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[Federal Register Volume 65, Number 127 (Friday, June 30, 2000)]
[Rules and Regulations]
[Pages 40535-40537]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-16586]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

Office of Inspector General

42 CFR Parts 409, 410, 411, 412, 413, 419, 424, 489, 498, and 1003

[HCFA-1005-N5]
RIN 0938-AI56

Medicare Program; Prospective Payment System for Hospital 
Outpatient Services; Delay of Effective Date

AGENCY: Health Care Financing Administration (HCFA), HHS, and Office of 
Inspector General (OIG), HHS.

ACTION: Notice of delay of effective date for final rule with comment 
period.

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SUMMARY: This document delays the effective date on a final rule with 
comment period published in the Federal Register on April 7, 2000 (65 
FR 18434). That rule implemented a prospective payment system for 
hospital outpatient services furnished to Medicare beneficiaries, as 
set forth in section 1833(t) of the Social Security Act. It also 
established requirements for provider departments and provider-based 
entities, and it implemented section 9343(c) of the Omnibus Budget 
Reconciliation Act of 1986, which prohibits Medicare payment for 
nonphysician services furnished to a hospital outpatient by a provider 
or supplier other than a hospital, unless the services are furnished 
under an arrangement with the hospital. In addition, the rule 
established in regulations the extension of reductions in payment for 
costs of hospital outpatient services required by section 4522 of the 
Balanced Budget Act of 1997, as amended by section 201(k) of the 
Balanced Budget Refinement Act of 1999. The effective date is delayed 
from July 1, 2000 to August 1, 2000.

DATES: Effective date: August 1, 2000, except that the changes to 
Sec. 412.24(d)(6), new Sec. 413.65, and the changes to Sec. 489.24(h), 
Sec. 498.2, and Sec. 498.3 are effective October 10, 2000.
    Applicability date: For Medicare services furnished by hospitals 
that are subject to the prospective payment system, including hospitals 
excluded from the inpatient prospective payment system, and by 
community mental health centers, the applicability date for 
implementation of the hospital outpatient prospective payment system is 
August 1, 2000.

FOR FURTHER INFORMATION CONTACT: Janet Wellham, (410) 786-4510.

SUPPLEMENTARY INFORMATION:

I. Background

    On April 7, 2000, we issued a final rule with comment period in the 
Federal Register (65 FR 18434) that reflected the provisions of the 
September 8, 1998 proposed rule (63 FR

[[Page 40536]]

47552), except as noted in the preamble of the April 2000 rule (65 FR 
18527).
    Based on the following concerns, we have decided to delay the 
effective date of the April 2000 final rule until August 1, 2000.
    In order to implement the prospective payment system (PPS), we have 
had to make a major change to the current claims processing system. 
This change, called the claims expansion and line item processing 
(CELIP), expands the electronic version of the claim form used by 
hospitals to submit claims to the automated bill processing systems to 
correctly determine the Medicare payment and beneficiary copayment 
amounts for outpatient services under PPS. Because a beneficiary can 
receive many outpatient services during one hospital visit and the 
payment system must properly group all the services furnished in one 
visit to accurately calculate Medicare's payment and the beneficiary's 
copayment, it was necessary to expand the electronic claim form to 
greatly increase the number of line items a hospital can bill for any 
one visit as well as provide for adjudication of each individual line 
item on the claim. As noted in the final rule with comment period, the 
CELIP is a necessary prerequisite for implementing outpatient PPS (65 
FR 18488).
    During most of 1998 and for all of 1999, HCFA, along with other 
government agencies and private sector companies throughout the world, 
focused its technology resources on ensuring the Y2K compliance of its 
computer systems. After meeting the challenges posed by Y2K, HCFA then 
resumed other systems work, including testing implementation of the 
CELIP. As we began testing the CELIP, some unanticipated problems 
arose, resulting in a need for reprogramming and testing the systems 
changes. Although we originally believed that the problems could be 
corrected in time to implement the PPS on July 1 as provided in the 
April final rule with comment period, we have concluded based on more 
recent testing and adjustment that it is virtually impossible for the 
new payment system to be effectively implemented on July 1 as we had 
planned. We address below some of the problems HCFA, its contractors, 
and hospitals encountered in transitioning to the new outpatient PPS 
payment system that have necessitated a change in effective date for 
implementation of that payment system.
    Expanding the number of line items on the electronic claim form 
from the current 56 to the 450 needed to implement the PPS caused 
serious problems for HCFA's computer systems. When we attempted to 
program this change, we found that our computer systems could not 
accommodate the expanded claim form. As a result, we had to split the 
claim form into four different files, expending time and programming 
resources for tasks we had not anticipated. We encountered similar 
problems in installing the outpatient code editor (OCE). The OCE is 
also a critical component of the system we use to pay outpatient 
claims. The OCE edits claim data to identify errors and returns edit 
flags when appropriate. It also assigns the Ambulatory Payment 
Classification (APC) number. Each APC is comprised of services that are 
similar clinically and which require similar hospital resources. The 
APC is supplied by the OCE to the pricing program that calculates a 
payment rate for each APC. We found that the OCE did not fit into the 
configuration management tool that governs the size of the software 
used by each computer system to make payment under the PPS. As a 
result, the tables in the OCE were reconfigured as with the claim form, 
and we had to split the OCE into segments to allow it to work with 
HCFA's computer systems. Because of these and similar problems, the 
testing of our computer systems with the CELIP installed had to be 
repeated a number of times. (In the testing mode in which we were 
operating, this did not cause any disruptions to payments made under 
current payment methodologies.)
    As noted above, the CELIP was a necessary prerequisite for the 
systems changes that will actually implement the new PPS payment 
methodology. The OCE and CELIP have now been released to 
intermediaries, although we continue to test and refine CELIP further. 
Now that the CELIP has been released, we must make and fully test the 
PPS methodology systems changes before implementation to ensure that we 
make accurate payments. It is not feasible to complete this work 
consistent with a July 1 effective date for the PPS.
    A one-month delay in the effective date of the PPS will also allow 
hospitals to have sufficient time to adjust to the programming changes 
necessary to implement the new payment system. Hospitals need 
sufficient time after HCFA completes its programming changes to 
complete modifications of their own systems, test those systems in 
interaction with HCFA's new systems, and train their personnel on use 
of the new systems. As previously discussed, these activities have been 
delayed due to problems with various required systems changes and 
modifications to the OCE, the magnitude of which was not known when we 
published the April 2000 final rule with comment period.
    We acknowledge that unavoidable delays in software development by 
HCFA have impeded the ability of the hospital industry to fully prepare 
for implementation of outpatient PPS. We have been informed by 
hospitals and major hospital associations that, given these programming 
delays that HCFA has encountered, maintaining the current effective 
date for the PPS would virtually ensure that hospitals would not be 
able to implement the PPS accurately. A brief delay in the effective 
date would allow the industry more time for training and preparation 
for what we hope will be a fully operational PPS, which would in turn 
help reduce the number of errors or other problems that might occur as 
hospitals transition to the new PPS.
    We are intensifying our efforts to provide clear and accurate 
training to fiscal intermediaries, hospitals, and community mental 
health centers. On June 15, 2000, we held a national satellite 
broadcast to assist hospitals in preparing for implementation. We are 
also compiling a booklet of ``Frequently Asked Questions and Answers'' 
that will be available both on the internet and in printed form. Other 
efforts include reconfiguring the PPS materials on the HCFA web site to 
facilitate access to relevant program instructions, training documents, 
and other materials. In July 2000, we plan to host a face-to-face town 
hall meeting at the HCFA headquarters in Baltimore, Maryland. The 
purpose of this meeting will be to respond to any remaining concerns 
about the implementation of the new system. To assure that our fiscal 
intermediaries remain up-to-date, and that we can respond to any 
contractor concerns, we are continuing our weekly conference calls with 
them and will also provide them with a video to update their training. 
We also plan to continue our weekly teleconferences with hospital and 
beneficiary associations to keep them abreast of our implementation 
schedule, and to answer any questions.
    We considered, but rejected as unworkable, contingency plans that 
we hoped might have allowed us to meet the July 1 effective date. Under 
these plans, we might have been able to meet the effective date even 
though we would not have been able to implement the PPS on that date. 
Under this scenario, we would have had to either request hospitals to 
hold claims until our systems were ready or hold the claims ourselves. 
We concluded that we could not request hospitals to hold their claims, 
thus interrupting their stream of

[[Page 40537]]

payment for outpatient services for a potentially significant period of 
time. In addition, many of our intermediaries do not have sufficient 
electronic storage space to hold claims for nearly as long as it will 
take for our systems to be fully tested.
    Even if sufficient storage capacity were available, holding claims 
until HCFA was fully able to implement the PPS would lead to problems. 
These would have included extensive operational delays at the 
intermediaries to process and pay the claims once the software became 
available. Considerable risk of improper or inaccurate payment exists 
in later working off what would be a crippling backlog of held claims 
in an expedited manner. Therefore, given our need to accurately program 
and test the PPS, it would not be feasible, given our operational 
limitations, to maintain the previous July 1 effective date. Because of 
the uncertainty for providers, beneficiaries, and HCFA contractors that 
would be caused by holding claims for any significant period of time, 
we do not believe that such a course of action provides a viable 
alternative to a brief delay in the effective date of the PPS.
    We had hoped and planned to be able to implement the PPS on July 1, 
2000 as stated in the April final rule with comment period. We regret 
that we must postpone the benefits of the new payment system for 
beneficiaries, even for only one month. Nevertheless, because of the 
significance of the considerations discussed above and the unacceptable 
risk to the successful implementation of the PPS that would be incurred 
if we chose to move forward as originally planned and implement the PPS 
on July 1, we have recognized the need to postpone the effective date 
announced in the April rule.
    As stated earlier, the changes to Sec. 412.24(d)(6), new 
Sec. 413.65, and the changes to Sec. 489.24(h), Sec. 489.2 and 
Sec. 489.3 will still be effective on October 10, 2000.

II. Impact Statement

    In the April 7, 2000 final rule, we discussed the changes the BBA 
and BBRA will have on payments to hospitals and beneficiaries. Because 
we are delaying the implementation of the final rule, the current 
payment rates required under pre-BBA rules will remain in effect for an 
additional 32 days which may have a significant impact on a substantial 
number of small entities.

(Catalog of Federal Domestic Assistance 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: June 22, 2000.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.
    Dated: June 23, 2000.
Michael F. Mangano,
Principal Deputy Inspector General, Department of Health and Human 
Services.
    Approved: June 23, 2000.
Donna E. Shalala,
Secretary.
[FR Doc. 00-16586 Filed 6-29-00; 8:45 am]
BILLING CODE 4120-01-P
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