Monday,

August 16, 2004

Book 2 of 2 Pages 50447–50994

Part II

Department of 

Health and Human 

Services

Centers for Medicare and Medicaid 

Services 

42 CFR Parts 410, 411, and 419

Medicare Program; Proposed Changes to 

the Hospital Outpatient Prospective 

Payment System and Calendar Year 2005 

Payment Rates; Proposed Rule

50448 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 410, 411, and 419 

[CMS–1427–P] 

RIN 0938–AM75 

Medicare Program; Proposed Changes 

to the Hospital Outpatient Prospective 

Payment System and Calendar Year 

2005 Payment Rates 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

revise 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 of 2003. In addition, the proposed 

rule describes proposed changes to the 

amounts and factors used to determine 

the payment rates for Medicare hospital 

outpatient services paid under the 

prospective payment system. These 

changes would be applicable to services 

furnished on or after January 1, 2005. 

DATES: To be ensured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on October 8, 2004. 

ADDRESSES: In commenting, please refer 

to file code CMS–1427–P. 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). 

You can assist us by referencing the 

‘‘specific identifier’’ that precedes the 

section on which you choose to 

comment. 

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–P, 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. 

Submitting Comments: We welcome 

comments from the public on all issues 

set forth in this rule to assist us in fully 

considering issues and developing 

policies. You can assist us by 

referencing the file code CMS–1427–P 

and the specific ‘‘issue identifier’’ that 

precedes the section on which you 

choose to comment. 

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 web site. 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. 

Submission of comments on 

paperwork requirements. For comments 

that relate to information collection 

requirements, mail a copy of comments 

to the following addresses: 

Centers for Medicare & Medicaid 

Services, Office of Strategic 

Operations and Regulatory Affairs, 

Security and Standards Group, Office 

of Regulations Development and 

Issuances, Room C4–24–02, 7500 

Security Boulevard, Baltimore, MD 

21244–1850, Attn: John Burke, CMS– 

1427–P; and 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Room 3001, New Executive 

Office Building, Washington, DC 

20503, Christopher Martin, CMS Desk 

Officer. 

Comments submitted to OMB may 

also be emailed to the following 

address: 

Christopher_Martin@omb.eop.gov, or 

faxed to OMB at (202) 395–6974. 

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: Copies: To 

order copies of the Federal Register 

containing this document, send your 

request to: New Orders, Superintendent 

of Documents, P.O. 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 tollfree 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. 

To assist readers in referencing 

sections contained in this document, we 

are providing the following table 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 

Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50449 

3. APC Panel Meetings and Organizational 

Structure 

E. Provisions of the Medicare Prescription 

Drug, Improvement, and Modernization 

Act of 2003 

F. Summary of Major Content of This 

Proposed Rule 

II. Proposed Changes Related to Ambulatory 

Payment Classifications (APCs) 

A. Proposed APC Changes: General 

B. APC Panel Review and Recommendations 

1. APC 0018: Biopsy of Skin/Puncture of 

Lesion 

2. Level I and II Arthroscopy 

3. Angiography and Venography Except 

Extremity 

C. Limits on Variations Within APCs: 

Proposed 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 

D. Proposed Exceptions to the 2 Times Rule 

E. Coding for Stereostatic Radiosurgery 

Services 

1. Background 

2. Proposal for CY 2005 

F. Proposed Movement of Procedures From 

New Technology APCs to Clinically 

Appropriate APCs 

1. Background 

2. APC Panel Review and Recommendation 

3. Proposal for CY 2005 

G. Proposed Changes to Inpatient List 

H. Proposed Assignment of ‘‘Unlisted’’

HCPCS Codes 

1. Background 

2. Proposal for CY 2005 

I. Proposed Addition of New Procedure 

Codes 

J. Proposed OPPS Changes: Provisions of 

MMA (Pub. L. 108–173) 

1. Payment for Initial Preventive Physical 

Examinations (Section 611 of Pub. L. 

108–173) 

a. Background 

b. Proposed Amendments to Regulations 

c. Proposed Assignment of New HCPCS 

Code for Payment of Initial Preventive 

Physical Examinations 

d. Handling of Comments Received in 

Response to This Proposal 

2. Payment for Certain Mammography 

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

III. Proposed Recalibration of APC Weights 

for CY 2005 

A. Database Construction 

1. Proposed Treatment of Multiple 

Procedure Claims 

2. Proposed Use of Single Procedure 

Claims 

B. Proposed Calculation of Median Costs for 

CY 2005 

C. Proposed Adjustment of Median Costs for 

CY 2005 

1. Device-Dependent APCs 

2. Proposed 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. Proposed Required Use of ‘‘C’’ Codes for 

Devices 

4. Submission of External Data 

D. Proposed Calculation of Scaled OPPS 

Payment Weights 

IV. Proposed Payment Changes for Devices 

A. Pass-Through Payments for Devices 

1. Expiration of Transitional Pass-Through 

Payments for Certain Devices 

2. Proposal for CY 2005 

B. Provisions for Reducing Transitional PassThrough Payments To Offset Costs 

Packaged Into APC Groups 

1. Background 

2. Proposal for CY 2005 

V. Transitional Pass-Through Payment for 

Additional Costs of Drugs and Biologicals 

A. New Drugs, Biologicals, and 

Radiopharmaceuticals With PassThrough Status 

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. Proposed Criteria for Packaging Payment 

for Drugs, Biologicals, and 

Radiopharmaceuticals 

3. Proposed Payment for Drugs, 

Biologicals, and Radiopharmaceuticals 

Without Pass-Through Status That Are 

Not Packaged 

a. Payment for Specified Covered 

Outpatient Drugs 

b. Proposal to Treat Three Sunsetting PassThrough Drugs as Specified Covered 

Outpatient Drugs 

c. Proposed CY 2005 Payment for New 

Drugs and Biologicals With HCPCS 

Codes and Without Pass-Through 

Application and Reference AWP 

d. Proposed Payment for Separately 

Payable Nonpass-Through Drugs and 

Biologicals 

e. Proposed CY 2005 Change in Payment 

Status for HCPCS Code J7308 

C. Proposed Coding and Billing for Specified 

Outpatient Drugs 

D. Proposed Payment for New Drugs, 

Biologicals, and Radiopharmaceuticals 

Before HCPCS Codes Are Assigned 

1. Background 

2. Provisions of Pub. L. 108–173 

E. Proposed Payment for Vaccines 

F. Proposed Changes in Payment for Single 

Indication Orphan Drugs 

G. Proposal To Change Payment Policy for 

Radiopharmaceuticals 

H. Proposed Coding and Payment for Drug 

Administration 

I. Proposed 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. Proposed Estimate of Pass-Through 

Spending for CY 2005 

VII. Other Policy Decisions and Proposed 

Policy Changes 

A. Statewide Average Default Cost-to-Charge 

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 

H. Payment for APC 0375, Ancillary 

Outpatient Services When Patient 

Expires 

VIII. Proposed Conversion Factor Update for 

CY 2005 

IX. Proposed Wage Index Changes for CY 

2005 

X. Determination of Proposed Payment Rates 

and Outlier Payments for CY 2005 

A. Calculation of the Proposed National 

Unadjusted Medicare Payment 

B. Proposed Hospital Outpatient Outlier 

Payments 

C. Proposed Payment for Partial 

Hospitalization 

1. Background 

2. Proposed PHP APC Update for CY 2005 

3. Separate Threshold for Outlier Payments 

to CMHCs 

XI. Proposed Beneficiary Copayments for CY 

2005 

A. Background 

B. Proposed Copayment for CY 2005 

XII. MedPAC Recommendations 

XIII. Addenda Files Available to the Public 

Via Internet 

Addendum C—Healthcare Common 

Procedure Coding System (HCPCS) Codes 

by Ambulatory Payment Classification 

(APC) 

XIV. Collection of Information Requirements 

XV. Response to Public Comments 

XVI. Regulatory Impact Analysis 

A. OPPS: General 

B. Impact of Proposed Changes in This 

Proposed Rule 

C. Alternatives Considered 

D. Limitations of Our Analysis 

E. Estimated Impacts of This Proposed Rule 

on Hospitals 

F. Projected Distribution of Outlier Payment 

G. Estimated Impacts of This Proposed Rule 

on Beneficiaries 

50450 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 

XVII. 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 Website via 

Internet. See section XIII. of the preamble 

of this proposed rule.) 

Addendum D1—Payment Status Indicators 

for Hospital Outpatient Prospective 

Payment System 

Addendum D2—Comment Indicators 

Addendum E—CPT Codes That Will Be Paid 

Only as Inpatient Procedures 

Addendum H—Wage Index for Urban Areas 

Addendum I—Wage Index for Rural Areas 

Addendum J—Wage Index for Hospitals That 

Are Reclassified 

Addendum K—Wage Index Adjustment for 

Commuting Hospital Employees 

Addendum L—Pre-Reclassified Wage Index 

for Urban Areas 

Addendum M—Pre-Reclassified Wage Index 

for Rural Areas 

Addendum N—Hospital Reclassifications 

and Redesignations by Individual Hospital 

Under Section 508 of Pub.L. 108–173 

Alphabetical List of Acronyms 

Appearing in the Proposed Rule 

ACEP American College of Emergency 

Physicians 

AHA American Hospital Association 

AHIMA American Health Information 

Management Association 

AMA American Medical Association 

APC Ambulatory payment 

classification 

ASP Average sales price 

ASC Ambulatory surgical center 

AWP Average wholesale price 

BBA Balanced Budget Act of 1997, 

Pub. L. 105–33 

BIPA Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection 

Act of 2000, Pub. L. 106–554 

BBRA Medicare, Medicaid, and SCHIP 

Balanced Budget Refinement Act of 

1999, Pub. L. 106–113 

CAH Critical access hospital 

CCR (Cost center specific) cost-tocharge ratio 

CMHC Community mental health 

center 

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, Pub. L. 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, Pub. 

L. 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, Pub. L. 108–173 

MSA Metropolitan Statistical Area 

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, Pub. L. 

97–248 

TOPS Transitional outpatient 

payments 

USPDI United States Pharmacopoeia 

Drug Information 

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 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, Pub. L. 108–

173, enacted on December 8, 2003 (these 

amendments are discussed later under 

section I.E. of this proposed rule). The 

OPPS was first implemented for services 

furnished on or after August 1, 2000. 

Implementing regulations for the OPPS 

are located at 42 CFR part 419. 

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. The OPPS 

includes payment for most hospital 

outpatient services, except those 

identified in section I.B. of this 

proposed rule and certain inpatient 

services covered under Medicare Part B 

for beneficiaries who are entitled to Part 

B benefits but who have exhausted them 

or otherwise are not entitled to them. In 

addition, the OPPS applies to partial 

hospitalization services furnished by 

community mental health centers 

(CMHCs). 

Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50451 

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); interim final rule with 

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

and interim final rule with comment period, 

January 6, 2004 (69 FR 820). 

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 

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 is more than 2 times greater than 

the lowest median cost for an item or 

service with the same APC (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. 

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, 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. Like the 

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. 

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 already 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. 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 document 

corrected technical errors in the 

November 7, 2003 rule and included 

responses to a number of public 

comments that were inadvertently 

omitted from that rule. 

On January 6, 2004, we published in 

the Federal Register an interim final 

rule with comment period (69 FR 820) 

that implemented provisions of Pub. L. 

108–173 that affected payments made 

under the OPPS, effective January 1, 

2004. We will finalize this interim final 

rule and address public comments 

associated with that rule when we 

finalize this proposed rule. 

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 (Pub. L. 92–463). 

On November 1, 2002, the Secretary 

50452 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 

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 nominating 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 website at 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 four subsequent 

meetings, with the last meeting taking 

place on February 18, 19, and 20, 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). 

During these meetings, the APC Panel 

established its operational structure 

which, 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 (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 into the APC 

payment. Each of these subcommittees 

was established by a majority vote of the 

APC Panel during a scheduled annual or 

biennial 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. A full discussion of the 

APC Panel’s February 2004 meeting and 

the resulting recommendations is 

included in sections II., III., IV., V., and 

VI. of this preamble. 

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), Pub. 

L. 108–173, was enacted. Pub. L. 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 Pub. L. 

108–173 relating to the OPPS that were 

effective for CY 2004. In this proposed 

rule, we are proposing to implement the 

following sections of Pub. L. 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 Pub. L. 

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. 

• 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 Major Content of This 

Proposed Rule 

In this proposed rule, we are setting 

forth proposed changes to the Medicare 

hospital OPPS. These changes would be 

effective for services furnished on or 

after January 1, 2005. The following is 

a summary of the major changes that we 

are proposing to make: 

1. Proposed Changes to the APCs 

Groups 

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

the Act, we are proposing 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 

are proposing to establish a number of 

new APCs and to make changes to the 

assignment of HCPCS codes under a 

number of existing APCs. Our proposed 

APC changes for CY 2005 are set forth 

in section II. of this preamble. 

We also discuss the application of the 

2 times rule and proposed exceptions to 

it; coding for stereotactic radiosurgery 

services; the proposed movement of 

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procedures from the new technology 

APCs; the proposed changes to the list 

of procedures that will be paid as 

inpatient services; and the proposed 

additions of new procedure codes to the 

APCs. 

2. Recalibrations of APC Relative 

Payment Weights 

In section III. of this preamble, we 

discuss 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. Proposed Payment Changes for 

Devices 

In section IV. of this preamble, we 

discuss proposed changes to the passthrough payment for devices and the 

methodology used to reduce transitional 

pass-through payments to offset costs 

packaged into APC groups. 

4. Proposed Payment Changes for Drugs, 

Biologicals, Radiopharmaceutical 

Agents, and Blood and Blood Products 

In section V. of this preamble, we 

discuss our proposed payment changes 

for drugs, biologicals, 

radiopharmaceutical agents, and blood 

and blood products. 

5. Pro Rata Reduction for Transitional 

Pass-Through Drugs, Biologicals, and 

Devices 

In section VI. of this preamble, we 

discuss 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 section VII. of this preamble, we 

present our proposals for CY 2005 

regarding the following: 

• Update of statewide default cost-tocharge ratios. 

• 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. 

• Proposed changes in the status 

indicators and comment indicators 

assigned to APCs for CY 2005. 

• Proposed 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. 

• Proposed payment under the OPPS 

for certain procedures currently 

assigned to the inpatient list. 

• Proposed strategy for giving the 

public notice of new implementation 

guidelines for new evaluation and 

management codes. 

• Proposed addition of three new 

HCPCS codes and descriptors for 

brachytherapy sources that would be 

paid separately, pursuant to Pub. L. 

108–173. 

• Proposed modification of the 

HCPCS code descriptors for 

brachytherapy source descriptors for 

which units of payment are not already 

delineated. 

• Proposed payment for services 

furnished emergently to an outpatient 

who dies before admission to a hospital 

as an inpatient. 

7. Proposed Conversion Factor Update 

for CY 2005 

As required by section 

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

section VIII. of this preamble, we are 

proposing to update the conversion 

factor used to determine payment rates 

under the OPPS for CY 2005. 

8. Proposed Wage Index Changes for CY 

2005 

In section IX. of this preamble, we 

discuss 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 proposed 

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 Pub. L. 108–173; 

and the wage index adjustment based on 

commuting patterns of hospital 

employees under section 505 of Pub. L. 

108–173. 

9. Determination of Payment Rates and 

Outlier Payments for CY 2005 

In section X. of this preamble, we 

discuss how APC payment rates are 

calculated and how the payment rates 

are adjusted to reflect geographic 

differences in labor-related costs. This 

section also discusses proposed changes 

in the way we calculate outlier 

payments for CY 2005. 

10. MedPAC Recommendations 

Under section 1805(b) of the Act, the 

Medicare Payment Advisory Committee 

(MedPAC) is required to submit a report 

to Congress, no later than March 1 of 

each year, that reviews and makes 

recommendations on Medicare payment 

policies. This annual report makes 

recommendations concerning the 

hospital outpatient prospective payment 

system. In section XII. of this preamble, 

we discuss the MedPAC 

recommendations. For further 

information relating specifically to the 

MedPAC March 1, 2004 report or to 

obtain a copy of the report, visit 

MedPAC’s Web site at: http:// 

www.medpac.gov. 

11. Regulatory Impact Analysis 

In section XV. of this preamble, we set 

forth our analysis of the impact that the 

proposed changes contained in this 

proposed rule would have on affected 

hospitals and CMHCs. 

II. Proposed Changes Related to 

Ambulatory Payment Classifications 

(APCs) 

[If you choose to comment on issues 

in this section, please indicate the 

caption ‘‘APC Groups’’ at the beginning 

of your comment.] 

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 Classifications 

Groups or APCs, as set forth in § 419.31 

of the regulations. We use 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 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 clinically homogeneity.) 

Using this classification system, we 

have established distinct groups of 

surgical, diagnostic, and partial 

hospitalization services, and medical 

visits. Because of the transitional passthrough 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 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 

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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 additional payment may be 

allowed under the transitional passthrough 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 proposed rule. 

A. Proposed 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 

601, Mid-Level Clinic visits. The APC 

weights are scaled to APC 601 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 determination of the 

payment weights. In this section, we 

discuss the changes that we are 

proposing to the APC groups; the APC 

Panel’s review and recommendations 

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. 

B. APC Panel Review and 

Recommendations 

As stated above, the APC Panel met 

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, 2004 

(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 website: 

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). 

Below is a summary of the APC issues 

discussed by the APC Panel, its 

recommendations, and our proposals 

with respect to those recommendations. 

The discussion in this section is limited 

to proposed 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 

proposed rule. In conducting its APC 

review, the APC Panel heard testimony 

and received evidence in support of the 

testimonies from a number of interested 

parties. The APC Panel also 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 cost-to-charge ratios 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 are proposing to use to 

recalibrate the APC relative weights and 

to calculate the proposed APC payment 

rates for CY 2005. For this discussion, 

we are using the APC titles as published 

in our November 7, 2003 final rule with 

comment period, which were the APC 

titles that existed when the APC Panel 

met in February 2004. Because we are 

proposing to retitle some of the APCs, 

the titles used in this discussion may 

not be the same as those listed in 

Addendum A to this proposed rule. 

1. APC 0018: Biopsy of Skin/Puncture of 

Lesion 

One presenter requested that the APC 

Panel recommend 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. 

We are proposing to accept the APC 

Panel’s recommendation. 

2. Level I and II Arthroscopy 

APC 0041: Level I Arthroscopy 

APC 0042: Level II Arthroscopy 

We testified before the APC Panel 

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. 

We are proposing to accept the APC 

Panel’s recommendation and to revise 

APCs 0041 and 0042 as shown in Tables 

1 and 2 below. 

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3. 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 

As requested by the APC Panel, 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. 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 another 

APC in order to remedy any 2 times rule 

violations. Tables 3, 4, and 5 reflect 

those additional APC reassignments as 

well as those we presented to the APC 

Panel in February 2004. 


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C. Limits on Variations Within APCs: 

Proposed 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 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 and our proposals 

in response to the APC Panel’s 

recommendations. 

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 are proposing to accept the APC 

Panel’s recommendation that we make 

no changes to APC 0097 for CY 2005. 

2. Electrocardiograms 

APC 0099: Electrocardiograms 

We expressed concern to the APC 

Panel 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 are proposing to accept the APC 

Panel’s recommendation that we make 

no 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 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 


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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 are proposing to accept the APC 

Panel’s recommendation to not make 

any modifications 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 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 are proposing to accept the APC 

Panel’s recommendation that we make 

no changes to the structure of APC 0235 

for CY 2005. 

5. Laparoscopy 

APC 0130: Level I Laparoscopy 

APC 0131: Level II Laparoscopy 

We expressed concern to the APC 

Panel 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 are proposing to accept the APC 

Panel’s recommendation 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 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 are proposing to accept the APC 

Panel’s recommendations specific to 

APC 0148. Our proposed movement of 

CPT codes from APC 0148 to APCs 0150 

and 0155 is shown in the Table 6 below. 

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 again expressed concern to the 

APC Panel that APC 0203 and APC 0207 

appear to violate the 2 times rule. We 

previously discussed this issue at the 

APC Panel’s CY 2003 meeting. During 

the CY 2003 meeting, the APC Panel 

recommended that we gather additional 

data on procedures assigned to APC 

0203 and APC 0207 before proposing to 

reconfigure them to attempt to eliminate 

the 2 times rule violation. The APC 

Panel believed then that the structure of 

these two APCs as proposed in the 

August 2003 OPPS proposed rule were 

more clinically cohesive than those set 

forth in the November 2002 OPPS final 

rule. During the February 2004 meeting, 

we presented other information for the 

APC Panel to review in making its 

recommendation. 

After careful consideration of the new 

data, 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, we are proposing to 

accept some of the APC Panel’s 

recommendation (specifically, move 

CPTs 64630 and 64640 from APC 0207 

to APC 0206), and to make some other 

changes that we believe are appropriate 

to improve the nerve injection APC’s 

clinical and resource homogeneity. Our 

proposed nerve injection APC 

assignments are shown in Tables 7, 8, 

and 9 below. 


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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 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 are proposing to accept the APC 

Panel’s recommendation and to reassign 

these three codes as shown in Table 10. 

9. Pathology 

APC 0343: Level II Pathology 

APC 0344: Level III Pathology 

We expressed concern to the APC 

Panel 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 are proposing to accept the APC 

Panel’s recommendation and to move 

CPT code 88346 from APC 0343 to APC 

0344. 

10. Immunizations 

APC 0355: Level III Immunizations 

(proposed for CY 2005: Level I 

Immunizations) 

APC 0356: Level IV Immunizations 

(proposed for CY 2005: Level II 

Immunizations) 

We expressed concern to the APC 

Panel 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. 

We are proposing 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. However, based on our review 

of more recent claims data than were 

available to the APC Panel, we 

determined that the medians for CPT 


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codes 90693 and 90375 are below the 

$50 drug packaging threshold. 

Therefore, we are also proposing to 

package both CPT codes 90693 and 

90375. We are proposing to change CPT 

code 90723 to status indicator ‘‘e’’

because it is not payable by Medicare. 

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 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. 

We are proposing 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 rules. 

Therefore, we are proposing to reassign 

CPT codes 94375, 94750, 94450, 94014, 

94690, and 93740 to APC 0368. 

12. Clinic Visits 

APC 0600: Low Level Clinic Visits 

We expressed concern to the APC 

Panel 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 are proposing to accept this 

recommendation and not make any 

changes to APC 0600 for CY 2005. 

D. Proposed Exceptions to the 2 Times 

Rule 

[If you choose to comment on issues in 

this section please indicate the caption 

‘‘2 Times Rule’’ at the beginning of your 

comment.] 

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 are proposing for CY 2005 based 

on the APC Panel recommendations 

discussed in section II.C. of this 

preamble and the use of CY 2003 claims 

data to calculate the median cost of 

procedures classified in the APCs, we 

reviewed all the APCs to determine 

which of them would not meet the 2 


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times limit. We used the following 

criteria when deciding 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). 

Table 13 contains the APCs that we 

are proposing to exempt 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 are proposing 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. 


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E. Coding for Stereotactic Radiosurgery 

Services 

[If you choose to comment on issues in 

this section please indicate the caption 

‘‘Stereotactic Radiosurgery’’ at the 

beginning of your comment.] 

1. Background 

In the November 7, 2003 final rule 

with comment period (68 FR 63403), we 

discussed the APC Panel’s consideration 


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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 the payment for HCPCS codes 

G0242 and G0243 together. 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 accurately 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 as to 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 

codes G0242 and G0243, we created a 

planning code for linear acceleratorbased stereotactic radiosurgery (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 (G0338) and 

delivery (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 center 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 submittal of these claims 

for Medicare payment. 

In response to the concern expressed 

by several presenters that certain fiscal 

intermediaries were rejecting claims in 

which HCPCS codes G0242 and G0243 

were reported with a surgery revenue 

code, we have worked together with 

these presenters to identify specific 

fiscal intermediaries who may be 

rejecting these claims. However, to date, 

we have been unable to identify any 

fiscal intermediaries who have 

established local edits that would reject 

claims in which HCPCS codes G0242 

and G0243 are reported with a surgery 

revenue code. If a provider should 

experience a rejection of such claims in 

which HCPCS codes G0242 and G0243 

are reported on a claim with a surgery 

revenue code, they should contact their 

fiscal intermediary to determine the 

specific reason for the claim rejection. 

2. Proposal for CY 2005 

For CY 2005, we are proposing 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 unjustly denied payment due to 

local edits established by fiscal 

intermediaries. In the meantime, for CY 

2005, we are proposing to maintain 

HCPCS code G0242 in new technology 

APC 1516 at a payment rate of $1,450, 

and HCPCS code G0243 in new 

technology APC 1528 at a payment rate 

of $5,250. These payment rates are the 

same as those established for CY 2004. 

F. Proposed Movement of Procedures 

From New Technology APCs to 

Clinically Appropriate APCs 

[If you choose to comment on issues in 

this section, please indicate the caption 

‘‘New Technology APCs’’ at the 

beginning of your comment.] 

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. The April 

7, 2000 final rule initially established 

the timeframe that new technology 

APCs would be in effect (65 FR 18457). 

Beginning in CY 2002, we have retained 

services within new technology APC 

groups until we have acquired adequate 

data that allow 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, and 

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 

50466 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 

requested specific modifications to the 

APCs for radiation oncology APC. They 

asked the APC Panel to make several 

recommendations: (1) That we move 

CPT code 77418 (Intensity-modulated 

radiation therapy) from APC 0412 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. 

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. 

We are not proposing 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 would 

be 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. 

3. Proposal 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. We are 

proposing to reassign these procedures 

to clinically appropriate APCs. We are 

proposing to assign 24 of the procedures 

to clinically appropriate APCs using CY 

2003 claims data to set medians on 

which payments would be based. These 

APCs and the proposed assignments are 

displayed below in Table 14. 

Based upon our review of the latest 

claims data available, we are proposing 

to move 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 

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We believe the payment rates in Table 

14 for several of the procedures that we 

are proposing to move out of new 

technology APCs and into clinical APCs 

require further explanation for a fuller 

understanding. 

For CPT code 96567, (Photodynamic 

therapy of the skin), the impact of the 

estimated 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 

estimated payment does not. We now 

are proposing to pay separately for the 

drug billed under 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 for the APC. 

In the case of CPT code 33224, 

(Insertion of a left ventricular pacing 

lead and connection), based on a 

comparison of payment rates for CY 

2004 and the estimated rate for CY 2005, 

it appears that there is a large increase 

in payment that results from reassigning 

the code from its new technology APC 

to a clinical APC. The difference is due 

to the fact that the estimated CY 2005 

APC payment includes the cost of the 

left ventricular lead that was not 

included in the CY 2004 new 

technology APC payment. That left 

ventricular lead was paid as a passthrough device under code C1900 in CY 

2004, but is no longer eligible for passthrough payments in CY 2005, and, as 

such, is now included in the APC for 

the procedure. 

Similarly, the CY 2005 estimated 

payment for CPT code 33225, (Left 

ventricular pacing lead add-on), 

includes the cost of the ventricular lead. 

However, for 33225, the data are still 

somewhat unstable. Therefore, we are 

proposing to maintain that procedure in 

a new technology APC, but at a higher 

payment level, reflecting the additional 

cost of the lead. 

We note that a number of positron 

emission tomography (PET) scans 

currently are classified into New 

Technology APC 1516. We recognize 

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. We have 

been told, however, that if the effect of 

doing so is to reduce payment for the 

procedure, it may hinder access to this 

technology. Therefore, we are 

considering 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, and we specifically invite 

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 50–50 

blend of the median cost and the CY 

2004 New Technology. We would assign 

the scans to New Technology APC 1513 

for a blended transition payment. The 

rates for these options are in addendum 

B. 

G. Proposed Changes to the Inpatient 

List 

[If you choose to comment on issues in 

this section, please indicate the caption 

‘‘Inpatient List’’ at the beginning of your 

comment.] 

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. 

We are proposing to remove the four 

above-cited codes and assign them to 

clinically appropriate APCs, as 

recommended by the APC Panel. We are 

proposing 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 preamble our response to the 

APC Panel’s recommendation that we 

either abolish the inpatient list or 

evaluate it for any appropriate changes. 

H. Proposed Assignment of ‘‘Unlisted’’ 

HCPCS Codes 

[If you choose to comment on issues in 

this section, please indicate the caption 


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‘‘Unlisted HCPCS Codes’’ at the 

beginning of your comment.] 

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 to an APC based on 

clinical homogeneity and median cost. 

In most cases, the unlisted codes are 

assigned to the lowest level, clinically 

appropriate APC under the Medicare 

OPPS. This creates an incentive for 

providers to select the appropriate, 

specific HCPCS code to describe the 

service where 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 provides an incentive 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. Proposal for CY 2005 

We are proposing to reassign these 

unlisted codes for CY 2005 OPPS to the 

lowest level APC in the clinical 

grouping in which the unlisted code is 

located. The list of those codes, the 

current APC assignment, and the 

assignment we propose for CY 2005 

OPPS are displayed in Table 15. 

We continue to believe that assigning 

unlisted codes to the lowest level of the 

APC for the clinical or procedural 

grouping into which the code falls 

creates an appropriate incentive for 

providers to pursue assignment of new 

codes where they are needed. Moreover, 

payment at the lowest level of APC for 

the clinical or procedural grouping 

allows for some payment for the 

services furnished and also ensures that 

we do not pay inappropriately for 

services that are unspecified. 


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I. Proposed 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 that updated the CY 

2004 OPPS. We have designated the 

payment status of those codes, which 

are shown in Table 16 below, and added 

them to the April and July updates of 

the 2004 OPPS (Transmittals 3144, 

3154, 3322, and 3324). 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 new section 

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

Pub. L. 108–173. In this proposed rule, 

we are soliciting comment on the APC 

assignment of these services. Further, 

consistent with our annual APC 

updating policy, we are proposing to 

assign the new HCPCS codes for CY 

2005 to the appropriate APCs and 

would incorporate them into our final 

rule for CY 2005. 


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J. Proposed OPPS Changes: Provisions 

of MMA (Pub. L. 108–173) 

1. Payment for Initial Preventive 

Physical Examinations (Section 611 of 

Pub. L. 108–173) 

[If you choose to comment on issues in 

this section, please indicate the caption 

‘‘Physical Examinations’’ at the 

beginning of your comment.] 

a. Background 

Section 611 of Pub. 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 

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. Proposed Amendments to Regulations 

We are proposing 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 are proposing 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 

are proposing 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 are proposing 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 note that the initial preventive 

physical examination is also addressed 

in detail in our proposed rule to update 

the Medicare Physician’s Fee Schedule 

for CY 2005. 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 are 

proposing to revise the applicable 

regulations to reflect this requirement. 

Section of 611(b) of Pub. L. 1089–173 

define 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, 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 lab 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 section 1861(s)(2)(K)(i) and (ii) 

of the Act to specify 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 are 

proposing (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 individual’s 

comprehensive medical and social 

history. We are proposing 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 are proposing 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 individual’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 other 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. 

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(3) Review of the individual’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 other 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 individual’s height, 

weight, blood pressure, a visual acuity 

screen, and other factors as deemed 

appropriate, based on the individual’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 proposed 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. 

In view of the possibility that it may 

be appropriate to include other (or 

revised) elements in the definition of 

the term ‘‘initial preventive physical 

examination,’’ we are requesting public 

comments on this issue. For example, 

we have chosen not to define the term 

‘‘appropriate screening instrument’’ for 

screening individuals for depression, 

alcohol, tobacco and illicit drug use, 

functional ability, and level of safety 

because we anticipate that the 

examining physician or qualified 

nonphysician practitioner would want 

to use the test of his or her choice, based 

on current clinical practice guidelines. 

We believe that any standardized 

screening test for depression, substance 

abuse, functional ability, and level of 

safety recognized by the American 

Academy of Family Physicians, the 

American College of PhysiciansAmerican Society of Internal Medical, 

the American College of Preventive 

Medicine, the American Geriatrics 

Society, the American Psychiatric 

Association, and the United States 

Preventive Services Task Force would 

be acceptable for purposes of meeting 

the ‘‘appropriate screening instrument’’

provision. 

To facilitate our future consideration 

of defining more specifically the type or 

types of appropriate screening 

instruments for depression, substance 

abuse, functional ability, or level of 

safety, we are proposing to include 

provisions in paragraphs (2) and (3) 

under the proposed definition of initial 

preventive physical examination that 

would allow us to do this through the 

NCD process. This proposed approach 

would allow us to conduct a more 

timely assessment of new types of 

screening tests than would be possible 

under the standard rulemaking process. 

We intend to use the NCD process, if 

necessary, for evaluating appropriate 

new screening tests for depression; 

alcohol, tobacco and illicit drug use; 

functional ability; or level of safety. This 

NCD process includes an opportunity 

for public comment in order to evaluate 

the medical and scientific issues related 

to the coverage of the new tests that may 

be brought to our attention in the future. 

c. Proposed Assignment of New HCPCS 

Code for Payment of Initial Preventive 

Physical Examinations 

There is no current CPT code that 

contains the specific elements included 

in the initial preventive physical 

examination. Therefore, we are 

proposing to establish the following 

new HCPCS code, GXXXX, Initial 

preventive physical examination, to be 

used to bill for the new service under 

both the Medicare physician fee 

schedule and the OPPS. As required by 

the statute, this code includes an 

electrocardiogram, but does not include 

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 identified 

using the existing appropriate codes. 

For payment under the physician fee 

schedule, relative value units are being 

proposed for new HCPCS code GXXXX 

based on equivalent resources and work 

intensity to those contained in CPT E/ 

M code 99203 (new patient, office or 

other outpatient visit) and CPT 93000 

(electrocardiogram, complete). The 

‘‘technical component’’ is the portion of 

the physician fee schedule that is most 

comparable to what Medicare pays 

under the OPPS, the costs other than the 

physician professional services that are 

billed and paid for separately under the 

fee schedule, not OPPS. The estimated 

technical component of the physician 

fee schedule is between $50 and $100. 

Given our lack of cost data to guide 

assignment of the new benefit into a 

clinically appropriate APC, we are 

proposing to assign GXXXX to the new 

technology APC 1539 that has a 

payment level of $50 to $100. 

Temporary assignment to a new 

technology APC allows us to pay for the 

new benefit provided in the OPD while 

we accrue claims data and experience 

on which to base a clinically relevant 

APC assignment. 

d. Handling of Comments Received in 

Response to This Proposal 

We will respond to all comments 

regarding the proposed elements 

required for the initial preventive 

physical examination, whether the 

examination is performed in a 

physician’s office or clinic or in a 

hospital clinic, in the final rule 

implementing the Medicare Physician 

Fee Schedule for CY 2005. We will 

respond to comments regarding 

payment for the examination under the 

OPPS in the subsequent final rule 

implementing the OPPS payment rates 

for CY 2005. 

2. Payment for Certain Mammography 

Services (Section 614 of Pub. L. 108–

173) 

[If you choose to comment on issues in 

this section, please indicate the caption 

‘‘Mammography’’ at the beginning of 

your comment.] 

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 physician fee schedule. 

We are proposing 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. 

III. Proposed Recalibration of APC 

Relative Weights for CY 2005 

[If you choose to comment on issues in 

this section, please include the caption 

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‘‘APC Relative Weights’’ at the beginning 

of your comment.] 

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 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. (See the November 

13, 2000 interim final rule (65 FR 67824 

through 67827).) 

To recalibrate the relative APC 

weights for services furnished on or 

after January 1, 2005, and before January 

1, 2006, we are proposing to use the 

same basic methodology that we 

described in the April 7, 2000 final rule. 

That is, we would recalibrate the 

weights based on claims and cost report 

data for outpatient services. We are 

proposing to use the most recent 

available data to construct the database 

for calculating APC group weights. For 

the purpose of recalibrating APC 

relative weights for CY 2005, the most 

recent available claims data are the 

approximately 119 million final action 

claims for hospital OPD services 

furnished on or after January 1, 2003, 

and before January 1, 2004. 

Of the 119 million final action claims 

for OPPS services, 96.7 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 OPPS). 

Of the 96.7 million claims, we were able 

to use 48.5 million whole claims (from 

which we created 75 million single 

procedure claim records) to set OPPS 

proposed for CY 2005 weights. 

The proposed weights and payments 

in Addenda A and B to this proposed 

rule were calculated using claims from 

this period that had been processed 

before January 1, 2004. We selected 

claims for services paid under the OPPS 

and matched these claims to the most 

recent cost report filed by the individual 

hospitals represented in our claims data. 

We are proposing that the APC relative 

weights for CY 2005 under the OPPS 

would continue to be based on the 

median hospital costs for services in the 

APC groups. For the final rule, we are 

proposing to base median costs on 

claims for services furnished in CY 2003 

and processed before June 30, 2004. 

1. Proposed Treatment of Multiple 

Procedure Claims 

For CY 2005, we are proposing to 

continue to use single procedure claims 

to set the medians on which the weights 

would be based. We have received many 

requests that we ensure that the data 

from claims that contain charges for 

multiple procedures are included in the 

data from which we calculate the CY 

2005 relative payment weights. 

Requesters believe that relying solely on 

single procedure claims to recalibrate 

APC 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 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 

as ‘‘pseudo’’ singles because they were 

submitted by providers as multiple 

procedure claims. 

2. Proposed 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 x-ray) 

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. 

These codes were selected by CMS 

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 were able to use about 9.5 

million multiple procedure claims to 

create about 27 million ‘‘pseudo’’ single 

claims. For CY 2005, from about 21 

million otherwise unusable claims, we 

were able to use about 18 million 

multiple procedure claims to create 

about 45.5 million ‘‘pseudo’’ single 

claims. 

For CY 2005, we are proposing to 

continue using date of service matching 

as a tool for creation of ‘‘pseudo’’ single 

claims and also to take a more empirical 

approach to creating the list of codes 

that we would bypass to create 

‘‘pseudo’’ single claims. The process we 

are proposing for CY 2005 OPPS results 

in our being able to use some part of 93 

percent of the total claims eligible for 

use in OPPS ratesetting and modeling. 

In CY 2004, we were able to use some 

part of the data from 82 percent of 

eligible claims. This process enabled us 

to use 75 million single bills for 

ratesetting: 45.5 million ‘‘pseudo’’

singles and 30.5 million ‘‘natural’’ single 

bills. 

We are proposing to bypass the 383 

codes identified in Table 17 to create 

new single claims and to use the lineitem costs associated with the bypass 

codes on these claims in the creation of 

the median costs for the APCs into 

which they are assigned. 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: 

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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 

assumed that the representation of 

packaging on the single claims for any 

given code is comparable to packaging 

for that code in the multiple claims. 

• There were 100 or more single 

claims for the code. This ensured that 

observed outcomes were sufficiently 

representative of packaging that might 

occur in the multiple claims. 

• Five percent or fewer of the single 

claims for the code had packaged costs 

on that single claim for the code. This 

criterion results in limiting the amount 

of packaging being redistributed to the 

payable procedure remaining on the 

claim after the bypass code is removed 

and ensures that the costs associated 

with the bypass code represent the cost 

of the bypassed service. For the 

remaining payable codes, the average 

percentage of single claims with any 

packaged costs was 70 percent, and the 

chosen threshold of 5 percent fell at 

roughly the 15th percentile. 

• The median cost of packaging 

observed in the single claim was equal 

to or less than $50. This limits the 

amount of error in redistributed costs. 

• 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 list 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 criterion under 

item a., and the remaining codes were 

close. Therefore, after reviewing such 

codes, we are proposing 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. 

We invite public comment on the 

‘‘pseudo’’ single process, including the 

bypass list and the criteria. 

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However, we note several inherent 

features of multiple bill claims that 

prevented us from the further creation 

of ‘‘pseudo’’ singles. We discussed these 

obstacles in detail in the August 9, 2002 

proposed rule (67 FR 52092, 52108 

through 52111) and the November 1, 

2001 final rule (66 FR 66718 and 66743 

through 66746). 

Notwithstanding the obstacles in 

creating additional ‘‘pseudo’’ single 

claims, we have received a number of 

suggestions from outside sources 

providing options to this approach. 

Some of the suggestions involved 

complex methodologies driven by 

lengthy tables of codes and complex 

logic that focused on creating ‘‘pseudo’’

singles by packaging specific packaged 

HCPCS codes with specific payable 

HCPCS codes. While we appreciate the 

time and attention spent by various 

parties interested in this issue, our 

review of the suggestions and our 

empirical analysis of the most specific 

and detailed recommendation using the 

data used to develop the APC relative 

weights for the APC Panel’s February 

2004 meeting indicated that codespecific packaging would add a 

significant amount of time and 

complexity to the ratesetting process 

and would require involved annual 

maintenance to accurately update the 

code sets used in the suggested 

methodology each year. Moreover, we 

would experience only a modest 

increase in ‘‘pseudo’’ single claims. 

Further, code-specific packaging does 

not appear to appreciably increase the 

volume of single bills available for 

calculating medians for those APCs that 

are currently derived from a small 

volume of total claims. We believe that 

the observed modest improvements in 

the ‘‘pseudo’’ single claims volume from 

code-specific packaging can be 

attributed to the number and variety of 

services billed on multiple procedure 

claims, which often have complex 

HCPCS code combinations. These 

complex claims cannot be reduced to 

single bills by packaging the costs for a 

few procedures. In light of these 

findings, we are not proposing to adopt 

any code-specific packaging proposals. 

However, we would review and 

consider any other specific proposals 

that we received as comments. 

Other suggestions 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 incorrect allocation of 

the packaged costs. Therefore, we are 

not proposing to incorporate these 

suggestions in our ratesetting 

methodology but we intend to examine 

them more thoroughly. 

We continue to seek strategies that 

would enable us to use more multiple 

procedure claims and continue to 

explore whether there are techniques 

that could result in medians that are 

more representative of the relative cost 

of the services being furnished. 

However, at this time, we are not 

proposing a methodology beyond use of 

dates of service and the expanded 

bypass list. We solicit specific proposals 

provided in comments on how multiple 

procedure claims can be better used in 

calculating the relative payment 

weights. 

B. Proposed Calculation of Median 

Costs for CY 2005 

In this section of the preamble, we 

discuss the use of claims to calculate the 

proposed OPPS payment rates for CY 

2005. (See the hospital outpatient 

prospective payment page on the CMS 

website on which this proposed rule is 

posted for an accounting of claims used 

in the development of the proposed 

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

accounting of claims used in the 

development of the proposed rule is 

included under supplemental materials 

for this proposed rule. 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. See www.cms.hhs.gov/ 

providers/hopps for information about 

purchasing the following two OPPS data 

files: ‘‘OPPS limited data set’’ and 

‘‘OPPS identifiable data set’’. 

We are proposing to use the following 

methodology to establish the weights to 

be used to set payment rates for CY 

2005: 

We are proposing to use outpatient 

claims for full CY 2003 to set the 

weights for CY 2005. To begin the 

calculation of the weights for this 

proposed rule 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, ambulatory surgical center 

(ASC) claims reported on bill type 83, 

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 code 04, 20, 21, 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 


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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 

three groups shown below. Groups 2 

and 3 comprise the 96.7 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, for this proposed 

rule, 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 cost-to-charge 

ratios (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). We used the most recent 

available cost report data, in most cases, 

cost reports for CY 2001 or CY 2002. We 

used the most recent available cost 

report, whether submitted or settled. If 

the most recent available cost report was 

submitted but not settled, we looked at 

the last settled cost report to determine 

the ratio of submitted to settled cost and 

we then adjusted the most recent 

available submitted but not settled cost 

report using that ratio. We are proposing 

to use these same CCRs ratios for the 

final rule. 

We then flagged CAHs, which are not 

paid under the OPPS, and hospitals 

with invalid CCRs. These included 

claims from hospitals without a CCR, for 

hospitals paid an all-inclusive rate, for 

hospitals with obviously erroneous 

CCRs (greater than 90 or less than 

.0001), and for 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. We are proposing 

to use these trimmed CCRs for the final 

rule. In prior years, we did not trim 

CCRs at the departmental level. 

However, for CY 2005, we are proposing 

to trim 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. See Table 18 for the allowed 

revenue codes. Revenue codes not on 

this list are those not allowed under the 

OPPS because their services cannot be 

paid under the OPPS (for example, 

inpatient room and board charges) and, 

thus, charges with those revenue codes 

were not packaged for creation of the 

OPPS median costs. 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 proposed rule 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 

contain nothing but flu and 

pneumococcal pneumonia (virus) 

(‘‘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 

be 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 our November 7, 2003 final 

rule with comment period (68 FR 

63398), we had also applied a $50 

threshold 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 

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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, DME or clinical laboratory. 

We note that the claims listed in 

numbers 1 through 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 line 

items 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 a list of ‘‘bypass codes’’

to remove separately payable 

procedures that are thought to 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 and the list of codes is 

provided in Table 17. 

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’’ on 

Addendum B to this proposed rule) and 

packaged revenue codes (listed in Table 

18) into the cost of the single major 

procedure remaining on the claim. 

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, 52.2 

millions claims were left. This subset of 

claims is roughly one-half of the 96.7 

million claims for bill types paid under 

the OPPS. Of these 52.2 million claims, 

we were able to use some portion of 

48.5 million (93 percent) whole claims 

to create the 75 million single and 

‘‘pseudo’’ single claims for use in our CY 

2005 median payment ratesetting. 

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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 


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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. We used the prereclassified wage index proposed for 

IPPS published in the hospital IPPS 

proposed rule on May 18, 2004 (69 FR 

28196), and corrected in the IPPS 

correction notice published on June 25, 

2004 (69 FR 35919). These wage indices 

are reprinted in Addenda L and M to 

this proposed rule. We are proposing to 

use the pre-reclassified wage index for 

standardization because we believe that 

it better reflects the true costs of items 

and services in the area in which the 

hospital is located than the postreclassification wage index, 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. 

See section III.B. of this preamble for a 

discussion of the proposed 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. 

For discussion of the medians for 

blood and blood products see V.I of this 

preamble. For a discussion of the 

medians for APC 0315 (Level II 

Implantation of Neurostimulator), APC 

0422 (Implantation of the BARD 

Endoscopic Suturing System), and APC 

0651 (Complex Interstitial Radiation 

Application), see sections III.C.2.a., 

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

this preamble. 

For discussion of the medians for 

APCs that require one or more devices 

when the service is performed, see 

section III.C. of this preamble. For a 

discussion of the median for observation 

services, see section VII.D. of this 

preamble and for a discussion of the 

median for partial hospitalization, see 

section X.C. 

C. Proposed Adjustment of Median 

Costs for CY 2005 

1. Device-Dependent APCs 

Table 19 contains a list of APCs 

consisting of HCPCS codes that cannot 

be provided without one or more 

devices. For CY 2002, we used external 

data in part to establish the median 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 pass-through 

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. (See section VI. of 

this preamble for discussion of 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 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 by 15 percent 

plus half of the amount of any reduction 

beyond 15 percent (see 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 (see 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. (See 67 

FR 66750, November 1, 2002, and 

section IV.B. of this preamble for 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 

certain APCs. 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 ‘‘C’’ code) 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, 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. 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 device-dependent 

APCs for payment in CY 2005 would 

represent valid relative costs for these 

services. Careful analysis of the CY 2003 

data that we are proposing to use in 

calculating the median costs for the CY 

2005 OPPS revealed problems similar to 

those discussed above in calculating 

device-dependent APC median costs 

based solely on claims data. Calculation 

of the CY 2005 median costs for the 

device-dependent 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 43 

device-dependent APCs analyzed , 31 

have median costs that are lower than 

the medians on which the OPPS 

payments were based in CY 2004. In 

contrast, 11 device-dependent APCs 

have median costs that are higher than 

the medians on which OPPS payments 

were based in CY 2004. 

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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 proposed CY 2005 

OPPS median costs were calculated 

based on all single bills, including 

‘‘pseudo’’ single bills, for the services in 

the APCs and (not a subset 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 as would be 

needed to use external data to adjust 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. We considered 

using CY 2004 OPPS medians with an 

inflation factor, as recommended by the 

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. Specifically, 

we reviewed those codes where we 

require that hospitals report charges for 

the devices required for these 

procedures. 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. 

We do not believe that any of the 

above options considered would help us 

realize our goal. We believe that the 

better payment approach for 

determining median costs for devicedependent APCs in CY 2005 would be 

to base such medians 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 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 proposed 

payment approach would be a 

reasonable limit. 

We believe that this proposed 

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. 

We considered applying the 

adjustment methodology we used for all 

APCs, including device-dependent 

APCs, for CY 2003 OPPS, but we saw no 

advantage to doing so. We applied that 

methodology to the identified devicedependent APCs only for 1 year, and we 

applied it where we had already made 

an adjustment by calculating the median 

costs based only on claims containing 

‘‘C’’ codes for the devices. Therefore, for 

device-dependent APCs, there was a 

double adjustment intended to soften 

the effects of the first year of cessation 

of pass-through payment for devices 

(that is, we adjusted the higher ‘‘C’’ code 

medians, not all single bill medians). 

Devices have been off pass-through for 

several years now and for CY 2005 

OPPS, we are unable to calculate 

medians based only on claims 

containing ‘‘C’’ codes. Therefore, we do 

not view the circumstances across the 2 

years as comparable. 

In addition, beginning in CY 2005, we 

are proposing to require hospitals to bill 

device-dependent procedures using the 

appropriate ‘‘C’’ codes for the devices. 

This requirement is limited to only 

those APCs to which the proposed use 

of CY 2004 medians would apply. We 

believe that this proposal would 

mitigate 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 APCs by the CY 2007 OPPS, 

which we expect to base on data from 

claims for services in CY 2005. We 

further discuss our coding proposal in 

section III.C.3. of this preamble. 

We welcome 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. 

Table 19 is sorted by percentage 

difference between changes in the CY 

2004 and CY 2005 APC payment rate CY 

2004 to CY 2005. It also contains the CY 

2004 OPPS payment medians, the CY 

2005 OPPS proposed medians (using 

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single bill claims from January 1, 2003, 

through December 31, 2003), and the 

medians derived from the proposed 

adjustment processes discussed further 

below. 

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As a result of our data analysis for 

device-dependent APCs, we are 

proposing to make the following 

changes in our methodology for setting 

the CY 2005 payment rates for devicedependent APC for the reasons 

specified: 

We propose to remove APC 0226, 

Implantation of drug infusion reservoir, 

from the list of device-dependent 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 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 indicate that the 

reservoir used in performing CPT code 

62360 cost 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. 

In addition, we are proposing to 

delete APC 0048, Arthroplasty with 

Prosthesis, from the list of devicedependent APCs and adjust the median 

costs for this APC because we believe 

that the proposed 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 are not proposing to 

apply a device-dependent adjustment to 

the median cost for APC 0048. 

Further, we are proposing to move 

HCPCS code 52282 (Cystoscopy, 

implant 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, HCPCS 

code 52282 requires the use of a stent 

rather than a urological prosthetic. 

Therefore, we are proposing to reassign 

HCPCS code 52282 to APC 0163. 

Recalculation of the median cost for 

APC 385 after reassigning HCPCS code 

52282 yields a median cost for that APC 

that is consistent with its CY 2004 

median payment. Thus, we are not 

proposing to apply a device-dependent 

adjustment to the median cost for APC 

0385. 

Lastly, we are proposing to remove 

HCPCS 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 

believe it would be more appropriate 

clinically to reassign HCPCS code 49419 

to APC 0115 that includes procedures 

which require the use of devices similar 

to that required for code 49419. 

2. Proposed Treatment of Specified 

APCs 

a. APC 0315 Level II Implantation of 

Neurostimulator 

The code, 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 

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 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 222. 

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 are 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 


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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 with one dual 

channel device should be roughly 

comparable. Therefore, we are 

proposing 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 are also proposing 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 are proposing for APC 

0039, Implantation of Neurostimulator, 

for placement of a single channel cranial 

neurostimulator, discussed in Section 

III. C3 of this preamble. 

b. APC 0651, Complex Interstitial 

Radiation Application 

For CY 2003 APC 0651, HCPCS code 

77778 (Complex interstitial radiation 

source application) 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 of placement of needles or 

catheters and sources into a single APC 

payment for each G code (see 67 FR 

66779). When we calculated the median 

from all single bills for HCPCS 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, the median 

is $1,491.39, which is the amount we 

are proposing for payment for CY 2005 

OPPS for APC 0651. This median is 

considerably higher than the median 

cost of $589.72 for CY 2004 OPPS (from 

CY 2002 claims data). 

We believe that this adjusted median 

is appropriate for APC 0651 when used 

for prostate brachytherapy because the 

service described by HCPCS 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 HCPCS code 55859 and 

should also bill the brachytherapy 

sources separately. Hospitals will be 

paid for both APCs and for the cost of 

sources. Under the amounts proposed, 

the total unadjusted payment would be 

$3,544.59, plus the hospital’s cost for 

the brachytherapy 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 are proposing 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 recognize that APC 0651 is 

used for brachytherapy services other 

than prostate brachytherapy and that, in 

some of those cases, there are no other 

codes for placement of the needles or 

catheters. In those cases, which are 

represented in the claims we used to 

calculate the median (once the 

miscoded claims for prostate 

brachytherapy were excluded), we 

believe that the charges for HCPCS code 

77778 may include the placement of the 

needles or catheters and therefore the 

median may be somewhat overstated 

when used as the basis of payment for 

prostate brachytherapy and the other 

forms of brachytherapy that have codes 

for placement of needles and catheters. 

Similarly, 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 are requesting comments on how to 

address those services for which there 

are currently no HCPCS codes for 

placement of needles and catheters for 

brachytherapy applications. 

c. APC 0659, Hyperbaric Oxygen 

Therapy 

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 have 

carefully examined the CY 2003 single 

procedure claims data that we are 

proposing to use to calculate the CY 

2005 proposed 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 

for HBOT of $177.96 derived using 

single service claims and ‘‘pseudo’’

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single service claims. This is a 

significant issue because HBOT is the 

only procedure assigned to APC 0659. 

Our 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 with 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 are proposing to calculate our 

proposed ‘‘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 are proposing to exclude 

claims with only one unit of HBOT. 

Using this proposed methodology, the 

proposed median cost per unit of C1300 

is $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 are 

proposing a median cost for APC 0659 

of $82.91 for CY 2005. 

d. APC 0422, Implantation of the BARD 

Endoscopic Suturing System 

For CY 2005, we are proposing to 

establish APC 0422 for Level II Upper GI 

Procedures. Code C9703 (the Bard 

Endoscopic Suturing System) was 

placed in that APC based on clinical 

and resource homogeneity as compared 

with the other services in the APC. 

Currently, code C9703 is assigned to 

new technology APC 1555, with a 

payment of $1,650. Median cost for code 

C9703 was based on CY 2002 claims 

and was somewhat lower than the 

established payment level. However, 

our examination of CY 2003 claims data 

for APC 422 revealed that 137 of the 171 

single claims for code C9703 were from 

a single institution with an extremely 

low and consistent cost per claim. We 

do not believe that these 137 claims 

represent the service described by 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 these 137 

claims, which we believe were 

incorrectly coded. 

3. Proposed Required Use of ‘‘C’’ Codes 

for Devices 

An important ancillary issue in regard 

to using hospital outpatient claims data 

to calculate median costs for devicedependent APC is whether to require 

that hospitals bill the HCPCS codes for 

the devices that are required to be used 

to provide the services in these APCs. 

We deleted these 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 the 

related services in the device-dependent 

APCs. Therefore, we are also 

considering 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 these 

APCs. We make this proposal 

cautiously, as we realize that it imposes 

a burden on hospitals to code the 

devices. 

Specifically, for CY 2005 OPPS, we 

are proposing to require coding of 

devices required for APCs for which we 

propose to adjust the median costs for 

CY 2005 OPPS. The APCs and the 

devices that are proposed for device 

coding are displayed in Table 20 below. 

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 are also proposing 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 the preamble), we 

are proposing 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 are 

proposing to require device coding for 

APC 0039, Implantation of 

Neurostimulator, for placement of a 

single channel cranial Neurostimulator 

as noted below. 

Table 20 below displays the APCs for 

which we are proposing to require ‘‘C’’

codes and the ‘‘C’’ code edits we are 

proposing to require for each APC. We 

welcome comments on the proposed 

‘‘C’’ code requirements. 

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In addition, we are considering 

expanding the device coding 

requirements in the future. We believe 

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 believe 

coding of devices is essential if we are 

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 request that the public inform us 

of the device codes that are essential to 

the procedures contained in the devicedependent APCs contained in Table 20. 

The alphanumeric HCPCS codes for 

devices that were reactivated for CY 

2004 OPPS can be found on the CMS 

website at www.cms.hhs.gov/providers 

under coding. They are in the section of 

alphanumeric codes that begin with the 

initial letter ‘‘C.’’ Comments regarding 

the device codes that should be required 

with the APCs listed in Table 20 should 

contain the APC and identify all device 

codes that may be essential to the 

performance of the procedures 

identified in the APC. Ideally, the 

comments will include a narrative that 

explains how the device is inserted. 

4. Submission of External Data 

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. All 

comments and any data we use would 

be available for public inspection and 

commenters should not expect that any 

data furnished as part of the comment 

would be withheld from public 

inspection. 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. 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 

would prefer 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. nonMedicare 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 enable us 

to compare our CY 2003 claims data to 

the submitted external data and help us 

determine whether the submitted data 


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are representative of hospitals that 

submit claims under the OPPS. 

We note that information containing 

beneficiary-specific 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. 

D. Proposed Calculation of Scaled OPPS 

Payment Weights 

Using the median APC costs 

discussed previously, we calculated the 

proposed relative payment weights for 

each APC for CY 2005. 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 proposed 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 and wage index 

changes 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 weights. Based on 

this comparison, we are proposing to 

make an adjustment of the weights for 

purposes of budget neutrality. The 

weights that we are proposing for CY 

2005, which incorporate the 

recalibration adjustments explained in 

this section, are listed in Addendum A 

and Addendum B to this proposed rule. 

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 

proposed rule) 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. (See section 

VII.G. of this proposed rule.) 

IV. Proposed Payment Changes for 

Devices 

[If you choose to comment on this 

section, please indicate the caption 

‘‘Devices’’ at the beginning of your 

comment.] 

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 Table 21 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, C1814, C1818, and C1819, would 

expire on December 31, 2005.) The six 

categories that would expire as of 

December 31, 2004, are C1783, C1884, 

C1888, C1900, C2614, and C2632, as 

indicated in Table 23. 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. Proposal for CY 2005 

We are proposing 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 are also proposing 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 

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describe in section III. of this proposed 

rule. To accomplish this, we are 

proposing 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. 

We note 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 are proposing to maintain 

the category’s December 31, 2005 

expiration date. We invite comments on 

the proposed expiration date for 

category C1819. 

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. An offset amount is therefore 

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 our website 

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 (C 

codes) on the CY 2002 claims used for 

CY 2004 OPPS. However, for the CY 

2005 update to the OPPS, we are 

proposing to use CY 2003 claims that do 

not include device coding. (Section III. 

of this proposed rule contains a fuller 

discussion of our proposed requirement 

for use of ‘‘C’’ codes for CY 2005.) 

In the CY 2004 OPPS update, we 

reviewed the device categories eligible 

for continuing pass-through 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. Proposal for CY 2005 

For CY 2005, we are proposing to 

continue 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 also proposing to 

set the offsets to $0 for the currently 


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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 would 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 are 

proposing to announce the offset 

amounts in the program transmittal that 

announces the new category. 

Further, for CY 2005, we are 

proposing to use the device percentages 

(portion of the APC median cost 

attributable to the packaged device) that 

we developed for potential offsets in CY 

2004 and to 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. We propose to use 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 devicedependent APCs and their respective 

device portions on the CMS website: 

www.cms.hhs.gov. 

V. Proposed Payment Changes for 

Drugs, Biologicals, 

Radiopharmaceutical Agents, and 

Blood and Blood Products 

A. Transitional Pass-Through Payment 

for Additional Costs of Drugs and 

Biologicals 

[If you choose to comment on issues in 

this section, include the caption ‘‘PassThrough’’ at the beginning of your 

comment.] 

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. 

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 website: 

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

application instructions in any way, we 

will post the revisions on our website 

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 website at: 

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 any longer than 3 

years. The drugs whose pass-through 

status will expire on December 31, 2004, 

meet that criterion. Table 22 lists the 

drugs and biologicals for which we are 

proposing that pass-through status 

would expire on December 31, 2004. 

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3. Drugs and Biologicals With Proposed 

Pass-Through Status in CY 2005 

We are proposing to continue passthrough status for CY 2005 for the drugs 

and biologicals listed in Table 23. The 

APCs and HCPCS codes for drugs and 

biologicals that we are proposing to 

continue with pass-through status in CY 

2005 are assigned status indicator ‘‘G’’ in 

Addendum A and Addendum B, 

respectively, to this proposed rule. 

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 

amends 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, in CY 2005, we are proposing 

to 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 

would receive in the physician office 

setting, and established in accordance 

with the methodology described in the 

CY 2005 Physician Fee Schedule 

proposed rule (69 FR 47488). 

We are further proposing to amend 

§ 419.64 of the regulations to conform 

with these changes. Specifically, we 

propose to replace paragraphs (d)(1) and 

(d)(2) with paragraph (d) to provide that, 

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 Act, minus the portion of 

the APC that we determine is associated 

with the drug or biological. 

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. 

As we explain in section V.B. of this 

proposed rule, we are proposing to 

make separate payment, beginning in 

CY 2005, for new drugs and biologicals 

with a 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 


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applicable fee schedule amount, or the 

APC payment rate associated with the 

drug or biological which would be the 

amount paid for drugs and biologicals 

under section 1842(o) of the Act as 

amended by Pub. L. 108–173, the 

resulting difference is equal to zero. 

Table 23 lists the drugs and biologicals 

for which we propose pass-through 

status continuing in CY 2005. 

Addendum B to this proposed rule lists 

the proposed CY 2005 rates for these 

pass-through drugs and biologicals 

based on data reported to CMS as of 

April 30, 2004. 

B. Drugs, Biologicals, and 

Radiopharmaceuticals Without PassThrough Status 

[If you choose to comment on issues in 

this section, include ‘‘Drugs, Biologicals, 

and Radiopharmaceuticals NonPassThroughs’’ at the beginning of your 

comment.] 

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 


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supplies whose costs are recognized and 

paid for within the national OPPS 

payment rate for the associated 

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), 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. 

2. Proposed 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 are proposing 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 a HCPCS 

code during this time period and were 

paid (via packaged or separate payment) 

under the OPPS. Items such as single 

indication orphans 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, we are 

proposing 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 are 

requesting comments on the 

methodology we are proposing to 

continue to use to determine the median 

cost per day of these items. 

We are proposing 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 would apply are listed below 

in Table 24. 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 want to 

ensure that our payment rules do 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 are proposing 

to pay separately for all six injectible 

and oral forms of anti-emetic products 

CY 2005. 

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3. Proposed Payment for Drugs, 

Biologicals, and Radiopharmaceuticals 

Without Pass-Through 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 

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 will 

finalize the interim final rule and 

address public comments associated 

with that rule when we finalize this 

proposed rule. 

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 interpret 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 are proposing to 

determine the payment rates for 

specified covered outpatient drugs 

under the provisions of Pub. L. 108–173 

by comparing the payment amount 


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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 are proposing 

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. 

There is one sole source item, Co 57 

cobaltous chloride (HCPCS code C9013), 

for which we cannot find a reference 

AWP amount. However, we have CY 

2003 hospital claims data for C9013, 

and we are proposing to derive its 

payment rate using its median cost per 

unit. Therefore, we are proposing a CY 

2005 payment rate for C9013 of $143.96. 

We request comments on our proposed 

methodology for determining the 

payment rate for C9013. 

We note that there are three 

radiopharmaceutical products for which 

we are proposing 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 

cource, 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, we are proposing 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 are proposing to establish a payment 

rate for Ammonia N–13 that is 

equivalent to the payment rate for 

Rubdium Rb–82. 

We request comments on the 

proposed CY 2005 payment rates for 

these three items and invite commenters 

to submit external data if they believe 

the proposed CY 2005 payment rates for 

these items do not adequately represent 

actual hospital costs. Table 25 below 

lists the CY 2005 OPPS payment rates 

that we are proposing for these three 

radiophmaceutical products. 

Table 25A lists the proposed payment 

amounts 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 are proposing 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 or 

multiple source items, we are proposing 

to set payment rates at the lower of the 

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 to 

payment drugs that were implemented 

by the January 6, 2004 interim final rule 

with comment period. 

Table 26 lists the proposed payment 

amounts for innovator and 

noninnovator multiple source drugs, 

biologicals, and radiopharmaceuticals 

effective January 1, 2005 to December 

31, 2005. 


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b. Proposal To Treat Three Sunsetting 

Pass-Through Drugs as Specified 

Covered Outpatient Drugs 

As discussed in section V.A.2 of the 

preamble, there are 13 drugs and 

biologicals whose pass-through status 

will expire on December 31, 2004. Table 

22 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. 

Pub. L. 108–173 does not address how 

to set payment for items whose passthrough status expires in CY 2005, but 

for which pass-through payment was 

not made as of December 31, 2002. 

Therefore, we are proposing 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 believe 

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 on or after January 

1, 2003. Table 27 below lists the CY 

2005 OPPS payment rates that we are 

proposing for these three drugs and 

biologicals. 

Of the 13 products for which we are 

proposing that pass-through status 

expire on December 31, 2004, we are 

proposing 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. The remaining 11 

drugs and biologicals were determined 

to be sole source items and would be 

paid separately according to the 

payment methodology for sole source 

products described above. 

We wish to 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, darbepoetin alfa will be 

paid as a sole-source drug at a rate 

between 83 and 95 percent of its 

reference AWP. Given the status 

required under 1833(t)(14) of the Act, as 

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

108–173, we specifically solicit 

comment on whether we should again 

apply an equitable adjustment, made 

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

the price of this drug. 


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c. Proposed CY 2005 Payment for New 

Drugs and Biologicals With HCPCS 

Codes and Without Pass-Through 

Application and Reference AWP 

Pub. L. 108–173 does not address 

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 are not 

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, in CY 2005, we are 

proposing to pay for these new drugs 

and biologicals which do not have passthrough status at a rate that is equivalent 

to the payment they would receive in 

the physician office setting, which will 

be established in accordance with the 

methodology described in the CY 2005 

Physician Fee Schedule proposed rule 

(69 FR 47488, 47520 through 47524). 

We note that this payment methodology 

is the same as the methodology that 

would be used to calculate the OPPS 

payment amount that pass-through 

drugs and biologicals would 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 

would be treating new drugs and 

biologicals with established HCPCS 

codes the same, irrespective of whether 

pass-through status has been 

determined. We are also proposing to 

assign status indicator ‘‘K’’ to HCPCS 

codes for new drugs and biologicals for 

which we have not received a passthrough application. 

In light of this proposal, we 

understand that manufacturers might be 

hesitant to apply for pass-through 

status. However, we do not believe there 

would be many instances in CY 2005 

when we would not receive a passthrough application for a new drug or 

biological that has a 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 

encourage manufacturers to continue 

submitting pass-through applications for 

new drugs and biologicals 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 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. 

We discuss in section V.D. of this 

preamble how we are proposing to pay 

in CY 2005 for new drugs and 

biologicals between their FDA approval 

date and assignment of a HCPCS code 

and APC. We share the desire of 

providers and manufacturers to 

incorporate payment for new drugs and 

biological 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 solicit public comments 

on our proposal. 

d. Proposed Payment for Separately 

Payable NonPass-Through Drugs and 

Biologicals 

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

preamble, 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 are 

proposing 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 


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both, we believe that the proposed 

payments would allow us to provide 

adequate payment to hospitals for 

furnishing these items. Table 28. below 

lists the drugs and biologicals to which 

this proposed payment policy would 

apply. 


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e. Proposed 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. In CY 2005, this drug would 

receive a separate payment under the 

Medicare physician fee schedule when 

furnished in a physician’s office. 

Therefore, as we generally intend to 

establish, wherever possible, consistent 

payment policies for drugs whether they 

are furnished in a hospital outpatient 

setting or in a physician’s office or 

clinic, we are proposing to also pay 

separately for J7308 when furnished in 

a hospital outpatient department. Thus, 

for CY 2005, we are proposing to pay for 

this drug at 106 percent of ASP, which 

is equivalent to the payment rate that it 

would receive under the physician fee 

schedule. The proposed CY 2005 ASP 

and payment under the OPPS for J7308 

is $88.86. We are soliciting comments 

on our proposed payment methodology 

for HCPCS code J7308 for CY 2005. 

C. Proposed Coding and Billing for 

Specified Outpatient Drugs 

[If you choose to comment on issues in 

this section, include the caption ‘‘Drug 

Coding and Billing’’ at the beginning of 

your comment.] 

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. 

We are proposing to continue this 

coding practice in CY 2005 with 

payment made in accordance with 

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

D. Proposed Payment for New Drugs, 

Biologicals and Radiopharmaceuticals 

Before HCPCS Codes Are Assigned 

[If you choose to comment on issues in 

this section, include the caption 

‘‘HCPCS Codes’’ at the beginning of your 

comment.] 

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 a 

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 

noted that drugs that were assigned a 

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 have 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 

Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50517 

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 a HCPCS code, 

status indicator, and appropriate 

payment amount with the next quarterly 

update. In this proposed rule, we are 

proposing 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 

are soliciting comments on the 

methodology and are particularly 

interested 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. 

E. Proposed Payment for Vaccines 

[If you choose to comment on issues in 

this section, include the caption 

‘‘Vaccines’’ at the beginning of your 

comment.] 

Outpatient hospital departments 

administer large amounts of the 

vaccines 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 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 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, we are proposing to continue 

paying for influenza and pneumococcal 

pneumonia vaccines under the 

reasonable cost methodology in CY 

2005. 

F. Proposed Changes in Payment for 

Single Indication Orphan Drugs 

[If you choose to comment on issues in 

this section, include the caption 

‘‘Orphan Drugs’’ at the beginning of your 

comment.] 

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, we are 

proposing 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 cost 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 single indication 

orphan drugs. 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 shows that our 

payment rate does not reflect the price 

that is widely available to the hospital 

market. For CY 2004, Ceredase 

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(alglucerase) and Cerezyme 

(imiglucerase) were paid at 94 percent 

of AWP because external data 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. To date, the 

following are 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. We are not proposing any changes 

to this list of orphan drugs for CY 2005. 

If we had not classified these drugs as 

single indication orphan drugs for 

payment under the OPPS, they would 

have met the definition and been paid 

as single source specified covered 

outpatient drugs, resulting in lower 

payments which could impede 

beneficiary access to these unique drugs 

dedicated to the treatment of rate 

diseases. Instead, for CY 2005, under 

our authority at section 1833(t)(14)(C) of 

the Act, we are proposing 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 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 106 percent of the ASP for 

these two drugs not only exceeds 88 

percent of the AWP but also exceeds 95 

percent of the AWP. We are proposing 

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. 

G. Proposal To Change Payment Policy 

for Radiopharmaceuticals 

[If you choose to comment on issues in 

this section, include the caption 

‘‘Radiopharmaceuticals’’ at the 

beginning of your comment.] 

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. 

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 are proposing 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 are proposing 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 believe it is reasonable to 

include radiopharmaceuticals in the 

general category of drugs in light of their 

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 propose 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 are proposing to apply the 

$50 packaging threshold methodology 

discussed in section V.B.2. of this 

preamble 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 propose, 

beginning in CY 2005, to extend to 

radiopharmaceuticals the same payment 

methodology proposed in section V.D. 

of this preamble for new drugs and 

biologicals before HCPCS codes are 

assigned. That is, we are proposing 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 are proposing 

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 proposal to apply 

to radiopharmaceutical agents payment 

policies that apply to drugs and 

biologicals, we further propose, 

beginning in CY 2005, to accept 

applications for pass-through status for 

certain radiopharmaceuticals. That is, 

we propose on a prospective basis to 

consider for pass-through status those 

Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50519 

radiopharmaceuticals to which a HCPCS 

code is first assigned on or after January 

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

above, 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. We propose in 

section V.A.3. to pay for drugs and 

biologicals with pass-through 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) and in a manner that is 

consistent with how we propose to set 

payment for a pass-through drug or 

biological, we are proposing 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 website at cms.hhs.gov. 

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 passthrough status for a radiopharmaceutical 

does not submit data in accordance with 

the requirements specified for new 

drugs and biologicals, we propose 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. 

H. Proposed Coding and Payment for 

Drug Administration 

[If you choose to comment on issues in 

this section, include the caption ‘‘Drug 

Administration’’ at the beginning of 

your comment.] 

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. (See August 

12, 2003 proposed rule (68 FR 47998) 

for background discussion on these 

codes.) 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 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 

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 to 

that of CPT codes to bill for 

administration of these drugs. 

For CY 2005, we are proposing 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. for the crosswalk of 

CPT codes into APCs based on the Q 

codes. The only change from the 

crosswalk that was submitted by the 

outside organization is that we are 

proposing 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 are proposing 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 

scaler for budget neutrality of payment 

weights are the frequency data for the Q 

50520 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 

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 are proposing 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, when a hospital bills 3 

units of 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). 

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. 

BILLING CODE 4120–01–P 

Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50521 

I. Proposed Payment for Blood and 

Blood Products 

[If you choose to comment on issues in 

this section, include the caption ‘‘Blood 

and Blood Products’’ at the beginning of 

your comments.] 

Since the OPPS was first 

implemented in August 2000, separate 

payment has been made for blood and 

blood products in APCs rather than 

packaging them into payment for the 

procedures with which they were 

administered. We recognize that blood 

is a valuable health care resource used 

regularly in a broad range of hospital 

procedures and the availability of safe 

blood is essential to the delivery of high 

quality health care services to Medicare 

beneficiaries. 

In CY 2000, payment for blood was 

established based on external data 

provided by commenters due to limited 

Medicare claims data. From CY 2000 to 

CY 2002, 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. Using the dampening 

methodology, we limited the decrease in 


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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 past 

commenters and presenters at the 

August 2003 and February APC 2004 

Panel meetings. 

For CY 2005, we are proposing to 

continue to pay separately for blood and 

blood products. We also are proposing 

to establish new APCs that would allow 

each blood product to be in its own 

separate APC. In addition, after review, 

we determined that several of the blood 

product APCs contained multiple blood 

products with no clinical homogeneity 

or whose product-specific median costs 

may not have been similar. Thus, we are 

also proposing to reassign some of these 

HCPCS already contained in certain 

APCs to new APCs. Table 30 below lists, 

by HCPCS code, our proposed CY 2005 

APC reassignments for such blood and 

blood products. 

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Administrative costs for the 

processing and storage specific to the 

transfused blood product are included 

in the APC payment, which is based on 

hospitals’ charges. Payment for the 

collection, processing, and storage of 

autologous blood, as described by CPT 

86890 and used in transfusion is made 

through APC 347 (Level III Transfusion 

Laboratory Procedures). 

Other than for autologous blood 

products, the costs for collection, 

processing, storage, wastage, and other 

administrative costs for blood products 

that are not transfused are reported in 

the appropriate cost centers on 

hospitals’ cost reports. These reported 

costs are attributable to overhead and 

distributed across all hospital services 

linked to those cost centers through the 

standard process of converting charges 

to costs using hospitals’ CCRs for each 

cost center on the cost report. 

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. 

As with all services, we prefer to rely 

on our claims data whenever possible. 

We conducted a thorough analysis of 

billing for blood in CY 2003 claims data. 

Comments received for previous rules 

suggest that current hospital blood costs 

are not captured because hospitals 

underreport blood on their claims. 

Commenters explained that hospitals 

sometimes found it too costly to bill for 

blood. However, we found that 81 

percent of all hospitals included in our 

ratesetting and modeling billed at least 

one blood and blood product in CY 

2003. Of these hospitals, only 47 

percent reported separate costs and 

charges in the two cost centers specific 

to blood on their most recent annual 

cost report. It may be that those 

hospitals billing for blood but not 

reporting costs and charges on their cost 

report for either of the two bloodspecific cost centers report their blood 

costs and charges under other cost 

centers, such as operating room. 

We have also received comments that 

the CCRs that we use to adjust claim 

charges to costs for blood are too low, 

which results in an underestimation of 

the true cost of blood and blood 

products. Our current methodology for 

matching cost center CCRs to revenue 

codes includes a default to the overall 

CCR when any given provider has 

chosen not to report costs and charges 

for a specific cost center. After matching 

the two blood-specific cost centers to 

the 38X and 39X revenue codes, we 

observed a significant difference in 

CCRs 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 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 2005 

analysis was 0.33. 

As noted above, about half of the 

hospitals (47 percent) reported at least 

one of the blood-specific cost centers on 

their most recent cost report. We then 

looked at the CY 2003 claims being used 

to set CY 2005 median costs and 

discovered that about one-quarter relied 

on a CCR that was based on a bloodspecific cost center to adjust charges to 

costs, and about three-quarters did not. 

This pattern existed even though almost 

all hospitals were billing blood in the 

38X and 39X revenue codes. The result 

was the default CCR was used to adjust 

almost 75 percent of the line-items used 

to set the median costs for blood and 

blood products. 

In light of this information, we 

simulated a blood-specific CCR for those 

hospitals now defaulting to the overall 

CCR. 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 each hospital reporting costs and 

charges for the blood cost centers on 

their cost report, we calculated the ratio 

of the CCR in the blood-specific cost 

center to the overall CCR. We then 

calculated the geometric mean of this 

ratio. This was 2.2 for revenue code 38X 


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and 2.1 for revenue code 39X. For each 

hospital not reporting costs and charges 

for the blood cost centers on their cost 

report, we applied this mean ratio to 

their overall CCR. We believe that this 

approach better responds to a missing 

blood-specific CCR than simply using 

the average blood-specific CCR for each 

revenue code because it takes into 

account the unique charging structure of 

each provider. We then adjusted charges 

to costs for all hospitals and calculated 

a median cost for all blood products. 

Overall, this methodology increased the 

estimated median costs by 25 percent 

for CY 2005 relative to the medians used 

to set CY 2004 rates. For example, the 

estimated median for P9016 (Red blood 

cells, leukocytes reduced), the most 

frequently billed blood product, 

increased by 32 percent relative to the 

CY 2004 median. 

In reviewing the simulated medians 

created above relative to those medians 

used to set CY 2004 payment rates, we 

noticed that procedures relying on a low 

volume of blood units (<1,000) 

demonstrated large decreases. Overall, 

the simulated median costs for lowvolume 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 blood by 

combining CY 2002 and CY 2003 claims 

data for the low-volume products. We 

used the simulated CCRs to calculate 

costs from charges. We recognize that 

not all of the low-volume blood 

products had claims in CY 2002. Listed 

in Table 31 are the low volume products 

for which we combined CY 2002 and 

2003 claims. To ensure that we 

combined comparable costs, we updated 

the simulated costs on the claims in CY 

2002 to the base year of 2003 using the 

Producer Price Index (PPI) for blood and 

derivatives for human use (Commodity 

Code #063711), which is the PPI used to 

update blood and blood product prices 

in the market basket (67 FR 50039, 

August 1, 2002). We estimated the 

annual PPI from December 2002 to 

December 2003 to be ¥12.2 percent. 

Although a decline in PPI is unusual, 

we understand that the price of plasma 

products have recently declined. 

Further, the majority of the low-volume 

items are plasma products. After 

combining the 2 years of claims, we 

were able to raise the volume of blood 

units billed for 5 of these products 

above 1,000. Ultimately, overall 

estimated median costs continue to 

increase by 25 percent for all products, 

but decline by 16 percent for the lowvolume products. 

After discussions with industry 

representatives and hospitals and 

careful consideration of our claims 

analyses, for CY 2005 we are proposing 

to set payment rates for all blood and 

blood products listed in Table 29 based 

on our CY 2003 claims data, utilizing an 

actual or simulated hospital bloodspecific CCR to convert charges to costs 

for blood and blood products. For those 

low-volume products listed in Table 30, 

we would combine claims data for CYs 

2002 and 2003. We are confident that 

we have claims data from the vast 

majority of the OPPS hospitals for blood 

products, and the tight distribution of 

costs for individual products, including 

low-volume products, provides no 

evidence of significant coding problems. 

In general, as a blood product undergoes 

increasing levels of processing or 

selection, our CY 2005 proposed 

payment for the product would increase 

commensurate with the additional 

resources utilized. We believe that the 

proposed payment methodology 

described above will enable us to use 

our historical hospital claims data to 

assure the adequate payment for blood 

and blood products essential to 

continued Medicare beneficiary access 

to blood and blood products. In 

addition, we recognize the need to 

clarify billing regarding a variety of 

blood-related services under the OPPS 

in response to numerous questions and 

comments we have received. 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 in the near 

future. 

VI. Estimated Transitional PassThrough Spending in CY 2005 for 

Drugs, Biologicals, and Devices 

[If you choose to comment on issues in 

this section, please include the caption 

‘‘Estimated Transitional Pass-Through 

Spending’’ at the beginning of your 

comment.] 

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 


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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 which 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. Proposed Estimate of Pass-Through 

Spending for CY 2005 

We are proposing to set the applicable 

percentage cap at 2.0 percent of the total 

OPPS projected payments for CY 2005. 

To estimate CY 2005 pass-through 

spending for device categories in the 

first group described above, we are 

proposing to use volume information 

from CY 2003 claims data for 

procedures associated with a passthrough device and manufacturer’s price 

information from applications for passthrough status. This information would 

be 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 are proposing to use the following 

approach: For categories with no claims 

data in CY 2003 that would be active in 

CY 2005, we would follow the 

methodology described in the November 

2, 2001 final rule (66 FR 55857). That 

is, we are proposing to use price 

information from manufacturers and 

volume estimates based on claims for 

procedures that would most likely use 

the devices in question. This 

information would be 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 would use the 

same methodology. We anticipate that 

any new categories for January 1, 2005, 

would be announced after the 

publication of this proposed rule but 

before the publication of the final rule. 

Therefore, the estimate of pass-through 

spending would incorporate passthrough 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 

proposed rule, the pass-through 

payment amount for new drugs and 

biologicals that we determine have passthrough status would equal zero. 

Therefore, our estimate of total passthrough spending for drugs and 

biologicals with pass-through status in 

CY 2005 would equal zero. 

In accordance with the methodology 

described above, we estimate that total 

pass-through spending in CY 2005 

would equal approximately $30.8 

million, which represents 0.13 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 

in CY 2005. This estimate is 

significantly lower than previous year’s 

estimates because of the method we are 

proposing 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. 

In section V.G., we are proposing to 

accept pass-through applications for 

new radiopharmaceuticals that are 


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Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50527 

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 OPD 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 

propose in section V.G. However, we do 

not believe that pass-through spending 

for new radiopharmaceuticals in CY 

2005 would 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 would amount to 

0.13 percent of total projected OPPS CY 

2005 spending, we are proposing to 

return 1.87 percent of the pass-through 

pool to adjust the conversion factor, as 

we discuss in section VIII of this 

preamble. 

VII. Other Policy Decisions and 

Proposed Policy Changes 

A. Statewide Average Default Cost-toCharge Ratios 

[If you choose to comment on issues in 

this section, include the caption ‘‘Costto-Charge Ratios’’ at the beginning of 

your comment.] 

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). We 

are proposing to update the default 

ratios for CY 2005. Table 33 lists the 

proposed CY 2005 default urban and 

rural CCRs by State. 

We calculated the proposed statewide 

default CCRs in Table 33 using the same 

CCRs that we use to adjust charges to 

costs on claims data. 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 

adjust 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. 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 3 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 33. 

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. 

B. Transitional Corridor Payments: 

Technical Change 

[If you choose to comment on issues in 

this section, include the caption 

‘‘Transitional Corridor Payments’’ at the 

beginning of your comment.] 

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) to 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 

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 


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Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50531 

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 this proposed rule, we are 

proposing 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. 

C. Status Indicators and Comment 

Indicators Assigned in the Outpatient 

Code Editor (OCE) 

[If you choose to comment on issues in 

this section, include the caption ‘‘Status 

Indicators and Comment Indicators’’ at 

the beginning of your comment.] 

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. For CY 2005, we are 

providing our proposed status indicator 

(SI) 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 

proposed rule. 

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 proposed 

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. 

Specifically, for CY 2005, we are 

proposing 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 physician fee schedule. 

Some, but not all, of these other 

payment systems are identified in 

Addendum D1 to this proposed rule. 

• ‘‘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 

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 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 brachtheraphy 

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 are proposing the payment status 

indicators identified above for each 

HCPCS code and each APC in Addenda 

A and B and are requesting comments 

on the appropriateness of the indicators 

we have assigned. 

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. 

• ‘‘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 has 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, 

we are proposing, effective January 1, 

2005, to delete code condition 

indicators ‘‘DNG’’ and ‘‘DG’’. We are 

proposing to designate codes that are 

50532 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 

discontinued effective January 1, 2005 

with status indicator ‘‘D,’’ as described 

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

Further, we are proposing to rename 

‘‘code condition’’ indicators as 

‘‘comment indicators.’’ In Addendum D2 

to this proposed rule, we list the 

following two comment indicators that 

we are proposing 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. 

D. Observation Services 

[If you choose to comment on issues in 

this section, include the caption 

‘‘Observation Services’’ at the beginning 

of your comment.] 

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 our 

proposal 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 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 confirms 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 post-procedural setting as partial 

replacement for recovery room time. 

However, we note 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 

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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 believe it is 

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. 

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, beginning in CY 2005, we are 

proposing to remove the current 

requirements for specific diagnostic 

testing, and 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 are proposing 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. 

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 

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, we are 

proposing 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 is that specific, medically 

necessary observation services are being 

provided to the patient up until the time 

of discharge. However, we do 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 believe that, in general, 24 

hours is adequate for the clinical staff to 

determine what further care the patient 

needs. In CY 2005, we would 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 are proposing not to include claims 

reporting more than 48 hours of 

observation care in calculating the final 

payment rate for APC 0339. 

In CY 2005, we expect OPPS 

payments for observation care to 

increase over CY 2004 levels for two 

reasons. First, our proposal to eliminate 

the requirement that specific diagnostic 

tests be performed in order to receive 

separate payment for observation care 

will result in more observation stays 

being paid for under APC 0339. We 

identified a number of CY 2003 claims 

50534 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 

with packaged observation services 

reported for congestive heart failure 

(CHF), asthma, and chest pains that 

would have qualified for separate 

payment absent the requirement that 

certain diagnostic tests be reported on 

the same claim. In the CY 2003 claims 

data we used for our analyses, we 

identified about 55,000 claims coded 

with G0244 for separate payment in 

APC 0339. We also identified 

approximately 13,500 claims coded for 

observation care provided to 

beneficiaries with one of the three 

eligible medical conditions that did not 

report HCPCS code G0244 for separate 

payment. Our analysis revealed that 

those claims satisfy all of the criteria for 

separate payment of observation 

services if we remove the requirements 

for diagnostic tests. As mentioned 

above, hospitals report that billing for 

separately payable observation services 

requires manual medical record review 

and the separate payment may not offset 

the cost of the additional work even if 

patients’ observation stays meet our 

criteria for separately payable 

observation services. Therefore, if we 

adopt our proposed changes, we expect 

the volume of claims for payment under 

APC 0339 to increase in CY 2005. 

This volume increase, combined with 

the slightly higher median cost 

calculated for APC 0339 based on CY 

2003 claims, would likely result in 

higher aggregate Medicare payments to 

hospitals for observation care in CY 

2005 than in previous years. We 

attribute the increase in payment rate 

for APC 0339 to an increase in the 

relative level of charges reported by 

hospitals for observation services in CY 

2003, compared to the relative level of 

charges reported by hospitals for all 

other outpatient services furnished 

during the same period. Our budget 

neutrality simulations, which we 

discuss in section XVI. of this preamble 

take into account both the increased 

payment for APC 0339 proposed for CY 

2005, as well as the increase in the 

volume of separately payable 

observation services that we project 

could result from the changes in criteria 

that we are proposing for CY 2005. 

Moreover, the increase in payments 

for observation care may be offset by a 

modest decrease in the number of 

previously required diagnostic tests 

performed by hospitals for patients in 

observation and in the reduction of 

billing for HCPCS code G0264, which 

pays for the initial nursing assessment 

of a patient directly admitted to 

observation for congestive heart failure, 

asthma, or chest pain when the stay 

does not meet all of the criteria for 

G0244. 

In summary, to receive separate 

payment for medically necessary 

observation services, G0244 in APC 

0339, 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, we are proposing the following 

requirements beginning in CY 2005: 

• 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 34 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 (currently HCPCS code Q0081 or 

as proposed in this proposed rule, 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. 

BILLING CODE 4120–01–P 

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EP16AU04.057</GPH>
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E. Procedures That Will Be Paid Only as 

Inpatient Procedures 

[If you choose to comment on issues in 

this section, include the caption 

‘‘Inpatient Procedures’’ at the beginning 

of your comment.] 

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 


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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 

• 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. 

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 section II.G. of this 

preamble, we agree with the APC 

Panel’s recommendation and we are 

proposing 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. To 

determine the codes to be removed from 

the inpatient list, we have evaluated 

those codes that are performed in all 

sites of service other than the hospital 

inpatient setting approximately 60 

percent or more of the time. We have 

chosen 60 percent as a threshold 

because, in general, we believe that a 

procedure should be 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 have shown that 

they can be done in a safe and 

appropriate manner on an outpatient 

basis in a variety of different hospitals, 

we believe that it would be reasonable 

to consider the removal of the procedure 

from the inpatient list. After careful 

evaluation of the list of inpatient codes 

against our criteria, we are proposing to 

remove the procedures listed in Table 

35 from the inpatient list and to place 

them in APCs for payment under the 

OPPS. All of these codes would be 

assigned a status indicator ‘‘T’’, except 

for CPT codes 00174 and 00928, which 

would be assigned a status indicator ‘‘N’’

because, under the OPPS, anesthesia 

codes are packaged into the procedures 

with which they are billed. 

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BILLING CODE 4120–01–C 

For the reasons stated above, we are 

not proposing to accept the APC Panel’s 

recommendation to completely 

eliminate the inpatient list for CY 2005. 

However, we are soliciting comments, 

especially from professional societies 

and hospitals, on whether these 

procedures are appropriate for removal 

from the inpatient list and on whether 

any other such procedures should be 

paid under the OPPS. We are also 

asking 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 request that commenters 

suggest an appropriate APC assignment 

for the procedure, and furnish 

supporting data, in the event that we 

determine in the final rule, based on 

comments, that the procedure would be 

payable under the OPPS in CY 2005. 

F. Hospital Coding for Evaluation and 

Management Services 

[If you choose to comment on issues in 

this section, include the caption ‘‘E/M 

Services Guidelines’’ at the beginning of 

your comment.] 

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, 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 


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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. 

We are currently considering the 

panel’s set of coding guidelines and the 

public comments we have received in 

response to them. 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. We further 

indicated that we would 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 

website as soon as we have completed 

them. 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 website: 

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

listserv.asp and follow the directions to 

the OPPS listserve. When we post the 

proposed guidelines on the website, 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 

[If you choose to comment on issues in 

this section, include the caption 

‘‘Brachytherapy’’ at the beginning of 

your comment.] 

Payment for Brachytherapy Sources 

(Section 621(b) of Pub. L. 108–173, 

MMA) 

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’’ is a pragmatic decision that allows 

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 this proposed rule, we are 

soliciting further comments on this 

policy. 

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, 

Brachtherapy, to reflect the unpackaging 

of the brachytherapy source. 

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 

Palladium-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 have considered this 

recommendation and agree with the 

APC Panel. Therefore, we are proposing 

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, Palladium-103, per source 

50540 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 

In addition, we believe the APC 

Panel’s recommendation to establish 

new HCPCS codes that would 

distinguish high activity Iodine-125 

from high activity Palladium-103 on a 

per source basis is an approach that 

should be implemented for other 

brachytherapy code descriptors, as well. 

Specifically, that recommendation 

would require that we include in the 

HCPCS code descriptor for such 

brachytherapy sources that the new high 

activity sources are paid ‘‘per source.’’

Therefore, we are proposing 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 

Palladium-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 

are proposing to add, for separate 

payment, the following code of linear 

source Palladium-103: Cxxx3 

Brachytherapy linear source, Palladium103, per 1 mm. 

Table 36 provides a complete listing 

of the HCPCS codes, long descriptors, 

APC assignments and status indicators 

that we are proposing for brachytherapy 

sources paid under the OPPS in CY 

2005. 

BILLING CODE 4120–01–P 

BILLING CODE 4120–01–C 

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 


EP16au04.060</GPH>
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continuing to pay 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. Therefore, we are 

proposing 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. 

VIII. Proposed Conversion Factor 

Update for CY 2005 

[If you choose to comment on issues in 

this section, please indicate the caption 

‘‘Conversion Factor’’ at the beginning of 

your comment.] 

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 proposed rule on May 18, 

2004, is 3.3 percent (69 FR 28374). To 

set the proposed OPPS conversion factor 

for CY 2005, we increased the CY 2004 

conversion factor of $54.561, as 

specified in the November 7, 2003 final 

rule (68 FR 63459), by 3.3 percent. 

In accordance with section 

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

adjusted the proposed conversion factor 

for CY 2004 to ensure that the revisions 

we are proposing to update by means of 

the wage index are made on a budgetneutral basis. We calculated a proposed 

budget neutrality factor of 1.001 for 

wage index changes by comparing total 

payments from our simulation model 

using the proposed 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 0.13 percent of total OPPS 

payments, down from 1.3 percent in CY 

2004. The proposed conversion factor is 

also adjusted by the difference in 

estimated pass-through payments of 

1.17 percent. 

The proposed market basket increase 

update factor of 3.3 percent for CY 2005, 

the required wage index budget 

neutrality adjustment of approximately 

1.001, and the 1.17 percent adjustment 

to the pass-through estimate result in a 

proposed conversion factor for CY 2005 

of $57.098. 

IX. Proposed Wage Index Changes for 

CY 2005 

[If you choose to comment on issues in 

this section, please include the caption 

‘‘Wage Index’’ at the beginning of your 

comment.] 

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 discussed in section III.B., of this 

preamble, we are proposing to 

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. The proposed 

IPPS pre-reclassified urban and rural 

wage indices for FY 2005 are reprinted 

in Addenda L and M of this proposed 

rule. 

In accordance with section 

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

index is updated annually. In this 

proposed rule, we are proposing to use 

the proposed corrected 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 note that the 

proposed FY 2005 IPPS wage indices 

reflect a number of proposed changes as 

a result of the new OMB standards for 

defining geographic statistical areas, the 

proposed implementation of a 

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 proposed changes in the 

FY 2005 IPPS wage indices and any 

adjustments that we are proposing to 

apply to the OPPS for CY 2005. (We 

refer the reader to the May 18, 2004 

IPPS proposed rule (69 FR 28248) for a 

fuller discussion of the proposed 

changes to the wage indices.) 

A. The proposed 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 proposed rule, 

for wage index purposes, we proposed 

to treat hospitals designated as rural 

under the new CBSA classification 

system that were previously located in 

an MSA as if they were located in their 

old MSA, and further proposed to 

maintain that MSA designation for 

determining a wage index for the next 

3 years. To be consistent, we are 

proposing to apply 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 

proposed policy would impact six 

TEFRA providers for purposes of OPPS 

payment. 

B. The proposed incorporation of a 

blend of an occupational mix adjusted 

wage index into the unadjusted wage 

50542 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 

index to reflect the effect of hospitals’

employment choices of occupational 

categories to provide specific patient 

care. 

C. The reclassifications of hospitals to 

geographic areas for purposes of the 

wage index that were approved under 

the one-time appeal process for 

hospitals authorized under section 508 

of Pub. L. 108–173 (May 18, 2004 IPPS 

proposed rule (69 FR 28265 through 

28266)). 

D. The proposed 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 

(May 18, 2004 IPPS proposed rule (69 

FR 28266 through 28269). Hospitals 

paid under the IPPS located in the 

qualifying section 505 ‘‘out-migration’’

counties received a wage index increase. 

We are proposing to apply 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 would 

also receive an increase to their wage 

index under OPPS. These additional 

hospitals are listed in Addendum K to 

this proposed rule with all IPPS 

hospitals receiving a wage index 

increase because they are located in a 

qualifying 505 county. 

The following proposed FY 2005 IPPS 

wage indices that were published in the 

May 18, 2004 Federal Register (69 FR 

28195) or corrected in the June 25, 2004 

Federal Register (69 FR 35919) are 

reprinted as Addenda in this OPPS 

proposed rule: Addendum H—Wage 

Index for Urban Areas; Addendum I—

Wage Index for Rural Areas; Addendum 

J—Wage Index for Hospitals That Are 

Reclassified; Addendum K—Wage Index 

Adjustment for Commuting Hospital 

Employees (Out-Migration) in 

Qualifying Counties; Addendum L—

Pre-Reclassified Wage Index for Urban 

Areas; Addendum M—Pre-Reclassified 

Wage Index for Rural Areas; Addendum 

N—Hospital Reclassifications and 

Redesignations by Individual Hospital 

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

We are proposing to use these IPPS 

indices, as they are finalized by July 30, 

2004, to adjust the payment rates and 

coinsurance amounts that we will 

publish in the OPPS final rule for CY 

2005. Because the reclassification that 

results from implementation of section 

508 of Pub. L. 108–173 is not subject to 

budget neutrality, we have not taken it 

into account in developing the OPPS 

budget neutrality estimates for CY 2005. 

However, the wage index increases that 

result from implementation of section 

505 of Pub. L. 108–173 are subject to 

budget neutrality. Therefore, we have 

included the wage index changes 

associated with section 505 of Pub. L. 

108–173 in calculating the OPPS budget 

neutrality estimates for CY 2005. 

X. Determination of Proposed Payment 

Rates and Outlier Payments for CY 

2005 

A. Calculation of the Proposed National 

Unadjusted Medicare Payment 

[If you choose to comment on issues in 

this section, please indicate the caption 

‘‘Payment Rate for APCs’’ at the 

beginning of your comment.] 

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 proposed rule, and the 

relative weight determined under 

section III. of this proposed rule. 

Therefore, the national unadjusted 

payment rate for APCs contained in 

Addendum A to this proposed rule and 

for payable HCPCS codes in Addendum 

B to this proposed rule (Addendum B is 

provided as a convenience for readers) 

was calculated by multiplying the 

proposed CY 2005 scaled weight for the 

APC by the proposed CY 2005 

conversion factor. 

However, to determine the payment 

that would be made 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. 

Addenda H, I, J, and L to this proposed 

rule, which reflect the new proposed 

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 

and the reclassifications of hospitals 

under the one-time appeals process 

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

contain the wage index values assigned 

to each area. The wage index values 

include the proposed occupational mix 

adjustment described in section IX. of 

this proposed rule 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. Addendum K contains 

the qualifying counties and the 

proposed wage index increase 

developed for the IPPS. 

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. Proposed Hospital Outpatient Outlier 

Payments 

[If you choose to comment on issues in 

this section, please indicate the caption 

‘‘Outlier Payments’’ at the beginning of 

your comment.] 

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 target for outlier 

payments at 2.0 percent of total 

payments. For purposes of simulating 

payments to calculate outlier 

thresholds, we set the 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 

Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50543 

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. 

For CY 2005, we are proposing to 

continue to set the target for outlier 

payments at 2.0 percent of total OPPS 

payments (a portion of that 2.0 percent, 

0.6 percent, would 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 are 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, we 

are proposing 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 are proposing 

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 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 have a 

financial risk would be at greater risk 

financially. 

In this proposed rule, we are 

proposing 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 

threshold of $625 better meets our 2.0 

percent targets. When the cost of a 

hospital outpatient service exceeds 

these thresholds, we would 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. 

We are proposing to set the dollar 

threshold at a level that would, 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 proposed 

policy for CY 2005 with the additional 

fixed dollar threshold would require 

that the service in this example exceed 

$645 in order to qualify for an outlier 

payment. That is, the cost of the service 

would have to exceed both 1.5 times the 

APC payment rate, or $30, and $645 

($20 + $625). 

The proposed dollar threshold would 

also enable us to lower the APC 

multiplier portion of the total outlier 

threshold from 2.6 to 1.5. We have 

chosen a multiple of 1.5 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 proposed changes to the outlier 

methodology, it would also be easier for 

the higher cost cases of a complex, 

expensive procedure or service to 

qualify for outlier payments because the 

$625 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 payment but, as 

proposed for CY 2005, would have to 

exceed only $30,000. That is, the cost of 

the service would have to exceed both 

1.5 times the APC payment rate, or 

$30,000, and $20,625 ($20,000 + $625). 

Further, outlier payments for unusually 

expensive cases would be higher 

because the APC multiplier for outlier 

payment would decrease from 2.6 to 1.5 

times the APC payment rate. 

As discussed in the following section 

pertaining to Proposed Payment for 

Partial Hospitalization services, we are 

proposing to set the APC multiplier 

outlier threshold for CMHCs for CY 

2005 at 3.35 times the APC payment 

amount and the CY 2005 outlier 

payment percentage applicable to costs 

in excess of the threshold at 50 percent. 

C. Proposed Payment for Partial 

Hospitalization 

[If you choose to comment on issues in 

this section, please indicate the caption 

‘‘Partial Hospitalization’’ at the 

beginning of your comment.] 

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 

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. Proposed PHP APC Update for CY 

2005 

For calculation of the proposed CY 

2005 per diem payment, 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 cost-to-charge ratios 

from the most recently available 

hospital and CMHC cost reports to 

50544 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 

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 cost-tocharge ratios using the most recently 

settled cost reports by April 30, 2003. 

Following the initial update of cost-tocharge ratios, fiscal intermediaries were 

further instructed to continue to update 

a provider’s cost-to-charge ratio and 

enter revised cost-to-charge ratios into 

the outpatient provider specific file. 

Therefore, for CMHCs, we use cost-tocharge ratios 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 cost-tocharge ratios reduced the median cost 

per day for CMHCs. The revised 

medians are $313 for CMHCs and $213 

for hospitals. Combining these files 

results in a median per diem PHP cost 

of $297. 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. We 

are proposing the resulting APC amount 

for PHP of $292.19 for CY 2005, of 

which $58.44 is the beneficiary’s 

coinsurance. 

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 proposing to continue 

to set the target for hospital outpatient 

outlier payments at 2.0 percent of total 

OPPS payments. We are proposing that 

a portion of that 2.0 percent, 0.6 

percent, would be allocated to CMHCs 

for PHP services. We propose 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 preamble, we are 

proposing 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 proposing a dollar threshold 

for CMHC outliers. We are proposing to 

set the outlier threshold for CMHCs for 

CY 2005 at 3.35 percent times the APC 

payment amount and the CY 2005 

outlier payment percentage applicable 

to costs in excess of the threshold at 50 

percent. 

XI. Proposed Beneficiary Copayments 

for CY 2005 

[If you choose to comment on issues in 

this section, please indicate the caption 

‘‘Copayment’’ at the beginning of your 

comment.] 

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. 

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. 

B. Proposed 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 final rule 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. 

XII. MedPAC Recommendations 

The Medicare Payment Advisory 

Commission (MedPAC) in its March 

2004 Report to the Congress: ‘‘Medicare 

Payment Policy,’’ made two 

recommendations relating to the OPPS. 

This section provides responses to those 

recommendations. 

Recommendation 3A–2: The Congress 

should increase payment rates for the 

OPPS by the projected rate of increase 

in the hospital market basket index for 

CY 2005. 

Response: Section 1833(t)(3)(C)(ii) of 

the Act requires the Secretary 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 applicable 

under section 1886(b)(3) of the Act to 

hospital discharges. The forecast of the 

hospital market basket increase for FY 

2005 published in the IPPS proposed 

rule on May 18, 2004, is 3.3 percent (69 

FR 63459). Therefore, in accordance 

with this statutory requirement, we are 

proposing to update the OPPS 

conversation factor for CY 2005 by 3.3 

percent as discussed in section VIII. of 

this preamble. 

Recommendation 3A–3: The Congress 

should eliminate the outlier policy 

under the outpatient PPS. 

Response: We have carefully reviewed 

the MedPAC report regarding this 

recommendation and are concerned by 

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its 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. While it is evident 

that the OPPS outlier payments cannot 

be discontinued by us without a 

legislative change by Congress, we 

believe that the MedPAC findings 

warrant a change in our standard for 

qualifying a hospital outpatient service 

for an outlier payment. Therefore, in 

light of the MedPAC findings we are 

proposing to change the standard we 

have used to qualify a service for an 

outlier payment since initial 

implementation of the OPPS. As 

discussed in section X.B. of this 

preamble, we are proposing to add a 

fixed dollar threshold requirement to 

the current threshold, which requires 

that a hospital’s cost for a service exceed 

the APC payment rate for that service by 

a specified multiple in order to qualify 

for an outlier payment. That is, we are 

proposing 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. By 

imposing a dollar threshold in addition 

to an APC multiplier threshold, we 

expect to redirect outlier payments from 

lower cost and relatively simple 

procedures to more complex, expensive 

procedures for which the costs 

associated with individual cases could 

be exceptionally high. 

We are not proposing to apply the 

fixed dollar threshold to CMHCs 

because partial hospitalization services 

are the only APC service for which 

CMHCs can receive payment under the 

OPPS, and we would not expect to 

redirect outlier payment by imposing a 

dollar threshold. 

XIII. Addenda Files Available to the 

Public Via Internet 

The data referenced for Addenda C 

and G to this proposed rule 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 

these two Addenda to this proposed 

rule because of their 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. 

XIV. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995 (PRA), we are required to 

provide 60-day notice in the Federal 

Register and solicit public comment 

before a collection of information 

requirement is submitted to the Office of 

Management and Budget (OMB) for 

review and approval. In order to 

evaluate fairly whether an information 

collection should be approved by OMB, 

section 3506(c)(2)(A) of the Paperwork 

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

We are soliciting public comments on 

each of these issues for the following 

information collection requirement:

Section 410.16 Initial preventive 

physical examination.

Proposed new section 410.16 would 

require, for the furnishing of education, 

counseling and referral services as part 

of an initial preventive physical 

examination, a written plan for 

obtaining the appropriate screening and 

other preventive services which are also 

covered as separate Medicare B Part 

services. 

The burden associated with this 

requirement is the time required of the 

physician or practitioner to provide 

beneficiaries with education, 

counseling, and referral services and to 

develop and provide a written plan for 

obtaining screening and other 

preventive services. 

While these requirements are subject 

to the PRA, the burden associated with 

these requirements is currently captured 

and discussed in the ‘‘Revisions to 

Payment Policies Under the Physician 

Fee Schedule for CY 2005’’ (CMS–1429–

P). This section mirrors that proposed 

rule for convenience purposes. 

We have submitted a copy of this 

proposed rule to OMB for its review of 

the information collection requirements 

described above. These requirements are 

not effective until they have been 

approved by OMB. 

If you comment on any of these 

information collection and record 

keeping requirements, please mail 

copies directly to the following:

Centers for Medicare & Medicaid 

Services, Office of Strategic Operations 

and Regulatory Affairs, Regulations 

Development and Issuances Group, 

Attn: John Burke, CMS–1427–P, Room 

C5–14–03, 7500 Security Boulevard, 

Baltimore, MD 21244–1850; and 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Room 10235, New Executive 

Office Building, Washington, DC 

20503, Attn: Christopher Martin, CMS 

Desk Officer

Comments submitted to OMB may 

also be e-mailed to the following 

address: e-mail: 

Christopher_Martin@omb.eop.gov, or 

faxed to OMB at (202) 395–6974. 

XV. Response to Public Comments 

Because of the large number of items 

of correspondence we normally receive 

on a proposed rule, we are not able to 

acknowledge or respond to them 

individually. However, in preparing the 

final rule, we will consider all 

comments concerning the provisions of 

this proposed rule that we receive by 

the date and time specified in the DATES

section of this preamble, and when we 

proceed with a subsequent document, 

we will respond to the comments in the 

preamble to that document. 

XVI. Regulatory Impact Analysis 

A. OPPS: General 

We have examined the impacts of this 

rule as required by Executive Order 

12866 (September 1993, Regulatory 

Planning and Review), the Regulatory 

Flexibility Act (RFA) (September 19, 

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

the Social Security Act, the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4), and Executive Order 13132. 

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 would be implemented 

by this proposed rule would result in 

expenditures exceeding $100 million in 

any 1 year. We estimate the total 

increase (from changes in the proposed 

rule as well as enrollment, utilization,

50546 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 

and case mix changes) in expenditures 

under the OPPS for CY 2005 compared 

to CY 2004 to be approximately $1.5 

billion. Therefore, this proposed rule is 

an economically significant rule under 

Executive Order 12866, and a major rule 

under 5 U.S.C. 804(2). 

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 (see 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 website at 

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

siccodes/). Individuals and States are 

not included in the definition of a small 

entity. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 603 of the 

RFA. With the exception of hospitals 

located in certain New England 

counties, for purposes of section 1102(b) 

of the Act, we 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 proposing to adopt, 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 proposed rule would 

affect both a substantial number of rural 

hospitals as well as other classes of 

hospitals and that the effects on some 

may be significant. Therefore, we 

conclude that this proposed rule would 

have a significant impact on a 

substantial number of small entities. 

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 proposed rule would 

not mandate any requirements for State, 

local, or tribal governments. This 

proposed rule would not impose 

unfunded mandates on the private 

sector of more than $110 million 

dollars. 

Federalism 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it publishes a proposed 

rule (and subsequent final rule) that 

imposes substantial direct costs on State 

and local governments, preempts State 

law, or otherwise has Federalism 

implications. 

We have examined this proposed rule 

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 37) shows that payments to 

governmental hospitals (including State, 

local, and tribal governmental hospitals) 

would increase by 4.3 percent under the 

proposed rule. 

B. Impact of Proposed Changes in This 

Proposed Rule 

We are proposing several changes to 

the OPPS that are required by the 

statute. We are required under section 

1833(t)(3)(C)(ii) of the Act to update 

annually the conversion factor used to 

determine the APC payment rates. We 

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 proposed 

rule, we are proposing to update 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 proposed rule. 

We are also proposing to revise the 

relative APC payment weights using 

claims data from January 1, 2003 

through December 31, 2003. Finally, we 

are proposing to remove 6 devices and 

12 drugs and biological agents from 

pass-through payment status. In 

particular, see section V.A.2 with regard 

to the expiration of pass-through 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 proposed rule, 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 index 

adjustment, would increase total OPPS 

payments by 4.6 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 37 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 proposed 

rule. Some of the major issues discussed 

in this proposed rule and options that 

affect our policies are discussed below. 

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 

Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50547 

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 do not believe that any of the 

above options would help us progress 

toward reliance on our data. Rather than 

adoption of 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 

would be to base these medians on the 

greater of (1) median costs calculated 

using CY 2003 claims data, or (2) 90 

percent of the APC payment median 

used in CY 2004 for these services. We 

believe that this proposed adjustment 

methodology provides an appropriate 

transition to eventual use of all single 

bill claims data without adjustment. 

We are also proposing to use ‘‘C’’

codes to bill for the device-dependent 

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. of the preamble. 

Proposed 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 proposing a change to the threshold 

we use for qualifying a service for 

outlier payments to add 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. For a more 

detailed discussion of this issue, see 

section X. of the preamble. 

D. Limitations of Our Analysis 

The distributional impacts represent 

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. In 

addition, we are not proposing to make 

adjustments for future changes in 

variables such as service volume, 

service mix, or number of encounters. 

As we have done in previous proposed 

rules, we are soliciting comments and 

information about the anticipated effects 

of these proposed changes on hospitals 

and our methodology for estimating 

them. 

E. Estimated Impacts of This Proposed 

Rule on Hospitals 

The OPPS is a budget neutral 

payment system under which the 

increase to the total payments made 

under OPPS is limited by the increase 

to the conversion factor set under the 

methodology in the statute. The 

enactment of Pub. L. 108–173 on 

December 8, 2003, provided for the 

payment of additional dollars in 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 the preamble to 

this rule) and the wage indexes for 

specific hospitals through 

reclassification reform in section 508 of 

Pub. L. 108–173 (see section IX. of the 

preamble to this rule). Table 38 shows 

the estimated redistribution of hospital 

payments among providers as a result of 

a new APC structure and wage index, 

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 proposed 

changes for CY 2005. 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 pass-through 

dollars, are applied uniformly, the 

extent to which this proposed rule 

redistributes money would largely 

depend on the mix of services furnished 

by a hospital (for example, how the 

APCs for the hospital’s most frequently 

furnished services would change) and 

the impact of the wage index changes on 

the hospital. 

Overall, the proposed OPPS rates for 

CY 2005 would have a positive effect for 

every category of hospital. Proposed 

changes will result in a 4.6 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 index, APC groups, and 

relative weights do not affect aggregate 

payments. The impact of the wage and 

APC recalibration changes are moderate 

across hospital groups. 

To illustrate the impact of the 

proposed CY 2005 changes, our analysis 

begins with a baseline simulation model 

that uses the final CY 2004 weights, the 

FY 2004 final post-reclassification wage 

index without increases resulting from 

section 508 reclassifications, and the 

final CY 2004 conversion factor. 

Columns 2 and 3 in Table 38 reflect the 

independent effects of the changes in 

the APC reclassification and 

recalibration changes and the wage 

index, respectively. These effects are 

budget neutral, which is apparent in the 

overall zero impact in payment for all 

hospitals. 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 2003 hospital OPPS 

claims data. We modeled the 

independent effect of APC recalibration 

by varying only the weights, final CY 

2004 weights versus proposed CY 2005 

50548 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 

weights, in our baseline model, and 

calculating the percent difference in 

payments. Column 3 shows the impact 

of updating the wage index used to 

calculate payment by applying the FY 

2005 hospital inpatient wage index. In 

addition to new wage data, the new 

inpatient hospital wage index uses the 

Core Based Statistical Area (CBSA) 

system as the basis for geographic 

adjustment for wages, rather than the 

Metropolitan Statistical Areas (MSA) 

designations used previously. The CY 

2005 proposed OPPS wage index also 

includes the new adjustment for 

occupational mix, the reclassifications 

of hospitals to geographic areas by the 

Medicare Geographic Classification 

Review Board, and the increased 

payment authorized by section 505 of 

Pub. L. 108–173 for out-migration. 

However, the proposed OPPS wage 

index does not include wage increases 

due to reclassification of hospitals 

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

We modeled the independent effect of 

introducing a new wage index by 

varying only the wage index between 

years, using CY 2004 weights, and a CY 

2004 conversion factor that included a 

budget neutrality adjustment. 

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 index 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, the 

remaining column depicts the full 

impact of proposed CY 2005 policy on 

each hospital group by including the 

effect of all the changes for CY 2005. 

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 passthrough 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 

indexes including wage index increases 

for hospitals eligible for reclassification 

under section 508 of Pub. L.108–173 

and the CY 2005 proposed conversion 

factor of $57.098. 

Column 1: Total Number of Hospitals 

Column 1 in Table 38 shows the total 

number of hospital providers, 4,821, for 

which we were able to use CY 2003 

hospital outpatient claims to model CY 

2004 and CY 2005 payments by 

category. 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 the 

preamble. 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 nonTEFRA holds little value for OPPS as all 

hospitals are treated equally under the 

OPPS payment system. Therefore, for 

this proposed rule we did not include 

TEFRA hospitals as a distinct hospital 

category in Table 38. Finally, of the 

hospitals displayed in Table 38 and 

Table 39, 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. These hospitals cannot 

receive less payment in CY 2005 than 

they did in the CY 2004. 

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 0.9 percent increase. 

Specifically, rural hospitals with 0 to 49 

beds experience an increase of 1 

percent, rural hospitals with 50 to 100 

beds show a 1.4 percent increase and 

rural hospitals with 101 to 149 beds 

show a 0.9 percent increase attributable 

to the APC recalibration. Rural hospitals 

also show overall increases by region, 

with the East North Central and East 

South Central regions benefiting by 1.3 

percent and the Mountain region 

gaining 2.3 percent. Further, sole 

community hospitals experience an 

increase of 0.9 percent. 

Urban hospitals show, on an average, 

a 0.2 percent decrease. This decrease is 

concentrated in ‘‘other’’ urban hospitals, 

which experience a decline of 0.4 

percent. Urban hospitals with greater 

than 300 beds show decreases, and the 

largest urban hospitals with bed size 

greater than 500 report a decrease of 2.0 

percent. The smallest urban hospitals 

report a positive 1.1 percent increase, 

and urban hospitals with 200 to 299 

beds show an increase of 0.1 percent. 

Urban hospitals also demonstrate 

overall decreases by region, with South 

Atlantic hospitals losing 1.2 percent and 

West South Central hospitals losing 0.5 

percent attributable to APC 

recalibration. 

The largest observed impacts among 

other hospital classes resulting from 

APC recalibration include declines of 2 

percent for major teaching hospitals and 

2.2 percent for hospitals without a valid 

low-income indicator, most of which are 

TEFRA hospitals. Hospitals treating 

more low-income patients also 

demonstrate declines as high as 1.3 

percent. In these tables, cancer and 

children’s hospitals also demonstrate 

declines of 2.3 and 2.4 percent, 

respectively. However, these hospitals 

are ‘‘held harmless’’ by section 

1833(t)(7)(D)(ii) of the Act. 

In general, APC changes effect the 

distribution of hospital payments by 

increasing payments to small rural 

hospitals while decreasing those made 

to large urban hospitals, including major 

teaching hospitals and those serving 

low-income patients. 

Column 3: Wage Effect 

Changes introduced by the new wage 

index had a very modest impact, with 

the majority of these marginal declines 

located in rural hospitals. Overall, urban 

hospitals experience no change and 

rural hospitals experience a decrease of 

0.2 percent. This pattern is evident in 

all of the urban and rural comparisons. 

Low-volume urban hospitals with fewer 

than 5000 services and urban hospitals 

in the West South Central region show 

the largest percentage increases, 0.7 and 

0.8 respectively, attributable to wage 

index changes. 

Specifically, rural hospitals show 

modest decreases for most bed sizes but 

show the largest losses for categories 

with greater than 149 beds where the 

wage index change results in a 0.4 

percent decrease for the largest rural 

hospitals. 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. Rural hospitals in the 

South Atlantic region decrease by 0.6 

percent. As noted previously, rural 

hospitals with 100 or fewer beds and 

sole community hospitals are ‘‘held 

harmless’’ and earn, at least, the same 

amount as they earned in CY 2004. 

Rural hospitals providing a low 

volume of services, 10,999 or fewer 

services, are also estimated to 

experience modest declines, and rural 

hospitals providing a high volume of 

services, greater than 42,999 services, 

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also face a decline of 0.6 percent. This 

same pattern continues for rural 

hospitals in half of the regions with the 

New England region experiencing the 

largest decline of 1.3 percent. 

Looking across other categories of 

hospitals, major teaching hospitals are 

estimated to lose 0.3 percent. Hospitals 

not serving low-income patients lose 0.8 

percent, and, among hospitals serving 

low-income patients, those serving a 

high percentage of low-income patients 

also experience a decline. 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 

lessens the overall impact of 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 

observed with the introduction of the 

new wage index. For example, rural 

hospitals may gain 0.9 percent from the 

APC changes but lose 0.2 percent as a 

result of changes to the wage index. 

Overall, the budget neutrality 

adjustments and the introduction of the 

market basket may result in a projected 

increase of 4.1 percent for rural 

hospitals. 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 3.1 percent. 

However, for several classes of 

hospitals, positive or neutral wage 

effects do not offset the impact of APC 

recalibration resulting in lower update 

amounts. Specifically, major teaching 

hospitals may only gain 0.9 with the 

update factor. Urban hospitals with 

more than 500 beds show a gain of 1.2 

percent because the impact of APC 

recalibration was a 2 percent decline. 

Hospitals serving a medium level of 

low-income patients, between 0.16 and 

0.23 percent, may experience an update 

of only 1.9 percent. 

A handful of hospital providers may 

experience much lower and higher 

update amounts because the combined 

impact of the budget neutrality 

adjustments for the APC recalibration 

and the new wage index are reinforcing. 

Specifically, low volume rural hospitals 

show an update of 2.4 percent. Cancer 

hospitals show an update of only 0.2 

percent and children’s hospitals, of only 

1.3 percent. But as noted earlier, 

statutory provisions ensure that each of 

these hospitals is ‘‘held harmless’’

relative to last year’s payments. A 

handful of hospitals may also gain from 

the combined positive effect of the APC 

recalibration and the wage effect. 

Overall low volume to mid-volume 

urban hospitals and urban hospitals 

with a small number of beds, midvolume rural hospitals, and rural 

hospitals in the East South Central, 

Pacific, and Mountain regions have 

projected updates ranging from 5.0 to 

5.2 percent. 

Column 5: All Proposed Changes for CY 

2005 

Column 5 compares all proposed 

changes for CY 2005 to final simulated 

payment for CY 2004 and includes all 

additional dollars resulting from 

provisions in Pub. L. 108–173 and the 

difference in pass-through estimates. 

In both urban and rural areas, 

hospitals that provide a lower volume of 

outpatient services are projected to 

receive a larger increase in payments 

than higher volume hospitals. In rural 

areas, hospitals with service volumes 

between 5,000 and 42,999 are projected 

to experience increases larger than 5.5 

percent. Urban hospitals that provide 

low-volume services show similar rates 

of increases (5.4 to 5.8 percent). 

Conversely, urban and rural hospitals 

providing more than 42,999 services are 

projected to experience a rate of 

increase in the 4.1 to 4.3 percent range. 

The overall projected increase in 

payments for urban hospitals is slightly 

lower (4.5 percent) than the average 

increase for all hospitals (4.6 percent) 

while the increase for rural hospitals is 

slightly greater (5.3 percent) than the 

average increase. 

Major teaching hospitals are projected 

to experience a smaller increase in 

payments (2.9 percent) than the 

aggregate for all hospitals (4.6 percent) 

due to negative impacts from both the 

APC recalibration (¥2.0 percent) and 

wage index (¥0.3 percent). Hospitals 

with less intensive teaching programs 

are projected to experience an overall 

increase (4.7 percent). There is some 

difference in impact among hospitals 

that serve low-income patients where 

increases in payments range from 3.9 to 

5.0 percent higher than in CY 2004. 

F. Projected Distribution of Outlier 

Payments 

As stated in section X.B. of this 

preamble, we have allocated 2 percent 

of the estimated CY 2005 expenditures 

to outlier payments. For 2005, we are 

proposing to add a fixed dollar 

threshold to our outlier policy. As 

discussed in section X.B. of the 

preamble, we are proposing to change 

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. We hope that this policy 

would better target outlier payments to 

higher cost cases. 

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 1.5 times the 

APC payment rate and the cost must 

also exceed the sum of the APC rate 

plus a $625 fixed dollar threshold. The 

outlier payment under this proposed 

policy remains at 50 percent of the cost 

minus the multiple of the APC payment 

rate. 

Table 38 below compares the 

percentage of outlier payments relative 

to total projected payments for the 

simulated CY 2004 and proposed CY 

2005 outlier policies. In order to model 

2 percent of total estimated payments in 

outlier payments for the simulated CY 

2004 policy option, we had to lower the 

multiple for this policy from its current 

level of 2.6 percent to 2.25 percent. 

Overall, Table 38 demonstrates that 

the proposed outlier policy 

accomplishes the goal of redistributing 

outlier payments to hospitals 

performing more expensive procedures 

and incurring greater financial risk. 

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 88 percent 

of all hospitals would receive outlier 

payments under the proposed policy, 

where 95 percent of all hospitals were 

estimated to get these types of payments 

in CY 2004. 

We estimate that the redistribution of 

outlier payments under the proposed 

policy tends to benefit urban hospitals, 

especially major teaching hospitals, 

children’s hospitals, and those that 

serve a smaller percentage 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 37. Rural hospitals, 

specifically those that show a small 

number of beds and report low volume, 

are eligible for fewer outlier payments 

when compared to other types of 

hospital categories. Rural hospitals in 

the Mid Atlantic, West South Central, 

Mountain, and Pacific regions, show a 

smaller percent of outlier payments for 

CY 2005 when compared to the average. 

Sole community hospitals; hospitals 

without a DSH percent, mostly TEFRA 

50550 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 

hospitals; and urban hospitals located in 

the New England area show a small 

percentage share of their total payments 

attributable to outlier payments when 

compared to other types of hospital 

categories. 

G. Estimated Impacts of This Proposed 

Rule 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 co-payment in 

2004 was $10.71; under this proposed 

rule, the minimum unadjusted copayment for APC 601 would be $11.27 

because the OPPS payment for the 

service will increase under this rule. 

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. 

We estimate that the overall impact 

on the CY 2005 Part B monthly 

premium rate due to the projected 

increase in OPPS spending is $0.70. 

This is the impact due only to the 

projected increase in spending from 

2004 to 2005 and does not reflect any 

increase in the premium rate in order to 

put the trust fund asset level within an 

acceptable range. 

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BILLING CODE 4120–01–C 

Conclusion 

Notwithstanding the statutory ‘‘hold 

harmless’’ provisions that prevent 

negative impacts on small rural, sole 

community, cancer, and children’s 

hospitals, the changes in this proposed 

rule would affect all classes of hospitals, 

and the effects on some may be 

significant. Table 38 demonstrates the 

estimated distributional impact of the 

OPPS budget neutrality requirements 

and an additional 4.6 percent increase 

in payments proposed for CY 2005, 

exclusive of outlier and transitional 

pass-through payments, across various 

classes of hospitals. These two tables 

and the accompanying discussion 

below, in combination with the rest of 

this proposed rule, constitute a 

regulatory impact analysis. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

XVII. Regulation Text 

List of Subjects 

42 CFR Part 410 

Health Facilities, Health professions, 

Kidney diseases, Laboratories, 

Medicare, Rural areas, X-rays. 

42 CFR Part 411 

Kidney diseases, Medicare, Reporting 

and recordkeeping requirements. 

42 CFR Part 419 

Hospitals, Medicare, Reporting and 

recordkeeping requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services proposes to amend 

42 CFR Chapter IV, as set forth below: 

A. Part 410 is amended as follows: 

PART 410—SUPPLEMENTARY 

MEDICAL INSURANCE (SMI) 

BENEFITS 

1. The authority citation of part 410 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh). 

2. A new § 410.16 is added to read as 

follows: 

§ 410.16 Initial preventive physical 

examinations: conditions for and limitations 

on coverage. 

(a) Definitions. As used in this 

section, the following definitions apply: 

Eligible beneficiary means individuals 

who receive their initial preventive 

physical examinations within 6 months 

after the effective date of their first 

Medicare Part B coverage period, but 

only if their first Part B coverage period 

begins on or after January 1, 2005. 

Initial preventive physical 

examination means all of the following 

services furnished to an individual by a 

physician or a qualified nonphysician 

practitioner with the goal of health 

promotion and disease detection: 

(1) Review of the beneficiary’s 

comprehensive medical and social 

history. 

(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, unless the appropriate 

screening instrument is further defined 

through a national coverage 

determination. 

(3) Review of the beneficiary’s 

functional ability and level of safety, 

based on the use of an appropriate 

screening instrument, which the 

physician or qualified nonphysician 

practitioner may select, unless the 

appropriate screening instrument is 

further defined through a national 

coverage determination. 

(4) An examination to include 

measurement of the individual’s height, 

weight, blood pressure, a visual acuity 

screen, and other factors as deemed 

appropriate, based on the individual’s 

medical and social history and current 

clinical standards. 

(5) Performance of an 

electrocardiogram and interpretation of 

an electrocardiogram. 

(6) Education, counseling, and 

referral, as deemed appropriate by the 

physician or qualified nonphysician 

practitioner, based on the results of the 

elements of the review and evaluation 

services described in this section. 

(7) Education, counseling, and 

referral, including a written plan 

provided to the individual for obtaining 

the appropriate screening and other 

preventive services for the individual 

that are covered as separate Medicare 

Part B benefits as described in section 

1861(s)(10), section 1861(jj), section 

1861(nn), section 1861(oo), section 

1861(pp), section 1861(qq)(1), section 

1861(rr), section 1861(uu), section 

1861(vv), section 1861(xx)(1), and 

section 1861(yy) of the Social Security 

Act (the Act). 

Medical history is defined to include, 

at a minimum, the following: 

(1) Past medical and surgical history, 

including experience with illnesses, 

hospital stays, operations, allergies, 

injuries, and treatments. 

(2) Current medications and 

supplements, including calcium and 

vitamins. 

(3) 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. 

Physician for purposes of this 

provision means a doctor of medicine or 

osteopathy (as defined in section 

1861(r)(1) of the Act). 

Qualified nonphysician practitioner 

for purposes of this provision means a 

physician assistant, nurse practitioner, 

or clinical nurse specialist (as 

authorized under section 

1861(s)(2)(K)(i) and section 

1861(s)(2)(K)(ii) of the Act and defined 

in section 1861(aa)(5) of the Act, or in 

regulations at § 410.74, § 410.75, and 

§ 410.76). 

Review of the individual’s functional 

ability and level of safety. Review of the 

individual’s functional ability and level 

of safety must include, at a minimum, 

a review of the following areas: 

(1) Hearing impairment. 

(2) Activities of daily living. 

(3) Falls risk. 

(4) Home safety. 

Social history is defined to include, at 

a minimum, the following: 

(1) History of alcohol, tobacco, and 

illicit drug use. 

(2) Work and travel history. 

(3) Diet. 

(4) Social activities. 

(5) Physical activities. 

(b) Condition for coverage of an initial 

preventive physical examination. 

Medicare Part B pays for an initial 

preventive physical examination 

provided to an eligible beneficiary, as 

described in paragraph (a) of this 

section, if it is furnished by a physician 

or other qualified nonphysician 

practitioner, as defined in paragraph (a) 

of this section. 

(c) Limitations on coverage of initial 

preventive physical examinations. 

Payment may not be made for an initial 

preventive physical examination that is 

performed for an individual who is not 

an eligible beneficiary as described in 

paragraph (a) of this section. 

B. Part 411 is amended as follows: 

PART 411—EXCLUSIONS FROM 

MEDICARE AND LIMITATIONS ON 

MEDICARE PAYMENT 

1. The authority citation for part 411 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh). 

2. Section 411.15 is amended by—

50560 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 

A. Republishing the introductory text 

of the section and the introductory text 

of paragraphs (a) and (k). 

B. Revising paragraph (a)(1). 

C. Adding a new paragraph (k)(11). 

The additions and revisions read as 

follows: 

§ 411.15 Particular services excluded from 

coverage. 

The following services are excluded 

from coverage: 

(a) Routine physical checkups such 

as: 

(1) Examinations performed for a 

purpose other than treatment or 

diagnosis of a specific illness, symptom, 

complaint, or injury, except for 

screening and diagnostic 

mammography, colorectal cancer 

screening tests, screening pelvic 

examinations, prostate cancer screening 

tests, glaucoma screening exams, or 

initial preventive physical examinations 

that meet the criteria specified in 

paragraph (k)(11) of this section. 

* * * * * 

(k) Any services that are not 

reasonable and necessary for one of the 

following purposes: * * * 

(11) In the case of initial preventive 

physical examinations, with the goal of 

health promotion and disease 

prevention, subject to the conditions 

and limitations specified in § 410.16 of 

this chapter. 

C. Part 419 is amended as follows: 

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, 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 and effective 

January 1, 2005, diagnostic 

mammography services. 

4. Section 419.64 is amended by 

revising paragraphs (d)(1) and (d)(2) 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 section 419.62(b), the passthrough 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 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: July 27, 2004. 

Mark B. McClellan, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Dated: August 6, 2004. 

Tommy G. Thompson, 

Secretary. 

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50572 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.244</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50573 


EP16AU04.245</GPH>
50574 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.246</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50575 


EP16AU04.247</GPH>
50576 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.248</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50577 


EP16AU04.249</GPH>
50578 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.250</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50579 


EP16AU04.251</GPH>
50580 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.252</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50581 


EP16AU04.253</GPH>
50582 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.254</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50583 


EP16AU04.255</GPH>
50584 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.256</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50585 


EP16AU04.257</GPH>
50586 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.258</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50587 


EP16AU04.259</GPH>
50588 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.260</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50589 


EP16AU04.261</GPH>
50590 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.262</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50591 


EP16AU04.263</GPH>
50592 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.264</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50593 


EP16AU04.265</GPH>
50594 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.266</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50595 


EP16AU04.267</GPH>
50596 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.268</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50597 


EP16AU04.269</GPH>
50598 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.270</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50599 


EP16AU04.271</GPH>
50600 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.272</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50601 


EP16AU04.273</GPH>
50602 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.274</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50603 


EP16AU04.275</GPH>
50604 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.276</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50605 


EP16AU04.277</GPH>
50606 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.278</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50607 


EP16AU04.279</GPH>
50608 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.280</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50609 


EP16AU04.281</GPH>
50610 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.282</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50611 


EP16AU04.283</GPH>
50612 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.284</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50613 


EP16AU04.285</GPH>
50614 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.286</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50615 


EP16AU04.287</GPH>
50616 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.288</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50617 


EP16AU04.289</GPH>
50618 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.290</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50619 


EP16AU04.291</GPH>
50620 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.292</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50621 


EP16AU04.293</GPH>
50622 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.294</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50623 


EP16AU04.295</GPH>
50624 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.296</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50625 


EP16AU04.297</GPH>
50626 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.298</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50627 


EP16AU04.299</GPH>
50628 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.300</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50629 


EP16AU04.301</GPH>
50630 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.302</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50631 


EP16AU04.303</GPH>
50632 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.304</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50633 


EP16AU04.305</GPH>
50634 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.306</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50635 


EP16AU04.307</GPH>
50636 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.308</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50637 


EP16AU04.309</GPH>
50638 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.310</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50639 


EP16AU04.311</GPH>
50640 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.312</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50641 


EP16AU04.313</GPH>
50642 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.314</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50643 


EP16AU04.315</GPH>
50644 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.316</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50645 


EP16AU04.317</GPH>
50646 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.318</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50647 


EP16AU04.319</GPH>
50648 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.320</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50649 


EP16AU04.321</GPH>
50650 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.322</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50651 


EP16AU04.323</GPH>
50652 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.324</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50653 


EP16AU04.325</GPH>
50654 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.326</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50655 


EP16AU04.327</GPH>
50656 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.328</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50657 


EP16AU04.329</GPH>
50658 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.330</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50659 


EP16AU04.331</GPH>
50660 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.332</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50661 


EP16AU04.333</GPH>
50662 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.334</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50663 


EP16AU04.335</GPH>
50664 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.336</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50665 


EP16AU04.337</GPH>
50666 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.338</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50667 


EP16AU04.339</GPH>
50668 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.340</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50669 


EP16AU04.341</GPH>
50670 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.342</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50671 


EP16AU04.343</GPH>
50672 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.344</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50673 


EP16AU04.345</GPH>
50674 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.346</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50675 


EP16AU04.347</GPH>
50676 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.348</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50677 


EP16AU04.349</GPH>
50678 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.350</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50679 


EP16AU04.351</GPH>
50680 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.352</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50681 


EP16AU04.353</GPH>
50682 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.354</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50683 


EP16AU04.355</GPH>
50684 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.356</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50685 


EP16AU04.357</GPH>
50686 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.358</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50687 


EP16AU04.359</GPH>
50688 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.360</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50689 


EP16AU04.361</GPH>
50690 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.362</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50691 


EP16AU04.363</GPH>
50692 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.364</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50693 


EP16AU04.365</GPH>
50694 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.366</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50695 


EP16AU04.367</GPH>
50696 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.368</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50697 


EP16AU04.369</GPH>
50698 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.370</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50699 


EP16AU04.371</GPH>
50700 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.372</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50701 


EP16AU04.373</GPH>
50702 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.374</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50703 


EP16AU04.483</GPH>
50704 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.375</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50705 


EP16AU04.376</GPH>
50706 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.377</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50707 


EP16AU04.378</GPH>
50708 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.379</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50709 


EP16AU04.380</GPH>
50710 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.381</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50711 


EP16AU04.382</GPH>
50712 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.383</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50713 


EP16AU04.384</GPH>
50714 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.385</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50715 


EP16AU04.386</GPH>
50716 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.387</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50717 


EP16AU04.388</GPH>
50718 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.389</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50719 


EP16AU04.390</GPH>
50720 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.391</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50721 


EP16AU04.392</GPH>
50722 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.393</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50723 


EP16AU04.394</GPH>
50724 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.395</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50725 


EP16AU04.396</GPH>
50726 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.397</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50727 


EP16AU04.398</GPH>
50728 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.399</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50729 


EP16AU04.400</GPH>
50730 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.401</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50731 


EP16AU04.402</GPH>
50732 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.403</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50733 


EP16AU04.404</GPH>
50734 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.405</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50735 


EP16AU04.406</GPH>
50736 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.407</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50737 


EP16AU04.408</GPH>
50738 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.409</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50739 


EP16AU04.410</GPH>
50740 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.411</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50741 


EP16AU04.412</GPH>
50742 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.413</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50743 


EP16AU04.414</GPH>
50744 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.415</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50745 


EP16AU04.416</GPH>
50746 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.417</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50747 


EP16AU04.418</GPH>
50748 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.419</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50749 


EP16AU04.420</GPH>
50750 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.421</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50751 


EP16AU04.422</GPH>
50752 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.423</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50753 


EP16AU04.424</GPH>
50754 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.425</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50755 


EP16AU04.426</GPH>
50756 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.427</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50757 


EP16AU04.428</GPH>
50758 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.429</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50759 


EP16AU04.430</GPH>
50760 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.431</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50761 


EP16AU04.432</GPH>
50762 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.433</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50763 


EP16AU04.434</GPH>
50764 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.435</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50765 


EP16AU04.436</GPH>
50766 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.437</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50767 


EP16AU04.438</GPH>
50768 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.439</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50769 


EP16AU04.440</GPH>
50770 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.441</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50771 


EP16AU04.442</GPH>
50772 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.443</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50773 


EP16AU04.444</GPH>
50774 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.445</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50775 


EP16AU04.446</GPH>
50776 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.447</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50777 


EP16AU04.448</GPH>
50778 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.449</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50779 


EP16AU04.450</GPH>
50780 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.451</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50781 


EP16AU04.452</GPH>
50782 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.453</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50783 


EP16AU04.454</GPH>
50784 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.455</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50785 


EP16AU04.456</GPH>
50786 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.457</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50787 


EP16AU04.458</GPH>
50788 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.459</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50789 


EP16AU04.460</GPH>
50790 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.461</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50791 


EP16AU04.462</GPH>
50792 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.463</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50793 


EP16AU04.464</GPH>
50794 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.465</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50795 


EP16AU04.466</GPH>
50796 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.467</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50797 


EP16AU04.468</GPH>
50798 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.469</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50799 


EP16AU04.470</GPH>
50800 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.471</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50801 


EP16AU04.472</GPH>
50802 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.473</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50803 


EP16AU04.474</GPH>
50804 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.475</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50805 


EP16AU04.476</GPH>
50806 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.477</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50807 


EP16AU04.478</GPH>
50808 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.479</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50809 


EP16AU04.480</GPH>
50810 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.481</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50811 


EP16AU04.482</GPH>
50812 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.069
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50813 


EP16AU04.070</GPH>
50814 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.071</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50815 


EP16AU04.072</GPH>
50816 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.073</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50817 


EP16AU04.074</GPH>
50818 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.075</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50819 


EP16AU04.076</GPH>
50820 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.077</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50821 


EP16AU04.078</GPH>
50822 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.079</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50823 


EP16AU04.080</GPH>
50824 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.081</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50825 


EP16AU04.082</GPH> EP16AU04.083</GPH>
50826 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.084</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50827 


EP16AU04.085</GPH>
50828 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.086</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50829 


EP16AU04.087</GPH>
50830 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.088</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50831 


EP16AU04.089</GPH>
50832 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.090</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50833 


EP16AU04.091</GPH>
50834 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.092</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50835 


EP16AU04.093</GPH>
50836 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.094</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50837 


EP16AU04.095</GPH>
50838 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.096</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50839 


EP16AU04.097</GPH>
50840 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.098</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50841 


EP16AU04.099</GPH>
50842 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.100</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50843 


EP16AU04.101</GPH>
50844 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.102</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50845 


EP16AU04.103</GPH>
50846 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.104</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50847 


EP16AU04.105</GPH>
50848 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.106</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50849 


EP16AU04.107</GPH>
50850 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.108</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50851 


EP16AU04.109</GPH>
50852 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.110</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50853 


EP16AU04.111</GPH>
50854 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.112</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50855 


EP16AU04.113</GPH>
50856 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.114</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50857 


EP16AU04.115</GPH>
50858 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.116</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50859 


EP16AU04.117</GPH>
50860 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.118</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50861 


EP16AU04.119</GPH>
50862 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.120</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50863 


EP16AU04.121</GPH>
50864 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.122</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50865 


EP16AU04.123</GPH>
50866 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.124</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50867 


EP16AU04.125</GPH>
50868 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.126</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50869 


EP16AU04.127</GPH>
50870 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.128</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50871 


EP16AU04.129</GPH>
50872 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.130</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50873 


EP16AU04.131</GPH>
50874 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.132</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50875 


EP16AU04.133</GPH>
50876 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.134</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50877 


EP16AU04.135</GPH>
50878 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.136</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50879 


EP16AU04.137</GPH>
50880 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.138</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50881 


EP16AU04.139</GPH>
50882 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.140</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50883 


EP16AU04.141</GPH>
50884 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.142</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50885 


EP16AU04.143</GPH>
50886 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.144</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50887 


EP16AU04.145</GPH>
50888 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.146</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50889 


EP16AU04.147</GPH>
50890 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.148</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50891 


EP16AU04.149</GPH>
50892 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.150</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50893 


EP16AU04.151</GPH>
50894 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.152</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50895 


EP16AU04.153</GPH>
50896 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.154</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50897 


EP16AU04.155</GPH>
50898 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.156</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50899 


EP16AU04.157</GPH>
50900 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.158</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50901 


EP16AU04.159</GPH>
50902 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.160</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50903 


EP16AU04.161</GPH>
50904 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.162</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50905 


EP16AU04.163</GPH>
50906 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.164</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50907 


EP16AU04.165</GPH>
50908 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.166</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50909 


EP16AU04.167</GPH>
50910 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.168</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50911 


EP16AU04.169</GPH>
50912 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.170</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50913 


EP16AU04.171</GPH>
50914 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.172</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50915 


EP16AU04.173</GPH>
50916 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.174</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50917 


EP16AU04.175</GPH>
50918 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.176</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50919 


EP16AU04.177</GPH>
50920 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.178</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50921 


EP16AU04.179</GPH>
50922 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.180</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50923 


EP16AU04.181</GPH>
50924 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.182</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50925 


EP16AU04.183</GPH>
50926 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.184</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50927 


EP16AU04.185</GPH> EP16AU04.186</GPH>
50928 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.187</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50929 


EP16AU04.188</GPH>
50930 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.189</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50931 


EP16AU04.190</GPH>
50932 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.191</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50933 


EP16AU04.192</GPH>
50934 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.193</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50935 


EP16AU04.194</GPH>
50936 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.195</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50937 


EP16AU04.196</GPH>
50938 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.197</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50939 


EP16AU04.198</GPH>
50940 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.199</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50941 


EP16AU04.200</GPH>
50942 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.201</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50943 


EP16AU04.202</GPH>
50944 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.203</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50945 


EP16AU04.204</GPH>
50946 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.205</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50947 


EP16AU04.206</GPH>
50948 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.207</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50949 


EP16AU04.208</GPH>
50950 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.209</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50951 


EP16AU04.210</GPH>
50952 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.211</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50953 


EP16AU04.212</GPH>
50954 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.213</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50955 


EP16AU04.214</GPH>
50956 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.215</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50957 


EP16AU04.216</GPH>
50958 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.217</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50959 


EP16AU04.218</GPH>
50960 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.219</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50961 


EP16AU04.220</GPH>
50962 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.221</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50963 


EP16AU04.222</GPH>
50964 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.223</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50965 


EP16AU04.224</GPH>
50966 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.225</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50967 


EP16AU04.226</GPH>
50968 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.227</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50969 


EP16AU04.228</GPH>
50970 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.229</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50971 


EP16AU04.230</GPH>
50972 Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 


EP16AU04.231</GPH>
Federal Register / Vol. 69, No. 157 / Monday, August 16, 2004 / Proposed Rules 50973 

[FR Doc. 04–18427 Filed 8–9–04; 4:00 pm] 

BILLING CODE 4120–01–C 


EP16AU04.232</GPH>