifies 

requirements that a hospital that 

receives an increase in its FTE resident 

caps under section 1886(h)(8)(B)(i) must 

meet, at least for a 5-year period 

beginning on and after July 1, 2011, and 

section 1886(h)(8)(B)(iii) directs the 

Secretary to reduce the FTE caps of the 

hospital by the same number of FTE 

residents by which the hospital’s FTE 

caps were increased if the hospital fails 

to meet these requirements. Specifically, 

section 1886(h)(8)(B)(ii) of the Act 

states, ‘‘a hospital that receives an 

increase in the otherwise applicable 

resident limit under this subparagraph 

shall ensure, during the 5-year period 

beginning on the date of such increase, 

that— 

(I) The number of full-time equivalent 

primary care residents, as defined in 

paragraph (5)(H) (as determined by the 

Secretary), excluding any additional 

positions under subclause (II), is not 

less than the average number of fulltime equivalent primary care residents 

(as so determined) during the 3 most 

recent cost reporting periods ending 

prior to the date of enactment of this 

paragraph; and 

(II) Not less than 75 percent of the 

positions attributable to such increase 

are in a primary care or general surgery 

residency (as determined by the 

Secretary). 

The Secretary may determine whether 

a hospital has met the requirements 

under this clause during such 5-year 

period in such manner and at such time 

as the Secretary determines appropriate, 

including at the end of such 5-year 

period.’’ 

Section 1886(h)(5)(H) of the Act 

defines ‘‘primary care resident’’ as a 

resident enrolled in an approved 

medical residency training program in 

family medicine, general internal 

medicine, general pediatrics, preventive 

medicine, geriatric medicine, or 

osteopathic general practice. We are 

proposing that a hospital that is 

applying to receive additional slots 

would have to submit data from the 3 

most recent cost reporting periods 

ending before March 23, 2010 (the date 

of enactment) on the number of 

unweighted FTE residents in these 

primary care programs. We note that 

this primary care average is based on the 

hospital’s total FTE count that would 

otherwise be allowable in absence of the 

FTE cap; if a hospital is training FTE 

residents in excess of its FTE caps, it 

would still determine the 3-year average 

based on the total number of 

unweighted primary care FTE residents. 

A total primary care FTE count, one for 

IME and one for direct GME, is 

sufficient for the hospital for each of 

these 3 cost reporting periods; a hospital 

need not report these data by specialty. 

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However, we note that, currently, the 

Medicare cost report does not track a 

hospital’s number of primary care 

residents. For direct GME, on Worksheet 

E–3, Part IV, line 3.19, the hospital’s 

number of weighted primary care and 

OB/GYN residents is reported. Thus, if 

a hospital trains OB/GYN residents in 

addition to primary care residents, we 

are proposing that the OB/GYN count 

must be subtracted from the number 

reported on line 3.19 of Worksheet E– 

3, Part IV for the hospital’s 3 most 

recent cost reporting periods ending 

before March 23, 2010. This would 

produce a weighted FTE count for direct 

GME. In any case, the source 

documentation for these data is the 

rotation schedules for the applicable 

years. For IME, on Worksheet E, Part A, 

there is no line that currently records 

the number of primary care residents, as 

the distinction between primary care 

and non-primary care residents is only 

necessary in the direct GME payment 

formula (due to the use of a primary 

care and OB/GYN PRA and a 

nonprimary care PRA for certain years). 

Therefore, we are proposing that the 

applicant hospital must develop from its 

rotation schedules three IME FTE 

primary care counts to correspond to its 

three most recent cost reporting periods 

ending before March 23, 2010. As part 

of its application, we are proposing that 

the hospital must include the 

documentation that it used to arrive at 

its direct GME and IME primary care 

FTE counts, including a copy of 

Worksheet E–3, Part IV for direct GME, 

and if the hospital has an OB/GYN 

program, the rotation schedules 

corresponding to the three most recent 

cost reporting periods ending prior to 

March 23, 2010 for OB/GYN, and the 

rotation schedules for all primary care 

residency programs used to establish the 

IME primary care FTE count 

corresponding to the three most recent 

cost reporting periods ending prior to 

March 23, 2010. Although we have 

considered proposing that a hospital 

may demonstrate that it is complying 

with the requirement to maintain the 

primary care average with only a single 

unweighted FTE count, rather than one 

FTE count for direct GME and one FTE 

count for IME, we believe that we need 

to propose to require documentation 

from both a direct GME and an IME FTE 

count because section 5503 of the 

Affordable Care Act amended section 

1886(d)(5)(B)(v) of the Act to make the 

entire section 1886(h)(8), of which 

maintenance of this primary care 

average is a part, applicable for 

purposes of IME. Thus, both section 

1886(h) of the Act for direct GME and 

section 1886(d)(5)(B) of the Act for IME 

are equally impacted by section 5503. 

Furthermore, we are proposing that the 

FTE counts for IME and direct GME 

used to derive these primary care 

averages are subject to audit by the 

Medicare contractors, and that, as part 

of reviews or audits performed by the 

Medicare contractors in accordance 

with their normal audit plans, the 

Medicare contractors would check 

whether a hospital is maintaining its 

primary care average in each of the cost 

reports in the 5-year period as early as 

tentative settlement of those five 

respective cost reports, and may take 

prompt action accordingly to adjust a 

hospital’s FTE caps and direct GME and 

IME interim payments. 

In addition to maintaining this 

average number of primary care 

residents, section 1886(h)(8)(B)(ii)(II) of 

the Act also requires that a hospital that 

receives an increase to its FTE resident 

caps under section 1886(h)(8)(B)(i) must 

ensure that 75 percent of those slots are 

used to train primary care or general 

surgery residents. A hospital that 

applies for additional slots may or may 

not already train at least 75 percent or 

more of its residents in primary care or 

general surgery programs. At a 

minimum, the applicant hospital is 

required to maintain the average 

number of FTE primary care residents 

that it trained during the three most 

recent cost reporting periods ending 

prior to March 23, 2010. Further, we are 

proposing that in addition to the 

primary care residents used to maintain 

the primary care average, the applicant 

hospital must separately ensure that at 

least 75 percent of the increased FTE 

cap slots it receives are used to count 

FTE residents in primary care or general 

surgery. We are proposing that the 

hospital must be able to document that, 

during each of the five years in the fiveyear period of July 1, 2011 to June 30, 

2016, for IME and direct GME 

respectively, and for each cost report 

during those five years, that not only is 

it maintaining its primary care average, 

but that 75 percent of the increased FTE 

cap slots that it received are being used 

to count residents training in primary 

care or general surgery programs. For 

example, Hospital A has a June 30 fiscal 

year end, an FTE cap of 100 FTEs, and 

a total FTE count of 110. In its three 

most recent cost reports ending prior to 

March 23, 2010 (fiscal year end June 30, 

2009, June 30, 2008, and June 30, 2007), 

Hospital A was training 60 primary care 

FTE residents, 50 primary care FTE 

residents, and 40 primary care FTE 

residents respectively. The average 

number of primary care FTE residents 

during those three years is 50. Hospital 

A applied for and received 10 additional 

FTE cap slots under section 5503. 

Beginning July 1, 2011, for each cost 

report ending June 30, 2012, June 30, 

2013, June 30, 2014, June 30, 2015, and 

June 30, 2016, Hospital A must ensure 

that it does not train less than 50 

primary care FTE residents, and it must 

ensure that it trains an additional 7.5 

FTEs of the 10 slots it receives in either 

primary care or general surgery. In 

another example, Hospital B has a 

December 31 fiscal year end, an FTE cap 

of 10 FTEs, and a total FTE count of 12. 

In its 3 most recent cost reports ending 

prior to March 23, 2010 (fiscal year end 

December 31, 2009, December 31, 2008 

and December 31, 2007), Hospital A was 

training 12 primary care FTE residents 

in each of the 3 years. The average 

number of primary care FTE residents is 

12. Hospital B applied for and received 

4 additional FTE cap slots under section 

5503. Beginning July 1, 2011 and ending 

June 30, 2016, Hospital B must ensure 

that it does not train less than 12 

primary care FTE residents, and it must 

ensure that it trains an additional 3 

FTEs of the 4 slots it receives in either 

primary care or general surgery. We are 

proposing that the Medicare contractors 

would check whether a hospital is 

maintaining this 75-percent threshold as 

part of reviews or audits performed by 

the Medicare contractors in accordance 

with their normal audit plans in the 5- 

year period as early as tentative 

settlement of those five respective cost 

reports, and may take action accordingly 

to adjust a hospital’s FTE resident caps 

and direct GME and IME interim 

payments. 

It is possible that there are hospitals 

that are not currently training, nor have 

they trained in any of their three cost 

reporting periods ending prior to March 

23, 2010, any primary care residents at 

all, but that such hospitals are applying 

for an increase to their FTE caps for a 

new primary care or general surgery 

program that they would like to start. 

Such hospitals would have a primary 

care average of zero. Because the intent 

of section 5503 is to try to increase the 

number of primary care (or general 

surgery) residents in training, we are 

proposing that such hospitals would be 

able to apply for additional slots under 

section 5503. Should such a hospital 

receive an FTE cap increase, we are 

proposing that 75 percent of the 

increased FTE cap slots must be used to 

count FTE residents in either primary 

care or general surgery. We are 

proposing that a hospital is required to 

document in each of the 5 years that it 

has maintained the primary care average 

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and that at least 75 percent of the slots 

it receives is used for training either 

primary care and/or general surgery 

residents rather than only once at the 

end of the 5-year period. As explained 

more fully below, if a hospital has not 

met these requirements, we believe it 

would be less disruptive financially and 

administratively to a hospital if we 

make the adjustment to the hospital’s 

FTE resident caps under section 

1886(h)(8)(B)(iii)(I) and recover any 

overpayment after 1 year rather than 

after the conclusion of the full 5 year 

monitoring period under section 

1886(h)(8)(B)(ii). 

Section 1886(h)(8)(B)(ii) of the Act 

also states that ‘‘The Secretary may 

determine whether a hospital has met 

the requirements under this clause 

during such 5-year period in such 

manner and at such time as the 

Secretary determines appropriate, 

including at the end of such 5-year 

period’’ (emphasis added). We are 

proposing that the ‘‘5-year period 

beginning on the date of such increase’’ 

is July 1, 2011 through June 30, 2016, 

because the effective date of section 

5503 is for portions of cost reporting 

periods beginning on or after July 1, 

2011. Thus, it is during this 5-year 

period that an ‘‘average number of fulltime equivalent primary care residents’’ 

must be maintained, and that 75 percent 

of the additional slots must be trained 

in primary care or general surgery, for 

IME and direct GME respectively. 

However, the Secretary is given some 

discretion as to how and when she 

determines whether a hospital is 

meeting or has met the requirements 

‘‘during such 5-year period.’’ Although 

we believe that the 5-year period must 

be within July 1, 2011 through June 30, 

2016, we believe we have flexibility to 

determine which cost reporting periods 

within that 5-year period we may use to 

assess whether the hospital is 

consistently meeting the required 

criteria. For the sake of administrative 

simplicity, on behalf of hospitals and 

the Medicare contractors, we are 

proposing that the Medicare contractors, 

in accordance with their normal audit 

plans, would make assessments based 

on a hospital’s fiscal year when 

possible, such that the Medicare 

contractors could make a first 

assessment for an initial ‘‘short’’ period, 

then annually as each of the hospital’s 

fiscal year ends until there is another 

final ‘‘short’’ assessment period that 

starts after the provider’s last fiscal year 

end within the 5-year window and runs 

through June 30, 2016. If a hospital has 

a June 30 fiscal year end, we are 

proposing that the Medicare contractor 

could assess whether the hospital is 

meeting the required criteria five times, 

starting with its cost reporting period 

beginning on July 1, 2011, and ending 

with its fifth cost reporting period that 

starts on July 1, 2015 (and ending June 

30, 2016). However, for hospitals that 

have a fiscal year end of other than June 

30, we are proposing that the Medicare 

contractors could assess whether the 

hospital met the requirements for the 

portion of its cost reporting period that 

occurs after July 1, 2011, its subsequent 

full cost reporting periods, and then 

ending with the portion of the cost 

reporting period prior to June 30, 2016. 

In other words, we are proposing that 

the hospital would be considered to 

meet the required criteria in ‘‘Year 1’’ if 

it meets the requirements based on an 

annualized FTE count from July 1, 2011 

through the end of its cost reporting 

period; in each of years 2 through 4, it 

must meet the requirements based on its 

next 3 cost reporting periods; and in 

year 5, it must meet the requirements 

based on an annualized FTE count from 

the first day of its cost reporting period 

through June 30, 2016 (which is the last 

day on which a hospital has any 

obligation to meet these requirements). 

For example, assume Hospital C has a 

September 30 fiscal year end, and 

receives 16 additional slots under 

section 5503, and has a primary care 

average of 30 FTE residents. We are 

proposing that during the period of July 

1, 2011 through June 30, 2016, Hospital 

C must demonstrate that it is training at 

least 75 percent of its 16 slots in 

primary care or general surgery (that is, 

12 slots), and that it maintains a primary 

care FTE count of 30, as follows: 

Year 1—July 1, 2011 to September 30, 

2011, with an annualized count of 3 

(that is, 12 divided by 4) additional 

FTEs in primary care/general surgery, 

and an annualized count of 7.5 (that is, 

30 divided by 4) FTEs training in 

primary care residency programs. 

Year 2—October 1, 2011 to September 

30, 2012, with 12 FTEs in primary care/ 

general surgery, and 30 FTEs in primary 

care programs. 

Year 3—October 1, 2012 to September 

30, 2013, with 12 FTEs in primary care/ 

general surgery, and 30 FTEs in primary 

care programs. 

Year 4—October 1, 2012 to September 

30, 2014, with 12 FTEs in primary care/ 

general surgery, and 30 FTEs in primary 

care programs. 

Year 5—October 1, 2014 to September 

30, 2015, with 12 FTEs in primary care/ 

general surgery, and 30 FTEs in primary 

care programs. 

Year 6—October 1, 2015 to June 30, 

2016, with an annualized count of 9 

additional FTEs in primary care/general 

surgery, and an annualized count of 

22.5 FTEs training in primary care 

residency programs. 

We are proposing to reserve the right 

to assess as many times as necessary in 

the 5-year period that a hospital is 

meeting the required criteria. 

Furthermore, if a Medicare contractor 

determines during an audit that a 

hospital did not meet the requirements 

during, for example, the second year, 

the contractor could go back and audit 

the first year (full, or short period), and 

make a retroactive adjustment. We also 

understand that we should consider that 

hospitals might not immediately fill all 

the slots they receive, particularly 

because they are only required to 

demonstrate the likelihood of filling the 

slots within the first three cost reporting 

periods beginning on or after July 1, 

2011. Accordingly, in the preceding 

example in which Hospital C was 

awarded 16 slots and has a September 

30 fiscal year end, assume it only added 

2 actual residents immediately on July 

1, 2011. Two residents equate to 0.5 FTE 

for the 3-month period of July 1, 2011 

to September 30, 2011. Seventy five 

percent of 0.5 FTE equals 0.375. We are 

proposing that at least 0.375 of the new 

FTEs added for the period of July 1, 

2011 to September 30, 2011 must be in 

primary care or general surgery in order 

to meet the requirement in ‘‘Year 1.’’ 

In a case where the Medicare 

contractor determines that a hospital 

did not meet the requirements in a cost 

reporting year within the 5-year time 

period, section 1886(h)(8)(B)(iii) of the 

Act states that ‘‘the Secretary shall— 

(I) Reduce the otherwise applicable 

resident limit of the hospital by the 

amount by which such limit was 

increased under this paragraph; and 

(II) Provide for the distribution of 

positions attributable to such reduction 

in accordance with the requirements of 

this paragraph.’’ Hospitals have different 

fiscal year ends and are subject to 

different audit schedules, which may 

occur several years after a hospital’s cost 

report is submitted. Therefore, even 

though we are proposing that the 

Medicare contractors may make 

adjustments to a hospital’s direct GME 

and IME payments as early as tentative 

settlement, it may be several years after 

June 30, 2016 before CMS determines 

the exact number of reductions, if any, 

that are applied to the FTE caps of 

hospitals that received additional slots, 

but that failed to meet the requirements 

under section 1886(h)(8)(B)(ii) of the 

Act, discussed above. However, once we 

have determined the number of slots 

available for a second redistribution, we 

would distribute them ‘‘in accordance 

with the requirements of this 

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paragraph.’’ That is, we would distribute 

the slots to hospitals that applied under 

this first redistribution and that 

qualified to receive the slots they 

requested, but for whom we did not 

have sufficient slots in the ‘‘pool’’ to 

grant them the full number of FTE slots 

that they requested. As discussed above 

in section XVII.D. of this proposed rule, 

because of the requirement that 70 

percent of the slots be redistributed to 

hospitals within States with resident-topopulation ratios in the lowest quartile, 

it is possible that, after first distributing 

slots to hospitals with the highest scores 

on their CMS Evaluation Form, there 

may be some remaining qualifying 

hospitals within the same priority level 

category that receive the same score on 

the CMS Evaluation Form. Thus, we 

would have no way of distinguishing 

among these hospitals of equal rank. If 

this situation occurs, we are proposing 

to prorate the remaining amount of slots 

in the ‘‘70 percent’’ pool, and distribute 

an equal share of slots to these hospitals 

of equal rank. If a similar situation 

occurs within the ‘‘30 percent’’ pool, we 

also are proposing to prorate the 

remaining amount of slots in the ‘‘30 

percent’’ pool and distribute an equal 

share of slots to hospitals of equal rank. 

Accordingly, in the event that there is 

a second redistribution process 

pursuant to section 1886(h)(8)(B)(iii)(II), 

we are proposing to distribute the slots 

in the ‘‘pool’’ (created by the failure of 

one or more hospitals to meet the 

criteria specified under section 

1886(h)(8)(B)(ii)) to those hospitals that 

did not receive all of the slots for which 

they technically qualified, and for 

which we had to prorate under the first 

redistribution. If we have sufficient slots 

to fully satisfy the original requests of 

those qualifying hospitals, we would 

assign them the difference between the 

prorated amount awarded under the 

first redistribution and the amount of 

slots they requested on their original 

application (assuming they actually 

otherwise qualified for all the slots they 

requested). In other words, we would go 

back to the original applications and 

continue to assign slots to those 

hospitals that originally qualified to 

receive slots under section 5503, but for 

which we did not have sufficient slots 

to satisfy their requests. We are 

proposing to assign the additional slots 

in the same priority order as under the 

first redistribution process under 

section 5503, resuming where we left 

off, until all the slots have been 

distributed. After such point, there 

would be no further harvesting of slots 

or redistribution under section 5503. 

We are proposing to add new 

regulations at § 412.105(f)(1)(iv)(C)(2) 

for IME and at § 413.79(n) for direct 

GME to reflect our proposals regarding 

hospitals receiving increases to their 

FTE resident caps under section 5503, 

and the requirements that hospitals 

must meet in order to keep those FTE 

slots, and not be subject to a removal of 

those FTE slots during the 5-year period 

of July 1, 2011 through June 30, 2016. 

• No Administrative or Judicial Review 

Section 5503(a)(3) of the Affordable 

Care Act amended section 1886(h)(7)(E) 

of the Act by adding ‘‘or paragraph (8)’’ 

such that section 1886(h)(7)(E) of the 

Act now specifies that ‘‘There shall be 

no administrative or judicial review 

under section 1869, 1878, or otherwise, 

with respect to determinations made 

under this paragraph or paragraph (8).’’ 

As stated in the preceding section 

regarding reference cost reports that are 

under appeal, we believe the fact that 

Congress included this language clearly 

means that the Congress intended for 

our determination with regard to FTE 

resident cap reductions under section 

1886(h)(8)(A) to be final, and not subject 

to appeal. Because of this statutory 

language, together with the requirement 

that all reductions and increases in FTE 

resident caps be made effective July 1, 

2011, we do not believe it would be 

appropriate to allow hospitals (or CMS) 

to appeal determinations concerning the 

FTE cap reductions or the FTE cap 

increases) under section 1886(h)(8) of 

the Act. In addition, as indicated 

previously, we believe that Congress 

intended this provision to be 

implemented fairly, but efficiently, 

avoiding the delays and uncertainty that 

would be produced by an appeals 

process. Furthermore, we note that, as 

explained previously in this preamble, 

as was done under section 422 of Public 

Law 108–173, Medicare contractors will 

provide hospitals with a time-limited 

opportunity to review cap reduction 

determinations for possible technical 

errors before they are finalized. 

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Application Process and CMS Central 

Office and Regional Office Mailing 

Addresses for Receiving Increases in 

FTE Resident Caps 

In order for hospitals to be considered 

for increases in their FTE resident caps, 

each qualifying hospital must submit a 

timely application. The following 

information must be submitted on 

applications to receive an increase in 

FTE resident caps: 

• The name and Medicare provider 

number of the hospital. 

• The name of the Medicare 

contractor to which the hospital submits 

its Medicare cost report. 

• The total number of requested FTE 

resident slots for direct GME or IME, or 

both, up to 75 direct GME FTE and 75 

IME FTE per hospital. 

• A completed copy of the CMS 

Evaluation Form for each residency 

program for which the hospital intends 

to use the requested increase in FTE 

residents. 

• Source documentation to support 

the assertions made by the hospital on 

the CMS Evaluation Form. 

• FTE resident counts for direct GME 

and IME and FTE resident caps for 

direct GME and IME reported by the 

hospital in the most recent as-filed cost 

report. (Include copies of Worksheets E, 

Part A, E–3, Part IV, and if a hospital 

received an increase to its FTE cap(s) 

under section 422 of the MMA, a copy 

of E–3, Part VI). 

• As part of its application, we are 

proposing that the hospital must 

include the documentation that it used 

to arrive at its direct GME and IME 

primary care FTE counts, including a 

copy of Worksheet E–3, Part IV for 

direct GME, and if the hospital has an 

OB/GYN program, the rotation 

schedules corresponding to the 3 most 

recent cost reporting periods ending 

prior to March 23, 2010 for OB/GYN, 

and the rotation schedules for all 

primary care residency programs used 

to establish the IME primary care FTE 

count corresponding to the 3 most 

recent cost reporting periods ending 

prior to March 23, 2010. 

• An attestation, signed and dated by 

an officer or administrator of the 

hospital who signs the hospital’s 

Medicare cost report, of the following 

information: 

‘‘I hereby certify that I understand that 

misrepresentation or falsification of any 

information contained in this application 

may be punishable by criminal, civil, and 

administrative action, fine and/or 

imprisonment under federal law. 

Furthermore, I understand that if services 

identified in this application were provided 

or procured through payment directly or 

indirectly of a kickback or where otherwise 

illegal, criminal, civil, and administrative 

action, fines and/or imprisonment may 

result. I also certify that, to the best of my 

knowledge and belief, it is a true, correct, and 

complete application prepared from the 

books and records of the hospital in 

accordance with applicable instructions, 

except as noted. I further certify that I am 

familiar with the laws and regulations 

regarding Medicare payment to hospitals for 

the training of interns and residents.’’ 

The completed application and 

supporting documentation (as described 

above) must be submitted to the CMS 

Central Office and the CMS Regional 

Office for the region in which the 

applicant hospital is located. The 

application must be received on or 

before December 1, 2010. The addresses 

of the CMS central office and regional 

offices are listed below. 

CMS Central and CMS Regional Office 

Mailing Addresses for Applications for 

Increases in FTE Resident Caps 

Central Office 

Centers for Medicare and Medicaid 

Services (CMS) 

Director, Division of Acute Care 

7500 Security Boulevard 

Mail Stop C4–08–06 

Baltimore, Maryland 21244 

(410) 786–4548 

Region I (Connecticut, Maine, 

Massachusetts, New Hampshire, Rhode 

Island, and Vermont) 

Centers for Medicare and Medicaid 

Services (CMS) 

Associate Regional Administrator, 

Division of Financial Management 

and Fee for Service Operations 

Region I 

JFK Federal Building 

Room 23275 

Boston, MA 02203 

Phone: (617) 565–1331 

Region II (New York, New Jersey, U.S. 

Virgin Islands, and Puerto Rico) 

Centers for Medicare and Medicaid 

Services (CMS) 

Associate Regional Administrator, 

Division of Financial Management 

and Fee for Service Operations 

Region II 

26 Federal Plaza, 38th Floor 

New York, NY 10278 

Phone: (212) 616–2545 

Region III (Delaware, Maryland, 

Pennsylvania, Virginia and West 

Virginia, and the District of Columbia) 

Centers for Medicare and Medicaid 

Services (CMS) 

Associate Regional Administrator, 

Division of Financial Management 

and Fee for Service Operations 

Region III 

Public Ledger Building, Suite 216 

150 South Independence Mall West 

Philadelphia, PA 19106 

Phone: (215) 861–4140 

Region IV (Alabama, North Carolina, 

South Carolina, Florida, Georgia, 

Kentucky, Mississippi, and Tennessee) 

Centers for Medicare and Medicaid 

Services (CMS) 

Associate Regional Administrator, 

Division of Financial Management 

and Fee for Service Operations 

Region IV 

Atlanta Federal Center 

61 Forsyth Street, SW., Suite 4T20 

Atlanta, GA 30303–8909 

Phone: (404) 562–7300 

Region V (Illinois, Indiana, Michigan, 

Minnesota, Ohio, and Wisconsin) 

Centers for Medicare and Medicaid 

Services (CMS) 

Associate Regional Administrator, 

Division of Financial Management 

and Fee for Service Operations 

Region V 

233 North Michigan Avenue, Suite 600 

Chicago, IL 60601 

Phone: (312) 886–6432 

Region VI (Arkansas, Louisiana, New 

Mexico, Oklahoma, and Texas) 

Centers for Medicare and Medicaid 

Services (CMS) 

Associate Regional Administrator, 

Division of Financial Management 

and Fee for Service Operations 

Region VI 

1301 Young Street, Suite 714 

Dallas, TX 75202 

Phone: (214) 767–6423 

Region VII (Iowa, Kansas, Missouri, and 

Nebraska) 

Centers for Medicare and Medicaid 

Services (CMS) 

Associate Regional Administrator, 

Division of Financial Management 

and Fee for Service Operations 

Region VII 

Richard Bolling Federal Building 

Room 235 

601 East 12th Street 

Kansas City, MO 64106 

(816) 564–1843 

Region VIII (Colorado, Montana, North 

Dakota, South Dakota, Utah and 

Wyoming) 

Centers for Medicare and Medicaid 

Services (CMS) 

Associate Regional Administrator, 

Division of Financial Management 

and Fee for Service Operations 

Region VIII 

Colorado State Bank Building 

1600 Broadway, Suite 700 

Denver, CO 80202 

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Phone: (303) 844–2111 

Region IX (Arizona, California, Hawaii, 

and Nevada and Territories of American 

Samoa, Guam and the Commonwealth 

of the Northern Mariana Islands) 

Centers for Medicare and Medicaid 

Services (CMS) 

Associate Regional Administrator, 

Division of Financial Management 

and Fee for Service Operations 

Region IX 

90 7th Street, Suite 5–300 (SW) 

San Francisco, CA 94103–6708 

Phone: (415) 744–3501 

Region X (Alaska, Idaho, Oregon, and 

Washington) 

Centers for Medicare and Medicaid 

Services (CMS) 

Associate Regional Administrator, 

Division of Medicare Financial 

Management 

Region X 

2201 Sixth Avenue, MS/RX–46 

Seattle, WA 98121 

Phone: (206) 615–2094 

E. Preservation of Resident Cap 

Positions From Closed Hospitals 

(Section 5506 of the Affordable Care 

Act) (§ 412.105(f)(1)(ix)(B) and 

§ 413.79(o)(2)) 

1. Background 

As we explain in Section XVII.A. of 

this proposed rule, Medicare makes 

both direct GME and IME payments to 

hospitals that train residents in 

approved medical residency training 

programs. Direct GME payments are 

made in accordance with section 

1886(h) of the Act, based generally on 

hospital-specific PRAs, the number of 

FTE residents a hospital trains, and the 

hospital’s Medicare patient share. IME 

payments are made in accordance with 

section 1886(d)(5)(B) of the Act, based 

generally on the ratio of the hospital’s 

FTE residents to the number of hospital 

beds. Accordingly, the calculation of 

both direct GME and IME payments is 

affected by the number of FTE residents 

that a hospital is allowed to count; 

generally, the greater the number of FTE 

residents a hospital counts, the greater 

the amount of Medicare direct GME and 

IME payments the hospital will receive. 

In an attempt to end the implicit 

incentive for hospitals to increase the 

number of FTE residents, Congress 

instituted a cap on the number of 

allopathic and osteopathic residents a 

hospital is allowed to count for direct 

GME and IME purposes under the 

provisions of section 1886(h)(4)(F) of 

the Act for direct GME and section 

1886(d)(5)(B)(v) of the Act for IME. 

Dental and podiatric residents were not 

included in this statutorily mandated 

cap. For most hospitals, the limit, or 

cap, is the unweighted number of 

allopathic and osteopathic FTE 

residents training in the hospital’s most 

recent cost reporting period ending on 

or before December 31, 1996. Thus, each 

teaching hospital FTE resident cap is 

unique to the number of FTE residents 

that it trained in the hospital’s most 

recent cost reporting period ending on 

or before December 31, 1996. 

Under existing regulations at 

§ 413.79(h) for direct GME and 

§ 412.105(f)(1)(ix) for IME, a hospital 

that is training FTE residents at or in 

excess of its FTE resident caps and takes 

in residents displaced by the closure of 

another teaching hospital may receive a 

temporary increase to its FTE residents 

caps so that it may receive direct GME 

and IME payment associated with those 

displaced FTE residents. However, 

those temporary FTE resident cap 

increases are associated with those 

specific displaced FTE residents, and 

the increases expire as those displaced 

residents complete their training 

program. Thus, if a teaching hospital 

closes, its direct GME and IME FTE 

resident cap slots would be ‘‘lost,’’ 

because those cap slots are associated 

with a specific hospital’s Medicare 

provider agreement, which would be 

retired upon the hospital’s closure. The 

closure of a teaching hospital, 

particularly if it is a large academic 

medical center, could mean not only the 

displacement of hundreds of residents, 

but also the permanent loss of hundreds 

of Medicare-funded residency training 

slots and a sophisticated GME 

infrastructure that could take many 

years to rebuild, threatening the 

availability of health care services in a 

community. Section 5506 of the 

Affordable Care Act addresses this 

situation by amending section 

1886(h)(4)(H) of the Act to add a new 

clause (vi) that instructs the Secretary to 

establish a process by regulation under 

which, in the event a teaching hospital 

closes, the Secretary will permanently 

increase the FTE resident caps for 

hospitals that meet certain criteria by 

the number of FTE resident positions in 

the closed hospital’s training programs. 

Section 5506 of the Affordable Care 

Act specifically instructs the Secretary 

to increase the FTE resident caps for 

other hospitals based upon the FTE 

resident positions in teaching hospitals 

that closed ‘‘on or after a date that is 2 

years before the date of enactment’’ (that 

is, March 23, 2008). Although certain of 

the FTE cap increases granted pursuant 

to section 5506 will be based on 

hospital closures that occurred prior to 

this notice and comment rulemaking 

procedure, the process we are proposing 

to establish in the CY 2011 OPPS Final 

Rule would also be used for all future 

teaching hospital closures. We are in the 

process of instructing the Medicare 

contractors to notify us of every 

teaching hospital that has closed since 

March 23, 2008, and of the direct GME 

and IME FTE caps for each of those 

closed hospitals. We plan to use this 

information to determine how many 

slots are currently available for 

increases to other hospitals’ FTE 

resident caps. 

We note that section 

1886(h)(4)(H)(vi)(IV) of the Act, as 

added by section 5506(a) of the 

Affordable Care Act, states that ‘‘The 

aggregate number of increases in the 

otherwise applicable resident limits for 

the hospitals under this clause shall be 

equal to the number of resident 

positions in the approved medical 

residency programs that closed on or 

after’’ March 23, 2008. For purposes of 

implementing this section 

1886(h)(4)(H)(vi)(IV), we are proposing 

to interpret ‘‘the number of resident 

positions’’ to mean the number that is 

equal to the IME and direct GME FTE 

resident caps of a hospital that closed, 

or will close. We do not believe the 

intent of this provision is to distribute 

and pay for more FTE resident slots 

than the amount equal to a closed 

hospital’s IME and direct GME FTE 

resident caps, in the instance where a 

closed hospital was training more FTE 

residents than its FTE resident caps. 

Further, in the situation where a closed 

hospital was training FTE residents 

below its caps, we believe that for the 

sake of ensuring that a community 

could retain up to its full training 

strength, we believe it is appropriate to 

distribute, not the actual number of slots 

the closed hospital had been training 

prior to its closure, but the number of 

FTE resident slots equal to the IME and 

direct GME FTE caps of the closed 

hospital. 

2. Definition of a ‘‘Closed Hospital’’ 

Section 1886(h)(4)(H)(vi) of the Act, 

as added by section 5506(a) of the 

Affordable Care Act, states that ‘‘the 

Secretary shall, by regulation, establish 

a process under which, in the case 

where a hospital (other than a hospital 

described in clause (v)) with an 

approved medical residency program 

closes on or after’’ March 23, 2008, the 

Secretary shall increase the FTE 

resident caps of other hospitals 

accordingly (emphasis added). Under 

existing regulations at § 489.52 and 

§ 413.79(h), ‘‘closure of a hospital’’ 

means the hospital terminates its 

Medicare provider agreement. We are 

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proposing to define a ‘‘closed teaching 

hospital’’ for purposes of section 5506 in 

a similar manner, but would also 

specify that the FTE resident cap slots 

of the hospital that closed no longer 

exist as part of any other hospital’s 

permanent FTE resident cap. Thus, we 

are proposing that this provision would 

not apply to hospitals that declare 

bankruptcy but are still participating 

under the same Medicare provider 

agreement, nor would it apply to 

teaching hospitals that remain open, but 

close one or more residency programs. 

It also would not apply to mergers, 

because in the case of a merger, the 

Medicare provider agreement of one 

hospital is subsumed into the provider 

agreement of the surviving provider; no 

provider agreement is retired, even if 

operations at one facility are scaled back 

or ceased. 

However, we are proposing that the 

proposed revised definition of hospital 

closure for purposes of implementing 

section 5506 would apply in the case of 

acquisitions, where the new owner 

retires the Medicare provider agreement 

of the hospital it purchased, thus 

abdicating the FTE resident cap slots 

associated with that provider agreement, 

even if the new owner will continue to 

operate the hospital exactly as it had 

been operated before the acquisition 

(that is, makes no changes to the bed 

size, infrastructure, services, and GME 

programs). We believe this is 

appropriate because section 5506 of the 

Affordable Care Act specifically 

addresses hospital ‘‘closure’’ and ensures 

preservation of the FTE cap slots within 

a community when a teaching hospital 

does ‘‘close,’’ based on specified criteria 

for redistributing the slots from the 

closed hospital to increase the FTE caps 

for other hospitals. However, as we 

explain further below, it is possible for 

the new hospital formed in an 

acquisition to receive preference in 

receiving an increase to its FTE resident 

caps based on redistributed slots from 

the closed hospital that it acquired. 

Section 1886(h)(4)(H)(vi) of the Act, 

as added by section 5506(a), also states 

that ‘‘the Secretary shall, by regulation, 

establish a process under which, in the 

case where a hospital (other than a 

hospital described in clause (v)) with an 

approved medical residency program 

closes * * *’’ (emphasis added). A 

hospital described in section 

1886(h)(4)(H)(v) of the Act is an entity 

that enters into a provider agreement 

pursuant to section 1866(a) of the Act to 

provide hospital services on the same 

physical site previously used by 

Medicare Provider No. 05–0578. 

Accordingly, we are proposing not to 

redistribute any FTE cap slots 

associated with Medicare Provider 

Number 05–0578. 

3. Priority for Hospitals in Certain Areas 

Section 1886(h)(4)(H)(vi)(II), as added 

by section 5506(a) of the Affordable 

Care Act, specifies that the Secretary 

shall distribute the FTE cap increases in 

the following priority order, ‘‘with 

preference given within each category to 

hospitals that are members of the same 

affiliated group’’ (as defined by the 

Secretary) as the closed hospital: 

• First, to hospitals located in the 

same core-based statistical area (CBSA) 

as, or in a CBSA contiguous to, the 

hospital that closed. 

• Second, to hospitals located in the 

same State as the closed hospital. 

• Third, to hospitals located in the 

same region as the hospital that closed. 

• Fourth, if the slots have not yet 

been fully distributed, to qualifying 

hospitals in accordance with the criteria 

established under section 5503 

(‘‘Distribution of Additional Residency 

Positions’’) of the Affordable Care Act. 

First, we are proposing to use the 

same pre-reclassification CBSAs that are 

used for wage index purposes under the 

IPPS in determining which hospitals are 

located in the same or contiguous 

CBSAs as the CBSA in which the 

hospital that closed was located, 

without regard to any reclassifications 

made under the provisions of 

§§ 412.102, 412.103, 412.230, 412.232, 

412.234, and 412.235 of the regulations. 

Second, we are proposing to define 

‘‘State’’ in the second priority category to 

include Puerto Rico and the District of 

Columbia. Third, we are proposing to 

define ‘‘region’’ in the third priority 

category as Census Region, consistent 

with the use of the term elsewhere in 

the GME regulations. (The term is used 

for purposes of establishing direct GME 

PRAs of certain new teaching hospitals 

at § 413.77(e)(1)(iii).) Fourth, as 

specified in the fourth priority category, 

we are proposing to employ the criteria 

for redistribution of residency positions 

described in section 5503 of the 

Affordable Care Act, as implemented in 

the proposed revised regulations at 

§ 413.79(n), should there be any slots 

not redistributed under the first through 

third priority categories. 

With regard to members of the same 

Medicare GME affiliated group, we are 

proposing to give priority within each 

category to hospitals that are members 

of the same Medicare GME affiliated 

group as the hospital that closed. A 

Medicare GME affiliated group, as 

defined at § 413.75(b), consists of 

hospitals that enter into a Medicare 

GME affiliation agreement, also as 

defined at § 413.75(b), for the purpose of 

cross-training residents and that, under 

the terms of the agreement, aggregate 

and make temporary adjustments to 

their respective individual FTE resident 

caps. To provide flexibility to hospitals 

that have affiliated with the hospital 

that closed, we are proposing to refer to 

the most recent Medicare GME 

affiliation agreement of which the 

closed hospital was a member. Hospitals 

that were listed as participants of the 

Medicare GME affiliated group on that 

most recent affiliation agreement before 

the closure of the hospital will receive 

preference in receiving FTE cap 

increases based on the redistributed 

slots. 

4. Application Process 

We are proposing to establish an 

application process for hospitals to 

apply to CMS to receive an increase in 

FTE caps based on slots from closed 

hospitals. Section 5506 of the 

Affordable Care Act did not specify an 

effective date or an application deadline 

for hospitals to request an increase to 

their caps when a hospital closes. 

Accordingly, with respect to the first 

application process to be implemented 

for section 1886(h)(4)(H)(vi) of the Act, 

as added by section 5506(a) of the 

Affordable Care Act, and which 

includes all teaching hospital closures 

back to March 23, 2008, we are 

proposing that the application deadline 

would be January 1, 2011. For future 

teaching hospital closures, we are 

proposing that we would inform the 

public through an appropriate medium 

that increases to hospitals’ FTE resident 

caps are available for redistribution due 

to the closure of a teaching hospital, and 

the application deadline would be 4 

months following the issuance of that 

notice to the public. 

5. Ranking Criteria 

Unlike the application process for 

FTE cap increases under section 

1886(h)(8) of the Act as added by 

section 5503 of the Affordable Care Act, 

we are not proposing to establish a 

‘‘point’’ system to distinguish between 

hospitals within each of the first three 

priority categories. Rather, within each 

of the three first statutory priority 

categories in section XVII.E.3. of this 

proposed rule (that is, same or 

contiguous CBSAs, same State, and 

same Region), we are proposing to rank 

categories in which we would assign 

slots first to hospitals that fall within the 

first ranking category before assigning 

slots to those hospitals that fall within 

the second ranking category, and would 

assign slots to those hospitals that fall 

within the second ranking category 

before assigning slots to hospitals in the 

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third ranking category, and so forth. We 

are not proposing to use these ranking 

categories within the fourth priority 

category because, under that fourth 

priority category, the Secretary would 

use the process established under 

section 5503 for section 1886(h)(8) of 

the Act. In order to maintain stability in 

existing GME programs, these proposed 

ranking categories generally give 

preference to applying hospitals that 

demonstrate a commitment to continue 

training residents in the same programs 

that the closed hospital operated, or that 

had a training relationship with the 

closed hospital (such as a Medicare 

GME affiliation agreement). 

• Ranking Criterion One. The 

applying hospital is requesting the 

increase in its FTE resident cap(s) 

because it is assuming (or assumed) an 

entire program (or programs) from the 

hospital that closed, and the applying 

hospital is continuing to operate the 

program(s) exactly as it had been 

operated by the hospital that closed 

(that is, same residents, same program 

director, and same (or many of the 

same) teaching staff). We are proposing 

this ranking criterion because we 

understand that there are situations 

where, when a hospital is acquired and 

its provider agreement is retired and a 

new provider agreement is established 

in the place of the old one, the new 

formed ‘‘acquiring’’ hospital continues to 

operate the GME programs seamlessly 

and in the same manner as under the 

previous provider agreement. If this 

situation occurs, we believe the new 

hospital with the new provider 

agreement is demonstrating a strong 

commitment to not only maintain the 

GME programs in the community for the 

long term (that is, continuity), but to 

also allow the residents that were at the 

hospital when the change in provider 

agreement occurred to continue to train 

there, such that no residents are 

displaced and no training is interrupted. 

Alternatively, it is possible that 

perhaps a year or more prior to a 

hospital’s closure, the hospital closed 

some or all of its residency programs, 

and another hospital assumed an entire 

program (or programs) at the time of the 

residency program’s closure, and the 

applying hospital has continued to 

operate that program seamlessly, as it 

had been operated at the hospital that 

ultimately closed. Since the applying 

hospital has also demonstrated a strong 

commitment to continuity of the 

residency program(s) in the community 

by assuming the program(s) even prior 

to the other hospital’s closure, we are 

proposing that the applying hospital 

would be categorized in Ranking 

Criterion One. 

• Ranking Criterion Two. The 

applying hospital was listed as a 

participant of a Medicare GME affiliated 

group on the most recent Medicare GME 

affiliation agreement of which the 

closed hospital was a member before the 

hospital closed, and under the terms of 

that Medicare GME affiliation 

agreement, the applying hospital 

received slots from the hospital that 

closed, and the applying hospital will 

use the additional slots to continue to 

train at least the number of FTE 

residents it had trained under the terms 

of the Medicare GME affiliation 

agreement. We are proposing this 

ranking criterion because section 

1886(h)(4)(H)(vi) of the Act, as added by 

section 5506(a) of the Affordable Care 

Act, directs the Secretary to give 

preference to hospitals that are members 

of the same affiliated group as the 

hospital that closed. We believe that, 

generally, if the applying hospital was 

affiliated to receive slots from the 

hospital that closed, then the applying 

hospital was relying on that number of 

FTE resident slots that it received in 

order to maintain its fair share of the 

cross-training of the residents in the 

jointly operated programs. In the 

absence of those slots received from the 

closed hospital, the applying hospital 

may not be able to continue training that 

number of FTE residents, and those 

same residents would not only be 

displaced from the closed hospital, but 

might essentially become ‘‘displaced’’ 

from the affiliated hospitals in which 

they were used to doing a portion of 

their training. Accordingly, we are 

proposing this ranking criterion to allow 

hospitals that were affiliated with the 

closed hospitals to at least maintain 

their fair share of the training of the 

residents in the programs that they had 

jointly operated with the closed 

hospital. We note that we are proposing 

this ranking criterion regarding 

affiliated hospitals as second, after the 

first ranking criterion regarding 

applying hospitals that assume an entire 

program or programs from the closed 

hospital because, even though section 

5506 of the Affordable Care Act directs 

the Secretary to give preference to 

members of the same affiliated group, 

we believe that a hospital that assumes 

the responsibility for an entire program 

or programs demonstrates a 

commitment to maintain the programs 

to an even greater degree than does a 

hospital that was affiliated with the 

hospital that closed and may only be 

maintaining a portion of the residency 

program or programs. 

• Ranking Criterion Three. The 

applying hospital took in residents 

displaced by the closure of the hospital, 

but is not assuming an entire program 

or programs, and will use the additional 

slots to continue training residents in 

the same programs as the displaced 

residents, even after those displaced 

residents complete their training (that 

is, the applying hospital is permanently 

expanding its own existing programs). 

Similar to Ranking Criterion Two, 

hospitals fitting into Ranking Criterion 

Three also demonstrate a commitment 

to protect residents displaced by a 

hospital’s closure, and to ensure that 

there is a degree of continuity in the 

community with respect to the 

particular training program or programs 

that the closed hospital operated. 

However, because an applying hospital 

fitting into this category was not part of 

the same Medicare GME affiliated group 

as the closed hospital, we are proposing 

that this category would be ranked as 

third, below Ranking Criterion Two 

which relates to hospitals that were 

members of the same affiliated group as 

the closed hospital. 

The next five proposed ranking 

criteria would apply in the instance 

where there are still slots available from 

the closed hospital after distributing 

slots to hospitals falling within the first 

three ranking criteria. Thus, hospitals 

fitting into Ranking Criteria Four 

through Eight would not fit into 

Ranking Criteria One, Two, or Three, 

but they can demonstrate that they will 

use the slots in a manner that is 

consistent with current Medicare policy 

goals, as indicated in section 5503 of the 

Affordable Care Act, such as using the 

slots for a geriatrics or for other primary 

care residency programs, or for a general 

surgery residency program. 

• Ranking Criterion Four. The 

applying hospital does not fit into 

Ranking Criteria One, Two, or Three, 

and will use additional slots to establish 

a new or expand an existing geriatrics 

residency program. 

• Ranking Criterion Five. The 

applying hospital does not fit into 

Ranking Criteria One, Two, or Three, is 

located in a Primary Care HPSA, and 

will use all the additional slots to 

establish a new or expand an existing 

primary care residency program. 

• Ranking Criterion Six. The applying 

hospital does not fit into Ranking 

Criteria One, Two, or Three, and will 

use all the additional slots to establish 

a new or expand an existing primary 

care residency program. 

• Ranking Criterion Seven. The 

applying hospital does not fit into 

Ranking Criteria One, Two, or Three, 

and will use all the additional slots to 

establish a new or expand an existing 

general surgery residency program. 

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• Ranking Criterion Eight. The 

applying hospital does not fit into 

Ranking Criteria One through Seven. 

6. Demonstrated Likelihood of Filling 

the Positions Within a Certain Time 

Period 

Section 1886(h)(4)(H)(vi) of the Act, 

as added by section 5506(a) of the 

Affordable Care Act, does not place a 

limit on the number of slots an applying 

hospital may request, although under 

section 1886(h)(4)(H)(iv)(IV) of the Act, 

the Secretary must ensure that the 

aggregate number of increases to 

hospitals’ FTE residents caps are equal 

to the FTE residents caps of the hospital 

that closed. However, section 

1886(h)(4)(H)(iv)(III) of the Act specifies 

that the Secretary may only award slots 

to an applying hospital ‘‘if the Secretary 

determines that the hospital has 

demonstrated a likelihood of filling the 

positions made available under this 

clause within 3 years.’’ We are 

proposing that hospitals must provide 

documentation to demonstrate the 

likelihood of filling requested slots 

under section 5506 within 3 years. For 

example, the applying hospital would 

document that it does not have 

sufficient room under its FTE resident 

caps to take in the additional residents, 

and has approval from the relevant 

accrediting body to take over the closed 

hospital’s residency program(s), or 

expand its own residency program(s) to 

reflect a permanent commitment to train 

additional residents. We are proposing 

that ‘‘within 3 years’’ would mean 

within the 3 academic years 

immediately following the application 

deadline to receive slots after a 

particular hospital closes. For example, 

where the application deadline is 

January 1, 2011, the immediately 

following academic year is July 1, 2011, 

and therefore, hospitals must 

demonstrate the likelihood of filling 

their slots by June 30, 2014. 

7. No Duplication of FTE Cap Slots 

Section 5506(d) of the Affordable Care 

Act specifies that ‘‘the Secretary shall 

give consideration to the effect of the 

amendments made by this section on 

any temporary adjustment to a 

hospital’s FTE cap under § 413.79(h) 

* * * (as in effect on the date of 

enactment of this Act) in order to ensure 

that there is no duplication of FTE slots 

***’’ Under existing regulations at 

§ 413.79(h), hospitals that take in 

residents that are displaced by the 

closure of another hospital may receive 

temporary increases to their FTE 

resident caps so that they may receive 

payment for training the specific 

displaced residents. The temporary cap 

adjustment lasts only for the duration of 

a specific displaced resident’s training. 

In distributing slots permanently under 

section 5506, we may need to be 

cognizant of the number of FTE 

residents for whom a temporary FTE 

cap adjustment was provided, and when 

those residents will complete their 

training, at which point the temporary 

slot associated with those displaced 

residents would be available for 

permanent redistribution. 

We believe that it will only be 

necessary to delay permanent 

assignment of FTE cap slots in instances 

where if, after fulfilling the requests of 

hospitals that qualify to receive 

additional slots under Ranking Criteria 

One, Two, and Three, there are still 

excess slots available. In the case where 

an applying hospital fits within Ranking 

Criterion One, we are proposing to 

revise the existing regulations at 

§ 413.79(h) limiting temporary cap 

adjustments for displaced residents by 

the number of FTE residents in the 

program(s) in which the applying 

hospital is operating seamlessly. We are 

proposing to immediately assign 

permanently that number of FTE slots to 

the qualifying hospital. For example, if 

teaching hospital B assumes an entire 

internal medicine program with 20 FTEs 

from closed hospital A, no temporary 

FTE cap adjustment under § 413.79(h) 

would be needed for those internal 

medicine residents, and teaching 

hospital B would immediately receive a 

permanent FTE resident cap increase of 

10 FTE residents. Similarly, in the case 

where an applying hospital fits within 

Ranking Criterion Two, we are 

proposing to revise the existing 

regulations at § 413.79(h) limiting 

temporary cap adjustments for 

displaced residents by the number of 

FTE residents that the applying hospital 

received under the terms of the 

affiliation agreement from the closed 

hospital. We are proposing to 

immediately assign permanently that 

number of FTE slots to the qualifying 

hospital. For example, if teaching 

hospital D had received 30 FTE slots 

from closed hospital C under the terms 

of a Medicare GME affiliation agreement 

for the purposes of a shared rotational 

arrangement (as defined at § 413.75(b)) 

for a general surgery program, teaching 

hospital D would immediately receive a 

permanent FTE resident cap increase of 

30 FTE residents, which would enable 

hospital D to continue to receive direct 

GME and IME payment for its share of 

training 30 general surgery residents. 

Lastly, in the case where an applying 

hospital fits within Ranking Criterion 

Three, we are proposing to revise 

§ 413.79(h) to provide for temporary cap 

adjustments for displaced residents by 

the number of displaced FTE residents 

the applying hospital takes in, and to 

immediately assign permanently that 

number of FTE slots to the qualifying 

hospital. For example, if Hospital E 

takes in three FTE displaced residents 

in a family medicine program, and not 

only trains those three displaced 

residents until they complete their 

training, but permanently expands its 

existing family medicine program such 

that it will add three more FTEs in the 

place of three that completed their 

training, we would immediately assign 

three FTEs permanently to Hospital E, 

bypassing any temporary adjustment 

under § 413.79(h). Accordingly, there 

would be no duplication of FTE slots 

when distributing slots to hospitals that 

qualify under the first three ranking 

criteria. 

If, after distributing the slots from a 

closed hospital to increase the FTE caps 

for applying hospitals that fall within 

Ranking Criteria One, Two, and Three, 

there are still excess slots available, it is 

possible that those excess slots might be 

associated with displaced residents for 

whom temporary cap adjustments under 

§ 413.79(h) are necessary. That is, it is 

possible that in the case where applying 

hospitals do not permanently assume all 

of the closed hospital’s residents and 

programs, temporary cap transfers under 

§ 413.79(h) would be necessary to allow 

the remaining residents to complete 

their training. Therefore, we are 

proposing to distribute the slots 

accordingly to increase the FTE resident 

caps for hospitals that fall within 

Ranking Criteria Four through Seven. 

However, to avoid duplicate FTE 

counting, we would only permanently 

assign the slots to the qualified hospitals 

falling within Ranking Criteria Four 

through Seven once the displaced 

residents have completed their training 

and their temporary cap adjustments 

have expired. 

We are proposing to add new 

regulations text at § 412.105(f)(1)(ix)(B) 

for IME and § 413.79(o)(2)) for direct 

GME to reflect the provisions of section 

5506 of the Affordable Care Act. In 

addition, we have proposed some very 

minor changes to direct GME and IME 

existing text in order to clarify meaning 

and standardize the terminology that is 

used throughout. 

8. Other Payment Issues Regarding 

Hospitals That Receive Increase in FTE 

Caps Based on Slots From Closed 

Hospitals 

We note that section 1886(h)(4)(H)(vi) 

of the Act, as added by the Affordable 

Care Act, makes no reference to section 

1886(h)(4)(G) or 1886(d)(5)(B)(vi)(II) of 

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the Act, which are the provisions 

concerning the rolling average count of 

FTE residents. Furthermore, there is no 

mention of section 1886(d)(5)(B)(vi)(I) of 

the Act, the provision regarding the cap 

on the IME resident-to-bed ratio, in 

section 1886(h)(4)(H)(vi) either. That is, 

the statute does not provide for an 

exclusion from application of the rolling 

average for residents counted as a result 

of FTE cap increases under section 

1886(h)(4)(H)(vi) of the Act, nor does 

the statute exempt these residents from 

the application of the cap on the IME 

resident-to-bed ratio. In light of the 

absence of a specific directive in section 

1886(h)(4)(H)(vi) of the Act exempting 

those residents from application of the 

rolling average for direct GME and IME, 

and the cap on the IME resident-to-bed 

ratio, and with no apparent reason to 

treat residents counted as a result of the 

FTE cap increases under section 

(h)(4)(H)(vi) of the Act differently, we 

are proposing to require that if a 

hospital increases its direct GME or IME 

FTE count of residents as a result of an 

FTE resident cap increase under section 

1886(h)(4)(H)(vi) of the Act, those FTE 

residents would be immediately subject 

to the rolling average calculation and 

the cap on the IME resident-to-bed ratio. 

We also note that section 

1886(h)(4)(H)(vi) of the Act for direct 

GME and section 1886(d)(5)(B)(v) of the 

Act for IME does not specify use of a 

special direct GME PRA or IME 

multiplier for residents counted by a 

hospital under an FTE cap increase 

received after the closure of another 

hospital. Therefore, we are proposing 

that residents counted by a hospital 

under a permanent adjustment to the 

hospital’s FTE resident caps under the 

provisions of section 5506 of the 

Affordable Care Act would be paid for 

using the receiving hospital’s otherwise 

applicable direct GME PRA (which is 

hospital-specific) and IME multiplier 

(which is the same for all hospitals). 

Further, as we have proposed with 

respect to FTE resident cap increases 

awarded under section 5503 (section 

XVII.D. of this proposed rule), we are 

proposing that these slots may not be 

used as part of the aggregate FTE 

resident cap under a Medicare GME 

affiliation agreement. We believe this 

prohibition is appropriate given that the 

receiving hospital has demonstrated that 

it needs the additional slots, and 

therefore, those slots should remain at 

the receiving hospital. 

9. Application—No Reopening of 

Settled Cost Reports 

Section 5506(c) of the Affordable Care 

Act specifies that the changes made by 

the provisions of sections 5506(a) and 

(b) should not be applied in a manner 

that would require the reopening of 

settled cost reports for which there is 

not a pending, jurisdictionally proper 

appeal on direct GME or IME payments 

as of March 23, 2010 (the date of the 

enactment of Pub. L. 111–148). Such 

language would typically be appropriate 

for a provision with a retroactive 

effective date (such as section 5505), 

and since section 5506 does not have a 

retroactive effective date, we are unsure 

of the purpose of this language in 

section 5506. Nevertheless, we are 

proposing to reflect this provision in the 

proposed revisions under 

§ 412.105(f)(1)(ix)(B), and 

§ 413.79(o)(2)(ii) of the regulations. In 

addition, as we explained previously 

regarding sections 5504 and 5505, we 

are proposing to interpret ‘‘pending, 

jurisdictionally proper appeal on direct 

GME or IME payments’’ to mean that in 

order for a hospital to request a change 

to its FTE count, direct GME or IME 

respectively, the ‘‘pending, 

jurisdictionally proper appeal’’ must be 

specific to direct GME or IME 

respectively. For example, in order for 

a hospital to increase its FTE count with 

regard to an Affordable Care Act 

provision that is unique to IME (such as 

inclusion in the IME count of didactic 

time occurring in the hospital as 

specified by new section 

1886(d)(5)(B)(x)(II)), the hospital’s 

‘‘pending, jurisdictionally proper 

appeal’’ must be on an IME issue; IME 

FTEs or the available bed count. 

However, if the hospital’s ‘‘pending, 

jurisdictionally proper appeal’’ is on an 

issue that only affects direct GME 

payments, such as the initial residency 

period or the Medicare patient load, that 

appeal would not be sufficient in order 

for the hospital to increase its FTE count 

with regard to an Affordable Care Act 

provision that is unique to IME, such as 

didactic time in the hospital setting. 

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BILLING CODE 4120–01–C 

In order for hospitals to be considered 

for increases in their FTE resident caps, 

each qualifying hospital must submit a 

timely application. The following 

information must be submitted on 

applications to receive an increase in 

FTE resident caps: 

• The name and Medicare provider 

number, and Medicare contractor (to 

which the hospital submits its cost 

report) of the hospital. 

• The total number of requested FTE 

resident slots for direct GME or IME, or 

both. 

• A completed copy of the CMS 

Evaluation Form for each residency 

program for which the hospital intends 

to use the requested increase in FTE 

residents. 

• Source documentation to support 

the assertions made by the hospital on 

the CMS Evaluation Form. 

• FTE resident counts for direct GME 

and IME and FTE resident caps for 

direct GME and IME reported by the 

hospital in the most recent as-filed cost 

report. (Include copies of Worksheets E, 

Part A, E–3, Part IV, and if a hospital 

received an increase to its FTE cap(s) 

under section 422 of the MMA, a copy 

of E–3, Part VI). 

• An attestation, signed and dated by 

an officer or administrator of the 

hospital who signs the hospital’s 

Medicare cost report, of the following 

information: 

‘‘I hereby certify that I understand that 

misrepresentation or falsification of any 

information contained in this application 

may be punishable by criminal, civil, and 

administrative action, fine and/or 

imprisonment under federal law. 

Furthermore, I understand that if services 

identified in this application were provided 

or procured through payment directly or 

indirectly of a kickback or where otherwise 

illegal, criminal, civil, and administrative 

action, fines and/or imprisonment may 

result. I also certify that, to the best of my 

knowledge and belief, it is a true, correct, and 

complete application prepared from the 


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books and records of the hospital in 

accordance with applicable instructions, 

except as noted. I further certify that I am 

familiar with the laws and regulations 

regarding Medicare payment to hospitals for 

the training of interns and residents.’’ 

The completed application and 

supporting documentation (as described 

above) must be submitted to the CMS 

Central Office and the CMS Regional 

Office for the region in which the 

applicant hospital is located. The 

addresses of the CMS Central Office and 

Regional Offices are listed below. 

CMS Central and CMS Regional Office 

Mailing Addresses for Applications for 

Increases in FTE Resident Caps 

Central Office 

Centers for Medicare and Medicaid 

Services (CMS) 

Director, Division of Acute Care 

7500 Security Boulevard 

Mail Stop C4–08–06 

Baltimore, Maryland 21244 

(410) 786–4548 

Region I (Connecticut, Maine, 

Massachusetts, New Hampshire, Rhode 

Island, and Vermont) 

Centers for Medicare and Medicaid 

Services (CMS) 

Associate Regional Administrator, 

Division of Financial Management 

and Fee for Service Operations 

Region I 

JFK Federal Building 

Room 23275 

Boston, MA 02203 

Phone: (617) 565–1331 

Region II (New York, New Jersey, U.S. 

Virgin Islands, and Puerto Rico) 

Centers for Medicare and Medicaid 

Services (CMS) 

Associate Regional Administrator, 

Division of Financial Management 

and Fee for Service Operations 

Region II 

26 Federal Plaza, 38th Floor 

New York, NY 10278 

Phone: (212) 616–2545 

Region III (Delaware, Maryland, 

Pennsylvania, Virginia and West 

Virginia, and the District of Columbia) 

Centers for Medicare and Medicaid 

Services (CMS) 

Associate Regional Administrator, 

Division of Financial Management 

and Fee for Service Operations 

Region III 

Public Ledger Building, Suite 216 

150 South Independence Mall West 

Philadelphia, PA 19106 

Phone: (215) 861–4140 

Region IV (Alabama, North Carolina, 

South Carolina, Florida, Georgia, 

Kentucky, Mississippi, and Tennessee) 

Centers for Medicare and Medicaid 

Services (CMS) 

Associate Regional Administrator, 

Division of Financial Management 

and Fee for Service Operations 

Region IV 

Atlanta Federal Center 

61 Forsyth Street, S.W., Suite 4T20 

Atlanta, GA 30303–8909 

Phone: (404) 562–7300 

Region V (Illinois, Indiana, Michigan, 

Minnesota, Ohio, and Wisconsin) 

Centers for Medicare and Medicaid 

Services (CMS) 

Associate Regional Administrator, 

Division of Financial Management 

and Fee for Service Operations 

Region V 

233 North Michigan Avenue, Suite 600 

Chicago, IL 60601 

Phone: (312) 886–6432 

Region VI (Arkansas, Louisiana, New 

Mexico, Oklahoma, and Texas) 

Centers for Medicare and Medicaid 

Services (CMS) 

Associate Regional Administrator, 

Division of Financial Management 

and Fee for Service Operations 

Region VI 

1301 Young Street, Suite 714 

Dallas, TX 75202 

Phone: (214) 767–6423 

Region VII (Iowa, Kansas, Missouri, and 

Nebraska) 

Centers for Medicare and Medicaid 

Services (CMS) 

Associate Regional Administrator, 

Division of Financial Management 

and Fee for Service Operations 

Region VII 

Richard Bolling Federal Building 

Room 235 

601 East 12th Street 

Kansas City, MO 64106 

(816) 564–1843 

Region VIII (Colorado, Montana, North 

Dakota, South Dakota, Utah and 

Wyoming) 

Centers for Medicare and Medicaid 

Services (CMS) 

Associate Regional Administrator, 

Division of Financial Management 

and Fee for Service Operations 

Region VIII 

Colorado State Bank Building 

1600 Broadway, Suite 700 

Denver, CO 80202 

Phone: (303) 844–2111 

Region IX (Arizona, California, Hawaii, 

and Nevada and Territories of American 

Samoa, Guam and the Commonwealth 

of the Northern Mariana Islands) 

Centers for Medicare and Medicaid 

Services (CMS) 

Associate Regional Administrator, 

Division of Financial Management 

and Fee for Service Operations 

Region IX 

90 7th Street, Suite 5–300 (SW) 

San Francisco, CA 94103–6708 

Phone: (415) 744–3501 

Region X (Alaska, Idaho, Oregon, and 

Washington) 

Centers for Medicare and Medicaid 

Services (CMS) 

Associate Regional Administrator, 

Division of Financial Management 

and Fee for Service Operations 

Region X 

2201 Sixth Avenue, MS/RX–46 

Seattle, WA 98121 

Phone: (206) 615–2094 

XVIII. Proposed Changes to Whole 

Hospital and Rural Provider Exceptions 

to the Physician Self-Referral 

Prohibition and Related Changes to 

Provider Agreement Regulations 

A. Background 

Section 1877 of the Act, also known 

as the physician self-referral law: (1) 

Prohibits a physician from making 

referrals for certain ‘‘designated health 

services’’ (DHS) payable by Medicare to 

an entity with which he or she (or an 

immediate family member) has a 

financial relationship (ownership or 

compensation), unless an exception 

applies; and (2) prohibits the entity from 

filing claims with Medicare (or billing 

another individual, entity, or third party 

payer) for those DHS furnished as a 

result of a prohibited referral. The Act 

establishes a number of specific 

exceptions and grants the Secretary the 

authority to create regulatory exceptions 

that pose no risk of program or patient 

abuse. 

Section 1877(d) of the Act sets forth 

additional exceptions related to 

ownership or investment interests held 

by a physician (or an immediate family 

member of a physician) in an entity that 

furnishes DHS. Section 1877(d)(1) of the 

Act provides that an ownership or 

investment interest in a hospital located 

in Puerto Rico shall not be considered 

to be an ownership or investment 

interest. Section 1877(d)(2) of the Act 

provides an exception for ownership or 

investment interests in rural providers. 

In order for an entity to qualify for the 

exception, the DHS must be furnished 

in a rural area (as defined in section 

1886(d)(2) of the Act) and substantially 

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all of the DHS furnished by the entity 

are furnished to individuals residing in 

a rural area. Section 1877(d)(3) of the 

Act provides an exception, known as 

the ‘‘whole hospital’’ exception, for 

ownership or investment interests in a 

hospital located outside of Puerto Rico, 

provided that the referring physician is 

authorized to perform services at the 

hospital and the ownership or 

investment interest is in the hospital 

itself (and not merely in a subdivision 

of the hospital). 

B. Changes Made by the Affordable Care 

Act Relating to the Whole Hospital and 

Rural Provider Exceptions to Ownership 

and Investment Prohibition 

Section 6001(a) of the Affordable Care 

Act amended the whole hospital and 

rural provider exceptions to impose 

additional restrictions on physician 

ownership or investment in hospitals to 

qualify for such exceptions. The statute 

defines a ‘‘physician owner or investor’’ 

in a hospital as a physician or an 

immediate family member of a 

physician who has a direct or indirect 

ownership or investment interest in the 

hospital. We will refer to hospitals with 

such ‘‘physician owners or investors’’ as 

‘‘physician-owned hospitals.’’ 

Section 6001(a)(2) of the Affordable 

Care Act provides that in order to satisfy 

the whole hospital exception, a 

physician-owned hospital must meet 

the requirements described in a new 

section 1877(i)(1) of the Act no later 

than September 23, 2011. Section 

6001(a)(1) amended the rural provider 

exception to require that hospitals 

located in rural areas also satisfy the 

requirements of new section 1877(i)(1) 

of the Act no later than September 23, 

2011. 

Section 6001(a)(3) of the Affordable 

Care Act, as amended by the HCERA, 

sets forth the terms of new section 

1877(i)(1) of the Act. Under section 

1877(i)(1) of the Act, a hospital must: 

(1) Have physician owners or 

investors and a provider agreement in 

effect no later than December 31, 2010; 

(2) Not expand facility capacity 

beyond the number of operating rooms, 

procedure rooms, and beds for which 

the hospital was licensed as of March 

23, 2010, unless an exception is granted 

by the Secretary; 

(3) Comply with certain reporting and 

disclosure requirements and not 

condition any physician ownership or 

investment interests directly or 

indirectly on a physician making or 

influencing referrals to or generating 

other business for the hospital; 

(4) Comply with certain requirements 

designed to ensure that all ownership 

and investment interests in the hospital 

are bona fide; 

(5) Inform patients before admission if 

the hospital does not have a physician 

available on the premises during all 

hours and receive a signed 

acknowledgment that the patient 

understands this fact; and 

(6) Not have been converted from an 

ASC on or after March 23, 2010. 

In addition, section 1877(i)(2) of the 

Act requires the Secretary to collect, 

publish, and update on an annual basis 

on the CMS Web site (http:// 

www.cms.hhs.gov) the physician and 

other ownership information submitted 

by hospitals under section 

1877(i)(1)(C)(i) of the Act. Section 

1877(i)(3) of the Act requires the 

Secretary to create an exception process 

related to the prohibition on expansion 

of facility capacity and publish in the 

Federal Register the final decision with 

respect to each applicant hospital. 

Section 6001(b)(1) of the Affordable 

Care Act requires the Secretary to 

establish policies and procedures to 

ensure compliance with the 

requirements described in section 

1877(i)(1) of the Act, which may include 

unannounced site reviews of hospitals. 

Section 6001(b)(2) of the Affordable 

Care Act requires the Secretary, 

beginning no later than May 1, 2012, to 

conduct audits to determine whether 

hospitals are in compliance with the 

requirements of new section 1877(i)(1). 

As noted above, physician-owned 

hospitals must meet the requirements of 

new section 1877(i)(1) of the Act not 

later than 18 months after the date of 

enactment (that is, by September 23, 

2011). We have received numerous 

inquiries concerning how this language 

relates to several of the requirements set 

forth in section 1877(i)(1) of the Act that 

specify earlier deadlines. We believe 

that compliance with all requirements 

must occur no later than September 23, 

2011, and failure to satisfy earlier 

deadlines will preclude use of the 

revised exceptions after the earlier 

deadline has passed. For example, 

section 1877(i)(1)(A) of the Act provides 

that the hospital must have had 

physician ownership or investment on 

December 31, 2010, and a provider 

agreement in effect on that date. Failure 

to obtain a provider agreement that is 

effective on or before December 31, 

2010, will preclude use of the revised 

rural provider and whole hospital 

exceptions on and after January 1, 2011. 

Another example can be seen in section 

1877(i)(1)(D)(i) of the Act, which 

provides that the percentage of the total 

value of physician ownership or 

investment interests held in the 

hospital, in the aggregate, must not 

exceed such percentage as of March 23, 

2010. Therefore, if a hospital has no 

physician ownership or investment as of 

March 23, 2010, and later adds 

physician owners or investors, the 

hospital will not satisfy the whole 

hospital and rural provider exceptions. 

Most of the provisions within section 

1877(i)(1) of the Act do not specify an 

explicit deadline for compliance. Thus, 

we are proposing that the deadline for 

compliance with all provisions within 

section 1877(i)(1) of the Act that do not 

contain an explicit deadline is 

September 23, 2011, that is, 18 months 

after the date of enactment. 

Below, we discuss changes we are 

proposing to make to our regulations in 

response to section 6001 of the 

Affordable Care Act, as amended. 

C. Proposed Changes to Physician SelfReferral Regulations 

In order to conform our regulations to 

the amendments made to the rural 

provider exception by section 6001(a)(1) 

of the Affordable Care Act, we are 

proposing to revise § 411.356(c)(1) to 

specify that, in the case where the rural 

provider is a hospital, the hospital must 

meet the requirements of proposed new 

§ 411.362 no later than September 23, 

2011. 

Similarly, we are proposing to revise 

§ 411.356(c)(3) to add a new paragraph 

(iv) that provides that the hospital must 

meet the requirements in new § 411.362 

not later than September 23, 2011. In 

new § 411.362, we set forth the 

additional requirements for both 

exceptions as mandated by section 

1877(i)(1) of the Act. 

1. Physician Ownership and Provider 

Agreement 

Section 1877(i)(1)(A) of the Act 

requires that, in order to use the rural 

provider and whole hospital exception 

under section 1877(D)(3)(d) of the Act, 

the hospital must have physician 

ownership or investment on December 

31, 2010, and a provider agreement 

under section 1866 of the Act in effect 

on this date. We are proposing to 

incorporate these requirements in 

§ 411.362(b)(1) of the regulations. 

Section 1877(i)(5) of the Act defines a 

‘‘physician owner or investor’’ as a 

physician (or an immediate family 

member of such physician) with a direct 

or an indirect ownership or investment 

interest in the hospital. We are 

proposing to incorporate this statutory 

definition in § 411.362(a)(1) of the 

regulations. 

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2. Limitation on Expansion of Facility 

Capacity 

Section 1877(i)(1)(B) of the Act 

requires that the number of operating 

rooms, procedure rooms, and beds for 

which the hospital is licensed at any 

time on or after March 23, 2010, be no 

greater than the number of operating 

rooms, procedure rooms, and beds for 

which the hospital was licensed on that 

date. However, section 1877(i)(3)(C) of 

the Act authorizes the Secretary to 

permit a physician-owned hospital to 

increase capacity above its ‘‘baseline 

number of operating rooms, procedure 

rooms, and beds.’’ Section 

1877(i)(3)(C)(iii) of the Act, as amended 

by section 1106(2)(B) of the HCERA, 

defines the term ‘‘baseline number of 

operating rooms, procedure rooms, and 

beds’’ to mean ‘‘the number of operating 

rooms, procedure rooms, and beds for 

which the hospital is licensed as of 

[March 23, 2010] (or, in the case of a 

hospital that did not have a provider 

agreement in effect as of that date, but 

does have an agreement in effect on 

December 31, 2010, the effective date of 

such provider agreement).’’ Although 

section 1877(i)(1)(B) of the Act does not 

contain language regarding facility 

capacity as of the effective date of a 

provider agreement issued between 

March 23, 2010 and December 31, 2010, 

we must read sections 1877(i)(1)(B) and 

1877(i)(3)(C)(iii) of the Act together and 

interpret them harmoniously. 

Accordingly, in proposed 

§ 411.362(b)(2), we specify that the 

hospital will be limited to the number 

of operating rooms, procedure rooms, 

and beds for which the hospital is 

licensed on March 23, 2010, or if the 

hospital did not have a provider 

agreement in effect as of that date, but 

does have an agreement in effect on 

December 31, 2010, the effective date of 

such provider agreement. 

The limitation on expansion of 

facility capacity applies to operating 

rooms, procedure rooms, and beds for 

which the hospital is licensed. It is 

important to note that the limitation on 

expansion applies to operating rooms 

and procedure rooms regardless of 

whether a State licenses these rooms. 

Referrals are prohibited if made by 

physician owners and investors after 

facility expansion and prior to the 

Secretary’s granting of an exception to 

the capacity restriction. Exceptions for 

expanding facility capacity will protect 

only those referrals made after the 

exception is granted. 

Section 1877(i)(3)(G) of the Act 

specifies that ‘‘the term ‘procedure 

rooms’ includes rooms in which 

catheterizations, angiographies, 

angiograms, and endoscopies are 

performed, except such term shall not 

include emergency rooms or 

departments (exclusive of rooms in 

which catheterizations, angiographies, 

angiograms, and endoscopies are 

performed).’’ Under our proposed 

definition of procedure rooms at 

§ 411.362(a)(2), the term is limited to the 

types of rooms specified in the statute. 

Although the statute would permit us to 

define ‘‘procedure rooms’’ to include 

rooms where other services are 

performed, we are not proposing to do 

so at this time. We encourage public 

comments on whether ‘‘procedure 

rooms’’ should include rooms where 

additional services, such as CT or PET 

scans, or other services, are performed. 

Section 1877(i)(3)(A) of the Act gives 

the Secretary until January 1, 2012, to 

promulgate regulations concerning the 

process for a hospital to apply for an 

exception and provides that the 

implementation of this process must be 

completed by February 1, 2012. We plan 

to issue a separate rulemaking 

document that will provide for 

implementation of this exceptions 

process. 

3. Preventing Conflicts of Interest 

Section 1877(i)(1)(C)(i) of the Act 

requires the hospital to submit to the 

Secretary an annual report containing a 

detailed description of the identity of 

each physician owner or investor and 

any other owners or investors of the 

hospital, and the nature and extent of all 

ownership and investment interests in 

the hospital. We plan to propose 

procedures for this reporting 

requirement in a separate rulemaking. 

Section 1877(i)(1)(C)(ii)–(iv) of the 

Act requires hospitals to: (1) Develop 

procedures requiring a referring 

physician owner or investor to disclose 

(in time to permit the patient to make 

a meaningful decision about receipt of 

care) his or her ownership interest to the 

patient and, if applicable, the treating 

physician’s ownership or investment 

interest; (2) not condition any physician 

ownership or investment interests either 

directly or indirectly on the physician 

making or influencing referrals to the 

hospital or otherwise generating 

business for the hospital; and (3) 

disclose on any public Web site for the 

hospital and in any public advertising 

that it is owned or invested in by 

physicians. Compliance with these three 

requirements must be achieved no later 

than September 23, 2011. 

To incorporate these requirements 

into our regulations, we are proposing 

to: (1) Add § 411.362(b)(3)(ii)(A) to 

specify that a hospital must require each 

referring physician owner or investor to 

agree, as a condition of continued 

medical staff membership or admitting 

privileges, to provide written disclosure 

of his or her ownership or investment 

interest in the hospital (and, if 

applicable, the treating physician’s 

ownership or investment interest in the 

hospital) to all patients the physician 

refers to the hospital, at the time the 

referral is made; (2) add 

§ 411.362(b)(3)(ii)(B) to specify that a 

hospital may not condition any 

physician ownership or investment 

interests either directly or indirectly on 

the physician owner or investor making 

or influencing referrals to the hospital or 

otherwise generating business for the 

hospital; and (3) add 

§ 411.362(b)(3)(ii)(C) to specify that the 

hospital must disclose on any public 

Web site for the hospital and in any 

public advertising that the hospital is 

owned or invested in by physicians. 

Proposed § 411.362(b)(3)(ii)(A) 

defines the procedures that a hospital 

must have in place to require its 

physician owners and investors to make 

certain patient disclosures. We do not 

believe the disclosures to be made by 

physicians will be burdensome. For 

example, a physician owner or investor 

could provide a written, form notice to 

each patient that discloses the 

physician’s ownership or investment 

interest in the hospital, informs the 

patient that his or her treating physician 

may have an ownership or investment 

interest in the hospital, and directs the 

patient to review an attached list 

identifying all other physician owners 

or investors in the hospital. This notice 

may be used by the patient to make a 

meaningful decision regarding his or her 

receipt of care. 

We are soliciting public comments on 

several different issues relating to 

preventing conflicts of interest. First, we 

are seeking public comments on the 

benefits and drawbacks of our proposal, 

discussed above, relating to the 

procedures hospitals must have in place 

to require referring physician owners 

and investors to make the patient 

disclosures set forth in section 

1877(i)(1)(C)(ii) of the Act. We are 

interested in receiving information 

about other methods and alternative 

approaches to address this issue and 

what should constitute sufficient 

hospital procedures to require such 

disclosures to a patient by a referring 

physician owner or investor. 

Second, we are aware that a patient 

may have multiple conditions for which 

there are a variety of physician 

specialists who are responsible for 

different aspects of a patient’s care, even 

though the statute refers to a single 

‘‘treating physician.’’ We are not 

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proposing to define ‘‘treating physician.’’ 

We will consider treating physicians to 

be those physicians who are responsible 

for any aspect of a patient’s care or 

treatment. We welcome public 

comments on this approach. 

Finally, we encourage public 

comments on the methods a hospital 

should be required to use in disclosing 

its physician ownership or investment 

in public advertising pursuant to section 

1877(i)(1)(C)(iv) of the Act. For example, 

we are interested in comments on 

whether a hospital should be required to 

disclose physician ownership or 

investment on its homepage, any 

particular page on its Web site (for 

example, an ‘‘About Us’’ page), or all 

pages on its Web site; the types of media 

that constitute, or do not constitute, 

public advertising; and whether a 

minimum font size should be required 

for the disclosure. 

4. Ensuring Bona Fide Investment 

Section 1877(i)(1)(D) of the Act sets 

forth seven different requirements 

related to ensuring bona fide investment 

in order for hospitals to qualify for the 

rural provider and whole hospital 

exceptions set forth in the physician 

self-referral law. First, the percentage of 

the total value of the ownership or 

investment interests held in the 

hospital, or in an entity whose assets 

include the hospital, by physician 

owners or investors in the aggregate may 

not exceed such percentage as of March 

23, 2010. Second, any ownership or 

investment interests that the hospital 

offers to a physician owner or investor 

must not be offered on more favorable 

terms than the terms offered to a person 

who is not a physician owner or 

investor. Third, the hospital (or any 

owner or investor in the hospital) must 

not directly or indirectly provide loans 

or financing for any investment in the 

hospital by a physician owner or 

investor. Fourth, the hospital (or any 

owner or investor in the hospital) must 

not directly or indirectly guarantee a 

loan, make a payment toward a loan, or 

otherwise subsidize a loan, for any 

individual physician owner or investor 

or group of physician owners or 

investors that is related to acquiring any 

ownership or investment interest in the 

hospital. Fifth, ownership or investment 

returns must be distributed to each 

owner or investor in the hospital in an 

amount that is directly proportional to 

the ownership or investment interest of 

such owner or investor in the hospital. 

Sixth, physician owners and investors 

must not receive, directly or indirectly, 

any guaranteed receipt of or right to 

purchase other business interests related 

to the hospital, including the purchase 

or lease of any property under the 

control of other owners or investors in 

the hospital or located near the premises 

of the hospital. Lastly, the hospital must 

not offer a physician owner or investor 

the opportunity to purchase or lease any 

property under the control of the 

hospital or any other owner or investor 

in the hospital on more favorable terms 

than the terms offered to an individual 

who is not a physician owner or 

investor. We note that additional or 

different factors may be relevant to a 

determination of whether an investment 

is bona fide for purposes of complying 

with other laws, including fraud and 

abuse laws. 

We are proposing to add 

§ 411.362(b)(4) to incorporate these 

provisions in our regulations. We 

recognize that section 1877(i)(1)(A) of 

the Act provides that the hospital must 

have had physician ownership or 

investment on December 31, 2010, 

while section 1877(i)(1)(D)(i) of the Act 

assumes the existence of physician 

ownership or investment on March 23, 

2010 and further provides that the 

percentage of the total value of 

physician ownership or investment 

interests held in the hospital, in the 

aggregate, on that date must not 

increase. Reading these provisions 

together, we conclude the following: (i) 

If a hospital had no physician 

ownership or investment as of March 

23, 2010, it will not qualify for the 

whole hospital or rural provider 

exceptions if it adds any physician 

owners or investors after that date; and 

(ii) if a hospital had physician 

ownership or investment as of March 

23, 2010, it may reduce the number of 

physician owners or investors, provided 

that the percentage of the total value of 

physician ownership or investment 

interests, in the aggregate, remains the 

same or decreases. 

The second through seventh 

requirements tied to ensuring bona fide 

investment (sections 1877(i)(1)(D)(ii) 

through 1877(i)(1)(D)(vii) of the Act) do 

not specify any deadlines for 

compliance. Accordingly, compliance 

with the second through seventh 

requirements must be achieved no later 

than September 23, 2011. 

If we determine that further guidance 

related to any aspect of section 

1877(i)(1)(D) of the Act is necessary, we 

will provide clarification in future 

rulemaking. Furthermore, a hospital 

may request an advisory opinion 

(pursuant to §§ 411.370 through 

411.389) for a determination of whether 

an existing or proposed arrangement 

meets the requirements for hospitals to 

ensure that investment is bona fide. 

5. Patient Safety 

Section 1877(i)(1)(E) of the Act, as 

added by the Affordable Care Act, 

requires a hospital that is owned or 

invested in by physicians to disclose to 

a patient before admission if it does not 

have a physician available on the 

premises to provide services during all 

hours that the hospital is providing 

services to such patient. Following this 

disclosure, the hospital must receive a 

signed acknowledgment of such fact 

from the patient. In addition, the 

hospital must have the capacity to 

provide assessment and initial treatment 

for patients and refer and transfer such 

patients to hospitals with the capability 

to treat the patients involved. We see no 

reason to treat the safety of inpatients 

differently than outpatients. 

Accordingly, given the language and 

purpose of the statute, we propose to 

apply these patient safety requirements 

to inpatients as well as outpatients. 

Hospitals must meet these requirements 

no later than September 23, 2011. We 

are proposing to incorporate these 

provisions into our regulations at 

§ 411.362(b)(5). 

6. Conversion From ASC 

Section 1877(i)(1)(F) of the Act, as 

added by the Affordable Care Act, also 

prohibits the use of the rural provider 

and whole hospital exceptions by 

physician-owned hospitals that were 

converted from an ASC to a hospital on 

or after March 23, 2010. We are 

proposing to add § 411.362(b)(6) to 

reflect this provision in our regulations. 

7. Publication of Information Reported 

As discussed in section XVIII.B. of 

this proposed rule, section 1877(i)(1)(C) 

of the Act, as added by the Affordable 

Care Act, requires the hospital to submit 

to the Secretary an annual report 

containing a detailed description of the 

identity of each physician owner or 

investor and any other owners or 

investors of the hospital and the nature 

and extent of all ownership and 

investment interests in the hospital. The 

process for collecting this information 

must be determined no later than 

September 23, 2011. Section 1877(i)(2) 

of the Act requires that the Secretary 

publish, and update on an annual basis, 

the information submitted by hospitals 

under section 1877(i)(1)(C) of the Act on 

the CMS Web site. As with the annual 

report requirement set forth in section 

XVIII.B. of this proposed rule, we are 

not making a proposal related to this 

provision at this time. 

8. Enforcement 

Section 6001(b)(1) of the Affordable 

Care Act requires the Secretary to 

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establish policies and procedures to 

ensure compliance with the 

requirements described in section 

1877(i) of the Act, and states that these 

policies and procedures may include 

unannounced site reviews of hospitals. 

Section 6001(b)(2) of the Affordable 

Care Act requires the Secretary, 

beginning not later than May 1, 2012, to 

conduct audits to determine if 

physician-owned hospitals are in 

compliance with section 1877(i)(1) of 

the Act. We will comply with the 

statutory mandate, but are not proposing 

any regulations on this topic at this 

time. 

D. Proposed Related Changes to 

Provider Agreement Regulations 

Section 1866 of the Act states that a 

provider of services shall be qualified to 

participate in the Medicare program and 

shall be eligible for Medicare payments 

if it files a Medicare provider agreement 

and abides by the requirements 

applicable to Medicare provider 

agreements. These requirements are 

incorporated in our regulations at 42 

CFR part 489, Subparts A and B 

(Provider Agreements and Supplier 

Approval). Section 1861(e) of the Act 

defines the term ‘‘hospital.’’ Section 

1861(e)(9) of the Act defines a hospital 

and authorizes the Secretary to establish 

requirements as determined necessary 

in the interest of patient health and 

safety. Section 5006 of the Deficit 

Reduction Act of 2005 mandated the 

Secretary to develop a strategic and 

implementing plan to address certain 

issues with respect to physician 

ownership of specialty hospitals. As 

part of that plan, we used our authority 

under sections 1866 and 1861(e)(9) of 

the Act (as well as our general 

rulemaking authority under sections 

1102 and 1871 of the Act) to impose 

certain additional requirements on 

physician-owned hospitals as part of 

their provider agreements. These new 

requirements were established in the FY 

2008 IPPS final rule with comment 

period (72 FR 47385 through 47391) and 

the FY 2009 IPPS final rule (73 FR 

48686 through 48688). 

Specifically, we amended the 

regulations at § 489.3 governing 

Medicare provider agreements to define 

a ‘‘physician-owned hospital’’ as any 

participating hospital (including a CAH) 

in which a physician or immediate 

family member of a physician has an 

ownership or investment interest, 

unless the ownership or investment 

interest satisfies the exceptions at 

§ 411.356(a) or (b) regarding publiclytraded securities and mutual funds. In 

addition, we added a new provision at 

§ 489.20(u)(1) to require a physicianowned hospital to agree to furnish 

patients with written notice, in a 

manner reasonably designed to be 

understood by all patients, that it is 

physician-owned and that the list of 

physician owners is available upon 

request. Further, we added a new 

provision at § 489.20(u)(2) to compel 

hospitals to require that all physician 

owners who are also members of the 

hospital’s medical staff to disclose, in 

writing, their ownership interest in the 

hospital (and that of any immediate 

family member) to all patients they refer 

to the hospital, as a condition of 

continued medical staff membership. 

Patient disclosure is required at the time 

the physician makes a referral. 

We also added a new provision to 

require that hospitals and CAHs: (1) 

Furnish all patients written notice at the 

beginning of their inpatient hospital 

stay or outpatient service if a doctor of 

medicine or a doctor of osteopathy is 

not present in the hospital 24 hours per 

day, 7 days per week; and (2) describe 

how the hospital or CAH will meet the 

medical needs of any patient who 

develops an emergency medical 

condition at a time when no physician 

is present in the hospital or CAH. These 

requirements are codified at 

§ 489.20(w). The requirements of 

§ 489.20(u) and (w) were made 

applicable to both inpatient hospital 

stays and outpatient services because, as 

we stated in the FY 2008 IPPS final rule 

with comment period, these provisions 

are in the interest of the health and 

safety of all individuals who receive 

services in these institutions. The notice 

requirements are intended to permit 

individuals to make more informed 

decisions regarding their treatment. 

We are proposing to modify the 

Medicare provider agreement 

regulations in Subpart B of Part 489 in 

order to make the rules consistent with 

new § 411.362, as required by the 

Affordable Care Act. Furthermore, 

incorporating the additional 

requirements of the Affordable Care Act 

is in the best interest of the health and 

safety of individuals who receive 

services in hospitals and CAHs. With 

respect to § 489.20(u), we are proposing 

to: (1) Add a provision in 

§ 489.20(u)(1)(ii) to specify that the 

hospital must disclose on any public 

Web site for the hospital and in any 

public advertising that it is owned or 

invested in by physicians; (2) amend 

§ 489.20(u)(2) to specify that a referring 

physician owner or investor must also 

disclose in writing, if applicable, the 

treating physician’s ownership or 

investment interest in the hospital; and 

(3) add § 489.20(u)(3) to specify that a 

hospital may not condition any 

physician ownership or investment 

interests either directly or indirectly on 

the physician making or influencing 

referrals to the hospital or otherwise 

generating business for the hospital. 

Regarding § 489.20(w), we are 

proposing to specify that, in the case of 

a hospital where a doctor of medicine or 

a doctor of osteopathy is not present in 

the hospital 24 hours per day, 7 days 

per week, before admitting a patient or 

providing an outpatient service, the 

hospital must receive a signed 

acknowledgment from the patient 

stating that the patient understands that 

a physician may not be present during 

all hours services are rendered to the 

patient. 

We encourage public comments on 

whether the changes to the provider 

agreement regulations (Part 489) are 

necessary or whether the amendments 

and additions made to the whole 

hospital and rural provider exceptions 

within subpart J of Part 411 of our 

regulations are sufficient to provide 

guidance relating to section 6001 of the 

Affordable Care Act. 

XX. Files Available to the Public Via 

the Internet 

A. Information in Addenda Related to 

the CY 2011 Hospital OPPS 

Addenda A and B to this proposed 

rule provide various data pertaining to 

the proposed CY 2011 payment for 

items and services under the OPPS. 

Addendum A, which includes a list of 

all proposed APCs to be payable under 

the OPPS, and Addendum B, which 

includes a list of all active HCPCS codes 

with their proposed CY 2011 OPPS 

payment status and comment indicators, 

are available to the public by clicking 

‘‘Hospital Outpatient Regulations and 

Notices’’ on the CMS Web site at: 

http://www.cms.gov/ 

HospitalOutpatientPPS/. 

For the convenience of the public, we 

also are including on the CMS Web site 

a table that displays the HCPCS code 

data in Addendum B sorted by proposed 

APC assignment, identified as 

Addendum C. 

Addendum D1 defines the payment 

status indicators that we are proposing 

to use in Addenda A and B. Addendum 

D2 defines the comment indicators that 

we are proposing to use in Addendum 

B. Addendum E lists the proposed 

HCPCS codes that we propose would 

only be payable to hospitals as inpatient 

procedures and would not be payable 

under the OPPS. Addendum L contains 

the proposed out-migration wage 

adjustment for CY 2011. Addendum M 

lists the proposed HCPCS codes that 

would be members of a composite APC 

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and identifies the composite APC to 

which each would be assigned. This 

addendum also identifies the proposed 

status indicator for the HCPCS code and 

a proposed comment indicator if there 

is a proposed change in the code’s status 

with regard to its membership in the 

composite APC. Each of the proposed 

HCPCS codes included in Addendum M 

has a single procedure payment APC, 

listed in Addendum B, to which it 

would be assigned when the criteria for 

assignment to the composite APC are 

not met. When the criteria for payment 

of the code through the composite APC 

are met, one unit of the composite APC 

payment is paid, thereby providing 

packaged payment for all services that 

are assigned to the composite APC 

according to the specific I/OCE logic 

that applies to the APC. We refer readers 

to the discussion of composite APCs in 

section II.A.2.e. of this proposed rule for 

a complete description of the composite 

APCs. 

These addenda and other supporting 

OPPS data files are available on the 

CMS Web site at: http://www.cms.gov/ 

HospitalOutpatientPPS/. 

B. Information in Addenda Related to 

the CY 2011 ASC Payment System 

Addenda AA and BB to this proposed 

rule provide various data pertaining to 

the proposed CY 2011 payment for the 

covered surgical procedures and 

covered ancillary services for which 

ASCs may receive separate payment. 

Addendum AA lists the proposed ASC 

covered surgical procedures and the 

proposed CY 2011 payment indicators 

and payment rates for each procedure. 

Addendum BB displays the proposed 

ASC covered ancillary services, and 

their proposed CY 2011 payment 

indicators and payment rates. All 

proposed ASC relative payment weights 

and payment rates for CY 2011 are a 

result of applying the revised ASC 

payment system methodology 

established in the final rule for the 

revised ASC payment system published 

in the Federal Register on August 2, 

2007 (72 FR 42470 through 42548) to 

the CY 2011 OPPS and MPFS ratesetting 

information. 

Addendum DD1 defines the proposed 

payment indicators that are used in 

Addenda AA and BB. Addendum DD2 

defines the proposed comment 

indicators that are used in Addenda AA 

and BB. 

Addendum EE (available only on the 

CMS Web site) lists the surgical 

procedures that we are proposing to 

exclude from Medicare payment if 

furnished in ASCs. The proposed 

excluded procedures listed in 

Addendum EE are surgical procedures 

that would be assigned to the OPPS 

inpatient list, would not be covered by 

Medicare, would be reported using a 

CPT unlisted code, or have been 

determined to pose a significant safety 

risk or are expected to require an 

overnight stay when performed in ASCs. 

These addenda and other supporting 

ASC data files are included on the CMS 

Web site at: http://www.cms.gov/ 

ASCPayment/. The MPFS data files are 

located at: http://www.cms.gov/ 

PhysicianFeeSched/. 

The links to all of the proposed FY 

2011 IPPS wage index-related tables 

(that we are proposing to use for the CY 

2011 OPPS) that were published in the 

June 2, 2010 supplemental FY 2011 

IPPS/LTCH PPS proposed rule (75 FR 

30918) are accessible on the CMS Web 

site at: http://www.cms.gov/ 

AcuteInpatientPPS/WIFN. 

XXI. Collection of Information 

Requirements 

A. Legislative Requirement for 

Solicitation of Comments 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 60- 

day notice in the Federal Register and 

to solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

3506(c)(2)(A) of the Paperwork 

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

B. Proposed Requirements Specified in 

the Regulation Text 

This proposed rule contains the 

following proposed information 

collection requirements specified in 

regulatory text: 

1. ICRs Regarding Redistribution of 

Medical Residency Slots 

Existing regulations at § 413.78 

outline the requirements for the 

determination of the total number of 

FTE residents in determining direct 

GME payments to hospitals. Section 

XVII.B.2.c. of the preamble of this 

proposed rule discusses the requirement 

for hospitals that share the costs of 

resident training in nonprovider 

settings, as permitted by the Affordable 

Care Act, to count a proportional share 

of the time and to record that proportion 

in a written agreement. We are 

proposing that this proportion must be 

included on a distinct written 

agreement for hospitals that pay 

nonhospital sites concurrently, without 

a written agreement as described in 

existing regulations. The burden 

associated with this requirement is the 

time and effort put forth by the hospital 

to prepare a written agreement. We 

estimate it would take one hospital 15 

minutes to meet this requirement. 

Hospitals that already have a written 

agreement with a nonhospital site may 

include the proportion on that existing 

agreement. 

In section XVII.B.2.d. of the preamble 

of this proposed rule, we discuss the 

requirement under the Affordable Care 

Act for hospitals to maintain records of 

the amount of time that their residents 

spend training in nonhospital sites, and 

to compare that time to the time spent 

by their residents in nonprovider sites 

in a base year as the Secretary may 

specify. We believe that a large part of 

the information that hospitals would be 

required to record for the purposes of 

this provision is contained in rotation 

schedules, which all hospitals are 

already required to maintain. Therefore, 

we do not believe that this requirement 

poses an undue administrative burden 

for the purposes of the PRA. 

Existing regulations at § 412.105 and 

§ 413.79 outline the requirements for the 

determination of the weighted number 

of FTE residents for IME and direct 

GME payments to hospitals. In sections 

XVII.B.4. and 5. of the preamble of this 

proposed rule, we discuss our proposals 

that a hospital seeking an adjustment to 

the limit on its unweighted resident 

count under section 5503 or section 

5506 of the Affordable Care Act must 

provide documentation justifying the 

adjustment. Sections XVII.B.4. and 5. of 

the preamble of this proposed rule 

specify the information that a request 

would have to include. These 

requirements are exempt from the PRA 

in accordance with the provisions of the 

Affordable Care Act. 

2. ICRs Regarding Basic Commitments 

of Providers (§ 489.20) and Additional 

Requirements Concerning Physician 

Ownership and Investment in Hospitals 

(§ 411.362) 

Current § 489.20(u)(1) states that, in 

the case of a physician-owned hospital 

as defined in § 489.3, the hospital must 

furnish written notice to all patients at 

the beginning of their hospital stay or 

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outpatient visit that the hospital is a 

physician-owned facility. The burden 

associated with the requirements in this 

section is the time and effort necessary 

for a hospital to furnish written notice 

to all patients that the hospital is a 

physician-owned hospital. Whereas this 

requirement is subject to the PRA, the 

associated burden is currently approved 

under OMB control number 0938–1034, 

with an expiration date of February 28, 

2011. 

Our proposed amendment to 

§ 489.20(u)(1) and proposed new 

§ 411.362(b)(3)(ii)(C) would require 

disclosure by a hospital on any public 

Web site for the hospital and in any 

public advertising that the hospital is 

owned or invested in by physicians. The 

burden associated with this disclosure 

requirement is the time and effort 

necessary for hospitals to draft and post 

such a disclosure on their Web sites 

(where applicable) and to include such 

a disclosure in any existing or future 

public advertising that the hospitals 

may utilize. We estimate that 265 

hospitals must comply with this 

requirement. In addition, we estimate 

that it will take each hospital 1 hour to 

develop and place this information on 

its Web site and/or in a public 

advertisement. The estimated annual 

hospital burden associated with placing 

the aforementioned information in Web 

sites, public advertisement, or both is 

265 hours at a cost of $3,993.55. In 

addition, we estimate that it will take 30 

minutes annually for a hospital to 

review and update the information 

contained in its Web site, public 

advertising or both. The estimated 

annual burden associated with the 

annual review and update of the 

information is 132.5 hours at a cost of 

$1,996.77. 

Our proposed amendment to 

§ 489.20(u)(2) and proposed new 

§ 411.362(b)(3)(ii)(A) would require the 

hospital to have procedures in place to 

require that each referring physician 

agree, as a condition of his or her 

continued medical staff membership or 

admitting privileges, to provide written 

disclosure of his or her ownership or 

investment interest in the hospital (and, 

if applicable a treating physician’s 

ownership or investment interest in the 

hospital) to all patients whom the 

physician refers to the hospital. These 

provisions impose a burden on both 

hospitals and physicians. 

With respect to hospitals, the burden 

associated with this requirement is the 

time and effort necessary for hospitals to 

develop, draft, and implement changes 

to its medical staff bylaws and other 

policies governing admitting privileges. 

Approximately 265 hospitals would be 

required to comply with these 

requirements. We estimate that it will 

require a hospital’s general counsel 2 

hours to revise a hospital’s medical staff 

bylaws and policies governing admitting 

privileges. Therefore, the total annual 

hospital burden would be 530 hours at 

a cost of $32,875.90. 

With respect to physicians, the 

burden associated with this requirement 

is the time and effort necessary for a 

referring physician owner or investor to 

develop a list of all other physician 

owners or investors in the hospital and 

draft a form notice to patients that 

discloses the referring physician’s 

ownership or investment interest in the 

hospital, informs the patient that a 

treating physician(s) of the patient may 

have an ownership or investment 

interest in the hospital, and directs the 

patient to review a list identifying all 

other physician owners or investors in 

the hospital. This list may be used by 

patients in making their health care 

decisions. Under existing § 489.20(u)(1), 

hospitals are currently required to 

provide a list of their physician owners 

or investors to patients upon request at 

the beginning of their inpatient stay or 

outpatient visit. Because hospitals 

already maintain lists of their owners 

and investors, we estimate that it will 

take each physician 1 hour annually to 

obtain such a list from the hospital, 

draft a disclosure notice, and make 

copies that will be distributed to 

patients. In addition, we estimate that it 

will take 30 seconds to provide the 

disclosure notice to each patient and an 

additional 30 seconds to record proof of 

disclosure in each patient’s medical 

record. 

Although we can estimate the number 

of physician-owned hospitals, we are 

unable to quantify the number of 

physicians (or their immediate family 

members) who possess an ownership or 

investment interest in hospitals. There 

are limited data available concerning 

physician ownership in hospitals. The 

studies to date, including those by CMS 

and the GAO, pertain to physician 

ownership in specialty hospitals 

(cardiac, orthopedic, and surgical 

hospitals). These specialty hospitals 

published data concerning the average 

percentage of shares of direct ownership 

by physicians (less than 2 percent), 

indirect ownership through group 

practices, and the aggregate percentage 

of physician ownership, but did not 

publish the number of physician owners 

in these types of hospitals. More 

importantly, § 489.20(u)(2) applies to 

physician ownership in any type of 

hospital. Our other research involved a 

review of enrollment data. However, the 

CMS Medicare enrollment application 

(CMS–855) requires physicians to report 

only those ownership interests that are 

5 percent or more (direct or indirect), 

and thus, most physician ownership is 

not captured. While we acknowledge 

there is a burden associated with this 

ICR, we have no way to quantify this 

requirement’s burden. Therefore, 

because we are unable to estimate the 

total physician burden associated with 

this reporting requirement, we are 

assigning 1 burden hour to this 

requirement and we are also seeking 

public comment pertaining to this 

burden allocation and will reevaluate 

this issue in the final rule stage of 

rulemaking. 

Existing § 489.20(w) requires 

hospitals, as defined in § 489.24(b), to 

furnish all patients notice in accordance 

with § 482.13(b)(2), at the beginning of 

their hospital stay or outpatient visit if 

a doctor of medicine or a doctor of 

osteopathy is not present in the hospital 

24 hours per day, 7 days per week. The 

notice must indicate how the hospital 

will meet the medical needs of any 

inpatient who develops an emergency 

medical condition, as defined in 

§ 489.24(b), at a time when there is no 

physician present in the hospital. The 

burden associated with this requirement 

is the time and effort necessary for each 

hospital to develop a standard notice to 

furnish to its patients. Although this 

requirement is subject to the PRA, the 

associated burden is approved under 

OMB control number 0938–1034, with a 

current expiration date of February 28, 

2011. 

Our proposed new §§ 489.20(w)(2) 

and 411.362(b)(5)(i) would require that, 

following a hospital’s disclosure to a 

patient that it does not have a physician 

available during all hours that the 

hospital is providing services to such 

patient, the hospital must obtain a 

signed acknowledgment from the 

patient stating that the patient 

understands that no physician is 

available for that period. The burden 

associated with this requirement is the 

time and effort necessary for each 

hospital to add an acknowledgment line 

to its current form, disclose the form to 

the patient, obtain the patient’s 

signature, and copy and record the form 

in the patient’s medical record. The 

requirements in proposed § 489.20(w) 

would apply to all hospitals (not just 

physician-owned hospitals), as defined 

in § 489.24(b). We estimate that there 

are approximately 2,557 hospitals and 

CAHs that may not have a physician onsite at all times. We estimate that it will 

take each hospital 30 minutes to amend 

its current disclosure form to add an 

acknowledgment line, an additional 30 

seconds to obtain the patient’s 

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signature, and an additional 30 seconds 

to include a copy of the notice in the 

patient’s medical record. The estimated 

annual burden associated with 

developing an amended form, obtaining 

patient signatures, and copying and 

recording the form is 1,196,932.6 hours 

at a cost of $18,518,081.15. 

C. Associated Information Collections 

Not Specified in Regulatory Text 

In this proposed rule, we make 

reference to proposed associated 

information collection requirements that 

are not discussed in the regulation text 

contained in this document. The 

following is a discussion of those 

requirements. 

1. Hospital Outpatient Quality Data 

Reporting Program (HOP QDRP) 

As previously stated in section XVI. of 

this proposed rule, the quality data 

reporting program for hospital 

outpatient care, known as the Hospital 

Outpatient Quality Data Reporting 

Program (HOP QDRP), has been 

generally modeled after the quality data 

reporting program for hospital inpatient 

services, the Reporting Hospital Quality 

Data for Annual Payment Update 

(RHQDAPU) program. Section 109(a) of 

the MIEA–TRHCA (Pub. L. 109–432) 

amended section 1833(t) of the Act by 

adding a new subsection (17) which 

affects the annual payment update 

factor applicable to OPPS payments for 

services furnished by hospitals in 

outpatient settings on or after January 1, 

2009. Section 1833(t)(17)(A) of the Act 

states that subsection (d) hospitals (as 

defined under section 1886(d)(1)(B) of 

the Act) that fail to report data required 

for the quality measures selected by the 

Secretary in the form and manner 

required by the Secretary under section 

1833(t)(17)(B) of the Act will incur a 2.0 

percentage point reduction to their 

annual payment update factor. Section 

1833(t)(17)(B) of the Act requires that 

hospitals submit quality data in a form 

and manner, and at a time, that the 

Secretary specifies. Section 

1833(t)(17)(A)(ii) of the Act specifies 

that any reduction would apply only to 

the payment year involved and would 

not be taken into account in computing 

the applicable annual payment update 

factor for a subsequent payment year. 

Section 1833(t)(17)(C)(i) of the Act 

requires the Secretary to develop 

measures appropriate for the 

measurement of the quality of care 

(including medication errors) furnished 

by hospitals in outpatient settings, that 

these measures reflect consensus among 

affected parties and, to the extent 

feasible and practicable, that these 

measures include measures set forth by 

one or more national consensus 

building entities. 

2. HOP QDRP Quality Measures for the 

CY 2012, CY 2013 and CY 2014 

Payment Determinations 

In the CY 2009 final rule with 

comment period (73 FR 68766), we 

retained the seven chart-abstracted 

measure we used in CY 2009 and 

adopted 4 new claims-based imaging 

measures for use in CY 2010, bringing 

the total number to 11 measures. In the 

CY 2010 OPPS/ASC final rule with 

comment period (74 FR 60637), we 

adopted the same 11 measures and the 

same data submission requirements 

related to the 7 data abstracted measures 

for CY 2011 payment determinations. 

For the CY 2012 payment update, we 

are proposing that hospitals continue to 

submit data for the existing 7 chartabstracted measures (we would 

continue to use the 4 claims-based 

measures) and to add 1 new chartabstracted AMI measure, 4 additional 

claims-based imaging efficiency 

measures, and 1 structural measure 

regarding Health IT. These 17 measures 

are listed in the table below. For the CY 

2013 payment determination, we are 

proposing that hospitals continue to 

submit data for all of the nonclaimsbased measures previously adopted for 

the CY 2012 payment determination (we 

would continue to use the claims-based 

measures previously adopted), and to 

adopt 1 new structural measure on 

tracking clinical results, and 6 new 

chart-abstracted measures for the CY 

2013 payment determination on the 

topics of HOPD care transitions, and ED 

efficiency, for a total of 24 measures. For 

the CY 2014 payment determination, we 

are proposing that hospitals continue to 

submit data for all of the measures 

previously adopted for the CY 2013 

payment determination (we would 

continue to use the claims-based 

measures previously adopted), and to 

adopt 6 new chart-abstracted measures 

on the topics of diabetes care and 

exposure time for procedures using 

fluoroscopy, for a total of 30 measures. 

These proposed measures are listed 

below. 

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For the CY 2012 payment 

determination, hospitals would submit 

data related to the 8 chart-abstracted 

measures and we would calculate the 8 

claims-based measures using 

administrative paid claims data and not 

require additional hospital data 

submissions. For the structural measure, 

hospitals would enter data into a Webbased collection tool. 

As part of the data submission process 

pertaining to the 17 measures listed 

above for the CY 2012 payment 

determination, hospitals must also 

complete and submit a notice of 

participation in the HOP QDRP. By 

submitting this document, hospitals 

agree that they will allow CMS to 

publicly report the quality measures as 

required by the HOP QDRP. 

For the CY 2012 payment 

determination, the burden associated 

with this section is the time and effort 

associated with completing the notice of 

participation as well as collecting and 

submitting the data on the eight data 

abstracted measures and the one 

structural measure. We estimate that 

there will be approximately 3,200 

respondents per year. For hospitals to 

collect and submit the information on 

the required measures, we estimate it 

will take 35 minutes per sampled case. 

We estimate there will be a total of 

930,000 cases per year, approximately 

290 cases per year per respondent. The 

estimated annual burden associated 

with the aforementioned submission 

requirements for chart-abstracted data is 

542,500 hours (930,000 cases per year × 

0.583 hours/case). For the structural 

measure, we estimate that it will require 

10 minutes per hospital for one instance 

per year; the estimated annual burden 

associated with this requirement is 533 

hours (3,200 hospitals × 0.167 hours per 

hospital). 

We invite public comment on the 

burden associated with these 

information collection requirements. 

3. Proposed HOP QDRP Validation 

Requirements 

In addition to requirements for 

submitting of quality data, hospitals 

must also comply with the requirements 

for data validation in CY 2012. Similar 

to our proposed policy for the FY 2012 

RHQDAPU program (75 FR 23991 

through 23993), we are proposing to 

validate data from 800 randomly 

selected hospitals each year under the 

HOP QDRP, beginning with the CY 2012 

payment determination. We note that, 

because the 800 hospitals would be 

selected randomly, every HOP QDRPparticipating hospital would be eligible 

each year for validation selection. For 

each selected hospital, we would 

randomly select up to 48 patient 

episodes of care per year (12 per 

quarter) for validation purposes from 

the total number of cases that the 

hospital successfully submitted to the 

OPPS Clinical Warehouse during the 

applicable time period. However, if a 

selected hospital has submitted less 

than 12 cases in one or more quarters, 

only those cases available will be 

validated. 

The burden associated with the 

proposed CY 2012 requirement is the 

time and effort necessary to submit 

validation data to a CMS contractor. We 

estimate that it will take each of the 800 

sampled hospitals approximately 12 

hours to comply with these data 

submission requirements. To comply 

with the requirements, we estimate each 

hospital must submit 48 cases for the 

affected year for review. We estimate 

that 800 hospitals must comply with 

these requirements to submit a total of 

38,400 charts across all sampled 

hospitals. The estimated annual burden 

associated with the data validation 

process for CY 2012 and subsequent 

years is 9,600 hours. 

We invite public comment on this 

information collection requirement. 

4. Proposed HOP QDRP Reconsideration 

and Appeals Procedures 

In the CY 2009 OPPS/ASC final rule 

with comment period (73 FR 68779), we 

adopted a mandatory reconsideration 

process that will apply to the CY 2010 

payment decisions. In the CY 2010 

OPPS/ASC final rule with comment 

period (74 FR 60654 through 60655), we 

continued this process for the CY 2011 

payment update. We are proposing to 

continue this process for the CY 2012 

payment update with some 

modifications. We have proposed to 

eliminate a requirement that the 

reconsideration request form be signed 

by the hospital CEO to facilitate 

electronic submission of the form and 

reduce hospital burden. Under this 

proposed process, the hospitals would 

be required to meet all of the 

requirements specified in section XVI.E. 

of this proposed rule. While there is 

burden associated with filing a 

reconsideration request, section 5 CFR 

1320.4 of the Paperwork Reduction Act 

of 1995 excludes collection activities 

during the conduct of administrative 

actions such as redeterminations, 

reconsiderations, and/or appeals. 

Specifically, these actions are taken 

after the initial determination or denial 

of payment. 

5. Additional Topics 

While we are seeking OMB approval 

for the information collection 

requirements associated with the HOP 

QDRP and the data validation processes, 

we also are seeking public comment on 

several issues that may ultimately affect 

the burden associated with HOP QDRP 

and the data validation processes. 

Specifically, this proposed rule lists 

proposed quality measures for CY 2012 

through CY 2014 payment 

determinations as well as other possible 

quality measures under consideration 

for CY 2013 and subsequent years. We 

also are soliciting public comments to 

explore the use of registries to comply 

with the HOP QDRP submission 

requirements, the use of EHRs as a data 

submission tool, the use of a 

standardized process for the retirement 

of HOP QDRP quality measures, the 

continued use of an extraordinary 

circumstance extension or waiver for 

reporting quality data, and the 

implementation of additional data 

validation conditions. 

If you comment on these information 

collection and recordkeeping 

requirements, please do either of the 

following: 

1. Submit your comments 

electronically as specified in the 

ADDRESSES section of this proposed rule; 

or 

2. Submit your comments to the 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, 

Attention: CMS Desk Officer, (CMS– 

1504–P) 

Fax: (202) 395–6974; or 

E-mail: 

OIRA_submission@omb.eop.gov. 

XXII. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this proposed rule, and, when we 

proceed with a subsequent document(s), 

we will respond to those comments in 

the preamble to that document(s). 

XXIII. Regulatory Impact Analysis 

A. Overall Impact 

We have examined the impacts of this 

proposed rule as required by Executive 

Order 12866 (September 1993, 

Regulatory Planning and Review), the 

Regulatory Flexibility Act (RFA) 

(September 19, 1980, Pub. L. 96–354), 

section 1102(b) of the Social Security 

Act, the Unfunded Mandates Reform 

Act of 1995 (Pub. L. 104–4), Executive 

Order 13132 on Federalism, and the 

Congressional Review Act (5 U.S.C. 

804(2)). 

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1. Executive Order 12866 

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 that have economically 

significant effects ($100 million or more 

in any 1 year) or 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 

government or communities (58 FR 

51741). 

We estimate that the effects of the 

OPPS provisions that would be 

implemented by this proposed rule 

would result in expenditures exceeding 

$100 million in any 1 year. We estimate 

the total increase (from proposed 

changes in this proposed rule as well as 

enrollment, utilization, and case-mix 

changes) in expenditures under the 

OPPS for CY 2011 compared to CY 2010 

to be approximately $3.9 billion. 

Because this proposed rule for the OPPS 

is ‘‘economically significant’’ as 

measured by the $100 million threshold 

and also a major rule under the 

Congressional Review Act, we have 

prepared a regulatory impact analysis 

that, to the best of our ability, presents 

the costs and benefits of this 

rulemaking. Table 55 of this proposed 

rule displays the redistributional impact 

of the CY 2011 proposed changes on 

OPPS payment to various groups of 

hospitals. 

We estimate that the effects of the 

ASC provisions that would be 

implemented by this proposed rule for 

the ASC payment system would not 

exceed $100 million in any 1 year and, 

therefore, are not economically 

significant. We estimate the total 

increase (from proposed changes in this 

proposed rule as well as enrollment, 

utilization, and case-mix changes) in 

expenditures under the ASC payment 

system for CY 2011 compared to CY 

2010 to be approximately $0. However, 

because this proposed rule for the ASC 

payment system substantially affects 

ASCs, we have prepared a regulatory 

impact analysis of changes to the ASC 

payment system that, to the best of our 

ability, presents the costs and benefits of 

this rulemaking. Table 57 and Table 58 

of this proposed rule display the 

redistributional impact of the CY 2011 

changes on ASC payment, grouped by 

specialty area and then grouped by 

procedures with the greatest ASC 

expenditures, respectively. 

2. Regulatory Flexibility Act (RFA) 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses if a rule has a significant 

impact on a substantial number of small 

entities. For purposes of the RFA, small 

entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. Many 

hospitals, other providers, ASCs, and 

other suppliers are considered to be 

small entities, either by being nonprofit 

organizations or by meeting the Small 

Business Administration (SBA) 

definition of a small business (hospitals 

having revenues of $34.5 million or less 

in any 1 year and ASCs having revenues 

of $10 million or less in any 1 year). 

(For details on the latest standards for 

health care providers, we refer readers 

to the SBA’s Web site at: http://sba.gov/ 

idc/groups/public/documents/ 

sba_homepage/serv_sstd_tablepdf.pdf 

(refer to the 620000 series).) 

For purposes of the RFA, we have 

determined that many hospitals and 

most ASCs would be considered small 

entities according to the SBA size 

standards. Individuals and States are 

not included in the definition of a small 

entity. Therefore, the Secretary has 

determined that this proposed rule 

would have a significant impact on a 

substantial number of small entities. 

Because we acknowledge that many of 

the affected entities are small entities, 

the analyses presented throughout this 

proposed rule constitute our proposed 

regulatory flexibility analysis. 

Therefore, we are soliciting public 

comments on our estimates and 

analyses of the impact of this proposed 

rule on those small entities. 

3. Small Rural Hospitals 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 603 of the 

RFA. With the exception of hospitals 

located in certain New England 

counties, for purposes of section 1102(b) 

of the Act, we now define a small rural 

hospital as a hospital that is located 

outside an urban area and has fewer 

than 100 beds. Section 601(g) of the 

Social Security Amendments of 1983 

(Pub. L. 98–21) designated hospitals in 

certain New England counties as 

belonging to the adjacent urban areas. 

Thus, for OPPS purposes, we continue 

to classify these hospitals as urban 

hospitals. We believe that the proposed 

changes to the OPPS in this proposed 

rule would affect both a substantial 

number of rural hospitals as well as 

other classes of hospitals and that the 

effects on some may be significant. Also, 

the changes to the ASC payment system 

in this proposed rule would affect rural 

ASCs. Therefore, the Secretary has 

determined that this proposed rule 

would have a significant impact on the 

operations of a substantial number of 

small rural hospitals. 

4. Unfunded Mandates 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any 1 year of $100 

million in 1995 dollars, updated 

annually for inflation. That threshold 

level is currently approximately $135 

million. This proposed rule would not 

mandate any requirements for State, 

local, or tribal governments, nor would 

it affect private sector costs. 

5. Federalism 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

costs on State and local governments, 

preempts State law, or otherwise has 

Federalism implications. 

We have examined the OPPS and ASC 

provisions included in this proposed 

rule in accordance with Executive Order 

13132, Federalism, and have 

determined that they would not have a 

substantial direct effect on State, local 

or tribal governments, preempt State 

law, or otherwise have a Federalism 

implication. As reflected in Table 55 

below, we estimate that OPPS payments 

to governmental hospitals (including 

State and local governmental hospitals) 

would increase by 2.2 percent under 

this proposed rule. While we do not 

know the number of ASCs with 

government ownership, we anticipate 

that it is small. We believe that the 

provisions related to payments to ASCs 

in CY 2011 would not affect payments 

to any ASCs owned by government 

entities. 

The following analysis, in 

conjunction with the remainder of this 

document, demonstrates that this 

proposed rule is consistent with the 

regulatory philosophy and principles 

identified in Executive Order 12866, the 

RFA, and section 1102(b) of the Act. 

This proposed rule would affect 

payments to a substantial number of 

small rural hospitals and a small 

number of rural ASCs, as well as other 

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classes of hospitals and ASCs, and some 

effects may be significant. 

B. Effects of OPPS Changes in This 

Proposed Rule 

We are proposing to make several 

changes to the OPPS that are required 

by the statute. We are required under 

section 1833(t)(3)(C)(ii) of the Act to 

update annually the conversion factor 

used to determine the APC payment 

rates. We also are required under 

section 1833(t)(9)(A) of the Act to revise, 

not less often than annually, the wage 

index and other adjustments, including 

pass-through payments and outlier 

payments. In addition, we must review 

the clinical integrity of payment groups 

and weights at least annually. 

Accordingly, in this proposed rule, we 

are proposing to update the conversion 

factor and the wage index adjustment 

for hospital outpatient services 

furnished beginning January 1, 2011, as 

we discuss in sections II.B. and II.C., 

respectively, of this proposed rule. We 

discuss our implementation of section 

10324 of the Affordable Care Act, as 

amended by HCERA, authorizing a wage 

index of 1.00 for certain frontier states. 

We also are proposing to revise the 

relative APC payment weights using 

claims data for services furnished from 

January 1, 2009, through December 31, 

2009, and updated cost report 

information. We are proposing to 

continue the current payment 

adjustment for rural SCHs, including 

EACHs. We are proposing an adjustment 

for cancer hospitals identified under 

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

accordance with section 3138 of the 

Affordable Care Act, as amended by 

HCERA. Finally, we list the 18 drugs 

and biologicals in Table 20 of this 

proposed rule that we are proposing to 

remove from pass-through payment 

status for CY 2011. 

Under this proposed rule, we estimate 

that the proposed update change to the 

conversion factor and other adjustments 

(but not including the effects of outlier 

payments, pass-through estimates, the 

expiration of section 508 wages on 

September 30, 2010, and the application 

of the frontier wage adjustment for CY 

2011) as provided by the statute would 

increase total OPPS payments by 2.1 

percent in CY 2011. The proposed 

changes to the APC weights, the changes 

to the wage indices, the continuation of 

a payment adjustment for rural SCHs, 

including EACHs, and the proposed 

payment adjustment for cancer hospitals 

would not increase OPPS payments 

because these changes to the OPPS are 

budget neutral. However, these 

proposed updates do change the 

distribution of payments within the 

budget neutral system as shown in 

Table 55 below and described in more 

detail in this section. We also estimate 

that the total change in payments 

between CY 2010 and CY 2011, 

considering all payments, including 

changes in estimated total outlier 

payments, pass-through payments, the 

expiration of additional money for 

specified section 508 reclassification 

and special exception wages indices, 

and the application of the frontier 

adjustment outside of budget neutrality, 

would increase total OPPS payments by 

2.2 percent. 

1. Alternatives Considered 

Alternatives to the changes we are 

making and the reasons that we have 

chosen the options are discussed 

throughout this proposed rule. Some of 

the major issues discussed in this 

proposed rule and the options 

considered are discussed below. 

a. Alternatives Considered for the 

Extension of Waiver of Deductible to 

Services Furnished in Connection With 

or in Relation to a Colorectal Screening 

Test That Becomes Diagnostic 

Section 4104(c)(2)of the Affordable 

Care Act waives the deductible with 

respect to a colorectal cancer screening 

test regardless of the code that is billed 

for the establishment of a diagnosis as 

a result of the test, or for the removal of 

tissue or other matter or other procedure 

that is furnished in connection with, as 

a result of, and in the same clinical 

encounter as a screening test. We are 

proposing for CY 2011 that the 

deductible be waived for all surgical 

services furnished on the same date as 

a planned screening colonoscopy, 

planned flexible sigmoidoscopy, or 

barium enema as being furnished in 

connection with, as a result of, and in 

the same clinical encounter as the 

screening test. As discussed in detail in 

XII.B.3 of this rule, we are proposing to 

implement this provision by creating a 

HCPCS modifier that hospitals would 

append to the diagnostic procedure 

code that is reported instead of the 

screening colonoscopy or screening 

flexible sigmoidoscopy HCPCS code or 

as a result of the barium enema when 

the screening test becomes a diagnostic 

service. The claims processing system 

would respond to the modifier by 

waiving the deductible for all surgical 

services on the same date as the 

diagnostic test. Coinsurance or 

copayment would continue to apply to 

the diagnostic test and other services 

furnished in connection with, as a result 

of, and in the same clinical encounter as 

the screening test. 

We considered three alternatives for 

the extension of waiver of deductible to 

services furnished in connection with or 

in relation to a colorectal screening test 

that becomes diagnostic for CY 2011. 

The first alternative we considered, but 

are not proposing, was to define a 

limited set of colonoscopy codes to 

which the waiver could apply when 

performed on the same date as a 

procedure that began as a screening 

colonoscopy, screening flexible 

sigmoidoscopy, or barium enema. We 

did not choose this alternative because 

it is virtually impossible to create a 

valid and complete list of appropriate 

procedures to handle all situations, due 

to the range of problems that could be 

identified and complications that could 

occur with any invasive procedures. 

Furthermore, we believe this 

alternative would be complex to 

implement. Although this alternative 

narrows the potential for hospitals to 

abuse the waiver of the deductible by 

applying it to unrelated services, we 

believe the potential for abuse of the 

waiver of the deductible to be minimal. 

The Part B deductible is a fixed amount 

that the beneficiary pays before 

Medicare begins to pay and typically 

would be met after receiving one to two 

services. 

The second alternative we considered, 

but are not proposing, was to define a 

broader, but still limited set of codes 

(for example, selected surgical services) 

to which the waiver could apply when 

performed on the same date as a 

procedure that began as a screening 

colonoscopy, screening flexible 

sigmoidoscopy, or barium enema. 

Although this alternative would 

encompass a broader set of codes, we 

believe it is virtually impossible to 

create a valid and complete list of 

appropriate procedures to handle all 

situations, due to the range of problems 

that could be identified and 

complications that could occur with any 

invasive procedures. While we 

acknowledge that this alternative 

narrows the potential for abuse of the 

waiver of the deductible, we believe the 

potential for abuse is minimal and that 

this alternative would be complex to 

implement. For these reasons we did 

not choose to define a broader set of 

limited codes to which the waiver could 

apply when performed on the same date 

as a procedure that began as a screening 

colonoscopy, screening flexible 

sigmoidoscopy, or barium enema. 

The third alternative we considered, 

and the one we are proposing for CY 

2011, is to apply the waiver to any 

surgical procedure on the same date as 

a screening colonoscopy, flexible 

sigmoidoscopy, or barium enema that 

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providers report is ‘‘in connection with 

or as a result of’’ the procedure that 

began as a screening test. We are 

proposing to create a HCPCS modifier 

that providers would append to the 

diagnostic procedure code that is 

reported instead of the screening 

colonoscopy or screening flexible 

sigmoidoscopy HCPCS code or as a 

result of the barium enema when the 

screening test becomes a diagnostic 

service. We chose this alternative 

because we believe it provides the 

greatest ease of public understanding 

and provider application. We believe 

that this alternative is appropriate 

because we believe that it would be very 

rare for an unrelated surgery to occur on 

the same date as one of these scheduled 

screening tests. Moreover, we believe 

that the risk of improper expenditures 

would be very small under this policy 

because it is the deductible, and not the 

coinsurance, that is waived for the 

related procedures other than the 

screening tests. As noted above, the Part 

B deductible is a fixed amount that the 

beneficiary pays before Medicare begins 

to pay and typically would be met after 

receiving one to two services. 

b. Alternatives Considered for Payment 

of the Acquisition and Pharmacy 

Overhead Costs of Drugs and Biologicals 

That Do Not Have Pass-Through Status 

We are proposing that, for CY 2011, 

the OPPS would make payment for 

separately payable drugs and biologicals 

at ASP+6 percent, and this payment 

would continue to represent combined 

payment for both the acquisition and 

pharmacy overhead costs of separately 

payable drugs and biologicals. As 

discussed in detail in section V.B.3. of 

this proposed rule, we believe that 

approximately $150 million of the 

estimated $593 million in pharmacy 

overhead cost currently attributed to 

coded packaged drugs with an ASP and 

$50 million of the estimated $628 

million in pharmacy overhead cost 

currently attributed to coded and 

uncoded packaged drugs without an 

ASP should, instead, be attributed to 

separately payable drugs and biologicals 

to provide an adjustment for the 

pharmacy overhead costs of these 

separately payable products. As a result, 

we also are proposing to reduce the cost 

of packaged drugs and biologicals that is 

included in the payment for procedural 

APCs to offset the $200 million 

adjustment to payment for separately 

payable drugs and biologicals. We are 

proposing that any redistribution of 

pharmacy overhead cost that may arise 

from CY 2011 final rule claims data 

would occur only from some drugs and 

biologicals to other drugs and 

biologicals, thereby maintaining the 

estimated total cost of drugs and 

biologicals under the OPPS. 

We considered three alternatives for 

payment of the acquisition and 

pharmacy overhead costs of drugs and 

biologicals that do not have passthrough status for CY 2011. The first 

alternative we considered, but are not 

proposing, was to continue our standard 

policy of comparing the estimated 

aggregate cost of separately payable 

drugs and biologicals in our claims data 

to the estimated aggregate ASP dollars 

for separately payable drugs and 

biologicals, using the ASP as a proxy for 

average acquisition cost, to calculate the 

estimated percent of ASP that would 

serve as the best proxy for the combined 

acquisition and pharmacy overhead 

costs of separately payable drugs and 

biologicals (70 FR 68642). Under this 

standard methodology, using April 2010 

ASP information and costs derived from 

CY 2009 OPPS claims data, we 

estimated the combined acquisition and 

overhead costs of separately payable 

drugs and biologicals to be ASP plus 0 

percent. As discussed in section V.B.3. 

of this proposed rule, we also 

determined that the combined 

acquisition and overhead costs of 

packaged drugs are 283 percent of ASP. 

We did not choose this alternative 

because we believe that this analysis 

indicates that our standard drug 

payment methodology has the potential 

to ‘‘compress’’ the calculated costs of 

separately payable drugs and biologicals 

to some degree. Further, we recognize 

that the attribution of pharmacy 

overhead costs to packaged or separately 

payable drugs and biologicals through 

our standard drug payment 

methodology of a combined payment for 

acquisition and pharmacy overhead 

costs depends, in part, on the treatment 

of all drugs and biologicals each year 

under our annual drug packaging 

threshold. Changes to the packaging 

threshold may result in changes to 

payment for the overhead cost of drugs 

and biologicals that do not reflect actual 

changes in hospital pharmacy overhead 

cost for those products. 

The second alternative we considered, 

but are not proposing, was to adopt the 

APC Panel’s February 2010 

recommendation to redistribute a larger 

portion of the overhead cost from 

packaged drugs to separately payable 

drugs for payment of drugs and 

biologicals that do not have passthrough status. We did not choose this 

alternative because, as we discussed in 

V.B.3. of this proposed rule, we are not 

confident that we know the amount of 

overhead cost available for 

redistribution in the uncoded packaged 

drugs and, therefore, do not know if it 

is appropriate to redistribute more 

payment from uncoded packaged drugs 

to separately paid drugs. Presenters at 

the APC Panel meeting provided 

analyses suggesting that the uncoded 

packaged drug cost contain exactly the 

same drugs as those in the coded 

packaged drug cost, leading to a 

recommendation that we could assume 

the same proportional amount of 

overhead cost appears in the uncoded 

packaged drug cost as observed in the 

coded packaged drug cost in order to 

increase the amount of ‘‘overhead’’ drug 

cost available for redistribution from 

uncoded packaged drugs to separately 

payable drugs. However, we do not 

believe we should assume that the costs 

reported under uncoded pharmacy 

revenue code lines are for the same 

drugs and biologicals, with the same 

ASPs, and overhead costs as the costs of 

packaged drugs and biologicals reported 

with a HCPCS code. For these reasons, 

we are not accepting the APC Panel’s 

recommendation to redistribute a larger 

portion of overhead costs from packaged 

drugs to separately payable drugs for CY 

2011. 

The third alternative we considered 

and the one we are proposing for CY 

2011 is to continue our CY 2010 

redistribution methodology and 

redistribute $200 million in overhead 

costs from packaged coded and uncoded 

drugs to separately payable drugs which 

would result in a payment for non-passthrough separately payable drugs and 

biologicals at ASP+6 percent, which 

would continue to represent a combined 

payment for both the acquisition costs 

of separately payable drugs and the 

pharmacy overhead costs applicable to 

these products. We also are proposing to 

reduce the cost of packaged drugs that 

is included in the payment for 

procedural APCs to offset the $200 

million adjustment to payment for 

separately payable drugs and 

biologicals, resulting in payment for 

packaged drugs and biologicals of 

ASP+186 percent under our proposal. 

We chose this alternative because we 

believe that it provides the most 

appropriate redistribution of pharmacy 

overhead costs associated with drugs 

and biologicals, based on the analyses 

discussed in section V.B.3. of this 

proposed rule, and is the alternative that 

is most consistent with the principles of 

a prospective payment system. 

c. Alternatives Considered for the 

Physician Supervision of Hospital 

Outpatient Services 

As we discussed extensively in 

previous sections, the goal of the 

proposal on supervision is to address 

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the concerns that have been brought to 

our attention since we issued our last 

rule on this subject in CY 2010. The 

primary issue raised by CAHs, rural 

hospitals and other small hospitals both 

during CY 2010 rulemaking and, in 

particular, following CY 2010 

rulemaking was difficulty in staffing 

their facilities to meet our requirement 

for direct supervision of all outpatient 

therapeutic services, but especially 

services that involve a significant 

amount of monitoring by auxiliary staff, 

that may extend past regular business 

hours, and that typically are lower 

clinical complexity and risk. We 

focused on these issues for our CY 2011 

proposal, and we are proposing to 

define a limited set of outpatient 

therapeutic services as ‘‘nonsurgical 

extended duration therapeutic services’’ 

that would require, at a minimum, 

direct supervision during an initial 

period followed by general supervision 

for the remaining duration of the 

service. We are proposing to select 

therapeutic services that are 

nonsurgical, that can last a significant 

period of time, that have a substantial 

monitoring component, and that have a 

low risk of requiring the physician’s or 

appropriate non-physician practitioner’s 

physical presence to furnish assistance 

and direction after the initiation of the 

service. Specifically, for observation 

services, IV hydration, and several 

injection procedures identified in Table 

37 of this proposed rule, CMS would 

require direct supervision only at the 

initiation of the service and would then 

allow general supervision for the 

remainder of the service. We would 

apply the current definitions of general 

and direct supervision delineated at 42 

CFR 410.32(b)(3)(i) and 

§ 410.27(a)(1)(iv), respectively. General 

supervision would thus mean that the 

service is furnished under the 

physician’s or non-physician 

practitioner’s overall direction and 

control, but his or her physical presence 

is not required during the performance 

of the service. Direct supervision would 

mean that the physician or nonphysician practitioner is immediately 

available throughout the performance of 

the service to furnish assistance and 

direction, but he or she does not need 

to be present in the room when the 

service is being performed. We are 

proposing to define ‘‘initiation of the 

service’’ as the beginning portion of a 

service ending when the patient is 

stable and the supervising physician or 

appropriate non-physician practitioner 

believes the remainder of the service 

can safely be delivered under his or her 

general direction and control without 

needing his or her physical presence on 

the hospital campus or in the PBD of the 

hospital. Under this proposal, we would 

continue to uphold direct supervision as 

the minimum standard of supervision 

for all outpatient therapeutic services, 

which we continue to believe is 

appropriate for ensuring some minimum 

level of quality and safety in purchased 

hospital outpatient services that are 

provided incident to physicians’ 

services. 

We considered but did not propose 

two other avenues of offering flexibility 

while largely maintaining our minimum 

requirement for direct supervision of 

outpatient therapeutic services. First, 

we considered offering hospitals the 

flexibility of broadening the list of 

nonsurgical extended duration 

therapeutic services to include more 

complex and potentially acute services 

like chemotherapy administration and 

blood transfusions, which some 

stakeholders also maintain do not 

require direct supervision. Because we 

were concerned that these services had 

a higher probability of needing a 

physician or non-physician practitioner 

to redirect service, we reasoned that we 

would have to require hospitals to 

create internal guidelines specifying a 

supervision level and protocols for 

staffing that supervision level for every 

nonsurgical extended duration 

therapeutic service. We considered 

minimum requirements for these 

internal supervision guidelines, 

including annual review and approval 

by a governing committee, periodic 

internal evaluation of their 

implementation, and the ability to make 

these guidelines available to auditors if 

requested. Further, auditors would 

review those guidelines if a quality or 

patient safety event would occur. Given 

the complexity of these services and the 

probability that direct supervision 

would be necessary to ensure a 

minimum level of quality and safety, we 

concluded that we should continue to 

require direct supervision for these 

services. We also chose not to propose 

this internal guidelines alternative 

because a variable standard of 

supervision for these services could be 

administratively difficult for us to audit 

and evaluate. Finally, we chose not to 

propose this option because we believed 

that hospitals might find it burdensome 

to create and maintain customized 

internal guidelines, especially without a 

clear means of assessing whether their 

internal guidelines and implementation 

of those guidelines would meet audit 

standards. 

Second, we considered whether, for 

payment purposes, we should 

deliberately exclude CAHs from all 

supervision requirements. We 

acknowledge that statutory provisions 

allow CAHs some flexibility in their 

staffing requirements to operate with 

more nursing staff and non-physician 

practitioners rather than physicians if 

those are the practitioners that are 

available, and that our regulations 

recognize those reduced staffing 

requirements in the CoPs by 

establishing that, at a minimum, the 

physician or non-physician practitioner 

must be available, but not necessarily 

physically present on the CAH campus. 

Some have suggested that these 

requirements reduce the quality and 

safety of CAH services, and that CAHs 

should disclose their reduced staffing 

levels to patients prior to providing 

services. We did not choose to propose 

this option because we believe that 

Medicare should purchase the same 

basic level of safety and quality from 

CAHs as from all other hospitals, and 

for all beneficiaries, especially small 

rural hospitals with a small number of 

beds. We do not believe that these small 

rural hospitals paid under the OPPS 

through section 1833(t) of the Act and 

CAHs paid at reasonable cost under 

section 1834(g) of the Act have such 

different resource constraints that they 

require different staffing rules for 

purposes of supervision. In fact, with 

payment at cost, we reasoned that CAHs 

might be better able than other small 

hospitals to hire staff to provide direct 

supervision of therapeutic outpatient 

services. 

In summary, we are proposing to 

define a list of nonsurgical extended 

duration therapeutic services for a 

policy of direct supervision followed by 

general supervision after the initiation 

of the service because this alternative is 

responsive to the primary concerns 

raised by CAHs and small rural 

hospitals, because it is administratively 

feasible to implement, and because we 

believe it continues to support our 

policy of direct supervision. We believe 

that this proposed policy will maintain 

an adequate level of safety and quality 

of care in the therapeutic services for 

hospital outpatients that Medicare 

purchases. 

2. Limitations of Our Analysis 

The distributional impacts presented 

here are the projected effects of the 

proposed CY 2011 policy changes on 

various hospital groups. We post on the 

CMS Web site our hospital-specific 

estimated payments for CY 2011 with 

the other supporting documentation for 

this proposed rule. To view the 

hospital-specific estimates, we refer 

readers to the CMS Web site at: http:// 

www.cms.hhs.gov/ 

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HospitalOutpatientPPS/. Select 

‘‘regulations and notices’’ from the left 

side of the page and then select ‘‘CMS– 

1504–P’’ from the list of regulations and 

notices. The hospital-specific file layout 

and the hospital-specific file are listed 

with the other supporting 

documentation for this proposed rule. 

We show hospital-specific data only for 

hospitals whose claims were used for 

modeling the impacts shown in Table 

55 below. We do not show hospitalspecific impacts for hospitals whose 

claims we were unable to use. We refer 

readers to section II.A.2. of this 

proposed rule for a discussion of the 

hospitals whose claims we do not use 

for ratesetting and impact purposes. 

We estimate the effects of the 

proposed individual policy changes by 

estimating payments per service, while 

holding all other payment policies 

constant. We use the best data available, 

but do not attempt to predict behavioral 

responses to our policy changes. In 

addition, we do not make adjustments 

for future changes in variables such as 

service volume, service mix, or number 

of encounters. As we have done in 

previous rules, we are soliciting public 

comment and information about the 

anticipated effects of our proposed 

changes on providers and our 

methodology for estimating them. 

3. Estimated Effects of This Proposed 

Rule on Hospitals 

Table 55 below shows the estimated 

impact of this proposed rule on 

hospitals. Historically, the first line of 

the impact table, which estimates the 

change in payments to all hospitals, has 

always included cancer and children’s 

hospitals, which are held harmless to 

their pre-BBA payment-to-cost ratio. We 

also include CMHCs in the first line that 

includes all providers because we 

include CMHCs in our weight scalar 

estimate. 

We present separate impacts for 

CMHCs in Table 55 because CMHCs are 

paid only for partial hospitalization 

services and CMHCs are a different 

provider type from hospitals. For CY 

2010, CMHCs and hospitals were paid 

under two APCs for services under the 

OPPS: APC 0172 (Level 1 Partial 

Hospitalization (3 services)) and APC 

0173 (Level II Partial Hospitalization (4 

or more services)). For CY 2011, we are 

proposing to pay CMHCs under APC 

0172 (Level I Partial Hospitalization (3 

services) for CMHCs) and APC 0173 

(Level II Partial Hospitalization (4 or 

more services) for CMHCs), and to pay 

hospitals for partial hospitalization 

services under APC 0175 (Level I Partial 

Hospitalization (3 services) for Hospitalbased PHPs) and APC 0176 (Level II 

Partial Hospitalization (4 or more 

services) for Hospital-based PHPs). We 

display the impact on CMHCs of this 

proposed policy change below and we 

discuss the impact on CMHCs in section 

XXII.B.4. of this proposed rule. 

We also present separate impacts for 

cancer hospitals in Table 55 to illustrate 

the impact associated with our CY 2011 

proposal for an adjustment for cancer 

hospitals authorized by section 3138 of 

the Affordable Care Act, as amended by 

HCERA, and discussed in section II.F. of 

this proposed rule. Cancer hospitals are 

held harmless to the proportional 

amount of payment they received before 

the OPPS was implemented in 2001. We 

discuss the impact of this adjustment on 

cancer hospitals in section XXII.B.5 of 

this proposed rule. 

The estimated increase in the total 

payments made under the OPPS is 

limited by the increase to the 

conversion factor set under the 

methodology in the statute. The 

distributional impacts presented do not 

include assumptions about changes in 

volume and service mix. Section 3137 of 

the Affordable Care Act, as amended by 

the HCERA, extended additional 

payment to section 508 reclassification 

hospitals and special exception hospital 

wages outside budget neutrality through 

September 30, 2010. The amounts 

attributable to these reclassifications are 

incorporated into the CY 2010 estimates 

in Table 55. Section 10324 of the 

Affordable Care Act, as amended by 

HCERA, further authorized additional 

expenditures outside budget neutrality 

for hospitals in certain frontier states to 

have a wage index of 1.00. The amounts 

attributable to this Frontier state wage 

index adjustment are incorporated into 

the CY 2011 estimates in Table 55. 

Table 55 shows the estimated 

redistribution of hospital and CMHC 

payments among providers as a result of 

APC reconfiguration and recalibration; 

wage indices and the rural adjustment; 

the cancer hospital adjustment; the 

combined impact of the APC 

recalibration, wage and rural adjustment 

effects, the cancer hospital adjustment, 

and the market basket update to the 

conversion factor; the Frontier wage 

index adjustment; and, finally, 

estimated redistribution considering all 

proposed payments for CY 2011 relative 

to all payments for CY 2010, including 

the impact of changes in the outlier 

threshold, expiring section 508 wage 

indices, and changes to the pass-through 

payment estimate. We did not model an 

explicit budget neutrality adjustment for 

the rural adjustment for SCHs because 

we are not proposing to make any 

changes to the policy for CY 2011. 

Because the proposed updates to the 

conversion factor, including the update 

of the market basket and the subtraction 

of additional money dedicated to passthrough payment for CY 2011, are 

applied uniformly across services, 

observed redistributions of payments in 

the impact table for hospitals largely 

depend on the mix of services furnished 

by a hospital (for example, how the 

APCs for the hospital’s most frequently 

furnished services would change), and 

the impact of the wage index changes on 

the hospital. However, total payments 

made under this system and the extent 

to which this proposed rule would 

redistribute money during 

implementation also would depend on 

changes in volume, practice patterns, 

and the mix of services billed between 

CY 2010 and CY 2011 by various groups 

of hospitals, which CMS cannot 

forecast. 

Overall, the proposed OPPS rates for 

CY 2011 would have a positive effect for 

providers paid under the OPPS, 

resulting in a 2.2 percent estimated 

increase in Medicare payments. 

Removing cancer and children’s 

hospitals, because their payments are 

held harmless to the pre-BBA ratio 

between payment and cost, and CMHCs 

suggests that these proposed changes 

would result in a 2.1 percent estimated 

increase in Medicare payments to all 

other hospitals. 

To illustrate the impact of the 

proposed CY 2011 changes, our analysis 

begins with a baseline simulation model 

that uses the final CY 2010 weights, the 

FY 2010 final IPPS wage indices that 

include reclassifications, and the final 

CY 2010 conversion factor. Column 2 in 

Table 55 shows the independent effect 

of the proposed changes resulting from 

the reclassification of services among 

APC groups and the recalibration of 

APC weights, based on 12 months of CY 

2009 OPPS hospital claims data and the 

most recent cost report data. We 

modeled the effect of the proposed APC 

recalibration changes for CY 2011 by 

varying only the weights (the final CY 

2010 weights versus the proposed CY 

2011 weights calculated using the 

service mix and volume in the CY 2009 

claims used for this proposed rule) and 

calculating the percent difference in 

weight. Column 2 also reflects the effect 

of the proposed changes resulting from 

the APC reclassification and 

recalibration changes and any changes 

in multiple procedure discount patterns 

or conditional packaging that occur as a 

result of the proposed changes in the 

relative magnitude of payment weights. 

Column 3 reflects the independent 

effects of the proposed updated wage 

indices, including the application of 

budget neutrality for the rural floor 

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policy on a nationwide basis. This 

column excludes the effects of the 

frontier wage index adjustment, which 

is not budget neutral and is shown in 

column 6. We did not model a budget 

neutrality adjustment for the rural 

adjustment for SCHs because we are 

making no changes to the policy for CY 

2011. We modeled the independent 

effect of updating the wage indices by 

varying only the wage indices, holding 

APC relative weights, service mix, and 

the rural adjustment constant and using 

the proposed CY 2011 scaled weights 

and a CY 2010 conversion factor that 

included a budget neutrality adjustment 

for the effect of changing the wage 

indices between CY 2010 and CY 2011. 

Column 4 demonstrates the 

independent effect of the cancer 

hospital payment adjustment. We 

modeled the independent effect of the 

cancer adjustment by varying only the 

payment to cancer hospitals after 

applying provider specific adjustments 

that cumulatively result in the proposed 

40.5 percent adjustment while holding 

APC relative weights, service mix, the 

rural adjustment and wage indices 

constant and using a CY 2010 

conversion factor. 

Column 5 demonstrates the combined 

‘‘budget neutral’’ impact of APC 

recalibration (that is, Column 2), the 

wage index update (that is, Column 3), 

the cancer hospital adjustment (that is, 

Column 4), as well as the impact of 

updating the conversion factor with the 

adjusted market basket update. We 

modeled the independent effect of the 

budget neutrality adjustments and the 

adjusted market basket update by using 

the weights and wage indices for each 

year, and using a CY 2010 conversion 

factor that included the market basket 

update and a budget neutrality 

adjustment for differences in wage 

indices. 

Column 6 demonstrates the impact of 

the budget neutral adjustments and the 

market basket update reflected in 

Column 5 combined with the nonbudget neutral Frontier wage index 

adjustment, discussed in section II.C.1. 

of this proposed rule. 

Finally, Column 7 depicts the full 

impact of the proposed CY 2011 policies 

on each hospital group by including the 

effect of all the proposed changes for CY 

2011 (including the APC reconfiguration 

and recalibration shown in Column 2) 

and comparing them to all estimated 

payments in CY 2010 (these CY 2010 

estimated payments include the 

payments resulting from the non-budget 

neutral increases to wage indices under 

section 508 of Public Law 108–173 as 

extended by Public Law 111–148). 

Column 7 shows the combined budget 

neutral effects of Columns 2 through 5, 

plus the impact of the Frontier wage 

index adjustment; the proposed change 

to the fixed-dollar outlier threshold 

from $2,175 to $2,025 as discussed in 

section II.G. of this proposed rule; the 

expiration of section 508 

reclassifications; the change in the HOP 

QDRP payment reduction for the small 

number of hospitals in our impact 

model that failed to meet the reporting 

requirements (see section XVI.D. of this 

proposed rule); and the impact of 

increasing the estimate of the percentage 

of total OPPS payments dedicated to 

transitional pass-through payments. Of 

the 106 hospitals that failed to meet the 

HOP QDRP reporting requirements for 

the full CY 2010 update (and assumed, 

for modeling purposes, to be the same 

number for CY 2011), we included 24 in 

our model because they had both CY 

2009 claims data and recent cost report 

data. We estimate that the cumulative 

effect of all changes for CY 2011 would 

increase payments to all providers by 

2.2 percent for CY 2011. We modeled 

the independent effect of all changes in 

Column 7 using the final weights for CY 

2010 and the proposed weights for CY 

2011. We used the final conversion 

factor for CY 2010 of $67.241, which 

was announced in the notice describing 

implementation of the Affordable Care 

Act provisions published around the 

same time as this proposed rule and the 

proposed CY 2011 conversion factor of 

$68.267 discussed in section II.B. of this 

proposed rule. 

Column 7 also contains simulated 

outlier payments for each year. We used 

the charge inflation factor used in the 

FY 2011 IPPS/RY 2011 LTCH PPS 

proposed rule of 5.16 percent (1.0516) to 

increase individual costs on the CY 

2009 claims, and we used the most 

recent overall CCR in the April 2010 

Outpatient Provider-Specific File 

(OPSF) (75 FR 24068). Using the CY 

2009 claims and a 5.16 percent charge 

inflation factor, we currently estimate 

that outlier payments for CY 2010, using 

a multiple threshold of 1.75 and a fixeddollar threshold of $2,175, would be 

approximately 0.85 percent of total 

payments. Outlier payments of 0.85 

percent are incorporated in the CY 2010 

comparison in Column 7. We used the 

same set of claims and a charge inflation 

factor of 10.59 percent (1.1059) and the 

CCRs in the April 2010 OPSF, with an 

adjustment of 0.9890, to reflect relative 

changes in cost and charge inflation 

between CY 2009 and CY 2011, to 

model the CY 2011 outliers at 1.0 

percent of total payments using a 

multiple threshold of 1.75 and a fixeddollar threshold of $2,025. 

Column 1: Total Number of Hospitals 

The first line in Column 1 in Table 55 

shows the total number of providers 

(4,140), including cancer and children’s 

hospitals and CMHCs for which we 

were able to use CY 2009 hospital 

outpatient claims to model CY 2010 and 

CY 2011 payments, by classes of 

hospitals. We excluded all hospitals for 

which we could not accurately estimate 

CY 2010 or CY 2011 payment and 

entities that are not paid under the 

OPPS. The latter entities include CAHs, 

all-inclusive hospitals, and hospitals 

located in Guam, the U.S. Virgin 

Islands, Northern Mariana Islands, 

American Samoa, and the State of 

Maryland. This process is discussed in 

greater detail in section II.A. of this 

proposed rule. At this time, we are 

unable to calculate a disproportionate 

share (DSH) variable for hospitals not 

participating in the IPPS. Hospitals for 

which we do not have a DSH variable 

are grouped separately and generally 

include freestanding psychiatric 

hospitals, rehabilitation hospitals, and 

long-term care hospitals. We show the 

total number (3,871) of OPPS hospitals, 

excluding the hold-harmless cancer and 

children’s hospitals and CMHCs, on the 

second line of the table. We excluded 

cancer and children’s hospitals because 

section 1833(t)(7)(D) of the Act 

permanently holds harmless cancer 

hospitals and children’s hospitals to 

their proportional payment relative to 

reasonable cost prior to payment under 

the OPPS and, therefore, we removed 

them from our impact analyses. We 

show the isolated impact on 207 CMHCs 

at the bottom of the impact table and 

discuss that impact separately below. 

We show the isolated impact on the 11 

cancer hospitals in the last row of the 

impact table. 

Column 2: Proposed APC Changes Due 

to Reassignment and Recalibration 

This column shows the combined 

effects of the reconfiguration, 

recalibration, and other policies (such as 

our proposal to set payment for 

separately payable drugs and biologicals 

at ASP+6 percent with an 

accompanying reduction in the amount 

of cost associated with packaged drugs 

and biologicals and changes in payment 

for PHP services). Overall, we estimate 

that proposed changes in APC 

reassignment and recalibration across 

all services paid under the OPPS would 

increase payments to urban hospitals by 

0.5 percent. We estimate that both large 

and other urban hospitals would see an 

increase of 0.5 percent, all attributable 

to recalibration. We estimate that urban 

hospitals billing fewer than 11,000 lines 

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for OPPS services would experience 

increases of 1.1 to 1.3 percent, while 

urban hospitals billing 11,000 or more 

lines for OPPS services would see 

increases of 0.5 to 0.8 percent. 

Overall, we estimate that rural 

hospitals would experience an increase 

of 0.5 percent as a result of changes to 

the APC structure. We estimate that 

rural hospitals of all bed sizes would 

experience increases of 0.4 to 0.7 

percent as a result of APC recalibration. 

We estimate that rural hospitals that 

report fewer than 5,000 lines for OPPS 

services would experience a decrease of 

0.4 percent, while rural hospitals that 

report more than 5,000 lines for OPPS 

services would see increases of 0.5 

percent to 0.6 percent. 

Among teaching hospitals, we 

estimate that the impact resulting from 

APC recalibration would include an 

increase of 0.5 percent for major and 

minor teaching hospitals. 

Classifying hospitals by type of 

ownership suggests that voluntary and 

governmental hospitals would see an 

increase of 0.5 percent, and proprietary 

hospitals would see an estimated 

increase of 0.6 percent. 

Finally, we estimate that hospitals for 

which DSH payments are not available 

would experience decreases of 1.5 to 1.8 

percent. We estimate that most other 

classes of hospitals would experience 

modest increases from CY 2010 to CY 

2011 resulting from APC recalibration. 

Column 3: Proposed New Wage Indices 

and the Effect of the Rural Adjustment 

This column estimates the impact of 

applying the proposed FY 2011 IPPS 

wage indices for the CY 2011 OPPS 

without the influence of the Frontier 

wage index adjustment or the expiration 

of the section 508 wage index 

adjustment, which are not budget 

neutral. The Frontier wage index 

adjustment is reflected in the combined 

impact shown in columns 6 and 7. The 

expiring section 508 adjustment is 

reflected in column 7. We are not 

changing the rural payment adjustment 

for CY 2011. We estimate that the 

combination of updated wage data and 

nationwide application of rural floor 

budget neutrality would redistribute 

payment among regions. We also 

updated the list of counties qualifying 

for the section 505 out-migration 

adjustment. Overall, we estimate that 

urban hospitals would experience an 

increase of 0.1 percent from CY 2010 to 

CY 2011, and that rural hospitals would 

experience a decrease of 0.3 percent as 

a result of the updated wage indices. We 

estimate that hospitals in rural New 

England States and rural West North 

Central States would experience 

decreases of 1.9 and 0.8 percent, 

respectively. We estimate that urban 

Pacific and rural West South Central 

States would experience increases of 1.1 

percent and 0.6 percent, respectively. 

Column 4: Cancer Hospital Adjustment 

This column estimates the budget 

neutral impact of applying the proposed 

hospital-specific CY 2011 cancer 

adjustment, authorized by section 3138 

of the Affordable Care Act, as amended 

by the HCERA, which results in an 

aggregate increase in payments to 

dedicated cancer hospitals of 40.5% for 

the CY 2011 OPPS. We estimate that all 

other hospitals will experience a 

decrease of 0.7 percent in CY 2011 as a 

result of redistributing payments to the 

cancer hospitals under this proposed 

adjustment. 

Column 5: All Proposed Budget 

Neutrality Changes and Market Basket 

Update 

We estimate that the addition of the 

proposed market basket update of 2.15 

percent (which includes the reduction 

to the OPD fee schedule update factor of 

0.25 percentage points as required by 

section 3401(i) and 10319(g) of the 

Affordable Care Act and section 1105(e) 

of HCERA) would mitigate the negative 

impacts on hospital payments for CY 

2011 created by the budget neutrality 

adjustments made in Columns 2, 3, and 

4. Hospitals for which DSH is not 

available (generally hospitals not paid 

under the IPPS, including freestanding 

psychiatric, rehabilitation, and longterm care hospitals) experience the 

smallest increases of between 0.2 and 

0.5 percent. In general, Column 5 shows 

that all hospitals would experience an 

estimated increase of 2.0 percent, 

attributable to the 2.15 percent OPD fee 

schedule update factor increase (that is, 

the market basket) combined with the 

budget neutrality adjustments. 

Overall, we estimate that these 

proposed changes would increase 

payments to urban hospitals by 2.1 

percent. We estimate that large urban 

hospitals would experience an increase 

of 2.2 percent, and ‘‘other’’ urban 

hospitals would experience a 1.9 

percent increase. We estimate that rural 

hospitals would experience a 1.6 

percent increase as a result of the 

proposed market basket update and 

other budget neutrality adjustments. We 

estimate that rural hospitals that bill 

less than 5,000 lines of OPPS services 

would experience an increase of 1.4 

percent and that rural hospitals that bill 

more than 5,000 lines of OPPS services 

would experience increases of 1.5 to 2.3 

percent. 

Among teaching hospitals, we 

estimate that the observed impacts 

resulting from the market basket update 

and other budget neutrality adjustments 

would include an increase of 2.0 and 1.9 

percent, respectively, for major and 

minor teaching hospitals. 

Classifying hospitals by type of 

ownership suggests that voluntary, 

proprietary, and governmental hospitals 

would experience estimated increases of 

1.9 percent, 2.2 percent, and 2.0 

percent, respectively. 

Column 6: Frontier Wage Index 

Adjustment 

This column shows the impact of all 

budget neutrality adjustments, 

application of the 2.15 percent OPD fee 

schedule update factor, and the nonbudget neutral impact of applying the 

Frontier wage adjustment (that is, the 

Frontier wage index change in addition 

to all changes reflected in column 5). 

We estimate that hospitals in the 

urban West North Central and urban 

Mountain States will experience 

increases of 2.5 and 2.3 percent, 

respectively. Hospitals in the rural 

regions of the West North Central and 

Mountain States would experience 

estimated increases of 2.3 and 4.1 

percent, respectively. 

Column 7: All Proposed Changes for CY 

2011 

Column 7 compares all proposed 

changes for CY 2011 to estimated final 

payment for CY 2010, including the 

change in the outlier threshold, 

payment reductions for hospitals that 

failed to meet the HOP QDRP reporting 

requirements, the influence of the 

expiration of the section 508 wage 

adjustment, and the difference in passthrough estimates that are not included 

in the combined percentages shown in 

Column 6. This column includes 

estimated payment for a handful of 

hospitals receiving reduced payment 

because they did not meet their hospital 

outpatient quality measure reporting 

requirements; however, we estimate that 

the anticipated change in payment 

between CY 2010 and CY 2011 for these 

hospitals would be negligible. (We 

further discuss the estimated impacts of 

hospitals’ failure to meet these 

requirements below in section XXII.D. 

of this proposed rule.) Overall, we 

estimate that providers would 

experience an increase of 2.2 percent 

under this proposed rule in CY 2011 

relative to total spending in CY 2010. 

The projected 2.2 percent increase for 

all providers in Column 7 of Table 55 

reflects the proposed 2.15 percent 

adjusted OPD fee schedule update factor 

increase, less 0.06 percent for the 

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change in the pass-through estimate 

between CY 2010 and CY 2011, plus 

0.15 percent for the difference in 

estimated outlier payments between CY 

2010 (0.85 percent) and CY 2011 (1.0 

percent), and less 0.09 percent due to 

the expiration of the special, non-budget 

neutral wage index payments made 

under section 508, plus .09 percent due 

to the Frontier wage index adjustment. 

When we exclude cancer and children’s 

hospitals (which are held harmless to 

their pre-OPPS costs) and CMHCs, the 

estimated increase is 2.1 percent. 

We estimate that the combined effect 

of all changes for CY 2011 would 

increase payments to urban hospitals by 

2.1 percent. We estimate that large 

urban hospitals would experience a 2.2 

percent increase, while ‘‘other’’ urban 

hospitals would experience an increase 

of 2.0 percent. We estimate that urban 

hospitals that bill less than 5,000 lines 

of OPPS services would experience an 

increase of 3.3 percent, and we estimate 

that all urban hospitals that bill more 

than 5,000 lines of OPPS services would 

experience increases between 2.1 

percent and 3.4 percent. 

Overall, we estimate that rural 

hospitals would experience a 1.8 

percent increase as a result of the 

combined effects of all changes for CY 

2011. We estimate that rural hospitals 

that bill less than 5,000 lines of OPPS 

services would experience an increase 

of 3.4 percent and rural hospitals that 

bill greater than 5,000 lines of OPPS 

services would experience increases 

ranging from 1.7 percent to 2.5 percent. 

Among teaching hospitals, we 

estimate that the impacts resulting from 

the combined effects of all changes 

would include an increase of 2.1 

percent for both major and minor 

teaching hospitals. 

Classifying hospitals by type of 

ownership, we estimate that proprietary 

hospitals would gain 2.3 percent, 

governmental hospitals would 

experience an increase of 2.2 percent, 

and voluntary hospitals would 

experience an increase of 2.0 percent. 

4. Estimated Effects of This Proposed 

Rule on CMHCs 

The bottom of Table 55 demonstrates 

the isolated impact on CMHCs. CMHCs 

are currently paid under two APCs for 

services under the OPPS: APC 0172 

(Level 1 Partial Hospitalization (3 

services)) and APC 0173 (Level II Partial 

Hospitalization (4 or more services)). 

This proposed rule proposes to further 

refine payment within these Partial 

Hospitalization APCs for CY 2011 by 

providing two payment rates for Partial 

Hospitalization services for each 

provider type (CMHCs and hospitalbased PHPs). Specifically, APC 0172 

would be retitled: ‘‘Level I Partial 

Hospitalization (3 services) for CMHCs;’’ 

APC 0173 would be retitled: ‘‘Level II 

Partial Hospitalization (4 or more 

services) for CMHCs;’’ new APC 0175 

would be titled ‘‘Level I Partial 

Hospitalization (3 services) for Hospitalbased PHPs’’ and new APC 0176 would 

be titled: ‘‘Level II Partial 

Hospitalization (4 or more services) for 

Hospital-based PHPs.’’ We are proposing 

payment rates for each APC based on 

the cost data derived from claims and 

cost reports for the provider type to 

which the APC is specific. We modeled 

the impact of this APC policy change 

assuming that CMHCs would continue 

to provide the same number of days of 

PHP care, with each day having either 

three services or four or more services, 

as seen in the CY 2009 claims data. We 

excluded days with one or two services. 

Because the relative weights for APC 

0172 (Level 1 Partial Hospitalization (3 

services)) and APC 0173 (Level II Partial 

Hospitalization (4 or more services)) 

both decline in CY 2011 to reflect 

CMHC cost data for Partial 

Hospitalization services provided by 

CMHCs under this proposed rule, we 

estimate that there would be a 44.0 

percent decrease in payments to CMHCs 

due to these APC policy changes (shown 

in Column 2). 

Column 3 shows that the estimated 

impact of adopting the CY 2011 wage 

index values would result in a 0.9 

percent increase in payments to CMHCs. 

We note that all providers paid under 

the OPPS, including CMHCs, would 

receive a 2.15 percent adjusted market 

basket increase. Combining this 

proposed market basket increase, along 

with proposed changes in APC policy 

for CY 2011 and the proposed CY 2011 

wage index updates, the proposed 

cancer hospital adjustment, proposed 

changes in outlier and pass-through 

payments, and the expiration of section 

508 wages, we estimate that the 

combined impact on CMHCs for CY 

2011 would be a 41.7 percent decrease 

in payment. 

The impact on hospitals of the 

proposed changes to payment rates to 

hospitals for partial hospitalization 

services is reflected in the impact of all 

proposed changes on hospitals. 

5. Estimated Effects of This Proposed 

Rule on Cancer Hospitals 

The bottom of Table 55 demonstrates 

the isolated impact on the 11 cancer 

hospitals meeting the classification 

criteria in 1886(d)(1)(B)(v) of the Act. 

Section 3138 of the Affordable Care Act, 

as amended by HCERA, authorized the 

Secretary to conduct a study to 

determine if these hospitals are more 

costly than other hospitals paid under 

the OPPS, and if they are more costly, 

the Secretary shall make an appropriate 

adjustment that is budget neutral. As 

discussed in section II.F. of this 

proposed rule, we found that these 

hospitals are more costly and proposed 

an adjustment. These cancer hospitals 

currently are held harmless under 

section 1833(t)(7)(D) of the Act, and 

most of them receive additional 

payments outside budget neutrality. In 

general, the effect of this proposal is to 

make more payments to cancer hospitals 

than received under the OPPS, but 

within budget neutrality, effectively 

redistributing money from other 

hospitals to fund this adjustment. The 

proposed adjustment is hospitalspecific, raising payment for each 

hospital to 86.7 percent of reasonable 

cost. 

Column 2 demonstrates cancer 

hospitals receiving a modest increase of 

0.3 percent after recalibration of the 

APC groups and weights. Column 3 

shows that the estimated impact of 

adopting the CY 2011 wage index values 

would result in a 0.1 percent increase in 

payments to cancer hospitals within the 

PPS. Column 4 demonstrates the budget 

neutral impact of applying a hospitalspecific adjustment to the 11 designated 

cancer hospitals. We estimate that the 

cancer hospitals will experience an 

aggregate increase in payment of 40.5%. 

All providers paid under the OPPS 

would receive a 2.15 percent adjusted 

market basket increase under this 

proposal. Combining this proposed 

market basket increase, along with 

proposed changes in APC policy for CY 

2011 and the proposed CY 2011 wage 

index updates, the proposed cancer 

hospital adjustment, proposed changes 

in outlier and pass-through payments, 

and the expiration of section 508 wages, 

we estimate that the combined impact 

on cancer hospitals within the PPS 

system would be a 39.9 percent 

increase. Cancer hospitals remain 

eligible for hold harmless payments to 

the extent that their PPS amount, 

including the cancer adjustment, is less 

than the estimated amount of payment 

they would have received under 

reasonable cost payment for any given 

year. 

BILLING CODE 4120–01–P 

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BILLING CODE 4120–01–C 

6. Estimated Effect of This Proposed 

Rule on Beneficiaries 

For services for which the beneficiary 

pays a copayment of 20 percent of the 

payment rate, the beneficiary share of 

payment would increase for services for 

which the OPPS payments would rise 

and would decrease for services for 

which the OPPS payments would fall. 

For example, for a service assigned to 

Level IV Needle Biopsy/Aspiration 

Except Bone Marrow (APC 0037) in the 

CY 2010 OPPS, the national unadjusted 

copayment is $228.76, and the 

minimum unadjusted copayment is 

$208.46. For CY 2011, the national 

unadjusted copayment for APC 0037 

would be $228.76, the same rate in 

effect for CY 2010. The minimum 


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unadjusted copayment for APC 0037 

would be $215.24 or 20 percent of the 

CY 2011 national unadjusted payment 

rate for APC 0037 of $1,076.16. The 

minimum unadjusted copayment would 

rise because the payment rate for APC 

0037 would rise for CY 2011. In all 

cases, the statute limits beneficiary 

liability for copayment for a procedure 

to the hospital inpatient deductible for 

the applicable year. The CY 2010 

hospital inpatient deductible is $1,100. 

The CY 2011 hospital inpatient 

deductible is not yet available. 

In order to better understand the 

impact of changes in copayment on 

beneficiaries, we modeled the percent 

change in total copayment liability 

using CY 2009 claims. We estimate, 

using the claims of the 4,140 hospitals 

and CMHCs on which our modeling is 

based, that total beneficiary liability for 

copayments would decline as an overall 

percentage of total payments, from 22.4 

percent in CY 2010 to 22.1 percent in 

CY 2011. 

7. Conclusion 

The changes in this proposed rule 

would affect all classes of hospitals and 

CMHCs. We estimated that some classes 

of hospitals would experience 

significant gains and others less 

significant gains, but all classes of 

hospitals would experience positive 

updates in OPPS payments in CY 2011 

with one exception. We estimate that 

CMHCs would see an overall decrease 

in payment of 41.7 percent due to the 

recalibration of payment rates for Partial 

Hospitalization services at CMHCs 

which bases payment for CMHCs on 

cost report and claims data submitted by 

CMHCs. Specifically, dedicated cancer 

hospitals would experience an aggregate 

increase in payment of 40.5 percent, 

although because the cancer adjustment 

is hospital-specific, dedicated cancer 

hospitals will experience different 

increases. 

Table 55 demonstrates the estimated 

distributional impact of the OPPS 

budget neutrality requirements that 

would result in a 2.2 percent increase in 

payments for all services paid under the 

OPPS in CY 2011, after considering all 

changes to APC reconfiguration and 

recalibration, as well as the adjusted 

market basket increase, wage index 

changes, including the Frontier wage 

index adjustment and the expiration of 

section 508 wage index reclassifications, 

the cancer hospital adjustment, 

estimated payment for outliers, and 

changes to the pass-through payment 

estimate. The accompanying discussion, 

in combination with the rest of this 

proposed rule, constitutes a regulatory 

impact analysis. 

8. Accounting Statement 

As required by OMB Circular A–4 

(available at http:// 

www.whitehouse.gov/omb/circulars/ 

a004/a-4.pdf), in Table 56, we have 

prepared an accounting statement 

showing the CY 2011 estimated hospital 

OPPS incurred benefit impact 

associated with the proposed CY 2011 

hospital outpatient market basket 

update shown in this proposed rule 

based on the FY 2011 President’s 

Budget. All estimated impacts are 

classified as transfers. 

C. Effects of ASC Payment System 

Changes in This Proposed Rule 

On August 2, 2007, we published in 

the Federal Register the final rule for 

the revised ASC payment system, 

effective January 1, 2008 (72 FR 42470). 

In that final rule, we adopted the 

methodologies to set payment rates for 

covered ASC services to implement the 

revised payment system so that it would 

be designed to result in budget 

neutrality as required by section 626 of 

Public Law 108–173; established that 

the OPPS relative payment weights 

would be the basis for payment and that 

we would update the system annually 

as part of the OPPS rulemaking cycle; 

and provided that the revised ASC 

payment rates would be phased-in over 

4 years. During the 4-year transition to 

full implementation of the ASC 

payment rates, payments for surgical 

procedures performed in ASCs that 

were on the CY 2007 ASC list of covered 

surgical procedures were made using a 

blend of the CY 2007 ASC payment rate 

and the ASC payment rate calculated 

according to the ASC standard 

ratesetting methodology for the 

applicable transitional year. In CY 2009, 

we paid ASCs using a 50/50 blend, in 

which payment was calculated by 

adding 50 percent of the CY 2007 ASC 

rate for a surgical procedure on the CY 

2007 ASC list of covered surgical 

procedures and 50 percent of the CY 

2009 ASC rate calculated according to 

the ASC standard ratesetting 

methodology for the same procedure. 

For CY 2010, we transitioned the blend 

to a 25/75 blend of the CY 2007 ASC 

rate and the CY 2010 ASC payment rate 

calculated according to the ASC 

standard ratesetting methodology. 

Beginning in CY 2011, we would pay 

ASCs for all covered surgical 

procedures, including those on the CY 

2007 ASC list, at the ASC payment rates 

calculated according to the ASC 

standard ratesetting methodology. 

ASC payment rates are calculated by 

multiplying the ASC conversion factor 

by the ASC relative payment weight. As 

discussed fully in section XV. of this 

proposed rule, we set the proposed CY 

2011 ASC relative payment weights by 

scaling CY 2011 ASC relative payment 

weights by the ASC scalar of 0.9090. 

The estimated effects of the updated 

relative payment weights on payment 

rates during this first year of full 

implementation of the ASC payment 

rates calculated according to the ASC 

standard ratesetting methodology are 

varied and are reflected in the estimated 

payments displayed in Tables 57 and 58 

below. 


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Beginning in CY 2011, section 3401 of 

the Affordable Care Act requires that the 

annual update to the ASC payment 

system, which is the consumer price 

index for all urban consumers (CPI–U), 

be reduced by the productivity 

adjustment. The Affordable Care Act 

defines the productivity adjustment to 

be equal to the 10-year moving average 

of changes in annual economy-wide 

private nonfarm business multi-factor 

productivity (MFP) (as projected by the 

Secretary for the 10-year period ending 

with the applicable fiscal year, year, 

cost reporting period, or other annual 

period). We calculated the CY 2011 ASC 

conversion factor by adjusting the CY 

2010 ASC conversion factor by 1.0006 to 

account for changes in the pre-floor and 

pre-reclassified hospital wage indices 

between CY 2010 and CY 2011 and by 

applying the CY 2011 MFP-adjusted 

CPI–U of 0 percent (1.6 percent CPI–U 

minus 1.6 percent MFP). The proposed 

CY 2011 ASC conversion factor is 

$41.898. 

1. Alternatives Considered 

Alternatives to the changes we are 

making and the reasons that we have 

chosen specific options are discussed 

throughout this proposed rule. Some of 

the major ASC issues discussed in this 

proposed rule and the options 

considered are discussed below. 

a. Alternatives Considered for OfficeBased Procedures 

According to our final policy for the 

revised ASC payment system, we 

designate as office-based those 

procedures that are added to the ASC 

list of covered surgical procedures in CY 

2008 or later years and that we 

determine are predominantly performed 

in physicians’ offices based on 

consideration of the most recent 

available volume and utilization data for 

each individual procedure HCPCS code 

and/or, if appropriate, the clinical 

characteristics, utilization, and volume 

of related HCPCS codes. We establish 

payment for procedures designated as 

office-based at the lesser of the MPFS 

nonfacility practice expense payment 

amount or the ASC rate developed 

according to the standard methodology 

of the revised ASC payment system. 

In developing this proposed rule, we 

reviewed the full CY 2009 utilization 

data for all surgical procedures added to 

the ASC list of covered surgical 

procedures in CY 2008 or later years 

and for those procedures for which the 

office-based designation is temporary in 

the CY 2010 OPPS/ASC final rule with 

comment period (74 FR 60605 through 

60608). Based on that review, and as 

discussed in section XV.C.1.b. of this 

proposed rule, we are proposing to 

newly designate six surgical procedures 

as permanent office-based (four of 

which we are also proposing to add to 

the ASC list of covered surgical 

procedures for CY 2011) and to make 

permanent the office-based designations 

of three existing surgical procedures 

that have temporary office-based 

designations in CY 2010. We also are 

proposing temporary office-based 

designations for 7 procedures in CY 

2011. We considered two alternatives in 

developing this policy. 

The first alternative we considered 

was to make no change to the procedure 

payment designations. This would mean 

that we would pay for the 9 procedures 

we are proposing to designate as 

permanently office-based and the 7 

procedures we are proposing to 

designate as temporarily office-based at 

an ASC payment rate calculated 

according to the standard ratesetting 

methodology of the revised ASC 

payment system. We did not select this 

alternative because our analysis of the 

data and our clinical review indicated 

that all 9 procedures we are proposing 

to designate as permanently office-based 

as well as the 7 procedures that we are 

proposing to designate temporarily as 

office-based could be considered to be 

predominantly performed in physicians’ 

offices. Consistent with our final policy 

adopted in the August 2, 2007 final rule 

(72 FR 42509 through 42513), we were 

concerned that making payments at the 

standard ASC payment rate for the 9 

procedures designated as office-based 

and 7 procedures designated as 

temporarily office-based could create 

financial incentives for the procedures 

to shift from physicians’ offices to ASCs 

for reasons unrelated to clinical 

decisions regarding the most 

appropriate setting for surgical care. 

Further, consistent with our policy, we 

believe that when adequate data become 

available to make permanent 

determinations about procedures with 

temporary office-based designations, 

maintaining the temporary designation 

is no longer appropriate. 

The second alternative we considered 

and the one we are proposing for CY 

2011 is to designate six additional 

procedures as office-based for CY 2011 

and to make permanent the office-based 

designations of three of the procedures 

with temporary office-based 

designations in CY 2010. We also are 

proposing to designate 7 procedures as 

temporarily office-based in CY 2011. We 

chose this alternative because our 

claims data and clinical review indicate 

that these procedures could be 

considered to be predominantly 

performed in physicians’ offices. We 

believe that designating these 

procedures as office-based, which 

results in the CY 2010 ASC payment 

rate for these procedures potentially 

being capped at the CY 2010 physicians’ 

office rate (that is, the MPFS nonfacility 

practice expense payment amount), if 

applicable, is an appropriate step to 

ensure that Medicare payment policy 

does not create financial incentives for 

such procedures to shift unnecessarily 

from physicians’ offices to ASCs, 

consistent with our final policy adopted 

in the August 2, 2007 final rule. 

b. Alternatives Considered for Covered 

Surgical Procedures 

According to our final policy for the 

revised ASC payment system, we 

designate as covered all surgical 

procedures that we determine would 

not be expected to pose a significant risk 

to beneficiary safety or would not be 

expected to require an overnight stay 

when performed on Medicare 

beneficiaries in an ASC. 

In developing this proposed rule, we 

reviewed the clinical characteristics and 

full CY 2009 utilization data, if 

applicable, for all procedures reported 

by Category III CPT codes implemented 

July 1, 2010, and surgical procedures 

that were excluded from ASC payment 

for CY 2010. Based on this review, we 

identified 8 new surgical procedures 

described by Category III CPT codes that 

were new for July 2010 and 5 surgical 

procedures excluded from ASC payment 

for CY 2010, that we determined were 

appropriate for addition to the ASC list 

of covered surgical procedures. We 

considered two alternatives in 

developing this policy. 

The first alternative we considered 

was to make no change to the ASC list 

of covered surgical procedures for CY 

2010. We did not choose this alternative 

because our analysis of data and clinical 

review indicated that the 13 procedures 

we are designating as covered surgical 

procedures for CY 2011 would not be 

expected to pose a significant risk to 

beneficiary safety in ASCs and would 

not be expected to require an overnight 

stay. Consistent with our final policy, 

we were concerned that by continuing 

to exclude them from the list of ASC 

covered surgical procedures, we may 

unnecessarily limit beneficiaries’ access 

to the services in the most clinically 

appropriate settings. 

The second alternative we considered 

and the one we are proposing for CY 

2011 was to designate 13 additional 

procedures as ASC covered surgical 

procedures for CY 2011. We chose this 

alternative because our claims data and 

clinical review indicate that these 

procedures would not be expected to 

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pose a significant risk to beneficiary 

safety and would not be expected to 

require an overnight stay, and thus they 

meet the criteria for inclusion on the list 

of ASC covered surgical procedures. We 

believe that adding these procedures to 

the list of covered surgical procedures is 

an appropriate step to ensure that 

beneficiary access to services is not 

limited unnecessarily. 

c. Alternatives Considered for the 

Extension of Waiver of Deductible to 

Services Furnished in Connection With 

or in Relation to a Colorectal Screening 

Test That Becomes Diagnostic 

Section 4104(c)(2) of the Affordable 

Care Act waives the deductible with 

respect to a colorectal cancer screening 

test regardless of the code that is billed 

for the establishment of a diagnosis as 

a result of the test, or for the removal of 

tissue or other matter or other procedure 

that is furnished in connection with, as 

a result of, and in the same clinical 

encounter as a screening test. We are 

proposing for CY 2011 that the 

deductible be waived for all surgical 

services furnished in an ASC on the 

same date as a planned screening 

colonoscopy or planned flexible 

sigmoidoscopy as being furnished in 

connection with, as a result of, and in 

the same clinical encounter as the 

screening test (we note that barium 

enemas are not ASC covered ancillary or 

surgical procedures). As discussed in 

detail under the alternatives considered 

for the OPPS (section XXII.B.1.a above), 

we considered three alternatives for the 

extension of waiver of deductible to 

services furnished in connection with or 

in relation to a colorectal screening test 

that becomes diagnostic for CY 2011. 

The first alternative we considered, but 

are not proposing for the reasons 

previously discussed, was to define a 

limited set of colonoscopy codes to 

which the waiver could apply when 

performed on the same date as a 

procedure that began as a screening 

colonoscopy or screening flexible 

sigmoidoscopy. The second alternative 

we considered, but are not proposing for 

the reasons previously discussed, was to 

define a broader, but still limited set of 

codes (for example, selected surgical 

services) to which the waiver could 

apply when performed on the same date 

as a procedure that began as a screening 

colonoscopy or screening flexible 

sigmoidoscopy. The third alternative we 

considered, and the one we are 

proposing for CY 2011, is to apply the 

waiver to any surgical procedure on the 

same date as a screening colonoscopy or 

flexible sigmoidoscopy performed in an 

ASC that providers report began as a 

screening test. As we discuss above, we 

chose this alternative because we 

believe it provides the greatest ease of 

public understanding and provider 

application. We believe that this 

alternative is appropriate because we 

believe that it would be very rare for an 

unrelated surgery to occur on the same 

date as one of these scheduled screening 

tests. Moreover, we believe that the risk 

of improper expenditures would be very 

small under this policy because it is the 

deductible, and not the coinsurance, 

that is waived for the related procedures 

other than the screening tests (that is, 

the Part B deductible is a fixed amount 

that the beneficiary pays before 

Medicare begins to pay and typically 

would be met after receiving one to two 

services). 

2. Limitations of Our Analysis 

Presented here are the projected 

effects of the proposed changes for CY 

2011 on Medicare payment to ASCs. A 

key limitation of our analysis is our 

inability to predict changes in ASC 

service mix between CY 2009 and CY 

2011 with precision. We believe that the 

net effect on Medicare expenditures 

resulting from the proposed CY 2011 

changes would be small in the aggregate 

for all ASCs. However, such changes 

may have differential effects across 

surgical specialty groups as ASCs 

continue to adjust to the payment rates 

based on the policies of the revised ASC 

payment system. We are unable to 

accurately project such changes at a 

disaggregated level. Clearly, individual 

ASCs would experience changes in 

payment that differ from the aggregated 

estimated impacts presented below. 

3. Estimated Effects of This Proposed 

Rule to ASCs 

Some ASCs are multispecialty 

facilities that perform the gamut of 

surgical procedures, from excision of 

lesions to hernia repair to cataract 

extraction; others focus on a single 

specialty and perform only a limited 

range of surgical procedures, such as 

eye, digestive system, or orthopedic 

procedures. The combined effect on an 

individual ASC of the proposed update 

to the CY 2011 payments would depend 

on a number of factors, including, but 

not limited to, the mix of services the 

ASC provides, the volume of specific 

services provided by the ASC, the 

percentage of its patients who are 

Medicare beneficiaries, and the extent to 

which an ASC provides different 

services in the coming year. The 

following discussion presents tables that 

display estimates of the impact of the 

proposed CY 2011 update to the revised 

ASC payment system on Medicare 

payments to ASCs, assuming the same 

mix of services as reflected in our CY 

2009 claims data. Table 57 depicts the 

estimated aggregate percent change in 

payment by surgical specialty or 

ancillary items and services group by 

comparing estimated CY 2010 payments 

to estimated proposed CY 2011 

payments, and Table 58 shows a 

comparison of estimated CY 2010 

payments to estimated proposed CY 

2011 payments for procedures that we 

estimate would receive the most 

Medicare payment in CY 2011. 

Table 57 shows the estimated effects 

on aggregate proposed Medicare 

payments under the revised ASC 

payment system by surgical specialty or 

ancillary items and services group. We 

have aggregated the surgical HCPCS 

codes by specialty group, grouped all 

HCPCS codes for covered ancillary 

items and services into a single group, 

and then estimated the effect on 

aggregated payment for surgical 

specialty and ancillary items and 

services groups. The groups are sorted 

for display in descending order by 

estimated Medicare program payment to 

ASCs. The following is an explanation 

of the information presented in Table 

57. 

• Column 1—Surgical Specialty or 

Ancillary Items and Services Group 

indicates the surgical specialty into 

which ASC procedures are grouped or 

the ancillary items and services group 

which includes all HCPCS codes for 

covered ancillary items and services. To 

group surgical procedures by surgical 

specialty, we used the CPT code range 

definitions and Level II HCPCS codes 

and Category III CPT codes, as 

appropriate, to account for all surgical 

procedures to which the Medicare 

program payments are attributed. 

• Column 2—Estimated ASC 

Payments were calculated using CY 

2009 ASC utilization (the most recent 

full year of ASC utilization) and CY 

2010 ASC payment rates. The surgical 

specialty and ancillary items and 

services groups are displayed in 

descending order based on estimated CY 

2010 ASC payments. 

• Column 3—Estimated CY 2011 

Percent Change (Fully Implemented 

Payment Rates) is the aggregate 

percentage increase or decrease in 

Medicare program payment to ASCs for 

each surgical specialty or ancillary 

items and services group that would be 

attributable to proposed updates to ASC 

payment rates for CY 2011 compared to 

CY 2010. 

As seen in Table 57, we estimate that 

the proposed update to ASC rates for CY 

2011 would result in a 1 percent 

decrease in aggregate payment amounts 

for eye and ocular adnexa procedures, a 

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6 percent decrease in aggregate payment 

amounts for digestive system 

procedures, and a 1 percent increase in 

aggregate payment amounts for nervous 

system procedures. 

Generally, for the surgical specialty 

groups that account for less ASC 

utilization and spending, we estimate 

that the payment effects of the proposed 

CY 2011 update are positive. We 

estimate that ASC payments for 

procedures in those surgical specialties 

would increase in CY 2011. For 

instance, we estimate that, in the 

aggregate, payment for integumentary 

system procedures would increase by 

3 percent under the proposed CY 2011 

rates. We estimate similar effects for 

genitourinary, cardiovascular, 

musculoskeletal, respiratory, 

hematologic and lymphatic systems, 

and auditory system procedures as well. 

An estimated increase in aggregate 

payment for the specialty group does 

not mean that all procedures in the 

group would experience increased 

payment rates. For example, the 

estimated modest increase for CY 2011 

for nervous system procedures is likely 

due to increase in the ASC payment 

weight for some of the high volume 

procedures, such as CPT code 64721 

(Neuroplasty and/or transposition; 

median nerve at carpal tunnel). 

Also displayed in Table 57 is a 

separate estimate of Medicare ASC 

payments for the group of separately 

payable covered ancillary items and 

services. We estimate that aggregate 

payments for these items and services 

would decrease by 2 percent for CY 

2011. The payment estimates for the 

covered surgical procedures include the 

costs of packaged ancillary items and 

services. In rules for years prior to CY 

2010, we did not have ASC payment 

data for covered ancillary items and 

services because, prior to CY 2008, they 

were paid under other fee schedules or 

packaged into payment for the covered 

surgical procedures. Beginning with the 

CY 2010 OPPS/ASC rulemaking, we 

have utilization data for those services 

as well as for all of the covered surgical 

procedures provided in ASCs under the 

revised payment system. 

Table 58 below shows the estimated 

impact of the proposed updates to the 

revised ASC payment system on 

aggregate ASC payments for selected 

surgical procedures during CY 2011. 

The table displays 30 of the procedures 

receiving the greatest estimated CY 2010 

aggregate Medicare payments to ASCs. 

The HCPCS codes are sorted in 

descending order by estimated CY 2010 

program payment. 

• Column 1—HCPCS code. 

• Column 2—Short Descriptor of the 

HCPCS code. 

• Column 3—Estimated CY 2010 

Allowed Charges were calculated using 

CY 2009 ASC utilization (the most 

recent full year of ASC utilization) and 

the CY 2010 ASC payment rates. The 

estimated CY 2010 allowed charges are 

expressed in millions of dollars. 

• Column 4—Estimated CY 2010 

Percent Change (Fully Implemented 

Payment Rates) reflects the percent 

differences between the estimated ASC 

payment for CY 2010 and the estimated 

payment for CY 2011 based on the 

proposed update. 

As displayed in Table 58, 21 of the 30 

procedures with the greatest estimated 

aggregate CY 2010 Medicare payment 

are included in the 3 surgical specialty 

groups that are estimated to account for 

the most Medicare payment to ASCs in 

CY 2011, specifically eye and ocular 

adnexa, digestive system, and nervous 

system surgical groups. Consistent with 

the estimated payment effects on the 

surgical specialty groups displayed in 

Table 57, the estimated effects of the 

proposed CY 2011 update on ASC 

payment for individual procedures 

shown in Table 58 are varied. 

The ASC procedure for which the 

most Medicare payment is estimated to 

be made in CY 2010 is the cataract 

removal procedure reported with CPT 

code 66984 (Extracapsular cataract 

removal with insertion of intraocular 

lens prosthesis (one stage procedure), 

manual or mechanical technique (e.g., 


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irrigation and aspiration or 

phacoemulsification)). We estimate that 

the proposed update to the ASC rates 

would result in a 2 percent payment 

decrease for this procedure in CY 2011. 

The estimated payment effects on two of 

the three other eye and ocular adnexa 

procedures included in Table 58 are 

more significant. We estimate that the 

proposed payment rate for CPT code 

66821 (Discission of secondary 

membranous cataract (opacified 

posterior lens capsule and/or anterior 

hyaloid); laser surgery (e.g., YAG laser) 

(one or more stages)) would decrease by 

9 percent and payment for CPT code 

67904 (Repair eyelid defect) would 

increase by 9 percent. 

We estimate that the proposed 

payment rates for all of the digestive 

system procedures included in Table 58 

would decrease by 1 to 10 percent in CY 

2011. Those estimated decreases are 

consistent with decreases in the 

previous 3 years under the revised ASC 

payment system and are expected 

because, under the previous ASC 

payment system, the payment rates for 

many high volume endoscopy 

procedures were almost the same as the 

payments for the procedures under the 

OPPS. 

The estimated effects of the proposed 

CY 2011 update on the 9 nervous 

system procedures for which the most 

Medicare ASC payment is estimated to 

be made in CY 2010 would be variable. 

Our estimates indicate that the proposed 

CY 2011 update would result in 

payment increases of 2 to 10 percent for 

5 of the 9 procedures and result in a 1 

percent decrease for the other 4 nervous 

system procedures. The nervous system 

procedures for which we estimate a 

positive effect on CY 2010 payments 

include CPT codes 64721 (Neuroplasty 

and/or transposition; median nerve at 

carpal tunnel) and 64622 (Destruction 

by neurolytic agent, paravertebral facet 

joint nerve; lumbar or sacral, single 

level), which are expected to have 

payment increases of 10 percent and 6 

percent, respectively. 

The estimated payment effects for 

most of the remaining procedures listed 

in Table 58 would be positive. For 

example, the proposed payment rates 

for musculoskeletal CPT codes 29880 

(Arthroscopy, knee, surgical; with 

meniscectomy (medial AND lateral, 

including any meniscal shaving)) and 

29881 (Arthroscopy, knee, surgical; with 

meniscectomy (medial OR lateral, 

including any meniscal shaving)) would 

be estimated to increase 10 percent over 

the CY 2010 transitional payment rates. 

Musculoskeletal procedures would be 

expected to account for a greater 

percentage of CY 2011 Medicare ASC 

spending as we estimate that payment 

for procedures in that surgical specialty 

group would increase under the revised 

payment system in CY 2011. 

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BILLING CODE 4120–01–C 

The previous ASC payment system 

served as an incentive to ASCs to focus 

on providing procedures for which they 

determined Medicare payments would 

support their continued operation. We 

note that, historically, the ASC payment 

rates for many of the most frequently 

performed procedures in ASCs were 

similar to the OPPS payment rates for 

the same procedures. Conversely, 

procedures with ASC payment rates that 

were substantially lower than the OPPS 

rates have historically been performed 

least often in ASCs. We believed that 

the revised ASC payment system would 

encourage greater efficiency in ASCs 

and would promote significant increases 

in the breadth of surgical procedures 

performed in ASCs because it 

distributes payments across the entire 

spectrum of covered surgical procedures 

based on a coherent system of relative 

weights that are related to the clinical 

and facility resource requirements of 

those procedures. 

The CY 2009 claims data that we used 

to develop the proposed CY 2011 ASC 

payment system relative weights and 

rates reflect the second year of 

utilization under the revised payment 

system. Although the changes in the 

claims data are not large, the data reflect 

increased Medicare ASC spending for 

procedures that were newly added to 

the ASC list in CY 2008. Our estimates 

based on CY 2009 data indicate that for 

CY 2011 there would be especially 

noticeable increases in spending for 

respiratory systems, and hematologic 

and lymphatic systems, compared to the 

previous ASC payment system. 


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4. Estimated Effects of This Proposed 

Rule on Beneficiaries 

We estimate that the proposed CY 

2011 update to the ASC payment system 

would be generally positive for 

beneficiaries with respect to the new 

procedures that we are adding to the 

ASC list of covered surgical procedures 

and for those that we are designating as 

office-based for CY 2010. First, as 

discussed in section XV.D.1.d. of this 

proposed rule, we are proposing to 

waive either the coinsurance, the Part B 

deductible, or both for certain 

preventive services recommended by 

the USPSTF with a grade of A or B for 

any indication or population and that 

are appropriate for the individual to 

comply with sections 4104 and 10406 of 

the Affordable Care Act. Other than 

these services, the ASC coinsurance rate 

for all procedures is 20 percent. This 

contrasts with procedures performed in 

HOPDs, where the beneficiary is 

responsible for copayments that range 

from 20 percent to 40 percent of the 

procedure payment. Second, ASC 

payment rates under the revised 

payment system are lower than payment 

rates for the same procedures under the 

OPPS; therefore, the beneficiary 

coinsurance amount under the ASC 

payment system almost always would 

be less than the OPPS copayment 

amount for the same services. (The only 

exceptions would be if the ASC 

coinsurance amount exceeds the 

inpatient deductible. The statute 

requires that copayment amounts under 

the OPPS not exceed the inpatient 

deductible.) For new procedures that we 

are proposing to add to the ASC list of 

covered surgical procedures in CY 2011, 

as well as for procedures already 

included on the list, and that are 

furnished in an ASC rather than the 

HOPD setting, the beneficiary 

coinsurance amount would be less than 

the OPPS copayment amount. 

Furthermore, the proposed additions to 

the ASC list of covered surgical 

procedures would provide beneficiaries 

access to more surgical procedures in 

ASCs. Beneficiary coinsurance for 

services migrating from physicians’ 

offices to ASCs may decrease or increase 

under the revised ASC payment system, 

depending on the particular service and 

the relative payment amounts for that 

service in the physician’s office 

compared to the ASC. However, for 

those additional procedures that we are 

proposing to designate as office-based in 

CY 2011, the beneficiary coinsurance 

amount would be no greater than the 

beneficiary coinsurance in the 

physician’s office. 

In addition, as finalized in the August 

2, 2007 final rule (72 FR 42521), in CY 

2011, the final year of the 4-year 

transition to the ASC payment rates 

calculated according to the ASC 

standard ratesetting methodology of the 

revised ASC payment system, ASC 

payment rates for a number of 

commonly furnished ASC procedures 

would continue to be reduced, resulting 

in lower beneficiary coinsurance 

amounts for these ASC services in CY 

2011. 

5. Conclusion 

The proposed updates to the ASC 

payment system for CY 2011 would 

affect each of the approximately 5,000 

ASCs currently approved for 

participation in the Medicare program. 

The effect on an individual ASC would 

depend on its mix of patients, the 

proportion of the ASC’s patients that are 

Medicare beneficiaries, the degree to 

which the payments for the procedures 

offered by the ASC are changed under 

the revised payment system, and the 

extent to which the ASC provides a 

different set of procedures in the coming 

year. 

The CY 2011 proposed update to the 

revised ASC payment system includes 

an MFP-adjusted CPI–U increase factor 

of 0 percent that we estimate would 

result in the same amount of Medicare 

expenditures in CY 2011 than was 

estimated to be made in CY 2010. We 

estimate that the proposed update to the 

revised ASC payment system, including 

the addition of surgical procedures to 

the list of covered surgical procedures, 

would have minimal effect on Medicare 

expenditures compared to the estimated 

level of Medicare expenditures in CY 

2010. 

6. Accounting Statement 

As required by OMB Circular A–4 

(available at http://www.whitehousegov/ 

omb/circulars/a004/a-4.pdf), in Table 

59 below, we have prepared an 

accounting statement showing the 

classification of the expenditures 

associated with the statutorily 

authorized 0.0 percent update to the CY 

2011 revised ASC payment system, 

based on the provisions of this proposed 

rule and the baseline spending estimates 

for ASCs in the FY 2011 President’s 

Budget. This table provides our best 

estimate of Medicare payments to 

suppliers as a result of the proposed 

update to the CY 2011 ASC payment 

system, as presented in this proposed 

rule. All expenditures are classified as 

transfers. 

D. Effects of Proposed Requirements for 

Hospital Reporting of Quality Data for 

Annual Hospital Payment Update 

In section XVI. of the CY 2009 OPPS/ 

ASC final rule with comment period 

(73 FR 68758), we discussed our 

requirements for subsection (d) 

hospitals to report quality data under 

the HOP QDRP in order to receive the 

full payment update for CY 2010. In 

section XVI. of this proposed rule, we 

proposed additional policies affecting 

the HOP QDRP for CY 2012, CY 2013, 

and CY 2014. We estimate that about 90 

hospitals may not receive the full 

payment update in CY 2011. Most of 

these hospitals receive little to no OPPS 

reimbursement on an annual basis. 

However, at this time, information is not 

available to determine the precise 

number of hospitals that do not meet the 

requirements for the full hospital market 

basket increase for CY 2011. We also 

estimate that 90 hospitals may not 


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receive the full payment update in CY 

2012. We are unable at this time to 

estimate the number of hospitals that 

may not receive the full payment update 

in CY 2013 and CY 2014. 

In section XVI.E.3.a. of the CY 2010 

OPPS/ASC final rule with comment 

period, for the CY 2011 payment 

update, as part of the validation process, 

we are requiring hospitals to submit 

paper copies of requested medical 

records to a designated contractor 

within the required timeframe. Failure 

to submit requested documentation can 

result in a 2 percentage point reduction 

in a hospital’s update, but the failure to 

attain a validation score threshold 

would not. Of the 90 hospitals that we 

estimate would not receive the full 

payment update for CY 2011, we 

estimate that no more than 20 hospitals 

would fail the validation documentation 

submission requirement for the CY 2011 

payment update. 

In section XVI.E.3.b. of the CY 2010 

OPPS/ASC final rule with comment 

period, we did not, at that time, adopt 

our proposal in the CY 2010 OPPS/ASC 

proposed rule (74 FR 35403) to expand 

the CY 2011 validation requirement for 

the CY 2012 payment update. Instead, 

we stated that we would consider the 

public comments we received on that 

proposal, as well as any analyses we 

conduct of the CY 2011 validation 

process, and propose a CY 2012 

validation process as a part of the CY 

2011 OPPS/ASC rulemaking. We believe 

that this approach would give HOP 

QDRP hospitals experience with the 

validation process and allow these 

hospitals sufficient time to prepare for 

the CY 2012 validation. 

In this proposed rule, we are 

proposing to validate data submitted by 

800 hospitals for purposes of the CY 

2012 HOP QDRP payment 

determination. For CY 2011 and under 

our proposal for CY 2012 in this 

proposed rule, we stated that we would 

calculate the validation matches for CY 

2011 (we note, however, that the 

validation results would not affect the 

CY 2011 payment update) and CY 2012 

by assessing whether the measure data 

submitted by the hospital matches the 

independently reabstracted measure 

data. In addition, for the CY 2012 

payment update in this proposed rule, 

we are proposing to validate data for 

only 800 hospitals out of the 

approximately 3,200 HOP QDRP 

participating hospitals. We believe that 

this approach is suitable for HOP QDRP 

data because it will: Produce a more 

reliable estimate of whether a hospital’s 

submitted data have been abstracted 

accurately; provide more statistically 

reliable estimates of the quality of care 

delivered in each selected hospital as 

well as at the national level; and reduce 

overall hospital burden because most 

hospitals will not be selected to undergo 

validation each year. We have proposed 

a threshold of 75 percent as the 

threshold for the validation score 

because we believe this level is 

reasonable for hospitals to achieve 

while still ensuring accuracy of the data. 

Additionally, this level is consistent 

with what has been proposed in the 

RHQDAPU program (75 FR 23993). As 

a result, we believe that the effect of our 

proposed validation process for CY 2012 

would be minimal in terms of the 

number of hospitals that would not 

meet all program requirements. 

The validation requirement of a 

maximum of 12 cases per hospital per 

quarter will result in medical record 

documentation for approximately 9,600 

cases per quarter being submitted to a 

designated CMS contractor. We would 

pay for the cost of sending this medical 

record documentation to the designated 

CMS contractor at the rate of 12 cents 

per page for copying and approximately 

$1.00 per case for postage. We have 

found, based on experience that an 

outpatient medical chart is up to 10 

pages. Thus, as a result of validation 

requirements effective for the CY 2012 

annual payment update, we would have 

expenditures of approximately $21,120 

per quarter. Again, as we would pay for 

the data collection effort, we believe 

that a requirement for medical record 

documentation for a maximum of 12 

cases per quarter for 800 hospitals 

represents a minimal burden to HOP 

QDRP-participating hospitals. 

E. Effects of Proposed Changes in 

Payments to Hospitals for Direct GME 

and IME Costs 

1. Redistribution of Residency Slots 

As discussed in section XVII. of this 

proposed rule, section 5503 of the 

Affordable Care Act added a new 

section 1886(h)(8) to the Act that 

provides for reductions in the statutory 

FTE resident caps under Medicare for 

certain hospitals and authorizes a 

‘‘redistribution’’ of the FTE resident slots 

resulting from the reduction in the FTE 

resident caps to other hospitals. 

At this time, we are unable to project 

how many FTE resident slots will be 

available for redistribution under 

section 5503 of the Affordable Care Act. 

Unlike section 422 of the Medicare 

Modernization Act, which also provided 

for a redistribution of FTE resident slots 

but provided that the redistributed slots 

would be paid using the national 

average per resident amount (PRA) for 

direct GME payment purposes, section 

5503 of the Affordable Care Act requires 

that hospitals be paid for their 

additional FTE resident slots using the 

hospitals’ specific PRAs. Since we are 

unable to determine the number of FTE 

resident slots that will be redistributed 

under section 5503 or which hospitals 

will be receiving additional FTE 

resident slots, we cannot calculate a 

direct GME impact for section 5503. We 

do not know the PRAs and Medicare 

utilization rates of hospitals that will be 

receiving additional FTE resident slots. 

For purposes of determining an impact 

for IME payment purposes, section 5503 

requires us to use an IME multiplier of 

1.35, however, we do not know the 

intern and resident to bed ratio for the 

hospitals that will receive additional 

FTE resident slots or the volume or case 

mix of Medicare discharges at those 

hospitals. Therefore, we cannot 

determine a financial impact for 

purposes of direct GME and IME for this 

provision. 

2. Counting Resident Time in 

Nonprovider Settings 

In section XVII. of this proposed rule, 

we discuss our proposed 

implementation of several changes 

made by section 5504 of the Affordable 

Care Act with regard to counting 

resident time in nonprovider settings for 

GME and IME payment purposes. 

Specifically, section 5504 eliminates the 

requirement for hospitals to incur ‘‘all or 

substantially all of the costs for the 

training program in the nonhospital 

setting,’’ and now hospitals must only 

incur the costs of the salaries and fringe 

benefits of residents who train in 

nonhospital sites It also allows more 

than one hospital to incur the costs of 

training programs at nonhospital 

settings, either directly or through a 

third party. In addition, section 5504 

creates a recordkeeping requirement for 

hospitals to track the time residents 

spend training in nonhospital settings, 

which CMS must compare to analogous 

data from a base year. 

With respect to the recordkeeping 

requirement, we are proposing that 

rotation schedules be the source for 

establishing the amount of time that 

residents spend training in nonhospital 

sites, both in the base year and in 

subsequent years. In addition, we are 

proposing that cost reporting periods 

beginning on or after July 1, 2009 and 

before June 30, 2010 be the base year 

against which we will compare 

subsequent years’ data to determine if 

the amount of nonhospital training that 

occurs in subsequent years increases 

relative to that base year. We also are 

proposing that hospitals only need to 

maintain records of the direct GME FTE 

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count of resident training time in 

nonhospital settings. Finally, we are 

proposing to include several additional 

lines on the Medicare cost report for 

hospitals to submit these data. Hospitals 

would be required to report these data 

on a program-specific basis for their 

primary care programs, and on an 

overall hospital basis for their 

nonprimary care programs. These data 

will help CMS identify whether barriers 

to resident training in nonhospital sites 

continue to exist. 

We do not believe that any of these 

proposed policies will have a significant 

financial impact on the Medicare 

program. While these policies may 

allow hospitals to count additional FTEs 

training in nonhospital sites, we do not 

believe that this constitutes significant 

financial impact on the Medicare 

program, since those residents would 

have been training at the hospital if they 

were not training at the nonhospital site. 

We note that the FTE slot redistribution 

discussed above that is required by 

section 5503 of the Affordable Care Act 

may have an impact on the hospitals’ 

ability to increase the number of 

residents training at nonhospital sites, 

unless it moves the training that is 

currently conducted at the hospital to a 

nonhospital site. Therefore, the 

financial impact of section 5504 will be 

minimal. 

3. Counting Resident Time for Didactic 

and Scholarly Activities and Other 

Activities 

In section XVII. of this proposed rule, 

we discuss our proposals to implement 

the provisions of section 5505 of the 

Affordable Care Act that make several 

changes to existing CMS policy with 

respect to counting resident training 

time for didactic, scholarly and other 

activities. Specifically, section 5505(a) 

allows a hospital to count the time that 

residents spend training in an approved 

program in a ‘‘nonprovider setting that 

is primarily engaged in furnishing 

patient care’’ for direct GME purposes. 

Section 5505(b) allows nonpatient care 

activities to count toward resident time 

for IME purposes as well, but only in 

certain hospital settings. These 

nonpatient care activities do not include 

research activities that are not 

associated with the treatment or 

diagnosis of a particular patient. Section 

5505 also allows hospitals to count the 

time spent by residents on vacation, sick 

leave, or other approved leave in the 

hospitals’ direct GME and IME resident 

counts, as long as the leave time does 

not prolong the total time that the 

resident is participating in the approved 

training program. In our discussion of 

the provisions of section 5505, we 

described the definitions of the various 

new terms used in this section of the 

Affordable Care Act. 

We do not believe that any of the 

proposed policies to implement section 

5505 will have a significant financial 

impact on the Medicare program. While 

all of these provisions allow teaching 

hospitals to claim more resident training 

time on their respective cost reports, a 

hospital is limited as to how many 

resident FTEs it can count. In addition, 

we note that the FTE slot redistribution 

that is required by section 5503 of the 

Affordable Care Act discussed earlier 

may impact hospitals’ ability to increase 

the number of residents training at 

nonhospital sites, unless a hospital 

moves the training that is currently 

conducted at the hospital to a 

nonhospital site. Therefore, the 

financial impact of section 5505 is 

minimal. 

4. Preservation of Resident Cap 

Positions From Closed Hospitals 

In section XVII.C. of this proposed 

rule, we discuss our proposals to 

implement section 5506 of the 

Affordable Care Act. Prior to the passage 

of the Affordable Care Act, if a teaching 

hospital closed, its direct GME and IME 

FTE resident cap slots would be ‘‘lost,’’ 

because those slots are associated with 

a specific hospital’s Medicare provider 

agreement. Section 5506 of the 

Affordable Care Act addresses this 

situation by instructing the Secretary to 

establish a process by regulation that 

would redistribute slots from teaching 

hospitals that close to hospitals that 

meet certain criteria. 

Section 5506 applies to teaching 

hospitals that closed ‘‘on or after a date 

that is 2 years before the date of 

enactment,’’ that is, March 23, 2008. 

Accordingly, although section 5506 

does address certain teaching hospital 

closures that have already occurred, the 

focus of this provision is primarily on 

future teaching hospital closures, and 

ensuring that FTE resident cap slots are 

not lost to a community. We are unable 

to project which teaching hospitals will 

close, how many FTE resident slots they 

have, and to which hospitals those slots 

would be ultimately redistributed. 

Therefore, we cannot determine a 

financial impact for this provision. 

F. Effects of Proposed Changes to 

Physician Self-Referral Regulations and 

Related Proposed Changes to Provider 

Agreement Regulations 

Most physicians who have ownership 

or investment interests in hospitals 

(‘‘physician-owned hospitals’’) and who 

refer DHS to the hospital, are subject to 

the physician self-referral prohibition, 

and are unable to qualify for the 

ownership and investment exception at 

section 1877(d)(1) of the Act. Section 

1877(d)(1) of the Act provides an 

exception for ownership or investment 

in publicly traded securities in a 

corporation where there is stockholder 

equity exceeding $75 million at the end 

of the corporation’s most recent fiscal 

year or on average during the previous 

3 fiscal years; or the ownership or 

investment interest involves mutual 

funds in a company that has assets 

greater than $75 million. Studies by the 

OIG and GAO have concluded that 

physician-owned hospitals tend to be 

smaller and are unable to meet the $75 

million threshold. Therefore, most 

physician-owned hospitals avail 

themselves of the rural provider or 

hospital ownership exceptions (sections 

1877(d)(2) and (d)(3) of the Act, 

respectively). As discussed in section 

XVIII. of this proposed rule, section 

6001 of the Affordable Care Act 

amended section 1877 of the Act to 

impose additional requirements in order 

to qualify for the rural provider and 

hospital ownership or investment 

exceptions. Our proposals under section 

XVIII. of this proposed rule would 

incorporate these requirements into our 

regulations. 

Our proposed revisions to the 

regulations would limit the creation of 

new Medicare participating hospitals in 

which physician owners or investors 

intend to refer patients for DHS by 

requiring such hospitals to have 

physician ownership and a provider 

agreement in effect on December 31, 

2010, as provided for by section 6001 of 

the Affordable Care Act. This proposed 

revision would affect facilities with 

physician ownership or investment that 

are currently under development but 

may be unable to have a provider 

agreement in effect on December 31, 

2010. We believe there would only be a 

few facilities or hospital projects under 

development that would be unable to 

meet either of these criteria. 

In addition to the effect on the 

creation of new physician-owned 

hospitals, the proposed revision of the 

regulations to incorporate the provisions 

of section 6001 of the Affordable Care 

Act would impact existing physicianowned hospitals that currently avail 

themselves of the rural provider or 

whole hospital exception. Specifically, a 

physician-owned hospital would be 

prohibited from expanding the number 

of beds, operating rooms, and procedure 

rooms beyond those for which it was 

licensed as of March 23, 2010, or, in the 

case of a hospital that did not have a 

provider agreement in effect as of this 

date but does have a provider agreement 

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in effect on December 31, 2010, the 

effective date of the provider agreement. 

We believe there are only a few 

hospitals that were in the midst of an 

expansion that was not completed by 

March 23, 2010 (or, in the case of a 

hospital that did not have a provider 

agreement in effect as this date but does 

have a provider agreement in effect on 

December 31, 2010), and thus, may not 

be able to use the new beds, operating 

rooms, and procedures rooms. We 

believe that most facilities and their 

investors were aware of the possible 

legislation that would limit facility 

expansion and, thus, did not continue to 

pursue expansion of their facilities. 

Our proposed regulations would 

require hospitals to have procedures in 

place that require referring physicians to 

disclose to patients the referring 

physicians’ ownership or investment 

interests in the hospital, as well as any 

ownership or investment interest in the 

hospital held by a treating physician. 

This proposal also would require 

hospitals to disclose on any public Web 

site for the hospital or in any public 

advertising that it is owned or invested 

in by physicians. Finally, under the 

proposed revision of the regulations, a 

hospital would not condition any 

physician ownership or investment 

either directly or indirectly on the 

physician making or influencing 

referrals to the hospital or otherwise 

generating business for the hospital. 

Most physician-owned hospitals comply 

with the current provisions of 

§ 489.20(u). Thus, they have procedures 

in place to require referring physician 

owners or investors to disclose their 

ownership or investment interests to 

patients. We believe most physicians 

and hospitals will be minimally affected 

by the additional requirements. 

Our proposed revisions to the 

regulations would require that hospitals 

must ensure that all ownership and 

investment interests are bona fide, a 

step that we believe most prudent 

hospitals are already undertaking. We 

believe most of the new statutory and 

proposed regulatory provisions would 

have little, if any, impact on physicianowned hospitals or physicians. The only 

provision that may have a minor impact 

is the provision found under section 

1877(i)(1)(D)(i) of the Act and proposed 

§ 411.362(b)(4)(i) that prohibits 

physician-owned hospitals from 

increasing the percentage of the total 

value of the ownership or investment 

interests held in the hospital, or in an 

entity whose assets include the hospital 

by physician owners or investments 

beyond that which existed on March 23, 

2010. Therefore, hospitals and other 

entities that own the hospital must 

monitor the percentages of ownership or 

investment to ensure that the percentage 

is not increased. We believe this 

proposal would have a minor effect on 

some hospitals and their physician 

owners or investors. 

Our proposed revisions to the 

regulations also would require hospitals 

to take certain steps to ensure patient 

safety, most of which are practices or 

procedures that we believe most 

hospitals currently undertake. Building 

upon the safety requirements found in 

existing § 489.20(w), we are proposing 

to require under proposed 

§§ 411.362(b)(5)(i) and 489.20(w)(2) 

that, before admitting a patient, the 

hospitals must receive a signed 

acknowledgment from the patient 

stating that the patient understands that 

a physician may not be present during 

the time services are furnished to a 

patient. In addition, proposed 

§§ 411.362(b)(5)(ii) and 489.20(w)(1) 

would require hospitals to have the 

capacity to provide assessment and 

initial treatment for patients and the 

ability to refer and transfer patients to 

hospitals with the capability to treat the 

needs of the patient involved. We 

believe requesting a signed 

acknowledgment would impose a 

minimal burden on hospitals. Also, 

most hospitals currently have in place 

procedures to ensure that they have the 

capacity to provide assessment and 

initial treatment for patients and the 

ability to refer and transfer patients. 

Lastly, our proposed revisions to the 

regulations would prohibit a facility that 

was previously an ASC and was 

converted into a hospital from 

qualifying for the rural provider or 

whole hospital ownership exceptions to 

the self-referral prohibition. Although 

we have no direct data on this point, we 

believe there are only a few ASCs that 

are being converted to a hospital, and, 

thus, the effect is minimal. 

We believe that our proposals in 

XVIII. of this proposed rule would affect 

a relatively small number of physicianowned hospitals and physicians. We are 

uncertain of the exact numbers of 

hospitals with physician ownership or 

investment that would be impacted by 

the proposals and their restrictions. 

However, the most recent studies by 

CMS (August 8, 2006 Final Report to the 

Congress Required under Section 5006 

of the Deficit Reduction Act of 2005) 

and MedPAC (June 2005 Report to the 

Congress) concluded that there were 

approximately 128 physician-owned 

specialty hospitals (those that focus 

primarily on patients with a cardiac 

condition, orthopedic condition, or 

those receiving a surgical procedure). 

We recognize that there are other 

hospitals with physician ownership that 

do not meet the definition of a specialty 

hospital but we do not have verifiable 

data on the number of these facilities. 

However, we have recently received 

information from a trade association 

representing physician-owned hospitals 

that there are approximately 265 

hospitals that would be subject to the 

provisions of our proposed rule. 

The proposed changes concerning 

disclosure of physician ownership in 

hospitals and patient safety are 

consistent with the physician selfreferral statute and regulations, our 

existing regulations governing basic 

commitments of providers, and the 

current practices of most hospitals. 

Thus, our proposed requirements would 

present a negligible impact on 

physician-owned hospitals. Physicianowned hospitals would have a one-time 

cost associated with creating or 

modifying a notice to be used when a 

physician is not on the premises 24 

hours a day. In addition, these hospitals 

would incur the costs associated with 

ensuring that a signed acknowledgment 

is received from patients. Similarly, the 

costs borne by individual physicians to 

implement the provisions would be 

limited to a one-time cost associated 

with developing a disclosure notice that 

discloses the ownership of the referring 

and, where applicable, the treating 

physician. 

Overall, we believe that beneficiaries 

would be positively impacted by these 

proposed provisions. Specifically, 

additional information concerning 

disclosures of ownership and patient 

safety measures equip patients to make 

informed decisions about where they 

elect to receive care. Our proposals 

make no significant changes that have 

the potential to impede patient access to 

health care facilities and services. We 

believe that our proposals are necessary 

to conform our regulations to the 

amendments to section 1877 of the Act. 

We also believe the proposed 

regulations would help minimize 

anticompetitive behavior that can affect 

the decision as to where a beneficiary 

receives health care services and would 

possibly enhance the quality of the 

services furnished. 

G. Executive Order 12866 

In accordance with the provisions of 

Executive Order 12866, this proposed 

rule was reviewed by the OMB. 

List of Subjects 

42 CFR Part 410 

Health facilities, Health professions, 

Laboratories, Medicare, Rural areas, Xrays. 

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46462 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 

42 CFR Part 411 

Kidney diseases, Medicare, Physician 

referral, Reporting and recordkeeping 

requirements. 

42 CFR Part 412 

Administrative practice and 

procedure, Health facilities, Medicare, 

Puerto Rico, Reporting and 

recordkeeping requirements. 

42 CFR Part 413 

Health facilities, Kidney diseases, 

Medicare, Puerto Rico, Reporting and 

recordkeeping requirements. 

42 CFR Part 416 

Health facilities, Health professions, 

Medicare, Reporting and recordkeeping 

requirements. 

42 CFR Part 419 

Hospitals, Medicare, Reporting and 

recordkeeping requirements. 

42 CFR Part 482 

Grant programs—health, Hospitals, 

Medicaid, Medicare, Reporting and 

recordkeeping requirements. 

42 CFR Part 489 

Health facilities, Medicare, Reporting 

and recordkeeping requirements. 

For reasons stated in the preamble of 

this document, the Centers for Medicare 

& Medicaid Services is proposing to 

amend 42 CFR Chapter IV as set forth 

below: 

PART 410—SUPPLEMENTARY 

MEDICAL INSURANCE (SMI) 

BENEFITS 

1. The authority citation for Part 410 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh). 

2. Section 410.2 is amended by— 

a. Under the definition of 

‘‘Community mental health center 

(CMHC)’’, removing the word ‘‘and’’ at 

the end of paragraph (4); removing the 

period at the end of paragraph (5) and 

adding in its place ‘‘; and’’; and adding 

a new paragraph (6). 

b. Revising the definition of ‘‘Partial 

hospitalization services’’. 

The additions and revisions read as 

follows: 

§ 410.2 Definitions. 

* * * * * 

Community mental health center 

(CMHC) means an entity that— 

* * * * * 

(6) Provides at least 40 percent of its 

services to individuals who are not 

eligible for benefits under title XVIII of 

the Social Security Act. 

* * * * * 

Partial hospitalization services means 

a distinct and organized intensive 

ambulatory treatment program that 

offers less than 24-hour daily care other 

than in an individual’s home or in an 

inpatient or residential setting and 

furnishes the services as described in 

§ 410.43. 

* * * * * 

3. Section 410.27 is amended by— 

a. Removing the word ‘‘and’’ at the end 

of paragraph (a)(1)(iii). 

b. Adding a new paragraph (a)(1)(v). 

c. Adding a new paragraph (a)(2). 

d. Revising paragraph (b). 

The addition and revisions read as 

follows: 

§ 410.27 Outpatient hospital or CAH 

services and supplies incident to a 

physician or nonphysician practitioner 

service: Conditions. 

(a) * * * 

(1) * * * 

(v) Certain nonsurgical extended 

duration therapeutic services that are 

designated by CMS as requiring direct 

supervision, as defined in (a)(1)(iv) of 

this section, by a physician or 

nonphysician practitioner only at the 

initiation of the service, after which 

general supervision, as defined in 

§ 410.32(b)(3)(i), is required. 

(A) Nonsurgical extended duration 

therapeutic services are services that 

can last a significant period of time, 

have a substantial monitoring 

component, and have a low risk of 

requiring the physician’s or appropriate 

nonphysician practitioner’s physical 

presence to furnish assistance and 

direction after the initiation of the 

service. 

(B) Initiation of the service means the 

beginning portion of a service ending 

when the patient is stable and the 

supervising physician or appropriate 

nonphysician practitioner believes the 

remainder of the service can safely be 

delivered under his or her general 

direction and control without needing 

the supervising physician’s or 

appropriate nonphysician practitioner’s 

physical presence on the hospital 

campus or in the provider-based 

department of the hospital. 

(2) In the case of partial 

hospitalization services, also meet the 

conditions of paragraph (d) of this 

section. 

(b) Drugs and biologicals also are 

subject to the limitations specified in 

§ 410.29. 

* * * * * 

4. Section 410.152 is amended by 

revising paragraph (i)(2) to read as 

follows: 

§ 410.152 Amounts of payment. 

* * * * * 

(i) * * * 

(2) For ASC services furnished on or 

after January 1, 2008, in connection 

with the covered surgical procedures 

specified in § 416.166 of this 

subchapter, except as provided in 

paragraphs (i)(2)(i), (i)(2)(ii), and (l) of 

this section, Medicare Part B pays the 

lesser of 80 percent of the actual charge 

or 80 percent of the prospective 

payment amount, geographically 

adjusted, if applicable, as determined 

under Subpart F of Part 416 of this 

subchapter. Part B coinsurance is 20 

percent of the actual charge or 20 

percent of the prospective payment 

amount, geographically adjusted, if 

applicable. 

(i) If the limitation described in 

§ 416.167(b)(3) of this subchapter 

applies, Medicare pays 80 percent of the 

amount determined under Subpart B of 

Part 414 of this subchapter and Part B 

coinsurance is 20 percent of the 

applicable payment amount, except as 

provided in paragraph (l) of this section. 

(ii) Between January 1, 2008 and 

December 31, 2010, Medicare Part B 

pays 75 percent of the applicable 

payment amount for screening flexible 

sigmoidoscopies and screening 

colonoscopies, and Part B coinsurance 

is 25 percent of the applicable payment 

amount. 

PART 411—EXCLUSIONS FROM 

MEDICARE AND LIMITATIONS ON 

MEDICARE PAYMENT 

5. The authority citation for Part 411 

continues to read as follows: 

Authority: Secs. 1102, 1860D–1 through 

1860D–42, 1871, and 1877 of the Social 

Security Act (42 U.S.C. 1302, 1395w–101 

through 1395w–152, 1395hh and 1395nn). 

6. Section 411.356 is amended by— 

a. Republishing the introductory text 

of paragraph (c) and revising paragraph 

(c)(1). 

b. Removing the word ‘‘and’’ at the 

end of paragraph (c)(3)(ii). 

c. Removing the period at the end of 

paragraph (c)(3)(iii) and adding ‘‘; and’’ 

in its place. 

d. Adding a new paragraph (c)(3)(iv). 

The revision and addition read as 

follows: 

§ 411.356 Exceptions to the referral 

prohibition related to ownership or 

investment interests. 

* * * * * 

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(c) Specific providers. Ownership or 

investment in the following entities, for 

purposes of the services specified: 

(1) A rural provider, in the case of 

DHS furnished in a rural area (as 

defined at § 411.351 of this subpart) by 

the provider. A ‘‘rural provider’’ is an 

entity that furnishes substantially all 

(not less than 75 percent) of the DHS 

that it furnishes to residents of a rural 

area and, for the 18-month period 

beginning on December 8, 2003 (or such 

other period as Congress may specify), 

is not a specialty hospital, and in the 

case where the entity is a hospital, the 

hospital meets the requirements of 

§ 411.362 no later than September 23, 

2011. 

* * * * * 

(3) * * * 

(iv) The hospital meets the 

requirements described in § 411.362 not 

later than September 23, 2011. 

7. A new § 411.362 is added to read 

as follows: 

§ 411.362 Additional requirements 

concerning physician ownership and 

investment in hospitals. 

(a) Definitions. For purposes of this 

section— 

Physician owner or investor means a 

physician (or immediate family member 

of the physician) with a direct or an 

indirect ownership or investment 

interest in the hospital. 

Procedure room means a room in 

which catheterizations, angiographies, 

angiograms, and endoscopies are 

performed, except such term shall not 

include an emergency room or 

department (exclusive of rooms in 

which catheterizations, angiographies, 

angiograms, and endoscopies are 

performed). 

(b) General requirements. (1) 

Physician ownership and provider 

agreement. The hospital had physician 

ownership or investment on December 

31, 2010; and a provider agreement 

under section 1866 of the Act in effect 

on that date. 

(2) Prohibition on facility expansion. 

The hospital may not increase the 

number of operating rooms, procedure 

rooms, and beds beyond that for which 

the hospital is licensed on March 23, 

2010 (or, in the case of a hospital that 

did not have a provider agreement in 

effect as of this date, but does have a 

provider agreement in effect on 

December 31, 2010, the effective date of 

such agreement), unless an exception is 

granted by the Secretary pursuant to 

section 1877(i)(3) of the Social Security 

Act. 

(3) Disclosure of conflicts of interest. 

(i) [Reserved]. 

(ii) The hospital must— 

(A) Require each referring physician 

owner or investor who is a member of 

the hospital’s medical staff to agree, as 

a condition of continued medical staff 

membership or admitting privileges, to 

provide written disclosure of his or her 

ownership or investment interest in the 

hospital (and, if applicable, the 

ownership or investment interest of any 

treating physician) to all patients whom 

the physician refers to the hospital. 

Disclosure must be required at the time 

the referral is made. 

(B) Not condition any physician 

ownership or investment interests either 

directly or indirectly on the physician 

owner or investor making or influencing 

referrals to the hospital or otherwise 

generating business for the hospital. 

(C) Disclose on any public Web site 

for the hospital or in any public 

advertising that the hospital is owned or 

invested in by physicians. 

(4) Ensuring bona fide investment. 

The hospital satisfies the following 

criteria: 

(i) The percentage of the total value of 

the ownership or investment interests 

held in the hospital, or in an entity 

whose assets include the hospital, by 

physician owners or investors in the 

aggregate does not exceed such 

percentage as of March 23, 2010. 

(ii) Any ownership or investment 

interests that the hospital offers to a 

physician owner or investor are not 

offered on more favorable terms than the 

terms offered to a person who is not a 

physician owner or investor. 

(iii) The hospital (or any owner or 

investor in the hospital) does not 

directly or indirectly provide loans or 

financing for any investment in the 

hospital by a physician owner or 

investor. 

(iv) The hospital (or any owner or 

investor in the hospital) does not 

directly or indirectly guarantee a loan, 

make a payment toward a loan, or 

otherwise subsidize a loan, for any 

individual physician owner or investor 

or group of physician owners or 

investors that is related to acquiring any 

ownership or investment interest in the 

hospital. 

(v) Ownership or investment returns 

are distributed to each owner or investor 

in the hospital in an amount that is 

directly proportional to the ownership 

or investment interest of such owner or 

investor in the hospital. 

(vi) Physician owners and investors 

do not receive, directly or indirectly, 

any guaranteed receipt of or right to 

purchase other business interests related 

to the hospital, including the purchase 

or lease of any property under the 

control of other owners or investors in 

the hospital or located near the premises 

of the hospital. 

(vii) The hospital does not offer a 

physician owner or investor the 

opportunity to purchase or lease any 

property under the control of the 

hospital or any other owner or investor 

in the hospital on more favorable terms 

than the terms offered to an individual 

who is not a physician owner or 

investor. 

(5) Patient safety. The hospital 

satisfies the following criteria: 

(i) If the hospital does not have a 

physician available on the premises to 

provide services during all hours in 

which the hospital is providing services 

to the patient, the hospital must disclose 

this information to the patient. Before 

providing services to the patient, the 

hospital must receive a signed 

acknowledgment from the patient 

stating that the patient understands that 

a physician may not be present during 

all hours services are furnished to the 

patient. 

(ii) The hospital must have the 

capacity to provide assessment and 

initial treatment for all patients, and the 

ability to refer and transfer patients to 

hospitals with the capability to treat the 

needs of the patient that the hospital is 

unable to address. For purposes of this 

paragraph, the hospital inpatient stay or 

outpatient visit begins with the 

provision of a package of information 

regarding scheduled preadmission 

testing and registration for a planned 

hospital admission for inpatient care or 

an outpatient service. 

(6) Prohibition on conversion from an 

ambulatory surgery center. The hospital 

must not have been converted from an 

ambulatory surgical center to a hospital 

on or after March 23, 2010. 

PART 412—PROSPECTIVE PAYMENT 

SYSTEMS FOR INPATIENT HOSPITAL 

SERVICES 

8. The authority citation for Part 412 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh), and sec. 124 of Pub. L. 106–113 

(113 Stat. 1501A–332). 

9. Section 412.105 is amended— 

a. Revising paragraph (f)(1)(ii). 

b. Revising paragraph (f)(1)(iii)(C). 

c. Adding a new paragraph 

(f)(1)(iii)(D). 

d. Revising paragraph (f)(1)(iv)(B). 

e. Revising paragraph (f)(1)(iv)(C). 

f. Revising paragraph (f)(1)(ix). 

The revisions and addition read as 

follows: 

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§ 412.105 Special treatment: Hospitals that 

incur indirect costs for graduate medical 

education programs. 

* * * * * 

(f) * * * 

(1) * * * 

(ii) In order to be counted, the 

resident must be assigned to one of the 

following areas: 

(A) The portion of the hospital subject 

to the hospital inpatient prospective 

payment system. 

(B) The outpatient department of a 

hospital that meets provider-based 

status as defined at § 413.65(a)(2) of this 

subchapter. 

(C) The portions of a hospital located 

in Puerto Rico that are subject to the 

hospital inpatient prospective payment 

system, including off-campus outpatient 

departments that meet provider-based 

status as defined at § 413.65(a)(2) of this 

subchapter. 

(D) The portions of a hospital that are 

reimbursed under a reimbursement 

system authorized under section 

1814(b)(3) of the Act. 

(E) Effective for discharges occurring 

on or after October 1, 1997, the time 

spent by a resident in a nonhospital 

setting in patient care activities, as 

defined in § 413.75(b) of this 

subchapter, under an approved medical 

residency training program is counted 

towards the determination of full-time 

equivalency if the criteria set forth in 

§ 413.78(c), (d), (e), (f), or (g) of this 

subchapter, as applicable, are met. 

(iii) * * * 

(C) Effective for cost reporting periods 

beginning on or after January 1, 1983, 

except for research activities described 

in paragraph (f)(1)(iii)(B) of this section, 

the time a resident is training in an 

approved medical residency program in 

a hospital setting, as described in 

paragraphs (f)(1)(ii)(A) through 

(f)(1)(ii)(D) of this section, must be spent 

in either patient care activities, as 

defined in § 413.75(b) of this 

subchapter, or in nonpatient care 

activities, such as didactic conferences 

and seminars, to be counted. This 

provision may not be applied in a 

manner that would require the 

reopening of settled cost reports, except 

those cost reports on which, as of March 

23, 2010, there is a pending, 

jurisdictionally proper appeal on direct 

GME or IME payments. 

(D) Effective for cost reporting periods 

beginning on or after January 1, 1983, 

the time spent by a resident in an 

approved medical residency program on 

vacation, sick leave, or other approved 

leave that does not prolong the total 

time the resident is participating in the 

approved program beyond the normal 

duration of the program is countable. 

This provision may not be applied in a 

manner that would require the 

reopening of settled cost reports, except 

those cost reports on which, as of March 

23, 2010, there is a pending, 

jurisdictionally proper appeal on direct 

GME or IME payments. 

(iv) * * * 

(B)(1) Effective for portions of cost 

reporting periods beginning on or after 

July 1, 2005, a hospital’s otherwise 

applicable FTE resident cap may be 

reduced if its reference resident level, as 

determined under § 413.79(c)(1)(ii)(A) of 

this subchapter, is less than its 

otherwise applicable FTE resident cap 

in a reference cost reporting period, in 

accordance with the provisions of 

§ 413.79(c)(3) of this subchapter. The 

reduction is 75 percent of the difference 

between the otherwise applicable FTE 

resident cap and the reference resident 

level. 

(2) Effective for portions of cost 

reporting periods beginning on or after 

July 1, 2011, a hospital’s otherwise 

applicable FTE resident cap may be 

reduced if its reference resident level, as 

determined under § 413.79(c)(1)(ii)(B) of 

this subchapter, is less than its 

otherwise applicable FTE resident cap 

in a reference cost reporting period, in 

accordance with the provisions of 

§ 413.79(m) of this subchapter. The 

reduction shall take into account the 

hospital’s FTE resident cap as reduced 

under paragraph (f)(1)(E)(iv)(B)(1). The 

reduction is 65 percent of the difference 

between the otherwise applicable FTE 

resident cap and the reference resident 

level. 

(C)(1) Effective for portions of cost 

reporting periods beginning on or after 

July 1, 2005, a hospital may qualify to 

receive an increase in its otherwise 

applicable FTE resident cap (up to 25 

additional FTEs) if the criteria specified 

in § 413.79(c)(4) of this subchapter are 

met. 

(2) Effective for portions of cost 

reporting periods beginning on or after 

July 1, 2011, a hospital may qualify to 

receive an increase in its otherwise 

applicable FTE resident cap (up to 75 

additional FTEs) if the criteria specified 

in § 413.79(n) of this subchapter are 

met. The increase shall be made to the 

hospital’s FTE resident cap as reduced 

under paragraph (f)(1)(E)(iv)(B)(1). 

* * * * * 

(ix)(A) A hospital may receive a 

temporary adjustment to its FTE 

resident cap to reflect residents added 

because of another hospital’s closure if 

the hospitals meets the criteria specified 

in §§ 413.79(h)(1) and (h)(2) of this 

subchapter. If a hospital that closes its 

residency training program agrees to 

temporarily reduce its FTE resident cap 

according to the criteria specified in 

§§ 413.79(h)(1) and (h)(3)(ii) of this 

subchapter, another hospital(s) may 

receive a temporary adjustment to its 

FTE resident cap to reflect residents 

added because of the closure of the 

residency training program if the criteria 

specified in §§ 413.79(h)(1) and (h)(3)(i) 

of this subchapter are met. 

(B) A hospital may receive a 

permanent adjustment to its FTE 

resident cap as a result of slots that were 

redistributed from a closed hospital, as 

defined at § 413.79(h)(1)(i) of this 

subchapter, if the hospital meets the 

requirements at § 413.79(o) of this 

subchapter. 

* * * * * 

PART 413—PRINCIPLES OF 

REASONABLE COST 

REIMBURSEMENT; PAYMENT FOR 

END-STAGE RENAL DISEASE 

SERVICES; OPTIONAL 

PROSPECTIVELY DETERMINED 

PAYMENT RATES FOR SKILLED 

NURSING FACILITIES 

10. The authority citation for Part 413 

continues to read as follows: 

Authority: Secs. 1102, 1812(d), 1814(b), 

1815, 1833(a), (i), and (n), 1861(v), 1871, 

1881, 1883, and 1886 of the Social Security 

Act (42 U.S.C. 1302, 1395d(d), 1395f(b), 

1395g, 1395l(a), (i), and (n), 1395x(v), 

1395hh, 1395rr, 1395tt, and 1395ww); and 

sec. 124 of Pub. L. 106–133 (113 Stat. 1501A– 

332). 

11. Section 413.75(b) is amended by— 

a. Revising paragraph (2) under the 

definition of ‘‘All or substantially all of 

the costs for the training program in the 

nonhospital setting’’. 

b. Adding a definition of 

‘‘Nonprovider setting that is primarily 

engaged in furnishing patient care’’. 

The revision and addition read as 

follows: 

§ 413.75 Direct GME payments: General 

requirements. 

* * * * * 

(b) * * * 

All or substantially all of the costs for 

the training program in the nonhospital 

setting means— 

* * * * * 

(2) Effective for cost reporting periods 

beginning on or after July 1, 2007 and 

before July 1, 2010, at least 90 percent 

of the total of the costs of the residents’ 

salaries and fringe benefits (including 

travel and lodging where applicable) 

and the portion of the cost of teaching 

physicians’ salaries attributable to 

nonpatient care direct GME activities. 

* * * * * 

Nonprovider setting that is primarily 

engaged in furnishing patient care 

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means a nonprovider setting in which 

the primary activity is the care and 

treatment of patients. 

* * * * * 

12. Section 413.78 is amended by— 

a. Revising the introductory text of 

paragraph (f). 

b. Revising paragraph (f)(1). 

c. Adding a new paragraph (g). 

d. Adding a new paragraph (h). 

The revisions and additions read as 

follows: 

§ 413.78 Direct GME payments: 

Determination of the total number of FTE 

residents. 

* * * * * 

(f) For cost reporting periods 

beginning on or after July 1, 2007 and 

before July 1, 2010, the time residents 

spend in nonprovider settings such as 

freestanding clinics, nursing homes, and 

physicians’ offices in connection with 

approved programs may be included in 

determining the number of FTE 

residents in the calculation of a 

hospital’s resident count if the following 

conditions are met— 

(1) The resident spends his or her 

time in patient care activities, except 

that for cost reporting periods beginning 

on or after July 1, 2009, the time spent 

training in nonpatient care activities, 

such as didactic conferences and 

seminars, but excluding research not 

associated with the treatment or 

diagnosis of a particular patient, in a 

nonprovider setting that is primarily 

engaged in furnishing patient care 

activities, as defined at § 413.75(b), also 

may be counted. 

* * * * * 

(g) For cost reporting periods 

beginning on or after July 1, 2010, the 

time residents spend in nonprovider 

settings such as freestanding clinics, 

nursing homes, and physicians’ offices 

in connection with approved programs 

may be included in determining the 

number of FTE residents in the 

calculation of a hospital’s resident count 

if the following conditions are met— 

(1) The resident spends his or her 

time— 

(i) In patient care activities, or, 

(ii) In nonpatient care activities, such 

as didactic conferences and seminars, 

but excluding research not associated 

with the treatment or diagnosis of a 

particular patient, in a nonprovider 

setting that is primarily engaged in 

furnishing patient care activities, as 

defined at § 413.75(b). 

(2) The hospital or hospitals must 

incur the costs of the salaries and fringe 

benefits of the resident during the time 

the resident spends in the nonprovider 

setting. 

(i) If more than one hospital incurs 

these costs, either directly or through a 

third party, the hospitals must count a 

proportional share of the time that 

residents train at the nonhospital 

setting(s) as recorded in a written 

agreement between the hospitals. 

(ii) Hospitals must have a reasonable 

basis for establishing that proportion of 

the cost and the FTE time that each will 

incur and count. 

(iii) If hospitals already arrange 

payment to the nonhospital site via a 

written agreement as described in 

§ 413.78(g)(3)(ii), the proportion may be 

recorded in that agreement. 

(iv) If hospitals choose to pay the 

nonhospital site concurrently as 

described in § 413.78(g)(4)(i), the 

hospitals must record the proportion of 

cost and FTE time they are incurring 

and counting in a written agreement 

between the hospitals. 

(3) For cost reporting periods 

beginning prior to July 1, 2010, the 

hospitals must comply with one of the 

following: 

(i) The hospital or hospitals must pay 

for all or substantially all of the costs for 

the training program in a nonhospital 

setting(s) attributable to training that 

occurs during a month by the end of the 

third month following the month in 

which the training in the nonhospital 

site occurred. 

(ii) There is a written agreement 

between the hospital or hospitals and 

the outside entity that states that the 

residents’ salaries and fringe benefits 

(including travel and lodging where 

applicable) during the time the resident 

spends in the nonhospital setting is to 

be paid by the hospital(s). Hospitals 

may modify the amounts specified in 

the written agreement by the end of the 

academic year (that is, June 30) to reflect 

that the costs of the training program in 

the nonhospital site have been incurred. 

(iii) If the hospital has in place an 

emergency Medicare GME affiliation 

agreement in accordance with 

§ 413.79(f)(6), during the period covered 

by the emergency Medicare GME 

affiliation agreement— 

(A) The hospital must pay all or 

substantially all of the costs of the 

training program in a nonhospital 

setting(s) attributable to training that 

occurs during a month by the end of the 

sixth month after the month in which 

the training in the nonhospital site 

occurs. For the costs that would 

otherwise be required to be incurred by 

the hospital during the period of August 

29, 2005 through November 1, 2007, the 

participating hospital must incur the 

costs by April 29, 2008; or 

(B) There is a written agreement 

between the hospital and the outside 

entity that states that the residents’ 

salaries and fringe benefits (including 

travel and lodging where applicable) 

during the time the resident spends in 

the nonhospital setting is to be paid by 

the hospital. The written agreement 

must be submitted to the contractor by 

180 days after the training at the 

nonhospital site begins. Hospitals may 

modify the amounts specified in the 

written agreement by the end of the 

academic year (that is, June 30) to reflect 

that the costs of the training program in 

the nonhospital site have been incurred. 

For written agreements that would 

otherwise be required to be submitted 

prior to the date the training begins in 

the nonhospital site during the period of 

August 29, 2005 through November 1, 

2007, the hospital must submit the 

written agreement to its contractor by 

April 29, 2008. 

(4) For cost reporting periods 

beginning on or after July 1, 2010, the 

hospitals must comply with one of the 

following: 

(i) The hospital or hospitals must 

incur the costs of the salaries and fringe 

benefits of the resident during the time 

the resident spends in the nonprovider 

setting by the end of the third month 

following the month in which the 

training in the nonhospital site 

occurred. 

(ii) There is a written agreement 

between the hospital or hospitals and 

the outside entity that states that the 

residents’ salaries and fringe benefits 

(including travel and lodging where 

applicable) during the time the resident 

spends in the nonhospital setting is to 

be paid by the hospital(s). Hospitals 

may modify the amounts specified in 

the written agreement by the end of the 

academic year (that is, June 30) to reflect 

that the costs of the training program in 

the nonhospital site have been incurred. 

(5) The hospital is subject to the 

principles of community support and 

redistribution of costs as specified in 

§ 413.81. 

(6) For cost reporting periods 

beginning on or after July 1, 2010, a 

hospital must maintain and make 

available records of the FTE count 

determined for direct GME purposes 

under this section that its residents 

spend in nonprovider sites, in order to 

compare that time to the time spent by 

its residents in nonprovider sites in the 

base year July 1, 2009 through June 30, 

2010. The hospital must supply the 

CMS contractor with the data for each 

of its primary care programs on a 

program-specific basis, and with data 

for its nonprimary care programs on an 

overall basis. 

(h) Effective for cost reporting periods 

beginning on or after January 1, 1983, 

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the time spent by a resident in an 

approved medical residency program on 

vacation, sick leave, or other approved 

leave that does not prolong the total 

time the resident is participating in the 

approved program beyond the normal 

duration of the program is countable. 

This provision cannot be applied in a 

manner that would require the 

reopening of settled cost reports, except 

those cost reports on which there is a 

pending, jurisdictionally proper appeal 

on direct GME or IME payments as of 

March 23, 2010. 

13. Section 413.79 is amended by— 

a. Revising paragraph (c)(1)(ii). 

b. Revising the introductory text of 

paragraph (c)(2). 

c. Revising paragraph (c)(2)(iv). 

d. Revising the heading of paragraph 

(c)(3). 

e. Revising the heading of paragraph 

(c)(4). 

f. Revising the heading of paragraph 

(c)(5). 

g. Adding a new paragraph (m). 

h. Adding a new paragraph (n). 

i. Adding a new paragraph (o). 

§ 413.79 Direct GME payments: 

Determination of the weighted number of 

FTE residents. 

* * * * * 

(c) * * * 

(1) * * * 

(ii)(A) For purposes of paragraph 

(c)(3) of this section, reference resident 

level refers to a hospital’s resident level 

in the applicable reference period 

specified under paragraph (c)(3) of this 

section. 

(B) For purposes of paragraph (m) of 

this section, reference resident level 

means with respect to a hospital, the 

highest resident level for any of the 

three most recent cost reporting periods 

ending before March 23, 2010, for which 

a cost report has been either settled or 

submitted (subject to audit). 

* * * * * 

(2) Determination of the FTE resident 

cap. Subject to the provisions of 

paragraphs (c)(3) through (c)(6) and (m) 

through (o) of this section and § 413.81, 

for purposes of determining direct GME 

payment— 

* * * * * 

(iv) Hospitals that are part of the same 

Medicare GME affiliated group or the 

same emergency Medicare GME 

affiliated group (as described under 

§ 413.75(b)) may elect to apply the limit 

on an aggregate basis as described under 

paragraph (f) of this section. 

* * * * * 

(3) Determination of the reduction to 

the FTE resident cap due to unused FTE 

resident slots under section 422 of 

Public Law 108–173. * * * 

(4) Determination of an increase in 

the otherwise applicable resident cap 

under section 422 of Public Law 108– 

173. * * * 

(5) Special rules for hospitals that 

participate in demonstration projects or 

voluntary resident reduction plans for 

purposes of section 422 of Public Law 

108–173. * * * 

* * * * * 

(m) Determination of the reduction to 

the FTE resident cap due to unused FTE 

resident slots under section 5503 of 

Public Law 111–148. If a hospital’s 

reference resident level, as defined 

under paragraph (c)(1)(ii)(B) of this 

section is less than its otherwise 

applicable FTE resident cap as 

determined under paragraph (c)(2) of 

this section or paragraph (e) of this 

section in the reference cost reporting 

period (as described under paragraph 

(m)(5) of this section), for portions of 

cost reporting periods beginning on or 

after July 1, 2011, the hospital’s 

otherwise applicable FTE resident cap is 

reduced by 65 percent of the difference 

between the otherwise applicable FTE 

resident cap and the reference resident 

level. The reduction shall take into 

account the hospital’s FTE resident cap 

as reduced under paragraph (c)(3) of this 

section. Under this provision— 

(1) Exemption for certain rural 

hospitals. A rural hospital, as defined at 

subpart D of paragraph 412 of this 

subchapter, with fewer than 250 beds 

(as determined at § 412.105(b)) in its 

most recent cost reporting period ending 

on or before March 23, 2010, is exempt 

from any reduction to its otherwise 

applicable FTE resident cap under 

paragraph (m) of this section. 

(2) Exemption for certain hospitals 

that participate in demonstration 

projects or voluntary residency 

reduction plans. A hospital that was 

participating in a demonstration project 

under section 402 of Public Law 90–248 

or the voluntary reduction plan under 

§ 413.88, is exempt from any reduction 

to its otherwise applicable FTE resident 

cap under paragraph (m) of this section 

if by December 1, 2010, it submits a 

plan to CMS for filling all of its unused 

FTE resident slots by not later than 

March 23, 2012. 

(3) Exemption for a hospital described 

at section 1886(h)(4)(H)(v) of the Act. A 

hospital described at section 

1886(h)(4)(H)(v) of the Act, is exempt 

from any reduction to its otherwise 

applicable FTE resident cap under 

paragraph (m) of this section. 

(4) Exemptions for certain other 

hospitals. A hospital training at or above 

its otherwise applicable FTE resident 

cap as determined under paragraph 

(c)(2) of this section for all three most 

recent cost reporting periods ending 

prior to March 23, 2010 (as described 

under section (iv) of this paragraph), is 

exempt from any reduction to its 

otherwise applicable FTE resident cap 

under paragraph (m) of this section. 

(5) Reference cost reporting period. (i) 

To determine a hospital’s reference 

resident level, CMS determines, for a 

hospital’s three most recent cost 

reporting periods ending before March 

23, 2010, the cost reporting period with 

the highest resident level, for which a 

cost report has been settled or if the cost 

report has not been settled, the assubmitted cost report (subject to audit). 

(ii) If the cost report that is used to 

determine a hospital’s otherwise 

applicable FTE resident cap in the 

reference period is not equal to 12 

months, the Medicare contractor may 

make appropriate modifications to 

apply the provisions of paragraph (m) of 

this section based on the equivalent of 

a 12-month cost reporting period. 

(iii) If a hospital is a member of a 

Medicare GME affiliated group during 

its reference cost reporting period, and 

its reference resident level is less than 

its otherwise applicable FTE resident 

cap as adjusted by the terms of the 

Medicare GME affiliation agreement, the 

hospital’s FTE resident cap will be 

reduced as described under paragraph 

(m) of this section. 

(n) Determination of an increase in 

the otherwise applicable resident cap 

under section 5503 of Public Law 111– 

148. (1) For portions of cost reporting 

periods beginning on or after July 1, 

2011, a hospital may receive an increase 

in its otherwise applicable FTE resident 

cap (as determined by CMS) up to an 

additional 75 FTEs if the hospital meets 

the requirements and qualifying criteria 

of section 1886(h)(8) of the Act and 

implementing instructions issued by 

CMS and if the hospital submits an 

application to CMS within the 

timeframe specified by CMS. 

(2) A hospital that receives an 

increase in the otherwise applicable 

resident cap under paragraph (n)(1) of 

this section must ensure, during the 5- 

year period beginning on July 1, 2011 

and ending on June 30, 2016, that— 

(i) The number of FTE primary care 

residents, as defined in § 413.75(b), 

excluding any additional positions 

under this paragraph, is not less than 

the average number of FTE primary care 

residents (as so determined) during the 

three most recent cost reporting periods 

ending prior to March 23, 2010; and not 

less than 75 percent of the positions 

attributable to such increase are in a 

primary care or general surgery 

residency programs. 

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(ii) CMS may determine whether a 

hospital has met the requirements under 

paragraph (n)(1) of this section during 

the 5-year period of July 1, 2011 through 

June 30, 2016 in such manner and at 

such time as CMS determines 

appropriate, including at the end of 

such 5-year period. 

(iii) In a case where the Medicare 

contractor determines that a hospital 

did not meet the requirements in a cost 

reporting period within the 5-year time 

period, the Medicare contractor will 

reduce the otherwise applicable resident 

cap of the hospital by the amount by 

which such limit was increased under 

paragraph (n)(1) of this section. 

(o) Determination of an increase in 

the FTE resident cap due to slots 

redistributed from a closed hospital. (1) 

Except in the case of the closure of the 

hospital with Medicare Provider 

Number 05–0578, in the instance of a 

hospital closure, as defined at (h)(1)(i) of 

this section, the FTE resident cap of the 

closed hospital would be redistributed, 

and a hospital that meets the 

requirements and qualifying criteria of 

section 1886(h)(4)(H)(vi) of the Act and 

implementing instructions issued by 

CMS, including submission of a timely 

application to CMS, may receive an 

increase in its FTE resident cap, as 

determined by CMS. 

(2)(i) Except in the case of the closure 

of the hospital with Medicare Provider 

Number 05–0578, in redistributing the 

FTE resident cap of a closed hospital, 

consideration shall be given to ensure 

that there is no duplication of FTE slots 

between FTE slots redistributed under 

this paragraph and temporary 

adjustments to FTE resident caps 

provider under paragraph (h)(2) of this 

section. 

(ii) The provisions of this paragraph 

(o) will not be applied in a manner that 

will require the reopening of settled cost 

reports, except where the provider has 

a pending, jurisdictionally proper 

appeal on direct GME or IME payments 

as of March 23, 2010. 

PART 416—AMBULATORY SURGICAL 

SERVICES 

14. The authority citation for Part 416 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh). 

15. Section 416.160 is amended by— 

a. Revising paragraph (a)(1). 

b. Revising paragraph (a)(4). 

c. Adding a new paragraph (a)(5). 

The revisions and addition read as 

follows: 

§ 416.160 Basis and scope. 

(a) * * * 

(1) Section 1833(i)(2)(D) of the Act 

requires the Secretary to implement a 

revised payment system for payment of 

surgical services furnished in ASCs. The 

statute requires that, in the year such 

system is implemented, the system shall 

be designed to result in the same 

amount of aggregate expenditures for 

such services as would be made if there 

was no requirement for a revised 

payment system. The revised payment 

system shall be implemented no earlier 

than January 1, 2006, and no later than 

January 1, 2008. The statute also 

requires that, for CY 2011 and each 

subsequent year, any annual update to 

the ASC payment system be reduced by 

a productivity adjustment. There shall 

be no administrative or judicial review 

under section 1869 of the Act, section 

1878 of the Act, or otherwise of the 

classification system, the relative 

weights, payment amounts, and the 

geographic adjustment factor, if any, of 

the revised payment system. 

* * * * * 

(4) Section 1834(d) of the Act 

specifies that, when screening 

colonoscopies or screening flexible 

sigmoidoscopies are performed in an 

ASC or hospital outpatient department, 

payment shall be based on the lesser of 

the amount under the fee schedule that 

would apply to such services if they 

were performed in a hospital outpatient 

department in an area or the amount 

under the fee schedule that would apply 

to such services if they were performed 

in an ambulatory surgical center in the 

same area. Section 1834(d) of the Act 

also specifies that, in the case of 

screening flexible sigmoidoscopy and 

screening colonoscopy services, the 

payment amounts must not exceed the 

payment rates established for the related 

diagnostic services. 

(5) Section 1833(a)(1) of the Act 

requires 100 percent payment for 

preventive services described in section 

1861(ww)(2) of the Act (excluding 

electrocardiograms) to which the United 

States Preventive Services Task Force 

(USPSTF) has given a grade of A or B 

for any indication or population. 

Section 1833(b)(1) of the Act also 

specifies that the Part B deductible shall 

not apply with respect to preventive 

services described in section 

1861(ww)(2) of the Act (excluding 

electrocardiograms) to which the 

USPSTF has given a grade of A or B for 

any indication or population. 

* * * * * 

16. Section 416.171 is amended by 

adding a new paragraph (a)(2)(iii) to 

read as follows: 

§ 416.171 Determination of payment rates 

for ASC services. 

(a) * * * 

(2) * * * 

(iii) Productivity adjustment. 

(A) For calendar year 2011 and 

subsequent years, the Consumer Price 

Index for All Urban Consumers 

determined in paragraph (a)(2)(ii) of this 

section is reduced by the productivity 

adjustment described in section 

1886(b)(3)(B)(xi)(II) of the Act. 

(B) The application of the provisions 

of paragraph (a)(2)(iii)(A) of this section 

may result in the update being less than 

0.0 for a year, and may result in 

payment rates for a year being less than 

the payment rates for the preceding 

year. 

* * * * * 

PART 419—PROSPECTIVE PAYMENT 

SYSTEM FOR HOSPITAL OUTPATIENT 

DEPARTMENT SERVICES 

17. The authority citation for Part 419 

continues to read as follows: 

Authority: Secs. 1102, 1833(t), and 1871 

of the Social Security Act (42 U.S.C. 1302, 

1395(t), and 1395hh). 

18. Section 419.21 is amended by— 

a. Redesignating paragraph (e) as 

paragraph (e)(1). 

b. Revising the newly redesignated 

paragraph (e)(1). 

c. Adding a new paragraph (e)(2). 

The revision and addition read as 

follows: 

§ 419.21 Hospital outpatient services 

subject to the outpatient prospective 

payment system. 

* * * * * 

(e)(1) Effective January 1, 2005 

through December 31, 2008, an initial 

preventive physical examination, as 

defined in § 410.16 of this chapter, if the 

examination is performed no later than 

6 months after the individual’s initial 

Part B coverage date that begins on or 

after January 1, 2005. 

(2) Effective January 1, 2009, an initial 

preventive physical examination, as 

defined in § 410.16 of this chapter, if the 

examination is performed no later than 

12 months after the date of the 

individual’s initial enrollment in Part B. 

19. Section 419.22 is amended by— 

a. Revising paragraph (m). 

b. Adding a new paragraph (t). 

The revision and addition read as 

follows: 

§ 419.22 Hospital outpatient services 

excluded from payment under the hospital 

outpatient prospective payment system. 

* * * * * 

(m)(1) Services provided on or before 

December 31, 2010, for patients with 

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ESRD that are paid under the ESRD 

composite rate and drugs and supplies 

furnished during dialysis but not 

included in the composite rate. 

(2) Renal dialysis services provided 

on or after January 1, 2011, for patients 

with ESRD that are paid under the ESRD 

benefit, as described in Subpart H of 

Part 413 of this chapter. 

* * * * * 

(t) Effective January 1, 2011, annual 

wellness visit providing personalized 

prevention plan services as defined in 

§ 410.15 of this chapter. 

20. Section 419.32 is amended by 

revising paragraph (b)(1)(iv) to read as 

follows: 

§ 419.32 Calculation of prospective 

payment rates for hospital outpatient 

services. 

* * * * * 

(b) * * * 

(1) * * * 

(iv)(A) For calendar year 2003 and 

subsequent years, by the hospital 

inpatient market basket percentage 

increase applicable under section 

1886(b)(3)(B)(iii) of the Act. 

(B) The percentage increase 

determined under paragraph 

(b)(1)(iv)(A) of this section is reduced by 

the following for the specific calendar 

year: 

(i) For calendar year 2010, 0.25 

percentage point; and 

(ii) For calendar year 2011, 0.25 

percentage point. 

* * * * * 

21. Section 419.43 is amended by— 

a. Revising paragraph (c). 

b. Adding a new paragraph (i). 

The revision and addition read as 

follows: 

§ 419.43 Adjustments to national program 

payment and beneficiary copayment 

amounts. 

* * * * * 

(c) Wage index factor.—(1) CMS uses 

the hospital inpatient prospective 

payment system wage index established 

in accordance with Part 412 of this 

chapter to make the adjustment 

specified under paragraph (a) of this 

section. 

(2) For services furnished beginning 

January 1, 2011, the wage index factor 

provided for in paragraph (c)(1) of this 

section applicable to any hospital 

outpatient department that is located in 

a frontier State, as defined in 

§ 412.64(m) of this chapter, may not be 

less than 1.00. 

(3) The additional payments made 

under the provisions of paragraph (c)(2) 

of this section are not implemented in 

a budget neutral manner. 

* * * * * 

(i) Payment adjustment for certain 

cancer hospitals.—(1) General rule. 

CMS provides for an additional 

payment for covered hospital outpatient 

services furnished on or after January 1, 

2011, by cancer hospitals described in 

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

(2) Amount of adjustment. The 

amount of the additional payment under 

paragraph (i)(1) of this section is 

determined by CMS and is based on the 

difference between costs incurred by 

hospitals described in section 

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

incurred by other hospitals that are paid 

under the hospital outpatient 

prospective payment system, including 

the costs of drugs and biologicals. 

(3) Budget neutrality. CMS establishes 

the payment adjustment under 

paragraph (i)(2) of this section in a 

budget neutral manner, excluding 

services and groups specified in 

paragraph (i)(4) of this section. 

(4) Excluded services and groups. The 

following services or groups are 

excluded from qualification for the 

payment adjustment in paragraph (i)(2) 

of this section: 

(i) Devices paid under 419.66; and 

(ii) Items and services paid at charges 

adjusted to cost by application of a 

hospital specific cost-to-charge ratio. 

22. Section 419.70 is amended by— 

a. Revising the introductory text of 

paragraph (d)(2). 

b. Adding a new paragraph (d)(6). 

The revision and addition read as 

follows: 

§ 419.70 Transitional adjustments to limit 

decline in payments. 

* * * * * 

(d) * * * 

(2) Temporary treatment for small 

rural hospitals on or after January 1, 

2006. For covered hospital outpatient 

services furnished in a calendar year 

from January 1, 2006, through December 

31, 2010, for which the prospective 

payment system amount is less than the 

pre-BBA amount, the amount of 

payment under this part is increased by 

95 percent of that difference for services 

furnished during 2006, 90 percent of 

that difference for services furnished 

during 2007, and 85 percent of that 

difference for services furnished during 

2008, 2009, and 2010, if the hospital— 

* * * * * 

(6) Temporary treatment for sole 

community hospitals on or after January 

1, 2010 and through December 31, 2010. 

For covered hospital outpatient services 

furnished on or after January 1, 2010 

through December 31, 2010, for which 

the prospective payment system amount 

is less than the pre-BBA amount, the 

amount of payment under this part is 

increased by 85 percent of that 

difference if the hospital is a sole 

community hospital as defined in 

§ 412.92 of this chapter or is an essential 

access community hospital as described 

under § 412.109 of this chapter. 

* * * * * 

PART 482—CONDITIONS OF 

PARTICIPATION FOR HOSPITALS 

23. The authority citation for Part 482 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh). 

24. Section 482.12 is amended by 

adding a new paragraph (g) to read as 

follows: 

§ 482.12 Condition of participation: 

Governing body. 

* * * * * 

(g) Standard: Inpatient rights. A 

hospital must have the capacity to 

provide assessment and initial treatment 

for all patients and the ability to refer 

and transfer patients to hospitals with 

capabilities to treat the needs of the 

patient that the hospital is unable to 

address. 

PART 489—PROVIDER AGREEMENTS 

AND SUPPLIER APPROVAL 

25. The authority citation for Part 489 

continues to read as follows: 

Authority: Secs. 1102, 1819, 1820(e), 1861, 

1864(m), 1866, 1869, and 1871 of the Social 

Security Act (42 U.S.C. 1302, 1395i–3, 1395x, 

1395aa(m), 1395cc, 1395ff, and 1395hh). 

26. Section 489.20 is amended by— 

a. Republishing the introductory text 

of paragraph (u). 

b. Revising paragraph (u)(1). 

c. Revising paragraph (u)(2). 

d. Adding a new paragraph (u)(3). 

e. Revising paragraph (w). 

The revisions and addition read as 

follows: 

§ 489.20 Basic commitments. 

* * * * * 

(u) Except as provided in paragraph 

(v) of this section, in the case of a 

physician-owned hospital as defined at 

§ 489.3— 

(1)(i) To furnish written notice to each 

patient at the beginning of the patient’s 

hospital stay or outpatient visit that the 

hospital is a physician-owned hospital, 

in order to assist the patient in making 

an informed decision regarding his or 

her care, in accordance with 

§ 482.13(b)(2) of this subchapter. The 

notice should disclose, in a manner 

reasonably designed to be understood 

by all patients, the fact that the hospital 

meets the Federal definition of a 

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physician-owned hospital specified in 

§ 489.3 and that the list of the hospital’s 

owners or investors who are physicians 

or immediate family members (as 

defined at § 411.351 of this chapter) of 

physicians is available upon request and 

must be provided to the patient at the 

time the request for the list is made by 

or on behalf of the patient. For purposes 

of this paragraph (u)(1), the hospital stay 

or outpatient visit begins with the 

provision of a package of information 

regarding scheduled preadmission 

testing and registration for a planned 

hospital admission for inpatient care or 

an outpatient service; and 

(ii) To disclose on any public Web site 

for the hospital and in any public 

advertising that the hospital is owned or 

invested in by physicians. 

(2) To require each physician who is 

a member of the hospital’s medical staff 

to agree, as a condition of continued 

medical staff membership or admitting 

privileges, to disclose, in writing, to all 

patients the physician refers to the 

hospital any ownership or investment 

interest in the hospital that is held by 

the physician or by an immediate family 

member (as defined at § 411.351 of this 

chapter) of the physician, and any 

ownership or investment interest in the 

hospital by the patient’s treating 

physician(s). Disclosure must be 

required at the time the referral is made. 

(3) To ensure that the hospital does 

not condition any physician ownership 

or investment interests either directly or 

indirectly on the physician owner or 

investor making or influencing referrals 

to the hospital or otherwise generating 

business for the hospital. 

* * * * * 

(w)(1) In the case of a hospital as 

defined in § 489.24(b), to furnish written 

notice to all patients at the beginning of 

their hospital stay or outpatient visit if 

a doctor of medicine or a doctor of 

osteopathy is not present in the hospital 

24 hours per day, 7 days per week, in 

order to assist the patients in making 

informed decisions regarding their care, 

in accordance with § 482.13(b)(2) of this 

subchapter. The notice must indicate 

how the hospital will meet the medical 

needs of any patient who develops an 

emergency medical condition, as 

defined in § 489.24(b), at a time when 

there is no physician present in the 

hospital. For purposes of this paragraph, 

the hospital stay or outpatient visit 

begins with the provision of a package 

of information regarding scheduled 

preadmission testing and registration for 

a planned hospital admission for 

inpatient care or outpatient service. 

(2) Before admitting a patient or 

providing an outpatient service, the 

hospital must receive a signed 

acknowledgment from the patient 

stating that the patient understands that 

a physician may not be present during 

all hours services are furnished to the 

patient. 

* * * * * 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; Program No. 93.774, Medicare— 

Supplementary Medical Insurance Program; 

andProgram No. 93.778 (Medical Assistance) 

Dated: June 24, 2010. 

Marilyn Tavenner, 

Acting Administrator and Chief Operating 

Officer, Centers for Medicare & Medicaid 

Services. 

Dated: June 30, 2010 

Kathleen Sebelius, 

Secretary. 

BILLING CODE 4120–01–P 

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WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.635</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46519 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.636</GPH>
46520 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.637</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46521 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.638</GPH>
46522 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.639</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46523 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.640</GPH>
46524 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.641</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46525 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.642</GPH>
46526 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.643</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46527 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.644</GPH>
46528 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.645</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46529 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.646</GPH>
46530 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.647</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46531 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.648</GPH>
46532 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.649</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46533 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.650</GPH>
46534 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.651</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46535 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.652</GPH>
46536 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.653</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46537 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.654</GPH>
46538 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.655</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46539 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.656</GPH>
46540 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.657</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46541 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.658</GPH>
46542 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.659</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46543 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.660</GPH>
46544 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.661</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46545 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.662</GPH>
46546 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.663</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46547 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.664</GPH>
46548 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.665</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46549 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.666</GPH>
46550 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.667</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46551 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.668</GPH>
46552 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.669</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46553 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.670</GPH>
46554 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.671</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46555 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.672</GPH>
46556 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.673</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46557 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.674</GPH>
46558 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.675</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46559 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.676</GPH>
46560 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.677</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46561 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.678</GPH>
46562 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.679</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46563 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.680</GPH>
46564 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.681</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46565 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.682</GPH>
46566 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.683</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46567 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.684</GPH>
46568 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.685</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46569 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.686</GPH>
46570 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.687</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46571 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.688</GPH>
46572 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.689</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46573 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.690</GPH>
46574 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.691</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46575 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.692</GPH>
46576 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.693</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46577 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.694</GPH>
46578 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.695</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46579 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.696</GPH>
46580 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.697</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46581 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.698</GPH>
46582 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.699</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46583 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.700</GPH>
46584 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.701</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46585 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.702</GPH>
46586 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.703</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46587 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.704</GPH>
46588 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.705</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46589 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.706</GPH>
46590 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.707</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46591 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.708</GPH>
46592 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.709</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46593 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.710</GPH>
46594 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.711</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46595 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.712</GPH>
46596 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.713</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46597 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.714</GPH>
46598 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.715</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46599 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.716</GPH>
46600 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.717</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46601 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.718</GPH>
46602 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.719</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46603 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.720</GPH>
46604 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.721</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46605 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.722</GPH>
46606 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.723</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46607 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.724</GPH>
46608 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.725</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46609 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.726</GPH>
46610 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.727</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46611 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.728</GPH>
46612 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.729</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46613 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.730</GPH>
46614 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.731</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46615 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.732</GPH>
46616 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.733</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46617 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.734</GPH>
46618 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.735</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46619 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.736</GPH>
46620 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.737</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46621 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.738</GPH>
46622 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.739</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46623 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.740</GPH>
46624 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.741</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46625 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.742</GPH>
46626 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.743</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46627 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.744</GPH>
46628 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.745</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46629 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.746</GPH>
46630 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.747</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46631 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.748</GPH>
46632 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.749</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46633 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.750</GPH>
46634 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.751</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46635 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.752</GPH>
46636 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.753</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46637 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.754</GPH>
46638 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.755</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46639 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.756</GPH>
46640 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.757</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46641 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.758</GPH>
46642 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.759</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46643 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.760</GPH>
46644 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.761</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46645 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.762</GPH>
46646 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.763</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46647 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.764</GPH>
46648 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.765</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46649 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.766</GPH>
46650 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.767</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46651 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.768</GPH>
46652 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.769</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46653 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.770</GPH>
46654 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.771</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46655 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.772</GPH>
46656 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.773</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46657 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.774</GPH>
46658 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.775</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46659 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.776</GPH>
46660 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.777</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46661 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.778</GPH>
46662 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.779</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46663 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.780</GPH>
46664 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.781</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46665 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.782</GPH>
46666 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.783</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46667 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.784</GPH>
46668 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.785</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46669 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.786</GPH>
46670 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.787</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46671 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.788</GPH>
46672 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.789</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46673 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.790</GPH>
46674 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.791</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46675 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.792</GPH>
46676 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.793</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46677 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.794</GPH>
46678 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.795</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46679 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.796</GPH>
46680 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.797</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46681 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.798</GPH>
46682 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.799</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46683 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.800</GPH>
46684 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.801</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46685 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.802</GPH>
46686 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.803</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46687 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.804</GPH>
46688 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.805</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46689 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.806</GPH>
46690 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.807</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46691 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.808</GPH>
46692 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.809</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46693 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.810</GPH>
46694 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.811</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46695 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.812</GPH>
46696 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.813</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46697 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.814</GPH>
46698 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.815</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46699 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.816</GPH>
46700 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.817</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46701 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.818</GPH>
46702 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.819</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46703 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.820</GPH>
46704 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.821</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46705 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.822</GPH>
46706 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.823</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46707 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.824</GPH>
46708 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.825</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46709 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.826</GPH>
46710 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.827</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46711 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.828</GPH>
46712 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.829</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46713 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.830</GPH>
46714 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.831</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46715 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.832</GPH>
46716 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.833</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46717 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.834</GPH>
46718 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.835</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46719 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.836</GPH>
46720 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.837</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46721 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.838</GPH>
46722 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.839</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46723 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.840</GPH>
46724 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.841</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46725 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.842</GPH>
46726 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.843</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46727 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.844</GPH>
46728 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.845</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46729 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.846</GPH>
46730 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.847</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46731 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.848</GPH>
46732 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.849</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46733 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.850</GPH>
46734 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.851</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46735 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.852</GPH>
46736 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.853</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46737 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.854</GPH>
46738 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.855</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46739 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.856</GPH>
46740 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.857</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46741 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.858</GPH>
46742 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.859</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46743 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.860</GPH>
46744 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.861</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46745 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.862</GPH>
46746 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.863</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46747 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.864</GPH>
46748 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.865</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46749 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.866</GPH>
46750 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.867</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46751 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.868</GPH>
46752 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.869</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46753 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.870</GPH>
46754 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.871</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46755 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.872</GPH>
46756 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.873</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46757 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.874</GPH>
46758 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.875</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46759 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.876</GPH>
46760 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.877</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46761 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.878</GPH>
46762 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.879</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46763 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.880</GPH>
46764 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.881</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46765 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.882</GPH>
46766 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.883</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46767 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.884</GPH>
46768 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.885</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46769 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.886</GPH>
46770 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.887</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46771 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.888</GPH>
46772 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.889</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46773 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.890</GPH>
46774 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.891</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46775 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.892</GPH>
46776 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.893</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46777 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.894</GPH>
46778 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.895</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46779 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.896</GPH>
46780 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.897</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46781 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.898</GPH>
46782 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.899</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46783 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.900</GPH>
46784 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.901</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46785 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.902</GPH>
46786 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.903</GPH>
Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46787 


WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2EP03AU10.904</GPH>
46788 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


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Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46789 


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46790 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


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Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46791 


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46792 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


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Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46793 


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46794 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


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Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46795 


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46796 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


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Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46797 


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46798 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


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Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46799 


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46800 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


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Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46801 


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46802 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


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Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46803 


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46804 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


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Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46805 


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46806 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


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Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46807 


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46808 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


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Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46809 


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46810 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


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Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46811 


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Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46813 


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Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46815 


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Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46817 


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Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46819 


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Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46827 


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46828 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


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Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46829 


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46830 Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 


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Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / Proposed Rules 46831 

[FR Doc. 2010–16448 Filed 7–2–10; 2:30 pm] 

BILLING CODE 4120–01–P 


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