DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Centers for Medicare & Medicaid Services 

42 CFR Parts 405, 410, 412, 416, 419, 475, 476, 486, and 495 

[CMS-1601-P] 

RIN 0938-AR54 

Medicare and Medicaid Programs: Hospital Outpatient Prospective Payment and 

Ambulatory Surgical Center Payment Systems and Quality Reporting Programs; 

Hospital Value-Based Purchasing Program; Organ Procurement Organizations; 

Quality Improvement Organizations; Electronic Health Records (EHR) Incentive 

Program; Provider Reimbursement Determinations and Appeals 

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would revise the Medicare hospital outpatient 

prospective payment system (OPPS) and the Medicare ambulatory surgical center (ASC) 

payment system for CY 2014 to implement applicable statutory requirements and 

changes arising from our continuing experience with these systems. In this proposed 

rule, we describe the proposed changes to the amounts and factors used to determine the 

payment rates for Medicare services paid under the OPPS and those paid under the ASC 

payment system. In addition, this proposed rule would update and refine the 

requirements for the Hospital Outpatient Quality Reporting (OQR) Program, the ASC 

Quality Reporting (ASCQR) Program, and the Hospital Value-Based Purchasing (VBP) 

Program. 
CMS-1601-P 2 

 We are proposing changes to the conditions for coverage (CfCs) for organ 

procurement organizations (OPOs); revisions to the Quality Improvement Organization 

(QIO) regulations; changes to the Medicare fee-for-service Electronic Health Record 

(EHR) Incentive Program; and changes relating to provider reimbursement 

determinations and appeals. 

DATES: Comment Period: To be assured consideration, comments on all 

sections of this proposed rule must be received at one of the addresses provided in the 

ADDRESSES section no later than 5 p.m. EST on [Insert 60 days from date of display at 

the Office of the Federal Register]. 

ADDRESSES: In commenting, please refer to file code CMS-1601-P. Because 

of staff and resource limitations, we cannot accept comments by facsimile (FAX) 

transmission. 

 You may submit comments in one of four ways (no duplicates, please): 

 1. Electronically. You may (and we encourage you to) submit electronic 

comments on this regulation to http://www.regulations.gov. Follow the instructions 

under the “submit a comment” tab. 

 2. By regular mail. You may mail written comments to the following address 

ONLY: 

Centers for Medicare & Medicaid Services, 

 Department of Health and Human Services, 

 Attention: CMS-1601-P, 

 P.O. Box 8013, 
CMS-1601-P 3 

 Baltimore, MD 21244-1850. 

 Please allow sufficient time for mailed comments to be received before the close 

of the comment period. 

 3. By express or overnight mail. You may send written comments via express or 

overnight mail to the following address ONLY: 

Centers for Medicare & Medicaid Services, 

 Department of Health and Human Services, 

 Attention: CMS-1601-P, 

 Mail Stop C4-26-05, 

 7500 Security Boulevard, 

 Baltimore, MD 21244-1850. 

 4. By hand or courier. If you prefer, you may deliver (by hand or courier) your 

written comments before the close of the comment period to either of the following 

addresses: 

 a. For delivery in Washington, DC— 

 Centers for Medicare & Medicaid Services, 

 Department of Health and Human Services, 

 Room 445-G, Hubert H. Humphrey Building, 

 200 Independence Avenue, S.W., 

 Washington, DC 20201. 

 (Because access to the interior of the Hubert H. Humphrey Building is not readily 

available to persons without Federal Government identification, commenters are 
CMS-1601-P 4 

encouraged to leave their comments in the CMS drop slots located in the main lobby of 

the building. A stamp-in clock is available for persons wishing to retain a proof of filing 

by stamping in and retaining an extra copy of the comments being filed.) 

 b. For delivery in Baltimore, MD— 

 Centers for Medicare & Medicaid Services, 

 Department of Health and Human Services, 

 7500 Security Boulevard, 

 Baltimore, MD 21244-1850. 

 If you intend to deliver your comments to the Baltimore address, please call the 

telephone number (410) 786-7195 in advance to schedule your arrival with one of our 

staff members. 

 Comments mailed to the addresses indicated as appropriate for hand or courier 

delivery may be delayed and received after the comment period. 

 For information on viewing public comments, we refer readers to the beginning of 

the “SUPPLEMENTARY INFORMATION” section. 

FOR FURTHER INFORMATION, CONTACT:

 Marjorie Baldo, (401) 786-4617, for issues related to new CPT and Level II 

HCPCS codes, exceptions to the 2 times rule, and stereotactic radiosurgery services. 

 Anita Bhatia, (410) 786-7236, for issues related to the Ambulatory Surgical 

Center Quality Reporting (ASCQR) Program – Program Administration and 

Reconsideration Issues. 
CMS-1601-P 5 

 Chuck Braver, (410) 786-9379, for issues related to the Advisory Panel on 

Hospital Outpatient Payment (HOP Panel). 

 Erick Chuang, (410) 786-1816, for issues related to OPPS APC weights, mean 

calculation, copayments, wage index, outlier payments, cost-to-charge ratios (CCRs), and 

rural hospital payments. 

 Diane Corning, (410) 786-8486, for issues related to the Conditions for Coverage 

for Organ Procurement Organizations (OPOs). 

 Dexter Dickey, (410) 786-6856, or Dorothy Myrick, (410) 786-9671, for issues 

related to partial hospitalization and community mental health center (CMHC) issues. 

 Roxanne Dupert-Frank, (410) 786-4827, for issues related to the Hospital 

Value-Based Purchasing (VBP) Program. 

 Dan Duvall, (410) 786-4592, for issues related to comprehensive APCs. 

 Shaheen Halim (410) 786-0641, for issues related to the Hospital Outpatient 

Quality Reporting Program (OQR) – Measures Issues and Publication of Hospital OQR 

Program Data, and Ambulatory Surgical Center Quality Reporting (ASCQR) Program – 

Measures Issues and Publication of ASCQR Program Data. 

 James Hart, (410) 786-9520, for issues related to the Medicare fee-for-service 

Electronic Health Record (EHR) Incentive Program. 

 Jeneen Iwugo, (410) 786-1028, for issues related to the revisions of the Quality 

Improvement Organization (QIO) Regulations. 

 Twi Jackson, (410) 786-1159, for issues related to blood products, devicedependent APCs, extended assessment and management composite APCs, hospital 
CMS-1601-P 6 

outpatient visits, inpatient-only procedures, and no cost/full credit and partial credit 

devices. 

 Marina Kushnirova, (410) 786-2682, for issues related to OPPS status indicators 

and comment indicators. 

 Barry Levi, (410) 786-4529, for issues related to OPPS pass-through devices, 

brachytherapy sources, intraoperative radiation therapy (IORT), brachytherapy composite 

APC, multiple imaging composite APCs, and cardiac electrophysiologic evaluation and 

ablation composite APC. 

 Ann Marshall, (410) 786-3059, for issues related to packaged items/services, 

hospital outpatient supervision, proton beam therapy, therapy caps in CAHs, incident to 

physician or nonphysician practitioner services, and provider-based issues. 

 Danielle Moskos, (410) 786-8866, or Michael Zleit, (410) 786-2050, for issues 

related to Provider Reimbursement Determination Appeals. 

 James Poyer, (410) 786-2261, for issues related to the Hospital Outpatient Quality 

Reporting - Program Administration, Validation, and Reconsideration Issues. 

 Char Thompson, (410) 786-2300, for issues related to OPPS drugs, 

radiopharmaceuticals, biologicals, blood clotting factors, new technology intraocular 

lenses (NTIOLs), and ambulatory surgical center (ASC) payments. 

 Marjorie Baldo, (410) 786-4617, for all other issues related to hospital outpatient 

and ambulatory surgical center payments not previously identified. 
CMS-1601-P 7 

SUPPLEMENTARY INFORMATION:

 Inspection of Public Comments: All comments received before the close of the 

comment period are available for viewing by the public, including any personally 

identifiable or confidential business information that is included in a comment. We post 

all comments received before the close of the comment period on the following Web site 

as soon as possible after they have been received: http://www.regulations.gov. Follow 

the search instructions on that Web site to view public comments. 

 Comments received timely will also be available for public inspection, generally 

beginning approximately 3 weeks after publication of the rule, at the headquarters of the 

Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 

Baltimore, MD 21244, on Monday through Friday of each week from 8:30 a.m. to 4:00 

p.m. EST. To schedule an appointment to view public comments, phone 

1-800-743-3951. 

Electronic Access

 This Federal Register document is also available from the Federal Register

online database through Federal Digital System (FDsys), a service of the U.S. 

Government Printing Office. This database can be accessed via the internet at 

http://www.gpo.gov/fdsys/. 

Addenda Available Only Through the Internet on the CMS Web Site 

In the past, a majority of the Addenda referred to in our OPPS/ASC proposed and 

final rules were published in the Federal Register as part of the annual rulemakings. 

However, beginning with the CY 2012 OPPS/ASC proposed rule, all of the Addenda no 
CMS-1601-P 8 

longer appear in the Federal Register as part of the annual OPPS/ASC proposed and 

final rules to decrease administrative burden and reduce costs associated with publishing 

lengthy tables. Instead, these Addenda will be published and available only on the CMS 

Web site. The Addenda relating to the OPPS are available at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalOutpatientPPS/index.html. The Addenda relating to the ASC payment 

system are available at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/ASCPayment/index.html.

Alphabetical List of Acronyms Appearing in This Federal Register Document 

AHA American Hospital Association 

AMA American Medical Association 

APC Ambulatory Payment Classification 

ASC Ambulatory surgical center 

ASCQR Ambulatory Surgical Center Quality Reporting 

ASP Average sales price 

AWP Average wholesale price 

BBA Balanced Budget Act of 1997, Pub. L. 105-33 

BBRA Medicare, Medicaid, and SCHIP [State Children's Health Insurance 

Program] Balanced Budget Refinement Act of 1999, Pub. L. 106-113 

BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and Protection 

Act of 2000, Pub. L. 106-554 

BLS Bureau of Labor Statistics 
CMS-1601-P 9 

CAH Critical access hospital 

CAP Competitive Acquisition Program 

CASPER Certification and Survey Provider Enhanced Reporting 

CAUTI Catheter associated urinary tract infection 

CBSA Core-Based Statistical Area 

CCI Correct Coding Initiative 

CCN CMS Certification Number 

CCR Cost-to-charge ratio 

CDC Centers for Disease Control and Prevention 

CEO Chief executive officer 

CERT Comprehensive Error Rate Testing 

CfC [Medicare] Condition for coverage 

CFR Code of Federal Regulations 

CLFS Clinical Laboratory Fee Schedule 

CMHC Community mental health center 

CMS Centers for Medicare & Medicaid Services 

CoP [Medicare] Condition of participation 

CPI-U Consumer Price Index for All Urban Consumers 

CPT Current Procedural Terminology (copyrighted by the American Medical 

Association) 

CQM Clinical quality measure 

CR Change request 
CMS-1601-P 10

CSAC Consensus Standards Approval Committee 

CY Calendar year 

DFO Designated Federal Official 

DRA Deficit Reduction Act of 2005, Pub. L. 109-171 

DRG Diagnosis-Related Group 

DSH Disproportionate share hospital 

EACH Essential access community hospital 

eCQM Electronically specified clinical quality measure 

ECT Electroconvulsive therapy 

ED Emergency department 

E/M Evaluation and management 

EHR Electronic health record 

ESRD End-stage renal disease 

FACA Federal Advisory Committee Act, Pub. L. 92-463 

FDA Food and Drug Administration 

FFS [Medicare] Fee-for-service 

FY Fiscal year 

FFY Federal fiscal year 

GAO Government Accountability Office 

HAI Healthcare-associated infection 

HCERA Health Care and Education Reconciliation Act of 2010, Pub. L. 111-152 

HCPCS Healthcare Common Procedure Coding System 
CMS-1601-P 11

HCRIS Hospital Cost Report Information System 

HEU Highly enriched uranium 

HIPAA Health Insurance Portability and Accountability Act of 1996, 

Pub. L. 104-191 

HITECH Health Information Technology for Economic and Clinical Health [Act] 

(found in the American Recovery and Reinvestment Act of 2009, Pub. L. 

111-5) 

HOP Hospital Outpatient Payment [Panel] 

HOPD Hospital outpatient department 

ICD-9-CM International Classification of Diseases, Ninth Revision, Clinical 

Modification 

ICD Implantable cardioverter defibrillator 

ICU Intensive care unit 

IHS Indian Health Service 

IMRT Intensity Modulated Radiation Therapy 

I/OCE Integrated Outpatient Code Editor 

IOL Intraocular lens 

IOM Institute of Medicine 

IORT Intraoperative radiation treatment 

IPPS [Hospital] Inpatient Prospective Payment System 

IQR [Hospital] Inpatient Quality Reporting 

LDR Low dose rate 
CMS-1601-P 12

LOS Length of Stay 

LTCH Long-term care hospital 

MAC Medicare Administrative Contractor 

MAP Measure Application Partnership 

MedPAC Medicare Payment Advisory Commission 

MEI Medicare Economic Index 

MFP Multifactor productivity 

MGCRB Medicare Geographic Classification Review Board 

MIEA-TRHCA Medicare Improvements and Extension Act under Division B, Title I 

of the Tax Relief Health Care Act of 2006, Pub. L. 109-432 

MIPPA Medicare Improvements for Patients and Providers Act of 2008, 

Pub. L. 110-275 

MMA Medicare Prescription Drug, Improvement, and Modernization Act of 

2003, Pub. L. 108-173 

MMEA Medicare and Medicaid Extenders Act of 2010, Pub. L. 111-309 

MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Pub. L. 110-173 

MPFS Medicare Physician Fee Schedule 

MRA Magnetic resonance angiography 

MRI Magnetic resonance imaging 

MSA Metropolitan Statistical Area 

NCCI National Correct Coding Initiative 

NHSN National Healthcare Safety Network 
CMS-1601-P 13

NQF National Quality Forum 

NTIOL New technology intraocular lens 

NUBC National Uniform Billing Committee 

OACT [CMS] Office of the Actuary 

OBRA Omnibus Budget Reconciliation Act of 1996, Pub. L. 99-509 

OIG [HHS] Office of the Inspector General 

OMB Office of Management and Budget 

OPD [Hospital] Outpatient Department 

OPPS [Hospital] Outpatient Prospective Payment System 

OPSF Outpatient Provider-Specific File 

OQR [Hospital] Outpatient Quality Reporting 

OT Occupational therapy 

PBD Provider-Based Department 

PCR Payment-to-cost ratio 

PE Practice expense 

PEPPER Program for Evaluating Payment Patterns Electronic Report 

PHP Partial hospitalization program 

PHS Public Health Service [Act], Pub. L. 96-88 

PPI Producer Price Index 

PPS Prospective payment system 

PQRS Physician Quality Reporting System 

PT Physical therapy 
CMS-1601-P 14

QDC Quality data code 

QIO Quality Improvement Organization 

RFA Regulatory Flexibility Act 

RTI Research Triangle Institute, International 

RVU Relative value unit 

SCH Sole community hospital 

SCOD Specified covered outpatient drugs 

SI Status indicator 

SIR Standardized infection ratio 

SLP Speech-language pathology 

SNF Skilled Nursing Facility 

SRS Stereotactic Radiosurgery 

TEP Technical Expert Panel 

TMS Transcranial Magnetic Stimulation Therapy 

TOPs Transitional Outpatient Payments 

UR Utilization review 

USPSTF United States Preventive Services Task Force 

UTI Urinary tract infection 

VBP Value-based purchasing 

WAC Wholesale acquisition cost 

Table of Contents 

I. Summary and Background 
CMS-1601-P 15

 A. Executive Summary of This Proposed Rule 

 1. Purpose 

 2. Summary of the Major Provisions 

 3. Summary of Costs and Benefits 

 B. Legislative and Regulatory Authority for the Hospital OPPS 

 C. Excluded OPPS Services and Hospitals 

 D. Prior Rulemaking 

 E. Advisory Panel on Hospital Outpatient Payment (the HOP Panel or the Panel), 

Formerly Named the Advisory Panel on Ambulatory Payment Classification Groups 

(APC Panel) 

 1. Authority of the Panel 

 2. Establishment of the Panel 

 3. Panel Meetings and Organizational Structure 

 F. Public Comments Received in Response to the CY 2013 OPPS/ASC Final 

Rule with Comment Period 

 II. Proposed Updates Affecting OPPS Payments 

 A. Proposed Recalibration of APC Relative Payment Weights 

 1. Database Construction 

 a. Database Source and Methodology 

 b. Proposed Use of Single and Multiple Procedure Claims 

 c. Proposed Calculation and Use of Cost-to-Charge Ratios (CCRs) 
CMS-1601-P 16

 2. Proposed Data Development Process and Calculation of Costs Used for 

Ratesetting 

 a. Claims Preparation 

 b. Splitting Claims and Creation of “Pseudo” Single Procedure Claims 

 (1) Splitting Claims 

 (2) Creation of “Pseudo” Single Procedure Claims 

 c. Completion of Claim Records and Geometric Mean Cost Calculations 

 (1) General Process 

 (2) Recommendations of the Advisory Panel on Hospital Outpatient Payment 

Regarding Data Development 

 d. Proposed Calculation of Single Procedure APC Criteria-Based Costs 

 (1) Device-Dependent APCs 

 (2) Blood and Blood Products 

 e. Proposed Establishment of Comprehensive APCs 

 (1) Definitions and General Principles 

 (2) Comprehensive APCs for Device-Dependent Services 

 f. Proposed Calculation of Composite APC Criteria-Based Costs 

 (1) Extended Assessment and Management Composite APCs (APCs 8002 and 

8003) 

 (2) Low Dose Rate (LDR) Prostate Brachytherapy Composite APC (APC 8001) 

 (3) Cardiac Electrophysiologic Evaluation and Ablation Composite APC 

(APC 8000) 
CMS-1601-P 17

 (4) Mental Health Services Composite APC (APC 0034) 

 (5) Multiple Imaging Composite APCs (APCs 8004, 8005, 8006, 8007, and 

8008) 

 3. Proposed Changes to Packaged Services 

 a. Background 

 b. Basis for Proposed New Packaging Policies for CY 2014 

 c. Proposed New Packaging Policies for CY 2014 

 (1) Drugs, Biologicals, and Radiopharmaceuticals That Function as Supplies 

When Used in a Diagnostic Test or Procedure 

 (2) Drugs and Biologicals That Function as Supplies or Devices When Used in a 

Surgical Procedure 

 (3) Clinical Diagnostic Laboratory Tests 

 (4) Procedures Described by Add-On Codes 

 (5) Ancillary Services (Status Indicator “X”) 

 (6) Diagnostic Tests on the Bypass List 

 (7) Device Removal Procedures 

 d. Impact of the New Packaging Proposals 

 e. Clarification Regarding Supplies That Are Packaged in the OPPS 

 f. Proposed Revision and Clarification of the Regulations at 42 CFR 419.2(b) and 

42 CFR 419.22 

 g. Comment Solicitation on Increased Packaging for Imaging Services 

 h. Summary of CY 2014 Packaging Proposals 
CMS-1601-P 18

 4. Proposed Calculation of OPPS Scaled Payment Weights 

 B. Proposed Conversion Factor Update 

 C. Proposed Wage Index Changes 

 D. Proposed Statewide Average Default CCRs 

 E. Proposed Adjustment for Rural SCHs and EACHs under Section 

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

 F. Proposed OPPS Payment to Certain Cancer Hospitals Described by Section 

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

 1. Background 

 2. Proposed Payment Adjustment for Certain Cancer Hospitals for CY 2014 

 G. Proposed Hospital Outpatient Outlier Payments 

 1. Background 

 2. Proposed Outlier Calculation 

 H. Proposed Calculation of an Adjusted Medicare Payment from the National 

Unadjusted Medicare Payment 

 I. Proposed Beneficiary Copayments 

 1. Background 

 2. Proposed OPPS Copayment Policy 

 3. Proposed Calculation of an Adjusted Copayment Amount for an APC Group 

III. Proposed OPPS Ambulatory Payment Classification (APC) Group Policies 

 A. Proposed OPPS Treatment of New CPT and Level II HCPCS Codes 
CMS-1601-P 19

 1. Proposed Treatment of New CY 2013 Level II HCPCS and CPT Codes 

Effective April 1, 2013 and July 1, 2013 for Which We Are Soliciting Public Comments 

in this CY 2014 OPPS/ASC Proposed Rule 

 2. Proposed Process for New Level II HCPCS Codes That Will Be Effective 

October 1, 2013 and New CPT and Level II HCPCS Codes That Will Be Effective 

January 1, 2014 for Which We Will Solicit Public Comments in the CY 2014 OPPS/ASC 

Final Rule with Comment Period 

 B. Proposed OPPS Changes--Variations within APCs 

 1. Background 

 2. Application of the 2 Times Rule 

 3. Proposed Exceptions to the 2 Times Rule 

 C. Proposed OPPS APC-Specific Policies 

 1. Intraoperative Radiation Therapy (IORT) Related Services (APCs 0028 and 

0065) 

 2. Proton Beam Radiation Therapy (APCs 0664 and 0667) 

 3. Stereotactic Radiosurgery (SRS) Treatment Delivery Services (APCs 0066 and 

0067) 

IV. Proposed OPPS Payment for Devices 

 A. Proposed Pass-Through Payments for Devices 

 1. Expiration of Transitional Pass-Through Payments for Certain Devices 

 a. Background 

 b. Proposed CY 2014 Policy 
CMS-1601-P 20

 2. Proposed Provisions for Reducing Transitional Pass-Through Payments to 

Offset Costs Packaged into APC Groups 

 a. Background 

 b. Proposed CY 2014 Policy 

 3. Proposed Changes to Device Pass-Through Criteria: Integral and Subordinate 

Criterion 

 B. Proposed Adjustment to OPPS Payment for No Cost/Full Credit and Partial 

Credit Devices 

 1. Background 

 2. Proposed Policy for CY 2014 

V. Proposed OPPS Payment Changes for Drugs, Biologicals, and Radiopharmaceuticals 

 A. Proposed OPPS Transitional Pass-Through Payment for Additional Costs of 

Drugs, Biologicals, and Radiopharmaceuticals 

 1. Background 

 2. Proposed Drugs and Biologicals with Expiring Pass-Through Status in 

CY 2013 

 3. Proposed Drugs, Biologicals, and Radiopharmaceuticals with New or 

Continuing Pass-Through Status in CY 2014 

 4. Proposed Provisions for Reducing Transitional Pass-Through Payments for 

Diagnostic Radiopharmaceuticals; Contrast Agents; Drugs, Biologicals, and 

Radiopharmaceuticals That Function as Supplies When Used in a Diagnostic Test or 
CMS-1601-P 21

Procedure; and Drugs and Biologicals That Function as Supplies or Devices When Used 

in a Surgical Procedure 

 a. Background 

 b. Proposed Payment Offset Policy for Diagnostic Radiopharmaceuticals 

 c. Proposed Payment Offset Policy for Contrast Agents 

 d. Proposed Payment Offset Policy for Products Packaged According to the 

Proposed Policy to Package Drugs, Biologicals, and Radiopharmaceuticals That Function 

as Supplies When Used in a Diagnostic Test or Procedure and Drugs and Biologicals 

That Function as Supplies or Devices When Used in a Surgical Procedure 

 B. Proposed OPPS Payment for Drugs, Biologicals, and Radiopharmaceuticals 

without Pass-Through Status 

 1. Background 

 2. Proposed Criteria for Packaging Payment for Drugs, Biologicals, and 

Radiopharmaceuticals 

 a. Background 

 b. Proposed Cost Threshold for Packaging of Payment for HCPCS Codes That 

Describe Certain Drugs, Certain Biologicals, and Therapeutic Radiopharmaceuticals 

(“Threshold-Packaged Drugs”) 

 c. Proposed Packaging Determination for HCPCS Codes That Describe the Same 

Drug or Biological But Different Dosages 

 3. Proposed Payment for Drugs and Biologicals without Pass-Through Status 

That Are Not Packaged 
CMS-1601-P 22

 a. Proposed Payment for Specified Covered Outpatient Drugs (SCODs) and 

Other Separately Payable and Packaged Drugs and Biologicals 

 b. Proposed CY 2014 Payment Policy 

 4. Proposed Payment Policy for Therapeutic Radiopharmaceuticals 

 5. Proposed Payment for Blood Clotting Factors 

 6. Proposed Payment for Nonpass-Through Drugs, Biologicals, and 

Radiopharmaceuticals with HCPCS Codes, but without OPPS Hospital Claims Data 

 C. Nuclear Medicine Procedure to Radiolabeled Product Edits 

VI. Proposed Estimate of OPPS Transitional Pass-Through Spending for Drugs, 

Biologicals, Radiopharmaceuticals, and Devices 

 A. Background 

 B. Proposed Estimate of Pass-Through Spending 

VII. Proposed OPPS Payment for Hospital Outpatient Visits 

 A. Background 

 B. Proposed Payment for Hospital Outpatient Clinic and Emergency Department 

Visits 

 C. Proposed Payment for Critical Care Services 

VIII. Proposed Payment for Partial Hospitalization Services 

 A. Background 

 B. Proposed PHP APC Update for CY 2014 

 C. Discussion of Possible Future Initiatives and Request for Public Comments 

 D. Proposed Separate Threshold for Outlier Payments to CMHCs 
CMS-1601-P 23

IX. Proposed Procedures That Would Be Paid Only as Inpatient Procedures 

 A. Background 

 B. Proposed Changes to the Inpatient List 

X. Proposed Nonrecurring Policy Changes 

 A. Supervision of Outpatient Therapeutic Services 

 1. Enforcement Instruction for the Supervision of Outpatient Therapeutic 

Services in CAHs and Certain Small Rural Hospitals 

 2. Supervision Requirements for Observation Services 

 B. Application of Therapy Caps in CAHs 

 C. Requirements for Payment of Outpatient Therapeutic (“Incident to”) Hospital 

or CAH Services 

 1. Overview 

 2. Background 

 3. Technical Correction 

 D. Collecting Data on Services Furnished in Off-Campus Provider-Based 

Departments 

XI. Proposed CY 2014 OPPS Payment Status and Comment Indicators 

 A. Proposed CY 2014 OPPS Payment Status Indicator Definitions 

 B. Proposed CY 2014 Comment Indicator Definitions 

XII. Proposed Updates to the Ambulatory Surgical Center (ASC) Payment System 

 A. Background 
CMS-1601-P 24

 1. Legislative History, Statutory Authority, and Prior Rulemaking for the ASC 

Payment System 

 2. Policies Governing Changes to the Lists of Codes and Payment Rates for ASC 

Covered Surgical Procedures and Covered Ancillary Services 

 B. Proposed Treatment of New Codes 

 1. Proposed Process for Recognizing New Category I and Category III CPT 

Codes and Level II HCPCS Codes 

 2. Proposed Treatment of New Level II HCPCS Codes and Category III CPT 

Codes Implemented in April 2013 and July 2013 for Which We Are Soliciting Public 

Comments in This CY 2014 OPPS/ASC Proposed Rule 

 3. Proposed Process for New Level II HCPCS codes and Category I and 

Category III CPT Codes for Which We Will Solicit Public Comments in the CY 2014 

OPPS/ASC Final Rule with Comment Period 

 C. Proposed Update to the Lists of ASC Covered Surgical Procedures and 

Covered Ancillary Services 

 1. Covered Surgical Procedures 

 a. Additions to the List of ASC Covered Surgical Procedures 

 b. Proposed Covered Surgical Procedures Designated as Office-Based 

 (1) Background 

 (2) Proposed Changes for CY 2014 to Covered Surgical Procedures Designated 

as Office-Based 
CMS-1601-P 25

 c. ASC Covered Surgical Procedures Proposed to be Designated as 

Device-Intensive 

 (1) Background 

 (2) Proposed Changes to List of Covered ASC Surgical Procedures Designated as 

Device-Intensive for CY 2014 

 d. Proposed Adjustment to ASC Payments for No Cost/Full Credit and Partial 

Credit Devices 

 e. Proposed ASC Treatment of Surgical Procedures Removed from the OPPS 

Inpatient List for CY 2014 

 2. Covered Ancillary Services 

 D. Proposed ASC Payment for Covered Surgical Procedures and Covered 

Ancillary Services 

 1. Proposed Payment for Covered Surgical Procedures 

 a. Background 

 b. Proposed Update to ASC Covered Surgical Procedure Payment Rates for 

CY 2014 

 c. Waiver of Coinsurance and Deductible for Certain Preventive Services 

 d. Proposed Payment for Cardiac Resynchronization Therapy Services 

 e. Proposed Payment for Low Dose Rate (LDR) Prostate Brachytherapy 

Composite 

 2. Proposed Payment for Covered Ancillary Services 

 a. Background 
CMS-1601-P 26

 b. Proposed Payment for Covered Ancillary Services for CY 2014 

 E. New Technology Intraocular Lenses (NTIOLs) 

 1. NTIOL Application Cycle 

 2. Requests to Establish New NTIOL Classes for CY 2014 

 3. Payment Adjustment 

 F. Proposed ASC Payment and Comment Indicators 

 1. Background 

 2. Proposed ASC Payment and Comment Indicators 

 G. Calculation of the Proposed ASC Conversion Factor and the Proposed ASC 

Payment Rates 

 1. Background 

 2. Proposed Calculation of the ASC Payment Rates 

 a. Updating the ASC Relative Payment Weights for CY 2014 and Future Years 

 b. Updating the ASC Conversion Factor 

 3. Display of Proposed CY 2014 ASC Payment Rates 

XIII. Hospital Outpatient Quality Reporting Program Updates 

 A. Background 

 1. Overview 

 2. Statutory History of the Hospital Outpatient Quality Reporting (Hospital OQR) 

Program 

 3. Measure Updates and Data Publication 

 a. Process for Updating Quality Measures 
CMS-1601-P 27

 b. Publication of Hospital OQR Program Data 

 B. Process for Retention of Hospital OQR Program Measures Adopted in 

Previous Payment Determinations 

 C. Removal or Suspension of Quality Measures from the Hospital OQR Program 

Measure Set 

 1. Considerations in Removing Quality Measures from the Hospital OQR 

Program 

 2. Proposed Removal of Two Chart-Abstracted Measure from the Hospital OQR 

Program 

 a. Proposed Removal of OP-19: Transition Record with specified Elements 

Received by Discharged ED Patients 

 b. Proposed Removal of OP-24: Cardiac Rehabilitation Measure: Patient 

Referral from an Outpatient Setting 

 D. Quality Measures Previously Adopted for the CY 2014 and CY 2015 Payment 

Determinations and Subsequent Years 

 E. Possible Quality Measures for the CY 2016 Payment Determination and 

Subsequent Years 

 1. Influenza Vaccination Coverage Among Healthcare Personnel (NQF #0431) 

 2. Complications Within 30 Days Following Cataract Surgery Requiring 

Additional Surgical Procedures (NQF #0564) 

 3. Endoscopy/Poly Surveillance: Appropriate Follow-Up Interval for Normal 

Colonoscopy in Average Risk Patients (NQF #0658) 
CMS-1601-P 28

 4. Endoscopy/Poly Surveillance: Colonoscopy Interval for Patients with a 

History of Adenomatous Polyps—Avoidance of Inappropriate Use (NQF #0659) 

 5. Cataracts—Improvement in Patient’s Visual Function Within 90 Days 

Following Cataract Surgery (NQF # 1536) 

 F. Possible Hospital OQR Program Measure Topics for Future Consideration 

 G. Proposed Payment Reduction for Hospitals That Fail to Meet the 

Hospital OQR Program Requirements for the CY 2014 Payment Update 

 1. Background 

 2. Proposed Reporting Ratio Application and Associated Adjustment Policy for 

CY 2014 

 H. Proposed Requirements for Reporting of Hospital OQR Data for the CY 2015 

Payment Determination and Subsequent Years 

 1. Administrative Requirements for the CY 2015 Payment Determination and 

Subsequent Years 

 2. Form, Manner, and Timing of Data Submitted for the Hospital OQR Program 

 a. Background 

 b. Effects of Proposed Changes on Data Submission for CY 2015 and CY 2016 

Payment Determinations and Subsequent Years 

 c. General Requirements 

 d. Proposed Chart-Abstracted Measure Requirements for CY 2015 and CY 2016 

Payment Determinations and Subsequent Years 
CMS-1601-P 29

 e. Proposed Claims-Based Measure Data Requirements for the CY 2015 Payment 

Determinations and Subsequent Years 

 f. Proposed Data Submission Requirements for Measure Data Submitted via 

Web-Based Tool for the CY 2016 Payment Determination and Subsequent Years 

 g. Proposed Data Submission Requirements for a Measure Reported via NHSN 

for the CY 2016 Payment Determination and Subsequent Years 

 h. Population and Sampling Data Requirements for the CY 2015 Payment 

Determination and Subsequent Years 

 3. Hospital OQR Program Validation Requirements for Chart-Abstracted 

Measure Data Submitted Directly to CMS for the CY 2015 Payment Determination and 

Subsequent Years 

 a. Selection of Hospitals for Data Validation of Chart-Abstracted Measures for 

the CY 2015 Payment Determination and Subsequent Years 

 b. Targeting Criteria for Data Validation Selection for CY 2015 Payment 

Determination and for Subsequent Years 

 c. Methodology for Encounter Selection for the CY 2015 Payment Determination 

and Subsequent Years 

 d. Medical Record Documentation Requests for Validation and Validation Score 

Calculation for the CY 2015 Payment Determination and Subsequent Years 

 I. Proposed Hospital OQR Reconsideration and Appeals Procedures for the 

CY 2015 Payment Determination and Subsequent Years 
CMS-1601-P 30

 J. Extraordinary Circumstances Extension or Waiver for the CY 2014 Payment 

Determination and Subsequent Years 

XIV. Hospital Value-Based Purchasing (VBP) Program Updates 

 A. Background 

 B. Proposal for Additional CMS Appeals Review Process 

 1. Statutory Basis 

 2. Independent CMS Review Proposal 

 C. Proposed Performance and Baseline Periods for Certain Outcome Measures 

for the FY 2016 Hospital VBP Program 

XV. Proposed Requirements for the Ambulatory Surgical Centers Quality Reporting 

(ASCQR) Program 

 A. Background 

 1. Overview 

 2. Statutory History of the ASC Quality Reporting (ASCQR) Program 

 3. Regulatory History of the ASCQR Program 

 B. ASCQR Program Quality Measures 

 1. Considerations in the Selection of ASCQR Program Quality Measures 

 2. ASCQR Program Quality Measures Adopted in Previous Rulemaking 

 3. Proposed Additional ASCQR Program Quality Measures for the CY 2016 

Payment Determination and subsequent Years 

 a. Complications within 30 Days Following Cataract Surgery Requiring 

Additional surgical Procedures 
CMS-1601-P 31

 b. Endoscopy/Poly Surveillance: Appropriate Follow-Up for Normal 

Colonoscopy in Average Risk Patients (NQR #0658) 

 c. Endoscopy/Poly Surveillance: Colonoscopy Interval for Patients with a 

History of Adenomatous Polyps—Avoidance of Inappropriate Use (NQF #0659) 

 d. Cataracts: Improvement in Patient’s Visual Function within 90 Days 

Following Cataract Surgery (NQF #1536) 

 4. ASCQR Program Measure Topics for Future Consideration 

 5. Technical Specification Updates and Data Publication 

 C. Payment Reduction for ASCs That Fail to Meet the ASCQR Program 

Requirements 

 1. Statutory Background 

 2. Reduction to the ASC Payment Rates for ASCs That Fail to Meet the ASCQR 

Program Requirements for the CY 2015 Payment Determination and Subsequent Years 

 D. Administrative Requirements 

 1. Proposed Requirements Regarding QualityNet Account and Security 

Administrator 

 a. Background for the CY 2014 and CY 2015 Payment Determinations 

 b. Proposed Requirements for the CY 2016 Payment Determination and 

Subsequent Years 

 2. Proposed Requirements Regarding Participation Status 

 a. Background for the CY 2014 Payment Determination and Subsequent Years 
CMS-1601-P 32

 b. Proposed Requirements for the CY 2016 Payment Determination and 

Subsequent Years 

 3. Requirements Regarding Data Processing and Collection Periods for 

Claims-Based Measures for the CY 2014 Payment Determination and Subsequent Years 

 4. Proposed Minimum Threshold, Minimum Case Volume, and Data 

Completeness for Claims-Based Measures Using QDCs 

 a. Background for the CY 2014 Payment Determination and Subsequent Years 

 b. Proposed Requirements for the CY 2016 Payment Determination and 

Subsequent Years 

 5. Proposed Requirements for Data Submitted Via a CMS Online Data 

Submission Tool 

 a. Background for the CY 2015 Payment Determination and Subsequent Years 

 b. Proposed Requirements for the CY 2016 Payment Determination and 

Subsequent Years for Measures Currently Finalized 

 c. Proposed Requirements for the CY 2016 Payment Determination and 

Subsequent Years for Proposed New Measures with Data Submission Via a CMS 

Web-Based Tool 

 6. Proposed Data Submission Requirements for a Measure Reported Via the 

National Healthcare Safety Network (NHSN) for the CY 2016 Payment Determination 

 a. Background for the CY 2016 Payment Determination 

 b. Proposed Requirements for the CY 2016 Payment Determination 

 7. ASCQR Program Validation of Claims-Based and CMS Web-Based Measures 
CMS-1601-P 33

 8. Extraordinary Circumstances Extensions or Waivers for the CY 2014 Payment 

Determination and Subsequent Years 

 a. Background 

 b. Proposal for CMS Granting of Extraordinary Circumstance Waiver or 

Extension for CY 2014 

 9. ASCQR Program Reconsideration Procedures for the CY 2014 Payment 

Determination and Subsequent Years 

XVI. Proposed Changes to the Conditions for Coverage (CfCs) for Organ Procurement 

Organizations (OPOs) 

 A. Background 

 B. Proposed Policy Changes 

XVII. Proposed Revisions to the Quality Improvement Organization (QIO) Regulations 

 A. Legislative History 

 B. Basis for Proposals 

 C. Proposed Changes to the Nomenclature and Regulations under 42 CFR Parts 

475 and 476 

 1. Proposed Nomenclature Changes 

 2. Proposals to Add and Revise Definitions 

 3. Proposals Relating to Scope and Applicability of Subpart C of Part 475 

 4. Proposals Relating to Eligibility Requirements for QIOs (§§ 475.101 through 

475.106) 

 a. Eligibility to be Awarded a QIO Contract (§ 475.101) 
CMS-1601-P 34

 b. Eligibility Requirements for QIOs to Perform Case Reviews (§ 475.102) 

 c. Eligibility Requirements for QIOs to Conduct Quality Improvement Initiatives 

(§ 475.103) 

 d. Prohibitions on Eligibility as a QIO (§ 475.105) 

 5. Proposals Relating to QIO Contract Awards (§ 475.107) 

XVIII. Medicare Fee-for-Service Electronic Health Record (EHR) Incentive Program 

 A. Incentive Payments for Eligible Professionals (EPs) Reassigning Benefits to 

Method II CAHs 

 1. Background for Definition of EPs and EHR Incentive Payments to EPs 

 2. Special Circumstances of EPs Reassigning Benefits to Method II CAHs 

 B. Cost Reporting Periods for Interim and Final EHR Incentive Payments to 

Hospitals 

 1. Background 

 2. Special Circumstances 

XIX. Medicare Program: Provider Reimbursement Determinations and Appeals 

 A. Matters Not Subject to Administrative or Judicial Review (§ 405.1801) 

 1. Background 

 2. Proposed Technical Conforming Change 

 B. Clarification of Reopening of Predicated Facts in Intermediary Determinations 

of Provider Reimbursement (§ 405.1885) 

XX. Files Available to the Public Via the Internet 

XXI. Collection of Information Requirements 
CMS-1601-P 35

 A. Legislative Requirements for Solicitation of Comments 

 B. Requirements in Regulation Text 

 1. Proposed Changes to the Outcome Measure Requirement for OPOs 

 2. Proposed Changes to the Medicare Fee-for-Service EHR Incentive Program 

 C. Associated Information Collections Not Specified in Regulatory Text 

 1. Hospital OQR Program 

 a. Hospital OQR Program Requirements for the CY 2015, CY 2016, and 

Subsequent Years Payment Determinations 

 b. Hospital OQR Program Validation Requirements for the CY 2015 and 

Subsequent Years Payment Determinations 

 c. Hospital OQR Program Reconsideration and Appeals Procedures 

 2. ASCQR Program Requirements 

 a. Claims-Based Measures for the CY 2014 Payment Determination 

 b. Claims-Based and Web-Based Measures for the CY 2015 and CY 2016 

Payment Determination 

 c. Program Administrative Requirements and QualityNet Accounts; 

Extraordinary Circumstance and Extension Requests; Reconsideration Requests 

 3. Hospital VBP Program Requirements 

XXII. Response to Comments 

XXIII. Economic Analyses 

 A. Regulatory Impact Analysis 

 1. Introduction 
CMS-1601-P 36

 2. Statement of Need 

 3. Overall Impacts for the Proposed OPPS and ASC Payment Provisions 

 4. Detailed Economic Analyses 

 a. Estimated Effects of Proposed OPPS Changes in this Proposed Rule 

 (1) Limitations of Our Analysis 

 (2) Estimated Effects of Proposed OPPS Changes on Hospitals 

 (3) Estimated Effects of Proposed OPPS Changes on CMHCs 

 (4) Estimated Effect of Proposed OPPS Changes on Beneficiaries 

 (5) Estimated Effects of Proposed OPPS Changes on Other Providers 

 (6) Estimated Effects of Proposed OPPS Changes on the Medicare and Medicaid 

Programs 

 (7) Alternative OPPS Policies Considered 

 b. Estimated Effects of ASC Payment System Proposed Policies 

 (1) Limitations of Our Analysis 

 (2) Estimated Effects of ASC Payment System Proposed Policies on ASCs 

 (3) Estimated Effects of ASC Payment System Proposed Policies on 

Beneficiaries 

 (4) Alternative ASC Payment Policies Considered 

 c. Accounting Statements and Tables 

 d. Effects of Proposed Requirements for the Hospital OQR Program 

 e. Effects of Proposals for the ASCQR Program 
CMS-1601-P 37

 f. Effects of Proposed Changes to the CfCs for OPOs Relating to the Outcome 

Measure Requirement for Recertification 

 g. Effects of Proposed Revisions of the QIO Regulations 

 h. Effects of Proposed Changes to the Medicare Fee-for-Service EHR Incentive 

Program 

 B. Regulatory Flexibility Act (RFA) Analysis 

 C. Unfunded Mandates Reform Act Analysis 

 D. Conclusion 

XXIV. Federalism Analysis 

Regulation Text 

I. Summary and Background 

A. Executive Summary of this Proposed Rule

1. Purpose 

 In this proposed rule, we are proposing to update the payment policies and 

payment rates for services furnished to Medicare beneficiaries in hospital outpatient 

departments and Ambulatory Surgical Centers (ASCs) beginning January 1, 2014. 

Section 1833(t) of the Social Security Act (the Act) requires us to annually review and 

update the relative payment weights and the conversion factor for services payable under 

the Outpatient Prospective Payment System (OPPS). Under section 1833(i) of the Act, 

we annually review and update the ASC payment rates. We describe these and various 

other statutory authorities in the relevant sections of this proposed rule. 
CMS-1601-P 38

In addition, we are proposing to update and refine the requirements for the Hospital 

Outpatient Quality Reporting (OQR) Program, the ASC Quality Reporting (ASCQR) 

Program, and the Hospital Value-Based Purchasing (VBP) Program. 

 We are proposing changes to the conditions for coverage (CfCs) for organ 

procurement organizations (OPOs); revisions to the Quality Improvement Organization 

(QIO) regulations; changes to the Medicare fee-for-service Electronic Health Record 

(EHR) Incentive Program; and changes relating to provider reimbursement 

determinations and appeals. 

2. Summary of the Major Provisions 

● OPPS Update: For CY 2013, we are proposing to increase the payment rates 

under the OPPS by an Outpatient Department (OPD) fee schedule increase factor of 1.8 

percent. This proposed increase is based on the proposed hospital inpatient market basket 

percentage increase of 2.5 percent for inpatient services paid under the hospital inpatient 

prospective payment system (IPPS), minus the proposed multifactor productivity (MFP) 

adjustment of 0.4 percentage points, and minus a 0.3 percentage point adjustment 

required by the Affordable Care Act. Under this proposed rule, we estimate that 

proposed total payments for CY 2014, including beneficiary cost-sharing, to the almost 

4,000 facilities paid under the OPPS (including general acute care hospitals, children’s 

hospitals, cancer hospitals, and community mental health centers (CMHCs)), will be 

approximately $50.4 billion, an increase of approximately $4.4 billion compared to CY 

2013 payments, or $600 million excluding our estimated changes in enrollment, 

utilization, and case-mix 
CMS-1601-P 39

 We are proposing to continue to implement the statutory 2.0 percentage point 

reduction in payments for hospitals failing to meet the hospital outpatient quality 

reporting requirements, by applying a reporting factor of 0.980 to the OPPS payments 

and copayments for all applicable services. 

● Rural Adjustment: We are proposing to continue the adjustment of 7.1 percent 

to the OPPS payments to certain rural sole community hospitals (SCHs), including 

essential access community hospitals (EACHs). This adjustment will apply to all 

services paid under the OPPS, excluding separately payable drugs and biologicals, 

devices paid under the pass-through payment policy, and items paid at charges reduced to 

cost. 

● Cancer Hospital Payment Adjustment: For CY 2014, we are proposing to 

continue our policy to provide additional payments to cancer hospitals so that the 

hospital’s payment-to-cost ratio (PCR) with the payment adjustment is equal to the 

weighted average PCR for the other OPPS hospitals using the most recent submitted or 

settled cost report data. Based on those data, a target PCR of 0.90 will be used to 

determine the proposed CY 2014 cancer hospital payment adjustment to be paid at cost 

report settlement. That is, the proposed payment amount associated with the cancer 

hospital payment adjustment will be the additional payment needed to result in a PCR 

equal to 0.90 for each cancer hospital. 

● Payment of Drugs, Biologicals, and Radiopharmaceuticals: For CY 2014, 

proposed payment for the acquisition and pharmacy overhead costs of separately payable 
CMS-1601-P 40

drugs and biologicals that do not have pass-through status would be set at the statutory 

default of average sales price (ASP) plus 6 percent. 

● Packaging Proposals: The OPPS packages payment for multiple interrelated 

items and services into a single payment to create incentives for hospitals to furnish 

services in the most efficient way by enabling hospitals to manage their resources with 

maximum flexibility, thereby encouraging long-term cost containment. For 2014, we are 

proposing to unconditionally package or conditionally package the following items and 

services and to add them to the list of OPPS packaged items and services in 

42 CFR 419.2(b): 

 (1) Drugs, biologicals, and radiopharmaceuticals that function as supplies in a 

diagnostic test or procedure; 

 (2) Drugs and biologicals that function as supplies or devices in a surgical 

procedure; 

 (3) Laboratory tests; 

 (4) Procedures described by add-on codes; 

 (5) Ancillary services (status indicator “X”); 

 (6) Diagnostic tests on the bypass list; and 

 (7) Device removal procedures. 

 We refer readers to section II.A.3. of this proposed rule for a complete description 

of our 2014 packaging proposals. 

● Establishing Comprehensive APCs: In order to improve the accuracy and 

transparency of our payment for certain device-dependent services, for CY 2014, we are 
CMS-1601-P 41

proposing to create 29 comprehensive APCs to prospectively pay for the most costly 

device-dependent services. We are proposing to define a comprehensive APC as a 

classification for the provision of a primary service and all adjunct services provided to 

support the delivery of the primary service. The comprehensive APC would treat all 

individually reported codes as representing components of the comprehensive service, 

resulting in a single prospective payment based on the cost of all individually reported 

codes that represent the delivery of a primary service as well as all adjunct services 

provided to support that delivery. We are proposing to make a single payment for the 

comprehensive service based on all charges on the claim, excluding only charges for 

services that cannot be covered by Medicare Part B or that are not payable under the 

OPPS. 

● Payment of Hospital Outpatient Visits: For CY 2014 we are proposing to 

replace the current five levels of visit codes for each clinic, Type A ED, and Type B ED 

visits with three new alphanumeric Level II HCPCS codes representing a single level of 

payment for the three types of visits, respectively. We are proposing to assign the new 

alphanumeric Level II HCPCS to newly created APCs with CY 2014 OPPS payment 

rates based on the total mean costs of Level 1 through Level 5 visit codes obtained from 

CY 2012 OPPS claims data for each visit type. 

● Proposed OPPS Nonrecurring Policy Changes: We note in this proposed rule 

that we expect to allow the enforcement instruction for the supervision of outpatient 

therapeutic services furnished in CAHs and small rural hospitals to expire at the end of 

CY 2013. In addition, we are proposing to amend the conditions of payment for 
CMS-1601-P 42

“incident to” hospital or CAH outpatient services (sometimes referred to as hospital or 

CAH “therapeutic” services) to require that individuals furnishing these services be in 

compliance with State law. We are soliciting public comments regarding a potential new 

claims or other data element that would indicate that the services were furnished in an 

off-campus provider-based department. Finally, we refer readers to the CY 2014 

Medicare Physician Fee Schedule (MPFS) proposed rule (CMS-1600-P) to review 

Medicare’s proposal to apply the therapy caps and related provisions under section 

1833(g) of the Act to physical therapy (PT), speech-language pathology (SLP) and 

occupational therapy (OT) (“therapy”) services that are furnished by a CAH, effective 

January 1, 2014. 

● Ambulatory Surgical Center Payment Update: For CY 2014, we are proposing 

to increase payment rates under the ASC payment system by 0.9 percent. This proposed 

increase is based on a projected CPI-U update of 1.4 percent minus a multifactor 

productivity adjustment required by the Affordable Care Act that is projected to be 0.5 

percent. Based on this proposed update, we estimate that total payments to ASCs 

(including beneficiary cost-sharing and estimated changes in enrollment, utilization, and 

case-mix), for CY 2014 would be approximately $3.980 billion, an increase of 

approximately $133 million compared to estimated CY 2013 payments. 

● Hospital Outpatient Quality Reporting (OQR) Program: For the Hospital 

OQR Program, we are proposing five quality measures for the CY 2016 and subsequent 

years payment determinations: four where aggregate data (numerators, denominators, 

and exclusions) are collected and data submitted via an online Web-based tool located on 
CMS-1601-P 43

a CMS Web page and one HAI measure submitted through the CDC’s NHSN. We also 

are proposing to remove two measures and are proposing to codify administrative 

procedures. 

● Ambulatory Surgical Center Quality Reporting (ASCQR) Program: For the 

ASCQR Program, we are proposing four quality measures for the CY 2016 and 

subsequent years payment determinations where data collection would begin in CY 2014. 

We are proposing to collect aggregate data (numerators, denominators, and exclusions) 

on all ASC patients for these four proposed chart-abstracted measures via an online 

Web-based tool located on a CMS Web page. We also are proposing, for the CY 2016 

payment determination and subsequent years’ payment determinations, requirements for 

facility participation, data collection, and submission for claims-based, CMS Web-based, 

and NHSN measures. 

● Proposed Revisions to the Quality Improvement Organizations Regulations. 

We are proposing to update the regulations at 42 CFR 475 and 476 based on the recently 

enacted Trade Adjustment Assistance Extension Act of 2011 (TAAEA) (Pub. L. 112-40, 

Section 261) where by Congress authorized numerous changes to the original legislation 

and included additional flexibility for the Secretary in the administration of the QIO 

program. Currently, 42 CFR Part 475 includes definitions and standards governing 

eligibility and the award of contracts to QIOs. In this proposed rule, we set forth 

proposals for the partial deletion and revision of the regulations under 42 CFR Parts 475 

and 476, which relate to the QIO program, including the following: (1) replace 

nomenclature in Part 475 and 476 that has been amended by the TAAEA; (2) revise the 
CMS-1601-P 44

existing definition for the term “physician”; (3) add new definitions as necessary to 

support the new substantive provisions in Subpart C; and (4) replace some of the 

substantive provisions in Subpart C in their entirety to fully exercise the Secretary’s 

authority for the program and update the contracting requirements to align with 

contemporary quality improvement. 

● Proposed Changes to the Medicare Fee-for-Service Electronic Record (EHR) 

Incentive Program. We are proposing to the regulations to provide a special method for 

making hospital-based determinations for 2013 only in the cases of those eligible 

professionals (EPs) who reassign their benefits to Method II CAHs. We have been 

unable to make EHR payments to these EPs for their CAH II claims, or to take those 

claims into consideration in making hospital-based determinations because of systems 

limitations. Adopting our proposed method for 2013 will allow us to begin making 

payments based on CAH II one year earlier than we would be able to do under current 

regulations. We also are proposing a minor clarification to the regulations concerning the 

cost reporting period to be used in determining final EHR payments for hospitals. 

3. Summary of Costs and Benefits 

 In sections XXIII. and XXIV. of this proposed rule, we set forth a detailed 

analysis of the regulatory and federalism impacts that the proposed changes would have 

on affected entities and beneficiaries. Key estimated impacts are described below. 

a. Impacts of the OPPS Update 

(1) Impacts of All Proposed OPPS Changes 
CMS-1601-P 45

 Table 39 in section XXIII. of this proposed rule displays the distributional impact 

all the proposed OPPS changes on various groups of hospitals and CMHCs for CY 2014 

compared to all estimated OPPS payments in CY 2013. We estimate that the proposed 

policies in this proposed rule would result in a 1.8 percent overall increase in OPPS 

payments to providers. We estimate that the proposed increase in OPPS expenditures, 

including beneficiary cost-sharing, would be approximately $600 million, not taking into 

account potential changes in enrollment, utilization, and case-mix. Taking into account 

estimated spending changes that are attributable to these factors, we estimate an increase 

of approximately $4.372 billion in OPPS expenditures, including beneficiary 

cost-sharing, for CY 2014 compared to CY 2013 OPPS expenditures. We estimate that 

proposed total OPPS payments, including beneficiary cost-sharing, would be $50.4 

billion for CY 2014. 

 We estimated the isolated impact of our proposed OPPS policies on CMHCs 

because CMHCs are only paid for partial hospitalization services under the OPPS. 

Continuing the provider-specific structure that we adopted for CY 2011 and basing 

payment fully on the type of provider furnishing the service, we estimate a 3.8 percent 

decrease in CY 2014 payments to CMHCs relative to their CY 2013 payments. 

(2) Impacts of the Proposed Updated Wage Indices 

 We estimate no significant impacts related to our proposal to update the wage 

indices and apply the frontier State wage index. Proposed adjustments to the wage 

indices other than the frontier State wage adjustment would not significantly affect most 

hospitals. 
CMS-1601-P 46

(3) Impacts of the Proposed Rural Adjustment and the Cancer Hospital Payment 

Adjustment 

 There are no significant impacts of our proposed CY 2014 payment policies for 

hospitals that are eligible for the rural adjustment or for the cancer hospital payment 

adjustment. We are not proposing to make any change in policies for determining the 

rural and cancer hospital payment adjustments, and the proposed adjustment amounts do 

not significantly impact the budget neutrality adjustments for these proposed policies. 

(4) Impacts of the Proposed OPD Fee Schedule Increase Factor 

 We estimate that, for many hospitals, the application of the proposed OPD fee 

schedule increase factor of 1.8 percent to the conversion factor for CY 2014 would 

mitigate the small negative impacts of the budget neutrality adjustments. While most 

classes of hospitals would receive an increase that is in line with the proposed 1.8 percent 

overall increase after the update is applied to the budget neutrality adjustments, some 

hospitals would receive smaller but still generally positive overall increases. 

b. Impacts of the Proposed ASC Payment Update 

 For impact purposes, the surgical procedures on the ASC list of covered 

procedures are aggregated into surgical specialty groups using CPT and HCPCS code 

range definitions. The proposed percentage change in estimated total payments by 

specialty groups under the CY 2014 payment rates compared to estimated CY 2013 

payment rates ranges between -12 percent for ancillary items and services and 17 percent 

for hemic and lymphatic system procedures. 
CMS-1601-P 47

c. Impacts of the Hospital OQR Program 

 We do not expect our proposed CY 2014 policies to significantly affect the 

number of hospitals that do not receive a full annual payment update. 

d. Impacts of the ASCQR Program 

 We do not expect our proposed CY 2014 proposed policies to significantly affect 

the number of ASCs that do not receive a full annual payment update beginning in 

CY 2015. 

e. Impacts for the Proposed QIO Program Changes 

 We estimate the effects of the proposed QIO Program changes to be consistent 

with the Congressional Budget Office’s 2011 Cost Estimate of the Trade Bill (H.R. 2832) 

which included a reduction in spending of $330 million over the 2012-2021 period. 

According to the CBO Estimate the Act and subsequently the proposed regulatory 

changes “would modify the provisions under which CMS contracts with independent 

entities called [“]Quality Improvement Organizations [(QIOs)”] in Medicare. QIOs, 

generally staffed by health care professionals, review medical care, help beneficiaries 

with complaints about the quality of care, and implement care improvements. H.R. 2832 

would make several changes to the composition and operation of QIOs, and would 

harmonize QIO contracts with requirements of the Federal Acquisition Regulation. 

Among those changes are a modification to expand the geographic scope of QIO 

contracts and a lengthening of the contract period. CBO estimates that those provisions 

would reduce spending by $330 million over the 2012-2021 period.” 
CMS-1601-P 48

B. Legislative and Regulatory Authority for the Hospital OPPS

 When Title XVIII of the Social Security Act was enacted, Medicare payment for 

hospital outpatient services was based on hospital-specific costs. In an effort to ensure 

that Medicare and its beneficiaries pay appropriately for services and to encourage more 

efficient delivery of care, the Congress mandated replacement of the reasonable 

cost-based payment methodology with a prospective payment system (PPS). The 

Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) added section 1833(t) to the Act 

authorizing implementation of a PPS for hospital outpatient services. The OPPS was first 

implemented for services furnished on or after August 1, 2000. Implementing regulations 

for the OPPS are located at 42 CFR Parts 410 and 419. 

 The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 

(BBRA) (Pub. L. 106-113) made major changes in the hospital OPPS. The following 

Acts made additional changes to the OPPS: the Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554); the 

Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) 

(Pub. L. 108-173); the Deficit Reduction Act of 2005 (DRA) (Pub. L. 109-171), enacted 

on February 8, 2006; the Medicare Improvements and Extension Act under Division B of 

Title I of the Tax Relief and Health Care Act of 2006 (MIEA-TRHCA) (Pub. L. 

109-432), enacted on December 20, 2006; the Medicare, Medicaid, and SCHIP Extension 

Act of 2007 (MMSEA) (Pub. L. 110-173), enacted on December 29, 2007; the Medicare 

Improvements for Patients and Providers Act of 2008 (MIPPA) (Pub. L. 110-275), 

enacted on July 15, 2008; the Patient Protection and Affordable Care Act 
CMS-1601-P 49

(Pub. L. 111-148), enacted on March 23, 2010, as amended by the Health Care and 

Education Reconciliation Act of 2010 (Pub. L. 111-152), enacted on March 30, 2010 

(These two public laws are collectively known as the Affordable Care Act); the Medicare 

and Medicaid Extenders Act of 2010 (MMEA, Pub. L. 111-309); the Temporary Payroll 

Tax Cut Continuation Act of 2011 (TPTCCA, Pub. L. 112-78), enacted on 

December 23, 2011; and most recently the Middle Class Tax Relief and Job Creation Act 

of 2012 (MCTRJCA, Pub. L. 112-96), enacted on February 22, 2012; and most recently 

the American Taxpayer Relief Act of 2012 (Pub. L. 112-240), enacted January 2, 2013. 

 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. We use the 

Healthcare Common Procedure Coding System (HCPCS) (which includes certain Current 

Procedural Terminology (CPT) codes) to identify and group the services within each 

APC. The OPPS includes payment for most hospital outpatient services, except those 

identified in section I.C. of this proposed rule. Section 1833(t)(1)(B) of the Act provides 

for payment under the OPPS for hospital outpatient services designated by the Secretary 

(which includes partial hospitalization services furnished by CMHCs), and certain 

inpatient hospital services that are paid under Part B. 

 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 labor-related amount is 

adjusted for area wage differences using the hospital inpatient wage index value for the 

locality in which the hospital or CMHC is located. 
CMS-1601-P 50

 All services and items within an APC group are comparable clinically and with 

respect to resource use (section 1833(t)(2)(B) of the Act). In accordance with 

section 1833(t)(2) of the Act, subject to certain exceptions, items and services within an 

APC group cannot be considered comparable with respect to the use of resources if the 

highest median cost (or mean cost, if elected by the Secretary) for an item or service in 

the APC group is more than 2 times greater than the lowest median cost (or mean cost, if 

elected by the Secretary) for an item or service within the same APC group (referred to as 

the “2 times rule”). In implementing this provision, we generally use the cost of the item 

or service assigned to an APC group. 

 For new technology items and services, special payments under the OPPS may be 

made in one of two ways. Section 1833(t)(6) of the Act provides for temporary 

additional payments, which we refer to as “transitional pass-through payments,” for at 

least 2 but not more than 3 years for certain drugs, biological agents, brachytherapy 

devices used for the treatment of cancer, and categories of other medical devices. For 

new technology services that are not eligible for transitional pass-through payments, and 

for which we lack sufficient clinical information and cost data to appropriately assign 

them to a clinical APC group, we have established special APC groups based on costs, 

which we refer to as New Technology APCs. These New Technology APCs are 

designated by cost bands which allow us to provide appropriate and consistent payment 

for designated new procedures that are not yet reflected in our claims data. Similar to 

pass-through payments, an assignment to a New Technology APC is temporary; that is, 
CMS-1601-P 51

we retain a service within a New Technology APC until we acquire sufficient data to 

assign it to a clinically appropriate APC group. 

C. Excluded OPPS Services and Hospitals

 Section 1833(t)(1)(B)(i) of the Act authorizes the Secretary to designate the 

hospital outpatient services that are paid under the OPPS. While most hospital outpatient 

services are payable under the OPPS, section 1833(t)(1)(B)(iv) of the Act excludes 

payment for ambulance, physical and occupational therapy, and speech-language 

pathology services, for which payment is made under a fee schedule. It also excludes 

screening mammography, diagnostic mammography, and effective January 1, 2011, an 

annual wellness visit providing personalized prevention plan services. The Secretary 

originally exercised the authority granted under the statute to also exclude from the OPPS 

those services that are paid under fee schedules or other payment systems. Such 

excluded services include, for example, the professional services of physicians and 

nonphysician practitioners paid under the MPFS; laboratory services paid at the Clinical 

Laboratory Fee Schedule (CLFS) rates; services for beneficiaries with end-stage renal 

disease (ESRD) that are paid under the ESRD prospective payment system; and services 

and procedures that require an inpatient stay that are paid under the hospital IPPS. We 

set forth the services that are excluded from payment under the OPPS in regulations at 

42 CFR 419.22. This proposed rule includes proposals to modify 42 CFR 419.22 and 

include in the OPPS some of these currently excluded services. 

 Under § 419.20(b) of the regulations, we specify the types of hospitals and 

entities that are excluded from payment under the OPPS. These excluded entities 
CMS-1601-P 52

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; CAHs; hospitals located outside 

of the 50 States, the District of Columbia, and Puerto Rico; and Indian Health Service 

(IHS) hospitals. 

D. Prior Rulemaking

 On April 7, 2000, we published in the Federal Register a final rule with 

comment period (65 FR 18434) to implement a prospective payment system for hospital 

outpatient services. The hospital OPPS was first implemented for services furnished on 

or after August 1, 2000. Section 1833(t)(9) of the Act requires the Secretary to review 

certain components of the OPPS, not less often than annually, and to revise the groups, 

relative payment weights, and other adjustments that take into account changes in 

medical practices, changes in technologies, and the addition of new services, new cost 

data, and other relevant information and factors. 

 Since initially implementing the OPPS, we have published final rules in the 

Federal Register annually to implement statutory requirements and changes arising from 

our continuing experience with this system. These rules can be viewed on the CMS Web 

site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalOutpatientPPS/index.html. 
CMS-1601-P 53

E. Advisory Panel on Hospital Outpatient Payment (the HOP Panel or the Panel), 

Formerly Named the Advisory Panel on Ambulatory Payment Classification Groups 

(APC Panel)

1. Authority of the Panel 

 Section 1833(t)(9)(A) of the Act, as amended by section 201(h) of 

Pub. L. 106-113, and redesignated by section 202(a)(2) of Pub. L. 106-113, requires that 

we consult with an external advisory panel of experts to annually review the clinical 

integrity of the payment groups and their weights under the OPPS. In CY 2000, based on 

section 1833(t)(9)(A) of the Act and section 222 of the Public Health Service (PHS) Act, 

the Secretary established the Advisory Panel on Ambulatory Payment Classification 

Groups (APC Panel) to fulfill this requirement. In CY 2011, based on section 222 of the 

PHS Act which gives discretionary authority to the Secretary to convene advisory 

councils and committees, the Secretary expanded the panel’s scope to include the 

supervision of hospital outpatient therapeutic services in addition to the APC groups and 

weights. To reflect this new role of the panel, the Secretary changed the panel’s name to 

the Advisory Panel on Hospital Outpatient Payment (the HOP Panel, or the Panel). The 

Panel is not restricted to using data compiled by CMS, and in conducting its review it 

may use data collected or developed by organizations outside the Department. 

2. Establishment of the Panel 

 On November 21, 2000, the Secretary signed the initial charter establishing the 

HOP Panel, at that time named the APC Panel. This expert panel, which may be 

composed of up to 19 appropriate representatives of providers (currently employed full-
CMS-1601-P 54

time, not as consultants, in their respective areas of expertise), reviews clinical data and 

advises CMS about the clinical integrity of the APC groups and their payment weights. 

Since CY 2012, the Panel also is charged with advising the Secretary on the appropriate 

level of supervision for individual hospital outpatient therapeutic services. The Panel is 

technical in nature, and it is governed by the provisions of the Federal Advisory 

Committee Act (FACA). The current charter specifies, among other requirements, that: 

the Panel continues to be technical in nature; is governed by the provisions of the FACA; 

may convene up to three meetings per year; has a Designated Federal Official (DFO); and 

is chaired by a Federal Official designated by the Secretary. The current charter was 

amended on November 15, 2011 and the Panel was renamed to reflect expanding the 

Panel’s authority to include supervision of hospital outpatient therapeutic services and 

therefore to add CAHs to its membership. 

 The current Panel membership and other information pertaining to the Panel, 

including its charter, Federal Register notices, membership, meeting dates, agenda 

topics, and meeting reports, can be viewed on the CMS Web site at: 

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

ps.asp#TopOfPage. 

3. Panel Meetings and Organizational Structure 

 The Panel has held multiple meetings, with the last meeting taking place on 

March 11, 2013. Prior to each meeting, we publish a notice in the Federal Register to 

announce the meeting and, when necessary, to solicit nominations for Panel membership 

and to announce new members. 
CMS-1601-P 55

 The Panel has established an operational structure that, in part, currently includes 

the use of three subcommittees to facilitate its required review process. The three current 

subcommittees are the Data Subcommittee, the Visits and Observation Subcommittee, 

and the Subcommittee for APC Groups and Status Indicator (SI) Assignments. 

 The Data Subcommittee is responsible for studying the data issues confronting the 

Panel and for recommending options for resolving them. The Visits and Observation 

Subcommittee reviews and makes recommendations to the Panel on all technical issues 

pertaining to observation services and hospital outpatient visits paid under the OPPS (for 

example, APC configurations and APC relative payment weights). The Subcommittee 

for APC Groups and SI Assignments advises the Panel on the following issues: the 

appropriate SIs to be assigned to HCPCS codes, including but not limited to whether a 

HCPCS code or a category of codes should be packaged or separately paid; and the 

appropriate APC placement of HCPCS codes regarding services for which separate 

payment is made. 

 Each of these subcommittees was established by a majority vote from the full 

Panel during a scheduled Panel meeting, and the Panel recommended that the 

subcommittees continue at the August 2013 Panel meeting. We accepted this 

recommendation. 

 Discussions of the other recommendations made by the Panel at the March 2013 

Panel meeting are included in the sections of this final rule that are specific to each 

recommendation. For discussions of earlier Panel meetings and recommendations, we 

refer readers to previously published OPPS/ASC proposed and final rules, the CMS Web 
CMS-1601-P 56

site mentioned earlier in this section, and the FACA database at: 

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

F. Public Comments Received on the CY 2013 OPPS/ASC Final Rule with Comment 

Period

 We received approximately 27 timely pieces of correspondence on the CY 2013 

OPPS/ASC final rule with comment period that appeared in the Federal Register on 

November 15, 2012 (77 FR 68210), some of which contained comments on the interim 

APC assignments and/or status indicators of HCPCS codes identified with comment 

indicator “NI” in Addenda B, AA, and BB to that final rule. Summaries of these public 

comments on topics that were open to comment and our responses to them will be set 

forth in various sections of the final rule with comment period under the appropriate 

subject-matter headings. 
CMS-1601-P 57

II. Proposed Updates Affecting OPPS Payments 

A. Proposed Recalibration of APC Relative Payment Weights

1. Database Construction 

a. Database Source and Methodology 

 Section 1833(t)(9)(A) of the Act requires that the Secretary review not less often 

than annually and revise the relative payment weights for APCs. In the April 7, 2000 

OPPS final rule with comment period (65 FR 18482), we explained in detail how we 

calculated the relative payment weights that were implemented on August 1, 2000 for 

each APC group. 

 For the CY 2014 OPPS, we are proposing to recalibrate the APC relative payment 

weights for services furnished on or after January 1, 2014, and before January 1, 2015 

(CY 2014), using the same basic methodology that we described in the CY 2013 

OPPS/ASC final rule with comment period. That is, we are proposing to recalibrate the 

relative payment weights for each APC based on claims and cost report data for hospital 

outpatient department (HOPD) services, using the most recent available data to construct 

a database for calculating APC group weights. Therefore, for the purpose of recalibrating 

the proposed APC relative payment weights for CY 2014, we used approximately 

146 million final action claims (claims for which all disputes and adjustments have been 

resolved and payment has been made) for hospital outpatient department services 

furnished on or after January 1, 2012, and before January 1, 2013. For exact counts of 

claims used, we refer readers to the claims accounting narrative under supporting 

documentation for this proposed rule on the CMS Web site at: 
CMS-1601-P 58

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalOutpatientPPS/index.html. 

 Of the approximately 146 million final action claims for services provided in 

hospital outpatient settings used to calculate the CY 2014 OPPS payment rates for this 

proposed rule, approximately 117 million claims were the type of bill potentially 

appropriate for use in setting rates for OPPS services (but did not necessarily contain 

services payable under the OPPS). Of the approximately 117 million claims, 

approximately 5 million claims were not for services paid under the OPPS or were 

excluded as not appropriate for use (for example, erroneous cost-to-charge ratios (CCRs) 

or no HCPCS codes reported on the claim). From the remaining approximately 112 

million claims, we created approximately 82 million single records, of which 

approximately 34 million were “pseudo” single or “single session” claims (created from 

approximately 19 million multiple procedure claims using the process we discuss later in 

this section). Approximately 1 million claims were trimmed out on cost or units in 

excess of +/- 3 standard deviations from the geometric mean, yielding approximately 

82 million single bills for ratesetting. As described in section II.A.2. of this proposed 

rule, our data development process is designed with the goal of using appropriate cost 

information in setting the APC relative payment weights. The bypass process is 

described in section II.A.1.b. of this proposed rule. This section discusses how we 

develop “pseudo” single procedure claims (as defined below), with the intention of using 

more appropriate data from the available claims. In some cases, the bypass process 

allows us to use some portion of the submitted claim for cost estimation purposes, while 
CMS-1601-P 59

the remaining information on the claim continues to be unusable. Consistent with the 

goal of using appropriate information in our data development process, we only use 

claims (or portions of each claim) that are appropriate for ratesetting purposes. 

 The proposed APC relative weights and payments for CY 2014 in Addenda A 

and B to this proposed rule (which are available via the Internet on the CMS Web site) 

were calculated using claims from CY 2012 that were processed through 

December 31, 2012. While prior to CY 2013 we historically based the payments on 

median hospital costs for services in the APC groups, beginning with the CY 2013 OPPS, 

we established the cost-based relative payment weights for the OPPS using geometric 

mean costs, as discussed in the CY 2013 OPPS/ASC final rule with comment period 

(77 FR 68259 through 68271). For the CY 2014 OPPS, we are proposing to use this 

same methodology, basing payments on geometric mean costs. Under this methodology, 

we select claims for services paid under the OPPS and match these claims to the most 

recent cost report filed by the individual hospitals represented in our claims data. We 

continue to believe that it is appropriate to use the most current full calendar year claims 

data and the most recently submitted cost reports to calculate the relative costs 

underpinning the APC relative payment weights and the CY 2014 payment rates. 
CMS-1601-P 60

b. Proposed Use of Single and Multiple Procedure Claims 

 For CY 2014, in general, we are proposing to continue to use single procedure 

claims to set the costs on which the APC relative payment weights are based. We 

generally use single procedure claims to set the estimated costs for APCs because we 

believe that the OPPS relative weights on which payment rates are based should be 

derived from the costs of furnishing one unit of one procedure and because, in many 

circumstances, we are unable to ensure that packaged costs can be appropriately allocated 

across multiple procedures performed on the same date of service. 

 It is generally desirable to use the data from as many claims as possible to 

recalibrate the APC relative payment weights, including those claims for multiple 

procedures. As we have for several years, we are proposing to continue to use date of 

service stratification and a list of codes to be bypassed to convert multiple procedure 

claims to “pseudo” single procedure claims. Through bypassing specified codes that we 

believe do not have significant packaged costs, we are able to use more data from 

multiple procedure claims. In many cases, this enables us to create multiple “pseudo” 

single procedure claims from claims that were submitted as multiple procedure claims 

spanning multiple dates of service, or claims that contained numerous separately paid 

procedures reported on the same date on one claim. We refer to these newly created 

single procedure claims as “pseudo” single procedure claims. The history of our use of a 

bypass list to generate “pseudo” single procedure claims is well documented, most 

recently in the CY 2013 OPPS/ASC final rule with comment period (77 FR 68227 

through 68229). In addition, for CY 2008 (72 FR 66614 through 66664), we increased 
CMS-1601-P 61

packaging and created the first composite APCs, and continued those policies through 

CY 2013. Increased packaging and creation of composite APCs also increased the 

number of bills that we were able to use for ratesetting by enabling us to use claims that 

contained multiple major procedures that previously would not have been usable. 

Further, for CY 2009, we expanded the composite APC model to one additional clinical 

area, multiple imaging services (73 FR 68559 through 68569), which also increased the 

number of bills we were able to use in developing the OPPS relative weights on which 

payments are based. We have continued the composite APCs for multiple imaging 

services through CY 2013, and are proposing to continue this policy for CY 2014. We 

also are proposing to further expand our packaging policies for CY 2014. We refer 

readers to section II.A.2.f. of this proposed rule for a discussion of the use of claims in 

modeling the costs for composite APCs and to section II.A.3. of this proposed rule for a 

discussion of our proposed packaging policies for CY 2014. 

 We are proposing to continue to apply these processes to enable us to use as much 

claims data as possible for ratesetting for the CY 2014 OPPS. This methodology enabled 

us to create, for this proposed rule, approximately 34 million “pseudo” single procedure 

claims, including multiple imaging composite “single session” bills (we refer readers to 

section II.A.2.f.(5) of this proposed rule for further discussion), to add to the 

approximately 48 million “natural” single procedure claims. 

 For CY 2014, we are proposing to bypass 179 HCPCS codes that are identified in 

Addendum N to this proposed rule (which is available via the Internet on the CMS Web 

site). Since the inception of the bypass list, which is the list of codes to be bypassed to 
CMS-1601-P 62

convert multiple procedure claims to “pseudo” single procedure claims, we have 

calculated the percent of “natural” single bills that contained packaging for each HCPCS 

code and the amount of packaging on each “natural” single bill for each code. Each year, 

we generally retain the codes on the previous year’s bypass list and use the updated 

year’s data (for CY 2014, data available for the March 11, 2013 meeting of the Advisory 

Panel on Hospital Outpatient Payment (the Panel) from CY 2012 claims processed 

through September 30, 2012, and CY 2011 claims data processed through June 30, 2012, 

used to model the payment rates for CY 2013) to determine whether it would be 

appropriate to add additional codes to the previous year’s bypass list. For CY 2014, we 

are proposing to continue to bypass all of the HCPCS codes on the CY 2013 OPPS 

bypass list, with the exception of HCPCS codes that we are proposing to delete for 

CY 2014, which are listed in Table 1 of this proposed rule. We also are proposing to 

remove HCPCS codes that are not separately paid under the OPPS because the purpose of 

the bypass list is to obtain more data for those codes relevant to ratesetting. Some of the 

codes we are proposing to remove from the CY 2014 bypass list are affected by the 

CY 2014 packaging proposal, discussed in section II.A.3. of this proposed rule. In 

addition, we are proposing to add to the bypass list for CY 2014 HCPCS codes not on the 

CY 2013 bypass list that, using either the CY 2013 final rule data (CY 2011 claims) or 

the March 11, 2013 Panel data (first 9 months of CY 2012 claims), met the empirical 

criteria for the bypass list that are summarized below. Finally, to remain consistent with 

the CY 2014 proposal to continue to develop OPPS relative payment weights based on 

geometric mean costs, we also are proposing that the packaged cost criterion continue to 
CMS-1601-P 63

be based on the geometric mean cost. The entire list proposed for CY 2014 (including 

the codes that remain on the bypass list from prior years) is open to public comment. 

Because we must make some assumptions about packaging in the multiple procedure 

claims in order to assess a HCPCS code for addition to the bypass list, we assumed that 

the representation of packaging on “natural” single procedure claims for any given code 

is comparable to packaging for that code in the multiple procedure claims. The proposed 

criteria for the bypass list are: 

● There are 100 or more “natural” single procedure claims for the code. This 

number of single procedure claims ensures that observed outcomes are sufficiently 

representative of packaging that might occur in the multiple claims. 

● Five percent or fewer of the “natural” single procedure claims for the code 

have packaged costs on that single procedure claim for the code. This criterion results in 

limiting the amount of packaging being redistributed to the separately payable procedures 

remaining on the claim after the bypass code is removed and ensures that the costs 

associated with the bypass code represent the cost of the bypassed service. 

● The geometric mean cost of packaging observed in the “natural” single 

procedure claims is equal to or less than $55. This criterion also limits the amount of 

error in redistributed costs. During the assessment of claims against the bypass criteria, 

we do not know the dollar value of the packaged cost that should be appropriately 

attributed to the other procedures on the claim. Therefore, ensuring that redistributed 

costs associated with a bypass code are small in amount and volume protects the validity 

of cost estimates for low cost services billed with the bypassed service. 
CMS-1601-P 64

 We note that, as we did for CY 2013, we are proposing to continue to establish 

the CY 2014 OPPS relative payment weights based on geometric mean costs. To remain 

consistent in the metric used for identifying cost patterns, we are proposing to use the 

geometric mean cost of packaging to identify potential codes to add to the bypass list. 

 In response to public comments on the CY 2010 OPPS/ASC proposed rule 

requesting that the packaged cost threshold be updated, we considered whether it would 

be appropriate to update the $50 packaged cost threshold for inflation when examining 

potential bypass list additions. As discussed in the CY 2010 OPPS/ASC final rule with 

comment period (74 FR 60328), the real value of this packaged cost threshold criterion 

has declined due to inflation, making the packaged cost threshold more restrictive over 

time when considering additions to the bypass list. Therefore, adjusting the threshold by 

the market basket increase would prevent continuing decline in the threshold’s real value. 

Based on the same rationale described for the CY 2013 OPPS/ASC final rule with 

comment period (77 FR 68221), we are proposing for CY 2014 to continue to update the 

packaged cost threshold by the market basket increase. By applying the final CY 2013 

market basket increase of 1.8 percent to the prior nonrounded dollar threshold of $53.76 

(77 FR 68221), we determined that the threshold would remain for CY 2014 at $55 

($54.73 rounded to $55, the nearest $5 increment). Therefore, we are proposing to set the 

geometric mean packaged cost threshold on the CY 2012 claims at $55 for a code to be 

considered for addition to the CY 2014 OPPS bypass list. 

● The code is not a code for an unlisted service. Unlisted codes do not describe a 

specific service, and thus their costs would not be appropriate for bypass list purposes. 
CMS-1601-P 65

 In addition, we are proposing to continue to include on the bypass list HCPCS 

codes that CMS medical advisors believe have minimal associated packaging based on 

their clinical assessment of the complete CY 2014 OPPS proposal. Some of these codes 

were identified by CMS medical advisors and some were identified in prior years by 

commenters with specialized knowledge of the packaging associated with specific 

services. We also are proposing to continue to include certain HCPCS codes on the 

bypass list in order to purposefully direct the assignment of packaged costs to a 

companion code where services always appear together and where there would otherwise 

be few single procedure claims available for ratesetting. For example, we have 

previously discussed our reasoning for adding HCPCS code G0390 (Trauma response 

team associated with hospital critical care service) to the bypass list (73 FR 68513). 

 As a result of the multiple imaging composite APCs that we established in 

CY 2009, the program logic for creating “pseudo” single procedure claims from bypassed 

codes that are also members of multiple imaging composite APCs changed. When 

creating the set of “pseudo” single procedure claims, claims that contain “overlap bypass 

codes” (those HCPCS codes that are both on the bypass list and are members of the 

multiple imaging composite APCs) were identified first. These HCPCS codes were then 

processed to create multiple imaging composite “single session” bills, that is, claims 

containing HCPCS codes from only one imaging family, thus suppressing the initial use 

of these codes as bypass codes. However, these “overlap bypass codes” were retained on 

the bypass list because, at the end of the “pseudo” single processing logic, we reassessed 

the claims without suppression of the “overlap bypass codes” under our longstanding 
CMS-1601-P 66

“pseudo” single process to determine whether we could convert additional claims to 

“pseudo” single procedure claims. (We refer readers to section II.A.2.b. of this proposed 

rule for further discussion of the treatment of “overlap bypass codes.”) This process also 

created multiple imaging composite “single session” bills that could be used for 

calculating composite APC costs. “Overlap bypass codes” that are members of the 

proposed multiple imaging composite APCs are identified by asterisks (*) in Addendum 

N to this proposed rule (which is available via the Internet on the CMS Web site). 

 Addendum N to this proposed rule includes the proposed list of bypass codes for 

CY 2014. The list of bypass codes contains codes that were reported on claims for 

services in CY 2012 and, therefore, includes codes that were in effect in 2012 and used 

for billing but were deleted for CY 2013. We retained these deleted bypass codes on the 

proposed CY 2014 bypass list because these codes existed in CY 2012 and were covered 

OPD services in that period, and CY 2012 claims data are used to calculate CY 2014 

payment rates. Keeping these deleted bypass codes on the bypass list potentially allows 

us to create more “pseudo” single procedure claims for ratesetting purposes. “Overlap 

bypass codes” that were members of the proposed multiple imaging composite APCs are 

identified by asterisks (*) in the third column of Addendum N to this proposed rule. 

HCPCS codes that we are proposing to add for CY 2014 are identified by asterisks (*) in 

the fourth column of Addendum N. 

 Table 1 below contains the list of codes that we are proposing to remove from the 

CY 2014 bypass list because these codes were either deleted from the HCPCS before 

CY 2012 (and therefore were not covered OPD services in CY 2012) or were not 
CMS-1601-P 67

separately payable codes under the proposed CY 2014 OPPS because these codes are not 

used for ratesetting through the bypass process. The list of codes proposed for removal 

from the bypass list includes those that would be affected by the CY 2014 OPPS 

proposed packaging policy described in section II.A.3. of this proposed rule. 

TABLE 1.—HCPCS CODES PROPOSED TO BE REMOVED FROM THE 

CY 2014 BYPASS LIST

HCPCS 

Code HCPCS Short Descriptor 

17003 Destruct premalg les 2-14 

31231 Nasal endoscopy dx 

31505 Diagnostic laryngoscopy 

31579 Diagnostic laryngoscopy 

51741 Electro-uroflowmetry first 

51798 Us urine capacity measure 

54240 Penis study 

56820 Exam of vulva w/scope 

57452 Exam of cervix w/scope 

57454 Bx/curett of cervix w/scope 

69210 Remove impacted ear wax 

70030 X-ray eye for foreign body 

70100 X-ray exam of jaw <4views 

70110 X-ray exam of jaw 4/> views 

70120 X-ray exam of mastoids 

70130 X-ray exam of mastoids 

70140 X-ray exam of facial bones 

70150 X-ray exam of facial bones 

70160 X-ray exam of nasal bones 

70200 X-ray exam of eye sockets 

70210 X-ray exam of sinuses 

70220 X-ray exam of sinuses 

70240 X-ray exam pituitary saddle 

70250 X-ray exam of skull 

70260 X-ray exam of skull 

70320 Full mouth x-ray of teeth 
CMS-1601-P 68

HCPCS 

Code HCPCS Short Descriptor 

70328 X-ray exam of jaw joint 

70330 X-ray exam of jaw joints 

70355 Panoramic x-ray of jaws 

70360 X-ray exam of neck 

70370 Throat x-ray & fluoroscopy 

70371 Speech evaluation complex 

71021 Chest x-ray frnt lat lordotc 

71022 Chest x-ray frnt lat oblique 

71023 Chest x-ray and fluoroscopy 

71030 Chest x-ray 4/> views 

71034 Chest x-ray&fluoro 4/> views 

71035 Chest x-ray special views 

71100 X-ray exam ribs uni 2 views 

71101 X-ray exam unilat ribs/chest 

71110 X-ray exam ribs bil 3 views 

71111 X-ray exam ribs/chest4/> vws 

71120 X-ray exam breastbone 2/>vws 

71130 X-ray strenoclavic jt 3/>vws 

72010 X-ray exam spine ap&lat 

72020 X-ray exam of spine 1 view 

72040 X-ray exam neck spine 3/<vws 

72050 X-ray exam neck spine 4/5vws 

72052 X-ray exam neck spine 6/>vws 

72069 X-ray exam trunk spine stand 

72070 X-ray exam thorac spine 2vws 

72072 X-ray exam thorac spine 3vws 

72074 X-ray exam thorac spine4/>vw 

72080 X-ray exam trunk spine 2 vws 

72090 X-ray exam scloiosis erect 

72100 X-ray exam l-s spine 2/3 vws 

72110 X-ray exam l-2 spine 4/>vws 

72114 X-ray exam l-s spine bending 

72120 X-ray bend only l-s spine 

72170 X-ray exam of pelvis 

72190 X-ray exam of pelvis 

72202 X-ray exam si joints 3/> vws 
CMS-1601-P 69

HCPCS 

Code HCPCS Short Descriptor 

72220 X-ray exam sacrum tailbone 

73000 X-ray exam of collar bone 

73010 X-ray exam of shoulder blade 

73020 X-ray exam of shoulder 

73030 X-ray exam of shoulder 

73050 X-ray exam of shoulders 

73060 X-ray exam of humerus 

73070 X-ray exam of elbow 

73080 X-ray exam of elbow 

73090 X-ray exam of forearm 

73100 X-ray exam of wrist 

73110 X-ray exam of wrist 

73120 X-ray exam of hand 

73130 X-ray exam of hand 

73140 X-ray exam of finger(s) 

73510 X-ray exam of hip 

73520 X-ray exam of hips 

73540 X-ray exam of pelvis & hips 

73550 X-ray exam of thigh 

73560 X-ray exam of knee 1 or 2 

73562 X-ray exam of knee 3 

73564 X-ray exam knee 4 or more 

73565 X-ray exam of knees 

73590 X-ray exam of lower leg 

73600 X-ray exam of ankle 

73610 X-ray exam of ankle 

73620 X-ray exam of foot 

73630 X-ray exam of foot 

73650 X-ray exam of heel 

73660 X-ray exam of toe(s) 

74000 X-ray exam of abdomen 

74010 X-ray exam of abdomen 

74020 X-ray exam of abdomen 

74022 X-ray exam series abdomen 

74210 Contrst x-ray exam of throat 

74220 Contrast x-ray esophagus 
CMS-1601-P 70

HCPCS 

Code HCPCS Short Descriptor 

74230 Cine/vid x-ray throat/esoph 

74246 Contrst x-ray uppr gi tract 

74247 Contrst x-ray uppr gi tract 

74249 Contrst x-ray uppr gi tract 

76100 X-ray exam of body section 

76510 Ophth us b & quant a 

76511 Ophth us quant a only 

76512 Ophth us b w/non-quant a 

76513 Echo exam of eye water bath 

76514 Echo exam of eye thickness 

76516 Echo exam of eye 

76519 Echo exam of eye 

76536 Us exam of head and neck 

76645 Us exam breast(s) 

76801 Ob us < 14 wks single fetus 

76805 Ob us >/= 14 wks sngl fetus 

76811 Ob us detailed sngl fetus 

76816 Ob us follow-up per fetus 

76817 Transvaginal us obstetric 

76830 Transvaginal us non-ob 

76881 Us xtr non-vasc complete 

76882 Us xtr non-vasc lmtd 

76970 Ultrasound exam follow-up 

77072 X-rays for bone age 

77073 X-rays bone length studies 

77074 X-rays bone survey limited 

77075 X-rays bone survey complete 

77076 X-rays bone survey infant 

77077 Joint survey single view 

77082 Dxa bone density vert fx 

77084 Magnetic image bone marrow 

77300 Radiation therapy dose plan 

77301 Radiotherapy dose plan imrt 

77305 Teletx isodose plan simple 

77310 Teletx isodose plan intermed 

77315 Teletx isodose plan complex 
CMS-1601-P 71

HCPCS 

Code HCPCS Short Descriptor 

77327 Brachytx isodose calc interm 

77331 Special radiation dosimetry 

77336 Radiation physics consult 

77338 Design mlc device for imrt 

77370 Radiation physics consult 

80500 Lab pathology consultation 

80502 Lab pathology consultation 

85097 Bone marrow interpretation 

86510 Histoplasmosis skin test 

86850 RBC antibody screen 

86870 RBC antibody identification 

86880 Coombs test direct 

86885 Coombs test indirect qual 

86886 Coombs test indirect titer 

86890 Autologous blood process 

86900 Blood typing abo 

86901 Blood typing rh (d) 

86904 Blood typing patient serum 

86905 Blood typing rbc antigens 

86906 Blood typing rh phenotype 

86930 Frozen blood prep 

86970 Rbc pretx incubatj w/chemicl 

86977 Rbc serum pretx incubj/inhib 

88104 Cytopath fl nongyn smears 

88106 Cytopath fl nongyn filter 

88108 Cytopath concentrate tech 

88112 Cytopath cell enhance tech 

88120 Cytp urne 3-5 probes ea spec 

88160 Cytopath smear other source 

88161 Cytopath smear other source 

88162 Cytopath smear other source 

88172 Cytp dx eval fna 1st ea site 

88173 Cytopath eval fna report 

88182 Cell marker study 

88184 Flowcytometry/ tc 1 marker 

88185 Flowcytometry/tc add-on 
CMS-1601-P 72

HCPCS 

Code HCPCS Short Descriptor 

88189 Flowcytometry/read 16 & > 

88300 Surgical path gross 

88302 Tissue exam by pathologist 

88304 Tissue exam by pathologist 

88305 Tissue exam by pathologist 

88307 Tissue exam by pathologist 

88311 Decalcify tissue 

88312 Special stains group 1 

88313 Special stains group 2 

88314 Histochemical stains add-on 

88321 Microslide consultation 

88323 Microslide consultation 

88325 Comprehensive review of data 

88329 Path consult introp 

88331 Path consult intraop 1 bloc 

88342 Immunohistochemistry 

88346 Immunofluorescent study 

88347 Immunofluorescent study 

88348 Electron microscopy 

88358 Analysis tumor 

88360 Tumor immunohistochem/manual 

88361 Tumor immunohistochem/comput 

88365 Insitu hybridization (fish) 

88368 Insitu hybridization manual 

88385 Eval molecul probes 51-250 

88386 Eval molecul probes 251-500 

89049 Chct for mal hyperthermia 

89220 Sputum specimen collection 

89230 Collect sweat for test 

89240 Pathology lab procedure 

90472 Immunization admin each add 

90474 Immune admin oral/nasal addl 

92020 Special eye evaluation 

92025 Corneal topography 

92060 Special eye evaluation 

92081 Visual field examination(s) 
CMS-1601-P 73

HCPCS 

Code HCPCS Short Descriptor 

92082 Visual field examination(s) 

92083 Visual field examination(s) 

92133 Cmptr ophth img optic nerve 

92134 Cptr ophth dx img post segmt 

92136 Ophthalmic biometry 

92225 Special eye exam initial 

92226 Special eye exam subsequent 

92230 Eye exam with photos 

92240 Icg angiography 

92250 Eye exam with photos 

92275 Electroretinography 

92285 Eye photography 

92286 Internal eye photography 

92520 Laryngeal function studies 

92541 Spontaneous nystagmus test 

92542 Positional nystagmus test 

92546 Sinusoidal rotational test 

92548 Posturography 

92550 Tympanometry & reflex thresh 

92552 Pure tone audiometry air 

92553 Audiometry air & bone 

92555 Speech threshold audiometry 

92556 Speech audiometry complete 

92557 Comprehensive hearing test 

92567 Tympanometry 

92570 Acoustic immitance testing 

92582 Conditioning play audiometry 

92585 Auditor evoke potent compre 

92603 Cochlear implt f/up exam 7/> 

92604 Reprogram cochlear implt 7/> 

92626 Eval aud rehab status 

93005 Electrocardiogram tracing 

93017 Cardiovascular stress test 

93225 Ecg monit/reprt up to 48 hrs 

93226 Ecg monit/reprt up to 48 hrs 

93229 Remote 30 day ecg tech supp 
CMS-1601-P 74

HCPCS 

Code HCPCS Short Descriptor 

93270 Remote 30 day ecg rev/report 

93271 Ecg/monitoring and analysis 

93278 ECG/signal-averaged 

93290 Icm device eval 

93306 Tte w/doppler complete 

93701 Bioimpedance cv analysis 

93786 Ambulatory BP recording 

93788 Ambulatory BP analysis 

93880 Extracranial bilat study 

93882 Extracranial uni/ltd study 

93886 Intracranial complete study 

93888 Intracranial limited study 

93922 Upr/l xtremity art 2 levels 

93923 Upr/lxtr art stdy 3+ lvls 

93924 Lwr xtr vasc stdy bilat 

93925 Lower extremity study 

93926 Lower extremity study 

93930 Upper extremity study 

93931 Upper extremity study 

93965 Extremity study 

93970 Extremity study 

93971 Extremity study 

93975 Vascular study 

93976 Vascular study 

93978 Vascular study 

93979 Vascular study 

93990 Doppler flow testing 

94015 Patient recorded spirometry 

94690 Exhaled air analysis 

95250 Glucose monitoring cont 

95800 Slp stdy unattended 

95803 Actigraphy testing 

95805 Multiple sleep latency test 

95806 Sleep study unatt&resp efft 

95807 Sleep study attended 

95808 Polysom any age 1-3> param 
CMS-1601-P 75

HCPCS 

Code HCPCS Short Descriptor 

95810 Polysom 6/> yrs 4/> param 

95812 Eeg 41-60 minutes 

95813 Eeg over 1 hour 

95816 Eeg awake and drowsy 

95819 Eeg awake and asleep 

95822 Eeg coma or sleep only 

95869 Muscle test thor paraspinal 

95872 Muscle test one fiber 

95900 Motor nerve conduction test 

95921 Autonomic nrv parasym inervj 

95925 Somatosensory testing 

95926 Somatosensory testing 

95930 Visual evoked potential test 

95950 Ambulatory eeg monitoring 

95953 EEG monitoring/computer 

96000 Motion analysis video/3d 

96361 Hydrate iv infusion add-on 

96366 Ther/proph/diag iv inf addon 

96367 Tx/proph/dg addl seq iv inf 

96370 Sc ther infusion addl hr 

96371 Sc ther infusion reset pump 

96375 Tx/pro/dx inj new drug addon 

96411 Chemo iv push addl drug 

96415 Chemo iv infusion addl hr 

96417 Chemo iv infus each addl seq 

96423 Chemo ia infuse each addl hr 

G0365 Vessel mapping hemo access 

G0399 Home sleep test/type 3 Porta 

G0416 Sat biopsy 10-20 

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

 For CY 2014, we are proposing to continue to use the hospital-specific overall 

ancillary and departmental cost-to-charge ratios (CCRs) to convert charges to estimated 
CMS-1601-P 76

costs through application of a revenue code-to-cost center crosswalk. To calculate the 

APC costs on which the proposed CY 2014 APC payment rates are based, we calculated 

hospital-specific overall ancillary CCRs and hospital-specific departmental CCRs for 

each hospital for which we had CY 2012 claims data from the most recent available 

hospital cost reports, in most cases, cost reports beginning in CY 2011. For the CY 2014 

OPPS proposed rates, we used the set of claims processed during CY 2012. We applied 

the hospital-specific CCR to the hospital’s charges at the most detailed level possible, 

based on a revenue code-to-cost center crosswalk that contains a hierarchy of CCRs used 

to estimate costs from charges for each revenue code. That crosswalk is available for 

review and continuous comment on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalOutpatientPPS/index.html. 

 To ensure the completeness of the revenue code-to-cost center crosswalk, we 

reviewed changes to the list of revenue codes for CY 2012 (the year of claims data we 

used to calculate the proposed CY 2014 OPPS payment rates) and found that the National 

Uniform Billing Committee (NUBC) did not add any new revenue codes to the NUBC 

2012 Data Specifications Manual. 

 In accordance with our longstanding policy, we calculated CCRs for the standard 

and nonstandard cost centers accepted by the electronic cost report database. In general, 

the most detailed level at which we calculated CCRs was the hospital-specific 

departmental level. For a discussion of the hospital-specific overall ancillary CCR 

calculation, we refer readers to the CY 2007 OPPS/ASC final rule with comment period 
CMS-1601-P 77

(71 FR 67983 through 67985). One longstanding exception to this general methodology 

for calculation of CCRs used for converting charges to costs on each claim, as detailed in 

the CY 2007 OPPS/ASC final rule with comment period, is the calculation of blood 

costs, as discussed in section II.A.2.d.(2) of this proposed rule and which has been our 

standard policy since the CY 2005 OPPS. 

 For the CCR calculation process, we used the same general approach that we used 

in developing the final APC rates for CY 2007 and thereafter, using the revised CCR 

calculation that excluded the costs of paramedical education programs and weighted the 

outpatient charges by the volume of outpatient services furnished by the hospital. We 

refer readers to the CY 2007 OPPS/ASC final rule with comment period for more 

information (71 FR 67983 through 67985). We first limited the population of cost 

reports to only those hospitals that filed outpatient claims in CY 2012 before determining 

whether the CCRs for such hospitals were valid. 

 We then calculated the CCRs for each cost center and the overall ancillary CCR 

for each hospital for which we had claims data. We did this using 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 with cost reporting periods 

beginning in CY 2011. For this proposed rule, we used the most recently submitted cost 

reports to calculate the CCRs to be used to calculate costs for the proposed CY 2014 

OPPS payment rates. If the most recently available cost report was submitted but not 

settled, we looked at the last settled cost report to determine the ratio of submitted to 

settled cost using the overall ancillary CCR, and we then adjusted the most recent 
CMS-1601-P 78

available submitted, but not settled, cost report using that ratio. We then calculated both 

an overall ancillary CCR and cost center-specific CCRs for each hospital. We used the 

overall ancillary CCR referenced above for all purposes that require use of an overall 

ancillary CCR. We are proposing to continue this longstanding methodology for the 

calculation of costs for CY 2014. 

 Since the implementation of the OPPS, some commenters have raised concerns 

about potential bias in the OPPS cost-based weights due to “charge compression,” which 

is the practice of applying a lower charge markup to higher cost services and a higher 

charge markup to lower cost services. As a result, the cost-based weights may reflect 

some aggregation bias, undervaluing high-cost items and overvaluing low-cost items 

when an estimate of average markup, embodied in a single CCR, is applied to items of 

widely varying costs in the same cost center. This issue was evaluated in a report by 

Research Triangle Institute, International (RTI). The RTI final report can be found on 

RTI’s Web site at: http://www.rti.org/reports/cms/HHSM-500-2005-

0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf. For a complete 

discussion of the RTI recommendations, public comments, and our responses, we refer 

readers to the CY 2009 OPPS/ASC final rule with comment period (73 FR 68519 through 

68527). 

 We addressed the RTI finding that there was aggregation bias in both the IPPS 

and the OPPS cost estimation of expensive and inexpensive medical supplies in the 

FY 2009 IPPS final rule (73 FR 48458 through 45467). Specifically, we created one cost 

center for “Medical Supplies Charged to Patients” and one cost center for “Implantable 
CMS-1601-P 79

Devices Charged to Patients,” essentially splitting the then current cost center for 

“Medical Supplies Charged to Patients” into one cost center for low-cost medical 

supplies and another cost center for high-cost implantable devices in order to mitigate 

some of the effects of charge compression. In determining the items that should be 

reported in these respective cost centers, we adopted commenters’ recommendations that 

hospitals should use revenue codes established by the AHA’s NUBC to determine the 

items that should be reported in the “Medical Supplies Charged to Patients” and the 

“Implantable Devices Charged to Patients” cost centers. For a complete discussion of the 

rationale for the creation of the new cost center for “Implantable Devices Charged to 

Patients,” public comments, and our responses, we refer readers to the FY 2009 IPPS 

final rule. 

 The cost center for “Implantable Devices Charged to Patients” has been available 

for use for cost reporting periods beginning on or after May 1, 2009. In the CY 2013 

OPPS/ASC final rule with comment period, we determined that a significant volume of 

hospitals were utilizing the “Implantable Devices Charged to Patients” cost center. 

Because a sufficient amount of data from which to generate a meaningful analysis was 

available, we established in the CY 2013 OPPS/ASC final rule with comment period a 

policy to create a distinct CCR using the “Implantable Devices Charged to Patients” cost 

center (77 FR 68225). For the CY 2014 OPPS, we are proposing to continue to use data 

from the “Implantable Devices Charged to Patients” cost center to create a distinct CCR 

for use in calculating the OPPS relative payment weights. 
CMS-1601-P 80

 In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080), we 

finalized our proposal to create new standard cost centers for “Computed Tomography 

(CT),” “Magnetic Resonance Imaging (MRI),” and “Cardiac Catheterization,” and to 

require that hospitals report the costs and charges for these services under new cost 

centers on the revised Medicare cost report Form CMS 2552-10. As we discussed in the 

FY 2009 IPPS and CY 2009 OPPS/ASC proposed and final rules, RTI also found that the 

costs and charges of CT scans, MRIs, and cardiac catheterization differ significantly from 

the costs and charges of other services included in the standard associated cost center. 

RTI concluded that both the IPPS and the OPPS relative payment weights would better 

estimate the costs of those services if CMS were to add standard costs centers for CT 

scans, MRIs, and cardiac catheterization in order for hospitals to report separately the 

costs and charges for those services and in order for CMS to calculate unique CCRs to 

estimate the cost from charges on claims data. We refer readers to the FY 2011 

IPPS/LTCH PPS final rule (75 FR 50075 through 50080) for a more detailed discussion 

on the reasons for the creation of standard cost centers for CT scans, MRIs, and cardiac 

catheterization. The new standard cost centers for CT scans, MRIs, and cardiac 

catheterization were effective for cost report periods beginning on or after May 1, 2010, 

on the revised cost report Form CMS-2552-10. 

 Using the December 2012 HCRIS update which we use to estimate costs in the 

CY 2014 OPPS ratesetting process, we were able to calculate a valid implantable device 

CCR for 2,936 hospitals, a valid MRI CCR for 1,853 hospitals, a valid CT scan CCR for 

1,956 hospitals, and a valid Cardiac Catheterization CCR for 1,367 hospitals. We believe 
CMS-1601-P 81

that there is a sufficient amount of data in the Form CMS 2552-10 cost reports from 

which to generate a meaningful analysis of CCRs. Therefore, we are providing various 

data analyses below in Tables 2 and 3 demonstrating the changes as a result of including 

the new CCRs calculated from the new standard cost centers into the CY 2014 OPPS 

ratesetting process. 
CMS-1601-P 82

TABLE 2.—MEDIAN CCRs CALCULATED USING DIFFERENT COST 

REPORT DISTRIBUTIONS 

Calculated CCR 

“New” 

Standard 

Cost 

Center 

Using Form 

2552-96 CCRs 

only 

Using Form 

2552-96 and 

Form 2552-10 

CCRs 

Cardiology 0.2915 0.5112

Cardiac Catheterization * 0.1685 0.1590

Radiology – Diagnostic 0.2025 0.2279

Magnetic Resonance Imaging 

(MRI) * 0.1074 0.0959

CT Scan * 0.0568 0.0502

Medical Supplies Charged to 

Patient 0.3389 0.3315

Implantable Devices Charged to 

Patient * 0.4371 0.4190

TABLE 3.—PERCENTAGE CHANGE IN ESTIMATED COST FOR THOSE 

APCs SIGNIFICANTLY AFFECTED BY USE OF THE NEW STANDARD COST 

CENTER CCRs IN THE CMS FORM 2552-10 COST REPORTS 

APC APC Descriptor 

Percentage 

Change in 

Estimated 

Cost 

0282 Miscellaneous Computed Axial Tomography -38.1%

0332 Computed Tomography without Contrast -34.0%

8005 CT and CTA without Contrast Composite -33.9%

0331 Combined Abdomen and Pelvis CT without Contrast -32.9%

8006 CT and CTA with Contrast Composite -29.0%

0334 Combined Abdomen and Pelvis CT with Contrast -28.8%

0662 CT Angiography -27.0%

0283 Computed Tomography with Contrast -27.0%

0333 Computed Tomography without Contrast followed by Contrast -26.3%

0383 Cardiac Computed Tomographic Imaging -24.8%

0336 

Magnetic Resonance Imaging and Magnetic Resonance 

Angiography without Contrast -19.3%

8008 MRI and MRA with Contrast Composite -18.9%
CMS-1601-P 83

APC APC Descriptor 

Percentage 

Change in 

Estimated 

Cost 

8007 MRI and MRA without Contrast Composite -18.5%

0337 

Magnetic Resonance Imaging and Magnetic Resonance 

Angiography without Contrast followed by Contrast -18.2%

0284 

Magnetic Resonance Imaging and Magnetic Resonance 

Angiography with Contrast -14.9%

0080 Diagnostic Cardiac Catheterization -8.7%

0276 Level I Digestive Radiology 15.2%

0378 Level II Pulmonary Imaging 15.2%

0396 Bone Imaging 15.5%

0390 Level I Endocrine Imaging 15.8%

0395 GI Tract Imaging 16.2%

0402 Level II Nervous System Imaging 16.2%

0398 Level I Cardiac Imaging 16.3%

0262 Plain Film of Teeth 16.9%

0377 Level II Cardiac Imaging 17.0%

0267 Level III Diagnostic and Screening Ultrasound 17.2%

0406 Level I Tumor/Infection Imaging 17.4%

0403 Level I Nervous System Imaging 18.9%

0266 Level II Diagnostic and Screening Ultrasound 25.1%

0265 Level I Diagnostic and Screening Ultrasound 29.9%

8004 Ultrasound Composite 30.2%

 We note that the estimated changes in geometric mean estimated APC cost of 

using data from the new standard cost centers cited above appear consistent with the 

expected results based on RTI’s analysis of cost report and claims data in the July 2008 

final report (pages 5 and 6), which state “in hospitals that aggregate data for CT scanning, 

MRI, or nuclear medicine services with the standard line for Diagnostic Radiology, costs 

for these services all appear substantially overstated, while the costs for plain films, 

ultrasound and other imaging procedures are correspondingly understated.” We also note 

that there are limited additional impacts in the implantable device related APCs due to 
CMS-1601-P 84

using the new cost report form CMS 2552-10 because the standard cost center for 

implantable medical devices was previously incorporated into cost report form 

CMS 2552-96. 

 As we have discussed in prior rulemaking (77 FR 68223 through 68225), once we 

determined that cost report data were available for analysis, we would propose, if 

appropriate to use the distinct CCRs described above in the calculation of the OPPS 

relative payment weights. We believe that the analytic findings described above support 

the original decision to develop distinct standard cost centers for implantable devices, 

MRIs, CT scans, and cardiac catheterization, and we see no reason to further delay 

proposing to implement the CCRs of each of these cost centers. Therefore, beginning in 

CY 2014, we are proposing to calculate the OPPS relative payment weights using distinct 

CCRs for cardiac catheterization, CT scan, and MRI and to continue using a distinct CCR 

for implantable medical devices. Section XXIII. of this proposed rule includes the 

impacts of calculating the proposed CY 2014 OPPS relative payment weights using these 

new standard cost centers. 

2. Proposed Data Development Process and Calculation of Costs Used for Ratesetting 

 In this section of this proposed rule, we discuss the use of claims to calculate the 

proposed OPPS payment rates for CY 2014. The Hospital OPPS page on the CMS 

Web site on which this proposed rule is posted (http://www.cms.gov/Medicare/MedicareFee-for-Service-Payment/HospitalOutpatientPPS/index.html) provides an accounting of 

claims used in the development of the proposed payment rates. That accounting provides 

additional detail regarding the number of claims derived at each stage of the process. In 
CMS-1601-P 85

addition, below in this section we discuss the file of claims that comprises the data set 

that is available for purchase under a CMS data use agreement. The CMS Web site, 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalOutpatientPPS/index.html, includes information about purchasing the 

“OPPS Limited Data Set,” which now includes the additional variables previously 

available only in the OPPS Identifiable Data Set, including ICD-9-CM diagnosis codes 

and revenue code payment amounts. This file is derived from the CY 2012 claims that 

were used to calculate the proposed payment rates for the CY 2014 OPPS. 

 In the history of the OPPS, we have traditionally established the scaled relative 

weights on which payments are based using APC median costs, which is a process 

described in the CY 2012 OPPS/ASC final rule with comment period (76 FR 74188). 

However, as discussed in more detail in section II.A.2.f. of the CY 2013 OPPS/ASC final 

rule with comment period (77 FR 68259 through 68271), we finalized the use of 

geometric mean costs to calculate the relative weights on which the CY 2013 OPPS 

payment rates were based. While this policy changed the cost metric on which the 

relative payments are based, the data process in general remained the same, under the 

methodologies that we used to obtain appropriate claims data and accurate cost 

information in determining estimated service cost. For CY 2014, we are proposing to 

continue to use geometric mean costs to calculate the relative weights on which the 

proposed CY 2014 OPPS payments rates are based. 

 We used the methodology described in sections II.A.2.a. through II.A.2.f. of this 

proposed rule to calculate the costs we used to establish the proposed relative weights 
CMS-1601-P 86

used in calculating the proposed OPPS payment rates for CY 2014 shown in Addenda A 

and B to this proposed rule (which are available via the Internet on the CMS Web site). 

We refer readers to section II.A.4. of this proposed rule for a discussion of the conversion 

of APC costs to scaled payment weights. 

a. Claims Preparation 

 For this proposed rule, we used the CY 2012 hospital outpatient claims processed 

through December 31, 2012, to calculate the geometric mean costs of APCs that underpin 

the proposed relative payment weights for CY 2014. To begin the calculation of the 

proposed relative payment weights for CY 2014, we pulled all claims for outpatient 

services furnished in CY 2012 from the national claims history file. This is not the 

population of claims paid under the OPPS, but all outpatient claims (including, for 

example, critical access hospital (CAH) claims and hospital claims for clinical laboratory 

tests for persons who are neither inpatients nor outpatients of the hospital). 

 We then excluded claims with condition codes 04, 20, 21, and 77 because these 

are claims that providers submitted to Medicare knowing that no payment would be 

made. For example, providers submit claims with a condition code 21 to elicit an official 

denial notice from Medicare and document that a service is not covered. We then 

excluded claims for services furnished in Maryland, Guam, the U.S. Virgin Islands, 

American Samoa, and the Northern Mariana Islands because hospitals in those 

geographic areas are not paid under the OPPS, and, therefore, we do not use claims for 

services furnished in these areas in ratesetting. 
CMS-1601-P 87

 We divided the remaining claims into the three groups shown below. 

Groups 2 and 3 comprise the 116 million claims that contain hospital bill types paid 

under the OPPS. 

 1. Claims that were not bill types 12X (Hospital Inpatient (Medicare Part B 

only)), 13X (Hospital Outpatient), 14X (Hospital--Laboratory Services Provided to 

Nonpatients), or 76X (Clinic--Community Mental Health Center). Other bill types are 

not paid under the OPPS; therefore, these claims were not used to set OPPS payment. 

 2. Claims that were bill types 12X, 13X or 14X. Claims with bill types 12X and 

13X are hospital outpatient claims. Claims with bill type 14X are laboratory specimen 

claims, of which we use a subset for the limited number of services in these claims that 

are paid under the OPPS. 

 3. Claims that were bill type 76X (CMHC). 

 To convert charges on the claims to estimated cost, we multiplied the charges on 

each claim by the appropriate hospital-specific CCR associated with the revenue code for 

the charge as discussed in section II.A.1.c. of this proposed rule. We then flagged and 

excluded CAH claims (which are not paid under the OPPS) and claims from hospitals 

with invalid CCRs. The latter included claims from hospitals without a CCR; those from 

hospitals paid an all-inclusive rate; those from hospitals with obviously erroneous CCRs 

(greater than 90 or less than 0.0001); and those from hospitals with overall ancillary 

CCRs that were identified as outliers (that exceeded +/-3 standard deviations from the 

geometric mean after removing error CCRs). In addition, we trimmed the CCRs at the 

cost center (that is, departmental) level by removing the CCRs for each cost center as 
CMS-1601-P 88

outliers if they exceeded +/- 3 standard deviations from the geometric mean. We used a 

four-tiered hierarchy of cost center CCRs, which is the revenue code-to-cost center 

crosswalk, to match a cost center to every possible revenue code appearing in the 

outpatient claims that is relevant to OPPS services, with the top tier being the most 

common cost center and the last tier being the default CCR. If a hospital’s cost center 

CCR was deleted by trimming, we set the CCR for that cost center to “missing” so that 

another cost center CCR in the revenue center hierarchy could apply. If no other cost 

center CCR could apply to the revenue code on the claim, we used the hospital’s overall 

ancillary CCR for the revenue code in question as the default CCR. For example, if a 

visit was reported under the clinic revenue code but the hospital did not have a clinic cost 

center, we mapped the hospital-specific overall ancillary CCR to the clinic revenue code. 

The revenue code-to-cost center crosswalk is available for inspection on the CMS Web 

site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalOutpatientPPS/index.html. Revenue codes that we do not use in 

establishing relative costs or to model impacts are identified with an “N” in the revenue 

code-to-cost center crosswalk. 

 We applied the CCRs as described above to claims with bill type 12X, 13X, or 

14X, excluding all claims from CAHs and hospitals in Maryland, Guam, the U.S. Virgin 

Islands, American Samoa, and the Northern Mariana Islands and claims from all hospitals 

for which CCRs were flagged as invalid. 

 We identified claims with condition code 41 as partial hospitalization services of 

hospitals and moved them to another file. We note that the separate file containing 
CMS-1601-P 89

partial hospitalization claims is included in the files that are available for purchase as 

discussed above. 

 We then excluded claims without a HCPCS code. We moved to another file 

claims that contained only influenza and pneumococcal pneumonia (PPV) vaccines. 

Influenza and PPV vaccines are paid at reasonable cost; therefore, these claims are not 

used to set OPPS rates. 

 We next copied line-item costs for drugs, blood, and brachytherapy sources to a 

separate file (the lines stay on the claim, but are copied onto another file). No claims 

were deleted when we copied these lines onto another file. These line-items are used to 

calculate a per unit arithmetic and geometric mean and median cost and a per day 

arithmetic and geometric mean and median cost for drugs and nonimplantable 

biologicals, therapeutic radiopharmaceutical agents, and brachytherapy sources, as well 

as other information used to set payment rates, such as a unit-to-day ratio for drugs. 

 Prior to CY 2013, our payment policy for nonpass-through separately paid drugs 

and biologicals was based on a redistribution methodology that accounted for pharmacy 

overhead by allocating cost from packaged drugs to separately paid drugs. This 

methodology typically would have required us to reduce the cost associated with 

packaged coded and uncoded drugs in order to allocate that cost. However, for CY 2013, 

we paid for separately payable drugs and biologicals under the OPPS at ASP+6 percent, 

based upon the statutory default described in section 1833(t)(14)(A)(iii)(II) of the Act. 

Under that policy, we did not redistribute the pharmacy overhead costs from packaged 

drugs to separately paid drugs. For the CY 2014 OPPS, we are proposing to continue the 
CMS-1601-P 90

CY 2013 payment policy for separately payable drugs and biologicals. We refer readers 

to section V.B.3. of this proposed rule for a complete discussion of our CY 2014 

proposed payment policy for separately paid drugs and biologicals. 

 We then removed line-items that were not paid during claim processing, 

presumably for a line-item rejection or denial. The number of edits for valid OPPS 

payment in the Integrated Outpatient Code Editor (I/OCE) and elsewhere has grown 

significantly in the past few years, especially with the implementation of the full 

spectrum of National Correct Coding Initiative (NCCI) edits. To ensure that we are using 

valid claims that represent the cost of payable services to set payment rates, we removed 

line-items with an OPPS status indicator that were not paid during claims processing in 

the claim year, but have a status indicator of “S,” “T,” or “V,” in the prospective year’s 

payment system. This logic preserves charges for services that would not have been paid 

in the claim year but for which some estimate of cost is needed for the prospective year, 

such as services newly removed from the inpatient list for CY 2013 that were assigned 

status indicator “C” in the claim year. It also preserves charges for packaged services so 

that the costs can be included in the cost of the services with which they are reported, 

even if the CPT codes for the packaged services were not paid because the service is part 

of another service that was reported on the same claim or the code otherwise violates 

claims processing edits. 

 For CY 2014, we are proposing to continue the policy we implemented for 

CY 2013 to exclude line-item data for pass-through drugs and biologicals (status 

indicator “G” for CY 2012) and nonpass-through drugs and biologicals (status indicator 
CMS-1601-P 91

“K” for CY 2012) where the charges reported on the claim for the line were either denied 

or rejected during claims processing. Removing lines that were eligible for payment but 

were not paid ensures that we are using appropriate data. The trim avoids using cost data 

on lines that we believe were defective or invalid because those rejected or denied lines 

did not meet the Medicare requirements for payment. For example, edits may reject a 

line for a separately paid drug because the number of units billed exceeded the number of 

units that would be reasonable and, therefore, is likely a billing error (for example, a line 

reporting 55 units of a drug for which 5 units is known to be a fatal dose). As with our 

trimming in the CY 2013 OPPS/ASC final rule with comment period (77 FR 68226) of 

line-items with a status indicator of “S,” “T,” “V,” or “X,” we believe that unpaid 

line-items represent services that are invalidly reported and, therefore, should not be used 

for ratesetting. We believe that removing lines with valid status indicators that were 

edited and not paid during claims processing increases the accuracy of the data used for 

ratesetting purposes. 

 For the CY 2014 OPPS, as part of the proposal to package clinical diagnostic 

laboratory tests, we also are proposing to apply the line item trim to these services if they 

did not receive payment in the claims year. Removing these lines ensures that, in 

establishing the CY 2014 OPPS relative payments weights, we appropriately allocate the 

costs associated with packaging these services. For a more detailed discussion of the 

proposal to package clinical diagnostic laboratory tests, we refer readers to section 

II.A.3.b.(3) of this proposed rule. 
CMS-1601-P 92

b. Splitting Claims and Creation of “Pseudo” Single Procedure Claims 

(1) Splitting Claims 

 For the CY 2014 OPPS, we then split the remaining claims into five groups: 

single majors; multiple majors; single minors; multiple minors; and other claims. 

(Specific definitions of these groups are presented below.) We note that, under the 

proposed CY 2014 OPPS packaging policy, we are proposing to delete status indicator 

“X” and revise the title and description of status indicator “Q1” to reflect that deletion, as 

discussed in sections II.A.3. and XI. of this proposed rule. For CY 2014, we are 

proposing to define major procedures as any HCPCS code having a status indicator of 

“S,” “T,” or “V”; to define minor procedures as any code having a status indicator of “F,” 

“G,” “H,” “K,” “L,” “R,” “U,” or “N”; and to classify “other” procedures as any code 

having a status indicator other than one that we have classified as major or minor. For 

CY 2014, we are proposing to continue to assign status indicator “R” to blood and blood 

products; status indicator “U” to brachytherapy sources; status indicator “Q1” to all 

“STV-packaged codes”; status indicator “Q2” to all “T-packaged codes”; and status 

indicator “Q3” to all codes that may be paid through a composite APC based on 

composite-specific criteria or paid separately through single code APCs when the criteria 

are not met. 

 As discussed in the CY 2009 OPPS/ASC final rule with comment period 

(73 FR 68709), we established status indicators “Q1,” “Q2,” and “Q3” to facilitate 

identification of the different categories of codes. We are proposing to treat these codes 

in the same manner for data purposes for CY 2014 as we have treated them since 
CMS-1601-P 93

CY 2008. Specifically, we are continuing to evaluate whether the criteria for separate 

payment of codes with status indicator “Q1” or “Q2” are met in determining whether they 

are treated as major or minor codes. Codes with status indicator “Q1” or “Q2” are 

carried through the data either with status indicator “N” as packaged or, if they meet the 

criteria for separate payment, they are given the status indicator of the APC to which they 

are assigned and are considered as “pseudo” single procedure claims for major codes. 

Codes assigned status indicator “Q3” are paid under individual APCs unless they occur in 

the combinations that qualify for payment as composite APCs and, therefore, they carry 

the status indicator of the individual APC to which they are assigned through the data 

process and are treated as major codes during both the split and “pseudo” single creation 

process. The calculation of the geometric mean costs for composite APCs from multiple 

procedure major claims is discussed in section II.A.2.f. of this proposed rule. 

 Specifically, we are proposing to divide the remaining claims into the following 

five groups: 

 1. Single Procedure Major Claims: Claims with a single separately payable 

procedure (that is, status indicator “S,” “T,” or “V” which includes codes with status 

indicator “Q3”); claims with one unit of a status indicator “Q1” code (“STV-packaged”) 

where there was no code with status indicator “S,” “T,” or “V” on the same claim on the 

same date; or claims with one unit of a status indicator “Q2” code (“T-packaged”) where 

there was no code with a status indicator “T” on the same claim on the same date. 

 2. Multiple Procedure Major Claims: Claims with more than one separately 

payable procedure (that is, status indicator “S,” “T,” or “V,” which includes codes with 
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status indicator “Q3”), or multiple units of one payable procedure. These claims include 

those codes with a status indicator “Q2” code (“T-packaged”) where there was no 

procedure with a status indicator “T” on the same claim on the same date of service but 

where there was another separately paid procedure on the same claim with the same date 

of service (that is, another code with status indicator “S ” or “V”). We also include in 

this set claims that contained one unit of one code when the bilateral modifier was 

appended to the code and the code was conditionally or independently bilateral. In these 

cases, the claims represented more than one unit of the service described by the code, 

notwithstanding that only one unit was billed. 

 3. Single Procedure Minor Claims: Claims with a single HCPCS code that was 

assigned status indicator “F,” “G,” “H,” “K,” “L,” “R,” “U,” or “N” and not status 

indicator “Q1” (“STV-packaged”) or status indicator “Q2” (“T-packaged”) code. 

 4. Multiple Procedure Minor Claims: Claims with multiple HCPCS codes that 

are assigned status indicator “F,” “G,” “H,” “K,” “L,” “R,” “U,” or “N”; claims that 

contain more than one code with status indicator “Q1” (“STV-packaged”) or more than 

one unit of a code with status indicator “Q1” but no codes with status indicator “S,” “T,” 

or “V” on the same date of service; or claims that contain more than one code with status 

indicator “Q2” (T-packaged), or “Q2” and “Q1,” or more than one unit of a code with 

status indicator “Q2” but no code with status indicator “T” on the same date of service. 

 5. Non-OPPS Claims: Claims that contain no services payable under the OPPS 

(that is, all status indicators other than those listed for major or minor status). These 

claims were excluded from the files used for the OPPS. Non-OPPS claims have codes 
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paid under other fee schedules, for example, durable medical equipment, and do not 

contain a code for a separately payable or packaged OPPS service. Non-OPPS claims 

include claims for therapy services paid sometimes under the OPPS but billed, in these 

non-OPPS cases, with revenue codes indicating that the therapy services would be paid 

under the Medicare Physician Fee Schedule (MPFS). 

 The claims listed in numbers 1, 2, 3, and 4 above are included in the data file that 

can be purchased as described above. Claims that contain codes to which we have 

assigned status indicators “Q1” (“STV-packaged”) and “Q2” (“T-packaged”) appear in 

the data for the single major file, the multiple major file, and the multiple minor file used 

for ratesetting. Claims that contain codes to which we have assigned status indicator 

“Q3” (composite APC members) appear in both the data of the single and multiple major 

files used in this proposed rule, depending on the specific composite calculation. 

(2) Creation of “Pseudo” Single Procedure Claims 

 To develop “pseudo” single procedure claims for this proposed rule, we examined 

both the multiple procedure major claims and the multiple procedure minor claims. We 

first examined the multiple major procedure claims for dates of service to determine if we 

could break them into “pseudo” single procedure claims using the dates of service for all 

lines on the claim. If we could create claims with single major procedures by using dates 

of service, we created a single procedure claim record for each separately payable 

procedure on a different date of service (that is, a “pseudo” single procedure claim). 

 We also are proposing to use the bypass codes listed in Addendum N to this 

proposed rule (which is available via the Internet on our Web site) and discussed in 
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section II.A.1.b. of this proposed rule to remove separately payable procedures which we 

determined contained limited or no packaged costs or that were otherwise suitable for 

inclusion on the bypass list from a multiple procedure bill. As discussed above, we 

ignore the “overlap bypass codes,” that is, those HCPCS codes that are both on the 

bypass list and are members of the multiple imaging composite APCs, in this initial 

assessment for “pseudo” single procedure claims. The proposed CY 2014 “overlap 

bypass codes” are listed in Addendum N to this proposed rule (which is available via the 

Internet on the CMS Web site). When one of the two separately payable procedures on a 

multiple procedure claim was on the bypass list, we split the claim into two “pseudo” 

single procedure claim records. The single procedure claim record that contained the 

bypass code did not retain packaged services. The single procedure claim record that 

contained the other separately payable procedure (but no bypass code) retained the 

packaged revenue code charges and the packaged HCPCS code charges. We also 

removed lines that contained multiple units of codes on the bypass list and treated them 

as “pseudo” single procedure claims by dividing the cost for the multiple units by the 

number of units on the line. If one unit of a single, separately payable procedure code 

remained on the claim after removal of the multiple units of the bypass code, we created 

a “pseudo” single procedure claim from that residual claim record, which retained the 

costs of packaged revenue codes and packaged HCPCS codes. This enabled us to use 

claims that would otherwise be multiple procedure claims and could not be used. 

 We then assessed the claims to determine if the proposed criteria for the multiple 

imaging composite APCs, discussed in section II.A.2.f.(5) of this proposed rule, were 
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met. If the criteria for the imaging composite APCs were met, we created a “single 

session” claim for the applicable imaging composite service and determined whether we 

could use the claim in ratesetting. For HCPCS codes that are both conditionally 

packaged and are members of a multiple imaging composite APC, we first assessed 

whether the code would be packaged and, if so, the code ceased to be available for further 

assessment as part of the composite APC. Because the packaged code would not be a 

separately payable procedure, we considered it to be unavailable for use in setting the 

composite APC costs on which the proposed CY 2014 OPPS payments are based. 

Having identified “single session” claims for the imaging composite APCs, we reassessed 

the claim to determine if, after removal of all lines for bypass codes, including the 

“overlap bypass codes,” a single unit of a single separately payable code remained on the 

claim. If so, we attributed the packaged costs on the claim to the single unit of the single 

remaining separately payable code other than the bypass code to create a “pseudo” single 

procedure claim. We also identified line-items of overlap bypass codes as a “pseudo” 

single procedure claim. This allowed us to use more claims data for ratesetting purposes. 

 We also are proposing to examine the multiple procedure minor claims to 

determine whether we could create “pseudo” single procedure claims. Specifically, 

where the claim contained multiple codes with status indicator “Q1” (“STV-packaged”) 

on the same date of service or contained multiple units of a single code with status 

indicator “Q1,” we selected the status indicator “Q1” HCPCS code that had the highest 

CY 2013 relative payment weight, set the units to one on that HCPCS code to reflect our 

policy of paying only one unit of a code with a status indicator of “Q1.” We then 
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packaged all costs for the following into a single cost for the “Q1” HCPCS code that had 

the highest CY 2013 relative payment weight to create a “pseudo” single procedure claim 

for that code: additional units of the status indicator “Q1” HCPCS code with the highest 

CY 2013 relative payment weight; other codes with status indicator “Q1”; and all other 

packaged HCPCS codes and packaged revenue code costs. We changed the status 

indicator for the selected code from the data status indicator of “N” to the status indicator 

of the APC to which the selected procedure was assigned for further data processing and 

considered this claim as a major procedure claim. We used this claim in the calculation 

of the APC geometric mean cost for the status indicator “Q1” HCPCS code. 

 Similarly, if a multiple procedure minor claim contained multiple codes with 

status indicator “Q2” (“T-packaged”) or multiple units of a single code with status 

indicator “Q2,” we selected the status indicator “Q2” HCPCS code that had the highest 

CY 2013 relative payment weight and set the units to one on that HCPCS code to reflect 

our policy of paying only one unit of a code with a status indicator of “Q2.” We then 

packaged all costs for the following into a single cost for the “Q2” HCPCS code that had 

the highest CY 2013 relative payment weight to create a “pseudo” single procedure claim 

for that code: additional units of the status indicator “Q2” HCPCS code with the highest 

CY 2013 relative payment weight; other codes with status indicator “Q2”; and other 

packaged HCPCS codes and packaged revenue code costs. We changed the status 

indicator for the selected code from a data status indicator of “N” to the status indicator 

of the APC to which the selected code was assigned, and we considered this claim as a 

major procedure claim. 
CMS-1601-P 99

 If a multiple procedure minor claim contained multiple codes with status indicator 

“Q2” (“T-packaged”) and status indicator “Q1” (“STV-packaged”), we selected the 

T-packaged status indicator “Q2” HCPCS code that had the highest relative payment 

weight for CY 2013 and set the units to one on that HCPCS code to reflect our policy of 

paying only one unit of a code with a status indicator of “Q2.” We then packaged all 

costs for the following into a single cost for the selected (“T packaged”) HCPCS code to 

create a “pseudo” single procedure claim for that code: additional units of the status 

indicator “Q2” HCPCS code with the highest CY 2013 relative payment weight; other 

codes with status indicator “Q2”; codes with status indicator “Q1” (“STV-packaged”); 

and other packaged HCPCS codes and packaged revenue code costs. We selected status 

indicator “Q2” HCPCS codes instead of “Q1” HCPCS codes because “Q2” HCPCS 

codes have higher CY 2013 relative payment weights. If a status indicator “Q1” HCPCS 

code had a higher CY 2013 relative payment weight, it became the primary code for the 

simulated single bill process. We changed the status indicator for the selected status 

indicator “Q2” (“T-packaged”) code from a data status indicator of “N” to the status 

indicator of the APC to which the selected code was assigned and we considered this 

claim as a major procedure claim. 

 We then applied our proposed process for creating “pseudo” single procedure 

claims to the conditionally packaged codes that do not meet the criteria for packaging, 

which enabled us to create single procedure claims from them, if they met the criteria for 

single procedure claims. Conditionally packaged codes are identified using status 

indicators “Q1” and “Q2,” and are described in section XI.A. of this proposed rule. 
CMS-1601-P 100 

 Lastly, we excluded those claims that we were not able to convert to single 

procedure claims even after applying all of the techniques for creation of “pseudo” single 

procedure claims to multiple procedure major claims and to multiple procedure minor 

claims. As has been our practice in recent years, we also excluded claims that contained 

codes that were viewed as independently or conditionally bilateral and that contained the 

bilateral modifier (Modifier 50 (Bilateral procedure)) because the line-item cost for the 

code represented the cost of two units of the procedure, notwithstanding that hospitals 

billed the code with a unit of one. 

 We are proposing to continue to apply the methodology described above for the 

purpose of creating “pseudo” single procedure claims for the CY 2014 OPPS. 

c. Completion of Claim Records and Geometric Mean Cost Calculations 

(1) General Process 

 We then packaged the costs of packaged HCPCS codes (codes with status 

indicator “N” listed in Addendum B to this proposed rule (which is available via the 

Internet on the CMS Web site) and the costs of those lines for codes with status indicator 

“Q1” or “Q2” when they are not separately paid), and the costs of the services reported 

under packaged revenue codes in Table 4 below that appeared on the claim without a 

HCPCS code into the cost of the single major procedure remaining on the claim. For a 

more complete discussion of our proposed CY 2014 OPPS packaging policy, we refer 

readers to section II.A.3. of this proposed rule. 

 As noted in the CY 2008 OPPS/ASC final rule with comment period 

(72 FR 66606), for the CY 2008 OPPS, we adopted an APC Panel recommendation that 
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CMS should review the final list of packaged revenue codes for consistency with OPPS 

policy and ensure that future versions of the I/OCE edit accordingly. As we have in the 

past, we are proposing to continue to compare the final list of packaged revenue codes 

that we adopt for CY 2014 to the revenue codes that the I/OCE will package for CY 2014 

to ensure consistency. 

 In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68531), we 

replaced the NUBC standard abbreviations for the revenue codes listed in Table 2 of the 

CY 2009 OPPS/ASC proposed rule with the most current NUBC descriptions of the 

revenue code categories and subcategories to better articulate the meanings of the 

revenue codes without changing the list of revenue codes. In the CY 2010 OPPS/ASC 

final rule with comment period (74 FR 60362 through 60363), we finalized changes to 

the packaged revenue code list based on our examination of the updated NUBC codes 

and public comment on the CY 2010 proposed list of packaged revenue codes. 

 For CY 2014, as we did for CY 2013, we reviewed the changes to revenue codes 

that were effective during CY 2012 for purposes of determining the charges reported with 

revenue codes but without HCPCS codes that we would propose to package for CY 2014. 

We believe that the charges reported under the revenue codes listed in Table 4 below 

continue to reflect ancillary and supportive services for which hospitals report charges 

without HCPCS codes. Therefore, for CY 2014, we are proposing to continue to package 

the costs that we derive from the charges reported without HCPCS codes under the 

revenue codes displayed in Table 4 below for purposes of calculating the geometric mean 

costs on which the proposed CY 2014 OPPS/ASC payment rates are based. 
CMS-1601-P 102 

TABLE 4.—PROPOSED CY 2014 PACKAGED REVENUE CODES 

Revenue 

Code Description 

0250 Pharmacy; General Classification 

0251 Pharmacy; Generic Drugs 

0252 Pharmacy; Non-Generic Drugs 

0254 Pharmacy; Drugs Incident to Other Diagnostic Services 

0255 Pharmacy; Drugs Incident to Radiology 

0257 Pharmacy; Non-Prescription 

0258 Pharmacy; IV Solutions 

0259 Pharmacy; Other Pharmacy 

0260 IV Therapy; General Classification 

0261 IV Therapy; Infusion Pump 

0262 IV Therapy; IV Therapy/Pharmacy Svcs 

0263 IV Therapy; IV Therapy/Drug/Supply Delivery 

0264 IV Therapy; IV Therapy/Supplies 

0269 IV Therapy; Other IV Therapy 

0270 Medical/Surgical Supplies and Devices; General Classification 

0271 Medical/Surgical Supplies and Devices; Non-sterile Supply 

0272 Medical/Surgical Supplies and Devices; Sterile Supply 

0275 Medical/Surgical Supplies and Devices; Pacemaker 

0276 Medical/Surgical Supplies and Devices; Intraocular Lens 

0278 Medical/Surgical Supplies and Devices; Other Implants 

0279 Medical/Surgical Supplies and Devices; Other Supplies/Devices 

0280 Oncology; General Classification 

0289 Oncology; Other Oncology 

0343 Nuclear Medicine; Diagnostic Radiopharmaceuticals 

0344 Nuclear Medicine; Therapeutic Radiopharmaceuticals 

0370 Anesthesia; General Classification 

0371 Anesthesia; Anesthesia Incident to Radiology 

0372 Anesthesia; Anesthesia Incident to Other DX Services 

0379 Anesthesia; Other Anesthesia 

0390 

Administration, Processing and Storage for Blood and Blood Components; 

General Classification 

0392 

Administration, Processing and Storage for Blood and Blood Components; 

Processing and Storage 
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Revenue 

Code Description 

0399 

Administration, Processing and Storage for Blood and Blood Components; 

Other Blood Handling 

0621 

Medical Surgical Supplies – Extension of 027X; Supplies Incident to 

Radiology 

0622 

Medical Surgical Supplies – Extension of 027X; Supplies Incident to Other 

DX Services 

0623 Medical Supplies – Extension of 027X, Surgical Dressings 

0624 Medical Surgical Supplies – Extension of 027X; FDA Investigational Devices

0630 Pharmacy – Extension of 025X; Reserved 

0631 Pharmacy – Extension of 025X; Single Source Drug 

0632 Pharmacy – Extension of 025X; Multiple Source Drug 

0633 Pharmacy – Extension of 025X; Restrictive Prescription 

0681 Trauma Response; Level I Trauma 

0682 Trauma Response; Level II Trauma 

0683 Trauma Response; Level III Trauma 

0684 Trauma Response; Level IV Trauma 

0689 Trauma Response; Other 

0700 Cast Room; General Classification 

0710 Recovery Room; General Classification 

0720 Labor Room/Delivery; General Classification 

0721 Labor Room/Delivery; Labor 

0732 EKG/ECG (Electrocardiogram); Telemetry 

0762 Specialty services; Observation Hours 

0801 Inpatient Renal Dialysis; Inpatient Hemodialysis 

0802 Inpatient Renal Dialysis; Inpatient Peritoneal Dialysis (Non-CAPD) 

0803 

Inpatient Renal Dialysis; Inpatient Continuous Ambulatory Peritoneal 

Dialysis (CAPD) 

0804 

Inpatient Renal Dialysis; Inpatient Continuous Cycling Peritoneal Dialysis 

(CCPD) 

0809 Inpatient Renal Dialysis; Other Inpatient Dialysis 

0810 Acquisition of Body Components; General Classification 

0819 Acquisition of Body Components; Other Donor 

0821 Hemodialysis-Outpatient or Home; Hemodialysis Composite or Other Rate 

0824 Hemodialysis-Outpatient or Home; Maintenance – 100% 

0825 Hemodialysis-Outpatient or Home; Support Services 
CMS-1601-P 104 

Revenue 

Code Description 

0829 Hemodialysis-Outpatient or Home; Other OP Hemodialysis 

0942 

Other Therapeutic Services (also see 095X, an extension of 094x); 

Education/Training 

0943 

Other Therapeutic Services (also see 095X, an extension of 094X), Cardiac 

Rehabilitation 

0948 

Other Therapeutic Services (also see 095X, an extension of 094X), 

Pulmonary Rehabilitation 

 In accordance with our longstanding policy, we are proposing to continue to 

exclude: (1) claims that had zero costs after summing all costs on the claim; and 

(2) claims containing packaging flag number 3. Effective for services furnished on or 

after July 1, 2004, the I/OCE assigned packaging flag number 3 to claims on which 

hospitals submitted token charges less than $1.01 for a service with status indicator “S” 

or “T” (a major separately payable service under the OPPS) for which the fiscal 

intermediary or Medicare administrative contractor (MAC) was required to allocate the 

sum of charges for services with a status indicator equaling “S” or “T” based on the 

relative payment weight of the APC to which each code was assigned. We do not believe 

that these charges, which were token charges as submitted by the hospital, are valid 

reflections of hospital resources. Therefore, we deleted these claims. We also deleted 

claims for which the charges equaled the revenue center payment (that is, the Medicare 

payment) on the assumption that, where the charge equaled the payment, to apply a CCR 

to the charge would not yield a valid estimate of relative provider cost. We are proposing 

to continue these processes for the CY 2014 OPPS. 
CMS-1601-P 105 

 For the remaining claims, we are proposing to then standardize 60 percent of the 

costs of the claim (which we have previously determined to be the labor-related portion) 

for geographic differences in labor input costs. We made this adjustment by determining 

the wage index that applied to the hospital that furnished the service and dividing the cost 

for the separately paid HCPCS code furnished by the hospital by that wage index. The 

claims accounting that we provide for the proposed and final rule contains the formula we 

use to standardize the total cost for the effects of the wage index. As has been our policy 

since the inception of the OPPS, we are proposing to use the pre-reclassified wage 

indices for standardization because we believe that they better reflect the true costs of 

items and services in the area in which the hospital is located than the 

post-reclassification wage indices and, therefore, would result in the most accurate 

unadjusted geometric mean costs. 

 In accordance with our longstanding practice, we also are proposing to exclude 

single and “pseudo” single procedure claims for which the total cost on the claim was 

outside 3 standard deviations from the geometric mean of units for each HCPCS code on 

the bypass list (because, as discussed above, we used claims that contain multiple units of 

the bypass codes). 

 After removing claims for hospitals with error CCRs, claims without HCPCS 

codes, claims for immunizations not covered under the OPPS, and claims for services not 

paid under the OPPS, approximately 112 million claims were left. Using these 

approximately 112 million claims, we created approximately 82 million single and 

“pseudo” single procedure claims, of which we used slightly more than 82 million single 
CMS-1601-P 106 

bills (after trimming out approximately 1 million claims as discussed in section II.A.1.a. 

of this proposed rule) in the CY 2014 geometric mean cost development and ratesetting. 

 As discussed above, the OPPS has historically developed the relative weights on 

which APC payments are based using APC median costs. For the CY 2013 OPPS, we 

calculated the APC relative payment weights using geometric mean costs, and are 

proposing to do the same for CY 2014. Therefore, the following discussion of the 

2 times rule violation and the development of the relative payment weight refers to 

geometric means. For more detail about the CY 2014 OPPS/ASC policy to calculate 

relative payment weights based on geometric means, we refer readers to section II.A.2.f. 

of this proposed rule. 

 We are proposing to use these claims to calculate the CY 2014 geometric mean 

costs for each separately payable HCPCS code and each APC. The comparison of 

HCPCS code-specific and APC geometric mean costs determines the applicability of the 

2 times rule. Section 1833(t)(2) of the Act provides that, subject to certain exceptions, 

the items and services within an APC group shall not be treated as comparable with 

respect to the use of resources if the highest median cost (or mean cost, if elected by the 

Secretary) for an item or service within the group is more than 2 times greater than the 

lowest median cost (or mean cost, if so elected) for an item or service within the same 

group (the 2 times rule). While we have historically applied the 2 times rule based on 

median costs, in the CY 2013 OPPS/ASC final rule with comment period (77 FR 68270), 

as part of the CY 2013 policy to develop the OPPS relative payment weights based on 

geometric mean costs, we also applied the 2 times rule based on geometric mean costs. 
CMS-1601-P 107 

For the CY 2014 OPPS, we are proposing to continue to develop the APC relative 

payment weights based on geometric mean costs. 

 We note that, for purposes of identifying significant HCPCS codes for 

examination in the 2 times rule, we consider codes that have more than 1,000 single 

major claims or codes that have both greater than 99 single major claims and contribute 

at least 2 percent of the single major claims used to establish the APC geometric mean 

cost to be significant. This longstanding definition of when a HCPCS code is significant 

for purposes of the 2 times rule was selected because we believe that a subset of 1,000 

claims is negligible within the set of approximately 82 million single procedure or single 

session claims we use for establishing geometric mean costs. Similarly, a HCPCS code 

for which there are fewer than 99 single bills and which comprises less than 2 percent of 

the single major claims within an APC will have a negligible impact on the APC 

geometric mean. We note that this method of identifying significant HCPCS codes 

within an APC for purposes of the 2 times rule was used in prior years under the 

median-based cost methodology. Under our proposed CY 2014 policy to continue to 

base the relative payment weights on geometric mean costs, we believe that this same 

consideration for identifying significant HCPCS codes should apply because the 

principles are consistent with their use in the median-based cost methodology. Unlisted 

codes are not used in establishing the percent of claims contributing to the APC, nor are 

their costs used in the calculation of the APC geometric mean. Finally, we reviewed the 

geometric mean costs for the services for which we are proposing to pay separately under 

this proposed rule, and we reassigned HCPCS codes to different APCs where it was 
CMS-1601-P 108 

necessary to ensure clinical and resource homogeneity within the APCs. The APC 

geometric means were recalculated after we reassigned the affected HCPCS codes. Both 

the HCPCS code-specific geometric means and the APC geometric means were weighted 

to account for the inclusion of multiple units of the bypass codes in the creation of 

“pseudo” single procedure claims. 

 As we discuss in sections II.A.2.d. and II.A.2.f. and in section VIII.B. of this 

proposed rule, in some cases, APC geometric mean costs are calculated using variations 

of the process outlined above. Specifically, section II.A.2.d. of this proposed rule 

addresses the proposed calculation of single APC criteria-based geometric mean costs. 

Section II.A.2.f. of this proposed rule discusses the proposed calculation of composite 

APC criteria-based geometric mean costs. Section VIII.B. of this proposed rule 

addresses the methodology for calculating the proposed geometric mean costs for partial 

hospitalization services. 
CMS-1601-P 109 

(2) Recommendations of the Advisory Panel on Hospital Outpatient Payment Regarding 

Data Development 

 At the March 11, 2013 meeting of the Advisory Panel on Hospital Outpatient 

Payment (the Panel), we provided the Data Subcommittee with a list of all APCs 

fluctuating by greater than 10 percent when comparing the CY 2013 OPPS/ASC final 

rule costs based on CY 2011 claims processed through June 30, 2012, to those based on 

CY 2012 OPPS/ASC final rule data (CY 2011 claims processed through June 30, 2011). 

The Data Subcommittee reviewed the fluctuations in the APC costs and their respective 

weights. 

 At the March 2013 Panel meeting, the Panel made a number of recommendations 

related to the data process. The Panel’s recommendations and our responses follow. 

 Recommendation: The Panel recommends that the work of the Data 

Subcommittee continue. 

 CMS Response: We are accepting this recommendation. 

 Recommendation: The panel recommended that CMS provide data on the impact 

of the CY 2013 method of using geometric mean costs rather than median costs to 

establish relative APC weights. 

 CMS Response: We are accepting this recommendation and will provide the data 

at a future meeting. 
CMS-1601-P 110 

d. Proposed Calculation of Single Procedure APC Criteria-Based Costs 

(1) Device-Dependent APCs 

 Historically, device-dependent APCs are populated by HCPCS codes that usually, 

but not always, require that a device be implanted or used to perform the procedure. The 

standard methodology for calculating device-dependent APC costs utilizes claims data 

that generally reflect the full cost of the required device by using only the subset of single 

procedure claims that pass the procedure-to-device and device-to-procedure edits; do not 

contain token charges (less than $1.01) for devices; do not contain the “FB” modifier 

signifying that the device was furnished without cost to the provider, or where a full 

credit was received; and do not contain the “FC” modifier signifying that the hospital 

received partial credit for the device. For a full history of how we have calculated 

payment rates for device-dependent APCs in previous years and a detailed discussion of 

how we developed the standard device-dependent APC ratesetting methodology, we refer 

readers to the CY 2008 OPPS/ASC final rule with comment period (72 FR 66739 through 

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

in ratesetting for device-dependent APCs are available in the CY 2005 OPPS final rule 

with comment period (69 FR 65761 through 65763) and the CY 2007 OPPS/ASC final 

rule with comment period (71 FR 68070 through 68071). 

 For CY 2014, we are proposing in section II.A.2.e. of this proposed rule to define 

29 device-dependent APCs as single complete services and to assign them to 

comprehensive APCs that would provide all-inclusive payments for those services. As 

we explain in that section, we are proposing this as a further step to improve the accuracy 
CMS-1601-P 111 

and transparency of our payments for these services where the cost of the device is large 

compared to the other costs that contribute to the cost of the service. Table 5 below 

provides a list of the 39 APCs currently recognized as device-dependent APCs and 

identifies those 29 APCs that we are proposing to include in the comprehensive APCs 

proposal. We are proposing to treat the remaining 10 device-dependent APCs by 

applying our standard APC ratesetting methodology to calculate their CY 2014 payment 

rates. We initially adopted a specific device-dependent APC ratesetting methodology 

because commenters had previously expressed concerns that the costs associated with 

certain high-cost devices were not always being accurately reported and included in the 

calculation of relative payment weights for the associated procedures. In this proposed 

rule, we do not believe that it is necessary to continue to apply the more specific 

device-dependent APC ratesetting methodology to ensure accurate ratesetting for the 10 

APCs that are not included in the comprehensive APCs proposal because hospitals now 

have had several years of experience reporting procedures involving implantable devices 

and have grown accustomed to ensuring that they code and report charges so that their 

claims fully and appropriately reflect the costs of those devices. Therefore, we believe 

that it is possible to calculate the payment rates for these APCs using our standard APC 

ratesetting methodology. 

 Beginning in CY 2014, we also are proposing to no longer implement 

procedure-to-device edits and device-to-procedure edits for any APCs. Under this 

proposal, hospitals would still be expected to adhere to the guidelines of correct coding 

and append the correct device code to the claim when applicable. However, claims 
CMS-1601-P 112 

would no longer be returned to providers when specific procedure and device code 

pairings do not appear on a claim. We believe that this is appropriate because of the 

experience hospitals now have had in coding and reporting these claims fully and 

because, for the more costly devices, the proposed comprehensive APCs would reliably 

reflect the cost of the device if it is included anywhere on the claim. Therefore, we do 

not believe that the burden on hospitals of adhering to the procedure-to-device edits and 

device-to-procedure edits, and the burden on the Medicare program of maintaining those 

edits, continue to be warranted. As with all other items and services recognized under the 

OPPS, we expect hospitals to code and report their costs appropriately, regardless of 

whether there are claims processing edits in place. 

TABLE 5.—APCs CURRENTLY RECOGNIZED AS DEVICE-DEPENDENT 

APCs 

APC APC Title 

0039* Level I Implantation of Neurostimulator Generator 

0040* Level I Implantation/Revision/Replacement of Neurostimulator Electrodes 

0061* Level II Implantation/Revision/Replacement of Neurostimulator Electrodes 

0082* Coronary or Non-Coronary Atherectomy 

0083* Coronary Angioplasty, Valvuloplasty, and Level I Endovascular 

Revascularization 

0084 Level I Electrophysiologic Procedures 

0085* Level II Electrophysiologic Procedures 

0086 Level III Electrophysiologic Procedures 

0089* Insertion/Replacement of Permanent Pacemaker and Electrodes 

0090* Level I Insertion/Replacement of Permanent Pacemaker 

0104* Transcatheter Placement of Intracoronary Stents 

0106* Insertion/Replacement of Pacemaker Leads and/or Electrodes 

0107* Level I Implantation of Cardioverter-Defibrillators (ICDs) 

0108* Level II Implantation of Cardioverter-Defibrillators (ICDs) 

0115 Cannula/Access Device Procedures 

0202* Level VII Female Reproductive Procedures 

0227* Implantation of Drug Infusion Device 

0229* Level II Endovascular Revascularization of the Lower Extremity 

0259* Level VII ENT Procedures 
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APC APC Title 

0293* Level VI Anterior Segment Eye Procedures 

0315* Level II Implantation of Neurostimulator Generator 

0318* Implantation of Neurostimulator Pulse Generator and Electrode 

0319* Level III Endovascular Revascularization of the Lower Extremity 

0384 GI Procedures with Stents 

0385* Level I Prosthetic Urological Procedures 

0386* Level II Prosthetic Urological Procedures 

0425* Level II Arthroplasty or Implantation with Prosthesis 

0427 Level II Tube or Catheter Changes or Repositioning 

0622 Level II Vascular Access Procedures 

0623 Level III Vascular Access Procedures 

0648* Level IV Breast Surgery 

0652 Insertion of Intraperitoneal and Pleural Catheters 

0653 Vascular Reconstruction/Fistula Repair with Device 

0654* Level II Insertion/Replacement of Permanent Pacemaker 

0655* Insertion/Replacement/Conversion of a Permanent Dual Chamber 

Pacemaker or Pacing 

0656* Transcatheter Placement of Intracoronary Drug-Eluting Stents 

0674* Prostate Cryoablation 

0680* Insertion of Patient Activated Event Recorders 

0687 Revision/Removal of Neurostimulator Electrodes 

*Denotes proposed comprehensive APC. 

(2) Blood and Blood Products 

 Since the implementation of the OPPS in August 2000, we have made separate 

payments for blood and blood products through APCs rather than packaging payment for 

them into payments for the procedures with which they are administered. Hospital 

payments for the costs of blood and blood products, as well as for the costs of collecting, 

processing, and storing blood and blood products, are made through the OPPS payments 

for specific blood product APCs. 

 For CY 2014, we are proposing to continue to establish payment rates for blood 

and blood products using our blood-specific CCR methodology, which utilizes actual or 

simulated CCRs from the most recently available hospital cost reports to convert hospital 
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charges for blood and blood products to costs. This methodology has been our standard 

ratesetting methodology for blood and blood products since CY 2005. It was developed 

in response to data analysis indicating that there was a significant difference in CCRs for 

those hospitals with and without blood-specific cost centers, and past public comments 

indicating that the former OPPS policy of defaulting to the overall hospital CCR for 

hospitals not reporting a blood-specific cost center often resulted in an underestimation of 

the true hospital costs for blood and blood products. Specifically, in order to address the 

differences in CCRs and to better reflect hospitals’ costs, we are proposing to continue to 

simulate blood CCRs for each hospital that does not report a blood cost center by 

calculating the ratio of the blood-specific CCRs to hospitals’ overall CCRs for those 

hospitals that do report costs and charges for blood cost centers. We would then apply 

this mean ratio to the overall CCRs of hospitals not reporting costs and charges for blood 

cost centers on their cost reports in order to simulate blood-specific CCRs for those 

hospitals. We calculated the costs upon which the proposed CY 2014 payment rates for 

blood and blood products are based using the actual blood-specific CCR for hospitals that 

reported costs and charges for a blood cost center and a hospital-specific simulated 

blood-specific CCR for hospitals that did not report costs and charges for a blood cost 

center. 

 We continue to believe the hospital-specific, blood-specific CCR methodology 

best responds to the absence of a blood-specific CCR for a hospital than alternative 

methodologies, such as defaulting to the overall hospital CCR or applying an average 

blood-specific CCR across hospitals. Because this methodology takes into account the 
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unique charging and cost accounting structure of each hospital, we believe that it yields 

more accurate estimated costs for these products. We continue to believe that this 

methodology in CY 2014 would result in costs for blood and blood products that 

appropriately reflect the relative estimated costs of these products for hospitals without 

blood cost centers and, therefore, for these blood products in general. 

 We note that, as discussed in section II.A.2.e. of this proposed rule, we are 

proposing comprehensive APCs that would provide all-inclusive payments for certain 

device-dependent procedures. Under this proposal, we would include the costs of blood 

and blood products when calculating the overall costs of these comprehensive APCs. We 

note that we would continue to apply the blood-specific CCR methodology described in 

this section when calculating the costs of the blood and blood products that appear on 

claims with services assigned to the comprehensive APCs. Because the costs of blood 

and blood products would be reflected in the overall costs of the comprehensive APCs 

(and, as a result, in the payment rates of the comprehensive APCs), we would not make 

separate payments for blood and blood products when they appear on the same claims as 

services assigned to the comprehensive APCs. 

 We refer readers to Addendum B to this proposed rule (which is available via the 

Internet on the CMS Web site) for the proposed CY 2014 payment rates for blood and 

blood products (which are identified with status indicator “R”). For a more detailed 

discussion of the blood-specific CCR methodology, we refer readers to the CY 2005 

OPPS proposed rule (69 FR 50524 through 50525). For a full history of OPPS payment 
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for blood and blood products, we refer readers to the CY 2008 OPPS/ASC final rule with 

comment period (72 FR 66807 through 66810). 

e. Proposed Establishment of Comprehensive APCs 

(1) Definition and General Principles 

 During the initial development of a proposal for an outpatient prospective 

payment system in 1998 (63 FR 47552 through 48036), we considered developing the 

payment system based on a comprehensive outpatient bundle, as opposed to on a HCPCS 

component level. In 2000, we implemented an OPPS based generally on making 

payments at the HCPCS level (65 FR 18434 through 18820). Since then, however, we 

have been steadily moving the OPPS towards a more comprehensive approach that 

increases flexibility and opportunity for efficiencies in a prospective system. 

 For CY 2014, we are proposing to create 29 comprehensive APCs to replace 29 

existing device-dependent APCs. We are proposing to define a comprehensive APC as a 

classification for the provision of a primary service and all adjunctive services provided 

to support the delivery of the primary service. Because a comprehensive APC would 

treat all individually reported codes as representing components of the comprehensive 

service, our proposal is to make a single prospective payment based on the cost of all 

individually reported codes that represent the provision of a primary service and all 

adjunctive services provided to support that delivery of the primary service. Specifically, 

we are proposing to create comprehensive APCs for the 29 most costly device-dependent 

services, where the cost of the device is large compared to the other costs that contribute 

to the cost of delivering the primary service. 
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 We believe that, under the authority of sections 1833(t)(1) and (t)(2) of the Act, 

the Secretary has the discretion to establish comprehensive APCs as part of developing 

the OPPS classification system, and that this proposal furthers our ongoing efforts to 

move the OPPS towards a more comprehensive payment system in support of our 

objectives to increase flexibility and efficiencies. 

 The OPPS data we have accumulated over the past decade have enabled us to 

continue to address several longstanding goals, including: continuing to improve the 

validity of our payments to most accurately reflect costs; improving transparency and 

reducing complexity and administrative burden whenever possible; and increasing 

flexibility for hospitals to develop increased efficiencies in the delivery of quality care. 

 We believe this proposal to establish comprehensive APCs will improve our 

ability to accurately set payment rates. In the normal process of setting payment rates, 

costs in certain cost centers (“uncoded costs”) are added to the costs of services reported 

with specific HCPCS codes only when they can be reliably assigned to a single service. 

Under the proposal, the entire claim would be associated with a single comprehensive 

service so all costs reported on the claim may be reliably assigned to that service. This 

increases the accuracy of the payment for the comprehensive service and also increases 

the stability of the payment from year to year. As an example, room and board revenue 

center charges are not included in OPPS rate setting calculations because room and board 

is typically not separately charged for outpatient services. In the case of these 29 

device-dependent procedures, the patient typically stays overnight to recover from the 

procedure. Thus, for these 29 comprehensive services, the cost of the room, nutrition 
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(board) and nursing care that is required to sustain the patient while the comprehensive 

device-dependent service is delivered will be associated with the service even if the 

hospital reports the costs in room and board revenue codes that are not usually used to 

report outpatient procedure costs. 

 We also believe our proposal will enhance beneficiary understanding and 

transparency. Typically beneficiaries understand the primary procedure to be the OPPS 

service they receive, and do not generally consider that the other HCPCS codes are 

separate services. For example, beneficiaries think of a single service such as “getting 

my gall bladder removed” or “getting a pacemaker.” We believe that defining certain 

services within the OPPS in terms of a single comprehensive service delivered to the 

beneficiary improves transparency for the beneficiary, for physicians, and for hospitals 

by creating a common reference point with a similar meaning for all three groups and 

using the comprehensive service concept that already identifies these same services when 

they are performed in an inpatient environment. 

 Finally, we believe that larger bundles that contain a wider mix of related services 

in the prospectively paid bundles increase the opportunities for providers to tailor 

services to the specific needs of individual beneficiaries, thereby increasing the 

opportunities for efficiencies and improving the delivery of medical care. 

(2) Comprehensive APCs for Device-Dependent Services 

(a) Identification of High-Cost Device-Dependent Procedures 

 In order to identify those services for which comprehensive packaging would 

have the greatest impact on cost validity, payment accuracy, beneficiary transparency, 
CMS-1601-P 119 

and hospital efficiency, we ranked all APCs by CY 2012 costs and then identified 29 

device-dependent APCs where we believe that the device-dependent APC is 

characterized by a costly primary service with relatively small cost contributions from 

adjunctive services. 

(b) Proposal to Create Comprehensive APCs for Certain Device-Dependent Procedures 

 For CY 2014, we are proposing to create 29 comprehensive APCs to 

prospectively pay for device-dependent services associated with 136 HCPCS codes. We 

are proposing to base the single all-inclusive comprehensive APC payment on all charges 

on the claim, excluding only charges that cannot be covered by Medicare Part B or that 

are not payable under the OPPS. This comprehensive APC payment would include, for 

example, payment for the following types of services. 

● Inclusion of Otherwise Packaged Services and Supplies 

 As part of the comprehensive APC, we are proposing to package all services that 

are packaged in CY 2013, and all services proposed for unconditional or conditional 

packaging for CY 2014. 

● Inclusion of Adjunctive Services 

 We have previously noted in section II.A.3.a. of this proposed rule that it has been 

a goal of the OPPS to package services that are typically integral, ancillary, supportive, 

dependent, or adjunctive to a primary service. We are proposing to package into the 

comprehensive APCs all these integral, ancillary, supportive, dependent, and adjunctive 

services, hereinafter collectively referred to as “adjunctive services,” provided during the 

delivery of the comprehensive service. This includes the diagnostic procedures, 
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laboratory tests and other diagnostic tests, and treatments that assist in the delivery of the 

primary procedure; visits and evaluations performed in association with the procedure; 

uncoded services and supplies used during the service; outpatient department services 

delivered by therapists as part of the comprehensive service; durable medical equipment 

as well as prosthetic and orthotic items and supplies when provided as part of the 

outpatient service; and any other components reported by HCPCS codes that are provided 

during the comprehensive service, except for mammography services and ambulance 

services, which are never payable as OPD services in accordance with section 

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

● Inclusion of Devices, Durable Medical Equipment , Prosthetics, Orthotics and 

Supplies (DMEPOS) 

 As part of the comprehensive service packaging proposal described above, we are 

proposing to package all devices; implantable durable medical equipment (DME); 

implantable prosthetics; DME, prosthetics, and orthotics when used as supplies in the 

delivery of the comprehensive service; and supplies used in support of these items when 

these items or supplies are provided as part of the delivery of a comprehensive service. 

We have a longstanding policy of providing payment under the OPPS for implantable 

DME, implantable prosthetics, and medical and surgical supplies, as provided at sections 

1833(t)(1)(B)(i) and(iii) of the Act and 42 CFR 419.2(b)(4), (b)(10), and (b)(11). Under 

this proposal, DME, prosthetics, and orthotics, when used as supplies in the delivery of 

the comprehensive service, would be covered OPD services as provided under section 

1833(t)(1)(B)(i) of the Act and 42 CFR 419.2(b)(4). Under this proposal, we believe that 
CMS-1601-P 121 

when such items and services are provided as adjunctive components in the delivery of a 

comprehensive service, such items are appropriate for coverage under the OPPS as 

covered OPD services, and for payment under the OPPS. We note that, at other times, 

such items when not provided as adjunctive components in the delivery of a 

comprehensive service would not constitute covered OPD services, and such items would 

be appropriately provided by suppliers and paid for under the DMEPOS benefit. More 

specifically, we do not believe that this proposed policy limits a hospital’s ability to 

function as a DMEPOS supplier and bill DMEPOS items to the DME-MAC when those 

items are unrelated to the outpatient procedure and provided outside of the delivery of the 

comprehensive service. 

 In summary, we are proposing to consider all DMEPOS items to be covered OPD 

services and to be adjunctive to the primary service when they are delivered during the 

comprehensive service, as described above, and, therefore, are proposing to package such 

items into the applicable comprehensive service. This proposal includes any items 

described by codes that are otherwise covered and paid separately in accordance with the 

payment rules for DMEPOS items and services, and applies to those items when they are 

provided as part of the delivery of the comprehensive service. Under this proposal, when 

such items are provided during the delivery of a comprehensive service, we are proposing 

that they are covered OPD services as provided under sections 1833(t)(1)(B)(i) and (iii) 

of the Act and 42 CFR 419.2(b)(4), (b)(10), and (b)(11), and payable under the OPPS, as 

described above. 

● Inclusion of OPD Services Reported by Therapy Codes 
CMS-1601-P 122 

 Generally, section 1833(t)(1)(B)(4) of the Act excludes therapy services from the 

OPPS. We have previously noted that therapy services are those provided by therapists 

under a plan of care, and are paid under section 1834(k) of the Act subject to an annual 

therapy cap, when applied. However, certain other activities similar to therapy services 

are considered and paid as outpatient services. Although some adjunctive services may 

be provided by therapists and reported with therapy codes, we do not believe they always 

constitute therapy services. In the case of adjunctive components of a comprehensive 

service that are described by codes that would, under other circumstances, be indicative 

of therapy services, we note that there are a number of factors that would more 

appropriately identify them as OPD services. They are not independent services but are 

delivered as an integral part of the OPD service on the order of the physician who is 

providing the service; they are not typically provided under an established plan of care 

but on a direct physician order; they may be performed by nontherapists; and they 

frequently do not contribute to a rehabilitative process. For example, we note that 

therapists might be asked to provide a detailed documentation of patient weaknesses to be 

used by the physician to help identify or quantify a possible procedure-associated stroke 

or help with the mobilization of the patient after surgery in order to prevent blood clots. 

We note that these nontherapy services furnished by a therapist are limited to the 

immediate perioperative period, consistent with their inclusion as part of the larger 

service to deliver the device, and are distinct from subsequent therapy services furnished 

under a therapy plan of care which serve to establish rehabilitative needs and begin the 

process of rehabilitation. 
CMS-1601-P 123 

 For that reason, when provided within this very limited context of a 

comprehensive service such as the implantation of an expensive device, we are proposing 

that services reported by therapy HCPCS codes, including costs associated with revenue 

codes 042X, 043X and 044X, would be considered to be adjunctive OPD services in 

support of the primary service when those services occur within the peri-operative period; 

that is, during the delivery of this comprehensive service that is bracketed by the OPD 

registration to initiate the service and the OPD discharge at the conclusion of the service. 

They do not constitute therapy services provided under a plan of care, are not subject to a 

therapy cap, if applied, and are not paid separately as therapy services. 

● Inclusion of Additional Hospital Room and Board Revenue Centers in the Calculation 

of Covered Costs 

 We believe that the cost of the bed and room occupied by the patient, the cost of 

nursing services, and the cost of any necessary fluid and nutrition (board) are considered 

covered costs when incurred during the provision of an OPD service, that is, during the 

provision of the comprehensive service. Because we are able to assign all costs on the 

claim to the comprehensive service, we believe we have an opportunity to better capture 

costs by including these costs in our calculations even when they appear in certain 

revenue centers not usually used to report OPPS costs. Specifically, we are including 

costs reported with room, board, and nursing revenue codes 012X, 013x, 015X, 0160, 

0169, 0200 through 0204, 0206 through 0209, 0210 through 0212, 0214, 0219, 0230 

through 0234, 0239, 0240 through 0243, and 0249, as we believe these revenue centers 
CMS-1601-P 124 

are sometimes associated with the costs of room, nutrition, and nursing care provided 

during these comprehensive services. 
CMS-1601-P 125 

● Inclusion of Hospital-Administered Drugs 

 We also are proposing to package all drugs provided to the beneficiary as part of 

the delivery of the comprehensive service except for those drugs separately paid through 

a transitional pass through payment. Intravenous drugs, for example, are OPPS services 

that are considered adjunctive to the primary procedure because the correct 

administration of the drug either promotes a beneficial outcome, such as the use of 

intravenous pain medications, or prevents possible complications, such as the use of 

intravenous blood pressure medications to temporarily replace oral blood pressure 

medications and reduce the risk of a sudden rise in blood pressure when a normal daily 

medication is stopped. We note that, in defining these packaged drugs, we are applying 

both our existing definitions of self-administered drugs (SADs) and our existing 

definition of drugs as supplies to the situation where the OPD service is a comprehensive 

service. 

 We are proposing that all medications provided by the hospital for delivery during 

a comprehensive service pursuant to a physician order, regardless of the route of 

administration, would be considered to be adjunctive supplies and therefore packaged as 

part of the comprehensive APC. We believe that the physician order demonstrates that 

the delivery of the medication by the hospital is necessary to avoid possible 

complications during the delivery of the comprehensive service, to ensure patient safety, 

and to ensure that the comprehensive service delivery is not compromised, and therefore 

the medication should be considered an adjunctive supply. 
CMS-1601-P 126 

 Therefore, we are proposing to consider all medications to be supplies that are 

adjunctive to the primary service if the medicines are ordered by the physician and 

supplied and delivered by the hospital for administration during the comprehensive 

service. 

(c) Methodology 

 We calculated the proposed relative payment weights for these device-dependent 

comprehensive APCs by using relative costs derived from our standard process as 

described earlier in section II.A. of this proposed rule. Specifically, after converting 

charges to costs on the claims, we identified all claims containing one of the 136 

HCPCS-defined procedures specified as constituting a comprehensive service. These 

claims were, by definition, classified as single major procedure claims. Any claims that 

contained more than one of these procedures were identified but were included in 

calculating the cost of the procedure that had the greatest cost when traditional HCPCS 

level accounting was applied. All other costs were summed to calculate the total cost of 

the comprehensive service, and statistics for those services were calculated in the usual 

manner. Claims with extreme costs were excluded in accordance with our usual process. 

(d) Payments 

 We used the proposed relative payment weights of these device-dependent 

comprehensive services to calculate proposed payments following our standard 

methodology. The proposed payments for the HCPCS codes assigned to these proposed 

comprehensive APCs are included in Addendum B of this proposed rule (which is 

available via the Internet on the CMS Web site). We are proposing to assign a new status 
CMS-1601-P 127 

indicator, “J1” (OPD services paid through a comprehensive APC), to these devicedependent procedures. The claims processing system would be configured to make a 

single payment for the device-dependent comprehensive service whenever a HCPCS for 

one of these primary procedures appears on the claim. From a processing system 

perspective, all other adjunctive services except mammography, ambulance, and passthrough services would be conditionally packaged when a comprehensive service is 

identified on a claim. From our data, we have determined that multiple primary HCPCS 

codes occur together in 24 percent of these device-dependent claims but only rarely 

represent unrelated services. Having determined that having multiple unrelated devicedependent services is an uncommon event, we are proposing to pay only the largest 

comprehensive payment associated with a claim. However, the costs of all of these more 

extensive or additional services are included in the calculations of the relative payment 

weights for the comprehensive service, so the prospective payment includes payment for 

these occurrences. 

(e) Impact of Proposed Comprehensive APCs for Device-Dependent Procedures 

● Impact on Medicare Payments 

 Because these proposed device-dependent comprehensive APCs are entirely 

derived from existing services currently reported in Medicare claims, the proposed policy 

is effectively budget neutral in its impact on Medicare payments. We note that room, 

board, and nursing services have been covered costs in the delivery of outpatient services 

that require the patient to receive nursing services, occupy a bed for outpatient care, and 

maintain a controlled metabolic intake during a prolonged outpatient stay. Although we 
CMS-1601-P 128 

are including new revenue center costs for room and board when reported on these 

claims, we are including them to increase the accuracy of reporting not because they 

represent a new cost. 

● Impact on APCs 

Impact on Composite APCs. There is currently one device-dependent composite 

service in the OPPS, Cardiac Resynchronization Therapy, assigned to APC 0108. 

Because a comprehensive APC would treat all individually reported codes as 

representing components of the comprehensive service, all of the elements of the 

composite service are included in the proposed new comprehensive service. Therefore, 

Cardiac Resynchronization Therapy would no longer be identified as a composite service 

but would be identified as a comprehensive service. All services currently assigned to 

APC 0108, including Cardiac Resynchronization Therapy, would be assigned to the 

proposed new comprehensive APC, with the proposed payment for CY 2014 identified in 

Addendum B of this proposed rule (which is available via the Internet on the CMS Web 

site). 

Impact on Claims Used to Calculate Other APCs. Some costs reported on claims 

for device-dependent procedures may no longer be available to contribute to the 

calculations for other services through the pseudo-single process, described in section 

II.A. of this proposed rule. However, the loss of usable cost data for these services would 

be small because most of these services currently cannot be isolated as the “single 

services” that can be used in the cost calculation process. The exceptions are services 

such as EKGs and chest x-rays that occur in very high frequency across all types of 
CMS-1601-P 129 

encounters, and laboratory services and drugs, neither of which are calculated based on 

average cost. Finally, it is important to note that any loss is a small impact when 

compared against the 400,000 new claims that could now be used because of the 

establishment of the proposed comprehensive APC. 

Impact on Device-Dependent APCs. The impact on current device-dependent 

APCs is described above in section II.A.2.d.(1) of this proposed rule. Comprehensive 

APC costs exceed the device-dependent procedure costs by an average of 11 percent, less 

than $1,000 per claim. The direct cost contribution of other OPPS services accounts for 

most of this increase, with laboratory tests contributing approximately $18 per claim (a 

0.1 percent increase) and other non-OPPS payments contributing an additional $18 per 

claim. There is significant variation across comprehensive APCs, however, not only 

because the distribution of supporting services varies but also because the larger bundle 

allows a more complete incorporation of uncoded costs. Finally, the use of 

comprehensive APCs would allow the number of claims used to estimate costs for these 

services to almost triple from 233,000 to 649,000, increasing the accuracy of our cost 

estimates. 

● Impact on Beneficiary Payments 

 Under the proposed comprehensive service APCs, instead of paying copayments 

for a number of separate services that are generally, individually subject to the copayment 

liability cap at section 1833(t)(8)(C)(i) of the Act, beneficiaries could expect to pay only 

a single copayment that is subject to the cap. This would likely reduce beneficiary 

overall liability for most of these claims. 
CMS-1601-P 130 

(f) Summary of Proposal to Create Comprehensive APCs for High-Cost 

Device-Dependent Procedures 

 For CY 2014, we are proposing to create 29 comprehensive APCs to 

prospectively pay for device-dependent services associated with 136 HCPCS codes. We 

are proposing to treat all individually reported codes as representing components of the 

comprehensive service, making a single payment for the comprehensive service based on 

all charges on the claim, excluding only charges for services that cannot be covered by 

Medicare Part B or that are not payable under the OPPS. This would create a single 

all-inclusive payment for the claim that is subject to a single beneficiary copayment, up 

to the cap set at the level of the inpatient hospital deductible, as provided at section 

1833(t)(8)(C)(i) of the Act. 

 As part of the proposed comprehensive APC, we are proposing to— 

● Continue to package all services that were packaged in CY 2013. 

● Unconditionally package all services elsewhere proposed for unconditional or 

conditional packaging for CY 2014. 

● Package all adjunctive services provided during the delivery of the 

comprehensive service. 

● Package room, board, and nursing costs necessary to deliver the outpatient 

service, regardless of whether or not the stay extends beyond a single calendar day. 

● Package all hospital-administered drugs pursuant to a physician order, 

excluding pass-through drugs that are required to be separately paid by statute. 
CMS-1601-P 131 

● Pay separately for mammography services and ambulance services as 

non-OPPS services, regardless of whether they are reported as part of a comprehensive 

service. 

 We are inviting public comment on this proposal. 
CMS-1601-P 132 

f. Proposed Calculation of Composite APC Criteria-Based Costs 

 As discussed in the CY 2008 OPPS/ASC final rule with comment period 

(72 FR 66613), we believe it is important that the OPPS enhance incentives for hospitals 

to provide necessary, high quality care and as efficiently as possible. For CY 2008, we 

developed composite APCs to provide a single payment for groups of services that are 

typically performed together during a single clinical encounter and that result in the 

provision of a complete service. Combining payment for multiple, independent services 

into a single OPPS payment in this way enables hospitals to manage their resources with 

maximum flexibility by monitoring and adjusting the volume and efficiency of services 

themselves. An additional advantage to the composite APC model is that we can use data 

from correctly coded multiple procedure claims to calculate payment rates for the 

specified combinations of services, rather than relying upon single procedure claims 

which may be low in volume and/or incorrectly coded. Under the OPPS, we currently 

have composite policies for extended assessment and management services, low dose rate 

(LDR) prostate brachytherapy, cardiac electrophysiologic evaluation and ablation 

services, mental health services, multiple imaging services, and cardiac resynchronization 

therapy services. We refer readers to the CY 2008 OPPS/ASC final rule with comment 

period for a full discussion of the development of the composite APC methodology 

(72 FR 66611 through 66614 and 66650 through 66652) and the CY 2012 OPPS/ASC 

final rule with comment period (76 FR 74163) for more recent background. 

 For CY 2014, we are proposing to continue our composite policies for extended 

assessment and management services, LDR prostate brachytherapy, cardiac 
CMS-1601-P 133 

electrophysiologic evaluation and ablation services, mental health services, and multiple 

imaging services, as discussed below. We are proposing to discontinue and supersede the 

cardiac resynchronization therapy composite APC by our proposed comprehensive 

APC 0108, as discussed in section II.A.2.e of this proposed rule. 

(1) Extended Assessment and Management Composite APCs (APCs 8002 and 8003) 

(a) Background 

 Beginning in CY 2008, we included composite APC 8002 (Level I Extended 

Assessment and Management Composite) and composite APC 8003 (Level II Extended 

Assessment and Management Composite) in the OPPS to provide payment to hospitals in 

certain circumstances when extended assessment and management of a patient occur (an 

extended visit). In most of these circumstances, observation services are supportive and 

ancillary to the other services provided to a patient. From CY 2008 through CY 2013, in 

the circumstances when observation care is provided in conjunction with a high level 

visit, critical care, or direct referral and is an integral part of a patient’s extended 

encounter of care, payment is made for the entire care encounter through one of the two 

composite APCs as appropriate. We refer readers to the CY 2012 OPPS/ASC final rule 

with comment period (76 FR 74163 through 74165) for a full discussion of this 

longstanding policy for CY 2013 and prior years. 

 For CY 2014, we are proposing to modify our longstanding policy to provide 

payment to hospitals in certain circumstances when extended assessment and 

management of a patient occur. Primarily, we are proposing to allow any visit furnished 

by a hospital in conjunction with observation services of substantial duration to qualify 
CMS-1601-P 134 

for payment through the Extended Assessment and Management (EAM) Composite 

APC. Also, rather than recognizing two levels of EAM Composite APCs, we are 

proposing to create a new composite APC entitled, “Extended Assessment and 

Management (EAM) Composite,” (APC 8009) to provide payment for all qualifying 

extended assessment and management encounters. These proposals are discussed in 

greater detail below. 

(b) Proposed Payment for Extended Assessment and Management Services 

 As discussed in section VII. of this proposed rule, we are proposing to no longer 

recognize five distinct visit levels for clinic visits and emergency department visits based 

on the existing HCPCS E/M codes, and instead recognize three new alphanumeric 

HCPCS codes for each visit type. Currently, the payment criteria for the EAM composite 

APCs 8002 and 8003 include a high level visit represented by HCPCS code 99205, 

99215, 99284, 99285, or G0304; critical care represented by CPT code 99281; or direct 

referral represented by HCPCS code G0379 provided in conjunction with observation 

care represented by HCPCS code G0378. In light of the proposal to no longer 

differentiate visit payment levels, and the fact that the current high level visit codes 

(HCPCS codes 99205, 99215, 99284, 99285 and G0304) would no longer be recognized 

under the OPPS, it would no longer be feasible to continue with our current payment 

criteria for the EAM composite APCs 8002 and 8003 for CY 2014. Therefore, to ensure 

that we continue to provide payment to hospitals in certain circumstances when extended 

assessment and management of a patient occur, for CY 2014, we are proposing to provide 

payment for the entire care encounter through proposed new EAM Composite APC 8009 
CMS-1601-P 135 

when observation care is provided in conjunction with a visit, critical care, or direct 

referral and is an integral part of a patient’s extended encounter of care. Specifically, for 

CY 2014, we are proposing to provide EAM composite APC payment, through a newly 

created composite APC in circumstances when a clinic or ED visit, identified by one of 

the three new alphanumeric HCPCS codes proposed in section VII. of this proposed rule, 

is accompanied by observation care of substantial duration on a claim. We would no 

longer recognize APC 8002 or APC 8003. The specific criteria we are proposing to be 

met for the proposed new EAM composite APC to be paid is provided below in the 

description of the claims that we are proposing to select for the calculation of the 

proposed CY 2016 mean costs for this composite APC. 

 We are proposing to calculate the mean costs for the proposed new EAM 

composite APC (APC 8009) for CY 2014 using CY 2012 single and “pseudo” single 

procedure claims that meet each of the following criteria: 

● The claim does not contain a HCPCS code to which we have assigned status 

indicator ‘‘T’’ that is reported with a date of service 1 day earlier than the date of service 

associated with HCPCS code G0378. (By selecting these claims from single and 

‘‘pseudo’’ single claims, we assured that they would not contain a code for a service with 

status indicator ‘‘T’’ on the same date of service.); 

● The claim contains 8 or more units of HCPCS code G0378 (Observation 

services, per hour); and 

● The claim contains one of the following codes: HCPCS code G0379 (Direct 

referral of patient for hospital observation care) on the same date of service as G0378; or 
CMS-1601-P 136 

CPT code 99201 (Office or other outpatient visit for the evaluation and management of a 

new patient (Level 1)); CPT code 99202 (Office or other outpatient visit for the 

evaluation and management of a new patient (Level 2)); CPT code 99203 (Office or other 

outpatient visit for the evaluation and management of a new patient (Level 3)); CPT code 

99204 (Office or other outpatient visit for the evaluation and management of a new 

patient (Level 4)); CPT code 99205 (Office or other outpatient visit for the evaluation and 

management of a new patient (Level 5)); CPT code 99211 (Office or other outpatient 

visit for the evaluation and management of an established patient (Level 1)); CPT code 

99212 (Office or other outpatient visit for the evaluation and management of an 

established patient (Level 2)); CPT code 99213 (Office or other outpatient visit for the 

evaluation and management of an established patient (Level 3)); CPT code 99214 (Office 

or other outpatient visit for the evaluation and management of an established patient 

(Level 4)); CPT code 99215 (Office or other outpatient visit for the evaluation and 

management of an established patient (Level 5)); CPT code 99281 (Emergency 

department visit for the evaluation and management of a patient (Level 1)); CPT code 

99282 (Emergency department visit for the evaluation and management of a patient 

(Level 2)); CPT code 99283 (Emergency department visit for the evaluation and 

management of a patient (Level 3)); CPT code 99284 (Emergency department visit for 

the evaluation and management of a patient (Level 4)); CPT code 99285 (Emergency 

department visit for the evaluation and management of a patient (Level 5)); or HCPCS 

code G0380 (Type B emergency department visit (Level 1)); HCPCS code G0381 (Type 

B emergency department visit (Level 2)); HCPCS code G0382 (Type B emergency 
CMS-1601-P 137 

department visit (Level 3)); HCPCS code G0383 (Type B emergency department visit 

(Level 4)); HCPCS code G0384 (Type B emergency department visit (Level 5)); or CPT 

code 99291 (Critical care, evaluation and management of the critically ill or critically 

injured patient; first 30-74 minutes) provided on the same date of service or 1 day before 

the date of service for HCPCS code G0378. 

 The proposed CY 2014 cost resulting from this methodology for the proposed 

new EAM composite APC (APC 8009) is approximately $1,357, which was calculated 

from 318,265 single and “pseudo” single claims that met the required criteria. 

 When hospital claims data for the CY 2014 proposed clinic and ED visit codes 

becomes available, we are proposing to calculate the mean costs for the proposed new 

EAM composite APC (APC 8009) for CY 2016 using CY 2014 single and “pseudo” 

single procedure claims that meet each of the following criteria: 

● The claims do not contain a HCPCS code to which we have assigned status 

indicator “T” that is reported with a date of service 1 day earlier than the date of service 

associated with HCPCS code G0378. (By selecting these claims from single and 

“pseudo” single claims, we ensure that they would not contain a code for a service with 

status indicator ‘‘T’’ on the same date of service.); 

● The claims contain 8 or more units of HCPCS code G0378 (Observation 

services, per hour); and 

● The claims contain one of the following codes: HCPCS code G0379 (Direct 

referral of patient for hospital observation care) on the same date of service as G0378; or 

CPT code 99291 (Critical care, evaluation and management of the critically ill or 
CMS-1601-P 138 

critically injured patient; first 30–74 minutes); or newly proposed alphanumeric Level II 

HCPCS code GXXXA (Type A ED visit); newly proposed alphanumeric Level II 

HCPCS code GXXXB (Type B ED visit); or newly proposed alphanumeric Level II 

HCPCS code GXXXC (Clinic visit) provided on the same date of service or 1 day before 

the date of service for HCPCS code G0378. 

(2) Low Dose Rate (LDR) Prostate Brachytherapy Composite APC (APC 8001) 

 LDR prostate brachytherapy is a treatment for prostate cancer in which hollow 

needles or catheters are inserted into the prostate, followed by permanent implantation of 

radioactive sources into the prostate through the needles/catheters. At least two CPT 

codes are used to report the composite treatment service because there are separate codes 

that describe placement of the needles/catheters and the application of the brachytherapy 

sources: CPT code 55875 (Transperineal placement of needles or catheters into prostate 

for interstitial radioelement application, with or without cystoscopy) and CPT code 77778 

(Interstitial radiation source application; complex), which are generally present together 

on claims for the same date of service in the same operative session. In order to base 

payment on claims for the most common clinical scenario, and to further our goal of 

providing payment under the OPPS for a larger bundle of component services provided in 

a single hospital encounter, beginning in CY 2008, we began providing a single payment 

for LDR prostate brachytherapy when the composite service, reported as CPT codes 

55875 and 77778, is furnished in a single hospital encounter. We based the payment for 

composite APC 8001 (LDR Prostate Brachytherapy Composite) on the cost derived from 

claims for the same date of service that contain both CPT codes 55875 and 77778 and 
CMS-1601-P 139 

that do not contain other separately paid codes that are not on the bypass list. We refer 

readers to the CY 2008 OPPS/ASC final rule with comment period (72 FR 66652 through 

66655) for a full history of OPPS payment for LDR prostate brachytherapy and a detailed 

description of how we developed the LDR prostate brachytherapy composite APC. 

 For CY 2014, we are proposing to continue to pay for LDR prostate 

brachytherapy services using the composite APC methodology proposed and 

implemented for CY 2008 through CY 2013. That is, we are proposing to use CY 2012 

claims on which both CPT codes 55875 and 77778 were billed on the same date of 

service with no other separately paid procedure codes (other than those on the bypass list) 

to calculate the payment rate for composite APC 8001. Consistent with our CY 2008 

through CY 2013 practice, we are proposing not to use the claims that meet these criteria 

in the calculation of the costs for APC 0163 (Level IV Cystourethroscopy and Other 

Genitourinary Procedures) and APC 0651 (Complex Interstitial Radiation Source 

Application), the APCs to which CPT codes 55875 and 77778 are assigned, respectively. 

We are proposing to continue to calculate the costs for APCs 0163 and 0651 using single 

and “pseudo” single procedure claims. We believe that this composite APC contributes 

to our goal of creating hospital incentives for efficiency and cost containment, while 

providing hospitals with the most flexibility to manage their resources. We also continue 

to believe that data from claims reporting both services required for LDR prostate 

brachytherapy provide the most accurate cost upon which to base the composite APC 

payment rate. 
CMS-1601-P 140 

 Using a partial year of CY 2012 claims data available for this CY 2014 

OPPS/ASC proposed rule, we were able to use 1,487 claims that contained both CPT 

codes 55875 and 77778 to calculate the cost upon which the proposed CY 2014 payment 

for composite APC 8001 is based. The proposed cost for composite APC 8001 for 

CY 2014 is approximately $4,340. 

(3) Cardiac Electrophysiologic Evaluation and Ablation Composite APC (APC 8000)

 Effective January 1, 2008, we established APC 8000 (Cardiac Electrophysiologic 

Evaluation and Ablation Composite) to pay for a composite service made up of at least 

one specified electrophysiologic evaluation service and one specified electrophysiologic 

ablation service. Correctly coded claims for these services often include multiple codes 

for component services that are reported with different CPT codes and that, prior to 

CY 2008, were always paid separately through different APCs (specifically, APC 0085 

(Level II Electrophysiologic Evaluation), APC 0086 (Ablate Heart Dysrhythm Focus), 

and APC 0087 (Cardiac Electrophysiologic Recording/Mapping)). Calculating a 

composite APC for these services allowed us to utilize many more claims than were 

available to establish the individual APC costs for these services, and advanced our stated 

goal of promoting hospital efficiency through larger payment bundles. In order to 

calculate the cost upon which the payment rate for composite APC 8000 is based, we 

used multiple procedure claims that contained at least one CPT code from Group A for 

evaluation services and at least one CPT code from Group B for ablation services 

reported on the same date of service on an individual claim. Table 9 in the CY 2008 

OPPS/ASC final rule with comment period (72 FR 66656) identified the CPT codes that 
CMS-1601-P 141 

are assigned to Groups A and B. For a full discussion of how we identified the Group A 

and Group B procedures and established the payment rate for the cardiac 

electrophysiologic evaluation and ablation composite APC, we refer readers to the 

CY 2008 OPPS/ASC final rule with comment period (72 FR 66655 through 66659). 

Where a service in Group A is furnished on a date of service that is different from the 

date of service for a CPT code in Group B for the same beneficiary, payments are made 

under the appropriate single procedure APCs and the composite APC does not apply 

. Subsequent to the publication of the CY 2013 OPPS/ASC proposed rule, the 

AMA’s CPT Editorial Panel created five new CPT codes describing cardiac 

electrophysiologic evaluation and ablation services, effective January 1, 2013. These five 

new codes are: 

● CPT code 93653 (Comprehensive electrophysiologic evaluation including 

insertion and repositioning of multiple electrode catheters with induction or attempted 

induction of an arrhythmia with right atrial pacing and recording, right ventricular pacing 

and recording, His recording with intracardiac catheter ablation of arrhythmogenic focus; 

with treatment of supraventricular tachycardia by ablation of fast or slow atrioventricular 

pathway, accessory atrioventricular connection, cavo-tricuspid isthmus or other single 

atrial focus or source of atrial re-entry); 

● CPT code 93654 (Comprehensive electrophysiologic evaluation including 

insertion and repositioning of multiple electrode catheters with induction or attempted 

induction of an arrhythmia with right atrial pacing and recording, right ventricular pacing 

and recording, His recording with intracardiac catheter ablation of arrhythmogenic focus; 
CMS-1601-P 142 

with treatment of ventricular tachycardia or focus of ventricular ectopy including 

intracardiac electrophysiologic 3D mapping, when performed, and left ventricular pacing 

and recording, when performed); 

● CPT code 93655 (Intracardiac catheter ablation of a discrete mechanism of 

arrhythmia which is distinct from the primary ablated mechanism, including repeat 

diagnostic maneuvers, to treat a spontaneous or induced arrhythmia (List separately in 

addition to code for primary procedure)); 

● CPT code 93656 (Comprehensive electrophysiologic evaluation including 

transseptal catheterizations, insertion and repositioning of multiple electrode catheters 

with induction or attempted induction of an arrhythmia with atrial recording and pacing, 

when possible, right ventricular pacing and recording, His bundle recording with 

intracardiac catheter ablation of arrhythmogenic focus, with treatment of atrial fibrillation 

by ablation by pulmonary vein isolation); and 

● CPT code 93657 (Additional linear or focal intracardiac catheter ablation of the 

left or right atrium for treatment of atrial fibrillation remaining after completion of 

pulmonary vein isolation (List separately in addition to code for primary procedure)). 

 The CPT Editorial Panel also deleted two electrophysiologic ablation codes, CPT 

code 93651 (Intracardiac catheter ablation of arrhythmogenic focus; for treatment of 

supraventricular tachycardia by ablation of fast or slow atrioventricular pathways, 

accessory atrioventricular connections or other atrial foci, singly or in combination) and 

CPT code 93652 (Intracardiac catheter ablation of arrhythmogenic focus; for treatment of 

ventricular tachycardia), effective January 1, 2013. 
CMS-1601-P 143 

 As we described in the CY 2013 OPPS/ASC final rule with comment period 

(77 FR 68425), new CPT codes 93653, 93654, and 93656 are primary electrophysiologic 

services that encompass evaluation as well as ablation, while new CPT codes 93655 and 

93657 are add-on codes. Because CPT codes 93653, 93654, and 93656 already 

encompass both evaluation and ablation services, we assigned them to composite APC 

8000 with no further requirement to have another electrophysiologic service from either 

Group A or Group B furnished on the same date of service, and we assigned them interim 

status indicator “Q3” (Codes that may be paid through a composite APC) in Addendum B 

to the CY 2013 OPPS/ASC final rule with comment period. To facilitate implementing 

this policy, we assigned CPT codes 93653, 93654, and 93656 to a new Group C, which is 

paid at the composite APC 8000 payment rate. (We noted that we will use single and 

“pseudo” single claims for CPT codes 93653, 93654, and 93656 when they become 

available for calculating the costs upon which the payment rate for APC 8000 will be 

based in future ratesetting.) Because CPT codes 93655 and 93657 are dependent services 

that may only be performed as ancillary services to the primary CPT codes 93653, 93654, 

and 93656, we believed that packaging CPT codes 93655 and 93657 with the primary 

procedures is appropriate, and we assigned them interim status indicator “N.” Because 

the CPT Editorial Panel deleted CPT codes 93651 and 93652, effective January 1, 2013, 

we deleted them from the Group B code list, leaving only CPT code 93650 (Intracardiac 

catheter ablation of atrioventricular node function, atrioventricular conduction for 

creation of complete heart block, with or without temporary pacemaker placement) in 

Group B. 
CMS-1601-P 144 

 As is our usual practice for new CPT codes that were not available at the time of 

the proposed rule, our treatment of new CPT codes 93653, 93654, 93655, 93656, and 

93657 was open to public comment for a period of 60 days following the publication of 

the CY 2013 OPPS/ASC final rule with comment period. 

 For CY 2014, we are proposing to continue to pay for cardiac electrophysiologic 

evaluation and ablation services using the composite APC methodology proposed and 

implemented for CY 2008 through CY 2013. We also are proposing to continue the new 

Group C methodology we first established for CY 2013, described above, in response to 

the CPT Editorial Panel’s creation of primary CPT codes 93653, 93654, and 93656. We 

continue to believe that the cost for cardiac electrophysiologic evaluation and ablation 

services calculated from a high volume of correctly coded multiple procedure claims 

would result in an accurate and appropriate proposed payment for these services when at 

least one evaluation service is furnished during the same clinical encounter as at least one 

ablation service. Consistent with our practice since CY 2008, we are proposing not to 

use the claims that met the composite payment criteria in the calculation of the costs for 

APC 0085, to which the CPT codes in both Groups A and B for composite APC 8000 are 

otherwise assigned. We are proposing that the costs for APC 0085 would continue to be 

calculated using single procedure claims. For CY 2014, using a partial year of CY 2012 

claims data available for this CY 2014 OPPS/ASC proposed rule, we were able to use 

15,817 claims containing a combination of Group A and Group B CPT codes (Group C 

was not effective until January 1, 2013) to calculate a proposed cost of approximately 

$13,402 for composite APC 8000. 
CMS-1601-P 145 

 Table 6 below lists the proposed groups of procedures upon which we would base 

composite APC 8000 for CY 2014. 

TABLE 6.—PROPOSED GROUPS OF CARDIAC ELECTROPHYSIOLOGIC 

EVALUATION AND ABLATION PROCEDURES UPON WHICH COMPOSITE 

APC 8000 IS BASED 

Codes Used in Combinations: At Least 

One in Group A and One in Group B, or 

At Least One in Group C 

CY 2014 

CPT Code 

Proposed 

Single Code 

CY 2014 

APC 

Proposed 

CY 2014 SI 

(Composite) 

Group A

Comprehensive electrophysiologic 

evaluation with right atrial pacing and 

recording, right ventricular pacing and 

recording, His bundle recording, including 

insertion and repositioning of multiple 

electrode catheters, without induction or 

attempted induction of arrhythmia 93619 0085 Q3 

Comprehensive electrophysiologic 

evaluation including insertion and 

repositioning of multiple electrode catheters 

with induction or attempted induction of 

arrhythmia; with right atrial pacing and 

recording, right ventricular pacing and 

recording, His bundle recording 93620 0085 Q3 

Group B

Intracardiac catheter ablation of 

atrioventricular node function, 

atrioventricular conduction for creation of 

complete heart block, with or without 

temporary pacemaker placement 93650 0085 Q3 
CMS-1601-P 146 

Group C

Comprehensive electrophysiologic 

evaluation including insertion and 

repositioning of multiple electrode catheters 

with induction or attempted induction of an 

arrhythmia with right atrial pacing and 

recording, right ventricular pacing and 

recording, His recording with intracardiac 

catheter ablation of arrhythmogenic focus; 

with treatment of supraventricular 

tachycardia by ablation of fast or slow 

atrioventricular pathway, accessory 

atrioventricular connection, cavo-tricuspid 

isthmus or other single atrial focus or source 

of atrial re-entry 93653 8000 Q3 

Comprehensive electrophysiologic 

evaluation including insertion and 

repositioning of multiple electrode catheters 

with induction or attempted induction of an 

arrhythmia with right atrial pacing and 

recording, right ventricular pacing and 

recording, His recording with intracardiac 

catheter ablation of arrhythmogenic focus; 

with treatment of ventricular tachycardia or 

focus of ventricular ectopy including 

intracardiac electrophysiologic 3D mapping, 

when performed, and left ventricular pacing 

and recording, when performed 93654 8000 Q3 

Comprehensive electrophysiologic 

evaluation including transseptal 

catheterizations, insertion and repositioning 

of multiple electrode catheters with 

induction or attempted induction of an 

arrhythmia with atrial recording and pacing, 

when possible, right ventricular pacing and 

recording, His bundle recording with 

intracardiac catheter ablation of 

arrhythmogenic focus, with treatment of 

atrial fibrillation by ablation by pulmonary 

vein isolation 93656 8000 Q3 
CMS-1601-P 147 

(4) Mental Health Services Composite APC (APC 0034) 

 For CY 2104, we are proposing to continue our longstanding policy of limiting 

the aggregate payment for specified less resource-intensive mental health services 

furnished on the same date to the payment for a day of partial hospitalization services 

provided by a hospital, which we consider to be the most resource-intensive of all 

outpatient mental health treatments. We refer readers to the April 7, 2000 OPPS final 

rule with comment period (65 FR 18452 to 18455) for the initial discussion of this 

longstanding policy and the CY 2012 OPPS/ASC final rule with comment period 

(76 FR 74168) for more recent background. 

 We are proposing that when the aggregate payment for specified mental health 

services provided by one hospital to a single beneficiary on one date of service based on 

the payment rates associated with the APCs for the individual services exceeds the 

maximum per diem payment rate for partial hospitalization services provided by a 

hospital, those specified mental health services would be assigned to APC 0034 (Mental 

Health Services Composite). Specifically, we are proposing to continue to set the 

payment rate for APC 0034 at the same payment rate that we are proposing to establish 

for APC 0176 (Level II Partial Hospitalization (4 or more services) for hospital-based 

PHPs), which is the maximum partial hospitalization per diem payment rate for a hospital 

and proposing that the hospital would continue to be paid one unit of APC 0034. Under 

this policy, the I/OCE would continue to determine whether to pay for these specified 

mental health services individually or to make a single payment at the same payment rate 

established for APC 0176 for all of the specified mental health services furnished by the 
CMS-1601-P 148 

hospital on that single date of service. We continue to believe that the costs associated 

with administering a partial hospitalization program represent the most resource-intensive 

of all outpatient mental health treatments. Therefore, we do not believe that we should 

pay more for mental health services under the OPPS than the highest partial 

hospitalization per diem payment rate for hospitals. 

(5) Multiple Imaging Composite APCs (APCs 8004, 8005, 8006, 8007, and 8008)

 Effective January 1, 2009, we provide a single payment each time a hospital bills 

more than one imaging procedure within an imaging family on the same date of service, 

in order to reflect and promote the efficiencies hospitals can achieve when performing 

multiple imaging procedures during a single session (73 FR 41448 through 41450). We 

utilize three imaging families based on imaging modality for purposes of this 

methodology: (1) ultrasound; (2) computed tomography (CT) and computed 

tomographic angiography (CTA); and (3) magnetic resonance imaging (MRI) and 

magnetic resonance angiography (MRA). The HCPCS codes subject to the multiple 

imaging composite policy and their respective families are listed in Table 6 of the 

CY 2013 OPPS/ASC final rule with comment period (77 FR 68253 through 68257).

 While there are three imaging families, there are five multiple imaging composite 

APCs due to the statutory requirement under section 1833(t)(2)(G) of the Act that we 

differentiate payment for OPPS imaging services provided with and without contrast. 

While the ultrasound procedures included in the policy do not involve contrast, both 

CT/CTA and MRI/MRA scans can be provided either with or without contrast. The five 

multiple imaging composite APCs established in CY 2009 are: 
CMS-1601-P 149 

● APC 8004 (Ultrasound Composite); 

● APC 8005 (CT and CTA without Contrast Composite); 

● APC 8006 (CT and CTA with Contrast Composite); 

● APC 8007 (MRI and MRA without Contrast Composite); and 

● APC 8008 (MRI and MRA with Contrast Composite). 

 We define the single imaging session for the “with contrast” composite APCs as 

having at least one or more imaging procedures from the same family performed with 

contrast on the same date of service. For example, if the hospital performs an MRI 

without contrast during the same session as at least one other MRI with contrast, the 

hospital will receive payment for APC 8008, the “with contrast” composite APC. 

 We make a single payment for those imaging procedures that qualify for 

composite APC payment, as well as any packaged services furnished on the same date of 

service. The standard (noncomposite) APC assignments continue to apply for single 

imaging procedures and multiple imaging procedures performed across families. For a 

full discussion of the development of the multiple imaging composite APC methodology, 

we refer readers to the CY 2009 OPPS/ASC final rule with comment period 

(73 FR 68559 through 68569). 

 For CY 2014, we are proposing to continue to pay for all multiple imaging 

procedures within an imaging family performed on the same date of service using the 

multiple imaging composite APC payment methodology. We continue to believe that 

this policy would reflect and promote the efficiencies hospitals can achieve when 

performing multiple imaging procedures during a single session. The proposed CY 2014 
CMS-1601-P 150 

payment rates for the five multiple imaging composite APCs (APC 8004, APC 8005, 

APC 8006, APC 8007, and APC 8008) are based on costs calculated from a partial year 

of CY 2012 claims available for this CY 2014 OPPS/ASC proposed rule that qualified for 

composite payment under the current policy (that is, those claims with more than one 

procedure within the same family on a single date of service). To calculate the proposed 

costs, we used the same methodology that we used to calculate the final CY 2012 and 

CY 2013 costs for these composite APCs, as described in the CY 2012 OPPS/ASC final 

rule with comment period (76 FR 74169). The imaging HCPCS codes referred to as 

“overlap bypass codes” that we removed from the bypass list for purposes of calculating 

the proposed multiple imaging composite APC costs, pursuant to our established 

methodology (76 FR 74169), are identified by asterisks in Addendum N to this proposed 

rule (which is available via the Internet on the CMS Web site) and are discussed in more 

detail in section II.A.1.b. of this proposed rule. 

 We were able to identify approximately 0.8 million “single session”' claims out of 

an estimated 1.5 million potential composite cases from our ratesetting claims data, more 

than half of all eligible claims, to calculate the proposed CY 2014 costs for the multiple 

imaging composite APCs. 

 Table 7 below lists the proposed HCPCS codes that would be subject to the 

multiple imaging composite policy and their respective families and approximate 

composite APC costs for CY 2014. We note that the proposed costs calculated for many 

imaging APCs, including the multiple imaging composite APCs, have changed 

significantly from the costs calculated for the CY 2013 OPPS/ASC final rule with 
CMS-1601-P 151 

comment period for these APCs as a result of the proposed adoption of the new MRI and 

CT cost centers, as discussed in section II.A.1.c. of this proposed rule. 

TABLE 7.—PROPOSED OPPS IMAGING FAMILIES AND MULTIPLE 

IMAGING PROCEDURE COMPOSITE APCs 

Family 1 – Ultrasound 

Proposed CY 2014 APC 8004 (Ultrasound 

Composite) 

Proposed CY 2014 Approximate APC 

Cost = $322 

76604 Us exam, chest 

76700 Us exam, abdom, complete 

76705 Echo exam of abdomen 

76770 Us exam abdo back wall, comp 

76775 Us exam abdo back wall, lim 

76776 Us exam k transpl w/Doppler 

76831 Echo exam, uterus 

76856 Us exam, pelvic, complete 

76870 Us exam, scrotum 

76857 Us exam, pelvic, limited 

Family 2 - CT and CTA with and without Contrast 

Proposed CY 2014 APC 8005 (CT and CTA 

without Contrast Composite)* 

Proposed CY 2014 Approximate APC 

Cost = $304 

70450 Ct head/brain w/o dye 

70480 Ct orbit/ear/fossa w/o dye 

70486 Ct maxillofacial w/o dye 

70490 Ct soft tissue neck w/o dye 

71250 Ct thorax w/o dye 

72125 Ct neck spine w/o dye 

72128 Ct chest spine w/o dye 

72131 Ct lumbar spine w/o dye 

72192 Ct pelvis w/o dye 

73200 Ct upper extremity w/o dye 

73700 Ct lower extremity w/o dye 

74150 Ct abdomen w/o dye 

74261 Ct colonography, w/o dye 

74176 Ct angio abd & pelvis 
CMS-1601-P 152 

Proposed CY 2014 APC 8006 (CT and CTA 

with Contrast Composite) 

Proposed CY 2014 Approximate APC 

Cost = $522 

70487 Ct maxillofacial w/dye 

70460 Ct head/brain w/dye 

70470 Ct head/brain w/o & w/dye 

70481 Ct orbit/ear/fossa w/dye 

70482 Ct orbit/ear/fossa w/o&w/dye 

70488 Ct maxillofacial w/o & w/dye 

70491 Ct soft tissue neck w/dye 

70492 Ct sft tsue nck w/o & w/dye 

70496 Ct angiography, head 

70498 Ct angiography, neck 

71260 Ct thorax w/dye 

71270 Ct thorax w/o & w/dye 

71275 Ct angiography, chest 

72126 Ct neck spine w/dye 

72127 Ct neck spine w/o & w/dye 

72129 Ct chest spine w/dye 

72130 Ct chest spine w/o & w/dye 

72132 Ct lumbar spine w/dye 

72133 Ct lumbar spine w/o & w/dye 

72191 Ct angiograph pelv w/o&w/dye 

72193 Ct pelvis w/dye 

72194 Ct pelvis w/o & w/dye 

73201 Ct upper extremity w/dye 

73202 Ct uppr extremity w/o&w/dye 

73206 Ct angio upr extrm w/o&w/dye 

73701 Ct lower extremity w/dye 

73702 Ct lwr extremity w/o&w/dye 

73706 Ct angio lwr extr w/o&w/dye 

74160 Ct abdomen w/dye 

74170 Ct abdomen w/o & w/dye 

74175 Ct angio abdom w/o & w/dye 

74262 Ct colonography, w/dye 

75635 Ct angio abdominal arteries 

74177 Ct angio abd&pelv w/contrast 

74178 Ct angio abd & pelv 1+ regns 
CMS-1601-P 153 

* If a “without contrast” CT or CTA procedure is performed during the same session as a 

“with contrast” CT or CTA procedure, the I/OCE will assign APC 8006 rather than 

APC 8005. 

Family 3 - MRI and MRA with and without Contrast 

Proposed CY 2014 APC 8007 (MRI and 

MRA without Contrast Composite)* 

Proposed CY 2014 Approximate 

APC Cost = $612 

70336 Magnetic image, jaw joint 

70540 Mri orbit/face/neck w/o dye 

70544 Mr angiography head w/o dye 

70547 Mr angiography neck w/o dye 

70551 Mri brain w/o dye 

70554 Fmri brain by tech 

71550 Mri chest w/o dye 

72141 Mri neck spine w/o dye 

72146 Mri chest spine w/o dye 

72148 Mri lumbar spine w/o dye 

72195 Mri pelvis w/o dye 

73218 Mri upper extremity w/o dye 

73221 Mri joint upr extrem w/o dye 

73718 Mri lower extremity w/o dye 

73721 Mri jnt of lwr extre w/o dye 

74181 Mri abdomen w/o dye 

75557 Cardiac mri for morph 

75559 Cardiac mri w/stress img 

C8901 MRA w/o cont, abd 

C8904 MRI w/o cont, breast, uni 

C8907 MRI w/o cont, breast, bi 

C8910 MRA w/o cont, chest 

C8913 MRA w/o cont, lwr ext 

C8919 MRA w/o cont, pelvis 

C8932 MRA, w/o dye, spinal canal 

C8935 MRA, w/o dye, upper extr 

Proposed CY 2014 APC 8008 (MRI and 

MRA with Contrast Composite) 

Proposed CY 2014 Approximate 

APC Cost = $908 

70549 Mr angiograph neck w/o&w/dye 

70542 Mri orbit/face/neck w/dye 

70543 Mri orbt/fac/nck w/o & w/dye 
CMS-1601-P 154 

70545 Mr angiography head w/dye 

70546 Mr angiograph head w/o&w/dye 

70547 Mr angiography neck w/o dye 

70548 Mr angiography neck w/dye 

70552 Mri brain w/dye 

70553 Mri brain w/o & w/dye 

71551 Mri chest w/dye 

71552 Mri chest w/o & w/dye 

72142 Mri neck spine w/dye 

72147 Mri chest spine w/dye 

72149 Mri lumbar spine w/dye 

72156 Mri neck spine w/o & w/dye 

72157 Mri chest spine w/o & w/dye 

72158 Mri lumbar spine w/o & w/dye 

72196 Mri pelvis w/dye 

72197 Mri pelvis w/o & w/dye 

73219 Mri upper extremity w/dye 

73220 Mri uppr extremity w/o&w/dye 

73222 Mri joint upr extrem w/dye 

73223 Mri joint upr extr w/o&w/dye 

73719 Mri lower extremity w/dye 

73720 Mri lwr extremity w/o&w/dye 

73722 Mri joint of lwr extr w/dye 

73723 Mri joint lwr extr w/o&w/dye 

74182 Mri abdomen w/dye 

74183 Mri abdomen w/o & w/dye 

75561 Cardiac mri for morph w/dye 

75563 Card mri w/stress img & dye 

C8900 MRA w/cont, abd 

C8902 MRA w/o fol w/cont, abd 

C8903 MRI w/cont, breast, uni 

C8905 MRI w/o fol w/cont, brst, un 

C8906 MRI w/cont, breast, bi 

C8908 MRI w/o fol w/cont, breast, 

C8909 MRA w/cont, chest 

C8911 MRA w/o fol w/cont, chest 

C8912 MRA w/cont, lwr ext 
CMS-1601-P 155 

C8914 MRA w/o fol w/cont, lwr ext 

C8918 MRA w/cont, pelvis 

C8920 MRA w/o fol w/cont, pelvis 

C8931 MRA, w/dye, spinal canal 

C8933 MRA, w/o&w/dye, spinal canal 

C8934 MRA, w/dye, upper extremity 

C8936 MRA, w/o&w/dye, upper extr 

* If a “without contrast” MRI or MRA procedure is performed during the same session as a 

“with contrast” MRI or MRA procedure, the I/OCE will assign APC 8008 rather than APC 

8007. 
CMS-1601-P 156 

3. Proposed Changes to Packaged Items and Services 

a. Background 

 Like other prospective payment systems, the OPPS relies on the concept of 

averaging, where the payment may be more or less than the estimated cost of providing a 

specific service or bundle of specific services for a particular patient. However, with the 

exception of outlier cases, overall payment is adequate to ensure access to appropriate 

care. The OPPS packages payment for multiple interrelated items and services into a 

single payment to create incentives for hospitals to furnish services in the most efficient 

way by enabling hospitals to manage their resources with maximum flexibility, thereby 

encouraging long-term cost containment. Our packaging policies support our strategic 

goal of using larger payment bundles to maximize hospitals’ incentives to provide care in 

the most efficient matter. In addition, the OPPS packages payment for multiple 

interrelated items and services into a single payment, regardless of whether dedicated 

CPT or HCPCS codes describe the services or the cost of the individual items and 

services. For example, where there are a variety of devices, drugs, items, supplies, etc. 

that could be used to furnish a service, some of which are more expensive than others, 

packaging encourages hospitals to use the most cost-efficient item that meets the patient’s 

needs, rather than to routinely use a more expensive item, which often results if separate 

payment is provided for the items. This encourages hospitals that are spending more per 

case than the payment they received to review their service patterns to ensure that they 

furnish services as efficiently as possible. Similarly, we believe that separate payment 
CMS-1601-P 157 

for items and services heightens the hospital’s focus on the payment for individual 

services, rather than the efficient delivery of those services. 

 Packaging also encourages hospitals to effectively negotiate with manufacturers 

and suppliers to reduce the purchase price of items and services or to explore alternative 

group purchasing arrangements, thereby encouraging the most economical health care 

delivery. Similarly, packaging encourages hospitals to establish protocols that ensure 

that necessary services are furnished, while scrutinizing the services ordered by 

practitioners to maximize the efficient use of hospital resources. Packaging payments 

into larger payment bundles promotes the predictability and accuracy of payment for 

services over time. Finally, packaging may reduce the importance of refining servicespecific payment because packaged payments include costs associated with higher cost 

cases requiring many ancillary items and services and lower cost cases requiring fewer 

ancillary items and services. Because packaging encourages efficiency and is an 

essential component of a prospective payment system, packaging payment for items and 

services that are typically integral, ancillary, supportive, dependent, or adjunctive to a 

primary service has been a fundamental part of the OPPS since its implementation in 

August 2000. Most, but not necessarily all, items and services currently packaged in the 

OPPS are listed in 42 CFR 419.2(b). For an extensive discussion of the history and 

background of the OPPS packaging policy, we refer readers to the CY 2008 OPPS/ASC 

proposed rule (72 FR 42628) and the CY 2008 OPPS/ASC final rule with comment 

period (72 FR 66580). 
CMS-1601-P 158 

 We use the term “dependent service” to refer to the HCPCS codes that represent 

services that are typically ancillary and supportive to a primary diagnostic or therapeutic 

modality. We use the term “primary service” to refer to the HCPCS codes that represent 

the primary therapeutic or diagnostic modality into which we package payment for the 

dependent service. Over the last decade, we have refined our understanding and 

implementation of the OPPS and have packaged numerous services that we originally 

paid as primary services, and as we consider the development of larger payment groups 

that more broadly reflect services provided in an encounter or episode of care, we may 

propose to expand these packaging policies as they apply to services that we may 

currently pay as primary services. 

 We assign status indicator “N” to those HCPCS codes of dependent services that 

we believe are always integral to the performance of the primary modality. Therefore, 

we always package their costs into the costs of the separately paid primary services with 

which they are billed. Services assigned to status indicator “N” are unconditionally 

packaged. The following description of the conditional packaging status indicators 

reflects our proposal to discontinue the use of status indicator “X,” which we discuss 

below. We assign status indicator “Q1” (STV-Packaged Codes), “Q2” (T-Packaged 

Codes), or “Q3” (Codes that may be paid through a composite APC) to each 

conditionally packaged HCPCS code. An STV-packaged code describes a HCPCS code 

whose payment is packaged with one or more separately paid primary services with the 

status indicator of “S,” “T,” or “V” furnished in the hospital outpatient encounter. A 

T-packaged code describes a code whose payment is only packaged with one or more 
CMS-1601-P 159 

separately paid surgical procedures with the status indicator of “T” that are provided 

during the hospital outpatient encounter. STV-packaged codes and T-packaged codes are 

paid separately in those uncommon cases when they do not meet their respective criteria 

for packaged payment. STV-packaged codes and T-packaged codes are conditionally 

packaged. We refer readers to the discussion of proposed CY 2014 OPPS payment status 

and comment indicators in section XI. of this proposed rule and Addendum D1, which is 

available via the Internet on the CMS Web site, for a complete listing of status indicators 

and the meaning of each status indicator. 

 Hospitals include HCPCS codes and charges for packaged services on their 

claims, and the estimated costs associated with those packaged services are then added to 

the costs of separately payable procedures on the same claims to establish prospective 

payment rates. We encourage hospitals to report all HCPCS codes that describe 

packaged services provided, unless the CPT Editorial Panel or CMS provides other 

specific guidance. The appropriateness of the OPPS payment rates depends on the 

quality and completeness of the claims data that hospitals submit for the services they 

furnish to Medicare beneficiaries. 

 In addition to the packaged items and services listed in 42 CFR 419.2(b), in the 

CY 2008 OPPS/ASC final rule with comment period (72 FR 66610 through 66659), we 

adopted the packaging of payment for items and services in seven categories with the 

primary diagnostic or therapeutic modality to which we believe these items and services 

are typically ancillary and supportive. The seven categories are: (1) guidance services; 

(2) image processing services; (3) intraoperative services; (4) imaging supervision and 
CMS-1601-P 160 

interpretation services; (5) diagnostic radiopharmaceuticals; (6) contrast media; and 

(7) observation services. We specifically chose these categories of HCPCS codes for 

packaging because we believe that the items and services described by the codes in these 

categories are typically ancillary and supportive to a primary diagnostic or therapeutic 

modality and, in those cases, are an integral part of the primary service they support. In 

addition, in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68634), we 

packaged products described as implantable biologicals. As discussed below, we are 

proposing to add each of these categories of packaged items and services that were 

packaged beginning in CYs 2008 and 2009, along with newly proposed packaged items 

and services for CY 2014 as described below to the OPPS packaging regulation at 

§ 419.2(b). Packaging under the OPPS also includes composite APCs, which are 

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

b. Basis for Proposed New Packaging Policies for CY 2014 

 As discussed above, the OPPS is a prospective payment system. It is not intended 

to be a fee schedule, in which separate payment is made for each coded line item. 

However, the OPPS is currently a prospective payment system that packages some items 

and services but not others. Payment for some items and services in the OPPS is 

according to the principles of a prospective payment system, while the payment for other 

items and services is more like that of a fee schedule. Our overarching goal is to make 

OPPS payments for all services paid under the OPPS more consistent with those of a 

prospective payment system and less like those of a per service fee schedule, which pays 

separately for each coded item. As a part of this effort, we have continued to examine the 
CMS-1601-P 161 

payment for items and services provided in the OPPS to determine which OPPS services 

can be packaged to achieve the objective of advancing the OPPS as a prospective 

payment system. 

 Therefore, as we did in the CY 2008 OPPS/ASC final rule with comment period 

(72 FR 66610 through 66659), we have examined the items and services currently 

provided under the OPPS, reviewing categories of integral, ancillary, supportive, 

dependent, or adjunctive items and services for which we believe payment would be 

appropriately packaged into payment of the primary service they support. Specifically, 

we examined the HCPCS code definitions (including CPT code descriptors) to see 

whether there were categories of codes for which packaging would be appropriate 

according to existing OPPS packaging policies or a logical expansion of those existing 

OPPS packaging policies. In general, we are proposing to package the costs of selected 

HCPCS codes into payment for services reported with other HCPCS codes where we 

believe that one code reported an item or service that was integral, ancillary, supportive, 

dependent, or adjunctive to the provision of care that was reported by another HCPCS 

code. Below we discuss categories and classes of items and services that we are 

proposing to package beginning in CY 2014. In several cases, we are proposing that 

services be conditionally packaged so that if they are provided without other services, 

there will be a separate payment for the service. The proposed policies detailed below 

are not exhaustive, and we expect to continue to review the OPPS and consider additional 

packaging policies in the future. 
CMS-1601-P 162 

c. Proposed New Packaging Policies for CY 2014 

(1) Drugs, Biologicals, and Radiopharmaceuticals That Function as Supplies When 

Used in a Diagnostic Test or Procedure 

 In the OPPS, we currently unconditionally package the following six categories of 

drugs, biologicals, and radiopharmaceuticals (unless temporary pass-through status 

applies): (1) those with per day costs at or below the packaging threshold (discussed 

further in section V.B.2. of this proposed rule); (2) diagnostic radiopharmaceuticals; 

(3) contrast agents; (4) anesthesia drugs; (5) drugs used as supplies according to 

§ 419.2(b)(4)); and (6) implantable biologicals. For CY 2014, we reviewed all of the 

drugs, biologicals, and radiopharmaceuticals administered in the hospital outpatient 

setting to identify categories or classes of drugs, biologicals, and radiopharmaceuticals 

that either should be packaged according to existing packaging policies or should be 

packaged as a logical expansion of existing OPPS packaging policies for drugs, 

biologicals, and radiopharmaceuticals. 

 Currently, two of the categories of drugs, biologicals, and radiopharmaceuticals 

that are packaged in the OPPS (contrast agents and diagnostic radiopharmaceuticals) 

have a common characteristic--they both describe products that function as supplies that 

are used in a diagnostic test or procedure. Although in the past we identified these 

specific categories of drugs, biologicals, and radiopharmaceuticals as packaged after the 

expiration of pass-through status, we recognize that they actually represent subcategories 

of a broader category of drugs, biologicals, and radiopharmaceuticals that should be 

packaged in the OPPS according to OPPS packaging principles: drugs, biologicals, and 
CMS-1601-P 163 

radiopharmaceuticals that function as supplies when used in a diagnostic test or 

procedure. In particular, we are referring to drugs, biologicals, and radiopharmaceuticals 

that function as supplies as a part of a larger, more encompassing service or procedure, 

namely, the diagnostic test or procedure in which the drug, biological, or 

radiopharmaceutical is employed. Because diagnostic radiopharmaceuticals and contrast 

agents represent specific examples of a broader category of drugs, biologicals, or 

radiopharmaceuticals that may function as a supply that is integral and supportive to a 

diagnostic test or procedure, we are proposing to unconditionally package drugs, 

biologicals, and radiopharmaceuticals that function as a supply when used in a diagnostic 

test or procedure, except when the drug, biological, or radiopharmaceutical has 

pass-through status. 

 A diagnostic test or procedure is defined as any kind of test or procedure 

performed to aid in the diagnosis, detection, monitoring, or evaluation of a disease or 

condition. A diagnostic test or procedure also includes tests or procedures performed to 

determine which treatment option is optimal. A diagnostic test or procedure can have 

multiple purposes, but at least one purpose must be diagnostic. We are proposing to 

revise the regulations at § 419.2(b) to specify that any drugs, biologicals, and 

radiopharmaceuticals that function as supplies when used in diagnostic tests or 

procedures will be packaged as supplies in the OPPS, except when pass-through status 

applies. This proposed broader category of packaged drugs, biologicals, and 

radiopharmaceuticals includes the currently packaged categories of contrast agents and 

diagnostic radiopharmaceuticals when used in a diagnostic test or procedure. We have 
CMS-1601-P 164 

identified specific drugs that function as supplies when used in a diagnostic test or 

procedure that fall under this proposed packaging policy, and discuss these drugs below. 

(a) Stress Agents 

 Our review of OPPS drugs identified pharmacologic stress agents (“stress 

agents”) as a class of drugs that is described by the proposed packaged category of drugs, 

biologicals, and radiopharmaceuticals that function as supplies when used in a diagnostic 

test or procedure. Stress agents are a class of drugs that are used in diagnostic tests to 

evaluate certain aspects of cardiac function. In many cases, these agents are used in 

patients who are unable to perform an exercise stress test, which typically precedes 

additional diagnostic testing. The primary diagnostic test in which these agents are used 

is myocardial perfusion imaging (MPI), which is the highest cost nuclear medicine 

procedure in the OPPS, with OPPS payments exceeding $800 million in CY 2012. 

Approximately 96 percent of MPI is billed with CPT code 78452. Stress agents include 

the following drugs described by these HCPCS codes: HCPCS codes J0152 (Injection, 

adenosine for diagnostic use, 30 mg); J1245 (Injection, dipyridamole, per 10 mg); J1250 

(Injection, dobutamine hydrochloride, per 250 mg); and J2785 (Injection, regadenoson, 

0.1 mg). For CY 2013, HCPCS codes J1245 and J1250 are packaged in the OPPS, and 

J0152 and J2785 are separately paid. OPPS payments for the two separately payable 

stress agents totaled approximately $111 million in CY 2012. 

 Beginning in CY 2014, we are proposing to package all stress agents that function 

as supplies into the diagnostic tests or procedures in which they are employed, consistent 

with the policy proposed above. The primary service in which stress agents are 
CMS-1601-P 165 

employed is MPI. MPI with stress encompasses the imaging service, the stress test, and 

either exercise to induce stress or the administration of a pharmacologic stress agent. The 

various combinations of items and services that constitute MPI with stress are depicted in 

the table below, which includes the CY 2013 separate payment rates versus the proposed 

CY 2014 packaged payment rate for MPI. 

TABLE 8.—CY 2013 SEPARATE PAYMENT VERSUS CY 2014 PROPOSED 

PACKAGED PAYMENT FOR MPI 

Service or Supply 

CY 2013 

Separate 

Payment for 

MPI 

Components

CY 2013 

Separate 

Payment for 

MPI 

Components

CY 2013 

Separate 

Payment for 

MPI 

Components

CY 2013 

Separate 

Payment for 

MPI 

Components 

CY 2014 

Proposed 

Packaged 

Payment 

for MPI 

78452 $672 $672 $672 $672 $1,235 

93017 $178 $178 $178 $178 P€

Exercise or 

Stress Agent¥

Exercise−$0 J1245−P J2785−$215 J0152−$219* P 

Radiopharmaceutical P P P P P 

Total $850 $850 $1,065 $1,069 $1,235 

P = Packaged 

€

The stress test described by CPT code 93017 is proposed to be conditionally packaged as a result of the 

proposal described below to conditionally package ancillary services. 

¥

April 2013 ASP Drug Pricing File. 

*70 kg patient. 

 The proposed CY 2014 payment rate for MPI with the stress test, stress agent, and 

diagnostic radiopharmaceutical packaged into MPI is 14 percent higher than the sum of 

the CY 2013 payments for separately paid MPI, a separately paid stress test, and either of 

the two separately paid stress agents. 

(b) Hexaminolevulinate Hydrochloride (Cysview®)—HCPCS Code C9275 

 Cysview is a drug for which pass-through status expired on December 31, 2012. 

Beginning in CY 2013, Cysview was unconditionally packaged in the OPPS as a contrast 
CMS-1601-P 166 

agent (77 FR 68364). The indications and usage of Cysview as listed in the 

FDA-approved label are as follows: “Cysview is an optical imaging agent indicated for 

use in the cystoscopic detection of non-muscle invasive papillary cancer of the bladder 

among patients suspected or known to have lesion(s) on the basis of a prior cystoscopy. 

Cysview is used with the Karl Storz D-Light C Photodynamic Diagnostic (PDD) system 

to perform cystoscopy with the blue light setting (Mode 2) as an adjunct to the white light 

setting (Mode 1).” 

 In the CY 2008 OPPS/ASC final rule with comment period (72 FR 42672), we 

described contrast agents as follows: “Contrast agents are generally considered to be 

those substances introduced into or around a structure that, because of the differential 

absorption of x-rays, alteration of magnetic fields, or other effects of the contrast medium 

in comparison with surrounding tissues, permit visualization of the structure through an 

imaging modality. The use of certain contrast agents is generally associated with specific 

imaging modalities, including x-ray, computed tomography (CT), ultrasound, and 

magnetic resonance imaging (MRI), for purposes of diagnostic testing or treatment.” 

 Upon reexamining this description of contrast agents and considering our prior 

application of this description to specific compounds, we believe that contrast agents 

should include those compounds that are used with the imaging modalities x-ray, 

computed tomography (CT), ultrasound, magnetic resonance imaging (MRI), and other 

related modalities that could represent advancements of these modalities. Based on the 

indications and usage described above for Cysview, we do not believe that Cysview is 
CMS-1601-P 167 

best described as a contrast agent. Rather, we believe Cysview is more appropriately 

described as a drug used in a procedure to diagnose bladder cancer. 

 As discussed above, we are proposing a new policy to package all drugs, 

biologicals, and radiopharmaceuticals that function as supplies when used in a diagnostic 

test or procedure. Cysview is a drug that functions as a supply when used in a diagnostic 

test or procedure for the purpose of the “detection of non-muscle invasive papillary 

cancer of the bladder.” Therefore, as a drug that functions as a supply when used in a 

diagnostic test or procedure, we are proposing to package Cysview for CY 2014 under 

the OPPS. Cysview is currently assigned to status indicator “N” for CY 2013, and under 

this proposal, the status indicator assignment of “N” would continue for CY 2014. 

(2) Drugs and Biologicals That Function as Supplies or Devices When Used in a 

Surgical Procedure 

 Since the inception of the OPPS we have packaged medical devices, medical and 

surgical supplies, and surgical dressings into the related procedure under § 419.2(b)(4). 

Medical and surgical supplies are a broad category of items used in the hospital 

outpatient setting. Supplies is a large category of items that typically are either for single 

patient use or have a shorter life span in use than equipment. Supplies include not only 

minor, inexpensive, or commodity-type items but also include a wide range of products 

used in the hospital outpatient setting, including certain implantable medical devices. 

We consider implantable medical devices to be integral to, dependent on, and supportive 

to a surgical implantation procedure. For further discussion, we refer readers to the CY 

2000 OPPS final rule (65 FR 18443 through 18444). Packaged supplies can include 
CMS-1601-P 168 

certain drugs, biologicals, and radiopharmaceuticals. Packaged supplies in the OPPS 

also include implantable biologicals, which are packaged because they function as 

implantable devices which, as noted above, are considered to be a type of supply in the 

OPPS. We refer readers to the CY 2009 OPPS/ASC final rule with comment period 

(73 FR 68634) for a more detailed discussion. We believe that the existing packaging 

policy for implantable biologicals represents an example of a broader category of drugs 

and biologicals that should be packaged in the OPPS according to longstanding 

regulations and existing policies: drugs and biologicals that function as supplies or 

devices in a surgical procedure. Therefore, beginning in the CY 2014 OPPS, we are 

proposing to unconditionally package all drugs and biologicals that function as supplies 

or devices in a surgical procedure, following the current policy that is applied to 

implantable biologicals. 

 A class of products that we treat as biologicals in the OPPS that is described by 

the proposed packaging category of drugs and biologicals that function as supplies or 

devices in a surgical procedure is skin substitutes. The term “skin substitutes” refers to a 

category of products that are most commonly used in outpatient settings for the treatment 

of diabetic foot ulcers and venous leg ulcers. Although the term “skin substitute” has 

been adopted to refer to this category of products in certain contexts, these products do 

not actually function like human skin that is grafted onto a wound; they are not a 

substitute for a skin graft. Instead, these products are various types of wound dressings 

that, through various mechanisms of action, stimulate the host to regenerate lost tissue 

and replace the wound with functional skin. We refer readers to the “Skin Substitutes 
CMS-1601-P 169 

for Treating Chronic Wounds Technology Assessment Report at ES-2” which is 

available on the AHRQ Web site at: 

http://www.ahrq.gov/research/findings/ta/skinsubs/HCPR0610_skinsubst-final.pdf. 

Currently, available skin substitutes are regulated by the FDA as either medical devices 

(and classified as wound dressings) or as human cell, tissue, and cellular and tissuebased products (HCT/Ps) under section 361 of the Public Health Service Act. The 

different skin substitutes are applied to a wound during a surgical procedure described by 

CPT codes in the range 15271 through 15278. To be properly performed, every surgical 

procedure in this CPT code range requires the use of at least one skin substitute product. 

These surgical procedures include preparation of the wound and application of the skin 

substitute product through suturing or various other techniques. Currently skin 

substitutes are separately paid in the OPPS as if they are biologicals according to the 

ASP methodology and are subject to the drug and biological packaging threshold. 

 Because a skin substitute must be used to perform any of the procedures described 

by a CPT code in the range 15271 through 15278, and conversely because it is the 

surgical procedure of treating the wound and applying a covering to the wound that is the 

independent service, skin substitute products serve as a necessary supply for these 

surgical repair procedures. In addition, many skin substitutes are classified by the FDA 

as wound dressings, which make them the same or similar to surgical dressings that are 

packaged under § 419.2(b)(4). Finally, implantable biological products are very similar 

to (and in some instances the same as) skin substitute products, except that the clinical 

applications for implantable biologicals are typically an internal surgery versus the 
CMS-1601-P 170 

application to a wound for a skin substitute. Some products had or have dual uses as 

both skin substitutes and implantable biologicals, which underscores the similarity of 

these sometimes overlapping classes of products. Implantable biologicals and skin 

substitutes both function as supplies or devices that are used in surgical procedures and, 

therefore, should be packaged with the surgical procedure in which the products are 

used. Since CY 2009, we have packaged implantable biologicals and we are proposing 

to package skin substitutes with their associated surgeries beginning in CY 2014. We 

see no reason to distinguish skin substitutes from implantable biologicals for OPPS 

packaging purposes based on the clinical application of individual products. Therefore, 

we are proposing to unconditionally package skin substitutes into their associated 

surgical procedures. Packaging payment for these skin substitutes into the APC payment 

for the related surgical procedures also would result in a total prospective payment that is 

more reflective of the average resource costs of the procedures because prices for these 

products vary significantly from product to product. Packaging these products also 

would promote more efficient resource use by hospitals and would be more consistent 

with the treatment of similar products under the OPPS. We are proposing to revise the 

regulations at § 419.2(b)(4) to include skin substitutes as an example of a packaged 

surgical supply. Pass-through status would still be available to new skin substitutes that 

meet the pass-through criteria. The skin substitute products that would be 

unconditionally packaged under this proposal and assigned to status indicator “N” for 

CY 2014 are listed in Addendum P of this CY 2014 OPPS/ASC proposed rule. The 

proposed payment for CPT codes 15271 through 15278, including the cost of the 
CMS-1601-P 171 

packaged skin substitutes, for CY 2014 are listed in Addendum B of this proposed rule. 

These addenda are available on the CMS Web site at: 

http://www.cms.hhs.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalOutpatientPPS/index.html. 

(3) Clinical Diagnostic Laboratory Tests 

 Since the beginning of the OPPS, clinical diagnostic laboratory tests (laboratory 

tests) provided in the hospital outpatient setting have been separately paid to hospitals at 

Clinical Laboratory Fee Schedule (CLFS) rates (65 FR 18442). Section 1833(t)(1)(B)(i) 

of the Act authorizes the Secretary to designate the hospital outpatient services that are 

paid under the OPPS. Under this authority, the Secretary excluded from the OPPS those 

services that are paid under fee schedules or other payment systems. As stated in the 

April 17, 2000 OPPS final rule with comment period: “Rather than duplicate existing 

payment systems that are effectively achieving consistency of payments across different 

service delivery sites, we proposed to exclude from the outpatient PPS those services 

furnished in a hospital outpatient setting that were already subject to an existing fee 

schedule or other prospectively determined payment rate” (65 FR 18442). Because 

payment rates for laboratory tests were based on the CLFS, laboratory tests are among 

the services excluded from the OPPS. We codified this policy at 42 CFR 419.22(l). 

 As discussed above, it is our intent to make the OPPS a more complete 

prospective payment system, and less of a fee schedule-type payment system that makes 

separate payment for each separately coded item. We have examined the services 

performed in the hospital outpatient setting to determine those services that we believe 
CMS-1601-P 172 

should be packaged in order to make the OPPS a more complete and robust prospective 

payment system. We were guided by our longstanding OPPS packaging principle of 

packaging the payment of items or services when they are provided along with primary 

services they support. Based on this approach, we believe that laboratory tests (other 

than molecular pathology tests, as discussed below) that are integral, ancillary, 

supportive, dependent, or adjunctive to the primary services provided in the hospital 

outpatient setting are services that should be packaged. Laboratory tests and their results 

support clinical decisionmaking for a broad spectrum of primary services provided in the 

hospital outpatient setting, including surgery and diagnostic evaluations. Therefore, 

except as discussed below for molecular pathology tests, we are proposing to package 

laboratory tests when they are integral, ancillary, supportive, dependent, or adjunctive to 

a primary service or services provided in the hospital outpatient setting. We are 

proposing that laboratory tests would be integral, ancillary, supportive, dependent, or 

adjunctive to a primary service or services provided in the hospital outpatient setting 

when they are provided on the same date of service as the primary service and when they 

are ordered by the same practitioner who ordered the primary service. We would 

consider a laboratory test to be unrelated to a primary service and, thus, not part of this 

packaging policy when the laboratory test is the only service provided on that date of 

service or when the laboratory test is provided on the same date of service as the primary 

service but is ordered for a different purpose than the primary service by a practitioner 

different than the practitioner who ordered the primary service provided in the hospital 
CMS-1601-P 173 

outpatient setting. The laboratory tests not included in the packaging proposal would 

continue to be paid separately at CLFS rates when billed on a 14X bill type. 

 We are proposing an exception for molecular pathology tests described by CPT 

codes in the ranges of 81200 through 81383, 81400 through 81408, and 81479 from this 

proposed packaging policy. We are not proposing that these services be packaged 

because we believe that these relatively new tests have a different pattern of clinical use, 

which may make them generally less tied to a primary service in the hospital outpatient 

setting than the more common and routine laboratory tests that we are proposing to 

package. As we gain more experience with these molecular pathology tests, we will 

consider if packaging in the OPPS would be appropriate for these types of tests. 

 In addition to the laboratory packaging policy proposals described above, we 

considered proposing an alternative laboratory packaging policy that would package 

those laboratory tests meeting the proposed policies above, but also include a dollar 

threshold policy similar to the approach we use for separately paid drugs and biologicals 

in the OPPS so that only laboratory tests (meeting the proposed standards above) with 

CLFS payment rates below a certain dollar threshold amount would be packaged. Under 

this alternative policy, tests meeting the proposed standards above, but for which the 

CLFS payment rates are above the threshold amount, would continue to be separately 

paid. We decided not to propose this alternative policy because, as discussed above in 

the background section, our packaging policies generally do not consider the cost of the 

individual items and services that are packaged, meaning that we package both 

inexpensive and expensive items according to OPPS packaging principles. 
CMS-1601-P 174 

 We recognize that the Medicare Part B deductible and coinsurance generally do 

not apply for laboratory tests paid to hospitals at CLFS rates, but that the deductible and 

coinsurance would apply to laboratory tests packaged into other services in the OPPS. 

The purpose of the laboratory packaging proposal is not to shift program costs onto 

beneficiaries, but to encourage greater efficiency by hospitals and the most economical 

delivery of medically necessary laboratory tests. We estimate that the combination of 

packaging laboratory tests into a wide array of primary services provided in the hospital 

outpatient setting combined with our long-standing methodology to adjust the copayment 

percentages to 20 percent as provided in section 1833(t)(3)(B)(ii) of the Act and as 

discussed in section II.I. of this proposed rule, and the limitation on the copayment 

amount for a procedure to the inpatient hospital deductible as set forth at section 

1833(t)(8)(C)(i) of the Act would fully offset the financial impact on Medicare 

beneficiaries receiving laboratory tests that would be subject to the proposed packaging 

policy. Further, we believe that creating these larger bundles will result in a more 

efficient use of laboratory services when they are adjunctive to an outpatient service. In 

addition, to the extent that the coinsurance and deductible do not apply under the CLFS, 

they would continue not to apply for tests that are ordered, provided, and billed 

independently from a primary service as discussed above, or for molecular pathology 

tests. We are inviting public comments on the effect of packaging laboratory tests on 

beneficiary coinsurance. 

 The laboratory test codes that we are proposing to be packaged and assigned 

status indicator “N” for CY 2014 are listed in Addendum P of this proposed rule (which 
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is available via the Internet on the CMS Web site. We are proposing to revise the 

regulation text at § 419.2(b) and § 419.22(l) to reflect this laboratory test packaging 

proposal.
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(4) Procedures Described By Add-On Codes 

 Add-on codes describe procedures that are always performed in addition to a 

primary procedure. Add-on codes can be either CPT codes or Level II HCPCS codes. 

For example, the procedure described by CPT code 11001 is “Debridement of extensive 

eczematous or infected skin; each additional 10% of the body surface, or part thereof (list 

separately in addition to code for primary procedure).” This code is used for additional 

debridement beyond that described by the primary procedure code. Currently, add-on 

codes are treated like other codes in the OPPS. Add-on codes typically received separate 

payment based on an APC assignment, and are typically assigned status indicator “T.” 

 Procedures described by add-on codes represent an extension or continuation of a 

primary procedure, which means that they are typically supportive, dependent, or 

adjunctive to a primary surgical procedure. The parent code defines the purpose of the 

patient encounter and the add-on code typically describes additional incremental work, 

when the extent of the procedure encompasses a range rather than a single defined 

endpoint applicable to all patients. For example, add-on CPT code 11001 is used for 

each additional 10 percent of debridement. Therefore, according to longstanding OPPS 

packaging principles described above and the dependent nature and adjunctive 

characteristics of procedures described by add-on codes, we believe that such procedures 

should be packaged with the primary procedure. For CY 2014, we are proposing to 

unconditionally package all procedures described by add-on codes in the OPPS. 

 There is an additional benefit to packaging add-on codes--more accurate OPPS 

payment for procedures described by add-on codes. Currently, calculating mean costs for 
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procedures described by add-on codes is problematic in the OPPS because we cannot 

determine which costs on a claim are attributable to the primary procedure and which 

costs are attributable to the add-on procedure. Furthermore, because we use single claims 

and “pseudo” single procedure claims for ratesetting, we generally must rely on 

incorrectly coded claims containing only the add-on code to calculate payment rates for 

add-on procedures. Claims containing only an add-on code are incorrectly coded because 

they should be reported with (or “added-on”) a primary procedure. Packaging the line 

item costs associated with an add-on code into the cost of the primary procedure will help 

address this ratesetting concern because the costs of the add-on code would be packaged 

into the primary procedure, and we would no longer have to calculate costs for add-on 

codes based on miscoded claims. In addition, packaging add-on codes would increase 

the number of single bills available for ratesetting for the primary procedures. 

 We are revising the regulations at § 419.2(b) to include the packaging of add-on 

codes. The specific add-on codes that we are proposing to be unconditionally packaged 

and assigned status indicator “N” for CY 2014 are listed in Addendum P of this proposed 

rule, which is available via the Internet on the CMS Web site. 

(5) Ancillary Services (Status Indicator “X”) 

 Under the OPPS, we currently pay separately for certain ancillary services that are 

assigned to status indicator “X,” defined as “ancillary services.” Some other services that 

are ancillary to other services are currently packaged in the OPPS. Those ancillary 

services assigned status indicator “X” in the OPPS and paid separately are, by definition, 

ancillary relative to primary services provided in the OPPS and include many minor 
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diagnostic tests that are typically performed with a primary service, although there are 

instances where such services are not always performed with a primary service and may 

be performed alone. 

 As mentioned above, our intent is that the OPPS be more of a prospective 

payment system through expanding packaging. Given that the longstanding OPPS policy 

is to package items and services that are integral, ancillary, supportive, dependent, or 

adjunctive to a primary service, we believe that these ancillary services, which are 

assigned status indicator “X,” should be packaged when they are performed with another 

service, but should continue to be separately paid when performed alone. This packaging 

approach is most consistent with a prospective payment system and the regulations at 

§ 419.2(b) that packages ancillary services into primary services while preserving 

separate payment for those instances in which one of these services is provided alone (not 

with a separate primary service) to a hospital outpatient. 

 In summary, we are proposing to conditionally package all ancillary services that 

were previously assigned a status indicator of “X” and assign these services to status 

indicator “Q1” (packaged when provided with a service assigned a status indicator of 

“S,” “T,” or “V”). Status indicator “X” would be discontinued. To encourage maximum 

flexibility to beneficiaries across different sites of service, we are not proposing to 

conditionally package preventive services assigned to status indicator “X” and instead are 

proposing to change the status indicator for preventive services from the currently 

assigned status indicator “X” to status indicator “S.” The specific codes for procedures 

assigned to status indicator “X” that are proposed to be conditionally packaged and 
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assigned to status indicator “Q1” for CY 2014 are listed in Addendum P of this proposed 

rule, which is available via the Internet on the CMS Web site. 

(6) Diagnostic Tests on the Bypass List 

 For the CY 2013 OPPS, we implemented a bypass list to convert lines from 

multiple procedure claims into “pseudo” single procedure claims. We are proposing to 

continue developing “pseudo” single procedure claims using a bypass list for the 

CY 2014 OPPS, as discussed in section II.A.1.b. of this proposed rule. The bypass list of 

separately paid services is used to convert claims with multiple separately payable 

procedures, which are generally not used for ratesetting purposes, into claims with a 

single separately paid procedure that can be used for ratesetting. Services on the bypass 

list have limited associated packaged costs so they can be bypassed when assigning 

packaged costs on a claim to a separately paid procedure on the same claim. 

 As noted above, beginning in CY 2008, we packaged several diagnostic items and 

services including guidance services, image processing services, intraoperative services, 

imaging supervision and interpretation services, diagnostic radiopharmaceuticals, and 

contrast agents. In this proposed rule, we also are proposing to conditionally package 

several diagnostic items and services, including drugs, biologicals, and 

radiopharmaceuticals that function as supplies when used in a diagnostic test or 

procedure, ancillary services (many of which are diagnostic tests), and laboratory tests. 

We believe that the diagnostic tests on the bypass list share many of the characteristics 

with these other conditionally or unconditionally packaged or proposed packaged 

categories of items and services in that they are diagnostic and are integral, ancillary, 
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supportive, dependent, or adjunctive to a primary service. Examples include a barium 

swallow test (CPT code 74220) and a visual field examination (CPT code 92081). Given 

the nature of these services, we are proposing to conditionally package these procedures. 

We recognize that some of these services are sometimes provided without other services 

and, therefore, they will continue to be separately paid in those circumstances. 

 We are proposing that these codes be assigned status indicator “Q1” beginning in 

the CY 2014 OPPS. Some of these diagnostic tests on the bypass list are currently 

assigned to status indicator “X” and, therefore, would be conditionally packaged under 

the proposed policy to conditionally package ancillary services currently assigned status 

indicator “X.” The only diagnostic codes on the bypass list affected by this proposal are 

currently assigned to status indicator “S.” The specific codes for the diagnostic tests on 

the bypass list that we are proposing to be conditionally packaged and assigned to status 

indicator “Q1” for CY 2014 are listed in Addendum P of this proposed rule, which is 

available via the Internet on the CMS Web site. Similar to our conditional packaging 

proposal for services previously assigned to status indicator “X,” we are not proposing to 

conditionally package preventive services that are diagnostic tests on the bypass list. 

(7) Device Removal Procedures 

 Implantable devices frequently require removal or replacement due to wear, 

failure, recall, and infection, among others. Since the beginning of the OPPS, 

implantable devices have been packaged (either as supplies, implantable prosthetics, or 

implantable DME) into their associated procedures. Device removal is sometimes 

described by a code that may include repair or replacement. In other cases, device 
CMS-1601-P 181 

removal is described by a separate code that only describes removal of a device. Device 

removal procedures are frequently performed with procedures to repair or replace 

devices, although it is possible that device removal may occur without repair or 

replacement if the clinical indication for the device that was removed no longer exists. 

When a separately coded device removal procedure is performed with a separately coded 

device repair or replacement procedure, the device removal procedure actually represents 

a part of an overall procedure that is removal with repair or replacement of the device. 

 Given that a separately coded device removal that accompanies a device repair or 

replacement procedure represents a service that is integral and supportive to a primary 

service, we are proposing to conditionally package device removal codes when they are 

billed with other surgical procedures involving repair or replacement. We believe that 

this conditional packaging policy is appropriate under longstanding OPPS packaging 

principles because these device removal procedures are an integral and supportive step in 

a more comprehensive overall procedure. Furthermore, conditionally packaging these 

device removal procedures with the replacement or revision codes would be consistent 

with our packaging policies for other dependent services. The specific codes for the 

device removal procedures that we are proposing to be conditionally packaged and 

assigned to status indicator “Q2” for CY 2014 are listed in Addendum P of this proposed 

rule, which is available via the Internet on the CMS Web site. 
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d. Impact of the New Packaging Proposals 

 We have examined the proposed aggregate impact of making these proposed 

changes to packaging for CY 2014. Because the OPPS is a budget neutral payment 

system in which the amount of the relative payment weight in the system is annually 

adjusted for changes in expenditures created by changes in APC weights and codes (but 

is not currently adjusted based on estimated growth in service volume), the effects of the 

packaging changes that we are proposing would result in changes to scaled weights and, 

therefore, to the payment rates for all separately paid procedures. These proposed 

changes would result from shifts in mean costs as a result of increased packaging, 

changes in multiple procedure discounting patterns, and a higher weight scaler that is 

applied to all unscaled APC weights. Further, to properly budget neutralize the money 

that would previously have been paid through other payment systems, we have included 

those payments when performing OPPS budget neutrality calculations. We refer readers 

to section II.A.4. of this proposed rule for an explanation of the weight scaler for OPPS 

budget neutrality. In a budget neutral system, the monies previously paid for services 

that are now proposed to be packaged are not lost, but are redistributed to all other 

services. A higher weight scaler would increase payment rates relative to observed mean 

costs for independent services by redistributing the lost weight of packaged items that 

historically have been paid separately and the lost weight when the mean costs of 

independent services do not completely reflect the full incremental cost of the packaged 

services. The impact of this proposed change on proposed CY 2014 OPPS payments is 
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discussed in section XXIII.A. of this proposed rule, and the impact on various 

classifications of hospitals is shown in Column 5 in Table 39 in that section. 

 We estimate that our CY 2014 packaging proposal would redistribute 

approximately 4 percent of the estimated CY 2013 base year expenditures under the 

OPPS. If the relative payment weight for a particular APC decreases as a result of the 

proposed packaging approach, the increased weight scaler may or may not result in a 

relative payment weight that is equal to or greater than the relative weight that would 

occur without the proposed packaging approach. In general, the packaging policies that 

we are proposing would have more effect on payment for some services than on payment 

for others because the dependent items and services that we are proposing for packaging 

are furnished more often with some independent services than with others. However, 

because of the amount of relative payment weight that would be redistributed by this 

proposal, there would be some impact on payments for all OPPS services whose rates are 

set based on relative payment weights, and the impact on any given hospital would vary 

based on the mix of services furnished by the hospital. 

e. Clarification Regarding Supplies That Are Packaged in the OPPS 

 Under the regulations at § 419.2(b)(4), medical and surgical supplies and 

equipment are packaged in the OPPS. Supplies is a large category of items that typically 

are either for single patient use or have a shorter life span in use than equipment. 

Packaged supplies can include certain drugs, biologicals, and radiopharmaceuticals. The 

only supplies that are sometimes paid separately in the OPPS are prosthetic supplies 
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under § 419.22(j), and if paid separately, they are paid according to the DMEPOS fee 

schedule. All other supplies are unconditionally packaged in the OPPS. 

 In our annual review of the OPPS for CY 2014, we discovered many supplies that 

should be packaged in the OPPS according to § 419.2(b)(4), but that are currently 

assigned to status indicator “A” and are separately paid in the hospital outpatient setting 

according to the DMEPOS fee schedule. For CY 2014, we are proposing to revise the 

status indicator for all supplies described by Level II HCPCS A-codes (except for 

prosthetic supplies) from status indicator “A” to “N,” so that these supplies would be 

unconditionally packaged as required by § 419.2(b)(4). The specific Level II HCPCS Acodes whose status indicator will be revised from “A” to “N” are listed in Addendum P of 

this CY 2014 OPPS/ASC proposed rule, which is available via the Internet on the CMS 

Web site. 

f. Proposed Revision and Clarification of the Regulations at 42 CFR 419.2(b) and 

42 CFR 419.22 

 In the CY 2013 OPPS/ASC final rule with comment period (77 FR 68272), after 

consideration of public comments we received on the proposed rule, we clarified the 

regulatory language at § 419.2(b) to make explicit that the OPPS payments for the 

included costs of the nonexclusive list of items and services covered under the OPPS 

referred to in this paragraph are packaged into the payments for the related procedures or 

services with which such items and services are provided. In this proposed rule, we are 

proposing to further revise this regulation to add the packaging categories that were 

adopted in CYs 2008 and 2009 in addition to the new proposed policies described above. 
CMS-1601-P 185 

We also are proposing to make some further minor revisions and editorial clarifications 

to the existing language of § 419.2(b) to make it more clearly reflect current packaging 

policy. Finally, we are proposing to revise the list of services excluded from the OPPS at 

§ 419.22. 

g. Comment Solicitation on Increased Packaging for Imaging Services 

 We currently package several kinds of imaging services in the OPPS, including 

image guidance services, image processing services, intraoperative imaging, and imaging 

supervision and interpretation services. In addition, some imaging services are included 

in this year’s proposal to conditionally package ancillary services and diagnostic tests on 

the bypass list. In addition to these imaging services that are either packaged or proposed 

to be packaged, we are contemplating a proposal for CY 2015 that would conditionally 

package all imaging services with any associated surgical procedures. Imaging services 

not provided with a surgical procedure would continue to either be separately paid 

according to a standard clinical APC or a composite APC. We are requesting public 

comments on this potential CY 2015 proposal. 

h. Summary of CY 2014 Packaging Proposals 

 Beginning in CY 2014, we are proposing to unconditionally package or 

conditionally package the following items and services and to add them to the list of 

OPPS packaged items and services in § 419.2(b): 

 (1) Drugs, biologicals, and radiopharmaceuticals that function as supplies when 

used in a diagnostic test or procedure; 
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 (2) Drugs and biologicals that function as supplies or devices when used in a 

surgical procedure; 

 (3) Clinical diagnostic laboratory tests; 

 (4) Procedures described by add-on codes; 

 (5) Ancillary services (status indicator “X”); 

 (6) Diagnostic tests on the bypass list; and 

 (7) Device removal procedures. 

 We believe that each of the above proposed unconditionally or conditionally 

packaged categories of items or services is appropriate according to existing packaging 

policies or expansions of existing packaging policies. However, we recognize that 

decisions about packaging payment involve a balance between ensuring that payment is 

adequate to enable the hospital to provide quality care while establishing incentives for 

efficiency through larger units of payment. Therefore, we are inviting public comments 

regarding our packaging proposals for the CY 2014 OPPS. 

 The HCPCS codes that we are proposing to be packaged either unconditionally 

(for which we are proposing to assign status indicator “N”), or conditionally (for which 

we are proposing to assign status indicator “Q1” or “Q2”), for CY 2014 are displayed in 

both Addendum P and Addendum B of this proposed rule. The supporting documents for 

this proposed rule, including but not limited to the Addenda, are available at the CMS 

Web site at: http://www.cms.hhs.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalOutpatientPPS/index.html. 
CMS-1601-P 187 

4. Proposed Calculation of OPPS Scaled Payment Weights 

 For CY 2014, we are proposing to calculate the relative payment weights for each 

APC for CY 2014 shown in Addenda A and B to this proposed rule (which are available 

via the Internet on the CMS Web site) using the APC costs discussed in sections II.A.1. 

and II.A.2. of this proposed rule. In years prior to CY 2007, we standardized all the 

relative payment weights to APC 0601 (Mid-Level Clinic Visit) because mid-level clinic 

visits were among the most frequently performed services in the hospital outpatient 

setting. We assigned APC 0601 a relative payment weight of 1.00 and divided the 

median cost for each APC by the median cost for APC 0601 to derive the relative 

payment weight for each APC. 

 Beginning with the CY 2007 OPPS (71 FR 67990), we standardized all of the 

relative payment weights for APC 0606 (Level 3 Clinic Visits) because we deleted 

APC 0601 as part of the reconfiguration of the clinic visit APCs. We selected APC 0606 

as the base because APC 0606 was the mid-level clinic visit APC (that is, Level 3 of five 

levels). 

 For the CY 2013 OPPS (77 FR 68283), we established a policy of using 

geometric mean-based APC costs to calculate relative payment weights. For the 

CY 2014 OPPS, we are proposing to continue basing the relative payment weights on 

which OPPS payments will be made by using geometric mean costs. As we discuss in 

section VII. of this proposed rule, we are proposing to reconfigure the CY 2014 visit 

APCs so that they would include a single level for each visit type. However, in an effort 

to maintain consistency in calculating unscaled weights that represent the cost of some of 
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the most frequently provided services, we are proposing to use the cost of the clinic visit 

APC in calculating unscaled weights, which for CY 2014 is proposed APC 0634. While 

we have previously used APC 0606 as the base from which to develop the OPPS budget 

neutral weight scaler, under our proposal to reconfigure the visit APCs, we would have a 

single APC for each visit type. The proposal to reconfigure the visit APCs is discussed in 

more detail in section VII. of this proposed rule. Following our general methodology for 

establishing relative payment weights derived from APC costs, but using the proposed 

CY 2014 geometric mean cost for APC 0634, for CY 2014, we are proposing to assign 

APC 0634 a relative payment weight of 1.00 and to divide the geometric mean cost of 

each APC by the proposed geometric mean cost for APC 0634 to derive the proposed 

unscaled relative payment weight for each APC. The choice of the APC on which to 

base the proposed relative payment weights for all other APCs does not affect the 

payments made under the OPPS because we scale the weights for budget neutrality. 

 Section 1833(t)(9)(B) of the Act requires that APC reclassification and 

recalibration changes, wage index changes, and other adjustments be made in a budget 

neutral manner. Budget neutrality ensures that the estimated aggregate weight under the 

OPPS for CY 2014 is neither greater than nor less than the estimated aggregate weight 

that would have been made without the changes. To comply with this requirement 

concerning the APC changes, we are proposing to compare the estimated aggregate 

weight using the CY 2013 scaled relative payment weights to the estimated aggregate 

weight using the proposed CY 2014 unscaled relative payment weights. 
CMS-1601-P 189 

 For CY 2013, we multiplied the CY 2013 scaled APC relative payment weight 

applicable to a service paid under the OPPS by the volume of that service from CY 2012 

claims to calculate the total relative payment weight for each service. We then added 

together the total relative payment weight for each of these services in order to calculate 

an estimated aggregate weight for the year. For CY 2014, we are proposing the same 

process using the proposed CY 2014 unscaled relative payment weights rather than 

scaled relative payment weights. We are proposing to calculate the weight scaler by 

dividing the CY 2013 estimated aggregate weight by the proposed CY 2014 estimated 

aggregate weight. The service-mix is the same in the current and prospective years 

because we use the same set of claims for service volume in calculating the aggregate 

weight for each year. We note that, as a result of the CY 2014 proposed OPPS packaging 

policy for laboratory tests described in section II.A.3.b.(3) of this proposed rule, we 

would need to incorporate the estimated relative payment weights from those services. 

Therefore, the CY 2013 estimated OPPS aggregate weight would include payments for 

outpatient laboratory tests paid at the CLFS rates. 

 For a detailed discussion of the weight scaler calculation, we refer readers to the 

OPPS claims accounting document available on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalOutpatientPPS/index.html. 

 We are proposing to include estimated payments to CMHCs in our comparison of 

the estimated unscaled relative payment weights in CY 2014 to the estimated total 

relative payment weights in CY 2013 using CY 2012 claims data, holding all other 
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components of the payment system constant to isolate changes in total weight. Based on 

this comparison, we adjusted the proposed CY 2014 unscaled relative payment weights 

for purposes of budget neutrality. The proposed CY 2014 unscaled relative payment 

weights were adjusted by multiplying them by a proposed weight scaler of 1.2143 to 

ensure that the proposed CY 2014 relative payment weights are budget neutral. 

 Section 1833(t)(14) of the Act provides the payment rates for certain SCODs. 

Section 1833(t)(14)(H) of the Act states that “Additional expenditures resulting from this 

paragraph shall not be taken into account in establishing the conversion factor, weighting, 

and other adjustment factors for 2004 and 2005 under paragraph (9), but shall be taken 

into account for subsequent years.” Therefore, the cost of those SCODs (as discussed in 

section V.B.3. of this proposed rule) is included in the proposed budget neutrality 

calculations for the CY 2014 OPPS. 

 The proposed CY 2014 unscaled relative payment weights listed in Addenda A 

and B to this proposed rule (which are available via the Internet on the CMS Web site) 

incorporate the proposed recalibration adjustments discussed in sections II.A.1. and 

II.A.2. of this proposed rule. 
CMS-1601-P 191 

B. Proposed Conversion Factor Update

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

conversion factor used to determine the payment rates under the OPPS on an annual basis 

by applying the OPD fee schedule increase factor. For purposes of section 

1833(t)(3)(C)(iv) of the Act, subject to sections 1833(t)(17) and 1833(t)(3)(F) of the Act, 

the OPD fee schedule increase factor is equal to the hospital inpatient market basket 

percentage increase applicable to hospital discharges under section 1886(b)(3)(B)(iii) of 

the Act. In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27572), consistent with 

current law, based on IHS Global Insight, Inc.’s first quarter 2013 forecast of the 

FY 2014 market basket increase, the proposed FY 2014 IPPS market basket update is 2.5 

percent. However, sections 1833(t)(3)(F) and 1833(t)(3)(G)(iii) of the Act, as added by 

section 3401(i) of the Patient Protection and Affordable Care Act of 2010 (Pub. L. 

111-148) and as amended by section 10319(g) of that law and further amended by section 

1105(e) of the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), 

provide adjustments to the OPD fee schedule increase factor for CY 2014. 

 Specifically, section 1833(t)(3)(F)(i) of the Act requires that, for 2012 and 

subsequent years, the OPD fee schedule increase factor under subparagraph (C)(iv) be 

reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the 

Act. Section 1886(b)(3)(B)(xi)(II) of the Act defines the productivity adjustment as 

equal to the 10-year moving average of changes in annual economy-wide, private 

nonfarm business multifactor productivity (MFP) (as projected by the Secretary for the 

10-year period ending with the applicable fiscal year, year, cost reporting period, or other 
CMS-1601-P 192 

annual period) (the “MFP adjustment”). In the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51689 through 51692), we finalized our methodology for calculating and 

applying the MFP adjustment. In the FY 2014 IPPS/LTCH PPS proposed rule 

(78 FR 27572), we discussed the calculation of the proposed MFP adjustment for 

FY 2014, which is 0.4 percentage point. 

 We are proposing that if more recent data become subsequently available after the 

publication of this proposed rule (for example, a more recent estimate of the market 

basket increase and the MFP adjustment), we would use such data, if appropriate, to 

determine the CY 2014 market basket update and the MFP adjustment, components in 

calculating the OPD fee schedule increase factor under sections 1833(t)(3)(C)(iv) and 

1833(t)(3)(F) of the Act, in the CY 2014 OPPS/ASC final rule with comment period. 

 In addition, section 1833(t)(3)(F)(ii) of the Act requires that for each of years 

2010 through 2019, the OPD fee schedule increase factor under section 1833(t)(3)(C)(iv) 

of the Act be reduced by the adjustment described in section 1833(t)(3)(G) of the Act. 

For CY 2014, section 1833(t)(3)(G)(iii) of the Act provides a 0.3 percentage point 

reduction to the OPD fee schedule increase factor under section 1833(t)(3)(C)(iv) of the 

Act. Therefore, in accordance with sections 1833(t)(3)(F)(ii) and 1833(t)(3)(G)(iii) of the 

Act, we are proposing to apply a 0.3 percentage point reduction to the OPD fee schedule 

increase factor for CY 2014. 

 We note that section 1833(t)(3)(F) of the Act provides that application of this 

subparagraph may result in the OPD fee schedule increase factor under section 

1833(t)(3)(C)(iv) of the Act being less than 0.0 for a year, and may result in payment 
CMS-1601-P 193 

rates under the OPPS for a year being less than such payment rates for the preceding 

year. As described in further detail below, we are proposing to apply an OPD fee 

schedule increase factor of 1.8 percent for the CY 2014 OPPS (which is 2.5 percent, the 

proposed estimate of the hospital inpatient market basket percentage increase, less the 

proposed 0.4 percentage point MFP adjustment, and less the 0.3 percentage point 

additional adjustment). 

 We note that hospitals that fail to meet the Hospital OQR Program reporting 

requirements are subject to an additional reduction of 2.0 percentage points from the 

OPD fee schedule increase factor adjustment to the conversion factor that would be used 

to calculate the OPPS payment rates for their services, as required by section 1833(t)(17) 

of the Act. As a result, those hospitals failing to meet the Hospital OQR Program 

reporting requirements would receive an OPD fee schedule increase factor of -0.2 percent 

(which is 2.5 percent, the proposed estimate of the hospital inpatient market basket 

percentage increase, less the proposed 0.4 percentage point MFP adjustment, less the 0.3 

percentage point additional adjustment, and less 2.0 percentage points for the Hospital 

OQR Program reduction). For further discussion of the Hospital OQR Program, we refer 

readers to section XIII. of this proposed rule. 

 In this proposed rule, we are proposing to amend 42 CFR 419.32(b)(1)(iv)(B) by 

adding a new paragraph (5) to reflect the requirement in section 1833(t)(3)(F)(i) of the 

Act that, for CY 2014, we reduce the OPD fee schedule increase factor by the MFP 

adjustment as determined by CMS, and to reflect the requirement in section 

1833(t)(3)(G)(iii) of the Act, as required by section 1833(t)(3)(F)(ii) of the Act, that we 
CMS-1601-P 194 

reduce the OPD fee schedule increase factor by an additional 0.3 percentage point for 

CY 2014. 

 To set the OPPS conversion factor for CY 2014, we are proposing to increase the 

CY 2013 conversion factor of $71.313 by 1.8 percent. In accordance with section 

1833(t)(9)(B) of the Act, we are proposing to further adjust the conversion factor for 

CY 2014 to ensure that any revisions made to the updates for a revised wage index and 

rural adjustment are made on a budget neutral basis. We are proposing to calculate an 

overall proposed budget neutrality factor of 1.004 for wage index changes by comparing 

proposed total estimated payments from our simulation model using the proposed 

FY 2014 IPPS wage indices to those payments using the current (FY 2013) IPPS wage 

indices, as adopted on a calendar year basis for the OPPS. 

 For CY 2014, we are not proposing to make a change to our rural adjustment 

policy, as discussed in section II.E. of this proposed rule. Therefore, the proposed budget 

neutrality factor for the rural adjustment is 1.0000. 

 For CY 2014, we are proposing to continue previously established policies for 

implementing the cancer hospital payment adjustment described in section 1833(t)(18) of 

the Act, as discussed in section II.F. of this proposed rule. We are proposing to calculate 

a CY 2014 budget neutrality adjustment factor for the cancer hospital payment 

adjustment by comparing the estimated total CY 2014 payments under section 1833(t) of 

the Act, including the proposed CY 2014 cancer hospital payment adjustment, to the 

estimated CY 2014 total payments using the CY 2013 final cancer hospital payment 

adjustment as required under section 1833(t)(18)(B) of the Act. The difference in the 
CMS-1601-P 195 

CY 2014 estimated payments as a result of applying the proposed CY 2014 cancer 

hospital payment adjustment relative to the CY 2013 final cancer hospital payment 

adjustment has a limited impact on the budget neutrality calculation. Therefore, we are 

proposing to apply a proposed budget neutrality adjustment factor of 1.0001 to the 

conversion factor to ensure that the cancer hospital payment adjustment is budget neutral. 

 For this proposed rule, we estimate that pass-through spending for both drugs and 

biologicals and devices for CY 2014 would equal approximately $12 million, which 

represents 0.02 percent of total projected CY 2014 OPPS spending. Therefore, the 

proposed conversion factor also would be adjusted by the difference between the 

0.15 percent estimate of pass-through spending for CY 2013 and the 0.02 percent 

estimate of CY 2014 pass-through spending, resulting in a proposed adjustment for 

CY 2014 of 0.13 percent. Finally, estimated payments for outliers would remain at 

1.0 percent of total OPPS payments for CY 2014. 

 The proposed OPD fee schedule increase factor of 1.8 percent for CY 2014 (that 

is, the estimate of the hospital inpatient market basket percentage increase of 2.5 percent 

less the proposed 0.4 percentage point MFP adjustment and less the 0.3 percentage point 

required under section 1833(t)(3)(F) of the Act), the required proposed wage index 

budget neutrality adjustment of approximately 1.0004, the proposed cancer hospital 

payment adjustment of 1.0001, and the proposed adjustment of 0.13 percent of projected 

OPPS spending for the difference in the pass-through spending result in a proposed 

conversion factor for CY 2014 of $72.728. 
CMS-1601-P 196 

 Hospitals that fail to meet the reporting requirements of the Hospital OQR 

Program would continue to be subject to a further reduction of 2.0 percentage points to 

the OPD fee schedule increase factor adjustment to the conversion factor that would be 

used to calculate the OPPS payment rates made for their services as required by section 

1833(t)(17) of the Act. For a complete discussion of the Hospital OQR Program 

requirements and the payment reduction for hospitals that fail to meet those requirements, 

we refer readers to section XIII.G. of this proposed rule. To calculate the proposed 

CY 2014 reduced market basket conversion factor for those hospitals that fail to meet the 

requirements of the Hospital OQR Program for the full CY 2014 payment update, we are 

proposing to make all other adjustments discussed above, but using a proposed reduced 

OPD fee schedule update factor of –0.2 percent (that is, the proposed OPD fee schedule 

increase factor of 1.8 percent further reduced by 2.0 percentage points as required by 

section 1833(t)(17)(A)(i) of the Act for failure to comply with the Hospital OQR 

requirements). This results in a proposed reduced conversion factor for CY 2014 of 

$71.273 for those hospitals that fail to meet the Hospital OQR requirements (a difference 

of -$1.455 in the conversion factor relative to those hospitals that met the Hospital OQR 

requirements). 

 In summary, for CY 2014, we are proposing to use a conversion factor of $72.728 

in the calculation of the national unadjusted payment rates for those items and services 

for which payment rates are calculated using geometric mean costs. We are proposing to 

amend § 419.32(b)(1)(iv)(B) by adding a new paragraph (5) to reflect the reductions to 

the OPD fee schedule increase factor that are required for CY 2014 in order to satisfy the 
CMS-1601-P 197 

statutory requirements of sections 1833(t)(3)(F) and (t)(3)(G)(iii) of the Act. We also are 

proposing to use a reduced conversion factor of $71.273 in the calculation of payments 

for hospitals that fail to comply with the Hospital OQR Program requirements to reflect 

the reduction to the OPD fee schedule increase factor that is required by section 

1833(t)(17) of the Act. 

C. Proposed Wage Index Changes

 Section 1833(t)(2)(D) of the Act requires the Secretary to “determine a wage 

adjustment factor to adjust the portion of payment and coinsurance attributable to 

labor-related costs for relative differences in labor and labor-related costs across 

geographic regions in a budget neutral manner” (codified at 42 CFR 419.43(a)). This 

portion of the OPPS payment rate is called the OPPS labor-related share. Budget 

neutrality is discussed in section II.B. of this proposed rule. 

 The OPPS labor-related share is 60 percent of the national OPPS payment. This 

labor-related share is based on a regression analysis that determined that, for all hospitals, 

approximately 60 percent of the costs of services paid under the OPPS were attributable 

to wage costs. We confirmed that this labor-related share for outpatient services is 

appropriate during our regression analysis for the payment adjustment for rural hospitals 

in the CY 2006 OPPS final rule with comment period (70 FR 68553). Therefore, we are 

not proposing to revise this policy for the CY 2014 OPPS. We refer readers to 

section II.H. of this proposed rule for a description and example of how the wage index 

for a particular hospital is used to determine the payment for the hospital. As discussed 

in section II.A.2.c. of this proposed rule, for estimating APC costs, we standardize 60 
CMS-1601-P 198 

percent of estimated claims costs for geographic area wage variation using the same 

proposed FY 2014 pre-reclassified wage index that the IPPS uses to standardize costs. 

This standardization process removes the effects of differences in area wage levels from 

the determination of a national unadjusted OPPS payment rate and the copayment 

amount. 

 Under 42 CFR 419.41(c)(1) and 419.43(c) (published in the original OPPS 

April 7, 2000 final rule with comment period (65 FR 18495 and 18545)), the OPPS 

adopted the final fiscal year IPPS wage index as the calendar year wage index for 

adjusting the OPPS standard payment amounts for labor market differences. Thus, the 

wage index that applies to a particular acute care short-stay hospital under the IPPS also 

applies to that hospital under the OPPS. As initially explained in the September 8, 1998 

OPPS proposed rule (63 FR 47576), we believed that using the IPPS wage index as the 

source of an adjustment factor for the OPPS is reasonable and logical, given the 

inseparable, subordinate status of the HOPD within the hospital overall. In accordance 

with section 1886(d)(3)(E) of the Act, the IPPS wage index is updated annually. 

 The Affordable Care Act contained provisions affecting the wage index. These 

provisions were discussed in the CY 2012 OPPS/ASC final rule with comment period 

(76 FR 74191). As discussed in that final rule with comment period, section 10324 of the 

Affordable Care Act added section 1886(d)(3)(E)(iii)(II) to the Act, which defines 

“frontier State,” and amended section 1833(t) of the Act to add new paragraph (19), 

which requires a “frontier State” wage index floor of 1.00 in certain cases, and states that 

the frontier State floor shall not be applied in a budget neutral manner. We codified these 
CMS-1601-P 199 

requirements in §§ 419.43(c)(2) and (c)(3) of our regulations. For the CY 2014 OPPS, 

we will implement this provision in the same manner as we did since CY 2011. That is, 

frontier State hospitals would receive a wage index of 1.00 if the otherwise applicable 

wage index (including reclassification, rural and imputed floor, and rural floor budget 

neutrality) is less than 1.00. Similar to our current policy for HOPDs that are affiliated 

with multicampus hospital systems, the HOPD would receive a wage index based on the 

geographic location of the specific inpatient hospital with which it is associated. 

Therefore, if the associated hospital is located in a frontier State, the wage index 

adjustment applicable for the hospital would also apply for the affiliated HOPD. We 

refer readers to the FY 2011, FY 2012, and FY 2013 IPPS/LTCH PPS final rules (75 FR 

50160 through 50161, 76 FR 51793, 51795, and 51825, and 77 FR 53369 through 53370, 

respectively) and the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27556 through 

27557) for discussions regarding this provision, including our methodology for 

identifying which areas meet the definition of frontier States as provided for in section 

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

 In addition to the changes required by the Affordable Care Act, we note that the 

proposed FY 2014 IPPS wage indices continue to reflect a number of adjustments 

implemented over the past few years, including, but not limited to, reclassification of 

hospitals to different geographic areas, the rural and imputed floor provisions, an 

adjustment for occupational mix, and an adjustment to the wage index based on 

commuting patterns of employees (the out-migration adjustment). We refer readers to 

the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27552 through 27561) for a detailed 
CMS-1601-P 200 

discussion of all proposed changes to the FY 2014 IPPS wage indices. In addition, we 

refer readers to the CY 2005 OPPS final rule with comment period (69 FR 65842 through 

65844) and subsequent OPPS rules for a detailed discussion of the history of these wage 

index adjustments as applied under the OPPS. 

 For purposes of the OPPS, we are proposing to continue our policy for CY 2014 

of allowing non-IPPS hospitals paid under the OPPS to qualify for the out-migration 

adjustment if they are located in a section 505 out-migration county (section 505 of the 

Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) 

(Pub. L. 108-173)). We note that, because non-IPPS hospitals cannot reclassify, they are 

eligible for the out-migration wage adjustment. Table 4J listed in the FY 2014 

IPPS/LTCH PPS proposed rule (available via the Internet on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html) identifies counties eligible for the out-migration 

adjustment and hospitals that would receive the adjustment for FY 2014. We also note 

that, beginning with FY 2012, under the IPPS, an eligible hospital that waives its Lugar 

status in order to receive the out-migration adjustment has effectively waived its deemed 

urban status and, thus, is rural for all purposes under the IPPS, including being 

considered rural for the disproportionate share hospital (DSH) payment adjustment, 

effective for the fiscal year in which the hospital receives the out-migration adjustment. 

We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53371) for a more 

detailed discussion on the Lugar redesignation waiver for the out-migration adjustment. 

As we have done in prior years, we are including Table 4J from the FY 2014 IPPS/LTCH 
CMS-1601-P 201 

PPS proposed rule as Addendum L to this proposed rule with the addition of non-IPPS 

hospitals that would receive the section 505 out-migration adjustment under the CY 2014 

OPPS. Addendum L is available via the Internet on the CMS Web site. 

 As discussed in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27552 

through 27553), the Office of Management and Budget (OMB) issued revisions to the 

current geographic area designations on February 28, 2013, that included a number of 

significant changes such as new CBSAs, urban counties that become rural, rural counties 

that become urban, and splitting existing CBSAs (OMB Bulletin 13-01. This bulletin can 

be found at: http://www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b13-

01.pdf. All of these designations have corresponding effects on the wage index system 

and its adjustments. In order to allow for sufficient time to assess the new revisions and 

their ramifications, we intend to propose changes to the IPPS wage index based on the 

newest CBSA designations in the FY 2015 IPPS/LTCH PPS proposed rule. Similarly, in 

the OPPS, which uses the IPPS wage index, we intend to propose changes based on the 

new OMB revisions in the CY 2015 OPPS/ASC proposed rule, consistent with any 

proposals in the FY 2015 IPPS/LTCH PPS proposed rule. 

 As stated earlier in this section, we continue to believe that using the IPPS wage 

index as the source of an adjustment factor for the OPPS is reasonable and logical, given 

the inseparable, subordinate status of the HOPD within the hospital overall. Therefore, 

we are not proposing to change our current regulations which require that we use the 

FY 2014 IPPS wage indices for calculating OPPS payments in CY 2014. With the 

exception of the proposed out-migration wage adjustment table (Addendum L to this 
CMS-1601-P 202 

proposed rule, which is available via the Internet on the CMS Web site), which includes 

non-IPPS hospitals paid under the OPPS, we are not reprinting the proposed FY 2014 

IPPS wage indices referenced in this discussion of the wage index. We refer readers to 

the CMS Web site for the OPPS at: http://www.cms.gov/Medicare/Medicare-Fee-forService-Payment/HospitalOutpatientPPS/index.html. At this link, readers will find a link 

to the proposed FY 2014 IPPS wage index tables. 

D. Proposed Statewide Average Default CCRs

 In addition to using CCRs to estimate costs from charges on claims for ratesetting, 

CMS uses overall hospital-specific CCRs calculated from the hospital’s most recent cost 

report to determine outlier payments, payments for pass-through devices, and monthly 

interim transitional corridor payments under the OPPS during the PPS year. Medicare 

contractors cannot calculate a CCR for some hospitals because there is no cost report 

available. For these hospitals, CMS uses the statewide average default CCRs to 

determine the payments mentioned above until a hospital’s Medicare contractor is able to 

calculate the hospital’s actual CCR from its most recently submitted Medicare cost 

report. These hospitals include, but are not limited to, hospitals that are new, have not 

accepted assignment of an existing hospital’s provider agreement, and have not yet 

submitted a cost report. CMS also uses the statewide average default CCRs to determine 

payments for hospitals that appear to have a biased CCR (that is, the CCR falls outside 

the predetermined ceiling threshold for a valid CCR) or for hospitals in which the most 

recent cost report reflects an all-inclusive rate status (Medicare Claims Processing 

Manual (Pub. 100-04), Chapter 4, Section 10.11). In this proposed rule, we are proposing 
CMS-1601-P 203 

to update the default ratios for CY 2014 using the most recent cost report data. We 

discuss our policy for using default CCRs, including setting the ceiling threshold for a 

valid CCR, in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68594 

through 68599) in the context of our adoption of an outlier reconciliation policy for cost 

reports beginning on or after January 1, 2009. 

 For CY 2014, we are proposing to continue to use our standard methodology of 

calculating the statewide average default CCRs using the same hospital overall CCRs that 

we use to adjust charges to costs on claims data for setting the proposed CY 2014 OPPS 

relative payment weights. Table 9 below lists the proposed CY 2014 default urban and 

rural CCRs by State and compares them to last year’s default CCRs. These proposed 

CCRs represent the ratio of total costs to total charges for those cost centers relevant to 

outpatient services from each hospital’s most recently submitted cost report, weighted by 

Medicare Part B charges. We also are proposing to adjust ratios from submitted cost 

reports to reflect the final settled status by applying the differential between settled to 

submitted overall CCRs for the cost centers relevant to outpatient services from the most 

recent pair of final settled and submitted cost reports. We then are proposing to weight 

each hospital’s CCR by the volume of separately paid line-items on hospital claims 

corresponding to the year of the majority of cost reports used to calculate the overall 

CCRs. We refer readers to the CY 2008 OPPS/ASC final rule with comment period 

(72 FR 66680 through 66682) and prior OPPS rules for a more detailed discussion of our 

established methodology for calculating the statewide average default CCRs, including 

the hospitals used in our calculations and our trimming criteria. 
CMS-1601-P 204 

 For Maryland, we used an overall weighted average CCR for all hospitals in the 

Nation as a substitute for Maryland CCRs. Few hospitals in Maryland are eligible to 

receive payment under the OPPS, which limits the data available to calculate an accurate 

and representative CCR. The weighted CCR is used for Maryland because it takes into 

account each hospital’s volume, rather than treating each hospital equally. We refer 

readers to the CY 2005 OPPS final rule with comment period (69 FR 65822) for further 

discussion and the rationale for our longstanding policy of using the national average 

CCR for Maryland. In general, observed changes in the statewide average default CCRs 

between CY 2013 and CY 2014 are modest and the few significant changes are 

associated with areas that have a small number of hospitals. 

Table 9 below lists the proposed statewide average default CCRs for OPPS services 

furnished on or after January 1, 2014. 

TABLE 9.–PROPOSED CY 2014 STATEWIDE AVERAGE CCRs 

State Urban/Rural 

Proposed CY 

2014 Default 

CCR 

Previous Default 

CCR (CY 2013 

OPPS Final Rule)

ALASKA RURAL 0.472 0.489

ALASKA URBAN 0.296 0.307

ALABAMA RURAL 0.223 0.209

ALABAMA URBAN 0.198 0.193

ARKANSAS RURAL 0.227 0.219

ARKANSAS URBAN 0.230 0.234

ARIZONA RURAL 0.223 0.238

ARIZONA URBAN 0.188 0.190

CALIFORNIA RURAL 0.210 0.192

CALIFORNIA URBAN 0.210 0.202

COLORADO RURAL 0.396 0.331
CMS-1601-P 205 

State Urban/Rural 

Proposed CY 

2014 Default 

CCR 

Previous Default 

CCR (CY 2013 

OPPS Final Rule)

COLORADO URBAN 0.222 0.226

CONNECTICUT RURAL 0.359 0.364

CONNECTICUT URBAN 0.285 0.287

DISTRICT OF 

COLUMBIA 

URBAN 0.282 0.302

DELAWARE RURAL 0.278 0.282

DELAWARE URBAN 0.331 0.353

FLORIDA RURAL 0.172 0.182

FLORIDA URBAN 0.166 0.167

GEORGIA RURAL 0.271 0.237

GEORGIA URBAN 0.209 0.214

HAWAII RURAL 0.350 0.323

HAWAII URBAN 0.311 0.306

IOWA RURAL 0.312 0.296

IOWA URBAN 0.284 0.269

IDAHO RURAL 0.333 0.417

IDAHO URBAN 0.491 0.357

ILLINOIS RURAL 0.258 0.240

ILLINOIS URBAN 0.235 0.230

INDIANA RURAL 0.358 0.285

INDIANA URBAN 0.288 0.256

KANSAS RURAL 0.298 0.290

KANSAS URBAN 0.245 0.210

KENTUCKY RURAL 0.226 0.217

KENTUCKY URBAN 0.232 0.241

LOUISIANA RURAL 0.258 0.242

LOUISIANA URBAN 0.229 0.225

MASSACHUSETTS RURAL 0.436 0.427

MASSACHUSETTS URBAN 0.330 0.323

MAINE RURAL 0.443 0.445

MAINE URBAN 0.455 0.449

MARYLAND RURAL 0.286 0.275

MARYLAND URBAN 0.251 0.246

MICHIGAN RURAL 0.353 0.303

MICHIGAN URBAN 0.316 0.303

MINNESOTA RURAL 0.462 0.469
CMS-1601-P 206 

State Urban/Rural 

Proposed CY 

2014 Default 

CCR 

Previous Default 

CCR (CY 2013 

OPPS Final Rule)

MINNESOTA URBAN 0.339 0.321

MISSOURI RURAL 0.282 0.241

MISSOURI URBAN 0.287 0.262

MISSISSIPPI RURAL 0.228 0.226

MISSISSIPPI URBAN 0.187 0.182

MONTANA RURAL 0.486 0.431

MONTANA URBAN 0.407 0.384

NORTH CAROLINA RURAL 0.251 0.253

NORTH CAROLINA URBAN 0.255 0.254

NORTH DAKOTA RURAL 0.667 0.322

NORTH DAKOTA URBAN 0.376 0.414

NEBRASKA RURAL 0.333 0.318

NEBRASKA URBAN 0.251 0.254

NEW HAMPSHIRE RURAL 0.325 0.317

NEW HAMPSHIRE URBAN 0.300 0.292

NEW JERSEY URBAN 0.212 0.207

NEW MEXICO RURAL 0.294 0.256

NEW MEXICO URBAN 0.307 0.279

NEVADA RURAL 0.234 0.234

NEVADA URBAN 0.159 0.162

NEW YORK RURAL 0.347 0.420

NEW YORK URBAN 0.347 0.369

OHIO RURAL 0.337 0.321

OHIO URBAN 0.237 0.237

OKLAHOMA RURAL 0.253 0.239

OKLAHOMA URBAN 0.210 0.212

OREGON RURAL 0.332 0.314

OREGON URBAN 0.352 0.335

PENNSYLVANIA RURAL 0.270 0.267

PENNSYLVANIA URBAN 0.199 0.200

PUERTO RICO URBAN 0.600 0.504

RHODE ISLAND URBAN 0.310 0.264

SOUTH CAROLINA RURAL 0.196 0.211

SOUTH CAROLINA URBAN 0.210 0.214

SOUTH DAKOTA RURAL 0.309 0.307

SOUTH DAKOTA URBAN 0.208 0.218
CMS-1601-P 207 

State Urban/Rural 

Proposed CY 

2014 Default 

CCR 

Previous Default 

CCR (CY 2013 

OPPS Final Rule)

TENNESSEE RURAL 0.212 0.209

TENNESSEE URBAN 0.200 0.195

TEXAS RURAL 0.233 0.235

TEXAS URBAN 0.203 0.206

UTAH RURAL 0.343 0.374

UTAH URBAN 0.338 0.359

VIRGINIA RURAL 0.223 0.227

VIRGINIA URBAN 0.243 0.237

VERMONT RURAL 0.429 0.408

VERMONT URBAN 0.395 0.384

WASHINGTON RURAL 0.315 0.366

WASHINGTON URBAN 0.322 0.301

WISCONSIN RURAL 0.347 0.345

WISCONSIN URBAN 0.308 0.307

WEST VIRGINIA RURAL 0.294 0.277

WEST VIRGINIA URBAN 0.327 0.338

WYOMING RURAL 0.444 0.379

WYOMING URBAN 0.279 0.301

ALASKA RURAL 0.472 0.489

ALASKA URBAN 0.296 0.307

E. Proposed Adjustment for Rural SCHs and EACHs under Section 1833(t)(13)(B) of 

the Act

 In the CY 2006 OPPS final rule with comment period (70 FR 68556), we 

finalized a payment increase for rural SCHs of 7.1 percent for all services and procedures 

paid under the OPPS, excluding drugs, biologicals, brachytherapy sources, and devices 

paid under the pass-through payment policy in accordance with section 1833(t)(13)(B) of 

the Act, as added by section 411 of the Medicare Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA) (Pub. L. 108-173). Section 1833(t)(13) of the Act 
CMS-1601-P 208 

provided the Secretary the authority to make an adjustment to OPPS payments for rural 

hospitals, effective January 1, 2006, if justified by a study of the difference in costs by 

APC between hospitals in rural areas and hospitals in urban areas. Our analysis showed a 

difference in costs for rural SCHs. Therefore, for the CY 2006 OPPS, we finalized a 

payment adjustment for rural SCHs of 7.1 percent for all services and procedures paid 

under the OPPS, excluding separately payable drugs and biologicals, brachytherapy 

sources, and devices paid under the pass-through payment policy, in accordance with 

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

 In CY 2007, we became aware that we did not specifically address whether the 

adjustment applies to EACHs, which are considered to be SCHs under section 

1886(d)(5)(D)(iii)(III) of the Act. Thus, under the statute, EACHs are treated as SCHs. 

Therefore, in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68010 and 

68227), for purposes of receiving this rural adjustment, we revised § 419.43(g) of the 

regulations to clarify that EACHs also are eligible to receive the rural SCH adjustment, 

assuming these entities otherwise meet the rural adjustment criteria. Currently, three 

hospitals are classified as EACHs, and as of CY 1998, under section 4201(c) of 

Pub. L. 105-33, a hospital can no longer become newly classified as an EACH. 

 This adjustment for rural SCHs is budget neutral and applied before calculating 

outlier payments and copayments. We stated in the CY 2006 OPPS final rule with 

comment period (70 FR 68560) that we would not reestablish the adjustment amount on 

an annual basis, but we may review the adjustment in the future and, if appropriate, 

would revise the adjustment. We provided the same 7.1 percent adjustment to rural 
CMS-1601-P 209 

SCHs, including EACHs, again in CYs 2008 through 2013. Further, in the CY 2009 

OPPS/ASC final rule with comment period (73 FR 68590), we updated the regulations at 

§ 419.43(g)(4) to specify, in general terms, that items paid at charges adjusted to costs by 

application of a hospital-specific CCR are excluded from the 7.1 percent payment 

adjustment. 

 For the CY 2014 OPPS, we are proposing to continue our policy of a 7.1 percent 

payment adjustment that is done in a budget neutral manner for rural SCHs, including 

EACHs, for all services and procedures paid under the OPPS, excluding separately 

payable drugs and biologicals, devices paid under the pass-through payment policy, and 

items paid at charges reduced to costs. 

F. Proposed OPPS Payment to Certain Cancer Hospitals Described by Section 

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

1. Background 

 Since the inception of the OPPS, which was authorized by the Balanced Budget 

Act of 1997 (BBA) (Pub. L. 105-33), Medicare has paid cancer hospitals identified in 

section 1886(d)(1)(B)(v) of the Act under the OPPS for covered outpatient hospital 

services. There are 11 cancer hospitals that meet the classification criteria in section 

1886(d)(1)(B)(v) of the Act that are exempted from payment under the IPPS. With the 

Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 1999 Pub. L. 

106-113), Congress established section 1833(t)(7) of the Act, “Transitional Adjustment to 

Limit Decline in Payment,” to hold harmless cancer hospitals and children’s hospitals 

based on their pre-BBA amount under the OPPS. As required under section 
CMS-1601-P 210 

1833(t)(7)(D)(ii) of the Act, a cancer hospital receives the full amount of the difference 

between payments for covered outpatient services under the OPPS and a “pre-BBA 

amount.” That is, cancer hospitals are permanently held harmless to their “pre-BBA 

amount,” and they receive transitional outpatient payments (TOPS) or hold harmless 

payments to ensure that they do not receive a payment that is lower under the OPPS than 

the payment they would have received before implementation of the OPPS, as set forth in 

section 1833(t)(7)(F) of the Act. The “pre-BBA amount” is an amount equal to the 

product of the reasonable cost of the hospital for covered outpatient services for the 

portions of the hospital’s cost reporting period (or periods) occurring in the current year 

and the base payment-to-cost ratio (PCR) for the hospital defined in section 

1833(t)(7)(F)(ii) of the Act. The “pre-BBA amount,” including the determination of the 

base PCR, are defined at 42 CFR 419.70(f). TOPs are calculated on Worksheet E, Part 

B, of the Hospital and Hospital Health Care Complex Cost Report (Form CMS-2552-96 

or Form CMS-2552-10, as applicable) each year. Section 1833(t)(7)(I) of the Act 

exempts TOPs from budget neutrality calculations. 

 Section 3138 of the Affordable Care Act of 2010 amended section 1833(t) of the 

Act by adding a new paragraph (18), which instructs the Secretary to conduct a study to 

determine if, under the OPPS, outpatient costs incurred by cancer hospitals described in 

section 1886(d)(1)(B)(v) of the Act with respect to APC groups exceed the costs incurred 

by other hospitals furnishing services under section 1833(t) of the Act, as determined 

appropriate by the Secretary. In addition, section 1833(t)(18)(A) of the Act requires the 

Secretary to take into consideration the cost of drugs and biologicals incurred by such 
CMS-1601-P 211 

hospitals when studying cancer hospital costliness. Further, section 1833(t)(18)(B) of the 

Act provides that if the Secretary determines that costs by these cancer hospitals with 

respect to APC groups are determined to be greater than the costs of other hospitals 

furnishing services under section 1833(t) of the Act, the Secretary shall provide an 

appropriate adjustment under section 1833(t)(2)(E) of the Act to reflect these higher 

costs. After conducting the study required by section 1833(t)(18)(A) of the Act, we 

determined in 2011 that outpatient costs incurred by the 11 specified cancer hospitals 

were greater than the costs incurred by other OPPS hospitals. For a complete discussion 

regarding the cancer hospital cost study, we refer readers to the CY 2012 OPPS/ASC 

final rule with comment period (76 FR 74200 through 74201). 

 Based on our findings that costs incurred by cancer hospitals were greater than the 

costs incurred by other OPPS hospitals, we finalized a policy to provide a payment 

adjustment to the 11 specified cancer hospitals that reflects the higher outpatient costs as 

discussed in the CY 2012 OPPS/ASC final rule with comment period (76 FR 74202 

through 74206). Specifically, we adopted a policy to provide additional payments to 

each of the 11 cancer hospitals so that each cancer hospital’s final PCR for services 

provided in a given calendar year is equal to the weighted average PCR (which we refer 

to as the “target PCR”) for other hospitals paid under the OPPS. The target PCR is set in 

advance of the calendar year and is calculated using the most recent submitted or settled 

cost report data that are available at the time of final rulemaking for the calendar year. 

The amount of the payment adjustment is made on an aggregate basis at cost report 

settlement. We note that the changes made by section 1833(t)(18) of the Act do not 
CMS-1601-P 212 

affect the existing statutory provisions that provide for TOPs for cancer hospitals. The 

TOPs are assessed as usual after all payments, including the cancer hospital payment 

adjustment, have been made for a cost reporting period. For CYs 2012 and 2013, the 

target PCR for purposes of the cancer hospital payment adjustment was 0.91. 

2. Proposed Payment Adjustment for Certain Cancer Hospitals for CY 2014 

 For CY 2014, we are proposing to continue our policy to provide additional 

payments to cancer hospitals so that each cancer hospital’s final PCR is equal to the 

weighted average PCR (or “target PCR”) for the other OPPS hospitals using the most 

recent submitted or settled cost report data that are available at the time of the 

development of this proposed rule. To calculate the proposed CY 2014 target PCR, we 

used the same extract of cost report data from HCRIS, as discussed in section II.A. of this 

proposed rule, used to estimate costs for the CY 2014 OPPS. Using these cost report 

data, we included data from Worksheet E, Part B, for each hospital, using data from each 

hospital’s most recent cost report, whether as submitted or settled. We then limited the 

dataset to the hospitals with CY 2012 claims data that we used to model the impact of the 

proposed CY 2014 APC relative weights (3,951 hospitals) because it is appropriate to use 

the same set of hospitals that we are using to calibrate the modeled CY 2014 OPPS. The 

cost report data for the hospitals in this dataset were from cost report periods with fiscal 

year ends ranging from 2011 to 2012. We then removed the cost report data of the 45 

hospitals located in Puerto Rico from our dataset because we do not believe that their cost 

structure reflects the costs of most hospitals paid under the OPPS and, therefore, their 

inclusion may bias the calculation of hospital-weighted statistics. We also removed the 
CMS-1601-P 213 

cost report data of 118 hospitals because the cost report data were not complete (missing 

aggregate OPPS payments, missing aggregate cost data, or missing both), so that all cost 

reports in the study would have both the payment and cost data necessary to calculate a 

PCR for each hospital, leading to a proposed analytic file of 3,788 hospitals with cost 

report data. 

 Using this smaller dataset of cost report data, we estimated that, on average, the 

OPPS payments to other hospitals furnishing services under the OPPS are approximately 

90 percent of reasonable cost (a weighted average PCR of 0.90). Based on these data, we 

are proposing a target PCR of 0.90 to determine the CY 2014 cancer hospital payment 

adjustment to be paid at cost report settlement. Therefore, we are proposing that the 

payment amount associated with the cancer hospital payment adjustment to be 

determined at cost report settlement would be the additional payment needed to result in a 

proposed target PCR equal to 0.90 for each cancer hospital. 

 Table 10 below indicates the estimated percentage increase in OPPS payments to 

each cancer hospital for CY 2014 due to the cancer hospital payment adjustment policy. 

The actual amount of the CY 2014 cancer hospital payment adjustment for each cancer 

hospital will be determined at cost report settlement and will depend on each hospital’s 

CY 2014 payments and costs. We note that the changes made by section 1833(t)(18) of 

the Act do not affect the existing statutory provisions that provide for TOPs for cancer 

hospitals. The TOPs will be assessed as usual after all payments, including the cancer 

hospital payment adjustment, have been made for a cost reporting period. 
CMS-1601-P 214 

TABLE 10.—ESTIMATED CY 2014 HOSPITAL-SPECIFIC PAYMENT 

ADJUSTMENT FOR CANCER HOSPITALS TO BE PROVIDED AT COST 

REPORT SETTLEMENT 

Provider 

Number Hospital Name 

Estimated 

Percentage 

Increase in 

OPPS Payments 

for CY 2014 

050146 City of Hope Helford Clinical Research Hospital 15.0% 

050660 USC Kenneth Norris Jr. Cancer Hospital 28.9% 

100079 University of Miami Hospital & Clinic 16.7% 

100271 H. Lee Moffitt Cancer Center & Research Institute 23.7% 

220162 Dana-Farber Cancer Institute 48.2% 

330154 Memorial Hospital for Cancer and Allied Diseases 41.4% 

330354 Roswell Park Cancer Institute 35.2% 

360242 James Cancer Hospital & Solove Research Institute 35.6% 

390196 Hospital of the Fox Chase Cancer Center 16.7% 

450076 University of Texas M. D. Anderson Cancer Center 58.9% 

500138 Seattle Cancer Care Alliance 55.1% 

G. Proposed Hospital Outpatient Outlier Payments

1. Background 

 Currently, the OPPS provides outlier payments on a service-by-service basis. In 

CY 2012, the outlier threshold was determined to be met when the cost of furnishing a 

service or procedure by a hospital exceeds 1.75 times the APC payment amount and 

exceeds the APC payment rate plus a $2,025 fixed-dollar threshold. We introduced a 

fixed-dollar threshold in CY 2005, in addition to the traditional multiple threshold, in 

order to better target outlier payments to those high-cost and complex procedures where a 

very costly service could present a hospital with significant financial loss. If the cost of a 
CMS-1601-P 215 

service meets both of these conditions, the multiple threshold and the fixed-dollar 

threshold, the outlier payment is calculated as 50 percent of the amount by which the cost 

of furnishing the service exceeds 1.75 times the APC payment rate. Before CY 2009, this 

outlier payment had historically been considered a final payment by longstanding OPPS 

policy. However, we implemented a reconciliation process similar to the IPPS outlier 

reconciliation process for cost reports with cost reporting periods beginning on or after 

January 1, 2009, in our CY 2009 OPPS/ASC final rule with comment period 

(73 FR 68594 through 68599). 

 It has been our policy for the past several years to report the actual amount of 

outlier payments as a percent of total spending in the claims being used to model the 

proposed OPPS. Our current estimate of total outlier payments as a percent of total 

CY 2012 OPPS payment, using available CY 2012 claims and the revised OPPS 

expenditure estimate for the 2013 Trustee’s Report, is approximately 1.1 percent of the 

total aggregated OPPS payments. Therefore, for CY 2012, we estimate that we paid 

0.1 percent above the CY 2012 outlier target of 1.0 percent of total aggregated OPPS 

payments. 

 As explained in the CY 2013 OPPS/ASC final rule with comment period 

(77 FR 68295 through 68297), we set our projected target for aggregate outlier payments 

at 1.0 percent of the estimated aggregate total payments under the OPPS for CY 2013. 

The outlier thresholds were set so that estimated CY 2013 aggregate outlier payments 

would equal 1.0 percent of the total estimated aggregate payments under the OPPS. 

Using CY 2012 claims data and CY 2013 payment rates, we currently estimate that the 
CMS-1601-P 216 

aggregate outlier payments for CY 2013 will be approximately 1.2 percent of the total 

CY 2013 OPPS payments. The difference between 1.2 percent and 1.0 percent is 

reflected in the regulatory impact analysis in section XXIII. of this proposed rule. We 

note that we provide estimated CY 2014 outlier payments for hospitals and CMHCs with 

claims included in the claims data that we used to model impacts in the Hospital–Specific 

Impacts - Provider-Specific Data file on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalOutpatientPPS/index.html. 

2. Proposed Outlier Calculation 

 For CY 2014, we are proposing to continue our policy of estimating outlier 

payments to be 1.0 percent of the estimated aggregate total payments under the OPPS for 

outlier payments. We are proposing that a portion of that 1.0 percent, an amount equal to 

0.18 percent of outlier payments (or 0.0018 percent of total OPPS payments) would be 

allocated to CMHCs for PHP outlier payments. This is the amount of estimated outlier 

payments that would result from the proposed CMHC outlier threshold as a proportion of 

total estimated OPPS outlier payments. As discussed in section VIII.D. of this proposed 

rule, for CMHCs, we are proposing to continue our longstanding policy that if a CMHC’s 

cost for partial hospitalization services, paid under either APC 0172 (Level I Partial 

Hospitalization (3 services) for CMHCs) or APC 0173 (Level II Partial Hospitalization (4 

or more services) for CMHCs), exceeds 3.40 times the payment rate for APC 0173, the 

outlier payment would be calculated as 50 percent of the amount by which the cost 
CMS-1601-P 217 

exceeds 3.40 times the APC 0173 payment rate. For further discussion of CMHC outlier 

payments, we refer readers to section VIII.D. of this proposed rule. 

 To ensure that the estimated CY 2014 aggregate outlier payments would equal 

1.0 percent of estimated aggregate total payments under the OPPS, we are proposing that 

the hospital outlier threshold be set so that outlier payments would be triggered when the 

cost of furnishing a service or procedure by a hospital exceeds 1.75 times the APC 

payment amount and exceeds the APC payment rate plus a $2,775 fixed-dollar threshold. 

 We calculated the proposed fixed-dollar threshold using largely the standard 

methodology, most recently used for CY 2013 (77 FR 68295 through 68297). For 

purposes of estimating outlier payments for this proposed rule, we used the 

hospital-specific overall ancillary CCRs available in the April 2013 update to the 

Outpatient Provider-Specific File (OPSF). The OPSF contains provider-specific data, 

such as the most current CCR, which are maintained by the Medicare contractors and 

used by the OPPS Pricer to pay claims. The claims that we use to model each OPPS 

update lag by 2 years. 

 In order to estimate the CY 2014 hospital outlier payments for this proposed rule, 

we inflated the charges on the CY 2012 claims using the same inflation factor of 1.0993 

that we used to estimate the IPPS fixed-dollar outlier threshold for the FY 2014 

IPPS/LTCH PPS proposed rule (78 FR 27767). We used an inflation factor of 1.0485 to 

estimate CY 2013 charges from the CY 2012 charges reported on CY 2012 claims. The 

methodology for determining this charge inflation factor is discussed in the FY 2014 

IPPS/LTCH PPS proposed rule (78 FR 27767). As we stated in the CY 2005 OPPS final 
CMS-1601-P 218 

rule with comment period (69 FR 65845), we believe that the use of these charge 

inflation factors are appropriate for the OPPS because, with the exception of the inpatient 

routine service cost centers, hospitals use the same ancillary and outpatient cost centers to 

capture costs and charges for inpatient and outpatient services. 

 As noted in the CY 2007 OPPS/ASC final rule with comment period 

(71 FR 68011), we are concerned that we could systematically overestimate the OPPS 

hospital outlier threshold if we did not apply a CCR inflation adjustment factor. 

Therefore, for this CY 2014 OPPS/ASC proposed rule, we are proposing to apply the 

same CCR inflation adjustment factor that we are proposing to apply for the FY 2014 

IPPS outlier calculation to the CCRs used to simulate the proposed CY 2014 OPPS 

outlier payments to determine the fixed-dollar threshold. Specifically, for CY 2014, we 

are proposing to apply an adjustment factor of 0.9732 to the CCRs that were in the 

April 2013 OPSF to trend them forward from CY 2013 to CY 2014. The methodology 

for calculating this proposed adjustment was discussed in the FY 2014 IPPS/LTCH PPS 

proposed rule (78 FR 27766 through 27768). 

 Therefore, to model hospital outlier payments for this proposed rule, we applied 

the overall CCRs from the April 2013 OPSF file after adjustment (using the proposed 

CCR inflation adjustment factor of 0.9732 to approximate CY 2014 CCRs) to charges on 

CY 2012 claims that were adjusted (using the proposed charge inflation factor of 1.0993 

to approximate CY 2014 charges). We simulated aggregated CY 2014 hospital outlier 

payments using these costs for several different fixed-dollar thresholds, holding the 

1.75 multiple threshold constant and assuming that outlier payments would continue to be 
CMS-1601-P 219 

made at 50 percent of the amount by which the cost of furnishing the service would 

exceed 1.75 times the APC payment amount, until the total outlier payments equaled 

1.0 percent of aggregated estimated total CY 2014 OPPS payments. We estimated that a 

proposed fixed-dollar threshold of $2,775, combined with the proposed multiple 

threshold of 1.75 times the APC payment rate, would allocate 1.0 percent of aggregated 

total OPPS payments to outlier payments. We are proposing to continue to make an 

outlier payment that equals 50 percent of the amount by which the cost of furnishing the 

service exceeds 1.75 times the APC payment amount when both the 1.75 multiple 

threshold and the proposed fixed-dollar threshold of $2,775 are met. For CMHCs, we are 

proposing that, if a CMHC’s cost for partial hospitalization services, paid under either 

APC 0172 or APC 0173, exceeds 3.40 times the payment rate for APC 0173, the outlier 

payment would be calculated as 50 percent of the amount by which the cost exceeds 3.40 

times the APC 0173 payment rate. 

 Section 1833(t)(17)(A) of the Act, which applies to hospitals as defined under 

section 1886(d)(1)(B) of the Act, requires that hospitals that fail to report data required 

for the quality measures selected by the Secretary, in the form and manner required by 

the Secretary under 1833(t)(17)(B) of the Act, incur a 2.0 percentage point reduction to 

their OPD fee schedule increase factor, that is, the annual payment update factor. The 

application of a reduced OPD fee schedule increase factor results in reduced national 

unadjusted payment rates that will apply to certain outpatient items and services 

furnished by hospitals that are required to report outpatient quality data and that fail to 

meet the Hospital OQR Program requirements. For hospitals that fail to meet the 
CMS-1601-P 220 

Hospital OQR Program requirements, we are proposing to continue the policy that we 

implemented in CY 2010 that the hospitals' costs will be compared to the reduced 

payments for purposes of outlier eligibility and payment calculation. For more 

information on the Hospital OQR Program, we refer readers to section XIII. of this 

proposed rule. 
CMS-1601-P 221 

H. Proposed Calculation of an Adjusted Medicare Payment from the National 

Unadjusted Medicare Payment

 The basic methodology for determining prospective payment rates for HOPD 

services under the OPPS is set forth in existing regulations at 42 CFR Part 419, Subparts 

C and D. For this CY 2014 OPPS/ASC proposed rule, the payment rate for most services 

and procedures for which payment is made under the OPPS is the product of the 

conversion factor calculated in accordance with section II.B. of this proposed rule and the 

relative payment weight determined under section II.A. of this proposed rule. Therefore, 

the proposed national unadjusted payment rate for most APCs contained in Addendum A 

to this proposed rule (which is available via the Internet on the CMS Web site and for 

most HCPCS codes to which separate payment under the OPPS has been assigned in 

Addendum B to this proposed rule (which is available via the Internet on the CMS Web 

site) was calculated by multiplying the proposed CY 2014 scaled weight for the APC by 

the proposed CY 2014 conversion factor. 

 We note that section 1833(t)(17) of the Act, which applies to hospitals as defined 

under section 1886(d)(1)(B) of the Act, requires that hospitals that fail to submit data 

required to be submitted on quality measures selected by the Secretary, in the form and 

manner and at a time specified by the Secretary, incur a reduction of 2.0 percentage 

points to their OPD fee schedule increase factor, that is, the annual payment update 

factor. The application of a reduced OPD fee schedule increase factor results in reduced 

national unadjusted payment rates that apply to certain outpatient items and services 

provided by hospitals that are required to report outpatient quality data and that fail to 
CMS-1601-P 222 

meet the Hospital OQR Program (formerly referred to as the Hospital Outpatient Quality 

Data Reporting Program (HOP QDRP)) requirements. For further discussion of the 

payment reduction for hospitals that fail to meet the requirements of the Hospital OQR 

Program, we refer readers to section XIII. of this proposed rule. 

 We demonstrate in the steps below how to determine the APC payments that will 

be made in a calendar year under the OPPS to a hospital that fulfills the Hospital OQR 

Program requirements and to a hospital that fails to meet the Hospital OQR Program 

requirements for a service that has any of the following status indicator assignments: 

“J1,” “P,” “Q1,” “Q2,” “Q3,” “R,” “S,” “T,” “U,” or “V” (as defined in Addendum D1 to 

this proposed rule), in a circumstance in which the multiple procedure discount does not 

apply, the procedure is not bilateral, and conditionally packaged services (status indicator 

of “Q1” and “Q2”) qualify for separate payment. We note that, although blood and blood 

products with status indicator “R” and brachytherapy sources with status indicator “U” 

are not subject to wage adjustment, they are subject to reduced payments when a hospital 

fails to meet the Hospital OQR Program requirements. We note that we are also 

proposing to create status indicator “J1” to reflect the proposed comprehensive APCs 

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

 Individual providers interested in calculating the payment amount that they would 

receive for a specific service from the national unadjusted payment rates presented in 

Addenda A and B to this proposed rule (which are available via the Internet on the CMS 

Web site) should follow the formulas presented in the following steps. For purposes of 

the payment calculations below, we refer to the proposed national unadjusted payment 
CMS-1601-P 223 

rate for hospitals that meet the requirements of the Hospital OQR Program as the “full” 

national unadjusted payment rate. We refer to the national unadjusted payment rate for 

hospitals that fail to meet the requirements of the Hospital OQR Program as the 

“reduced” national unadjusted payment rate. The reduced national unadjusted payment 

rate is calculated by multiplying the proposed reporting ratio of 0.980 times the “full” 

national unadjusted payment rate. The national unadjusted payment rate used in the 

calculations below is either the full national unadjusted payment rate or the reduced 

national unadjusted payment rate, depending on whether the hospital met its Hospital 

OQR Program requirements in order to receive the full proposed CY 2014 OPPS fee 

schedule increase factor of 1.8 percent. 

 Step 1. Calculate 60 percent (the labor-related portion) of the national unadjusted 

payment rate. Since the initial implementation of the OPPS, we have used 60 percent to 

represent our estimate of that portion of costs attributable, on average, to labor. We refer 

readers to the April 7, 2000 OPPS final rule with comment period (65 FR 18496 through 

18497) for a detailed discussion of how we derived this percentage. During our 

regression analysis for the payment adjustment for rural hospitals in the CY 2006 OPPS 

final rule with comment period (70 FR 68553), we confirmed that this labor-related share 

for hospital outpatient services is appropriate. 

 The formula below is a mathematical representation of Step 1 and identifies the 

labor-related portion of a specific payment rate for a specific service. 

X is the labor-related portion of the national unadjusted payment rate. 

X = .60 * (national unadjusted payment rate) 
CMS-1601-P 224 

 Step 2. Determine the wage index area in which the hospital is located and 

identify the wage index level that applies to the specific hospital. The wage index values 

assigned to each area reflect the geographic statistical areas (which are based upon OMB 

standards) to which hospitals are assigned for FY 2014 under the IPPS, reclassifications 

through the MGCRB, section 1886(d)(8)(B) “Lugar” hospitals, reclassifications under 

section 1886(d)(8)(E) of the Act, as defined in § 412.103 of the regulations, and hospitals 

designated as urban under section 601(g) of Pub. L. 98-21. (For further discussion of the 

proposed changes to the FY 2014 IPPS wage indices, as applied to the CY 2014 OPPS, 

we refer readers to section II.C. of this proposed rule.) We are proposing to continue to 

apply a wage index floor of 1.00 to frontier States, in accordance with section 10324 of 

the Affordable Care Act of 2010. 

 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 L to this proposed rule (which is available via the 

Internet on the CMS Web site) contains the qualifying counties and the associated 

proposed wage index increase developed for the FY 2014 IPPS and listed as Table 4J in 

the FY 2014 IPPS/LTCH PPS proposed rule and available via the Internet on the CMS 

Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html. This step is to be followed only if the hospital is 

not reclassified or redesignated under section 1886(d)(8) or section 1886(d)(10) of the 

Act. 
CMS-1601-P 225 

 Step 4. Multiply the applicable wage index determined under Steps 2 and 3 by 

the amount determined under Step 1 that represents the labor-related portion of the 

national unadjusted payment rate. 

 The formula below is a mathematical representation of Step 4 and adjusts the 

labor-related portion of the national unadjusted payment rate for the specific service by 

the wage index. 

Xa

 is the labor-related portion of the national unadjusted payment rate (wage adjusted). 

Xa = .60 * (national unadjusted payment rate) * applicable wage index. 

 Step 5. Calculate 40 percent (the nonlabor-related portion) of the national 

unadjusted payment rate and add that amount to the resulting product of Step 4. The 

result is the wage index adjusted payment rate for the relevant wage index area. 

 The formula below is a mathematical representation of Step 5 and calculates the 

remaining portion of the national payment rate, the amount not attributable to labor, and 

the adjusted payment for the specific service.

Y is the nonlabor-related portion of the national unadjusted payment rate. 

Y = .40 * (national unadjusted payment rate) 

Adjusted Medicare Payment = Y + Xa 

 Step 6. If a provider is an SCH, set forth in the regulations at § 412.92, or an 

EACH, which is considered to be an SCH under section 1886(d)(5)(D)(iii)(III) of the 

Act, and located in a rural area, as defined in § 412.64(b), or is treated as being located in 

a rural area under § 412.103, multiply the wage index adjusted payment rate by 1.071 to 

calculate the total payment. 
CMS-1601-P 226 

 The formula below is a mathematical representation of Step 6 and applies the 

proposed rural adjustment for rural SCHs. 

Adjusted Medicare Payment (SCH or EACH) = Adjusted Medicare Payment * 1.071

 We have provided examples below of the calculation of both the proposed full 

and reduced national unadjusted payment rates that would apply to certain outpatient 

items and services performed by hospitals that meet and that fail to meet the Hospital 

OQR Program requirements, using the steps outlined above. For purposes of this 

example, we used a provider that is located in Brooklyn, New York that is assigned to 

CBSA 35644. This provider bills one service that is assigned to APC 0019 (Level I 

Excision/Biopsy). The proposed CY 2014 full national unadjusted payment rate for 

APC 0019 is approximately $345.75. The proposed reduced national unadjusted 

payment rate for APC 0019 for a hospital that fails to meet the Hospital OQR Program 

requirements is approximately $338.84. This proposed reduced rate is calculated by 

multiplying the reporting ratio of 0.980 by the full unadjusted payment rate for 

APC 0019. The proposed FY 2014 wage index for a provider located in CBSA 35644 

in New York is 1.3158. The proposed labor-related portion of the full national 

unadjusted payment is approximately $272.96 (.60 * $345.75 * 1.3158). The 

labor-related portion of the proposed reduced national unadjusted payment is 

approximately $267.51 (.60 * $338.84 * 1.3158). The proposed nonlabor-related portion 

of the full national unadjusted payment is approximately $138.30 (.40 * $345.75). The 

nonlabor-related portion of the proposed reduced national unadjusted payment is 

approximately $135.54 (.40 * $338.84). The sum of the labor-related and 
CMS-1601-P 227 

nonlabor-related portions of the proposed full national adjusted payment is approximately 

$411.26 ($272.96 + $138.30). The sum of the reduced national adjusted payment is 

approximately $403.05 ($267.51 + $135.54). 

I. Proposed Beneficiary Copayments

1. Background 

 Section 1833(t)(3)(B) of the Act requires the Secretary to set rules for determining 

the unadjusted copayment amounts to be paid by beneficiaries for covered OPD services. 

Section 1833(t)(8)(C)(ii) of the Act specifies that the Secretary must reduce the national 

unadjusted copayment amount for a covered OPD service (or group of such services) 

furnished in a year in a manner so that the effective copayment rate (determined on a 

national unadjusted basis) for that service in the year does not exceed a specified 

percentage. As specified in section 1833(t)(8)(C)(ii)(V) of the Act, the effective 

copayment rate for a covered OPD service paid under the OPPS in CY 2006, and in 

calendar years thereafter, shall not exceed 40 percent of the APC payment rate.

 Section 1833(t)(3)(B)(ii) of the Act provides that, for a covered OPD service (or 

group of such services) furnished in a year, the national unadjusted copayment amount 

cannot be less than 20 percent of the OPD fee schedule amount. However, section 

1833(t)(8)(C)(i) of the Act limits the amount of beneficiary copayment that may be 

collected for a procedure performed in a year to the amount of the inpatient hospital 

deductible for that year. 

 Section 4104 of the Affordable Care Act eliminated the Part B coinsurance for 

preventive services furnished on and after January 1, 2011, that meet certain 
CMS-1601-P 228 

requirements, including flexible sigmoidoscopies and screening colonoscopies, and 

waived the Part B deductible for screening colonoscopies that become diagnostic during 

the procedure. Our discussion of the changes made by the Affordable Care Act with 

regard to copayments for preventive services furnished on and after January 1, 2011, may 

be found in section XII.B. of the CY 2011 OPPS/ASC final rule with comment period 

(75 FR 72013). 

2. Proposed OPPS Copayment Policy 

 For CY 2014, we are proposing to determine copayment amounts for new and 

revised APCs using the same methodology that we implemented beginning in CY 2004. 

(We refer readers to the November 7, 2003 OPPS final rule with comment period 

(68 FR 63458).) In addition, we are proposing to use the same standard rounding 

principles that we have historically used in instances where the application of our 

standard copayment methodology would result in a copayment amount that is less than 

20 percent and cannot be rounded, under standard rounding principles, to 20 percent. 

(We refer readers to the CY 2008 OPPS/ASC final rule with comment period 

(72 FR 66687) in which we discuss our rationale for applying these rounding principles.) 

The proposed national unadjusted copayment amounts for services payable under the 

OPPS that would be effective January 1, 2014, are shown in Addenda A and B to this 

proposed rule (which are available via the Internet on the CMS Web site). As discussed 

in section XIII.G. of this proposed rule, for CY 2014, the proposed Medicare 

beneficiary’s minimum unadjusted copayment and national unadjusted copayment for a 

service to which a reduced national unadjusted payment rate applies will equal the 
CMS-1601-P 229 

product of the reporting ratio and the national unadjusted copayment, or the product of 

the reporting ratio and the minimum unadjusted copayment, respectively, for the service. 

 We note that APC copayments may increase or decrease each year based on 

changes in the calculated APC payment rates due to updated cost report and claims data, 

and any changes to the OPPS cost modeling process. However, as described in the CY 

2004 OPPS/ASC final rule with comment period, the development of the copayment 

methodology generally moves beneficiary copayments closer to 20 percent of OPPS APC 

payments (68 FR 63458 through 63459). 

3. Proposed Calculation of an Adjusted Copayment Amount for an APC Group

 Individuals interested in calculating the national copayment liability for a 

Medicare beneficiary for a given service provided by a hospital that met or failed to meet 

its Hospital OQR Program requirements should follow the formulas presented in the 

following steps. 

 Step 1. Calculate the beneficiary payment percentage for the APC by dividing the 

APC’s national unadjusted copayment by its payment rate. For example, using 

APC 0019, approximately $69.15 is 20 percent of the proposed full national unadjusted 

payment rate of approximately $345.75. For APCs with only a minimum unadjusted 

copayment in Addenda A and B to this proposed rule (which are available via the Internet 

on the CMS Web site), the beneficiary payment percentage is 20 percent. 

 The formula below is a mathematical representation of Step 1 and calculates the 

national copayment as a percentage of national payment for a given service. 

B is the beneficiary payment percentage. 
CMS-1601-P 230 

B = National unadjusted copayment for APC/national unadjusted payment rate for APC 

 Step 2. Calculate the appropriate wage-adjusted payment rate for the APC for the 

provider in question, as indicated in Steps 2 through 4 under section II.H. of this 

proposed rule. Calculate the rural adjustment for eligible providers as indicated in Step 6 

under section II.H. of this proposed rule. 

 Step 3. Multiply the percentage calculated in Step 1 by the payment rate 

calculated in Step 2. The result is the wage-adjusted copayment amount for the APC.

 The formula below is a mathematical representation of Step 3 and applies the 

beneficiary payment percentage to the adjusted payment rate for a service calculated 

under section II.H. of this proposed rule, with and without the rural adjustment, to 

calculate the adjusted beneficiary copayment for a given service. 

 Wage-adjusted copayment amount for the APC = Adjusted Medicare 

Payment * B 

Wage-adjusted copayment amount for the APC (SCH or EACH) = (Adjusted 

Medicare Payment * 1.071) * B 

 Step 4. For a hospital that failed to meet its Hospital OQR Program requirements, 

multiply the copayment calculated in Step 3 by the proposed reporting ratio of 0.980. 

 The proposed unadjusted copayments for services payable under the OPPS that 

would be effective January 1, 2014, are shown in Addenda A and B to this proposed rule 

(which are available via the Internet on the CMS Web site). We note that the proposed 

national unadjusted payment rates and copayment rates shown in Addenda A and B to 
CMS-1601-P 231 

this proposed rule reflect the proposed full CY 2014 OPD fee schedule increase factor 

discussed in section II.B. of this proposed rule. 

 In addition, as noted above, section 1833(t)(8)(C)(i) of the Act limits the amount 

of beneficiary copayment that may be collected for a procedure performed in a year to the 

amount of the inpatient hospital deductible for that year. 
CMS-1601-P 232 

III. Proposed OPPS Ambulatory Payment Classification (APC) Group Policies 

A. Proposed OPPS Treatment of New CPT and Level II HCPCS Codes

 CPT and Level II HCPCS codes are used to report procedures, services, items, 

and supplies under the hospital OPPS. Specifically, CMS recognizes the following codes 

on OPPS claims: 

● Category I CPT codes, which describe surgical procedures and medical 

services; 

● Category III CPT codes, which describe new and emerging technologies, 

services, and procedures; and 

● Level II HCPCS codes, which are used primarily to identify products, supplies, 

temporary procedures, and services not described by CPT codes. 

 CPT codes are established by the American Medical Association (the AMA) and 

Level II HCPCS codes are established by the CMS HCPCS Workgroup. These codes are 

updated and changed throughout the year. CPT and HCPCS code changes that affect the 

OPPS are published both through the annual rulemaking cycle and through the OPPS 

quarterly update Change Requests (CRs). CMS releases new Level II HCPCS codes to 

the public or recognizes the release of new CPT codes by the AMA and makes these 

codes effective (that is, the codes can be reported on Medicare claims) outside of the 

formal rulemaking process through OPPS quarterly update CRs. This quarterly update 

process offers hospitals access to codes that may more accurately describe items or 

services furnished and/or provides payment or more accurate payment for these items or 

services in a timelier manner than if CMS waited for the annual rulemaking process. We 
CMS-1601-P 233 

solicit public comments on these new codes and finalize our proposals related to these 

codes through our annual rulemaking process. In Table 11 below, we summarize our 

proposed process for updating codes through our OPPS quarterly update CRs, seeking 

public comments, and finalizing their treatment under the hospital OPPS. We note that 

because the payment rates associated with codes effective July 1 are not available to us in 

time for incorporation into the Addenda of this proposed rule, the Level II HCPCS codes 

and the Category III CPT codes implemented through the July 2013 OPPS quarterly 

update CR could not be included in Addendum B to this proposed rule (which is 

available via the Internet on the CMS Web site), while those codes based upon the April 

2013 OPPS quarterly update CR are included in Addendum B. Nevertheless, we are 

requesting public comments on the codes included in the July 2013 OPPS quarterly 

update CR and including these codes in the preamble of this proposed rule (we refer 

readers to Tables 13 and 14 for the July 2013 CPT and Level II HCPCS codes). 

TABLE 11.—COMMENT TIMEFRAME FOR NEW OR REVISED 

HCPCS CODES 

OPPS 

Quarterly 

Update CR 

Type of Code Effective Date Comments 

Sought When Finalized 

April l, 2013 Level II HCPCS 

Codes April 1, 2013 

CY 2014 

OPPS/ASC 

proposed rule 

CY 2014 

OPPS/ASC final 

rule with 

comment period 

Level II HCPCS 

Codes July 1, 2013 

CY 2014 

OPPS/ASC 

proposed rule 

CY 2014 

OPPS/ASC final 

rule with 

comment period July 1, 2013 

Category I 

(certain vaccine July 1, 2013 CY 2014 OPPS/ASC 

CY 2014 

OPPS/ASC final 
CMS-1601-P 234 

OPPS 

Quarterly 

Update CR 

Type of Code Effective Date Comments 

Sought When Finalized 

codes) and III 

CPT codes 

proposed rule rule with 

comment period 

October 1, 2013 Level II HCPCS 

Codes October 1, 2013

CY 2014 

OPPS/ASC final 

rule with 

comment period 

CY 2015 

OPPS/ASC final 

rule with 

comment period 

Level II HCPCS 

Codes January 1, 2014

CY 2014 

OPPS/ASC final 

rule with 

comment period 

CY 2015 

OPPS/ASC final 

rule with 

comment period January 1, 2014 

Category I and 

III CPT Codes January 1, 2014

CY 2014 

OPPS/ASC final 

rule with 

comment period 

CY 2015 

OPPS/ASC final 

rule with 

comment period 

 This process is discussed in detail below. We have separated our discussion into 

two sections based on whether we are soliciting public comments in this CY 2014 

OPPS/ASC proposed rule or whether we will be soliciting public comments in the 

CY 2014 OPPS/ASC final rule with comment period. We note that we sought public 

comments in the CY 2013 OPPS/ASC final rule with comment period on the new CPT 

and Level II HCPCS codes that were effective January 1, 2013. We also sought public 

comments in the CY 2013 OPPS/ASC final rule with comment period on the new 

Level II HCPCS codes that were effective October 1, 2012. These new codes, with an 

effective date of October 1, 2012, or January 1, 2013, were flagged with comment 

indicator “NI” (New code, interim APC assignment; comments will be accepted on the 

interim APC assignment for the new code) in Addendum B to the CY 2013 OPPS/ASC 
CMS-1601-P 235 

final rule with comment period to indicate that we were assigning them an interim 

payment status and an APC and payment rate, if applicable, which were subject to public 

comment following publication of the CY 2013 OPPS/ASC final rule with comment 

period. We will respond to public comments and finalize our interim OPPS treatment of 

these codes in the CY 2014 OPPS/ASC final rule with comment period. 

1. Proposed Treatment of New CY 2013 Level II HCPCS and CPT Codes Effective 

April 1, 2013 and July 1, 2013 for Which We Are Soliciting Public Comments in This 

CY 2014 OPPS/ASC Proposed Rule 

 Through the April 2013 OPPS quarterly update CR (Transmittal 2664, Change 

Request 8228, dated March 1, 2013), and the July 2013 OPPS quarterly update CR 

(Transmittal 2718, Change Request 8338, dated June 7, 2013), we recognized several 

new HCPCS codes for separate payment under the OPPS. Effective April 1 and July 1 of 

CY 2013, we made effective 18 new Level II HCPCS codes and 6 Category III CPT 

codes. Specifically, 8 new Level II HCPCS codes were effective for the April 2013 

quarterly update and another 10 new Level II HCPCS codes were effective for the 

July 2013 quarterly update for a total of 18. In addition, six new Category III CPT codes 

were effective for the July 2013 quarterly update. Of the 24 new HCPCS codes, we 

recognized for separate payment under the OPPS 14 new codes from the April and July 

2013 OPPS quarterly updates. 

 Through the April 2013 OPPS quarterly update CR, we allowed separate payment 

for five new Level II HCPCS codes. Specifically, as displayed in Table 12 below, we 

provided separate payment for HCPCS codes C9130, C9297, C9298, C9734, and C9735. 
CMS-1601-P 236 

HCPCS codes Q0507, Q0508, and Q0509 were assigned to OPPS status indicator “A” to 

indicate that they are paid through another Medicare payment system other than the 

OPPS. Although HCPCS codes Q0507, Q0508, and Q0509 were effective April 1, 2013, 

they were previously described by HCPCS code Q0505, which was deleted on 

March 31, 2013.

TABLE 12.—NEW LEVEL II HCPCS CODES IMPLEMENTED IN APRIL 

2013 

CY 2013 

HCPCS 

Code 

CY 2013 Long Descriptor 

Proposed 

CY 2014 

Status 

Indicator 

Proposed 

CY 2014 

APC 

C9130* Injection, immune globulin (Bivigam), 500 mg G 9130 

C9297* Injection, omacetaxine mepesuccinate, 0.01 mg G 9297 

C9298* Injection, ocriplasmin, 0.125 mg G 9298 

C9734#

Focused ultrasound ablation/therapeutic 

intervention, other than uterine leiomyomata, 

with or without magnetic resonance (MR) 

guidance S 0065 

C9735 

Anoscopy; with directed submucosal 

injection(s), any substance T 0150 

Q0507 

Miscellaneous supply or accessory for use with 

an external ventricular assist device A N/A 

Q0508 

Miscellaneous supply or accessory for use with 

an implanted ventricular assist device A N/A 

Q0509 

Miscellaneous supply or accessory for use with 

any implanted ventricular assist device for which 

payment was not made under Medicare Part A A N/A 

*The proposed payment rate for HCPCS codes C9130, C9297, and C9298 are based on ASP+6 percent. 

#

HCPCS code C9734 has been revised to delete the words “or without” from the long descriptor effective 

July 1, 2013. 

 In this CY 2014 OPPS/ASC proposed rule, we are soliciting public comments on 

the proposed status indicators and APC assignments, where applicable, for the Level II 
CMS-1601-P 237 

HCPCS codes listed in Table 12 of this proposed rule. The proposed payment rates for 

these codes, where applicable, can be found in Addendum B to this proposed rule (which 

is available via the Internet on the CMS Web site). 

 Through the July 2013 OPPS quarterly update CR, we allowed separate payment 

under the OPPS for 5 of the 10 new Level II HCPCS codes effective July 1, 2013. 

Specifically, as displayed in Table 13 below, we allowed separate payment for HCPCS 

codes C9131, C9736, G0460, Q2050, and Q2051. We note that two of the Level II 

HCPCS Q-codes that were made effective July 1, 2013, were previously described by 

HCPCS J-codes that were separately payable under the hospital OPPS. First, the HCPCS 

Workgroup replaced HCPCS code J9002 (Injection, doxorubicin hydrochloride, 

liposomal, Doxil, 10mg) with new HCPCS code Q2050, effective July 1, 2013, to 

appropriately identify and pay for both the brand and generic forms of doxorubicin 

hydrochloride liposome. Consequently, the status indicator for HCPCS code J9002 was 

changed to “E” (Not Payable by Medicare), effective July 1, 2013. Because HCPCS 

code Q2050 describes the same product as HCPCS code J9002, we continued its separate 

payment status and assigned HCPCS code Q2050 to status indicator “K” 

(Nonpass-through drugs and nonimplantable biological, including therapeutic 

radiopharmaceuticals; paid under OPPS; separate APC payment). We also continued to 

assign HCPCS code Q2050 to the same APC as HCPCS code J9002, specifically APC 

7046 (Doxil injection), effective July 1, 2013. 

 Secondly, the HCPCS Workgroup replaced HCPCS codes J3487 (Injection, 

zoledronic acid (Zometa), 1 mg) and J3488 (Injection, zoledronic acid (Reclast), 1 mg) 
CMS-1601-P 238 

with one new HCPCS code, specifically Q2051, effective July 1, 2013, to appropriately 

identify and pay for both the brand and generic forms of zoledronic acid. Consequently, 

the status indicators for both HCPCS code J3487 and J3488 were changed to “E,” 

effective July 1, 2013, to indicate that these codes are not separately payable by 

Medicare. Because HCPCS code Q2051 describes the same product as HCPCS codes 

J3487 and J3488, we assigned HCPCS code Q2051 to separate payment status indicator 

“K,” effective July 1, 2013. Because HCPCS codes J3487 and J3488, which were 

assigned to two separate APCs, were replaced with only one code, we assigned HCPCS 

code Q2051 to a new APC to maintain data consistency for future rulemaking. 

Specifically, HCPCS code Q2051 is assigned to APC 1356 (Zoldedronic acid 1mg), 

effective July 1, 2013. 

 Of the 10 Level II HCPCS codes that were made effective July 1, 2013, we did 

not recognize for separate payment under the hospital OPPS five HCPCS codes. 

Specifically, HCPCS codes K0008, K0013, and K0900 are assigned to status indicator 

“Y” (Non-implantable durable medical equipment; not paid under OPPS); HCPCS code 

Q2033 is assigned to status indicator “L” (Not paid under OPPS; paid at reasonable cost); 

and HCPCS code Q0090 is assigned to status indicator “E” (Not payable/Non-covered by 

Medicare; not paid under OPPS).

 Table 13 below includes a complete list of the Level II HCPCS codes that were 

made effective July 1, 2013. As stated above, the codes effective July 1, 2013, do not 

appear in Addendum B of this proposed rule, and, as a result, their proposed payment 
CMS-1601-P 239 

rates along with their proposed status indicators and proposed APC assignments, where 

applicable, for CY 2014 are provided in Table 13.

TABLE 13.—NEW LEVEL II HCPCS CODES IMPLEMENTED 

 IN JULY 2013 

CY 2013 

HCPCS 

Code 

CY 2013 Long Descriptor 

Proposed

CY 2014 

Status 

Indicator

Proposed 

CY 2014 

APC 

Proposed 

CY 2014 

Payment 

Rate 

C9131* Injection, ado-trastuzumab emtansine, 1 

mg 

G 9131 $29.40 

C9736 

Laparoscopy, surgical, radiofrequency 

ablation of uterine fibroid(s), including 

intraoperative guidance and monitoring, 

when performed 

T 0131 $3,765.67

G0460 

Autologous platelet rich plasma for 

chronic wounds/ulcers, including 

phlebotomy, centrifugation, and all 

other preparatory procedures, 

administration and dressings, per 

treatment 

T 0013 $83.85 

K0008 Custom Manual Wheelchair Base Y N/A N/A 

K0013 Custom Motorized/Power Wheelchair 

Base Y N/A N/A 

K0900 Customized Durable Medical 

Equipment, Other Than Wheelchair Y N/A N/A 

Q0090 

Levonorgestrel-Releasing Intrauterine 

Contraceptive System (SKYLA), 13.5 

mg 

E N/A N/A 

Q2033 

Influenza Vaccine, Recombinant 

Hemagglutinin Antigens, For 

Intramuscular Use (Flublok) 

L N/A N/A 

Q2050** 

Injection, Doxorubicin Hydrochloride, 

Liposomal, Not Otherwise Specified, 

10mg 

K 7046 $545.44 
CMS-1601-P 240 

CY 2013 

HCPCS 

Code 

CY 2013 Long Descriptor 

Proposed

CY 2014 

Status 

Indicator

Proposed 

CY 2014 

APC 

Proposed 

CY 2014 

Payment 

Rate 

Q2051*** Injection, Zoledronic Acid, Not 

Otherwise Specified, 1mg K 1356 $196.42 

*The proposed payment rate for HCPCS code C9131 is based on ASP+6 percent.

**HCPCS code Q2050 replaced HCPCS code J9002, effective July 1, 2013. The status indicator for 

HCPCS code J9002 was changed to “E” (Not Payable by Medicare), effective July 1, 2013. The proposed 

payment rate for HCPCS code Q2050 is based on ASP+6 percent.

***HCPCS code Q2051 replaced HCPCS codes J3487 and J3488 effective July 1, 2013. The status 

indicator for HCPCS codes J3487 and J3488 was changed to “E” (Not Payable by Medicare), effective July 

1, 2013. The proposed payment rate for HCPCS code Q2051 is based on ASP+6 percent.

 For CY 2014, we are proposing to continue our established policy of recognizing 

Category I CPT vaccine codes for which FDA approval is imminent and Category III 

CPT codes that the AMA releases in January of each year for implementation in July 

through the OPPS quarterly update process. Under the OPPS, Category I CPT vaccine 

codes and Category III CPT codes that are released on the AMA Web site in January are 

made effective in July of the same year through the July OPPS quarterly update CR, 

consistent with the AMA’s implementation date for the codes. For the July 2013 

quarterly update, there were no new Category I CPT vaccine codes. However, we note 

that Level II HCPCS code Q2033, which is listed in Table 13, describes a flu vaccine that 

was effective July 1, 2013, and is separately payable by Medicare at reasonable cost. 

 Through the July 2013 OPPS quarterly update CR (Transmittal 2718, Change 

Request 8338, dated June 7, 2013), we allowed separate payment for four of the six new 

Category III CPT codes effective July 1, 2013. Specifically, as displayed in Table 14 

below, we allowed separate payment for Category III CPT codes 0330T, 0331T, 0332T, 
CMS-1601-P 241 

and 0334T. We did not recognize for separate payment Category III CPT code 0329T 

because the device associated with this procedure has not received FDA approval. In 

addition, we did not recognize for separate payment Category III CPT code 0333T 

because this procedure is not covered by Medicare. As listed in Table 14, both CPT 

codes 0329T and 0333T are assigned to status indicator “E” (Not payable/Non-covered 

by Medicare; not paid under OPPS). 

 Table 14 below lists the Category III CPT codes that were implemented in 

July 2013, along with their proposed status indicators, proposed APC assignments, and 

proposed payment rates, where applicable, for CY 2014. 

TABLE 14.—NEW CATEGORY III CPT CODES IMPLEMENTED 

IN JULY 2013 

CY 2013 

CPT 

Code

CY 2013 Long Descriptor

Proposed 

CY 2014 

Status 

Indicator

Proposed 

CY 2014 

APC

Proposed 

CY 2014 

Payment 

Rate 

0329T 

Monitoring of intraocular pressure for 24 hours 

or longer, unilateral or bilateral, with 

interpretation and report 

E N/A N/A 

0330T Tear film imaging, unilateral or bilateral, with 

interpretation and report S 0230 $51.83 

0331T Myocardial sympathetic innervation imaging, 

planar qualitative and quantitative assessment; S 0398 $397.32 

0332T 

Myocardial sympathetic innervation imaging, 

planar qualitative and quantitative assessment; 

with tomographic SPECT 

S 0398 $397.32 

0333T Visual evoked potential, screening of visual 

acuity, automated E N/A N/A 

0334T 

Sacroiliac joint stabilization for arthrodesis, 

percutaneous or minimally invasive (indirect 

visualization), includes obtaining and applying 

autograft or allograft (structural or morselized), 

T 0208 $4,171.56 
CMS-1601-P 242 

 We are soliciting public comments on the CY 2014 proposed status indicators and 

the proposed APC assignments and payment rates for the Level II HCPCS codes and the 

Category III CPT codes that were effective April 1, 2013, and July 1, 2013. These codes 

are listed in Tables 12, 13, and 14 of this proposed rule. We are proposing to finalize 

their status indicators and their APC assignments and payment rates, if applicable, in the 

CY 2014 OPPS/ASC final rule with comment period. Because the new Category III CPT 

and Level II HCPCS codes that become effective for July are not available to us in time 

for incorporation into the Addenda to the OPPS/ASC proposed rule, our policy is to 

include the codes, their proposed status indicators, proposed APCs (where applicable), 

and proposed payment rates (where applicable) in the preamble of the proposed rule but 

not in the Addenda to the proposed rule. These codes are listed in Tables 13 and 14, 

respectively, of this proposed rule. We are proposing to incorporate these codes into 

Addendum B to the CY 2014 OPPS/ASC final rule with comment period, which is 

consistent with our annual OPPS update policy. The Level II HCPCS codes implemented 

or modified through the April 2013 OPPS quarterly update CR and displayed in Table 12 

are included in Addendum B to this proposed rule (which is available via the Internet on 

the CMS Web site), where their proposed CY 2014 payment rates are also shown.

2. Proposed Process for New Level II HCPCS Codes That Will Be Effective 

October 1, 2013 and New CPT and Level II HCPCS Codes That Will Be Effective 

when performed, includes image guidance 

when performed (eg, CT or fluoroscopic) 
CMS-1601-P 243 

January 1, 2014 for Which We Will Be Soliciting Public Comments in the CY 2014 

OPPS/ASC Final Rule with Comment Period

 As has been our practice in the past, we incorporate those new Category I and III 

CPT codes and new Level II HCPCS codes that are effective January 1 in the final rule 

with comment period updating the OPPS for the following calendar year. These codes 

are released to the public through the CMS HCPCS Workgroup (for Level II HCPCS 

codes) and the AMA’s Web sites (for CPT codes), and also through the January OPPS 

quarterly update CRs. In the past, we also have released new Level II HCPCS codes that 

are effective October 1 through the October OPPS quarterly update CRs and incorporated 

these new codes in the final rule with comment period updating the OPPS for the 

following calendar year. For CY 2014, these codes will be flagged with comment 

indicator “NI” in Addendum B to the OPPS/ASC final rule with comment period to 

indicate that we are assigning them an interim payment status which is subject to public 

comment. In addition, the CPT and Level II HCPCS codes that will be effective 

January 1, 2014, will be flagged with comment indicator “NI” in Addendum B to the 

OPPS/ASC final rule with comment period. Specifically, the interim status indicator and 

the APC assignment and payment rate, if applicable, for all such codes flagged with 

comment indicator “NI” are open to public comment in the final rule with comment 

period, and we respond to these comments in the OPPS/ASC final rule with comment 

period for the next calendar year’s OPPS/ASC update. We are proposing to continue this 

process for CY 2014. Specifically, for CY 2014, we are proposing to include in 
CMS-1601-P 244 

Addendum B to the CY 2014 OPPS/ASC final rule with comment period the following 

new HCPCS codes: 

● New Level II HCPCS codes effective October 1, 2013 that would be 

incorporated in the October 2013 OPPS quarterly update CR; 

● New Category I and III CPT codes effective January 1, 2014 that would be 

incorporated in the January 2014 OPPS quarterly update CR; and 

● New Level II HCPCS codes effective January 1, 2014 that would be 

incorporated in the January 2014 OPPS quarterly update CR. 

 As stated above, the October 1, 2013 and January 1, 2014 codes would be flagged 

with comment indicator “NI” in Addendum B to the CY 2014 OPPS/ASC final rule with 

comment period to indicate that we have assigned them an interim OPPS payment status 

for CY 2014. We are proposing that their status indicators and their APC assignments 

and payment rates, if applicable, would be open to public comment and would be 

finalized in the CY 2015 OPPS/ASC final rule with comment period. 

B. Proposed OPPS Changes--Variations Within APCs

1. Background 

 Section 1833(t)(2)(A) of the Act requires the Secretary to develop a classification 

system for covered hospital outpatient department services. Section 1833(t)(2)(B) of the 

Act provides that the Secretary may establish groups of covered OPD services within this 

classification system, so that services classified within each group are comparable 

clinically and with respect to the use of resources. In accordance with these provisions, 

we developed a grouping classification system, referred to as Ambulatory Payment 
CMS-1601-P 245 

Classifications (APCs), as set forth in § 419.31 of the regulations. We use Level I and 

Level II HCPCS codes to identify and group the services within each APC. The APCs 

are organized such that each group is homogeneous both clinically and in terms of 

resource use. Using this classification system, we have established distinct groups of 

similar services. We also have developed separate APC groups for certain medical 

devices, drugs, biologicals, therapeutic radiopharmaceuticals, and brachytherapy devices. 

 We have packaged into payment for each procedure or service within an APC 

group the costs associated with those items or services that are directly related to, and 

supportive of, performing the main independent procedures or furnishing the services. 

Therefore, we do not make separate payment for these packaged items or services. In 

general, according to the regulations at § 419.2(b), packaged items and services include, 

but are not limited to: 

 (1) Use of an operating suite, procedure room, or treatment room; 

 (2) Use of recovery room; 

 (3) Use of an observation bed; 

 (4) Anesthesia, certain drugs, biologicals, and other pharmaceuticals; medical 

and surgical supplies and equipment; surgical dressings; and devices used for external 

reduction of fractures and dislocations; 

 (5) Supplies and equipment for administering and monitoring anesthesia or 

sedation; 

 (6) Intraocular lenses (IOLs); 

 (7) Incidental services such as venipuncture; 
CMS-1601-P 246 

 (8) Capital-related costs; 

 (9) Implantable items used in connection with diagnostic X-ray tests, diagnostic 

laboratory tests, and other diagnostic tests; 

 (10) Durable medical equipment that is implantable; 

 (11) Implantable prosthetic devices (other than dental) which replace all or part 

of an internal body organ (including colostomy bags and supplies directly related to 

colostomy care), including replacement of these devices; 

 (12) Costs incurred to procure donor tissue other than corneal tissue. 

 Significant revisions to the regulations at §419.2(b) are being proposed. Further 

discussion of our packaging proposals is included in section II.A.3. of this proposed rule. 

 In CY 2008, we implemented composite APCs to provide a single payment for 

groups of services that are typically performed together during a single clinical encounter 

and that result in the provision of a complete service (72 FR 66650 through 66652). 

Under the CY 2013 OPPS (77 FR 68243 through 68258), we provided composite APC 

payments for 10 categories of services: 

 (1) Mental Health Services (APC 0034); 

 (2) Cardiac Electrophysiologic Evaluation and Ablation (APC 8000); 

 (3) Low Dose Rate (LDR) Prostate Brachytherapy (APC 8001); 

 (4) Level I Extended Assessment & Management Composite (APC 8002); 

 (5) Level II Extended Assessment & Management Composite (APC 8003); 

 (6) Ultrasound (APC 8004); 

 (7) CT and CTA without Contrast (APC 8005); 
CMS-1601-P 247 

 (8) CT and CTA with Contrast (APC 8006); 

 (9) MRI and MRA without Contrast Composite (APC 8007); and 

 (10) MRI and MRA with Contrast Composite (APC 8008) 

 Further discussion of composite APCs is included in section II.A.2.f. of this 

proposed rule. 

 Under the OPPS, we generally pay for hospital outpatient services on a 

rate-per-service basis, where the service may be reported with one or more HCPCS 

codes. Payment varies according to the APC group to which the independent service or 

combination of services is assigned. Each APC relative payment weight represents the 

hospital cost of the services included in that APC, relative to the hospital cost of the 

services included in new proposed APC 0634 (Hospital Clinic Visits). The APC relative 

payment weights are scaled to new proposed APC 0634 because it is the hospital clinic 

visit APC and because clinic visits are among the most frequently furnished services in 

the hospital outpatient setting. We refer readers to section VII. (Proposed OPPS Payment 

for Hospital Outpatient Visits) of this proposed rule for further discussion of the 

establishment of new proposed APC 0634. 

 Section 1833(t)(9)(A) of the Act requires the Secretary to review, on a recurring 

basis occurring no less than annually, and revise the groups, the relative payment 

weights, and the wage and other adjustments to take into account changes in medical 

practice, changes in technology, the addition of new services, new cost data, and other 

relevant information and factors. Section 1833(t)(9)(A) of the Act also requires the 

Secretary to consult with an expert outside advisory panel composed of an appropriate 
CMS-1601-P 248 

selection of representatives of providers to review (and advise the Secretary concerning) 

the clinical integrity of the APC groups and the relative payment weights (the HOP Panel 

recommendations for specific services for the CY 2014 OPPS and our responses to them 

are discussed in the relevant specific sections throughout this proposed rule). 

 Finally, section 1833(t)(2) of the Act provides that, subject to certain exceptions, 

the items and services within an APC group cannot be considered comparable with 

respect to the use of resources if the highest cost for an item or service in the group is 

more than 2 times greater than the lowest cost for an item or service within the same 

group (referred to as the “2 times rule”). The statute authorizes the Secretary to make 

exceptions to the 2 times rule in unusual cases, such as low-volume items and services 

(but the Secretary may not make such an exception in the case of a drug or biological that 

has been designated as an orphan drug under section 526 of the Federal Food, Drug, and 

Cosmetic Act). 

2. Application of the 2 Times Rule 

 In accordance with section 1833(t)(2) of the Act and § 419.31 of the regulations, 

we annually review the items and services within an APC group to determine, with 

respect to comparability of the use of resources, if the cost of the highest cost item or 

service within an APC group is more than 2 times greater than the cost of the lowest cost 

item or service within that same group. In making this determination, we consider only 

those HCPCS codes that are significant based on the number of claims. We note that, for 

purposes of identifying significant HCPCS codes for examination in the 2 times rule, we 

consider codes that have more than 1,000 single major claims or codes that have both 
CMS-1601-P 249 

greater than 99 single major claims and contribute at least 2 percent of the single major 

claims used to establish the APC cost to be significant (75 FR 71832). This longstanding 

definition of when a HCPCS code is significant for purposes of the 2 times rule was 

selected because we believe that a subset of 1,000 claims is negligible within the set of 

approximately 100 million single procedure or single session claims we use for 

establishing costs. Similarly, a HCPCS code for which there are fewer than 99 single 

bills and which comprises less than 2 percent of the single major claims within an APC 

will have a negligible impact on the APC cost. In this proposed rule, we are proposing 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, for CY 2014. 

 We have identified APCs with 2 times rule violations for which we are proposing 

changes to their HCPCS codes’ APC assignments in Addendum B to this proposed rule. 

We note that Addendum B does not appear in the printed version of the Federal Register

as part of the CY 2014 OPPS/ASC proposed rule. Rather, it is published and made 

available via the Internet on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalOutpatientPPS/index.html. In these cases, to eliminate a 2 times rule 

violation or to improve clinical and resource homogeneity, we are proposing to reassign 

the codes to APCs that contain services that are similar with regard to both their clinical 

and resource characteristics. In many cases, the proposed HCPCS code reassignments 

and associated APC reconfigurations for CY 2014 included in this proposed rule are 

related to changes in costs of services that were observed in the CY 2012 claims data 
CMS-1601-P 250 

newly available for CY 2014 ratesetting. We also are proposing changes to the status 

indicators for some codes that are not specifically and separately discussed in this 

proposed rule. In these cases, we are proposing to change the status indicators for some 

codes because we believe that another status indicator would more accurately describe 

their payment status from an OPPS perspective based on the policies that we are 

proposing for CY 2014. In addition, we are proposing to rename existing APCs or create 

new clinical APCs to complement proposed HCPCS code reassignments. Addendum B 

of this CY 2014 OPPS/ASC proposed rule identifies with a comment indicator “CH” 

those HCPCS codes for which we are proposing a change to the APC assignment or 

status indicator, or both, that were initially assigned in the April 2013 Addendum B 

Update (available via the Internet on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalOutpatientPPS/index.html). 

3. Proposed Exceptions to the 2 Times Rule 

 As discussed earlier, we may make exceptions to the 2 times limit on the variation 

of costs within each APC group in unusual cases such as low-volume items and services. 

Taking into account the APC changes that we are proposing for CY 2014, we reviewed 

all the APCs to determine which APCs would not satisfy the 2 times rule. Then we used 

the following criteria to decide whether to propose exceptions to the 2 times rule for 

affected APCs: 

● Resource homogeneity; 

● Clinical homogeneity; 
CMS-1601-P 251 

● Hospital outpatient setting utilization; 

● Frequency of service (volume); and 

● Opportunity for upcoding and code fragments. 

 For a detailed discussion of these criteria, we refer readers to the April 7, 2000 

OPPS final rule with comment period (65 FR 18457 and 18458). 

 We note that, for cases in which a recommendation by the HOP Panel appears to 

result in or allow a violation of the 2 times rule, we generally accept the Panel’s 

recommendation because those recommendations are based on explicit consideration of 

resource use, clinical homogeneity, site of service, and the quality of the claims data used 

to determine the APC payment rates. 

 Table 15 of this proposed rule lists 10 APCs that we are proposing to exempt 

from the 2 times rule for CY 2014 based on the criteria cited above and based on claims 

data processed from January 1, 2012, through December 31, 2012. For the final rule with 

comment period, we plan to use claims data for dates of service between January 1, 2012, 

and December 31, 2012, that were processed on or before June 30, 2013, and updated 

CCRs, if available. Based on the CY 2012 claims data, we found 10 APCs with 2 times 

rule violations. We applied the criteria as described earlier to identify the APCs that we 

are proposing as exceptions to the 2 times rule for CY 2014, and identified 10 APCs that 

meet the criteria for exception to the 2 times rule for this proposed rule. We have not 

included in this count those APCs where a 2 times rule violation is not a relevant concept, 

such as APC 0375 (Ancillary Outpatient Services when Patient Expires), with an APC 

cost set based on multiple procedure claims. Therefore, we have identified only APCs, 
CMS-1601-P 252 

including those with criteria-based costs, those APCs listed under section II.A.2.f. of this 

proposed rule, with 2 times rule violations. These proposed APC exceptions are listed in 

Table 15 below. 

TABLE 15.—PROPOSED APC EXCEPTIONS TO THE 2 TIMES RULE 

FOR CY 2014 

APC Description 

0057 Bunion Procedures 

0060 Manipulation Therapy 

0075 Level V Endoscopy Upper Airway 

0105 Repair/Revision/Removal of Pacemakers, AICDs, or Vascular Devices 

0148 Level I Anal/Rectal Procedures 

0272 Fluoroscopy 

0278 Diagnostic Urography 

0330 Dental Procedures 

0402 Level II Nervous System Imaging 

0690 Level I Electronic Analysis of Devices 

The proposed costs for hospital outpatient services for these and all other APCs 

that were used in the development of this proposed rule can be found on the CMS Web 

site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalOutpatientPPS/index.html. 

C. Proposed OPPS APC-Specific Policies

1. Intraoperative Radiation Therapy (IORT) Related Services (APCs 0028 and 0065) 

 HCPCS code C9726 (Placement and removal (if performed) of applicator into 

breast for radiation therapy) was created effective January 1, 2006 to describe the service 

of placing and removing (if performed) an applicator into the breast for radiation therapy. 

The service was brought to our attention by means of a New Technology APC 
CMS-1601-P 253 

application, and we created HCPCS code C9726 because there were no HCPCS codes 

that described this service. HCPCS code C9726 is assigned to APC 0028, which has a 

CY 2013 payment rate of $1,862.77. Based on our CY 2014 proposed rule claims data, 

APC 0028 has a geometric mean cost of approximately $2,147, and HCPCS code C9726 

has a geometric mean cost of approximately $2,165 based upon 8 single claims. 

 The AMA’s CPT Editorial Panel created two new Category I CPT codes for 

intraoperative radiation therapy (IORT) treatment delivery, effective January 1, 2012: 

CPT codes 77424 (Intraoperative radiation treatment delivery, x-ray, single treatment 

session) and 77425 (Intraoperative radiation treatment delivery, electrons, single 

treatment session). For CY 2013, we finalized a policy to assign these CPT codes to 

APC 0065 (IORT, MRgFUS, and MEG), with a CY 2013 payment rate of $978.25 

because we believed these IORT service codes were similar to services assigned to APC 

0065 in terms of clinical characteristics, and the range of estimated costs for IORT 

services (77 FR 68345). 

 CPT codes 77424 and 77425 describe the placement and removal (if performed) 

of an applicator into the breast for radiation therapy, as well as the delivery of radiation 

therapy when performed intraoperatively, and HCPCS code C9726 is no longer required 

to report the placement and removal of the applicator. Therefore, we are proposing to 

delete HCPCS code C9726, effective January 1, 2014. Under this proposal, hospitals 

would report the costs of the service to place and remove (if performed) an applicator 

into the breast for radiation therapy, as well as the delivery of radiation therapy when 
CMS-1601-P 254 

performed intraoperatively, with CPT codes 77424 and 77425, which we are proposing to 

maintain assignment to APC 0065. We are inviting public comments on this proposal. 

2. Proton Beam Radiation Therapy (APCs 0664 and 0667) 

 APC 0664 (Level I Proton Beam Radiation Therapy) includes two procedures, 

CPT code 77520 (Proton treatment delivery; simple, without compensation) with an 

estimated cost of approximately $417 (based on 217 single claims of 218 total claims 

submitted for CY 2012), and CPT code 77522 (Proton treatment delivery; simple, with 

compensation) with an estimated cost of approximately $883 (based on 10,629 single 

claims of 11,260 total claims submitted for CY 2012). APC 0667 (Level II Proton Beam 

Radiation Therapy) also includes two procedures: CPT code 77523 (Proton treatment 

delivery, intermediate), with an estimated cost of approximately $687 (based on 6,707 

single claims of 7,104 total claims submitted for CY 2012); and CPT code 77525 (Proton 

treatment delivery, complex), with an estimated cost of approximately $1,044 (based on 

438 single claims of 547 total claims submitted for CY 2012). Based on these CY 2012 

claims data, the estimated cost of APC 0664 is approximately $870, and the estimated 

cost of APC 0667 is approximately $705. 

 The payment rates for proton beam radiation therapy services are set annually 

based on claims data according to the standard OPPS ratesetting methodology. Based on 

our updated data for CY 2014, we noted a violation of the 2 times rule in APC 0664. As 

we discuss in section III.B. of this proposed rule, a 2 times violation occurs when the cost 

of the highest cost item or service within an APC group is more than 2 times greater than 

the cost of the lowest cost item or service within that same group. In making this 
CMS-1601-P 255 

determination, we consider only codes that have more than 1,000 single major claims or 

codes that have both greater than 99 single major claims and contribute at least 2 percent 

of the single major claims used to establish the APC cost to be significant. If neither of 

these claims thresholds are met, there is not a 2 times violation even if the highest cost 

item or service is more than 2 times greater than the cost of the lowest cost item or 

service in the APC. In prior years, even though the cost of CPT code 77522 was more 

than 2 times the cost of CPT code 77520, there was no 2 times violation in APC 0664 

because the claims volume for CPT code 77520 did not meet either of the claims volume 

tests discussed above (72 FR 66719; 75 FR 71901; and 77 FR 68341). However, for 

CY 2014, the claims volume for CPT code 77520 increased such that there is a 2 times 

violation within APC 0664, with the single claims for CPT code 77520 greater than 99 

and contributing 2 percent of the single claims used to establish the cost of APC 0664. 

 To resolve the 2 times violation, we are proposing to reassign CPT codes 77520 

and 77522 from APC 0664 to APC 0667, and to revise the title of APC 0667 to “Proton 

Beam Radiation Therapy,” which would now include all proton beam radiation therapy 

services. We also are proposing to delete APC 0664. The estimated cost of the new APC 

0667 is approximately $998, which would be the payment rate for each of the four proton 

beam radiation therapy services. We are inviting public comments on this proposal. 

3. Stereotactic Radiosurgery (SRS) Services (APCs 0066 and 0067) 

 Since 2001, we have distinguished the various methods of delivery of stereotactic 

radiosurgery (SRS) with HCPCS G-codes. SRS includes two different source types, 

specifically, Cobalt-60 and linear accelerator (linac). Among the linac-based SRS 
CMS-1601-P 256 

devices, the HCPCS G-codes distinguish between robotic and nonrobotic (66 FR 59865). 

In 2007 new CPT codes were established for SRS, and at that time, we recognized one of 

the three new CPT codes for SRS for separate payment under the OPPS, but we did not 

replace all of the HCPCS G-codes for SRS with the new CPT codes because we believed 

that the distinctions reflected in the HCPCS G-codes should be maintained for APC 

assignment purposes. Specifically, in 2007 we replaced HCPCS code G0243 (Multisource photon stereotactic radiosurgery, delivery including collimator changes and 

custom plugging, complete course of treatment, all lesions) with CPT code 77371 

because this CPT code corresponded directly to procedures for HCPCS code G0243. We 

refer readers to the CY 2007 OPPS final rule (71 FR 68023 through 68026) for a detailed 

discussion of the history of the SRS codes. 

 Since 2007, HCPCS G-codes G0173, G0251, G0339, G0340, and CPT code 

77371 have been the codes used in the OPPS to describe SRS treatment delivery 

procedures. However, SRS techniques and equipment have evolved and advanced over 

time. In light of these considerations, we have reexamined the HCPCS G-codes and CPT 

codes for SRS with the intent of identifying the codes that would best capture the 

significant differences between the various procedures while eliminating unnecessary 

complexity, redundancy, and outdated distinctions that no longer represent meaningful 

distinctions, given current technology and clinical practice. Based on our review of the 

current SRS technology, it is our understanding that most current linac-based SRS 

technology incorporates some type of robotic feature. Therefore, we believe that it is no 

longer necessary to continue to distinguish robotic versus nonrobotic linac-based SRS 
CMS-1601-P 257 

through the HCPCS G-codes. For CY 2014, we are proposing to replace the existing four 

SRS HCPCS G-codes G0173, G0251, G0339, and G0340, with the SRS CPT codes 

77372 and 77373. We believe that utilizing all of the CPT codes for SRS (77371, 77372, 

and 77373) will more accurately capture the most significant distinctions between the 

various SRS procedures that are currently used today, namely: (1) Cobalt-60 versus 

linac; and (2) single session cranial treatment versus fractionated treatments. 

 Table 16 below shows the complete list of HCPCS G-codes and CPT codes for 

SRS, along with their long descriptors. The table also shows the proposed CPT codes 

and their associated status indicators and APC assignments for the current HCPCS 

G-codes for SRS that we are proposing to replace. We are proposing to assign CPT code 

77373 as the only code assigned to APC 0066, which we are proposing to rename “Level 

I Stereotactic Radiosurgery.” We are proposing to assign both of the single session 

cranial treatment codes (CPT codes 77371 and 77372) as the only two codes assigned to 

APC 0067, which we are proposing to rename “Level II Stereotactic Radiosurgery.” We 

believe that the high degree of clinical similarity of CPT codes 77371 and 77372 supports 

the proposed grouping of these procedures together in the proposed renamed APC 0067 

(Level II Stereotactic Radiosurgery). The CY 2014 APC proposed payment rates for the 

CPT codes for SRS can be found in Addendum B to this proposed rule (which is 

available via the Internet on the CMS Web site). We are proposing to finalize their status 

indicators and their APC assignments and payment rates in the CY 2014 OPPS/ASC final 

rule with comment period. 
CMS-1601-P 258 

 In addition, although the SRS HCPCS G-codes will no longer be separately 

payable under the OPPS, the codes will remain active in the MPFS for CY 2014. 

Consequently, we are proposing to reassign the HCPCS G-codes for SRS to OPPS status 

indicator “B” (Alternative code may be available under the OPPS) for CY 2014. 
CMS-1601-P 259 

TABLE 16.—PROPOSED SEPARATELY PAYABLE STEREOTACTIC 

RADIOSURGERY (SRS) SERVICES FOR CY 2014 

CY 

2013 

CPT 

Code 

Long Descriptor 

CY 

2014 

CPT 

Code

Long Descriptor

CY 

2014 

SI 

CY 

2014 

APC 

77371 

Radiation treatment delivery, 

stereotactic radiosurgery 

(SRS), complete course of 

treatment of cranial lesion(s) 

consisting of 1 session; 

multi-source Cobalt 60 based 

77371 

Radiation treatment delivery, 

stereotactic radiosurgery 

(SRS), complete course of 

treatment of cranial lesion(s) 

consisting of 1 session; multisource Cobalt 60 based 

S 0067 

G0173 

Linear accelerator based 

stereotactic radiosurgery, 

complete course of therapy 

in one session 

77372 

Radiation treatment delivery, 

stereotactic radiosurgery 

(SRS), complete course of 

treatment of cranial lesion(s) 

consisting of 1 session; linear 

accelerator based 

S 0067 

G0251 

Linear accelerator based 

stereotactic radiosurgery, 

delivery including collimator 

changes and custom 

plugging, fractionated 

treatment, all lesions, per 

session, maximum five 

sessions per course of 

treatment 

G0339* 

Image-guided robotic linear 

accelerator-based stereotactic 

radiosurgery, complete 

course of therapy in one 

session or first session of 

fractionated treatment 

77373 

Stereotactic body radiation 

therapy, treatment delivery, per 

fraction to 1 or more lesions, 

including image guidance, 

entire course not to exceed 5 

fractions 

S 0066 
CMS-1601-P 260 

CY 

2013 

CPT 

Code 

Long Descriptor 

CY 

2014 

CPT 

Code

Long Descriptor

CY 

2014 

SI 

CY 

2014 

APC 

G0340 

Image-guided robotic linear 

accelerator-based stereotactic 

radiosurgery, delivery 

including collimator changes 

and custom plugging, 

fractionated treatment, all 

lesions, per session, second 

through fifth sessions, 

maximum five sessions per 

course of treatment 

*Although not reflected in the above table (in order to avoid confusion), single session cranial 

cases currently billed with HCPCS code G0339 would be billed with CPT code 77372 beginning 

in CY 2014. Any other reporting of HCPCS code G0339 (other than single session cranial cases) 

would be reported beginning in CY 2014 with CPT code 77373. 
CMS-1601-P 261 

IV. Proposed OPPS Payment for Devices 

A. Proposed Pass-Through Payments for Devices

1. Expiration of Transitional Pass-Through Payments for Certain Devices 

a. Background 

 Section 1833(t)(6)(B)(iii) of the Act requires that, under the OPPS, a category of 

devices be eligible for transitional pass-through payments for at least 2, but not more than 

3 years. This pass-through payment eligibility period begins with the first date on which 

transitional pass-through payments may be made for any medical device that is described 

by the category. We may establish a new device category for pass-through payment in 

any quarter. Under our established policy, we base the pass-through status expiration 

date for a device category on the date on which pass-through payment is effective for the 

category, which is the first date on which pass-through payment may be made for any 

medical device that is described by such category. We propose and finalize the dates for 

expiration of pass-through status for device categories as part of the OPPS annual update. 

 We also have an established policy to package the costs of the devices that are no 

longer eligible for pass-through payments into the costs of the procedures with which the 

devices are reported in the claims data used to set the payment rates (67 FR 66763). 

Brachytherapy sources, which are now separately paid in accordance with section 

1833(t)(2)(H) of the Act, are an exception to this established policy. 

 There currently are three device categories eligible for pass-through payment. 

These device categories are described by HCPCS codes C1830 (Powered bone marrow 

biopsy needle) and C1840 (Lens, intraocular (telescopic)), which we made effective for 
CMS-1601-P 262 

pass-through payment as of October 1, 2011; and HCPCS code C1886 (Catheter, 

extravascular tissue ablation, any modality (insertable)), which we made effective for 

pass-through payment as of January 1, 2012. Recognizing that these three device 

categories were eligible for at least 2, but not more than 3, years of pass-through status, in 

the CY 2013 OPPS/ASC final rule with comment period, we finalized the expiration of 

pass-through payment for all three of these HCPCS codes, which will expire after 

December 31, 2013 (77 FR 68352). Therefore, in accordance with our established 

policy, after December 31, 2013, we will package the respective costs of the HCPCS 

codes C1830, C1840, and C1886 devices into the costs of the procedures with which the 

devices are reported in the hospital claims data used in OPPS ratesetting. 

b. Proposed CY 2014 Policy 

 As previously stated, we have an established policy to package the costs of the 

devices that are no longer eligible for pass-through payments into the costs of the 

procedures with which the devices are reported in the claims data used to set the payment 

rates (67 FR 66763). In the case of device category C1840, we are proposing that the 

device costs be packaged only when billed with CPT code 0308T (Insertion of ocular 

telescope prosthesis including removal of crystalline lens), which became effective on 

July 1, 2012. We announced the policy that device category C1840 must be billed with 

CPT code 0308T, effective July 1, 2012, in Transmittal 2483, dated June 8, 2012. CPT 

code 0308T is currently assigned to APC 0234 (Level IV Anterior Segment Eye 

Procedures), which has a proposed geometric mean cost of approximately $1,794. When 

the CPT code C1840 device costs are packaged into the cost of CPT code 0308T (and the 
CMS-1601-P 263 

equivalent procedure described by HCPCS code C9732 for the first half of 2012), the 

proposed mean cost of the procedure is approximately $15,249. Based on this mean cost 

for CPT code 0308T, we are proposing to create new APC 0351 (Level VII Anterior 

Segment Eye Procedures), and to assign CPT code 0308T to this APC, which has a 

proposed mean cost of approximately $15,249. The mean cost for CY 2014 that will be 

reported in the final rule for this new APC will depend on the mean cost of CPT code 

0308T (including the cost of HCPCS code C1840) as calculated using claims data 

available for the final rule. 

 With the expiration of these three device categories at the end of CY 2013, there 

are no currently active categories for which we would propose expiration of pass-through 

status in CY 2014. If we create new device categories for pass-through payment status 

during the remainder of CY 2013 or during CY 2014, we will propose future expiration 

dates in accordance with the statutory requirement that they be eligible for pass-through 

payments for at least 2, but not more than 3, years from the date on which pass-through 

payment for any medical device described by the category may first be made. 

2. Proposed Provisions for Reducing Transitional Pass-through Payments to Offset Costs 

Packaged into APC Groups 

a. Background 

 Section 1833(t)(6)(D)(ii) of the Act sets the amount of additional pass-through 

payment for an eligible device as the amount by which the hospital’s charges for a 

device, adjusted to cost (the cost of the device) exceeds the portion of the otherwise 

applicable Medicare outpatient department fee schedule amount (the APC payment 
CMS-1601-P 264 

amount) associated with the device. We have an established policy to estimate the 

portion of each APC payment rate that could reasonably be attributed to the cost of the 

associated devices that are eligible for pass-through payments (66 FR 59904) for 

purposes of estimating the portion of the otherwise applicable APC payment amount 

associated with pass-through devices. For eligible device categories, we deduct an 

amount that reflects the portion of the APC payment amount that we determine is 

associated with the cost of the device, defined as the device APC offset amount, from the 

charges adjusted to cost for the device, as provided by section 1833(t)(6)(D)(ii) of the 

Act, to determine the eligible device’s pass-through payment amount. We have 

consistently used an established methodology to estimate the portion of each APC 

payment rate that could reasonably be attributed to the cost of an associated device 

eligible for pass-through payment, using claims data from the period used for the most 

recent recalibration of the APC rates (72 FR 66751 through 66752). We establish and 

update the applicable device APC offset amounts for eligible pass-through device 

categories through the transmittals that implement the quarterly OPPS updates. 

 Currently, we have published a list of all procedural APCs with the CY 2013 

portions (both percentages and dollar amounts) of the APC payment amounts that we 

determine are associated with the cost of devices on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalOutpatientPPS/index.html. The dollar amounts are used as the device 

APC offset amounts. In addition, in accordance with our established practice, the device 

APC offset amounts in a related APC are used in order to evaluate whether the cost of a 
CMS-1601-P 265 

device in an application for a new device category for pass-through payment is not 

insignificant in relation to the APC payment amount for the service related to the 

category of devices, as specified in our regulations at § 419.66(d). 

 Beginning in CY 2010, we include packaged costs related to implantable 

biologicals in the device offset calculations in accordance with our policy that the 

pass-through evaluation process and payment methodology for implantable biologicals 

that are surgically inserted or implanted (through a surgical incision or a natural orifice) 

and that are newly approved for pass-through status beginning on or after 

January 1, 2010, be the device pass-through process and payment methodology only 

(74 FR 60476). 

b. Proposed CY 2014 Policy 

 We are proposing to continue, for CY 2014, our established methodology to 

estimate the portion of each APC payment rate that could reasonably be attributed to (that 

is, reflect) the cost of an associated device eligible for pass-through payment, using 

claims data from the period used for the most recent recalibration of the APC payment 

rates. We are proposing to continue our policy, for CY 2014, that the pass-through 

evaluation process and pass-through payment methodology for implantable biologicals 

that are surgically inserted or implanted (through a surgical incision or a natural orifice) 

and that are newly approved for pass-through status beginning on or after 

January 1, 2010, be the device pass-through process and payment methodology only. 

The rationale for this policy is provided in the CY 2010 OPPS/ASC final rule with 

comment period (74 FR 60471 through 60477). We also are proposing to continue our 
CMS-1601-P 266 

established policies for calculating and setting the device APC offset amounts for each 

device category eligible for pass-through payment. In addition, we are proposing to 

continue to review each new device category on a case-by-case basis to determine 

whether device costs associated with the new category are already packaged into the 

existing APC structure. If device costs packaged into the existing APC structure are 

associated with the new category, we are proposing to deduct the device APC offset 

amount from the pass-through payment for the device category. As stated earlier, these 

device APC offset amounts also would be used in order to evaluate whether the cost of a 

device in an application for a new device category for pass-through payment is not 

insignificant in relation to the APC payment amount for the service related to the 

category of devices (§ 419.66(d)). 

 For CY 2014, we also are proposing to continue our policy established in 

CY 2010 to include implantable biologicals in our calculation of the device APC offset 

amounts. In addition, we are proposing to continue to calculate and set any device APC 

offset amount for any new device pass-through category that includes a newly eligible 

implantable biological beginning in CY 2014 using the same methodology we have 

historically used to calculate and set device APC offset amounts for device categories 

eligible for pass-through payment, and to include the costs of implantable biologicals in 

the calculation of the device APC offset amounts. 

 In addition, we are proposing to update the list of all procedural APCs with the 

final CY 2014 portions of the APC payment amounts that we determine are associated 

with the cost of devices on the CMS Web site at: 
CMS-1601-P 267 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalOutpatientPPS/index.html so that this information is available for use 

by the public in developing potential CY 2014 device pass-through payment applications 

and by CMS in reviewing those applications. 

3. Proposed Changes to Device Pass-Through Criteria: Integral and Subordinate 

Criterion 

 We established a number of specific criteria that new medical devices must meet 

to be considered eligible for pass-through payments under section 1833(t)(6) of the Act 

(42 CFR 419.66; 65 FR 18480 and 65 FR 47672 through 47674). In this proposed rule, 

we are proposing to change one of these criteria for device pass-through payment, 

described at § 419.66(b)(3), which requires that a device “is an integral and subordinate 

part of the service furnished, is used for one patient only, comes in contact with human 

tissue, and is surgically implanted or inserted whether or not it remains with the patient 

when the patient is released from the hospital” (65 FR 47674). 

 Regarding the existing regulation at § 419.66(b)(3), applicants for device 

pass-through status have continued to ask what is meant by the phrase “integral and 

subordinate part of the service furnished,” and more specifically, what the terms 

“integral” and “subordinate” mean. These terms have not been specifically defined or 

described in prior regulatory language, preamble, or guidance. In an effort to reduce 

further confusion and ensure all applicants understand the intent of the existing 

regulation, we are proposing to provide guidance on the meaning of the term “integral” 

and delete the term “subordinate” from the existing regulation in this proposed rule. We 
CMS-1601-P 268 

have interpreted the term “integral” to mean that the device is necessary to furnish or 

deliver the primary procedure with which it is used. For example, a pacemaker is integral 

to the procedure of implantation of a pacemaker. We have interpreted the accompanying 

term “subordinate” in conjunction with the term “integral,” in that a “subordinate” device 

is dependent upon the overall procedure of implanting the device, and we have not 

interpreted the term separately, or applied the term “subordinate” as a separate criterion. 

Because of confusion among pass-through status applicants regarding the use of both 

terms “integral” and “subordinate,” and because we do not believe it is necessary that the 

regulation specifically state that a device must be subordinate to the procedure, in 

addition to the requirement that a device be integral to the procedure, and have not treated 

“subordinate” as a separate criterion, as previously explained, we are proposing to delete 

the term “subordinate” from this criterion’s regulatory text under existing § 419.66(b)(3). 

The proposed revised § 419.66(b)(3) regulatory language reads: “The device is an 

integral part of the service furnished, is used for one patient only, comes in contact with 

human tissue, and is surgically implanted or inserted, whether or not it remains with the 

patient when the patient is released from the hospital.” 

B. Proposed Adjustment to OPPS Payment for No Cost/Full Credit and Partial Credit 

Devices

1. Background 

 To ensure equitable payment when the hospital receives a device without cost or 

with full credit, in CY 2007, we implemented a policy to reduce the payment for 

specified device-dependent APCs by the estimated portion of the APC payment 
CMS-1601-P 269 

attributable to device costs (that is, the device offset) when the hospital receives a 

specified device at no cost or with full credit (71 FR 68071 through 68077). Hospitals 

are instructed to report no cost/full credit cases using the “FB” modifier on the line with 

the procedure code in which the no cost/full credit device is used. In cases in which the 

device is furnished without cost or with full credit, the hospital is instructed to report a 

token device charge of less than $1.01. In cases in which the device being inserted is an 

upgrade (either of the same type of device or to a different type of device) with a full 

credit for the device being replaced, the hospital is instructed to report as the device 

charge the difference between its usual charge for the device being implanted and its 

usual charge for the device for which it received full credit. In CY 2008, we expanded 

this payment adjustment policy to include cases in which hospitals receive partial credit 

of 50 percent or more of the cost of a specified device. Hospitals are instructed to append 

the “FC” modifier to the procedure code that reports the service provided to furnish the 

device when they receive a partial credit of 50 percent or more of the cost of the new 

device. We refer readers to the CY 2008 OPPS/ASC final rule with comment period for 

more background information on the “FB” and “FC” payment adjustment policies 

(72 FR 66743 through 66749). 

2. Proposed Policy for CY 2014 

 Beginning in CY 2014, we are proposing to modify our existing policy of 

reducing OPPS payment for specified APCs when a hospital furnishes a specified device 

without cost or with a full or partial credit. For CY 2013 and prior years, our policy has 

been to reduce OPPS payment by 100 percent of the device offset amount when a 
CMS-1601-P 270 

hospital furnishes a specified device without cost or with a full credit and by 50 percent 

of the device offset amount when the hospital receives partial credit in the amount of 

50 percent or more of the cost for the specified device. For CY 2014, we are proposing 

to reduce OPPS payment, for the applicable APCs listed below in Table 17, by the full or 

partial credit a provider receives for a replaced device. Specifically, under this proposed 

policy for CY 2014, hospitals would be required to report the amount of the credit in the 

amount portion for value code “FD” (Credit Received from the Manufacturer for a 

Replaced Medical Device) when the hospital receives a credit for a replaced device listed 

in Table 18 that is 50 percent or greater than the cost of the device. Under this proposal, 

hospitals would no longer be required to append the “FB” or “FC” modifier when 

receiving a device at no cost or with a full or partial credit. 

 For CY 2014, we are proposing to continue using the three criteria established in 

the CY 2007 OPPS/ASC final rule with comment period for determining the APCs to 

which our modified CY 2014 policy applies (71 FR 68072 through 68077). Specifically: 

(1) all procedures assigned to the selected APCs must involve implantable devices that 

would be reported if device insertion procedures were performed; (2) the required devices 

must be surgically inserted or implanted devices that remain in the patient’s body after 

the conclusion of the procedure (at least temporarily); and (3) the device offset amount 

must be significant, which, for purposes of this policy, is defined as exceeding 40 percent 

of the APC cost. We also are proposing to continue to restrict the devices to which the 

APC payment adjustment would apply to a specific set of costly devices to ensure that 

the adjustment would not be triggered by the implantation of an inexpensive device 
CMS-1601-P 271 

whose cost would not constitute a significant proportion of the total payment rate for an 

APC. We continue to believe these criteria are appropriate because no cost devices and 

device credits are likely to be associated with particular cases only when the device must 

be reported on the claim and is of a type that is implanted and remains in the body when 

the beneficiary leaves the hospital. We believe that the reduction in payment is 

appropriate only when the cost of the device is a significant part of the total cost of the 

APC into which the device cost is packaged, and that the 40-percent threshold is a 

reasonable definition of a significant cost. 

 We examined the offset amounts calculated from the CY 2014 proposed rule data 

and the clinical characteristics of the proposed CY 2014 APCs to determine which APCs 

would meet the criteria for CY 2014. Based on the CY 2012 claims data available for 

this proposed rule, we are not proposing any changes to the APCs and devices to which 

this proposed modified policy would apply. 

 Table 17 below lists the proposed APCs to which the proposed modified payment 

adjustment policy for no cost/full credit and partial credit devices would apply in 

CY 2014. 

 Table 18 below lists the proposed devices to which the proposed modified 

payment adjustment policy for no cost/full credit and partial credit devices would apply 

in CY 2014. We are proposing to update the lists of APCs and devices to which the 

proposed modified no cost/full credit and partial credit device adjustment policy would 

apply for CY 2014, consistent with the three criteria discussed earlier in this section, 
CMS-1601-P 272 

based on the final CY 2012 claims data available for the CY 2014 OPPS/ASC final rule 

with comment period. 

TABLE 17.—PROPOSED APCs TO WHICH THE PROPOSED MODIFIED NO 

COST/FULL CREDIT AND PARTIAL CREDIT DEVICE PAYMENT 

ADJUSTMENT POLICY WOULD APPLY IN CY 2014 

Proposed 

CY 2014 

APC 

Proposed CY 2014 APC Title 

0039 Level I Implantation of Neurostimulator Generator 

0040 

Level I Implantation/Revision/Replacement of Neurostimulator 

Electrodes 

0061 

Level II Implantation/Revision/Replacement of Neurostimulator 

Electrodes 

0082 Coronary or Non-Coronary Atherectomy 

0083 

Coronary Angioplasty, Valvuloplasty, and Level I Endovascular 

Revascularization 

0085 Level II Electrophysiologic Procedures 

0086 Level III Electrophysiologic Procedures 

0089 Insertion/Replacement of Permanent Pacemaker and Electrodes 

0090 Level I Insertion/Replacement of Permanent Pacemaker 

0104 Transcatheter Placement of Intracoronary Stents 

0106 Insertion/Replacement of Pacemaker Leads and/or Electrodes 

0107 Level I Implantation of Cardioverter-Defibrillators (ICDs) 

0108 Level II Implantation of Cardioverter-Defibrillators (ICDs) 

0227 Implantation of Drug Infusion Device 

0229 Level II Endovascular Revascularization of the Lower Extremity 

0259 Level VII ENT Procedures 

0293 Level VI Anterior Segment Eye Procedures 

0315 Level II Implantation of Neurostimulator Generator 

0318 Implantation of Neurostimulator Pulse Generator and Electrode 

0319 Level III Endovascular Revascularization of the Lower Extremity 

0385 Level I Prosthetic Urological Procedures 

0386 Level II Prosthetic Urological Procedures 

0425 Level II Arthroplasty or Implantation with Prosthesis 

0648 Level IV Breast Surgery 
CMS-1601-P 273 

Proposed 

CY 2014 

APC 

Proposed CY 2014 APC Title 

0654 Level II Insertion/Replacement of Permanent Pacemaker 

0655 

Insertion/Replacement/Conversion of a Permanent Dual Chamber 

Pacemaker or Pacing 

0656 Transcatheter Placement of Intracoronary Drug-Eluting Stents 

0674 Prostate Cryoablation 

0680 Insertion of Patient Activated Event Recorders 

TABLE 18.—PROPOSED DEVICES TO WHICH THE PROPOSED MODIFIED 

NO COST/FULL CREDIT AND PARTIAL CREDIT DEVICE PAYMENT 

ADJUSTMENT POLICY WOULD APPLY IN CY 2014 

CY 2014 Device 

HCPCS Code CY 2014 Short Descriptor 

C1721 AICD, dual chamber 

C1722 AICD, single chamber 

C1728 Cath, brachytx seed adm 

C1764 Event recorder, cardiac 

C1767 Generator, neurostim, imp 

C1771 Rep dev, urinary, w/sling 

C1772 Infusion pump, programmable 

C1776 Joint device (implantable) 

C1777 Lead, AICD, endo single coil 

C1778 Lead, neurostimulator 

C1779 Lead, pmkr, transvenous VDD 

C1785 Pmkr, dual, rate-resp 

C1786 Pmkr, single, rate-resp 

C1789 Prosthesis, breast, imp 

C1813 Prosthesis, penile, inflatab 

C1815 Pros, urinary sph, imp 

C1820 Generator, neuro rechg bat sys 

C1881 Dialysis access system 

C1882 AICD, other than sing/dual 

C1891 Infusion pump, non-prog, perm 
CMS-1601-P 274 

CY 2014 Device 

HCPCS Code CY 2014 Short Descriptor 

C1895 Lead, AICD, endo dual coil 

C1896 Lead, AICD, non sing/dual 

C1897 Lead, neurostim, test kit 

C1898 Lead, pmkr, other than trans 

C1899 Lead, pmkr/AICD combination 

C1900 Lead coronary venous 

C2619 Pmkr, dual, non rate-resp 

C2620 Pmkr, single, non rate-resp 

C2621 Pmkr, other than sing/dual 

C2622 Prosthesis, penile, non-inf 

C2626 Infusion pump, non-prog, temp 

C2631 Rep dev, urinary, w/o sling 
CMS-1601-P 275 

V. Proposed OPPS Payment Changes for Drugs, Biologicals, and 

Radiopharmaceuticals 

A. Proposed OPPS Transitional Pass-Through Payment for Additional Costs of Drugs, 

Biologicals, and Radiopharmaceuticals

1. Background 

 Section 1833(t)(6) of the Act provides for temporary additional payments or 

“transitional pass-through payments” for certain drugs and biologicals (also referred to as 

biologics). As enacted by the Medicare, Medicaid, and SCHIP Balanced Budget 

Refinement Act of 1999 (BBRA) (Pub. L. 106-113), this provision requires the Secretary 

to make additional payments to hospitals for: current orphan drugs, as designated under 

section 526 of the Federal Food, Drug, and Cosmetic Act (Pub. L. 107-186); current 

drugs and biologicals and brachytherapy sources used in cancer therapy; and current 

radiopharmaceutical drugs and biologicals. “Current” refers to drugs or biologicals that 

are outpatient hospital services under Part B for which payment was made on the first 

date the hospital OPPS was implemented. 

 Transitional pass-through payments are also provided for certain “new” drugs and 

biologicals that were not being paid for as an HOPD service as of December 31, 1996 

and whose cost is “not insignificant” in relation to the OPPS payments for the procedures 

or services associated with the new drug or biological. For pass-through payment 

purposes, radiopharmaceuticals are included as “drugs.” As required by statute, 

transitional pass-through payments for a drug or biological described in section 

1833(t)(6)(C)(i)(II) of the Act can be made for a period of at least 2 years, but not more 
CMS-1601-P 276 

than 3 years, after the payment was first made for the product as a hospital outpatient 

service under Medicare Part B. Proposed CY 2014 pass-through drugs and biologicals 

and their designated APCs are assigned status indicator “G” in Addenda A and B to this 

proposed rule, which are available via the Internet on the CMS Web site. 

 Section 1833(t)(6)(D)(i) of the Act specifies that the pass-through payment 

amount, in the case of a drug or biological, is the amount by which the amount 

determined under section 1842(o) of the Act for the drug or biological exceeds the 

portion of the otherwise applicable Medicare OPD fee schedule that the Secretary 

determines is associated with the drug or biological. If the drug or biological is covered 

under a competitive acquisition contract under section 1847B of the Act, the pass-through 

payment amount is determined by the Secretary to be equal to the average price for the 

drug or biological for all competitive acquisition areas and the year established under 

such section as calculated and adjusted by the Secretary. However, we note that the 

Part B drug CAP program has been postponed since CY 2009, and such a program has 

not been reinstated for CY 2014. 

 This methodology for determining the pass-through payment amount is set forth 

in regulations at 42 CFR 419.64. These regulations specify that the pass-through 

payment equals the amount determined under section 1842(o) of the Act minus the 

portion of the APC payment that CMS determines is associated with the drug or 

biological. Section 1847A of the Act establishes the average sales price (ASP) 

methodology, which is used for payment for drugs and biologicals described in section 

1842(o)(1)(C) of the Act furnished on or after January 1, 2005. The ASP methodology, 
CMS-1601-P 277 

as applied under the OPPS, uses several sources of data as a basis for payment, including 

the ASP, the wholesale acquisition cost (WAC), and the average wholesale price (AWP). 

In this proposed rule, the term “ASP methodology” and “ASP-based” are inclusive of all 

data sources and methodologies described therein. Additional information on the ASP 

methodology can be found on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Part-BDrugs/McrPartBDrugAvgSalesPrice/index.html. 

 The pass-through application and review process for drugs and biologicals is 

explained on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-forService-Payment/HospitalOutpatientPPS/passthrough_payment.html. 

2. Proposed Drugs and Biologicals with Expiring Pass-Through Status in CY 2013

We are proposing that the pass-through status of 15 drugs and biologicals would 

expire on December 31, 2013, as listed in Table 19 below. All of these drugs and 

biologicals will have received OPPS pass-through payment for at least 2 years and no 

more than 3 years by December 31, 2013. These drugs and biologicals were approved 

for pass-through status on or before January 1, 2012. With the exception of those groups 

of drugs and biologicals that are always packaged when they do not have pass-through 

status, specifically diagnostic radiopharmaceuticals, contrast agents, anesthesia drugs, 

and our new proposed groups of policy packaged products described in section II.A.3. of 

this proposed rule, namely drugs, biologicals, and radiopharmaceuticals that function as 

supplies when used in a diagnostic test or procedure and drugs and biologicals that 

function as supplies or devices when used in a surgical procedure, our standard 
CMS-1601-P 278 

methodology for providing payment for drugs and biologicals with expiring pass-through 

status in an upcoming calendar year is to determine the product’s estimated per day cost 

and compare it with the OPPS drug packaging threshold for that calendar year (which is 

proposed at $90 for CY 2014), as discussed further in section V.B.2. of this proposed 

rule. If the estimated per day cost for the drug or biological is less than or equal to the 

applicable OPPS drug packaging threshold, we would package payment for the drug or 

biological into the payment for the associated procedure in the upcoming calendar year. 

If the estimated per day cost of the drug or biological is greater than the OPPS drug 

packaging threshold, we would provide separate payment at the applicable relative ASPbased payment amount (which is proposed at ASP+6 percent for CY 2014, as discussed 

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

TABLE 19.—PROPOSED DRUGS AND BIOLOGICALS FOR WHICH 

PASS-THROUGH STATUS WILL EXPIRE DECEMBER 31, 2013 

Proposed 

CY 2014 

HCPCS 

Code Proposed CY 2014 Long Descriptor 

Proposed 

CY 2014 

SI 

Proposed 

CY 2014 

APC 

A9584 Iodine I-123 ioflupane, diagnostic, per 

study dose, up to 5 millicuries N N/A 

C9285 Lidocaine 70 mg/tetracaine 70 mg, per 

patch N 9285 

J0131 Injection, acetaminophen, 10 mg N 9283 

J0485 Injection, belatacept, 1 mg K 9286 

J0490 Injection, belimumab, 10 mg K 1353 

J0638 Injection, canakinumab, 1mg K 1311 

J0712 Injection, ceftaroline fosamil, 10 mg N 9282 

J1572 

Injection, immune globulin, 

(flebogamma/flebogamma dif), 

intravenous, non-lyophilized (e.g. liquid), 

500 mg 

K 0947 
CMS-1601-P 279 

Proposed 

CY 2014 

HCPCS 

Code Proposed CY 2014 Long Descriptor 

Proposed 

CY 2014 

SI 

Proposed 

CY 2014 

APC 

J2507 Injection, pegloticase, 1 mg K 9281 

J7180 Injection, factor xiii (antihemophilic factor, 

human), 1 i.u K 1416 

J9042 Injection, brentuximab vedotin, 1 mg K 9287 

J9179 Injection, eribulin mesylate, 0.1 mg K 1426 

J9228 Injection, ipilimumab, 10 mg K 9284 

Q4124 Oasis Ultra Tri-Layer matrix, per square 

centimeter N 9365 

Q4131 EpiFix, per square centimeter N 9366 

3. Proposed Drugs, Biologicals, and Radiopharmaceuticals with New or Continuing 

Pass-Through Status in CY 2014 

 We are proposing to continue pass-through status in CY 2014 for 18 drugs and 

biologicals. None of these drugs and biologicals will have received OPPS pass-through 

payment for at least 2 years and no more than 3 years by December 31, 2013. These 

drugs and biologicals, which were approved for pass-through status between 

April 1, 2012 and July 1, 2013, are listed in Table 20 below. The APCs and HCPCS 

codes for these drugs and biologicals approved for pass-through status through 

April 1, 2013 are assigned status indicator “G” in Addenda A and B of this proposed rule. 

Addenda A and B of this proposed rule are available via the Internet on the CMS Web 

site. 

 Section 1833(t)(6)(D)(i) of the Act sets the amount of pass-through payment for 

pass-through drugs and biologicals (the pass-through payment amount) as the difference 

between the amount authorized under section 1842(o) of the Act and the portion of the 
CMS-1601-P 280 

otherwise applicable OPD fee schedule that the Secretary determines is associated with 

the drug or biological. Payment for drugs and biologicals with pass-through status under 

the OPPS is currently made at the physician’s office payment rate of ASP+6 percent. We 

believe it is consistent with the statute to propose to continue to provide payment for 

drugs and biologicals with pass-through status at a rate of ASP+6 percent in CY 2014, 

the amount that drugs and biologicals receive under section 1842(o) of the Act. 

 Therefore, for CY 2014, we are proposing to pay for pass-through drugs and 

biologicals at ASP+6 percent, equivalent to the rate these drugs and biologicals would 

receive in the physician’s office setting in CY 2014. We are proposing that a $0.00 

pass-through payment amount would be paid for most pass-through drugs and biologicals 

under the CY 2014 OPPS because the difference between the amount authorized under 

section 1842(o) of the Act, which is ASP+6 percent, and the portion of the otherwise 

applicable OPD fee schedule that the Secretary determines is appropriate, proposed at 

ASP+6 percent, is $0. 

 In the case of pass-through for policy packaged drugs (which include contrast 

agents, diagnostic radiopharmaceuticals, anesthesia drugs, and our new proposed groups 

of policy packaged products described in section II.A.3. of this proposed rule, namely 

drugs, biologicals, and radiopharmaceuticals that function as supplies when used in a 

diagnostic test or procedure and drugs and biologicals that function as supplies or devices 

when used in a surgical procedure), we are proposing that their pass-through payment 

amount would be equal to ASP+6 percent for CY 2014 because, if not on pass-through 

status, payment for these products would be packaged into the associated procedure. 
CMS-1601-P 281 

 In addition, we are proposing to continue to update pass-through payment rates on 

a quarterly basis on the CMS Web site during CY 2014 if later quarter ASP submissions 

(or more recent WAC or AWP information, as applicable) indicate that adjustments to the 

payment rates for these pass-through drugs or biologicals are necessary. For a full 

description of this policy, we refer readers to the CY 2006 OPPS/ASC final rule with 

comment period (70 FR 42722 and 42723). 

 In CY 2014, as is consistent with our CY 2013 policy for diagnostic and 

therapeutic radiopharmaceuticals, we are proposing to provide payment for both 

diagnostic and therapeutic radiopharmaceuticals that are granted pass-through status 

based on the ASP methodology. As stated above, for purposes of pass-through payment, 

we consider radiopharmaceuticals to be drugs under the OPPS. Therefore, if a diagnostic 

or therapeutic radiopharmaceutical receives pass-through status during CY 2014, we are 

proposing to follow the standard ASP methodology to determine the pass-through 

payment rate that drugs receive under section 1842(o) of the Act, which is ASP+6 

percent. If ASP data are not available for a radiopharmaceutical, we are proposing to 

provide pass-through payment at WAC+6 percent, the equivalent payment provided to 

pass-through drugs and biologicals without ASP information. If WAC information is 

also not available, we are proposing to provide payment for the pass-through 

radiopharmaceutical at 95 percent of its most recent AWP. 

 As discussed in more detail in section II.A.3. of this proposed rule, over the last 

6 years, we implemented a policy whereby payment for all nonpass-through diagnostic 

radiopharmaceuticals, contrast agents, and anesthesia drugs is packaged into payment for 
CMS-1601-P 282 

the associated procedure. We are proposing to continue the packaging of these items and 

also are proposing new groups of policy packaged products described in section II.A.3. of 

this proposed rule, namely drugs, biologicals, and radiopharmaceuticals that function as 

supplies when used in a diagnostic test or procedure and drugs and biologicals that 

function as supplies or devices when used in a surgical procedure, regardless of their per 

day cost, in CY 2014. As stated earlier, pass-through payment is the difference between 

the amount authorized under section 1842(o) of the Act and the portion of the otherwise 

applicable OPD fee schedule that the Secretary determines is associated with the drug or 

biological. Because payment for a drug that is policy packaged would otherwise be 

packaged if the product did not have pass-through status, we believe the otherwise 

applicable OPPS payment amount would be equal to the policy packaged drug APC 

offset amount for the associated clinical APC in which the drug or biological is utilized. 

The proposed calculation of the policy packaged drug APC offset amounts is described in 

more detail in section IV.A.2. of this proposed rule. It follows that the copayment for the 

nonpass-through payment portion (the otherwise applicable fee schedule amount that we 

would also offset from payment for the drug or biological if a payment offset applies) of 

the total OPPS payment for those drugs and biologicals would, therefore, be accounted 

for in the copayment for the associated clinical APC in which the drug or biological is 

used. 

 According to section 1833(t)(8)(E) of the Act, the amount of copayment 

associated with pass-through items is equal to the amount of copayment that would be 

applicable if the pass-through adjustment was not applied. Therefore, as we did in 
CMS-1601-P 283 

CY 2013, we are proposing to continue to set the associated copayment amount to zero 

for CY 2014 for pass-through diagnostic radiopharmaceuticals, contrast agents, and 

anesthesia drugs that would otherwise be packaged if the item did not have pass-through 

status. We also are proposing to set the associated copayment amount to zero for the 

additional categories of policy-packaged products proposed for CY 2014 described in 

section II.A.3. of this proposed rule. 

 The separate OPPS payment to a hospital for the pass-through diagnostic 

radiopharmaceutical, contrast agent, anesthesia drug, and the additional categories of 

policy-packaged products proposed for CY 2014 is not subject to a copayment according 

to the statute. Therefore, we are proposing to not publish a copayment amount for these 

items in Addenda A and B to this proposed rule (which are available via the Internet on 

the CMS Web site). 

 For CY 2013, we estimated the OPPS pass-through payment for drugs and 

biologicals to be $22 million. Our proposed OPPS pass-through payment estimate for 

drugs and biologicals in CY 2014 is $1 million, which is discussed in section VI.B. of 

this proposed rule. The 18 drugs and biologicals that we are proposing to continue on 

pass-through status for CY 2014 or have been granted pass-through status as of July 2013 

are displayed in Table 20 below. 

TABLE 20.—PROPOSED DRUGS AND BIOLOGICALS WITH 

PASS-THROUGH STATUS IN CY 2014 
CMS-1601-P 284 

*Because the payment rates associated with these codes effective July 1, 2013 are not available to us in 

time for incorporation into the Addenda of this proposed rule, the Level II HCPCS codes and the Category 

III CPT codes implemented through the July 2013 OPPS quarterly update CR could not be included in 

Addendum B to this proposed rule. 

Proposed 

CY 2014 

HCPCS 

Code CY 2014 Long Descriptor 

Proposed 

CY 2014 

SI 

Proposed 

CY 2014 

APC 

C9130 Injection, immune globulin (Bivigam), 500 mg G 9130 

C9131* Injection, ado-trastuzumab emtansine, 1 mg G 9131 

C9290 Injection, bupivicaine liposome, 1 mg G 9290 

C9292 Injection, pertuzumab, 10 mg G 9292 

C9293 Injection, glucarpidase, 10 units G 9293 

C9294 Injection, taliglucerase alfa, 10 units G 9294 

C9295 Injection, carfilzomib, 1 mg G 9295 

C9296 Injection, ziv-aflibercept, 1 mg G 9296 

C9297 Injection, omacetaxine mepesuccinate, 0.01 mg G 9297 

C9298 Injection, ocriplasmin, 0.125 mg G 9298 

J0178 Injection, aflibercept, 1 mg vial G 1420 

J0716 Injection, centruroides (scorpion) immune f(ab)2, up 

to 120 milligrams G 1431 

J7315 Mitomycin, ophthalmic, 0.2 mg G 1448 

J9019 Injection, asparaginase (erwinaze), 1,000 iu G 9289 

Q4122* Dermacell, per square centimeter G 1419 

Q4127 Talymed, per square centimeter G 1449 

Q4132 Grafix core, per square centimeter G 9368 

Q4133 Grafix prime, per square centimeter G 9369 
CMS-1601-P 285 

4. Proposed Provisions for Reducing Transitional Pass-Through Payments for Diagnostic 

Radiopharmaceuticals; Contrast Agents; Drugs, Biologicals, and Radiopharmaceuticals 

That Function as Supplies When Used in a Diagnostic Test or Procedure; and Drugs and 

Biologicals That Function as Supplies or Devices When Used in a Surgical Procedure to 

Offset Costs Packaged into APC Groups 

a. Background 

 Prior to CY 2008, diagnostic radiopharmaceuticals and contrast agents were paid 

separately under the OPPS if their mean per day costs were greater than the applicable 

year’s drug packaging threshold. In CY 2008 (72 FR 66768), we began a policy of 

packaging payment for all nonpass-through diagnostic radiopharmaceuticals and contrast 

agents as ancillary and supportive items and services into their associated nuclear 

medicine procedures. Therefore, beginning in CY 2008, nonpass-through diagnostic 

radiopharmaceuticals and contrast agents were not subject to the annual OPPS drug 

packaging threshold to determine their packaged or separately payable payment status, 

and instead all nonpass-through diagnostic radiopharmaceuticals and contrast agents were 

packaged as a matter of policy. For CY 2014, we are proposing to continue to package 

payment for all nonpass-through diagnostic radiopharmaceuticals, contrast agents, and 

anesthesia drugs and to begin packaging all nonpass-through drugs, biologicals, and 

radiopharmaceuticals that function as supplies when used in a diagnostic test or 

procedure and drugs and biologicals that function as supplies or devices when used in a 

surgical procedure, as discussed in section II.A.3. of this proposed rule. 
CMS-1601-P 286 

b. Proposed Payment Offset Policy for Diagnostic Radiopharmaceuticals 

 As previously noted, radiopharmaceuticals are considered to be drugs for OPPS 

pass-through payment purposes. As described above, section 1833(t)(6)(D)(i) of the Act 

specifies that the transitional pass-through payment amount for pass-through drugs and 

biologicals is the difference between the amount paid under section 1842(o) of the Act 

and the otherwise applicable OPD fee schedule amount. There is currently one 

radiopharmaceutical with pass-through status under the OPPS, HCPCS code A9584 

(Iodine I-123 ioflupane, diagnostic, per study dose, up to 5 millicuries). This product, 

which is presently referred to using HCPCS code A9584, was granted pass-through status 

using HCPCS code C9406 beginning July 1, 2011, and we are proposing that its 

pass-through status would expire on December 31, 2013. We currently apply the 

established radiopharmaceutical payment offset policy to pass-through payment for this 

product. As described earlier in section V.A.3. of this proposed rule, we are proposing 

that new pass-through diagnostic radiopharmaceuticals would be paid at ASP+6 percent, 

while those new pass-through diagnostic radiopharmaceuticals without ASP information 

would be paid at WAC+6 percent or, if WAC is not available, payment would be based 

on 95 percent of the product’s most recently published AWP. 

 Because a payment offset is necessary in order to provide an appropriate 

transitional pass-through payment, we deduct from the pass-through payment for 

diagnostic radiopharmaceuticals an amount reflecting the portion of the APC payment 

associated with predecessor radiopharmaceuticals in order to ensure no duplicate 

radiopharmaceutical payment is made. In CY 2009, we established a policy to estimate 
CMS-1601-P 287 

the portion of each APC payment rate that could reasonably be attributed to the cost of 

predecessor diagnostic radiopharmaceuticals when considering a new diagnostic 

radiopharmaceutical for pass-through payment (73 FR 68638 through 68641). 

Specifically, we use the policy packaged drug offset fraction for APCs containing nuclear 

medicine procedures, calculated as 1 minus the following: the cost from single procedure 

claims in the APC after removing the cost for policy packaged drugs divided by the cost 

from single procedure claims in the APC. 

 In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60480 through 

60484), we finalized a policy to redefine policy packaged drugs as only nonpass-through 

diagnostic radiopharmaceuticals and contrast agents, as a result of the policy discussed in 

sections V.A.4. and V.B.2.d. of the CY 2010 OPPS/ASC final rule with comment period 

(74 FR 60471 through 60477 and 60495 through 60499, respectively) that treats 

nonpass-through implantable biologicals that are surgically inserted or implanted 

(through a surgical incision or a natural orifice) and implantable biologicals that are 

surgically inserted or implanted (through a surgical incision or a natural orifice) with 

newly approved pass-through status beginning in CY 2010 or later as devices, rather than 

drugs. To determine the actual APC offset amount for pass-through diagnostic 

radiopharmaceuticals that takes into consideration the otherwise applicable OPPS 

payment amount, we multiply the policy packaged drug offset fraction by the APC 

payment amount for the nuclear medicine procedure with which the pass-through 

diagnostic radiopharmaceutical is used and, accordingly, reduce the separate OPPS 

payment for the pass-through diagnostic radiopharmaceutical by this amount. 
CMS-1601-P 288 

 Beginning in CY 2011 and as discussed in the CY 2011 OPPS/ASC final rule 

with comment period (75 FR 71934 through 71936), we finalized a policy to require 

hospitals to append modifier “FB” to specified nuclear medicine procedures and to report 

a token charge of less than $1.01 in cases in which the diagnostic radiopharmaceutical is 

received without cost or with full credit. Beginning in CY 2014, we are proposing to no 

longer require hospitals to append modifier “FB” to specified nuclear medicine 

procedures or to report a token charge of less than $1.01 in cases in which the diagnostic 

radiopharmaceutical is received at no cost/full credit. Under this proposed policy, the 

OPPS payment amount for nuclear medicine procedures would not be reduced when a 

diagnostic radiopharmaceutical is received at no cost or full credit. Based on claims data, 

it appears that hospitals rarely receive diagnostic radiopharmaceuticals at no cost or full 

credit and, therefore, we do not believe that the burden on hospitals of adhering to the 

nuclear medicine “FB” modifier policy continues to be warranted. 

 For CY 2013, we finalized a policy to apply the diagnostic radiopharmaceutical 

offset policy to payment for pass-through diagnostic radiopharmaceuticals, as described 

above. For CY 2014, we are proposing to continue to apply the diagnostic 

radiopharmaceutical offset policy to payment for pass-through diagnostic 

radiopharmaceuticals. 

 Table 21 below displays the proposed APCs to which nuclear medicine 

procedures would be assigned in CY 2014 and for which we expect that an APC offset 

could be applicable in the case of diagnostic radiopharmaceuticals with pass-through 

status. 
CMS-1601-P 289 

TABLE 21.—PROPOSED APCs TO WHICH NUCLEAR MEDICINE 

PROCEDURES WOULD BE ASSIGNED FOR CY 2014 

Proposed 

CY 2014 

APC Proposed CY 2014 APC Title 

0308 Positron Emission Tomography (PET) Imaging 

0377 Level II Cardiac Imaging. 

0378 Level II Pulmonary Imaging. 

0389 Level I Non-imaging Nuclear Medicine. 

0390 Level I Endocrine Imaging. 

0391 Level II Endocrine Imaging. 

0392 Level II Non-imaging Nuclear Medicine. 

0393 Hematologic Processing & Studies. 

0394 Hepatobiliary Imaging. 

0395 GI Tract Imaging. 

0396 Bone Imaging. 

0397 Vascular Imaging. 

0398 Level I Cardiac Imaging. 

0400 Hematopoietic Imaging. 

0401 Level I Pulmonary Imaging. 

0402 Level II Nervous System Imaging. 

0403 Level I Nervous System Imaging. 

0404 Renal and Genitourinary Studies. 

0406 Level I Tumor/Infection Imaging. 

0408 Level III Tumor/Infection Imaging. 

0414 Level II Tumor/Infection Imaging. 

c. Proposed Payment Offset Policy for Contrast Agents 

 Section 1833(t)(6)(D)(i) of the Act specifies that the transitional pass-through 

payment amount for pass-through drugs and biologicals is the difference between the 

amount paid under section 1842(o) of the Act and the otherwise applicable OPD fee 

schedule amount. There currently are no contrast agents with pass-through status under 

the OPPS. As described in section V.A.3. of this proposed rule, we are proposing that 

new pass-through contrast agents would be paid at ASP+6 percent, while those new 
CMS-1601-P 290 

pass-through contrast agents without ASP information would be paid at WAC+6 percent 

or, if WAC is not available, payment would be based on 95 percent of the product’s most 

recently published AWP. 

 Although there are currently no contrast agents with pass-through status, we 

believe that a payment offset is necessary in the event that a new contrast agent is 

approved for pass-through status during CY 2014 in order to provide an appropriate 

transitional pass-through payment for new contrast agents because all of these items are 

packaged when they do not have pass-through status. In accordance with our standard 

offset methodology, we are proposing for CY 2014 to deduct from the payment for new 

pass-through contrast agents that are approved for pass-through status as a drug or 

biological during CY 2014, an amount that reflects the portion of the APC payment 

associated with predecessor contrast agents, in order to ensure no duplicate contrast agent 

payment is made. 

 In CY 2010, we established a policy to estimate the portion of each APC payment 

rate that could reasonably be attributed to the cost of predecessor contrast agents when 

considering new contrast agents for pass-through payment (74 FR 60482 through 60484). 

For CY 2014, as we did in CY 2013, we are proposing to continue to apply this same 

policy to contrast agents. Specifically, we are proposing to utilize the policy packaged 

drug offset fraction for procedural APCs, calculated as 1 minus the following: the cost 

from single procedure claims in the APC after removing the cost for policy packaged 

drugs divided by the cost from single procedure claims in the APC. To determine the 

actual APC offset amount for pass-through contrast agents that takes into consideration 
CMS-1601-P 291 

the otherwise applicable OPPS payment amount, we are proposing to multiply the policy 

packaged drug offset fraction by the APC payment amount for the procedure with which 

the pass-through contrast agent is used and, accordingly, reduce the separate OPPS 

payment for the pass-through contrast agent by this amount. We are proposing to 

continue to apply this methodology for CY 2014 to recognize that when a contrast agent 

with pass-through status is billed with any procedural APC listed in Table 22 of this 

proposed rule, a specific offset based on the procedural APC would be applied to the 

payment for the contrast agent to ensure that duplicate payment is not made for the 

contrast agent. 

 Proposed procedural APCs for which we expect a contrast offset could be 

applicable in the case of a pass-through contrast agent have been identified as any 

procedural APC with a policy packaged drug amount greater than $20 that is not a 

nuclear medicine APC identified in Table 21 above, and these APCs are displayed in 

Table 22 below. The methodology used to determine a proposed threshold cost for 

application of a contrast agent offset policy is described in detail in the CY 2010 

OPPS/ASC final rule with comment period (74 FR 60483 through 60484). For CY 2014, 

we are proposing to continue to recognize that when a contrast agent with pass-through 

status is billed with any procedural APC listed in Table 22, a specific offset based on the 

procedural APC would be applied to the payment for the contrast agent to ensure that 

duplicate payment is not made for the contrast agent. 
CMS-1601-P 292 

TABLE 22.—PROPOSED APCs TO WHICH A CONTRAST AGENT OFFSET 

MAY BE APPLICABLE FOR CY 2014 

Proposed 

CY 2014 

APC 

Proposed CY 2014 APC Title 

0080 Diagnostic Cardiac Catheterization. 

0082 Coronary or Non-Coronary Atherectomy. 

0083 Coronary Angioplasty, Valvuloplasty, and Level I Endovascular 

Revascularization. 

0093 Vascular Reconstruction/Fistula Repair without Device. 

0104 Transcathether Placement of Intracoronary Stents. 

0152 Level I Percutaneous Abdominal and Biliary Procedures. 

0177 Level I Echocardiogram With Contrast. 

0178 Level II Echocardiogram With Contrast. 

0229 Level II Endovascular Revascularization of the Lower Extremity. 

0278 Diagnostic Urography. 

0279 Level II Angiography and Venography. 

0280 Level III Angiography and Venography. 

0283 Computed Tomography with Contrast. 

0284 Magnetic Resonance Imaging and Magnetic Resonance 

Angiography with Contrast. 

0333 Computed Tomography without Contrast followed by Contrast. 

0334 Combined Abdomen and Pelvis CT with Contrast. 

0337 Magnetic Resonance Imaging and Magnetic Resonance 

Angiography without Contrast followed by Contrast. 

0375 Ancillary Outpatient Services When Patient Expires. 

0383 Cardiac Computed Tomographic Imaging. 

0388 Discography. 

0442 Dosimetric Drug Administration. 

0653 Vascular Reconstruction/Fistula Repair with Device. 

0656 Transcatheter Placement of Intracoronary Drug-Eluting Stents. 

0662 CT Angiography. 

0668 Level I Angiography and Venography. 

8006 CT and CTA with Contrast Composite. 

8008 MRI and MRA with Contrast Composite. 
CMS-1601-P 293 

d. Proposed Payment Offset Policy for Products Packaged According to the Proposed 

Policy to Package Drugs, Biologicals, and Radiopharmaceuticals That Function as 

Supplies When Used in a Diagnostic Test or Procedure and Drugs and Biologicals That 

Function as Supplies or Devices When Used in a Surgical Procedure 

 Section 1833(t)(6)(D)(i) of the Act specifies that the transitional pass-through 

payment amount for pass-through drugs and biologicals is the difference between the 

amount paid under section 1842(o) of the Act and the otherwise applicable OPD fee 

schedule amount. As discussed in section II.A.3. of this proposed rule, as a part of our 

proposed policy to package drugs, biologicals, and radiopharmaceuticals that function as 

supplies when used in a diagnostic test or procedure and drugs and biologicals that 

function as supplies or devices when used in a surgical procedure, we are specifically 

proposing that skin substitutes and stress agents used in myocardial perfusion imaging 

(MPI) be policy packaged in CY 2014, in addition to diagnostic radiopharmaceuticals, 

contrast agents, and anesthesia drugs. We believe that a payment offset, similar to the 

offset currently in place for pass-through devices, diagnostic radiopharmaceuticals, and 

contrast agents, is necessary in order to provide an appropriate transitional pass-through 

payment for drugs, biologicals, and radiopharmaceuticals that function as supplies when 

used in a diagnostic test or procedure and drugs and biologicals that function as supplies 

or devices when used in a surgical procedure because all of these are packaged, or 

proposed to be packaged, when they do not have pass-through status. In accordance with 

our standard offset methodology, we are proposing for CY 2014 to deduct from the 

payment for pass-through drugs, biologicals, and radiopharmaceuticals that function as 
CMS-1601-P 294 

supplies when used in a diagnostic test or procedure and drugs and biologicals that 

function as supplies or devices when used in a surgical procedure an amount that reflects 

the portion of the APC payment associated with predecessor products in order to ensure 

no duplicate payment is made. 

 In CY 2009, we established a policy to estimate the portion of each APC payment 

rate that could reasonably be attributed to the cost of predecessor diagnostic 

radiopharmaceuticals when considering a new diagnostic radiopharmaceutical for 

pass-through payment (73 FR 68638 through 68641). For CY 2014, we are proposing to 

apply this same policy to drugs, biologicals, and radiopharmaceuticals that function as 

supplies when used in a diagnostic test or procedure and drugs and biologicals that 

function as supplies or devices when used in a surgical procedure. Specifically, in the 

case of pass-through skin substitutes, we are proposing to utilize the policy packaged 

drug offset fraction for skin substitute procedural APCs, calculated as 1 minus the 

following: the cost from single procedure claims in the APC after removing the cost for 

policy packaged drugs divided by the cost from single procedure claims in the APC. 

Because policy packaged radiopharmaceuticals also would be included in the drug offset 

fraction for the APC to which MPI procedures are assigned, in the case of pass-through 

stress agents, we are proposing to utilize the policy packaged drug offset fraction for the 

procedural APC, calculated as 1 minus the following: the cost from single procedure 

claims in the APC after removing the cost for policy packaged drugs excluding policy 

packaged diagnostic radiopharmaceuticals divided by the cost from single procedure 

claims in the APC. To determine the actual APC offset amount for pass-through skin 
CMS-1601-P 295 

substitutes and pass-through stress agents that takes into consideration the otherwise 

applicable OPPS payment amount, we are proposing to multiply the policy-packaged 

drug offset fraction by the APC payment amount for the procedure with which the 

pass-through skin substitute or pass-through stress agent is used and, accordingly, reduce 

the separate OPPS payment for the pass-through skin substitute or pass-through stress 

agent by this amount. 

 Table 23 below displays the proposed APCs to which skin substitute procedures 

would be assigned in CY 2014 and for which we expect that an APC offset could be 

applicable in the case of skin substitutes with pass-through status. 

 Table 24 below displays the proposed APC to which MPI procedures would be 

assigned in CY 2014 and for which we expect that an APC offset could be applicable in 

the case of a stress agent with pass-through status. 

 We are proposing to continue to post annually on the CMS Web site at 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalOutpatientPPS/index.html a file that contains the APC offset amounts 

that will be used for that year for purposes of both evaluating cost significance for 

candidate pass-through device categories and drugs and biologicals and establishing any 

appropriate APC offset amounts. Specifically, the file will continue to provide the 

amounts and percentages of APC payment associated with packaged implantable devices, 

policy packaged drugs, and threshold packaged drugs and biologicals for every OPPS 

clinical APC. 

TABLE 23.—PROPOSED APCs TO WHICH SKIN SUBSTITUTE 

PROCEDURES WOULD BE ASSIGNED FOR CY 2014 
CMS-1601-P 296 

Proposed 

CY 2014 

APC 

Proposed CY 2014 APC Title 

0135 Level III Skin Repair 

0136 Level IV Skin Repair 

TABLE 24.—PROPOSED APCs TO WHICH MPI PROCEDURES WOULD BE 

ASSIGNED FOR CY 2014 

Proposed 

CY 2014 

APC Proposed CY 2014 APC Title 

0100 Cardiac Stress Tests 

0377 Level II Cardiac Imaging. 

B. Proposed OPPS Payment for Drugs, Biologicals, and Radiopharmaceuticals without 

Pass-Through Status

1. Background 

 Under the CY 2013 OPPS, we currently pay for drugs, biologicals, and 

radiopharmaceuticals that do not have pass-through status in one of two ways: as a 

packaged payment included in the payment for the associated service, or as a separate 

payment (individual APCs). We explained in the April 7, 2000 OPPS final rule with 

comment period (65 FR 18450) that we generally package the cost of drugs and 

radiopharmaceuticals into the APC payment rate for the procedure or treatment with 

which the products are usually furnished. Hospitals do not receive separate payment for 

packaged items and supplies, and hospitals may not bill beneficiaries separately for any 

packaged items and supplies whose costs are recognized and paid within the national 

OPPS payment rate for the associated procedure or service. (Transmittal A-01-133, 
CMS-1601-P 297 

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. 

2. Proposed Criteria for Packaging Payment for Drugs, Biologicals, and 

Radiopharmaceuticals 

a. Background 

 As indicated in section V.B.1. of this proposed rule, in accordance with section 

1833(t)(16)(B) of the Act, the threshold for establishing separate APCs for payment of 

drugs and biologicals was set to $50 per administration during CYs 2005 and 2006. In 

CY 2007, we used the four quarter moving average Producer Price Index (PPI) levels for 

Pharmaceutical Preparations (Prescription) to trend the $50 threshold forward from the 

third quarter of CY 2005 (when the Pub. L. 108-173 mandated threshold became 

effective) to the third quarter of CY 2007. We then rounded the resulting dollar amount 

to the nearest $5 increment in order to determine the CY 2007 threshold amount of $55. 

Using the same methodology as that used in CY 2007 (which is discussed in more detail 

in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68085 through 

68086)), we set the packaging threshold for establishing separate APCs for drugs and 
CMS-1601-P 298 

biologicals at $60 for CYs 2008 and 2009. For CY 2010, we set the packaging threshold 

at $65; for CY 2011, we set the packaging threshold at $70; for CY 2012, we set the 

packaging threshold at $75; and for CY 2013, we set the packaging threshold at $80. 

 Following the CY 2007 methodology, for this CY 2014 OPPS/ASC proposed 

rule, we used the most recently available four quarter moving average PPI levels to trend 

the $50 threshold forward from the third quarter of CY 2005 to the third quarter of 

CY 2014 and rounded the resulting dollar amount ($87.70) to the nearest $5 increment, 

which yielded a figure of $90. In performing this calculation, we used the most recent 

forecast of the quarterly index levels for the PPI for Pharmaceuticals for Human Use 

(Prescription) (Bureau of Labor Statistics (BLS) series code WPUSI07003) from CMS’ 

Office of the Actuary (OACT). (We note that we are not proposing a change to the PPI 

that is used to calculate the threshold for CY 2014; rather, this change in terminology 

reflects a change to the BLS naming convention for this series.) We refer below to this 

series generally as the PPI for Prescription Drugs. 

 We chose the PPI for Prescription Drugs as it reflects price changes associated 

with the average mix of all pharmaceuticals in the overall economy. In addition, we 

chose this price series because it is publicly available and regularly published, improving 

public access and transparency. Forecasts of the PPI for Prescription Drugs are 

developed by IHS Global Insight, Inc., a nationally recognized economic and financial 

forecasting firm. As actual inflation for past quarters replaced forecasted amounts, the 

PPI estimates for prior quarters have been revised (compared with those used in the 

CY 2007 OPPS/ASC final rule with comment period) and have been incorporated into 
CMS-1601-P 299 

our calculation. Based on the calculations described above, we are proposing a 

packaging threshold for CY 2014 of $90. (For a more detailed discussion of the OPPS 

drug packaging threshold and the use of the PPI for Prescription Drugs, we refer readers 

to the CY 2007 OPPS/ASC final rule with comment period (71 FR 68085 through 

68086).) 

b. Proposed Cost Threshold for Packaging of Payment for HCPCS Codes That Describe 

Certain Drugs, Certain Biologicals, and Therapeutic Radiopharmaceuticals (“ThresholdPackaged Drugs”) 

 To determine the proposed CY 2014 packaging status for all nonpass-through 

drugs and biologicals that are not policy packaged for this proposed rule, we calculated, 

on a HCPCS code-specific basis, the per day cost of all drugs, biologicals, and 

therapeutic radiopharmaceuticals (collectively called “threshold-packaged” drugs) that 

had a HCPCS code in CY 2012 and were paid (via packaged or separate payment) under 

the OPPS. We used data from CY 2012 claims processed before January 1, 2013 for this 

calculation. However, we did not perform this calculation for those drugs and biologicals 

with multiple HCPCS codes that include different dosages, as described in section 

V.B.2.c. of this proposed rule, or for diagnostic radiopharmaceuticals, contrast agents, 

anesthesia drugs, and implantable biologicals that we are proposing to continue to 

package in CY 2014, or for the new categories of policy-packaged products proposed for 

CY 2014, as discussed in section II.A.3. of this proposed rule. 

 In order to calculate the per day costs for drugs, biologicals, and therapeutic 

radiopharmaceuticals to determine their proposed packaging status in CY 2014, we used 
CMS-1601-P 300 

the methodology that was described in detail in the CY 2006 OPPS proposed rule 

(70 FR 42723 through 42724) and finalized in the CY 2006 OPPS final rule with 

comment period (70 FR 68636 through 70 FR 68638). For each drug and biological 

HCPCS code, we used an estimated payment rate of ASP+6 percent (which is the 

payment rate we are proposing for separately payable drugs and biologicals for CY 2014, 

as discussed in more detail in section V.B.3.b. of this proposed rule) to calculate the 

CY 2014 proposed rule per day costs. We used the manufacturer submitted ASP data 

from the fourth quarter of CY 2012 (data that were used for payment purposes in the 

physician’s office setting, effective April 1, 2013) to determine the proposed rule per day 

cost. 

 As is our standard methodology, for CY 2014, we are proposing to use payment 

rates based on the ASP data from the fourth quarter of CY 2012 for budget neutrality 

estimates, packaging determinations, impact analyses, and completion of Addenda A and 

B to this proposed rule (which are available via the Internet on the CMS Web site) 

because these are the most recent data available for use at the time of development of this 

proposed rule. These data also were the basis for drug payments in the physician’s office 

setting, effective April 1, 2013. For items that did not have an ASP-based payment rate, 

such as some therapeutic radiopharmaceuticals, we used their mean unit cost derived 

from the CY 2012 hospital claims data to determine their per day cost. 

 We are proposing to package items with a per day cost less than or equal to $90, 

and identify items with a per day cost greater than $90 as separately payable. Consistent 

with our past practice, we crosswalked historical OPPS claims data from the CY 2012 
CMS-1601-P 301 

HCPCS codes that were reported to the CY 2013 HCPCS codes that we display in 

Addendum B of this proposed rule (which is available via the Internet on the CMS Web 

site) for payment in CY 2014. 

 Our policy during previous cycles of the OPPS has been to use updated ASP and 

claims data to make final determinations of the packaging status of HCPCS codes for 

drugs, biologicals, and therapeutic radiopharmaceuticals for the OPPS/ASC final rule 

with comment period. We note that it is also our policy to make an annual packaging 

determination for a HCPCS code only when we develop the OPPS/ASC final rule with 

comment period for the update year. Only HCPCS codes that are identified as separately 

payable in the final rule with comment period will be subject to quarterly updates. For 

our calculation of per day costs of HCPCS codes for drugs and biologicals in the 

CY 2014 OPPS/ASC final rule with comment period, we are proposing to use ASP data 

from the first quarter of CY 2013, which is the basis for calculating payment rates for 

drugs and biologicals in the physician’s office setting using the ASP methodology, 

effective July 1, 2013, along with updated hospital claims data from CY 2012. We note 

that we also are proposing to use these data for budget neutrality estimates and impact 

analyses for the CY 2014 OPPS/ASC final rule with comment period. 

 Payment rates for HCPCS codes for separately payable drugs and biologicals 

included in Addenda A and B to the final rule with comment period will be based on ASP 

data from the second quarter of CY 2013. These data will be the basis for calculating 

payment rates for drugs and biologicals in the physician’s office setting using the ASP 

methodology, effective October 1, 2013. These physician’s office payment rates would 
CMS-1601-P 302 

then be updated in the January 2014 OPPS update, based on the most recent ASP data to 

be used for physician’s office and OPPS payment as of January 1, 2014. For items that 

do not currently have an ASP-based payment rate, we are proposing to recalculate their 

mean unit cost from all of the CY 2012 claims data and updated cost report information 

available for the CY 2014 final rule with comment period to determine their final per day 

cost. 

 Consequently, the packaging status of some HCPCS codes for drugs, biologicals, 

and therapeutic radiopharmaceuticals in this CY 2014 OPPS/ASC proposed rule may be 

different from the same drug HCPCS code’s packaging status determined based on the 

data used for the CY 2014 OPPS/ASC final rule with comment period. Under such 

circumstances, we are proposing to continue to follow the established policies initially 

adopted for the CY 2005 OPPS (69 FR 65780) in order to more equitably pay for those 

drugs whose cost fluctuates relative to the proposed CY 2014 OPPS drug packaging 

threshold and the drug’s payment status (packaged or separately payable) in CY 2013. 

Specifically, for CY 2014, consistent with our historical practice, we are proposing to 

apply the following policies to these HCPCS codes for drugs, biologicals, and therapeutic 

radiopharmaceuticals whose relationship to the drug packaging threshold changes based 

on the updated drug packaging threshold and on the final updated data: 

● HCPCS codes for drugs and biologicals that were paid separately in CY 2013 

and that are proposed for separate payment in CY 2014, and that then have per day costs 

equal to or less than the CY 2014 final rule drug packaging threshold, based on the 
CMS-1601-P 303 

updated ASPs and hospital claims data used for the CY 2014 final rule, would continue to 

receive separate payment in CY 2014. 

● HCPCS codes for drugs and biologicals that were packaged in CY 2013 and 

that are proposed for separate payment in CY 2014, and that then have per day costs 

equal to or less than the CY 2014 final rule drug packaging threshold, based on the 

updated ASPs and hospital claims data used for the CY 2014 final rule, would remain 

packaged in CY 2014. 

● HCPCS codes for drugs and biologicals for which we are proposing packaged 

payment in CY 2014 but then have per day costs greater than the CY 2014 final rule drug 

packaging threshold, based on the updated ASPs and hospital claims data used for the 

CY 2014 final rule, would receive separate payment in CY 2014. 

c. Proposed Packaging Determination for HCPCS Codes That Describe the Same Drug 

or Biological But Different Dosages 

 In the CY 2008 OPPS/ASC final rule with comment period (72 FR 66776), we 

began recognizing, for OPPS payment purposes, multiple HCPCS codes reporting 

different dosages for the same covered Part B drugs or biologicals in order to reduce 

hospitals’ administrative burden by permitting them to report all HCPCS codes for drugs 

and biologicals. In general, prior to CY 2008, the OPPS recognized for payment only the 

HCPCS code that described the lowest dosage of a drug or biological. We extended this 

recognition to multiple HCPCS codes for several other drugs under the CY 2009 OPPS 

(73 FR 68665). During CYs 2008 and 2009, we applied a policy that assigned the status 

indicator of the previously recognized HCPCS code to the associated newly recognized 
CMS-1601-P 304 

code(s), reflecting the packaged or separately payable status of the new code(s). In the 

CY 2008 OPPS/ASC final rule with comment period (72 FR 66775), we explained that 

once claims data were available for these previously unrecognized HCPCS codes, we 

would determine the packaging status and resulting status indicator for each HCPCS code 

according to the general, established HCPCS code-specific methodology for determining 

a code’s packaging status for a given update year. However, we also stated that we 

planned to closely follow our claims data to ensure that our annual packaging 

determinations for the different HCPCS codes describing the same drug or biological did 

not create inappropriate payment incentives for hospitals to report certain HCPCS codes 

instead of others. 

 In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60490 through 

60491), we finalized a policy to make a single packaging determination for a drug, rather 

than an individual HCPCS code, when a drug has multiple HCPCS codes describing 

different dosages. We analyzed CY 2008 claims data for the HCPCS codes describing 

different dosages of the same drug or biological that were newly recognized in CY 2008 

and found that our claims data would result in several different packaging determinations 

for different codes describing the same drug or biological. Furthermore, we found that 

our claims data included few units and days for a number of newly recognized HCPCS 

codes, resulting in our concern that these data reflected claims from only a small number 

of hospitals, even though the drug or biological itself may be reported by many other 

hospitals under the most common HCPCS code. Based on these findings from our first 

available claims data for the newly recognized HCPCS codes, we believed that adopting 
CMS-1601-P 305 

our standard HCPCS code-specific packaging determinations for these codes could lead 

to payment incentives for hospitals to report certain HCPCS codes instead of others, 

particularly because we do not currently require hospitals to report all drug and biological 

HCPCS codes under the OPPS in consideration of our previous policy that generally 

recognized only the lowest dosage HCPCS code for a drug or biological for OPPS 

payment. 

 For CY 2014, we continue to believe that adopting the standard HCPCS 

code-specific packaging determinations for these codes could lead to payment incentives 

for hospitals to report certain HCPCS codes for drugs instead of others. Making 

packaging determinations on a drug-specific basis eliminates these incentives and allows 

hospitals flexibility in choosing to report all HCPCS codes for different dosages of the 

same drug or only the lowest dosage HCPCS code. Therefore, we are proposing to 

continue our policy to make packaging determinations on a drug-specific basis, rather 

than a HCPCS code-specific basis, for those HCPCS codes that describe the same drug or 

biological but different dosages in CY 2014. 

 For CY 2014, in order to propose a packaging determination that is consistent 

across all HCPCS codes that describe different dosages of the same drug or biological, 

we aggregated both our CY 2012 claims data and our pricing information at ASP+6 

percent across all of the HCPCS codes that describe each distinct drug or biological in 

order to determine the mean units per day of the drug or biological in terms of the 

HCPCS code with the lowest dosage descriptor. We then multiplied the weighted 

average ASP+6 percent per unit payment amount across all dosage levels of a specific 
CMS-1601-P 306 

drug or biological by the estimated units per day for all HCPCS codes that describe each 

drug or biological from our claims data to determine the estimated per day cost of each 

drug or biological at less than or equal to $90 (so that all HCPCS codes for the same drug 

or biological would be packaged) or greater than $90 (so that all HCPCS codes for the 

same drug or biological would be separately payable). The following drugs did not have 

pricing information available for the ASP methodology for this CY 2014 OPPS/ASC 

proposed rule and, as is our current policy for determining the packaging status of other 

drugs, we used the mean unit cost available from the fourth quarter CY 2012 claims data 

to make the packaging determinations for these drugs: HCPCS codes J3471 (Injection, 

hyaluronidase, ovine, preservative free, per 1 usp unit (up to 999 usp units)); J3472 

(Injection, hyaluronidase, ovine, preservative free, per 1000 usp units); Q0171 

(Chlorpromazine hydrochloride, 10 mg, oral, FDA approved prescription antiemetic, for 

use as a complete therapeutic substitute for an IV antiemetic at the time of chemotherapy 

treatment, not to exceed a 48-hour dosage regimen); Q0172 (Chlorpromazine 

hydrochloride, 25 mg, oral, FDA approved prescription anti-emetic, for use as a complete 

therapeutic substitute for an IV anti-emetic at the time of chemotherapy treatment, not to 

exceed a 48-hour dosage regimen); Q0175 (Perphenazine, 4 mg, oral, FDA approved 

prescription anti-emetic, for use as a complete therapeutic substitute for an IV anti-emetic 

at the time of chemotherapy treatment, not to exceed a 48-hour dosage regimen); Q0176 

(Perphenazine, 8 mg, oral, FDA approved prescription anti-emetic, for use as a complete 

therapeutic substitute for an IV anti-emetic at the time of chemotherapy treatment, not to 

exceed a 48-hour dosage regimen); Q0177 (Hydroxyzine pamoate, 25 mg, oral, FDA 
CMS-1601-P 307 

approved prescription anti-emetic, for use as a complete therapeutic substitute for an IV 

anti-emetic at the time of chemotherapy treatment, not to exceed a 48-hour dosage 

regimen); and Q0178 (Hydroxyzine pamoate, 50 mg, oral, FDA approved prescription 

anti-emetic, for use as a complete therapeutic substitute for an IV anti-emetic at the time 

of chemotherapy treatment, not to exceed a 48-hour dosage regimen). The proposed 

packaging status of each drug and biological HCPCS code to which this methodology 

would apply is displayed in Table 25 below. 

TABLE 25.—PROPOSED HCPCS CODES TO WHICH THE CY 2014 DRUGSPECIFIC PACKAGING DETERMINATION METHODOLOGY WOULD 

APPLY 

Proposed 

CY 2014 

HCPCS 

Code Proposed CY 2014 Long Descriptor 

Proposed 

CY 2014 

SI 

C9257 Injection, bevacizumab, 0.25 mg K 

J9035 Injection, bevacizumab, 10 mg K 

J1020 Injection, methylprednisolone acetate, 20 mg N 

J1030 Injection, methylprednisolone acetate, 40 mg N 

J1040 Injection, methylprednisolone acetate, 80 mg N 

J1070 Injection, testosterone cypionate, up to 100 mg N 

J1080 Injection, testosterone cypionate, 1 cc, 200 mg N 

J1440 Injection, filgrastim (g-csf), 300 mcg K 

J1441 Injection, filgrastim (g-csf), 480 mcg K 

J1460 Injection, gamma globulin, intramuscular, 1 cc N 

J1560 Injection, gamma globulin, intramuscular over 10 cc N 

J1642 Injection, heparin sodium, (heparin lock flush), per 10 units N 

J1644 Injection, heparin sodium, per 1000 units N 

J1850 Injection, kanamycin sulfate, up to 75 mg N 

J1840 Injection, kanamycin sulfate, up to 500 mg N 

J2270 Injection, morphine sulfate, up to 10 mg N 

J2271 Injection, morphine sulfate, 100mg N 

J2788 Injection, rho d immune globulin, human, minidose, 50 

micrograms (250 i.u.) K 

J2790 Injection, rho d immune globulin, human, full dose, 300 K 
CMS-1601-P 308 

Proposed 

CY 2014 

HCPCS 

Code Proposed CY 2014 Long Descriptor 

Proposed 

CY 2014 

SI 

micrograms (1500 i.u.) 

J2920 Injection, methylprednisolone sodium succinate, up to 40 mg N 

J2930 Injection, methylprednisolone sodium succinate, up to 125 mg N 

J3120 Injection, testosterone enanthate, up to 100 mg N 

J3130 Injection, testosterone enanthate, up to 200 mg N 

J3471 Injection, hyaluronidase, ovine, preservative free, per 1 usp 

unit (up to 999 usp units) N 

J3472 Injection, hyaluronidase, ovine, preservative free, per 1000 usp 

units N 

J7050 Infusion, normal saline solution , 250 cc N 

J7040 Infusion, normal saline solution, sterile (500 ml=1 unit) N 

J7030 Infusion, normal saline solution , 1000 cc N 

J7515 Cyclosporine, oral, 25 mg N 

J7502 Cyclosporine, oral, 100 mg N 

J8520 Capecitabine, oral, 150 mg K 

J8521 Capecitabine, oral, 500 mg K 

J9250 Methotrexate sodium, 5 mg N 

J9260 Methotrexate sodium, 50 mg N 

Q0164 

Prochlorperazine maleate, 5 mg, oral, FDA approved 

prescription anti-emetic, for use as a complete therapeutic 

substitute for an IV anti-emetic at the time of chemotherapy 

treatment, not to exceed a 48-hour dosage regimen 

N 

Q0165 

Prochlorperazine maleate, 10 mg, oral, FDA approved 

prescription anti-emetic, for use as a complete therapeutic 

substitute for an IV anti-emetic at the time of chemotherapy 

treatment, not to exceed a 48-hour dosage regimen 

N 

Q0167 

Dronabinol, 2.5 mg, oral, FDA approved prescription antiemetic, for use as a complete therapeutic substitute for an IV 

anti-emetic at the time of chemotherapy treatment, not to 

exceed a 48-hour dosage regimen 

N 

Q0168 

Dronabinol, 5 mg, oral, FDA approved prescription antiemetic, for use as a complete therapeutic substitute for an IV 

anti-emetic at the time of chemotherapy treatment, not to 

exceed a 48-hour dosage regimen 

N 

Q0169 

Promethazine hydrochloride, 12.5 mg, oral, FDA approved 

prescription anti-emetic, for use as a complete therapeutic 

substitute for an IV antiemetic at the time of chemotherapy 

treatment, not to exceed a 48-hour dosage regimen 

N 
CMS-1601-P 309 

Proposed 

CY 2014 

HCPCS 

Code Proposed CY 2014 Long Descriptor 

Proposed 

CY 2014 

SI 

Q0170 

Promethazine hydrochloride, 25 mg, oral, FDA approved 

prescription anti-emetic, for use as a complete therapeutic 

substitute for an IV antiemetic at the time of chemotherapy 

treatment, not to exceed a 48-hour dosage regimen 

N 

Q0171 

Chlorpromazine hydrochloride, 10 mg, oral, FDA approved 

prescription antiemetic, for use as a complete therapeutic 

substitute for an IV antiemetic at the time of chemotherapy 

treatment, not to exceed a 48-hour dosage regimen 

N 

Q0172 

Chlorpromazine hydrochloride, 25 mg, oral, FDA approved 

prescription anti-emetic, for use as a complete therapeutic 

substitute for an IV anti-emetic at the time of chemotherapy 

treatment, not to exceed a 48-hour dosage regimen 

N 

Q0175 

Perphenazine, 4 mg, oral, FDA approved prescription antiemetic, for use as a complete therapeutic substitute for an IV 

anti-emetic at the time of chemotherapy treatment, not to 

exceed a 48-hour dosage regimen 

N 

Q0176 

Perphenazine, 8 mg, oral, FDA approved prescription antiemetic, for use as a complete therapeutic substitute for an IV 

anti-emetic at the time of chemotherapy treatment, not to 

exceed a 48-hour dosage regimen 

N 

Q0177 

Hydroxyzine pamoate, 25 mg, oral, FDA approved 

prescription anti-emetic, for use as a complete therapeutic 

substitute for an IV anti-emetic at the time of chemotherapy 

treatment, not to exceed a 48-hour dosage regimen 

N 

Q0178 

Hydroxyzine pamoate, 50 mg, oral, FDA approved 

prescription anti-emetic, for use as a complete therapeutic 

substitute for an IV anti-emetic at the time of chemotherapy 

treatment, not to exceed a 48-hour dosage regimen 

N 
CMS-1601-P 310 

3. Proposed Payment for Drugs and Biologicals without Pass-Through Status That Are 

Not Packaged 

a. Proposed Payment for Specified Covered Outpatient Drugs (SCODs) and Other 

Separately Payable and Packaged Drugs and Biologicals 

 Section 1833(t)(14) of the Act defines certain separately payable 

radiopharmaceuticals, drugs, and biologicals and mandates specific payments for these 

items. Under section 1833(t)(14)(B)(i) of the Act, a “specified covered outpatient drug” 

(known as a SCOD) is defined as a covered outpatient drug, as defined in section 

1927(k)(2) of the Act, for which a separate APC has been established and that either is a 

radiopharmaceutical agent or is a drug or biological for which payment was made on a 

pass-through basis on or before December 31, 2002. 

 Under section 1833(t)(14)(B)(ii) of the Act, certain drugs and biologicals are 

designated as exceptions and are not included in the definition of SCODs. These 

exceptions are— 

● A drug or biological for which payment is first made on or after 

January 1, 2003, under the transitional pass-through payment provision in 

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

● A drug or biological for which a temporary HCPCS code has not been 

assigned. 

● During CYs 2004 and 2005, an orphan drug (as designated by the Secretary). 

 Section 1833(t)(14)(A)(iii) of the Act requires that payment for SCODs in 

CY 2006 and subsequent years be equal to the average acquisition cost for the drug for 
CMS-1601-P 311 

that year as determined by the Secretary, subject to any adjustment for overhead costs 

and taking into account the hospital acquisition cost survey data collected by the 

Government Accountability Office (GAO) in CYs 2004 and 2005, and later periodic 

surveys conducted by the Secretary as set forth in the statute. If hospital acquisition cost 

data are not available, the law requires that payment be equal to payment rates 

established under the methodology described in section 1842(o), section 1847A, or 

section 1847B of the Act, as calculated and adjusted by the Secretary as necessary. Most 

physician Part B drugs are paid at ASP+6 percent pursuant to section 1842(o) and section 

1847A of the Act. 

 Section 1833(t)(14)(E)(ii) of the Act provides for an adjustment in OPPS payment 

rates for SCODs to take into account overhead and related expenses, such as pharmacy 

services and handling costs. Section 1833(t)(14)(E)(i) of the Act required MedPAC to 

study pharmacy overhead and related expenses and to make recommendations to the 

Secretary regarding whether, and if so how, a payment adjustment should be made to 

compensate hospitals for overhead and related expenses. Section 1833(t)(14)(E)(ii) of 

the Act authorizes the Secretary to adjust the weights for ambulatory procedure 

classifications for SCODs to take into account the findings of the MedPAC study. 

 It has been our longstanding policy to apply the same treatment to all separately 

payable drugs and biologicals, which include SCODs, and drugs and biologicals that are 

not SCODs. Therefore, we apply the payment methodology in section 1833(t)(14)(A)(iii) 

of the Act to SCODs, as required by statute, but we also apply it to separately payable 

drugs and biologicals that are not SCODs, which is a policy determination rather than a 
CMS-1601-P 312 

statutory requirement. In this CY 2014 OPPS/ASC proposed rule, we are proposing to 

apply section 1833(t)(14)(A)(iii)(II) of the Act to all separately payable drugs and 

biologicals, including SCODs. Although we do not distinguish SCODs in this 

discussion, we note that we are required to apply section 1833(t)(14)(A)(iii)(II) of the Act 

to SCODs, but we also are applying this provision to other separately payable drugs and 

biologicals, consistent with our history of using the same payment methodology for all 

separately payable drugs and biologicals. 

 Since CY 2006, we have attempted to establish a drug payment methodology that 

reflects hospitals’ acquisition costs for drugs and biologicals while taking into account 

relevant pharmacy overhead and related handling expenses. We have attempted to 

collect more data on hospital overhead charges for drugs and biologicals by making 

several proposals that would require hospitals to change the way they report the cost and 

charges for drugs. None of these proposals were adopted due to significant stakeholder 

concern, including that hospitals stated that it would be administratively burdensome to 

report hospital overhead charges. We established a payment policy for separately 

payable drugs and biologicals, authorized by section 1833(t)(14)(A)(iii)(I) of the Act, 

based on an ASP+X amount that is calculated by comparing the estimated aggregate cost 

of separately payable drugs and biologicals in our claims data to the estimated aggregate 

ASP dollars for separately payable drugs and biologicals, using the ASP as a proxy for 

average acquisition cost (70 FR 68642). We referred to this methodology as our standard 

drug payment methodology. 
CMS-1601-P 313 

 In CY 2010, taking into consideration comments made by the pharmacy 

stakeholders and acknowledging the limitations of the reported data due to charge 

compression and hospitals’ reporting practices, we added an “overhead adjustment” (an 

internal adjustment of the data) by redistributing cost from coded and uncoded packaged 

drugs and biologicals to separately payable drugs in order to provide more appropriate 

payments for drugs and biologicals in the HOPD. We continued this overhead 

adjustment methodology through CY 2012, and further refined our overhead adjustment 

methodology by finalizing a policy to update the redistribution amount for inflation and 

to keep the redistribution ratio constant between the proposed rule and the final rule. For 

a detailed discussion of our OPPS drug payment policies from CY 2006 to CY 2012, we 

refer readers to the CY 2013 OPPS/ASC final rule with comment period (77 FR 68383 

through 68385). 

 We noted in the CY 2013 OPPS/ASC final rule with comment period 

(77 FR 68386) that application of the standard drug payment methodology, with the 

overhead adjustment, has always yielded a finalized payment rate in the range of ASP+4 

percent to ASP+6 percent for nonpass-through separately payable drugs. We stated that 

the historic ASP+4 to ASP+6 percentage range is an appropriate payment rate for 

separately payable drugs and biologicals administered within the HOPD, including 

acquisition and pharmacy overhead and related expenses. However, because of 

continuing uncertainty about the full cost of pharmacy overhead and acquisition cost, 

based in large part on the limitations of the submitted hospital charge and claims data for 

drugs, we indicated our concern that the continued use of the standard drug payment 
CMS-1601-P 314 

methodology (including the overhead adjustment) still may not appropriately account for 

average acquisition and pharmacy overhead cost and, therefore, may result in payment 

rates that are not as predictable, accurate, or appropriate as they could be. 

 In that final rule with comment period, we discussed that section 

1833(t)(14)(A)(iii)(II) of the Act requires an alternative methodology for determining 

payment rates for SCODs wherein, if hospital acquisition cost data are not available, 

payment shall be equal (subject to any adjustment for overhead costs) to payment rates 

established under the methodology described in section 1842(o), section 1847A, or 

section 1847B of the Act, as calculated and adjusted by the Secretary as necessary. In the 

CY 2013 OPPS/ASC final rule with comment period (77 FR 68386), we noted that 

section 1833(t)(14)(A)(iii)(II) of the Act authorizes the Secretary to calculate and adjust, 

as necessary, the average price for a drug in the year established under section 1842(o), 

1847A, or 1847B of the Act, as the case may be, in determining payment for SCODs. 

Pursuant to sections 1842(o) and 1847A of the Act, Part B drugs are paid at ASP+6 

percent when furnished in physicians’ offices. We indicated that we believe that 

establishing the payment rates based on the statutory default of ASP+6 percent is 

appropriate as it yields increased predictability in payment for separately payable drugs 

and biologicals under the OPPS. We also noted that ASP+6 percent is an appropriate 

payment amount because it is consistent with payment amounts yielded by our drug 

payment methodologies over the past 7 years. Therefore, considering stakeholder and 

provider feedback, continued limitations of the hospital claims and cost data on drugs and 

biologicals, and Panel recommendations, in the CY 2013 OPPS/ASC final rule with 
CMS-1601-P 315 

comment period (77 FR 68389), we finalized our proposal for CY 2013 to pay for 

separately payable drugs and biologicals at ASP+6 percent based on section 

1833(t)(14)(A)(iii)(II) of the Act, referred to as the statutory default. We also finalized 

our proposal that the ASP+6 percent payment amount for separately payable drugs and 

biologicals requires no further adjustment, and represents the combined acquisition and 

pharmacy overhead payment for drugs and biologicals and that payments for separately 

payable drugs and biologicals are included in the budget neutrality adjustments, under the 

requirements in section 1833(t)(9)(B) of the Act, and that the budget neutral weight scaler 

is not applied in determining payments for these separately paid drugs and biological for 

CY 2013 (77 FR 68389). 

b. Proposed CY 2014 Payment Policy 

 For CY 2014, we are proposing to continue our CY 2013 policy and pay for 

separately payable drugs and biologicals at ASP+6 percent based on section 

1833(t)(14)(A)(iii)(II) of the Act, referred to as the statutory default. We are proposing 

that the ASP+6 percent payment amount for separately payable drugs and biologicals 

requires no further adjustment, and represents the combined acquisition and pharmacy 

overhead payment for drugs and biologicals. We also are proposing that payments for 

separately payable drugs and biologicals are included in the budget neutrality 

adjustments, under the requirements in section 1833(t)(9)(B) of the Act, and that the 

budget neutral weight scaler is not applied in determining payments for these separately 

paid drugs and biologicals. 
CMS-1601-P 316 

4. Proposed Payment Policy for Therapeutic Radiopharmaceuticals 

 Beginning in CY 2010 and continuing for CY 2013, we established a policy to 

pay for separately paid therapeutic radiopharmaceuticals under the ASP methodology 

adopted for separately payable drugs and biologicals. If ASP information is unavailable 

for a therapeutic radiopharmaceutical, we base therapeutic radiopharmaceutical payment 

on mean unit cost data derived from hospital claims. We believe that the rationale 

outlined in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60524 

through 60525) for applying the principles of separately payable drug pricing to 

therapeutic radiopharmaceuticals continues to be appropriate for nonpass-through 

separately payable therapeutic radiopharmaceuticals in CY 2014. Therefore, we are 

proposing for CY 2014 to pay all nonpass-through, separately payable therapeutic 

radiopharmaceuticals at ASP+6 percent, based on the statutory default described in 

section 1833(t)(14)(A)(iii)(II) of the Act. For a full discussion of ASP-based payment for 

therapeutic radiopharmaceuticals, we refer readers to the CY 2010 OPPS/ASC final rule 

with comment period (74 FR 60520 through 60521). We also are proposing to rely on 

CY 2012 mean unit cost data derived from hospital claims data for payment rates for 

therapeutic radiopharmaceuticals for which ASP data are unavailable and to update the 

payment rates for separately payable therapeutic radiopharmaceuticals, according to our 

usual process for updating the payment rates for separately payable drugs and biologicals, 

on a quarterly basis if updated ASP information is available. For a complete history of 

the OPPS payment policy for therapeutic radiopharmaceuticals, we refer readers to the 

CY 2005 OPPS final rule with comment period (69 FR 65811), the CY 2006 OPPS final 
CMS-1601-P 317 

rule with comment period (70 FR 68655), and the CY 2010 OPPS/ASC final rule with 

comment period (74 FR 60524). 

 The proposed CY 2014 payment rates for nonpass-through separately payable 

therapeutic radiopharmaceuticals are included in Addenda A and B to this proposed rule 

(which are available via the Internet on the CMS Web site). 

5. Proposed Payment for Blood Clotting Factors 

 For CY 2013, we provided payment for blood clotting factors under the same 

methodology as other nonpass-through separately payable drugs and biologicals under 

the OPPS and continued paying an updated furnishing fee. That is, for CY 2013, we 

provided payment for blood clotting factors under the OPPS at ASP+6 percent, plus an 

additional payment for the furnishing fee. We note that when blood clotting factors are 

provided in physicians’ offices under Medicare Part B and in other Medicare settings, a 

furnishing fee is also applied to the payment. The CY 2013 updated furnishing fee was 

$0.188 per unit. 

 For CY 2014, we are proposing to pay for blood clotting factors at 

ASP+6 percent, consistent with our proposed payment policy for other nonpass-through 

separately payable drugs and biologicals, and to continue our policy for payment of the 

furnishing fee using an updated amount. Our policy to pay for a furnishing fee for blood 

clotting factors under the OPPS is consistent with the methodology applied in the 

physician office and inpatient hospital setting, and first articulated in the CY 2006 OPPS 

final rule with comment period (70 FR 68661) and later discussed in the CY 2008 

OPPS/ASC final rule with comment period (72 FR 66765). The proposed furnishing fee 
CMS-1601-P 318 

update is based on the percentage increase in the Consumer Price Index (CPI) for medical 

care for the 12-month period ending with June of the previous year. Because the Bureau 

of Labor Statistics releases the applicable CPI data after the MPFS and OPPS/ASC 

proposed rules are published, we are not able to include the actual updated furnishing fee 

in the proposed rules. Therefore, in accordance with our policy, as finalized in the 

CY 2008 OPPS/ASC final rule with comment period (72 FR 66765), we are proposing to 

announce the actual figure for the percent change in the applicable CPI and the updated 

furnishing fee calculated based on that figure through applicable program instructions 

and posting on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-forService-Part-B-Drugs/McrPartBDrugAvgSalesPrice/index.html. 

6. Proposed Payment for Nonpass-Through Drugs, Biologicals, and 

Radiopharmaceuticals with HCPCS Codes but without OPPS Hospital Claims Data 

 The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 

(Pub. L. 108-173) did not address the OPPS payment in CY 2005 and subsequent years 

for drugs, biologicals, and radiopharmaceuticals that have assigned HCPCS codes, but 

that do not have a reference AWP or approval for payment as pass-through drugs or 

biologicals. Because there was no statutory provision that dictated payment for such 

drugs, biologicals, and radiopharmaceuticals in CY 2005, and because we had no hospital 

claims data to use in establishing a payment rate for them, we investigated several 

payment options for CY 2005 and discussed them in detail in the CY 2005 OPPS final 

rule with comment period (69 FR 65797 through 65799). 
CMS-1601-P 319 

 For CYs 2005 to 2007, we implemented a policy to provide separate payment for 

new drugs, biologicals, and radiopharmaceuticals with HCPCS codes (specifically those 

new drug, biological, and radiopharmaceutical HCPCS codes in each of those calendar 

years that did not crosswalk to predecessor HCPCS codes) but which did not have 

pass-through status, at a rate that was equivalent to the payment they received in the 

physician’s office setting, established in accordance with the ASP methodology for drugs 

and biologicals, and based on charges adjusted to cost for radiopharmaceuticals. For 

CYs 2008 and 2009, we finalized a policy to provide payment for new drugs (excluding 

contrast agents and diagnostic radiopharmaceuticals) and biologicals (excluding 

implantable biologicals for CY 2009) with HCPCS codes, but which did not have 

pass-through status and were without OPPS hospital claims data, at ASP+5 percent and 

ASP+4 percent, respectively, consistent with the final OPPS payment methodology for 

other separately payable drugs and biologicals. New therapeutic radiopharmaceuticals 

were paid at charges adjusted to cost based on the statutory requirement for CY 2008 and 

CY 2009 and payment for new diagnostic radiopharmaceuticals was packaged in both 

years. 

 For CY 2010, we continued to provide payment for new drugs (excluding contrast 

agents) and biologicals with HCPCS codes that do not have pass-through status and are 

without OPPS hospital claims data at ASP+4 percent, consistent with the CY 2010 

payment methodology for other separately payable nonpass-through drugs and 

biologicals. We also finalized a policy to extend the CY 2009 payment methodology to 

new therapeutic radiopharmaceutical HCPCS codes, consistent with our final policy in 
CMS-1601-P 320 

the CY 2010 OPPS/ASC final rule with comment period (74 FR 60581 through 60526), 

providing separate payment for therapeutic radiopharmaceuticals that do not crosswalk to 

CY 2009 HCPCS codes, do not have pass-through status, and are without OPPS hospital 

claims data at ASP+4 percent. This policy was continued in CYs 2011, 2012, and 2013, 

paying for new drugs, biologicals, and radiopharmaceuticals that do not have 

pass-through status, and are without OPPS hospital claims data at ASP+5 percent, ASP+4 

percent, and ASP+6 percent, respectively, consistent with the final OPPS payment 

methodology for other separately payable drugs and biological during those payment 

years. 

 For CY 2014, we are proposing to provide payment for new drugs, biologicals, 

and therapeutic radiopharmaceuticals that do not have pass-through status at ASP+6 

percent, consistent with the proposed CY 2014 payment methodology for other separately 

payable nonpass-through drugs, biologicals, and therapeutic radiopharmaceuticals to pay 

at ASP+6 percent based on the statutory default. We believe this proposed policy would 

ensure that new nonpass-through drugs, biologicals and therapeutic radiopharmaceuticals 

would be treated like other drugs, biologicals, and therapeutic radiopharmaceuticals 

under the OPPS. 

 For CY 2014, we also are proposing to package payment for all new 

nonpass-through diagnostic radiopharmaceuticals, contrast agents, anesthesia drugs, 

drugs, biologicals, and radiopharmaceuticals that function as supplies when used in a 

diagnostic test or procedure, and drugs and biologicals that function as supplies or 

devices when used in a surgical procedure, with HCPCS codes but without claims data 
CMS-1601-P 321 

(those new CY 2014 HCPCS codes that do not crosswalk to predecessor HCPCS codes). 

This is consistent with the proposed policy packaging all existing nonpass-through 

diagnostic radiopharmaceuticals, contrast agents, anesthesia drugs, drugs, biologicals, 

and radiopharmaceuticals that function as supplies when used in a diagnostic test or 

procedure, and drugs and biologicals that function as supplies or devices when used in a 

surgical procedure, as discussed in more detail in section II.A.3. of this proposed rule. 

 In accordance with the OPPS ASP methodology, in the absence of ASP data, for 

CY 2014, we are proposing to continue the policy we implemented beginning in 

CY 2005 of using the WAC for the product to establish the initial payment rate for new 

nonpass-through drugs and biologicals with HCPCS codes, but which are without OPPS 

claims data and are not diagnostic radiopharmaceuticals and contrast agents. However, 

we noted that if the WAC is also unavailable, we would make payment at 95 percent of 

the product’s most recent AWP. We also are proposing to assign status indicator “K” 

(for separately paid nonpass-through drugs and biologicals, including therapeutic 

radiopharmaceuticals) to HCPCS codes for new drugs and biologicals without OPPS 

claims data and for which we have not granted pass-through status. With respect to new, 

nonpass-through drugs, biologicals, and therapeutic radiopharmaceuticals for which we 

do not have ASP data, we are proposing that once their ASP data become available in 

later quarterly submissions, their payment rates under the OPPS would be adjusted so that 

the rates would be based on the ASP methodology and set to the finalized ASP-based 

amount (proposed for CY 2014 at ASP+6 percent) for items that have not been granted 

pass-through status. This proposed policy, which utilizes the ASP methodology that 
CMS-1601-P 322 

requires us to use WAC data when ASP data are unavailable and 95 percent of AWP 

when WAC and ASP data are unavailable, for new nonpass-through drugs and 

biologicals with an ASP, is consistent with prior years’ policies for these items, and 

would ensure that new nonpass-through drugs, biologicals, and therapeutic 

radiopharmaceuticals would be treated like other drugs, biologicals, and therapeutic 

radiopharmaceuticals under the OPPS, unless they are granted pass-through status. 

 Similarly, we are proposing to continue to base the initial payment for new 

therapeutic radiopharmaceuticals with HCPCS codes, but which do not have 

pass-through status and are without claims data, on the WACs for these products if ASP 

data for these therapeutic radiopharmaceuticals are not available. If the WACs are also 

unavailable, we are proposing to make payment for new therapeutic radiopharmaceuticals 

at 95 percent of the products’ most recent AWP because we would not have mean costs 

from hospital claims data upon which to base payment. As we are proposing with new 

drugs and biologicals, we are proposing to continue our policy of assigning status 

indicator “K” to HCPCS codes for new therapeutic radiopharmaceuticals without OPPS 

claims data for which we have not granted pass-through status. 

 Consistent with other ASP-based payment, for CY 2014 we are proposing to 

announce any changes to the payment amounts for new drugs and biologicals in the 

CY 2014 OPPS/ASC final rule with comment period and also on a quarterly basis on the 

CMS Web site during CY 2014 if later quarter ASP submissions (or more recent WACs 

or AWPs) indicate that changes to the payment rates for these drugs and biologicals are 

necessary. The payment rates for new therapeutic radiopharmaceuticals also would be 
CMS-1601-P 323 

changed accordingly based on later quarter ASP submissions. We note that the new 

CY 2014 HCPCS codes for drugs, biologicals and therapeutic radiopharmaceuticals are 

not available at the time of development of this proposed rule. However, these agents 

will be included in Addendum B to the CY 2014 OPPS/ASC final rule with comment 

period (which will be available via the Internet on the CMS Web site), where they will be 

assigned comment indicator “NI.” This comment indicator reflects that their interim final 

OPPS treatment is open to public comment in the CY 2014 OPPS/ASC final rule with 

comment period. 

 There are several nonpass-through drugs and biologicals that were payable in 

CY 2012 and/or CY 2013 for which we did not have CY 2012 hospital claims data 

available for this proposed rule and for which there are no other HCPCS codes that 

describe different doses of the same drug, but which have pricing information available 

for the ASP methodology. We note that there are currently no therapeutic 

radiopharmaceuticals in this category. In order to determine the packaging status of these 

products for CY 2014, we calculated an estimate of the per day cost of each of these 

items by multiplying the payment rate of each product based on ASP+6 percent, similar 

to other nonpass-through drugs and biologicals paid separately under the OPPS, by an 

estimated average number of units of each product that would typically be furnished to a 

patient during one day in the hospital outpatient setting. This rationale was first adopted 

in the CY 2006 OPPS/ASC final rule with comment period (70 FR 68666 and 68667). 

 We are proposing to package items for which we estimated the per day 

administration cost to be less than or equal to $90, which is the general packaging 
CMS-1601-P 324 

threshold that we are proposing for drugs, biologicals, and therapeutic 

radiopharmaceuticals in CY 2014. We are proposing to pay separately for items with an 

estimated per day cost greater than $90 (with the exception of diagnostic 

radiopharmaceuticals, contrast agents, anesthesia drugs, drugs, biologicals, and 

radiopharmaceuticals that function as supplies when used in a diagnostic test or 

procedure, and drugs and biologicals that function as supplies or devices when used in a 

surgical procedure, which we are proposing to package regardless of cost, as discussed in 

more detail in section II.A.3. of this proposed rule) in CY 2014. We are proposing that 

the CY 2014 payment for separately payable items without CY 2012 claims data would 

be ASP+6 percent, similar to payment for other separately payable nonpass-through 

drugs and biologicals under the OPPS. In accordance with the ASP methodology paid in 

the physician’s office setting, in the absence of ASP data, we are proposing to use the 

WAC for the product to establish the initial payment rate. However, we note that if the 

WAC is also unavailable, we would make payment at 95 percent of the most recent AWP 

available. 

 The proposed estimated units per day and status indicators for these items are 

displayed in Table 26 below. 
CMS-1601-P 325 

TABLE 26.—DRUGS AND BIOLOGICALS WITHOUT CY 2012 CLAIMS DATA 

CY 

2014 

HCPCS 

Code CY 2014 Long Descriptor 

Estimated 

Average 

Number 

of Units 

Per Day 

Proposed 

CY 2014 

SI 

Proposed 

CY 2014 

APC 

90581 Anthrax vaccine, for subcutaneous or 

intramuscular use 1 K 1422 

J0205 Injection, alglucerase, per 10 units 420 K 0900 

J0215 Injection, alefacept, 0. 5 mg 29 K 1633 

J0220 Injection, alglucosidase alfa, 10 mg, not 

otherwise specified 150 K 9234 

J0364 Injection, apomorphine hydrochloride, 1 mg 1 N N/A 

J0395 Injection, arbutamine hcl, 1 mg 20 K 1432 

J0725 Injection, chorionic gonadotropin, per 1,000 

usp units 1 N N/A 

J1324 Injection, enfuvirtide, 1 mg 216 K 1361 

J1435 Injection, estrone, per 1 mg 150 K 1435 

J1620 Injection, gonadorelin hydrochloride, per 100 

mcg 

11 N N/A 

J1730 Injection, diazoxide, up to 300 mg 1 N N/A 

J1835 Injection, itraconazole, 50 mg 80 N N/A 

J2724 Injection, protein c concentrate, intravenous, 

human, 10 iu 1540 K 1139 

J2725 Injection, protirelin, per 250 mcg 4 K 1357 

J3355 Injection, urofollitropin, 75 iu 2 K 1741 

J7196 Injection, antithrombin recombinant, 50 i. U. 268 K 1332 

J7513 Daclizumab, parenteral, 25 mg 2 K 1612 

J8562 Fludarabine phosphate, oral, 10 mg 1 N N/A 

J8650 Nabilone, oral, 1 mg 4 K 1424 

J9216 Injection, interferon, gamma 1-b, 3 million 

units 1 K 0838 

J9226 Histrelin implant (supprelin la), 50 mg 1 K 1142 

J9300 Injection, gemtuzumab ozogamicin, 5 mg 1 K 9004 

Q0515 Injection, sermorelin acetate, 1 microgram 70 K 3050 

 Finally, there were 11 drugs and biologicals, shown in Table 27, that were 

payable in CY 2012 but for which we lacked CY 2012 claims data and any other pricing 
CMS-1601-P 326 

information for the ASP methodology for this CY 2014 OPPS/ASC proposed rule. In 

CY 2009, for similar items without CY 2007 claims data and without pricing information 

for the ASP methodology, we stated that we were unable to determine their per day cost 

and we packaged these items for the year, assigning these items status indicator “N.” 

 For CY 2010, we finalized a policy to change the status indicator for drugs and 

biologicals previously assigned a payable status indicator to status indicator “E” (Not 

paid by Medicare when submitted on outpatient claims (any outpatient bill type)) 

whenever we lacked claims data and pricing information and were unable to determine 

the per day cost. In addition, we noted that we would provide separate payment for these 

drugs and biologicals if pricing information reflecting recent sales became available 

mid-year in CY 2010 for the ASP methodology. If pricing information became available, 

we would assign the products status indicator “K” and pay for them separately for the 

remainder of CY 2010. We continued this policy for CYs 2011, 2012, and 2013 

(75 FR 71973, 76 FR 74334, and 77 FR 68396, respectively). 

 For CY 2014, we are proposing to continue to assign status indicator “E” to drugs 

and biologicals that lack CY 2012 claims data and pricing information for the ASP 

methodology. All drugs and biologicals without CY 2012 hospital claims data and data 

based on the ASP methodology that are assigned status indicator “E” on this basis at the 

time of this proposed rule for CY 2014 are displayed in Table 27 below. If pricing 

information becomes available, we are proposing to assign the products status indicator 

“K” and pay for them separately for the remainder of CY 2014. 

TABLE 27.—DRUGS AND BIOLOGICALS WITHOUT CY 2012 CLAIMS DATA 

AND WITHOUT PRICING INFORMATION FOR THE ASP METHODOLOGY 
CMS-1601-P 327 

CY 2014 

HCPCS Code CY 2014 Long Descriptor 

Proposed 

CY 2014 

SI 

90393 Vaccina immune globulin, human, for intramuscular use E 

90644 

Meningococcal conjugate vaccine, serogroups c & y and 

hemophilus influenza b vaccine (hib-mency), 4 dose 

schedule, when administered to children 2-15 months of 

age, for intramuscular use 

E 

90727 Plague vaccine, for intramuscular use E 

J0190 Injection, biperiden lactate, per 5 mg E 

J0350 Injection, anistreplase, per 30 units E 

J1180 Injection, dyphylline, up to 500 mg E 

J2460 Injection, oxytetracycline hcl, up to 50 mg E 

J2940 Injection, somatrem, 1 mg E 

J7191 Factor viii (antihemophilic factor (porcine)), per i. U. E 

J9165 Injection, diethylstilbestrol diphosphate, 250 mg E 

J9215 Injection, interferon, alfa-n3, (human leukocyte derived), 

250,000 iu E 

C. Nuclear Medicine Procedure-to-Radiolabeled Product Edits

 Beginning January 1, 2008, CMS implemented OPPS edits that require hospitals 

to include a HCPCS code for a radiolabeled product when a separately payable nuclear 

medicine procedure is present on a claim. For CY 2014, we are proposing to no longer 

require the nuclear medicine procedure-to-radiolabeled product edits. Under this 

proposal, hospitals would still be expected to adhere to the guidelines of correct coding 

and append the correct radiolabeled product code to the claim when applicable. 

However, claims would no longer be returned to providers when HCPCS codes for 

radiolabeled products do not appear on claims with nuclear medicine procedures. We 

believe that this is appropriate because hospitals have now had several years of 

experience reporting procedures involving radiolabeled products and have grown 
CMS-1601-P 328 

accustomed to ensuring that they code and report charges so that their claims fully and 

appropriately reflect the costs of those radiolabeled products. Therefore, we do not 

believe that the burden on hospitals of adhering to the nuclear medicine 

procedure-to-radiolabeled product edits continues to be warranted. As with all other 

items and services recognized under the OPPS, we expect hospitals to code and report 

their costs appropriately, regardless of whether there are claims processing edits in place. 
CMS-1601-P 329 

VI. Proposed Estimate of OPPS Transitional Pass-Through Spending for Drugs, 

Biologicals, Radiopharmaceuticals, and Devices 

A. Background

 Section 1833(t)(6)(E) of the Act limits the total projected amount of transitional 

pass-through payments for drugs, biologicals, radiopharmaceuticals, and categories of 

devices for a given year to an “applicable percentage,” currently not to exceed 2.0 percent 

of total program payments estimated to be made for all covered services under the OPPS 

furnished for that year. If we estimate before the beginning of the calendar year that the 

total amount of pass-through payments in that year would exceed the applicable 

percentage, section 1833(t)(6)(E)(iii) of the Act requires a uniform prospective 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 estimate the pass-through spending to 

determine whether payments exceed the applicable percentage and the appropriate 

prorata reduction to the conversion factor for the projected level of pass-through spending 

in the following year to ensure that total estimated pass-through spending for the 

prospective payment year is budget neutral, as required by section 1833(t)(6)(E) of the 

Act. 

 For devices, developing an estimate of pass-through spending in CY 2014 entails 

estimating spending for two groups of items. The first group of items consists of device 

categories that were recently made eligible for pass-through payment and that will 

continue to be eligible for pass-through payment in CY 2014. The CY 2008 OPPS/ASC 

final rule with comment period (72 FR 66778) describes the methodology we have used 
CMS-1601-P 330 

in previous years to develop the pass-through spending estimate for known device 

categories continuing into the applicable update year. The second group of items consists 

of items that we know are newly eligible, or project may be newly eligible, for device 

pass-through payment in the remaining quarters of CY 2013 or beginning in CY 2014. 

The sum of the CY 2014 pass-through estimates for these two groups of device categories 

would equal the total CY 2014 pass-through spending estimate for device categories with 

pass-through status. We base the device pass-through estimated payments for each 

device category on the amount of payment as established in section 1833(t)(6)(D)(ii) of 

the Act, and as outlined in previous rules, including the CY 2013 OPPS/ASC final rule 

with comment period (77 FR 68397). We note that, beginning in CY 2010, the 

pass-through evaluation process and pass-through payment for implantable biologicals 

newly approved for pass-through payment beginning on or after January 1, 2010, that are 

surgically inserted or implanted (through a surgical incision or a natural orifice) is the 

device pass-through process and payment methodology (74 FR 60476). As has been our 

past practice (76 FR 74335), we include an estimate of any implantable biologicals 

eligible for pass-through payment in our estimate of pass-through spending for devices. 

 For drugs and biologicals eligible for pass-through payment, section 

1833(t)(6)(D)(i) of the Act establishes the pass-through payment amount as the amount 

by which the amount authorized under section 1842(o) of the Act (or, if the drug or 

biological is covered under a competitive acquisition contract under section 1847B of the 

Act, an amount determined by the Secretary equal to the average price for the drug or 

biological for all competitive acquisition areas and year established under such section as 
CMS-1601-P 331 

calculated and adjusted by the Secretary) exceeds the portion of the otherwise applicable 

fee schedule amount that the Secretary determines is associated with the drug or 

biological. We note that the Part B drug CAP program has been postponed since 

CY 2009, and such a program has not been proposed to be reinstated for CY 2014. 

Because we are proposing to pay for most nonpass-through separately payable drugs and 

biologicals under the CY 2014 OPPS at ASP+6 percent, as we discussed in section 

V.B.3. of this proposed rule, which represents the otherwise applicable fee schedule 

amount associated with most pass-through drugs and biologicals, and because we are 

proposing to pay for CY 2014 pass-through drugs and biologicals at ASP+6 percent, as 

we discussed in section V.A. of this proposed rule, our estimate of drug and biological 

pass-through payment for CY 2014 for this group of items is $0, as discussed below. 

 Payment for certain drugs, specifically diagnostic radiopharmaceuticals and 

contrast agents, without pass-through status will always be packaged into payment for the 

associated procedures and these products would not be separately paid. In addition, we 

are proposing to policy-package all nonpass-through drugs, biologicals, and 

radiopharmaceuticals that function as supplies when used in a diagnostic test or 

procedure and drugs and biologicals that function as supplies or devices when used in a 

surgical procedure for CY 2014, as discussed in section II.A.3. of this proposed rule. All 

of these policy-packaged drugs and biologicals with pass-through status would be paid at 

ASP+6 percent like other pass-through drugs and biologicals for CY 2014. Therefore, 

our estimate of pass-through payment for policy-packaged drugs and biologicals with 

pass-through status approved prior to CY 2014 is not $0. In section V.A.4. of this 
CMS-1601-P 332 

proposed rule, we discuss our proposed policy to determine if the costs of certain 

policy-packaged drugs or biologicals are already packaged into the existing APC 

structure. If we determine that a policy-packaged drug or biological approved for 

pass-through payment resembles predecessor drugs or biologicals already included in the 

costs of the APCs that are associated with the drug receiving pass-through payment, we 

are proposing to offset the amount of pass-through payment for the policy-packaged drug 

or biological. For these drugs or biologicals, the APC offset amount is the portion of the 

APC payment for the specific procedure performed with the pass-through drug or 

biological which we refer to as the policy-packaged drug APC offset amount. If we 

determine that an offset is appropriate for a specific policy-packaged drug or biological 

receiving pass-through payment, we are proposing to reduce our estimate of pass-through 

payments for these drugs or biologicals by this amount. 

 Similar to pass-through estimates for devices, the first group of drugs and 

biologicals requiring a pass-through payment estimate consists of those products that 

were recently made eligible for pass-through payment and that would continue to be 

eligible for pass-through payment in CY 2014. The second group contains drugs and 

biologicals that we know are newly eligible, or project will be newly eligible, in the 

remaining quarters of CY 2013 or beginning in CY 2014. The sum of the proposed 

CY 2014 pass-through estimates for these two groups of drugs and biologicals equals the 

proposed total CY 2014 pass-through spending estimate for drugs and biologicals with 

pass-through status. 
CMS-1601-P 333 

B. Proposed Estimate of Pass-Through Spending

 We are proposing to set the applicable pass-through payment percentage limit at 

2.0 percent of the total projected OPPS payments for CY 2014, consistent with section 

1833(t)(6)(E)(ii)(II) of the Act, and our OPPS policy from CY 2004 through CY 2013 

(77 FR 68398). 

 For the first group of devices for pass-through payment estimation purposes, there 

currently are no device categories receiving pass-through payment in CY 2013 that would 

continue to be eligible for pass-through payment for CY 2014. As discussed in section 

IV.A. of this proposed rule, we finalized in the CY 2013 OPPS/ASC final rule with 

comment period the expiration of pass-through payment for three device categories after 

the end of CY 2013. Therefore, we estimate that CY 2014 pass-through expenditures for 

the first group of pass-through device categories to be $0. In estimating our CY 2014 

pass-through spending for device categories in the second group, we include: device 

categories that we knew at the time of the development of the proposed rule will be 

newly eligible for pass-through payment in CY 2014 (of which there are none); 

additional device categories that we estimate could be approved for pass-through status 

subsequent to the development of the proposed rule and before January 1, 2014; and 

contingent projections for new device categories established in the second through fourth 

quarters of CY 2014. We are proposing to use the general methodology described in the 

CY 2008 OPPS/ASC final rule with comment period (72 FR 66778), while also taking 

into account recent OPPS experience in approving new pass-through device categories. 

For this proposed rule, the estimate of CY 2014 pass-through spending for this second 
CMS-1601-P 334 

group of device categories is $10 million. Using our established methodology, we are 

proposing that the total estimated pass-through spending for device categories for 

CY 2014 (spending for the first group of device categories ($0) plus spending for the 

second group of device categories ($10 million)) would be $10 million. 

 To estimate CY 2014 pass-through spending for drugs and biologicals in the first 

group, specifically those drugs and biologicals recently made eligible for pass-through 

payment and continuing on pass-through status for CY 2014, we are proposing to utilize 

the most recent Medicare physician’s office data regarding their utilization, information 

provided in the respective pass-through applications, historical hospital claims data, 

pharmaceutical industry information, and clinical information regarding those drugs or 

biologicals to project the CY 2014 OPPS utilization of the products. 

 For the known drugs and biologicals (excluding policy-packaged diagnostic 

radiopharmaceuticals. contrast agents, drugs, biologicals, and radiopharmaceuticals that 

function as supplies when used in a diagnostic test or procedure, and drugs and 

biologicals that function as supplies or devices when used in a surgical procedure) that 

will be continuing on pass-through status in CY 2014, we estimate the pass-through 

payment amount as the difference between ASP+6 percent and the payment rate for 

nonpass-through drugs and biologicals that will be separately paid at ASP+6 percent, 

which is zero for this group of drugs. Because payment for policy-packaged drugs and 

biologicals is proposed to be packaged if the product was not paid separately due to its 

pass-through status, we are proposing to include in the CY 2014 pass-through estimate 

the difference between payment for the policy-packaged drug or biological at ASP+6 
CMS-1601-P 335 

percent (or WAC+6 percent, or 95 percent of AWP, if ASP or WAC information is not 

available) and the policy-packaged drug APC offset amount, if we determined that the 

policy-packaged drug or biological approved for pass-through payment resembles 

predecessor drugs or biologicals already included in the costs of the APCs that are 

associated with the drug receiving pass-through payment. For this proposed rule, using 

the proposed methodology described above, we calculated a CY 2014 proposed spending 

estimate for this first group of drugs and biologicals of approximately $0.962 million. 

 To estimate proposed CY 2014 pass-through spending for drugs and biologicals 

in the second group (that is, drugs and biologicals that we knew at the time of 

development of the proposed rule are newly eligible for pass-through payment in 

CY 2014, additional drugs and biologicals that we estimate could be approved for 

pass-through status subsequent to the development of the proposed rule and before 

January 1, 2014, and projections for new drugs and biologicals that could be initially 

eligible for pass-through payment in the second through fourth quarters of CY 2014), we 

are proposing to use utilization estimates from pass-through applicants, pharmaceutical 

industry data, clinical information, recent trends in the per unit ASPs of hospital 

outpatient drugs, and projected annual changes in service volume and intensity as our 

basis for making the CY 2014 pass-through payment estimate. We also are proposing to 

consider the most recent OPPS experience in approving new pass-through drugs and 

biologicals. Using our proposed methodology for estimating CY 2014 pass-through 

payments for this second group of drugs, we calculated a proposed spending estimate for 

this second group of drugs and biologicals of approximately $0.165 million. 
CMS-1601-P 336 

 As discussed in section V.A. of this proposed rule, radiopharmaceuticals are 

considered drugs for pass-through purposes. Therefore, we include radiopharmaceuticals 

in our proposed CY 2014 pass-through spending estimate for drugs and biologicals. Our 

proposed CY 2014 estimate for total pass-through spending for drugs and biologicals 

(spending for the first group of drugs and biologicals ($0.962 million) plus spending for 

the second group of drugs and biologicals ($0.165 million)) equals $1.127 million. 

 In summary, in accordance with the methodology described above in this section, 

for this proposed rule, we estimate that total pass-through spending for the device 

categories and the drugs and biologicals that are continuing to receive pass-through 

payment in CY 2014 and those device categories, drugs, and biologicals that first become 

eligible for pass-through payment during CY 2014 would be approximately $11 million 

(approximately $10 million for device categories and approximately $1 million for drugs 

and biologicals), which represents 0.02 percent of total projected OPPS payments for 

CY 2014. We estimate that pass-through spending in CY 2014 would not amount to 

2.0 percent of total projected OPPS CY 2014 program spending. 
CMS-1601-P 337 

VII. Proposed OPPS Payment for Hospital Outpatient Visits 

A. Background

 Currently, hospitals report HCPCS visit codes to describe three types of OPPS 

services: clinic visits, emergency department (ED) visits, and critical care services, 

including trauma team activation. Historically, we have recognized the CPT and HCPCS 

codes describing clinic visits, Type A and Type B (ED) visits, and critical care services, 

which are listed below in Table 28. We refer readers to the CY 2012 OPPS/ASC final 

rule with comment period (76 FR 74338 through 74346) for a full discussion of our 

policy on OPPS payment for hospital outpatient visits for CY 2013 and prior years. 

TABLE 28.—HCPCS CODES USED TO REPORT CLINIC AND EMERGENCY 

DEPARTMENT VISITS AND CRITICAL CARE SERVICES 

CY 2013 

HCPCS 

Code 

CY 2013 Descriptor 

Clinic Visit HCPCS Codes

99201 

Office or other outpatient visit for the evaluation and management of a 

new patient (Level 1) 

99202 

Office or other outpatient visit for the evaluation and management of a 

new patient (Level 2) 

99203 

Office or other outpatient visit for the evaluation and management of a 

new patient (Level 3) 

99204 

Office or other outpatient visit for the evaluation and management of a 

new patient (Level 4) 

99205 

Office or other outpatient visit for the evaluation and management of a 

new patient (Level 5) 

99211 

Office or other outpatient visit for the evaluation and management of 

an established patient (Level 1) 

99212 

Office or other outpatient visit for the evaluation and management of 

an established patient (Level 2) 

99213 

Office or other outpatient visit for the evaluation and management of 

an established patient (Level 3) 
CMS-1601-P 338 

99214 

Office or other outpatient visit for the evaluation and management of 

an established patient (Level 4) 

99215 

Office or other outpatient visit for the evaluation and management of 

an established patient (Level 5) 

Emergency Department Visit HCPCS Codes 

99281 

Emergency department visit for the evaluation and management of a 

patient (Level 1) 

99282 

Emergency department visit for the evaluation and management of a 

patient (Level 2) 

99283 

Emergency department visit for the evaluation and management of a 

patient (Level 3) 

99284 

Emergency department visit for the evaluation and management of a 

patient (Level 4) 

99285 

Emergency department visit for the evaluation and management of a 

patient (Level 5) 

G0380 Type B emergency department visit (Level 1) 

G0381 Type B emergency department visit (Level 2) 

G0382 Type B emergency department visit (Level 3) 

G0383 Type B emergency department visit (Level 4) 

G0384 Type B emergency department visit (Level 5) 

Critical Care Services HCPCS Codes 

99291 

Critical care, evaluation and management of the critically ill or 

critically injured patient; first 30-74 minutes 

99292 

Critical care, evaluation and management of the critically ill or 

critically injured patient; each additional 30 minutes 

G0390 Trauma response associated with hospital critical care service 

B. Proposed Payment for Hospital Outpatient Clinic and Emergency Department Visits

 Since April 7, 2000, we have instructed hospitals to report facility resources for 

clinic and ED hospital outpatient visits using the CPT E/M codes and to develop internal 

hospital guidelines for reporting the appropriate visit level (65 FR 18451). Because a 

national set of hospital-specific codes and guidelines do not currently exist, we have 

advised hospitals that each hospital’s internal guidelines that determine the levels of 
CMS-1601-P 339 

clinic and ED visits to be reported should follow the intent of the CPT code descriptors, 

in that the guidelines should be designed to reasonably relate the intensity of hospital 

resources to the different levels of effort represented by the codes. 

 While many hospitals have advocated for hospital-specific national guidelines for 

visit billing since the OPPS started in 2000, and we have signaled through rulemaking 

our intent to develop guidelines, this complex undertaking has proven challenging. Our 

work with interested stakeholders, such as hospital associations, along with a contractor, 

has confirmed that no single approach could consistently and accurately capture 

hospitals’ relative costs. Public comments received on this issue, as well as our own 

knowledge of how clinics operate, have led us to conclude that it is not feasible to adopt a 

set of national guidelines for reporting hospital clinic visits that can accommodate the 

enormous variety of patient populations and service-mix provided by hospitals of all 

types and sizes throughout the country. Moreover, no single approach appears to be 

broadly endorsed by the stakeholder community. 

 For CY 2014, we are proposing to modify our longstanding policies related to 

hospital outpatient clinic and ED visits. Rather than recognizing five levels of clinic and 

ED visits respectively, we are proposing to create three new alphanumeric Level II 

HCPCS codes to describe all levels of each type of clinic and ED visit, as discussed in 

greater detail below. We believe a policy that recognizes a single visit level for clinic 

visits, Type A ED visits, and Type B ED visits for payment under the OPPS is 

appropriate for several reasons. First, the proposal is in line with our strategic goal of 

using larger payment bundles to maximize hospitals’ incentives to provide care in the 
CMS-1601-P 340 

most efficient matter as stated in section II.A.3. of this proposed rule. We believe this 

proposal will remove any incentives hospitals may have to provide medically 

unnecessary services or expend additional, unnecessary resources to achieve a higher 

level of visit payment under the OPPS. Second, we believe that it is important to 

consider ways in which we can reduce the administrative burden that Medicare payment 

policies place on hospitals, while maintaining our ability to calculate accurate payment 

rates under the OPPS. We believe that replacing the 20 HCPCS codes currently 

recognized for clinic visits and ED visits with three new alphanumeric Level II HCPCS 

codes would reduce administrative burden and would be easily adopted by hospitals, 

because the three new codes would require hospitals to distinguish only among clinic 

visits, Type A ED visits, and Type B ED visits. Discontinuing the use of the five levels 

of HCPCS visit codes for clinic and Type A and Type B ED visits would reduce 

hospitals’ administrative burden by eliminating the need for them to develop and apply 

their own internal guidelines to differentiate among five levels of resource use for every 

clinic visit and ED visit they provide, and by eliminating the need to distinguish between 

new and established patients. Third, our proposal allows a large universe of claims to be 

utilized for ratesetting for each of the three newly proposed alphanumeric Level II 

HCPCS visit codes. We believe this large volume of claims available for ratesetting for 

each of the newly proposed alphanumeric Level II HCPCS visit codes will allow us to 

capture a very broad spectrum of cases ranging from extremely low complexity cases to 

extremely high complexity cases. We believe this large and diverse spectrum of clinical 

complexity and resource variation within the claims as well as the very high volume of 
CMS-1601-P 341 

claims that we propose to use for ratesetting for the newly proposed alphanumeric Level 

II HCPCS visit new codes will allow us to have very accurate data upon which to develop 

accurate and appropriate payments. Lastly, we also believe that removing the 

differentiation among five levels of intensity for each visit will eliminate any incentive 

for hospitals to “upcode” patients whose visits do not fall clearly into one category or 

another. 

 For these reasons, for CY 2014, we are proposing to discontinue our longstanding 

policy of recognizing five distinct visit levels for clinic visits and ED visits based on the 

existing HCPCS E/M codes, and instead recognize three new alphanumeric HCPCS 

codes for each visit type. Specifically, we are proposing to create a new alphanumeric 

HCPCS code (GXXXC) for hospital use only representing any clinic visit under the 

OPPS and to assign the newly created alphanumeric clinic visit HCPCS code (GXXXC) 

to its own newly created APC 0634. Using CY 2012 claims data, we are proposing to 

develop CY 2014 OPPS payment rates for the new HCPCS code GXXXC based on the 

total mean cost of the levels one through five CPT E/M codes for clinic visits currently 

recognized under the OPPS (CPT codes 99201 through 99205 and 99211 through 99215). 

While we would use data for CPT codes 99201 through 99205 and 99211 through 99215 

from claims billed in CY 2012 to calculate the mean cost for new APC 0634, we would 

no longer recognize those CPT codes when they appear on hospital claims effective 

January 1, 2014. We also are proposing to no longer recognize a distinction between new 

and established patient clinic visits. Under this proposal, all clinic visits would be 

reported using new HCPCS code GXXXC, regardless of whether or not the patient has 
CMS-1601-P 342 

been registered as an inpatient or outpatient of the hospital within the 3 years prior to a 

visit. 

 In addition, we are proposing to discontinue our longstanding policy of 

recognizing five distinct visit levels for Type A ED visits and instead are proposing to 

create a new alphanumeric HCPCS code (GXXXA) for hospital use only representing 

any Type A ED visit under the OPPS. We are proposing to assign the newly created 

alphanumeric Type A ED visit HCPCS code (GXXXA) to its own newly created APC 

0635. Using CY 2012 claims data, we are proposing to develop CY 2014 OPPS payment 

rates for new HCPCS code GXXXA based on the total mean cost of the levels 1 through 

5 CPT E/M codes for Type A ED visits currently recognized under the OPPS (CPT codes 

99281 through 99285). While we would use data for CPT codes 99281 through 99285 

from claims billed in CY 2012 to calculate the mean cost for new APC 0635, we would 

no longer recognize those CPT codes when they appear on hospital claims effective 

January 1, 2014. Similarly, we also are proposing to discontinue our longstanding policy 

of recognizing five distinct visit levels for Type B ED visits and instead are proposing to 

create a new alphanumeric HCPCS code (GXXXB) representing all Type B ED visits 

under the OPPS. We are proposing to assign the newly created alphanumeric Type B ED 

visit HCPCS code (GXXXB) to its own newly created APC 0636. Using CY 2012 

claims data, we are proposing to develop CY 2014 OPPS payment rates for new HCPCS 

code GXXXB based on the total mean cost of the levels 1 through 5 HCPCS codes for 

Type B ED visits currently recognized under the OPPS (HCPCS codes G0380 through 

G0384). While we would use data for HCPCS codes G0380 through G0384 from claims 
CMS-1601-P 343 

billed in CY 2012 to calculate the mean cost for new APC 0636, we would no longer 

recognize those HCPCS codes for Type B ED visits when they appear on hospital claims 

effective January 1, 2014. 

 We note that we would use the hospital claims data for new HCPCS codes 

GXXXA, GXXXB, and GXXXC when available for future ratesetting. The proposed 

changes to the visit coding and payment structure are summarized below in Table 29. 

We welcome public comments on our CY 2014 proposal to recognize a single visit level 

for clinic, Type A ED, and Type B ED visits for payment under the OPPS. We believe 

this proposal will allow us to make accurate payments for visits broad-scale because we 

will be using data from the universe of hospital outpatient visits, for which we have an 

extremely high volume of claims representing the entire spectrum of costs incurred by 

hospitals. Nonetheless, we are interested in hearing from stakeholders regarding whether 

a different approach may be preferable to capture the resource utilization for extremely 

low complexity cases as well as extremely high complexity cases or to otherwise 

recognize a difference among visit levels. While we do not believe, based on our current 

assessment, that it is necessary to provide additional payment levels or carve out these 

cases to make accurate and appropriate payments for visits, we are interested in hearing 

from hospitals whether there are certain cases that would not be best accommodated by a 

single level of payment. If such cases exist, we welcome stakeholder input into whether 

and how this proposal could be changed in the final rule to either make exceptions for or 

accommodate these special cases. If commenters provide compelling comments 

describing such special cases or the need for additional payment levels, should they exist, 
CMS-1601-P 344 

and if there are alternative policies that would more accurately and appropriately pay for 

visits, we would consider implementing a different policy in the final rule. We note that, 

to the extent that commenters recommend that additional levels of payment or special 

high complexity or low complexity cases be recognized, we also would be interested in 

how we should define and differentiate those levels or cases. 

TABLE 29.—CY 2013 CLINIC AND EMERGENCY DEPARTMENT VISIT 

HCPCS CODES AND APC ASSIGNMENTS COMPARED TO PROPOSED 

 CY 2014 CLINIC AND EMERGENCY DEPARTMENT VISIT HCPCS CODES 

AND APC ASSIGNMENTS 

CY 2013 Proposed CY 2014 Visit Type 

HCPCS Code APC HCPCS Code APC 

99201 0604 

99202 0605 

99203 0606 

99204 0607 

99205 0608 

99211 0604 

99212 0605 

99213 0605 

99214 0606 

CLINIC 

VISIT 

99215 0607 

GXXXC 0634 

99281 0609 

99282 0613 

99283 0614 

99284 0615 

TYPE A 

ED VISIT 

99285 0616 

GXXXA 0635 

G0380 0626 

G0381 0627 

G0382 0628 

G0383 0629 

TYPE B 

ED VISIT 

G0384 0630 

GXXXB 0636 
CMS-1601-P 345 

C. Proposed Payment for Critical Care Services

 We are proposing to continue the methodology established in the CY 2011 

OPPS/ASC final rule with comment period for calculating a payment rate for critical care 

services that includes packaged payment of ancillary services. For CY 2010 and in prior 

years, the AMA CPT Editorial Panel defined critical care CPT codes 99291 (Critical 

care, evaluation and management of the critically ill or critically injured patient; first 

30-74 minutes) and 99292 (Critical care, evaluation and management of the critically ill 

or critically injured patient; each additional 30 minutes (List separately in addition to 

code for primary service)) to include a wide range of ancillary services such as 

electrocardiograms, chest X-rays, and pulse oximetry. As we have stated in manual 

instruction, we expect hospitals to report in accordance with CPT guidance unless we 

instruct otherwise. For critical care in particular, we instructed hospitals that any services 

that the CPT Editorial Panel indicates are included in the reporting of CPT code 99291 

(including those services that would otherwise be reported by and paid to hospitals using 

any of the CPT codes specified by the CPT Editorial Panel) should not be billed 

separately. Instead, hospitals were instructed to report charges for any services provided 

as part of the critical care services. In establishing payment rates for critical care services 

and other services, CMS packages the costs of certain items and services separately 

reported by HCPCS codes into payment for critical care services and other services, 

according to the standard OPPS methodology for packaging costs (Medicare Claims 

Processing Manual, Pub. 100-04, Chapter 4, Section 160.1). 
CMS-1601-P 346 

 For CY 2011, the AMA CPT Editorial Panel revised its guidance for the critical 

care codes to specifically state that, for hospital reporting purposes, critical care codes do 

not include the specified ancillary services. Beginning in CY 2011, hospitals that report 

in accordance with the CPT guidelines should report all of the ancillary services and their 

associated charges separately when they are provided in conjunction with critical care. 

Because the CY 2011 payment rate for critical care services was based on hospital claims 

data from CY 2009, during which time hospitals would have reported charges for any 

ancillary services provided as part of the critical care services, we stated in the CY 2011 

OPPS/ASC final rule with comment period that we believed it was inappropriate to pay 

separately in CY 2011 for the ancillary services that hospitals may now report in addition 

to critical care services (75 FR 71988). Therefore, for CY 2011, we continued to 

recognize the existing CPT codes for critical care services and established a payment rate 

based on historical data, into which the cost of the ancillary services was intrinsically 

packaged. We also implemented claims processing edits that conditionally package 

payment for the ancillary services that are reported on the same date of service as critical 

care services in order to avoid overpayment. We noted in the CY 2011 OPPS/ASC final 

rule with comment period that the payment status of the ancillary services would not 

change when they are not provided in conjunction with critical care services. We 

assigned status indicator “Q3” (Codes That May Be Paid Through a Composite APC) to 

the ancillary services to indicate that payment for these services is packaged into a single 

payment for specific combinations of services and made through a separate APC payment 

or packaged in all other circumstances, in accordance with the OPPS payment status 
CMS-1601-P 347 

indicated for status indicator “Q3” in Addendum D1 to the CY 2011 OPPS/ASC final 

rule with comment period. The ancillary services that were included in the definition of 

critical care prior to CY 2011 and that are conditionally packaged into the payment for 

critical care services when provided on the same date of service as critical care services 

for CY 2011 were listed in Addendum M to that final rule with comment period. 

 Because the CY 2012 costs for critical care services were based upon CY 2010 

claims data, which reflected the CPT billing guidance that was in effect prior to CY 2011, 

in the CY 2012 OPPS/ASC final rule with comment period (76 FR 74343 through 

74344), we continued the methodology established in the CY 2011 OPPS/ASC final rule 

with comment period of calculating a payment rate for critical care services based on our 

historical claims data, into which the cost of the ancillary services is intrinsically 

packaged for CY 2012. We also continued to implement claims processing edits that 

conditionally package payment for the ancillary services that are reported on the same 

date of service as critical care services in order to avoid overpayment. 

 As we discussed in the CY 2013 OPPS/ASC final rule with comment period, the 

CY 2011 hospital claims data on which the CY 2013 payment rates are based reflect the 

first year of claims billed under the revised CPT guidance to allow the reporting of all the 

ancillary services and their associated charges separately when they are provided in 

conjunction with critical care (77 FR 68402). Because our policy to establish relative 

payment weights based on geometric mean cost data for CY 2013 represented a change 

from our historical practice to base payment rates on median costs, and because we now 

have hospital claims data for the first time reflecting the revised coding guidance for 
CMS-1601-P 348 

critical care, we reviewed the CY 2011 hospital claims data available for the CY 2013 

OPPS/ASC final rule with comment period and determined that the data showed 

increases in both the mean and median line item costs as well as the mean and median 

line item charges for CPT code 99291, when compared to CY 2010 hospital claims data. 

Specifically, we noted that the mean and median line item costs increased 13 percent and 

16 percent, respectively, and the mean and median line item charges increased 11 percent 

and 14 percent, respectively. Additionally, when compared to CY 2010 hospital claims 

data, CY 2011 hospital claims data showed no substantial change in the ancillary services 

that were presented on the same claims as critical care services, and also showed 

continued low volumes of many ancillary services. We stated in the CY 2013 

OPPS/ASC final rule with comment period that, had the majority of hospitals changed 

their billing practices to separately report and charge for the ancillary services formerly 

included in the definition of critical care CPT codes 99291 and 99292, we would have 

expected to see a decrease in the costs and charges for these CPT codes, and a significant 

increase in ancillary services reported on the same claims. We indicated that the lack of a 

substantial change in the services reported on critical care claims, along with the 

increases in the line item costs and charges for critical care services, strongly suggested 

that many hospitals did not change their billing practices for CPT code 99291 following 

the revision to the CPT coding guidance effective January 1, 2011. 

 In light of not having claims data to support a significant change in hospital 

billing practices, we stated in the CY 2013 OPPS/ASC final rule with comment period 

that we continued to believe that it is inappropriate to pay separately in CY 2013 for the 
CMS-1601-P 349 

ancillary services that hospitals may now report in addition to critical care services. 

Therefore, for CY 2013, we continued our CY 2011 and CY 2012 policy to recognize the 

existing CPT codes for critical care services and establish a payment rate based on 

historical claims data. We also continued to implement claims processing edits that 

conditionally packaged payment for the ancillary services that were reported on the same 

date of service as critical care services in order to avoid overpayment. We stated that we 

would continue to monitor the hospital claims data for CPT code 99291 in order to 

determine whether revisions to this policy are warranted based on changes in hospitals’ 

billing practices. 

 When compared to CY 2011 hospital claims data used for the CY 2013 OPPS 

ratesetting, CY 2012 hospital claims data used for the CY 2014 OPPS ratesetting show 

increases in the mean line- item costs as well as the mean line-item charges for CPT code 

99291, which continue to suggest that hospitals did not change their billing practices for 

CPT code 99291 following the revision to the CPT coding guidance effective 

January 1, 2011. In light of not having claims data to support a significant change in 

hospital billing practices, we continue to believe that it is inappropriate to pay separately 

in CY 2014 for the ancillary services that hospitals may now report in addition to critical 

care services. Therefore, for CY 2014, we are proposing to continue our CY 2011, CY 

2012, and CY 2013 policy to recognize the existing CPT codes for critical care services 

and establish a payment rate based on historical claims data. We also are proposing to 

continue to implement claims processing edits that conditionally package payment for the 

ancillary services that are reported on the same date of service as critical care services in 
CMS-1601-P 350 

order to avoid overpayment. We will continue to monitor the hospital claims data for 

CPT code 99291 in order to determine whether revisions to this policy are warranted 

based on changes in hospitals’ billing practices. 
CMS-1601-P 351 

VIII. Proposed Payment for Partial Hospitalization Services 

A. Background

 Partial hospitalization is an intensive outpatient program of psychiatric services 

provided to patients as an alternative to inpatient psychiatric care for individuals who 

have an acute mental illness. Section 1861(ff)(1) of the Act defines partial 

hospitalization services as “the items and services described in paragraph (2) prescribed 

by a physician and provided under a program described in paragraph (3) under the 

supervision of a physician pursuant to an individualized, written plan of treatment 

established and periodically reviewed by a physician (in consultation with appropriate 

staff participating in such program), which sets forth the physician’s diagnosis, the type, 

amount, frequency, and duration of the items and services provided under the plan, and 

the goals for treatment under the plan.” Section 1861(ff)(2) of the Act describes the 

items and services included in partial hospitalization services. Section 1861(ff)(3)(A) of 

the Act specifies that a partial hospitalization program (PHP) is a program furnished by a 

hospital to its outpatients or by a community mental health center (CMHC) (as defined in 

subparagraph (B)), and “which is a distinct and organized intensive ambulatory treatment 

service offering less than 24-hour-daily care other than in an individual’s home or in an 

inpatient or residential setting.” Section 1861(ff)(3)(B) of the Act defines a community 

mental health center for purposes of this benefit. 

 Section 1833(t)(1)(B)(i) of the Act provides the Secretary with the authority to 

designate the OPD services to be covered under the OPPS. The Medicare regulations 

that implement this provision specify, under 42 CFR 419.21, that payments under the 
CMS-1601-P 352 

OPPS will be made for partial hospitalization services furnished by CMHCs as well as 

Medicare Part B services furnished to hospital outpatients designated by the Secretary, 

which include partial hospitalization services (65 FR 18444 through 18445). 

 Section 1833(t)(2)(C) of the Act, in pertinent part, requires the Secretary to 

“establish relative payment weights for covered OPD services (and any groups of such 

services described in subparagraph (B)) based on median (or, at the election of the 

Secretary, mean) hospital costs” using data on claims from 1996 and data from the most 

recent available cost reports. In pertinent part, subparagraph (B) provides that the 

Secretary may establish groups of covered OPD services, within a classification system 

developed by the Secretary for covered OPD services, so that services classified within 

each group are comparable clinically and with respect to the use of resources. In 

accordance with these provisions, we have developed the PHP APCs. Section 

1833(t)(9)(A) of the Act requires the Secretary to “review not less often than annually 

and revise the groups, the relative payment weights, and the wage and other adjustments 

described in paragraph (2) to take into account changes in medical practice, changes in 

technology, the addition of new services, new cost data, and other relevant information 

and factors.” 

 Because a day of care is the unit that defines the structure and scheduling of 

partial hospitalization services, we established a per diem payment methodology for the 

PHP APCs, effective for services furnished on or after July 1, 2000 (65 FR 18452 

through 18455). Under this methodology, the median per diem costs have been used to 

calculate the relative payment weights for PHP APCs. 
CMS-1601-P 353 

 From CY 2003 through CY 2006, the median per diem costs for CMHCs 

fluctuated significantly from year to year, while the median per diem costs for 

hospital-based PHPs remained relatively constant. We were concerned that CMHCs may 

have increased and decreased their charges in response to Medicare payment policies. 

Therefore, we began efforts to strengthen the PHP benefit through extensive data analysis 

and policy and payment changes finalized in the CY 2008 OPPS/ASC final rule with 

comment period (72 FR 66670 through 66676). We made two refinements to the 

methodology for computing the PHP median: the first remapped 10 revenue codes that 

are common among hospital-based PHP claims to the most appropriate cost centers; and 

the second refined our methodology for computing the PHP median per diem cost by 

computing a separate per diem cost for each day rather than for each bill. We refer 

readers to a complete discussion of these refinements in the CY 2008 OPPS/ASC final 

rule with comment period (72 FR 66670 through 66676). 

 In CY 2009, we implemented several regulatory, policy, and payment changes, 

including a two-tiered payment approach for PHP services under which we paid one 

amount for days with 3 services (APC 0172 Level I Partial Hospitalization) and a higher 

amount for days with 4 or more services (APC 0173 Level II Partial Hospitalization). 

We refer readers to section X.B. of the CY 2009 OPPS/ASC final rule with comment 

period (73 FR 68688 through 68693) for a full discussion of the two-tiered payment 

system. In addition, for CY 2009, we finalized our policy to deny payment for any PHP 

claims submitted for days when fewer than 3 units of therapeutic services are provided 

(73 FR 68694). 
CMS-1601-P 354 

 Furthermore, for CY 2009, we revised the regulations at 42 CFR 410.43 to codify 

existing basic PHP patient eligibility criteria and to add a reference to current physician 

certification requirements under 42 CFR 424.24 to conform our regulations to our 

longstanding policy (73 FR 68694 through 68695). These changes have helped to 

strengthen the PHP benefit. We also revised the partial hospitalization benefit to include 

several coding updates. We refer readers to section X.C.3. of the CY 2009 OPPS/ASC 

final rule with comment period (73 FR 68695 through 68697) for a full discussion of 

these requirements. 

 For CY 2010, we retained the two-tiered payment approach for PHP services and 

used only hospital-based PHP data in computing the APC per diem payment rates. We 

used only hospital-based PHP data because we were concerned about further reducing 

both PHP APC per diem payment rates without knowing the impact of the policy and 

payment changes we made in CY 2009. Because of the 2-year lag between data 

collection and rulemaking, the changes we made in CY 2009 were reflected for the first 

time in the claims data that we used to determine payment rates for the CY 2011 

rulemaking (74 FR 60556 through 60559). 

 In CY 2011, in accordance with section 1301(b) of the Health Care and Education 

Reconciliation Act of 2010 (HCERA 2010), we amended the description of a PHP in our 

regulations to specify that a PHP must be a distinct and organized intensive ambulatory 

treatment program offering less than 24-hour daily care “other than in an individual’s 

home or in an inpatient or residential setting.” In addition, in accordance with section 

1301(a) of HCERA 2010, we revised the definition of a CMHC in the regulations to 
CMS-1601-P 355 

conform to the revised definition now set forth under section 1861(ff)(3)(B) of the Act. 

We discussed our finalized policies for these two provisions of HCERA 2010 in section 

X.C. of the CY 2011 OPPS/ASC final rule with comment period (75 FR 71990). 

 In the CY 2011 OPPS/ASC final rule with comment period (75 FR 71994), we 

also established four separate PHP APC per diem payment rates, two for CMHCs (for 

Level I and Level II services) and two for hospital-based PHPs (for Level I and Level II 

services), based on each provider’s own unique data. As stated in the CY 2011 

OPPS/ASC proposed rule (75 FR 46300) and the final rule with comment period 

(75 FR 71991), for CY 2011, using CY 2009 claims data, CMHC costs had significantly 

decreased again. We attributed the decrease to the lower cost structure of CMHCs 

compared to hospital-based PHP providers, and not the impact of the CY 2009 policies. 

CMHCs have a lower cost structure than hospital-based PHP providers, in part, because 

the data showed that CMHCs generally provide fewer PHP services in a day and use less 

costly staff than hospital-based PHPs. Therefore, it was inappropriate to continue to treat 

CMHCs and hospital-based providers in the same manner regarding payment, 

particularly in light of such disparate differences in costs. We also were concerned that 

paying hospital-based PHPs at a lower rate than their cost structure reflects could lead to 

hospital-based PHP closures and possible access problems for Medicare beneficiaries 

because hospital-based PHPs are located throughout the country and, therefore, offer the 

widest access to PHP services. In contrast, CMHC-based PHPs are largely concentrated 

in certain geographical areas with particular prevalence in Florida, Texas, and Louisiana. 

Creating the four payment rates (two for CMHCs and two for hospital-based PHPs) based 
CMS-1601-P 356 

on each provider’s data supported continued access to the PHP benefit, while also 

providing appropriate payment based on the unique cost structures of CMHCs and 

hospital-based PHPs. In addition, separation of data by provider type was supported by 

several hospital-based PHP commenters who responded to the CY 2011 OPPS/ASC 

proposed rule (75 FR 71992). 

 For CY 2011, we instituted a 2-year transition period for CMHCs to the CMHC 

APC per diem payment rates based solely on CMHC data. For CY 2011, under the 

transition methodology, CMHC PHP APCs Level I and Level II per diem costs were 

calculated by taking 50 percent of the difference between the CY 2010 final 

hospital-based PHP median costs and the CY 2011 final CMHC median and then adding 

that number to the CY 2011 final CMHC median. A 2-year transition under this 

methodology moved us in the direction of our goal, which is to pay appropriately for PHP 

services based on each provider type’s data, while at the same time allowing providers 

time to adjust their business operations and protect access to care for beneficiaries. We 

also stated that we would review and analyze the data during the CY 2012 rulemaking 

cycle and, based on these analyses, we might further refine the payment mechanism. We 

refer readers to section X.B. of the CY 2011 OPPS/ASC final rule with comment period 

(75 FR 71991 through 71994) for a full discussion. 

 After publication of the CY 2011 OPPS/ASC final rule with comment period, a 

CMHC and one of its patients filed an application for a preliminary injunction, 

challenging the OPPS payment rates for PHP services provided by CMHCs in CY 2011 

as adopted in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71995). 
CMS-1601-P 357 

We refer readers to the court case, Paladin Cmty. Mental Health Ctr. v. Sebelius, No. 

10-949, 2011 WL 3102049 (W.D.Tex. 2011), aff’d, No. 11-50682, 2012 WL 2161137 

(5th Cir. June 15, 2012) (Paladin). The plaintiffs in the Paladin case challenged the 

agency’s use of cost data derived from both hospitals and CMHCs in determining the 

relative payment weights for the OPPS payment rates for PHP services furnished by 

CMHCs, alleging that section 1833(t)(2)(C) of the Act requires that such relative 

payment weights be based on cost data derived solely from hospitals. As discussed 

above, section 1833(t)(2)(C) of the Act requires CMS to “establish relative payment 

weights for covered OPD services (and any groups of such services . . .) . . . based on . . . 

hospital costs.” Numerous courts have held that “based on” does not mean “based 

exclusively on.” On July 25, 2011, the District Court dismissed the plaintiffs’ complaint 

and application for a preliminary injunction for lack of subject-matter jurisdiction, which 

the plaintiffs appealed to the United States Court of Appeals for the Fifth Circuit. On 

June 15, 2012, the Court of Appeals affirmed the District Court’s dismissal for lack of 

subject-matter jurisdiction and found that the Secretary’s payment rate determinations for 

PHP services are not a facial violation of a clear statutory mandate. (Paladin at *6). 

 For CY 2012, as discussed in the CY 2012 OPPS/ASC final rule with comment 

period (76 FR 74348 through 74352), we determined the relative payment weights for 

PHP services provided by CMHCs based on data derived solely from CMHCs and the 

relative payment weights for hospital-based PHP services based exclusively on hospital 

data. The statute is reasonably interpreted to allow the relative payment weights for the 

OPPS payment rates for PHP services provided by CMHCs to be based solely on CMHC 
CMS-1601-P 358 

data and relative payment weights for hospital-based PHP services to be based 

exclusively on hospital data. Section 1833(t)(2)(C) of the Act requires the Secretary to 

“establish relative payment weights for covered OPD services (and any groups of such 

services described in subparagraph (B)) based on . . . hospital costs.” In pertinent part, 

subparagraph (B) provides that “the Secretary may establish groups of covered OPD 

services . . . so that services classified within each group are comparable clinically and 

with respect to the use of resources.” In accordance with subparagraph (B), we 

developed the PHP APCs, as set forth in § 419.31 of the regulations (65 FR 18446 and 

18447; 63 FR 47559 through 47562 and 47567 through 47569). As discussed above, 

PHP services are grouped into APCs. 

 Based on section 1833(t)(2)(C) of the Act, we believe that the word “establish” 

can be interpreted as applying to APCs at the inception of the OPPS in 2000 or whenever 

a new APC is added to the OPPS. In creating the original APC for PHP services 

(APC 0033), we did “establish” the initial relative payment weight for PHP services, 

provided in both hospital-based and CMHC-based settings, only on the basis of hospital 

data. Subsequently, from CY 2003 through CY 2008, the relative payment weights for 

PHP services were based on a combination of hospital and CMHC data. For CY 2009, 

we established new APCs for PHP services based exclusively on hospital data. 

Specifically, we adopted a two-tiered APC methodology (in lieu of the original APC 

0033) under which CMS paid one rate for days with 3 services (APC 0172) and a 

different payment rate for days with 4 or more services (APC 0173). These two new 

APCs were established using only hospital data. For CY 2011, we added two new APCs 
CMS-1601-P 359 

(APCs 0175 and 0176) for PHP services provided by hospitals and based the relative 

payment weights for these APCs solely on hospital data. APCs 0172 and 0173 were 

designated for PHP services provided by CMHCs and were based on a mixture of 

hospital and CMHC data. As the Secretary argued in the Paladin case, the courts have 

consistently held that the phrase “based on” does not mean “based exclusively on.” Thus, 

the relative payment weights for the two APCs for PHP services provided by CMHCs in 

CY 2011 were “based on” hospital data, no less than the relative payment weights for the 

two APCs for hospital-based PHP services. 

 Although we used hospital data to establish the relative payment weights for 

APCs 0033, 0172, 0173, 0175, and 0176 for PHP services, we believe that we have the 

authority to discontinue the use of hospital data in determining the OPPS relative 

payment weights for PHP services provided by CMHCs. Other parts of section 

1833(t)(2)(C) of the Act make plain that the data source for the relative payment weights 

is subject to change from one period to another. Section 1833(t)(2)(C) of the Act 

provides that, in establishing the relative payment weights, “the Secretary shall [ ] us[e] 

data on claims from 1996 and us[e] data from the most recent available cost reports.” We 

used 1996 data (in addition to 1997 data) in determining only the original relative 

payment weights for 2000. In the ensuing calendar year updates, we continually used 

more recent cost report data. 

 Moreover, section 1833(t)(9)(A) of the Act requires the Secretary to “review not 

less often than annually and revise the groups, the relative payment weights, and the 

wage and other adjustments described in paragraph (2) to take into account changes in 
CMS-1601-P 360 

medical practice, changes in technology, the addition of new services, new cost data, and 

other relevant information and factors.” For purposes of the CY 2012 update, we 

exercised our authority under section 1833(t)(9)(A) of the Act to change the data source 

for the relative payment weights for PHP services provided by CMHCs based on “new 

cost data, and other relevant information and factors.” 

 In the CY 2013 OPPS/ASC final rule with comment period, we finalized our 

proposal to base the relative payment weights that underpin the OPPS APCs, including 

the four PHP APCs, on geometric means rather than on the medians. For CY 2013, we 

established the four PHP APC per diem payment rates based on geometric mean cost 

levels calculated using the most recent claims data for each provider type. We refer 

readers to the CY 2013 OPPS/ASC final rule with comment period for a more detailed 

discussion (77 FR 68406 through 68412). 

B. Proposed PHP APC Update for CY 2014

 For CY 2014, we are proposing to apply our established policies to calculate the 

four PHP APC per diem payment rates based on geometric mean per diem costs using the 

most recent claims data for each provider type. We computed proposed CMHC PHP 

APC geometric mean per diem costs for Level I (3 services per day) and Level II (4 or 

more services per day) PHP services using only CY 2012 CMHC claims data, and 

proposed hospital-based PHP APC geometric mean per diem costs for Level I and Level 

II PHP services using only CY 2012 hospital-based PHP claims data. These proposed 

geometric mean per diem costs are shown in Table 30 below. 
CMS-1601-P 361 

TABLE 30.--PROPOSED CY 2014 GEOMETRIC MEAN PER DIEM 

COSTS FOR CMHC AND HOSPITAL-BASED PHP SERVICES, BASED ON CY 

2012 CLAIMS DATA 

APC 

 

Group Title 

 

Proposed 

Geometric 

Mean Per Diem Costs 

0172 Level I Partial Hospitalization (3 

services) for CMHCs 

$94.51 

0173 Level II Partial Hospitalization (4 or 

more services) for CMHCs 

$106.20 

0175 Level I Partial Hospitalization (3 

services) for hospital-based PHPs 

$212.85 

0176 Level II Partial Hospitalization (4 or 

more services) for hospital-based PHPs 

$215.13 

 For CY 2014, the proposed geometric mean per diem costs for days with 3 

services (Level I) is approximately $94.51 for CMHCs and approximately $212.85 for 

hospital-based PHPs. The proposed geometric mean per diem costs for days with 4 or 

more services (Level II) is approximately $106.20 for CMHCs and approximately 

$215.13 for hospital-based PHPs. Therefore, the proposed geometric mean per diem 

costs for CMHCs continue to be substantially lower than the proposed geometric mean 

per diem costs for hospital-based PHPs for the same level of service provided, which 

indicates that there continues to be fundamental differences between the cost structures of 

CMHCs and hospital-based PHPs. 

 The CY 2014 proposed geometric mean per diem costs for CMHCs calculated 

under the proposed CY 2014 methodology using CY 2012 claims data have remained 

relatively constant when compared to the CY 2013 final geometric mean per diem costs 

for CMHCs established in the CY 2013 OPPS/ASC final rule with comment period 

(77 FR 68412), with proposed geometric mean per diem costs for Level I PHP services 
CMS-1601-P 362 

increasing from approximately $87 to approximately $95 for CY 2014, and proposed 

geometric mean per diem costs for Level II PHP services decreasing from approximately 

$113 to approximately $106 for CY 2014. 

 The CY 2014 proposed geometric mean per diem costs for hospital-based PHPs 

calculated under the proposed CY 2014 methodology using CY 2012 claims data show 

more variation when compared to the CY 2013 final geometric mean per diem costs for 

hospital-based PHPs, with proposed geometric mean per diem costs for Level I PHP 

services increasing from approximately $186 to approximately $213 for CY 2014, and 

proposed geometric mean per diem costs for Level II PHP services decreasing from 

approximately $235 to approximately $215 for CY 2014. 

 In summary, the proposed CY 2014 geometric mean per diem costs for the PHP 

APCs are shown in Tables 31 and 32 below. We are inviting public comments on these 

proposals. 

TABLE 31.--PROPOSED CY 2014 GEOMETRIC MEAN PER DIEM COSTS FOR 

CMHC PHP SERVICES

APC Group Title Proposed Geometric 

Mean Per Diem Costs 

0172 Level I Partial Hospitalization (3 

services) for CMHCs 

$94.51 

0173 Level II Partial Hospitalization (4 or 

more services) for CMHCs 

$106.20 
CMS-1601-P 363 

TABLE 32.--PROPOSED CY 2014 GEOMETRIC MEAN PER DIEM COSTS FOR 

HOSPITAL-BASED PHP SERVICES

APC Group Title Proposed Geometric 

Mean Per Diem Costs 

0175 Level I Partial Hospitalization (3 

services) for Hospital-based PHPs 

$212.85 

0176 Level II Partial Hospitalization (4 or 

more services) for Hospital-based PHPs 

$215.13 

C. Discussion of Possible Future Initiatives and Request for Public Comments

 We are considering a number of possible future initiatives that may help to ensure 

the long-term stability of PHPs and further improve the accuracy of payment for PHP 

services. Along with our broad, ongoing objectives of ensuring stability of the PHP 

benefit and promoting payment accuracy for PHPs, we want to ensure that PHPs are used 

by individuals who are specifically in need of such services. The PHP benefit was 

designed to assist individuals with an acute exacerbation of a psychiatric illness to 

manage debilitating symptoms and prevent the need for admission and readmission into 

hospitals. Accordingly, we are considering a number of possible future modifications to 

certain aspects of the PHP benefit. We are not proposing new Medicare policy in this 

discussion of possible future modifications. Instead, we are requesting public comments 

on possible future initiatives.

 Under the current methodology, we use the most recent claims data to compute 

geometric mean per diem costs for Level I (3 services per day) and Level II (4 or more 

services per day) PHP services for CMHCs and for hospital-based PHPs. We are 

interested in examining the payment structure for PHP services to determine alternative 
CMS-1601-P 364 

methodologies to pay for PHP services that would reduce unnecessary care while 

maintaining or increasing the quality of care. We are inviting public comments on 

alternative payment methodologies.

 One of the areas on which we would like to receive public comments is whether 

payment based on an episode of care, or a per diem similar to the inpatient psychiatric 

facility (IPF) PPS, would result in more appropriate payment for PHP services than the 

current payment structure. The IPF PPS is a per diem prospective payment system for 

inpatient psychiatric hospital services furnished in psychiatric hospitals, and psychiatric 

units in acute care hospitals and critical access hospitals. The IPF PPS base rate is 

adjusted to account for patient and facility characteristics that contribute to higher costs 

per day, including age, diagnosis-related group assignment, comorbidities, days of the 

stay, geographic wage area, rural location, teaching status, cost of living for IPFs located 

in Alaska and Hawaii, and the presence of a qualifying emergency department. The 

IPF PPS methodology includes a payment provision for interrupted stays, additional 

payment for outlier cases, and a per treatment payment for electroconvulsive therapy 

(ECT) treatments. For detailed information regarding the implementation of the IPF PPS, 

we refer readers to the FY 2005 IPF PPS final rule published in the Federal Register on 

November 15, 2004 (69 FR 66922). To find additional information about the IPF PPS, 

we refer readers to the CMS Web site at: 

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

 Another area on which we would like to receive public comments is on physician 

certification/recertification that the individual would require inpatient psychiatric care in 
CMS-1601-P 365 

the absence of PHP services. In order for a hospital or CMHC to be paid for partial 

hospitalization services on behalf of a Medicare beneficiary, a physician must certify 

(and recertify when such services are furnished over a period of time), among other 

things, that the individual would require inpatient psychiatric care in the absence of such 

services. In addition, an individualized written plan of treatment for furnishing such 

services must be established and reviewed periodically by a physician, and such services 

must be furnished while the individual is under the care of a physician (We refer readers 

to 42 CFR 424.24(e)).

 Currently, the recertification requirements specify that the physician 

recertification must be signed by a physician who is treating the patient and has 

knowledge of the patient’s response to treatment. The recertification is required as of the 

18th day of partial hospitalization services. Subsequent recertifications are required at 

intervals established by the provider, but no less frequently than every 30 days. We are 

inviting public comments on whether the current requirement under § 424.24(e)(3)(ii) of 

the regulations, which requires the first recertification by the physician to be as of the 18th

day of partial hospitalization services, reflects current PHP treatment practices. 

Specifically, we are interested in whether the first recertification date should be changed 

to some other standard that accords with best practices and why.

 With respect to the individualized written plan of treatment for furnishing partial 

hospitalization services, as discussed above, a physician must establish and periodically 

review the written plan of treatment. The written plan of treatment sets forth the 

physician’s diagnosis, the type, amount, duration, and frequency of the services, and the 
CMS-1601-P 366 

treatment goals under the written plan. The physician determines the frequency and 

duration of the PHP services taking into account accepted norms of medical practice and 

a reasonable expectation of improvement in the patient’s condition. (We refer readers to 

§ 424.24(e)(2) of the regulations.) We are interested in what requirements should be 

included in the written plan of treatment to better direct PHP resources toward 

appropriate discharge and follow-up with appropriate support services. Specifically, we 

are inviting public comments on two issues: (1) the best way that discharge from a PHP 

be expedited for those individuals no longer at risk of inpatient psychiatric 

hospitalization; and (2) whether the written plan of treatment requirements under 

§ 424.24(e)(2)(i)(C), which require that the written plan of treatment set forth the 

treatment goals, should be revised to require that specific actions be taken by the 

physician and/or staff to assist a beneficiary in transitioning from a PHP to a lower level 

of care. For example, we are interested in whether the written plan of treatment should 

require that, upon discharge, patients have written instructions that include:

● A full list of their medications, dosages and any necessary prescriptions;

● Their next scheduled appointment with a psychiatrist or qualified practitioner 

who may bill for his or her professional services under Medicare Part B, including the 

phone number, address, and appointment date and time;

● Confirmed place to live in a stable environment with support services; and

● Other care coordination information.

 We also are interested in receiving public feedback about quality measures for a 

PHP. Quality health care is a high priority for CMS. We implement quality initiatives to 
CMS-1601-P 367 

ensure quality health care for Medicare beneficiaries through accountability and public 

disclosure. We use quality measures under various quality initiatives, which utilize 

pay-for-reporting and public reporting mechanisms. We are requesting public comments 

on quality measures for PHP services for future consideration. Specifically, if we were to 

establish quality measures for PHP services and require quality data reporting, what 

should be included in those measures? In addition, should the quality measures be 

similar or identical to those measures established for IPFs under the IPF Quality 

Reporting (IPFQR) Program?

 We would appreciate feedback on all of these areas for future consideration. 

Therefore, we are inviting public comments on these issues.

D. Proposed Separate Threshold for Outlier Payments to CMHCs

 As discussed in the CY 2004 OPPS final rule with comment period (68 FR 63469 

through 63470), after examining the costs, charges, and outlier payments for CMHCs, we 

believed that establishing a separate OPPS outlier policy for CMHCs would be 

appropriate. A CMHC-specific outlier policy would direct OPPS outlier payments 

towards genuine cost of outlier cases, and address situations where charges were being 

artificially increased to enhance outlier payments. We created a separate outlier policy 

that would be specific to the estimated costs and OPPS payments provided to CMHCs. 

We note that, in the CY 2009 OPPS/ASC final rule with comment period, we established 

an outlier reconciliation policy to comprehensively address charging aberrations related 

to OPPS outlier payments (73 FR 68594 through 68599). Therefore, beginning for 

CY 2004, we designated a portion of the estimated OPPS outlier target amount 
CMS-1601-P 368 

specifically for CMHCs, consistent with the percentage of projected payments to CMHCs 

under the OPPS each year, excluding outlier payments, and established a separate outlier 

threshold for CMHCs. 

 The separate outlier threshold for CMHCs resulted in $1.8 million in outlier 

payments to CMHCs in CY 2004, and $0.5 million in outlier payments to CMHCs in 

CY 2005. In contrast, in CY 2003, more than $30 million was paid to CMHCs in outlier 

payments. We believe that this difference in outlier payments indicates that the separate 

outlier threshold for CMHCs has been successful in keeping outlier payments to CMHCs 

in line with the percentage of OPPS payments made to CMHCs. 

 In this CY 2014 OPPS/ASC proposed rule, we are proposing to continue 

designating a portion of the estimated 1.0 percent outlier target amount specifically for 

CMHCs, consistent with the percentage of projected payments to CMHCs under the 

OPPS in CY 2014, excluding outlier payments. CMHCs are projected to receive 0.18 

percent of total OPPS payments in CY 2014, excluding outlier payments. Therefore, we 

are proposing to designate 0.0018 percent of the estimated 1.0 percent outlier target 

amount for CMHCs, and establish a threshold to achieve that level of outlier payments. 

Based on our simulations of CMHC payments for CY 2014, we are proposing to continue 

to set the threshold for CY 2014 at 3.40 times the highest CMHC PHP APC payment rate 

(that is, APC 0173 (Level II Partial Hospitalization)). We continue to believe that this 

approach would neutralize the impact of inflated CMHC charges on outlier payments and 

better target outlier payments to those truly exceptionally high-cost cases that might 

otherwise limit beneficiary access. In addition, we are proposing to continue to apply the 
CMS-1601-P 369 

same outlier payment percentage that applies to hospitals. Therefore, for CY 2014, we are 

proposing to continue to pay 50 percent of CMHC per diem costs over the threshold. In 

section II.G. of this proposed rule, for the hospital outpatient outlier payment policy, we 

are proposing to set a dollar threshold in addition to an APC multiplier threshold. 

Because the PHP APCs are the only APCs for which CMHCs may receive payment 

under the OPPS, we would not expect to redirect outlier payments by imposing a dollar 

threshold. Therefore, we are not proposing to set a dollar threshold for CMHC outlier 

payments. 

 In summary, we are proposing to establish that if a CMHC’s cost for partial 

hospitalization services, paid under either APC 0172 or APC 0173, exceeds 3.40 times 

the payment rate for APC 0173, the outlier payment would be calculated as 50 percent of 

the amount by which the cost exceeds 3.40 times the APC 0173 payment rate. We are 

inviting public comments on these proposals. 

IX. Proposed Procedures That Would Be Paid Only as Inpatient Procedures

A. Background

 We refer readers to the CY 2012 OPPS/ASC final rule with comment period 

(76 FR 74352 through 74353) for a full historical discussion of our longstanding policies 

on how we identify procedures that are typically provided only in an inpatient setting 

(referred to as the inpatient list) and, therefore, will not be paid by Medicare under the 

OPPS; and on the criteria that we use to review the inpatient list each year to determine 

whether or not any procedures should be removed from the list. 
CMS-1601-P 370 

B. Proposed Changes to the Inpatient List

 For the CY 2014 OPPS, we are proposing to use the same methodology 

(described in the November 15, 2004 final rule with comment period (69 FR 65835)) of 

reviewing the current list of procedures on the inpatient list to identify any procedures 

that may be removed from the list. The established criteria upon which we make such a 

determination are as follows: 

 1. Most outpatient departments are equipped to provide the services to the 

Medicare population. 

 2. The simplest procedure described by the code may be performed in most 

outpatient departments. 

 3. The procedure is related to codes that we have already removed from the 

inpatient list. 

 4. A determination is made that the procedure is being performed in numerous 

hospitals on an outpatient basis. 

 5. A determination is made that the procedure can be appropriately and safely 

performed in an ASC, and is on the list of approved ASC procedures or has been 

proposed by us for addition to the ASC list. 

 Using this methodology, we did not identify any procedures that potentially could 

be removed from the inpatient list for CY 2014. Therefore, we are proposing to not 

remove any procedures from the inpatient list for CY 2014. 
CMS-1601-P 371 

 The complete list of codes that we are proposing to be paid by Medicare in 

CY 2014 only as inpatient procedures is included as Addendum E to this proposed rule 

(which is available via the Internet on the CMS Web site). 

X. Proposed Nonrecurring Policy Changes 

A. Supervision of Hospital Outpatient Therapeutic Services

1. Enforcement Instruction for the Supervision of Outpatient Therapeutic Services in 

CAHs and Certain Small Rural Hospitals 

 In the CY 2009 OPPS/ASC proposed rule and final rule with comment period 

(73 FR 41518 through 41519 and 73 FR 68702 through 68704, respectively), we clarified 

that direct supervision is required for hospital outpatient therapeutic services covered and 

paid by Medicare in hospitals as well as in provider-based departments of hospitals, as set 

forth in the CY 2000 OPPS final rule with comment period (65 FR 18525). In the 

CY 2010 OPPS/ASC final rule with comment period (74 FR 60575 through 60591), we 

finalized a technical correction to the title and text of the applicable regulations at 

42 CFR 410.27 to clarify that this standard applies in CAHs as well as hospitals. In 

response to concerns expressed by the hospital community, in particular CAHs and small 

rural hospitals, that they would have difficulty meeting this standard, on March 15, 2010, 

we instructed all Medicare contractors not to evaluate or enforce the supervision 

requirements for therapeutic services provided to outpatients in CAHs from January 1, 

2010 through December 31, 2010, while the agency revisited the supervision policy 

during the CY 2011 OPPS/ASC rulemaking cycle. 
CMS-1601-P 372 

 Due to continued concerns expressed by CAHs and small rural hospitals, we 

extended this notice of nonenforcement (“enforcement instruction”) as an interim 

measure for CY 2011, and expanded it to apply to small rural hospitals having 100 or 

fewer beds (75 FR 72007). We continued to consider the issue further in our annual 

OPPS notice-and-comment rulemaking, and implemented an independent review process 

to obtain advice from the Hospital Outpatient Payment Panel (the Panel) on this matter 

(76 FR 74360 through 74371). Under this process used since CY 2012, the Panel 

considers and advises CMS regarding stakeholder requests for changes in the required 

level of supervision of individual hospital outpatient therapeutic services. We extended 

the enforcement instruction the past 2 years (through CY 2012 and CY 2013) to provide 

hospitals with adequate opportunity to become familiar with the new independent review 

process and submit evaluation requests, and to meet the required supervision levels for all 

hospital outpatient therapeutic services (we refer readers to 76 FR 74371 and 77 FR 

68425). In the CY 2013 OPPS/ASC final rule with comment period (77 FR 68426), we 

stated that we expect CY 2013 to be the final year that the enforcement instruction would 

be in effect, as during this year there would be additional opportunities for stakeholders 

to bring their issues to the Panel, and for the Panel to evaluate and provide us with 

recommendations on those issues. The current enforcement instruction is available on 

the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalOutpatientPPS/index.html?redirect=/HospitalOutpatientPPS/01_overvi

ew.asp. 
CMS-1601-P 373 

 In CY 2012 and CY 2013, the Panel met and considered several requests from 

CAHs and other stakeholders for changes in the required level of supervision for 

observation and other services. Based on the Panel’s recommendations, we modified our 

supervision requirements to provide that most of the services considered may be 

furnished under general supervision, in accordance with applicable Medicare regulations 

and policies. These decisions are posted on the CMS Web site at 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalOutpatientPPS/Downloads/CY2013-OPPS-General-Supervision.pdf. 

We did not receive any requests from stakeholders for evaluation of the supervision 

levels of any other hospital outpatient therapeutic services at the March 2013 Panel 

meeting. We continue to believe that direct supervision is the most appropriate level of 

supervision for most hospital outpatient therapeutic services under the “incident to” 

provisions of section 1861(s)(2)(B) of the Act, as we discussed in the CY 2011 

OPPS/ASC final rule with comment period (75 FR 72006). We believe the independent 

Panel review advisory process has proved an effective means for the hospital community 

to identify hospital outpatient therapeutic services that can safely be furnished under 

general supervision, where the supervising practitioner does not have to be immediately 

available in person to provide assistance and direction. We encourage hospitals to 

continue using the Panel process for bringing services to CMS’ attention that may not 

require the immediate availability of a supervising practitioner, especially where it is 

possible to reduce the burden on the workforce available to small rural hospitals and 

CAHs while ensuring the quality and safety of patient care. We encourage hospitals and 
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CAHs to continue using the established Panel process to request changes they believe 

would be appropriate in supervision levels for individual hospital outpatient therapeutic 

services. Instructions for submitting evaluation requests are available on the Panel Web 

site at http://www.cms.gov/Regulations-andGuidance/Guidance/FACA/AdvisoryPanelonAmbulatoryPaymentClassificationGroups.ht

ml). 

 We believe it is appropriate to allow the enforcement instruction to expire at the 

end of CY 2013, to ensure the quality and safety of hospital and CAH outpatient 

therapeutic services paid by Medicare. For CY 2014, we anticipate allowing the 

enforcement instruction to expire, such that all outpatient therapeutic services furnished 

in hospitals and CAHs would require a minimum of direct supervision unless the service 

is on the list of services that may be furnished under general supervision or is designated 

as a nonsurgical extended duration therapeutic service (the list of services is available on 

the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalOutpatientPPS/Downloads/CY2013-OPPS-General-Supervision.pdf). 

We are interested in receiving public comments on any potential impacts on access to 

care and quality of care for specific services that may result from allowing the 

enforcement instruction to expire at the end of CY 2013. We are requesting public 

comments on specific services for which CAHs and small rural hospitals anticipate 

difficulty furnishing the required direct supervision, including specific factors that may 

contribute to the lack of available staff. 

2. Supervision Requirements for Observation Services 
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 In the CY 2011 OPPS/ASC final rule with comment period (75 FR 71999 through 

72013), we revised the supervision requirements for observation services furnished in the 

hospital by designating observation services (HCPCS codes G0378 (Hospital observation 

services, per hour) and G0379 (Direct admission of patient for observation care)) as 

nonsurgical extended duration therapeutic services (“extended duration services”). As 

we provided in the CY 2011 OPPS/ASC final rule with comment period and 

42 CFR 410.27(a)(1)(iv)(E), extended duration services require direct supervision at the 

initiation of the service, which may be followed by general supervision for the remainder 

of the service at the discretion of the supervising physician or appropriate nonphysician 

practitioner, once that practitioner has determined that the patient is stable. The 

determination by the supervising physician or appropriate nonphysician practitioner that 

the beneficiary is stable and may be transitioned to general supervision must be 

documented in progress notes or in the medical record (75 FR 72011). 

 Since we designated observation services as extended duration services, we have 

received several inquiries from stakeholders regarding whether Medicare requires 

multiple evaluations of the beneficiary during the provision of observation services. 

Specifically, stakeholders asked whether, once the supervising physician or appropriate 

nonphysician practitioner transitions the beneficiary to general supervision and 

documents the transition in the medical record, Medicare require further assessment of 

the beneficiary either per hour (because observation services are billed per hour) or at 

some other point during provision of the service. We are clarifying that, for observation 

services, if the supervising physician or appropriate nonphysician practitioner determines 
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and documents in the medical record that the beneficiary is stable and may be 

transitioned to general supervision, general supervision may be furnished for the duration 

of the service. Medicare does not require an additional initiation period(s) of direct 

supervision during the service. We believe that this clarification will assist hospitals in 

furnishing the required supervision of observation services without undue burden on their 

staff. 

B. Application of Therapy Caps in CAHs

 For outpatient physical therapy (PT), occupational therapy (OT), and 

speech-language pathology (SLP) (collectively, “outpatient therapy”) services covered 

under Medicare Part B, section 1833(g) of the Act applies annual, per beneficiary 

limitations on incurred expenses, commonly referred to as “therapy caps.” There is one 

therapy cap for OT services and another separate therapy cap for PT and SLP services 

combined. In the CY 2014 Medicare Physician Fee Schedule (MPFS) proposed rule, we 

are proposing to subject outpatient therapy services that are furnished by a CAH to the 

therapy caps, the exceptions process, and the manual medical review process beginning 

on January 1, 2014. The American Taxpayer Relief Act of 2012 (Pub. L. 112-240) 

required that therapy services furnished by a CAH during 2013 are counted toward the 

therapy caps using the MPFS rate, and we are proposing to continue this methodology for 

2014 and subsequent years. CAHs would still be paid for therapy services under the 

reasonable cost methodology for CAH outpatient services described at section 1834(g) of 

the Act. We refer readers to the CY 2014 MPFS proposed rule for detailed information 

about the proposed application of the therapy caps and related provisions to CAHs. We 

are including in this CY 2014 OPPS/ASC proposed rule a reference to this proposal as an 
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additional means to direct CAHs’ attention to our proposal in the CY 2014 MPFS 

proposed rule. We refer readers to the CY 2014 MPFS proposed rule for instructions for 

submitting public comments related to this proposal to apply the therapy cap to services 

furnished by CAHs. We look forward to reviewing the comments on this proposal. 

C. Requirements for Payment of Outpatient Therapeutic (“Incident To”) Hospital or 

CAH Services

1. Overview 

 In this section, we are proposing to amend the Medicare conditions of payment 

for therapeutic outpatient hospital or CAH services and supplies furnished “incident to” a 

physician’s or nonphysician practitioner’s service (which we refer to as hospital or CAH 

outpatient therapeutic services) to require that individuals furnishing these services do so 

in compliance with applicable State law. Under current policy, we generally defer to 

hospitals to ensure that State scope of practice and other State rules relating to health care 

delivery are followed, such that these services are performed only by qualified personnel 

in accordance with all applicable laws and regulations. We are proposing to revise the 

existing regulations to explicitly require that individuals who perform hospital or CAH 

outpatient therapeutic services must do so in compliance with applicable State laws and 

regulations as a condition of payment under Medicare Part B. In this section of this 

proposed rule, we are using the term “hospital” to include a CAH unless otherwise 

specified. Although the term “hospital” does not generally include a CAH, section 

1861(e) of the Act provides that the term “hospital” includes a CAH if the context 

otherwise requires. We believe it would be appropriate to apply our proposed policy 
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regarding compliance with applicable State law, as we do for other conditions of payment 

for hospital outpatient therapeutic services, to CAHs as well as other hospitals. 

2. Background 

 Section 1861(s)(2)(B) of the Act establishes the benefit category for hospital 

“incident to” medical and other health services, which are paid under Medicare Part B. 

The statute specifies that “incident to” services are “hospital services (including drugs 

and biological which are not usually self-administered by the patient) incident to 

physicians’ services rendered to outpatients and partial hospitalization services incident 

to such services.” In the CY 2012 OPPS/ASC final rule with comment period 

(76 FR 74369 through 74370), we clarified that Medicare defines these services as 

hospital outpatient therapeutic services, which are, according to our policy, furnished 

“incident to” a physician’s service even when described by benefit categories other than 

the specific “incident to” provision in section 1861(s)(2)(B) of the Act (for example, 

radiation therapy services described under section 1861(s)(4) of the Act). Because 

hospital outpatient therapeutic services are furnished “incident to” a physician’s 

professional service, we believe the conditions of payment that derive from the “incident 

to” nature of the services paid under section 1861(s)(2)(B) of the Act apply to all hospital 

outpatient therapeutic services, including those described under benefit categories other 

the specific “incident to” provision in section 1861(s)(2)(B) of the Act. 

 In addition to the requirements of the statute, the regulation at 42 CFR 410.27 sets 

forth specific requirements that must be met in order for hospital to be paid under 

Medicare Part B for therapeutic hospital or CAH services and supplies furnished incident 
CMS-1601-P 379 

to a physician’s or nonphysician practitioner’s service (hospital or CAH outpatient 

therapeutic services). Section 410.27 describes hospital or CAH services and supplies 

furnished incident to a physician’s or nonphysician practitioner’s services as therapeutic 

services and provides the conditions of payment. Specifically, § 410.27(a) provides that 

Medicare Part B pays for therapeutic hospital or CAH services and supplies furnished 

incident to a physician’s or nonphysician practitioner’s service. These are defined, in 

part, as all services and supplies furnished to hospital or CAH outpatients that are not 

diagnostic services and that aid the physician or nonphysician practitioner in the 

treatment of the patient, including drugs and biologicals that cannot be self-administered, 

if they are furnished— 

● By or under arrangements made by the participating hospital or CAH, except in 

the case of a SNF resident as provided in 42 CFR 411.15(p); 

● As an integral although incidental part of a physician’s or nonphysician 

practitioner’s services; 

● In the hospital or CAH or in a department of the hospital or CAH, as defined in 

42 CFR 413.65 [a provider-based department]; and 

● Under the direct supervision (or other level of supervision as specified by CMS 

for the particular service) of a physician or a nonphysician practitioner. For purposes of 

this section, “nonphysician practitioner,” as defined in § 410.27(g), means a clinical 

psychologist, licensed clinical social worker, physician assistant, nurse practitioner, 

clinical nurse specialist, or certified nurse-midwife. 
CMS-1601-P 380 

 Sections 410.27(b) through (f) provide additional conditions of payment for 

partial hospitalization services, drugs and biologicals, emergency services, and services 

furnished by an entity other than the hospital (or CAH). We commonly refer to the 

services described in § 410.27 as “incident to” services. 

 In recent years, we have discussed and refined the supervision regulations under 

§ 410.27, which are conditions of Medicare Part B payment for hospital outpatient 

“incident to” (“therapeutic”) services. For example, we have discussed our belief that 

direct supervision is the most appropriate level of supervision for most of these services, 

unless personal supervision or personal performance of the services by the physician or 

nonphysician practitioner is more appropriate, given the incident to nature of the services 

as an integral although incidental part of a physician’s or nonphysician practitioner’s 

services (74 FR 60584, 75 FR 72006, and 76 FR 42281). We have stated our historical 

interpretation of section 1861(s)(2)(B) of the Act, specifically, that “incident to” services 

are furnished under the order of a physician (or nonphysician practitioner), the physician 

is involved in the management of the patient, and the physician supervises the provision 

of those services when he or she does not provide them directly (75 FR 72006). This is 

reflected in our requirement for a minimum of direct supervision, except for a limited set 

of services that may be furnished under general supervision or are designated as 

nonsurgical extended duration therapeutic services which require direct supervision 

initially with potential transition to general supervision (we refer readers to the CMS 

Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalOutpatientPPS/Downloads/CY2013-OPPS-General-Supervision.pdf). 
CMS-1601-P 381 

 In 42 CFR 410.27(a)(1)(iv), we regulate the qualifications of physicians and 

nonphysician practitioners supervising other personnel that are personally performing a 

service, or part of a service: “(C) Nonphysician practitioners may provide the required 

supervision of services that they may personally furnish in accordance with State law and 

all additional requirements, including those specified in §§ 410.71, 410.73, 410.74, 

410.75, 410.76, and 410.77” and “(D) For pulmonary rehabilitation, cardiac 

rehabilitation, and intensive cardiac rehabilitation services, direct supervision must be 

furnished by a doctor of medicine or a doctor of osteopathy, as specified in §§ 410.47 and 

410.49, respectively.” 

 Similarly, we provide in the Medicare Benefit Policy Manual (MBPM, Pub. 

100-02) that hospital outpatient therapeutic services and supplies must be furnished under 

the order of a physician or other practitioner practicing within the extent of the Act, the 

Code of Federal Regulations, and State law (Chapter 6, Section 20.5.2 of the MBPM). 

Section 20.5.2 of the MBPM specifies that the services must be furnished by hospital 

personnel under the appropriate supervision of a physician or nonphysician practitioner in 

accordance with 42 CFR 410.27 and 482.12. This does not mean that each occasion of 

service by a nonphysician need also be the occasion of the actual rendition of a personal 

professional service by the physician responsible for care of the patient. However, during 

any course of treatment rendered by auxiliary personnel, the physician must personally 

see the patient periodically and sufficiently often to assess the course of treatment and the 

patient’s progress and, when necessary, to change the treatment regimen. A hospital 

service or supply would not be considered incident to a physician’s service if the 
CMS-1601-P 382 

attending physician merely wrote an order for the services or supplies and referred the 

patient to the hospital without being involved in the management of that course of 

treatment. 

 Central to the issue of services that hospitals may bill to Medicare that are not 

performed personally by the physician is the assessment of the qualifications of the 

individuals to whom the services are delegated. As medical practice has evolved over 

time, the services performed in the hospital outpatient setting have expanded to include 

more complicated services such as advanced surgery and a complex variety of radiation 

therapy. In addition, the types of services that can be furnished “incident to” a 

physician’s or nonphysician practitioner’s services have increased. Under current 

Medicare Part B payment policy, we generally defer to hospitals to ensure that State 

scope of practice laws are followed and that the personnel who furnish hospital outpatient 

therapeutic (“incident to”) services are licensed and are otherwise qualified to do so. 

Specifically, we have stated that, considering that hospitals furnish a wide array of 

complex outpatient services and procedures, including surgical procedures, we would 

expect that hospitals have the credentialing procedures, bylaws, and other policies in 

place to ensure that hospital outpatient services furnished to Medicare beneficiaries are 

being provided only by qualified practitioners in accordance with all applicable laws and 

regulations (74 FR 60584; Chapter 6, Section 20.5.4 of the MBPM). However, our 

payment regulations do not contain restrictions on the types of auxiliary personnel that 

can perform hospital outpatient therapeutic (“incident to”) services, other than rules 

relating to supervision by a physician or qualified nonphysician practitioner, and do not 
CMS-1601-P 383 

specifically require that performance of these services be in compliance with applicable 

State law. Over the past years, several situations have come to our attention where 

Medicare was billed for “incident to” services that were performed by an individual who 

did not meet the State standards for those services in the State in which services were 

performed. The physician or nonphysician practitioner billing for the services would 

have been permitted under State law to personally furnish the services, but the services 

were actually provided by other individuals who were not in compliance with State law in 

providing the particular services (or aspect of the services). 

 Although we would expect that all hospital services for which Medicare payment 

is made would be furnished in accordance with State law, the Medicare requirements for 

hospital outpatient therapeutic services and supplies incident to a physician’s services 

(§ 410.27, discussed above) do not specifically make compliance with State law a 

condition of payment for services (or aspects of services) and supplies furnished and 

billed as “incident to” services. Nor do any of the regulations regarding hospital 

outpatient therapeutic services and supplies incident to the services of nonphysician 

practitioners contain this requirement. Thus, Medicare has had limited recourse when 

hospital outpatient therapeutic (“incident to”) services are not furnished in compliance 

with State law. 

 In 2009, the Office of the Inspector General (OIG) issued a report entitled 

“Prevalence and Qualifications of Nonphysicians Who Performed Medicare Physician 

Services” (OEI-09-06-00430) that considered, in part, the qualifications of auxiliary 

personnel providing “incident to” physician services. After finding that services were 
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being provided and billed to Medicare by auxiliary personnel “...who did not possess the 

required licenses or certifications according to State laws, regulations, and/or Medicare 

rules,” the OIG recommended that we revise the “incident to” rules to, among other 

things, “require that physicians who do not personally perform the services they bill to 

Medicare ensure that no persons except...nonphysicians who have the necessary training, 

certification, and/or licensure pursuant to State laws, State regulations, and Medicare 

regulations personally perform the services under the direct supervision of a licensed 

physician.” We are proposing amendments to our regulations in order to address this 

recommendation. 

 To ensure that the practitioners and other personnel providing hospital outpatient 

therapeutic services to Medicare beneficiaries incident to a physician’s or nonphysician 

practitioner’s service do so in accordance with the requirements of the State in which the 

services are furnished, and to ensure that Medicare payments can be recovered when such 

services are not furnished in compliance with the State law, we are proposing to add a 

new condition of payment to the “incident to” regulations at § 410.27, Therapeutic 

outpatient hospital or CAH services and supplies incident to a physician’s or 

nonphysician practitioner’s service: Conditions. Specifically, we are proposing to add a 

provision under a new paragraph (a)(1)(vi) under § 410.27 to provide that “Medicare Part 

B pays for therapeutic hospital or CAH services and supplies furnished incident to a 

physician’s or nonphysician practitioner’s service... if they are furnished “In accordance 

with applicable State law.” The proposed policy would recognize the role of States in 
CMS-1601-P 385 

establishing the licensure and other qualifications of physicians and other health care 

professionals for the delivery of hospital (or CAH) outpatient therapeutic services. 

 This proposal is consistent with other areas of the Medicare program where CMS 

defers to State rules regarding the delivery of hospital services. For example, the hospital 

conditions of participation (CoPs) at 42 CFR 482.12(c)(2) defer to State law in 

determining who can admit patients as inpatients of a hospital: “Patients are admitted to 

the hospital only on the recommendation of a licensed practitioner permitted by the State 

to admit patients to a hospital.” The CoP also provides that, “If a Medicare patient is 

admitted by a practitioner not specified in paragraph (c)(1) of this section (that lists 

practitioners that must care for Medicare patients), that patient is under the care of a 

doctor of medicine or osteopathy.” Thus, in determining who may admit inpatients to a 

hospital, Medicare defers to State law rules. Also, as we stated in a recent rule 

addressing credentialing and privileging and telemedicine services under the CoPs (77 

FR 29047): “CMS recognizes that practitioner licensure laws and regulations have 

traditionally been, and continue to be, the provenance of individual States, and we are not 

seeking to preempt State authority in this matter.” We believe it is appropriate to 

similarly require that all hospital outpatient services furnished incident to a physician’s or 

nonphysician practitioner’s services be furnished in accordance with State law 

requirements. As evidenced by these examples, throughout the Medicare program the 

qualifications required for the delivery of health care services are generally determined 

with reference to State law. In addition to the health and safety benefits we believe 

would accrue to the Medicare patient population, this approach would assure that Federal 
CMS-1601-P 386 

dollars are not expended for services that do not meet the standards of the States in which 

they are being furnished, and provides the ability for the Federal government to recover 

funds paid where services and supplies are not furnished in accordance with State law. 

 This proposal would not impose any new requirements on hospitals billing the 

Medicare program because practitioners and other personnel furnishing services in a 

given State would already be required to comply with the laws of that State. This 

regulatory change would simply adopt the existing requirements as a condition of 

payment under Medicare. Codifying this requirement would provide the Federal 

government with a clear basis to deny a claim for Medicare payment when services are 

not furnished in accordance with applicable State law, and the ability to recover funds, as 

well as assure that Medicare pays for services furnished to beneficiaries only when the 

services meet the requirements imposed by the States to regulate health care delivery for 

the health and safety of their citizens. We welcome public comments on this proposal. 

3. Technical Correction 

 In our review of § 410.27, we noted that paragraph (a) defines therapeutic hospital 

or CAH services and supplies furnished incident to a physician’s or nonphysician 

practitioner’s service as “all services and supplies furnished to hospital or CAH 

outpatients that are not diagnostic services and that aid the physician or nonphysician 

practitioner in the treatment of the patient, including drugs and biologicals that cannot be 

self-administered.” Section 1861(s)(2)(B) of the Act describes these services as “hospital 

services (including drugs and biologicals which are not usually self-administered by the 

patient) incident to physicians’ services rendered to outpatients and partial hospitalization 
CMS-1601-P 387 

services incident to such services.” The statute includes in this benefit category “drugs 

and biologicals which are not usually self-administered by the patient.” We are 

proposing to make a technical correction that would amend the description of these drugs 

and biologicals at § 410.27(a) to more appropriately reflect the statutory language. 

Specifically, we are proposing to delete the phrase “drugs and biologicals that cannot be 

self-administered” and replace it with the phrase “drugs and biologicals which are not 

usually self-administered.” Under this proposed technical correction, the language of 

§ 410.27(a) would read, “Medicare Part B pays for therapeutic hospital or CAH services 

and supplies furnished incident to a physician's or nonphysician practitioner's service, 

which are defined as all services and supplies furnished to hospital or CAH outpatients 

that are not diagnostic services and that aid the physician or nonphysician practitioner in 

the treatment of the patient, including drugs and biologicals which are not usually 

self-administered....” 

D. Collecting Data on Services Furnished in Off-Campus Provider-Based Departments

 In recent years, the research literature and popular press have documented the 

increased trend toward hospital acquisition of physician practices, integration of those 

practices as a department of the hospital, and the resultant increase in the delivery of 

physicians’ services in a hospital setting (for example, we refer readers to Ostrom, Carol 

M., “Why you might pay twice for one visit to a doctor,” Seattle Times,

November 3, 2012, and O’Malley, Ann, Amelia M. Bond, and Robert Berenson, Rising 

hospital employment of physicians: better quality, higher costs? Issue Brief No. 136, 

Center for Studying Health System Change, August 2011). When a Medicare beneficiary 
CMS-1601-P 388 

receives outpatient services in a hospital, the total payment amount for outpatient services 

made by Medicare is generally higher than the total payment amount made by Medicare 

when a physician furnishes those same services in a freestanding clinic or in a physician 

office. As more physician practices become hospital-based, news articles have 

highlighted beneficiary liability for an additional “facility fee,” which is the payment 

Medicare makes when services are furnished in a hospital in addition to the payment to 

the physician. MedPAC has questioned the appropriateness of increased Medicare 

payment and beneficiary cost-sharing when physicians’ offices become hospital 

outpatient departments and has recommended that Medicare pay selected hospital 

outpatient services at the Medicare Physician Fee Schedule (MPFS) rates (MedPAC 

March 2012 Report to Congress; “Addressing Medicare Payment Differences across 

Settings,” presentation to the Commission on March 7, 2013). 

 The total payment (including both Medicare program payment and beneficiary 

cost-sharing) generally is higher when outpatient services are furnished in the hospital 

outpatient setting rather than a freestanding clinic or a physician office. Both the OPPS 

and the MPFS establish payment based on the relative resources involved in furnishing a 

service. In general, we expect hospitals to have overall higher resource requirements 

than physician offices because hospitals are required to meet the conditions of 

participation, to maintain standby capacity for emergency situations, and to be available 

to address a wide variety of complex medical needs in a community. When services are 

furnished in the hospital setting such as in off-campus provider-based departments, 

Medicare pays the physician a lower facility payment under the MPFS, but then also pays 
CMS-1601-P 389 

the hospital under the OPPS. The beneficiary pays coinsurance for both the physician 

payment and the hospital outpatient payment. The term “facility fee” refers to this 

additional hospital outpatient payment. 

 Upon acquisition of a physician practice, hospitals frequently treat the practice 

locations as off-campus provider-based departments of the hospital and bill Medicare for 

services furnished at those locations under the OPPS. (For further information on the 

provider-based regulations at § 413.65, we refer readers to 

http://www.gpo.gov/fdsys/pkg/CFR-2010-title42-vol2/pdf/CFR-2010-title42-vol2-

sec413-65.pdf. Since October 1, 2002, we have not required hospitals to seek from CMS 

a determination of provider-based status for a facility that is located off campus. We also 

do not have a formal process for gathering information on the frequency, type, and 

payment for services furnished in off-campus provider-based departments of the hospital. 

 In order to better understand the growing trend toward hospital acquisition of 

physician offices and subsequent treatment of those locations as off-campus 

provider-based outpatient departments, we are considering collecting information that 

would allow us to analyze the frequency, type, and payment for services furnished in 

off-campus provider-based hospital departments. We have considered several potential 

methods. Claims-based approaches could include creating a HCPCS modifier that could 

be reported with every code for services furnished in an off-campus provider-based 

department of a hospital on the CMS-1500 claim form for physician services and the 

UB-04 (CMS form 1450) for hospital outpatient claims. In addition, we have considered 

asking hospitals to break out the costs and charges for their provider-based departments 
CMS-1601-P 390 

as outpatient service cost centers on the Medicare hospital cost report, form 2552-10. We 

note that some hospitals already break out these costs voluntarily or because of cost 

reporting requirements for the 340B Drug Discount Program but this practice is not 

consistent or standardized. We are inviting public comments on the best means for 

collecting information on the frequency, type, and payment for services furnished in offcampus provider-based departments of hospitals. 

XI. Proposed CY 2014 OPPS Payment Status and Comment Indicators 

A. Proposed CY 2014 OPPS Payment Status Indicator Definitions

 Payment status indicators (SIs) that we assign to HCPCS codes and APCs serve 

an important role in determining payment for services under the OPPS. They indicate 

whether a service represented by a HCPCS code is payable under the OPPS or another 

payment system and also whether particular OPPS policies apply to the code. The 

complete list of the proposed CY 2014 status indicators and their definitions is displayed 

in Addendum D1 on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/HospitalOutpatientPPS/index.html. The proposed CY 2014 status 

indicator assignments for APCs and HCPCS codes are shown in Addendum A and 

Addendum B, respectively, on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalOutpatientPPS/index.html. The proposed changes to CY 2014 status 

indicators and their definitions are discussed in detail below. 

 For CY 2014, we are proposing to create a new status indicator “J1” to identify 

HCPCS codes that are paid under a comprehensive APC. A claim with the new proposed 
CMS-1601-P 391 

status indicator “J1” will trigger a comprehensive APC payment for the claim. The 

comprehensive APCs that we are proposing to establish are described in detail in section 

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

 For CY 2014, we are proposing to delete status indicator “X” and assign ancillary 

services that are currently assigned status indicator “X” to either status indicator “Q1” or 

“S”. First, services that are proposed to be assigned status indicator “Q1” include many 

minor diagnostic tests that are generally ancillary to and performed with another service. 

However, services that are proposed to be assigned to status indicator “Q1” also may be 

performed alone. Given the nature of these services and their role in hospital outpatient 

care, we believe that when these services are performed with another service they should 

be packaged, but that they should be separately paid when performed alone. Therefore, 

we believe it is appropriate to conditionally package all ancillary services that are 

currently assigned to status indicator “X,” and are proposing to assign them to status 

indicator “Q1.” We also are proposing that preventive services currently assigned status 

indicator “X” continue to receive separate payment in all cases and be assigned status 

indicator “S” for CY 2014. These proposed changes are discussed in greater detail in 

section II.A.3. of this proposed rule. In addition, we are proposing to revise the definition 

of status indicator “Q1” by removing status indicator “X” from the packaging criteria, so 

that codes assigned status indicator “Q1” are STV-packaged, rather than STVXpackaged, because status indicator “X” is proposed for deletion. 

 For CY 2014, we are proposing to revise the definitions of status indicators “S” 

and “T” to remove the word “significant” from these definitions. It is no longer 
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necessary to distinguish significant procedures from ancillary services because we are 

proposing to delete the status indicator that describes ancillary services. We also are 

proposing to add the word “service” to the definitions of status indicators “S” and “T” to 

indicate “procedure or service; not discounted when multiple,” as applicable to status 

indicator “S” and “procedure or service; multiple reduction applies,” as applicable to 

status indicator “T.” 

 In addition, we are proposing to update the definition of status indicator “A” for 

CY 2014. We are proposing to remove “Routine Dialysis Services for ESRD Patients 

Provided in a Certified Dialysis Unit of a Hospital” from the list of items and services 

applicable for the definition of status indicator “A” because these services are not 

recognized by OPPS when submitted on an outpatient hospital Part B bill type and are 

instead assigned to status indicator “B.” 

B. Proposed CY 2014 Comment Indicator Definitions

 For the CY 2014 OPPS, we are proposing to use the same two comment 

indicators that are in effect for the CY 2013 OPPS. 

● “CH”—Active HCPCS codes in current and next calendar year; status indicator 

and/or APC assignment have changed or active HCPCS code that will be discontinued at 

the end of the current calendar year. 

● “NI”—New code for the next calendar year or existing code with substantial 

revision to its code descriptor in the next calendar year as compared to current calendar 

year, interim APC assignment; comments will be accepted on the interim APC 

assignment for the new code. 
CMS-1601-P 393 

 We are proposing to use the “CH” comment indicator in this CY 2014 OPPS/ASC 

proposed rule to indicate HCPCS codes for which the status indicator or APC 

assignment, or both, are proposed for change in CY 2014 compared to their assignment 

as of June 30, 2013. We believe that using the “CH” indicator in this proposed rule 

would facilitate the public’s review of the changes that we are proposing for CY 2014. 

Use of the comment indicator “CH” in association with a composite APC indicates that 

the configuration of the composite APC is proposed to be changed in the CY 2014 

OPPS/ASC final rule with comment period. 

 We are proposing to use the “CH” comment indicator in the CY 2014 OPPS/ASC 

final rule with comment period to indicate HCPCS codes for which the status indicator or 

APC assignment, or both, would change in CY 2014 compared to their assignment as of 

December 31, 2013. 

 In addition, we are proposing that any existing HCPCS codes with substantial 

revisions to the code descriptors for CY 2014 compared to the CY 2013 descriptors will 

be labeled with comment indicator “NI” in Addendum B to the CY 2014 OPPS/ASC 

final rule with comment period. However, in order to receive the comment indicator 

“NI,” the CY 2014 revision to the code descriptor (compared to the CY 2013 descriptor) 

must be significant such that the new code descriptor describes a new service or 

procedure for which the OPPS treatment may change. We use comment indicator “NI” 

to indicate that these HCPCS codes will be open for comment as part of the CY 2014 

OPPS/ASC final rule with comment period. Like all codes labeled with comment 
CMS-1601-P 394 

indicator “NI,” we will respond to public comments and finalize their OPPS treatment in 

the CY 2015 OPPS/ASC final rule with comment period. 

 In accordance with our usual practice, we are proposing that CPT and Level II 

HCPCS codes that are new for CY 2014 also will be labeled with comment indicator 

“NI” in Addendum B to the CY 2014 OPPS/ASC final rule with comment period. 

 Only HCPCS codes with comment indicator “NI” in the CY 2014 OPPS/ASC 

final rule with comment period will be subject to comment. HCPCS codes that do not 

appear with comment indicator “NI” in the CY 2014 OPPS/ASC final rule with comment 

period will not be open to public comment, unless we specifically request additional 

comments elsewhere in the final rule with comment period. 

 We believe that the CY 2013 definitions of the OPPS status indicators continue to 

be appropriate for CY 2014. Therefore, we are proposing to continue to use those 

definitions without modification for CY 2014. The proposed definitions are listed in 

Addendum D2 on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/HospitalOutpatientPPS/index.html. 

XII. Proposed Updates to the Ambulatory Surgical Center (ASC) Payment System 

A. Background

1. Legislative History, Statutory Authority, and Prior Rulemaking for the ASC Payment 

System 

 For a detailed discussion of the legislative history and statutory authority related 

to ASCs, we refer readers to the CY 2012 OPPS/ASC final rule with comment period 

(76 FR 74377 through 74378) and the June 12, 1998 proposed rule (63 FR 32291 through 
CMS-1601-P 395 

32292). For a discussion of prior rulemaking on the ASC payment system, we refer 

readers to the CY 2012 OPPS/ASC final rule with comment period (76 FR 74378 through 

74379) and the CY 2013 OPPS/ASC final rule with comment period (77 FR 68434 

through 68467). 

2. Policies Governing Changes to the Lists of Codes and Payment Rates for ASC 

Covered Surgical Procedures and Covered Ancillary Services 

 Under § 416.2 and § 416.166 of the regulations, subject to certain exclusions, 

covered surgical procedures in an ASC are surgical procedures that are separately paid 

under the OPPS, that would not be expected to pose a significant risk to beneficiary 

safety when performed in an ASC, and that would not be expected to require active 

medical monitoring and care at midnight following the procedure (“overnight stay”). We 

adopted this standard for defining which surgical procedures are covered under the ASC 

payment system as an indicator of the complexity of the procedure and its 

appropriateness for Medicare payment in ASCs. We use this standard only for purposes 

of evaluating procedures to determine whether or not they are appropriate to be furnished 

to Medicare beneficiaries in ASCs. We define surgical procedures as those described by 

Category I CPT codes in the surgical range from 10000 through 69999, as well as those 

Category III CPT codes and Level II HCPCS codes that directly crosswalk or are 

clinically similar to ASC covered surgical procedures (72 FR 42478). 

 In the August 2, 2007 final rule, we also established our policy to make separate 

ASC payments for the following ancillary items and services when they are provided 

integral to ASC covered surgical procedures: (1) brachytherapy sources; (2) certain 
CMS-1601-P 396 

implantable items that have pass-through status under the OPPS; (3) certain items and 

services that we designate as contractor-priced, including, but not limited to, procurement 

of corneal tissue; (4) certain drugs and biologicals for which separate payment is allowed 

under the OPPS; and (5) certain radiology services for which separate payment is allowed 

under the OPPS. These covered ancillary services are specified in § 416.164(b) and, as 

stated previously, are eligible for separate ASC payment (72 FR 42495). Payment for 

ancillary items and services that are not paid separately under the ASC payment system is 

packaged into the ASC payment for the covered surgical procedure. 

 We update the lists of, and payment rates for, covered surgical procedures and 

covered ancillary services in ASCs in conjunction with the annual proposed and final 

rulemaking process to update the OPPS and the ASC payment system (§ 416.173; 

72 FR 42535). In addition, as discussed in detail in section XII.B. of this proposed rule, 

because we base ASC payment policies for covered surgical procedures, drugs, 

biologicals, and certain other covered ancillary services on the OPPS payment policies, 

we also provide quarterly update change requests (CRs) for ASC services throughout the 

year (January, April, July, and October). CMS releases new Level II codes to the public 

or recognizes the release of new CPT codes by the AMA and makes these codes effective 

(that is, the codes are recognized on Medicare claims) outside of the formal rulemaking 

process via these ASC quarterly update CRs. Thus, these quarterly updates are to 

implement newly created Level II HCPCS and Category III CPT codes for ASC payment 

and to update the payment rates for separately paid drugs and biologicals based on the 

most recently submitted ASP data. New Category I CPT codes, except vaccine codes, 
CMS-1601-P 397 

are released only once a year and, therefore, are implemented only through the January 

quarterly update. New Category I CPT vaccine codes are released twice a year and, 

therefore, are implemented through the January and July quarterly updates. We refer 

readers to Table 41 in the CY 2012 OPPS/ASC proposed rule for the process used to 

update the HCPCS and CPT codes (76 FR 42291). 

 In our annual updates to the ASC list of, and payment rates for, covered surgical 

procedures and covered ancillary services, we undertake a review of excluded surgical 

procedures (including all procedures newly proposed for removal from the OPPS 

inpatient list), new procedures, and procedures for which there is revised coding, to 

identify any that we believe meet the criteria for designation as ASC covered surgical 

procedures or covered ancillary services. Updating the lists of ASC covered surgical 

procedures and covered ancillary services, as well as their payment rates, in association 

with the annual OPPS rulemaking cycle is particularly important because the OPPS 

relative payment weights and, in some cases, payment rates, are used as the basis for the 

payment of covered surgical procedures and covered ancillary services under the revised 

ASC payment system. This joint update process ensures that the ASC updates occur in a 

regular, predictable, and timely manner. 

B. Proposed Treatment of New Codes

1. Proposed Process for Recognizing New Category I and Category III CPT Codes and 

Level II HCPCS Codes 

 Category I CPT, Category III CPT, and Level II HCPCS codes are used to report 

procedures, services, items, and supplies under the ASC payment system. Specifically, 
CMS-1601-P 398 

we recognize the following codes on ASC claims: (1) Category I CPT codes, which 

describe surgical procedures; (2) Category III CPT codes, which describe new and 

emerging technologies, services, and procedures; and (3) Level II HCPCS codes, which 

are used primarily to identify products, supplies, temporary procedures, and services not 

described by CPT codes. 

 We finalized a policy in the August 2, 2007 final rule to evaluate each year all 

new Category I and Category III CPT codes and Level II HCPCS codes that describe 

surgical procedures, and to make preliminary determinations during the annual 

OPPS/ASC rulemaking process regarding whether or not they meet the criteria for 

payment in the ASC setting as covered surgical procedures and, if so, whether or not they 

are office-based procedures (72 FR 42533 through 42535). In addition, we identify new 

codes as ASC covered ancillary services based upon the final payment policies of the 

revised ASC payment system. 

 We have separated our discussion below into two sections based on whether we 

are proposing to solicit public comments in this CY 2014 OPPS/ASC proposed rule (and 

respond to those comments in the CY 2014 OPPS/ASC final rule with comment period) 

or whether we will be soliciting public comments in the CY 2014 OPPS/ASC final rule 

with comment period (and responding to those comments in the CY 2015 OPPS/ASC 

final rule with comment period). 

 We note that we sought public comment in the CY 2013 OPPS/ASC final rule 

with comment period on the new Category I and III CPT and Level II HCPCS codes that 

were effective January 1, 2013. We also sought public comment in the CY 2013 
CMS-1601-P 399 

OPPS/ASC final rule with comment period on the new Level II HCPCS codes effective 

October 1, 2012. These new codes, with an effective date of October 1, 2012, or 

January 1, 2013, were flagged with comment indicator “NI” in Addenda AA and BB to 

the CY 2013 OPPS/ASC final rule with comment period to indicate that we were 

assigning them an interim payment status and payment rate, if applicable, which were 

subject to public comment following publication of the CY 2013 OPPS/ASC final rule 

with comment period. We will respond to public comments and finalize the treatment of 

these codes under the ASC payment system in the CY 2014 OPPS/ASC final rule with 

comment period. 

2. Proposed Treatment of New Level II HCPCS Codes and Category III CPT Codes 

Implemented in April 2013 and July 2013 for Which We Are Soliciting Public 

Comments in this CY 2014 OPPS/ASC Proposed Rule 

 In the April 2013 and July 2013 CRs, we made effective for April 1, 2013 and 

July 1, 2013, respectively, a total of nine new Level II HCPCS codes and two new 

Category III CPT codes that describe covered ASC services that were not addressed in 

the CY 2013 OPPS/ASC final rule with comment period. In the April 2013 ASC 

quarterly update (Transmittal 2662, CR 8237, dated March 1, 2013), we added one new 

surgical Level II HCPCS code and three new drug and biological Level II HCPCS codes 

to the list of covered surgical procedures and covered ancillary services, respectively. 

Table 33 below lists the new Level II HCPCS codes that were implemented April 1 2013, 

along with their proposed payment indicators for CY 2014. 
CMS-1601-P 400 

 In the July 2013 quarterly update (Transmittal 2717, Change Request 8328, dated 

May 31, 2013), we added one new surgical Level II HCPCS code to the list of covered 

surgical procedures and, one new vaccine Level II HCPCS code, and three new drug and 

biological Level II HCPCS codes to the list of covered ancillary services. Table 34 

below lists the new Level II HCPCS codes that were implemented July 1, 2013, along 

with their proposed payment indicators and proposed ASC payment rates for CY 2014. 

 We assigned payment indicator “K2” (Drugs and biologicals paid separately when 

provided integral to a surgical procedure on the ASC list; payment based on OPPS rate) 

to the six new drug and biological Level II HCPCS codes that are separately paid when 

provided in ASCs. We assigned payment indicator “L1” (Influenza vaccine; 

pneumococcal vaccine. Packaged item/service; no separate payment made) to the new 

vaccine Level II HCPCS code and payment indicator “G2” (Non office-based surgical 

procedure added in CY 2008 or later; payment based on OPPS relative payment weight) 

to the two new surgical Level II HCPCS codes. 

 We are soliciting public comment on the proposed CY 2014 ASC payment 

indicators and payment rates for the covered surgical procedures and covered ancillary 

services listed in Tables 33 and 34 below. Those HCPCS codes became payable in 

ASCs, beginning April 1, or July 1, 2013, and are paid at the ASC rates posted for the 

appropriate calendar quarter on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/ASCPayment/11_Addenda_Updates.html. 
CMS-1601-P 401 

 The HCPCS codes listed in Table 33 are included in Addenda AA or BB to this 

proposed rule (which is available via the Internet on the CMS Web site). We note that all 

ASC addenda are only available via the Internet on the CMS Web site. Because the 

payment rates associated with the new Level II HCPCS codes that became effective 

July 1, 2013 (listed in Table 34 of this proposed rule) are not available to us in time for 

incorporation into the Addenda to this OPPS/ASC proposed rule, our policy is to include 

these HCPCS codes and their proposed payment indicators and payment rates in the 

preamble to the proposed rule but not in the Addenda to the proposed rule. These codes 

and their final payment indicators and rates will be included in the appropriate 

Addendum to the CY 2014 OPPS/ASC final rule with comment period. Thus, the codes 

implemented by the July 2013 ASC quarterly update CR and their proposed CY 2014 

payment rates (based on July 2013 ASP data) that are displayed in Table 34 are not 

included in Addenda AA or BB to this proposed rule (which is available via the Internet 

on the CMS Web site). The final list of ASC covered surgical procedures and covered 

ancillary services and the associated payment weights and payment indicators will be 

included in Addenda AA or BB to the CY 2014 OPPS/ASC final rule with comment 

period, consistent with our annual update policy. 

 We are soliciting public comment on these proposed payment indicators and the 

proposed payment rates for the new Level II HCPCS codes that were newly recognized 

as ASC covered surgical procedures or covered ancillary services in April 2013 and July 

2013 through the quarterly update CRs, as listed in Tables 33 and 34 below. We are 
CMS-1601-P 402 

proposing to finalize their payment indicators and their payment rates in the CY 2014 

OPPS/ASC final rule with comment period. 

TABLE 33.—NEW LEVEL II HCPCS CODES FOR COVERED SURGICAL 

PROCEDURES OR COVERED ANCILLARY SERVICES IMPLEMENTED IN 

APRIL 2013

CY 2013 

HCPCS 

Code CY 2013 Long Descriptor 

Proposed 

CY 2014 

Payment 

Indicator 

C9130 Injection, immune globulin (Bivigam), 500 mg K2 

C9297 Injection, omacetaxine mepesuccinate, 0.01 mg K2 

C9298 Injection, ocriplasmin, 0.125 mg K2 

C9735 Anoscopy; with directed submucosal injection(s), 

any substance G2 

TABLE 34.—NEW LEVEL II HCPCS CODES FOR COVERED SURGICAL 

PROCEDURES OR COVERED ANCILLARY SERVICES IMPLEMENTED 

IN JULY 2013

CY 2013 

HCPCS 

Code CY 2013 Long Descriptor 

Proposed 

CY 2014 

Payment 

Indicator 

Proposed 

CY 2014 

Payment 

Rate 

C9131 Injection, ado-trastuzumab emtansine, 1 mg K2 $29.40 

C9736 

Laparoscopy, surgical, radiofrequency ablation of 

uterine fibroid(s), including intraoperative 

guidance and monitoring, when performed 

G2 $2,010.00

Q2033 Influenza Vaccine, Recombinant Himagglutinin 

Antigens, for Intramuscular Use (Flublok) L1 N/A 

Q2050* Injection, Doxorubicin Hydrochloride, 

Liposomal, Not Otherwise Specified, 10 mg K2 $545.44

Q2051* Injection, Zoledronic Acid, Not Otherwise 

Specified, 1 mg K2 $196.42

*Note: HCPCS code Q2050 replaced code J9002 and HCPCS code Q2051 replaced HCPCS codes J3487 

and J3488 beginning July 1, 2013.
CMS-1601-P 403 

 Through the July 2013 quarterly update CR, we also implemented ASC payment 

for two new Category III CPT codes as ASC covered ancillary services, effective 

July 1, 2013. These codes are listed in Table 35 below, along with their proposed 

payment indicators and proposed payment rates for CY 2014. Because the payment rates 

associated with the new Category III CPT codes that became effective for July are not 

available to us in time for incorporation into the Addenda to this OPPS/ASC proposed 

rule, our policy is to include the codes, their proposed payment indicators, and proposed 

payment rates in the preamble to the proposed rule but not in the Addenda to the 

proposed rule. The codes listed in Table 35 of this proposed rule and their final payment 

indicators and rates will be included in Addendum BB to the CY 2014 OPPS/ASC final 

rule with comment period. 

 We are proposing to assign payment indicator “Z2” (Radiology service paid 

separately when provided integral to a surgical procedure on ASC list; payment based on 

OPPS relative payment weight) to the two new Category III CPT codes implemented in 

July 2013. ASC covered ancillary services are certain items and services that are 

integrally related to the provision of ASC covered surgical procedures that are paid 

separately under the OPPS. We are soliciting public comment on these proposed 

payment indicators and the payment rates for the new Category III CPT codes that were 

newly recognized as ASC covered ancillary services in July 2013 through the quarterly 

update CR, as listed in Table 35 below. We are proposing to finalize their payment 

indicators and their payment rates in the CY 2014 OPPS/ASC final rule with comment 

period. 
CMS-1601-P 404 

TABLE 35.—NEW CATEGORY III CPT CODES IMPLEMENTED IN JULY 

2013 AS ASC COVERED ANCILLARY SERVICES

CY 2013 

CPT 

Code CY 2013 Long Descriptor

Proposed 

CY 2014 

Payment 

Indicator

Proposed 

CY 2014 

Payment 

Rate 

0331T Myocardial sympathetic innervation imaging, 

planar qualitative and quantitative assessment Z2 $212.08 

0332T 

Myocardial sympathetic innervation imaging, 

planar qualitative and quantitative assessment; 

with tomographic SPECT 

Z2 $212.08 

3. Proposed Process for New Level II HCPCS Codes and Category I and III CPT Codes 

for Which We Will Be Soliciting Public Comments in the CY 2014 OPPS/ASC Final 

Rule With Comment Period 

 As has been our practice in the past, we incorporate those new Category I and 

Category III CPT codes and new Level II HCPCS codes that are effective January 1 in 

the final rule with comment period updating the ASC payment system for the following 

calendar year. These codes are released to the public via the CMS HCPCS (for Level II 

HCPCS codes) and AMA Web sites (for CPT codes), and also through the January ASC 

quarterly update CRs. In the past, we also have released new Level II HCPCS codes that 

are effective October 1 through the October ASC quarterly update CRs and incorporated 

these new codes in the final rule with comment period updating the ASC payment system 

for the following calendar year. All of these codes are flagged with comment indicator 

“NI” in Addenda AA and BB to the OPPS/ASC final rule with comment period to 

indicate that we are assigning them an interim payment status which is subject to public 

comment. The payment indicator and payment rate, if applicable, for all such codes 
CMS-1601-P 405 

flagged with comment indicator “NI” are open to public comment in the OPPS/ASC final 

rule with comment period, and we respond to these comments in the final rule with 

comment period for the next calendar year’s OPPS/ASC update. 

 We are proposing to continue this process for CY 2014. Specifically, for 

CY 2014, we are proposing to include in Addenda AA and BB to the CY 2014 

OPPS/ASC final rule with comment period the new Category I and III CPT codes 

effective January 1, 2014, that would be incorporated in the January 2014 ASC quarterly 

update CR and the new Level II HCPCS codes, effective October 1, 2013 or 

January 1, 2014, that would be released by CMS in its October 2013 and January 2014 

ASC quarterly update CRs. These codes would be flagged with comment indicator “NI” 

in Addenda AA and BB to the CY 2014 OPPS/ASC final rule with comment period to 

indicate that we have assigned them an interim payment status. Their payment indicators 

and payment rates, if applicable, would be open to public comment in the CY 2014 

OPPS/ASC final rule with comment period and would be finalized in the CY 2015 

OPPS/ASC final rule with comment period. 

C. Proposed Update to the Lists of ASC Covered Surgical Procedures and Covered 

Ancillary Services

1. Covered Surgical Procedures 

a. Additions to the List of ASC Covered Surgical Procedures 

 We conducted a review of all HCPCS codes that currently are paid under the 

OPPS, but not included on the ASC list of covered surgical procedures, to determine if 

changes in technology and/or medical practice affected the clinical appropriateness of 
CMS-1601-P 406 

these procedures for the ASC setting. Upon review, we did not identify any procedures 

that are currently excluded from the ASC list of procedures that met the definition of a 

covered surgical procedure based on our expectation that they would not pose a 

significant safety risk to Medicare beneficiaries or would require an overnight stay if 

performed in ASCs. Therefore, we are not proposing additions to the list of ASC covered 

surgical procedures for CY 2014. 

b. Proposed Covered Surgical Procedures Designated as Office-Based 

(1) Background 

 In the August 2, 2007 ASC final rule, we finalized our policy to designate as 

“office-based” those procedures that are added to the ASC list of covered surgical 

procedures in CY 2008 or later years that we determine are performed predominantly 

(more than 50 percent of the time) in physicians’ offices based on consideration of the 

most recent available volume and utilization data for each individual procedure code 

and/or, if appropriate, the clinical characteristics, utilization, and volume of related codes. 

In that rule, we also finalized our policy to exempt all procedures on the CY 2007 ASC 

list from application of the office-based classification (72 FR 42512). The procedures 

that were added to the ASC list of covered surgical procedures beginning in CY 2008 that 

we determined were office-based were identified in Addendum AA to that rule by 

payment indicator “P2” (Office-based surgical procedure added to ASC list in CY 2008 

or later with MPFS nonfacility PE RVUs; payment based on OPPS relative payment 

weight); “P3” (Office-based surgical procedures added to ASC list in CY 2008 or later 

with MPFS nonfacility PE RVUs; payment based on MPFS nonfacility PE RVUs); or 
CMS-1601-P 407 

“R2” (Office-based surgical procedure added to ASC list in CY 2008 or later without 

MPFS nonfacility PE RVUs; payment based on OPPS relative payment weight), 

depending on whether we estimated it would be paid according to the standard ASC 

payment methodology based on its OPPS relative payment weight or at the MPFS 

nonfacility PE RVU-based amount. 

 Consistent with our final policy to annually review and update the list of surgical 

procedures eligible for payment in ASCs, each year we identify surgical procedures as 

either temporarily office-based, permanently office-based, or non-office-based, after 

taking into account updated volume and utilization data. 

(2) Proposed Changes for CY 2014 to Covered Surgical Procedures Designated as 

Office-Based 

 In developing this proposed rule, we followed our policy to annually review and 

update the surgical procedures for which ASC payment is made and to identify new 

procedures that may be appropriate for ASC payment, including their potential 

designation as office-based. We reviewed CY 2012 volume and utilization data and the 

clinical characteristics for all surgical procedures that are assigned payment indicator 

“G2” (Non-office-based surgical procedure added in CY 2008 or later; payment based on 

OPPS relative payment weight) in CY 2013, as well as for those procedures assigned one 

of the temporary office-based payment indicators, specifically “P2*,” “P3*,” or “R2*” in 

the CY 2013 OPPS/ASC final rule with comment period (77 FR 68444 through 68448). 

 Our review of the CY 2012 volume and utilization data resulted in our 

identification of three covered surgical procedures that we believe meet the criteria for 
CMS-1601-P 408 

designation as office-based. The data indicate that the procedures are performed more 

than 50 percent of the time in physicians’ offices, and our medical advisors believe the 

services are of a level of complexity consistent with other procedures performed routinely 

in physicians’ offices. The three CPT codes we are proposing to permanently designate 

as office-based are listed in Table 36 below. 

TABLE 36.—ASC COVERED SURGICAL PROCEDURES PROPOSED FOR 

PERMANENT OFFICE-BASED DESIGNATION FOR CY 2014 

*Proposed payment indicators are based on a comparison of the proposed rates according to the ASC 

standard ratesetting methodology and the MPFS proposed rates. According to the statutory formula, 

current law requires a negative update to the MPFS payment rates for CY 2014. For a discussion of those 

rates, we refer readers to the CY 2014 MPFS proposed rule.

 We invite public comment on this proposal. 

 We also reviewed CY 2012 volume and utilization data and other information for 

the eight procedures finalized for temporary office-based status in Table 51 and Table 53 

in the CY 2013 OPPS/ASC final rule with comment period (77 FR 68442, 68446 through 

68448). Among these eight procedures, there were very few claims data for four 

procedures: CPT code 0099T (Implantation of intrastromal corneal ring segments); CPT 

CY 2013 

CPT 

Code CY 2013 Long Descriptor 

CY 2013 

ASC 

Payment 

Indicator 

Proposed 

CY 2014 

ASC 

Payment 

Indicator* 

26341 

Manipulation, palmar fascial cord (ie, 

dupuytren’s cord), post enzyme 

injection (eg, collagenase), single cord 

G2 P3 

37761 

Ligation of perforator vein(s), 

subfascial, open, including ultrasound 

guidance, when performed, 1 leg 

G2 R2 

36595 

Mechanical removal of pericatheter 

obstructive material (eg, fibrin sheath) 

from central venous device via 

separate venous access 

G2 P3 
CMS-1601-P 409 

code 0124T (Conjunctival incision with posterior extrascleral placement of 

pharmacological agent (does not include supply of medication)); CPT code C9800 

(Dermal injection procedure(s) for facial lipodystrophy syndrome (LDS) and provision of 

Radiesse or Sculptra dermal filler, including all items and supplies); and CPT code 67229 

(Treatment of extensive or progressive retinopathy, one or more sessions; preterm infant 

(less than 37 weeks gestation at birth), performed from birth up to 1 year of age (eg, 

retinopathy of prematurity), photocoagulation or cryotherapy). Consequently, we are 

proposing to maintain their temporary office-based designations for CY 2014. 

 The volume and utilization data for one procedure that has a temporary 

office-based designation for CY 2013, CPT code 0227T (Anoscopy, high resolution 

(HRA) (with magnification and chemical agent enhancement); with biopsy(ies)), is 

sufficient to indicate that this procedure is not performed predominantly in physicians’ 

offices and, therefore, should not be assigned an office-based payment indicator in 

CY 2014. Consequently, we are proposing to assign payment indicator “G2” to this 

covered surgical procedure code in CY 2014. 

 The three remaining procedures that have temporary office-based designations for 

CY 2013 are proposed to be packaged under the OPPS for CY 2014 as discussed in 

section II.A.3. of this proposed rule. Consequently, we are proposing the assign payment 

indicator “N1” to the following three covered surgical procedure codes in CY 2014: 

● CPT code 0226T (Anoscopy, high resolution (HRA) (with magnification and 

chemical agent enhancement); diagnostic, including collection of specimen(s) by 

brushing or washing when performed); 
CMS-1601-P 410 

● CPT code 0299T (Extracorporeal shock wave for integumentary wound 

healing, high energy, including topical application and dressing care; initial wound); and 

● CPT code 0300T (Extracorporeal shock wave for integumentary wound 

healing, high energy, including topical application and dressing care; each additional 

wound (list separately in addition to code for primary procedure)). 

 The proposed CY 2014 payment indicator designations for the eight procedures 

that were temporarily designated as office-based in CY 2013 are displayed in Table 37 

below. The procedures for which the proposed office-based designations for CY 2014 

are temporary also are indicated by asterisks in Addendum AA to this proposed rule 

(which is available via the Internet on the CMS Web site). 

TABLE 37.—PROPOSED CY 2014 PAYMENT INDICATORS FOR ASC 

COVERED SURGICAL PROCEDURES DESIGNATED AS TEMPORARILY 

OFFICE-BASED IN THE CY 2013 OPPS/ASC FINAL RULE WITH COMMENT 

PERIOD 

CY 

2013 

CPT 

Code CY 2013 Long Descriptor 

CY 2013 

ASC 

Payment 

Indicator 

Proposed 

CY 2014 

ASC 

Payment 

Indicator**

0099T Implantation of intrastromal corneal ring 

segments 

R2* R2* 

0124T 

Conjunctival incision with posterior extrascleral 

placement of pharmacological agent (does not 

include supply of medication) 

R2* R2* 

0226T 

Anoscopy, high resolution (HRA) (with 

magnification and chemical agent enhancement); 

diagnostic, including collection of specimen(s) by 

brushing or washing when performed 

R2* N1 

0227T 

Anoscopy, high resolution (HRA) (with 

magnification and chemical agent enhancement); 

with biopsy(ies) 

R2* G2 

0299T Extracorporeal shock wave for integumentary 

wound healing, high energy, including topical R2* N1
CMS-1601-P 411 

CY 

2013 

CPT 

Code CY 2013 Long Descriptor 

CY 2013 

ASC 

Payment 

Indicator 

Proposed 

CY 2014 

ASC 

Payment 

Indicator**

application and dressing care; initial wound 

0300T 

Extracorporeal shock wave for integumentary 

wound healing, high energy, including topical 

application and dressing care; each additional 

wound (list separately in addition to code for 

primary procedure) 

R2* N1

C9800 

Dermal injection procedure(s) for facial 

lipodystrophy syndrome (LDS) and provision of 

Radiesse or Sculptra dermal filler, including all 

items and supplies 

R2* R2* 

67229 

Treatment of extensive or progressive 

retinopathy, one or more sessions; preterm infant 

(less than 37 weeks gestation at birth), performed 

from birth up to 1 year of age (eg, retinopathy of 

prematurity), photocoagulation or cryotherapy 

R2* R2* 

* If designation is temporary. 

** Proposed payment indicators are based on a comparison of the proposed rates according to the ASC 

standard ratesetting methodology and the MPFS proposed rates. According to the statutory formula, 

current law requires a negative update to the MPFS payment rates for CY 2014. For a discussion of those 

rates, we refer readers to the CY 2014 MPFS proposed rule. 

 We invite public comment on this proposal. 

c. ASC Covered Surgical Procedures Proposed to be Designated as Device-Intensive 

(1) Background 

 As discussed in the August 2, 2007 final rule (72 FR 42503 through 42508), we 

adopted a modified payment methodology for calculating the ASC payment rates for 

covered surgical procedures that are assigned to the subset of OPPS device-dependent 

APCs with a device offset percentage greater than 50 percent of the APC cost under the 

OPPS, in order to ensure that payment for the procedure is adequate to provide packaged 

payment for the high-cost implantable devices used in those procedures. 
CMS-1601-P 412 

(2) Proposed Changes to List of ASC Covered Surgical Procedures Designated as 

Device-Intensive for CY 2014 

 As discussed in section II.A.2.e of this proposed rule, for CY 2014, we are 

proposing to create 29 comprehensive APCs to replace 29 of the most costly 

device-dependent APCs under the OPPS. We are proposing to define a comprehensive 

APC as a classification for the provision of a primary service and all adjunctive services 

provided to support the delivery of the primary service. Because a comprehensive APC 

would treat all individually reported codes as representing components of the 

comprehensive service, our OPPS proposal is to make a single prospective payment 

based on the cost of all individually reported codes that represent the provision of a 

primary service and all adjunctive services provided to support the delivery of the 

primary service. We are proposing to apply our standard APC ratesetting methodology to 

the remaining 10 device-dependent APCs to calculate their CY 2014 OPPS payment 

rates. 

 Unlike the OPPS claims processing system that can be configured to make a 

single payment for the encounter-based comprehensive service whenever a HCPCS code 

that is assigned to a comprehensive APC appears on the claim, the ASC claims 

processing system does not allow for this type of conditional packaging. Therefore, we 

are proposing that all separately paid ancillary services that are provided integral to 

surgical procedures that map to comprehensive APCs would continue to be separately 

paid under the ASC payment system instead of being packaged into the payment for the 

comprehensive APC as under the OPPS. In addition, to avoid duplicate payment for 
CMS-1601-P 413 

separately paid ancillary services provided integral to the surgical procedure because the 

OPPS relative weights for comprehensive APCs include costs for ancillary services, we 

are proposing that the ASC payment rates and device offset amounts for comprehensive 

APCs would be based on the CY 2014 OPPS relative payments weights that have been 

calculated using the standard APC ratesetting methodology instead of the relative 

payment weights that are based on the comprehensive service. 

 Payment rates for ASC device-intensive procedures are based on a modified 

payment methodology to ensure that payment for the procedure is adequate to provide 

packaged payment for the high-cost implantable devices used in those procedures. 

Device-intensive procedures are currently defined as those procedures that are assigned 

to device-dependent APCs with a device offset percentage greater than 50 percent of the 

APC cost under the OPPS. Because we are proposing to create comprehensive APCs to 

replace 29 of the 39 device-dependent APCs under the OPPS, we are proposing to define 

ASC device-intensive procedures as those procedures that are assigned to any APC with 

a device offset percentage greater than 50 percent based on the standard OPPS APC 

ratesetting methodology. We are proposing changes to § 416.171(b)(2) to reflect this 

proposal. 

 We also are proposing to update the ASC list of covered surgical procedures that 

are eligible for payment according to our device-intensive procedure payment 

methodology, consistent with this modified definition of device-intensive procedures, 

reflecting the proposed APC assignments of procedures and APC device offset 
CMS-1601-P 414 

percentages based on the CY 2012 OPPS claims and cost report data available for the 

proposed rule. 

 The ASC covered surgical procedures that we are proposing to designate as 

device-intensive and that would be subject to the device-intensive procedure payment 

methodology for CY 2014 are listed in Table 38 below. The CPT code, the CPT code 

short descriptor, the proposed CY 2014 ASC payment indicator (PI), the proposed 

CY 2014 OPPS APC assignment, the proposed CY 2014 OPPS APC device offset 

percentage, and an indication if the full credit/partial credit (FB/FC) device adjustment 

policy would apply are also listed in Table 38 below. All of these procedures are 

included in Addendum AA to this proposed rule (which is available via the Internet on 

the CMS Web site). 

 We invite public comment on this proposal. 

d. Proposed Adjustment to ASC Payments for No Cost/Full Credit and Partial Credit 

Devices 

 Our ASC policy with regard to payment for costly devices implanted in ASCs at 

no cost/full credit or partial credit as set forth in § 416.179 is consistent with the current 

OPPS policy. The established ASC policy adopts the OPPS policy and reduces payment 

to ASCs when a specified device is furnished without cost or with full credit or partial 

credit for the cost of the device for those ASC covered surgical procedures that are 

assigned to APCs under the OPPS to which this policy applies. We refer readers to the 

CY 2009 OPPS/ASC final rule with comment period for a full discussion of the ASC 
CMS-1601-P 415 

payment adjustment policy for no cost/full credit and partial credit devices (73 FR 68742 

through 68744). 

 As discussed in section IV.B. of this proposed rule, we are proposing to modify 

our existing policy of reducing OPPS payment for specified APCs when a hospital 

furnishes a specified device without cost or with a full or partial credit. Currently under 

the OPPS, our policy is to reduce OPPS payment by 100 percent of the device offset 

amount when a hospital furnishes a specified device without cost or with a full credit and 

by 50 percent of the device offset amount when the hospital receives partial credit in the 

amount of 50 percent or more of the cost for the specified device. For CY 2014, we are 

proposing to reduce OPPS payment for applicable APCs by the full or partial credit a 

provider receives for a replaced device. 

 Although we are proposing to modify the policy of reducing payments when a 

hospital furnishes a specified device without cost or with full or partial credit under the 

OPPS, we are proposing to maintain our current ASC policy for reducing payments to 

ASCs for specified device-intensive procedures when the ASC furnishes a device without 

cost or with full or partial credit. Unlike the OPPS, there is currently no mechanism 

within the ASC claims processing system for ASCs to submit to CMS the actual amount 

received when furnishing a specified device at full or partial credit. Therefore, under the 

ASC payment system, we are proposing to continue to reduce ASC payments by 100 

percent or 50 percent of the device offset amount when an ASC furnishes a device 

without cost or with full or partial credit, respectively. We also are proposing to update 

the list of ASC covered device-intensive procedures that would be subject to the no 
CMS-1601-P 416 

cost/full credit and partial credit device adjustment policy for CY 2014. Table 38 below 

displays the ASC covered device-intensive procedures that we are proposing would be 

subject to the no cost/full credit or partial credit device adjustment policy for CY 2014. 

Specifically, when a procedure that is listed in Table 38 is subject to the no cost/full 

credit or partial credit device adjustment policy and is performed to implant a device that 

is furnished at no cost or with full credit from the manufacturer, the ASC would append 

the HCPCS “FB” modifier on the line with the procedure to implant the device. The 

contractor would reduce payment to the ASC by the device offset amount that we 

estimate represents the cost of the device when the necessary device is furnished without 

cost to the ASC or with full credit. We continue to believe that the reduction of ASC 

payment in these circumstances is necessary to pay appropriately for the covered surgical 

procedure being furnished by the ASC. 

 For partial credit, we are proposing to reduce the payment for implantation 

procedures listed in Table 38 that are subject to the no cost/full credit or partial credit 

device adjustment policy by one-half of the device offset amount that would be applied if 

a device was provided at no cost or with full credit, if the credit to the ASC is 50 percent 

or more of the cost of the new device. The ASC would append the HCPCS “FC” 

modifier to the HCPCS code for a surgical procedure listed in Table 38 that is subject to 

the no cost/full credit or partial credit device adjustment policy, when the facility receives 

a partial credit of 50 percent or more of the cost of a device. In order to report that they 

received a partial credit of 50 percent or more of the cost of a new device, ASCs would 

have the option of either: (1) submitting the claim for the device replacement procedure 
CMS-1601-P 417 

to their Medicare contractor after the procedure’s performance but prior to manufacturer 

acknowledgment of credit for the device, and subsequently contacting the contractor 

regarding a claim adjustment once the credit determination is made; or (2) holding the 

claim for the device implantation procedure until a determination is made by the 

manufacturer on the partial credit and submitting the claim with the “FC” modifier 

appended to the implantation procedure HCPCS code if the partial credit is 50 percent or 

more of the cost of the replacement device. Beneficiary coinsurance would continue to 

be based on the reduced payment amount. 

TABLE 38.—ASC COVERED SURGICAL PROCEDURES PROPOSED FOR 

DEVICE-INTENSIVE DESIGNATION FOR CY 2014, INCLUDING ASC 

COVERED SURGICAL PROCEDURES FOR WHICH WE PROPOSE THAT 

THE NO COST/FULL CREDIT OR PARTIAL CREDIT DEVICE ADJUSTMENT 

POLICY WOULD APPLY

CPT 

Code Short Descriptor 

Proposed 

CY 2014 

ASC PI 

Proposed 

CY 2014 

OPPS 

APC 

Proposed 

CY 2014 

DeviceDependent 

APC 

Offset 

Percent 

Proposing 

that 

FB/FC 

Policy Will 

Apply 

24361 Reconstruct elbow joint J8 0425 59% Yes 

24363 Replace elbow joint J8 0425 59% Yes 

24366 Reconstruct head of radius J8 0425 59% Yes 

24370 Revise reconst elbow joint J8 0425 59% Yes 

24371 Revise reconst elbow joint J8 0425 59% Yes 

25441 Reconstruct wrist joint J8 0425 59% Yes 

25442 Reconstruct wrist joint J8 0425 59% Yes 

25446 Wrist replacement J8 0425 59% Yes 

27446 Revision of knee joint J8 0425 59% Yes 

33206 Insert heart pm atrial J8 0089 68% Yes 
CMS-1601-P 418 

CPT 

Code Short Descriptor 

Proposed 

CY 2014 

ASC PI 

Proposed 

CY 2014 

OPPS 

APC 

Proposed 

CY 2014 

DeviceDependent 

APC 

Offset 

Percent 

Proposing 

that 

FB/FC 

Policy Will 

Apply 

33207 Insert heart pm ventricular J8 0089 68% Yes 

33208 Insrt heart pm atrial & vent J8 0655 72% Yes 

33212 Insert pulse gen sngl lead J8 0090 67% Yes 

33213 Insert pulse gen dual leads J8 0654 69% Yes 

33214 Upgrade of pacemaker system J8 0655 72% Yes 

33221 Insert pulse gen mult leads J8 0654 69% Yes 

33224 Insert pacing lead & connect J8 0655 72% Yes 

33227 Remove&replace pm gen singl J8 0090 67% Yes 

33228 Remv&replc pm gen dual lead J8 0654 69% Yes 

33229 Remv&replc pm gen mult leads J8 0654 69% Yes 

33230 Insrt pulse gen w/dual leads J8 0107 80% Yes 

33231 Insrt pulse gen w/mult leads J8 0107 80% Yes 

33240 Insrt pulse gen w/singl lead J8 0107 80% Yes 

33249 Nsert pace-defib w/lead J8 0108 82% Yes 

33262 Remv&replc cvd gen sing lead J8 0107 80% Yes 

33263 Remv&replc cvd gen dual lead J8 0107 80% Yes 

33264 Remv&replc cvd gen mult lead J8 0107 80% Yes 

33282 Implant pat-active ht record J8 0680 74% Yes 

37227 Fem/popl revasc stnt & ather J8 0319 52% No 

37231 Tib/per revasc stent & ather J8 0319 52% No 

53440 Male sling procedure J8 0385 63% Yes 

53444 Insert tandem cuff J8 0385 63% Yes 

53445 Insert uro/ves nck sphincter J8 0386 70% Yes 

53447 Remove/replace ur sphincter J8 0386 70% Yes 

54400 Insert semi-rigid prosthesis J8 0385 63% Yes 

54401 Insert self-contd prosthesis J8 0386 70% Yes 

54405 Insert multi-comp penis pros J8 0386 70% Yes 

54410 Remove/replace penis prosth J8 0386 70% Yes 

54416 Remv/repl penis contain pros J8 0386 70% Yes 

55873 Cryoablate prostate J8 0674 55% No 
CMS-1601-P 419 

CPT 

Code Short Descriptor 

Proposed 

CY 2014 

ASC PI 

Proposed 

CY 2014 

OPPS 

APC 

Proposed 

CY 2014 

DeviceDependent 

APC 

Offset 

Percent 

Proposing 

that 

FB/FC 

Policy Will 

Apply 

61885 Insrt/redo neurostim 1 array J8 0039 86% Yes 

61886 Implant neurostim arrays J8 0315 88% Yes 

62361 Implant spine infusion pump J8 0227 81% Yes 

62362 Implant spine infusion pump J8 0227 81% Yes 

63650 Implant neuroelectrodes J8 0040 54% Yes 

63655 Implant neuroelectrodes J8 0061 65% Yes 

63663 Revise spine eltrd perq aray J8 0040 54% Yes 

63664 Revise spine eltrd plate J8 0040 54% Yes 

63685 Insrt/redo spine n generator J8 0039 86% Yes 

64553 Implant neuroelectrodes J8 0040 54% Yes 

64555 Implant neuroelectrodes J8 0040 54% Yes 

64561 Implant neuroelectrodes J8 0040 54% Yes 

64565 Implant neuroelectrodes J8 0040 54% Yes 

64568 Inc for vagus n elect impl J8 0318 87% Yes 

64569 Revise/repl vagus n eltrd J8 0040 54% Yes 

64575 Implant neuroelectrodes J8 0061 65% Yes 

64580 Implant neuroelectrodes J8 0061 65% Yes 

64581 Implant neuroelectrodes J8 0061 65% Yes 

64590 Insrt/redo pn/gastr stimul J8 0039 86% Yes 

65770 Revise cornea with implant J8 0293 64% No 

69714 Implant temple bone w/stimul J8 0425 59% Yes 

69715 Temple bne implnt w/stimulat J8 0425 59% Yes 

69717 Temple bone implant revision J8 0425 59% Yes 

69718 Revise temple bone implant J8 0425 59% Yes 

69930 Implant cochlear device J8 0259 84% Yes 

0282T Periph field stimul trial J8 0040 54% Yes 

0283T Periph field stimul perm J8 0318 87% Yes 

0308T Insj ocular telescope prosth J8 0351 85% Yes 

0316T Replc vagus nerve pls gen J8 0039 86% Yes 

0319T Insert subq defib w/eltrd J8 0107 80% Yes 
CMS-1601-P 420 

CPT 

Code Short Descriptor 

Proposed 

CY 2014 

ASC PI 

Proposed 

CY 2014 

OPPS 

APC 

Proposed 

CY 2014 

DeviceDependent 

APC 

Offset 

Percent 

Proposing 

that 

FB/FC 

Policy Will 

Apply 

0321T Insert subq defib pls gen J8 0107 80% Yes 

 We invite public comment on these proposals. 

e. ASC Treatment of Surgical Procedures Proposed for Removal from the OPPS 

Inpatient List for CY 2014 

 As we discussed in the CY 2009 OPPS/ASC final rule with comment period 

(73 FR 68724), we adopted a policy to include in our annual evaluation of the ASC list of 

covered surgical procedures, a review of the procedures that are being proposed for 

removal from the OPPS inpatient list for possible inclusion on the ASC list of covered 

surgical procedures. There are no procedures proposed for removal from the OPPS 

inpatient list for CY 2014, so we are not proposing any procedures for possible inclusion 

on the ASC list of covered surgical procedures under this section. 

2. Covered Ancillary Services 

 Consistent with the established ASC payment system policy, we are proposing to 

update the ASC list of covered ancillary services to reflect the proposed payment status 

for the services under the CY 2014 OPPS. Maintaining consistency with the OPPS may 

result in proposed changes to ASC payment indicators for some covered ancillary items 

and services because of changes that are being proposed under the OPPS for CY 2014. 

For example, a covered ancillary service that was separately paid under the revised ASC 
CMS-1601-P 421 

payment system in CY 2013 may be proposed for packaged status under the CY 2014 

OPPS and, therefore, also under the ASC payment system for CY 2014. More 

specifically, as discussed in section II.A.3 of this proposed rule, we are proposing to 

package the following categories of ancillary or adjunctive services under the OPPS for 

CY 2014: drugs, biologicals, and radiopharmaceuticals that function as supplies when 

used in a diagnostic test or procedure; drugs and biologicals that function as supplies or 

devices when used in a surgical procedure; clinical diagnostic laboratory tests; 

procedures described by add-on codes; ancillary services (status indicator “X”); 

diagnostic tests on the bypass list; and device removal procedures. 

 To maintain consistency with the OPPS, we are proposing that these services 

would be also packaged under the ASC payment system for CY 2014. Comment 

indicator “CH,” discussed in section XII.F. of the this proposed rule, is used in 

Addendum BB to this proposed rule (which is available via the Internet on the CMS Web 

site) to indicate covered ancillary services for which we are proposing a change in the 

ASC payment indicator to reflect a proposed change in the OPPS treatment of the service 

for CY 2014. 

 Except for the Level II HCPCS codes and Level III CPT codes listed in Table 34 

and Table 35 of this proposed rule, all ASC covered ancillary services and their proposed 

payment indicators for CY 2014 are included in Addendum BB to this proposed rule. 

 We invite public comment on this proposal. 
CMS-1601-P 422 

D. Proposed ASC Payment for Covered Surgical Procedures and Covered Ancillary 

Services

1. Proposed ASC Payment for Covered Surgical Procedures 

a. Background 

 Our ASC payment policies for covered surgical procedures under the revised 

ASC payment system are fully described in the CY 2008 OPPS/ASC final rule with 

comment period (72 FR 66828 through 66831). Under our established policy for the 

revised ASC payment system, the ASC standard ratesetting methodology of multiplying 

the ASC relative payment weight for the procedure by the ASC conversion factor for that 

same year is used to calculate the national unadjusted payment rates for procedures with 

payment indicators “G2” and “A2.” Payment indicator “A2” was developed to identify 

procedures that were included on the list of ASC covered surgical procedures in CY 2007 

and were, therefore, subject to transitional payment prior to CY 2011. Although the 

4-year transitional period has ended and payment indicator “A2” is no longer required to 

identify surgical procedures subject to transitional payment, we retained payment 

indicator “A2” because it is used to identify procedures that are exempted from 

application of the office-based designation. 

 The rate calculation established for device-intensive procedures (payment 

indicator “J8”) is structured so that the packaged device payment amount is the same as 

under the OPPS, and only the service portion of the rate is subject to the ASC standard 

ratesetting methodology. In the CY 2013 OPPS/ASC final rule with comment period 

(77 FR 68434 through 68467), we updated the CY 2012 ASC payment rates for ASC 
CMS-1601-P 423 

covered surgical procedures with payment indicators of “A2,” “G2,” and “J8” using 

CY 2011 data, consistent with the CY 2013 OPPS update. Payment rates for 

device-intensive procedures also were updated to incorporate the CY 2013 OPPS device 

offset percentages. 

 Payment rates for office-based procedures (payment indicators “P2,” “P3,” and 

“R2”) are the lower of the MPFS nonfacility PE RVU-based amount (we refer readers to 

the CY 2014 MPFS proposed rule) or the amount calculated using the ASC standard 

ratesetting methodology for the procedure. In the CY 2013 OPPS/ASC final rule with 

comment period, we updated the payment amounts for office-based procedures (payment 

indicators “P2,” “P3,” and “R2”) using the most recent available MPFS and OPPS data. 

We compared the estimated CY 2013 rate for each of the office-based procedures, 

calculated according to the ASC standard ratesetting methodology, to the MPFS 

nonfacility PE RVU-based amount to determine which was lower and, therefore, would 

be the CY 2013 payment rate for the procedure according to the final policy of the 

revised ASC payment system (§ 416.171(d)). 

b. Proposed Update to ASC Covered Surgical Procedure Payment Rates for CY 2014 

 We are proposing to update ASC payment rates for CY 2014 using the established 

rate calculation methodologies under § 416.171 and using our proposed modified 

definition for device-intensive procedures as discussed above. Because the proposed 

OPPS relative payment weights are based on geometric mean costs for CY 2014, the 

ASC system will use geometric means to determine proposed relative payment weights 

under the ASC standard methodology. We are proposing to continue to use the amount 
CMS-1601-P 424 

calculated under the ASC standard ratesetting methodology for procedures assigned 

payment indicators “A2” and “G2.” 

 We are proposing that payment rates for office-based procedures (payment 

indicators “P2,” “P3,” and “R2”) and device-intensive procedures (payment indicator 

“J8”) be calculated according to our established policies, incorporating the 

device-intensive procedure methodology as appropriate. Thus, we are proposing to 

update the payment amounts for device-intensive procedures, using our proposed 

modified definition of device intensive procedures, based on the CY 2014 OPPS device 

offset percentages that have been calculated using the standard APC ratesetting 

methodology, and to make payment for office-based procedures at the lesser of the 

proposed CY 2014 MPFS nonfacility PE RVU-based amount or the proposed CY 2014 

ASC payment amount calculated according to the standard ratesetting methodology. 

 We invite public comment on these proposals. 

c. Waiver of Coinsurance and Deductible for Certain Preventive Services 

 Section 1833(a)(1) and section 1833(b)(1) of the Act waive the coinsurance and 

the Part B deductible for those preventive services under section 1861(ddd)(3)(A) of the 

Act as described in section 1861(ww)(2) of the Act (excluding electrocardiograms) that 

are recommended by the United States Preventive Services Task Force (USPSTF) with a 

grade of A or B for any indication or population and that are appropriate for the 

individual. Section 1833(b) of the Act also waives the Part B deductible for colorectal 

cancer screening tests that become diagnostic. In the CY 2011 OPPS/ASC final rule with 

comment period, we finalized our policies with respect to these provisions and identified 
CMS-1601-P 425 

the ASC covered surgical procedures and covered ancillary services that are preventive 

services that are recommended by the USPSTF with a grade of A or B for which the 

coinsurance and the deductible are waived. For a complete discussion of our policies and 

categories of services, we refer readers to the CY 2011 OPPS/ASC final rule with 

comment period (75 FR 72047 through 72049). We are not proposing any changes to our 

policies or the categories of services for CY 2014. We identify the specific services with 

a double asterisk in Addenda AA and BB to this proposed rule. 

d. Proposed Payment for Cardiac Resynchronization Therapy Services 

 Cardiac resynchronization therapy (CRT) uses electronic devices to sequentially 

pace both sides of the heart to improve its output. CRT utilizes a pacing electrode 

implanted in combination with either a pacemaker or an implantable cardioverter 

defibrillator (ICD). CRT performed by the implantation of an ICD along with a pacing 

electrode is referred to as “CRT–D.” In the CY 2012 OPPS/ASC final rule with 

comment period, we finalized our proposal to establish the CY 2012 ASC payment rate 

for CRT-D services based on the OPPS payment rate applicable to APC 0108 when 

procedures described by CPT codes 33225 (Insertion of pacing electrode, cardiac venous 

system, for left ventricular pacing, at time of insertion of pacing cardioverter-defibrillator 

or pacemaker pulse generator (eg, for upgrade to dual chamber system) (list separately in 

addition to code for primary procedure)) and 33249 (Insertion or replacement of 

permanent pacing cardioverter-defibrillator system with transvenous lead(s), single or 

dual chamber) are performed on the same date of service in an ASC. ASCs use the 

corresponding HCPCS Level II G-code (G0448) for proper reporting when the 
CMS-1601-P 426 

procedures described by CPT codes 33225 and 33249 are performed on the same date of 

service. For a complete discussion of our policy regarding payment for CRT-D services 

in ASCs, we refer readers to the CY 2012 OPPS/ASC final rule with comment period 

(76 FR 74427 through 74428). For CY 2014, CPT code 33249, the primary code for 

CRT-D services, is proposed for continued assignment to APC 0108 but CPT code 33225 

is proposed to be packaged under the OPPS. 

 Consequently, we are proposing that CPT code 33225 would also be packaged 

under the ASC payment system for CY 2014. Because CPT code 33225 is proposed to 

be packaged under the ASC payment system and, therefore, would not receive separate 

payment, it would no longer be necessary that ASCs use the HCPCS Level II G-code 

(G0448) for proper reporting when the procedures described by CPT codes 33225 and 

33249 are performed on the same date of service. Therefore, we are proposing that the 

ASC payment rate for CRT-D services (procedures described by CPT codes 33249 and 

33225) would be based on the OPPS relative payment weight for APC 0108 for CY 2014 

and that ASCs would no longer be required to assign HCPCS code G0448 when the 

procedures described by CPT codes 33225 and 33249 are performed on the same date of 

service. 

 We invite public comment on these proposals. 

e. Payment for Low Dose Rate (LDR) Prostate Brachytherapy Composite 

 LDR prostate brachytherapy is a treatment for prostate cancer in which hollow 

needles or catheters are inserted into the prostate, followed by permanent implantation of 

radioactive sources into the prostate through the needles/catheters. At least two CPT 
CMS-1601-P 427 

codes are used to report the treatment service because there are separate codes that 

describe placement of the needles/catheters and the application of the brachytherapy 

sources: CPT code 55875 (Transperineal placement of needles or catheters into prostate 

for interstitial radioelement application, with or without cystoscopy); and CPT code 

77778 (Interstitial radiation source application; complex). Generally, the component 

services represented by both codes are provided in the same operative session on the 

same date of service to the Medicare beneficiary being treated with LDR brachytherapy 

for prostate cancer. 

 In the CY 2013 OPPS/ASC final rule with comment period, we finalized our 

proposal to establish the CY 2013 ASC payment rate for LDR prostate brachytherapy 

services based on the OPPS relative payment weight applicable to APC 8001 when CPT 

codes 55875 and 77778 are performed on the same date of service in an ASC. ASCs use 

the corresponding HCPCS Level II G-code (G0458) for proper reporting when the 

procedures described by CPT codes 55875 and 77778 are performed on the same date of 

service, and therefore receive the appropriate LDR prostate brachytherapy composite 

payment. When not performed on the same day as the service described by CPT code 

55875, the service described by CPT code 77778 will continue to be assigned to APC 

0651. When not performed on the same day as the service described by CPT code 77778, 

the service described by CPT code 55875 will continue to be assigned to APC 0163. For 

a complete discussion of our policy regarding payment for LDR prostate brachytherapy 

services in ASCs, we refer readers to the CY 2013 OPPS/ASC final rule with comment 
CMS-1601-P 428 

period (77 FR 68457). We are not proposing any changes to our current policy regarding 

ASC payment for LDR prostate brachytherapy services for CY 2014. 

2. Proposed Payment for Covered Ancillary Services 

a. Background 

 Our final payment policies under the revised ASC payment system for covered 

ancillary services vary according to the particular type of service and its payment policy 

under the OPPS. Our overall policy provides separate ASC payment for certain ancillary 

items and services integrally related to the provision of ASC covered surgical procedures 

that are paid separately under the OPPS and provides packaged ASC payment for other 

ancillary items and services that are packaged or conditionally packaged (status 

indicators “N,” “Q1,” and “Q2”) under the OPPS. In the CY 2013 OPPS/ASC proposed 

rule (77 FR 45169), we further clarified our policy regarding the payment indicator 

assignment of codes that are conditionally packaged in the OPPS (status indicators “Q1” 

and “Q2”). Under the OPPS, a conditionally packaged code describes a HCPCS code 

where the payment is packaged when it is provided with a significant procedure but is 

separately paid when the service appears on the claim without a significant procedure. 

Because ASC services always include a surgical procedure, HCPCS codes that are 

conditionally packaged under the OPPS are always packaged (payment indictor “N1”) 

under the ASC payment system. Thus, our final policy generally aligns ASC payment 

bundles with those under the OPPS (72 FR 42495). In all cases, in order for those 

ancillary services also to be paid, ancillary items and services must be provided integral 
CMS-1601-P 429 

to the performance of ASC covered surgical procedures for which the ASC bills 

Medicare. 

 Our ASC payment policies provide separate payment for drugs and biologicals 

that are separately paid under the OPPS at the OPPS rates. We generally pay for 

separately payable radiology services at the lower of the MPFS nonfacility PE 

RVU-based (or technical component) amount or the rate calculated according to the ASC 

standard ratesetting methodology (72 FR 42497). However, as finalized in the CY 2011 

OPPS/ASC final rule with comment period (75 FR 72050), payment indicators for all 

nuclear medicine procedures (defined as CPT codes in the range of 78000 through 

78999) that are designated as radiology services that are paid separately when provided 

integral to a surgical procedure on the ASC list are set to “Z2” so that payment is made 

based on the ASC standard ratesetting methodology rather than the MPFS nonfacility PE 

RVU amount, regardless of which is lower. This modification to the ASC payment 

methodology for ancillary services was finalized in response to a comment on the 

CY 2011 OPPS/ASC proposed rule that suggested it is inappropriate to use the 

MPFS-based payment methodology for nuclear medicine procedures because the 

associated diagnostic radiopharmaceutical, although packaged under the ASC payment 

system, is separately paid under the MPFS (42 CFR 416.171(d)(1)). We set the payment 

indicator to “Z2” for these nuclear medicine procedures in the ASC setting so that 

payment for these procedures would be based on the OPPS relative payment weight 

rather than the MPFS nonfacility PE RVU-based amount to ensure that the ASC will be 

compensated for the cost associated with the diagnostic radiopharmaceuticals. 
CMS-1601-P 430 

 In addition, because the same issue exists for radiology procedures that use 

contrast agents (the contrast agent is packaged under the ASC payment system but is 

separately paid under the MPFS), we finalized in the CY 2012 OPPS/ASC final rule with 

comment period (76 FR 74429 through 74430) to set the payment indicator to “Z2” for 

radiology services that use contrast agents so that payment for these procedures will be 

based on the OPPS relative payment weight and will, therefore, include the cost for the 

contrast agent (42 CFR 416.171(d)(2)). 

 ASC payment policy for brachytherapy sources mirrors the payment policy under 

the OPPS. ASCs are paid for brachytherapy sources provided integral to ASC covered 

surgical procedures at prospective rates adopted under the OPPS or, if OPPS rates are 

unavailable, at contractor-priced rates (72 FR 42499). Since December 31, 2009, ASCs 

have been paid for brachytherapy sources provided integral to ASC covered surgical 

procedures at prospective rates adopted under the OPPS. 

 Other separately paid covered ancillary services in ASCs, specifically corneal 

tissue acquisition and device categories with OPPS pass-through status, do not have 

prospectively established ASC payment rates according to the final policies of the revised 

ASC payment system (72 FR 42502 and 42508 through 42509; 42 CFR 416.164(b)). 

Under the revised ASC payment system, corneal tissue acquisition is paid based on the 

invoiced costs for acquiring the corneal tissue for transplantation. Devices that are 

eligible for pass-through payment under the OPPS are separately paid under the ASC 

payment system. Currently, the three devices that are eligible for pass-through payment 

in the OPPS are described by HCPCS code C1830 (Powered bone marrow biopsy 
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needle), HCPCS code C1840 (Lens, intraocular (telescopic)), and HCPCS code C1886 

(Catheter, extravascular tissue ablation, any modality (insertable)). Payment amounts for 

HCPCS codes C1830, C1840, and C1886 under the ASC payment system are contractor 

priced. In the CY 2013 OPPS/ASC final rule with comment period, we finalized the 

expiration of pass-through payment for HCPCS codes C1830, C1840, and C1886, which 

will expire after December 31, 2013 (77 FR 68353). Therefore, after 

December 31, 2013, the costs for devices described by HCPCS codes C1830, C1840, and 

C1886, will be packaged into the costs of the procedures with which the devices are 

reported in the hospital claims data used in the development of the OPPS relative 

payment weights that will be used to establish ASC payment rates for CY 2014. 

b. Proposed Payment for Covered Ancillary Services for CY 2014 

 For CY 2014, we are proposing to update the ASC payment rates and make 

changes to ASC payment indicators as necessary to maintain consistency between the 

OPPS and ASC payment system regarding the packaged or separately payable status of 

services and the proposed CY 2014 OPPS and ASC payment rates. The proposed 

CY 2014 OPPS payment methodologies for brachytherapy sources and separately 

payable drugs and biologicals are discussed in section II.A. and section V.B. of this 

proposed rule, respectively, and we are proposing to set the CY 2014 ASC payment rates 

for those services equal to the proposed CY 2014 OPPS rates. 

 Consistent with established ASC payment policy (72 FR 42497), the proposed 

CY 2014 payment for separately payable covered radiology services is based on a 

comparison of the CY 2014 proposed MPFS nonfacility PE RVU-based amounts (we 
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refer readers to the CY 2014 MPFS proposed rule) and the proposed CY 2014 ASC 

payment rates calculated according to the ASC standard ratesetting methodology and 

then set at the lower of the two amounts (except as discussed below for nuclear medicine 

procedures and radiology services that use contrast agents). Alternatively, payment for a 

radiology service may be packaged into the payment for the ASC covered surgical 

procedure if the radiology service is packaged or conditionally packaged under the OPPS. 

The payment indicators in Addendum BB to this proposed rule indicate whether the 

proposed payment rates for radiology services are based on the MPFS nonfacility PE 

RVU-based amount or the ASC standard ratesetting methodology, or whether payment 

for a radiology service is packaged into the payment for the covered surgical procedure 

(payment indicator “N1”). Radiology services that we are proposing to pay based on the 

ASC standard ratesetting methodology are assigned payment indicator “Z2” (Radiology 

service paid separately when provided integral to a surgical procedure on ASC list; 

payment based on OPPS relative payment weight) and those for which the proposed 

payment is based on the MPFS nonfacility PE RVU-based amount are assigned payment 

indicator “Z3” (Radiology service paid separately when provided integral to a surgical 

procedure on ASC list; payment based on MPFS nonfacility PE RVUs). 

 As finalized in the CY 2011 OPPS/ASC final rule with comment period 

(75 FR 72050), payment indicators for all nuclear medicine procedures (defined as CPT 

codes in the range of 78000 through 78999) that are designated as radiology services that 

are paid separately when provided integral to a surgical procedure on the ASC list are set 

to “Z2” so that payment for these procedures will be based on the OPPS relative payment 
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weight (rather than the MPFS nonfacility PE RVU-based amount, regardless of which is 

lower) and, therefore, will include the cost for the diagnostic radiopharmaceutical. We 

are proposing to continue this modification to the payment methodology in CY 2014 and, 

therefore, set the payment indicator to “Z2” for nuclear medicine procedures. 

 As finalized in the CY 2012 OPPS/ASC final rule with comment period 

(76 FR 74429 through 74430), payment indicators for radiology services that use contrast 

agents are set to “Z2” so that payment for these procedures will be based on the OPPS 

relative payment weight and, therefore, will include the cost for the contrast agent. We 

are proposing to continue this modification to the payment methodology in CY 2014 and, 

therefore, set the payment indicator to “Z2” for radiology services that use contrast 

agents. 

 Most covered ancillary services and their proposed payment indicators are listed 

in Addendum BB to this proposed rule (which is available via the Internet on the CMS 

Web site). We invite public comment on these proposals. 

E. New Technology Intraocular Lenses (NTIOLs)

1. NTIOL Application Cycle 

 Our process for reviewing applications to establish new classes of new technology 

intraocular lenses (NTIOLs) is as follows: 

● Applicants submit their NTIOL requests for review to CMS by the deadline. 

For a request to be considered complete, we require submission of the information that is 

found in the guidance document entitled “Application Process and Information 

Requirements for Requests for a New Class of New Technology Intraocular Lenses 
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(NTIOLs) or Inclusion of an IOL in an existing NTIOL Class” posted on the CMS Web 

site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/ASCPayment/NTIOLs.html.

● We announce annually in the proposed rule updating the ASC and OPPS 

payment rates for the following calendar year, a list of all requests to establish new 

NTIOL classes accepted for review during the calendar year in which the proposal is 

published. In accordance with section 141(b)(3) of Pub. L. 103-432 and our regulations 

at § 416.185(b), the deadline for receipt of public comments is 30 days following 

publication of the list of requests in the proposed rule. 

● In the final rule updating the ASC and OPPS payment rates for the following 

calendar year, we— 

○ Provide a list of determinations made as a result of our review of all new 

NTIOL class requests and public comments; 

○ When a new NTIOL class is created, we identify the predominant characteristic 

of NTIOLs in that class that sets them apart from other IOLs (including those previously 

approved as members of other expired or active NTIOL classes) and that is associated 

with an improved clinical outcome. 

○ The date of implementation of a payment adjustment in the case of approval of 

an IOL as a member of a new NTIOL class would be set prospectively as of 30 days after 

publication of the ASC payment update final rule, consistent with the statutory 

requirement. 
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○ Announce the deadline for submitting requests for review of an application for 

a new NTIOL class for the following calendar year. 

2. Requests to Establish New NTIOL Classes for CY 2014 

 We did not receive any requests for review to establish a new NTIOL class for 

CY 2014 by the March 1, 2013, the due date published in the CY 2013 OPPS/ASC final 

rule with comment period (77 FR 68461). 

3. Payment Adjustment 

 The current payment adjustment for a 5-year period from the implementation date 

of a new NTIOL class is $50 per lens. Since implementation of the process for 

adjustment of payment amounts for NTIOLs in 1999, we have not revised the payment 

adjustment amount, and we are not proposing to revise the payment adjustment amount 

for CY 2014. 

F. Proposed ASC Payment and Comment Indicators

1. Background 

 In addition to the payment indicators that we introduced in the August 2, 2007 

final rule, we also created final comment indicators for the ASC payment system in the 

CY 2008 OPPS/ASC final rule with comment period (72 FR 66855). We created 

Addendum DD1 to define ASC payment indicators that we use in Addenda AA and BB 

to provide payment information regarding covered surgical procedures and covered 

ancillary services, respectively, under the revised ASC payment system. The ASC 

payment indicators in Addendum DD1 are intended to capture policy relevant 

characteristics of HCPCS codes that may receive packaged or separate payment in ASCs, 
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such as whether they were on the ASC list of covered services prior to CY 2008; payment 

designation, such as device-intensive or office-based, and the corresponding ASC 

payment methodology; and their classification as separately payable ancillary services 

including radiology services, brachytherapy sources, OPPS pass-through devices, corneal 

tissue acquisition services, drugs or biologicals, or NTIOLs. 

 We also created Addendum DD2 that lists the ASC comment indicators. The 

ASC comment indicators used in Addenda AA and BB to the proposed rules and final 

rules with comment period serve to identify, for the revised ASC payment system, the 

status of a specific HCPCS code and its payment indicator with respect to the timeframe 

when comments will be accepted. The comment indicator “NI” is used in the OPPS/ASC 

final rule with comment period to indicate new codes for the next calendar year for which 

the interim payment indicator assigned is subject to comment. The comment indicator 

“NI” is also assigned to existing codes with substantial revisions to their descriptors such 

that we consider them to be describing new services, as discussed in the CY 2010 

OPPS/ASC final rule with comment period (74 FR 60622). In the CY 2014 OPPS/ASC 

final rule with comment period, we will respond to public comments and finalize the 

ASC treatment of all codes that are labeled with comment indicator “NI” in Addenda AA 

and BB to the CY 2013 OPPS/ASC final rule with comment period. 

 The “CH” comment indicator is used in Addenda AA and BB to this proposed 

rule (which are available via the Internet on the CMS Web site) to indicate that the 

payment indicator assignment has changed for an active HCPCS code in current year and 

next calendar year; an active HCPCS code is newly recognized as payable in ASCs; or an 
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active HCPCS code is discontinued at the end of the current calendar year. The “CH” 

comment indicators that are published in the final rule with comment period are provided 

to alert readers that a change has been made from one calendar year to the next, but do 

not indicate that the change is subject to comment. 

2. Proposed ASC Payment and Comment Indicators 

 We are not proposing any changes to the definitions of the ASC payment and 

comment indicators for CY 2014. We refer readers to Addenda DD1 and DD2 to this 

proposed rule (which are available via the Internet on the CMS Web site) for the 

complete list of ASC payment and comment indicators proposed for the CY 2014 update. 

G. Calculation of the Proposed ASC Conversion Factor and the Proposed ASC Payment 

Rates

1. Background 

 In the August 2, 2007 final rule (72 FR 42493), we established our policy to base 

ASC relative payment weights and payment rates under the revised ASC payment system 

on APC groups and the OPPS relative payment weights. Consistent with that policy and 

the requirement at section 1833(i)(2)(D)(ii) of the Act that the revised payment system be 

implemented so that it would be budget neutral, the initial ASC conversion factor 

(CY 2008) was calculated so that estimated total Medicare payments under the revised 

ASC payment system in the first year would be budget neutral to estimated total 

Medicare payments under the prior (CY 2007) ASC payment system (the ASC 

conversion factor is multiplied by the relative payment weights calculated for many ASC 

services in order to establish payment rates). That is, application of the ASC conversion 
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factor was designed to result in aggregate Medicare expenditures under the revised ASC 

payment system in CY 2008 equal to aggregate Medicare expenditures that would have 

occurred in CY 2008 in the absence of the revised system, taking into consideration the 

cap on ASC payments in CY 2007 as required under section 1833(i)(2)(E) of the Act 

(72 FR 42522). We adopted a policy to make the system budget neutral in subsequent 

calendar years (72 FR 42532 through 42533). 

 We note that we consider the term “expenditures” in the context of the budget 

neutrality requirement under section 1833(i)(2)(D)(ii) of the Act to mean expenditures 

from the Medicare Part B Trust Fund. We do not consider expenditures to include 

beneficiary coinsurance and copayments. This distinction was important for the CY 2008 

ASC budget neutrality model that considered payments across the OPPS, ASC, and 

MPFS payment systems. However, because coinsurance is almost always 20 percent for 

ASC services, this interpretation of expenditures has minimal impact for subsequent 

budget neutrality adjustments calculated within the revised ASC payment system. 

 In the CY 2008 OPPS/ASC final rule with comment period (72 FR 66857 through 

66858), we set out a step-by-step illustration of the final budget neutrality adjustment 

calculation based on the methodology finalized in the August 2, 2007 final rule 

(72 FR 42521 through 42531) and as applied to updated data available for the CY 2008 

OPPS/ASC final rule with comment period. The application of that methodology to the 

data available for the CY 2008 OPPS/ASC final rule with comment period resulted in a 

budget neutrality adjustment of 0.65. 
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 For CY 2008, we adopted the OPPS relative payment weights as the ASC relative 

payment weights for most services and, consistent with the final policy, we calculated the 

CY 2008 ASC payment rates by multiplying the ASC relative payment weights by the 

final CY 2008 ASC conversion factor of $41.401. For covered office-based surgical 

procedures and covered ancillary radiology services (excluding covered ancillary 

radiology services involving certain nuclear medicine procedures or involving the use of 

contrast agents, as discussed in section XII.D.2.b. of this proposed rule), the established 

policy is to set the payment rate at the lower of the MPFS unadjusted nonfacility PE 

RVU-based amount or the amount calculated using the ASC standard ratesetting 

methodology. Further, as discussed in the CY 2008 OPPS/ASC final rule with comment 

period (72 FR 66841 through 66843), we also adopted alternative ratesetting 

methodologies for specific types of services (for example, device-intensive procedures). 

 As discussed in the August 2, 2007 final rule (72 FR 42517 through 42518) and as 

codified at § 416.172(c) of the regulations, the revised ASC payment system accounts for 

geographic wage variation when calculating individual ASC payments by applying the 

pre-floor and pre-reclassified hospital wage indices to the labor-related share, which is 

50 percent of the ASC payment amount based on a GAO report of ASC costs using 2004 

survey data. Beginning in CY 2008, CMS accounted for geographic wage variation in 

labor cost when calculating individual ASC payments by applying the pre-floor and 

pre-reclassified hospital wage index values that CMS calculates for payment, using 

updated Core Based Statistical Areas (CBSAs) issued by OMB in June 2003. The 

reclassification provision provided at section 1886(d)(10) of the Act is specific to 
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hospitals. We believe that using the most recently available raw pre-floor and prereclassified hospital wage indices results in the most appropriate adjustment to the labor 

portion of ASC costs. In addition, use of the unadjusted hospital wage data avoids 

further reductions in certain rural statewide wage index values that result from 

reclassification. We continue to believe that the unadjusted hospital wage indices, which 

are updated yearly and are used by many other Medicare payment systems, appropriately 

account for geographic variation in labor costs for ASCs. 

 We note that in certain instances there might be urban or rural areas for which 

there is no IPPS hospital whose wage index data would be used to set the wage index for 

that area. For these areas, our policy has been to use the average of the wage indices for 

CBSAs (or metropolitan divisions as applicable) that are contiguous to the area that has 

no wage index (where “contiguous” is defined as sharing a border). We have applied a 

proxy wage index based on this methodology to ASCs located in CBSA 25980 

(Hinesville-Fort Stewart, GA). 

 In the CY 2011 OPPS/ASC final rule with comment period (75 FR 72058 through 

72059), we finalized our proposal to set the ASC wage index by calculating the average 

of all wage indices for urban areas in the State when all contiguous areas to a CBSA are 

rural and there is no IPPS hospital whose wage index data could be used to set the wage 

index for that area. In other situations, where there are no IPPS hospitals located in a 

relevant labor market area, we will continue our current policy of calculating an urban or 

rural area’s wage index by calculating the average of the wage indices for CBSAs (or 
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metropolitan divisions where applicable) that are contiguous to the area with no wage 

index. 

2. Proposed Calculation of the ASC Payment Rates 

a. Updating the ASC Relative Payment Weights for CY 2014 and Future Years 

 We update the ASC relative payment weights each year using the national OPPS 

relative payment weights (and MPFS nonfacility PE RVU-based amounts, as applicable) 

for that same calendar year and uniformly scale the ASC relative payment weights for 

each update year to make them budget neutral (72 FR 42533). Consistent with our 

established policy, we are proposing to scale the CY 2014 relative payment weights for 

ASCs according to the following method. Holding ASC utilization and the mix of 

services constant from CY 2012, we are proposing to compare the total payment using 

the CY 2013 ASC relative payment weights with the total payment using the CY 2014 

relative payment weights to take into account the changes in the OPPS relative payment 

weights between CY 2013 and CY 2014. We are proposing to use the ratio of CY 2013 

to CY 2014 total payment (the weight scaler) to scale the ASC relative payment weights 

for CY 2014. The proposed CY 2014 ASC scaler is 0.8961 and scaling would apply to 

the ASC relative payment weights of the covered surgical procedures and covered 

ancillary radiology services for which the ASC payment rates are based on OPPS relative 

payment weights. 

 Scaling would not apply in the case of ASC payment for separately payable 

covered ancillary services that have a predetermined national payment amount (that is, 

their national ASC payment amounts are not based on OPPS relative payment weights), 
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such as drugs and biologicals that are separately paid or services that are 

contractor-priced or paid at reasonable cost in ASCs. Any service with a predetermined 

national payment amount would be included in the ASC budget neutrality comparison, 

but scaling of the ASC relative payment weights would not apply to those services. The 

ASC payment weights for those services without predetermined national payment 

amounts (that is, those services with national payment amounts that would be based on 

OPPS relative payment weights) would be scaled to eliminate any difference in the total 

payment between the current year and the update year. 

 For any given year’s ratesetting, we typically use the most recent full calendar 

year of claims data to model budget neutrality adjustments. We currently have available 

98 percent of CY 2012 ASC claims data. 

 To create an analytic file to support calculation of the weight scaler and budget 

neutrality adjustment for the wage index (discussed below), we summarized available 

CY 2012 ASC claims by ASC and by HCPCS code. We used the National Provider 

Identifier for the purpose of identifying unique ASCs within the CY 2012 claims data. 

We used the supplier zip code reported on the claim to associate State, county, and CBSA 

with each ASC. This file, available to the public as a supporting data file for the 

proposed rule, is posted on the CMS Web site at: http://www.cms.gov/ResearchStatistics-Data-and-Systems/Files-for-Order/LimitedDataSets/ASCPaymentSystem.html. 

b. Updating the ASC Conversion Factor 

 Under the OPPS, we typically apply a budget neutrality adjustment for provider 

level changes, most notably a change in the wage index values for the upcoming year, to 
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the conversion factor. Consistent with our final ASC payment policy, for the CY 2014 

ASC payment system, we are proposing to calculate and apply a budget neutrality 

adjustment to the ASC conversion factor for supplier level changes in wage index values 

for the upcoming year, just as the OPPS wage index budget neutrality adjustment is 

calculated and applied to the OPPS conversion factor. For CY 2014, we calculated this 

proposed adjustment for the ASC payment system by using the most recent CY 2012 

claims data available and estimating the difference in total payment that would be created 

by introducing the proposed CY 2014 pre-floor and pre-reclassified hospital wage 

indices. Specifically, holding CY 2012 ASC utilization and service-mix and the 

proposed CY 2014 national payment rates after application of the weight scaler constant, 

we calculated the total adjusted payment using the CY 2013 pre-floor and pre-reclassified 

hospital wage indices and the total adjusted payment using the proposed CY 2014 

pre-floor and pre-reclassified hospital wage indices. We used the 50-percent 

labor-related share for both total adjusted payment calculations. We then compared the 

total adjusted payment calculated with the CY 2013 pre-floor and pre-reclassified 

hospital wage indices to the total adjusted payment calculated with the proposed 

CY 2014 pre-floor and pre-reclassified hospital wage indices and applied the resulting 

ratio of 1.0004 (the proposed CY 2014 ASC wage index budget neutrality adjustment) to 

the CY 2013 ASC conversion factor to calculate the proposed CY 2014 ASC conversion 

factor. We note that, on February 28, 2013, OMB issued OMB Bulletin No. 13-01 

announcing revisions to the delineation of Metropolitan Statistical Areas, Micropolitan 

Statistical Areas, and Combined Statistical Areas. The proposed pre-floor and 
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pre-reclassified hospital wage indices for FY 2014 do not reflect OMB’s new area 

delineations. Because the ASC wage indices are the pre-floor and pre-reclassified 

hospital wage indices, the FY 2014 ASC wage indices will not reflect the OMB changes. 

 Section 1833(i)(2)(C)(i) of the Act requires that, “if the Secretary has not updated 

amounts established” under the revised ASC payment system in a calendar year, the 

payment amounts “shall be increased by the percentage increase in the Consumer Price 

Index for all urban consumers (U.S. city average) as estimated by the Secretary for the 

12-month period ending with the midpoint of the year involved.” The statute, therefore, 

does not mandate the adoption of any particular update mechanism, but it requires the 

payment amounts to be increased by the CPI-U in the absence of any update. Because 

the Secretary updates the ASC payment amounts annually, we adopted a policy, which 

we codified at 42 CFR 416.171(a)(2)(ii), to update the ASC conversion factor using the 

CPI-U for CY 2010 and subsequent calendar years. Therefore, the annual update to the 

ASC payment system is the CPI-U (referred to as the CPI-U update factor). 

 Section 3401(k) of the Affordable Care Act amended section 1833(i)(2)(D) of the 

Act by adding a new clause (v) which requires that “any annual update under [the ASC 

payment] system for the year, after application of clause (iv), shall be reduced by the 

productivity adjustment described in section 1886(b)(3)(B)(xi)(II)” of the Act effective 

with the calendar year beginning January 1, 2011. The statute defines the productivity 

adjustment to be equal to the 10-year moving average of changes in annual 

economy-wide private nonfarm business multifactor productivity (MFP) (as projected by 

the Secretary for the 10-year period ending with the applicable fiscal year, year, cost 
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reporting period, or other annual period) (the “MFP adjustment”). Clause (iv) of section 

1833(i)(2)(D) of the Act authorizes the Secretary to provide for a reduction in any annual 

update for failure to report on quality measures. Clause (v) of section 1833(i)(2)(D) of 

the Act states that application of the MFP adjustment to the ASC payment system may 

result in the update to the ASC payment system being less than zero for a year and may 

result in payment rates under the ASC payment system for a year being less than such 

payment rates for the preceding year. 

 In the CY 2012 OPPS/ASC final rule with comment period (76 FR 74516), we 

finalized a policy that ASCs begin submitting data on quality measures for services 

beginning on October 1, 2012 for the CY 2014 payment determination under the ASCQR 

Program. In the CY 2013 OPPS/ASC final rule with comment period (77 FR 68499 

through 68500), we finalized a methodology to calculate reduced national unadjusted 

payment rates using the ASCQR Program reduced update conversion factor that would 

apply to ASCs that fail to meet their quality reporting requirements for the CY 2014 

payment determination and subsequent years. The application of the 2.0 percentage point 

reduction to the annual update factor, which currently is the CPI-U, may result in the 

update to the ASC payment system being less than zero for a year for ASCs that fail to 

meet the ASCQR Program requirements. We amended §§ 416.160(a)(1) and 416.171 to 

reflect these policies. 

 In accordance with section 1833(i)(2)(C)(i) of the Act, before applying the MFP 

adjustment, the Secretary first determines the “percentage increase” in the CPI-U, which 

we interpret cannot be a negative percentage. Thus, in the instance where the percentage 
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change in the CPI-U for a year is negative, we would hold the CPI-U update factor for the 

ASC payment system to zero. For the CY 2014 payment determination and subsequent 

years, under section 1833(i)(2)(D)(iv) of the Act, we would reduce the annual update by 

2.0 percentage points for an ASC that fails to submit quality information under the rules 

established by the Secretary in accordance with section 1833(i)(7) of the Act. 

Section 1833(i)(2)(D)(v) of the Act, as added by section 3401(k) of the Affordable Care 

Act, requires that the Secretary reduce the annual update factor, after application of any 

quality reporting reduction, by the MFP adjustment, and states that application of the 

MFP adjustment to the annual update factor after application of any quality reporting 

reduction may result in the update being less than zero for a year. If the application of 

the MFP adjustment to the annual update factor after application of any quality reporting 

reduction would result in an MFP-adjusted update factor that is less than zero, the 

resulting update to the ASC payment rates would be negative and payments would 

decrease relative to the prior year. Illustrative examples of how the MFP adjustment 

would be applied to the ASC payment system update are found in the CY 2011 

OPPS/ASC final rule with comment period (75 FR 72062 through 72064). 

 For this proposed rule, based on IHS Global Insight (IGI) 2013 first quarter 

forecast with historical data through 2012 fourth quarter, for the 12-month period ending 

with the midpoint of CY 2014, the CPI-U update is projected to be 1.4 percent. Also 

based on IGI’s 2013 first quarter forecast, the MFP adjustment for the period ending with 

the midpoint of CY 2014 is projected to be 0.5 percent. IGI is a nationally recognized 

economic and financial forecasting firm that contracts with CMS to forecast the 
CMS-1601-P 447 

components of CMS’ market baskets as well as the CPI-U and MFP. The methodology 

for calculating the MFP adjustment was finalized in the CY 2011 MPFS final rule with 

comment period (75 FR 73394 through 73396) as revised in the CY 2012 MPFS final 

rule with comment period (76 FR 73300 through 73301). Because the ASCQR Program 

affects payment rates beginning in CY 2014, there would be a 2.0 percentage point 

reduction to the CPI-U for ASCs that fail to meet the ASCQR Program requirements. 

 We are proposing to reduce the CPI-U update of 1.4 percent by the MFP 

adjustment of 0.5 percentage point, resulting in an MFP-adjusted CPI-U update factor of 

0.9 percent for ASCs meeting the quality reporting requirements. Therefore, we are 

proposing to apply a 0.9 percent MFP-adjusted CPI-U update factor to the CY 2013 ASC 

conversion factor for ASCs meeting the quality reporting requirements. We are 

proposing to reduce the CPI-U update of 1.4 percent by 2.0 percentage points for ASCs 

that do not meet the quality reporting requirements and then apply the 0.5 percentage 

point MFP reduction. Therefore, we are proposing to apply a -1.1 percent quality 

reporting/MFP-adjusted CPI-U update factor to the CY 2013 ASC conversion factor for 

ASCs not meeting the quality reporting requirements. We also are proposing that if more 

recent data are subsequently available (for example, a more recent estimate of the 

CY 2014 CPI-U update and MFP adjustment), we would use such data, if appropriate, to 

determine the CY 2014 ASC update for the final rule with comment period. 

 For CY 2014, we also are proposing to adjust the CY 2013 ASC conversion factor 

($42.917) by the wage adjustment for budget neutrality of 1.0004 in addition to the 

MFP-adjusted update factor of 0.9 percent discussed above, which results in a proposed 
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CY 2014 ASC conversion factor of $43.321 for ASCs meeting the quality reporting 

requirements. For ASCs not meeting the quality reporting requirements, we are 

proposing to adjust the CY 2013 ASC conversion factor ($42.917) by the wage 

adjustment for budget neutrality of 1.0004 in addition to the quality 

reporting/MFP-adjusted update factor of -1.1 percent discussed above, which results in a 

proposed CY 2014 ASC conversion factor of $42.462. 

 We invite public comment on these proposals. 

3. Display of Proposed CY 2014 ASC Payment Rates 

 Addenda AA and BB to this proposed rule (which are available via the Internet on 

the CMS Web site) display the proposed updated ASC payment rates for CY 2014 for 

covered surgical procedures and covered ancillary services, respectively. These addenda 

contain several types of information related to the proposed CY 2014 payment rates. 

Specifically, in Addendum AA, a “Y” in the column titled “Subject to Multiple 

Procedure Discounting” indicates that the surgical procedure will be subject to the 

multiple procedure payment reduction policy. As discussed in the CY 2008 OPPS/ASC 

final rule with comment period (72 FR 66829 through 66830), most covered surgical 

procedures are subject to a 50-percent reduction in the ASC payment for the lowerpaying procedure when more than one procedure is performed in a single operative 

session. Display of the comment indicator “CH” in the column titled “Comment 

Indicator” indicates a change in payment policy for the item or service, including 

identifying discontinued HCPCS codes, designating items or services newly payable 

under the ASC payment system, and identifying items or services with changes in the 
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ASC payment indicator for CY 2014. Display of the comment indicator “NI” in the 

column titled “Comment Indicator” indicates that the code is new (or substantially 

revised) and that the payment indicator assignment is an interim assignment that is open 

to comment in the final rule with comment period. 

 The values displayed in the column titled “CY 2014 Payment Weight” are the 

proposed relative payment weights for each of the listed services for CY 2014. The 

payment weights for all covered surgical procedures and covered ancillary services 

whose ASC payment rates are based on OPPS relative payment weights were scaled for 

budget neutrality. Thus, scaling was not applied to the device portion of the 

device-intensive procedures, services that are paid at the MPFS nonfacility PE 

RVU-based amount, separately payable covered ancillary services that have a 

predetermined national payment amount, such as drugs and biologicals and 

brachytherapy sources that are separately paid under the OPPS, or services that are 

contractor-priced or paid at reasonable cost in ASCs. 

 To derive the proposed CY 2014 payment rate displayed in the “CY 2014 

Payment” column, each ASC payment weight in the “CY 2014 Payment Weight” column 

was multiplied by the proposed CY 2014 conversion factor of $43.321. The conversion 

factor includes a budget neutrality adjustment for changes in the wage index values and 

the annual update factor as reduced by the productivity adjustment (as discussed in 

section XII.H.2.b. of this proposed rule). 

 In Addendum BB, there are no relative payment weights displayed in the 

“CY 2014 Payment Weight” column for items and services with predetermined national 
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payment amounts, such as separately payable drugs and biologicals. The “CY 2014 

Payment” column displays the proposed CY 2014 national unadjusted ASC payment 

rates for all items and services. The proposed CY 2014 ASC payment rates listed in 

Addendum BB for separately payable drugs and biologicals are based on ASP data used 

for payment in physicians’ offices in April 2013. 

XIII. Hospital Outpatient Quality Reporting Program Updates 

A. Background

1. Overview 

CMS has implemented quality measure reporting programs for multiple settings 

of care. These programs promote higher quality, more efficient health care for Medicare 

beneficiaries. The quality data reporting program for hospital outpatient care, known as 

the Hospital Outpatient Quality Reporting (Hospital OQR) Program, formerly known as 

the Hospital Outpatient Quality Data Reporting Program (HOP QDRP), has been 

generally modeled after the quality data reporting program for hospital inpatient services 

known as the Hospital Inpatient Quality Reporting (Hospital IQR) Program (formerly 

known as the Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) 

Program). Both of these quality reporting programs for hospital services have financial 

incentives for the reporting of quality data to CMS.

 CMS also has implemented quality measure reporting programs for other settings 

of care and for certain professionals, including: 
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● Care furnished by physicians and other eligible professionals, under the 

Physician Quality Reporting System (PQRS, formerly referred to as the Physician 

Quality Reporting Program Initiative (PQRI)); 

● Inpatient rehabilitation facilities, under the Inpatient Rehabilitation Facility 

Quality Reporting Program (IRF QRP); 

● Long-term care hospitals, under the Long-Term Care Hospital Quality 

Reporting (LTCHQR) Program; 

● PPS-exempt cancer hospitals, under the PPS-Exempt Cancer Hospital Quality 

Reporting (PCHQR) Program; 

● Ambulatory surgical centers, under the Ambulatory Surgical Center Quality 

Reporting (ASCQR) Program; 

● Inpatient psychiatric facilities, under the Inpatient Psychiatric Facility Quality 

Reporting (IPFQR) Program; 

● Home health agencies, under the Home Health Quality Reporting Program 

(HH QRP); and 

● Hospices, under the Hospice Quality Reporting Program. 

 Finally, CMS has implemented a Hospital Value-Based Purchasing Program and 

an end-stage renal disease (ESRD) Quality Incentive Program that link payment to 

performance. 

 In implementing the Hospital OQR Program and other quality reporting 

programs, we have focused on measures that have high impact and support national 

priorities for improved quality and efficiency of care for Medicare beneficiaries as 
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reflected in the National Quality Strategy, as well as conditions for which wide cost and 

treatment variations have been reported, despite established clinical guidelines. To the 

extent possible under various authorizing statutes, our ultimate goal is to align the clinical 

quality measure requirements of the Hospital OQR Program and various other programs, 

such as the Hospital IQR Program, the ASCQR Program, and the Medicare and Medicaid 

Electronic Health Record (EHR) Incentive Programs, authorized by the Health 

Information Technology for Economic and Clinical Health Act, so that the burden for 

reporting will be reduced. As appropriate, we will consider the adoption of measures 

with electronic specifications, to enable the collection of this information as part of care 

delivery. Establishing such an alignment will require interoperability between EHRs, and 

CMS data collection systems, with data being calculated and submitted via certified EHR 

technology; additional infrastructural development on the part of hospitals and CMS; and 

the adoption of standards for capturing, formatting, and transmitting the data elements 

that make up the measures. Once these activities are accomplished, the adoption of many 

measures that rely on data obtained directly from EHRs will enable us to expand the 

Hospital OQR Program measure set with less cost and burden to hospitals. 

 In implementing this and other quality reporting programs, we generally applied 

the same principles for the development and the use of measures, with some differences 

that relate to the specific characteristics of each program: 

● Our overarching goal is to support the National Quality Strategy’s goal of 

better health care for individuals, better health for populations, and lower costs for health 

care. The Hospital OQR Program will help achieve these goals by creating transparency 
CMS-1601-P 453 

around the quality of care at hospital outpatient departments to support patient 

decision-making and quality improvement. Given the availability of well validated 

measures and the need to balance breadth with minimizing burden, measures should take 

into account and address, as fully as possible, the six domains of measurement that arise 

from the six priorities of the National Quality Strategy: Clinical care; Person- and 

caregiver-centered experience and outcomes; Safety; Efficiency and cost reduction; Care 

coordination; and Community/population health. More information regarding the 

National Quality Strategy can be found at: 

http://www.healthcare.gov/law/resources/reports/. HHS engaged a wide range of 

stakeholders to develop the National Quality Strategy, as required by the Affordable Care 

Act. 

● Pay-for-reporting and public reporting should rely on a mix of structural, 

processes, outcomes, efficiency, and patient experience of care measures, including 

measures of care transitions and changes in patient functional status. 

● To the extent possible and recognizing differences in payment system maturity 

and statutory authorities, measures should be aligned across Medicare and Medicaid 

public reporting and incentive payment systems to promote coordinated efforts to 

improve quality. The measure sets should evolve so that they include a focused set of 

measures appropriate to the specific provider category that reflects the level of care and 

the most important areas of service and measures for that provider category. 

● We weigh the relevance and the utility of measures compared to the burden on 

hospitals in submitting data under the Hospital OQR Program. The collection of 
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information burden on providers should be minimized to the extent possible. To this end, 

we are working toward the eventual adoption of electronically-specified measures so that 

data can be calculated and submitted via certified EHR technology with minimal burden. 

We also seek to use measures based on alternative sources of data that do not require 

chart abstraction or that utilize data already being reported by many hospitals, such as 

data that hospitals report to clinical data registries, or all-payer claims databases. In 

recent years we have adopted measures that do not require chart abstraction, including 

structural measures and claims-based measures that we can calculate using other data 

sources. 

● To the extent practicable and feasible, and recognizing differences in statutory 

authorities, measures used by CMS should be endorsed by a national, multi-stakeholder 

organization. 

● We take into account the views of multi-stakeholder groups. Section 3014 of 

the Affordable Care Act added section 1890A of the Act, establishing a pre-rulemaking 

process, which, among other steps, requires the Secretary to take into consideration input 

from multi-stakeholder groups in selecting certain categories of quality and efficiency 

measures described in section 1890(b)(7)(B) of the Act. As part of the pre-rulemaking 

process, the consensus-based entity that CMS must contract with under section 1890 of 

the Act (currently the National Quality Forum (NQF)), convened the multi-stakeholder 

groups referred to as the Measure Applications Partnership (MAP). The MAP is a 

public-private partnership created for the primary purpose of providing input to HHS on 

the selection of the categories of measures in section 1890(B)(7)(B) of the Act, which 
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include measures for use in certain specific Medicare programs, measures for use in 

reporting performance information to the public, and measures for use in health care 

programs other than for use under the Act. Information about the MAP can be found at 

http://www.qualityforum.org/Setting_Priorities/Partnership/Measure_Applications_Partn

ership.aspx

● Measures should be developed with the input of providers, purchasers/payers, 

consumers, and other stakeholders. Measures should be aligned with best practices 

among other payers and the needs of the end users of the measures. We take into account 

widely accepted criteria established in medical literature. 

● HHS Strategic Plan and Initiatives. HHS is the U.S. government’s principal 

agency for protecting the health of all Americans. HHS accomplishes its mission through 

programs and initiatives. Every 4 years HHS updates its Strategic Plan and measures its 

progress in addressing specific national problems, needs, or mission-related challenges. 

The goals of the HHS Strategic Plan for Fiscal Years 2010 through 2015 are to: 

Transform Health Care; Advance Scientific Knowledge and Innovation; Advance the 

Health, Safety, and Well-Being of the American People; Increase Efficiency, 

Transparency, and Accountability of HHS Programs; and Strengthen the Nation’s Health 

and Human Services Infrastructure and Workforce 

(http://www.hhs.gov/about/FY2012budget/strategicplandetail.pdf). HHS prioritizes 

policy and program interventions to address the leading causes of death and disability in 

the United States, including heart disease, cancer, stroke, chronic lower respiratory 

diseases, unintentional injuries and preventable behaviors. Initiatives such as the HHS 
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Action Plan to Reduce Healthcare-associated Infections (HAIs) in clinical settings and 

the Partnership for Patients exemplify these programs. 

● CMS strives to ensure that quality measures for the Medicare, Medicaid, and 

the Children’s Health Insurance Programs are aligned with priority quality goals, that 

measure specifications are aligned across settings, that outcome measures are used, and 

that quality measures are collected from EHRs as appropriate. Quality goals are 

embedded in the CMS Strategy. 

 In the CY 2012 OPPS/ASC final rule with comment period (76 FR 74451 through 

74452), we responded to public comment on many of these principles. In the CY 2013 

OPPS/ASC final rulemaking (77 FR 68467 through 68469), with a few minor 

differences, we generally applied the same principles for our considerations for future 

measures.

2. Statutory History of the Hospital Outpatient Quality Reporting (Hospital OQR) 

Program 

 We refer readers to the CY 2011 OPPS/ASC final rule with comment period 

(75 FR 72064) for a detailed discussion of the statutory history of the Hospital OQR 

Program. 

3. Measure Updates and Data Publication 

a. Process for Updating Quality Measures 

 Technical specifications for the Hospital OQR Program measures are listed in the 

Hospital OQR Specifications Manual, which is posted on the CMS QualityNet Web site 

at: 
CMS-1601-P 457 

http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage

%2FSpecsManualTemplate&cid=1228772438492. 

 We maintain the technical specifications for the measures by updating this 

Hospital OQR Specifications Manual and including detailed instructions and calculation 

algorithms. In some cases where the specifications are available elsewhere, we may 

include links to Web sites hosting technical specifications. These resources are for 

hospitals to use when collecting and submitting data on required measures. 

 In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68766 through 

68767), we established an additional subregulatory process for making updates to the 

measures we have adopted for the Hospital OQR Program. We believe that a measure 

can be updated through this subregulatory process provided it is a nonsubstantive change. 

We expect to make the determination of what constitutes a substantive versus a 

nonsubstantive change on a case-by-case basis. 

 Examples of nonsubstantive changes to measures might include updated diagnosis 

or procedure codes, medication updates for categories of medications, broadening of age 

ranges, and exclusions for a measure (such as the addition of a hospice exclusion to the 

30-day mortality measures). We believe that non-substantive changes may include 

updates to NQF-endorsed measures based upon changes to guidelines upon which the 

measures are based. We will revise the Specifications Manual so that it clearly identifies 

the updates and provide links to where additional information on the updates can be 

found. As stated in CY 2009 OPPS/ASC, we also will post the updates on the QualityNet 

Web site at https://www.QualityNet.org. We will provide sufficient lead time for 
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facilities to implement the changes where changes to the data collection systems would 

be necessary. We generally release the Hospital OQR Specifications Manual every 6 

months and release addenda as necessary. This release schedule provides at least 3 

months of advance notice for nonsubstantive changes such as changes to ICD-9, CPT, 

NUBC, and HCPCS codes, and at least 6 months of advance notice for changes to data 

elements that would require significant systems changes. 

 We will continue to use rulemaking to adopt substantive updates made by the 

NQF to the endorsed measures we have adopted for the OQR Program. Examples of 

changes that we might consider to be substantive would be those in which the changes 

are so significant that the measure is no longer the same measure, or when a standard of 

performance assessed by a measure becomes more stringent (for example: changes in 

acceptable timing of medication, procedure/process, or test administration). Another 

example of a substantive change would be where the NQF has extended its endorsement 

of a previously endorsed measure to a new setting, such as extending a measure from the 

inpatient setting to hospice. 

 We believe that the policy finalized in the CY 2009 OPPS/ASC final rule 

adequately balances our need to incorporate non-substantive NQF updates to 

NQF-endorsed Hospital OQR Program measures in the most expeditious manner 

possible, while preserving the public’s ability to comment on updates that so 

fundamentally change an endorsed measure that it is no longer the same measure that we 

originally adopted. We also note that the NQF process incorporates an opportunity for 

public comment and engagement in the measure maintenance process. These policies 
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regarding what is considered substantive versus non-substantive apply to all measures in 

the Hospital OQR Program. 

b. Publication of Hospital OQR Program Data 

 Section 1833(t)(17)(E) of the Act requires that the Secretary establish procedures 

to make data collected under the Hospital OQR Program available to the public. It also 

states that such procedures must ensure that a hospital has the opportunity to review the 

data that are to be made public, with respect to the hospital prior to such data being made 

public. To meet these requirements, data that a hospital has submitted for the Hospital 

OQR Program are typically provided to hospitals for a preview period via QualityNet, 

and then are usually displayed on our Hospital Compare Web site, 

http://www.hospitalcompare.medicare.gov, following the preview period, although we 

might use other Web sites, as discussed below. The Hospital Compare Web site is an 

interactive Web tool that assists beneficiaries by providing information on hospital 

quality of care. We believe this information motivates beneficiaries to work with their 

doctors and hospitals to discuss the quality of care hospitals provide to patients, thus 

providing additional incentives to hospitals to improve the quality of care that they 

furnish. 

 Under our current policy, we publish quality data by the corresponding hospital 

CMS Certification Number (CCN), and indicate instances where data from two or more 

hospitals are combined to form the publicly reported measures on the Hospital Compare

Web site. That is, in a situation in which a larger hospital has taken over ownership of a 

smaller hospital, the smaller hospital’s CCN will be replaced by the larger hospital’s 
CMS-1601-P 460 

CCN (the principal CCN). For data display purposes, we will only display data received 

under the principal CCN. If both hospitals are submitting data, those data are not 

distinguishable in the warehouse; and the data is calculated together as one hospital. 

 Consistent with our current policy, we make Hospital IQR and Hospital OQR data 

publicly available whether or not the data have been validated for payment purposes. 

The Hospital Compare Web site currently displays information covering process of care 

measures, outcome of care measures, outpatient imaging efficiency measures and 

HCAHPS data. 

 In general, we strive to display hospital quality measure data on the Hospital 

Compare Web site as soon as possible after measure data have been submitted to CMS. 

However, if there are unresolved display issues or pending design considerations, we may 

make the data available on other CMS Web sites such as: 

http://www.cms.hhs.gov/HospitalQualityInits/ or https://data.medicare.gov/. Publicly 

reporting the information in this manner, although not on the Hospital Compare Web site, 

allows us to meet the requirement under section 1833(t)(17)(E) of the Act for establishing 

procedures to make quality data submitted available to the public following a preview 

period. When we display hospital quality information on non-interactive CMS Web sites, 

affected parties will be notified via CMS listservs, CMS e-mail blasts, memoranda, 

Hospital Open Door Forums, national provider calls, and QualityNet announcements 

regarding the release of preview reports followed by the posting of data on a Web site 

other than Hospital Compare. 
CMS-1601-P 461 

 We also require hospitals to complete and submit an online registration form 

(“participation form”) in order to participate in the Hospital OQR Program. With 

submission of this participation form, participating hospitals agree that they will allow 

CMS to publicly report the quality measure data submitted under the Hospital OQR 

Program, including measures that we calculate using Medicare claims. 

B. Process for Retention of Hospital OQR Program Measures Adopted in Previous 

Payment Determinations

 In the CY 2013 OPPS/ASC final rule with comment period (77 FR 68471), for 

the purpose of streamlining the rulemaking process, we finalized a policy that, beginning 

with the CY 2013 rulemaking, when we adopt measures for the Hospital OQR Program 

beginning with a payment determination and subsequent years, these measures are 

automatically adopted for all subsequent years payment determinations unless we 

propose to remove, suspend, or replace the measures. 

C. Removal or Suspension of Quality Measures from the Hospital OQR Program 

Measure Set

1. Considerations in Removing Quality Measures from the Hospital OQR Program 

 In the FY 2010 IPPS/LTCH PPS rulemaking, we finalized a process for 

immediate retirement of Hospital IQR Program measures based on evidence that the 

continued use of the measure as specified raises patient safety concerns (74 FR 43864 

through 43865). We adopted this same immediate measure retirement policy for the 

Hospital OQR Program in the CY 2010 OPPS/ASC final rule with comment period 

(74 FR 60634). 
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 In previous Hospital IQR Program rulemakings, we have referred to the removal 

of measures from the Hospital IQR Program as “retirement.” We have used this term to 

indicate that Hospital IQR Program measures are no longer included in the Hospital IQR 

Program measure set for one or more indicated reasons. However, we note that this term 

may imply that other payers/purchasers/programs should cease using these measures that 

are no longer required for the Hospital IQR Program. In order to clarify that this is not 

our intent, we stated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53506 through 

53507) that we will use the term “remove” rather than “retire” to refer to the action of no 

longer including a measure in the Hospital IQR Program. In the CY 2013 OPPS/ASC 

final rule with comment period (77 FR 68472 through 68473), we adopted the same 

terminology of “removal” in the Hospital OQR Program to indicate our action of 

discontinuing a measure in the Hospital OQR Program. 

 In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50185), we finalized a set of 

criteria to use when determining whether to remove Hospital OQR Program measures. 

These criteria are: (1) measure performance among hospitals is so high and unvarying 

that meaningful distinctions and improvements in performance can no longer be made 

(“topped out” measures); (2) performance or improvement on a measure does not result 

in better patient outcomes; (3) a measure does not align with current clinical guidelines or 

practice; (4) the availability of a more broadly applicable (across settings, populations, or 

conditions) measure for the topic; (5) the availability of a measure that is more proximal 

in time to desired patient outcomes for the particular topic; (6) the availability of a 

measure that is more strongly associated with desired patient outcomes for the particular 
CMS-1601-P 463 

topic; and (7) collection or public reporting of a measure leads to negative unintended 

consequences such as patient harm. These criteria were suggested by commenters during 

Hospital IQR Program rulemaking, and we determined that these criteria are also 

applicable in evaluating Hospital OQR Program quality measures for removal. In the 

CY 2013 OPPS/ASC final rule with comment period (77 FR 68472 through 68473), we 

finalized our proposal to apply these measure removal criteria in the Hospital OQR 

Program as well. 

 In addition to these criteria, we take into account the views of the MAP in the 

evaluation of measure removal. Furthermore, for efficiency and streamlining purposes, 

we strive to eliminate redundancy of similar measures. 

2. Proposed Removal of Two Chart-Abstracted Measures from the Hospital OQR 

Program 

 In this rulemaking, we are proposing to remove two measures from the Hospital 

OQR Program for the CY 2016 payment determination and subsequent years: 

(1) OP-19: Transition Record with Specified Elements Received by Discharged ED 

Patients and (2) OP-24: Cardiac Rehabilitation Measure: Patient Referral from an 

Outpatient Setting. The rationales for these proposals are discussed below. 

a. Proposed Removal of OP-19: Transition Record with Specified Elements Received by 

Discharged ED Patients 

 We previously adopted measure OP-19 for the Hospital OQR Program for the 

CY 2013 payment determination with data collection beginning with January 1, 2012 

encounters in the CY 2011 OPPS/ASC final rule with comment period. Shortly after data 
CMS-1601-P 464 

collection for this measure began in January 2012, hospitals raised concerns about the 

measure specifications, including potential privacy issues related to releasing certain 

elements of the transition record to either the patient being discharged from an 

emergency department or the patient’s caregiver. Some examples provided by hospitals 

are the release of sensitive lab results or radiological findings to a parent, spouse, or 

guardian of a minor patient, or to the responsible party for a physically incapacitated 

patient. 

 In order to address the safety concerns related to confidentiality as raised by the 

industry in the above discussion, in April 2012, we took immediate action to suspend 

OP-19. On April 12, 2012, we released a Memorandum entitled SDPS 12-100-OD, 

“Revised: Temporary Suspension of Hospital Outpatient Quality Reporting Measure OP19: Transition Record with Specified Elements Received by Discharged Patients” to 

make clear our intent not to use any data submitted on this measure for payment 

determinations, public reporting, or data validation. This memorandum can be located at 

http://qualitynet.org) under the option “E-mail Notifications” within the “Hospitals – 

Outpatient” drop down menu found at the top of the page. 

 In the CY 2013 OPPS/ASC final rule with comment period (77 FR 68474 through 

68476) for the CY 2014 payment determination and subsequent years, we confirmed that 

we suspended the collection of data for the measure OP-19: Transition Record with 

Specified Elements Received by Discharged ED Patients, which specified that either 

patients or their caregivers (emphasis added) receive a transition record at the time of ED 

discharge. 
CMS-1601-P 465 

 We chose to suspend this measure rather than to immediately remove the measure 

from the program because the probability of harm occurring was relatively low; any 

potential harm that occurred would not be the direct result of patient care rendered at 

facilities; and the measure steward, the American Medical Association Physician 

Consortium for Performance Improvement (AMA-PCPI), believed that the measure could 

be quickly re-specified in a manner that would mitigate the concerns raised by hospitals 

and stakeholders. In the CY 2013 OPPS/ASC final rule with comment period, we noted 

that the measure steward was working to revise the measure specifications to address the 

concerns raised by affected parties. We also noted that the measure was scheduled for 

NQF maintenance review in 2013. We stated that after completion of the NQF 

maintenance process, we anticipated that normal program operations for this measure 

could resume once we updated the Hospital OQR Specifications Manual and made any 

necessary changes to our data collection infrastructure. In addition, we stated that we 

would notify hospitals of changes in the suspension status of the measure for the Hospital 

OQR Program via e-mail blast. However, we indicated that if we determined that these 

concerns cannot be adequately addressed by measure specifications, we would propose to 

remove this measure in a future OPPS/ASC rule. 

 We have determined that the measure cannot be implemented with the degree of 

specificity that would be needed to fully address the concerns of stakeholders without 

being overly burdensome. The measure steward resolved the safety issue by refining the 

measure, but the refinement has made data abstraction more subjective because 

individual hospitals can determine which information should be included in the transition 
CMS-1601-P 466 

record in order to comply with this measure. In the absence of standardized data 

elements, we were not able to resolve this issue of data abstraction for common data 

elements, and therefore, could not ensure consistency of data submission and accuracy of 

measure results. 

We also learned that all aspects for this transition record measure are currently 

required to meet the Medicare EHR Incentive Program’s meaningful use (MU) core 

objective for eligible hospitals and critical access hospitals (CAHs) to provide patients 

the ability to view online, download, and transmit information about a hospital 

admission. This MU core objective provides patients discharged from the inpatient 

department or Emergency Department (ED) online access to their visit data. These ED 

visit data are the specified data elements included in the OP-19 Transition Record 

measure. This means that if we were to keep this measure, hospitals would need to 

submit this data for both the Hospital OQR Program using chart-abstraction and via 

attestation for the MU core objective. Therefore, to reduce duplicative requirements 

among programs and measurement burden, we are proposing to remove this measure 

from the Hospital OQR Program. We invite public comment on the proposed removal of 

this measure from the Hospital OQR Program. 

b. Proposed Removal of OP-24: Cardiac Rehabilitation Measure: Patient Referral from 

an Outpatient Setting 

 In the CY 2013 OPPS/ASC final rule with comment period (77 FR 68476), we 

deferred data collection for this measure to January 1, 2014 encounters. This was due to 

the unavailability of detailed abstraction instructions for data collection in time for the 
CMS-1601-P 467 

July 2012 release of the Hospital OQR Specifications Manual which was needed for 

chart-abstraction beginning on January 1, 2013. We also indicated that this measure 

would be applied to the CY 2015 payment determination. 

 We are proposing to remove this measure from the Hospital OQR Program due to 

continued difficulties with defining the measure care setting. The measure specifications 

provided by the measure steward, the American College of Cardiology (ACC), identify 

the applicable care setting as a ‘Clinician Office/Clinic’ and not as a hospital outpatient 

setting. In developing the specifications for this measure for a hospital outpatient setting, 

several issues arose. First, it is difficult to accurately identify the purpose of hospital 

outpatient visits, such as for evaluation and management purposes, using solely HOPD 

claims data. Second, it is difficult for hospitals to determine which particular clinic visit 

resulted in a cardiac rehabilitation referral for any given patient. Therefore, given the 

difficulties in accurately applying the measure to the hospital outpatient setting, we are 

proposing to remove OP-24 from the Hospital OQR Program. We invite public comment 

on this proposal to remove this measure from the Hospital OQR Program. 

Proposed Hospital OQR Program Measures to be Removed for the CY 2016 

Payment Determination and Subsequent Years 

NQF# Measure 

0649 OP-19: Transition Record with Specified Elements Received by 

Discharged ED Patients 

0643 OP-24: Cardiac Rehabilitation Measure: Patient Referral from an 

Outpatient Setting 
CMS-1601-P 468 

D. Quality Measures Previously Adopted for the CY 2014 and CY 2015 Payment 

Determinations and Subsequent Years

 The table below lists 25 measures that we previously adopted and retained for the 

CY 2014 and CY 2015 payment determinations and subsequent years under the Hospital 

OQR Program. This list includes measures we are proposing to remove in this proposed 

rule. 

Hospital OQR Program Measures for the CY 2014 and CY 2015 Payment 

Determinations and Subsequent Years 

NQF# Measure Name 

0287 OP-1: Median Time to Fibrinolysis 

0288 OP-2: Fibrinolytic Therapy Received Within 30 Minutes 

0290 OP-3: Median Time to Transfer to Another Facility for Acute Coronary 

Intervention 

0286 OP-4: Aspirin at Arrival 

0289 OP-5: Median Time to ECG 

0270 OP-6: Timing of Antibiotic Prophylaxis 

0268 OP-7: Prophylactic Antibiotic Selection for Surgical Patients 

0514 OP-8: MRI Lumbar Spine for Low Back Pain 

-- OP-9: Mammography Follow-up Rates 

-- OP-10: Abdomen CT – Use of Contrast Material 

0513 OP-11: Thorax CT – Use of Contrast Material 

0489 OP-12: The Ability for Providers with HIT to Receive Laboratory Data 

Electronically Directly into their ONC-Certified EHR System as Discrete 

Searchable Data 

0669 OP-13: Cardiac Imaging for Preoperative Risk Assessment for Non Cardiac 

Low Risk Surgery 

-- 

OP-14: Simultaneous Use of Brain Computed Tomography (CT) and Sinus 

Computed Tomography (CT) 

-- OP-15: Use of Brain Computed Tomography (CT) in the Emergency 

Department for Atraumatic Headache* 

0491 OP-17: Tracking Clinical Results between Visits 

0496 OP-18: Median Time from ED Arrival to ED Departure for Discharged ED 

Patients 

0649 OP-19: Transition Record with Specified Elements Received by Discharged 

ED Patients 
CMS-1601-P 469 

Hospital OQR Program Measures for the CY 2014 and CY 2015 Payment 

Determinations and Subsequent Years 

-- OP-20: Door to Diagnostic Evaluation by a Qualified Medical Professional 

0662 OP-21: Median Time to Pain Management for Long Bone Fracture 

-- OP-22: ED- Patient Left Without Being Seen 

0661 OP-23: ED- Head CT or MRI Scan Results for Acute Ischemic Stroke or 

Hemorrhagic Stroke who Received Head CT or MRI Scan Interpretation 

Within 45 minutes of Arrival 

0643 OP-24: Cardiac Rehabilitation Patient Referral From an Outpatient Setting 

-- OP-25: Safe Surgery Checklist Use 

-- OP-26: Hospital Outpatient Volume on Selected Outpatient Surgical 

Procedures** 

* Public reporting for OP-15 continues to be deferred at the time of this CY 2014 OPPS/ASC proposed 

rule. 

** OP-26 Procedure categories and corresponding HCPCS codes are located at : 

http://qualitynet.org/dcs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1228889963089&blobhe

ader=multipart%2Foctet-stream&blobheadername1=ContentDisposition&blobheadervalue1=attachment%3Bfilename%3D1r_OP26MIF_v+6+0b.pdf&blobcol=urldata

&blobtable=MungoBlobs

E. Proposed Quality Measures for the CY 2016 Payment Determination and Subsequent 

Years

 In this rulemaking, we are proposing to adopt five new measures for the Hospital 

OQR Program for the CY 2016 payment determination and subsequent years. These 

measures include one HAI measure – Influenza Vaccination Coverage among Healthcare 

Personnel (NQF #0431), currently collected by the Centers for Disease Control and 

Prevention (CDC) via the National Healthcare Safety Network (NHSN) – and four 

chart-abstracted measures. The chart-abstracted measures are: (1) Complications within 

30 Days Following Cataract Surgery Requiring Additional Surgical Procedures 

(NQF #0564), (2) Endoscopy/Poly Surveillance: Appropriate follow-up interval for 

normal colonoscopy in average risk patients (NQF #0658), (3) Endoscopy/Poly 
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surveillance: Colonoscopy Interval for Patients with a History of Adenomatous Polyps – 

Avoidance of Inappropriate Use (NQF #0659), and (4) Cataracts: Improvement in 

Patient’s Visional Function within 90 Days Following Cataract Surgery (NQF #1536). 

 The proposed measures were included on a publicly available document entitled 

“List of Measures Under Consideration for December 1, 2012” on the NQF Web site at: 

http://www.qualityforum.org/Setting_Priorities/Partnership/Measure_Applications_Partn

ership.aspx in compliance with section 1890A(a)(2) of the Act. They were reviewed by 

the MAP in its “MAP Pre-Rulemaking Report: 2013 Recommendations on Measures 

Under Consideration by HHS,” which has been made available on the NQF Web site at: 

http://www.qualityforum.org/Setting_Priorities/Partnership/Measure_Applications_Partn

ership.aspx. We considered the input and recommendations provided by the MAP in 

selecting measures to propose for the Hospital OQR Program. 

 All five of the proposed measures are NQF-endorsed, and therefore meet the 

requirements that measures selected for the program “reflect consensus among affected 

parties and, to the extent feasible and practicable, that these measures include measures 

set forth by one or more national consensus building entities” under section 

1833(t)(17)(C)(i) of the Act. Furthermore, the services targeted in the proposed measures 

are services commonly provided to patients who visit hospital outpatient departments 

and, for this reason, we believe that these proposed measures are appropriate for the 

measurement of quality of care furnished by hospitals in outpatient settings as required 

under section 1833(t)(17)(C)(i) of the Act. 
CMS-1601-P 471 

 We are proposing to collect aggregate data (numerators, denominators, 

exclusions) for the four chart-abstracted measures via an online, Web-based tool that will 

be made available to HOPDs via the QualityNet Web site, just as we do for OP-22. This 

Web-based tool is currently in use in the Hospital OQR Program to collect structural 

measure information. 

More information regarding this proposed method of collection is provided in section 

XIII.H.2. of this proposed rule. 

 To enhance our efforts to collect high quality data for the Hospital OQR measures 

while minimizing burden for HOPDs, we also seek public comment on whether we 

should collect patient-level data via certified EHR technology on the four proposed 

measures excluding the Influenza Vaccination Coverage among Healthcare Personnel 

measure, and the potential timing for doing so. Collecting patient-level data, as we do for 

other Hospital OQR Program measures such as OP-1 through OP-7, would allow CMS to 

validate the accuracy of the data and also link data for patients over time to assess patient 

outcomes of care related to treatment. 

 The proposed measures are described in greater detail below. 

1. Influenza Vaccination Coverage Among Healthcare Personnel (NQF #0431) 

 This proposed measure assesses the percentage of healthcare personnel (HCP) 

who have been immunized for influenza. Rates of serious illness and death resulting 

from influenza and its complications are increased in high-risk populations such as 

persons over 50 years or under four years of age, and persons of any age who have 

underlying conditions that put them at an increased risk. HCP can acquire influenza from 
CMS-1601-P 472 

patients and can transmit influenza to patients and other HCP. Many HCP provide care 

for, or are in frequent contact with, patients with influenza or patients at high risk for 

complications of influenza. The involvement of HCP in influenza transmission has been 

a long-standing concern.1,2,3

 Vaccination is an effective preventive measure against influenza, and can prevent 

many illnesses, deaths, and losses in productivity.4

 HCP are considered a high priority 

for expanding influenza vaccine use. Achieving and sustaining high influenza 

vaccination coverage among HCP is intended to help protect HCP and their patients and 

reduce disease burden and healthcare costs. Due to the significant impact of HCP 

influenza vaccination on patient outcomes, we believe this measure is appropriate for 

measuring the quality of care in hospital outpatient departments. 

 We are proposing to adopt this process measure for the CY 2016 payment 

determination and subsequent years. We are also proposing that Hospital OPDs use the 

NHSN infrastructure and protocol to report the measure for Hospital OQR program 

purposes. The measure numerator is: HCP in the denominator population who during 

the time from October 1 (or when the vaccine became available) through March 31 of the 

following year: (a) received an influenza vaccination administered at the healthcare 

facility, or reported in writing (paper or electronic) or provided documentation that 

 

1

 Maltezou, H.C., Drancourt, M.: Nosocomial influenza in children. Journal of Hospital Infection 2003; 

55:83-91. 

2

 Hurley, J.C., Flockhart, S.: An influenza outbreak in a regional residential facility. Journal of Infection 

Prevention 2010; 11:58-61. 

3

 Salgado, C.D, Farr, B.M., Hall, K.K., Hayden, F.G.: Influenza in the acute hospital setting. The Lancet 

Infectious Diseases 2002; 2:145-155. 

4

 Wilde, M.A., McMillan, J.A., Serwint, J., Butta, J., O’Riordan, M.A., Steinhoff, M.C.: Effectiveness of 

influenza vaccine in health care professionals; a randomized trial. The Journal of the American Medical 

Association 1999;281:908-913. 
CMS-1601-P 473 

influenza vaccination was received elsewhere; (b) were determined to have a medical 

contraindication/condition of severe allergic reaction to eggs or to other component(s) of 

the vaccine, or history of Guillain-Barre Syndrome within 6 weeks after a previous 

influenza vaccination; (c) declined; or (d) persons with unknown vaccination status or 

who do not otherwise meet any of the definitions of the above-mentioned numerator 

categories. The measure denominator is: the number of HCP who are working in the 

healthcare facility for at least 1 working day between October 1 and March 31 of the 

influenza season, regardless of clinical responsibility or patient contact. The 

specifications for this measure are available at 

http://www.qualityforum.org/QPS/QPSTool.aspx?Exact=false&Keyword=0431. 

 In its 2013 Pre-Rulemaking Report, 

(http://www.qualityforum.org/Publications/2013/02/MAP_Pre-Rulemaking_Report_-

_February_2013.aspx), the MAP supported inclusion of this measure in the Hospital 

OQR Program and noted that the measure would address a measure type that is not 

adequately represented in the program measure set. Furthermore, the adoption of this 

measure will align with both the Hospital IQR Program, which adopted the measure for 

the FY 2015 payment determination and subsequent years, and the ASCQR Program, 

which adopted the measure for the CY 2016 payment determination and subsequent 

years. 

 In the CY 2012 OPPS/ASC proposed rule (76 FR 42323 through 42324), we 

proposed this measure for the CY 2015 payment determination. However, in the 

CY 2012 OPPS/ASC final rule with comment period (76 FR 74470 through 74472), we 
CMS-1601-P 474 

decided not to finalize the measure (76 FR 74472) and, instead, decided to propose it in 

future rulemaking for the CY 2016 payment determination and subsequent years in order 

to address measure refinements in the denominator and operational issues. We believe 

that these refinements have been made and that the operational issues have been resolved. 

 We have learned that many States are proactively aligning their reporting 

requirements for this measure to mirror the federal requirements in an effort to reduce 

burden on providers and suppliers. We also recently learned that the measure may soon 

be undergoing some minor updates and review by NQF. Consistent with our policy to 

use a subregulatory process to adopt nonsubstantive changes to measures arising out of 

the NQF process (73 FR 68766 through 68767), we would use this process to adopt the 

upcoming NQF revisions for this measure, if the revisions are nonsubstantive. 

 We refer readers to section XIII.H.2. of this proposed rule for a detailed 

discussion of data collection. We invite public comment on this proposal. 

2. Complications Within 30 Days Following Cataract Surgery Requiring Additional 

Surgical Procedures (NQF #0564) 

 This proposed measure assesses the percentage of patients aged 18 years and 

older with a diagnosis of uncomplicated cataract who had cataract surgery and had any of 

a specified list of surgical procedures in the 30 days following cataract surgery which 

would indicate the occurrence of any of the following major complications: retained 

nuclear fragments, endophthalmitis, dislocated or wrong power intraocular lens (IOL), 

retinal detachment, or wound dehiscence. 
CMS-1601-P 475 

 Although complications that may result in a permanent loss of vision following 

cataract surgery are uncommon, this outcome measure seeks to identify those 

complications from surgery that can reasonably be attributed to the surgery. It focuses on 

patient safety and monitoring for events that, while uncommon, can signify important 

issues in the care being provided. Advances in technology and surgical skills over the 

last 30 years have rendered cataract surgery safer and more effective. An analysis of 

Managed Care Organization data demonstrated that the rate of complications for this 

measure were 1 to 2 percent. However, with an annual volume of 2.8 million cataract 

surgeries in the United States, many of which are performed in hospital surgical 

outpatient departments, a 2-percent rate is a significant number of surgeries associated 

with complications.5

 The measure numerator is: patients who had one or more specified operative 

procedures for any of the following major complications within 30 days following 

cataract surgery: retained nuclear fragments, endophthalmitis, dislocated or wrong power 

IOL, retinal detachment, or wound dehiscence. The measure denominator is: all patients 

aged 18 years and older who had cataract surgery and no significant pre-operative ocular 

conditions impacting the surgical complication rate. This measure excludes patients with 

certain comorbid conditions impacting the surgical complication rate. The specifications 

for this measure are available at http://www.qualityforum.org/QPS/0564.

 In its 2013 Pre-Rulemaking Report, 

(http://www.qualityforum.org/Publications/2013/02/MAP_Pre-Rulemaking_Report_-

 

5

 National Quality Measures Clearing House. Agency for Healthcare Research and Quality. Available at 

http://qualitymeasures.ahrq.gov/content.aspx?id=27981&search=complications+within+30+days+followin

g+cataract+surgery. 
CMS-1601-P 476 

_February_2013.aspx), the MAP supported this measure and noted that the measure 

addresses a high impact condition that is not adequately addressed in the Hospital OQR 

measure set. Currently the NQF endorsement is time-limited. 

 We refer readers to section XIII.H.2. of this proposed rule for a detailed 

discussion of data collection. We invite public comment on this proposal. 

3. Endoscopy/Poly Surveillance: Appropriate Follow-up Interval for Normal 

Colonoscopy in Average Risk Patients (NQF #0658) 

 This proposed measure assesses the percentage of patients aged 50 years and 

older receiving screening colonoscopy without biopsy or polypectomy who had a 

recommended follow-up interval of at least 10 years for repeat colonoscopy documented 

in their colonoscopy report. 

 In the average-risk population, colonoscopy screening is recommended in current 

guidelines at 10-year intervals.6

 Our analysis indicated that about 25 percent of 

surgeries/procedures performed in HOPDs and ASCs are colonoscopies. Performing 

colonoscopy too frequently increases patients’ exposure to procedural harm. This 

measure aims to assess whether average risk patients with normal colonoscopies receive a 

recommendation to receive a repeat colonoscopy in an interval that is less than the 

recommended amount of 10 years. 

 The measure numerator is: patients who had a recommended follow-up interval 

of at least 10 years for repeat colonoscopy documented in their colonoscopy report. The 

 

6 Davila RE, Rajan E, Baron TH, Adler DG, Egan JV, Faigel DO, Gan SI, Hirota WK, Leighton JA, 

Lichtenstein D, Qureshi WA, Shen B, Zuckerman MJ, VanGuilder T, Fanelli RD, Standards of Practice 

Committee, American Society for Gastrointestinal Endoscopy. ASGE guideline: colorectal cancer 

screening and surveillance. Gastrointest Endosc 2006 Apr;63(4):546-57. 

http://www.ncbi.nlm.nih.gov/pubmed/16564851?dopt=Abstract.
CMS-1601-P 477 

measure denominator is: all patients aged 50 years and older receiving screening 

colonoscopy without biopsy or polypectomy. This measure excludes patients with 

documentation of medical reason(s) for recommending a follow-up interval of less than 

10 years (for example, an above-average risk patient or inadequate prep). The 

specifications for this measure are available at: http://www.qualityforum.org/QPS/0658. 

 In its 2013 Pre-Rulemaking Report, 

(http://www.qualityforum.org/Publications/2013/02/MAP_Pre-Rulemaking_Report_-

_February_2013.aspx), the MAP supported the direction of the measure. Currently the 

NQF endorsement is time-limited. 

 We refer readers to section XIII.H.2. of this proposed rule for a detailed 

discussion of data collection. We invite public comment on this proposal. 

4. Endoscopy/Poly Surveillance: Colonoscopy Interval for Patients with a History of 

Adenomatous Polyps – Avoidance of Inappropriate Use (NQF #0659) 

 The proposed Endoscopy/Poly Surveillance: Colonoscopy Interval for Patients 

with a History of Adenomatous Polyps – Avoidance of Inappropriate Use measure 

assesses the percentage of patients aged 18 years and older receiving a surveillance 

colonoscopy, with a history of a prior colonic polyp in previous colonoscopy findings 

who had a follow-up interval of 3 or more years since their last colonoscopy documented 

in the colonoscopy report. 

 Colonoscopy is the recommended method of surveillance after the removal of 

adenomatous polyps, because it has been shown to significantly reduce subsequent 

colorectal cancer incidence. The timing of follow-up colonoscopy should be tailored to 
CMS-1601-P 478 

the number, size, and pathologic findings of the adenomatous polyps removed. A 

randomized trial of 699 patients showed that after newly diagnosed adenomatous polyps 

have been removed by colonoscopy, follow-up colonoscopy at 3 years detects important 

colonic lesions as effectively as follow-up colonoscopy at both 1 and 3 years.7,8

 The measure numerator for this proposed measure is: patients who had an 

interval of 3 or more years since their last colonoscopy. The measure denominator is: all 

patients aged 18 years and older receiving a surveillance colonoscopy with a history of a 

prior colonic polyp in a previous colonoscopy. This measure excludes patients with: 

(1) documentation of medical reason(s) for an interval of less than 3 years since the last 

colonoscopy (for example, last colonoscopy incomplete, last colonoscopy had inadequate 

prep, piecemeal removal of adenomas, or last colonoscopy found greater than 

10 adenomas); or (2) documentation of a system reason(s) for an interval of less than 

3 years since the last colonoscopy (for example, unable to locate previous colonoscopy 

report, previous colonoscopy report was incomplete). The specifications for this measure 

are available at http://www.qualityforum.org/QPS/0659. 

 In its 2013 Pre-Rulemaking Report, 

(http://www.qualityforum.org/Publications/2013/02/MAP_Pre-Rulemaking_Report_-

_February_2013.aspx), the MAP supported the direction of the measure. Currently the 

NQF endorsement is time-limited. 

 

7

 National Quality Measures Clearing House. Agency for Healthcare Research and Quality. Available at 

http://qualitymeasures.ahrq.gov/content.aspx?id=27981&search=complications+within+30+days+followin

g+cataract+surgery. 8 Davila RE, Rajan E, Baron TH, Adler DG, Egan JV, Faigel DO, Gan SI, Hirota WK, Leighton JA, 

Lichtenstein D, Qureshi WA, Shen B, Zuckerman MJ, VanGuilder T, Fanelli RD, Standards of Practice 

Committee, American Society for Gastrointestinal Endoscopy. ASGE guideline: colorectal cancer 

screening and surveillance. Gastrointest Endosc 2006 Apr;63(4):546-57. 

http://www.ncbi.nlm.nih.gov/pubmed/16564851?dopt=Abstract.
CMS-1601-P 479 

 We refer readers to section XIII.H.2. of this proposed rule for a detailed 

discussion of data collection. We invite public comment on this proposal. 

5. Cataracts – Improvement in Patient’s Visual Function Within 90 Days Following 

Cataract Surgery (NQF #1536) 

 This proposed measure assesses the percentage of patients aged 18 years and 

older who had cataract surgery and had improvement in visual function achieved within 

90 days following the cataract surgery. 

 Cataract surgery is performed to improve a patient’s vision and associated 

functioning. This outcome is achieved consistently through careful attention to the 

accurate measurement of axial length and corneal power and the appropriate selection of 

an IOL. Failure to achieve improved visual functioning after surgery in eyes without 

comorbid ocular conditions that could impact the success of the surgery would reflect 

care that should be assessed for opportunities for improvement. Evidence suggests that 

visual improvement occurs in about 86 – 98 percent of surgeries in eyes without 

comorbid conditions. However, with an annual volume of 2.8 million cataract surgeries 

in the United States, many of which are performed in hospital outpatient surgical 

departments, the impact could affect a significant number of patients per year.9

 We are proposing to adopt this measure for the CY 2016 payment determination 

and subsequent years. The measure numerator is: patients 18 years and older (with a 

diagnosis of uncomplicated cataract) in a sample who had improvement in visual function 

achieved within 90 days following cataract surgery, based on completing a pre-operative 

 

9

 National Quality Measures Clearing House. Agency for Healthcare Research and Quality. Available at 

http://www.qualitymeasures.ahrq.gov/content.aspx?id=27982.
CMS-1601-P 480 

and post-operative visual function instrument. The measure denominator is: all patients 

aged 18 years and older in sample who had cataract surgery. There are no exclusions. 

The specifications for this measure are available at 

http://www.qualityforum.org/QPS/1536. Additional information for the measure 

specifications can be found in the NQF Measure Evaluation available at 

http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=68317.

 In its 2013 Pre-Rulemaking Report, 

(http://www.qualityforum.org/Publications/2013/02/MAP_Pre-Rulemaking_Report_-

_February_2013.aspx), the MAP supported the inclusion of the measure in the Hospital 

OQR Program and noted that the measure addresses a high impact condition not 

adequately addressed in the program measure set. The MAP added that this measure, 

which addresses outcomes, falls under a category of measures inadequately represented 

in the program measure set. Currently the NQF endorsement is time-limited. 

 We refer readers to section XIII.H.2. of this proposed rule for a detailed 

discussion of data collection. We invite public comment on this proposal. 

 The proposed measure set for the Hospital OQR Program for the CY 2016 

payment determination and subsequent years is listed in the table below. 

Proposed Hospital OQR Program Measure Set for the CY 2016 Payment 

Determination and Subsequent Years 

NQF# Measure Name 

0287 OP-1: Median Time to Fibrinolysis 

0288 OP-2: Fibrinolytic Therapy Received Within 30 Minutes 

0290 OP-3: Median Time to Transfer to Another Facility for Acute Coronary 

Intervention 

0286 OP-4: Aspirin at Arrival 
CMS-1601-P 481 

Proposed Hospital OQR Program Measure Set for the CY 2016 Payment 

Determination and Subsequent Years 

0289 OP-5: Median Time to ECG 

0270 OP-6: Timing of Antibiotic Prophylaxis 

0268 OP-7: Prophylactic Antibiotic Selection for Surgical Patients 

0514 OP-8: MRI Lumbar Spine for Low Back Pain 

-- OP-9: Mammography Follow-up Rates 

-- OP-10: Abdomen CT – Use of Contrast Material 

0513 OP-11: Thorax CT – Use of Contrast Material 

0489 OP-12: The Ability for Providers with HIT to Receive Laboratory Data 

Electronically Directly into their ONC-Certified EHR System as Discrete 

Searchable Data 

0669 OP-13: Cardiac Imaging for Preoperative Risk Assessment for Non Cardiac 

Low Risk Surgery 

-- 

OP-14: Simultaneous Use of Brain Computed Tomography (CT) and Sinus 

Computed Tomography (CT) 

-- OP-15: Use of Brain Computed Tomography (CT) in the Emergency 

Department for Atraumatic Headache* 

0491 OP-17: Tracking Clinical Results between Visits 

0496 OP-18: Median Time from ED Arrival to ED Departure for Discharged ED 

Patients 

-- OP-20: Door to Diagnostic Evaluation by a Qualified Medical Professional 

0662 OP-21: Median Time to Pain Management for Long Bone Fracture 

-- OP-22: ED- Patient Left Without Being Seen 

0661 OP-23: ED- Head CT or MRI Scan Results for Acute Ischemic Stroke or 

Hemorrhagic Stroke who Received Head CT or MRI Scan Interpretation 

Within 45 minutes of Arrival 

-- OP-25: Safe Surgery Checklist Use 

-- OP-26: Hospital Outpatient Volume on Selected Outpatient Surgical 

Procedures** 

0431 OP-27: Influenza Vaccination Coverage among Healthcare Personnel*** 

0564 OP-28: Complications within 30 days Following Cataract Surgery Requiring 

Additional Surgical Procedures*** 

0658 OP-29: Endoscopy/Poly Surveillance: Appropriate follow-up interval for 

normal colonoscopy in average risk patients*** 

0659 OP-30: Endoscopy/Poly Surveillance: Colonoscopy Interval for Patients with 

a History of Adenomatous Polyps – Avoidance of Inappropriate Use*** 

1536 OP-31: Cataracts – Improvement in Patient’s Visual Function within 90 Days 

Following Cataract Surgery*** 
CMS-1601-P 482 

* Public reporting for OP-15 continues to be deferred at the time of this CY 2014 OPPS/ASC proposed 

rule. 

** OP-26: Procedure categories and corresponding HCPCS codes are located at : 

http://qualitynet.org/dcs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1228889963089&blobhe

ader=multipart%2Foctet-stream&blobheadername1=ContentDisposition&blobheadervalue1=attachment%3Bfilename%3D1r_OP26MIF_v+6+0b.pdf&blobcol=urldata

&blobtable=MungoBlobs.

*** New measures proposed for the CY 2016 payment determination and subsequent years. 

F. Possible Hospital OQR Program Measure Topics for Future Consideration

 The current measure set for the Hospital OQR Program includes measures that 

assess process of care, imaging efficiency patterns, care transitions, ED throughput 

efficiency, the use of HIT care coordination, patient safety, and volume. We anticipate 

that as EHR technology evolves and more infrastructure is put into place, we will have 

the capacity to accept electronic reporting of many clinical chart-abstracted measures that 

are currently part of the Hospital OQR Program using certified EHR technology. We are 

working diligently toward this goal. We believe that this progress, at a near future date, 

would significantly reduce the administrative burden on hospitals under the Hospital 

OQR Program to report chart-abstracted measures. We recognize that considerable work 

needs to be done by measure owners and developers to make this possible with respect to 

the clinical quality measures targeted for e-specifications. This includes completing 

electronic specifications for measures, pilot testing, reliability and validity testing, and 

implementing such specifications into certified EHR technology to capture and calculate 

the results, and implementing the systems. 

 We seek to develop a comprehensive set of quality measures to be available for 

widespread use for informed decision-making and quality improvement in the hospital 

outpatient setting. Therefore, through future rulemaking, we intend to propose new 
CMS-1601-P 483 

measures that help us further our goal of achieving better health care and improved health 

for Medicare beneficiaries who receive health care in hospital outpatient settings, 

including partial hospitalization programs (PHPs) that are part of HOPDs. 

 We are considering the following measure domains for future measures: clinical 

quality of care; care coordination; patient safety; patient and caregiver experience of care; 

population/community health; and efficiency. We believe this approach will promote 

better care while bringing the Hospital OQR Program in line with other established 

quality reporting programs such as the Hospital IQR Program and the ASCQR Program. 

 We invite public comment on this approach and on our suggestions and rationale 

for possible measure topics for future consideration in the Hospital OQR Program. 

 In addition, we are soliciting comments on the following potential quality 

measure topics for PHPs in HOPDs: Poly-therapy with antipsychotic medications; Postdischarge of continuity of care; Alcohol screening; Alcohol and drug use; Tobacco use 

assessment; and Follow-up after hospitalization for mental illness. These topics would 

align measurement of PHPs in HOPDs with that of the IPFQR Program. 

XIII. Hospital Outpatient Quality Reporting Program Updates 

G. Proposed Payment Reduction for Hospitals That Fail to Meet the Hospital OQR 

Program Requirements for the CY 2014 Payment Update

1. Background 

 Section 1833(t)(17) of the Act, which applies to subsection (d) hospitals (as 

defined under section 1886(d)(1)(B) of the Act), states that hospitals that fail to report 

data required to be submitted on the measures selected by the Secretary, in the form and 
CMS-1601-P 484 

manner, and at a time, required by the Secretary will incur a 2.0 percentage point 

reduction to their Outpatient Department (OPD) fee schedule increase factor; that is, the 

annual payment update factor. Section 1833(t)(17)(A)(ii) of the Act specifies that any 

reduction applies only to the payment year involved and will not be taken into account in 

computing the applicable OPD fee schedule increase factor for a subsequent payment 

year. 

 The application of a reduced OPD fee schedule increase factor results in reduced 

national unadjusted payment rates that apply to certain outpatient items and services 

provided by hospitals that are required to report outpatient quality data in order to receive 

the full payment update factor and that fail to meet the Hospital OQR Program 

requirements. All other hospitals paid under the OPPS that meet the reporting 

requirement receive the full OPPS payment update without the reduction. For a more 

detailed discussion of how the payment reduction for failure to meet the administrative, 

data collection, and data submission requirements of the Hospital OQR Program was 

initially implemented, we refer readers to the CY 2009 OPPS/ASC final rule with 

comment period (73 FR 68769 through 68772). 

 The national unadjusted payment rates for many services paid under the OPPS 

equal the product of the OPPS conversion factor and the scaled relative weight for the 

APC to which the service is assigned. The OPPS conversion factor, which is updated 

annually by the OPD fee schedule increase factor, is used to calculate the OPPS payment 

rate for services with the following status indicators (listed in Addendum B to this 

proposed rule with comment period, which is available via the Internet on the CMS Web 
CMS-1601-P 485 

site): “P,” “Q1,” “Q2,” “Q3,” “R,” “S,” “T,” “V,” or “U.” We note that we are 

proposing to delete status indicator “X” as described in sections II.A.3. and XI. of this 

proposed rule. We also note that we are proposing to develop status indicator “J1” as 

part of the proposed comprehensive APC discussed in section II.A.2.e. of this proposed 

rule. Payment for all services assigned to these status indicators will be subject to the 

reduction of the national unadjusted payment rates for applicable hospitals, with the 

exception of services assigned to New Technology APCs with assigned status indicator 

“S” or “T”. We refer readers to the CY 2009 OPPS/ASC final rule with comment period 

(73 FR 68770) for a discussion of this policy. 

 The OPD fee schedule increase factor is an input into the OPPS conversion factor, 

which is used to calculate OPPS payment rates. To implement the requirement to reduce 

the OPD fee schedule increase factor for hospitals that fail to meet reporting 

requirements, we calculate two conversion factors - a full market basket conversion 

factor (that is, the full conversion factor), and a reduced market basket conversion factor 

(that is, the reduced conversion factor). We then calculate a reduction ratio by dividing 

the reduced conversion factor by the full conversion factor. We refer to this reduction 

ratio as the “reporting ratio” to indicate that it applies to payment for hospitals that fail to 

meet their reporting requirements. Applying this reporting ratio to the OPPS payment 

amounts results in reduced national unadjusted payment rates that are mathematically 

equivalent to the reduced national unadjusted payment rates that would result if we 

multiplied the scaled OPPS relative weights by the reduced conversion factor. To 

determine the reduced national unadjusted payment rates that applied to hospitals that 
CMS-1601-P 486 

failed to meet their quality reporting requirements for the CY 2010 OPPS, we multiplied 

the final full national unadjusted payment rate found in Addendum B of the CY 2010 

OPPS/ASC final rule with comment period by the CY 2010 OPPS final reporting ratio of 

0.980 (74 FR 60642). 

 In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68771 through 

68772), we established a policy that the Medicare beneficiary’s minimum unadjusted 

copayment and national unadjusted copayment for a service to which a reduced national 

unadjusted payment rate applies would each equal the product of the reporting ratio and 

the national unadjusted copayment or the minimum unadjusted copayment, as applicable, 

for the service. Under this policy, we apply the reporting ratio to both the minimum 

unadjusted copayment and national unadjusted copayment for those hospitals that receive 

the payment reduction for failure to meet the Hospital OQR Program reporting 

requirements. This application of the reporting ratio to the national unadjusted and 

minimum unadjusted copayments is calculated according to § 419.41 of our regulations, 

prior to any adjustment for a hospital’s failure to meet the quality reporting standards 

according to § 419.43(h). Beneficiaries and secondary payers thereby share in the 

reduction of payments to these hospitals. 

 In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68772), we 

established the policy that all other applicable adjustments to the OPPS national 

unadjusted payment rates apply in those cases when the OPD fee schedule increase factor 

is reduced for hospitals that fail to meet the requirements of the Hospital OQR Program. 

For example, the following standard adjustments apply to the reduced national unadjusted 
CMS-1601-P 487 

payment rates: the wage index adjustment; the multiple procedure adjustment; the 

interrupted procedure adjustment; the rural sole community hospital adjustment; and the 

adjustment for devices furnished with full or partial credit or without cost. We believe 

that these adjustments continue to be equally applicable to payments for hospitals that do 

not meet the Hospital OQR Program requirements. Similarly, OPPS outlier payments 

made for high cost and complex procedures will continue to be made when the criteria 

are met. For hospitals that fail to meet the quality data reporting requirements, the 

hospitals' costs are compared to the reduced payments for purposes of outlier eligibility 

and payment calculation. This policy conforms to current practice under the IPPS. We 

established this policy in the OPPS beginning in the CY 2010 OPPS/ASC final rule with 

comment period (74 FR 60642). For a complete discussion of the OPPS outlier 

calculation and eligibility criteria, we refer readers to section II.G. of this proposed rule. 

2. Proposed Reporting Ratio Application and Associated Adjustment Policy for CY 2014 

 We are proposing to continue our established policy of applying the reduction of 

the OPD fee schedule increase factor through the use of a reporting ratio for those 

hospitals that fail to meet the Hospital OQR Program requirements for the full CY 2014 

annual payment update factor. For the CY 2014 OPPS, the proposed reporting ratio is 

0.980, calculated by dividing the proposed reduced conversion factor of $71.273 by the 

proposed full conversion factor of $72.728. We are proposing to continue to apply the 

reporting ratio to all services calculated using the OPPS conversion factor. For the 

CY 2014 OPPS, we are proposing to apply the reporting ratio, when applicable, to all 

HCPCS codes to which we have assigned status indicators “P,” “Q1,” “Q2,” “Q3,” “R,” 
CMS-1601-P 488 

“S,” “T,” “V,” and “U” (other than new technology APCs to which we have assigned 

status indicators “S” and “T”). We note that we are proposing to delete status indicator 

“X” as described in sections II.A.3. and XI. of this proposed rule. We also note that we 

are proposing to develop status indicator “J1” as part of the proposed comprehensive 

APC discussed in section II.A.2.e. of this proposed rule and to apply the reporting ratio to 

the comprehensive APCs. We are proposing to continue to exclude services paid under 

New Technology APCs. We are proposing to continue to apply the reporting ratio to the 

national unadjusted payment rates and the minimum unadjusted and national unadjusted 

copayment rates of all applicable services for those hospitals that fail to meet the Hospital 

OQR Program reporting requirements. We also are proposing to continue to apply all 

other applicable standard adjustments to the OPPS national unadjusted payment rates for 

hospitals that fail to meet the requirements of the Hospital OQR Program. Similarly, we 

are proposing to continue to calculate OPPS outlier eligibility and outlier payment based 

on the reduced payment rates for those hospitals that fail to meet the reporting 

requirements. 

 We invite public comment on these proposals. 

H. Proposed Requirements for Reporting of Hospital OQR Data for the CY 2015 

Payment Determination and Subsequent Years

1. Administrative Requirements for the CY 2015 Payment Determination and 

Subsequent Years 

 To participate successfully in the Hospital OQR Program, hospitals must meet 

administrative, data collection and submission, and data validation requirements (if 
CMS-1601-P 489 

applicable). Hospitals that do not meet Hospital OQR Program requirements, as well as 

hospitals not participating in the program and hospitals that withdraw from the program, 

will not receive the full OPPS payment rate update. Instead, in accordance with 

section 1833(t)(17)(A) of the Act, those hospitals will receive a reduction of 

2.0 percentage points to their OPD fee schedule increase factor for the applicable 

payment year. 

 We established administrative requirements for the payment determination 

requirements for the CY 2013 payment update and subsequent years in the CY 2012 

OPPS/ASC final rule with comment period (76 FR 74479 through 74487). In the 

CY 2013 OPPS/ASC final rule with comment period (77 FR 68480 through 68481), we 

modified these requirements by extending the deadline for certain hospitals to submit a 

participation form. For the CY 2014 payment determination and subsequent years, we 

modified the deadline for hospitals that are not currently participating in the Hospital 

OQR Program and wish to participate, provided they have a Medicare acceptance date 

before January 1 of the year prior to the affected annual payment update. For example, 

2013 would be the year prior to the affected CY 2014 annual payment update, and we are 

referring to an acceptance date before January 1, 2013. The hospitals must submit a 

participation form by July 31 rather than March 31 of the year prior to the affected annual 

payment update in order to participate in the Hospital OQR Program for purposes of the 

CY 2014 payment update. In the example, the deadline would be July 31, 2013. 

 The Hospital OQR Program procedural requirements are unchanged from those 

adopted in the CY 2013 OPPS/ASC final rule with comment period (77 FR 68480 
CMS-1601-P 490 

through 68481). We are proposing to codify these procedural requirements at 

§ 419.46(a). To participate in the Hospital OQR Program, a hospital – as defined in 

section 1886(d)(1)(B) of the Act and that is reimbursed under the OPPS – must: 

● Register with QualityNet before beginning to report data. 

● Identify and register a QualityNet security administrator as part of the 

registration process located on the QualityNet Web site (http://www.QualityNet.org); 

● Complete and submit an online participation form available at the QualityNet 

Web site if this form has not been previously completed, if a hospital has previously 

withdrawn, or if the hospital acquires a new CMS Certification Number (CCN). For 

Hospital OQR Program purposes, hospitals that share the same CCN are required to 

complete a single online participation form. Once a hospital has submitted a participation 

form, it is considered to be an active Hospital OQR Program participant until such time 

as it submits a withdrawal form to CMS or no longer has an effective Medicare provider 

agreement. 

 Deadlines to submit the notice of participation form are based on the date 

identified as a hospital’s Medicare acceptance date: 

● If a hospital has a Medicare acceptance date before January 1 of the year prior 

to the affected annual payment update, the hospital must complete and submit to CMS a 

completed Hospital OQR Notice of Participation Form by July 31 of the calendar year 

prior to the affected annual payment update. 

● If a hospital has a Medicare acceptance date on or after January 1 of the year 

prior to the affected annual payment update, the hospital must submit a completed 
CMS-1601-P 491 

participation form no later than 180 days from the date identified as its Medicare 

acceptance date. 

 Hospitals may withdraw from participating in the Hospital OQR Program and the 

procedural requirements for this are unchanged from those adopted in the CY 2012 

OPPS/ASC final rule with comment period (76 FR 77480). We are proposing to codify 

these procedural requirements at § 419.46(b). Under these procedures, a participating 

hospital may withdraw from the Hospital OQR Program by submitting to CMS a 

withdrawal form that can be found in the secure portion of the QualityNet Web site. The 

hospital may withdraw any time from January 1 to November 1 of the year prior to the 

affected annual payment update. A withdrawn hospital will not be able to later sign up to 

participate in that payment update, is subject to a reduced annual payment update as 

specified under § 419.43(h), and is required to submit a new participation form in order 

to participate in any future year of the Hospital OQR Program. 

 We invite public comment on this proposal. 

2. Form, Manner, and Timing of Data Submitted for the Hospital OQR Program 

a. Background 

 We refer readers to the following OPPS/ASC final rules with comment period for 

a history of measures adopted for the Hospital OQR Program, including lists of: 

11 measures finalized for the CY 2011 payment determination (74 FR 60637); 

15 measures finalized for the CY 2012 payment determination (75 FR 72083 through 

72084); 23 measures finalized for the CY 2013 payment determination (75 FR 72090); 

26 measures finalized for the CY 2014 and CY 2015 payment determination 
CMS-1601-P 492 

(76 FR 74469 and 74473) and no additional measures finalized for the CY 2015 payment 

determination (77 FR 68476 through 68478). In the CY 2013 OPPS/ASC final rule with 

comment period, we confirmed the removal of one measure for the CY 2013 payment 

determination and subsequent years (77 FR 68473 through 68474), confirmed the 

suspension of one measure for the CY 2014 payment determination (77 FR 68474 

through 68476), and finalized the deferred data collection for one measure 

(77 FR 68476). 

b. Effects of Proposed Changes on Data Submission for CY 2015 and CY 2016 Payment 

Determinations and Subsequent Years 

 For the CY 2015 payment determination and subsequent years, we are proposing 

to remove OP-19 as discussed in section XIII.C.2.a. of this proposed rule. Effective with 

January 1, 2013 encounters, we previously suspended OP-19 and have not used OP-19 

data to meet requirements for any payment determination under the Hospital OQR 

Program or in public reporting. Therefore, our proposal to remove OP-19 from the 

Hospital OQR Program would not require a participating hospital to take any new action. 

 For the CY 2015 payment determination and subsequent years, we are proposing 

to remove OP-24 from the Hospital OQR program, as discussed in section XIII.C.2.b. of 

this proposed rule. To date, we have not required hospitals to submit data for OP-24. 

Based on this proposal, hospitals would not be required to take any new action; that is, 

they would continue having no requirement to abstract or submit data for OP-24. 

 For the CY 2016 payment determination and subsequent years, in section XIII.E. 

of this proposed rule we are proposing to add five additional measures to the program. 
CMS-1601-P 493 

We would require hospitals to submit data for these measures annually via an online tool 

located on either the NHSN Web site or the QualityNet Web site depending on the 

measure. We discuss proposed data collection for each of these new measures by mode 

of data submission in the following sections of this proposed rule. 

 The proposed new measures are: 

● OP-27: Influenza Vaccination Coverage among Healthcare Personnel; 

● OP-28: Complications within 30 Days Following Cataract Surgery Requiring 

Additional Surgical Procedures; 

● OP-29: Endoscopy/Poly Surveillance: Appropriate follow-up interval for 

normal colonoscopy in average risk patients; 

● OP-30: Endoscopy/Poly Surveillance: Colonoscopy Interval for Patients with a 

History of Adenomatous Polyps – Avoidance of Inappropriate Use; and 

● OP-31: Cataracts – Improvement in Patient’s Visual Function within 90 Days 

Following Cataract Surgery. 

c. General Requirements 

 The proposed Hospital OQR Program procedural requirements are unchanged 

from those discussed and adopted in the CY 2012 OPPS/ASC final rule with comment 

period (76 FR 74480 through 74482). We are proposing to codify the policy that, to be 

eligible to receive the full OPD fee schedule increase factor for any payment 

determination, hospitals that participate in the Hospital OQR Program must submit to 

CMS data on measures selected under section 1833(17)(C) of the Act in a form and 

manner, and at a time specified by CMS. This means that hospitals must comply with 
CMS-1601-P 494 

our submission requirements for chart-abstracted data, population and sampling data, 

claims-based measure data, and Web-based quality measure data. We are proposing to 

codify these general submission requirements at § 419.46(c). 

 Submission deadlines by measure and data type are posted on the QualityNet Web 

site. In general, deadlines for patient-level data submitted directly to CMS would be 

approximately 4 months after the last day of each calendar quarter. For example, the 

submission deadline for data for services furnished during the first quarter of CY 2014 

(January - March 2014) would be on or around August 1, 2014. We are proposing to 

codify language at § 419.46(c)(2) stating our practice of posting actual submission 

deadlines by measure and by data type on the QualityNet Web site 

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

 We are proposing to codify our policies for initial data collection periods and 

submission deadlines for a hospital that did not participate in the previous year’s Hospital 

OQR Program in § 419.46(c)(3) of our regulations. We refer readers to our previously 

finalized policy in the CY 2013 OPPS/ASC final rule with comment period 

(77 FR 68481) to establish data collection and submission requirements for the CY 2014 

payment determination and subsequent years. To determine when a hospital that did not 

participate in a previous year’s payment determination must begin collecting and 

submitting data to meet Hospital OQR Program requirements for a full annual payment 

update, we continue to use the January 1 Medicare acceptance date. If a hospital has a 

Medicare acceptance date before January 1 of the year prior to the affected annual 

payment update, the hospital must collect data beginning with encounters occurring 
CMS-1601-P 495 

during the first calendar quarter of the year prior to the affected annual payment update, 

in addition to submitting a completed Hospital OQR Notice of Participation Form. If a 

hospital has a Medicare acceptance date on or after January 1 of the year prior to the 

affected annual payment update, the hospital must collect data for encounters beginning 

with the first full quarter following submission of the completed Hospital OQR Notice of 

Participation Form. Hospitals with a Medicare acceptance date before or after January 1 

of the year prior to an affected annual payment update must follow data submission 

deadlines as specified on the QualityNet Web site. 

 We invite public comment on these proposals. 

d. Proposed Chart-Abstracted Measure Requirements for the CY 2015 and CY 2016 

Payment Determinations and Subsequent Years 

 The following chart-abstracted measures in the Hospital OQR Program require 

data submission for the CY 2015 payment determination and subsequent years: 

● OP-1: Median Time to Fibrinolysis; 

● OP-2: Fibrinolytic Therapy Received Within 30 Minutes; 

● OP-3: Median Time to Transfer to Another Facility for Acute Coronary 

Intervention; 

● OP-4: Aspirin at Arrival; 

● OP-5: Median Time to ECG; 

● OP-6: Timing of Antibiotic Prophylaxis; 

● OP-7: Prophylactic Antibiotic Selection for Surgical Patients; 
CMS-1601-P 496 

● OP-18: Median Time from ED Arrival to ED Departure for Discharged ED 

Patients; 

● OP-20: Door to Diagnostic Evaluation by a Qualified Medical Professional; 

● OP-21: ED – Median Time to Pain Management for Long Bone Fracture; 

● OP-22: ED Patient Left Without Being Seen; and 

● OP-23: ED – Head CT Scan Results for Acute Ischemic Stroke or Hemorrhagic 

Stroke who Received Head CT Scan Interpretation Within 45 Minutes of Arrival. 

 The form and manner for submission of one of these measures, OP-22: ED 

Patient Left Without Being Seen, is unique, and is detailed in section XV.G.2.f. of the 

CY 2013 OPPS/ASC final rule with comment period (77 FR 68484). As discussed 

above, we are not proposing any new chart-abstracted measures where patient-level data 

is submitted directly to CMS in this proposed rule. 

e. Proposed Claims-Based Measure Data Requirements for the CY 2015 Payment 

Determination and Subsequent Years 

 The table in section XIII.D. of this proposed rule includes measures that the 

Hospital OQR Program collects by accessing electronic Medicare claims data submitted 

by hospitals for reimbursement. 

 We are not proposing new claims-based measures in this proposed rule. 

Therefore, the following 6 claims-based measures will be included for the CY 2015 

payment determination and subsequent years: 

● OP-8: MRI Lumbar Spine for Low Back Pain; 

● OP-9: Mammography Follow-Up Rates; 
CMS-1601-P 497 

● OP-10: Abdomen CT – Use of Contrast Material; 

● OP-11: Thorax CT – Use of Contrast Material; 

● OP-13: Cardiac Imaging for Preoperative Risk Assessment for Non-Cardiac 

Low Risk Surgery; and 

● OP-14: Simultaneous Use of Brain Computed Tomography (CT) and Sinus 

Computed Tomography (CT). 

 We deferred the public reporting of OP-15, a claims-based measure 

(76 FR 74456). We are not proposing any change to this policy. Public reporting for 

OP-15 continues to be deferred, and this deferral has no effect on any payment 

determinations at this time. 

 We will continue our policy of calculating the measures using the hospital’s 

Medicare claims data as specified in the Hospital OQR Specifications Manual; therefore, 

no additional data submission is required for hospitals. In the CY 2012 OPPS/ASC final 

rule with comment period (76 FR 74483), we stated that for the CY 2014 payment 

update, we will use paid Medicare FFS claims for services furnished from 

January 1, 2011 to December 31, 2011. 

 In the CY 2013 OPPS/ASC final rule with comment period (77 FR 68482 through 

68485), for the CY 2015 payment determination, we finalized our proposal to use paid 

Medicare FFS claims for services from a 12 month period from July 1, 2012 through June 

30, 2013 for the calculation of the claims-based measures. This is a departure from the 

traditional 12 month calendar year period we have used for these measures. As stated in 

that final rule with comment period, we adopted this period in order to align the data 
CMS-1601-P 498 

period for inpatient and outpatient claims based measures reported on the Hospital 

Compare Web site, and also to be able to post more recent data for claims-based 

measures on the Web site. Under our policy prior to the CY 2013 final rule, the time 

period would have been January 1, 2011 to December 31, 2011, whereas, under the 

policy finalized in that final rule with comment period, the time period is July 1, 2012 to 

June 30, 2013. 

 For the CY 2016 payment determination and subsequent years, we are proposing 

to continue this approach and to use paid Medicare FFS claims for services from a 

12 month period from July three years before the payment determination through June of 

the next year. For CY 2016, this 12 month period would be from July 1, 2013 through 

June 30, 2014 for the calculation of the claims-based measures. We invite public 

comment on this proposal. 

f. Proposed Data Submission Requirements for Measure Data Submitted via Web-Based 

Tool for the CY 2016 Payment Determination and Subsequent Years 

 In previous rulemaking, we have referred to measures where data are submitted 

via a Web-based tool on a CMS Web site under our quality data reporting programs as 

structural measures (measures concerned with attributes of where care occurs, such as 

material resources, human resources, and organizational structure.10 For example, the 

Hospital OQR Measure OP-12: The Ability for Providers with HIT to Receive 

Laboratory Data Electronically Directly into their ONC-Certified EHR System as 

Discrete Searchable Data is a structural measure. However, because measures where data 

 

10 Maintz, J. Defining and Classifying Clinical Indicators for Quality Improvement, Inter J Quality Health 

Care (2003) 15(6), 523-530). 
CMS-1601-P 499 

is submitted in this manner may or may not be structural, for example, the Hospital IQR 

chart-abstracted, process of care measure PC-01: Elective Delivery Prior to 39 Completed 

Weeks Gestation, we have refined our terminology and now refer to the mode of data 

submission as Web-based. 

 Thus, the previously finalized Web-based measures where data is entered on a 

CMS Web site that we require for the CY 2015 payment determination and subsequent 

years are listed below: 

● OP-12: The Ability for Providers with HIT to Receive Laboratory Data 

Electronically Directly into their Qualified/Certified EHR System as Discrete Searchable 

Data; 

● OP-17: Tracking Clinical Results Between Visits; 

● OP-22: ED Patient Left Without Being Seen; 

● OP 25: Safe Surgery Check List Use; and 

● OP 26: Hospital Outpatient Volume on Selected Outpatient Surgical 

Procedures. 

 In the CY 2013 OPPS/ASC final rule with comment period (77 FR 68483 through 

68484), we finalized that, for the CY 2014 payment determination, hospitals are required 

to submit data on all Web-based measures between July 1, 2013 and November 1, 2013 

with respect to the time period from January 1, 2012 to December 31, 2012. This 

schedule also applies to the encounter periods and deadlines to submit data for 

OP-22: ED Patient Left Without Being Seen. While patient-level data for this measure is 

collected via chart-abstraction, aggregate data is submitted using an online tool. 
CMS-1601-P 500 

 We also finalized in the CY 2013 OPPS/ASC final rule with comment period for 

the CY 2015 payment determination, that hospitals are required to submit data on all 

Web-based measure data between July 1, 2014 and November 1, 2014 with respect to the 

time period from January 1, 2013 to December 31, 2013. 

 We are proposing to apply a similar schedule for the CY 2016 payment 

determination and subsequent years. For the CY 2016 payment determination and 

subsequent years, we are proposing that hospitals would be required to submit data 

between July 1 and November 1 of the year prior to a payment determination with respect 

to the time period of January 1 to December 31 of two years prior to a payment 

determination year. Thus, for example, for the CY 2016 payment determination, 

hospitals would be required to submit data between July 1, 2015 and November 1, 2015 

with respect to the time period of January 1, 2014 to December 31, 2014. 

 We are also proposing to apply the same mode of data collection and deadlines to 

the following proposed measures: 

● OP-28: Complications within 30 days Following Cataract Surgery Requiring 

Additional Surgical Procedures; 

● OP-29: Endoscopy/Poly Surveillance: Appropriate follow-up interval for 

normal colonoscopy in average risk patients; 

● OP-30: Endoscopy/Poly Surveillance: Colonoscopy Interval for Patients with a 

History of Adenomatous Polyps – Avoidance of Inappropriate Use; and 

● OP-31: Cataracts – Improvement in Patient’s Visual Function within 90 Days 

Following Cataract Surgery. 
CMS-1601-P 501 

 Specifically, for data collection, we are proposing that hospitals submit aggregatelevel data through the CMS Web-based tool (the QualityNet Web site). As with OP-22, 

hospitals would submit all the data required for a particular program year once annually 

during the data submission window we are proposing above, and would do so via the 

Outpatient section on the QualityNet secure Web site. While we are proposing 

submission deadlines with an annual frequency, the data input forms on the QualityNet 

Web site for such submission will require hospitals to submit aggregate data represented 

by each separate quarter. We are proposing to both use the Web-based collection tool 

and collect aggregate-level data because we believe these options are less burdensome to 

hospitals than patient-level reporting. 

 While this proposal applies to the CY 2016 payment determination and 

subsequent years, we summarize below, for chart-abstracted measures collected via the 

Web-based tool, the proposed and finalized measures, data collection periods, and 

deadlines for just the CY 2016 payment determination. 

Proposed and Finalized Chart-Abstracted Measures with Data Collection by 

Web-Based Tool: CY 2016 Payment Determination 

Measure Hospital OQR 

Program 

Status 

Encounter Dates Data 

Submission 

Timeframe 

OP-22: ED Patient Left 

Without Being Seen 

Finalized January 1, 2014 – 

December 31, 

2014 

July 1, 2015 – 

November 1, 

2015 

OP-28: Complications within 

30 days Following Cataract 

Surgery Requiring Additional 

Surgical Procedures 

Proposed January 1, 2014 – 

December 31, 

2014 

July 1, 2015 – 

November 1, 

2015 

OP-29: Endoscopy/poly 

Surveillance: Appropriate 

Proposed January 1, 2014 – 

December 31, 

July 1, 2015 – 

November 1, 
CMS-1601-P 502 

Proposed and Finalized Chart-Abstracted Measures with Data Collection by 

Web-Based Tool: CY 2016 Payment Determination 

Measure Hospital OQR 

Program 

Status 

Encounter Dates Data 

Submission 

Timeframe 

follow-up interval for normal 

colonoscopy in average risk 

patients 

2014 2015 

OP-30: Endoscopy/poly 

surveillance: Colonoscopy 

Interval for Patients with a 

History of Adenomatous 

Polyps – Avoidance of 

Inappropriate Use 

Proposed January 1, 2014 – 

December 31, 

2014 

July 1, 2015 – 

November 1, 

2015 

OP-31 -- Cataracts – 

Improvement in Patient’s 

Visual Function within 90 

Days Following Cataract 

Surgery 

Proposed January 1, 2014 – 

December 31, 

2014 

July 1, 2015 – 

November 1, 

2015 

 We recognize that aggregate-level reporting has the potential to result in less 

accurate measure rates than patient-level reporting. However, to reduce burden for 

hospitals, we believe that an aggregate data submission approach is the preferable 

approach at this time. 

 We invite public comment on these proposals. 

g. Proposed Data Submission Requirements for a Measure Reported via NHSN for the 

CY 2016 Payment Determination and Subsequent Years 

 As discussed above, we are proposing to add the measure OP-27: Influenza 

Vaccination Coverage among Healthcare Personnel to the Hospital OQR Program 

measure set. We are also proposing to use the data submission and reporting standard 

procedures set forth by CDC for NHSN participation in general and for submission of 

this measure to NHSN. We refer readers to the CDC’s NHSN Web site 
CMS-1601-P 503 

(http://www.cdc.gov/nhsn) for detailed data submission and reporting procedures. We 

believe that these procedures are feasible because they are already widely used by over 

4,000 hospitals reporting HAI data using NHSN. Our proposal seeks to reduce hospital 

burden by aligning our data submission and reporting procedures with NHSN procedures 

currently used by hospitals who participate in the reporting requirements for the Hospital 

IQR Program as well as hospitals in the 30 States and the District of Columbia that 

mandate HAI reporting via NHSN. 

 We are proposing to adopt the NHSN HAI measure data collection timeframe of 

October 1 through March 31st, as previously finalized in the Hospital IQR Program 

(76 FR 51631 through 51633), which links data collection to the time period in which 

influenza vaccinations are administered during the influenza season. Because data for 

this measure would be collected seasonally, we are proposing that hospitals submit their 

data for this measure to NHSN for purposes of the Hospital OQR Program by May 15th 

of the calendar year in which the vaccination season has ended. For example, for 

vaccinations given from October 1, 2014 (or when the vaccine becomes available) to 

March 31, 2015, the submission deadline would be May 15, 2015. This data submission 

deadline for this measure corresponds to that proposed by the Hospital IQR Program (78 

FR 27700). 

 We invite public comment on these proposals. 
CMS-1601-P 504 

h. Population and Sampling Data Requirements for the CY 2015 Payment Determination 

and Subsequent Years 

 In the CY 2013 OPPS/ASC final rule with comment period (77 FR 68484), for 

the CY 2014 payment determination and subsequent years, we continued our policy that 

hospitals may submit voluntarily on a quarterly basis, aggregate population and sample 

size counts for Medicare and non-Medicare encounters for the measure populations for 

which chart-abstracted data must be submitted, but they will not be required to do so. 

Where hospitals do choose to submit this data, the deadlines for submission are the same 

as those for reporting data for chart-abstracted measures, and hospitals may also choose 

to submit data prior to these deadlines. The deadline schedule is available on the 

QualityNet Web site. We refer readers to the CY 2011 OPPS/ASC final rule with 

comment period (75 FR 72101 through 72103) and the CY 2012 OPPS/ASC final rule 

with comment period (76 FR 74482 through 74483) for discussions of these policies.

 We are not proposing any changes to this policy. 

3. Hospital OQR Program Validation Requirements for Chart-Abstracted Measure Data 

Submitted Directly to CMS for the CY 2015 Payment Determination and Subsequent 

Years 

a. Selection of Hospitals for Data Validation of Chart-Abstracted Measures for the 

CY 2015 Payment Determination and Subsequent Years 

 We refer readers to the CY 2012 and CY 2013 OPPS/ASC final rules with 

comment period (76 FR 74484 through 74487 and 77 FR 68484 through 68487) for a 

discussion of finalized policies regarding our sampling methodology, including sample 
CMS-1601-P 505 

size, eligibility for validation selection, and encounter minimums for patient-level data 

for measures where data is obtained from chart abstraction and submitted directly to 

CMS from selected hospitals. We are not proposing any changes to these policies. 

 We are, however, proposing to codify at § 419.46(e) of our regulations the 

existing policy that we may validate one or more measures selected under section 

1833(17)(C) of the Act by reviewing documentation of patient encounters submitted by 

selected participating hospitals. Upon written request, a hospital must submit to CMS or 

its contractor supporting medical record documentation that the hospital used for 

purposes of data submission under the program. The specific sample that a hospital must 

submit will be identified in the written request. A hospital must submit the supporting 

medical record documentation to CMS or its contractor within 45 days of the date 

identified on the written request, in the form and manner specified in the written request. 

A hospital meets the validation requirement with respect to a fiscal year if it achieves at 

least a 75-percent reliability score, as determined by CMS. 

 We invite public comment on our proposal to codify these requirements. 

b. Targeting Criteria for Data Validation Selection for the CY 2015 Payment 

Determination and Subsequent Years 

 We refer readers to the CY 2013 OPPS/ASC final rule with comment period 

(77 FR 68485 through 68486) for a discussion of our targeting criteria. We are not 

proposing any changes to this policy. 
CMS-1601-P 506 

c. Methodology for Encounter Selection for the CY 2015 Payment Determination and 

Subsequent Years 

 We refer readers to the CY 2013 OPPS/ASC final rule with comment period 

(77 FR 68486) for a discussion of our methodology for encounter selection. We are not 

proposing any changes to this policy. 

d. Medical Record Documentation Requests for Validation and Validation Score 

Calculation for the CY 2015 Payment Determination and Subsequent Years 

 We refer readers to the CY 2013 OPPS/ASC final rule with comment period 

(77 FR 68486 through 68487) for a discussion of our procedures for requesting medical 

record documentation for validation and validation score calculation. We are not 

proposing any changes to our procedures regarding medical record requests. 

 However, we are proposing to codify these procedures at §§ 419.46(e)(1) and 

(e)(2) as summarized below: 

● CMS may validate one or more measures selected under section 1833(17)(C) 

of the Act by reviewing documentation of patient encounters submitted by selected 

participating hospitals. 

● Upon written request by CMS or its contractor, a hospital must submit to CMS 

supporting medical record documentation that the hospital used for purposes of data 

submission under the program. The specific sample that a hospital must submit will be 

identified in the written request. A hospital must submit the supporting medical record 

documentation to CMS or its contractor within 45 days of the date identified on the 

written request, in the form and manner specified in the written request. 
CMS-1601-P 507 

● A hospital meets the validation requirement with respect to a fiscal year if it 

achieves at least a 75-percent reliability score, as determined by CMS. 

 We invite public comment on our proposal to codify these procedures. 

I. Proposed Hospital OQR Reconsideration and Appeals Procedures for the CY 2015 

Payment Determination and Subsequent Years

 We refer readers to the CY 2013 OPPS/ASC final rule with comment period 

(77 FR 68487) for a discussion of our reconsideration and appeals procedures. We are 

proposing one change to the reconsideration request procedures to ensure our deadline for 

reconsideration requests will always fall on a business day. We also are proposing to 

codify the process, including our proposal to change the deadline by which participating 

hospitals may submit requests for reconsideration at § 419.46(f) of our regulations. 

 Under the proposed change to our procedures, a hospital seeking reconsideration 

would submit to CMS, via the QualityNet Web site, a Reconsideration Request form that 

will be made available on the QualityNet Web site. Where we have required that this 

form must be submitted by February 3 of the affected payment year (for example, for the 

CY 2014 payment determination, the request was required to be submitted by February 

3, 2014), we are proposing to modify this requirement so that the Reconsideration 

Request form would be required to be submitted on the first business day in February of 

the affected payment year. If this proposal is finalized, the Reconsideration Request form 

for the CY 2014 payment determination would be required on February 3, 2014, which is 

a Monday, and the form for the CY 2015 payment determination would be required on 

February 2, 2015, which is also a Monday. We note that while we use the CY 2014 and 
CMS-1601-P 508 

2015 payment determinations as examples, we are proposing this policy for the CY 2014 

payment determination and subsequent years. The other requirements of the form would 

remain unchanged. We request public comment on this proposal. 

 We also are proposing to codify this process by which participating hospitals may 

submit requests for reconsideration including our proposal to change the reconsideration 

request deadline at § 419.46(f). Under these proposed procedures, the hospital must 

submit to CMS via QualityNet, a reconsideration request via the QualityNet Web site, no 

later than the first business day of the month of February of the affected year containing 

the following information: 

● The hospital’s CMS Certification Number (CCN); 

● The name of the hospital; 

● The CMS-identified reason for not meeting the requirements of the affected 

payment year’s Hospital OQR Program as provided in any CMS notification to the 

hospital; 

● The hospital’s basis for requesting reconsideration. The hospital must identify 

its specific reason(s) for believing it should not be subject to the reduced annual payment 

update; 

● The hospital-designated personnel contact information, including name, e-mail 

address, telephone number, and mailing address (must include physical address, not just a 

post office box). 

● The hospital-designated personnel’s signature; 
CMS-1601-P 509 

● A copy of all materials that the hospital submitted to comply with the 

requirements of the affected Hospital OQR Program payment determination year; and 

● If the hospital is requesting reconsideration on the basis that CMS has 

determined it did not meet an affected payment determination year’s validation 

requirement set forth in paragraph (e)(1) of this section, the hospital must provide a 

written justification for each appealed data element classified during the validation 

process as a mismatch. Only data elements that affect a hospital’s validation score are 

eligible to be reconsidered. 

 We also are proposing to codify language at § 419.46(f)(3) stating that a hospital 

that is dissatisfied with a decision made by CMS on its reconsideration request may file 

an appeal with the Provider Reimbursement Review Board. 

 While we are not proposing to codify the following process, we note that, after 

receiving a request for reconsideration, CMS-- 

● Provides an e-mail acknowledgement, using the contact information provided 

in the reconsideration request, to the designated hospital personnel notifying them that 

the hospital’s request has been received. 

● Provides a formal response to the hospital-designated personnel, using the 

contact information provided in the reconsideration request, notifying the hospital of the 

outcome of the reconsideration process. 

● Applies policies regarding the scope of our review when a hospital requests 

reconsideration because it failed our validation requirement. 

 These policies are as follows: 
CMS-1601-P 510 

● If a hospital requests reconsideration on the basis that it disagrees with a 

determination that one or more data elements were classified as mismatches, we only 

consider the hospital’s request if the hospital timely submitted all requested medical 

record documentation to the CMS contractor each quarter under the validation process. 

● If a hospital requests reconsideration on the basis that it disagrees with a 

determination that one or more of the complete medical records it submitted during the 

quarterly validation process was classified as an invalid record selection (that is, the CMS 

contractor determined that one or more of the complete medical records submitted by the 

hospital did not match what was requested), thus resulting in a zero validation score for 

the encounter(s), our review is initially limited. We will review only to determine 

whether the medical documentation submitted in response to the designated CMS 

contractor’s request was the correct and complete documentation. If we determine that 

the hospital did submit correct and complete medical documentation, we abstract the data 

elements and compute a new validation score for the encounter. If we conclude that the 

hospital did not submit correct and complete medical record documentation, we do not 

further consider the hospital’s request. 

● If a hospital requests reconsideration on the basis that it disagrees with a 

determination that it did not submit the requested medical record documentation to the 

CMS contractor within the proposed 30 calendar day timeframe, our review is initially 

limited to determining whether the CMS contractor received the requested medical record 

documentation within 30 calendar days, and whether the hospital received the initial 

medical record request and reminder notice. If we determine that the CMS contractor 
CMS-1601-P 511 

timely received copies of the requested medical record documentation, we abstract data 

elements from the medical record documentation submitted by the hospital and compute 

a validation score for the hospital. If we determine that the hospital received two letters 

requesting medical documentation but did not submit the requested documentation within 

the 30 calendar day period, we do not further consider the hospital’s request. 

 If a hospital is dissatisfied with the result of a Hospital OQR reconsideration 

decision, the hospital is able to file an appeal under 42 CFR Part 405, Subpart R (PRRB 

appeal). 

 We invite public comment on these proposals. 

J. Extraordinary Circumstances Extension or Waiver for the CY 2014 Payment 

Determination and Subsequent Years

 In our experience, there have been times when facilities have been unable to 

submit information to meet program requirements due to extraordinary circumstances 

that are not within their control. It is our goal to not penalize such entities for such 

circumstances and we do not want to unduly increase their burden during these times. 

We refer readers to the CY 2013 OPPS/ASC final rule with comment period 

(77 FR 68489) for a complete discussion of our extraordinary circumstances extension or 

waiver process under the Hospital OQR Program. 

 We are proposing one change to our process for hospitals to request and for CMS 

to grant extensions or waivers with respect to the reporting of required quality data when 

there are extraordinary circumstances beyond the control of the hospital. Specifically, we 

are proposing that we may grant a waiver or extension to hospitals if we determine that a 
CMS-1601-P 512 

systemic problem with one of our data collection systems directly or indirectly affected 

the ability of hospitals to submit data. Because we do not anticipate that such systemic 

errors will happen often, we do not anticipate granting a waiver or extension on this basis 

frequently. 

 We also are proposing to codify language for the general requirements for our 

extension or waiver process including the proposal for systemic errors at § 419.46(d) as 

described below: 

 CMS may grant an extension or waiver of one or more data submission deadlines 

and requirements in the event of extraordinary circumstances beyond the control of the 

hospital such as when an act of nature affects an entire region or locale or a systemic 

problem with one of CMS’ data collection systems directly or indirectly affects data 

submission. CMS may grant an extension or waiver as follows: 

● Upon request by the hospital. Specific requirements for submission of a 

request for an extension or waiver are available on the QualityNet Web site. 

● At the discretion of CMS. CMS may grant waivers or extensions to hospitals 

that have not requested them when CMS determines that an extraordinary circumstance 

has occurred. 

For the hospital to request consideration for an extension or waiver of the 

requirement to submit quality data or medical record documentation for one or more 

quarters, a hospital would follow specific requirements for submission of a request 

available on QualityNet. While we are not proposing to codify the following process, we 

note that, the following information must appear on the request form: 
CMS-1601-P 513 

● Hospital CCN; 

● Hospital Name; 

● CEO or other hospital-designated personnel contact information, including 

name, e-mail address, telephone number, and mailing address (must include a physical 

address, a post office box address is not acceptable); 

● Hospital’s reason for requesting an extension or waiver; 

● Evidence of the impact of the extraordinary circumstances, including but not 

limited to photographs, newspaper and other media articles; and 

● A date when the hospital believes it would again be able to submit Hospital 

OQR data and/or medical record documentation, and a justification for the proposed date. 

 The request form must be signed by the hospital’s designated contact, whether or 

not that individual is the CEO. A request form is required to be submitted within 45 days 

of the date that the extraordinary circumstance occurred. 

 Following receipt of such a request, CMS would— 

 (1) Provide an e-mail acknowledgement using the contact information provided 

in the request notifying the designated contact that the hospital’s request has been 

received; 

 (2) Provide a formal response to the hospital’s designated contact using the 

contact information provided in the request notifying them of our decision; and 

 (3) Complete our review and communicate our response within 90 days 

following our receipt of such a request. 
CMS-1601-P 514 

 We can also grant waivers or extensions to hospitals that have not requested them 

when we determine that an extraordinary circumstance, such as when an act of nature (for 

example, hurricane) affects an entire region or locale or a systemic problem with one of 

our data collection systems directly or indirectly affects data submission. If we make the 

determination to grant a waiver or extension to hospitals in a region or locale, we would 

communicate this decision to hospitals and vendors through routine communication 

channels, including but not limited to e-mails and notices on the QualityNet Web site. 

 We invite public comment on these proposals. 

XIV. Hospital Value-Based Purchasing (VBP) Program Updates 

A. Background

 Section 1886(o) of the Act, as added by section 3001(a)(1) of the Affordable Care 

Act, requires the Secretary to establish a hospital value-based purchasing program (the 

Hospital Value-Based Purchasing (VBP) Program) under which value-based incentive 

payments are made in a fiscal year to hospitals that meet performance standards 

established for a performance period for such fiscal year. Both the performance 

standards and the performance period for a fiscal year are to be established by the 

Secretary. 

B. Proposal for Additional CMS Appeals Review Process

1. Statutory Basis 

 Section 1886(o)(11)(A) of the Act requires the Secretary to establish a process by 

which hospitals may appeal the calculation of a hospital’s performance assessment with 
CMS-1601-P 515 

respect to the performance standards (section 1886(o)(3)(A) of the Act) and the hospital 

performance score (section 1886(o)(5) of the Act). 

 Under section 1886(o)(11)(B) of the Act, there is no administrative or judicial 

review under section 1869 of the Act, section 1878 of the Act, or otherwise of the 

following: (1) the methodology used to determine the amount of the value-based 

incentive payment under section 1886(o)(6) of the Act and the determination of such 

amount; (2) the determination of the amount of funding available for the value-based 

incentive payments under section 1886(o)(7)(A) of the Act and the payment reduction 

under section 1886(o)(7)(B)(i) of the Act; (3) the establishment of the performance 

standards under section 1886(o)(3) of the Act and the performance period under section 

1886(o)(4) of the Act; (4) the measures specified under section 1886(b)(3)(B)(viii) of the 

Act and the measures selected under section 1886(o)(2) of the Act; (5) the methodology 

developed under section 1886(o)(5) of the Act that is used to calculate hospital 

performance scores and the calculation of such scores; or (6) the validation methodology 

specified in section 1886(b)(3)(B)(XI) of the Act. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53581), we finalized an 

administrative appeals process and codified that process at 42 CFR 412.167. 

2. Independent CMS Review Proposal 

 In this proposed rule, for the Hospital VBP Program, we are proposing to 

implement an independent CMS review that will be an additional appeal process 

available to the hospitals, beyond the existing review and corrections process 

(77 FR 53578 through 53581 and 76 FR 74544 through 74547) and appeal process 
CMS-1601-P 516 

codified at 42 CFR 412.167. We are proposing that a hospital would be able to request 

this additional independent CMS review only if it first completes the appeal process at 

42 CFR 412.167(b) and is dissatisfied with the result. We believe that our proposal to 

require hospitals to complete the existing appeal process at 42 CFR 412.167(b) before 

they can request an additional independent CMS review will facilitate the efficient 

resolution of many disputed issues, thus decreasing the number of independent CMS 

reviews that are requested. We intend to provide hospitals with our independent review 

decision within 90 calendar days following the receipt of a hospital’s independent review 

request. We also are proposing to codify this policy in our regulations at 

42 CFR 412.167 by redesignating the existing paragraph (c) as paragraph (d), and 

inserting a new paragraph (c). We are inviting public comments on these proposals. 

C. Proposed Performance and Baseline Periods for Certain Outcome Measures for the 

FY 2016 Hospital VBP Program

 As described in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27610 

through 27611), we have proposed to adopt CLABSI, CAUTI, and SSI, which are 

measures reported to CDC’s National Healthcare Safety Network (NHSN), for the 

FY 2016 Hospital VBP Program. However, when we published that proposed rule, we 

inadvertently did not make FY 2016 performance and baseline period proposals for these 

proposed measures. We are proposing to adopt FY 2016 performance and baseline 

periods for these measures in this proposed rule so that we have enough time to consider 

and respond to public comments before the proposed start of the performance periods. 
CMS-1601-P 517 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53597 through 53598), we 

finalized an 11-month performance period for the CLABSI measure for the FY 2015 

Hospital VBP Program (February 1, 2013 through December 31, 2013), with a 

corresponding baseline period of January 1, 2011 through December 31, 2011. While we 

adopted an 11-month performance period for the CLABSI measure for FY 2015 based on 

its posting date on the Hospital Compare Web site, beginning with FY 2016, we are 

proposing to align the NHSN measures’ performance and baseline periods with other 

domains’ performance and baseline periods, where possible, and with the calendar year. 

As we have stated with regard to other domains, a 12-month performance period provides 

us more data on which to score hospital performance, which is an important goal both for 

CMS and for stakeholders. 

 Therefore, we are proposing to adopt CY 2014 (January 1, 2014 through 

December 31, 2014) as the performance period for the CLABSI, CAUTI, and SSI 

measures for the FY 2016 Hospital VBP Program, with CY 2012 (January 1, 2012 

through December 31, 2012) as the baseline period. We are inviting public comments on 

these proposals. 

 The proposed performance and baseline periods for the CAUTI, CLABSI, and 

SSI measures for the FY 2016 Hospital VBP Program appear in the following table. 
CMS-1601-P 518 

Proposed Performance and Baseline Periods for CAUTI/CLABSI/SSI 

 under the FY 2016 Hospital VBP Program 

Domain Baseline Period Performance Period 

Outcome 

• CAUTI / 

CLABSI / SSI 

• January 1, 2012 – 

December 31, 2012 

• January 1, 2014 – 

December 31, 2014 

XV. Proposed Requirements for the Ambulatory Surgical Center Quality 

Reporting (ASCQR) Program 

A. Background

1. Overview 

 We refer readers to section XIII.A.1. of this proposed rule for a general overview 

of our quality reporting programs. 

2. Statutory History of the ASC Quality Reporting (ASCQR) Program 

 We refer readers to section XIV.K.1. of the CY 2012 OPPS/ASC final rule with 

comment period (76 FR 74492 through 74493) for a detailed discussion of the statutory 

history of the ASCQR Program. 

3. Regulatory History of the ASCQR Program 

 In the CY 2008 OPPS/ASC final rule with comment period (72 FR 66875), the 

CY 2009 OPPS/ASC final rule with comment period (73 FR 68780), the CY 2010 

OPPS/ASC final rule with comment period (74 FR 60656), and the CY 2011 OPPS/ASC 

final rule with comment period (75 FR 72109), we did not implement a quality data 

reporting program for ASCs. We determined that it would be more appropriate to allow 

ASCs to acquire some experience with the revised ASC payment system, which was 

implemented for CY 2008, before implementing new quality reporting requirements. 
CMS-1601-P 519 

However, in these rules, we indicated that we intended to implement a quality reporting 

program for ASCs in the future. In preparation for proposing a quality reporting program 

for ASCs, in the CY 2011 OPPS/ASC proposed rule (75 FR 46383), we solicited public 

comment on 10 measures. 

 In addition to CMS preparing to propose implementation of a quality reporting 

program for ASCs, HHS developed a plan to implement a value-based purchasing (VBP) 

program for payments under title XVIII of the Act for ASCs, and submitted a report to 

Congress entitled “Medicare Ambulatory Surgical Center Value-Based Purchasing 

Implementation Plan” that details this plan. The plan and the report to Congress were 

required under section 3006(f) of the Affordable Care Act as added by section 10301(a) 

of the Affordable Care Act. The report is found on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/ASCPayment/Downloads/C_ASC_RTC-2011.pdf. Currently, we do not have 

express statutory authority to implement an ASC VBP program. 

 In the CY 2012 OPPS/ASC final rule with comment period (76 FR 74492 through 

74517), we finalized our proposal to implement the ASCQR Program beginning with the 

CY 2014 payment determination. We adopted quality measures for the CY 2014, 

CY 2015, and CY 2016 payment determinations and subsequent years, and finalized 

some data collection and reporting timeframes for these measures. We also adopted 

policies with respect to the maintenance of technical specifications and the updating of 

measures, publication of ASCQR Program data, and, for the CY 2014 payment 

determination, data collection and submission requirements for the claims-based 
CMS-1601-P 520 

measures. For a discussion of these final policies, we refer readers to the CY 2012 

OPPS/ASC final rule with comment period (76 FR 74492 through 74517). 

 In the CY 2012 OPPS/ASC final rule with comment period (76 FR 74515), we 

indicated our intent to issue proposals for administrative requirements, data validation 

and completeness requirements, and reconsideration and appeals processes in the 

FY 2013 IPPS/LTCH PPS proposed rule, rather than in the CY 2013 OPPS/ASC 

proposed rule, because the FY 2013 IPPS/LTCH PPS proposed rule was scheduled to be 

finalized earlier and prior to data collection for the CY 2014 payment determination, 

which was to begin with services furnished on October 1, 2012. In the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53636 through 53644), we issued final policies for 

administrative requirements, data completeness requirements, extraordinary 

circumstances waiver or extension requests, and a reconsideration process. For a 

complete discussion of these policies, we refer readers to the FY 2013 IPPS/LTCH PPS 

final rule. 

 In the CY 2013 OPPS/ASC final rule with comment period (77 FR 68492 through 

68500), we issued final policies regarding our approach to selecting quality measures, 

reporting requirements, and payment reductions for ASCs that fail to meet the ASCQR 

Program requirements. 
CMS-1601-P 521 

B. ASCQR Program Quality Measures

1. Considerations in the Selection of ASCQR Program Quality Measures 

 We refer readers to the CY 2013 OPPS/ASC final rule with comment period 

(77 FR 68493 through 68494) for a detailed discussion of the considerations we use for 

the selection of ASCQR Program quality measures. 

2. ASCQR Program Quality Measures Adopted in Previous Rulemaking 

 In the CY 2012 OPPS/ASC final rule with comment period (76 FR 74492 through 

74517), we finalized our proposal to implement the ASCQR Program beginning with the 

CY 2014 payment determination and adopted measures for the CY 2014, CY 2015, and 

CY 2016 payment determinations. In an effort to streamline the rulemaking process, we 

also finalized our policy that, when we adopt measures for the ASCQR Program, these 

measures are automatically adopted for all subsequent years payment determinations 

unless we propose to remove, suspend, or replace the measures (76 FR 74494, 74504, 

74509, and 74510). 

 The quality measures that we have previously adopted are listed below. 

ASC Program Measurement Set Adopted in Previous Rulemaking 

ASC-1: Patient Burn* 

ASC-2: Patient Fall* 

ASC-3: Wrong Site, Wrong Side, Wrong Patient, Wrong Procedure, Wrong Implant* 

ASC-4: Hospital Transfer/Admission* 

ASC-5: Prophylactic Intravenous (IV) Antibiotic Timing* 

ASC-6: Safe Surgery Checklist Use** 
CMS-1601-P 522 

ASC Program Measurement Set Adopted in Previous Rulemaking 

ASC-7: ASC Facility Volume Data on Selected ASC Surgical Procedures** 

Procedure categories and corresponding HCPCS codes are located at: 

http://qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier2&cid=12

ASC- 8: Influenza Vaccination Coverage among Healthcare Personnel *** 

*New measure for the CY 2014 payment determination. 

** New measure for the CY 2015 payment determination. 

***New measure for the CY 2016 payment determination. 

3. Proposed Additional ASCQR Program Quality Measures for the CY 2016 Payment 

Determination and Subsequent Years 

 We are proposing quality measures for the CY 2016 payment determination and 

subsequent years based on our approach for future measure selection and development 

finalized in the CY 2013 OPPS/ASC final rule with comment period (77 FR 68493 

through 68494), which includes, among other considerations, aligning the ASCQR 

Program measures with our efforts in other clinical care settings and taking into account 

the views of the MAP. 

 We believe that ASCs and HOPDs are similar in their delivery of surgical and 

related nonsurgical services. Therefore, we seek to propose quality measures that can be 

applied to both HOPDs and ASCs to the extent possible because many of the same 

surgical procedures are performed in both of these settings. Measure harmonization 

assures that quality of care for similar services is measured in a comparable manner 

across settings. This approach would provide meaningful information for Medicare 

beneficiaries to make informed decisions. 

 Section 3014 of the Affordable Care Act added section 1890A of the Act establishing 

a pre-rulemaking process, which, among other steps, requires the Secretary to take into 
CMS-1601-P 523 

consideration the input from multi-stakeholder groups in selecting certain categories of 

quality and efficiency measures described in section 1890(b)(7)(B) of the Act. As part of 

the pre-rulemaking process, the consensus-based entity that CMS must contract with 

under section 1890 of the Act (currently NQF), convened the multi-stakeholder groups, 

referred to as the MAP. The MAP is a public-private partnership created for the primary 

purpose of providing input to HHS on the selection of the categories of measures in 

section 1890(b)(7)(B), which includes measures for use in certain specific Medicare 

programs, measures for use in reporting performance information to the public, and 

measures for use in health care programs other than for use under the Act. 

 After we selected quality measures that we might propose for the ASCQR Program based 

on our established policies regarding the approach to selecting quality measures in CY 2013 

OPPS/ASC final rule with comment period (77 FR 68493 through 68494), we included the 

measures in a publicly available document entitled “List of Measures Under Consideration for 

December 1, 2012” in compliance with section 1890A(a)(2) of the Act, and they were reviewed 

by the MAP in its “MAP Pre-Rulemaking Report: 2013 Recommendations on Measures Under 

Consideration by HHS,” which has been made available on the NQF Web site at: 

http://www.qualityforum.org/Publications/2013/02/MAP_Pre-Rulemaking_Report_-

_February_2013.aspx. We considered the input and recommendations provided by the MAP in 

selecting measures to propose for the ASCQR Program. 

 In addition, in its 2013 Pre-Rulemaking Report, the MAP also supports: 

(1) HHS’ efforts to move toward greater alignment across the Hospital OQR and ASCQR 

Programs; and (2) the inclusion of ASCs within a broader approach to measuring 

performance and improving care that is aligned across health care settings (page 35, MAP 
CMS-1601-P 524 

Pre-Rulemaking Report: 2013 Recommendations on Measures Under Consideration by 

HHS). 

 For the CY 2016 payment determination and subsequent years, we are proposing 

to adopt four measures for the ASCQR Program, all of which were reviewed by the MAP 

and three of which are NQF-endorsed for the ASC setting: (a) Complications within 30 

Days following Cataract Surgery Requiring Additional Surgical Procedures; 

(b) Endoscopy/Poly Surveillance: Appropriate follow-up interval for normal colonoscopy 

in average risk patients (NQF #0658); (c) Endoscopy/Poly Surveillance: Colonoscopy 

Interval for Patients with a History of Adenomatous Polyps – Avoidance of Inappropriate 

Use (NQF #0659); and (d) Cataracts: Improvement in Patient’s Visual Function within 90 

Days Following Cataract Surgery (NQF #1536). 

 For purposes of the ASCQR Program, sections 1833(i)(7)(B) and 

1833(t)(17)(C)(i) of the Act, read together, require the Secretary, except as the Secretary 

may otherwise provide, to develop measures appropriate for the measurement of the 

quality of care (including medication errors) furnished by ASCs, that reflect consensus 

among affected parties and, to the extent feasible and practicable, that include measures 

set forth by one or more national consensus building entities. As stated in the CY 2012 

OPPS/ASC final rule with comment period (76 FR 74465 and 74505), we believe that 

consensus among affected parties can be reflected through means other than NQF 

endorsement, including consensus achieved during the measure development process; 

consensus shown through broad acceptance and use of measures; and consensus through 

public comment. The proposed measures are described in greater detail below. 
CMS-1601-P 525 

 We are proposing that data collection for these four measures would begin in 

CY 2014. We refer readers to section XV.D. of this proposed rule for detailed discussion 

of data collection and submission time frames. We are proposing to collect aggregate 

data (numerators, denominators, and exclusions) on all ASC patients for these four 

proposed chart-abstracted measures via an online Web-based tool that would be made 

available to ASCs via the QualityNet Web site. This online Web-based tool is currently 

in use in the ASCQR Program to collect measure information for ASC-6 (Safe Surgery 

Checklist Use) and ASC-7 (ASC Facility Volume Data on Selected ASC Surgical 

Procedures). We invite public comment on these proposals. More information regarding 

this proposed method of collection is provided in section XV.D.5.c. of this proposed rule. 

 To advance our efforts to collect high quality data on all ASC patients for the 

ASCQR measures while minimizing burden for ASCs, we also seek public comment on 

alternative data collection strategies for these four proposed measures. In particular, we 

seek comment on collection of patient-level data through registries or other third party 

data aggregators, and via certified EHR technology, along with the potential timing for 

doing so. 

a. Complications within 30 Days Following Cataract Surgery Requiring Additional 

Surgical Procedures 

 It is uncommon to have complications that may result in a permanent loss of 

vision following cataract surgery. Cataract surgery has become safer and more effective 

due to advances in technology and surgical skills over the last 30 years. Based on an 

analysis of Managed Care Organization data, it is estimated that the annual volume for 
CMS-1601-P 526 

cataract surgeries is 2.8 million in the U.S with the rate of cataract surgery complications 

being 1 to 2 percent. However, with an annual volume of 2.8 million cataract surgeries in 

the United States, a 2 percent rate is significant and translates to over 36,000 surgeries 

associated with complications.11

 Thus, for the CY 2016 payment determination and subsequent years, we are 

proposing to adopt the Complications within 30 Days Following Cataract Surgery 

Requiring Additional Surgical Procedures measure, which assesses the “[p]ercentage of 

patients aged 18 years and older with a diagnosis of uncomplicated cataract who had 

cataract surgery and had any of a specified list of surgical procedures in the 30 days 

following cataract surgery which would indicate the occurrence of any of the following 

major complications: retained nuclear fragments, endophthalmitis, dislocated or wrong 

power IOL retinal detachment, or wound dehiscence.” This outcome measure seeks to 

identify those complications from surgery that can reasonably be attributed to the 

surgery. It focuses on patient safety and monitoring for events that, while uncommon, 

can signify important issues in the care being provided. The numerator for this measure 

is the number of “[p]atients who had one or more specified operative procedures for any 

of the following major complications within 30 days following cataract surgery: retained 

nuclear fragments, endophthalmitis, dislocated or wrong power IOL, retinal detachment, 

or wound dehiscence.” The denominator for this measure is the total number of 

“[p]atients aged 18 years and older who had cataract surgery and no significant preoperative ocular conditions impacting the surgical complication rate.” This measure 

 

11 National Quality Measures Clearing House. Agency for Healthcare Research and Quality. Available at 

http://qualitymeasures.ahrq.gov/content.aspx?id=27981&search=complications+within+30+days+followin

g+cataract+surgery.
CMS-1601-P 527 

excludes “[p]atients with certain comorbid conditions impacting the surgical 

complication rate.” The measure specifications can be found at: 

http://www.qualityforum.org/QPS/0564. This measure has been endorsed by NQF for 

the “Ambulatory Care: Clinic” setting (NQF #0564) but, currently, is not NQF-endorsed 

for the ASC setting. 

 We believe this measure meets the statutory requirements discussed above. This 

measure is not NQF-endorsed in the ASC setting and we could not find any other 

comparable measure that is specifically endorsed for the ASC setting. However, we 

believe that this measure is appropriate for the measurement of quality of care furnished 

by ASCs because this procedure is commonly performed in ASCs and, as discussed 

above, can signify important issues in the care being provided in ASCs. Further, this 

measure reflects consensus among affected parties as it has been endorsed by NQF for 

the “Ambulatory Care: Clinic” setting. We believe that this consensus also applies to the 

same surgeries that are performed in other ambulatory settings, such as ASCs and 

HOPDs. Given the high volume of cataract surgeries performed in ambulatory care 

settings and the potential 2 percent complication rate, we believe it is important for us to 

include this measure in the ASCQR Program measure set, and that this is an appropriate 

application of NQF #0564 to the ASC setting. 

 We note that section 1833(t)(17) of the Act does not require that each measure we 

adopt be endorsed by a national consensus building entity. Further, section 1833(i)(7)(B) 

of the Act states that section 1833(t)(17) of the Act applies to the ASCQR program, 

except as the Secretary may otherwise provide. Under this provision, the Secretary has 
CMS-1601-P 528 

further authority to adopt non-endorsed measures. In its 2013 Pre-Rulemaking Report, 

the MAP supported inclusion of this measure in the ASCQR Program and noted that this 

measure “[a]ddresses a high impact condition not adequately addressed in the program 

measure set.” Currently, the NQF endorsement for this measure is time-limited. 

 We invite public comment on this proposal.

b. Endoscopy/Poly Surveillance: Appropriate Follow-Up Interval for Normal 

Colonoscopy in Average Risk Patients (NQF #0658) 

 The American Cancer Society’s current guidelines recommend colonoscopy 

screening at 10-year intervals12 for the average risk population

(http://www.cancer.org/cancer/colonandrectumcancer/moreinformation/colonandrectumc

ancerearlydetection/colorectal-cancer-early-detection-acs-recommendations). 

 For the CY 2016 payment and subsequent years, we are proposing to adopt the 

Endoscopy/Poly Surveillance: Appropriate follow-up interval for normal colonoscopy in 

average risk patients measure, which assesses the “[p]ercentage of patients aged 50 years 

and older receiving screening colonoscopy without biopsy or polypectomy who had a 

recommended follow-up interval of at least 10 years for repeat colonoscopy documented 

in their colonoscopy report.” Performing colonoscopy too frequently increases a 

patients’ exposure to procedural harm. This measure aims to assess whether average risk 

patients with normal colonoscopies receive a recommendation to receive a repeat 

colonoscopy in an interval that is less than the recommended amount of 10 years. This 

 

12 Davila RE, Rajan E, Baron TH, Adler DG, Egan JV, Faigel DO, Gan SI, Hirota WK, Leighton JA, 

Lichtenstein D, Qureshi WA, Shen B, Zuckerman MJ, VanGuilder T, Fanelli RD, Standards of Practice 

Committee, American Society for Gastrointestinal Endoscopy. ASGE guideline: colorectal cancer 

screening and surveillance. Gastrointest Endosc 2006 Apr;63(4):546-57.

http://www.ncbi.nlm.nih.gov/pubmed/16564851?dopt=Abstract.
CMS-1601-P 529 

measure is NQF-endorsed for the ASC setting. The numerator for this measure is the 

number of “[p]atients who had a recommended follow-up interval of at least 10 years for 

repeat colonoscopy documented in their colonoscopy report.” The denominator for this 

measure is the total number of “[p]atients aged 50 years and older receiving screening 

colonoscopy without biopsy or polypectomy.” The measure excludes patients whose 

medical records contain reason(s) for recommending a follow up interval of less than 

10 years. The specifications for this measure can be found at: 

http://www.qualityforum.org/QPS/0658. 

 We believe this measure meets the statutory requirements discussed above. This 

measure is appropriate for the measurement of quality of care furnished by ASCs because 

colonoscopy screening is commonly performed in ASCs and this measure was developed 

to specifically measure quality of care furnished by ASCs. We also believe it meets the 

consensus requirement and the requirement that it be set forth by a national consensus 

building entity because it is NQF-endorsed for the ASC setting. 

 In its 2013 Pre-Rulemaking Report, the MAP supported the direction of this 

measure. Currently, the NQF endorsement for this measure is time-limited. 

 We invite public comment on this proposal. 

c. Endoscopy/Poly Surveillance: Colonoscopy Interval for Patients with a History of 

Adenomatous Polyps – Avoidance of Inappropriate Use (NQF #0659) 

According to the American Cancer Society, in patients with increased or high risk 

of colorectal cancer, colonoscopy screening is recommended based on risk factors. One 

such factor is a history of adenomatous polyps. The frequency of colonoscopy screening 
CMS-1601-P 530 

varies depending on the size and amount of polyps found; however, the general 

recommendation is a 3 year follow-up 

(http://www.cancer.org/cancer/colonandrectumcancer/moreinformation/colonandrectumc

ancerearlydetection/colorectal-cancer-early-detection-acs-recommendations). 

A randomized trial of 699 patients showed that after newly diagnosed adenomatous 

polyps have been removed by colonoscopy, follow-up colonoscopy at 3 years detects 

important colonic lesions as effectively as follow-up colonoscopy at both 1 and 3 years.13

 For the CY 2016 payment determination and subsequent years, we are proposing 

to adopt the Endoscopy/Poly Surveillance: Colonoscopy Interval for Patients with a 

History of Adenomatous Polyps – Avoidance of Inappropriate Use measure, which 

assesses the “[p]ercentage of patients aged 18 years and older receiving a surveillance 

colonoscopy, with a history of a prior colonic polyp in previous colonoscopy findings 

who had a follow-up interval of 3 or more years since their last colonoscopy documented 

in the colonoscopy report” This measure is NQF-endorsed for the ASC setting. The 

numerator for this measure is the number of “[p]atients who had an interval of 3 or more 

years since their last colonoscopy.” The denominator for this measure is the total number 

of “[p]atients aged 18 years and older receiving a surveillance colonoscopy with a history 

of a prior colonic polyp in a previous colonoscopy.” This measure excludes patients 

with: (1) documentation of medical reason(s) for an interval of less than 3 years since the 

last colonoscopy (for example, last colonoscopy incomplete, last colonoscopy had 

 

13 Davila RE, Rajan E, Baron TH, Adler DG, Egan JV, Faigel DO, Gan SI, Hirota WK, Leighton JA, 

Lichtenstein D, Qureshi WA, Shen B, Zuckerman MJ, VanGuilder T, Fanelli RD, Standards of Practice 

Committee, American Society for Gastrointestinal Endoscopy. ASGE guideline: colorectal cancer 

screening and surveillance. Gastrointest Endosc 2006 Apr;63(4):546-57.

http://www.ncbi.nlm.nih.gov/pubmed/16564851?dopt=Abstract.
CMS-1601-P 531 

inadequate prep, piecemeal removal of adenomas, or last colonoscopy found greater than 

10 adenomas); or (2) documentation of a system reason(s) for an interval of less than 

3 years since the last colonoscopy (for example, unable to locate previous colonoscopy 

report, previous colonoscopy report was incomplete). The specifications for this measure 

can be found at: http://www.qualityforum.org/QPS/0659. 

 We believe this measure meets the statutory requirements discussed above. This 

measure is appropriate for the measurement of quality of care furnished by ASCs because 

colonoscopy is commonly performed in ASCs and this measure was developed to 

specifically measure quality of care furnished by ASCs. We also believe it meets the 

consensus requirement and the requirement that it be set forth by a national consensus 

building entity because it is NQF-endorsed for the ASC setting. 

 In its 2013 Pre-Rulemaking Report, the MAP supported the direction of this 

measure. Currently, the NQF endorsement for this measure is time-limited. 

 We invite public comment on this proposal.

d. Cataracts: Improvement in Patient’s Visual Function within 90 Days Following 

Cataract Surgery (NQF #1536) 

 Cataract surgery is performed to improve a patient’s vision and associated 

functioning. This outcome is achieved consistently with careful attention to the accurate 

measurement of axial length and corneal power and the appropriate selection of an IOL 

lens. Failure to achieve improved visual functioning after surgery in eyes without 

comorbid ocular conditions that could impact the success of the surgery would reflect 

care that should be assessed for opportunities for improvement. Evidence suggests that 
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visual improvement occurs in about 86 to 98 percent of surgeries in eyes without 

comorbid conditions. However, with an annual volume of 2.8 million cataract surgeries 

in the U.S., an improvement rate from 86 to 98 percent could impact a significant number 

of patients per year.14

 For the CY 2016 payment determination and subsequent years, we are proposing 

to adopt the Cataracts: Improvement in Patient’s Visual Function within 90 Days 

Following Cataract Surgery measure, which assesses the “[p]ercentage of patients aged 

18 years and older who had cataract surgery and had improvement in visual function 

achieved within 90 days following the cataract surgery.” This measure is NQF-endorsed 

for the ASC setting. The measure numerator is the number of “[p]atients 18 years and 

older in sample who had improvement in visual function achieved within 90 days 

following cataract surgery, based on completing a pre-operative and post-operative visual 

function instrument.” The measure denominator is the total number of “[p]atients aged 

18 years and older in sample who had cataract surgery.” There are no exclusions. The 

specifications for this measure are available at: http://www.qualityforum.org/QPS/1536. 

Additional information for the measure specifications can be found in the NQF Measure 

Evaluation available at 

http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=68317. 

 We believe this measure meets the statutory requirements discussed above. This 

measure is appropriate for the measurement of quality of care furnished by ASCs because 

cataract surgery is commonly performed in ASCs and this measure was developed to 

 

14 National Quality Measures Clearing House. Agency for Healthcare Research and Quality. Available at 

http://www.qualitymeasures.ahrq.gov/content.aspx?id=27982. 
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specifically measure quality of care furnished by ASCs.” We believe it also meets the 

consensus requirement and the requirement that it be set forth by a national consensus 

building entity because it is NQF-endorsed for the ASC setting. 

 In its 2013 Pre-Rulemaking Report, the MAP supported the inclusion of this 

measure in the ASCQR Program and noted that this measure “[a]ddresses a high-impact 

condition not adequately addressed in the program measure set.” 

 We invite public comment on this proposal. 

 In summary, we are proposing to adopt four new measures for the ASCQR 

Program for the CY 2016 payment determination and subsequent years, with data 

collection beginning in CY 2014, as discussed in section XV.D.7.of this proposed rule. 

We are proposing to collect aggregate data (numerators, denominators, and exclusions) 

on all ASC patients for these four proposed chart-abstracted measures via an online 

Web-based tool that will be made available to ASCs via the QualityNet Web site. The 

proposed new measures for the CY 2016 payment determination and subsequent years for 

the ASCQR Program are listed in the table below. 

Proposed New ASC Program Measure Set for the CY 2016 Payment Determination 

and Subsequent Years 

NQF # Measure Name 

0564* Complications within 30 Days following Cataract Surgery Requiring 

Additional Surgical Procedures 

0658 Endoscopy/Poly Surveillance: Appropriate follow-up interval for normal 

colonoscopy in average risk patients 

0659 Endoscopy/Poly Surveillance: Colonoscopy Interval for Patients with a 

History of Adenomatous Polyps – Avoidance of Inappropriate Use 

1536 Cataracts: Improvement in Patient’s Visual Function within 90 Days 

Following Cataract Surgery

*This measure has not been NQF endorsed for the ASC setting. 
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4. ASCQR Program Measure Topics for Future Consideration 

 We seek to develop a comprehensive set of quality measures to be available for 

widespread use for informed decision-making and quality improvement in the ASC 

setting. Through future rulemaking, we intend to propose new measures that address 

clinical quality of care, patient safety, care coordination, patient experience of care, 

surgical outcomes, surgical complications, complications of anesthesia, and patient 

reported outcomes of care. We invite public comment on these measurement topics. 

5. Technical Specification Updates and Data Publication 

 In the CY 2012 OPPS/ASC final rule with comment period, we finalized our 

proposal to follow the same process for updating the ASCQR Program measures that we 

adopted for the Hospital OQR Program measures (76 FR 74513 through 74514). In the 

CY 2009 OPPS/ASC final rule with comment period (73 FR 68766 through 68767), we 

established an additional subregulatory process for making updates to the measures we 

have adopted for the Hospital OQR Program. We believe that a measure can be updated 

through this subregulatory process provided it is a nonsubstantive change. We expect to 

make the determination of what constitutes a substantive versus a nonsubstantive change 

on a case-by-case basis. 

 Examples of nonsubstantive changes to measures might include updated diagnosis 

or procedure codes, medication updates for categories of medications, broadening of age 

ranges, and exclusions for a measure (such as the addition of a hospice exclusion to the 

30-day mortality measures). We believe that non-substantive changes may include 

updates to NQF-endorsed measures based upon changes to guidelines upon which the 
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measures are based. We will revise the Specifications Manual so that it clearly identifies 

the updates and provide links to where additional information on the updates can be 

found. As stated in CY 2009 OPPS/ASC final rule with comment period, we also will 

post the updates on the QualityNet Web site at: https://www.QualityNet.org. We will 

provide sufficient lead time for facilities to implement the changes where changes to the 

data collection systems would be necessary. We generally release the Hospital OQR 

Specifications Manual every 6 months and release addenda as necessary. This release 

schedule provides at least 3 months of advance notice for nonsubstantive changes such as 

changes to ICD-9, CPT, NUBC, and HCPCS codes, and at least 6 months of advance 

notice for changes to data elements that would require significant systems changes. 

 We will continue to use rulemaking to adopt substantive updates made by the 

NQF to the endorsed measures we have adopted for the Hospital OQR Program. 

Examples of changes that we might consider to be substantive would be those in which 

the changes are so significant that the measure is no longer the same measure, or when a 

standard of performance assessed by a measure becomes more stringent (for example, 

changes in acceptable timing of medication, procedure/process, or test administration). 

Another example of a substantive change would be where the NQF has extended its 

endorsement of a previously endorsed measure to a new setting, such as extending a 

measure from the inpatient setting to hospice. 

 We believe that the policy finalized in the CY 2009 OPPS/ASC final rule with 

comment period adequately balances our need to incorporate non-substantive NQF 

updates to NQF-endorsed Hospital OQR Program measures in the most expeditious 
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manner possible, while preserving the public’s ability to comment on updates that so 

fundamentally change an endorsed measure that it is no longer the same measure that we 

originally adopted. We also note that the NQF endorsement process incorporates an 

opportunity for public comment and engagement in the measure maintenance process. 

These policies regarding what is considered substantive versus non-substantive apply to 

all measures in the Hospital OQR Program. 

 In the CY 2012 OPPS/ASC final rule with comment period, we finalized our 

proposal to follow the same process for updating the ASCQR Program measures that we 

adopted for the Hospital OQR Program measures (76 FR 74513 through 74514) and, in 

the CY 2013 OPPS/ASC final rule with comment period, we provided additional 

clarification regarding the ASCQR Program policy in the context of the previously 

finalized Hospital OQR program policy. We refer readers to the CY 2013 OPPS/ASC 

final rule with comment period for a discussion of the process for updating the ASCQR 

Program quality measures (77 FR 68496 through 68497). 

 In the CY 2012 OPPS/ASC final rule with comment period (76 FR 74514 through 

74515), we also finalized a policy to make data that an ASC submitted for the ASCQR 

program publicly available on a CMS Web site after providing an ASC an opportunity to 

review the data to be made public. These data will be displayed at the CCN level. 

 We are not proposing any changes to these policies. 
CMS-1601-P 537 

C. Payment Reduction for ASCs That Fail to Meet the ASCQR Program Requirements

1. Statutory Background 

 Section 1833(i)(2)(D)(iv) of the Act states that the Secretary may implement the 

revised ASC payment system “in a manner so as to provide for a reduction in any annual 

update for failure to report on quality measures in accordance with paragraph (7).” 

Paragraph (7) contains subparagraphs (A) and (B). Subparagraph (A) of paragraph (7) 

states the Secretary may provide that an ASC that does not submit “data required to be 

submitted on measures selected under this paragraph with respect to a year” to the 

Secretary in accordance with this paragraph will incur a 2.0 percentage point reduction to 

any annual increase provided under the revised ASC payment system for such year. It 

also specifies that this reduction applies only with respect to the year involved and will 

not be taken into account in computing any annual increase factor for a subsequent year. 

Subparagraph (B) of paragraph (7) makes many of the provisions of the Hospital OQR 

Program applicable to the ASCQR Program “[e]xcept as the Secretary may otherwise 

provide.” Finally, section 1833(i)(2)(D)(v) of the Act states that, in implementing the 

revised ASC payment system for 2011 and each subsequent year, “any annual update 

under such system for the year, after application of clause (iv) [regarding the reduction in 

the annual update for failure to report on quality measures] shall be reduced by the 

productivity adjustment described in section 1886(b)(3)(B)(xi)(II).” 

Section 1833(i)(2)(D)(v) of the Act also states that the “application of the preceding 

sentence may result in such update being less than 0.0 for a year, and may result in 
CMS-1601-P 538 

payment rates under the [revised ASC payment system] for a year being less than such 

payment rates for the preceding year.” 

2. Reduction to the ASC Payment Rates for ASCs That Fail to Meet the ASCQR 

Program Requirements for the CY 2015 Payment Determination and Subsequent Years 

 The national unadjusted payment rates for many services paid under the ASC 

payment system equal the product of the ASC conversion factor and the scaled relative 

payment weight for the APC to which the service is assigned. Currently, the ASC 

conversion factor is equal to the conversion factor calculated for the previous year 

updated by the MFP-adjusted CPI-U update factor, which is the adjustment set forth in 

section 1833(i)(2)(D)(v) of the Act. The MFP-adjusted CPI-U update factor is the 

Consumer Price Index for all urban consumers (CPI-U), which currently is the annual 

update for the ASC payment system, minus the MFP adjustment. As discussed in the 

CY 2011 MPFS final rule with comment period (75 FR 73397), if the CPI-U is a negative 

number, the CPI-U would be held to zero. Under the ASCQR Program, any annual 

update would be reduced by 2.0 percentage points for ASCs that fail to meet the reporting 

requirements of the ASCQR Program. This reduction would apply beginning with the 

CY 2014 payment rates. For a complete discussion of the calculation of the ASC 

conversion factor, we refer readers to section XII.G. of this proposed rule. 

 In the CY 2013 OPPS/ASC final rule with comment period (77 FR 68499 through 

68500), in order to implement the requirement to reduce the annual update for ASCs that 

fail to meet the ASCQR Program requirements, we finalized our proposal that we would 

calculate two conversion factors: a full update conversion factor and an ASCQR 
CMS-1601-P 539 

Program reduced update conversion factor. We finalized our proposal to calculate the 

reduced national unadjusted payment rates using the ASCQR Program reduced update 

conversion factor that would apply to ASCs that fail to meet their quality reporting 

requirements for that calendar year payment determination. We finalized our proposal 

that application of the 2.0 percentage point reduction to the annual update may result in 

the update to the ASC payment system being less than zero prior to the application of the 

MFP adjustment. 

 The ASC conversion factor is used to calculate the ASC payment rate for services 

with the following payment indicators (listed in Addenda AA and BB to this proposed 

rule, which are available via the Internet on the CMS Web site): “A2,” “G2,” “P2,” “R2,” 

“Z2,” as well as the service portion of device- intensive procedures identified by “J8.” 

We finalized our proposal that payment for all services assigned the payment indicators 

listed above would be subject to the reduction of the national unadjusted payment rates 

for applicable ASCs using the ASCQR Program reduced update conversion factor. 

 The conversion factor is not used to calculate the ASC payment rates for 

separately payable services that are assigned status indicators other than payment 

indicators “A2,” “G2,” “J8,” “P2,” “R2,” and “Z2.” These services include separately 

payable drugs and biologicals, pass-through devices that are contractor-priced, 

brachytherapy sources that are paid based on the OPPS payment rates, and certain 

office-based procedures and radiology services where payment is based on the MPFS PE 

RVU amount and a few other specific services that receive cost-based payment. As a 

result, we also finalized our proposal that the ASC payment rates for these services would 
CMS-1601-P 540 

not be reduced for failure to meet the ASCQR Program requirements because the 

payment rates for these services are not calculated using the ASC conversion factor and, 

therefore, not affected by reductions to the annual update. 

 Office-based surgical procedures (performed more than 50 percent of the time in 

physicians’ offices) and separately paid radiology services (excluding covered ancillary 

radiology services involving certain nuclear medicine procedures or involving the use of 

contrast agents, as discussed in section XII.C.1.b. of this proposed rule) are paid at the 

lesser of the MPFS non-facility PE RVU-based amounts and the standard ASC ratesetting 

methodology. We finalized our proposal that the standard ASC ratesetting methodology 

for this comparison would use the ASC conversion factor that has been calculated using 

the full ASC update adjusted for productivity. This is necessary so that the resulting ASC 

payment indicator, based on the comparison, assigned to an office-based or radiology 

procedure is consistent for each HCPCS code regardless of whether payment is based on 

the full update conversion factor or the reduced update conversion factor. 

 For ASCs that receive the reduced ASC payment for failure to meet the ASCQR 

Program requirements, we believe that it is both equitable and appropriate that a 

reduction in the payment for a service should result in proportionately reduced 

copayment liability for beneficiaries. Therefore, we finalized our proposal in the 

CY 2013 OPPS/ASC final rule with comment period (77 FR 68500) that the Medicare 

beneficiary’s national unadjusted copayment for a service to which a reduced national 

unadjusted payment rate applies would be based on the reduced national unadjusted 

payment rate. 
CMS-1601-P 541 

 We finalized our proposal that all other applicable adjustments to the ASC 

national unadjusted payment rates would apply in those cases when the annual update is 

reduced for ASCs that fail to meet the requirements of the ASCQR Program. For 

example, the following standard adjustments would apply to the reduced national 

unadjusted payment rates: the wage index adjustment, the multiple procedure 

adjustment, the interrupted procedure adjustment, and the adjustment for devices 

furnished with full or partial credit or without cost. We believe that these adjustments 

continue to be equally applicable to payment for ASCs that do not meet the ASCQR 

Program requirements. 

 We are not proposing any changes to these policies. 

D. Administrative Requirements

1. Proposed Requirements Regarding QualityNet Account and Security Administrator 

a. Background for the CY 2014 and CY 2015 Payment Determinations 

 A QualityNet account is required to submit quality measure data to the QualityNet 

Web site via a Web-based tool and, in accordance with CMS policy, a QualityNet 

security administrator is necessary to set-up such an account for the purpose of 

submitting this information to the QualityNet Web site. In previous rulemaking, we 

referred to this role as the QualityNet administrator; we are referring to this role in this 

rulemaking as the QualityNet security administrator, which emphasizes its security 

function and aligns terminology for the ASCQR Program with the Hospital IQR and 

OQR Programs. While the main purpose of a QualityNet security administrator is to 

serve as a point of contact for security purposes for quality reporting programs, we 
CMS-1601-P 542 

believe from our experience that a QualityNet security administrator typically fulfills a 

variety of tasks related to quality reporting, such as creating, approving, editing, and 

terminating QualityNet user accounts within an organization, and monitoring QualityNet 

usage to maintain proper security and confidentiality measures. Thus, we highly 

recommend that ASCs have and maintain a QualityNet security administrator. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53638 through 53639), we did 

not require that ASCs do so for the CY 2014 payment determination because ASCs are 

not required to submit data directly to the quality data warehouse for the CY 2014 

payment determination (76 FR 74504) and we do not want to unduly burden ASCs by 

requiring ASCs to have a QualityNet security administrator. We note that a QualityNet 

account is not necessary to access information that is posted to the QualityNet Web site, 

such as specifications manuals and educational materials. 

 As finalized in the CY 2012 OPPS/ASC final rule with comment period 

(76 FR 74504 through 74509), for the CY 2015 payment determination, we require ASCs 

to submit some quality measure data via an online tool located on the QualityNet Web 

page. As set forth in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53638 through 

53639), to enter these data into our data system, we require that ASCs identify and 

register a QualityNet security administrator who follows the registration process located 

on the QualityNet Web site and submits the information as specified on this site. 

Because submission of these data is not required until the July 1, 2013 to 

August 15, 2013 time period, we require that ASCs have a QualityNet security 

administrator at the time ASCs submit Web-based measure data in 2013 for the CY 2015 
CMS-1601-P 543 

payment determination, which is no later than August 15, 2013. ASCs may have a 

QualityNet security administrator prior to this date, but we do not require that ASCs do 

so. 

 We noted that there are necessary mailing and processing procedures that must be 

completed in order to have a QualityNet security administrator which are separate from 

completion of the forms by the ASC that can require significant time to complete. We 

strongly cautioned ASCs to not wait until the deadline to apply; instead, we 

recommended allowing a minimum of 2 weeks, and strongly suggested allowing 

additional time prior to the deadline to submit required documentation in case of 

unforeseen issues. Because ASCs will need a QualityNet security administrator only to 

have the ability to set up a user account for the purpose of submitting such measure data 

once a year, we do not require that ASCs maintain a QualityNet security administrator 

after the entry of their data via an online tool located on the QualityNet Website in 2013 

for the CY 2015 payment determination. 

 We also note that QualityNet users must complete a user enrollment process, 

which is part of the registration process, to ensure access to the Secure QualityNet Portal 

beginning July 1, 2013. Portal access will be required for ASCs submitting data under 

the ASCQR Program using an online tool located on the QualityNet Web site. 

b. Proposed Requirements for the CY 2016 Payment Determination and Subsequent 

Years 

 For the CY 2016 payment determination and subsequent years, we are proposing 

that, similar to the requirement for the CY 2015 payment determination, ASCs would be 
CMS-1601-P 544 

required to have a QualityNet security administrator for the purposes of setting up a 

QualityNet account for the purpose of entering data via an online tool located on the 

QualityNet Web site if this had not been completed previously or no current user 

accounts were available. If an ASC does not already have a QualityNet account, the 

facility would need to identify and register a QualityNet security administrator who 

follows the registration process located on the QualityNet Web site and submits the 

information as specified on this site. A QualityNet security administrator is not required 

for submitting data, a QualityNet security administrator is required to set up user 

accounts and for security purposes; a current user account is required for submitting data. 

Thus, an ASC would need to acquire a QualityNet security administrator only if no 

current QualityNet account existed for the ASC. An ASC would be required to have an 

active account by any specified data entry deadline. For example, the deadline would be 

August 15, 2014 for the CY 2016 payment determination. Although we highly 

recommend that ASCs have and maintain a QualityNet security administrator, we believe 

that requiring an ASC to maintain a QualityNet administrator throughout the year would 

unnecessarily increase burden on ASCs. 

 As noted previously, there are necessary mailing and processing procedures for 

having a QualityNet security administrator assigned by CMS separate from completion of 

the forms by the ASC that can require significant time to complete and we strongly 

caution ASCs to not wait until any data entry deadline to apply. While we previously 

recommended allowing a minimum of 2 weeks, based upon recent experience, we 

strongly suggest allowing 4 to 6 weeks prior to any data submission deadline to submit 
CMS-1601-P 545 

required documentation for processing and in case of unforeseen issues. Also, 

QualityNet users must complete a user enrollment process, which is part of the 

registration process, to ensure access to the Secure QualityNet Portal. Portal access will 

be required for ASCs submitting data under the ASCQR Program to meet CMS IT 

security requirements. The legislative source for this requirement originates in the 

Federal Information Security Management Act of 2002 which was amended by the 

Cybersecurity Act of 2012. The Document Library on the 

http://www.idmanagement.gov Web site contains documentation related to identity 

management including the Federal Identity, Credential and Access Management 

(FICAM) Roadmap and Implementation Guidance (version 2, 12/08/2011).

 We invite public comment on these proposals. 

2. Proposed Requirements Regarding Participation Status 

a. Background for the CY 2014 Payment Determination and Subsequent Years 

 We finalized in the CY 2012 OPPS/ASC final rule with comment period 

(76 FR 74516) a policy to consider an ASC as participating in the ASCQR Program for 

the CY 2014 payment determination if the ASC includes Quality Data Codes (QDCs) 

specified for the ASCQR Program on their CY 2012 claims relating to the finalized 

measures. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53639 through 53640), we 

stated that once an ASC submits any quality measure data, it would be considered to be 

participating in the ASCQR Program. Further, once an ASC submits any quality measure 

data and is considered to be participating in the ASCQR Program, an ASC would 
CMS-1601-P 546 

continue to be considered participating in the ASCQR Program, regardless of whether the 

ASC continues to submit quality measure data, unless the ASC withdraws from the 

Program by indicating on a participation form that it is withdrawing, as discussed below. 

For example, if an ASC includes any QDCs on its claims for the CY 2014 payment 

determination, it would be considered participating in the ASCQR Program for the 

CY 2014 payment determination and for each subsequent year’s payment determination 

unless the ASC withdraws. 

 Likewise, if an ASC did not submit any QDCs for the CY 2014 payment 

determination, but submitted quality measure data for the CY 2015 payment 

determination, the ASC would be considered participating in the ASCQR Program 

starting with the CY 2015 payment determination and continuing for each subsequent 

year’s payment determination unless the ASC withdraws from the ASCQR Program. 

 We considered whether to require that an ASC complete and submit a notice of 

participation form for each year’s payment determination to indicate that the ASC is 

participating in the ASCQR Program as we require for hospitals, but decided against this 

approach because we were concerned about the burden on ASCs. We believe these 

requirements will reduce burden on ASCs while accomplishing the purpose of notifying 

us of an ASC’s participation in the ASCQR Program. 

 We stated that any and all quality measure data submitted by the ASC while 

participating in the ASCQR Program could be made publicly available. This policy 

allows us to provide information on the quality of care provided to Medicare 

beneficiaries which promotes transparency. 
CMS-1601-P 547 

 Once an ASC submits quality measure data indicating its participation in the 

ASCQR Program, an ASC must complete and submit an online form indicating 

withdrawal in order to withdraw from the ASCQR Program. This form will be located on 

the QualityNet Web site starting in July 2013. We also require that an ASC indicate on 

the form the initial payment determination year to which the withdrawal applies. We 

established a different process for ASCs to withdraw from participation than the process 

we established for an ASC to participate in the ASCQR Program because of the payment 

implications of withdrawal. We stated that, in withdrawing from the ASCQR Program, 

the ASC would incur a 2.0 percentage point reduction in its annual payment update for 

that payment determination year and any subsequent payment determinations in which it 

is withdrawn. 

 We stated that we will not make quality measure data publicly available for that 

payment determination year and any subsequent payment determinations for which the 

ASC is withdrawn from the ASCQR Program. 

 We established that an ASC would continue to be deemed withdrawn unless the 

ASC starts submitting quality measure data again. Once an ASC starts submitting quality 

measure data, the ASC would be considered participating unless the ASC withdraws, as 

discussed above. We believe that these policies reduce the burden on ASCs by not 

having to notify us as to when they are participating. 

 We established that an ASC can withdraw from the ASCQR Program at any time 

up to August 31, 2013 for the CY 2014 payment determination. We anticipated that this 

will be the latest date possible to allow an ASC to withdraw before payment 
CMS-1601-P 548 

determinations affecting CY 2014 payment are made. We established that an ASC can 

withdraw from the ASCQR Program at any time up to August 31, 2014 for the CY 2015 

payment determination. We clarify here that these deadlines include August 31st for each 

respective year. 

 We stated that these program requirements would apply to all ASCs designated as 

open in the CASPER system before January 1, 2012 for the CY 2014 payment 

determination. Because ASCs were not required to include QDCs on claims until 

October 2012 for the CY 2014 payment determination, an ASC designated as open in the 

CASPER system before January 1, 2012 was operating for at least 10 months before 

having to report any data. We believe this is a sufficient amount of time for ASCs to be 

established to report quality data for the CY 2014 payment determination. 

 For the CY 2015 payment determination, we established that program 

requirements would apply to all ASCs designated as open in the CASPER system for at 

least 4 months prior to January 1, 2013. We believe that this date and length of 

operations experience would provide new ASCs sufficient time before having to meet 

quality data reporting requirements after the ASCQR Program’s initial implementation 

year. 

b. Proposed Requirements for the CY 2016 Payment Determination and Subsequent 

Years 

 For the CY 2016 payment determination and subsequent years, we are proposing 

that an ASC can withdraw from the ASCQR Program at any time up to and including 

August 31 of the year preceding a payment determination. We anticipate that this will be 
CMS-1601-P 549 

the latest date possible to allow an ASC to withdraw before payment determinations 

affecting the next calendar year’s payment are made. Thus, for example, for the CY 2016 

payment determination, an ASC would be able to withdraw from the ASCQR Program at 

any time up to and including August 31, 2015. Once an ASC has withdrawn for any 

payment determination year, it would have a 2.0 percentage point reduction in their 

annual payment update and it would not be possible to reinstate participation status for 

that year. 

 For the CY 2016 payment determination and subsequent years, we are proposing 

that all program requirements would apply to all ASCs designated as open in the 

CASPER system at least 4 months prior to the beginning of data collection for a payment 

determination. Thus, for the CY 2016 payment determination, data collection begins 

with January 1, 2014 services; these program requirements would apply to all ASCs 

designated as open in the CASPER system for at least 4 months prior to January 1, 2014 

(that is, an open date of September 1, 2013 or earlier). We believe that this date and 

length of operations experience would provide any new ASCs sufficient time before 

having to meet quality data reporting requirements. 

 We invite public comment on these proposals. 

3. Requirements Regarding Data Processing and Collection Periods for Claims-Based 

Measures for the CY 2014 Payment Determination and Subsequent Years 

 In the CY 2012 OPPS/ASC final rule with comment period (76 FR 74496 through 

74511), we adopted five claims-based measures for the CY 2014, CY 2015, and CY 2016 

payment determinations and subsequent years. We also finalized that, to be eligible for 
CMS-1601-P 550 

the full CY 2014 ASC annual payment update, for the claims-based measures, an ASC 

must submit complete data on individual quality measures through a claims-based 

reporting mechanism by submitting the appropriate QDCs on the ASC’s Medicare claims 

(76 FR 74515 through 74516). Further, we finalized the data collection period for the 

CY 2014 payment determination, as the Medicare fee-for-service ASC claims submitted 

for services furnished between October 1, 2012 and December 31, 2012. ASCs will add 

the appropriate QDCs on their Medicare Part B claims, using the Form CMS-1500 or 

associated electronic data set submitted for payment, to submit the applicable quality 

data. A listing of the QDCs with long and short descriptors is available in 

Transmittal 2425, Change Request 7754 released March 16, 2012 

(http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ASCPayment/ASCTransmittals-Items/ASC-CR7754-R2425CP.html). Details on how to use these codes for 

submitting numerator and denominator information are available in the ASCQR Program 

Specifications Manual located on the QualityNet Web site (https://www.QualityNet.org). 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53640), we adopted a policy 

that claims for services furnished between October 1, 2012 and December 31, 2012 

would have to be paid by the administrative contractor by April 30, 2013 to be included 

in the data used for the CY 2014 payment determination. We believe that this claim paid 

date allows ASCs sufficient time to submit claims while allowing sufficient time for 

CMS to complete required data analysis and processing to make payment determinations 

and to supply this information to administrative contractors. 
CMS-1601-P 551 

 In the CY 2013 OPPS/ASC final rule with comment period (77 FR 68497 through 

68498), we finalized a data collection and processing period for the CY 2015 payment 

determination and subsequent years. For the CY 2015 payment determination and 

subsequent years, an ASC must submit complete data on individual claims-based quality 

measures through a claims-based reporting mechanism by submitting the appropriate 

QDCs on the ASC’s Medicare claims. The data collection period for such claims-based 

quality measures is the calendar year 2 years prior to a payment determination year. The 

claims for services furnished in each calendar year have to be paid by the administrative 

contractor by April 30 of the following year of the ending data collection time period to 

be included in the data used for the payment determination year. Thus, for example, for 

the CY 2015 payment determination, the data collection period is claims for services 

furnished in CY 2013 (January 1, 2013 through December 31, 2013) which are paid by 

the administrative contractor by April 30, 2014. 

 We are not proposing any changes to these policies. 

4. Proposed Minimum Threshold, Minimum Case Volume, and Data Completeness for 

Claims-Based Measures Using QDCs 

a. Background for the CY 2014 Payment Determination and Subsequent Years 

 In the CY 2012 OPPS/ASC final rule with comment period (76 FR 74516), we 

finalized our proposal that data completeness for claims-based measures for the CY 2014 

payment determination be determined by comparing the number of claims meeting 

measure specifications that contain the appropriate QDCs with the number of claims that 
CMS-1601-P 552 

would meet measure specifications, but did not have the appropriate QDCs on the 

submitted claims. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53641), we finalized our policy 

for the CY 2014 and CY 2015 payment determination years that the minimum threshold 

for successful reporting be that at least 50 percent of claims meeting measure 

specifications contain QDCs. We believe that 50 percent is a reasonable minimum 

threshold for the initial implementation years of the ASCQR Program because ASCs are 

not familiar with how to report quality data under the ASCQR Program and because 

many ASCs are relatively small and may need more time to set up reporting systems. We 

stated in that final rule that we intend to propose to increase this percentage for 

subsequent years’ payment determinations as ASCs become more familiar with reporting 

requirements for the ASCQR Program. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53641), we stated that, because 

private payers would not have QDCs in their required HCPCS data files until 

January 1, 2013, claims with QDCs received prior to January 1, 2013 could be rejected 

for invalid codes. Because it is not possible for ASCs to submit differing codes on 

primary versus secondary payer claims for at least some payers, we specified that only 

claims where Medicare is the primary payer--not the secondary payer--will be used in the 

calculation of data completeness for the CY 2014 payment determination. 

 We also finalized our proposal in the CY 2013 OPPS/ASC final rule with 

comment period (77 FR 68498 through 68499) that data completeness for claims-based 

quality measures for the CY 2015 payment determination and subsequent years will be 
CMS-1601-P 553 

determined by comparing the number of Medicare claims (where Medicare is the primary 

or secondary payer) meeting measure specifications that contain the appropriate QDCs 

with the number of Medicare claims (where Medicare is the primary or secondary payer) 

that would meet measure specifications, but did not have the appropriate QDCs on the 

submitted claims for the CY 2015 payment determination and subsequent years. We 

made this change based on the fact that private payers had QDCs in their required 

HCPCS data files beginning January 1, 2013. 

b. Proposed Requirements for the CY 2016 Payment Determination and Subsequent 

Years 

 For the CY 2016 payment determination and subsequent years, we are proposing 

to continue our policy that the minimum threshold for successful reporting be that at least 

50 percent of claims meeting measure specifications contain QDCs. We believe that 50 

percent is a reasonable minimum threshold for the initial implementation years of the 

ASCQR Program. Because ASCs cannot re-submit claims for the sole purpose of adding 

QDCs (such claims are rejected by administrative contractors as duplicate claims), we 

believe maintaining this minimum as the program matures is reasonable. We intend to 

propose to increase this percentage for future payment determinations as ASCs, 

administrative contractors, and billing clearing houses become more familiar with 

reporting requirements for the ASCQR Program and the program itself becomes more 

established. 

 As finalized in the FY 2013 IPPS/LTCH PPS final rule, data completeness for 

claims-based quality measures will be determined by comparing the number of Medicare 
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claims (where Medicare is the primary or secondary payer) meeting measure 

specifications that contain the appropriate QDCs with the number of Medicare claims 

(where Medicare is the primary or secondary payer) that would meet measure 

specifications, but did not have the appropriate QDCs on the submitted claims for the 

CY 2015 payment determination and subsequent years. 

 In our initial implementation of claims-based measures, we determined that some 

ASCs have relatively small numbers of Medicare claims. Thus, for the CY 2016 

payment determination and subsequent years, we are proposing a minimum case volume 

of 240 Medicare claims (primary plus secondary payer) per year (which is an average of 

60 per quarter). ASCs that have fewer than 240 Medicare claims per year during a 

reporting period for a payment determination year would not be required to participate in 

the ASCQR Program for the subsequent reporting period for that subsequent payment 

determination year. For example, if an ASC had 200 Medicare claims during the 

calendar year of January 1, 2013 to December 31, 2013 (data submitted on claims during 

this year would be applied to CY 2015 payment determinations), the ASC would not be 

required to participate in the ASCQR Program for the CY 2016 payment determination 

(which would use data submitted on claims during the January 1, 2014 to 

December 31, 2014 calendar year). We are proposing a minimum case threshold to 

exempt smaller facilities where program implementation can be overly burdensome. We 

have selected 240 Medicare claims per year because 10 percent of ASCs have less than 

240 Medicare claims per year so this policy would exempt only those ASCs with the 

fewest number of Medicare claims. If an ASC exceeds this 240 Medicare claim 
CMS-1601-P 555 

threshold in any given calendar year, the ASC would be required to participate in the 

ASCQR Program the subsequent calendar year and would be subject to all program 

requirements. 

 We invite public comment on this proposal. 

5. Proposed Requirements for Data Submitted Via a CMS Online Data Submission Tool 

a. Background for the CY 2015 Payment Determination and Subsequent Years 

 In the CY 2012 OPPS/ASC final rule with comment period, we finalized two 

measures with data submission required using an online measure submission Web page 

available at http://www.qualitynet.org beginning with the CY 2015 payment 

determination: Safe Surgery Checklist Use and ASC Facility Volume Data on Selected 

ASC Surgical Procedures (76 FR 74509). In that final rule with comment period, we 

finalized that, for the CY 2015 payment determination, ASCs would report data for these 

two measures between July 1, 2013 and August 15, 2013 for services furnished between 

January 1, 2012 and December 31, 2012. 

b. Proposed Requirements for the CY 2016 Payment Determination and Subsequent 

Years for Measures Currently Finalized 

 For the CY 2016 payment determination and subsequent years, we are proposing 

for the Safe Surgery Checklist Use and ASC Facility Volume Data on Selected ASC 

Surgical Procedures for which data will be submitted via a using an online data 

submission tool available on http://www.qualitynet.org, that the data collection time 

periods would be for services furnished during the calendar year two years prior to the 

payment determination year and that data would be submitted during the January 1 to 
CMS-1601-P 556 

August 15 time period in the year prior to the payment determination. Thus, for the 

CY 2016 payment determination, the data collection time period for these measures 

would be calendar year 2014 (January 1, 2014 to December 31, 2014) and the data 

submission time period would be January 1, 2015 to August 15, 2015. We are proposing 

these changes to increase the timeframe for allowing data submission for these measures 

and to align the data collection time periods for the claims-based and Web-based 

measures. This alignment has the additional benefit of providing more current data for 

these Web-based measures for a payment determination and would prevent the need for 

retrospective data collection by ASCs which can be burdensome. 

 Under this proposal, no data would be collected for calendar year 2013 (January 

1, 2013 to December 31, 2013) for the Safe Surgery Checklist Use and ASC Facility 

Volume Data on Selected ASC Surgical Procedures because the CY 2015 payment 

determination will use data from services performed in the January 1, 2012 to December 

31, 2012 time period and, under our proposal, the CY 2016 payment determination would 

use data from services performed in January 1, 2014 to December 1, 2014. 

 We invite public comment on these proposals. 

c. Proposed Requirements for the CY 2016 Payment Determination and Subsequent 

Years for Proposed New Measures with Data Submission via a CMS Web-Based Tool 

 We are proposing to adopt four additional chart-abstracted measures for the 

ASCQR Program and proposing that aggregate data (numerators, denominators, and 

exclusions) on all ASC patients would be collected via an online Web-based tool that 

would be made available to ASCs via the QualityNet Web site. 
CMS-1601-P 557 

 These measures are: (1) Complications within 30 Days following Cataract 

Surgery Requiring Additional Surgical Procedures; (2) Endoscopy/Poly Surveillance: 

Appropriate follow-up interval for normal colonoscopy in average risk patients; 

(3) Endoscopy/Poly Surveillance: Colonoscopy Interval for Patients with a History of 

Adenomatous Polyps – Avoidance of Inappropriate Use; and (4) Cataracts: Improvement 

in Patient’s Visual Function within 90 Days Following Cataract Surgery. We describe 

our timeframes and process for measure specifications in section XV.B.5. of this 

proposed rule. 

We wish to clarify that, while we have referred to measures where data are 

submitted via a Web-based tool on a CMS Web site under our quality data reporting 

programs by the type of measure, that is, structural measures (measures concerned with 

attributes of where care occurs, such as material resources, human resources, and 

organizational structure15), not all quality measures where data are submitted via a Webbased tool on a CMS Web site are structural measures. For example, the four proposed 

new measures proposed are not structural measures. Thus, we have refined our 

terminology and now refer to the mode of data submission, Web-based, rather than the 

type of measure. 

 We are proposing that data collection and reporting for these measures would 

begin with the CY 2016 payment determination. 

 Additionally, we are proposing for these measures, and any future measures for 

the ASCQR Program where data is submitted via a using an online measure submission 

 

15 Maintz, J. Defining and Classifying Clinical Indicators for Quality Improvement, Inter J Quality Health 

Care (2003) 15(6), 523-530.
CMS-1601-P 558 

Web page available on http://www.qualitynet.org, that beginning with the CY 2016 

payment determination: 

● The data collection time period would be the calendar year (January 1 to 

December 31) 2 years prior to the affected payment determination year, and; 

● Data collected would be submitted during the time period of January 1 to 

August 15 in the year prior to the affected payment determination year. 

 Thus, for the CY 2016 payment determination, the data collection time period 

would be January 1, 2014 to December 31, 2014 and the data submission time period for 

the collected data would be January 1, 2015 to August 15, 2015. These proposals are in 

alignment with proposals in section XV.D.5. of this proposed rule regarding data 

collection and submission time frames for measures already adopted for the ASCQR 

Program where data is submitted via an online data submission tool available on 

http://www.qualitynet.org. 

 We invite public comment on these proposals. 

6. Proposed Data Submission Requirements for a Measure Reported via the National 

Healthcare Safety Network (NHSN) for the CY 2016 Payment Determination 

a. Background for the CY 2016 Payment Determination 

 For the CY 2016 payment determination, we finalized the adoption of the 

Influenza Vaccination Coverage among Healthcare Personnel (NQF #0431), a process of 

care, healthcare-associated infection (HAI) measure, in the CY 2012 OPPS/ASC final 

rule with comment period (76 FR 74510). We specified that data collection for the 
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influenza vaccination measure would be via the NHSN from October 1, 2014 to March 

31, 2015 and that details for data submission would be made in future rulemaking. 

b. Proposed Requirements for the CY 2016 Payment Determination 

 We are proposing to use the data submission and reporting standard procedures 

that have been set forth by CDC for NHSN participation in general and for submission of 

this measure to NHSN. We refer readers to the CDC’s NHSN Web site (for detailed 

enrollment (http://www.cdc.gov/nhsn/ambulatory-surgery/enroll.html), set-up 

(http://www.cdc.gov/nhsn/ambulatory-surgery/setup.html), and reporting 

(https://sdn.cdc.gov; data certificate required for this site) procedures. We believe that 

ASCs would know and be comfortable with these procedures because these procedures 

are already used by many ASCs to fulfill State-mandated reporting of HAI data through 

the NHSN in at least 17 States. 

 We are proposing that ASCs would have until August 15, 2015 to submit their 

2014-2015 influenza season data to NHSN. We are proposing an August 15, 2015 

deadline because this date is the latest date possible for data entry that will provide 

sufficient time for CMS to make the CY 2016 payment determinations. Further, this date 

aligns the data entry deadline with the deadline for the measures entered via the CMS 

online tool. We believe this data submission deadline allows ASCs to have sufficient 

time to collect and compile the necessary data while taking into account ASCQR 

Program considerations. 

 We invite public comment on these proposals. 
CMS-1601-P 560 

7. ASCQR Program Validation of Claims-Based and CMS Web-Based Measures 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53641 through 53642), 

consistent with other CMS quality reporting programs, we did not require validation of 

claims-based measures (beyond the usual claims validation activities conducted by our 

administrative contractors) or structural (Web-based) measures for the ASCQR Program. 

We also do not require validation of claims-based or Web-based measures under the 

Hospital IQR and OQR Programs. 

 We noted that with regard to the current ASCQR Program claims-based measures, 

the number of events expected to be reported is small because most of the measures are 

for adverse or rare events. In this situation, any random selection of cases would require 

a burdensome sample size. Further, we expect the accuracy for reported adverse events 

to be high. We stated that, because we do not believe at this time that any results that 

could be obtained justify the burden associated with a data validation process which 

would necessitate an independent validation effort, we also are not requiring a data 

validation process for our current claims-based measures, and we continue to believe so. 

 We stated that as we gain more experience with the ASCQR Program, we will 

reassess whether a data validation process for claims-based and measures where 

aggregate data is reported via an online tool is needed. At this time, we believe that it 

would be overly burdensome to validate the reported data given the inexperience that 

ASCs have with reporting quality data to CMS coupled with the low incidence of cases 

for the claims-based measures. 
CMS-1601-P 561 

8. Extraordinary Circumstances Extensions or Waivers for the CY 2014 Payment 

Determination and Subsequent Years 

a. Background 

 In our experience, there have been times when facilities have been unable to 

submit information to meet program requirements due to extraordinary circumstances 

that are not within their control. It is our goal to not penalize such entities for such 

circumstances and we do not want to unduly increase their burden during these times. 

Therefore, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53642 through 53643), we 

established procedures for extraordinary circumstance extension or waiver requests for 

the submission of information required under the ASCQR Program. We refer readers to 

that rule for a complete discussion of the process. 

b. Proposed Additional Criterion for Extraordinary Circumstance Waivers or Extensions 

for CY 2014 

 We are proposing that starting in CY 2014 we may grant a waiver or extension to 

ASCs for data submission requirements if we determine that a systematic problem with 

one of our data collection systems directly or indirectly affected the ability of ASCs to 

submit data. Because we do not anticipate that such systematic errors will happen often, 

we do not anticipate granting a waiver or extension on this basis frequently. If we make 

the determination to grant a waiver or extension, we are proposing to communicate this 

decision through listserv notice and posting via our QualityNet Web site 

(https://www.qualitynet.org) as we have done in the past with CMS-issued waivers where 

a geographic location was affected by adverse weather. 
CMS-1601-P 562 

 We invite public comment on this proposal. 

9. ASCQR Program Reconsideration Procedures for the CY 2014 Payment 

Determination and Subsequent Years 

 We have established similar processes by which participating hospitals can submit 

requests for reconsideration of quality reporting program payment determinations for the 

Hospital IQR Program and the Hospital OQR Program. We believe these reconsideration 

processes have been effective in the hospital quality reporting programs and such a 

process would be effective for ASC quality reporting. Therefore, in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53643 through 56344), we adopted an informal 

reconsideration process for the ASCQR Program for the CY 2014 payment determination 

and subsequent years modeled after the reconsideration processes we implemented for 

the Hospital IQR and Hospital OQR Programs. We refer readers to that rule for a 

complete discussion of our procedures. 

 We are not proposing any changes to this informal reconsideration process. 

However, we want to clarify some aspects of the informal reconsideration review process 

that we established in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53643 to 53644). 

As we stated in that rule, we intend to complete any reconsideration reviews and 

communicate the results of these determinations within 90 days following the deadline 

for submitting requests for reconsideration. For those ASCs that submit a reconsideration 

request, the reconsideration determination would be the final ASCQR Program payment 

determination. For those ASCs that do not submit a reconsideration request or do not 

submit a reconsideration request as specified in the FY 2013 IPPS/LTCH PPS final rule 
CMS-1601-P 563 

(77 FR 53643 through 53644), for example, the request was not submitted by the 

deadline, the CMS determination would be the final payment determination. There 

would be no appeal of any final ASCQR Program payment determination. 

XVI. Proposed Changes to the Conditions for Coverage (CfCs) for Organ 

Procurement Organizations (OPOs) (42 CFR Part 486, Subpart G)

A. Background

 The Organ Procurement Organization Certification Act of 2000 (section 701 of 

Pub. L. 106-505) amended section 371(b)(1) of the Public Health Service Act 

(42 U.S.C. 273(b)(1)) and directed the Secretary to establish regulations governing the 

certification and/or recertification of Organ Procurement Organizations (OPOs). Among 

other things, section 371(b)(1)(D)(ii) of the Public Health Service Act, as amended by 

section 701 of Pub. L. 106-505, requires that regulations be established for the 

certification and/or recertification process, which (1) “rely on outcome and process 

performance measures that are based on empirical evidence obtained through reasonable 

efforts, of organ donor potential and other related factors in each service area of qualified 

organ procurement organizations,” and (2) “use multiple outcome measures as part of the 

certification process.” Payment under the Medicare and Medicaid programs for organ 

procurement costs may only be made if, among other requirements, the OPO is certified 

or recertified as meeting the standards to be a qualified OPO under section 371(b) of the 

Public Health Service Act and meets the performance-related standards prescribed by the 

Secretary, as provided for in section 1138(b) of the Social Security Act. 
CMS-1601-P 564 

 The final rules implementing these statutory requirements and setting out the 

Conditions for Coverage (CfCs) for OPOs (OPO CfCs) were published in the Federal 

Register on May 31, 2006 (71 FR 30982). The OPO CfCs are codified at 42 CFR Part 

486 and set forth the certification and recertification processes for OPOs. OPOs are 

required to meet their CfCs, which include both outcome and process performance 

measures. We refer readers to 42 CFR 486.316 for the compliance requirements for 

recertification and 42 CFR 486.318 for the three outcome measures. 

 In general, with the exception of OPOs operating exclusively in noncontiguous 

States, Commonwealths, Territories, or possessions, the three outcome measures are: 

(1) a donation rate of eligible donors as a percentage of eligible deaths; (2) an observed 

donation rate as compared to the expected donation rate; and (3) a yield measure, which 

requires that two of the following three outcome measures be met: (i) the number of 

organs transplanted per standard criteria donor, (ii) the number of organs transplanted per 

expanded criteria donors, and (iii) the number of organs used for research per donor. For 

OPOs that operate exclusively in noncontiguous States, Commonwealths, Territories, and 

possessions, the three outcome measures are: (1) a donation rate of eligible donors as a 

percentage of eligible deaths; (2) an observed donation rate as compared to the expected 

donation rate; and (3) a yield measure, which requires that two of the following three 

outcome measures be met: (i) the number of kidneys transplanted per standard criteria 

donor; (ii) the number of kidneys transplanted per expanded criteria donors; and (iii) the 

number of organs used for research per donor. All of the yield measures include 

pancreata used for islet cell transplantation as required by section 371(c) of the Public 
CMS-1601-P 565 

Health Service Act (42 U.S.C. 273(c)). The first and third outcome measures are 

compared to a national mean. The second outcome measure is calculated by the 

Scientific Registry of Transplant Recipients (SRTR). 

B. Proposed Regulatory Changes

 We are proposing to modify the requirements in §§ 486.316(a)(1) and (b) and the 

introductory text of §§ 486.318(a) and (b) of the regulations so that all of the OPOs must 

meet two out of the three outcome measures to be recertified. We have become 

concerned about the requirement to automatically decertify OPOs if they fail to meet all 

three of the outcome measures. We now believe that the requirement that each OPO 

meet all three outcome measures as set forth in § 486.318 is unnecessarily stringent. For 

that reason, we are proposing to modify the outcome measure requirement so that OPOs 

would be required to meet two of the three outcome measures. 

 The majority of all of the OPOs are meeting all three of the outcome measures. 

From our experience with OPOs, we have observed that many of the OPOs that are 

failing to meet all three outcome measures are meeting two of the three measures and are 

in compliance with all of the other requirements in the OPO CfCs; that is, the process 

performance measures set forth at §§ 486.320 through 486.348. We believe these OPOs 

are performing satisfactorily and should not be decertified based solely on their failure to 

meet one outcome measure. This belief is based not only on our observation and 

monitoring of these OPOs’ performance, but also on some concerns with the outcome 

measures. 
CMS-1601-P 566 

 From the feedback we have received from the OPO community, there may be 

some variance in how OPOs are determining the “eligible deaths” in their donation 

service area (DSA), which is the denominator in the first outcome measure. Various 

members of the OPO community have indicated that the same donor could be counted as 

an eligible donor by one OPO, but not another OPO. This is apparently due to 

differences in how the definition of “eligible death” is being clinically interpreted and 

implemented. Another reason for this variance could be how the determination is made. 

One member of the OPO community stated that, in one OPO, that determination may be 

made by a group of clinical staff, while in another, it is made by the data entry person. 

Therefore, we are concerned that this apparent variance may be adversely affecting the 

performance of some OPOs on the outcome measures. 

 We also are concerned that the current measures may not be accurately allowing 

for adjustment of various factors. OPOs’ DSAs vary substantially in their demographics. 

For example, the first of the possible three yield outcome measures involves standard 

criteria donors. However, many individuals in the OPO community have indicated that 

there is a considerable difference between standard criteria donors (SCDs) around the 

country and that this could explain at least some of the differences in some of the OPOs’ 

yield measures. Because a SCD is anyone who meets the eligibility criteria for an 

eligible donor and does not meet the criteria to be an expanded criteria donor or a donor 

after cardiac death, the demographics of an OPO’s DSA could have a significant impact 

on the organ yield that could reasonably be expected in that DSA. For example, if a 

particular DSA has an older potential donor population or one that is typically not as 
CMS-1601-P 567 

healthy, this could significantly impact the organ yield in that DSA as compared to a 

DSA with a population of generally more healthy individuals. 

 We also have received anecdotal reports that OPOs may be making clinical 

decisions based on their assessment of their own performance on the outcome measures. 

In particular, there may have been cases when OPOs did not pursue certain potential 

donors with multiple comorbidities because they believed that they would only be able to 

procure one or two organs from that potential donor. If an OPO is concerned about its 

performance on the yield measures specified under §§ 486.318(a)(3) and (b)(3), it may be 

advantageous to its performance on the yield measures to forgo a potential donor rather 

than procure only one organ and worsen its performance on the yield measures. This 

would result in not only one potentially transplantable organ being averted, but 

consequently a potential transplant recipient not receiving a transplant. This could have a 

significant impact on the potential transplant recipient waiting for transplants nationwide. 

This is especially problematic in the case of extra-renal organs for which there is no 

viable alternative to an organ transplant. 

 We are proposing to hold the OPOs accountable for meeting two out of three 

current outcome measures. We believe this will avoid the automatic decertification of 

OPOs that are performing satisfactorily. Therefore, we are proposing to revise 

paragraphs (a)(1) and (b) of §§ 486.316 and the introductory text of paragraphs (a) and 

(b) of § 486.318 of the regulations to require that OPOs meet at least two out of the three 

outcome measures instead of the requirement to meet all three outcome measures. 
CMS-1601-P 568 

 In addition to soliciting public comments on the proposals we discuss above, we 

are soliciting public comments on the current outcome measures in the OPO CfCs, as 

well as public comments on any other potential empirically based outcome measures for 

OPOs that might be used in the future. We would especially appreciate public comments 

on the new yield measure that is produced by the SRTR and is being used by the Organ 

Procurement and Transplantation Network (OPTN). The OPTN recently adopted this 

new yield measure that calculates the expected number of organs transplanted for each 

donor based on multiple donor risk factors. The measure uses more extensive risk factors 

that mitigate the differences in the donor pool of the each DSA. This allows an OPO’s 

performance to be measured in terms of the expected outcomes for the DSA based upon 

the expected outcomes for individual donors within the DSA and not against a national 

average. 

 When comparing OPOs currently identified to be below expected performance 

levels by the OPTN matrix and the OPOs identified as below expected performance 

levels by the CMS measures, we have noted that the lists are not the same. If the new 

OPTN measure is a more accurate reflection of performance as measured by the organs 

transplanted for each donor in each individual DSA (as is accepted by the HRSA and the 

OPO community), this could mean that we may take inappropriate enforcement action 

when using the current yield measure. Therefore, we are specifically soliciting public 

comments on this new OPTN yield measure. Specific details on the risk adjustment 

models used for this measure are located on the SRTR Web site at: 

http://www.srtr.org/csr/current/Tech_notes.aspx. 
CMS-1601-P 569 

 In summary, we are proposing to revise §§ 486.316 and 486.318 of our 

regulations by modifying the current outcome measures requirement to require that OPOs 

must meet two out of the three outcome measures instead of all three outcome measures. 
CMS-1601-P 570 

XVII. Proposed Revisions of the Quality Improvement Organization (QIO) 

Regulations 

A. Legislative History

 The Utilization and Quality Control Peer Review Program was originally 

established by sections 142 and 143 of the Tax Equity and Fiscal Responsibility Act 

(TEFRA) of 1982 (Pub. L. 97–248). The name of the individual organizations covered 

under the program was “Peer Review Organizations.” In a final rule with comment 

period published in the Federal Register on May 24, 2002 (67 FR 36539), we revised the 

regulatory references to these organizations to “Quality Improvement Organizations” 

(QIOs)--without changing the definition or functions of the QIOs--to reflect the 

program’s shift from a compliance-oriented focus to one emphasizing quality 

improvement. There have been a number of amendments to the QIO statute over the 

years, but they have not resulted in any substantial changes in how the program operates. 

However, in section 261 of the recently enacted Trade Adjustment Assistance Extension 

Act of 2011 (TAAEA) (Pub. L. 112-40), Congress authorized numerous changes to the 

original legislation to modernize and improve the QIO Program and included additional 

flexibility for the Secretary in the administration of the QIO Program. This legislation 

also updated the nomenclature from the Peer Review Organization Program to the QIO 

Program and included amendments to update the terminology of the program (replacing 

“peer review organization” and “utilization and quality control peer review organization” 

with “quality improvement organization” in relevant provisions of the Act.) 
CMS-1601-P 571 

 Specifically, section 261 of the TAAEA increased the flexibility available to the 

Secretary by updating the statutory definition of the organizations that can contract with 

CMS as QIOs (as described in section 1152 of the Act), changing certain contract terms 

and processes by which the Secretary contracts with QIOs (as described in section 1153 

of the Act), and broadening the Secretary’s authority to delineate the scope of work for 

QIOs (as described in section 1154 of the Act). 

 The regulations that implement sections 1152 and 1153 of the Act are codified at 

42 CFR Part 475; Subpart C of Part 475 includes provisions that specifically govern the 

types of organizations eligible to become QIOs. The regulations that implement section 

1154 of the Act and much of the work performed by QIOs are codified at 42 CFR Part 

476. Section 1154 of the Act states that much of the work QIOs will perform is subject 

to the terms of their contracts with CMS. We note that, consistent with this provision, the 

contracts and requests for proposals used to contract with QIOs include significant detail 

on the work performed by the QIOs. 

B. Basis for Proposals

 Section 261 of the TAAEA eliminated certain limitations specified in sections 

1152 and 1153 of the Act that appear in several existing provisions in Part 475. In order 

to eliminate these limitations in the regulations and fully utilize the flexibility provided as 

a result of the statutory changes, we are proposing regulatory changes to implement the 

statutory amendments. These changes involve, among other things, changing the 

eligibility standards for an entity to be awarded a QIO contract and defining specific 

terms that will be used to describe QIOs and their quality improvement work. We are 
CMS-1601-P 572 

proposing to change the terminology related to the geographic area in which a QIO must 

perform its different functions. As the statute authorizes, the QIO area can now be any 

geographic area CMS believes will be most effective in accomplishing its goals for the 

QIO contract. We also are proposing to revise provisions regarding the eligibility of a 

health care facility association to be a QIO and to eliminate an obsolete provision at 

§ 475.106 regarding the eligibility of payor organizations to be QIOs. The statutory 

amendments also include a change in the contract period for a QIO, extending it from 3 

to 5 years. Although we did not previously update this regulation with a prior statutory 

change in the QIO contract term from 2 years to 3 years, we are now including the 5-year 

time period in the proposed rule as a technical correction in order to bring the regulations 

up to date with the amended statutory timeframe. We believe that these changes would 

be instrumental in improving aspects of the QIO’s review activities and would enable us 

to improve the program by ensuring that QIOs are better able to meet the needs of 

Medicare beneficiaries. The specific proposed changes and corrections are explained in 

more detail in the following sections.

QIOs work at the grassroots level of American health care delivery systems in all 

50 States, the District of Columbia, and most U.S. Territories in order to improve care for 

Medicare beneficiaries. QIOs originally reviewed Medicare services to determine 

whether they were reasonable and medically necessary, met professionally recognized 

standards of care, and were provided in the appropriate setting. However, the QIO 

contract has evolved over the course of the years as the literature supports the concept 

that defects in the health care process are rarely related to the performance of one 
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individual but to a system of care with multiple opportunities for failure. Attempts to 

improve quality through inspection methods, that is, by performing one chart review at a 

time, are less likely to yield the systemic improvements in care for Medicare beneficiaries 

that can come from analyzing data in order to identify problems, developing a plan of 

action, monitoring the result through data driven processes, and making changes as 

needed based on those results. 

 The qualifications and expertise required to execute these quality improvement 

initiatives have evolved to now include expertise from disciplines such as physicians,

nurses, other clinicians, health care leaders, experts in statistics and health care system 

reengineering, and many other kinds of professionals. We intend to interpret our 

proposed regulation so as not to prohibit the use of professionals in the health care 

industry that are not licensed physicians or certified practitioners. We 

recognize/anticipate that these other professionals may offer valuable insight to QIOs on 

ways to enhance the performance of their QIO functions, as well as provide services 

designed to help QIOs maximize their impact. We propose to adopt this approach to 

further our goal that the regulations under 42 CFR Part 475 reflect a multidisciplinary 

approach to the performance of QIOs. Therefore, the proposed standards here would not 

be a barrier to the inclusion of any other nonphysician or nonpractitioner professional that 

CMS or the QIO deems appropriate for the successful performance of QIO functions. 

Patients and their families also play a critical role in the success of quality improvement 

initiatives. Amendments to the Act made by the TAAEA would accommodate the 

evolution of quality improvement and would allow CMS the flexibility to expand the 
CMS-1601-P 574 

types of organizations eligible to provide multi-disciplinary support in quality 

improvement. We seek with this proposal to ensure that the regulations governing QIO 

eligibility reflect the increased flexibility afforded by the TAAEA. This will help us 

ensure that we can administer the QIO Program in a manner that reflects contemporary 

practices and allows us to include the appropriate individuals and entities in working 

toward improving care processes. 

 As described in section 1154 of the Act, QIOs perform many specific review 

functions that are necessary to ensure the quality of care provided to Medicare 

beneficiaries. The addition to section 1154 of subparagraph (a)(18) by the TAAEA 

explicitly provides the Secretary with the broad authority to require that QIOs perform 

any additional activities the Secretary determines may be necessary for the purposes of 

improving the quality of Medicare services. Based on this authority, QIOs will, as a 

general matter, be required to represent CMS as “change agents” that work at local levels 

in their individual QIO geographic areas. Through the contracting process, different 

QIOs might now be required to work on one or more different tasks; that is, all QIOs 

might no longer be required to handle the complete and broad range of QIO activities 

within their geographic areas but to focus on particular tasks of QIO work. For example, 

QIOs might be required to offer to a variety of stakeholders the knowledge and resources 

for improving health quality, efficiency, and value designed to improve the care provided 

to Medicare beneficiaries. Stakeholders might include providers, practitioners, patients, 

and others who are interested in improving care. 
CMS-1601-P 575 

 As under the current program, QIOs will be required to base their work on clinical 

evidence and some may be required to generate reliable data about clinical performance. 

QIOs may also serve as independent, objective, and collaborative partners that support 

CMS’ mission to improve health care quality in the Medicare program (which, in turn, 

has the potential to greatly benefit the broader health care community) by leveraging the 

best efforts of all health care stakeholders, including patients and their families. While 

the goal of the QIOs is to benefit Medicare beneficiaries, the work of the QIOs may also, 

as a secondary matter, benefit other patients and residents who receive medical care. In 

this context, we are seeking to ensure that the regulations governing QIO eligibility 

reflect contemporary practices and include those that can help to improve care processes 

for Medicare beneficiaries. We are proposing to do so by removing restrictions that are 

no longer statutorily mandated and including requirements that reflect the current goals of 

the QIO program. 

 One such contemporary practice is the inclusion of patients and families in health 

care quality improvement. As a result, we have added to the QIO requirements a new 

focus on patient and family engagement and patient and family inclusion in quality 

improvement initiatives. 

 We believe that the TAAEA legislation allows us a great deal of flexibility in how 

we restructure the work that QIOs perform and the types of organizations qualified to 

perform that work. We intend to continually examine methods for providing care to 

beneficiaries in a way that maximizes efficiency, eliminates waste, decreases harm, 

lowers costs through improvement, and engages patients more effectively. One way to 
CMS-1601-P 576 

continue improving the quality, efficacy, and efficiency of care in the Medicare program 

is to reconsider how QIOs provide services to determine whether the current longstanding 

contract structure and eligibility requirements best fit the continually evolving science 

related to driving quality improvement. The changes we are proposing are intended to 

ensure that we have the flexibility we need to reconsider certain aspects of the QIO 

program structure in response to experience and changes in research findings and the 

health care community’s approach to quality improvement. 

 The regulatory proposals here focus on the primary functional responsibilities of a 

QIO as a basis for determining eligibility. These are case review (which includes the 

statutory minimum standards) and quality improvement initiatives. We believe that the 

proposed eligibility and contracting standards for QIOs focus on the necessary minimum 

requirements for successful operation of the QIO Program. 

C. Proposed Changes to the Nomenclature and Regulations under 42 CFR Parts 475 and 

476

 In this proposed rule, we set forth proposals for updating the nomenclature and 

the definition of physician in both 42 CFR Parts 475 and 476 and for the partial deletion 

and revision of the regulations under 42 CFR Parts 475. Currently, Part 475 includes 

definitions and standards governing eligibility and the award of contracts to QIOs. We 

are proposing to replace nomenclature that has been amended by the TAAEA, revise the 

existing definition in Part 475, Subpart A and Part 476, Subpart A of the term 

“physician”, add new definitions to Part 475, Subpart A as necessary to support proposed 
CMS-1601-P 577 

new substantive provisions in Part 475, Subpart C, and revise, add, and replace some 

substantive provisions in Part 475, Subpart C. 

1. Proposed Nomenclature Changes 

 In order to conform the regulations to the nomenclature changes made by section 

261 of the TAAEA, we are proposing nomenclature changes where necessary in 

42 CFR Part 475. We are, for example, proposing to revise the heading of Subpart C of 

Part 475 to read “Subpart C—Quality Improvement Organizations” and to replace the 

term “peer review” with “quality improvement.” In each proposed provision in Part 475, 

Subpart C, we use the new nomenclature where appropriate. 

 In addition, Part 476 is currently entitled “Utilization and Quality Control 

Review,” and Subpart C of Part 476 is entitled “Review Responsibilities of Utilization 

and Quality Control Quality Improvement Organizations (QIOs),” both of which reflect 

the terminology used before enactment of the TAAEA. In order to reflect the 

nomenclature changes made by the TAAEA, we are proposing to revise the title of Part 

476 to read: “Part 476—Quality Improvement Organization Review” and the title of 

Subpart C of Part 476 to read: “Subpart C—Review Responsibilities of Quality 

Improvement Organizations (QIOs).” 

2. Proposals to Add and Revise Definitions 

 We are proposing changes to §§ 475.101 through 475.107 to reflect new 

eligibility standards for an entity to be awarded a QIO contract and to use specific terms 

that will be used to describe QIOs and their quality improvement work. In connection 

with these changes, we are proposing to add definitions of “case review”, and “QIO 
CMS-1601-P 578 

area,” add cross-references to definitions in § 476.1 of “practitioner” and “quality 

improvement initiative,” and revise the definition of “physician” under § 475.1 and 

§ 476.1, as discussed below. We are soliciting public comments on our proposed 

definitions. 

 We are proposing to define “case reviews” to mean “the different types of reviews 

that QIOs are authorized to perform. Such reviews include, but are not limited to: 

(1) beneficiary complaint reviews; (2) general quality of care reviews; (3) Emergency 

Medical Treatment and Labor Act (EMTALA) reviews; (4) medical necessity reviews, 

including appeals and DRG validation reviews; and (5) admission and discharge 

reviews.” We are providing this list to illustrate the range and scope of case reviews but 

note that the Act and other provisions in Chapter IV of Title 42 of the Code of Federal 

Regulations require additional reviews and that the Secretary, pursuant to section 

1154(a)(18) of the Act, may require additional reviews under the contracts awarded to 

QIOs. 

 We are proposing to expand the definition of “physician” beyond its existing 

definition under § 475.1 and § 476.1 to reflect the definition in section 1861(r) of the Act, 

as well as to cover several additional characteristics that are unique to the QIO Program. 

We are proposing the following definition of physician for both Parts 475 and 476: A 

physician is “(1) A doctor of medicine or osteopathy, a doctor of dental surgery or dental 

medicine, a doctor of podiatry, a doctor of optometry, or a chiropractor as described in 

section 1861(r) of the Act; (2) An intern, resident, or Federal Government employee 

authorized under State or Federal law to practice as a doctor as described in paragraph (1) 
CMS-1601-P 579 

above; and (3) An individual licensed to practice as a doctor as described in paragraph (1) 

above in any Territory or Commonwealth of the United States of America.” We believe 

these revisions are necessary to eliminate references in paragraphs (1) and (2) of the 

definition in § 475.1 to physicians licensed in the State in which the QIO is located, in 

order to reflect the fact that a QIO’s contract area may no longer be limited to one State. 

In addition, we are proposing to amend paragraph (3) of the definition in § 475.1 so that 

it no longer applies to just American Samoa, the Northern Mariana Islands, and the Trust 

Territory of the Pacific Islands. We are proposing to enlarge this part of the definition to 

apply to physicians licensed to practice in all U.S. Territories and Commonwealths to 

more closely align with the Secretary’s flexibility in awarding QIO contracts granted by 

the TAAEA. We are soliciting public comments on whether our proposed definition is 

sufficiently inclusive and appropriate to achieve these goals. We also are proposing to 

define the term “practitioner” and “quality improvement initiative” for purposes of Part 

475 by cross-referencing the existing definitions at 42 CFR 476.1. 

 In connection with our proposal to revise the requirements that an entity must 

meet to serve as a QIO, we also are proposing to define, in § 475.1, the terminology 

related to the geographic area in which a QIO must perform its different functions. 

Currently, the regulations in Part 475 do not define this area, but do refer to a QIO’s 

“review area” in a number of places in existing text at §§ 475.102 and 475.103 and “QIO 

area” in §§ 475.1, 475.105(a), and 475.107(a) and (d). The term “review area” was used 

to refer to the geographic area in which each QIO performs its review functions under its 

contract with CMS while the term “QIO area” was used to refer to the geographic area 
CMS-1601-P 580 

covered by the contract. We are proposing to define and use the term “QIO area” to 

mean “the defined geographic area, such as the State(s), region(s), or community(ties), in 

which the CMS contract directs the QIO to perform.” Our addition of this proposed 

definition is meant to reflect the flexibility afforded to us by the TAAEA to establish a 

QIO area as the geographic area we believe will be most effective in accomplishing the 

goals of a particular QIO contract. In addition, the change in terminology from “QIO 

review area” to “QIO area” is intended to emphasize that the term can encompass more 

than just “review” functions. With this change, we intend to not only broaden the scope 

for choosing an appropriately sized geographic area, but also to identify capability and 

functionality as the primary way to identify the appropriate organization to perform 

specific QIO contract functions. 

3. Proposals Relating to Scope and Applicability of Subpart C of Part 475 

 We believe that the scope and applicability provision for 42 CFR 475, Subpart C 

should reflect that the statutory authority for the QIO program was amended by the 

TAAEA, in particular the definition of a QIO and the eligibility and contracting 

standards. We are proposing to replace the regulatory language in § 475.100 with new 

language that explicitly acknowledges that the regulations in Subpart C implement 

sections 1152 and 1153(b) and (c) of the Act as amended by section 261 of the TAAEA. 

In addition, we are proposing to include the reference to section 1153(c) of the Act to 

reflect our proposal, in § 475.107(c), to include the 5-year contract term that now appears 

in amended section 1153(c)(3) of the Act. The proposed revisions to §§ 475.101 through 

475.107 are intended to allow organizations that currently perform QIO work to compete 
CMS-1601-P 581 

for new QIO contracts ,while expanding eligibility to additional entities under the new 

authority granted by the TAAEA. As the program evolves, we will focus contract 

determinations on the ability of organizations to perform QIO functions as stated in the 

Request for Proposal (RPF). We are soliciting public comments on whether our proposed 

regulation text for Subpart C of Part 475 sufficiently meets this goal as well as our 

explained goal to implement the flexibility provided by Congress in the TAAEA 

amendments. 

4. Proposals Relating to Eligibility Requirements for QIOs (§§ 475.101 through 

475.106) 

 Prior to the TAAEA amendments, section 1152 of the Act defined a QIO as an 

entity that: (1) is composed of a substantial number of licensed doctors of medicine and 

osteopathy engaged in the practice of medicine or surgery in the area where the QIO will 

perform or has available the services of a sufficient number of licensed doctors of 

medicine or osteopathy engaged in the area where the QIO will perform to assure 

adequate review of the services provided by various medical specialties and 

subspecialties; (2) is able, in the judgment of the Secretary, to perform review functions 

in a manner consistent with the efficient and effective administration of the QIO statute 

and to perform reviews of the pattern of quality of care in an area of medical practice 

where actual performance is measured against objective criteria which define acceptable 

and adequate practice; and (3) has at least one individual who is a representative of 

consumers on its governing body. In section 261 of the TAAEA, Congress replaced the 

first two of these requirements with requirements that a QIO: (1) be able, as determined 
CMS-1601-P 582 

by the Secretary, to perform QIO functions in a manner consistent with the efficient and 

effective administration of Part B of Title XI and Title XVIII of the Act; and (2) have at 

least one individual who is a representative of health care providers on its governing 

body. Congress left unchanged the third requirement in section 1152(3) of the Act that a 

QIO have at least one individual representing consumers on its governing body. We have 

interpreted and the regulations in Part 475 implement the statutory definition in section 

1152 of the Act as setting minimum eligibility requirements for an entity to hold a QIO 

contract. Our regulatory proposal in this proposed rule would implement the changes in 

the QIO eligibility standards made by the TAAEA. 

 We recognize the vital role of physicians in the work of the QIOs and also believe 

that some of the functions of the QIOs necessitate a multidisciplinary approach to quality 

improvement, inclusive of expertise from a wide breadth of disciplines. With the 

elimination of the requirement that a QIO be sponsored by or have access to physicians in 

a specific organization structure, we are proposing to delete the eligibility requirements in 

§§ 475.101 through 476.104 related to the concepts of “physician-sponsored 

organization” and “physician-access organization.” In light of the current 

multidisciplinary approach to QIO activities, we believe that expanding the existing 

eligibility requirements beyond “physician-sponsored organizations” and “physicianaccess organizations” will both better reflect the flexibility Congress provided in the 

TAAEA amendments to section 1152 of the Act and be inclusive of the multidisciplinary 

approach that currently exists in contemporary quality improvement. 
CMS-1601-P 583 

 In addition, to implement the language added by section 261 that a QIO must be 

able, as determined by the Secretary, to perform the functions under the Act consistent 

with the purposes of the QIO program and the Medicare program, we are proposing 

language in §§ 475.101 through 475.103 to distinguish the requirements for QIOs to be 

able to perform case reviews from the requirements for QIOs to be able to perform 

quality improvement initiatives. We are soliciting public comments on our focus on 

these primary QIO functions and how this functional approach will ensure that QIOs are 

appropriately selected for contract award. We are proposing to vacate and reserve 

existing §§ 475.104 and 475.106. 

a. Eligibility to be Awarded a QIO Contract (§ 475.101) 

 As proposed here, revised § 475.101 would no longer reference 

“physician-sponsored organizations” and “physician-access organizations,” would retain 

the requirement that the governing body of the QIO include at least one consumer 

representative, and would include new eligibility standards for an organization to be 

awarded a QIO contract based on the TAAEA amendments to section 1152 of the Act. 

First, in paragraph (a), we are proposing that a QIO must have a governing body that 

includes at least one representative of health care providers and one representative of 

consumers as required by section 1152(2) and (3) of the Act as amended by the TAAEA. 

Second, in paragraph (b), we are proposing to interpret and implement the amended 

language in section 1152(1) of the Act that an organization awarded a QIO contract must 

be able, as determined by the Secretary, to perform the functions under the Act consistent 

with the purposes of the QIO program and the Medicare program by requiring that an 
CMS-1601-P 584 

organization demonstrate the ability to meet eligibility requirements and perform the 

functions of a QIO. Our proposal characterizes the functions of a QIO as the contractual 

requirements for QIOs to perform activities that are built into the request for proposals 

used to award QIO contracts and the ability to perform case reviews and/or quality 

improvement initiatives as described in these regulations. In our view, these broad 

categories encompass the work QIOs are required to perform under section 1154 of the 

Act. Our proposal reflects a different approach to structuring the QIO requirements than 

the current rule; we are proposing to focus on the functions the organization performs 

under the QIO contract instead of the structure of the organization itself. As discussed in 

more detail below in connection with proposed §§ 475.102 and 475.103, this functionfocused approach also reflects both the important role of physicians and a 

multidisciplinary approach for the two primary functions of the QIO contracts: (1) case 

reviews and (2) quality improvement initiatives. These two primary functions are based 

on the statutory requirements for the functions QIOs must perform and our current 

approach of using quality improvement initiatives to improve the quality of care provided 

to Medicare beneficiaries. By referencing the contractual requirements set forth in the 

requests for proposals, we are proposing to incorporate the flexibility provided in section 

1154(a) to require a QIO to perform one or more of the listed QIO functions and section 

1154(a)(18) of the Act for the inclusion of additional activities for QIOs to perform when 

we determine that they are necessary to improve the quality of care for Medicare 

beneficiaries. 
CMS-1601-P 585 

 Finally, in paragraph (c), we are proposing that a QIO must demonstration the 

ability to actively engage beneficiaries, families, and consumers, as applicable, in case 

reviews and quality improvement initiatives. Although this is not a specifically required 

qualification for a QIO under sections 1152 and 1153 of the Act, we are proposing this 

requirement because it reflects the multidisciplinary and multistakeholder approach to 

QIO functions that we intend to establish. Health care costs have doubled as a share of 

the economy over the past three decades, causing stress on beneficiaries, families, 

employers, and government budgets. We believe that motivating beneficiaries to become 

involved in their own health care may reduce waste and ultimately improve the quality 

and efficiency of health care. One important way to accomplish this is by educating 

beneficiaries, their families, providers, and the public about the importance of identifying 

and pursuing value in health care. Value represents the best possible quality of health 

care at the most reasonable cost. A major component of a successful value initiative 

depends on a QIO’s understanding of patient and family goals, expectations, motivations, 

and aspirations. Our inclusion of the requirement that a QIO have the ability to 

understand the needs of beneficiaries, families, and consumers and actively engage them 

in health care decisions emphasizes our commitment to patient and family engagement as 

an essential component of the QIO program. 

 We are soliciting public comments on whether our proposal sufficiently 

incorporates the statutory flexibility, identifies the goals of the QIO eligibility 

requirements, and provides guidance on how organizations will be determined eligible for 

QIO contracts. 
CMS-1601-P 586 

b. Eligibility Requirements for QIOs to Perform Case Reviews (§ 475.102) 

 In this proposed rule, we are proposing to list the type of factors CMS will use to 

determine that an organization has demonstrated its ability to perform case reviews. We 

do not consider this list to be comprehensive, but an indication of what we intend to focus 

on. The list of factors emphasizes the importance of QIOs having access to qualified 

physicians and practitioners for this purpose. In paragraph (a) of § 475.102, we are 

proposing that CMS will determine that an organization has demonstrated the ability to 

perform case reviews based on factors related to how the QIO work will be performed 

and the underlying capabilities necessary for performing well. Under our proposal, CMS 

will consider such factors as (1) the organization’s proposed processes, capabilities, 

quantitative and/or qualitative performance objectives, and case review methodology; 

(2) the organization’s proposed involvement of and access to physicians and 

practitioners in the QIO area with appropriate expertise and specialization in the areas of 

health care related to case reviews; (3) the organization’s ability to take into 

consideration urban versus rural and regional characteristics in the health care setting 

where the care under review was provided; (4) the organization’s ability to take into 

consideration evidence-based national clinical guidelines and professionally recognized 

standards of care; and (5) the organization’s access to qualified information technology 

(IT) expertise. In this paragraph, we intend to propose these general factors and 

standards CMS may use to establish the minimum level of resources and skills the 

organization must have in order to demonstrate that its processes and capabilities are 

satisfactory and meet the purposes of the QIO program. 
CMS-1601-P 587 

 In paragraph (b) of § 475.102, we are proposing that CMS may consider 

characteristics such as the geographic location, size and prior experience of an 

organization in order to determine whether the organization has the capability to perform 

case reviews. In terms of prior experience, we are proposing that CMS will gauge the 

significance of an organization’s experience based on how relevant it is to the tasks that 

CMS intends to include in the QIO contract and the goals CMS intends to accomplish. 

While we intend to emphasize the importance of prior experience, we do not intend to 

limit the evidence an organization may present to us to demonstrate its capability to 

perform case reviews. Therefore, we have included language in proposed § 475.102(b) to 

indicate that CMS can consider a variety of factors, as indicated in section 1153(b)(4) of 

the Act. 

 Finally, we are proposing to include in paragraph (c) of § 475.102 clarifications to 

the text that reflect the existing regulatory text at § 475.104(d), with some minor 

modifications. The existing provision states that a State government that operates a 

Medicaid program will be considered incapable of performing utilization and quality 

review functions in an effective manner, unless the State demonstrates to CMS’ 

satisfaction that it will act with complete independence and objectivity. As proposed, the 

provision at § 475.102(c) maintains the substance of the existing rule while making it 

clear that the scope of its review will be limited to case reviews. In order to do this, we 

have proposed to replace the term “utilization and quality review functions” with the term 

“case reviews.” In addition, we are proposing to revise the language to clarify that the 

objectivity and independence mentioned in the existing regulation relate to objectivity 
CMS-1601-P 588 

and independence from the Medicaid program, as we believe there is an inherent conflict 

of interest that arises from the State’s financial interest in the administration of that 

program. 

 Our proposal at § 475.102 implements the statutory responsibility for the 

Secretary to determine whether an organization can perform the QIO function of case 

reviews in a manner that is consistent with the efficient and effective operation of the 

QIO Program and the Medicare Program. We are soliciting public comments on whether 

the regulation text should incorporate the standards for QIOs that we propose to use and 

the factors we intend to consider when determining whether those standards have been 

met. 

 We are proposing to delete and reserve all of § 475.104 in light of our proposed 

changes to § 475.102. We believe that aspects of § 475.104 that we have not proposed to 

incorporate into § 475.102 are obsolete due to the revisions in the TAAEA legislation. 

c. Eligibility Requirements for QIOs to Conduct Quality Improvement Initiatives 

(§ 475.103) 

 Case reviews are concerned with care that was provided, or should be provided, 

based on the facts of a particular case, concerning a particular episode of care or 

concerning a particular beneficiary, or both. By contrast, the vast majority of quality 

improvement initiatives are not initiated in the same manner as case reviews. Rather, 

quality improvement initiatives are based on patterns of care that reveal problems that are 

more systematic in nature, such as those that result in inefficiency, waste, or high cost, or 

that could potentially harm beneficiaries. These patterns of care can reflect problems that 
CMS-1601-P 589 

might impact large segments of the population, or single episodes of care where the 

impact might affect fewer people, but the QIO is concerned about the health and safety of 

the public due to the severity of the quality of care issue. We are proposing under revised 

§ 475.103(a) that CMS will determine if an organization is capable of performing quality 

improvement initiatives using factors similar to those listed for QIOs that will perform 

case reviews. In paragraph (a), we are proposing a list of the type of factors CMS will 

use to determine that an organization has demonstrated its ability to perform quality 

improvement initiatives. We do not consider this list to be comprehensive, but an 

indication of what we intend to focus on. Specifically, in revised paragraph § 475.103(a), 

we are proposing that CMS will determine that an organization has demonstrated the 

ability to perform quality improvement initiatives based on factors tied to how the QIO 

work will be performed and the underlying capabilities necessary for performing well. 

Under our proposal, CMS will consider such factors as (1) the organization’s proposed 

processes, capabilities, quantitative and/or qualitative performance objectives, and 

methodology to perform quality improvement initiatives; (2) the organization’s proposed 

involvement of and access to physicians and practitioners in the QIO area with 

appropriate expertise and specialization in the areas of health care concerning the quality 

improvement initiative; and (3) the organization’s access to professionals with requisite 

knowledge of quality improvement methodologies and practices as well as qualified 

information technology and technical expertise. We plan to use these factors, and others 

as necessary, to determine if an organization has satisfactory capabilities and sufficient 

resources to initiate, follow up on, and follow through to completion quality improvement 
CMS-1601-P 590 

initiatives that it agrees to undertake. We consider appropriate quality improvement 

resources to include a multidisciplinary team that is comprised of appropriate health care 

professionals to perform quality improvement initiatives as well as the administrative, IT 

and technical staff necessary to accomplish the quality improvement initiatives. 

 In paragraph (b), we are proposing that CMS may consider characteristics such as 

the geographic location, size, and prior experience of an organization in order to 

determine whether the organization has the capability to perform quality improvement 

initiatives. In terms of prior experience, we are proposing that CMS will gauge the 

significance of an organization’s experience based on how relevant it is to the tasks that 

CMS intends to include in the QIO contract and the goals CMS intends to accomplish. 

While we intend to emphasize the importance of prior experience, we do not intend to 

limit the evidence an organization may present to us to demonstrate its capability to 

perform quality improvement initiatives. We are proposing to include language in 

proposed § 475.103(b) to indicate that CMS can also consider a variety of other factors, 

as indicated in section 1153(b)(4) of the Act. 

 Finally, we are proposing to include in paragraph (c) clarifications to the text that 

reflect the existing regulatory text at § 475.104(d), with some minor modifications. The 

current provision states that a State government that operates a Medicaid program will be 

considered incapable of performing utilization and quality review functions in an 

effective manner, unless the State demonstrates to CMS’ satisfaction that it will act with 

complete independence and objectivity. As proposed, the provision at § 475.103(c) 

maintains the substance of the existing rule while making it clear that the scope of its 
CMS-1601-P 591 

review will be limited to quality improvement initiatives. In order to do this, we have 

proposed to replace the term “utilization and quality review functions” with the term 

“quality improvement initiatives.” In addition, we are proposing to revise the language to 

clarify that the objectivity and independence mentioned in the existing regulation relate to 

objectivity and independence from the Medicaid program, as we believe there is an 

inherent conflict of interest that arises from the State’s financial interest in the 

administration of that program. 

 Our proposal at § 475.103 implements the statutory responsibility for the 

Secretary to determine whether an organization can perform the QIO function of quality 

improvement initiatives in a manner that is consistent with the efficient and effective 

operation of the QIO Program and the Medicare Program. We solicit comment on 

whether the regulation text should incorporate the standards for QIOs that we propose to 

use and the factors we intend to consider when determining whether those standards have 

been met. 

d. Prohibitions on Eligibility as a QIO (§ 475.105) 

 We are proposing revisions to § 475.105(a)(2) to eliminate the prohibition against 

an association of health care facilities being awarded a QIO contract, to reflect a TAAEA 

amendment deleting this restriction from section 1153(b)(3) of the Act. We also are 

proposing to move the existing provision covering the exclusion of health care facility 

affiliates in paragraph (a)(3) to paragraph (a)(2), and to create a revised paragraph (a)(3) 

that would include payor organizations as excluded entities unless they meet certain 

exception requirements identified in section 1153(b)(2)(B) of the Act. Prior to the 
CMS-1601-P 592 

TAAEA amendment, the statute imposed two prohibitions on CMS contracting with a 

payor organization to perform QIO functions: a prohibition applicable before 

November 15, 1984 and a prohibition with exceptions for periods of time after 

November 15, 1984. After November 15, 1984, a payor organization could perform as a 

QIO if the Secretary determined that there were no other entities available for a QIO area. 

These restrictions were implemented in the existing regulations codified at §§ 475.105(b) 

and 475.106. The TAAEA amendments left unchanged the prohibition in effect for the 

period of time before November 15, 1984, but revised section 1153(b)(2)(B) of the Act to 

add exceptions to the prohibition applicable after November 15, 1984. Section 

1153(b)(2)(B) of the Act, as amended, permits the award of a QIO contract to a payor 

organizations not only when the Secretary determines that there is no other entity 

available for an area, but also when the Secretary determines that there is a more 

qualified entity to perform one or more of the functions in section 1154(a) of the Act, if 

the entity meets all other requirements and standards in the QIO statute. We read this 

provision to mean that when the Secretary determines that a payor organization is more 

qualified than a nonpayor organization in the QIO area to perform one or more of the 

functions in section 1154(a) of the Act, that payor entity can qualify as a QIO so long as 

all other eligibility criteria are met. We have reflected this interpretation in the proposed 

rule as § 475.105(a)(3). 

 The existing paragraph (b) prohibits payor organizations from being QIOs prior to 

November 15, 1984. Since that date has long passed, we believe this paragraph should be 

eliminated. We are proposing to delete and reserve paragraph (b) of §475.105 in its 
CMS-1601-P 593 

entirety. Paragraph (c) would remain largely unchanged except for a minor terminology 

update to clarify in the regulation text that the term “facility” is meant to refer to a 

“health care facility” and to change the term “conduct any review activities” to “perform 

any case review activities” to indicate our separation of case review functions from 

quality improvement initiatives. We do not believe that these changes affect the 

underlying prohibitions. 

 As noted above, we are proposing to delete and reserve all of § 475.106 in light of 

our proposed changes to § 475.105. We believe that aspects of § 475.106 that we have 

not proposed to incorporate into § 475.105 are obsolete due to the passage of time. 

5. Proposals Relating to QIO Contract Awards (§ 475.107) 

 The existing regulations at 42 CFR Part 475 also include requirements related to 

the establishment of QIO contracts and the assignment of bonus points. We are 

proposing to delete the portions of existing § 475.107(c) pertaining to the assignment of 

up to 10 percent of available bonus points to physician-sponsored organizations, and the 

assignment of points in connection with the structure of the organization as 

“physician-sponsored” or “physician-access.” These provisions are obsolete in light of 

the changes to section 1152(1) of the Act and our proposals above relating to the 

eligibility standards for an organization awarded a QIO contract. We also are proposing 

to use cross-references in § 475.107(a) and (b) to the revised standards we are proposing 

in §§ 475.101 through 475.103. We are proposing to retain the regulatory language that 

requires CMS to identify proposals that meet the requirements of § 475.101 (proposed 

§ 475.107(a)) and to identify those proposals that set forth minimally acceptable plans in 
CMS-1601-P 594 

accordance with the requirements of § 475.102 or § 475.103, or both as applicable 

(proposed § 475.107(b)). 

 The existing § 475.107(d) states that the contract for a given QIO area to the 

selected organization cannot exceed 2 years, which is inconsistent with the current 

statutory provision at section 1153(c)(3) of the Act. We are proposing here to 

redesignate this provision as paragraph (c) and to provide for a 5-year contract term as 

required by section 1153(c)(3) of the Act, as amended by section 261 of the TAAEA. 

XVIII. Medicare Fee-for-Service Electronic Health Record (EHR) Incentive 

Program 

A. Incentive Payments for Eligible Professionals (EPs) Reassigning Benefits to Method 

II CAHs

 Section 1848(o)(1)(A) of the Act, as amended by section 4101(a) of the HITECH 

Act, establishes the Medicare EHR Incentive Program, which provides for incentive 

payments to eligible professionals (EPs) who are meaningful users of certified EHR 

technology during the relevant EHR reporting periods. Section 1848(o)(1)(A)(i) of the 

Act provides that EPs who are meaningful EHR users during the relevant EHR reporting 

period are entitled to an incentive payment amount, subject to an annual limit, equal to 75 

percent of the Secretary's estimate of the Medicare allowed charges for covered 

professional services furnished by the EP during the relevant payment year. Under 

section 1848(o)(1)(B)(ii) of the Act, an EP is entitled to an incentive payment for up to 

5 years. In addition, in accordance with section 1848(o)(1)(A)(ii) of the Act, there shall 

be no incentive payments made with respect to a year after 2016. 
CMS-1601-P 595 

1. Background for Definition of EPs and EHR Incentive Payments to EPs 

 In accordance with section 1848(o)(5)(C) of the Act, in the final rule for Stage 1 

of the EHR Incentive Program (75 FR 44442), we established a definition of the term 

“eligible professional” in the regulations at 42 CFR 495.100 to mean a physician as 

defined under section 1861(r) of the Act. Section 1861(r) of the Act defines the term 

“physician” to mean the following five types of professionals, each of which must be 

legally authorized to practice their profession under State law: a doctor of medicine or 

osteopathy; a doctor of dental surgery or dental medicine; a doctor of podiatric medicine; 

a doctor of optometry; or a chiropractor. As also discussed in that final rule (75 FR 

44439), in accordance with section 1848(o)(1)(C) of the Act, hospital-based EPs are not 

eligible for an EHR incentive payment. The term “hospital-based EP” is defined in 

§ 495.4 of the regulations as “Unless it meets the requirements of § 495.5 of this part, a 

hospital-based EP means an EP who furnishes 90 percent or more of his or her covered 

professional services in sites of service identified by the codes used in the HIPAA 

standard transaction as an inpatient hospital or emergency room setting in the year 

preceding the payment year, or in the case of a payment adjustment year, in either of the 

2 years before such payment adjustment year.” Paragraphs (1)(i) and (1)(ii) of the 

definition specify how the percentage of covered professional services is calculated for 

Medicare for purposes of the payment years and payment adjustment years, respectively. 

We note a discrepancy between the regulation text for this definition and the final policy 

we established in the preamble of the EHR Incentive Program Stage 2 final rule (77 FR 

54102). Under the policy we finalized in that rule, we determine whether an EP is 
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hospital-based for a payment adjustment year using either of the following Federal fiscal 

year’s (FY) data: (1) the fiscal year before the year that is 1 year prior to the payment 

adjustment year (for example, FY 2013 data for payment adjustment year 2015); or (2) 

the fiscal year before the year that is 2 years prior to the payment adjustment year (for 

example, FY 2012 data for payment adjustment year 2015). If the data from either year 

result in a hospital-based determination, the EP would not be subject to the payment 

adjustments for the relevant year. In the definition under § 495.4 of the regulations, 

however, paragraph (1)(ii) incorrectly refers to the fiscal year preceding the payment 

adjustment year and the fiscal year 2 years before the payment adjustment year. The 

introductory text of the definition also incorrectly references either of the 2 years before 

such payment adjustment year. We are taking this opportunity to make a technical 

correction to paragraph (1)(ii) and the introductory text of the definition of “hospitalbased EP” at § 495.4 to conform to the policy stated in the preamble of the EHR 

Incentive Program Stage 2 final rule (77 FR 54102). We are proposing to revise 

paragraph (1)(ii)(A) of the definition to read “The Federal fiscal year 2 years before the 

payment adjustment year; or” and paragraph (1)(ii)(B) of the definition to read “The 

Federal fiscal year 3 years before the payment adjustment year.” We also are proposing 

to revise the introductory text of the definition to reference, in the case of a payment 

adjustment year, either of the 2 years before the year preceding such payment adjustment 

year. Section 1848(o)(5)(A) of the Act defines covered professional services as having 

the same meaning as in section 1848(k)(3) of the Act; that is, services furnished by an 

eligible professional for which payment is made under, or is based on, the Medicare 
CMS-1601-P 597 

Physician Fee Schedule (MPFS). In accordance with section 1848(a)(1) of the Act, the 

Medicare allowed charge for covered professional services is the lesser of the actual 

charge or the MPFS amount established in section 1848 the Act. As specified under 

section 1848(o)(1)(A)(i) of the Act, the Secretary’s estimate of allowed charges for EHR 

incentive payments is based on claims submitted to Medicare no later than 2 months 

following the end of the relevant payment year. 

 Section 1848(o)(1)(B)(i) of the Act sets forth the annual limits on the EHR 

incentive payments to EPs. Specifically, section 1848(o)(1)(B) of the Act provides that 

the incentive payment for an EP for a given payment year shall not exceed the following 

amounts: 

• For the EP’s first payment year, for such professional, $15,000 (or $18,000, if 

the EP’s first payment year is 2011 or 2012); 

• For the EP’s second payment year, $12,000; 

• For the EP’s third payment year, $8,000; 

• For the EP’s fourth payment year, $4,000; 

• For the EP’s fifth payment year, $2,000; and 

• For any succeeding year, $0. 

 Under section 1848(o)(1)(B)(iv) of the Act, for EPs who predominantly furnish 

services in a geographic HPSA (as designated by the Secretary under section 

332(a)(1)(A) of the Public Health Service Act), the incentive payment limitation amounts 

for each payment year are increased by 10 percent. Section 1848(o)(1)(B)(iii) of the Act 

also provides for a phased reduction in payment limits for EPs who first demonstrate 
CMS-1601-P 598 

meaningful use of certified EHR technology after 2013. Section 1848(o)(1)(D)(i) of the 

Act, as amended by section 4101(a) of the HITECH Act, provides that the incentive 

payments may be disbursed as a single consolidated payment or in periodic installments 

as the Secretary may specify. We make a single, consolidated, annual incentive payment 

to EPs. Payments are made on a rolling basis, as soon as we ascertain that an EP has 

demonstrated meaningful use for the applicable reporting period (that is, 90 days for the 

first year or a calendar year for subsequent years), and reached the threshold for 

maximum payment. 

 Section 1848(o)(1)(A) of the Act provides that “with respect to covered 

professional services provided by an eligible professional,” the incentive payment “shall 

be paid to the eligible professional (or to an employer or facility in the cases described in 

clause (A) of section 1842(b)(6)).” Section 1842(b)(6)(A) of the Act allows for 

reassignment of payments to an employer or entity with which the physician has a valid 

contractual arrangement allowing the entity to bill for the physician’s services. 

Therefore, we provided that EPs would be allowed to reassign their incentive payments to 

their employer or an entity that they have a valid employment agreement or contract 

providing for such reassignment, consistent with all rules governing reassignments (75 

FR 44445). Section 495.10(f) of the regulations permits EPs to reassign their incentive 

payments to an employer or to an entity with which they have a contractual arrangement, 

consistent with all rules governing reassignments, including 42 CFR Part 424, Subpart F. 

Section 495.10(f) also precludes an EP from reassigning the incentive payment to more 

than one employer or entity. To implement this requirement, we use the EP’s Medicare 
CMS-1601-P 599 

enrollment information to determine whether an EP belongs to more than one practice 

(that is, whether the EP’s National Provider Identifier (NPI) is associated with more than 

one practice). In cases where an EP is associated with more than one practice, the EP 

would select one tax identification number to receive any applicable EHR incentive 

payment. 

2. Special Circumstances of EPs Reassigning Benefits to Method II CAHs 

 Since we implemented the EHR Incentive Program, we have received many 

requests from CAHs billing under Method II (Method II CAHs), members of Congress, 

and hospital associations requesting that we make it possible for EPs who assign their 

reimbursement and billing to a Method II CAH to participate in the program. Under 

section 1834(g)(2) of the Act, a CAH may elect to receive a cost-based payment for the 

facility costs of providing outpatient services, plus 115 percent of the fee schedule 

amount for professional services included within outpatient CAH services. CAHs that 

elect to receive both a facility payment and a professional payment for outpatient services 

are commonly referred to as Method II CAHs. The statute also provides that, as a 

condition for applying this provision, the Secretary may not require that each physician or 

other practitioner providing professional services in a CAH must assign billing rights for 

such services to the CAH. Physicians and other practitioners who do not assign such 

rights to their Method II CAH continue to receive payment for their professional services 

directly under the appropriate professional fee schedule. 

 Since the inception of the EHR Incentive Program, we have been unable to 

account for the services furnished by EPs in Method II CAH outpatient departments 
CMS-1601-P 600 

(including emergency departments) due to limitations in our information systems. 

Specifically, our information systems have not been capable of receiving and storing linelevel rendering EP identifying information for these Method II CAH claims for services 

furnished by EPs in outpatient departments. These claims are billed by the CAH on 

behalf of the EPs furnishing the services using the institutional claim form UB-04 or its 

electronic counterpart, the X12 837I format. Until a recent information systems change 

was implemented, we were unable to identify the NPI of the EP furnishing the service at 

the service line-level on the claim. While the information systems received and stored 

NPIs from each claim, the NPIs were not tied to the specific services furnished on the 

claim. This limitation made it impossible to take into account the services furnished by 

EPs in Method II CAH outpatient settings when we annually determined the hospitalbased status of each EP for each payment year for purposes of the EHR Incentive 

Program. In addition, for those EPs who were determined to be not hospital-based and 

who successfully demonstrated meaningful use, we were unable to take into account such 

services in calculating the amount of an EP’s EHR incentive payment for a payment year. 

Because the limitations in our information systems prevented us from identifying the 

NPIs of the EPs who furnished the services on the Method II CAH claims, we were 

unable to include those claims for purposes of the hospital-based determinations and 

EHR incentive payment calculations. However, it is important to note that these EPs 

could still participate in the EHR Incentive Program and qualify for an incentive payment 

based on their non-Method II CAH claims. 
CMS-1601-P 601 

 We began soon after the implementation of the EHR Incentive Program to 

develop the requisite changes so that our information systems would be able to receive 

and store line-level rendering EP identifying information for these Method II CAH 

claims. We were able to implement these information systems changes effective for 

claims submitted on or after October 1, 2012 (in other words, on or after the start of FY 

2013). Under the existing regulations at § 495.4, we determine an EP’s hospital-based 

status for a payment year based on claims data from the fiscal year preceding the 

payment year. Thus, for purposes of the 2013 payment year, we determine whether an 

EP is hospital-based using claims data from FY 2012. However, as noted above, we are 

unable to take into account Method II CAH claims prior to the start of FY 2013. As a 

result, under the existing regulations, the hospital-based determinations for EPs for the 

2013 payment year are based on FY 2012 claims data that do not include Method II CAH 

claims. The earliest that we would be able to include such claims under the existing 

regulations would be for the hospital-based determinations for the 2014 payment year, 

which are based on FY 2013 claims data. 

 We want to avoid further delay in taking into account the services furnished by 

EPs in Method II CAH outpatient settings. Therefore, we are proposing to add a 

provision to the definition of “hospital-based EP” at § 495.4 under new paragraph (3) to 

provide a special methodology for making hospital-based determinations for the 2013 

payment year for EPs with services billed by Method II CAHs. We are making this 

proposal solely in order to take into account the special circumstances of those EPs as 

described above. Under this proposal, we would be able to take into account Method II 
CMS-1601-P 602 

CAH claims when making hospital-based determinations for payment year 2013, one 

year before we would be able to do so under the existing regulations. Specifically, we are 

proposing that, for payment year 2013 only, we would use a two-step process to make 

hospital-based determinations for EPs who furnish covered professional services billed 

by Method II CAHs. First, after we have accumulated the Method II CAH claims with 

the line-level furnishing EP identifying information for FY 2013 (October 1, 2012 

through September 30, 2013), we would use that data to identify which EPs had Method 

II CAH service billings during that year, and we would make a special hospital-based 

determination for that subset of EPs for payment year 2013. Any EP determined to be 

nonhospital-based on the basis of FY 2013 claims data would be eligible to demonstrate 

meaningful use for the relevant EHR reporting period and potentially qualify for an EHR 

incentive payment for payment year 2013. An EP who believes that he or she would be 

determined to be nonhospital-based under this proposed provision and wishes to qualify 

for the EHR incentive payment for payment year 2013 should not wait for the 

determination to implement Certified EHR Technology and begin meaningful use for an 

EHR reporting period in 2013. To qualify for an EHR incentive payment for payment 

year 2013, an EP will need to demonstrate meaningful use of Certified EHR Technology 

for an EHR reporting period in 2013. As is the case with other EPs that reassign their 

EHR incentive payments to another entity, these EPs may reassign their EHR incentive 

payments to the Method II CAH that bills on their behalf if the CAH is an employer or 

they have a contractual arrangement, consistent with the rules governing reassignments. 

Second, in the case of an EP determined to be hospital-based on the basis of FY 2013 
CMS-1601-P 603 

claims data, we would check the hospital-based determination we have already for that 

EP under the existing regulation using the FY 2012 file. Any EP found to be 

nonhospital-based on the basis of the FY 2012 claims data (which do not include Method 

II CAH claims) would be held harmless to the determination made on the basis of FY 

2013 claims data and considered nonhospital-based for payment year 2013. We believe 

that this second step of the proposed methodology is important to protect EPs who were 

initially determined nonhospital-based at the beginning of payment year 2013 under the 

existing regulation. We do not believe those EPs who were determined nonhospitalbased under the existing regulation should have those determinations reversed by later 

(although more complete) FY 2013 claims data. This hold-harmless provision would 

preserve the prospectivity of nonhospital-based determinations for payment year 2013 

that were made under the existing regulation and maintain the eligibility of those EPs to 

receive EHR incentive payments for payment year 2013. At the same time, the first step 

of our proposal would provide an opportunity for EPs who were determined to be 

hospital-based for payment year 2013 on the basis of FY 2012 data, which did not 

include the Method II CAH claims for their services, to establish their nonhospital-based 

status on the basis of the more complete FY 2013 data. It is important to note that, due to 

the systems limitations described above, we are unable to propose any special method for 

making EHR incentive payments and hospital-based determinations for the payment 

years prior to payment year 2013. We lack the ability to retrieve line-level furnishing EP 

identifying information for Method II CAH claims during the years prior to FY 2013. 

We are inviting public comments on this proposal. 
CMS-1601-P 604 

B. Cost Reporting Periods for Interim and Final EHR Incentive Payments to Eligible 

Hospitals

1. Background 

 In the July 28, 2010 final rule for Stage 1 of the EHR Incentive Program, we 

established the cost report periods from which we would draw the requisite data (for 

example, hospital acute care inpatient discharges and Medicare Part A acute care 

inpatient days) for determining interim and final EHR incentive payments to eligible 

hospitals (75 FR 44450). We specified in § 495.104(c)(2) of the regulations that we 

would use discharge and other relevant data from the hospital’s most recently submitted 

12-month cost report in order to determine preliminary hospital EHR incentive payments. 

Similarly, we specified in § 495.104(c)(2) that we would make final EHR incentive 

payments to hospitals based on discharge and other relevant data from the hospital’s first 

12-month cost reporting period that begins on or after the first day of the payment year. 

(For purposes of EHR incentive payments for eligible hospitals, a payment year is a 

Federal fiscal year.) As we noted in the final rule (75 FR 44450 through 44451), section 

1886(n)(2)(C) of the Act requires that a “12-month period selected by the Secretary” be 

employed for purposes of determining the discharge related amount. As we also stated in 

that final rule (77 FR 44452), we believe that the requirement for using 12-month cost 

reporting periods for purposes of determining preliminary and final payments is 

important to avoid the use of nonstandard cost reporting periods, which are often quite 

short (for example, 3 months) and therefore are “not likely to be truly representative of a 
CMS-1601-P 605 

hospital’s experience, even if methods were to be adopted for extrapolating data over a 

full cost reporting period.” 

2. Special Circumstances 

 Since the publication of the EHR Incentive Program final rule for Stage 1, we 

have become aware of circumstances in which the only cost reporting period for an 

eligible hospital that begins on or after the first day of a payment year is a nonstandard 

cost reporting period. For example, a hospital may be merging with another hospital 

under an arrangement in which its CCN, and therefore its existence as an identifiable 

hospital for Medicare EHR Incentive Program purposes, will not survive the merger. In 

such circumstances, the last cost reporting period for the hospital after its final payment 

year and prior to its merger into the surviving hospital may be a short period. In order to 

accommodate these situations, we are proposing to revise § 495.104(c)(2) of the 

regulations to provide that, in cases where there is no 12-month cost reporting period that 

begins on or after the beginning of a payment year, we will use the most recent 12-month 

cost reporting period available at the time of final settlement in order to determine final 

EHR incentive payments for the hospital. We understand that, under this proposal, the 

last available cost reporting period that we would use for the final determination of EHR 

incentive payments may be the same 12-month cost reporting period that had been used 

for purposes of determining the hospital’s interim EHR incentive payments. We believe 

that this result is preferable to resorting to a nonstandard cost reporting period because a 

12-month period is required by the statute to determine the discharge related amount and 

such periods tend, for reasons discussed in the EHR Incentive Program Stage 1 final rule, 
CMS-1601-P 606 

to be unrepresentative of the hospital’s experience. We are inviting public comments on 

this proposal. 

XIX. Medicare Program: Provider Reimbursement Determinations and Appeals 

A. Matters Not Subject to Administrative or Judicial Review (§ 405.1804)

1. Background 

 Section 1878(a) of the Act addresses appeals of certain Medicare payment 

determinations to the Provider Reimbursement Review Board (the “Board”). Below we 

briefly discuss the prospective payment system (PPS) under which payments for certain 

Medicare inpatient hospital services are made. 

 The Social Security Amendments of 1983 (Pub. L. 98-21) added section 1886(d) 

to the Act, which changed the method of payment for inpatient hospital services under 

Medicare Part A for short-term acute care hospitals. The method of payment for these 

hospitals was changed from a cost-based retrospective reimbursement system to a system 

based on prospectively set payment rates; that is, a PPS. Under Medicare’s hospital 

inpatient prospective payment system (the hospital IPPS), payment is made at a 

predetermined rate for each hospital discharge. 

 The Social Security Amendments of 1983 also added section 1886(e)(1) to the 

Act, which required that, for cost reporting periods beginning in FYs 1984 and 1985, the 

IPPS result in aggregate program reimbursement equal to “what would have been 

payable” under the reasonable cost-based reimbursement provisions of prior law; that 

was, for FYs 1984 and 1985, the IPPS would be “budget neutral.” Section 1886(e)(1)(A) 

of the Act required that the projected aggregate payments for the hospital-specific portion 
CMS-1601-P 607 

should equal the comparable share of estimated reimbursement under prior law. Section 

1886(e)(1)(B) of the Act required that projected aggregate reimbursement for the Federal 

portion of the prospective payment rates equal the corresponding share of estimated 

amounts payable prior to the passage of Pub. L. 98-21. In the 1983 IPPS interim final 

rule published in the Federal Register on September 1, 1983, we explained how the 

adjustment of the Federal portion of the prospective payment rate was determined, as 

well as the resulting adjustment factors for FY 1984 (48 FR 39887). 

 Under section 1878 of the Act and the regulations at Subpart R of 42 CFR Part 

405, the Board has the authority to adjudicate certain reimbursement appeals by 

providers. The Board’s decisions are subject to review by the Administrator of CMS 

under section 1878(f)(1) of the Act, as implemented by § 405.1875 of the regulations. A 

final decision of the Board, or any reversal, affirmance, or modification of a final Board 

decision by the Administrator, may be subject to review by a United States District Court. 

2. Proposed Technical Conforming Change 

 Certain matters affecting payment to hospitals under the IPPS are not subject to 

administrative or judicial review. For example, section 1886(d)(7) of the Act precludes 

administrative and judicial review of the budget neutrality adjustment effected pursuant 

to section 1886(e)(1) of the Act. This preclusion of review is also reflected in section 

1878(g)(2) of the Act (which states that “determinations and other decisions described in 

section 1886(d)(7) shall not be reviewed by the Board or any other court . . . .”). The 

existing regulatory text at § 405.1804(a) provides that there is no administrative or 

judicial review of “any budget neutrality adjustment in the prospective payment rates.” 
CMS-1601-P 608 

 The language of § 405.1804(a) was promulgated as part of the implementing 

regulations (48 FR 39785 and 39835) for the hospital IPPS. Section 405.1804(a) was 

codified pursuant to section 1886(d)(7) of the Act. At the time of promulgation, section 

1886(d)(7) of the Act specified only the budget neutrality adjustment in section 

1886(e)(1) of the Act. Additional budget neutrality adjustments under the IPPS were 

added by law and were not precluded from administrative or judicial review. For 

example, section 4410 of the Balanced Budget Act of 1997 (the BBA), Pub. L. 105-33, 

established the rural floor wage index budget neutrality adjustment, and did not preclude 

administrative or judicial review in the statute for this adjustment. 

 We recognize that the language of the regulation at § 405.1804(a) is overly broad 

because it states that there is no administrative or judicial review of “any” budget 

neutrality adjustment in the prospective payment rates, and its terms are not limited to the 

budget neutrality adjustment specified in section 1886(e)(1) of the Act. We understand 

that the Board has relied on § 405.1804(a) to deny jurisdiction in appeals relating to 

budget neutrality adjustments other than the adjustment in section 1886(e)(1) of the Act. 

To the extent that the existing § 405.1804(a) refers to “any” budget neutrality adjustment, 

we believe that this regulatory text is not consistent with the current statute. Therefore, 

we are proposing to make a technical conforming change to § 405.1804(a) to conform the 

regulation to the current statute. This proposed technical conforming change would 

clarify that there is no administrative or judicial review with respect to the budget 

neutrality adjustments enumerated in section 1886(e)(1) of the Act, and this preclusion of 

review does not apply to other budget neutrality adjustments under the IPPS. 
CMS-1601-P 609 

B. Clarification of Reopening of Predicate Facts in Intermediary Determinations of 

Provider Reimbursement (§ 405.1885)

 A provider must submit an annual cost report to a fiscal intermediary (currently 

referred to as a Medicare Administrative Contractor (MAC)), as specified in regulations 

at §§ 413.20(b) and 413.24(f). Through its review and settlement process, the 

intermediary determines the total amount of reimbursement due a provider for its cost 

reporting period. This constitutes an “intermediary determination,” as defined in 

§ 405.1801(a). In accordance with § 405.1803, an intermediary determination is set forth 

in a notice of program reimbursement (NPR), which explains the intermediary’s final 

determination of the total amount of program reimbursement due the provider for the cost 

reporting period in question. 

 Section 405.1803(b) requires that the NPR explain any differences between the 

intermediary determination and the amount of program reimbursement claimed by the 

provider. Such differences may be attributable to specific provisions of the Medicare 

statute, regulations, CMS rulings, or program instructions. In addition, the intermediary 

determination may reflect specific findings of fact by the intermediary that differ from 

the provider’s understanding of the facts. 

 The factual underpinnings of a specific determination of the amount of 

reimbursement due a provider sometimes first arise in, or are determined for, the same 

fiscal period as the cost reporting period under review. For example, the determination of 

whether a hospital subject to the inpatient prospective payment system (IPPS) should 

receive a payment adjustment for serving a significantly disproportionate share of low 
CMS-1601-P 610 

income patients under section 1886(d)(5)(F) of the Act and § 412.106 of the regulations 

in a given fiscal period depends on the number of the hospital’s patient days for the same 

period. 

 However, the factual underpinnings of a specific determination of the amount of 

reimbursement due a provider may first arise in, or be determined for, a different fiscal 

period than the cost reporting period under review. We refer to these factual 

determinations as “predicate facts.” For example, the determination of an IPPS-exempt 

hospital’s target amount (that is, per-discharge (case) limitation) or rate-of-increase 

ceiling under section 1886(b) of the Act and regulations at § 413.40 depends on: (1) the 

hospital’s allowable net inpatient operating costs for a base period of at least 12 months 

before the first cost reporting period subject to the rate-of-increase ceiling; or (2) for later 

cost reporting periods, the target amount for the preceding 12-month cost reporting 

period. The hospital’s allowable costs for its base period are “predicate facts” with 

respect to the first cost reporting period that is subject to the target amount because such 

base period costs figure in the determination of the hospital’s first target amount. The 

target amount for each cost reporting period after the base period then becomes a 

“predicate fact” for the next cost reporting period. We refer readers to section 

1886(b)(3)(A) of the Act (for the first period, the target amount is calculated using 

“allowable operating costs of inpatient hospital services for the preceding 12-month cost 

reporting period;” the target amount for later cost reporting periods is calculated using the 

target amount for the preceding 12-month cost reporting period, increased by an 

applicable update factor). 
CMS-1601-P 611 

 A provider may challenge an intermediary determination by filing an appeal 

within 180 days of the NPR to the Board (under section 1878(a) of the Act and 

regulations at § 405.1835) or, if the amount in controversy is at least $1,000 but less than 

$10,000, to the intermediary hearing officer(s) (under § 405.1811). Alternatively, in 

accordance with § 405.1885, the provider may request that the intermediary reopen its 

NPR. In addition, the intermediary may reopen the NPR on its own motion. Under 

§ 405.1885(b), reopening must be requested by the provider, or initiated on the 

intermediary’s own motion, within 3 years of the NPR, although there is no time limit for 

the reopening of an intermediary determination that was procured by fraud or similar 

fault of a party to such determination. 

 Appeal and reopening of an intermediary determination are both “issue-specific.” 

In order to meet the jurisdictional requirements for appeal to the Board or to the 

intermediary hearing officer(s), the provider must establish its dissatisfaction with each 

specific matter at issue in the intermediary determination. We refer readers to section 

1878(a) of the Act and regulations at § 405.1835(a)(1) and (b) (Board appeals) and 

§ 405.1811(a)(1) and (b) (intermediary hearing officer appeals). Similarly, 

§ 405.1885(a)(1) provides that the intermediary determination may be reopened “for 

findings on matters at issue in a determination.” We also refer readers to § 405.1887, 

which provides that a notice of reopening and any revised intermediary determination 

must specify the findings on matters at issue to be reopened and the particular findings to 

be revised through reopening, respectively, and § 405.1889(b), which specifies that a 
CMS-1601-P 612 

provider’s appeal rights after reopening are limited to the specific matters altered in the 

revised intermediary determination. 

 In many instances, a factual matter arises in, or is determined for, the same fiscal 

period as the cost reporting period at issue, and such a factual determination may be 

appealed or reopened as part of that period’s intermediary determination. For example, if 

an IPPS hospital challenges the patient day count used to determine its DSH payment 

adjustment for its 2010 cost reporting period, the hospital must appeal its DSH patient 

day count within 180 days of the NPR for the 2010 cost reporting period (and meet the 

other jurisdictional requirements for appeal to the Board or to the intermediary hearing 

officer(s), as applicable). Similarly, the hospital would have to request, or the 

intermediary would have to initiate on its own motion, the reopening of the hospital’s 

2010 DSH patient day count within 3 years of the NPR for the 2010 cost reporting 

period. 

 When the specific matter at issue is a predicate fact that first arose in, or was 

determined for, a different fiscal period than the cost reporting period in question, our 

longstanding interpretation and practice is that the pertinent provisions of the statute and 

regulations provide for review and potential redetermination of such predicate fact only 

by a timely appeal or reopening of the NPR for the cost reporting period in which the 

predicate fact first arose or the NPR for the period for which such predicate fact was first 

determined by the fiscal intermediary. For example, assuming base period costs 

calculated for the period consisting of the 12 months prior to the hospital’s 2002 cost 

reporting period, if an IPPS-exempt hospital challenges the determination of its 2008 cost 
CMS-1601-P 613 

reporting period target amount, the hospital could not appeal the determination of the 

base period predicate facts unless it was within 180 days of the NPR for the base period. 

Similarly, the hospital would have to request, or the intermediary would have to initiate 

on its own motion, the reopening of the determination of the hospital’s base period costs 

within 3 years of the NPR for the base year cost reporting period. In addition, the 

hospital could appeal the determination of the 2008 cost reporting period target rate

within 180 days of the NPR for the 2008 cost reporting period and, similarly, could 

request the reopening of the determination of its 2008 cost reporting period target amount 

within 3 years of the NPR for the 2008 cost reporting period. There are no additional 

periods subject to appeal and reopening of such predicate fact unless the predicate facts 

are redetermined at a later time through an appeal or reopening. Thus, if the same 

hospital’s allowable base period costs or 2008 cost reporting period’s target amount was 

redetermined on appeal or reopening, the hospital could appeal such redetermination 

within 180 days of the revised NPR for the redetermination of its base period costs or the 

revised NPR for the redetermination of the 2008 cost reporting period’s target amount, 

respectively. The reopening of such a redetermination (in this example, of the hospital’s 

base period costs or its 2008 cost reporting period’s target amount) also could be 

available within 3 years of the revised NPR for the base period or the 2008 cost reporting 

period, respectively. 

 Many reimbursement formulas require the use of predicate facts, where the 

factual underpinnings of a specific determination of the amount of provider 

reimbursement first arise in, or are determined for, a different fiscal period than the cost 
CMS-1601-P 614 

reporting period under review. As discussed above, we believe that predicate facts 

should be subject to change only through a timely appeal or reopening for the fiscal 

period in which the predicate fact first arose or the fiscal period in which such fact was 

first determined by the intermediary. In some instances, a predicate fact from a prior 

fiscal period is used in a later period with additional information, which is not found in 

the original cost report or NPR. We believe this kind of determination may be reviewed 

and redetermined through a timely appeal or reopening of the NPR for the cost reporting 

period in which the predicate fact was first used (or applied) by the intermediary to 

determine the provider’s reimbursement. However, we recognize exceptions when a 

particular legal provision (of the Medicare statute, regulations, or CMS rulings) 

authorizes, as part of a specific reimbursement rule, the review and revision of a predicate 

fact after the expiration of the 3-year reopening period. For example, the reaudit 

regulation in § 413.77(a), promulgated to implement section 1886(h)(2) of the Act (which 

is related to the determination of the average per-resident amount used to calculate 

reimbursement for graduate medical education (GME) costs), authorizes intermediaries to 

modify base-period costs solely for purposes of computing the per-resident amount after 

the hospital’s base-period cost report is no longer subject to reopening under § 405.1885. 

We refer readers to the decision in Regions Hospital v. Shalala, 522 U.S. 448 (1998), 

which sustained the lawfulness of the reaudit regulation (then designated as 

§ 413.86(e)(1)). 

 We believe that the above-described interpretation of our rules regarding the 

appeal or reopening of predicate facts furthers the interests of both providers and the 
CMS-1601-P 615 

agency in maintaining the finality of intermediary determinations. The alternative, of 

allowing appeal and reopening of a predicate fact after the expiration of the 3-year 

reopening period, may result in inconsistent intermediary determinations on a 

reimbursement matter recurring in different fiscal periods for the same provider. An 

alternative approach of allowing appeal and reopening of a predicate fact beyond the 

3-year reopening period could also result in intermediary determinations that are contrary 

to Medicare law and policy regarding a specific reimbursement matter. As with the 

target amount example discussed above, reimbursement for various items is premised on 

a base period cost determination that could affect reimbursement for a given item for 

many cost reporting periods thereafter. If a provider disputes such a base period cost 

determination, it can appeal or request reopening of the NPR for the base period. 

However, unless such an appeal or reopening results in a different finding as to the 

predicate fact in question, reimbursement for a given provider cost should not be based 

on one finding about a predicate fact in the base period and a different finding about the 

same predicate fact for purposes of determining reimbursement in later fiscal periods. 

 Under our longstanding interpretation and practice, once the 3-year reopening 

period has expired, neither the provider nor the intermediary is allowed to revisit a 

predicate fact that was not changed through the appeal or reopening of the cost report for 

the fiscal period where such predicate fact first arose or for the fiscal period for which 

such fact was first determined by the intermediary. Further, the application of such facts 

is subject to change only through a timely appeal or reopening of the cost report for the 

fiscal period where the predicate fact was first used (or applied) by the intermediary to 
CMS-1601-P 616 

determine the reimbursement for the provider cost in question. Accordingly, we are 

proposing to revise § 405.1885 to clarify that, absent a specific statute, regulation, or 

other legal provision permitting reauditing, revising, or similar actions changing, 

predicate facts: (1) a predicate fact is subject to change only through a timely appeal or 

reopening for the fiscal period in which the predicate fact first arose or the fiscal period 

for which such fact was first determined by the intermediary; and (2) the application of 

the predicate fact is subject to change only through a timely appeal or reopening of the 

cost report for the fiscal period in which it was first used (or applied) by the intermediary 

to determine the provider’s reimbursement. 

 We note that a recent court decision conflicts with our settled interpretation of the 

regulations for provider appeals and cost report reopening. In Kaiser Foundation 

Hospitals v. Sebelius, 708 F.3d 226 (D.C. Cir. 2013), the court held that providers could 

appeal predicate facts used to determine their reimbursement in later fiscal periods even 

though such predicate facts were not timely appealed or reopened for the periods when 

they first arose or were determined by the intermediary nor was the application of those 

facts to the periods when those facts were first used by the intermediary to determine the 

providers’ reimbursement. The predicate facts at issue in this case were the teaching 

hospitals’ resident full-time equivalent (FTE) counts for their 1996 cost reporting periods, 

which, as required by section 1886(h)(4)(F)(i) of the Act, were used to calculate the 

statutory cap on residents for GME cost reimbursement for the first time in the hospitals’ 

1998 cost reporting periods. The providers could have challenged their resident FTE 

counts through timely appeals or reopening of their 1996 fiscal period NPRs, and they 
CMS-1601-P 617 

could have challenged the calculation of their resident caps through timely appeals or 

reopening of their 1998 fiscal period NPRs, the first time the caps were applied. Instead, 

the hospitals appealed their resident caps as applied to later cost reporting periods. The 

court held that the definition of “intermediary determination” under § 405.1801(a)(1), 

which is incorporated in the reopening rules at § 405.1885(a)(1), did not include factual 

findings, standing alone, where the providers made no attempt to challenge their GME 

cost reimbursement for their 1996 or 1998 fiscal periods due to the expiration of the 180-

day appeal period and the 3-year period for reopening. Because the providers were not 

challenging the total amount of program reimbursement paid for their 1996 or 1998 fiscal 

periods, the court concluded that the intermediary determinations for those periods were 

not at issue and thus the 3-year limitation on reopening was not applicable. 

 We disagree with the court’s decision, which we believe is contrary to our 

reopening regulations at § 405.1885(a), and the corresponding appeals regulations 

(discussed above), and which necessitates our proposed clarification of the regulations. 

As noted above, we are proposing to revise § 405.1885 to clarify that the specific 

“matters at issue in a determination” that are subject to the reopening rules include factual 

findings for one fiscal period that are predicate facts for later fiscal periods. The general 

3-year reopening period applies to findings about such predicate facts and the reopening 

period is calculated separately for each finding about a predicate fact. We note that this 

proposed revision of § 405.1885 would apply to all Medicare reimbursement 

determinations, and not only to GME payment, which was the particular issue in Kaiser 

Foundation Hospitals v. Sebelius. Because this proposed revision clarifies longstanding 
CMS-1601-P 618 

agency policy, we are proposing that it be effective for any intermediary determination 

issued on or after the effective date of the final rule, and for any appeals or reopenings (or 

requests for reopening) that are pending on or after the effective date of the final rule, 

even if the intermediary determination (at issue in such an appeal or reopening) preceded 

the effective date of the final rule. We believe the proposed revision is not impermissibly 

retroactive in effect because the proposal simply clarifies longstanding agency policy and 

practice, and is procedural in nature. We refer readers, for example, to Heimmermann v. 

First Union Mortgage Corp., 305 F.3d 1257, 1260-61 (11th Cir. 2002) (a rule clarifying 

the law, especially in an unsettled or confusing area of the law, is not a substantive 

change in the law, and thus the rule may apply to matters that preceded issuance of the 

rule). However, if the proposed revision to § 405.1885 were deemed a retroactive 

application of a substantive change to a regulation, section 1871(e)(1)(A) of the Act 

permits retroactive application of a substantive change to a regulation if the Secretary 

determines that such retroactive application is necessary to comply with statutory 

requirements or that failure to apply the change retroactively would be contrary to the 

public interest. We have determined that retroactive application of the proposed revision 

to § 405.1885 is necessary to ensure compliance with the 3-year limit on reopening and 

with various statutory payment provisions such as the target amount (under section 

1886(b) of the Act) and the cap on residents for GME cost reimbursement (under section 

1886(h)(4)(F)(i) of the Act). We have further determined that it would be in the public 

interest to apply the proposed revision to intermediary determinations, appeals, and 

reopenings (including requests for reopening) that are pending on or after the effective 
CMS-1601-P 619 

date of the final rule. Not applying the proposed revisions to pending intermediary 

determinations, appeals, and reopenings would undermine the 3-year limit on reopening 

and the interests of both the Medicare program and Medicare providers in the finality of 

reimbursement determinations, and would be inconsistent with the statutory scheme. 

 Finally, although we have provided proposed revisions only to § 405.1885, in 

order to clarify our regulations in accordance with this proposal, we are considering 

making similar changes regarding predicate facts to the regulations governing 

intermediary appeals at § 405.1811 and appeals to the Board at § 405.1835. We are 

requesting public comments with respect to amending the language of these additional 

regulations for appeals before the intermediary and the Board. 

XX. Files Available to the Public via the Internet 

 We are proposing to create new Addendum P--Proposed OPPS Items and 

Services That Will Be Packaged for CY 2014. 

 The Addenda of the proposed rules and the final rules with comment period will 

be published and available only via the Internet on the CMS Web site. To view the 

Addenda of this proposed rule pertaining to the proposed CY 2014 payments under the 

OPPS, go to the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-forService-Payment/HospitalOutpatientPPS/Hospital-Outpatient-Regulations-andNotices.html and select “1601-P” from the list of regulations. All Addenda for this 

proposed rule are contained in the zipped folder entitled “2014 OPPS 1601-P Addenda” 

at the bottom of the page. 
CMS-1601-P 620 

 To view the Addenda of this proposed rule pertaining to the proposed CY 2014 

payments under the ASC payment system, go to the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ASCPayment/ASCRegulations-and-Notices.html and select “1601-P” from the list of regulations. All 

Addenda for this proposed rule are contained in the zipped folder entitled “Addendum 

AA, BB, DD1 and DD2,” and “Addendum EE” at the bottom of the page. 

XXI. Collection of Information Requirements 

A. Legislative Requirements for Solicitation of Comments

 Under the Paperwork Reduction Act of 1995, we are required to provide 30-day 

notice in the Federal Register and to solicit public comment before a collection of 

information requirement is submitted to the Office of Management and Budget (OMB) 

for review and approval. In order to fairly evaluate whether an information collection 

should be approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act of 

1995 requires that we solicit comment on the following issues: 

● The need for the information collection and its usefulness in carrying out the 

proper functions of our agency. 

● The accuracy of our estimate of the information collection burden. 

● The quality, utility, and clarity of the information to be collected. 

● Recommendations to minimize the information collection burden on the 

affected public, including automated collection techniques. 

 In this proposed rule, we are soliciting public comments on each of the issues 

outlined above for the information collection requirements discussed below. 
CMS-1601-P 621 

B. Requirements in Regulation Text

1. Proposed Changes to the Outcome Measure Requirement for OPOs 

 In section XVI. Of this proposed rule, we discussed our proposal to modify the 

outcome measures requirement for OPOs set forth at § 486.318. Currently, OPOs are 

required to meet all three outcome measures in that section or they are automatically 

decertified. We are proposing to modify that requirement so that OPOs will meet the 

outcome measures requirement if they meet two out of the three outcome measures. 

 Based on our experience with OPOs and historical data concerning how many 

OPOs typically fail to meet one of the outcome measures, we believe that there would be 

about five OPOs that would fail to meet one of the outcome measures. Our proposal 

would result in those five OPOs meeting the outcome measures requirement and not 

being automatically de-certified. Therefore, these five OPOs would not have to perform 

the ICRs under this section, which would be the time and resources needed to go through 

the appeals process in an attempt to secure a reversal of the decertification. 

 The ICRs that an OPO would be required to expend would depend upon how it 

chose to handle the decertification. An OPO may choose to not engage in the appeals 

process and merge with another OPO prior to the effective date of the decertification. 

Other OPOs would likely choose to take advantage of the appeals process, which would 

begin with reconsideration at the regional administrator level. It is likely that an OPO 

would expend considerable resources during the reconsideration and, if that was 

unsuccessful, a hearing before a CMS hearing officer. We believe both would require 

considerable time and other resources from the OPO’s senior staff and legal counsel. We 
CMS-1601-P 622 

also believe that those OPOs that went onto a hearing would expend considerably more 

resources than those that received a reversal of their decertification at the reconsideration. 

While we do not have a reliable estimate on how much these OPOs would save due to the 

numerous unknown variables, we are confident that these OPOs would sustain a 

significantly positive effect from not being automatically de-certified as is currently 

required under the OPO CfCs. In addition, under 5 CFR 1320.3(c), a “collection of 

information”' does not include requirements imposed on fewer than 10 entities. 

Therefore, the requirements of this section are not subject to the PRA. 

2. Proposed Changes to the Medicare Fee-for-Service EHR Incentive Program 

 In section XVIII. of this proposed rule, we are proposing to revise 42 CFR 495.4 

to provide a special method for making hospital-based determinations for 2103 only in 

the cases of those EPs who reassign their benefits to Method II CAHs. We also are 

proposing a minor clarification to the regulations at § 495.104(c)(2) concerning the cost 

reporting period to be used in determining final EHR payments for hospitals. We refer 

readers to the Stage 1 (75 FR 44536 ff) and Stage 2 (77 FR 54126 ff) final rules for the 

Medicare EHR Incentive Program for the discussions of the burden of the information 

collection requirements of the Medicare Fee-for-Service EHR Incentive Program. Our 

proposals in this rule do not modify or increase the information collection requirements 

of the program in any way. 
CMS-1601-P 623 

C. Associated Information Collections Not Specified in Regulatory Text

 In this proposed rule, we make reference to proposed associated information 

collection requirements that are not discussed in the regulation text contained in this 

proposed rule. The following is a discussion of those requirements. 

1. Hospital OQR Program 

 As we stated in section XIV. of the CY 2012 OPPS/ASC final rule with comment 

period, the Hospital OQR Program has been generally modeled after the quality data 

reporting program for the Hospital IQR Program. We refer readers to the CY 2011 

OPPS/ASC final rule with comment period (75 FR 72111 through 72114), the CY 2012 

OPPS/ASC final rule with comment period (76 FR 74549 through 74554) and the 

CY 2013 OPPS/ASC final rule with comment period (77 FR 68527 through 68532) for 

detailed discussions of the Hospital OQR Program information collection requirements 

we have previously finalized. 

a. Hospital OQR Program Requirements for the CY 2015 Payment Determination and 

Subsequent Years 

 We refer readers to the CY 2013 OPPS/ASC final rule with comment period 

(77 FR 68531) for a discussion on the burden of the information collection requirements 

of the previously adopted Hospital OQR Program measures for the CY 2015 payment 

determination. We are not proposing to add any additional measures for the CY 2015 

payment determination and subsequent years, so there will be no change in our previous 

burden estimate. 
CMS-1601-P 624 

 We note that we had previously suspended data collection for the OP-19 measure 

and deferred data collection for the OP-24 measure. 

 In addition, we are proposing to codify existing policies related to program 

participation and withdrawal, data submission, program waivers, data validation, and the 

reconsideration process. Because we are only codifying existing policies, we do not 

anticipate any additional burden to hospitals based on this proposal affecting the 

CY 2015 payment determination or subsequent years. 

b. Web-based Measures for the CY 2016 Payment Determination and Subsequent Years 

 For the CY 2016 payment determination and subsequent years, we are proposing 

to add five measures to the program with data collection beginning during CY 2014. We 

are soliciting public comment on the impact of adding these measures and requiring data 

submission of aggregate data via a Web-based tool for four chart-abstracted measures. 

Hospitals will vary greatly as to the number of cases per HOPD due to specialization. 

However, we estimate based on our past experiences with chart-abstracted measures that 

each participating hospital will spend 35 minutes per case to collect and submit the data, 

and that the estimated burden associated with there being one case per hospital would be 

1,924 hours (3,300 hospitals x 0.583 hours per hospital). 

 In addition, HOPDs will incur a financial burden associated with chart abstraction 

and data submission for these four proposed measures. We estimate the burden 

associated with there being one case per hospital would be $57,717 (3,300 hospitals x 

$30.00 per hour x 0.583 hours). 
CMS-1601-P 625 

 For the CY 2016 payment determination, the burden associated with Hospital 

OQR Program procedures is the time and effort associated with collecting and submitting 

the data on the measures. For the chart-abstracted measures where patient-level data is 

submitted directly to CMS, we estimate that there will be approximately 3,300 

respondents per year. For hospitals to collect and submit this information, we estimate it 

will take 35 minutes per submitted case. Based upon the data submitted for the CY 2012 

and CY 2013 payment determinations, we estimate there will be a total of 1,679,700 

cases per year, approximately 509 cases per year per hospital. Therefore, the estimated 

annual hourly burden associated with the aforementioned data submission requirements 

for the chart-abstracted data is 979,265 hours (1,679,700 cases per year x 0.583 hours per 

case). 

 In addition, HOPDs will incur a financial burden associated with chart abstraction 

and data submission where patient-level data are submitted directly to CMS. We estimate 

the burden associated with these measures is $29,377,953 (1,679,700 cases per year x 

$30.00 per hour x 0.583 hours per case). 

 For the measures where data is submitted to CMS via a Web-based online tool 

(OP-12, 17, 22, 25, 26, 28, 29, 30, 31) located on a CMS Web site, we estimate that each 

participating hospital would spend 10 minutes per year to collect and submit the data, 

making the estimated annual burden associated with these measures 4,960 hours (3,300 

hospitals x 0.167 hours per measure x 9 measures per hospital) in CY 2015. 

 In addition, HOPDs will incur a financial burden associated with chart abstraction 

and data submission for these 9 measures. We estimate that the financial burden 
CMS-1601-P 626 

associated with these measures would be $148,797 (3,300 hospitals x $30.00 per hour x 

0.167 hours per measure x 9 measures). 

 For the NHSN HAI measure: Influenza Vaccination Coverage among Healthcare 

Personnel, we estimate that the total annual burden associated with this measure for an 

HOPD for data submission would be 27,555 hours (3,300 hospitals x 0.167 hour per 

response for 50 workers per hospital). 

 In addition, HOPDs will incur a financial burden associated with data submission 

for this measure. We estimate that the financial burden associated with these measures 

would be $826,650 ($30.00 per hour x 27,555 hours). 

 We invite public comment on the burden associated with these information 

collection requirements. 

c. Hospital OQR Program Validation Requirements for the CY 2015 Payment 

Determination and Subsequent Years 

 We are not proposing to make any changes to our validation procedures. As a 

result, the burden associated with the validation procedures for the CY 2015 payment 

determination as proposed is the same as previously finalized for CY 2014 in the 

CY 2013 OPPS/ASC final rule with comment period (77 FR 68531) and is the time and 

effort necessary to submit validation data to a CMS contractor. We estimate that it would 

take each of the sampled hospitals approximately 12 hours to comply with these data 

submission requirements. To comply with the requirements, we estimate each hospital 

would submit up to 48 cases for the affected year for review. All selected hospitals must 

comply with these requirements each year, which would result in a total of up to 24,000 
CMS-1601-P 627 

charts being submitted by the sampled hospitals (500 selected hospitals x 48 cases per 

hospital). The estimated annual burden associated with the data validation process for the 

CY 2015 payment determination is approximately 6,000 hours. 

 In addition, HOPDs will incur a financial burden associated with the required data 

abstraction and data submission for this measure. We estimate that the financial burden 

associated with this measure would be $180,000 ($30.00 per hour x 6,000 hours). 

 These requirements are currently approved under OCN: 0938-1109. This 

approval expires on October 31, 2013. 

 We invite public comment on the burden associated with data validation 

information collection procedures. 

d. Hospital OQR Program Reconsideration and Appeals Procedures 

 In section XIII.I. of this proposed rule, for the CY 2015 payment determination 

and subsequent years, we are proposing a minor change to the reconsideration request 

process to ensure our deadline for these requests will always fall on a business day. We 

also are proposing to codify our reconsideration request process at 42 CFR 419.46(h). 
CMS-1601-P 628 

 While there is burden associated with filing a reconsideration request, 

5 CFR 1320.4 of the Paperwork Reduction Act of 1995 regulations excludes collection 

activities during the conduct of administrative actions such as redeterminations, 

reconsiderations, or appeals or all of these actions. 

2. ASCQR Program Requirements 

a. Claims-Based Measures for the CY 2014 Payment Determination 

 In the CY 2013 OPPS/ASC final rule with comment period (77 FR 68532), we 

discussed the information collection requirements for the five claims-based measures 

(four outcome measures and one process measure) to be used for the CY 2014 payment 

determination. The five measures are: (1) Patient Burn (NQF #0263); (2) Patient Fall 

(NQF #0266); (3) Wrong Site, Wrong Side, Wrong Patient, Wrong Procedure, Wrong 

Implant (NQF #0267); (4) Hospital Transfer/Admission (NQF #0265); and (5) 

Prophylactic Intravenous (IV) Antibiotic Timing (NQF #0264). We collected quality 

measure data for the five claims-based measures using QDCs placed on submitted claims 

for services furnished from October 1, 2012 through December 31, 2012 that were paid 

by the contractor by April 30, 2013. 

 Approximately 71 percent of ASCs participated in Medical Event Reporting, 

which included reporting on the first four claims-based measures, which are outcome 

measures. Between January 1995 and December 2007, ASCs reported 126 events, an 

average of 8.4 events per year (Florida Medical Quality Assurance, Inc. and Health 

Services Advisory Group: Ambulatory Surgical Center Environmental Scan (July 2008) 

(Contract No. GS - 10F - 0096T)). We estimated the burden to report QDCs for these 
CMS-1601-P 629 

4 claims-based outcome measures to be nominal due to the small number of cases. Based 

on the data above, extrapolating from 71 percent to 100 percent of ASCs reporting, there 

would be an average of 11.8 events per year or less than 1 case per month per ASC. 

 For the claims-based process measure, Prophylactic IV Antibiotic Timing, we 

also estimated the burden associated with submitting QDCs to be nominal because few 

procedures performed by ASCs will require prophylactic antibiotic administration. 

 We invite public comment on the burden associated with these information 

collection requirements. 

b. Claims-Based and Web-Based Measures for the CY 2015 and CY 2016 Payment 

Determinations 

 In the CY 2013 OPPS/ASC final rule with comment period (77 FR 68532), we 

discussed the information collection requirements for the measures to be used for the 

CY 2015 and CY 2016 payment determinations. For the CY 2015 payment 

determination, we finalized the retention of the five measures we adopted for the 

CY 2014 payment determination, and we added two structural, Web-based, measures: 

Safe Surgery Checklist Use and ASC Facility Volume Data on Selected ASC Surgical 

Procedures (76 FR 74504 through 74509). For the CY 2016 payment determination, we 

finalized the retention of the seven measures for the CY 2015 payment determination and 

added Influenza Vaccination Coverage among Healthcare Personnel (NQF #0431) 

(76 FR 74509). 

 Based on our data for CY 2014 payment determinations above for claims-based 

measures, extrapolating to 100 percent of ASCs reporting, there would be an average of 
CMS-1601-P 630 

11.8 events per year. Thus, we estimated the burden to report QDCs on this number of 

claims per year for the first four claims-based outcome measures to be nominal due to the 

small number of cases (approximately one case per month per ASC) for the CY 2015 and 

CY 2016 payment determinations. We estimated the burden associated with submitting 

QDCs for the fifth measure to be nominal as well, as discussed above. 

 For the CY 2015 payment determination, for the Web-based measures, ASCs will 

enter required information using a Web-based collection tool between July 1, 2013 and 

August 15, 2013. For the Safe Surgery Checklist Use measure, we estimated that each 

participating ASC will spend 10 minutes per year to collect and submit the required data, 

making the estimated annual burden associated with this measure 878 hours (5,260 ASCs 

x 1 measure x 0.167 hours per ASC). For the CY 2015 payment determination, we 

estimate that, for the ASC Facility Volume Data on Selected ASC Surgical Procedures 

measure, each participating ASC would spend 10 minutes per year to collect and submit 

the required data, making the estimated annual burden associated with this measure 878 

hours (5,260 ASCs x 1 measure 0.167 hours per ASC). 

 For the CY 2016 payment determination, in this proposed rule we are proposing 

that ASCs would report data for the Safe Surgery Checklist measure and the ASC 

Volume Data on Selected ASC Surgical Procedures measure between January 1, 2015 

and August 15, 2015 for services furnished between January 1, 2014 and 

December 31, 2014. For the Safe Surgery Checklist measure for the CY 2016 payment 

determination, we estimate that each participating ASC would spend 10 minutes per year 

to collect and submit the required data, making the estimated annual burden associated 
CMS-1601-P 631 

with this measure 878 hours (5,260 ASCs x 1 measure x 0.167 hours per ASC). For the 

CY 2016 payment determination, for the ASC Volume Data on Selected ASC Surgical 

Procedures measure, we estimate that each participating ASC would spend 10 minutes 

per year to collect and submit the required data, making the estimated annual burden 

associated with this measure 878 hours (5,260 ASCs x 1 measure x 0.167 hours per 

ASC). 

 For the CY 2016 payment determination, for the NHSN HAI measure: Influenza 

Vaccination Coverage among Healthcare Personnel, we estimate that the total annual 

burden associated with this measure for ASCs, including NHSN registration (5,260 ASCs 

x 0.083 hour per facility = 437 hours) and data submission (5,260 ASCs x 0.167 hour per 

response for 20 workers per facility = 17,568), will be 18,005 hours. This estimate is 

based upon burden estimates from the CDC (OMB No. 0920-0666) and reported numbers 

for the average number of workers per ASC. 

 For the CY 2016 payment determination, in this proposed rule, we are proposing 

to add four measures to the program with data collection to begin during CY 2014 and 

submission to be via a Web-based tool. As chart-abstracted measures, we estimate that 

each participating ASC would spend 35 minutes per case to collect and submit the data, 

making the total estimated burden for ASCs with a single case per ASC would be 

3,067 hours (5,260 ASCs x 0.583 hours per case per ASC). We expect that ASCs would 

vary greatly as to the number of cases per ASC due to ASC specialization. 

 In addition, ASCs would incur a financial burden associated with chart abstraction 

and data submission for these four proposed measures. We estimate that, for a per chart 
CMS-1601-P 632 

abstracted case, an ASC would incur a cost of $91,997 (5,260 ASCs x $30.00 per hour x 

0.583 hours). We are soliciting public comment on the impact of adding these measures 

and requiring data submission. 

 We invite public comment on the burden associated with these information 

collection requirements. 

c. Program Administrative Requirements and QualityNet Accounts; Extraordinary 

Circumstance and Extension Requests; Reconsideration Requests 

 In the CY 2012 OPPS/ASC final rule with comment period (76 FR 74516), we 

finalized our proposal to consider an ASC to be participating in the ASCQR Program for 

the CY 2014 payment determination if the ASC includes QDCs specified for the program 

on their CY 2012 claims relating to the finalized measures. 

 In the FY 2013 IPPS/LTCH PPS final rule, we finalized, for the CY 2015 

payment determination and subsequent years, that once an ASC submits any quality 

measure data, it would be considered to be participating in the ASCQR Program. Once 

an ASC submits quality measure data indicating its participation in the ASCQR Program, 

in order to withdraw, an ASC must complete and submit an online form indicating that it 

is withdrawing from the program. 

 For the CY 2015 payment determination and subsequent years, if the ASC 

submits quality measure data, there is no additional action required by the ASC to 

indicate participation in the program. The burden associated with the requirements to 

withdraw from the program is the time and effort associated with accessing, completing, 

and submitting the online form. Based on the number of hospitals that have withdrawn 
CMS-1601-P 633 

from the Hospital OQR Program over the past 4 years, we estimated that 2 ASCs would 

withdraw per year and that an ASC would expend 30 minutes to access and complete the 

form, for a total burden of 1 hour per year. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53638 through 53639), we 

finalized for the CY 2015 payment determination the requirement that ASCs to identify 

and register a QualityNet administrator in order to set up accounts necessary to enter 

structural measure data. We estimated that, based upon previous experience with the 

Hospital OQR Program, it would take an ASC 10 hours to obtain, complete, and submit 

an application for a QualityNet administrator and then set up the necessary accounts for 

structural measure data entry. We estimated the total burden to meet these requirements 

to be 52,600 hours (10 hours x 5,260 ASCs). The financial burden associated with these 

requirements is estimated to be $1,578,000 ($30.00 per hour x 52,600 hours). 

 In the FY 2013 IPPS/LTCH PPS final rule, we adopted a process for an extension 

or waiver for submitting information required under the program due to extraordinary 

circumstances that are not within the ASC’s control. We are requiring that an ASC 

would complete a request form that would be available on the QualityNet Web site, 

supply requested information, and submit the request. The burden associated with these 

requirements is the time and effort associated with gathering required information as well 

as accessing, completing, and submitting the form. Based on the number of ASCs that 

have submitted a request for an extension or waiver from the ASCQR Program over the 

past year, we estimate that 200 ASCs per year would request an extension or waiver and 

that an ASC would expend 2 hours to gather required information as well as access, 
CMS-1601-P 634 

complete, and submit the form, for a total burden of 400 hours per year. This estimate 

takes into account continued billing and claims processing issues. 

 We also adopted a reconsideration process that would apply to the CY 2014 

payment determination and subsequent payment determination years under the ASCQR 

Program. While there is burden associated with an ASC filing a reconsideration request, 

the regulations at 5 CFR 1320.4 for the Paperwork Reduction Act of 1995 exclude data 

collection activities during the conduct of administrative actions such as 

redeterminations, reconsiderations, or appeals or all of these actions. 

 We invite public comment on the burden associated with these information 

collection requirements. 

3. Hospital VBP Program Requirements 

 In section XIV. of this proposed rule, for the Hospital VBP Program, we are 

proposing to allow hospitals to request an independent CMS review that would be an 

additional appeal process beyond the existing review and corrections process 

(77 FR 53578 through 53581 and 76 FR 74544 through 74547) and appeal process 

codified at 42 CFR 412.167. 

 While there is burden associated with a hospital requesting an independent CMS 

review, the regulations at 5 CFR 1320.4 for the Paperwork Reduction Act of 1995 

exclude collection activities during the conduct of administrative actions such as 

redeterminations, reconsiderations, or appeals or all of these actions. 
CMS-1601-P 635 

 We invite public comment on the burden associated with these information 

collection requirements. 

 If you comment on these information collection and recordkeeping requirements, 

please submit your comments to the Office of Information and Regulatory Affairs, Office 

of Management and Budget, Attention: CMS Desk Officer, CMS-1601-P; Fax: 

(202) 395-6974; or Email: OIRAsubmissions_@omb.eop.gov 

XXII. Response to Comments 

 Because of the large number of public comments we normally receive on Federal 

Register documents, we are not able to acknowledge or respond to them individually. 

We will consider all comments we receive by the date and time specified in the DATES

section of this proposed rule, and, when we proceed with a subsequent document(s), we 

will respond to those comments in the preamble to that document. 

XXIII. Economic Analyses 

A. Regulatory Impact Analysis

1. Introduction 

 We have examined the impacts of this proposed rule as required by Executive 

Order 12866 on Regulatory Planning and Review (September 30, 1993), Executive Order 

13563 on Improving Regulation and Regulatory Review (January 18, 2011), the 

Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) 

of the Social Security Act, section 202 of the Unfunded Mandates Reform Act of 1995 

(UMRA) (March 22, 1995, Pub. L. 104-4), Executive Order 13132 on Federalism 

(August 4, 1999), and the Contract with America Advancement Act of 1996 
CMS-1601-P 636 

(Pub. L. 104-121) (5 U.S.C. 804(2)). This section of the proposed rule contains the 

impact and other economic analyses for the provisions that we are proposing. 

 Executive Orders 12866 and 13563 direct 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). Executive Order 13563 

emphasizes the importance of quantifying both costs and benefits, of reducing costs, of 

harmonizing rules, and of promoting flexibility. This proposed rule has been designated 

as an “economically” significant rule under section 3(f)(1) of Executive Order 12866 and 

a major rule under the Contract with America Advancement Act of 1996 

(Pub. L. 104-121). Accordingly, the proposed rule has been reviewed by the Office of 

Management and Budget. We have prepared a regulatory impact analysis that, to the best 

of our ability, presents the costs and benefits of this proposed rule. In this proposed rule, 

we are soliciting public comments on the regulatory impact analysis provided. 

2. Statement of Need 

 This proposed rule is necessary to update the Medicare hospital OPPS rates. It is 

necessary to propose to make changes to the payment policies and rates for outpatient 

services furnished by hospitals and CMHCs in CY 2014. We are required under section 

1833(t)(3)(C)(ii) of the Act to update annually the OPPS conversion factor used to 

determine the payment rates for APCs. We also are required under section 1833(t)(9)(A) 

of the Act to review, not less often than annually, and revise the groups, the relative 

payment weights, and the wage and other adjustments described in section 1833(t)(2) of 
CMS-1601-P 637 

the Act. We must review the clinical integrity of payment groups and relative payment 

weights at least annually. We are proposing to revise the APC relative payment weights 

using claims data for services furnished on and after January 1, 2012, through and 

including December 31, 2012, and updated cost report information. 

 For CY 2014, we are proposing to continue the current payment adjustment for 

rural SCHs, including EACHs. In addition, section 10324 of the Affordable Care Act, as 

amended by HCERA, authorizes a wage index of 1.00 for certain frontier States. Section 

1833(t)(17) of the Act requires that subsection (d) hospitals that fail to meet quality 

reporting requirements under the Hospital OQR Program incur a reduction of 2.0 

percentage points to their OPD fee schedule increase factor. In this proposed rule, we are 

proposing to implement these payment provisions. Also, we list the 15 drugs and 

biologicals in Table 19 that we are proposing to remove from pass-through payment 

status for CY 2014. 

 This proposed rule is also necessary to update the ASC payment rates for 

CY 2014, enabling CMS to make changes to payment policies and payment rates for 

covered surgical procedures and covered ancillary services that are performed in an ASC 

in CY 2014. Because the ASC payment rates are based on the OPPS relative payment 

weights for the majority of the procedures performed in ASCs, the ASC payment rates 

are updated annually to reflect annual changes to the OPPS relative payment weights. In 

addition, because the services provided in ASCs are identified by HCPCS codes that are 

reviewed and revised either quarterly or annually, depending on the type of code, it is 

necessary to update the ASC payment rates annually to reflect these changes to HCPCS 
CMS-1601-P 638 

codes. In addition, we are required under section 1833(i)(1) of the Act to review and 

update the list of surgical procedures that can be performed in an ASC not less frequently 

than every 2 years. Sections 1833(i)(2)(D)(iv) and 1833(i)(7) of the Act authorize the 

Secretary to implement a quality reporting system for ASCs in a manner so as to provide 

for a reduction of 2.0 percentage points in any annual update with respect to the year 

involved for ASCs that fail to meet the quality reporting requirements. For CY 2014, we 

discuss the impacts associated with this payment reduction in section XV.C. of this 

proposed rule. 

3. Overall Impacts for the Proposed OPPS and ASC Payment Provisions 

 We estimate that the effects of the proposed OPPS payment provisions would 

result in expenditures exceeding $100 million in any 1 year. We estimate that the total 

increase from the proposed changes in this proposed rule in Federal government 

expenditures under the OPPS for CY 2014 compared to CY 2013 would be 

approximately $600 million. Taking into account our estimated changes in enrollment, 

utilization, and case-mix, we estimate that the proposed OPPS expenditures for CY 2014 

would be approximately $4.372 billion higher, relative to expenditures in CY 2013. 

Because this proposed rule is “economically significant” as measured by the $100 million 

threshold, we have prepared this regulatory impact analysis that, to the best of our ability, 

presents its costs and benefits. Table 39 displays the redistributional impact of the 

proposed CY 2014 changes in OPPS payment to various groups of hospitals and for 

CMHCs. 
CMS-1601-P 639 

 We estimate that the proposed update to the conversion factor and other 

adjustments (not including the effects of outlier payments, the pass-through estimates, 

and the application of the frontier State wage adjustment for CY 2014) would increase 

total OPPS payments by 1.8 percent in CY 2014. The proposed changes to the APC 

weights, the proposed changes to the wage indices, the proposed continuation of a 

payment adjustment for rural SCHs, including EACHs, and the proposed payment 

adjustment for cancer hospitals would not increase OPPS payments because these 

proposed changes to the OPPS would be budget neutral. However, these proposed 

updates would change the distribution of payments within the budget neutral system. We 

estimate that the proposed total change in payments between CY 2013 and CY 2014, 

considering all proposed payments, including proposed changes in estimated total outlier 

payments, pass-through payments, and the application of the frontier State wage 

adjustment outside of budget neutrality, in addition to the application of the proposed 

OPD fee schedule increase factor after all adjustments required by sections 1833(t)(3)(F), 

1833(t)(3)(G) and 1833(t)(17) of the Act, would increase total estimated OPPS payments 

by 1.8 percent. 

 We estimate the total increase (from proposed changes to the ASC provisions in 

this proposed rule as well as from enrollment, utilization, and case-mix changes) in 

expenditures under the ASC payment system for CY 2014 compared to CY 2013 to be 

approximately $133 million. Because the provisions for the ASC payment system are 

part of a proposed rule that is “economically significant” as measured by the $100 million 

threshold, we have prepared a regulatory impact analysis of the proposed changes to the 
CMS-1601-P 640 

ASC payment system that, to the best of our ability, presents the costs and benefits of this 

portion of the proposed rule. Tables 40 and Table 41 of this proposed rule display the 

redistributional impact of the proposed CY 2014 changes on ASC payment, grouped by 

specialty area and then grouped by procedures with the greatest ASC expenditures, 

respectively. 

4. Detailed Economic Analyses 

a. Estimated Effects of Proposed OPPS Changes in this Proposed Rule 

(1) Limitations of Our Analysis 

 The distributional impacts presented here are the projected effects of the proposed 

CY 2014 policy changes on various hospital groups. We post on the CMS Web site our 

proposed hospital-specific estimated payments for CY 2014 with the other supporting 

documentation for this proposed rule. To view the hospital-specific estimates, we refer 

readers to the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-forService-Payment/HospitalOutpatientPPS/index.html. At the Web site, select “regulations 

and notices” from the left side of the page and then select “CMS-1601-P” from the list of 

regulations and notices. The hospital-specific file layout and the hospital-specific file are 

listed with the other supporting documentation for this proposed rule. We show 

hospital-specific data only for hospitals whose claims were used for modeling the impacts 

shown in Table 39 below. We do not show hospital-specific impacts for hospitals whose 

claims we were unable to use. We refer readers to section II.A. of this proposed rule for 

a discussion of the hospitals whose claims we do not use for ratesetting and impact 

purposes. 
CMS-1601-P 641 

 We estimate the effects of the proposed individual policy changes by estimating 

payments per service, while holding all other payment policies constant. We use the best 

data available, but do not attempt to predict behavioral responses to our proposed policy 

changes. In addition, we do not make adjustments for future changes in variables such as 

service volume, service-mix, or number of encounters. In this proposed rule, we are 

soliciting public comment and information about the anticipated effects of our proposed 

changes on providers and our methodology for estimating them. Any public comments 

that we receive will be addressed in the applicable sections of the final rule with 

comment period that discuss the specific policies. 

(2) Estimated Effects of Proposed OPPS Changes on Hospitals 

 Table 39 below shows the estimated impact of this proposed rule on hospitals. 

Historically, the first line of the impact table, which estimates the proposed change in 

payments to all facilities, has always included cancer and children’s hospitals, which are 

held harmless to their pre-BBA amount. We also include CMHCs in the first line that 

includes all providers because we include CMHCs in our weight scaler estimate. We 

now include a second line for all hospitals, excluding permanently held harmless 

hospitals and CMHCs. 

 We present separate impacts for CMHCs in Table 39 and we discuss them 

separately below, because CMHCs are paid only for partial hospitalization services under 

the OPPS and are a different provider type from hospitals. In CY 2013, we are paying 

CMHCs under APC 0172 (Level I Partial Hospitalization (3 services) for CMHCs) and 

APC 0173 (Level II Partial Hospitalization (4 or more services) for CMHCs), and we are 
CMS-1601-P 642 

paying hospitals for partial hospitalization services under APC 0175 (Level I Partial 

Hospitalization (3 services) for hospital-based PHPs) and APC 0176 (Level II Partial 

Hospitalization (4 or more services) for hospital-based PHPs). We display separately the 

impact of our proposed updates on CMHCs, and we discuss its impact on hospitals as 

part of our discussion of the hospital impacts. 

 The estimated increase in the total payments made under the OPPS is determined 

largely by the increase to the conversion factor under the statutory methodology. The 

distributional impacts presented do not include assumptions about changes in volume and 

service-mix. The conversion factor is updated annually by the OPD fee schedule increase 

factor as discussed in detail in section II.B. of this proposed rule. Section 

1833(t)(3)(C)(iv) of the Act provides that the OPD fee schedule increase factor is equal to 

the market basket percentage increase applicable under section 1886(b)(3)(B)(iii) of the 

Act, which we refer to as the IPPS market basket percentage increase. The proposed 

IPPS market basket percentage increase for FY 2014 is 2.5 percent (78 FR 27497). 

Section 1833(t)(3)(F)(i) of the Act reduces that 2.5 percent by the multifactor 

productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act, which is 

proposed to be 0.4 percentage points for FY 2014 (which is also the proposed MFP 

adjustment for FY 2014 in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27786); 

and sections 1833(t)(3)(F)(ii) and 1833(t)(3)(G)(ii) of the Act further reduce the market 

basket percentage increase by 0.3 percentage points, resulting in the proposed OPD fee 

schedule increase factor of 1.8 percent, which we are proposing to use in the calculation 

of the proposed CY 2014 OPPS conversion factor. Section 10324 of the Affordable Care 
CMS-1601-P 643 

Act, as amended by HCERA, further authorized additional expenditures outside budget 

neutrality for hospitals in certain frontier States that have a wage index less than 1.00. 

The amounts attributable to this frontier State wage index adjustment are incorporated in 

the CY 2014 estimates in Table 39. 

 To illustrate the impact of the proposed CY 2014 changes, our analysis begins 

with a baseline simulation model that uses the CY 2013 relative payment weights, the 

FY 2013 final IPPS wage indices that include reclassifications, and the final CY 2013 

conversion factor. Table 39 shows the estimated redistribution of the proposed increase 

in payments for CY 2014 over CY 2013 payments to hospitals and CMHCs as a result of 

the following factors: APC reconfiguration and recalibration for CY 2014 compared to 

CY 2013 payments (Column 2); the marginal impact of our packaging proposals other 

than packaging for clinical laboratory tests (Column 3); the marginal impact of our 

proposal to package clinical laboratory services (Column 4); the combined impact of all 

of our packaging proposals and proposed APC reconfiguration and recalibration for 

CY 2014, compared to CY 2013 payments (Column 5: the combined effect of columns 2, 

3 and 4); the proposed wage indices and the rural adjustment (Column 6); the combined 

impact of proposed APC recalibration, the proposed wage indices and rural adjustment, 

and the proposed OPD fee schedule increase factor update to the conversion factor 

(Column 7); the combined impact of proposed APC recalibration, the proposed wage 

indices and rural adjustment, the proposed conversion factor update, and the proposed 

CY 2014 frontier State wage index adjustment (Column 8); and the estimated impact 

taking into account all proposed payments for CY 2014 relative to all payments for 
CMS-1601-P 644 

CY 2013 (Column 9), including the impact of proposed changes in estimated outlier 

payments and proposed changes to the pass-through payment estimate. 

 We did not model an explicit budget neutrality adjustment for the rural adjustment 

for SCHs because we are not proposing to make any changes to the policy for CY 2014. 

Because the updates to the conversion factor (including the update of the OPD fee 

schedule increase factor), the estimated cost of the rural adjustment, and the estimated 

cost of projected pass-through payment for CY 2014 are applied uniformly across 

services, observed redistributions of payments in the impact table for hospitals largely 

depend on the mix of services furnished by a hospital (for example, how the APCs for the 

hospital’s most frequently furnished services will change), and the impact of the wage 

index changes on the hospital. However, total payments made under this system and the 

extent to which this proposed rule would redistribute money during implementation also 

would depend on changes in volume, practice patterns, and the mix of services billed 

between CY 2013 and CY 2014 by various groups of hospitals, which CMS cannot 

forecast. 

 Overall, we estimate that the proposed OPPS rates for CY 2014 would have a 

positive effect for providers paid under the OPPS, resulting in a 1.8 percent estimated 

increase in Medicare payments. Removing payments to cancer and children’s hospitals 

because their payments are held harmless to the pre-OPPS ratio between payment and 

cost and removing payments to CMHCs suggest that these proposed changes would result 

in a 1.8 percent estimated increase in Medicare payments to all other hospitals. Those 

estimated payments would not significantly impact other providers. 
CMS-1601-P 645 

Column 1: Total Number of Hospitals

 The first line in Column 1 in Table 39 shows the total number of facilities (3,953), 

including designated cancer and children’s hospitals and CMHCs, for which we were 

able to use CY 2012 hospital outpatient and CMHC claims data to model CY 2013 and 

CY 2014 payments, by classes of hospitals, for CMHCs and for dedicated cancer 

hospitals. We excluded all hospitals and CMHCs for which we could not plausibly 

estimate CY 2013 or CY 2014 payment and entities that are not paid under the OPPS. 

The latter entities include CAHs, all-inclusive hospitals, and hospitals located in Guam, 

the U.S. Virgin Islands, Northern Mariana Islands, American Samoa, and the State of 

Maryland. This process is discussed in greater detail in section II.A. of this proposed 

rule. At this time, we are unable to calculate a disproportionate share (DSH) variable for 

hospitals not participating in the IPPS. Hospitals for which we do not have a DSH 

variable are grouped separately and generally include freestanding psychiatric hospitals, 

rehabilitation hospitals, and long-term care hospitals. We show the total number (3,791) 

of OPPS hospitals, excluding the hold-harmless cancer and children’s hospitals and 

CMHCs, on the second line of the table. We excluded cancer and children’s hospitals 

because section 1833(t)(7)(D) of the Act permanently holds harmless cancer hospitals 

and children’s hospitals to their “pre-BBA amount” as specified under the terms of the 

statute, and therefore, we removed them from our impact analyses. We show the isolated 

impact on 100 CMHCs at the bottom of the impact table and discuss that impact 

separately below. 

Column 2: APC Recalibration
CMS-1601-P 646 

 Column 2 shows the estimated effect of the reconfiguration and recalibration of 

the APCs from CY 2013 to CY 2014 excluding the CY 2014 OPPS packaging proposals. 

Outpatient laboratory services paid at CLFS rates are included on both sides of the 

comparison. We estimate that most hospitals would not experience significant changes in 

payment rates from the APC recalibration alone, though we estimate that Puerto Rico 

would experience a 4.3 percent increase in payments and that low volume rural hospitals 

(measured by lines of services) would experience a 1.8 percent payment decrease. 

Column 3: APC Recalibration with CY 2014 Packaging Proposals Other than Outpatient 

Laboratory Services

 Column 3 shows the estimated impact of the APC recalibration from 

CY 2013-2014 with our proposed packaging policies other than packaging for outpatient 

laboratory services currently paid at CLFS rates. Outpatient laboratory services paid at 

CLFS rates are included on both sides of the comparison. Hospitals that specialize in a 

limited set of services would experience the most significant changes in payment. Urban 

hospitals with less than 21,000 service lines would experience estimated payment 

decreases ranging from 0.4 to 1.9 percent. Hospitals where DSH data are not available 

(specialized hospitals not paid under the IPPS) would experience estimated payment 

decreases of 1.4 percent. 

Column 4: APC Recalibration with CY 2014 Outpatient Laboratory Services Packaging 

Proposal

 Column 4 shows the estimated effect of APC recalibration plus our proposed 

policy for packaging outpatient laboratory services paid at CLFS rates. Outpatient 
CMS-1601-P 647 

laboratory services paid at CLFS rates are included in the comparison. It does not 

include estimated effects for other packaging proposals. We estimate that smaller rural 

hospitals, particularly in the mid-Atlantic region, would experience the most significant 

payment changes related to the laboratory packaging policy proposal, as they likely 

furnish more ancillary laboratory services relative to other services than larger hospitals. 

We estimate that rural hospitals overall would experience a 1.3 percent decrease in 

payment, and rural hospitals with 100 or fewer beds would experience payment decreases 

between 1.9 and 3.5 percent. Urban hospitals overall would experience limited estimated 

payment increases ranging from 0.1 to 0.3 percent. 

Column 5: APC Recalibration with All Proposed Changes

 Column 5 shows the combined effects of the proposed reconfiguration, 

recalibration, and other policies (such as proposing to set payment for separately payable 

drugs and biologicals at the statutory default of ASP+6), plus our proposals to package 

outpatient laboratory services and other services for CY 2014. We modeled the effect of 

the APC recalibration changes by varying only the relative payment weights (the final 

CY 2013 relative weights versus the proposed CY 2014 relative weights calculated using 

the service-mix and volume in the CY 2012 claims used for this proposed rule) and 

calculating the percent difference in the relative weight. Column 5 also reflects any 

proposed changes in multiple procedure discount patterns or conditional packaging that 

occur as a result of the proposed changes in the relative magnitude of payment weights. 

 Overall, we estimate that proposed changes in APC reassignment and 

recalibration across all services paid under the OPPS, together with our proposed 
CMS-1601-P 648 

packaging policies, would slightly increase payments to urban hospitals by 0.1 percent. 

We estimate that rural hospitals would experience a decrease in payments of 0.7 percent. 

 Classifying hospitals according to teaching status, we estimate that the APC 

recalibration together with our proposed packaging policies would lead to a payment 

increase of 1.2 percent for major teaching hospitals. We estimate that nonteaching 

hospitals would experience a decrease of 0.6 percent. Classifying hospitals by type of 

ownership suggests that voluntary, proprietary, and governmental hospitals would 

experience changes ranging from a decrease of 0.6 percent to an increase of 0.2 percent 

as a result of the APC recalibration and proposed packaging policies. 

Column 6: New Wage Indices and the Effect of the Rural and Cancer Hospital 

Adjustments

 Column 6 demonstrates the combined budget neutral impact of proposed APC 

recalibration; the proposed wage index update; the proposed rural adjustment; and the 

proposed cancer hospital payment adjustment. We modeled the independent effect of the 

proposed budget neutrality adjustments and the proposed OPD fee schedule increase 

factor by using the relative payment weights and wage indices for each year, and using a 

CY 2013 conversion factor that included the OPD fee schedule increase and a budget 

neutrality adjustment for differences in wage indices. 

 Column 6 reflects the independent effects of the proposed updated wage indices, 

including the application of budget neutrality for the rural floor policy on a nationwide 

basis. This column excludes the effects of the proposed frontier State wage index 

adjustment, which is not budget neutral and is included in Column 8. We did not model a 
CMS-1601-P 649 

budget neutrality adjustment for the rural adjustment for SCHs because we are not 

proposing to make any changes to the policy for CY 2014. The differential impact 

between the CY 2013 cancer hospital payment adjustment and the proposed CY 2014 

cancer hospital payment adjustment would have a minimal effect on the budget neutral 

adjustment to the conversion factor. We modeled the independent effect of updating the 

wage indices by varying only the wage indices, holding APC relative payment weights, 

service-mix, and the rural adjustment constant and using the proposed CY 2014 scaled 

weights and a CY 2013 conversion factor that included a budget neutrality adjustment for 

the effect of changing the wage indices between CY 2013 and CY 2014. This column 

estimates the impact of applying the proposed FY 2014 IPPS wage indices for the 

proposed CY 2014 OPPS without the influence of the frontier State wage index 

adjustment, which is not budget neutral. The proposed frontier State wage index 

adjustment is reflected in the combined impact shown in Column 8. We are proposing to 

continue the rural payment adjustment of 7.1 percent to rural SCHs for CY 2014, as 

described in section II.E. of this proposed rule. We estimate that the combination of 

updated wage data and nationwide application of rural floor budget neutrality would 

redistribute payment among regions. We also are proposing to update the list of counties 

qualifying for the section 505 out-migration adjustments. 

 Overall, we estimate that as a result of the proposed updated wage indices and the 

proposed rural adjustment, urban hospitals would experience no change from CY 2013 to 

CY 2014. However, rural hospitals would experience an estimated decrease of 0.3 

percent. Urban hospitals in the New England, Mid Atlantic, and Pacific regions and in 
CMS-1601-P 650 

Puerto Rico would experience the most significant payment changes of 0.6 to 0.7 percent 

increases. Regionally, the proposed changes would range from a decrease of 0.6 in the 

rural East South Central region to an increase of 0.7 percent in the rural Pacific region. 

Column 7: All Proposed Budget Neutrality Changes Combined with the Proposed OPD 

Fee Schedule Increase

 Column 7 demonstrates the cumulative impact of the proposed budget neutral 

adjustments from Columns 5 and 6 and the proposed OPD fee schedule increase factor of 

1.8 percent. We estimate that, for some hospitals, the addition of the proposed OPD fee 

schedule increase factor of 1.8 percent would mitigate the impacts created by the 

proposed budget neutrality adjustments made in Columns 5 and 6. 

 Most classes of hospitals would receive an increase that is in line with the 

proposed 1.8 percent overall increase after the update is applied to the budget neutrality 

adjustments. The largest rural hospitals by number of beds (200+ beds) would 

experience payment increases of 1.4 percent. Proprietary, voluntary, and government 

hospitals would experience payment increases ranging from 1.0 to 2.0 percent. Hospitals 

in Puerto Rico would receive an estimated payment increase of 6.3 percent. The rural 

Mid-Atlantic region would experience a 0.4 percent payment decrease, while the urban 

Mid-Atlantic region would experience a 2.8 percent payment increase. Classified by 

teaching status, nonteaching hospitals would experience a small payment increase of 1.1 

percent, with minor and major teaching hospitals experiencing increases ranging from 1.8 

to 3.2 percent, respectively. 
CMS-1601-P 651 

Column 8: All Proposed Adjustments with the Proposed Frontier State Wage Index 

Adjustment

 This column shows the impact of all proposed budget neutrality adjustments, 

application of the proposed 1.8 percent OPD fee schedule increase factor, and the 

nonbudget neutral impact of applying the proposed frontier State wage adjustment (that 

is, the proposed frontier State wage index change in addition to all proposed changes 

reflected in Column 7). This column differs from Column 7 solely based on application 

of the proposed nonbudget neutral frontier State wage index adjustment. 

 In general, we estimate that all facilities and all hospitals would experience a 

combined increase of 1.9 percent due to the proposed nonbudget neutral frontier State 

wage index adjustment. The index would only affect urban hospitals in the West North 

Central and Mountain regions. Urban hospital in those regions would experience 

estimated increases of 4.5 percent (West North Central) and 2.3 percent (Mountain) that 

are attributable to the proposed frontier State wage index and the OPD fee schedule 

increase factor, and rural hospitals would experience estimated increases of 3.5 percent 

(West North Central) and 3.4 percent (Mountain) that are attributable to the proposed 

frontier State wage index and the OPD fee schedule increase factor. 

Column 9: All Proposed Changes for CY 2014

 Column 9 depicts the full impact of the proposed CY 2014 policies on each 

hospital group by including the effect of all of the proposed changes for CY 2014 and 

comparing them to all estimated payments in CY 2013. Column 9 shows the combined 

budget neutral effects of Column 5 and 6; the proposed OPD fee schedule increase; the 
CMS-1601-P 652 

impact of the proposed frontier State wage index adjustment; the impact of estimated 

OPPS outlier payments as discussed in section II.G. of this proposed rule; the proposed 

change in the Hospital OQR Program payment reduction for the small number of 

hospitals in our impact model that failed to meet the reporting requirements (discussed in 

section XIII. of this proposed rule); and the impact of decreasing the estimate of the 

percentage of total OPPS payments dedicated to transitional pass-through payments. Of 

those hospitals that failed to meet the Hospital OQR Program reporting requirements for 

the full CY 2013 update (and assumed, for modeling purposes, to be the same number for 

CY 2014), we included 34 hospitals in our model because they had both CY 2012 claims 

data and recent cost report data. We estimate that the cumulative effect of all proposed 

changes for CY 2014 would increase payments to all providers by 1.8 percent for 

CY 2014. We modeled the independent effect of all proposed changes in Column 9 using 

the final relative payment weights for CY 2013 and the proposed relative payment 

weights for CY 2014. We used the final conversion factor for CY 2013 of $71.313 and 

the proposed CY 2014 conversion factor of $72.728 discussed in section II.B. of this 

proposed rule. 

 Column 9 contains simulated outlier payments for each year. We used the one 

year proposed charge inflation factor used in the proposed FY 2014 IPPS/LTCH PPS 

proposed rule (78 FR 27767) of 4.85 percent ( 1.0485) to increase individual costs on the 

CY 2012 claims, and we used the most recent overall CCR in the April 2013 Outpatient 

Provider-Specific File (OPSF) to estimate outlier payments for CY 2013. Using the 

CY 2012 claims and a 4.85 percent charge inflation factor, we currently estimate that 
CMS-1601-P 653 

outlier payments for CY 2013, using a multiple threshold of 1.75 and a proposed fixeddollar threshold of $2,025 should be approximately 1.2 percent of total payments. The 

estimated current outlier payments of 1.2 percent are incorporated in the comparison in 

Column 9. We used the same set of claims and a proposed charge inflation factor of 9.93 

percent (1.0993) and the CCRs in the April 2013 OPSF, with an adjustment of 0.9732, to 

reflect relative changes in cost and charge inflation between CY 2012 and CY 2014, to 

model the proposed CY 2014 outliers at 1.0 percent of estimated total payments using a 

multiple threshold of 1.75 and a proposed fixed-dollar threshold of $2,775. 

 We estimate that the anticipated change in payment between CY 2013 and 

CY 2014 for the hospitals failing to meet the Hospital OQR Program requirements would 

be negligible. Overall, we estimate that facilities would experience an increase of 

1.8 percent under this proposed rule in CY 2014 relative to total spending in CY 2013. 

This projected increase (shown in Column 9) of Table 39 reflects the proposed 

1.8 percent OPD fee schedule increase factor, with 0.13 percent for the proposed change 

in the pass-through estimate between CY 2013 and CY 2014, less 0.2 percent for the 

difference in estimated outlier payments between CY 2013 (1.2 percent) and CY 2014 

(1.0 percent), less 0.1 percent due to the frontier adjustment in CY 2013, plus 0.1 percent 

due to the proposed frontier State wage index adjustment in CY 2014. When we exclude 

cancer and children’s hospitals (which are held harmless to their pre-BBA amount) and 

CMHCs, the estimated update increases to 1.8 percent after rounding. We estimate that 

the combined effect of all proposed changes for CY 2014 would increase payments to 

urban hospitals by 2.0 percent. 
CMS-1601-P 654 

 Overall, we estimate that rural hospitals would experience a 0.9 percent increase 

as a result of the combined effects of all proposed changes for CY 2014. We estimate 

that rural hospitals that bill less than 5,000 lines of OPPS services would experience an 

increase of 2.2 percent and rural hospitals that bill 5,000 or more lines of OPPS services 

would experience increases ranging from 0.9 to 2.4 percent. 

 Among teaching hospitals, we estimate that the impacts resulting from the 

combined effects of all proposed changes would include an increase of 3.1 percent for 

major teaching hospitals and 1.2 percent for nonteaching hospitals. Minor teaching 

hospitals would experience an estimated increase of 1.8 percent. 

 In our analysis, we also have categorized hospitals by type of ownership. Based 

on this analysis, we estimate that voluntary hospitals would experience an increase of 

2.1 percent, proprietary hospitals would experience an increase of 1.3 percent, and 

governmental hospitals would experience an increase of 1.0 percent.
CMS-1601-P 655 

TABLE 39.—ESTIMATED IMPACT OF THE PROPOSED CY 2014 CHANGES FOR THE HOSPITA

PROSPECTIVE PAYMENTS SYSTEM 

 (1) (2) (3) (4) (5) (6) (7) 

Number of 

Hospitals 

APC 

Recalibration 

(CY 2013-

2014) (%) 

Impact of 

Packaging 

Proposals 

Other than 

Outpatient 

Laboratory 

Services (%) 

Impact of 

Outpatient 

Laboratory 

Services 

Packaging 

Proposal 

(%) 

APC 

Recalibration (all 

changes) 

(%) 

New Wage 

Index and 

Provider 

Adjustments 

(%) 

Combine

Cols 5, 

with 

Market 

Basket 

Update (%

ALL FACILITIES * 3,953 0.0 0.0 0.0 0.0 0.0 1.8 ALL HOSPITALS 3,791 0.1 -0.1 0.0 0.0 0.0 1.8 (excludes hospitals permanently held harmless and CMHCs) URBAN HOSPITALS 2,859 0.1 -0.2 0.2 0.1 0.0 1.9  LARGE URBAN 1,566 0.1 0.0 0.3 0.4 0.2 2.3  (GT 1 MILL.)  OTHER URBAN 1,293 0.0 -0.3 0.1 -0.2 -0.1 1.5  (LE 1 MILL.) RURAL HOSPITALS 932 0.0 0.6 -1.3 -0.7 -0.3 0.9  SOLE COMMUNITY 389 0.1 0.8 -1.0 -0.1 -0.3 1.4  OTHER RURAL 543 0.0 0.4 -1.6 -1.2 -0.2 0.3 BEDS (URBAN)  0 - 99 BEDS 959 0.0 -0.3 0.3 0.0 0.1 1.8  100-199 BEDS 831 0.1 -0.3 -0.2 -0.4 -0.1 1.3  200-299 BEDS 454 0.1 -0.6 0.1 -0.4 0.0 1.4  300-499 BEDS 407 0.3 -0.4 0.5 0.3 0.0 2.1  500 + BEDS 208 -0.1 0.6 0.2 0.7 0.2 2.6 BEDS (RURAL)  0 - 49 BEDS 352 0.7 1.3 -3.5 -1.5 -0.6 -0.3 
CMS-1601-P 656 

 (1) (2) (3) (4) (5) (6) (7) 

Number of 

Hospitals 

APC 

Recalibration 

(CY 2013-

2014) (%) 

Impact of 

Packaging 

Proposals 

Other than 

Outpatient 

Laboratory 

Services (%) 

Impact of 

Outpatient 

Laboratory 

Services 

Packaging 

Proposal 

(%) 

APC 

Recalibration (all 

changes) 

(%) 

New Wage 

Index and 

Provider 

Adjustments 

(%) 

Combine

Cols 5, 

with 

Market 

Basket 

Update (%

 50- 100 BEDS 342 0.2 1.5 -1.9 -0.3 -0.1 1.4  101- 149 BEDS 133 -0.3 0.1 -0.6 -0.8 -0.5 0.5  150- 199 BEDS 61 -0.5 0.2 -0.8 -1.1 -0.1 0.5  200 + BEDS 44 0.1 -0.6 0.3 -0.2 -0.2 1.4 VOLUME (URBAN)  LT 5,000 Lines 485 -1.4 -0.4 2.4 0.5 0.2 2.5  5,000 - 10,999 Lines 109 -1.4 -0.5 3.2 1.3 -0.1 3.0  11,000 - 20,999 Lines 132 0.1 -1.9 2.4 0.6 0.0 2.5  21,000 - 42,999 Lines 262 0.4 -1.8 1.2 -0.2 -0.2 1.4  42,999 - 89,999 Lines 517 0.2 -0.9 0.7 -0.1 0.1 1.8  GT 89,999 Lines 1,354 0.1 0.0 0.1 0.1 0.0 2.0 VOLUME (RURAL)  LT 5,000 Lines 31 -1.8 0.3 2.2 0.6 -0.4 2.1  5,000 - 10,999 Lines 34 5.8 -0.1 -4.4 1.0 -0.5 2.3  11,000 - 20,999 Lines 67 3.0 0.2 -2.6 0.5 -0.7 1.6  21,000 - 42,999 Lines 182 1.0 1.2 -2.4 -0.3 -0.3 1.2  GT 42,999 Lines 618 -0.1 0.6 -1.2 -0.7 -0.2 0.8 REGION (URBAN)  NEW ENGLAND 150 0.0 2.2 -1.4 0.7 0.6 3.1  MIDDLE ATLANTIC 342 0.0 0.8 -0.5 0.3 0.7 2.8  SOUTH ATLANTIC 432 -0.3 -0.6 0.5 -0.4 -0.3 1.1  EAST NORTH CENT. 459 0.2 0.1 -0.3 0.0 -0.2 1.5  EAST SOUTH CENT. 172 -0.2 -0.8 0.9 -0.1 -0.3 1.4  WEST NORTH CENT. 193 0.0 0.5 1.5 2.0 -0.3 3.5  WEST SOUTH CENT. 487 0.7 -2.1 0.5 -0.9 -0.2 0.8  MOUNTAIN 194 -0.6 0.4 0.8 0.5 -0.3 2.0 
CMS-1601-P 657 

 (1) (2) (3) (4) (5) (6) (7) 

Number of 

Hospitals 

APC 

Recalibration 

(CY 2013-

2014) (%) 

Impact of 

Packaging 

Proposals 

Other than 

Outpatient 

Laboratory 

Services (%) 

Impact of 

Outpatient 

Laboratory 

Services 

Packaging 

Proposal 

(%) 

APC 

Recalibration (all 

changes) 

(%) 

New Wage 

Index and 

Provider 

Adjustments 

(%) 

Combine

Cols 5, 

with 

Market 

Basket 

Update (%

 PACIFIC 385 0.5 -0.9 0.6 0.2 0.6 2.6  PUERTO RICO 45 4.3 -0.5 0.0 3.9 0.6 6.3 REGION (RURAL)  NEW ENGLAND 25 -0.3 3.5 -1.6 1.6 0.6 3.9  MIDDLE ATLANTIC 68 0.3 1.7 -3.9 -2.0 -0.3 -0.4  SOUTH ATLANTIC 158 -0.3 -0.2 -0.9 -1.4 -0.4 0.0  EAST NORTH CENT. 124 0.0 0.8 -1.8 -1.1 -0.4 0.4  EAST SOUTH CENT. 170 0.0 -0.3 -0.8 -1.1 -0.6 0.1  WEST NORTH CENT. 99 -0.1 0.8 0.0 0.7 -0.1 2.3  WEST SOUTH CENT. 196 0.6 -0.4 -1.3 -1.1 -0.4 0.3  MOUNTAIN 63 -0.1 1.6 -1.6 -0.2 0.2 1.9  PACIFIC 29 0.2 1.9 -0.2 1.8 0.7 4.3 TEACHING STATUS  NON-TEACHING 2,792 0.0 -0.4 -0.2 -0.6 -0.1 1.1  MINOR 686 0.0 -0.5 0.5 0.0 0.0 1.8  MAJOR 313 0.2 1.2 -0.2 1.2 0.2 3.2 DSH PATIENT PERCENT  0 12 1.8 -5.4 3.5 -0.3 -0.1 1.5  GT 0 - 0.10 349 -0.4 0.2 0.6 0.4 0.1 2.3  0.10 - 0.16 334 -0.2 0.3 0.1 0.2 0.1 2.1  0.16 - 0.23 680 -0.1 0.3 -0.2 0.1 0.0 1.8  0.23 - 0.35 1,045 -0.2 0.1 0.1 0.0 0.0 1.7  GE 0.35 831 0.7 -0.8 -0.2 -0.3 0.0 1.5  DSH NOT AVAILABLE ** 540 2.3 -1.4 1.6 2.4 0.0 4.2 URBAN TEACHING/DSH 
CMS-1601-P 658 

 (1) (2) (3) (4) (5) (6) (7) 

Number of 

Hospitals 

APC 

Recalibration 

(CY 2013-

2014) (%) 

Impact of 

Packaging 

Proposals 

Other than 

Outpatient 

Laboratory 

Services (%) 

Impact of 

Outpatient 

Laboratory 

Services 

Packaging 

Proposal 

(%) 

APC 

Recalibration (all 

changes) 

(%) 

New Wage 

Index and 

Provider 

Adjustments 

(%) 

Combine

Cols 5, 

with 

Market 

Basket 

Update (%

 TEACHING & DSH 909 0.1 0.2 0.2 0.5 0.1 2.4  NO TEACHING/DSH 1,429 0.0 -0.8 0.2 -0.5 0.0 1.2  NO TEACHING/NO DSH 12 1.8 -5.4 3.5 -0.3 -0.1 1.5  DSH NOT AVAILABLE** 509 2.0 -1.2 1.5 2.3 0.1 4.2 TYPE OF OWNERSHIP  VOLUNTARY 2,004 0.0 0.2 0.0 0.2 0.1 2.0  PROPRIETARY 1,250 0.3 -1.5 0.9 -0.4 -0.1 1.3  GOVERNMENT 537 0.3 0.1 -1.0 -0.6 -0.2 1.0 CMHCs 100 -5.4 -3.6 3.5 -5.7 -0.2 -4.1 

Column (1) shows total hospitals and/or CMHCs. Column (2) shows the impact of changes resulting from the reclassification of HCPCS codes among APC groups and the proposed recalibration of APC weigclaims data. Changes in this column do not include reconfigurations and data changes from the 2014 packaging proposal. Column (3) shows the additional impact of changes resulting from the reclassification of HCPCS codes among APC groups and other data changes as a result packaging proposal (but excluding the proposed packaging of outpatient laboratory services currently paid at CLFS rates). Column (4) shows the additional impact of changes resulting from the reclassification of HCPCS codes among APC groups and other data changes as a result proposal to package outpatient laboratory services currently paid at CLFS rates. 

Column (5) includes all CY 2014 OPPS proposals and compares those to the CY 2013 OPPS (which includes outpatient laboratory services previously paid at 

Column (6) shows the budget neutral impact of updating the wage index by applying the FY 2014 hospital inpatient wage index. The proposed rural adjustmeof 7.1 percent so the budget neutrality factor is 1. Similarly, the differential in estimated cancer hospital payments for the proposed adjustment is minimal and neutrality factor of 1.0001. Column (7) shows the impact of all budget neutrality adjustments and the proposed addition of the 1.8 percent OPD fee schedule update factor (2.5 percent rpoints for the proposed productivity adjustment and further reduced by 0.3 percentage point in order to satisfy statutory requirements set forth in the AffordabColumn (8) shows the non-budget neutral impact of applying the frontier State wage adjustment. Column (9) shows the additional adjustments to the conversion factor resulting from a change in the pass-through estimate, adding estimated outlier payment

indexes. *These 3,953 providers include children and cancer hospitals, which are held harmless to pre-BBA amounts, and CMHCs. Payments for laboratory services aproposing to package in the CY 2014 OPPS, are included in the columns where appropriate. ** Complete DSH numbers are not available for providers that are not paid under IPPS, including rehabilitation, psychiatric, and long-term care hospitals.
CMS-1601-P 

(3) Estimated Effects of Proposed OPPS Changes on CMHCs 

 The last line of Table 39 demonstrates the isolated impact on CMHCs, which 

furnish only partial hospitalization (PHP) services under the OPPS. In CY 2013, CMHCs 

are paid under two APCs for these services: APC 0172 (Level I Partial Hospitalization 

(3 services) for CMHCs) and APC 0173 (Level II Partial Hospitalization (4 or more 

services) for CMHCs). In contrast, hospitals are paid for partial hospitalization services 

under APC 0175 (Level I Partial Hospitalization (3 services) for hospital-based PHPs) 

and APC 0176 (Level II Partial Hospitalization (4 or more services) for hospital-based 

PHPs). We use our standard rate-setting methodology to derive the payment rates for 

each APC based on the cost data derived from claims and cost reports for the provider 

type to which the APC is specific. For CY 2014, we are proposing to continue the 

provider-specific APC structure that we adopted in CY 2011. We modeled the impact of 

this proposed APC policy assuming that CMHCs will continue to provide the same 

number of days of PHP care, with each day having either 3 services or 4 or more 

services, as seen in the CY 2012 claims data used for this proposed. We excluded days 

with 1 or 2 services because our policy only pays a per diem rate for partial 

hospitalization when 3 or more qualifying services are provided to the beneficiary. 

Because the proposed relative payment weights for APC 0173 (Level II Partial 

Hospitalization (4 or more services) for CMHCs) decline in CY 2014, we estimate that 

there would be an overall 3.8 percent decrease in payments to CMHCs (shown in 

Column 9). 
CMS-1601-P 

 Column 6 shows that the estimated impact of adopting the proposed FY 2014 

wage index values would result in a small decrease of 0.2 percent to CMHCs. We note 

that all providers paid under the OPPS, including CMHCs, would receive a 1.8 percent 

OPD fee schedule increase factor. Column 7 shows that combining this proposed OPD 

fee schedule increase factor, along with proposed changes in APC policy for CY 2014 

and the proposed FY 2014 wage index updates, would result in an estimated decrease of 

4.1 percent. Column 8 shows that adding the proposed frontier State wage adjustment 

would result in no change to the cumulative 4.1 percent decrease. Column 9 shows that 

adding the proposed changes in outlier and pass-though payments would result in a 3.8 

percent decrease in payment for CMHCs. This reflects all proposed changes to CMHCs 

for CY 2014. 

(4) Estimated Effect of Proposed OPPS Changes on Beneficiaries 

 For services for which the beneficiary pays a copayment of 20 percent of the 

payment rate, the beneficiary share of payment would increase for services for which the 

OPPS payments will rise and would decrease for services for which the OPPS payments 

will fall. For further discussion on the calculation of the national unadjusted copayments 

and minimum unadjusted copayments, we refer readers to section II.I. of this proposed 

rule. In all cases, the statute limits beneficiary liability for copayment for a procedure to 

the hospital inpatient deductible for the applicable year. The CY 2013 hospital inpatient 

deductible is $1,184. The amount of the CY 2014 hospital inpatient deductible is not 

available at the time of publication of this proposed rule. 
CMS-1601-P 

 In order to better understand the impact of proposed changes in copayment on 

beneficiaries, we modeled the percent change in total copayment liability using CY 2012 

claims. We estimate, using the claims of the 3,791 hospitals and CMHCs on which our 

modeling is based, that total beneficiary liability for copayments would remain 

approximately the same as an overall percentage of total payments, being 20.4 percent in 

CY 2013 and 20.2 percent in CY 2014. 

(5) Estimated Effects of Proposed OPPS Changes on Other Providers 

 The relative payment weights and payment amounts established under the OPPS 

affect the payments made to ASCs as discussed in section XII. of this proposed rule. No 

types of providers or suppliers other than hospitals, CMHCs and ASCs would be affected 

by the proposed changes in this proposed rule. 

(6) Estimated Effects of Proposed OPPS Changes on the Medicare and Medicaid 

Programs 

 The effect on the Medicare program is expected to be $600 million in additional 

program payments for OPPS services furnished in CY 2014. The effect on the Medicaid 

program is expected to be limited to increased copayments that Medicaid may make on 

behalf of Medicaid recipients who are also Medicare beneficiaries. We refer readers to 

our discussion of the impact on beneficiaries in section XXIII.A. of this proposed rule. 

(7) Alternative OPPS Policies Considered 

 Alternatives to the OPPS changes we are proposing to make and the reasons for 

our selected alternatives are discussed throughout this proposed rule. In this section, we 

discuss some of the major issues and the alternatives considered. 
CMS-1601-P 

● Alternatives Considered for the Establishment of Comprehensive APCs 

 We are proposing in section II.A.2.e. of this proposed rule to create 29 

comprehensive APCs for CY 2014 to prospectively pay for device-dependent services 

associated with 121 HCPCS codes. We are proposing to define a comprehensive APC as 

a classification for the provision of a primary service and all adjunct services provided to 

support the delivery of the primary service. The comprehensive APC would treat all 

individually reported codes as representing components of the comprehensive service, 

resulting in a single prospective payment based on the cost of all individually reported 

codes that represent the provision of a primary service as well as all adjunct services 

provided to support that delivery of the primary service. For these APCs, we are 

proposing to treat all previously individually reported codes as representing components 

of the comprehensive service, making a single payment for the comprehensive service 

based on all charges on the claim, excluding only charges for services that cannot be 

covered by Medicare Part B or that are not payable under the OPPS. This would create a 

single all-inclusive payment for the claim that is subject to a single beneficiary 

copayment, up to the cap set at the level of the inpatient hospital deductible. 

 We are proposing this as a step that we believe will further improve the accuracy 

of our payments for these services where there is a substantial cost for a device that is 

large compared to the other costs that contribute to the cost of the procedure, and where 

the cost of the procedure is large compared to the adjunctive and supportive services 

delivered along with that procedure. We also believe our proposal will enhance 

beneficiary understanding and transparency for the beneficiary, for physicians, and for 
CMS-1601-P 

hospitals by creating a common reference point with a similar meaning for all three 

groups by using the comprehensive service concept that already identifies these same 

services when they are performed in an inpatient environment. 

 In proposing to package into the comprehensive APCs all other services and 

supplies, we are including the diagnostic procedures, tests and treatments that assist in the 

delivery of the primary procedure, visits and evaluations performed in association with 

the procedure, uncoded services and supplies used during the service, outpatient 

department services delivered by therapists as part of the comprehensive service, durable 

medical equipment as well as the supplies to support that equipment, and any other 

components reported by HCPCS codes that are provided during the comprehensive 

service, except for mammography services and ambulance services, which are never 

payable as OPD services in accordance with section 1833(t)(1)(B)(iv) of the Act. 

 We also considered several ranges of alternatives. First, we considered but are 

not proposing a limitation of the services that we considered to be ancillary and 

supportive to the primary service. We did not propose to limit the comprehensive APCs 

to only HCPCS codes that are currently paid using OPPS payment calculations because 

we could not identify a unique clinical characteristic that set these services apart from 

other services reported on the claim. We determined that services currently excluded by 

the Secretary from OPPS calculations, including, for example, such services as laboratory 

tests and certain orthotics and supplies, were adjunctive and supportive to the primary 

procedure in the same manner as the other services currently paid using our OPPS 

methodology were adjunctive and supportive. We also noted that these services that are 
CMS-1601-P 

currently priced using other payment systems represented a very small fraction of the 

costs reported on these device dependent claims, typically on the order of 1 percent of the 

total reported costs. This was consistent with our determination that these services were 

adjunctive and supportive and should be included in our definition of a comprehensive 

APC. 

 Second, we considered but did not propose creating comprehensive APCs for a 

different cohort of device dependent procedures. We did not propose a more limited list 

because we determined that the 29 APCs we proposed all consistently identified truly 

device dependent services where the other services that are currently assigned to the other 

device dependent APCs that are not being proposed as comprehensive APCs were clearly 

provided in support of a primary procedure. We considered limiting our proposal to the 

five or ten procedures with the most expensive devices but believed that such a division 

would be arbitrary and would ignore the natural division that occurred when the costs and 

clinical characteristics of these services were compared to similar procedures delivered as 

comprehensive services to inpatients. Alternatively, we considered limiting the proposal 

to those comprehensive services where the procedure itself, without consideration of the 

device, was responsible for the most significant portion of the cost and was also 

responsible for the need to deliver the majority of the additional services provided during 

the encounter. However, although we considered that this last consideration did in fact 

identify services that were consistent with our proposal to define comprehensive services, 

we did not propose this alternative as we believe our proposal to create comprehensive 
CMS-1601-P 

APCs for only the 29 most costly device dependent APCs is most consistent with our past 

practices of iteratively improving the OPPS in small and well-defined increments. 

 Third, we considered proposing payment adjustments for instances when multiple 

procedures assigned to comprehensive APCs were reported on the same claim. However, 

we did not propose this. In examining our claims data, we determined that multiple 

procedures assigned to comprehensive APCs were reported in only 25 percent of the 

claims, and that these multiple procedures were almost always reporting components of 

the same service, such as cardiac stenting, and were assigned to the same APC. In our 

claims data it was very uncommon to find multiple unrelated device dependent 

procedures being delivered at the same time. Therefore, we decided to propose that the 

primary procedure would determine the comprehensive APC and that, in the rare event 

that procedures were reported that mapped to two different comprehensive APCs on the 

same claim, the most expensive procedure according to our traditional OPPS accounting 

methodology would determine the comprehensive APC assignment. We believe that this 

is consistent with the methodology for assigning payments for those inpatient claims that 

represent the same or similar comprehensive procedures and that it most accurately 

reflects the comprehensive service on those occasions in which two or more device 

dependent HCPCS codes are used to report the single comprehensive service. 

 Finally, we considered retaining the device-to-procedure edits and 

procedure-to-device edits that were characteristic of our device-dependent APCs but we 

instead proposed the elimination of the edits along with the elimination of the status of 

device dependent APC. We noted that the device-dependent APC was created in 
CMS-1601-P 

response to concerns that hospitals were not coding for the device and that our relative 

cost estimations were consequently incorrect. In the intervening years we have noticed a 

significant improvement and stabilization in the reporting of costs, to the extent that we 

believe that hospitals are now fully accustomed to appropriate cost reporting under the 

OPPS such that special billing constraints are unnecessary. We further believe that, 

under our proposal to create comprehensive APCs, there would now be an additional 

mechanism to ensure accurate cost estimation for the most expensive devices for which 

an inadvertent omission of costs would be most significant. In the calculations of relative 

cost for the comprehensive APCs, costs for the device would be correctly assigned to the 

procedure as long as the hospital reports covered costs anywhere on the claim. Specific 

device reporting would still be expected and required, but variations in accounting 

practices would be less likely to influence the final cost accounting. 

 In summary, we determined to propose to make an all-inclusive comprehensive 

payment for the procedures in the 29 most costly device dependent APCs because we 

believe that this identified a consistent set of procedures that were typically provided as a 

primary procedure supported by a set of adjunctive services, and that this set of services 

represented an incremental improvement in our prospective payments similar to other 

prior incremental improvements through which we have established our approach to 

updating and improving the OPPS. 

● Alternatives Considered for Payment of Hospital Outpatient Visits 

 As described in section VII. of this proposed rule, we are proposing to replace the 

current five levels of visit codes for each clinic, Type A ED, and Type B ED visits with 
CMS-1601-P 

three new alphanumeric Level II HCPCS codes representing a single level of payment for 

the three types of visits, respectively. We are proposing to assign the new alphanumeric 

Level II HCPCS to newly created APCs with CY 2014 OPPS payment rates based on the 

total mean costs of Level 1 through Level 5 visit codes obtained from CY 2012 OPPS 

claims data for each visit type. 

 In developing this policy, we considered another alternative, which was to replace 

the current five levels of visit codes for each clinic, Type A ED, and Type B ED visit 

with 6 new alphanumeric Level II HCPCS codes representing two levels (lower level and 

higher level) of payment for each of the three types of visits. The lower-level 

alphanumeric codes for clinic, Type A ED, and Type B ED visits would replace the 

current Level 1 and Level 2 visit codes, respectively, and would be assigned to newly 

created or reconfigured APCs with CY 2014 OPPS payment rates based on the total mean 

costs of Level 1 and 2 visit codes obtained from CY 2012 OPPS claims data for each visit 

type. The higher-level alphanumeric codes for clinic, Type A ED, and Type B ED visits 

would replace the current Level 3 through Level 5 visit codes, respectively, and would be 

assigned to newly created or reconfigured APCs with CY 2014 OPPS payment rates 

based on the total mean costs of Level 3 through Level 5 visit codes obtained from 

CY 2012 OPPS claims data for each visit type. 

 While we believe that this alternative could offer advantages over the current 

CY 2013 OPPS visit payment policy, we did not choose this alternative because as we 

describe in section VII. of this proposed rule we believed that a single level of payment 

for each type of clinic and ED visit was the best policy option as this proposal would be 
CMS-1601-P 

easily implemented by hospitals; reduces administrative burden relative to the existing 

five-level visit payment structure; and maximizes hospitals’ incentives to provide care in 

the most efficient manner as there would be no incentive to provide unnecessary care to 

achieve a higher level visit threshold. A two-level visit payment structure would not be 

as easily implemented by hospitals as a single-level visit payment structure, and the need 

for hospitals to develop and implement guidelines to differentiate the levels of service 

would continue to exist. Also, while the two-level visit payment structure may provide 

incentives for hospitals to be efficient, the incentives may not be so great as under a 

single-level visit payment structure. Therefore, we are proposing to create three new 

alphanumeric Level II HCPCS codes to describe all levels of each type of clinic and ED 

visit rather than continue to recognize five levels each of clinic and ED visits. 

b. Estimated Effects of ASC Payment System Proposed Policies 

 ASC payment rates are calculated by multiplying the ASC conversion factor by 

the ASC relative payment weight. As discussed fully in section XII. of this proposed 

rule, we are proposing to set the CY 2014 ASC relative payment weights by scaling the 

proposed CY 2014 OPPS relative payment weights by the proposed ASC scaler of 

0.8961. The estimated effects of the proposed updated relative payment weights on 

payment rates are varied and are reflected in the estimated payments displayed in Tables 

40 and 41 below. 

 Beginning in CY 2011, section 3401 of the Affordable Care Act requires that the 

annual update to the ASC payment system (which currently is the CPI-U) after 

application of any quality reporting reduction be reduced by a productivity adjustment. 
CMS-1601-P 

The Affordable Care Act defines the productivity adjustment to be equal to the 10-year 

moving average of changes in annual economy-wide private nonfarm business 

multifactor productivity (MFP) (as projected by the Secretary for the 10-year period 

ending with the applicable fiscal year, year, cost reporting period, or other annual period). 

For ASCs that fail to meet their quality reporting requirements, the CY 2014 payment 

determinations will be based on the application of a 2.0 percentage point reduction to the 

annual update factor, which currently is the CPI-U. We calculated the proposed CY 2014 

ASC conversion factor by adjusting the CY 2013 ASC conversion factor by 1.0004 to 

account for changes in the pre-floor and pre-reclassified hospital wage indices between 

CY 2013 and CY 2014 and by applying the proposed CY 2014 MFP-adjusted CPI-U 

update factor of 0.9 percent (projected CPI-U update of 1.4 percent minus a projected 

productivity adjustment of 0.5. percent). The proposed CY 2014 ASC conversion factor 

is $43.321. 

(1) Limitations of Our Analysis 

 Presented here are the projected effects of the proposed changes for CY 2014 on 

Medicare payment to ASCs. A key limitation of our analysis is our inability to predict 

changes in ASC service-mix between CY 2012 and CY 2014 with precision. We believe 

that the net effect on Medicare expenditures resulting from the proposed CY 2014 

changes would be small in the aggregate for all ASCs. However, such changes may have 

differential effects across surgical specialty groups as ASCs continue to adjust to the 

payment rates based on the policies of the revised ASC payment system. We are unable 

to accurately project such changes at a disaggregated level. Clearly, individual ASCs 
CMS-1601-P 

would experience changes in payment that differ from the aggregated estimated impacts 

presented below. 

(2) Estimated Effects of ASC Payment System Proposed Policies on ASCs 

 Some ASCs are multispecialty facilities that perform the gamut of surgical 

procedures from excision of lesions to hernia repair to cataract extraction; others focus on 

a single specialty and perform only a limited range of surgical procedures, such as eye, 

digestive system, or orthopedic procedures. The combined effect on an individual ASC 

of the proposed update to the CY 2014 payments would depend on a number of factors, 

including, but not limited to, the mix of services the ASC provides, the volume of 

specific services provided by the ASC, the percentage of its patients who are Medicare 

beneficiaries, and the extent to which an ASC provides different services in the coming 

year. The following discussion presents tables that display estimates of the impact of the 

proposed CY 2014 updates to the ASC payment system on Medicare payments to ASCs, 

assuming the same mix of services as reflected in our CY 2012 claims data. Table 40 

depicts the estimated aggregate percent change in payment by surgical specialty or 

ancillary items and services group by comparing estimated CY 2013 payments to 

estimated CY 2014 payments, and Table 41 shows a comparison of estimated CY 2013 

payments to estimated CY 2014 payments for procedures that we estimate would receive 

the most Medicare payment in CY 2014. 

 Table 40 shows the estimated effects on aggregate Medicare payments under the 

ASC payment system by surgical specialty or ancillary items and services group. We 

have aggregated the surgical HCPCS codes by specialty group, grouped all HCPCS codes 
CMS-1601-P 

for covered ancillary items and services into a single group, and then estimated the effect 

on aggregated payment for surgical specialty and ancillary items and services groups. 

The groups are sorted for display in descending order by estimated Medicare program 

payment to ASCs. The following is an explanation of the information presented in 

Table 40. 

● Column 1—Surgical Specialty or Ancillary Items and Services Group indicates 

the surgical specialty into which ASC procedures are grouped and the ancillary items and 

services group which includes all HCPCS codes for covered ancillary items and services. 

To group surgical procedures by surgical specialty, we used the CPT code range 

definitions and Level II HCPCS codes and Category III CPT codes as appropriate, to 

account for all surgical procedures to which the Medicare program payments are 

attributed. 

● Column 2—Estimated CY 2013 ASC Payments were calculated using 

CY 2012 ASC utilization (the most recent full year of ASC utilization) and CY 2013 

ASC payment rates. The surgical specialty and ancillary items and services groups are 

displayed in descending order based on estimated CY 2013 ASC payments. 

● Column 3—Estimated CY 2014 Percent Change is the aggregate percentage 

increase or decrease in Medicare program payment to ASCs for each surgical specialty or 

ancillary items and services group that would be attributable to proposed updates to 

ASC payment rates for CY 2014 compared to CY 2013. 

 As seen in Table 40, we estimate that the proposed update to ASC rates for 

CY 2014 would result in a 3 percent decrease in aggregate payment amounts for eye and 
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ocular adnexa procedures, an 8 percent increase in aggregate payment amounts for 

digestive system procedures, and a 1 percent increase in aggregate payment amounts for 

nervous system procedures. 

 Generally, for the surgical specialty groups that account for less ASC utilization 

and spending, we estimate that the payment effects of the proposed CY 2014 update are 

variable. For instance, we estimate that, in the aggregate, payment for musculoskeletal 

system procedures would decrease by 1 percent, whereas payment for genitourinary 

system procedures, integumentary system procedures and respiratory system procedures 

would increase by 5 to 7 percent under the proposed CY 2014 rates. 

 An estimated increase in aggregate payment for the specialty group does not mean 

that all procedures in the group would experience increased payment rates. For example, 

the estimated increase for CY 2014 for digestive system procedures is likely due to an 

increase in the ASC payment weight for some of the high volume procedures, such as 

CPT code 43239 (Upper GI endoscopy biopsy) where estimated payment would increase 

by 13 percent for CY 2014. 

 Also displayed in Table 40 is a separate estimate of Medicare ASC payments for 

the group of separately payable covered ancillary items and services. The payment 

estimates for the covered surgical procedures include the costs of packaged ancillary 

items and services. We estimate that aggregate payments for these items and services 

would decrease by 12 percent for CY 2014. 
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TABLE 40.—ESTIMATED IMPACT OF THE PROPOSED CY 2014 UPDATE O 

THE ASC PAYMENT SYSTEM ON AGGREGATE CY 2014 MEDICARE 

PROGRAM PAYMENTS BY SURGICAL SPECIALTY OR ANCILLARY ITEMS 

AND SERVICES GROUP 

Surgical Specialty Group 

(1) 

Estimated 

CY 2013 

ASC 

Payments 

(in Millions) 

(2) 

Estimated 

CY 2014 

Percent 

Change 

(3) 

Total $3,625 1% 

Eye and ocular adnexa $1,496 -3% 

Digestive system $743 8% 

Nervous system $540 1% 

Musculoskeletal system $441 -1% 

Genitourinary system $159 5% 

Integumentary system $130 7% 

Respiratory system $46 7% 

Cardiovascular system $32 -2% 

Ancillary items and services $20 -12% 

Auditory system $12 4% 

Hematologic & lymphatic systems $5 17% 

 Table 41 below shows the estimated impact of the proposed updates to the revised 

ASC payment system on aggregate ASC payments for selected surgical procedures 

during CY 2014. The table displays 30 of the procedures receiving the greatest estimated 

CY 2014 aggregate Medicare payments to ASCs. The HCPCS codes are sorted in 

descending order by estimated CY 2014 program payment. 

● Column 1–CPT/HCPCS code. 

● Column 2–Short Descriptor of the HCPCS code. 

● Column 3–Estimated CY 2013 ASC Payments were calculated using CY 2012 

ASC utilization (the most recent full year of ASC utilization) and the proposed CY 2014 
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ASC payment rates. The estimated CY 2014 payments are expressed in millions of 

dollars. 

● Column 4–Estimated CY 2014 Percent Change reflects the percent differences 

between the estimated ASC payment for CY 2013 and the estimated payment for 

CY 2014 based on the proposed update. 

TABLE 41.--ESTIMATED IMPACT OF THE PROPOSED CY 2014 UPDATE TO 

THE ASC PAYMENT SYSTEM ON AGGREGATE PAYMENTS FOR 

SELECTED PROCEDURES 

CPT/HCPCS 

Code* 

(1) 

Short Descriptor 

(2) 

Estimated 

CY 2013 

ASC 

Payments 

(in millions) 

(3) 

Estimated 

CY 2014 

Percent 

Change 

(4) 

66984 Cataract surg w/iol, 1 stage $1,107 -3%

43239 Upper GI endoscopy, biopsy $163 13%

45380 Colonoscopy and biopsy $154 7%

45385 Lesion removal colonoscopy $98 7%

66982 Cataract surgery, complex $89 -3%

45378 Diagnostic colonoscopy $80 7%

64483 Inj foramen epidural l/s $79 14%

62311 Inject spine l/s (cd) $71 14%

66821 After cataract laser surgery $59 -1%

G0105 Colorectal scrn; hi risk ind $42 0%

15823 Revision of upper eyelid $40 2%

64493 Inj paravert f jnt l/s 1 lev $40 14%

63650 Implant neuroelectrodes $39 4%

G0121 Colon ca scrn not hi rsk ind $36 0%

29827 Arthroscop rotator cuff repr $34 5%

64590 Insrt/redo pn/gastr stimul $33 6%

64721 Carpal tunnel surgery $31 -1%

63685 Insrt/redo spine n generator $31 6%

64636** Destroy l/s facet jnt addl $31 -100%

29881 Knee arthroscopy/surgery $30 -3%

64635 Destroy lumb/sac facet jnt $26 73%
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CPT/HCPCS 

Code* 

(1) 

Short Descriptor 

(2) 

Estimated 

CY 2013 

ASC 

Payments 

(in millions) 

(3) 

Estimated 

CY 2014 

Percent 

Change 

(4) 

29880 Knee arthroscopy/surgery $25 -3%

43235 Uppr gi endoscopy diagnosis $23 13%

45384 Lesion remove colonoscopy $22 7%

52000 Cystoscopy $21 5%

62310 Inject spine c/t $20 14%

29823 Shoulder arthroscopy/surgery $19 5%

67042 Vit for macular hole $19 0%

28285 Repair of hammertoe $18 5%

50590 Fragmenting of kidney stone $18 2%

*Note that HCPCS codes we are proposing to delete for CY 2014 are not displayed in this table. 

** The 100 percent decrease in estimated payment reflects our CY 2014 proposal to package the payment 

for CPT code 64636. 

(3) Estimated Effects of ASC Payment System Proposed Policies on Beneficiaries 

 We estimate that the proposed CY 2014 update to the ASC payment system 

would be generally positive for beneficiaries with respect to the new procedures that we 

are proposing to add to the ASC list of covered surgical procedures and for those that we 

are proposing to designate as office-based for CY 2014. First, other than certain 

preventive services where coinsurance and the Part B deductible is waived to comply 

with sections 1833(a)(1) and (b) of the Act, the ASC coinsurance rate for all procedures 

is 20 percent. This contrasts with procedures performed in HOPDs, where the 

beneficiary is responsible for copayments that range from 20 percent to 40 percent of the 

procedure payment. Second, in almost all cases, the ASC payment rates under the ASC 

payment system are lower than payment rates for the same procedures under the OPPS. 

Therefore, the beneficiary coinsurance amount under the ASC payment system will 
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almost always be less than the OPPS copayment amount for the same services. (The only 

exceptions would be if the ASC coinsurance amount exceeds the inpatient deductible. 

The statute requires that copayment amounts under the OPPS not exceed the inpatient 

deductible.) Beneficiary coinsurance for services migrating from physicians' offices to 

ASCs may decrease or increase under the revised ASC payment system, depending on 

the particular service and the relative payment amounts for that service in the physician's 

office compared to the ASC. However, for those additional procedures that we are 

proposing to designate as office-based in CY 2014, the beneficiary coinsurance amount 

would be no greater than the beneficiary coinsurance in the physician's office because the 

coinsurance in both settings is 20 percent (except for certain preventive services where 

the coinsurance is waived in both settings). 

(4) Alternative ASC Payment Policies Considered 

 Alternatives to the minor changes that we are proposing to make to the ASC 

payment system and the reasons that we have chosen specific options are discussed 

throughout this proposed rule. There are no proposed major changes to ASC policies for 

CY 2014. 

c. Accounting Statements and Tables 

 As required by OMB Circular A-4 (available on the Office of Management and 

Budget Web Site at: 

http://www.whitehouse.gov/sites/default/files/omb/assets/regulatory_matters_pdf/a4.pdf), we have prepared two accounting statements to illustrate the impacts of this 

proposed rule. The first accounting statement, Table 42 (below) illustrates the 
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classification of expenditures for the CY 2014 estimated hospital OPPS incurred benefit 

impacts associated with the proposed CY 2014 OPD fee schedule increase, based on the 

2013 Trustee’s Report. The second accounting statement, Table 43 (below) illustrates the 

classification of expenditures associated with the proposed 0.9 percent CY 2014 update 

to the ASC payment system, based on the provisions of this proposed rule and the 

baseline spending estimates for ASCs in the 2013 Trustee’s Report. The third accounting 

statement, Table 44 (below), illustrates the classification of expenditures associated with 

the proposed revision to the definition of hospital-based EP in payment year 2013 for EPs 

reassigning benefits to Method II CAHs. Lastly, the tables classify most estimated 

impacts as transfers. 

TABLE 42.--ACCOUNTING STATEMENT: CY 2014 ESTIMATED HOSPITAL 

OPPS TRANSFERS FROM CY 2013 TO CY 2014 ASSOCIATED WITH THE 

PROPOSED CY 2014 HOSPITAL OUTPATIENT OPD FEE SCHEDULE 

INCREASE 

Category Transfers 

Annualized Monetized Transfers $600 million 

From Whom to Whom Federal Government to outpatient hospitals and 

other providers who receive payment under the 

hospital OPPS 

Total $600 million 

TABLE 43.--ACCOUNTING STATEMENT: CLASSIFICATION OF 

ESTIMATED TRANSFERS FROM CY 2013 TO CY 2014 AS A RESULT OF THE 

PROPOSED CY 2014 UPDATE TO THE REVISED ASC PAYMENT SYSTEM 

Category Transfers 

Annualized Monetized Transfers $27 million 

From Whom to Whom 

Federal Government to Medicare Providers 

and Suppliers 

Total $27 million 
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TABLE 44.--ACCOUNTING STATEMENT: CLASSIFICATION OF 

ESTIMATED TRANSFERS FROM CY 2013 TO CY 2014 AS A RESULT OF THE 

PROPOSED REVISIONS TO THE DEFINITION OF PROVIDER-BASED EP 

UNDER THE EHR INCENTIVE PROGRAM 

Category Transfers 

Annualized Monetized Transfers $17,985,000 to $35,970,000 

From Whom to Whom Federal Government to Medicare Providers 

Total $17,985,000 to $35,970,000 

d. Effects of Proposed Requirements for the Hospital OQR Program 

 In section XIII. of this proposed rule, we are proposing to adopt policies affecting 

the Hospital OQR Program. 

 We determined that 114 hospitals did not meet the requirements to receive the full 

OPD fee schedule increase factor for CY 2013. Most of these hospitals (106 of the 114) 

received little or no OPPS payment on an annual basis and did not participate in the 

Hospital OQR Program. We estimate that 106 hospitals may not receive the full OPD fee 

schedule increase factor in CY 2014 and that 106 hospitals may not receive the full OPD 

fee schedule increase factor in CY 2015. We are unable at this time to estimate the 

number of hospitals that may not receive the full OPD fee schedule increase factor in 

CY 2016. 

 In section XVI.E.3.a. of the CY 2010 OPPS/ASC final rule with comment period 

(74 FR 60647 through 60650), for the CY 2011 payment update, as part of the validation 

process, we required hospitals to submit paper copies of requested medical records to a 

designated contractor within the required timeframe. Failure to submit requested 

documentation could result in a 2.0 percentage point reduction to a hospital’s CY 2011 
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OPD fee schedule increase factor, but the failure to attain a validation score threshold 

would not. 

 In section XVI.D.3.b of the CY 2011 OPPS/ASC final rule with comment period, 

we finalized our proposal to validate data submitted by 800 hospitals of the 

approximately 3,200 participating hospitals for purposes of the CY 2012 Hospital OQR 

Program payment determination. We stated our belief that this approach was suitable for 

the CY 2012 Hospital OQR Program because it would: produce a more reliable estimate 

of whether a hospital’s submitted data have been abstracted accurately; provide more 

statistically reliable estimates of the quality of care delivered in each selected hospital as 

well as at the national level; and reduce overall hospital burden because most hospitals 

would not be selected to undergo validation each year. We adopted a threshold of 

75 percent as the threshold for the validation score because we believed this level was 

reasonable for hospitals to achieve while still ensuring accuracy of the data. 

Additionally, this level is consistent with what we adopted in the Hospital IQR Program 

(75 FR 50225 through 50229). As a result, we believed that the effect of our validation 

process for CY 2012 would be minimal in terms of the number of hospitals that would 

not meet all program requirements. 

 In the CY 2012 OPPS/ASC final rule with comment period, we finalized our 

proposal to validate data submitted by up to 500 of the approximately 3,200 participating 

hospitals for purposes of the CY 2013 Hospital OQR Program payment determination. 

Under our policy for CY 2011, CY 2012, and CY 2013, we stated that we would conduct 
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a measure level validation by assessing whether the measure data submitted by the 

hospital matches the independently reabstracted measure data. 

 In the CY 2013 OPPS/ASC final rule with comment period, for the CY 2014 

payment determination and subsequent years, we made some modifications to 

administrative requirements in extending a deadline to submit a Notice of Participation as 

well as to extraordinary circumstance waiver or extension and reconsideration processes 

to broaden the scope of personnel who can sign these requests. However, we did not 

make any modifications to our validation requirements. We expect these policies to have 

minimal impact on the program. 

 In this proposed rule, for CY 2016 payment determination and subsequent years, 

we are proposing to add five quality measures with data collection to begin in CY 2014. 

For four of these measures, data would be submitted via an online tool located on a CMS 

Web site and one would be submitted via CDC’s NHSN. We are proposing to remove 

two measures from the Hospital OQR Program. 

 As stated above, we are unable to estimate the number of hospitals that may not 

receive the full OPD fee schedule increase factor in CY 2016. We also are unable to 

estimate the number of hospitals that would fail the validation documentation submission 

requirement for the CY 2016 payment update. 

 The validation requirements for CY 2014 would result in medical record 

documentation for approximately 6,000 cases per quarter for CY 2014, being submitted 

to a designated CMS contractor. We will pay for the cost of sending this medical record 

documentation to the designated CMS contractor at the rate of 12 cents per page for 
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copying and approximately $1.00 per case for postage. We have found that an outpatient 

medical chart is generally up to 10 pages. Thus, as a result of validation requirements 

effective for CY 2014, we estimate that we will have expenditures of approximately 

$13,200 per quarter for CY 2014. Because we will pay for the data collection effort, we 

believe that a requirement for medical record documentation for 6,000 total cases per 

quarter for up to 500 hospitals for CY 2014 represents a minimal burden to Hospital 

OQR Program participating hospitals. 

e. Effects of Proposals for the ASCQR Program 

 In section XV. of this proposed rule, for the ASCQR Program, we are proposing 

four additional quality measures for the CY 2016 payment determination and subsequent 

years. Data collection for these proposed measures would begin in CY 2014. We are 

proposing to collect aggregate data (numerators, denominators, and exclusions) on all 

ASC patients for these four proposed chart-abstracted measures via an online Web-based 

tool located on a CMS Web page. We are also proposing for the CY 2016 payment 

determination and subsequent years requirements for facility participation, data 

collection, and submission for claims-based, CMS Web-based, and NHSN measures. 

 We are unable at this time to estimate the number of ASCs that may not receive 

the full ASC annual payment update in CYs 2014, 2015, and 2016. However, we do 

expect our new policies to significantly affect the number of ASCs that do not receive a 

full annual payment update in CY 2016, though we are not able to estimate the level of 

this impact at this time. 
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f. Effects of Proposed Changes to the CfCs for OPOs Relating to the Outcome Measures 

Requirement for Recertification 

 In section XVI. of this proposed rule, we discussed our proposal to modify the 

current outcome measures requirement that OPOs meet all three outcome measures set 

forth in § 486.318 to a requirement that they meet two out of the three outcome measures. 

Our proposal would result in those OPOs that fail only one outcome measures avoiding 

automatic decertification based upon the current outcome measures requirement. 

 While we are confident that our proposal would have a significantly positive 

effect on the OPOs that avoided automatic decertification, it is very difficult to quantify 

the impact of this change. As discussed under section XXI.C. of this proposed rule 

relating to the ICR requirements, we anticipate that most OPOs that are decertified would 

engage in the appeals process as set forth in § 486.314. However, we have no reliable 

way of estimating how many OPOs would likely obtain reversals of their decertifications 

during reconsideration or how many continue on to a hearing before a CMS hearing 

officer. Therefore, although we believe there would be a considerably large positive 

effect as a result of our proposed change to the outcome measures requirement, we are 

unable to provide a specific estimate of that cost savings. 
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g. Effects of Proposed Revisions of the QIO Regulations 

 In section XVII. of this proposed rule, we are proposing to update the regulations 

at 42 CFR 475 and 476 based on the recently enacted Trade Adjustment Assistance 

Extension Act of 2011 (TAAEA) (Pub. L. 112-40, Section 261) whereby Congress 

authorized numerous changes to the original legislation and included additional flexibility 

for the Secretary in the administration of the QIO program. Currently, 42 CFR Part 475 

includes definitions and standards governing eligibility and the award of contracts to 

QIOs. In this proposed rule, we set forth proposals for the partial deletion and revision of 

the regulations under 42 CFR Parts 475 and 476, which relate to the QIO program, 

including the following: (1) replace nomenclature that has been amended by the 

TAAEA; (2) revise the existing definition for the term “physician” in Parts 475 and 476; 

(3) add new definitions as necessary to support the new substantive provisions in Subpart 

C; and (4) revise, add, and replace some of the substantive provisions in Subpart C to 

fully exercise the Secretary’s authority for the program and update the contracting 

requirements to align with contemporary quality improvement. 

 We estimate the effects of the proposed QIO Program changes to be consistent 

with the Congressional Budget Office’s 2011 Cost Estimate of the Trade Bill (H.R. 2832) 

which included a reduction in spending of $330 million over the 2012-2021 period. 

According to the CBO Estimate, the Act and subsequently the proposed regulatory 

changes “would modify the provisions under which CMS contracts with independent 

entities called [“]Quality Improvement Organizations [(QIOs)”] in Medicare. QIOs, 

generally staffed by health care professionals, review medical care, help beneficiaries 
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with complaints about the quality of care, and implement care improvements. H.R. 2832 

would make several changes to the composition and operation of QIOs, and would 

harmonize QIO contracts with requirements of the Federal Acquisition Regulation. 

Among those changes are a modification to expand the geographic scope of QIO 

contracts and a lengthening of the contract period. CBO estimates that those provisions 

would reduce spending by $330 million over the 2012-2021 period.” 

h. Effects of Proposals Regarding Medicare-Fee-for-Service EHR Incentive Program 

(1) Incentive Payments for Eligible Professionals (EPs) Reassigning Benefits to Method 

II CAHs 

 As discussed in section XVIII.A. of this proposed rule, we are proposing to revise 

the regulations to provide, during payment year 2013 alone, a special method for 

determining the hospital-based status of EPs who reassign their benefits to Method II 

CAHs. It is difficult to determine with precision the cost impact of this proposal. We 

lack specific information on key factors affecting this impact, including the number of 

EPs who reassign their benefits to Method II CAHs, the proportion of those EPs who 

would be determined to be nonhospital-based for 2013 under our proposal, the proportion 

of those EPs who will qualify for Medicaid incentive payments and choose to accept 

those payments because they are higher, and the proportion of the remaining EPs who 

will successfully demonstrate meaningful use in order to qualify for Medicare incentive 

payments. It is therefore necessary to rely on estimates for each of these factors. As 

much as possible we will employ the methods of cost estimation that we used to 

determine the estimated costs of the Medicare incentives for EPs in our Stage 1 final rule 
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(75 FR 44549) and Stage 2 final rule (77 FR 54139) for the Medicare Electronic Health 

Record Incentive Program, as well as the estimates that we have previously employed for 

specific factors. 

 Of the approximately 1,200 CAHs, about three-quarters, or 900, elect under 

section 1834(g)(2) of the Act to receive a cost-based payment for the facility costs of 

providing outpatient services, plus 115 percent of the fee schedule amount for 

professional services included within outpatient CAH services. As we have indicated, we 

lack specific information on the numbers of EPs who reassign their benefits to these 

Method II CAHs. While CAHs are relatively small inpatient facilities, we understand 

that many of them have fairly substantial outpatient clinics. At the same time, we have 

also been informed that they rely largely on nonphysician practitioners (nurses and nurse 

practitioners) to staff these outpatient clinics. Therefore, we will assume that the typical 

outpatient department in a Method II CAH has a relatively small number of physicians, 

between 5 and 10, on staff and billing for professional services that are reassigned to the 

CAH. We will also use this estimate of 5 to 10 physicians per Method II CAH to 

establish an upper and lower range to our impact estimate. The number of EPs 

reassigning benefits for outpatient services to Method II CAHs is therefore between 

4,500 and 9,000. 

 In our Stage 2 final rule (77 FR 54139) for the Medicare Electronic Health Record 

Incentive Program, we determined that about 14 percent of EPs with Medicare claims 

were hospital-based, and thus ineligible to receive Medicare EHR incentive payments. 

For purposes of this impact statement, we will assume that 10 percent of EPs reassigning 
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benefits to Method II CAHs are hospital-based. Because CAHs have relatively small 

inpatient hospital facilities, we believe that the physicians practicing in these facilities 

will bill for somewhat fewer inpatient services than EPs generally. Using this 

assumption, the estimate of nonhospital-based EPs reassigning benefits to Method II 

CAHs is therefore between 4,050 and 8,100. Of these nonhospital-based EPs reassigning 

benefits to Method II CAHs, some proportion will qualify for Medicaid incentive 

payments and will choose to receive payments under that program because the payments 

are higher. For these purposes we will employ the same estimate (20 percent) that we 

have employed for developing cost estimate in our Stage 2 final rule (77 FR 54140). 

Thus, we estimate that between 3,240 and 6,480 non-hospital-based EPs reassigning 

benefits to Method II CAHs do not choose to receive Medicaid incentive payments. 

 As we have discussed in prior rules (77 FR 54140) our estimates for the number 

of EPs that will successfully demonstrate meaningful use of CEHRT are uncertain. The 

percentage of Medicare EPs who will satisfy the criteria for demonstrating meaningful 

use of CEHRT and will qualify for incentive payments is a key, but highly uncertain 

factor in developing cost estimates for the EHR incentive program in general and for the 

present purposes in particular. Consistent with the estimates that we have employed for 

EPs generally in developing cost estimates in the Stage II final rule, we will assume that 

37 percent of the nonhospital-based EPs reassigning benefits to Method II CAHs will 

satisfy the criteria for demonstrating meaningful use of CEHRT and will qualify for 

incentive payments in payment years 2013. Thus, we estimate that between 1,199 and 

2,398 EPs reassigning benefits to Method II CAHs will actually qualify to receive 
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Medicare EHR incentive payments in 2013. As we have previously discussed, section 

1848(o)(1)(B) of the Act provides that the incentive payment for an EP for a given 

payment year shall not exceed the following amounts: 

• For the EP’s first payment year, for such professional, $15,000 (or $18,000, if 

the EP’s first payment year is 2011 or 2012); 

• For the EP’s second payment year, $12,000; 

• For the EP’s third payment year, $8,000; 

• For the EP’s fourth payment year, $4,000; 

• For the EP’s fifth payment year, $2,000; and 

• For any succeeding year, $0. 

 We lack any information on how many of the EPs reassigning benefits to Method 

II CAHs will qualify for incentive payments for the first time in 2013. However, if we 

assume for purposes of setting upper limits on our estimates, that all of the 1,199 to 2,398 

EPs we have estimated will receive qualify for the first time and receive the maximum 

incentive payment, our proposal will cost between $17,985,000 and $35,970,000 in 

payments that we have not previously been making in 2013. Despite the uncertainties of 

the assumptions that we have employed in developing these estimates, we can state with 

reasonable confidence that our proposal will result in considerably less than $50,000,000 

in payments over and above the payments we would make in the absence of this proposal 

for 2013. 
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(2) Cost Reporting Periods for Interim and Final EHR Incentive Payments to Eligible 

Hospitals 

 As we discussed in section XVIII.B. of this proposed rule, we are proposing to 

revise the regulations to provide that, in cases where there is no 12-month cost reporting 

period that begins on or after the beginning of a payment year, we will use the most 

recent 12-month cost reporting period available at the time of final settlement in order to 

determine final EHR incentive payments for the hospital. We are making this proposal 

solely to address situations in which hospitals have been receiving interim EHR payments 

but the contractors have not been able to make a determination of final payments because 

there is no hospital cost report that meets the existing requirements of the regulations. 

Therefore, we do not expect this to have any financial impact. This proposal would 

merely allow us to make final settlements in cases that the current regulations do not 

cover. 

B. Regulatory Flexibility Act (RFA) Analysis

 The RFA requires agencies to analyze options for regulatory relief of small 

entities, if a rule has a significant impact on a substantial number of small entities. For 

purposes of the RFA, we estimate that most hospitals, ASCs and CMHCs are small 

entities as that term is used in the RFA. For purposes of the RFA, most hospitals are 

considered small businesses according to the Small Business Administration’s size 

standards with total revenues of $35.5 million or less in any single year. Most ASCs and 

most CMHCs are considered small businesses with total revenues of $10 million or less 

in any single year. We estimate that this proposed rule may have a significant impact on 
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approximately 2,004 hospitals with voluntary ownership. For details, see the Small 

Business Administration’s “Table of Small Business Size Standards” at 

http://www.sba.gov/content/table-small-business-size-standards. 

 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. For purposes of section 1102(b) of the Act, we define a small rural hospital as 

a hospital that is located outside of a metropolitan statistical area and has 100 or fewer 

beds. We estimate that this proposed rule may have a significant impact on 

approximately 694 small rural hospitals. 

 The analysis above, together with the remainder of this preamble, provides a 

regulatory flexibility analysis and a regulatory impact analysis. 

C. Unfunded Mandates Reform Act Analysis

 Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 

requires that agencies assess anticipated costs and benefits before issuing any rule whose 

mandates require spending in any 1 year of $100 million in 1995 dollars, updated 

annually for inflation. That threshold level is currently approximately $141 million. This 

proposed rule does not mandate any requirements for State, local, or tribal governments, 

or for the private sector. 

D. Conclusion

 The changes we are proposing to make in this proposed rule would affect all 

classes of hospitals paid under the OPPS and will affect both CMHCs and ASCs. We 
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estimate that most classes of hospitals paid under the OPPS would experience a modest 

increase or a minimal decrease in payment for services furnished under the OPPS in 

CY 2013. Table 39 demonstrates the estimated distributional impact of the OPPS budget 

neutrality requirements that would result in a 1.8 percent increase in payments for all 

services paid under the OPPS in CY 2014, after considering all of the proposed changes 

to APC reconfiguration and recalibration, as well as the proposed OPD fee schedule 

increase factor, proposed wage index changes, including the proposed frontier State wage 

index adjustment, estimated payment for outliers, and proposed changes to the 

pass-through payment estimate. However, some classes of providers that are paid under 

the OPPS would experience more significant gains and others would experience modest 

losses in OPPS payments in CY 2014. We estimate that rural hospitals with 100 or fewer 

beds would experience a decrease of 3.9 percent. CMHCs would see an overall decrease 

in payment of 7.7 percent as a result of a decrease in their estimated costs. However, 

urban hospitals in Puerto Rico would experience an estimated 7.9 percent increase in 

payment, and non-teaching hospitals for whom DSH data are not available (non-IPPS 

hospitals) would experience a 5.3 percent increase in payment. 

 The proposed updates to the ASC payment system for CY 2014 would affect each 

of the approximately 5,300 ASCs currently approved for participation in the Medicare 

program. The effect on an individual ASC would depend on its mix of patients, the 

proportion of the ASC’s patients who are Medicare beneficiaries, the degree to which the 

payments for the procedures offered by the ASC are proposed to be changed under the 

ASC payment system, and the extent to which the ASC provides a different set of 
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procedures in the coming year. Table 40 demonstrates the estimated distributional 

impact among ASC surgical specialties of the proposed MFP-adjusted CPI-U update 

factor of 0.9 percent for CY 2014. 

XXIIV. Federalism Analysis 

Executive Order 13132 establishes certain requirements that an agency must meet 

when it promulgates a proposed rule (and subsequent final rule) that imposes substantial 

direct costs on State and local governments, preempts State law, or otherwise has 

Federalism implications. We have examined the OPPS and ASC provisions included in 

this proposed rule in accordance with Executive Order 13132, Federalism, and have 

determined that they will not have a substantial direct effect on State, local or tribal 

governments, preempt State law, or otherwise have a Federalism implication. As 

reflected in Table 39 of this proposed rule, we estimate that OPPS payments to 

governmental hospitals (including State and local governmental hospitals) would increase 

by 0.5 percent under this proposed rule. While we do not know the number of ASCs or 

CMHCs with government ownership, we anticipate that it is small. The analyses we have 

provided in this section of this proposed rule, in conjunction with the remainder of this 

document, demonstrate that this proposed rule is consistent with the regulatory 

philosophy and principles identified in Executive Order 12866, the RFA, and section 

1102(b) of the Act. 

 This proposed rule would affect payments to a substantial number of small rural 

hospitals and a small number of rural ASCs, as well as other classes of hospitals, 

CMHCs, and ASCs, and some effects may be significant. 
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List of Subjects 

42 CFR Part 405 

 Administrative practice and procedure, Health facilities, Health professions, 

Kidney diseases, Medicare, Reporting and recordkeeping, Rural areas, X-rays. 

42 CFR Part 410

 Health facilities, Health professions, Laboratories, Medicare, Rural areas, X-rays. 

42 CFR Part 412

 Administrative practice and procedure, Health facilities, Medicare, Puerto Rico, 

Reporting and recordkeeping requirements. 

42 CFR Part 416 

Health facilities, Health professions, Medicare, Reporting and recordkeeping 

requirements.

42 CFR Part 419

 Hospitals, Medicare, Reporting and recordkeeping requirements. 

42 CFR Part 475

 Grant programs-health, Health care, Health professions, Quality Improvement 

Organization (QIO) 

42 CFR Part 476 

Health care, Health professional, Health record, Quality Improvement 

Organization (QIO), Penalties, Privacy, Reporting and recordkeeping requirements.

42 CFR Part 486 
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Grant programs-health, Health facilities, Medicare, Reporting and recordkeeping 

requirements, X-rays. 

42 CFR Part 495 

Computer technology, Electronic health records, Electronic transactions, Health, 

Health care. Health information technology, Health insurance, Health records, Hospitals, 

Laboratories, Medicaid, Medicare, Privacy, Reporting and recordkeeping requirements, 

Public health, Security.

For reasons stated in the preamble of this document, the Centers for Medicare & 

Medicaid Services is proposing to amend 42 CFR Chapter IV as set forth below:

PART 405--FEDERAL HEALTH INSURANCE FOR THE AGED AND 

DISABLED 

 1. The authority citation for part 405, Subpart R continues to read as follows: 

 Authority: Secs. 205, 1102, 1814(b), 1815(a), 1833, 1861(v), 1871, 1872, 1878, 

and 1886 of the Social Security Act (42 U.S.C. 405, 1302, 1395f(b), 1395g(a), 1395l, 

1395x(v), 1395hh, 1395ii, 1395oo, and 1395ww). 

 2. Section 405.1804 is amended by revising paragraph (a) to read as follows: 

§ 405.1804 Matters not subject to administrative and judicial review under 

prospective payment system. 

* * * * * 

 (a) The determination of the requirement, or the proportional amount, of the 

budget neutrality adjustment in the prospective payment rates required under section 

1886(e)(1) of the Social Security Act. 
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* * * * * 

 3. Section 405.1885 is amended by revising paragraph (a)(1) and adding 

paragraph (b)(2)(iv) to read as follows: 

§ 405.1885 Reopening an intermediary determination or reviewing entity decision.

 (a) * * * 

 (1) A Secretary determination, an intermediary determination, or a decision by a 

reviewing entity (as described in § 405.1801(a)) may be reopened, with respect to 

specific findings on matters at issue in a determination or decision, by CMS (with respect 

to Secretary determinations), by the intermediary (with respect to intermediary 

determinations), or by the reviewing entity that made the decision (as described in 

paragraph (c) of this section). 

 (i) A specific finding on a matter at issue may be legal or factual in nature or a 

mixed matter of both law and fact. 

 (ii) A specific finding on a matter at issue may include a factual matter that arose 

in or was determined for the same cost reporting period as the period at issue in an appeal 

filed, or a reopening requested by a provider or initiated by an intermediary, under this 

subpart. 

 (iii) A specific finding on a matter at issue may include a predicate fact, which is 

a factual matter that arose in or was determined for a cost reporting period that predates 

the period at issue (in an appeal filed, or a reopening requested by a provider or initiated 

by an intermediary, under this subpart), and such factual matter was used in determining 

an aspect of the provider’s reimbursement for a later cost reporting period. 
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 (iv) A specific finding on a matter at issue may not be reopened, and if reopened, 

revised, except as provided for by this section, § 405.1887, and § 405.1889. 

* * * * * 

 (b) * * * 

 (2) * * * 

 (iv) The 3-year period described in paragraphs (b)(2)(i) through (b)(2)(iii) of this 

section applies to, and is calculated separately for, each specific finding on a matter at 

issue (as described in paragraphs (a)(1)(i) through (iv) of this section. 

* * * * * 

PART 410—SUPPLEMENTARY MEDICAL INSURANCE (SMI) BENEFITS

 4. The authority citation for part 410 continues to read as follows: 

Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 

1395hh). 

 5. Section 410.27 is amended by— 

 a. Revising paragraph (a) introductory text. 

 b. Removing the word “and” at the end of paragraph (a)(1)(iii). 

 c. Removing the period at the end of paragraph (a)(1)(iv)(E) and adding in its 

place “; and”. 

 d. Adding paragraph (a)(1)(v). 

 The revisions and addition read as follows: 

§ 410.27 Therapeutic outpatient hospital or CAH services and supplies incident to a 

physician’s or nonphysician practitioner’s service: Conditions. 
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 (a) Medicare Part B pays for therapeutic hospital or CAH services and supplies 

furnished incident to a physician’s or nonphysician practitioner’s service, which are 

defined as all services and supplies furnished to hospital or CAH outpatients that are not 

diagnostic services and that aid the physician or nonphysician practitioner in the 

treatment of the patient, including drugs and biologicals which are not usually 

self-administered, if— 

 (1) * * * 

 (v) In accordance with applicable State law. 

* * * * * 

PART 412—PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT 

HOSPITAL SERVICES 

 6. The authority citation for part 412 continues to read as follows: 

Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 

1395hh) and sec. 124 of Pub. L. 106-113 (113 Stat. 1501A-332). 

 7. Section 412.167 is amended by redesignating paragraph (c) as paragraph (d) 

and adding a new paragraph (c) to read as follows: 

§ 412.167 Appeals under the Hospital Value-Based Purchasing (VBP) Program. 

* * * * * 

 (c) If a hospital is dissatisfied with CMS’ decision on an appeal request submitted 

under paragraph (b) of this section, the hospital may request an independent CMS review 

of that decision. 

* * * * * 
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PART 416—AMBULATORY SURGICAL SERVICES 

 8. The authority citation for part 416 continues to read as follows:

 Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 

and1395hh).

 9. Section 416.171 is amended by revising paragraph (b)(2) to read as follows: 

§ 416.171 Determination of payment rates for ASC services.

* * * * * 

 (b) * * * 

 (2) Device-intensive procedures assigned to any APC under the OPPS with 

device costs greater than 50 percent of the APC costs based on the standard OPPS APC 

ratesetting methodology. 

* * * * * 

PART 419—PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL 

OUTPATIENT DEPARTMENT SERVICES 

 10. The authority citation for part 419 continues to read as follows:

 Authority: Secs. 1102, 1833(t), and 1871 of the Social Security Act (42 U.S.C. 

1302, 1395(t), and 1395hh).

 11. Section 419.2 is amended by revising paragraphs (b) introductory text, (b)(3), 

(b)(4), (b)(7), (b)(11), and (b)(12) and adding paragraphs (b)(13) through (17) to read as 

follows: 

§ 419.2 Basis of payment.

* * * * * 
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 (b) Determination of hospital outpatient prospective payment rates: Packaged 

costs. The prospective payment system establishes a national payment rate, standardized 

for geographic wage differences, that includes operating and capital-related costs that are 

integral, ancillary, supportive, dependent, or adjunctive to performing a procedure or 

furnishing a service on an outpatient basis. In general, these packaged costs may include, 

but are not limited to, the following items and services, the payment for which are 

packaged or conditionally packaged into the payment for the related procedures or 

services. 

* * * * * 

 (3) Observation services; 

(4) Anesthesia, certain drugs, biologicals, and other pharmaceuticals; medical 

and surgical supplies (including, for example, but not limited to, implantable or certain 

nonimplantable medical devices, certain drugs and biologicals, implantable biologicals, 

and skin substitutes or similar wound treatment products) and equipment; surgical 

dressings; and devices used for external reduction of fractures and dislocations; 

* * * * * 

 (7) Ancillary services; 

* * * * * 

 (11) Implantable and insertable medical items and devices, including, but not 

limited to, prosthetic devices (other than dental) which replace all or part of an internal 

body organ (including colostomy bags and supplies directly related to colostomy care), 

including replacement of these devices; 
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 (12) Costs incurred to procure donor tissue other than corneal tissue; 

(13) Image guidance, processing, supervision, and interpretation services; 

 (14) Intraoperative items and services; 

 (15) Drugs, biologicals, and radiopharmaceuticals that function as supplies when 

used in a diagnostic test or procedure (including but not limited to, diagnostic 

radiopharmaceuticals, contrast agents, and pharmacologic stress agents; 

 (16) Certain clinical diagnostic laboratory tests; and 

 (17) Procedures described by add-on codes. 

* * * * * 

 12. Section 419.22 is amended by revising the introductory text and paragraphs 

(j) and (1) to read as follows: 

§ 419.22 Hospital outpatient services excluded from payment under the hospital 

outpatient prospective payment system.

 The following services are not paid for under the hospital outpatient prospective 

payment system (except when packaged as a part of a bundled payment): 

* * * * * 

 (j) Except as provided in § 419.2(b)(4) and (11), prosthetic devices, prosthetic 

supplies, and orthotic devices. 

* * * * * 

 (l) Except as provided in § 419.2(b)(16), clinical diagnostic laboratory tests. 

* * * * * 
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 13. Section 419.32 is amended by adding paragraph (b)(1)(iv)(B)(5) to read as 

follows:

§ 419.32 Calculation of prospective payment rates for hospital outpatient services. 

* * * * * 

 (b) * * * 

 (1) * * * 

 (iv) * * * 

 (B) * * * 

 (5) For calendar year 2014, a multifactor productivity adjustment (as determined 

by CMS) and 0.3 percentage point. 

* * * * * 

 14. Section 419.46 is added to Subpart D to read as follows: 

§ 419.46 Participation, data submission, and validation requirements under the 

Hospital Outpatient Quality Reporting (OQR) Program. 

 (a) Participation in the Hospital OQR Program. To participate in the Hospital 

OQR Program, a hospital as defined in section 1886(d)(1)(B) of the Act and is paid under 

the OPPS must— 

 (1) Register on the QualityNet Web site before beginning to report data; 

 (2) Identify and register a QualityNet security administrator as part of the 

registration process under paragraph (a)(1) of this section; and 

 (3) Complete and submit an online participation form available at the 

QualityNet.org Web site if this form has not been previously completed, if a hospital has 
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previously withdrawn, or if the hospital acquires a new CMS Certification Number 

(CCN). For Hospital OQR Program purposes, hospitals that share the same CCN are 

required to complete a single online participation form. Once a hospital has submitted a 

participation form, it is considered to be an active Hospital OQR Program participant 

until such time as it submits a withdrawal form to CMS or no longer has an effective 

Medicare provider agreement. Deadlines for the participation form are described in 

paragraphs (a)(3)(i) and (ii) of this section, and are based on the date identified as a 

hospital’s Medicare acceptance date. 

 (i) If a hospital has a Medicare acceptance date before January 1 of the year prior 

to the affected annual payment update, the hospital must complete and submit to CMS a 

completed Hospital OQR Notice of Participation Form by July 31 of the calendar year 

prior to the affected annual payment update. 

 (ii) If a hospital has a Medicare acceptance date on or after January 1 of the year 

prior to the affected annual payment update, the hospital must submit a completed 

participation form no later than 180 days from the date identified as its Medicare 

acceptance date. 

 (b) Withdrawal from the Hospital OQR Program. A participating hospital may 

withdraw from the Hospital OQR Program by submitting to CMS a withdrawal form that 

can be found in the secure portion of the QualityNet Web site. The hospital may 

withdraw any time from January 1 to November 1 of the year prior to the affected annual 

payment updates. A withdrawn hospital will not be able to later sign up to participate in 

that payment update, is subject to a reduced annual payment update as specified under 
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§ 419.43(h), and is required to submit a new participation form in order to participate in 

any future year of the Hospital OQR Program. 

 (c) Submission of Hospital OQR Program data. (1) General rule. Except as 

provided in paragraph (d) of this section, hospitals that participate in the Hospital OQR 

Program must submit to CMS data on measures selected under section 1833(17)(C) of 

the Act in a form and manner, and at a time, specified by CMS. 

 (2) Submission deadlines. Submission deadlines by measure and by data type are 

posted on the QualityNet Web site. 

 (3) Initial submission deadlines for a hospital that did not participate in the 

previous year’s Hospital OQR Program. (i) If a hospital has a Medicare acceptance date 

before January 1 of the year prior to the affected annual payment update, the hospital 

must submit data beginning with encounters occurring during the first calendar quarter of 

the year prior to the affected annual payment update, in addition to submitting a 

completed Hospital OQR Notice of Participation Form under paragraph (a)(3)(i) of this 

section. 

 (ii) If a hospital has a Medicare acceptance date on or after January 1 of the year 

prior to the affected annual payment update, the hospital must submit data for encounters 

beginning with the first full quarter following submission of the completed Hospital OQR 

Notice of Participation Form under paragraph (a)(3)(ii) of this section. 

 (iii) Hospitals with a Medicare acceptance date before or after January 1 of the 

year prior to an affected annual payment update must follow data submission deadlines as 

specified in paragraph (c)(2) of this section. 
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 (d) Exception. CMS may grant an extension or waiver of one or more data 

submission deadlines and requirements in the event of extraordinary circumstances 

beyond the control of the hospital, such as when an act of nature affects an entire region 

or locale or a systemic problem with one of CMS’ data collection systems directly or 

indirectly affects data submission. CMS may grant an extension or waiver as follows: 

 (1) Upon request by the hospital. Specific requirements for submission of a 

request for an extension or waiver are available on the QualityNet Web site. 

 (2) At the discretion of CMS. CMS may grant waivers or extensions to hospitals 

that have not requested them when CMS determines that an extraordinary circumstance 

has occurred. 

 (e) Validation of Hospital OQR Program data. CMS may validate one or more 

measures selected under section 1833(17)(C) of the Act by reviewing documentation of 

patient encounters submitted by selected participating hospitals. 

 (1) Upon written request by CMS or its contractor, a hospital must submit to 

CMS supporting medical record documentation that the hospital used for purposes of data 

submission under the program. The specific sample that a hospital must submit will be 

identified in the written request. A hospital must submit the supporting medical record 

documentation to CMS or its contractor within 45 days of the date identified on the 

written request, in the form and manner specified in the written request. 

 (2) A hospital meets the validation requirement with respect to a fiscal year if it 

achieves at least a 75-percent reliability score, as determined by CMS. 
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 (f) Reconsiderations and appeals of Hospital OQR Program decisions. (1) A 

hospital may request reconsideration of a decision by CMS that the hospital has not met 

the requirements of the Hospital OQR Program for a particular fiscal year. Except as 

provided in paragraph (d) of this section, a hospital must submit a reconsideration request 

to CMS via the QualityNet Web site, no later than the first business day of the month of 

February of the affected payment year. 

 (2) A reconsideration request must contain the following information: 

 (i) The hospital’s CMS Certification Number (CCN); 

 (ii) The name of the hospital; 

 (iii) The CMS-identified reason for not meeting the requirements of the affected 

payment year’s Hospital OQR Program as provided in any CMS notification to the 

hospital; 

 (iv) The hospital’s basis for requesting reconsideration. The hospital must 

identify its specific reason(s) for believing it should not be subject to the reduced annual 

payment update; 

 (v) The hospital-designated personnel contact information, including name, email 

address, telephone number, and mailing address (must include physical mailing address, 

not just a post office box); 

 (vi) The hospital-designated personnel’s signature; 

 (vii) A copy of all materials that the hospital submitted to comply with the 

requirements of the affected Hospital OQR Program payment determination year; and 
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 (viii) If the hospital is requesting reconsideration on the basis that CMS 

determined it did not meet the affected payment determination year’s validation 

requirement set forth in paragraph (e)(1) of this section, the hospital must provide a 

written justification for each appealed data element classified during the validation 

process as a mismatch. Only data elements that affect a hospital’s validation score are 

eligible to be reconsidered. 

 (3) A hospital that is dissatisfied with a decision made by CMS on its 

reconsideration request may file an appeal with the Provider Reimbursement Review 

Board under part 405, subpart R, of this chapter. 

 15. Section 419.66 is amended by revising paragraph (b)(3) to read as follows: 

§ 419.66 Transitional pass-through payments: Medical devices. 

* * * * * 

 (b) * * * 

(3) The device is an integral part of the service furnished, is used for one patient 

only, comes in contact with human tissue, and is surgically implanted or inserted, 

whether or not is remains with the patient when the patient is released from the hospital. 

* * * * * 

PART 475—QUALITY IMPROVEMENT ORGANIZATIONS 

 16. The authority citation for part 475 continues to read as follows: 

Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 

1395hh). 

 17. Section § 475.1 is amended by— 
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 a. Redesignating paragraphs (a) through (d) in the definition of “Five percent or 

more owner” as paragraphs (1) through (4). 

 b. Adding, in alphabetical order, the definitions of “Case reviews”, 

“Practitioner”, “QIO area”, and Quality improvement initiative”. 

 c. Revising the definition of “Physician”. 

 The additions and revision read as follows: 

§ 475.1 Definitions. 

* * * * * 

Case reviews means the different types of reviews that QIOs are authorized to 

perform. Such reviews include, but are not limited to— 

 (1) Beneficiary complaint reviews; 

 (2) General quality of care reviews; 

 (3) Emergency Medical Treatment and Labor Act (EMTALA) reviews; 

 (4) Medical necessity reviews, including appeals and DRG validation reviews; 

and 

 (5) Admission and discharge reviews. 

* * * * * 

 Physician means: 

 (1) A doctor of medicine or osteopathy, a doctor of dental surgery or dental 

medicine, a doctor of podiatry, a doctor of optometry, or a chiropractor as described in 

section 1861(r) of the Act; 
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 (2) An intern, resident, or Federal Government employee authorized under State 

or Federal law to practice as a doctor as described in paragraph (1) of this definition; and 

 (3) An individual licensed to practice as a doctor as described in paragraph (1) of 

this definition in any Territory or Commonwealth of the United States of America. 

Practitioner has the same meaning as provided in § 476.1 of this chapter. 

 QIO area means the defined geographic area, such as the State(s), region(s), or 

community(ies), in which the CMS contract directs the QIO to perform. 

Quality improvement initiative has the same meaning as provided in § 476.1 of 

this chapter. 

 18. Subpart C is revised to read as follows: 

Subpart C—Quality Improvement Organizations 

Sec. 

475.100 Scope and applicability. 

475.101 Eligibility requirements for QIO contracts. 

475.102 Requirements for performing case reviews. 

475.103 Requirements for performing quality improvement initiatives. 

475.104 [Reserved] 

475.105 Prohibition against contracting with health care facilities, affiliates, and payor 

organizations. 

475.106 [Reserved] 

475.107 QIO contract awards. 

Subpart C—Quality Improvement Organizations 
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§ 475.100 Scope and applicability. 

 This subpart implements sections 1152 and 1153(b) and (c) of the Social Security 

Act as amended by section 261 of the Trade Adjustment Assistance Extension Act of 

2011. This subpart defines the types of organizations that are eligible to become Quality 

Improvement Organizations (QIOs) and describes certain steps CMS will take in 

selecting QIOs. 

§ 475.101 Eligibility requirements for QIO contracts. 

 In order to be eligible for a QIO contract, an organization must meet the following 

requirements: 

 (a) Have a governing body that includes at least one individual who is a 

representative of health care providers and at least one individual who is a representative 

of consumers. 

 (b) Demonstrate the ability to perform the functions of a QIO, including— 

 (1) The ability to meet the eligibility requirements and perform activities as set 

forth in the QIO Request for Proposal; and 

 (2) The ability to— 

 (i) Perform case reviews as described in § 475.102; and/or 

 (ii) Perform quality improvement initiatives as set forth in § 475.103. 

 (c) Demonstrate the ability to actively engage beneficiaries, families, and 

consumers, as applicable, in case reviews as set forth in § 475.102, or quality 

improvement initiatives as set forth in § 475.103. 

§ 475.102 Requirements for performing case reviews. 
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 (a) In determining whether or not an organization has demonstrated the ability to 

perform case review, CMS will take into consideration factors such as: 

 (1) The organization’s proposed processes, capabilities, quantitative, and/or 

qualitative performance objectives and methodology to perform case reviews; 

 (2) The organization’s proposed involvement of and access to physicians and 

practitioners in the QIO area with the appropriate expertise and specialization in the areas 

of health care related to case reviews; 

 (3) The organization’s ability to take into consideration urban versus rural, and 

regional characteristics in the health care setting where the care under review was 

provided; 

 (4) The organization’s ability to take into consideration evidence-based national 

clinical guidelines and professionally recognized standards of care; and 

 (5) The organization’s access to qualified information technology (IT) expertise. 

 (b) In making determinations under this section, CMS may consider 

characteristics such as the organization’s geographic location and size. CMS may also 

consider prior experience in health care quality improvement that CMS considers 

relevant to performing case reviews; such prior experience may include prior similar case 

review experience. 

 (c) A State government that administers a Medicaid program will be considered 

incapable of performing case review in an effective manner, unless the State 

demonstrates to the satisfaction of CMS that the State agency performing the case review 

will act with complete objectivity and independence from the Medicaid program. 
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§ 475.103 Requirements for performing quality improvement initiatives. 

 (a) In determining whether or not an organization has demonstrated the ability to 

perform quality improvement initiatives, CMS will take into consideration factors such 

as: 

 (1) The organization’s proposed processes, capabilities, quantitative, and/or 

qualitative performance objectives, and methodology to perform quality improvement 

initiatives; 

 (2) The organization’s proposed involvement of and access to physicians and 

practitioners in the QIO area that have the requisite expertise and specialization in the 

areas of health care concerning the quality improvement initiative; and 

 (3) The organization’s access to professionals with requisite knowledge of 

quality improvement methodologies and practices, as well as qualified information 

technology and technical expertise. 

 (b) In making determinations under this section, CMS may consider 

characteristics such as the organization’s geographic location and size. CMS may also 

consider prior experience in health care quality improvement that CMS considers 

relevant to performing quality improvement initiatives; such prior experience may 

include prior similar quality improvement initiative experience. 

 (c) A State government that administers a Medicaid program will be considered 

incapable of performing quality improvement initiative functions in an effective manner, 

unless the State demonstrates to the satisfaction of CMS that the State agency performing 
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the quality improvement initiatives will act with complete objectivity and independence 

from the Medicaid program. 

§ 475.104 [Reserved] 

§ 475.105 Prohibition against contracting with health care facilities, affiliates, and 

payor organizations.

 (a) Basic rule. Except as permitted under paragraph (a)(3) of this section, the 

following are not eligible for QIO contracts: 

 (1) A health care facility in the QIO area. 

 (2) A health care facility affiliate; that is, an organization in which more than 20 

percent of the members of the governing body are also either a governing body member, 

officer, partner, five percent or more owner, or managing employee in a health care 

facility in the QIO area. 

 (3) A payor organization, unless the Secretary determines that there is no other 

entity available for an area with which the Secretary can enter into a contract under this 

part or the Secretary determines that a payor organization is a more qualified entity to 

perform one or more of the functions of a QIO described in § 475.101(b) and this more 

qualified entity meets all other requirements and standards of this part. 

 (b) [Reserved] 

 (c) Subcontracting. A QIO must not subcontract with a health care facility to 

perform any case review activities except for the review of the quality of care. 

§ 475.106 [Reserved]

§ 475.107 QIO contract awards.
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 Subject to the provisions of § 475.105, CMS will take the following actions in 

awarding QIO contracts: 

 (a) Identify, from among all proposals submitted in response to a Request for 

Proposal, all proposals submitted by organizations that meet the requirements of 

§ 475.101; 

 (b) Identify, from among all proposals identified in paragraph (a) of this section, 

all proposals that set forth minimally acceptable plans in accordance with the 

requirements of § 475.102 or § 475.103, as applicable; and 

 (c) Award the contract to the selected organization for a specific QIO area for a 

period of 5 years. 

PART 476—QUALITY IMPROVEMENT ORGANIZATION REVIEW 

 19. The authority for part 476 continues to read as follows:

 Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 

1395hh). 

 20. The heading of part 476 is revised to read as set forth above. 

 21. In § 461.1, paragraphs (a) through (d) in the definition of “Five percent or 

more owner” are redesignated as paragraphs (1) though (4) and the definition of 

“Physician” is revised to read as follows: 

§ 476.1 Definitions. 

* * * * * 

Physician means: 
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 (1) A doctor or medicine or osteopathy, a doctor of dental surgery or dental 

medicine, a doctor of podiatry, a doctor of optometry, or a chiropractor, as described in 

section 1861(r) of the Act; 

 (2) An intern, resident, or Federal Government employee authorized under State 

or Federal law to practice as a doctor as described in paragraph (1) of this definition; and 

 (3) An individual licensed to practice as a doctor as described in paragraph (1) of 

this definition in any Territory or Commonwealth of the United States of America. 

 22. The heading of Subpart C is revised to read as follows: 

Subpart C—Review Responsibilities of Quality Improvement Organizations (QIOs) 

PART 486—CONDITIONS FOR COVERAGE OF SPECIALIZED SERVICES 

FURNISHED BY SUPPLIERS 

 23. The authority citation of part 486 continues to read as follows: 

Authority: Secs. 1102, 1138, and 1871 of the Social Security Act (42 U.S.C. 

1302, 1302b-8, and 1395hh) and section 371 of the Public Health Service Act (42 U.S.C. 

273). 

 24. Section 486.316 is amended by revising paragraphs (a)(1) and (b) to read as 

follows: 

§ 486.316 Re-certification and competition processes. 

 (a) * * * 

 (1) Meets two out of the three outcome measures requirements at § 486.318; and 

 * * * 
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 (b) Decertification and competition. If an OPO does not meet two out of the 

three outcome measures as described in paragraph (a)(1) of this section or the 

requirements described in paragraph (a)(2) of this section, the OPO is decertified. If the 

OPO does not appeal or the OPO appeals and the reconsideration official and CMS 

hearing officer uphold the decertification, the OPO’s service area is opened for 

competition from other OPOs. The decertified OPO is not permitted to compete for its 

open area or any other open area. An OPO competing for an open service area must 

submit information and data that describe the barriers in its service area, how they 

affected organ donation, what steps the OPO took to overcome them, and the results. 

* * * * * 

 25. Section 486.318 is amended by revising paragraph (a) introductory text and 

paragraph (b) introductory text to read as follows: 

§ 486.318 Condition: Outcome measures. 

 (a) With the exception of OPOs operating exclusively in noncontiguous States, 

Commonwealths, Territories, or possessions, an OPO must meet two out of the three 

following outcome measures: 

* * * * * 

 (b) For OPOs operating exclusively in noncontiguous States, Commonwealths, 

Territories, and possessions, an OPO must meet two out of the three following outcome 

measures: 

* * * * * 
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PART 495--STANDARDS FOR THE ELECTRONIC HEALTH RECORD 

TECHNOLOGY INCENTIVE PROGRAM 

26. The authority citation for part 495 continues to read as follows: 

Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 

1395hh). 

 27. Section 495.4 is amended by revising the definition of “Hospital-based EP” 

to read as follows: 

§ 495.4 Definitions. 

* * * * * 

Hospital-based EP. Unless it meets the requirements of § 495.5, a hospital-based 

EP means an EP who furnishes 90 percent or more of his or her covered professional 

services in sites of service identified by the codes used in the HIPAA standard transaction 

as an inpatient hospital or emergency room setting in the year preceding the payment 

year, or in the case of a payment adjustment year, in either of the 2 years before the year 

preceding such payment adjustment year. 

 (1) For Medicare, this is calculated based on— 

 (i) The Federal fiscal year preceding the payment year; and 

 (ii) For the payment adjustments, based on— 

 (A) The Federal fiscal year 2 years before the payment adjustment year; or 

 (B) The Federal fiscal year 3 years before the payment adjustment year. 

 (2) For Medicaid, it is at the State’s discretion if the data are gathered on the 

Federal fiscal year or calendar year preceding the payment year. 
CMS-1601-P 

 (3) For the CY 2013 payment year only, an EP who furnishes services billed by a 

CAH receiving payment under Method II (as described in § 413.70(b)(3) of this chapter) 

is considered to be hospital-based if 90 percent or more of his or her covered professional 

services are furnished in sites of service identified by the codes used in the HIPPA 

standard transaction as an inpatient hospital or emergency room setting in e ach of the 

Federal fiscal years 2012 and 2013. 

* * * * * 

 28. Section 495.104 is amended by revising paragraph (c)(2) to read as follows: 

§ 495.104 Incentive payments to eligible hospitals.

* * * * * 

 (c) * * * 

 (2) Interim and final payments. CMS uses data on hospital acute care inpatient 

discharges, Medicare Part A acute care inpatient bed-days, Medicare Part C acute care 

inpatient bed-days, and total acute care inpatient bed-days from the latest submitted 

12-month hospital cost report as the basis for making preliminary incentive payments. 

Final payments are determined at the time of settling the first 12-month hospital cost 

report for the hospital fiscal year that begins on or after the first day of the payment year, 

and settled on the basis of data from that cost reporting period. In cases where there is no 

12-month hospital cost report period beginning on or after the first day of the payment 

year, final payments may be determined and settled on the basis of data from the most 

recently submitted 12-month hospital cost report. 

* * * * * 
CMS-1601-P 

(Catalog of Federal Domestic Assistance Program No. 93.773, Medicare—Hospital 

Insurance; Program No. 93.774, Medicare—Supplementary Medical Insurance Program; 

and Program No. 93.778 (Medical Assistance) 

Dated: June 18, 2013 

 ______________________________ 

 Marilyn Tavenner, 

 Administrator,

 Centers for Medicare & Medicaid 

 Services. 

Dated: June 26, 2013 

 ___________________________ 

 Kathleen Sebelius,

 Secretary. 

BILLING CODE 4120-01-P 
CMS-1601-P 

[FR Doc. 2013-16555 Filed 07/08/2013 at 4:15 pm; Publication Date: 07/19/2013]