Monday, 

November 15, 2004 

Book 2 of 4 Books 

Pages 65681–66234 

Part II 

Department of 

Health and Human 

Services 

Centers for Medicare & Medicaid Services 

42 CFR Part 419 

Medicare Program; Changes to the 

Hospital Outpatient Prospective Payment 

System and Calendar Year 2005 Rates; 

Final Rule 

65682 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 419 

[CMS–1427–FC] 

RIN 0938–AM75 

Medicare Program; Changes to the 

Hospital Outpatient Prospective 

Payment System and Calendar Year 

2005 Payment Rates

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS.

ACTION: Final rule with comment period.

SUMMARY: This final rule with comment 

period revises the Medicare hospital 

outpatient prospective payment system 

to implement applicable statutory 

requirements and changes arising from 

our continuing experience with this 

system and to implement certain related 

provisions of the Medicare Prescription 

Drug, Improvement, and Modernization 

Act (MMA) of 2003. In addition, the 

final rule with comment period 

describes final changes to the amounts 

and factors used to determine the 

payment rates for Medicare hospital 

outpatient services paid under the 

prospective payment system. These 

changes are applicable to services 

furnished on or after January 1, 2005. 

In this final rule with comment 

period, we are responding to public 

comments received on the January 6, 

2004 interim final rule with comment 

period relating to MMA provisions that 

were effective January 1, 2004, and 

finalizing those policies. Further, we are 

responding to public comments 

received on the November 7, 2003 final 

rule with comment period pertaining to 

the ambulatory payment classification 

assignment of Healthcare Common 

Procedure Coding System (HCPCS) 

codes identified in Addendum B of that 

rule with the new interim (NI) comment 

indicators (formerly referred to as 

condition codes).

DATES: Effective Date: This final rule 

with comment period is effective on 

January 1, 2005. 

Comment Date: We will consider 

comments on the ambulatory payment 

classification assignments of HCPCS 

codes identified in Addendum B with 

new interim comment codes and other 

areas specified throughout this 

preamble, if we receive them at the 

appropriate address, as provided below 

no later than 5 p.m. on January 14, 2005.

ADDRESSES: In commenting, please refer 

to file code CMS–1427–FC. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

three ways (no duplicates, please): 

1. Electronically 

You may submit electronic comments 

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

ecomments (Attachments should be in 

Microsoft Word, WordPerfect, or Excel; 

however, we prefer Microsoft Word). 

2. By Mail 

You may mail written comments (one 

original and two copies) to the following 

address only: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–1427–FC, P.O. Box 8010, 

Baltimore, MD 21244–8018. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By Hand or Courier 

If you prefer, you may deliver (by 

hand or courier) your written comments 

(one original and two copies) before the 

close of the comment period to one of 

the following addresses. If you intend to 

deliver your comments to the Baltimore 

address, please call telephone number 

(410) 786–7195 in advance to schedule 

your arrival with one of our staff 

members. Room 445–G, Hubert H. 

Humphrey Building, 200 Independence 

Avenue, SW., Washington, DC 20201, or 

7500 Security Boulevard, Baltimore, MD 

21244–1850.

(Because access to the interior of the 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 proof of filing by 

stamping in and retaining an extra copy of 

the comments being filed.)

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

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. After the close of the 

comment period, CMS posts all 

electronic comments received before the 

close of the comment period on its 

public website. Written comments 

received timely will be available for 

public inspection as they are received, 

generally beginning approximately 4 

weeks after publication of a document, 

at the headquarters of the Centers for 

Medicare & Medicaid Services, 7500 

Security Boulevard, Baltimore, MD 

21244, Monday through Friday of each 

week from 8:30 a.m. to 4 p.m. To 

schedule an appointment to view public 

comments, phone (410) 786–7195.

FOR FURTHER INFORMATION CONTACT:

Dana Burley, (410) 786–0378, 

Outpatient prospective payment issues 

and Suzanne Asplen, (410) 786–4558, 

Partial hospitalization and community 

mental health center issues.

SUPPLEMENTARY INFORMATION: 

Availability of Copies and Electronic 

Access 

Copies: To order copies of the Federal 

Register containing this document, send 

your request to: New Orders, 

Superintendent of Documents, PO Box 

371954, Pittsburgh, PA 15250–7954. 

Specify the date of the issue requested 

and enclose a check or money order 

payable to the Superintendent of 

Documents, or enclose your Visa or 

Master Card number and expiration 

date. Credit card orders can also be 

placed by calling the order desk at (202) 

512–1800 (or toll-free at 1–888–293–

6498) or by faxing to (202) 512–2250. 

The cost for each copy is $10. As an 

alternative, you can view and 

photocopy the Federal Register

document at most libraries designated 

as Federal Depository Libraries and at 

many other public and academic 

libraries throughout the country that 

receive the Federal Register. 

This Federal Register document is 

also available from the Federal Register

online database through GPO Access, a 

service of the U.S. Government Printing 

Office. The Web site address is: http://

www.gpoaccess.gov/fr/index.html.

Alphabetical List of Acronyms Appearing in 

the Final Rule With Comment Period 

ACEP—American College of Emergency 

Physicians 

AHA—American Hospital Association 

AHIMA—American Health Information 

Management Association 

AMA—American Medical Association 

APC—Ambulatory payment classification 

AMP—Average manufacturer price 

ASP—Average sales price 

ASC—Ambulatory surgical center 

AWP—Average wholesale price 

BBA—Balanced Budget Act of 1997, Public 

Law 105–33 

BIPA—Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection 

Act of 2000, Public Law 106–554 

BBRA—Medicare, Medicaid, and SCHIP 

Balanced Budget Refinement Act of 

1999, Public Law 106–113 

CAH—Critical access hospital 

CCR—(Cost center specific) cost-to-charge 

ratio 

CMHC—Community mental health center 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65683

CMS—Centers for Medicare & Medicaid 

Services (formerly known as the Health 

Care Financing Administration) 

CORF—Comprehensive outpatient 

rehabilitation facility 

CPT—[Physicians’] Current Procedural 

Terminology, Fourth Edition, 2004, 

copyrighted by the American Medical 

Association 

CRNA—Certified registered nurse anesthetist 

CY—Calendar year 

DMEPOS—Durable medical equipment, 

prosthetics, orthotics, and supplies 

DMERC—Durable medical equipment 

regional carrier 

DRG—Diagnosis-related group 

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 

FDA—Food and Drug Administration 

FI—Fiscal intermediary 

FSS—Federal Supply Schedule 

FY—Federal fiscal year 

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 

ICD–9–CM—International Classification of 

Diseases, Ninth Edition, Clinical 

Modification 

IME—Indirect medical education 

IPPS—(Hospital) inpatient prospective 

payment system 

IVIG—Intravenous immune globulin 

LTC—Long-term care 

MedPAC—Medicare Payment Advisory 

Commission 

MDH—Medicare-dependent hospital 

MMA—Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003, Public Law 108–173 

MSA—Metropolitan Statistical Area 

NCCI—National Correct Coding Initiative 

NCD—National Coverage Determination 

OCE—Outpatient code editor

OMB—Office of Management and Budget 

OPD—(Hospital) outpatient department 

OPPS—(Hospital) outpatient prospective 

payment system 

PET—Positron Emission Tomography 

PHP—Partial hospitalization program 

PM—Program memorandum 

PPI—Producer Price Index 

PPS—Prospective payment system 

PPV—Pneumococcal pneumonia (virus) 

PRA—Paperwork Reduction Act 

QIO—Quality Improvement Organization 

RFA—Regulatory Flexibility Act 

RRC—Rural referral center 

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

To assist readers in referencing 

sections contained in this document, we 

are providing the following outline of 

contents:

Outline of Contents 

I. Background 

A. Legislative and Regulatory Authority for 

the Outpatient Prospective Payment 

System 

B. Excluded OPPS Services and Hospitals 

C. Prior Rulemaking 

D. APC Advisory Panel 

1. Authority for the APC Panel 

2. Establishment of the APC Panel 

3. APC Panel Meetings and Organizational 

Structure 

E. Provisions of the Medicare Prescription 

Drug, Improvement, and Modernization 

Act of 2003 

F. Summary of the Provisions of the 

August 16, 2004 Proposed Rule 

G. Public Comments Received on the 

August 16, 2004 Proposed Rule 

H. Public Comments Received on the 

January 6, 2004 Interim Final Rule with 

Comment Period 

I. Public Comments Received on the 

November 7, 2003 Final Rule with 

Comment Period 

II. Changes Related to Ambulatory Payment 

Classifications (APCs) 

A. APC Changes: General 

B. APC Panel Review and 

Recommendations 

1. February 2004 Panel Meeting. 

2. September 2004 Panel Meeting 

3. Contents of This Section of the Preamble 

4. APC 0018: Biopsy of Skin/Puncture of 

Lesion 

5. Level I and II Arthroscopy 

6. Angiography and Venography Except 

Extremity 

a. February 2004 Panel Meeting 

b. Public Comments Received 

c. Final Policy for CY 2005 

7. Packaged Codes in APCs 

C. Limits on Variations Within APCs: 

Application of the 2 Times Rule 

1. Cardiac and Ambulatory Blood Pressure 

Monitoring 

2. Electrocardiograms 

3. Excision/Biopsy 

4. Posterior Segment Eye Procedures 

5. Laparoscopy 

6. Anal/Rectal Procedures 

7. Nerve Injections 

8. Anterior Segment Eye Procedures 

9. Pathology 

10. Immunizations 

11. Pulmonary Tests 

12. Clinic Visits 

13. Other APC Assignment Issues 

a. Catheters for Brachytherapy Services 

b. Peripherally Inserted Central Catheters 

(PICC) 

c. External Fixation Devices 

d. Apheresis 

e. Imaging for Intravenous Cholangiogram 

(IVC) Filter Placement and Breast Biopsy 

f. Hysteroscopic Endometrial Ablation 

Procedures 

g. Hysteroscopic Female Sterilization 

h. Urinary Bladder Residual Study 

i. Intracranial Studies, Electrodiagnostic 

Testing, Autonomic Testing, and EEG 

j. Therapeutic Radiation Treatment 

k. Hyperthermia Procedures 

l. Physician Blood Bank Services 

m. Caloric Vestibular Test 

n. APC 0365—Level II Audiometry 

o. Noncoronary Intravascular Ultrasound 

(IVUS) 

p. Electronic Analysis of Neurostimulator 

Pulse Generators 

q. Endoscopic Ultrasound Services 

r. External Counterpulsation 

D. Exceptions to the 2 Times Rule 

E. Coding for Stereostatic Radiosurgery 

Services

1. Background 

2. Proposal for CY 2005 

3. Public Comments Received and 

Departmental Responses 

4. Final Policy for CY 2005 

F. Movement of Procedures from New 

Technology APCs to Clinically 

Appropriate APCs 

1. Background 

2. APC Panel Review and Recommendation 

3. Proposed and Final Policy for CY 2005 

a. Computerized Reconstruction CT of 

Aorta 

b. Left Ventricular Pacing, Lead and 

Connector 

c. Positron Emission Tomography (PET) 

Scans 

d. Bard Endoscopic Suturing System 

e. Stretta System 

f. Gastrointestinal Tract Capsule 

Endoscopy 

g. Proton Beam Therapy 

4. Public Comments Received Relating to 

Other New Technology APC Issues 

a. Computerized Reconstruction CT of 

Aorta 

b. Kyphoplasty 

c. Laser Treatment of Benign Prostatic 

Hyperplasia (BPH) 

d. Computerized Tomographic 

Angiography (CTA) 

e. Acoustic Heart Sound Services 

f. Laparoscopic Ablation Renal Mass 

g. Intrabeam Intra-Operative Therapy 

h. New Technology Process Issues 

G. Changes to the Inpatient List 

H. Assignment of ‘‘Unlisted’’ HCPCS Codes 

1. Background 

2. Proposed and Final Policies for CY 2005 

I. Addition of New Procedure Codes 

J. OPPS Changes Relating to Coverage of 

Initial Preventive Physical Examinations 

and Mammography under Public Law 

108–173 

1. Payment for Initial Preventive Physical 

Examinations (Section 611 of Pub. L. 

108–173) 

a. Background 

b. Amendments to Regulations 

c. Assignment of New HCPCS Codes for 

Payment of Initial Preventive Physical 

Examinations 

d. APC Assignment of Initial Preventive 

Physical Examinations 

2. Payment for Certain Mammography 

Services (Section 614 of Pub. L. 108–173) 

III. Recalibration of APC Relative Weights for 

CY 2005 

A. Database Construction 

65684 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

1. Treatment of Multiple Procedure Claims 

2. Use of Single Procedure Claims 

B. Calculation of Median Costs for CY 2005 

C. Adjustment of Median Costs for CY 2005 

1. Device-Dependent APCs 

a. APC 0226: Implantation of Drug Infusion 

Reservoir 

b. APC 0048: Arthroscopy with Prosthesis 

c. APC 0385: Level I Prosthetic Urological 

Procedures 

d. APC 0119: Implantation of Infusion 

Device and APC 0115: Cannula/Access 

Device Procedures 

2. Treatment of Specified APCs 

a. APC 0315: Level II Implantation of 

Neurostimulator 

b. APC 0651: Complex Interstitial 

Radiation Application 

c. APC 0659: Hyperbaric Oxygen Therapy 

3. Other APC Median Cost Issues 

a. APC 0312 Radioelement Applications 

b. Percutaneous Radiofrequency Ablation 

of Liver Tumors 

c. Heparin Coated Stents 

d. Aqueous Drainage Assist Device 

4. Required Use of C-Codes for Devices 

5. Submission of External Data 

D. Calculation of Scaled OPPS Payment 

Weights 

IV. Payment Changes For Devices 

A. Pass-Through Payments For Devices 

1. Expiration of Transitional Pass-Through 

Payments for Certain Devices 

2. Proposed and Final Policies for CY 2005 

B. Provisions for Reducing Transitional 

Pass-Through Payments to Offset Costs 

Packaged Into APC Groups 

1. Background 

2. Proposed and Final Policies for CY 2005 

C. Criteria for Establishing New PassThrough Device Categories 

V. Payment Changes for Drugs, Biologicals, 

and Radiopharmaceutical Agents, and 

Blood and Blood Products 

A. Transitional Pass-Through Payment for 

Additional Costs of Drugs and 

Biologicals 

1. Background 

2. Expiration in CY 2004 of Pass-Through 

Status for Drugs and Biologicals 

3. Drugs and Biologicals With PassThrough Status in CY 2005 

B. Drugs, Biologicals, and 

Radiopharmaceuticals Without PassThrough Status 

1. Background 

2. Criteria for Packaging Payment for 

Drugs, Biologicals, and 

Radiopharmaceuticals 

3. Payment for Drugs, Biologicals, and 

Radiopharmaceuticals Without PassThrough Status That Are Not Packaged 

a. Payment for Specified Covered 

Outpatient Drugs

b. Treatment of Three Sunsetting PassThrough Drugs as Specified Covered 

Outpatient Drugs 

c. CY 2005 Payment for Nonpass-Through 

Drugs, Biologicals, and 

Radiopharmaceuticals with HCPCS 

Codes But Without OPPS Hospital 

Claims Data 

d. Payment for Separately Payable 

Nonpass-Through Drugs and Biologicals 

e. CY 2005 Change in Payment Status for 

HCPCS Code J7308 

4. Public Comments Received on the 

January 6, 2004 Interim Final rule With 

Comment Period and Departmental 

Responses 

C. Coding and Billing for Specified 

Outpatient Drugs 

D. Payment for New Drugs, Biologicals, 

and Radiopharmaceuticals Before 

HCPCS Codes Are Assigned 

1. Background 

2. Provisions of Public Law 108–173 

E. Payment for Vaccines 

F. Changes in Payment for Single 

Indication Orphan Drugs 

G. Changes in Payment Policy for 

Radiopharmaceuticals 

H. Coding and Payment for Drug 

Administration 

I. Payment for Blood and Blood Products 

VI. Estimated Transitional Pass-Through 

Spending in CY 2005 for Drugs, 

Biologicals, and Devices 

A. Basis for Pro Rata Reduction 

B. Estimate of Pass-Through Spending for 

CY 2005 

VII. Other Policy Decisions and Policy 

Changes 

A. Statewide Average Default Cost-toCharge Ratios 

B. Transitional Corridor Payments: 

Technical Change 

C. Status Indicators and Comment 

Indicators Assigned in Outpatient Code 

Editor (OCE) 

1. Payment Status Indicators 

2. Comment Indicators 

D. Observation Services 

E. Procedures That Will be Paid Only as 

Inpatient Procedures 

F. Hospital Coding for Evaluation and 

Management Services 

1. Background 

2. Proposal for Evaluation and 

Management Guidelines 

G. Brachytherapy Payment Issues Related 

to Public Law 108–173 

1. Payment for Brachytherapy Sources 

(Section 621(b) of Pub. L. 108–173) 

2. HCPCS Codes and APC Assignments for 

Brachytherapy Sources 

H. Payment for APC 0375, Ancillary 

Outpatient Services When Patient 

Expires 

VIII. Conversion Factor Update for CY 2005 

IX. Wage Index Changes for CY 2005 

X. Determination of Payment Rates and 

Outlier Payments for CY 2005 

A. Calculation of the National Unadjusted 

Medicare Payment 

B. Hospital Outpatient Outlier Payments 

C. Payment for Partial Hospitalization 

1. Background 

2. PHP APC Update for CY 2005 

3. Separate Threshold for Outlier Payments 

to CMHCs 

D. General Public Comments 

XI. Beneficiary Copayments for CY 2005 

A. Background 

B. Copayment for CY 2005 

XII. Addendum Files Available to the Public 

Via Internet 

XIII. Collection of Information Requirements 

XIV. Regulatory Impact Analysis 

A. OPPS: General 

B. Impact of Changes in this Final Rule 

with Comment Period 

C. Alternatives Considered 

D. Limitations of Our Analysis 

E. Estimated Impacts of this Final Rule 

with Comment Period on Hospitals 

F. Projected Distribution of Outlier 

Payment 

G. Estimated Impacts of This Final Rule 

with Comment Period on Beneficiaries 

XV. Regulation Text 

Addenda 

Addendum A—List of Ambulatory Payment 

Classification (APCs) with Status 

Indicators, Relative Weights, Payment 

Rates, and Copayment Amounts for CY 

2005 

Addendum B—Payment Status by HCPCS 

Code and Related Information—CY 2005 

Addendum C—Healthcare Common 

Procedure Coding System (HCPCS) 

Codes by Ambulatory Payment 

Classification (APC) (Available only on 

CMS Web site via Internet. See section 

XIII. of the preamble of this final rule 

with comment period.) 

Addendum D1—Payment Status Indicators 

for Hospital Outpatient Prospective 

Payment System 

Addendum D2—Comment Indicators 

Addendum E—CPT Codes That Are Paid 

Only as Inpatient Procedures

I. Background 

A. Legislative and Regulatory Authority 

for the Outpatient Prospective Payment 

System 

When the Medicare statute was 

originally 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 cost-based payment 

methodology with a prospective 

payment system (PPS). The Balanced 

Budget Act of 1997 (BBA) (Pub. L. 105–

33), enacted on August 5, 1997, added 

section 1833(t) to the Social Security 

Act (the Act) authorizing 

implementation of a PPS for hospital 

outpatient services. The Medicare, 

Medicaid, and SCHIP Balanced Budget 

Refinement Act of 1999 (BBRA) (Pub. L. 

106–113), enacted on November 29, 

1999, made major changes that affected 

the hospital outpatient PPS (OPPS). The 

Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection 

Act of 2000 (BIPA) (Pub. L. 106–554), 

enacted on December 21, 2000, made 

further changes in the OPPS. Section 

1833(t) of the Act was also recently 

amended by the Medicare Prescription 

Drug, Improvement, and Modernization 

Act of 2003 (MMA), Public Law 108–

173, enacted on December 8, 2003 (these 

amendments are discussed later under 

section I.E. of this final rule with 

comment period). The OPPS was first 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65685

1 Interim final rule with comment period, August 

3, 2000 (65 FR 47670); interim final rule with 

comment period, November 13, 2000 (65 FR 67798); 

final rule and interim final rule with comment 

period, November 2, 2001 (66 FR 55850 and 55857); 

final rule, November 30, 2001 (66 FR 59856); final 

rule, December 31, 2001 (66 FR 67494); final rule, 

March 1, 2002 (67 FR 9556); final rule, November 

1, 2002 (67 FR 66718); final rule with comment 

period, November 7, 2003 (68 FR 63398); and 

interim final rule with comment period, January 6, 

2004 (69 FR 820).

implemented for services furnished on 

or after August 1, 2000. Implementing 

regulations for the OPPS are located at 

42 CFR Part 419.

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 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 

final rule with comment period. Section 

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

Medicare payment under the OPPS for 

certain services designated by the 

Secretary that are furnished to 

inpatients who have exhausted their 

Part A benefits or who are otherwise not 

in a covered Part A stay. In addition, the 

OPPS includes payment for partial 

hospitalization services furnished by 

community mental health centers 

(CMHCs). 

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 inpatient hospital 

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, services 

and items 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 

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 use the 

median cost of the item or service 

assigned to an APC group. 

Special payments under the OPPS 

may be made for new technology items 

and services in one of two ways. Section 

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

temporary additional payments or 

‘‘transitional pass-through payments’’

for certain drugs, biological agents, 

brachytherapy devices used for the 

treatment of cancer, and categories of 

medical devices for at least 2 but not 

more than 3 years. For new technology 

services that are not eligible for passthrough 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 

APC cost bands. These cost bands allow 

us to price these new procedures more 

appropriately and consistently. Similar 

to pass-through payments, these special 

payments for new technology services 

are also temporary; that is, we retain a 

service within a new technology APC 

group until we acquire adequate 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 excluded 

payment for ambulance, physical and 

occupational therapy, and speechlanguage pathology services, for which 

payment is made under a fee schedule. 

The Secretary exercised the broad 

authority granted under the statute to 

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; 

laboratory services paid under the 

clinical diagnostic laboratory fee 

schedule; 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 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 

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 

to take into account changes in medical 

practice, changes in technology, and the 

addition of new services, new cost data, 

and other relevant information and 

factors. Since implementing the OPPS, 

we have published final rules in the 

Federal Register annually to implement 

statutory requirements and changes 

arising from our experience with this 

system. For a full discussion of the 

changes to the OPPS, we refer readers to 

these Federal Register final rules.1

On November 7, 2003, we published 

a final rule with comment period in the 

Federal Register (68 FR 63398) that 

revised the OPPS to update the payment 

weights and conversion factor for 

services payable under the calendar year 

(CY) 2004 OPPS on the basis of claims 

data from April 1, 2002 through 

December 31, 2002. In this final rule 

with comment period, we are finalizing 

the APC assignments and addressing 

public comments received pertaining to 

the new interim HCPCS codes listed in 

Addendum B of the November 7, 2003 

final rule with comment period 

identified by new interim (NI) comment 

indicators (formerly referred to as 

condition codes). Subsequent to 

publishing the November 7, 2003 final 

rule with comment period, we 

published a correction of the final rule 

with comment period on December 31, 

2003 (68 FR 75442). That December 31, 

2003 document corrected technical 

errors in the November 7, 2003 final 

rule with comment period and included 

responses to a number of public 

comments that were inadvertently 

omitted from the November 2003 final 

rule with comment period.

On January 6, 2004, we published in 

the Federal Register an interim final 

rule with comment period (69 FR 820) 

that implemented provisions of Public 

Law 108–173 that affected payments 

made under the OPPS, effective January 

1, 2004. We are finalizing this interim 

65686 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

final rule and addressing public 

comments associated with that rule in 

this final rule with comment period. 

D. APC Advisory Panel 

1. Authority of the APC Panel 

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

amended by section 201(h) of the BBRA 

of 1999, requires that we consult with 

an outside panel of experts to review the 

clinical integrity of the payment groups 

and weights under the OPPS. The 

Advisory Panel on APC Groups (the 

APC Panel), discussed under section 

I.D.2. of this preamble, fulfills this 

requirement. The Act further specifies 

that the Panel will act in an advisory 

capacity. This expert panel, which is to 

be composed of 15 representatives of 

providers subject to the OPPS (currently 

employed full-time, not consultants, in 

their respective areas of expertise), 

reviews and advises us about the 

clinical integrity of the APC groups and 

their weights. The APC Panel is not 

restricted to using our data and 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 charter establishing the 

Advisory Panel on APC Groups. The 

APC Panel is technical in nature and is 

governed by the provisions of the 

Federal Advisory Committee Act 

(FACA), as amended (Public Law 92–

463). On November 1, 2002, the 

Secretary renewed the charter. The 

renewed charter indicates 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, and is chaired by a 

Federal official. 

Originally, in establishing the APC 

Panel, we solicited members in a notice 

published in the Federal Register on 

December 5, 2000 (65 FR 75943). We 

received applications from more than 

115 individuals who nominated either 

colleagues or themselves. After carefully 

reviewing the applications, we chose 15 

highly qualified individuals to serve on 

the APC Panel. Because of the loss of 

four APC Panel members due to the 

expiration of terms of office on March 

31, 2004, we published a Federal 

Register notice on January 23, 2004 (69 

FR 3370) that solicited nominations for 

APC Panel membership. From the 24 

nominations that we received, we chose 

four new members. The entire APC 

Panel membership is identified on the 

CMS Web site at http://

www.cms.hhs.gov/faca/apc/

apcmem.asp.

3. APC Panel Meetings and 

Organizational Structure 

The APC Panel first met on February 

27, February 28, and March 1, 2001. 

Since that initial meeting, the APC 

Panel has held five subsequent 

meetings, with the last meeting taking 

place on September 1, 2, and 3, 2004. 

Prior to each of these biennial meetings, 

we published a notice in the Federal 

Register to announce each meeting and, 

when necessary, to solicit nominations 

for APC Panel membership. For a more 

detailed discussion about these 

announcements, refer to the following 

Federal Register notices: December 5, 

2000 (65 FR 75943), December 14, 2001 

(66 FR 64838), December 27, 2002 (67 

FR 79107), July 25, 2003 (68 FR 44089), 

and December 24, 2003 (68 FR 74621), 

and August 5, 2004 (69 FR 47446). 

During these meetings, the APC Panel 

established its operational structure 

that, in part, includes the use of three 

subcommittees to facilitate its required 

APC review process. Currently, the 

three subcommittees are the Data 

Subcommittee, the Observation 

Subcommittee, and the Packaging 

Subcommittee. The Data Subcommittee 

is responsible for studying the data 

issues confronting the APC Panel and 

for recommending viable options for 

resolving them. This subcommittee was 

initially established on April 23, 2001, 

as the Research Subcommittee and 

reestablished as the Data Subcommittee 

on April 13, 2004. The Observation 

Subcommittee, which was established 

on June 24, 2003, and reestablished with 

new members on March 8, 2004, 

reviews and makes recommendations to 

the APC Panel on all issues pertaining 

to observation services paid under the 

OPPS, such as coding and operational 

issues. The Packaging Subcommittee, 

which was established on March 8, 

2004, studies and makes 

recommendations on issues pertaining 

to services that are not separately 

payable under the OPPS but are 

bundled or packaged APC payments. 

Each of these subcommittees was 

established by a majority vote of the 

APC Panel during a scheduled APC 

Panel meeting. All subcommittee 

recommendations are discussed and 

voted upon by the full APC Panel. 

For a detailed discussion of the APC 

Panel meetings, refer to the hospital 

OPPS final rules cited in section I.C. of 

this preamble. Full discussions of the 

APC Panel’s February 2004 and 

September 2004 meetings and the 

resulting recommendations are included 

in sections II., III., IV., V., and VI. of this 

preamble under the appropriate subject 

headings. 

E. Provisions of the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 

On December 8, 2003, the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA), 

Public Law 108–173, was enacted. 

Public Law 108–173 made changes to 

the Act relating to the Medicare OPPS. 

In a January 6, 2004 interim final rule 

with comment period, we implemented 

provisions of Public Law 108–173 

relating to the OPPS that were effective 

for CY 2004. In this final rule with 

comment period, we are responding to 

public comments received on the 

January 6, 2004 interim final rule and 

finalizing that rule. In addition, in this 

final rule with comment period, we are 

implementing the following sections of 

Public Law 108–173 that are effective 

for CY 2005: 

• Section 611, which provides for 

Medicare coverage of an initial 

preventive physical examination under 

Part B, subject to the applicable 

deductible and coinsurance, as an 

outpatient department (OPD) service 

payable under the OPPS. The provisions 

of section 611 apply to services 

furnished on or after January 1, 2005, 

but only for individuals whose coverage 

period under Medicare Part B begins on 

or after that date. 

• Section 614, which provides that 

screening mammography and diagnostic 

mammography services are excluded 

from payment under the OPPS. This 

amendment applies to screening 

mammography services furnished on or 

after the date of enactment of Public 

Law 108–173 (that is, December 8, 

2003), and in the case of diagnostic 

mammography, to services furnished on 

or after January 1, 2005.

• Section 621(a)(1), which requires 

special classification of certain 

separately paid radiopharmaceutical 

agents and drugs or biologicals, and 

specifies the pass-through payment 

percentages, effective for services 

furnished on or after January 1, 2005, for 

the three categories of ‘‘specified 

covered OPD drugs’’ defined in the 

statute: sole source drug; innovator 

multiple source drug; and noninnovator 

multiple source drug. In addition, 

payment for these drugs for CYs 2004 

and 2005 does not have to be made in 

a budget neutral manner. 

• Section 621(a)(2), which specifies 

the reduced threshold for the 

establishment of separate APCs with 

respect to drugs or biologicals from $150 

to $50 per administration for drugs and 

biologicals furnished in CYs 2005 and 

2006. 

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• Section 621(a)(3), which excludes 

separate drug APCs from outlier 

payments. Specifically, no additional 

payment will be made in the case of 

APC groups established separately for 

drugs and biologicals. 

• Section 621(b), which requires that 

all devices of brachytherapy consisting 

of a seed or seeds (or radioactive source) 

furnished on or after January 1, 2004, 

and before January 1, 2007, be paid 

based on the hospital’s charges for each 

device, adjusted to cost. This provision 

also requires that these brachytherapy 

services be excluded from outlier 

payments. 

F. Summary of the Provisions of the 

August 16, 2004 Proposed Rule 

On August 16, 2004, we published a 

proposed rule in the Federal Register

(69 FR 50447) that set forth proposed 

changes to the Medicare hospital OPPS 

and to implement provisions of Public 

Law 108–173 specified in section I.E. of 

this preamble that would be effective for 

services furnished on or after January 1, 

2005. The following is a summary of the 

major changes that we proposed to 

make: 

1. Changes to the APC Groups 

As required by section 1833(t)(9)(A) of 

the Act, we proposed the annual update 

of the APC groups and the relative 

payment weights. This section also 

requires that we consult with an outside 

panel of experts, the Advisory Panel on 

APC Groups, to review the clinical 

integrity of the groups and weights 

under the OPPS. Based on analyses of 

Medicare claims data and 

recommendations of the APC Panel, we 

proposed to establish a number of new 

APCs and to make changes to the 

assignment of HCPCS codes under a 

number of existing APCs. 

We also discussed the application of 

the 2 times rule and proposed 

exceptions to it; coding for stereotactic 

radiosurgery services; the proposed 

movement of procedures from the new 

technology APCs; the proposed changes 

to the list of procedures that will be 

paid as inpatient services; and the 

proposed addition of new procedure 

codes to the APCs. 

2. Recalibrations of APC Relative 

Payment Weights 

In the proposed rule, we discussed 

the methodology used to recalibrate the 

proposed APC relative payment weights 

and set forth the proposed recalibration 

of the relative weights for CY 2005. 

3. Payment Changes for Devices 

In the proposed rule, we discussed 

proposed changes to the pass-through 

payment for devices and the 

methodology used to reduce, if 

applicable, transitional pass-through 

payments to offset costs packaged into 

APC groups. 

4. Payment Changes for Drugs, 

Biologicals, Radiopharmaceutical 

Agents, and Blood and Blood Products 

In the proposed rule, we discussed 

our proposed payment changes for 

drugs, biologicals, radiopharmaceutical 

agents, and blood and blood products. 

5. Estimated Transitional Pass-Through 

Spending in CY 2005 for Drugs, 

Biologicals, and Devices 

In the proposed rule, we discussed 

the proposed methodology for 

measuring whether there should be an 

estimated pro rata reduction for 

transitional pass-through drugs, 

biologicals, and devices for CY 2005. 

6. Other Policy Decisions and Proposed 

Policy Changes 

In the proposed rule, we presented 

our proposals for CY 2005 regarding the 

following: 

• Update of statewide default cost-tocharge ratios (CCRs). 

• A conforming change to the 

regulation relating to the use of the first 

available cost reporting period ending 

after 1996 and before 2001 for 

determining a provider’s payment-tocost ratio to calculate transitional 

corridor payments for hospitals paid 

under the OPPS that did not have a 

1996 cost report. 

• Changes in the status indicators and 

comment indicators assigned to APCs 

for CY 2005. 

• Elimination of the diagnostic tests 

criteria as a requirement for hospitals to 

qualify for separate payment of 

observation services under APC 0339 

(Observation) and changes to the 

guidelines to hospitals for counting 

patients’ time spent in observation care. 

• Payment under the OPPS for certain 

procedures currently assigned to the 

inpatient list. 

• Strategy for giving the public notice 

of new implementation guidelines for 

new evaluation and management codes. 

• Addition of three new HCPCS codes 

and descriptors for brachytherapy 

sources that would be paid separately, 

pursuant to Public Law 108–173. 

• Modification of the HCPCS code 

descriptors for brachytherapy source 

descriptors for which units of payment 

are not already delineated. 

• Payment for services furnished 

emergently to an outpatient who dies 

before admission to a hospital as an 

inpatient. 

7. Conversion Factor Update for CY 

2005 

As required by section 

1833(5)(3)(C)(ii) of the Act, in the 

proposed rule, we proposed to update 

the conversion factor used to determine 

payment rates under the OPPS for CY 

2005.

8. Wage Index Changes for CY 2005 

In the proposed rule, we discussed 

the proposed retention of our current 

policy to apply the IPPS wage indices to 

wage adjust the APC median costs in 

determining the OPPS payment rate and 

the copayment standardized amount. 

These indices reflect major changes for 

CY 2005 relating to hospital labor 

market areas as a result of OMB revised 

definitions of geographical statistical 

areas; hospital reclassifications and 

redesignations, including the one-time 

reclassifications under section 508 of 

Public Law 108–173; and the wage 

index adjustment based on commuting 

patterns of hospital employees under 

section 505 of Public Law 108–173. 

9. Determination of Payment Rates and 

Outlier Payments for CY 2005 

In the proposed rule, we discussed 

how APC payment rates are calculated 

and how the payment rates are adjusted 

to reflect geographic differences in 

labor-related costs. We also discussed 

proposed changes in the way we would 

calculate outlier payments for CY 2005. 

10. Regulatory Impact Analysis 

In the proposed rule, we set forth our 

analysis of the impact that the proposed 

changes would have on affected 

hospitals and CMHCs. 

G. Public Comments Received on the 

August 16, 2004 Proposed Rule 

We received over 550 timely pieces of 

correspondence containing multiple 

comments on the August 16, 2004 

proposed rule. Summaries of the public 

comments and our responses to those 

comments are set forth in the various 

sections of this preamble under the 

appropriate heading. 

We received a number of general 

public comments on our proposed 

changes to the OPPS for CY 2005. 

Comment: Some commenters were 

concerned about the extent to which 

OPPS payment rates have fluctuated 

from year to year. Because Medicare 

payment is a very significant portion of 

income for most hospitals, they stated 

that the instability in the OPPS payment 

rates makes it difficult for hospitals to 

plan and budget. They indicated that 

there is a tremendous degree of 

variation across APCs in terms of 

payment to cost ratios and that they 

65688 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

would expect that after three years of 

operating the OPPS, the payment to cost 

ratios would be much more stable. One 

commenter offered to share analysis of 

payment to cost ratios with CMS. 

Commenters stated that such variation 

in payments compared to costs puts 

full-service hospitals and their 

communities at risk because limitedservice, or ‘‘niche’’ providers can easily 

identify and redirect patients with more 

lucrative APCs to their facilities, leaving 

full-service hospitals with a 

disproportionate share of patients who 

receive services that are assigned to the 

underpaid APCs. 

Response: We recognize hospitals’

need for stability in payments for 

hospital outpatient services. We would 

appreciate receiving studies of the 

extent to which there is variation across 

APCS in terms of payment to cost ratios 

across the multiple years of the OPPS to 

aid us in assessing factors that might 

contribute to instability in the payment 

rates. 

Comment: One commenter indicated 

that the entire OPPS is underfunded, as 

it pays only 87 cents of every dollar of 

hospital outpatient care provided to 

Medicare beneficiaries. The commenter 

stated that it will continue to work with 

Congress to address inadequate payment 

rates and updates in order to ensure 

access to hospital-based outpatient 

services for Medicare beneficiaries. 

Response: Our early analyses 

indicated that the OPPS was, in its 

inception, based on payment that was 

less than cost due to statutory 

reductions in payment for hospital 

outpatient costs prior to the enactment 

of the Balanced Budget Act of 1997, 

which authorized the current OPPS. We 

agree that the commenter will need to 

work with Congress to change certain 

fundamental features of the OPPS. For 

example, the base amounts upon which 

the OPPS was established, the rules 

concerning budget neutrality, and 

subsequent out-year adjustments such 

as annual reductions in coinsurance and 

adjustments to outlier and pass-through 

payment allocations are established in 

statute and, as such, would require 

legislation to amend. 

Comment: One commenter objected to 

the use of the display date to start the 

60-day comment period for the 

proposed rule. The commenter stated 

that the display copy did not contain all 

of the information included in the 

proposed rule, such as the comment due 

date, and did not satisfy the statute’s 

requirement that the notice of proposed 

rulemaking be published in the Federal 

Register, with provision for a 60-day 

comment period. The commenter 

indicated that the use of the display 

date to start the comment period gives 

reviewers too short a period of time to 

comment properly and also, in this case, 

gives CMS an inadequate period of time 

to review the comments and prepare the 

final rule. The commenter urged CMS to 

publish a proposed rule no later than 

late July to provide more time for CMS 

to consider public comments. 

Response: While the law requires that 

we provide a 60-day public comment 

period and that the notice of proposed 

rulemaking be published in the Federal 

Register, it does not require that the 

date of Federal Register publication be 

the first day of the comment period. The 

two requirements are independent. We 

post the proposed rule on the CMS Web 

site on the date of display of the 

proposed rule at the Federal Register, 

thereby making the proposed rule far 

more easily available to the public than 

was the case when the only public 

dissemination was publication in the 

Federal Register, and satisfying the 

requirement for a 60-day comment 

period. By making the proposed rule 

available on the CMS Web site (as well 

as at the Federal Register), we provided 

the public with access to not only the 

proposed rule but also to all of the 

supporting files and documents cited in 

the proposed rule in a manner that can 

be used for analysis. We note that the 

computer files posted on the Web site 

can be manipulated for independent 

analysis. Therefore, we believe that 

beginning the comment period for the 

proposed rule with the display date at 

the Federal Register, and posting the 

proposed rule and data files on the CMS 

Web site on the display date, fully 

complies with the statute and provides 

a far better opportunity for the public to 

have meaningful input than the past 

practice under which the comment 

period began with the publication date 

in the Federal Register a week or longer 

after the display date and no other data 

in any other form was furnished. 

With respect to the publication date of 

the proposed rule, we publish the 

proposed rule as soon as it is practicable 

for us to do so. Our process for 

development of the proposed rule 

begins with a winter meeting of the APC 

Panel based on the earliest possible data 

analysis for the forthcoming year. We 

then pull claims for the period ending 

December of the data year and also pull 

cost report data for development of 

CCRs to apply to the claims data. This 

step cannot be started until 

approximately March 1 of the year and 

the development of the proposed rule 

data takes considerable time as there are 

many analyses to be performed and 

decisions to be made before each stage 

of data development can be undertaken. 

We have to balance the need to improve 

the process and to deal with each year’s 

special issues with the need to issue a 

proposed rule in sufficient time to 

permit the public to comment and to 

permit us sufficient time to review the 

comments and develop the final rule. 

Each year we review the timeline and 

process to determine how we can best 

achieve that balance, while ensuring 

that we issue the best possible proposed 

rule for public comment. 

H. Public Comments Received on the 

January 6, 2004 Interim Final Rule With 

Comment Period 

We received approximately 40 timely 

pieces of correspondence containing 

multiple comments on the MMA 

provisions relating to payment for drugs 

and brachytherapy under the OPPS that 

were included in the January 6, 2004 

interim final rule with comment period. 

Summaries of the public comments and 

our responses to those comments are set 

forth in sections V. and VII.G. of this 

preamble under the appropriate 

heading. 

I. Public Comments Received on the 

November 7, 2003 Final Rule With 

Comment Period

We received 25 timely pieces of 

correspondence on the November 7, 

2003 final rule with comment period, 

some of which contained multiple 

comments on the APC assignment of 

HCPCS codes identified with the new 

interim condition indicators (now 

referred to as condition codes) in 

Addendum B of that final rule with 

comment period. Summaries of the 

public comments and our responses to 

those comments are set forth in various 

sections of this preamble under the 

appropriate subject areas. 

II. Changes Related to Ambulatory 

Payment Classifications (APCs) 

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

requires the Secretary to develop a 

classification system for covered 

hospital outpatient services. Section 

1833(t)(2)(B) provides that this 

classification system may be composed 

of groups of services, so that services 

within each group are comparable 

clinically and with respect to the use of 

resources. In accordance with these 

provisions, we developed a grouping 

classification system, referred to as the 

Ambulatory Payment Classification 

Groups (or APCs), as set forth in 

§ 419.31 of the regulations. We use 

Level I and Level II Healthcare Common 

Procedure Coding System (HCPCS) 

codes and descriptors to identify and 

group the services within each APC. 

The APCs are organized such that each 

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group is homogeneous both clinically 

and in terms of resource use. (However, 

new technology APCs that are 

temporary groups for certain approved 

services are structured based on cost 

rather than clinical homogeneity.) Using 

this classification system, we have 

established distinct groups of surgical, 

diagnostic, and partial hospitalization 

services, and medical visits. Because of 

the transitional pass-through provisions, 

we also have developed separate APC 

groups for certain medical devices, 

drugs, biologicals, 

radiopharmaceuticals, and devices of 

brachytherapy. 

We have packaged into each 

procedure or service within an APC 

group the cost associated with those 

items or services that are directly related 

and integral to performing a procedure 

or furnishing a service. Therefore, we 

would not make separate payment for 

packaged items or services. For 

example, packaged items and services 

include: Use of an operating, treatment, 

or procedure room; use of a recovery 

room; use of an observation bed; 

anesthesia; medical/surgical supplies; 

pharmaceuticals (other than those for 

which separate payment may be 

allowed under the provisions discussed 

in section V. of this preamble); and 

incidental services such as 

venipuncture. Our packaging 

methodology is discussed in section 

IV.B.3. of this final rule with comment 

period. 

A. APC Changes: General 

Under the OPPS, we pay for hospital 

outpatient services on a rate-per-service 

basis that varies according to the APC 

group to which the service is assigned. 

Each APC weight represents the median 

hospital cost of the services included in 

that APC relative to the median hospital 

cost of the services included in APC 

0601, Mid-Level Clinic Visits. The APC 

weights are scaled to APC 0601 because 

a mid-level clinic visit is one of the 

most frequently performed services in 

the outpatient setting. 

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

requires the Secretary to review the 

components of the OPPS not less than 

annually and to revise the groups and 

relative payment weights and make 

other adjustments to take into account 

changes in medical practice, changes in 

technology, and 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 

of 1999, also requires the Secretary, 

beginning in CY 2001, to consult with 

an outside panel of experts to review the 

APC groups and the relative payment 

weights. 

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 (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 (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. 

Section 419.31 of the regulations sets 

forth the requirements for the APC 

system and the determination of the 

payment weights. In this section, we 

discuss the changes that we proposed to 

the APC groups; the APC Panel’s review 

and recommendations from the 

February 2004 meeting and our 

proposals in response to those 

recommendations; the application of the 

2 times rule and proposed exceptions to 

it; coding for stereotactic radiosurgery 

services; the proposed movement of 

procedures from the new technology 

APCs; the proposed changes to the 

inpatient list; and the proposed 

additions of new procedures codes to 

the APCs. In addition, in this section 

under the appropriate subject heading, 

we present the APC Panel’s review and 

recommendations of items discussed at 

the September 1, 2, and 3, 2004 meeting 

held after publication of the proposed 

rule and our final decisions on these 

recommendations. We then present our 

final policies that are effective for CY 

2005.

B. APC Panel Review and 

Recommendations 

1. February 2004 Panel Meeting 

As stated above, the APC Panel held 

its first 2004 meeting on February 18, 

19, and 20, 2004, to discuss the revised 

APCs for the CY 2005 OPPS. In 

preparation for that meeting, we 

published a notice in the Federal 

Register on December 24, 2003 (68 FR 

74621), to announce the location, date, 

and time of the meeting; the agenda 

items; and the fact that the meeting was 

open to the public. In that notice, we 

solicited public comment specifically 

on the items included on the agenda for 

that meeting. We also provided 

information about the APC Panel 

meeting on the CMS Web site: http://

www.cms.hhs.gov/faca/apc/panel.

Oral presentations and written 

comments submitted for the February 

2004 APC Panel meeting met, at a 

minimum, the adopted guidelines for 

presentations set forth in the Federal 

Register document (68 FR 74621). In 

conducting its APC review, the APC 

Panel heard testimony and received 

evidence in support of the testimonies 

from a number of interested parties. For 

the February 2004 deliberations, the 

APC Panel used hospital outpatient 

claims data for the period January 1, 

2003, through September 30, 2003, that 

provided, at a minimum, median costs 

for the APC structure in place in CY 

2004 and that was based on CCRs used 

for setting the CY 2004 payment rates. 

The data set presented to the APC Panel 

represented 9 months of the CY 2003 

data that we proposed to use to 

recalibrate the APC relative weights and 

to calculate the proposed APC payment 

rates for CY 2005. In sections II.B.4. 

through 7. and sections II.C. through I. 

of this preamble, we summarize the 

APC issues discussed during the APC 

Panel’s February 2004 meeting, the 

Panel’s recommendations, the proposals 

that we included in the August 16, 2004 

proposed rule, our proposals with 

respect to those recommendations, and 

the policies that we are finalizing for CY 

2005 in this final rule with comment 

period. 

2. September 2004 Panel Meeting 

As stated earlier, the APC Panel held 

its second 2004 meeting on September 

1–3, 2004. In preparation for that 

meeting, we published a notice in the 

Federal Register on August 5, 2004 (69 

FR 47446) to announce the location, 

date, and time of the meeting, the 

agenda items, and the fact that the 

meeting was open to the public. In that 

notice, we solicited public comments 

specifically on the items included on 

the agenda for that meeting. During the 

September 2004 APC Panel meeting, the 

APC Panel heard testimony on a number 

of the proposed changes in APCs 

included in the August 16, 2004 

proposed rule. We are summarizing the 

topics that were discussed at the 

September 2004 Panel meeting and the 

APC Panel’s recommendations on each 

topic in the chart below. We have 

included references to the appropriate 

section of this preamble for the more 

detailed discussion of each 

recommendation. 

For the September 2004 deliberations, 

the APC Panel used the hospital 

outpatient claims data that we used in 

developing the proposed rule; that is, 

data for the period of January 1, 2003, 

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through December 31, 2003, including 

updated CCRs. 

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3. Contents of This Section of the 

Preamble 

The discussion in this section II.B. of 

this final rule with comment period is 

limited to APC changes regarding APCs 

other than those that violate the 2 times 

rule and those that represent drugs, 

biologicals, and transitional passthrough devices, or those that are new 

technology APCs. The specific APC 

Panel review and recommendations 

applicable to those APCs are discussed 

in sections II.C., IV., III., and II.F., 

respectively, of the preamble to this 

final rule with comment period. 

4. APC 0018: Biopsy of Skin/Puncture of 

Lesion 

During the February 2004 APC Panel 

meeting, one presenter recommended 

moving CPT tracking codes 0046T 

(Catheter lavage, mammary duct(s)) and 

0047T (Each additional duct) from APC 

0018 and placing them in an APC that 

more accurately reflects each of the 

procedures. The APC Panel 

recommended that we reassign CPT 

codes 0046T and 0047T to APC 0021, 

Level III Excision/Biopsy. 

In the August 16, 2004 proposed rule, 

we proposed to accept the APC Panel’s 

recommendation. We did not receive 

any public comments on our proposal. 

Therefore, we are adopting as final, 

without modification, our proposal to 

reassign CPT codes 0046T and 0047T to 

APC 0021. 

5. Level I and II Arthroscopy 

APC 0041: Level I Arthroscopy 

APC 0042: Level II Arthroscopy 

We testified before the APC Panel at 

its February 2004 meeting regarding a 

comment that we received in 2003 

requesting that we reassign CPT code 

29827 (Arthroscopy, shoulder with 

rotator cuff repair) from APC 0041 to 

APC 0042, based on its similarity to CPT 

29826 (Arthroscopy, shoulder 

decompression of subacromial space 

with partial acromioplasty without 

coracoacromial release). Our clinical 

staff considered the request and 

determined that APCs 0041 and 0042 

should be reconfigured to improve 

clinical homogeneity. An APC Panel 

presenter provided evidence to support 

moving CPT code 29827 to an APC that 

would more accurately recognize the 

complexity of that procedure. We 

requested the APC Panel’s 

recommendation regarding a total 

revision of these two APCs. 

The APC Panel recommended that we 

reevaluate the codes in APCs 0041 and 

0042 and propose restructuring that 

would improve the clinical 

homogeneity in the two APCs. 

In the August 16, 2004 proposed rule, 

we proposed to accept the APC Panel’s 

recommendation and to revise APCs 

0041 and 0042 as presented in Tables 1 

and 2 of that proposed rule. We received 

one public comment on our proposed 

restructuring. 

Comment: One commenter requested 

that we move code 0014T from APC 

0041 to APC 0042. The commenter 

provided information in support of its 

belief that the procedure more 

accurately matches the clinical work 

and resource inputs of APC 0042 than 

of APC 0041. 

Response: We agree with the 

commenter and are assigning the 

procedure to APC 0042. The tracking 

code 0014T is being retired and the 

successor code is CPT code 29868 

(Arthroscopy, knee, surgical, 

osteochondral autograft(s) meniscal 

transplantation (including arthrotomy 

for meniscal insertion, medial or 

lateral). Placement of this code in APC 

0042 is subject to comment in response 

to this final rule with comment period 

because the code is a new code for CY 

2005. 

Accordingly, restructured APCs 0041 

and 0042 for CY 2005, as modified 

based on the public comment received, 

are shown in Tables 1 and 2 below.

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6. Angiography and Venography Except 

Extremity 

APC 0279: Level II Angiography and 

Venography Except Extremity 

APC 0280: Level III Angiography and 

Venography Except Extremity 

APC 0668: Level I Angiography and 

Venography Except Extremity 

a. February 2004 Panel Meeting 

As requested by the APC Panel, at the 

February 2004 Panel meeting, we 

presented our proposal for reconfiguring 

APCs 0279, 0280, and 0668 that 

reflected changes based on prior input 

with outside clinical experts. The APC 

Panel had previously reviewed these 

APCs during its January 2003 meeting 

and had recommended that we not 

restructure these three APCs until we 

received input from clinical experts in 

the field. When we updated the APC 

groups in CY 2003, we accepted the 

APC Panel’s recommendation and made 

no changes to APCs 0279, 0280, and 

0668. 

A review of these APCs was prompted 

by a commenter who requested that we 

move CPT code 75978 (Repair venous 

blockage) from APC 0668 to APC 0280 

and that we move CPT code 75774 

(Artery x-ray, each vessel) from APC 

0668 to APC 0279. The commenter 

submitted evidence in support of these 

requests and testified before the APC 

Panel regarding the common use of CPT 

code 75978 for treating dialysis patients 

and the often required multiple 

intraoperative attempts to succeed with 

this procedure for such patients. 

After receiving input from the clinical 

experts, we determined that these three 

APCs should be revised to improve their 

clinical homogeneity. At the February 

2004 meeting, we presented our 

proposed restructuring of APCs 0279, 

0280, and 0668 to the APC Panel. The 

APC Panel concurred with our proposal. 

In addition, subsequent to the APC 

Panel meeting, we discovered several 

procedures in these APCs that were 

more appropriately placed in other 

APCs in order to remedy any 2 times 

rule violations. We included those 

modifications in our proposed 

restructured APCs published in Table 3 

in the August 16, 2004 proposed rule. 

b. Public Comments Received 

Comment: Several commenters 

requested that CMS postpone or cancel 

the proposed plans for moving 

angiography codes 75960 (Transcatheter 

introduction of intravascular stent(s), 

(non-coronary vessel) percutaneous 

and/or open, radiological supervision 

and interpretation, each vessel), 75962 

(Transluminal balloon angioplasty, 

peripheral artery, radiological 

supervision and interpretation), 75964 

(Transluminal balloon angioplasty, each 

additional peripheral artery, 

radiological supervision and 

interpretation), 75966 (Transluminal 

balloon angioplasty, renal or other 

visceral artery, radiological supervision 

and interpretation), and 75968 

(Transluminal balloon angioplasty, each 

additional visceral artery, radiological 

supervision and interpretation), which 

are integral to a number of angioplasty 

and stent placement procedures, from 

APC 0280 to APC 0668. One commenter 

indicated that the proposed decreases in 

payments for these services that would 

result from their APC reassignment were 

inconsistent with CMS’ proposal to 

limit payment decreases for devicedependent APCs. Another commenter 

was particularly concerned that code 

75962, which is used for angioplasty of 

arterial blockages, may have a wide 

range of associated procedure costs. The 

commenters stated that aggregate 

payment for all services billed for many 

high volume procedures such as 

peripheral transluminal angioplasty and 

single stent placement will decrease by 

16 to 21 percent, in large part due to the 

reassignment of codes 75960, 75962, 

75964, 75966, and 75968 to the lower 

level APC 0668 in the angiography and 

venography except extremity series and 


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to their placement on the bypass list. 

Two commenters were concerned that 

supervision and interpretation services 

as part of peripheral atherectomy 

procedures were assigned to higher 

paying APC 0279, potentially providing 

hospitals with an incentive to perform 

atherectomy instead of angioplasty or 

stent procedures, or both. Further, the 

commenters suggested that the lower 

payment for the supervision and 

interpretation services moved to APC 

0668 for CY 2005 provides an incentive 

for hospitals to treat patients on an 

inpatient basis or may limit 

beneficiaries’ access to the outpatient 

procedures. One commenter indicated 

that the cost and complexity of 

performing angiographic procedures for 

angioplasty are similar, if not more 

complex, than those of performing 

angiographic procedures for atheretomy. 

The commenters did not understand 

why CMS reassigned the supervision 

and interpretation codes from a Level III 

to a Level I APC and believed that CMS 

did not take into account the higher 

level of hospital resources and staffing 

required for certain therapeutic 

radiology supervision and interpretation 

services. Further, they questioned the 

assumptions CMS adopted in the 

creation of the bypass list to develop 

‘‘pseudo’’single claims. They suggested 

that there might be significant 

differences between the multiple 

procedure claims that CMS converts to 

‘‘pseudo’’ single claims and those that 

CMS is unable to use. Thus, the 

commenters questioned the reliability of 

the claims data and encouraged CMS to 

use external data as the basis for the 

decisionmaking. One commenter noted 

that, of a large number of claims for APC 

0668, 79 percent accounted for device 

costs and 81 percent accounted for room 

charges, but CMS’ single claim 

methodology had only 4 percent of 

claims accounting for device costs or 

room charges.

Finally, one commenter, a group of 

providers, stated that they expected 

substantial payment decreases to result 

from the proposed restructuring of APCs 

0279, 0280, and 0668. The commenter 

suggested that CMS should establish a 

mechanism (such as dampening) to 

offset large payment swings similar to 

those anticipated as a result of the CMS 

proposal. 

Response: Our analyses of claims data 

used for the CY 2004 OPPS and several 

past comments led us to recognize the 

need to restructure APCs 0279, 0280, 

and 0668 for the CY 2005 OPPS. There 

were only two services in APC 0668 for 

CY 2004, APC 0279 was excepted from 

the 2 times rule in CY 2004, and the 

median costs for individual services in 

APCs 0668, 0279, and 0280 showed 

significant overlap. The APC Panel also 

acknowledged the need to reconfigure 

these APCs. In our proposed rule, we 

presented the restructured APCs in 

which the procedures within each APC 

demonstrated both clinical and resource 

homogeneity, and our final data 

confirmed the appropriate assignment of 

the services. For instance, the peripheral 

atherectomy supervision and 

interpretation codes (75992 through 

75996) assigned to the Level II APC 

(0279) consistently had higher median 

costs than the supervision and 

interpretation codes for intravascular 

stent placement or peripheral or visceral 

artery balloon angioplasty, which are 

assigned to the Level I APC (0668). For 

CY 2005, the median costs for the 

supervision and interpretation codes for 

stent placement and angioplasty were 

much lower than the median cost of 

their prior APC 0280 ($1,181) and were 

within the range of median costs ($239–

$444) for other procedures assigned to 

APC 0668. As APCs 0668, 0279, and 

0280 are not device-dependent APCs 

because we expect the devices to be 

reported with the interventional 

procedures provided (that are in devicedependent APCs), it would be 

inappropriate to apply the devicedependent APC policy to APCs 0668, 

0279, and 0280. In addition, there were 

no violations of the 2 times rule in the 

restructured APCs 0668, 0279, or 0280 

based on full year 2003 hospital claims 

data. 

The supervision and interpretation 

codes 75960, 75962, 75964, 75966, and 

75968, along with peripheral 

atherectomy supervision and 

interpretation CPT codes, were 

proposed for the bypass list for CY 2005. 

As the commenters noted, we 

recognized that angiography and 

venography services generally involve 

multiple procedure claims, and less 

than 10 percent of bills for APCs 0668, 

0279, and 0280 were available for 

ratesetting for CY 2004. We proposed to 

place a number of radiological 

supervision and interpretation codes on 

the bypass list for CY 2005 because we 

believed that these codes should have 

little packaging associated with them 

and we recognized that their addition to 

the bypass list might enable us to use 

significantly more data from multiple 

procedure claims for APCs 0668, 0279, 

0280, and others. We did not expect that 

devices and room charges would 

generally be packaged with the 

supervision and interpretation services, 

but rather would be packaged with the 

interventional procedures they 

accompanied. This accounts for the low 

percentage of device and room costs on 

the single bills in APC 0668 used for the 

median calculation. None of the 

commenters provided any information 

about why it would be inappropriate to 

include these codes on the bypass list, 

other than to point out the decline in 

proposed payment rates for the services. 

If packaging appropriately attributable 

to the supervision and interpretation 

services through the bypass procedure 

had been assigned to the interventional 

procedures that the supervision and 

interpretation services accompanied 

(such as angioplasty or stent placement), 

there should have been increases in the 

median costs for the interventional 

procedures. We did not see any such 

significant increases, and believe that 

our data do not indicate any specific 

packaging allocation problems with 

respect to the supervision and 

interpretation services. We have no 

evidence of underreporting of costs used 

to calculate the median costs for APC 

0668. 

For CY 2005, we had a significantly 

greater number of single claims 

available for use in median calculation 

for APCs 0668, 0279, and 0280. For 

example, for CY 2005, the median costs 

for the two supervision and 

interpretation codes with the highest 

volume that were of concern to the 

commenters (codes 75960 and 75962) 

were based on 20 percent of claims in 

contrast to only 1 percent used last year. 

While it is possible, as suggested by the 

commenters, that there may be 

differences between the packaging in 

multiple procedure claims that we were 

able to convert to ‘‘pseudo’’ single 

claims and those that we were unable to 

use, we have no reason to believe that 

these issues are unique to these APCs or 

especially problematic for these 

supervision and interpretation services. 

Our goal continues to be to use as much 

of our historical hospital claims data to 

set payment rates as possible. As we 

have consistently stated, we are 

pursuing strategies to improve our 

ability to utilize multiple procedure 

claims for median calculation, including 

discussions with the APC Panel Data 

Subcommittee.

With regard to the commenter’s 

suggestion that we establish a 

mechanism to offset payment changes 

from one year to the next, we 

understand the commenter’s desire for a 

stable system. However, while we are 

not convinced that an overall 

dampening policy is required, we 

continue to work toward improving the 

hospital claims data through education, 

data management, and data analyses. 

We believe that we have achieved 

significant improvements so far. 

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c. Final Policy for CY 2005 

After consideration of the APC Panel’s 

recommendations and the public 

comments we received on the August 

16, 2004 proposal, we are finalizing our 

proposal for the restructuring of APCs 

0668, 0279, and 0280. 

Tables 3, 4, and 5 reflect the final 

restructuring of APCs 0668, 0279, and 

0280. 

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7. Packaged Codes in APCs 

As a result of requests from the 

public, the Packaging Subcommittee of 

the APC Panel was established to review 

all the CPT codes with a status indicator 

of ‘‘N.’’ Status indicator ‘‘N’’ indicates 

that payment for packaged codes is 

bundled into the payment that providers 

receive for separately payable codes for 

items or services provided on the same 

day. Providers have often suggested that 

many codes could be billed alone, 

without any separately payable service 

on the claim, and requested that these 

codes not be assigned status indicator 

‘‘N.’’ The Packaging Subcommittee 

identified areas for change of some 

packaged CPT codes for items or 

services that could be provided as the 

sole service on a given date. During the 

September 2004 meeting, the APC Panel 

accepted the report of the Packaging 

Subcommittee and made the following 

recommendations: 

• The Panel recommended that the 

Packaging Subcommittee review 

packaged codes individually instead of 

making a global decision for all 

packaged codes. 

• The Panel recommended that CMS 

assign a modifier to CPT codes 36540 

(Collect blood venous device), 36600 

(Withdrawal of arterial blood), 51701 

(Insert bladder catheter), and 97602 

(Wound[s] care, non-selective) to be 

used when these codes are the only 

code on that particular claim for the 

same date of service. The APC Panel 

indicated that it would revise this 

subset of codes once data become 

available. 

• The Panel recommended that CMS 

educate providers and intermediaries on 

the correct billing procedures for the 

packaged CPT codes 36540, 36600, 

51701, and 97602. 

• The Panel recommended that CMS 

not change the status indicator for CPT 

76397 (Ultrasound guidance for vascular 

access). The Panel indicated that it 

would review the data on this code as 

they become available. 

• The Panel recommended that the 

Packaging Subcommittee continue to 

meet throughout the year to discuss 

other problematic packaged codes. 

CMS is considering the 

recommendation that a modifier be used 

when certain codes are the only codes 

on a particular claim for the same date 

of service. We note that code 97602 is 

assigned a status indicator of ‘‘A’’ in this 

final rule with comment period, and is 

no longer payable under OPPS. 

Therefore, a modifier, if applicable, 

would not be assigned for this code. 

Comment: One commenter asked 

CMS to review all the packaged codes 

to determine which codes should 

become separately payable. Several 

commenters also requested that codes 

36540 (Collect blood venous device), 

36600 (Withdrawal of arterial blood), 

and 97602 (Wound[s] care, 

nonselective) become separately payable 

because they are often the only 

procedure on a bill. In cases where there 

is no separately payable code on a 

claim, providers do not receive payment 

for these packaged services. 

Response: We appreciate the 

commenters’ suggestions. As stated 

above, the APC Panel Packaging 

Subcommittee recently reviewed all the 

packaged codes. We are currently 


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considering whether to create a modifier 

to be used for CPT codes 36540, 36600, 

and 51701 when these codes appear on 

a claim without any separately payable 

code on the same date of service. As 

stated above, code 97602 will not be 

payable under OPPS for CY 2005 and, 

therefore, is excluded from this 

discussion. Additional detailed 

suggestions for the Packaging 

Subcommittee should be submitted to 

APCPanel@cms.hhs.gov with 

‘‘Packaging Subcommittee’’ in the 

subject line. 

Comment: Two commenters requested 

that code 76937 (Ultrasound guidance 

for vascular access) be assigned to APC 

0268 (Ultrasound Guidance Procedures), 

with status indicator ‘‘S’’ instead of the 

proposed status indicator ‘‘N.’’

Response: We are accepting the APC 

Panel’s recommendations that code 

76937 remain packaged for CY 2005. We 

are concerned that there will be 

unnecessary utilization of this 

procedure if it is separately payable. In 

addition, because code 76937 only 

became effective on January 1, 2004, 

there are currently no claims data for 

this code. When we review the CY 2004 

claims data for the CY 2006 payment 

rates, we will reexamine the status of 

code 76937. We also note that the APC 

Panel Packaging Subcommittee remains 

active, and additional issues and new 

data concerning the packaging status of 

codes will be shared for their 

consideration as information becomes 

available.

Comment: Several commenters 

requested that the following CPT codes 

become unpackaged: 42550 (Injection 

for salivary x-ray) and other x-ray 

injection codes; 75998 (Fluoroscopic 

guidance for central venous access 

device placement); 74328 (Endoscopic 

catheterization of the biliary ductal 

system, S&I); 74329 (Endoscopic 

catheterization of the pancreatic ductal 

system, S&I); 74330 (Combined 

endoscopic catheterization of the biliary 

and pancreatic ductal systems, S&I); 

36500 (Insert of catheter, vein); 75893 

(venous sampling by catheter); 75989 

(abscess drainage under x-ray); 76001 

(Fluoroscope exam); 76003 (Needle 

localization by x-ray); 76005 

(Fluoroguide for spine inject); 90471 

and 90472 (Immunization 

administration); 94760, 94761, and 

94762 (Pulse oximetry); and G0269 

(Occlusive device in vein art). The 

commenters were concerned that the 

OPPS has denied hospitals 

reimbursement for these services. 

Response: Hospitals include charges 

for packaged services on their claims, 

and the costs associated with these 

packaged services are then bundled into 

the costs for separately payable 

procedures on the claims. Hospitals may 

use CPT codes to report any packaged 

services that were performed, consistent 

with CPT coding guidelines. Because 

these imaging codes are packaged, their 

presence on a claim that includes a code 

for another separately payable service 

does not necessarily result in the claim 

being a multiprocedure claim. Payment 

for these imaging services is packaged in 

this way into payment for the separately 

payable services with which the 

imaging services are billed. 

The Packaging Subcommittee 

reviewed every code that was packaged 

in CY 2004. The Committee narrowed 

the list of packaged codes to a list of 

potentially problematic codes and 

subsequently reviewed utilization and 

median cost data for these codes. One of 

the main criteria evaluated by the 

Packaging Subcommittee to determine 

whether a code should become 

unpackaged was how likely it was for 

the code to be billed without any other 

code for separately payable services on 

the claim. We encourage submission of 

clinical scenarios involving currently 

packaged codes to the Packaging 

Subcommittee for review at future 

meetings. Submissions should be sent to 

the APCPanel@cms.hhs.gov with 

‘‘Packaging Subcommittee’’ in the 

subject line. 

We will continue to package CPT 

codes 42550 and other x-ray injection 

codes, 75998, 73428, 74329, 74330, 

36500, 75893, 75989, 76001, 76003, 

76005, 90471, 94472, 94760, 94761, 

94762, and G0269 for CY 2005 and will 

discuss these codes with the APC Panel 

Packaging Subcommittee. 

Comment: One commenter requested 

that the status indicator for code G0102 

(Prostate cancer screening; digital rectal 

examination) be changed from packaged 

to separately payable. The commenter 

indicated that the screening is 

administered as part of the initial 

preventive physical examination. The 

commenter stated, ‘‘The payment for 

G0102 will be zero because it is 

identified with status indicator ‘N’

which means it is packaged and not 

paid for separately.’’

Response: Currently, under the OPPS, 

we do not make separate payment for 

code G0102. Its costs are bundled into 

the costs of other separately payable 

services furnished by the hospital on the 

same day. For example, a digital rectal 

examination is usually furnished as part 

of an evaluation and management 

service, so its payment would generally 

be bundled into payment for the 

evaluation and management service 

when a covered evaluation and 

management service is furnished on the 

same day as the digital rectal 

examination. It is a relatively quick and 

simple procedure. Likewise, when the 

examination is performed during the 

same visit as the initial preventive 

examination, we would expect that 

costs associated with the examination 

would be bundled into the costs for the 

initial preventive examination. 

Accordingly, we are continuing to 

package code G0102. 

Comment: One commenter requested 

that we map code G0168 (Wound 

closure by adhesive) to an APC instead 

of assigning status indicator ‘‘N’’ to the 

code. The commenter was concerned 

that access to wound adhesives would 

be reduced if this code is not separately 

payable. 

Response: Wound adhesives are 

considered supplies used to repair 

lacerations and surgical incisions. These 

products are used instead of sutures to 

close wounds. We do not make separate 

payments for sutures under the OPPS. 

Providers are paid when they use 

wound adhesives in the same manner as 

they are paid for other ‘‘packaged’’

procedures. The charges for code G0168 

should be packaged into whichever 

procedure(s) is billed on the same date 

of service. Payment to the provider 

reflects the cost of performing the 

procedure and the related supplies. 

C. Limits on Variations Within APCs: 

Application of the 2 Times Rule 

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

that the items and services within an 

APC group cannot be considered 

comparable with respect to the use of 

resources if the median (or mean) 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. 

However, the statute authorizes the 

Secretary to make exceptions to this 

limit on the variation of costs within 

each APC group in unusual cases such 

as low volume items and services. No 

exception may be made 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. We implemented this 

statutory provision in § 419.31 of the 

regulations. Under this regulation, we 

elected to use the highest median cost 

and lowest median cost to determine 

comparability. 

During the APC Panel’s February 2004 

meeting, we presented data and 

information concerning a number of 

APCs that violate the 2 times rule and 

asked the APC Panel for its 

recommendation. We discuss below the 

APC Panel’s recommendations specific 

to each of these APCs, our proposals in 

65698 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

response to the APC Panel’s 

recommendations that were discussed 

in the August 2004 proposed rule, and 

our final policies. 

1. Cardiac and Ambulatory Blood 

Pressure Monitoring 

APC 0097: Cardiac and Ambulatory 

Blood Pressure Monitoring 

We expressed concern to the APC 

Panel that APC 0097 appears to violate 

the 2 times rule. We sought the APC 

Panel’s recommendation on revising the 

APC to address the violation. Based on 

clinical homogeneity considerations, the 

APC Panel recommended that we not 

restructure APC 0097 for CY 2005. 

We proposed to accept the APC 

Panel’s recommendation that we make 

no changes to APC 0097 for CY 2005. 

We did not receive any public 

comments on our proposal. 

Accordingly, in this final rule, we are 

not making any changes to APC 0097 for 

CY 2005.

2. Electrocardiograms 

APC 0099: Electrocardiograms 

We expressed concern to the APC 

Panel at its February 2004 meeting that 

APC 0099 appears to violate the 2 times 

rule. We asked the APC Panel to 

recommend options for resolving this 

violation. Based on clinical 

homogeneity considerations, the APC 

Panel recommended that we not alter 

the structure of APC 0099 for CY 2005. 

We proposed to accept the APC 

Panel’s recommendation that we make 

no changes to APC 0099 for CY 2005. 

We did not receive any public 

comments on our proposal. 

Accordingly, in this final rule with 

comment period, we are not making any 

changes to APC 0099 for CY 2005. 

3. Excision/Biopsy 

APC 0019: Level I Excision/Biopsy 

APC 0020: Level II Excision/Biopsy 

APC 0021: Level III Excision/Biopsy 

We expressed concern to the APC 

Panel at its February 2004 meeting that 

APC 0019 appears to violate the 2 times 

rule. We advised the APC Panel that this 

violation was not evident in CY 2004 

because the CY 2002 median cost data 

used in calculating the CY 2004 APC 

updates supported moving CPT codes 

11404 (Removal of skin lesion) and 

11623 (Removal of skin lesion) from 

APC 0020 and APC 0021. However, 

based on the CY 2003 data reviewed by 

the APC Panel, APC 0019 would violate 

the 2 times rule. Therefore, we asked the 

APC Panel to recommend an approach 

to resolve the violation. We asked the 

APC Panel if we should leave this APC 

as is; divide APC 0019 into two separate 

APCs; or move some codes in APC 0019 

to higher level excision/biopsy APCs. In 

making its recommendation, the APC 

Panel noted that the 2 times violation in 

APC 0019 was minor, and 

recommended that we not modify APC 

0019. 

We proposed to accept the APC 

Panel’s recommendation to not make 

any modifications to APC 0019 for CY 

2005. We did not receive any public 

comments on our proposal. 

Accordingly, in this final rule with 

comment period, we are not making any 

changes to APC 0019 for CY 2005. 

4. Posterior Segment Eye Procedures 

APC 0235: Level I Posterior Segment 

Eye Procedures 

We expressed concern to the APC 

Panel at its February 2004 meeting that 

APC 0235 appears to violate the 2 times 

rule. At the August 2003 APC Panel 

meeting, the APC Panel recommended 

that we monitor the data for APC 0235 

for review at its February 2004 meeting. 

In order to address the apparent 

violation, we asked the APC Panel to 

consider moving a few CPT codes from 

APC 0235 into a higher level posterior 

segment eye procedure APC. The APC 

Panel noted that the 2 times violation in 

APC 0235 was minor, and 

recommended that we not change APC 

0235. 

We proposed to accept the APC 

Panel’s recommendation that we make 

no changes to the structure of APC 0235 

for CY 2005. We receive one public 

comment regarding this proposal. 

Comment: One commenter urged 

CMS not to finalize the proposal to keep 

the CY 2004 structure of APC 0235 for 

CY 2005. The commenter asked CMS to 

consider moving codes 67220 

(Treatment of choroids lesion), 67221 

(Ocular photodynamic therapy), 67225 

(Eye photodynamic therapy, add-on), 

67101 (Repair detached retina), and 

67141 (Treatment of retina) to a higher 

level Posterior Segment Eye Procedure 

APC. 

Response: After further analysis, we 

continue to believe that the resources 

and clinical characteristics of these 

codes are most compatible and 

homogeneous with those services in 

Level I Posterior Segment Eye 

Procedures, APC 0235. We plan to 

discuss the possible restructuring of 

APCs 0235, 0236, and 0237 (Level I, 

Level II, and Level III Posterior Segment 

Eye Procedures, respectively) at the next 

APC Panel meeting. We invite 

comments on these APCs. 

In this final rule with comment 

period, we are adopting as final the 

proposal not to make any changes to 

APC 0235 for CY 2005. 

5. Laparoscopy 

APC 0130: Level I Laparoscopy 

APC 0131: Level II Laparoscopy 

We expressed concern to the APC 

Panel at its February 2004 meeting that 

APC 0130 appears to violate the 2 times 

rule. We suggested moving CPT code 

44970 (Laparoscopy, appendectomy) 

from APC 0130 to APC 0131. The APC 

Panel recommended that we make this 

change. 

We proposed to accept the APC 

Panel’s recommendation to move CPT 

code 44970 from APC 0130 to APC 

0131. We did not receive any public 

comments on our proposal. 

Accordingly, in this final rule with 

comment period, we are adopting as 

final without modification our proposal 

to move CPT code 44970 from APC 0130 

to APC 0131. 

6. Anal/Rectal Procedures 

APC 0148: Level I Anal/Rectal 

Procedure 

APC 0155: Level II Anal/Rectal 

Procedure 

APC 0149: Level III Anal/Rectal 

Procedure 

APC 0150: Level IV Anal/Rectal 

Procedure 

We expressed concern to the APC 

Panel at its February 2004 meeting that 

APC 0148 appears to violate the 2 times 

rule. We suggested moving CPT code 

46020 (Placement of seton) from APC 

0148 to a higher level anal/rectal 

procedure APC. The APC Panel 

reviewed the four anal/rectal APCs 

(APC 0148, 0149, 0150, and 0155) and 

recommended moving CPT codes 46020 

and 46706 (Repair of anal fistula with 

glue) from APC 0148 to APC 0150. The 

APC Panel also recommended moving 

CPT codes 45005 (Drainage of rectal 

abscess) and 45020 (Drainage of rectal 

abscess) from APC 0148 to APC 0155. 

We proposed to accept the APC 

Panel’s recommendations specific to 

APC 0148. We received one favorable 

public comment on our proposal. 

Accordingly, in this final rule with 

comment period, we are adopting as 

final without modification our proposal 

and are moving CPT codes from APC 

0148 to APCs 0150 and 0155 as shown 

in the Table 6 below.

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7. Nerve Injections 

APC 0204: Level I Nerve Injections 

APC 0206: Level II Nerve Injections 

APC 0207: Level III Nerve Injections 

APC 0203: Level IV Nerve Injections 

We expressed concern to the APC 

Panel that APC 0203 and APC 0207 

appear to violate the 2 times rule. After 

careful consideration of new data 

presented during the February 2004 

meeting, the APC Panel recommended 

moving CPTs 64420 (Nerve block 

injection, intercostal nerve), 64630 

(Injection treatment of nerve), 64640 

(Injection treatment of nerve), and 

62280 (Treatment of a spinal cord 

lesion) from APC 0207 to APC 0206. 

The APC Panel also recommended 

moving CPT code 62282 (Treatment of 

a spinal canal lesion) from APC 0207 to 

APC 0203. 

After reviewing more recent, complete 

calendar year data that was not available 

in February 2004, we proposed to accept 

only the APC Panel’s recommendation 

to move CPTs 64630 and 64640 from 

APC 0207 to APC 0206 and to make 

some other changes that we believed 

were appropriate to improve the nerve 

injection APCs’ clinical and resource 

homogeneity, as shown in Tables 7, 8, 

and 9 of the proposed rule.

We received two comments regarding 

our proposed reassignment of four CPT 

codes from APC 0203 to APC 0207 to 

address an apparent violation of the 2 

times rule. 

Comment: Commenters urged CMS 

not to finalize the proposed changes to 

CPT codes 64620 (Injection treatment of 

nerve), 64680 (Injection treatment of 

nerve), 62263 (Lysis epidural adhesions) 

and 62264 (Epidural lysis on single 

day), which we proposed to move from 

APC 0203 to APC 0207. The 

commenters stated that the proposed 

payment for these services was well 

below the cost of the resources required 

to provide the services at an acceptable 

standard of care. The commenters 

requested that we not move these four 

codes from APC 0203. 

Response: After further analysis, we 

agree with the commenters that CPT 

codes 64620, 62263, and 62264 should 

remain in APC 0203 based on clinical 

and resource homogeneity with the 

services in APC 0203. Therefore, in this 

final rule with comment period, we are 

not moving these three codes from APC 

0203, as displayed in Table 9B below. 

However, based on our final CY 2003 

hospital data for CPT code 64680, 

utilizing over half of the several 

hundred total bills for this service for 

calculation of median hospital costs, we 

continue to believe that the resources 

and clinical characteristics of 

destruction of the celiac plexus by 

neurolytic nerve agent are most 

compatible and homogeneous with 

those services in Level III Nerve 

Injections, APC 0207. Therefore, in this 

final rule with comment period, we are 

adopting as final the proposed 

movement of CPT code 64680 from APC 

0203 to APC 0207, as displayed in Table 

9B below. 

Accordingly, all of the final APC 

reassignments of nerve injections codes 

in this final rule with comment period 

are displayed below in Tables 7, 8, 9A, 

and 9B.


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8. Anterior Segment Eye Procedures 

APC 0232: Level I Anterior Segment Eye 

Procedures 

APC 0233: Level II Anterior Segment 

Eye Procedures 

We expressed concern to the APC 

Panel at its February 2004 meeting that 

APC 0233 appears to violate the 2 times 

rule. We suggested moving CPT codes 

65286 (Repair of eye wound), 66030 

(Injection treatment of eye), and 66625 

(Removal of iris) from APC 0233 to APC 

0232. The APC Panel agreed and 

recommended that we move CPT codes 

65286, 66030, and 66625 from APC 

0233 to APC 0232. 

We proposed to accept the APC 

Panel’s recommendation and to reassign 

these three codes. We received one 

public comment on our proposal. 

Comment: One commenter asserted 

that the costs for performing the 

procedures under CPT codes 65286 and 

66625 are similar to the costs for 

performing procedures in APC 0233 and 

requested that these codes not be moved 

to APC 0232. 

Response: After further analysis, we 

continue to believe that the resources 

and clinical characteristics of codes 

62586 and 66625 are most compatible 

and homogeneous with those services in 

Level I Anterior Segment Eye 

Procedures, APC 0232. 

Therefore, in this final rule with 

comment period, we are adopting as 

final without modification our proposal 

and are moving CPT codes 65286, 

66030, and 66625 from APC 0233 to 

APC 0232 as shown in the Table 10 

below.


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9. Pathology 

APC 0343: Level II Pathology 

APC 0344: Level III Pathology 

We expressed concern to the APC 

Panel at its February 2004 meeting that 

APC 0343 appears to violate the 2 times 

rule. We suggested moving CPT code 

88346 (Immunoflourescent study) from 

APC 0343 to APC 0344. The APC Panel 

concurred with our proposal. 

We proposed to accept the APC 

Panel’s recommendation and to move 

CPT code 88346 from APC 0343 to APC 

0344. We received one public comment 

on our proposal. 

Comment: One commenter requested 

that CMS split APC 0344 into two APCs 

to create another level for the pathology 

procedures. The commenter stated that 

creation of another level would lead to 

more economically homogenous APCs 

to provide payment that more closely 

covers the costs of the procedures. The 

commenter pointed out that APC 0344, 

as currently configured, violates the 2 

times rule and recommended that CMS 

split APC 0344 into two APCs and that 

CMS should assign them to a newly 

created APC rather than finalize its 

proposal to assign the new computerassisted image analysis procedures to 

APC 0344. 

Response: We believe that our 

proposed reassignment of CPT code 

88346 from APC 0343 to 0344, as 

recommended by the APC Panel, will 

improve the resource and clinical 

homogeneity of the APCs. We are 

reluctant to make further reassignments 

without hospital cost data to support 

changes. Several of the codes that the 

commenter is concerned about, 

including APC codes 88360 

(Morphometric analysis, tumor 

immunohistochemistry, quantitative or 

semiquantitative, each antibody; 

manual), 88368 (Morphometric analysis, 

in situ hybridization, each probe; 

manual), and 88367 (Morphometric 

analysis, in situ hybridization, each 

probe; using computer assisted 

technology) were new in CY 2004 and 

CY 2005 and, as such, we do not have 

available claims data for analysis.

Given the new codes mentioned by 

the commenter and the 2 times rule 

violations in APC 0342 and 0344, we 

expect that we will want to solicit the 

advice of the APC Panel regarding the 

configuration of all the pathology APCs: 

0342, 0343, 0344, and 0661, at their next 

meeting. We will reexamine the APCs 

for future updates to the OPPS, but will 

not make other changes to the APCs at 

this time. 

In this final rule with comment 

period, we are adopting as final without 

modification our proposal and are 

moving CPT code 88346 from APC 0343 

to APC 0344. 

10. Immunizations 

APC 0355: Level III Immunizations (for 

CY 2005: Level I Immunizations) 

APC 0356: Level IV Immunizations (for 

CY 2005: Level II Immunizations) 

We expressed concern to the APC 

Panel at its February meeting that APCs 

0355 and 0356 appear to violate the 2 

times rule. In order to eliminate this 

violation, we suggested moving CPT 

90636 (Hepatitis A/Hepatitis B vaccine, 

adult dose, intramuscular use) from 

APC 0355 to APC 0356. We also 

suggested moving CPT codes 90375 

(Rabies immune globulin, intramuscular 

or subcutaneous), 90740 (Hepatitis B 

vaccine, dialysis or immunosuppressed 

patient, intramuscular), 90723 

(Diphtheria-pertussis-tetanus, Hepatitis 

B, Polio vaccine, intramuscular), and 

90693 (Typhoid vaccine, AKD, 

subcutaneous) from APC 0356 to APC 

0355. 

The APC Panel recommended moving 

CPT 90636 from APC 0355 to APC 0356 

and CPT codes 90740, 90723, and 90693 

from APC 0356 to APC 0355. The APC 

Panel delayed making a 

recommendation on CPT 90375 and 

requested that we collect additional cost 

data on this procedure for discussion at 

the next scheduled APC Panel meeting. 

In the August 16, 2004 proposed rule, 

we proposed to accept the APC Panel’s 

recommended changes to move CPT 

code 90740 from APC 0356 to 0355, and 

to move CPT code 90636 from 0355 to 

0356. Based on our review of more 

recent claims data than were available 

to the APC Panel, we also determined 

that the medians for CPT codes 90693 

and 90375 are below the $50 drug 

packaging threshold. Therefore, we also 

proposed to package both CPT codes 

90693 and 90375 and to change the 

status indicator for CPT code 90723 to 

‘‘E’’ because it is not payable by 

Medicare. 

We received one public comment 

relating to CPT code 90740. 

Comment: One commenter requested 

that CMS not reassign CPT code 90740 

Recombivax 40mcg/mL (a brand name 

for Hepatitis B vaccine), from APC 0356 

(Level II Immunizations) to APC 0355 

(Level I Immunizations), as proposed. 

The commenter stated that the CMS 

median cost of $5.55 is erroneous and 

that the lowest published price for 

Recombivax 40mcg/mL in the Federal 

Supply Schedule is $79.33. Therefore, 

the commenter believed that code 90740 

does not violate the 2 times rule when 

assigned to APC 0356. 

Response: We are using the CY 2003 

hospital claims as the basis for payment 

and we believe we have adequate claims 

on which to base payment for CPT code 

90740 for CY 2005. We were able to use 

99 percent of the claims for CPT code 

90740 for median calculation and 

believe that our assignment of CPT code 

90740 for CY 2005 is appropriate. 

In this final rule with comment 

period, we are adopting as final without 

modification our proposal and are 

moving CPT code 90740 from APC 0356 

to APC 0355 and CPT code 90636 from 

APC 0355 to APC 0356, as shown in 

Table 11, and packaging both CPT codes 

90693 and 90375.


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11. Pulmonary Tests 

APC 0367: Level I Pulmonary Tests 

APC 0368: Level II Pulmonary Tests 

APC 0369: Level III Pulmonary Tests 

We expressed concern to the APC 

Panel at its February 2004 meeting that 

APC 0369 appears to violate the 2 times 

rule. We suggested moving CPT code 

94015 (Patient recorded spirometry) 

from APC 0369 to APC 0367. The APC 

Panel concurred with our proposal. 

In the August 16, 2004 proposed rule, 

we proposed to accept the APC Panel’s 

recommendation and to move CPT code 

94015 from APC 0369 to APC 0367. In 

addition, during our analysis of more 

recent claims data following the APC 

Panel meeting, we noted that APC 0367 

violated the 2 times rule. Therefore, we 

proposed to reassign CPT codes 94375, 

94750, 94450, 94014, 94690, and 93740 

to APC 0368. 

We did not receive any public 

comments on our proposal. 

Accordingly, in this final rule with 

comment period, we are adopting as 

final without modification our proposal 

and are moving CPT code 94015 from 

APC 0369 to APC 0367 and reassigning 

CPT codes 93740, 94014, 94375, 94450, 

94690, and 94750 to APC 0368, as 

shown in Table 12A.

12. Clinic Visits 

APC 0600: Low Level Clinic Visits 

We expressed concern to the APC 

Panel at its February 2004 meeting that 

APC 0600 appears to violate the 2 times 

rule. We suggested moving HCPS code 

G0264 (Assessment other than CHF, 

chest pain, asthma) to a higher level 

clinic visit. The APC Panel 

recommended that we not make any 

changes to APC 0600.

We proposed to accept this 

recommendation and not make any 

changes to APC 0600 for CY 2005. We 

received one public comment on our 

proposal from a provider group. 

Comment: One comment 

recommended that CMS investigate 

further the apparent two times violation 

in APC 0600. The commenter believed 

that, although the APC Panel did not 

recommend reassignment of HCPCS 

code G0264 (Initial nursing assessment 

of patient directly admitted to 

observation with diagnosis other than 

CHF, chest pain or asthma or patient 

directly admitted to observation with 

diagnosis of CHF, chest pain or asthma 

when the observation stay does not 

qualify for G0244), in order to remedy 

the apparent violation, CMS should 

make the reassignment of G0264 to a 

much higher level clinic visit (APC 

0602, High Level Clinic Visit) due to the 

resources involved in directly admitting 

a patient to observation. The commenter 

provided examples of services that the 

commenter believed are part of the 

initial observation nursing assessment 

provided by a hospital, including 

patient registration, comprehensive 

nursing clinical admission assessment, 

initiation of physician orders, 

coordination and scheduling of 

ancillary services, administration of 

medications, and assessment of 

discharge planning needs. 

Response: We do not agree with the 

commenter’s assertion that the services 

coded using G0264 are necessarily more 

resource intensive than a low-level 

clinic visit. The beneficiary whose 

observation stay would be coded using 

G0264 presents to the hospital following 

a physician visit. The beneficiary has 

already been assessed by the physician 

who, as a result of the assessment, has 

decided that observation care is 

warranted. We are concerned that 

hospitals may be attributing costs to the 

initial nursing assessment that are more 

appropriately attributable to observation 

services themselves, such as 

administration of medications, 

scheduling of tests to be conducted 

during the period of observation, and 

discharge planning. It is not apparent 

why the services provided in the 

hospital associated with admission to 

observation care (including some of 

those listed by the commenter) should 

require the resources of a High Level 

Clinic Visit (APC 0602) as the 

commenter suggested. Thus, we agree 

with the APC Panel’s recommendation 

to leave G0264 in APC 0600. 

Accordingly, in this final rule with 

comment period, we are adopting as 

final our proposal not to make any 

changes to APC 0600 for CY 2005. 

13. Other APC Assignment Issues 

We received a number of comments 

about specific APC assignments and 

payment amounts that were generated 

by our proposed rates or proposed 

changes to HCPCS code APC 

assignments resulting from our revisions 

to address violations of the 2 times rule. 

Those changes were not all specifically 

discussed in the proposed rule, but were 

open to comment. We respond to these 

comments in this section of the final 

rule. 

a. Catheters for Brachytherapy Services 

Comment: One commenter asked that 

CMS consider carefully in which APCs 

to place new CPT codes 19296, 19297, 

and 19298 (for placement of catheters 

into the breast for brachytherapy) 

because the services have, heretofore, 

been coded under unlisted code 19499, 

which is assigned to APC 0028 (Level I 

Breast Surgery) and with a proposed 

payment amount of $1,081 for CY 2005. 

The commenter believed that this 


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proposed amount is too low to 

appropriately reflect the costs of these 

services. 

Response: We have assigned new CPT 

codes 19296 and 19298 in New 

Technology APC 1524 (New 

Technology-Level XIV ($3,000–$3,500)) 

with a payment amount of $3,250 and 

CPT code 19297 in APC 1523 (New 

Technology-Level XXIII ($2,500–

$3,000)) with a payment amount of 

$2,750 for CY 2005 OPPS. These are 

new codes and the APC assignments 

were not included in the proposed rule. 

Therefore, the APC assignments are 

subject to comment. 

b. Peripherally Inserted Central 

Catheters (PICC) 

We received one comment regarding 

our proposed APC reassignment of CPT 

codes 36568 (Insertion of peripherally 

inserted central venous catheter (PICC), 

without subcutaneous port or pump; 

under 5 years of age) and 36569 

(Insertion of peripherally inserted 

central venous catheter (PICC), without 

subcutaneous port or pump; age 5 years 

or older to APC 0187 (Miscellaneous 

placement/repositioning). We made the 

proposal based on a recommendation by 

the APC Panel during its February 2004 

meeting. 

Comment: One commenter requested 

that we not reassign CPT codes 36568 

and 36569 from APC 0032 to APC 0187 

as proposed. 

Response: We proposed to reassign 

the PICC lines to APC 0187 based on our 

agreement with the APC Panel that there 

are significant differences in the clinical 

complexity and resource use associated 

with the procedures assigned to APC 

0032 compared to PICC line insertion. 

We will reevaluate the APC assignment 

of the PICC line insertion once we have 

sufficient data to evaluate the 

assignment.

c. External Fixation Devices 

Comment: One commenter indicated 

that APC 0046 (Open/Percutaneous 

Treatment Fracture) contains violations 

of the two times rules and should be 

broken into multiple APCs so that CPT 

codes 20690 (Apply bone fixation 

device) and 20692 (Apply bone fixation 

device), which are for application of 

external fixation devices, could be paid 

appropriate amounts. Other commenters 

asked that CMS require that claims for 

these codes must contain codes for the 

devices and asked that we revise the 

definition of C1713 (Anchor/screw for 

opposing bone to bone or soft tissue to 

bone (implantable)) to also apply to 

external fixation devices and to remove 

the requirement that the device be 

implantable. One commenter also asked 

that we instruct providers to bill code 

20690 or 20692 when external fixation 

is provided with the reduction of a 

fracture and asked that we create a new 

APC to contain CPT codes 20690 and 

20692. 

Response: CPT codes 20690 and 

20692 are currently in APC 0050 and no 

changes were proposed for 2005 OPPS. 

There are no 2 times violations in the 

APC in which they are located and each 

of these codes represents approximately 

one percent of the volume in the APC. 

Therefore we see no reason to create a 

new APC for these codes. The CPT 

codes for treatment of a fracture often 

include with or without fixation in the 

definition of the code. Where fixation is 

included in the definition of the code, 

it would be miscoding to also report 

20690 or 20692; these codes should be 

reported if, and only if, fixation is not 

included in the definition of the CPT 

code for treatment of the fracture. 

Providers should review the CPT 

instructions and look to the AMA’s 

guidance on coding if they have 

questions about when these codes 

should be reported. 

d. Apheresis 

Comment: Two commenters disagreed 

with our proposed reassignment of CPT 

code 36515 (Apheresis, adsorp/reinfuse) 

to APC 0111 (Blood Product Exchange) 

and recommended that the code be 

reassigned to APC 0112 (Apheresis, 

Photopheresis and Plasmapheresis). One 

of the commenters, a medical specialty 

society, indicated that the procedure 

involves an expensive disposable 

supply item that costs more than the 

proposed payment rate for APC 0111. In 

addition, this commenter stated that the 

proposed payment rate would be 

significantly less than the physician’s 

office payment, which the commenter 

concluded indicated that the charge 

data used to establish the median cost 

of the procedure may be incorrect. 

Response: APC assignments are based 

on clinical homogeneity and 

comparable resource utilization for all 

CPT and HCPCS codes within an APC. 

After careful review, we disagree with 

the commenters that CPT code 36515 

should be reassigned to APC 0112. We 

believe that the resources required for 

CPT code 36515 are more similar to the 

other CPT codes in APC 0111. Thus, for 

CY 2005, we are adopting as final our 

proposal to assign CPT code 36515 to 

APC 0111, effective January 1, 2005. 

e. Imaging for Intravenous 

Cholangiogram (IVC) Filter Placement 

and Breast Biopsy 

Comment: One commenter requested 

that we move CPT code 75940 

(Percutaneous placement of IVC filter, 

radiological supervision and 

interpretation) from APC 0187 

(Miscellaneous Placement/

Repositioning) to APC 0280 (Level III 

Angiography and Venography Except 

Extremity) and CPT code 76095 

(Stereotactic localization guidance for 

breast biopsy or needle placement, each 

lesion, radiological supervision and 

interpretation) from APC 0187 

(Miscellaneous Placement/

Repositioning) to APC 0289 (Needle 

Localization for Breast Biopsy). The 

commenter believed that imaging for 

IVC filter placement and breast biopsy 

are entirely unrelated services to the 

central venous access surgical 

procedures comprising the majority of 

the codes in APC 0187. 

Response: We understand the 

commenter’s concern regarding the 

clinical inconsistency between the 

services described by CPT codes 75940 

and 76095, which are assigned to APC 

0187, and the central venous access 

(CVA) procedures that are also assigned 

to APC 0187. However, we disagree 

with the commenter’s recommendation 

that CPT codes 75940 and 76095 be 

reassigned. First, if we were to accept 

the commenter’s recommendation to 

reassign CPT code 75940 to APC 0280 

and CPT code 76095 to APC 0289, the 

resource homogeneity of those two 

APCs would be compromised, and we 

would be significantly overpaying CPT 

code 75940 and underpaying CPT code 

76095 based on the median costs of 

those two codes relative to the median 

costs of the procedures currently 

assigned to APCs 0280 and 0289, 

respectively. Further, we lack data for a 

number of the CVA codes in APC 0187 

because they are new codes that were 

established in CY 2004. We believe that 

these new CVA codes are clinically 

similar to the codes that comprise APC 

0187, and we estimate that they are also 

similar in terms of resource costs, which 

is why we assigned them to APC 0187. 

Once we have accumulated data for 

these new codes, we will review the 

configuration of APC 0187, and make 

whatever changes are appropriate in 

future updates. Therefore, we are 

maintaining CPT codes 75940 and 

76095 in APC 0187 for CY 2005.

f. Hysteroscopic Endometrial Ablation 

Procedures 

Comment: Some commenters opposed 

the APC Panel recommendation that 

both CPT codes 0009T (Endometrial 

cryoablation) and 58563 (Hysteroscopic 

endometrial ablation) be assigned to 

APC 0387 (Level II Hysteroscopy) in CY 

2005. The commenters were concerned 

that adding endometrial cryoablation 

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(CPT 0009T) to APC 0387 would 

seriously weaken the clinical 

homogeneity of APC 0387 because CPT 

0009T (Endometrial ablation with 

ultrasonic guidance) does not use 

hysteroscopy, and it requires an 

ultrasound machine and a separate 

capital unit, or compressor console, to 

provide cryotherapeutic energy. Instead, 

the commenters urged CMS not to keep 

CPT code 58563 in APC 0387, but 

rather, to assign it to APC 0202, in 

addition to assigning code 0009T to 

APC 0202, as we had proposed. One 

commenter argued that the clinical 

homogeneity of APC 0202 would be 

enhanced by grouping the two 

endometrial ablation procedures that 

use visualization to monitor and 

confirm the destruction of the 

endometrium in the same APC. 

Moreover, moving both CPT codes 

58563 and 0009T to APC 0202 would 

highlight APC 0202’s clinical 

homogeneity as a more device-intensive 

family of new technology procedures 

while better organizing APC 0387 as the 

group of non-device hysteroscopic 

procedures involving surgical removal 

or resection of intrauterine tissue for 

reasons other than abnormal uterine 

bleeding (AUB). The same commenter 

also believed that assigning both codes 

to APC 0202 would negate any 

inappropriate incentives to use either 

treatment because of payment. Other 

commenters asked that CMS create a 

new APC for endometrial cryoablation 

and place that APC on the devicedependent list as it did for cryoablation 

of the prostate because they have found 

that the device is 70 percent of the total 

cost of endometrial cryoablation. The 

commenters asked that the new APC be 

paid at least $3,448 to appropriately 

reflect the hospital’s cost of the service. 

Response: After careful consideration 

of the comments, we have decided to 

make final for CY 2005 our proposal to 

retain hysteroscopic endometrial 

ablation (CPT code 58563) in APC 0387. 

In addition, we are making final for CY 

2005 our proposal to assign endometrial 

cryoablation with ultrasonic guidance to 

APC 0202. (We note that CPT code 

0009T for endometrial cryoablation with 

ultrasonic guidance is replaced by new 

CPT code 58356 for CY 2005.). We 

believe that the need for a hysteroscope 

to perform hysteroscopic endometrial 

ablation makes it similar to the other 

services in APC 0387. On the other 

hand, Endometrial cryoablation uses a 

device but not a hysteroscope and, 

therefore, is more clinically compatible 

with APC 0202, which contains other 

resource intensive gynecologic services 

that also use a device but not a 

hysteroscope. Moreover, APC 0202 is a 

device-dependent APC and, therefore, a 

more appropriate placement for a 

procedure that uses a device. 

g. Hysteroscopic Female Sterilization 

Comment: One commenter indicated 

that the AMA intended create a new 

CPT level III tracking code for 

hysteroscopic female sterilization for CY 

2005 and urged CMS to assign it to APC 

0202. The commenter indicated that this 

new service places implants through a 

hysteroscope to occlude the fallopian 

tubes and that, therefore, it should be 

assigned to APC 0202, which would 

provide appropriate payment for this 

new service for which the implants cost 

$1,000 to $1,500. 

Response: This service is represented 

by new CPT code 58565 (Hysteroscopic 

fallopian tube cannulation and micro 

insert placement), which was created 

after the issuance of the proposed rule. 

We are placing this new code to APC 

0202 for CY 2005 for the OPPS. The 

placements of new codes in APCs, such 

as this code, are subject to comment 

during the comment period of this final 

rule with comment period. 

h. Urinary Bladder Residual Study 

Comment: One commenter asked us 

to keep CPT code 78730 (Urinary 

bladder residual study) in APC 0404 

(Renal and Genitourinary Studies Level 

I) instead of moving it to APC 0340 

(Minor Ancillary Procedures). The 

commenter noted that this code is being 

misused to report other than urinary 

bladder residual imaging. 

Response: CPT code 78730 was 

created and originally valued for the 

Medicare Physician Fee Schedule as a 

procedure that required the services of 

a nuclear medicine technician. 

Subsequently, the use of the code has 

changed so that it is now used primarily 

by urologists. We do not believe that 

urologists perform services requiring 

nuclear medicine technicians and so, as 

the commenter pointed out, it appears 

that the code may now be utilized for 

coding a service that is different from 

that for which it was created. 

However, we are not reassigning the 

code at this time, as requested by the 

commenter, pending further review. To 

that end, we would appreciate 

submission of resource data from other 

physician specialties that use CPT code 

78730 for us to review in the context of 

our hospital data so that we can 

examine this issue further. 

i. Intracranial Studies, Electrodiagnostic 

Testing, Autonomic Testing, and EEG 

We received one comment relating to 

the APC assignments for several 

electrodiagnostic testing, autonomic 

testing, and EEG codes. 

Comment: One commenter requested 

that CPT code 93888 (Intracranial study) 

be moved from APC 0266 (Level II 

Diagnostic Ultrasound Except Vascular) 

and assigned to APC 0267 (Level III 

Diagnostic Ultrasound Except Vascular) 

as it was in CY 2002; that CPT codes 

95870 (Muscle test, nonparaspinal), 

95900 (Motor nerve conduction test), 

and 95904 (Sensory NCV) be assigned to 

APC 0218 (Level II Nerve Muscle Tests); 

that CPT codes 95921, 95922, and 95923 

(Autonomic nerve function tests) be 

assigned to APC 216 (Level III Nerve 

and Muscle Tests); and that CPT codes 

95953 and 95956 (EEG monitoring) be 

assigned to APC 209 (Extended EEG 

Studies and Sleep Studies, Level II). 

Response: Based on our final CY 2003 

hospital data for CPT codes 93888, 

95870, 95900, 95904, 95921, and 95922, 

we continue to believe that the 

resources and clinical characteristics of 

those codes are most compatible with 

other services in the APCs to which they 

are assigned. We made no proposal to 

change any of those APC assignments. 

Therefore, in this final rule with 

comment period, we are finalizing our 

continued placement of CPT code 93888 

in APC 0266; CPT codes 95870, 95900, 

and 95904 in APC 0215; and CPT codes 

95921 and 95922 in APC 0218. We are 

moving CPT code 95923 from APC 0215 

to APC 0218 because the resources for 

this code are most compatible and 

homogenous with those services in 

Level II Nerve and Muscle Tests.

Based on our further review of CPT 

codes 95953 and 95956, we are moving 

these two CPT codes, as well as code 

95950, to APC 0209 (Extended EEG 

Studies and Sleep Studies, Level II). 

Based on our review of clinical and 

resource use characteristics of these CPT 

codes, we discovered that 95953, 95956 

and 95950 all are more homogenous 

with procedures assigned to APC 0209 

than in their current APCs. Although we 

did not propose to make these 

reassignments in the proposed rule, 

based in part on the comment received 

and our further review, we are making 

these reassignments in this final rule 

with comment period in the interest of 

clinical and resource use homogeneity. 

Accordingly, we are reassigning the 

CPT codes relating to intracranial 

studies, electrodiagnostics testing, 

autonomic testing, and EEG to APCs, as 

displayed below in Table 12B.

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j. Therapeutic Radiation Treatment 

Comment: Some commenters objected 

to the proposed movement of CPT code 

77370 (Radiation physics consult) from 

APC 0305 (Level II Therapeutic 

Radiation Treatment Preparation) to 

APC 0304 (Level I Therapeutic 

Radiation Treatment Preparation), with 

a proposed reduction in the payment 

rate by 51 percent from the CY 2004 

payment rate of $200.60. The 

commenters indicated that the current 

CY 2004 payment rate is already 

inadequate. The commenters expressed 

concern that the proposed payment of 

$98.27 would not compensate for the 

costs incurred to deliver this service and 

urged that CPT code 77370 remain in 

APC 0305. 

Response: The median of $134.22 for 

CPT code 77370 was based on 95 

percent of the total CY 2003 claims 

(33,070 single procedure claims out of 

34,792 total claims). Based on these 

claims data, we believe that the 

movement of CPT code 77370 from APC 

0305 (with a proposed median of 

$229.92) to APC 0304 (with a proposed 

median of $99.92) is appropriate. 

Therefore, we are finalizing our 

movement of CPT code 77370 from APC 

0305 to APC 0304 for CY 2005. 

k. Hyperthermia Procedures 

Comment: One commenter expressed 

concern about the 9-percent decrease in 

the proposed payment rate for 

hyperthermia procedures (CPT codes 

77600 through 77605) assigned to APC 

0314 (Hyperthermic Therapies). The 

commenter asserted that the hospital 

charges do not reflect the tremendous 

capital costs associated with 

hyperthermia procedures. The 

commenter suspected that the 

questionably high utilization for these 

procedures may be a result of 

miscoding. The commenter requested 

that CMS consider the hyperthermia 

practice expense data submitted through 

the Practice Expense Advisory Council 

(PEAC) and Medicare Physician Fee 

Schedule (MPFS) processes. The 

commenter urged CMS to maintain the 

CY 2004 payment rates for hyperthermia 

through CY 2005 to allow additional 

time for the commenter to educate 

providers on the proper coding and cost 

reporting for hyperthermia. 

Response: We believe the data do not 

support the commenter’s concern that a 

high utilization for these codes is 

indicative of miscoding, as we do not 

consider 552 total claims to reflect a 

high utilization that gives rise to 

question. The payment rate for APC 

0314 for CY 2005 noted in the proposed 

rule was set using 86 percent of the total 

claims (that is, 452 single procedure 

claims out of 522 total claims), which 

we consider to be sufficiently robust for 

ratesetting purposes. Therefore, we will 

not consider practice expense data 

submitted through the PEAC or MPFS 

processes. 

l. Physician Blood Bank Services 

Comment: One commenter asked that 

CMS place CPT codes 86077, 86078 and 

86079 (Physician blood bank services) 

into an APC and make payment for 

them under the OPPS. The commenter 

indicated that the current assignment of 

status indicator ‘‘A’’ is assigned to 

HCPCS codes that are paid under 

another fee schedule but that these 

services are not paid under any other fee 

schedule or payment system and, 

therefore, the hospital is not being paid 

for these services. The commenter noted 

that the services had status indicator 

‘‘X’’ for minor services and had APC 

assignments in the CY 2003 OPPS. 

Response: We agree and have 

assigned these CPT codes to APC 343 

with status indicator ‘‘X.’’ These 

services consist mainly of physician 

professional services, which are paid 

through the Medicare Physician Fee 

Schedule, but we expect there may also 

be some hospital resources utilized. We 

have given these codes a condition code 

of ‘‘NI’’ (new interim) in this interim 

final rule with comment because they 

were not paid under the OPPS in CY 

2004 and because we were not able to 

use the data for these codes in the 

calculation of the median cost for APC 

343. 

m. Caloric Vestibular Test 

Comment: One commenter requested 

an explanation for the proposed 

movement of CPT code 92543 (Caloric 

vestibular test) from APC 0363 (Level I 

Otorhinolaryngologic Function Tests) to 

APC 0660 (Level 2 Otohinplaryngologic 

Function Tests), and CPT codes 92553 

(Audiometry, air and bone) and 92575 

(Sensorineural acuity test) from APC 

0365 (Level II Audiometry) to APC 0364 

((Level I Audiometry). 

Response: We regularly review CPT 

codes to ensure that they are in 

appropriate clinical APCs, based on 

resource use and clinical homogeneity. 

Upon review, we have found that code 

92543 fits more appropriately in a 

higher-paying APC in the same family of 

otorhinolaryngologic function test 

APCs, while codes 92553 and 92575 fit 

in a lower-paying APC in the same 

family of audiometry APCs. 

n. APC 0365—Level II Audiometry 

Comment: One commenter stated that 

the services in APC 0365 (Level II 

Audiometry) are not clinically 

homogeneous and also violate the 2 

times rule, sometimes by a spread of 300 

percent. The commenter asked that CMS 

split the APC into two APCs: one 

containing CPT codes 92604, 92602, 

92603, 92601 and 92561 and a second 

new APC containing CPT codes 92577, 

92579, 92582, 92557. 

Response: We agree that revision of 

this APC would result in improved 

clinical homogeneity and better 

grouping of services with similar 

resources. Therefore, we are establishing 

a new APC 0366 (Level III Audiometry), 

and are placing in the new APC those 


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services that are specific to aural 

rehabilitation after cochlear 

implantation: CPT codes 92601, 92602, 

92603, and 92604.

o. Noncoronary Intravascular 

Ultrasound (IVUS) 

Comment: One commenter requested 

that CMS keep CPT code 37250 

(Intravascular ultrasound (non-coronary 

vessel) during diagnostic evaluation 

and/or therapeutic intervention; initial 

vessel) in APC 0670 (Level II 

Intravascular and Intracardiac 

Ultrasound and Flow Reserve) and to 

use only those claims that capture 

intravascular ultrasound (IVUS) devicerelated costs to calculate the median 

cost for this procedure. 

Response: We assigned CPT 37250 to 

APC 0416 (Level I Intravascular and 

Intracardiac Ultrasound and Flow 

Reserve) in the proposed rule. We 

created two levels for IVUS by creating 

APC 0416 in order to recognize both the 

clinical and resource use differences 

between the coronary and noncoronary 

vessel procedures, as well as the initial 

vessel and each additional vessel 

procedures. Prior to creation of APC 

0416, all IVUS procedures, coronary and 

noncoronary, as well as initial vessel 

and each additional vessel, were 

assigned to APC 0670. Based on analysis 

of our CY 2003 hospital claims data, we 

concluded that the services in APC 0670 

had widely varying median costs, with 

lower median costs for both the each 

additional vessel (noncoronary and 

coronary) and initial noncoronary vessel 

services in APC 0670, as compared with 

the initial coronary vessel IVUS. We 

recognized that the additional vessel 

services would not require a second 

costly device in most cases. We also 

noted that the initial vessel coronary 

IVUS code, CPT 92978, includes 

imaging supervision and the 

interpretation and report, while the 

initial vessel noncoronary IVUS code, 

CPT 37250, does not include the 

radiological supervision and 

interpretation, which is billed using 

another CPT code. Thus, we believe that 

the hospital resources utilized to 

perform initial vessel noncoronary and 

coronary IVUS are likely to be different 

because the service elements in the CPT 

codes vary. Based on this review, we 

believe CPT 37250, a noncoronary 

vessel procedure with a median cost of 

$361, is appropriately assigned to APC 

0416 and would be significantly 

overpaid if assigned to APC 0670. 

For CY 2005, we did not have the ‘‘C’’

coded claims to use to identify devicerelated costs with the level of specificity 

that was possible for CY 2004. However, 

we had significantly more claims 

available for CPT 37250 for ratesetting 

this year than for CY 2004. We believe 

that the data on which the assignment 

to APC 0416 was based were reflective 

of hospital claims data regarding the 

resources utilized for the service. As we 

note elsewhere in this preamble, we will 

be requiring the use of device codes to 

report all devices utilized, beginning 

January 1, 2005. 

Accordingly, in this final rule we are 

finalizing the assignment of CPT 37250 

to APC 0416 for CY 2005. 

p. Electronic Analysis of 

Neurostimulator Pulse Generators 

Comment: One commenter stated that 

the services in APC 0692 (Electronic 

Analysis of Neurostimulator Pulse 

Generators) are not clinically 

homogeneous and also violate the 2 

times rule. The commenter asked that 

CMS split the APC into two APCs: one 

containing CPT codes 95972 and 95975, 

and a second new APC containing CPT 

codes 95970, 95971, and 95974. 

Response: We recognize that there is 

a violation of the two times rule in APC 

0692. Therefore, we are moving CPT 

code 95970 to APC 0218 (Level II Nerve 

and Muscle Tests), which places it in a 

clinical APC that is suitable in terms of 

resource use for the service and results 

in APC 0692 conforming to the 2 times 

rule. 

q. Endoscopic Ultrasound Services 

Comment: One commenter asked that 

CMS create a separate APC for 

endoscopic ultrasound services because 

the commenter believed that there are 

unique costs associated with them. The 

commenter also believed that 

ultrasound costs were not packaged into 

the median for endoscopic ultrasound 

services because of correct coding edits 

that define endoscopic ultrasound 

services as including ultrasound. 

Response: We have no reason to 

believe that the costs for endoscopic 

ultrasound services do not contain the 

costs for the ultrasound component of 

the service. Ultrasound services are 

included in the definition of the 

endoscopy CPT codes, and the hospital 

would include charges for the 

ultrasound in the charge for endoscopy 

that uses ultrasound services. We 

believe that the current APC placement 

of the codes for endoscopic ultrasound 

services in APC 0141 (Level I Upper GI 

Procedures) is valid, both with regard to 

clinical homogeneity and resource use. 

r. External Counterpulsation (ECP) 

Comment: Several commenters 

requested that G0166 (External 

Counterpulsation) in APC 0678 

(External Counterpulsation) be assigned 

status indicator ‘‘S’’ rather than ‘‘T’’ and 

that CMS maintain the payment rate for 

external counterpulsation at the CY 

2004 level. The commenters asserted 

that external counterpulsation is a 

stand-alone procedure and that 

assigning it a status indicator ‘‘T’’ has 

contributed to declining and inadequate 

payment rates for the services. The 

commenters argued that the proposed 

payment rate for CY 2005 is not 

reflective of the costs of the service and 

that the rate should be consistent with 

other cardiovascular equipment trends 

such as echocardiography. They 

contended that the claims data CMS 

used are erroneous and pointed out that 

the payment rate has decreased every 

year since CY 2000, from $112.72 in CY 

2004 to a proposed rate of $105.38 for 

CY 2005. The commenter also 

speculated that ‘‘batching’’ or 

‘‘misreporting’’ of claims also may be 

contributing to the rate decline trend for 

external counterpulsation. 

Response: We do not believe that the 

rate decrease for these procedures has 

anything to do with the ‘‘T’’ status 

indicator. The rate for external 

counterpulsation proposed in the 

August 16, 2004 proposed rule was 

based on virtually all (35,764) of the 

37,565 hospital claims submitted and 

the APC is comprised of only this one 

procedure. We are confident that the 

claims data are representative of actual 

costs and as such, that the proposed 

decreased rate is appropriate. 

The status indicator only affects the 

payment rate when external 

counterpulsation is billed with another 

procedure that has a status indicator 

‘‘T.’’ There are few multiple procedure 

claims for this procedure in the CY 2003 

claims data and, thus, only a very small 

effect of multiple procedure discounting 

was possible.

In the absence of supporting 

information from the commenters, it is 

not clear what the commenters mean by 

considering the batching of claims as 

contributing to the payment decrease. It 

is also not clear whether or not the 

commenters’ belief that misreporting 

may be contributing to the rate decline 

trend for external counterpulsation is 

justified. However, we encourage 

hospitals to code accurately. 

D. Exceptions to the 2 Times Rule 

As discussed earlier, the Secretary is 

authorized to make exceptions to the 2 

times limit on the variation of costs 

within each APC group in unusual cases 

such as low volume items and services. 

Taking into account the APC changes 

that we proposed for CY 2005 based on 

the APC Panel recommendations 

discussed in section II.C. of this 

65708 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

preamble and the use of CY 2003 claims 

data to calculate the median cost of 

procedures classified in the APCs in the 

August 16, 2004 proposed rule, we 

discussed our review of all the APCs to 

determine which APCs would not meet 

the 2 times limit. We used the following 

criteria to decide whether to propose 

exceptions to the 2 times rule for 

affected APCs: 

• Resource homogeneity. 

• Clinical homogeneity. 

• Hospital concentration. 

• Frequency of service (volume). 

• Opportunity for upcoding and code 

fragments. 

For a detailed discussion of these 

criteria, refer to the April 7, 2000 OPPS 

final rule with comment period (65 FR 

18457). 

In the August 16, 2004 proposed rule, 

we proposed to exempt 54 APCs from 

the 2 times rule based on the criteria 

cited above. In cases in which a 

recommendation of 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 these 

recommendations were based on 

explicit consideration of resource use, 

clinical homogeneity, hospital 

specialization, and the quality of the 

data used to determine the APC 

payment rates that we proposed for CY 

2005. The median cost for hospital 

outpatient services for these and all 

other APCs can be found at Web site: 

http//www.cms.hhs.gov.

We received one public comment on 

our proposal. 

Comment: One commenter 

recommended that we use statistical 

methods to determine variations in the 

medians of services mapped to an APC. 

Specifically, the commenter suggested 

the cost data for an APC should include 

the standard deviation and the 

coefficient of variation using the 

geometric mean as the basis for the 

measure of dispersion. The commenter 

recommended that very few APCs be 

allowed to violate the 2 times rule. 

Response: We appreciate the 

commenter’s recommendations. We will 

consider these recommendations for 

future recalibrations. We do currently 

review the range of standard descriptive 

statistics for all APCs, including, but not 

limited to, the standard deviation and 

coefficient of variation. As we stated in 

the proposed rule, we used multiple 

criteria to assess whether to propose 

exceptions to the 2 times rule for 

affected APCs, including resource and 

clinical homogeneity, hospital 

concentration, frequency of services, 

and opportunities for upcoding and 

code fragments. Despite an increase in 

the number of clinical APCs in the 

OPPS over the last several years, the 

number of APCs excepted from the 2 

times rule has remained relatively 

stable. 

The proposed rule listed exceptions 

from the 2 times rule based on data from 

January 1, 2004 through September 30, 

2004. For this final rule with comment 

period, we used data from January 1, 

2003 through December 31, 2003. As a 

result of the additional data, the list of 

APCs that we are excepting from the 2 

times rule has been updated. In this 

final rule with comment period, we are 

adopting 57 APCs as excepted from the 

2 times rule, as shown in Table 13 

below. 

BILLING CODE 4120–01–P

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BILLING CODE 4120–01–C

E. Coding for Stereotactic Radiosurgery 

Services 

1. Background 

In the November 7, 2003 final rule 

with comment period (68 FR 63403), we 

discussed the APC Panel’s consideration 

of HCPCS codes G0242 (Cobalt 60-based 

stereotactic radiosurgery plan) and 

G0243 (Cobalt 60-based stereotactic 

radiosurgery delivery). At its August 22, 

2003 meeting, the APC Panel discussed 

combining the coding for these 

procedures under one code, with the 

payment for the new code derived by 

adding together the payments for 

HCPCS codes G0242 and G0243. The 

APC Panel recommended that we solicit 

additional input from professional 

societies representing neurosurgeons, 

radiation oncologists, and other experts 

in the field before recommending 

changes to the coding configuration for 

Cobalt 60-based stereotactic 

radiosurgery planning and delivery. 

In a correction to the November 7, 

2003 final rule with comment period, 

issued on December 31, 2003 (68 FR 

75442), we considered a commenter’s 

request to combine HCPCS codes G0242 

and G0243 into a single procedure code 

in order to capture the costs of this 

treatment in a single procedure claim 

because the majority of patients receive 

the planning and delivery of this 

treatment on the same day. We 

responded to the commenter’s request 

by explaining that several other 

commenters stated that HCPCS code 

G0242 was being misused to code for 

the planning phase of linear acceleratorbased stereotactic radiosurgery 

planning. Because the claims data for 

HCPCS code G0242 represent costs for 

linear accelerator-based stereotactic 

radiosurgery planning (due to misuse of 

the code), in addition to Cobalt 60-based 

stereotactic radiosurgery planning, we 

were uncertain of how to combine these 

data with HCPCS code G0243 to 

determine an accurate payment rate for 

a combined code for planning and 

delivery of Cobalt 60-based stereotactic 

radiosurgery. 

In consideration of the misuse of 

HCPCS code G0242 and the potential for 

causing greater confusion by combining 

HCPCS codes G0242 and G0243, we 

created a planning code for linear 

accelerator-based stereotactic 

radiosurgery (HCPCS code G0338) to 

distinguish this procedure from Cobalt 

60-based stereotactic radiosurgery 

planning. We maintained both HCPCS 

codes G0242 and G0243 for the 

planning and delivery of Cobalt 60-

based stereotactic radiosurgery 

treatment, consistent with the use of 

two G-codes for planning (HCPCS code 

G0338) and delivery (HCPCS codes 

G0173, G0251, G0339, G0340, as 

applicable) of each type of linear 

accelerator-based treatment. We 

indicated that we intend to maintain 

these new codes in their current new 

technology APCs until the payment 

rates could be set using medians from 

this expanded set of codes. We also 

stated that we would solicit input from 

the APC Panel at its February 2004 

meeting. 

During the February 2004 APC Panel 

meeting, several presenters discussed 

with the APC Panel their rationale for 

requesting that HCPCS codes G0242 and 

G0243 be combined into a single 

procedure code. One presenter 

explained that the request to combine 

the codes was made because certain 

fiscal intermediaries were rejecting 

claims in which HCPCS codes G0242 

and G0243 were reported with a surgery 

revenue code. Although we have not 

issued any national instructions to fiscal 

intermediaries to deny claims for these 

services if they are billed with a surgery 

revenue code, the presenter stated that 

we may have indirectly led some fiscal 

intermediaries to believe that Cobalt 60-

based stereotactic radiosurgery should 

be reported with a radiation therapy 

revenue code because the procedure is 

separated into a planning code and a 

delivery code, which reflect the coding 

pattern of a radiation therapy procedure 

rather than a single code for a surgical 

procedure. The presenter stated that 

because of the way that CMS has coded 

this procedure, some fiscal 

intermediaries have established local 

edits to deny claims in which HCPCS 

codes G0242 and G0243 are reported on 

a claim with a surgery revenue code.

The APC Panel recommended that 

CMS work with the presenters to 

determine if any fiscal intermediaries 

have established local edits to reject 

claims in which HCPCS codes G0242 

and G0243 are reported on a claim, and 

to determine specific reasons for any 

such local edits. The APC Panel also 

recommended that CMS take necessary 

action to ensure that any such claims 

are not being denied payment due to 

local edits. The APC Panel did not agree 

that the solution to ensuring payment 

was to combine HCPCS codes G0242 

and G0243 into a single code, but rather 

recommended that CMS educate fiscal 

intermediaries as to the appropriate 

procedures for submission of these 

claims for Medicare payment. 

2. Proposal for CY 2005 

In the August 16, 2004 proposed rule, 

for CY 2005, we proposed to accept the 

APC Panel’s recommendation to work 

with the presenters to ensure that claims 

in which HCPCS codes G0242 and 

G0243 are reported are not being 

inappropriately denied payment due to 

local edits established by fiscal 

intermediaries. In the meantime, for CY 

2005, we proposed to maintain HCPCS 

code G0242 in New Technology APC 

1516 (New Technology, Level XVI) at a 

payment rate of $1,450, and HCPCS 

code G0243 in New Technology APC 

1528 (New Technology, Level XXVIII) at 

a payment rate of $5,250. These 

payment rates are the same as those 

established for CY 2004. 

3. Public Comments Received and 

Departmental Responses 

Comment: Numerous comments urged 

CMS to replace HCPCS codes G0242 

(Cobalt 60-based multisource photon 

SRS, planning) and G0243 (Cobalt 60-

based multisource photon SRS, 

delivery) with one surgical code (that is, 

CPT code 61793, Stereotactic 

radiosurgery, one or more lesions) for 

billing Cobalt 60-based multisource 

photon stereotactic radiosurgery. These 

commenters explained that Cobalt 60-

based multisource photon SRS is 

considered to be a one session, 

neurosurgical procedure and is not 

separated into planning and delivery 

sessions. One commenter contended 

that this procedure is managed and 

performed exclusively by 

neurosurgeons. 

In response to the OPPS final rule 

with comment period published on 

November 7, 2003, one commenter 

suggested that a combined surgical code 

representing Cobalt 60-based 

stereotactic radiosurgery could be 

appropriately assigned to APC 0222 

(Implantation of Neurological Device), 

APC 0226 (Implantation of Drug 

Infusion Reservoir), or APC 0227 

(Implantation of Drug Infusion Device) 

to reflect the device costs, the 

neurosurgical nature of the procedure, 

and the clinical homogeneity of the 

other CPT codes that currently reside in 

these APCs. 

In response to the OPPS final rule 

with comment period published on 

November 7, 2003, and the OPPS 

proposed rule published on August 16, 

2004, several commenters indicated that 

the current coding structure has resulted 

in a low volume of single procedure 

claims for these codes, reflecting the fact 

that single procedure claims are billed 

in error for this procedure due to the 

necessity of billing both HCPCS codes 

G0242 and G0243 to capture the 

planning and delivery costs of this 

procedure. These commenters explained 

that the concept of planning and 

delivery is representative of radiation 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65711

therapy and, therefore, does not 

accurately describe Cobalt 60-based 

multisource photon SRS. The 

commenters believed that the creation 

of HCPCS codes G0242 and G0243 has 

created an unnecessary burden on 

hospitals because commercial payors do 

not recognize these codes. One 

commenter described the burden of 

reporting the same service using two 

different coding systems as the costs 

associated with hiring and training 

additional staff, preparing individual 

negotiations with insurers, and 

addressing the rejection of claims and 

the delay of treatments. 

In contrast, three commenters 

objected to the use of the term 

‘‘radiosurgery’’ to describe Cobalt 60-

based multisource photon SRS planning 

and delivery. One of these commenters 

indicated that Cobalt 60-based 

multisource photon SRS is a radiation 

therapy procedure. This commenter 

contended that the indirect costs of 

operating a radiation therapy 

department are considerably higher than 

that of a surgery department, when 

factoring in the cost of a radiation 

physicist and therapist. The commenter 

further indicated that the cost-to-charge 

ratio (CCR) for the radiation therapy cost 

center more accurately reflects the costs 

of providing this service relative to a 

surgical designation. Another 

commenter objected to our use of the 

term ‘‘radiosurgery’’ and asserted that 

this term is a misleading nomenclature 

because surgery is not involved, except 

for the placement of an externally 

attached coordinate reference frame. 

The commenter explained that this 

treatment usually consists of one or 

more high dose radiation treatments 

delivered by either a linear accelerator 

or a cobalt 60-based unit and, therefore, 

should be referred to as ‘‘stereotactic 

radiation therapy.’’

In response to the OPPS final rule 

with comment period published on 

November 7, 2003, one commenter 

urged that CMS not attempt to label 

stereotactic radiosurgery as either 

neurosurgery or external beam 

radiotherapy, and explained that 

stereotactic radiosurgery is a unique 

procedure that combines elements of 

both neurosurgery and external beam 

radiotherapy. This commenter 

recommended that we recognize CPT 

codes specifically designed for 

stereotactic radiosurgery. 

Response: Considering the wide range 

of conflicting recommendations we 

received from commenters, we believe 

that appropriate coding for Cobalt 60-

based multisource photon SRS remains 

a highly contentious and unsettled area 

of interest among hospitals, 

neurosurgeons, radiation oncologists, 

and non-Medicare payors. Based upon 

our reading of the comments and the 

observations of CMS staff, we do not 

believe that Cobalt 60-based multisource 

photon SRS can be easily classified as 

either a neurosurgical or radiation 

therapy procedure specifically. Rather, 

for the safe and effective delivery of 

Cobalt 60-based multisource photon 

SRS to typical patients with brain 

lesions, the contributions of hospital 

physician and nonphysician staff with 

expertise in neurosurgery and radiation 

therapy are essential for both the 

planning of the treatment and its 

delivery. 

In the OPPS November 30, 2001 final 

rule in which we first established 

payment rates for stereotactic 

radiosurgery planning and treatment 

using G-codes in lieu of CPT codes, we 

noted that, for historical hospital claims 

for CPT code 61793 (Stereotactic 

radiosurgery), other combinations of 

codes from the radiation oncology CPT 

code section were billed most of the 

time as well. This confirmed our 

recognition of the multidisciplinary 

nature of the service. However, we note 

that the classification of stereotactic 

radiosurgery as either neurosurgery or 

radiation therapy is not relevant to 

payment for the service under the OPPS. 

Therefore, for purposes of the OPPS, we 

have not attributed the service to one 

specialty or the other.

While we consider the adoption of 

CPT codes that describe this service, we 

will continue to maintain HCPCS codes 

G0242 and G0243 as separate codes in 

their respective new technology APCs 

1516 and 1528 for CY 2005. Although 

we recognize that the single claims data 

we collect from these codes may include 

aberrant claims due to the necessity of 

billing both HCPCS codes G0242 and 

G0243 on the same date of service for 

a correctly coded claim, the adoption of 

CPT code 61793 to replace HCPCS 

codes G0242 and G0243, as 

recommended by some commenters, 

would not resolve the multiple 

procedure claims dilemma due to the 

fact that typically hospitals would need 

to bill additional CPT codes along with 

CPT code 61793 to report the full range 

of services that are currently bundled 

into HCPCS codes G0242 and G0243. 

For example, in our November 30, 2001 

final rule in which we described our 

determination of the total cost for 

stereotactic radiosurgery, to model costs 

for planning, we added the median costs 

of CPT codes 77295 (the most typical 

simulation code billed with CPT code 

61793), 77300, 77370 (the most common 

physics consult billed with CPT code 

61793), and 77315 (the most common 

dose plan billed with CPT code 61793). 

Furthermore, the descriptor for CPT 

code 61793 describes multiple forms of 

stereotactic radiosurgery (that is, 

stereotactic radiosurgery, one or more 

lesions; particle beam, gamma ray or 

linear accelerator), rather than Cobalt 

60-based multisource photon SRS alone. 

The adoption of CPT code 61793 under 

the OPPS would have the effect of 

nullifying all of the stereotactic 

radiosurgery G–codes, which we are 

unwilling to do without cost data 

supporting an equal payment for all 

forms of stereotactic radiosurgery. In 

light of all the above-mentioned reasons, 

we believe that any stereotactic 

radiosurgery code changes for CY 2005 

would be premature without cost data to 

support a code restructuring. In the 

meantime, we will continue to pay 

HCPCS codes G0242 and G0243 under 

their current respective new technology 

APCs 1516 and 1528 for CY 2005, as we 

continue to analyze new methods for 

resolving the issue of multiple 

procedure claims. 

Comment: In response to the OPPS 

final rule with comment period 

published on November 7, 2003, and the 

OPPS proposed rule published on 

August 16, 2004, several commenters 

urged CMS to recognize the surgical 

nature of Cobalt 60-based multisource 

photon SRS by mapping the procedure 

to a surgical revenue code. The 

commenters claimed that some 

Medicare fiscal intermediaries continue 

to reject claims in which HCPCS codes 

G0242 and G0243 are reported with a 

surgery revenue code, and encouraged 

CMS to issue national instructions on 

the correct billing for stereotactic 

radiosurgery procedures. The 

commenters believed that revenue codes 

are established by the general APC in 

which the procedure resides. Another 

commenter stated that the placement of 

HCPCS codes G0242 and G0243 in new 

technology APCs labeled as radiation 

therapy has misled Medicare fiscal 

intermediaries to assume that a 

radiation revenue code must be reported 

with these claims. This commenter 

indicated that, as a result of providers 

reporting a radiation revenue code when 

billing HCPCS codes G0242 and G0243 

and Medicare applying a radiation CCR 

ratio to these codes, the median costs for 

HCPCS codes G0242 and G0243 were 

understated, as the CCR for radiation is 

around 33 percent compared to a 45-

percent to 55-percent CCR for surgery 

cost centers. 

In response to the OPPS final rule 

with comment period published on 

November 7, 2003, and the OPPS 

proposed rule published on August 16, 

2004, two commenters objected to the 

65712 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

assignment of HCPCS codes G0243 and 

G0173 to the same new technology APC 

1528. The commenters argued that these 

two procedures should not be grouped 

into the same APC because they are 

clinically dissimilar and do not share 

the same level of resource intensity. The 

commenter believed that an APC 

grouping should be determined by the 

clinical nature of the procedure, its 

resource cost, the type of physician 

necessary to perform the procedure, the 

clinical setting in which the procedure 

is performed, and the clinical outcomes 

of the procedure. Another commenter 

indicated that the cost of Cobalt 60-

based SRS multisource photon SRS 

delivery is 2.45 times the cost of linear 

accelerator-based SRS delivery, which 

the commenter believed to be an 

unacceptable violation of the 2 times 

rule. In contrast, one commenter 

reported that its facility has experienced 

no delays or claims rejections as a result 

of the current coding structure for 

stereotactic radiosurgery. The 

commenter urged CMS to maintain the 

current coding structure for Cobalt 60-

based multi-source photon SRS 

planning and delivery, asserting that 

providers who carefully review the code 

descriptors should experience no delays 

or claims rejections. 

Response: We believe the 

commenter’s concerns regarding the 

clinical similarity and the application of 

the 2 times rule to a new technology 

APC reflect a misunderstanding of the 

purpose of the new technology APCS. 

We assign procedures to a new 

technology APC when we do not have 

adequate claims data upon which to 

determine the relative median cost of 

performing a procedure, and must rely 

on other sources of information (that is, 

external data that have been made 

publicly available) to determine its 

appropriate payment. New technology 

APCs do not carry clinical descriptors, 

such as radiation therapy; rather, the 

descriptor for each new technology APC 

represents a particular cost band (for 

example, $1,400 to $1,500). Payment for 

items assigned to a new technology APC 

is the mid-point of the band (for 

example, $1,450). As we stated in our 

proposed rule, we have worked together 

with some of the commenters to identify 

specific fiscal intermediaries who may 

be rejecting claims in which HCPCS 

codes G0242 and G0243 are reported. 

However, to date, we have been unable 

to identify any such local edits. Nor 

have we received examples of rejected 

claims from providers to enable us to 

determine why payment was not made 

for the claims. CMS will continue to 

work with providers and contractors to 

clarify coding and billing for all 

stereotactic radiosurgery procedures 

through program instructions, Medlearn 

Matters articles, and other outreach 

activities.

Comment: One commenter 

understood that the Advisory Panel on 

APC Groups is invested with the 

responsibility of providing correct 

coding for hospitals, and contended that 

the Panel should address in more detail 

the coding issues for stereotactic 

radiosurgery procedures. This 

commenter further indicated that the 

Panel is composed almost entirely of 

physicians rather than hospital financial 

personnel or hospital coders, to which 

the commenter objected as creating a 

direct conflict with hospital interests. 

Response: We do not agree with the 

commenter’s concerns regarding the 

Advisory Panel on APC Groups. The 

Panel is governed by the provisions of 

Pub. L. 92–463, which set forth 

standards for the formation and use of 

advisory panels (42 U.S.C. 13951 (t); 

section 1833(t) of the Act). According to 

the Charter, the function of the Panel is 

to review the APC groups and their 

associated weights and advise the 

Secretary of Health and Human Services 

and the Administrator of CMS 

concerning the clinical integrity of the 

APC groups and their weights. The 

subject-matter of the Panel includes to 

the following issues and related topics: 

addressing whether procedures are 

similar both clinically and in terms of 

resource use; assigning new CPT codes 

to APCs; reassigning codes to different 

APCs; and reconfiguring the APCs into 

new APCs. Responsibility for providing 

correct coding for hospitals does not fall 

within the purview of the Panel. 

Furthermore, we wish to reassure the 

commenter about the makeup of the 

Panel. The commenter’s understanding 

that the Panel is almost entirely 

composed of physicians and lacks 

representation from hospital financial 

personnel or hospital coders is not 

accurate. As required by the Charter, all 

of the Panel members are currently 

employed in a full-time status by a 

hospital and serve as representatives of 

their hospital employer. Furthermore, 

only approximately half of the Panel 

members hold a medical degree, while 

the other half of the Panel members 

hold a hospital coding certification or 

nursing, pharmacy, or business 

degree(s), or both, or serve as hospital 

reimbursement officers, or both. 

Comment: We received numerous 

comments suggesting various 

simplifications of the coding structure 

for SRS planning and delivery. Some 

commenters urged that CMS develop 

one uniform series of treatment codes 

for the various types of stereotactic 

radiation therapy, based on the process 

of care rather than a vendor-specific 

technology. One commenter suggested 

that CMS eliminate HCPCS codes G0338 

(Linear accelerator-based SRS planning) 

and G0242 (Multi-source Cobalt 60-

based photon SRS planning) and 

recognize existing CPT codes 77295 or 

77301 to describe stereotactic radiation 

therapy planning, which the commenter 

believed would more accurately 

describe the process of care and reduce 

duplication in codes. Another 

commenter recommended that CMS 

eliminate HCPCS code G0242, and 

recognize HCPCS code G0338 for 

describing all forms of stereotactic 

radiosurgery planning by deleting the 

phrase that restricts the code to linear 

accelerator-based stereotactic 

radiosurgery planning. 

In contrast, a commenter responding 

to the OPPS final rule with comment 

period published on November 7, 2003, 

suggested that CMS eliminate HCPCS 

code G0338, and recognize HCPCS code 

G0242 for all stereotactic radiosurgery 

planning by deleting the phrase that 

restricts the code to multisource Cobalt 

60-based photon SRS planning. Other 

commenters recommended that CMS 

simplify the stereotactic radiosurgery 

delivery codes as well by eliminating 

HCPCS codes G0173 (SRS delivery, 

complete session) and G0251 (Linear 

accelerator-based SRS delivery, 

fractionated sessions), and recognizing 

HCPCS codes G0339 (Image guided, 

robotic linear accelerator-based SRS, 

complete or first session) and G0340 

(Image guided, robotic linear 

accelerator-based SRS, second through 

fifth sessions) for all forms of 

stereotactic radiosurgery delivery by 

removing the word ‘‘robotic’’ from their 

descriptors. Another commenter 

suggested an alternative option for 

simplifying the stereotactic radiosurgery 

delivery codes by eliminating HCPCS 

codes G0339 and G0340, and 

recognizing HCPCS codes G0173 and 

G0251. This commenter recommended 

that CMS modify the descriptors for 

HCPCS codes G0173 and G0251 by 

deleting the linear accelerator 

specification so the codes apply to all 

forms of stereotactic radiosurgery 

delivery and deleting the maximum 

number of five sessions per course of 

treatment from the descriptor of HCPCS 

code G0251. One commenter suggested 

that CMS eliminate HCPCS codes 

G0173, G0251, G0339, and G0340 and 

recognize HCPCS code G0243 as 

including all stereostactic radiosurgery 

delivery procedures by deleting the 

phrase that restricts its use to 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65713

multisource Cobalt 60-based photon 

stereotactic radiosurgery delivery. 

In response to the OPPS final rule 

with comment period published on 

November 7, 2003, one commenter 

indicated that HCPCS code G0340 

(Image guided, robotic linear 

accelerator-based SRS, second through 

fifth sessions) should not be described 

by radiosurgery, contending that 

radiosurgery is defined by a single 

session treatment. The commenter 

recommended that the descriptor for 

HCPCS code G0340 be changed to 

‘‘image-guided, robotic, linear 

accelerator-based radiation therapyhypofractionated delivery.’’ One 

commenter responded to the OPPS 

proposed rule by applauding CMS for 

placing the first fraction of a multiple 

session treatment delivery of imageguided robotic linear accelerator-based 

stereotactic radiosurgery (described by 

HCPCS code G0339) in the same APC as 

a complete single session treatment 

delivery of image-guided robotic linear 

accelerator-based stereotactic 

radiosurgery, and stated that the 

resources consumed are identical, 

regardless of whether additional 

treatment sessions are delivered. This 

commenter agreed with CMS’ placement 

of subsequent fractionated sessions in a 

lower paying APC to reflect the fewer 

resources consumed during the delivery 

of subsequent sessions.

In response to the OPPS final rule 

with comment period published 

November 7, 2003, several commenters 

supported CMS’ decision to assign 

HCPCS codes G0338 (Linear acceleratorbased stereotactic radiosurgery 

planning) and G0242 (Cobalt 60-based, 

multi-source photon stereotactic 

radiosurgery planning) to the same APC, 

and stated that the resource costs of 

both types of stereotactic radiosurgery 

planning are comparable. Another 

commenter applauded CMS’ creation of 

HCPCS code G0338 to differentiate 

linear accelerator stereotactic 

radiosurgery planning from multisource 

photon stereotactic radiosurgery 

planning (HCPCS code G0242), due to 

the differences in their clinical uses and 

cost resources. 

In response to the OPPS final rule 

with comment period published on 

November 7, 2003, one commenter 

supported the creation of HCPCS codes 

G0339 and G0340, as long as these 

codes are used exclusively for 

extracranial stereotactic radiosurgery 

treatments, such as those of the spine, 

lung, and pancreas. Due to limited cost 

data and clinical efficacy published on 

image-guided, robotic stereotactic 

radiosurgery used to treat extracranial 

indications, the commenter believed 

that the costs for this new and emerging 

technology would be more accurately 

captured by limiting the use of HCPCS 

codes G0339 and G0340 to extracranial 

stereotactic radiosurgery treatments. 

Several commenters requested that 

CMS present their recommendations to 

the Advisory Panel on APC Groups 

during its next meeting in the event that 

the stereotactic radiosurgery code 

descriptors cannot be modified in time 

for the CY 2005 final rule. 

Response: For reasons stated in a 

previous response, we believe that any 

stereotactic radiosurgery code changes 

for CY 2005 would be premature 

without cost data to support a code 

restructuring. For instance, in 

preparation of the CY 2006 OPPS 

Update, we intend to conduct data 

analysis for the first time for HCPCS 

codes G0338, G0339, and G0340, which 

were newly created G-codes for CY 

2004. Therefore, until we have 

completed any such analysis, we will 

continue to maintain HCPCS codes 

G0173, G0251, G0338, G0339, G0242, 

and G0243 in their respective new 

technology APCs for CY 2005 as we 

consider the adoption of CPT codes to 

describe all stereotactic radiosurgery 

procedures for CY 2006, including the 

new CPT tracking codes 0082T 

(Stereotactic body radiation therapy, 

treatment delivery, one or more 

treatment areas, per day) and 0083T 

(Stereotactic body radiation therapy, 

treatment management, per day) that the 

AMA intends to make effective January 

1, 2005. For CY 2005, we will assign a 

status indicator of ‘‘E’’ for CPT code 

0082T to reflect the fact that the current 

G-codes for stereotactic radiosurgery 

treatment delivery include this service, 

and a status indicator of ‘‘N’’ for CPT 

code 0083T because we consider the 

treatment management per session 

bundled into the current stereotactic 

radiosurgery treatment delivery Gcodes. 

In reference to commenters’ request 

that CMS present their 

recommendations for stereotactic 

radiosurgery code restructuring to the 

Advisory Panel on APC Groups, we 

refer the readers to the discussion above 

in an earlier response concerning the 

purview of the Panel’s responsibilities. 

To the extent that the APC assignments 

for stereotactic radiosurgery codes are 

an issue, we may bring those to the 

attention of the Panel. 

Comment: In response to the OPPS 

final rule with comment period 

published on November 7, 2003, several 

commenters expressed concern that the 

placement of HCPCS code G0340 

(Image-guided robotic linear acceleratorbased SRS delivery, fractionated 

treatment) in a higher paying new 

technology APC than G0251 (Nonrobotic linear accelerator-based SRS 

delivery, fractionated treatment) creates 

a financial incentive to use robotic SRS 

technology over non-robotic stereotactic 

radiosurgery technology. The 

commenters urged that HCPCS codes 

G0251 and G0340 be placed in the same 

APC until clinical evidence supports an 

improved clinical outcome using robotic 

stereotactic radiosrugery as compared to 

non-robotic stereotactic radiosurgery 

and sound financial data supports 

payment differentiation. In addition to 

placing G0251 and G0340 in the same 

APC, one commenter urged that CMS 

remove the language ‘‘or first session of 

fractionated treatment’’ from the 

descriptor for G0339 and remove the 

language ‘‘second through fifth 

sessions’’ from the descriptor for G0340, 

so that placement of HCPCS codes 

G0251 and G0340 in the same APC will 

result in equal payments for the first 

session of fractionated therapy, 

regardless of the type of technology 

used to deliver fractionated stereotactic 

radiosurgery. 

In response to the OPPS final rule 

with comment published on November 

7, 2003, and the OPPS proposed rule 

published on August 16, 2004, several 

commenters asserted that the creation of 

HCPCS codes G0339 and G0340 was 

unnecessary, on the premise that all 

stereotactic radiosurgery and 

radiotherapy equipment is image guided 

and robotic. One commenter expressed 

concern that the creation of HCPCS 

codes G0339 and G0340, the limitation 

of HCPCS code G0340 to five 

fractionated sessions, and the placement 

of HCPCS code G0340 in a higher 

paying APC than other SRS modalities 

inadvertently amount to an 

endorsement by CMS of the CyberKnife 

technology. The commenter believed 

that the current payment rate for 

CyberKnife therapy results in excessive 

copayments for beneficiaries and 

unfairly advantages a technology that 

has provided insufficient clinical 

evidence of an improved outcome above 

existing stereotactic radiosurgery and 

radiotherapy modalities, and has 

provided CMS with no convincing cost 

data to support such an excessive return 

on investment. The commenter believed 

that if CMS had consulted the Medicare 

Coverage Advisory Committee (MCAC) 

or the Medical Technology Council 

(MTC), which advise CMS on whether 

specific medical treatments and 

technology should receive coverage, 

neither the MCAC nor the MTC would 

have recommended coverage for the 

CyberKnife technology. Other 

65714 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

commenters urged that CMS eliminate 

what they believe to be an unfair 

advantage given to HCPCS code G0339 

by modifying the descriptor for HCPCS 

code G0173 (SRS delivery, complete 

session) to describe a complete session 

or first session of linear acceleratorbased stereotactic radiosurgery delivery, 

and modifying the descriptor for HCPCS 

code G0251 to describe second through 

fifth sessions of linear accelerator-based 

stereotactic radiosurgery delivery, so 

that the first session of a multiple 

session treatment will be paid equal to 

that of a complete session, regardless of 

the type of stereotactic radiosurgery 

technology used.

Response: We disagree with 

commenters who believe that the 

creation of HCPCS codes G0339 and 

G0340, the limitation of HCPCS code 

G0340 to five fractionated sessions, and 

the placement of HCPCS code G0340 in 

a higher paying APC than other 

stereotactic radiosurgery modalities 

amount to an endorsement by CMS of a 

particular technology. We also note that 

the code descriptors for HCPCS codes 

G0339 and G0340 do not limit 

themselves to the CyberKnife 

technology. As other commenters 

indicated, the term ‘‘image-guided 

robotic’’ applies to other types of 

stereotactic radiosurgery besides 

CyberKnife. The OPPS payment system 

establishes payment rates for services 

based on relative resources utilized by 

hospitals to provide such services, 

based primarily on historical claims 

data if data are available. If hospital 

claims data are unavailable, we may 

consider external data to assist us. From 

2000 through 2002, the manufacturer of 

one type of image-guided robotic 

stereotactic radiosurgery technology 

(that is, CyberKnife), along with several 

hospitals, provided CMS with cost data 

indicating the level of resources utilized 

in the provision of this form of 

stereotactic radiosurgery. We believe 

these data support the current 

placement of HCPCS codes G0339 and 

G0340 in their respective new 

technology APCs 1528 and 1525 for CY 

2005. 

To date, we have not received such 

cost data on non-robotic linear 

accelerator-based stereotactic 

radoisurgery (that is, on HCPCS codes 

G0173 and G0251) to aid us in 

determining if the current payment 

differentiation is appropriate. Therefore, 

we will maintain HCPCS codes G0339 

and G0340 in APCs 1528 and 1525, 

respectively, and make no changes to 

their descriptors for CY 2005. In 

reference to CMS consulting a medical 

technology council for advice on new 

technology coverage, we refer the 

readers to section II.F.4.,’’Public 

Comments Received Relating to Other 

New Technology APC Issues,’’ of this 

final rule with comment period for a 

discussion of the recently established 

Council on Technology and Innovation. 

Comment: A number of commenters, 

mostly providers of radiation oncology 

centers or departments, pointed out that 

stereoscopic kV x-ray guidance using 

infrared and/or camera technology is a 

new and important technology that 

allows for improved precision in 

radiation therapy targeting. These 

commenters indicated that kV x-ray 

guidance is not described by any current 

HCPCS or CPT code and requested that 

CMS create a new HCPCS G-code for 

payment under the OPPS. In addition, 

one commenter requested that CMS 

establish a new HCPCS code necessary 

for target localization in conjunction 

with intensity modulated radiation 

therapy, stereotactic radiotherapy, and 

stereotactic radiosurgery. 

Response: The kV x-ray guidance 

using infrared technology came to our 

attention by means of an application to 

be considered for assignment to a new 

technology APC. We have recently 

concluded that the kV x-ray guidance 

should receive a temporary ‘‘C’’ code for 

OPPS payment under certain 

circumstances described below, and that 

it should be placed into a new 

technology APC. Therefore, we are 

creating the following HCPCS code to 

describe kV x-ray guidance using 

infrared technology: 

HCPCS code C9722 (Stereoscopic kV 

x-ray imaging with infrared tracking for 

localization of target volume) 

We are assigning the new HCPCS 

code C9722 to New Technology APC 

1502 at a payment of $75, effective on 

January 1, 2005. 

While we are assigning a C-code and 

payment for hospital costs, we are not 

assigning a G-code because we believe 

that the interested party should seek a 

CPT code from the AMA. We believe 

that the CPT Editorial Panel needs to 

assess the need for a code for the 

service, and, if a code is granted, 

evaluate the resources necessary to 

provide this service. This technology 

has been available for more than 2 years. 

We consider this time period to be 

sufficient for the interested party to 

request a CPT code from the AMA. 

In addition, in our definition and 

payment instructions for this service, 

we are limiting additional payment for 

this service to occasions when kV x-ray 

is not billed with stereotactic 

radiosurgery delivery G-codes. As all 

stereotactic radiosurgery delivery 

services require guidance, the current 

payments for the stereotactic 

radiosurgery delivery G-codes (HCPCS 

codes G0173, G0243, G0251, G0339, and 

G0340) bundle payment for guidance 

services with stereotactic radiosurgery 

delivery. 

4. Final Policy for CY 2005 

We are adopting our proposal to 

maintain HCPCS codes G0173, G0242, 

G0243, G0251, G0338, and G0339 in 

their respective new technology APCs 

for CY 2005. We will consider the 

adoption of CPT codes to describe all 

stereotactic radiosurgery procedures in 

the future. 

F. Movement of Procedures From New 

Technology APCs to Clinically 

Appropriate APCs 

1. Background 

In the November 30, 2001 final rule 

(66 FR 59903), we made final our 

proposal to change the period of time 

during which a service may be paid 

under a new technology APC. Beginning 

in CY 2002, we retained services within 

new technology APC groups until we 

acquired adequate 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 3 years 

if sufficient data upon which to base a 

decision for reassignment have not been 

collected.

In the November 7, 2003 final rule 

with comment period, we implemented 

a comprehensive restructuring of the 

new technology APCs to make the 

payment levels more consistent (68 FR 

63416). We established payment levels 

in $50, $100, and $500 intervals and 

expanded the number of new 

technology payment levels. 

2. APC Panel Review and 

Recommendation 

During the APC Panel’s February 2004 

meeting, the APC Panel heard testimony 

from several interested parties who 

requested specific modifications to the 

APCs for the radiation oncology APC. 

They asked the APC Panel to make 

several recommendations: (1) That we 

move CPT code 77418 (Radiation 

treatment delivery, Intensity-modulated 

radiation therapy (IMRT)) from APC 

0412 (IMR Treatment Delivery) back 

into a new technology APC; (2) that we 

dampen, or limit, any possible payment 

reductions to APC 0301 (Level II 

Radiation Therapy); (3) that we accept 

more external data to evaluate costs; and 

(4) that we identify more claims that are 

useful for ratesetting. 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65715

In response to the testimony 

presented, the APC Panel recommended 

that we reassign CPT code 77418 to the 

new technology APC 1510 for CY 2005 

and that we explain to providers any 

steps we take to limit payment 

reductions to APC 0301 so that they can 

better plan for future years during 

which we may decide not to apply a 

dampening, or payment reduction 

limitation, to the rates for APC 0301. 

In the August 16, 2004 proposed rule, 

we did not propose to accept the APC 

Panel’s recommendations because we 

believe that we have ample claims data 

for use in determining an appropriate 

APC payment rate for CPT code 77418. 

Moreover, we believe that the 

development of median cost for CPT 

code 77418 based on those data is 

representative of hospital bills. 

We have over 255,000 claims for this 

service, and over 95 percent were single 

claims that we could use for ratesetting. 

Moreover, the APC medians have been 

stable for the last 2 years of data. As 

indicated by our claims data, returning 

code 77418 to new technology APC 

1510 would result in a payment for the 

service that is significantly higher than 

the resources utilized to provide it. 

We refer the readers to section II.F.4., 

‘‘Public Comments Received Relating to 

Other New Technology APC Issues,’’ of 

this final rule with comment period for 

a discussion of the public comments 

and our final policy regarding the APC 

placement of CPT code 77418 for CY 

2005. 

Comment: Several commenters 

objected to the proposed assignment of 

CPT code 77418 to APC 0412 at a 

payment rate of $307.78. These 

commenters disagreed with CMS’

conclusion that the significant volume 

of single claims used to set the payment 

rate accurately reflects the costs 

hospitals incur to provide this service, 

and argued that hospitals are 

inaccurately coding this service and 

submitting insufficient charges for 

delivering this therapy. One commenter 

raised concerns that some providers are 

incorrectly billing procedures other than 

IMRT under CPT code 77418. 

Commenters urged CMS to accept the 

recommendation of the Advisory Panel 

on APC Groups to return CPT code 

77418 to a new technology APC with a 

payment rate comparable to the CY 2003 

payment rate of $400. 

Response: As we noted previously, we 

do not accept the Panel’s 

recommendation to move CPT code 

77418 back to a new technology APC. 

We believe the 2 years (that is, CYs 2002 

and 2003) that CPT code 77418 was in 

new technology APC 0710 allowed 

ample opportunity for providers to 

receive proper instruction on correctly 

coding and billing for this service. The 

proposed payment rate of $307.78 for 

CY 2005 was set using 96 percent of the 

total claims (that is, 246,045 single 

procedure claims out of 255,020 total 

claims) for CPT code 77418, which 

deeply supports its current placement in 

clinical APC 0412. Therefore, we will 

maintain CPT code 77418 in APC 0412 

for CY 2005. 

Comment: Several commenters 

objected to the proposed movement of 

CPT code 77301 (Radiotherapy dose 

plan, IMRT) from new technology APC 

1510 (New Technology, Level X) with a 

payment rate of $850 to clinical APC 

0310 (Radiation treatment preparation, 

Level III) with a payment rate of 

$811.91. The commenters indicated that 

this procedure is relatively new and that 

hospitals appear to be inaccurately 

reporting the costs of providing this 

service. The commenters recommended 

that, until more data can be collected 

and analyzed, CMS retain CPT code 

77301 in new technology APC 1510 at 

a payment rate of $850. 

Response: We move a procedure from 

a new technology APC to a clinical APC 

when we have adequate claims data for 

ratesetting. We believe that the 

proposed movement of CPT code 77301 

from new technology APC 1510 to 

clinical APC 0310 is appropriate, 

considering that 88 percent of the total 

claims (66,076 single procedure claims 

out of 74,911 total claims) were used to 

set the payment rate of $811.91 for APC 

0301. Furthermore, CPT code 77301 has 

been placed in a new technology APC 

for the past 3 years (that is, CY 2002 

through CY 2004), which we believe to 

be ample time for providers to receive 

proper instruction on correctly coding 

and billing for CPT code 77301. 

Therefore, as proposed, we are moving 

CPT code 77301 from new technology 

APC 1510 to clinical APC 0310 for CY 

2005. 

Comment: One commenter requested 

that new CPT 0073T (Compensatorbased beam modulation treatment 

delivery of inverse planned treatment 

using three or more high resolution 

(milled or cast) compensator convergent 

beam modulated fields, per treatment 

session) be assigned to APC 0412 with 

an ‘‘S’’ status indicator. The commenter 

believed that the assignment of 0073T 

should be the same as that for CPT 

77418. 

Response: We agree with the 

commenter and are assigning CPT 

0073T to APC 0412 with status indicator 

‘‘S’’ for CY 2005. 

3. Proposed and Final Policy for CY 

2005 

There are 24 procedures currently 

assigned to new technology APCs for 

which we have data adequate to support 

assignment into clinical APCs. 

Therefore, in the August 16, 2004 

proposed rule, we proposed to reassign 

these procedures to clinically 

appropriate APCs. We proposed to 

assign 24 of the procedures that were 

listed in Table 14 of the proposed rule 

to clinically appropriate APCs using CY 

2003 claims data to set medians on 

which payments would be based. 

As we did in the proposed rule, we 

present below a further explanation to 

provide a fuller understanding of the 

payment rates for several of the 

procedures that we proposed to move 

out of new technology APCs and into 

clinical APCs.

a. Photodynamic Therapy of the Skin 

For CPT code 96567 (Photodynamic 

therapy of the skin), the impact of the 

payment decrease between CY 2004 and 

CY 2005 is actually low, as the CY 2004 

payment included the topically applied 

drug required to perform this procedure 

and the CY 2005 payment does not. We 

will now pay separately for the drug 

billed under HCPCS code J7308 in CY 

2005. We have adequate claims data on 

which to base payment for that 

procedure in a clinically appropriate 

APC. Payment based on those data in 

addition to removal of the drug for 

separate payment resulted in a lower 

median cost for the APC. 

Comment: Several commenters 

objected to the proposed movement of 

CPT code 96567 (Photodynamic therapy 

of the skin) from New Technology APC 

1540 (New Technology, Level III) with 

a payment rate of $150 to clinical APC 

0013 (Level II Debridement and 

Destruction) with a proposed payment 

rate of $66.15. The commenters 

recognized that the drug (that is, HCPCS 

code J7308) used with this procedure is 

no longer bundled into the payment for 

CPT code 96567, and agreed that some 

payment reduction is appropriate. 

However, the commenters indicated that 

the proposed payment rate for APC 0013 

would not cover the costs of providing 

this service even after excluding the 

costs of the drug. 

Response: We believe that the 

resources and the clinical nature of CPT 

code 96567 are consistent with other 

codes that are placed in APC 0013. 

Therefore, in this final rule with 

comment period, we are finalizing our 

proposal to move CPT code 96567 from 

New Technology APC 1540 to clinical 

APC 0013 for CY 2005. 

65716 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

Comment: One commenter brought to 

our attention that CPT code 96571 

(Photodynamic therapy, additional 15 

minutes) may have been moved 

mistakenly from New Technology APC 

1541 to clinical APC 0012 (Level I 

Debridement and Destruction). The 

commenter suggested that CPT code 

96571 be placed in the same clinical 

APC 0013 (Level II Debridement and 

Destruction) as CPT code 96570 

(Photodynamic therapy, 30 minutes). 

Response: We agree with the 

commenter that CPT code 96571 was 

mistakenly moved to APC 0012 in the 

proposed rule. Because CPT code 96571 

is an add-on code for an additional 15 

minutes of photodynamic therapy, 

reported in addition to CPT code 96570, 

which describes the first 30 minutes of 

therapy, we believe that both codes, 

with status indicator ‘‘T,’’ should be 

placed in APC 0015 (Level III 

Debridement and Destruction). 

Therefore, in this final rule with 

comment period, we are moving CPT 

code 96571 from New Technology APC 

1541 to clinical APC 0015 for CY 2005. 

b. Left Ventricular Pacing, Lead and 

Connection 

Based on a comparison of payment 

rates for CY 2004 and CY 2005, it 

appears that there is a large increase in 

payment that results from reassigning 

CPT code 33224 (Insertion of left 

ventricular pacing, lead and connection) 

from its new technology APC to a 

clinical APC. The difference is due to 

the fact that the CY 2005 APC payment 

includes the cost of the left ventricular 

lead that was not included in the CY 

2004 new technology APC payment. 

The left ventricular lead was paid as a 

pass-through device under HCPCS code 

C1900 in CY 2004, but is not eligible for 

pass-through payments in CY 2005, and, 

as such, is now included in the APC for 

the procedure. 

Similarly, the CY 2005 payment rate 

for CPT code 33225 (Left ventricular 

pacing lead add-on) includes the cost of 

the ventricular lead. However, for code 

33225, the data are still somewhat 

unstable. Therefore, in the proposed 

rule, we maintained CPT code 33225 in 

a new technology APC, but at a higher 

payment level, to reflect the additional 

cost of the lead. 

We received no comments and, 

therefore, we are reassigning CPT code 

33224 to a clinical APC for CY 2005. 

c. Positron Emission Tomography (PET) 

Scans 

PET–FDG (Nonmyocardial) 

In the proposed rule, we noted that a 

number of positron emission 

tomography (PET) scans currently are 

classified into APC 1516. We recognized 

that PET is an important technology in 

many instances and want to ensure that 

the technology remains available to 

Medicare beneficiaries when medically 

necessary. We believe that we have 

sufficient data to assign PET scans to a 

clinically appropriate APC. However, 

we have been told that if the effect of 

doing so is to reduce payment 

significantly for the procedure, it may 

hinder access to this technology. 

Therefore, as indicated in the August 

16, 2004 proposed rule, we considered 

three options as the proposed payment 

for these procedures in CY 2005, based 

on our review of the 2003 claims data 

for the PET procedures. We specifically 

invited comments on each of these 

options. 

Option 1: Continue in CY 2005 the 

current assignment of the scans to New 

Technology APC 1516 prior to assigning 

to a clinical APC. 

Option 2: Assign the PET scans to a 

clinically appropriate APC priced 

according to the median cost of the 

scans based on CY 2003 claims data. 

Under this option, we would assign PET 

scans to APC 0420 (PET Imaging). 

Option 3: Transition assignment to a 

clinical APC in CY 2006 by setting 

payment in CY 2005 based on a 

transition payment of a 50–50 blend of 

the median cost and a New Technology 

APC payment for CY 2004. We would 

assign the scans to New Technology 

APC 1513 for the blended transition 

payment. 

We included the proposed rates for 

these options in Addendum B of the 

proposed rule. 

Comment: Many commenters 

supported maintaining a number of PET 

scans in New Technology APC 1516 for 

CY 2005, as presented under option 1 of 

the proposed rule. These commenters 

expressed concern that options 2 and 3 

set forth in the proposed rule would 

greatly impede patient access to PET 

technology. They stated that options 2 

and 3 fail to account for the significant 

degree of variation in hospital mark-up 

practices and capital depreciation 

methods associated with PET 

procedures and, therefore, 

underestimate hospitals’ costs for 

performing PET scans. These 

commenters further explained that the 

majority of hospitals report PET 

procedures under an overall diagnostic 

radiology revenue code rather than 

distinguishing PET procedures under a 

diagnostic nuclear medicine revenue 

code. The commenters expressed 

concern that PET claims data, when 

adjusted using a cost to charge ratio not 

specific to PET, underestimate the 

relative costs associated with PET 

imaging procedures.

Another commenter commissioned a 

time-and-motion study at nine PET 

facilities in geographically diverse 

regions of the United States to estimate 

hospitals’ actual costs for providing PET 

scans. According to the commenter, this 

cost study concluded that many 

hospitals could not afford to provide 

PET scans at a payment rate below 

$1,450. In addition, the commenter 

indicated that the cost study suggested 

that hospitals need to perform three or 

more scans per day in order to break 

even at the current payment rate of 

$1,450 per scan. The commenter 

pointed out that using a marketing 

share-weighted average, the cost study 

found that PET facilities across the 

United States are performing an average 

of 2.63 PET scans per day, translating 

into a loss of $165.18 per scan for most 

PET providers at the current payment 

rate of $1,450 per scan. However, the 

commenter did not clarify whether this 

national average of performing 2.63 PET 

scans per day reflects utilization by both 

hospitals and freestanding PET centers. 

The commenter urged that PET remain 

in new technology APC 1516 for CY 

2005, and noted that any reductions in 

payment, including the proposed 

blended payment rate of $1,150, would 

significantly impede patient access to 

this technology, especially in rural 

settings where the volume of PET scans 

tends to be lower. Another commenter 

that provides FDG to 300 PET imaging 

centers in geographically diverse 

regions of the United States reviewed 

their May, June, and July 2004 data for 

these PET centers and reported an 

average number of 1.88 PET scans 

provided per day and a median of 1.3 

PET scans provided per day across the 

300 PET centers. Again, the commenter 

did not clarify whether this national 

average of performing 1.88 PET scans 

per day reflects utilization by both 

hospitals and freestanding PET centers. 

This commenter expressed concern that 

any reduction in payment for PET scans, 

with or without a reduction in payment 

for FDG, may drive many PET centers 

into an operating deficit and reduce the 

availability of PET scans for Medicare 

beneficiaries. 

Response: We appreciate the many 

comments we received on this topic and 

the efforts undertaken by several of the 

commenters to provide us with 

additional data concerning the costs of 

providing the scans. We acknowledge 

variations in hospital markup practices, 

capital depreciation and other cost 

allocation methods, although we note 

that the CCRs in the various reported 

cost centers (that is, Nuclear Medicine, 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65717

Imaging Department, Radiology) for PET 

procedures are fairly consistent. The 

median hospital CCR for these cost 

centers ranges from 0.3118 to 0.3172, 

and does not vary greatly from the 

median overall hospital CCR of 0.33. We 

believe that the robust number of claims 

(that is, 55,838 single procedure claims 

out of 61,492 total claims, representing 

91 percent of the total claims) provides 

sufficient data to assign PET scans to a 

clinically appropriate APC. However, 

we received numerous comments 

indicating that any reduction in 

payment for PET scans would hinder 

access by Medicare beneficiaries to this 

technology. Based on our review of the 

comments, we are setting the CY 2005 

payment for PET scans based on a 50–

50 blend of the median cost and the CY 

2004 new technology APC payment rate, 

as presented under option 3 in the 

proposed rule. PET scans will be 

assigned to new technology APC 1513 

for a blended payment rate of $1,150 for 

CY 2005. 

Comment: One commenter pointed 

out that the CY 2003 hospital claims 

data may not account for the current 

shift to PET/CT technology, which the 

commenter stated has virtually doubled 

the cost of launching a viable PET 

operation, from an average cost of 

$1,200,000 for a dedicated PET scanner 

to an average cost of $2,400,000 for a 

PET/CT scanner. The commenter 

estimated that approximately 90 percent 

of the PET systems currently being sold 

are PET/CT scanners and predicted that 

the current installed base of 

approximately 35 percent PET/CT and 

65 percent dedicated PET will shift to 

an overwhelming majority of PET/CT 

scanners within the next 5 years. The 

commenter argued that investment in a 

PET/CT scanner is important to be 

competitive in the marketplace, due to 

better capability for detecting 

malignancies. The commenter stated 

that the higher capital costs of a PET/CT 

operation require a patient volume of 

between four and five patients per day 

to break even compared to a patient 

volume of between two and three 

patients for a dedicated PET operation. 

According to the commenter, the 

number of claims for PET remains 

relatively low compared to MRI and CT 

scans, comprising less than 1 percent of 

all imaging procedures performed in the 

United States. Therefore, the commenter 

argued that providers would be unlikely 

to recover significant losses through 

increased patient volume. 

Several commenters indicated that the 

American Medical Association will be 

creating three new CPT codes 78814, 

78815, and 78816 to describe PET with 

concurrent CT for anatomical 

localization for CY 2005. One 

commenter recommended that CMS 

assign these new CPT codes for PET/CT 

scans to three different new technology 

APCs, while another commenter 

recommended that CMS place these 

new CPT codes in new technology APC 

1516 at a payment rate of $1,450. 

Response: The current G code 

descriptors do not describe PET/CT scan 

technology, and should not be reported 

to reflect the costs of a PET/CT scan. At 

present, we have decided not to 

recognize the CPT codes for PET/CT 

scans that the AMA intends to make 

effective January 1, 2005, because we 

believe the existing codes for billing a 

PET scan along with an appropriate CT 

scan, when provided, preserve the scope 

of coverage intent of the PET G-codes as 

well as allow for the continued tracking 

of the utilization of PET scans for 

various indications. We plan to issue 

billing guidance through program 

instructions and provider education 

articles for hospitals to use when they 

provide both a PET and CT scan to 

patients in their outpatient department. 

While we acknowledge that PET/CT 

scanners may be more costly to 

purchase than dedicated PET scanners, 

a PET/CT scanner is versatile and may 

also be used to perform individual CT 

scans, thereby potentially expanding its 

use if PET/CT scan demand is limited. 

Comment: One commenter supported 

assigning PET procedures to new 

technology APC 1513 at a payment rate 

of $1,150, based on a 50–50 blend of the 

median cost and the CY 2004 new 

technology payment, as presented under 

option 3 of the proposed rule. This 

commenter stated that option 3 provides 

the best balance between ensuring 

continued beneficiary access to this 

valuable technology and the need for 

CMS to consistently apply its ratesetting 

methodology to determine payment 

rates. Another commenter supported the 

assignment of PET procedures into a 

clinically appropriate APC that pays at 

least $1,200. This commenter believed 

that a payment of at least $1,200 would 

compensate adequately for the 

technology and necessary staffing.

Response: We agree with the 

commenters that a balance must be 

reached between ensuring continued 

beneficiary access to PET scans and the 

necessity for CMS to apply consistently 

its rate-setting methodology. Balancing 

the concern regarding possible adverse 

effects on patient access that might 

result from a substantial precipitous 

reduction in payment with information 

from thousands of hospital claims and 

the cost data we received from 

commenters, we are setting the CY 2005 

payment for PET scans based on a 50–

50 blend of the median cost and the CY 

2004 new technology APC payment rate, 

as presented under option three in the 

proposed rule. We believe we have 

reached this balance for CY 2005 by 

assigning PET scans to new technology 

APC 1513 for a blended payment rate of 

$1,150. 

Comment: Another commenter 

addressed the issue of three new CPT 

codes 78811, 78812, and 78813 for 

tumor PET imaging to replace CPT code 

78810 (Tumor imaging, positron 

emission tomography, metabolic 

evaluation) for CY 2005. The commenter 

recommended that CMS adopt these 

new CPT codes in place of the existing 

G-codes and place them in new clinical 

APCs, which would result in one level 

for brain PET scans, two levels for 

cardiac PET scans, and three levels for 

tumor PET scans. 

Response: At present, we believe that 

the existing G-codes for PET scans 

adequately serve the purpose of tracking 

utilization of PET scans for various 

indications. Therefore, CMS will 

continue to recognize the existing Gcodes for PET scans. 

Comment: One commenter requested 

that CMS provide the number of single 

procedure claims that support assigning 

FDG-PET scans to a clinically 

appropriate APC according to the 

median cost of the scans, as presented 

under option 2 in the proposed rule. 

Response: The number of single 

procedure claims used to create the 

median of $898.64 discussed in the 

proposed rule under option 2 for APC 

0420 (PET imaging) totaled 55,838 

single procedure claims out of 61,492 

total claims. 

PET (Myocardial) 

Comment: One commenter brought to 

our attention that CPT code 78459 

(myocardial imaging, PET, metabolic 

evaluation) and HCPCS code G0230 

(PET imaging; metabolic assessment for 

myocardial viability following 

inconclusive SPECT study) are both 

currently paid under OPPS and describe 

nearly the same procedure, with the 

exception that HCPCS code G0230 has 

a more narrow description. The 

commenter understood that CMS had 

intended to replace HCPCS code G0230 

with CPT code 78459, but was confused 

by the payable status indicator for both 

codes. Two commenters recommended 

that CMS clarify the proper use of these 

codes and move CPT code 78459 from 

APC 0285 (Myocardial Positron 

Emission Tomography), with a payment 

rate of $690.61 to APC 1516 with a 

payment rate of $1,450. 

Response: We appreciate the 

commenter bringing to our attention the 

65718 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

duplication of codes for myocardial PET 

imaging for metabolic assessment. At 

present, we will change the status 

indicator for CPT code 78459 

(Myocardial imaging, PET, metabolic 

evaluation) to ‘‘B,’’ not payable under 

the OPPS, and move HCPCS code G0230 

(PET imaging; metabolic assessment for 

myocardial viability following 

inconclusive SPECT study), along with 

the other PET codes currently assigned 

to APC 1516, from APC 1516 to APC 

1513 for CY 2005. We will seek advice 

on the APC placement of HCPCS code 

G0230 from the Advisory Panel on APC 

Groups during their next meeting. 

Comment: Several commenters 

indicated that the resources, other than 

the radiopharmaceuticals, required to 

perform the PET myocardial perfusion 

imaging studies assigned to APC 0285 

(Myocardial Positron Emission 

Tomography) do not differ significantly 

from many of the PET tumor imaging 

procedures contained in new 

technology APC 1516. These 

commenters requested an explanation 

for the payment rate decrease from 

$1,058.87 in the proposed rule for the 

CY 2004 update to $772.08 in the final 

rule for the CY 2004 update, and the 

further decrease to $690.61 in the 

proposed rule for the CY 2005 update. 

The commenters objected to CMS 

creating an exception to the 2 times rule 

for APC 0285. The commenters believed 

that the small volume of these 

procedures and the complexity of 

multiple G-codes to describe both single 

and multiple imaging sessions preclude 

reasonable conclusions about the cost of 

providing these services. The 

commenters recommended that CMS 

move the 18 G-codes from APC 0285 

paying $690.61 to APC 1516 with a 

payment rate of $1,450. The 

commenters further recommended that 

we reduce the complexity of billing for 

these procedures by collapsing these 

eighteen G-codes into two CPT codes 

based on resources for single and 

multiple studies, replacing HCPCS 

codes G0030–G0047 with CPT code 

78491 (Myocardial imaging, PET, 

perfusion; single study at rest or stress) 

and CPT code 78492 (Myocardial 

imaging, PET, perfusion; multiple 

studies at rest or stress).

Response: The steady decline of the 

payment rate for APC 0285 since the CY 

2004 proposed rule is attributable to the 

153-percent increase in the number of 

single procedure claims used to set the 

payment rate for APC 0285, which gave 

rise to better data to more accurately set 

the payment rate. In the CY 2004 

proposed rule, we used 613 single 

procedure claims out of 1,584 total 

claims (39 percent of total claims) to set 

the CY 2004 proposed payment rate of 

$1,058.87. In the CY 2004 final rule, we 

used 1,089 single procedure claims out 

of 1,778 total claims (61 percent of total 

claims) to set the CY 2004 final payment 

rate of $772.08. In the CY 2005 

proposed rule, we used 1,451 single 

procedure claims out of 1,946 total 

claims (75 percent of total claims) to set 

the CY 2005 proposed payment rate of 

$690.61. At present, composition of 

APC 0285 will be maintained for CY 

2005 while we collect claims data on 

HCPCS codes G0030 through G0047. 

Based on our CY 2003 data for the 

specific G-codes, we cannot identify a 

predictable pattern of increased hospital 

costs associated with multiple studies as 

compared with single studies. We will 

present before the Advisory Panel on 

APC Groups during their next meeting 

the commenters’ recommendation to 

recognize CPT codes 78491 and 78492 

as representing single and multiple 

myocardial PET studies and movement 

of these codes from APC 0285 to APC 

1516. We note that we will be moving 

the PET scans currently in APC 1516 to 

APC 1513 for CY 2005, and will bring 

that to the Panel’s attention as they 

consider potential APC movement of the 

myocardial PET studies. 

d. Bard Endoscopic Suturing System 

For CY 2005, we proposed to create 

APC 0422 for Level II Upper GI 

Procedures and to assign HCPCS code 

C9703 (the Bard Endoscopic Suturing 

System), as well as other procedures to 

APC 0422 based on clinical and 

resource homogeneity. Currently, 

HCPCS code C9703 is assigned to New 

Technology APC 1555, with a payment 

of $1,650. Our examination of CY 2003 

claims data for HCPCS code C9703 

revealed that 137 of the 171 single 

claims were from a single institution 

with an extremely low and consistent 

cost per claim. We do not believe that 

those 137 claims represent the service 

described by HCPCS code C9703, which 

includes an upper gastrointestinal 

endoscopy along with suturing of the 

esophagogastric junction. Therefore, in 

establishing the median for APC 0422, 

we did not use the 137 claims, which 

we believe were incorrectly coded. 

Comment: Several commenters 

opposed the movement of HCPCS code 

C9703 (Bard Endoscopic Suturing 

System) from New Technology APC 

1555 with a payment rate of $1,650 to 

clinical APC 0422 (Level II Upper GI 

Procedures) with a proposed payment 

rate of $1,274. The commenters 

indicated that the proposed payment 

under APC 0422 is inadequate to cover 

even the equipment costs alone. The 

commenters contended that the claims 

data are insufficient to support 

movement of this procedure out of its 

new technology APC and into a clinical 

APC, and urged CMS to maintain 

HCPCS code C9703 in New Technology 

APC 1555 with a payment rate of 

$1,650. 

Response: As we stated in the 

proposed rule, our examination of the 

CY 2003 claims data for APC 0422 

revealed that 137 of the 171 single 

claims for HCPCS code C9703 were 

incorrectly coded. Therefore, the 

remaining single claims were used in 

establishing the median for APC 0422. 

Considering that HCPCS code C9703 has 

remained in a new technology APC for 

2 years with a relatively modest volume, 

we are not convinced that maintaining 

HCPCS code C9703 in a new technology 

APC will necessarily result in a high 

volume for future ratesetting. 

Furthermore, the median cost as 

calculated for HCPCS code C9703, using 

the subset of single claims, has been 

relatively stable over the past 2 years 

and consistent with the median for APC 

0422. In addition, in keeping with our 

practice to use CPT codes, if possible, 

we will discontinue HCPCS code C9703 

and instruct providers to report service 

with this technology under CPT code 

0008T (Upper gastrointestinal 

endoscopy with suture), which will be 

payable under the OPPS for CY 2005. In 

this final rule with comment period, we 

are finalizing our proposal to move 

HCPCS code C9703, which will be 

replaced with CPT code 0008T, from 

New Technology APC 1555 to clinical 

APC 0422 for CY 2005. Code 0008T is 

assigned status indicator ‘‘NI’’ and, as 

such, is open for public comment 

during the 60-day comment period 

associated with this final rule with 

comment period. 

e. Stretta System 

Comment: Several commenters 

objected to the movement of HCPCS 

code C9701 (Stretta system) from New 

Technology APC 1557 with a payment 

rate of $1,850 to clinical APC 0422 

(Level II Upper GI Procedures) with a 

proposed payment rate of $1,274. The 

commenters indicated that the proposed 

payment is inadequate to cover even the 

equipment costs alone, and urged CMS 

to maintain HCPCS code C9701 in New 

Technology APC 1557 with a payment 

rate of $1,850.

Response: The single claims volume 

for HCPCS code C9701 has remained 

modest for the past 2 years of its 

placement in a new technology APC. 

Therefore, we do not believe that 

maintaining HCPCS code C9701 in a 

new technology APC will necessarily 

result in a high volume for future 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65719

ratesetting. Furthermore, the median 

cost for HCPCS code C9701 has been 

stable over the past 2 years and 

consistent with the median for APC 

0422. Moreover, we can now 

discontinue HCPCS code C9701 and 

will instruct providers to report service 

with this technology under CPT code 

43257 (Upper gastrointestinal 

endoscopy with delivery of thermal 

energy), a new CPT code that will be 

payable under OPPS for CY 2005. We 

are finalizing our proposal to move 

HCPCS code C9701, which will be 

replaced with CPT code 43257, from 

New Technology APC 1557 to clinical 

APC 0422 for CY 2005. 

f. Gastrointestinal Tract (GI) Capsule 

Endoscopy 

Comment: Several comments opposed 

our proposal to move CPT code 91110 

(GI Capsule Endoscopy) from New 

Technology APC 1508 with a payment 

rate of $650 to clinical APC 0141 (Level 

I Upper GI Procedures) with a proposed 

payment rate of $464.52 for CY 2005. 

(CPT code 91110 (Capsule Endoscopy) 

replaced HCPCS code G0262 in CY 

2004. HCPCS code G0262 was mapped 

to New Technology APC 1508 in CY 

2004.) The commenters explained that 

the cost data for CPT code 91110 are 

unreliable due to multiple coding 

changes over the last 3 years and, 

therefore, believed that the data should 

not be used to set the payment rate. The 

commenters indicated that the device 

costs are $450, and under the proposed 

payment rate, only $14 would be 

available to cover the service portion of 

the procedure. The commenters 

expressed concern that patient access to 

care would be hindered by moving the 

service into clinical APC 0141. The 

commenters also contended that the 

proposed assignment of this procedure 

to APC 0141 is inappropriate because 

none of the other services that reside in 

APC 0141 require a device of significant 

cost and the codes are not clinically 

homogeneous with CPT code 91110. 

The commenters urged CMS to maintain 

CPT code 91110 in New Technology 

APC 1508 with a payment rate of $650. 

One commenter suggested that CMS 

assign a C code to the capsule and 

instruct providers to bill this C-code 

along with HCPCS code G0262. One 

commenter requested that, if CMS does 

not maintain CPT code 91110 in new 

technology APC 1508, CMS consider 

two additional options: (1) Limiting the 

rate reduction for CY 2005 to 5 percent 

of the CY 2004 rate; or (2) assign CPT 

code 91110 to APC 0142 (Small 

Intestine Endoscopy), which the 

commenter stated would be a 

compromise because the payment of 

$503.20 would still ‘‘underpay’’ the 

hospital for the costs of providing the 

procedure. 

Response: Generally, we do not 

establish C-codes for devices outside of 

the pass-through process, so we will not 

assign a C-code to the capsule. We 

remind providers that they should 

include the charges for device costs 

associated with this capsule within the 

charges reported for CPT code 91110. 

We agree with the commenters that CPT 

code 91110 may not belong in APC 0141 

based on clinical homogeneity and 

resource consumption. We had almost 

4,000 single claims, about 90 percent of 

all CY 2003 claims for capsule 

endoscopy, available for use in 

calculating the median cost of the 

service. We have confidence that our 

median reflects hospital resources 

needed to perform the service. As one 

commenter recommended, we believe 

that the resource costs and clinical 

nature of CPT code 91110 are more 

consistent with other codes that reside 

in APC 0142. Therefore, in this final 

rule with comment period, we are 

moving CPT code 91110 from New 

Technology APC 1508 to clinical APC 

0142 for CY 2005, as the commenter 

suggested. 

g. Proton Beam Therapy 

Comment: Several commenters urged 

CMS to maintain intermediate (CPT 

code 77523) and complex (CPT code 

77525) proton beam therapies in New 

Technology APC 1511 at a payment rate 

of $950 for CY 2005. The commenters 

indicated that the proposed payment 

rate of $678.31 for CY 2005 does not 

capture the significant difference in 

resource consumption and complexity 

between the simple and the 

intermediate/complex procedures. 

These commenters expressed concern 

that the low volume of claims submitted 

by only two facilities provides volatile 

and insufficient data for movement into 

the proposed clinical APC 0419 (Proton 

Beam Radiation Therapy) at a payment 

rate of $678.31. They pointed out that 

more than four additional centers are 

currently under construction or in the 

planning phases in response to the high 

demand for this technology. The 

commenters explained that the 

extraordinary capital expense of 

between $70–$125 million and high 

operating costs of a proton beam 

necessitate adequate payment for this 

service to protect the financial viability 

of this emerging technology. They 

feared that a payment reduction would 

halt diffusion of this technology and 

negatively impact patient access to this 

cancer treatment. 

Two commenters explained that the 

CY 2005 proposed payment rates for 

CPT codes 77523 (intermediate proton 

beam treatment) and 77525 (complex 

proton beam treatment) were based on 

costs derived by applying CCRs from the 

most recent Medicare cost reports to 

charges reported on CY 2003 claims 

submitted by two hospitals, which were 

the only two proton therapy centers in 

operation in the United States at the 

time. The commenters further indicated 

that these two hospitals, from which all 

of the intermediate and complex proton 

therapies claims were derived, reported 

the costs and charges of proton therapy 

along with the costs and charges for all 

other radiation therapy services on the 

radiation therapy department line. One 

commenter calculated an overall 

radiation therapy department CCR of 

0.2442 using CY 2003 data from one of 

these hospitals. This commenter then 

calculated a proton beam therapy CCR 

of 0.4175 by isolating the costs and 

charges for proton beam therapy from 

the costs and charges for the overall 

radiation therapy department. The 

commenter applied this proton beam 

therapy CCR of 0.4175 to calculate the 

costs based on average CY 2003 charges 

for intermediate and complex proton 

beam treatments and reported a cost of 

$1,105.96 for intermediate proton beam 

treatment and a cost of $1,216.60 for 

complex proton beam treatment, 

significantly above Medicare’s proposed 

payment rate of $678.31 for CY 2005. 

Commenters believed that this 

understatement of costs in the Medicare 

cost reports from these two hospitals is 

largely responsible for the inadequacy of 

the proposed payment rates for 

intermediate and complex proton beam 

treatments. The commenters requested 

that CMS apply the proton beam 

therapy CCR of 0.4175, based on proton 

beam specific cost data provided by one 

of these commenters, for determining 

the median costs of proton beam 

therapy. The commenters believed that 

the revised costs support the 

maintenance of CPT codes 77523 and 

77525 in New Technology APC 1511 at 

a payment rate of $950 for CY 2005. The 

commenters also noted the 

recommendation of the Advisory Panel 

on APC Groups to maintain 

intermediate and complex proton beam 

therapies in New Technology APC 1511 

at a payment rate of $950 for CY 2005 

and urged CMS to adopt that 

recommendation.

Response: We will not apply the 

commenter’s calculated CCR to 

determine the median costs of proton 

beam therapy because we are unable to 

replicate the commenter’s proton beam 

therapy CCR calculation of 0.4175 by 

65720 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

isolating the costs and charges for 

proton beam therapy from the costs and 

charges for the overall radiation therapy 

department. However, having 

considered the concerns of numerous 

commenters that patient access to 

proton beam therapy may be impeded 

by a significant reduction in OPPS 

payment, we are setting the CY 2005 

payment for CPT codes 77523 and 

77525 by calculating a 50–50 blend of 

the median cost of $690.45 derived from 

2003 claims and the CY 2004 new 

technology APC payment rate of $950. 

We will use the result of that calculation 

($820) to assign intermediate and 

complex proton beam therapies (CPT 

codes 77523 and 77525) to New 

Technology APC 1510 for a blended 

payment rate of $850 for CY 2005. 

After consideration of these public 

comments and based upon our review of 

the latest claims data available, we are 

moving the procedures listed in Table 

14 from their current new technology 

APCs to the APCs listed, as we have 

adequate data on these procedures to 

enable us to make the necessary APC 

assignment. 

BILLING CODE 4120–01–P


ER15NO04.013</GPH>
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BILLING CODE 4120–01–C 

4. Public Comments Received Relating 

to Other New Technology APC Issues 

a. Computerized Reconstruction CT of 

Aorta 

In the August 16, 2004 proposed rule, 

we proposed to reassign code G0288 

(Reconstruction, CTA of aorta for 

preoperative planning and evaluation 

post vascular surgery) from New 

Technology APC 1506 to clinical APC 

0417 (Computerized Reconstruction) for 

CY 2005. 

Comment: Several commenters 

expressed concern about our proposal to 

move G0288 from New Technology APC 

1506 to clinical APC 0417. The 

commenter asserted that the 

reassignment results in a decreased 

payment amount from $450 to 

approximately $247, a rate that 

commenters believe is too low to cover 

the costs of providing the service. 

The commenters suggested that CMS 

use external data to calculate rates 

rather than relying on hospital claims 

data, that CMS maintain G0288 in its 

current new technology APC assignment 

until hospital claims are more accurate, 

or that CMS go ahead with the 

reassignment to a clinical APC but 

continue to base payment on a rate that 

is consistent with the CY 2004 rate. One 

commenter provided invoices from 

hospitals across the country to support 

its assertion that our proposed payment 

will be to low. 

One commenter also requested that 

CMS change the descriptor for code 

G0288 to read ‘‘Three-dimensional preoperative and post-operative computeraided measurement planning and 

simulation in accordance with 

measurements and modeling 

specifications of the Society for 

Vascular Surgery’’ in order to ensure 

that the code is only used for true threedimensional preoperative and 

postoperative computer-aided 

measurement planning and simulation 

technologies. 

Response: A predecessor C-code to 

G0288 had a new technology APC 

assignment in CY 2002, with a payment 

level of $625. The C-code was deleted 

for CY 2003, and G0288, a more general 

treatment planning code, was then 

assigned to the same new technology 

APC for CY 2003, with a payment of 

$625. For CY 2004, we proposed to 

move G0288 from a new technology 

APC to a clinical APC based on over 

1,000 claims, with a median cost of 

$272. Based on hospital data provided 

by a commenter on the CY 2004 

proposed rule and our conclusion that 

there may have been Medicare claims 

that understated the costs of the 

treatment planning software, we placed 

G0288 in a new technology APC with a 

payment of $450 for CY 2004, consistent 

with a 50/50 blend of our data with the 

analysis of a commenter. For CY 2005, 

we believe we have adequate claims 

data on which to base payment for 

G0288 and to reassign the service to its 

own clinical APC. We had almost 5,000 

total claims for code C9703 (first 3 

months of CY 2003 when the C-code 

was still in the grace period) and G0288, 

and over half of these were single claims 

available for APC median calculation. 

We are confident that the median cost 

for APC 0417 reflects hospital resource 

costs, and we are reassured by the 

consistency of our median cost data 

over the past several years for this 

service. 

Accordingly, we are adopting as final 

our proposal to assign code G0288 to 

APC 0417 for CY 2005. 

We are not changing the name of 

G0288 at this time. However, we will 

take the commenter’s suggestion into 

consideration in the future if the need 

arises. We revised the descriptor for the 

code for CY 2004 to clarify that the 

service can be used for treatment 

planning prior to surgery and for 

postsurgical monitoring. We believe that 

the current G code descriptor 

appropriately describes the service. 

b. Kyphoplasty 

Comment: One commenter, a 

manufacturer of medical devices used to 

restore spinal function and treat 

vertebral compression fractures, 

suggested that CMS should place 

kyphoplasty, a new procedure to treat 

vertebral compression fractures, into 

New Technology APC 1535. The 

commenter stated that kyphoplasty is 

currently billed using code 22899 

(Unlisted procedure of the spine). The 

commenter claimed that, according to 

our policy, because CMS received its 

application before June 2004, the 

procedure is eligible for new technology 

APC payments in October 2004. The 

commenter was surprised that it did not 

see a proposal to place kyphoplasty into 

a new technology APC in our proposed 

rule or in the October 2004 OPPS 

update. The commenter stated that 

using an unlisted code creates problems 

concerning billing and payment for 

hospitals.

Response: We have completed our 

evaluation of the new technology 

application for kyphoplasty and have 

assigned new C-codes that describe the 

procedure. We have assigned these 

codes to existing clinical APC 0051 

rather than to a new technology APC. 

We believe that APC 0051 is appropriate 

for kyphoplasty in terms of clinical 

characteristics and resource costs. 

Reasonable placement into an existing 

APC that is appropriate in terms of 

clinical characteristics and resource 

costs is one of our criteria in deciding 

whether a service should be placed into 

a new technology APC (66 FR 59900, 

November 30, 2001). 

Concerning the commenter’s assertion 

that because CMS received its 

application before June 2004, the 

procedure is eligible for payment status 

as a new technology APC in October 

2004, we remind the public that the 

timing of eligibility for payment, if any, 

is not bound to when an application is 

filed with CMS. As we state on the CMS 

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

if an application is filed by a certain 

date (for example, by June 1), the 

earliest date that such an item or service 

can be considered for new payment 

status is the following quarter (for 

example, October 1). This means that 

any additional coding and payment, if 

warranted, could begin later than the 

following quarter. Because it is 

important that our payment and coding 

systems do not impede access by 

Medicare beneficiaries to the best 

available medical care, we review all 

applications as quickly as possible, 

given the complexity of the issues and 

the thoroughness we believe such 

reviews require. The timing of 

completion of our evaluation of any 

specific application depends on such 

factors as the complexity of the 

application, the completeness of all 

materials submitted, whether the review 

team requires additional information 

and the amount of time before we 

receive additional materials and 

information. Of course, the service 

needs to be otherwise eligible for 

assignment to a new technology APC (or 

as a pass-through assignment in the case 

of a new device, drug, or biological). 

We note that while we consider these 

new codes as final, the codes and the 

placement of the services are subject to 

comment within 60 days of the 

publication of this final rule with 

comment period, as stated elsewhere in 

this rule. Moreover, the public may 

comment on our placement of services 

to the APC Panel, which often hears 

comments and testimony concerning the 

placement of new services brought to us 

by interested parties. 

Accordingly, the codes for 

kyphoplasty are: 

C9718 Kyphoplasty, one vertebral 

body, unilateral or bilateral injection 

C9719 Kyphoplasty, one vertebral 

body, unilateral or bilateral injection; 

each additional vertebral body (list 

separately in addition to code for 

primary procedure) 

65722 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

c. Laser Treatment of Benign Prostatic 

Hyperplasia (BPH) 

In the August 16, 2004 proposed rule, 

HCPCS code C9713 (Non-contact laser 

vaporization of prostate, including 

coagulation control of intraoperative 

and postoperative bleeding) was 

assigned to New Technology APC 1525 

for CY 2005. The assignment of this 

code to New Technology APC 1525 was 

a continuation of the new technology 

APC placement established on April 1, 

2004. 

Comment: One commenter, the 

manufacturer of medical equipment 

used in the treatment of benign prostatic 

hyperplasia (BPH) stated that its 

product, the GreenLight Laser, was the 

only technology available that uses a 

532nm or ‘‘green’’ wavelength as an 

energy source and that CMS had 

assigned code C9713 in response to an 

application for a new technology APC 

assignment from Laserscope. The 

commenter indicated that other 

technologies that do not employ the 

same energy wavelength and the same 

noncontact vaporization technique 

should not be billed with code C9713. 

The commenter expressed concern that 

the costs of the other techniques are less 

than those for GreenLight Laser and 

thus the other techniques should not be 

paid under New Technology APC 1525. 

The commenter requested CMS to revise 

the descriptor of code C9713 to describe 

only 532nm laser technologies such as 

the GreenLight Laser. 

Response: We acknowledge that 

HCPCS code C9713 was established 

following our review of the new 

technology application from Laserscope. 

We also agree that code C9713 may be 

used by hospitals to report such 

procedures using the Laserscope 

product, the GreenLight PVP, described 

in the application for new technology 

assignment. We established code C9713 

based on our understanding of the 

information provided to us that the 

service may be different from other 

services used to treat BPH. We look 

forward to receiving and assessing the 

medical review, analysis, and 

evaluation of the service and technology 

through the usual AMA coding and 

payment processes. In general, we do 

not tailor temporary procedure codes in 

the ‘‘C’’ series to particular products and 

have not been persuaded that a 

redefinition of code C9713 is necessary 

at this time. With respect to other 

techniques for treatment of BPH, we 

would rely on the hospitals to 

determine which HCPCS code, whether 

C9713 or one of the CPT codes, most 

accurately describes the procedure for 

treatment of BPH for which they are 

billing. With regards to the commenter’s 

claim that the costs of other techniques 

described by code C9713 are less than 

warranted by the New Technology APC 

1525, our policy is to review the costs 

of services assigned to New Technology 

APCs each year to determine if an 

alternate placement in another APC is 

warranted. We continue to believe that 

placement of code C9713 in a new 

technology APC is appropriate for CY 

2005. 

d. Computerized Tomographic 

Angiography (CTA) 

In the August 16, 2004 proposed rule, 

we included the APC assignment and 

the payment rate for computed 

tomographic angiography (CTA). These 

procedures, coded using one of several 

CPT codes, depending on the body 

region under study, involve acquisition 

of a CT scan with and without contrast 

material, as well as image postprocessing. The assigned CTA CPT 

codes under APC 0662 had a proposed 

payment rate of $320.60. That proposed 

payment rate was slightly lower than 

that for a CT scan ($323.21) and 

significantly lower than the sum of the 

proposed payment for CT scan and 

image reconstruction, CPT code 76375 

($98), billed separately. 

Comment: A number of commenters 

were concerned about the lower 

payment rates for the CTA procedures 

and asked CMS to review and revise the 

proposed payment rate.

The commenters pointed out that, 

prior to 2001, two codes were used to 

code for the procedure: one for the CT 

scan and another for the 3-D 

reconstruction. The commenters 

indicated that, in 2001, CPT codes were 

created to enable specific coding for 

CTA procedures, including image postprocessing in the CTA codes, but those 

codes were still assigned to the same 

APC (0333) as CT procedures that did 

not include image reconstruction. They 

added that, in CY 2003, the CTA 

procedures were assigned to their own 

APC (0662). The commenters asserted 

that in spite of the creation of an APC 

specific to CTA procedures, the OPPS 

payment amounts have not reflected the 

additional costs for CTA compared to 

CT. They believed that the low payment 

rates are due to continuing confusion 

and conflicting information among 

providers concerning appropriate billing 

and charging practices associated with 

CTA procedures. 

One commenter performed a number 

of analyses in an attempt to understand 

and address the apparent billing 

problems. In its investigation, the 

commenter discovered that, in 2002, 

only 40 percent of all hospitals that 

performed both CT and CTA charged 

more for CTA than for CT. The 

commenter also found in its study of 

hospital charge structures that there is 

wide variation in methods employed by 

hospitals and that only 29 percent of 

hospitals use costs to set charges. 

While all commenters recommended 

that CMS adjust the payment rate for 

CTA procedures to equal that for APC 

0333 plus APC 0282, one commenter 

recommended that we do this using the 

adjustment made under the Medicare 

Physician Fee Schedule for CY 2003 as 

a model. That commenter suggested that 

we should ignore CTA claims and 

instead rely on CT claims (APC 0333) 

plus reimbursement for image 

reconstruction (APC 0282) as a basis for 

setting the rate for CTA services. 

Other alternative suggestions 

provided by the commenter include: use 

only CTA claims that are ‘‘logical;’’

change coding instructions and edits to 

allow CTA to be billed in addition to 

image reconstruction; or make an 

administrative adjustment to increase 

CTA payment. 

Finally, the commenters encouraged 

CMS to investigate alternative methods 

for calculating CCRs in order to achieve 

more accurate costs on which to base 

our rates. 

Response: Although we understand 

the commenters’ points of view and 

appreciate the comprehensive analyses 

they shared with us, we cannot identify 

any action that would be appropriate for 

us to take. As the commenters are 

aware, we rely on hospital claims data 

to set payment rates and have made 

clear our intent to rely solely on those 

claims by CY 2007. If the claims data are 

inaccurate, especially across a broad 

spectrum of providers as the 

commenters believe is evidenced in this 

case, we have no way to determine 

which claims are more or less accurate 

than any others. 

To implement the commenters’

suggestion that we make the payment 

rate for CTA (APC 0662) equal to the 

sum of the rates for CT alone (APC 

0333) plus image reconstruction (APC 

0282) would require that we have 

accurate cost information about the cost 

of image reconstruction for CTA 

specifically and for CT alone, as utilized 

with CTA. This is not the case. The 

image reconstruction code CPT 76375 

(coronal, sagittal, multiplanar, oblique, 

3-dimensional and/or holographic 

reconstruction of computed 

tomography, magnetic resonance 

imaging, or other tomographic modality) 

is not limited to image reconstruction 

performed for CTA and may be used in 

any number of other procedures. Based 

on the available CPT codes for CTA, we 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65723

would not expect any current utilization 

of CPT code 76375 to be for CTA postimage processing, unless there was no 

appropriate CTA code to describe the 

body region imaged. We believe this 

would be rare. In addition, our current 

cost data for CT alone do not necessarily 

reflect the resources utilized for the CT 

portion of CTA. 

We also do not believe that for the last 

3 years there has been conflicting 

information given to providers 

concerning appropriate billing and 

charging practices associated with CTA 

procedures. The CPT code descriptors 

clearly include image post-processing 

for CTA procedures. In response to 

previous comments, we did provide a 

separate APC for CTA procedures 

beginning in CY 2003 in recognition 

that hospital resources might be 

different for CTA procedures as 

compared with CT procedures. From the 

over 100,000 claims for CTA procedures 

from CY 2003, we were able to use 

about 50 percent of the claims to 

determine hospitals’ costs for the 

services. Our number of claims for CTA 

procedures increased significantly 

between CY 2002 and CY 2003. From 

the 2003 full year of data, we have 

calculated that median hospital costs for 

the APCs for CT and CTA services were 

approximately equal, at $329. Because 

hospitals set their own charges for 

services, which we then convert to 

costs, we see no reason why adding the 

costs for CT alone plus the costs for 

image reconstruction would necessarily 

provide a better estimate of costs for 

CTA than our analysis of our specific 

CTA claims. 

Similarly, in order to make an 

adjustment akin to that made for the 

Medicare Physician Fee Schedule for 

CY 2003, we would need to have 

accurately coded cost data for the 

individual components of CTA, 

performed in the context of CTA, on 

which to base that change. We do not 

have that data, and the OPPS system, 

unlike the Medicare Physician Fee 

Schedule, relies upon historical hospital 

claims data to develop relative costs of 

services. 

Lastly, we do not agree that we should 

provide coding guidance that differs 

from that embodied in the CPT code 

descriptors in this case. Our current 

edits that do not allow CTA to be billed 

in addition to image reconstruction are 

consistent with the CPT code 

descriptors for CTA procedures. 

We created a separately paid, specific 

APC for those procedures in an attempt 

to provide an accurate payment for 

CTA. Moreover, by creating a unique 

APC for the procedures, we provided 

the means for hospitals to bill for all of 

the costs associated with CTA, entirely 

separate from their billing for CT. We 

cannot now assume that the claims 

billed for that APC are incorrect and 

that those billed for CT alone are 

correct. 

We acknowledge the commenters’

belief that the claims are flawed and 

that hospitals’ divergent charge 

structures do not result in consistent 

charging for CT scans, CTAs or image 

reconstruction, but note that those 

claims comprise the data on which the 

OPPS relies for payment of a wide 

variety of hospital outpatient services. 

We must rely on hospitals to manage 

their charge structures in a manner that 

accurately and best reflects the services 

provided. 

For the reasons stated above, we will 

not alter the payment rates for CTA, 

APC 0662, for CY 2005. Once again, we 

encourage hospitals to take all actions 

necessary to assure that they are billing 

accurately and including all resources 

utilized to deliver services. As 

discussed in detail in section III. of this 

preamble, we are continuing our work 

to refine the CCRs used for ratesetting.

e. Acoustic Heart Sound Services 

Comment: Several commenters 

addressed the need to assign a recently 

created code for acoustic heart sound 

services for recording and computer 

analysis to an APC. One of the 

commenters indicated that the acoustic 

heart sound recording can be performed 

in the first 5 minutes of an emergency 

department service, together with an 

ECG, to enable the earliest possible 

detection of acute cardiac conditions. 

The commenter related that AMA’s CPT 

Editorial Panel created three new 

Category III codes for acoustic heart 

sound recording that correspond to 

performing the procedure, physician 

interpretation of results, and recording 

and interpretation in combination. The 

commenter contended that one of these 

codes, CPT Category III code 0069T 

(Acoustic heart sound recording and 

computer analysis only) could be 

payable under the OPPS. The 

commenters noted that we did not 

propose an APC assignment for code 

0069T in our proposed rule, and they 

requested an APC assignment effective 

January 1, 2005. One of the commenters 

believed that the most appropriate 

clinical APC to assign this code is APC 

0099 (Electrocardiograms). 

Response: One of the commenters, a 

manufacturer of the acoustic heart 

sound system, had previously applied 

for assignment of these codes to new 

technology APCs and we have 

previously evaluated the three acoustic 

heart sound services. We agree that only 

code 0069T could be payable under the 

OPPS. The comment that acoustic heart 

sound recording can be performed in 

the first 5 minutes of a visit by an ECG 

technician, together with an ECG, to 

enable the earliest possible detection of 

acute cardiac conditions, demonstrates 

that there are limited additional facility 

resources associated with the acoustic 

heart sound recording in conjunction 

with an ECG. It is also our 

understanding that the AMA’s coding 

advice indicates that the acoustic heart 

sound services are to be used in 

conjunction with electrocardiography 

services. We believe it is worthwhile to 

recognize code 0069T under the OPPS 

to track its utilization and develop cost 

data. However, because the service may 

be performed quickly and is always 

accompanied by an ECG, we are 

assigning a packaged status to code 

0069T for CY 2005. Although not 

separately payable under the OPPS, 

charges for the acoustic heart sound 

service will be packaged with charges 

for the separately payable services with 

which it is performed. With regards to 

the comment that we did not assign an 

APC in our proposed rule, we note that 

we do not recognize under the OPPS 

new CPT codes on a mid-year basis, 

even though the AMA may assign new 

tracking codes mid-year, as it did in this 

case. We assign new CPT codes on an 

annual basis, effective with our January 

1 updates to the OPPS. Because this is 

a new code assignment that was not 

proposed in the CY 2005 proposed rule, 

interested parties will be able to 

comment on this new payment 

assignment in response to this final rule 

with comment period. This code is 

included in Addendum B. 

f. Laparoscopic Ablation Renal Mass 

Comment: Commenters asked that we 

move CPT code 50542 (Laparoscopic 

ablation renal mass) out of APC 0131 

(Level II Laparoscopy) and place it in 

new technology APC 1574 (New 

Technology, Level XXXVII ($9,500–

$10,000) until meaningful data can be 

obtained for the procedure. The 

commenter indicated that the 

procedure, including required devices, 

might cost approximately $10,000 

because of the cost of the cryosurgery 

device. The commenter indicated that 

because they did not find any claims for 

this code that contained the device code 

for cryoablation probes (C2618), CMS 

should discard the data as being valid 

to set the weight for this code. 

Response: Code 50542 represents a 

service that may or may not be 

performed with cryoablation equipment. 

Therefore, the absence of the device 

code for cryoablation probes on the 

65724 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

claims may be an accurate reflection of 

the service as it was performed. The 

median cost for the service appears to be 

appropriately placed in APC 0131 and 

the service is clinically coherent with 

other services in APC 0131. Therefore, 

we are retaining its placement in APC 

0131 for CY 2005. 

g. Intrabeam Intra-Operative Therapy 

Comment. One commenter, the 

manufacturer of the Intrabeam IntraOperative Therapy System, commented 

that this procedure, a treatment for 

women diagnosed with early-stage 

breast cancer, which is currently 

assigned to APC 0312 (Radioelement 

Applications) and is billed using CPT 

code 77776, is currently underpaid in 

APC 0312. The commenter claimed that 

there is no current APC mechanism to 

capture the cost information specific to 

this technology, and there are 

insufficient Medicare claims data at this 

time to make an appropriate clinical 

APC assignment. The commenter 

requested that CMS assign the 

Intrabeam procedure to a new 

technology APC. In addition, the 

commenter requested that CMS create 

two new level II HCPCS codes with the 

following descriptors: (1) Surgical 

placement and removal of intraoperative direct application x-ray source 

using surgical closure techniques; and 

(2) Administration of radiation therapy 

by intra-operative direct application of 

x-ray source. 

Response. We recently received from 

the manufacturer of the Intrabeam IntraOperative Radiation Therapy procedure 

an application for assignment of this 

procedure to a new technology APC. We 

are currently engaged in review of that 

application. 

h. New Technology Process Issues 

Comment: In response to the OPPS 

final rule with comment period 

published November 7, 2003, one 

commenter asserted that CMS had failed 

to establish an acceptable method for 

evaluating the costs and clinical efficacy 

of therapeutic medical technologies 

before assigning a code and New 

Technology APC payment under the 

OPPS. The commenter urged CMS to 

propose evaluation criteria for 

determining costs and clinical efficacy. 

In developing such criteria, the 

commenter encouraged CMS to require 

that all filings with the FDA be 

submitted to CMS for review and for 

CMS to rely heavily on the predicated 

device in the FDA application, require 

all privately held companies to provide 

CMS with a list of investors/owners, 

utilize generally accepted accounting 

principles, seek advice from the 

Medicare Coverage Advisory Committee 

(MCAC) or the Medical Technology 

Council (MTC), consider evaluation 

methods used by other health insurers, 

and consider recommendations from 

experts in the field. The commenter 

believed that if CMS had consulted the 

MCAC or the MTC, which advise CMS 

on whether specific medical treatments 

and technology should receive coverage, 

neither the MCAC nor the MTC would 

have recommended coverage for the 

CyberKnife technology, as an example.

In response to our August 16, 2004 

proposed rule, one commenter, a device 

manufacturer, urged CMS to make 

changes to the pass-through and new 

technology application and evaluation 

processes to provide disclosure of 

applications filed with CMS and to 

create an opportunity for the public to 

comment on the disposition of proposed 

or final actions on applications. The 

commenter believed that public 

processes can be adopted, while 

retaining CMS’ quarterly update 

capability for coding and payment. 

Response: As required by section 

942(a) of Pub. L. 108–173, we recently 

established the Council on Technology 

and Innovation (CTI) which brings 

together CMS senior leadership to better 

coordinate coverage, coding and 

payment policy to support the goal of 

high quality, high value care. The CTI 

aims to provide CMS with improved 

methods for developing practical 

information about the clinical benefits 

of new medical technologies to aid in 

achieving more efficient coverage and 

payment of these medical technologies. 

The CTI will also help identify and 

develop study methods for gathering 

reliable evidence about the risks and 

benefits of new and existing medical 

technologies that can be carried out 

more easily on a regular basis, such as 

simple protocols, registries, and other 

study methods. 

The CTI will support CMS’ efforts to 

develop better evidence on the safety, 

effectiveness, and cost of new and 

approved technologies to help promote 

their more effective use. As directed in 

section 942(a) of Pub. L. 108–173, the 

CMS Council coordinates the activities 

of Medicare coverage, coding, and 

payment for new technologies and the 

exchange of information on new 

technologies between CMS and other 

entities charged with making similar 

considerations and decisions. 

G. Changes to the Inpatient List 

At the APC Panel’s February 2004 

meeting, we advised the APC Panel of 

a request that we had received to move 

four codes for percutaneous abscess 

drainage 44901 (Drain append. abscess, 

percutaneous), 49021 (Drain abdominal 

abscess), 49041 (Drain percutaneous 

abdominal abscess), 49061 (Drain, 

percutaneous, retroper. abscess)) from 

the inpatient list and to assign them to 

appropriate APCs. The APC Panel also 

recommended that we evaluate other 

codes on the inpatient list for possible 

APC assignment and that we consider 

eliminating the inpatient list. 

In the August 16, 2004 proposed rule, 

we proposed to remove the four abovecited codes and assign them to clinically 

appropriate APCs, as recommended by 

the APC Panel. We also proposed to 

assign code 44901 to APC 0037, code 

49021 to APC 0037; code 49041 to APC 

0037; and code 49061 to APC 0037. We 

discuss in section VII.E. of this final rule 

with comment period our response to 

the APC Panel’s recommendation that 

we either abolish the inpatient list or 

evaluate it for any appropriate changes, 

the public comments we received on 

our proposal, and our responses to those 

public comments. 

H. Assignment of ‘‘Unlisted’’ HCPCS 

Codes 

1. Background 

Some HCPCS codes are used to report 

services that do not have descriptors 

that define the exact service furnished. 

They are commonly called ‘‘unlisted’’

codes. The code descriptors often 

contain phrases such as: ‘‘unlisted 

procedure,’’ ‘‘not otherwise classified,’’

or ‘‘not otherwise specified.’’ The 

unlisted codes typically fall within a 

clinical or procedural category, but they 

lack the specificity needed to describe 

the resources used in the service. For 

example, CPT code 17999 is defined as 

‘‘Unlisted procedure, skin, mucous 

membrane and subcutaneous tissue.’’

The unlisted codes provide a way for 

providers to report services for which 

there is no HCPCS code that specifically 

describes the service furnished. 

However, the lack of specificity in 

describing the service prevents us from 

assigning the code under the Medicare 

OPPS to an APC group based on clinical 

homogeneity and median cost. 

In the August 16, 2004 proposed rule, 

we listed in Table 15 our proposed APC 

reassignments of unlisted HCPCS codes. 

In most cases, the unlisted codes are 

assigned to the lowest level, clinically 

appropriate APC group under the 

Medicare OPPS. This creates an 

incentive for providers to select the 

appropriate, specific HCPCS code to 

describe the service if one is available. 

In addition, if there is no HCPCS code 

that accurately describes the service, 

placing the unlisted code in the lowest 

level APC group provides an incentive 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65725

for interested parties to secure a code 

through the AMA’s CPT process that 

will describe the service. Once a code 

that accurately describes the service is 

created, we can collect data on the 

service and place it in the correct APC 

based on the clinical nature of the 

service and its median cost. 

We do not use the median cost for the 

unlisted codes in the establishment of 

the weight for the APC to which the 

code is assigned because, by definition 

of the code, we do not know what 

service or combination of services is 

reflected in the claims billed using the 

unlisted code.

Our review of HCPCS code 

assignments to APCs has revealed that 

there are a number of unlisted codes 

that are not assigned to the lowest level 

APC. 

2. Proposed and Final Policy for CY 

2005 

In the August 16, 2004 proposed rule, 

we proposed to reassign specified 

unlisted HCPCS codes for CY 2005 

OPPS to the lowest level APC in the 

clinical grouping in which the unlisted 

code is located. We displayed a listing 

of our proposed reassignment of the 

unlisted HCPCS codes in Table 15 of the 

proposed rule. 

We received a number of public 

comments on our proposals. 

Comment: Some commenters 

supported placing all unlisted codes in 

the lowest paid APC and noted that they 

believed that there are others, such as 

CPT code 43999 (Unlisted procedure 

stomach), which is now in APC 0141, 

that should be added to the list of those 

to be placed in the lowest APC. They 

recommended that CMS review the 

entire list of CPT codes to find others 

that should be moved to the lowest level 

APC. 

Some commenters opposed placing 

‘‘unlisted’’ or ‘‘not otherwise classified’’

codes in the lowest APC applicable to 

the category of service. They believed 

that it is inappropriate for CMS to 

develop payment policies aimed at 

forcing stakeholders to seek new HCPCS 

codes for the services being performed. 

They indicated that moving these codes 

to the lowest paying APC would 

decrease payment for 18 of the 20 

procedures by more than 70 percent and 

would create a barrier to new 

technology. They indicated that CMS 

should analyze the costs associated with 

particular unlisted codes and assign 

them to APCs that appropriately reflect 

the cost to perform the services but in 

the meantime, should retain them in the 

existing APCs in which they are placed. 

One commenter urged us to follow the 

process that is followed for physician 

payment when unlisted codes are used, 

with fiscal intermediaries negotiating 

payment for the unlisted code 

depending on the actual service 

provided each time. One commenter 

indicated that putting the unlisted codes 

in the lowest level APC provides a 

disincentive for facilities to adopt new 

technology because it will not be paid 

adequately. 

Response: We appreciate the support 

of the commenters who agreed with 

placing unlisted codes in the lowest 

APC for the clinical category. With 

respect to the comment that CPT code 

43999 should be moved out of APC 

0141 and should be placed in the lowest 

APC for gastrointestinal procedures, we 

have not moved it from APC 0141 

because we believe that APC 0141 is the 

lowest APC appropriate to the clinical 

category of services for CPT code 43999. 

We have reviewed again the proposed 

list of unlisted or ‘‘not otherwise 

classified’’ codes being moved to the 

lowest APC and based on that re-review 

have determined that we do not need to 

make any additional changes to that 

proposed list in this final rule with 

comment period. 

By definition, ‘‘unlisted’’ or ‘‘not 

otherwise classified’’ codes do not 

describe the services being performed, 

and the services coded using ‘‘unlisted’’

codes vary over time as new CPT and 

HCPCS codes are developed. Therefore, 

it is impossible for any level of analysis 

of past hospital data to result in 

appropriate placement of the service for 

the upcoming year in an APC in which 

there is clinical integrity of the groups 

and weights. Therefore, we believe that 

the appropriate default, in the absence 

of a code that describes the service 

being furnished, is placement in the 

lowest level APC within the clinical 

category in which the unlisted code 

falls. We see no need to expand the 

process that is followed for physician 

payment of unlisted codes to the 

outpatient hospital setting. The 

assignment of the unlisted codes to the 

lowest level APC in the clinical category 

specified in the code provides a 

reasonable means for interim payment 

until such time as there is a code that 

specifically describes what is being 

paid. It encourages the creation of codes 

where appropriate and mitigates against 

overpayment of services that are not 

clearly identified on the bill. For new 

technologies that are complete services 

but may not have yet been granted a 

specific CPT code, the new technology 

payment mechanism is available under 

OPPS. Outlier payments may also be 

available under the OPPS in a case of an 

expensive new technology for which a 

specific code is not available and for 

which the costs of the new procedure 

exceed the outlier threshold. 

Comment: One commenter indicated 

that the principal problem behind the 

use of unlisted or not otherwise 

classified codes is the AMA’s bias 

against giving CPT codes for new 

services and technologies unless a 

physician group requests the code to 

provide a mechanism for increased 

physician payment for the service. The 

commenter asked that CMS, as the 

largest and most powerful licensee of 

CPT, influence the AMA to reduce the 

amount of time it takes to release new 

CPT codes for use in the OPPS so that 

the need for use of unlisted codes will 

diminish and the new services can be 

paid appropriately more quickly after 

they come onto the market. The 

commenter also asked that CMS reduce 

its ‘‘barriers’’ to placement of new 

services that require new technologies 

into new technology APCs or to granting 

of pass through payment status. The 

commenter indicated that lowering 

these ‘‘barriers’’ also would eliminate 

much of the use of the unlisted codes. 

Response: An individual, a physician 

group, or a manufacturer may submit a 

request for a new CPT code. CMS works 

collaboratively with the AMA to 

establish new CPT codes, recognizing 

that the process is governed and 

controlled by the AMA. The AMA CPT 

process involves methodical 

consideration of new coding proposals, 

which may be time consuming. In 

addition, the payment system changes 

required by new codes take some time 

to implement. Under the OPPS, we 

make available the pass-through and 

new technology payment mechanisms, 

using C-codes and G-codes to allow new 

services, devices, and technologies to be 

available to clinicians and providers to 

facilitate appropriate payment for such 

services. The commenter did not 

indicate what ‘‘barriers’’ to placement of 

new services exist. However, to assist 

the public, we provide further guidance 

in section IV.C. of the preamble 

concerning additional comments on the 

topic of the surgical insertion or 

implantation criterion for the passthrough device payment mechanism. 

In this final rule with comment 

period, we are adopting as final, without 

modification, the proposed 

reassignment of unlisted HCPCS codes 

to move all unlisted or ‘‘not otherwise 

classified’’ codes to the lowest level 

APC that is appropriate to the clinical 

nature of the service, as displayed in 

Table 15.

65726 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

I. Addition of New Procedure Codes 

During the first two quarters of CY 

2004, we created 85 HCPCS codes that 

were not addressed in the November 7, 

2003 final rule with comment period 

that updated the CY 2004 OPPS. We 

have designated the payment status of 

those codes and added them to the April 

and July updates of the 2004 OPPS 

(Transmittals 3144, 3154, 3322, and 

3324). We showed these codes in Table 

16 of the proposed rule. Thirty of the 

new codes were created to enable 

providers to bill for brand name drugs 

and to receive payments at a rate that 

differs from that for generic equivalents, 

as mandated in section 1833(t)(14)(A)(i) 

of the Act as added by Pub. L. 108–173. 

In the August 16, 2004 proposed rule, 

we solicited comment on the APC 

assignment of these services. Further, 

consistent with our annual APC 

updating policy, we proposed to assign 

the new HCPCS codes for CY 2005 to 

the appropriate APCs. 

We did not receive any public 

comments on our proposal. 

Accordingly, in this final rule with 

comment period, we are adopting as 

final our proposal to assign the new 

HCPCS codes for CY 2005 to the 

appropriate APCs, as shown in 

Addendum B of this final rule with 

comment period, without modification. 

J. OPPS Changes Relating to Coverage of 

Initial Preventive Physical Examinations 

and Mammography Services Under Pub. 

L. 108–173 

1. Payment for Initial Preventive 

Physical Examinations (Section 611 of 

Pub. L. 108–173) 

a. Background 

Section 611 of Pub. L. 108–173 

provides for coverage under Medicare 

Part B of an initial preventive physical 

examination for new beneficiaries, 

effective for services furnished on or 

after January 1, 2005. This provision 

applies to beneficiaries whose coverage 

period under Medicare Part B begins on 

or after January 1, 2005, and only for an 

initial preventive physical examination 

performed within 6 months of the 

beneficiary’s initial coverage date. 

Current Medicare coverage policy 

does not allow for payment for routine 

physical examinations (or checkups) 

that are furnished to beneficiaries. 

Before the enactment of Pub. L. 108–

173, all preventive physical 

examinations had been excluded from 

coverage based on section 1862(a)(7) of 

the Act, which states that routine 

physical checkups are excluded 

services. This exclusion is specified in 

regulations under § 411.15(a). In 

addition, preventive physical 

examinations had been excluded from 

coverage based on section 1862(a)(1)(A) 

of the Act. This section of the Act 

provides that items and services must be 

reasonable and necessary for the 

diagnosis or treatment of illness or 

injury or to improve the functioning of 

a malformed body member (as 

implemented in regulations under 

§ 411.15(k)). 

Coverage of initial preventive 

physical examinations is provided only 

under Medicare Part B. As provided in 

the statute, this new coverage allows 

payment for one initial preventive 

physical examination within the first 6 

months after the beneficiary’s first Part 

B coverage begins, although that 

coverage period may not begin before 


ER15NO04.014</GPH>
Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65727

January 1, 2005. We also note that Pub. 

L. 108–173 did not make any provision 

for the waiver of the Medicare 

coinsurance and Part B deductible for 

the initial preventive physical 

examination. Payment for this service 

would be applied to the required 

Medicare Part B deductible, which is 

$110 for CY 2005, if the deductible has 

not been met, and the usual coinsurance 

provisions would apply. 

b. Amendments to Regulations 

In the August 16, 2004 proposed rule, 

we proposed to amend our regulations 

to add a new § 410.16 that would 

provide for coverage of initial 

preventive physical examinations in 

various settings, including the hospital 

outpatient department, as specified in 

the statute, and specify the condition for 

coverage and limitation on coverage. In 

addition, we proposed to conform our 

regulations on exclusions from coverage 

under § 411.15(a)(1) and § 411.15(k) to 

the provisions of section 611 of Pub. L. 

108–173. Specifically, we proposed to 

specify an exception to the list of 

examples of routine physical checkups 

that are excluded from coverage under 

§ 411.15(a) and to add a new exclusion 

under § 411.15(k)(11). 

We proposed to amend § 419.21 of the 

OPPS regulations to add a new 

paragraph (e) to specify payment for an 

initial preventive physical examination 

as a Medicare Part B covered service 

under the OPPS if the examination is 

furnished within the first 6 months of 

the beneficiary’s first Medicare Part B 

coverage. 

We noted that the initial preventive 

physical examination was also 

addressed in detail in our proposed rule 

to update the Medicare Physician’s Fee 

Schedule for CY 2005 (69 FR 47487, 

August 5, 2004). However, because we 

believe the same elements of the initial 

physical examination furnished in a 

physician’s office would also apply 

when the examination is performed in 

a hospital outpatient clinic, we 

proposed to revise the applicable 

regulations to reflect this requirement. 

Section 611(b) of Pub. L. 108–173 

defines an ‘‘initial preventive physical 

examination’’ to mean physicians’’

services consisting of—

(1) A physical examination (including 

measurement of height, weight, blood 

pressure, and an electrocardiogram 

(EKG), but excluding clinical laboratory 

tests) with the goal of health promotion 

and disease detection; and 

(2) Education, counseling, and referral 

with respect to screening and other 

preventive coverage benefits separately 

authorized under Medicare Part B, 

excluding clinical laboratory tests.

Specifically, section 611(b) of Pub. L. 

108–173 provides that the education, 

counseling, and referral services with 

respect to the screening and other 

preventive services authorized under 

Medicare Part B include the following: 

(1) Pneumococcal, influenza, and 

hepatitis B vaccine and their 

administration; 

(2) Screening mammography; 

(3) Screening pap smear and 

screening pap smear and screening 

pelvic examination; 

(4) Prostate cancer screening tests; 

(5) Colorectal cancer screening tests; 

(6) Diabetes outpatient selfmanagement training services; 

(7) Bone mass measurements; 

(8) Screening for glaucoma; 

(9) Medical nutrition therapy services 

for individuals with diabetes and renal 

disease; 

(10) Cardiovascular screening blood 

tests; and 

(11) Diabetes screening tests. 

Section 611(d)(2) of Pub. L. 108–173 

amended sections 1861(s)(2)(K)(i) and 

(s)(2)(K)(ii) of the Act to specify that the 

services identified as physicians’

services and referred to in the definition 

of initial preventive physical 

examination include services furnished 

by a physician assistant, a nurse 

practitioner, or a clinical nurse 

specialist. We refer to these 

professionals as ‘‘qualified 

nonphysician practitioners.’’

Based on the language of the statute, 

our review of the medical literature, 

current clinical practice guidelines, and 

United States Preventive Services Task 

Force recommendations, we proposed 

(under proposed new § 410.16(a), 

Definitions) to interpret the term ‘‘initial 

preventive physical examination’’ for 

purposes of this new benefit to include 

all of the following services furnished 

by a doctor of medicine or osteopathy or 

a qualified nonphysician practitioner: 

(1) Review of the beneficiary’s 

comprehensive medical and social 

history. We proposed to define ‘‘medical 

history’’ to include, as a minimum, past 

medical and surgical history, including 

experience with illnesses, hospital 

stays, operations, allergies, injuries, and 

treatments; current medications and 

supplements, including calcium and 

vitamins; and family history, including 

a review of medical events in the 

patient’s family, including diseases that 

may be hereditary or place the 

individual at risk. We proposed to 

define ‘‘social history’’ to include, at a 

minimum, history of alcohol, tobacco, 

and illicit drug use; work and travel 

history; diet; social activities; and 

physical activities. 

(2) Review of the beneficiary’s 

potential (risk factors) for depression 

(including past experiences with 

depression or other mood disorders) 

based on the use of an appropriate 

screening instrument that the physician 

or qualified nonphysician practitioner 

may select from various available 

standardized screening tests for this 

purpose, unless the appropriate 

screening instrument is defined through 

the national coverage determination 

(NCD) process. 

(3) Review of the beneficiary’s 

functional ability and level of safety 

(that is, at a minimum, a review of the 

following areas: Hearing impairment, 

activities of daily living, falls risk, and 

home safety), based on the use of an 

appropriate screening instrument, 

which the physician or qualified 

nonphysician practitioner may select 

from various available standardized 

screening tests for this purpose, unless 

the appropriate screening instrument is 

further defined through the NCD 

process. 

(4) An examination to include 

measurement of the beneficiary’s height, 

weight, blood pressure, a visual acuity 

screen, and other factors as deemed 

appropriate, based on the beneficiary’s 

comprehensive medical and social 

history and current clinical standards. 

(5) Performance of an 

electrocardiogram and interpretation. 

(6) Education, counseling, and 

referral, as deemed appropriate, based 

on the results of elements (1) through (5) 

of the definition of the initial preventive 

physical examination. 

(7) Education, counseling, and 

referral, including a written plan for 

obtaining the appropriate screening and 

other preventive services, which are 

also covered as separate Medicare Part 

B benefits; that is, pnuemococcal, 

influenza, and hepatitis B vaccines and 

their administration, screening 

mammography, screening pap smear 

and screening pelvic exams, prostate 

cancer screening tests, diabetes 

outpatient self-management training 

services, bone mass measurements, 

screening for glaucoma, medical 

nutrition therapy services, 

cardiovascular screening blood tests, 

and diabetes screening tests. 

As we indicated in the OPPS 

proposed rule, we are addressing the 

public comments that we received on 

our proposal to revise our regulations to 

include specific coverage of initial 

preventive physical examinations under 

Medicare Part B and finalizing our 

coverage policy for initial preventive 

physical examinations in the final rule 

for the CY 2005 Medicare Physician Fee 

65728 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

Schedule published elsewhere in this 

issue. 

c. Assignment of New HCPCS Codes for 

Payment of Initial Preventive Physical 

Examinations 

There was no CPT code that 

contained the specific elements 

included in the initial preventive 

physical examination. Therefore, in the 

August 16, 2004 proposed rule, we 

proposed to establish a new HCPCS 

code to be used to bill for the new 

service under both the Medicare 

Physician Fee Schedule and the OPPS. 

We proposed a code, GXXXX, for the 

full service, including an EKG, but not 

including the other previously 

mentioned preventive services that are 

currently separately covered and paid 

under the Medicare Part B screening 

benefits. When these other preventive 

services are performed, they should be 

billed using the existing appropriate 

HCPCS and CPT codes. 

For payment under the Medicare 

Physician Fee Schedule, relative value 

units were proposed for the new HCPCS 

code for the initial preventive physical 

based on equivalent resources and work 

intensity to those contained in CPT 

evaluation and management code 99203 

(New patient, office or other outpatient 

visit) and CPT 93000 

(Electrocardiogram, complete) (69 FR 

47487, August 5, 2004). The ‘‘technical 

component’’ of the Medicare Physician 

Fee Schedule (the costs other than those 

allocated for the physician’s 

professional services and professional 

liability insurance which are billed and 

paid for separately, when appropriate) is 

the portion of the fee schedule payment 

that is most comparable to what 

Medicare pays under the OPPS. The 

estimated ‘‘technical component’’ of the 

Medicare Physician Fee Schedule 

payment for GXXXX was between $50 

and $100.

d. APC Assignment of Initial Preventive 

Physical Examination 

Given our lack of cost data to guide 

assignment of the new code to a 

clinically appropriate APC, in our 

proposed rule, we proposed assignment 

of the new code GXXXX (Initial 

preventive physical examination) to 

New Technology APC 1539 (New 

Technology, Level II) with a payment 

level between $50 and $100. We 

believed that the proposed temporary 

assignment to a new technology APC 

would allow us to pay for the new 

benefit provided in the OPD while we 

accrued claims data and experience on 

which to base a clinically relevant APC 

assignment in the future. 

We received a number of public 

comments regarding the proposed 

payment for the initial preventive 

physical examination and its proposed 

APC placement. 

Comment: A number of commenters 

highlighted billing and operational 

concerns with the definition of a single 

HCPCS code, GXXXX, for the initial 

preventive physical examination. The 

commenters explained that, in hospitals 

where the EKG was performed in a 

separate department from the location of 

the physical examination, the 

technician charging for the service 

would have no way of distinguishing an 

EKG related to the initial preventive 

physical examination from other EKG 

tracings performed for diagnostic 

purposes, for which the hospital would 

bill for that specific service. The 

commenters noted that physicians often 

send their patients to hospitals for the 

EKG tracing, and if hospitals performed 

the EKG associated with the initial 

preventive physical examination in this 

context, they would have no way to bill 

for the EKG. The commenters presented 

various alternative coding possibilities 

for our consideration to address these 

situations. 

Response: Section 611 of Pub. L. 108–

173 does require a screening EKG to be 

performed as part of the initial 

preventive physical examination visit. 

In view of the different circumstances 

that may occur when performing the full 

initial preventive physical examination, 

we are establishing four new G codes for 

the initial preventative physical 

examination for CY 2005. 

• G0344: Initial preventive physical 

examination; face-to-face visit, services 

limited to new beneficiary during the 

first 6 months of Medicare Part B 

enrollment. This code is assigned a 

status indicator ‘‘V’’ for the OPPS. 

• G0366: Electrocardiogram, routine 

EKG with at least 12 leads; performed as 

a component of the initial preventive 

physical examination with 

interpretation and report. This code is 

assigned a status indicator ‘‘B’’ for the 

OPPS. 

• G0367: Electrocardiogram, tracing 

only, without interpretation and report, 

performed as a component of the initial 

preventive physical examination. This 

code is assigned status indicator ‘‘S’’ for 

the OPPS. 

• G0368: Electrocardiogram, 

interpretation and report only, 

performed as a component of the initial 

preventive physical examination. This 

code is assigned status indicator ‘‘A’’ for 

the OPPS. 

In the hospital, performance of the 

complete initial preventive physical 

examination service would be coded 

using both the G0344 and G0367 codes. 

As required by the statute, the new 

codes describe the visit and the EKG, 

but not the other previously mentioned 

preventive services that are currently 

separately covered and paid under the 

Medicare Part B screening benefits. 

When these other preventive services 

are performed, they should be billed 

using the existing appropriate HCPCS 

and CPT codes. 

To comply with Pub. L. 108–173, the 

initial preventive physical examination 

must include the EKG, regardless of 

whether a diagnostic EKG had 

previously been performed. Both 

components of the initial preventive 

physical examination, the examination 

and the EKG, must be performed to 

fulfill the statutory benefit for either of 

the components to be paid. Billing 

instructions for providers will be issued. 

In addition to our decision to create 

two codes for hospitals to report for 

performance of the initial preventive 

physical examination service, we are 

assigning the codes to appropriate APCs 

as follows: G0344 is assigned to APC 

0601 (Mid Level Clinic Visits), and 

G0367 is assigned to APC 0099 

(Electrocardiograms). These APC 

assignments result in a total payment of 

approximately $78, slightly more than 

the $75 payment rate proposed for the 

comprehensive initial preventive 

physical examination service in the 

proposed rule. 

Comment: A few commenters 

requested that CMS increase the 

payment for the initial preventive 

physical examination benefit and stated 

that the payment rate set is too low to 

cover the required clinical resources. 

Response: As stated in our proposed 

rule, the payment rate for the 

comprehensive initial preventive 

physical examination service under the 

OPPS was based on the rate proposed 

under the Medicare Physician Fee 

Schedule, which utilized estimates of 

necessary resources for the initial 

preventive physical examination 

benchmarked against the resources 

required to deliver existing evaluation 

and management and electrocardiogram 

services in the physician office. Based 

on comments concerning the adequacy 

of our proposed payment for the 

comprehensive initial preventive 

physical examination service and our 

decision to separate the examination 

service from the EKG for coding and 

payment purposes, we explicitly 

compared the resources we anticipated 

for the examination service delivered in 

the hospital to the OPPS median cost for 

the existing new office or other 

outpatient visit service which was used 

as a crosswalk. CPT code 99203 (Office 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65729

or other outpatient visit for a new 

patient) is in APC 0601, which has a 

median cost of $57.66. The AMA/

Specialty Society RVS Update 

Committee survey data for code 99203 

showed 51 minutes of staff time, and we 

believe the initial preventive physical 

examination will reflect comparable 

time and consumption of hospital 

resources. As we expect the hospital 

resources utilized for code G0344 to be 

similar to those needed for clinic visits 

for which we have historical hospital 

cost data, we will place G0344 in APC 

0601 rather than in a new technology 

APC as we proposed for the initial 

preventive physical examination 

comprehensive service. We expect the 

hospital resources utilized for the 

screening EKG tracing, code G0367, to 

be very similar to those necessary for a 

diagnostic EKG tracing, code 93005 and 

assigned to APC 0099. Together these 

APCs (0601 and 0099) will pay 

approximately $78, several more dollars 

than we proposed for the 

comprehensive service. We will monitor 

our claims data for the initial preventive 

physical examination services as 

hospitals gain experience delivering the 

services. We are finalizing our 

placement of code G0344 in APC 0601 

for CY 2005 and code G0367 in APC 

0099 for 2005.

Comment: Several commenters asked 

that CMS provide explicit instructions 

and guidelines, respectively, to 

providers and beneficiaries regarding 

the details of what will be included in 

the new initial preventive physical 

examination benefit, the eligibility 

requirements, and how providers 

should bill Medicare for the new 

service. One commenter asked if the 

preventive physical examination will be 

subject to the evaluation and 

management guidelines. 

Response: We will release appropriate 

manual and transmittal instructions and 

information from the CMS educational 

components for the medical community, 

including a MedLearn Matters article 

and fact sheets such as the ‘‘2005 

Payment Changes for Physicians and 

Other Providers: News From Medicare 

for 2005’’. The medical community can 

join this effort in educating physicians 

and beneficiaries by their own 

communications, bulletins, or other 

publications. In addition, we have 

specifically included information on the 

new initial preventive physical 

examination benefit in the 2005 version 

of the Medicare and You Handbook and 

revised booklet, Medicare’s Preventive 

Services. A new 2-page fact sheet on all 

of the new preventive services, 

including the initial preventive physical 

examination benefit, will be available 

this Fall, and a bilingual brochure for 

Hispanic beneficiaries will also be 

available in the near future. Information 

will be disseminated by CMS regional 

offices, State Health Insurance 

Assistance Programs (SHIPs), and 

various partners at the national, State, 

and local levels. Information on the new 

benefit will also be made available to 

the public through Web site, http://

www.medicare.gov, the partner Web site 

to http://www.cms.hhs.gov, the toll free 

number 1–800–MEDICARE, numerous 

forums hosted by CMS, and conference 

exhibits and presentations. 

The initial preventive physical 

examination will not be subject to each 

hospital’s internal set of evaluation and 

management guidelines that hospitals 

were instructed to develop at the 

implementation of the OPPS in the 

August 7, 2000 final rule (65 FR 18451) 

because we have defined one explicit 

service, without levels. 

Comment: Several commenters asked 

how providers of initial preventive 

physical examination services will 

know if a particular beneficiary is 

eligible to receive the new benefit due 

to the statutory time and coverage 

frequency (one-time benefit) limitations. 

Response: The statute provides for 

coverage of a one-time initial preventive 

physical examination that must be 

performed for new beneficiaries by 

qualified physicians or certain specified 

nonphysician practitioners within the 

first 6 month period following the 

effective date of the beneficiary’s first 

Medicare Part B coverage. Because 

physicians or qualified nonphysician 

practitioners may not have the complete 

medical history for a particular new 

beneficiary, including information on 

possible use of the one-time benefit, 

these clinicians are largely relying on 

their own medical records and the 

information the beneficiary provides to 

them in establishing whether or not the 

initial preventive physical examination 

benefit is still available to a particular 

individual and has not been performed 

by another qualified practitioner. 

Because a second initial preventive 

physical examination will always fall 

outside the definition of the new 

Medicare benefit, an advance 

beneficiary notice (ABN) need not be 

issued in those instances where there is 

doubt regarding whether the beneficiary 

has previously received an initial 

preventive physical examination. The 

beneficiary will always be liable for a 

second initial preventive physical 

examination, no matter when it is 

conducted. However, for those instances 

where there is sufficient doubt as to 

whether the statutory 6-month period 

has lapsed, the physician or qualified 

nonphysician practitioner should issue 

an ABN to the beneficiary that indicates 

that Medicare may not cover and pay for 

the service. If the physician or qualified 

nonphysician practitioner does not 

issue an ABN to the beneficiary and 

Medicare denies payment for the service 

because the statutory time limitation for 

conducting the initial preventive 

physical examination has expired, the 

physician or qualified nonphysician 

practitioner may be held financially 

liable. 

Comment: One commenter 

recommended that CMS compare the 

requirements of the initial preventive 

physical examination to the 

contemplated requirements for similar 

but not-yet-disclosed facility-specific 

evaluation and management level 

definitions. The commenter wanted to 

ensure that the technical requirements 

are comparable between the new benefit 

and similar evaluation and management 

service definitions being contemplated 

by CMS. 

Response: We will take the 

commenter’s recommendation into 

consideration in our ongoing work to 

develop new evaluation and 

management codes for the OPPS. 

2. Payment for Certain Mammography 

Services (Section 614 of Pub. L. 108–

173) 

Section 614 of Pub. L. 108–173 

amended section 1833(t)(1)(B)(iv) of the 

Act to provide that screening 

mammography and diagnostic 

mammography services are excluded 

from payment under the OPPS. This 

amendment applies to screening 

mammography services furnished on or 

after December 8, 2003 (the date of the 

enactment of Pub. L. 108–173), and in 

the case of diagnostic mammography, to 

services furnished on or after January 1, 

2005. As a result of this amendment, 

both screening mammography and 

diagnostic mammography will be paid 

under the Medicare Physician Fee 

Schedule. 

In the August 16, 2004 proposed rule, 

we proposed to amend § 419.22 of the 

regulations by adding a new 

paragraph(s) to specify that both 

screening mammography and diagnostic 

mammography will be excluded from 

payment under the OPPS, in accordance 

with section 614 of Pub. L. 108–173. We 

received a few public comments on our 

proposal. 

Comment: A few commenters 

expressed support for the movement of 

payment for diagnostic mammograms 

from the OPPS to the Medicare 

Physician Fee Schedule. 

Response: We appreciate the 

commenters’ support. Additional 

65730 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

discussion of section 614 of Pub. L. 

108–173 can be found in the final rule 

for the CY 2005 Medicare Physician Fee 

Schedule published elsewhere in this 

issue. 

Comment: A few commenters 

recommended that the payment rates for 

mammography be increased. The 

commenters stated that beneficiary 

access to mammography is being limited 

due to a growing number of radiologists 

who refuse to read mammograms due to 

low payment and high malpractice rates 

and recent closure of a large number of 

centers across the country.

Response: We set the payment rates 

for diagnostic mammography based on 

hospital claims data, consistent with the 

payment methodology for OPPS 

services. In fact, in accordance with 

section 614 of Pub. L. 108–173, which 

requires that diagnostic mammography 

be paid now under the Medicare 

Physician Fee Schedule, payment is set 

using an entirely different process. This 

statutory change in the payment process 

results in a somewhat increased 

payment for mammography procedures 

from that under the OPPS. 

Comment: One commenter asked 

CMS to clarify that the increase in 

payment for diagnostic mammography 

furnished in the hospital outpatient 

department does not ‘‘come out of the 

[Medicare Physician Fee Schedule] 

budget.’’

Response: The increase in payment 

for diagnostic mammography furnished 

in the hospital outpatient department 

has no effect on payment for Medicare 

Physician Fee Schedule services. We are 

using the Medicare Physician Fee 

Schedule rate to set Medicare payment 

for diagnostic mammography furnished 

in the hospital outpatient department, 

as required by statute. Further, we are 

not including diagnostic mammography 

in our model for setting the relative 

weights under the OPPS. Thus, the 

increase in payment for diagnostic 

mammography furnished in the hospital 

outpatient department also has no effect 

on payment for any other OPPS 

services. 

In this final rule, we are adopting, as 

final without modification, our 

proposed revision of § 419.22 to 

incorporate the provisions of section 

614 of Pub. L. 108–173. 

III. Recalibration of APC Relative 

Weights for CY 2005 

A. Database Construction 

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

requires that the Secretary review and 

revise the relative payment weights for 

APCs at least annually, beginning in CY 

2001 for application in CY 2002. In the 

April 7, 2000 OPPS final rule (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. Except for 

some reweighting due to APC changes, 

these relative weights continued to be in 

effect for CY 2001. This policy is 

discussed in the November 13, 2000 

interim final rule (65 FR 67824 through 

67827).) 

In the August 16, 2004 OPPS 

proposed rule, we proposed to use the 

same basic methodology that we 

described in the April 7, 2000 final rule 

to recalibrate the relative APC weights 

for services furnished on or after 

January 1, 2005, and before January 1, 

2006. That is, we proposed to recalibrate 

the weights based on claims and cost 

report data for outpatient services. We 

proposed to use the most recent 

available data to construct the database 

for calculating APC group weights. We 

provide a complete description of the 

data processes we proposed to use for 

the creation of the CY 2005 OPPS 

payment rates in the August 16, 2004 

proposed rule (69 FR 50448). 

For the purpose of recalibrating APC 

relative weights for CY 2005 displayed 

in this final rule with comment period, 

we used the most recent available 

claims data, which were the 

approximately 132 million final action 

claims for hospital OPD services 

furnished on or after January 1, 2003, 

and before January 1, 2004. Of the 132 

million final action claims for services 

provided in hospital outpatient settings, 

106 million claims were of 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 106 million 

claims, we were able to use 51 million 

whole claims (from which we created 84 

million single procedure claim records) 

to set the final OPPS CY 2005 APC 

relative weights. We used claims from 

this period that had been processed 

before June 30, 2004, to calculate the 

APC weights and payments contained in 

Addenda A and B of this final rule with 

comment period. 

We received one general public 

comment on our proposed OPPS 

database construction for CY 2005 

discussed in the August 16, 2004 

proposed rule. 

Comment: One commenter suggested 

that CMS use a nationally representative 

sample of hospitals from which cost 

data could be collected for purposes of 

setting relative weights. The commenter 

suggested that such a sample could be 

used to validate findings from the larger 

claims data set or to establish median 

costs that more accurately reflect the 

costs of providing device-related 

procedures and other outpatient 

services, or both. As an alternative, the 

commenter suggested conducting a 

demonstration project using a sample of 

hospitals that would receive small 

grants for set up and training to test the 

feasibility of collecting a valid reliable 

and manageable data set from which to 

develop payment rates. 

Response: We believe that the 

Medicare hospital outpatient claims and 

hospital cost reports are the best, 

nationally representative database of 

such information at present. 

Nevertheless, we acknowledge that an 

approach that would involve the 

collection of additional hospital data 

from a representative sample could have 

some merit. However, in addition to the 

resources that would be required for us 

to pursue such an approach, we also are 

concerned about the costs to hospitals 

associated with such an additional data 

collection effort. Nevertheless, we 

remain interested and invite additional 

suggestions from hospitals and other 

stakeholders on ways to enhance the 

data we now use to set relative weights 

for services paid under the OPPS. 

1. Treatment of Multiple Procedure 

Claims 

For CY 2005, we proposed to continue 

to use single procedure claims to set the 

medians on which the weights would be 

based (69 FR 50474). As indicated in the 

August 16, 2004 proposed rule, we 

received many requests that we ensure 

that the data from claims that contain 

charges for multiple procedures were 

included in the data from which we 

calculate the CY 2005 relative payment 

weights (69 FR 50474). Requesters 

believe that relying solely on single 

procedure claims to recalibrate APC 

relative weights fails to take into 

account data for many frequently 

performed procedures, particularly 

those commonly performed in 

combination with other procedures. 

They believe that, by depending upon 

single procedure claims, we base 

relative payment weights on the least 

costly services, thereby introducing 

downward bias to the medians on 

which the weights are based. 

We agree that, optimally, it is 

desirable to use the data from as many 

claims as possible to recalibrate the 

relative payment weights, including 

those with multiple procedures. As 

discussed in the explanation of single 

procedure claims below, we have used 

the date of service on the claims and a 

list of codes to be bypassed to create 

‘‘pseudo’’ single claims from multiple 

procedure claims. We refer to these 

newly created single procedure claims 

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as ‘‘pseudo’’ singles because they were 

submitted by providers as multiple 

procedure claims.

2. Use of Single Procedure Claims 

We use single procedure claims to set 

the median costs for APCs because we 

are, so far, unable to ensure that 

packaged costs can be correctly 

allocated across multiple procedures 

performed on the same date of service. 

However, bypassing specified codes that 

we believe do not have significant 

packaged costs enables use of more data 

from multiple procedure claims. For CY 

2003, we created ‘‘pseudo’’ single 

claims by bypassing HCPCS codes 

93005 (Electrocardiogram, tracing), 

71010 (Chest x-ray), and 71020 (Chest xray) on a submitted claim. However, we 

did not use claims data for the bypassed 

codes in the creation of the median 

costs for the APCs to which these three 

codes were assigned because the level of 

packaging that would have remained on 

the claim after we selected the bypass 

code was not apparent and, therefore, it 

was difficult to determine if the 

medians for these codes would be 

correct. 

For CY 2004, we created ‘‘pseudo’’

single claims by bypassing these three 

codes and also by bypassing an 

additional 269 HCPCS codes in APCs. 

We selected these codes based on a 

clinical review of the services and 

because it was presumed that these 

codes had only very limited packaging 

and could appropriately be bypassed for 

the purpose of creating ‘‘pseudo’’ single 

claims. The APCs to which these codes 

were assigned were varied and included 

mammography, cardiac rehabilitation, 

and level I plain film x-rays. To derive 

more ‘‘pseudo’’ single claims, we also 

broke claims apart where there were 

dates of service for revenue code 

charges on that claim that could be 

matched to a single procedure code on 

the claim on the same date. 

As in CY 2003, we did not include the 

claims data for the bypassed codes in 

the creation of the APCs to which the 

269 codes were assigned because, again, 

we had not established that such an 

approach was appropriate and would 

aid in accurately estimating the median 

cost for that APC. For CY 2004, from 

about 16.3 million otherwise unusable 

claims, we used about 9.5 million 

multiple procedure claims to create 

about 27 million ‘‘pseudo’’ single 

claims. For the CY 2005 OPPS rates in 

this final rule with comment period, 

from about 24 million otherwise 

unusable claims, we used about 18 

million multiple procedure claims to 

create about 52 million ‘‘pseudo’’ single 

claims. 

For CY 2005, we proposed to continue 

using date of service matching as a tool 

for creation of ‘‘pseudo’’ single claims 

and take a more empirical approach to 

creating the list of codes that we would 

bypass to create ‘‘pseudo’’ single claims. 

The process we proposed for CY 2005 

OPPS resulted in our being able to use 

some part of 89 percent of the total 

claims eligible for use in OPPS 

ratesetting and modeling in developing 

this final rule with comment period. In 

CY 2004, we used some part of the data 

from 82 percent of eligible claims. This 

process enabled us to use, for CY 2005, 

84 million single bills for ratesetting: 52 

million ‘‘pseudo’’ singles and 33 million 

‘‘natural’’ single bills. 

We proposed to bypass the 383 codes, 

which we published in Table 17 of the 

proposed rule (69 FR 50476 through 

50486), to create new single claims and 

to use the line-item costs associated 

with the bypass codes on these claims 

in the creation of the median costs for 

the APCs into which they are assigned 

(69 FR 50474 through 50486). Of the 

codes on this list, only 123 (32 percent) 

were used for bypass in CY 2004. 

We developed the proposed bypass 

list using four criteria: 

a. We developed the following 

empirical standards by reviewing the 

frequency and magnitude of packaging 

in the single claims for payable codes 

other than drugs and biologicals. We 

proposed to use these standards to 

determine codes that could be bypassed 

to create ‘‘pseudo’’ single claims for 

median setting. (More explanation 

regarding the use of these standards is 

provided in our August 16, 2004 OPPS 

proposed rule (69 FR 50475).) 

• There were 100 or more single 

claims for the code. 

• Five percent or fewer of the single 

claims for the code had packaged costs 

on that single claim for the code. 

• The median cost of packaging 

observed in the single claim was equal 

to or less than $50. 

• The code is not a code for an 

unlisted service. 

b. We examined APCs relying on a 

low volume of single claims, and it 

became apparent that several 

radiological supervision and 

interpretation codes were commonly 

billed with the procedural codes in the 

APCs. We then reviewed all radiological 

supervision and interpretation codes to 

assess their viability as bypass codes. 

For the codes included on the proposed 

list published in Table 17, we 

determined that, generally, the 

packaging on claims, including these 

radiological supervision and 

interpretation codes, should be 

associated with the procedure 

performed.

c. We examined radiation planning 

and related codes provided by a 

professional organization. In the 

organization’s opinion, the codes could 

safely be bypassed and used without 

packaging to set medians for the APCs 

into which these codes are assigned. 

Many of the codes the organization 

recommended met our criteria under 

item a., and the remaining codes were 

close. Therefore, after reviewing such 

codes, we proposed to adopt as bypass 

codes all radiation planning and related 

codes as provided by the organization. 

d. We included HCPCS codes 93005 

and 71010. These codes have been 

bypassed for the past 3 years and 

generate a significant amount of new 

single claims because they are very 

commonly done on the same date of 

surgery. They have low median 

packaged costs and a low percentage of 

single claims with any packaged costs, 

6 percent and 18 percent, respectively. 

In the August 16, 2004 proposed rule, 

we invited public comment on the 

‘‘pseudo’’ single process, including the 

bypass list and the criteria. We received 

a number of public comments on our 

proposals. 

Comment: Some commenters stated 

that CMS should provide an impact 

analysis by medical specialty and APC 

for the bypass list. Commenters 

indicated that 26 radiation oncology 

codes, which represent over 40 percent 

of the radiation oncology codes, are on 

the proposed list and that it is not clear 

what impact the inclusion of these 

codes will have on payment for 

radiation oncology procedures. 

Response: The OPPS pays hospitals 

for the hospital services they furnish 

and, therefore, we focus our impact 

analysis on the providers who provide 

services and to whom the payment is 

made. It is impractical to do an impact 

analysis by hospital category, much less 

medical specialty and APC, for each and 

every step of the process we use to 

establish medians on which we base our 

payment rates. 

However, to facilitate the public’s 

ability to do specialized detailed 

analyses beyond what is practical for us 

to do, we make available the claims we 

use to set median costs. Specifically, the 

claims we used to set the payment rates 

for CY 2004 OPPS and CY 2005 OPPS 

are available to the public for public use 

in extended and focused analysis at any 

level of interest. Moreover, exhaustive 

discussion of our process is contained 

in both the CY 2004 and CY 2005 OPPS 

final rule with comment period claims 

accounting documents that are available 

on www.cms.hhs.gov/providers/

65732 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

hopps.asp, to facilitate the use of such 

claims for further analysis. Therefore, 

we provide to the public the data 

needed for a focused exhaustive 

analysis of impact by medical specialty 

or on any basis on which any party with 

a special interest has a particular 

concern. 

The 383 bypass codes presented in 

Table 17 of the proposed rule represent 

the result of an empirical and clinical 

analysis that identified HCPCS codes for 

which we could not observe significant 

packaged costs in the CY 2003 claims 

data and for which there was no clinical 

reason that a procedure or service 

should have significant packaged costs. 

These criteria are detailed in the 

proposed rule and were carefully 

chosen to avoid the inaccurate 

redistribution of packaged costs (69 FR 

50474 through 50475). Inclusion of a 

HCPCS code on the bypass list is not 

predicated on the median impact, but 

rather empirical evidence or clinical 

arguments that these procedures do not 

contain significant packaged costs that 

would call into question their 

appropriateness for inclusion on the 

bypass list.

Comment: Most commenters 

supported the use of a bypass list and 

date of service matching as a way to use 

more data from multiple claims. One 

commenter was concerned that the 

bypass list may inappropriately break 

multiple claims into single procedure 

claims by assuming that the amount and 

frequency of packaging on procedures 

found on single bills was the same as 

would exist on multiple procedure 

claims. The commenter stated that 

claims involving multiple APCs are by 

their nature the most complex 

combinations of services requiring many 

more resources than if they were 

performed singly and that, therefore, 

CMS may be incorrect to generalize that 

the packaging found on single bills 

would also be present for the same 

procedure done as a multiple procedure. 

Another commenter opposed the use of 

the bypass list, citing it as a ‘‘bandaid’’

and as not a satisfactory way to deal 

with the presence of multiple procedure 

claims over the long run. The 

commenter indicated that, given the 

OPPS experience gained over the past 

years, CMS should be able to perform a 

study of multiple procedure claims that 

provides a mechanism for using them. 

Response: We have retained and used 

the proposed bypass methodology in 

creating the median costs used to set the 

CY 2005 OPPS relative payment weights 

in this final rule with comment period. 

We believe that the use of the bypass list 

gives us considerably more single 

claims for ratesetting than had we not 

used it and that it is a valid 

representation of codes for which there 

is seldom any packaging and for which 

the packaging that exist, is minimal. 

Given the inability of any concrete 

processes that provide a way to attribute 

packaging on multiple bill claims, we 

believe that the best and only alternative 

available is for us to use the packaging 

on single bill claims to determine 

whether a code can be safely bypassed 

in the creation of ‘‘pseudo single’’

claims for median setting. We continue 

to examine the means by which we 

could use all multiple procedure claims 

and to invite additional 

recommendations from the public on 

how we might do so. 

Comment: One commenter strongly 

objected to any method of using 

multiple procedure claims that would 

rely in any way on payment weights 

because the commenter believed that 

any such method would compound 

problems in the data by carrying them 

forward into future years. 

Response: We expect to examine a 

number of different ways of using the 

data from multiple procedure claims 

and will evaluate each carefully before 

we discard any particular process. As 

we have in the past for updating the 

OPPS, if we decide to pursue any 

particular process change, we will 

discuss our findings and any proposed 

changes to the OPPS median 

development process in the proposed 

rule and consider public comments on 

the proposal before we change the 

process. 

Comment: Some commenters 

indicated that the use of single 

procedure claims means that the most 

typical correctly coded claims are not 

used for many services. They added that 

many of the procedures that implant a 

device are actually replacing an existing 

device, which means that the removal of 

the device is billed with one code while 

the implant is billed with another code 

on the same claim on the same date of 

service, thereby creating a multiple 

procedure claim that will become two 

‘‘pseudo’’ single claims under the CMS 

process. The commenters also stated 

that services that are provided only in 

addition to other services, such as 

noncoronary intravascular ultrasound, 

can never be correctly coded as a single 

procedure claim. They contended that 

such correctly coded claims will be 

multiple major procedure claims and 

thus will not be used for median cost 

setting. The commenters stated that the 

nature of some services being routinely 

performed in combination with other 

services means that, under the current 

CMS methodology, only small 

percentages of the claims will be used 

to set the medians and that those claims 

are likely to be the incorrectly coded 

claims. 

Response: We recognize that there are 

categories of service that are typically 

done in combination with other services 

at such frequency that acquiring valid 

single procedure claims is very difficult, 

if not impossible. We are planning to 

explore these services for which the 

medians are set based on a small 

percentage of the claims that are 

submitted with the APC Panel in the 

future to determine what methods may 

be available to deal effectively with 

these situations. 

In the August 16, 2004 proposed rule, 

we also discussed suggestions that we 

had received for creating ‘‘pseudo’’

single claims, which included 

recommendations that the costs in 

packaged revenue codes and packaged 

HCPCS codes be allocated separately to 

paid HCPCS codes based on the prior 

year’s payment weights or payment 

rates for the single procedures. Still 

other suggestions recommended that we 

allocate the packaged costs in 

proportion to the charges or to the costs 

for the major procedures based on the 

current year’s claims. We are concerned 

that using a prior year’s median costs, 

relative weights or payment rates as the 

basis to allocate current year’s packaged 

costs to current year costs for payable 

HCPCS codes may not be appropriate. 

For example, if two procedures are 

performed and one uses an expensive 

device, this methodology would split 

the costs of the device between the 

service that uses the device and a 

service that does not use the device, 

thus resulting in an incorrect allocation 

of the packaged costs. For this reason, 

we did not propose to incorporate these 

suggestions in our ratesetting 

methodology. However, we stated in our 

proposed rule that we intended to 

examine them more thoroughly. 

We did not propose a methodology 

beyond use of dates of service and the 

expanded bypass list. However, we 

solicited specific proposals that would 

be provided as comments on how 

multiple procedure claims can be better 

used in calculating the relative payment 

weights. 

Comment: One commenter asked that 

CMS clarify whether the ‘‘pseudo’’

single claims data for CPT codes 93307 

(Echo exam of heart), 93303 (Echo 

transthoracic), and 93320 (Doppler echo 

exam, heart) were used in setting APC 

relative weights and, if so, the impact of 

this proposal. Another commenter asked 

that CMS clarify whether HCPCS codes 

for drugs, radiopharmaceuticals, and 

blood products were bypassed to create 

‘‘pseudo’’ singles. The commenter 

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believed that packaged costs are never 

associated with these items; therefore, 

they should always be bypassed. 

Response: The claims data for the 

three referenced CPT codes were used 

in setting the APC relative weights for 

these services. They were included in 

the list of bypass codes because they 

met the criteria for inclusion, which 

focused on selecting only claims that 

often did not include packaged services 

and for which packaging on the single 

bills was very modest.

We agree with the commenter that 

drugs, radiopharmaceuticals, and blood 

products would rarely be expected to 

have associated packaged costs. 

Presence of codes for these items on a 

claim does not result in a multiple 

claim, as we do not consider the items 

to be major procedures. 

Comment: One commenter asked that 

CMS add CPT codes 76362 (Computed 

tomography guidance for, and 

monitoring of, visceral tissue ablation), 

76394 (Magnetic resonance guidance 

for, and monitoring of, visceral tissue 

ablation), and 76940 (Us guide, tissue 

ablation) to the bypass list because they 

are often billed with CPT code 47382 

(Radiofrequency ablation procedures of 

the liver) and CPT code 20982 

(Radiofrequency ablation procedures of 

the bone). The commenter believed that 

this approach would create more single 

claims for those codes. 

Response: The three CPT codes that 

the commenter requested we add to the 

bypass list did not have sufficient 

claims volume at the time the bypass 

list was created to meet the criteria for 

inclusion. When we next review the 

bypass list, we will examine these codes 

for inclusion on any future bypass list. 

Comment: One commenter objected to 

use of data-based criteria as the only 

determinant of whether services are 

included on the bypass list. Specifically, 

the commenter objected to the inclusion 

of CPT evaluation and management 

codes 99213 and 99214 on the bypass 

list even though CPT codes 99211, 

99212, and 99215 are not included on 

the list. The commenter believed that 

CMS should not assume that these 

codes do not typically have packaged 

costs associated with them because less 

than 5 percent of the claims with the 

code appeared on a claim with packaged 

charges. The commenter believed that 

all codes that ‘‘meet the 5 percent data 

test’’ should be qualitatively reviewed to 

determine whether clinical practice and 

charging methods support the assertion 

that packaged dollars are not related to 

the service proposed for the bypass list. 

The commenter also recommended that 

CMS include on the bypass list ‘‘addon’’ CPT codes that have a status 

indicator of ‘‘N’’ so that the remaining 

packaged services on the claim would 

be packaged to the main procedure if 

that were the only other APC reported 

on the claim. The commenter 

recommended that ‘‘add-on’’ CPT codes 

with APC payment should be accepted 

as bypass codes if the only other CPT 

code on the claim is the main 

procedure. 

Response: The commenter is incorrect 

in believing that the only criterion used 

to determine if a code were suitable for 

inclusion on the bypass list was 

whether 5 percent of the claims for the 

code appeared with packaged charges. 

As we discussed above, there were a 

number of criteria that had to be met 

which were focused on ensuring that 

packaging did not occur often or in 

significant amounts when it did occur. 

We reviewed the clinical 

appropriateness of the codes that were 

derived from applying the criteria, and 

did not remove any as a result of the 

review. Given the large volume of 

evaluation and management services, 

we believe that the evaluation and 

management codes we included on the 

bypass list were appropriate for 

inclusion. As we discussed with regard 

to the radiological supervision and 

evaluation codes and the simple EKG 

and chest x-ray codes, clinical practice 

and charging methods were also factors 

in determining inclusion on the bypass 

list. 

With respect to the add-on codes, 

those that have a status indicator of ‘‘N’’

would not cause a claim to be a multiple 

procedure claim (because they are not 

separately paid). Thus it would not be 

useful to add them to the bypass list 

(which is intended to break multiple 

procedure claims into two single 

claims). Those add-on codes that are 

paid separately may or may not have 

packaging associated with them. Thus, 

it would be incorrect to assume that all 

packaging on the claim would be 

associated with the core procedure to 

which the add-on code is an appendage. 

For example, insertion of a left 

ventricular pacing lead as an add-on 

procedure to the insertion of a 

cardioverter-defibrillator carries 

considerable packaged costs with the 

add-on service, such as the device, 

significant additional operating room 

time, and extra drugs and medical 

supplies, and, therefore, it would not be 

suitable for inclusion on the bypass list. 

After carefully reviewing all public 

comments received, we are adopting as 

final the bypass codes listed in Table 16 

below.

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BILLING CODE 4120–01–C

B. Calculation of Median Costs for CY 

2005 

In this section of the preamble, we 

discuss the use of claims to calculate the 

OPPS payment rates for CY 2005. (The 

hospital outpatient prospective payment 

page on the CMS Web site on which this 

final rule with comment period is 

posted provides an accounting of claims 

used in the development of the final 

rates: http://www.cms.hhs.gov/hopps.)

The accounting of claims used in the 

development of the final rule with 

comment period is included under 

supplemental materials for this final 

rule with comment period. That 

accounting provides additional detail 

regarding the number of claims derived 

at each stage of the process. In addition, 

we note that below we discuss the files 

of claims that comprise the data sets 

that are available for purchase under a 

CMS data user contract. Our CMS Web 

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

hopps includes information about 

purchasing the following two OPPS data 

files: ‘‘OPPS limited data set’’ and 

‘‘OPPS identifiable data set.’’

In this final rule with comment 

period, we are using the same 

methodology as proposed in the August 

16, 2004 proposed rule to establish the 

relative weights that we used in 

calculating the OPPS payment rates for 

CY 2005 shown in Addenda A and B to 

this final rule with comment period. 

This methodology is as follows: 

We used outpatient claims for full CY 

2003 to set the relative weights for CY 

2005. To begin the calculation of the 

relative weights for CY 2005, we pulled 

all claims for outpatient services 

furnished in CY 2003 from the national 

claims history file. This is not the 

population of claims paid under the 

OPPS, but all outpatient claims (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 will 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, and the 

U.S. Virgin 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 


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65744 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

2 and 3 comprise the 106 million claims 

that contain hospital bill types paid 

under the OPPS. 

1. Claims that were not bill types 12X, 

13X, 14X (hospital bill types), or 76X 

(CMHC bill types). Other bill types, 

such as ASCs, bill type 83, are not paid 

under the OPPS and, therefore, these 

claims were not used to set OPPS 

payment. 

2. Bill types 12X, 13X, or 14X 

(hospital bill types). These claims are 

hospital outpatient claims. 

3. Bill type 76X (CMHC). (These 

claims are later combined with any 

claims in item 2 above with a condition 

code 41 to set the per diem partial 

hospitalization rate determined through 

a separate process.) 

In previous years, we have begun the 

CCR calculation process using the most 

recent available cost reports for all 

hospitals, irrespective of whether any or 

all of the hospitals included actually 

filed hospital outpatient claims for the 

data period. However, in developing the 

proposed rule and this final rule with 

comment period, we first limited the 

population of cost reports to only those 

for hospitals that filed outpatient claims 

in CY 2003 before determining whether 

the CCRs for such hospitals were valid. 

This initial limitation changed the 

distribution of CCRs used during the 

trimming process discussed below. 

We then calculated the CCRs at a 

departmental level and overall for each 

hospital for which we had claims data. 

We did this using hospital specific data 

from the Hospital Cost Report 

Information System (HCRIS). As 

indicated in the proposed rule, we used 

the same CCRs as those used in 

calculating the relative weights that we 

used in developing the proposed rule. 

We did not recalculate CCRs to reflect 

updated cost report data. 

We then flagged CAHs, which are not 

paid under the OPPS, and hospitals 

with invalid CCRs. These included 

claims from hospitals without a CCR; 

those from hospitals paid an allinclusive rate; those from hospitals with 

obviously erroneous CCRs (greater than 

90 or less than .0001); and those from 

hospitals with 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 departmental level by 

removing the CCRs for each cost center 

as outliers if they exceeded +/¥3 

standard deviations of the geometric 

mean. In prior years, we did not trim 

CCRs at the departmental level. 

However, for CY 2005, as proposed, we 

trimmed at the departmental CCR level 

to eliminate aberrant CCRs that, if found 

in high volume hospitals, could skew 

the medians. We used a four-tiered 

hierarchy of cost center CCRs to match 

a cost center to a revenue code with the 

top tier being the most common cost 

center and the last tier being the default 

CCR. If a hospital’s departmental CCR 

was deleted by trimming, we set the 

departmental CCR for that cost center to 

‘‘missing,’’ so that another departmental 

CCR in the revenue center hierarchy 

could apply. If no other departmental 

CCR could apply to the revenue code on 

the claim, we used the hospital’s overall 

CCR for the revenue code in question. 

We then converted the charges on the 

claim by applying the CCR that we 

believed was best suited to the revenue 

code indicated on the line with the 

charge. (We discussed in greater detail 

the allowed revenue codes in the 

proposed rule (69 FR 50487).) If a 

hospital did not have a CCR that was 

appropriate to the revenue code 

reported for a line-item charge (for 

example, a visit reported under the 

clinic revenue code but the hospital did 

not have a clinic cost center), we 

applied the hospital-specific overall 

CCR, except as discussed in section V.H. 

of this final rule with comment period, 

for calculation of costs for blood. 

Thus, we applied CCRs as described 

above to claims with bill types 12X, 

13X, or 14X, excluding all claims from 

CAHs and hospitals in Maryland, Guam, 

or the U.S. Virgin Islands, and flagged 

hospitals with invalid CCRs. We 

excluded claims from all hospitals for 

which CCRs were flagged as invalid. 

We identified claims with condition 

code 41 as partial hospitalization 

services of CMHCs and removed them to 

another file. These claims were 

combined with the 76X claims 

identified previously to calculate the 

partial hospitalization per diem rate.

We then excluded claims without a 

HCPCS code. We also removed claims 

for observation services to another file. 

We removed to another file claims that 

contained nothing but flu and 

pneumococcal pneumonia (‘‘PPV’’) 

vaccine. Influenza and PPV vaccines are 

paid at reasonable cost and, therefore, 

these claims are not used to set OPPS 

rates. We note that the two above 

mentioned separate files containing 

partial hospitalization claims and the 

observation services claims are included 

in the files that are available for 

purchase as discussed above. 

We next copied line-item costs for 

drugs, blood, and devices (the lines stay 

on the claim but are copied off 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 the per unit 

median for drugs, radiopharmaceuticals, 

and blood and blood products. The lineitem costs were also used to calculate 

the per administration cost of drugs, 

radiopharmaceuticals, and biologicals 

(other than blood and blood products) 

for purposes of determining whether the 

cost of the item would be packaged or 

paid separately. Section 1833(t)(16)(B) 

of the Act, as added by section 621(a)(2) 

of Pub. L. 108–173, requires the 

Secretary to lower to $50 the threshold 

for separate payment of drugs and 

biologicals and the per administration 

cost derived using these line-item cost 

data would be used to make that 

decision for CY 2005. As discussed in 

the November 7, 2003 OPPS final rule 

with comment period (68 FR 63398), we 

had also applied a $50 threshold to 

these items for the CY 2004 update to 

the OPPS. 

We then divided the remaining claims 

into five groups. 

1. Single Major Claims: Claims with a 

single separately payable procedure, all 

of which would be used in median 

setting. 

2. Multiple Major Claims: Claims with 

more than one separately payable 

procedure or multiple units for one 

payable procedure. As discussed below, 

some of these can be used in median 

setting. 

3. Single Minor Claims: Claims with a 

single HCPCS code that is not separately 

payable. These claims may have a single 

packaged procedure or a drug code. 

4. Multiple Minor Claims: Claims with 

multiple HCPCS codes that are not 

separately payable without examining 

dates of service. (For example, 

pathology codes are packaged unless 

they appear on a single bill by 

themselves.) The multiple minor file has 

claims with multiple occurrences of 

pathology codes, with packaged costs 

that cannot be appropriately allocated 

across the multiple pathology codes. 

However, by matching dates of service 

for the code and the reported costs 

through the ‘‘pseudo’’ single creation 

process discussed earlier, a claim with 

multiple pathology codes may become 

several ‘‘pseudo’’ single claims with a 

unique pathology code and its 

associated costs on each day. These 

‘‘pseudo’’ singles for the pathology 

codes would then be considered a 

separately payable code and would be 

used like claims in the single major 

claim file. 

5. Non-OPPS Claims: Claims that 

contain no services payable under the 

OPPS are excluded from the files used 

for the OPPS. Non-OPPS claims have 

codes paid under other fee schedules, 

for example, durable medical equipment 

or clinical laboratory. 

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We note that the claims listed in 

numbers 1, 2, and 4 above are included 

in the data files that can be purchased 

as described above. 

We set aside the single minor claims 

and the non-OPPS claims (numbers 3 

and 5 above) because we did not use 

either in calculating median cost. 

We then examined the multiple major 

and multiple minor claims (numbers 2 

and 4 above) to determine if we could 

convert any of them to single major 

claims using the process described 

previously. We first grouped items on 

the claims by date of service. If each 

major procedure on the claim had a 

different date of service and if the lineitems for packaged HCPCS and 

packaged revenue codes had dates of 

service, we broke the claim into 

multiple ‘‘pseudo’’ single claims based 

on the date of service. 

After those single claims were 

created, we used the list of ‘‘bypass 

codes’’ in Table 16 of this final rule with 

comment period to remove separately 

payable procedures that we determined 

contain limited costs or no packaged 

costs from a multiple procedure bill. A 

discussion of the creation of the list of 

bypass codes used for the creation of 

‘‘pseudo’’ single claims is contained in 

section III.A.2. of this preamble. 

When one of the two separately 

payable procedures on a multiple 

procedure claim were on the bypass 

code list, the claim was split into two 

single procedure claims 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 retained 

the packaged revenue code charges and 

the packaged HCPCS charges. 

We excluded those claims that we 

were not able to convert to singles even 

after applying both of the techniques for 

creation of ‘‘pseudo’’ singles. We then 

packaged the costs of packaged HCPCS 

(codes with status indicator ‘‘N’’ listed 

in Addendum B to this final rule with 

comment period) and packaged revenue 

codes into the cost of the single major 

procedure remaining on the claim. The 

list of packaged revenue codes is shown 

in Table 17 below.

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, 56 

million claims were left. This subset of 

claims is roughly one-half of the 106 

million claims for bill types paid under 

the OPPS. Of these 56 million claims, 

we were able to use some portion of 52 

million (91 percent) whole claims to 

create the 84 million single and 

‘‘pseudo’’ single claims for use in the 

CY 2005 median payment ratesetting. 

We also excluded claims that either 

had zero costs after summing all costs 

on the claim or for which CMS lacked 

an appropriate provider wage index. For 

the remaining claims, we then wage 

adjusted 60 percent of the cost of the 

claim (which we determined to be the 

labor-related portion), as has been our 

policy since initial implementation of 

the OPPS, to adjust for geographic 

variation in labor-related 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 proposed, we 

used the final pre-reclassified wage 

indices for IPPS and any subsequent 

corrections. We used 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 would 

result in the most accurate adjusted 

median costs. 

We then excluded claims that were 

outside 3 standard deviations from the 

geometric mean cost for each HCPCS 

code. We used the remaining claims to 

calculate median costs for each 

separately payable HCPCS code; first, to 

determine the applicability of the ‘‘2 

times’’ rule, and second, to determine 

APC medians as based on the claims 

containing the HCPCS codes assigned to 

each APC. As stated previously, 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 

medians and reassigned HCPCS codes to 

different APCs as deemed appropriate. 

Section III.B. of this preamble includes 

a discussion of the HCPCS code 

assignment changes that resulted from 

examination of the medians and for 

other reasons. The APC medians were 

recalculated after we reassigned the 

affected HCPCS codes. 

A detailed discussion of the medians 

for blood and blood products is 

provided at section V.I. of this 

preamble. We provide a discussion of 

the medians for APC 0315 (Level II 

Implantation of Neurostimulator), and 

APC 0651 (Complex Interstitial 

Radiation Application), at sections 

III.C.2.a. and III.C.2.b., respectively, of 

this preamble. 

A discussion of the medians for APCs 

that require one or more devices when 

the service is performed is provided at 

section III.C. of this preamble. A 

discussion of the median for observation 

services is provided at section VII.D. of 

this preamble and a discussion of the 

median for partial hospitalization is 

provided at section X.C. of this 

preamble. 

We received a number of public 

comments concerning our proposed 

data processes for calculating the CY 

2005 OPPS relative weights and median 

costs.

Comment: Some commenters 

requested that CMS provide specialtyspecific and APC-specific impact tables 

that provide additional information and 

analysis of its proposal to trim CCRs on 

a departmental basis. The commenters 

stated that CMS should justify why it 

trimmed departmental CCRs at ±3 

standard deviations from the geometric 

mean and explain the impact of the 

change. 

Response: We chose to trim at ±3 

standard deviations from the geometric 

mean because cost and charge data are 

traditionally log normal distributed and 

because the 3 standard deviations 

threshold is standard policy for 

identifying outliers in CMS’ payment 

systems. We do not believe that an 

impact analysis for the departmentallevel CCR trim is necessary because the 

overall number of cost-centers trimmed 

were minimal relative to the number of 

hospitals and because this trim only 

removed extreme department CCRs, 

both low and high. We fully expect that, 

had we chosen not to trim at the 

department-level, extreme cost 

estimates would have been removed 

during our trim at the HCPCS-level 

performed later in the data development 

process. 

For example, we trimmed the most 

department CCRs, 68, from cost center 

5500, Medical Supplies Charged to 

Patients. The low CCRs that were 

trimmed ranged from 0.00008 to 0.0281. 

The high CCRs that were trimmed 

ranged from 0.39530 to 6069.17. Even 

after the department-level trim, only 7 

percent of the hospitals in our data set 

defaulted to the overall CCR for services 

mapped to this cost center. 

Comment: One commenter stated that 

the CCRs fell between 1996 and 2002 

because charges were increasing faster 

than costs and that this change resulted 

in a significant payment decrease for 

hospitals for which we used the default 

CCR. The commenter urged CMS to 

instruct fiscal intermediaries to work 

with these hospitals in determining 

65746 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

CCRs that will provide accurate cost 

estimates. 

Response: The commenter 

misunderstood the source of the CCRs 

used to adjust hospital costs to charges 

for OPPS median setting. We do not use 

the CCRs that fiscal intermediaries 

calculate for purposes of outlier 

payments, and cost reimbursement. 

Instead, we use hospital specific data 

from the health care cost reporting 

information system and independently 

calculate CCRs for each standard and 

nonstandard cost center in which the 

costs of outpatient services are to be 

found as well as an overall CCRs for the 

costs of outpatient care. Hence, 

intermediaries have no role in the 

calculation of the CCRs used to reduce 

charges to approximate costs for OPPS 

median cost setting. Comment: One commenter asked that 

CMS justify why did it not use cost-tocharge data from all hospitals for CY 

2005 OPPS calculations when, in the 

past, CMS used cost report data from all 

hospitals without regard to whether the 

hospital had filed data during a 

specified period. Response: In the past, we first 

calculated CCRs for all providers, 

trimmed the overall hospital CCRs, and 

then compared the providers for which 

we had valid CCRs to the providers for 

which we had claims data. For CY 2005 

OPPS, we first determined the providers 

for which we had claims data and we 

then calculated the CCRs for those 

hospitals so that the trimming would 

occur only across the hospitals for 

which we had claims data because a 

CCR is of value only if there are claims 

to which to apply it. Comment: One commenter urged 

CMS to greatly expand the outpatient 

code editor (OCE) edits to return to 

providers claims that fail edits that are 

appropriate to the type of service being 

billed. The commenter cited as 

examples, the creation of edits that 

return claims for chemotherapy 

administration procedures if antineoplastics (cancer chemotherapy) are 

not also billed on the same day and 

edits that return claims for services that 

require the use of contrast agents if no 

contrast agent were billed. The 

commenter believed that this would 

greatly improve the data on which 

median costs are set. 

Response: We do not intend, at this 

time, to greatly expand the OCE edits to 

force correct coding as the commenter 

recommends beyond the edits for 

correct coding of device procedures that 

are discussed in section III.C.4 of this 

final rule with comment period. While 

we recognize that these kinds of edits 

would likely result in better coding, 

they would also impose a significant 

burden on hospitals. We do, however, 

encourage hospitals to review their 

claims completion processes carefully 

and to edit their claims before they are 

submitted to maximize the likelihood 

that the claims are correct and complete. 

Such a practice would both assist us in 

developing better OPPS rates, but more 

importantly, ensure that hospitals are 

being correctly paid for all of the 

services they furnish to our 

beneficiaries. 

Comment: One commenter noted the 

prevalence of drug billing and charging 

errors and recommended that CMS 

revise its median trimming methodology 

for drugs from ±3 standard deviations 

from the geometric mean to a trim by 

provider by drug based on the 

correlation of units and charges. This 

approach assumes that hospitals 

engaged in accurate and consistent unit 

coding and billing will demonstrate a 

strong correlation between units and per 

unit charges. The commenter noted that 

CMS’ current trim is very conservative, 

especially for low costs per unit because 

it will only eliminate negative cost 

values, which do not exist in the data. 

The commenter further suggested that 

CMS’ trim of department-level CCR’s 

and the use of C-code only claims to set 

device medians are comparable to this 

proposal. Response: We agree that billing 

accurate units has proven challenging 

for some hospitals in light of various 

differences in packaged versus delivered 

units, changing drug pricing, and unit 

changes in HCPCS codes. Clearly, our 

goal in conducting the current trim at ±3 

standard deviations from the geometric 

mean is to remove aberrant per unit 

costs, or costs that are so far removed 

from the geometric mean that the 

probability of their occurrence is less 

than 1 percent. However, even after this 

trim is conducted, we remain concerned 

about the per unit cost estimates for 

some drug codes. We believe, however, that the current 

trim of drug costs, while conservative, is 

not as limiting as suggested in the 

comment. The natural logarithm of costs 

per unit less than $1 will be negative. 

The trim compares the natural logarithm 

of the cost to the geometric mean, ±3 

standard deviations and removes low 

and high cost observations. The low 

trim threshold may also be negative if 

costs are less than $1. In addition to 

using a trim, we also rely on a median 

cost rather than an average cost. 

Averages are subject to the influence of 

extreme outliers. Using a median 

instead of a mean eliminates this 

concern. Assuming most line-items for 

any given drug are coded correctly, 

using a trim and the median should 

provide a robust per unit cost estimate. 

Nonetheless, we do recognize that for 

selected low-volume or complex 

products, this approach is still not 

sufficient to remove all errors.

We are concerned, however, about 

implementing systematic trimming at 

the provider-level as suggested by the 

commenter for several reasons. First, 

this approach would remove the data for 

multiple providers from any given 

median calculation, making the 

assumption that their data were 

inaccurate, when, in fact, a few 

instances of poor coding may adversely 

impact the provider’s correlation 

coefficient. Thus, a provider may 

actually be coding and charging 

accurately in many cases. In rare 

instances, we have removed a specific 

provider when it is more than obvious 

that the data are erroneous, but we only 

do this after a careful review of the 

provider’s claims data. It is our 

preference to remove aberrant line-items 

rather than a provider’s entire data for 

any given drug. Second, correlation 

coefficients for a provider may fluctuate 

if they are based on very low-volume, 

even if the majority of line-items appear 

accurate. Third, the commenter’s 

proposed correlation coefficient 

approach lacks a generally accepted 

threshold when a providers’ data should 

be removed, unlike the widely accepted 

trim of 3 standard deviations from the 

mean. Finally, this approach assumes 

that a negative correlation coefficient 

implies that a provider erred in setting 

its charging practices. 

While we agree that the proposed trim 

seeks to improve the accuracy of the 

claims data, which is the goal of all 

trimming, we disagree that the 

commenter’s proposed trim is 

necessarily comparable to the use of a 

department-level CCR trim and the 

limitation of claims to those with Ccodes for estimating medians for devicedependent APCs. The department-level 

trim does not eliminate a provider 

entirely, it eliminates the departmentlevel CCR for a specific hospital and 

replaces this CCR with the overall CCR 

for that hospital. Relying on C-coded 

claims to calculate device-dependent 

medians assures us that the device was 

used with the device-dependent 

procedure. The specific cost associated 

with the device code is not considered 

in subsetting claims and the subsetting 

is done by claim, not by provider. While 

the commenter’s proposed methodology 

is not appropriate for use at this time, 

we nonetheless believe that the 

commenter’s suggested approach can 

serve as a useful tool in helping us begin 

the process of identifying providers 

Comment: One commenter indicated 

that using the overall CCR where the

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65747

departmental CCR cannot be used may 

skew the costs derived from application 

of CCRs to charges. The commenter 

suggested that CMS develop a method 

for replacing departmental CCRs similar 

to that used for blood and blood 

products whereby the CCR that would 

apply would not be the overall CCR but 

a national CCR calculated based on the 

departmental CCRs of hospitals that do 

report the more pertinent specific cost 

centers on their cost reports. 

Response: We will consider whether 

doing so is practical and whether it 

would yield more accurate cost 

estimates. However, there were very 

specific characteristics of the reporting 

of blood such as a very specific cost 

center and very specific revenue codes 

that may not exist for other services. 

Comment: One commenter asked that 

CMS undertake a study to improve the 

reporting of costs in conjunction with 

the CCR development. The commenter 

stated that a more timely process should 

be implemented so that currently 

accurate CCRs are used to translate 

hospital charges to costs and that 

consideration should be given to 

attaining greater detail from the 

hospitals to calculate the CCRs to better 

reflect the full line of services being 

offered by hospitals. 

Response: We study means by which 

we could improve the development of 

cost-to-charge ratios annually. We also 

use the most current cost report data 

from the HCRIS system to calculate the 

cost to-charge-ratios and we use charges 

from the most current claims data. 

However, hospitals have great latitude 

in the way they organize their costs and 

complete their cost reports. We have no 

plans to alter the existing instructions to 

require cost report detail that is not 

currently provided. We will, instead, 

continue to examine how the data 

currently submitted by hospitals can be 

used to secure the most accurate 

estimates of cost for the full range of 

services furnished by hospitals. 

After carefully reviewing all 

comments, we are adopting as final, for 

OPPS services furnished on or after 

January 1, 2005, the process for 

calculating median costs that we 

described in this section and the list of 

packaged services shown in Table 17 

below. This table contains the list of 

packaged services by revenue code that 

we used in developing the APC weights 

and medians listed in Addenda A and 

B of this final rule with comment 

period. 

BILLING CODE 4120–01–P

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ER15NO04.025</GPH>
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BILLING CODE 4120–01–C 

C. Adjustment of Median Costs for CY 

2005 

1. Device-Dependent APCs 

Table 19, which we published in the 

proposed rule (69 FR 50492), contains a 

list of APCs consisting of HCPCS codes 

that cannot be provided without one or 

more devices. For CY 2002 OPPS, we 

used external data in part to establish 

the medians used for weight setting. At 

that time, many devices were eligible for 

pass-through payment. For that year, we 

estimated that the total amount of passthrough payments would far exceed the 

limit imposed by statute. To reduce the 

amount of a pro rata adjustment to all 

pass-through items, we packaged 75 

percent of the cost of the devices (using 

external data furnished by commenters 

on the August 24, 2001 proposed rule) 

into the median cost for the APCs 

associated with these pass-through 

devices. The remaining 25 percent of 

the cost was considered to be passthrough payment. (Section VI. of this 

preamble includes a discussion of the 

pro rata adjustment.)

For CY 2003 OPPS, which was based 

on CY 2001 claims data, we found that 

the median costs for certain devicedependent APCs when all claims were 

used were substantially less than the 

median costs used for CY 2002. We 

were concerned that using the medians 

calculated from all claims would result 

in payments for some APCs that would 

not compensate the hospital even for the 

cost of the device. Therefore, we 

calculated a median cost using only 

claims from hospitals that had 

separately billed the pass-through 

device in CY 2001 (that is, hospitals 

whose claims contained the C-code for 

the pass-through device). Furthermore, 

for any APC (whether device-dependent 

or not) where the median cost would 

have decreased by 15 percent or more 

from CY 2002 to CY 2003, we limited 

decreases in median costs to 15 percent 

plus half of the amount of any reduction 

beyond 15 percent (68 FR 47984). For a 

few particular device-dependent APCs 

for which we believed that access to the 

service was in jeopardy, we blended 

external data furnished by commenters 

on the August 9, 2002 proposed rule (67 

FR 57092) with claims data to establish 

the median cost used to set the payment 

rate. For CY 2003, we also eliminated 

the HCPCS C-codes for the devices and 

returned to providers those claims on 

which the deleted device codes were 

used. (The November 1, 2002 OPPS 

final rule (67 FR 66750) and section 

III.C.4 of this preamble contain a 

discussion regarding the required use of 

C-codes for specific categories of 

devices.) 

For CY 2004 OPPS, which was based 

on CY 2002 claims data, we used only 

claims on which hospitals had reported 

devices to establish the median cost for 

the device-dependent APCs in Table 18. 

We did this because we found that the 

median costs calculated when we used 

all claims for these services were 

inadequate to cover the cost of the 

device if the device was not separately 

coded on the claim. Using only claims 

containing the code for the device (a Ccode) provided costs that were closer to 

those used for CY 2002 and CY 2003 for 

these services. For a few particular 

APCs in which we believed that access 

to the service was in jeopardy, we used 

external data provided by commenters 

on the August 12, 2003 proposed rule in 

a 50 percent blend with claims data to 

establish the device portion of the 

median cost used to set the payment 

rate (68 FR 63423). We also reinstated 

for CY 2004, but on a voluntary basis, 

the reporting of C-codes for devices. 

Thus, in developing the median costs 

for device-dependent APCs for CYs 

2002, 2003, and 2004, we applied 

certain adjustments to our claims data 

as provided under the authority of 

section 1833(t)(9)(A) of the Act to 

ensure equitable payments to the 

hospitals for the provision of such 

services. As stated in the August 16, 

2004 proposed rule, we have continued 

to receive comments from interested 

parties as part of the APC Panel process 

urging us to determine whether the 

claims data that would be used in 

calculating the median costs for devicedependent APCs for payment in CY 

2005 would represent valid relative 

costs for these services (69 FR 50490). 

Careful analysis of the CY 2003 data that 

we used in calculating the median costs 

for the CY 2005 OPPS payment rates 

revealed problems similar to those 

discussed above in calculating devicedependent APC median costs based 

solely on claims data. Calculation of the 

CY 2005 median costs for the devicedependent APCs indicated that some of 

the medians appeared to appropriately 

reflect the costs of the services, 

including the cost of the device, and 

others did not. Of the 41 devicedependent APCs analyzed, 27 have 

median costs that are lower than the 

medians on which the OPPS payments 

were based in CY 2004. In contrast, 14 

device-dependent APCs have median 

costs that are higher than the medians 

on which OPPS payments were based in 

CY 2004. 

The differences between the CY 2004 

payment medians and the proposed CY 

2005 median costs using CY 2003 

claims data are attributable to several 

factors. As discussed above, the CY 

2004 payment medians were based on a 

subset of claims that contained the 

codes for the devices without which the 

procedures could not be performed, and 

several APCs were adjusted using 

external data. The CY 2005 OPPS 

median costs on which the proposed 

payment rates in the August 16, 2004 

proposed rule were based, were 

calculated based on all single bills, 

including ‘‘pseudo’’ single bills, for the 

services in the APCs and (not a subset 


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of claims containing device codes) and 

were not adjusted using external data. In 

fact, as stated previously, we eliminated 

device coding requirements for 

hospitals in CY 2003. Consequently, 

there were no device codes reported for 

almost all devices in the CY 2003 claims 

data. Thus, it was not possible to use 

only the CY 2003 claims data containing 

device codes to calculate APC devicedependent medians as was done in CY 

2004. Similarly, it was not possible to 

calculate a percentage of the APC cost 

attributed to device codes based on CY 

2003 claims data. 

In light of these data issues for CY 

2005, we examined several alternatives 

to using CY 2003 claims data to 

calculate the proposed median costs for 

device-dependent APCs. As discussed 

in the August 16, 2004 proposed rule, 

we considered using CY 2004 OPPS 

medians with an inflation factor, as 

recommended by the APC Panel and by 

several outside organizations. We 

rejected this option because it would 

not recognize any changes in relative 

costs for these APCs and would not 

direct us towards our goal of using all 

single claims data as the basis for 

payment weights for all OPPS services. 

We also considered using the medians 

we calculated from all single bills with 

no adjustments. However, the results of 

using this approach without increasing 

the payments for some important high 

cost services for CY 2005 could result in 

the closing of hospital programs that 

provide these services thus, 

jeopardizing access to needed care. 

Therefore, we did not adopt this 

approach. 

In addition, we considered subsetting 

claims based on the presence of charges 

in certain revenue codes. These revenue 

codes include: 272, sterile supplies; 275, 

pacemakers; 278, other implants; 279, 

other supplies/devices; 280, oncology; 

289, other oncology; and 624, 

investigational devices. We determined 

that the medians increased for some 

device-dependent APCs when we used 

only claims with a charge in at least one 

of these revenue codes, but our analysis 

provided no reliable evidence that the 

charges that would be found in these 

revenue codes were necessarily for the 

cost of the device. 

Further, we considered using CY 2002 

claims to calculate a ratio between the 

median calculated using all single bills 

and the median calculated using only 

claims with HCPCS codes for devices on 

them, and applying that ratio to the 

median calculated using all single bills 

from CY 2003 claims data. We rejected 

this option because it assumes that the 

relationship between the costs of the 

claims with and without codes for 

devices is a valid relationship not only 

for CY 2002 but CY 2003 as well. It also 

assumes no changes in billing behavior. 

We have no reason to believe either of 

these assumptions is true and, therefore, 

we did not choose this option.

In summary, we considered and 

rejected all of the above options. We 

have given special treatment to the 

device-dependent APCs for the past 3 

years, recognizing that, in a new 

payment system, hospitals need time to 

establish correct coding processes and, 

considering the need to ensure 

continued access to these important 

services. After 3 years of such 

consideration, we believe that it is time 

to begin a transition to the use of pure 

claims data for these services (reflected 

in these APCs) to ensure the appropriate 

relativity of the median costs for all 

payable OPPS services. Our goal is to 

establish payment rates that provide 

appropriate relative payment for all 

services paid under the OPPS without 

creating payment disincentives that may 

reduce access to care. 

Therefore, we proposed to base 

median costs for device-dependent 

APCs in CY 2005 on the greater of (1) 

median costs calculated using CY 2003 

claims data, or (2) 90 percent of the APC 

payment median for CY 2004 for such 

services. We proposed this adjustment 

because we believe that some variation 

in median costs is to be expected from 

year to year, and we believe that 

recognizing up to a 10 percent variation 

in our payment approach is a reasonable 

limit. In the August 16, 2004 proposed 

rule, we solicited comments on all 

aspects of theses issues and particularly 

on steps that can be taken in the future 

to transition from the historic payment 

medians to claims based median costs 

for OPPS ratesetting for these important 

services. In addition, we discussed this 

issue with the APC Panel at its 

September 1 through 2, 2004 meeting. 

The Panel recommended that we base 

median costs for these APCs on no less 

than 95 percent of the CY 2004 median 

not to exceed 105 percent of the CY 

2004 payment median. 

We received numerous public 

comments on our proposals. 

Comment: A number of commenters 

objected to the proposal to set the 

payment medians for device APCs at 90 

percent of the CY 2004 payment median 

for the APC. They indicated that many 

of these APCs had already been reduced 

substantially over the past few years and 

that permitting them to be reduced 

another 10 percent would mean that 

some hospitals may close their programs 

and send patients to other hospitals for 

these services. Some commenters 

recommended that the median costs for 

these APCs be set at 100 percent of the 

CY 2004 payment median. Some 

commenters recommended that CMS 

use the CY 2004 payment median plus 

an update amount as the median cost for 

the CY 2005 OPPS. Commenters also 

recommended that instead of using 

median costs from claims data with any 

adjustment, that we collect actual 

hospital acquisition data or use cost 

data provided by manufacturers and 

other stakeholders and substitute that 

data for the device portion of the 

median costs. They indicated that we 

used external data in the past and that 

we should do so this year also. They 

cited APCs 0081, 0107, 0108, 0225, 

0229, 0259, 0385, and 0386 as cases in 

which the proposed APC payment rates 

were less than the cost of the devices 

and as those for which CMS should use 

external data in setting the payment 

rates for CY 2005. A commenter 

supported the proposal to pay the 

greater of the CY 2005 claims based 

median or 90 percent of the CY 2004 

payment median. 

Response: For the reasons discussed 

below, we set the adjusted CY 2005 

OPPS device-dependent median at the 

greater of the CY 2005 OPPS unadjusted 

median or 95 percent of the CY 2004 

OPPS adjusted final payment median 

rather than the greater of the CY 2005 

unadjusted median or 90 percent of the 

CY 2004 OPPS adjusted final median as 

we proposed in the August 16, 2004 

proposed rule. We view this as a 

transition to the full use of claims data 

to set the medians for these services. 

The integrity of a prospective payment 

system lies heavily in its reliance on a 

standardized process applied to a 

standardized data source. The use of 

external data can, as some commenters 

point out, unfairly unbalance the 

payments and result in inequities in 

payment. (Section III.C.5. of this 

preamble includes a discussion on the 

use of external data.) 

We considered setting the medians at 

the CY 2004 adjusted final payment 

medians with and without further 

inflation, but we think a certain amount 

of fluctuation in costs from year to year 

is to be expected as the costs of services 

decline after they have been on the 

market for some time. Moreover, we 

considered our proposal to pay the 

greater of the CY 2005 unadjusted 

median or 90 percent of the CY 2004 

OPPS adjusted final payment median, 

but acknowledged the concerns of the 

commenters who believe that setting the 

comparison at 95 percent of the CY 2004 

OPPS final adjusted payment median 

was more appropriate and less likely to 

impede access to these important 

services. We recognize that adjustments 

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to median costs derived from claims 

data may be necessary yet again in the 

CY 2006 OPPS due to the voluntary 

nature of the reporting of device codes 

in CY 2004. However, as discussed 

further below at section III.C.4. of this 

preamble in our discussion of 

mandatory coding for devices, we 

expect that reporting of device codes in 

the CY 2005 claims will enable us to 

rely upon the claims data for setting the 

median costs without adjustment in CY 

2007. 

Comment: Some commenters opposed 

the APC Panel’s recommendation to 

limit increases in median costs for 

device APCs to 5 percent over the CY 

2004 payment median because the 

commenters believe such a limit would 

be arbitrary and would be a hindrance 

to the improvement of cost data. 

Response: We agree and we have not 

limited the extent to which the median 

costs for device-dependent APCs may 

increase for the CY 2005 OPPS. We 

believe that in a number of cases, 

providers are reporting the charges for 

the devices and have otherwise greatly 

improved coding of their services, 

resulting in increases in median costs 

that appear to appropriately reflect the 

costs of the services furnished. We have 

no indication that the increases do not 

otherwise properly reflect the costs of 

services and, therefore, see no reason to 

constrain the increases that have 

resulted. 

Comment: Some commenters stated 

that CMS should look long term to 

determining a factor through regression 

analysis that enables CMS to adjust the 

charges for high cost devices so that the 

methodology will result in more 

accurate costs for high cost devices. 

Response: We will review and 

consider the results of credible studies 

of the possible compression of all 

charges, both for high cost services and 

low cost services. Studies that focus 

only on part of the spectrum of hospital 

charges, for example, those which look 

at low markup of high cost items but not 

at high markup of low cost items, would 

not be useful in a relative weight 

system.

Comment: Some commenters 

indicated that hospitals typically 

markup high cost items and services 

less than they markup low cost items 

and services and that CMS’ cost finding 

methodology does not recognize this 

because it applies a uniform cost-tocharge ratio (for the department or 

hospital overall) to the charges, which 

then yields distorted costs. They 

recommended that CMS resolve this 

problem using external data from 

manufacturers and other stakeholders 

until such time that CMS can comply 

with the GAO study that recommended 

that CMS ‘‘analyze variation in hospital 

charge setting to determine if the OPPS 

payment rates uniformly reflect 

hospitals’ costs of provided outpatient 

services and if they do not, to make 

appropriate changes to the 

methodology.’’ The commenters asked 

that CMS provide explicit instructions 

to hospitals regarding how to adequately 

capture and charge for high cost 

devices. 

Response: As we discussed 

previously, we have decided not to use 

external data to adjust the APC payment 

rates for CY 2005 OPPS. We do, 

however, reassess our existing 

methodology each year to determine 

how we can best create rates that 

uniformly reflect hospitals’ cost of 

providing outpatient services. We will 

not provide instructions to hospitals 

regarding how to capture and charge for 

high cost devices. As a matter of policy, 

we do not tell hospitals how to set their 

charges for their services. However, we 

will continue to inform hospitals of the 

importance of their charge data in future 

ratesetting and encourage them to 

include all appropriate charges on their 

Medicare claims. 

Comment: One commenter objected to 

us applying the wage index adjustment 

to the cost of a device in a devicedependent APC because, as the 

commenter stated, the wage index is 

intended to address the identified 

differential in wages across localities. 

The commenter contends that there is 

no demonstration of a similar 

differential in the costs of devices across 

localities. 

Response: Previous studies have 

shown that across the entirety of all 

services paid under OPPS, 

approximately 60 percent of total cost is 

labor related. Therefore we believe it is 

appropriate to apply the wage index to 

60 percent of the payment for each 

service. The application of the wage 

index to the payment for the devicedependent APC can either inflate the 

total payment for the device-dependent 

APC or reduce it depending on whether 

the hospital is in a high cost or low cost 

area. In many cases, if we ceased to 

apply the wage index adjustment to 60 

percent of the APC payment, the 

payment to the hospital for the APC 

would be significantly reduced. We 

will, however, consider whether it is 

appropriate to continue to apply the 

wage index adjustment as we currently 

do. 

Comment: One commenter asked that 

we add CPT codes 47382, 

(Radiofrequency ablation procedures of 

the liver) and CPT code 20982, 

(Radiofrequency ablation procedures of 

the bone) to the list of device-dependent 

APCs because they require the use of 

devices. 

Response: We will consider whether 

these services should be added to the 

list of device-dependent APCs in the 

future. However, it is unclear to us what 

proportion of total cost of each of these 

procedures is the cost of the device 

because codes are not reported for the 

devices. We do not agree that the cost 

of the devices could be derived from 

charges reported in particular revenue 

codes because there is no identification 

of the items charged under any revenue 

code. 

Comment: Some commenters 

indicated that the reductions in APC 

payments following termination of passthrough status for devices have resulted 

in the elimination of programs at 

hospitals that have chosen to no longer 

implant prosthetic devices. 

Response: We share the concern that 

beneficiaries should have access to 

services covered under Medicare and 

believe that our payment policies under 

OPPS have consistently taken this 

concern into account. 

Comment: Some commenters 

indicated that the proposed payment 

rates for APCs 0081, 0107, 0108, 0222, 

0229, 0385, and 0386 are inadequate 

and do not cover the cost of the device; 

therefore, they do not provide payment 

for the facility services. The commenters 

stated that hospitals have taken a loss 

on these services for several years and 

cannot continue to provide the services 

at a loss. The commenters developed 

alternative cost estimates using external 

data and urged CMS to use these data 

rather than its claims data as the basis 

for developing median costs. 

Response: As stated, for devicedependent APC in general, we have not 

used external data to adjust any median 

costs for CY 2005 OPPS. Instead, we set 

the medians for these APCs at the 

greater of the median cost for CY 2005 

derived using claims data or 95 percent 

of the CY 2004 OPPS adjusted payment 

median. Beginning in CY 2005, we will 

also require that the claims containing 

codes assigned to these APCs also 

contain a code for an appropriate device 

for the claim to be paid, so that in CY 

2007 we will have correctly coded 

claims to help us in setting the payment 

weights. 

Comment: Some commenters stated 

that the proposed payment for 

cryoablation of the prostate (CPT code 

55873) is insufficient to cover the cost 

for the procedure. They further stated 

that CMS should factor in external data 

that shows hospital costs to exceed 

$9,000, eliminate or adjust claims for 

APC 0674 in which the charges for 

65752 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

cryoablation probes are less than $7500, 

or discard all claims containing CPT 

code 55873 in the Medicare database for 

which the total hospital costs are less 

than $6500. The commenters indicated 

that access to this care would be 

impeded if the APC payment is not 

sufficient to pay the full cost of the 

service. The commenters believed that 

APC payment at less than full costs for 

the service will give rise to the use of 

alternative means of treating prostate 

cancer. These commenters indicated 

that the charges hospitals report on their 

claims are seldom sufficient to result in 

the full cost of all of the supplies and 

equipment needed to furnish the 

service. The commenters also indicated 

that when the only claims used to set 

the median are those for which the code 

for cryoablation probes is found, the 

median increases significantly. 

Response: The codes for the 

cryoablation probes used in providing 

cryoablation of the prostate were billed 

in CY 2003 because they were paid as 

pass-through payments in CY 2003. 

Therefore, they exist in the claims data 

and we used them to screen for correctly 

coded claims in setting the median cost 

for APC 0674. The median derived 

using the subset of claims is $6,562.69, 

a decrease of 5.10 percent from the CY 

2004 final payment median for APC 

0674. Therefore, based on the devicedependent APC policy that we are 

finalizing for CY 2005, we set the 

median for APC 0674 at 95 percent of 

the CY 2004 final payment median, or 

$6,569.33.

Comment: Some commenters 

supported the increased payment for 

cochlear implant services (CPT code 

69930 in APC 0259) even though they 

indicated that they believe that the 

Medicare payment continues to be 

insufficient to fully pay for the costs of 

both the device and the procedure. One 

commenter provided an independent 

statistical analysis of the Medicare 

claims data and invoice data that the 

commenter indicated revealed hospital 

costs of $27,954 based on a screen of 

claims that contained HCPCS code 

L8614 and asked that CMS set the 

payment at that amount. Some 

commenters stated that they believe that 

some hospitals are using the cochlear 

implant codes to code implantation of 

less expensive implantable hearing aid 

devices. The commenter also asked that 

CMS provide education and develop a 

guidance document for hospitals 

specific to coding and billing for 

cochlear implant surgery. 

Response: The device code for 

cochlear implants remained active in 

CY 2003 because Medicare uses it for 

purposes other than the OPPS. In 

developing the CY 2005 OPPS medians, 

we created a subset of claims for 

implantation of cochlear implants that 

contained the device code and 

calculated the median for the CY 2005 

OPPS using only those correctly coded 

claims. This yielded a median cost of 

$26,006.74, which we used as the basis 

for the APC 0259 payment weight for 

the CY 2005 OPPS. While it is certainly 

possible that some hospitals are 

misusing the code for cochlear 

implantation to bill for less costly 

implanted hearing aid devices, we have 

no way to make that determination 

using the claims data. However, we note 

that hospitals billing in such a manner 

do so at their own risk of being found 

to have filed a false claim. We will 

consider what general education 

activities we need to undertake with 

regard to all devices but we are 

disinclined to focus on specific devices 

to the exclusion of others. 

Comment: One commenter indicated 

that the proposed decrease in payment 

rates for APC 0039 (Level I Implantation 

of Neurostimulator) is not acceptable as 

it would not enable hospitals to cover 

the cost of the service. Moreover, the 

commenter stated that hospitals have 

failed to code and bill correctly for this 

service and that there are no 

disincentives for incorrect coding and 

billing. The commenter further stated 

that the only diagnosis on the claims for 

APC 0039 should be that for epilepsy 

because that is the fundamental reason 

for implanting the device. However, 

according to the commenter, 

examination of the claims for APC 0039 

revealed that only 12 percent of those 

claims contained an epilespsy 

diagnosis; therefore, the remaining 

claims caused the median to incorrectly 

represent the implantation of the device 

for treatment of epilepsy. The 

commenter recommended that CMS use 

external data to ensure that the costs of 

the device and procedure are adequate 

to avoid discouraging hospitals from 

providing the care. 

Response: As with other devicedependent APCs, the absence of device 

codes on the claims for CY 2003 means 

that we were unable to screen the claims 

to positively identify which claims 

include the neurostimulator device 

costs and we are not confident that 

screening only for the diagnosis of 

epilepsy will resolve the coding 

problem. Therefore, we have set the 

median for APC 0039 at 95 percent of 

the CY 2004 final adjusted payment 

median. 

Comment: Some commenters objected 

to the assignment of status indicator ‘‘T’’

to APC 0229 (Transcatheter Placement 

of Intravascular Stent) because they 

believe it should not be subject to the 

multiple procedure reduction due to its 

dependence on a device. They believed 

that the payment for the services is 

undervalued because it is typically done 

with other procedures and that it is 

further underpaid by the application of 

the multiple procedure reduction. 

Response: We have not changed the 

status indicator for APC 0229 because 

the cost of the device for services in this 

APC is less than 50 percent of the total 

cost of the service. Therefore, the 

multiple procedure reduction of 50 

percent does not result in the APC 

payment being less than the device cost. 

Moreover, there are efficiencies when 

multiple services are performed on the 

same day that we believe justify 

applying the multiple procedure 

reduction to the services in this APC. 

Comment: One commenter asked that 

CMS require hospitals to show the 

actual acquisition cost for devices on 

the bill using a UB92 value code and the 

amount. The commenter recommended 

that where 50 percent or more of the 

APC is attributable to packaged device 

cost, CMS should obtain actual device 

information and use it to determine if 

APC cost calculations are reasonable. 

Response: We do not believe the 

imposition of an additional reporting 

requirement would be effective. Such a 

requirement would be both burdensome 

and unlikely to provide the actual 

hospital acquisition cost because 

hospitals have the ability to reflect 

general rebates and discounts on a per 

device basis.

Comment: One commenter asked that 

we make separate payments for CRT–Ds 

(pacemaker-defibrillators) for which 

there was a new technology add-on 

payment under the IPPS for FY 2005, so 

that payment for this service under the 

IPPS and the OPPS would be better 

aligned. 

Response: CRT–Ds were paid on a 

pass-through basis under the OPPS in 

CYs 2001 and 2002. Their OPPS passthrough status expired in CY 2003 and 

their component services were packaged 

into clinical APC 0107 (Insertion of 

Cardioverter-Defibrillator) and APC 

0108 (Insertion/Replacement/Repair of 

Cardioverter-Defibrillator Leads) and. 

Accordingly, no separate additional 

payment is appropriate for these 

devices. 

After carefully reviewing the 

comments, considering the APC Panel 

recommendations and examining the 

claims data, we are adjusting the 

medians for device-dependent APCs 

based on comparison of the CY 2005 

median costs and the CY 2004 final 

payment median costs. Specifically, we 

decided to set the median costs for these 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65753

APCs at the higher of the CY 2005 

median cost from our claims data or 95 

percent of the CY 2004 final adjusted 

median cost used to set the payment in 

CY 2004 rather than 90 percent of the 

CY final adjustment median cost as we 

proposed. 

We believe that this adjustment 

methodology provides an appropriate 

transition to eventual use of all single 

bill claims data without adjustment, and 

that the methodology moves us towards 

the goal of using all single bill data 

without adjustment by CY 2007. It is a 

simple and easily understood 

methodology for adjusting median costs. 

Where reductions occur compared to CY 

2004 OPPS, we believe that, under this 

methodology, the reductions will be 

sufficiently modest that providers will 

be able to accommodate them without 

ceasing to furnish services that 

Medicare beneficiaries need. 

In addition, beginning in CY 2005, as 

proposed, we are requiring hospitals to 

bill all device-dependent procedures 

using the appropriate C-codes for the 

devices. We believe that this approach 

mitigates against the reduction of access 

to care while encouraging hospitals to 

bill correctly for the services they 

furnish. We intend this requirement to 

be the first step towards use of all 

available single bill claims data to 

establish medians for device-dependent 

APCs. Our goal is to use all single bills 

for device-dependent APCs in 

developing the CY 2007 OPPS, which 

we expect to base on data from claims 

for services furnished in CY 2005. We 

further discuss our coding requirement 

in section III.C.4. of this preamble. 

Table 18 below, which is sorted by 

APC, contains the CY 2004 OPPS 

payment medians, the CY 2005 OPPS 

final adjusted medians using single bill 

claims from January 1, 2003, through 

December 31, 2003), and the medians 

derived from the adjustment processes 

discussed further below. 

BILLING CODE 4120–01–P

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BILLING CODE 4120–01–C

We also note that as a result of our 

initial data analysis for devicedependent APCs, we proposed to make 

the following additional adjustments to 

specific device-dependent APCs for the 

reasons specified: 

a. APC 0226: Implantation of Drug 

Infusion Reservoir 

We proposed to remove APC 0226 

(Implantation of Drug Infusion 

Reservoir) from the list of devicedependent APCs and to use its 

unadjusted single bill median of 

$2,793.30 as the basis for the payment 

weight. CPT code 62360 (Implantation 

or replacement of device for intrathecal 

or epidural drug infusion, subcutaneous 

reservoir) is assigned to APC 0226. In 

CY 2002, when we packaged 75 percent 

of the cost of the device into the 

payment for the procedure with which 

the device was billed to reduce the pro 

rata adjustment, we inadvertently 

packaged the cost of an implantable 

infusion pump (C1336 and C1337) 

rather than that of a drug reservoir. Our 

data indicated that the reservoir used in 

performing CPT code 62360 costs 

considerably less than an implantable 

infusion pump, and we believe that the 

median cost for APC 0226 appropriately 

reflects the relative cost of the service 

and the required device. 

We did not receive any public 

comments on this proposal. 

Accordingly, we have removed APC 

0226 from the device-dependent APC 

list and used its unadjusted single bill 

median of $2,541.43 as the basis for its 

CY 2005 relative payment weight. 

b. APC 0048: Arthroscopy With 

Prosthesis 

In addition, we proposed to delete 

APC 0048 (Arthroplasty with Prosthesis) 

from the list of device-dependent APCs 

for CY 2005 and to not adjust the 

median costs for this APC because we 

believe that the CY 2005 median cost for 

this APC as restructured is reasonable 

and appropriate. Based on our careful 

analysis of the CY 2003 claims data for 

this APC, we believe the difference 

between the CY 2004 and CY 2005 

median cost is attributable to the 

migration of certain high cost CPT codes 

(23470, 24361, 24363, 24366, 25441, 

25442, 25446) from APC 0048 to new 

APC 0425 (Level II Arthroplasty with 

Prosthesis) and, as such, this change 

would not adversely limit beneficiary 

access to this important service. 

Therefore, we did not propose to apply 

a device-dependent adjustment to the 

median cost for APC 0048. 

We did not receive any public 

comments on this proposal. 

Accordingly, for CY 2005 we are 

removing APC 0048 from the devicedependent list and are not adjusting the 

median cost for this APC. 

c. APC 0385: Level I Prosthetic 

Urological Procedures 

We proposed to move CPT code 

52282 (Cystourethroscopy, insert 

urethral stent), from APC 0385 (Level I 

Prosthetic Urological Procedure) and 

assign it to APC 0163 (Level IV 

Cystourethoscopy and other 

Genitourinary Procedures), for clinical 

homogeneity. As titled, APC 0385 was 

intended for the assignment of certain 

urological procedures that require the 

use of prosthetics. However, CPT code 

52282 requires the use of a stent rather 

than a urological prosthetic. Therefore, 

we proposed to reassign CPT code 

52282 to APC 0163. Recalculation of the 

median cost for APC 0385 after 

reassigning CPT code 52282 yielded a 

median cost for that APC that is 

consistent with its CY 2004 median 

payment. Thus, we did not propose a 

device-dependent adjustment for the 

median cost for APC 0385. 

Comment: Some commenters asked 

that we keep CPT code 52282 in APC 

0385 and not move it to APC 0163. 

These commenters believed that 

placement of CPT code 52282 in APC 

0385 would maintain clinical coherence 

and resource similarity. They also 

supported the APC Panel’s 

recommendation that all three codes, 

which we proposed to move from APC 

0385 to 0386 (CPT codes 53440, 53444, 

and 54416) should be retained in APC 

0385 for CY 2005 OPPS because they are 

dissimilar in terms of the nature of the 

surgical procedure and the 

sophistication of the prosthetic urology 

device that is implanted. 

Response: We have moved CPT code 

52282 from APC 0385 to APC 0163 

because we believe that this service is 

more compatible from a clinical and 

resource perspective with the other 

cystourethroscopy services assigned to 

APC 0163 than with services assigned to 

APC 0385. We have retained CPT codes 

53440 and 53444 to APC 0385 because 

the median costs for these procedures in 

the CY 2003 data that were used to 

develop this final rule with comment 

period indicate that the resources 

required for them are similar to those for 

CPT code 54400, which is also assigned 

to APC 0385. However, we have placed 

CPT code 54416 in APC 0386 because 

the median cost shows that the 

resources are much more like those for 

services assigned to APC 0386 than the 

median costs for services in APC 0385. 

CPT code 54416 requires removal and 

replacement of a non-inflatable or 

inflatable prosthesis and our resource 

data demonstrate relatively high costs 

for the service, most typically associated 

with replacement of an inflatable 

prosthesis. Thus, the nature of the 

services are sufficiently similar such 

that CPT code 54416 is clinically 

coherent with the services in APC 0386. 

d. APC 0119: Implantation of Infusion 

Device and APC 0115: Cannula/Access 

Device Procedures 

We proposed to remove CPT code 

49419 (Insert abdom cath for chemo tx), 

from APC 0119 (Implantation of 

Infusion Pump) and assign it to APC 

0115 (Cannula/Access Device 

Procedures) to achieve clinical 

homogeneity within APC 0115. Unlike 

all the other codes assigned to APC 

0115, HCPCS code 49419 does not 

require the use of an infusion pump. 

Rather, this code is used when inserting 

an intraperitoneal cannula or catheter 

with a subcutaneous reservoir. Thus, we 

believed it would be more appropriate 

clinically to reassign HCPCS code 49419 

to APC 0115 that includes procedures 

that require the use of devices similar to 

that required for CPT code 49419. 

Comment: One commenter 

recommended that we move the CPT 

code 36260 (Insertion of infusion pump) 

and CPT code 36563 (Insert tunneled cv 

catheter) from APC 0119 to APC 0227 

(Implantation of Drug Infusion Device), 

which is also for implantation of 

infusion pumps. The commenter 

indicated that all of these services are 

for implantation of infusion pumps and 

that the external cost data on the pumps 

are not dissimilar.

Response: We have not combined the 

codes in these APCs because they are 

not clinically homogeneous. 

Specifically, the services in APC 0227 

are for the insertion of spinal infusion 

pumps and those in APC 0119 are for 

insertion of vascular infusion pumps. 

We see no clinical reason to move these 

codes as suggested by the commenter. 

2. Treatment of Specified APCs 

a. APC 0315: Level II Implantation of 

Neurostimulator 

As stated in the August 16, 2004 

proposed rule, CPT code 61866 (Implant 

neurostim arrays) was brought to our 

attention by means of an application for 

a new device category for transitional 

pass-through payment for the Kinetra

neurostimulator, a dual channel 

neurostimulator currently approved and 

used for Parkinson’s disease. We denied 

approval for a new device category for 

the Kinetra neurostimulator because 

the device is described by a previously 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65757

existing category, C1767 (Generator, 

neurostimulator (implantable)). 

The manufacturer of Kinetra stated 

that the AMA created CPT 61886 to 

accommodate implantation of the 

Kinetra neurostimulator and that no 

services other than implantation of the 

Kinetra are currently described by that 

CPT code. Even though the Kinetra did 

not receive full FDA pre-market 

approval until December 2003, hospital 

outpatient claims were reported in CYs 

2002 and 2003 (289 total claims in CY 

2003) for this device. The manufacturer 

asserted that these claims must have 

been miscoded because the Kinetra

could not have been used in performing 

CPT code 61886 before obtaining FDA 

approval in December 2003. Therefore, 

the manufacturer did not believe that 

the device cost could be included in the 

median for CPT code 61886, which has 

been assigned to APC 0222. 

In examining the CY 2003 claims for 

CPT code 61866, we noted that many of 

the claims also contained codes for 

procedures related to treatment with 

cranial nerve stimulators, including the 

placement of electrodes for cranial 

nerve stimulation. The placement of the 

cranial neurostimulator electrodes used 

with the Kinetra is currently an 

inpatient rather than outpatient 

procedure. Therefore, we would not 

expect patients being prepared for 

cranial nerve stimulation to also have a 

Kinetra neurostimulator for deep brain 

stimulation for Parkinson’s disease 

placed at the same time. Thus, it seems 

possible that the CY 2003 claims for 

CPT code 61886, generally, are 

incorrectly coded and do not include 

the dual chamber neurostimulator in the 

reported charges. 

Prior to the availability of the dual 

channel neurostimulator Kinetra for 

bilateral deep brain stimulation, it is our 

understanding that patients diagnosed 

with Parkinson’s disease had two single 

channel neurostimulator generators 

implanted in the same operative 

session. According to the Kinetra

manufacturer, this device will now 

replace the insertion of two single 

channel neurostimulators and the cost 

of the Kinetra is equivalent to the cost 

of two single channel neurostimulators. 

Given this information, we examined 

our CY 2003 claims data and found that 

69 single claims were reported for 

patients with a diagnosis of Parkinson’s 

disease and that 2 single channel 

neurostimulator pulse generators (CPT 

code 61885) were implanted on the 

same day. The median cost for these 

claims was $20,631. Other than the 

device costs, we believe the procedural 

costs for the insertion of two single 

channel devices or one dual channel 

device should be roughly comparable. 

Therefore, we proposed to establish a 

new APC 0315, Level II Implantation of 

Neurostimulator, for CPT code 61886, 

and assign it a median cost of $20,631. 

Because of our concern that hospitals 

correctly code OPPS claims for CPT 

code 61886, we also proposed to require 

device coding (C-code) for APC 0315 to 

improve the coding on all claims for 

placement of a dual channel cranial 

neurostimulator pulse generator or 

receiver, as we proposed for APC 0039, 

Implantation of Neurostimulator, for 

placement of a single channel cranial 

neurostimulator, discussed in section 

III. C. of this preamble. 

Comment: We received one comment 

in support of our proposed median cost 

for APC 0315. 

Response: We appreciate the 

commenter’s support. Accordingly, we 

are finalizing our CY 2005 proposal to 

assign CPT code 61886 to APC 0315 

with an assigned median cost of 

$20,633.70. 

b. APC 0651: Complex Interstitial 

Radiation Application 

For CY 2003, APC 0651 included CPT 

code 77778 (Complex interstitial 

radiation source application). This code 

was not to be used for prostate 

brachytherapy because we created 

HCPCS codes G0256 (Prostate 

brachytherapy with palladium sources) 

and G0261 (Prostate brachytherapy with 

iodine sources) in which we packaged 

the cost for placement of needles or 

catheters and sources into a single APC 

payment for each G code (67 FR 66779). 

When we calculated the median from all 

single bills for CPT code 77778 from CY 

2003 data for CY 2005 OPPS, we found 

that 73 percent of the single bills for this 

APC were for prostate brachytherapy 

and, therefore, were miscoded. The 

median for APC 0651, using all single 

bills, including those miscoded for 

prostate brachytherapy, was $2,641.67. 

When we removed the incorrectly coded 

claims for prostate brachytherapy, 

which we believed to contain 

brachytherapy sources and which are 

paid separately for CY 2004 and will be 

paid separately for CY 2005, the median 

was $1,491.39. This is the amount that 

we proposed for payment for CY 2005 

OPPS for APC 0651. The proposed 

median was considerably higher than 

the median cost of $589.72 for CY 2004 

OPPS (from CY 2002 claims data). 

We believed that this adjusted median 

was appropriate for APC 0651 when 

used for prostate brachytherapy because 

the service described by CPT code 

77778 is only one of several components 

of the payment for the service in its 

entirety. When it is used for prostate 

brachytherapy, hospitals should also 

bill for the placement of the needles and 

catheters using CPT code 55859 and 

should also bill the brachytherapy 

sources separately. Hospitals will be 

paid for both APCs and for the cost of 

sources. 

Section 621(b)(1) of Pub. L. 108–173 

specifically provides separate payment 

in CY 2005 ‘‘* * * for a device of 

brachytherapy, consisting of a seed or 

seeds (or radioactive source) * * *’’ at 

the hospital’s charge adjusted to cost. 

We proposed to package the cost of 

other services such as the needles or 

catheters into the payment for the 

brachytherapy APCs and not to pay on 

the same basis as the brachytherapy 

sources because the law does not 

include needles and catheters in its 

definition of brachytherapy sources to 

be paid on charges adjusted to cost.

We also recognized that APC 0651 is 

used for brachytherapy services other 

than prostate brachytherapy and that, in 

some of those cases, there are no other 

separate procedure codes for placement 

of the needles or catheters. In those 

cases, which are represented in the 

claims we used to calculate the 

proposed median (once the miscoded 

claims for prostate brachytherapy were 

excluded), we believed that the charges 

for CPT code 77778 may have included 

the placement of the needles or 

catheters and, therefore, the median 

may be somewhat overstated when used 

as the basis for payment for prostate 

brachytherapy and the other forms of 

brachytherapy that have procedure 

codes for placement of needles and 

catheters. Similarly, we believed that 

the median may be understated when 

used to pay for brachytherapy services 

for which there are no separate HCPCS 

codes for needle or catheter placement. 

We considered whether to create new G 

codes for the placement of catheters and 

needles for the brachytherapy services 

for which such codes do not exist, but 

we were concerned that doing so might 

create unneeded complexity and that 

the existing data may not support 

establishing medians for the new codes. 

We requested comments on how to 

address those services for which there 

are currently no HCPCS codes for 

placement of needles and catheters for 

brachytherapy applications. 

Comment: Commenters indicated that 

the absence of codes for brachytherapy 

needle/catheter placement is 

problematic because hospitals are forced 

to use existing ‘‘not otherwise 

classified’’ codes that makes claims 

analysis difficult for ratesetting. They 

asked that we create three ‘‘not 

otherwise classified’’ HCPCS codes for 

the placement of needles and catheters 

65758 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

for application of brachytherapy sources 

other than prostate brachytherapy so 

that they can be billed and paid 

appropriately. Specifically, they asked 

(1) that CMS create a code for 1–4 

needles/catheters and place it in APC 

1507; (2) that CMS create a code for 

placment of 5–10 catheters and place it 

in New Technology APC 1513; and (3) 

that CMS create a new code for more 

than 10 needles/catheters and place it in 

New Technology APC 1522. 

Response: We have not created 

HCPCS codes for needle/catheter 

placement for CY 2005 as suggested by 

the commenters. We do not believe that 

the requested new, ‘‘not otherwise 

classified’’ codes would be any more 

meaningful for OPPS ratesetting than 

the existing ‘‘not otherwise classified’’

codes. 

As explained in the November 30, 

2001 final rule (66 FR 59897), new 

Technology APCs are for complete 

procedures, not devices or drugs or 

biologicals, but such items may be part 

of the cost of the complete service. To 

qualify for OPPS payment under the 

new technology APCs, a service must 

meet the following criteria: 

• Service must be a complete service. 

• Service must not be described by an 

existing HCPCS code or combination of 

codes. 

• Service could not have been 

adequately represented in the claims 

data used for the most current annual 

OPPS payment update. 

• Service does not qualify for 

additional payment under pass-through 

payment provisions. 

• Service cannot reasonably be placed 

in an existing APC group that is 

appropriate in terms of clinical 

characteristics and resource costs. 

• Service is medically reasonable and 

necessary. 

• Service falls within scope of 

Medicare benefits. 

Processes and requirements for passthrough and new technology service 

APC applications are provided in more 

detail on the OPPS Web site: http://

www.cms.hhs.gov/poviders/hopps/.

Implicit in the criteria is that there 

exists a meaningful description of the 

services for which new technology 

status is being requested. We do not 

believe the ‘‘not otherwise classified’’

codes proposed by the commenters are 

sufficiently specific that they could 

satisfy the criteria. We believe that CPT 

already contains sufficient ‘‘not 

otherwise classified’’ codes for the 

coding of placement of brachytherapy 

needles and catheters in locations of the 

body for which specific codes do not 

now exist. We are unable to specify the 

‘‘not otherwise classified’’ codes that 

should be used because the ‘‘not 

otherwise classified’’ codes are 

generally categorized by body part or 

function, and, therefore, the code that 

would apply depends on the location in 

the body in which the needles and 

catheters are being placed. For example, 

placement of needles or catheters in a 

shoulder muscle would be coded 

differently from placement of needles or 

catheters in the pancreas. 

Comment: Some commenters 

supported the proposed payment for 

APC 0651 (Complex Interstitial 

Radiation Source Application). They 

indicated that, together with separate 

payment for the brachytherapy sources 

and the placement of needles and 

catheters, the proposed payment would 

provide adequate payment for these 

important services. 

Response: We appreciate the 

commenters’ support. Further 

discussion regarding the payment for 

APC 0651 is provided at III.C.2.b.

Comment: One commenter indicated 

that there are many supplies and 

devices other than needles and catheters 

that are used in providing 

brachytherapy and asked that CMS 

develop codes for them so that they 

could be billed as coded items because 

such coding would facilitate capture of 

all the costs associated with performing 

the services. 

Response: We have not created new 

device codes for the supplies and 

equipment that the commenter 

requested because such items are 

incidental to the service. We do not 

believe that such incidental items justify 

development of new device codes. 

In this final rule with comment 

period, the median cost for APC 0651 is 

$1,283.44, resulting in a national 

unadjusted payment rate of $1,248.93. 

There were fewer CY 2003 final action 

claims for this service in the database 

that was constructed from the most 

current claims data and used to develop 

the weights and median costs for this 

final rule with comment period. Twelve 

hospitals whose claims had appeared in 

the CY 2003 claims data used to 

calculate the proposed weights and 

median costs withdrew their claims 

before we pulled the data for this final 

rule with comment period. This may 

have been because they realized that 

they had billed incorrectly and 

withdrew the claims to bill correctly. 

Our examination of the claims data 

set for this final rule with comment 

period reveals that the claims largely 

appear to not include charges for 

brachytherapy sources. The unadjusted 

median cost that resulted from use of 

these claims is $1,283.44, a 117 percent 

increase over the median cost for CY 

2004 for this APC. As we noted 

previously, the median should reflect 

accurately the appropriate claims for the 

APC. We have no reason to believe that 

this median is flawed. Therefore, we 

have used it as the basis for the CY 2005 

OPPS unadjusted payment rate of 

$1,248.93. 

c. APC 0659: Hyperbaric Oxygen 

Therapy 

In the August 16, 2004 proposed rule, 

we stated that over the past year, we 

have received a number of questions 

about billing and payment for HCPCS 

code C1300 (Hyperbaric oxygen under 

pressure, full body chamber, per 30 

minute interval). In light of these issues, 

we carefully examined the CY 2003 

single procedure claims data that we 

proposed to use to calculate the CY 

2005 median for APC services. Based on 

our examination of single procedure 

claims filed for HCPCS code C1300 in 

CY 2003, we believe that the claims for 

these services were either miscoded or 

the therapy was aborted before its 

completion. The claims that we 

examined reflected a pattern that is 

inconsistent with the clinical delivery of 

this service. Hyperbaric oxygen therapy 

(HBOT) is prescribed for clinical 

conditions such as promoting the 

healing of chronic wounds. It is 

typically prescribed on average for 90 

minutes and, therefore, you would 

expect hospitals to bill multiple units of 

HBOT to achieve full body hyperbaric 

oxygen therapy. In addition to the 

therapeutic time spent at full hyperbaric 

oxygen pressure, treatment involves 

additional time for achieving full 

pressure (descent), providing air breaks 

to prevent neurological and other 

complications from occurring during the 

course of treatment, and returning the 

patient to atmospheric pressure (ascent). 

Our examination of the claims data 

revealed that providers who billed 

multiple units of C1300 reported a 

consistent charge for each ‘‘30 minute’’

unit. Conversely, providers who billed 

only a single unit of C1300, suggesting 

either a miscoded or aborted service, 

reported a charge that was 3 to 4 times 

greater than the per ‘‘30 minute’’ unit 

reported by providers billing multiple 

units of HCPCS code C1300. While it 

appears that many of the single 

procedure HBOT claims that we 

examined represented billing for a full 

90 to 120 minutes of HBOT (including 

ascent, descent, and air break time), 

they were improperly billed as 1 unit 

rather than as 3 or 4 units of HBOT. 

Consequently, this type of incorrect 

coding would result in an 

inappropriately high per 30 minute 

median cost for HBOT or a median cost 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65759

for HBOT of $177.96 derived using 

single service claims and ‘‘pseudo’’

single service claims. This is a 

significant issue because HBOT is the 

only procedure assigned to APC 0659. 

Our initial analysis of the HBOT 

claims data further revealed that about 

40 percent of all HBOT claims included 

packaged costs. To confirm our belief 

that these packaged costs were not 

associated with HBOT, we examined the 

other major payable procedures billed in 

conjunction with HBOT. As a result, we 

identified billed services such as drug 

administration and wound debridement 

that we would typically expect to have 

associated packaged services. We also 

looked at the magnitude of packaged 

costs in our single bills and found the 

majority of these costs were small, less 

than $30, and concentrated in revenue 

codes 25X, Pharmacy, and 27X, 

Medical/Surgical Supplies. 

As a result of these coding anomalies, 

we proposed to calculate a ‘‘30 minute’’

median cost for APC 0659, using a total 

of 30,736 claims containing multiple 

units or multiple occurrences of HBOT, 

about 97 percent of all HBOT claims. 

Based on our finding, we proposed to 

exclude claims with only one unit of 

HBOT. We estimated costs on these 

claims using the respiratory therapy cost 

center CCR when one was available. 

Otherwise we used the hospital’s overall 

CCR. Using this proposed methodology, 

the proposed median cost per unit of 

C1300 was $82.91. Based on hospitals’

charges on correctly coded claims, we 

believe this estimate is much more 

accurate for 30 minutes of HBOT. Thus, 

we proposed a median cost for APC 

0659 of $82.91 for CY 2005.

We received many public comments 

on this proposal. 

Comment: Overall, commenters 

expressed concern about the proposed 

reduction in payment for HBOT. There 

also was great consistency in the 

comments. Almost all the commenters 

cited a recent research report by The 

Lewin Group (Lewin) that examined our 

methodology for calculating a payment 

rate for APC 0659 and offered us several 

alternatives for identifying a median for 

HBOT. In their evaluation of our 

proposed change for calculating a 

median for HBOT, The Lewin Group 

ultimately concluded that, while our 

proposed use of claims with multiple 

units of C1300 in lieu of the clams with 

a single unit of C1300 was appropriate 

for calculating the median cost, we used 

an inappropriate cost-to-charge ratio to 

estimate costs from charges on those 

multiple unit claims. 

Lewin surveyed the majority of 

hospitals billing Medicare for HBOT, 

requesting specific pages from each 

hospital’s cost report to determine 

where HBOT services are reported and 

the associated CCR. Lewin received 

completed responses from 120 

hospitals, a 30 percent response rate. 

The majority of responding hospitals, 63 

percent, frequently broke out the costs 

of hyperbaric/wound care in a 

subscripted cost center on their cost 

report. In addition, 24 percent included 

their costs in the respiratory therapy 

cost center, and the remainder included 

their costs in disparate cost centers 

including emergency room and physical 

therapy. For those hospitals reporting 

separate line-items for hyperbaric/

wound care, Lewin used CMS claims 

data to estimate a median CCR of 0.400 

as compared with the median CCR for 

respiratory therapy of 0.248. Lewin also 

sought to establish the generalizability 

of their sample findings by 

demonstrating that responding hospitals 

were geographically diverse and that the 

respiratory therapy CCR for the 

responding hospitals was comparable to 

that observed in the claims data. 

Finally, Lewin used their survey 

findings to estimate a proportional 

difference in CCRs between respiratory 

therapy and the observed, hyperbaricrelated CCRs of 1.411 and, applying this 

adjustment to the CMS claims data, they 

calculated a payment rate of $118.21. 

Practically all commenters offered 

four possible alternatives to our 

proposed methodology. First, 

commenters suggested that CMS leave 

HBOT reimbursement at its CY 2004 

level until CMS can accurately estimate 

costs and charges for HBOT. Second, 

commenters suggested that CMS apply 

The Lewin Group methodology in 

estimating median cost. Third, 

commenters suggested that CMS adopt 

The Lewin Group’s estimated median of 

$118.21 per 30 minutes. With regard to 

this specific recommendation, several 

commenters stated that they thought 

that the $118 rate was appropriate, and 

one commenter believed a rate of $120 

or greater would be acceptable. Finally, 

commenters suggested that CMS default 

to the overall CCR of 0.47 in lieu of 

using the respiratory therapy CCR. 

Response: We agree with the 

commenters that The Lewin Group 

analysis provides sufficient evidence 

that the CCR for HBOT is not reflected 

solely in the respiratory therapy cost 

center. With regard to the first 

recommended alternative, we do not 

believe it is appropriate to maintain the 

CY 2004 HBOT payment rate for CY 

2005. We have clearly demonstrated 

that the single procedure claims are 

inappropriate for calculating a median 

cost, and the submitted research did not 

dispute our median calculation 

methodology. We cannot undertake the 

recommended second alternative and 

replicate The Lewin Group’s 

methodology because the hyperbaric/

wound care cost report cost center lineitems are neither standard nor nonstandard cost centers. We presume that 

these line-items for hyperbaric/wound 

care are subscripted cost centers that are 

ultimately rolled-up in to a standard 

cost center on the electronic cost report 

data. Without the specific subscripted 

information, we cannot calculate a costto-charge ratio specific to HBOT. 

We also do not believe it is 

appropriate to adopt the $118.21 

estimate made by Lewin using its survey 

results and our data, the third 

recommended alternative. The Lewin 

survey indicates diversity among 

hospitals in the subscripted location of 

reported hyperbaric oxygen costs on the 

cost report. In addition, the $118.21 is 

based on an adjustment to the CCR that 

assumes all nonresponding hospitals 

report their costs in the hospital-specific 

hyperbaric oxygen-related cost centers, 

even though roughly one-fourth of 

hospitals in the Lewin sample were 

demonstrated to report costs in the 

respiratory therapy cost center and 13 

percent reported costs in other cost 

centers. The submitted research further 

indicates fairly substantial variation in 

the CCRs for the responding hospitals in 

the HBOT-related cost centers. In light 

of this, we agree to adopt the last 

recommended alternative, which is to 

calculate the median using the overall 

CCR. As several commenters noted, 

defaulting to the hospital’s overall CCR 

is standard OPPS policy when an 

appropriate cost center cannot be 

assigned to a revenue code. We estimate 

an overall, hospital-weighted, median 

CCR for all hospitals of 0.33 and a 

hospital-weighted, median CCR for 

respiratory therapy for all hospitals of 

0.27. Using the overall CCR to estimate 

costs from charges associated with 

HCPCS code C1300, we calculated a 

median cost of $93.26 using 38,505 

claims in the final rule data. We used 

this median to set the final CY 2005 

payment for APC 0659. 

Comment: One commenter conducted 

an internal study of 11 member 

hospitals and reported a median total 

cost of $126.42. The study findings 

acknowledged that we found billing 

anomalies in the claims with single 

units, but noted that our proposed 

approach will have unintended 

financial consequences. The commenter 

requested that we review our claims 

data to ensure HBOT rates that reflect 

the full cost of providing HBOT 

services. 

65760 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

Response: As discussed above, we 

agree that the proposed cost for HBOT 

was too low because it relied solely on 

the respiratory therapy CCR. However, 

based on the volume and consistency of 

claims for HBOT, we still believe that 

the claims data are correct. As already 

discussed, we will base payment for 

HBOT on a median calculated using the 

overall hospital CCR. Further, the 

purpose of OPPS is not to pay the full 

cost of a service for any given hospital, 

but rather to proportionally redistribute 

total OPPS dollars in a manner that 

reflects relative resource use. APC 

payment rates are based on the median 

cost of a group of services, or in this 

case, one service, to achieve the 

averaging effect of a prospective 

payment system and are not intended to 

reimburse the full cost to a specific 

hospital. The costs for these 11 member 

hospitals may fall above the median cost 

for all hospitals billing HBOT.

Comment: One commenter reviewed 

CMS claims with multiple units and 

found an overall average of 15 units of 

HBOT per claim. This commenter 

recommended that CMS review a 

sample of medical records. 

Response: We expect that this finding 

is the result of outlier claims and unit 

coding errors. In our analyses of HBOT 

claims for the proposed rule, we found 

that the vast majority of claims, 93 

percent, were for 3 to 5 units of service. 

Further, The Lewin Group analysis 

reviewed above did not dispute the 

appropriateness of using claims with 

multiple units for calculating a median 

cost. As discussed above, we believe 

that the appropriate concern in 

estimating a median cost for HBOT is 

the disparity in charging and cost 

reporting practices among hospitals and 

not with the claims themselves, a 

finding that mitigates the need for 

medical record review. 

Comment: One commenter 

recommended that CMS continue to 

compile claims data on HBOT and refer 

this issue to the APC Panel before 

making changes. 

Response: By using claims with 

multiple units, we believe that we have 

ample claims data. However, the APC 

Panel is an official public forum 

designed to consider and advise us on 

APC-related issues. If this is a particular 

concern to the public, the public is 

invited to present this concern at the 

next APC Panel meeting. 

After carefully reviewing all 

comments received, we are basing 

payment for HBOT on a median 

calculated using the overall hospital 

CCR rather than the respiratory therapy 

CCR as proposed. As discussed above, 

using the overall CCR to estimate costs 

from charges associated with HCPCS 

code C1300, we calculated a final CY 

2005 payment for APC 0659 of $90.75. 

3. Other APC Median Cost Issues 

a. APC 0312 Radioelement Applications 

Comment: Some commenters stated 

that the payment rate for APC 0312 

(Radioelement Applications) is 

inadequate to pay for the staff, supplies 

and appliances that are needed to 

furnish the service. The commenters 

further stated that the APC payment 

should be similar to that for APC 0651. 

Response: The median for APC 0312 

has increased significantly from the CY 

2004 payment median of $199.90 to the 

CY 2005 OPPS final rule with comment 

period median of $326.65. Moreover, we 

were able to use 28 percent of the total 

claims in CY 2003 for this APC to set 

the median cost for the CY 2005 OPPS. 

Therefore, we see no reason to adjust 

the median for this APC to the level of 

APC 0651. 

b. Percutaneous Radiofrequency 

Ablation of Liver Tumors 

Comment: Some commenters objected 

to the proposal to move CPT code 47382 

(Percutaneous radiofrequency of liver 

tumors), from a New Technology APC to 

clinical APC 0423 (Level II 

Percutaneous Abdominal and Biliary 

Procedures) because they believe that 

there is an inadequate number of claims 

on which to base median costs, and that 

median costs are inappropriately low 

because device costs associated with 

performing this procedure are 

underreported. They indicated that the 

proposed reimbursement does not cover 

the costs of the single use catheters used 

in performing the service. The 

commenters stated that revenue codes 

should be used to screen for 

appropriately coded claims. They 

contended that if CMS cannot complete 

this analysis for this final rule with 

comment period, CMS should retain 

CPT code 47382 in a new technology 

APC at the CY 2004 payment rate until 

more representative cost data are 

available. They argued that this latter 

approach is consistent with how CMS 

has handled APC payments for PET 

services since CY 2001. The 

commenters also recommended that 

CPT codes 76362 (CT guidance for and 

monitoring of visceral tissue ablation), 

76394 (Magnetic resonance imaging for 

and monitoring of visceral tissue 

ablation), and 76940 (Ultrasound 

guidance for and monitoring of visceral 

tissue ablation) be added to the bypass 

list so that more single bills could be 

used to set the median for CPT code 

47382. 

Response: We believe that the claims 

volume is sufficiently adequate to 

remove CPT code 47382 from New 

Technology APC 1557 and place it in a 

clinical APC. Moreover, the median 

cost, $1,801.84, derived from the CY 

2003 claims data for APC 0423, is very 

close to the payment that was made for 

New Technology APC 1557 of $1,850. 

Therefore, as proposed, this service will 

be placed in clinical APC 0423 and paid 

based on its historic claims data for 

services furnished for the CY 2005 

OPPS. 

In addition, the three CPT codes that 

the commenter recommended we add to 

the bypass list do not meet the CY 2005 

criteria for inclusion on the list. 

However, we will consider their 

inclusion when we next review items 

for inclusion in CY 2006. 

c. Heparin Coated Stents 

Comment: One commenter objected to 

CMS’ policy that heparin coated stents 

should be coded under C1874 (Stent, 

coated/cov w/del sys) because the 

commenter believes that to do so will 

adversely affect the median cost of the 

stents. The commenter urged us to 

create a unique C-code if HCPCS codes 

G0290 and G0291, which are used for 

placement of drug eluting stents, are 

retired. 

Response: HCPCS codes G0290 and 

G0291 will remain active codes for CY 

2005 and we see no reason to create 

another C-code at this time. We will 

determine whether there is a need for 

another C-code to differentiate between 

stents if and when HCPCS codes G0290 

and G0291 are retired. 

d. Aqueous Drainage Assist Device 

Comment: One commenter asked that 

CMS ensure that the costs of code C1783 

(Aqueous drainage assist device) are 

packaged with the costs of the 

procedures with which the device is 

most commonly billed. The commenter 

stated that codes C1783, L8610 and 

L8612 would usually be billed with 

procedures that are in APC 0673. 

Response: We package the costs of 

devices that are billed on the same 

claim with the procedural APCs into the 

cost of the procedural APC. Thus, the 

extent to which the costs of these 

devices are packaged into the median 

cost for the procedure depends upon the 

extent to which the hospitals include 

the charges for the devices on the claim, 

with or without including the code for 

the device. To the extent that hospitals 

included charges for these devices on 

the claims for the procedures in which 

they were used, those charges would be 

converted to costs and packaged into the 

median cost for the procedure. 

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4. Required Use of C-Codes for Devices

An important ancillary issue in regard 

to using hospital outpatient claims data 

to calculate median costs for a devicedependent APC is whether to require 

that hospitals bill the HCPCS codes for 

the devices that are required for use in 

the provision of the services in these 

APCs. We deleted HCPCS codes for 

devices in CY 2003 because hospitals 

objected to the complexity of this 

coding, and we believed that hospitals 

would charge for the devices in 

appropriate revenue codes. Our review 

of the claims data does not support this 

belief. Hospitals do not appear to 

routinely include the charges for the 

devices they use when they bill for all 

of the related services in the devicedependent APCs. Therefore, as 

discussed in the August 16, 2004 

proposed rule, we proposed requiring 

hospitals to code devices for APCs to 

improve the quality of the claims data 

in support of our transition to the use 

of all single claims to establish payment 

rates for those APCs. We made this 

proposal cautiously, as we realize that it 

imposes a burden on hospitals to code 

the devices. 

For the CY 2005 OPPS, we proposed 

to require coding of devices required for 

APCs for which we proposed to adjust 

the median costs for the CY 2005 OPPS. 

The APCs and the devices that were 

proposed for device coding were 

published in Table 20 of the August 16, 

2004 proposed rule (69 FR 50497 

through 50499). Specifically, if one 

device is shown for one APC, that 

device would have to be billed on the 

claim for a service in that APC or the 

claim would be returned to the provider 

for correction. If more than one device 

is shown for one APC, the provider 

would be required to bill one of the 

device codes shown on the same claim 

with the service in that APC for the 

claim to be accepted. 

We also proposed to require coding of 

C1900 (Left ventricular lead) required to 

perform the service described in APC 

0418, Left Ventricular Lead, because the 

service cannot be done without the lead, 

and because the device has been billed 

separately for pass-through payment in 

CYs 2003 and 2004. We believe that 

continued coding of the device would 

not impose a burden on hospitals. 

Similarly, because of our concerns 

regarding the correct coding of claims 

for CPT code 61886 (Implant neurostim 

arrays), assigned to APC 0315 

(discussed in greater detail in section 

III.C.2.a. of this preamble), we proposed 

to require device coding for APC 0315 

(Level II Implantation of 

Neurostimulator) to improve the coding 

on claims for placement of a dual 

channel cranial neurostimulator pulse 

generator or receiver, just as we 

proposed to require device coding for 

APC 0039 (Implantation of 

Neurostimulator) for placement of a 

single channel cranial neurostimulator 

as noted below. 

We solicited comments on the 

proposed C-code requirements. 

In addition, we announced in the 

proposed rule that we are considering 

expanding the device coding 

requirements in the future. We believed 

that, by requiring device coding for a 

small subset of device-dependent APCs 

each year, we would minimize the 

marginal annual coding burden on 

hospitals and begin to improve data for 

these APCs, which have consistently 

proven to be problematic. We believed 

coding of devices was essential if we 

were to improve the accuracy of claims 

data sufficiently to better calculate the 

correct relative costs of devicedependent APCs in relation to the other 

services paid under the OPPS. 

We asked that the public inform us of 

the device codes that are essential to the 

procedures contained in the devicedependent APCs listed in Table 20 of 

the proposed rule. The alphanumeric 

HCPCS codes for devices that were 

reactivated for CY 2004 OPPS can be 

found on the CMS Web site at http://

www.cms.hhs.gov/providers under 

coding. They are in the section of 

alphanumeric codes that begin with the 

initial letter ‘‘C.’’

We received a number of comments 

regarding our request. 

Comment: In general, commenters 

supported a requirement for mandatory 

device coding for all devices, not only 

those for which CMS proposed 

mandatory reporting. However, they had 

different views regarding what the 

requirement should contain and how it 

should be enforced. Some commenters 

asked that we require that all 

procedures for device-dependent APCs 

contain a C-code to identify the device 

used in the procedure. They indicated 

that they believed that this requirement 

is crucial to acquiring valid cost data for 

these services. Some commenters were 

concerned about the administrative 

burden that required C-coding imposes 

on hospitals and urged CMS to reassess 

the burden within 2 years if it imposes 

mandatory C-coding for devices. Other 

commenters urged CMS to implement a 

grace period of no less than 90 days 

after implementation of the CY 2005 

OPPS to enable hospitals to be sure that 

they are prepared for device code edits. 

During this period, the commenters 

wanted intermediaries to accept the 

codes and not return incorrectly coded 

claims. The commenters indicated that 

the edits should be included in this 

final rule with comment period so that 

hospitals can begin to work on them as 

soon as possible. Those commenters 

suggested that the device codes for 

which edits will not be implemented in 

CY 2005 should not be required until 

CY 2006. The commenters indicated 

that both OCE and intermediary systems 

must be ready to handle this change, 

and that no edits should be 

implemented if they are not and if 

providers have not had at least 30 days 

notice. Some commenters urged CMS to 

base any edits or list of required device 

codes on CPT codes, not APCs, because 

in some cases, not all codes in an APC 

require the same device. One 

commenter objected to the use of edits 

to return to providers claims that 

contain a procedure code that cannot be 

done without a device but which 

contain no device code. The commenter 

indicated that CMS has been 

inconsistent in its policies governing 

coding of devices since the inception of 

the OPPS and should provide some 

greater period of stability in coding 

before it edits for the presence of the 

device codes. 

Response: We appreciate the 

comments, but continue to believe 

coding of devices is vital to enhancing 

the device-dependent APC claims data. 

Therefore, as proposed, effective for 

services provided on or after January 1, 

2005, we will require hospitals to 

include device category codes on claims 

when such devices are used in 

conjunction with procedures billed and 

paid for under the OPPS. While we are 

requiring use of these device codes for 

reporting all such devices effective 

January 1, 2005, we will not implement 

the edits contained in Table 19 until 

April 1, 2005, to provide time for further 

review and for hospitals to prepare for 

them. The edits will not apply to claims 

that contain a procedure code reported 

with a modifier 73 or 74 to signify an 

interrupted procedure because we 

recognize that in those cases, the 

procedure might have been interrupted 

before the device was implanted.

We will apply the edits at the CPT/

HCPCS code level to be as precise as 

possible. Table 19 includes the edits 

that we expect to go into effect April 1, 

2005. The table of edits and the 

definitions of the C-codes (Table 20 of 

this preamble) will be posted on the 

CMS Web site on the OPPS page. As 

noted on Table 19, there are some CPT 

codes for which edits cannot be 

established, for example, because of the 

optional nature of the use of a device 

when performing the service. Although 

there is no official comment period 

65762 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

associated with implementation of the 

edits, we welcome comments on the 

edits to be implemented on April 1, 

2005, particularly from hospitals to 

whose claims the edits will apply and 

from medical specialties whose 

physicians use the devices in the 

procedures performed in hospital 

outpatient settings. Comments may be 

sent to OutpatientPPS@cms.hhs.gov if 

possible, by December 1, 2004. 

In the future, we will consider edits 

for additional procedure codes in other 

device-dependent APCs. We will post 

all final edits on the CMS Web site with 

an announcement of the calendar 

quarter in which we expect to 

implement them. We will also provide 

them in a Medlearn Matters article. Any 

future edits will be implemented as 

always as part of the quarterly OCE 

release. We intend to expand the editing 

of device-dependent procedure codes 

for appropriate device C-codes as 

expeditiously but also as carefully as 

possible. The next group of device 

procedures for which we will consider 

edits will include those procedures in 

APCs for which we set the median cost 

at 95 percent of the CY 2004 payment 

median but for which we did not 

propose edits in the August 16, 2004 

proposed rule. 

Comment: One commenter asked that 

CMS encourage manufacturers to put 

the applicable HCPCS device C-code on 

the device package and that CMS work 

with FDA to expedite placement of Ccodes on device packages. The 

commenter also urged CMS to simplify 

the C-codes to be consistent with the 

information routinely reported by 

physicians in operative reports. The 

commenter gave, as an example, the 

seven device codes used with APC 0087 

(Noncoronary Angioplasty or 

Atherectomy), all of which could be 

reported using only one code for 

‘‘transluminal catheter’’. The 

commenter stated that such 

simplification would greatly improve 

the likelihood that the device is coded 

on the claim because the description 

that distinguishes one of the seven 

codes from another is typically not 

documented in the hospital’s record and 

is not information the coder would 

know. Other commenters asked that 

CMS actively undertake a program 

designed to educate providers on how to 

bill for devices and how to set charges 

for high cost devices so that future 

updates to the OPPS will more 

accurately reflect the costs of these 

services. Some commenters urged CMS 

to create and maintain a file on the CMS 

Web site that contains a complete 

crosswalk of devices codes to CPT codes 

in the device APCs. Some commenters 

asked that CMS provide a detailed 

revenue code to device code crosswalk 

so that hospitals will promote more 

uniformity in billing for devices. 

Response: We will carefully examine 

how we can facilitate correct coding of 

devices, including possible 

communication with the FDA. We will 

also consider the extent to which we 

can simplify the HCPCS codes for 

devices to facilitate straightforward 

coding. Finally, we will determine the 

extent to which we can improve 

provider education regarding correct 

coding for devices. However, we will 

not undertake any activity designed to 

advise hospitals on how to set charges 

for their services or to designate what 

revenue codes hospitals should use on 

a device-specific basis. 

The edits that we created to ensure 

the coding of devices for the selected 

APCs that are listed in Table 19 of this 

preamble are also available as an Excel 

file in the supporting documentation of 

this final rule with comment period that 

will be posted on the CMS Web site and 

will also be contained in the 

transmittals for the January 2005 OPPS 

update and OCE release. Moreover, as 

described above, we will post any added 

edits for device coding on the OPPS 

page of the CMS Web site so that 

providers can have ready access to 

them. 

Comment: Some commenters asked 

that we add particular device and 

procedure combinations to the table of 

edits. Specifically, a commenter asked 

that we add APC 0259 (Cochlear 

Implant Surgery) as paired with device 

code L8614 (Cochlear implant), and 

APC 0040 paired with both device codes 

C1778 (Lead neurostimulator) and 

C1883 (Adapter/extension packing lead 

or neurostimulator lead). Another 

commenter asked that we add code 

C1787 (Patient programmer, 

neurostimulator) to the required devices 

for APC 0222. Another commenter 

asked that the same device codes be 

required for the CPT codes in APC 0087 

as we proposed to require for APC 0085 

because the commenter believes that the 

same devices are used in both APCs. 

Other commenters asked that we 

include edits for other APCs, for 

example, APC 0385 (Level I Prosthetic 

Urological Procedures) and APC 0386 

(Level I Prosthetic Urological 

Procedures). 

Response: Except as discussed below, 

we have not added any APCs to the list 

that we proposed be edited for device 

codes at this time. Although our policy 

to require hospitals to code all devices 

is effective January 1, 2005, we will not 

implement edits until April 1, 2005. We 

will consider the comments regarding 

additional edits for later 

implementation. We believe that it is 

preferable to focus first on the APCs 

most affected and to add subsequent 

edits after careful deliberation. In this 

manner we can minimize the potential 

for adverse effects on claims processing 

and hospitals’ cash flow. 

However, we have added one CPT 

code to the list of codes that will be 

edited for device codes. We 

inadvertently omitted a proposed edit 

for CPT code 33225 (Left ventricular 

pacing lead add-on), which we 

proposed to place in New technology 

APC 1525. This procedure uses the 

device code C1900 (Left ventricular 

lead), whose pass-through status expires 

in January 2005. We proposed that 

when the lead is implanted as a standalone procedure using CPT code 33224 

(Insert pacing lead and connect), we 

would edit for the presence of the 

device code for the lead on the claim. 

However, we believe that it is also 

appropriate to edit for the presence of 

the lead on a claim for the add-on code, 

CPT code 33225, and that it should pose 

no additional burden on hospitals 

because hospitals have been required to 

bill the device code C1900 for passthrough payment since CY 2004. 

Summary of provisions related to 

required use of C-codes for devices that 

we are making final beginning in CY 

2005: 

1. Hospitals are required to report 

device category codes on claims when 

such devices are used in conjunction 

with procedure(s) billed and paid for 

under the OPPS in order to improve the 

claims data used annually to update the 

OPPS payment rates. 

2. Beginning April 1, 2005, the OCE 

will include edits to ensure that certain 

procedure codes are accompanied by an 

associated device category code. 

3. CMS will post the OCE edits that 

are to be implemented beginning April 

1, 2005 on the CMS Web site to give 

hospitals and the provider community 

ample opportunity to review them and 

provide feedback prior to 

implementation. 

4. Edits will apply at the CPT/HCPCS 

code level rather than the APC level. 

5. Edits will not apply when a 

procedure code is reported with a 

modifier ¥73 or ¥74 to designate an 

incomplete procedure. 

6. CMS will add edits as needed in 

future quarterly updates of the OCE to 

ensure that hospitals are reporting 

device category codes appropriately 

with associated procedure codes. CMS 

will post future device category and 

procedure code edits on the CMS Web 

site to give hospitals and the provider 

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community ample opportunity for input 

prior to implementation. 

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BILLING CODE 4120–01–C 

5. Submission of External Data 

In the August 16, 2004 proposed rule, 

we stated that we would consider 

external data submitted with respect to 

any APC to the extent that such data 

enable us to verify or adjust claims data 

where we are convinced that such an 

adjustment to the median cost is 

appropriate. Further, we stated that all 

comments and any data we use would 

be available for public inspection and 

commenters should not expect that any 

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would be withheld from public 

inspection. We also stated that parties 

who submit external data for devices 

should also submit a strategy that can be 

used to determine what part of the 

median cost represents the device to 

which the external data applies. We 

stated in the proposed rule that external 

data that are likely to be of optimal use 

should meet the following criteria: 

• Represent a diverse group of 

hospitals both by location (for example, 

rural and urban) and by type (for 

example, community and teaching). We 

preferred that commenters identify each 

hospital, including location with city 

and State, nonprofit vs. for profit status, 

teaching vs. nonteaching status, and the 

percent of Medicare vs. non-Medicare 

patients receiving the service. A pseudo 

identifier could be used for the hospital 

identification. Data should be submitted 

both ‘‘per hospital’’ and in the aggregate. 

• Identify the number of devices 

billed to Medicare by each hospital as 

well as any rebates or reductions for 

bulk purchase or similar discounts and 

identify the characteristics of providers 

to which any such price rebates or 

reductions apply. 

• Identify all HCPCS codes with 

which each item would be used. 

• Identify the source of the data. 

• Include both the charges and costs 

for each hospital for CY 2003. 

Meeting the criteria would help 

enable us to compare our CY 2003 

claims data to the submitted external 

data and help us determine whether the 

submitted data are representative of 

hospitals that submit claims under the 

OPPS. 

We noted in the proposed rule that 

information containing beneficiaryspecific information (for example, 

medical records, and invoices with 

beneficiary identification on it) must be 

altered, if necessary, to remove any 

individually identifiable information, 

such as information that identifies an 

individual, diagnoses, addresses, 

telephone numbers, attending 

physician, medical record number, and 

Medicare or other insurance number. 

Moreover, individually identifiable 

beneficiary medical records, including 

progress notes, medical orders, test 

results, and consultation reports must 

not be submitted to us. Similarly, 

photocopies of checks from hospitals or 

other documents that contain bank 

routing numbers must not be submitted 

to us. 

We received a number of public 

comments concerning the submission of 

external data. 

Comment: Some commenters 

supported use of claims data and 

strongly opposed use of data from 

external sources to set the OPPS 

payment rates. They believed that 

claims data more accurately reflects the 

costs hospitals incur to provide 

outpatient services. They strongly 

opposed use of external data because 

they believe that item specific 

adjustments will make OPPS unduly 

complex and result in unfair imbalances 

in payments. They believed that CMS 

should remain committed to the 

principles of prospective payment and 

the use of the averaging process rather 

than seeking to pay actual cost for one 

element of costs (for example, new 

technology) at the expense of all other 

items, which would result after 

application of mandated budget 

neutrality adjustments. Conversely, 

other commenters indicated that CMS 

should rely on external data in lieu of 

claims data for procedures that require 

high cost devices because the CMS 

methodology of applying a cost-tocharge ratio to charges to acquire costs 

will always result in costs that are 

below the actual acquisition cost of the 

device and that, barring a significant 

change in CMS’ cost finding process, 

external data are the only means by 

which valid cost data for high cost 

devices can be introduced into the 

OPPS. Some commenters provided 

external data on the devices of interest 

to them and some provided specific 

amounts calculated using external data, 

which they asked that we substitute for 

claims data in setting the weight for the 

APC of interest to them. 

Response: We have not applied 

numbers from external data in our 

adjustments of median costs for the CY 

2005 OPPS. While recognizing that 

external data aids in our general 

analysis of determining payment rates, 

we believe that generally such use of 

external data is not the optimal way to 

set payment rates for services in a 

relative weight system. As we discussed 

in section III.C.5. of this preamble, we 

believe that using external data has a 

significant potential for creating an 

unfair imbalance in a prospective 

payment system. However, we 

appreciate the efforts of some 

commenters in providing us with 

external data.

Comment: Some commenters urged us 

to use external data in the construction 

of APC rates and urged us to use 

confidential data for this purpose. Some 

commenters are concerned about the 

criteria CMS proposed for external data 

and urged us to expand the use of 

confidential external data to calculate 

future payment rates whenever such 

data are indicated and proven reliable 

based on the data’s merits. The 

commenter did not suggest criteria for 

determining if confidential proprietary 

external data are reliable. 

Response: As we indicated in the 

August 16, 2004 proposed rule, all 

information sent in response to 

comments will be made available to the 

public for review. We believe that all 

parties who are affected by the payment 

rates set under this system should have 

access to the information on which the 

rates are set. 

Comment: One commenter indicated 

that CMS should use external data for 

all device APCs in which the device 

cost exceeds 5 percent of the total APC 

cost because to do otherwise would 

unfairly benefit some categories of 

services compared to other categories of 

services. 

Response: We have not used external 

data to adjust any medians for the 

CY2005 OPPS. As discussed above, we 

applied the same adjustment rules to all 

device medians. 

After carefully reviewing all public 

comments received, we have decided 

not to use any external data to adjust the 

median costs for the CY 2005 OPPS for 

the reasons discussed above. 

D. Calculation of Scaled OPPS Payment 

Weights 

Using the median APC costs 

discussed previously, we calculated the 

relative payment weights for each APC 

for CY 2005 shown in Addenda A and 

B to this final rule with comment 

period. As in prior years, we scaled all 

the relative payment weights to APC 

0601 (Mid-Level Clinic Visit) because it 

is one of 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. Using CY 

2003 data, the median cost for APC 0601 

is $57.32 for CY 2005. 

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 manner that assures that aggregate 

payments under the OPPS for CY 2005 

are neither greater than nor less than the 

aggregate payments that would have 

been made without the changes. To 

comply with this requirement 

concerning the APC changes, we 

compared aggregate payments using the 

CY 2004 relative weights to aggregate 

payments using the CY 2005 proposed 

relative weights. Based on this 

comparison, we proposed to make an 

adjustment to the weights for purposes 

of budget neutrality. The unscaled 

weights were adjusted by 0.984667135 

for budget neutrality. The CY 2005 

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relative weights, which incorporate the 

recalibration adjustments explained in 

this section, are listed in Addendum A 

and Addendum B to this final rule with 

comment period. 

Section 1833(t)(14)(H) of the Act, as 

added by section 621(a)(1) of Pub. L. 

108–173, 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.’’ Section 

1833(t)(14) provides the payment rates 

for certain specified covered outpatient 

drugs. Therefore, the incremental cost of 

those specified covered outpatient drugs 

(as discussed in section II.J. of this final 

rule with comment period) is excluded 

from the budget neutrality calculations 

but the base median cost of the drugs 

continues to be a factor in the 

calculation of budget neutrality. 

Accordingly, we calculated median 

costs for the specified covered 

outpatient drugs to which this section 

applies and used those medians and the 

frequencies in the calculation of the 

scaler for budget neutrality. 

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

Act, as added by section 621(b)(1) of 

Pub. L. 108–173, payment for devices of 

brachytherapy consisting of a seed or 

seeds (or radioactive source) is to be 

made at charges adjusted to cost for 

services furnished on or after January 1, 

2004 and before January 1, 2006. As we 

stated in our January 6, 2004 interim 

final rule, charges for the brachytherapy 

sources will not be used in determining 

outlier payments and payments for 

these items will be excluded from 

budget neutrality calculations, 

consistent with our practice under the 

OPPS for items paid at cost. (We 

provide a discussion of brachytherapy 

payment issues at section VII.G. of this 

final rule with comment period.) 

IV. Payment Changes 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 period begins with the first date on 

which a transitional pass-through 

payment is made for any medical device 

that is described by the category. In our 

November 7, 2003 final rule with 

comment period (68 FR 63437), we 

specified six device categories currently 

in effect that would cease to be eligible 

for pass-through payment effective 

January 1, 2005.

The device category codes became 

effective April 1, 2001, under the 

provisions of the BIPA. Prior to passthrough device categories, we paid for 

pass-through devices under the OPPS 

on a brand-specific basis. All of the 

initial category codes that were 

established as of April 1, 2001, have 

expired; 95 categories expired after CY 

2002 and 2 categories expired after CY 

2003. All of the categories listed in 

Table 21, along with their expected 

expiration dates, were created since we 

published the criteria and process for 

creating additional device categories for 

pass-through payment on November 2, 

2001 (66 FR 55850 through 55857). We 

based the expiration dates for the 

category codes listed in that table on the 

date on which a category was first 

eligible for pass-through payment. 

There are six categories for devices 

that would have been eligible for passthrough payments for at least 2 years as 

of December 31, 2004. In our November 

7, 2003 final rule with comment period, 

we finalized the December 31, 2004 

expiration dates for these six categories. 

(Three other categories listed in Table 

21, as proposed, C1814, C1818, and 

C1819, will expire on December 31, 

2005.) As indicated in Table 21, as 

proposed, the six categories that will 

expire as of December 31, 2004, are: 

C1783, C1884, C1888, C1900, C2614, 

and C2632. Each category includes 

devices for which pass-through payment 

was first made under the OPPS in CY 

2002 or CY 2003. 

In the November 1, 2002 final rule, we 

established a policy for payment of 

devices included in pass-through 

categories that are due to expire (67 FR 

66763). For CY 2003, we packaged the 

costs of the devices no longer eligible 

for pass-through payments into the costs 

of the procedures with which the 

devices were billed in CY 2001. There 

were few exceptions to this established 

policy (brachytherapy sources for other 

than prostate brachytherapy, which is 

now also separately paid in accordance 

with section 621(b)(2) of Pub. L. 108–

173). For CY 2004, we continued to 

apply this policy for categories that 

expired on January 1, 2004. 

2. Proposed and Final Policy for CY 

2005 

In the August 16, 2004 proposed rule, 

we proposed to continue to base the 

expiration date for a device category on 

the earliest effective date of passthrough payment status of the devices 

that populate the category. This basis for 

determining the expiration date of a 

device category is the same as that used 

in CY 2003 and CY 2004. 

We also proposed that payment for 

the devices that populate the six 

categories that would cease to be 

eligible for pass-through payment after 

December 31, 2004, would be made as 

part of the payment for the APCs with 

which they are billed. This methodology 

for packaging device cost is consistent 

with the packaging methodology that we 

describe in section III. of this final rule 

with comment period. To accomplish 

this, we proposed to package the costs 

of devices that would no longer be 

eligible for pass-through payment in CY 

2005 into the HCPCS codes with which 

the devices are billed. 

In the proposed rule, we noted that 

category C1819 (Tissue localization 

excision device) was added subsequent 

to our proposed rule for CY 2004. We 

first announced the start date and the 

proposed expiration date for this device 

category in our November 7, 2003 final 

rule with comment period. Therefore, 

we proposed to maintain the category’s 

December 31, 2005 expiration date. We 

invited specific comments on the 

proposed expiration date for category 

C1819. 

We received a number of public 

comments on our proposals relating to 

the expiration dates for transition passthrough devices. 

Comment: One commenter noted that 

C1884 (Embolization protection system) 

is used for carotid stenting. The 

commenter recommended that CMS 

continue paying pass-through payment 

for C1884 until carotid stenting APC 

costs are established. 

Response: Carotid stenting procedures 

are on the inpatient list for the OPPS 

and, therefore, are not paid by Medicare 

when performed in the outpatient 

hospital setting. To the extent that 

C1884 has been used with other 

procedures payable under the OPPS, we 

packaged the costs of C1884 into the 

APCs that include the procedures with 

which this device code was billed. 

Comment: One commenter objected to 

our proposal to remove HCPCS code 

C1884 from pass-through status, 

effective January 1, 2005. The 

commenter believed that the service had 

been unfairly subjected to the device 

offset because it was totally new and did 

not replace any existing device. The 

commenter claimed that, for CY 2003, 

code C1884 inappropriately received 

very little pass-through payment when 

the device was used. The commenter 

indicated that CMS subsequently 

recognized its error by changing the 

offset policy for CY 2004, the second 

year of the device’s pass-through status, 

65772 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

and, therefore should give the device a 

third year of pass-through payment.

Response: We disagree with the 

commenter that we inappropriately 

made little pass-through payments for 

C1884. The commenter is correct that, 

for CY 2004, following notice and 

comment rulemaking, we changed the 

policy for applying offsets. As of 

January 1, 2004, we apply offsets, on a 

device-category-specific basis, when we 

determine that an APC contains costs 

associated with the device. Under the 

policy in effect prior to CY 2004, we 

applied offsets when a device category 

was billed with any of the APCs on our 

device offset list. This policy change 

affected all the categories in effect in 

CYs 2003 and 2004, including C1884. 

Some of these categories went into effect 

as of January 1, 2003; thus their passthrough status will expire after exactly 

2 years. Other categories began receiving 

pass-through payments in the middle of 

2002. Therefore, their categories will 

have more than 2, but less than 3 years 

with pass-through payment. We would 

not be able to extend pass-through 

payment for the second group of 

categories for an additional year, 

because they would then have greater 

than the statutory maximum of 3 years 

of pass-through payment. 

We see no reason to adopt the 

commenter’s suggestions to only change 

the status for code C1884. In CY 2003, 

C1884, like all our other pass-through 

categories, was subject to the same offset 

policy. Therefore, we are not changing 

the expiration date of device category 

C1884. 

This device will cease to be a passthrough device effective January 1, 

2005, at which time it will have had 2 

years of pass-through payment. 

We note that the expiration dates of 

C1884 and most other categories (the 

exception being C1819, discussed 

below) that were in effect at the time of 

our final rule for CY 2004 (68 FR 63437) 

were made final in that same rule, 

having been proposed in the proposed 

rule for CY 2004. We are now merely 

reaffirming that policy. 

A few commenters supported our 

proposal to remove the six device 

categories from further pass-through 

payments and our proposal to package 

the costs of these devices into the cost 

of the APCs with which they are billed. 

The commenters indicated that 

incorporating these technologies into 

the APC system will minimize special 

payment incentives to use certain 

devices over others. 

Comment: One commenter was 

concerned that pass-through payment 

for a brachytherapy-related solution 

(C2632, Brachytherapy solution, Iodine125, per mCi) would expire from passthrough payment after December 31, 

2004, under our proposal, and requested 

a third year of pass-through payment, 

until December 31, 2005, because passthrough payment has been made only 

since January 1, 2003. The commenter 

claimed that this category still qualifies 

for another year of pass-through 

payment. 

Response: Because the brachytherapy 

solution in question, C2632, is a 

brachytherapy source separately payable 

under the OPPS according to section 

621(b) of Pub. L. 108–173, it will 

continue to receive cost-based payment 

as of January 1, 2005, based on those 

statutory provisions, rather than on the 

pass-through payment provisions. 

Section VII.G. of this final rule with 

comment period explains those 

provisions and includes code C2632 for 

cost-based payment in CY 2005. As 

indicated, in regard to other comments 

concerning expired categories, this 

brachytherapy device will have had 2 

years of pass-through status on January 

1, 2005. Our policy is that pass-through 

devices are removed from pass-through 

status as soon as permitted under the 

statute. Therefore, this device will cease 

to be a pass-through device effective 

January 1, 2005, at which time it will 

have had 2 years of pass-through 

payment. 

Comment: A few commenters were 

concerned that pass-through payment 

for C2614 (Probe, percutaneous lumbar 

diskectomy) in APC 0220 (Level I Nerve 

Procedures) would expire from passthrough payment after December 31, 

2004, under our proposal, and requested 

that CMS continue to pay for this device 

category separately on a pass-through 

basis. The commenters were under the 

impression that the methodology used 

to determine whether or not a device 

category would continue to be eligible 

for payment in CY 2005 was if it 

showed ‘‘that there were no close or 

identifiable costs associated with the 

devices relating to the respective APCs 

that are normally billed with them.’’

One commenter indicated that the 

payment for APC 0220 is not sufficient 

to cover the cost of the high end 

disposable RF lumbar probe coded 

under C2614. The commenter was also 

concerned that this device, which is 

used in performing CPT code 62287 

(Percutaneous diskectomy), and which 

costs $1,150, will cease to be eligible for 

pass-through payments effective January 

2005. The commenter stated that the 

device has increased effectiveness and 

reduced recovery time for patients but 

unless CMS increases the payment for 

APC 0220 for which we proposed to pay 

$996.69, hospitals will be forced to 

cease using it in 2005. The commenter 

urged that CMS continue pass-through 

payment for C2614 until such time as 

the payment rate for APC 0220 is 

adequate to cover the cost of the probe. 

Response: The commenters are 

incorrect in their understanding of our 

criteria for proposing to expire device 

categories. We proposed to expire C2614 

because it has received pass-through 

payment for at least 2 years, which is 

also the basis for our proposal to expire 

the other five device categories listed for 

expiration in CY 2005 in our proposed 

rule. A device with no close or 

identifiable costs associated with the 

devices relating to the respective APCs 

that are normally billed with them is 

actually a factor in determining whether 

to apply an offset, which would reduce 

the pass-through payment amount, as 

explained in the August 16, 2004 

proposed rule (69 FR 50501). As 

indicated, similar to other responses in 

regard to other comments concerning 

other categories due to expire, this disc 

decompression device will have had 2 

years of pass-through status on January 

1, 2005. Our policy is that pass-through 

devices are removed from pass-through 

status as soon as permitted under the 

statute. Therefore, this device will cease 

to be a pass-through device effective 

January 1, 2005, at which time it will 

have had 2 years of pass-through 

payment. 

We have considered the commenter’s 

concern regarding placement of code 

C2614, the code for a device that is used 

in performing CPT code 62287, in APC 

0220 and find that the resource costs for 

CPT code 62287 may be more 

appropriate for APC 0221 (Level II 

Nerve Procedures). Therefore, we have 

reassigned CPT code 62287 to APC 

0221, for which the CY 2005 payment 

rate is $1,635.87. 

Comment: One commenter 

recommended that CMS continue to pay 

for C2614 as a pass-through device 

category until CMS determines how the 

procedure, percutaneous lumbar 

diskectomy, is coded for determination 

of accurate APC cost weighting.

Response: As explained previously, 

we packaged costs of the C-code devices 

into the APCs that include the 

procedures with which the device codes 

were billed. We are packaging the costs 

related to code C2614 in this manner. 

Comment: One commenter, a device 

manufacturer, recommended that CMS 

extend the expiration date for passthrough payment of C1819 (Tissue 

localization excision device) until 

December 31, 2006, instead of ending 

pass-through payment after CY 2005. 

The commenter claimed that CMS will 

have only a partial year of data for the 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65773

CY 2006 year, unless it extends the date 

that the category is effective for passthrough payment. This commenter 

claimed that the proposed payment for 

APC 0028, in which therapeutic breast 

cancer procedures, CPT codes 19125 

and 19160, are placed, increased by 

only $100 and does not represent any 

device codes. The commenter asserted 

that CMS needs to collect data over 2 

years and increase payment for APC 

0028 to at least $1,345 starting in CY 

2007. The commenter also pointed out 

that two categories set to expire after 

December 31, 2005, C1814 (Retinal 

tamonade device, silicone oil) and 

C1818 (Integrated keratoprosthesis), 

would be paid as pass-through devices 

several months longer than C1819, 

resulting in a greater amount of data for 

ratesetting than will be available for 

C1819. 

Response: We believe it is premature 

to make any conclusions and 

recommendations concerning the 

payment rate for APC 0028 for CY 2006 

or CY 2007. Presumably, after the passthrough period ends, the device costs of 

category code C1819 will be included in 

the median costs of APC 0028 if the 

device is billed with procedures that are 

included in that APC. We reiterate that, 

as with other categories due to expire, 

this tissue localization device will have 

had 2 years of pass-through status on 

January 1, 2006. Our policy is that passthrough devices are removed from passthrough status as soon as permitted 

under the statute. Therefore, this device 

will cease to be a pass-through device 

effective January 1, 2006. 

In this final rule with comment 

period, we are finalizing the proposed 

expiration dates for device categories as 

specified in the proposed rule, as 

indicated in Table 21 below.

B. Provisions for Reducing Transitional 

Pass-Through Payments to Offset Costs 

Packaged into APC Groups 

1. Background 

In the November 30, 2001 final rule, 

we explained the methodology we used 

to estimate the portion of each APC rate 

that could reasonably be attributed to 

the cost of the associated devices that 

are eligible for pass-through payments 

(66 FR 59904). Beginning with the 

implementation of the CY 2002 OPPS 

update (April 1, 2002), we deducted 

from the pass-through payments for the 

identified devices an amount that 

reflected the portion of the APC 

payment amount that we determined 

was associated with the cost of the 

device, as required by section 

1833(t)(6)(D)(ii) of the Act. In the 

November 1, 2002 final rule, we 

published the applicable offset amounts 

for CY 2003 (67 FR 66801). 

For the CY 2002 and CY 2003 OPPS 

updates, to estimate the portion of each 

APC rate that could reasonably be 

attributed to the cost of an associated 

pass-through device eligible for passthrough payment, we used claims data 

from the period used for recalibration of 

the APC rates. Using those claims, we 

calculated a median cost for every APC 

without packaging the costs of 

associated C-codes for device categories 

that were billed with the APC. We then 

calculated a median cost for every APC 

with the costs of the associated device 

category C-codes that were billed with 

the APC packaged into the median. 

Comparing the median APC cost 

without device packaging to the median 

APC cost including device packaging 

enabled us to determine the percentage 

of the median APC cost that is 

attributable to the associated passthrough devices. By applying those 

percentages to the APC payment rates, 

we determined the applicable amount to 

be deducted from the pass-through 

payment, the ‘‘offset’’ amount. We 

created an offset list comprised of any 

APC for which the device cost was at 

least 1 percent of the APC’s cost. 

As first discussed in our November 1, 

2002 final rule (67 FR 66801) the offset 

list that we publish each year is a list 

of offset amounts associated with those 

APCs with identified offset amounts 

developed using the methodology 

described above. As a rule, we do not 

know in advance which procedures and 

APCs may be billed with new 

categories. Therefore, an offset amount 

is applied only when a new device 

category is billed with an APC 

appearing on the offset list. The list of 

potential offsets for CY 2004 is currently 

published on the CMS Web site: http:/

/www.cms.hhs.gov, as ‘‘Device-Related 

Portions of Ambulatory Payment 

Classification Costs for 2004.’’

For CY 2004, we modified our policy 

for applying offsets to device passthrough payments. Specifically, we 

indicated that we would apply an offset 

to a new device category only when we 

could determine that an APC contains 

costs associated with the device. We 

continued our existing methodology for 

determining the offset amount, 

described above. We were able to use 

this methodology to establish the device 

offset amounts for CY 2004 because 

providers reported device codes (Ccodes) on the CY 2002 claims used for 

CY 2004 OPPS. However, for the CY 

2005 update to the OPPS, we proposed 

to use CY 2003 claims that do not 

include device coding. (Section III. of 

this final rule with comment period 

contains a fuller discussion of our 

proposed and final requirement for use 


ER15NO04.036</GPH>
65774 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

of C-codes for CY 2005.) In the CY 2004 

OPPS update, we reviewed the device 

categories eligible for continuing passthrough payment in CY 2004 to 

determine whether the costs associated 

with the device categories are packaged 

into the existing APCs. Based on our 

review of the data for the categories 

existing in CY 2004, we determined that 

there were no close or identifiable costs 

associated with the devices relating to 

the respective APCs that are normally 

billed with them. Therefore, for those 

device categories, we set the offset to $0 

for CY 2004. 

2. Proposed and Final Policy for CY 

2005

As we proposed in the August 16, 

2004 proposed rule, in this final rule 

with comment period for CY 2005, we 

are continuing to review each new 

device category on a case-by-case basis 

as we did in CY 2004 to determine 

whether device costs associated with 

the new category are packaged into the 

existing APC structure. We are setting 

the offsets to $0 for the currently 

established categories that would 

continue for pass-through payment into 

CY 2005. If, during CY 2005, we create 

a new device category and determine 

that our data contain identifiable costs 

associated with the devices in any APC, 

we will adjust the APC payment if the 

offset is greater than $0. If we determine 

that device offsets greater than $0 are 

appropriate for any new category that 

we create during CY 2005, we will 

announce the offset amounts in the 

program transmittal that announces the 

new category. 

Further, as we proposed, in this final 

rule with comment period for CY 2005, 

we are using the device percentages 

(portion of the APC median cost 

attributable to the packaged device) that 

we developed for potential offsets in CY 

2004 and apply these percentages to the 

CY 2005 payment amounts to obtain CY 

2005 offset amounts, in cases where we 

determine that an offset is appropriate. 

As proposed, we are using the device 

percentage developed for CY 2004 

because, as noted above, for the CY 2005 

update to the OPPS, we are using CY 

2003 claims that do not include device 

codes. Therefore, we are not easily able 

to determine the device portions of 

APCs for CY 2003 claims data. We have 

posted the list of device-dependent 

APCs and their respective device 

portions on the CMS Web site: http://

www.cms.hhs.gov for CY 2004 We will 

update the device portions as a 

percentage of final CY 2005 APC 

payments and post these on the CMS 

Web site. 

We did not receive any public 

comments on our proposed policy for 

reducing transitional pass-through 

payments to offset costs packaged into 

APC groups. 

C. Criteria for Establishing New PassThrough Device Categories 

Comment: Several commenters from 

the medical device community asked 

that CMS revise the criteria under 

which it evaluates applications for passthrough status for new device 

categories. The commenters specifically 

requested that CMS eliminate the 

current requirement that items that are 

included in new pass-through device 

categories must be surgically inserted or 

implanted through a surgically created 

incision. The commenters expressed 

concern that the current requirement 

may prevent access to innovative and 

less invasive technologies, particularly 

in the areas of gynecologic, urologic, 

colorectal and gastrointestinal 

procedures. These commenters asked 

that CMS change the surgical insertion 

or implantation criterion to allow passthrough payment for potential new 

device categories that include items 

introduced into the human body 

through a natural orifice, as well as 

through a surgically created incision. 

Several of the commenters 

recommended that CMS allow the 

creation of a new pass-through category 

for items implanted or inserted through 

a natural orifice, as long as the other 

existing criteria are met. The 

commenters do not believe that such an 

expansion of the criteria would 

significantly increase the amount spent 

on pass-through device categories and 

asked that CMS implement this change 

in January 2005. A few commenters 

predicted that this modification would 

result in expenditures of less than one 

quarter of the total amount available for 

pass-through payments. A few 

commenters further asked that CMS 

allow new categories, even if the name 

or terminology associated with the 

requested category resembles an expired 

category, even if that entails modifying 

the description of the expired category. 

One commenter claimed that 

manufacturers of technologies that are 

implanted through a surgically created 

opening have two options for 

incremental payment: (1) Pass-through 

payment; and (2) new technology APC, 

and that those not requiring a surgical 

incision have only one option for 

additional payment (the new technology 

APC). 

Response: We share the views of the 

commenters about the importance of 

ensuring access for Medicare 

beneficiaries to new technologies that 

offer substantial clinical improvement 

in the treatment of their medical 

conditions. We also recognize that, 

since the initial implementation of the 

OPPS, there have been beneficial 

changes in the methods by which some 

conditions are treated. These are issues 

that the agency takes very seriously and 

considers in the context of both passthrough device categories and payment 

for new, complete procedures through 

assignment to either a new technology 

APC or an existing clinical APC. 

We note that other payment 

mechanisms exist within the OPPS for 

complete procedures that use new 

technology. These other payment 

mechanisms (establishment of a new 

code, where appropriate, and 

assignment to either a new technology 

APC or to a clinical APC) are already 

available, and do not require the 

implantation of a device through a 

surgical incision. 

We are also interested in hearing the 

views of other parties and receiving 

additional information on these issues. 

While we appreciate and welcome 

additional comments on these issues 

from the medical device makers, we are 

also interested in hearing the views of 

Medicare beneficiaries, of the hospitals 

that are paid under the OPPS and of 

physicians and other practitioners who 

attend to patients in the hospital 

outpatient setting. For that reason, we 

are soliciting additional comments on 

this topic within the 60-day comment 

period for this final rule with comment 

period. (See the ADDRESSES section of 

this preamble for information on 

submitting comments. When submitting 

comments on this issue, please include 

the caption ‘‘Device Categories’’ at the 

beginning of your comment.) In framing 

their comments, commenters are asked 

to consider the following questions: 

1. The comments discussed above 

refer to devices introduced into the 

body through natural orifices. We are 

seeking comments on whether this 

includes orifices that are either 

naturally or surgically created, as in the 

case of ostomies? If you believe this 

includes only natural orifices, why do 

you distinguish between natural and 

surgically created orifices? 

2. How would you define ‘‘new,’’ with 

respect to time and to predecessor 

technology? What additional criteria or 

characteristics do you believe 

distinguish ‘‘new’’ devices that are 

surgically introduced through an 

existing orifice from older technology 

that also is inserted through an orifice? 

3. What characteristics do you 

consider to distinguish a device that 

might be eligible for a pass-through 

category even if inserted through an 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65775

existing orifice from materials and 

supplies such as sutures, clips or 

customized surgical kits that are used 

incident to a service or procedure?

4. Are there differences with respect 

to instruments that are seen as supplies 

or equipment for open procedures when 

those same instruments are passed 

through an orifice using a scope? 

Concerning the request that we allow 

new categories for new devices by 

modifying the descriptors of existing 

categories, we note there are systems 

difficulties with changing a descriptor 

of an existing HCPCS code, such as 

payment considerations of claims prior 

to when a modification would be made. 

Moreover, both hospitals and 

manufacturers have informed us in the 

past that coding changes have led to 

confusion on the part of hospital coders. 

Modifying established device category 

C-codes would only exacerbate any such 

coding confusion. Therefore, we note 

that we are not inclined to change the 

descriptors of existing C-codes at this 

time. 

Comment: One commenter 

recommended that CMS revise the cost 

significant criterion for establishing new 

device categories for pass-through 

payment. The commenter stated that 

medical devices are sometimes used as 

part of procedures that are secondary to 

a primary procedure, and in these cases 

the cost significance threshold of at least 

25 percent of the APC rate associated 

with the services performed with the 

device should be adjusted downward to 

reflect the lower APC payment made for 

the secondary service. The commenter 

provided as an example those cases 

when the secondary procedure would 

be subject to the multiple procedure 

discount, thus lowering the APC 

payment associated with the procedure 

by 50 percent. The commenter indicated 

that this scenario happens infrequently. 

Response: We disagree that our cost 

significance criterion for a proposed 

new device category for pass-through 

payment requires revision or 

adjustment. The criterion commented 

on requires that the estimated average 

reasonable cost of devices in a proposed 

new device category exceeds 25 percent 

of the applicable APC payment amount 

for the service associated with the 

device category (67 FR 66785). Very few 

new device category applications are 

denied for pass-through payment 

because they do not meet this cost 

criterion. If the proposed category of 

devices can be billed with more than 

one APC, we generally use the lowest 

APC payment rate applicable for use 

with the nominated device when we test 

against this cost criterion, thus 

increasing the probability the device 

will pass the cost significance criterion. 

We do not believe any further 

adjustment is needed for this cost 

criterion. 

Therefore, we are not making any 

additional changes to our policy for CY 

2005. 

V. Payment Changes for Drugs, 

Biologicals, Radiopharmaceutical 

Agents, and Blood and Blood Products 

A. Transitional Pass-Through Payment 

for Additional Costs of Drugs and 

Biologicals 

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 originally enacted by the BBRA, this 

provision required 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 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 (before 

enactment of BIPA (Pub. L. 106–554), on 

December 21, 2000). 

Transitional pass-through payments 

are also required for certain ‘‘new’’

drugs, devices and biological agents that 

were not being paid for as a hospital 

OPD service as of December 31, 1996, 

and whose cost is ‘‘not insignificant’’ in 

relation to the OPPS payment for the 

procedures or services associated with 

the new drug, device, or biological. 

Under the statute, transitional passthrough payments can be made for at 

least 2 years but not more than 3 years. 

In Addenda A and B to this final rule 

with comment period, pass-through 

drugs and biological agents are 

identified by status indicator ‘‘G.’’

The process to apply for transitional 

pass-through payment for eligible drugs 

and biological agents can be found on 

pages of our CMS Web site: http://

www.cms.hhs.gov. If we revise the 

application instructions in any way, we 

will post the revisions on our Web site 

and submit the changes to the Office of 

Management and Budget (OMB) for 

approval, as required under the 

Paperwork Reduction Act (PRA). 

Notification of new drugs and biological 

application processes is generally 

posted on the OPPS Web site at: http:/

/www.cms.hhs.gov/hopps.

2. Expiration in CY 2004 of PassThrough Status for Drugs and 

Biologicals 

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

specifies that the duration of 

transitional pass-through payments for 

drugs and biologicals must be no less 

than 2 years and no longer than 3 years. 

The drugs whose pass-through status 

will expire on December 31, 2004, meet 

that criterion. In the August 16, 2004 

proposed rule, Table 22 listed the 13 

drugs and biologicals for which we 

proposed that pass-through status 

would expire on December 31, 2004. 

Comment: One commenter, a national 

hospital association, supported our 

proposal to remove these 13 drugs from 

the pass-through status on December 31, 

2004. 

Response: We appreciate the 

commenters’ support for our proposal. 

For this final rule with comment 

period, in Table 22 below, we are 

specifying the drugs and biologicals for 

which pass-through status will expire 

on December 31, 2004. This listing is 

the same as that published in the 

proposed rule.

65776 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

3. Drugs and Biologicals With PassThrough Status in CY 2005 

As we proposed in the August 16, 

2004 proposed rule, we are continuing 

pass-through status for CY 2005 for 18 

drugs and biologicals listed in Table 23 

of this final rule with comment period. 

The APCs and HCPCS codes for drugs 

and biologicals that will have passthrough status in CY 2005 are assigned 

status indicator ‘‘G’’ in Addendum A 

and Addendum B, respectively, to this 

final rule with comment period. 

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

the payment rate for pass-through 

eligible drugs (assuming that no pro rata 

reduction in pass-through payment is 

necessary) as the amount determined 

under section 1842(o) of the Act. 

Section 303(c) of Pub. L. 108–173 

amended Title XVIII of the Act by 

adding new section 1847A. This new 

section establishes the use of the 

average sales price (ASP) methodology 

for payment for drugs and biologicals 

described in section 1842(o)(1)(C) of the 

Act furnished on or after January 1, 

2005. Therefore, as we proposed in the 

August 16, 2004 proposed rule, in CY 

2005, we will pay under the OPPS for 

drugs and biologicals with pass-through 

status consistent with the provisions of 

section 1842(o) of the Act as amended 

by Pub. L. 108–173 at a rate that is 

equivalent to the payment these drugs 

and biologicals will receive in the 

physician office setting, and established 

in accordance with the methodology 

described in the CY 2005 Physician Fee 

Schedule final rule published elsewhere 

in this issue. 

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

sets the amount of additional payment 

for pass-through eligible drugs and 

biologicals (the pass-through payment 

amount). The pass-through payment 

amount is the difference between the 

amount authorized under section 

1842(o) of the Act, and the portion of 

the otherwise applicable fee schedule 

amount (that is, the APC payment rate) 

that the Secretary determines is 

associated with the drug or biological. 

In this final rule with comment 

period, we are adopting as final our 

proposal to amend § 419.64 of the 

regulations to conform this section to 

these changes. Specifically, we are 

revising paragraph (d) to provide that, 

subject to any reduction determined 

under § 419.62(b), the payment for a 

drug or biological with pass-through 

status equals the amount determined 

under section 1842(o) of the Act, minus 

the portion of the APC payment amount 

that we determine is associated with the 

drug or biological. 

As we explained in the August 16, 

2004 proposed rule, we will make 

separate payment, beginning in CY 

2005, for new drugs and biologicals 

with an HCPCS code consistent with the 

provisions of section 1842(o) of the Act, 

as amended by Pub. L. 108–173, at a rate 

that is equivalent to the payment they 

would receive in a physician office 

setting, whether or not we have received 

a pass-through application for the item. 

Accordingly, beginning in CY 2005, the 

pass-through payment amount for new 

drugs and biologicals that we determine 

have pass-through status equals zero. 

That is, when we subtract the amount to 

be paid for pass-through drugs and 

biologicals under section 1842(o) of the 

Act, as amended by Pub. L. 108–173, 

from the portion of the otherwise 

applicable fee schedule amount, or the 

APC payment rate associated with the 

drug or biological that would be the 

amount paid for drugs and biologicals 

under section 1842(o) of the Act as 


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amended by Pub. L. 108–173, the 

resulting difference is equal to zero. 

We have used the second quarter ASP 

numbers for budget neutrality estimates, 

impact analysis, and for completing 

Addenda A and B because those were 

the most recent numbers available to us 

in time for publication. Changes in 

program payments due to quarterly 

updates of ASP for pass-through drugs 

are factored into our budget neutrality 

estimates. To be consistent with the 

ASP-based payments that will be made 

when these drugs and biologicals are 

furnished in physician offices, we plan 

to make any appropriate adjustments to 

the amounts shown in Addendum A 

and B if later quarter ASP submissions 

indicate that adjustments to the 

payment rate are necessary. We will 

announce such changes in our program 

instructions to implement quarterly 

releases and post any revisions to the 

Addenda on the http://cms.hhs.gov Web 

site. 

In the proposed rule, we listed in 

Table 23 the drugs and biologicals for 

which we proposed pass-through status 

continuing in CY 2005. We also 

included in Addendum B to the 

proposed rule the proposed CY 2005 

rates for these pass-through drugs and 

biologicals based on data reported to 

CMS as of April 30, 2004. Since 

publication of the proposed rule on 

August 16, 2004, we have approved two 

additional drugs and biologicals for 

pass-through payment beginning on or 

after October 1, 2004. These products 

are Vidaza that has been assigned 

HCPCS code C9218 (Injection, 

azacitidine, per 1 mg) and Myfortic that 

has been assigned HCPCS code J7518 

(Mycophenolic acid, oral, per 180 mg). 

(See Change Request 3420, Transmittal 

290 issued August 27, 2004.) In 

addition, three more products have been 

approved for pass-through status 

beginning or after January 1, 2005. They 

are Orthovice (HCPCS code C9220, 

Sodium Hyaluronate per 30 mg dose, for 

intra-articular injection), GraftJacket 

(Repair)(HCPCS code C9221, Acellular 

dermal tissue, matrix per 16cm2), and 

GraftJacket (Soft Tissue)(HCPCS code 

C9222, Decellularized Soft Tissue 

Scaffold, per 1 cc). These new eligible 

pass-through items are listed in Table 23 

below. 

We received several public comments 

on the proposed listing and payment 

rates for drugs and biologicals for passthrough status continuing in CY 2005. 

Comment: Two commenters stated 

that the proposed payment rate for 

HCPCS code C9203 (Injection, 

Perflexane lipid microsphere, per single 

use vial) is inappropriate and should be 

re-examined. They state that the 

methods used to price the drug are 

inconsistent with the Pub. L. 108–173, 

which requires that payments for passthrough drugs be based at either 106 

percent of reported average sales price 

(ASP) or 83 percent of the average 

wholesale price (AWP). Pricing at 95 

percent of AWP for C9203 creates a 

competitive disadvantage for contrast 

agents no longer being paid as passthrough drugs. 

One commenter suggests that CMS 

create a class of echocardiography 

contrast agents similar to the class 

established for anti-emetic drugs. This 

allows for a uniform methodology to 

price drugs and ensures patient access 

to all drugs in the same therapeutic 

class. An alternative proposal identified 

by the commenter, is to base the 

payment for Imagent on the method 

applicable to the pricing for all other 

specified covered outpatient drugs (that 

is, 83 percent of the AWP). Yet another 

proposal included either maintaining 

pass-through status for all contrast 

agents or removing Imagent from passthrough designation. Another 

commenter recommended that the 

payment rate for all contrast agents be 

based on median costs reflected in 

hospital outpatient claims data.

Response: Whereas separate payment 

was already being made for the contrast 

agents, either as a pass-through item or 

as a ‘‘specified covered outpatient 

drug,’’ the 5HT3 anti-emetic products 

varied in their payment status, that is, 

some were packaged and some were 

paid separately. Although we are 

making final our proposal to pay 

separately for the 5HT3 anti-emetic 

products in CY 2005 in this final rule 

with comment period, the intent of this 

policy discussed in section IV.B.2. of 

this preamble is not to standardize 

payment for already separately payable 

drugs. For this reason, the policy does 

not apply to the echocardiography 

contrast agents. Therefore, we are not 

accepting the commenter’s 

recommendation that we create a class 

of echocardiography contrast agents 

similar to the class for anti-emetic 

drugs. 

Other proposals to: (1) Change the 

pass-through payment status for Imagent 

to a ‘‘specified covered outpatient 

drug,’’ (2) extend the pass-through 

payment status for other contrast agents, 

or (3) use hospital claims data to 

establish payment for Imagent are not 

provided for under the statute. Imagent 

obtained pass-through status effective 

on April 1, 2003, and will remain a 

pass-through drug for CY 2005. 

Since the ASP for contrast agents was 

not reported in time for use in 

developing the APC payments for this 

final rule with comment period, the CY 

2005 first quarter APC payment for 

Imagent is based on 95 percent of the 

AWP reported as of May 1, 2003. As 

previously stated, we plan to update 

payments for pass-through drugs on a 

quarterly basis. Beginning in April 2005, 

payment for Imagent will be based on 

106 percent of the reported ASP. 

Comment: Several commenters wrote 

in support of our proposal to remove 13 

drugs and biologic agents from the passthrough table as the pass-through period 

for these items will end on January 1, 

2005. Many commenters were very 

much in favor of our proposal for setting 

the pass-through payment portion of 

drugs. They wrote that zero passthrough payments ensures pass-though 

drugs and biologicals receive the full 

payment while at the same time 

eliminates the risk of a pro-rata 

reduction from occurring. Other 

commenters urged CMS to update ASP 

based payment rates for therapies with 

transitional pass-through status on a 

quarterly basis as is done for the drugs 

and biologicals administered in 

physician offices and paid for in 

accordance with the same statutory 

requirements as the drugs and 

biologicals with pass-through status 

under the OPPS. Otherwise, they 

argued, patient access to innovative 

drug and biological therapies in 

appropriate outpatient settings could be 

jeopardized. 

Response: We appreciate the 

comments that support our decision to 

remove 13 drugs pass-through and 

biologicals for which pass-through 

status expires at the end of CY 2004 

from the table. With respect to those 

drugs and biologicals that will continue 

to be on pass-through status or that may 

be granted pass-through status in CY 

2005, we agree that our payment rules 

and amounts should be consistent with 

the ASP-based payments that will be 

made when these drugs and biologicals 

are furnished in physician offices since 

payment for both settings is governed by 

the same provisions of the Act. 

Therefore, we plan to make any 

appropriate adjustments to the amounts 

shown in Addendum A and B if later 

quarter ASP submissions indicate that 

adjustments to the payment rate are 

necessary. Changes in total payments 

due to quarterly updates of ASP for 

pass-through drugs are factored into our 

budget neutrality estimates. 

In this final rule with comment 

period, we are not making any changes 

to the listing as a result of public 

comments. Table 23 below lists the 

drugs and biologicals that will have 

pass-through status in CY 2005. 

Addendum B of this final rule with 

65778 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

comment period lists the final CY 2005 

rates for these pass-through drugs and 

biologicals, which are assigned status 

indicator ‘‘G’’ based on data reported to 

CMS as of July 30, 2004. 

BILLING CODE 4120–01–P

BILLING CODE 4120–01–C

B. Drugs, Biologicals, and 

Radiopharmaceuticals Without PassThrough Status 

1. Background 

Under the OPPS, we currently pay for 

drugs, biologicals including blood and 

blood products, and 

radiopharmaceuticals that do not have 

pass-through status in one of two ways: 

packaged payment and separate 

payment (individual APCs). We 

explained in the April 7, 2000 final rule 

(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 from Medicare 

for packaged items and supplies, and 

hospitals may not bill beneficiaries 

separately for any packaged items and 

supplies whose costs are recognized and 

paid for within the national OPPS 

payment rate for the associated 


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procedure or service. (Program 

Memorandum 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. 

Notwithstanding our commitment to 

package as many costs as possible, we 

are aware that packaging payments for 

certain drugs, biologicals, and 

radiopharmaceuticals, especially those 

that are particularly expensive or rarely 

used, might result in insufficient 

payments to hospitals, which could 

adversely affect beneficiary access to 

medically necessary services. As 

discussed in the November 7, 2003 

OPPS final rule with comment period 

(68 FR 63445), in CY 2004 we packaged 

payment for drugs, biologicals, and 

radiopharmaceuticals into the APCs 

with which they were billed if the 

median cost per day for the drug, 

biological, or radiopharmaceutical was 

less than $50. We established a separate 

APC payment for drugs, biologicals, and 

radiopharmaceuticals for which the 

median cost per day exceeded $50. Our 

rationale for establishing a $50 

threshold was also discussed in the 

November 7, 2003 OPPS final rule with 

comment period (68 FR 63444 through 

63447). 

2. Criteria for Packaging Payment for 

Drugs, Biologicals, and 

Radiopharmaceuticals 

Section 621(a)(2) of Pub. L. 108–173 

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

by adding a new subparagraph (B) to 

require that the threshold for 

establishing separate APCs for drugs 

and biologicals be set at $50 per 

administration for CYs 2005 and 2006. 

For CY 2005, we proposed to continue 

our policy of paying separately for 

drugs, biologicals, and 

radiopharmaceuticals whose median 

cost per day exceeds $50 and packaging 

the cost of drugs, biologicals, and 

radiopharmaceuticals whose median 

cost per day is less than $50 into the 

procedures with which they are billed.

We calculated the median cost per 

day using claims data from January 1, 

2003, to December 31, 2003, for all 

drugs, biologicals, and 

radiopharmaceuticals that had an 

HCPCS code during this time period 

and were paid (via packaged or separate 

payment) under the OPPS. Items such as 

single indication orphan drugs, certain 

vaccines, and blood and blood products 

were excluded from these calculations 

and our treatment of these is discussed 

separately in sections V.F., E., and I., 

respectively, of this preamble. In order 

to calculate the median cost per day for 

drugs, biologicals, and 

radiopharmaceuticals to determine their 

packaging status in CY 2005, in the 

August 16, 2004 proposed rule, we 

proposed to use the methodology that 

was described in detail in the CY 2004 

OPPS proposed rule (68 FR 47996 

through 47997) and finalized in the CY 

2004 final rule with comment period (68 

FR 63444 through 63447). We requested 

comments on the methodology we 

proposed to continue to use to 

determine the median cost per day of 

these items. 

We proposed to apply an exception to 

our packaging rule to one particular 

class of drugs, the injectible and oral 

forms of anti-emetic treatments. The 

HCPCS codes to which our exception to 

the packaging rule for CY 2005 would 

apply were listed in Table 24 of the 

proposed rule (69 FR 50506). Our 

calculation of median cost per day for 

these products showed that, if we were 

to apply our packaging rule to these 

items, two of the injectible products 

would be packaged and one would be 

separately payable. In addition, two of 

the oral products would be separately 

payable and one would be packaged. 

Chemotherapy is very difficult for many 

patients to tolerate as the side effects are 

often debilitating. In order for 

beneficiaries to achieve the maximum 

therapeutic benefit from chemotherapy 

and other therapies with side effects of 

nausea and vomiting, anti-emetic use is 

often an integral part of the treatment 

regimen. We wanted to ensure that our 

payment rules did not impede a 

beneficiary’s access to the particular 

anti-emetic that is most effective for him 

or her as determined by the beneficiary 

and his or her physician. Therefore, we 

proposed to pay separately for all six 

injectible and oral forms of anti-emetic 

products in CY 2005. 

We received several public comments 

on our proposed criteria for packaging 

payment for drugs, biologicals, and 

radiopharmaceuticals. 

Comment: Many commenters 

supported our proposal to continue 

paying separately for drugs, biologicals, 

and radiopharmaceuticals whose 

median costs per day exceed $50. The 

commenters encouraged CMS to 

continue to maintain the threshold at 

$50 after CY 2006 and recommended 

that any additional packaging threshold 

be examined carefully prior to future 

implementation so that beneficiary 

access to therapies will not be 

compromised as a result. One of the 

commenters, however, remained 

concerned about the packaging of other 

drugs and biologicals that fell below the 

$50 threshold and recommended that 

CMS make separate payments for drugs 

and biologicals that meet one or both of 

the following criteria: products with 

median cost per day of at least $50; or 

products that are eligible for separate 

payment in other outpatient sites of care 

and that received a separate payment 

previously under the OPPS. Another 

commenter expressed concern about the 

site of service incentives presented by 

some drugs being paid when furnished 

in the physicians’ offices, while being 

packaged in the hospital setting. The 

commenter urged CMS to consider 

several options, including: Making 

separate payment for all drugs in CY 

2005 that were separately paid under a 

previous OPPS payment rate and are 

separately paid for in physicians’

offices; lowering the packaging 

threshold, for example, to $10 or $20; 

paying separately for all drugs for which 

the 106 percent of ASP payment amount 

in the physicians’ office is at least $10; 

or establishing procedures to ensure that 

drugs used for similar indications 

(including off-label uses) are either all 

packaged or all paid separately. 

MedPAC, to the contrary, expressed 

concern about the use of an arbitrary 

cut-off of $50 per administration for 

separate payment of drugs. It stated that 

separate payment for certain more 

expensive drugs gave hospitals an 

incentive to use those drugs rather than 

those that are packaged, and the 

threshold also gave manufacturers an 

incentive to price their drugs to ensure 

that they are above $50 per 

administration. MedPAC recommended 

that CMS should carefully analyze 

alternative thresholds or the creation of 

larger bundles to allow for alternative 

approaches once the MMA provision 

requiring a $50 threshold expires in CY 

2007. 

Response: We appreciate the support 

of many commenters for our packaging 

policy for CY 2005. Section 621(a)(2) of 

Pub. L. 108–173 requires that the 

threshold for establishing separate APCs 

for drugs and biologicals be set at $50 

per administration for CYs 2005 and 

2006. Therefore, we cannot change the 

threshold amount for CY 2005 as some 

of the commenters have suggested. We 

will take all of the commenters’

recommendations into consideration as 

65780 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

we work on our packaging proposal for 

the CY 2007 OPPS.

However, in light of the commenters’

concerns, we have decided to apply our 

equitable adjustment authority to 

establish several exceptions to the 

packaging threshold. We note that there 

were seven drugs and biologicals that 

we proposed to pay separately for in our 

proposed rule. However, when we 

recalculated their median costs per day 

using all of the hospital claims used for 

this final rule with comment period, 

their median costs per day were less 

than $50. We considered several 

payment options for these drugs and 

biologicals, such as packaging all of the 

items in CY 2005 or paying separately 

for all of them as we had proposed. 

However, after evaluating these drugs 

carefully, we decided to finalize the 

following payment policy for these 

items: 

• Drugs and biologicals that were 

paid separately in CY 2004 and have 

median costs per day less than $50 

based on the hospital claims data being 

used for the CY 2005 final rule with 

comment period would continue to 

receive separate payment in CY 2005. 

• Those drugs and biologicals that are 

packaged in CY 2004 and that have 

median costs per day less than $50 

based on the hospital claims data being 

used for the CY 2005 final rule with 

comment period would remain 

packaged in CY 2005. 

We believe these policies are the most 

equitable for this particular set of drugs 

given the fluctuations in median 

hospital cost relative to the $50 

threshold and their status in CY 2004. 

Table 24 lists the seven drugs and 

biologicals to which this policy will 

apply along with their CYs 2004 and 

2005 payment status indicator. The four 

items that will be separately paid under 

this policy meet the definition of sole 

source ‘‘specified covered outpatient 

drugs’’ and will be paid between 83 

percent and 95 percent of their AWP in 

CY 2005.

Comment: One commenter indicated 

that CMS was proposing a packaging 

policy that appeared to be different from 

the MMA requirement because a 

particular drug may be administered 

more than once per day. Therefore, the 

commenter added, a drug with a cost 

per administration of less than $50 that 

is administered more than once per day 

would qualify for separate payment 

under CMS’ proposed policy, but would 

not qualify for separate payment under 

the MMA requirement. The commenter 

indicated that the overall impact of this 

discrepancy is that there will be less 

packaging of drugs under the OPPS than 

Congress intended. The commenter was 

unclear as to whether CMS had the 

authority to deviate from the statute in 

this way. 

Response: We note that the hospital 

claims data do not indicate whether 

there were multiple administrations of 

the same drug on a single day. 

Accordingly, we must assume that for 

all cases there was only a single 

administration of each drug per day. For 

packaging purposes, the median cost per 

day for each drug and biological must, 

therefore, serve as a proxy for its cost 

per administration. We will, however, 

continue to explore ways to distinguish 

single versus multiple drug 

administrations for future OPPS 

updates. 

Comment: Numerous commenters, 

including several manufacturers of 

pharmaceutical products, individual 

hospitals, and hospital associations, 

strongly supported CMS’ proposed 

exception to exclude the six injectible 

and oral forms of 5HT3 anti-emetic 

products from the packaging threshold 

and allow separate payment for all of 

them. One commenter indicated that 

CMS’ claims data used to determine 

median cost per day may not be a 

reliable source for accurate median costs 

for these products and may understate 

their actual acquisition and related 

costs. Another commenter stated that if 

the $50 threshold were applied to this 

class of drugs, it would have created an 

incentive for hospitals to choose 

therapies based on the opportunity for 

payment and not their appropriateness 

for each individual patient. The 

commenters agreed that this policy 

would help to ensure beneficiary access 

to the most appropriate anti-emetic drug 

for cancer care. Several commenters also 

urged CMS to give careful thought to the 

effects of packaging on patient access to 

other types of drugs and biological 

therapies. However, one commenter 

indicated that, in recent months, the 


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wholesale acquisition cost for one of the 

injectible anti-emetic drugs specified in 

the proposed exception was reduced by 

the manufacturer by seventy-three 

percent. If the proposed exception were 

applied to this drug, the payment would 

provide a margin of over one hundred 

dollars for each dose administered and 

the outcome would be contrary to the 

stated intent of the proposal. The 

commenter believed that CMS could not 

have anticipated the perverse payment 

situation that would result under such 

an exception and recommended that 

CMS reconsider and withdraw the 

exception to the packaging rule for this 

class of drugs. 

Response: We appreciate the 

commenters’ support of our proposal to 

pay for the six 5HT3 products 

separately. We also recognize the 

concerns raised by a commenter 

informing us of the price reduction for 

one of the injectible products. However, 

we firmly believe that packaging some 

of the 5HT3 anti-emetic products and 

paying separately for others may 

negatively impact a beneficiary’s access 

to the particular anti-emetic that is most 

effective for him or her as determined 

by the beneficiary and his or her 

physician. Therefore, we are finalizing 

our policy to pay separately for all six 

injectible and oral forms of anti-emetic 

products in CY 2005. We note that this 

policy only affects drugs of a particular 

class (in this case, 5HT3 anti-emetic 

products) that vary in their payment 

status (that is, packaged or paid 

separately), and our intent is not to 

generally standardize payment 

methodologies for separately payable 

drugs of the same class. 

Comment: One commenter expressed 

operational concerns about billing for 

oral anti-emetics associated with 

chemotherapy. The commenter 

indicated that it will be extremely 

difficult to bill for these drugs when the 

same HCPCS codes are used for the 

drugs’ use in nausea not associated with 

chemotherapy and requested that CMS 

consider establishing a separate HCPCS 

code or an edit that will only allow 

payment when a cancer diagnosis is on 

the claim.

Response: The following HCPCS 

codes are those hospitals use to report 

the six 5HT3 products irrespective of 

their use: J1260 (Injection, Dolasetron, 

Mesylate, 10 mg), Q0180 (Dolasetron 

Mesylate, 100 mg, oral), J1626 

(Injection, Graniestron Hydrochloride, 

100 mcg), Q0166 (Granisetron 

Hydrochloride, 1 mg, oral), J2405 

(Injection, Ondansetron Hydrochloride, 

per 1 mg), and Q0179 (Ondansetron 

Hydrochloride 8 mg, oral). The policy 

discussed above applies only to the 

packaging status of these products, not 

to their coverage status. Hospitals 

should continue billing in accordance 

with existing coverage rules. 

Comment: We received comments on 

the packaging status of several drugs, 

biologicals, and radiopharmaceutical 

agents where the commenters indicated 

that the items were incorrectly packaged 

and should be paid separately as sole 

source ‘‘specified covered outpatient 

drugs.’’ Specific items mentioned in the 

comments were HCPCS codes A9524, 

Q3010, J2790, and J7525. The 

commenters asserted that the median 

cost per day calculations for these 

products were based on inaccurate and 

incomplete hospital claims data because 

the hospitals were not likely to have 

been charging appropriately for the 

products or billing the correct number 

of units. One of the commenters also 

cited changes in HCPCS code 

descriptors and the lag time in hospitals 

updating their charge masters to reflect 

revised code descriptors as possible 

reasons for why the hospital claims data 

may be skewed and may not be 

reflective of hospitals’ actual acquisition 

costs. Another commenter asserted that 

since many of these drugs were 

packaged in CY 2003, the claims data 

did not capture the drugs’ actual costs. 

Commenters urged CMS to review only 

the ‘‘correctly coded’’ claims when 

determining median cost per day for 

these products, use external data to help 

determine appropriate payment rates, or 

pay for the drugs separately as sole 

source ‘‘specified covered outpatient 

drugs’’ since these items meet that 

definition. Another commenter 

requested that CMS retain the CY 2004 

payments until there is enough data to 

accurately determine payment rates. 

Response: We understand 

commenters’ concerns about the median 

cost per day for these particular items. 

To determine which claims for drugs, 

biologicals and radiopharmaceuticals 

are ‘‘correctly coded’’ would require 

that we attempt to assess which claims 

indicate that the number of units billed 

were or were not clinically reasonable. 

Given variations among patients with 

respect to the appropriate doses, the 

variety of indications with different 

dosing regimens for some agents, our 

lack of information about how many 

doses were administered on a given day, 

the possibility of off-label uses, and our 

desire not to question the clinical 

judgment of the prescribing providers 

on these issues, we do not believe that 

an approach that attempts to identify 

and use only ‘‘correctly coded’’ claims 

is feasible. The hospital claims database 

is the best and most complete source of 

data we have for establishing median 

hospital costs for the services and items 

paid for under the OPPS. 

In section III.B. of this final rule with 

comment period, we discuss comments 

concerning our methodology for units 

trimming. It is possible that some other 

approaches to units trimming could 

increase the derived cost per day for 

some drugs but could also result in 

decreases for some. For others, it could 

result in no difference for the drug in 

relation to the $50 threshold. As a test, 

we applied several different unit trim 

approaches to one of the codes for 

which we received comments and still 

did not achieve a median cost per day 

above $50. Nevertheless, we appreciate 

the thoughtful comments we have 

received on this topic and will consider 

the issue of units trimming in later 

development of our OPPS payment 

rates. For our final policy for CY 2005, 

however, we retain the methodology 

that we proposed. We will also 

encourage hospitals to carefully 

consider the descriptions of each 

HCPCS code when determining the 

number of units to bill for drugs, 

biologicals and radiopharmaceuticals. 

We will consider special efforts related 

to particular items. We would note, also, 

that the payment hospitals receive for a 

particular drug is based on the number 

of units billed. If a hospital underreports 

the number of units administered to a 

patient due to a misunderstanding about 

the definition of the code, the hospital 

will not receive the full amount to 

which it is entitled. Conversely, 

hospitals should not report more units 

than appropriate based on the coding 

description and the amount required to 

treat the patient. 

3. Payment for Drugs, Biologicals, and 

Radiopharmaceuticals Without PassThrough Status That Are Not Packaged 

a. Payment for Specified Covered 

Outpatient Drugs 

Section 621(a)(1) of Pub. L. 108–173 

amended section 1833(t) of the Act by 

adding a new subparagraph (14) that 

requires special classification of certain 

separately paid radiopharmaceutical 

agents and drugs or biologicals and 

mandates specific payments for these 

items. Under section 1833(t)(14)(B)(i), 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 exists 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 

65782 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

included in the definition of ‘‘specified 

covered outpatient drugs.’’ 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)(i) of the Act, as 

added by section 621(a)(1) of Pub. L. 

108–173, specifies payment limits for 

three categories of specified covered 

outpatient drugs in CY 2004. Section 

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

three categories of specified covered 

outpatient drugs based on section 

1861(t)(1) and sections 1927(k)(7)(A)(ii), 

(k)(7)(A)(iii), and (k)(7)(A)(iv) of the Act. 

The categories of drugs are ‘‘sole source 

drugs,’’ ‘‘innovator multiple source 

drugs,’’ and ‘‘noninnovator multiple 

source drugs.’’ The definitions of these 

specified categories for drugs, 

biologicals, and radiopharmaceutical 

agents under Pub. L. 108–173 were 

discussed in the January 6, 2004 OPPS 

interim final rule with comment period 

(69 FR 822), along with our use of the 

Medicaid average manufacturer price 

database to determine the appropriate 

classification of these products. Because 

of the many comments received on the 

January 6, 2004 interim final rule with 

comment period, the classification of 

many of the drugs, biologicals, and 

radiopharmaceuticals changed from that 

initially published. These changes were 

announced to the public on February 

27, 2004, Transmittal 112, Change 

Request 3144. Additional classification 

changes were implemented in 

Transmittals 3154 and 3322. 

We received 25 public comments 

associated with the January 6, 2004 

interim final rule with comment period. 

These public comments are summarized 

under section V.B.4. of this preamble. 

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

added by section 621(a)(1) of Pub. L. 

108–173, also provides that payment for 

these specified covered outpatient drugs 

is to be based on its ‘‘reference average 

wholesale price,’’ that is, the AWP for 

the drug, biological, or 

radiopharmaceutical as determined 

under section 1842(o) of the Act as of 

May 1, 2003 (section 1833(t)(14)(G) of 

the Act). Section 621(a) of Pub. L. 108–

173 also amended the Act by adding 

section 1833(t)(14)(A)(ii), which 

requires that: 

• A sole source drug must, in CY 

2005, be paid no less than 83 percent 

and no more than 95 percent of the 

reference AWP. 

• An innovator multiple source drug 

must, in CY 2005, be paid no more than 

68 percent of the reference AWP. 

• A noninnovator multiple source 

drug must, in CY 2005, be paid no more 

than 46 percent of the reference AWP. 

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

defines ‘‘reference AWP’’ as the AWP 

determined under section 1842(o) as of 

May 1, 2003. We interpreted this to 

mean the AWP set under the CMS single 

drug pricer (SDP) based on prices 

published in the Red Book on May 1, 

2003. 

For CY 2005, we proposed to 

determine the payment rates for 

specified covered outpatient drugs 

under the provisions of Pub. L. 108–173 

by comparing the payment amount 

calculated under the median cost 

methodology as done for procedural 

APCs (described previously in the 

preamble) to the AWP percentages 

specified in section 1833(t)(14)(A)(ii) of 

the Act. 

Specifically, for sole source drugs, 

biologicals, and radiopharmaceuticals, 

we compared the payments established 

under the median cost methodology to 

their reference AWP. We proposed to 

determine payment for sole source items 

as follows: If the payment falls below 83 

percent of the reference AWP, we would 

increase the payment to 83 percent of 

the reference AWP. If the payment 

exceeds 95 percent of the reference 

AWP, we would reduce the payment to 

95 percent of the reference AWP. If the 

payment is no lower than 83 percent 

and no higher than 95 percent of the 

reference AWP, we would make no 

change. 

Comment: A few commenters strongly 

opposed the decrease in the payment 

floor for sole source specified covered 

outpatient drugs from 88 percent of 

AWP in CY 2004 to 83 percent of AWP 

in CY 2005. The commenters believed 

that the decrease was inappropriate and 

lacked sound policy justification. The 

commenters recommended that for CY 

2005 the payment floor for sole source 

specified covered outpatient drugs be 

maintained at 88 percent of AWP. One 

commenter, however, was concerned 

about the proposed payment rate for 

HCPCS code J9395 (Injection, 

Fulvestrant, 25 mg), which is based on 

83 percent of AWP instead of 85 percent 

of AWP that is the CY 2004 payment 

level. The commenter asserted that 

CMS’s use of median cost data to 

establish appropriate payment rates for 

specified covered outpatient drugs is 

faulty for this drug because of concerns 

about the accuracy of the hospital 

median cost data. The commenter also 

indicated that several payment changes 

affecting this drug were likely to have 

created a significant degree of confusion 

among hospitals that may have 

negatively skewed hospital median cost 

data and led CMS to correlate the data 

to an AWP-based payment percentage 

that is too low. Another commenter 

urged CMS to create an exceptions 

process that would provide for 

appropriate adjustments within the 

MMA-specified payment corridor upon 

submission of data documenting 

potential access problems or a payment 

rate significantly lower than the 

acquisition cost of the drug. The 

commenter indicated that creating such 

an approach would help to minimize 

disruption to patient access to drugs in 

the hospital outpatient setting. To the 

contrary, several commenters were 

pleased with the payment rates for 

certain products at 83 percent of their 

AWPs. 

Response: Section 621(a) of Pub. L. 

108–173 is very specific in requiring 

that a sole source drug must be paid no 

less than 83 percent and no more than 

95 percent of the reference AWP in CY 

2005. We used the 83 percent of AWP 

as the payment floor to set payment 

rates for sole source drugs, unless 

payments based on median costs were 

higher, as we lack any data to determine 

what would be the appropriate payment 

level between 83 percent and 95 percent 

of AWP for all sole source drugs. We set 

up a payment floor to avoid paying for 

these drugs at different arbitrarily 

determined payment levels. We note 

that if data show that the payment rate 

for a drug falls between the 83 percent 

floor and 95 percent ceiling, the drug is 

paid at the payment rate.

We have responded to comments 

about the relative hospital data from our 

claims above and in other sections of 

this preamble. While we certainly share 

the desire to provide beneficiaries with 

access to the drugs that are reasonable 

and necessary for the treatment of their 

conditions, we do not agree with the 

comments that we should pay above the 

83 percent floor established by the 

MMA for sole source drugs if the 

median hospital cost falls below this 

floor. We believe the intent of the law 

is to use hospital cost data as the best 

available information in setting the 

payment rates for most items paid for 

under the OPPS. In the case of sole 

source specified covered outpatient 

drugs, the MMA provides for a floor of 

83 percent of the reference AWP for 

those items for which the payment 

based on relative hospital costs would 

fall below 83 percent of the AWP and 

a ceiling of 95 percent of the reference 

AWP for items where the relative 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65783

hospital costs from our claims data 

exceed that amount. We are not 

convinced that the 83 percent AWP 

floor is a barrier to appropriate 

treatment. 

Comment: One commenter, the 

manufacturer of AGGRASTAT, 

requested that CMS convert the current 

temporary outpatient HCPCS code 

C9109 (Injection, Tirofiban HCl, 6.25 

mg) to a permanent national HCPCS 

code with a base dose of 5 mg and 

continue to maintain the permanent 

national HCPCS code J3245 (Injection, 

Tirofiban HCl, 12.5 mg). The commenter 

asserted that HCPCS codes with units of 

5 mg and 12.5 mg would properly 

reflect the actual doses of 

AGGRASTAT that currently exist in 

the market. 

Response: For 2005, the National 

HCPCS Panel decided to delete HCPCS 

codes C9109 and J3245 and create a new 

HCPCS code J3246 (Injection, Tirofiban 

HCl, 0.25 mg). We hope that the creation 

of this new HCPCS code will ameliorate 

the commenter’s concerns about 

appropriate coding for this product. 

Comment: We received a number of 

comments on the packaging status of 

HCPCS codes J7505 (Muromonab-CD3, 

parenteral, 5 mg) and J9266 

(Pegaspargase, single dose vial). The 

commenters stated that these two 

products were incorrectly packaged 

because the data used to determine 

packaging status were flawed and 

requested that both products be paid 

separately as sole source drugs at a rate 

between 83 percent and 95 percent of 

their AWPs. 

Response: There were several drugs 

and biologicals that we proposed to 

package in the proposed rule, including 

the two products mentioned in the 

comments. However, when we 

recalculated their median costs per day 

using all of the hospital claims from CY 

2003 used for this final rule with 

comment period, we determined that 

their median costs per day were greater 

than $50. Therefore, for CY 2005, we 

will pay for these drugs and biologicals 

separately. Items that meet the 

definition of ‘‘specified covered 

outpatient drugs’’ (SCOD) will be paid 

according to the payment methodologies 

established in the MMA, and payment 

for items that do not meet the definition 

will be based on their median unit cost. 

Table 25 lists the drugs and biologicals 

that were proposed as packaged drugs 

and biologicals but will be paid 

separately in CY 2005. The table also 

indicates the methodology that will be 

used to determine their APC payment 

rates in CY 2005.

Comment: One commenter was 

concerned about the proposed payment 

rates for HCPCS codes A9502 (Supply of 

radiopharmaceutical diagnostic imaging 

agent, technetium Tc 99m tetrofosmin, 

per unit dose) and Q3005 (Supply of 

radiopharmaceutical diagnostic imaging 

agent, technetium Tc-99m mertiatide, 

per mci). The commenter indicated that 

payment corrections made for these two 

products in the February 27, 2004 CMS 

Transmittal 113 resulted in significant 

payment reductions. The commenter 

was concerned that significant payment 

fluctuations and reductions were 

counter-productive to the provision of 

quality care and will negatively impact 

the operational viability of nuclear 

medicine departments. Therefore, the 

commenter urged CMS to reconsider 

their proposed payments for these two 

products. 

Response: We understand the 

commenter’s concern about the impact 

of fluctuations in payment rates for 

HCPCS codes A9502 and Q3005. 

However, we note that the payment 

rates that were listed in the January 6, 

2004 interim final rule with comment 

period for these products were 

calculated using incorrect reference 

AWPs as indicated in the February 27, 

2004 CMS Transmittal 113. Therefore, 

we made corrections to the AWPs for 

these products and recalculated their 

payment rates according to the payment 

methodology required by the MMA for 

sole source ‘‘specified covered 

outpatient drugs’’. 

Comment: One commenter requested 

that CMS support a decision by the 

HCPCS Alpha-Numeric Editorial Panel 

to issue separate permanent and 

universal drug codes for 

echocardiography contrast agents for 

which applications have been 

submitted. Specifically, the commenter 

recommended that CMS support the 

application submitted for the creation of 

a J-code for Definity, which is currently 

being reported as HCPCS code C9112 

(Injection, perflutren lipid microsphere, 

per 2 ml vial). 

Response: Decisions regarding the 

creation of permanent HCPCS codes are 

coordinated by the National HCPCS 

Panel. Comments related to the HCPCS 

code creation process and decisions 

made by the National HCPCS Panel are 


ER15NO04.040</GPH>
65784 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

outside the scope of this rule; therefore, 

we will not respond to this comment. 

We note that until a J-code is 

established for this product, hospitals 

can continue to bill for this product 

using the HCPCS code C9112. 

Comment: Several commenters 

expressed concern about the proposed 

payment for intravenous immune 

globulin. They were concerned that 

CMS calculated the reference AWP for 

this code using AWPs for one or more 

products that were no longer 

commercially available. For example, 

Carimune and Panglobulin were 

removed from the market and replaced 

with Carimune NF and Panglobulin NF, 

respectively. The commenters requested 

that CMS review the current pricing 

data on the brand products that are 

currently in the market place and 

recalculate payment for IVIG as a sole 

source specified covered outpatient 

drug. Another commenter was 

concerned about the proposed payment 

rate for HCPCS code J7198 (Antiinhibitor, per IU). The commenter 

indicated CMS calculated the reference 

AWP for this code using an AWP for a 

product called Autoplex that was 

discontinued from the market in May 

2004 and recommended that CMS 

calculate payment for this HCPCS code 

using cost data associated with the 

product Feiba VH that currently exists 

in the market.

Response: We agree with the 

comments and accordingly recalculated 

the base AWP for HCPCS code J1563 

(Immune globulin, intravenous, 1 g) 

excluding AWPs for the two 

discontinued products, Panglobulin and 

Carimune. Similarly, we excluded the 

AWP for the discontinued product, 

Autoplex, when redetermining the base 

AWP for HCPCS code J7198 (Antiinhibitor, per IU). We then recalculated 

their payment rates as sole source 

‘‘specified covered outpatient drugs.’’

We note that these changes resulted in 

an increase in the base AWPs for both 

products. 

Comment: One commenter, the maker 

of the product billed under HCPCS code 

C9201 (Dermagraft, 37.5 cm2), requested 

that CMS set its CY 2005 payment rate 

under the OPPS identical to the 

payment rate in the physician office 

setting. The commenter anticipated a 

payment rate of $574.41 (third quarter 

ASP plus 6 percent) when it is used in 

the physician office setting during CY 

2005; however, the proposed payment 

rate as a sole source drug under the 

OPPS was $529.54. The commenter 

indicated that Dermagraft’s cost to all 

customers is identical regardless of the 

site of service and establishing a 

payment rate under the OPPS below the 

cost of the product to hospitals would 

hinder their access to medical 

technologies for which they will not 

recover their costs. Additionally, we 

received comments from an association 

representing a group of specialty 

hospitals and a professional association 

expressing concern about the proposed 

payment level for HCPCS code J3395 

(Injection, verteporfin, 15 mg). The 

commenters indicated that the payment 

rate for this product is significantly less 

than the acquisition cost for outpatient 

facilities and requested that CMS pay 

for it at a rate that covers the cost of 

acquiring the drug. The commenter also 

stated that accurate pricing information 

for the drug should be available when 

CMS receives final data from the 

manufacturer on October 31, 2004 and 

that the final OPPS payment rate should 

be reflective of the pricing data. 

Response: The products described by 

HCPCS codes C9201 and J3395 meet the 

definition of sole source ‘‘specified 

covered outpatient drugs.’’ The MMA 

specifies the methodology that 

determines payment for this group of 

drugs under the OPPS where, for CY 

2005, sole source drugs must be paid 

between 83 percent and 95 percent of 

their reference AWP. Since payments 

for these two products based on the 

median cost methodology were less than 

83 percent of their AWPs, their CY 2005 

payment levels were established at 83 

percent of their AWP. In these cases, we 

believe the statute specifically addresses 

the payment methodology for these 

drugs. 

Comment: A few commenters were 

concerned about the proposed payment 

rates for some separately payable drugs 

and biologicals that did not fall under 

the category of ‘‘specified covered 

outpatient drugs.’’ These products 

would be either paid as pass-through 

items or their payment rates were based 

on median cost data; however, the 

commenters requested that the products 

be paid as sole source ‘‘specified 

covered outpatient drugs.’’ One of the 

commenters requested that external data 

be used to correct the payment rate for 

their product. Several rationales were 

cited for this request to change the 

payment methodology, such as the use 

of inaccurate and incomplete hospital 

claims data to determine payment rates 

that are lower than actual hospital 

acquisition costs and eliminating 

payment differentials between drugs of 

the same class. 

Response: We believe that the MMA 

defines the items that are to be 

considered ‘‘specified covered 

outpatient drugs’’ for payment purposes 

under the OPPS, and these drugs do not 

meet the definition. We also recognize 

that classifying these products as sole 

source ‘‘specified covered outpatient 

drugs’’ would increase their payments; 

however, we are not convinced that the 

payment rates for these products 

calculated under current methodologies 

are insufficient. 

In developing our August 16, 2004 

proposed rule, there was one sole source 

item, Co 57 cobaltous chloride (HCPCS 

code C9013), for which we could not 

find a reference AWP amount. However, 

we had CY 2003 claims data for HCPCS 

code C9013, and therefore, we proposed 

to derive its payment rate using its 

median cost per unit. We requested 

comments on our proposed 

methodology for determining the 

payment rate for HCPCS code C9013. 

We received a few comments in 

response to our proposal. 

Comment: The manufacturer of the 

product billed under HCPCS code 

C9013 (Supply of Co 57 cobaltous 

chloride, radiopharmaceutical 

diagnostic imaging agent), Rubatrope, 

along with other commenters, indicated 

that Rubatrope is an FDA-approved 

radiopharmaceutical and a sole source 

drug that meets the definition of a 

‘‘specified covered outpatient drug;’’

therefore, it should be paid between 83 

percent and 95 percent of AWP. The 

manufacturer of Rubatrope indicated 

that it had experienced problems with 

the production of this product in the 

past 2 years and thus production was 

discontinued. However, the product 

will be commercially available from 

November 2004. The commenter also 

indicated that it would send CMS an 

AWP for this product once it becomes 

available. Therefore, for CY 2005, the 

commenters strongly urged CMS to 

establish payment for C9013 as a sole 

source drug at 83 percent of AWP. 

Response: We understand the 

commenters’ concern about the payment 

rate for this product and note that 

HCPCS code C9013 was considered a 

sole source ‘‘specified covered 

outpatient drug’’ in the proposed rule. 

However, as we were not able to 

determine a reference AWP for this 

product, we based its proposed payment 

rate on its median cost from the claims 

data. At the time of the publication of 

this final rule, we were still unable to 

find an AWP for this product, and thus, 

in the absence of an AWP for this 

product, as proposed we will use the 

product’s median cost to base its CY 

2005 payment rate. However, if we 

determine an AWP for HCPCS code 

C9013, we will issue a change to its 

payment accordingly in a quarterly 

update of the OPPS. 

We note that there are three 

radiopharmaceutical products for which 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65785

we proposed a different payment policy 

in CY 2005. These products are 

represented by HCPCS codes A9526 

(Ammonia N–13, per dose), C1775 

(FDG, per dose (4–40 mCi/ml), and 

Q3000 (Rubidium–Rb–82). 

Radiopharmaceuticals are classified as a 

‘‘specified covered outpatient drug’’

according to section 1833(t)(14)(B)(i)(I) 

of the Act and their payment is 

dependent on their classification as a 

single source, innovator multiple 

source, or noninnovator multiple source 

product as defined by sections 1927 

(k)(7)(A)(iv), (ii), and (iii) of the Act. 

Upon further analysis of these items, we 

determined that these three products do 

not meet the statutory definition of a 

sole source item or a multiple source 

item. Pub. L. 108–173 requires us to pay 

for ‘‘specified covered outpatient drugs’’

using specific payment methodologies 

based on their classification and does 

not address how payment should be 

made for items that do not meet the 

definition of a sole source or multiple 

source item. Therefore, in the August 

16, 2004 proposed rule, we proposed to 

set the CY 2005 payment rates for these 

three products based on median costs 

derived from CY 2003 hospital 

outpatient claims data, which would 

reflect hospital costs associated with 

these products. With regard to HCPCS 

code A9526, we have no hospital 

outpatient cost data for this HCPCS 

code. We received correspondence from 

an outside source stating that 

Rubidium–Rb–82 (HCPCS code Q3000) 

is an alternative product used for 

procedures for which Ammonia N–13 is 

also used and these two products are 

similar in cost. Therefore, we proposed 

to establish a payment rate for Ammonia 

N–13 that is equivalent to the payment 

rate for Rubdium Rb–82. 

We listed the proposed CY 2005 

payment rates for these three items in 

Table 25 of the proposed rule (69 FR 

50507), requested comments on the 

proposed payment rates and invited 

commenters to submit external data if 

they believe the proposed CY 2005 

payment rates for these items do not 

adequately represent actual hospital 

costs. 

We received many public comments 

on the proposed payment rates for the 

three items.

Comment: Many commenters were 

concerned about the proposed reduction 

in the payment rate for FDG in CY 2005. 

They stated that FDG meets the 

definition of ‘‘specified covered 

outpatient drugs,’’ and the MMA 

requires that ‘‘specified covered 

outpatient drugs’’ be classified as sole 

source drugs, innovator multiple source 

drugs, or noninnovator multiple source 

drugs, and be reimbursed according to 

a percentage of the reference AWP 

during CY 2005. Several commenters 

understood the difficulty CMS had in 

classifying FDG into one of the three 

categories of ‘‘specified covered 

outpatient drugs.’’ However, one of the 

commenters was concerned that CMS 

abandoned the methodology prescribed 

by the MMA and created another 

payment category for ‘‘specified covered 

outpatient drugs,’’ which the 

commenter believed is outside the scope 

of the MMA. 

A commenter suggested that CMS 

assign FDG to the category that most 

closely reflects the underlying 

regulatory and economic environment 

for the production of FDG, which is the 

innovator multiple source drug 

category. The commenter explained that 

the production and sale of FDG is 

unusual in that the FDA does not yet 

require an approved New Drug 

Application (NDA) or Abbreviated New 

Drug Application (ANDA). The 

commenter also stated that the FDA is 

currently drafting special criteria to 

govern NDAs and ANDAs for the 

production and marketing of FDG, and 

eventually, manufacturers will be 

required to submit either an NDA or 

ANDA in order to sell FDG. Right now, 

there are no approved ANDAs or 

‘‘generics’’ for FDG, and none of the 

FDA approved products is 

therapeutically equivalent. The 

commenter indicated that FDG is sold 

commercially by at least three 

manufacturers and is produced by 

numerous hospitals and academic 

medical centers for their own use, thus 

making it a multiple source drug. 

However, until the FDA finalizes its 

requirements for NDAs and ANDAs for 

FDG and all manufacturers have an 

opportunity to comply with those 

regulations, all FDG marketed in the 

United States should be considered a 

‘‘brand’’ version. Although the different 

FDG products distributed are not rated 

as equivalent by the FDA, FDG was 

originally marketed under an NDA, and 

currently there are multiple distributors. 

Thus, although FDG does not meet all 

aspects of the multiple source innovator 

drug definition, given the inaccuracies 

of the hospital outpatient claims data, 

this commenter, along with several 

others, recommended that FDG be paid 

under the MMA at 68 percent of its 

AWP. Alternatively, some commenters 

requested that CMS keep the CY 2005 

payment for FDG at its CY 2004 level 

until the completion of the GAO 

hospital acquisition cost survey, which 

will allow for a more reliable basis for 

setting payment based on average 

acquisition cost. One commenter stated 

that CMS should use external data 

submitted by hospitals to determine the 

true costs of this product. External data 

from a survey of 2002 nuclear medicine 

costs reported by hospitals were 

submitted, and the results indicated that 

median cost to hospitals for one dose of 

FDG is $425. Another commenter stated 

that their current cost for administering 

one dose of FDG to patients receiving 

PET scans is $450 and that CMS should 

research real market costs for this 

product before reducing payment by 

$126 from the current CY 2004 payment 

rate 

The commenters all agreed that CMS 

should not use CY 2003 hospital claims 

data to calculate payment for FDG in CY 

2005 because the reported data fails to 

accurately capture the actual acquisition 

cost to hospitals along with all the 

reasonable costs needed to safely 

prepare, store, administer, and dispose 

of the product. Commenters indicated 

that the HCPCS code descriptor for 

C1775 is written in a way that requires 

hospitals to use the same code to report 

FDG with a concentration of 4mci/ml as 

they use to report FDG with a 

concentration of 40 mci/ml, thus 

making the claims data unreliable, and 

also, hospitals did not have clear billing 

and charging guidance. Thus, the 

commenters claimed that the FDG data 

from CY 2003 are a flawed basis upon 

which to make a payment determination 

and would significantly underpay 

hospitals. Commenters noted that a 

reduction in payment for FDG to the 

proposed payment rate would limit 

utilization and access to FDG PET 

because of the financial losses the 

providers will suffer. 

Response: We appreciate these 

thoughtful comments on our proposed 

payment rate for FDG. Based on the 

unique regulatory processes that affect 

the manufacturing and marketing of 

FDG, we believe that it is reasonable for 

us to classify FDG as an innovator 

multiple source drug. Therefore, we will 

not reinstate the HCPCS code C9408 

(FDG, brand, per dose), which we 

inadvertently deleted as stated in the 

October 2004 Update of the OPPS (CMS 

Transmittal 290). In CY 2005, hospitals 

should use C1775 to bill for all FDG 

products.

With respect to calculating payment 

for FDG in CY 2005, the MMA requires 

that an innovator multiple source drug 

must be paid no more than 68 percent 

of the reference AWP. The MMA sets 

forth a payment ceiling for the brand 

innovator multiple source drugs, but 

does not provide a payment floor for 

them. We believe that the intent of the 

statute is to use available hospital 

65786 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

claims to set payment rates for most 

items paid under OPPS; therefore, we 

apply the ceiling only when the 

payment for an item based on the 

median hospital cost for the drug 

exceeds the ceiling. As we described in 

section V.A.3.a. of this final rule with 

comment period, for innovator multiple 

source drugs, we set the payment rate at 

the lower of the payment rate calculated 

under the standard median cost 

methodology or 68 percent of the AWP. 

We have applied this methodology to all 

of the other innovator multiple source 

drugs; therefore, we do not believe that 

it would be appropriate for us to exempt 

FDG from this methodology and pay for 

it at 68 percent of AWP, the ceiling for 

innovator products. We believe that 

basing payment for this item on relative 

hospital costs, with the application as 

appropriate of the previously mentioned 

ceiling, not only meets the intent but 

also the requirements of the MMA. The 

payment rate for C1775 in CY 2005 will 

be $221.11. 

Comment: The manufacturer of 

CardioGen–82, also known as Rubidium 

Rb–82, along with other commenters 

asserted that this product does meet the 

classification of a sole source drug as 

defined by the MMA. The commenters 

indicated that FDA approval for this 

product was received under an NDA, 

and there is currently only one 

manufacturer of the Cardiogen–82 

generators used to produce Rubidium 

Rb–82. Also, there is no FDA-approved 

generic product for Rubidium Rb–82. 

One of the commenters indicated that a 

survey was conducted to obtain data on 

actual hospital costs for Rubidium Rb–

82, which showed that the median per 

dose cost to hospitals was $244.73. 

Thus, the commenter believed that CMS 

hospital cost data were flawed and do 

not represent true hospital costs; 

therefore, the hospital claims cost data 

should not be used to set the payment 

rate for Rubidium Rb–82 in CY 2005. 

Other commenters indicated that 

median cost data used by CMS to 

calculate the payment rate for Rubidium 

Rb–82 underreport the actual and 

reasonable hospital costs needed to 

safely prepare, store, administer, and 

dispose of the product. The commenters 

urged CMS to recognize HCPCS code 

Q3000 (Supply of radiopharmaceutical 

diagnostic imaging agent, Rubidium Rb–

82, per dose) as a sole source drug and 

set its payment at 83 percent of its AWP, 

or at minimum, retain the CY 2004 

payment rate. 

Response: We appreciate these 

comments. Based on further evaluation 

of the appropriate classification for this 

product, we agree with the commenters 

that Rubidium Rb–82 should be 

classified as a sole source product. 

Therefore, payment for Q3000 will be 

made at 83 percent of AWP as its 

payment based on the median cost 

methodology is less than 83 percent of 

AWP. The payment rate for Rubidium 

Rb–82 in CY 2005 will be $153.39 per 

dose. 

Comment: Numerous commenters 

were concerned about the proposed 

payment rate for HCPCS code A9526 

(Ammonia N–13, per dose). Some of the 

commenters stated that CMS proposed 

to treat HCPCS codes Q3000 (Rubidium 

Rb–82, per dose) and A9526 under a 

‘‘presumptive functional equivalence’’

in setting the same payment rate for 

these products when they are not 

functionally equivalent. It was also 

stated that Rubidium Rb–82 and 

Ammonia N–13 are used for similar 

procedures, but they have different 

costs, clinical composition, and 

utilization patterns. Another commenter 

indicated that Rubidium Rb–82 

significantly differs from the other PET 

radiopharmaceuticals as it is produced 

by a radionuclide generator system, 

compared to FDG and Ammonia N–13 

that are made in cyclotrons. A 

commenter also stated that Ammonia 

N–13 has no commercial vendors; 

whereas, Rubidium Rb–82 is produced 

and distributed by one commercial 

vendor. Some commenters suggested 

that CMS pay for A9526 separately, 

similar to other ‘‘specified covered 

outpatient drugs.’’ On the other hand, 

other commenters recommended that, in 

the absence of reliable cost data or a 

published AWP, CMS should use the 

cost of FDG as a proxy for the cost of 

Ammonia N–13, since these products 

have equivalent production costs. 

Response: We recognize the concerns 

raised by commenters about our 

proposal to pay for Ammonia N–13 at 

the same payment rate as Rubidium Rb–

82. We acknowledge that Ammonia N–

13 meets the definition of ‘‘specified 

covered outpatient drugs;’’ however, we 

have not been able to determine an 

AWP for this product. Thus, we cannot 

set a payment rate for this product based 

on a percentage of its AWP. While some 

of the commenters recommended that 

we set the payment rate for Ammonia 

N–13 at the same level as that for FDG, 

we are aware this would give rise to the 

same concerns raised by commenters 

regarding payment for Ammonia N–13 

and Rubidium Rb–82. Therefore, we are 

not adopting our proposed payment 

policy for Ammonia N–13. Based on the 

complete CY 2003 hospital claims data 

that were used for this final rule with 

comment period, we were able to 

identify claims submitted for Ammonia 

N–13; therefore, for CY 2005, we will 

use median cost derived from the claims 

data to set the payment for this product. 

The CY 2005 payment rate for A9526 

will be $109.86 per dose. 

Comment: A number of commenters, 

including several cancer research 

centers and trade associations 

representing the radionuclide and 

radiopharmaceutical industry, 

biomedical science, and the 

biotechnology industry, as well as the 

manufacturers of Bexxar (billed using 

HCPCS codes C1080, C1081, and G3001) 

and Zevalin (billed using HCPCS codes 

C1082 and C1083), expressed concern 

that 83 percent of AWP is insufficient to 

reimburse hospitals for the cost of 

acquiring Zevalin and Bexxar. Several 

commenters, including the 

manufacturer of Zevalin, were 

concerned that the proposed payment 

rates for Zevalin are inadequate to 

facilitate patient access to this critical 

therapy. One commenter stated that, 

because Zevalin is a 

radioimmunotherapy, its purchase and 

use are subject to state regulatory 

safeguards that limit its availability in 

the oncology practices; therefore, its 

access in the hospital outpatient setting 

is crucial. The commenter urged CMS to 

maintain the 2004 payment rates for 

Zevalin, which are at 88 percent of 

AWP, into CY 2005, and indicated that 

this stability would make treatment 

with Zevalin more economically 

feasible for hospitals. 

One commenter, the manufacturer of 

Bexxar, expressed concern about what 

they identified as several ‘‘inequities’’ in 

the coding and proposed payments for 

Bexxar and Zevalin. Specifically, the 

commenter pointed out that the 

payment proposed for Bexxar in CY 

2005 is more than $1500 less than the 

payment proposed for Zevalin. This 

commenter further recommended that 

payment for Bexxar be set at its 

wholesale acquisition cost, which is 

$19,500, or 95 percent of the RAWP, 

which would be $22,230. Several 

commenters indicated that CMS has the 

option to exceed the floor of 83 percent 

of AWP established under the MMA for 

sole source specified covered outpatient 

drugs, which would enable CMS to set 

a rate for Bexxar and Zevalin 

commensurate with their cost.

Two commenters recommended that 

CMS consider external data where 

available to supplement its payment 

determinations for Bexxar and Zevalin. 

Response: We share the commenters’

concerns that Medicare payment rates 

not be a barrier to beneficiary access to 

radioimmunotherapy for the treatment 

of non-Hodgkins lymphoma. However, 

we do not agree with the comments that 

we should set the OPPS payment rates 

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for Zevalin and Bexxar based on their 

CY 2004 payment levels, on external 

data, on their WAC, or on any payment 

amount other than that which is 

consistent the designation of 

radiopharmaceuticals in the MMA as 

specified covered outpatient drugs. 

Zevalin and Bexxar are 

radiopharmaceuticals, and the MMA 

includes them as ‘‘specified covered 

outpatient drugs’’ for the OPPS payment 

purposes. Each meets the definition of 

a sole source drug. We believe the intent 

of the law is that we set payment rates 

for most items paid for under the OPPS 

using hospital cost data from the best 

and most recent information available, 

unless the statute directs otherwise, as 

in the case of drugs with pass-through 

status or new drugs without HCPCS 

codes. The MMA provides a floor of 83 

percent of the reference AWP in CY 

2005 for sole source specified covered 

outpatient drugs for which payment 

based on relative hospital costs would 

be less. Similarly, the MMA provides a 

cap of 95 percent of the reference AWP 

in CY 2005 for sole source specified 

covered outpatient drugs for which 

payment based on relative hospital costs 

would be higher. The statute provides a 

payment floor and ceiling for sole 

source ‘‘specified covered outpatient 

drugs,’’ at no lower than 83 percent of 

AWP or higher than 95 percent of AWP; 

the statute does not require a payment 

at some intermediate level that falls 

between 83 percent and 95 percent of 

AWP. 

Payment for Zevalin based on relative 

hospital costs drawn from CY 2003 

claims data would fall below 83 percent 

of the reference AWP. As we did in the 

case of other sole source drugs for 

which payment based on hospital 

claims would be lower than 83 percent 

of AWP, we proposed to set payment for 

Zevalin at 83 percent of the reference 

AWP. We also proposed to set payment 

for Bexxar in CY 2005 as a sole source 

radiopharmaceutical at 83 percent of 

AWP because, like Zevalin, it is a 

radiopharmaceutical and, therefore, a 

sole source specified covered outpatient 

drug under the MMA. We discuss in 

section V.G. of this final rule with 

comment period that we are making 

final our proposal to treat 

radiopharmaceuticals the same as we 

treat drugs and biologicals for purposes 

of ratesetting, with two exceptions: We 

will set payment for new 

radiopharmaceuticals for which we 

have no claims data, and for new 

radiopharmaceuticals with pass-through 

status effective on or after January 1, 

2005, based on the MMA CY 2005 

payment requirements for specified 

covered outpatient drugs. We have no 

ASP for Bexxar because it is a 

radiopharmaceutical, and manufacturers 

have not been required to submit ASP 

for radiopharmaceuticals. We have no 

claims data from which to calculate 

relative hospital costs for Bexxar 

because of the newness of the product. 

Therefore, we are setting payment for 

Bexxar in accordance with the MMA 

requirement that a sole source specified 

covered outpatient drug be paid no less 

than 83 percent of AWP in CY 2005. 

Comment: A number of commenters, 

including several cancer centers and a 

nuclear medicine trade association, 

asked that CMS provide payment to 

hospitals for the cost of compounding 

each patient-specific dose of Bexxar, 

noting that the compounding costs 

amount to several thousand dollars in 

addition to the cost of the drug itself. 

One of these commenters recommended 

that the cost of compounding Bexxar be 

included in the payment for the product 

and that C1080 and C1081 be assigned 

to a new technology APC to reflect the 

total cost of the product plus 

compounding. One commenter, the 

manufacturer of Bexxar, is concerned 

because the payment proposed for 

Bexxar in CY 2005 does not include 

payment for the cost of compounding 

that is required to prepare patient 

specific doses of diagnostic and 

therapeutic I–131 tositumomab, whether 

done by the hospital’s own 

radiopharmacy or by a commercial 

radiopharmacy. The commenter 

estimates that hospitals incur a 

compounding cost of $2,000–$3,000 to 

furnish Bexxar to a single patient when 

a commercial radiopharmacy does the 

compounding. The commenter 

recommends that CMS either base 

payment for Bexxar on 95 percent of 

AWP, continue payment for Bexxar at 

the CY 2004 level, or establish a new 

code to enable hospitals to bill 

separately for Bexxar compounding 

costs. 

Response: Because Zevalin and 

Bexxar are radiopharmaceuticals that 

fall under the category of sole source 

specified covered drugs established by 

the MMA, the payment rates for these 

products are based on AWP, as required 

by the MMA. To the extent that 

compounding costs are reflected in the 

AWP, the payment rate includes these 

costs. If hospitals incur additional 

compounding costs for the radiolabeled 

monoclonal antibodies, those costs 

could be reported as a separate line item 

charge with an appropriate revenue 

code or packaged into the charge for 

CPT codes 78804 and 79403, which 

could result in an outlier payment if the 

outlier threshold for those services was 

exceeded. The MMA requires that 

MedPAC submit a report to the 

Secretary by July 1, 2005 on adjustment 

of payment for ambulatory payment 

classifications for specified covered 

outpatient drugs to take into account 

overhead and related expenses, such as 

pharmacy services and handling costs. 

We look forward to receiving this report 

in anticipation that the data collected by 

MedPAC will enable us to address drugrelated overhead costs in future OPPS 

updates. 

Comment: Several commenters 

expressed concerns that the payment 

rates proposed for Bexxar could result 

in clinicians having to make treatment 

decisions based upon payment 

considerations rather than medical 

considerations, and could result in 

physicians having to deny patients a 

potential life-saving therapy. The same 

commenters were concerned that the 

payment proposed for Zevalin and 

Bexxar does not recognize all of the 

additional costs associated with the 

provision of radiolabeled antibody 

therapy or radioimmunotherapy (RIT) 

for the treatment of non-Hodgkins 

lymphoma. These commenters urged 

CMS to consider all of the costs 

associated with this therapy when 

setting payment rates for each 

component of the regimen and 

recommended that CMS ensure that 

total payment to hospitals be 

commensurate with all of the actual 

costs that hospitals incur to acquire, 

prepare, and administer radiolabeled 

antibodies and to perform all of the 

additional procedures associated with 

RIT, thereby ensuring that patient access 

to these vital therapies will not be 

jeopardized.

Response: We share the commenters’

concerns about the extent to which 

payment considerations influence 

treatment decisions. However, we 

believe that to the extent that 

radioimmunotherapy proves to be an 

efficacious treatment for patients with 

certain forms of non-Hodgkins 

lymphoma, payment in the aggregate for 

the full array of procedures and services 

associated with this new form of 

treatment affords hospitals sufficient 

flexibility to ensure that payment is not 

a barrier to beneficiary access when it is 

deemed reasonable and necessary. 

Table 26 below lists the final APC 

payment rates for sole source drugs, 

biologicals, and radiopharmaceuticals 

effective January 1, 2005 to December 

31, 2005. 

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In order to determine the payment 

amounts for innovator multiple source 

and noninnovator multiple source forms 

of the drug, biological, or 

radiopharmaceutical, we compared the 

payments established under the median 

cost methodology to their reference 

AWP. For innovator multiple source 

items, we proposed to set payment rates 

at the lower of the payment rate 

calculated under our standard median 

cost methodology or 68 percent of the 

reference AWP. For noninnovator 

multiple source items, we proposed to 

set payment rates at the lower of the 


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payment rate calculated under our 

standard median cost methodology or 

46 percent of the reference AWP. We 

followed this same methodology to set 

payment amounts for innovator 

multiple source and noninnovator 

multiple source ‘‘specified covered 

outpatient drugs’’ that were 

implemented by the January 6, 2004 

interim final rule with comment period. 

We listed the proposed payment 

amounts in Table 26 of the proposed 

rule. 

Comment: One commenter, an 

association of cancer centers, indicated 

that CMS proposed the same payment 

rate for both the brand name and generic 

versions of a drug. Given that CMS does 

not have separate HCPCS code level 

data for brand versus generic drugs in 

the CY 2003 claims data, the commenter 

indicated that it did not understand 

how CMS could use claims data to 

justify equivalent payment levels for 

both brand and generic versions of a 

drug. The commenter was also 

concerned about the adequacy of using 

the CY 2003 claims data to calculate the 

costs of these products and making 

comparisons to the payment rate 

ceilings set forth by the MMA for multisource drugs, especially for the brand 

name drugs. Therefore, the commenter 

requested that CMS pay for all brand 

name drugs at 68 percent of AWP and 

pay for generics by comparing the 

calculated cost using the claims data to 

the 46 percent of AWP threshold and 

selecting the lower of the two as the 

payment rate. 

Response: For CY 2005, as for the 

current year, the MMA sets forth 

different payment ceilings for the brand 

and generic versions of the drug. The 

MMA does not provide a payment floor 

for either the brand or generic versions 

of such items. Only sole source drugs 

have a payment floor and ceiling. As 

stated elsewhere in this final rule with 

comment period, the CY 2005 payment 

rate for innovator multiple source 

(brand name) drugs may not exceed 68 

percent of the reference AWP. The 

payment for noninnovator multiple 

source (generic) drugs may not exceed 

46 percent of the reference AWP. In 

determining payment rates, we apply 

those ceilings only when the payment 

for an item based on the median 

hospital cost for the drug exceeds one of 

these ceilings. In some cases, the 

payment based on the median hospital 

cost falls below the 46 percent ceiling 

for generic drugs. In such cases, the 

payment rate would be the same for 

brand and generic versions. However, 

we believe that basing payment for these 

items on relative hospital costs, with the 

application as appropriate of the 

previously mentioned ceilings not only 

meets the intent but also the 

requirements of the MMA. 

Comment: A few commenters 

indicated that the proposed payment 

rate of $410.45 for HCPCS code A9600 

(Supply of therapeutic 

radiopharmaceutical, Strontium-89, per 

mci) would underpay hospitals for this 

product since the payment rate was 

based on flawed CMS median cost data 

that do not accurately reflect the real 

acquisition cost of this drug by 

hospitals. The commenters believed that 

hospital costs for A9600 are 

approximately $800 per mci and 

requested that CMS adjust the payment 

accordingly. One commenter, who was 

the manufacturer of this product, 

asserted that the product is expensive 

and difficult to manufacture since it is 

produced in small quantities. The 

commenter also indicated that the 

reduction in the payment rate for this 

product is driving the underutilization 

of this product and increasing the use of 

costly narcotic analgesics, thus resulting 

in a decrease in quality of life and a rise 

in the cost of health care. Another 

commenter stated that the HCPCS codes 

for diagnostic and therapeutic iodine 

products (C1064, C1065, C1188, C1348, 

A9528, A9529, A9530, A9531, A9517 

and A9518) all describe in various years 

and forms diagnostic and therapeutic 

Iodine 131 and that these codes have 

had varying descriptions that have 

resulted in flawed cost data. The 

commenter submitted data indicating 

that the cost for I–131 in the capsule 

form is higher than for solution, and 

recommended that CMS use external 

data to restore and correct payment rates 

for the Iodine 131 product so that the 

payment more accurately reflects actual 

hospital costs. 

Response: We understand the 

commenters’ concerns about 

establishing appropriate payment rates 

for these products. We believe that the 

intent of the statute is to use available 

hospital claims to set payment rates for 

most items paid under the OPPS. In the 

case of multiple source drugs such as 

these products, the MMA requires that 

innovator and noninnovator multiple 

source drugs be paid no more than 68 

percent and 46 percent of their AWP, 

respectively.

As previously stated, for innovator 

multiple source drugs, we set the 

payment rate at the lower of the 

payment rate calculated under the 

standard median cost methodology or 

68 percent of the AWP; and for 

noninnovator multiple source drugs, we 

set the payment rate at the lower of the 

payment rate calculated under the 

standard median cost methodology or 

46 percent of the AWP. Using the most 

recent available data, we determined 

that the payment rates based on median 

cost for these drugs were lower than 

both 68 percent and 46 percent of their 

AWPs; therefore, the payment rates for 

both the innovator and noninnovator 

forms of these products were based on 

their median costs. 

Comment: One commenter, the maker 

of one of the viscosupplement drugs, 

was concerned that the proposed 

payment rates for the four competitive 

products are inequitable and will harm 

beneficiary access to these therapies. 

The commenter indicated that currently 

two of the products, Hyalgan and 

Supartz, are billed using HCPCS code 

J7317 (Sodium Hyaluronate, per 20 to 

25 mg dose for intra-articular injection), 

and this HCPCS code has been classified 

as a multi-source drug. The commenter 

assumed that another product, 

Orthovisc, would also be billed under 

HCPCS code J7317. However, the fourth 

product, Synvisc, is classified as a sole 

source drug and billed under HCPCS 

code J7320 (Hylan G–F20, 16 mg, for 

intra-articular injection). The 

commenter strongly believed that 

classifying these products differently 

resulted in payment rates that will 

create significant payment inequities 

and unjustified market distortions. To 

correct the payment inequity across the 

class of viscosupplements, the 

commenter recommended that CMS 

create separate HCPCS codes for these 

products and treat each product as a 

sole source drug. Another commenter 

strongly recommended that Orthovisc, a 

new product, be recognized as a passthrough under the OPPS, and be 

assigned a separate C-code for payments 

under that system. 

Response: We recognize the 

commenter’s concern about payment for 

these viscosupplement drugs under the 

OPPS. The National HCPCS Panel 

coordinates decisions regarding the 

creation of permanent HCPCS codes; 

therefore, comments related to the 

HCPCS creation process and decisions 

made by the National HCPCS Panel are 

outside the scope of this rule. However, 

we note that the product Orthovisc 

received approval for pass-through 

status under the OPPS effective January 

1, 2005, and a new temporary C-code 

has been established to allow hospitals 

to receive pass-through payments for 

this product. 

Comment: A commenter requested 

that CMS show three separate tables for 

the nonpass-through drugs; that is, one 

for sole source drugs, one for innovator 

multiple source drugs, and one for 

noninnovator multiple source drugs. 

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Response: We have accepted the 

commenter’s suggestion and created 

three distinct tables listing the sole 

source drugs, innovator multiple 

sources drugs, and noninnovator 

multiple source drugs. 

Tables 27 and 28 below list the final 

payment amounts for innovator and 

noninnovator multiple source drugs, 

biologicals, and radiopharmaceuticals, 

respectively, effective January 1, 2005 to 

December 31, 2005. 

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BILLING CODE 4120–01–C

b. Treatment of Three Sunsetting PassThrough Drugs as Specified Covered 

Outpatient Drugs 

As we discussed in the August 16, 

2004 proposed rule, there are 13 drugs 

and biologicals whose pass-through 

status will expire on December 31, 2004. 

Table 29 below lists these drugs and 

biologicals. 

Pass-through payment was made for 

10 of these 13 items as of December 31, 

2002. Therefore, these 10 items now 

qualify as specified covered outpatient 

drugs under section 1833(t)(14) of the 

Act, as added by section 621(a) of Pub. 

L. 108–173, as described above. 

However, pass-through status for three 

of the pass-through drugs and 

biologicals that will expire on December 

31, 2004 (C9121, Injection, Argatroban; 

J9395, Fulvestrant; and J3315, 

Triptorelin pamoate), was first made 

effective on January 1, 2003. These 

items are specifically excluded from the 

definition of ‘‘specified covered 

outpatient drugs’’ in section 

1833(t)(14)(B)(ii) of the Act, because 

they are not drugs or biologicals for 

which pass-through payment was first 

made on or before December 31, 2002. 

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to set payment for items whose passthrough status expires in CY 2004, but 

for which pass-through payment was 

not made as of December 31, 2002. 

Therefore, we proposed to pay for the 

three expiring pass-through items for 

which payment was first made on 

January 1, 2003, rather than on or before 

December 31, 2002 using the 

methodology described under section 

1833(t)(14) of the Act for specified 

covered outpatient drugs. We believed 

that this methodology would allow us to 

determine appropriate payment 

amounts for these products in a manner 

that is consistent with how we pay for 

drugs and biologicals whose passthrough status was effective as of 

December 31, 2002, and that does not 

penalize those products for receiving 

pass-through status beginning on or 

after January 1, 2003 and expiring 

December 31, 2004. In Table 27 in the 

proposed rule, we listed the CY 2005 

OPPS payment rates that we proposed 

for these three drugs and biologicals. 

Of the 13 products for which we 

proposed that pass-through status expire 

on December 31, 2004, we proposed to 

package two of them (C9113, Inj. 

Pantoprazole sodium and J1335, 

Ertapenum sodium) because their 

median cost per day falls below the $50 

packaging threshold. We proposed to 

pay for the remaining 11 drugs and 

biologicals as sole source items 

according to the payment methodology 

for sole source products described 

above. 

We note that darbepoetin alfa (Q0137) 

will be considered a ‘‘specified covered 

outpatient drug’’ in CY 2005. Payment 

for these drugs is governed under 

section 1833(t)(14) of the Act. 

Specifically, we proposed that 

darbepoetin alfa would be paid as a sole 

source drug at a rate between 83 percent 

and 95 percent of its reference AWP. 

Accordingly, we specifically solicited 

comments on whether we should again 

apply an equitable adjustment, made 

pursurant to section 1833(t)(2)(E) of the 

Act, to the price for this drug. 

Comment: Numerous commenters 

applauded CMS for proposing a fair and 

consistent payment methodology for 

drugs and biologicals whose passthrough status expires on December 31, 

2004, and supported the proposal to 

treat these three therapies as specified 

covered outpatient drugs. They also 

encouraged CMS to expand this 

treatment to all separately paid drugs 

and biologicals in the future. A few 

commenters, including MedPAC, 

disagreed with our proposal to pay for 

the three expiring pass-through items 

for which payment was first made on 

January 1, 2003, as ‘‘specified covered 

outpatient drugs.’’ One commenter 

indicated that because these three drugs 

were excluded from the statutory 

definition of ‘‘specified covered 

outpatient drug,’’ it did not believe that 

CMS had the authority to treat newer 

drugs expiring out of pass-through 

status as specified covered outpatient 

drugs. Therefore, the commenter 

believed that CMS should pay for newer 

drugs expiring from pass-through status 

at 106 percent ASP, the rate applicable 

to the physician setting. MedPAC 

expressed concern about treating these 3 

expiring pass-through drugs differently 

from the older, historically packaged 

drugs that are now eligible for separate 

payment and whose payments will be 

based on the median cost from the 

claims data. MedPAC indicated that the 

purpose of the pass-through payments is 

to allow time to accumulate data on 

costs and that there seemed to be no 

reason to believe that claims data are 

more accurate for one category of drugs 

that the other. Therefore, the drugs 

coming off pass-through, which do not 

fall under the SCOD category, and the 

older drugs should be paid consistently. 

Response: We appreciate the 

commenters’ support for our proposal to 

treat the three items for which passthrough status expires on December 31, 

2004, but that were approved for passthrough status effective January 1, 2003, 

similar to the other drugs and 

biologicals whose pass-through status 

expires December 31, 2004, but that 

were approved for pass-through status 

on or before December 31, 2002. The 

statute does not address payment for 

drugs and biologicals that had passthrough status effective on January 1, 

2003, but not on or before December 31, 

2002. These items are newer drugs than 

the older products that never received 

pass-through status. We have 

accumulated cost data for these three 

drugs throughout the same 2-year period 

during which we accumulated cost data 

for the other drugs and biologicals 

whose pass-through status expires on 

December 31, 2004. Therefore, noting 

that the statute does not address drugs 

whose pass-through status likewise 

expires on December 31, 2004, but was 

approved on January 1, 2003, we believe 

it is reasonable to pay for these three 

drugs in a manner consistent with how 

we pay for the other drugs whose passthrough status likewise sunsets on 

December 31, 2004.

Comment: We received a number of 

comments concerning our proposal to 

pay for both epoetin alfa (marketed 

under trade name of Procrit) and 

darbepoetin alfa (marketed under the 

trade name of Aranesp) based on 83 

percent of their individual reference 

AWPs. A number of commenters also 

wrote in response to our solicitation for 

comments concerning the application of 

our equitable adjustment authority in 

determining the payment rate for 

darbepoetin alfa. Commenters 

acknowledged that both biologicals 

meet the MMA definition of specified 

covered outpatient drug (SCOD) and 

that the pass-through status of 

darbepoetin alfa ends on January 1, 

2005. One of the commenters supported 

the proposal to establish payment for 

darbepoetin alfa as a SCOD, to base CY 

2005 payment on its reference AWP, 

and to discontinue the application of an 

equitable adjustment to reduce the 

statutorily mandated payment for any 

product paid under the OPPS in CY 

2005. This commenter stated the 

proposed payment for darbepoetin alfa 

as a sole source SCOD is fully consistent 

with section 621 of the MMA and that 

this is consistent with the method of 

payment for all other sole source 

SCODs. The commenter further stated 

that when drafting the language for 

section 622 of the MMA, Congress 

intended to ensure that considerations 

of functional equivalence were not 

applied to darbepoetin alfa after its 

pass-through status expired. This 

commenter acknowledges that section 

1833(t)(2)(E) of the Act permits CMS to 

make ‘‘adjustments as determined to be 

necessary to ensure equitable 

payments.’’ However, this commenter 

stated that payments for the two 

products are already inherently 

equitable at the proposed rates because 

they are comparably priced and because 

CMS proposed to set the payment rates 

for the two products using the same 

methodology. The commenter noted 

that when CMS first applied the 

equitable adjustment for darbepoetin 

alfa, in CY 2003, CMS had only three 

choices for establishing drug payments 

under the OPPS: (1) Packing payment 

with related services; (2) using charges 

from outpatient claims to derive median 

cost; and (3) paying separately under the 

pass-through provisions, at 95 percent 

of AWP. The commenter notes the new 

payment methodology for all sole source 

‘‘specified covered outpatient drugs’’

and argues that by applying this 

methodology to both of these 

biologicals, CMS would establish a level 

playing field and assure that marketbased forces remain operable. This 

commenter also provided data 

concerning the clinical efficacy of 

darbepoetin alfa. 

Many of the other commenters stated 

that CMS’ application of its equitable 

adjustment authority deviated from the 

MMA’s intent to pay for sole source 

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products and multi-source products 

under separate payment methodologies. 

The commenters were concerned about 

the significant impact that application 

of such authority may have on a 

company’s decision to continue 

developing innovator products. The 

commenters also argued that applying 

such a policy could inject CMS into 

clinical decisions based solely on 

economic considerations and create 

payment incentives that distort patient 

decisions properly entrusted to treating 

physicians. One commenter 

recommended that if CMS plans to 

utilize this authority again, then CMS 

should hold a public forum and provide 

interested parties with an opportunity to 

submit written comments about the 

standards that will be used to determine 

equitable adjustment. Other commenters 

argued that CMS should comply with 

the MMA and protect patient access to 

innovative therapies by not applying 

functional equivalence or a similar 

standard to any drug in 2005 or future 

years. 

One commenter on this topic also 

provided detailed results of clinical 

studies that the commenter believes 

support the necessity of a continuation 

of the equitable payment adjustment. 

This commenter further stated that the 

clinical data support the use of a 

particular conversion ratio in making 

such an adjustment. The commenter 

noted that without an equitable 

adjustment policy, both drugs would be 

paid at 83 percent of each product’s 

AWP. The commenter estimated weekly 

payments for the two drugs under four 

scenarios: an equitable adjustment 

based on three different conversion 

ratios and the proposed policy of 

treating each drug independently 

without application of an equitable 

adjustment. According to this 

commenter, overall Medicare 

expenditures and beneficiary 

coinsurance payments would increase 

for the treatment of chemotherapyinduced anemia in the absence of an 

equitable payment adjustment. The 

commenter’s estimates assume a 50 

percent market share for each of the two 

drugs and estimated 2005 spending 

based on 2003 OPPS claims data with 

anemia market unit growth assumptions 

of 35 percent in 2004 and 22 percent in 

2005. The commenter also noted that 

the MMA did not remove the Secretary’s 

authority to establish adjustments to 

ensure equitable payments and that the 

Secretary retains the authority to 

determine the CY 2005 payment rate for 

darbepoetin alfa using the equitable 

payment policy applied in CY 2003 and 

CY 2004. This commenter also argued 

that the MMA prohibition on the use of 

a functional equivalence standard 

applies only to pass-through drugs and 

only to future implementation. 

A comment from MedPAC on this 

issue indicated that as costs to the 

Medicare program continue to grow, the 

program will need to examine tools for 

obtaining value in its purchasing. 

MedPAC believed that, absent evidence 

that the CMS’ use of its equitable 

adjustment to set equivalent payment 

rates for Procrit and Aranesp denied 

beneficiaries’ access to needed 

treatments, CMS should pursue valuebased purchasing where possible. 

Response: As the commenters noted, 

while we proposed a payment rate for 

darbepoetin alfa as a sole source SCOD 

based on its reference AWP, we also 

specifically solicited comments on 

whether we should again apply an 

equitable adjustment, made pursuant to 

section 1833(t)(2)(E) of the Act, to 

establish the payment for this drug in 

CY 2005. After careful consideration of 

the thoughtful and well-documented 

comments concerning this issue, we 

have concluded that it is still 

appropriate to apply an adjustment to 

the payment for darbepoetin alfa under 

our authority in section 1833(t)(2)(E) of 

the Act to ensure that equitable 

payments for these two products under 

the OPPS continue in CY 2005. We 

agree with those commenters that 

argued that section 1833(t)(2)(E) of the 

Act was not affected by the provisions 

of the MMA and that we retain our 

authority to make such adjustments to 

payments under the OPPS. As we have 

done previously, we will reassess the 

need to exercise our adjustment 

authority when we next review the 

payment rates under the OPPS.

To apply an equitable adjustment for 

CY 2005, we reviewed the analysis we 

conducted during 2003 and the 

additional data we received in 2004. As 

we discussed in further detail in our 

November 7, 2003 final rule with 

comment period for the 2004 update to 

the OPPS (68 FR 63455) and our 

November 1, 2002 final rule with 

comment period for the 2003 update (67 

FR 66758), because darbepoetin alfa has 

two additional carbohydrate sidechains, it is not structurally identical to 

epoetin alfa. The addition of these two 

carbohydrate chains affects the biologic 

half-life of the compound. This change 

in turn affects how often the biological 

can be administered, which yields a 

different dosing schedule for 

darbepoetin alfa by comparison to 

epoetin alfa. Amgen has FDA approval 

to market darbepoetin alfa under the 

trade name  for treatment of anemia 

related to chronic renal failure 

(including patients on and not on 

dialysis) and for treatment of 

chemotherapy-related anemia in cancer 

patients. Epoetin alfa, which is 

marketed by Ortho Biotech under the 

trade name Procrit, is approved by FDA 

for marketing for the following 

conditions: (1) Treatment of anemia of 

chronic renal failure (including for 

patients on and not on dialysis); (2) 

treatment of Zidovudine-related anemia 

in HIV patients; (3) treatment of anemia 

in cancer patients on chemotherapy; 

and (4) treatment of anemia related to 

allogenic blood transfusions in surgery 

patients. 

The two biologicals are dosed in 

different units. Epoetin alfa is dosed in 

Units per kilogram (U/kg) of patient 

weight and darbepoetin alfa in 

micrograms per kilogram (mcg/kg). The 

difference in dosing metric is due to 

differences in the accepted convention 

at the time of each product’s 

development. At the time epoetin alfa 

was developed, biologicals (such as 

those like epoetin alfa that are produced 

by recombinant DNA technology) were 

typically dosed in International Units 

(or Units for short), a measure of the 

product’s biologic activity. They were 

not dosed by weight (for example, 

micrograms) because of a concern that 

weight might not accurately reflect their 

standard biologic activity. The biologic 

activity of such products can now be 

accurately predicted by weight, 

however, and manufacturers have begun 

specifying the doses of such biologicals 

by weight. No standard formula exists 

for converting amounts of a biologic 

dosed in Units to amounts of drug dosed 

by weight. 

The process that we used in 2003 to 

define the payment conversion ratio 

between the two biologicals for CY 2004 

is described in the November 7, 2003 

final rule with comment period. We 

refer readers to that discussion, found at 

68 FR 63455, for more complete details 

on that process and the data received 

and reviewed by CMS during the 

process. At the conclusion of the 2003 

process, we established a conversion 

ratio of 330 Units of epoetin alfa to 1 

microgram of darbepoetin alfa (330:1) 

for establishing the CY 2004 payment 

rate for darbepoetin alfa. 

During the comment period, each 

company presented additional data 

concerning their products. Based upon 

our analysis to date, we continue to 

believe that the conversion ratio used 

for CY 2004 is appropriate for purposes 

of establishing equitable payment under 

the OPPS for both epoetin alfa and 

darbepoetin alfa for CY 2005. Initial 

review of new information submitted by 

the commenters provides no compelling 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65797

evidence that the conversion ratio of 

330:1 is unreasonable. Therefore, for 

this final rule with comment period, we 

have established payment for 

darbepoetin alfa by applying the 

conversion ratio of 330:1 to 83 percent 

of the AWP for epoetin alfa. The 

resulting payment rate for darbepoetin 

alfa is $3.66 per microgram. We will 

continue to assess the data we have 

received thus far and invite the 

submission of additional information. In 

order to fully evaluate and assess this 

issue in determining whether any 

further adjustment of the conversion 

ratio is necessary, additional analysis 

will be required. If, after additional 

review and analysis, we determine that 

a different conversion ratio is more 

appropriate, we will make a change in 

the payment rate for darbepoetin alfa to 

reflect the change in ratio as soon as 

possible. 

We do not believe that our application 

of an equitable adjustment will create a 

barrier to treatment for the conditions 

for which these products are prescribed 

or to the product of choice of the 

beneficiary and his or her treating 

physician. According to the most recent 

average sales price (ASP) information 

collected by CMS and available in time 

for this final rule with comment period, 

106 percent of ASP for darbepoetin alfa 

is $3.69 per microgram. This amount 

would have been the basis for payment 

under the OPPS on January 1, 2005 if 

pass-through status did not expire and 

if we did not apply an equitable 

adjustment. Furthermore, as we have 

emphasized in prior rulemaking on this 

topic, our conversion of amounts of a 

biologic dosed in Units to amounts of a 

drug dosed by weight strictly for the 

purpose of calculating a payment rate 

should not in any way be viewed as a 

statement regarding the clinical use of 

either product. The method we use to 

convert Units to micrograms in order to 

establish equitable payments is not 

intended to serve as a guide for dosing 

individual patients in clinical practice. 

By using a conversion ratio solely for 

the purpose of establishing equitable 

payments, CMS is not attempting to 

establish a lower or upper limit on the 

amount of either biological that a 

physician should prescribe to a patient. 

We expect that physicians will continue 

to prescribe these biologicals based on 

their own clinical judgment of the needs 

of individual patients. 

Table 29 below lists the final CY 2005 

OPPS payment rates for the three 

sunsetting pass-through drugs and 

biologicals that will be treated as 

specified covered outpatient drugs.

c. CY 2005 Payment for Nonpassthrough Drugs, Biologicals, and 

Radiopharmaceuticals With HCPCS 

Codes, But Without the OPPS Hospital 

Claims Data

Pub. L. 108–173 does not address the 

OPPS payment in CY 2005 for new 

drugs and biologicals 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 dictates payment for such drugs 

and biologicals in CY 2005, and because 

we have no hospital claims data to use 

in establishing a payment rate for them, 

we investigated other possible options 

to pay for these items in CY 2005. 

Clearly, one option is to continue 

packaging payment for these new drugs 

and biologicals that have their own 

HCPCS codes until we accumulate 

sufficient claims data to calculate 

median costs for these items. Another 

option is to pay for them separately 

using a data source other than our 

claims data. The first option is 

consistent with the approach we have 

taken in prior years when claims data 

for new services and items have not 

been available to calculate median costs. 

However, because these new drugs and 

biologicals may be expensive, we are 

concerned that packaging these new 

drugs and biologicals may jeopardize 

beneficiary access to them. In addition, 

we do not want to delay separate 

payment for a new drug or biological 

solely because a pass-through 

application was not submitted. 

Therefore, for CY 2005, we proposed 

to pay for these new drugs and 

biologicals with HCPCS codes but 

which do not have pass-through status 

at a rate that is equivalent to the 

payment they would receive in the 

physician office setting, which would be 

established in accordance with the 

methodology described in the CY 2005 

Medicare Physician Fee Schedule 

proposed rule (69 FR 47488, 47520 

through 47524). We noted that this 

payment methodology is the same as the 

methodology that will be used to 

calculate the OPPS payment amount 

that pass-through drugs and biologicals 

will be paid in CY 2005 in accordance 

with section 1842(o) of the Act, as 

amended by section 303(b) of Pub. L. 

108–173, and section 1847A of the Act. 

Thus, we proposed to treat new drugs 

and biologicals with established HCPCS 

codes the same, irrespective of whether 

pass-through status has been 

determined. We also proposed to assign 

status indicator ‘‘K’’ to HCPCS codes for 

new drugs and biologicals for which we 

have not received a pass-through 

application. 

In light of our August 16, 2004 

proposal, we understood that 

manufacturers might be hesitant to 

apply for pass-through status. However, 

we did not believe there would be many 

instances in CY 2005 when we would 

not receive a pass-through application 

for a new drug or biological that has an 

HCPCS code. To avoid delays in setting 

an appropriate payment amount for new 

drugs and biologicals and to expedite 

the processing of claims, we strongly 

encouraged manufacturers to continue 

submitting pass-through applications for 

new drugs and biologicals when FDA 


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65798 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

approval for a new drug or biological is 

imminent to give us advance notice to 

begin working to create an HCPCS code 

and APC. The preliminary application 

would have to be augmented by FDA 

approval documents and final package 

inserts once such materials become 

available. However, initiating the passthrough application process as early as 

possible would enable us to expedite 

coding and pricing for the new drugs 

and biologicals and accelerate the 

process for including them in the next 

available OPPS quarterly release. 

In the August 16, 2004 proposed rule, 

we discussed how we proposed to pay 

in CY 2005 for new drugs and 

biologicals between their FDA approval 

date and assignment of an HCPCS code 

and APC. We shared the desire of 

providers and manufacturers to 

incorporate payment for new drugs and 

biologicals into the OPPS as 

expeditiously as possible to eliminate 

potential barriers to beneficiary access 

and to minimize the number of claims 

that must be processed manually under 

the OPPS interim process for claims 

without established HCPCS codes and 

APCs, and we solicited public 

comments on our proposal. 

Comment: Several commenters 

commended CMS’s proposal to set 

payment rates for new drugs with 

HCPCS codes using the same 

methodology proposed to set payment 

for drugs with pass-through status, 

regardless of whether a pass-through 

application has been submitted for the 

new drug. They applauded CMS for 

acknowledging that packaging payment 

for these new therapies might jeopardize 

beneficiary access to them. However, a 

comment from MedPAC indicated that 

CMS’s proposal to pay 106 percent of 

ASP for this particular group of drugs 

and biologicals represented a change in 

policy where drugs of this nature were 

previously packaged until sufficient 

claims data were accumulated to 

calculate payment rates, unless they 

received pass-through status via an 

application process. MedPAC was 

concerned that the newly approved 

drugs and biologicals that do not go 

through the pass-through payment 

mechanism will be added to the OPPS 

system without any control on spending 

since this policy does not have a budget 

neutrality provision, similar to passthrough payments. Given that the passthrough policy existed as a controlled 

mechanism for introducing new drugs 

into the OPPS, these drugs should either 

be treated through the pass-through 

process or continue to be packaged 

under the previous policy. 

Response: We appreciate the 

commenters’ support for our proposal to 

pay for new drugs with HCPCS codes, 

but without pass-through status and 

hospital claims data under the same 

methodology that will be used to pay for 

them in the physician office setting. We 

also understand MedPAC’s concern 

about budget neutrality associated with 

this policy. Our intent in paying for new 

drugs and biologicals with HCPCS 

codes, but without pass-through status 

and hospital claims data, separately, 

was that we recognized that some of 

these new products would be important 

new therapies in treatment of such 

diseases as cancer. We also believe that 

the MMA provision that requires CMS 

to pay for new drugs and biologicals 

before a code is assigned indicates that 

Congress intended for us to pay 

separately for new items until we have 

hospital claims data that would allow us 

to determine whether the product 

should be packaged. We are concerned 

that packaging their payments may 

prevent hospitals from acquiring these 

products and in turn harm beneficiaries’

access to them. We do not expect the 

volume of new drugs and biologicals to 

which we would apply this policy in CY 

2005 to be so significant as to have an 

effect on budget neutrality. Moreover, 

we would not expect this policy to have 

a differential impact on budget 

neutrality any more than payment for 

the drugs would affect pass-through 

spending had the drugs been approved 

for pass-through status. We also believe 

(and strongly encourage) that 

stakeholders will continue to apply for 

pass-through status for new drugs, 

biologicals and radiopharmaceuticals as 

a means of ensuring that we have all of 

the information required to establish 

accurate payments for these items as 

quickly as possible. At the same time, if 

we were to package all such items, we 

are concerned that it would provide a 

disincentive for manufacturers to come 

forward and request codes for new 

items. Under the MMA provision 

described above, we are required to pay 

for new drugs and biologicals without 

HCPCS code at 95 percent of AWP, 

which we would expect to generally be 

higher than 106 percent of ASP. We also 

believe the MMA provision regarding 

drugs without HCPCS codes indicates 

that Congress clearly intended that we 

pay separately for new drugs and 

biologicals. Therefore, for CY 2005 we 

will finalize the policy that we proposed 

to pay separately for new drugs and 

biologicals with HCPCS codes but 

without pass-through status and 

hospital claims data based on the 

payment for the same new products in 

a physician office.

We will, however, monitor this 

carefully during the course of CY 2005 

and reassess the policy for CY 2006. In 

CY 2005, payment for these new drugs 

and biologicals will be based on 106 

percent of ASP. In the absence of ASP 

data, we will use wholesale acquisition 

cost (WAC) for the product to establish 

the initial payment rate. If WAC is also 

unavailable, then we will calculate 

payment at 95 percent of the May 1, 

2003 AWP or the first reported AWP for 

the product. We have used the second 

quarter ASP data from CY 2004 because 

those were the most recent numbers 

available to us in time for the 

publication for this rule. To be 

consistent with the ASP-based 

payments that will be made when these 

drugs and biologicals are furnished in 

the physician offices, we plan to make 

any appropriate adjustments to the 

amounts shown in Addendum A and B 

if later quarter ASP submissions 

indicate that adjustments to the 

payment rates are necessary. We will 

announce such changes in our program 

instructions to implement quarterly 

releases and post any revisions to the 

addenda on the www.cms.hhs.gov Web 

site. We will similarly adjust payment 

for items for which we used AWP or 

WAC because ASP was not available if 

ASP becomes available from later 

quarter submissions. 

For CY 2005, we will apply this 

policy to three drugs and biologicals 

that are new effective January 1, 2005 

and do not have pass-through status and 

hospital claims data. These drugs will 

be separately payable under the OPPS, 

and thus, we have assigned them to 

status indicator ‘‘K’’. Table 30 below 

lists these drugs and biologicals and the 

payment methodologies used to 

calculate their APC payments listed in 

Addendum A and B of this rule.

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We have also identified several drugs 

and biologicals with new HCPCS codes 

created effective January 1, 2004, that do 

not meet the definition of ‘‘specified 

covered outpatient drugs’’ and for 

which we would not have CY 2003 

hospital claims data. These items are 

packaged in CY 2004, and we also 

proposed to package them for CY 2005 

in the proposed rule. To avoid 

negatively impacting beneficiary access 

to these new products by packaging 

them, we will be paying for these drugs 

in CY 2005 under the same 

methodology that will be used to pay for 

them in the physician office setting. The 

rules for determining payment for these 

drugs will be the same as the rules for 

new drugs with HCPCS codes but 

without pass-through status in CY 2005. 

In CY 2005, these drugs will be 

separately payable under the OPPS, and 

thus, we have assigned status indicator 

‘‘K’’ to these drugs. Table 31 below lists 

these drugs and biologicals and the 

payment methodologies used to 

calculate their APC payments listed in 

Addendum A and B of this rule. 

We note that CPT 90715 (Tdap 

vaccine > 7 im) was newly created in 

2004; however, we will not apply this 

payment policy to this code because all 

of the vaccines similar to this product 

are packaged in CY 2004 and will 

remain packaged in CY 2005. This 

payment policy also will not apply to 

new radiopharmaceuticals since all 

radiopharmaceuticals meet the 

definition of ‘‘specified covered 

outpatient drugs’’. Therefore, payment 

for new radiopharmaceuticals will be 

made according to the payment 

methodologies established for 

‘‘specified covered outpatient drugs’’

under section 1833(t)(14)(A)(ii) of the 

Act.

Comment: One commenter noted that 

CMS historically had declined to 

process pass-through applications prior 

to FDA approval, consequently many 

manufacturers have ceased submitting 

early applications. The commenter 

stated that manufacturers may be 

uncomfortable submitting the detailed 

information required for the passthrough application prior to securing 

FDA approval. The commenter 

suggested that a more realistic 

expectation of the timeframe for passthrough application would be at or 

subsequent to FDA approval, when the 

product launch is imminent.

Response: We recognize that some 

manufacturers may be concerned about 

submitting detailed information for 

pass-through application in advance of 

FDA’s approval for their product. 

However, we reiterate that we strongly 

encourage manufacturers to continue 

submitting pass-through applications 

when FDA approval for a new drug or 

biological is imminent to give us 

advance notice to begin working to 

create a HCPCS code and an APC for 

their product. While we will not be able 

to give final approval to the passthrough application prior to FDA 

approval, early notification about the 

product prior to FDA approval can 

expedite the granting of a new productspecific code and implementation of 


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65800 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

that code and appropriate payment rate 

within our system. 

d. Payment for Separately Payable 

NonPass-Through Drugs and Biologicals 

As discussed in section V.B.2. of the 

August 16, 2004 proposed rule, for CY 

2005, we used CY 2003 claims data to 

calculate the proposed median cost per 

day for drugs, biologicals, and 

radiopharmaceuticals that have an 

assigned HCPCS code and are paid 

either as a packaged or separately 

payable item under the OPPS. Section 

1833(t)(14) of the Act, as added by 

section 621(a) of Pub. L. 108–173, 

specified payment methodologies for 

most of these drugs, biologicals, and 

radiopharmaceuticals. However, this 

provision did not specify how payment 

was to be made for separately payable 

drugs and biologicals that never 

received pass-through status and that 

are not otherwise addressed in section 

1833(t)(14) of the Act. Some of the items 

for which such payment is not specified 

are (1) those that have been paid 

separately since implementation of the 

OPPS on August 1, 2000, but are not 

eligible for pass-through status, and (2) 

those that have historically been 

packaged with the procedure with 

which they are billed but, based on the 

CY 2003 claims data, their median cost 

per day is above the legislated $50 

packaging threshold. Because Pub. L. 

108–173 does not address how we are 

to pay for such drugs and biologicals 

(any drug or biological that falls into 

one or the other category and that has 

a per day cost greater than $50), we 

proposed to set payment based on 

median costs derived from the CY 2003 

claims data. Because these products are 

generally older or low-cost items, or 

both, we believe that the payments will 

allow us to provide adequate payment 

to hospitals for furnishing these items. 

In the proposed rule, we listed in Table 

28 the drugs and biologicals to which 

the proposed payment policy would 

apply. 

We received numerous public 

comments on our proposal. 

Comment: A commenter expressed 

concern about the proposed payment 

rate for HCPCS code J7342 (Dermal 

tissue, of human origin, with or without 

other bio-engineered or processed 

elements, with metabolically active 

elements, per square centimeter) when 

billed by Maryland-based hospitals and 

comprehensive outpatient rehabilitation 

facilities (CORFs). 

Response: We understand the 

commenter’s concern; however, 

Maryland-based hospitals and CORFs 

are excluded from payment under the 

OPPS and the OPPS payment rates do 

not apply to them. This final rule with 

comment period addresses only the 

providers that are paid under the OPPS. 

Therefore, this comment is outside the 

scope of this rule. 

Comment: An association for 

manufacturers of contrast agents 

supported CMS’ proposal to pay 

separately for certain MRI contrast 

agents (for example, HCPCS codes 

A4643 and A4647). However, the 

commenter was concerned that the 

payment rates for these products were 

based on CY 2003 hospital claims data 

and that the overall accuracy of the 

hospital median cost data is 

questionable; therefore, the commenter 

recommended that CMS review the 

proposed payment rates for MRI 

contrast agents and requested that such 

review include a confirmation that the 

median cost data used as the basis for 

calculating the payment rates are 

correct. The commenter also indicated 

that the proposed rule did not have unit 

descriptors for the HCPCS codes A4643 

and A4647 and requested that CMS add 

the unit descriptor, ‘‘up to 20 ml’’ to 

HCPCS codes A4643 and A4647 in 

order to provide further clarity and 

facilitate more accurate coding and 

billing by hospitals. 

Response: We understand the 

commenter’s concern about setting 

appropriate payment rates for these 

products. These products do not meet 

the definition of ‘‘specified covered 

outpatient drugs’’ as defined in the 

MMA; however, we do have a 

significant number of CY 2003 hospital 

claims data for these products. It is our 

general policy under the OPPS to use 

the most recent available hospital 

claims data in setting the OPPS payment 

rates. For CY 2005, both of these 

products will be separately payable 

items. The payment rate for A4643 will 

be based on approximately 14,200 

claims for approximately 27,000 

services, and payment for A4647 will be 

based on approximately 87,600 claims 

for approximately 155,000 services. 

We believe that the CY 2003 claims 

data contain a sufficiently robust set of 

claims for both products on which to 

base the payment rates for these items 

using the methodology that will be used 

for other separately payable non-passthrough drugs and biologicals. With 

respect to adding unit descriptors to 

A4643 and A4647, we suggest that the 

commenter pursue these changes 

through the process set up by the 

National HCPCS Panel. 

Comment: A commenter expressed 

concern that CMS may have 

inappropriately packaged low osmolar 

contrast material (LOCM) drugs into 

APCs based on a determination that the 

drugs do not meet CMS’s packaging rule 

because they are below the $50 

threshold required for separate 

payment. The commenter questioned 

the accuracy of the median cost data 

used as the basis for CMS’s decision as 

CMS’ paid claims files for LOCM do not 

include unit descriptors for the HCPCS 

codes A4644, A4645, and A4646. The 

commenter is concerned that this makes 

it difficult to interpret the data in any 

meaningful way for purposes of 

determining what the payment rates for 

these drugs should be and whether they 

should be paid separately, in particular, 

because the dose administered per 

procedure can range from 10 ml to 200 

ml. The commenter also believed that 

CMS should pay for LOCM drugs 

separately in the hospital outpatient 

setting because they are paid as such in 

the physician office setting. Therefore, 

the commenter recommended that CMS 

exercise its discretion to apply an 

exception to the packaging rule to 

LOCM as it did with the anti-emetics 

and allow separate payment for LOCM 

drugs in CY 2005. The commenter also 

suggested that CMS assign the unit 

descriptor ‘‘per 10 ml’’ to HCPCS codes 

A4644, A4645, and A4646.

Response: We recognize that the 

commenter is concerned about the 

packaging of the three LOCM products. 

Based on the methodology used to 

calculate median cost per day for drugs 

and biologicals, as explained in section 

V.B.2. of the preamble, we determined 

that the per day costs of these products 

were below $50. Therefore, these items 

were packaged. We note that the LOCM 

products are a unique class of drugs that 

have always been packaged from the 

beginning of the OPPS in August 1, 

2000, and this is the first year that we 

looked into the cost data for these drugs 

to determine whether they should be 

paid separately. We realize that for CY 

2005 these drugs will be packaged 

under the OPPS, but will receive 

separate payment in the physician office 

setting. However, based upon the 

statutory packaging threshold for drugs 

and biologicals as per administration 

cost less than $50, we believe that it is 

appropriate for us to package the LOCM 

drugs under the OPPS. With respect to 

adding unit descriptors to HCPCS code 

A4644, A4645, and A4646, we suggest 

that the commenter pursue these 

changes through the process set up by 

the National HCPCS Panel. 

Comment: We received comments 

concerning the new Part D prescription 

drug benefit mandated by the MMA and 

the intersection between drugs covered 

by Part D and Part B. 

Response: Because such issues are not 

within the scope of this CY 2005 OPPS 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65801

final rule with comment period, we will 

not respond to those comments in this 

document. 

Comment: We received many 

comments from makers of drug and 

biological products, national trade 

associations, and an association for 

cancer centers suggesting that CMS 

should expand the future rate-setting 

methodology for ‘‘specified covered 

outpatient drugs’’ to include all drugs 

and biologicals that either are or were 

previously paid separately under the 

OPPS, regardless of whether the drugs 

meet or exceed the $50 threshold. The 

commenters also recommended that 

CMS also work with GAO and MedPAC 

to ensure that their respective studies of 

the acquisition costs and pharmacy 

service and overhead costs include all of 

these drugs and biologicals and that the 

studies are thorough and will contain all 

the information CMS needs to set proper 

payment rates in the future. Many of 

these commenters were concerned about 

CMS’ use of claims, other data, and the 

methodologies used to establish the 

OPPS payments for drugs and 

biologicals that do not meet the 

definition of ‘‘specified covered 

outpatient drugs’’ and therefore, are not 

statutorily required to be included in 

these studies. The commenters 

suggested that CMS should not 

implement different methodologies for 

‘‘specified covered outpatient drugs’’

and other separately paid drugs in CY 

2006; instead, CMS should ensure 

appropriate payment for all Medicare 

covered drugs by applying the 

acquisition cost-based payment 

methodology to all separately paid 

drugs. One commenter believed that 

Congress fully intended for all 

separately paid drugs and biologicals to 

be paid based on hospital acquisition 

costs, as informed by these studies. 

Another commenter recommended that 

CMS continue to accept external cost 

data that may be submitted by 

knowledgeable stakeholders, such as 

manufacturers, providers, or patients to 

provide verification of hospital 

acquisition costs for specific drugs and 

biologicals. One commenter indicated 

that it would like to work with CMS as 

it prepares the hospital acquisition cost 

survey for the CY 2006 rates. 

Response: We appreciate the interest 

expressed by many of the commenters 

regarding the MMA-mandated surveys 

that will be conducted by the GAO and 

MedPAC of hospital acquisition cost for 

drugs and biologicals and their 

overhead and related costs, respectively. 

However, we note that these provisions 

of the MMA affect payment for drugs 

and biologicals in CY 2006, and thus, 

these comments fall outside the scope of 

this rule. Therefore, we will not be 

responding to these comments at this 

time. 

Comment: A commenter requested 

that CMS examine every HCPCS J-code 

for drugs to ensure that the dosage 

definitions for the HCPCS codes are set 

at the lowest available manufacturers’

dosage and match the customary 

dispensing packaging. 

Response: Changes to the HCPCS Jcodes are made by the National HCPCS 

Panel; therefore, this comment is 

outside the scope of this OPPS final 

rule. We suggest that the commenter 

pursue these changes through the 

process established by the National 

HCPCS Panel. 

BILLING CODE 4120–01–P

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BILLING CODE 4120–01–C


ER15NO04.050</GPH>
Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65803

e. CY 2005 Change in Payment Status 

for HCPCS Code J7308 

Since implementation of the OPPS on 

August 1, 2000, HCPCS code J7308 

(Aminolevulinic acid HCI for topical 

administration, 20 percent single unit 

dosage form) has been treated as a 

packaged item and denoted as such 

using status indicator ‘‘N’’. Thus, 

historically we have not allowed 

separate payment for this drug under 

the OPPS and it does not meet the 

statutory definition of a specified 

covered outpatient drug. For CY 2005, 

we proposed to allow separate payment 

for this drug at 106 percent of ASP, 

which is equivalent to the payment rate 

that it would receive under the 

Medicare Physician Fee Schedule. We 

proposed a CY 2005 ASP and payment 

under the OPPS for HCPCS code J7308 

of $88.86. We solicited comments on 

our proposed payment methodology for 

HCPCS code J7308 for CY 2005. 

We did not receive any comments on 

our proposed policy. However, we did 

receive a comment on this policy in 

response to the January 6, 2004 interim 

final rule with comment period, which 

we discuss below. 

Comment: One commenter requested 

that HCPCS code J7308 be paid 

separately under the OPPS because its 

cost is in excess of the $50 median cost 

per day threshold, and the drug is also 

paid separately under the Medicare 

Physician Fee Schedule in CY 2004. 

Response: We agree with the 

commenter and will finalize our policy 

to pay separately for J7308 at the 

payment rate that it would receive 

under the Medicare Physician Fee 

Schedule. The payment rate listed in 

Addenda A and B of the August 16, 

2005 proposed rule was based on the 

second quarter ASP submission for CY 

2004. As stated in section V.A. 3. of this 

final rule with comment period, we plan 

to make any appropriate adjustments to 

the amount shown in Addenda A and B 

if later quarter ASP submissions 

indicate that adjustments to the 

payment rate for this drug is necessary. 

4. Public Comments Received on the 

January 6, 2004 Interim Final Rule With 

Comment Period and Departmental 

Responses 

As discussed in section V.B.3. of this 

final rule with comment period, on 

January 6, 2004, we published in the 

Federal Register an interim final rule 

with comment period (69 FR 822) that 

implemented section 621(a)(1) of Pub. L. 

108–173. Section 621(a)(1) specified 

payment limits on three categories of 

specific covered outpatient drugs and 

defined these three categories of drugs. 

We received many pieces of 

correspondence that contained public 

comments associated with the January 

6, 2004 interim final rule with comment 

period. Many of the comments 

expressed concerns about the following 

issues: treating radiopharmaceuticals as 

‘‘drugs;’’ establishing mechanisms to 

pay for drugs without HCPCS codes at 

95 percent of AWP; correcting the 

classification of specific items to sole 

source ‘‘specified covered outpatient 

drugs;’’ eliminating the use of 

‘‘equitable adjustments’’ to the OPPS 

payment for drugs and biologicals or 

applying any functional equivalence 

standards; paying separately for drugs 

that are either packaged or whose 

payment is based on median cost as 

‘‘specified covered outpatient drugs’’; 

expanding the list of items that will be 

studied in the MMA-mandated GAO 

and MedPAC surveys of certain OPD 

services; using the cost-to-charge 

methodology and the hospital 

outpatient claims data to set payment 

rates for certain drugs and biologicals; 

identifying and establishing appropriate 

payment rates for innovator and 

noninnovator multiple source drugs; 

and changing HCPCS code descriptors 

for radiopharmaceuticals to reflect the 

products as administered to patients. 

We will not address these comments 

separately in this section because these 

issues are discussed in detail 

throughout this entire section (section 

V.) of this final rule with comment 

period. However, for those public 

comments that are not specifically 

addressed in section V., a summary of 

them and our responses to those 

comments follow: 

Comment: A commenter suggested 

that CMS create separate HCPCS codes 

for Neoral, Sandimmune, and the other 

cyclosporine products. The commenter 

indicated that currently all of these 

products are being billed using HCPCS 

code J7502 (Cyclosporine, oral, 100 mg). 

The commenter stated that the payment 

rates for the brand name products 

should not be linked to the payment 

rates for the non-innovator products 

because this situation creates access 

issues to the branded products, and 

CMS should not limit patient access to 

the specific formulation deemed 

medically appropriate for the individual 

needs of the specific patients. 

Response: We note that for both CYs 

2004 and 2005, hospitals can use 

HCPCS code C9438 to bill for the brand 

name forms of oral cyclosporine. As 

stated V.A.3.a. of this final rule with 

comment period, the MMA set forth 

different payment ceilings for the brand 

and generic versions of a drug where the 

CY 2005 payment rate for innovator 

multiple source (brand name) drugs may 

not exceed 68 percent of the reference 

AWP and the payment for generic 

versions may not exceed 46 percent of 

the reference AWP. We explained 

previously that we apply those ceilings 

only where the payment for an item 

based on the median hospital cost for 

the drug exceeds one of these ceilings. 

In some cases, the payment based on the 

median hospital cost falls below the 46 

percent ceiling for generic drugs. In 

such cases, the payment rate would be 

the same for brand and generic versions. 

We believe that basing payment for 

these items on relative hospital costs, 

with the application as appropriate of 

the previously mentioned ceilings not 

only meets the intent but also the 

requirements of the MMA. 

Comment: A commenter 

recommended that CMS consider 

pricing information from several 

authoritative sources when determining 

the reference AWP, including Red Book 

and First Data Bank, on a case-by-case 

basis since such pricing information can 

be used to resolve outstanding payment 

issues and ensure greater accuracy in 

calculating the OPPS payment rates. 

Response: We appreciate this 

comment and will consider this 

recommendation when we reassess the 

OPPS payment rates. 

Comment: Several commenters noted 

that CMS changed the classification for 

many of the biologicals products to sole 

source ‘‘specified covered outpatient 

drugs’’ in the February 27, 2004 CMS 

Transmittal 113 without discussing why 

the changes were made. One of the 

commenters indicated that the 

definition for sole source ‘‘specified 

covered outpatient drugs’’ in the MMA 

is different from the Medicaid rebate 

definition. The commenter stated that 

the MMA defined sole source drugs as: 

(1) A biological product (as defined 

under section 1861(t)(1) of the Act); or 

(2) a single source drug (as defined in 

section 1927(k)(7)(A)(iv) of the Act). The 

commenters requested that CMS clarify 

that it intends to treat all biological 

products as sole source drugs in the 

future as the law requires.

Response: We agree with the 

commenters that biologicals products 

are defined as sole source ‘‘specified 

covered drugs’’ in the MMA, and we 

will determine payment rates for these 

products accordingly. 

Comment: We received several 

comments on the mechanism for 

establishing payment rates for innovator 

and noninnovator multiple source 

drugs. One commenter urged CMS to set 

the payment rates closer to the actual

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costs for all products and services and 

provide differential reimbursement for 

innovator multiple source products only 

if their actual acquisition costs were 

markedly higher than that for the 

noninnovator multiple source products. 

Another commenter indicated that 

innovator and noninnovator multiple 

source drugs were discounted very 

similarly, and therefore, differential 

payments were not necessary. A 

commenter also requested that CMS 

obtain legislative approval to price these 

innovator and noninnovator multiple 

source drugs using a blended payment 

rate set halfway between 46 percent and 

68 percent of their reference AWPs. 

Response: We appreciate these 

suggestions and note that the 

methodology that will be used to 

determine payment rates for innovator 

and noninnovator multiple source drugs 

in CY 2005 is described in detail in 

section V.A.3.a. of this final rule with 

comment period. 

C. Coding and Billing for Specified 

Outpatient Drugs 

As discussed in the January 6, 2004 

interim final rule with comment period 

(69 FR 826), hospitals were instructed to 

bill for sole source drugs using the 

existing HCPCS code, which were 

priced in accordance with the 

provisions of newly added section 

1833(t)(14)(A)(i) of the Act, as added by 

Pub. L. 108–173. However, at that time, 

the existing HCPCS codes did not allow 

us to differentiate payment amounts for 

innovator multiple source and 

noninnovator multiple source forms of 

the drug. Therefore, effective April 1, 

2004, we implemented new HCPCS 

codes via Program Transmittal 112 

(Change Request 3144, February 27, 

2004) and Program Transmittal 132 

(Change Request 3154, March 30, 2004) 

that providers were instructed to use to 

bill for innovator multiple source drugs 

in order to receive appropriate payment 

in accordance with section 

1833(t)(14)(A)(i)(II) of the Act. Providers 

were also instructed to continue to use 

the current HCPCS codes to bill for 

noninnovator multiple source drugs to 

receive payment in accordance with 

section 1833(t)(14)(A)(i)(III). In this 

manner, drugs, biologicals, and 

radiopharmaceuticals will be 

appropriately coded to reflect their 

classification and be paid accordingly. 

In the August 16, 2004 proposed rule, 

we proposed to continue this coding 

practice in CY 2005 with payment made 

in accordance with section 

1833(t)(14)(A)(ii) of the Act. 

We received a few public comments 

on our proposal. 

Comment: Several commenters urged 

that CMS delete certain newly created C 

codes (C9400,Thallous Chloride, brand; 

C9401 Strontium–89 chloride, brand; 

C9402 Th I131 so iodide cap, brand; 

C9403 Dx I131 so iodide cap, brand; 

C9404 Dx So iodide sol, brand; C9405 

Th I131 so iodide, sol. brand) because 

radiopharmaceuticals are better 

characterized as either sole source or 

innovator multiple source drugs. The 

commenters indicated that the creation 

of the new codes implied that some 

radiopharmaceuticals are generic 

products and others are brand, but there 

was no identification of which product 

falls within which code. Further, there 

was no payment difference between 

some of the radiopharmaceutical brand 

products versus generics. The 

commenters believed these products did 

not fit the conventional brand versus 

generic distinctions, and should all be 

recognized as brand drugs until the 

GAO report provides additional data. 

Also, the commenters recommended 

that the current A-codes be retained at 

the payment levels CMS proposes for 

‘‘brand’’ drugs and believed that 

deletion of these codes should result in 

payment for the corresponding 

radiopharmaceuticals based on their 

status as a sole source or innovator 

multi-source drug and would 

significantly lessen hospital 

administrative burden and confusion. 

Another commenter indicated that 

hospitals needed further clarification on 

which manufacturers’ products can be 

billed under the HCPCS codes created 

for the brand and generic forms of a 

product. 

Response: As stated in section 

V.A.3.a. of this final rule with comment 

period, section 621(a) of Pub. L. 108–

173 sets forth different payment ceilings 

for the brand and generic versions of a 

drug where the CY 2005 payment rate 

for innovator multiple source (brand 

name) drugs may not exceed 68 percent 

of the reference AWP and the payment 

for generic versions may not exceed 46 

percent of the reference AWP. We 

explained previously that we apply 

those ceilings only where the payment 

for an item based on the median 

hospital cost for the drug exceeds one of 

these ceilings. In some cases, the 

payment based on the median hospital 

cost falls below the 46 percent ceiling 

for generic drugs. In such cases, as the 

commenters indicate, the payment rate 

would be the same for brand and 

generic versions. 

We will not be providing a list of 

brand name and generic products for 

hospitals to use in determining whether 

their product is a brand name or generic 

product. We believe that hospitals are in 

the best position to correctly determine 

which type of products they are using. 

We refer the commenter to the 

definitions of innovator and 

noninnovator multiple source drugs 

stated in the January 6, 2004 interim 

final rule with comment period (69 FR 

822). Hospitals can also use the FDA’s 

Orange Book in determining whether an 

item they use is a brand name product. 

D. Payment for New Drugs, Biologicals 

and Radiopharmaceuticals Before 

HCPCS Codes Are Assigned 

1. Background 

Historically, hospitals have used a 

code for an unlisted or unclassified 

drug, biological, or radiopharmaceutical 

or used an appropriate revenue code to 

bill for drugs, biologicals, and 

radiopharmaceuticals furnished in the 

outpatient department that do not have 

an assigned HCPCS code. The codes for 

not otherwise classified drugs, 

biologicals, and radiopharmaceuticals 

are assigned packaged status under the 

OPPS. That is, separate payment is not 

made for the code, but charges for the 

code would be eligible for an outlier 

payment and, in future updates, the 

charges for the code are packaged with 

the separately payable service with 

which the code is reported for the same 

date of service. 

Drugs and biologicals that are newly 

approved by the FDA and for which an 

HCPCS code has not yet been assigned 

by the National HCPCS Alpha-Numeric 

Workgroup could qualify for passthrough payment under the OPPS. An 

application must be submitted to CMS 

in order for a drug or biological to be 

assigned pass-through status, along with 

a temporary C-code for billing purposes, 

and an APC payment amount. Passthrough applications are reviewed on a 

flow basis, and payment for drugs and 

biologicals approved for pass-through 

status is implemented throughout the 

year as part of the quarterly updates of 

the OPPS.

In the November 7, 2003 final rule 

with comment period (68 FR 63440), we 

explained how CMS generally pays 

under the OPPS for new drugs and 

biologicals that are assigned HCPCS 

codes, but that are not approved for 

pass-through payment, and for which 

CMS had no data upon which to base 

a payment rate. These codes do not 

receive separate payment, but are 

assigned packaged status. Hospitals 

were urged to report charges for the new 

codes even though separate payment is 

not provided. Charges reported for the 

new codes are used to determine 

hospital costs and payment rates in 

future updates. For CY 2004, we again 

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noted that drugs that were assigned an 

HCPCS code effective January 1, 2004, 

and that were assigned packaged status, 

remain packaged unless pass-through 

status is approved for the drug. If passthrough status is approved for these 

drugs, pass-through payments are 

implemented prospectively in the next 

available quarterly release. 

2. Provisions of Pub. L. 108–173 

Section 621(a)(1) of Pub. L. 108–173 

amended section 1833(t) of the Act by 

adding paragraph (15) to provide for 

payment for new drugs and biologicals 

until HCPCS codes are assigned under 

the OPPS. Under this provision, we are 

required to make payment for an 

outpatient drug or biological that is 

furnished as part of covered OPD 

services for which a HCPCS code has 

not been assigned in an amount equal to 

95 percent of AWP. This provision 

applies only to payments under the 

OPPS, effective January 1, 2004. 

However, we did not implement this 

provision in the January 6, 2004 interim 

final rule with comment period because 

we had not determined at that time how 

hospitals would be able to bill Medicare 

and receive payment for a drug or 

biological that did not have an 

identifying HCPCS code. 

As stated earlier, at its February 2004 

meeting, the APC Panel heard 

presentations suggesting how to make 

payment for a drug or biological that did 

not have a code. The APC Panel 

recommended that we work swiftly to 

implement a methodology to enable 

hospitals to file claims and receive 

payment for drugs that are newly 

approved by the FDA. The APC Panel 

further recommended that we consider 

using temporary or placeholder codes 

that could be quickly assigned following 

FDA approval of a drug or biological to 

facilitate timely payment for new drugs 

and biologicals. 

We explored a number of options to 

make operational the provisions of 

section 1833(t)(15) of the Act, as added 

by section 621(a)(1) of Pub. L. 108–173, 

as soon as possible. One of the 

approaches that we considered was to 

establish a set of placeholder codes in 

the Outpatient Code Editor (OCE) and 

the PPS pricing software for the hospital 

OPPS (PRICER) that we would instruct 

hospitals to use when a new drug was 

approved. Hospitals would be able to 

submit claims using the new code but 

would receive no payment until the 

next quarterly update. By that time, we 

would have installed an actual payment 

amount and descriptor for the code into 

the PRICER, and would mass-adjust 

claims submitted between the date of 

FDA approval and the date of 

installation of the quarterly release. A 

second option that we considered was 

to implement an APC, a C-code, and a 

payment amount as part of the first 

quarterly update following notice of 

FDA approval of a drug or biological. 

Hospitals would hold claims for the 

new drug or biological until the 

quarterly release was implemented and 

then submit all claims for the drug or 

biological for payment using the new Ccode to receive payment on a retroactive 

basis. We also considered instructing 

hospitals to bill for a new drug or 

biological using a ‘‘not otherwise 

classified’’ code for which they would 

receive an interim payment based on 

charges converted to cost. Final 

payment would then be reconciled at 

cost report settlement. While each of 

these approaches might enable hospitals 

to begin billing for a newly approved 

drug or biological as soon as it received 

FDA approval, each approach had 

significant operational disadvantages, 

such as increased burden on hospitals 

or payment delays, or the risk of 

significant overpayments or 

underpayments that could not be 

resolved until cost report settlement. 

We adopted an interim approach that 

we believe balances the need for 

hospitals to receive timely and accurate 

payment as soon as a drug or biological 

is approved by the FDA with minimal 

disruption of the OPPS claims 

processing modules that support the 

payment of claims. On May 28, 2004 

(Transmittal 188, Change Request 3287), 

we instructed hospitals to bill for a drug 

or biological that is newly approved by 

the FDA by reporting the National Drug 

Code (NDC) for the product along with 

a new HCPCS code C9399, Unclassified 

drug or biological. When C9399 appears 

on a claim, the OCE suspends the claim 

for manual pricing by the fiscal 

intermediary. The fiscal intermediary 

prices the claim at 95 percent of its 

AWP using Red Book or an equivalent 

recognized compendium, and processes 

the claim for payment. This approach 

enables hospitals to bill and receive 

payment for a new drug or biological 

concurrent with its approval by the 

FDA. The hospital does not have to wait 

for the next quarterly release or for 

approval of a product-specific HCPCS to 

receive payment for a newly approved 

drug or biological or to resubmit claims 

for adjustment. Hospitals would 

discontinue billing C9399 and the NDC 

upon implementation of an HCPCS 

code, status indicator, and appropriate 

payment amount with the next quarterly 

update.

In the August 16, 2004 proposed rule, 

we proposed to formalize this 

methodology for CY 2005 and to expand 

it to include payment for new 

radiopharmaceuticals to which a HCPCS 

code is not assigned (see section V.G. of 

this preamble). We solicited comments 

on the methodology and expressed 

particular interest in the reaction of 

hospitals to using this approach to bill 

and receive timely payment under the 

OPPS for drugs, biologicals, and 

radiopharmaceuticals that are newly 

approved by the FDA, prior to 

assignment of a product-specific HCPCS 

code. 

We received a number of public 

comments on our proposal. 

Comment: One commenter, a state 

hospital association, is concerned about 

the ability of hospitals to correctly code 

for newly approved drugs and 

biologicals without HCPCS codes using 

the NDC codes. The commenter 

indicates that typically only pharmacy 

systems within hospitals can properly 

handle the assignment and reporting of 

a drug’s NDC, not the hospital billing 

systems. Additionally, the use of the 

Remarks field to report the NDC creates 

payment delays as it requires manual 

review and pricing by the fiscal 

intermediaries. Several commenters, 

including a national hospital association 

and several state hospital associations, 

recommended that CMS adopt a new 

revenue code subcategory for hospitals 

to use when reporting these newly FDAapproved drugs and biologicals on UB–

92 paper claims. The hospital could use 

the new revenue code along with the 

reported NDC in the revenue-code 

description field. Establishing a new 

revenue code field, to be used with the 

description field, allows clearinghouses 

to scan the paper UB–92 and then 

convert the data into the appropriate 

HIPAA standard for auto adjudication. 

The FI would then no longer have to 

suspend these paper claims for manual 

pricing, because it would build logic 

into the system to auto-adjudicate these 

claims. The hospital would then 

continue to report C9399 (HCPCS code 

indicating Unclassified drug or 

biological) in the HCPCS field, the units 

in the Unit field, the date the drug was 

administered in the date field, and 

finally, the price of these drugs in the 

Total Charges field. These commenters 

believed that this alternative policy 

would greatly improve the current 

process for both hospitals and fiscal 

intermediaries. 

Response: We read the hospital 

associations’ recommendation for an 

alternative approach to report NDCs on 

UB–92 paper claims with interest and 

will explore its feasibility with the 

different components within CMS that 

are responsible for claims processing, 

information technology and systems, 

65806 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

and HIPAA standards. It appears that 

time-consuming systems changes could 

be required were we to adopt such an 

approach, which could delay 

implementation, but we will consider 

the proposal carefully. 

Comment: A maker of 

pharmaceuticals commends CMS for 

implementing the mechanism where 

hospitals can bill and be paid for new 

drugs without HCPCS codes. However, 

the commenter is concerned that the use 

of a miscellaneous code may result in 

significant payment delays and 

potentially prevent patient access to 

new therapies. The commenter suggests 

that CMS monitor claims submission, 

timely processing, and payments more 

closely so that patient access to new 

therapies is not impeded. Another 

commenter suggested that CMS should 

modify this mechanism if necessary to 

ensure patients have access to cuttingedge drugs. One commenter suggested 

that CMS explore with its contractors 

the feasibility of automating processing 

of these claims by including the NDC 

number as a claims processing field 

when the miscellaneous C code appears 

on a claim since such a process would 

eliminate the additional costs of manual 

claim review and expedite provider 

payment. 

Response: We share the commenters’

concerns that claims processing systems 

not impede beneficiary access to new 

drug therapies. However, we believe the 

approach that we implemented in CY 

2004 and that we proposed to adopt 

permanently beginning in CY 2005, 

which requires the use of HCPCS code 

C9399 to be reported with an 

appropriate NDC, will result in 

hospitals receiving payment for new 

drugs more quickly compared to the 

process that we followed previously, 

even though some manual handling of 

claims is required. We agree with the 

commenter who suggested that CMS 

closely monitor claims submission, 

timely processing, and payments for 

new drugs, and we intend to do so. 

Comment: One commenter 

encouraged CMS to reconsider the 

payment policy that requires the 

reporting of the NDC for new drugs as 

‘‘mandatory’’ and consider making the 

NDC ‘‘optional.’’ For providers unable 

to automate the reporting of the NDC 

number due to software limitations, it 

suggested that CMS consider allowing 

providers the option of listing the NDC 

number in the detailed drug name as 

reported on the itemized statement of 

charges that can be requested along with 

the UB reporting the C9399 code. 

Response: As we have indicated in 

previous responses to commenters’

suggestions regarding ways to 

implement the payment requirement for 

new drugs and biologicals that have not 

been assigned a HCPCS code, we will 

also consider this commenter’s 

recommendation to determine its 

feasibility. 

Comment: Several commenters urged 

CMS to reconsider the policy of 

preloading several new codes into CMS’

computer system and assigning them to 

new drugs and biologicals as the Food 

and Drug Administration approved 

them, rather than requiring manual 

processing of claims using a single 

miscellaneous code. If CMS determines 

that the current policy is imposing too 

great an administrative burden on 

hospitals and delays in processing 

claims that harm hospitals’ ability to 

provide new drugs and biologicals to 

Medicare beneficiaries, the commenters 

urged CMS to reconsider its proposal 

and to explore preloading placeholder 

codes instead. 

Response: Preloading placeholder 

codes was one of the options that we 

considered before we implemented 

C9399, but we found that this approach 

had its disadvantages, most of which 

stemmed from concerns about delays 

related to the dissemination of new 

codes to providers and installing prices 

into the claims processing modules in a 

timely manner. We propose to monitor 

throughout CY 2005 the use of HCPCS 

code C9399 and NDC codes to evaluate 

whether this approach is an 

improvement over how hospitals were 

previously paid for new drugs to which 

a HCPCS code had not been assigned 

and to determine if changes in the 

process would be beneficial.

Comment: One commenter indicated 

that requiring hospitals to submit the 

National Drug Code on claims imposes 

an enormous administrative burden on 

hospitals because there is no field for 

NDCs on the claims form and, therefore, 

NDCs cannot be entered on the claim 

automatically. Rather, claims must be 

flagged and adjusted manually. The 

commenter suggested that the best 

solution is to close the lag time between 

FDA approval and HCPCS assignment of 

a new drug. By creating a seamless 

execution of approval and code 

assignment, CMS can ensure that the 

MMA mandate is fulfilled in the least 

burdensome manner and that providers 

are adequately paid for providing these 

new drugs. 

Response: While the use of NDCs may 

impose a degree of reporting burden on 

hospitals, we believe that, in spite of the 

inconvenience of manual reporting and 

claims processing, this approach is the 

most efficient way to expedite payment 

to hospitals for newly approved drugs to 

which a HCPCS code has not been 

assigned. 

Comment: One commenter, an 

association for cancer centers, 

supported CMS’ proposal for reporting 

new drugs without HCPCS codes using 

C9399 and any other necessary data. 

However, the commenter requested 

clarification from CMS on whether 

C9399 can only be used for injectible 

drugs or whether this code can also be 

used to report all newly approved FDA 

drugs (including oral drugs). The 

commenter believed that C9399 can be 

used for all Medicare-covered drugs, 

including oral anti-emetics and oral 

chemotherapeutics with IV equivalents, 

but requested that CMS clarify this issue 

to ensure that fiscal intermediaries 

correctly process this new code. 

Response: Our instructions regarding 

how hospitals may report a new drug 

using C9399 and NDCs only indicate the 

method by which hospitals can bill 

Medicare for payment if the new drug 

is covered by the Medicare program. 

These instructions do not represent a 

determination that the Medicare 

program covers a new drug for which a 

hospital submits a bill using C9399. In 

addition to determining payment, fiscal 

intermediaries must determine whether 

a drug billed with C9399 meets all 

program requirements for coverage. For 

example, they must assess whether the 

drug is reasonable and necessary to treat 

the beneficiary’s condition and whether 

the drug is excluded from payment 

because it is usually self-administered. 

The same rules, regulations, and 

policies that apply to coverage of drugs, 

biologicals, and radiopharmaceutical 

agents that already have a HCPCS code 

also apply to newly approved items for 

which a HCPCS code has not yet been 

assigned. 

Comment: Two commenters urged 

CMS to publish the approved drugs and 

radiopharmaceuticals that may be 

submitted under HCPCS code C9399, as 

well as the appropriate units of measure 

applicable for each drug or biological 

and the payment amount for the drug 

based on 95 percent of the AWP. One 

commenter indicated that hospitals are 

concerned that they will not identify all 

of the drugs that are eligible for this 

payment and are also concerned that 

they may inappropriately assign the 

HCPCS code to drugs that are not 

eligible for this payment. Additionally, 

there is an administrative burden placed 

both on providers and the fiscal 

intermediaries when CMS does not 

publish the payment rates for these 

drugs. 

Response: We understand that use of 

C9399 and NDCs is a departure from 

how hospitals have become accustomed 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65807

to preparing Medicare claims for the 

OPPS services. However, the MMA 

mandates that hospitals be paid 95 

percent of AWP for new drugs until a 

HCPCS code is assigned to that drug. 

We believe this MMA provision is 

intended to ensure that hospitals can 

receive timely payment for new drugs, 

biologicals, and radiopharmaceuticals 

without having to wait for a HCPCS 

code to be created and disseminated or 

for an OPPS payment amount to be 

implemented in a quarterly OPPS 

update. Generally, CMS learns of FDA 

approval of a new product at 

approximately the same time the public 

learns of the approval. Hospitals may 

wish to look to their advocacy 

associations for assistance in monitoring 

the FDA Web site to identify new 

products as they are approved, as a 

supplemental information source. We 

also intend to explore ways hospitals 

could systematically receive timely 

reports of newly approved drugs by 

means other than checking the FDA 

Web site. However, how to report a 

product rests with the hospital, as it 

does for any drug, biological, 

radiopharmaceutical agent, procedure, 

or service, with or without a HCPCS 

code. Therefore, we are not accepting 

the commenters’ suggestion that we 

publish the approved drugs and 

radiopharmaceuticals that may be 

submitted under HCPCS code C9399, as 

well as the appropriate units of measure 

applicable for each drug or biological 

and the payment amount for the drug 

based on 95 percent of the AWP. Rather, 

we prefer to focus our resources on 

updating the OPPS on a quarterly basis 

with codes, APC assignments, and 

payment amounts for drugs, biologicals, 

and radiopharmaceuticals newly 

approved by the FDA during the prior 

quarter.

We have carefully considered 

commenters’ recommendations and 

concerns, and we believe that our 

proposed methodology for using C9399 

and NDC codes to bill for drugs, 

biologicals, and radiopharmaceutical 

agents newly approved by FDA to 

which a HCPCS code is not assigned is 

the most efficient and practicable 

approach at this time to ensure timely, 

appropriate Medicare payment for these 

new products. Therefore, we are making 

final for CY 2005 our proposed 

methodology, without modification. 

E. Payment for Vaccines 

Outpatient hospital departments 

administer large numbers of 

immunizations for influenza (flu) and 

pneumococcal pneumonia (PPV), 

typically by participating in 

immunization programs. In recent years, 

the availability and cost of some 

vaccines (particularly the flu vaccine) 

have fluctuated considerably. As 

discussed in the November 1, 2002 final 

rule (67 FR 66718), we were advised by 

providers that the OPPS payment was 

insufficient to cover the costs of the flu 

vaccine and that access of Medicare 

beneficiaries to flu vaccines might be 

limited. They cited the timing of 

updates to the OPPS rates as a major 

concern. They indicated that our update 

methodology, which uses 2-year-old 

claims data to recalibrate payment rates, 

would never be able to take into account 

yearly fluctuations in the cost of the flu 

vaccine. We agreed with this concern 

and decided to pay hospitals for 

influenza and pneumococcal 

pneumonia vaccines based on a 

reasonable cost methodology. As a 

result of this change, hospitals, home 

health agencies (HHAs), and hospices, 

which were paid for these vaccines 

under the OPPS in CY 2002, have been 

receiving payment at reasonable cost for 

these vaccines since CY 2003. We are 

aware that access concerns continue to 

exist for these vaccines. However, we 

continue to believe that payment other 

than on a reasonable cost basis would 

exacerbate existing access problems. 

Therefore, in the August 16, 2004 

proposed rule, we proposed to continue 

paying for influenza and pneumococcal 

pneumonia vaccines under the 

reasonable cost methodology in CY 

2005. 

Comment: Several commenters 

applauded CMS’ proposal to continue to 

pay for vaccines under the reasonable 

cost methodology. The commenters 

indicated that payment on a reasonable 

cost basis helps ensure that the OPPS 

rates are adequate to cover hospitals’

costs of providing vaccines to Medicare 

beneficiaries, protecting their health, 

and reducing Medicare’s costs of 

treating influenza and other preventable 

illnesses. 

Response: We appreciate the 

commenters’ continued support of our 

policy to pay for influenza and 

pneumococcal pneumonia vaccines at 

reasonable cost and finalize our 

proposal in this final rule with comment 

period. We note that for CY 2005 a new 

CPT code for an influenza vaccine was 

created. The new CPT code 90656 

(Influenza virus vaccine, split virus, 

preservative free, for use in individuals 

3 years and above, for intramuscular 

use) will be paid at reasonable cost in 

CY 2005. We have assigned status 

indicator ‘‘L’’ (Not Paid under OPPS. 

Paid at reasonable cost) to this new CPT 

code. 

F. Changes in Payment for Single 

Indication Orphan Drugs 

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

gives the Secretary the authority to 

designate the hospital outpatient 

services to be covered. The Secretary 

has specified coverage for certain drugs 

as orphan drugs (section 

1833(t)(14)(B)(ii)(III) of the Act as added 

by section 621(a)(1) of Pub. L. 108–173). 

Section 1833(t)(14)(C) of the Act as 

added by section 621(a)(1) of Pub. L. 

108–173, gives the Secretary the 

authority in CYs 2004 and 2005 to 

specify the amount of payment for an 

orphan drug that has been designated as 

such by the Secretary. 

We recognize that orphan drugs that 

are used solely for an orphan condition 

or conditions are generally expensive 

and, by definition, are rarely used. We 

believe that if the cost of these drugs 

were packaged into the payment for an 

associated procedure or visit, the 

payment for the procedure might be 

insufficient to compensate a hospital for 

the typically high cost of this special 

type of drug. Therefore, in the August 

16, 2004 proposed rule, we proposed to 

continue making separate payments for 

orphan drugs based on their currently 

assigned APCs. 

In the November 1, 2002 final rule (67 

FR 66772), we identified 11 single 

indication orphan drugs that are used 

solely for orphan conditions by 

applying the following criteria: 

• The drug is designated as an orphan 

drug by the FDA and approved by the 

FDA for treatment of only one or more 

orphan conditions(s). 

• The current United States 

Pharmacopoeia Drug Information 

(USPDI) shows that the drug has neither 

an approved use nor an off-label use for 

other than the orphan condition(s). 

Eleven single indication orphan drugs 

were identified as having met these 

criteria and payments for these drugs 

were made outside of the OPPS on a 

reasonable basis.

In the November 7, 2003 final rule 

with comment period (68 FR 63452), we 

discontinued payment for orphan drugs 

on a reasonable cost basis and made 

separate payments for each single 

indication orphan drug under its own 

APC. Payments for the orphan drugs 

were made at 88 percent of the AWP 

listed for these drugs in the April 1, 

2003 single drug pricer, unless we were 

presented with verifiable information 

that showed that our payment rate did 

not reflect the price that is widely 

available to the hospital market. For CY 

2004, Ceredase (alglucerase) and 

Cerezyme (imiglucerase) were paid at 94 

percent of AWP because external data 

65808 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

submitted by commenters on the August 

12, 2003 proposed rule caused us to 

believe that payment at 88 percent of 

AWP would be insufficient to ensure 

beneficiaries’ access to these drugs. 

In the December 31, 2003 correction 

of the November 7, 2003 final rule with 

comment period (68 FR 75442), we 

added HCPCS code J9017, arsenic 

trioxide (per unit) to our list of single 

indication orphan drugs. As of the time 

of our August 16, 2004 proposed rule, 

the following were the 12 orphan drugs 

that we have identified as meeting our 

criteria: J0205 Injection, alglucerase, per 

10 units; J0256 Injection, alpha 1-

proteinase inhibitor, 10 mg; J9300 

Gemtuzumab ozogamicin, 5 mg; J1785 

Injection, imiglucerase, per unit; J2355 

Injection, oprelvekin, 5 mg; J3240 

Injection, thyrotropin alpha, 0.9 mg; 

J7513 Daclizumab parenteral, 25 mg; 

J9015 Aldesleukin, per vial; J9017 

Arsenic trioxide, per unit; J9160 

Denileukin diftitox, 300 mcg; J9216 

Interferon, gamma 1-b, 3 million units 

and Q2019 Injection, basiliximab, 20 

mg. In the August 16, 2004 proposed 

rule, we did not propose any changes to 

this list of orphan drugs for CY 2005. 

In the proposed rule, we noted that 

had we not classified these drugs as 

single indication orphan drugs for 

payment under the OPPS, they would 

have met the definition as a single 

source specified covered outpatient 

drug and been paid lower payments 

which could impede beneficiary access 

to these unique drugs dedicated to the 

treatment of rare diseases. Instead, for 

CY 2005, under our authority at section 

1833(t)(14)(C) of the Act, we proposed 

to pay for all 12 single indication 

orphan drugs, including Ceredase and 

Cerezyme, at the rate of 88 percent of 

AWP or 106 percent of the ASP, 

whichever is higher. However, for drugs 

where 106 percent of the ASP would 

exceed 95 percent of AWP, payment 

would be capped at 95 percent of AWP, 

which is the upper limit allowed for 

sole source specific covered outpatient 

drugs. For example, Ceredase and 

Cerezyme would each be paid at 95 

percent of the AWP because payment at 

ASP plus 6 percent for these two drugs 

not only exceeds 88 percent of the AWP 

but also exceeds 95 percent of the AWP. 

We proposed to pay the higher of 88 

percent of AWP or 106 percent of ASP 

capped at 95 percent of AWP to ensure 

that beneficiaries will continue to have 

access to such important drugs. 

We received the following comments 

to our August 16, 2004 proposed rule on 

single indication orphan drugs. 

Comment: A few commenters 

recommended that CMS adopt the 

FDA’s definition of an orphan drug as 

under the Orphan Drug Act. The 

commenters indicated that CMS should 

expand the current list of 12 singleindication orphan drugs that receive 

special treatment to include several 

other FDA-designated orphan drugs. 

One commenter requested that CMS 

adopt a utilization threshold to identify 

orphan drugs that would receive the 

special treatment rather than using its 

current criteria. 

Response: Using the statutory 

authority in section 1833(t)(1)(B)(i) of 

the Act, which gives the Secretary broad 

authority to designate covered OPD 

services under the OPPS, we have 

established criteria which distinguish 

single-indication orphan drugs from 

other drugs designated as orphan drugs 

by the FDA under the Orphan Drug Act. 

Our determination to provide special 

payment for these drugs neither affects 

nor deviates from FDA’s classification of 

any drugs as orphan drugs. The special 

treatment given to this subset of FDAdesignated orphan drugs is intended to 

ensure that beneficiaries have continued 

access to these life-saving therapies 

given that these drugs have a relatively 

low volume of patient use, lack any 

other non-orphan indication and are 

typically very costly. Although we are 

not expanding our criteria to identify 

orphan drugs that will receive special 

payment for CY 2005, we will consider 

the commenters’ recommendation of a 

utilization threshold in future changes 

to the OPPS orphan drug list. 

Comment: We received comments 

from different drug manufacturers 

separately requesting that Campath 

(J9010, Alemtuzumab), Elitek (J2783, 

Rasburicase), Vidaza (C9218, 

Azacitidine for injectable suspension), 

and Botox (J0585, Botulinum toxin type 

A) be included in the list of singleindication orphan drugs that will 

receive special payment for CY 2005. 

Response: After careful review of the 

requests for these four drugs to be 

included in the list of single-indication 

orphan drugs, we have determined that 

Campath (J9010) and Vidaza (C9218) do 

meet our criteria for inclusion in the 

list. Thus, effective for January 1, 2005, 

J9010 and C9218 will be paid in 

accordance with the payment policy for 

single indication orphan drugs for CY 

2005. However, we have determined 

that Elitek (J2783) and Botox (J0585) do 

not meet the criteria for inclusion in the 

list because these drugs have an offlabel use as indicated by the 2004 

United States Pharmacopoeia Drug 

Information (USPDI). 

Comment: Several commenters, 

including manufacturers of alpha-1 

proteinase inhibitor (J0256) sold under 

the brand names Prolastin, Aralast and 

Zemaira, submitted comments 

expressing concern over the decrease in 

the payment rate for HCPCS J0256 from 

the CY 2004 level to the CY 2005 

proposed rate. The majority of 

commenters requested that the payment 

rate for J0256 be frozen at the CY 2004 

levels, rather than based on the AWP of 

Prolastin, the least expensive drug 

among the three name brands. As some 

commenters explained, Prolastin has 

experienced supply shortages in the 

past and if the payment rate for the 

alpha-1 therapy did not take into 

account the higher AWPs of Aralast or 

Zemaira, it would be inadequate to 

cover the actual acquisition costs of the 

drugs to hospitals. 

The manufacturer of Aralast requested 

that CMS exclude pricing information 

associated with Prolastin when setting 

the payment rate for J0256. The 

commenter stated that although 

Prolastin is currently available and used 

in greater quantities than either Aralast 

or Zemaira , it has experienced supply 

shortages in the past. Therefore, 

according to the commenter, the 

payment rate for J0256 needs to be such 

that patients will have continued access 

to all three brand names. Alternatively, 

the commenter recommended that new 

HCPCS codes could be created so each 

brand name could be paid appropriately 

or CMS could freeze the payment rate 

for J0256 at the CY 2004 levels, as the 

majority of commenters recommended.

The manufacturer of Zemaira 

expressed concern that the proposed 

payment rate does not meet the actual 

hospital acquisition cost for this brand 

name, which is the newest of the three 

brand names to come on the market to 

be used in alpha-1 therapy. 

We received a comment from an 

organization representing voluntary 

health organizations and individual 

patients that stated that the proposed 

payments for CY 2005 were adequate to 

avoid problems with access to the 

orphan drugs that patients with rare 

diseases need. In addition, the 

commenter requested that CMS take 

actions to monitor any changes in 

beneficiaries’ access to orphan drugs as 

a result of payment changes, to review 

the claims database for changes in 

utilization patterns, to seek input from 

beneficiaries about access problems, and 

to inform beneficiaries about payment 

changes and the potential impact of 

such changes on their access. 

We also received recommendations 

from a patient advocacy organization 

requesting that CMS work with the 

manufacturers of the alpha-1 therapy to 

obtain the data necessary to raise the 

proposed OPPS rate of $2.46 (per 10 mg) 

or to establish the ASP rate which may 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65809

enhance patient access to care. The 

commenter also recommended that CMS 

base the payment rate for J0256 on all 

available brands. 

Response: After careful evaluation of 

the issues and concerns raised by 

commenters in response to our 

proposed rule, we recognize that our 

proposed payment rate for HCPCS code 

J0256 may create an unanticipated 

access problem during periods of short 

supply. Therefore, in order to ensure 

continued beneficiaries’ access to this 

important drug, we will base the 

payment rate for HCPCS code J0256 on 

all three brands of the alpha-1 

proteinase inhibitor currently available 

on the market. The adjusted AWP of 

HCPCS code J0256 will be based on the 

volume-weighted average of the three 

drugs. The adjusted AWP will be 

updated each quarter, as necessary, to 

reflect any changes in the individual 

AWP or relative weight of each drug in 

the calculation of the AWP for HCPCS 

code J0256. We would expect that as the 

volume and/or individual AWP 

increases or decreases for a brand, these 

changes will be captured in its relative 

weight and will be reflected in the 

adjusted AWP for HCPCS code J0256. 

We share the commenters’ concern for 

protecting beneficiaries’ access to these 

therapies used for rare disease 

conditions. As part of our process of 

developing special payment rates for 

single indication orphan drugs in CY 

2005, our analysis of CY 2003 claims 

data does not indicate a decrease in 

utilization of any orphan drugs that may 

signify barriers to beneficiaries’ access 

to these drugs. 

Comment: Several commenters 

recommended that CMS eliminate the 

95 percent AWP cap on singleindication orphan drugs whose ASP 

plus 6 percent would exceed their 88 

percent AWP. According to the 

commenters, these drugs would not be 

subject to the 95 percent AWP cap when 

administered in the physician’s office. 

They argued that CMS should pay for 

these drugs at the same rate, irrespective 

of the site of service. 

We received a request from the drug 

manufacturer of Ontak to increase the 

payment rate for the drug from 88 

percent of the May 2004 AWP to 92 

percent of the current AWP. 

Alternatively, the commenter requested 

that CMS remove the 95 percent AWP 

cap for J9160 (Ontak). 

Response: We believe that access to 

these life-saving therapies is extremely 

important and after careful 

consideration, we will not implement 

the cap of 95 percent of AWP for any of 

the single-indication orphan drug for 

those drugs whose 106 percent ASP 

exceeds 88 percent of AWP. Effective for 

CY 2005, payment for all singleindication orphan drugs will be set at 

the higher of 106 percent of the most 

current ASP or 88 percent of the most 

current AWP. 

Comment: A few commenters 

recommended that CMS update the 

payment rates quarterly, based on the 

latest ASP and AWP data available. 

They argue that to lock in the rates for 

a year based on outdated information 

could impede patient access to these 

drugs. 

Response: We agree with the 

commenters and will base payments for 

single-indication orphan drugs on a 

quarterly comparison of ASP and AWP 

data. Appropriate adjustments to the 

payment amounts shown in Addendum 

A and B will be made if ASP 

submissions and AWP data in a later 

quarter indicate that adjustments to the 

payment rates are necessary. These 

changes to the Addenda will be 

announced in our program instructions 

released on a quarterly basis and posted 

on our Web site at http://

www.cms.hhs.gov.

Comment: We also received a 

comment from the manufacturer of 

Fabrazyme requesting that CMS 

consider making payment for 

Fabrazyme (C9208, agalsidase beta) as a 

single-indication orphan drug. The 

commenter believes that by statute, 

CMS is required to pay for the drug at 

106 percent of ASP; however, the 

commenter stated that if CMS were to 

somehow reach a different conclusion, 

it would request to be treated as a 

single-indication orphan drug.

Response: We agree with the 

commenter that the statute requires that 

payment for Fabrazyme (C9208), a drug 

that currently has pass-through status, 

be made at 106 percent of ASP for CY 

2005. 

In summary, we have set payment 

rates for single-indication orphan drugs 

according to the following policy, 

effective January 1, 2005: 

• We are using the same criteria that 

we implemented in CY 2003 to identify 

single indication orphan drugs used 

solely for an orphan condition for 

special payment under the OPPS; and, 

• We are setting payment under the 

CY 2005 OPPS for single indication 

orphan drugs at the higher of 88 percent 

of the AWP or the ASP plus 6 percent, 

updated quarterly to reflect the most 

current AWP and ASP data. 

While we are not implementing the 95 

percent AWP cap on single-indication 

orphan drugs in CY 2005, we will 

monitor this decision and may apply the 

cap in future OPPS updates. 

G. Change in Payment Policy for 

Radiopharmaceuticals 

In the November 1, 2002 OPPS final 

rule (67 FR 66757), we determined that 

we would classify any product 

containing a therapeutic radioisotope to 

be in the category of benefits described 

under section 1861(s)(4) of the Act. We 

also determined that the appropriate 

benefit category for diagnostic 

radiopharmaceuticals is section 

1861(s)(3) of the Act. We stated in the 

November 1, 2002 final rule that we will 

consider neither diagnostic nor 

therapeutic radiopharmaceuticals to be 

drugs as defined in 1861(t) of the Act 

(67 FR 66757). Therefore, beginning 

with the CY 2003 OPPS update, and 

continuing with the CY 2004 OPPS 

update, we have not qualified diagnostic 

or therapeutic radiopharmaceuticals as 

drugs or biologicals. 

As we stated in the August 16, 2004 

proposed rule, when we analyzed the 

many changes mandated by Pub. L. 

108–173 that affect how we would pay 

for drugs, biologicals, and 

radiopharmaceuticals under the OPPS 

in CY 2005, we revisited the decision 

that we implemented in CY 2003 not to 

classify diagnostic and therapeutic 

radiopharmaceuticals as drugs or 

biologicals. In our analysis, we noted 

that although we did not consider 

radiopharmaceuticals for pass-through 

payment in CYs 2003 and 2004, we did 

apply to radiopharmaceuticals the same 

packaging threshold policy that we 

applied to other drugs and biologicals, 

and which we proposed to continue in 

CY 2005. In addition, for the CY 2004 

OPPS update, we applied the same 

adjustments to median costs for 

radiopharmaceuticals that we applied to 

separately payable drugs and biologicals 

that did not have pass-through status 

(68 FR 63441). 

In our review of this policy, we noted 

that section 1833(t)(14)(B)(i) of the Act, 

as amended by section 621(a) of Pub. L. 

108–173, does include 

‘‘radiopharmaceutical’’ within the 

meaning of the term ‘‘specified covered 

outpatient drugs,’’ although neither 

section 621(a)(2) nor section 621(a)(3) of 

Pub. L. 108–173 includes a reference to 

radiopharmaceuticals. 

In an effort to provide a consistent 

reading and application of the statute, 

we proposed to apply to 

radiopharmaceuticals certain provisions 

in section 621 of Pub. L. 108–173 which 

affect payment for drugs and biologicals 

billed by hospitals for payment under 

the OPPS. We believed it was 

reasonable to include 

radiopharmaceuticals in the general 

category of drugs in light of their 

65810 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

inclusion as specified covered 

outpatient drugs in section 

1833(t)(14)(B) of the Act, as added by 

section 621(a)(1) of Pub. L. 108–173. 

Section 621(a)(1) of Pub. L. 108–173, 

which amends section 1833(t) of the Act 

by adding a new subparagraph (14) 

affecting payment for 

radiopharmaceuticals under the OPPS, 

is unambiguous. This provision clearly 

requires that separately paid 

radiopharmaceuticals be classified as 

‘‘specified covered outpatient drugs.’’

Therefore, in CY 2005, we proposed to 

continue to set payment for 

radiopharmaceuticals in accordance 

with these requirements, which are 

discussed in detail in section V.B.3. of 

this preamble. 

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

added by section 621(a)(2) of Pub. L. 

108–173, requires us to reduce the 

threshold for the establishment of 

separate APCs with respect to drugs and 

biologicals to $50 per administration for 

drugs and biologicals furnished in 2005 

and 2006. We proposed to apply the $50 

packaging threshold methodology 

discussed in section V.B.2. of this final 

rule with comment period to 

radiopharmaceuticals as well as to drugs 

and biologicals. 

Section 1833(t)(15) of the Act, added 

by section 621(a)(1) of Pub. L. 108–173, 

requires us to make payment equal to 95 

percent of the AWP for an outpatient 

drug or biological that is covered and 

furnished as part of covered OPD 

services for which a HCPCS code has 

not been assigned. We proposed, 

beginning in CY 2005, to extend to 

radiopharmaceuticals the same payment 

methodology discussed in section V.D. 

of this preamble for new drugs and 

biologicals before HCPCS codes are 

assigned. That is, we proposed to pay 

for newly approved 

radiopharmaceuticals, as well as newly 

approved drugs and biologicals, at 95 

percent of AWP prior to assignment of 

a HCPCS code. 

Section 1833(t)(5)(E) of the Act, as 

added by section 621(a)(3) of Pub. L. 

108–173, excludes separate drug and 

biological APCs from outlier payments. 

Beginning in CY 2005, we proposed to 

apply section 621(a)(3) of Pub. L. 108–

173 to APCs for radiopharmaceuticals. 

That is, beginning in CY 2005, 

radiopharmaceuticals would be 

excluded from receiving outlier 

payments. 

Consistent with our proposed policy 

to apply to radiopharmaceutical agents 

payment policies that apply to drugs 

and biologicals, we further proposed, 

beginning in CY 2005, to accept 

applications for pass-through status for 

certain radiopharmaceuticals. That is, 

we proposed on a prospective basis to 

consider for pass-through status those 

radiopharmaceuticals to which a HCPCS 

code is first assigned on or after January 

1, 2005. As we explain in section V.A.3. 

of this final rule with comment period, 

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

the payment rate for pass-through 

eligible drugs and biologicals as the 

amount determined under section 

1842(o) of the Act. In the August 16, 

2004 proposed rule, we proposed to pay 

for drugs and biologicals with passthrough status in CY 2005 consistent 

with the provisions of section 1842(o) of 

the Act as amended by Pub. L. 108–173, 

at a rate that is equivalent to the 

payment these drugs and biologicals 

would receive in the physician office 

setting and set in accordance with the 

methodology described in the Medicare 

Physician Fee Schedule Proposed Rule 

for CY 2005 (69 FR 47488, 47520 

through 47524).

We issued an interim final rule with 

comment period entitled ‘‘Medicare 

Program: Manufacturer Submission of 

Manufacturer’s Average Sales Price 

(ASP) Data for Medicare Part B Drugs 

and Biologicals’’ in the April 6, 2004 

Federal Register, related to the 

calculation and submission of 

manufacturer’s ASP data (69 FR 17935). 

We need these data in order to 

determine payment for drugs and 

biologicals furnished in a physician 

office setting in accordance with the 

methodology described in the Medicare 

Physician Fee Schedule Proposed Rule 

(69 FR 47488, 47520 through 47524). 

However, the April 6, 2004 interim final 

rule with comment period excludes 

radiopharmaceuticals from the data 

reporting requirements that apply to 

Medicare Part B covered drugs and 

biologicals paid under sections 

1842(o)(1)(D), 1847A, or 

1881(b)(13)(A)(ii) of the Act (69 FR 

17935). As a consequence, we would 

not have the same type of data available 

to determine payment for a new 

radiopharmaceutical approved for passthrough status after January 1, 2005 that 

would be available to determine 

payment for a new drug or biological 

with pass-through status in CY 2005. 

Therefore, in order to set payment for 

a new radiopharmaceutical approved for 

pass-through status in accordance with 

1842(o) of the Act and in a manner that 

is consistent with how we proposed to 

set payment for a pass-through drug or 

biological, we proposed a methodology 

that would apply solely to new 

radiopharmaceuticals for which 

payment would be made under the 

OPPS and for which an application for 

pass-through status is submitted after 

January 1, 2005. That is, in order to 

receive pass-through payment for a new 

radiopharmaceutical under the OPPS, a 

manufacturer would be required to 

submit data and certification for the 

radiopharmaceutical in accordance with 

the requirements that apply to drugs 

and biologicals under section 303 of 

Pub. L. 108–173 as set forth in the 

interim final rule with comment period 

issued in the April 6, 2004 Federal 

Register (66 FR 17935) and described on 

the CMS Web site at http://cms.hhs.gov.

We proposed that payment would be 

determined in accordance with the 

methodology applicable to drugs and 

biologicals that is discussed in the CY 

2005 Medicare Physician Fee Schedule 

proposed rule (69 FR 47488, 47520–

47524). In the event the manufacturer 

seeking pass-through status for a 

radiopharmaceutical does not submit 

data in accordance with the 

requirements specified for new drugs 

and biologicals, we proposed to set 

payment for the new 

radiopharmaceutical as a specified 

covered outpatient drug, under section 

1833(t)(14)(A) as added by section 

621(a)(1) of Pub. L. 108–173. 

We received many public comments 

on our proposals. 

Comment: Many commenters 

applauded CMS for proposing to treat 

radiopharmaceuticals as drugs and 

encouraged CMS to continue to pay for 

these products as ‘‘specified covered 

outpatient drugs’’ under the OPPS, 

consistent with section 621(a) of the 

MMA. They indicated that this policy 

ensures consistent treatment of drugs 

and radiopharmaceuticals, eliminates 

confusion related to the prior 

differences in their treatment under the 

OPPS, and facilitates patient access to 

these important therapies in clinically 

appropriate settings. One of the 

commenters also supported the proposal 

to exclude radiopharmaceuticals from 

receiving outlier payments in CY 2005. 

Response: We appreciate the 

commenters’ support of our policy to 

treat radiopharmaceuticals as drugs and 

will finalize this policy for CY 2005. 

Comment: Several commenters 

opposed our proposal to require 

manufacturers to submit ASP data for 

radiopharmaceutical agents with passthrough status. One manufacturer of 

radiopharmaceuticals stated that there 

are significant practical problems and 

legal barriers to reporting ASP for 

radiopharmaceuticals. The commenter 

indicated that manufacturers often sell 

the components of a 

radiopharmaceutical to independent 

radiopharmacies. These 

radiopharmacies then sell unit doses to 

many hospitals; however, some 

hospitals also purchase the components 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65811

of the radiopharmaceutical and prepare 

the radiopharmaceutical through inhouse radiopharmacies. This 

commenter asserted that the end result 

is that there is very often no ASP for the 

finished radiopharmaceutical product. 

For example, there may only be 

manufacturer pricing for the 

components; however, the price set by 

the manufacturer for one component of 

a radiopharmaceutical does not directly 

translate into the acquisition cost of the 

‘‘complete’’ radiopharmaceutical, which 

may result from the combination of 

several components. This commenter 

recommended that CMS be consistent 

and not require ASP in the OPPS, as 

CMS does not require ASP for 

radiopharmaceuticals in the Medicare 

Physician Fee Schedule. The 

commenter thus urged CMS to 

determine payment for pass-through 

radiopharmaceuticals as specified 

covered outpatient drugs, based on 

AWP or acquisition costs. Another 

commenter recommended that CMS set 

payment for all pass-through 

radiopharmaceuticals in CY 2005 using 

the AWP-based ‘‘specified covered 

outpatient drugs’’ payment 

methodology, regardless of whether ASP 

data are available for the drug and stated 

that this methodology is more 

appropriate for these products, because 

it will be more likely to ensure adequate 

payment as use of the product is 

adopted, and thus will provide for 

robust cost data for future rate-setting 

purposes. 

Response: We appreciate these 

comments and understand the concerns 

commenters stated regarding our 

proposal to require manufacturers of 

radiopharmaceutical agents with passthrough status to submit ASP data. We 

recognize the complexities of 

determining ASP for 

radiopharmaceuticals because of their 

unique preparation processes; therefore, 

we agree with the commenters’ concerns 

about finalizing the proposed policy. 

Because radiopharmaceuticals are not 

paid on ASP in the physician office 

setting, manufacturers of these agents 

will not be required to report ASPs for 

payment purposes under the OPPS. 

Therefore, payment for 

radiopharmaceuticals with pass-through 

status will be made in accordance with 

their status as sole source ‘‘specified 

covered outpatient drugs.’’ That is, in 

the absence of both ASP data and 

hospital claims data, we will set 

payment for new radiopharmaceuticals 

approved for pass-through status 

beginning in CY 2005 at the floor for 

sole source ‘‘specified coveraged 

outpatient drugs,’’ which is 83 percent 

of the AWP. 

Comment: A few commenters urged 

CMS to revise the HCPCS code 

descriptors for radiopharmaceutical 

products that do not currently have ‘‘per 

dose’’ or ‘‘per study’’ descriptors and 

indicated that ‘‘per dose’’ or ‘‘per study’’

code descriptors will facilitate the 

collection of more accurate charge and 

cost data which are necessary to 

establish equitable payment for 

radiopharmaceutical agents.

Response: We recognize the concerns 

expressed by these commenters. As we 

have stated in the November 7, 2003 

OPPS final rule with comment period 

(68 FR 63451), we continue to believe 

that in changing descriptors to ‘‘per 

dose’’ or ‘‘per study’’, we will lose 

specificity with respect to the data we 

will receive from hospitals. We are not 

convinced that there is a programmatic 

need to change the radiopharmaceutical 

code descriptors to ‘‘per dose’’ or that 

claims data based on the current code 

descriptors are problematic for setting 

payment rates for these products. 

However, we will continue to work with 

industry representatives to ensure that 

the current HCPCS descriptors are 

appropriate and review this issue in the 

future, if needed. Furthermore, we stress 

the importance of proper coding by 

providers so that we can obtain accurate 

data for future rate setting. 

Comment: A commenter strongly 

supported CMS requiring that hospitals 

report all HCPCS codes for drugs 

including those that are packaged and 

indicated that this will enable CMS to 

track costs and help to ensure that only 

correctly coded claims (those with 

radiopharmaceuticals) are used in 

setting payment rates for nuclear 

medicine procedures. Therefore, the 

commenter recommended that CMS 

require continued reporting of HCPCS 

codes for all radiopharmaceuticals 

(packaged and non-packaged products). 

Response: We will continue to 

strongly encourage hospitals to report 

charges for all drugs using the correct 

HCPCS codes for the items used, 

including the drugs that have packaged 

status in CY 2005. We agree with the 

commenter that it is most useful to us 

when we have a robust set of claims for 

each item paid for under the OPPS. We 

would note, however, that with just a 

very few exceptions, hospitals do 

appear to be reporting charges for drugs, 

biologicals and radiopharmaceuticals 

using the existing HCPCS codes, even 

when such items have packaged status. 

At this time, we do not believe it is 

necessary to institute a requirement for 

drugs as we are doing for the device 

category codes. However, we will 

continue to monitor this through our 

annual analysis of claims data and will 

reconsider this in the future, if we 

determine that it is necessary. 

H. Coding and Payment for Drug 

Administration 

Since implementation of the OPPS, 

Medicare OPPS payment for 

administration of cancer chemotherapy 

drugs and infusion of other drugs has 

been made using the following HCPCS 

codes: 

• Q0081, Infusion therapy other than 

chemotherapy, per visit 

• Q0083, Administration of 

chemotherapy by any route other than 

infusion, per visit 

• Q0084, Administration of 

chemotherapy by infusion only, per 

visit 

• Q0085, Administration of 

chemotherapy by both infusion and 

another route, per visit 

In the CY 2004 proposed rule, we 

proposed to change coding and payment 

for these services to enable us to pay 

more accurately for the wide range of 

services and the drugs that we package 

into these per visit codes. (Background 

discussion on these codes is included in 

the August 12, 2003 OPPS proposed 

rule (68 FR 47998). Commenters on the 

CY 2004 proposed rule recommended 

that we use the CPT codes for drug 

administration. One commenter 

provided a crosswalk from the CPT 

codes for drug administration to the Q 

codes that we could use in a transition. 

We did not implement this in the final 

rule for CY 2004 OPPS but indicated 

that we would consider it for CY 2005 

and would discuss it with the APC 

Panel at its February 2004 meeting. 

Commenters and the APC Panel 

recommended that we discontinue use 

of code Q0085 for CY 2004 because 

codes Q0083 and Q0084 could be used 

together to report the services described 

by code Q0085. We did implement this 

change for CY 2004 and made code 

Q0085 nonpayable for CY 2004 OPPS. 

At the February 2004 APC Panel 

meeting, we presented a proposal from 

an outside organization that matched 

CPT codes for chemotherapy and 

nonchemotherapy infusions to the Q 

codes currently used to pay for these 

services under the OPPS. We asked the 

APC Panel for their perspective on the 

potential benefit of using the proposed 

coding approach as the basis for billing 

and determining the OPPS payment for 

administering these drugs. The APC 

Panel recommended that CMS continue 

to review the organization’s proposed 

coding crosswalk with the goal of using 

it to transition from the use of Q-codes 

65812 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

to that of CPT codes to bill for 

administration of these drugs. 

In the August 16, 2004 proposed rule, 

for CY 2005, we proposed to use the 

CPT codes for drug administration but 

to crosswalk the CPT codes into APCs 

that reflect how the services would have 

been paid under the Q codes. Although 

hospitals would bill the CPT codes and 

include the charges for each CPT code 

on the claim, payment would be made 

on a per visit basis, using the cost data 

from the per visit Q codes (Q0081, 

Q0083 and Q0084) to set the payment 

rate for CY 2005. See Table 29 of the 

proposed rule for the proposed 

crosswalk of CPT codes into APCs based 

on the Q codes (69 FR 50521). The only 

change from the crosswalk that was 

submitted by the outside organization is 

that we proposed a Q code and APC 

crosswalk for CPT code 96549 (Unlisted 

chemotherapy procedure), rather than 

bundling that service. We believe that 

Q0083 is the code that would have 

previously been reported by hospitals to 

describe the unlisted service. In 

addition, this would place the unlisted 

service in our lowest resource 

utilization APC for chemotherapy, 

consistent with our policy for other 

unlisted services. 

We proposed to establish the Q code 

and APC crosswalk for CPT code 96549 

because there is no CPT specific charge 

or frequency data on which to set 

payments. The CY 2005 OPPS is based 

on CY 2003 claims data which used the 

Q codes. Therefore, the only cost data 

available to us for establishment of 

median costs is the data based on the Q 

codes for drug administration. 

Moreover, the only frequency data that 

are available for use in calculating the 

scalar for budget neutrality of payment 

weights are the frequency data for the Q 

codes. Therefore, the payments set for 

the CPT codes must use the cost data for 

the Q codes and must result in the same 

payments that would have been made 

had the Q codes been continued. 

Under this proposed methodology, 

hospitals would report the services they 

furnish with the CPT codes and would 

show the charges that they assign to the 

CPT codes on the claim. The Medicare 

OCE would assign the code to an APC 

whose payment is based on the per visit 

Q code that would have been used 

absent coding under CPT. In most cases, 

the OCE would collapse multiple codes 

or multiple units of the same CPT code 

into a single unit to be paid a single 

APC amount. This approach is needed 

because the data for the Q codes is 

reported on a per visit basis and more 

than one unit of a CPT code can be 

provided in a visit.

For example, CPT code 96410 

(Chemotherapy administration infusion 

technique, up to 1 hour) is for infusion 

of chemotherapy drugs for the first hour, 

and CPT code 96412 is for 

chemotherapy infusion up to 8 hours, 

each additional hour. The claims data 

used to set the APC payment rate for 

these codes is for a per visit amount 

(taken from CY 2003 data for Q0084 a 

per visit code). The frequency data on 

the claim are also on a per visit basis. 

For CY 2005, we proposed that CPT 

code 96410 would be paid one unit of 

APC 0117 (to which CPT code 96410 

would be crosswalked) and no separate 

payment would be made for CPT code 

96412, regardless of whether one unit or 

more than one unit is billed. CPT code 

96412 would be a packaged code for CY 

2005. Under the Q code data on which 

the payment weight for APC 0117 is 

based, the per visit amount would 

represent a payment that is appropriate 

for all drug administration services in a 

visit (that is, one unit of CPT code 

96410 and as many units of CPT code 

96412 as were furnished in the same 

visit). 

Similarly, we proposed that when a 

hospital bills 3 units of CPT code 96400 

(Chemotherapy administration, 

subcutaneous or intramuscular, with or 

without local anesthesia), the OCE 

would assign one unit of APC 0116 for 

that code. (APC 0116 is the APC to 

which CPT code 96400 would be 

crosswalked.) The payment would be 

based on Q0083, a per visit code, 

because, absent the ability to be paid 

based on CPT codes, the hospital would 

have billed one unit of Q0083 (for the 

3 injections) had we not discontinued 

the Q codes for CY 2005. The OCE 

would assume that there was one and 

only one visit in which there were 3 

injections and would pay accordingly 

(that is, one unit of APC 0116). 

We noted that if we adopt the CPT 

codes for drug administration to ensure 

accurate payment in the future, it would 

be critical for hospitals to bill the 

charges for the packaged CPT codes for 

drug administration for CY 2005 (that is, 

the CPT codes with SI=N), even though 

there would be no separate payment for 

them in CY 2005. For CY 2007 OPPS, 

CY 2005 claims data would be used as 

the basis for setting median costs for 

each CPT code, based on the reported 

charges reduced to cost, and would 

determine what APC configuration 

ensures most appropriate payment for 

the CPT drug administration codes. If 

hospitals do not bill charges in CY 2005 

for the packaged drug administration 

CPT codes such as CPT codes 96412, 

96423, 96545, or 90781, they would 

jeopardize our ability to make accurate 

payments for services billed and paid 

under these codes in CY 2007 when we 

use the CY 2005 data to set the payment 

weights. 

Comment: Most commenters 

supported our proposal to code drug 

administration using CPT codes instead 

of the HCPCS codes. They indicated that 

it would be less burdensome for 

hospitals to code services using just one 

method for Medicare and all other 

payers. Some commenters opposed the 

use of CPT codes unless CMS pays an 

amount for each use of the CPT code, as 

CMS does under the Medicare Physician 

Fee Schedule. 

Response: We cannot pay an amount 

for each use of each CPT code because 

all of our drug administration cost data 

are on a per visit (not a per code) basis 

as charges for each of the following 

three HCPCPS codes, Q0081, Q0083, 

and Q0084, are reported for a visit and 

not a service. 

We agree that billing for drug 

administration using the CPT codes will 

be less burdensome to hospitals and 

will also facilitate development of more 

accurate payment rates for drug 

administration services in future years. 

For CY 2005 OPPS, we will collapse the 

CPT codes billed for drug 

administration into a single unit of the 

applicable APC for payment as we do 

not have the CPT code specific claims 

data for use in establishing a CPT code 

specific payment. However, we 

anticipate that we would have the 

necessary claims for CY 2007 OPPS to 

set an appropriate APC payment rate for 

the services described by the CPT codes. 

Comment: Several commenters asked 

that we affirm that hospitals may report 

CPT codes 90780 (intravenous infusion 

for therapy/diagnosis administered by 

physician or under direct supervision of 

physician; up to one hour) and 90781 

(each additional hour up to (8) hours), 

notwithstanding that the administration 

is not done by a physician or under the 

direct supervision of a physician. The 

commenters stated that such services 

are typically administered in hospitals 

by nurses without direct physician 

supervision and that if hospitals report 

these codes only when the full 

definition of the code is met, they 

would not be able to report the infusion 

services they furnish. 

Response: We do not view the 

language of these CPT codes’ definitions 

as being an obstacle to or inconsistent 

with the use of the codes by hospitals 

for billing Medicare. We view our 

general requirements regarding 

physician supervision (with respect to 

payment for services that are incident to 

a physician’s service in the outpatient 

hospital setting) as meeting the 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65813

physician supervision aspect of the 

codes and thus, do not believe that use 

of the codes in the hospital outpatient 

setting would be prevented by the 

inclusion of the language in the code 

definition. 

Comment: A commenter asked that 

we change the status indicator for CPT 

code 90780 and 90781 to ‘‘X’’ from ‘‘T’’

thereby eliminating the multiple 

procedure reduction for these codes, 

which in CY 2005 will replace HCPCS 

code Q0081 in billing for the 

administration of infusion therapy. The 

commenter stated that there is no 

situation in which the time and 

resources involved in infusion care 

should be reduced in the case of an 

observation patient. 

Response: We disagree. The costs of 

space, utilities and staff attendance are 

duplicated when the beneficiary is 

receiving another service at the same 

time as infusion therapy, in particular 

when the patient is in observation. 

Hence it is appropriate to apply a 

multiple procedure reduction to 

infusion therapy particularly when the 

patient is in observation status. We 

believe it is necessary to understand 

how the OCE multiple procedure 

discounting logic functions. Line-items 

with a service indicator of ‘‘T’’ are 

subject to multiple procedure 

discounting unless modifiers 76, 77, 78, 

and/or 79 are present on the claim. The 

‘‘T’’ line-item with the highest payment 

amount will not be discounted but all 

other ‘‘T’’ line items will be discounted 

as multiple procedures. All line-items 

that do not have a service indicator of 

‘‘T’’ will be ignored in determining the 

discount. Therefore, if the only other 

services reported with infusion therapy 

are an emergency department or other 

visit code, or diagnostic tests and 

services assigned status indicator ‘‘S,’’

the infusion therapy code would not be 

subject to the multiple procedure 

discounting. 

Comment: Several commenters stated 

that multiple visits per day for antibiotic 

infusion are common and the drug 

administration policies should permit 

such visits to be paid separately. The 

commenters stated that multiple visits 

for chemotherapy are possible and that 

provisions should be made for billing 

and paying them when they occur.

Response: We agree with the 

commenters on this issue. The reporting 

and payment for these multiple visits 

and services will not be an issue once 

payment for drug administration under 

the OPPS is made based on CPT codespecific data. However, until such time, 

hospitals will need to use modifier 59 

(distinct procedure) when billing 

charges for services furnished during 

multiple visits that follow the initial 

visit. For CPT codes 90780 and 90781, 

where there are multiple visits for 

infusion on the same day, the hospital 

should report CPT code 90780 with 

modifier 59 and CPT code 90781, if 

appropriate, with modifier 59 for each 

separate visit for infusion. With 

modifier 59 appended to CPT codes 

90780 and 90781, the OCE will allow up 

to 4 units of APC 0120 (Infusion of 

nonchemotherapy drugs) to be paid. 

Similarly, for the chemotherapy 

administration codes, where there is no 

modifier 59 reported, the OCE will 

collapse all codes that map to a 

particular APC into one unit of that APC 

and will pay one unit of each applicable 

APC. The system will assume that all 

services were furnished in one single 

encounter. Where the chemotherapy 

services are provided in multiple 

encounters, the hospital will need to 

show modifier 59 on the service 

furnished in the second encounter. The 

OCE will map those services into an 

additional unit of each applicable APC 

and will pay for each visit. The OCE 

will not, for a single date of service, pay 

more than 4 units of APC 120, nor more 

than 2 units of APCs 116 and 117 

(chemotherapy by route other than 

infusion and infusion of chemotherapy 

drugs). We intend to reassess these 

limits based on provider feedback and 

our review of later claims data. 

Comment: One commenter asked that 

CMS ensure that the costs for CPT code 

90780 (Infusion therapy one hour) are 

included in payment for CPT codes 

67221 (Ocular photodynamic therapy) 

and 67225 (Eye photodynamic therapy 

add-on) because CPT code 90780 is 

bundled into both of these procedure 

codes. 

Response: The procedure code 

definition for CPT code 67221 specifies 

that intravenous infusion is included, 

and CPT code 67225 is to be listed 

separately in addition to CPT code 

67221, if a second eye is treated. 

Therefore, the National Correct Coding 

Initiative (NCCI) edits preclude payment 

for CPT code 90780 with CPT codes 

67221 and 67225 because the charges 

for the procedure CPT codes 67221 and 

67225 are presumed to include all costs 

of administering the drug. Correct 

coding would not include reporting CPT 

code 90780 for the same visits when 

photodynamic therapy was provided. 

We expect that hospitals will include 

their charges for the necessary infusion 

in their charges for the procedure codes 

when they bill CPT codes 67221 or 

67225, so that our claims data reflect the 

costs of all resources necessary to 

perform the services. 

Comment: Several commenters urged 

CMS to adopt the new and revised AMA 

definitions for drug administration, 

which will be HCPCS G-codes in the CY 

2005 Medicare Physician Fee Schedule, 

because the existing CPT codes do not 

adequately capture the costs of the range 

of drug administrations. They also urged 

CMS to educate providers on the correct 

use of the new CPT codes. The 

commenters indicated that 

implementing the new CPT codes for 

drug administration will be more 

difficult in hospitals than in physicians’

offices because the services are typically 

provided in more places in hospitals 

than in physicians’ offices. 

Response: For CY 2005 OPPS, we are 

implementing the existing CPT codes 

for drug administration rather than the 

new G-codes that will be used for the 

Medicare Physician Fee Schedule 

payments. We do not intend to use the 

new HCPCS G-codes for the OPPS drug 

administration services until such time 

as the new CPT codes for those services 

are issued in CY 2006. We believe that 

it would be disruptive to hospitals if we 

required them to implement the HCPCS 

alphanumeric codes for drug 

administration in CY 2005 and then 

switch to the new CPT codes in CY 

2006. While only a subset of the 

physician community administers antineoplastic drugs in their offices, we 

believe that most hospitals do so on an 

outpatient basis and hence most 

hospitals would have to change to the 

new HCPCS codes for CY 2005, only to 

change again to new CPT codes for CY 

2006. However, we are told that all 

hospitals use the current CPT codes to 

bill other payers and crosswalk from the 

current CPT codes to the Q codes to bill 

Medicare. Thus, using the current CPT 

codes should be easier for hospitals than 

their current method for billing 

Medicare. This would not be the case if 

we were to require that they use the new 

HCPCS codes for drug administration. 

Comment: One commenter indicated 

that CMS should revise the OPPS to 

mirror the policy under the Medicare 

Physician Fee Schedule that pays 

separately for each drug administered to 

permit the payment of one unit of each 

APC for each and every drug 

administered. The commenter stated 

that since CMS acknowledged that there 

are additional resources used with each 

administration of a drug, it should apply 

the same policy to hospitals since all of 

these services are furnished by nurses, 

whether in a physician’s office setting or 

a hospital setting. 

Response: We are moving to the use 

of CPT codes for CY 2005 OPPS. 

However, we will not be paying an APC 

amount for each unit of each CPT code. 

65814 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

The APC rate is, by necessity, based on 

historic data for a code that was billed 

and reported on a per visit basis. 

Therefore, to pay each unit of a CPT 

code an APC amount would not 

accurately reflect the resources used and 

would result in an overpayment of the 

costs of the services provided. 

Comment: A commenter asked CMS 

to permit hospitals to continue billing 

HCPCS codes Q0081, Q0083 and Q0084 

for drug administration until April 1, 

2005 so that hospitals that do not 

currently bill the CPT codes for drug 

administration may have a transition 

period to convert to CPT code billing. 

Response: The three cited Q-codes 

will be deactivated for the OPPS 

effective January 1, 2005 and therefore 

cannot be used up to April 1, 2005. As 

discussed in our proposed rule, we are 

eliminating the 90-day grace period for 

deleted codes effective January 1, 2005. 

We are adopting this policy because the 

Health Insurance Portability and 

Accountability Act (HIPAA) transaction 

and code set rules require usage of the 

medical code that is valid at the time 

that the service is provided. Details 

regarding elimination of the 90-day 

grace period for billing deleted codes 

were issued to our contractors on 

February 4, 2004, in Transmittal 89, 

Change Request 3093. Moreover, we are 

not aware that there are any hospitals 

that do not bill the CPT codes for drug 

administration, as hospitals have told us 

that all payers other than Medicare 

require that they use the CPT codes and 

will not accept the Q-codes. 

Comment: A commenter asked that 

CMS use the first two quarters of the CY 

2005 claims to set the median costs for 

drug administration in CY 2006 OPPS 

so that the transition to the more 

accurate payments under the CPT codes 

could begin earlier than CY 2007.

Response: As the CY 2005 claims data 

will be the basis for the CY 2007 

payment weights, we regret that we are 

unable to transition to the new 

payments earlier than CY 2007 because 

of the time required to access the CY 

2005 claims data and to process and 

construct our database for ratesetting 

and impact analyses. The second 

quarter of CY 2005 data will not be 

available to us until at least August 15, 

2005, which is far too late for us to have 

developed and published any CY 2006 

proposed rule. 

After carefully reviewing all 

comments received, we are adopting as 

final our proposal to use the CPT codes 

for drug administration, effective 

January 1, 2005. We will collapse the 

CPT codes billed into a single unit of 

the applicable APC for payment. In 

addition, we are establishing the Q-code 

and APC crosswalk for CPT code 96549 

and will be paying 1 unit of APC 0117 

for CPT code 96410 (to which CPT code 

96410 will be crosswalked). We will not 

make a separate payment for CPT code 

96412 regardless of whether 1 unit or 

more units are billed. For CY 2005, CPT 

code 96412 will be a packaged and not 

paid separately. Further, when a 

hospital bills 3 units of CPT code 96400 

(Chemotherapy administration, 

subcutaneous or intramuscular, with or 

without local anesthesia), the OCE will 

assign 1 unit of APC 0116 for that code 

and the payment will be based on 

HCPCS code Q0083, a per visit code. 

Modifier 59 may be used with codes in 

APCs 0116, 0117, and 0120 to signify 

additional encounters on the same date 

of service for which additional APC 

payments may be made. 

Table 33 below contains the 

crosswalk of CPT codes for drug 

administration to drug administration 

APCs for CY 2005. The last two columns 

of this table indicate the maximum 

number of units of the APC that the OCE 

will assign without or with modifier 59, 

respectively. 

BILLING CODE 4120–01–P

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65815

BILLING CODE 4120–01–C

I. Payment for Blood and Blood 

Products 

Since the OPPS was first 

implemented in August 2000, separate 

payments have been made for blood and 

blood products in APCs rather than 

packaging them into payment for the 

procedures with which they were 

administered. Administrative costs for 

processing and storage specific to the 

transfused blood product are included 

in the blood product APC payment, 

which is based on hospitals’ charges. 

Payment for the collection, processing, 

and storage of autologous blood, as 

described by CPT code 86890, is made 


ER15NO04.051</GPH>
65816 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

through APC 0347 (Level III Transfusion 

Laboratory Procedures). 

In CY 2000, payments for bloods were 

established based on external data 

provided by commenters due to limited 

Medicare claims data. From CY 2000 to 

CY 2002, blood and blood product 

payment rates were updated for 

inflation. For CY 2003, as described in 

the November 1, 2002 final rule (67 FR 

66773), we applied a special dampening 

methodology to blood and blood 

products that had significant reductions 

in payment rates from CY 2002 to CY 

2003, when median costs were first 

calculated from hospital claims. Using 

the dampening methodology, we limited 

the decrease in payment rates for blood 

and blood products to approximately 15 

percent. For CY 2004, as recommended 

by the APC Panel, we froze payment 

rates for blood and blood products at CY 

2003 levels. This allowed us to 

undertake further study of the issues 

raised by commenters and presenters at 

the August 2003 and February 2004 

APC Panel meetings. 

In the August 16, 2004 proposed rule 

for CY 2005 OPPS, we proposed to 

continue to pay separately for blood and 

blood products. We also proposed to 

establish new APCs that would allow 

each blood product to be in its own 

separate APC, as several of the blood 

product APCs currently contained 

multiple blood products with no 

clinical homogeneity or whose productspecific median costs may not have 

been similar. Thus, we also proposed to 

reassign some of these HCPCS codes 

already contained in certain APCs to 

new APCs. (See Table 30 of the 

proposed rule (69 FR 50523.) 

Other than for autologous blood 

products, hospital reimbursement for 

the costs of collection, processing, and 

storage of blood and blood products are 

made through the OPPS payments for 

specific blood product APCs. Wastage 

and other administrative costs for blood 

are attributable to overhead and 

distributed across all hospital services 

linked to cost centers in the Medicare 

cost report, through the standard 

process of converting charges to costs 

using hospitals’ CCRs for each cost 

center on the cost report. 

In the August 16, 2004 proposed rule, 

we noted that comments to previous 

OPPS rules had stated that the CCRs 

that we used to adjust claim charges to 

costs for blood in past years were too 

low, resulting in underestimation of the 

true hospital costs for blood and blood 

products. In response, we conducted a 

thorough analysis of the OPPS claims to 

compare CCRs between hospitals with a 

blood-specific cost center and hospitals 

defaulting to the overall hospital CCR. 

Our past methodology for determining 

CCRs for blood products included a 

default to the overall CCR when any 

given provider had chosen not to report 

costs and charges in a blood-specific 

cost center on the cost report. After 

matching the two blood-specific cost 

centers to the 38X and 39X revenue 

codes, we observed a significant 

difference in CCRs utilized for 

conversion of blood product charges to 

costs for those hospitals with and 

without blood-specific cost centers. The 

median CCR for those hospitals with a 

blood-specific cost center was 0.66 for 

revenue code 38X and 0.64 for revenue 

code 39X, and for those defaulting to the 

overall hospital CCR, the result was a 

CCR of 0.34 for revenue code 38X and 

0.33 for revenue code 39X. The median 

overall CCR for all hospitals in the CY 

2005 analysis was 0.33. 

In light of this information, we 

applied the methodology described in 

our August 16, 2004 proposed rule to 

calculate simulated medians for each 

blood and blood product based on our 

CY 2003 claims data. We assumed that 

those hospitals not reporting costs and 

charges in a blood-specific cost center 

on their annual cost report, in general, 

face similar costs and engage in 

comparable charging practices for blood 

as those reporting a blood-specific cost 

center. For those hospitals not reporting 

a blood-specific cost center, we 

simulated a blood-specific CCR, which 

we then applied to convert charges to 

costs for blood products. Overall, this 

methodology increased the estimated 

median costs of blood and blood 

products by 25 percent for CY 2005 

relative to the median costs used to set 

CY 2004 APC rates. For example, the 

estimated median for HCPCS code 

P9016 (Red blood cells, leukocyte 

reduced), the most frequently billed 

blood product, increased by 32 percent 

relative to the CY 2004 median. 

As discussed in the proposed rule, in 

reviewing the simulated medians 

calculated using the methodology 

described above relative to those 

medians used to set CY 2004 payment 

rates, we noticed that some low-volume 

blood products (< 1,000 units) 

demonstrated significant decreases in 

median costs utilizing our general 

methodology. Overall, the simulated 

median costs for low-volume blood 

products declined by 14 percent for CY 

2005. Because a small sample size can 

lead to great variability in point 

estimates, we sought to increase the 

number of units of low-volume blood 

products by combining CY 2002 and CY 

2003 claims data for the low-volume 

products. We used the simulated CCRs 

to calculate costs from charges from CY 

2002 and CY 2003 claims data. To 

ensure that we combined comparable 

costs, we updated the simulated costs 

on the CY 2002 claims to the base year 

of CY 2003 using the Producer Price 

Index (PPI) for blood and derivatives for 

human use (Commodity Code #063711). 

This is the PPI used to update blood and 

blood product prices in the market 

basket (67 FR 50039, August 1, 2002). 

We recognize that not all of the lowvolume blood products had claims in 

CY 2002. 

After combining the 2 years of claims 

data, we were able to raise the volume 

of blood units billed for several of these 

products above 1,000 units. Since the 

publication of the proposed rule, 

additional claims data from the last 

quarter of CY 2003 have become 

available to us. The data showed that a 

few of the blood products had 

utilization in CY 2003 that exceeded the 

1,000 unit low-volume threshold and 

will not be subject to the low-volume 

blood product payment adjustment 

described below, that we are adopting 

for CY 2005. The low-volume blood 

products that we are adopting as final 

are listed below in Table 31 of this final 

rule with comment period.

The DHHS Advisory Committee on 

Blood Safety and Availability has 

recommended that CMS establish 

payment rates for blood and blood 

products based on current year 

acquisition costs and actual total costs 

of providing such blood products. At 

the February 2004 APC Panel meeting, 

the APC Panel recommended that CMS 

use external data to derive costs of 

blood and blood products in order to 

establish payment rates. At the 

September 2004 APC Panel meeting, the 

APC Panel recommended that CMS 

freeze payment rates for low-volume 

blood products for CY 2005 at CY 2004 

levels. The Panel also recommended 

that CMS consider using external data 

for setting payment rates for blood and 

blood products in the future. 

We received the following comments 

on our August 16, 2004 proposed rule 

regarding payment for blood and blood 

products. 

Comment: A few commenters 

expressed strong support for payment 

rates developed using hospital data 

rather than blood industry data. The 

commenters urged CMS to exercise 

caution in using blood industry data 

and to consider evaluating the data for 

their validity, reliability and 

consistency with geographic variations 

in costs, in addition to being publicly 

available and subject to audit. 

Response: We agree with the 

commenters that the OPPS payment 

rates should be based on the most 

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recently available and accurate hospital 

claims data. However, in rare 

circumstances when accurate hospital 

claims data capturing the full costs of 

services may not be available, we 

evaluate all external data very carefully 

to make sure that they meet our external 

data criteria. As discussed above, in 

setting all blood and blood product 

payment rates for CY 2005, we have 

relied upon data from hospital claims 

submitted to CMS. 

Comment: Several commenters 

expressed concern about the proposed 

payment rates for blood and blood 

products. The commenters indicated 

that despite increases in the CY 2005 

proposed payment rates for blood and 

blood products, the proposed payment 

rates still do not meet the actual costs 

to hospitals of acquiring these products. 

Some commenters stated that, in 

addition to hospital coding and billing 

problems, only a small number of 

hospitals were actually reporting blood 

costs, and that lack of reporting explains 

why the payment rates are still 

significantly below hospital acquisition 

costs. The commenters expressed 

concerns that this would create barriers 

to access to a safe blood supply for 

Medicare beneficiaries. 

The commenters also expressed 

concerns about reductions in payment 

rates for low-volume blood products. 

They recommended that CMS either 

freeze payment rates at the CY 2004 

OPPS levels for low-volume blood 

products that experienced a decrease in 

their proposed rates or use external data 

in setting payment rates for these 

products. 

Response: We appreciate the 

commenters’ concerns and share the 

same concern for protecting 

beneficiaries’ access to a safe blood 

supply. As with all of the OPPS 

services, we prefer to rely on our claims 

data whenever possible. Comments 

received for previous rules also 

suggested that current hospital blood 

costs are not captured because hospitals 

underreport blood on their claims 

because it is too costly to bill for blood. 

However, our thorough analysis of 

billing for blood from CY 2003 claims 

data indicated that 81 percent of all 

hospitals included in our ratesetting and 

modeling for CY 2005 billed at least one 

unit of blood or blood product in CY 

2003. Of these hospitals however, only 

47 percent reported separate costs and 

charges in the two cost centers specific 

to blood on their most recent annual 

cost reports. It may be that those 

hospitals billing for blood but not 

reporting costs and charges on their cost 

reports for either of the two bloodspecific cost centers reported their 

blood costs and charges under other cost 

centers, such as operating room. As 

discussed in the proposed rule, we 

simulated blood-specific hospital CCRs 

to account for these reporting 

differences and used these simulated 

CCRs to develop proposed median costs 

for blood products for CY 2005. Our 

claims data clearly show that the vast 

majority of hospitals do bill the OPPS 

for blood and blood products. In 

addition, the distribution of costs for 

individual products provides no 

evidence of significant coding problems. 

As explained in the preamble of this 

section, we estimate that by using our 

new methodology of simulating 

medians and implementing the 

proposed payment rates for blood and 

blood products, excluding low-volume 

blood products, there would be a 25 

percent increase in payment for blood 

and blood products overall. This 

includes a 32 percent increase in 

payment from CY 2004 for leukocyte 

reduced red blood cells (HCPCS code 

P9016), the highest volume blood 

product in the hospital OPD, and a 25 

percent increase in payment for each 

unit of red blood cells (HCPCS code 

P9021), the second highest volume 

blood product.

After carefully reviewing all of the 

public comments received timely 

regarding low-volume blood products, 

we are convinced that due to the low 

utilization of these products, in addition 

to possible hospital coding and billing 

problems for these low-volume 

products, the claims data may not have 

captured the complete costs of these 

products to hospitals as fully as 

possible. We believe it is imperative that 

Medicare beneficiaries have full access 

to all medically necessary blood and 

blood products, including products that 

are infrequently utilized. Therefore, for 

blood products that would have 

experienced a decrease in median cost 

from CY 2004 to CY 2005 based on our 

proposed methodology, we are 

establishing CY 2005 payment rates that 

are adjusted to a 50/50 blend of CY 2004 

product-specific OPPS median costs and 

our proposed CY 2005 simulated 

medians. This adjustment methodology 

will allow us to undertake further study 

of the issues raised by commenters and 

by presenters at the September 2004 

APC Panel meeting, without putting 

beneficiary access to these low-volume 

blood products at risk. 

Comment: One commenter suggested 

that CMS survey all hospitals across the 

country to investigate direct and 

indirect costs for blood. The commenter 

expressed concern that our proposed 

rates were insufficient to cover the costs 

of blood and its testing and storage. The 

commenter also expressed the need for 

continued increases in payments for 

blood products. 

Response: We appreciate the 

commenter’s recommendation and will 

take it into consideration as needed, 

when we reassess the payment rates for 

blood and blood products. While we 

believe our payment rates are 

appropriate and adequate for the 

provision of blood and blood product 

services, we are aware of the increasing 

number of tests required to ensure the 

safety of the nation’s blood supply, 

which could possibly add to the costs of 

processing blood and blood products. 

The APC payment rates for blood and 

blood products are intended to cover the 

costs of medically necessary testing by 

community blood banks or blood banks 

operated by hospitals. However, the 

APC payment rates are not meant to 

include costs of tests requiring a specific 

patient’s blood, such as cross-matching 

in preparation for transfusion, because 

these tests are separately payable under 

the OPPS. 

Comment: Several commenters, 

including a hospital association, 

recommended that CMS issue more 

specific guidance to hospitals for billing 

of blood-related services in order to 

improve hospital claims data. 

Specifically, commenters requested that 

CMS address issues related to 

application of the Medicare blood 

deductible, differences between donor 

and nondonor states, hospital markups 

for blood costs, the appropriate use of 

HCPCS code P9011 (Split blood unit) in 

billing, blood processing and 

preparation costs and autologous blood 

collection. In addition, the same 

commenter recommended that CMS 

share its draft guidance for review with 

the Outpatient Medicare Technical 

Advisory Group (MTAG) or the National 

Uniform Billing Committee (NUBC), or 

both, to ensure it is correct, 

comprehensive, and reflective of the 

billing provider’s perspective. 

Response: We recognize the need for 

comprehensive billing guidelines for 

hospitals and other providers to address 

a variety of blood-related services under 

the OPPS. In the near future, we intend 

to provide further billing guidelines to 

clarify our original Program Transmittal 

A–01–50 issued on April 12, 2001 (CR 

Request 1585) regarding correct billing 

for blood-related services. We agree 

with the commenters and intend to 

gather information from all relevant and 

available resources. 

Comment: One commenter, a hospital 

association, indicated that the revenue 

code 390 (Blood Storage and Processing) 

should not have been included in Table 

18 (Proposed Packaged Services by 

65818 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

Revenue Codes) of the August 16, 2004 

proposed rule. The commenter 

expressed concern that by including 

revenue code 390 in this table, hospitals 

would not be paid for the services 

because of a line-item claim rejection. 

Response: We are clarifying that a 

HCPCS code billed with revenue codes 

listed in Table 18 of the proposed rule 

could be paid separately as long as the 

HCPCS code is not assigned a status 

indicator of ‘‘N.’’ When a revenue code 

charge is billed without a HCPCS code, 

the charge is reduced to cost using the 

appropriate CCR for the revenue code. 

This cost is then added to a line item 

charge (reduced to cost) for a separately 

payable HCPCS code. This allows costs 

associated with uncoded revenue code 

charges to be captured so we can make 

a more accurate payment for the claim. 

If we did not add the costs of the line 

item revenue code charges without 

HCPCS codes, the full cost data for all 

resources necessary to deliver a 

separately payable service might not be 

captured, possibly resulting in a lesser 

payment for the claim. 

In summary, after carefully reviewing 

all public comments received timely, we 

are adopting as final for CY 2005 OPPS 

the following proposals: 

• To continue to pay separately for 

blood and blood products, to establish 

new APCs that would place each blood 

product in its own separate APC, and to 

implement proposed APC reassignments 

for such blood and blood products. 

• Effective for services furnished on 

or after January 1, 2005, in this final rule 

with comment period, we are providing 

that the payment rates for blood and 

blood products, excluding low-volume 

blood products whose CY 2005 

simulated medians decreased from the 

CY 2004 medians, will be determined 

according to the methodology we 

described in the August 16, 2004 

proposed rule. 

• Effective for services furnished on 

or after January 1, 2005, in this final rule 

with comment period, we are providing 

that the CY 2005 payment rates for lowvolume blood products that would have 

experienced a decrease in median costs 

from CY 2004 to CY 2005 based on our 

proposed methodology are adjusted to a 

50/50 blend of CY 2004 product-specific 

median costs and our proposed CY 2005 

simulated medians. 

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BILLING CODE 4120–01–C

VI. Estimated Transitional PassThrough Spending in CY 2005 for 

Drugs, Biologicals, and Devices 

A. Basis for Pro Rata Reduction 

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

the total projected amount of 

transitional pass-through payments for a 

given year to an ‘‘applicable percentage’’

of projected total Medicare and 

beneficiary payments under the hospital 

OPPS. For a year before CY 2004, the 

applicable percentage is 2.5 percent; for 

CY 2004 and subsequent years, we 

specify the applicable percentage up to 

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 prospective uniform 

reduction in the amount of each of the 

transitional pass-through 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 devices, making an estimate of 

pass-through spending in CY 2005 

entails estimating spending for two 

groups of items. The first group consists 

of those items for which we have claims 

data for procedures that we believe used 

devices that were eligible for passthrough status in CY 2003 and CY 2004 

and that would continue to be eligible 

for pass-through payment in CY 2005. 

The second group consists of those 

items for which we have no direct 

claims data, that is, items that became, 

or would become, eligible in CY 2004 

and would retain pass-through status in 

CY 2005, as well as items that would be 

newly eligible for pass-through payment 

beginning in CY 2005. 

B. Estimate of Pass-Through Spending 

for CY 2005 

In the August 16, 2004 proposed rule, 

we proposed to set the applicable 

percentage cap at 2.0 percent of the total 

OPPS projected payments for CY 2005. 

In this final rule with comment period, 

we are setting the applicable percentage 

cap at the same 2.0 percent. 

We are using the same methodology 

described in the proposed rule to 

estimate the pass-through spending for 

CY 2005. To estimate CY 2005 passthrough spending for device categories 

in the first group described above, we 

used volume information from CY 2003 

claims data for procedures associated 

with a pass-through device and 

manufacturer’s price information from 

applications for pass-through status. 

This information was projected forward 

to CY 2005 levels, using inflation and 

utilization factors based on total growth 

in Medicare Part B as projected by the 

CMS Office of the Actuary (OACT). 

To estimate CY 2005 pass-through 

spending for device categories included 

in the second group, that is, items for 

which we have no direct claims data, 

we used the following approach: For 

categories with no claims data in CY 

2003 that would be active in CY 2005, 

we followed the methodology described 

in the November 2, 2001 final rule (66 

FR 55857). That is, we used price 

information from manufacturers and 

volume estimates based on claims for 

procedures that would most likely use 

the devices in question. This 

information was projected forward to 

CY 2005 using the inflation and 

utilization factors supplied by the CMS 

OACT to estimate CY 2005 pass-through 

spending for this group of device 

categories. For categories that become 

eligible in CY 2005, we will use the 

same methodology. No new device 

categories for January 1, 2005, were 

announced after the publication of the 

proposed rule. Therefore, the estimate of 

pass-through spending does not 

incorporate any pass-through spending 

for categories made effective January 1, 

2005. 

With respect to CY 2005 pass-through 

spending for drugs and biologicals, as 

we explain in section V.A.3. of this final 

rule with comment period, the passthrough payment amount for new drugs 

and biologicals that we determine have 

pass-through status equals zero. 

Therefore, our estimate of total passthrough spending for drugs and 

biologicals with pass-through status in 

CY 2005 equals zero.


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In accordance with the methodology 

described above, we estimate that total 

pass-through spending for devices in CY 

2005 would equal approximately $23.4 

million, which represents 0.10 percent 

of total OPPS projected payments for CY 

2005. This figure includes estimates for 

the current device categories continuing 

into CY 2005, in addition to projections 

for categories that first become eligible 

during CY 2005. This estimate is 

significantly lower than previous year’s 

estimates because of the method we 

discuss in section V.A.3. of this 

preamble for determining the amount of 

pass-through payment for drugs and 

biologicals with pass-through status in 

CY 2005. 

Therefore, we will institute no pro 

rata reduction for CY 2005. 

In section V.G. of this final rule with 

comment period, we indicate that we 

are accepting pass-through applications 

for new radiopharmaceuticals that are 

assigned a HCPCS code on or after 

January 1, 2005. The pass-through 

amount for new radiopharmaceuticals 

approved for pass-through status in CY 

2005 would be the difference between 

the OPPS payment for the 

radiopharmaceutical, that is, the 

payment amount determined for the 

radiopharmaceutical as a sole source 

specified covered drug, and the 

payment amount for the 

radiopharmaceutical under section 

1842(o) of the Act. However, we have no 

information identifying new 

radiopharmaceuticals to which a HCPCS 

code might be assigned after January 1, 

2005 for which pass-through status 

would be sought. We also have no data 

regarding payment for new 

radiopharmaceuticals with pass-through 

status under the methodology that we 

specify in section V.G. However, we do 

not believe that pass-through spending 

for new radiopharmaceuticals in CY 

2005 will be significant enough to 

materially affect our estimate of total 

pass-through spending in CY 2005. 

Therefore, we are not including 

radiopharmaceuticals in our estimate of 

pass-through spending in CY 2005. 

Because we estimate pass-through 

spending in CY 2005 will amount to 

0.10 percent of total projected OPPS CY 

2005 spending, we are returning 1.90 

percent of the pass-through pool to 

adjust the conversion factor, as we 

discuss in section VIII. of this preamble.

We received a few public comments 

on our estimate of CY 2005 pass-through 

spending for drugs, biologicals, and 

devices. 

Comment: One commenter, a hospital 

organization, commended CMS for 

returning a portion of the pass-through 

pool that exceeds its estimate for passthrough payments for CY 2005, by 

increasing the conversion factor. 

Response: We appreciate the 

commenter’s support. 

Comment: One commenter was 

concerned that CMS did not provide 

information on the extent to which 

amounts that are actually spent on passthrough payments and outlier payments 

compared to the amounts that are 

carved out of the total amount allowed 

OPPS payments for these projected 

payments. The commenter was 

concerned that the amounts carved out 

for these purposes may not actually be 

spent and thus would be lost to 

hospitals. 

Response: We are required by law to 

estimate the amounts that we expect to 

spend on pass-through payments and 

outliers each year before the start of the 

calendar year. We share the 

commenter’s interest in making those 

estimates as accurately as possible to 

ensure that hospitals receive the amount 

to which they are entitled. We make our 

final estimate for each calendar year to 

the best of our ability based on all of the 

most recently available data when we 

prepare our final rule, including 

comments we receive concerning those 

issues in response to the proposed rule. 

With respect to the availability of data, 

we have established limited data sets 

that include the set of claims we use for, 

first, the proposed rule and, ultimately, 

the final rule estimates. For example, 

the claims for CY 2003 used for the final 

rule for CY 2005 will be available to the 

public in a limited data set format. We 

will continue to assess the means by 

which we provide such information to 

determine if there are alternate ways to 

ensure that our stakeholders obtain the 

information that is important to them on 

a timely basis. 

VII. Other Policy Decisions and Policy 

Changes 

A. Statewide Average Default Cost-toCharge Ratios 

CMS uses cost-to-charge ratios (CCRs) 

to determine outlier payments, 

payments for pass-through devices, and 

monthly interim transitional corridor 

payments under the OPPS. Some 

hospitals do not have a valid CCR. 

These hospitals include, but are not 

limited to, hospitals that are new and 

have not yet submitted a cost report, 

hospitals that have a CCR that falls 

outside predetermined floor and ceiling 

thresholds for a valid CCR, or hospitals 

that have recently given up their allinclusive rate status. When OPPS was 

first implemented in CY 2000, we used 

CY 1996 and CY 1997 cost reports to 

calculate default urban and rural CCRs 

for each State to use in determining the 

reasonable cost-based payments for 

those hospitals without a valid CCR 

(Program Memorandum A–00–63, CR 

1310, issued on September 8, 2000). In 

the August 16, 2004 OPPS proposed 

rule, we proposed to update the default 

ratios for CY 2005. 


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As we proposed, in this final rule, we 

calculated the statewide default CCRs 

using the same CCRs that we use to 

adjust charges to costs on claims data. 

Table 31 lists the final CY 2005 default 

urban and rural CCRs by State. These 

CCRs are the ratio of total costs to total 

charges from each provider’s most 

recently submitted cost report, for those 

cost centers relevant to outpatient 

services. We also adjusted these ratios to 

reflect final settled status by applying 

the differential between settled to 

submitted costs and charges from the 

most recent pair of settled to submitted 

cost reports. 

The majority of submitted cost 

reports, 87 percent, were for CY 2002. 

We only used valid CCRs to calculate 

these default ratios. That is, we removed 

the CCRs for all-inclusive hospitals, 

CAHs, and hospitals in Guam and the 

U.S. Virgin Islands because these 

entities are not paid under the OPPS, or 

in the case of all-inclusive hospitals, 

because their CCRs are suspect. We 

further identified and removed any 

obvious error CCRs and trimmed any 

outliers. We limited the hospitals used 

in the calculation of the default CCRs to 

those hospitals that billed for services 

under the OPPS during CY 2003. 

Finally, we calculated an overall 

average CCR, weighted by a measure of 

volume, for each State except Maryland. 

This measure of volume is the total lines 

on claims and is the same one that we 

use in our impact tables. Calculating a 

rate for Maryland presented a unique 

challenge. There are only a few 

providers in Maryland that are eligible 

to receive payment under the OPPS. 

However, we had no usable in-house 

cost report data for these Maryland 

hospitals, which is why we remove 

Maryland providers from our claims 

data for modeling OPPS. Therefore, we 

obtained data from the fiscal 

intermediary for Maryland, which we 

attempted to use in calculating the CCRs 

for Maryland, but which we ultimately 

determined could not be used to 

calculate representative CCRs. The cost 

data for three Maryland hospitals with 

very low volumes of services and cost 

data were so irregular that we lacked 

confidence that it would result in a 

valid statewide CCR. Thus, for 

Maryland, we used an overall weighted 

average CCR for all hospitals in the 

nation to calculate the weighted average 

CCRs appearing in Table 37. The overall 

decrease in default statewide CCRs can 

be attributed to the general decline in 

the ratio between costs and charges 

widely observed in the cost report data.

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2Section 1833(t)(7) of the Act defined the ‘‘preBBA’’ amount for a period as the amount equal to 

the product of (1) the payment-to-cost ratio for the 

hospital based on its cost reporting period ending 

in 1996, and (2) the reasonable cost of the services 

for the period. (Emphasis added.) In this context, 

BBA refers to the Balanced Budget Act of 1997, Pub. 

L. 105–33, enacted on August 5, 1997.

BILLING CODE 4120–01–C 

Comment: Several commenters 

recommended that CMS instruct fiscal 

intermediaries to work with those 

facilities that have given up their allinclusive rate status to quickly 

determine an appropriate CCR that will 

provide an accurate estimate of costs for 

each facility. 

Response: We have already instructed 

intermediaries to update CCRs in a 

timely manner. In Program 

Memorandum A–03–004 dated January 

17, 2003, we instructed fiscal 

intermediaries to recalculate each 

provider’s CCR on an ongoing basis 

whenever a more recent full year cost 

report becomes available, which 

includes tentatively settled cost reports. 

Fiscal intermediaries will calculate a 

hospital-specific CCR for all-inclusive 

rate hospitals, as with all hospitals 

relying on default CCRs, when their first 

tentatively settled cost report becomes 

available after no longer being 

considered as all-inclusive rate 

hospitals.

Comment: A few commenters asserted 

that the decrease in CCRs between 1996 

and 2002 was caused by the fact that 

charges were increasing faster than costs 

and that the increase in charges has 

been much lower since 2003. They 

requested that CMS take this fact into 

account in developing default CCRs. 

Response: We did not inflate charges 

when calculating the default CCRs, and 

therefore, we do not believe that there 

is a need to adjust for charge inflation 

since CY 2002. 

B. Transitional Corridor Payments: 

Technical Change 

1. Provisions of the August 16, 2004 

Proposed Rule 

When the OPPS was implemented, 

every provider was eligible to receive an 

additional payment adjustment (or 

transitional corridor payment) if the 

payments it received under the OPPS 

were less than the payment it would 

have received for the same services 

under the prior reasonable cost-based 

system (section 1833(t)(7) of the Act). 

Transitional corridor payments were 

intended to be temporary payments for 

most providers but permanent payments 

for cancer and children’s hospitals to 

ease their transition from the prior 

reasonable cost-based payment system 

to the prospective payment system. 

Section 411 of Pub. L. 108–173 

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

Act to extend such payments through 

December 31, 2005, for rural hospitals 

with 100 or fewer beds and extended 

such payments for services furnished 

during the period that begins with the 

provider’s first cost reporting period 

beginning on or after January 1, 2004 

and ends on December 31, 2005, for sole 

community hospitals located in rural 

areas. Accordingly, transitional corridor 

payments are only available to 

children’s hospitals, cancer hospitals, 

rural hospitals having 100 or fewer 

beds, and sole community hospitals 

located in rural areas. 

At the time the OPPS was 

implemented, section 1833(t)(7)(F)(ii) of 

the Act defined the payment-to-cost 

ratio (PCR) used to calculate the ‘‘preBBA amount’’ 2 for purposes of 

calculating the transitional corridor 


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payments to be determined using the 

payments and reasonable costs of 

services furnished during the provider’s 

cost reporting period ending in calendar 

year 1996. The BIPA, Pub. L. 106–554, 

enacted on December 21, 2000, revised 

that requirement. Section 403 of BIPA 

amended section 1833(t)(7)(F)(ii)(I) of 

the Act to allow transitional corridor 

payments to hospitals subject to the 

OPPS that did not have a 1996 cost 

report by authorizing use of the first 

available cost reporting period ending 

after 1996 and before 2001 in 

calculating a provider’s PCR.

Although we discussed the BIPA 

amendment in the CY 2002 OPPS 

proposed rule published on August 24, 

2001 (66 FR 44674), and implemented 

the amendment through Program 

Memorandum No. A–01–51, issued on 

April 13, 2001, we failed to revise the 

regulations at § 419.70(f)(2) to reflect the 

change. In the August 16, 2004 OPPS 

proposed rule, we proposed a technical 

correction to § 419.70(f)(2) to conform it 

to the provision of section 

1833(t)(7)(F)(ii)(I) of the Act.

We did not receive any comments on 

this proposed technical change. 

Accordingly, in this final rule with 

comment period, we are adopting as 

final without modification our proposal 

and correcting § 419.70(f)(2) to conform 

it to the provision of section 

1833(t)(7)(F)(ii)(I) of the Act. 

However, we did receive several 

comments on the proposed rule related 

to the transitional corridor payments. 

Comment: A few commenters 

expressed appreciation for the extension 

of transitional corridor payments for 

children’s hospitals, cancer hospitals, 

rural hospitals having 100 or fewer 

beds, and sole community hospitals 

located in rural areas, but requested that 

CMS consider extending payment 

protections to rural hospitals that are 

not eligible for transitional corridor 

payments. The commenters noted that 

rural hospitals that have converted to 

critical access hospitals are paid at cost 

and, therefore, have a competitive 

advantage over rural hospitals that are 

not eligible for transitional corridor 

payments and cannot convert to critical 

access hospital status. One commenter 

requested protection for rural hospitals 

that provide emergency services. 

A few commenters noted that the 

transitional corridor payment provision 

for rural hospitals having 100 or fewer 

beds and sole community hospitals 

located in rural areas expires on 

December 31, 2005, and requested that 

CMS further extend this payment 

protection. 

Response: We share the concerns of 

rural hospitals and do not intend to 

limit access to health care to 

beneficiaries in rural areas. However, 

we note that the statute is very specific 

and does not provide transitional 

corridor payments for entities other than 

those listed in the statute, nor extend 

transitional corridor payments past 

December 31, 2005, for rural or sole 

community hospitals. 

2. Comments on the Provisions of the 

January 6, 2004 Interim Final Rule With 

Comment Period 

As discussed in the January 6, 2004 

interim final rule with comment period 

(69 FR 828), section 411(a)(1)(B) of Pub. 

L. 108–173 provided that hold harmless 

transitional corridor provisions shall 

apply to sole community hospitals 

located in rural areas. Section 411(a)(2) 

states that the effective date for section 

411(a)(1)(B) ‘‘shall apply with respect to 

cost reporting periods beginning on or 

after January 1, 2004’’ for sole 

community hospitals located in rural 

areas. The Conference Agreement for 

Pub. L. 108–173 states, ‘‘The hold 

harmless provisions are extended to sole 

community hospitals located in a rural 

area starting for services furnished on or 

after January 1, 2004 * * *’’

Comment: Commenters noted that 

there appears to be a discrepancy 

between the effective date in section 411 

of Pub. L. 108–173 and the Conference 

Agreement. The commenters noted that, 

in accordance with section 411, a sole 

community hospital with a cost 

reporting period beginning on a date 

other than January 1 will not receive 

transitional corridor payments and 

‘‘interim’’ transitional corridor 

payments for services furnished after 

December 31, 2003, and before the 

beginning of the provider’s next cost 

reporting period. 

Response: Section 411(a)(2) of Pub. L. 

108–173 provides the effective date with 

respect to the transitional corridor 

payments applied to sole community 

hospitals. Specifically, a sole 

community hospital with a cost 

reporting period beginning on or after 

April 1, 2004, is subject to the hold 

harmless provisions. We note that if a 

hospital qualifies as both a rural 

hospital having 100 or fewer beds and 

as a sole community hospital located in 

a rural area, for purposes of receiving 

transitional corridor payments and 

interim transitional corridor payments, 

the hospital will be treated as a rural 

hospital having 100 or fewer beds. In 

this case, transitional corridor payments 

would begin on January 1, 2004, and 

there would be no gap in transitional 

corridor payments. 

C. Status Indicators and Comment 

Indicators Assigned in the Outpatient 

Code Editor (OCE) 

1. Payment Status Indicators 

The payment status indicators (SIs) 

that we assign to HCPCS codes and 

APCs under the OPPS play an important 

role in determining payment for services 

under the OPPS because 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. As we proposed, for CY 

2005, we are providing our status 

indicator assignments for APCs in 

Addendum A, for the HCPCS codes in 

Addendum B, and the definitions of the 

status indicators in Addendum D1 to 

this final rule with comment period. 

Payment under the OPPS is based on 

HCPCS codes for medical and other 

health services. These codes are used for 

a wide variety of payment systems 

under Medicare, including, but not 

limited to, the Medicare fee schedule for 

physician services, the Medicare fee 

schedule for durable medical equipment 

and prosthetic devices, and the 

Medicare clinical laboratory fee 

schedule. For purposes of making 

payment under the OPPS, we must be 

able to signal the claims processing 

system through the Outpatient Code 

Editor (OCE) software, as to HCPCS 

codes that are paid under the OPPS and 

those codes to which particular OPPS 

payment policies apply. We accomplish 

this identification in the OPPS through 

the establishment of a system of status 

indicators with specific meanings. 

Addendum D1 contains the definitions 

of each status indicator for purposes of 

the OPPS for CY 2005. 

We assign one and only one status 

indicator to each APC and to each 

HCPCS code. Each HCPCS code that is 

assigned to an APC has the same status 

indicator as the APC to which it is 

assigned. 

In the August 16, 2004 OPPS 

proposed rule, for CY 2005, we 

proposed to use the following status 

indicators in the specified manner: 

• ‘‘A’’ to indicate services that are 

paid under some payment method other 

than OPPS, such as under the durable 

medical equipment, prosthetics, 

orthotics, and supplies (DMEPOS) fee 

schedule or the Medicare Physician Fee 

Schedule. Some, but not all, of these 

other payment systems are identified in 

Addendum D1 to this final rule with 

comment period. 

• ‘‘B’’ to indicate the services that are 

not payable under the OPPS when 

submitted on an outpatient hospital Part 

B bill type, but that may be payable by 

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fiscal intermediaries to other provider 

types when submitted on an appropriate 

bill type. 

• ‘‘C’’ to indicate inpatient services 

that are not payable under the OPPS. 

• ‘‘D’’ to indicate a code that is 

discontinued, effective January 1, 2005.

• ‘‘E’’ to indicate items or services 

that are not covered by Medicare or 

codes that are not recognized by 

Medicare. 

• ‘‘F’’ to indicate acquisition of 

corneal tissue, which is paid on a 

reasonable cost basis and certain CRNA 

services that are paid on a reasonable 

cost basis. 

• ‘‘G’’ to indicate drugs, biologicals, 

and radiopharmaceutical agents that are 

paid under the OPPS transitional passthrough rules. 

• ‘‘H’’ to indicate devices that are 

paid under the OPPS transitional passthrough rules and brachytherapy 

sources that are paid on a cost basis. 

• ‘‘K’’ to indicate drugs, biologicals 

(including blood and blood products), 

and radiopharmaceutical agents that are 

paid in separate APCs under the OPPS, 

but that are not paid under the OPPS 

transitional pass-through rules. 

• ‘‘L’’ to indicate flu and 

pneumococcal immunizations that are 

paid at reasonable cost but to which no 

coinsurance or copayment apply. 

• ‘‘N’’ to indicate services that are 

paid under the OPPS, but for which 

payment is packaged into another 

service or APC group. 

• ‘‘P’’ to indicate services that are 

paid under the OPPS, but only in partial 

hospitalization programs. 

• ‘‘S’’ to indicate significant 

procedures that are paid under the 

OPPS, but to which the multiple 

procedure reduction does not apply. 

• ‘‘T’’ to indicate significant services 

that are paid under the OPPS and to 

which the multiple procedure payment 

discount under the OPPS applies. 

• ‘‘V’’ to indicate medical visits 

(including emergency department or 

clinic visits) that are paid under the 

OPPS. 

• ‘‘X’’ to indicate ancillary services 

that are paid under the OPPS. 

• ‘‘Y’’ to indicate nonimplantable 

durable medical equipment that must be 

billed directly to the durable medical 

equipment regional carrier rather than 

to the fiscal intermediary. 

We proposed the payment status 

indicators identified above for each 

HCPCS code and each APC in Addenda 

A and B and requested comments on the 

appropriateness of the indicators we 

have assigned. 

We received several public comments 

on our proposal relating to status 

indicators. 

Comment: Two commenters, 

representing radionuclide, 

radiopharmaceutical, and nuclear 

medicine interests, expressed concern 

about assignment of status indicator 

‘‘N’’ in Transmittal 290, issued August 

27, 2004, to the new revenue codes for 

diagnostic and therapeutic 

radiopharmaceuticals, revenue codes 

0343 and 0344, that were effective 

October 1, 2004. The commenters 

recommended changing the status 

indicators for both 0343 and 0344 to 

‘‘K’’ for nonpass-through drugs, 

biologicals, and radiopharmaceutical 

agents, and asked that CMS clarify and 

notify hospitals to use these revenue 

codes when billing and reporting costs 

for radiopharmaceuticals that can be 

paid separately. The commenters also 

stated that clarifying that these are 

nonpass-through and not packaged will 

assist CMS in tracking and analyzing 

costs for the radiopharmaceuticals and 

contribute to more accurate payment 

determinations. They recommended 

that CMS require hospitals to use the 

new revenue codes to report charges for 

radiopharmaceuticals. 

Response: The assignment of status 

indicator ‘‘N’’ to revenue codes 0343 

and 0344 in Transmittal 290 relates to 

OCE treatment of lines on a claim that 

report a charge with a revenue code but 

with no HCPCS code. The assignment of 

certain status indicators to revenue 

codes reported in the attachment to 

quarterly OPPS updates entitled 

‘‘Summary of Data Modifications’’ is an 

OCE specification only, and should not 

be confused with how we use the status 

indicators listed in Addendum D1 that 

we assign to HCPCS codes and to APCs. 

Additional information related to how 

revenue codes are used can be found in 

Pub. 100–04, Medicare Claims 

Processing, Chapter 4, Section 20, 

Subsection 5.1.1, entitled ‘‘Packaged 

Revenue Codes.’’ As indicated in that 

section, certain revenue codes when 

reported on an OPPS bill without a 

HCPCS code, including revenue codes 

0343 and 0344, are considered packaged 

services that are to be factored into the 

transitional outpatient payment and 

outlier calculations. 

Although we strongly encourage 

hospitals to report charges and HCPCS 

codes for diagnostic and therapeutic 

radiopharmaceuticals using revenue 

codes 0343 and 0344, respectively, we 

generally try to not to impose 

requirements on the assignment of 

HCPCS codes to revenue codes for OPPS 

services because the way hospitals 

assign costs varies so widely. 

Nevertheless, we agree with the 

commenters that, to the extent hospitals 

report charges for radiopharmaceuticals, 

both packaged and separately payable, 

using the new revenue codes 0343 and 

0344, our cost data related to 

radiopharmaceuticals should be more 

precise.

We will review our manual 

instructions and previous issuances 

related to the reporting of revenue codes 

and make any revisions needed to 

clarify and update those instructions. 

Comment: One commenter asked that 

CMS change the status indicator for 

code 90780 and 90781 to ‘‘X’’ from ‘‘T’’

and thereby cease the application of the 

multiple procedure reduction to these 

services, which will be billed for 

administration of infusion therapy in 

place of Q0081 for CY 2005. The 

commenter indicated that there is no 

situation in which the time and 

resources involved in infusion care 

should be reduced in the case of an 

observation patient. 

Response: We disagree. The costs of 

space, utilities and staff attendance are 

duplicated when the beneficiary is 

receiving another service at the same 

time as infusion therapy, in particular 

when the patient is in observation. 

Hence, a multiple procedure reduction 

to infusion therapy is appropriate, 

particularly when the patient is in 

observation status. However, we are 

noting how the multiple procedure 

discounting logic in the OCE functions. 

Line items with a service indicator of 

‘‘T’’ are subject to multiple procedure 

discounting unless modifiers 76, 77, 78, 

or 79, or all, are present. The ‘‘T’’ line 

item with the highest payment amount 

will not be multiple procedure 

discounted, and all other ‘‘T’’ line items 

will be multiple procedure discounted. 

All line items that do not have a service 

indicator of ‘‘T’’ will be ignored in 

determining the discount. Therefore, if 

the only other services reported with 

infusion therapy are an emergency 

department or other visit code, or 

diagnostic tests and services assigned 

status indicator ‘‘S,’’ the infusion 

therapy code would not be subject to the 

multiple procedure discounting. 

2. Comment Indicators 

In the November 1, 2002 and the 

November 7, 2003 final rules with 

comment period, which implemented 

changes in the OPPS for CYs 2003 and 

2004, respectively, we provided code 

condition indicators in Addendum B. 

The code condition indicators and their 

meaning are as follows: 

• ‘‘DG’’—Deleted code with a grace 

period; Payment will be made under the 

deleted code during the 90-day grace 

period. 

65828 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

• ‘‘DNG’’—Deleted code with no 

grace period; Payment will not be made 

under the deleted code. 

• ‘‘NF’’—New code final APC 

assignment; Comments were accepted 

on a proposed APC assignment in the 

Proposed Rule; APC assignment is no 

longer open to comment. 

• ‘‘NI’’—New code interim APC 

assignment; Comments will be accepted 

on the interim APC assignment for the 

new code. 

Medicare had permitted a 90-day 

grace period after implementation of an 

updated medical code set, such as the 

HCPCS, to give providers time to 

incorporate new codes in their coding 

and billing systems and to remove the 

discontinued codes. HCPCS codes are 

updated annually every January 1, so 

the grace period for billing discontinued 

HCPCS was implemented every January 

1 through March 31. 

The Health Insurance Portability and 

Accountability Act (HIPAA) transaction 

and code set rules require usage of the 

medical code set that is valid at the time 

that the service is provided. Therefore, 

effective January 1, 2005, CMS is 

eliminating the 90-day grace period for 

billing discontinued HCPCS codes. 

Details about elimination of the 90-day 

grace period for billing discontinued 

HCPCS codes were issued to our 

contractors on February 6, 2004, in 

Transmittal 89, Change Request 3093. 

In order to be consistent with the 

HIPPA rule that results in the 

elimination of the 90-day grace period 

for billing discontinued HCPCS codes, 

in the August 16, 2004 OPPS proposed 

rule, we proposed, effective January 1, 

2005, to delete code condition 

indicators ‘‘DNG’’ and ‘‘DG’’. We 

proposed to designate codes that are 

discontinued effective January 1, 2005 

with status indicator ‘‘D,’’ as described 

in section VII.C.1. of this preamble. 

Further, we proposed to rename 

‘‘code condition’’ indicators as 

‘‘comment indicators.’’ In Addendum 

D2 to this final rule with comment 

period, we list the following two 

comment indicators that we had 

proposed to use to identify HCPCS 

codes assigned to APCs that are or are 

not subject to comment: 

• ‘‘NF’’—New code, final APC 

assignment; Comments were accepted 

on a proposed APC assignment in the 

Proposed Rule; APC assignment is no 

longer open to comment. 

• ‘‘NI’’—New code, interim APC 

assignment; Comments will be accepted 

on the interim APC assignment for the 

new code.

We did not receive any public 

comments on our proposal relating to 

comment indicators. We are 

implementing the comment indicators 

and discontinuing the use of code 

condition indicators as we proposed, 

without modification. 

D. Observation Services 

Frequently, beneficiaries are placed in 

‘‘observation status’’ in order to receive 

treatment or to be monitored before 

making a decision concerning their next 

placement (that is, admit to the hospital 

or discharge). This status assignment 

occurs most frequently after surgery or 

a visit to the emergency department. For 

a detailed discussion of the clinical and 

payment history of observation services, 

see the November 1, 2002 final rule with 

comment period (67 FR 66794). 

Before the implementation of the 

OPPS in CY 2000, payment for 

observation care was made on a 

reasonable cost basis, which gave 

hospitals a financial incentive to keep 

beneficiaries in ‘‘observation status’’

even though clinically they were being 

treated as inpatients. With the initiation 

of the OPPS, observation services were 

no longer paid separately; that is, they 

were not assigned to a separate APC. 

Instead, costs for observation services 

were packaged into payments for the 

services with which the observation 

care was associated. 

Beginning in early 2001, the APC 

Panel began discussing the topic of 

separate payment for observation 

services. In its deliberations, the APC 

Panel asserted that observation services 

following clinical and emergency room 

visits should be paid separately, and 

that observation following surgery 

should be packaged into the payment 

for the surgical procedure. For CY 2002, 

we implemented separate payment for 

observation services (APC 0339) under 

the OPPS for three medical conditions: 

chest pain, congestive heart failure, and 

asthma. A number of accompanying 

requirements were established, 

including the billing of an evaluation 

and management visit in conjunction 

with the presence of certain specified 

diagnosis codes on the claim, hourly 

billing of observation care for a 

minimum of 8 hours up to a maximum 

of 48 hours, timing of observation 

beginning with the clock time on the 

nurse’s admission note and ending at 

the clock time on the physician’s 

discharge orders, a medical record 

documenting that the beneficiary was 

under the care of a physician who 

specifically assessed patient risk to 

determine that the beneficiary would 

benefit from observation care, and 

provision of specific diagnostic tests to 

beneficiaries based on their diagnoses. 

In developing this policy for separately 

payable observation services, we 

balanced issues of access, medical 

necessity, potential for abuse, and the 

need to ensure appropriate payment. We 

selected the three medical conditions, 

noted previously, and the 

accompanying diagnosis codes and 

diagnostic tests to avoid significant 

morbidity and mortality from 

inappropriate discharge while, at the 

same time, avoiding unnecessary 

inpatient admissions. 

Over the past 2 years, we have 

continued to review observation care 

claims data for information on 

utilization and costs, along with 

additional information provided to us 

by physicians and hospitals concerning 

our current policies regarding separately 

payable observation services. Our 

primary goal is to ensure that Medicare 

beneficiaries have access to medically 

necessary observation care. We also 

want to ensure that separate payment is 

made only for beneficiaries actually 

receiving clinically appropriate 

observation care.

In January 2003, the APC Panel 

established an Observation 

Subcommittee. Over the last year, this 

subcommittee has held discussions 

concerning observation care and 

reviewed data extracted from claims 

that reported observation services. The 

subcommittee presented the results of 

its deliberations to the full APC Panel at 

the February 2004 meeting. The APC 

Panel recommendations regarding 

observation care provided under the 

OPPS were broad in scope and included 

elimination of the diagnosis 

requirement for separate payment for 

observation services, elimination of the 

requirement for the concomitant 

diagnostic tests for patients receiving 

observation care, unpackaging of 

observation services beyond the typical 

expected recovery time from surgical 

and interventional procedures, and 

modification of the method for 

measuring beneficiaries’ time in 

observation to make it more compatible 

with routine hospital practices and their 

associated electronic systems. 

In response to the APC Panel 

recommendations, we undertook a 

number of studies regarding observation 

services, while acknowledging data 

limitations from the brief 2-year 

experience the OPPS has had with 

separately payable observation services. 

To assess the appropriateness of the 

APC Panel’s recommendation not to pay 

separately for observation services 

following surgical or interventional 

procedures, we analyzed the claims for 

these procedures to determine the 

extent to which the claims reported 

packaged observation services codes. 

This analysis revealed that while 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65829

observation services are being reported 

on some claims for surgical and 

interventional procedures, the great 

majority of claims for these procedures 

reported no observation services. The 

packaged status of these observation 

services codes may result in 

underreporting their frequency, but the 

proportion of surgical and 

interventional procedures reported with 

the packaged observation services codes 

was so small that any increase would 

not change our substantive conclusion. 

This confirmed our belief that, although 

an occasional surgical case may require 

a longer recovery period than expected 

for the procedure, as a rule, surgical 

outpatients do not require observation 

care. Given the rapidly changing nature 

of outpatient surgical and interventional 

services, it would be difficult to 

determine an expected typical recovery 

time for each procedure. We have 

concerns about overutilization of 

observation services in the postprocedural setting as partial 

replacement for recovery room time. 

However, we noted that, to the extent 

observation care or extended recovery 

services are provided to surgical or 

interventional patients, the cost of that 

care is packaged into the payment for 

the procedural APC which may result in 

higher median costs for those 

procedures. 

We also analyzed the possibility of 

expanding the list of medical conditions 

for separately payable visit-related 

observation services, altering the 

requirements for diagnostic tests while 

in observation, and modifying the rules 

for counting time in observation care. 

We looked at CY 2003 OPPS claims 

data for all packaged visit-related 

observation care for all medical 

conditions in order to determine 

whether or not there were other 

diagnoses that would be candidates for 

separately payable observation services. 

Our analysis confirmed that the three 

diagnoses that are currently eligible for 

separate payment for observation 

services are appropriate, as those 

diagnoses are frequently reported in our 

visit-related claims with packaged 

observation services. In fact, diagnoses 

related to chest pain were, by far, the 

diagnosis most frequently reported for 

observation care, either separately 

payable or packaged. Other diagnoses 

that appeared in the claims data with 

packaged observation services included 

syncope and collapse, transient cerebral 

ischemia, and hypovolemia. 

The packaged status of those 

observation stays means that the data 

are often incomplete and the frequency 

of services may be underreported. 

Generally, information about packaged 

services is not as reliably reported as is 

that for separately paid services. 

However, we are not convinced that, for 

those other conditions (such as 

hypovolemia, syncope and collapse, 

among others), there is a well-defined 

set of hospital services that are distinct 

from the services provided during a 

clinic or emergency room visit. 

Separately payable observation care 

must include specific, clinically 

appropriate services, and we are still 

accumulating data and experience for 

the three medical conditions for which 

we are currently making separate 

payment. Therefore, we believed it was 

premature to expand the conditions for 

which we would separately pay for 

visit-related observation services. 

Hospitals have indicated that, even in 

the cases where the diagnostic tests 

have been performed, to assure that 

billing requirements for separately 

payable observation services under APC 

0339 are met, they must manually 

review the medical records to prepare 

the claims. If they do not conduct this 

manual review, they may not be coding 

appropriately for separately payable 

observation services.

As noted in our August 16, 2004 

proposed rule, we have also received 

comments from the community and the 

APC Panel asserting that the 

requirements for diagnostic testing are 

overly prescriptive and administratively 

burdensome, and that hospitals may 

perform tests to comply with the CMS 

requirements, rather than based on 

clinical need. For example, a patient 

admitted directly to observation care 

with a diagnosis of chest pain may have 

had an electrocardiogram in a 

physician’s office just prior to 

admission to observation and may only 

need one additional electrocardiogram 

while receiving observation care. Thus, 

two more electrocardiograms performed 

in the hospital as required under the 

current OPPS observation policy might 

not be medically necessary. 

We continue to believe that the 

diagnostic testing criteria we established 

for the three medical conditions are the 

minimally appropriate tests for patients 

receiving a well-defined set of hospital 

observation services for those 

conditions. The previous example, 

notwithstanding, we also continue to 

believe that the majority of these tests 

would be performed in the hospital 

outpatient setting. We define 

observation care as an active treatment 

to determine if a patient’s condition is 

going to require that he or she be 

admitted as an inpatient or if the 

condition resolves itself and the patient 

is discharged. The currently required 

diagnostic tests reflect that an active 

assessment of the patient was being 

undertaken, and we believe they are 

generally medically necessary to 

determine whether a beneficiary will 

benefit from being admitted to 

observation care and aid in determining 

the appropriate disposition of the 

patient following observation care. 

After careful consideration, we agree 

that specifying which diagnostic tests 

must be performed as a prerequisite for 

payment of APC 0339 may be imposing 

an unreasonable reporting burden on 

hospitals and may, in some cases, result 

in unnecessary tests being performed. 

Therefore, in the August 16, 2004 

proposed rule, we proposed, beginning 

in CY 2005, to remove the current 

requirements for specific diagnostic 

testing, and to rely on clinical judgment 

in combination with internal and 

external quality review processes to 

ensure that appropriate diagnostic 

testing (which we expect would include 

some of the currently required 

diagnostic tests) is provided for patients 

receiving high quality, medically 

necessary observation care. 

Accordingly, we proposed that, 

beginning in CY 2005, the following 

tests would no longer be required to 

receive payment for APC 0339 

(Observation): 

• For congestive heart failure, a chest 

x-ray (71010, 71020, 71030), and 

electrocardiogram (93005) and pulse 

oximetry (94760, 94761, 94762) 

• For asthma, a breathing capacity 

test (94010) or pulse oximetry (94760, 

94761, 94762) 

• For chest pain, two sets of cardiac 

enzyme tests; either two CPK (82550, 

82552, 82553) or two troponins (84484, 

84512) and two sequential 

electrocardiograms (93005) 

We believe that this proposed policy 

change would benefit hospitals because 

it would reduce administrative burden, 

allow more flexibility in management of 

beneficiaries in observation care, 

provide payment for clinically 

appropriate care, and remove a 

requirement that may have resulted in 

duplicative diagnostic testing. 

We received numerous public 

comments supporting our proposed 

policy. We did not receive any 

comments that opposed the proposed 

policy. Therefore, we are adopting, 

without modification, our proposal to 

no longer require specified diagnostic 

tests to receive payment for APC 0339, 

beginning in CY 2005. 

Hospitals and the APC Panel further 

suggested that we modify the method 

for accounting for the beneficiary’s time 

in observation care. Currently, hospitals 

report the time in observation beginning 

with the admission of the beneficiary to 

65830 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

observation and ending with the 

physician’s order to discharge the 

patient from observation. There are two 

problems related to using the time of the 

physician discharge order to determine 

the ending time of observation care. 

First, providers assert that it is not 

possible to electronically capture the 

time of the physician’s orders for 

discharge. As a result, manual medical 

record review is required in order to bill 

accurately. Second, the hospital may 

continue to provide specific dischargerelated observation care for a short time 

after the discharge orders are written 

and, therefore, may not be allowed to 

account for the full length of the 

observation care episode. In an effort to 

reduce hospitals’ administrative burden 

related to accurate billing, in the 

proposed rule, we proposed to modify 

our instructions for counting time in 

observation care to end at the time the 

outpatient is actually discharged from 

the hospital or admitted as an inpatient. 

Our expectation was that specific, 

medically necessary observation 

services were being provided to the 

patient up until the time of discharge. 

However, we did not expect reported 

observation time to include the time 

patients remain in the observation area 

after treatment is finished for reasons 

that include waiting for transportation 

home. 

Although beneficiaries may be in 

observation care up to 48 hours or 

longer, we believed that, in general, 24 

hours was adequate for the clinical staff 

to determine what further care the 

patient needs. In CY 2005, we proposed 

to continue to make separate payment 

for observation care based on claims 

meeting the requirement for payment of 

HCPCS code G0244 (Observation care 

provided by a facility to a patient with 

CHF, chest pain, or asthma, minimum 8 

hours, maximum 48 hours). However, 

we proposed not to include claims 

reporting more than 48 hours of 

observation care in calculating the final 

payment rate for APC 0339. 

We received several public comments 

on our proposal. 

Comment: A number of commenters 

urged that CMS include claims for stays 

greater than 48 hours in the data used 

to calculate the payment rate for 

observation because any such claims in 

our dataset would have withstood local 

fiscal intermediary scrutiny for 

reasonableness and medical necessity 

and should therefore be regarded as 

legitimate for pricing calculations. One 

commenter requested that CMS provide 

clarification to fiscal intermediaries 

regarding billing for stays that exceed 48 

hours because code G0244 (Observation 

care provided by a facility to a patient 

with CHF, chest pain or asthma, 

minimum 8 hours, maximum 48 hours) 

would seem to preclude billing G0244 

for stays that exceed 48 hours but that 

otherwise meet all the criteria for 

payment. 

Response: In an effort to clarify the 

apparent confusion cited by 

commenters with regard to billing for 

stays that exceed 48 hours, beginning in 

CY 2005, we are changing the descriptor 

for HCPCS code G0244 to read as 

follows: 

G0244, Observation care provided by 

a facility to a patient with CHF, chest 

pain or asthma, minimum 8 hours.

We expect that hospitals will report 

one unit of G0244 for each hour of 

observation care provided to patients for 

congestive heart failure, chest pain, or 

asthma, with a minimum 8 units billed 

to be eligible for separate observation 

payment. 

We carefully considered the 

comments that urged us to include 

reporting more than 48 hours to 

calculate the median cost of G0244. The 

final payment rate for APC 0339 listed 

in Addendum A is based on all CY 2003 

claims for G0244 taken from the 

National Claims History file, without 

regard to units of service. Prior to 

implementation of the OPPS, when 

hospital outpatient services were paid 

on a reasonable cost basis, Medicare did 

allow payment for observation services 

that exceeded 48 hours when medical 

review determined that a more extended 

period of observation care was 

reasonable and necessary. Since 

implementation of the OPPS, Medicare 

has ceased paying separately for 

observation care, with the exception of 

services reported with G0244, because 

payment for observation services was 

packaged into payment for services with 

which observation services were 

reported. We believe that, in the 

overwhelming majority of cases, 

decisions can be and are routinely made 

in less than 48 hours whether to release 

a beneficiary from the hospital 

following resolution of the reason for 

the outpatient visit or whether to admit 

the beneficiary as an inpatient. 

Therefore, we intend to revisit this issue 

in future updates. 

For the reasons stated above, we are 

not adopting as final for CY 2005, our 

proposal to exclude claims for G0244 

that reported more than 48 hours of 

observation from calculation of the 

median cost for APC 0339. 

We also proposed the following 

requirements to receive separate 

payment for HCPCS code G0244 in APC 

0339 for medically necessary 

observation services involving specific 

goals and a plan of care that are distinct 

from the goals and plan of care for an 

emergency department, physician office, 

or clinic visit: 

• The beneficiary must have one of 

three medical conditions: congestive 

heart failure, chest pain, or asthma. The 

hospital bill must report as the 

admitting or principal diagnosis an 

appropriate ICD–9–CM code to reflect 

the condition. The eligible ICD–9–CM 

diagnosis codes for CY 2005 are shown 

in Table 38 below. 

• The hospital must provide and 

report on the bill an emergency 

department visit (APC 0610, 0611, or 

0612), clinic visit (APC 0600, 0601, or 

0602), or critical care (APC 0620) on the 

same day or the day before the 

separately payable observation care 

(G0244) is provided. For direct 

admissions to observation, in lieu of an 

emergency department visit, clinic visit, 

or critical care, G0263 (Adm with CHF, 

CP, asthma) must be billed on the same 

day as G0244. 

• HCPCS code G0244 must be billed 

for a minimum of 8 hours. 

• No procedures with a ‘T’ status 

indicator, except the code for infusion 

therapy of other than a chemotherapy 

drug (CPT code 90780) can be reported 

on the same day or day before 

observation care is provided. 

• Observation time must be 

documented in the medical record and 

begins with the beneficiary’s admission 

to an observation bed and ends when he 

or she is discharged from the hospital. 

• The beneficiary must be in the care 

of a physician during the period of 

observation, as documented in the 

medical record by admission, discharge, 

and other appropriate progress notes 

that are timed, written, and signed by 

the physician. 

• The medical record must include 

documentation that the physician 

explicitly assessed patient risk to 

determine that the beneficiary would 

benefit from observation care. 

We received numerous public 

comments on our proposal. 

Comment: Most commenters 

applauded our proposal to eliminate the 

requirement that specified diagnostic 

tests be reported in order to receive 

payment for HCPCS code G0244. 

However, many commenters expressed 

disappointment that CMS did not 

propose to expand the conditions for 

which separate payment would be 

provided for observation care. One 

commenter, representing cancer centers, 

requested that CMS study febrile 

neutropenia, chemotherapy 

hypersensitivity reaction, hypovolemia, 

and electrolyte imbalance as conditions 

that would warrant separate payment 

for observation. A few commenters 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65831

supported the APC Panel 

recommendation that we eliminate 

altogether the diagnosis coding 

requirement for APC 0339. One 

commenter stated that medical care 

included in hourly observation charges 

billed under revenue code 762 for 

syncope and collapse, transient cerebral 

ischemia, and hypovolemia is medically 

necessary and distinct from services 

rendered in the emergency department 

or a clinic, is similar to that furnished 

to patients with congestive heart failure, 

asthma, and chest pain, and should 

therefore be paid for separately.

Response: We appreciate the support 

expressed by numerous commenters for 

the changes in requirements that we 

proposed for CY 2005 in order for 

hospitals to receive separate payment 

for observation services. As we indicate 

below, we are making final most of the 

changes that we proposed, with some 

modifications based on comments that 

we received. Although we are not going 

to implement in the CY 2005 OPPS the 

recommendations made by commenters 

and the APC Panel to expand separate 

payment for observation to include 

conditions in addition to congestive 

heart failure, asthma, and chest pain, we 

will continue to analyze our data and 

study the impact of such a change for 

reconsideration in future updates of the 

OPPS. 

Comment: Several commenters 

supported our proposal to change how 

we define ending time or ‘‘discharge’’

from observation care. However, those 

commenters also requested further 

clarification of what we mean by 

‘‘discharge.’’

Response: We carefully considered 

the thoughtful comments related to our 

proposal to modify the current policy 

regarding the time that should be 

recorded to designate when observation 

care ends. Based on suggestions from 

commenters, we are elaborating upon 

our proposal to define as the end of 

observation, the time the outpatient is 

either discharged from the hospital or 

admitted as an inpatient. Specifically, 

we consider the time when a patient is 

‘‘discharged’’ from observation status to 

be the clock time when all clinical or 

medical interventions have been 

completed, including any necessary 

followup care furnished by hospital staff 

and physicians that may take place after 

a physician has ordered that the patient 

be released or admitted as an inpatient. 

However, observation care does not 

include time spent by the patient in the 

hospital subsequent to the conclusion of 

therapeutic, clinical, or medical 

interventions, such as time spent 

waiting for transportation to go home. 

Comment: A few commenters 

requested clarification of the starting 

time for observation. One commenter 

recommended that CMS make it clear 

that observation time begins with the 

patient’s placement in the bed and 

initiation of observation care, regardless 

of whether the bed is in a holding area 

or is in an actual observation bed or 

unit, as long as appropriate observation 

care is being provided. Another 

commenter asked if CMS will allow 

providers to document observation start 

time on any applicable document in the 

medical record and not limit the start 

time documentation to the nurse’s 

observation admission note. 

Response: We have stated in past 

issuances and rules that observation 

time begins at the clock time appearing 

on the nurse’s observation admission 

note, which coincides with the 

initiation of observation care or with the 

time of the patient’s arrival in the 

observation unit (66 FR 59879, 

November 30, 2001; Transmittal A–02–

026 issued on March 28, 2002; and 

Transmittal A–02–129 issued on 

January 3, 2003.) In the August 16, 2004 

proposed rule, we stated that 

observation time must be documented 

in the medical record and begins with 

the beneficiary’s admission to an 

observation bed (69 FR 50534). We agree 

with the commenter on the need for 

clarification, and we will reiterate in 

provider education materials developed 

for the CY 2005 OPPS update that 

observation time begins at the clock 

time documented in the patient’s 

medical record, which coincides with 

the time the patient is placed in a bed 

for the purpose of initiating observation 

care in accordance with a physician’s 

order. 

Comment: One commenter, a hospital 

trade association, recommended that 

CMS reconsider requiring hospitals to 

report one of the ICD–9–CM diagnosis 

codes designated for payment of APC 

0339 as the admitting or principal 

diagnosis on the hospital claim. The 

commenter was concerned that, if we 

restrict the position of the diagnosis 

code to the admitting or principal field, 

many claims that otherwise meet the 

criteria for separate payment of 

observation will not be payable because 

coding rules and the frequency by 

which Medicare beneficiaries with 

asthma, congestive heart failure or chest 

pains have other presenting signs, 

symptoms, and clinical conditions will 

result in inappropriate placement of the 

requisite diagnosis code. Therefore, the 

commenter recommended that CMS 

accept the required diagnosis code in 

any diagnosis code field. 

Response: Our proposal to require 

hospitals to report one of the specified 

ICD–9–CM codes in the admitting or 

principal diagnosis field is a 

modification of policy that we 

implemented in the November 30, 2001 

final rule (66 FR 59880). We disagree 

with the commenter that this 

requirement will result in many claims 

for APC 0339 not being paid. Rather, we 

believe that requiring hospitals to report 

the signs, symptoms, and conditions 

that are the reason for the patient’s visit 

will enhance coding accuracy and 

ensure that we are paying appropriately 

for APC 0339 by limiting separate 

payment to those observation services 

furnished to monitor asthma, chest pain, 

or congestive heart failure. If we 

continued to accept the required ICD–9–

CM diagnosis code as a secondary 

diagnosis, we would remain concerned 

that we may be making separate 

payment for observation for conditions 

other than asthma, congestive heart 

failure or chest pain because these 

conditions are reported in the secondary 

diagnosis field even though they are not 

the clinical reason that the patient is 

receiving observation services. 

Because we want to give hospitals 

ample time to incorporate this 

requirement into their billing systems, 

we will not implement this requirement 

before April 1, 2005. However, we are 

making final in this final rule with 

comment period the requirement that, 

beginning April 1, 2005, hospitals must 

report a qualifying ICD–9 CM diagnosis 

code in Form Locator (FL) 76, Patient 

Reason for Visit, and/or FL 67, principal 

diagnosis, in order for the hospital to 

receive separate payment for APC 0339. 

If a qualifying ICD–9 diagnosis code(s) 

is reported in the secondary diagnosis 

field but is not reported in either the 

Patient Reason for Visit field (FL 76) or 

the principal diagnosis field (FL 67), 

separate payment for APC 0339 will not 

be allowed. 

Comment: One commenter requested 

that CMS modify the requirement that 

there be documentation that the 

physician has explicitly assessed the 

beneficiary risk to determine that he 

would benefit from observation care. 

Response: We expect that, prior to 

issuing an order to place a patient in 

observation status, it is standard 

procedure for the physician to assess the 

patient’s condition to determine the 

clinically appropriate intervention that 

is most likely to result in maximum 

benefit for the patient given his or her 

condition at that time. To expect 

documentation of that assessment in the 

medical record of a patient for whom an 

order to receive observation care has 

been issued is not new, excessive, or 

65832 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

unduly burdensome, but rather is an 

essential part of the patient’s medical 

record to support the medically 

reasonable and necessary nature of the 

services ordered and furnished.

Comment: One commenter requested 

that CMS allow observation care 

following surgery if recovery time is 

longer than expected. 

Response: As stated in the proposed 

rule, this situation is precisely contrary 

to the purpose of the observation care 

benefit. We again note that recovery 

time has been factored into the payment 

for the surgery. Although there is 

variation among patients’ recovery 

times, that variation is part of the 

averaging that is inherent in a 

prospective payment system. Those 

costs are not considered as part of the 

payment for observation care, which 

serves an entirely different purpose for 

beneficiaries in the outpatient setting. 

Comment: One commenter 

recommended adding ICD–9–CM 

diagnosis code 427.31 (Atrial 

fibrillation) to the list of specified 

diagnosis codes that could be included 

on claims for separately payable 

observation services furnished to 

patients with congestive heart failure or 

chest pain, or both. 

Response: While many patients may 

have chronic atrial fibrillation that is 

asymptomatic, we agree that some 

patients may present chest pain as a 

significant symptom associated with 

atrial fibrillation. Atrial fibrillation may 

also complicate acute myocardial 

infarction. Patients who are being 

evaluated and managed with 

observation care for chest pain in a 

hospital may be found to have 

symptomatic atrial fibrillation as the 

likely etiology of their chest discomfort 

following comprehensive assessment. 

However, we would generally expect 

that patients with chest pain and atrial 

fibrillation receiving observation 

services in the hospital would be 

receiving these services specifically for 

their chest pain and that one of the 

chest pain diagnoses already on our list 

of diagnosis codes would be present on 

the claim as the reason for the visit or 

the principal diagnosis. Similarly, with 

respect to atrial fibrillation and 

congestive heart failure, congestive 

heart failure is an independent predictor 

of atrial fibrillation. However, as with 

chest pain and atrial fibrillation, we 

would generally expect that patients 

with congestive heart failure and atrial 

fibrillation receiving observation 

services in the hospital to be receiving 

these services specifically for their 

congestive heart failure and that one of 

the congestive heart failure diagnoses 

already on our list of diagnosis codes 

would be present on the claim as the 

reason for the visit or the principal 

diagnosis. 

Therefore, while we agree with the 

commenter’s suggestion that code 

427.31 could be viewed as a reasonable 

diagnosis code for chest pain for which 

separate payment for observation 

services might be made under the OPPS, 

we believe it is unnecessary and 

redundant to add it to the list for chest 

pain because any of the existing ICD–9–

CM diagnosis codes listed in Table 32 

for chest pain suffices for purposes of 

the OPPS observation payment policy. 

Likewise, we are not adding code 427.31 

to the list of acceptable congestive heart 

failure diagnoses for which separate 

payment for observation services is 

made by the OPPS. 

Comment: One commenter 

recommended that diagnostic heart 

catheterization procedures, CPT codes 

93510 through 92529, performed within 

24 hours of an observation stay not 

disqualify separate payment for the 

observation even though these codes are 

assigned status indicator ‘‘T,’’ because it 

is not uncommon for patients admitted 

through the emergency department to 

observation for chest pain to be 

followed up with a diagnostic heart 

catheterization within 24 hours. 

Response: This scenario was 

discussed during the February 2004 

APC Panel meeting, although it was not 

advanced as a formal recommendation. 

While we are not adopting the 

commenter’s recommendation at this 

time, we are making final in this final 

rule with comment period several 

changes in the requirements for separate 

payment for observation care, for 

implementation in CY 2005. We believe 

further analysis of any impact of such a 

change, in addition to analysis of the 

other changes being implemented in CY 

2005, is necessary. We note that by the 

APC Panel may wish to consider this in 

future meetings. 

Comment: One commenter, 

representing a health system, suggested 

extensive billing and coding changes to 

further simplify claims submission for 

observation services. These suggestions 

included revision of the definition of 

HCPCS code G0263 and elimination of 

HCPCS code G0264 for direct 

admissions; replacing use of HCPCS 

code G0244 with a revenue code and 

CPT codes and letting the OCE 

determine if the criteria for payment of 

APC 0339 are met; clarification of 

billing for postanesthesia care unit 

(PACU) services; and use of revenue 

codes to distinguish between 

observation in a clinic and observation 

in an emergency department. 

Response: We welcome the 

commenter’s suggestions and will 

endeavor during the next year to 

evaluate their feasibility and impact of 

any such changes. However, we 

recognize that extensive systems 

changes would be required to 

implement many of these suggestions, 

but will consider them for possible 

implementation in future updates of the 

OPPS. 

After carefully considering the public 

comments received related to our 

proposed requirements to receive 

separate payment for observation 

services in CY 2005, we are adopting 

our proposal as final without 

modification. 

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ER15NO04.058</GPH>
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BILLING CODE 4120–01–C 

E. Procedures That Will Be Paid Only as 

Inpatient Procedures 

Before implementation of the OPPS, 

Medicare paid reasonable costs for 

services provided in the outpatient 

department. 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 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. 

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. In the 

April 7, 2000 final rule with comment 

period, we identified procedures that 

are typically provided only in an 

inpatient setting and, therefore, would 

not be paid by Medicare under the 

OPPS (65 FR 18455). These procedures 

comprise what is referred to as the 

‘‘inpatient list.’’ The inpatient list 

specifies those services that are only 

paid when provided in an inpatient 

setting. These are services that require 

inpatient care because of the nature of 

the procedure, the need for at least 24 

hours of postoperative recovery time or 

monitoring before the patient can be 

safely discharged, or the underlying 

physical condition of the patient. As we 

discussed in the April 7, 2000 final rule 

with comment period (65 FR 18455) and 

the November 30, 2001 final rule (66 FR 

59856), we use the following criteria 

when reviewing procedures to 

determine whether or not they should 

be moved from the inpatient list and 

assigned to an APC group for payment 

under the OPPS: 

• 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 (67 

FR 66792), 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: 

• We have determined that the 

procedure is being performed in 

multiple hospitals on an outpatient 

basis; or 


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• We have determined that the 

procedure can be appropriately and 

safely performed in an ASC and is on 

the list of approved ASC procedures or 

proposed by us for addition to the ASC 

list. 

In the November 7, 2003 final rule 

with comment period, we did not 

implement any changes in our payment 

policies for the OPPS inpatient list. 

However, we addressed issues and 

concerns raised by commenters in 

response to the August 12, 2003 

proposed rule and further clarified 

payment policies related to the OPPS 

inpatient list. 

At the February 2004 meeting, the 

APC Panel made the recommendation to 

remove the following four abscess 

drainage CPT codes from the inpatient 

list: 44901, 49021, 49041, and 49061. As 

discussed in the proposed rule, we 

agreed with the APC Panel’s 

recommendation and we proposed to 

remove these four abscess codes from 

the inpatient list and to assign them to 

APC 0037 for OPPS payment in CY 

2005. 

The APC Panel also made a 

recommendation to either eliminate the 

inpatient list from the OPPS or to 

evaluate the current list of procedures 

for any other appropriate changes. As 

recommended by the APC Panel, we 

sought to identify additional procedure 

codes to propose for removal from the 

inpatient list, consistent with the 

criteria listed above. To assist us in 

identifying procedures that were being 

widely performed on an outpatient basis 

for clinical review, we looked for 

services on the inpatient list that were 

performed on Medicare beneficiaries in 

all sites of service other than the 

hospital inpatient setting approximately 

60 percent or more of the time. We 

relied on CY2003 Medicare Part B 

Extract and Summary System (BESS) 

data for this information. We chose 60 

percent as a threshold because, in 

general, we believe that a procedure 

should be specifically considered for 

removal from the inpatient list if there 

is evidence that it is being performed 

less than one half of the time in the 

hospital inpatient setting. For 

procedures where data demonstrate that 

they are being delivered to Medicare 

beneficiaries in a safe and appropriate 

manner on an outpatient basis in a 

variety of different hospitals, we believe 

that it is reasonable to consider the 

removal of these procedures from the 

inpatient list. After further clinical 

evaluation of codes that met our 60-

percent threshold to ensure that these 

procedures met our other criteria for 

removal from the inpatient list and were 

truly appropriate for consideration, we 

proposed to place 20 procedures that are 

on the inpatient list for the CY 2004 

OPPS into clinical APCs for payment 

under the OPPS for CY 2005. We 

proposed to assign all of these codes the 

status indicator ‘‘T.’’ Two additional 

services, CPT codes 00174 and 00928, 

were proposed to be removed and 

assigned a status indicator ‘‘N’’ because, 

under the OPPS, anesthesia codes are 

packaged into the procedures with 

which they are billed. 

We proposed not to accept the APC 

Panel’s recommendation to completely 

eliminate the inpatient list for CY 2005. 

We solicited comments, especially from 

professional societies and hospitals, on 

whether any procedures on the CY 2005 

proposed inpatient list were appropriate 

for removal and whether any other such 

procedures should be separately paid 

under the OPPS. We also asked 

commenters who recommend that a 

procedure that is currently on the 

inpatient list be reclassified to an APC 

to include evidence (preferably from 

peer-reviewed medical literature) that 

the procedure is being performed on an 

outpatient basis in a safe and effective 

manner. We requested that commenters 

suggest an appropriate APC assignment 

for the procedure and furnish 

supporting data to assist us in 

determining, based on comments, if the 

procedure could be payable under the 

OPPS in CY 2005. 

We received a number of public 

comments on our proposal to retain the 

inpatient list and to delete 22 procedure 

codes from the inpatient list and our 

solicitation of additional procedures 

currently on the inpatient list that 

should be reclassified to an APC, with 

supporting evidence. 

Comment: One commenter 

recommended that CMS remove the 

following CPT codes for spinal 

procedures currently on the inpatient 

list: CPT codes 22554, 22585, 22840, 

22842, 22845, 22846, 22855, 63043, 

63044, 63075, and 63076. The 

commenter submitted several published 

articles related to the performance of 

these procedures in the hospital 

outpatient setting. 

Response: After careful review of the 

list of procedures and the accompanying 

articles submitted by the commenter, we 

believe these procedures should remain 

on the inpatient list for CY 2005. All of 

the procedures recommended by the 

commenter for removal were performed 

more than 90 percent of the time in the 

hospital inpatient setting on Medicare 

beneficiaries according to our BESS 

data. There was no evidence submitted 

to demonstrate that the procedures were 

being provided safely and effectively to 

patients demographically similar to 

Medicare beneficiaries in multiple 

hospitals in the outpatient hospital 

setting. We are concerned that none of 

the published studies, with the 

exception of one, included patients in 

the general Medicare-eligible age range 

of 65 years or older. We do not believe 

that experience in providing these major 

spinal procedures to young and middleaged adults in the outpatient setting can 

necessarily be generalized as safe and 

appropriate for typical Medicare 

beneficiaries. 

Comment: One commenter requested 

that CPT code 58260 (Vaginal 

hysterectomy) be removed from the 

inpatient list. The commenter stated 

that surgeons at the hospital believed 

that performing this procedure in an 

outpatient setting has been a standard of 

practice for a long time. 

Response: According to our BESS 

data, the procedure described by CPT 

58260 was performed more than 90 

percent of the time in the hospital 

inpatient setting on Medicare 

beneficiaries. There was no evidence 

submitted by the commenter to 

demonstrate that this procedure was 

being provided safely and effectively to 

patients demographically similar to 

Medicare beneficiaries in multiple 

hospitals in the outpatient hospital 

setting. Thus, we believe this procedure 

should remain on the inpatient list. 

Comment: Several commenters, 

including a hospital association, 

recommended the elimination of the 

inpatient list, echoing the APC Panel’s 

recommendation from February 2004. 

The commenters stated that, while it is 

appropriate to leave the decision of site 

of service to the physicians, hospitals 

are unable to receive payment for 

services on this list that are performed 

in the hospital outpatient setting. One 

commenter argued that the current 

policy penalizes beneficiaries because 

they must be admitted as inpatients to 

receive these procedures, rather than 

receiving these services in an outpatient 

setting and being allowed to return 

home.

Response: In the November 7, 2003 

final rule (67 FR 66797), we specified 

the inpatient list to include services that 

are payable by Medicare only when 

provided in an inpatient setting. These 

are services that generally require 

inpatient care because of the nature of 

the procedure, the need for at least 24 

hours of postoperative recovery time or 

monitoring before the patient can be 

safely discharged, or the underlying 

physical condition of the Medicare 

beneficiary. We also listed in the 

November 7, 2003 final rule (68 FR 

63466) the criteria that we use to 

evaluate whether a procedure should be 

65836 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

removed from the inpatient list. We do 

not believe that all services can be safely 

and effectively delivered to Medicare 

beneficiaries in the outpatient setting. 

We are concerned that elimination of 

the inpatient list could result in unsafe 

or uncomfortable care for Medicare 

beneficiaries. Among the potential 

results are long observation stays after 

some procedures and imposition of 

OPPS copayments, which could differ 

significantly from a patient’s inpatient 

cost-sharing responsibilities. 

We believe that it is important for 

hospitals to educate physicians on 

Medicare services provided under the 

OPPS to avoid inadvertently providing 

services in an outpatient setting that are 

more appropriate to an inpatient setting. 

Comment: A few commenters 

recommended that CMS consider 

developing an appeals process to 

address circumstances in which 

payment for a procedure provided on an 

outpatient basis is denied because it is 

on the inpatient list. 

Response: We would like to 

emphasize that procedures on the 

inpatient list that are performed on a 

patient whose status is that of an 

outpatient are not payable under 

Medicare. CPT codes assigned a status 

indicator of ‘‘C,’’ such as those listed in 

Addendum E, are not payable under the 

OPPS, except under conditions 

described in the November 1, 2002 final 

rule (67 FR 66799). 

Comment: A few commenters 

requested that CMS clarify the criteria 

and the sources of data used to 

determine whether a procedure is 

appropriate for removal from the list. 

Other commenters expressed concern 

with the 60-percent threshold criterion 

used to evaluate codes for removal from 

the inpatient list. One commenter 

recommended that CMS revise its 

criteria because major teaching hospital 

outpatient departments often are the 

first places to perform services that had 

previously been performed only in the 

inpatient setting. This commenter 

argued that there would most likely be 

a time gap between when these services 

could be performed safely in teaching 

hospital outpatient departments and 

their dissemination to most hospitals’

outpatient departments. The commenter 

recommended that the determining 

factor regarding whether a procedure 

should be removed from the inpatient 

list should be whether the procedure 

can be performed safely in an outpatient 

department and not the number of 

outpatient departments in which the 

procedure is performed. 

Response: We recognize that teaching 

hospitals may have more 

technologically advanced equipment, 

more experienced staff, and greater 

resources than nonteaching hospitals. 

These characteristics may lead teaching 

hospitals to be the first places to 

perform on an outpatient basis some 

procedures on the inpatient list. On the 

other hand, community, nonteaching 

hospitals have pioneered the movement 

of some procedures to the outpatient 

setting, in part because of their 

responsiveness to identified local needs 

or their development of specific 

pathways for care. We cannot expect 

that all hospitals will have the necessary 

staff experience, resources, equipment, 

and interest to move many procedures 

to the outpatient setting. For these 

reasons, we do not believe that 

procedures that have been demonstrated 

to be performed safely and effectively 

on an outpatient basis in any single 

hospital or small group of hospitals 

alone are routinely appropriate for 

removal from the inpatient list. 

In addition, we want to clarify that 

the 60-percent threshold discussed in 

our proposed rule is not an established 

criterion that we use to determine 

whether a procedure is appropriate for 

removal from the inpatient list. The 60-

percent threshold was used as an 

operational tool to identify from the 

entire inpatient list those procedures 

that we believe are currently already 

being performed in the outpatient 

setting a majority of the time based on 

our CY 2003 BESS data, so that these 

services could then undergo clinical 

review against the criteria for removal 

from the inpatient list. The BESS 

database aggregates all physician billing 

throughout the year for each service 

provided to Medicare beneficiaries and 

billed under the Medicare Physician Fee 

Schedule. Summary data include 

information regarding the site of service 

(hospital inpatient, hospital outpatient, 

physician’s office, among others) and 

specialty of the physician performing 

the service. We emphasize that our 

review of the codes recommended by 

the commenters for removal from the 

list was not based on this threshold. 

Rather, our determination was based on 

the set of criteria described in the 

November 7, 2003 final rule (68 FR 

63466).

We encourage hospitals and 

physicians to submit recommendations 

regarding procedures they believe meet 

our criteria for removal from the 

inpatient list at any time. We ask that 

evidence be submitted to demonstrate 

that the procedure is being performed 

on an outpatient basis in a safe and 

appropriate manner in a variety of 

different types of hospitals. 

Comment: Numerous commenters 

supported the proposed removal of the 

22 CPT codes from the inpatient list. In 

addition, a few commenters expressed 

support for retaining the list of inpatient 

procedures. One commenter stated that 

eliminating the list could create an 

increase in inappropriate observation 

stays by assigning observation status to 

patients whose status should have been 

inpatient. 

Response: We appreciate the 

commenters’ support. 

In this final rule, we are finalizing our 

proposed retention of the inpatient list 

for the OPPS. We also are finalizing our 

proposal to remove 22 procedures from 

the CY 2004 list. Table 39 below lists 

the procedure codes that are being 

removed from the inpatient list and 

their APC assignments, effective January 

1, 2005. 

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BILLING CODE 4120–01–C 

F. Hospital Coding for Evaluation and 

Management Services 

1. Background 

Currently, for claims processing 

purposes, we direct hospitals to use the 

CPT codes used by physicians to report 

clinic and emergency department visits 

on claims paid under the OPPS. 

However, as discussed in the proposed 

rule, we have received comments 

suggesting that the CPT codes are 

insufficient to describe the range and 

mix of services provided to patients in 

the clinic and emergency department 

setting because they are defined to 

reflect only the activities of physicians 

(for example, ongoing nursing care, and 

patient preparation for diagnostic tests). 

For both clinic and emergency 

department visits, there are currently 

five levels of care. To facilitate proper 

coding, we require each hospital to 

create an internal set of guidelines to 

determine what level of visit to report 

for each patient (April 7, 2000, final rule 

with comment period (65 FR 18434)). 

We have continued our efforts to 

address the situation of proper coding of 

clinic and emergency department visits 

to ensure proper Medicare payments to 

hospitals. Commenters who responded 

to the August 24, 2001 OPPS proposed 

rule (66 FR 44672) recommended that 

we retain the existing evaluation and 

management coding system until 

facility-specific evaluation and 

management codes for emergency 

department and clinic visits, along with 

national coding guidelines, were 

established. Commenters also 

recommended that we convene a panel 

of experts to develop codes and 

guidelines that are simple to understand 

and to implement, and that are 

compliant with the HIPAA 

requirements. We agreed with these 

commenters, and in our November 1, 

2002 OPPS final rule (67 FR 66792), we 

stated that we believed the most 

appropriate forum for development of 

new code definitions and guidelines 

would be an independent expert panel 

that could provide information and data 

to us. We believed that, in light of the 

expertise of organizations such as the 

AHA and the AHIMA, these 

organizations were particularly well 

equipped to do so and to provide 

ongoing education to providers. 

The AHA and the AHIMA, on their 

own initiative, convened an 

independent expert panel comprised of 

members of the AHA and AHIMA, as 

well as representatives of the American 

College of Emergency Physicians, the 

Emergency Nurses Association, and the 

American Organization of Nurse 

Executives, to develop code 

descriptions and guidelines for hospital 

emergency department and clinic visits 

and to provide us with the information 

and data. In June 2003, we received the 

panel’s input concerning a set of 

national coding guidelines for 

emergency and clinic visits.


ER15NO04.060</GPH>
65838 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

As we noted in the proposed rule, we 

are still considering the panel’s set of 

coding guidelines. Although we did not 

propose the panel’s set of coding 

guidelines, we received several 

comments on the Panel’s coding 

guidelines and are continuing to review 

these public comments. In the 

November 7, 2003 OPPS final rule with 

comment period (68 FR 63463), we also 

indicated that we would implement 

new evaluation and management codes 

only when we are also ready to 

implement guidelines for their use. As 

we have not yet proposed new 

evaluation and management codes, we 

again note that we will allow ample 

opportunity for public comment, 

systems changes, and provider 

education before implementing such 

new coding requirements. 

2. Proposal for Evaluation and 

Management Guidelines 

In the November 7, 2003 OPPS final 

rule with comment period (68 FR 

63463), we discussed our primary 

concerns and direction for developing 

the proposed coding guidelines for 

emergency department and clinic visits 

and indicated our plans to make 

available for public comment the 

proposed coding guidelines that we are 

considering through the CMS OPPS 

Web site as soon as we have completed 

them. 

We received a number of comments 

on our proposal. 

Comment: Many commenters 

supported the development of 

evaluation and management codes and 

guidelines in the hospital outpatient 

setting and urged CMS to move forward 

as quickly as possible with reviewing 

the guidelines presented by the AHA 

and AHIMA Evaluation and 

Management Panel. Several commenters 

expressed concern that the current lack 

of uniformity impairs CMS’ ability to 

gather consistent, meaningful data on 

services provided in the emergency 

department and hospital clinics. 

Commenters reminded CMS of its 

commitment to make the evaluation and 

management codes and guidelines 

available for public comment and to 

provide at least 6 to 12 months notice 

prior to implementation of the new 

evaluation and management codes and 

guidelines. 

Response: As stated in the August 16, 

2004 OPPS proposed rule, we intend to 

make available for public comment the 

proposed coding guidelines that we are 

considering through the CMS OPPS 

Web site as soon as we have completed 

them. As stated in the August 16, 2004 

OPPS proposed rule, we will notify the 

public through our ‘‘listserve’’ when the 

proposed guidelines will become 

available. To subscribe to this listserve, 

individuals should access the following 

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

medlearn/listserv.asp and follow the 

directions to the OPPS listserve. When 

we post the proposed guidelines on the 

Web site, we will provide ample 

opportunity for the public to comment. 

In addition, we will provide ample 

time to train clinicians and coders on 

the use of new codes and guidelines and 

for hospitals to modify their systems. 

We anticipate providing at least 6 to 12 

months notice prior to implementation 

of the new evaluation and management 

codes and guidelines. We will continue 

working to develop and test the new 

codes even though we have not yet 

made plans for their implementation. 

G. Brachytherapy Payment Issues 

Related to Pub. L. 108–173 

1. Payment for Brachytherapy Sources 

(Section 621(b) of Pub. L. 108–173) 

Sections 621(b)(1) and (b)(2) of Pub. L. 

108–173 amended the Act by adding 

section 1833(t)(16)(C) and section 

1833(t)(2)(H), respectively, to establish 

separate payment for devices of 

brachytherapy consisting of a seed or 

seeds (or radioactive source) based on a 

hospital’s charges for the service, 

adjusted to cost. Charges for the 

brachytherapy devices may not be used 

in determining any outlier payments 

under the OPPS. In addition, consistent 

with our practice under the OPPS to 

exclude items paid at cost from budget 

neutrality consideration, these items 

must be excluded from budget 

neutrality as well. The period of 

payment under this provision is for 

brachytherapy sources furnished from 

January 1, 2004 through December 31, 

2006. 

In the OPPS interim final rule with 

comment period published on January 

6, 2004 (69 FR 827), we implemented 

sections 621(b)(1) and 621(b)(2)(C) of 

Pub. L. 108–173. We stated that we will 

pay for the brachytherapy sources listed 

in Table 4 of the interim final rule with 

comment period (69 FR 828) on a cost 

basis, as required by the statute. The 

status indicator for brachytherapy 

sources was changed to ‘‘H.’’ The 

definition of status indicator ‘‘H’’ was 

for pass-through payment only for 

devices, but the brachytherapy sources 

affected by new sections 1833(t)(16)(C) 

and 1833(t)(2)(H) of the Act are not 

pass-through device categories. 

Therefore, we also changed, for CY 

2004, the definition of payment status 

indicator ‘‘H’’ to include nonpassthrough brachytherapy sources paid on 

a cost basis. This use of status indicator 

‘‘H’’ was a pragmatic decision that 

allowed us to pay for brachytherapy 

sources in accordance with new section 

1833(t)(16)(C) of the Act, effective 

January 1, 2004, without having to 

modify our claims processing systems. 

We stated in the January 6, 2004 interim 

final rule with comment period that we 

would revisit the use and definition of 

status indicator ‘‘H’’ for this purpose in 

the OPPS update for CY 2005. 

Therefore, in the August 16, 2004 

proposed rule, we solicited further 

comments on this policy. 

We received several public comments 

on our August 16, 2004 proposal and on 

the January 6, 2004 interim final rule 

with comment period. 

Comment: One commenter, a hospital 

association, recommended that CMS 

establish a new status indicator for 

brachytherapy sources paid on a cost 

basis other than the status indicator 

‘‘H’’, which is also used for device 

categories paid on a transitional passthrough basis. The commenter noted 

that, because brachytherapy sources are 

subject to coinsurance and devices paid 

on a pass-through basis are not, a 

separate status indicator is needed for 

consistency in the classification of 

status indicators. 

Response: The commenter is correct 

that beneficiaries are not subject to 

copayment for the cost of device 

categories with pass-through payment, 

while beneficiaries are subject to 

copayment for other separately paid 

brachytherapy sources. However, our 

systems’ logic incorporates this 

difference in copayment for passthrough device categories versus 

nonpass-through brachytherapy sources, 

even though the status indicator for 

each is ‘‘H’’. Therefore, we are not 

establishing a separate status indicator 

at this time. However, we will consider 

making a change if the need arises. 

Comment: A number of commenters 

on the January 6, 2004 interim final rule 

with comment period urged us to 

continue to use, for CY 2005, the Ccodes and descriptors that we published 

in that interim final rule with comment 

period (69 FR 828) for both prostate and 

nonprostate brachytherapy that we 

implemented for CY 2004. Several 

commenters also suggested that we add 

the phrase ‘‘per source’’ to each of the 

brachytherapy source descriptors to 

reinforce that each source equals one 

unit of payment.

Response: We agree and are retaining 

the current brachytherapy source Ccodes and descriptors with which 

hospitals are familiar. We have been 

using these codes and descriptors since 

we unpackaged brachytherapy sources 

when the pass-through payment for 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65839

these sources ended on December 31, 

2002, in addition to other C-codes that 

we established either for pass-through 

payment (for example, C2632) or 

nonpass-through payment (for example, 

C2633). We also note that, in the August 

16, 2004 proposed rule, we proposed 

adding ‘‘per source’’ to each of the 

applicable brachytherapy descriptors, 

similar to the APC Panel’s 

recommendation (and the commenter’s 

suggestion) to do so for two new highactivity source categories, discussed 

below. We are adopting this clarification 

as final policy in this final rule with 

comment period and adding ‘‘per 

source’’ to the brachytherapy source 

descriptors that are paid on a per unit 

basis for each source. 

2. HCPCS Codes and APC Assignments 

for Brachytherapy Sources 

As we indicated in the January 6, 

2004 interim final rule with comment 

period, we began payment for the 

brachytherapy source in HCPCS code 

C1717 (Brachytx source, HCR lr-192) 

based on the hospital’s charge adjusted 

to cost beginning January 1, 2004. Prior 

to enactment of Pub. L. 108–173, these 

sources were paid as packaged services 

in APC 0313. As a result of the 

requirement under Pub. L. 108–173 to 

pay for C1717 separately, we adjusted 

the payment rate for APC 0313, 

Brachytherapy, to reflect the 

unpackaging of the brachytherapy 

source. We received no public 

comments on this methodology, and we 

are finalizing the payment methodology 

in this final rule with comment period. 

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

added by section 621(b)(2)(C) of Pub. L. 

108–173, mandated the creation of 

separate groups of covered OPD services 

that classify brachytherapy devices 

separately from other services or groups 

of services. The additional groups must 

be created in a manner that reflects the 

number, isotope, and radioactive 

intensity of the devices of 

brachytherapy furnished, including 

separate groups for Palladium-103 and 

Iodine-125 devices. 

We invited the public to submit 

recommendations for new codes to 

describe brachytherapy sources in a 

manner that reflects the number, 

radioisotope, and radioactive intensity 

of the sources. We requested 

commenting parties to provide a 

detailed rationale to support 

recommended new codes. We stated 

that we would propose appropriate 

changes in codes for brachytherapy 

sources in the CY 2005 OPPS update. 

At its meetings of February 18 

through 20, 2004, the APC Panel heard 

from parties that recommended the 

addition of two new brachytherapy 

codes and HCPCS codes for high 

activity Iodine-125 and high activity 

Paladium-103. The APC Panel, in turn, 

recommended that CMS establish new 

HCPCS codes and new APCs, on a per 

source basis, for these two 

brachytherapy sources. 

We considered this recommendation 

and agreed with the APC Panel. 

Therefore, in the August 16, 2004 

proposed rule, we proposed to establish 

the following two new brachytherapy 

source codes for CY 2005: 

• Cxxx1 Brachytherapy source, high 

activity, Iodine-125, per source. 

• Cxxx2 Brachytherapy source, high 

activity, Paladium-103, per source. 

In addition, we believe the APC 

Panel’s recommendation to establish 

new HCPCS codes that would 

distinguish high activity Iodine-125 

from high activity Paladium-103 on a 

per source basis should be implemented 

for other brachytherapy code 

descriptors, as well. Therefore, as stated 

previously, we proposed to include ‘‘per 

source’’ in the HCPCS code descriptors 

for all those brachytherapy source 

descriptors for which units of payment 

are not already delineated. 

Further, a new linear source 

Paladium-103 came to our attention in 

CY 2003 by means of an application for 

a new device category for pass-through 

payment. While we declined to create a 

new category for pass-through payment, 

we believe that this source falls under 

the provisions of Pub. L. 108–173 for 

separate cost-based payment as a 

brachytherapy source. Accordingly, we 

proposed to add, for separate payment, 

the following code of linear source 

Paladium-103: Cxxx3 Brachytherapy 

linear source, Paladium-103, per 1 mm. 

We received a number of public 

comments on our August 16, 2004 

proposed rule and on the January 6, 

2004 interim final rule with comment 

period, which deal with these issues. 

Comment: In response to the January 

6, 2004 interim final rule with comment 

period, several commenters 

recommended adding two new 

brachytherapy source codes and 

descriptors, to reflect the ranges in 

radioactive intensities that are 

frequently required in clinical practice 

for Iodine-125 and Palladium-103. The 

recommendations are for high activity 

payment codes for these two isotopes. 

The commenters recommended the 

following specific descriptors:

Cxxx1 Brachytherapy source, Low 

Dose Rate, High Activity Iodine-125, 

greater than 1.01 mCi (NIST), per 

source. 

Cxxx2 Brachytherapy source, Low 

Dose Rate, High Activity Palladium-103, 

greater than 2.2 mCi (NIST), per source. 

The commenters suggested that CMS 

include in the two proposed APCs and 

HCPCS codes an appropriate 

measurement of minimum radioactivity 

in mCi, based on calibrations establish 

by the National Institute of Standards 

and Technology (NIST). 

In response to the August 16, 2004 

OPPS proposed rule, one commenter 

agreed with our proposal to create two 

new brachytherapy codes for high 

activity Iodine-125 and Palladium-103 

sources, but recommended that we 

change the proposed descriptors. The 

commenter again recommended that we 

add the mCi (NIST) descriptions for the 

high activity ranges to these new high 

activity Iodine-125 and Palladium-103 

sources we proposed. 

Response: During its meetings of 

February 18 through 20, 2004, the APC 

Panel recommended that CMS establish 

two new HCPCS codes and APCs for 

High Activity Iodine-125 and High 

Activity Palladium-103 on a per source 

basis, but did not recommend adoption 

of other specific language regarding mCi 

in the descriptions above. As previously 

mentioned, in the August 16, 2004 

proposed rule, we noted the APC 

Panel’s recommendation to establish 

two new HCPCS codes and APCs for 

these high activity sources, as noted 

above. 

We agree that, with the establishment 

of these new codes, which are the first 

to specify high activity, we should 

provide an appropriate quantitative 

measurement of minimum source 

activity to specifically differentiate the 

high activity sources from other sources 

with differences in radioactive intensity 

for the two isotopes. 

Accordingly, we are accepting the 

commenter’s suggestion to utilize the 

calibrations established by the NIST to 

specify the high activity ranges. 

The final code descriptors are: 

C2634 Brachytherapy source, High 

Activity Iodine-125, greater than 1.01 

mCi (NIST), per source. 

C2635 Brachytherapy source, High 

Activity Palladium-103, greater than 2.2 

mCi (NIST), per source. 

Comment: One commenter objected to 

our proposal to create the two high 

activity brachytherapy codes based on 

radioactive intensity and claimed that 

there is uncertainty regarding 

availability of radioactive substance and 

that providers will need to distinguish 

between low and high activity without 

a definition of high activity. 

Response: We have now defined high 

activity level in our code descriptors for 

C2634 and C2635, using calibrations 

65840 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

established by the NIST. We will 

implement these codes with the 

definitions described herein. 

Comment: One commenter on the 

January 6, 2004 interim final rule with 

comment period suggested that we 

include ‘‘low dose rate’’ into the 

descriptors for each of the existing 

APCS for which the low dose rate may 

be applicable, to clarify that those 

descriptors refer to ‘‘low dose rate’’

brachytherapy. 

Response: We do not believe that 

changes in the descriptors of all APCs 

and HCPCS codes are warranted 

without evidence that there are 

alternative low and high dose rate 

sources requiring a high or low dose rate 

indicator in the C-code descriptor to 

distinguish among the sources. In this 

manner, if there are both low and high 

dose rate forms, they may be paid on a 

cost basis for brachytherapy sources 

described by the same C-code until a 

new code is indicated for a high dose 

rate source. If we receive evidence that 

high dose rate sources are used in 

clinical practice, we will determine at 

that time whether to establish new 

codes and APCs and whether the 

existing codes need to be modified in 

some way. 

Comment: One commenter on the 

January 6, 2004 interim final rule with 

comment period recommended that we 

establish a new source category for 

Brachytherapy linear source, Palladium103, per 10 millimeter length. The 

commenter claimed that this linear 

source is provided in 10-millimeter 

lengths from 10 to 60 millimeters, and 

not on a ‘‘per seed’’ basis. Although the 

commenter indicated there were 

dosimetry studies comparing the 

Palladium-103 linear source to the per 

seed form, the commenter 

recommended against using the same 

Palladium-103 code for both sources, 

claiming it would cause confusion in 

billing and cost reporting. 

Response: We agree that a separate 

code for Palladium-103 linear source 

should be established for payment 

under Pub. L. 108–173. In our proposed 

rule, we indicated that we were aware 

of a new linear source Palladium-103, 

which came to our attention by means 

of an application for a new device 

category for pass-through payment. We 

stated that, while we decided not to 

create a new category for pass-through 

payment, we believed that the new 

linear source falls under the provisions 

of Pub. L. 108–173 for separate costbased payment as a brachytherapy 

source. Therefore, we proposed to add 

the following code for linear source 

Palladium-103: Cxxx3 Brachytherapy 

linear source, Palladium-103, per 1 mm. 

We believe that the 1 millimeter 

increments of payment affords greater 

flexibility for describing other linear 

source Palladium-103 sources that may 

enter the market and be sold in other 

than 10 mm increments. 

We received several public comments 

in support of our proposed addition and 

descriptor of Brachytherapy linear 

source, Palladium-103, per 1 mm. 

Therefore, in this final rule with 

comment period, we are establishing the 

new code and descriptor for this new 

brachytherapy source, to be paid at cost: 

C2636 Brachytherapy linear source, 

Palladium-103, per 1 mm. 

Comment: One commenter on the 

January 6, 2004 interim final rule with 

comment period stated that CMS should 

pay for codes C1715 (Brachytherapy 

needle) and C1728 (Catheter, 

brachytherapy seed administration) on a 

cost basis as well as brachytherapy 

sources, asserting that these are 

brachytherapy devices. 

Response: Brachytherapy needles and 

catheters for administration of sources 

are not brachytherapy devices under 

section 621(b) of Pub. L. 108–173. 

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

specifies that, to qualify for payment at 

charges reduced to cost, a device of 

brachytherapy must consist of ‘‘a seed 

or seeds (or radioactive sources).’’ The 

special payment provision does not 

include needles or catheters in the 

definition of devices of brachytherapy. 

Therefore, in this final rule with 

comment period, we are not establishing 

new payment categories for these 

devices that were formerly paid as 

transitional pass-through devices.

Comment: One commenter, a 

developer of a brachytherapy radiation 

system, recommended that CMS create 

a C-code and APC for miscellaneous 

brachytherapy sources for payment of 

new brachytherapy sources at cost in 

accordance with Pub. L. 108–173. This 

commenter contended that such a 

miscellaneous source code would allow 

CMS to pay hospitals for new 

brachytherapy sources in the interval 

between FDA approval of the source 

and the development of specific coding 

for new sources. 

Response: Section 621(b) of Pub. L. 

108–173 requires us to establish new 

codes and separate payment for specific 

seed or seeds or other radioactive 

sources of brachytherapy. We do not 

believe that the statute contemplates a 

separate payment for an over-inclusive 

(‘‘catch-all’’) category such as a 

miscellaneous brachytherapy source 

code. Such a category would 

inappropriately include all new 

brachytherapy sources until separate 

payment is established. Moreover, we 

note that hospitals and brachytherapy 

source manufacturers might be able to 

use a miscellaneous category to bill 

Medicare for brachytherapy systems that 

do not meet our standard of a separately 

payable radioactive source of 

brachytherapy. In addition, new 

brachytherapy sources may be added 

more frequently than annually, when 

we are able to add new codes and 

payment instructions to our electronic 

claims processing systems. Therefore, in 

this final rule with comment period, we 

are not creating a new code of 

miscellaneous brachytherapy sources. 

Table 40 provides a complete listing 

of the HCPCS codes, long descriptors, 

APC assignments and status indicators 

that we will use for brachytherapy 

sources paid under the OPPS in CY 

2005.

TABLE 40.—SEPARATELY PAYABLE BRACHYTHERAPY SOURCES

HCPCS Long descriptor APC APC title New status 

indicator 

C1716 ........... Brachytherapy source, Gold 198, per source ............... 1716 Brachytx source, Gold 198 ............................. H 

C1717 ........... Brachytherapy source, High Dose Rate Iridium 192, 

per source.

1717 Brachytx source, HDR Ir-192 ......................... H 

C1718 ........... Brachytherapy source, Iodine 125, per source ............. 1718 Brachytx source, Iodine 125 ........................... H 

C1719 ........... Brachytherapy source, Non-High Dose Rate Iridium 

192, per source.

1719 Brachytx source, Non-HDR Ir-192 ................. H 

C1720 ........... Brachytherapy source, Palladium 103, per source ....... 1720 Brachytx source, Palladium 103 ..................... H

C2616 ........... Brachytherapy source, Yttrium-90, per source ............. 2616 Brachytx source, Yttrium-90 ........................... H 

C2632* ......... Brachytherapy solution, Iodine125, per mCi ................. 2632 Brachytx sol, I–125, per mCi .......................... H 

C2633 ........... Brachytherapy source, Cesium-131, per source .......... 2633 Brachytx source, Cesium-131 ........................ H

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65841

TABLE 40.—SEPARATELY PAYABLE BRACHYTHERAPY SOURCES—Continued

HCPCS Long descriptor APC APC title New status 

indicator 

C2634** ........ Brachytherapy source, High Activity, Iodine-125, greater than 1.01 mCi (NIST), per source.2634 Brachytx source, HA, I–125 ........................... H 

C2635** ........ Brachytherapy source, High Activity, Palladium-103, 

greater than 2.2 mCi (NIST), per source.

2635 Brachytx source, HA, P–103 .......................... H 

C2636** ........ Brachytherapy linear source, Palladium-103, per 1MM 2636 Brachytx linear source, P–103 ....................... H 

* Currently paid as a pass-through device category, scheduled to expire from pass-through payment as of January 1, 2005. 

** Newly created brachytherapy payment codes beginning January 1, 2005. 

Comment: A few commenters 

requested that CMS discuss in the OPPS 

final rule the process for adding other 

new brachytherapy devices for 

qualification under the separate costbased payment methodology under Pub. 

L. 108–173. The commenters urged CMS 

to add new brachytherapy devices for 

separate cost-based payment on a 

quarterly basis, rather than annually. 

Response: In the OPPS interim final 

rule published on January 6, 2004 that 

implemented the brachytherapy 

provisions of Pub. L. 108–173 for CY 

2004, we invited the public to submit 

recommendations for new codes to 

describe brachytherapy sources in a 

manner reflecting the number, 

radioisotope, and radioactivity intensity 

of the sources (69 FR 828). We requested 

that commenters provide a detailed 

rationale to support recommended new 

codes. The public may send such 

recommendations to the Division of 

Outpatient Care, Mailstop C4–05–17, 

Centers for Medicare and Medicaid 

Services, 7500 Security Blvd., 21244. 

We will endeavor to add new 

brachytherapy source codes and 

descriptors to our systems for payment 

on a quarterly rather than an annual 

basis. 

H. Payment for APC 0375, Ancillary 

Outpatient Services When Patient 

Expires 

In CY 2003, we implemented a new 

modifier –CA, Procedure payable only 

in the inpatient setting when performed 

emergently on an outpatient who dies 

before admission. The purpose of this 

modifier is to allow payment, under 

certain conditions, for outpatient 

services on a claim that have the same 

date of service as a HCPCS code with 

status indicator ‘‘C’’ that is billed with 

modifier –CA. When a procedure with 

status indicator ‘‘C’’ (inpatient services 

not payable under the OPPS) was billed 

with modifier –CA, we made payment 

of a fixed amount, under New 

Technology APC 0977. 

In the November 7, 2003 final rule 

with comment period, we implemented 

APC 0375 to pay for services furnished 

in CY 2004 on the same date billed for 

a procedure code with modifier –CA (68 

FR 63467). We were concerned that our 

policy of paying a fixed amount under 

a new technology APC for otherwise 

payable outpatient services furnished on 

the same date of service that a 

procedure with status indicator ‘‘C’’ is 

performed emergently on an outpatient 

would not result in appropriate 

payment for these services. That is, 

continuing to make payment under a 

new technology APC would not allow 

us to establish a relative payment 

weight for the services, subject to 

recalibration based on actual hospital 

costs. 

We implemented a payment rate of 

$1,150 for APC 0375, which is the 

payment amount for the restructured 

New Technology—Level XIII, APC 1513, 

that replaced APC 0977, in CY 2004. We 

also stated that for the CY 2005 update 

of the OPPS, we would calculate a 

median cost and relative payment 

weight for APC 0375 using charge data 

from CY 2003 claims for line items with 

a HCPC code and status indicator ‘‘V,’’

‘‘S,’’ ‘‘T,’’ ‘‘X,’’ ‘‘N,’’ ‘‘K,’’ ‘‘G,’’ and ‘‘H,’’

in addition to charges for revenue codes 

without a HCPCS code, that have the 

same date of service reported for a 

procedure billed with modifier –CA. We 

would then determine whether to set 

payment for APC 0375 based on our 

claims data or continue a fixed payment 

rate for these special services. 

In accordance with this methodology, 

for CY 2005 we reviewed the services on 

the 18 claims that reported modifier 

–CA in CY 2003. We calculated a 

median cost for the aggregated payable 

services on the 18 claims reporting 

modifier –CA in the amount of 

$2,804.18. The mix of outpatient 

services that were reported appeared 

reasonable for a patient with an 

emergent condition requiring immediate 

medical intervention, and revealed a 

wide range of costs, which would also 

be expected. As we indicated in the 

August 16, 2004 proposed rule, we 

proposed to set the payment rate for 

APC 0375 in accordance with the same 

methodology we have followed to set 

payment rates for the other procedural 

APCS in CY 2005, based on the relative 

payment weight calculated for APC 

0375.

Comment: A few commenters were 

concerned whether the proposed rate of 

$2,757.68 for CY 2005 appropriately 

reflects the costs incurred by hospitals 

in cases where the –CA modifier is 

reported and requested that CMS review 

the rate and adjust it accordingly for CY 

2006. 

Response: We appreciate the 

commenters’ concerns. Services with a 

–CA modifier appended are paid under 

APC 0375. As we explained in our 

August 16, 2004 proposed rule, the 

proposed rate of $2,757.68 for CY 2005 

was calculated using actual claims 

billed in CY 2003. The final payment 

rate for CY 2005, using the updated data 

file, is calculated as $3,214.22. As we 

stated previously, review of the claims 

data revealed a reasonable mix of 

outpatient services that a hospital could 

be expected to furnish during an 

encounter with a patient with an 

emergent condition requiring immediate 

medical intervention, as well as cases 

with a wide range of costs. We will 

continue to monitor the appropriateness 

of this payment rate as we develop 

future rules. 

VIII. Conversion Factor Update for CY 

2005 

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. 

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

provides that, for CY 2005, the update 

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 forecast of the hospital market 

basket increase for FY 2005 published 

in the IPPS final rule on August 11, 

2004 is 3.3 percent (69 FR 49272), the 

same as the forecast published in the 

IPPS proposed rule on May 18, 2004 (69 

FR 28374) and referenced in the CY 

2005 OPPS August 16, 2004 proposed 

rule. To set the OPPS conversion factor 

65842 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

for CY 2005, we increased the CY 2004 

conversion factor of $54.561, as 

specified in the November 7, 2003 final 

rule with comment period (68 FR 

63459), by 3.3 percent. 

In accordance with section 

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

adjusted the conversion factor for CY 

2004 to ensure that the revisions we are 

making to our updates by means of the 

wage index are made on a budgetneutral basis. For the OPPS proposed 

rule, we calculated a budget neutrality 

factor of 1.001 for wage index changes 

by comparing total payments from our 

simulation model using the FY 2005 

IPPS wage index values to those 

payments using the FY 2004 IPPS wage 

index values. For this final rule with 

comment period, we calculated a budget 

neutrality factor of 0.9986 for wage 

index changes by comparing total 

payments from our simulation model 

using the revised final FY 2005 IPPS 

wage index values to those payments 

using the current (FY 2004) IPPS wage 

index values. In addition, for CY 2005, 

allowed pass-through payments have 

decreased to 0.10 percent of total OPPS 

payments, down from 1.3 percent in CY 

2004. The conversion factor is also 

adjusted by the difference in estimated 

pass-through payments of 1.20 percent. 

The market basket increase update 

factor of 3.3 percent for CY 2005, the 

required wage index budget neutrality 

adjustment of approximately 0.9986, 

and the 1.20 percent adjustment to the 

pass-through estimate result in a 

conversion factor for CY 2005 of 

$56.983. 

We did not receive any public 

comments on the proposed conversion 

factor update for CY 2005. 

IX. Wage Index Changes for CY 2005 

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 and the 

copayment standardized amount 

attributable to labor and labor-related 

cost. This adjustment must be made in 

a budget neutral manner. As we have 

done in prior years, we proposed to 

adopt the IPPS wage indices and extend 

these wage indices to TEFRA hospitals 

that participate in the OPPS but not the 

IPPS. 

As discussed in the proposed rule and 

finalized in section III.B. of this 

preamble, we standardize 60 percent of 

estimated costs (labor-related costs) for 

geographic area wage variation using the 

IPPS wage indices that are calculated 

prior to adjustments for reclassification 

to remove the effects of differences in 

area wage levels in determining the 

OPPS payment rate and the copayment 

standardized amount. 

As published in the original OPPS 

April 7, 2000 final rule (65 FR 18545), 

OPPS has consistently adopted the final 

IPPS wage indices as the wage indices 

for adjusting the OPPS standard 

payment amounts for labor market 

differences. As initially explained in the 

September 8, 1998 OPPS proposed rule, 

we believed and continue to believe that 

using the IPPS wage index as a source 

of an adjustment factor for OPPS is 

reasonable and logical, given the 

inseparable, subordinate status of the 

hospital outpatient within the hospital 

overall. We also continue to believe that 

individual hospitals do not distinguish 

in hiring practices between their 

inpatient and outpatient departments 

and that hospitals face one labor market 

for both inpatient and outpatient 

services. Further, because hospital staff 

frequently provide services in both the 

inpatient and outpatient departments, 

labor costs associated with the hospital 

outpatient services are generally 

reflected in the hospital wage and salary 

data that are the basis of the IPPS wage 

index. In accordance with section 

1886(d)(3)(E) of the Act, the IPPS wage 

index is updated annually. In the 

August 16, 2004 proposed rule, we 

proposed to use the corrected proposed 

FY 2005 hospital IPPS wage index for 

urban areas published in the Federal 

Register on June 25, 2004 (69 FR 35919) 

and the proposed FY 2005 hospital IPPS 

wage index for rural areas published in 

the Federal Register on May 18, 2004 

(69 FR 28580) to determine the wage 

adjustments for the OPPS payment rate 

and the copayment standardized 

amount for CY 2005. 

We customarily publish the wage 

index tables in the final rule for the 

OPPS update. We are not including the 

tables in this final rule with comment 

period as CMS is in the process of 

reviewing the wage indices for IPPS. 

This review may impact the wage index 

values. We emphasize that our 

methodology for calculating the wage 

index for the OPPS has not changed. As 

noted above, our policy has consistently 

been to adopt the IPPS wage index for 

purposes of payment under the OPPS. 

We will publish finalized tables in a 

later Federal Register document.

We note that the FY 2005 IPPS wage 

indices reflect a number of changes as 

a result of the new OMB standards for 

defining geographic statistical areas, the 

implementation of an occupational mix 

adjustment as part of the wage index, 

and new wage adjustments provided for 

under Pub. L. 108–173. The following is 

a brief summary of the changes in the 

FY 2005 IPPS wage indices and any 

adjustments that we are applying to the 

OPPS for CY 2005. (We refer the reader 

to the August 11, 2004 IPPS final rule 

(69 FR 49026–49070) and the October 7, 

2004 IPPS correction notice (69 FR 

60242) for a fuller discussion of the 

changes to the wage indices.) 

A. The use of the new Core Based 

Statistical Areas (CBSAs) issued by the 

Office of Management and Budget 

(OMB) as revised standards for 

designating geographical statistical areas 

based on the 2000 Census data, to define 

labor market areas for hospitals for 

purposes of the IPPS wage index. The 

OMB revised standards were published 

in the Federal Register on December 27, 

2000 (65 FR 82235), and OMB 

announced the new CBSAs on June 6, 

2003, through an OMB bulletin. In the 

FY 2005 hospital IPPS final rule, CMS 

adopted the new OMB definitions for 

wage index purposes. We treated, as 

urban, hospitals located in MSAs and 

treated, as rural, hospitals that are 

located in Micropolitan Areas or 

Outside CBSAs. To help alleviate the 

decreased payments for previously 

urban hospitals that became rural under 

the new MSA definitions, we allowed 

these hospitals to maintain their 

assignment to the MSA where they 

previously had been located for the 3-

year period from FY 2005 through FY 

2007. To be consistent, we are applying 

the same criterion to TEFRA hospitals 

paid under the OPPS but not under the 

IPPS and to maintain that MSA 

designation for determining a wage 

index for the next 3 years. This policy 

will impact four TEFRA providers for 

purposes of OPPS payment. In addition 

to this ‘‘hold harmless’’ provision, the 

IPPS final rule implemented a one-year 

transition for hospitals that experienced 

a decrease in their FY 2005 wage index 

compared to their FY 2004 wage index 

due solely to the changes in labor 

market definitions. These hospitals 

received 50 percent of their wage 

indices based on the new MSA 

configurations and 50 percent based on 

the FY 2004 labor market areas. For 

purposes of the OPPS, we also are 

applying this 50-percent transition 

blend to TEFRA hospitals. 

B. The incorporation of a blend of an 

occupational mix adjusted wage index 

into the unadjusted wage index to 

reflect the effect of hospitals’

employment choices of occupational 

categories to provide specific patient 

care. Specifically, OPPS will adopt the 

10-percent blend of an average hourly 

wage, adjusted for occupational mix, 

and 90 percent of an average hourly 

wage, unadjusted for occupational mix, 

as finalized in the IPPS final rule. As 

discussed in the IPPS final rule, this 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65843

blend is appropriate because this was 

the first time that the occupational mix 

survey was administered and optimum 

data could not be collected in the 

limited timeframe available. In addition, 

CMS had no baseline data to use in 

developing a desk review program that 

could ensure the accuracy of the 

occupational mix survey data. Moving 

slowly to implement the occupational 

mix adjustment is also appropriate 

because of changing trends in the hiring 

nurses due changes in State law 

governing staffing levels and physician 

shortages. Finally, the blend minimizes 

the impact of the occupational mix 

adjustment on hospitals’ wage index 

values without nullifying the value and 

intent of the adjustment. 

C. The reclassifications of hospitals to 

geographic areas for purposes of the 

wage index. For purposes of the OPPS 

wage index, we are adopting all of the 

IPPS reclassifications in effect for FY 

2005, including reclassifications that the 

Medicare Geographic Classification 

Review Board (MGCRB) approved under 

the one-time appeal process for 

hospitals under section 508 of Pub. L. 

108–173. 

D. The implementation of an 

adjustment to the wage index to reflect 

the ‘‘out-migration’’ of hospital 

employees who reside in one county but 

commute to work in a different county 

with a higher wage index, in accordance 

with section 505 of Pub. L. 108–173 

(August 11, 2004 IPPS final rule (69 FR 

49061 through 49067), as revised and 

corrected on October 7, 2004 (69 FR 

60242)). Hospitals paid under the IPPS 

located in the qualifying section 505 

‘‘out-migration’’ counties received a 

wage index increase. We are applying 

the same criterion to TEFRA hospitals 

paid under the OPPS but not paid under 

the IPPS. Therefore, TEFRA hospitals 

located in a qualifying section 505 

county will also receive an increase to 

their wage index under OPPS. 

We will use final revised IPPS indices 

to adjust the payment rates and 

coinsurance amounts that we are 

publishing in this OPPS final rule with 

comment period for CY 2005. 

In general, geographic labor market 

area reclassifications must be done in a 

budget neutral manner. Accordingly, in 

calculating the OPPS budget neutrality 

estimates for CY 2005, we have 

included the wage index changes that 

result from MGCRB reclassifications, 

implementation of section 505 of Pub. L. 

108–173, and other refinements made in 

the IPPS final rule, such as the 50-

percent transition blend for hospitals 

with FY 2005 wage indices that 

decreased solely as a result of the new 

MSA definitions. However, we did not 

take into account the reclassifications 

that resulted from implementation of 

the one-time appeal process under 

section 508 of Pub. L. 108–173. Section 

508 set aside $900 million to implement 

the section 508 reclassifications. We 

considered the increased Medicare 

payments that the section 508 

reclassifications would create in both 

the IPPS and OPPS when we 

determined the impact of the one-time 

appeal process. Because the increased 

OPPS payments already counted against 

the $900 million limit, we did not 

consider these reclassifications when 

we calculated the OPPS budget 

neutrality adjustment. 

We received a number of public 

comments on the application of the FY 

2005 IPPS wage indices under the 

OPPS. 

Comment: In general, commenters 

approved of CMS’ adoption of the FY 

2005 final rule wage indices for IPPS. 

Several commenters requested 

clarification that CMS would adopt the 

temporary, 1-year relief for hospitals 

with wage areas changing due to the 

revised labor market definitions 

provided in the FY 2005 IPPS final rule. 

Response: We are adopting the IPPS 

temporary, 1-year relief provision of a 

50/50 blend of old and new wage 

indices in this OPPS final rule with 

comment period. Hospitals billing 

Medicare under IPPS in FY 2005 will 

receive the same wage index for OPPS. 

Comment: One commenter requested 

clarification that CMS would adopt the 

technical correction to the IPPS wage 

index to include counties incorrectly 

excluded from the out-migration 

adjustment under section 505 of Pub. L. 

108–173.

Response: In this OPPS final rule with 

comment period, we are adopting all 

technical corrections to the FY 2005 

IPPS final rule wage indices, including 

the referenced correction to the outmigration counties. 

Comment: Several commenters 

requested clarification that CMS would 

adopt the wage index provisions for 

‘‘Special Circumstances of Hospitals in 

All-Urban States.’’

Response: We are adopting all of the 

changes to the IPPS wage indices 

discussed in the FY 2005 IPPS final rule 

and any subsequent corrections to that 

final rule, including calculation of a 

wage index floor for hospitals in allurban States. 

Comment: One commenter noted that 

the wage index listed in the impact file 

that we made available on the CMS Web 

site for the August 16, 2004 proposed 

rule listed a different wage index from 

the wage index adopted in the FY 2005 

IPPS final rule and requested 

clarification that the hospital would 

receive the IPPS final rule wage index. 

Response: We note that the proposed 

wage indices have to be assembled 

before the IPPS wage indices are 

finalized in order to model impact 

tables for the OPPS proposed rule. The 

final wage indices used for payment in 

CY 2005 for OPPS will reflect the wage 

indices in the FY 2005 IPPS final rule 

and any subsequent corrections to that 

final rule. 

Comment: Several commenters, 

specifically individual hospitals 

adversely impacted by the final FY 2005 

IPPS wage index, requested that CMS 

address several issues beyond the scope 

of the OPPS proposed rule, such as 

exempting hospitals from the new wage 

indices and employing former wage 

indices, calculating new wage indices or 

recalculating the current wage indices 

with additional provider or providers 

removed, calculating new ‘‘inmigration’’ adjustments, and, where 

permanent wage indices changes are not 

possible, providing a transition period 

beyond the 1-year 50/50 blend 

discussed above or extending ‘‘hold 

harmless’’ provisions. One commenter 

also requested that adversely impacted 

hospitals be able to bill under the 

provider numbers of affiliated 

institutions. 

Response: As noted earlier in this 

section of the preamble, we believe, and 

other commenters concurred, that 

hospitals face the same labor costs for 

their inpatient and outpatient 

departments and that separate wage 

indices are not appropriate for different 

integrated components of the same 

institution. It is for this reason that we 

have always adopted the same wage 

index for both the IPPS and the OPPS 

payment systems. Moreover, our policy 

has consistently been to use the IPPS 

wage indices and, to the extent these 

wage indices are used, the IPPS process 

provides an opportunity for hospitals to 

comment specifically on the 

construction of the IPPS wage indices. 

Comment: Several commenters 

requested that CMS reduce the laborrelated share from the current 60 

percent to some smaller percentage, 

frequently 52 percent or less, for 

outpatient payment purposes for 

hospitals in areas with a Medicare wage 

index of 1.0 or lower to maintain 

consistency with the inpatient hospital 

policy. 

Response: Section 403 of Pub. L. 108–

173 mandated that the IPPS make a 

change to the labor-related share of the 

wage index, reducing the percentage 

from 71 to 62 for hospitals in areas with 

a wage index of 1.0 or lower. However, 

as discussed in the IPPS final rule (69 

65844 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

FR 49069, August 11, 2004), prior to this 

mandate, we had determined that the 

labor-related share was increasing for 

inpatient services, not declining. Unlike 

IPPS, OPPS has no mandate to reduce 

the labor-related share, and we believe 

the current 60 percent labor-related 

share remains appropriate for OPPS 

payment purposes. We recognize that 

the IPPS final rule discusses CMS’

current analyses of the labor-related 

share, and we will carefully consider 

any research findings in light of their 

appropriateness for OPPS. 

Comment: Several commenters 

expressed concern that CMS proposed 

to adopt the IPPS proposed wage index 

rather than the IPPS final wage index. 

Response: As we have stated 

previously in this section of the 

preamble, we note that we are adopting 

the final IPPS wage indices and any 

subsequent corrections for the OPPS. 

X. Determination of Payment Rates and 

Outlier Payments for CY 2005 

A. Calculation of the National 

Unadjusted Medicare Payment 

The basic methodology for 

determining prospective payment rates 

for OPD services under the OPPS is set 

forth in existing regulations at §§ 419.31 

and 419.32. The payment rate for 

services and procedures for which 

payment is made under the OPPS is the 

product of the conversion factor 

calculated in accordance with section 

VIII. of this final rule with comment 

period, and the relative weight 

determined under section III. of this 

final rule with comment period. 

Therefore, the national unadjusted 

payment rate for APCs contained in 

Addendum A to this final rule with 

comment period and for payable HCPCS 

codes in Addendum B to this final rule 

with comment period (Addendum B is 

provided as a convenience for readers) 

was calculated by multiplying the CY 

2005 scaled weight for the APC by the 

CY 2005 conversion factor.

To determine the payment that will be 

made in a calendar year under the OPPS 

to a specific hospital for an APC for a 

service other than a drug, in a 

circumstance in which the multiple 

procedure discount does not apply, we 

take the following steps: 

Step 1. Calculate 60 percent (the 

labor-related portion) of the national 

unadjusted payment rate. Since initial 

implementation of the OPPS, we have 

used 60 percent to represent our 

estimate of that portion of costs 

attributable, on average, to labor. (See 

the April 7, 2000 final rule with 

comment period (65 FR 18496 through 

18497), for a detailed discussion of how 

we derived this percentage.) 

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 new geographic statistical 

areas as a result of revised OMB 

standards (urban and rural) to which 

hospitals would be assigned for FY 2005 

under the IPPS, reclassifications 

through the Medicare Classification 

Geographic Review Board, LUGAR, and 

section 401 of Pub. L. 108–173, and the 

reclassifications of hospitals under the 

one-time appeals process under section 

508 of Pub. L. 108–173. Assess whether 

the previous MSA-based wage index is 

higher than the CBSA-based wage 

index, and, if higher, apply a 50/50 

blend. The wage index values include 

the occupational mix adjustment 

described in section IX. of this final rule 

with comment period that was 

developed for the IPPS. 

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 

Pub. L. 108–173. This step is to be 

followed only if the hospital has chosen 

not to accept reclassification under step 

2 above. 

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. 

Step 5. Calculate 40 percent (the 

nonlabor-related portion) of the 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. 

B. Hospital Outpatient Outlier Payments 

For OPPS services furnished between 

August 1, 2000, and April 1, 2002, we 

calculated outlier payments in the 

aggregate for all OPPS services that 

appear on a bill in accordance with 

section 1833(t)(5)(D) of the Act. In the 

November 30, 2001 final rule (66 FR 

59856 through 59888), we specified 

that, beginning with CY 2002, we 

calculate outlier payments based on 

each individual OPPS service. We 

revised the aggregate method that we 

had used to calculate outlier payments 

and began to determine outlier 

payments on a service-by-service basis. 

As explained in the April 7, 2000 

final rule with comment period (65 FR 

18498), we set a projected target for 

outlier payments at 2.0 percent of total 

payments. For purposes of simulating 

payments to calculate outlier 

thresholds, we set the projected target 

for outlier payments at 2.0 percent for 

CYs 2001, 2002, 2003, and 2004. For 

reasons discussed in the November 7, 

2003 final rule with comment period (68 

FR 63469), for CY 2004, we established 

a separate outlier threshold for CMHCs. 

For CY 2004, the outlier threshold is 

met when costs of furnishing a service 

or procedure by a hospital exceed 2.6 

times the APC payment amount or when 

the cost of furnishing services by a 

CMHC exceeds 3.65 times the APC 

payment amount. The current outlier 

payment is calculated to equal 50 

percent of the amount of costs in excess 

of the threshold. 

As we proposed, for CY 2005, we are 

continuing to set the projected target for 

outlier payments at 2.0 percent of total 

OPPS payments (a portion of that 2.0 

percent, 0.6 percent, will be allocated to 

CMHCs for partial hospitalization 

program (PHP) services). 

Outlier payments are intended to 

ensure beneficiary access to services by 

having the Medicare program share in 

the financial loss incurred by a provider 

associated with individual, 

extraordinarily expensive cases. They 

are not intended to pay hospitals 

additional amounts for specific services 

on a routine basis. In its March 2004 

Report, MedPAC found that 50 percent 

of OPPS outlier payments in CY 2004 

were for 21 fairly common services that 

had relatively low APC payment rates, 

such as plain film x-rays and pathology 

services. We remain concerned by the 

MedPAC findings which indicate that a 

significant portion of outlier payments 

are being made for high volume, lower 

cost services rather than for unusually 

high cost services, contrary to the intent 

of an outlier policy. (A full discussion 

of the 2004 MedPAC recommendations 

related to the OPPS and the CMS 

response to those recommendations can 

be found in section XII. of this 

preamble.)

In light of the MedPAC findings, in 

the August 16, 2004 proposed rule, we 

proposed to change the standard we 

have used to qualify a service for outlier 

payments since the OPPS was originally 

implemented. That is, in addition to the 

outlier threshold we have applied since 

the beginning of the OPPS, which 

requires that a hospital’s cost for a 

service exceed the APC payment rate for 

that service by a specified multiple of 

the APC payment rate, we proposed to 

add a fixed dollar threshold that would 

have to be met in order for a service to 

qualify for an outlier payment. Section 

1833(t)(5)(A) of the Act gives the 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65845

Secretary the authority to impose a fixed 

dollar threshold in addition to an APC 

multiplier threshold. By imposing a 

dollar threshold, we expect to redirect 

outlier payments from lower cost, 

relatively simple procedures to more 

complex, expensive procedures for 

which the costs associated with 

individual cases could be exceptionally 

high and for which hospitals would be 

at greater risk financially. 

In the proposed rule, we proposed to 

require that, in order to qualify for an 

outlier payment, the cost of a service 

must exceed 1.5 times the APC payment 

rate and the cost must also exceed the 

sum of the APC rate plus a $625 fixed 

dollar threshold. Based upon our review 

of the data, a proposed threshold of 

$625 best met our 2.0 percent projected 

target. When the cost of a hospital 

outpatient service exceeds these 

thresholds, we proposed to pay 50 

percent of the amount by which the cost 

of furnishing the service exceeds 1.5 

times the APC payment rate (the APC 

multiple) as an outlier payment. 

However, in this final rule, we are 

increasing the proposed APC multiplier 

of 1.5 to 1.75 and the fixed-dollar 

threshold from $625 to $1,175. This 

revision to the proposed rule estimates 

results from the inclusion of a charge 

inflation factor of 18.76 percent to 

account for charge inflation between the 

CY 2003 claims data that we used to 

model the outlier thresholds and their 

application in CY 2005. As we note 

below, many hospital associations 

expressed concern that the proposed 

$625 threshold for outlier payments was 

too high and suggested that OPPS 

consider the decision in the IPPS final 

rule to lower the charge inflation 

assumption from 31.1 percent to 18.76 

percent. These same commenters 

suggested that we provide the details of 

the assumptions used to set outlier 

thresholds and asked that we ensure 

that the charges used to set outlier 

thresholds were not inappropriately 

inflated. 

Previously, OPPS has not used a 

charge inflation factor to adjust charges 

on the claims used to model the 

payment system to reflect current 

dollars. We have historically set the 

projected target for outlier payments at 

2 percent of the estimated spending 

under the proposed payment system, 

but have modeled that projected target 

without inflating charges on the claims, 

which usually lag behind the proposed 

system by 2 years. This year, we used 

CY 2003 claims to model the CY 2005 

payment system. When we modeled the 

thresholds discussed in the August 16, 

2004 proposed rule, we did not include 

a charge inflation factor. By not 

adjusting for charge inflation between 

CY 2003 and CY 2005, the estimated 

service costs will be lower than those 

that will be billed under OPPS next 

year. Underestimated service costs also 

led us to underestimate our outlier 

thresholds. As reflected in the 

comments, we should have included a 

charge inflation factor similar to that 

used in the IPPS outlier calculation 

when we developed the proposed 

outlier payments. In this final rule with 

comment period, we have done so as 

explained below, which results in an 

APC multiplier of 1.75 and a fixeddollar threshold of $1,175. 

To calculate the 1.75 multiple and 

$1,175 fixed-dollar thresholds, we first 

estimated the 2-percent projected target 

for outlier payments by estimating 2 

percent of total spending in CY 2005 

using the CY 2005 APC payment rates 

in this final rule with comment period 

and services in the CY 2003 claims. We 

then inflated the charges on these 

claims by 18.76 percent, which is the 

estimated increase in charges between 

CY 2003 and CY 2005 used in the 

outlier policy for the IPPS final rule. We 

believe the use of this estimate is 

appropriate for OPPS because, with the 

exception of the routine service cost 

centers, hospitals use the same cost 

centers to capture costs and charges 

across inpatient and outpatient services. 

As also noted in the IPPS final rule, we 

believe that this inflation factor is more 

appropriate than an adjustment to costs 

because charges increase at a faster rate 

than costs. We then used the same CCRs 

that we used to adjust charges to costs 

in our ratesetting process to estimate a 

cost for each service from the inflated 

charges on the CY 2003 claims. 

Although these CCRs are based largely 

on CY 2002 cost report data, we did not 

adjust them for probable increases in 

charges relative to costs between CY 

2002 and CY 2005. Finally, we 

estimated a multiple threshold and 

fixed-dollar threshold that would 

produce outlier payments that met our 

2-percent projected target amount. 

The large increase in the fixed-dollar 

threshold is largely a function of the 

additive impact of increasing all 

estimated outlier payments by 18.76 

percent and restricting increased 

estimates of outlier payments to a fixed, 

projected target of 2 percent, as well as 

the addition of a fixed-dollar threshold 

to determine outlier eligibility instead of 

using only a multiple threshold to 

determine outlier payment. As charges 

are inflated, each estimated outlier 

payment is higher by some proportional 

amount, but the total dollar increase 

varies with the magnitude of the 

difference in the cost of the service and 

APC payment rate. The addition of the 

fixed-dollar threshold policy ensures 

that outlier payments are made for highcost services, thereby increasing the 

dollar amount of outlier payments and 

the total dollar impact of 18.76 percent 

that must be contained within the 

projected outlier target. Further, the 

actual based on outlier payment for a 

service is not affected by the fixeddollar threshold but, rather, is the 

difference between the hospital’s cost 

and the product of the multiple 

threshold and the APC payment rate. 

Changing the fixed-dollar threshold 

does not impact the amount of outlier 

payment. Adding the inflation 

adjustment to charges also increases the 

number of services eligible for an outlier 

payment under the proposed 1.5 

multiple and $625 fixed-dollar 

thresholds. The combined impact of 

more services and higher payments 

greatly increases estimated outlier 

payments. Therefore, in order to reduce 

the number of services eligible for 

higher payments and the payments 

themselves to stay within our projected 

target of 2 percent of total OPPS 

payments, we had to raise both the 

fixed-dollar and multiple thresholds. 

We are setting the dollar threshold at 

a level that will, for all intents and 

purposes, exclude outliers for a number 

of lower cost services. For example, 

under the CY 2004 methodology, a 

service mapped to an APC with a 

payment rate of $20 would only have to 

exceed $52 (2.6 × APC payment amount) 

in order to qualify for an outlier 

payment. Our final policy for CY 2005 

with the additional fixed dollar 

threshold will require that the service in 

this example exceed $1,195 in order to 

qualify for an outlier payment. That is, 

the cost of the service will have to 

exceed both 1.75 times the APC 

payment rate, or $35, and $1,195 ($20 + 

$1,175).

The dollar threshold will also enable 

us to lower the APC multiplier portion 

of the total outlier threshold from 2.6 to 

1.75. We have chosen a multiple of 1.75 

because this continues to recognize 

some variability relative to APC 

payment implicit in the current statute, 

but limits its impact in determining 

outlier payments. Under the changes to 

the outlier methodology, it will also be 

easier for the higher cost cases of a 

complex, expensive procedure or 

service to qualify for outlier payments 

because the $1,175 threshold is a small 

portion of the total payment rate for 

high cost services. For example, under 

the CY 2004 methodology, a service 

mapped to an APC with a payment rate 

of $20,000 would have to exceed 

$52,000 in order to qualify for an outlier 

65846 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

payment but, as proposed for CY 2005, 

will have to exceed only $35,000. That 

is, the cost of the service will have to 

exceed both 1.75 times the APC 

payment rate, or $35,000, and $21,175 

($20,000 + $1,175). Further, outlier 

payments for unusually expensive cases 

would be higher because the APC 

multiplier for outlier payment would 

decrease from 2.6 to 1.75 times the APC 

payment rate. 

Comment: Many commenters, 

including MedPAC, favored our 

proposed outlier policy that redirects 

outlier payments to expensive 

procedures for which hospitals’

financial risk is potentially greater. 

(Under the proposed rule, outlier 

payments would be made when the cost 

of a separately payable service exceeds 

both 1.5 times the APC payment and a 

fixed dollar amount.) Several 

commenters agreed with this revision in 

policy, but requested that CMS monitor 

the impact of the new policy on 

hospitals with a relatively high volume 

of low cost cases and find some way to 

ensure that providers of less-intensive 

services be afforded outlier 

‘‘protection.’’

Response: As noted above, outlier 

payments are intended to ensure 

beneficiary access to services by having 

the Medicare program share in the 

financial loss incurred by a provider 

associated with individual, 

extraordinarily expensive cases. They 

are not intended to pay hospitals 

additional amounts for specific services 

on a routine basis, and we demonstrated 

in Table 39 of the proposed rule that 

this policy moderately redistributes 

outlier dollars to providers of high-cost, 

complex services, such as teaching 

hospitals. We will continue to model 

the distribution of outlier payments 

among hospitals. However, the purpose 

of the new policy is to limit financial 

risk attributable to patients whose costs 

are extraordinarily high. Therefore, our 

goal is to redirect outlier payments to 

those services that better meet our goal 

of providing outlier payments to those 

costly services with high financial risk. 

The intent is not to continue to provide 

a significant portion of outlier payments 

to high volume, low cost services. 

Using the final rule data and updated 

charge inflation estimates, we have 

modeled a fixed-dollar threshold of 

$1,175 for CY 2005. 

Comment: Several commenters 

requested data that support the 

presumption that the revised outlier 

methodology will definitely result in 

payment of 2 percent of total OPPS 

payments. The commenters also urged 

CMS to release data on actual outlier 

payments made in CY 2004 and in prior 

years, and to continue to report this data 

in the future. 

Response: The outlier thresholds and 

payment percentages are determined 

each year based on our best estimate of 

the thresholds and payment percentages 

needed to achieve the projected target of 

outlier payment. As discussed above, in 

order to estimate the outlier multiple 

and fixed-dollar thresholds, we first 

estimated 2 percent of the total 

spending using the APC payment rates 

in this final rule with comment period 

and the services in the CY 2003 claims. 

Using this estimate, we inflated the 

charges on the CY 2003 claims to reflect 

CY 2005 dollars using the 1.1876 

inflation adjustment used in the IPPS 

final rule. We then applied the overall 

CCR for each hospital based on their 

most recently submitted cost report, 

whether tentatively settled or final, and 

if tentatively settled, adjusted by a 

submitted-to-settled ratio taken from the 

previous year’s cost report. These are 

the same CCRs that we use in our 

ratesetting process. We then estimated 

outlier payments for various 

combinations of multiple and fixeddollar thresholds until we reached the 

targeted outlier expenditures. 

Interested parties may calculate the 

amount of outlier spending from 

previous years. Such information is 

available in the claims data, not the 

limited data set, available from CMS for 

this final rule with comment period. 

Comment: Several commenters were 

concerned that the proposed fixeddollar threshold of $625 was too high. 

Specifically, the commenters were 

concerned that CMS had overstated its 

charge inflation estimates in calculating 

the fixed dollar threshold, as had been 

done in the FY 2005 IPPS proposed 

rule. The commenters requested that 

CMS review its estimates and make 

comparable adjustments to these in the 

FY 2005 IPPS final rule.

Response: As noted previously, the 

OPPS had not used a charge inflation 

factor. In this final rule with comment 

period, we realized that we should have 

adopted a charge inflation estimate. We 

used the charge inflation estimate used 

in the IPPS final rule of 18.76 percent 

to update charges on the CY 2003 claims 

that we used to model the fixed-dollar 

threshold in order to reflect CY 2005 

dollars. Comparable to IPPS, we did not 

update the CCRs that we employed to 

estimate costs from these inflated 

charges. The CCRs are based on 

hospitals’ most recently submitted cost 

report, frequently CY 2002, adjusted by 

the most recent settled-to-submitted 

ratio, and were not updated for changes 

in relative costs and charges since the 

cost report year. 

Comment: One commenter supported 

the proposed change, but urged CMS to 

adopt MedPAC’s recommendation to 

fully eliminate outpatient outlier 

payments and to increase the base APC 

rates by a commensurate amount. The 

commenter asserted that the separate 

payment of services under OPPS 

eliminates the need for an outlier 

policy. 

Response: We believe that an outlier 

policy is necessary and appropriate 

under the OPPS. Outlier payments 

dampen the financial risk of and 

improve beneficiary access to 

expensive, complex outpatient services. 

The range of services provided in the 

outpatient setting continues to expand, 

continually including more services 

previously performed in the inpatient 

setting. Many of these procedures are 

high-cost, extensive, and as complex as 

inpatient procedures. The devicedependent APCs provide a good 

example. We agree that separate 

payment for many individual services 

under OPPS reduces the need for an 

extensive outlier policy, but do not 

believe it eliminates the need entirely. 

We believe that the lower outlier 

payment percentage under the OPPS of 

50 percent relative to 80 percent under 

the IPPS and the smaller OPPS 

projected outlier target of 2 percent 

relative to the IPPS projected target of 

between 5 and 6 percent reflect the 

more limited outlier liability associated 

with the outpatient payment system. 

Comment: One commenter disagreed 

with our proposed policy and noted that 

it will substantially restrict outlier 

payments for a lot of outpatient services 

and recommended that CMS remove the 

fixed-dollar threshold and apply outlier 

payments only when the cost of a 

service exceeds 1.5 times the APC 

payment. 

Response: We disagree with the 

commenter as removing the fixed-dollar 

threshold and relying only on a multiple 

of 1.5 or 1.75 would result in outlier 

payments well in excess of the proposed 

2-percent projected target. To meet the 

projected target, we would have to raise 

the multiple threshold to 2.95 if we 

eliminated the fixed dollar threshold. 

Comment: Several commenters 

requested that CMS release limited data 

set data files in a more timely manner. 

Response: We have always attempted 

to, and will continue to, provide data 

necessary for evaluation of the OPPS in 

a timely manner. For example, this year, 

several data files were available through 

CMS’ Web site before the publication of 

the proposed rule. 

Comment: Several commenters 

recommended that CMS consider 

reinstating outlier payments at the claim 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65847

level, rather than at the individual 

service level, resulting in easier 

administration of outliers and payments 

that are more equitable for high cost 

patients. 

Response: We believe that calculating 

outliers on a service-by-service basis is 

the most appropriate way to calculate 

outliers for outpatient services. Outliers 

on a claim or bill basis requires both the 

aggregation of costs and the aggregation 

of OPPS payments thereby introducing 

some degree of offset among services; 

that is, the aggregation of low cost 

services and high cost services on a bill 

may result in the claim or bill not 

meeting the outlier criterion. While the 

implementation of service-based 

outliers is somewhat more complex 

because it involves allocating the costs 

of packaged services across multiple 

payable codes, we believe that under 

this approach, outlier payments are 

more appropriately directed to those 

specific services for which a hospital 

incurs significantly increased costs. We 

also believe that the introduction of the 

fixed dollar threshold improves 

payment for expensive patients by 

targeting outlier payments to the more 

high-cost, complex services. 

Comment: One commenter requested 

that CMS demonstrate the accuracy of 

its assumption that providers are 

receiving inappropriate outlier 

payments and suggest that the 

distribution of packaged costs on a 

claim could be affecting the outlier 

determination and payment. The 

commenter specifically requested that 

CMS exempt all drug administration 

APCs from the new fixed-dollar 

threshold methodology. 

Response: We agree that the allocation 

of packaged costs could modestly under 

or overestimate the cost of a single 

procedure for purposes of determining 

outlier payments. However, this 

observation cannot explain the huge 

concentration of services in low-cost, 

simple procedures receiving outlier 

payments observed by MedPAC in its 

March 2004 report referenced above. 

This concentration is clearly a function 

of the multiple threshold policy.

In accordance with section 1833(t)(5) 

of the Act, we have set a uniform fixeddollar outlier threshold that applies to 

all OPPS services in a given calendar 

year. We cannot exempt specific 

services from the outlier methodology 

because the statute does not provide for 

different thresholds for different types 

of OPPS services. Further, the 

magnitude of the multiple and fixed 

dollar thresholds is determined 

prospectively before the beginning of 

each year based on all OPPS services 

qualifying for outlier payments in that 

year. 

Comment: One commenter was 

concerned that CMS does not provide 

information to determine how the 

amounts that are actually spent on passthrough and outlier payments compare 

to the amount that is carved out of the 

total amount allowed OPPS payment for 

these projected payments. The 

commenter was concerned that the 

amounts carved out for these purposes 

may not actually be spent and thus, 

would be lost to hospitals. 

Response: We are required by law to 

estimate the amounts that we expect to 

spend on pass-through and outlier 

payments each year before the start of 

the calendar year. We share the 

commenter’s interest in assuring that 

those estimates are made as accurately 

as possible to ensure that hospitals 

receive the amount to which they are 

entitled by law. We make our final 

estimate for each calendar year to the 

best of our ability based on all of the 

best data available at the time we 

prepare our final rule, including 

comments we receive in response to our 

proposed rule. With respect to the 

availability of data for modeling our 

outlier estimates, we have established 

limited data sets which include the set 

of claims we used first for the proposed 

rule estimates and, ultimately, for those 

for our final rule with comment period. 

For example, the CY 2003 claims used 

in ratesetting and modeling for this final 

rule with comment period for CY 2005 

OPPS will be available to the public in 

a limited data set format. However, 

estimates of total outlier payments made 

in previous years are not available in the 

limited data set, in no small part 

because outlier payments on these 

claims would underestimate total 

outlier payments. Interested parties can 

estimate total outlier expenditures from 

a full year of OPPS claims data. We will 

continue to assess the means by which 

we provide data. 

Comment: One commenter who did 

not support the proposed outlier policy 

suggested that the payment for outliers 

in low-cost services could be an 

indication that the APC payment rate is 

too low for these services. The 

commenter also wondered if the 

concentration of outlier payments in 

low-cost services was the result of high 

packaged costs appearing with these 

separately payable services, and 

indicated that one example might 

include packaged observation services. 

Ultimately, this commenter suggested 

that a better understanding of why 

outlier payments are directed to 

common services is necessary before a 

change in policy can be supported. 

Response: As MedPAC discussed in 

its March 2004 report, the main reason 

to include outlier policies with 

prospective payment systems is to limit 

providers’ financial risk attributable to 

patients whose costs are extraordinarily 

high relative to the median cost of 

providing the service. We believe that 

such risk is more substantial in high 

cost procedures. When the financial risk 

of providing a service becomes too high, 

providers may choose not to provide the 

service, an outcome that can harm 

beneficiary access. 

The CY 2004 outlier policy does not 

distinguish between high cost services 

and low cost services. In fact, MedPAC 

found that 50 percent of OPPS outlier 

payments in CY 2004 were for services 

in low-paying APCs. These observations 

suggested the need to modify the outlier 

policy to provide better protection 

against financial risk. The fixed-dollar 

threshold limits financial risk to 

providers who provide high-cost 

services. 

Although it is possible that extensive 

packaged costs have created the current 

concentration of outliers in low cost 

services, it is unlikely in most 

circumstances. Separately payable 

services consistently billed with 

extensive packaged costs would 

ultimately increase payment rates as 

packaged costs were incorporated in the 

cost of the payable service. Although 

packaged observation services can be 

extensive, the review of OPPS claims 

data indicates that there are too many 

outlier payments to be associated with 

the limited number of claims with 

packaged observation services. We 

believe the current policy creates an 

easy threshold for low-cost services to 

qualify for outlier payments and does 

little to protect hospitals against the 

financial risk associated with complex 

and high-cost services. 

C. Payment for Partial Hospitalization 

1. Background 

Partial hospitalization is an intensive 

outpatient program of psychiatric 

services provided to patients as an 

alternative to inpatient psychiatric care 

for beneficiaries who have an acute 

mental illness. A partial hospitalization 

program (PHP) may be provided by a 

hospital to its outpatients or by a 

Medicare-certified CMHC. Section 

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

Secretary with the authority to designate 

the hospital outpatient services to be 

covered under the OPPS. Section 

419.21(c) of the Medicare regulations 

that implement this provision specifies 

that payments under the OPPS will be 

made for partial hospitalization services 

65848 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

furnished by CMHCs. Section 

1883(t)(2)(C) of the Act requires that we 

establish relative payment weights 

based on median (or mean, at the 

election of the Secretary) hospital costs 

determined by 1996 claims data and 

data from the most recent available cost 

reports. Payment to providers under the 

OPPS for PHPs represents the provider’s 

overhead costs associated with the 

program. 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 APC, 

effective for services furnished on or 

after August 1, 2000. For a detailed 

discussion, see the April 7, 2000 OPPS 

final rule (65 FR 18452). 

2. PHP APC Update for CY 2005 

As proposed, for calculation of the CY 

2005 per diem payment in this final 

rule, we used the same methodology 

that was used to compute the CY 2004 

per diem payment. For CY 2004, the per 

diem amount was based on three 

quarters of hospital and CMHC PHP 

claims data (for services furnished from 

April 1, 2002, through December 31, 

2002). We used data from all hospital 

bills reporting condition code 41, which 

identifies the claim as partial 

hospitalization, and all bills from 

CMHCs because CMHCs are Medicare 

providers only for the purpose of 

providing partial hospitalization 

services. We used CCRs from the most 

recently available hospital and CMHC 

cost reports to convert each provider’s 

line item charges as reported on bills, to 

estimate the provider’s cost for a day of 

PHP services. Per diem costs are then 

computed by summing the line item 

costs on each bill and dividing by the 

number of days on the bill. 

Unlike hospitals, CMHCs do not file 

cost reports electronically and the cost 

report information is not included in the 

Healthcare Cost Report Information 

System (HCRIS). The CMHC cost reports 

are held by the Medicare fiscal 

intermediaries. In a Program 

Memorandum issued on January 17, 

2003 (Transmittal A–03–004), we 

directed fiscal intermediaries to 

recalculate hospital and CMHC CCRs 

using the most recently settled cost 

reports by April 30, 2003. Following the 

initial update of CCRs, fiscal 

intermediaries were further instructed 

to continue to update a provider’s CCR 

and enter revised CCRs into the 

outpatient provider specific file. 

Therefore, for CMHCs, we use CCRs 

from the outpatient provider specific 

file. For CY 2005, we analyzed 12 

months of data for hospital and CMHC 

PHP claims for services furnished 

between January 1, 2003, and December 

31, 2003. Updated CCRs reduced the 

median cost per day for CMHCs. The 

revised medians are $310 for CMHCs 

and $215 for hospitals. Combining these 

files results in a median per diem PHP 

cost of $289. As with all APCs in the 

OPPS, the median cost for each APC is 

scaled to be relative to a mid-level office 

visit and the conversion factor is 

applied. The resulting APC amount for 

PHP is $281.33 for CY 2005, of which 

$56.33 is the beneficiary’s coinsurance.

Comment: One commenter summed 

payments for three Group Therapy 

Sessions (APC 0325) and one Extended 

Individual Therapy Session (APC 0323) 

and requested that amount as the 

minimum for a day of PHP. 

Response: We do not believe this is an 

appropriate comparison. It is important 

to note that the APC services cited by 

the commenter (APC 0325 and APC 

0323) are not PHP services, but rather 

single outpatient therapeutic sessions. 

As stated earlier, we used data from 

PHP programs (both hospitals and 

CMHCs) to determine the median cost of 

a day of PHP. PHP is a program of 

services where savings can be realized 

by hospitals and CMHCs over delivering 

individual psychotherapy services. In 

addition, a minimal day of PHP 

treatment does encompass three 

services. 

Comment: One commenter requested 

that the same provisions given to rural 

hospital outpatient departments also be 

given to rural CMHCs. 

Response: We believe the commenter 

may be referring to the statutory hold 

harmless provisions. Section 

1833(t)(7)(D) of the Act authorizes such 

payments, on a permanent basis, for 

children’s hospitals and cancer 

hospitals and, through CY 2005, for 

rural hospitals having 100 or fewer beds 

and sole community hospitals in rural 

areas. Section 1866(t)(7)(D) of the Act 

does not authorize hold harmless 

payments to CMHC providers. 

3. Separate Threshold for Outlier 

Payments to CMHCs 

In the November 7, 2003 final rule 

with comment period (68 FR 63469), 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. There was a significant 

difference in the amount of outlier 

payments made to hospitals and CMHCs 

for PHP. Further analysis indicated the 

use of outlier payments was contrary to 

the intent of the outlier policy as 

discussed previously in section X.B. 

above. Therefore, for CY 2004, we 

established a separate outlier threshold 

for CMHCs. We designated a portion of 

the estimated 2.0 percent outlier target 

amount specifically for CMHCs, 

consistent with the percentage of 

projected payments to CMHCs under the 

OPPS in CY 2004, excluding outlier 

payments. 

As stated in the November 7, 2003 

final rule with comment period, CMHCs 

were projected to receive 0.5 percent of 

the estimated total OPPS payments in 

CY 2004. The CY 2004 outlier threshold 

is met when the cost of furnishing 

services by a CMHC exceeds 3.65 times 

the APC payment amount. The current 

outlier payment percentage is 50 

percent of the amount of costs in excess 

of the threshold. 

CMS and the Office of the Inspector 

General are continuing to monitor the 

excessive outlier payments to CMHCs. 

However, we do not yet have CY 2004 

claims data that will show the effect of 

the separate outlier threshold for 

CMHCs that was effective January 1, 

2004. Therefore, for CY 2005, as 

discussed in section X.B. of this 

preamble, we are continuing to set the 

target for hospital outpatient outlier 

payments at 2.0 percent of total OPPS 

payments. We are also allocating a 

portion of that 2.0 percent, 0.6 percent, 

to CMHCs for PHP services. We are 

adopting as final 0.6 percent for CMHCs 

because the percentage of CMHC’s 

payment to total OPPS payment rose 

slightly in the CY 2003 claims data. In 

the absence of CY 2004 claims data, we 

developed simulations for CY 2005. As 

discussed in section X.B. of this final 

rule, we are establishing a dollar 

threshold in addition to an APC 

multiplier threshold for hospital OPPS 

outlier payments. However, because 

PHP 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 

establishing a dollar threshold for 

CMHC outliers. In this final rule, we are 

setting the outlier threshold for CMHCs 

for CY 2005 at 3.5 percent times the 

APC payment amount and the CY 2005 

outlier payment percentage applicable 

to costs in excess of the threshold at 50 

percent. 

Comment: One commenter expressed 

concern about a separate outlier 

threshold for partial hospitalization 

services because many partial 

hospitalization programs are hospital 

based. The commenter recommended 

that CMS use the same threshold for all 

hospital services. 

Response: We agree that the same 

outlier policy should apply to all 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65849

hospital services. Under OPPS, we 

establish two sets of outlier thresholds, 

one for hospitals and one for CMHCs. 

The higher multiple threshold of 3.5 is 

reserved for services provided by 

CMHCs only. Hospitals billing for 

partial hospitalization will be subject to 

the outlier thresholds and payment 

percentages identified for all hospital 

services. 

XI. Beneficiary Copayments for CY 

2005 

A. Background 

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

requires the Secretary to set rules for 

determining 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 rate 

(determined on a national unadjusted 

basis) for that service in the year does 

not exceed specified percentages. For all 

services paid under the OPPS in CY 

2005, the specified percentage is 45 

percent of the APC payment rate. The 

statute provides a further reduction in 

CY 2006 so that the national unadjusted 

coinsurance for an APC cannot exceed 

40 percent in CY 2006 and in calendar 

years thereafter. 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 coinsurance amount cannot 

be less than 20 percent of the OPD fee 

schedule amount. 

Comment: One commenter expressed 

concern that the law does not further 

reduce the maximum coinsurance rate 

for CY 2007. The commenter believed 

that this may cause coinsurance rates to 

stagnate at 40 percent for a few years. 

The commenter indicated that its 

organization will continue to advocate 

for a legislative change that would 

accelerate the copayment buy-down. 

Response: We understand the 

concerns of this organization. In CY 

2004, we determined that 63 percent of 

APCs had a national unadjusted 

coinsurance rate of 20 percent. 

Therefore, we will continue to apply our 

current methodology for calculating 

national unadjusted coinsurance rates, 

as explained in earlier Federal Register

notices, which ensures that the 

copayments of the remaining 37 percent 

of APCs will continue to decrease 

relative to increases in payment rates.

B. Copayment for CY 2005 

For CY 2005, we determined 

copayment amounts for new and revised 

APCs using the same methodology that 

we implemented for CY 2004 (see the 

November 7, 2003 OPPS final rule with 

comment period, 68 FR 63458). The 

unadjusted copayment amounts for 

services payable under the OPPS 

effective January 1, 2005 are shown in 

Addendum A and Addendum B of this 

final rule with comment period. 

XII. Addendum Files Available to the 

Public Via Internet 

The data referenced for Addendum C 

to this final rule with comment period 

are available on the following CMS Web 

site via Internet only: http://

www.cms.hhs.gov/providers/hopps/. We 

are not republishing the data 

represented in this Addendum to this 

final rule with comment period because 

of its volume. For additional assistance, 

contact Chris Smith Ritter at (410) 786–

0378. Addendum C—Healthcare 

Common Procedure Coding System 

(HCPCS) Codes by Ambulatory Payment 

Classification (APC). 

This file contains the HCPCS codes 

sorted by the APCs into which they are 

assigned for payment under the OPPS. 

The file also includes the APC status 

indicators, relative weights, and OPPS 

payment amounts. 

XIII. Collection of Information 

Requirements 

This document does not impose 

information collection and 

recordkeeping requirements. 

Consequently, it need not be reviewed 

by the Office of Management and 

Budget under the authority of the 

Paperwork Reduction Act of 1995. 

XIV. Regulatory Impact Analysis 

A. OPPS: General 

We have examined the impacts of this 

final rule with comment period 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), and 

Executive Order 13132. 

1. Executive Order 12866 

Executive Order 12866 (as amended 

by Executive Order 13258, which 

merely reassigns responsibility of 

duties) directs agencies to assess all 

costs and benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

($100 million or more in any 1 year). 

We estimate the effects of the 

provisions that will be implemented by 

this final rule with comment period will 

result in expenditures exceeding $100 

million in any 1 year. We estimate the 

total increase (from changes in this final 

rule with comment period as well as 

enrollment, utilization, and case-mix 

changes) in expenditures under the 

OPPS for CY 2005 compared to CY 2004 

to be approximately $1.5 billion. 

Therefore, this final rule with comment 

period is an economically significant 

rule under Executive Order 12866, and 

a major rule under 5 U.S.C. 804(2).

2. Regulatory Flexibility Act (RFA) 

The RFA requires agencies to 

determine whether a rule would have a 

significant economic impact on a 

substantial number of small entities. For 

purposes of the RFA, small entities 

include small businesses, nonprofit 

organizations, and government agencies. 

Most hospitals and most other providers 

and suppliers are small entities, either 

by nonprofit status or by having 

revenues of $6 million to $29 million in 

any 1 year (65 FR 69432). 

For purposes of the RFA, we have 

determined that approximately 37 

percent of hospitals would be 

considered small entities according to 

the Small Business Administration 

(SBA) size standards. We do not have 

data available to calculate the 

percentages of entities in the 

pharmaceutical preparation 

manufacturing, biological products, or 

medical instrument industries that 

would be considered to be small entities 

according to the SBA size standards. For 

the pharmaceutical preparation 

manufacturing industry (NAICS 

325412), the size standard is 750 or 

fewer employees and $67.6 billion in 

annual sales (1997 business census). For 

biological products (except diagnostic) 

(NAICS 325414), with $5.7 billion in 

annual sales, and medical instruments 

(NAICS 339112), with $18.5 billion in 

annual sales, the standard is 50 or fewer 

employees (see the standards Web site 

at http://www.sba.gov/regulations/

siccodes/). Individuals and States are 

not included in the definition of a small 

entity. 

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 

65850 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

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 previously defined a 

small rural hospital as a hospital with 

fewer than 100 beds that is located 

outside of a Metropolitan Statistical 

Area (MSA) (or New England County 

Metropolitan Area (NECMA)). However, 

under the new labor market definitions 

that we are adopting in this final rule 

with comment period (consistent with 

the FY 2005 IPPS final rule), we no 

longer employ NECMAs to define urban 

areas in New England. Therefore, we 

now define a small rural hospital as a 

hospital with fewer than 100 beds that 

is located outside of an MSA. 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 NECMA. Thus, for purposes of 

the OPPS, we classify these hospitals as 

urban hospitals. We believe that the 

changes in this final rule with comment 

period will affect both a substantial 

number of rural hospitals as well as 

other classes of hospitals and that the 

effects on some may be significant. 

Therefore, we conclude that this final 

rule with comment period will have a 

significant impact on a substantial 

number of small entities. 

4. Unfunded Mandates 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4) also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule that may result in an 

expenditure in any 1 year by State, 

local, or tribal governments, in the 

aggregate, or by the private sector, of 

$110 million. This final rule with 

comment period does not mandate any 

requirements for State, local, or tribal 

governments. This final rule with 

comment period also does not impose 

unfunded mandates on the private 

sector of more than $110 million 

dollars. 

5. Federalism 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it publishes any rule 

(proposed or final rule) that imposes 

substantial direct costs on State and 

local governments, preempts State law, 

or otherwise has Federalism 

implications. 

We have examined this final rule with 

comment period in accordance with 

Executive Order 13132, Federalism, and 

have determined that it would not have 

an impact on the rights, roles, and 

responsibilities of State, local or tribal 

governments. The impact analysis (see 

Table 41) shows that payments to 

governmental hospitals (including State, 

local, and tribal governmental hospitals) 

will increase by 3.7 percent under this 

final rule with comment period. 

Comment: One commenter expressed 

concern that CMS had removed the eye 

and ear specialty hospital category from 

our regulatory impact analysis and 

requested that we reinstate this lineitem. They further requested 

information on why specific analyses 

were retained for cancer and children’s 

hospitals. 

Response: We removed the specific 

regulatory impact analysis of eye and 

ear hospitals because, unlike cancer and 

children’s hospitals, they are not 

specifically protected by statute. Section 

1833(t)(7)(D) of the Act holds harmless 

cancer hospitals, children’s hospitals, 

small rural hospitals with less than 100 

beds, and sole community hospitals in 

rural areas. These hospitals cannot 

receive less payment in CY 2005 than 

they did in the CY 2004. However, 

because hold harmless provisions for 

cancer and children’s hospitals are 

permanent, we will not specifically 

identify these hospital classes in future 

impact analyses. 

Comment: One commenter expressed 

concern about the observed impact on 

teaching hospitals, specifically the 

observed increase of 2.9 percent under 

the proposed system, which is less than 

the overall increase modeled for all 

hospitals of 4.6 percent in the proposed 

rule. This commenter requested that 

CMS conduct analyses assessing the 

need for an adjustment for specific 

classes of hospitals, which is within 

CMS’ regulatory authority. The 

commenter further suggested that these 

analyses assess whether teaching 

hospitals rely more on pass-through, 

outlier, transitional corridor, and 

device-dependent APC payments, and 

suggested that an adjustment is 

necessary if this is the outcome. 

Response: We agree that it is 

important to monitor ongoing trends for 

specific classes of hospitals, and we are 

especially concerned when hospitals 

experience a negative increase. In this 

specific instance, major teaching 

hospitals are experiencing a positive 

increase in payments. We also agree that 

major teaching hospitals may be more 

dependent on costs estimated outside of 

the primary impact tables provided in 

the regulation. However, we are not 

convinced that a reliance on passthrough, outlier, or transitional corridor 

payments is a reason to propose an 

adjustment. This is especially true in 

light of the outlier policy as proposed, 

which redirects money to complex and 

costly procedures that are more likely to 

be performed at academic medical 

institutions.

B. Impact of Changes in This Final Rule 

With Comment Period 

We are adopting as final the proposed 

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 are also required under 

section 1833(t)(9)(A) of the Act to revise, 

not less often than annually, the wage 

index and other adjustments. In 

addition, we must review the clinical 

integrity of payment groups and weights 

at least annually. Accordingly, in this 

final rule with comment period, we are 

updating the conversion factor and the 

wage index adjustment for hospital 

outpatient services furnished beginning 

January 1, 2005, as we discuss in 

sections VIII. and IX., respectively, of 

this final rule with comment period. We 

also have revised the relative APC 

payment weights using claims data from 

January 1, 2003, through December 31, 

2003. Finally, we are removing 6 device 

categories and 13 drugs and biological 

agents from pass-through payment 

status. In particular, see section V.A.2 

with regard to the expiration of passthrough status for devices and see 

section IV.A.2 with regard to the 

expiration of pass-through status for 

drugs and biological agents. 

Under this final rule with comment 

period, the update change to the 

conversion factor as provided by statute 

as well as the additional money for the 

OPPS payments in CY 2005 as 

authorized by Pub. L. 108–173, 

including money for drugs and 

increases in the wage indices, will 

increase total OPPS payments by 4.0 

percent in CY 2005. The changes to the 

wage index and to the APC weights 

(which incorporate the cessation of 

pass-through payments for several drugs 

and devices) would not increase OPPS 

payments because the OPPS is budget 

neutral. However, the wage index and 

APC weight changes would change the 

distribution of payments within the 

budget neutral system as shown in 

Table 41 and described in more detail 

in this section. 

C. Alternatives Considered 

Alternatives to the changes we are 

making and the reasons that we have 

chosen the options we have are 

discussed throughout this final rule 

with comment period. Some of the 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65851

major issues discussed in this final rule 

with comment period and the options 

considered are discussed below. 

1. Payment for Device-Dependent APCs 

We package payment for an 

implantable device into the APC 

payment for the procedure performed to 

insert the device. Because almost all 

devices lost pass-through status at the 

end of CY 2002, we discontinued use of 

separate codes to report devices in CY 

2003. We have found that claims that 

we use to set payment rates for devicedependent APCs frequently have 

packaged costs that are much lower than 

the cost of the device. This is attributed, 

in part, to variations in hospital billing 

practices. In response, we reestablished 

device codes for reporting on a 

voluntary basis in CY 2004. 

The APC Panel recommended that we 

use CY 2004 device-dependent APC 

rates updated for inflation as the CY 

2005 payments. We considered this 

option but did not adopt it because it 

would not recognize changes in relative 

cost for these APCs and would not 

advance us towards our goal of using 

unadjusted claims data as the basis for 

payment weights for all OPPS services. 

In addition to consideration of the 

APC Panel’s recommendation, we 

considered using CY 2002 claims to 

calculate a ratio between the median 

calculated using all single bills and the 

median calculated using only claims 

with HCPCS codes for devices on them, 

and applying that ratio to the median 

calculated using CY 2003 claims data. 

We rejected this option because it 

assumes that the relationship between 

the costs of the claims with and without 

codes for devices is a valid relationship 

not only for CY 2002 but CY 2003 as 

well. It also assumes no changes in 

billing behavior. We have no reason to 

believe either of these assumptions is 

true and, therefore, we did not choose 

this option. We also considered using 

external data provided by manufacturers 

and other stakeholders as the estimated 

device cost. We did not choose this 

alternative because we believe that, in a 

relative weight system, there should be 

a single stable and objective source of 

data for setting relative weights for all 

items and services for which payment is 

made in the system. 

We do not believe that any of the 

above options would help us progress 

toward reliance on our data. Rather than 

adopt any of those approaches, we 

developed an option to adjust the 

payment for only those devicedependent APCs that have the most 

dramatic decreases for CY 2005. We 

believe that the better payment 

approach for determining median costs 

for device-dependent APCs in CY 2005 

is to base these medians on the greater 

of: (1) Median costs calculated using CY 

2003 claims data; or (2) 95 percent of 

the APC payment median used in CY 

2004 for these services. We believe that 

this adjustment methodology provides 

an appropriate transition to eventual use 

of all single bill claims data without 

adjustment. 

We are also requiring hospitals to 

report C-codes for device categories 

used in conjunction with procedures 

billed and paid for under the OPPS. We 

have decided to implement edits, 

starting April 1, to enforce the reporting 

of C-codes to bill for most of the devicedependent procedures for which we 

adjusted the medians for CY 2005, as 

well as for a few APCs that require 

devices that are coming off pass-through 

payment in CY 2005 (a continuation of 

current billing practice). We believe that 

adoption of our proposal will mitigate 

barriers to beneficiary access to care 

while encouraging hospitals to bill 

correctly for the services they furnish. 

For a more detailed discussion of this 

issue, see section III.C. of this final rule 

with comment period. 

2. Hospital Outpatient Outlier Payments 

In its March 2004 Report, MedPAC 

made a recommendation to the Congress 

to eliminate the outlier provision under 

the OPPS. MedPAC made its 

recommendation after studying outlier 

payments on claims for services 

furnished during CY 2002 and 

concluding that in 2002, 50 percent of 

outlier payments were paid for 21 fairly 

common services that had relatively low 

APC payment rates, while high cost 

services accounted for only a small 

share of outlier payments. However, 

outlier payments are required under the 

statute. Therefore, we cannot 

discontinue outlier payments absent a 

legislative change by the Congress. 

In light of the MedPAC findings, we 

are adopting a fixed-dollar threshold in 

addition to the threshold based on a 

multiple of the APC amount that we 

have applied since the beginning of the 

OPPS. A fixed-dollar threshold will 

redirect OPPS outlier payments toward 

the complex and expensive services that 

can create high financial risk for a 

hospital. In its comments on the 

proposed rule, MedPAC recognized that 

elimination of the outlier policy for 

OPPS requires a legislative change and 

approved of the proposed policy to 

adopt a fixed-dollar threshold. For a 

more detailed discussion of this issue, 

see section X. of this final rule with 

comment period.

D. Limitations of Our Analysis 

The distributional impacts presented 

here are the projected effects of the 

policy changes, as well as the statutory 

changes that would be effective for CY 

2005, on various hospital groups. We 

estimate the effects of 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. We also do not make 

adjustments for future changes in 

variables such as service volume, 

service mix, or number of encounters. 

E. Estimated Impacts of This Final Rule 

With Comment Period on Hospitals 

The estimated increase in the total 

payments made under 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 servicemix. However, total payments actually 

made under the system also may be 

influenced by changes in volume and 

service-mix, which CMS cannot 

forecast. The enactment of Pub. L. 108–

173 on December 8, 2003, provided for 

the payment of additional dollars in 

2004 and 2005 to providers of OPPS 

services outside of the budget neutrality 

requirements for both specified covered 

outpatient drugs (see section V.A.3.a. of 

this final rule with comment period) 

and the wage indexes for specific 

hospitals through reclassification reform 

in section 508 of Pub. L. 108–173 (see 

section IX. of this final rule with 

comment period). Table 41 shows the 

estimated redistribution of hospital 

payments among providers as a result of 

a new APC structure and wage indices, 

which are budget neutral; the estimated 

distribution of increased payments in 

CY 2005 resulting from the combined 

impact of APC recalibration and wage 

effects, and market basket update to the 

conversion factor; and estimated 

payments considering all payments for 

CY 2005 relative to all payments for CY 

2004. In some cases, specific hospitals 

may receive more total payment in CY 

2005 than in CY 2004, while, in other 

cases, they may receive less total 

payment than they received in CY 2004. 

However, our impact analysis suggests 

that no class of hospitals would receive 

less total payments in CY 2005 than in 

CY 2004. Because updates to the 

conversion factor, including the market 

basket and any reintroduction of passthrough dollars, are applied uniformly, 

observed redistributions of payments in 

the impact table largely depends on the 

65852 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

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, the extent to which 

this final rule redistributes money 

during implementation will also depend 

on changes in volume, practice patterns, 

and case-mix of services billed between 

CY 2003 and CY 2005. 

Overall, the final OPPS rates for CY 

2005 will have a positive effect for all 

hospitals paid under OPPS. Adopted 

changes will result in a 4.0 percent 

increase in Medicare payments to all 

hospitals, exclusive of outlier and 

transitional pass-through payments. As 

described in the preamble, budget 

neutrality adjustments are made to the 

conversion factor and the relative 

weights to ensure that the revisions in 

the wage indices, APC groups, and 

relative weights do not affect aggregate 

payments. The impact of the wage and 

APC recalibration changes are fairly 

moderate across most classes of 

hospitals. 

To illustrate the impact of the CY 

2005 changes adopted in this final rule 

with comment period, our analysis 

begins with a baseline simulation model 

that uses the final CY 2004 weights, the 

FY 2004 final post-reclassification IPPS 

wage indices, as subsequently corrected, 

without changes in wage indices 

resulting from section 508 

reclassifications, and the final CY 2004 

conversion factor. Columns 2 and 3 in 

Table 41 reflect the independent effects 

of the changes in the APC 

reclassification and recalibration 

changes and the wage indices, 

respectively. These effects are budget 

neutral, which is apparent in the overall 

zero impact in payment for all hospitals 

in the top row. Column 2 shows the 

independent effect of changes resulting 

from the reclassification of HCPCS 

codes among APC groups and the 

recalibration of APC weights based on a 

complete year of CY 2003 hospital OPPS 

claims data. We modeled the 

independent effect of APC recalibration 

by varying only the weights, the final 

CY 2004 weights versus the final CY 

2005 weights, in our baseline model, 

and calculating the percent difference in 

payments. Column 3 shows the impact 

of updating the wage indices used to 

calculate payment by applying the final 

FY 2005 IPPS wage indices, as 

subsequently corrected. In addition to 

new wage data, the new IPPS wage 

indices use the CBSA system as the 

basis for geographic adjustment for 

wages, rather than the MSA 

designations used previously. The FY 

2005 IPPS wage indices also include the 

new adjustment for occupational mix, 

the reclassifications of hospitals to 

geographic areas by the MGCRB, the 

increased payment authorized by 

section 505 of Pub. L. 108–173 for outmigration, hold-harmless provisions for 

hospitals redesignated from urban to 

rural by the new labor market 

definitions, and the one-year transition, 

50/50 blend for hospitals that 

experienced a decrease in their FY 2005 

wage index compared to their FY 2004 

wage index due solely to the changes in 

labor market definitions. The OPPS 

wage indices used in Column 3 do not 

include wage increases due to 

reclassification of hospitals through 

section 508 of Pub. L. 108–173. We 

modeled the independent effect of 

introducing the new wage indices by 

varying only the wage index between 

years, using CY 2004 weights, and a CY 

2004 conversion factor that included a 

budget neutrality adjustment for 

changes in wage effects between 2004 

and 2005. 

Column 4 demonstrates the combined 

‘‘budget neutral’’ impact of APC 

recalibration and wage index updates on 

various classes of hospitals, as well as 

the impact of updating the conversion 

factor with the market basket. We 

modeled the independent effect of 

budget neutrality adjustments and the 

market basket update by using the 

weights and wage indices for each year, 

and using a CY 2004 conversion factor 

that included a budget neutrality 

adjustment for differences in wages and 

the market basket increase. Finally, 

column 5 depicts the full impact of final 

CY 2005 policy on each hospital group 

by including the effect of all the changes 

for CY 2005 and comparing them to the 

full effect of all payments in CY 2004, 

including those authorized by Pub. L. 

108–173. Column 5 shows not only the 

combined budget neutral effects of APC 

and wage updates, and the market 

basket update, but it also shows the 

effects of additional monies added to 

the OPPS as a result of Pub. L. 108–173 

and pass-through money returned to the 

conversion factor from CY 2004. We 

modeled the independent effect of all 

changes using the final weights for CY 

2004 and CY 2005 with additional 

money for drugs authorized by section 

621 of Pub. L. 108–173, final wage 

indices including wage index increases 

for hospitals eligible for reclassification 

under section 508 of Pub. L. 108–173, 

and the CY 2005 conversion factor of 

$56.983.

Column 1: Total Number of Hospitals 

Column 1 in Table 41 shows the total 

number of hospital providers (4,296) for 

which we were able to use CY 2003 

hospital outpatient claims to model CY 

2004 and CY 2005 payments by classes 

of hospitals. We excluded all hospitals 

for which we could not accurately 

estimate CY 2004 or CY 2005 payment 

and entities that are not paid under the 

OPPS. The latter include critical access 

hospitals, all-inclusive hospitals, and 

hospitals located in Guam, the U.S. 

Virgin Islands, and the State of 

Maryland. This process is discussed in 

greater detail in section III.B of this final 

rule with comment period. In prior 

years, we displayed non-TEFRA 

hospitals paid under PPS separately 

from TEFRA hospitals in our impact 

and outlier tables. The distinction 

between TEFRA and non-TEFRA holds 

little value for OPPS as all hospitals are 

treated equally under the OPPS 

payment system. For this reason, we did 

not include TEFRA hospitals as a 

distinct hospital category in Table 41. 

The impact on this specific class of 

hospitals is captured in the rows 

addressing disproportionate share (DSH) 

as we only calculate a DSH variable for 

hospitals participating in the IPPS. 

Finally, of the hospitals displayed in 

Table 41 and Table 42, it is important 

to note that section 1833(t)(7)(D) of the 

Act holds harmless cancer hospitals, 

children’s hospitals, small rural 

hospitals with less than 100 beds, and 

sole community hospitals in rural areas. 

The hold harmless provisions for cancer 

and children’s hospitals are permanent; 

these hospitals cannot receive less 

payment in CY 2005 than they did in 

the CY 2004. For this reason, we will 

not specifically identify these classes of 

hospitals in future impact analyses. 

Column 2: APC Recalibration 

The APC reclassification and 

recalibration changes tend to favor rural 

hospitals especially those characterized 

as small, although the overall 

redistribution impact is modest. Rural 

hospitals show a 0.6 percent increase, 

which is somewhat less than that 

observed in the proposed rule of 0.9. 

Specifically, rural hospitals with 50 to 

100 beds show a 0.8 percent increase 

and rural hospitals with 101 to 149 beds 

show a 0.7 percent increase attributable 

to the APC recalibration. Mid-volume 

hospitals performing between 11,000 

and 20,999 services experience an 

increase of 1.0 percent. Rural hospitals 

also show overall increases by region, 

with the East North Central and East 

South Central regions benefiting by at 

least 0.9 percent and the South Atlantic 

and West North Central regions 

benefiting by 0.7 percent. 

Urban hospitals show, on an average, 

a 0.2 percent decrease, which is 

comparable to that observed in the 

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 65853

proposed rule. This decrease is spread 

among all urban hospitals. Large urban 

hospitals experience a decline of 0.1 

percent and ‘‘other’’ urban hospitals 

experience a decline of 0.2 percent. 

Urban hospitals with greater than 200 

beds show decreases, and the largest 

urban hospitals with bed size greater 

than 500 report a decrease of 0.9 

percent. The smallest urban hospitals 

report a positive percent increases. 

Urban hospitals providing the lowest 

volume of services and those providing 

the highest also demonstrate negative 

impacts from APC recalibration. 

Decreases for urban hospitals are also 

concentrated in some regions, 

specifically, the South Atlantic, West 

South Central, Mountain, and Pacific 

experience decreases of at least 0.1 

percent. West South Central loses the 

most, 0.9 percent. 

The largest observed impacts among 

other hospital classes resulting from 

APC recalibration include declines of 1 

percent for major teaching hospitals and 

2.3 percent for hospitals without a valid 

DSH variable, most of which are TEFRA 

hospitals. Hospitals treating more lowincome patients (high DSH percentage) 

also demonstrate declines of 0.8 

percent. However, hospitals treating 

fewer low-income patients experience 

positive impacts from APC 

recalibration. Government hospitals 

demonstrate a decline of 0.8 percent. 

The specialty hospitals, cancer and 

children’s hospitals, also would 

experience declines of 2.4 and 1.5 

percent due to APC recalibration, 

respectively, if they were not held 

harmless under section 1833(t)(7)(D) of 

the Act. 

In general, APC changes effect the 

distribution of hospital payments by 

increasing payments to small rural 

hospitals while decreasing payments 

made to large urban hospitals, including 

major teaching hospitals and those 

serving a high percentage of low-income 

patients. 

Column 3: Wage Effect 

Changes introduced by the new IPPS 

wage indices had a modest impact, but 

the distributions have changed since the 

proposed rule with the changes and 

additional provisions included in the 

final IPPS wage indices. Decreases in 

OPPS payment due to the new wage 

indices are generally located in rural 

hospitals, although specific classes of 

other hospitals also experience declines. 

Overall, urban hospitals experience no 

change in payments as a result of the 

new wage indices. However, large urban 

hospitals experience an increase of 0.1 

percent. We estimate that rural hospitals 

will experience a decrease in payments 

of 0.2 percent. This pattern of urban 

gain and rural loss is evident in all of 

the urban and rural comparisons. Lowvolume urban hospitals with fewer than 

5,000 services and urban hospitals in 

the West South Central region show the 

largest percentage increase of 0.5. 

Rural hospitals show modest 

decreases for most bed sizes but show 

the largest losses for hospitals with 

more than 200 beds. The new wage 

indices result in a 0.5 percent decrease 

for the largest rural hospitals. Similarly, 

high volume rural hospitals demonstrate 

an anticipated decline of 0.4 percent. 

Hospitals located in the New England 

and Middle Atlantic regions show a 

negative impact due to wage index 

changes regardless of urban or rural 

designation. However, rural hospitals in 

New England and the Middle Atlantic 

experience the largest decreases among 

regions of 0.7 and 0.6 percent, 

respectively. Rural hospitals in the 

South Atlantic, East North Central, East 

South Central, and Mountain regions 

also experience decreased payments. 

Rural sole community hospitals show 

the same impact as other rural hospitals; 

they experience a decline of 0.2 percent. 

Looking across other categories of 

hospitals, major teaching hospitals are 

estimated to lose 0.3 percent. Almost all 

hospitals serving low-income patients 

lose 0.1 percent. Hospitals for which 

DSH is not available, mostly TEFRA 

hospitals, lose 0.3 percent.

Column 4: Budget Neutrality and 

Market Basket Update 

In general, the market basket update 

alleviates any negative impacts on 

payments created by the budget 

neutrality adjustments made in columns 

2 and 3. As column 4 demonstrates, 

with the addition of the market basket 

update, we do not expect any class of 

hospital providers to experience an 

overall negative impact as a result of the 

proposed changes to OPPS for CY 2005. 

Further, the redistributions created by 

APC recalibration tend to offset those 

created by the new wage indices. For 

example, rural hospitals gain 0.6 

percent from the APC changes but lose 

0.2 percent as a result of changes to the 

wage indices, leading to an overall 

adjustment of 3.7 percent with the 

addition of the market basket. Urban 

hospitals show a decrease of 0.2 percent 

resulting from APC recalibration and no 

change as a result of the new wage 

index, leading to an update in column 

4 of 3.2 percent. 

For several classes of hospitals, 

positive or neutral wage effects do not 

offset the larger impacts of APC 

recalibration leading to lower update 

amounts. For example, low volume 

urban hospitals experience a negative 

APC recalibration effect of 1.1, but a 

positive wage effect of 0.5. The result is 

an overall update of 2.6, which is less 

than the market basket. A few hospital 

providers may experience much lower 

and much higher update amounts than 

the market basket because the combined 

impact of the budget neutrality 

adjustments for the APC recalibration 

and the new wage index are reinforcing. 

Urban hospitals with more than 500 

beds show a gain of 2.2 percent because 

the impact of APC recalibration was 

¥0.9 percent and the new wage indices 

added ¥0.1 percent. Major teaching 

hospitals experience a decline in 

payment due to APC recalibration of 

¥1.0 and a decline due to wage indices 

of ¥0.3 resulting in an overall, budget 

neutral update of 2.0. Hospitals for 

which we have no DSH variable, mostly 

TEFRA hospitals, will experience a 

decrease in payments due to both APC 

recalibration and the new wage indices, 

leading to a budget neutral increase of 

0.7 percent. Hospitals serving a high 

number of low-income patients 

experience an overall update of 2.4 

percent. Finally, cancer hospitals show 

an update of only 0.2 percent, and 

children’s hospitals, of only 2.0 percent, 

but statutory provisions ensure that 

each of these hospitals is ‘‘held 

harmless’’ relative to last year’s 

payments. 

A few hospitals may also gain from 

the combined positive effect of the APC 

recalibration and the wage effect. 

Overall, mid-volume urban hospitals 

and urban hospitals with a small 

number of beds, rural hospitals in the 

East South and North Central, West 

North and South Central, and 

nonteaching hospitals experience 

positive impacts from both APC 

recalibration and the new wage indices. 

Column 5: All Changes for CY 2005 

Column 5 compares all changes for 

CY 2005 to a final simulated payment 

for CY 2004 and includes all additional 

dollars resulting from provisions in Pub. 

L. 108–173 in both years and the 

difference in pass-through estimates. 

Overall, we estimate that hospitals will 

gain 4.0 percent under this final rule 

with comment period relative to total 

spending with Pub. L. 108–173 dollars 

for drugs and wage indices in CY 2004. 

Hospitals do receive a 4.5-percent 

increase in dollars (3.3 percent for the 

market basket and 1.2 percent for passthrough dollars returned to the 

conversion factor), which is reflected in 

the conversion factor. However, 

hospitals received more additional 

money from provisions in Pub. L. 108–

173 for spending on drugs and wage 

65854 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 

indices in CY 2004 than in CY 2005. 

This is largely a result of the decline in 

the statutory minimum payment for sole 

source specified covered outpatient 

drugs from 88 percent to 83 percent of 

AWP. The observed 4.0 percent reflects 

this difference in spending. 

Some hospitals experience large 

increases in addition to those already 

garnered under budget neutrality. In 

rural areas, hospitals providing between 

11,000 and 20,999 services are projected 

to experience an increase of 5.1 percent. 

Rural hospitals in the East South 

Central, West North Central, and West 

South Central are all projected to 

experience an increase of at least 5 

percent. Very small urban hospitals, less 

than 99 beds, will experience an 

increase of 4.9 percent. On the other 

hand, a handful of types of hospitals 

will experience much smaller updates. 

Large urban hospitals will receive an 

update of 3.9 percent. Urban hospitals 

in the Middle Atlantic and Mountain 

regions will experience updates less 

than or equal to 3.5 percent. Rural 

hospitals in New England and the 

Middle Atlantic also have updates less 

than or equal to 3.5 percent. 

Major teaching hospitals are projected 

to experience a smaller increase in 

payments, 2.6 percent, than the 4.0 

percent aggregate for all hospitals due to 

negative impacts from both the APC 

recalibration, the new wage indices, and 

most probably the decline in spending 

for drugs under Pub. L. 108–73. 

Hospitals serving a disproportionate 

share of low-income patients also 

experience a lower increase, 3.4 percent. 

Hospitals for which there is no DSH 

information, mostly TEFRA hospitals, 

are estimated to receive an update of 0.3 

percent. This low-observed increase 

appears to be largely due to APC 

recalibration issues and declines in the 

payment for drugs. The impact of final 

payment on the specialty hospitals, 

cancer and children’s hospitals, is not 

shown. If these hospitals were paid 

under OPPS, the cancer hospitals would 

experience a negative impact. However, 

these hospitals are held harmless and, 

therefore, will not experience any 

decline in payment. As noted above, we 

do not intend to specifically identify 

these hospitals in our future impact 

analyses.

F. Projected Distribution of Outlier 

Payments 

As stated in section X.B. of this 

preamble, we have a projected target of 

2 percent of the estimated CY 2005 

expenditures to outlier payments. For 

CY 2005, we are adopting a fixed-dollar 

threshold. As discussed in section X.B. 

of the preamble, we are changing our 

current policy, which sets the outlier 

threshold using only a multiple of the 

APC payment rate, to a policy that 

includes both a multiple of the APC 

payment rate and a new fixed dollar 

threshold. This policy will better target 

outlier payments to higher cost, 

complex cases that create greater 

financial risk for hospitals. 

For CY 2005, we are specifically 

proposing to require that, in order to 

qualify for an outlier payment, the cost 

of a service must exceed 1.75 times the 

APC payment rate and the cost must 

also exceed the sum of the APC rate 

plus a $1,175 fixed-dollar threshold. 

The outlier payment under this policy 

remains at 50 percent of the cost minus 

the multiple of the APC payment rate. 

Table 42 below compares the 

percentage of outlier payments relative 

to total projected payments for the 

simulated CY 2004 and CY 2005 outlier 

policies. As discussed in section X.B. of 

this preamble, we included a charge 

inflation factor in our modeling for this 

final rule with comment period that was 

not included in our modeling for the 

proposed rule. This resulted in 

increased thresholds for both the 

simulated CY 2004 and final CY 2005 

outlier policies. To provide an accurate 

comparison for the new policy, we 

estimated the CY 2004, multiple-only 

policy, using the CY 2003 claims with 

inflated charges to pay total outlier 

payments that are 2 percent of total 

estimated spending. This resulted in a 

multiple threshold of 2.95. 

Overall, Table 42 demonstrates that 

the outlier policy accomplishes the goal 

of redistributing outlier payments to 

hospitals performing more expensive 

procedures and incurring greater 

financial risk. Notwithstanding the 

inclusion of a charge inflation factor, the 

observed distributions for both policies 

differ very little from those provided in 

the proposed rule. First, based on the 

mix of services for the hospitals that 

would be paid under the OPPS in CY 

2005, fewer hospitals would receive 

outlier payments. This is appropriate as 

more outlier money is targeted to 

specific services. We estimate that 

approximately 85 percent of all 

hospitals will receive outlier payments 

under the new policy, whereas 95 

percent of all hospitals were estimated 

to get outlier payments under the CY 

2004 policy. 

We estimate that the redistribution of 

outlier payments is modest, rarely 

shifting total payments by more than 1 

percent. In light of this, many hospitals 

receiving outlier payments under the 

previous policy will continue to receive 

outlier payments but for a different set 

of services. Nonetheless, this final 

outlier policy appears to accomplish the 

goal of redirecting payments to highcost, expensive services. The adopted 

outlier policy tends to benefit large 

urban hospitals, teaching hospitals, 

proprietary hospitals, and hospitals 

serving a moderate share of low-income 

patients. The distribution observed here 

may offset the less than average 

increases in payment observed for these 

same classes of hospitals in the overall 

impact Table 41. Selected hospitals are 

predicted to lose outlier payments. 

Rural hospitals, specifically those that 

show a small number of beds and 

provide a low volume of services, are 

eligible for fewer outlier payments when 

compared to other types of hospital 

categories, but, in general, these 

hospitals experience greater OPPS 

payment increases. Government 

hospitals experience a decrease in 

outlier payments of 0.3 percent, and 

TEFRA hospitals are projected to lose 

1.2 percent in outlier payments. 

G. Estimated Impacts of This Final Rule 

With Comment Period on Beneficiaries 

For services for which the beneficiary 

pays a coinsurance of 20 percent of the 

payment rate, the beneficiary share of 

payment will increase for services for 

which OPPS payments will rise and will 

decrease for services for which OPPS 

payments will fall. For example, for a 

mid-level office visit (APC 0601), the 

minimum unadjusted copayment in CY 

2004 was $10.71. In this final rule with 

comment period, the minimum 

unadjusted copayment for APC 601 is 

$11.22 because the OPPS payment for 

the service will increase under this final 

rule with comment period. In another 

example, for a Level III Pathology 

Procedure (APC 0344), the minimum 

unadjusted copayment in CY 2004 was 

$17.16. In this final rule with comment 

period, the minimum unadjusted 

copayment for APC 0344 is $15.66 

because the minimum unadjusted 

copayment is limited to 45 percent of 

the APC payment rate for CY 2005, as 

discussed in section XI. of this final rule 

with comment period. 

However, in all cases, the statute 

limits beneficiary liability for copayment for a service to the inpatient 

hospital deductible for the applicable 

year. This amount is $912 for CY 2005.

BILLING CODE 4102–01–P

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BILLING CODE 4120–01–C

Conclusion 

The changes in this final rule with 

comment period affect all classes of 

hospitals. Some hospitals experience 

significant gains and others less 

significant gains, but all hospitals will 

experience positive updates in OPPS 

payments in CY 2005. Table 41 

demonstrates the estimated 

distributional impact of the OPPS 

budget neutrality requirements and an 

additional 4.0 percent increase in 

payments for CY 2005, exclusive of 

outlier and transitional pass-through 

payments, across various classes of 

hospitals. Table 42 demonstrates the 

distributional impact of outlier 

payments under the new policy of a 

multiple and fixed-dollar threshold. 

These two tables and the accompanying 

discussion, in combination with the rest 

of this final rule with comment period, 

constitute a regulatory impact analysis. 

In accordance with the provisions of 

Executive Order 12866, this final rule 

with comment period was reviewed by 

the Office of Management and Budget. 

XV. Regulation Text

List of Subjects in 42 CFR Part 419 

Hospitals, Medicare, Reporting and 

recordkeeping requirements.

■ For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services amends 42 CFR 

Chapter IV, Part 419, as set forth below:


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PART 419—PROSPECTIVE PAYMENT 

SYSTEM FOR HOSPITAL OUTPATIENT 

DEPARTMENT SERVICES

■ 1. 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, 

1395l(t), and 1395hh).

■ 2. Section 419.21 is amended by 

adding a new paragraph (e) to read as 

follows:

§ 419.21 Hospital outpatient services 

subject to the outpatient prospective 

payment system.

* * * * *

(e) Effective January 1, 2005, 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.

■ 3. Section 419.22 is amended by 

adding a new paragraph (s) to read as 

follows:

§ 419.22 Hospital outpatient services 

excluded from payment under the hospital 

outpatient prospective payment system.

* * * * *

(s) Effective December 8, 2003, 

screening mammography services and 

effective January 1, 2005, diagnostic 

mammography services.

■ 4. Section 419.64 is amended by 

revising paragraph (d) to read as follows:

§ 419.64 Transitional pass-through 

payments: Drugs and biologicals.

* * * * *

(d) Amount of pass-through payment.

Subject to any reduction determined 

under § 419.62(b), the pass-through 

payment for a drug or biological equals 

the amount determined under section 

1842(o) of the Social Security Act, 

minus the portion of the APC payment 

amount that CMS determines is 

associated with the drug or biological.

■ 5. Section 419.70 is amended by 

revising the section heading and 

paragraphs (f)(2)(i) and (f)(2)(ii) to read as 

follows:

§ 419.70 Transitional adjustment to limit 

decline in payments.

* * * * *

(f) Pre-BBA amount defined. * * * 

(2) Base payment-to-cost ratio 

defined. * * * 

(i) The provider’s payment under this 

part for covered outpatient services 

furnished during one of the following 

periods, including any payment for 

these services through cost-sharing 

described in paragraph (e) of this 

section: 

(A) The cost reporting period ending 

in 1996; or 

(B) If the provider does not have a 

cost reporting period ending in 1996, 

the first cost reporting period ending on 

or after January 1, 1997, and before 

January 1, 2001; and 

(ii) The reasonable costs of these 

services for the same cost reporting 

period.

* * * * *

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program)

Dated: October 28, 2004. 

Mark B. McClellan, 

Administrator, Centers for Medicare & 

Medicaid Services.

Dated: October 28, 2004. 

Tommy G. Thompson, 

Secretary.

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66012 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66013


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66014 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66015


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66016 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66017


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66018 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66019


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66020 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66021


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66022 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66023


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66024 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66025


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66026 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66027


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66028 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66029


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66030 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66031


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66032 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66033


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66034 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66035


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66036 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66037


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66038 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66039


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66040 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66041


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66042 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66043


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66044 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66045


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66046 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66047


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66048 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66049


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66050 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66051


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66052 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66053


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66054 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66055


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66056 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66057


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66058 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66059


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66060 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66061


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66062 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66063


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66064 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66065


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66066 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66067


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66068 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66069


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66070 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66071


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66072 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66073


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66074 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66075


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66076 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66077


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66078 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66079


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66080 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66081


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66082 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66083


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66084 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66085


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66086 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66087


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66088 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66089


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66090 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66091


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66092 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66093


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66094 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66095


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66096 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66097


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66098 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66099


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66100 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66101


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66102 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66103


ER15NO04.308</GPH>
66104 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66105


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66106 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66107


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66108 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66109


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66110 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66111


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66112 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66113


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66114 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66115


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66116 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66117


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66118 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66119


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66120 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66121


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66122 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66123


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66124 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66125


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66126 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66127


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66128 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66129


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66130 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66131


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66132 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66133


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66134 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66135


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66136 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66137


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66138 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66139


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66140 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66141


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66142 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66143


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66144 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66145


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66146 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66147


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66148 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66149


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66150 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66151


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66152 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66153


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66154 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66155


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66156 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66157


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66158 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66159


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66160 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66161


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66162 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66163


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66164 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66165


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66166 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66167


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66168 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66169


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66170 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66171


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66172 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66173


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66174 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66175


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66176 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66177


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66178 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66179


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66180 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66181


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66182 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66183


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66184 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66185


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66186 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66187


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66188 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66189


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66190 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66191


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66192 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66193


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66194 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66195


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66196 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66197


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66198 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66199


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66200 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66201


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66202 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66203


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66204 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66205


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66206 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66207


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66208 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66209


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66210 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66211


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66212 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66213


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66214 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66215


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66216 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66217


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66218 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66219


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66220 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66221


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66222 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66223


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66224 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 66225


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66226 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Rules and Regulations 


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[FR Doc. 04–24759 Filed 11–2–04; 4:45 am] 

BILLING CODE 4120–01–P


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