GAO-02-221R

United States General Accounting Office

Washington, DC 20548

B-289299

November 19, 2001

The Honorable Max Baucus

Chairman

The Honorable Chuck Grassley

Ranking Minority Member

Committee on Finance

United States Senate

The Honorable W.J. “Billy” Tauzin

Chairman

The Honorable John D. Dingell

Ranking Minority Member

Committee on Energy and Commerce

House of Representatives

The Honorable Bill Thomas

Chairman

The Honorable Charles B. Rangel

Ranking Minority Member

Committee on Ways and Means

House of Representatives

Subject: Department of Health and Human Services, Centers for Medicare and

Medicaid Services: Medicare Program; Announcement of the Calendar Year

2002 Conversion Factor for the Hospital Outpatient Prospective Payment

System and a Pro Rata Reduction on Transitional Pass-Through Payments

Pursuant to section 801(a)(2)(A) of title 5, United States Code, this is our report on a

major rule promulgated by the Department of Health and Human Services, Centers

for Medicare and Medicaid Services (CMS), entitled “Medicare Program;

Announcement of the Calendar Year 2002 Conversion Factor for the Hospital

Outpatient Prospective Payment System and a Pro Rata Reduction on Transitional

Pass-Through Payments” (RIN: 0938-AK54). We received the rule on November 5,

2001. It was published in the Federal Register as a final rule on November 2, 2001.

66 Fed. Reg. 55857.

The final rule announces the Medicare hospital outpatient prospective payment

system conversion factor for calendar year (CY) 2002. In addition, it describes the

Secretary’s estimate of the total amount of transitional pass-through payments for
Page 2 GAO-02-221R

CY 2002 and the implementation of a uniform reduction in each of the pass-through

payments for that year.

Enclosed is our assessment of the CMS’ compliance with the procedural steps

required by section 801(a)(1)(B)(i) through (iv) of title 5 with respect to the rule.

Our review indicates that the CMS complied with the applicable requirements.

If you have any questions about this report, please contact James W. Vickers,

Assistant General Counsel, at (202) 512-8210. The official responsible for GAO

evaluation work relating to the subject matter of the rule is William Scanlon,

Director, Health Care. Mr. Scanlon can be reached at (202) 512-7114.

signed

Kathleen E. Wannisky

Managing Associate General Counsel

Enclosure

cc: Ann Stallion

Regulations Coordinator

Department of Health and Human Services
GAO-02-221R

ENCLOSURE

ANALYSIS UNDER 5 U.S.C. § 801(a)(1)(B)(i)-(iv) OF A MAJOR RULE

ISSUED BY THE

DEPARTMENT OF HEALTH AND HUMAN SERVICES,

CENTERS FOR MEDICARE AND MEDICAID SERVICES

ENTITLED

"MEDICARE PROGRAM; ANNOUNCEMENT OF THE CALENDAR YEAR 2002

CONVERSION FACTOR FOR THE HOSPITAL OUTPATIENT PROSPECTIVE

PAYMENT SYSTEM AND A PRO RATA REDUCTION ON

TRANSITIONAL PASS-THROUGH PAYMENTS"

(RIN: 0938-AK54)

(i) Cost-benefit analysis

CMS concludes that the total impact of this final rule for calendar year 2002

payments compared to calendar year 2001 payments will be an increase of

approximately $400 million. CMS estimates that the total amount of pass-through

payments for 2002 would be $2.26 billion if CMS did not fold in costs of pass-through

devices in the base ambulatory payment classification rates. Of that amount,

approximately $0.37 million represents payments for drugs and biologicals and

$1.89 billion represents payments for medical devices.

In calendar year 2002, the outpatient prospective payment system’s total payments

are estimated to be $17.5 billion. Because the estimate of pass-through payments

exceeds 2.5 percent of the estimated total payments, which is approximately $437

million (2.5 percent of $17.5 billion), CMS must implement a uniform reduction of all

pass-through payments.

(ii) Agency actions relevant to the Regulatory Flexibility Act, 5 U.S.C. §§ 603-605,

607, and 609

CMS performed a Final Regulatory Flexibility Analysis in conjunction with its

analysis of the costs of the final rule and concludes that the final rule affects both a

substantial number of rural hospitals as well as other classes of hospitals and the

effects on some may be significant. In the analysis, CMS discusses how it has

attempted to mitigate the effects of the significant pro rata reduction.

(iii) Agency actions relevant to sections 202-205 of the Unfunded Mandates Reform

Act of 1995, 2 U.S.C. §§ 1532-1535

The final rule does not contain either an intergovernmental or private sector

mandate, as defined in title II, of more than $100 million in any one year.
Page 2 GAO-02-221R

(iv) Other relevant information or requirements under acts and executive orders

Administrative Procedure Act, 5 U.S.C. §§ 551 et seq.

The final rule was issued using the notice and comment procedures contained at

5 U.S.C. 553. On August 24, 2201, CMS published a Notice of Proposed Rulemaking

in the Federal Register. 66 Fed. Reg. 44672. CMS received 400 items of

correspondence containing multiple comments on the proposed rule and discusses

these comments in the preamble to the final rule.

Paperwork Reduction Act, 44 U.S.C. §§ 3501-3520

The final rule does not contain any information collections that are subject to review

by the Office of Management and Budget under the Paperwork Reduction Act.

Statutory authorization for the rule

The final rule is promulgated under the authority contained in section 1102, 1833(t)

and 1871 of the Social Security Act (42 U.S.C. 1302, 1395(t) and 1395hh).

Executive Order No. 12866

The final rule was reviewed by the Office of Management and Budget and found to

be an “economically significant” regulatory action.

Executive Order No. 13132 (Federalism)

The final rule does not have sufficient federalism implications to warrant the

preparation of a federalism assessment.