68516 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 419 and 485 

[CMS–1501–FC] 

RIN 0938–AN46 

Medicare Program; Changes to the 

Hospital Outpatient Prospective 

Payment System and Calendar Year 

2006 Payment Rates 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule with comment period. 

SUMMARY: This final rule with comment 

period revises the Medicare hospital 

outpatient prospective payment system 

to implement applicable statutory 

requirements and changes arising from 

our continuing experience with this 

system and to implement certain related 

provisions of the Medicare Prescription 

Drug, Improvement, and Modernization 

Act (MMA) of 2003. In addition, the 

final rule with comment period 

describes changes to the amounts and 

factors used to determine the payment 

rates for Medicare hospital outpatient 

services paid under the prospective 

payment system. This final rule with 

comment period also changes the 

requirement for physician oversight of 

mid-level practitioners in critical access 

hospitals (CAHs). 

In this final rule with comment 

period, we also are responding to public 

comments received on the November 

15, 2004, final rule with comment 

period pertaining to the ambulatory 

payment classification (APC) group 

assignment of Healthcare Common 

Procedure Coding System (HCPCS) 

codes identified in Addendum B of that 

rule with the new interim (NI) comment 

indicator. These changes are applicable 

to services furnished on or after January 

1, 2006. 

DATES: Effective Date: This final rule 

with comment period is effective on 

January 1, 2006. 

Comment Date: We will consider 

comments on the payment classification 

assigned to HCPCS codes identified in 

Addendum B with the NI comment code 

and other areas specified through the 

preamble if we receive them at the 

appropriate address, as provided below, 

no later than 5 p.m. on January 9, 2006. 

ADDRESSES: In commenting, please refer 

to file code CMS–1501–FC. 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 submit 

electronic comments on specific issues 

in this final rule with comment period 

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

ecomments. (Attachments should be in 

Microsoft Word, WordPerfect, or Excel; 

however, we prefer Microsoft Word). 

2. By regular mail. You may mail 

written comments (one original and two 

copies) to the following address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–1501– 

FC, P.O. Box 8016, Baltimore, MD 

21244–8018. 

3. By express or overnight mail. You 

may send written comments (one 

original and two copies) to the following 

address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–1501– 

FC, 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 (one original 

and two copies) before the close of the 

comment period to one of the following 

addresses. If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

7195 in advance to schedule your 

arrival with one of our staff members. 

Room 445–G, Hubert H. Humphrey 

Building, 200 Independence Avenue, 

SW., Washington, DC 20201, or 7500 

Security Boulevard, Baltimore, MD 

21244–1850. 

(Because access to the interior of the 

Hubert H. Humphrey Building is not 

readily available to persons without 

Federal Government identification, 

commenters are encouraged to leave 

their comments in the CMS drop slots 

located in the main lobby of the 

building. A stamp-in clock is available 

for persons wishing to retain proof of 

filing by stamping in and retaining an 

extra copy of the comments being filed.) 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. CMS posts all electronic 

comments received before the close of 

the comment period on its public Web 

site as soon as possible after they have 

been received. Hard copy comments 

received timely will be available for 

public inspection as they are received, 

generally beginning approximately 3 

weeks after publication of a document, 

at the headquarters of the Centers for 

Medicare & Medicaid Services, 7500 

Security Boulevard, Baltimore, MD 

21244–1850, Monday through Friday of 

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

schedule an appointment to view public 

comments, phone 1–800–743–3951. 

Requirements for Issuance of 

Regulations: Section 902 of the 

Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA), Pub. L. 108–173, amended 

section 1871(a) of the Act and requires 

the Secretary, in consultation with the 

Director of the Office of Management 

and Budget, to establish and publish 

timelines for the publication of 

Medicare final regulations based on the 

previous publication of a Medicare 

proposed or interim final regulation. 

Section 902 of Pub. L. 108–173 also 

states that the timelines for these 

regulations may vary but shall not 

exceed 3 years after publication of the 

preceding proposed or interim final 

regulation except under exceptional 

circumstances. 

This final rule with comment period 

finalizes provisions set forth in the CY 

2006 OPPA proposed rule (70 FR 42674, 

July 25, 2005). In addition, this final 

rule has been published within the 3- 

year time limit imposed by section 902 

of Pub. L. 108–173. This final rule also 

finalizes the November 15, 2004 final 

rule with comment period (69 FR 

65681) to address public comments 

pertaining to the APC group assignment 

of HCPCS codes identified in 

Addendum B of that rule with the NI 

comment indicator. Again, we finalized 

the rule within the 3-year timeframe 

imposed under section 902 of Pub. L. 

108–173. Therefore, we believe that the 

final rule is in accordance with the 

Congress’ intent to ensure timely 

publication of final regulations. 

FOR FURTHER INFORMATION, CONTACT: 

Rebecca Kane, (410) 786–0378, 

Outpatient prospective payment issues 

and Suzanne Asplen, (410) 786–4558, 

Partial hospitalization and community 

mental health centers issues. 

SUPPLEMENTARY INFORMATION: 

Electronic Access 

This Federal Register document is 

available from the Federal Register 

online database through GPO Access, a 

service of the U.S. Government Printing 

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

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

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68517 

Alphabetical List of Acronyms 

Appearing in the Final Rule With 

Comment Period 

ACEP American College of Emergency 

Physicians 

AHA American Hospital Association 

AHIMA American Health Information 

Management Association 

AMA American Medical Association 

APC Ambulatory payment classification 

AMP Average manufacturer price 

ASP Average sales price 

ASC Ambulatory surgical center 

AWP Average wholesale price 

BBA Balanced Budget Act of 1997, Pub. L. 

105–33 

BIPA Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection Act 

of 2000, Pub. L. 106–554 

BBRA Medicare, Medicaid, and SCHIP 

Balanced Budget Refinement Act of 1999, 

Pub. L. 106–113 

CAH Critical access hospital 

CBSA Core-Based Statistical Areas 

CCR (Cost center specific) Cost-to-charge 

ratio 

CMHC Community mental health center 

CMS Centers for Medicare & Medicaid 

Services (formerly known as the Health 

Care Financing Administration) 

CNS Clinical nurse specialist 

CORF Comprehensive outpatient 

rehabilitation facility 

CPT [Physicians’] Current Procedural 

Terminology, Fourth Edition, 2005, 

copyrighted by the American Medical 

Association 

CRNA Certified registered nurse anesthetist 

CY Calendar year 

DMEPOS Durable medical equipment, 

prosthetics, orthotics, and supplies 

DMERC Durable medical equipment 

regional carrier 

DRGY Diagnosis-related group 

DSH Disproportionate share hospital 

EACH Essential Access Community 

Hospital 

E/M Evaluation and management 

EPO Erythropoietin 

ESRD End-stage renal disease 

FACA Federal Advisory Committee Act, 

Pub. L. 92–463 

FDA Food and Drug Administration 

FI Fiscal intermediary 

FSS Federal Supply Schedule 

FY Federal fiscal year 

GAO Government Accountability Office 

HCPCS Healthcare Common Procedure 

Coding System 

HCRIS Hospital Cost Report Information 

System 

HHA Home health agency 

HIPAA Health Insurance Portability and 

Accountability Act of 1996, Pub. L. 104–

191 

ICD–9–CM International Classification of 

Diseases, Ninth Edition, Clinical 

Modification 

IME Indirect medical education 

IPPS (Hospital) Inpatient prospective 

payment system 

IVIG Intravenous immune globulin 

LTC Long-term care 

MedPAC Medicare Payment Advisory 

Commission 

MDH Medicare-dependent hospital 

MMA Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003, Pub. L. 108–173 

MSA Metropolitan Statistical Area 

NCCI National Correct Coding Initiative 

NCD National Coverage Determination 

NP Nurse practitioner 

OCE Outpatient Code Editor 

OMB Office of Management and Budget 

OPD (Hospital) Outpatient department 

OPPS (Hospital) Outpatient prospective 

payment system 

PA Physician assistant 

PHP Partial hospitalization program 

PM Program memorandum 

PPI Producer Price Index 

PPS Prospective payment system 

PPV Pneumococcal pneumonia (virus) 

PRA Paperwork Reduction Act 

QIO Quality Improvement Organization 

RFA Regulatory Flexibility Act 

RRC Rural referral center 

SBA Small Business Administration 

SCH Sole community hospital 

SDP Single drug pricer 

SI Status indicator 

TEFRA Tax Equity and Fiscal 

Responsibility Act of 1982, Pub. L. 97–248 

TOPS Transitional outpatient payments 

USPDI United States Pharmacopoeia Drug 

Information 

To assist readers in referencing 

sections contained in this document, we 

are providing the following outline of 

contents: 

Outline of Contents 

I. Background 

A. Legislative and Regulatory Authority for 

the Hospital Outpatient Prospective 

Payment System 

B. Excluded OPPS Services and Hospitals 

C. Prior Rulemaking 

D. APC Advisory Panel 

1. Authority for the APC Panel 

2. Establishment of the APC Panel 

3. APC Panel Meetings and Organizational 

Structure 

E. Provisions of the Medicare Prescription 

Drug, Improvement, and Modernization 

Act of 2003 That Will Be Implemented 

in CY 2006 

1. Hold Harmless Provisions 

2. Study and Authorization of Adjustment 

for Rural Hospitals 

3. Payment for ‘‘Specified Covered 

Outpatient Drugs’’

4. Adjustment in Payment Rates for 

‘‘Specified Covered Outpatient Drugs’’

for Overhead Costs 

5. Budget Neutrality Adjustment 

F. CMS’ Commitment to New Technologies 

G. Summary of the Provisions of the CY 

2006 OPPS Proposed Rule 

H. Public Comments Received on the CY 

2006 OPPS Proposed Rule 

I. Public Comments Received on the 

November 15, 2004 OPPS Final Rule 

With Comment Period 

II. Updates Affecting Payments for CY 2006 

A. Recalibration of APC Relative Weights 

for CY 2006 

1. Database Construction 

a. Database Source and Methodology 

b. Use of Single and Multiple Procedure 

Claims 

2. Calculation of Median Costs for CY 2006 

3. Calculation of Scaled OPPS Payment 

Weights 

4. Changes to Packaged Services 

a. Background 

b. Responses to the APC Panel 

Recommendations 

B. Payment for Partial Hospitalization 

1. Background 

2. PHP APC Update for CY 2006 

3. Separate Threshold for Outlier Payments 

to CMHCs 

C. Conversion Factor Update for CY 2006 

D. Wage Index Changes for CY 2006 

E. Statewide Average Default Cost-toCharge Ratios (CCRs) 

F. Expiring Hold Harmless Provision for 

Transitional Corridor Payments for 

Certain Rural Hospitals 

G. Adjustment for Rural Hospitals 

1. Factors Contributing to Unit Cost 

Differences Between Rural Hospitals and 

Urban Hospitals and Associated 

Explanatory Variables 

2. Results 

H. Hospital Outpatient Outlier Payments 

I. Calculation of the National Unadjusted 

Medicare Payment 

J. Beneficiary Copayments for CY 2006 

1. Background 

2. Copayment for CY 2006 

3. Calculation of the Unadjusted 

Copayment Amount for CY 2006 

III. Ambulatory Payment Classification (APC) 

Group Policies 

A. Introduction 

1. Treatment of New HCPCS Codes 

Discussed in the CY 2006 OPPS 

Proposed Rule 

2. Treatment of New CY 2006 HCPCS 

Codes 

3. Treatment of New Mid-Year Category III 

CPT Codes 

B. Variations within APCs 

1. Background 

2. Application of the 2 Times Rule 

a. APC 0146: Level I Sigmoidoscopy 

b. APC 0342: Level I Pathology 

c. Other Comments on the Proposed List of 

APC Assignments to Address 2 Times 

Violations 

3. Exceptions to the 2 Times Rule 

C. New Technology APCs 

1. Introduction 

2. Refinement of New Technology Cost 

Bands 

3. Requirements for Assigning Services to 

New Technology APCs 

4. New Technology Services 

a. Ablation of Bone Tumors 

b. Breast Brachytherapy 

c. Enteryx Procedure 

d. Extracorporeal Shock Wave Treatment 

e. GreenLight Laser 

f. Magnetoencephalography (MEG) 

g. Positron Emission Tomography (PET) 

Scans 

h. Proton Beam Treatment 

i. Smoking Cessation Counseling 

j. Stereoscopic Kv X-ray 

k. Stereotactic Radiosurgery (SRS) 

D. APC-Specific Policies 

1. Cardiac and Vascular Procedures 

a. Acoustic Heart Sound Recording and 

Analysis 

68518 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

b. Cardiac Electrophysiologic Services 

(APC 0087) 

c. Cardioverter-Defibrillator Implantation 

(APCs 0107 and 0108) 

d. Endovenous Ablation (APC 0092) 

e. External Counterpulsation Therapy (APC 

0678) 

f. Intracardiac Echocardiography (APC 

0670) 

g. Percutaneous Thrombectomy and 

Thrombolysis (APC 0676) 

h. Coronary Flow Reserve (APCs 0416 and 

0670) 

i. Vascular Access Procedures (APCs 0621, 

0622, and 0623) 

2. Radiology, Radiation Oncology, and 

Nuclear Medicine 

a. Angiography and Venography (APCs 

0279, 0280, and 0668) 

b. Brachytherapy (APCs 0312, 0313, 

and0651) 

c. Computed Tomography (APCs 0283 and 

0333) 

d. Computed Tomographic Angiography 

(APC 0333) 

e. Computed Tomographic Guidance (APC 

0332) 

f. Computerized Reconstruction (APC 

0417) 

g. Diagnostic Computed Tomographic 

Colonography (APC 0333) 

h. Intensity Modulated Radiation Therapy 

(IMRT) (APCs 0310 and 0412) 

i. Kidney Imaging (APC 0267) 

j. Magnetic Resonance Guided Focused 

Ultrasound Ablation (APC 0193) 

k. Non-Imaging Nuclear Medicine Studies 

(APC 0389) 

l. Therapeutic Radiation Treatment (APC 

0304) 

m. Urinary Bladder Study (APC 0340) 

3. Gastrointestinal and Genitourinary 

Procedures 

a. Cystourethroscopy with Lithotripsy 

(APC 0163) 

b. GI Stenting (APC 0384) 

c. Insertion of Uterine Tandems and/or 

Vaginal Ovoids for Clinical 

Brachytherapy (APC 0192) 

d. Laparoscopic Ablation Procedures (APC 

0131) 

e. Plicator Procedure (APC 0422) 

f. Prostate Cryosurgery (APC 0674) 

g. Stretta Procedure (APC 0422) 

h. Urological Stenting Procedures (APCs 

0163 and 0164) 

4. Other Surgical Services 

a. Excision-Malignant Lesions (APCs 0019 

and 0020) 

b. External Fixation (APCs 0046 and 0050) 

c. Intradiscal Annuloplasty (APC 0203) 

d. Kyphoplasty (APC 0051) 

e. Neurostimulator Electrode Implantation 

(APCs 0040 and 0225) 

f. Neurostimulator Generator Implantation 

(APC 0222) 

g. Thoracentesis/Lavage (APC 0070) 

5. Other Services 

a. Allergy Testing (APC 0370) 

b. Apheresis (APC 0112) 

c. Audiology (APCs 0364, 0365, and 0366) 

d. Bone Marrow Harvesting (APC 0111) 

e. Computer Assisted Navigational 

Procedures 

f. Hyperbaric Oxygen Therapy (APC 0659) 

g. Ophthalmology Examinations (APC 

0601) 

h. Pathology Services 

i. Photodynamic Therapy of the Skin (APC 

0013) 

j. Wound Care 

IV. Payment Changes for Devices 

A. Device-Dependent APCs 

1. Public Comments and Our Responses on 

the November 15, 2004 Final Rule With 

Comment Period 

2. CY 2006 Proposal, APC Panel 

Recommendations, and Responses to 

Public Comments Received 

a. APC Panel Recommendations 

b. Public Comments Received and Our 

Responses 

(1) Adjustment of Median Costs 

(2) Effects of Inconsistent Markup of 

Charges 

(3) Effects of Multiple Procedure Reduction 

(4) Impact of Proposed Rates on Access to 

Care 

(5) Addition of Other APCs as DeviceDependent APCs 

(6) Instructions on Reporting Device 

Charges 

(7) Application of Wage Index to Package 

Containing Device 

(8) Recalls of High Cost Devices 

(9) Separate Payment for High Cost Devices 

B. Pass-Through Payments for Devices 

1. Expiration of Transitional Pass-Through 

Payments for Certain Devices 

2. Proposed and Final Policy for CY 2006 

C. Other Policy Issues Relating to PassThrough Device Categories 

1. Provisions for Reducing Transitional 

Pass-Through Payments to Offset Costs 

Packaged into APC Groups 

a. Background 

b. Policy for CY 2006 

2. Criteria for Establishing New PassThrough Device Categories 

a. Surgical Insertion and Implantation 

Criterion 

(1) Public Comments Received on 

November 15, 2004 OPPS Final Rule 

with Comment Period and Our 

Responses 

(2) Public Comments Received on the CY 

2006 OPPS Proposed Rule and Our 

Responses 

b. Existing Device Category Criterion 

V. Payment Changes for Drugs, Biologicals, 

and Radiopharmaceutical Agents 

A. Transitional Pass-Through Payment for 

Additional Costs of Drugs and 

Biologicals 

1. Background 

2. Expiration in CY 2005 of Pass-Through 

Status for Drugs and Biologicals 

3. Drugs and Biologicals With PassThrough Status in CY 2006 

B. Payment for Drugs, Biologicals, and 

Radiopharmaceutical Agents Without 

Pass-Through Status 

1. Background 

2. Criteria for Packaging Payment for 

Drugs, Biologicals, and 

Radiopharmaceutical Agents 

3. Payment for Drugs, Biologicals, and 

Radiopharmaceutical Agents Without 

Pass-Through Status That Are Not 

Packaged 

a. Payment for Specified Covered 

Outpatient Drugs 

(1) Background 

(2) Changes for CY 2006 Related to Pub. L. 

108–173 

(3) Data Sources Available for Setting CY 

2006 Payment Rates 

(4) CY 2006 Payment Policy for 

Radiopharmaceutical Agents 

(5) MedPAC Report on APC Payment Rate 

Adjustment of Specified Covered 

Outpatient Drugs 

b. CY 2006 Payment for Nonpass-Through 

Drugs, Biologicals, and 

Radiopharmaceutical Agents With 

HCPCS Codes But Without OPPS 

Hospital Claims Data 

C. Coding and Billing Changes for 

Specified Covered Outpatient Drugs 

1. Background 

2. CY 2006 Payment Policy 

D. Payment for New Drugs, Biologicals, 

and Radiopharmaceutical Agents Before 

HCPCS Codes Are Assigned 

1. Background 

2. CY 2006 Payment Policy 

E. Payment for Vaccines 

F. Changes in Payments for Single 

Indication Orphan Drugs 

VI. Estimate of Transitional Pass-Through 

Spending in CY 2006 for Drugs, 

Biologicals, and Devices 

A. Total Allowed Pass-Through Spending 

B. Estimate of Pass-Through Spending for 

CY 2006 

VII. Brachytherapy Payment Changes 

A. Background 

B. Changes Related to Pub. L. 108–173 

C. CY 2006 Payment Policy 

VIII. Coding and Payment for Drug 

Administration 

A. Background 

B. Policy Changes for Drug Administration 

for CY 2006 

C. Policy Changes for Vaccine 

Administration for CY 2006 

IX. Hospital Coding for Evaluation and 

Management (E/M) Services 

X. Payment for Blood and Blood Products 

A. Background 

B. Policy Changes for CY 2006 

XI. Payment for Observation Services 

A. Background 

B. CY 2006 Coding Changes for 

Observation Services and Direct 

Admission to Observation 

C. Criteria for Separate Payment for Direct 

Admission to Observation 

D. Criteria for Separately Payable 

Observation Services (APC 0339) 

1. Diagnosis Requirements 

2. Observation Time 

3. Additional Hospital Services 

4. Physician Evaluation 

XII. Procedures That Will Be Paid Only as 

Inpatient Procedures 

A. Background 

B. Policy Changes to the Inpatient List 

C. Ancillary Outpatient Services When 

Patient Expires 

XIII. Indicator Assignments 

A. Status Indicator Assignments 

B. Comment Indicators for the CY 2006 

OPPS Final Rule 

XIV. Nonrecurring Policy Changes 

A. Payment for Multiple Diagnostic 

Imaging Procedures 

B. Interrupted Procedure Payment Policies 

(Modifiers –52, –73, and –74) 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68519 

XV. OPPS Policy and Payment 

Recommendations 

A. MedPAC Recommendations 

1. Report to the Congress: Medicare 

Payment Policy (March 2005) 

2. Report to the Congress: Issues in a 

Modernized Medicare Program—

Payment for Pharmacy Handling Costs in 

Hospitals 

B. APC Panel Recommendations 

C. GAO Recommendations 

XVI. Physician Oversight of Nonphysician 

Practitioners in Critical Access Hospitals 

A. Background 

B. Proposed Policy Change in Proposed 

Rule 

C. Public Comments Received on Proposed 

Rule and Our Responses 

D. Final Policy 

XVII. Files Available to the Public via the 

Internet 

XVIII. Collection of Information 

Requirements 

XIX. Regulatory Impact Analysis 

A. OPPS: General 

1. Executive Order 12866 

2. Regulatory Flexibility Act (RFA) 

3. Small Rural Hospitals 

4. Unfunded Mandates 

5. Federalism 

B. Impact of Changes in this Final Rule 

with Comment Period 

C. Alternatives Considered 

1. Option Considered for Payment Policy 

for Separately Payable Drugs and 

Biologicals 

2. Payment Adjustment for Rural SCHs 

3. Change in the Percentage of Total OPPS 

Payments Dedicated to Outlier Payments 

D. Limitations of Our Analysis 

E. Estimated Impacts of this Final Rule 

with Comment Period on Hospitals 

F. Estimated Impact of the Change in 

Outlier Policy 

G. Accounting Statement 

H. Estimated Impacts of this Final Rule 

with Comment Period on Beneficiaries 

XX. Waiver of Proposed Rulemaking 

Regulation Text 

Addenda 

Addendum A—List of Ambulatory 

Payment Classification (APCs) with 

Status Indicators, Relative Weights, 

Payment Rates, and Copayment 

Amounts—CY 2006 

Addendum B—Payment Status by HCPCS 

Code and Related Information—CY 2006 

Addendum D1—Payment Status Indicators 

for the Hospital Outpatient Prospective 

Payment System 

Addendum D2—Comment Indicators 

Addendum E—CPT Codes That Are Paid 

Only as Inpatient Procedures 

Addendum L-Out-Migration Wage 

Adjustment for CY 2006 

I. Background 

A. Legislative and Regulatory Authority 

for the Hospital Outpatient Prospective 

Payment System 

When the Medicare statute was 

originally enacted, Medicare payment 

for hospital outpatient services was 

based on hospital-specific costs. In an 

effort to ensure that Medicare and its 

beneficiaries pay appropriately for 

services and to encourage more efficient 

delivery of care, the Congress mandated 

replacement of the reasonable costbased payment methodology with a 

prospective payment system (PPS). The 

Balanced Budget Act of 1997 (BBA) 

(Pub. L. 105–33), enacted on August 5, 

1997, added section 1833(t) to the Social 

Security Act (the Act) authorizing 

implementation of a PPS for hospital 

outpatient services. The Medicare, 

Medicaid, and SCHIP Balanced Budget 

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

106–113), enacted on November 29, 

1999, made major changes that affected 

the hospital outpatient PPS (OPPS). The 

Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection 

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

enacted on December 21, 2000, made 

further changes in the OPPS. Section 

1833(t) of the Act was also amended by 

the Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA), Pub. L. 108–173, enacted 

on December 8, 2003. (Discussion of 

provisions related specifically to the CY 

2006 OPPS is included in sections II.C., 

II.F., II.G., and V.B.3.a.(2) of this final 

rule with comment period.) The OPPS 

was first implemented for services 

furnished on or after August 1, 2000. 

Implementing regulations for the OPPS 

are located at 42 CFR Part 419. 

Under the OPPS, we pay for hospital 

outpatient services on a rate-per-service 

basis that varies according to the 

ambulatory payment classification 

(APC) group to which the service is 

assigned. We use Healthcare Common 

Procedure Coding System (HCPCS) 

codes (which include certain Current 

Procedural Terminology (CPT) codes) 

and descriptors to identify and group 

the services within each APC group. 

The OPPS includes payment for most 

hospital outpatient services, except 

those identified in section I.B. of this 

final rule with comment period. Section 

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

Medicare payment under the OPPS for 

certain services designated by the 

Secretary that are furnished to 

inpatients who have exhausted their 

Part A benefits or who are otherwise not 

in a covered Part A stay. Section 611 of 

Pub. L. 108–173 provided for Medicare 

coverage of an initial preventive 

physical examination, subject to the 

applicable deductible and coinsurance, 

as an outpatient department service, 

payable under the OPPS. In addition, 

the OPPS includes payment for partial 

hospitalization services furnished by 

community mental health centers 

(CMHCs). 

The OPPS rate is an unadjusted 

national payment amount that includes 

the Medicare payment and the 

beneficiary copayment. This rate is 

divided into a labor-related amount and 

a nonlabor-related amount. The laborrelated amount is adjusted for area wage 

differences using the inpatient hospital 

wage index value for the locality in 

which the hospital or CMHC is located. 

All services and items within an APC 

group are comparable clinically and 

with respect to resource use (section 

1833(t)(2)(B) of the Act). In accordance 

with section 1833(t)(2) of the Act, 

subject to certain exceptions, services 

and items within an APC group cannot 

be considered comparable with respect 

to the use of resources if the highest 

median (or mean cost, if elected by the 

Secretary) for an item or service in the 

APC group is more than 2 times greater 

than the lowest median cost for an item 

or service within the same APC group 

(referred to as the ‘‘2 times rule’’). In 

implementing this provision, we use the 

median cost of the item or service 

assigned to an APC group. 

Special payments under the OPPS 

may be made for new technology items 

and services in one of two ways. Section 

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

temporary additional payments or 

‘‘transitional pass-through payments’’

for certain drugs, biological agents, 

brachytherapy devices used for the 

treatment of cancer, and categories of 

medical devices for at least 2 but not 

more than 3 years. For new technology 

services that are not eligible for passthrough payments and for which we 

lack sufficient data to appropriately 

assign them to a clinical APC group, we 

have established special APC groups 

based on costs, which we refer to as 

‘‘APC cost bands.’’ These cost bands 

allow us to price these new procedures 

more appropriately and consistently. 

Similar to pass-through payments, these 

special payments for new technology 

services are also temporary; that is, we 

retain a service within a new technology 

APC group until we acquire adequate 

data to assign it to a clinically 

appropriate APC group. 

B. Excluded OPPS Services and 

Hospitals 

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

authorizes the Secretary to designate the 

hospital outpatient services that are 

paid under the OPPS. While most 

hospital outpatient services are payable 

under the OPPS, section 

1833(t)(1)(B)(iv) of the Act excluded 

payment for ambulance, physical and 

occupational therapy, and speechVerDate Aug<31>2005 18:02 Nov 09, 2005 Jkt 208001 PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 C:\10NOR2.SGM 10NOR2
68520 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

1 Interim final rule with comment period, August 

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

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

final rule and interim final rule with comment 

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

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

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

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

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

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

of the November 7, 2003 final rule with comment 

period, December 31, 2003 (68 FR 75442); interim 

final rule with comment period, January 6, 2004 (69 

FR 820); and final rule with comment period, 

November 15, 2004 (69 FR 65681). 

language pathology services, for which 

payment is made under a fee schedule. 

Section 614 of Pub. L. 108–173 

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

Act to exclude OPPS payment for 

screening and diagnostic mammography 

services. The Secretary exercised the 

broad authority granted under the 

statute to exclude from the OPPS those 

services that are paid under fee 

schedules or other payment systems. 

Such excluded services include, for 

example, the professional services of 

physicians and nonphysician 

practitioners paid under the Medicare 

Physician Fee Schedule (MPFS); 

laboratory services paid under the 

clinical diagnostic laboratory fee 

schedule; services for beneficiaries with 

end-stage renal disease (ESRD) that are 

paid under the ESRD composite rate; 

services and procedures that require an 

inpatient stay that are paid under the 

hospital inpatient prospective payment 

system (IPPS); and certain services 

furnished to inpatients of hospitals that 

do not submit claims for outpatient 

services under Medicare Part B. We set 

forth the services that are excluded from 

payment under the OPPS in § 419.22 of 

the regulations. 

Under § 419.20 of the regulations, we 

specify the types of hospitals and 

entities that are excluded from payment 

under the OPPS. These excluded 

entities include Maryland hospitals, but 

only for services that are paid under a 

cost containment waiver in accordance 

with section 1814(b)(3) of the Act; 

critical access hospitals (CAHs); 

hospitals located outside of the 50 

States, the District of Columbia, and 

Puerto Rico; and Indian Health Service 

hospitals. 

C. Prior Rulemaking 

On April 7, 2000, we published in the 

Federal Register a final rule with 

comment period (65 FR 18434) to 

implement a prospective payment 

system for hospital outpatient services. 

The hospital OPPS was first 

implemented for services furnished on 

or after August 1, 2000. Section 

1833(t)(9) of the Act requires the 

Secretary to review certain components 

of the OPPS not less often than annually 

and to revise the groups, relative 

payment weights, and other adjustments 

to take into account changes in medical 

practice, changes in technology, and the 

addition of new services, new cost data, 

and other relevant information and 

factors. Since implementing the OPPS, 

we have published final rules in the 

Federal Register annually to implement 

statutory requirements and changes 

arising from our experience with this 

system. For a full discussion of the 

changes to the OPPS, we refer readers to 

these Federal Register final rules.1

On November 15, 2004, we published 

in the Federal Register a final rule with 

comment period (69 FR 65681) that 

revised the OPPS to update the payment 

weights and conversion factor for 

services payable under the calendar year 

(CY) 2005 OPPS on the basis of claims 

data from January 1, 2003 through 

December 31, 2003, and to implement 

certain provisions of Pub. L. 108–173. In 

addition, we responded to public 

comments received on the January 6, 

2004 interim final rule with comment 

period relating to Pub. L. 108–173 

provisions that were effective January 1, 

2004, and finalized those policies. 

Further, we responded to public 

comments received on the November 7, 

2003 final rule with comment period 

pertaining to the APC assignment of 

HCPCS codes identified in Addendum B 

of that rule with the NI comment 

indicator; and public comments 

received on the August 16, 2004 OPPS 

proposed rule (69 FR 50448). 

Subsequent to publishing the 

November 15, 2004 final rule with 

comment period, we published a 

correction of final rule with comment 

period on December 30, 2004 (69 FR 

78315). This document corrected 

technical errors that appeared in the 

November 15, 2004 final rule with 

comment period. It also provided 

additional information about the CY 

2005 wage indices for the OPPS that 

was not published in the November 15, 

2004 final rule with comment period. 

D. APC Advisory Panel 

1. Authority of the APC Panel 

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

amended by section 201(h) of the BBRA 

of 1999, requires that we consult with 

an outside panel of experts to review the 

clinical integrity of the payment groups 

and weights under the OPPS. The 

Advisory Panel on Ambulatory Payment 

Classification (APC) Groups (the APC 

Panel), discussed under section I.D.2. of 

this preamble, fulfills this requirement. 

The Act further specifies that the APC 

Panel will act in an advisory capacity. 

This expert panel, which may be 

composed of up to 15 representatives of 

hospitals and other Medicare providers 

subject to the OPPS (currently employed 

full-time and in their respective areas of 

expertise), reviews and advises CMS 

about the clinical integrity of the APC 

groups and their weights. For purposes 

of this Panel, consultants or 

independent contractors are not 

considered to be full-time employees. 

The APC Panel is not restricted to using 

our data and may use data collected or 

developed by organizations outside the 

Department in conducting its review. 

2. Establishment of the APC Panel 

On November 21, 2000, the Secretary 

originally signed the charter 

establishing the APC Panel. The APC 

Panel is technical in nature and is 

governed by the provisions of the 

Federal Advisory Committee Act 

(FACA), as amended (Pub. L. 92–463). 

Since its initial chartering, the Secretary 

has twice renewed the APC Panel’s 

charter: on November 1, 2002, and on 

November 1, 2004. The renewed charter 

indicates that the APC Panel continues 

to be technical in nature; is governed by 

the provisions of FACA with a 

Designated Federal Official (DFO) to 

oversee the day-to-day administration of 

the FACA requirements and to provide 

to the Committee Management Officer 

all committee reports for forwarding to 

the Library of Congress; may convene 

up to three meetings per year; and is 

chaired by a Federal official who also 

serves as a CMS medical officer. 

Originally, in establishing the APC 

Panel, we solicited members in a notice 

published in the Federal Register on 

December 5, 2000 (65 FR 75943). We 

received applications from more than 

115 individuals who nominated either 

colleagues or themselves. After carefully 

reviewing the applications, we chose 15 

highly qualified individuals to serve on 

the APC Panel. Because four APC Panel 

members’ terms of office expired on 

March 31, 2004, we published a Federal 

Register notice on January 23, 2004 (69 

FR 3370) that solicited nominations for 

APC Panel membership. From the 24 

nominations that we received, we chose 

four new members. Six members’ terms 

expired on March 31, 2005; therefore, a 

Federal Register notice was published 

on February 25, 2005, requesting 

nominations to the APC Panel. We 

received only 13 nominations before the 

nomination period closed on March 15, 

2005. Consequently, we extended the 

deadline for nominations to May 9, 

2005, and announced the extension in 

the Federal Register on April 8, 2005 

(70 FR 18028). From a total of 26 

nominees from the two notices, we 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68521 

chose 6 new members who were 

announced in the Federal Register on 

August 26, 2005 (70 FR 50358). The 

entire APC Panel membership and 

information pertaining to it, including 

Federal Register notices, meeting dates, 

agenda topics, and meeting reports are 

identified on the CMS Web site: 

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

apcmem.asp. 

3. APC Panel Meetings and 

Organizational Structure 

The APC Panel first met on February 

27, February 28, and March 1, 2001. 

Since that initial meeting, the APC 

Panel has held seven subsequent 

meetings. The most recent meeting took 

place on August 17 and 18, 2005, which 

was announced in the meeting notice 

published on July 8, 2005 (70 FR 

39514). Prior to each of these biennial 

meetings, we published a notice in the 

Federal Register to announce each 

meeting and, when necessary, to solicit 

and announce nominations for APC 

Panel membership. For a more detailed 

discussion about these announcements, 

refer to the following Federal Register 

notices: December 5, 2000 (65 FR 

75943), December 14, 2001 (66 FR 

64838), December 27, 2002 (67 FR 

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

December 24, 2003 (68 FR 74621), 

August 5, 2004 (69 FR 47446), December 

30, 2004 (69 FR 78464), and July 8, 2005 

(70 FR 39514). 

During these meetings, the APC Panel 

established its operational structure 

that, in part, includes the use of three 

subcommittees to facilitate its required 

APC review process. Currently, the 

three subcommittees are the Data 

Subcommittee, the Observation 

Subcommittee, and the Packaging 

Subcommittee. The Data Subcommittee 

is responsible for studying the data 

issues confronting the APC Panel and 

for recommending viable options for 

resolving them. This subcommittee was 

initially established on April 23, 2001, 

as the Research Subcommittee and 

reestablished as the Data Subcommittee 

on April 13, 2004, February 11, 2005, 

and August 15, 2005. The Observation 

Subcommittee, which was established 

on June 24, 2003, and reestablished with 

new members on March 8, 2004, 

February 11, 2005, and August 15, 2005, 

reviews and makes recommendations to 

the APC Panel on all issues pertaining 

to observation services paid under the 

OPPS, such as coding and operational 

issues. The Packaging Subcommittee, 

which was established on March 8, 

2004, and reestablished with new 

members on February 11, 2005, and 

August 15, 2005, studies and makes 

recommendations on issues pertaining 

to services that are not separately 

payable under the OPPS but are 

bundled or packaged APC payments. 

Each of these subcommittees was 

established by a majority vote of the 

APC Panel during a scheduled APC 

Panel meeting. All subcommittee 

recommendations are discussed and 

voted upon by the full APC Panel. 

For a detailed discussion of the APC 

Panel meetings, refer to the hospital 

OPPS final rules cited in section I.C. of 

this preamble. Full discussion of the 

recommendations resulting from the 

APC Panel’s February 2005 and August 

2005 meetings are included in the 

sections of this preamble that are 

specific to each recommendation. 

E. Provisions of the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 That Will Be 

Implemented in CY 2006 

On December 8, 2003, the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA), Pub. 

L. 108–173, was enacted. Pub. L. 108–

173 made changes to the Act relating to 

the Medicare OPPS. In the January 6, 

2004 interim final rule with comment 

period and the November 15, 2004 final 

rule with comment period, we 

implemented provisions of Pub. L. 108–

173 relating to the OPPS that were 

effective for CY 2004 and CY 2005, 

respectively. Provisions of Pub. L. 108–

173 that were implemented in CY 2004 

or CY 2005, and that are continuing in 

CY 2006, are discussed throughout this 

final rule with comment period. 

Moreover, in this final rule with 

comment period, we finalize our 

proposal to implement the following 

provisions of Pub. L. 108–173 that affect 

the OPPS beginning in CY 2006: 

1. Hold Harmless Provisions 

Section 411 of Pub. L. 108–173 

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

Act and extended the hold harmless 

provision for small rural hospitals 

having 100 or fewer beds through 

December 31, 2005. Section 411 of Pub. 

L. 108–173 further amended section 

1833(t)(7) of the Act to provide that hold 

harmless transitional corridor payments 

shall apply through December 31, 2005 

to sole community hospitals (SCHs) (as 

defined in section 1886(d)(5)(D)(iii) of 

the Act) located in a rural area. In 

accordance with these provisions, 

effective January 1, 2006, we proposed 

to discontinue transitional corridor 

payments for small rural hospitals 

having 100 or fewer beds and for SCHs 

located in a rural area. 

2. Study and Authorization of 

Adjustment for Rural Hospitals 

Section 411(b) of Pub. L. 108–173 

added a new paragraph (13) to section 

1833(t) of the Act to authorize an 

‘‘Adjustment for Rural Hospitals.’’ This 

provision requires us to conduct a study 

to determine if costs incurred by 

hospitals located in rural areas by APCs 

exceed those costs incurred by hospitals 

located in urban areas. This provision 

further requires us to provide for an 

appropriate adjustment by January 1, 

2006, if we find that the costs incurred 

by hospitals located in rural areas 

exceed those costs incurred by hospitals 

located in urban areas. In accordance 

with these provisions, effective January 

1, 2006, as we proposed, we are 

implementing an adjustment for rural 

sole community hospitals (SCHs), as 

discussed below. 

3. Payment for ‘‘Specified Covered 

Outpatient Drugs’’

Section 621(a)(1) of Pub. L. 108–173 

added section 1833(t)(14) to the Act that 

specifies payments for certain 

‘‘specified covered outpatient drugs’’

beginning in 2006. Specifically, section 

1833(t)(14)(A)(iii)(I) of the Act states 

that such payment shall be equal to 

what we determine to be the average 

acquisition cost for the drug, taking into 

account hospital acquisition cost survey 

data furnished by the Government 

Accountability Office (GAO). Section 

1833(t)(14)(A)(iii)(II) of the Act further 

notes that if hospital acquisition cost 

data are not available, payment for 

specified covered outpatient drugs shall 

equal the average price for the drug 

established under section 1842(o), 

section 1847(A), or section 1847(B) of 

the Act as calculated and adjusted by 

the Secretary as necessary. Both 

payment approaches are subject to 

adjustments under section 1833(t)(14)(E) 

of the Act as discussed below. 

4. Adjustment in Payment Rates for 

‘‘Specified Covered Outpatient Drugs’’

for Overhead Costs 

Section 621(a)(1) of Pub. L. 108–173 

added section 1833(t)(14)(E) to the Act. 

Section 1833(t)(14)(E)(ii) of the Act 

authorizes us to make an adjustment to 

payments for ‘‘specified covered 

outpatient drugs’’ to take into account 

overhead and related expenses such as 

pharmacy services and handling costs, 

based on recommendations contained in 

a report prepared by the Medicare 

Payment Advisory Commission 

(MedPAC). 

5. Budget Neutrality Adjustment 

Section 621(a)(1) of Pub. L. 108–173 

amended the Act by adding section 

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1833(t)(14)(H), which requires that 

additional expenditures resulting from 

adjustments in APC payment rates for 

specified covered outpatient drugs be 

taken into account beginning in CY 

2006 and continuing in subsequent 

years, in establishing the OPPS 

conversion, weighting, and other 

adjustment factors. 

F. CMS’ Commitment to New 

Technologies 

As we indicated in the CY 2006 

proposed rule, CMS is committed to 

ensuring that Medicare beneficiaries 

will have timely access to new medical 

treatments and technologies that are 

well-evaluated and demonstrated to be 

effective. We launched the Council on 

Technology and Innovation (CTI) to 

provide the Agency with improved 

methods for developing practical 

information about the clinical benefits 

of new medical technologies to result in 

faster and more efficient coverage and 

payment of these medical technologies. 

The CTI supports CMS efforts to 

develop better evidence on the safety, 

effectiveness, and cost of new and 

approved technologies to help promote 

their more effective use. 

We want to provide doctors and 

patients with better information about 

the benefits of new medical treatments 

or technologies, or both, especially 

compared to other treatment options. 

We also want beneficiaries to have 

access to valuable new medical 

innovations as quickly and efficiently as 

possible. We note there are a number of 

payment mechanisms in the OPPS and 

the IPPS designed to achieve 

appropriate payment of promising new 

technologies. In the OPPS, qualifying 

new medical devices may be paid on a 

cost basis by means of transitional passthrough payments, in addition to the 

APC payments for the procedures which 

utilize the devices. In addition, 

qualifying new services may be assigned 

for payment to New Technology APCs 

or, if appropriate, to regular clinical 

APCs. In the IPPS, qualifying new 

technologies may receive add-on 

payments to the standard diagnosisrelated group (DRG) payments. We also 

note that collaborative efforts are 

underway to facilitate coordination 

between the Food and Drug 

Administration (FDA) and CMS with 

regard to streamlining the CMS coverage 

process by which new technologies 

come to the marketplace. 

To promote timely access to new 

medical treatments and technologies, in 

the CY 2006 OPPS proposed rule, we 

proposed enhancements to both the 

OPPS pass-through payment criteria for 

devices as discussed in section IV.D.2. 

of that rule and the qualifying process 

for assignment of new services to New 

Technology APCs or regular clinical 

APCs discussed in section III.C.3. of that 

rule. In the CY 2006 OPPS proposed 

rule, we proposed to make device passthrough eligibility available to a broader 

range of qualifying devices. We also 

proposed to change the application and 

review process for assignment of new 

services to New Technology APCs to 

promote thoughtful review of the 

coding, clinical use and efficacy of new 

services by the wider medical 

community, encouraging appropriate 

dissemination of new technologies. 

We received a large number of public 

comments generally supporting our 

commitment to new technologies. Many 

of these comments in support of this 

commitment were stated in the context 

of our proposals to enhance the OPPS 

pass-through payment criteria for 

devices or the application requirements 

for assignment of a service to a New 

Technology APC. Specific comments are 

addressed in those respective sections. 

G. Summary of the Provisions of the CY 

2006 OPPS Proposed Rule 

On July 25, 2005, we published a 

proposed rule in the Federal Register 

(70 FR 42674) that set forth proposed 

changes to the Medicare hospital OPPS 

for CY 2006 to implement statutory 

requirements and changes arising from 

our continuing experience with the 

system, to implement provisions of Pub. 

L. 108–173 specified in sections II.C., 

II.F., II.G., and V.B.3.a.(2) of this 

preamble, and to change the 

requirement for physician oversight of 

nonphysician practitioners in CAHs that 

will be effective for services furnished 

on or after January 1, 2006. Subsequent 

to publishing the proposed rule, we 

published a correction of the proposed 

rule on August 26, 2005 (70 FR 50679) 

that corrected technical errors that 

appeared in the proposed rule. The 

following is a summary of the major 

changes included in the CY 2006 OPPS 

proposed rule that we proposed to 

make: 

1. Updates to Payments for CY 2006 

In the proposed rule, we set forth—

• The methodology used to 

recalibrate the proposed APC relative 

payment weights and the proposed 

recalibration of the relative payment 

weights for CY 2006. 

• The proposed payment for partial 

hospitalization, including the proposed 

separate threshold for outlier payments 

for CMHCs. 

• The proposed update to the 

conversion factor used to determine 

payment rates under the OPPS for CY 

2006. 

• The proposed retention of our 

current policy to apply the IPPS wage 

indices to wage adjust the APC median 

costs in determining the OPPS payment 

rate and the copayment standardized 

amount for CY 2006. 

• The proposed update of statewide 

average default cost-to-charge ratios. 

• Proposed changes relating to the 

expiring hold harmless payment 

provision. 

• Proposed changes to payment for 

rural SCHs for CY 2006. 

• Proposed changes in the way we 

calculate hospital outpatient outlier 

payments for CY 2006. 

• Calculation of the proposed 

national unadjusted Medicare OPPS 

payment. 

• The proposed beneficiary 

copayment for OPPS services for CY 

2006. 

2. Ambulatory Payment Classification 

(APC) Group Policies 

In the proposed rule, we discussed 

establishing a number of new APCs and 

making changes to the assignment of 

HCPCS codes under a number of 

existing APCs based on our analyses of 

Medicare claims data and 

recommendations of the APC Panel. We 

also discussed the application of the 2 

times rule and proposed exceptions to 

it; proposed changes for specific APCs; 

the proposed refinement of the New 

Technology cost bands; the proposed 

movement of procedures from the New 

Technology APCs; and the proposed 

additions of new procedure codes to the 

APC groups. 

3. Payment Changes for Devices 

In the proposed rule, we discussed 

proposed changes to the devicedependent APCs, to related regulations 

under §§ 419.66(b)(3) and 419.66(c)(1), 

and to the pass-through payment for 

three categories of devices. 

4. Payment Changes for Drugs, 

Biologicals, and Radiopharmaceutical 

Agents 

In the proposed rule, we discussed 

proposed payment changes for drugs, 

biologicals, radiopharmaceutical agents, 

and vaccines. 

5. Estimate of Transitional Pass-Through 

Spending in CY 2006 for Drugs, 

Biologicals, and Devices 

In the proposed rule, we discussed 

the proposed methodology for 

estimating total pass-through spending 

and whether there should be a pro rata 

reduction for transitional pass-through 

drugs, biologicals, radiopharmacials, 

and categories of devices for CY 2006. 

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6. Brachytherapy Payment Changes 

In the proposed rule, we included a 

discussion of our proposal concerning 

coding and payment for the sources of 

brachytherapy. 

7. Coding and Payment for Drug 

Administration 

In the proposed rule, we discussed 

our proposed coding and payment 

changes for drug administration 

services. 

8. Hospital Coding for Evaluation and 

Management (E/M) Services 

In the proposed rule, we discussed 

our proposal for developing coding 

guidelines for evaluation and 

management services. 

9. Payment for Blood and Blood 

Products 

In the proposed rule, we discussed 

our proposed payment changes for 

blood and blood products. 

10. Payment for Observation Services 

In the proposed rule, we discussed 

our proposed criteria and coding 

changes for observation services. 

11. Procedures That Will Be Paid Only 

as Inpatient Services 

In the proposed rule, we discussed 

the procedures that we proposed to 

remove from the inpatient list and 

assign to APCs. 

12. Indicator Assignments 

In the proposed rule, we discussed 

proposed changes to the list of status 

indicators assigned to APCs and 

presented our comment indicators that 

we proposed to use in this final rule 

with comment period. 

13. Nonrecurring Policy Changes 

In the proposed rule, we discussed 

proposed changes in payments for 

multiple diagnostic imaging procedures 

and proposed changes in payment 

policy for interrupted procedures. 

14. OPPS Policy and Payment 

Recommendations 

In the proposed rule, we addressed 

recommendations made by MedPAC, 

the APC Panel, and the GAO regarding 

the OPPS for CY 2006. 

15. Physician Oversight in Critical 

Access Hospitals 

In the proposed rule, we discussed 

physician oversight for services 

provided by nonphysician practitioners 

such as physician assistants, nurse 

practitioners, and clinical nurse 

specialists in CAHs. 

H. Public Comments Received on the CY 

2006 OPPS Proposed Rule 

We received over 1,000 timely pieces 

of correspondence containing multiple 

comments on the CY 2006 OPPS 

proposed rule. Summaries of the public 

comments and our responses to those 

comments are set forth in the various 

sections under the appropriate 

headings. 

Comment: One commenter objected to 

the short time between the end of the 

comment period and the effective date 

of the final rule. The commenter stated 

that the brief time period gives 

inadequate time for systems and 

software changes. The commenter asked 

that the proposed rule be published July 

1 and that the final rule be published no 

later than October 1 of each year. The 

commenter indicated that hospitals 

need the extra month to implement the 

OPPS because it is much more complex 

for hospitals to implement than the 

IPPS. 

Response: We understand the 

commenter’s concern about the 

difficulty of implementing the annual 

OPPS update in 60 days. We do our best 

to issue the proposed rule and the final 

rule as promptly as possible and to 

make all of the supporting 

documentation available on the CMS 

Web site as soon as we can. However, 

factors such as the use of the most 

recent claims data and cost report data 

on which we base the proposed and 

final rates delay the issuance of the 

proposed rule and the final rule. 

Hospital delays in submission of 

hospital bills are an important factor in 

timing of the OPPS updates as well, 

because we want to use as many claims 

as possible in setting the OPPS rates. 

Moreover, we cannot issue the final rule 

until the HCPCS code files for the 

forthcoming year are final because we 

assign a stataus indicator to each HCPCS 

code in the OPPS OCE. The HCPCS files 

are not final until they are published in 

October. 

Comment: Commenters asked that 

CMS include an indirect medical 

education adjustment in the OPPS 

because it is the only major Medicare 

payment system that does not include a 

teaching adjustment. One commenter 

asked that CMS conduct a study to 

determine the special roles and costs 

related to medical education and the 

appropriateness of including a teaching 

hospital adjustment. 

Response: We have not developed an 

indirect medical education add-on 

payment made under the OPPS because 

the statute does not provide for this 

adjustment, and we are not convinced 

that it would be appropriate in a budgetneutral payment system where such 

changes would result in reduced 

payments to all other hospitals. 

Moreover, in the final rule, we have 

developed payment weights that we 

believe resolve many of the public 

concerns regarding appropriate 

payments for new technology services 

and device-dependent procedures, 

which we believe are furnished largely 

by teaching hospitals. In addition, the 

application of the wage index 

adjustment to 60 percent of the APC 

payment package (especially for APCs 

into which expensive devices are 

packaged) tends to benefit teaching 

hospitals, which are predominantly 

located in hgh-cost areas. These and 

other payment changes should help 

ensure equitable payment for all 

hospitals within the constraints of the 

statute. 

I. Public Comments Received on the 

November 15, 2004 Final Rule With 

Comment Period 

We received approximately 55 timely 

pieces of correspondence on the 

November 5, 2004 final rule with 

comment period, some of which 

contained multiple comments on the 

APC assignment of HCPCS codes 

identified with the NI comment 

indicator in Addendum B of that final 

rule with comment period and on the 

surgical insertion and implantation 

device criterion. Summaries of those 

public comments and our responses to 

those comments are set forth in the 

various sections under the appropriate 

headings. 

II. Updates Affecting Payments for CY 

2006 

A. Recalibration of APC Relative 

Weights for CY 2006 

1. Database Construction 

a. Database Source and Methodology. 

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

that the Secretary review and revise the 

relative payment weights for APCs at 

least annually. In the April 7, 2000 

OPPS final rule (65 FR 18482), we 

explained in detail how we calculated 

the relative payment weights that were 

implemented on August 1, 2000, for 

each APC group. Except for some 

reweighting due to a small number of 

APC changes, these relative payment 

weights continued to be in effect for CY 

2001. This policy is discussed in the 

November 13, 2000 interim final rule 

(65 FR 67824 through 67827). 

In the CY 2005 OPPS proposed rule 

(70 FR 42680), we proposed to use the 

same basic methodology that we 

described in the April 7, 2000 final rule 

to recalibrate the APC relative payment 

68524 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

weights for services furnished on or 

after January 1, 2006, and before January 

1, 2007. That is, we would recalibrate 

the relative payment weights for each 

APC based on claims and cost report 

data for outpatient services. We 

proposed to use the most recent 

available data to construct the database 

for calculating APC group weights. For 

the purpose of recalibrating APC 

relative payment weights for CY 2006, 

we used approximately 137 million 

final action claims for hospital OPD 

services furnished on or after January 1, 

2004, and before January 1, 2005. Of the 

137 million final action claims for 

services provided in hospital outpatient 

settings, 109 million claims were of the 

type of bill potentially appropriate for 

use in setting rates for OPPS services 

(but did not necessarily contain services 

payable under the OPPS). Of the 109 

million claims, we were able to use 52.7 

million whole claims to set the 

proposed OPPS APC relative weights for 

CY 2006 OPPS. From the 52.7 million 

whole claims, we created 87.9 million 

single records, of which 54.9 million 

were ‘‘pseudo’’ single claims (created 

from multiple procedure claims using 

the process we discuss in this section). 

As we proposed, the final APC 

relative weights and payments for CY 

2006 in Addenda A and B to this final 

rule with comment period were 

calculated using claims from this period 

that had been processed before June 30, 

2005, and continue to be based on the 

median hospital costs for services in the 

APC groups. We selected claims for 

services paid under the OPPS and 

matched these claims to the most recent 

cost report filed by the individual 

hospitals represented in our claims data. 

We received numerous public 

comments concerning our proposed 

data source and methodology for 

recalibrating the APC relative weights 

for CY 2006. A summary of the 

comments and our responses are 

discussed below. 

Comment: Commenters stated that 

many APC rates fluctuate dramatically, 

and the instability in the system makes 

it very hard for hospitals to budget and 

plan services from year to year. Among 

the services identified as issues of 

specific concern were clinic visits, 

application of brachytherapy sources, 

drugs and biologicals, and deviceintensive APCs. Some commenters 

recommended that CMS limit increases 

and decreases for all APCs to no more 

than a 5-percent shift (increase or 

decrease) from one year to another. 

Commenters emphasized that 

fluctuations in payment rates for devicedependent procedures from year to year 

impact manufacturers’ abilities to 

contract effectively with hospitals to 

provide a stable purchasing 

environment and, thereby, impede 

innovation and adversely impact 

beneficiaries. 

Response: We understand the 

commenters’ concerns about the need 

for sufficient stability in the OPPS so 

that hospitals can plan and budget. We 

have given this issue much 

consideration. We recognize that 

reliance on single procedure claims may 

result in fewer claims for some services 

than for others. For example, median 

costs for services such as office visits, 

for which the volume of single bills is 

very high, would generally be more 

stable than the median costs for services 

for which we have very few single 

procedure claims. We will continue to 

explore changes we could effectuate to 

enable us to use even more claims on 

the premise that using more claims data 

will enhance stability. 

However, we note that the statutory 

design of the OPPS and the rapid 

evolution in the delivery of outpatient 

hospital services include many elements 

that may be responsible for some of the 

fluctuation in rates from year to year. 

For example, the ‘‘2 times rule’’

imposed by the law requires the 

movement of some procedures from one 

APC to another each year. Moreover, the 

OPPS is based on procedure coding for 

which there are hundreds of changes 

each year. In addition, the entry of new 

technology into a budget neutral 

payment system results in a shift of 

funds away from previously existing 

services to provide payments for new 

services. These systemic factors are 

valid reflections of the changes in 

services in the outpatient department, 

and shifts in payment legitimately 

mirror those changes. 

Comment: Commenters stated that the 

entire OPPS is underfunded because it 

pays only 87 percent of the costs of 

services to Medicare beneficiaries. One 

commenter indicated that the 

underfunding of services to Medicare 

patients is particularly severe for 

disproportionate share hospitals and 

hospitals with level I trauma centers 

and, therefore, will inhibit access to care 

for Medicare beneficiaries and other 

individuals. 

Response: Our early analyses 

indicated that the OPPS was, in its 

inception, based on payment that was 

less than cost due to statutory 

reductions in payment for hospital 

outpatient costs prior to the enactment 

of the BBA, which authorized the 

current OPPS. Certain fundamental 

statutory features of the OPPS dictate 

such a finding. For example, the base 

amounts upon which the OPPS was 

established, the rules concerning budget 

neutrality, and subsequent out-year 

adjustments such as annual reductions 

in coinsurance and adjustments to 

outlier and pass-through payment 

allocations are established in statute 

and, as such, would require legislation 

to amend. 

Comment: Commenters supported use 

of the most recent claims data for 

recalibrating the APC relative weights 

but in many cases wanted CMS to adjust 

the claims data for particular services of 

interest to them in ways that will result 

in higher payment for those specified 

services. Other commenters supported 

use of proprietary, confidential external 

data in lieu of claims data to set the 

median costs on which the rates are 

based for selected services because they 

believe that the use of claims data 

results in median costs that are less than 

the costs of the services being furnished. 

Some commenters asked CMS to 

establish a representative sample of 

hospitals from which data would be 

collected for use in place of claims data 

or to validate the data derived from 

claims. 

Response: We believe that, in a budget 

neutral relative payment system such as 

the OPPS, it is important that the 

relative weights be based on a uniform 

source of data processed in a 

standardized way. We believe that 

Medicare claims data are the most 

uniform data source available to us. 

Moreover, the weights derived from 

such a system are the vehicles for 

distributing Medicare payments for 

outpatient hospital services fairly 

among all hospitals that furnish 

outpatient hospital services to Medicare 

beneficiaries. We are committed to 

using claims data in a uniform manner, 

to the maximum extent possible, to 

develop the relative weights from which 

payment rates are calculated. We do not 

see a compelling need to use external 

data to set or adjust median costs for 

device-dependent APCs for the CY 2006 

OPPS. Therefore, for the CY 2006 OPPS, 

we have not substituted external data 

for Medicare claims data for the purpose 

of setting the median costs on which the 

relative weights are based. 

After carefully considering all 

comments received, we are finalizing 

our data source and methodology for the 

recalibration of CY 2006 APC relative 

weights as proposed without 

modification. 

b. Use of Single and Multiple 

Procedure Claims. For CY 2006, we 

proposed to continue to use single 

procedure claims to set the medians on 

which the APC relative payment 

weights would be based. As noted in the 

November 15, 2004 final rule with 

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comment period, we have received 

many requests asking that we ensure 

that the data from claims that contain 

charges for multiple procedures are 

included in the data from which we 

calculate the relative payment weights 

(69 FR 65730 through 65731). 

Requesters believe that relying solely on 

single procedure claims to recalibrate 

APC relative payment weights fails to 

take into account data for many 

frequently performed procedures, 

particularly those commonly performed 

in combination with other procedures. 

They believe that, by depending upon 

single procedure claims, we base 

relative payment weights on the least 

costly services, thereby introducing 

downward bias to the medians on 

which the weights are based. 

We agree that, optimally, it is 

desirable to use the data from as many 

claims as possible to recalibrate the APC 

relative payment weights, including 

those with multiple procedures. We 

generally use single procedure claims to 

set the median costs for APCs because 

we are, so far, unable to ensure that 

packaged costs can be appropriately 

allocated across multiple procedures 

performed on the same date of service. 

However, by 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 claims from 

claims that, as submitted, contained 

multiple separately paid procedures on 

the same claim. We have used the date 

of service on the claims and a list of 

codes to be bypassed to create ‘‘pseudo’’

single claims from multiple procedure 

claims the same as we did in 

recalibrating the CY 2005 APC relative 

payment weights. We refer to these 

newly created single procedure claims 

as ‘‘pseudo’’ singles because they were 

submitted by providers as multiple 

procedure claims. 

For CY 2003, we created ‘‘pseudo’’

single claims by bypassing HCPCS 

codes 93005 (Electrocardiogram, 

tracing), 71010 (Chest x-ray), and 71020 

(Chest x-ray) on a submitted claim. 

However, we did not use claims data for 

the bypassed codes in the creation of the 

median costs for the APCs to which 

these three codes were assigned because 

the level of packaging that would have 

remained on the claim after we selected 

the bypass code was not apparent and, 

therefore, it was difficult to determine if 

the medians for these codes would be 

correct. 

For CY 2004, we created ‘‘pseudo’’

single claims by bypassing these three 

codes and also by bypassing an 

additional 269 HCPCS codes in APCs. 

We selected these codes based on a 

clinical review of the services and 

because it was presumed that these 

codes had only very limited packaging 

and could appropriately be bypassed for 

the purpose of creating ‘‘pseudo’’ single 

claims. The APCs to which these codes 

were assigned were varied and included 

mammography, cardiac rehabilitation, 

and Level I plain film x-rays. To derive 

more ‘‘pseudo’’ single claims, we also 

split the claims where there were dates 

of service for revenue code charges on 

that claim that could be matched to a 

single procedure code on the claim on 

the same date. 

As in CY 2003, we did not include the 

claims data for the bypassed codes in 

the creation of the APCs to which the 

269 codes were assigned because, again, 

we had not established that such an 

approach was appropriate and would 

aid in accurately estimating the median 

costs for those APCs. For CY 2004, from 

about 16.3 million otherwise unusable 

claims, we used about 9.5 million 

multiple procedure claims to create 

about 27 million ‘‘pseudo’’ single 

claims. For CY 2005, we identified 383 

bypass codes and from approximately 

24 million otherwise unusable claims, 

we used about 18 million multiple 

procedure claims to create about 52 

million ‘‘pseudo’’ single claims. 

For CY 2006, we proposed to continue 

using date of service matching as a tool 

for creation of ‘‘pseudo’’ single claims 

and to continue the use of a bypass list 

to create ‘‘pseudo’’ single claims. The 

process we proposed for CY 2006 OPPS 

resulted in our being able to use some 

part of 90 percent of the total claims that 

are eligible for use in OPPS rate-setting 

and modeling in developing this final 

rule with comment period. This process 

enabled us to use, for CY 2006, 88 

million single bills for rate-setting: 55 

million ‘‘pseudo’’ singles and 34 million 

‘‘natural’’ single bills (bills that were 

submitted containing only one 

separately payable major HCPCS code). 

(These numbers do not sum to 88 

million because more than 800,000 

single bills were removed when we 

trimmed at the HCPCS level at +/¥3 

standard deviations from the geometric 

mean.) 

We proposed to bypass the 404 codes 

identified in Table 1 of the proposed 

rule (70 FR 42682) to create new single 

claims and to use the line-item costs 

associated with the bypass codes on 

these claims in the creation of the 

median costs for the APCs into which 

they are assigned. Of the codes on that 

list, 385 were used for bypass in CY 

2005. For CY 2006, we proposed to 

continue the use of the codes on the CY 

2005 OPPS bypass list and expand it by 

adding those codes that, using data 

presented to the APC Panel at its 

February 2005 meeting, met the same 

empirical criteria as those used in CY 

2005 to create the bypass list. Our 

examination of the data against the 

criteria for inclusion on the bypass list, 

as discussed below for the addition of 

new codes, shows that the empirically 

selected codes used for bypass for the 

CY 2005 OPPS generally continue to 

meet the criteria or come very close to 

meeting the criteria, and we have 

received no comments against bypassing 

them. 

As we proposed, in this final rule 

with comment period, we used the 

following empirical criteria that were 

developed by reviewing the frequency 

and magnitude of packaging in the 

single claims for payable codes other 

than drugs and biologicals. We assumed 

that the representation of packaging on 

the single claims for any given code is 

comparable to packaging for that code in 

the multiple claims: 

• There were 100 or more single 

claims for the code. This number of 

single claims ensured that observed 

outcomes were sufficiently 

representative of packaging that might 

occur in the multiple claims. 

• Five percent or fewer of the single 

claims for the code had packaged costs 

on that single claim for the code. This 

criterion results in limiting the amount 

of packaging being redistributed to the 

payable procedure remaining on the 

claim after the bypass code is removed 

and ensures that the costs associated 

with the bypass code represent the cost 

of the bypassed service. 

• The median cost of packaging 

observed in the single claim was equal 

to or less than $50. This limits the 

amount of error in redistributed costs. 

• The code is not a code for an 

unlisted service. 

As stated in the proposed rule (70 FR 

42681), we also added to the bypass list 

three codes (CPT codes 51701, 51702, 

and 51703 for bladder catheterization) 

which do not meet these criteria. These 

codes have been packaged and have 

never been paid separately. For that 

reason, when these were the only 

services provided to the beneficiary, no 

payment was made to the hospital. The 

APC Panel’s Packaging Subcommittee 

recommended that we make separate 

payment when they are the only service 

on the claim. See section II.A.4. of this 

preamble for further discussion of our 

policy to pay these services separately. 

We added these codes to the bypass list 

because changing them from packaged 

to separately paid would result in a 

reduction of the number of single bills 

on which we could base median costs 

68526 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

for other major separately paid 

procedures that are billed on the same 

claim with these procedure codes. 

Single bills which contain other 

procedures would become multiple 

procedure claims when these bladder 

catheterization codes were converted 

from packaged to separately paid status. 

As explained in the CY 2006 

proposed rule (70 FR 42682), we 

examined the packaging on the single 

procedure claims in the CY 2004 data 

for these codes. We found that none of 

these three codes met the empirical 

standards for the bypass list. However, 

we believe that when these services are 

performed on the same date as another 

separately paid procedure, any 

packaging that appears on the claim 

would appropriately be associated with 

the other procedures and not with these 

codes. Therefore, we believe that 

bypassing them does not adversely 

affect the medians for other procedures. 

Moreover, future separate payment for 

these codes does not harm the hospitals 

that furnish these services, in view of 

the historical absence of separate 

payment for them under the OPPS in 

the past. Hence, we proposed to pay 

separately for these codes and to add 

them to the bypass list for the CY 2006 

OPPS. 

In the CY 2006 proposed rule, we 

specifically invited public comments on 

the proposed ‘‘pseudo’’ single process, 

including the bypass list and the 

criteria. A summary of the many 

comments we received and our 

responses follow: 

Comment: Some commenters 

supported use of multiple procedure 

claims through application of the bypass 

list and date of service stratification. 

Other commenters stated that these 

processes may result in more claims but 

not necessarily better data for ratesetting. Many commenters objected to 

the use of single procedure claims as the 

basis for setting the relative weights 

because they believed that using single 

procedure claims limits the claims data 

to the simplest and least costly cases. 

They proposed CPT code or APC 

specific strategies for using multiple 

procedure claims in ways that would 

apply only to the services of interest to 

them that could not be generalized 

across multiple procedure claims for all 

services. The commenters indicated that 

the use of single procedure claims 

greatly limits the number of claims that 

are used for setting median costs and 

weights, and that the OPPS relative 

weights would be greatly improved if 

we could use all of the claims data. 

They indicated that the use of single 

procedure claims causes medians to be 

set based on incorrectly coded claims 

for the many add-on codes that can only 

be billed properly when they are billed 

with the base code to which they are 

attached. In addition, they indicated 

that many services are so routinely 

furnished in combination with other 

services that use of single procedure 

claims will never result in appropriate 

median costs for these procedures. 

Response: We share the commenters’

desire to use as much claims data as 

possible to set the relative weights for 

the OPPS services. We continue to 

explore ways to use more data from 

multiple procedure claims. Specifically, 

we are looking at the extent to which 

the many add-on codes (codes that are 

reported for services furnished only as 

an adjunct to another service) can be 

packaged to create more single claims. 

We are also exploring strategies for 

using data from correctly coded 

multiple procedure claims containing 

both base and add-on codes to ascertain 

the incremental costs of the add-on 

services. We also expect to explore other 

generally applicable strategies, such as 

apportioning packaging based on 

submitted charges that would enable us 

to use multiple procedure claims. 

We are disinclined to focus on 

service-specific strategies for using 

multiple procedure claims because 

those that have been suggested to us are 

not generally applicable to multiple 

procedure claims across all services, but 

rather are focused on increasing the 

median costs of particular services to 

the exclusion of all other services. As 

we indicated above, we believe that it is 

important in a relative weight system 

that, to the maximum extent possible, 

the same claims and the same 

processing rules apply to all services so 

that the resulting relative weights are 

uniformly created and serve all 

hospitals fairly. 

Comment: One commenter asked why 

only some of the office visit and 

consultation services are included in the 

bypass list (for example, CPT codes 

99213 and 99214 are on the list) but 

CPT codes 99211, 99212 and 99215 are 

not. The commenter believed that the 

cited unlisted codes should also be on 

the list. Other commenters did not 

believe that CPT codes 99213 and 99214 

met the criteria for inclusion as bypass 

codes and believed that they should be 

removed from the list. 

Response: We have included below 

data calculated from the APC Panel data 

for use in setting the bypass list for the 

CY 2006 proposed rule and this final 

rule with comment period. These data 

show that CPT codes 99213 and 99214 

meet the criteria for inclusion as bypass 

codes, and that CPT codes 99211, 99212 

and 99215 exceed the 5-percent limit for 

single bills containing packaging: 

HCPCS Short descriptor 

Median 

amount of 

packaging on 

single bills 

Percent of 

single bills for 

the code containing packaging 

99211 ................ Office/outpatient visit, est ......................................................................................................... $11.98 6.15 

99212 ................ Office/outpatient visit, est ......................................................................................................... 10.88 5.43 

99213 ................ Office/outpatient visit, est ......................................................................................................... 11.72 3.87 

99214 ................ Office/outpatient visit, est ......................................................................................................... 12.76 3.63 

00215 ................ Office/outpatient visit, est ......................................................................................................... 12.76 8.62 

Comment: Commenters supported the 

use of the bypass list but were 

concerned that the inclusion of services 

on the bypass list may systematically 

result in lower costs for the procedures 

that are included on the list than if they 

had not been included on the list. 

Response: We established the bypass 

list criteria for the purpose of limiting 

any potential adverse impact on the 

medians for the services on the bypass 

list. We believe that the requirement 

that a code cannot be placed on the 

bypass list if more than 5 percent of the 

single bills for that code contain 

packaging or if the median packaging for 

the code exceeds $50, is a strong 

deterrent to systematic reduction of 

medians for services on the bypass list. 

We have received no comments on the 

appropriateness or inappropriateness of 

the bypass criteria, and thus, we have 

not changed them for the CY 2006 

OPPS. 

Comment: Commenters asked CMS to 

carefully consider the impact of add-on 

codes on the creation of multiple 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68527 

procedure claims and urged CMS to not 

disqualify a claim because of the 

presence of an add-on code that is 

packaged. In the case of add-on codes 

that are separately paid, one commenter 

urged CMS to apportion the packaged 

charges between the base code and the 

add-on code so that the data from the 

multiple procedure claim can be used. 

Some commenters asked CMS to place 

all add-on codes, both packaged and 

separately paid, on the bypass list to 

create more single procedure claims. 

Response: The presence of an add-on 

code with a status indicator of ‘‘N’’

because it is a packaged service does not 

currently disqualify the claim as a 

multiple procedure claim. The claim is 

considered to be a single procedure 

claim and the cost of the packaged addon code is treated like any other 

packaged drug, device, or supply or 

other packaged cost. However, the 

presence of an add-on code that is 

separately paid but not on the bypass 

list does currently cause the claim to be 

a multiple procedure claim that is not 

used because of the difficulties in 

determining how to apportion the 

packaging on the claim between the two 

separately paid procedure codes. 

We disagree that all add-on codes 

could safely be added to the bypass list. 

Many add-on codes use significant 

resources that are reported as packaged 

charges in support of the add-on code. 

For example, CPT code 33225 (Left 

ventricular lead add-on) requires more 

than an hour of additional operating 

room time and also requires a device 

with significant cost when the service is 

furnished in conjunction with a base 

service. If we were to include CPT code 

33225 on the bypass list, only the lineitem charge for the CPT code would be 

attributed to the procedure code. 

Neither the device cost (which is 

packaged), nor the share of other costs 

attributable to the service (for example, 

drugs, supplies, and extended operating 

room time) would be attributed to CPT 

code 33225. They would both be 

packaged into the base code. The single 

procedure claims for CPT code 33225 

would not reflect the costs of the device 

or extended operating room time. In 

addition, the single procedure claims for 

the base code would reflect packaging 

that is not properly associated with that 

procedure. 

However, we recognize that the addon codes present a significant data 

problem because they can never be 

correctly billed unless they are also 

billed on the same claim with a base 

code to which they add services. We are 

undertaking a study of add-on codes to 

determine whether there are add-on 

codes that are now separately paid that 

should become packaged, and thus 

would provide more single procedure 

claims. With respect to the add-on codes 

for which packaging is not appropriate, 

we will be exploring methods that 

would enable us to systematically 

calculate valid median costs for the addon codes from multiple procedure 

claims and thus create a more robust set 

of valid claims for rate-setting. We 

anticipate working with the APC Panel 

members on this issue. 

Comment: Commenters asked CMS to 

assign a flag to claims that became 

pseudo singles in the claims included in 

the public use files so that it would be 

easier for commenters to model future 

proposed policies. 

Response: The public use files (the 

limited data set and the beneficiary 

encrypted data set) contain claims as 

submitted to CMS. Therefore, to flag the 

pseudo single claims in the public use 

file is not possible because the pseudo 

single claims may be part, but not all, 

of the submitted claim. Even if we did 

flag the claim, the user would still have 

to replicate the process to create pseudo 

single claims. We note that we have 

greatly increased the information we 

issued regarding how we process the 

claims to acquire the median costs, and 

we understand that outside replication 

of our medians has improved. 

Comment: Commenters asked 

whether CMS disregards line item 

charges for drugs, biologicals, and 

radiopharmaceutical agents and items 

with status indicators ‘‘K’’ and ‘‘G’’ for 

purposes of creating pseudo singles 

claims. 

Response: The presence on a claim of 

a code and charge for a drug, biological, 

or radiopharmaceutical agent, whether 

separately paid or packaged, has no 

impact on determining whether the 

claim is a single procedure claim. 

After carefully considering all public 

comments received, we are adopting as 

final the proposed ‘‘pseudo’’ single 

process and the bypass codes listed in 

Table 1 without modification. 

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BILLING CODE 4120–01–C 

2. Calculation of Median Costs for CY 

2006 

In this section of the preamble, we 

discuss the use of claims to calculate the 

OPPS payment rates for CY 2006. The 

hospital outpatient prospective payment 

page on the CMS Web site on which this 

final rule with comment period is 

posted provides an accounting of claims 

used in the development of the final 

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

providers/hopps. The accounting of 

claims used in the development of this 

final rule with comment period is 

included on the Web site under 

supplemental materials for the CY 2006 

final rule with comment period. That 

accounting provides additional detail 

regarding the number of claims derived 

at each stage of the process. In addition, 

below we discuss the files of claims that 

comprise the data sets that are available 

for purchase under a CMS data user 

contract. Our CMS Web site, http:// 

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

includes information about purchasing 

the following two OPPS data files: 

‘‘OPPS Limited Data Set’’ and ‘‘OPPS 

Identifiable Data Set.’’

As we proposed, we used the 

following methodology to establish the 

relative weights to be used in 

calculating the OPPS payment rates for 

CY 2006 shown in Addendum A and in 

Addendum B to this final rule with 

comment period. This methodology is 

as follows: 

We used outpatient claims for the full 

CY 2004 to set the relative weights for 

CY 2006. To begin the calculation of the 

relative weights for CY 2006, we pulled 

all claims for outpatient services 

furnished in CY 2004 from the national 

claims history file. This is not the 

population of claims paid under the 

OPPS, but all outpatient claims 

(including, for example, CAH claims, 

and hospital claims for clinical 

laboratory services for persons who are 

neither inpatients nor outpatients of the 

hospital). 

We then excluded claims with 

condition codes 04, 20, 21, and 77. 

These are claims that providers 

submitted to Medicare knowing that no 

payment will be made. For example, 

providers submit claims with a 

condition code 21 to elicit an official 

denial notice from Medicare and 

document that a service is not covered. 

We then excluded claims for services 

furnished in Maryland, Guam, and the 

U.S. Virgin Islands because hospitals in 

those geographic areas are not paid 

under the OPPS. 

We divided the remaining claims into 

the three groups shown below. Groups 

2 and 3 comprise the 109 million claims 

that contain hospital bill types paid 

under the OPPS. 

1. Claims that were not bill types 12X, 

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

(CMHC bill types). Other bill types are 

not paid under the OPPS and, therefore, 

these claims were not used to set OPPS 

payment. 

2. Claims that were bill types 12X, 

13X, or 14X (hospital bill types). These 

claims are hospital outpatient claims. 

3. Claims that were bill type 76X 

(CMHC). (These claims are later 

combined with any claims in item 2 

above with a condition code 41 to set 

the per diem partial hospitalization rate 

determined through a separate process.) 

For the cost-to-charge ratio (CCR) 

calculation process, we used the same 

approach as we used in developing the 

final APC rates for CY 2005 (69 FR 

65744). That is, we first limited the 

population of cost reports to only those 

for hospitals that filed outpatient claims 

in CY 2004 before determining whether 

the CCRs for such hospitals were valid. 

This initial limitation changed the 

distribution of CCRs used during the 

trimming process discussed below. 

We then calculated the CCRs at a 

departmental level and overall for each 

hospital for which we had claims data. 

We did this using hospital-specific data 

from the Healthcare Cost Report 

Information System (HCRIS). We used 

the most recent available cost report 

data, in most cases, cost reports for CY 

2002 or CY 2003. For this final rule with 

comment period, we used the most 

recent cost report available, whether 

submitted or settled. If the most recent 

available cost report was submitted but 

not settled, we looked at the last settled 

cost report to determine the ratio of 

submitted to settled cost, and we then 

adjusted the most recent available 

submitted but not settled cost report 

using that ratio. 

The overall hospital-specific CCR is 

the total of costs and charges in those 

cost centers where we believe that a 

significant portion of the costs and 

charges are for services paid under the 

OPPS. We have included the list of the 

cost centers that we use in our overall 

CCR calculation on our Web site along 

with our cost center to revenue code 

crosswalk, which we discuss below. We 

do not include the costs and charges 

generated by nursing schools or 

paramedical education programs in our 

cost and charge totals. 

We then flagged 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 

.0001); and those from hospitals with 

CCRs that were identified as outliers (3 

standard deviations from the geometric 

mean after removing error CCRs). In 

addition, we trimmed the CCRs at the 

departmental level by removing the 

CCRs for each cost center as outliers if 

they exceeded +/¥3 standard 

deviations of the geometric mean. This 

is the same methodology that we used 

in developing the final CY 2005 CCRs. 

For CY 2006, as proposed, we trimmed 

at the departmental CCR level to 

eliminate aberrant CCRs that, if found in 

high volume hospitals, could skew the 

medians. We used a four-tiered 

hierarchy of cost center CCRs to match 

a cost center to a revenue code, with the 

top tier being the most common cost 

center and the last tier being the default 

CCR. If a hospital’s departmental CCR 

was deleted by trimming, we set the 

departmental CCR for that cost center to 

‘‘missing,’’ so that another departmental 

CCR in the revenue center hierarchy 

could apply. If no other departmental 

CCR could apply to the revenue code on 

the claim, we used the hospital’s overall 

CCR for the revenue code in question. 

The hierarchy of CCRs is available for 

inspection and comment at the CMS 

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

providers/hopps/default.asp. 

We then converted the charges on the 

claim by applying the CCR that we 

believed was best suited to the revenue 

code indicated on the line with the 

charge. Table 2 of the proposed rule (70 

FR 42690) contained a list of the 

allowed revenue codes. Revenue codes 

not included in Table 2 are those not 

allowed under the OPPS because their 

services cannot be paid under the OPPS 

(for example, inpatient room and board 

charges) and, thus charges with those 

revenue codes were not packaged for 

creation of the OPPS median costs. If a 

hospital did not have a CCR that was 

appropriate to the revenue code 

reported for a line-item charge (for 

example, a visit reported under the 

clinic revenue code, but the hospital did 

not have a clinic cost center), we 

applied the hospital-specific overall 

CCR, except as discussed in section X. 

of this preamble for calculation of costs 

for blood. 

Thus, we applied CCRs as described 

above to claims with bill types 12X, 

13X, or 14X, excluding all claims from 

CAHs and hospitals in Maryland, Guam, 

and the U.S. Virgin 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 CMHCs and moved them to 

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another file. These claims were 

combined with the 76X claims 

identified previously to calculate the 

partial hospitalization per diem rate. 

We then excluded claims without a 

HCPCS code. We also moved claims for 

observation services to another file. We 

moved to another file claims that 

contained nothing but flu and 

pneumococcal pneumonia (‘‘PPV’’) 

vaccine. Influenza and PPV vaccines are 

paid at reasonable cost and, therefore, 

these claims are not used to set OPPS 

rates. We note that the two above 

mentioned separate files containing 

partial hospitalization claims and the 

observation services claims are included 

in the files that are available for 

purchase as discussed above. 

We next copied line-item costs for 

drugs, blood, and devices (the lines stay 

on the claim, but are copied off onto 

another file) to a separate file. No claims 

were deleted when we copied these 

lines onto another file. These line-items 

are used to calculate the per unit 

median for drugs, radiopharmaceutical 

agents, and blood and blood products. 

The line-item costs were also used to 

calculate the per administration cost of 

drugs, biologicals (other than blood and 

blood products), and 

radiopharmaceutical agents. 

We then divided the remaining claims 

into five groups. 

1. Single Major Claims: Claims with a 

single separately payable procedure, all 

of which would be used in median 

setting. 

2. Multiple Major Claims: Claims with 

more than one separately payable 

procedure or multiple units for one 

payable procedure. As discussed below, 

some of these can be used in median 

setting. 

3. Single Minor Claims: Claims with a 

single HCPCS code that is not separately 

payable. These claims may have a single 

packaged procedure or a drug code. 

4. Multiple Minor Claims: Claims with 

multiple HCPCS codes that are not 

separately payable without examining 

dates of service. For example, pathology 

codes are not used unless the pathology 

service is the single code on the bill or 

unless the pathology code is on a 

separate date of service from the other 

procedure on the claim. The multiple 

minor file has claims with multiple 

occurrences of pathology codes, with 

packaged costs that cannot be 

appropriately allocated across the 

multiple pathology codes. However, by 

matching dates of service for the code 

and the reported costs through the 

‘‘pseudo’’ single creation process 

discussed earlier, a claim with multiple 

pathology codes may become several 

‘‘pseudo’’ single claims with a unique 

pathology code and its associated costs 

on each day. These ‘‘pseudo’’ singles for 

the pathology codes would then be 

considered a separately payable code 

and would be used the same as claims 

in the single major claim file. 

5. Non-OPPS Claims: Claims that 

contain no services payable under the 

OPPS. These claims are excluded from 

the files used for the OPPS. Non-OPPS 

claims have codes paid under other fee 

schedules, for example, durable medical 

equipment or clinical laboratory. 

We note that the claims listed in 

numbers 1, 2, 3, and 4 above are 

included in the data files that can be 

purchased as described above. 

We set aside the single minor claims 

and the non-OPPS claims (numbers 3 

and 5 above) because we did not use 

either in calculating median cost. We 

then examined the multiple major and 

multiple minor claims (numbers 2 and 

4 above) to determine if we could 

convert any of them to single major 

claims using the process described 

previously. We first grouped items on 

the claims by date of service. If each 

major procedure on the claim had a 

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

packaged revenue codes had dates of 

service, we split the claim into multiple 

‘‘pseudo’’ single claims based on the 

date of service. 

After those single claims were 

created, we used the list of ‘‘bypass 

codes’’ listed in Table 1 of the proposed 

rule and this final rule with comment 

period to remove separately payable 

procedures that we determined contain 

limited costs or no packaged costs from 

a multiple procedure bill. A discussion 

of the creation of the list of bypass codes 

used for the creation of ‘‘pseudo’’ single 

claims is contained in section II.A.1.b. 

of this preamble. 

When one of the two separately 

payable procedures on a multiple 

procedure claim was on the bypass code 

list, we split the claim into two single 

procedure claims records. The single 

procedure claim record that contained 

the bypass code did not retain packaged 

services. The single procedure claim 

record that contained the other 

separately payable procedure (but no 

bypass code) retained the packaged 

revenue code charges and the packaged 

HCPCS charges. This enables us to use 

a claim that would otherwise be a 

multiple procedure claim and could not 

be used. 

We excluded those claims that we 

were not able to convert to singles even 

after applying both of the techniques for 

creation of ‘‘pseudo’’ singles. We then 

packaged the costs of packaged HCPCS 

codes (codes with status indicator ‘‘N’’

listed in Addendum B to this final rule 

with comment period) and packaged 

revenue codes into the cost of the single 

major procedure remaining on the 

claim. The list of packaged revenue 

codes is shown below in Table 2. These 

are the same as those published in Table 

2 of the proposed rule (70 FR 42690). 

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, 58.4 

million claims were left. Of these 

million claims, we were able to use 

some portion of 52.7 million whole 

claims (90.24 percent of the potentially 

usable claims) to create the 88 million 

single and ‘‘pseudo’’ single claims for 

use in the CY 2006 median payment 

rate-setting. 

We also excluded (1) claims that had 

zero costs after summing all costs on the 

claim and (2) claims containing token 

charges (charges of less than $1.01) or 

for which intermediary systems had 

allocated charges as if the charges were 

submitted on the claim. We deleted 

claims containing token charges because 

we do not believe that a charge of less 

than $1.01 would yield a cost that 

would be valid to set weights for a 

significant separately paid service. 

Moreover, effective for services 

furnished on or after July 1, 2004, the 

OCE assigns payment flag number 3 to 

claims on which hospitals submitted 

token charges for a service with status 

indicator ‘‘S’’ or ‘‘T’’ (a major separately 

paid service under OPPS) for which the 

intermediary is required to allocate the 

sum of charges for services with a status 

indicator equaling ‘‘S’’ or ‘‘T’’ based on 

the weight for the APC to which each 

code is 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. 

For the remaining claims, we then 

wage adjusted 60 percent of the cost of 

the claim (which we have previously 

determined to be the labor-related 

portion), as has been our policy since 

the initial implementation of the OPPS, 

to adjust for geographic variation in 

labor-related costs. We made this 

adjustment by determining the wage 

index that applied to the hospital that 

furnished the service and dividing the 

cost for the separately paid HCPCS code 

furnished by the hospital by that wage 

index. As has been our policy since the 

inception of the OPPS, we use the prereclassified 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 postVerDate Aug<31>2005 18:02 Nov 09, 2005 Jkt 208001 PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 C:\10NOR2.SGM 10NOR2
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68539 

reclassification wage indices, and would 

result in the most accurate adjusted 

median costs. 

We then excluded claims that were 

outside 3 standard deviations from the 

geometric mean cost for each HCPCS 

code. We used the remaining claims to 

calculate median costs for each 

separately payable HCPCS code; first, to 

determine the applicability of the ‘‘2 

times’’ rule, and second, to determine 

APC medians based on the claims 

containing the HCPCS codes assigned to 

each APC. As stated previously, section 

1833(t)(2) of the Act provides that, 

subject to certain exceptions, the items 

and services within an APC group 

cannot be considered comparable with 

respect to the use of resources if the 

highest median (or mean cost, if elected 

by the Secretary) for an item or service 

in the group is more than 2 times greater 

than the lowest median cost for an item 

or service within the same group (‘‘the 

2 times rule’’). Finally, we reviewed the 

medians and reassigned HCPCS codes to 

different APCs as deemed appropriate. 

Section III.B. of this preamble includes 

a discussion of the HCPCS code 

assignment changes that resulted from 

examination of the medians and for 

other reasons. The APC medians were 

recalculated after we reassigned the 

affected HCPCS codes. 

A detailed discussion of the medians 

for blood and blood products is 

included in section X. of this preamble. 

A discussion of the medians for APCs 

that require one or more devices when 

the service is performed is included in 

section IV.A. of this preamble. A 

discussion of the median for observation 

services is included in section XI. of this 

preamble and a discussion of the 

median for partial hospitalization is 

included below in section II.B. of this 

preamble. 

We received a number of public 

comments concerning our proposed 

data processes for calculating the CY 

2006 OPPS relative weights and median 

costs. A summary of the comments and 

our responses follow: 

Comment: Commenters stated that the 

proposed rule did not provide adequate 

information for hospitals to evaluate the 

impact of each of the proposed policy 

changes independently or in 

combination. They requested that CMS 

provide a public use file that shows the 

impact of each individual proposed 

change in methodology so that 

providers can determine how the 

changes would affect their own 

operations and provide a basis for 

comments. 

Response: We currently provide 

provider-specific tables that we 

understand are very accurate in 

estimating the payments individual 

hospitals will receive. While we wish to 

make available to the public as much 

hospital-specific information as 

possible, there are limits to the 

resources available to us to provide 

hospital-specific information. Generally, 

we provide a broad range of information 

to the public. We make available our 

claims data in the form of both a limited 

data set and a beneficiary encrypted 

data set for use by the public, including 

hospitals. In addition, in both the OPPS 

proposed and final rules each year, we 

give a detailed description of how we 

process the paid claims to derive the 

median costs and how we create relative 

weights from the median costs. Many 

different organizations with a broad 

range of divergent interests currently 

use this information provided to the 

public to generate extraordinarily 

detailed reports and data of interest to 

them. As this is public information, we 

would expect that hospital associations 

and hospitals could do the same, either 

directly or using alternative sources to 

determine the impact of various policy 

options. 

Comment: One commenter strongly 

opposed the requirement that all OPPS 

encounters furnished on the same day 

must be billed on a single claim. Some 

commenters believed that this increases 

the number of claims that cannot be 

used for ratesetting by creating multiple 

procedure claims and creates a needless 

burden on hospitals to ensure that all 

encounters on the same date of service 

are billed on the same claim. 

Response: We agree and we have 

revised our policy governing how 

services on the same date of service 

must be billed. See Change Request 

4047, Transmittal 711, dated October 

14, 2005 for a complete discussion of 

our current policy. Under this change in 

policy, there are instances where 

nonrepetitive OPPS services that are 

furnished on the same date of service 

may be billed on different claims as long 

as all charges that pertain to each 

service are also reported on the same 

claim as the HCPCS code that describes 

that service. We emphasize that it is 

vitally important to us that all of the 

charges that pertain to a separately paid 

service be included on the same claim 

with the service being billed so that the 

claim will accurately reflect the full cost 

of the service. If, for example, charges 

for a packaged drug, recovery room 

time, and sterile supplies that were used 

in providing a surgical service are not 

included on the claim with the HCPCS 

code and line-item charge for the use of 

the operating room for the surgical 

procedure, those charges for drugs, 

recovery room, and supplies will not be 

packaged with the charge for the OR 

time for the surgical procedure and that 

claim will incorrectly and inadvertently 

lower the median cost for that surgical 

procedure. This is especially the case if 

the service is a low volume service. 

Also, this revised billing policy cannot 

apply to services for which we use 

claim-specific OCE logic to determine 

payments, such as drug administration 

and observation services, because the 

OCE claim-by-claim logic cannot 

function properly if all services 

provided by a hospital that are related 

to the services subject to the OCE logic 

are not reported on the same claim. 

Comment: One commenter supported 

deletion of claims with token or 

nominal charges (for example, a very 

small charge such as $1) but was 

concerned about exclusion of claims 

containing multiple surgical or cardiac 

catheterization services because such 

exclusions may significantly reduce the 

number of claims used for rate-setting. 

The commenter noted that CMS has 

long permitted hospitals to show a 

token charge on the line-item with 

separately paid procedures when they 

were performed at the same session as 

a surgical procedure for which a charge 

is shown as operating room time. 

Another commenter wanted claims that 

contain a single payable APC line to be 

included even if there are token charges 

on other nonpayable lines on the claim. 

Response: The submission of claims 

for multiple separately paid procedures 

with the same date of service on which 

there is a charge for operating room time 

for one of the HCPCS codes and token 

charges on the lines for the other 

separately paid HCPCS codes reflects a 

difficulty with using multiple procedure 

claims. (For example, a claim contains 

three separately paid surgical services, 

with a charge of $2,000 for one and 

charges of $1 for each of the others, plus 

a single charge each for drugs, sterile 

supplies, and recovery room time.) We 

note if we were to use such claims and 

allocate packaging to each separately 

paid procedure (on some basis yet to be 

determined) and then divide the claim 

into multiple claims, we would be using 

claims records that would contain 

nothing but packaged costs and a token 

charge for some of those services. 

Similarly, if we were to focus solely on 

the procedure with the line charge of 

$2,000 and attribute all the packaging to 

it, we would be overstating the 

packaging for that service because some 

of it rightfully belongs with the other 

two separately paid procedures for 

which there was a token charge. We 

acknowledge the commenters’ concern 

and we will continue to pursue an 

68540 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

appropriate way to allocate the costs on 

these types of claims. 

After carefully reviewing all public 

comments received, we are finalizing 

the process for calculating median costs 

and the list of packaged services shown 

in Table 2 for OPPS services furnished 

on or after January 1, 2006, as proposed 

without modification. Table 2 contains 

the list of packaged services by revenue 

code that we used in developing the 

APC relative weights listed in Addenda 

A and B of this final rule with comment 

period. 

We note that comments and responses 

regarding aspects of median cost and 

relative weight calculations specific to 

particular services or particular 

categories of services are also found in 

specifically identified sections of this 

preamble. 

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BILLING CODE 4120–01–P 

3. Calculation of Scaled OPPS Payment 

Weights 

Using the median APC costs 

discussed previously, we calculated the 

final relative payment weights for each 

APC for CY 2006 shown in Addenda A 

and B to this final rule with comment 

period. As in prior years, we scaled all 

the relative payment weights to APC 

0601 (Mid Level Clinic Visit) because it 

is one of the most frequently performed 

services in the hospital outpatient 

setting. We assigned APC 0601 a relative 

payment weight of 1.00 and divided the 

median cost for each APC by the median 

cost for APC 0601 to derive the relative 

payment weight for each APC. Using CY 

2004 data, the median cost for APC 0601 

is $60.19 for CY 2006. 

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

requires that APC reclassification and 

recalibration changes, wage index 

changes, and other adjustments be made 

in a manner that assures that aggregate 

payments under the OPPS for CY 2006 

are neither greater than nor less than the 

aggregate payments that would have 

been made without the changes. To 

comply with this requirement 

concerning the APC changes, we 

compared aggregate payments using the 

CY 2005 relative weights to aggregate 

payments using the CY 2006 final 

relative weights. Based on this 

comparison, we adjusted the relative 

weights for purposes of budget 

neutrality. The unscaled relative 

payment weights were adjusted by 

1.012508103 for budget neutrality. The 

final relative payment weights are listed 

in Addenda A and B to this final rule 

with comment period. The final relative 

payment weights incorporate the 

recalibration adjustments discussed in 

sections II.A.1. and 2. of this preamble. 

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

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

108–173, states that ‘‘Additional 

expenditures resulting from this 

paragraph shall not be taken into 

account in establishing the conversion 

factor, weighting and other adjustment 

factors for 2004 and 2005 under 

paragraph (9) but shall be taken into 

account for subsequent years.’’ Section 

1833(t)(14) of the Act provides the 

payment rates for certain ‘‘specified 

covered outpatient drugs.’’ Therefore, 

the cost of those specified covered 

outpatient drugs (as discussed in section 

V. of this preamble) is included in the 

budget neutrality calculations for CY 

2006 OPPS. 

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

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

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

brachytherapy consisting of a seed or 

seeds (or radioactive source) is to be 

made at charges adjusted to cost for 

services furnished on or after January 1, 

2004, and before January 1, 2006. As we 

stated in our January 6, 2004 interim 

final rule, charges for the brachytherapy 

sources will not be used in determining 

outlier payments and payments for 

these items will be excluded from 

budget neutrality calculations for the CY 

2006 OPPS. (We provide a discussion of 

brachytherapy payment issues at section 

VII. of this final rule with comment 

period.) 

Comment: One commenter indicated 

that CMS should convene a panel to 

look at additional data submission 

requirements that the panel believes 

would greatly enhance both the 

reliability of the data and its subsequent 

use for ratesetting. Specifically, the 

commenter urged CMS to consider 

whether to require hospitals to identify 

the APCs that apply to multiple 

procedure claims or develop a system 

that groups multiple procedure claims 

in a fashion that is analogous to the 

inpatient prospective payment system. 

Response: We fail to understand how 

hospital reporting of the APCs that 

apply to services on claims would 

resolve the issue of how to distribute 

packaged costs, such as drugs and 

recovery room time, among multiple 

procedures billed on the same claim. 

Therefore, we do not support imposing 

this reporting burden on hospitals. With 

respect to grouping procedures into 

combination APCs for purposes of 

dealing effectively with services that 

commonly appear in specific 

combinations together on claims, we 

proposed creation of combination APCs 

for the CY 2004 OPPS to deal with very 

frequent combinations of services. 

While we chose not to implement this 

approach for the CY 2004 OPPS, largely 

in response to public comments, we 

have not ruled out such an approach in 

the future as a way to effectively 

calculate median costs and set payment 

rates for services for which the norm is 

provision in combinations with other 

services. 

4. Changes to Packaged Services 

a. Background. Payments for 

packaged services under the OPPS are 

bundled into the payments providers 

receive for separately payable services 

provided on the same day. Packaged 

services are identified by the status 

indicator ‘‘N.’’ Hospitals include 

charges for packaged services on their 

claims, and the costs associated with 

these packaged services are then 

bundled into the costs for separately 

payable procedures on the claims for 

purposes of median cost calculations. 

Hospitals may use CPT codes to report 

any packaged services that were 

performed, consistent with CPT coding 

guidelines. 

As a result of requests from the 

public, a Packaging Subcommittee to the 

APC Panel was established to review all 

the procedural CPT codes with a status 

indicator of ‘‘N.’’ Providers have often 

suggested that many packaged services 

could be provided alone, without any 

other separately payable services on the 

claim, and requested that these codes 

not be assigned status indicator ‘‘N.’’ As 

stated in the proposed rule, the 

Packaging Subcommittee reviewed 

every code that was packaged in the CY 

2004 OPPS (70 FR 42691). Based on 

comments we have received and their 

own expert judgment, the subcommittee 

identified a set of packaged codes that 

are often provided separately and 

subsequently reviewed utilization and 

median cost data for these codes. One of 

the main criteria utilized by the 

Packaging Subcommittee to determine 

whether a code should become 

unpackaged was how likely it was for 

the code to be billed without any other 

separately payable services on the 

claim. Another criterion used to 

determine whether a code should 

become unpackaged was how likely it 

was for the costs of the packaged code 

to be appropriately mapped to the 

separately payable codes with which it 

was performed. The Packaging 

Subcommittee also examined median 

costs from hospital claims for packaged 

services. 

The Packaging Subcommittee 

identified areas for change for some 

packaged CPT codes that they believed 

could frequently be provided to patients 

as the sole service on a given date and 

that required significant hospital 

resources as determined from hospital 

claims data. During the February 2005 

meeting, the APC Panel accepted the 

report of the Packaging Subcommittee 

and recommended: 

(1) That packaged codes be reviewed 

by the Panel individually. 

(2) That the Packaging Subcommittee 

continue to meet throughout the year to 

discuss problematic packaged codes. 

(3) That CMS assign a modifier to CPT 

codes 36540 (Collect blood, venous 

device); 36600 (Withdrawal of arterial 

blood); and 51701 (Insertion of nonindwelling bladder catheter), for use 

when there are no other separately 

payable codes on the claim. The 

modifier would flag the OCE to assign 

payment to the claim. 

(4) That CMS maintain the current 

packaged status indicator for CPT code 

76937 (Ultrasound guidance for vascular 

access). 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68543 

(5) That CMS change the status 

indicators for CPT immunization 

administration codes 90471 and 90472 

to allow separate payment and ensure 

consistency with other injection codes. 

(6) That CMS gather more data on 

CPT code 94762 (Overnight pulse 

oximetry) to determine how often this 

code is billed without any other 

separately payable codes and whether it 

is performed more frequently alone in 

rural settings than other settings. 

(7) No changes to the packaged status 

of CPT codes 77790 (Radiation source 

handling) and 94760 and 94761 (both 

codes are for procedures to measure 

blood oxygen levels). 

(8) That CMS provide education and 

consistent guidelines to providers and 

fiscal intermediaries on correct billing 

for packaged codes in general, and in 

particular for CPT codes 36540, 36600, 

51701, and the recommended modifier, 

if approved. 

(9) That the Packaging Subcommittee 

review CPT codes 42550 (Injection for 

salivary x-ray) and 38792 (Sentinel node 

imaging). 

(10) That CPT code 97602 

(Nonselective wound care) be referred to 

the Physician Payment Group within 

CMS for evaluation of its bundled status 

as it relates to services provided under 

the OPPS and that the Physician 

Payment Group report its conclusions 

back to the Panel. 

In addition, during its August 2005 

meeting, the APC Panel accepted the 

report of the Packaging Subcommittee 

and made the following 

recommendations: 

(1) No change to the CY 2005 status 

indicator of 76937 (N-packaged), 

ultrasound guidance for vascular access, 

but requested that CMS collect available 

hospital claims data on that code for 

further consideration by the Packaging 

Subcommittee at the next available 

meeting. 

(2) No change to the CY 2005 status 

indicator of CPT code 38792 (Npackaged), sentinel node identification, 

but requested that CMS collect available 

hospital claims data on that code for 

further consideration by the Packaging 

Subcommittee by the next scheduled 

meeting. 

(3) No change to the CY 2005 status 

indicator of CPT code 42550 (Npackaged), injection for salivary x-ray. 

(4) That CMS collect additional data 

on CPT code 36500, venous 

catheterization for selective blood organ 

sampling, and the corresponding 

radiological supervision and 

interpretation code, 75893, including a 

list of other codes with which these 

codes are most frequently billed, for 

consideration by the Packaging 

Subcommittee. 

(5) No change to the CY 2005 status 

indicator of CPT code 0069T (Npackaged), acoustic heart sound 

services. 

(6) That CMS collect additional data 

on CPT 94762, overnight pulse 

oximetry, including a list of other codes 

with which this code is most frequently 

billed, for consideration by the 

Packaging Subcommittee. 

b. Responses to the APC Panel 

Recommendations 

For CY 2006, we proposed to 

maintain CPT codes 36540 (Collect 

blood venous device) and 36600 

(Withdrawal of arterial blood) as 

packaged services and not adopt the 

APC Panel’s recommendation to assign 

a modifier to the codes. We noted in our 

proposed rule that CPT code 36540 was 

also bundled under the Medicare 

Physician Fee Schedule (MPFS), and 

our data demonstrated that the service 

was generally billed with other 

separately payable services (70 FR 

42691). We also had relatively few 

single claims for CPT code 36600, 

compared to the procedure’s overall 

frequency. Both of these codes had 

relatively low hospital resource 

utilization. As these procedures were 

almost always provided with other 

separately payable services, hospitals’

payments for those other services 

included the costs of CPT codes 36540 

and 36600. With respect to the APC 

Panel’s recommendation that the OPPS 

make payment for one of these services 

if the code had a modifier appended 

signifying that it was the only service 

provided on a day, there is currently no 

appropriate CPT modifier that could be 

appended to signal this circumstance. A 

new HCPCS modifier would not be 

appropriate because the packaged codes 

recommended by the APC Panel for 

separate payment when billed alone are 

CPT codes. 

We received a few public comments 

concerning this proposal. 

Comment: Commenters stated that 

CPT 36540 should not be assigned 

status indicator ‘‘N’’ because drawing 

blood for laboratory work from a venous 

access device requires that a registered 

nurse assess the patient and then use a 

sterile kit to perform the blood draw. 

They objected to having to report an 

E/M visit code in order to receive 

payment for the service when it is the 

only service provided. The commenters 

requested that CMS assign the proposed 

status indicator ‘‘Q’’ for CPT code 36540 

so that the OPPS could make payment 

when it is the only service provided. 

Similarly, at least one commenter asked 

that CMS assign the ‘‘Q’’ status indicator 

to CPT code 36600. 

Response: We continue to believe that 

the services described by CPT codes 

36540 and 36600 are almost always 

provided in conjunction with other 

separately payable services in the 

hospital outpatient department setting. 

Our data do not support making these 

services separately payable. We 

proposed the new ‘‘Q’’ status indicator 

for services that may be separately 

payable or packaged depending on 

special circumstances for CY 2006 only 

for observation services. Codes assigned 

this status indicator will require the 

application of OCE logic to determine 

the codes’ payment status and identify 

separate payment if appropriate, and 

then application of the same logic in our 

data processing to develop median costs 

for those services for future OPPS 

updates. We seek to gain some 

experience with such logic in the OCE 

and our data processing for observation 

services prior to considering any 

expansion of the use of status indicator 

‘‘Q.’’ Use of the ‘‘Q’’ modifier for 

procedures that are sometimes packaged 

would require ongoing maintenance of a 

list of codes for which this status 

indicator may be used and their APC 

assignments if separately paid, as well 

as additional claims and data processing 

activities. 

After carefully reviewing all 

comments received, for CY 2006 we are 

adopting as final without modification 

our proposal to retain CPT codes 36540 

and 36600 as packaged services and not 

adopt the APC Panel’s recommendation 

to assign a modifier for use when the 

services are provided with no other 

separately payable services on the same 

day. 

For CY 2006, we proposed to pay 

separately for CPT code 51701 (Insertion 

of non-indwelling bladder catheter), and 

to map it to APC 0340 (Minor Ancillary 

Procedures), with status indicator ‘‘X’’, 

and a median cost of $39.00. The APC 

Panel recommended that we pay 

separately for this code only when there 

are no other separately payable services 

on the claim. However, we proposed to 

pay separately for this code every time 

it is billed. We believed that it was more 

appropriate to make payment for each 

procedure, rather than increase 

hospitals’ administrative burden by 

requiring specific coding changes to 

indicate that there were no other 

separately payable procedures on the 

claim. Based on our review of the data, 

the cost for this procedure was not 

insignificant, and the volume of single 

and multiple claims was modest. When 

we reviewed related codes, including 

CPT code 51702 (Insertion of temporary 

68544 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

indwelling bladder catheter, simple) 

and CPT code 51703 (Insertion of 

temporary indwelling bladder catheter, 

complicated), we noted that these codes 

also had substantial median costs and a 

moderate volume of single claims. 

Therefore, for CY 2006, we proposed to 

pay separately for CPT codes 51702 and 

51703, mapping them to APC 0340 with 

a median cost of $39.00 and APC 0164 

(Level I Urinary and Anal Procedures) 

with a median cost of $72.00, 

respectively. We proposed that CPT 

codes 51701, 51702, and 51703 be 

placed on the bypass list, as discussed 

in section II.A.1.b. of this final rule with 

comment period. 

The comments we received supported 

our proposal. Accordingly, we are 

finalizing our proposal to pay separately 

for CPT codes 51701 and 51702, and to 

assign them to APC 0340 with status 

indicator ‘‘X,’’ and a median cost of 

$36.00 for CY 2006. We are also 

finalizing our proposal to pay separately 

for CPT code 51703, and to assign it to 

APC 0164 with status indicator ‘‘T,’’ and 

a median cost of $69.00 for CY 2006. 

For CY 2006, we proposed to accept 

the APC Panel recommendation that 

CPT code 76937 (Ultrasound guidance 

for vascular access) remain packaged. 

We were concerned that there might be 

unnecessary overuse of this procedure if 

it were separately payable. In addition, 

we believed that the service would 

always be provided with another 

separately payable procedure, so its 

costs would be appropriately bundled 

with the definitive vascular access 

service. As stated in the CY 2005 final 

rule with comment period (69 FR 

65697), CMS and the Packaging 

Subcommittee reviewed CY 2004 claims 

data for CPT code 76937 and 

determined that this code should 

remain packaged. 

We received several public comments 

in response to our proposal. 

Comment: A few commenters 

requested that some radiologic guidance 

codes, such as CPT code 76937 for 

ultrasound guidance for vascular access 

and CPT code 75998 for fluoroscopic 

guidance for central venous access 

device placement, become separately 

payable instead of packaged. The 

commenters stated that each guidance 

code could be reported with several 

separately payable procedure codes, 

thereby skewing the median costs for 

the procedures and not providing 

appropriate payment for the procedures 

when radiologic guidance was used. In 

addition, one commenter expressed 

concern that the codes have been 

packaged due to concern over 

unnecessary utilization. The commenter 

stated that an audit is a more 

appropriate way to prevent unnecessary 

utilization. In addition, the commenters 

cited a finding published in a June 2001 

report by the Agency for Healthcare 

Research and Quality, that use of 

ultrasound guidance reduces relative 

risk for complications during a central 

venous catheter insertion by 78 percent, 

as a reason that separate payment 

should be made for CPT code 76937. 

The commenters also stated that 

assignment of packaged status to these 

codes conflicts with CMS’ policy as 

stated in its CY 2003 OPPS final rule, to 

pay separately for all radiology guidance 

codes. 

Response: OPPS hospital claims data 

reveal that out of the total instances of 

CPT code 76937 appearing on claims 

used for setting payment rates for CY 

2006, CPT code 76937 was billed with 

four separately payable codes for 

insertion of central venous access 

devices 84 percent of the time. This 

indicates, as might be expected, that the 

costs for CPT code 76937 are typically 

packaged into four CPT codes, 36556, 

36558, 36561, and 36569, the most 

commonly billed codes under the OPPS 

for vascular access device insertion. The 

data for CPT code 75998 reveal similar 

patterns of utilization and packaging. Of 

the total instances of CPT code 75998 

appearing on claims used for setting 

payment rates for CY 2006, code 75998 

was billed with the same four separately 

payable codes for insertion of central 

venous access devices 70 percent of the 

time. This indicates that the costs for 

fluoroscopic guidance for central 

venous access device placement are 

typically packaged into the same CPT 

codes as the costs for ultrasound 

guidance for vascular access. Of single 

claims used for setting payment rates for 

CY 2006 for those four CPT codes 

describing the insertion of vascular 

access devices, ultrasound guidance was 

reported from 16 to 34 percent of the 

time, and fluoroscopic guidance was 

billed from 29 to 52 percent of the time. 

For the same four CPT codes, one or 

more forms of guidance (fluoroscopic 

and/or ultrasound) were reported on 41 

to 64 percent of the single claims 

utilized for rate-setting. Thus, overall for 

these vascular access device insertion 

services, guidance was used in at least 

41 percent of the single claim cases, a 

very significant proportion of the time. 

If anything, this percentage may 

underestimate the utilization of 

guidance for the insertion of vascular 

access devices, as we have been told 

that hospitals may not always code 

separately for packaged services for 

which no separate payment is made. 

Hospital claims data from CY 2004 

yield a median cost of $61.00 for 

ultrasound guidance and $73.00 for 

fluoroscopic guidance for vascular 

access. The costs for these guidance 

procedures are relatively low compared 

with the CY 2006 payment rates for the 

separately payable services they most 

frequently accompany, which range 

from almost $500 to about $1,600. We 

note that, in general, our payment rates 

for vascular access device services for 

CY 2006 are significantly greater than 

our CY 2005 payment rates for the same 

services because more specific CY 2004 

data available for CPT codes that were 

new in CY 2004 permitted us to 

reconfigure the APCs containing 

vascular access device procedures to 

improve clinical and resource 

coherence. In addition, our hospital 

claims data demonstrate that in CY 2004 

guidance services were used frequently 

for the insertion of vascular access 

devices, and we have no evidence that 

patients lacked appropriate access to 

guidance services necessary for the safe 

insertion of vascular access devices in 

the hospital outpatient setting. We 

believe the increased CY 2006 payment 

rates for insertion of vascular access 

devices should result in preservation of 

appropriate access to medically 

reasonable and necessary ultrasound 

and fluoroscopic guidance procedures 

used to facilitate the insertion of the 

devices. 

If we were to unpackage CPT codes 

76937 and 75998, single bills available 

to develop median costs for vascular 

access device insertion services would 

be significantly reduced. In addition, 

separate payment for an ancillary 

guidance service always performed in 

conjunction with other separately 

payable services could lead to 

overutilization of the ancillary service, 

for which payment is more 

appropriately bundled into the 

prospectively established payment for 

the procedure to insert the vascular 

access device. Our statement regarding 

paying separately for radiology guidance 

services in the CY 2003 final rule with 

comment period was made in the 

context of our explanation regarding our 

decision to unpackage certain radiology 

guidance procedures that had first been 

packaged for CY 2002, and does not 

necessarily apply to all radiology 

guidance services. As for all HCPCS 

codes, we will continue to evaluate each 

service, including radiology guidance 

services, for its most appropriate OPPS 

payment status, including packaged 

versus separately payable designation, 

on a case-by-case basis according to the 

clinical and resource characteristics of 

the procedure and the other services 

with which it would likely be billed. 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68545 

We will share the CY 2004 and early 

CY 2005 hospital claims data 

concerning these vascular access 

guidance services with the APC Panel 

Packaging Subcommittee, as 

recommended by the APC Panel, for 

their review prior to the next biannual 

APC Panel meeting. 

After carefully considering the public 

comments received, we are adopting as 

final without modification our proposal 

to accept the APC Panel’s 

recommendation that CPT code 76937 

remains a packaged service for CY 2006. 

In addition, we are finalizing our 

proposal to continue to package CPT 

code 75998 for CY 2006. 

We refer the reader to section VIII. of 

this preamble on drug administration 

regarding the APC Panel’s 

recommendation concerning CPT codes 

90471 and 90472. 

For CY 2006, we proposed to accept 

the APC Panel recommendation to 

gather data and review CPT code 94762 

to determine how often this code was 

billed without any other separately 

payable codes on the same date of 

service and whether it was performed 

more frequently alone in rural settings 

than other settings. During the August 

2005 APC Panel meeting, we presented 

data to the APC Panel regarding CPT 

code 94762. CY 2004 OPPS hospital 

claims data indicated at that time that 

CPT code 94762 was billed only 1,145 

times without any separately payable 

codes on the claim, which was only 1.5 

percent of all units of code 94762 billed. 

Fifty-two percent of the 1,145 single 

occurrences of CPT code 94762 were 

provided by rural hospitals. Fifty-two 

percent was particularly high 

considering that, when reviewing both 

single and multiple procedure claims, 

the data indicated that CPT code 94762 

was provided by rural hospitals only 12 

percent of the time. The data revealed 

that rural hospitals were more likely 

than urban hospitals to bill CPT code 

94762 without any separately payable 

codes on the claim. For purposes of this 

analysis, a rural hospital was defined as 

any hospital that is considered rural for 

payment purposes. In general, this 

included geographically rural providers 

as well as providers that were 

reclassified to rural areas for wage index 

classification. 

We recognize that the data used in the 

analysis are somewhat limited. Because 

CPT 94762 is a packaged code and does 

not receive separate payment, it is 

possible that an unknown number of 

hospitals chose not to submit claims to 

CMS when CPT code 94762 was 

provided without other separately 

payable services on their claims. 

Comment: Several comments 

requested that CMS change the status 

indicator for CPT code 94762 from ‘‘N’’

to ‘‘X’’ and that the service be assigned 

to APC 0369, (Level III Pulmonary 

Tests). They stated that because 

noninvasive ear or pulse oximetry for 

oxygen saturation, by continuous 

overnight monitoring, is a prerequisite 

for proving the medical necessity for 

home oxygen therapy, this is often the 

only service provided to beneficiaries 

during their hospital outpatient visits. 

The commenters stated that no E/M 

service is necessary and that it should 

be possible to receive payment for CPT 

code 94762 when it is the only service 

provided. 

Response: We continue to believe that 

the packaged status of CPT code 94762 

is appropriate. As discussed during the 

August 2005 APC Panel meeting, our 

data do not support separate payment 

for this service because 98.5 percent of 

the time, it is provided with separately 

payable services, and is rarely the only 

service provided in hospital settings on 

a single date of service to a Medicare 

beneficiary. 

After carefully considering the public 

comments received, for CY 2006 we are 

accepting the APC Panel’s 

recommendations to retain as a 

packaged service CPT code 94762. We 

will share the CY 2004 and early CY 

2005 hospital claims data concerning 

CPT code 94762 with the APC Panel 

Packaging Subcommittee as 

recommended by the APC Panel, for its 

review during the next biannual APC 

Panel meeting. 

For CY 2006, we proposed to accept 

the APC Panel recommendations that 

CPT codes 77790 (Radiation handling), 

94760 (Pulse oximetry for oxygen 

saturation, single determination), and 

94761 (Pulse oximetry for oxygen 

saturation, multiple determinations) 

remain packaged. We state our belief 

that CPT code 77790 was integral to the 

provision of brachytherapy and should 

always be billed on the same day with 

brachytherapy sources and their 

loading, ensuring that the provider 

would receive appropriate payment for 

the radiation source handling bundled 

with the payment for the brachytherapy 

service. The small number of single 

claims for this code in our data verified 

that this code was rarely billed alone 

without other payable services on the 

claim, and those few single claims 

might be miscoded claims. Our data 

review of CPT codes 94760 and 94761 

revealed that these codes had low 

resource utilization, and were most 

frequently provided with other services. 

Similar to CPT code 77790, there were 

many fewer single claims for CPT codes 

94760 and 94761 than multiple 

procedure claims that included CPT 

codes 94760 and 94761. CPT codes 

94760 and 94761 describe services that 

were very commonly performed in the 

hospital outpatient setting, and 

unpackaging these codes would likely 

significantly decrease the number of 

single claims available for use in 

calculating median costs for other 

services. 

We did not receive any public 

comments concerning our proposal. 

Therefore, for CY 2006 we are finalizing, 

without modification, our proposal to 

accept the APC Panel’s 

recommendations to retain as packaged 

services CPT codes 77790, 94760, and 

94761. 

For CY 2006, we proposed to accept 

the APC Panel recommendation to 

gather data and review CPT codes 42550 

(injection for salivary x-ray), and 38792 

(sentinel node identification) with the 

Packaging Subcommittee. In the 

proposed rule, we stated that this would 

include analyzing single and multiple 

procedure claims volume and resource 

utilization data, and reviewing those 

studies with the Packaging 

Subcommittee. During the August 2005 

APC Panel meeting, the Panel 

recommended that we continue to 

package CPT codes 42550 and 38792 for 

CY 2006. We believed that CPT code 

42550 was appropriately packaged, as 

were other injection codes that were 

integral to the provision of some 

separately payable procedures. In 

addition, we agreed with the APC Panel 

that CPT code 38792 was appropriately 

packaged because we believed that it 

would almost always be provided with 

other separately payable procedures on 

the same date of service, such as nuclear 

medicine services or surgical 

procedures. 

We received a few public comments 

regarding our proposal to retain as 

packaged CPT code 38792. 

Comment: The commenters stated 

that CPT 38792 is sometimes the only 

service provided in the hospital 

outpatient department, and that separate 

payment under the OPPS should be 

allowed. They stated that there are 

instances in which the injection for the 

X-ray is provided in the hospital 

outpatient department, and then the 

beneficiary goes to a different setting 

outside the hospital for the surgery. The 

commenters requested that CMS assign 

the proposed ‘‘Q’’ status indicator to 

this procedure code to make separate 

payment possible under the OPPS. 

Response: We believe that the most 

appropriate course of action with regard 

to CPT code 38792 is to retain its 

packaged status and to collect 

68546 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

additional data and, as recommended by 

the APC Panel, to then present those 

data to the Packaging Subcommittee 

during our next meeting with them. 

Based on our CY 2004 claims data, we 

had only four single claims for CPT 

code 38792. We continue to believe that 

payment for the injection service is most 

appropriately packaged with other 

separately payable services provided on 

the same date of service, most likely 

imaging or surgical procedures. 

After carefully reviewing and 

considering the public comments 

received for CY 2006, we are accepting 

the APC Panel’s recommendations to 

retain as packaged services CPT codes 

38792 and 42550. Payment for those 

injection services is most appropriately 

bundled with the payments for other 

separately payable services provided on 

the same day. 

We will share the CY 2004 and early 

CY 2005 hospital claims data 

concerning CPT 38792 with the APC 

Panel Packaging Subcommittee as 

recommended by the APC Panel, for its 

review during the next biannual APC 

Panel meeting. 

As we proposed, we referred CPT 

code 97602 (Nonselective wound care) 

for MPFS evaluation of its bundled 

status as CPT code 97602 relates to 

services provided under the OPPS. 

We received several public comments 

concerning our proposed treatment of 

CPT code 97602 for CY 2006, with 

assignment of status indicator ‘‘A.’’. 

Those comments and others related to 

wound care services are addressed in 

section III.D.5.j. of this preamble. 

During the August 2005 APC Panel 

meeting, the Panel recommended that 

CMS collect additional data on CPT 

code 36500 (Venous catheterization for 

selective blood organ sampling) and the 

corresponding radiological supervision 

and interpretation code, 75893. We 

received several clinical scenarios from 

a provider, indicating that CPT codes 

36500 and 75893, both packaged 

services, were frequently provided on a 

claim without any separately payable 

codes. In those cases, the provider did 

not receive any payment. We believed it 

was unlikely that these two procedures 

would be reported without any other 

separately payable codes on the claim. 

Our early review of several clinical 

scenarios revealed that other separately 

payable codes would likely be provided 

on the same claim. 

We received one comment in 

response to our proposal to retain 

packaged status for CPT codes 36500 

and 75893. 

Comment: One commenter requested 

that CMS allow separate payment for 

CPT codes 36500 and 75893 when these 

services are the only services on the 

claim. The commenter stated that there 

are many times that these are the only 

procedures performed during a hospital 

outpatient encounter. 

Response: Our data do not support 

separate payment for these procedures 

at this time. After considering the 

comment and the APC Panel’s 

recommendation, we will collect and 

review additional data to determine 

which codes are most frequently billed 

on claims with CPT codes 36500 and 

75893. We will share the CY 2004 and 

early CY 2005 hospital claims data for 

these venous catheterization and 

radiological supervision services as 

recommended by the APC Panel, for its 

review prior to the next biannual APC 

Panel meeting. 

During the August 2005 APC Panel 

meeting, the Panel recommended that 

CMS maintain the packaged status of 

CPT 0069T (Acoustic heart sound 

recording and computer analysis only). 

This code is indicated as an add-on 

code to an electrocardiography service, 

according to the American Medical 

Association’s CY 2005 CPT book. 

Therefore, we believed this code was 

appropriately packaged because it was 

integrally related to the provision of 

electrocardiography, and should never 

be performed alone. 

We received several comments 

regarding CPT 0069T in response to the 

code’s new interim designation in the 

CY 2005 final rule with comment period 

and to our proposal for CY 2006. 

Comment: Several commenters 

requested that CMS change the status 

indicator for CPT code 0069T (Acoustic 

heart sound recording and computer 

analysis only). The commenters 

requested that CMS assign the 

procedure to APC 0099 with an ‘‘S’’

status indicator rather than ‘‘N,’’ as was 

the CY 2005 and proposed CY 2006 

status indicator for code 0069T. The 

commenters indicated that the test’s 

status as a packaged procedure results 

in inequitable payment to hospitals. 

They stated that the cost of an EKG with 

the acoustic heart sound recording is 

$55, whereas the cost of an EKG without 

such recording is only $31. They added 

that because CMS has packaged the 

procedure, the hospital is underpaid by 

$24 for each test it performs. 

Response: It is our understanding that 

the acoustic heart sound recording and 

analysis is intended for a specific, 

targeted group of patients to enhance 

the provider’s ability to diagnose heart 

failure. The technology always is 

performed in conjunction with an EKG 

and as such is ideal for packaging. It is 

up to hospitals to increase their charges 

to reflect the additional costs for those 

EKGs that include the acoustic heart 

sound recording. If the hospital uses the 

test according to the manufacturer’s 

guidelines, the costs will be distributed 

over the large number of EKGs that are 

performed in the hospital outpatient 

department and, over time, the 

additional costs will be recognized in 

the OPPS rates as increased payments 

for other services provided on the same 

day, likely EKGs. We are accepting the 

Panel’s recommendation that we 

maintain the packaged status of CPT 

code 0069T for CY 2006. We will review 

claims data as they become available for 

the CY 2007 OPPS update. 

We also received several comments 

that requested status indicator changes 

for other CPT codes, not previously 

brought before the Packaging 

Subcommittee. 

Comment: Commenters suggested that 

the following packaged procedures 

should be made separately payable: CPT 

code 96523 (Irrigation of implanted 

venous access device for drug delivery 

systems (new code for CY 2006)); CPT 

code 76001 (Fluoroscopy, physician 

time more than one hour); CPT code 

76003 (Fluoroscopic guidance for 

needle placement); CPT code 76005 

(Fluoroscopic guidance and location of 

needle or catheter tip); CPT code 74328 

(Endoscopic catheterization of the 

biliary ductal system, radiological 

supervision and interpretation); CPT 

code 74329 (Endoscopic catheterization 

of the pancreatic ductal system, 

radiological supervision and 

interpretation); CPT code 74330 

(Combined endoscopic catheterization 

of the biliary and pancreatic ductal 

systems, radiological supervision and 

interpretation); HCPCS code P9612 

(Catheterization for collection of 

specimen); and HCPCS code G0269 

(Placement of occlusive device into 

either a venous or arterial access site, 

post surgical or interventional 

procedure). 

Response: We believe that the 

commenters’ suggestions bear closer 

examination. We will not make any 

changes to the packaged status of these 

services at this time. Rather, we will 

collect data related to the costs and 

utilization of these services for 

presentation to the Packaging 

Subcommittee of the APC Panel. We 

note that the status indicator of CPT 

code 96523, a new CPT code for CY 

2006, is subject to comment in this final 

rule with comment period. We will 

discuss with the Packaging 

Subcommittee, on an ongoing basis, 

packaged procedures for which status 

indicator changes have been suggested 

by the public. The ongoing process 

allows members some additional time to 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68547 

consider the issues we bring to them 

prior to the twice yearly meetings where 

the subcommittee makes its 

recommendations to the full APC Panel. 

Additional issues and new data 

concerning the packaging status of 

codes will be shared with the APC Panel 

Packaging Subcommittee for its 

consideration as information becomes 

available. We continue to encourage 

submission of common clinical 

scenarios involving currently packaged 

HCPCS codes to the Packaging 

Subcommittee for its ongoing review. 

Additional detailed suggestions for the 

Packaging Subcommittee should be 

submitted to APCPanel@cms.hhs.gov, 

with ‘‘Packaging Subcommittee’’ in the 

subject line. 

B. Payment for Partial Hospitalization 

1. Background 

Partial hospitalization is an intensive 

outpatient program of psychiatric 

services provided to patients as an 

alternative to inpatient psychiatric care 

for beneficiaries who have an acute 

mental illness. A partial hospitalization 

program (PHP) may be provided by a 

hospital to its outpatients or by a 

Medicare-certified CMHC. Section 

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

Secretary with the authority to designate 

the hospital outpatient services to be 

covered under the OPPS. Section 

419.21(c) of the Medicare regulations 

that implement this provision specifies 

that payments under the OPPS will be 

made for partial hospitalization services 

furnished by CMHCs. Section 

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

establish relative payment weights 

based on median (or mean, at the 

election of the Secretary) hospital costs 

determined by 1996 claims data and 

data from the most recent available cost 

reports. Payment to providers under the 

OPPS for PHPs represents the provider’s 

overhead costs associated with the 

program. Because a day of care is the 

unit that defines the structure and 

scheduling of partial hospitalization 

services, we established a per diem 

payment methodology for the PHP APC, 

effective for services furnished on or 

after August 1, 2000. For a detailed 

discussion, refer to the April 7, 2000 

OPPS final rule (65 FR 18452). 

2. PHP APC Update for CY 2006 

To calculate the final CY 2006 PHP 

per diem payment, we initially used the 

same methodology that was used to 

compute the CY 2005 PHP per diem 

payment. For CY 2005, the per diem 

amount was based on 12 months of 

hospital and CMHC PHP claims data 

(for services furnished from January 1, 

2003 through December 31, 2003). We 

used data from all hospital bills 

reporting condition code 41, which 

identifies the claim as partial 

hospitalization, and all bills from 

CMHCs because CMHCs are Medicare 

providers only for the purpose of 

providing partial hospitalization 

services. We used CCRs from the most 

recently available hospital and CMHC 

cost reports to convert each provider’s 

line-item charges as reported on bills, to 

estimate the provider’s cost for a day of 

PHP services. Per diem costs were then 

computed by summing the line-item 

costs on each bill and dividing by the 

number of days on the bill. 

In a Program Memorandum issued on 

January 17, 2003 (Transmittal A–03–

004), we directed fiscal intermediaries 

to recalculate hospital and CMHC CCRs 

using the most recently settled cost 

reports by April 30, 2003. Following the 

initial update of CCRs, fiscal 

intermediaries were further instructed 

to continue to update a provider’s CCR 

and enter revised CCRs into the 

outpatient provider specific file. 

Therefore, for CMHCs, we used CCRs 

from the outpatient provider specific 

file. 

Historically, the median per diem cost 

for CMHCs has greatly exceeded the 

median per diem cost for hospital-based 

PHPs and has fluctuated significantly 

from year to year while the median per 

diem cost for hospital-based PHPs has 

remained relatively constant ($200–

$225). We believe that CMHCs may have 

increased and decreased their charges in 

response to Medicare payment policies. 

As discussed in more detail in the next 

section and in the final rule establishing 

the CY 2004 OPPS (68 FR 63470), we 

believe that some CMHCs manipulated 

their charges in order to inappropriately 

receive outlier payments. 

In the CY 2003 update, the difference 

in median per diem cost for CMHCs and 

hospital-based PHPs was so great, $685 

for CMHCs and $225 for hospital-based 

PHPs, that we applied an adjustment 

factor of .583 to CMHC costs to account 

for the difference between ‘‘as 

submitted’’ and ‘‘final settled’’ cost 

reports. By doing so, the CMHC median 

per diem cost was reduced to $384, 

resulting in a combined hospital-based 

and CMHC PHP median per diem cost 

of $273. As with all APCs in the OPPS, 

the median cost for each APC was 

scaled to be relative to the cost of a midlevel office visit and the conversion 

factor was applied. The resulting per 

diem rate for PHP for CY 2003 was 

$240.03. 

In the CY 2004 OPPS update, the 

median per diem cost for CMHCs grew 

to $1038, while the median per diem 

cost for hospital-based PHPs was again 

$225. After applying the .583 

adjustment factor to the median CMHC 

per diem cost, the median CMHC per 

diem cost was $605. Since the CMHC 

median per diem cost exceeded the 

average per diem cost of inpatient 

psychiatric care, we proposed a per 

diem rate for CY 2004 based solely on 

hospital-based PHP data. The proposed 

PHP per diem for CY 2004, after scaling, 

was $208.95. However, by the time we 

published the OPPS final rule with 

comment period for CY 2004, we had 

received updated CCRs for CMHCs. 

Using the updated CCRs significantly 

lowered the CMHC median per diem 

cost to $440. As a result, we determined 

that the higher per diem cost for CMHCs 

was not due to the difference between 

‘‘as submitted’’ and ‘‘final settled’’ cost 

reports, but were the result of excessive 

increases in charges which may have 

been done in order to receive higher 

outlier payments. Therefore, in 

calculating the PHP median per diem 

cost for CY 2004, we did not apply the 

.583 adjustment factor to CMHC costs to 

compute the PHP APC. Using the 

updated CCRs for CMHCs, the combined 

hospital-based and CMHC median per 

diem cost for PHP was $303. After 

scaling, we established the CY 2004 

PHP APC of $286.82. 

Then, in the CY 2005 OPPS update, 

the CMHC median per diem cost was 

$310 and the hospital-based PHP 

median per diem cost was $215. No 

adjustments were determined to be 

necessary and, after scaling, the 

combined median per diem cost of $289 

was reduced to $281.33. We believed 

that the reduction in the CMHC median 

per diem cost indicated that the use of 

updated CCRs had accounted for the 

previous increase in CMHC charges, and 

represented a more accurate estimate of 

CMHC per diem costs for PHP. 

As discussed in the proposed rule (70 

FR 42693), for CY 2006, we analyzed 12 

months of data for hospital and CMHC 

PHP claims for services furnished 

between January 1, 2004, and December 

31, 2004. The data indicated that the 

median per diem cost for CMHCs had 

dropped to $143, while the median per 

diem cost for hospital-based PHPs was 

$209. It appears that CMHCs 

significantly reduced their charges in 

CY 2004 compared to CY 2003. The 

average charge per day for CMHCs in CY 

2003 was $1,184 and in CY 2004, the 

CMHC average charge per day dropped 

to $765. We have determined that a 

combination of lower charges and 

slightly lower CCRs for CMHCs resulted 

in a significant decline in the CMHC 

median per diem cost. 

68548 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

Following the methodology used for 

the CY 2005 OPPS update, the 

combined hospital-based and CMHC 

median per diem cost would be $149, a 

decrease of 48 percent compared to the 

CY 2005 combined median per diem 

amount. We believed that after scaling 

this amount to the cost of a mid-level 

office visit, the resulting APC rate 

would be too low to cover the per diem 

cost for all PHPs. 

As stated in the proposed rule (70 FR 

42693), we considered three alternatives 

to our update methodology for the PHP 

APC for CY 2006 that would mitigate 

this drastic reduction in payment for 

PHP. One alternative was to base the 

PHP APC on hospital-based PHP data 

alone. The median per diem cost of 

hospital-based PHPs has remained in 

the $200–225 range over the last 5 years, 

while the median per diem cost for 

CMHC PHPs has fluctuated significantly 

from a high of $1,037 to a low of $143. 

Under this alternative, we would have 

used $209, the median per diem cost for 

hospital-based PHPs during CY 2004 to 

establish the PHP APC for CY 2006. 

However, we believed using this 

amount would also result in an 

unacceptable drop in Medicare 

payments for all PHPs in CY 2006 

compared to payments in CY 2005. 

The second alternative we considered 

was to apply a different trimming 

methodology to CMHC costs in an effort 

to eliminate the effect of data for those 

CMHCs that appeared to have 

excessively increased their charges in 

order to receive outlier payments. We 

compared CMHC per diem costs in CY 

2003 to CMHC per diem costs in CY 

2004 and determined the percentage 

change. Initially, we trimmed CMHCs 

claims where the CMHC’s per diem 

costs changed by 50 percent or more 

from CY 2003 to CY 2004. After 

combining the remaining CMHC claims 

with the hospital-based PHP claims, we 

calculated a median per diem cost of 

$160.75. We then analyzed the resulting 

median per diem cost if we trimmed 

CMHC claims where the difference in 

CMHC per diem costs from 2003 to 2004 

was 25 percent. This trimming approach 

resulted in a combined CMHC and 

hospital-based PHP median per diem 

cost of $176. We also trimmed the 

CMHC claims from the CY 2003 data to 

see how trimming aberrant data would 

have affected the combined hospital/ 

CMHC median per diem cost. We found 

that trimming the claims from the 

CMHCs with a 25 percent difference in 

per diem cost from CY 2003 to CY 2004 

reduced the $289 median per diem cost 

to $218. 

We believe it is important to eliminate 

aberrant data and we believe trimming 

certain CMHC data will provide an 

incentive for CMHCs to stabilize their 

charges so that we can use their data in 

future updates of the PHP APC. 

However, we believe that the trimming 

methods described above will also 

result in an unacceptably large decrease 

in payment. In addition, the trimming 

method we used was based on 

percentage change in cost per day, and 

may not have identified all the CMHCs 

that may have manipulated their 

charges in order to receive more outlier 

payments, for example, CMHCs with 

high charges and no reduction in 

charges compared to CY 2003. 

Although we prefer to use both CMHC 

and hospital data to establish the PHP 

APC, as stated in the proposed rule (70 

FR 42693) we continue to be concerned 

about the volatility of the CMHC data. 

The analyses we conducted for the 

proposed rule seem to indicate that 

eliminating aberrant CMHC data results 

in a median per diem cost more in line 

with hospital data. We stated in the 

proposed rule that we would continue 

to analyze the CMHC data in developing 

payment rates, and cautioned that we 

may use only hospital data in the future 

if the data continue to be unstable. 

In the proposed rule, we stated that 

we considered a third alternative that 

would lessen the PHP payment 

reduction for CY 2006, yet provide an 

adequate payment amount to promote 

access to the partial hospitalization 

benefit for Medicare beneficiaries (70 FR 

42694). Using this approach, for CY 

2006, we proposed to apply a 15-percent 

reduction in the combined hospitalbased and CMHC median per diem cost 

that was used to establish the CY 2005 

PHP APC. We scaled that amount 

relative to the cost of a mid-level office 

visit to establish the PHP APC for CY 

2006. We believed a reduction in the CY 

2005 median per diem cost would strike 

an appropriate balance between using 

the best available data and providing 

adequate payment for a program that 

often spans 5–6 hours a day. We 

believed 15 percent was an appropriate 

reduction because it recognizes 

decreases in median per diem costs in 

both the hospital data and the CMHC 

data, and also reduces the risk of any 

adverse impact on access to these 

services that might result from a large 

single-year rate reduction. However, we 

proposed that the reduction in 

payments for PHP be a transitional 

measure, and proposed to continue to 

monitor CMHC costs and charges for 

these services and work with CMHCs to 

improve their reporting so that 

payments can be calculated based on 

better empirical data, consistent with 

the approach we have used to calculate 

payments in other areas of the OPPS. 

We received 58 public comments in 

response to this proposal. A summary of 

the comments is provided below along 

with our responses. 

Comment: In general, the commenters 

expressed concern that a reduction in 

the PHP rate of 15 percent would lead 

to the closure of many PHPs and that 

limited access to this crucial service 

would result in more costly inpatient 

hospital care as the only alternative. 

CMHCs commented that their costs are 

higher than hospitals’, with most in the 

$300 to $400 range. Another commenter 

indicated that a per diem rate of $300 

to $350 was more appropriate than our 

proposed amount. 

A few commenters also suggested 

alternatives such as including prior 

years’ CMHC data trended forward 

based on medical inflation, using a 

rolling-average or maintaining the CY 

2005 payment rate for PHP services 

furnished in CY 2006. 

Response: For the final rule, we 

analyzed 12 months of more current 

data for hospital and CMHC PHP claims 

for services furnished between January 

1, 2004 and December 31, 2004. This 

claims data is more current in that it 

includes claims paid through June 30, 

2005. We also used the most currently 

available cost-to-charge ratios to 

estimate costs. Using this updated data, 

we recreated the analysis performed for 

this year’s proposed rule to determine if 

the significant factors we used in 

determining the proposed PHP rate had 

changed. The median per diem cost for 

CMHCs increased slightly to $154, 

while the median per diem cost for 

hospital-based PHPs decreased slightly 

to $201. The CY 2004 average charge per 

day for CMHCs was $760 similar to the 

figure noted in the proposed rule ($765) 

but still significantly lower than what is 

noted for CY 2003 ($1,184). We 

continue to believe that a combination 

of reduced charges and slightly lower 

CCRs for CMHCs resulted in a 

significant decline in the CMHC median 

per diem cost between CY 2003 and CY 

2004. 

Following the methodology used for 

the CY 2005 OPPS update, the 

combined hospital-based and CMHC 

median per diem cost would be $161, a 

decrease of 44 percent compared to the 

CY 2005 combined median per diem 

amount. While this figure is somewhat 

higher than the $149 combined median 

in the proposed rule, we believe that 

this amount is still too low to cover the 

cost for all PHPs. 

As we did in the proposed rule, we 

again considered three alternatives to 

our update methodology for the PHP 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68549 

APC for CY 2006 that would mitigate 

the payment differences for PHP 

services. The first alternative was to 

base the PHP APC on hospital-based 

PHP data alone. Using the most recent 

years available data, the median per 

diem cost of hospital-based PHPs for CY 

2004 is $201, somewhat less than the 

$209 median per diem cost of hospitalbased PHP using the proposed rule CY 

2004 data. We continue to believe that 

using $201 would be too low for all 

PHPs in CY 2006. However, we do 

believe the decrease from $209 to $201 

from the proposed rule to this final rule 

with comment continues the trend in 

lower per diem costs for hospital-based 

PHPs. 

The second alternative we considered 

was to apply the same trimming 

methodology noted in the proposed rule 

to CMHC costs in an effort to eliminate 

the effect of data for those CMHCs that 

appeared to have excessively increased 

their charges in order to receive outlier 

payments. Again, using the most recent 

available data, we compared CMHC per 

diem costs in CY 2003 to CMHC per 

diem cost in CY 2004 and determined 

the percentage change. Initially, we 

trimmed CMHC claims where the 

CMHC’s per diem costs changed by 50 

percent or more from CY 2003 to CY 

2004. After combining the remaining 

CMHC claims with the hospital-based 

PHP claims, we calculated a median per 

diem cost of $165, slightly more than 

noted in the proposed rule. Again, this 

approach still produced a per diem cost 

we believe is too low. We then trimmed 

CMHC claims where the difference in 

CMHC per diem costs from 2003 to 2004 

were 25 percent or more. This trimming 

variant produced a CMHC median per 

diem cost of $172 for CY 2004. 

We continue to believe that trimming 

certain aberrant CMHC data will 

provide an incentive for CMHCs to 

stabilize their charges so that we can use 

their data in future updates of the PHP 

APC. However, the two trimming 

methods described above produce 

median per diem costs that we believe 

are too low for the CY 2006 PHP APC 

rate. 

The CY 2004 claims data coincides 

with the effective date of the separate 

CMHC outlier threshold policy which 

became effective January 1, 2004. We 

believe that this policy may have, in 

part, contributed to the rapid decreases 

in CMHC’s per diem charges in CY 

2004. If so, we may see charges stabilize 

in the CY 2005 claims data which 

would enable us to use the CMHC data 

to compute the CY 2007 rate. 

We proposed a 15 percent reduction 

to the combined hospital-based and 

CMHC median per diem cost for CY 

2006. We have conducted further 

analysis of more complete CY 2004 

claims data combined with more 

recently available cost-to-charge ratios. 

The newer data continue to produce a 

combined hospital-based and CMHC 

median per diem cost that is an 

unacceptable decrease from CY 2005 

PHP APC rate. We continue to believe 

that 15 percent is an appropriate 

reduction because it recognizes 

decreases in median per diem costs in 

the hospital data and the CMHC data, 

and also reduces the risk of adverse 

impact on access to these services that 

might result from a large single-year rate 

reduction. 

To apply this methodology, we reduce 

$289 (the CY 2005 combined hospitalbased and CMHC median per diem cost) 

by 15 percent, resulting in a combined 

median per diem cost of $245.65. After 

scaling, the resulting APC final rate for 

PHP of $246.04 for CY 2006, of which 

$49.21 is the beneficiary’s coinsurance. 

Comment: A few commenters stated 

that CMHC facility costs increased in 

virtually every area including salaries, 

benefits, supplies, insurance, dietary 

support, transportation, 

communications and administrative 

support and that they experienced 

overall increases in expenses of more 

than 5 percent in most areas. These 

commenters requested that CMS 

increase the per diem rate paid for PHP 

services consistent with the inflation 

rate for the medical industry. Another 

commenter suggested we use inpatient 

costs per day as the basis for the PHP 

median per diem cost. This commenter 

suggested that CMS develop an 

adjustment factor relative to the 

inpatient psychiatric facility prospective 

payment system per diem base rate to 

form the basis for the PHP per diem rate. 

Response: The statute does not 

provide for the update strategies 

suggested by these commenters and is 

specific as to the update methdology. 

Comment: A few commenters 

indicated that the methodology used to 

compute the PHP APC distorts per diem 

costs because the claims include nonpaid days. 

Response: If a provider has charges on 

a bill for which they do not receive 

payment, this will be reflected in that 

provider’s cost-to-charge ratio. This 

lower cost-to-charge ratio will be 

applied to the larger charges and will 

result in the appropriate cost per diem. 

Comment: A few commenters stated 

that they are unable to collect 

coinsurance from their patients, that 

Medicaid cuts have made it more 

difficult to stay viable, and that the 

proposed rate reduction would cause 

PHP programs to close. 

Response: The Medicare bad debt 

policy and Medicaid payment policies 

are beyond the scope of the July 25, 

2005 OPPS proposed rule. We note the 

bad debt policy can be located in the 

Medicare Provider Reimbursement 

Manual, Pub. 15, Chapter 3 or through 

the following link: http:// 

www.cms.hhs.gov/manuals/pub151/ 

PUB_15_1.asp. 

Comment: With respect to the 

methodology used to establish the PHP 

APC amount, commenters expressed 

concern that data from settled cost 

reports fails to include costs reversed on 

appeal and that there are inherent 

problems in using claims data from a 

different time period like available costto-charge ratios on settled cost reports. 

These commenters also stated that 

this can only artificially lower the actual 

median costs. The commenters claims 

that when cost reports are settled, 

generally 2 years or more after the actual 

year of services, they have operated on 

actual revenues of 80 percent of the per 

diem. 

Response: We use the best available 

data in computing the APCs. With 

respect to PHP services, we specifically 

issued a Program Memorandum on 

January 17, 2003 directing FIs to update 

the cost-to-charge ratios on an on-going 

basis whenever a more recent full year 

cost report is available. In this way, we 

hoped to minimize the time lag between 

the cost-to-charge ratios and claims 

data. 

Comment: One commenter related 

that administrative costs for CMHCs 

continue to be a major impediment to 

operating PHPs for Medicare 

beneficiaries. Medicare does not cover 

transportation to and from programs and 

does not cover meals. Almost all 

programs offer transportation because in 

most cases Medicare beneficiaries with 

serious mental illnesses would not be 

able to access these programs without 

the transportation. 

Response: The services that are 

covered as part of a PHP are specified 

in section 1861(ff) of the Act. Meals and 

transportation are specifically excluded 

under section 1861(ff)(2)(I) of the Act. 

Comment: Several commenters 

simply summed the payment rates for 

three Group Therapy Sessions (APC 

0325) and one Extended Individual 

Therapy Session (APC 0323) and 

requested that amount as the minimum 

for a day of PHP. These same 

commenters then questioned why the 

per diem amount is considerably less 

than the combined cost of these 

services. 

Response: We do not believe this is an 

appropriate comparison. It is important 

to note that the APC services cited by 

68550 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

the commenter (APC 0325 and APC 

0323) are not PHP services, but rather 

single outpatient therapeutic sessions. 

PHP is a complete program of services 

with efficiencies and economies of scale 

provided in contrast to individual 

psychotherapy services. We also believe 

that the commenters used only the 

median cost from single bills, for 

example, where group psychotherapy 

was the only service furnished. As 

stated earlier, we used data from PHP 

programs (both hospitals and CMHCs) to 

determine the median cost of a day of 

PHP. PHP is a complete program of 

services with efficiencies and 

economies of scale provided in contrast 

to individual psychotherapy services. 

The PHP APC (0033) reflects the 

program of services provided in that it 

consists of the cost of all services 

provided each day and does not reflect 

a sole service. Although we require that 

each PHP day include a psychotherapy 

service, we do not specify the specific 

mix of other services provided and have 

focused our analysis on the cost per day 

rather than the cost of each service 

furnished within the day. 

Comment: One commenter requested 

that the same provisions given to rural 

hospital outpatient departments also be 

given to rural CMHCs. 

Response: We believe the commenter 

may be referring to the statutory hold 

harmless provisions. Section 

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

payments, on a permanent basis, for 

children’s hospitals and cancer 

hospitals and, through CY 2005, for 

rural hospitals having 100 or fewer beds 

and sole community hospitals in rural 

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

does not authorize hold harmless 

payments to CMHC providers. 

Comment: We received several 

comments from CMHCs stating that 

their costs are higher as hospitals can 

share and spread their costs to other 

departments. These commenters also 

indicated that the CMHC patient acuity 

level is more intense than the hospital 

patients as hospital outpatient 

departments need only provide 1 or 2 

therapies, yet still receive the full per 

diem. 

Response: By definition, a PHP bill 

must have at least 3 partial 

hospitalization HCPCS codes for each 

day of service, one of which must be a 

psychotherapy HCPCS code (other than 

brief psychotherapy). This requirement 

is applied to all partial hospitalization 

bills, whether provided in an outpatient 

hospital department or in a CMHC. 

Therefore, hospital outpatient 

departments must provide the same 

level of program intensity and must 

provide for the same level of patient 

acuity as CMHCs in order to receive 

payment. 

Comment: A few commenters 

requested that CMS revise the CMHC 

cost report form (CMS–2088) to include 

a field which allows the CMHC to report 

its Medicare PHP days. They also 

recommended that we revise settlement 

worksheet D on the CMS–2088 to 

include new fields that display the 

Medicare PHP cost per day and separate 

PHP reimbursement between outlier and 

non-outlier reimbursement (since the 

current cost report form commingles 

both types of reimbursement). Finally, 

the commenters recommended that we 

revise the CMHC Provider Statistical & 

Reimbursement Report Type: 76P to 

include a field which reports actual 

paid Medicare PHP days. 

Response: We appreciate the 

commenters suggestions for improving 

the Medicare cost report for CMHCs. We 

plan to explore these and other 

modifications to improve CMHC cost 

reporting so that we may use CMHC 

data in future ratesetting. 

Comment: A few commenters stated 

that hospitals that offer partial 

hospitalization services should not be 

penalized for the instability in data 

reporting that stems from CMHCs. 

Response: We believe hospitals-based 

PHPs have actually benefited from our 

combining hospital and CMHC data to 

compute the PHP APC rate. The median 

calculated from hospital outpatient 

department PHPs has consistently been 

far less then the median amount that is 

computed for CMHCs. 

Comment: One commenter who 

represents CMHCs expressed frustration 

over several unsuccessful attempts at 

becoming a member of the APC panel. 

Response: The qualifications and 

selection of the APC Panel members is 

outside the scope of this regulation. We 

refer the commenter to http:// 

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

for information on the APC panel. 

3. Separate Threshold for Outlier 

Payments to CMHCs 

In the November 7, 2003 final rule 

with comment period (68 FR 63469), we 

indicated that, given the difference in 

PHP charges between hospitals and 

CMHCs, we did not believe it was 

appropriate to make outlier payments to 

CMHCs using the outlier percentage 

target amount and threshold established 

for hospitals. There was a significant 

difference in the amount of outlier 

payments made to hospitals and CMHCs 

for PHP. Further analysis indicated the 

use of OPPS outlier payments for 

CMHCs was contrary to the intent of the 

general OPPS outlier policy. Therefore, 

for CYs 2004 and 2005, we established 

a separate outlier threshold for CMHCs. 

We designated a portion of the 

estimated 2.0 percent outlier target 

amount specifically for CMHCs, 

consistent with the percentage of 

projected payments to CMHCs under the 

OPPS in each of those years, excluding 

outlier payments. 

As stated in the November 15, 2004 

final rule with comment period, CMHCs 

were projected to receive 0.6 percent of 

the estimated total OPPS payments in 

CY 2005 (69 FR 65848). The CY 2005 

CMHC outlier threshold is met when the 

cost of furnishing services by a CMHC 

exceeds 3.5 times the PHP APC payment 

amount. The current outlier payment 

percentage is 50 percent of the amount 

of costs in excess of the threshold. 

CMS and the Office of the Inspector 

General are continuing to monitor the 

excessive outlier payments to CMHCs. 

As previously stated, we used CY 2004 

claims data to calculate the CY 2006 per 

diem payment. These data show the 

effect of the separate outlier threshold 

for CMHCs that was effective January 1, 

2004. During CY 2004, the separate 

outlier threshold for CMHCs resulted in 

$1.8 million in outlier payments to 

CMHCs, within the 2.0 percent of total 

OPPS payments identified for CMHCs. 

In contrast, for CY 2003, more than $30 

million was paid to CMHCs in outlier 

payments. We believe 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 the proposed rule, CMHCs were 

projected to receive 0.6 percent of the 

estimated total OPPS payments in CY 

2006. As noted in section II.H. of this 

preamble, for CY 2006, we proposed to 

set the target for hospital outpatient 

outlier payments at 1.0 percent of total 

OPPS payments. We also proposed 

allocate a portion of that 1.0 percent, 0.6 

percent (or 0.006 percent of total OPPS 

payments), to CMHCs for PHP services. 

As discussed in section II.G. below, we 

proposed to set a dollar threshold in 

addition to an APC multiplier threshold 

for hospital OPPS outlier payments. 

However, because PHP is the only APC 

for which CMHCs may receive payment 

under the OPPS, we would not expect 

to redirect outlier payments by 

imposing a dollar threshold. Therefore, 

we did not set a dollar threshold for 

CMHC outliers. We proposed to set the 

outlier threshold for CMHCs for CY 

2006 at 3.45 percent times the APC 

payment amount and the CY 2006 

outlier payment percentage applicable 

to costs in excess of the threshold at 50 

percent. As we did with the hospital 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68551 

outlier threshold, we used hospital 

charge inflation factor to inflate charges 

to CY 2006. 

We received no comments on our 

proposal. As discussed in section II.H, 

using more recent data for this final 

rule, we set the target for hospital 

outpatient outlier payments at 1.0 

percent of total OPPS payments. We 

also allocate a portion of that 1.0 

percent, 0.6 percent (or 0.006 percent of 

total OPPS payments), to CMHCs for 

PHP services. As we proposed, we set a 

dollar threshold in addition to an APC 

multiplier threshold for hospital OPPS 

outlier payments. However, because 

PHP is the only APC for which CMHCs 

may receive payment under the OPPS, 

we would not expect to redirect outlier 

payments by imposing a dollar 

threshold. Therefore, we did not set a 

dollar threshold for CMHC outliers. For 

CY 2006, we set the outlier threshold for 

CMHCs at 3.40 percent times the APC 

payment amount and the CY 2006 

outlier payment percentage applicable 

to costs in excess of the threshold at 50 

percent. As we did with the hospital 

outlier threshold, we used hospital 

charge inflation factor to inflate charges 

to CY 2006. 

C. Conversion Factor Update for CY 

2006 

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

requires us to update the conversion 

factor used to determine payment rates 

under the OPPS on an annual basis. 

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

provides that, for CY 2006, the update 

is equal to the hospital inpatient market 

basket percentage increase applicable to 

hospital discharges under section 

1886(b)(3)(B)(iii) of the Act. 

The forecast of the hospital market 

basket increase for FY 2006 published 

in the IPPS final rule on August 12, 

2005, is 3.7 percent (70 FR 47392), 

rather than the 3.2 percent forecast 

published in the IPPS proposed rule on 

May 4, 2005 (70 FR 23384) and 

referenced in the CY 2006 OPPS 

proposed rule. To set the OPPS 

proposed conversion factor for CY 2006, 

we increased the CY 2005 conversion 

factor of $56.983, as specified in the 

November 15, 2004 final rule with 

comment period (69 FR 65842), by 3.7 

percent. 

In accordance with section 

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

adjusted the conversion factor for CY 

2005 to ensure that the revisions we are 

making to our updates by means of the 

wage index are made on a budget 

neutral basis. We calculated a budget 

neutrality factor of 1.001485209 for 

wage index changes by comparing total 

payments from our simulation model 

using the FY 2006 IPPS final wage index 

values to those payments using the 

current (FY 2005) IPPS wage index 

values. In addition, to accommodate the 

rural adjustment discussed in section 

II.G. of this preamble, we calculated a 

budget neutrality factor of 0.99614506 

by comparing payments with the rural 

adjustment to those without. For CY 

2006, we estimate that allowed passthrough spending will equal 

approximately $45.5 million, which 

represents 0.17 percent of total OPPS 

projected spending for CY 2006. The 

conversion factor is also adjusted by the 

difference between the 2.0 percent passthrough set-aside and the 0.17 percent 

estimate of pass-through spending. 

Finally, decreasing payments for 

outliers to 1.0 percent of total payments, 

as proposed, returned 1.0 percent to the 

conversion factor. 

The market basket increase update 

factor of 3.7 percent for CY 2006, the 

required wage index budget neutrality 

adjustment of approximately 

1.001485209, the return of 1.0 percent 

in total payments from a reduced outlier 

target, the return of 1.83 percent of the 

pass-through set-aside, and the 

adjustment for the rural payment 

adjustment of 0.99614506 result in a 

conversion factor for CY 2006 of 

$59.511. 

We received several public comments 

on the proposed conversion factor 

update for CY 2006. 

Comment: Several commenters 

requested CMS to revise the market 

basket update included in the final 

OPPS rule to include a 3.7 percent 

market basket update, consistent with 

the IPPS final rule. 

Response: We have used a 3.7 percent 

market basket increase update factor in 

our conversion factor calculation for the 

CY 2006 OPPS update. 

Comment: One commenter suggested 

that CMS increase total payments to 

hospitals by 3.2 percent and not the 1.9 

percent total payment increase 

indicated in the regulatory impact 

analysis section of the proposed rule. 

Response: The 1.9 percent reported in 

column 6 of Table 33 in the regulatory 

analysis section of the proposed rule is 

not the 3.2 percent that appears in 

column 5 because it models all 

payments to hospitals. The 1.9 percent 

reflects the loss of payment for drugs 

outside of OPPS authorized by Pub. L. 

108–173, that expires in CY 2006. The 

statute requires CMS to take into 

account, for purposes of establishing a 

budget neutral CY 2006 update, the 

additional costs associated with 

payments for specified covered 

outpatient drugs. The regulatory impact 

analysis accompanying this final rule 

with comment period demonstrates a 

similar loss. The market basket increase 

update factor of 3.7 percent is offset by 

the drug payments in CY 2006 that were 

made outside the system in CY 2005, to 

result in an overall increase of 2.2 

percent. 

Accordingly, we are finalizing the 

conversion factor update for CY 2006 of 

$59.511. 

D. Wage Index Changes for CY 2006 

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

requires the Secretary to determine a 

wage adjustment factor to adjust, for 

geographic wage differences, the portion 

of the OPPS payment rate and the 

copayment standardized amount 

attributable to labor and labor-related 

cost. This adjustment must be made in 

a budget neutral manner. As we have 

done in prior years, we proposed to 

adopt the IPPS wage indices and extend 

these wage indices to TEFRA hospitals 

that participate in the OPPS but not the 

IPPS. 

As discussed in section II.A. of this 

preamble, we standardize 60 percent of 

estimated costs (labor-related costs) for 

geographic area wage variation using the 

IPPS wage indices that are calculated 

prior to adjustments for reclassification 

to remove the effects of differences in 

area wage levels in determining the 

OPPS payment rate and the copayment 

standardized amount. 

As published in the original OPPS 

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

OPPS has consistently adopted the final 

IPPS wage indices as the wage indices 

for adjusting the OPPS standard 

payment amounts for labor market 

differences. As initially explained in the 

September 8, 1998 OPPS proposed rule, 

we believed and continue to believe that 

using the IPPS wage index as the source 

of an adjustment factor for OPPS is 

reasonable and logical, given the 

inseparable, subordinate status of the 

hospital outpatient within the hospital 

overall. In accordance with section 

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

index is updated annually. In the CY 

2006 OPPS proposed rule, in 

accordance with our established policy, 

we proposed to use the FY 2006 final 

version of these wage indices with any 

corrections posted on the CMS Web site, 

to determine the wage adjustments for 

the OPPS payment rate and copayment 

standardized amount that we will 

publish in our final rule for CY 2006. 

We note that the FY 2006 IPPS wage 

indices continue to reflect a number of 

changes implemented in FY 2005 as a 

result of the new OMB standards for 

defining geographic statistical areas, the 

implementation of an occupational mix 

adjustment as part of the wage index, 

68552 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

and new wage adjustments provided for 

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

a brief summary of the proposed 

changes in the FY 2005 IPPS wage 

indices, continued for FY 2006, and any 

adjustments that we are applying to the 

OPPS for CY 2006. We refer the reader 

to the FY 2006 IPPS final rule (70 FR 

47363 through 47387, August 12, 2005) 

for a detailed discussion of the changes 

to the wage indices. In this final rule 

with comment period, we are not 

reprinting the FY 2006 IPPS wage 

indices referenced in the discussion 

below, with the exception of the outmigration wage adjustment table 

(Addendum L of this final rule with 

comment period). We refer readers to 

the CMS Web site for the OPPS at 

http://www.cms.hhs.gog/providers/ 

hopps. At this Web site, the reader will 

find a link to the FY 2006 IPPS wage 

indices tables and any corrections made 

to them. 

1. The continued use of the new Core 

Based Statistical Areas (CBSAs) issued 

by the Office of Management and 

Budget (OMB) as revised standards for 

designating geographical statistical areas 

based on the 2000 Census data, to define 

labor market areas for hospitals for 

purposes of the IPPS wage index. The 

OMB revised standards were published 

in the Federal Register on December 27, 

2000 (65 FR 82235), and OMB 

announced the new CBSAs on June 6, 

2003, through an OMB bulletin. In the 

FY 2005 hospital IPPS final rule, CMS 

adopted the new OMB definitions for 

wage index purposes. In the FY 2006 

IPPS final rule, we again stated that 

hospitals located in MSAs will be urban 

and hospitals that are located in 

Micropolitan Areas or Outside CBSAs 

will be rural. To help alleviate the 

decreased payments for previously 

urban hospitals that became rural under 

the new MSA definitions, we allowed 

these hospitals to maintain their 

assignment to the MSA where they 

previously had been located for the 3- 

year period from FY 2005 through FY 

2007. To be consistent with IPPS, we 

will continue the policy we began in CY 

2005 of applying the same criterion to 

TEFRA hospitals paid under the OPPS 

but not under the IPPS and to maintain 

that MSA designation for determining a 

wage index for the specified period. 

Beginning in FY 2008, these hospitals 

will receive their statewide rural wage 

index, although those hospitals paid 

under the IPPS will be eligible to apply 

for reclassification. In addition to this 

‘‘hold harmless’’ provision, the FY 2005 

IPPS final rule implemented a 1-year 

transition for hospitals that experienced 

a decrease in their FY 2005 wage index 

compared to their FY 2004 wage index 

due solely to the changes in labor 

market definitions. These hospitals 

received 50 percent of their wage 

indices based on the new MSA 

configurations and 50 percent based on 

the FY 2004 labor market areas. In the 

FY 2006 IPPS final rule, we discussed 

the cessation of the 1-year transition and 

announced that hospitals will receive 

100 percent of their wage index based 

upon the new CBSA configurations 

beginning in FY 2006. Again, for the 

sake of consistency with IPPS, TEFRA 

hospitals will receive 100 percent of 

their wage index based upon the new 

CBSA configurations beginning in CY 

2006. 

2. We are applying the occupational 

mix adjustment for FY 2006 IPPS to 10 

percent of the average hourly wage and 

leave 90 percent of the average hourly 

wage unadjusted for occupational mix. 

As noted in the FY 2006 IPPS final rule, 

we are, essentially, using the same CMS 

Wage Index Occupational Mix Survey 

and Bureau of Labor Statistics data to 

calculate the adjustment. Because there 

are no significant differences between 

the FY 2005 and the FY 2006 

occupational mix survey data and 

results, we believe it is appropriate to 

adopt the IPPS rule and apply the same 

occupational mix adjustment to 10 

percent of the FY 2006 wage index. 

3. The reclassifications of hospitals to 

geographic areas for purposes of the 

wage index. For purposes of the OPPS 

wage index, we are adopting all of the 

IPPS reclassifications for FY 2006, 

including reclassifications that the 

Medicare Geographic Classification 

Review Board (MGCRB) approved under 

the one-time appeal process for 

hospitals under section 508 of Pub. L. 

108–173. We note that section 508 

reclassifications will terminate March 

31, 2007. 

4. We are continuing to apply an 

adjustment to the wage index to reflect 

the ‘‘out-migration’’ of hospital 

employees who reside in one county but 

commute to work in a different county 

with a higher wage index, in accordance 

with section 505 of Pub. L. 108–173 (FY 

2006 IPPS final rule (70 FR 47383 and 

47384, August 12, 2005)). Hospitals paid 

under the IPPS located in the qualifying 

section 505 ‘‘out-migration’’ counties 

receive a wage index increase unless 

they have already been reclassified 

under section 1886(d)(10) of the Act, 

redesignated under section 

1886(d)(8)(B) of the Act, or reclassified 

under section 508. As discussed in the 

FY 2006 IPPS final rule, we finalized 

our policy that reclassified hospitals not 

receive the out-migration adjustment 

unless they waive their reclassified 

status. For OPPS purposes, we are 

continuing our policy from CY 2005 to 

apply the same 505 criterion to TEFRA 

hospitals paid under the OPPS but not 

paid under the IPPS. Because TEFRA 

hospitals cannot reclassify under 

sections 1886(d)(8) and 1886(d)(10) of 

the Act or section 508, they are eligible 

for the out-migration adjustment. 

Therefore, TEFRA hospitals located in a 

qualifying section 505 county will also 

receive an increase to their wage index 

under OPPS. Addendum L to this final 

rule with comment period lists all 

hospitals that will receive an outmigration adjustment to their wage 

index in 2006 including TEFRA 

hospitals that will receive an outmigration adjustment under this OPPS 

final rule with comment period. (See 

also Table 4J of the Addendum to the 

FY 2006 IPPS final rule). 

We used the final FY 2006 IPPS 

indices to adjust the payment rates and 

coinsurance amounts that are included 

in this OPPS final rule with comment 

period for CY 2006. With the exception 

of reclassifications resulting from the 

implementation of the one-time appeal 

process under section 508 of Pub. L. 

108–173, all changes to the wage index 

resulting from geographic labor market 

area reclassifications or other 

adjustments must be incorporated in a 

budget neutral manner. Accordingly, in 

calculating the OPPS budget neutrality 

estimates for CY 2006, we have 

included the wage index changes that 

result from MGCRB reclassifications, 

implementation of section 505 of Pub. L. 

108–173, and other refinements made in 

the FY 2006 IPPS final rule, such as the 

hold harmless provision for hospitals 

changing status from urban to rural 

under the new CBSA geographic 

statistical area definitions. However, 

section 508 set aside $900 million to 

implement the section 508 

reclassifications. We considered the 

increased Medicare payments that the 

section 508 reclassifications would 

create in both the IPPS and OPPS when 

we determined the impact of the onetime appeal process. Because the 

increased OPPS payments already 

counted against the $900 million limit, 

we did not consider these 

reclassifications when we calculated the 

OPPS budget neutrality adjustment. 

We received two public comments on 

the application of the FY 2006 IPPS 

wage indices under the OPPS. 

Comment: One commenter supported 

our proposal to extend the IPPS wage 

indices to OPPS because this simplifies 

payment for hospitals. 

One commenter suggested that OPPS 

use different labor share percentages for 

hospitals with a wage index below 1.0 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68553 

and hospitals with a wage index above 

1.0. The commenter specifically cited 

the requirement in Pub. L. 108–173 that 

IPPS use a larger labor share percentage 

for hospitals with wage indexes over 1.0 

and a relatively smaller labor share 

percentage for hospitals with wage 

indexes less than 1.0. This commenter 

specifically requested that CMS use a 

labor share of 50 percent for hospitals 

with wage indexes less than 1.0. 

Response: Section 403 of Pub. L. 108–

173 requires that IPPS hospitals be paid 

using a labor-related share of 62 percent 

unless this labor-related share would 

result in lower payments than would 

otherwise be made. Unlike IPPS, OPPS 

has no mandate to reduce the laborrelated share. The OPPS labor-related 

share was determined through 

regression analyses conducted for the 

initial OPPS proposed rule (63 FR 

47581, September 8, 1998). Those 

analyses identified 60 percent as the 

appropriate labor share for outpatient 

services. We confirmed that this laborrelated share is still appropriate during 

our regression analysis for the payment 

adjustment for rural hospitals in this 

final rule. In these regression equations, 

the coefficient of the hospital wage 

index is the estimated percentage 

change in unit costs attributable to a 1 

unit percent increase in the wage index, 

which is an estimate of the share of 

outpatient unit costs attributable to 

labor. Both Table 5 and Table 6 in 

section II.G. of this preamble indicate a 

coefficient of 63 percent for the wage 

index. In light of both analyses, we 

believe that the current 60 percent 

labor-related share remains appropriate 

for OPPS payment purposes. 

After carefully considering the public 

comments received, we are finalizing 

our wage index adjustment policy for 

CY 2006 OPPS as proposed without 

modification. 

E. Statewide Average Default Cost-toCharge Ratios (CCRs) 

CMS uses CCRs to determine outlier 

payments, payments for pass-through 

devices, and monthly interim 

transitional corridor payments under 

the OPPS. Some hospitals do not have 

a valid CCR. These hospitals include, 

but are not limited to, hospitals that are 

new and have not yet submitted a cost 

report, hospitals that have a CCR that 

falls outside predetermined floor and 

ceiling thresholds for a valid CCR, or 

hospitals that have recently given up 

their all-inclusive rate status. Last year, 

we updated the default urban and rural 

CCRs for CY 2005 in our final rule, 

published on November 15, 2004 (69 FR 

65821 through 65825). As we proposed, 

in this final rule with comment period, 

we have updated the default ratios using 

the most recent cost report data for CY 

2006. 

We calculated the statewide default 

CCRs using the same CCRs that we use 

to adjust charges to costs on claims data. 

Table 3 of the proposed rule (70 FR 

42696) listed the proposed CY 2006 

default urban and rural CCRs by State. 

These CCRs are the ratio of total costs 

to total charges from each provider’s 

most recently submitted cost report, for 

those cost centers relevant to outpatient 

services. We also adjusted these ratios to 

reflect final settled status by applying 

the differential between settled to 

submitted costs and charges from the 

most recent pair of settled to submitted 

cost reports. 

For the proposed rule, 80.79 percent 

of the submitted cost reports 

represented data for CY 2003. We have 

since updated the cost report data we 

use to calculate cost to charge ratios 

with additional submitted cost reports 

for CY 2004. For the final rule, 51.66 

percent, the majority of the submitted 

reports utilized in the default ratio 

calculation, were for CY 2003. We only 

used valid CCRs to calculate these 

default ratios. That is, we removed the 

CCRs for all-inclusive hospitals, CAHs, 

and hospitals in Guam and the U.S. 

Virgin Islands because these entities are 

not paid under the OPPS, or in the case 

of all-inclusive hospitals, because their 

CCRs are suspect. We further identified 

and removed any obvious error CCRs 

and trimmed any outliers. We limited 

the hospitals used in the calculation of 

the default CCRs to those hospitals that 

billed for services under the OPPS 

during CY 2003. 

Finally, we calculated an overall 

average CCR, weighted by a measure of 

volume for CY 2003, for each State 

except Maryland. This measure of 

volume is the total lines on claims and 

is the same one that we use in our 

impact tables. For Maryland, we used an 

overall weighted average CCR for all 

hospitals in the Nation as a substitute 

for Maryland CCRs, which appeared in 

Table 3. Very few providers in Maryland 

are eligible to receive payment under 

the OPPS, which limits the data 

available to calculate an accurate and 

representative CCR. The overall 

decrease in default statewide CCRs can 

be attributed to the general decline in 

the ratio between costs and charges 

widely observed in the cost report data. 

We did not receive any public 

comments concerning the proposed 

statewide average default CCRs. 

Therefore, we are finalizing them as 

shown in Table 3 below for OPPS 

services furnished on or after January 1, 

2006. 

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BILLING CODE 4120–01–P 

F. Expiring Hold Harmless Provision for 

Transitional Corridor Payments for 

Certain Rural Hospitals 

When the OPPS was implemented, 

every provider was eligible to receive an 

additional payment adjustment 

(transitional corridor payment) if the 

payments it received for covered OPD 

services under the OPPS were less than 

the payments it would have received for 

the same services under the prior 

reasonable cost-based system (section 

1833(t)(7) of the Act). Section 1833(t)(7) 

of the Act provides that the transitional 

corridor payments are temporary 

payments for most providers, with two 

exceptions, to ease their transition from 

the prior reasonable cost-based payment 

system to the OPPS system. Cancer 

hospitals and children’s hospitals 

receive the transitional corridor 

payments on a permanent basis. Section 

1833(t)(7)(D)(i) of the Act originally 

provided for transitional corridor 

payments to rural hospitals with 100 or 

fewer beds for covered OPD services 

furnished before January 1, 2004. 

However, section 411 of Pub. L. 108–

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

the Act to extend these payments 

through December 31, 2005, for rural 

hospitals with 100 or fewer beds. 

Section 411 also extended the 

transitional corridor payments to SCHs 

located in rural areas for services 


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furnished during the period that begins 

with the provider’s first cost reporting 

period beginning on or after January 1, 

2004, and ends on December 31, 2005. 

Accordingly, the authority for making 

transitional corridor payments under 

section 1833(t)(7)(D)(i) of the Act, as 

amended by section 411 of Pub. L. 108–

173, will expire for rural hospitals 

having 100 or fewer beds and SCHs 

located in rural areas on December 31, 

2005. For CY 2006, transitional corridor 

payments will continue to be available 

to cancer and children’s hospitals. (We 

note that the succeeding section II.G. of 

this preamble discusses an additional 

provision of section 411 of Pub. L. 108–

173 that related to a study to determine 

appropriate adjustment to payments for 

rural hospitals under the OPPS 

beginning January 2006.) 

We received four public comments 

concerning this hold harmless policy. 

Comment: The commenters expressed 

concern about the impact that the 

expiration of the transitional corridor 

hold harmless payments would have on 

small rural hospitals because these are 

vulnerable facilities that provide 

important access to care in their 

communities. 

One commenter recommended that 

the provision be expanded to 

permanently extend the hold harmless 

payments to small rural hospitals and 

rural SCHs, as is currently the case for 

cancer hospitals and children’s 

hospitals. Two commenters referenced 

efforts by a large hospital association to 

work with Congress on legislation to 

provide for this expansion. 

Response: We appreciate the 

comments that were submitted and we 

have carefully reviewed each of them. 

As the commenters acknowledge, 

section 1833(t)(7)(D) of the Act, as 

amended by section 411 of Pub. L. 108–

173, provides that OPPS transitional 

corridor payments will expire for rural 

hospitals having 100 or fewer beds and 

SCHs located in rural areas on 

December 31, 2005. Therefore, we are 

providing for the termination of these 

payments in this final rule with 

comment period. However, as noted in 

section II.G. of this final rule with 

comment period, we are providing a 7.1 

percent adjustment for rural sole 

community hospitals in accordance 

with section 411 of Pub. L. 108–173. 

G. Adjustment for Rural Hospitals 

Section 411 of Pub. L. 108–173 added 

a new paragraph (13) to section 1833(t) 

of the Act. New section 1833(t)(13)(A) 

specifically instructs the Secretary to 

conduct a study to determine if rural 

hospital outpatient costs exceed urban 

hospital outpatient costs. Moreover, 

under new section 1833(t)(13)(B) of the 

Act, the Secretary is given authorization 

to provide an appropriate adjustment to 

rural hospitals by January 1, 2006, if 

rural hospital costs are determined to be 

greater than urban hospital costs. 

As described in our CY 2006 OPPS 

proposed rule, we used regression 

analysis to study the differences in 

outpatient cost per unit between rural 

and urban hospitals because we 

believed that a simple comparison of 

unit costs would not capture the myriad 

of factors that contribute to observed 

costs, including labor supply, 

complexity, and volume of services. For 

this final rule with comment period, we 

reran these regression analyses that we 

conducted in the proposed rule and 

conducted additional analyses in 

response to issues raised in public 

comments. 

For this final rule with comment 

period, our regression analysis included 

all 4,088 hospitals billing under OPPS 

for which we could model accurate cost 

per unit estimates. For each hospital, 

total outpatient costs and descriptive 

information were derived from a more 

complete set of CY 2004 Medicare 

claims than was used in the analysis for 

the proposed rule and the hospital’s 

most recently submitted cost report. The 

description of claims used, our 

methodology for creating costs from 

charges, and a description of the 

specific hospitals included in our 

modeling are discussed in section II. A. 

of this preamble. We excluded 

separately payable drugs and 

biologicals, services receiving passthrough payments, and any service paid 

under a separate payment system from 

our analysis. We excluded the 49 

hospitals in Puerto Rico because their 

wage indices and unit costs are so 

different that they would have skewed 

results. Finally, we excluded facilities 

whose unit outpatient costs were 

outside of 3 standard deviations from 

the geometric mean unit outpatient cost. 

We calculated the total unit 

outpatient cost for each hospital by 

dividing total outpatient cost by the 

total number of APC units discounted 

for the joint performance of multiple 

surgical procedures. (See section II.G.1. 

below for a definition of discounted 

units.) As in the analysis for the 

proposed rule, we modeled both 

explanatory and payment regression 

models. In an ‘‘explanatory model’’

approach, all variables that are 

hypothesized to be important 

determinants of cost are included in the 

cost regression, whether or not they are 

going to be used as payment 

adjustments. We used the explanatory 

regression models to assess which class 

of rural hospitals, if any, is significantly 

more costly than urban hospitals. In a 

‘‘payment model’’ approach, the only 

independent variables included in the 

cost regression are those variables 

considered for payment adjustments. 

We used the payment model to 

determine the amount of the adjustment 

for any class of hospitals identified as 

significantly more costly in the 

explanatory model. The regression 

equations for both models were 

specified in double logarithmetic form. 

The dependent variable in the 

explanatory regression equation was 

unit outpatient cost. The dependent 

variable in the payment regressions was 

standardized unit outpatient costs, that 

is, unit outpatient costs adjusted to 

reflect unit payment by dividing 

through by the provider’s service-mix 

index which was adjusted by the 

provider’s wage index. The service-mix 

index is a measure of the resource 

intensity of services provided by each 

hospital. Both regression equation 

models included quantitative 

independent variables transformed into 

natural logarithms and categorical 

independent variables. Categorical 

independent (dummy) variables 

included hospital characteristics such as 

rural location or type of hospital (short 

stay or specialty hospital). In regression 

analysis, dummy variables capture the 

difference in means of the dependent 

variable in the class of hospitals of 

interest and all other hospitals, holding 

all other variables in the equation 

constant. 

1. Factors Contributing to Unit Cost 

Differences Between Rural Hospitals 

and Urban Hospitals and Associated 

Explanatory Variables 

For this final rule with comment 

period, we retained the same set of 

explanatory variables as used in the 

regression analysis for the proposed rule 

because we believe that these variables 

capture the most important factors 

contributing to differences in unit costs 

between rural and urban hospitals. 

• First, unit outpatient costs are 

expected to vary directly with the prices 

of inputs used to produce outpatient 

services, especially labor. Wage rates 

tend to be lower in rural areas than in 

urban areas. We used the OPPS hospital 

wage index for CY 2006 as our measure 

of relative differences in labor input 

costs. 

• Second, there may be economies of 

scale in producing outpatient services, 

which imply that unit costs will vary 

inversely with the volume of outpatient 

services provided. We used the total 

number of discounted units as our 

indicator of volume. Discounted units 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68557 

are the total number of units after we 

adjust for the multiple procedure 

reduction of 50 percent that applies to 

payment for surgical services when two 

surgical procedures are performed 

during the same operative session. For 

example, if a procedure is paid at 100 

percent of payment 1,000 times and the 

same procedure is paid at 50 percent of 

payment 100 times, the discounted 

units for that procedure equal 1,050 

units (the sum of 1,000 units at full 

payment plus 100 units at 50 percent 

payment). 

• Third, independent of the volume 

of outpatient services, hospitals that 

provide more complex outpatient 

services are expected to have higher 

unit costs than hospitals with less 

complex service-mixes. Typically, 

greater complexity involves a 

combination of higher equipment and 

labor costs. Rural hospitals usually have 

less volume and perform less complex 

services than urban hospitals. We used 

a service-mix index defined as the ratio 

of the number of discounted units 

weighted by APC relative weights 

divided by the number of unweighted 

discounted units as our measure of 

complexity. The service-mix index 

reflects the average APC weight of each 

facility’s outpatient services. From our 

analysis, we also believe that the 

number of beds captures variation in 

unit costs attributable to the additional 

complexity of services performed by a 

hospital that is not explained by their 

service mix index. 

• Fourth, the size of a hospital may 

influence the volume and service-mix of 

outpatient services. Large hospitals 

generally provide a wider range of more 

complex services than do small 

hospitals. Large hospitals may also have 

larger volumes in ancillary departments 

that are shared between outpatient and 

inpatient services, and as a result, 

benefit from greater economies of scale 

than do small hospitals. Rural hospitals 

tend to be smaller than urban hospitals. 

Our primary measure of outpatient 

volume is discounted units of APCs, 

which only reflects the volume of 

Medicare services paid under the 

outpatient PPS. This measure does not 

include the inpatient utilization of 

shared ancillary departments or nonMedicare outpatient services. For all of 

these reasons, it seems appropriate to 

include a broader measure of facility 

size in the explanatory regression 

model. Therefore, as explained below, 

we used the total number of facility 

beds to measure facility size. Unit 

outpatient costs may be positively or 

negatively related to facility size 

depending on whether complexity 

effects, noted above, or scale economies 

are more important. 

• In addition to the above factors, we 

included additional categorical 

variables to indicate the types of 

specialty hospitals that participate in 

OPPS, specifically cancer, children’s, 

long-term care, rehabilitation, and 

psychiatric hospitals because we do not 

believe that the costs, volume, and 

service-mix associated with these 

hospitals looks like the costs, volume, 

and service mix of a typical OPPS 

provider. 

• Finally, we included several 

categorical variables for rural/urban 

location and type of rural hospital to 

capture variation unexplained by the 

other independent variables in the 

model. Urban hospitals are the reference 

group for all of the different types of 

hospitals examined included in the 

regressions equations below. Table 4 

provides descriptive statistics for the 

dependent variables and key 

independent variables by urban and 

rural status. Without controlling for the 

other influences on per unit cost, rural 

hospitals have a lower cost per unit than 

urban hospitals. However, when 

standardized for the service-mix wage 

indices, average unit costs are nearly 

identical between urban and rural 

hospitals. 

TABLE 4.—MEANS AND STANDARD DEVIATIONS (IN PARENTHESIS) FOR KEY VARIABLES BY RURAL AND URBAN LOCATION

Variable 

Rural Urban 

Means Standard 

Deviation Means Standard Deviation 

Unit Outpatient Cost ........................................................................................................ $157.57 ($64.94) $188.76 ($93.53) 

Standardized Unit Outpatient Cost .................................................................................. $75.51 ($55.70) $73.54 ($40.98) 

Wage Index ...................................................................................................................... 0.8807 (0.1012) 1.0212 (0.1479) 

Service-Mix Index ............................................................................................................ 2.3636 (0.9357) 2.7544 (1.6037) 

Outpatient Volume ........................................................................................................... 21,021 (21,770) 38,469 (46,925) 

Beds ................................................................................................................................. 78 (56) 196 (170) 

Number of Hospitals ........................................................................................................ 1,206 .................... 2,882 

2. Results 

For this final rule with comment 

period, we began our analysis by 

rerunning the regression models that we 

had examined for the proposed rule. As 

a group, all rural hospitals continue to 

demonstrate weak evidence of slightly 

higher unit costs than urban hospitals, 

after controlling for labor input prices, 

service-mix complexity, volume, facility 

size, and type of hospital. In the 

explanatory model, regressing unit costs 

on all of the independent variables 

discussed above, the coefficient for the 

rural categorical variable was 0.024 

(p=0.0613). If the unit costs of rural 

hospitals are the same as the unit costs 

of urban hospitals, the probability of 

observing a value as extreme as or more 

extreme than 2.4 percent would be 

approximately 6 percent or less. This 

suggests that rural hospitals are 

approximately 2.4 percent more costly 

than urban hospitals after accounting for 

the impact of other explanatory 

variables. This is the same coefficient 

observed in the regression analyses for 

the proposed rule. The results of this 

regression appear in Table 5. This 

regression demonstrated reasonably 

good explanatory power with an 

adjusted R2 of 0.54 (rounded). Adjusted 

R2 is the percentage of variation in the 

dependent variable explained by the 

independent variables and is a standard 

measure of how well the regression 

model fits the data. The regression 

coefficients of the key explanatory 

variables all move in the expected 

direction: positive for the wage index, 

indicating that rural hospitals can be 

expected to have lower unit outpatient 

costs because they tend to be located in 

areas with lower wage rates; positive for 

the outpatient service-mix index, 

consistent with the hypothesis that rural 

hospitals’ less complex outpatient 

service-mixes result in lower unit costs 

than those of the typical urban hospital; 

negative for outpatient service volume, 

implying that, on average, rural 

hospitals’ lower service volumes are a 

source of higher unit cost compared to 

urban hospitals; and positive for the 

68558 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

facility size variable (beds), suggesting 

that facility size is more reflective of 

complexity than any economies of scale. 

The payment regression that 

accompanies this explanatory model 

indicates an adjustment for all rural 

hospitals of 4.3 percent. 

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BILLING CODE 4120–01–C 

As we did for our proposed rule, we 

divided rural hospitals into categories 

that reflected their eligibility for the 

expiring hold harmless provision under 

section 1833(t)(7)(D) of the Act in order 

to determine whether the small 

difference in costs was uniform across 

classes of rural hospitals or whether all 

of the variation was attributable to a 

specific type of rural hospitals. 

Specifically, we divided rural hospitals 

into rural SCHs, rural hospitals with 100 

or fewer beds that are not rural SCHs, 

and other rural hospitals. The first two 

categories of rural hospitals are 

currently eligible for payments under 

the expiring hold harmless provision. 

As indicated in the proposed rule, we 

found that rural SCHs demonstrated 

significantly higher cost per unit than 

urban hospitals after controlling for 

labor input prices, service-mix 

complexity, volume, facility size, and 

type of hospital. The results of this 

regression appear in Table 6. With the 

exception of the new rural variables, the 

independent variables have the same 

sign and significance as in Table 5. 

Rural SCHs have a positive and 

significant coefficient. The rural SCH 

variable has an explanatory regression 

coefficient of 0.06044 and an observed 

probability of 0.0003. If the unit costs of 

rural SCHs are the same as those of 

urban hospitals, the probability of 

observing a value as extreme or more 

extreme than 6.2 percent would be less 

than 0.1 percent. This is sufficient 

evidence to accept that rural SCHs are 

more costly than urban hospitals, 

holding all other variables constant. 

Notably, we observe no significant 

difference between all small rural 

hospitals with 100 or fewer beds and 

urban hospitals or between other rural 

hospitals and urban hospitals. In the 

explanatory regression presented in 

Table 6, the dummy variable for small 

rural hospitals has an observed 

coefficient of 0.01203 and an associated 

probability of 0.4748. If the unit costs of 

small rural hospitals are the same as 

those of urban hospitals, the probability 

of observing a value as extreme or more 

extreme than 1.2 percent would be less 

than 50 percent. With such a high 

probability, there is insufficient 

evidence to conclude that rural 

hospitals with 100 or fewer beds are 

more costly than urban hospitals, 

holding all other variables constant. The 

results are almost identical when 


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volume and facility size are not 

included in the equation. Finally, the 

dummy variable for other rural hospitals 

has an observed coefficient of ¥0.01646 

and an associated probability of 0.4545. 

If the unit costs of other rural hospitals 

are the same as those of urban hospitals, 

the probability of observing a value as 

extreme or more extreme than ¥1.7 

percent would be less than 50 percent. 

These results are also present when 

facility size and volume are not 

included in the equation. As with small 

rural hospitals, this is insufficient 

evidence to conclude that other rural 

hospitals are more costly than urban 

hospitals. Further, for this group of rural 

hospitals, the coefficient is negative, 

indicating lower cost per unit. 

Based on the above analysis, we 

continue to believe that a payment 

adjustment for rural SCHs is warranted. 

The accompanying payment regression, 

also appearing in Table 6, indicates a 

cost impact of 7.1 percent. Thus, in 

accordance with the authority provided 

in section 1833(t)(13)(B) of the Act, as 

added by section 411 of Pub. L. 108–

173, we are implementing a 7.1 percent 

payment increase for rural SCHs for CY 

2006. This adjustment will apply to all 

services and procedures paid under the 

OPPS, excluding drugs, biologicals, and 

services paid under the pass-through 

payment policy. As stated in the 

proposed rule, this adjustment is budget 

neutral, and will be applied before 

calculating outliers and coinsurance. 

We will not reestablish the adjustment 

amount on an annual basis, but we may 

review the adjustment in the future, and 

if appropriate, may revise the 

adjustment. Additional descriptive 

statistics are available on the CMS Web 

site. 

We received 19 public comments 

concerning these results. 

Comment: Several commenters 

supported our proposed payment 

increased for rural SCHs of 6.6 percent. 

Response: We appreciate the 

commenters’ support. As we discussed 

above, based on our most recent 

analysis, we are implementing an 

adjustment of 7.1 percent in this final 

rule with comment period. We believe 

that an adjustment at this level remains 

consistent with the views expressed by 

the commenters. 

Comment: Several commenters 

expressed concern that the regression 

analysis, as presented, does not 

separately set out the regression results 

for rural hospitals with 100 or fewer 

beds that are not rural SCHs. They 

indicate that, while CMS stated that this 

class of hospitals did not demonstrate 

significance in the explanatory 

regression analyses, it did not 

definitively display these results. The 


ER10NO05.013</GPH>
68560 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

commenters highlighted the importance 

of showing these results because these 

are the facilities that will be losing their 

hold harmless protection in CY 2006. 

One of the commenters cited MedPAC’s 

2005 Report to Congress, which noted 

that previous MedPAC research 

indicated higher costs for low-volume 

hospitals which are predominantly 

rural. The commenters urged CMS to 

specifically report the regression results 

with small rural hospitals with 100 or 

fewer beds identified separately. 

Response: We agree with the 

commenters that we should identify 

small rural hospitals with 100 or fewer 

beds separately in the analysis. The 

results in Table 6 demonstrate that 

small rural hospitals with 100 or fewer 

beds do not appear to have unit costs 

different from those of urban hospitals 

after controlling for other contributors to 

unit cost, including volume. 

Comment: Several commenters 

requested clarification on the definition 

of rural in order to assess which 

hospitals would be eligible for the rural 

adjustment. The commenters asked: 

Would a SCH located in a rural area that 

has been reclassified for wage index 

purposes into an urban area be eligible 

for the SCH adjustment? Would a SCH 

located in an urban area that has been 

reclassified for wage index purposes 

into a rural area be eligible for the SCH 

adjustment? 

Response: SCHs will be considered 

rural for the rural adjustment, and for 

purposes of the OPPS rural adjustment 

only, under section 1833(t)(13)(B) of the 

Act if a hospital is geographically 

located in a rural area or has been 

reclassified to a rural area for wage 

index purposes. Therefore, a SCH 

located in a rural area that has been 

reclassified for wage index purposes 

into an urban area will be eligible for 

the adjustment, regardless of whether 

the SCH has been reclassified to an 

urban area for wage index purposes. In 

addition, a SCH located in an urban area 

that has been reclassified for wage index 

purposes into a rural area also will be 

eligible for the adjustment. New 

§ 419.43(g)(1)(ii) of the regulations, 

which we are finalizing in this final rule 

with comment period, will provide that 

an SCH is eligible for the adjustment if 

the hospital is ‘‘located in a rural area 

as defined in § 412.64(b) of this chapter 

or is treated as being located in a rural 

area under § 412.103.’’ To clarify the 

text in response to the comments 

received, we are referencing § 412.103 

in the final regulation text instead of the 

reference to section 1886(d)(8)(E) of the 

Act. This definition of a ‘‘SCH located 

in a rural area’’ only will apply for the 

purposes of the rural adjustment in this 

rule. 

Comment: One commenter asked if 

rural SCHs that are participating in the 

Rural Community Hospital 

Demonstration Program would be 

eligible for the rural adjustment. 

Response: Rural SCHs participating in 

the Rural Community Hospital 

Demonstration Program are eligible to 

receive this rural adjustment. The Rural 

Community Hospital Demonstration 

Program, authorized under section 410A 

of Pub. L 108–173, assesses whether 

rural hospitals will benefit from costbased reimbursement and is limited to 

payment for inpatient services. 

Although SCHs participating in the 

demonstration program are not eligible 

to receive traditional SCH payments 

made under the IPPS, these hospitals 

retain their SCH status. 

Comment: Several commenters 

requested clarification of whether CMS 

intends to make this adjustment 

available beyond CY 2006, and whether 

it intends to reestablish the adjustment 

amount on an annual basis. 

Response: We will not reestablish the 

adjustment amount on an annual basis, 

but we may review the adjustment in 

the future and, if appropriate, revise the 

adjustment. 

Comment: A few commenters 

requested that CMS extend the rural 

adjustment to CMHCs or make some 

other special allowance or provision for 

their rural location. 

Response: Section 1833(t)(13)(A) of 

the Act limits the scope of this analysis 

and any adjustment to comparing rural 

and urban hospitals costs. 

Comment: Several commenters 

requested that CMS extend the proposed 

rural adjustment to all SCHs, not just 

rural hospitals, under its equitable 

adjustment authority in section 

1833(t)(2)(E) of the Act. The 

commenters described the necessary 

access to services that urban SCHs 

provide and highlighted that both urban 

and rural SCHs have been recognized 

for special protections by Congress in 

other payment systems because they are 

the sole source of inpatient hospital 

services reasonably available to 

Medicare beneficiaries. 

One commenter used the public use 

file that CMS provided on its Web site 

and conducted detailed analyses to 

assess the appropriateness of an 

adjustment for urban SCHs. The 

commenter compared urban SCHs, rural 

SCHs, other urban hospitals, and other 

rural hospitals on the number of beds, 

their service mix, and wage index. The 

commenter also conducted regression 

analysis. The first model the commenter 

examined included a variable for rural 

location and a variable for SCH status in 

addition to the other variables used in 

CMS’ explanatory model. The 

commenter reported that the SCH 

variable is significant, suggesting that 

SCHs are more costly than other nonSCHs controlling for rural or urban 

status. The commenter concluded that 

the results indicated SCHs are 

significantly more costly than hospitals 

that are not SCHs and that geographic 

location does not influence this finding. 

The same commenter also examined 

an explanatory model that resembled 

CMS’ explanatory model. The 

commenter indicated that this model 

included separate variables for urban 

SCHs, rural SCHs, and all other rural 

hospitals in order to isolate the unit cost 

differences between urban SCHs and 

other hospitals. The commenter 

reported that, in this model, the unit 

costs of urban SCHs were not 

significantly different from urban, nonSCH unit costs. With regard to this last 

finding, the commenter suggested that 

the lack of significance is less important 

than the comparability in the magnitude 

of the coefficient for rural and urban 

SCHs, and that both types of hospitals 

have coefficients at 6 percent. Finally, 

the commenter examined the 

significance of the rural indicator in an 

explanatory regression model conducted 

only with SCH hospitals. Within this 

population, the commenter reported 

that all explanatory variables are 

statistically significant, except an 

indicator for rural status, and suggested 

that this finding further supports 

extending the adjustment to urban 

SCHs. The commenter concluded by 

requesting that CMS repeat its 

regression to confirm that SCH status, 

and not geographic location, is 

indicative of higher costs, and if it finds 

this to be true, to appropriately adjust 

for higher costs. 

Response: We do not believe it is 

sufficient to confirm that all SCHs are 

significantly more costly than nonSCHs, as the commenter demonstrated 

in its first regression model because the 

statutory authority for this adjustment is 

to be based upon the comparison 

between urban and rural hospitals. The 

regression model that includes a 

variable for SCH status and a variable 

for rural location only confirms that all 

SCHs have higher costs than hospitals 

that are not SCHs and that, having 

controlled for SCH status, rural and 

urban hospitals are not different. Rural 

SCHs comprise 90 percent of all SCH, 

and are the basis for the observed 

significance on the SCH variable. 

Notwithstanding the mandate for this 

rural adjustment, we believe that urban 

SCHs would have to demonstrate strong 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68561 

empirical evidence that they are 

significantly more costly than other 

urban hospitals. We do not find the 

strong empirical evidence supporting an 

adjustment for urban SCHs, as we do for 

rural SCHs. 

In many respects, urban SCHs look 

like urban hospitals on some of the key 

variables presented in Table 4. Urban 

SCHs have a mean cost per unit of 

$183.89, and urban hospitals have a 

mean cost per unit of $188.76. Urban 

SCHs have a mean standardized unit 

cost of $74.01, and all urban hospitals 

have a mean standardized cost of 

$73.54. Finally, urban SCHs have a 

mean volume of 36,714, and urban 

hospitals have a mean volume of 38,469. 

Similar to the commenter, we also ran 

an explanatory regression analysis that 

included urban SCHs as a separate class 

of hospitals in addition to rural SCHs, 

small rural hospitals, and other rural 

hospitals. In these results, the 

coefficient associated with urban SCHs 

was 0.05960 and the associated 

probability was 0.1624. If the unit costs 

of urban SCHs are the same as those of 

urban hospitals, the probability of 

observing a value as extreme or more 

extreme than 6.1 percent would be less 

than 20 percent. We acknowledge the 

commenter’s statement that the size of 

the coefficient on the urban SCH 

dummy variable is comparable to that 

on the dummy variable for rural SCHs. 

However, we do not believe that the size 

of the coefficient is sufficient evidence. 

The lack of significance associated with 

such a large coefficient is attributable to 

the much higher standard error 

accompanying urban SCHs compared to 

rural SCHs. Higher standard error 

indicates that there is large variability in 

unit costs for urban SCHs after 

controlling for all other variables in the 

equation. Some urban SCHs may have 

unit costs as high as rural SCHs, but 

clearly many do not. We believe that 

this observation accounts for the lack of 

significance on the rural variable in the 

commenter’s regression analyses, which 

was limited to the population of SCHs. 

Comment: One commenter requested 

that CMS examine whether the 

outpatient costs of Medicare-Dependent 

Small Rural Hospitals (MDHs), a 

subgroup of rural hospitals, are higher 

than urban hospitals’ outpatient costs, 

and provide an adjustment to payments 

if appropriate. 

Response: We did not find any 

evidence that rural MDHs are more 

costly than urban hospitals. We ran an 

explanatory regression analysis that 

included rural MDHs as a separate class 

of small rural hospitals from other small 

rural hospitals because 90 percent of 

rural MDHs were also small rural 

hospitals. We also included all of the 

other variables in Table 6 above, 

including rural SCHs and other rural 

hospitals. In these results, the 

coefficient associated with rural MDHs 

was ¥0.01955, with an associated 

probability of 0.4438. If the unit costs of 

MDHs are the same as those of urban 

hospitals, the probability of observing a 

value as extreme or more extreme than 

2 percent would be less than 50 percent. 

Comment: One commenter argued 

that CMS excluded variables from the 

regression model that control for 

‘‘financial pressure’’ and ‘‘market 

structure.’’ The commenter argued that 

higher costs can be the result of 

inefficient operations as much as they 

could also be the result of higher input 

costs created by rural location, and that 

measures of financial pressure or market 

structure would capture any variation in 

unit cost attributable to a lack of local 

competition. The commenter suggested 

that SCHs may be inefficient because 

they already have special payment 

status under the IPPS and the OPPS. 

Finally, the commenter suggested that, 

because beneficiaries’ access to care is 

the central objective of any payment 

policy, CMS should consider a lowvolume adjustment that better captures 

higher costs that the hospital cannot 

control. At the same time, the 

commenter acknowledged that section 

1833(t)(13)(A) of the Act specifically 

requires an analysis of urban and rural 

costs. 

Response: While it is not 

inappropriate to include additional 

variables in the explanatory regression 

analysis, we first note that section 

1833(t)(13)(A) of the Act specifically 

calls a determination of whether costs 

faced by rural hospitals are higher than 

those faced by urban hospitals. For this 

reason, we believe that the model in 

Table 6 ably controls for scale 

efficiencies in a comparison of urban 

and rural costs. Our adjusted R2 of 54 

percent also demonstrates a relatively 

good fit. We acknowledge that some of 

the SCHs eligible for the adjustment 

may also be more costly because of 

inefficiencies due to limited 

competition or because they currently 

receive special payment status under 

the IPPS and the OPPS. However, we 

also agree with the commenter that 

beneficiary access is an important goal. 

We believe that the current model is 

sufficiently robust to identify hospitals 

with significantly higher costs such that 

payment under the OPPS alone might 

impact beneficiary access. The SCH 

status of these hospitals suggests that 

they are important to beneficiary access. 

Rural SCHs receive their designation 

because they are the only, or one of a 

few, sources of care for beneficiaries. 

For example, these hospitals may be the 

only immediately available source of 

emergency services for Medicare 

beneficiaries. 

In accordance with the authority 

provided in section 1833(t)(13)(B) of the 

Act, as added by section 411 of Pub. L. 

108–173, we are finalizing our policy by 

including a payment adjustment for 

rural SCHs of 7.1 percent and finalizing 

the regulation text at § 419.43(g) as 

noted above. 

H. Hospital Outpatient Outlier 

Payments 

Currently, the OPPS pays outlier 

payments on a service-by-service basis. 

For CY 2005, the outlier threshold is 

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 $1,175 fixed-dollar 

threshold. We introduced a fixed-dollar 

threshold in CY 2005 in addition to the 

traditional multiple threshold in order 

to better target outliers to those high 

cost and complex procedures where a 

very costly service could present a 

hospital with significant financial loss. 

If a provider 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. For a 

discussion on CMHC outliers, see 

section II.B.3. of this final rule with 

comment period. 

As explained in our CY 2005 final 

rule with comment period (69 FR 

65844), we set our projected target for 

aggregate outlier payments at 2.0 

percent of aggregate total payments 

under the OPPS. Our outlier thresholds 

were set so that estimated CY 2005 

aggregate outlier payments would equal 

2.0 percent of aggregate total payments 

under the OPPS. 

For CY 2006, we proposed to set our 

projected target for aggregate outlier 

payments at 1.0 percent of aggregate 

total payments under the OPPS. A 

portion of that 1.0 percent, an amount 

equal to 0.6 percent of outlier payments, 

would be allocated to CMHCs for partial 

hospitalization program service outliers. 

In support of this decision, we cited 

MedPAC’s March 2004 Report to 

Congress, in which MedPAC 

recommended that Congress pursue the 

statutory change needed to eliminate the 

outlier policy under the OPPS. We 

specifically highlighted several of the 

reasons given by MedPAC for the 

elimination of the outlier policy because 

they are equally applicable to any 

68562 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

reduction in the size of the percentage 

of OPPS payments dedicated to outlier 

payments. One of MedPAC’s arguments 

included the very narrow definition of 

many APCs with limited packaging 

frequently resulting in multiple service 

payments for any given claim. In 

addition, we noted that outlier policies 

are susceptible to ‘‘gaming’’ through 

charge inflation and that the OPPS is the 

only ambulatory payment system with 

an outlier policy. Finally, we cited 

MedPAC’s observation that the 

distribution of outlier payments benefits 

some hospital groups more than others. 

In order to ensure that estimated CY 

2006 aggregate outlier payments would 

equal 1.0 percent of estimated aggregate 

total payments under the OPPS, we 

proposed that the outlier threshold be 

modified so that outlier payments are 

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 $1,575 fixed-dollar 

threshold. Ultimately, we chose to 

modify the fixed dollar threshold to 

target 1.0 percent of estimated aggregate 

total payment under the OPPS and not 

to modify the current 1.75 multiple in 

order to further our policy of targeting 

outlier payments to complex and 

expensive procedures with sufficient 

variability to pose a financial risk for 

hospitals. We note that modifying the 

multiple threshold would have done 

less to target outlier payments to 

complex and expensive procedures. 

We calculated the fixed-dollar 

threshold for the proposed rule using 

the same methodology as we did in CY 

2005. The claims that we use to model 

each OPPS lag by 2 years. For this final 

rule with comment period, we used CY 

2004 claims to model the CY 2006 

payment system. In order to estimate CY 

2006 outlier payments for the proposed 

rule, we inflated the charges on the CY 

2004 claims using the same inflation 

factor of 1.0865 that we used to estimate 

the IPPS fixed-dollar outlier threshold 

for the IPPS FY 2006 proposed rule. For 

2 years, the inflation factor is 1.1804. 

The methodology for determining this 

charge inflation factor was discussed at 

length in the IPPS proposed rule (70 FR 

47493, August 12, 2005). As we stated 

in our final rule for 2005, we believe 

that the use of this charge inflation 

factor is appropriate for OPPS because, 

with the exception of the routine service 

cost centers, hospitals use the same cost 

centers to capture costs and charges 

across inpatient and outpatient services 

(69 FR 65845, November 15, 2004). As 

also noted in the IPPS final rule, we 

believe that a charge inflation factor is 

more appropriate than an adjustment to 

costs because this methodology closely 

captures how actual outlier payments 

are made and calculated (70 FR 47495, 

August 12, 2005). We then applied the 

overall cost-to-charge ratio (CCR) that 

we calculate from each Hospital’s Cost 

Report (CMS–2552–96) as part of our 

process for estimating median APC 

costs. The calculation of this overall 

CCR is discussed in greater detail in 

section II.A. of this preamble. We 

estimated outlier payments using these 

costs for several different fixed-dollar 

thresholds, holding the 1.75 multiple 

constant until the aggregated outlier 

payments equaled 1.0 percent of 

aggregated total payments under the 

OPPS. In addition, for CY 2006, we 

proposed an outlier threshold for 

CMHCs of 3.45 times the APC payment 

rate. 

For this final rule with comment 

period, we recalculated the fixed-dollar 

threshold in light of updated claims 

data, a revised charge inflation estimate, 

and more timely CCRs. As in the 

proposed rule, we did not change the 

multiple threshold of 1.75 times the 

APC payment rate, but concentrated on 

adjusting the fixed-dollar threshold. We 

again used the same inflation factor that 

we used to estimate the IPPS fixeddollar threshold. Because the charge 

inflation factor for the IPPS was revised 

to 14.94 percent for 2 years in the IPPS 

FY 2006 final rule (70 FR 47493, August 

12, 2005), we inflated charges on all CY 

2004 OPPS claims by 1.1494. 

We then applied the hospital specific 

overall CCR which we calculated for 

purposes of our APC cost estimation. 

We simulated aggregated outlier 

payments using these costs for several 

different fixed dollar thresholds holding 

the 1.75 multiple constant until the total 

outlier payments equaled 1.0 percent of 

aggregated total OPPS payments. We 

estimate that a threshold of $1,250 

combined with the multiple threshold 

of 1.75 times the APC payment rate will 

allocate 1.0 percent of aggregated total 

OPPS payments to outlier payments. We 

used a lower charge inflation factor of 

14.94 percent to increase charges to 

reflect 2006 dollars. The proposed fixed 

dollar threshold declined to $1,250 from 

$1,575 in the proposed rule primarily 

because we used the lower charge 

inflation factor of 1.1494. 

The following is an example of an 

outlier calculation for CY 2006 under 

our final policy. A hospital charges 

$26,000 for a procedure. The APC 

payment for the procedure is $3,000, 

including a rural adjustment, if 

applicable. Using the provider’s CCR of 

0.30, the estimated cost to the hospital 

is $7,800. To determine whether this 

provider is eligible for outlier payments 

for this procedure, the provider must 

determine whether the cost for the 

service exceeds both the APC outlier 

cost threshold (1.75 × APC payment) 

and the fixed-dollar threshold ($1,250 + 

APC payment). In this example, the 

provider meets both criteria: 

(1) $7,800 exceeds $5,250 (1.75 × 

$3,000) 

(2) $7,800 exceeds $4,250 ($1,250 + 

$3,000) 

To calculate the outlier payment, 

which is 50 percent of the amount by 

which the cost of furnishing the service 

exceeds 1.75 times the APC rate, 

subtract $5,250 (1.75 × $3,000) from 

$7,800 (resulting in $2,550). The 

provider is eligible for 50 percent of the 

difference, in this case $1,275 ($2,550/ 

2). The formula is (cost¥(1.75 × APC 

payment rate))/2. 

For CMHCs, in CY 2005, the outlier 

threshold is met when the cost of 

furnishing a service or procedure by a 

CMHC exceeds 3.5 times the APC 

payment rate. If a CMHC provider meets 

this condition, the outlier payment is 

calculated as 50 percent of the amount 

by which the cost exceeds 3.5 times the 

APC payment rate. For this final rule 

with comment period, updated data 

reduces the multiple outlier threshold 

for CMHCs to 3.4. The outlier threshold 

for a CMHC is met when the cost of 

furnishing a service or procedure by a 

CMHC exceeds 3.4 times the APC 

payment rate. If a CMHC provider meets 

this condition, the outlier payment is 

calculated as 50 percent of the amount 

by which the cost exceeds 3.4 times the 

APC payment rate. 

We received 25 public comments 

concerning our proposed outlier policy. 

Comment: One commenter supported 

CMS’ decision to reduce the percentage 

of total payments set aside for outlier 

payments from 2.0 percent to 1.0 

percent. 

Response: We appreciate the 

commenter’s support. Although the 

fixed-dollar threshold has changed due 

to more accurate data than in the 

proposed rule, we do not believe that 

this change would impact the views 

expressed by the commenter. 

Comment: Several commenters 

expressed concern that, in light of an 

increase in the threshold from $1,175 to 

$1,575, CMS may have set the threshold 

for outlier payments too high. They 

requested clarification as to how CMS 

determined that a $400 increase in the 

fixed-dollar threshold was appropriate 

and how the $1,575 fixed-dollar 

threshold was calculated. The 

commenters specifically noted that in 

the IPPS final rule CMS reduced the 

charge inflation factor used to set the 

fixed-dollar threshold from 18.04 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68563 

percent to 14.94 percent, and suggested 

that CMS make a similar adjustment to 

the OPPS methodology. 

Response: As discussed above, for the 

proposed rule, we used a charge 

inflation factor of 1.1804 to inflate the 

charges on CY 2004 claims to CY 2006 

dollars. We then applied the overall 

CCR that we calculate as part of our 

APC median estimation process to those 

inflated charges to estimate costs. We 

compared these estimated costs to 1.75 

times the proposed APC payment 

amount and to the APC payment 

amount plus a number of fixed-dollar 

thresholds until we identified a 

threshold that produced total outlier 

payments equal to 1.0 percent of total 

aggregated OPPS payments. This 

methodology increased the fixed-dollar 

threshold by $400. 

We repeated the same estimation 

process for this final rule, using a 

complete set of CY 2004 claims, the 

updated charge inflation estimate of 

14.94 percent from the IPPS final rule, 

as requested by commenters, and each 

hospital’s overall CCR, as calculated for 

our APC median setting process. The 

final fixed dollar threshold for OPPS 

2006 is $1,250 plus the APC payment 

rate, and the final multiple threshold is 

1.75 times the APC payment rate. 

Comment: Commenters expressed 

concern that CMS has never reported 

the actual amount of outlier payments 

for the OPPS made in past years. They 

noted that CMS routinely reports prior 

year outlier payments for the IPPS. The 

commenters also expressed concern that 

CMS may not spend the percentage of 

total aggregated OPPS payment set aside 

each year for outlier payments. One 

commenter hypothesized that outlier 

payments had been underspent in 

previous years, and that the proposed 

reduction in outlier payments was 

designed to realign the policy with 

actual payment. The commenters urged 

CMS to publish data on actual outlier 

payments made in CY 2004 and prior 

years in the final rule. They also 

recommended that actual outlier 

payments for CY 2005 OPPS be reported 

as soon as CMS is able to obtain 

accurate data and that CMS continue to 

report these data in the future. 

Response: As we have stated in prior 

rules (see for example 69 FR 65847, 

November 15, 2004), we have not 

provided aggregate outlier payments for 

past years because we do not use those 

estimates to set the outlier thresholds 

and because we make outpatient claims 

available. However, we understand that 

providers might wish to know this 

information, especially in light of recent 

changes in the OPPS outlier policy. In 

the final set of CY 2004 OPPS claims, 

aggregated outlier payments were 2.5 

percent of aggregated total OPPS 

payments. In the final set of CY 2003 

OPPS claims, aggregated outlier 

payments were 3.1 percent of aggregated 

total OPPS payments. For both years, 

the estimated outlier payments were set 

at 2 percent of total aggregated OPPS 

payments. At this time, we cannot make 

accurate estimates about aggregated total 

outlier payments for CY 2005, but we 

intend to provide this information in 

our proposed rule for CY 2007. We 

intend to continue reporting the 

percentage of total payments made in 

outlier payments for the most recent and 

complete set of claims in future rules. 

We note above our reasons for 

proposing to reduce the projected target 

percent of total aggregated OPPS 

payments attributable to outlier 

payments. 

Comment: Several commenters 

suggested that CMS did not provide 

sufficient analytic support to justify a 

reduction in outlier payments from 2.0 

percent to 1.0 percent, relying only on 

MedPAC’s recommendations. The 

commenters urged CMS not to change 

its outlier policy or to delay 

implementation until greater technical 

analyses could be conducted. One 

commenter suggested that, without 

CMS’ technical analyses, stakeholders 

cannot conduct their own analyses. The 

commenters frequently questioned our 

reference to the March 2004 MedPAC 

Report to Congress and stated that 

outlier payments are not evenly 

distributed among hospitals as 

justification for reducing the percentage 

of total payments dedicated to outlier 

payments. They noted that differences 

in outlier payments would be expected 

for hospitals serving different 

populations. Several commenters cited 

the continued instability in rates as a 

reason for continuing at 2.0 percent. 

One commenter specifically 

hypothesizes that instability in payment 

rates may be attributable to a lack of 

stability in unit costs, suggesting a 

continued need for outlier payments. 

Another commenter acknowledged that 

the variability in costs for APCs was 

clearly less than that for DRGs, but that 

the current policy of setting aside two 

percent of total payments, already 

accounted for this difference. 

Response: Our decision to reduce the 

projected target amount of total 

payments set aside for outlier payments 

is based on the technical analyses that 

MedPAC conducted in its March 2004 

Report to Congress demonstrating that 

the CY 2004 OPPS outlier policy was 

ineffective at addressing complex cases 

of financial risk and on the arguments 

that MedPAC made against outlier 

payments. As noted above, MedPAC 

argued that the fairly narrow definition 

of the APC groups makes outlier 

payments less necessary for the OPPS, 

that the limited packaging in OPPS 

frequently resulting in multiple service 

payments for any given claim, and that 

the susceptibility to ‘‘gaming’’ through 

charge inflation continues. MedPAC’s 

2004 Report to Congress also suggested 

that our outlier policy could be 

redistributing outlier payments among 

hospitals based on cost structures or 

charging patterns rather than differences 

in case-mix. We agree with the 

commenters that an unequal 

distribution of outlier payments 

according to differences in case mix is 

appropriate, the concern is that different 

case mix does not account for outlier 

payment distributions. 

We do not believe that the moderate 

fluctuation in APC payment rates that 

continues to be present in the OPPS is 

an adequate argument against reducing 

the percentage of aggregated total OPPS 

payments set aside for outlier payments 

for several reasons: changes in payment 

rates appropriately reflect changes in 

costs, the variability of costs is less for 

complex and expensive procedures, and 

outlier payments in OPPS target services 

not cases. As discussed in section II.A. 

of this preamble, we believe that the 

moderate changes in the payment rates 

remaining after the system has been 

operating for several years is, in large 

part, a function of the small APC group 

size and service basis. The small group 

size of the APCs makes changes in 

service costs more transparent than if 

groups were larger. Aggregation 

generally reduces variation. Changes in 

payment rates from year to year 

appropriately reflect true changes in the 

cost of a specific service. Changes in 

cost and charging patterns captured in 

a provider’s cost report will lead to 

changes in the median cost of services 

from year to year. In addition, we are 

required to adjust the APCs each year to 

ensure that groups are comparable with 

‘‘respect to the use of resources.’’ The ‘‘2 

times’’ rule requires that the highest 

median cost for an item or service 

within the group not be greater than two 

times the lowest median cost. The ‘‘2 

times’’ rule specifically limits the 

amount of variability of unit costs in 

any group, forcing the APC payment 

rates to reflect changes in costs. It 

embeds some fluctuation into APC 

payment rates, but also reduces the need 

for an expansive outlier policy. 

The observed variability in unit costs 

is greater for low cost and simple 

procedures and smaller for complex, 

expensive procedures. In its 2004 

Report to Congress, MedPAC found that 

68564 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

the highest variability in estimated costs 

was associated with the lowest cost 

items. This observation continues to be 

true in the CY 2004 claims. On average, 

HCPCS codes with low median costs 

demonstrate greater variability, as 

measured by the coefficient of variation, 

than HCPCS codes with high median 

costs. The coefficient of variation is the 

percent of the standard deviation 

accounted for by the mean and enables 

a relative comparison of variation across 

groups. This trend also is evident in the 

APC coefficient of variation. The bottom 

50 percent of APCs arrayed by median 

costs have an average coefficient of 

variation of 82 percent, whereas the top 

50 percent of APCs, arrayed by median 

cost, have an average coefficient of 

variation of 63 percent. 

Finally, OPPS outlier payments are 

targeted to services, rather than cases. 

Unlike the IPPS, outlier payments are 

not for extremely costly patients but 

extremely costly services. In many 

cases, an extremely costly case in the 

outpatient setting may not warrant an 

outlier payment because no specific 

service was excessively costly. The 

small number of services included in 

any APC group means that the provider 

will receive payment for most services 

billed on a claim. Reducing total outlier 

payments to 1.0 percent of total OPPS 

payments effectively raises the payment 

for all other services because the 

foregone 1.0 percent of total spending is 

returned to the conversion factor. We 

acknowledge the comment stating that 

the comparative difference in cost 

variability between the IPPS and the 

OPPS is already accounted for in the 

difference between the 5 to 6 percent 

estimated outlier target under IPPS and 

the 2 percent projected outlier estimate 

under OPPS. However, we believe that 

setting total outlier payments at 1.0 

percent of total aggregated OPPS 

payments sets aside an appropriate 

amount of dollars for unexpected and 

costly services. 

Comment: One commenter indicated 

concern that CMS proposed an 

additional change to the outlier 

payments before having one year of 

experience with the fixed-dollar 

threshold introduced in CY 2005. 

Response: We do not believe that 

these two policies are related. The 

amount of total aggregated OPPS 

payments set aside for outlier payments 

is an entirely different policy from the 

manner in which those payments are 

distributed to hospitals. We did not 

institute the fixed-dollar threshold to 

reduce outlier payments, but rather to 

target payments to expensive and costly 

cases. The fixed-dollar threshold will 

continue to have this effect within a 

smaller amount of outlier payments. 

Comment: Several commenters 

suggested that CMS did not sufficiently 

demonstrate the impact on hospitals of 

reducing the percentage of estimated 

total payments dedicated to outlier 

payments 2.0 percent to 1.0 percent and 

requested this analysis. The commenters 

expressed concern that hospitals 

providing sophisticated and expensive 

technologies to very sick patients would 

be placed at greater risk of financial 

loss. Most of the commenters suggested 

that the reduction in the outlier 

percentage be delayed until CMS can 

fully evaluate the impact, while other 

commenters simply urged for a return to 

the 2-percent target amount. 

Response: For the proposed rule, we 

did not include a specific analysis of the 

redistributive impact of outliers because 

the fixed-dollar threshold policy did not 

change, only the aggregate amount of 

dollars paid. We did include outlier 

payments in our impact tables, and we 

made the amount of outlier payment 

estimated for each hospital available on 

our Web site. However, we appreciate 

commenters’ desire to more fully view 

the impact of the outlier policy. For this 

final rule with comment period, we 

have provided a separate table in our 

regulatory impact analysis, section XIX 

of this preamble, showing the 

differences in total aggregated OPPS 

payment for CY 2006 attributable to the 

change in the outlier policy. We 

estimate that no class of hospital will 

experience more than a 1 percent 

change in total payments due to outlier 

payments and many classes of hospitals 

receive greater payments. 

Comment: Several commenters 

suggested that CMS pay outlier claims at 

the same rate at which inpatient outlier 

claims are paid, that is, 80 percent of 

cost. Various rationales were provided, 

including consistency with the IPPS, 

ensuring that hospitals can recoup the 

variable costs of providing expensive 

care, and improving the adequacy of 

payments. 

Response: We believe that the 

payment percentage of 50 percent is 

appropriate for the OPPS because, in 

general, a costly OPPS service poses less 

of a financial risk for hospitals than a 

costly case under the IPPS. If we did 

increase the payment percentage to 80 

percent, we would have to compensate 

elsewhere to maintain the 1.0 percent 

set aside for outlier payments, probably 

by raising the fixed-dollar threshold. 

Changing the payment percentage to 80 

percent would merely concentrate a 

more generous outlier payment on a 

much smaller number of extremely 

costly services each year. 

Comment: One commenter 

recommended a new methodology for 

estimating the fixed-dollar outlier 

threshold for both the OPPS and the 

IPPS. The commenter suggested that, in 

addition to inflating charges from CY 

2004 to CY 2006, CMS also should 

adjust CCRs to reflect proportionally 

slower inflation in costs. The 

commenter believed that this would 

result in deflating overall CCRs. The 

commenter specifically recommended 

that CMS update the CCRs for the OPPS 

to the latest available hospital-specific 

data. 

Response: We agree with the 

commenter that the CCRs that we use to 

set the outlier thresholds should be as 

recent as possible. We also believe that 

these CCRs should reflect, as closely as 

possible, the actual CCRs that the fiscal 

intermediary will use to determine 

outlier payments in CY 2006. As we did 

for the IPPS final rule (70 FR 47493, 

August 12, 2005), we used the overall 

CCRs from the most recent providerspecific file, in this case, the July 2005 

OPSF, to estimate costs from inflated 

charges on CY 2004 claims. The OPSF 

contains CCRs from each provider’s 

most recent tentatively settled cost 

report. Because of the time it takes to 

complete cost reports and upload them 

in the fiscal intermediaries’ standard 

systems, for at least part of CY 2006, the 

CCRs on the OPSF are the same ones 

that the fiscal intermediaries will use to 

determine outlier payments. However, 

unlike the IPPS, the overall CCRs on the 

OPSF are higher than those that we use 

to estimate APC medians. The median 

overall CCR that we calculate from each 

hospital’s cost report as a default CCR 

in estimating costs from charges in order 

to set relative weights is 0.305, whereas 

the median overall CCR on the OPSF is 

0.32. Were we to use the CCRs from the 

OSPF, the fixed dollar threshold would 

increase, from $1,250 to $1,800. 

We will consider using the CCRs 

found in the OSPF for the CY 2007 

OPPS outlier calculations, similar to our 

calculations under IPPS. However, in 

view of the newness of a fixed-dollar 

threshold for OPPS outlier payments 

and our concern that using the OSPF 

CCRs for this final rule would result in 

an $1,800 fixed dollar threshold that is 

considerably higher than the proposed 

threshold, we have decided to use the 

CCRs that we calculated for the APC 

median setting process for our outlier 

calculations as we have in past years. 

These CCRs are timely, as the majority 

of them are created from cost reports 

with fiscal years beginning in 2004 and 

2003. 

Comment: One commenter requested 

that CMS reverse its decision to reduce 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68565 

the percentage of total payments 

attributable to outlier payments to 1 

percent and return outlier payments to 

the target level of 3 percent established 

under the Balanced Budget Act (BBA) of 

1997. 

Response: For all of the reasons stated 

above, we do not believe that outlier 

payments should be increased to 3 

percent of total payments. We further 

note that the BBA, as revised by the 

Balanced Budget Refinement Act 

(BBRA) of 1999, set an upper limit of 

‘‘no more than’’ 3.0 percent for outlier 

policies, giving the Secretary the 

discretion to set a lower estimated target 

percent. 

Comment: One commenter expressed 

concern that decreasing the outlier pool 

and increasing the fixed dollar 

threshold may encourage greater 

packaging in order to increase 

procedure charges. 

Response: We do not believe that 

greater packaging is an issue for the 

OPPS outlier policy. Should providers 

choose to package more services into the 

charges for payable procedures and not 

report packaged services, over time, 

those higher costs would lead to higher 

payment rates for payable procedures. 

This would, in turn, increase the fixed 

dollar outlier threshold. Further, rolling 

the charges for packaged services into 

the charges for payable procedures is 

expected under OPPS. 

Comment: One commenter requested 

that CMS describe the services that 

qualify for outlier payments. 

Response: The actual services that 

qualify for outlier payments under the 

fixed dollar threshold policy introduced 

in CY 2005 will likely be quite similar 

to those receiving payments under 2005 

OPPS. As noted above, at this time, we 

do not have a complete set of CY 2005 

claims. However, in our analysis 

replicating the analysis done by 

MedPAC in its March 2004 Report to 

Congress, we estimate that costly 

services such as APC 0246 (Cataract 

Procedures with IOL Insert), APC 0080 

(Diagnostic Cardiac Catheterization), 

and APC 0131 (Level II Laparoscopy) 

would receive a large percentage of 

outlier payments under the fixed-dollar 

threshold policy. 

Accordingly, after considering the 

public comments received, for CY 2006, 

we are finalizing the OPPS outlier 

policy of two thresholds for hospitals of 

a multiple threshold of 1.75 times the 

APC payment amount and a fixed dollar 

threshold of $1,250 plus the APC 

payment amount and one threshold for 

CMHCs of 3.4 times the APC payment 

amount. 

I. Calculation of the National 

Unadjusted Medicare Payment 

The basic methodology for 

determining prospective payment rates 

for OPD services under the OPPS is set 

forth in existing regulations at § 419.31 

and § 419.32. The payment rate for 

services and procedures for which 

payment is made under the OPPS is the 

product of the conversion factor 

calculated in accordance with section 

II.C. of this final rule with comment 

period and the relative weight 

determined under section II.A. of this 

final rule with comment period. 

Therefore, the national unadjusted 

payment rate for APCs contained in 

Addendum A to this final rule with 

comment period and for HCPCS codes 

to which payment under the OPPS has 

been assigned in Addendum B to this 

final rule with comment period 

(Addendum B is provided as a 

convenience for readers) was calculated 

by multiplying the final CY 2006 scaled 

weight for the APC by the final CY 2006 

conversion factor. 

However, to determine the payment 

that will be made in a calendar year 

under the OPPS to a specific hospital for 

an APC for a service other than a drug, 

in a circumstance in which the multiple 

procedure discount does not apply, we 

take the following steps: 

Step 1. Calculate 60 percent (the 

labor-related portion) of the national 

unadjusted payment rate. Since initial 

implementation of the OPPS, we have 

used 60 percent to represent our 

estimate of that portion of costs 

attributable, on average, to labor. (Refer 

to the April 7, 2000 final rule with 

comment period (65 FR 18496 through 

18497) for a detailed discussion of how 

we derived this percentage.) 

Step 2. Determine the wage index area 

in which the hospital is located and 

identify the wage index level that 

applies to the specific hospital. The 

wage index values assigned to each area 

reflect the new geographic statistical 

areas as a result of revised OMB 

standards (urban and rural) to which 

hospitals are assigned for FY 2006 

under the IPPS, reclassifications 

through the Medicare Classification 

Geographic Review Board, section 

1866(d)(8)(B) ‘‘Lugar’’ hospitals, and 

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

reclassifications of hospitals under the 

one-time appeals process under section 

508 of Pub. L. 108–173. The wage index 

values include the occupational mix 

adjustment described in section II.D. of 

this final rule with comment period that 

was developed for the FY 2006 IPPS. 

Step 3. Adjust the wage index of 

hospitals located in certain qualifying 

counties that have a relatively high 

percentage of hospital employees who 

reside in the county, but who work in 

a different county with a higher wage 

index, in accordance with section 505 of 

Pub. L. 108–173. Addendum L contains 

the qualifying counties and the final 

wage index increase developed for the 

FY 2006 IPPS. This step is to be 

followed only if the hospital has chosen 

not to accept reclassification under Step 

2 above. 

Step 4. Multiply the applicable wage 

index determined under Steps 2 and 3 

by the amount determined under Step 1 

that represents the labor-related portion 

of the national unadjusted payment rate. 

Step 5. Calculate 40 percent (the 

nonlabor-related portion) of the national 

unadjusted payment rate and add that 

amount to the resulting product of Step 

4. The result is the wage index adjusted 

payment rate for the relevant wage 

index area. 

Step 6. If a provider is a SCH, as 

defined in § 419.92, and located in a 

rural area, as defined in § 412.63(b), or 

is treated as being located in a rural area 

under § 412.103 of the Act, multiply the 

wage index adjusted payment rate by 

1.071 to calculate the total payment. 

We received no public comments 

concerning our proposal for calculating 

the national unadjusted Medicare 

payment rate. Therefore; we are 

adopting as final, for OPPS services 

furnished on or after January 1, 2006, 

our proposed methodology for 

calculating the national unadjusted 

Medicare payment amount. 

J. Beneficiary Copayments for CY 2006 

1. Background 

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

requires the Secretary to set rules for 

determining copayment amounts to be 

paid by beneficiaries for covered OPD 

services. Section 1833(t)(8)(C)(ii) of the 

Act specifies that the Secretary must 

reduce the national unadjusted 

copayment amount for a covered OPD 

service (or group of such services) 

furnished in a year in a manner so that 

the effective copayment rate 

(determined on a national unadjusted 

basis) for that service in the year does 

not exceed specified percentages. For all 

services paid under the OPPS in CY 

2006, and in calendar years thereafter, 

the specified percentage is 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 coinsurance 

amount cannot be less than 20 percent 

of the OPD fee schedule amount. 

68566 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

2. Copayment for CY 2006 

For CY 2006, we proposed to 

determine copayment amounts for new 

and revised APCs using the same 

methodology that we implemented for 

CY 2004 (see the November 7, 2003 

OPPS final rule with comment period, 

68 FR 63458). We used the same 

methodology to determine the final 

unadjusted copayment amounts for 

services payable under the OPPS that 

will be effective January 1, 2006. These 

copayment amounts are shown in 

Addendum A and Addendum B of this 

final rule with comment period. 

3. Calculation of the Unadjusted 

Copayment Amount for CY 2006 

To calculate the unadjusted 

copayment amount for an APC group, 

take 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 0001, $7.00 is 29 

percent of $23.79. 

Step 2. Calculate the wage adjusted 

payment rate for the APC, for the 

provider in question, as indicated in 

section II.I. of this preamble. 

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. 

We received two public comments 

concerning our proposed methodology 

for calculating the beneficiary 

unadjusted copayment amount. 

Comment: One commenter 

recommended that CMS maintain the 

coinsurance amount above 40 percent of 

the APC payment amount as the 

proposed payment rate for CY 2006 is 

lower than the CY 2005 payment rate 

when adjusted for inflation. 

Response: We appreciate the 

commenter’s recommendation but note 

that the statute does not provide for this. 

Section 1833(t)(8)(C)(ii) of the Act 

specifies that the Secretary must reduce 

the national unadjusted copayment 

amount for a covered OPD service (or 

group of such services) furnished in a 

year in a manner so that the effective 

copayment rate (determined on a 

national unadjusted basis) for that 

service in the year does not exceed 

specified percentages. For all services 

paid under the OPPS in CY 2006, and 

in calendar years thereafter, that 

specified percentage is 40 percent of the 

APC payment rate. 

Comment: One commenter objected to 

beneficiaries being liable for more than 

20 percent of the Medicare payment rate 

for services paid under the OPPS. The 

commenter acknowledged that the law 

limits the copayment for a single service 

to the amount of the inpatient 

deductible, but objected to there being 

no limit to the amount of coinsurance 

that a beneficiary can incur per year or 

even for a single outpatient encounter. 

The commenter acknowledged that the 

amount of beneficiary copayment 

liability is set in statute but urged CMS 

to work with Congress to restore 

beneficiary coinsurance of hospital 

outpatient services to the level it views 

as appropriate. 

Response: As the commenter 

indicated, the level of beneficiary 

coinsurance is set based on specific 

statutory criteria. 

Comment: One commenter 

recommended that CMS work with 

Congress to restore the beneficiary 

coinsurance for hospital outpatient 

services to the appropriate level. By 

‘‘appropriate,’’ we assume the 

commenter means that coinsurance for 

all OPPS services should be 20 percent, 

which is the coinsurance rate for other 

services paid under Medicare Part B. 

Response: We appreciate the 

commenter’s recommendation and will 

take it into consideration. However, 

until the statute at section 

1833(t)(8)(C)(ii) of the Act is revised, the 

Secretary must adhere to the current 

requirements of the law, which caps the 

beneficiary coinsurance payment at 40 

percent of the APC payment rate. In 

addition, the law requires that the 

coinsurance amount be no less than 20 

percent of the APC rate. 

Accordingly, we are adopting as final, 

for OPPS services furnished on or after 

January 1, 2006, our proposed 

methodology for calculating the 

beneficiary unadjusted copayment 

amount. 

III. Ambulatory Payment Classification 

(APC) Group Policies 

A. Introduction 

1. Treatment of New HCPCS Codes 

Discussed in the CY 2006 OPPS 

Proposed Rule 

During the second quarter of CY 2005, 

we created 11 HCPCS codes that were 

not addressed in the November 15, 2004 

final rule with comment period that 

updated the CY 2005 OPPS. (Table 14 

of the CY 2006 OPPS proposed rule.) 

We have designated the payment status 

of those codes and added them to the 

April update of the CY 2005 OPPS 

(Transmittal 514). In the proposed rule, 

we also solicited public comments on 

the proposed APC assignments of these 

services. 

TABLE 7.—NEW HCPCS CODES IMPLEMENTED IN APRIL 2005 

HCPCS code Description 

C9127 .................... Injection, paclitaxel protein-bound particles, per 1 mg. 

C9128 .................... Injection, pegaptamib sodium, per 0.3 mg. 

C9223 .................... Injection, adenosine for therapeutic or diagnostic use, 6 mg (not to be used to report any adenosine phosphate compounds, instead use A9270). 

C9440 .................... Vinorelbine tartrate, brand name, per 10 mg. 

C9723 .................... Dynamic infrared blood perfusion imaging (DIRI). 

C9724 .................... Endoscopic full-thickness plication in the gastric cardia using endoscopic plication system (EPS); includes endoscopy. 

Q4079 .................... Injection, natalizumab, 1 mg. 

Q9941 .................... Injection, Immune Globulin, Intravenous, Lyophilized, 1 g. 

Q9942 .................... Injection, Immune Globulin, Intravenous, Lyophilized, 10 mg. 

Q9943 .................... Injection, Immune Globulin, Intravenous, Non-Lyophilized, 1 g. 

Q9944 .................... Injection, Immune Globulin, Intravenous, Non-Lyophilized, 10 mg. 

Further, consistent with our annual 

APC updating policy, we proposed to 

assign the new HCPCS codes for CY 

2006 to the appropriate APCs and 

incorporate them into our final rule 

with comment period for CY 2006. 

We did not receive any public 

comments on the new procedural C 

codes, their status indicators, or their 

APC assignments for the two new OPPS 

procedures (C9723 and C9724) 

implemented in April 2005. Therefore, 

we are adopting as final our proposal to 

assign these HCPCS codes C9723 and 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68567 

C9724 for CY 2006 to the appropriate 

APCs, as shown in Addendum B of this 

final rule with comment period, without 

modification. 

We received a number of public 

comments related to drugs described by 

new HCPCS codes implemented in 

April 2005 in the OPPS; specifically, 

HCPCS codes C9127, C9128, C9223, 

C9440, Q4079, Q9941, Q9942, Q9943, 

and Q9944. See section V. of this 

preamble (Payment Changes for Drugs, 

Biologicals, and Radiopharmaceutical 

Agents) for a discussion of these 

comments, including comment 

summaries, our responses and a 

description of our final OPPS payment 

policies. In addition, our final payment 

policy for CY 2006 is included in 

Addendum B of this final rule with 

comment period. 

2. Treatment of New CY 2006 HCPCS 

Codes 

In the proposed rule, we proposed 

that we would assign new HCPCS codes 

for CY 2006 to appropriate APCs and/ 

or status indicators and that we would 

implement them in our final rule. 

However, we received some comments 

regarding individual new HCPCS codes 

that commenters expect to be 

implemented for the first time in the CY 

2006 OPPS. We do not specifically 

respond to those comments in this final 

rule. We could not discuss APC and/or 

status indicator assignments for new CY 

2006 HCPCS codes in the proposed rule 

because the new CY 2006 HCPCS codes 

were not available when we issued the 

proposed rule. Rather, as has been our 

practice in the past, we implement new 

HCPCS codes in the OPPS final rule, at 

which time we invite public comment 

about our treatment of the new codes. 

We subsequently respond to those 

comments in the final rule for the 

following year’s OPPS update. 

New 2006 HCPCS codes are 

designated in Addendum B with 

Comment Indicator ‘‘NI.’’ The status 

indicator and/or APC assignments for 

all HCPCS codes flagged with Comment 

Indicator ‘‘NI’’, which are new 2006 

HCPCS codes, are subject to public 

comment. 

3. Treatment of New Mid-Year Category 

III CPT Codes 

Twice each year, the AMA issues 

Category III CPT codes, which the AMA 

defines as temporary codes for emerging 

technology, services, and procedures. 

The AMA established these codes to 

allow collection of data specific to the 

service described by the code which 

otherwise could only be reported using 

a Category I CPT unlisted code. The 

AMA releases Category III CPT codes in 

January, for implementation beginning 

the following July, and in July, for 

implementation beginning the following 

January. In the past, CMS has treated 

new Category III CPT codes 

implemented in July of the previous 

year or January of the OPPS update year 

in the same manner that new Category 

I CPT codes and new Level II HCPCS 

codes implemented in January of the 

OPPS update year are treated; that is, we 

provide APC and/or status indicator 

assignments in the final rule updating 

the OPPS for the following calendar 

year. New Category I and Category III 

CPT codes, as well as new Level II 

HCPCS codes, are flagged with 

Comment Indicator ‘‘NI’’ in Addendum 

B of the final rule to indicate that we are 

assigning them an interim payment 

status which is subject to public 

comment following publication of the 

final rule that implements the annual 

OPPS update. 

We are concerned that not recognizing 

for 6 months (from July to January) the 

Category III codes that the AMA releases 

each January for implementation in July 

may hinder timely collection of data 

pertinent to the services described by 

the codes. Moreover, delay in 

recognizing these codes could inhibit 

access to the services they describe 

because of provider reluctance to 

furnish a service that defaults to the 

OPPS payment assigned to unlisted 

codes. Also, we have on occasion found 

redundancy between Category III CPT 

codes and some of the C-codes, which 

are only payable under the OPPS and 

created by us in response to 

applications for New Technology 

services. Therefore, beginning in CY 

2006, we are modifying this process and 

recognizing Category III CPT codes that 

are released by the AMA in January to 

be effective beginning July of the same 

calendar year in which they are issued, 

rather than deferring recognition of 

those codes to the following calendar 

year update of the OPPS. Adopting this 

approach means that new Category III 

CPT codes will be recognized under the 

OPPS biannually rather than annually. 

Some of the new Category III CPT 

codes may describe services that our 

medical advisors determine to be 

similar in clinical characteristics and 

resource use to HCPCS codes in an 

existing APC. In these instances, we 

may assign the Category III CPT code to 

the appropriate clinical APC. Other 

Category III CPT codes may describe 

services that our medical advisors 

determine are not compatible with an 

existing clinical APC, yet are 

appropriately provided in the hospital 

outpatient setting. In these cases, we 

may assign the Category III CPT code to 

what we estimate is an appropriately 

priced New Technology APC. In other 

cases, we may assign a Category III CPT 

code one of several non-separately 

payable status indicators, including N, 

C, B, or E, which we feel is appropriate 

for the specific code. We expect that we 

will already have received applications 

for New Technology status for some of 

the services described by new Category 

III CPT codes, which may assist us in 

determining appropriate APC 

assignments. If the AMA establishes a 

Category III CPT code for a service for 

which an application has been 

submitted to CMS for New Technology 

status, CMS may not have to issue a 

temporary Level II HCPCS code to 

describe the service, as has often been 

the case in the past when Category III 

CPT codes were only recognized by the 

OPPS on an annual basis. 

Therefore, beginning in July 2006, 

CMS will implement in the regular 

quarterly update of the OPPS the 

Category III CPT codes that the AMA 

releases in January 2006 for 

implementation in July 2006. CMS will 

implement in the January 2007 update 

of the OPPS the Category III CPT codes 

that the AMA releases in July 2006, and 

so forth. 

B. 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 services. Section 

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

classification system may be composed 

of groups of services, so that services 

within each group are comparable 

clinically and with respect to the use of 

resources. In accordance with these 

provisions, we developed a grouping 

classification system, referred to as the 

Ambulatory Payment Classification 

Groups (or APCs), as set forth in 

§ 419.31 of the regulations. We use 

Level I and Level II HCPCS codes and 

descriptors to identify and group the 

services within each APC. The APCs are 

organized such that each group is 

homogeneous both clinically and in 

terms of resource use. Using this 

classification system, we have 

established distinct groups of surgical, 

diagnostic, partial hospitalization 

services, and medical visits. We also 

have developed separate APC groups for 

certain medical devices, drugs, 

biologicals, radiopharmaceuticals, and 

brachytherapy devices. 

We have packaged into each 

procedure or service within an APC 

group the cost associated with those 

items or services that are directly related 

68568 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

and integral to performing a procedure 

or furnishing a service. Therefore, we do 

not make separate payment for packaged 

items or services. For example, 

packaged items and services include: 

use of an operating, treatment, or 

procedure room; use of a recovery room; 

use of an observation bed; anesthesia; 

medical/surgical supplies; 

pharmaceuticals (other than those for 

which separate payment may be 

allowed under the provisions discussed 

in section V of this preamble); and 

incidental services such as 

venipuncture. Our packaging 

methodology is discussed in section 

II.A. of this final rule with comment 

period. 

Under the OPPS, we pay for hospital 

outpatient services on a rate-per-service 

basis that varies according to the APC 

group to which the service is assigned. 

Each APC weight represents the hospital 

median cost of the services included in 

that APC relative to the hospital median 

cost of the services included in APC 

0601 (Mid-Level Clinic Visits). The APC 

weights are scaled to APC 0601 because 

a mid-level clinic visit is one of the 

most frequently performed services in 

the outpatient setting. 

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

requires the Secretary to review the 

components of the OPPS not less than 

annually and to revise the groups and 

relative payment weights and make 

other adjustments to take into account 

changes in medical practice, changes in 

technology, and the addition of new 

services, new cost data, and other 

relevant information and factors. 

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

amended by section 201(h) of the BBRA 

of 1999, also requires the Secretary, 

beginning in CY 2001, to consult with 

an outside panel of experts to review the 

APC groups and the relative payment 

weights (the APC Panel 

recommendations for CY 2006 OPPS 

and our responses to them are discussed 

in sections III.B. and III.C.4. of this 

preamble). 

Finally, as discussed earlier, section 

1833(t)(2) of the Act provides that, 

subject to certain exceptions, the items 

and services within an APC group 

cannot be considered comparable with 

respect to the use of resources if the 

highest median (or mean cost, if elected 

by the Secretary) for an item or service 

in the group is more than 2 times greater 

than the lowest median cost for an item 

or service within the same group 

(referred to as the ‘‘2 times rule’’). We 

use the median cost of the item or 

service in implementing this provision. 

The statute authorizes the Secretary to 

make exceptions to the 2 times rule in 

unusual cases, such as low-volume 

items and services. 

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 median of the highest cost item or 

service within an APC group is more 

than 2 times greater than the median of 

the lowest cost item or service within 

that same group (‘‘2 times rule’’). We 

make exceptions to this limit on the 

variation of costs within each APC 

group in unusual cases such as lowvolume items and services. The statute 

provides no 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 because these drugs 

are assigned to individual APCs. 

During the APC Panel’s February 2005 

meeting, we presented median cost and 

utilization data for the period of January 

1, 2004, through September 30, 2004, 

concerning a number of APCs that 

violated the 2 times rule and asked the 

APC Panel for its recommendation. 

After carefully considering the 

information and data we presented, the 

APC Panel recommended moving a total 

of 65 HCPCS codes from their currently 

assigned APCs to different APCs to 

resolve the 2 times rule violations. Of 

the 65 HCPCS code reassignments 

recommended by the APC Panel, we 

concurred with 58 of the recommended 

reassignments. Therefore, we proposed 

to reassign the HCPCS codes as 

indicated in Table 7 of the proposed 

rule (70 FR 42703). 

The seven HCPCS code movements 

that the APC Panel recommended, but 

upon further review we proposed not to 

accept, are discussed below. We include 

in our discussion the assignments we 

also proposed and the final assignments 

for CY 2006. 

a. APC 0146: Level I Sigmoidoscopy, 

APC 0147: Level II Sigmoidoscopy, APC 

0428: Level III Sigmoidoscopy. APCs 

0146 and 0147 were exceptions to the 2 

times rule in CY 2005. At the time of the 

proposed rule, our analysis of those two 

APCs based on partial year CY 2004 

data revealed greater violations of the 2 

times rule and changing relative 

frequencies of simple and complex 

procedures in these two APCs. Thus, for 

CY 2006 the APC Panel assisted us in 

reconfiguring these two APCs into three 

related APCs to resolve the two times 

violations and improve their clinical 

and resource homogeneity based on the 

partial CY 2004 hospital claims data and 

to remove these APCs from the list of 

exceptions. The APC Panel 

recommended maintaining CPT codes 

45303 (Proctosigmoidoscopy, rigid; with 

dilation) and 45305 

(Proctosigmoidoscopy, rigid; with 

biopsy, single or multiple) in APC 0146 

because the median cost for these codes 

appeared too high, and they believed 

that the CY 2004 claims were aberrant. 

In addition, the APC Panel 

recommended that CMS move CPT code 

45309 (Proctosigmoidoscopy, rigid; with 

removal of single tumor, polyp, or other 

lesion by snare technique) from APC 

0147 and assign it to a new proposed 

APC 0428. Based on the results of our 

review of several years of claims data 

and our study of hospital resource 

homogeneity, we disagreed that those 

claims data were aberrant. We proposed 

to move CPT codes 45303 and 45305 to 

APC 0147 and to keep CPT 45309 in 

APC 0147, to resolve the 2 times rule 

violation. 

We received no public comments 

concerning our proposed APC 

assignments for CPT codes 45303, 45305 

and 45309 and are making final our 

proposal, without modification. 

b. APC 0342: Level I Pathology, APC 

0433: Level II Pathology, APC 0343: 

Level III Pathology. To resolve a 2 times 

rule violation, the APC Panel 

recommended moving CPT codes 88108 

(Cytopathology, concentration 

technique, smears and interpretation) 

and 88112 (Cytopathology, selective 

cellular enhancement technique with 

interpretation, except vaginal or 

cervical) from APC 0343 to a proposed 

new APC 0433. The APC Panel also 

recommended moving CPT codes 88319 

(Determinitive histochemistry or 

cytochemistry to identify enzyme 

constituents) and 88321 (Consultation 

and report on referred slides prepared 

elsewhere) from APC 0342 to a 

proposed new APC 0433. Based on the 

results of our review of several years of 

hospital claims data and our study of 

hospital resource homogeneity, we 

proposed a different way to resolve the 

2 times rule violation. We proposed to 

place CPT codes 88319 and 88112 in 

APC 0343 and to place CPT codes 88108 

and 88321 in new APC 0433. 

We received no public comments 

concerning our proposal. 

We will finalize, without modification 

our proposal to assign CPT codes 88112 

and 88319 to APC 0343 and to assign 

CPT codes 88108 and 88321 to new APC 

0433. 

c. Other Comments on the Proposed 

List of APC Assignments to Address 2 

Times Violations. We received a few 

comments concerning our proposed 

reassignments for several of the other 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68569 

HCPCS codes (for example, CPT codes 

57155, 75790, and 88187) indicated in 

Table 7 of the proposed rule (70 FR 

42703) and the responses are included 

in clinically relevant sections, 

elsewhere in this preamble. 

After carefully reviewing our final 

data and all comments received 

concerning our proposed assignments of 

the 58 HCPCS codes, we are finalizing 

those assignments as proposed. 

3. 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 lowvolume items and services. At the time 

of the proposed rule, taking into account 

the APC changes that we proposed for 

CY 2006 based on the APC Panel 

recommendations discussed in section 

III.B.1. of this preamble and the use of 

CY 2004 claims data to calculate the 

median costs of procedures classified in 

the APCs, we reviewed all the APCs to 

determine which APCs would not 

satisfy the 2 times rule criteria. We used 

the following criteria to decide whether 

to propose exceptions to the 2 times rule 

for affected APCs: 

• Resource homogeneity 

• Clinical homogeneity 

• Hospital concentration 

• Frequency of service (volume) 

• Opportunity for upcoding and code 

fragments. 

For a detailed discussion of these 

criteria, refer to the April 7, 2000 OPPS 

final rule with comment period (65 FR 

18457). 

Table 8 published in the proposed 

rule (70 FR 42705) listed the APCs that 

we proposed to exempt from the 2 times 

rule based on the criteria cited above. 

For cases in which a recommendation 

by the APC Panel appeared to result in 

or allow a violation of the 2 times rule, 

we generally accepted the APC Panel’s 

recommendation because those 

recommendations were based on 

explicit consideration of resource use, 

clinical homogeneity, hospital 

specialization, and the quality of the 

data used to determine the APC 

payment rates that we proposed for CY 

2006. The median costs for hospital 

outpatient services for these and all 

other APCs can be found on the CMS 

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

We received a number of comments 

about some of the procedures assigned 

to APCs that we proposed to make 

exempt from the 2 times rule for CY 

2006. Those discussions are elsewhere 

in the preamble, in sections related to 

the types of procedures that were the 

subject of the comments. 

For the proposed rule the listed 

exceptions to the 2 times rule were 

based on data from January 1, 2004 

through September 30, 2004. For this 

final rule with comment period, we 

used data from January 1, 2004 through 

December 31, 2004. Thus, after 

responding to all of the comments on 

the proposed rule and making changes 

to APCs based on those comments, we 

analyzed the full CY 2004 data to 

identify APCs with 2 times rule 

violations. 

Based on those final data, we found 

that there were 41 APCs with 2 times 

violations. We were able to remedy two 

violations of the 2 times rule that 

appeared in the final data for APC 0363 

(Level I Otorhinolaryngologic Function 

Tests) and APC 0010, (Level I 

Destruction of Lesion). We moved CPT 

code 92588 (Evoked otoacoustic 

emissions; comprehensive or diagnostic 

evaluation) from APC 0363 to APC 0660 

(Level II Otorhinolaryngologic Function 

Tests) to address a 2-times violation in 

APC 0363. We applied the criteria as 

described earlier to finalize the APCs 

that are exceptions to the 2 times rule 

for CY 2006. 

Listed below in Table 8 is the final 

revised list of APCs that are exceptions 

to the 2 times rule for CY 2006. 

BILLING CODE 4120–01–P 

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ER10NO05.014</GPH>
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BILLING CODE 4120–01–C 

C. New Technology APCs 

1. Introduction 

In the November 30, 2001 final rule 

(66 FR 59903), we finalized changes to 

the time period a service was eligible for 

payment under a New Technology APC. 

Beginning in CY 2002, we retain 

services within New Technology APC 

groups until we gather sufficient claims 

data to enable us to assign the service 

to a clinically appropriate APC. This 

policy allows us to move a service from 

a New Technology APC in less than 2 

years if sufficient data are available. It 

also allows us to retain a service in a 

New Technology APC for more than 3 

years if sufficient data upon which to 

base a decision for reassignment have 

not been collected. 

Every year we receive many requests 

for higher payment amounts for specific 

procedures under the OPPS because 

they require the use of expensive 

equipment. We are taking this 

opportunity to respond in general to the 

issue of hospitals’ capital expenditures 

as they relate to the OPPS and Medicare. 

Under the OPPS, our goal is to make 

payments that are appropriate for the 

services that are necessary for treatment 

of Medicare beneficiaries. The OPPS 

and most other Medicare payment 

systems are budget neutral and so, 

although we do not pay full hospital 

costs for procedures, we believe that our 

payment rates generally reflect the costs 

that are associated with providing care 

to Medicare beneficiaries in costefficient settings. Further, we believe 

that our rates are adequate to assure 

access to services for most beneficiaries. 

For many emerging technologies there 

is a transitional period during which 

utilization may be low, often because 

providers are first learning about the 

techniques and their clinical utility. 

Quite often, the requests for higher 

payment amounts are for new 

procedures in that transitional phase. 

The requests, and their accompanying 

estimates for expected Medicare 

beneficiary or total patient utilization, 

often reflect very low rates of patient 

use, resulting in high per use costs for 

which requestors believe Medicare 

should make full payment. Medicare 

does not, and we believe should not, 

assume responsibility for more than its 

share of the costs of procedures based 

on Medicare beneficiary projected 

utilization and does not set its payment 

rates based on initial projections of low 

utilization for services that require 

expensive capital equipment. For the 

OPPS, we rely on hospitals to make 

their business decisions regarding 

acquisition of high cost capital 

equipment taking into consideration 

their knowledge about their entire 

patient base (Medicare beneficiaries 

included) and an understanding of 

Medicare’s and other payors’ payment 

policies. 

As stated earlier, in a budget neutral 

environment we do not make payments 

that fully cover hospitals’ costs, 

including those for the purchase and 

maintenance of capital equipment. We 

rely on providers to make their 

decisions regarding the acquisition of 

high cost equipment with the 

understanding that the Medicare 

program must be careful to establish its 

initial payment rates for new services 

that lack hospital claims data based on 

realistic utilization projections for all 

such services delivered in cost efficient 

hospital outpatient settings. As the 

OPPS acquires claims data regarding 

hospital costs associated with new 

procedures, we will regularly examine 

the claims data and any available new 

information regarding the clinical 

aspects of new procedures to confirm 

that our OPPS payments remain 

appropriate for procedures as they 

transition into mainstream medical 

practice. 

2. Refinement of New Technology Cost 

Bands 

In the November 7, 2003 final rule 

with comment period, we last 

restructured the New Technology APC 

groups to make the cost intervals more 

consistent across payment levels (68 FR 

63416). We established payment levels 

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

expanded the number of New 

Technology APCs. We also retained two 

parallel sets of New Technology APCs, 

one set with a status indicator of ‘‘S’’

(Significant Procedure, Not Discounted 

When Multiple) and the other set with 

a status indicator of ‘‘T’’ (Significant 

Procedures, Multiple Reduction 

Applies). We did this restructuring 

because the number of procedures 

assigned to New Technology APCs had 

increased, and narrower cost bands 

were necessary to avoid significant 

payment inaccuracies for new 

technology services. Therefore, we 

dedicated two new series of APCs to the 

restructured New Technology APCs, 

which allowed us to narrow the cost 

bands and afforded us the flexibility to 

create additional bands as future needs 

dictated. 

As the number of procedures that 

qualify for placement in the New 

Technology APCs has continued to 

increase over the past 2 years, we 

recognized that the $0 to $50 cost band 

represented by ‘‘S’’ status APC 1501 

(New Technology, Level I, $0–$50) and 

‘‘T’’ status APC 1538 (New Technology, 

Level I, $0–$50) spanned too broad of a 

cost interval to accurately represent the 

lower costs of an ever-increasing 

number of procedures that are 

appropriate for New Technology APC 

assignment. Therefore, we proposed to 

refine this cost band to five $10 

increments, resulting in the creation of 

an additional 10 New Technology APCs 

to accommodate the two parallel sets of 

New Technology APCs, one set with a 

status indicator of ‘‘S’’ and the other set 

with a status indicator of ‘‘T.’’ We also 

proposed to eliminate the two $0 to $50 

cost band New Technology APCs 1501 

and 1538, so that the cost bands of all 

New Technology APCs would continue 

to be mutually exclusive. Table 9 

published in the proposed rule (70 FR 

42706) contained a listing of the 10 

additional New Technology APCs that 

we proposed for CY 2006. 

As we explained in the November 30, 

2001 final rule (66 FR 59897), we 

generally keep a procedure in the New 

Technology APC to which it is initially 

assigned until we have collected data 

sufficient to enable us to move the 

procedure to a clinically appropriate 

APC. However, in cases where we find 

that our original New Technology APC 

assignment was based on inaccurate or 

inadequate information, or where the 

New Technology APCs are restructured, 

we may, based on more recent resource 

utilization information (including 

claims data) or the availability of refined 

New Technology APC bands, reassign 

the procedure or service to a different 

New Technology APC that most 

appropriately reflects its cost. Therefore, 

we proposed to discontinue New 

Technology APCs 1501 and 1538, and 

reassign the procedures currently 

assigned to them to proposed New 

Technology APCs 1491 through 1500. 

Table 10 published in our proposed rule 

(70 FR 42707) summarized these 

proposed New Technology APC 

reassignments. 

We received no public comments in 

response to our proposed refinement of 

the New Technology APC cost bands. 

Therefore, for CY 2006, we are finalizing 

our proposal to discontinue New 

Technology APCs 1501 and 1538, and 

reassign the procedures currently 

assigned to them to New Technology 

APCs 1491 through 1500. Table 9 lists 

the final New Technology APCs 1491 

through 1500 for CY 2006. 

68572 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

TABLE 9.—NEW TECHNOLOGY APCS FOR CY 2006 

APC Descriptor Status Indicator 

Final CY 

2006 payment rate 

1491 ........ New Technology—Level IA ($0–$10) ......................................................................................................... S $5 

1492 ........ New Technology—Level IB ($10–$20) ....................................................................................................... S 15 

1493 ........ New Technology—Level IC ($20–$30) ...................................................................................................... S 25 

1494 ........ New Technology—Level ID ($30–$40) ...................................................................................................... S 35 

1495 ........ New Technology—Level IE ($40–$50) ....................................................................................................... S 45 

1496 ........ New Technology—Level IA ($0–$10) ......................................................................................................... T 5 

1497 ........ New Technology—Level IB ($10–$20) ....................................................................................................... T 15 

1498 ........ New Technology—Level IC ($20–$30) ...................................................................................................... T 25 

1499 ........ New Technology—Level ID ($30–$40) ...................................................................................................... T 35 

1500 ........ New Technology—Level IE ($40–$50) ....................................................................................................... T 45 

3. Requirements for Assigning Services 

to New Technology APCs 

In the April 7, 2000, final rule (65 FR 

18477), we created a set of New 

Technology APCs to pay for certain new 

technology services under the OPPS. We 

described a group of criteria for use in 

determining whether a service is eligible 

for assignment to a New Technology 

APC. We subsequently modified this set 

of criteria in our November 30, 2001, 

final rule (66 FR 59897 to 59901), 

effective January 1, 2002. These 

modifications were based on changes in 

the data (we were no longer required to 

use CY 1996 data to set payment rates) 

and on our continuing experience with 

the assignment of services to New 

Technology APCs. 

In the course of reviewing 

applications for New Technology APC 

assignments under the OPPS, we have 

encountered many situations in which 

there is extremely limited clinical 

experience with new technology 

services regarding their use and efficacy 

in the typical Medicare population. In 

some cases, there has been ambiguity 

regarding how the new technology 

services fit within the standard coding 

framework for established procedures, 

and there may be no specific coding 

available for the new technology 

services in other settings or for use by 

other payers. Nevertheless, applicants 

requesting assignment of services to 

New Technology APCs request that we 

provide billing and payment 

mechanisms under the OPPS for the 

new technology services through the 

establishment of codes, descriptors, and 

payment rates. As stated in section I.F. 

of this preamble, we remain committed 

to the overarching goal of ensuring that 

Medicare beneficiaries have timely 

access to the most effective new medical 

treatments and technologies in 

clinically appropriate settings. In the CY 

2006 proposed rule, we indicated that 

we believed that our current New 

Technology APC assignment process 

helps to assure such access, and that an 

enhancement to the New Technology 

APC application process might further 

encourage appropriate dissemination of 

and Medicare beneficiary access to new 

technology services. 

We are interested in promoting review 

of the coding, clinical use, and efficacy 

of new technology services by the 

greater medical community through our 

New Technology APC application and 

review process for the OPPS. Therefore, 

in addition to our current information 

requirements at the time of application, 

we proposed to require that an 

application for a code for a new 

technology service be submitted to the 

American Medical Association’s 

(AMA’s) CPT Editorial Panel before we 

accept a New Technology APC 

application for review. In making this 

proposal, we specifically indicated that 

we would not change our current 

criteria for assignment of a service to a 

New Technology APC. Rather, the intent 

of the proposed new requirement was to 

encourage timely review of a new 

service or procedure by the wider 

medical community as CMS is 

reviewing it for possible new coding 

and assignment to a New Technology 

APC under the OPPS. The AMA’s CPT 

Editorial Panel has only one CPT code 

application that is used by applicants 

requesting consideration for either 

Category I or III codes. We indicated 

that we would accept either a Category 

I or Category III code application to the 

CPT Editorial Panel. The application 

requests relevant clinical information 

regarding new services, including their 

appropriate use and the patient 

populations expected to benefit from the 

services, which would provide us with 

useful additional information. CPT code 

applications are reviewed by the CPT 

Editorial Panel, whose members bring 

diverse clinical expertise to that review. 

In the proposed rule, we indicated our 

belief that consideration by the CPT 

Editorial Panel might facilitate 

appropriate dissemination of the new 

technology services across delivery 

settings and bring to light other needed 

coding changes or clarifications. We 

further proposed that a copy of the 

submitted CPT application be filed with 

us as part of the application for a New 

Technology APC assignment under the 

OPPS, along with CPT’s letter 

acknowledging or accepting the coding 

application. We reminded the public 

that we do not consider an application 

complete until all informational 

requirements are provided. In addition, 

we reminded the public that when we 

assign a new service a HCPCS code and 

provide for payment under the OPPS, 

these actions do not imply coverage by 

the Medicare program, but indicate only 

how the procedure or service may be 

paid if covered by the program. Fiscal 

intermediaries must determine whether 

a service meets all program 

requirements for coverage, for example, 

that it is reasonable and necessary to 

treat the beneficiary’s condition and 

whether it is excluded from payment. 

CMS may also make National Coverage 

Determinations (NCDs) on new 

technology procedures. 

We received a large number of public 

comments concerning our proposal. 

Comment: Many commenters 

suggested that the AMA CPT Editorial 

Panel may not be the most appropriate 

forum for a federally mandated 

decision. Some of these commenters 

pointed out that meetings of the panel 

and the considerations on which it 

bases decisions are not open to the 

public. Other commenters questioned 

whether there is an inherent conflict in 

the proposal, as CMS and the AMA are 

distinctly separate organizations with 

different objectives and constituencies, 

so that it may not be in the interest of 

Medicare beneficiaries to tie CMS policy 

to proceedings of the AMA. Other 

commenters suggested that even the 

requirement that the AMA acknowledge 

receipt of the coding application 

suggests that the AMA has potential 

‘‘veto’’ power over CMS authority and 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68573 

may thus constitute an unlawful 

delegation of federal decision making. 

Response: We wish to clarify that it 

was not our proposal to rely upon the 

decisions of the CPT Editorial Panel. 

Nor did we propose to adopt the 

objectives or policies of the AMA or the 

CPT Editorial Panel. Rather, we 

proposed only to require initiation of 

the process for obtaining a CPT code in 

order to foster the common objective of 

appropriately recognizing new 

technology services and properly coding 

those services. Under our proposal, we 

would continue to make determinations 

about the need for new HCPCS codes 

and about appropriate assignments to 

New Technology APCs to establish 

payment rates completely 

independently of the CPT Editorial 

Panel. We also proposed only that the 

applicant show us a letter of 

acknowledgement or receipt from the 

AMA, not that the AMA would send us 

such a letter or withhold such a letter 

as a way to exercise veto power. 

Comment: One commenter stated that 

while it is possible for manufacturers to 

file CPT applications to the AMA, the 

AMA has usually discouraged this 

practice and specialty societies have 

been slow to support CPT applications 

not vetted through them. Another 

commenter indicated that 

manufacturers are often not in receipt of 

letters from the AMA indicating receipt 

of a CPT coding application, and hence 

may not be able to provide these letters 

with their application for New 

Technology APC assignment. Other 

commenters claimed that if a 

manufacturer waits to gather clinical 

and utilization information sufficient to 

support a Category I code, the 

application may no longer meet CMS’s 

definition of ‘‘truly new’’ and may be 

ineligible for a New Technology APC 

assignment. 

Response: Our proposal did not 

specifically require that manufacturers 

submit applications to the CPT Editorial 

Panel. In fact, we specifically proposed 

only that such an application ‘‘be 

submitted,’’ and did not stipulate the 

identity of the applicant. In addition, we 

were not proposing to require that 

manufacturers provide us with copies of 

letters they had received directly from 

the AMA. We understand, however, that 

manufacturers ordinarily work in 

concert with the actual applicants for 

new CPT codes, and expect that it is 

reasonable for a manufacturer to be able 

to obtain such a letter. We also 

specifically required only the initiation 

of the application process, not the 

receipt of a positive (or negative) 

decision by the CPT Editorial Panel, in 

order to prevent the process from 

delaying our decision beyond the point 

at which a New Technology APC 

assignment is appropriate. Our proposal 

was meant only to encourage the 

appropriate dissemination of 

information, data collection, and review 

by the wider medical community 

concerning new technologies. Finally, it 

is worth emphasizing that while our 

objective is to consider for assignment 

to New Technology APCs services that 

represent technologies that are ‘‘truly 

new,’’ for designation under the OPPS 

we specifically rely on our criteria 

which require that a service or 

procedure not be described by any 

existing HCPCS code or combination of 

codes, that it cannot be adequately 

represented in the claims data being 

used for the most current annual OPPS 

update, and that there is no appropriate 

clinical APC for its assignment. We do 

not believe that our proposal to require 

initiation of the CPT application process 

would result in delays beyond the point 

at which these criteria could still be 

met. 

Comment: One commenter stated that 

there are only three submission 

deadlines per year for CPT applications, 

which do not comport to the quarterly 

schedule for filing New Technology 

applications to CMS. 

Response: The filing dates for New 

Technology applications are 

informational dates published on our 

website as reference points for 

application receipt related to the earliest 

date for adding a new code for an 

approved service to a New Technology 

APC, that is, the beginning of the 

following quarter. The actual dates for 

adding new services, if approved, are 

often later than the next quarter, 

depending on specific issues related to 

comprehensive evaluation of a specific 

application, which often involves 

requests for additional information. 

Comment: One commenter 

recommended as an alternative that 

CMS create codes for qualifying services 

and assign them to a New Technology 

APC and stipulate that those applicants 

must apply to the CPT Editorial Panel 

for a new code within one year. 

Response: We do not believe that it 

would be advisable to accept this 

recommendation. First, we do not have 

a policy of making contingent approvals 

for payment. All requirements for 

Medicare payment must be met at the 

time a code and payment rate are 

established. In addition, this 

recommendation would require 

establishing a mechanism to monitor 

compliance with the condition of 

approval. Finally, the necessity of 

withdrawing some HCPCS codes from 

coding and payment because of noncompliance has great potential for 

causing confusion among providers. 

Comment: One commenter stated that 

our concern about limited experience 

with new technologies in the Medicare 

population is more appropriately related 

to coverage of new procedures, rather 

than to coding issues. Assignment of a 

service to a New Technology APC is 

meant to create a mechanism for 

gathering utilization data, and does not 

guarantee coverage and payment of a 

technology. Coverage for new 

technologies remains the discretion of 

Medicare contractors, unless CMS 

makes a national coverage 

determination. This commenter claimed 

that the proposal to require a CPT 

coding application implies that CMS 

would be effectively removing the 

Medicare contractors from the coverage 

decision-making process. 

Response: We do not believe that our 

proposal would have the effect of 

removing Medicare contractors from the 

process of making coverage decisions, or 

otherwise usurp the role of the coverage 

decision-making process. Rather, the 

proposal would serve merely to promote 

evaluation of new services by the wider 

medical community, so that the results 

of this evaluation could serve to assist 

in broader distribution of new clinical 

information, establishment of 

appropriate standard coding, and wider 

dissemination of promising 

technologies. Even when the CPT 

Editorial Panel establishes a new code, 

Medicare contractors have discretion to 

make local coverage decisions, and CMS 

retains the right to make national 

coverage determinations with regard to 

the procedure or service. 

Comment: Some commenters 

indicated that there are unique payment 

concerns related to applying for a 

Category III CPT code, asserting that 

many Medicare contractors view 

Category III CPT codes as an indication 

that a technology is experimental or 

investigational. One commenter 

provided as an example a proposed and 

final policy of one CMS contractor not 

to cover any technologies described by 

Category III CPT codes, ‘‘since these 

codes have been created to track new, 

unproven therapies and tests.’’ Another 

commenter claimed that assignment of a 

Category III CPT code often results in 

non-coverage decisions by both local 

carriers and fiscal intermediaries. 

Response: The example provided by 

commenters about the implications of 

Category III CPT codes for coverage 

decisions by Medicare contractors 

appears to be relevant outside the 

context of the OPPS, mainly within the 

physician payment context. We have 

been unable to identify any fiscal 

68574 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

intermediary that has adopted any such 

broad noncoverage policy regarding 

Category III CPT codes. 

Comment: One group of commenters 

urged us not to adopt the proposed 

requirement that a CPT application 

submission to the AMA’s CPT Editorial 

Panel be required before we accept a 

New Technology APC application for 

review. These commenters asserted that 

a CPT coding application, in and of 

itself, will not provide us with input 

from the greater medical community, 

unless we wait until the CPT Editorial 

Panel has made a coding decision and 

that decision has been made public. 

Because of the timing of the CPT code 

review process, it is not reasonable for 

CMS to wait until the CPT Editorial 

Panel has made a public coding 

decision, which can take 6–12 months 

for an internal decision, and 6–24 

months before publishing a coding 

decision for a Category I code. These 

commenters also believed that this 

requirement would delay access to new 

services, asserting that applying for a 

CPT code is a lengthy process and 

involves months of gathering 

information on the technology and its 

use, working with relevant specialty 

societies to obtain support for a new 

code and to develop a clinical vignette, 

and consulting within the CPT Editorial 

Panel. In order to obtain a Category I 

code, the new technology must have 

widespread usage across the country 

and in multiple locations, and its 

efficacy must be documented in U.S. 

peer-reviewed journal articles. Other 

commenters stated that a number of 

issues regarding the CPT coding process 

make our proposal impractical, in 

addition to the lack of a guaranteed 

timely review by the CPT Editorial 

Panel. The AMA does not have 

‘‘official’’ evidence and utilization 

thresholds for coding applications. 

However, commenters indicated that 

physician specialty societies often 

require certain thresholds of utilization 

or clinical evidence be met before a 

Category I CPT application for a new 

service is submitted, and there is 

considerable variation in such 

thresholds among the specialty 

societies. If a manufacturer submits an 

application without society support or 

before there is widespread utilization, 

the application is more likely to be 

denied or assigned a Category III CPT 

code, even if that was not requested. 

Some commenters indicated that there 

are payment concerns in applying for a 

Category III CPT code, asserting that 

most private payers view Category III 

CPT codes as indication that a 

technology is experimental or 

investigational, and therefore refuse to 

cover procedures or services described 

by Category III CPT codes. These 

commenters asserted that because of the 

risk of non-coverage of Category III CPT 

codes, manufacturers may forego 

applying for New Technology APC 

assignments, or will be hesitant to apply 

for both a New Technology APC 

assignment and CPT code 

simultaneously. Without unique service 

codes, it will be more difficult for CMS 

to track new services and eventually to 

assign them to clinically appropriate 

APCs. The result will be fewer New 

Technology APC applications, and less 

beneficiary access to new technologies. 

A few commenters asserted that little 

would be gained by the mere filing of 

a CPT application without a coding 

determination from the CPT Editorial 

Panel, because the information in both 

applications is similar. One commenter 

suggested that if there is information 

from the CPT application that CMS 

requires to evaluate the New 

Technology APC application, we should 

add such questions to our application. 

In lieu of using the CPT coding 

process to encourage review by the 

wider medical community, a few 

commenters recommend that CMS 

appoint a standing advisory committee 

of clinical representatives, or another 

independent group of medical experts 

from specialties and hospitals, to review 

New Technology APC applications and 

provide input to CMS. Other 

commenters also suggested that we 

convene an independent group of 

medical experts to assist in the review 

of applications as necessary. 

A number of other commenters, 

principally from hospitals and hospital 

associations, supported our proposal to 

require a CPT application prior to our 

consideration of a New Technology APC 

application because they favored less 

ambiguity in the coding framework. 

Some of these commenters said that 

there is a proliferation of C-codes and Gcodes, which are burdensome to 

hospitals as such codes are often not 

recognized by other payers, and our 

proposal will minimize the need for 

expedited issuance of C-codes or Gcodes. They asserted that hospitals 

would benefit by reduced duplication of 

codes for services recognized by 

Medicare and other payers. Other 

commenters claimed that the correct 

process for coding new services is to 

start by way of the CPT Editorial Panel 

review process rather than the New 

Technology APC application process. 

Other commenters also supported the 

requirement on the grounds that the 

CPT review process is rigorous, 

including input by physician specialty 

societies, which indicates the level of 

acceptance of a new technology in the 

medical community, relevant to the 

OPPS because physicians perform new 

technology procedures in the hospital 

setting. One commenter indicated that 

there may be specific occasions when it 

is necessary to submit applications to 

the CPT Editorial Panel and CMS 

simultaneously. Another commenter 

requested that we recognize potential 

delays resulting from this additional 

step and expedite our review of New 

Technology APC applications. Finally, 

one commenter indicated appreciation 

of the reasons for the proposal, but 

asked that this new requirement remain 

as stated, that an application needs to be 

submitted to the AMA CPT Editorial 

Panel, but that it did not necessarily 

need to be reviewed and processed by 

the CPT Editorial Panel prior to CMS’s 

consideration of the New Technology 

APC application. 

Response: In light of the strong 

division among the commenters on the 

merits of our proposal to require that a 

CPT coding request be submitted prior 

to submission of a New Technology 

APC application, we have decided not 

to adopt this proposal at this time. Many 

of the comments reflect confusion about 

the specifics of the proposal. Therefore, 

we are concerned that, because the 

commenters did not understand some 

specifics of this proposal during their 

review of the CY 2006 proposed rule, 

we may similarly not be in a position to 

understand all the implications of the 

concerns noted by the commenters. In 

particular, we did not intend to tie our 

decision-making regarding applications 

for New Technology APC assignment to 

the CPT Editorial Panel process, but 

wished to promote review of the coding, 

clinical use, and efficacy of new 

technology services by the wider 

medical community to facilitate the 

swift spread of promising new 

technologies into medical practice. 

While we are deferring our proposal, 

we continue to believe that timely 

review of potential new services by the 

wider medical community is valuable, 

given our experience that many services 

that have requested OPPS coding and 

assignment to a New Technology APC 

have demonstrated limited clinical 

efficacy. We also continue to believe 

that new technology services deserve 

timely standard and comprehensive 

coding established through the CPT 

Editorial Panel review process to permit 

appropriate payment and data collection 

regarding their utilization patterns and 

clinical outcomes. We also do not agree 

with many of the criticisms directed 

against the proposal. For example, as 

stated previously, we do not agree that 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68575 

our proposal to have applicants file a 

CPT coding request before submission 

of a New Technology APC application 

would make the CPT coding process a 

Federal decisionmaking forum. This is 

because we would not require a 

decision to be made by the CPT 

Editorial Panel. However, in light of the 

numerous and considered comments 

opposed to the proposal, we are not 

proceeding with it at this time. 

At the same time, we remain 

committed to the general goal of 

promoting review of the coding, clinical 

use, and efficacy of new technology 

services by the wider medical 

community. We continue to believe that 

such broad and early review of new 

technology procedures would enhance 

our ability to make appropriate initial 

and subsequent decisions on 

assignments of new services to New 

Technology APCs and would facilitate 

the more rapid dissemination of 

promising new technologies to all 

service settings and appropriate patient 

populations. Therefore, we will 

continue to study how to best achieve 

these goals of timely review of new 

technologies by the general medical 

community to validate their clinical 

worth and distinctiveness in 

comparison with existing services and 

to promote more rapid dissemination of 

effective new procedures throughout 

standard medical practice. In doing so, 

we will continue to consider whether 

the proposal we advanced would serve 

that goal. We would specifically 

welcome further input on this proposal 

or alternatives to it. We may reintroduce 

this proposal or advance alternative 

approaches at a later date. 

As a preliminary matter, we are not 

inclined to accept one alternative 

recommended by some commenters. 

Specifically, we are not inclined to 

establish a standing advisory committee 

to provide input on New Technology 

applications to the OPPS, as some have 

suggested. A standing committee 

involving outside experts would add 

additional review time that would 

impede upon our application process, as 

well as prevent us from evaluating New 

Technology applications for addition to 

the OPPS on a quarterly basis, as 

appropriate. We prefer to maintain the 

flexibility that our current process 

provides. In addition, the specific 

medical expertise required to evaluate 

new technologies would likely vary 

widely from application to application. 

This factor would render consultation 

with a standing advisory committee 

with fairly stable membership more 

difficult to maintain. 

4. New Technology Services 

a. Ablation of Bone Tumors 

Comment: One commenter requested 

that we reassign CPT code 20982 

(Ablation, bone tumor(s) (eg, osteoid 

osteoma, metastasis) radiofrequency, 

percutaneous, including computed 

tomographic guidance) from New 

Technology Level XX, APC 1557 to New 

Technology Level XXII, APC 1559. The 

commenter stated that the procedure 

has been in New Technology APC 1557 

for 2 years, and that the payment rate for 

that APC is not adequate to cover the 

hospitals’ costs. The commenter 

asserted that assignment to that APC 

was based on inadequate information. 

The commenter used physician practice 

expense data to estimate costs to 

perform the ablation procedure, and 

stated that the costs far surpass the 

OPPS payment amount, largely due to 

the high cost of the necessary 

radiofrequency probe. Further, the 

commenter added that its analysis 

found that 2 of the 16 single claims CMS 

used to calculate the median cost for 

CPT code 20982 for the proposed rule 

were inaccurate because no charge for 

the ablation device, as indicated by the 

absence of a separate supply charge, was 

included. The commenter believed that 

those two claims had a significant effect 

on the median cost for CPT code 20982, 

because of the small number of claims 

for the procedure. The commenters’

analysis further showed that the median 

cost for these procedures was $2,156 

based on 14 claims that included a 

supply charge. 

Response: As we have stated in this 

preamble, we are committed to relying 

on our claims data for making APC 

assignments as much as possible. While 

we appreciate the external data 

provided by the commenter regarding 

the costs of supplies associated with the 

practice expense inputs for the 

Medicare Physician Fee Schedule, that 

payment system utilizes a different 

methodology for establishing payment 

for services that is not directly 

applicable to payment rates under the 

OPPS. In the case of CPT code 20982, 

we believe that our hospital claims data 

are adequate to support our proposal to 

maintain the service in New Technology 

APC 1557 for CY 2006. CPT code 20982 

was a new code for CY 2004 so we have 

1 year of hospital data for this 

procedure. For CPT code 20982, we 

have 17 single claims from CY 2004 

with a procedure-specific median cost 

of $1,578. As we do not require that 

hospitals bill a separate supply charge 

for the probe that is used for this service 

because there is no specific device Ccode available, we have no reason to 

believe that claims for CPT code 20982 

without a separate supply charge do not 

contain charges for all costs associated 

with the procedure. The catheter 

charges may be wrapped into the charge 

for the procedure itself. The codespecific median indicates that even the 

current New Technology APC payment 

at $1,850 may be too high, but given the 

information provided by the commenter 

and the relatively low number of CY 

2004 claims available for calculating the 

median cost for CPT code 20982, we are 

finalizing our proposal for CY 2006 and 

are retaining CPT code 20982 for at least 

1 more year in New Technology APC 

1557. 

b. Breast Brachytherapy 

Comment: In response to the 

November 15, 2004 final rule with 

comment period (69 FR 65682), one 

commenter applauded our assignment 

of CPT codes 19296 (Placement of 

radiotherapy afterloading balloon 

catheter into the breast for interstitial 

radioelement application) and 19298 

(Placement of radiotherapy afterloading 

balloon catheters, multiple tube and 

button type, into the breast for 

interstitial radioelement application) to 

New Technology APC 1524 (Level XIV 

$3000–$3500), and CPT code 19297 

(Placement of radiotherapy afterloading 

balloon catheter into the breast for 

interstitial radioelement application; 

concurrent with partial mastectomy) to 

New Technology APC 1523 (Level XXIII 

$2500–$3000) for CY 2005. The 

commenter stated that these payment 

amounts adequately cover the costs of 

the applicator devices involved in the 

procedures. 

Response: We agree with the 

commenter’s acknowledgement that the 

payment amounts that we assigned to 

CPT codes 19296, 19297, and 19298 for 

CY 2005 adequately cover the resource 

costs associated with these procedures. 

Therefore, for CY 2006, we are 

maintaining CPT codes 19296 and 

19298 in New Technology APC 1524 

and CPT code 19297 in New 

Technology APC 1523. 

c. Enteryx Procedure 

A new CPT code, 0133T (Upper 

gastrointestinal endoscopy, including 

esophagus, stomach, and either the 

duodenum and/or jejunum as 

appropriate, with injection of implant 

material into and along the muscle of 

the lower esophageal sphincter (e.g., for 

treatment of gastroesophageal reflux 

disease)), was created for 

implementation January 1, 2006 to 

describe the procedure currently coded 

under the OPPS as HCPCS code C9704 

(Injection or insertion of inert substance 

68576 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

for submucosal/intramuscular 

injections(s) into the upper 

gastrointestinal tract, under fluoroscopic 

guidance). For CY 2005, C9704 was 

assigned to New Technology APC 1556, 

with a payment rate of $1,750. As 

discussed below, we determined an 

appropriate APC assignment for this 

procedure for CY 2006. However, in the 

period between publication of the 

proposed rule and the end of the 

comment period, the product 

manufacturer recalled this product and 

the Food and Drug Administration has 

warned physicians about the danger of 

its use. 

In our analyses to determine the most 

appropriate APC assignment for the new 

CPT code, we found that the most 

accurate payment will be made by 

retaining the procedure’s current APC 

assignment. We did not automatically 

assign CPT code 0133T to APC 1556 

because that CPT code explicitly 

includes the endoscopy that is integral 

to the service, whereas the current Ccode does not. For that reason we 

calculated the claims-based median cost 

for the procedure by using single claims 

for HCPCS code C9704, on the premise 

that if the procedure required 

endoscopy and the endoscopy was not 

separately billed then the endoscopy 

charges were reflected in the charges for 

HCPCS code C9704 as well as claims for 

HCPCS code C9704 that had a charge for 

an endoscopy included to assure us that 

we were capturing the charges for the 

entire procedure from as many claims as 

possible. Thus, to determine an 

appropriate APC placement for CPT 

code 0133T we analyzed all single 

claims for HCPCS code C9704, as well 

as claims that had HCPCS code C9704 

combined with either CPT code 43234 

(Upper gastrointestinal endoscopy, 

simple primary examination (e.g., with 

small diameter flexible endoscope)), or 

CPT code 43235 (Upper gastrointestinal 

endoscopy including esophagus, 

stomach, and either the duodenum and/ 

or jejunum as appropriate; diagnostic, 

with or without collection of 

specimen(s) by brushing or washing). 

The median cost from these claims 

which would crosswalk to the new CPT 

code is $1,660. Therefore, we believe 

that it is still appropriate to retain the 

procedure, coded for CY 2006 as CPT 

code 0133T, in New Technology APC 

1556 rather than assigning it to a 

different New Technology APC or a 

clinical APC at this time. We will be 

deleting HCPCS code C9704. As with all 

procedures assigned to New Technology 

APCs, we will reevaluate it for next year 

to determine whether assignment to a 

clinical APC is more appropriate. 

d. Extracorporeal Shock Wave 

Treatment 

Comment: Several commenters to 

both the November 15, 2004 final rule 

with comment period and to our July 

25, 2005 proposed rule opposed our 

placement of new HCPCS codes for high 

energy Extracorporeal Shock Wave 

Therapy (ESWT) services into New 

Technology APC 1547. In response to a 

New Technology application for ESWT, 

we created new codes for high energy 

ESWT for chronic lateral epicondylitis 

(C9720-tennis elbow) and for chronic 

plantar fasciitis (C9721) effective 

January 1, 2005, and placed them into 

New Technology APC 1547, with a 

payment rate of $850 for CY 2005. A 

number of commenters requested that 

these ESWT services be placed in New 

Technology APC 1559, which has a 

payment rate of $2,250. A manufacturer 

of ESWT equipment, who commented, 

cited our regulations (42 CFR § 419.31) 

in stating that APC groups ‘‘must be’’

comparable in terms of clinical use and 

resources required. This commenter, as 

well as another manufacturer, claimed 

that New Technology APC 1547 does 

not cover the costs of the ESWT 

procedures for chronic lateral 

epicondylitis and for chronic plantar 

fasciitis. The commenters provided their 

estimated costs of the procedure at 

about $2,300 per service for both 

clinical indications. One commenter 

also indicated that it understood that 

the AMA’s CPT Editorial Panel intended 

to issue new codes for the two high 

energy ESWT services beginning in CY 

2006. It stated that when these new CPT 

codes become effective, providers and 

payers will be faced with two different 

sets of codes for high energy ESWT, the 

CPT codes and the HCPCS C-codes, and 

this will cause difficulties with provider 

billing and reimbursement. 

Commenting parties expressed their 

belief that our placement of ESWT did 

not cover the costs of ESWT for plantar 

fasciitis, claiming that the ESWT 

equipment costs between $250,000 and 

$400,000 for each unit, varying by 

manufacturer, and summarizing other 

additional costs, such as those for an 

annual maintenance contract, a 

specialized technician, and anesthesia, 

along with a specialized transport 

vehicle for the ESWT equipment. 

Commenters asserted that high energy 

ESWT is comparable to the resource 

costs of services in Level II Foot 

Musculoskeletal Procedures, APC 0056 

with a CY 2005 payment rate of 

$2,380.72, except that ESWT includes 

the capital costs for the equipment, 

transport vehicle, and technician 

mentioned earlier. The commenters also 

stated that high energy ESWT has a 

similar technology and cost structure, 

including technological devices, 

maintenance contracts, and specialized 

technical personnel, to extracorporeal 

shock wave lithotripsy, for the 

fragmentation of kidney stones. These 

commenters proposed that high energy 

ESWT be placed in APC 1559. One 

hospital indicated that its average cost 

for ESWT is $2,100. Another commenter 

who compared high energy ESWT with 

lithotripsy stated that if we wished to 

compare ESWT with the costs of other 

procedures, then we should use 

lithotripsy, which also employs high 

energy extracorporeal shock waves, but 

for the treatment of kidney stones. The 

commenter claimed that many of the 

other costs associated with the two 

procedures were similar as well, with 

the exception of an imaging component 

used with lithotripsy. The commenter 

noted that lithotripsy’s APC assignment, 

APC 0169, has a payment rate close to 

that of New Technology APC 1559. 

Another commenter, commenting only 

on HCPCS code C9721, recommended 

that high energy ESWT for treatment of 

chronic plantar fasciitis be placed in 

either clinical APC 0055 (Level I Foot 

Musculoskeletal Procedures) or APC 

0056 (Level II Foot Musculoskeletal 

Procedures), claiming that it fits most 

closely clinically to procedures in APC 

0055, and that high energy ESWT is 

more homogeneous to either APC 0055 

or 0056 clinically and economically 

than to its assigned New Technology 

APC. The commenter also stated that 

any new CPT code beginning in CY 

2006 for high energy ESWT for chronic 

plantar fasciitis should replace HCPCS 

code C9721 and should be placed in 

APC 0055 or 0056. 

Response: When we determine that a 

new service is eligible for placement 

into a New Technology APC, we then 

perform our own cost analysis and cost 

estimate, in addition to taking the 

projected costs submitted in a New 

Technology APC application into 

consideration. As we stated in our 

November 30, 2001 final rule (66 FR 

59900) concerning placement of new 

services into APCs, ‘‘* * * we will not 

limit our determination of the cost of 

the procedure to information submitted 

by the applicant. Our staff will obtain 

information on cost from other 

appropriate sources before making a 

determination of the cost of the 

procedure to hospitals.’’ We compared 

the necessary hospital resources such as 

procedure room time, personnel, 

anesthesia and other resources of the 

ESWT procedure to various other 

procedures for which we have historical 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68577 

hospital claims data. Additionally, we 

took into consideration projected costs 

submitted in the New Technology APC 

application, including the capital costs 

and equipment utilization assumptions, 

concluding that HCPCS codes C9720 

and C9721 should be assigned to New 

Technology APC 1547. New Technology 

APCs, by their very definition, do not 

contain services that are clinically 

homogeneous, but instead, based solely 

on hospital resource considerations, the 

services have estimated costs that place 

them into the same New Technology 

payment band. In contrast, services 

assigned to the same clinical APC are 

homogeneous with respect to both their 

clinical characteristics and hospital 

resource utilization. 

There are new CPT codes for CY 2006 

that describe high energy ESWT 

services, and hospitals providing these 

services in CY 2006 will use the CPT 

codes to report them instead of the two 

predecessor C codes. In particular, CPT 

code 0102T (Extracorporeal shock wave, 

high energy, performed by a physician, 

requiring anesthesia other than local, 

involving lateral humeral epicondyle) 

will replace HCPCS code C9720. In 

addition, CPT code 28890 

(Extracorporeal shock wave, high 

energy, performed by a physician, 

requiring anesthesia other than local, 

including ultrasound guidance, 

involving the plantar fascia) will replace 

HCPCS code C9721. We have closely 

reviewed the hospital cost information 

provided by the commenters, along with 

our CY 2004 hospital claims data for 

other outpatient hospital services. We 

are not confident yet, in the absence of 

hospital claims data for the predecessor 

C codes or the new CPT codes, that we 

can appropriately place CPT codes 

0102T and 28890 in clinical APCs 

where they would share clinical and 

resource homogeneity with other 

services. Therefore, for CY 2006 we are 

assigning CPT codes 0102T and 28890 

to New Technology APC 1547 with a 

payment rate of $850. We believe that 

the payment rate is appropriate based 

on all cost and utilization information 

available to us regarding high energy 

ESWT and other services provided in a 

hospital outpatient setting. 

Comment: One commenter, the 

applicant for assignment of high energy 

ESWT to a New Technology APC, 

claimed that our assignment of ESWT to 

a New Technology APC violates the 

Administrative Procedure Act (APA). 

The commenter asserted that the OPPS 

proposed rule published August 16, 

2004 (69 FR 50448) failed to mention 

ESWT or its placement in an APC. 

Moreover, the commenter claimed that 

our lack of discussion of our 

methodology made proper comments 

difficult if not impossible. The 

commenting party claimed that 

finalizing a rule without explanation is 

unlawful. The commenter furthermore 

claimed that the placement of ESWT in 

APC 1547 was arbitrary, capricious, and 

in excess of statutory authority in 

violation of the Administrative 

Procedure Act. The commenter claimed 

that it appeared that CMS ignored the 

applicant’s data that it submitted 

regarding resource use, instead 

comparing the resource costs for ESWT 

with entirely different procedures, 

resulting in inaccurate conclusions 

regarding the costs of ESWT services. 

Moreover, the commenter claimed that 

we have improperly classified ESWT 

into the same APC as endoscopic 

epidural lysis, which it claims violated 

the statutory requirement to group 

procedures based on both costs and 

clinical and resource comparability. 

Response: We disagree that our 

assignment of ESWT to New 

Technology APC 1547 was arbitrary, 

capricious, and in violation of the APA 

or the Medicare statute. As stated in our 

response above, we perform our own 

cost analysis and estimate the cost of 

any eligible new service, while taking 

the projected hospital costs submitted in 

the New Technology APC application 

into consideration. As we have 

indicated above, our November 30, 2001 

final rule concerning placement of new 

services into APCs states that we do not 

limit our determination of the cost of 

the procedure to information submitted 

by the applicant. We obtain information 

on costs from other appropriate sources 

before making a determination of the 

cost of the procedure to hospitals. In the 

case of the ESWT procedures, our 

clinical review team of physicians 

compared the resources such as 

procedure room time, anesthesia, and 

other resources of the ESWT procedure 

to the resources of various other 

outpatient hospital procedures for 

which we have historical hospital 

claims data. We believe that our claims 

data on other procedures in terms of 

hospital resource use yield relevant cost 

information for use in developing cost 

estimates for new procedures without a 

claims history. As explained above, we 

took the New Technology APC 

applicant’s costs into account as we 

reviewed its projected hospital costs 

thoroughly and, in particular, utilized 

information regarding expected service 

frequency, capital equipment, and other 

costs in our total cost estimate for the 

procedures. As discussed earlier, 

assignment to a New Technology APC 

does not imply clinical homogeneity 

with other services assigned to the same 

New Technology APC. We also note that 

we could not have included these two 

C-codes in the proposed rule for CY 

2005, since we had not yet completed 

our evaluation of the New Technology 

APC application and rendered a 

decision until well after that proposed 

rule was published. As we have 

announced numerous times elsewhere, 

we will add New Technology service 

codes and assign their payment rates in 

our quarterly updates, where applicable 

and available, to facilitate timely 

integration of new codes into the OPPS. 

The timing of the ESWT procedures 

decision made the addition of the codes 

and payment rates coincident with our 

CY 2005 final rule publication. In order 

to have provided a discussion of the 

codes in a proposed rule, 

implementation of the codes would 

have been delayed a full year. 

e. GreenLight Laser 

During the August 2005 APC Panel 

meeting, the Panel recommended 

accepting CMS’ proposed creation of 

APC 0429 for CY 2006 and the inclusion 

of HCPCS C9713, which describes use of 

the GreenLight Laser System, in this 

APC. We received several public 

comments concerning the reassignment 

of HCPCS codes C9713, 52647, 52648, 

50080, and 50081 to APC 0429. 

Comment: Several commenters 

requested that CMS maintain HCPCS 

code C9713 in its New Technology APC 

for one more year, which would give 

hospitals more time to learn how to 

correctly code for this service. The 

commenters stated that our proposed 

reassignment of the procedure to a 

clinical APC was premature because the 

decision was based on only 9 months of 

claims data. They suggested that many 

hospitals may not even have known 

about the new HCPCS code C9713 

because it was not implemented until 

April 5, 2004, and, therefore, CMS 

received even fewer correctly coded 

claims than the true number of 

outpatient hospital services actually 

described by HCPCS code C9713 that 

were performed on Medicare 

beneficiaries during the 9 month period. 

The commenters pointed out that 

there is evidence that hospitals have not 

been using the HCPCS code properly 

and reminded us that some members of 

the APC Panel stated that their hospitals 

were not coding these procedures 

correctly. 

The commenters stated that the short 

period of time for collection of claims 

data and the low median cost calculated 

for HCPCS code C9713 based on those 

claims support their conjecture that the 

claims are not correct, and that the 

68578 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

procedure should remain in its CY 2005 

New Technology APC for at least one 

more year to allow for collection of 

more accurate claims data. 

Response: For CY 2006, CPT revised 

the descriptors of two procedure codes 

for prostate laser procedures described 

by CPT codes 52647 and 52648. The 

revised CPT code descriptors are as 

follows: 52647 (Laser coagulation of 

prostate, including control of 

postoperative bleeding, complete 

(vasotomy, meatotomy, 

cystourethroscopy, urethral calibration 

and /or dilation, and internal 

urethrotomy are included if performed); 

and 52648 (Laser vaporization of 

prostate, including control of 

postoperative bleeding, complete 

(vasectomy, meatotomy, 

cystourethroscopy, urethral calibration 

and/or dilation internal urethrotomy 

and transurethral resection of prostate 

are included if performed). These 

descriptors for the CPT codes will be 

implemented on January 1, 2006. Our 

policy in the OPPS is to maintain only 

one HCPCS code that describes a 

specific procedure, and to the extent 

possible adopt CPT coding for services 

provided under the OPPS. In this case 

we determined, based on our review of 

the new descriptors, that procedures 

reported using HCPCS code C9713 in 

CY 2005 could be appropriately billed 

with CPT codes for CY 2006. 

We also concluded that the resource 

use and clinical aspects of the laser 

vaporization procedure reported with 

HCPCS code C9713 and of the prostate 

procedures reported using CPT codes 

52647 and 52648 prior to revision were 

so similar that it was appropriate to 

move, as proposed, the CY 2004 

hospital claims data for HCPCS code 

C9713 to APC 0429 to contribute to the 

APC’s median cost calculation for CY 

2006. In addition, there was no reason 

to postpone adoption of the revised CPT 

codes for use in the OPPS. Although we 

had less than a full year of hospital 

claims data available for HCPCS code 

C9713, we had well over 1,600 single 

claims upon which to calculate median 

costs for the procedure, and those 

claims data confirmed the resource 

similarity of this service to the services 

coded by CPT codes 52647 and 52648. 

The medians for these three procedures 

only range from $2,475 to $2,602 and 

the clinical indications for the 

procedures are also similar. For CY 2006 

we are adopting the newly available 

revised CPT codes for reporting the 

procedure previously described by 

HCPCS code C9713 and deleting HCPCS 

code C9713, effective January 1, 2006. 

Creation of a new Level V APC 0042 

for Cystourethroscopy and Other 

Genitourinary Procedures, the level to 

which we assigned the CY 2004 data for 

the prostate laser procedures described 

by HCPCS code C9713 and CPT codes 

52647 and 52648, along with cost data 

for two other procedures also reassigned 

to that APC, resulted in tighter median 

cost distributions within all levels of the 

APCs for cystouresthroscopy and other 

genitourinary procedures. We are 

confident in the median costs for all of 

these prostate procedures because we 

have over 1,000 single claims for each 

of those procedures. 

Although HCPCS code C9713 was 

placed in a New Technology APC for 

only one year, assignment to an 

appropriate clinical APC is always our 

goal for procedures that spend time 

assigned to New Technology APCs. In 

this case, the creation of a Category I 

CPT code that describes the procedure 

reported by HCPCS code C9713 during 

CY 2004 and CY 2005 in the OPPS 

occurred more quickly than is often the 

case. We believe that the procedure’s 

assignment with similar procedures to a 

new clinical APC is appropriate and 

will result in accurate payment. Also, 

we expect that adoption of a revised 

CPT code for reporting the noncontact 

laser vaporization of the prostate 

procedure will reduce hospitals’

administrative burden as they will be 

able report CPT codes for prostate 

services provided in CY 2006, rather 

than C-codes specific to the OPPS. 

After carefully considering all 

comments we received, we are 

finalizing, without modification, our 

proposal to assign CPT codes 52647, 

52648, 50080, and 50081 to new APC 

0429, Level V Cystourethroscopy and 

Other Genitourinary Procedures. The 

CY 2004 hospital claims data for HCPCS 

code C9713 have been assigned to APC 

0429 for purposes of establishing the 

final CY 2006 payment rate for that 

APC. 

f. Magnetoencephalography (MEG) 

We proposed to reassign MEG 

procedures to clinical APC 0043, using 

CY 2004 claims data to establish median 

costs on which payments would be 

based. 

We received a number of public 

comments concerning the reassignment 

of CPT codes 95965, 95966, 95967. 

Comment: A number of commenters 

addressed our proposal to assign 

magnetoencephalography (MEG) 

procedures to APC 0430. There are three 

MEG procedures affected by our 

proposal: CPT code 95965, MEG 

recording and analysis for spontaneous 

brain magnetic activity; CPT code 

95966, MEG for evoked magnetic fields, 

single modality; and CPT code 95967, 

MEG for evoked magnetic fields, each 

additional modality to be listed 

separately in addition to CPT code 

95965 for primary procedure. Each of 

those procedures is currently assigned 

to a separate New Technology APC, and 

the commenters believed that they 

should remain in those APCs for CY 

2006. The commenters believed that 

assignment to APC 0430 was 

inappropriate because the proposed 

payment level of $674 was inadequate 

to cover the costs of the procedures and 

because the procedures should not be 

assigned to only one level as their 

required hospital resources differ 

significantly. 

The commenters stated that the 

median costs based on CMS’ hospital 

claims data are erroneous because 

hospitals are not providing accurate 

charges for the procedures. Further, they 

stated that our data did not represent 

the true costs of the procedures because 

MEG procedures are performed on very 

few Medicare patients. 

In addition to the written comments 

we received on our proposed rule, 

hospital and manufacturer 

representatives made presentations to 

the APC Panel during its August 2005 

meeting. At that time, the Panel 

recommended that CMS retain the MEG 

procedures in their current New 

Technology APCs and that we collect 

more external data and provide a 

detailed review of the data for the 

Panel’s consideration at its next 

meeting. 

Response: The MEG procedures have 

been assigned to New Technology APCs 

for 4 years. In CY 2002, all three 

services were assigned a payment rate of 

$150 in a single New Technology APC. 

As these CPT codes were new for CY 

2002 and, therefore, first open to 

comment in the CY 2002 final rule, we 

received several comments regarding 

the costs of the services. For CY 2003, 

all three services were assigned to 

higher paying New Technology APCs, 

with a rate of $2,250 for CPT code 

95965, $1,375 for CPT code 95966, and 

$875 for CPT code 95967. For CY 2004 

and CY 2005, the procedures were again 

assigned to higher paying New 

Technology APCs, with CPT code 95965 

moving to a rate of $5,250; CPT code 

95966 to a rate of $1,450; and CPT code 

95967 to a rate of $950. 

For CY 2006, we proposed to assign 

these procedures to one new clinical 

APC because assignment to New 

Technology APCs is generally 

temporary while we are gathering 

hospitals claims data, and we now have 

3 years of data upon which to base 

clinical APC assignments. Over the 

entire 3-year period, the median costs 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68579 

for all 3 services, especially CPT code 

95965, have generally been far less than 

the OPPS payment rates. In fact, the CY 

2005 median cost (based on CY 2003 

claims data) for CPT code 95965 was 

only 16 percent of the payment rate, and 

for CY 2006 the median cost (based on 

CY 2004 claims) was only 12 percent of 

the rate. 

These procedures are rarely 

performed on Medicare beneficiaries 

and, therefore, we have a small number 

of claims now and have no expectation 

that the volume will increase. Patients 

targeted for MEG investigation 

procedures are typically between 17 and 

32 years old. Furthermore, industry 

expectations are that the technology’s 

growth will be in installations outside of 

hospitals. Nevertheless, almost all 

services with ongoing expectations of 

low volume for Medicare beneficiaries, 

including obstetrical services, reside in 

clinical APCs, not New Technology 

APCs. From CY 2003 claims data we 

were able to use 20 of the 21 claims 

submitted for CPT code 95965, 7 of the 

7 claims submitted for CPT code 95966, 

and 4 of the 6 submitted for CPT code 

95967 to calculate median costs of the 

procedures. For CY 2006 based on CY 

2004 hospital claims data, we were able 

to use 10 of the 10 claims submitted for 

CPT code 95965 and 3 of the 4 

submitted for CPT code 95966, while we 

had no claims for CPT code 95967. 

In contrast to the comments, we are 

committed to relying increasingly on 

those data, especially in a case like this 

where the few hospitals that offer this 

technology have been billing these 

procedures for at least four years and 

the technology is no longer new. 

However, we also are sensitive to the 

potential access effects of relying on a 

low volume of claims to establish 

payment rates, as well as to the APC 

Panel’s recommendation regarding these 

procedures as noted by the commenters. 

Therefore, for CY 2006 we considered 

charge and cost information provided to 

us during the comment period in 

addition to our claims data. A 

commenter provided total charge 

information billed to multiple payers, 

including Medicare, for MEG services 

from one hospital which showed 

charges of about $10,500. Also included 

in the information we received during 

the comment period were cost estimates 

for the procedures from various sources, 

and the estimates of costs varied 

considerably. For example, we were 

provided with estimates of hospital 

costs per case for CPT code 95965 that 

ranged from $8,321 to $4,054. We 

believe that some of that variation may 

be due to differences in the number of 

cases used in amortization estimates, as 

the costs of the equipment used in MEG 

procedures are significant. However, the 

fact that volume varies from one 

provider to another does not mean that 

we will base our payments on the high 

cost per case that results from allocating 

costs over only a few cases. In the case 

of MEG, we are especially sensitive to 

this given the very low level of 

Medicare beneficiary participation in 

the technology because of the clinical 

circumstances in which MEG services 

are typically provided. The OPPS 

payment rates for services need to make 

appropriate payments for the services 

provided to Medicare beneficiaries, 

recognizing that, as a budget neutral 

payment system, the OPPS does not pay 

the full hospital costs of services. We 

expect that our payment rates generally 

will reflect the costs that are associated 

with providing care to Medicare 

beneficiaries in cost-efficient settings. 

We agree with the APC Panel and the 

commenters that there are no currently 

existing clinical APCs containing other 

services where MEG services could be 

appropriately assigned, based on 

clinical and resource homogeneity with 

other OPPS services. We carefully 

considered our claims data, information 

provided by commenters, and the APC 

Panel recommendation that we retain 

the MEG procedures in New Technology 

APCs. As a result of this analysis, we 

determined that using a 50/50 blend of 

the code-specific median costs from our 

most recent CY 2004 hospital claims 

data and the CY 2005 code-specific 

payment amounts as the basis for 

assignment of the procedures for CY 

2006 would be one way to recognize 

both the current payment rates for the 

procedures, which were originally based 

on the theoretical costs to hospitals of 

providing MEG services, and the 

median costs based upon our hospital 

claims data regarding actual MEG 

services provided to Medicare 

beneficiaries by hospitals. Accordingly, 

for CY 2006, because we are not fully 

confident in our claims data for MEG 

procedures and there are no clinical 

APCs containing other services that 

share clinical and hospital resource 

characteristics with MEG procedures, 

we believe that it is most appropriate to 

place MEG services in New Technology 

APCs for CY 2006 to accommodate these 

adjusted costs. We agree with the 

commenters that these APCs should be 

‘‘S’’ status so no multiple procedure 

reduction will apply, as we are 

determining an adjusted cost for each 

specific MEG service. For CPT codes 

95965 and 95966, we averaged the 

services’ median costs from CY 2004 

claims data with their CY 2005 payment 

rates to determine adjusted costs for the 

procedures and, therefore, their 

appropriate New Technology APC 

assignments. There were no CY 2004 

claims for CPT code 95967, and thus, no 

median cost to use for such an 

adjustment. For that procedure, we 

based the New Technology APC 

assignment on the historical 

relationship (66 percent in CY 2005) 

between the New Technology APC 

payment for that procedure and the New 

Technology APC payment for CPT code 

95966, the code to which CPT code 

95967 is an add-on. We used 66 percent 

of our CY 2006 payment rate for CPT 

code 95966 to determine the adjusted 

cost of CPT code 95967 and establish 

the New Technology payment amount 

for CPT code 95967 for CY 2006. The 

table below provides the CY 2006 

payment rates and the resulting APC 

assignments for MEG services. 

As suggested by the APC Panel, we 

will continue to study the APC 

assignments for these procedures over 

the coming year and invite members of 

the public to submit any information 

they believe will be helpful to us. We 

have given these procedures special 

consideration through this adjustment 

methodology for CY 2006 to help assure 

that Medicare beneficiaries have 

appropriate access to MEG services. 

With an additional year of data and 

improved consistency of billing by 

hospitals providing MEG services, we 

are hopeful that the claims-based 

median costs of these services in future 

years will more consistently and 

appropriately reflect hospitals’ costs of 

providing MEG procedures. 

TABLE 10.—CY 2006 APC ASSIGNMENTS FOR MEG SERVICES

CPT CY 2006 median cost CY 2005 payment Adjusted cost CY 2006 payment amount/APC 

95965 ..... $644.71 $5,250 $2,947.35 $2,750/1523 

95966 ..... 1,013.34 1,450 1,231.67 1,250/1514 

95967 ..... N/A 950 818.97 850/1510 

68580 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

g. Positron Emission Tomography (PET) 

Scans 

(1) Nonmyocardial PET Scans 

Positron emission tomography (PET) 

serves an important role in the clinical 

care of many Medicare beneficiaries. As 

stated in the November 15, 2004 final 

rule with comment period (69 FR 

65716), we believe there are sufficient 

claims data to assign nonmyocardial 

PET scans to a single clinical APC. 

However, to minimize any potential 

impact that a payment reduction 

resulting from this move might have had 

on beneficiary access to this technology, 

we set the CY 2005 OPPS payment for 

nonmyocardial PET scans based on a 

50/50 blend of their CY 2005 median 

cost and the payment rate of the CY 

2004 New Technology APC to which 

they were assigned. Therefore, 

nonmyocardial PET scans were assigned 

to New Technology APC 1513 (New 

Technology—Level XIV ($1,000–$1,200) 

for a blended payment rate of $1,150 in 

CY 2005. 

At the February 2005 APC Panel 

meeting, the Panel agreed with a 

presenter’s assertion that the resource 

costs associated with nonmyocardial 

PET scans are similar to the costs 

associated with myocardial PET scans, 

and recommended that myocardial PET 

scans be placed in the same New 

Technology APC 1513 in which the 

nonmyocardial PET scans currently 

reside. Furthermore, presenters at the 

February 2005 APC Panel meeting 

expressed concern that movement of 

nonmyocardial PET scans from their 

New Technology APC to lower paying 

clinical APC 0285 could impede 

beneficiary access to this technology, 

similar to concerns articulated by 

commenters in previous years. 

As a result of a recent Medicare 

national coverage determination 

(Publication 100–3, Medicare Claims 

Processing Manual section 220.6), 

effective January 28, 2005, we 

discontinued the PET G-codes listed in 

Table 10, and activated the CPT codes 

listed below in Table 11 for myocardial 

and nonmyocardial PET scans and 

concurrent PET/CT scans for anatomical 

localization. These lists of codes along 

with claims processing instructions, are 

provided in Change Request 3756, 

Transmittal 514, Publication 100–04, 

Medicare Claims Processing Manual. 

TABLE 12.—CPT CODES FOR COVERED PET SCAN INDICATIONS EFFECTIVE FOR DATES OF SERVICE ON OR AFTER

JANUARY 28, 2005 

CPT code Description 

78459 ..................... Myocardial imaging, positron emission tomography (PET), metabolic evaluation. 

78491 ..................... Myocardial imaging, positron emission tomography (PET), perfusion, single study at rest or stress. 

78492 ..................... Myocardial imaging, positron emission tomography (PET), perfusion, multiple studies at rest and/or stress. 

78608 ..................... Brain imaging, positron emission tomography (PET); metabolic evaluation. 

78811 ..................... Tumor imaging, positron emission tomography (PET); limited area (e.g., chest, head/neck). 

78812 ..................... Tumor imaging, positron emission tomography (PET); skull base to mid thigh. 

78813 ..................... Tumor imaging, positron emission tomography (PET); whole body. 

78814 ..................... Tumor imaging, positron emission tomography (PET) with concurrently acquired computed tomography (CT) for attenuation correction and anatomical localization; limited area (e.g., chest, head/neck). 

78815 ..................... Tumor imaging, positron emission tomography (PET) with concurrently acquired computed tomography (CT) for attenuation correction and anatomical localization; skull base to mid thigh. 

78816 ..................... Tumor imaging, positron emission tomography (PET) with concurrently acquired computed tomography (CT) for attenuation correction and anatomical localization; whole body. 

In the CY 2006 OPPS proposed rule, 

we proposed to maintain CPT codes 

78608, 78609, 78811, 78812, and 78813 

for nonmyocardial PET scans in New 

Technology APC 1513 (New 

Technology—Level XIII, $1,100–$1,200) 

at a payment rate of $1,150, the same 

APC placement as their predecessor Gcodes, to ensure continuing beneficiary 


ER10NO05.015</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68581 

access to this technology. We also 

proposed to maintain CPT codes 78814, 

78815, and 78816, which describe 

concurrent PET/CT scans for anatomical 

localization, in New Technology APC 

1514 (New Technology—Level XIV, 

$1,200–$1,300) at a payment rate of 

$1,250, based on input claiming that the 

costs associated with PET/CT 

technology are higher than the costs of 

PET technology alone. 

Comment: Several commenters to the 

November 15, 2004 final rule with 

comment period (69 FR 65682) urged 

that we replace the G-codes for PET 

procedures with the established CPT 

codes for PET scans, while commenters 

to the July 25, 2005 proposed rule (70 

FR 42674) applauded our transition to 

the CPT codes for PET scans. These 

commenters stated that movement to the 

established CPT codes for PET scans 

would greatly reduce the burden on 

hospitals of tracking and billing the G 

codes which are not recognized by other 

payors, and would allow for more 

uniform hospital billing of these scans. 

Furthermore, while a few commenters 

urged that we increase the payment for 

PET scans, the majority of commenters 

supported our proposal to maintain 

nonmyocardial PET scans in New 

Technology APC 1513 (paying $1,150), 

consistent with the payment level under 

their predecessor G-codes. Commenters 

stated that hospital claims data do not 

accurately reflect the costs of providing 

these services, and beneficiary access to 

this technology would be threatened if 

hospital claims data alone were used to 

set the CY 2006 payment rates. 

Response: We agree with commenters 

that movement from the G-codes to the 

established CPT codes for PET scans 

allows for more uniform billing of these 

scans. Furthermore, we concur, in 

general, with commenters’

recommendations that the payment 

levels under the established CPT codes 

for PET scans be consistent with the 

payment levels under their predecessor 

G-codes. Therefore, we are maintaining 

newly established CPT codes 78608, 

78811, 78812, and 78813 for 

nonmyocardial PET scans in New 

Technology APC 1513 (New 

Technology—Level XIII, $1,100–$1,200) 

at a payment rate of $1,150. In addition, 

for myocardial PET scans we are 

assigning CPT codes 78459 and 78491 to 

newly established APC 0306 

(Myocardial Positron Emission 

Tomography (PET) imaging, single 

study, metabolic evaluation) and CPT 

code 78492 to newly established APC 

0307 (Myocardial Positron Emission 

Tomography (PET) imaging, multiple 

studies), where the APC medians have 

been calculated based on data from their 

predecessor G-codes, as discussed in 

more detail below. However, we are 

changing the status indicator for CPT 

code 78609 (Brain imaging, PET; 

perfusion evaluation) from ‘‘S’’

(separately paid under the OPPS) to ‘‘E’’

(not paid under the OPPS) retroactive to 

January 28, 2005, as historically there 

has been and currently there remains no 

coverage for this service under the 

Medicare program. 

Comment: Numerous comments 

applauded our recognition of the newly 

established CPT codes for concurrent 

PET/CT scans and acknowledgement of 

the clinical usefulness of concurrent 

PET/CT scans for attenuation correction 

and anatomical localization in the 

management of patients with cancer. 

However, several commenters expressed 

concern that the proposed assignment of 

PET/CT scans (CPT codes 78814, 78815, 

and 78816) to New Technology APC 

1514 (paying $1,250) may not 

adequately cover the costs of providing 

PET/CT services. These commenters 

explained that hospitals incur more 

capital and maintenance costs with 

PET/CT than with conventional PET. 

For instance, a large trade association 

commented that a new PET/CT scanner 

costs approximately $1.8 million, 

compared to $1.2 million for a 

conventional PET scanner. Another 

commenter quoted annual maintenance 

costs of approximately $240,000 for a 

new PET/CT scanner, compared to 

$120,000 for a conventional PET 

scanner. These commenters asserted 

that the proposed payment rate for PET/ 

CT scans does not recognize the 

additional diagnostic benefits provided 

by concurrent PET/CT scans over 

traditional diagnostic PET and CT scans. 

These commenters further explained 

that the CT scan performed during a 

PET/CT is not limited to one part of the 

body but includes the entire area 

imaged by the PET scan and, therefore, 

is more efficient than performing one 

PET scan plus several separate CT scans 

for different regions of the body. Several 

commenters recommended that we 

assign the newly established CPT codes 

for PET/CT scans (CPT codes 77814, 

78815, and 78816) to New Technology 

APC 1519 (paying $1,750) based on 

external data and an economic analysis 

submitted by one of the commenters, 

which reported the costs of providing a 

PET/CT scan at approximately $1,717. 

In contrast, a leading mobile provider of 

PET/CT scans reported an average cost 

of $1,485 for providing a PET/CT scan, 

which included FDG, mileage to sites, 

technologists, supplies, equipment 

maintenance, and scheduling. 

Response: While we acknowledge that 

concurrent PET/CT scans for 

attenuation correction and anatomical 

localization in the management of 

patients with cancer may be clinically 

useful, we have received no convincing 

data that support the assignment of 

PET/CT scans (CPT codes 78814, 78815, 

and 78816) to an APC paying higher 

than $1,250. The external data and 

economic analysis submitted by one of 

the commenters failed to meet the 

criterion for consideration of external 

data that we proposed in our August 12, 

2003 proposed rule (68 FR 47987) and 

finalized in our November 7, 2003 final 

rule (68 FR 63424). The external data 

and analysis was not provided with the 

level of detail that would have allowed 

us to verify the claims data nor to have 

adjusted the claims data should we have 

determined an adjustment was 

necessary. Furthermore, one commenter 

reported an average cost of $1,485 for 

providing a PET/CT scan, which 

included FDG, among other related 

costs. Considering that FDG will be paid 

separately at charges adjusted to cost for 

CY 2006 (estimated typically to be about 

$250), the payment rate of $1,250 for 

PET/CT scans (not including FDG) 

adequately covers the cost of $1,485 that 

this commenter reported for providing 

PET/CT scans (including FDG). While 

we acknowledge that PET/CT scanners 

may be more costly to purchase and 

maintain than dedicated PET scanners, 

a PET/CT scanner is versatile and may 

also be used to perform individual CT 

scans, thereby potentially expanding its 

use if PET/CT scan demand is limited. 

Therefore, for CY 2006, we are 

maintaining CPT codes 78814, 78815, 

and 78816, which describe concurrent 

PET/CT scans for attenuation correction 

and anatomical localization, in New 

Technology APC 1514 (New 

Technology—Level XIV, $1,200–$1,300) 

at a payment rate of $1,250. 

Comment: One commenter expressed 

concern that the proposed payment rate 

of $1,250 for a PET/CT scan may not 

cover the costs of a diagnostic CT when 

performed in conjunction with a PET/ 

CT scan. The commenter stated that 

although many of the technical 

resources for acquiring diagnostic CT 

data when performed as a single 

acquisition with a PET/CT scan are the 

same as for the CT for attenuation 

correction and anatomical localization, 

the initial capital costs are greater for a 

PET/CT scanner capable of performing a 

diagnostic CT. In addition, there are 

added costs for acquiring the diagnostic 

CT data such as for the contrast agent 

and appropriate personnel. This 

commenter expressed interest in a 

continued dialogue with CMS on the 

issue of appropriate payment for the 

68582 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

technical costs of performing a 

diagnostic CT acquired simultaneously 

with a PET/CT scan. 

Response: We appreciate the 

commenter’s concerns regarding 

appropriate billing and OPPS payment 

for a PET scan with CT for attenuation 

correction and anatomical localization 

and a diagnostic CT scan performed as 

a single acquisition. We will consider 

this issue should we issue more specific 

hospital billing guidance regarding 

various combinations of medically 

reasonable and necessary PET and CT 

scans. 

(2) Myocardial PET Scans 

Comment: Two commenters to the 

November 15, 2004 final rule with 

comment period (69 FR 65682) urged 

CMS to delete HCPCS code G0230 (PET 

imaging, metabolic assessment for 

myocardial viability following 

inconclusive SPECT study) and 

recognize CPT code 78459 (myocardial 

imaging, positron emission tomography, 

metabolic evaluation) by changing its 

status indicator from ‘‘B’’ to ‘‘S.’’

Response: As a result of a recent 

Medicare national coverage 

determination Publication 100–3, 

Medicare Claims Processing Manual 

section 220.6), effective January 28, 

2005, we discontinued HCPCS code 

G0230 and activated CPT code 78459, 

changing its status indicator from ‘‘B’’ to 

‘‘S.’’ For CY 2006, we are maintaining 

CPT code 78459 as the active code for 

billing ‘‘myocardial imaging, positron 

emission tomography, metabolic 

evaluation.’’

Comment: Several commenters to the 

November 15, 2004 final rule with 

comment period (69 FR 65682) and the 

CY 2006 OPPS proposed rule (70 FR 

42674) stated that the payment rate for 

APC 0285 does not accurately reflect the 

costs associated with performing 

multiple studies of PET myocardial 

perfusion imaging. They noted that, as 

configured, APC 0285 violated the two 

times rule for CY 2005 and was 

proposed as an exception to the two 

times rule for CY 2006. These 

commenters suggested that CMS split 

myocardial PET scans into two APCs to 

distinguish the resource consumption 

differences between single-study and 

multiple-study PET imaging. 

Response: We agree with commenters 

that the significant cost differences 

between single study and multiple 

studies myocardial PET imaging 

services reflected in our historical 

hospital claims data for the G-code 

myocardial PET scan services support 

the splitting of APC 0285 into two 

myocardial PET scan APCs for more 

accurate rate-setting for these services 

for CY 2006. Furthermore, the splitting 

of APC 0285 resolves the two times 

violation that occurred in the CY 2006 

proposed rule configuration of APC 

0285. Therefore, we are assigning singlestudy myocardial PET imaging 

procedures and metabolic evaluation of 

myocardial PET imaging to APC 0306 

(Myocardial Positron Emission 

Tomography (PET) imaging, single 

study, metabolic evaluation) with a 

median cost of $800, based on the CY 

2004 hospital claims data for the 

predecessor G-codes that have been 

replaced with CPT codes 78459 and 

78491. In addition, we are assigning 

multiple-study myocardial PET imaging 

procedures to APC 0307 (Myocardial 

Positron Emission Tomography (PET) 

imaging, multiple studies) with a 

median cost of $2,482, based on the CY 

2004 hospital claims data for the 

predecessor G-codes that have been 

replaced with CPT code 78492. 

Comment: One commenter explained 

that myocardial PET perfusion studies 

may be performed with or without 

gating similar to myocardial SPECT 

procedures. However, for myocardial 

PET perfusion studies, there are no 

additional codes to describe gating; 

therefore, the provider receives the same 

payment regardless of having performed 

a gated study versus a non-gated study. 

The commenter requested that the 

payment rate for myocardial PET 

perfusion studies be adjusted to assure 

proper payment for gated studies. 

Response: While we recognize that 

the CPT codes describing myocardial 

PET scans make no distinction between 

gated and non-gated studies, we 

received numerous comments urging 

that we discontinue the G-codes for PET 

scans and recognize these CPT codes for 

PET scans. Furthermore, the splitting of 

the myocardial PET scans into two 

APCs to distinguish single-study 

imaging from multiple-study imaging, as 

discussed in detail above, may improve 

payment for certain gated studies that 

involve multiple studies and address 

the commenter’s concern for adequate 

payment for gated studies. 

h. Proton Beam Treatment 

In the CY 2005 OPPS proposed rule 

(69 FR 50467), we proposed to reassign 

CPT codes 77523 (Proton treatment 

delivery, intermediate) and 77525 

(Proton treatment delivery, complex) 

from New Technology APC 1511 (New 

Technology, Level XI, $900–$1,000) to 

clinical APC 0419 (Proton Beam 

Therapy, Level II). In response to this 

proposal, we received numerous 

comments urging that we maintain CPT 

codes 77523 and 77525 in New 

Technology APC 1511 at a payment rate 

of $950 for CY 2005, arguing that the 

proposed payment rate of $678 for CY 

2005 would halt diffusion of this 

technology and negatively impact 

patient access to this cancer treatment. 

Commenters explained that the low 

volume of claims submitted by only two 

facilities provided volatile and 

insufficient data for movement into the 

proposed clinical APC 0419. They 

further explained that the extraordinary 

capital expense of between $70 and 

$125 million and high operating costs of 

a proton beam facility necessitate 

adequate payment for this service to 

protect the financial viability of this 

emerging technology. 

In the November 15, 2004 final rule 

with comment period (69 FR 65719 

through 65720), we considered the 

concerns expressed by numerous 

commenters that patient access to 

proton beam therapy might be impeded 

by a significant reduction in OPPS 

payment. Therefore, we set the CY 2005 

payment rate for CPT codes 77523 and 

77525 by calculating a 50/50 blend of 

the median cost for intermediate and 

complex proton beam therapies of $690 

derived from CY 2003 claims and the 

CY 2004 New Technology payment rate 

of $950. We used the result of this 

calculation ($820) to assign intermediate 

and complex proton beam therapies 

(CPT codes 77523 and 77525) to New 

Technology APC 1510 (New 

Technology—Level X ($800–$900) for a 

blended payment rate of $850 for CY 

2005. 

Our examination of the CY 2004 

claims data has revealed a second year 

of a stable, albeit modest, number of 

claims on which to set the CY 2006 

payment rates for CPT codes 77523 and 

77525. However, unlike the median of 

$690 for the proposed CY 2005 Level II 

proton beam radiation therapy clinical 

APC containing CPT codes 77523 and 

77525 derived from the CY 2003 claims 

data, the median for a comparable Level 

II proton beam radiation therapy clinical 

APC was $934 derived from partial CY 

2004 claims data at the time of 

development of the CY 2006 proposed 

rule. This more recent median appears 

to more accurately reflect the significant 

capital expense and high operating costs 

of a proton beam therapy facility, and 

supports patient access to proton beam 

therapy. Therefore, we proposed to 

move CPT codes 77523 and 77525 from 

New Technology APC 1510 to clinical 

APC 0667 (Level II Proton Beam 

Radiation Therapy) based on a median 

cost of $934 for CY 2006. 

Comment: Numerous commenters 

applauded our proposal to reassign CPT 

codes 77523 (Proton treatment delivery, 

intermediate) and 77525 (Proton 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68583 

treatment delivery, complex) from New 

Technology APC 1510 (New 

Technology—Level X ($800–$900) to 

clinical APC 0667 (Level II Proton Beam 

Radiation Therapy), setting payment on 

the median cost of $1,133 derived from 

the CY 2004 claims, an increase from 

the median cost of $934 in the proposed 

rule. Commenters also supported our 

proposal to maintain CPT codes 77520 

(Proton treatment delivery; simple, 

without compensation) and 77522 

(Proton treatment delivery; simple, with 

compensation) in APC 0664 (Level I 

Proton Beam Radiation Therapy), setting 

the payment on the median cost of $947 

derived from the full year CY 2004 

claims. Commenters stated that these 

proposed payments more accurately 

reflect the significant capital expense 

and operating costs of a proton beam 

therapy center. Commenters also were 

pleased with our proposal to maintain 

separate APCs for distinguishing simple 

from intermediate and complex proton 

beam therapies, stating that the 

distinction is necessary to differentiate 

between the resource demands of the 

different treatment levels. Commenters 

urged CMS to continue protecting 

beneficiary access to this technology, 

especially during this early stage of 

clinical adoption to ensure economic 

viability of both existing facilities and 

those in various stages of construction 

and development. 

Response: We agree with commenters 

that the CY 2004 median cost data for 

proton beam therapy services more 

accurately reflect the significant capital 

expense and high operating costs of a 

proton beam therapy facility. 

Furthermore, our reassignment of CPT 

codes 77523 and 77525 from New 

Technology APC 1510 to clinical APC 

0667 based on the improved median 

cost data and stable frequency is 

consistent with our policy of 

transitioning New Technology services 

into a clinically appropriate APC with 

payment based on median cost data 

once the data for these services become 

sufficiently stable to protect patient 

access to such services. Therefore, we 

are finalizing our proposal to reassign 

intermediate and complex proton beam 

therapy services (CPT codes 77523 and 

77525) from New Technology APC 1510 

to clinical APC 0667, and to maintain 

simple proton beam therapy services 

(CPT codes 77520 and 77522) in APC 

0664 for CY 2006. 

i. Smoking Cessation Counseling 

Comment: Two commenters 

expressed concern about our proposal to 

move smoking cessation HCPCS codes 

G0375 (Smoking and tobacco-use 

cessation counseling visit; 3–10 

minutes) and G0376 (Smoking and 

tobacco-use cessation counseling visit; 

greater than 10 minutes) from their 

current New Technology APC 1501 

(Level I, $0–$50) with a payment rate of 

$25, to New Technology APC 1491 

(Level IA, $0–$10) with a payment rate 

of $5. Both commenters contended that 

the current payment rate of $25 is not 

sufficient to cover resources associated 

with this type of visit. Both commenters 

expressed the conviction that, once 

claims data reflecting the costs of the 

service become available, it would 

become clear that a payment rate closer 

to $52 is warranted. One commenter 

urged us to maintain these codes in 

their current New Technology APC until 

provider claims data become available. 

The other commenter took the position 

that placement in a New Technology 

APC is not appropriate, as the services 

could reasonably be placed in an 

existing clinical APC. Specifically, this 

commenter recommended that HCPCS 

codes G0375 and G0376 be assigned 

immediately to APC 0600 (Low Level 

Clinic Visits), which the commenter 

considers appropriate in terms of 

resource costs and clinical 

characteristics. Finally, both 

commenters pointed out that there was 

an inconsistency in our tables in the 

proposed rule with regard to the APC 

assignments of codes G0375 and G0376. 

Specifically, Table 10 in the proposed 

rule (70 FR 42706) showed HCPCS code 

G0375 assigned to New Technology 

APC 1491 (with a payment rate of $5), 

while HCPCS code G0376 was assigned 

to New Technology APC 1492 (with a 

payment rate of $15). However, 

Addendum B of the proposed rule (70 

FR 42936) showed both HCPCS codes 

G0375 and G0376 assigned to New 

Technology APC 1491 (with a payment 

rate of $5). 

Response: We thank the commenters 

for bringing to our attention a 

typographical error that appeared in 

Table 10 of the proposed rule (70 FR 

42706). This error did not come to our 

attention in time for correction. Our 

intent, as indicated in Addendum B, 

was to assign both HCPCS codes G0375 

and G0376 to APC 1491 (with a 

payment rate of $5). We regret the error. 

We do not agree with the commenter 

who suggested that it is appropriate at 

this time to remove HCPCS codes G0375 

and G0376 from assignment to a New 

Technology APC and to assign them to 

clinical APC 0600 (Low Level Clinic 

Visits). One purpose of assignment to a 

New Technology APC is to provide an 

opportunity to collect claims data from 

our system, in order to allow for the 

ultimate placement of a code in the 

most appropriate clinical APC in terms 

of hospital resource requirements. At 

this time, we lack any data that would 

justify placing these codes in the 

clinical APC recommended by the 

commenter or in any other clinical APC. 

We believe that these smoking cessation 

services, because they are so specifically 

defined with respect to coding and 

coverage, may not require similar 

hospital resources as those required of 

other services assigned to APC 0600. As 

two specific G-codes were developed for 

these new smoking cessation services, 

the specific services likely bear little 

clinical resemblance to many of the 

evaluation and management services 

assigned to APC 0600, whose median 

cost currently reflects CY 2004 claims 

from hospitals. We also cannot agree 

with the commenter recommending 

placement of these codes in one or more 

higher-paying New Technology APCs. 

Our proposal to reassign these codes 

from their current New Technology APC 

1501 (with a payment rate of $25) to 

New Technology APC 1491 (with a 

payment rate of $5) was based on our 

assessment that the hospital facility 

resources required for this service are 

likely to be very limited. At the time of 

activation of these new G-codes in CY 

2005, New Technology APC 1501 was 

the New Technology APC applicable to 

new OPPS services with expected 

hospital costs of between $0 and $50. As 

we proposed to refine the New 

Technology cost bands for CY 2006 and 

are finalizing that proposal in this final 

rule, we believe that for CY 2006 

assignment of the smoking cessation Gcodes to New Technology APC 1491 

now more appropriately reflects the 

hospital resources required for these 

services. Therefore, for CY 2006, we are 

finalizing that proposal in this final 

rule. However, for CY 2007 rate-setting, 

we will reassess the APC placement of 

these codes in light of the available 

partial year CY 2005 hospital claims 

data. 

j. Stereoscopic Kv X-ray 

Comment: A number of commenters 

addressed our creation of a new code for 

stereoscopic kilovolt x-ray imaging, 

HCPCS code C9722 (Stereoscopic 

kilovolt x-ray imaging with infrared 

tracking for localization of target 

volume), and assignment of the service 

to a New Technology APC. Commenters 

stated that the ‘‘definition,’’ which 

appears to refer to the code descriptor, 

combines two technologies into one 

HCPCS code. A commenter claimed that 

this descriptor excludes other superior 

technologies to acquire kilovolt (kV) xray images for localization of target 

volume that do not rely on infrared 

68584 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

tracking. Commenters asserted that the 

key feature of the service is the use of 

kV x-ray imaging for localization of 

target volume, while the infrared 

tracking feature is used for patient 

monitoring only to ensure 

immobilization, not for positioning and 

localization. A commenter stated that 

many kV x-ray systems do not use 

infrared tracking. The commenters, 

including a number of cancer centers, 

recommended modifying the descriptor 

of HCPCS code C9722 to ‘‘Stereoscopic 

kV x-ray imaging with or without 

infrared tracking for localization of 

target volume,’’ claiming that this would 

allow hospitals equal reimbursement for 

providing the service regardless of the 

vendor from whom they bought the kV 

x-ray equipment. One commenter stated 

that the kV x-ray is part of Image Guided 

Radiation Therapy (IGRT), a new 

generation of conformal radiation 

therapy techniques, and that it was 

working with the CPT Editorial Panel to 

submit CPT applications for 

stereoscopic x-ray guidance, as well as 

other IGRT technologies. A commenter 

stated that there is a new CPT code for 

stereoscopic x-ray guidance effective 

January 1, 2006, and recommended that 

we crosswalk HCPCS code C9722 to the 

new CPT code. 

Response: The AMA’s CPT Editorial 

Panel created new CPT code 77421, 

‘‘Stereoscopic X-ray guidance for 

localization of target volume for the 

delivery of radiation therapy’’, which 

will be effective January 1, 2006. We 

will replace HCPCS code C9722 with 

CPT code 77421 for CY 2006, mapping 

the new code to the same New 

Technology APC as for CY 2005—APC 

1502. As with the instructions 

embedded in the descriptor for HCPCS 

code C9722, CPT code 77421 should not 

be reported with the five G-codes for 

stereotactic radiosurgery treatment to be 

billed under the OPPS in CY 2006. As 

CPT code 77421 makes no reference to 

infrared tracking, the commenters’

concerns are addressed by the use of 

this CPT code and its descriptor. 

k. Stereotactic Radiosurgery (SRS) 

In a correction to the November 7, 

2003 final rule with comment period, 

issued on December 31, 2003 (68 FR 

75442), we considered a commenter’s 

request to combine HCPCS codes G0242 

(Cobalt 60-based stereotactic 

radiosurgery planning) and HCPCS code 

G0243 (Cobalt 60-based stereotactic 

radiosurgery delivery) into a single 

procedure code in order to capture the 

costs of this treatment in single 

procedure claims because the majority 

of patients receive the planning and 

delivery of this treatment on the same 

day. We responded to the commenter’s 

request by explaining that several other 

commenters stated that HCPCS code 

G0242 was being misused to code for 

the planning phase of linear acceleratorbased stereotactic radiosurgery 

planning. Because the claims data for 

HCPCS code G0242 represented costs 

for linear accelerator-based stereotactic 

radiosurgery planning (due to misuse of 

the code), in addition to Cobalt 60-based 

stereotactic radiosurgery planning, we 

were uncertain of how to combine these 

data with HCPCS code G0243 to 

determine an accurate payment rate for 

a combined code for planning and 

delivery of Cobalt 60-based stereotactic 

radiosurgery. 

In consideration of the misuse of 

HCPCS code G0242 and the potential for 

causing greater confusion by combining 

HCPCS codes G0242 and G0243 into a 

single procedure code, for CY 2004 we 

created a planning code for linear 

accelerator-based stereotactic 

radiosurgery (HCPCS code G0338) to 

distinguish this service from Cobalt 60- 

based stereotactic radiosurgery 

planning. We maintained both HCPCS 

codes G0242 and G0243 for the 

planning and delivery of Cobalt 60- 

based stereotactic radiosurgery, 

consistent with the use of the two Gcodes for planning (HCPCS code G0338) 

and delivery (HCPCS codes G0173, 

G0251, G0339, G0340, as applicable) of 

each type of linear accelerator-based 

stereotactic radiosurgery (SRS). We 

indicated that we intended to maintain 

these new codes in their current New 

Technology APCs until we had 

sufficient hospital claims data reflecting 

the costs of the services to consider 

moving them to clinical APCs. 

During the February 2005 APC Panel 

meeting, the APC Panel discussed the 

clinical and resource cost similarities 

between planning for Cobalt 60-based 

and linear accelerator-based SRS. The 

APC Panel also discussed the use of 

CPT codes instead of specific G-codes to 

describe the services involved in SRS 

planning, noting the clinical similarities 

in radiation treatment planning 

regardless of the mode of treatment 

delivery. Acknowledging the possible 

need for CMS to separately track 

planning for SRS, the APC Panel 

eventually recommended that we create 

a single HCPCS code to encompass both 

Cobalt 60-based and linear acceleratorbased SRS planning. However, a 

hospital association and other 

presenters at the APC Panel meeting 

urged that we discontinue the use of Gcodes for SRS planning, and instead, 

recognize the current CPT codes that 

describe the specific component 

services involved in SRS planning to 

reduce the burden on hospitals of 

maintaining duplicative codes for the 

same services to accommodate different 

payers. Lastly, one presenter urged that 

we combine HCPCS codes G0242 

(Cobalt 60-based stereotactic 

radiosurgery planning) and G0243 

(Cobalt 60-based stereotactic 

radiosurgery delivery) into a single 

procedure code to reflect that the 

majority of patients receive the planning 

and delivery of this treatment on the 

same day as a single fully integrated 

service. 

The APC Panel recommended that we 

make no changes to the coding or APC 

placement of SRS delivery codes G0173, 

G0243, G0251, G0339, and G0340 for CY 

2006. We first established the above full 

group of delivery codes in CY 2004, so 

we have only one year of hospital 

claims data reflecting costs of all of the 

services. In addition, presenters to the 

APC Panel described current ongoing 

deliberations amongst interested 

professional societies around the 

descriptions and coding for SRS. The 

APC Panel and presenters suggested that 

we wait for the outcome of these 

deliberations prior to making any 

significant changes to SRS delivery 

coding or payment rates. 

In an effort to balance the 

recommendations of the APC Panel with 

the recommendations of presenters at 

the APC Panel meeting, in accordance 

with the APC Panel recommendations, 

we proposed to make no changes to the 

APC placement of the following SRS 

treatment delivery codes for CY 2006: 

HCPCS codes G0173, G0243, G0251, 

G0339, and G0340. 

In the CY 2006 proposed rule, we 

acknowledged concerns expressed by 

some presenters urging that we 

discontinue the use of the G-codes for 

SRS planning, and instead, recognize 

the current CPT codes that describe the 

specific component services involved in 

SRS planning to reduce the burden on 

hospitals of maintaining duplicative 

codes for the same services to 

accommodate different payers. In 

addition, we indicated that we had no 

need to separately track SRS planning 

services, which share clinical and 

resource homogeneity with other 

radiation treatment planning services 

described by current CPT codes. 

When HCPCS code G0242 was 

established for SRS planning, several 

radiology planning services were 

considered in determining its APC 

placement. In the November 30, 2001 

final rule, in which we described our 

determination of the total cost for SRS 

planning based on our claims 

experience, we added together the 

median costs of the following CPT codes 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68585 

that we found to be regularly billed with 

SRS delivery (CPT code 61793 in the 

available hospital data): 77295, 77300, 

77370, and 77315. In the CY 2006 

proposed rule, our examination of the 

costs from the CY 2004 claims data 

available to us at that time for the abovementioned CPT codes closely 

approximated the CY 2004 median costs 

reported for HCPCS codes G0242 and 

G0338. The APC median costs for the 

above-mentioned CPT codes based on 

the CY 2004 claims data utilized for the 

proposed rule totaled $1,297, while the 

median cost for HCPCS code G0242 was 

$1,366 and the median cost for HCPCS 

code G0338 was $1,100 based on the 

partial year CY 2004 claims data. In 

addition, three of the above-mentioned 

CPT codes were included on the 

proposed bypass list for CY 2006, so we 

did not anticipate that the billing of 

these codes on the same day as an SRS 

treatment service would cause 

significant problems with multiple bills 

for SRS services. Therefore, we 

proposed to discontinue HCPCS codes 

G0242 and G0338 for the reporting of 

charges for SRS planning under the 

OPPS, and to instruct hospitals to bill 

charges for SRS planning using all of the 

available CPT codes that most 

accurately reflect the services provided. 

We acknowledged one APC Panel 

presenter’s concern that the coding 

structure of Cobalt 60-based SRS, using 

either the current SRS planning G-code 

or the appropriate CPT codes for 

planning services as we proposed for CY 

2006, might not necessarily reflect the 

same day, integrated Cobalt 60-based 

SRS service furnished to the majority of 

patients receiving Cobalt 60-based SRS. 

Thus, we specifically requested public 

comment on the clinical, administrative, 

or other concerns that could arise if we 

were to bundle Cobalt 60-based SRS 

planning services, currently reported 

using HCPCS code G0242 and proposed 

for CY 2006 to be billed using the 

appropriate CPT codes for planning 

services, into the Cobalt 60-based SRS 

treatment service, currently reported 

under the OPPS using HCPCS code 

G0243. Under such a scenario, the SRS 

treatment service described by HCPCS 

code G0243 would be placed in a higher 

paying New Technology APC to reflect 

payment for the costs of the SRS 

planning and delivery as an integrated 

service. Hospitals would be prohibited 

from billing other radiation planning 

services along with the Cobalt 60-based 

SRS treatment delivery code. In contrast 

to Cobalt 60-based SRS coding, we did 

not consider bundling the planning for 

linear accelerator-based SRS with the 

treatment delivery services, given the 

various timeframes for planning that 

may occur with linear accelerator-based 

SRS. 

As discussed in detail above, the APC 

Panel recommended that CMS create a 

single HCPCS code to encompass both 

Cobalt 60-based and linear acceleratorbased SRS planning. Furthermore, the 

Panel recommended that we make no 

changes to the coding or APC placement 

of SRS treatment delivery HCPCS codes 

G0173, G0243, G0251, G0339, and 

G0340 for CY 2006. 

For reasons discussed below, we are 

discontinuing HCPCS codes G0242 and 

G0338 for the reporting of charges for 

SRS planning under the OPPS for CY 

2006, and instructing hospitals to bill 

charges for SRS planning, regardless of 

the mode of treatment delivery, using all 

of the available CPT codes that most 

accurately reflect the services provided. 

In addition, while we are reassigning 

HCPCS code G0243 to clinical APC 

0127 for CY 2006, we are making no 

changes to the APC placement of SRS 

treatment delivery HCPCS codes G0173, 

G0251, G0339, and G0340. 

We received a number of public 

comments on these SRS issues. 

Comment: We received numerous 

comments supporting our proposal to 

discontinue HCPCS codes G0242 

(Cobalt 60-based stereotactic 

radiosurgery planning) and G0338 

(Linear accelerator-based SRS planning) 

for the reporting of charges for SRS 

planning, and to instruct hospitals to 

bill charges for SRS planning using 

available CPT codes that most 

accurately reflect the services provided. 

These commenters agreed that available 

CPT codes more accurately describe the 

services involved in SRS planning and 

are less administratively burdensome 

for providers because other payors 

recognize them. Some commenters 

urged that we retain separate codes for 

reporting the planning and treatment 

delivery of Cobalt 60-based SRS, 

whether through the use of existing Gcodes (HCPCS codes G0242 and G0243) 

or through available CPT codes. Several 

of these commenters explained that 

although the planning and treatment 

delivery of Cobalt 60-based SRS most 

often occur on the same date of service, 

there are instances in which the 

planning and treatment are not 

delivered on the same date of service 

due to an unanticipated problem that 

arises during the planning that 

precludes the treatment delivery. In 

such instances where only planning for 

the Cobalt 60-based SRS is performed, 

commenters stated that CMS would 

need to clarify how providers should 

bill these services if separate codes are 

not maintained for the planning and 

treatment delivery of Cobalt 60-based 

SRS. Commenters expressed concern 

that combining the planning code 

(HCPCS code G0242) and treatment 

delivery code (HCPCS code G0243) for 

Cobalt 60-based SRS into a single 

combination code would necessitate the 

use of a modifier when they are not 

performed on the same date of service 

and would complicate the billing of 

these services and increase the 

administrative burden on hospitals. One 

commenter suggested that, if we decide 

to maintain HCPCS code G0242 for 

Cobalt 60-based SRS planning rather 

than transition to the CPT codes, we 

consider placing the planning code 

(HCPCS code G0242) on the bypass list 

as an alternative solution to generating 

more single bills for future rate-setting, 

rather than combining the planning and 

treatment delivery codes for Cobalt 60- 

based SRS into a single combination 

code. 

In contrast, a few commenters urged 

that we continue to recognize HCPCS 

codes G0242 and G0338 for the 

reporting of SRS planning rather than 

transition to the available CPT codes 

that describe these services. These 

commenters predicted that another year 

of stability would allow CMS to collect 

more reliable data for use in setting the 

CY 2008 payment rates for SRS 

planning services. 

Many commenters urged that we 

refrain from treating various forms of 

SRS (i.e., Cobalt 60-based and linear 

accelerator-based) differently by 

‘‘bundling’’ planning into the treatment 

delivery for Cobalt 60-based SRS by 

creating a single combination code, 

while ‘‘unbundling’’ planning and 

treatment delivery for linear acceleratorbased SRS by paying separately for 

these services. These commenters 

asserted that the planning and treatment 

delivery of SRS, regardless of the form 

of delivery, are clinically distinct 

services that should be reported 

separately to distinguish their distinct 

resource requirements. One commenter 

refuted claims that the administration of 

the planning and treatment delivery of 

SRS on the same date of service is 

unique to Cobalt 60-based SRS, arguing 

that the planning and treatment delivery 

of LINAC-based SRS likewise are 

typically performed on the same day, 

and that a mere time proximity of the 

two services does not necessitate a 

single combination code for either form 

of SRS. Several commenters cautioned 

against establishing different coding 

schemes for various SRS services that 

would likely cause confusion for coders, 

inaccurate coding, and unreliable data 

for future rate setting. 

68586 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

Numerous other commenters urged 

CMS to combine the planning code 

(HCPCS code G0242) and treatment 

delivery code (HCPCS code G0243) for 

Cobalt 60-based SRS into a single 

surgical code, preferably CPT code 

61793 (stereotactic radiosurgery, 

particle beam, gamma ray, or linear 

accelerator, one or more sessions), 

which would replace all of the SRS G 

codes regardless of the mode of 

delivery. These commenters stated that 

the planning and treatment delivery of 

Cobalt 60-based SRS are always 

performed on the same day and that a 

single combination code would be less 

confusing for coders, provide more 

accurate claims data, and result in a 

more appropriate payment for Cobalt 

60-based SRS. While some of these 

commenters urged that we assign this 

single combination code to a higher 

paying New Technology APC consistent 

with its CY 2004 median cost data until 

more accurate cost data are available for 

determining an appropriate clinical 

APC, other commenters strongly 

opposed the designation of Cobalt 60- 

based SRS as a new technology service, 

noting that Cobalt 60-based SRS became 

a standard of care for treating cancer 

patients over two decades ago and a 

new technology label is no longer 

appropriate. Commenters stated that 

CMS’ designation of Cobalt 60-based 

SRS as a new technology service has led 

other insurers to consider the treatment 

to be experimental, which frequently 

delays, and sometimes prevents, access 

to treatment for critically ill patients. 

These commenters urged that we assign 

this new combination code reflecting 

planning and delivery of Cobalt 60- 

based SRS to a surgical APC and set the 

payment based on the median cost 

calculated from the CY 2004 hospital 

claims data. Some of these commenters 

recommended that this single 

combination code describe all forms of 

SRS, while other commenters 

emphasized the importance of 

maintaining separate combination codes 

for Cobalt 60-based SRS and LINACbased SRS to distinguish the significant 

clinical and resource cost differences 

associated with these services. 

One commenter urged that if CMS 

replaces the G-codes for SRS planning 

with available CPT codes describing 

these services, we should not assign 

HCPCS code G0243 (Cobalt 60-based 

SRS treatment delivery) to a New 

Technology APC paying higher than its 

CY 2005 payment rate of $5,250. This 

commenter supported our proposal to 

make no changes to the APC placement 

of SRS treatment delivery codes that 

describe a complete course of treatment 

in one session, stating that the proposed 

payment of $5,250 for all single session 

SRS treatment services for CY 2006 is 

appropriate based on the hospital 

resources involved in furnishing these 

services. 

Response: We thank the many 

commenters for their insightful thoughts 

and recommendations for the reporting 

of hospital charges for SRS services 

under the OPPS for CY 2006. In 

recognition of the heightened level of 

diligence that the current coding 

scheme for SRS services requires of 

hospital coders to ensure that charges 

for these services are reported under the 

appropriate G-code, we carefully 

considered several options for 

simplifying the coding scheme for SRS 

services while maintaining a certain 

level of data specificity to reflect the 

differential clinical considerations and 

hospital resource utilization that are 

necessary to inform future rate setting. 

First, we considered several 

recommendations by commenters to 

bundle the planning for Cobalt 60-based 

SRS into the treatment delivery (HCPCS 

code G0243) for Cobalt 60-based SRS by 

either establishing a single combination 

G-code describing both the planning 

and delivery of Cobalt 60-based SRS or 

by instructing providers to report CPT 

code 61793 for such services. However, 

we agree with the majority of 

commenters who expressed strong 

opposition to a single combination Gcode or CPT code to report the planning 

and treatment delivery of Cobalt 60- 

based SRS, noting the following 

concerns: (1) The administrative burden 

on providers of maintaining duplicative 

codes for SRS planning to accommodate 

various payors (that is, G-codes for 

Medicare and CPT codes for nonMedicare payors); (2) the added 

complexity of attaching a modifier to 

the code for instances when planning 

and delivery are not provided on the 

same date of service because treatment 

does not proceed due to an 

unanticipated problem; (3) the 

confusion for coders and unreliable data 

that could emanate from inconsistent 

coding schemes for different forms of 

SRS (that is, Cobalt 60-based and 

LINAC-based SRS); and (4) the 

nonspecificity of the descriptor for CPT 

code 61793 which describes all forms of 

SRS treatment delivery and makes no 

mention of SRS planning services. We 

also agree with the majority of 

commenters who stated that the G-codes 

(G0242 and G0338) for SRS planning are 

duplicative of existing CPT codes that 

adequately describe such services and 

that are much less administratively 

burdensome on hospitals because they 

are recognized by non-Medicare payors. 

Furthermore, our analysis of the CY 

2004 claims data revealed that the 

median costs for HCPCS codes G0242 

and G0338 closely approximated the 

sum of the median costs for the CPT 

codes (77295, 77300, 77315, 77370) that 

were most commonly billed under the 

OPPS for SRS planning prior to the 

establishment of HCPCS codes G0242 

and G0338. In addition, we remind 

commenters that three of the abovementioned CPT codes are included on 

the bypass list for CY 2006, so we do not 

anticipate that the billing of these codes 

on the same day as an SRS treatment 

delivery service will cause significant 

problems with multiple bills for SRS 

services, eliminating any need for 

recognizing a single combination G-code 

or CPT code which describes both 

planning and treatment delivery SRS 

services for the purpose of generating 

more single bills. Finally, based on 

additional confirmation from 

commenters that the similarities in 

clinical characteristics and resource 

costs associated with treatment 

planning for services delivering 

radiation, regardless of the mode of 

treatment delivery, dispel the need to 

separately track planning services for 

SRS, we are discontinuing HCPCS codes 

G0242 and G0338 for the reporting of 

charges for SRS planning under the 

OPPS for CY 2006, and instructing 

hospitals to bill charges for SRS 

planning, regardless of the mode of 

treatment delivery, using all of the 

available CPT codes that most 

accurately reflect the services provided. 

We also agree with the majority of 

commenters who strongly urged that we 

reassign HCPCS code G0243 (Cobalt 60- 

based treatment delivery) from New 

Technology APC 1528 to a clinical APC, 

pointing out that Cobalt 60-based SRS 

became a standard of care for treating 

cancer patients over two decades ago 

and, therefore, a new technology label 

no longer appropriately describes the 

service. Furthermore, the median costs 

from hospital claims for HCPCS code 

G0243 based on a significant number of 

single claims each year have been quite 

stable over the past three years, 

supporting movement of this service out 

of a New Technology APC and into a 

clinical APC based on its median cost 

data from CY 2004. Therefore, we are 

reassigning HCPCS code G0243 from 

New Technology APC 1528 to clinical 

APC 0127 and setting its payment rate 

based on a median cost of $7,297 for CY 

2006. 

Lastly, we agree with commenters 

who emphasized the significant clinical 

and resource cost differences associated 

with the treatment delivery of Cobalt 60- 

based SRS and LINAC-based SRS, and 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68587 

that establishment of a single code to 

describe all forms of SRS treatment 

delivery would result in a loss of 

essential data specificity for 

determining appropriate future payment 

rates for these services. For instance, 

based on the CY 2004 claims data, the 

median costs for the various forms of 

SRS treatment delivery ranged from 

$2,502 to $7,296. These significant 

differences in median cost data 

emphasize the importance of 

maintaining different codes that 

distinguish the various forms of SRS 

treatment delivery for the purpose of 

setting the most appropriate payment 

rates for these services. We believe it 

would be premature, as well, to move 

the LINAC-based SRS treatment 

delivery procedures to clinical APCs for 

CY 2006 because we have only one year 

of claims data reflecting their current 

coding structure, although we have 

hundreds of single claims for some of 

the services. We will be examining our 

claims data carefully for the next OPPS 

update, because we will then have 2 

years of data for these LINAC-based SRS 

treatment delivery services now 

assigned to New Technology APCs. 

Therefore, we are maintaining HCPCS 

codes G0173 and G0339 in New 

Technology APC 1528, HCPCS code 

G0251 in New Technology APC 1513, 

and HCPCS code G0340 in New 

Technology APC 1525 for CY 2006. And 

as mentioned elsewhere in this section, 

we are reassigning HCPCS code G0243 

from New Technology APC 1528 to 

clinical APC 0127. 

Comment: One commenter urged that 

we create a new CPT code titled 

‘‘Surgeon-based Gamma Stereotactic 

Radiosurgery, complete course, one 

procedure, per lesion’’ to describe 

Cobalt 60-based SRS planning and 

treatment delivery and assign this CPT 

code to a new surgical APC titled 

‘‘Surgeon-based Gamma Stereotactic 

Radiosurgery.’’ This commenter 

recommended that we set the payment 

rate of this new APC based on the 

combined median costs from claims 

data for HCPCS codes G0242 and 

G0243. 

Response: We appreciate the 

commenter’s suggestion; however, CMS 

does not possess the authority to create 

CPT codes, which are established and 

maintained by the American Medical 

Association. Furthermore, under the 

OPPS, we do not label APCs according 

to the type of clinician delivering the 

service (that is, surgeon versus nonsurgeon) because such categorization is 

irrelevant to establishing payment for 

hospital services billed under the OPPS. 

Rather, we provide titles for clinical 

APCs that describe the actual hospital 

services assigned to the APCs for which 

providers should report their hospital 

costs and charges. In addition, as 

discussed above, we agree with the 

majority of commenters who opposed 

the recognition of a single combination 

code (that is, CPT code 61793) for the 

planning and delivery of Cobalt 60- 

based SRS services, for reasons stated 

previously, i.e. the administrative 

burden of maintaining duplicative 

codes, the added complexity of 

attaching a modifier to the code for 

instances when planning and delivery 

are not provided on the same date of 

service because treatment does not 

proceed due to an unanticipated 

problem, the confusion for coders and 

unreliable data that could emanate from 

inconsistent coding schemes for 

different forms of SRS (that is, Cobalt 

60-based and LINAC-based SRS), and 

the nonspecificity of the descriptor for 

CPT code 61793 which describes all 

forms of SRS treatment delivery and 

makes no mention of SRS planning 

services. Therefore, as discussed 

elsewhere in this section, for CY 2006, 

we are discontinuing HCPCS code 

G0242 and recognizing existing CPT 

codes for the reporting of Cobalt 60- 

based SRS planning, and moving 

HCPCS code G0243 (Cobalt 60-based 

SRS treatment delivery) from New 

Technology APC 1528 to clinical APC 

0127 based on a median cost of $7,296. 

Comment: Several commenters 

recommended that we make HCPCS 

code G0339 (Image guided, robotic, 

linear accelerator-based (LINAC) SRS 

treatment delivery, complete session, 

first session of fractionated treatment) a 

permanent code and continue to pay 

this service at the CY 2005 payment rate 

of $5,250. These commenters also 

recommended that we eliminate HCPCS 

code G0340 (Image guided, robotic, 

linear accelerator-based (LINAC) SRS 

treatment delivery, fractionated 

treatment, 2nd–5th sessions) and 

instruct hospitals to report HCPCS code 

G0339 for all fractionated treatment 

sessions, stating that the resource costs 

are the same for each session regardless 

of the number of treatment sessions that 

the patient receives. 

Response: We disagree with the 

commenters’ assertions that the resource 

costs are the same for each session of 

image-guided, robotic LINAC-based SRS 

treatment delivery regardless of the 

number of treatment sessions that the 

patient receives. Based on CY 2004 

claims data, the median cost for HCPCS 

code G0339 ($4,917) was considerably 

higher than the median cost for HCPCS 

code G0340 ($2,502), and does not 

support the elimination of HCPCS code 

G0340 or its payment at a rate 

comparable to the payment rate for 

HCPCS code G0339. As the SRS 

treatment delivery G-codes are national 

Level II HCPCS codes that we utilize for 

billing SRS treatments in the OPPS, we 

are uncertain what changes the 

commenter would like us to make for 

the codes to be ‘‘permanent.’’ Therefore, 

for CY 2006, we are maintaining HCPCS 

code G0339 in New Technology APC 

1528, and HCPCS code G0340 in New 

Technology APC 1525. 

Comment: One commenter urged 

CMS to assign HCPCS codes G0251 and 

G0340, for fractionated non-robotic and 

image-guided robotic LINAC-based SRS 

respectively, to the same APC, 

contending that these procedures 

involve similar resources and should be 

paid equally. In contrast, another 

commenter asserted that image-guided 

robotic LINAC-based SRS is 

substantially more resource intensive 

than non-robotic LINAC-based SRS, and 

that CMS should maintain HCPCS code 

G0251 in a separate APC from HCPCS 

code G0340 to distinguish their levels of 

resource requirements. 

Response: We began recognizing 

HCPCS code G0251 to describe 

fractionated sessions of non-robotic 

LINAC-based SRS treatment delivery in 

CY 2004, which yielded no single 

procedure claims data for HCPCS code 

G0251 to substantiate a similarity or 

lack of similarity of its resource costs in 

comparison with HCPCS code G0340 

(fractionated, 2nd–5th sessions, imageguided robotic LINAC-based SRS 

treatment delivery). However, the large 

divergence in the median cost of $2,802 

for the complete session of non-robotic 

LINAC-based SRS treatment delivery 

(HCPCS code G0173), in comparison 

with the median cost of $4,917 for the 

complete and first fractionated sessions 

of image-guided robotic LINAC-based 

SRS treatment delivery (HCPCS code 

G0339), indicates that fractionated 

image-guided robotic LINAC-based SRS 

treatment delivery is likely substantially 

more resource intensive than 

fractionated non-robotic LINAC-based 

SRS treatment delivery. Therefore, for 

CY 2006, we are maintaining HCPCS 

code G0251 in New Technology APC 

1513 and HCPCS code G0340 in New 

Technology APC 1525. However, for CY 

2007, we will reexamine our APC 

placement of HCPCS codes G0251 and 

G0340 based on CY 2005 hospital 

claims data. 

Comment: One commenter to the 

November 15, 2004 final rule with 

comment period (69 FR 65682) 

disagreed with CMS’ statement that CPT 

codes 0082T (Stereotactic body 

radiation, treatment delivery, one or 

more treatment areas, per day) and 

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0083T (Stereotactic body radiation 

therapy, treatment management, per 

day) are bundled into the current Gcodes for SRS treatment delivery. The 

commenter stated that stereotactic body 

radiation treatment delivery and 

management are new technologies and, 

thus, are not included in the current Gcodes for SRS treatment delivery; 

however, the commenter provided no 

cost data nor any explanation as to how 

stereotactic body radiation treatment 

differs from the current procedures 

described by the G-codes for SRS 

treatment delivery. Instead, the 

commenter simply requested that CMS 

designate these new tracking codes for 

stereotactic body radiation treatment 

delivery and management as new 

technology services and assign these 

codes to a New Technology APC. 

Response: We disagree with the 

commenter’s unsubstantiated assertion 

that the current G-codes for SRS 

treatment delivery do not already 

describe or include some services that 

could also be identified as stereotactic 

body radiation treatment delivery and 

management described by CPT codes 

0082T and 0083T, respectively. 

Furthermore, we received no evidence 

to support the commenter’s assertion 

that these services represent new 

technologies that could not be 

represented in our hospital claims data. 

Therefore, for CY 2006, we are 

maintaining CPT code 0082T with a 

status indicator of ‘‘B’’ because we 

consider an alternate code to be 

available for billing this service under 

the OPPS. Likewise, for CY 2006, we are 

maintaining CPT code 0083T with a 

status indicator of ‘‘N’’, indicating that 

the charges for this service are packaged 

into the payment for other services paid 

separately under the OPPS. 

D. APC—Specific Policies 

We received many comments on our 

proposed changes to specific groups of 

services as discussed in the CY 2006 

OPPS proposed rule preamble and 

displayed in Addendum B. We have 

grouped these comments, and our 

responses, into five general clinical 

categories as shown below. 

We received one comment that 

generally addresses our APC assignment 

methodology. 

Comment: One commenter objected to 

the placement of codes for unlisted 

services in the lowest APC that is 

clinically appropriate and to the lack of 

discussion of this policy in the CY 2006 

OPPS proposed rule. The commenter 

asked that CMS examine claims data 

and match unlisted services to the 

diagnosis to determine if there is a more 

appropriate APC than the lowest level. 

Response: We discussed this policy in 

the CY 2005 OPPS proposed rule which 

we published on August 16, 2004 (69 FR 

50448), and we made our existing policy 

final in the November 15, 2004 final 

rule (69 FR 65682). We proposed no 

changes to this policy in the CY 2006 

OPPS proposed rule (which we 

published on July 25, 2005 (70 FR 

42674)) and, therefore, we have not 

changed the policy. The HCPCS codes 

for unlisted services should be used 

only if there is no existing code that can 

be used alone or with existing modifiers 

to report the service that was furnished. 

We believe that their use should be very 

rare. We do not believe that examination 

of the diagnoses on claims for unlisted 

procedures would enable us to properly 

place the codes into APCs because there 

are so many different types of services 

at different levels of resource use that 

could apply to a single diagnosis. There 

is a 2-year lag between the year of 

hospital claims data and the OPPS 

payment rates that are established based 

on the data. New procedure-specific 

HCPCS codes are developed on an 

annual basis, and there are continuous 

changes in procedures for many 

diagnoses as medical practice evolves. 

Therefore, we have no confidence that 

the array of unlisted services billed by 

hospitals, and by implication their 

median costs, in a given year for 

patients with certain diagnoses would 

necessarily have any relationship to 

unlisted services, and their median 

costs, billed 2 years later for patients 

with the same diagnoses. Moreover, 

placing unlisted services in the lowest 

level APC encourages use of existing 

codes where it is possible and also 

encourages development of new HCPCS 

codes for services for which codes do 

not exist. 

1. Cardiac and Vascular Procedures 

a. Acoustic Heart Sound Recording and 

Analysis 

Comment: One commenter requested 

that CMS change the status indicator for 

CPT code 0069T (Acoustic heart sound 

recording and computer analysis only). 

The commenter requested that we 

assign the procedure to APC 0099 with 

an ‘‘S’’ status indicator rather than ‘‘N,’’

as is currently assigned to CPT code 

0069T. The commenter stated that the 

test’s current status as a packaged 

procedure results in inequitable 

payment to the hospital. They stated 

that the cost of an EKG with the acoustic 

heart sounds recording is $55 whereas, 

the cost of an EKG without is $31, and 

that because we have packaged the 

procedure, the hospital is underpaid by 

$24 for each test it performs. 

Response: It is our understanding that 

the acoustic heart sound recording and 

analysis is intended for a specific, 

targeted group of patients to enhance 

the provider’s ability to diagnose heart 

failure. The technology, as described by 

CPT code 0069T, always is performed in 

conjunction with an EKG and as such is 

ideal for packaging. It is the hospitals 

responsibility to increase their charges 

to reflect the additional costs for those 

EKGs that include the acoustic heart 

sound recording. If the hospital uses the 

test according to the manufacturer 

guidelines, the costs will be distributed 

over the large number of EKGs that are 

performed in the hospital outpatient 

department and, over time, the 

additional costs may be recognized in 

the OPPS rates as increased median 

costs for EKGs in general. 

Comment: One commenter requested 

that CPT code 0069T (Acoustic heart 

sound recording and computer analysis 

only) become separately payable. The 

commenter was concerned that CMS 

interpreted the code to be an add-on 

code to an EKG procedure. The 

commenter clarified that CPT code 

0069T is often used as a stand-alone 

procedure, provided without an EKG 

procedure. 

Response: We are accepting the APC 

Panel’s recommendations that CPT code 

0069T remain packaged for CY 2006. 

The Panel reviewed this code and 

determined it to be an add-on code to 

an electrocardiography service, as 

indicated by the American Medical 

Association’s descriptor of this code. In 

addition, we are concerned that there 

may be unnecessary utilization of this 

procedure if it is separately payable 

because it is an add-on code to EKG 

services, for which there were almost 6 

million claims under the OPPS in CY 

2004. Lastly, we continue to believe that 

this service is a minor procedure that 

may be performed quickly accompanied 

by an EKG and likely other separately 

payable services, and thus is 

appropriately packaged. 

b. Cardiac Electrophysiologic Services 

(APC 0087) 

Comment: Commenters objected to 

the decline in proposed payment rate 

for APC 0087 from prior years. They 

also objected to what they view as a two 

times violation in APC 0087 and asked 

that we move electrophysiologic 

‘‘mapping’’ CPT codes 93609, 93613, 

and 93631 to APC 0086 because the CPT 

code median costs for these codes are 

much higher than the median costs for 

the other codes in APC 0087. They state 

that because ‘‘mapping’’ CPT codes 

93609, 93613, and 93631 are billed with 

other cardiac electrophysiologic services 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68589 

already assigned to APC 0086, then 

these ‘‘mapping’’ services should also be 

assigned to the same clinical APC. They 

also asked that we use only claims that 

contain the device codes required for 

these CPT codes in setting the median 

cost for the APC into which CMS places 

these codes. 

Response: We disagree that there is a 

2 times violation, under our rules, in 

APC 0087. The law permits an 

exception to the two times rule for ‘‘low 

volume items and services.’’ We define 

any service that does not meet our test 

as a ‘‘significant service’’ to be a ‘‘low 

volume item or service.’’ A significant 

service is a service with a single bill 

frequency greater than 1,000 (which no 

services in APC 0087 meet) or a service 

with a single bill frequency greater than 

99 and more than 2 percent of the single 

bills (which no services in APC 0087 

meet). Because APC 0087 does not have 

any codes which meet the test of being 

significant, all of the codes in APC 0087 

are ‘‘low volume’’ under our definition, 

and there is no two times violation. 

Notwithstanding the absence of a 2 

times violation under our rules, we 

acknowledge the commenter’s concerns, 

and we will ask for the APC Panel’s 

views regarding the assignment of these 

codes to APC 0087 in preparation for 

the CY 2007 OPPS update. We also 

recognize that, for many of the 

procedures assigned to APC 0087, 

multiple procedure claims are the norm. 

We will also work with the APC Panel 

to develop potential strategies which 

could enable us to use more claims for 

rate setting for these cardiac 

electrophysiologic services. We 

disagree, however, that because the 

electrophysiology ‘‘mapping’’ codes are 

performed with other cardiac 

electrophysiology studies, the clinical 

and resource characteristics of the 

‘‘mapping’’ procedures necessarily are 

similar to the base services provided. 

See section IV.A. for our discussion of 

adjustments to median costs for devicedependent APCs for the CY 2006 OPPS. 

See Table 16 for the adjusted median 

cost for APC 0087 for the CY 2006 

OPPS. 

c. Cardioverter-Defibrillator 

Implantation (APC 0107, 0108) 

The median costs for APC 0107 

(Implantation of CardioverterDefibrillator) and APC 0108 (Insertion/ 

Replacement/Repair of CardioverterDefibrillator Leads and Insertion of 

Cardioverter-Defibrillator) have been 

adjusted each year since CY 2003 when 

pass-through payment expired for 

cardioverter-defibrillators, because the 

unadjusted medians have differed 

significantly from the prior year’s 

payment medians. Moreover, because 

we use single procedure claims to set 

the median costs, the median costs for 

these APCs have always been set on a 

relatively small number of claims as 

compared to the total frequency of 

claims for the services under the OPPS. 

For example, for the CY 2006 OPPS 

proposed rule, the unadjusted median 

cost for APC 0107 was set based on 445 

single procedure claims, which is 5.5 

percent of the 8,073 claims on which a 

procedure code in the APC was billed. 

Similarly, the unadjusted median cost 

for APC 0108 was set based on 520 

single procedure claims, which is 8.7 

percent of the 6,003 claims on which a 

procedure code in the APC was billed. 

Commenters have frequently told us 

that using the single procedure median 

costs for these APCs does not accurately 

reflect the costs of the procedures 

because claims from typical clinical 

circumstances involving multiple 

procedures, which constitute the 

majority of claims under these APCs, are 

not used to establish the medians. 

At the February 2005 APC Panel 

meeting, the APC Panel recommended 

that CMS package CPT codes 93640 and 

93641 (electrophysiologic evaluation at 

time of initial implantation or 

replacement of cardioverter-defibrillator 

leads). The APC Panel recommended 

that we always package the costs for 

these codes because the definitions of 

the codes state that these evaluations are 

done at the time of lead implantation. 

Therefore, CPT codes 93640 and 93641 

would never be correctly reported 

without a code in APC 0107 or APC 

0108 also being reported. In addition, 

when a service assigned to APC 0107 or 

APC 0108 is provided, we would expect 

that CPT codes 93640 or 93641 for 

electrophysiologic evaluation and 

testing would also be performed 

frequently, and CY 2004 claims data for 

services in APC 0107 and APC 0108 

confirm this. The APC Panel believed 

that packaging the costs of CPT codes 

93640 and 93641 would result in more 

single bills available for setting the 

median costs for APC 0107 and APC 

0108, and thus would likely yield more 

appropriate median costs for those 

APCs. Those medians would then 

include the costs of the 

electrophysiologic testing commonly 

performed at the time of the implantable 

cardioverter-defibrillator (ICD) 

insertion. 

The APC Panel further recommended 

that CMS treat CPT code 33241 

(Subcutaneous removal of cardioverterdefibrillator) as a bypass code when the 

code appeared on the same claims with 

services assigned to APC 0107 or APC 

0108. The APC Panel recommended 

bypassing charges for this code only 

when it appeared on the same claim 

with codes in APC 0107 or APC 0108, 

because when a cardioverter 

defibrillator (ICD) is removed and 

replaced in the same operative session, 

it is appropriate to attribute all of the 

packaged costs on the claim to the 

implantation of the device rather than to 

the removal of the device. The line costs 

for CPT code 33241 that are removed 

from the claims in this case would be 

discarded and would not be used to set 

the median cost for APC 0105 (the APC 

in which the code is located). 

We modeled the median costs that 

would be calculated for APCs 0107 and 

0108, if we were to make the changes 

recommended by the APC Panel for 

these APCs, under four possible 

scenarios: (1) The cardioverterdefibrillator device is inserted without 

removal or testing; (2) the device is 

inserted and tested with no removal; (3) 

the device is removed and inserted but 

not tested; and (4) the device is 

removed, inserted, and tested. For each 

unique scenario, we then compared the 

sum of the unadjusted median costs, the 

sum of the proposed adjusted median 

costs and the sum of the costs that we 

modeled using the APC Panel 

recommendations. These results were 

shown in the proposed rule in Tables 16 

and 17. 

We proposed to set the medians for 

these APCs at 85 percent of their CY 

2005 payment medians and based our 

modeling of the scalar and the impact 

analysis on that proposal, although we 

believed that the APC Panel 

recommendations have significant 

merit, particularly when we move to 

complete reliance on claims data in 

updating the OPPS for CY 2007. 

Although we proposed to adjust the 

median costs for these APCs in the same 

manner as other device-dependent 

APCs, we stated in the proposed rule 

that we will consider, based on the 

public comments, whether it would be 

appropriate to apply the multiple 

procedure claims methodology to these 

APCs for the CY 2006 OPPS. We 

specifically invited public comments on 

the APC Panel recommendations 

regarding packaging and bypassing 

services frequently performed with 

procedures assigned to APC 0107 and 

APC 0108, with the goal of increasing 

single bills available for rate-setting in 

order to improve the accuracy of median 

costs based upon hospital claims. 

We received many public comments 

concerning our proposal. 

Comment: Many commenters stated 

that the payments CMS proposed for 

APCs 0107 and 0108 are inadequate to 

cover the acquisition costs of the 

68590 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

devices, much less the full hospital 

costs of providing the services. They 

asserted that the proposed payments for 

APCs 0107 and 0108 are only 84 percent 

of the cost of the device alone, leaving 

the hospital with an out of pocket loss 

for the device and no payment for the 

service costs. They indicated that if the 

proposed payment rates are made final, 

APCs 0107 and 0108 will have incurred 

reductions of 20.5 percent and 29.4 

percent respectively since CY 2002. 

They urged that CMS use external data 

for the device portion of the median cost 

or at a minimum, accept the APC Panel 

recommendation to set the payment rate 

for APCs 0107 and 0108 at no less than 

the CY 2005 OPPS payment rate 

updated by the full market basket 

increase. They say that beneficiary 

access to care will be inhibited by 

continued inadequate payments for 

these services. 

Response: We have considered the 

comments and, as proposed, will adjust 

the medians for the services in APCs 

0107 and 0108 under the same policy 

being applied to other device-dependent 

APCs. See section IV.A. of this preamble 

for our discussion of the use of external 

data, and requests to update the CY 

2005 OPPS median costs and payment 

rates by the market basket for purposes 

of setting the CY 2006 OPPS payments. 

Also see section IV. A. of this preamble 

for our discussion of adjustments to 

median costs for device-dependent 

APCs. See Table 16 for the CY 2006 

adjusted median costs for devicedependent APCs, including APCs 0107 

and 0108. 

Comment: One commenter supported 

the recommendations of the APC Panel 

that CMS package CPT codes 93640 and 

93641 (electrophysiologic evaluation at 

time of initial implantation or 

replacement of cardioverterdefibrillator) and treat CPT code 33241 

(subcutaneous removal of cardioverterdefibrillator) as a bypass code when it 

appears on claims with services 

assigned to APCs 0107 or 0108. The 

commenter believed that these changes 

would result in a more robust set of 

claims to be used to set the median costs 

for APCs 0107 and 0108. Other 

commenters indicate that with or 

without these changes, the increased 

volume of claims is unlikely to result in 

adequate median costs for these 

procedures. 

Response: We believe that it may be 

appropriate to package CPT codes 93640 

and 93641 into the services assigned to 

APCs 0107 and 0108, and that it may be 

appropriate to bypass CPT code 33241 

only when it appears on the same claim 

with codes in APCs 0107 or 0108, and 

we will explore doing this in the future. 

The APC Data Subcommittee will 

continue to advise us on efforts to 

increase the amount of usable claims 

data for services that very frequently are 

provided along with other separately 

payable procedures. 

As noted above, consistent with 

payment for other device-dependent 

APCs, the CY 2006 OPPS payment for 

APCs 0107 and 0108 is set based on 90 

percent of the CY 2005 OPPS adjusted 

median cost. See Table 16 for a 

complete listing of device-dependent 

APCs and the adjusted median costs on 

which the payment rates are based. 

d. Endovenous Ablation (APC 0092) 

Comment: One commenter addressed 

our final rule (November 15, 2004) 

regarding the APC assignment of new 

CPT codes 36475 (Endovenous 

radiofrequency ablation, first vein) and 

36476 (Endovenous radiofrequency 

ablation, vein add-on). The commenter 

asserted that the assignment to APC 

0092 (Level I Vascular Ligation) was 

inappropriate and results in payment 

that is inadequate to cover the costs of 

the procedure. The commenter 

recommended creation of two new 

APCs, Level I and Level II endovenous 

ablation procedures, and advocated 

assignment of both CPT codes 36475 

and 36476 to the higher of the two 

levels. The commenter stated that 

radiofrequency (RF) ablation procedures 

are quite different from other vein 

stripping methods and require 

substantially more operating room time 

and hospital resources than do vein 

stripping or endovenous laser 

procedures. 

Further, the commenter stated that 

our assignment of CPT codes 36475 and 

36476 to APC 0092 was inconsistent 

with the cost data CMS analyzed for 

making pass-through payments for the 

ablation catheter (HCPCS code C1888, 

which expires December 31, 2005). The 

commenter asserted that we failed to 

add the costs for the ablation device into 

the procedure when we made the 

assignment to APC 0092. The 

commenter also stated that hospitals 

and the manufacturer have submitted 

cost information and charge data to 

CMS that support assignment of the 

procedures to an APC with a payment 

rate of about $2,500. 

We received one comment, from the 

same commenter, on our proposed rule. 

The commenters stated that the RF 

ablation procedures are more like those 

assigned to APC 0086, Ablate Heart 

Dysrythm Focus, than those in APC 

0092 (Level I Vascular Ligation). Similar 

to its comment on the final rule, the 

commenter recommended that CMS 

reassign CPT codes 36475 and 36476 to 

a new APC with a payment amount of 

approximately $2,800. The commenter 

also recommended that we assign new 

CPT codes 36478 (Endovenous ablation 

therapy of incompetent vein, extremity, 

inclusive of all imaging guidance and 

monitoring, percutaneous, laser; first 

vein treated) and 36479 (Endovenous 

ablation therapy of incompetent vein, 

extremity, inclusive of all imaging 

guidance and monitoring, percutaneous, 

laser; second and subsequent veins 

treated in a single extremity, each 

through separate access sites) to the 

lower level of the two new endovascular 

ablation procedure APCs that they 

requested, with a payment rate of 

approximately $2,300. 

In its proposed rule comments, the 

commenter provided detailed 

information about the costs of the 

endovenous ablation procedures from 

the practice expense cost inputs for the 

Medicare Physician Fee Schedule. The 

commenter based its recommendations 

for OPPS payment on those data and 

provided prices for the RF ablation 

catheter ($680) and the laser fiber kit 

($325), as well as for the capital 

equipment for each procedure type. 

Response: Prior to the CY 2005 

implementation of CPT codes 36475 and 

36476 for radiofrequency ablation and 

CPT codes 36478 and 36479 for laser 

ablation, the radiofrequency ablation 

device used in the endovenous ablation 

procedure was coded using HCPCS code 

C1888 (Catheter, ablation, non-cardiac, 

endovascular) and was separately paid 

as a pass-through until December 31, 

2004 when the pass-through status 

expired. 

We received a significant number of 

bills for HCPCS code C1888 (1787 units) 

in CY 2004 and considered the median 

cost ($636) based on those bills, along 

with clinical information and historical 

hospital claims data for other OPPS 

services in making the APC assignments 

of the new CPT codes. We assigned all 

RF and laser endovenous ablation 

procedures for the first vein and second 

and subsequent veins to APC 0092, 

status indicator ‘‘T,’’ with other vein 

procedures and a CY 2005 payment rate 

of $1,538. However, in response to the 

comment we reconsidered our decision. 

While there are no two times rule 

violations for APCs 0092 and 0091 for 

CY 2006, the median costs for 

individual procedures assigned to those 

APCs significantly overlap. 

Nevertheless, APC 0091 has a somewhat 

higher payment rate for CY 2006. Given 

the costs for the disposables and other 

resources used in delivery of both laser 

and RF endovenous ablation services, 

we determined that assignment to the 

higher paying of these APCs was a more 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68591 

accurate placement than APC 0092 as 

we proposed. Therefore, for CY 2006, 

CPT codes 36475, 36476, 36478, and 

36479 will be assigned to APC 0091. 

The ‘‘T’’ status of the APC should 

ensure appropriate payment when 

ablation of more than one vein is 

performed in an operative session. For 

CY 2007 we will have hospital claims 

data for those codes for the first time, 

and, with the assistance of the APC 

Panel, we will reconsider the APC 

assignments for them and the other 

procedures assigned to APCs 0091 and 

0092 because we believe that for 

procedures assigned to APCs 0091 and 

0092 CY 2007 APC reconfiguration may 

be advisable. 

e. External Counterpulsation Therapy 

(APC 0678) 

Comment: One commenter submitted 

comments about external 

counterpulsation therapy (EECP, HCPCS 

code G0166). The commenter requested 

that we base the CY 2006 payment for 

this procedure on the OPPS relative 

weight for the procedure from CY 2005. 

The commenter was concerned because 

the OPPS rate for this procedure has 

decreased every year since CY 2000, and 

they believed that the lower payments 

might result in diminished beneficiary 

access to the therapy. The commenter 

believed that the low costs in the CMS 

data may be due to hospitals filing 

inaccurate claims. 

Response: Although the OPPS 

payment rate for EECP has decreased 

every year since CY 2000 as noted by 

the commenter, we are committed to 

relying on our hospital claims data for 

this APC. In addition, we note that the 

total numbers of OPPS claims for this 

service have increased over the past 

several years, from 26,836 in CY 2002, 

to 37,568 in CY 2003, and again to 

40,362 in our most recent claims data 

for CY 2004. We have no reason to 

believe that Medicare beneficiaries are 

having trouble accessing this therapy. 

Hospitals have been billing Medicare for 

EECP since CY 2000 and so should be 

filing accurate bills. The procedure is in 

an APC that has no other procedures 

that can affect its median, and the 

median cost for the CY 2006 OPPS is 

based on more than 38,000 single 

claims. Therefore, we will finalize our 

proposed CY 2006 APC assignment and 

payment rate for APC 0678, based on 

our standard OPPS methodology. 

f. Intracardiac Echocardiography (APC 

0670) 

Comment: One comment submitted 

comments about the APC assignment for 

CPT code 93662 (Intracardiac 

echocardiography during therapeutic/ 

diagnostic intervention, including 

imaging supervision and interpretation). 

The commenter objected to the 

procedure’s assignment to APC 0670 

(Level II Intravascular and Intracardiac 

Ultrasound and Flow Reserve) for 

several reasons. First among those 

reasons was that the procedure should 

not be assigned to the same APC as is 

CPT code 92978, Intravascular 

ultrasound (coronary vessel or graft) 

during diagnostic evaluation and/or 

therapeutic intervention including 

imaging supervision, interpretation and 

report. The commenter stated that the 

two procedures are dissimilar clinically 

and with respect to resource 

consumption. The differences between 

the two procedures listed by the 

commenter were: the intracardiac 

echocardiography (ICE) procedure can 

be used to image the entire heart rather 

than just a coronary vessel as does the 

intravascular ultrasound (IVUS) 

procedure; ICE is closely associated 

with electrophysiology and 

interventional cardiology procedures; 

IVUS is an imaging technique used as 

an adjunct to coronary/peripheral stent 

deployment; IVUS catheters cost from 

$500 to $700 whereas ICE catheters cost 

from $900 to $2,800; and the mean and 

median costs for the procedures are very 

different. 

Response: The ICE procedure is a CPT 

code ‘‘add-on,’’ and so normally is not 

reported alone on OPPS bills. For that 

reason, only 10 of the 541 claims for the 

procedure were single claims that we 

could use to calculate its procedurespecific median cost of $1,815. In fact, 

all four of the procedures assigned to 

APC 0670 are ‘‘add-on’’ codes, and two 

of the procedures had no single claims 

for CY 2004 because one of the codes, 

CPT code 31620 (Endobronchial 

ultrasound (EBUS) during 

bronchoscopic diagnostic or therapeutic 

intervention(s)), was new for CY 2005 

and CPT code 93571 (Intravascular 

Doppler velocity and/or pressure 

derived coronary flow reserve 

measurement (coronary vessel or graft) 

during coronary angiography including 

pharmacologically induced stress; 

initial vessel) was packaged under the 

OPPS in CY 2004 and when unpackaged 

for CY 2005, no single claims were 

available. The fourth code in APC 0670, 

CPT code 92978, the IVUS procedure, 

had a median cost of $1,505 and 115 

single claims and, therefore, had a 

disproportionate influence on the 

median cost for the APC. 

We do not agree that there are no 

significant clinical similarities among 

the procedures assigned to APC 0670. 

These similarities include their ‘‘addon’’ status and their use of intravascular 

or intrabronchial catheters or wires with 

complex capabilities to provide clinical 

information, such as images or flow 

data. The hospital resources required for 

all of these services are highly related to 

the costs of the technologies used for the 

procedures. In general, our hospital 

claims data are quite consistent with 

assignment of CPT code 93662 to APC 

0670 with a median cost of $1,505 for 

CY 2006, along with the other services 

previously described. We note that our 

CY 2004 total claims volume for CPT 

code 93662 almost doubled between CY 

2003 and CY 2004, providing no 

evidence that Medicare beneficiaries are 

having trouble accessing this service. 

As discussed elsewhere in this 

preamble, we are working on alternative 

strategies for determining the costs for 

procedures that are reported as CPT 

‘‘add-on’’ codes. When we are better 

able to identify those costs, we will 

reevaluate the assignment of the ICE and 

IVUS procedures. At this time, however, 

we believe that APC 0670 is the most 

appropriate assignment for CPT codes 

93662 and 92978. 

g. Percutaneous Thrombectomy and 

Thrombolysis (APC 0676) 

Comment: One commenter submitted 

comments regarding the APC 

assignment for CPT code 92973, 

Percutaneous transluminal coronary 

thrombectomy and CPT code 37195 

(Thrombolysis, cerebral, by intravenous 

infusion). The commenter stated that 

the payment rate for APC 0676 

(Thrombolysis and Thrombectomy) was 

based largely on only one of the 

procedures assigned to the APC, CPT 

code 36550 (Declotting by thrombolytic 

agent of implanted vascular access 

device or catheter), and that it was 

inappropriately low for CPT codes 

92973 and 37195. The commenter stated 

that the procedures coded by CPT codes 

92973 and 37195 require a mechanical 

device costing hundreds of dollars or 

significant quantities of expensive lytic 

agents, respectively. The comment also 

suggested that the difficulty that CMS 

has in obtaining accurate cost data for 

these procedures is due to the fact that 

they are rarely reported as single claims, 

and that next year there will be new 

codes for percutaneous thrombectomy 

that will help to remedy that situation. 

Response: For CY 2006, we proposed 

to retain CPT code 92973 in APC 0676 

and to remove CPT code 37195 from the 

inpatient list and assign it to APC 0676 

as well. The median cost for each of 

these procedures was based on one 

single claim each, out of 149 and 28 

total claims respectively. The very low 

volume of single claims is expected for 

these two procedures because CPT code 

68592 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

92973 is an ‘‘add-on’’ code and would 

not be expected to be reported alone, 

and CPT code 37195 was on the 

inpatient list in CY 2004, and therefore, 

we do not have many outpatient 

hospital claims for it. 

The commenter’s point that the APC 

0676 payment rate was based mainly on 

one of the other procedures assigned to 

that APC is correct. The procedure 

coded with CPT code 36550 (Declotting 

by thrombolytic agent of implanted 

vascular access device or catheter) had 

a very high volume of single claims with 

a procedure-specific median cost of 

$128 so that its claims 

disproportionately influenced the APC 

median cost of $135. There were 5,099 

single claims for that procedure and the 

next highest volume of single claims in 

APC 0676 was only 439 claims for CPT 

code 37201 (Transcatheter therapy, 

infusion for thrombolysis other than 

coronary). 

While we acknowledge the small 

number of claims for CPT code 92973, 

we agree with the commenter than its 

continued assignment to APC 0676 

could lead to significant underpayment 

for this service that utilizes a costly 

catheter. Therefore, we will reassign 

CPT code 92973 to APC 0088 

(Thrombectomy) with an APC median of 

$2,171 for CY 2006, where other 

procedures that are more clinically and 

resource coherent with CPT code 92973 

reside. As this service is an ‘‘add-on’’

code to other surgical procedures and is 

assigned status indicator ‘‘T,’’ we expect 

that its payment rate will be reduced by 

50 percent when it is correctly billed 

with other surgical procedures. 

With respect to CPT code 37195, we 

will finalize its assignment to APC 0676 

for CY 2006. We expect that the lytic 

drugs that will be administered to a 

patient during this procedure will 

generally be separately payable under 

the OPPS, as well as some of the other 

services that typically will be provided 

to a patient receiving cerebral 

thrombolysis by intravenous infusion. 

While we expect that performance of 

this procedure in the hospital outpatient 

setting will remain rare, we believe that 

APC 0676 should make appropriate 

payment for CPT code 37195 for CY 

2006. As always, we will examine the 

costs from hospital claims as new data 

become available to ensure that the 

OPPS payment is appropriate. 

h. Coronary Flow Reserve (APCs 0416 

and 0670) 

Comment: One commenter requested 

that CMS make permanent the revised 

APC 0670 (Level II Intravascular and 

Intracardiac Ultrasound and Flow 

Reserve) and new APC 0416 (Level I 

Intravascular and Intracardiac 

Ultrasound and Flow Reserve), as 

presented in the November 15, 2004 

final rule. In addition, the commenter 

requested that we reactivate 

discontinued HCPCS code C3556 which 

was used previously for three specific 

brands of sensors, including guidewiremounted coronary flow reserve sensors. 

The commenter believed that the 

requirement to report HCPCS device 

codes for device-dependent APCs would 

result in inaccurate cost information for 

the flow reserve sensors because these 

devices are currently coded using 

HCPCS code C1769 which is also used 

to code all types of guidewires. 

Response: We appreciate the 

comment concerning these new and 

revised APCs as we published them in 

the November 15, 2004 final rule. We 

have made those changes final. 

Beginning April 1, 2001, many 

manufacturer and device-specific 

HCPCS codes established for device 

pass-through payment purposes were 

discontinued in favor of more general 

codes to describe categories of devices. 

HCPCS code C3556 was discontinued as 

of April 1, 2001 as part of that action. 

The guidewire-mounted coronary flow 

reserve sensors previously reported with 

HCPCS code C3556 were cross-walked 

to HCPCS code C1769, which was 

established for coding guidewires. The 

Medicare, Medicaid and SCHIP Benefits 

Improvement and Protection Act (BIPA) 

of 2000 required us to establish 

categories, or types, of devices and no 

longer create codes to describe each 

device specifically. Further, we do not 

create new device codes unless one is 

needed to support accurate payment for 

devices that meet our criteria for 

transitional pass-through payment. 

There is no such need in this case as the 

guidewire-mounted coronary flow 

reserve sensor received its full period of 

device pass-through payments. 

We do not believe that use of HCPCS 

code C1769 will result in inaccurate 

cost data for coronary flow reserve 

measurement services. Reporting the 

device code on claims for devicedependent procedures is meant to 

ensure that the bills upon which we rely 

for calculation of the median costs 

include the device costs integral to the 

procedures. We base this policy on our 

belief that if a hospital includes the 

code for the device on the bill, even 

though there is no separate payment for 

the device, the bill is more likely to be 

an accurate and complete report of 

hospital charges (and thereby, costs). 

We expect that hospitals reporting the 

required guidewire device C-code along 

with a coronary flow reserve 

measurement service will provide an 

appropriate charge for the device used 

in the procedure. 

The new requirement for device 

coding is one technique that we believe 

will help us to address the ongoing 

problem of hospitals inadvertently 

failing to accurately and fully bill the 

charges for all hospital resources 

utilized to perform procedures. By 

requiring that the device code be on the 

claim, we are more confident that the 

device costs have been included in the 

hospital’s bill and that we will capture 

accurate costs for rate setting for the 

procedure as a whole. 

i. Vascular Access Procedures (APCs 

0621, 0622, and 0623) 

Many of the codes that currently 

describe vascular access procedures 

were new in the CY 2004 version of CPT 

and were assigned into APC groups by 

crosswalking the newly created CPT 

codes to the deleted codes’ APC 

assignments. Although the new codes 

were implemented in January 2004, 

because of the delay between a bill 

being submitted to Medicare and when 

the bill data are viable for analysis, we 

did not have cost and utilization data 

for the new codes available for analysis 

until this year in preparation for the CY 

2006 OPPS. 

Since those original APC assignments 

were made, we have received requests 

from the public for specific APC 

assignment changes. We were reluctant 

to make changes without data to support 

reassignments and, therefore, made few 

changes to those original APC 

assignments. 

As an outcome of an analysis of 

procedure-specific median costs and 2 

times rule violations in preparation for 

the CY 2006 update of the OPPS, for the 

proposed rule we developed a new APC 

configuration for vascular access 

procedure codes and several other 

related codes. The proposed new 

assignments were supported by CY 2004 

hospital claims data and are based on 

median cost and clinical considerations. 

Thus, for CY 2006 we proposed to 

reassign many of the CPT codes that are 

currently in the following APCs: 

• APC 0032 (Insertion of Central 

Venous/Arterial Catheter) 

• APC 0109 (Removal of Implanted 

Devices) 

• APC 0115 (Cannula/Access Device 

Procedures) 

• APC 0119 (Implantation of Infusion 

Pump) 

• APC 0124 (Revision of Implanted 

Infusion Pump) 

• APC 0187 (Miscellaneous 

Placement/Repositioning) 

The configuration that we proposed 

placed all of the procedures currently 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68593 

assigned to APC 0187 into more 

clinically appropriate APCs. We also 

proposed to reassign all of the vascular 

access procedure codes currently 

assigned to any of the identified APCs 

to existing or newly reconfigured 

clinical APCs to create more clinical 

and median cost homogeneity. As a 

result of the proposed reassignments, 

those clinical APCs were comprised of 

a different mix of codes than is 

currently the case for the CY 2005 

OPPS. There were no codes assigned to 

APC 0187 because the only procedures 

that remained in APC 0187 after 

reassigning the vascular access 

procedures as we proposed were CPT 

code 75940 (X-ray placement of vein 

filter) and CPT code 76095 (Stereotactic 

breast biopsy), which we reassigned to 

more clinically appropriate APCs. We 

proposed to reassign CPT code 75940 to 

APC 0297 (Level II Therapeutic 

Radiologic Procedures) and CPT code 

76095 to APC 0264 (Level II 

Miscellaneous Radiology Procedures). 

We proposed to create three new 

clinical APCs, APC 0621 (Level I 

Vascular Access Codes), APC 0622 

(Level II Vascular Access Codes), and 

APC 0623 (Level III Vascular Access 

Codes) and assign procedures to each of 

these based on median cost and clinical 

homogeneity. We also proposed to 

rename APCs 0109 and 0115 as follows: 

APC 0109 (Removal of Implanted 

Devices); and APC 0115 (Cannula/ 

Access Device Procedures). 

We presented this proposal to the 

APC Panel at its February 2005 meeting. 

The APC Panel was supportive of the 

proposed reassignments and 

recommended that we make these 

changes. Therefore, for the stated 

reasons we proposed the APC 

modifications for CY 2006 OPPS as 

summarized in Table 13 of the proposed 

rule (70 FR 42713). 

We received a few comments on our 

proposal. 

Comment: All of the comments were 

supportive of our reconfiguration of the 

APCs and encouraged us to make the 

proposal final. 

Response: We appreciate the 

commenters’ support. 

Therefore, we are finalizing our 

proposal without modification for FY 

2006. 

BILLING CODE 4120–01–P 

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ER10NO05.016</GPH>
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BILLING CODE 4120–01–C 

2. Radiology, Radiation Oncology, and 

Nuclear Medicine 

a. Angiography and Venography (APCs 

0279, 0280, and 0668) 

Comment: One commenter supported 

our proposal to reassign CPT code 

75790 (Angiography, arteriovenous 

shunt, radiological supervision and 

interpretation) from APC 0281 

(Venography of Extremity) to APC 0279 

(Level II Angiography and Venography 

except Extremity). However, this same 

commenter objected to our proposal to 

move CPT codes 75820 (Venography, 

extremity, unilateral, radiological 

supervision and interpretation) and 

75822 (Venography, extremity, 

unilateral, radiological supervision and 

interpretation) from APC 0281 

(Venography of Extremity) to APC 0668 

(Level I Angiography and Venography 

except Extremity). The commenter 

contended that CPT codes 75790, 75820, 

and 75822 share similar clinical 

characteristics and resource 

requirements and, therefore, should be 

mapped to the same APC 0279. For 

instance, the commenter stated that all 

three services require the use of 

guidewires, catheters, local anesthetic, 

and contrast. Furthermore, the 

commenter asserted that CPT code 

75822 involves a bilateral procedure 

which requires much higher resource 

costs than other services assigned to 

APC 0668. Lastly, the commenter stated 

that CPT codes 75790, 75820, and 75822 

share similar clinical characteristics 

with CPT code 75658 (Angiography, 

brachial, retrograde, radiological 

supervision and interpretation), which 

currently resides in APC 0279, differing 

only with respect to whether a vein is 

accessed versus an artery in an 

extremity. The commenter urged that 

CMS reassign CPT codes 75790, 75820, 

and 75822 to APC 0279 for CY 2006. In 

addition, the commenter recommended 

that CMS modify the title of APC 0668 

to exclude language referring to 

extremities based on the commenter’s 

belief that none of the other CPT codes 

assigned to APC 0668 relate to 

extremities. 

Response: Based on our analysis of 

our CY 2004 claims data we disagree 

with the commenter that services 

described by CPT codes 75790, 75820, 

and 75822 require similar hospital 

resources. CPT code 75790 has a median 

cost of $548, based on over 18,000 

single claims from CY 2004, and is 

assigned to APC 0279 (Level II 

Angiography and Venography), which 

has a median cost of $517. We believe 

that this APC appropriately reflects the 

clinical and hospital resource 

characteristics of CPT code 75790 and 

provides appropriate payment to 

hospitals for this service. 

In contrast, CPT code 75720 has a 

median cost of only $258, based on 

almost 3,500 single claims that 

represent over half of the total claims for 

the service. Similarly, CPT code 75722 

has a median cost of $349, based on 

over 2,400 claims that represent more 

than half of the total claims for the 

service. Both of these procedures are 

assigned to APC 0668 which has a 

median cost of $375. We believe that 

APC 0668 appropriately reflects the 

clinical and hospital resource 

characteristics of both of these 

procedures. Thus, although these three 

codes were assigned to the same clinical 

APC 0281 for CY 2005, when we 

eliminated that APC and reassigned the 

three services, we were able to place 

them in such a way as to provide more 

accurate payments for each of the 

services. 

We appreciate the commenter’s 

drawing our attention to the phrase 

‘‘Except Extremity’’ that remained in the 

APC titles for APCs 0668, 0279, and 

0280 after we eliminated the CY 2005 

APC for extremity venography services. 

For CY 2006, we have removed the 

phrase ‘‘Except Extremity’’ from the 

APC title for APCs 0668, 0279, and 

0280, so they are now renamed Levels 

I, II, and III Angiography and 

Venography, respectively. 

b. Brachytherapy (APCs 0312, 0313, and 

0651) 

Comment: Commenters objected to 

the proposed reduction in the payment 

rates for APCs 0312, 0313 and 0651 for 

the CY 2006 OPPS. They indicated that 

the reductions could result in decreased 

access to care. They recommended that 

CMS use only claims on which a 

brachythearpy source appears with the 

procedure code, which they describe as 

‘‘correctly coded’’ claims, as the basis 

for the median cost calculations for 

these APCs. They indicated that using 

only claims on which the brachytherapy 

source code was billed results in 

median costs that are higher than the 

median costs calculated using all single 

procedure claims. At its August 2005 

meeting, the APC Panel recommended 

that we evaluate this proposal. The 

commenters also asked that CMS 

expand the adjustment proposed for 

selected device dependent APCs to 

APCs 0312, 0313 and 0651. They asked 

that CMS consider alternative 

methodologies to utilize single and 

multiple procedure claims for rate 

setting purposes so that more claims 

could be used. They also asked that 

CMS use external proprietary and 

confidential data to determine median 

costs for rate-setting. They said that 

because brachytherapy sources are 

required to furnish these services, they 

should be treated like device dependent 

APCs with regard to adjustment of 

medians and required editing for the 

presence of sources on the claims. 

Response: We have not accepted the 

commenters’ recommendations to use 

external data for the reasons we cite in 

the discussion of external data in 

section II. of this preamble. Moreover, 

we have not accepted the 

recommendation that we use only 

claims that contain a brachytherapy 

source on the claim to calculate the 

median costs for APCs 0312, 0313, and 

0651 because we believe that the 

presence of a source on the claim is not 

relevant, since sources are paid 

separately. While the median costs 

presented by the commenters based on 

claims that contain sources resulted in 

higher median costs, we do not see a 

valid reason to limit the claims to 

claims with sources because the 

presence of the source is not relevant to 

the median cost of the procedural APC. 

We have no reason to believe that the 

claims without sources on the claim do 

not contain the full charges for the 

procedural services furnished. We have 

applied adjustments to the median costs 

for device dependent APCs for CY 2006 

because of the difficulties in ensuring 

device charges are fully reflected on 

claims for these services, thus allowing 

appropriate packaging of the device 

costs into the APC payments. This 

rationale does not apply to the APCs for 

application of brachytherapy sources, so 

we have not applied the device 

dependent APC median adjustment 

policy to APCs 0312, 0313, and 0651 for 

CY 2006. 

We disagree that these services should 

be treated like device dependent APCs 

solely because they require 

brachytherapy sources. The critical 

distinction is that the APC payment for 

device dependent APCs includes 

payment for the packaged devices, 

while payment for these brachytherapy 

source application APCs is exclusive of 

payment for the sources, which are paid 

on the basis of charges reduced to cost. 

The editing for the presence of key 

devices on claims for services assigned 

device dependent APCs is not ‘‘correct 

coding’’ editing. Instead, the edit is 

made to maximize the likelihood that 

the charge for the principle device 

required to perform the service is 

included on the claim so that we will 

capture the cost of the device in setting 

the median cost for the APC. 

Although the brachytherapy 

procedure comments have largely 

68596 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

focused on the payment for CPT code 

77778, the application of the 

brachytherapy sources, we note that all 

the related procedures, such as needle 

or catheter use and placement, must be 

considered for a full analysis of 

payment for brachytherapy services. 

The brachytherapy source application 

service is but one component of the 

entire procedure. The hospital also bills 

for the placement of the needles or 

catheters, the imaging and planning 

services, and is paid separately for the 

sources at charges reduced to costs. 

Because of the particularly large drop 

in median cost from the median based 

on CY 2003 data compared to the 

median cost based on CY 2004 claims 

data for APC 0651, we extensively 

reviewed the cost of APC 0651, which 

is most commonly billed for the 

provision of interstitial prostate 

brachytherapy and frequently appears 

on the same claim with CPT code 

55859, the code for placement of 

needles or catheters into the prostate. 

Contrary to the commenters’ belief that 

‘‘correctly coded’’ claims for CPT code 

77778 also contain brachytherapy 

sources, in most cases of prostate 

brachytherapy both CPT codes 55859 

and 77778 are found on the same claim 

with a radiologic guidance code (often 

CPT codes 76000 or 76965) and/or with 

a radiation planning code (usually CPT 

code 77290). This results in a correctly 

coded claim for interstitial 

brachytherapy designated as a multiple 

procedure claim. Furthermore, these 

claims not only contain the two major 

procedures (CPT codes 55859 and 

77778), but they also often contain the 

three ancillary procedures (CPT codes 

76000, 76965 and/or 77290), which are 

not on the bypass list because they have 

packaging in excess of $50 or they have 

packaging on more than 5 percent of 

single bills. 

In our review, we identified 11,341 

claims containing both CPT codes 55859 

and 77778 on the same date of service. 

We then looked for claims in this 

subgroup that contained no separately 

paid codes other than the three ancillary 

services (after we applied the bypass list 

and removed any codes on it). This gave 

us 7,533 claims containing CPT codes 

55859 and 77778 with no other major 

procedures except for the 3 ancillary 

services. We believe that claims with 

CPT codes 55859, 77778 and one or 

more of these 3 ancillary services 

represent the most typical combinations 

of services furnished when 

brachytherapy sources are applied. We 

then calculated two combination 

median costs: a combination package 

and combination bypass. The first 

combination median cost was calculated 

by treating these three codes as if they 

were grouped into one comprehensive 

service by adding the costs of these 

codes to the costs on the claim for CPT 

codes 55859 and 77778 and all other 

packaged costs. This ‘‘combination 

group median’’ is $3,187.86. This 

‘‘combination group median’’ overstates 

the costs of CPT codes 55859 and 77778 

by the extent to which the costs of the 

three ancillary services and the 

packaging that is associated with them 

are reflected in it. We then calculated a 

second combination median cost in 

which we treated these three ancillary 

codes as if they were on the bypass list 

by removing the line item charges for 

these codes and associated all packaging 

on the claim with CPT codes 55859 and 

77778. This ‘‘combination bypass 

median’’ is $2,968.64. This 

‘‘combination bypass median’’

overstates the costs of CPT codes 55859 

and 77778 to the extent that the 

packaged costs associated with the 3 

ancillary services are reflected in it. 

We then compared the sum of the 

single bill medians calculated from our 

OPPS stated methodology for CPT codes 

55859 and 77778 to both of these 

combination medians. The sum of the 

single bill medians for these codes 

(without any costs from the three 

ancillary procedures) is $2,662.62. We 

then summed the medians for CPT 

codes 55859, 77778, 76000, and 77290, 

a typical combination of codes for these 

services, resulting in a sum of $2,975.50, 

similar in range to both the 

‘‘combination group median’’ and the 

‘‘combination bypass median.’’

Under our analysis, the sum of the 

single bill medians for insertion of 

needles or catheters in the prostate and 

the application of brachytherapy 

sources is well within the range of the 

combination medians we calculated 

based on the multiple procedure claims. 

Accordingly, we have no reason to 

believe that the single bill median costs 

for the services reported by CPT codes 

55859 and 77778 do not otherwise 

appropriately reflect the costs for those 

services. Therefore, we have used the 

standard OPPS methodology for clinical 

brachytherapy services to set the 

payment rates for the CY 2006 OPPS. 

Comment: One commenter stated that 

date of service stratification results in 

pseudo single claims for APCs 0312 and 

0651 that lack packaging because all 

packaging on the claim has the same 

date of service as the other procedure on 

the claim (i.e. not the procedure code in 

APC 0312 or 0651). The commenter 

indicated that the median costs for these 

‘‘pseudo no package’’ claims is 

significantly lower than the medians for 

other single procedure bills for these 

services and, therefore, should be 

deleted from the claims used to set the 

median costs for these APCs. 

Response: We have no basis to believe 

that the charges for the procedure code 

are not all-inclusive charges for all 

packaged items and services associated 

with the procedure when a single charge 

appears for a procedure code. Again, we 

encourage hospitals to bill all relevant 

HCPCS codes that appropriately reflect 

the services provided. 

c. Computed Tomography (APCs 0283 

and 0333) 

Comment: One commenter supported 

our proposal to pay separately for low 

osmolar contrast material (LOCM) and 

most magnetic resonance contrast 

agents. However, the commenter 

expressed concern that the separate 

payment for these agents will not 

adequately compensate for the reduced 

payment which CMS proposed for APCs 

0283 (CT with contrast) and 0333 (CT 

and CTA without contrast followed by 

contrast). The commenter stated that 

they did not understand CMS’ rationale 

for proposing to reduce payments for 

APCs 0283 and 0333 to a level that 

results in an overall net loss for 

contrast-enhanced CT studies. 

Response: We do not agree with the 

commenter’s assertion that the proposed 

CY 2006 payment rates for APCs 0283 

and 0333 will necessarily reduce overall 

payments for contrast-enhanced CT 

studies. First, the proposed CY 2006 

payments for APCs 0283 and 0333 

decreased by less than 3 percent 

compared to their CY 2005 payment 

rates. Second, our proposal to pay 

separately for LOCM products (HCPCS 

codes Q9945 through Q9951) as a result 

of the mean costs per day of their 

predecessor codes (HCPCS codes A4644 

through A4646) exceeding $50, may 

increase overall payments for some 

contrast-enhanced CT studies while 

decreasing overall payments for other 

contrast-enhanced CT studies, 

depending on the volume and 

concentration of the LOCM used. The 

CY 2006 final payment rates for APCs 

0283 and 0333 were calculated from CY 

2004 hospital claims data utilizing the 

standard OPPS methodology based on 

our comprehensive payment policies for 

CY 2006, which include unpackaging 

LOCM. 

Therefore, hospital charges for LOCM 

in association with single claims for 

services assigned to APCs 0283 and 

0333 were not packaged into the median 

cost calculations for these APCs. As a 

result, we would expect the APC 

payment rates for APCs 0283 and 0333 

to decline slightly for CY 2006. For CY 

2006, we are applying our standard 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68597 

OPPS rate setting methodology using CY 

2004 hospital claims data to set the 

payment rates for APCs 0283 and 0333, 

and are paying separately for LOCM 

based on the payment methodology 

described in section V.B.3.a.(3) of this 

preamble. 

d. Computed Tomographic Angiography 

(APC 0333) 

In Addendum B of the CY 2006 

proposed rule (70 FR 42776), we 

proposed to maintain a number of 

imaging procedures discussed below in 

their CY 2005 APCs. 

Comment: Several comments 

expressed concern that the CY 2006 

proposed payment rate for 

Computerized Tomographic 

Angiography (CTA) procedures (APC 

0662) continues to be lower than the 

proposed payment rate for conventional 

CT procedures. These commenters 

recommended that CMS set the payment 

rate for CTA procedures at a level equal 

to the payment for a CT scan (APC 0333) 

plus a three-dimensional image 

reconstruction (APC 0282) by either 

increasing the payment for APC 0662 or 

reassigning CTA procedures to an 

existing APC whose payment rate more 

closely reflects the resource costs of 

performing CTA procedures. 

Response: As we stated in the 

November 15, 2004 final rule with 

comment period (69 FR 65722), accurate 

cost information about the cost of image 

reconstruction for CTA specifically, and 

for CT alone as utilized with CTA, 

would be required in order to 

implement the commenter’s suggestion 

that we make the payment rate for CTA 

(APC 0662) equal to the sum of the rates 

for CT alone (APC 333) plus image 

reconstruction (APC 282). Such cost 

information is not available. The CY 

2004 image reconstruction CPT code 

76375 (coronal, sagittal, multiplanar, 

oblique, 3-dimensional and/or 

holographic reconstruction of computed 

tomography, magnetic resonance 

imaging, or other tomographic modality) 

is not limited to image reconstruction 

performed for CTA and may be used in 

a number of other procedures. Based on 

the available CPT codes for CTA, we 

would not expect any current utilization 

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

appropriate CTA code to describe the 

body region imaged, which we believe 

would rarely be the case. In addition, 

we would not expect our current cost 

data for CTA alone to necessarily reflect 

the resources utilized for the CT portion 

of CTA. 

Commenters provided no evidence 

suggesting that Medicare beneficiaries 

have experienced difficulty accessing 

these services in the hospital outpatient 

setting. To the contrary, our number of 

claims for CTA procedures increased 

steadily between CY 2002 and CY 2003 

and nearly doubled from CY 2003 to CY 

2004. Furthermore, we used over 50 

percent (99,000 single claims out of 

nearly 180,000 total claims) of the CY 

2004 claims for CTA procedures to 

calculate the CY 2006 payment rate for 

these services. 

We now have several years of robust 

claims data for CTA procedures and 

have no reason to doubt this data. Based 

on the full year of CY 2004 data, the 

median costs for the APCs 0333 (CT) 

and 0662 (CTA) are about equal, and 

have decreased minimally from their 

median costs based on CY 2003 claims 

data. Because hospitals set their own 

charges for services, which we then 

convert to costs, we still see no reason 

why adding the costs for CT alone plus 

the costs for image reconstruction 

would necessarily provide a better 

estimate of costs for CTA than our 

analysis of our specific CTA claims. 

Furthermore, no other existing clinical 

APC appears to contain services that 

share more clinical and resource cost 

homogeneity with CTA procedures than 

APC 0662, whose median cost reflects 

solely the claims data from 8 CTA 

procedures. For this reason, we are not 

reassigning CTA procedures to any 

other clinical APC(s) for CY 2006. 

Instead, for CY 2006, we are applying 

our standard OPPS rate-setting 

methodology for calculating the 

payment rate for CTA procedures 

residing in APC 0662. Once again, we 

encourage all hospitals to take all 

actions necessary to ensure that they are 

billing accurately and including in their 

charges all resources utilized to deliver 

CTA services. 

e. Computed Tomographic Guidance 

(APC 0332) 

Comment: One commenter objected to 

the proposed payment rate of $194 for 

CPT code 76362 (Computed tomography 

guidance for, and monitoring of, visceral 

tissue ablation), which was proposed to 

be assigned to APC 0332 (Computerized 

Axial Tomography and Computerized 

Angiography without Contrast) for CY 

2006. The commenter said that, 

although CMS included only 9 single 

claims in the calculation of the $371 

median cost for CPT code 76362 in the 

proposed rule, they identified 202 single 

bills with a median cost of $580 for CPT 

code 76362. The commenter indicated 

that it found that CPT code 76362 was 

not being treated as a major procedure 

in CMS’ median cost calculations, and 

it could not determine if CMS packaged 

the cost for CPT code 76362 into the 

payment for the other separately 

payable procedure on the claim. The 

commenter indicated that it simulated 

removing the exception (although they 

did not specify what they did) and by 

doing so found 202 single bills with a 

median cost of $580 for the code. The 

commenter asked that we place CPT 

code 76362 in New Technology APC 

1507 (Level VII $500–$600) so that 

payment would be set at $550. The 

commenter also requested that CMS add 

CPT code 76362 to the bypass list in 

future years. 

Response: We do not agree that CPT 

code 76362 would be appropriately 

assigned to New Technology APC 1507 

because CT is not a new technology. 

The use of CT guidance for and 

monitoring of visceral tissue ablation is 

a more recent application of this wellestablished technology. We 

acknowledge that we have few single 

bills upon which to base our calculation 

of the median cost of this service, but 

this is consistent with our expectations 

based on the nature of the service. We 

believe that all correctly coded claims 

would also include a CPT code for the 

specific ablation service that was 

monitored using CT and billed along 

with CPT code 76362. 

We believe that the primary costs 

directly attributable to CTP code 76362, 

as opposed to the accompanying 

ablation procedure, are the hospital 

resources required for the lengthy 

operation of the necessary CT scanner. 

In examining the clinical characteristics 

of the use of CT for visceral tissue 

ablation, we believe that the CT use 

time for the procedure, although 

variable depending on the specific 

ablation procedure provided, would 

typically be longer than the CT use time 

for most noncontrast CTs assigned to 

APC 0332. 

Because the commenter indicated 

their comfort with CPT code 76362 

being added to the bypass list, we 

analyzed the line item charges for all 

units of service of CPT code 76362 

billed by hospitals in CY 2004. The 

median charge per unit based on over 

1,000 units was $1,165. Application of 

a hospital average CCR of 0.28 for the 

diagnostic radiology cost center to the 

median charge of $1,165 for CPT code 

76362 yielded a procedure-specific line 

item cost of approximately $325 for this 

service. This is quite consistent with our 

final single claim median cost of $363 

based on 9 single claims. 

Therefore, we are reassigning CPT 

code 76362 to APC 0333 (Computerized 

Axial Tomography and Computerized 

Angiography Without Contrast 

Followed by Contrast) with an APC 

median cost of $303 for CY 2006, where 

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CT procedures that include both 

noncontrast and contrast studies in one 

examination session reside. We believe 

that, although the ablation monitoring 

service is not necessarily provided both 

without and with contrast, the longer 

time of use of the CT scanner for CPT 

code 76362 is more consistent with the 

scanner use time for services assigned to 

APC 0333. In addition, the median cost 

of APC 0333 is similar to the median 

cost of CPT code 76362 based on single 

claims and to the other cost estimate 

based on our analysis of all billed units 

of the code. 

With respect to the commenter’s data 

findings, CPT code 76362 is considered 

to be a minor procedure 

(notwithstanding the status indicator of 

‘‘S’’), because it so frequently occurs on 

the same claim as other separately paid 

procedures and is ancillary to them. As 

such, when a minor procedure is on the 

same claim as a major procedure, the 

claim is considered to be a single major 

procedure claim and the costs of the 

minor procedure are not used to set the 

median for the minor procedure, nor are 

they packaged into the payment for the 

major procedure. The only single claims 

that are used in the calculation of the 

median cost for the minor procedure 

code and, therefore, for the APC to 

which the code is assigned are single 

minor procedure claims which are 

derived from circumstances in which 

the minor procedure appears alone on a 

claim or when it appears as one of 

several multiple minor procedures on a 

claim and can be split off because the 

services have different dates of service. 

We considered making CPT code 

76362 a major procedure and adding the 

service to the bypass list. However, the 

code does not meet the empirical 

criteria we have established for 

considering new additions to the bypass 

list. Of the total claims for CPT code 

76362, we had only 9 single procedure 

claims (less than the 100 required for a 

code to go onto the bypass list); 6 of the 

9 claims (67 percent) contained 

packaged services (more than the 5 

percent limit) that yielded a median of 

$1,231 (considerably above the $50 

median limit). Hence, because the data 

for CPT code 76362 from CY 2004 do 

not meet any of the criteria for addition 

of the code to the bypass list, we will 

not convert it to a major procedure and 

add it to the bypass list for CY 2006. 

However, we will consider for CY 2007 

whether we should make an exception 

to our empirical criteria for additions to 

the bypass list for services such as CPT 

code 76362. We will continue to 

develop a more appropriate median cost 

for the procedure and it seems plausible 

that the procedure should have very 

little associated packaging. 

f. Computerized Reconstruction (APC 

0417) 

Comment: One comment expressed 

concern about the payment rate for 

HCPCS code G0288 (Reconstruction, 

computed tomographic angiography of 

aorta for preoperative planning and 

evaluation post vascular surgery). The 

commenter was concerned because the 

proposed rule indicated that the rate for 

HCPCS code G0288 would decrease for 

CY 2006, continuing a trend of 

decreases that began in CY 2004. The 

commenter made several 

recommendations to CMS that it 

believed would help to limit the 

decreased rate for CY 2006 and to 

prevent continuation of the downward 

trend for coming years. The first 

recommendation was for CMS to 

mandate which revenue code hospitals 

are to use to report HCPCS code G0288. 

The commenter recommended use of 

revenue code 0780, Telemedicine. This 

was based on their finding that hospitals 

used 17 different revenue codes to 

report HCPCS code G0288. The 

commenter stated that more consistent 

use of a revenue code would alleviate 

the effects of providers not billing 

charges high enough to result in cost 

findings near the acquisition costs. 

Next, the commenter recommended 

that for CY 2006, CMS use the hospital 

overall CCRs to calculate the median for 

HCPCS code G0288. The commenter 

believed use of the overall CCRs would 

increase the median for APC 0417 to 

approximately $415. 

Third, the commenter recommended 

as a fallback measure, in case the first 

two recommendations could not be 

implemented, that CMS should use the 

CY 2005 rate, adjusted upward in 

accordance with the CY 2006 

conversion factor, for APC 0417 in CY 

2006. 

Finally, the commenter requested that 

the descriptor for HCPCS code G0288 be 

revised to read, ‘‘Three-dimensional 

pre-operative and post-operative 

computer-aided measurement planning 

and simulation in accordance with 

measurements and modeling 

specifications of the Society for 

Vascular Surgery.’’ They stated that the 

revised descriptor would ensure that the 

code would be used more accurately. 

Response: Regarding the commenter’s 

last request, that we revise the 

descriptor for HCPCS code G0288, we 

do not believe that is necessary. HCPCS 

code G0288 was revised in CY 2004 to 

clarify that the service can be provided 

for both treatment planning prior to 

surgery and for postsurgical monitoring. 

Other than this one comment, we have 

had no indication that there is 

confusion among providers about when 

to use the code. In addition, we 

generally allow hospitals to allocate 

their charges across revenue codes as 

they feel is appropriate to their specific 

institutional settings, and we see no 

reason to deviate from this policy for the 

service described by HCPCS code 

G0288. We do not understand how 

specifying a revenue code for reporting 

would necessarily ensure adequate 

hospital charges for the service. 

In response to the commenter’s 

recommendations regarding our hospital 

cost data, we conducted a detailed 

examination of our CY 2004 claims data 

and, like the commenter, found that 

hospitals used 17 different revenue 

codes to report HCPCS code G0288. 

However, we also found that although 8 

different cost centers for HCPCS code 

G0288 were used in our conversion of 

charges to costs for the service, for 83 

percent of the approximately 5,300 

single bills utilized for rate setting we 

converted hospital charges to costs 

using one cost center, namely 

Diagnostic Radiology. Therefore, while 

we acknowledge that utilizing an overall 

hospital CCR for HCPCS code G0288 

yields a higher median cost, $335 for 

APC 0417 based on our analysis, as 

opposed to a median cost of $235 

utilizing our standard revenue code to 

cost center crosswalk, we do not believe 

that it would be appropriate to 

substitute specific hospital overall CCRs 

in our calculation of this APC’s median. 

We utilize one hospital-specific 

departmental CCR for the conversion of 

charges to costs for most of the single 

claims, and we have no reason to 

believe that the CCR in this case is 

inappropriate. Also, hospitals should 

bill adequate and complete charges for 

the service to account for all of the 

hospital resources required. 

Additionally, we see no reason to 

adjust the payment rate for APC 0417 to 

the CY 2005 rate adjusted upward in 

accordance with the CY 2006 

conversion factor. We note that despite 

reductions in payment rates over the 

last several years, the number of total 

procedures billed under the OPPS for 

HCPCS code G0288 has continued to 

rise from 2,065 in CY 2002, to 4,733 in 

CY 2003, and most recently to 8,421 in 

CY 2004. We have no evidence that 

Medicare beneficiaries are having 

trouble accessing this service based on 

our hospital claims information. 

Therefore, we believe that it is 

appropriate for us to use our historical 

hospital cost data as the basis for the CY 

2006 payment amount, and we are 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68599 

finalizing our payment rate for APC 

0417 at $235.66 for CY 2006. 

g. Diagnostic Computed Tomographic 

Colonography (APC 0333) 

We proposed to reassign CPT 0067T 

(diagnostic computed tomographic 

colonography (CTC-Dx)) to APC 0333 

(CT and CTA without contrast followed 

by contrast) for CY 2006. 

Comment: One commenter responded 

to the November 15, 2004 final rule with 

comment period (69 FR 65682), 

explaining that CPT code 0067T 

(diagnostic computed tomographic 

colonography (CTC-Dx)) was established 

in CY 2005 to replace the previous 

coding scheme for CT colonography 

involving two computed tomography 

(CT) scans (i.e., abdomen and pelvis) 

and three-dimensional image 

reconstruction. Furthermore, the 

commenter explained that the two CT 

components of a CTC-Dx may be 

administered in a variety of ways: (1) CT 

without contrast, (2) CT with contrast, 

or (3) CT without contrast followed by 

a CT scan with contrast. The commenter 

stated that CMS’ assignment of CPT 

code 0067T to APC 0332 (CT and CTA 

without contrast) for CY 2005 failed to 

recognize the cost differential between a 

CT scan and the variety of ways in 

which a CTC-Dx scan is administered, 

along with the costs associated with the 

three-dimensional image reconstruction. 

The commenter urged CMS to 

reconsider the APC placement of CPT 

code 0067T, taking into account its 

advantages as a less invasive and less 

costly alternative to a colonoscopy. 

Response: Due to the recent 

establishment of CPT code 0067T in CY 

2005, we will have no hospital claims 

data for determining its resource 

requirements until CY 2007. For CY 

2005, we assigned CPT code 0067T to 

APC 0332 (CT and CTA without 

contrast) because we considered the 

clinical characteristics of CTC-Dx to be 

relatively similar to other services 

assigned to APC 0332. We thank the 

commenter for bringing to our attention 

the variety of ways in which a CTC-Dx 

can be administered, notably a CT scan 

without contrast followed by a CT scan 

with contrast. In light of this additional 

information, for CY 2006 we proposed 

to reassign CPT 0067T to APC 0333 (CT 

and CTA without contrast followed by 

contrast), where similar services reside 

involving a CT scan without contrast 

followed by a CT scan with contrast. We 

are finalizing our proposal to reassign 

CPT 0067T to APC 0333 for CY 2006. 

However, in preparation for CY 2007 

rate setting, we will reexamine the APC 

placement of CPT code 0067T based on 

available CY 2005 hospital claims data. 

h. Intensity Modulated Radiation 

Therapy (IMRT) (APCs 0310 and 0412) 

In Addendum B of the CY 2006 

proposed rule, we proposed to maintain 

CPT code 77301 (Radiotherapy dose 

plan, intensity modulated radiation 

therapy (IMRT)) in APC 0310 (Level III 

Therapeutic Radiation Treatment 

Preparation) based on the CY 2004 

hospital claims data submitted for CPT 

code 77301. In addition, we proposed to 

maintain CPT codes 0073T 

(Compensator-based IMRT treatment 

delivery) and 77418 (Multileaf 

collimator-based intensity modulated 

treatment delivery) in APC 0412 (IMRT 

treatment delivery) for CY 2006. 

We received several public comments 

related to IMRT issues. 

Comment: One commenter expressed 

concern that the proposed payment rate 

for CPT code 77301 does not reflect the 

actual physics planning time and 

resources for this procedure. The 

commenter recommended that we take 

into consideration the costs associated 

with IMRT planning for a typical head 

and neck case, including the time spent 

by the dosimetrists, physicists, and 

physicians, when setting the payment 

for CPT code 77301. 

Response: The proposed procedurespecific median cost of $827 for CPT 

code 77301 was calculated using 16,417 

single procedure claims out of 16,885 

total claims (97 percent of the total 

claims). We proposed to maintain CPT 

code 77301 in APC 0310 (Level III 

Therapeutic Radiation Treatment 

Preparation) grouped with only one 

other service, CPT code 77295 (Set 

radiation therapy field), whose 

proposed median procedure-specific 

cost of $844 had the effect of increasing 

the proposed payment for CPT code 

77301 due to its significantly higher 

single frequency of claims used to set 

the payment for APC 0310. We have no 

reason to believe that the single 

procedure claims for CPT code 77301 

that represent IMRT planning for head 

and neck treatment reflect more 

accurate costs and charges than those 

claims for CPT 77301 that represent 

IMRT planning for other body areas. 

Thus, we would have no justification for 

discarding such a subset of claims that 

appear to be accurately reported under 

CPT code 77301, but merely require less 

resource utilization for certain covered 

clinical indications. Rather, the high 

percentage of single procedure claims 

for this service, which remains at 97 

percent for the final rule data, along 

with its relatively stable median cost for 

several years, confirms our belief that 

the CY 2006 median cost for CPT code 

77301 accurately reflects hospitals’ costs 

for the service. We believe these data 

represent, on average, the resources 

consumed by hospitals for the provision 

of IMRT planning services. We note that 

the OPPS does not provide payment for 

physicians’ professional services that 

may be required for procedures. 

Therefore, for CY 2006, we are 

maintaining CPT code 77301 in APC 

0310 with an APC median cost of $825, 

higher than the final code-specific 

median cost of CPT code 77301 of $786. 

Comment: In response to the 

November 15, 2004 final rule with 

comment period (69 FR 65682) and the 

CY 2006 OPPS proposed rule (70 FR 

42674), several commenters applauded 

our decision to establish a national 

payment rate for category III CPT code 

0073T for compensator-based IMRT 

treatment delivery. These commenters 

stated that our decision to pay for 

compensator-based IMRT treatment 

delivery will encourage patient access 

and diffusion of this cost-effective 

technology. Furthermore, these 

commenters agreed with our rationale to 

assign CPT codes 0073T (Compensatorbased IMRT treatment delivery) and 

77418 (Multileaf collimator-based IMRT 

treatment delivery) to the same APC 

0412 (IMRT treatment delivery) for rate 

setting purposes, noting that the IMRT 

treatment delivery costs are virtually 

identical for both modalities. In 

contrast, one commenter to the 

November 15, 2004 final rule with 

comment period (69 FR 65682) was 

opposed to the assignment of CPT code 

0073T to APC 0412. This commenter 

explained that CPT code 0073T was 

created specifically to distinguish 

compensator-based IMRT treatment 

delivery from multileaf collimator-based 

IMRT treatment delivery, described by 

CPT code 77418. The commenter 

believed that the assignment of CPT 

codes 0073T and 77418 to the same APC 

0412 precludes CMS from collecting 

distinct claims data for each code, and 

urged CMS to assign CPT code 0073T to 

a New Technology APC and reserve 

APC 0412 for CPT code 77418. 

Response: Our decision to place CPT 

codes 0073T and 77418 in the same 

APC 0412 supports the clinical 

homogeneity of APC 0412. Because we 

had no CY 2003 claims data for the 

newly established Category III CPT code 

0073T, we concluded that its resource 

costs were likely reflected to some 

degree in the costs and charges reported 

for CPT code 77418, considering that 

this was the only CPT code available to 

providers for the billing of compensatorbased IMRT treatment delivery prior to 

January 1, 2005. Contrary to a belief 

held by one of the commenters, the 

assignment of CPT codes 0073T and 

68600 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

74418 to the same APC 0412 for 

payment purposes does not preclude 

CMS from collecting distinct claims 

data for these two codes. Once the CY 

2005 claims data for CPT code 0073T 

become available for setting the CY 2007 

payment rate, we will reexamine the 

APC placement of CPT code 0073T. In 

the meantime, for CY 2006 we will 

maintain CPT codes 0073T and 77418 in 

the same APC 0412. 

Comment: One commenter explained 

that, effective January 1, 2005, the 

descriptor for CPT code 77418 

(Multileaf collimator-based intensity 

modulated treatment delivery) was 

changed to explicitly exclude 

compensator-based IMRT treatment 

delivery and a new Category III code 

0073T was created to describe 

compensator-based IMRT delivery. This 

commenter requested that we either 

update the December 19, 2003 Medicare 

Program Transmittal 32 (CR 3007) or 

issue a new Medicare Program 

Transmittal to include compensatorbased IMRT treatment delivery code 

0073T. The commenter provided CMS 

with recommended language to clarify 

the billing of compensator-based IMRT 

treatment delivery under the OPPS for 

CY 2006. 

Response: We appreciate the 

commenter bringing to our attention the 

need to update our billing guidance to 

reflect the newly established Category 

III CPT code 0073T for the billing of 

compensator-based IMRT treatment 

delivery. We thank the commenter for 

providing CMS with recommended 

language and will consider such 

language as we revise our guidance on 

the billing of compensator-based IMRT 

treatment delivery under the OPPS for 

CY 2006. 

i. Kidney Imaging (APC 0267) 

Comment: One commenter expressed 

concern that CMS’s proposed 

reassignment of CPT code 78700 

(Kidney imaging, static) from APC 0404 

(Level I Renal and Genitourinary 

Studies) to APC 0267 (Level III 

Diagnostic Ultrasound) disrupts the 

clinical homogeneity of the two APCs. 

The commenter stated that the resource 

requirements and clinical characteristics 

of kidney imaging have not changed in 

the past year and urged CMS to 

maintain CPT code 78700 in APC 0404 

for CY 2006. 

Response: We agree with the 

commenter’s observation that the 

clinical attributes of CPT code 78700 

more closely resemble the services 

assigned to APC 0404 rather than APC 

0267. Although our proposal to reassign 

CPT code 78700 to APC 0267 was based 

on its median cost data collected for the 

proposed rule, the more recent median 

cost data from CY 2004 for CPT code 

78700 do not preclude its return to APC 

0404. Therefore, in the interest of 

preserving the clinical homogeneity of 

APCs 0267 and 0404, we are not 

adopting our proposed reassignment 

and will retain CPT code 78700 in APC 

0404 for CY 2006. 

j. Magnetic Resonance Guided Focused 

Ultrasound Ablation (APC 0193) 

We received one public comment on 

the CY 2006 OPPS proposed rule 

concerning the APC assignments for 

HCPCS codes 0071T and 0072T, along 

with several related comments on the 

November 15, 2004 final rule with 

comment period. 

Comment: Several commenters 

submitted comments on the November 

15, 2004 final rule regarding the APC 

assignments of magnetic resonance 

guided focused ultrasound (MRgFUS) 

therapy for uterine fibroids. We 

proposed to retain magnetic resonance 

guided focused ultrasound (MRgFUS) 

procedures in APC 0193 for CY 2006. 

The commenters believed that the 

procedure’s assignment to APC 0193 

(Level V Female Reproductive 

Procedures) resulted in significant 

underpayment. They asserted that 

MRgFUS is a new technology and that 

CMS should assign the two Category III 

CPT codes to two separate New 

Technology APCs, based on external 

cost data, until adequate claims data are 

available upon which to base 

assignments to clinical APCs. 

More recently, hospital and 

manufacturer representatives made a 

presentation at the August 2005 meeting 

of the APC Panel and also commented 

on our July 25, 2005 proposed rule. The 

Panel recommended that CMS work 

with stakeholders to assign CPT codes 

0071T and 0072T, focused ultrasound 

ablation of uterine leiomyomata 

including magnetic resonance guidance, 

to an appropriate New Technology 

APC(s). 

The procedures are coded with 

Category III CPT codes 0071T (Focused 

ultrasound ablation of uterine 

leiomyomata, including MR guidance; 

total leiomyomata volume less than 200 

cc of tissue) and 0072T (Focused 

ultrasound ablation of uterine 

leiomyomata, including MR guidance; 

total leiomyomata volume greater or 

equal to 200 cc of tissue). These codes 

were new CPT codes in CY 2006. The 

commenters and the presenters at the 

APC Panel suggested that we assign CPT 

code 0071T to New Technology APC 

1528 (Level XXV) and CPT code 0072T 

to New Technology APC 1532 (Level 

XXVI). 

Response: In light of the additional 

information that has been presented to 

us, we agree that it would be more 

accurate to assign the two procedures to 

separate APCs to account for the higher 

level of resources required to ablate the 

larger growths. However, we do not 

agree that it is most appropriate to 

assign MRgFUS procedures to New 

Technology APCs 1528 and 1532. 

Although FDA approval of one specific 

ablation technology was relatively 

recent, MRgFUS therapy bears a 

significant relationship to technologies 

already in widespread use in hospitals, 

in particular MRI and ultrasound 

services. The use of focused ultrasound 

for thermal tissue ablation has been in 

development for decades, and the recent 

application of MRI to focused 

ultrasound therapy provides monitoring 

capabilities that may make the therapy 

more clinically useful. We believe that 

MRgFUS therapy is a new and 

integrated application of existing 

technologies (MRI and ultrasound) and, 

therefore, is not necessarily most 

accurately assigned to a New 

Technology APC. We believe that the 

technology used in this service fits as 

well into existing clinical APCs for 

female reproductive services, as do 

many other modalities that are currently 

assigned to those clinical groups. In 

addition, MRgFUS procedures are most 

often performed on younger women and 

are only seldom performed on Medicare 

beneficiaries. We believe that placing 

them in clinical APCs with other female 

reproductive procedures will enable us 

both to set accurate payment amounts 

and to maintain appropriate clinical 

homogeneity of the APCs. 

Cost data for MRgFUS procedures 

provided to us for two hospitals showed 

high, but disparate costs. The costs per 

case reported by each of the hospitals 

were significantly different from one 

another and were much higher than 

reports of costs from other publicly 

available sources. We suspect that much 

of the variation reflects differences in 

capital costs and projections of 

utilization and procedure times, as well 

as in the types of personnel used to 

perform the procedures. We understand 

that the MRI equipment can also be 

used to perform conventional MRI 

procedures, and the MRI equipment 

costs should be allocated accordingly so 

that amortization of the costs will be 

shared by those tests. The OPPS 

payment rates for services need to make 

appropriate payments for the services to 

Medicare beneficiaries, recognizing that, 

as a budget neutral payment system, the 

OPPS does not pay the full hospital 

costs of services. We expect that our 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68601 

payment rates generally will reflect the 

costs that are associated with providing 

care to Medicare beneficiaries in costefficient settings. 

We compared the necessary hospital 

resources for the MRgFUS procedures, 

including specialized equipment, MRI/ 

procedure room time, personnel, 

anesthesia and other required resources, 

to various other procedures for which 

we have historical hospital claims data. 

Additionally, we took into 

consideration projected costs for the 

MRgFUS procedures submitted to us, 

and other available information 

regarding the clinical characteristics and 

costs of those services. Upon 

consideration of all of the information 

available to us, we have determined that 

a higher level of payment would be 

more appropriate for the MRgFUS 

procedures. However, we are rejecting 

the recommendation of the APC Panel, 

and we will assign CPT codes 0071T 

and 0072T to APC 0195 (Level IX 

Female Reproductive Procedures) and 

0202 (Level X Female Reproductive 

Procedures), respectively for CY 2006. 

These new APC assignments provide 

significantly higher payment rates than 

we proposed for these services in CY 

2006. We believe that these placements 

in APCs 0195 and 0202 will provide 

appropriate payments for MRgFUS 

services to provide access for Medicare 

beneficiaries who need them. 

k. Non-Imaging Nuclear Medicine 

Studies (APC 0389) 

In Addendum B of the CY 2006 

proposed rule (70 FR 42776), we 

proposed to maintain CPT codes 78270 

(Vitamin B–12 absorption study; 

without intrinsic factor), 78271 (Vitamin 

B–12 absorption study; with intrinsic 

factor), and 78272 (Vitamin B–12 

absorption study; with and without 

intrinsic factor) in APC 0389 (NonImaging Nuclear Medicine) for CY 2006. 

We received one public comment 

related to the above-mentioned nuclear 

medicine procedures. 

Comment: One commenter expressed 

concern that the resource requirements 

associated with CPT codes 78271 

(Vitamin B–12 absorption study; with 

intrinsic factor), and 78272 (Vitamin B–

12 absorption study; with and without 

intrinsic factor) far exceed the median 

cost of APC 0389 (Non-imaging Nuclear 

Medicine) in which they reside. The 

commenter noted that the exceptionally 

low single claim counts for these 

procedures have little or no impact on 

the overall median cost for APC 0389 

due to the thousands of other single 

claim counts for lower cost CPT codes 

that reside in APC 0389. To protect 

beneficiary access to these services, the 

commenter requested that CMS consider 

either freezing the payment rate for APC 

0389 at its CY 2005 payment rate or 

buffering the proposed 12 percent 

decrease from its CY 2005 payment rate. 

The commenter noted that, in addition 

to underpayment for the nuclear 

medicine procedures, the three 

radiopharmaceuticals that could be used 

in the tests ( C1079—Supply of 

radiopharmaceutical diagnostic imaging 

agent, cyanocobalamin Co-57/58, per 0.5 

mCi; C9013—Supply of Co-57 cobaltous 

chloride, radiopharmaceutical 

diagnostic imaging agent; and Q3012—

Supply of oral radiopharmaceutical 

diagnostic imaging agent, 

cyanocobalamin cobalt Co-57, per 0.5 

mCi) were proposed to change from 

status indicator ‘‘K’’ in CY 2005 to 

status indicator ‘‘N’’ for CY 2006. The 

commenter was concerned that the 

packaging of the necessary 

radiopharmaceuticals, in addition to the 

reduced payment rate for the tests, 

could threaten Medicare beneficiaries’

access to these procedures. 

Response: While we acknowledge the 

commenter’s concern that the 

procedure-specific median costs for CPT 

codes 78271 ($244) and 78272 ($310) 

appear to far exceed the median cost of 

APC 0389 ($86) for CY 2006 based on 

the CY 2004 hospital claims data, we 

remind the commenter that the 

exceptionally low single claim counts 

that they brought to our attention for 

CPT codes 78271 (9 single claims) and 

78272 (5 single claims) significantly 

increase the volatility of their median 

costs from year-to-year. Moreover, the 

higher CY 2005 single claim counts for 

CPT codes 78271 (209 single claims) 

and 78272 (133 single claims) based on 

the CY 2003 hospital claims data 

yielded lower median costs for CPT 

codes 78271 ($98) and 78272 ($159). 

These lower median costs may have 

been due to separate CY 2005 payments 

for the required radiopharmaceuticals, 

in comparison with the median costs 

from CY 2004 claims developed based 

on the CY 2006 payment policy of 

packaging the radiopharmaceuticals. 

In reviewing the claims data for all of 

the CPT codes assigned to APC 0389 for 

CY 2005, we noted that, in addition to 

CPT codes 78271 and 78272, several 

other services had consistently higher 

procedure-specific median costs than 

the CY 2006 APC median cost ($86), 

including CPT code 78003 (Thyroid 

uptake; stimulation, suppression or 

discharge); CPT code 78190 (Kinetics, 

study or platelet survival, with or 

without differential organ/tissue 

localization); CPT code 78270 (Vitamin 

B–12 absorption study; without intrinsic 

factor); and CPT code 78191 (Platelet 

survival study) with median costs of 

$167, $170, $186, and $384, 

respectively. As these services were all 

low volume, with fewer than 100 claims 

each, there was no two times violation 

in APC 0389, despite the finding that 

the least expensive procedure assigned 

to APC 0389 had a median cost of $76. 

The higher level of hospital resources 

required for the more costly nonimaging nuclear medicine procedures 

was notable. 

While we will not adjust the CY 2006 

median cost of APC 0389 by using its 

CY 2005 median cost or dampening the 

decline between CY 2005 and CY 2006 

as suggested by the commenter, we 

acknowledge that the structure of the 

APC would benefit from 

reconfiguration. Therefore, we are 

splitting the services assigned to APC 

0389 for CY 2005 into two groupings for 

CY 2006: APC 0389, Level I NonImaging Nuclear Medicine; and newly 

created APC 0392, Level II Non-Imaging 

Nuclear Medicine. The assignment of 

CPT codes to these two APCs is shown 

in Table 14 below. 

TABLE 14.—ASSIGNMENT OF CPT CODES TO APCS 0389 AND 0392 FOR CY 2006 

APC 0389 APC 0392 

78725, Kidney function study ................................................................... 78003, Thyroid, stimulation, suppression. 

78000, Thyroid, single uptake .................................................................. 78190, Platelet survival, kinetics. 

78001, Thyroid, multiple uptakes ............................................................. 78191, Platelet survival. 

78999U, Nuclear diagnostic exam ........................................................... 78270, Vitamin B–12 absorption exam; without intrinsic factor. 

78271, Vitamin B–12 absorption exam; with intrinsic factor. 

78272, Vitamin B–12 absorption exam; with and without intrinsic factor. 

68602 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

In this reconfiguration, the median 

cost of APC 0389 for CY 2006 is $85, 

and the median cost for APC 0392 is 

$209. We believe that these new APC 

configurations will result in more 

accurate payments for non-imaging 

nuclear medicine studies, by improving 

clinical and resource homogeneity 

within the groupings. We note that for 

the purposes of any studies 

contemplated by the commenter, 

different codes will be available for 

reporting the required 

radiopharmaceuticals in the CY 2006 

OPPS. Specifically HCPCS code C9013 

will be deleted, HCPCS code A9546 

(Cobalt CO–57/58, cyanocobalamin, 

diagnostic, per study dose, up to 1 

microcurie) will replace HCPCS code 

C1079, and HCPCS code A9559 (Cobalt 

CO–57 cyanocobalamin, oral, 

diagnostic, per study dose, up to 1 

microcurie) will replace HCPCS code 

Q3012. We anticipate that these new 

permanent HCPCS codes for 

radiopharmaceuticals will simplify 

billing and provide more accurate 

hospital claims data as the basis for 

potential packaging determinations in 

future years. With the transition to these 

new radiopharmaceutical HCPCS codes, 

we will closely monitor the claims data 

for APCs 0389 and 0392 in the future, 

as any changes in the packaging status 

of required radiopharmaceuticals could 

affect the median costs of services 

assigned to them and alter the resource 

homogeneity of the groupings. 

l. Therapeutic Radiation Treatment 

(APC 0304) 

Comment: One commenter objected to 

our proposal to maintain CPT code 

77370 (Radiation physics consult) in 

APC 0304 (Level I Therapeutic 

Radiation Treatment Preparation) for CY 

2006, noting that the procedure 

experienced over a 50 percent decrease 

in its payment rate between CYs 2004 

and 2005. The commenter explained 

that this procedure often involves a 

significant amount of time spent by the 

physics department in developing the 

treatment planning, immobilization, and 

proper beam placement for the patient. 

The commenter requested that CMS 

consider the amount of time spent by 

the physicists and dosimetrists in 

collaborating with the physician when 

determining the APC placement of CPT 

code 77370 for CY 2006. 

Response: The CY 2006 median cost 

of $140 for CPT code 77370 is based on 

96 percent of the CY 2004 total claims 

(41,123 single procedure claims out of 

42,753 total claims). Similarly, the CY 

2005 median cost of $136 for CPT code 

77370 was based on 95 percent of the 

CY 2003 total claims (40,723 single 

procedure claims out of 42,985 total 

claims). The robust claims data reported 

by hospitals over the past several years 

support the placement of CPT code 

77370 in APC 0304 for CY 2006. 

Furthermore, the commenter provided 

no supporting evidence that the 

proposed payment of $105 for CY 2006 

would jeopardize beneficiary access to 

this service. Therefore, for CY 2006 we 

are maintaining CPT code 77370 in APC 

0304. 

m. Urinary Bladder Study (APC 0340) 

At the February 2005 APC panel 

meeting, the APC Panel recommended 

that we move CPT code 78730 (Urinary 

bladder residual study) from APC 0340 

(Minor Ancillary Procedures) to APC 

0404 (Level I Renal and Genitourinary 

Studies) for CY 2006, suggesting that the 

CY 2003 data for CPT code 78730 may 

have been derived from incorrectly 

coded hospital claims. For reasons 

discussed in detail below, we are 

maintaining CPT code 78730 in APC 

0340 for CY 2006. 

We received a number of public 

comments related to such imaging 

procedures. 

Comment: One commenter stated that 

the resource requirements of CPT code 

78730 (Urinary bladder residual study) 

do not resemble other services assigned 

to APC 0340 (Minor Ancillary 

Procedures). The commenter explained 

that the high volume and low median 

cost data for CPT code 78730 resulted 

from inappropriate use of this code to 

report other services unrelated to 

nuclear medicine. The commenter noted 

that during the February 2005 APC 

Panel meeting, the APC Panel 

recommended that CMS move CPT code 

78730 from APC 0340 to APC 0404 

(Level I Renal and Genitourinary 

Studies), suggesting that the CY 2003 

data for CPT code 78730 may have been 

derived from incorrectly coded hospital 

claims. The commenter urged CMS to 

recognize the full costs associated with 

the nuclear medicine aspects of the 

procedure by reassigning CPT code 

78730 to APC 0404 for CY 2006. 

Response: In the November 15, 2004 

final rule with comment period (69 FR 

65705), we noted that CPT code 78730 

was originally created and valued for 

the MPFS as a procedure requiring the 

services of a nuclear medicine 

technician, but that the use of the code 

subsequently had changed to be used 

primarily by urologists rather than by 

nuclear medicine physicians. While we 

reassigned CPT code 78730 to APC 0340 

for CY 2005 based on robust CY 2003 

claims data, we solicited other 

physician specialties to submit resource 

data for us to review in the context of 

our hospital claims data so that we 

could reexamine the appropriate APC 

placement of CPT code 78730 for CY 

2006. While we acknowledge the 

commenter’s repeated concern that the 

median cost for CPT code 78730 may 

reflect miscoded claims, the commenter 

again provided no supporting evidence 

of what they believe to be the true 

resource costs associated with CPT code 

78730. If some of the reported claims 

data are inaccurate, we have no way to 

determine which claims are more or less 

accurate than others. Rather, a relatively 

stable number of single procedure 

claims has generated a consistent 

median cost for CPT code 78730 over 

the past four years (that is, ranging from 

$39 based on the CY 2001 claims data 

to $53 based on the CY 2004 claims 

data) and supports our assignment of 

CPT code 78730 to APC 0340 with an 

APC median cost of $36, as opposed to 

APC 0404 with an APC median cost of 

$217. Therefore, we are maintaining 

CPT code 78730 in APC 0340 for CY 

2006. However, in preparation for the 

CY 2007 OPPS update, we will 

reexamine the APC placement of CPT 

code 78730 by reviewing any resource 

data submitted by commenters in the 

context of our CY 2005 hospital claims 

data. Commenters may wish to identify 

approaches to distinguishing correctly 

coded claims so that we could develop 

a procedure-specific median cost based 

on correctly coded hospital claims data. 

As the commenter believes the vast 

majority of claims for CPT code 78730 

were miscoded over many years, they 

may wish to explore a change in the 

code with the AMA’s CPT Editorial 

Panel or request their dissemination of 

guidance on use of the code, to clarify 

the code’s intended use and assist 

providers in correctly billing for 

services provided. 

3. Gastrointestinal and Genitourinary 

Procedures 

a. Cystourethroscopy With Lithotripsy 

(APC 0163) 

Comment: A few commenters 

requested that CMS assign CPT code 

52353 (Cystourethroscopy, with 

ureteroscopy and/or pyeloscopy; with 

lithotripsy) to the new APC 0429 (Level 

V Cystourethroscopy and other 

Genitourinary Procedures). The 

commenters stated that this procedure 

has been grouped into the same APC 

(0163, Level IV Cystourethroscopy and 

other Genitourinary Procedures) with 

many of the procedures that we 

reassigned into APC 0429 and that CPT 

code 52353 should also be assigned to 

that APC. They stated that the 

procedure described by CPT code 52353 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68603 

is used for the same indications as are 

those in APC 0429, and that much of the 

same capital equipment is used to 

perform CPT code 52353 and those in 

APC 0429. 

The commenters asserted that 

although the median cost in CMS’s 

hospital claims data for CPT code 52353 

is lower than those for procedures in 

APC 0429, its median cost is the highest 

in APC 0163 and its costs are actually 

higher than reflected in the claims data 

since hospitals are failing to report all 

of the costs associated with the flexible 

ureteroscope required for the procedure. 

Based on their analysis of the 

proposed rule data, the commenters 

found that assignment of CPT code 

52353 to APC 0429 would only result in 

small decreases in the median costs for 

both APCs 0163 and 0429. They 

estimated that the median cost for APC 

0163 would drop by approximately $19 

and that the median cost for APC 0429 

would decrease by approximately $100. 

They stated that these drops would not 

represent payment disruptions for the 

other procedures in the APCs. 

Response: The median cost for CPT 

code 52353, $2,117, is the highest in 

APC 0163, but the procedure-specific 

median costs in APC 0163 vary from 

lowest to highest by very little. The 

median cost for APC 0163 is $1,997, 

only $120 lower than the code-specific 

median cost for CPT code 52353. 

The median cost for APC 0429 is 

$2,502, and the median costs of the 

individual procedures with more than 

50 single claims assigned to that APC 

(representing a total of 13,200 claims) 

vary from $2,475 to $2,602, a difference 

of only $127. We believe that the 

decrease in the APC 0429 median that 

would result from assignment of CPT 

code 52353 (14,570 claims) would 

unfairly disadvantage the procedures 

that we proposed to assign there, and 

that the $100 drop that the commenters 

referred to as not representing payment 

disruptions would not be viewed 

similarly by hospitals billing for the 

procedures we proposed for assignment 

to APC 0429. In addition, we have no 

reason to doubt the accuracy of our 

median cost for CPT code 52353 based 

on thousands of CY 2004 single hospital 

claims, nor do we understand why 

hospitals would differentially not be 

including charges for the costs of all 

required equipment and supplies for 

this procedure on their hospital claims 

in comparison with their billing for 

other procedures. Any small 

underpayment that would result from 

the continued assignment of CPT code 

52353 to APC 0163 would be less than 

the potential for overpayment if the 

code were moved to APC 0429, which 

contains some procedures that have 

different clinical characteristics and 

services with higher median costs. 

We will reevaluate the APC 

assignment for CPT code 52353 for CY 

2007 and finalize our proposal, without 

modification, to retain it in APC 0163 

for CY 2006. 

b. GI Stenting (APC 0384) 

Comment: Commenters, including the 

APC Panel, asked that we use only 

claims containing devices to set the APC 

median cost for APC 0384, or 

alternatively, freeze the 2006 CY OPPS 

payment rate at the CY 2005 OPPS 

payment. 

Response: We considered the 

comments and have decided to apply 

the same policy to these services that we 

will apply to other device-dependent 

APCs. In the case of this APC, the 

median on which the CY 2006 OPPS 

payments will be based was calculated 

using claims that contain the device 

codes applicable to the services 

assigned to APC 0384. See the 

discussion of payment for device 

dependent APCs in section VI.A for our 

discussion of adjustments to median 

costs for device-dependent APCs. See 

Table 16 for the median cost on which 

the CY 2006 payment rate for APC 0384 

is based. 

Comment: Some commenters, 

including the APC Panel, recommended 

that we establish a separate APC for CPT 

codes 43268 and 43269 for endoscopic 

retrograde cholangiopancreatography 

(ERCP) services because they believed 

that these services use fluoroscopy 

while the other codes in APC 0384 do 

not. Other commenters opposed this 

change because they said that all 

services in APC 0384 require use of 

similar supplies, equipment, and 

fluoroscopic assistance. They indicated 

that the hospital resources that are 

required to furnish a specific GI stenting 

service are determined more by nuances 

arising from gaining access to the site at 

which the stent will be placed, sedating 

the patient, and providing fluoroscopic 

monitoring, than by the specific location 

where the stent is being placed. 

Response: We did not create a new 

APC for ECRP-related stent procedures 

because those procedures are 

appropriately placed with the other 

services in APC 0384, both with respect 

to clinical characteristics and resources 

used, particularly in view of the clinical 

rationale provided by the commenters. 

In addition, the number of single claims 

available for establishing payment rates 

for APC 0384 is already relatively small. 

We are concerned that if we were to 

move the two ERCP procedures to 

another APC, there would be very few 

single claims remaining in APC 0384 to 

establish that APC’s median cost. 

c. Insertion of Uterine Tandems and/or 

Vaginal Ovoids for Clinical 

Brachytherapy (APC 0192) 

Comment: Several commenters 

disagreed with our proposal to reassign 

CPT code 57155 (Insertion of uterine 

tandems and/or vaginal ovoids for 

clinical brachytherapy) from APC 0193 

(Level V Female Reproductive 

Procedures) to 0192 (Level IV Female 

Reproductive Procedures). The 

commenters were concerned that the 

reassignment would result in a 66 

percent decrease in payment, and that 

there was no discussion of the 

reassignment in the proposed rule. They 

requested that the procedure be retained 

in its current CY 2005 APC assignment, 

and that in the future CMS discuss all 

changes to APC assignments in the 

preambles of their proposed rules. They 

asserted that there have been no changes 

in the technology or provision of these 

services that would justify a reduction 

in payment and that the dramatic 

decrease in payment amount proposed 

by CMS would have a negative effect on 

Medicare beneficiaries’ access to this 

important treatment for vaginal and/or 

uterine cancer. 

Response: The procedure described 

by CPT code 57155 is for the insertion 

of the ‘‘holders’’ for brachytherapy 

sources when brachytherapy is to be 

delivered to specific sites. The 

procedure to load the radioactive 

elements and the brachytherapy sources 

themselves are separately payable under 

the OPPS. CPT code 57155 was first 

reassigned from APC 0192 to APC 0193 

for CY 2004 Hospital claims data from 

CY 2002, utilized for the CY 2004 OPPS 

update, yielded a code-specific median 

cost for CPT code 57155 of about $743, 

based on 132 single claims. However, 

CY 2003 data, utilized for the CY 2005 

OPPS update, provided a code-specific 

median for CPT code 57155 of 

approximately $232 based on 350 single 

claims, creating a 2 times violation in 

APC 0193. For CY 2005, our final OPPS 

payment policy specifically excepted 

APC 0193 from the two times rule in 

light of this violation. 

While we did not propose to reassign 

CPT code 57155 for the CY 2005 OPPS, 

we now have a second year of hospital 

claims data from CY 2004 that indicate 

that CPT code 57155 should be assigned 

to a lower level Female Reproductive 

Procedures APC. Therefore, in 

addendum B of the proposed rule, we 

proposed to reassign CPT code 57155 to 

APC 0193. The median cost for CPT 

code 57155 of $353 based on 867 single 

claims is in the same range as the 

68604 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

medians for other procedures assigned 

to APC 192 for CY 2006, making it an 

appropriate placement for CPT code 

57155. If CPT code 57155 were to be 

assigned to APC 0193 which has a 

median cost of about $870, we would 

once again have to except APC 0193 

from the two times rule for CY 2006. 

Based on stable claims data for the past 

2 years and significant numbers of 

single bills, we used our standard OPPS 

methodology and the updated CY 2004 

claims data to determine that hospital 

claims data for CPT code 57155 are 

accurate and appropriate to use for 

making the CY 2006 APC assignment for 

CPT code 57155. Therefore, we will 

finalize our proposal to assign CPT code 

57155 to APC 0192. 

d. Laparoscopic Ablation Procedures 

(APC 0131) 

Comment: One commenter requested 

that CMS reassign CPT code 47370 

(Laparoscopy, surgical; ablation of one 

or more liver tumor(s); radiofrequency) 

to APC 0132 (Level III Laparoscopy). 

The procedure is currently assigned to 

APC 0131, Level II Laparoscopy, and the 

commenter stated that the costs for the 

procedure far exceed the payment rate 

in that APC. The commenter analyzed 

OPPS claims for CYs 2002, 2003, and 

2004 and found that the median cost for 

that procedure has been more than ‘‘two 

times greater than the median of the 

lowest cost item or service’’ in APC 

0131 during all of those years. Further, 

they asserted that the procedure’s 

median cost is actually more similar to 

those of the procedures assigned to APC 

0132. 

Response: We examined our median 

cost data for the years referenced in the 

comment and concur with their findings 

that the median cost for CPT code 47370 

has been notably higher than those for 

other procedures in APC 0131 for 

several years. For CY 2006, we have 28 

single claims, and the procedurespecific median cost of $5,088 is 

significantly higher than the median 

costs for most of the procedures 

assigned to APC 0131. The median cost 

for CPT code 47370 also is higher than 

the median costs for other procedures 

currently assigned to APC 0132. We 

believe that for purposes of clinical 

homogeneity, APC 0132 is the most 

appropriate APC assignment for the 

procedure but we will continue to 

monitor it for future APC assignment 

changes. For CY 2006, we will assign 

CPT code 47370 to APC 0132 (Level III 

Laparoscopy). 

Comment: One commenter requested 

that CMS reassign CPT code 50542 

(Laparoscopy, surgical; ablation of renal 

mass lesion(s)) to APC 0132 (Level III 

Laparoscopy). The procedure is 

currently assigned to APC 0131 (Level II 

Laparoscopy), and the commenter stated 

that the costs for the procedure far 

exceed the payment rate in that APC. 

The commenter analyzed OPPS claims 

and found that two of the 11 single 

claims available for the proposed rule 

did not reflect separate charges for the 

ablation device and was concerned that 

with so few claims, these two 

apparently incorrect claims may have a 

significant effect on the median cost. 

Response: We examined our median 

cost data for CY 2005 and CY 2006. For 

CY 2005, there were 11 single claims 

used for the final rule median and the 

assignment of the procedure to APC 

0131 was appropriate. For CY 2006, we 

have 16 single claims and the median 

cost is significantly higher than the 

median costs for most of the procedures 

assigned to APC 131. The median cost 

for CPT code 50542 is $3,940, within 

the range of median costs for procedures 

assigned to APC 0132 for CY 2006. We 

will assign CPT code 50542 to APC 0132 

(Level III Laparoscopy) for CY 2006. 

e. Plicator Procedure (APC 0422) 

Comment: One commenter submitted 

comments about the APC assignment for 

new HCPCS code C9724 (EPS gastric 

cardia plicator) used in the treatment of 

gastroesophageal reflux disease (GERD). 

The commenter suggested that the 

procedure’s assignment to APC 0422 

(Level II Upper GI Procedures) is 

inappropriate because it is a new 

technology and that placement violates 

the OPPS two times rule. The 

commenter recommended that we 

assign the procedure to an APC with a 

higher payment rate and suggested that 

we may want to create a level III upper 

GI procedures APC. They reported that 

the cost of the Plicator Procedure kit 

($1,795), in addition to the endoscopy 

(approximately $460) is two times more 

costly than CPT 43228 (Esophagoscopy, 

rigid or flexible; with ablation of 

tumor(s), polyp(s), or other lesion(s), not 

amenable to removal by hot biopsy 

forceps, bipolar cautery or snare 

technique), a high volume procedure 

that is also assigned to APC 0422. 

Response: In April 2004, CMS 

received an application for this 

procedure to qualify for payment as a 

New Technology under the OPPS. In 

April 2005, CMS assigned it to HCPCS 

code C9724 and placed it in APC 0422 

for payment under the OPPS. We have 

no claims data for the procedure due to 

its very recent HCPCS code assignment. 

We assigned it to APC 0422 because 

there are other endoscopic procedures 

for the treatment of GERD assigned to 

that APC and we believed, based on 

specific information available to us 

about the plicator service and hospital 

cost and clinical information regarding 

other services payable under the OPPS, 

that APC 0422 was an appropriate 

assignment for HCPCS code C9724. We 

continue to believe that is the most 

appropriate APC placement for the 

procedure. We will reevaluate that 

assignment when we have claims data 

on which to base a reassignment. 

We find that there is no basis for the 

suggestion that assignment of HCPCS 

code C9724 represents a two times rule 

violation because there are no data for 

HCPCS code C9724 to compare to 

median costs for the other significant 

procedures assigned to that APC. 

We are finalizing our proposal to 

assign HCPCS code C9724 to APC 0422 

for CY 2006. 

f. Prostate Cryosurgery (APC 0674) 

For CY 2006 OPPS, we proposed to 

set the payment rate for APC 0674 

(Prostate Cryoablation) based on an 

unadjusted median cost of $5,780. We 

received many public comments 

concerning the payment for prostate 

cryoablation. 

Comment: Commenters objected to 

the proposed payment rate for 

cryoablation of the prostate (APC 0674) 

because they believed that the proposed 

payment was not sufficient to cover the 

cost of the procedure. The commenters 

indicated that a hospital incurs costs of 

greater than $9,000 to furnish the 

service. Commenters furnished copies of 

bills, invoices and cancelled checks 

intended to substantiate their claims 

that the total costs are in excess of 

$9,000 because the costs of the probes 

alone are no less than $4,000. They 

indicated that the proposed Medicare 

payment rate, if implemented, would 

result in a shortfall of over $3,000 per 

case. Commenters said that hospitals 

tend to under report and under charge 

their true costs for cryosurgery 

procedures, and that there are 

incentives to resist billing changes that 

would result in higher charges for the 

procedures. Commenters said that CMS 

should recalculate the median cost for 

APC 0674 by excluding claims that do 

not have a charge of at least $6,000 

under either HCPCS code C2618 or 

revenue codes 270, 272 or 278 because 

any charge for cryoablation probes less 

than $6,000 would be inadequate to 

result in a reasonable cost for the 

device. Commenters indicated that, at a 

minimum, CMS should not set the 

payment rate for APC 0674 at less than 

the CY 2005 payment rate plus inflation. 

Response: We share the commenters’

concern that these services continue to 

be available to Medicare beneficiaries 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68605 

and we will pay APC 0674 under the 

general policy which we apply to 

device-dependent APCs. Under this 

general policy, we have set the median 

cost for APC 0674 using only claims that 

contain the device code for the 

cryoablation probes used in this service. 

See section IV.A. for our discussion of 

adjustments to median costs for device 

dependent APCs. See Table 16 for the 

adjusted median cost for APC 0674 for 

CY 2006. 

Comment: Commenters indicated that 

the proposed Medicare payment rate 

would result in reduced or no access for 

Medicare beneficiaries. One commenter 

stated that in the past 2 years, a total of 

29 hospitals either ceased performing or 

elected not to start a cryosurgery 

program due to inadequate Medicare 

payment. Commenters stated that 

inadequate payment under the OPPS 

would result in hospitals providing 

more expensive care in the inpatient 

setting under DRG 315 that could be 

much more costly to Medicare. 

Response: Our review of the claims 

from hospitals used to set the median 

costs for APC 0674 shows that from CYs 

2003 to 2004, the number of claims for 

APC 0674 grew from 1,516 to 2,328 or 

by 35 percent in one year. Similarly, the 

number of hospital providers furnishing 

the service grew from 222 to 317 or by 

30 percent in one year. Neither the 

growth in the number of claims or the 

number of hospitals furnishing the 

service indicates that there is a barrier 

to access to care. Moreover, while 29 

hospitals may have ceased performing 

the procedure or decided not to begin a 

cryosurgery program, the growth in 

hospitals furnishing the service from 

CYs 2003 to 2004 is substantial. This is 

particularly meaningful because the 

device came off of pass-through 

payment in CY 2004 and the payment 

for the device was packaged into the 

payment for the procedure in CY 2004, 

rather than being paid separately under 

the pass-through payment methodology. 

We see no reason to believe that 

Medicare beneficiaries have problems in 

accessing this service. Moreover, as 

commenters indicate in the discussion 

of calculation of payment weights, 

hospitals take many factors into 

consideration in determining whether to 

offer a service, only one of which is the 

rate of Medicare payment. 

g. Stretta Procedure (APC 0422) 

CPT code 43257, effective January 1, 

2005, is used for esophagoscopy with 

delivery of thermal energy to the muscle 

of the lower esophageal sphincter and/ 

or gastric cardia for the treatment of 

gastresophageal reflux disease. This 

code describes the Stretta procedure, 

including use of the Stretta System and 

all endoscopies associated with the 

Stretta procedure. Prior to CY 2005, the 

Stretta procedure was recognized under 

HCPCS code C9701 in the OPPS. For the 

CY 2005 OPPS, HCPCS code C9701 was 

deleted and CPT code 43257 was 

utilized for the Stretta procedure. In CY 

2005, the Stretta procedure was 

transitioned from a New Technology 

APC to clinical APC 0422 (Level II 

Upper GI Procedures) based on several 

years of hospital cost data. Procedures 

within APC 0422 were similar to the 

Stretta procedure in terms of clinical 

characteristics and resource use. 

We received several public comments 

in response to the CY 2005 methodology 

for calculating the median cost for APC 

0422 set forth in our CY 2005 OPPS 

final rule with comment period. 

Comment: Commenters objected to 

the APC assignment of the Stretta 

procedure (HCPCS code C9701 in 2003; 

CPT code 43257 beginning in 2004) to 

APC 0422. Commenters indicated that 

CMS should recalculate the median cost 

for the procedure by packaging in the 

costs of all endoscopies (regardless of 

CPT code) that were performed on the 

same date as the Stretta procedure and 

assigning the procedure to a New 

Technology APC based on the 

recalculated median cost. They said that 

absent this change, CMS should clarify 

that hospitals may bill and will be paid 

for each endoscopy done at the time of 

the Stretta procedure. Commenters 

asked that we make these changes 

effective January 1, 2005. 

Response: We did not make these 

changes for CY 2005 because we believe 

that we correctly calculated the median 

cost for the Stretta procedure by 

incorporating the cost of a single 

endoscopy (CPT codes 43234 and 

43235) when billed into the reported 

median cost for Stretta in the 

calculation of the final rule median cost 

for the new CPT code 43257 for CY 

2005, based on the codes hospitals 

correctly reported in CY 2004 for the 

full Stretta service. Moreover, we 

believe that assignment of the procedure 

to the APC that contains similar 

procedures for the treatment of 

gastroesophageal reflux disease is 

appropriate. Therefore, we believe that 

the Stretta procedure is placed in an 

APC for CY 2005 which is appropriate 

both with regard to clinical 

characteristics and resource use. As the 

code descriptor for CPT code 43257 

includes upper gastrointestinal 

endoscopy, we do not expect that 

hospitals would separately bill for each 

endscopy done at the time of the Stretta 

procedure. 

For CY 2006, we proposed to use both 

CY 2004 single claims for HCPCS code 

C9701 and multiple procedure claims 

containing one unit of HCPCS code 

C9701 and one unit of either CPT code 

43234 or CPT code 43235 to calculate 

the Stretta procedure’s contribution to 

the median for APC 0422. Claims 

reporting one endoscopy code (CPT 

code 43234 or CPT code 43235) along 

with HCPCS code C9701 were included 

in the proposed median calculation 

because, in CY 2002, CMS authorized 

the separate and additional billing of a 

single endoscopy code with HCPCS 

code C9701, while CPT code 43257 now 

includes all endoscopies performed 

during the procedure. 

Using this proposed methodology, we 

calculated a median cost for CPT code 

43257 (HCPCS code C9701 in the CY 

2004 claims data) of $1,669. Using these 

claims in the calculation of the median 

cost for APC 0422, we calculated a 

median cost of $1,386. We proposed to 

use this methodology, applied to the 

more complete final rule with comment 

period claims set, to calculate the final 

CY 2006 OPPS median cost for APC 

0422. 

We received several public comments 

on our proposed methodology for 

calculating the median cost for APC 

0422. 

Comment: One commenter objected to 

the proposed payment for CPT code 

43257, the Stretta procedure for the CY 

2006 OPPS. The commenter indicated 

that the payment would create 

economic disincentives to the 

utilization of the service and might 

ultimately impose greater costs on 

Medicare and its beneficiaries. The 

commenter asked that CMS create a new 

APC to which we would assign CPT 

code 43257 and CPT code 0008T, and 

that we use a different methodology 

from that proposed to calculate the 

median cost. The commenter indicated 

that because CPT codes 43228 and 

43830 have higher volumes but lower 

costs, the inclusion of them in the same 

APC as CPT code 43257 does not enable 

payment of CPT code 43257 at a level 

that is appropriate to pay the costs of 

the service. Therefore, the commenter 

requested that we create a new clinical 

APC to enable higher payment for CPT 

code 43257. The commenter believed 

that creating the new APC is analogous 

to what CMS proposed to do for 

vascular access devices for the CY 2006 

OPPS. 

The commenter also asked that CMS 

undertake special claims manipulation 

to establish the median cost for the new 

APC. The commenter’s preference was 

that we add the median cost for CPT 

code 43235 to the cost of all claims for 

68606 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

HCPCS code C9701 (CPT code 43257 in 

2005) which did not also contain at least 

one unit of an endoscopy code on the 

claim. These inflated claims costs 

would then be combined with all claims 

for HCPCS code C9701 which also 

contain at least one unit of an 

endoscopy code and with the claims for 

CPT code 0008T to set the median cost 

for the APC they wanted us to create. 

The commenter offered a less preferred 

alternative of using only claims that 

contained both HCPCS code C9701 and 

CPT codes 43234, 42235 or any other 

endoscopy code to calculate the median 

cost, which would not yield as robust a 

set of claims for median setting. 

Response: We have not created a new 

APC for CPT code 43257 and CPT code 

0008T, and we have kept them both in 

APC 0422 for the CY 2006 OPPS. The 

services reported by these CPT codes are 

clinically similar to the other 

procedures in APC 0422. In addition the 

resources used to furnish the services 

are very similar to the other services in 

APC 0442 based on hospital claims data. 

We see no reason to create a new APC 

for CPT codes 43257 and 0008T. 

We also have not undertaken the 

special claims manipulation that the 

commenter requested. We do not 

believe that it is valid to add the median 

cost for an endoscopy to the costs for 

claims for which an endoscopy is not 

billed on the same claim. Similarly, we 

do not believe that it is valid to include 

all of the charges for endoscopies other 

than a single unit of CPT code 43234 or 

43235 in the calculation of the median 

cost for the Stretta procedure. As the 

commenter indicates, endoscopy is a 

fundamental part of the Stretta service 

described by CPT code 43257. 

Therefore, there is every reason to 

believe that a hospital included all 

charges pertaining to the service in the 

charge for C9701 (the predecessor of 

CPT code 43257). 

To set the median cost for APC 0422, 

we used all single procedure claims for 

CPT code 43257, and we also used 

claims with CPT code 43257 which 

contained one and only one unit of 

either CPT codes 43234 or 43235 on the 

same date of service. We packaged the 

costs of the single unit of the additional 

endoscopy and used these claims 

records in the calculation of the median 

cost for APC 0422. 

For CY 2006 OPPS, the payment for 

APC 0422 is based on the median cost 

of $1,434 that was derived from this 

process. The median for CPT code 

43257 which we derived from this 

process is $1,669. CPT codes 43257 and 

0008T remain assigned to APC 0422. 

h. Urological Stenting Procedures (APCs 

0163 and 0164) 

Comment: A few commenters 

requested reassignment of two urology 

procedures to newly created APC 0429 

(Level V Cystourethroscopy). The 

commenters requested that CPT codes 

0084T (Insertion of a temporary 

prostatic urethral stent) and 52282 

(Cystourethroscopy, with insertion of 

urethral stent) be assigned to the new 

APC. 

CPT 52282 is currently assigned to 

APC 0163 (Level IV Cystourethroscopy 

and other Genitourinary Procedures) 

and the commenters stated that it is 

neither clinically similar to the other 

procedures in that APC nor is it similar 

in terms of hospital resources. Those 

commenters also stated that CPT code 

0084T is better suited for assignment to 

APC 0429 than to APC 0164 (Level I 

Urinary and Anal Procedures), to which 

it is currently assigned. 

The commenters requested that if we 

do not reassign CPT codes 52282 and 

0084T to APC 0429, that we at least 

move CPT code 52282 to APC 0385 

(Level I Prosthetic Urological 

Procedures), where it was assigned for 

CY 2004. They stated that CMS moved 

it from APC 0385 for CY 2005 because 

CMS determined that the urethral stent 

being implanted was not a prosthetic 

device, a decision with which they 

strongly disagree. They asserted that the 

urethral stent, like collagen implants 

injected into the urethra and other 

devices, meets the Medicare definition 

of a prosthetic device and should be 

assigned to an APC in line with that 

designation. 

Response: Based on careful 

examination of the claims data and the 

comments, we continue to find that 

assignment for these procedures to 

APCs 0163 and 0164 is appropriate. The 

median cost for CPT code 52282, 

$1,955, is considered within the range 

of median costs for the other procedures 

assigned to APC 0163. The APC median 

cost is $1,997, and the narrow 

procedure-specific range of median 

costs within the APC is $1,730 to 

$2,117. In contrast, the median cost for 

APC 0385, $4,384, is more than twice 

that of the median cost of CPT code 

52282. In addition, the median cost for 

APC 0429 of $2,501 is significantly 

higher that the median cost for CPT 

code 52282. 

While APC 0385 (Level I Prosthetic 

Urological Procedures), as its title 

suggests, was established as an APC for 

some urological procedures requiring 

prosthetics, it is not required that all 

procedures utilizing urological 

prosthetics be assigned to an APC with 

‘‘prosthetic’’ in the title. Instead, 

urological procedures that do, or do not, 

utilize prosthetics, like other services 

paid under the OPPS, are assigned to 

APCs based on clinical and resource 

homogeneity with other services in 

those clinical APCs. CPT code 52282 for 

cystourethroscopy with insertion of a 

urethral stent shares common clinical 

characteristics with other 

cystourethrscopy services also assigned 

to APC 0163. Therefore, we continue to 

believe that APC 0163 is the most 

appropriate APC assignment for CPT 

code 52282 for CY 2006. 

In addition, we have no claims data 

for CPT code 0084T because it was a 

new code for CY 2005. We assigned it 

to APC 0164 based on available 

information regarding the specific 

service, as well as clinical and cost 

information for other hospital services 

payable under the OPPS. CPT Changes: 

An Insider’s View 2005, describes CPT 

code 0084T as the prepping of a patient 

for a typical sterile urethral device 

insertion procedure, followed by 

activities to select and deploy the stent 

in the prostatic urethra, and assessment 

of the patient’s ability to void prior to 

discharge from the clinic. As stated 

earlier, we based our assignment for 

CPT code 0084T on the expected 

clinical and hospital resource 

characteristics of the service, rather than 

on whether or not the procedure 

required a prosthetic. Procedures 

utilizing urological prosthetics do not 

necessarily show the most clinical and 

resource compatability with other 

services assigned to APCs with 

prosthetic urological procedures in their 

APC titles, as such individual 

procedures may exhibit a wide range of 

clinical and cost differences. We 

assigned CPT code 0084T to a clinical 

APC that includes other urinary and 

anal procedures. We do not agree that 

its assignment to APC 0429, the highest 

level cytourethroscopy APC that 

contains complex laser prostate and 

percutaneous nephrostolithotomy 

procedures with a median cost of 

$2,502, is an appropriate placement for 

CPT code 0084T for CY 2006. We 

continue to believe that APC 0164 is the 

most appropriate APC assignment for 

CPT code 0084T for CY 2006. We will 

have CY 2005 claims data for CPT code 

0084T and will reassess its APC 

assignment based on those data for the 

CY 2007 OPPS update. 

We are finalizing, without 

modification, our proposal to retain CPT 

code 52282 in APC 0163 and CPT code 

0084T in APC 0164 for CY 2006. 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68607 

4. Other Surgical Services 

a. Excision-Malignant Lesions (APCs 

0019 and 0020) 

Comment: One commenter submitted 

comments regarding CPT codes 11620 

(Excision, malignant lesion, excised 

diameter 0.5 cm or less) and the code 

11621 (excised diameter 0.6 to 1.0 cm). 

The commenter, representing a hospital, 

stated that there appeared to be an error 

in the placement of CPT code 11620 in 

APC 0020 (Level II Excision/Biopsy) 

and CPT code 11621 in APC 0019 (Level 

I Excision/Biopsy) because CPT code 

11621 is the more invasive procedure of 

the two, yet it had been placed in an 

APC with a lower payment rate for CY 

2006. 

Response: This is not an error. APCs 

are arranged based on a combination of 

considerations, including clinical 

homogeneity and median costs from 

hospital claims data reflecting hospital 

resources used. We have several 

hundred single claims for CY 2003 and 

CY 2004 for each of the services. Our 

data for these years consistently show 

that CPT code 11621 was performed 

almost twice as often as CPT code 

11620, but it also had a consistently 

lower median cost, reflecting less 

hospital resources required for the 

excision of a larger lesion in comparison 

with a smaller lesion. Based on CY 2004 

hospital claims data, CPT code 11621 

has a median cost of about $314 based 

on 659 single claims and is 

appropriately assigned to APC 0019, 

with a median cost of about $247. To 

place CPT code 11621 in APC 0020 

(median cost of about $413) would 

create a significant overpayment. 

Conversely, CY 2004 claims data reveal 

a median cost of about $511 for CPT 

code 11620, based on 347 single claims, 

and therefore, the code is appropriately 

placed in APC 0020. 

There could be many reasons why the 

hospital claims data reflect greater 

resource utilization for the procedure 

that the commenter believes is ‘‘less 

invasive,’’ such as different supplies or 

equipment used for smaller excisions or 

variations in surgical techniques and 

related procedural times depending on 

the size of the lesion. We feel confident 

that our stable median cost data 

accurately reflect that the hospital 

resources are greater for the excision 

procedure described by CPT code 

11620, and therefore, will finalize our 

proposed CY 2006 APC assignments for 

CPT code 11620 in APC 0020 and for 

CPT code 11621 in APC 0019. 

b. External Fixation (APCs 0046 and 

0050) 

Comment: One commenter suggested 

that the current configuration of APC 

0046 (Open/Percutaneous Treatment 

Fracture or Dislocation) significantly 

underpays procedures that involve 

external fixation devices. The 

commenter gave several 

recommendations on ways to realign the 

procedures. First, they recommended 

that CMS distinguish procedures that 

involve external fixation devices by 

allowing hospitals to bill either CPT 

code 20690 (Application of a uniplane, 

unilateral, external fixation system) or 

CPT code 20692 (Application of 

multiplane, unilateral, external fixation 

system) together with a fracture 

procedure code, and that these 

combinations of codes would be placed 

in a new APC specifically for ‘‘fracture 

procedures with fixation devices.’’ The 

commenter reasoned that establishing 

one or two new APCs for these 

procedures when billed together would 

eliminate the ongoing two times rule 

violation, preserve clinical 

homogeneity, and more appropriately 

reimburse hospitals. Second, if CMS 

were to establish two new APCs, one 

should be for lower extremity fractures 

and the second should include upper 

extremity fractures. 

Response: CPT codes 20690 and 

20692 are currently in APC 0050, and 

no changes were proposed for the CY 

2006 OPPS. There are no 2 times 

violations in the APC in which they are 

located, and each of these codes 

represents 1 percent or less of the total 

volume in the APC. Therefore, we see 

no reason to create a new APC for these 

codes as we believe APC 0050 provides 

appropriate payment to hospitals when 

services described by CPT codes 20690 

and 20692 are provided and billed in 

accordance with correct coding 

guidelines. However, the CPT codes for 

treatment of a fracture often include 

‘‘with’’ or ‘‘without fixation’’ in the 

definition of the code. Where fixation is 

included in the definition of the code, 

it would be miscoding to also report 

20690 or 20692; these codes should be 

reported if, and only if, fixation is not 

included in the CPT code for treatment 

of the fracture. Providers should review 

the CPT instructions and look to the 

AMA’s guidance on coding if they have 

questions about when these codes 

should be reported. 

We do acknowledge, however, that we 

have excepted APC 0046 from the two 

times rule for several years, as we will 

again for CY 2006. This is a large APC 

to which many procedures are assigned, 

and the median costs of the significant 

procedures in this APC range from a low 

of about $1,231 to a high of 

approximately $3,460. We will ask the 

APC Panel at its next biannual meeting 

to consider whether this APC could be 

reconfigured to improve its clinical and 

resource homogeneity. 

c. Intradiscal Annuloplasty (APC 0203) 

Comment: During the August 2005 

meeting of the APC Panel, there was one 

presentation by a provider in support of 

a higher payment amount for intradiscal 

annuloplasty procedures. The presenter 

provided clinical and cost information 

to the Panel and stated that the 

procedures’ current assignments to APC 

0203 (Level IV Nerve Injections) did not 

describe the clinical features or hospital 

resources associated with CPT codes 

0062T (Percutaneous intradiscal 

annuloplasty, any method, unilateral or 

bilateral including fluoroscopic 

guidance; single level) and 0063T 

(Percutaneous intradiscal annuloplasty, 

any method, unilateral or bilateral 

including fluoroscopic guidance; one or 

more additional levels). Further, the 

presenter suggested that a more 

appropriate APC assignment that would 

achieve more clinical and hospital 

resource homogeneity would be either 

APC 0050 (Level II Musculoskeletal 

Procedures except Hand and Foot), or 

APC 0051 (Level III Musculoskeletal 

Procedures except Hand and Foot). The 

APC Panel agreed with the presenter 

and recommended that CMS assign the 

procedure to either APC 0050 or 0051. 

Commenters on our proposed rule 

also requested that CMS assign CPT 

codes 0062T and 0063T to an APC that 

more accurately reflects the level of the 

procedures’ resource use. The 

commenters also suggested that 

placement in either APC 0050 or 0051 

would be the most appropriate from 

both clinical and payment aspects. 

They, like the presenter to the APC 

Panel, believed that a musculoskeletal 

APC was a more clinically accurate 

description of the procedure than its CY 

2005 assignment with nerve injections 

in APC 0203. 

Response: CPT codes 0062T and 

0063T were new for January 2005. Thus, 

we had no hospital claims data upon 

which to base our APC assignment of 

these procedures, and we were 

interested in the additional information 

that was provided to us for our CY 2006 

update to the OPPS. Commenters 

indicated that performance of the 

procedures requires a single use 

electrothermal catheter that costs more 

than $1,000 and operating room time of 

one hour. In addition, other more costly 

capital equipment is required in 

comparison with procedures assigned to 

68608 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

APC 0203. The presenter to the APC 

Panel stated that the procedure costs 

range from $4,000 to about $7,000. 

We found the information provided in 

the APC Panel presentation and the 

public comments to the proposed rule, 

in addition to the APC Panel’s 

recommendation and historical hospital 

claims data regarding other services 

payable under the OPPS, to be 

convincing in favor of assignment of 

this procedure to APC 0050, with an 

APC median cost of $1,423 for CY 2006. 

We agree that placement in APC 0050 

will result in more accurate payment 

and more APC clinical homogeneity for 

the procedure. For our CY 2007 update, 

we will have hospital claims data for the 

procedure and we will reevaluate the 

assignment. 

d. Kyphoplasty (APC 0051) 

Comment: Two commenters on the 

November 15, 2004 final rule with 

comment period (69 FR 65681), a device 

manufacturer and an orthopedic 

surgeon, commended CMS for creating 

C-codes (HCPCS codes C9718 

Kyphoplasty, one vertebral body, 

unilateral or bilateral injection; and 

C9719, Kyphoplasty, each additional 

vertebral body) for this procedure in the 

hospital outpatient setting. The 

commenters stated, however, that 

placement in APC 0051, Level III 

Musculoskeletal Procedures Except 

Hand and Foot, (CY 2005 payment rate 

of $2,043) does not appropriately reflect 

the hospital resources used in 

performing these procedures, and that 

these assignments violate the two times 

rule because the resources associated 

with kyphoplasty are more than two 

times the cost of the resources for 

procedures in APC 0051. Both 

commenters recommended that 

kyphoplasty procedures be placed in 

APC 0425, Level II Arthroplasty with 

Prosthesis, at a CY 2005 payment rate of 

$5,562 in order to better reflect the 

clinical features and resources needed 

to perform the procedures. One 

commenter alternatively suggested 

creating a new APC solely for 

kyphoplasty. 

Additionally, these two commenters 

also submitted new comments to the 

July 25, 2005 proposed rule containing 

new recommendations pertaining to the 

same issues. The commenters 

recommended that CMS either reassign 

kyphoplasty procedures to APC 0681 

(Knee Arthroplasty) with a payment rate 

of $8,103 or create a new APC for 

kyphoplasty titled ‘‘Vertebral spinal 

augmentation and stabilization using 

balloon inflation’’ with a payment rate 

of $8,750. They also repeated their prior 

recommendation to place kyphoplasty 

services in APC 0425; however, one 

commenter suggested that this should 

only be a ‘‘stop gap measure’’ for one 

year until CMS can gather claims data. 

This commenter also recommended that 

if the CPT codes for kyphoplasty have 

a status indicator of ‘‘T,’’ they should 

then be placed in the same APC, as the 

add-on code would be subject to the 

multiple procedure reduction. The 

commenters reasoned that movement to 

a new APC would better reflect the 

clinical resources used and referenced 

outside data showing hospital median 

charges that range from $4,500 to 

$41,000, with an average charge of 

approximately $15,700. 

A third individual commenter 

representing a hospital recommended 

that CMS either increase reimbursement 

for kyphoplasty, or change its status 

indicator to ‘‘C’’ to be more consistent 

with InterQual ‘‘Guidelines for Surgery 

and Procedures in the Inpatient Setting’’

and the Ingenix Cross Coder. 

Response: For CY 2005, CMS created 

two C-codes for the kyphoplasty 

procedure: C9718 Kyphoplasty, one 

vertebral body, unilateral or bilateral 

injection and HCPCS code C9719 

Kyphoplasty, one vertebral body, 

unilateral or bilateral injection; each 

additional vertebral body (List 

separately in addition to code for 

primary procedure). These procedures 

were placed in APC 0051 with a ‘‘T’’

status indicator because we believed 

that this APC was appropriate for these 

procedures in terms of clinical 

characteristics and resource costs. 

Though we do not yet have claims 

data, we have been told that a bone 

biopsy is performed more than half the 

time in addition to the kyphoplasty 

procedure. For CY 2005, under the 

OPPS the bone biopsy could be billed 

separately along with one or more of the 

kyphoplasty C-codes. The typical deep 

bone biopsy code used for a vertebral 

body procedure, CPT code 20225, was 

assigned to APC 0020 (Level II Excision/ 

Biopsy), which had a ‘‘T’’ status 

indicator and a payment rate of $434 for 

CY 2005. Both the biopsy and 

kyphoplasty procedures had a status 

indicator of ‘‘T’’; therefore, when 

performed together the hospital would 

receive fifty percent of the payment rate 

for the bone biopsy ($217). We have 

been told that hospitals typically also 

bill one or more fluoroscopy codes for 

necessary guidance, such as CPT codes 

76003 (Fluroscopic guidance for needle 

placement), or 76005 (Fluroscopic 

guidance and localization of needle or 

catheter tip for spine or paraspinous 

diagnosis or therapeutic injection 

procedures, including neurolytic agent 

destruction), along with the kyphoplasty 

procedure, and we note that these 

fluoroscopic services were packaged for 

CY 2005. Thus, for CY 2005 payment to 

a hospital providing a single level 

kyphoplasty procedure and billing 

packaged fluoroscopic guidance that 

was also accompanied by a bone biopsy 

would be about $2,260. 

For CY 2006, several new CPT codes 

were created to describe the 

kyphoplasty procedure. These codes 

are: 

• CPT 22523—Percutaneous vertebral 

augmentation, including cavity creation 

(fracture reduction and bone biopsy 

included when performed) using 

mechanical device, one vertebral body, 

unilateral or bilateral cannulation (e.g., 

kyphoplasty); thoracic 

• CPT 22524—Percutaneous vertebral 

augmentation, including cavity creation 

(fracture reduction and bone biopsy 

included when performed) using 

mechanical device, one vertebral body, 

unilateral or bilateral cannulation (e.g., 

kyphoplasty); lumbar 

• CPT 22525—Percutaneous vertebral 

augmentation, including cavity creation 

(fracture reduction and bone biopsy 

included when performed) using 

mechanical device, one vertebral body, 

unilateral or bilateral cannulation (e.g., 

kyphoplasty); each additional thoracic 

or lumbar vertebral body (List separately 

in addition to code for primary 

procedure) 

CPT codes 22523 and 22524 generally 

correspond to C code C9718, and CPT 

code 22525 generally corresponds to C 

code C9719. We will be deleting the two 

kyphoplasty C-codes for CY 2006, and 

hospitals will use the appropriate CPT 

codes to bill for kyphoplasty services. 

The new CPT codes include a bone 

biopsy when performed so hospitals 

will no longer separately bill CPT code 

20225 when a bone biopsy accompanies 

a kyphoplasty procedure. 

CPT code 76012 (Radiological 

supervision and interpretation, 

percutaneous vertebroplasty or vertebral 

augmentation including cavity creation, 

per vertebral body; under fluoroscopic 

guidance) for fluoroscopic guidance also 

has changed in definition for CY 2006 

to include specific reference to vertebral 

augmentation including cavity creation, 

which is characteristic of the 

kyphoplasty procedure. For CY 2006, 

hospitals using fluoroscopic guidance 

for kyphoplasty would bill CPT code 

76012, which has a status indicator S 

and is assigned to APC 0274 for 

calendar year CY 2006 with a payment 

rate of $173.53. Thus, while a hospital 

providing a kyphoplasty service in CY 

2006 will no longer receive separate 

payment under the OPPS for an 

accompanying bone biopsy, hospitals 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68609 

will be able to bill for and receive 

separate payment for necessary 

fluoroscopic guidance. Thus, if there 

were no change for CY 2006 in the 

assignment of kyphoplasty services to 

APC 0051, as they were initially placed 

for CY 2005, payment to a hospital 

providing a single level kyphoplasty 

procedure and billing separately 

payable fluoroscopic guidance that was 

also accompanied by a bone biopsy 

would be about $2,352. 

Based on modifications in coding 

associated with the change from C-codes 

to new CPT codes and additional 

clinical and hospital resource 

information, we believe it is appropriate 

to move the kyphoplasty procedures 

from APC 0051 to another APC for CY 

2006. As we originally developed Ccodes for outpatient hospital billing of 

kyphoplasty services after extensive 

clinical review, we do not agree with 

one commenter that kyphoplasty should 

by placed on the OPPS inpatient list. In 

addition, as kyphoplasty procedures do 

not entail implantation of a prosthesis, 

we do not agree with the commenters 

that kyphoplasty is comparable to 

services that require a prosthesis and, 

therefore, we will not place the new 

CPT codes in APC 0425 (Level II 

Arthroplasty with prosthesis). We also 

will not place the new CPT codes in 

APC 0681 (Knee arthroplasty) because 

we do not believe that the services are 

clinically coherent with knee 

arthroscopy procedures, and because we 

do not believe that resources required 

for kyphoplasty warrant that level of 

payment. We also will not create a 

separate APC solely for kyphoplasty 

procedures because we have no claims 

data from CY 2004 upon which to base 

a calculation of median cost for such an 

APC. 

After considering the additional 

comments submitted, we have decided 

to place CPT codes 22523, 22524, and 

22525 in APC 0052 (Level IV 

Musculoskeletal Procedures Except 

Hand and Foot) for CY 2006, based on 

clinical and resource compatibility with 

other procedures assigned to that APC. 

We agree with the commenters that the 

initial level procedures and the add-on 

code for each additional level should be 

assigned to the same ‘‘T’’ status APC. 

Although we received outside data on 

hospital charges and costs for this 

procedure, the data that was presented 

to us was highly variable in terms of 

charges and presented cost data for only 

one hospital. We will examine the 

median costs from hospital claims data 

for these services when it becomes 

available for the CY 2007 OPPS update. 

e. Neurostimulator Electrode 

Implantation (APCs 0040 and 0225) 

Comment: Commenters, including the 

APC Panel, recommended that the 

services currently assigned to APCs 

0040 (percutaneous implantation of 

neurostimulators electrodes, excluding 

cranial nerve) and 0225 (implantation of 

neurostimulators electrodes, cranial 

nerve) be reorganized into three APCs, 

based on clinically coherent groupings 

of percutaneous, laminectomy or 

incision, and cranial neurostimulator 

electrode implantation. They indicated 

that such a realignment would enhance 

clinical and cost congruence of the 

procedure groupings. Other commenters 

objected to the reassignment of CPT 

code 63655 from APC 0225 to APC 

0040. 

Response: We agree with the proposal 

for creation of a new neurostimulator 

electrode implantation APC and have 

made the change. CPT codes 63655 

(from APC 0225), 64575 (from APC 

0040), 64577 (from APC 0225), 64580 

(from APC 0225) and 64581 (from APC 

0040) have been reassigned to newly 

created APC 0061 (Laminectomy or 

incision for implantation of 

neurostimulators electrodes, excluding 

cranial nerve). 

See section IV. A. for our discussion 

of adjustments to median costs for 

device-dependent APCs. See Table 16 

for the adjusted median costs for APCs 

0040, 0225 and 0061 for CY 2006. 

f. Neurostimulator Generator 

Implantation (APC 0222) 

Comment: Commenters indicated that 

the proposed payment for 

neurostimulator generator implantation 

is inadequate and that CMS should use 

external data to set the payment rates. 

They explained that if payment rates 

were not increased, providers would 

cease providing the services. They asked 

that CMS set the median cost at the CY 

2005 OPPS payment median inflated by 

the market basket. 

Response: The proposed payment for 

APC 0222 (Implantation of neurological 

device) was based on a median cost that 

was set at 85 percent of the CY 2005 

payment median. As with some other 

device-dependent APCs, the median 

cost on which the CY 2006 OPPS 

payment rate will be based will be set 

at 90 percent of the CY 2005 OPPS 

payment median. See the discussion of 

device-dependent APCs in section IV.A 

of this preamble. 

Comment: Commenters objected to 

the payment for rechargeable 

neurostimulators under APC 0222 

because they said that the payment rate 

for APC 0222 is inadequate for the 

payment of nonrechargeable devices, 

and that hospitals will not permit 

implantation of the rechargeable 

neurostimulators for this inadequate 

payment. They stated that CMS 

recognized the need for additional 

payment for rechargeable 

neurostimulators when it provided a 

new technology add-on payment under 

the IPPS for 2006, and that CMS should 

create a new category for rechargeable 

neurostimulators and should grant passthrough status for rechargeable 

neurostimulators for the CY 2006 OPPS. 

Response: CMS does not announce 

decisions regarding pass-through status 

in regulations. There are many new 

items and services that fall under 

existing categories and pass-through 

status for each is determined on the 

merits of the specific application. When 

and if pass-through status for 

rechargeable neurostimulators is 

granted, it will be implemented through 

the OCE with creation of an appropriate 

category and status indicator 

assignment. Additions to the items 

qualifying for pass-through status are 

announced in quarterly updates of the 

OPPS claims processing and billing 

instructions sent to our contractors and 

posted on the CMS Web site. 

g. Thoracentesis/Lavage (APC 0070) 

Comment: One commenter said that 

CPT code 32019 (Insert pleural catheter) 

should be assigned to APC 0652 

(Insertion of intraperitoneal catheters) 

because the clinical and resource 

characteristics of APC 0652 are more 

appropriate to CPT code 32019 than are 

the characteristics of APC 0070, the 

code’s placement for CY 2005. The 

commenter indicated that APC 0070 is 

not an appropriate placement for CPT 

code 32019 because it is not like CPT 

code 32020 (tube thoracostomy with or 

without water seal) to which it is often 

compared and is assigned to APC 0070. 

The commenter stated that CPT code 

32020 is a short term procedure, 

typically done at bedside with a single 

percutaneous incision, and uses a 

catheter with a simpler and different 

design. The commenter stated that CPT 

code 32019 is a long term procedure, 

typically done in a treatment room, 

using multiple incisions and 

subcutaneous tunneling, and a catheter 

with a more complex design. The 

commenter did not specifically describe 

the clinical or resource characteristics of 

APC 0652 that justify the conclusion 

that CPT code 32019 is more 

appropriately placed in APC 0652. 

Response: We agree that the 

procedure reported by CPT code 32019 

is likely more resource intensive than 

CPT code 32020 and other higher 

68610 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

volume codes in APC 0070. Therefore, 

we are reassigning CPT code 32019 to 

APC 0427 (level III tube changes and 

repositioning) for the CY 2006. We do 

not agree that it is necessarily similar in 

resource use to the insertion of 

intraperitoneal catheter or cannula 

procedures currently assigned to APC 

0652. We will examine the claims data 

for this code and review that decision 

when there are claims data for the code, 

which was new for CY 2004 and for 

which no cost data are available for use 

in the CY 2006 OPPS. 

5. Other Services 

a. Allergy Testing (APC 0370) 

A number of providers have 

expressed confusion related to the 

reporting of units for allergy testing 

described by CPT codes 95004 through 

95078. Most of the CPT codes in the 

code range are assigned to APC 0370 

(Allergy Tests) for the CY 2005 OPPS. 

Nine of those CPT codes instruct 

providers to specify the number of tests 

or use the singular word ‘‘test’’ in their 

descriptors, while five of them do not 

contain such an instruction or do not 

contain ‘‘tests’’ or ‘‘testing’’ in their 

descriptors. Some providers have stated 

that the lack of clarity related to the 

reporting of units has resulted in 

erroneous reporting of charges for 

multiple allergy tests under one unit 

(that is, ‘‘per visit’’) for the CPT codes 

that instruct providers to specify the 

number of tests. 

In light of the variable hospital billing 

that may be inconsistent with the CPT 

code descriptors, we carefully examined 

the CY 2004 single and multiple 

procedure claims data for the allergy 

test codes that reside in APC 0370 to set 

the CY 2006 payment rates. Our 

examination of the CY 2004 claims data 

revealed that many of the services for 

which providers billed multiple units of 

an allergy test reported a consistent 

charge for each unit. Conversely, some 

providers that billed only a single unit 

of an allergy test reported a charge many 

times greater than the ‘‘per test’’ charge 

reported by providers billing multiple 

units of an allergy test. 

Our analysis of the claims data 

appeared to validate reports made by a 

number of providers that the charges 

reported on many of the single 

procedure claims represent a ‘‘per visit’’

charge, rather than a ‘‘per test’’ charge, 

including claims for the allergy test 

codes that instruct providers to specify 

the number of tests. Because the OPPS 

relies only on these single procedure 

claims in establishing payment rates, we 

believed that this inaccurate coding 

would have resulted in an inflated CY 

2006 median cost for services that were 

in the CY 2005 configuration of APC 

0370. 

Therefore, we proposed to move the 

allergy test CPT codes that instruct 

providers to specify the number of tests 

or use the singular word ‘‘test’’ in their 

descriptors from APC 0370 to proposed 

APC 0381 (Single Allergy Tests) for CY 

2006. We proposed to calculate a ‘‘per 

unit’’ median cost for proposed APC 

0381 using a total of 306 claims 

containing multiple units or multiple 

occurrences of a single CPT code. 

Packaging on the claims was allocated 

equally to each unit of the CPT code. 

Using this ‘‘per unit’’ methodology, we 

proposed a median cost for APC 0381 of 

$11 for CY 2006. Because we believed 

the single procedure claims for the 

codes remaining in APC 0370 reflected 

accurate coding of these services, we 

proposed to use the standard OPPS 

methodology to calculate the median for 

APC 0370. Table 12 as published in the 

proposed rule (70 FR 42711) listed the 

proposed assignment of CPT codes to 

APC 0370 and proposed APC 0381 for 

CY 2006. 

We received one public comment 

concerning our proposed policy changes 

for allergy test procedures. 

Comment: One commenter supported 

our proposal to move the allergy test 

CPT codes into two APC configurations 

to differentiate between CPT codes that 

represent ‘‘per visit’’ and ‘‘per test’’

services. 

Response: We agree with the 

commenter that differentiating single 

allergy tests (‘‘per test’’) from multiple 

allergy tests (‘‘per visit’’) by assigning 

these services to two different APCs 

provides hospital coders with better 

clarity for billing these services and 

more accurately places these tests with 

like services sharing similar resource 

costs. Therefore, for CY 2006, we are 

finalizing our proposal to assign single 

allergy tests to newly established APC 

0381 and maintaining multiple allergy 

tests in APC 0370. We expect that the 

improved clinical and resource 

homogeneity of these APCs, along with 

improved hospital coding of these 

services, will result in more accurate 

claims data for setting the CY 2008 

payment rates for these services. In the 

meantime, for CY 2006, we are 

finalizing our proposal to calculate a 

‘‘per unit’’ median cost for APC 0381 

using a total of 340 claims containing 

multiple units or multiple occurrences 

of a single CPT code. Using this ‘‘per 

unit’’ methodology, we are setting the 

payment rate for APC 0381 based on a 

median cost of $11 for CY 2006. Because 

we believe the single procedure claims 

for the codes remaining in APC 0370 

reflect accurate coding of these services, 

we are finalizing our proposal to use the 

standard OPPS methodology to 

calculate the median for APC 0370. 

Table 15 lists the assignment of CPT 

codes to APCs 0370 and 0381 for CY 

2006. We will be providing billing 

guidance to hospitals in CY 2006 

clarifying the billing of allergy testing 

services under the OPPS that should be 

reported with charges per test rather 

than per visit, so that the accuracy of 

hospital claims data improves and 

allows us in the future to calculate 

median costs for both APCs 0370 and 

0381 using our standard OPPS process. 

TABLE 15.—ASSIGNMENT OF CPT CODES TO APC 0370 AND APC 0381 FOR CY 2006 

APC 0370 APC 0381 

95056, Photosensitivity tests .................................................................... 95004, Percutaneous allergy skin tests. 

95060, Eye allergy tests ........................................................................... 95010, Percutaneous allergy titrate test. 

95078, Provocative testing ....................................................................... 95015, Intradermal allergy titrate-drug/bug. 

95180, Rapid desensitization ................................................................... 95024, Intradermal allergy test, drug/bug. 

95199U, Unlisted allergy/clinical immunologic service or procedure ....... 95027, Intradermal allergy titrate-airborne. 

95028, Intradermal allergy test-delayed type. 

95044, Allergy patch tests. 

95052, Photo patch test. 

95065, Nose allergy test. 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68611 

b. Apheresis (APC 0112) 

Comment: Several commenters 

commended our proposal to reassign 

CPT code 36515 (Therapeutic apheresis; 

with extracorporeal immunoadsorption 

and plasma reinfusion) from APC 0111 

(Blood product exchange) to APC 0112 

(Apheresis, Photopheresis, and 

Plasmapheresis) for CY 2006. These 

commenters stated that the resource 

requirements and the clinical 

characteristics of CPT code 36515 more 

closely resemble the services assigned to 

APC 0112. However, these commenters 

expressed concern that the proposed 25 

percent reduction in payment for APC 

0112 (from $2,127 in CY 2005 to $1,590 

proposed for CY 2006) will not cover 

the costs associated with the disposable 

supplies, specially trained medical staff, 

and equipment used in conjunction 

with the services assigned to APC 0112 

and described by CPT codes 36515, 

36516 (Therapeutic apheresis; with 

extracorporeal selective adsorption or 

selective filtration and plasma 

reinfusion), and 36522 (Photopheresis, 

extracorporeal). For example, 

commenters explained that the cost of 

the disposable supplies alone for CPT 

codes 36515 and 36516 nearly equals 

the proposed payment for APC 0112. 

One commenter provided practice 

expense information from the Medicare 

Physician Fee Schedule to substantiate 

supply costs of over $1,400 for CPT 

codes 36515 and 36516 and over $900 

for CPT code 36522. Many commenters 

alleged that over half the hospitals 

reporting claims for CPT codes 36515 

and 36516 in CY 2004 did not fully 

reflect the costs of the disposables in 

their charges for the procedure. Some of 

these commenters stated that hospitals 

that charge separately for the 

disposables are likely to charge more 

accurately for the full procedure than 

hospitals that bundle the entire costs of 

the disposable supplies into their charge 

for the procedure. These commenters 

urged that CMS set the payment rate for 

APC 0112 based only on claims where 

separate charges for supplies have been 

identified. Other commenters 

recommended that we exclude the CY 

2004 claims data for CPT codes 36515 

and 36516 and set the payment rate for 

APC 0112 based solely on the claims for 

CPT code 36522, whose proposed CPT 

code median cost appeared to be 

accurate to the majority of commenters. 

In addition, several commenters urged 

that we reexamine our calculation of the 

median cost for APC 0112 for errors in 

the computation, due to their 

observation that the proposed median 

cost of APC 0112 was significantly 

lower than the proposed median cost for 

CPT code 36522, which comprised 83 

percent of the single claims used to set 

the proposed payment rate for APC 

0112. 

One commenter noted that CPT code 

36516 is utilized for billing LDLapheresis treatments, and expressed 

concern that only 40 percent of the CY 

2004 claims used to calculate the 

proposed payment for CPT code 36516 

actually reported diagnoses consistent 

with LDL-apheresis treatments on the 

claim. This commenter provided a list 

of hospitals which the commenter 

believed to be misreporting CPT code 

36516, based on the commenter’s 

experience as a distributor and 

knowledge of the market, and requested 

that we exclude the claims for CPT 

codes 36515 and 36516 submitted by 

these providers when calculating the 

payment rate for APC 0112. Another 

commenter provided a detailed analysis 

of the claims for CPT codes 36515, 

36516, and 36522 that we used to 

calculate the proposed payment rate for 

APC 0112. Based on this claims 

analysis, of the 24 providers that billed 

CPT code 36515, 29 percent reported 

costs for the entire procedure at or 

below $170, and 67 percent reported 

medical supply costs at or below $1,412. 

The commenter also noted that nearly 

half of the single claims for CPT code 

36515 were not billed with ICD–9 codes 

that supported the medical necessity of 

protein A column apheresis, leading the 

commenter to conclude that such 

providers were miscoding the services 

they performed. For instance, the 

commenter suspected that several 

hospitals may have incorrectly billed 

CPT code 36515 when reporting the 

collection of venous blood by 

venipuncture (CPT code 36415) based 

on the charges reported by these 

hospitals matching a typical charge for 

venipuncture. Further claims analysis 

also revealed that, of the 46 providers 

that billed CPT code 36516, 63 percent 

reported medical supply costs at or 

below $1,485. Furthermore, the 

commenters said that only 44 percent of 

the single claims for CPT code 36516 

were billed with ICD–9 diagnosis codes 

that supported the medical necessity of 

LDL-apheresis. The commenter 

concluded that the underreporting of 

costs and assignment of inappropriate 

ICD–9 diagnosis codes to claims 

reporting CPT codes 36515 and 36516 

were strong indicators that many 

providers failed to include the charges 

for medical supplies on the claims for 

CPT codes 36515 and 36516 or 

miscoded the services they provided. 

Several commenters suggested that 

because the procedures assigned to APC 

0112 utilize device systems to modify or 

selectively remove agents from the 

blood, these services should be treated 

in a manner similar to either device 

dependent APCs or blood and blood 

products. For instance, commenters 

recommended that we apply the same 

methodology to APC 0112 as we 

proposed to apply to blood and blood 

products, limiting the decrease in 

median cost to 10 percent on the basis 

that the services assigned to APC 0112 

could be considered closely related to 

blood and blood products. 

Alternatively, these commenters 

suggested that we should consider 

treating APC 0112 as a device 

dependent APC, limiting the decrease in 

median cost to 15 percent on the basis 

that the device systems are integral to 

the procedures assigned to APC 0112 

and comprise a significant cost 

component of these procedures. One of 

these commenters urged that we add 

APC 0112 to the list of device 

dependent APCs, and set the payment 

floor at 100 percent of the CY 2005 

payment rate plus the market basket 

update for all device dependent APCs. 

Response: We appreciate commenters’

concerns that we use accurate and 

complete claims data to develop the 

median cost to set the payment rate for 

APC 0112 for CY 2006. In response to 

requests by several commenters that we 

reexamine our calculation of the median 

cost for APC 0112, we closely studied 

the single claims charge and cost 

distributions for CPT codes 36515, 

36516, and 36522, those single claims 

we used to set the payment rate for APC 

0112. First, we noted that we had 4,828 

single bills drawn from a total of 6,071 

bills for services in APC 0112, allowing 

us to use approximately 80 percent of 

all claims in establishing the median 

cost for APC 0112. This large percentage 

of single bills held true for each of the 

3 CPT codes assigned to the APC as 

well. The availability of almost 5,000 

single bills for rate setting, a 15 percent 

increase over the number of single bills 

available for the CY 2005 OPPS update, 

increases our confidence in the accuracy 

of the median cost of APC 0112 

calculated for CY 2006. 

Next, we confirmed that we made no 

errors in the calculation of the APC 

median cost. The apparent 

inconsistency between the relatively 

high median cost of CPT code 36522, 

which provided the majority of single 

claims for APC 0112, and the relatively 

lower APC median cost was explained 

by the observed distribution of costs of 

single claims for all of the services 

assigned to APC 0112. Almost half of 

the costs of single claims for CPT code 

36522 are closer to the APC median. 

The cost of single claims for CPT code 

68612 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

36522 at the 45th percentile is 

$1,597.45. We applied all of our usual 

processes, including standard trimming, 

to the calculation of the APC median 

cost. 

In our analysis of the distributions of 

costs from claims for all three CPT 

codes assigned to APC 0112, we 

observed that CPT code 36515, in 

particular, had some claims with very 

low costs of less than $200 up through 

the 50th percentile of claims costs. 

While, in the commenters’ opinions, 

claims with even higher costs could not 

have represented the full costs of the 

procedures, we were not confident that 

we had reason to exclude claims with 

higher costs in calculating the median 

cost of APC 0112. Therefore, we 

identified 12 hospital providers 

submitting claims for CPT code 36515 

with the lowest fifteen percent of costs 

and then recalculated the median cost 

for APC 0112, excluding all claims for 

CPT code 36515 reported by these 12 

providers. We found essentially no 

change in the median cost of APC 0112 

in this recalculation, as compared with 

its median cost based on all single 

claims. 

Because commenters suggested that 

we set the APC median cost using only 

claims with medical supply revenue 

code charges, we proceeded to analyze 

all single claims for APC 0112 for the 

presence of separate line item charges 

under revenue codes 270 (Medical/ 

Surgical Supplies) and 272 (Sterile 

Supplies) that could most likely 

represent separate charges for the costly 

disposables that commenters indicated 

are required for all 3 CPT codes 

assigned to the APC. The median cost 

for claims with medical supply revenue 

code charges is higher, at $2,800, 

compared with the median cost for 

claims without medical supply revenue 

code charges, $1,400. However, we do 

not believe it is appropriate to subset 

the claims based on the presence of 

medical supply revenue code charges 

for calculating the median APC cost for 

several reasons. First, we noted that 

between 80 and 90 percent of the single 

claims for each CPT code and, 

consequently, of all single bills used to 

estimate the median cost for APC 0112 

did not have separate charges under one 

of the two specified revenue codes. This 

is fully consistent with our past 

guidance to hospitals that it is 

appropriate to bundle the costs of all 

supplies (excluding implantable devices 

with active device codes) into the line 

item charges for the procedures with 

which they were used. For those claims 

billed with charges in the 270 and 272 

medical supply revenue codes, we 

observed that the specific median cost 

associated with those revenue codes 

was only $349. Because this median 

cost is well below the approximately 

$900–1,400 cost commenters expected 

for the disposable supplies, we are not 

convinced that the bills with separate 

revenue code charges are truly more 

reflective of the full costs of the 

apheresis procedures. Finally, we 

observed that there were actually higher 

total costs in the distribution of those 

claims without separate billing of 

revenue code charges, up to $12,296 in 

comparison with a maximum of $10,131 

for those claims with separate revenue 

codes charges. Considering the small 

percentage of providers reporting 

separate supply charges for CPT codes 

36515, 36516, and 36522 under revenue 

codes 0270 and 0272, and the low 

median cost for such revenue code 

charges, the majority of providers 

appear more likely to have included 

their disposable supply charges in their 

overall charges for the procedures rather 

than to have reported such charges 

under a supply revenue code. We have 

no reason to believe, based on our 

analysis, that the claims with separate 

charges for supplies are more correctly 

coded or more accurately reflective of 

the costs of services assigned to APC 

0112. 

In conclusion, we are not making any 

adjustments to our standard processes 

for developing APC median costs for CY 

2006 for APC 0112. We will not screen 

claims for the presence of specified 

diagnoses that the commenters feel are 

appropriately treated with these 

procedures and assume that all other 

claims are miscoded. The three services 

treat a number of different medical 

conditions, and while there are some 

local coverage policies for the 

procedures, it would be difficult to 

identify the correct ICD–9 diagnosis 

coding for those claims reflecting all of 

the cases of appropriate utilization of 

these services. We are not calculating 

the payment rate for APC 0112 based 

solely on those claims where separate 

charges for supplies have been 

identified. Although we recognize that 

some of the charges reported for CPT 

codes 36515 and 36516 in particular are 

unexpectedly low, we disagree with 

those commenters who asserted that the 

hospital claims data for CPT codes 

36515 and 36516 are flawed to the 

extent that would justify discarding all 

such claims and basing the payment rate 

for APC 0112 solely on claims for CPT 

code 36522. We will not exclude all 

claims for two of the three procedures 

assigned to APC 112 to calculate the 

APC’s median cost, because we believe 

that the APC median cost should reflect 

the variable costs of all services 

assigned to it. Consistent with details 

provided in the comments, we do not 

believe that the costs of procedures 

described by CPT codes 36515, 36516, 

and 36522 are the same, as the services 

are each provided using very specific 

disposable supplies for patients with 

different clinical conditions. In 

addition, we do not agree with those 

commenters who argued that the 

services described by CPT codes 36515, 

36516, and 36522 should be treated in 

a manner similar to either device 

dependent APCs or blood and blood 

products by mitigating their payment 

reductions. We do not consider a 

procedure requiring a disposable supply 

to be a device dependent APC, which 

utilizes implantable devices. In 

addition, we do not believe that the data 

concerns regarding these procedures 

that treat the blood are similar to the 

supply and availability challenges 

associated with maintaining the nation’s 

blood supply. Therefore, for CY 2006, 

we are applying our standard OPPS ratesetting methodology to all single claims 

for APC 0112, setting the payment rate 

for APC 0112 based on a median cost of 

$1,568. 

c. Audiology (APCs 0364, 0365, and 

0366) 

Comment: One commenter, an 

association representing audiologists, 

requested more detailed explanation for 

several proposed movements of CPT 

codes among APCs. We proposed for CY 

2006 to make the following APC 

migrations: CPT codes 92533 

(audiometry, air & bone) and 92572 

(staggered spondaic word test) from 

APC 0364 to APC 0365; CPT code 92561 

(Bekesy audiometry, diagnosis) from 

APC 0365 to APC 0364; and CPT code 

92577 (Stenger test, speech) from APC 

0365 to APC 0366. The commenter did 

not object to the changes. 

Response: With respect to proposed 

APC reassignments of services that are 

not specifically discussed in the 

proposed rule, in general we proposed 

changes to improve the clinical and 

resource homogeneity of the involved 

APCs, and, in particular, to address 

violations of the two times rule resulting 

from variable median costs. 

In this instance, CPT code 92561 was 

moved from the Level II Audiometry 

APC to the Level I Audiometry APC 

because the data from CY 2004 hospital 

claims showed that the code-specific 

median cost of $19 for CPT code 92561 

was most compatible with the median 

cost of APC 0364, at $27. To leave the 

code in APC 0365 would create a 

significant overpayment, and there was 

another clinically appropriate APC 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68613 

available. A similar rationale applied to 

CPT code 92577, whose code-specific 

median cost of $108 was more coherent 

with the median cost of APC 0366 

(Level III Audiometry) of $100 than the 

median cost of the Level II APC at $80. 

While we excepted APC 0364, the CY 

2005 APC assignment for CPT code 

92553, from the two times rule for CY 

2005, we proposed to move CPT code 

92553 to APC 0365 for CY 2006 to 

eliminate our need to except APC 0364 

from the two times rule for CY 2006. 

When compared with the median costs 

of other procedures in APC 0365, the 

median cost of CPT code 92553 of $43 

was reasonably consistent with the 

median costs of other codes assigned to 

APC 0365 and to the overall APC 

median cost of $71. Due to this code’s 

significant volume of single claims and 

stable median costs, we believed that it 

was appropriate to propose its 

reassignment based on both clinical and 

hospital resource considerations. We are 

finalizing our APC assignments for CPT 

codes 92561, 92577, and 92553 as 

proposed for CY 2006. 

We proposed to move CPT code 

92572 (staggered spondaic word test) 

from APC 0364 to APC 0365 for CY 

2006 because we believed that its 

resource requirements, as reflected in 

hospital claims data, were more 

consistent with other services assigned 

to APC 0365 than to procedures 

assigned to APC 0364. CY 2003 hospital 

claims data for CPT code 92572 revealed 

a median cost of about $100 based on 

19 single claims. CY 2004 claims data, 

based on 10 single claims, yielded a 

median cost of about $167. Although the 

median does not appear to be as stable 

for this code as the others discussed nor 

is the volume of claims large, upon 

review of final CY 2004 hospital claims 

data in response to this comment and 

examination of the clinical 

characteristics of the service, we believe 

that CPT code 92572 is most 

appropriately assigned to APC 0366 for 

CY 2006. Therefore, we will not finalize 

our proposal to move CPT code 92572 

to APC 0365, but will instead reassign 

the service to APC 0366 for the CY 2006 

OPPS. 

d. Bone Marrow Harvesting (APC 0111) 

Comment: Several commenters stated 

that the proposed payment of $735 for 

CPT code 38230 (Bone marrow 

harvesting for transplantation) does not 

adequately cover the costs of providing 

this service. These commenters called 

our attention to the large difference in 

the proposed median cost of $1,209 for 

CPT code 38230 and the proposed 

median cost of $747 for APC 0111, 

where CPT code 38230 resides. 

Commenters also noted the volatility of 

the CPT code median as a result of the 

extremely low frequency of 9 claims, 

noting that the costs of these claims 

ranged from $140 to $66,770. 

Commenters strongly urged CMS to 

reassign CPT code 38230 from APC 

0111 (Blood product exchange) to APC 

0123 (Bone marrow harvesting and bone 

marrow/stem cell transplant) to more 

accurately reflect the high cost of this 

procedure and to improve the clinical 

homogeneity of the two APCs, stating 

that the APC title for APC 0123 is more 

applicable to CPT code 38230 than the 

title of APC 0111. 

Response: Hospitals have reported a 

consistently low median costs for CPT 

code 38230 for the past several years, 

prompting us to reassign this service to 

a lower paying APC, from APC 0123 to 

APC 0111, for CY 2005. However, closer 

analysis of this code-specific low 

median cost leads us to suspect that a 

number of providers are likely billing 

this code for services that are not 

described by CPT code 38230, bone 

marrow harvesting for transplantation. 

Considering the typical clinical 

characteristics of the service, we would 

expect the costs of the necessary 

hospital resources to more closely 

approximate the median costs of 

services assigned to APC 0123 for CY 

2006. Therefore, we will return CPT 

code 38230 to APC 0123 for CY 2006. 

However, we will reevaluate the 

appropriateness of this APC assignment 

during the OPPS update for CY 2007. In 

the meantime, we advise providers to 

exercise greater care when reporting 

CPT code 38230 to ensure that this code 

is billed correctly only for services 

described by the CPT code and that all 

costs associated with providing the bone 

marrow harvesting procedure are 

included in charges on the claims for 

the service. 

e. Computer Assisted Navigational 

Procedures 

Comment: Two commenters 

expressed concern about computer 

assisted navigation for orthopedic 

procedures (CPT codes 0054T, 0055T, 

and 0056T). Both commenters were 

concerned that CMS had not assigned 

these procedures to an APC for OPPS 

payment, but instead had proposed their 

status indicators as ‘‘B’’ while another 

computer assisted navigational 

procedure, CPT code 61795 (Stereotactic 

computer assisted volumetric 

(navigational) procedure, intracranial, 

extracranial, or spinal), had previously 

been assigned status indicator ‘‘S’’ in 

APC 302 (Level III Radiation Therapy). 

Both commenters recommended that 

orthopedic computer assisted 

navigational procedures should be 

assigned to APC 0302 with the other 

computer assisted navigational 

procedures, or alternatively each 

procedure (CPT codes 61795, 0054T, 

0055T, and 0056T) should be placed in 

a new clinical APC with a payment rate 

equaling the payment rate of APC 0302. 

Response: We agree with the 

commenters that these computer 

assisted navigational procedures share a 

common technological theme in their 

clinical use during surgical procedures 

and may use comparable hospital 

resources. We, therefore, will place CPT 

codes 0054T, 0055T, and 0056T in APC 

0302 with CPT 61795 for CY 2006. We 

will also give APC 0302 a new name, 

‘‘Computer Assisted Navigational 

Procedures,’’ because the APC contains 

only these four services and is thus most 

appropriately described by that title. 

f. Hyperbaric Oxygen Therapy (APC 

0659) 

When hyperbaric oxygen therapy 

(HBOT) is prescribed for promoting the 

healing of chronic wounds, it typically 

is prescribed on average for 90 minutes, 

which would be billed using multiple 

units of HBOT to achieve full body 

hyperbaric oxygen therapy. In addition 

to the therapeutic time spent at full 

hyperbaric oxygen pressure, treatment 

involves additional time for achieving 

full pressure (descent), providing air 

breaks to prevent neurological and other 

complications from occurring during the 

course of treatment, and returning the 

patient to atmospheric pressure (ascent). 

The OPPS recognizes HCPCS code 

C1300 (Hyperbaric oxygen under 

pressure, full body chamber, per 30 

minute interval) for HBOT provided in 

the hospital outpatient setting. 

We explained in the August 16, 2004 

proposed rule (69 FR 50495) that our CY 

2003 claims data revealed that many 

providers were improperly reporting 

charges for 90 to 120 minutes under 

only one unit rather than three or four 

units of HBOT. This inaccurate coding 

resulted in an inflated median cost of 

$177.96 for HBOT, derived using single 

service claims and ‘‘pseudo’’ single 

service claims. Because of these single 

claims coding anomalies, we proposed 

to calculate a ‘‘per unit’’ median cost for 

APC 0659, using only multiple units or 

multiple occurrences of HBOT, 

excluding claims with only one unit of 

HBOT and excluding packaged costs. To 

convert HBOT charges to costs, we used 

the CCR from the respiratory therapy 

cost center when available; otherwise, 

we used the hospital’s overall CCR. 

Using this ‘‘per unit’’ methodology, we 

proposed a median cost for APC 0659 of 

$82.91 for CY 2005. 

68614 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

In the November 15, 2004 final rule 

with comment period (69 FR 65758), we 

agreed with commenters that there was 

sufficient evidence that the CCR for 

HBOT was not reflected solely in the 

respiratory therapy cost center; rather, 

the CCR for HBOT was reflected in a 

variety of cost centers. Therefore, we 

calculated a ‘‘per unit’’ median cost of 

$93.26 for HBOT, using only multiple 

units or multiple occurrences of HBOT 

and each hospital’s overall CCR. 

Our examination of the CY 2004 

single procedure claims filed for HCPCS 

code C1300 revealed similar coding 

anomalies to those encountered in the 

CY 2003 single procedure claims data. 

Therefore, for CY 2006 rate-setting, we 

recalculated a ‘‘per unit’’ median cost 

for HCPCS code C1300 using only 

multiple units or multiple occurrences 

of HBOT and each hospital’s overall 

CCR, which is the same methodology 

we used for setting the CY 2005 

payment rate for HBOT. Excluding 

claims with only one unit of HBOT, we 

used a total of 41,152 claims to calculate 

the proposed median for APC 0659 for 

CY 2006. Applying the methodology 

described above, we proposed a median 

cost for APC 0659 of $93.37 for CY 

2006. 

We received several public comments 

concerning our proposed APC payment 

for HBOT. 

Comment: Several commenters 

approved of our decision to rely on each 

hospital’s overall CCR rather than the 

respiratory therapy CCR in our 

calculation of HBOT median costs. 

However, the commenters noted that 

most hospitals providing HBOT services 

report the costs and charges associated 

with providing this service on a separate 

line of their cost report. These 

commenters further encouraged us to 

use the CCR specific to HBOT for 

hospitals that report HBOT separately. 

They also asked CMS to encourage 

hospitals not reporting costs and 

charges for HBOT separately, to do so in 

the future. 

Response: Unfortunately, the 

Healthcare Cost Report Information 

System (HCRIS), the electronic database 

of the Hospital Cost Report (CMS–2552–

96) that we use to estimate costs from 

charges, rolls up costs and charges on 

each hospital’s cost report into a 

standard list of cost centers. Because 

HBOT is not included on the standard 

list of cost centers, CMS does not have 

readily available information about the 

specific costs and charges that each 

institution garners in providing HBOT 

services. Until last year, we had 

hypothesized that most hospitals 

providing HBOT services reported the 

costs and charges for those services as 

a separate line item in their respiratory 

therapy cost center. Commenters 

convinced us that hospitals did not 

report their HBOT costs and charges in 

a uniform location on their cost report. 

In the final rule for CY 2005, we used 

the overall CCR for each hospital rather 

than the respiratory therapy CCR to 

calculate the median cost for HBOT 

(APC 0659). While we could encourage 

hospitals to report their costs and 

charges for HBOT separately, at this 

time extra effort by hospitals would not 

allow us to improve the accuracy of our 

HBOT median cost calculation because 

we lose line-item specificity when the 

data is entered into HCRIS. 

Comment: One commenter 

commissioned a study to analyze our 

rate-setting methodology and conducted 

an independent survey of hospitals that 

provide HBOT services. Surveys 

conducted in CYs 2004 and 2005 asked 

all hospitals providing HBOT services to 

identify the standard cost center 

associated with the line on their cost 

report where the hospital reports costs 

and charges for HBOT: 206 hospitals, or 

44 percent of all hospitals providing 

HBOT services, responded to one of the 

surveys. The commenter believes that 

the survey results are generalizable to 

all hospitals providing HBOT services 

because the demographics of those 

hospitals not responding to the surveys 

are comparable to those responding to 

the surveys. For each of the responding 

hospitals, the survey results provided 

the standard cost center on each 

hospital cost report. The study 

calculated an HBOT CCR for each 

hospital based on the costs and charges 

in the associated standard cost center, 

not just the costs and charges for HBOT. 

On the basis of these results, the study 

then generalized an HBOT CCR to the 

56 percent of hospitals not responding 

to the surveys. Specifically, the study 

simulated HBOT CCRs for each of the 

non-responding hospitals by applying a 

methodology that generalized to the 

non-responding hospitals HBOTspecific findings from similar hospitals. 

The study results led the commenter to 

conclude that the proposed median cost 

of $93.37 was too low, and that a more 

accurate estimate of median cost per 

unit is $118.94. On the basis of this 

analysis the commenter requested that 

CMS use the median cost of $118.94 to 

set the payment rate for APC 0659. The 

commenter noted that APC 0659, where 

the HCPCS code for HBOT (C1300) is 

assigned, is unusual as it is one of only 

a few APCs that contain only one 

HCPCS code. They concluded that as no 

averaging of the costs of services occurs, 

any changes in the median cost for 

C1300 in APC 0659 have a particularly 

great impact on the APC median, as 

compared to changes in the median cost 

for a procedure assigned to an APC to 

which multiple services are assigned. 

Response: We receive many 

submissions of external data from 

commenters supporting their requests 

for higher median cost estimates for 

specific procedures. In many cases, 

submitted data have not met the 

minimum standards required for setting 

payment rates. We have previously 

provided preferred characteristics of 

external data to be submitted in 

comments regarding devices (68 FR 

47987). While we have not specifically 

provided criteria for non-device external 

data, the subset of our published 

characteristics that could be applicable 

to a service such as HBOT include the 

public availability of the data, its 

representativeness of a diverse group of 

hospitals both by location and type, and 

its identification of its data sources. As 

part of the CY 2005 study, hospitals 

gave their consent for their 

identification and cost report 

information to be made public, an 

essential characteristic of data 

submitted as part of a public comment. 

The submitted HBOT CY 2005 survey 

data represent a varied group of 120 

hospitals, both by location and type of 

hospital, as well as 31 percent of the 

population of total hospitals providing 

HBOT services according to CY 2004 

hospital claims. Inclusion of HBOT 

survey data from the CY 2004 survey 

increases the response rate to 44 

percent. The survey results provide us 

with the specific standard cost center in 

which costs and charges for HBOT are 

located for the responding hospitals, 

allowing us to relate the HBOT charge 

data to cost-to-charge information 

provided in hospital cost reports for 

these hospitals. We are appreciative of 

this study in that it provides us with 

some useful information as we examine 

our payment for HBOT services. 

These survey results based on this 

modest response may, therefore, be 

representative of the 464 hospitals that 

submitted HBOT claims to the OPPS in 

CY 2004. However, only a small 

minority of OPPS hospitals actually 

provides HBOT services, and there is 

such significant regional variation in the 

frequency of billing of hospital 

outpatient HBOT services that it is 

unlikely to be fully explained by the 

different health characteristics of 

regional populations. We understand 

that HBOT may also be provided in 

freestanding centers, and the business 

decisions around its location may 

depend upon the local healthcare 

infrastructure. Therefore, while the 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68615 

responding hospitals may be similar to 

the non-responding hospitals with 

respect to hospital category and 

geographic location, we are not 

confident that these characteristics 

alone signify that the minority of 

responding hospitals is truly reflective 

of the relatively small number of OPPS 

providers billing for HBOT. In addition, 

we are not certain that comparability of 

hospitals with respect to their category 

and geographic location is related to 

individual hospital decisions about 

where to include HBOT costs and 

charges on their Medicare cost reports. 

Therefore, we are not convinced that it 

would be appropriate to generalize these 

HBOT cost center findings to nonresponding hospitals to calculate an 

adjusted payment rate for HBOT. 

In addition to our concern about 

generalizability based on the 

methodology discussed above, we have 

several additional reservations about 

employing the approach recommended 

by the commenter without the benefit of 

additional comment from other parties. 

First, employing this approach may 

establish an important precedent, which 

may well be cited by other commenters 

concerned with the median costs of 

other services. The OPPS is a 

prospective payment system that relies 

upon the coherent grouping of services 

that share clinical as well as resource 

utilization characteristics and the 

packaging of many ancillary services to 

determine payments. We are concerned 

that differentially employing methods 

that depend on additional external 

collection of information from hospitals 

may have unintended and potentially 

negative consequences in a payment 

system based on averages and relative 

values. It stands to reason that, as in the 

case of HBOT, commenters will only 

submit special surveys and proposals to 

refine rate-setting when they have at 

least a strong reason to believe that such 

customized methods will increase the 

rates for the specific services in which 

they are interested. In a budget-neutral 

payment system based on relative 

weights, this poses the risk that using 

this specific external information for 

select services will actually distort the 

process of establishing the relative 

weights in favor of some services but to 

the disadvantage of other services where 

such information is not available or not 

as potentially influential based on the 

APC assignments of those services. In a 

relative system such as the OPPS, it may 

be more important to employ a 

consistent set of data than to adopt 

specially ‘‘enhanced’’ data and methods 

for some services, but not for all services 

generally. Indeed, a consistent data set 

may be more likely to yield accurate 

relative values than a mixed data set 

consisting of both values calculated 

from hospital claims data and values 

determined by enhanced methods. 

Lastly, our capacity to review, 

evaluate, and adapt special approaches 

to increase payment levels for 

individual services in the OPPS is 

necessarily limited. Based on all of our 

concerns previously discussed, it is 

consequently important that we obtain 

some idea of the extent of other possible 

requests for use of special methods and 

non-claims based data to increase 

payment levels for particular services or 

groups of services before setting such a 

precedent for one specific OPPS service, 

where there appear to be no pressing 

access concerns based on our OPPS 

payment rates to date. Our hospital 

claims data reveal steadily increasing 

frequencies of HBOT claims, from 

101,843 services in CY 2002, to 188,604 

services in CY 2003, and once again to 

242,558 services in CY 2004. This more 

than doubling of HBOT services in 

hospital outpatient departments over a 

2-year time period indicates that 

Medicare beneficiaries are unlikely to be 

experiencing difficulty in accessing 

medically necessary HBOT services in 

the context of the OPPS payment rates 

for HBOT. 

Before we engage in further 

rulemaking, we therefore specifically 

invite input on other situations where 

special approaches may be appropriate 

and where high quality external data 

might be made available. We are 

interested in the possible merits of these 

other approaches and in potential 

criteria that we might use to assess 

when a special methodology should be 

employed. We believe these comments 

can help us to develop options for 

consideration for the CY 2007 OPPS 

update. In the meantime, we intend to 

continue our efforts to improve the 

precision of the OPPS relative weights 

by increasing our use of multiple 

procedure claims and refining our cost 

estimation process. 

While we solicit additional public 

comment on this subject matter, for CY 

2006 rate-setting we are finalizing our 

proposal to recalculate a ‘‘per unit’’

median cost for HCPCS code C1300 

using only multiple units or multiple 

occurrences of HBOT and each 

hospital’s overall CCR, which is the 

same methodology we used for setting 

the CY 2005 payment rate for HBOT. 

Excluding claims with only one unit of 

HBOT, we used a total of 47,101 claims 

to calculate the final median cost for 

APC 0659 for CY 2006. Applying the 

methodology described above, we are 

setting the final payment rate for APC 

0659 based on a median cost of $90.09 

for CY 2006. 

Comment: One commenter pointed 

out that they had difficulty replicating 

CMS’s median cost estimate, in part 

because the public dataset that we make 

available included cost data calculated 

with the respiratory therapy CCR, that 

the calculation of the ‘‘overall CCR’’ was 

not sufficiently defined in regulations to 

be replicated, and that using the cost 

centers marked with a ‘‘Y’’ on the 

‘‘Revenue Code to Cost Center 

Crosswalk Description’’ did not yield an 

overall CCR comparable to the one that 

we used. 

Response: We acknowledge the 

commenter’s concern regarding the 

accessibility and quality of data 

available to replicate CMS’s median cost 

calculations. While we believe that we 

have fulfilled our public obligation to 

provide access to data to support public 

comments, users of the data can 

sometimes identify improvements. We 

agree that the overall CCR calculation 

should be more transparent. We have 

provided additional information about 

this calculation both in the final rule 

under our discussion of APC median 

calculations and on our Web site. We 

also agree that we should have placed 

the hospital specific overall CCR to 

estimate costs for HBOT on our public 

use file. We will remedy this for the CY 

2007 rulemaking process. 

g. Ophthalmology Examinations (APC 

0601) 

Comment: One commenter, 

representing eye physicians and 

surgeons, agreed with our decision to 

exempt the APC 0235 (Level I Posterior 

Segment Eye Procedures) from the 2 

times rule for CY 2006. The commenter 

also agreed with our proposal to move 

several other ophthalmology procedures 

into higher paying APC groups (CPT 

codes 65265, 65285, 66220, 67025, 

67027, 67036, 67038, 67039, and 

67121). See 70 FR 42704, July 25, 2005 

for a table including the proposed 

changes. 

However, this commenter disagreed 

with the proposal to move CPT codes 

92004 (eye exam, new patient) and 

92014 (eye exam, established patient) 

from APC 0602 (High Level Clinic 

Visits) to APC 0601 (Mid Level Clinic 

Visits). The commenter urged CMS to 

reconsider this decision and keep these 

codes in APC 0602. 

Response: At its February 2005 

meeting, the APC Panel recommended 

that CMS restructure APCs 0601 and 

0602 to eliminate violations of the two 

times rule. At the time of the proposed 

rule for CY 2006, the available median 

cost data for these two codes showed 

68616 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

that the hospital resources for both 

codes were more homogenous with 

other services assigned to the mid level 

clinic visit APC 0601, as compared to 

services assigned to the high level clinic 

visit APC 0602. Keeping these codes in 

APC 0602 for CY 2006 would have 

resulted in significant overpayments for 

both codes based on historical hospital 

claims data. 

We now have additional claims data, 

reflecting more complete median costs 

for both codes from CY 2004 claims. 

Upon review of CPT code 92004, its 

median cost of $82 based on almost 

21,000 single claims is more consistent 

with the median costs of other services 

assigned to APC 0602 ($88), and 

assigning this code to APC 0602 for CY 

2006 would not cause a two times rule 

violation. We, therefore we will not 

finalize our CY 2006 proposal to move 

CPT code 92004 to APC 0601, but 

instead we will reassign CPT code 

92004 back to APC 0602 for CY 2006. 

However, the median cost of CPT code 

92014 ($67) based on nearly 100,000 

single claims remains more consistent 

with the median cost of APC 0601 ($60). 

Based on OPPS hospital claims data, 

hospitals are consistently reporting 

higher costs for comprehensive eye 

exams for new patients in comparison 

with comprehensive eye exams for 

established patients. These differences 

in costs likely result from the additional 

hospital resources required to provide 

eye exams to new patients, in keeping 

with current clinical practice. To return 

CPT code 92014 to APC 0602 for CY 

2006 would significantly overpay 

comprehensive eye examinations for 

established patients. We therefore 

finalize our CY 2006 proposal to assign 

CPT code 92014 to APC 0601. 

h. Pathology Services 

Comment: One commenter supported 

the proposed status indicator of B for 

HCPCS codes D0472–D0999 because the 

commenter indicated that providers 

should bill the appropriate CPT code in 

place of these codes. The commenter 

urged CMS to require its contractors to 

deny claims for HCPCS codes D0472–

D0999. 

Response: We agree that these HCPCS 

codes duplicate existing CPT codes and 

therefore have designated them as not 

payable or recognized under OPPS. As 

a practical matter, this change in status 

indicator has little or no impact on 

providers because of this entire code 

series, in all of CY 2004, only 3 units of 

HCPCS code D0999 were billed by 

hospitals under OPPS. This CY 2006 

final rule with comment period applies 

to payments under the OPPS and a 

comment that we should deny claims 

for these codes submitted by all other 

providers in all other settings is outside 

the scope of this final rule. 

Comment: One commenter objected to 

payment of CPT code 86586 under the 

OPPS and asked that we place it on the 

clinical laboratory fee schedule for CY 

2006 because currently, the only source 

of payment is under the OPPS and 

therefore independent laboratories 

cannot be paid for it. 

Response: We agree with this 

comment and we will pay for this code 

under the clinical lab fee schedule in 

CY 2006. This code will therefore not be 

paid under the OPPS in 2006. 

Comment: One commenter objected to 

payment being made under the OPPS 

for CPT codes 80500–80502 and 88187–

88189, which are for physician 

interpretation and report services. The 

commenter asked that we change their 

status indicators to ‘‘M’’ so that the 

codes would not be billable to a fiscal 

intermediary nor payable under the 

OPPS. The commenter believed that 

these services should only be paid to 

physicians on claims submitted by 

carriers. 

Response: These services currently 

have status indicator ‘‘X’’ and are 

separately paid under OPPS. We believe 

that payment to hospitals is appropriate 

because of the resources hospitals 

furnish for the physician to be able to 

perform these services in a hospital (that 

is, space, computer, office supplies, 

medical records system). 

i. Photodynamic Therapy of the Skin 

(APC 0013) 

Comment: One commenter supported 

the proposed move of CPT code 96567 

(Photodynamic Therapy of the Skin) 

from APC 0013, with a proposed 

payment rate of $66, to APC 0016 with 

a proposed payment rate of $153. The 

commenter also expressed appreciation 

that the drug used with this procedure 

(HCPCS code J7308) is paid separately 

and not bundled into the payment for 

the procedure. The commenter asked 

that CMS continue to monitor the 

median costs reported by hospitals so 

that Medicare beneficiaries may 

continue to have access to this 

procedure and the drug associated with 

the procedure. 

Response: We appreciate the 

thoughtful comments submitted by this 

pharmaceutical manufacturer. We will 

finalize the placement of CPT code 

96567 in APC 0016 as proposed. As 

always, we will continue to monitor 

claims data submitted by hospitals to 

ensure appropriate payment for all 

procedures. 

j. Wound Care 

As stated in the July 25, 2005 

proposed rule (70 FR 42692), based 

upon a recommendation from the APC 

Panel we referred CPT code 97602 (nonselective wound care) for MPFS 

evaluation of its bundled status in 

relation to services provided under the 

OPPS. In the proposed rule for CY 2006, 

we assigned CPT code 97602 a status 

indicator of ‘‘A,’’ meaning that while it 

was not payable under the OPPS, it was 

payable under a fee schedule other than 

the OPPS, specifically the MPFS. We 

explained that, under the MPFS, the 

nonselective wound care services 

described by CPT code 97602 are 

‘‘bundled’’ into the selective wound 

care debridement codes (CPT codes 

97597 and 97598). Furthermore, under 

the MPFS, a separate payment is never 

made for ‘‘bundled’’ services and, 

because of this designation, the provider 

does not receive separate payment for 

furnishing non-selective wound care 

services described by CPT code 97602. 

We received several public comments 

concerning our proposed treatment of 

CPT code 97602 under the OPPS. 

Comment: Several commenters 

objected to our proposal to maintain a 

status indicator of ‘‘A’’ for CPT code 

97602, which does not allow for 

separate payment under the OPPS. 

These commenters contended that CMS’

recognition of this code only under the 

MPFS as a bundled service is equivalent 

to CMS asking hospitals to furnish but 

not charge for this service. They 

asserted that our decision not to pay for 

this service under the OPPS is based on 

a misclassification of this code as an 

‘‘always therapy’’ service. They further 

explained that registered nurses, as 

opposed to physical therapists, 

routinely perform non-selective wound 

care services in the hospital outpatient 

setting. These commenters urged CMS 

to acknowledge non-selective wound 

care as meeting the definition of covered 

outpatient therapeutic services under 

the OPPS. Two commenters requested 

that we assign the newly proposed 

status indicator ‘‘Q’’ to CPT code 97602 

so that separate payment can be made 

under the OPPS when this is the only 

payable service provided under the 

OPPS. These two commenters also 

suggested that we pay this service at the 

same payment rate as services assigned 

to APC 0600 (Low Level Clinic Visits). 

Another commenter strongly 

recommended that CMS also review our 

status indicator assignment of ‘‘A’’ to 

CPT codes 97605 (Negative pressure 

wound therapy; total wound(s) surface 

area less than or equal to 50 sq. cm.) and 

97606 (Negative pressure wound 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68617 

therapy; total wound(s) surface area 

greater than 50 sq. cm.), in addition to 

CPT code 97602 as mentioned by other 

commenters and discussed above. The 

commenter urged that we pay separately 

for these services under the OPPS, 

emphasizing that these codes represent 

comprehensive wound care 

management and are typically not 

performed with any other service. 

Furthermore, the commenter objected to 

our designation of CPT codes 97602, 

97605, and 97606 as ‘‘always therapy’’

services, contending that these services 

are often performed by registered nurses 

and should be classified as ‘‘sometimes 

therapy’’ services and assigned a status 

indicator of ‘‘S’’ which pays separately 

under the OPPS. Finally, this 

commenter recommended that we 

assign CPT codes 97602, 97605, and 

97606 to New Technology APC 1502 

(Level II $50–$100) with a payment rate 

of $75 for CY 2006 until we can collect 

hospital claims data to aid us in 

assigning these services to a clinical 

APC based on hospital median costs. 

Response: We thank the commenters 

for their views on the classification and 

payment status of wound care services 

under the OPPS. Pursuant to a 

congressional mandate (Balanced 

Budget Act of 1997, Pub. L. 105–33) to 

pay for all therapy services under one 

prospective payment system, as 

provided under section 1834(k)(5) of the 

Act, we created a therapy code list to 

identify and track outpatient therapy 

services paid under the MPFS. We 

provide this list of therapy codes along 

with their respective designation in the 

Medicare Claims Processing Manual 

Pub. 100–04, section 20. We define an 

‘‘always therapy’’ service as a service 

that must be performed by a qualified 

therapist under a certified therapy plan 

of care, and a ‘‘sometimes therapy’’

service as a service that may be 

performed by a non-therapist outside of 

a certified therapy plan of care. As 

recommended by the commenters, we 

have carefully reviewed our designation 

of CPT codes 97602, 97605, and 97606 

as ‘‘always therapy’’ codes and our 

assignment of payment status indicator 

‘‘A’’ to these codes under the OPPS. In 

light of the comments, we have also 

reexamined our classification of CPT 

codes 97597 (selective wound care; total 

wound(s) surface area less than or equal 

to 20 sq. cm.) and 97598 (selective 

wound care; total wound(s) surface area 

greater than 20 sq. cm.) as ‘‘sometimes 

therapy’’ codes with respect to payment 

under the OPPS. The past implications 

of designating CPT codes 97602, 97605, 

and 97606 as ‘‘always therapy’’ services, 

in addition to assigning these codes a 

status indicator of ‘‘A’’ under the OPPS 

indicating they were to be paid off the 

MPFS, were that hospitals may have 

been unable to bill and be paid for these 

services when they were provided as 

non-therapy in the hospital outpatient 

setting. When some of these OPPS 

services were packaged under the 

MPFS, hospitals received no separate 

payment, and when other services were 

paid off the MPFS, the services were 

required to meet the criteria for therapy 

services. However, this requirement for 

payment to hospitals only as therapy 

services was inconsistent with 

Medicare’s designation of CPT codes 

97597 and 97598 as ‘‘sometimes 

therapy’’ services, that could be 

appropriately provided either as therapy 

services or as non-therapy services. 

Therefore, for CY 2006, we are 

reclassifying CPT codes 97602, 97605, 

and 97606 as ‘‘sometimes therapy’’

services that may be appropriately 

provided either as therapy or nontherapy services, as well as maintaining 

our designation of CPT codes 97597 and 

97598 as ‘‘sometimes therapy’’ services. 

In order to pay hospitals accurately 

when delivering these ‘‘sometimes 

therapy’’ services independent of a 

therapy plan of care, we are establishing 

payment rates for CPT codes 97597, 

97598, 97602, 97605, and 97606 under 

the OPPS when performed as nontherapy services in the hospital 

outpatient setting. To further clarify, 

hospitals will receive separate payment 

under the OPPS when they bill for 

wound care services described by CPT 

codes 97597, 97598, 97602, 97605, and 

97606 that are furnished to hospital 

outpatients by non-therapists 

independent of a therapy plan of care. 

In contrast, when such services are 

performed by a qualified therapist under 

an approved therapy plan of care, 

providers should attach an appropriate 

therapy modifier (that is, GP for 

physical therapy, GO for occupational 

therapy, and GN for speech-language 

pathology) and/or report their charges 

under a therapy revenue code (that is, 

420, 430, or 440) to receive payment 

under the MPFS. The OCE logic will 

either assign these services to the 

appropriate APC for payment under the 

OPPS if the services are non-therapy, or 

will direct contractors to the MPFS 

established payment rates if the services 

are identified on hospital claims with a 

therapy modifier or therapy revenue 

code as therapy. 

Under the OPPS, we considered 

several options for determining the APC 

placement of CPT codes 97597, 97598, 

97602, 97605, and 97606. As two 

commenters suggested, we considered 

placing these codes in APC 0600 (Low 

Level Clinic Visits); however, we 

concluded that these services do not 

share similar enough characteristics in 

terms of clinical homogeneity and 

resource requirements to other services 

assigned to APC 0600. In particular, 

specialized supplies are likely necessary 

for the procedures, unlike many of the 

supplies used in services assigned to 

APC 0600. Likewise, we also considered 

one commenter’s recommendation to 

assign CPT codes 97597, 97598, 97602, 

97605, and 97606 to New Technology 

APC 1502 with a payment rate of $75. 

However, because we do not consider 

wound care services to be appropriately 

described by a new technology 

designation under the OPPS, nor do we 

expect the resource intensity of these 

services to approach $75, we are not 

assigning these services to New 

Technology APC 1502. Instead, we 

sought to place these codes in clinical 

APCs with like services sharing similar 

resource requirements. Therefore, for 

CY 2006, we are assigning CPT code 

97602 to APC 0340 (Minor Ancillary 

Procedures) because we consider the 

resource requirements of this service to 

be similar to the hospital resources 

necessary for many of the other minor 

hospital procedures assigned to this 

APC. While it may be that our CY 2004 

hospital claims data may not reflect all 

claims for services that could have been 

described by CPT code 97602 because 

some hospitals may have been billing 

for an evaluation and management 

service if nonselective wound care was 

the only procedure provided on a day, 

we note that based on almost 75,000 

single claims the median cost of $42 for 

CPT code 97602 is very consistent with 

the CY 2006 median cost of $36 for APC 

0340. In addition, we are assigning CPT 

codes 97597 and 97605 to APC 0012 

(Level I Debridement and Destruction), 

and CPT codes 97598 and 97606 to APC 

0013 (Level II Debridement and 

Destruction) because we consider these 

services to closely resemble both the 

clinical characteristics and resource 

requirements of the other debridement 

services assigned to these APCs. We 

have listed these five codes in 

Addendum B with status indicator ‘‘X’’

for CPT code 97602 and status indicator 

‘‘T’’ for CPT codes 97597, 97598, 97605, 

and 97606, along with their individual 

APC assignments to indicate their 

payment rates in common hospital 

outpatient circumstances where the 

services are provided as non-therapy. If 

a claim indicates, as described above, 

that the services are provided as 

therapy, the claim for such services will 

be paid under the MPFS. 

68618 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

When hospitals provide wound care 

services, they should bill the most 

appropriate CPT codes to describe those 

services. Hospitals should not bill for an 

evaluation and management service 

along with the wound care service 

unless a significant, separately 

identifiable evaluation and management 

service, correctly identified with 

modifier ¥25 on the claim, was also 

provided to the patient during the same 

encounter. Lastly, under the OPPS we 

consider payment for nonselective 

wound care to always be included in 

payment for selective wound care or 

negative pressure wound therapy if both 

services are provided at the same 

anatomic site in one encounter. 

Therefore, hospitals should not bill for 

both services when nonselective wound 

care is provided with selective wound 

care or negative pressure wound therapy 

at the same anatomic site in a single 

encounter. Hospitals would 

appropriately use the ¥59 modifier to 

indicate nonselective and selective 

wound care or negative pressure wound 

therapy services provided in a single 

encounter at different anatomic sites. 

IV. Payment Changes for Devices 

A. Device-Dependent APCs 

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. For the CY 2002 OPPS, we 

used external data, in part, to establish 

the device-dependent APC medians 

used for weight setting. At that time, 

many devices were eligible for passthrough payment. For the CY 2002 

OPPS, we estimated that the total 

amount of pass-through payments 

would far exceed the limit imposed by 

statute. To reduce the amount of a pro 

rata adjustment to all pass-through 

items, we packaged 75 percent of the 

cost of the devices, using external data 

furnished by commenters on the August 

24, 2001 proposed rule and information 

furnished on applications for passthrough payment, into the median costs 

for the device-dependent APCs 

associated with these pass-through 

devices. The remaining 25 percent of 

the cost was considered to be passthrough payment. 

In the CY 2003 OPPS, we determined 

APC medians for device-dependent 

APCs using a three-pronged approach. 

First, we used only claims with device 

codes on the claim to set the medians 

for these APCs. Second, we used 

external data, in part, to set the medians 

for selected device-dependent APCs by 

blending that external data with claims 

data to establish the APC medians. 

Finally, we also adjusted the median for 

any APC (whether device-dependent or 

not) that declined more than 15 percent. 

In addition, in the CY 2003 OPPS we 

deleted the device codes (‘‘C’’ codes) 

from the HCPCS file in the belief that 

hospitals would include the charges for 

the devices on their claims, 

notwithstanding the absence of specific 

codes for devices used. 

In the CY 2004 OPPS, we used only 

claims containing device codes to set 

the medians for device-dependent APCs 

and again used external data in a 50–50 

blend with claims data to adjust 

medians for a few device-dependent 

codes when it appeared that the 

adjustments were important to ensure 

access to care. However, hospital device 

code reporting was optional. 

In the CY 2005 OPPS, which was 

based on CY 2003 claims data, there 

were no device codes on the claims and, 

therefore, we could not use devicecoded claims in median calculations as 

a proxy for completeness of the coding 

and charges on the claims. For the CY 

2005 OPPS, we adjusted devicedependent APC medians for those 

device-dependent APCs for which the 

CY 2005 OPPS payment median was 

less than 95 percent of the CY 2004 

OPPS payment median. In these cases, 

the CY 2005 OPPS payment median was 

adjusted to 95 percent of the CY 2004 

OPPS payment median. We also 

reinstated the device codes and made 

the use of the device codes mandatory 

where an appropriate code exists to 

describe a device utilized in a procedure 

and also implemented HCPCS code 

edits to facilitate complete reporting of 

the charges for the devices used in the 

procedures assigned to the devicedependent APCs. 

1. Public Comments and Our Responses 

on the November 15, 2004 OPPS Final 

Rule With Comment Period 

We solicited public comments 

concerning the methodology set forth in 

our CY 2005 OPPS final rule with 

comment period (November 15, 2004, 

69 FR 65681). A summary of the 

comments we received and our 

responses follow: 

Comment: One commenter asked that 

CMS implement device edits other than 

those included in Table 19 of the 

November 15, 2004 final rule with 

comment period in April 2005. The 

commenter asked that CMS add the 

following APCs to the list of devicedependent APCs and implement device 

editing for them using the specific 

device codes provided by the 

commenter: APC 0088 (Thrombectomy), 

APC 0141 (Level I Upper GI 

Procedures), APC 0151 (Endoscopic 

Retrograde Cholangio-Pancreatography), 

APC 0154 (Hernia/Hydrocele 

Procedures), APC 0187 (Miscellaneous 

Placement/Repositioning), APC 0315 

(Level II Implantation of 

Neurostimulator), APC 0415 (Level II 

Endoscopy Lower Airway), APC 0416 

(Level I Intravascular and Intracardiac 

Ultrasound and Flow Reserve), and APC 

0676 (Level II Thrombolysis and 

Thrombectomy). 

Response: We implemented the 

device edits for device-dependent APCs 

in two phases for CY 2005. Those 

identified in Table 19 of the November 

15, 2004 final rule with comment period 

(69 FR 65763) were implemented 

effective for services furnished April 1, 

2005, and later. The remaining edits for 

device-dependent APCs were 

implemented effective for services 

furnished October 1, 2005, and later. We 

implemented the edits in two phases so 

that we could ensure that any systems 

issues that might arise with 

implementation of the first set of edits 

would be resolved before we 

implemented the remainder of the edits. 

We limited the edits we implemented to 

those for services included in the list of 

device-dependent APCs that we posted 

on the CMS Web site for public review 

to minimize the possibility of 

unintended claims processing problems. 

At this time, we have not expanded the 

scope of device-dependent APCs or the 

scope of the edits because of concerns 

raised by hospitals regarding the 

administrative burden that edits impose 

on hospitals. We will evaluate the 

impact of the edits on hospitals and on 

our claims data before we consider 

expanding the scope of the edits to other 

services such as those suggested by the 

commenter. 

Comment: One commenter 

recommended that device codes C1750 

(Cath, hemodialysis, long-term) and 

C1752 (Cath, hemodialysis, short-term) 

be allowed when billing for services 

using CPT codes 36557 (Insert tunneled 

cv cath), 36558 (Insert tunneled cv 

cath), and 36581 (Replace tunneled cv 

cath). The commenter further 

recommended that CMS allow the use of 

device code C1898 (Lead, pmkr, other 

than trans) when billing for services 

using CPT codes 33211 (Insertion of 

heart electrode), 33216 (Insert lead pacedefib, one), and 33217 (Insert lead pacedefib, dual). 

Response: We agree with the 

commenter’s recommendations and 

made the changes when the edits were 

implemented in the two phases for CY 

2005 discussed above in response to the 

preceding comment. 

Comment: One commenter 

recommended that device codes for 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68619 

brachytherapy needles, catheters, and 

sources be required when providers bill 

for the following CPT codes for 

brachytherapy application: 77761, 

77762, 77763, 77776, 77777, 77778, 

77781, 77782, 77783, and 77784. 

Numerous other commenters strongly 

opposed device editing for 

brachytherapy procedures due to the 

burden that it would impose on them. 

Response: We did not require these 

edits for CY 2005. The needles and 

catheters that are placed for the 

application of brachytherapy sources are 

not placed when the procedures cited 

are performed but are generally placed 

in procedures that are coded separately. 

In the case of application of seeds for 

prostate brachytherapy (CPT code 

77778), the needles or catheters are 

placed when CPT code 55859 (Percut/ 

needle insert, pros) is performed and 

not as part of CPT code 77778. 

Moreover, for CY 2005, sources of 

brachytherapy are billed and paid 

separately on the basis of charges 

reduced to cost and, therefore, are 

irrelevant to the calculation of a median 

cost for the application of the 

brachytherapy sources because, unlike 

other devices, the cost of brachytherapy 

sources is not packaged into the 

payment for the service in which the 

sources are required. 

2. CY 2006 Proposal, APC Panel 

Recommendations, and Responses to 

Public Comments Received 

In the CY 2006 OPPS proposed rule, 

we proposed to base the OPPS devicedependent APC medians on CY 2004 

claims, the most current data available. 

In CY 2004, the use of device codes was 

optional. Thus, for the CY 2006 OPPS 

proposed rule, we proposed to calculate 

median costs for these APCs using all 

single bills without regard to whether 

there was a device code reported on the 

claim. We calculated median costs for 

this set of APCs using the standard 

median calculation methodology. This 

methodology uses single procedure 

claims to set the median costs for the 

APC. We then compared these 

unadjusted median costs to the adjusted 

median costs that we used to set the 

payment rates for the CY 2005 OPPS. 

We found that 21 APCs experienced 

increases in median cost compared to 

the CY 2005 OPPS adjusted median 

costs, 1 APC median was unchanged, 16 

APCs experienced decreases in median 

costs, and 8 APCs were proposed to be 

reconfigured in such a way that no valid 

comparison was possible. Table 15 

published in the CY 2005 OPPS 

proposed rule showed the comparison 

of these median costs (70 FR 42714). 

As we stated previously, in CY 2004, 

CMS reissued HCPCS codes for devices 

and asked hospitals to voluntarily code 

devices utilized to provide services. As 

part of our development of the medians 

for this final rule with comment period, 

we examined CY 2004 claims that 

contained device codes that met our 

device edits, as posted on the OPPS 

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

providers/hopps/default.asp. We found 

that, in many cases, the number of 

claims that passed the device edits was 

quite small. To use these claims to set 

medians for the CY 2006 OPPS would 

mean that the medians for some of these 

APCs would be set based on very small 

numbers of claims, reflecting the fact 

that, in CY 2004 when device coding 

was optional under the OPPS, relatively 

few hospitals chose to code for devices. 

Therefore, we did not propose to use 

only claims that passed the device edits 

to set the median costs for devicedependent APCs for the CY 2006 OPPS. 

When we considered whether to base 

the weights for these APCs on the 

unadjusted median costs, we found that, 

for 10 of the 38 APCs for which the APC 

composition is stable, basing the 

payment weight on the unadjusted 

median cost would result in a reduction 

of more than 15 percent in the median 

cost for the CY 2006 OPPS compared to 

the CY 2005 OPPS. 

In the CY 2006 proposed rule, we 

stated that we fully expect to use the 

unadjusted median costs for devicedependent APCs as the basis of their 

payment weights for the CY 2007 OPPS 

because device coding is required for 

CY 2005 and device editing is being 

implemented in CY 2005, so that all CY 

2005 claims should reflect the costs of 

devices used to provide services. 

Nevertheless, we recognized that a 

payment reduction of more than 15 

percent from the CY 2005 OPPS to the 

CY 2006 OPPS may be problematic for 

hospitals that provide the services 

contained in these APCs. Therefore, for 

the CY 2006 OPPS, we proposed to 

adjust the median costs for the devicedependent APCs listed in Table 15 of 

the CY 2006 proposed rule (70 FR 

42714) for which comparisons with 

prior years are valid to the higher of the 

CY 2006 unadjusted APC median or 85 

percent of the adjusted median on 

which payment was based for the CY 

2005 OPPS. We stated that we viewed 

this as a transitional step from the 

adjusted medians of past years to the 

use of unadjusted medians based solely 

on hospital claims data with device 

codes in future years. 

As stated in the proposed rule (70 FR 

42714), we expect that CY 2006 will be 

the last year in which we would make 

an across-the-board adjustment to the 

median costs for these devicedependent APCs based on comparisons 

to the prior year’s payment medians. We 

believe that mandatory reporting of 

device codes for services furnished in 

CY 2005, combined with the editing of 

claims for the presence of device codes, 

where such codes are appropriate, 

would result in claims data that more 

fully reflect the relative costs of these 

services and that across-the-board 

adjustments to median costs for these 

APCs would no longer be appropriate. 

a. APC Panel Recommendations 

In the CY 2005 proposed rule, we 

proposed to treat APCs 0107 and 0108 

in the same manner as we proposed to 

treat other device-dependent APCs. We 

note that at its August 2005 meeting, the 

APC Panel recommended that CMS set 

the payment rates for cardioverter 

defibrillator APCs (APCs 0107 and 

0108) at the CY 2005 payment rates plus 

the full market basket increase for CY 

2006. We did not accept this 

recommendation because to do so 

would greatly contradict our stated 

policy of applying a single standardized 

methodology wherever possible to 

establish APC payment amounts that are 

appropriately relative to one another. 

The APC Panel also recommended 

that CMS add APC 0416 (Level I 

Intravascular and Intracardiac 

Ultrasound and Flow Reserve) and, in 

particular, CPT code 37250 (Iv us first 

vessel add-on) to the list of devicedependent APCs and require device 

editing for CPT code 37250. 

We did not accept this 

recommendation. Many services that 

require devices are not included in the 

set of APCs to which we have given 

special attention as they came off passthrough status. We package the costs of 

relatively high cost devices into the 

median costs for the device-dependent 

APCs, and the absence of charges for 

these devices on claims is the reason for 

special treatment of the APCs in the 

past. The absence of charges also gives 

rise to our application of device editing 

to the services in the device-dependent 

APCs so that our hospital claims data 

are more complete for these specific 

services. At this time, we see no 

compelling reason to expand this list of 

device-dependent APCs. This is 

particularly true given that we expect 

that, for CY 2007, these APCs will not 

receive special attention as a class. 

However, we note that we will make 

case-by-case decisions regarding the 

adjustment of median costs where we 

believe that it is appropriate. 

68620 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

b. Public Comments Received and Our 

Responses 

We received numerous public 

comments concerning our proposal. 

Following is a summary of those 

comments and our responses: 

(1) Adjustment of Median Costs 

Comment: Some commenters 

supported the proposed median cost 

adjustment for device-dependent APCs 

and supported the use of claims data to 

set the relative weights for the CY 2006 

OPPS. However, many commenters 

stated that the proposed payments are 

inadequate to compensate hospitals for 

the full costs of the devices and 

procedures for many APCs, including, 

but not limited to, implantation of 

cochlear implants, neurostimulators, 

urologic prosthetics, and cardioverter 

defibrillators. 

Commenters presented a variety of 

requests for revised median costs or 

revised payment rates. Many 

commenters asked that CMS accept and 

use external data in place of claims data 

and requested that CMS accept and use 

confidential and proprietary 

information that cannot be made public. 

Other commenters objected to the use of 

external data to set median costs that are 

the basis of the rates and to the use of 

any proprietary or confidential 

information that cannot be shared with 

the public. Some commenters asked 

CMS to substitute specific amounts they 

identified for the device portion of the 

median cost, for the full median cost, or 

for the payment amount for the APCs of 

interest to them. Commenters urged 

CMS to restrict the claims used to 

calculate the median costs for devicedependent APCs to those with specified 

diagnoses, or to those with specified 

HCPCS device codes, or with specified 

revenue code charges only if the charges 

associated with those codes exceeded 

amounts they recommended. Some 

commenters asked that CMS set the CY 

2006 median cost at the CY 2005 

adjusted median with an inflation 

adjustment for the full market basket 

increase for CY 2006. Other commenters 

asked CMS to adjust the medians to no 

less than 95 percent of the CY 2005 

OPPS adjusted medians for all APCs, as 

well as for device-dependent APCs. 

These commenters stated that a 

transitional step to 85 percent was too 

great to prevent disruption to care. 

Some commenters asked CMS to 

disregard requests to set the payment 

rates at 100 percent of the CY 2005 

OPPS payment rates plus inflation for 

neurostimulator and cardioverter 

defibrillator APCs, which they stated 

have been given preferential treatment 

over other device-dependent APCs in 

past years. These commenters requested 

that the same adjustment policy apply 

to all device-dependent APCs. Some 

commenters asked CMS to use only 

claims that contained appropriate 

device codes in the calculations of the 

median costs because the presence of 

the device code and a charge for the 

device are more likely to produce the 

best possible estimate of relative cost for 

the service. All commenters who 

addressed this general issue of devicedependent APCs supported an 

adjustment of some type to median costs 

for these high cost APCs. 

Response: After considering all of the 

comments received, we have set the 

median costs for device-dependent 

APCs for CY 2006 at the highest of: The 

median cost of all single bills; the 

median cost calculated using only 

claims that contain pertinent device 

codes and for which the device cost is 

greater than $1; or 90 percent of the 

payment median that was used to set 

the CY 2005 payment rates. We set 90 

percent of the CY 2005 payment median 

as a floor in consideration of comments 

that stated that a 15-percent reduction 

from the CY 2005 payment median was 

too large of a transitional step. We also 

incorporated, as part of our 

methodology, the recommendation to 

base payment on medians that were 

calculated using only claims that passed 

the device edits. We believe that this 

policy provides a reasonable transition 

to full use of claims data in CY 2007, 

while better moderating the amount of 

decline from the CY 2005 OPPS 

payment rates. Table 16 of this final rule 

with comment period contains the CY 

2005 payment median, the CY 2006 

unadjusted single bill median, the 

amount represented by 90 percent of the 

CY 2005 payment median, the CY 2006 

median calculated using only claims 

containing appropriate devices, and the 

CY 2006 adjusted median on which 

payment is based. As we discussed, in 

the CY 2006 proposed rule, we did not 

adjust the medians for APC 0122 (Level 

II Tube Changes and Repositioning), 

APC 0427 (Level III Tube Changes and 

Repositioning) APC 0166 (Level I 

Urethral Procedures), APC 0168 (Level 

II Urethral Procedures), APC 0621 

(Level I Vascular Access Procedures), 

APC 0622 (Level II Vascular Access 

Procedures), and APC 0623 (Level III 

Vascular Access Procedures) because of 

substantial migration of HCPCS codes 

within these APCs. 

We did not inflate the CY 2005 

median cost or payment rate by the 

market basket, or substitute specific 

amounts derived from external studies 

or other external sources, as requested 

by commenters, because doing so would 

contradict our stated policy of using 

claims data developed from a single 

source, and applying a single 

standardized methodology wherever 

possible to establish payment amounts 

that are appropriately relative to one 

another. The Medicare claims database 

we use contains all claims for all 

services paid under the OPPS for all 

Medicare patients (other than those in 

Medicare managed care programs). As 

such, we believe that it is the best and 

most reliable source for standardized 

utilization and cost data in the Nation 

with regard to Medicare outpatient 

hospital care. Because the OPPS is a 

relative weight system, we believe it is 

important that, to the maximum extent 

possible, the relative weights be 

calculated using standardized processes 

and a standardized base of claims data. 

(2) Effects of Inconsistent Markup of 

Charges 

Comment: Some commenters objected 

to the use of claims data because they 

believed the payments that result are 

less than the cost of the procedures and 

the devices due to the high markup of 

low cost items and services and the low 

markup of high cost items and services. 

They indicated that the use of CCRs 

applied to hospital charges results in 

median costs that are inadequate for 

high cost devices because the markup 

on high cost devices is insufficient to 

result in the correct costs for the devices 

after application of CCRs calculated 

from all services in the applicable 

departments. Commenters offered a 

variety of recommendations for dealing 

with this phenomenon that they 

identified as ‘‘charge compression.’’

They suggested that CMS establish a 

sample of hospitals from which data 

would be collected for use in place of 

claims data or to validate the data 

derived from claims. They also 

suggested that CMS establish a new cost 

center solely for high cost devices and 

calculate an appropriate CCR for this 

new specialized cost center. Some of the 

commenters recommended that CMS 

conduct a study of the data of volunteer 

hospitals to determine an appropriate 

CCR for high cost devices that would be 

applied to all hospitals. They noted that 

CMS could adjust claims-based medians 

by substituting proprietary confidential 

cost data for the device portion of the 

median costs. They suggested that CMS 

could also calculate a charge 

decompression factor that would 

estimate the markup function from 

charges on claims and device 

acquisition cost data and incorporate 

these data into setting two CCRs: one for 

high cost devices and one for low cost 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68621 

devices, which would be used in place 

of actual hospital CCRs. Lastly, the 

commenters also suggested that CMS 

could create a broad stakeholder panel 

to address this issue. 

Other commenters stated that the use 

of the hospital’s average CCR results in 

computed costs and relative weights 

that are more or less than specific actual 

costs, but that this averaging is 

appropriate and desirable in a PPS and 

should continue. They stated that the 

alternative is a micromanaged payment 

system that resembles the system that 

Congress discarded in favor of a 

bundled PPS. The commenters urged 

CMS to remain committed to the 

principles of a PPS and the use of 

averaging, rather than seeking to pay the 

actual cost for one element of costs at 

the expense of all other items and 

services, which they stated would occur 

as a result of the application of budget 

neutrality adjustments required by law. 

They reiterated that many factors go into 

the decision of what services to furnish 

in a hospital, and that the payment for 

a specific service is only one of the 

applicable factors. 

Response: We agree that the use of the 

hospital’s average CCR results in 

computed costs and relative weights 

that may be more or less than specific 

actual costs and that this averaging is 

appropriate and desirable in a PPS and 

should continue. One of the principal 

purposes of determining median costs 

for weight setting in a budget neutral 

payment system is to determine the 

appropriate relativity in resource use 

among services, so that the fixed 

amount of money can be fairly and 

equitably distributed among hospitals 

based on case-mix. We note that, in 

general, the median costs derived from 

this process may not represent the 

actual acquisition costs of the services 

being furnished, nor will they ever 

represent acquisition costs. They are 

estimated relative costs that are 

converted to relative weights, scaled for 

budget neutrality, and then multiplied 

by a conversion factor to result in 

payments that, as we have previously 

discussed, were designed in such a 

manner that they are not expected to 

pay the full costs of the services. 

(3) Effects of Multiple Procedure 

Reduction 

Comment: Some commenters stated 

that all device-dependent APCs should 

be assigned a status indicator of ‘‘S’’

(significant service, separately payable) 

because none of the procedures assigned 

to these APCs should ever be reduced 

when performed with another 

procedure. Commenters stated that 

much of the cost of these procedures is 

a function of the cost of the device, and 

that the device cost remains unchanged 

whether the procedure in which it is 

required is performed with other 

surgical procedures or not. Commenters 

specifically objected to the movement of 

CPT code 33225 (L ventric pacing lead 

add-on) from New Technology APC 

1525 in CY 2005 where it has a status 

indicator of ‘‘S’’ to APC 0418 ( Insertion 

of Left Ventricular Pacing Elect) for CY 

2006, in which it was proposed to have 

status indicator ‘‘T,’’ because the 

payment for the procedure, when 

performed in addition to another 

procedure, would be reduced by 50 

percent although most of the cost of the 

procedure is in the device, the cost of 

which remains fixed. Commenters also 

specifically objected to the assignment 

of status indicator ‘‘T’’ to APCs 0223 

and 0227 because it results in a 

reduction in payment when services to 

place a catheter and implant an infusion 

pump are provided in the same session. 

Response: We decide on a service-byservice basis whether the assignment of 

a status indicator ‘‘S’’ or ‘‘T’’ is 

appropriate. In the case of most devicedependent APCs, the service in question 

is never reduced because it is always the 

procedure with the highest payment rate 

(for example, cochlear implants and 

insertion of a cardioverter defibrillator 

(ICD)), and the assignment of a status 

indicator ‘‘T’’ is necessary so that the 

lower cost services are reduced in 

payment to reflect the efficiencies that 

occur when they are done at the same 

time as the highest paid procedure. 

In the case of CPT code 33225 for 

insertion of a left ventricular pacing 

electrode at time of insertion of an ICD, 

we believe that payment at 50 percent 

of the payment rate for APC 0418 is 

appropriate for this add-on procedure 

based on the information furnished to 

us by manufacturers, hospitals, and 

physicians who are familiar with the 

service. This procedure is always done 

as an adjunct to insertion of a 

cardioverter defibrillator and a 

significant portion of the cost of the 

procedure is in the extension of 

operating room time and not in the cost 

of the device, drugs, or supplies needed 

to furnish the service. While CPT code 

33225 is an add-on code, we discuss our 

ongoing exploration of possible 

solutions to the data challenges in 

developing appropriate payment rates 

for add-on codes in the data section 

(section II.A.) of this final rule with 

comment period. Also assigned to APC 

0418 is the stand-alone procedure for 

insertion of the left ventricular lead, and 

we believe the add-on lead insertion is 

appropriately reduced by 50 percent in 

comparison with the payment rate for 

the stand-alone insertion procedure. 

Therefore, we believe that payment at 

50 percent of the amount for APC 0418 

to which we proposed to assign CPT 

code 33225 is appropriate and, as 

proposed, we have moved CPT code 

33225 to APC 0418 with a status 

indicator of ‘‘T.’’

When a spinal infusion pump is 

implanted along with an intrathecal or 

epidural catheter, CPT codes billed 

likely include those assigned to APCs 

0227 and 0223, respectively. The higher 

paying APC 0227 for implantation of the 

infusion pump would receive full 

payment, while the catheter insertion 

APC 0223 would receive 50 percent of 

the APC payment because both APCs 

are assigned ‘‘T’’ status indicators. We 

believe this reduction is appropriate, as 

there are some efficiencies when both 

services are performed in a single 

session. In addition, we note that the 

CPT code for the catheter implantation 

includes the possibility of repositioning 

in its descriptor, so it is possible that 

this procedure may not require a new 

device every time it is performed. 

Therefore, we believe that the 

procedures assigned to APCs 0223 and 

0227 are appropriately assigned ‘‘T’’

status indicators. 

(4) Impact of Proposed Rates on Access 

to Care 

Comment: Some commenters stated 

that under the proposed payments, 

Medicare beneficiaries may not get the 

device-related services they need 

because Medicare payments would be 

inadequate to compensate hospitals for 

their costs, and that hospitals would not 

furnish the services to Medicare 

beneficiaries for the rates that Medicare 

proposed to pay in CY 2006. They stated 

that hospitals will either cease 

providing certain services, or they will 

decide not to furnish them due to low 

Medicare payment rates. 

Response: We share the commenters’

concern that beneficiaries have access to 

all of the care they need, regardless of 

the type of service. As other 

commenters have stated, hospitals 

decide upon the range of services to 

offer based on a variety of factors, of 

which Medicare outpatient hospital 

payment is only one. We believe that 

the best way to ensure access to care for 

Medicare beneficiaries is to establish the 

OPPS using as many claims as possible 

from all hospitals so that the relative 

weights on which the payments are 

based result in the most fair and 

equitable distribution possible of 

Medicare’s funding for outpatient 

hospital services. 

We note that our regulations at 42 

CFR 489.53(a)(2) state that a hospital 

68622 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

risks termination of its Medicare 

provider agreement if it treats Medicare 

beneficiaries differently from other 

similar patients in the hospital. 

(5) Addition of Other APCs as DeviceDependent APCs 

Comment: Some commenters asked 

that CMS expand the list of APCs for 

which medians will be adjusted to 

include all APCs that require the use of 

a device. Specifically, they requested 

that we apply any median adjustment 

for device-dependent APCs also to APC 

0112 (Apheresis, Photopheresis, and 

Plasmapheresis), APC 0312 

(Radioelement Applications), APC 0313 

(Brachytherapy), and APC 0651 

(Complex Interstitial Radiation Source 

Application). They asked that CMS set 

the median for all such APCs that use 

a device at the CY 2005 OPPS adjusted 

median after inflating by the full market 

basket increase for CY 2006. 

Commenters asked that CMS add APC 

0416 Level I Intravascular and 

Intracardiac Ultrasound and Flow 

Reserve) and, in particular, CPT code 

37250 (Iv us first vessel add-on) to the 

list of device-dependent APCs and 

require device editing for CPT code 

37250. They stated that this service 

requires a device, that its APC should be 

treated like all other device-dependent 

APCs, and that claims for the service 

should be returned if they are submitted 

without the HCPCS code for the device 

so that the full cost of the device will 

be included on every claim. 

Response: As previously stated in 

response to the APC Panel’s 

recommendation on a similar issue, 

many services that require devices are 

not included in the set of APCs to which 

we have given special attention as they 

came off pass-through status. We 

package the costs of relatively high cost 

devices into the median costs for the 

device-dependent APCs, and the 

absence of charges for these devices on 

claims is the reason for special 

treatment of the APCs in the past. The 

absence of charges also leads to our 

application of device editing to the 

services in the device-dependent APCs 

so that our hospital claims data are more 

complete for these specific services. At 

this time, we see no compelling reason 

to expand this list of device-dependent 

APCs. This is particularly true given 

that we expect that, for CY 2007, these 

APCs will not receive special attention 

as a class. However, we note that we 

will make case-by-case decisions 

regarding the application of edits where 

appropriate. 

(6) Instructions on Reporting Device 

Charges 

Comment: Some commenters asked 

that CMS educate providers on how to 

report charges for devices and 

technologies that do not have HCPCS 

codes, and that CMS issue explicit 

instructions regarding consistent use of 

revenue codes for reporting charges for 

devices and technologies to ensure that 

such charges are fully reported on 

claims. 

Response: CMS’ instructions 

regarding the need to report device 

codes and charges are included in the 

Internet Only Manual, Claims 

Processing Manual 100–4, Chapter 4 

(CMS Web site: http:// 

www.cms.hhs.gov/manuals/). Section 

61.1 of that manual provides 

instructions on the requirement to 

report the device code and directs 

providers to the CMS Web site for the 

most current list of HCPCS codes for 

devices and for the most recent set of 

procedure code to device edits. In 

addition, section 20.5.1 specifies 

revenue centers that should be used 

when devices are reported. As always, 

when devices do not have appropriate 

HCPCS codes for reporting, hospitals 

should be sure to include all charges 

associated with their use on claims for 

services with which the devices were 

used. 

(7) Application of Wage Index to 

Device-Dependent APCs Containing 

Devices 

Comment: Some commenters objected 

to the application of the wage index to 

an APC into which devices were 

packaged. They indicated that applying 

the wage index will continue to further 

undervalue new technology services. 

They asked that CMS revise its policy 

and apply the wage index only to the 

service portion of the procedure for 

APCs for which the device cost is more 

than 80 percent of the total APC 

payment. 

Response: Whether the application of 

the wage index to 60 percent of the APC 

payment will raise or reduce the 

payment for the service depends on the 

wage index value of the area in which 

the hospital is located. However, while 

we do not believe that the application 

of the wage index underpays new 

technology items or services, we 

acknowledge the commenter’s request, 

and we will consider it as we develop 

our policies for future updates of the 

OPPS. 

(8) Recalls of High Cost Devices 

Comment: Some commenters are 

concerned that claims for items subject 

to a recall not be used for claims setting 

as there is no charge for the device on 

the claim, and the use of the claim 

could skew the median cost. These 

commenters also asked that CMS 

provide explicit guidance on how to 

report devices for which the provider 

incurred no cost due to replacement by 

the manufacturer under a recall of the 

device. 

Response: The recalls of a significant 

number of cardioverter defibrillators 

and pacemakers to which the 

commenters referred occurred very late 

in CY 2004 and in CY 2005. Therefore, 

we believe that they have no effect on 

the CY 2004 claims used to set the rates 

for the CY 2006 OPPS. We are aware of 

the potential impact on data used for 

ratesetting for the CY 2007 OPPS and 

are already considering a strategy for 

ensuring that the CY 2005 claims data 

we will use for the CY 2007 OPPS will 

be appropriately reflective of the costs 

of the devices. We note that one way of 

doing this is to not use claims that 

contain device charges of $1.01 or less 

in the calculation of the median costs 

for these APCs. In the July 2005 OPPS 

instruction, Change Request 3915, dated 

June 30, 2005, we issued interim 

instructions regarding how hospitals 

should report device codes and charges 

when the device was furnished without 

cost by the manufacturer under a recall. 

Specifically, we advised hospitals to 

report the HCPCS code for the device 

and a token charge of $1.01 or less on 

the line with the device code. 

Accordingly, we will use the device 

code and charge combination to find 

these claims in the CY 2005 data. 

For the future, beginning January 1, 

2006, hospitals should report modifier 

‘‘FB’’ on the claim with the device code 

(where there is one to report) or with the 

procedure code (where there is no 

appropriate device code) to indicate that 

a device used in the procedure was 

furnished without cost to the provider 

and, therefore, is not being charged to 

Medicare or the beneficiary. The device 

edits will recognize the modifier and 

will not return the claim to the provider 

as incomplete because the device code 

is not on the claim. CMS will issue 

instructions regarding use of the 

modifier in the January 2006 OPPS 

change request issuance. 

(9) Separate Payment for High Cost 

Devices 

Comment: Some commenters asked 

that we pay separately for high cost 

devices and recommended that CMS 

define ‘‘high cost’’ devices as those with 

a cost greater than 50 percent of the APC 

payment rate. They indicated that even 

with device editing, they do not believe 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68623 

that hospitals will be diligent about 

reporting all of their services or setting 

charges that reflect the costs of the 

devices. They believed that separate 

payments for high cost devices is the 

only way to achieve valid cost data for 

devices and related services. 

Response: In general, we believe that 

packaging the costs of items needed to 

furnish services into the payments for 

the services and the assignment of 

multiple services to a single APC create 

incentives for efficiency and for the 

selection of the least costly device that 

meets the patient’s needs. Therefore, for 

the CY 2006 OPPS, we will continue to 

package payment for all devices without 

pass-through status, and which are not 

brachytherapy sources, into the 

payments for the procedures that utilize 

them. However, we recognize that there 

may be valid reasons to consider 

whether it would be appropriate to pay 

separately for some high cost devices, 

and we will consider whether there are 

circumstances in which this may be 

appropriate in the future. 

After carefully reviewing all 

comments received concerning our 

proposed median cost adjustment for 

device-dependent APCs for CY 2006, we 

have set the medians for devicedependent APCs at the highest of: the 

median cost of all single bills; the 

median cost calculated using only 

claims that contain pertinent device 

codes and for which the device cost is 

greater than $1; or 90 percent of the 

payment median that was used to set 

the CY 2005 payment rates. Table 16 

below shows the adjusted median costs 

for the listed device-dependent APCs for 

which comparisons with prior years are 

valid to the highest of the CY 2006 

unadjusted APC median, 90 percent of 

the adjusted median on which payment 

was based for the CY 2005 OPPS, or the 

median calculated using only claims 

that meet the device code edits 

implemented in CY 2005. 

BILLING CODE 4120–01–P 

68624 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.017</GPH>
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ER10NO05.018</GPH>
68626 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

BILLING CODE 4120–01–C 

B. Pass-Through Payments for Devices 

1. Expiration of Transitional PassThrough Payments for Certain Devices 

Section 1833(t)(6)(B)(iii) of the Act 

requires that, under the OPPS, a 

category of devices be eligible for 

transitional pass-through payments for 

at least 2, but not more than 3 years. 

This period begins with the first date on 

which a transitional pass-through 

payment is made for any medical device 

that is described by the category. In our 

November 15, 2004 final rule with 

comment period (69 FR 65773), we 

specified three device categories 

currently in effect that would cease to 

be eligible for pass-through payment 

effective January 1, 2006. 

The device category codes became 

effective April 1, 2001, under the 

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

pass-through devices under the OPPS 

on a brand-specific basis. All of the 

initial 97 category codes that were 

established as of April 1, 2001, have 

expired; 95 categories expired after CY 

2002 and 2 categories expired after CY 

2003. All of the categories listed in 

Table 17, along with their expected 

expiration dates, were created since we 

published the criteria and process for 

creating additional device categories for 

pass-through payment on November 2, 

2001 (66 FR 55850 through 55857). We 

based the expiration dates for the 

category codes listed in Table 17 on the 

date on which a category was first 

eligible for pass-through payment. 

There are three categories for devices 

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

of December 31, 2005. In the November 

15, 2004 final rule with comment 

period, we finalized the December 31, 

2005 expiration dates for these three 

categories—C1814 (Retinal tamponade 

device, silicone oil), C1818 (Integrated 

keratoprosthesis), and C1819 (Tissue 

localization excision device). Each 

category includes devices for which 

pass-through payment was first made 

under the OPPS in CY 2003 or CY 2004. 

In the November 1, 2002 final rule, we 

established a policy for payment of 

devices included in pass-through 

categories that are due to expire (67 FR 

66763). For CY 2003, we packaged the 

costs of the devices no longer eligible 

for pass-through payments into the costs 

of the procedures with which the 

devices were billed in CY 2001. 

Brachytherapy sources for other than 

prostate brachytherapy, which are now 

separately paid in accordance with 

section 621(b)(2) of Pub. L. 108–173, are 

an exception to this established policy. 

For CY 2005, we continued to apply this 

policy, the same as we did in CYs 2003 

and 2004, to categories of devices that 

expired on December 31, 2004. 

2. Proposed and Final Policy for CY 

2006 

For CY 2006, we proposed to 

implement the final decision we made 

in the November 15, 2004 final rule 

with comment period that finalizes the 

expiration date for pass-through status 

for device categories C1814, C1818, and 

C1819. Therefore, as of January 1, 2006, 

we will discontinue pass-through 

payment for C1814, C1818, and C1819. 

In accordance with our established 

policy, we proposed to package the 

costs of the devices assigned to these 

three categories into the costs of the 

procedures with which the devices were 

billed in CY 2004, the year of hospital 

claims data used for the CY 2006 OPPS 

update. 

We received two public comments 

concerning the expiration of passthrough payment for these three device 

categories. 

Comment: One commenter 

recommended that CMS extend the 

pass-through payment for device 

category C1819 until December 31, 

2006, rather than ending pass-through 

payment on December 31, 2005. The 

commenter expressed concern that our 

median cost data for the procedure 

codes utilizing a tissue localization 

excision device do not include the costs 

attributed to device category C1819, and 

that the volume of C1819 claims is not 

sufficient to affect the median costs for 

CPT codes 19125 (Excision, breast 

lesion) and 19160 (Removal of breast 

tissue). 

Response: We finalized the passthrough payment for device category 

code C1819 in the CY 2005 final rule 

with comment period and responded to 

a similar comment in that same rule (69 

FR 65773). In this CY 2006 final rule 

with comment period, we are merely 

implementing that decision effective for 

services furnished on or after January 1, 

2006. Moreover, we believe that the 

device costs represented by device 

category code C1819 are found in our 

median cost data, as we have CY 2004 

hospital claims billed with C1819 that 

have been used to establish CY 2006 

payment rates. As the device median 

cost was only approximately $67 and 

the median cost of APC 0028 (Level I 

Breast Surgery), where the 

accompanying procedure CPT codes 

19125 and 19160 mentioned in the 

comment reside, is over $1,100, we 

anticipate that the packaging of this 

device will not limit appropriate access. 

We note that as usage of this device 

grows, the device costs may become 

more prominent contributors to the 

median costs of procedures utilizing the 

device, as long as hospitals report the 

device code and its associated charges 

on their claims. 

Comment: One commenter expressed 

concern regarding the appropriate 

packaging of expiring device categories 

from pass-through payment for 

ophthalmologic devices after December 

31, 2005. The commenter recommended 

that device category code C1814 be 

packaged with HCPCS codes 67036 

(Removal of inner eye fluid), 67040 

(Laser treatment of retina), 67108 

(Repair detached retina), and 67112 

(Rerepair detached retina), all of which 

the commenter claimed are paid under 

APC 0672. The commenter 

recommended that device category code 

C1818 be packaged with HCPCS code 

65770 (Revise cornea with implant), 

which is proposed to be paid through 

APC 0244 (Cornea Transplant). 

Response: Our policy is to package 

the expired device categories’ costs with 

the costs relating to the procedure codes 

with which they were billed in our 

claims data. We will apply this policy 

to device category codes C1814 and 

C1818 as well. To the extent that the 

HCPCS codes reported in our claims 

data for the services associated with 

device codes C1814 and C1818 are the 

same as those HCPCS service codes 

noted in the comment, the median cost 

data for those HCPCS codes will include 

the costs associated with codes C1814 

and C1818. 

As indicated in the November 15, 

2004 final rule with comment period, 

device categories C1814, C1818 and 

C1819 will expire from pass-through 

payment on December 31, 2005. We 

remind the public that these C-codes are 

still active for the billing and reporting 

of devices and their charges along with 

the HCPCS codes for the procedures 

with which they are used. When billing 

for procedures utilizing devices that 

have active device codes, hospitals are 

required to report the codes for the 

devices on their claims for the 

procedures. 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68627 

TABLE 17.—LIST OF CURRENT PASS-THROUGH DEVICE CATEGORIES BY EXPIRATION DATE

HCPCS codes Category long descriptor Date(s) 

populated Expiration date 

C1814 ........................ Retinal tamponade device, silicone oil ............................................................................ 4/1/03 12/31/05 

C1818 ........................ Integrated keratoprosthesis ............................................................................................. 7/1/03 12/31/05 

C1819 ........................ Tissue localization excision device .................................................................................. 1/1/04 12/31/05 

C. Other Policy Issues Relating to PassThrough Device Categories 

1. Provisions for Reducing Transitional 

Pass-Through Payments to Offset Costs 

Packaged Into APC Groups 

a. Background 

In the November 30, 2001 final rule, 

we explained the methodology we used 

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). Beginning 

with the implementation of the CY 2002 

OPPS quarterly update (April 1, 2002), 

we deducted from the pass-through 

payments for the identified devices an 

amount that reflected the portion of the 

APC payment amount that we 

determined was associated with the cost 

of the device, as required by section 

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

November 1, 2002 interim final rule 

with comment period, we published the 

applicable offset amounts for CY 2003 

(67 FR 66801). 

For the CY 2002 and CY 2003 OPPS 

updates, to estimate the portion of each 

APC payment rate that could reasonably 

be attributed to the cost of an associated 

device eligible for pass-through 

payment, we used claims data from the 

period used for recalibration of the APC 

rates. That is, for CY 2002 OPPS 

updating, we used CY 2000 claims data 

and for CY 2003 OPPS updating, we 

used CY 2001 claims data. For CY 2002, 

we used median cost claims data based 

on specific revenue centers used for 

device related costs because C-code cost 

data were not available until CY 2003. 

For CY 2003, we calculated a median 

cost for every APC without packaging 

the costs of associated C-codes for 

device categories that were billed with 

the APC. We then calculated a median 

cost for every APC with the costs of the 

associated device category C-codes that 

were billed with the APC packaged into 

the median. Comparing the median APC 

cost without device packaging to the 

median APC cost including device 

packaging enabled us to determine the 

percentage of the median APC cost that 

is attributable to the associated passthrough devices. By applying those 

percentages to the APC payment rates, 

we determined the applicable amount to 

be deducted from the pass-through 

payment, the ‘‘offset’’ amount. We 

created an offset list comprised of any 

APC for which the device cost was at 

least 1 percent of the APC’s cost. 

The offset list that we have published 

each year is a list of offset amounts 

associated with those APCs with 

identified offset amounts developed 

using the methodology described above. 

As a rule, we do not know in advance 

which procedures residing in certain 

APCs may be billed with new device 

categories. Therefore, an offset amount 

is applied only when a new device 

category is billed with a HCPCS 

procedure code that is assigned to an 

APC appearing on the offset list. The list 

of potential offsets for CY 2005 is 

currently published on the CMS Web 

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

‘‘Device-Related Portions of Ambulatory 

Payment Classification Costs for 2005.’’

For CY 2004, we modified our policy 

for applying offsets to device passthrough payments. Specifically, we 

indicated that we would apply an offset 

to a new device category only when we 

could determine that an APC contains 

costs associated with the device. We 

continued our existing methodology for 

determining the offset amount, 

described earlier. We were able to use 

this methodology to establish the device 

offset amounts for CY 2004 because 

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

the CY 2004 OPPS update. For the CY 

2005 update to the OPPS, our data 

consisted of CY 2003 claims that did not 

contain device codes and, therefore, for 

CY 2005 we utilized the device 

percentages as developed for CY 2004. 

In the CY 2004 OPPS update, we 

reviewed the device categories eligible 

for continuing pass-through payment in 

CY 2004 to determine whether the costs 

associated with the device categories are 

packaged into the existing APCs. Based 

on our review of the data for the device 

categories existing in CY 2004, we 

determined that there were no close or 

identifiable costs associated with the 

devices relating to the respective APCs 

that are normally billed with them. 

Therefore, for those device categories, 

we set the offset to $0 for CY 2004. We 

continued this policy of setting offsets 

to $0 for the device categories that 

continued to receive pass-through 

payment in CY 2005. 

For the CY 2006 OPPS update, CY 

2004 hospital claims are available for 

analysis. Hospitals billed device Ccodes in CY 2004 on a voluntary basis. 

We have reviewed our CY 2004 data, 

examining hospital claims for services 

that included device C-codes and 

utilizing the methodology for 

calculating device offsets noted above. 

The numbers of claims for services in 

many of the APCs for which we 

calculated device percentages using CY 

2004 data were quite small. Many of 

these APCs already had relatively few 

single claims available for median 

calculations compared with the total bill 

frequencies because of our inability to 

use many multiple bills in establishing 

median costs for all APCs, and 

subsetting the single claims to only 

those including C-codes often reduced 

those single bills by 80 percent or more. 

Our claims demonstrate that relatively 

few hospitals specifically coded for 

devices utilized in CY 2004. Thus, we 

are not confident that CY 2004 claims 

reporting C-codes represent the typical 

costs of all hospitals providing the 

services. Therefore, we did not propose 

to use CY 2004 claims with device 

coding to propose CY 2006 device offset 

amounts. In addition, we did not 

propose to use the CY 2005 

methodology, for which we utilized the 

device percentages as developed for CY 

2004. Two years have passed since we 

developed the device offsets for CY 

2004, and the device offsets originally 

calculated from CY 2002 hospitals’

claims data may not appropriately 

reflect the contributions of device costs 

to procedural costs in the current 

outpatient hospital environment. In 

addition, a number of the APCs on the 

CY 2004 and CY 2005 device offset 

percentage lists are either no longer in 

existence or have been so significantly 

reconfigured that the past device offsets 

likely do not apply. 

b. Proposed and Final Policy for CY 

2006 

For CY 2006, we proposed to continue 

to review each new device category on 

a case-by-case basis as we have done in 

CY 2004 and CY 2005, to determine 

whether device costs associated with 

68628 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

the new category are packaged into the 

existing APC structure. If we do not 

determine for any new device category 

the device costs associated with the new 

category are packaged into existing 

APCs, we proposed to continue our 

current policy of setting the offset for 

the new category to $0 for CY 2006. 

There are currently no established 

categories that would continue for passthrough payment in CY 2006. However, 

we may establish new categories in any 

quarter. If we create a new device 

category and determine that our data 

contain a sufficient number of claims 

with identifiable costs associated with 

the devices in any APC, we would 

adjust the APC payment if the offset is 

greater than $0. If we determine that a 

device offset greater than $0 is 

appropriate for any new category that 

we create, we proposed to announce the 

offset amounts in the program 

transmittal that announces the new 

category. 

For CY 2006, we proposed to use 

available partial year or full year CY 

2005 hospital claims data to calculate 

device percentages and potential offsets 

for CY 2006 applications for new device 

categories. Effective January 1, 2005, we 

require hospitals to report device Ccodes and their costs when hospitals 

bill for services which utilize devices 

described by the existing C-codes. In 

addition, during CY 2005 we are 

implementing device edits for many 

services that require devices and for 

which appropriate device C-codes exist. 

Therefore, we expect that the number of 

claims, including device codes and their 

respective costs, will be much more 

robust and representative for CY 2005 

than for CY 2004. We also note that 

offsets would not be used for any 

existing categories at this time. If a new 

device category is created for payment, 

for CY 2006 we proposed to examine the 

available CY 2005 claims data, 

including device costs, to determine 

whether device costs associated with 

the new category are already packaged 

into the existing APC structure, as 

indicated earlier. If we conclude that 

some related device costs are packaged 

into existing APCs, we proposed to 

utilize the methodology described 

earlier and first used for the CY 2003 

OPPS to determine an appropriate 

device offset percentage for those APCs 

with which the new category would be 

reported. 

We proposed not to publish a list of 

APCs with device percentages as a 

transitional policy for CY 2006 because 

of the previously discussed limitations 

of the CY 2004 OPPS data with respect 

to device costs associated with 

procedures. We expect to reexamine our 

previous methodology for calculating 

the device percentages and offset 

amounts for the CY 2007 OPPS update, 

which will be based on CY 2005 

hospital claims data where device Ccode reporting is required. 

We did not receive any public 

comments in response to our proposals. 

Accordingly, we are finalizing our 

proposed policy for CY 2006 for 

calculating device percentages and 

applying offsets. 

2. Criteria for Establishing New PassThrough Device Categories 

a. Surgical Insertion and Implantation 

Criterion 

One of our criteria, as set forth in 

§ 419.66(b)(3) of the regulations, for 

establishing a new category of devices 

for pass-through payment is that the 

item be surgically inserted or implanted. 

The criterion that a device be surgically 

inserted or implanted is one of our 

original criteria adopted when we 

implemented the BBRA requirement 

that we establish pass-through payment 

for devices. This criterion helps us 

define whether an item is a device, as 

distinguished from other items, such as 

materials and supplies. We further 

clarified our definition of the surgical 

insertion and implantation criterion in 

the November 13, 2000 final rule (65 FR 

67805). In that rule, we stated that we 

consider a device to be surgically 

inserted or implanted if it is introduced 

into the human body through a 

surgically created incision. We also 

stated that we do not consider an item 

used to cut or otherwise create a 

surgical opening to be a device that is 

surgically inserted or implanted. 

In our November 15, 2004 final rule 

with comment period, we responded to 

comments received on our CY 2005 

OPPS proposed rule, which requested 

that we revisit our surgical insertion and 

implantation criterion for establishing a 

new device category. The commenters 

specifically requested that CMS 

eliminate the current requirement that 

items that are included in new passthrough device categories must be 

surgically inserted or implanted through 

a surgically created incision. The 

commenters expressed concern that the 

current requirement may prevent access 

to innovative and less invasive 

technologies, particularly in the areas of 

gynecologic, urologic, colorectal, and 

gastrointestinal procedures. These 

commenters asked that CMS change the 

surgical insertion or implantation 

criterion to allow pass-through payment 

for potential new device categories that 

include items introduced into the 

human body through a natural orifice, 

as well as through a surgically created 

incision. Several of the commenters 

recommended that CMS allow the 

creation of a new pass-through category 

for items implanted or inserted through 

a natural orifice, as long as the other 

existing criteria are met. 

In responding to the commenters, we 

stated in the November 15, 2004 final 

rule with comment period (69 FR 

65774) that we were also interested in 

hearing the views of other parties and 

receiving additional information on 

these issues. While we appreciate and 

welcome additional comments on these 

issues from the medical device makers, 

we were also interested in hearing the 

views of Medicare beneficiaries, of the 

hospitals that are paid under the OPPS, 

and of physicians and other 

practitioners who attend to patients in 

the hospital outpatient setting. For that 

reason, we solicited additional 

comments on this topic within the 60- 

day comment period for the November 

15, 2004 final rule with comment period 

(69 FR 65774 through 65775). In framing 

their comments, we asked that 

commenters consider the following 

questions specific to devices introduced 

into the body through natural orifices: 

1. Whether orifices include those that 

are either naturally or surgically created, 

as in the case of ostomies. If you believe 

this includes only natural orifices, why 

do you distinguish between natural and 

surgically created orifices? 

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

respect to time and to predecessor 

technology? What additional criteria or 

characteristics do you believe 

distinguish ‘‘new’’ devices that are 

surgically introduced through an 

existing orifice from older technology 

that also is inserted through an orifice? 

3. What characteristics do you 

consider to distinguish a device that 

might be eligible for a pass-through 

category even if inserted through an 

existing orifice from materials and 

supplies such as sutures, clips or 

customized surgical kits that are used 

incident to a service or procedure? 

4. Are there differences with respect 

to instruments that are seen as supplies 

or equipment for open procedures when 

those same instruments are passed 

through an orifice using a scope? 

(1) Public Comments Received on the 

November 15, 2004 Final Rule With 

Comment Period and Our Responses 

Below is a summary of the public 

comments we received on the four 

stated surgical insertion and 

implantation device criterion questions 

and our responses to them. 

Comment: Most commenters generally 

framed their responses to the four 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68629 

questions listed above. Commenters 

were generally in favor of modifying our 

surgical insertion and implantation 

criterion so that devices that are placed 

into patients without the need for a 

surgical incision would not be ineligible 

for pass-through payment, claiming that 

devices that are inserted through a 

natural orifice offer important benefits 

to Medicare beneficiaries, such as 

avoidance of more costly and more 

invasive surgery. One commenter stated 

that procedures that could be performed 

with minimal morbidity and on an 

outpatient basis are the trend for surgery 

and should be encouraged. Another 

commenter believed that our criterion of 

surgical insertion or implantation 

through a surgically created incision 

was ineffective as a clear and 

comprehensive description of surgical 

procedures, including endoscopic and 

laparoscopic procedures. 

Regarding the first specific question 

we posed, whether devices introduced 

into the body through natural orifices 

includes orifices that are either 

naturally or surgically created, 

commenters generally stated CMS 

should include devices as potentially 

eligible for pass-through categories 

whether they are introduced through 

orifices that are either naturally or 

surgically created, as in the case of 

ostomies, if the devices meet other cost 

and clinical criteria, in order to 

encourage the development of new 

technologies. 

Regarding the second question 

restated above, which asked how the 

public would define ‘‘new’’ with respect 

to time and to predecessor technology, 

some commenters stated that they 

believed the current clinical and cost 

criteria are sufficient and that no 

additional criteria or characteristics are 

needed. Several commenters indicated 

that the timeframe for what CMS 

considers ‘‘new’’ could be clarified so 

that if the device in question was not 

FDA approved or not used for the 

services in the OPD during the year of 

the hospital claims that provided the 

basis for the most recent OPPS update, 

it should be considered ‘‘new.’’ Some 

commenters elaborated by example. 

They stated that if CMS changes the 

surgical insertion or implantation 

requirement to include devices inserted 

through natural orifices in CY 2005, 

devices approved by the FDA and in use 

in the OPD in CY 2003 or previously 

would not be eligible, while devices 

approved by FDA in CY 2004 or later 

and used in the OPD settings would be 

eligible for pass-through consideration. 

Another commenter stated that the 

definition of ‘‘new’’ device should 

include those devices that require only 

an FDA investigational device 

exemption (IDE) clearance. The 

commenter further stated that these 

devices should be granted ‘‘new’’ status 

at the time of FDA release as an IDE. 

The commenter stated that if FDA 

required a premarket approval (PMA) 

for the device, a determination of 

newness should be made on a case-bycase basis. 

Regarding the question of what 

characteristics distinguish a device that 

might be eligible for a pass-through 

category even if inserted through an 

existing orifice from materials and 

supplies that are used incident to a 

service or procedure, some commenters 

generally believed that the current 

clinical and cost criteria are sufficient to 

distinguish devices that might be 

eligible from materials and supplies. 

Other commenters stated that the device 

must be an integral part of the 

procedure or that it should include the 

characteristic of having a diagnostic or 

therapeutic purpose, without which the 

procedure could not be performed. 

Thus, according to these commenters, 

the device must function for a specific 

procedure, while supplies may be used 

for many procedures. One commenter 

pointed out that many devices are now 

implanted through the use of naturally 

occurring orifices or without significant 

incisions. This commenter indicated 

that the requirement of a ‘‘traditional 

incision’’ no longer serves the purpose 

of distinguishing between devices that 

are and are not implanted, or between 

devices and supplies and instruments. 

The commenter stated that retaining the 

requirement of a traditional incision 

could create incentives to use more 

invasive technology, if that is the 

technology that is eligible for passthrough payments and less invasive 

technology is not. The commenter 

suggested excluding tools and 

disposable supplies by excluding any 

item that is used primarily for the 

purpose of cutting or delivering an 

implantable device. However, the 

commenter recommended not reducing 

payment when delivery systems are 

packaged with the device. The 

commenter further recommended that 

the term ‘‘incision’’ be clearly defined to 

include all procedures involving the 

cutting, breaking, or puncturing of 

tissue or skin, regardless of how small 

that cut is, provided that the device is 

attached to or inserted into the body via 

this cut, puncture, or break. Another 

commenter stated that there are items 

included in a surgical kit that have 

significant cost and are single use, for 

example, guidewires, implying that it is 

sometimes difficult to determine what a 

supply is. 

Regarding our question about whether 

there are differences with respect to 

instruments that are seen as supplies or 

equipment for open procedures when 

those same instruments are passed 

through an orifice using a scope, 

commenters believed that the 

definitions of supplies and eligible 

devices are independent of the use of a 

scope during a procedure, and stated 

there were no distinguishing features of 

supplies or equipment. One commenter 

reiterated that the current clinical and 

cost criteria are sufficient to distinguish 

eligible devices (that is, those with ‘‘a 

specific therapeutic use’’) from 

materials and supplies. Commenters 

believed that the use of a scope should 

not be a factor in the distinction 

between devices and supplies. 

One commenter urged us to consider 

the points that the surgical incision 

requirement is not mandated by statute 

and that CMS’ criterion to limit devices 

to only those that are surgically inserted 

or implanted may have been based upon 

concern that less restrictive criteria 

would cause spending on pass-though 

items to exceed the pool of money set 

to fund the pass-though payments. The 

commenter indicated that this concern 

would no longer be valid, given the 

relatively few items currently paid on a 

pass-through basis. 

Response: As we stated in the 

November 15, 2004 final rule, we share 

the view that it is important to ensure 

access for Medicare beneficiaries to new 

technologies that offer substantial 

clinical improvement in the treatment of 

their medical conditions. We also 

recognize that since the beginning of the 

OPPS, there have been beneficial 

advances in technologies and services 

for many conditions, which have both 

markedly altered the courses of medical 

care and ultimately improved the health 

outcomes of many beneficiaries. 

We carefully considered the 

comments and proposed to maintain our 

current criterion that a device must be 

surgically inserted or implanted, but 

also proposed to modify the way we 

currently interpret this criterion under 

§ 419.66(b)(3) of the regulations. We 

proposed to consider eligible those 

items that are surgically inserted or 

implanted either through a natural 

orifice or a surgically created orifice 

(such as through an ostomy), as well as 

those that are inserted or implanted 

through a surgically created incision. 

We noted that we would maintain all of 

our other criteria in § 419.66 of the 

regulations, as elaborated in our various 

rules, such as the November 1, 2002 

final rule (67 FR 66781 through 66787). 

68630 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

Specifically, we noted that we would 

maintain the clarification made at the 

time we clarified the surgically inserted 

or implanted criterion in our August 3, 

2000 interim final rule with comment 

period, namely, that we do not consider 

an item used to cut or otherwise create 

a surgical opening to be a device that is 

surgically implanted or inserted (65 FR 

67805). 

With this proposed revision of our 

definition of devices that are surgically 

inserted or implanted, we reminded the 

public that device category eligibility for 

transitional pass-through payment 

continues to depend on meeting our 

substantial clinical improvement 

criterion, where we compare the clinical 

outcomes of treatment options using the 

device to currently available treatments, 

including treatments using devices in 

existing or previously existing passthrough device categories. We expect 

that requested new pass-through device 

categories that successfully demonstrate 

substantial clinical improvement for 

Medicare beneficiaries would describe 

new devices, where the additional 

device costs would not be reflected in 

the hospital claims data providing the 

costs of treatments available during the 

time period used for the most recent 

OPPS update. 

(2) Public Comments Received on the 

CY 2006 OPPS Proposed Rule and Our 

Responses 

We received many comments 

concerning our proposals to modify the 

surgical insertion or implantation 

criterion for new pass-through device 

categories. 

Comment: Commenters supported our 

proposal to modify the way we 

currently interpret our criterion that a 

device must be surgically inserted or 

implanted under § 419.66(b)(3) of the 

regulations, but suggested that CMS 

consider eligible those items that are 

surgically inserted or implanted either 

through a natural orifice or a surgically 

created orifice (such as through an 

ostomy), as well as items that are 

surgically inserted or implanted through 

a surgically created incision. A few 

commenters suggested that CMS modify 

the regulatory language to codify this 

change, by explicitly stating in 

§ 419.66(b)(3) that the device is 

implanted or inserted through a natural 

or surgically created orifice or through 

a surgically created incision. These 

commenters made this request in the 

context of stating that the proposed 

interpretation resolves the current need 

to make a traditional surgical incision to 

insert or implant a device through an 

orifice for that device to be considered 

eligible for a pass-through device 

category. 

Response: We appreciate the support 

for our proposal to modify our 

interpretation of the surgical insertion 

or implantation criterion for passthrough payment eligibility for devices. 

Our current criterion is that a device 

must be surgically inserted or 

implanted, while our interpretation of 

this criterion up to this point has been 

to consider eligible only those devices 

that are inserted or implanted through a 

surgically created incision, as clarified 

in our August 3, 2000 interim final rule. 

As stated above, other clarifications in 

that interim final rule remain. We do 

not believe that it is either essential or 

advisable to revise the regulations. 

Therefore, we are not changing the 

current language of § 419.66(b)(3), as 

some commenters have suggested. 

However, we are adopting as final our 

interpretation that surgical insertion or 

implantation criteria include devices 

that are surgically inserted or implanted 

via a natural or surgically created 

orifice, as well as those devices that are 

inserted or implanted via a surgically 

created incision. We will maintain all of 

the other criteria in § 419.66 of the 

regulations, as elaborated in our various 

rules, such as the November 1, 2002 

final rule (67 FR 66781 through 66787) 

and our August 3, 2000 interim final 

rule with comment period, namely, that 

we do not consider an item used to cut 

or otherwise create a surgical opening to 

be a device that is surgically implanted 

or inserted (65 FR 67805). 

b. Existing Device Category Criterion 

One of our criteria, as set forth in 

§ 419.66(c)(1) of the regulations, to 

establish a new device category for passthrough payment is that the devices that 

would populate the category not be 

described by any existing or previously 

existing category. Commenters to our 

various proposed rules, as well as 

applicants for new device categories, 

have expressed concern that some of our 

existing and previously existing device 

category descriptors are overly broad, 

and that the category descriptors as they 

are currently written may preclude 

some new technologies from qualifying 

for establishment of a new device 

category for pass-through payment. 

These parties have recommended that 

CMS consider modifying the descriptors 

for existing device categories, especially 

when a device would otherwise meet all 

the other criteria for establishing a new 

device category to qualify for passthrough payment. 

We agree that implementation of the 

requirement that a new device category 

not be described by an existing or 

previously existing category merits 

review. Beginning with CY 2006, 3 years 

will have elapsed since the vast majority 

of the 97 initial device categories we 

established on April 1, 2001, will have 

expired: 95 categories expired after 

December 31, 2002, and 2 categories 

expired after December 31, 2003. 

Several additional years will have 

passed since those categories were first 

populated in CY 2000 or CY 2001. Thus, 

while some of the initial device category 

descriptors sufficed at the time they 

were first created, further clarification 

as to the types of devices that they are 

meant to describe is indicated. 

Therefore, we proposed to create an 

additional category for devices that meet 

all of the criteria required to establish a 

new category for pass-through payment 

in instances where we believe that an 

existing or previously existing category 

descriptor does not appropriately 

describe the new type of device. This 

may entail the need to clarify or refine 

the short or long descriptors of the 

previous category. We will evaluate 

each situation on a case-by-case basis. 

We proposed that any such clarification 

will be made prospectively from the 

date the new category would be made 

effective. 

We also proposed to revise 

§ 419.66(c)(1) of the regulations, 

accordingly, to reflect, as one of the 

criteria for establishing a device 

category, our determination that a 

device is not appropriately described by 

any of the existing categories or by any 

category previously in effect. In order to 

determine if a ‘‘new’’ device is 

appropriately described by an existing 

or previously existing category of 

devices, we proposed to apply two tests 

based upon our evaluation of 

information provided to us in the device 

category application. First, we will 

expect an applicant for a new device 

category to show that its device is not 

similar to devices (including related 

predicate devices) whose costs are 

reflected in the OPPS claims data in the 

most recent OPPS update. Second, we 

will require an applicant for a new 

device category to demonstrate that 

utilization of its device provides a 

substantial clinical improvement for 

Medicare beneficiaries compared with 

currently available treatments, 

including procedures utilizing devices 

in existing or previously existing device 

categories. We will consider a new 

device that meets both of these tests not 

to be appropriately described by one of 

the existing or previously existing passthrough device categories. 

We received a large number of public 

comments concerning our proposal to 

create an additional category for devices 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68631 

that meet all of the criteria required to 

establish a new category for passthrough payment in instances where we 

believe that an existing or previously 

existing category descriptor does not 

appropriately describe the new type of 

device. 

Comment: Commenters generally 

supported our proposal to create an 

additional category for devices that meet 

all of the criteria required to establish a 

new category for pass-through payment 

in instances where we believe that an 

existing or previously existing category 

descriptor does not appropriately 

describe the new type of device, and 

which may entail the need to clarify or 

refine the short or long descriptors of 

the previous category. The commenters 

believed that CMS has sufficient 

documentation on devices in expired 

categories to differentiate those devices 

from new devices, as well as the 

authority to clarify the definitions of 

previously existing categories. The 

commenters gave examples of devices 

that they believe are not appropriately 

described by existing categories and 

whose descriptors are overly broad. 

Commenters also supported the 

application of the two tests that we 

proposed to apply in order to determine 

if the devices in device category 

applications are described by an 

existing or previously existing category. 

One commenter expressed that it would 

be useful for CMS to provide additional 

details on how we intend to evaluate 

whether a new technology is similar to 

existing technologies. Another 

commenter expressed concern that we 

have not developed standards of proof 

of substantial clinical improvement, 

which is one of the proposed tests, and 

encouraged CMS to develop further 

explanation of the substantial clinical 

improvement test. 

Response: We appreciate the 

commenters’ support for our proposed 

modification to our policy that a device 

may not be described by an existing or 

previously existing device category. 

Regarding the recommendations made 

for clarifying whether a nominated new 

device is similar to an existing 

technology, as new device applications 

consist of unique technologies, 

evaluation of what constitutes a similar 

technology or substantial clinical 

improvement is done on an individual 

application basis. We refer the 

commenters to our discussion of the 

substantial clinical improvement 

criterion that is found in our November 

1, 2002 final rule (67 FR 66782–66783), 

which provides a list of criteria and 

examples of clinical outcomes that are 

used to determine if a request for a new 

category of devices meets our 

substantial clinical improvement 

criterion. 

Comment: A few commenters 

recommended that CMS consider 

pending pass-through applications in 

light of this modification to the existing 

category criterion, and that CMS make 

modifications to existing or previously 

existing categories effective January 1, 

2006, where all device category criteria 

are met. 

Response: It is our intention to 

evaluate pending pass-through device 

category applications against any 

changes to criteria as a result of this 

final rule with comment period. If any 

pending applications are then eligible 

for establishment of a new device 

category for pass-through payment, we 

will endeavor to add those for payment 

effective January 1, 2006. Any payment 

instructions would be announced in the 

program transmittal implementing our 

CY 2006 OPPS update. 

Comment: In commenting on our 

proposal to modify the existing device 

category criterion for pass-through 

payment for devices, a number of 

commenters noted that rechargeable 

implantable pulse generator (IPG) 

neurostimulators should be provided 

with pass-through payment status, and 

that a new category is needed 

specifically for rechargeable 

neurostimulators. The commenters 

claimed that rechargeable 

neurostimulators have allowed a 

significant advance to the field of 

neuromodulation for the treatment of 

chronic intractable pain. The 

commenters stated there is a high degree 

of patient compliance with rechargeable 

neurostimulators, and these devices will 

reduce the cost of spinal cord 

stimulation over time by reducing the 

number of surgical battery 

replacements. A large number of 

commenters stated that the new class of 

rechargeable IPG neurostimulators 

meets our proposed new tests to 

determine if a device is described by an 

existing or previously existing category. 

The commenters requested that CMS 

clarify the previously existing category 

to state that it described 

nonrechargeable neurostimulators. The 

commenters recommended that CMS 

apply any revised criterion to pending 

applications. 

Response: We note that two passthrough applications now under 

consideration are for devices currently 

described by a previously existing passthrough category. These applications are 

for implantable rechargeable 

neurostimulators. Neurostimulators are 

covered by a previously existing OPPS 

device category for pass-through 

payment, C1767, Generator, 

neurostimulator (implantable). This 

same type of rechargeable device was 

considered for the IPPS new technology 

add-on payment, and passed all that 

payment system’s criteria, including 

demonstrating substantial clinical 

improvement. Therefore, with the 

adoption of our proposal to clarify an 

existing or previously existing device 

category if an existing or previously 

existing device category does not 

appropriately describe a new device and 

the device would otherwise be eligible 

for a new pass-through device category, 

we will consider the rechargeable 

neurostimulator applications for passthrough payment beginning January 

2006, in which case we would also 

consider the need to clarify or refine the 

description of category C1767. Any 

coding and payment information will be 

announced in the program transmittal 

implementing the OPPS for CY 2006. 

We also note that we have included an 

estimate for a rechargeable 

neurostimulator category in our passthrough spending estimate in section 

VI.B of this rule, should there be 

creation of a new device category for 

pass-through payment for such devices. 

We are finalizing this proposal 

without change. We will create an 

additional category for devices that meet 

all of the criteria required to establish a 

new category for pass-through payment 

in instances where we believe that an 

existing or previously existing category 

descriptor does not appropriately 

describe the new type of device. This 

may entail the need to clarify or refine 

the short or long descriptors of the 

previous category. We will evaluate 

each situation on a case-by-case basis 

and apply the two tests described above. 

Any such clarification to a category 

descriptor will be made prospectively 

from the date the new category would 

be made effective. We are also finalizing 

our proposed revision of our regulations 

at § 419.66(c)(1) to reflect this change. 

V. Payment Changes for Drugs, 

Biologicals, and Radiopharmaceuticals 

A. Transitional Pass-Through Payment 

for Additional Costs of Drugs and 

Biologicals 

1. Background 

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

for temporary additional payments or 

‘‘transitional pass-through payments’’

for certain drugs and biological agents. 

As originally enacted by the BBRA, this 

provision required the Secretary to 

make additional payments to hospitals 

for current orphan drugs, as designated 

under section 526 of the Federal Food, 

Drug, and Cosmetic Act (Pub. L. 107–

186); current drugs and biological agents 

68632 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

and brachytherapy used for the 

treatment of cancer; and current 

radiopharmaceutical drugs and 

biological products. For those drugs and 

biological agents referred to as 

‘‘current,’’ the transitional pass-through 

payment began on the first date the 

hospital OPPS was implemented (before 

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

December 21, 2000). 

Transitional pass-through payments 

are also required for certain ‘‘new’’

drugs, devices, and biological agents 

that were not being paid for as a 

hospital OPD service as of December 31, 

1996, and whose cost is ‘‘not 

insignificant’’ in relation to the OPPS 

payment for the procedures or services 

associated with the new drug, device, or 

biological. Under the statute, 

transitional pass-through payments can 

be made for at least 2 years but not more 

than 3 years. In Addenda A and B to 

this final rule with comment period, 

pass-through drugs and biological 

agents are identified by status indicator 

‘‘G.’’

The process to apply for transitional 

pass-through payment for eligible drugs 

and biological agents can be found on 

our CMS Web site: www.cms.hhs.gov. If 

we revise the application instructions in 

any way, we will post the revisions on 

our Web site and submit the changes to 

the Office of Management and Budget 

(OMB) for approval, as required under 

the Paperwork Reduction Act (PRA). 

Notification of new drugs and 

biologicals application processes is 

generally posted on the OPPS Web site 

at: http://www.cms.hhs.gov/providers/ 

hopps. 

2. Expiration in CY 2005 of PassThrough Status for Drugs and 

Biologicals 

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

specifies that the duration of 

transitional pass-through payments for 

drugs and biologicals must be no less 

than 2 years and no longer than 3 years. 

The drugs whose pass-through status 

will expire on December 31, 2005, meet 

that criterion. In the CY 2006 OPPS 

proposed rule, in Table 19 (70 FR 

42722) we listed the 10 drugs and 

biologicals for which we proposed that 

pass-through status would expire on 

December 31, 2005. 

We received one public comment 

concerning the proposed expiration of 

pass-through status for those drugs and 

biologicals on December 31, 2005. 

Comment: One commenter noted that 

the proposed rule did not make clear 

whether drugs coming off pass-through 

status will be reassigned to J-codes or 

will continue to be listed under their Ccodes for payment purposes and 

requested clarification in the final rule. 

Response: In order to reduce 

redundancy and simplify coding for 

drugs, biologicals, and 

radiopharmaceuticals under the OPPS, 

we are deleting the temporary C-codes 

for items that also have permanent 

HCPCS codes and are paying for those 

items under the permanent HCPCS 

codes if it is appropriate to do so. 

Among the items whose pass-through 

status will expire on December 31, 2005, 

are HCPCS codes C9123, C9203, C9205, 

C9211, and C9212, which will be 

deleted effective December 31, 2005. For 

services furnished on or after January 1, 

2006, hospitals should use HCPCS code 

J7344 to bill for Transcyte, HCPCS code 

Q9955 to bill for Perflexane lipid micro, 

HCPCS code J9263 to bill for 

Oxaliplatin, and HCPCS code J0215 to 

bill for Alefacept. Later in the preamble, 

we list all of the C-codes in Table 25 

that will be deleted on December 31, 

2005 and replaced with other existing or 

new HCPCS codes in CY 2006. 

For this final rule with comment 

period, in Table 18 below, we are 

specifying the drugs and biologicals for 

which pass-through status will expire 

on December 31, 2005. This listing is 

the same as that published in the 

proposed rule. 

TABLE 18.—LIST OF DRUGS AND BIOLOGICALS FOR WHICH PASS-THROUGH STATUS EXPIRES DECEMBER 31, 2005 

HCPCS APC Short descriptor 

C9123 ...................................................................................................................................................... 9123 Transcyte, per 247 sq cm. 

C9203 ...................................................................................................................................................... 9203 Perflexane lipid micro. 

C9205 ...................................................................................................................................................... 9205 Oxaliplatin. 

C9211 ...................................................................................................................................................... 9211 Inj, alefacept, IV. 

C9212 ...................................................................................................................................................... 9212 Inj, alefacept, IM. 

J0180 ....................................................................................................................................................... 9208 Agalsidase beta injection. 

J1931 ....................................................................................................................................................... 9209 Laronidase injection. 

J2469 ....................................................................................................................................................... 9210 Palonosetron HCl. 

J3486 ....................................................................................................................................................... 9204 Ziprasidone mesylate. 

J9041 ....................................................................................................................................................... 9207 Bortezomib injection. 

3. Drugs and Biologicals With PassThrough Status in CY 2006 

In the CY 2005 OPPS proposed rule 

(70 FR 42722 and 42723), we proposed 

to continue pass-through status in CY 

2006 for 14 drugs and biologicals. These 

items, which were listed in Table 20 of 

the CY 2006 OPPS proposed rule (70 FR 

42723), were given pass-through status 

as of April 1, 2005. The APCs and 

HCPCS codes for drugs and biologicals 

that we proposed to continue with passthrough status in CY 2006 are assigned 

status indicator ‘‘G’’ in Addenda A and 

B of this final rule with comment 

period. 

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

the payment rate for pass-through 

eligible drugs (assuming that no pro rata 

reduction in pass-through payment is 

necessary) as the amount determined 

under section 1842(o) of the Act. We 

note that this section of the Act also 

states that if a drug or biological is 

covered under a competitive acquisition 

contract under section 1847B of the Act, 

the payment rate is equal to the average 

price for the drug or biological for all 

competitive acquisition areas and the 

year established as calculated and 

adjusted by the Secretary. The 

competitive acquisition program had 

not been implemented at the time of 

issuance of the CY 2006 proposed rule. 

Therefore, we did not have payment 

rates for certain drugs and biologicals 

that would be covered under this 

program at that time. Section 1847A of 

the Act, as added by section 303(c) of 

Pub. L. 108–173, establishes the use of 

the average sales price (ASP) 

methodology as the basis for payment of 

drugs and biologicals described in 

section 1842(o)(1)(C) of the Act and 

furnished on or after January 1, 2005. 

This payment methodology is set forth 

in § 419.64 of the regulations. Similar to 

the payment policy established for passthrough drugs and biologicals in CY 

2005, we proposed to pay under the 

OPPS for drugs and biologicals with 

pass-through status in CY 2006 

consistent with the provisions of section 

1842(o) of the Act, as amended by 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68633 

section 621 of Pub. L. 108–173, at a rate 

that is equivalent to the payment these 

drugs and biologicals would receive in 

the physician office setting. 

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

sets the amount of additional payment 

for pass-through eligible drugs and 

biologicals (the pass-through payment 

amount). The pass-through payment 

amount is the difference between the 

amount authorized under section 

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

the otherwise applicable fee schedule 

amount (that is, the APC payment rate) 

that the Secretary determines is 

associated with the drug or biological. 

In the CY 2006 OPPS proposed rule, 

(70 FR 42722 and 42731) we proposed 

to continue to make separate payment in 

CY 2006 for new drugs and biologicals 

with a HCPCS code consistent with the 

provisions of section 1842(o) of the Act, 

as amended by section 621 of Pub. L. 

108 173, at a rate that is equivalent to 

the payment they would receive in a 

physician office setting, whether or not 

we have received a pass-through 

application for the item. Accordingly, in 

CY 2006 the pass-through payment 

amount would equal zero for those new 

drugs and biologicals that we determine 

have pass-through status. That is, when 

we subtract the amount to be paid for 

pass-through drugs and biologicals 

under section 1842(o) of the Act, as 

amended by section 621 of Pub. L. 108–

173, from the portion of the otherwise 

applicable fee schedule amount or the 

APC payment rate associated with the 

drug or biological that would be the 

amount paid for drugs and biologicals 

under section 1842(o) of the Act as 

amended by section 621 of Pub. L. 108–

173, the resulting difference is equal to 

zero. 

We proposed to use payment rates 

based on the ASP data from the fourth 

quarter of 2004 for budget neutrality 

estimates, impact analyses, and to 

complete Addenda A and B of the 

proposed rule because these were the 

most recent numbers available to us 

during the development of the proposed 

rule. These payment rates were also the 

basis for drug payments in the physician 

office setting effective April 1, 2005. To 

be consistent with the ASP-based 

payments that would be made when 

these drugs and biologicals are 

furnished in physician offices, we stated 

in our proposed rule (70 FR 42722 and 

42723) that we planned to make any 

appropriate adjustments to the amounts 

shown in Addenda A and B of the 

proposed rule when we publish our 

final rule and also on a quarterly basis 

on our Web site during CY 2006 if later 

quarter ASP submissions indicate that 

adjustments to the payment rates for 

these pass-through drugs and biologicals 

are necessary. 

In Table 20 of the proposed rule, we 

listed the drugs and biologicals for 

which we proposed that pass-through 

status continue in CY 2006. We assigned 

pass-through status to these drugs and 

biologicals as of April 1, 2005. Since 

publication of the CY 2006 OPPS 

proposed rule, we have approved three 

additional drugs and biologicals for 

pass-through payment beginning on or 

after July 1, 2005. These products are 

Abraxane, which has been assigned 

HCPCS code C9127 (Injection, Paclitaxel 

Protein Bound Particles, per 1 mg); 

Macugen, which has been assigned 

HCPCS code C9128 (Injection, 

Pegaptanib Sodium, per 0.3 mg); and 

Clolar, which has been assigned HCPCS 

code C9129 (Injection, Clofarabine, per 

1 mg). (See Change Request 3915, 

Transmittal 599 issued on June 30, 

2005.) In addition, two more products 

have been approved for pass-through 

status beginning on or after October 1, 

2005. They are Retisert, which has been 

assigned HCPCS code C9225 (Injection, 

fluocinolone acetonide intravitreal 

implant, per 0.59 mg) and Prialt, which 

has been assigned HCPCS code C9226 

(Injection, ziconotide for intrathecal 

infusion, per 5 mcg). (See Change 

Request 4035, Transmittal 691 issued on 

September 30, 2005). For CY 2006, the 

C-codes C9127, C9128, C9129, and 

C9226 have been deleted and replaced 

with permanent HCPCS codes J9264, 

J2503, J9027, and J2278, respectively. 

These new eligible pass-through items 

are listed in Table 19 below. We also 

have included in Addenda A and B to 

this final rule with comment period the 

CY 2006 APC payment rates for all passthrough drugs and biologicals. 

We received several public comments 

on the proposed listing and payment 

rates for drugs and biologicals with 

pass-through status continuing in CY 

2006. 

Comment: A few commenters 

indicated that our proposal to apply the 

same payment methodology to passthrough drugs and to drugs that are 

classified as a ‘‘specified covered 

outpatient drug’’ may not appropriately 

recognize and pay hospitals for the 

additional costs that are often associated 

with new technologies that are given 

pass-through status. One commenter 

indicated that the proposal negated the 

intent of the pass-through payment, 

which was meant to compensate 

hospitals for costs not covered by 

existing APC payments. Commenters 

urged CMS to consider maintaining a 

differential in payment systems between 

innovative and older drugs in order to 

ensure adequate access to newer 

therapies within the hospital outpatient 

setting. One commenter suggested that 

CMS consider making the pass-through 

payment methodology consistent with 

the methodology applied to new drugs 

in the physician office setting (that is, 

wholesale acquisition cost or the 

applicable payment methodology in 

effect on November 1, 2003) to 

distinguish and provide sufficient 

payment for the class of pass-through 

drugs in future years. 

Response: Section 1833(t)(6)(D)(i) of 

the Act sets the additional payment 

amount for pass-through eligible drugs 

or biologicals as the difference between 

the amount determined under section 

1842(o) of the Act and the APC payment 

rate determined by the Secretary 

associated with the drug or biological. 

As we explained earlier, section 1847A 

of the Act, as added by section 303(c) 

of Pub. L. 108–173, establishes the use 

of the ASP methodology as the basis for 

payment of drugs and biologicals 

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

Act and furnished on or after January 1, 

2005. Our proposal to pay for drugs and 

biologicals with pass-through status in 

CY 2006 using the ASP methodology at 

a rate that is equivalent to the payment 

these drugs and biologicals would 

receive in the physician office setting is 

consistent with the provisions of section 

1842(o) of the Act, as amended by 

section 621 of Pub. L. 108–173. 

Specifically, in CY 2006, we will be 

paying for drugs and biologicals with 

pass-through status under the OPPS 

based on the ASP methodology and 

using ASP data specific to the drug or 

biological itself. We note that there may 

be certain drugs and biologicals with 

pass-through status that are payable 

under different HCPCS codes in the 

physician offices and outpatient 

departments, and for such cases, 

payment for the drug or biological under 

the OPPS will be based on the ASP data 

for the item described by the code that 

is used under the OPPS. We agree that 

pass-through payments are designed to 

recognize differences between the 

payment rates under the OPPS and the 

payment rates for certain drugs and 

biologicals in the physician office 

setting. Statutory changes in the 

payment methodology for pass-through 

drugs and biologicals mean that such 

cost differentials no longer exist. 

We have used payment rates based on 

the ASP data from the second quarter of 

CY 2005 for budget neutrality estimates, 

impact analyses, and to complete 

Addenda A and B of this final rule with 

comment period because these were the 

most recent numbers available to us 

during the development of this rule. 

These payment rates are also the basis 

68634 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

for drug payments in the physician 

office setting effective October 1, 2005. 

However, the payment rates for passthrough drugs and biologicals that will 

be effective in the OPPS on January 1, 

2006 will be based on ASP data from the 

third quarter of CY 2005, which will 

also be the basis for drug payments in 

physician offices as of January 1, 2006. 

To be consistent with the ASP-based 

payments that will be made when these 

pass-through drugs and biologicals are 

furnished in physician offices, we plan 

to make any appropriate adjustments in 

CY 2006 to the payment rates for these 

items if later quarter ASP submissions 

indicate that adjustments to the 

payment rates are necessary. 

As noted earlier, section 

1833(t)(6)(D)(i) of the Act also states that 

if a drug or biological is covered under 

a competitive acquisition contract under 

section 1847B of the Act, the payment 

rate is equal to the average price for the 

drug or biological for all competitive 

acquisition areas and year established as 

calculated and adjusted by the 

Secretary. The competitive acquisition 

program still has not been implemented 

with issuance of this final rule with 

comment period. We expect 

implementation by July 1, 2006. For this 

final rule with comment period, we do 

not have payment rates for certain drugs 

and biologicals that would be covered 

under this program at that time. 

However, when the competitive 

acquisition program is implemented in 

CY 2006, the OPPS payment rates for 

pass-through drugs and biologicals that 

will also be covered under the program 

will be based on the competitive 

acquisition program methodology in CY 

2006. 

We refer readers to section V.B.3.a. of 

this preamble for a discussion of 

payment policies for specified covered 

outpatient drugs. 

Comment: The manufacturer of 

natalizumab (HCPCS code Q4079) 

supported continued pass-through 

status for this product, but was 

concerned that continuation of the 1-mg 

unit descriptor will create confusion 

among providers and inject the potential 

of erroneously denied or underpaid 

claims. The commenter indicated that a 

300 mg dose of the product is always 

uniformly infused and urged CMS to 

amend the coding descriptor to reflect 

its clinical use. 

Response: We recognize the 

commenter’s concern. However, the 

National HCPCS Panel coordinates 

decisions regarding the descriptors of 

permanent HCPCS codes. Therefore, we 

will not respond to this comment as it 

is outside the scope of this rule. 

Table 19 below lists the drugs and 

biologicals that will have pass-through 

status in CY 2006. Addenda A and B of 

this final rule with comment period list 

the final CY 2006 rates for these passthrough drugs and biologicals, which 

are based on ASP data reported by 

manufacturers from the second quarter 

of CY 2005. These items are assigned to 

status indicator ‘‘G.’’

Comment: A commenter 

recommended that CMS finalize the 

proposal to continue payment for 

HCPCS codes C9221 and C9222 as passthrough biologics in CY 2006 and 

requested that CMS confirm that the 

proposed payment rate of $1,234.36 for 

HCPCS code C9221 reflected ASP+6 

percent. 

Response: We agree with the 

commenters that HCPCS codes C9221 

and C9222 should be paid as passthrough items in CY 2006; therefore, 

these items are listed in Table 19 along 

with other drugs and biologicals that 

will also have pass-through status under 

the OPPS in CY 2006 and are also 

assigned to status indicator ‘‘G’’ in 

Addendum B of this final rule with 

comment period. 

Comment: A commenter indicated 

that the HCPCS code C9127 (paclitaxel 

protein-bound particles for injectable 

suspension, per 1 mg) was granted passthrough status effective July 1, 2005; 

however, the CY 2006 proposed rule 

listed this code with a status indicator 

‘‘K’’ rather than status indicator ‘‘G.’’

The commenter requested that this code 

be assigned to status indicator ‘‘G’’ in 

the final rule indicating its pass-through 

status. 

Response: In the proposed rule, we 

listed only the drugs and biologicals 

that received pass-through status as of 

April 1, 2005. As indicated earlier, there 

are additional drugs and biologicals that 

have been approved for pass-through 

status since the publication of the 

proposed rule, and HCPCS code C9127 

is one of the drugs that received passthrough status effective July 1, 2005. We 

note that HCPCS code C9127 has been 

deleted effective December 31, 2005 and 

replaced with HCPCS code J9264 in CY 

2006. Consequently, in this final rule we 

have assigned HCPCS code J9264 to 

status indicator ‘‘G’’ in Addendum B in 

this final rule with comment period. 

Comment: Another commenter 

indicated that it was pleased with CMS’

proposal to continue pass-through status 

in CY 2006 for the drug Orthovisc, 

which is reported under HCPCS code 

C9220; however, it was also concerned 

that once the period of eligibility for 

pass-through payments expired, there 

will not be a code corresponding to 

HCPCS code C9220 that will be 

available for use. The commenter 

expressed concern about the CMS 

HCPCS Workgroup’s preliminary 

recommendation to deny a unique code 

for Orthovisc and to include Orthovisc 

with other viscosupplements described 

by HCPCS code J7317. The commenter 

stated its belief that a new code is 

necessary and appropriate for Orthovisc 

under the established HCPCS process, 

and such a decision would recognize 

the unique characteristics of Orthovisc, 

distinguish it from other 

viscosupplements, allow for appropriate 

payment, and facilitate patient access. 

The commenter indicated that it 

resubmitted its J-code application under 

the new HCPCS process on December 

24, 2004 and requested that CMS 

recognize Orthovisc as a unique product 

and grant it a unique HCPCS code. 

Response: Effective January 1, 2006, 

the National HCPCS Panel has created 

HCPCS code J7318 (Hyaluron/derive 

intra-art inj) to describe all of the 

sodium hyaluronate products, including 

Orthovisc. Decisions regarding the 

creation of permanent HCPCS codes are 

coordinated by the National HCPCS 

Panel. Comments related to the HCPCS 

code creation process and decisions 

made by the National HCPCS Panel are 

outside the scope of this rule. However, 

we note that in CY 2006 because HCPCS 

code C9220 will continue to have passthrough status under the OPPS both 

HCPCS code C9220 and HCPCS code 

J7318 will be payable under the OPPS, 

and their payment rates will be 

established using the ASP data for all of 

the products described by these codes. 

Therefore, we encourage providers to 

continue billing for Orthovisc, which 

has pass-through status, using HCPCS 

code C9920 in order to receive 

appropriate payment for furnishing this 

drug in the hospital outpatient setting. 

Comment: A few commenters 

requested the CMS clarify in the final 

rule how payment for infusion drugs 

administered through an item of DME, 

such as drugs administered through an 

implantable or external infusion pump, 

will be paid under the OPPS in CY 

2006. One commenter was especially 

concerned about the payment rate for 

HCPCS code C9226 (Brand name: 

Prialt), which is administered through 

an intrathecal pump. The commenters 

noted CMS’ statement that CY 2006 

payment for drugs and biologicals under 

the OPPS will follow that of the 

physician office setting; however, CMS 

did not specifically state that this 

particular group of drugs, which are not 

paid under the ASP methodology, will 

continue to be paid at 95 percent of 

AWP in CY 2006. Commenters 

requested that CMS clarify that infusion 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68635 

drugs administered through an item of 

DME and furnished in the hospital 

outpatient setting, like Prialt, will be 

paid at 95 percent of AWP pursuant to 

section 1842(o)(1)(D) of the Act. One 

commenter also requested that CMS 

clarify that Prialt is not an orphan drug. 

Response: HCPCS code C9226 was 

approved for pass-through status 

effective October 1, 2005. As a passthrough drug under the OPPS, payment 

for Prialt was established using the ASP 

methodology. (See Change Request 

4035, Transmittal 691 issued on 

September 30, 2005). As with other new 

drugs without ASP data, payment for 

Prialt was set at WAC+6% ($32.24 per 

5 mcg) effective October 1, 2005. We 

note that Prialt is not considered a 

single-indication orphan drug under 

OPPS. As the commenters noted, 

section 1842(o)(1)(D) of the Act states 

that drugs infused through DME are 

paid at 95 percent of AWP until such 

time as they are incorporated into the 

DME competitive bidding program. 

However, section 1842(o)(1) of the Act 

(which governs section 1842(o)(1)(D)) 

specifically states that this payment 

methodology only applies when a ‘‘drug 

or biological is not paid on a cost or 

prospective payment basis.’’ Payment 

for drugs under the OPPS is established 

on the basis of prospective rates. The 

provision that requires payment for 

DME infusion drugs at 95 percent of 

AWP is therefore not applicable to Prialt 

or any other DME infusion drugs 

furnished in the hospital outpatient 

setting. Therefore, in CY 2006 we will 

continue to pay for Prialt and other nonpass-through DME infusion drugs using 

the ASP methodology instead of paying 

at 95 percent of AWP. We note that 

HCPCS code C9226 has been deleted 

effective December 31, 2005 and 

replaced with J2278 in CY 2006. 

Consequently, in this final rule, we have 

assigned HCPCS code J2278 to status 

indicator ‘‘G’’ in Addendum B in this 

final rule with comment period. 

TABLE 19.—LIST OF DRUGS AND BIOLOGICALS WITH PASS-THROUGH STATUS IN CY 2006 

HCPCS Code APC Short descriptor 

C9220 ...................................................................................................................................................... 9220 Sodium hyaluronate. 

C9221 ...................................................................................................................................................... 9221 Graftjacket Reg Matrix. 

C9222 ...................................................................................................................................................... 9222 Graftjacket SftTis. 

C9225 ...................................................................................................................................................... 9225 Fluocinolone acetonide. 

J0128 ....................................................................................................................................................... 9216 Abarelix injection. 

J0878 ....................................................................................................................................................... 9124 Daptomycin injection. 

J2278 ....................................................................................................................................................... 1694 Ziconotide injection. 

J2357 ....................................................................................................................................................... 9300 Omalizumab injection. 

J2503 ....................................................................................................................................................... 1697 Pegaptanib sodium injection. 

J2783 ....................................................................................................................................................... 0738 Rasburicase. 

J2794 ....................................................................................................................................................... 9125 Risperidone, long acting. 

J7518 ....................................................................................................................................................... 9219 Mycophenolic acid. 

J8501 ....................................................................................................................................................... 0868 Oral aprepitant. 

J9027 ....................................................................................................................................................... 1710 Clofarabine injection. 

J9035 ....................................................................................................................................................... 9214 Bevacizumab injection. 

J9055 ....................................................................................................................................................... 9215 Cetuximab injection. 

J9264 ....................................................................................................................................................... 1712 Paclitaxel injection. 

J9305 ....................................................................................................................................................... 9213 Pemetrexed injection. 

Q4079 ...................................................................................................................................................... 9126 Injection, Natalizumab, 1 mg. 

B. Payment for Drugs, Biologicals, and 

Radiopharmaceuticals Without PassThrough Status 

1. Background 

Under the CY 2005 OPPS, we 

currently pay for drugs, biologicals 

including blood and blood products, 

and radiopharmaceuticals that do not 

have pass-through status in one of two 

ways: packaged payment and separate 

payment (individual APCs). We 

explained in the April 7, 2000 final rule 

(65 FR 18450) that we generally package 

the cost of drugs and 

radiopharmaceuticals into the APC 

payment rate for the procedure or 

treatment with which the products are 

usually furnished. Hospitals do not 

receive separate payment from Medicare 

for packaged items and supplies, and 

hospitals may not bill beneficiaries 

separately for any packaged items and 

supplies whose costs are recognized and 

paid within the national OPPS payment 

rate for the associated procedure or 

service. (Program Memorandum 

Transmittal A–01–133, issued on 

November 20, 2001, explains in greater 

detail the rules regarding separate 

payment for packaged services.) 

Packaging costs into a single aggregate 

payment for a service, procedure, or 

episode of care is a fundamental 

principle that distinguishes a 

prospective payment system from a fee 

schedule. In general, packaging the costs 

of items and services into the payment 

for the primary procedure or service 

with which they are associated 

encourages hospital efficiencies and 

also enables hospitals to manage their 

resources with maximum flexibility. 

Notwithstanding our commitment to 

package as many costs as possible, we 

are aware that packaging payments for 

certain drugs, biologicals, and 

radiopharmaceuticals, especially those 

that are particularly expensive or rarely 

used, might result in insufficient 

payments to hospitals, which could 

adversely affect beneficiary access to 

medically necessary services. 

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

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

108–173, requires that the threshold for 

establishing separate APCs for drugs 

and biologicals be set at $50 per 

administration for CYs 2005 and 2006. 

For CY 2005, we finalized our policy to 

continue paying separately for drugs, 

biologicals, and radiopharmaceuticals 

whose median cost per day exceeds $50 

and packaging the costs of drugs, 

biologicals, and radiopharmaceuticals 

whose median cost per day is less than 

$50 into the procedures with which 

they are billed. For CY 2005, we also 

adopted an exception policy to our 

packaging rule for one particular class of 

drugs, the oral and injectable 5HT3 

forms of anti-emetic treatments (69 FR 

65779 through 65780). 

2. Criteria for Packaging Payment for 

Drugs, Biologicals, and 

Radiopharmaceuticals 

In accordance with section 

1833(t)(16)(B) of the Act, for CY 2006, 

the threshold for establishing separate 

68636 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

APCs for drugs and biologicals is 

required to be set at $50 per 

administration. Therefore, in the CY 

2006 proposed rule we proposed to 

continue our existing policy of paying 

separately for drugs, biologicals, and 

radiopharmaceuticals whose per day 

cost exceeds $50 and packaging the cost 

of drugs, biologicals, and 

radiopharmaceuticals whose per day 

cost is less than $50 into the procedures 

with which they are billed. We also 

proposed to continue our policy of 

exempting seven oral and injectable 

5HT3 anti-emetic products from our 

packaging rule (Table 21 of the CY 2006 

OPPS proposed rule, 70 FR 42723), 

thereby making separate payment for all 

of the 5HT3 anti-emetic products. As 

stated in our CY 2005 final rule with 

comment period (69 FR 65779 through 

65780), chemotherapy is very difficult 

for many patients to tolerate, as the side 

effects are often debilitating. In order for 

beneficiaries to achieve the maximum 

therapeutic benefit from chemotherapy 

and other therapies with side effects of 

nausea and vomiting, anti-emetic use is 

often an integral part of the treatment 

regimen. We want to continue to ensure 

that our payment rules do not impede 

a beneficiary’s access to the particular 

anti-emetic that is most effective for him 

or her as determined by the beneficiary 

and his or her physician. 

TABLE 20.—ANTI-EMETICS TO EXEMPT

FROM $50 PACKAGING REQUIREMENT

HCPCS Code Short description 

J1260 ........... Dolasetron mesylate. 

J1626 ........... Granisetron HCl injection. 

J2405 ........... Ondansetron HCl injection. 

J2469 ........... Palonosetron HCl. 

Q0166 .......... Granisetron HCl 1 mg oral. 

Q0179 .......... Ondansetron HCl 8 mg oral. 

Q0180 .......... Dolasetron mesylate oral. 

For the CY 2006 proposed payment 

rates, we calculated the per day cost of 

all drugs, biologicals, and 

radiopharmaceuticals that had a HCPCS 

code in CY 2004 and were paid (via 

packaged or separate payment) under 

the OPPS using claims data from 

January 1, 2004 to December 31, 2004. 

In CY 2004, multisource drugs and 

radiopharmaceuticals had two HCPCS 

codes that distinguished the innovator 

multisource (brand) drug or 

radiopharmaceutical from the 

noninnovator multisource (generic) drug 

or radiopharmaceutical. We aggregated 

claims for both the brand and generic 

HCPCS codes in our packaging analysis 

of these multisource products. Items 

such as single indication orphan drugs, 

certain vaccines, and blood and blood 

products were excluded from these 

calculations and our treatment of these 

items is discussed separately in sections 

V.F., V.E., and X.B., respectively, of this 

preamble. 

In order to calculate the per day cost 

for drugs, biologicals, and 

radiopharmaceuticals to determine their 

packaging status in CY 2006, we 

proposed several changes in the 

methodology that was described in 

detail in the CY 2004 OPPS proposed 

rule (68 FR 47996 through 47997) and 

finalized in the CY 2004 final rule with 

comment period (68 FR 63444 through 

63447). For CY 2006, to calculate the 

per day cost of the drugs, biologicals, 

and radiopharmaceuticals, our proposed 

methodology was the following: 

Step 1. After application of the CCRs, 

we aggregated all line-items for a single 

date of service on a single claim for each 

product. This resulted in creation of a 

single line-item with the total number of 

units and the total cost of a drug or 

radiopharmaceutical given to a patient 

in a single day. 

Step 2. We then created a separate 

record for each drug or 

radiopharmaceutical by date of service, 

regardless of the number of lines on 

which the drug or radiopharmaceutical 

was billed on each claim. For example, 

‘‘drug X’’ is billed on a claim with two 

different dates of service, and for each 

date of service, the drug is billed on two 

line-items with a cost of $10 and 5 units 

for each line-item. In this case, the 

computer program would create two 

records for this drug, and each record 

would have a total cost of $20 and 10 

units of the product. 

Step 3. We trimmed records with unit 

counts per day greater or less than 3 

standard deviations from the geometric 

mean. (This is a new step in the 

methodology that we proposed for CY 

2006.) 

Step 4. For each remaining record for 

a drug or radiopharmaceutical, we 

calculated the cost per unit of the drug. 

If the HCPCS descriptor for ‘‘drug X’’ is 

’’per 1 mg’’ and one record was created 

for a total of 10 mg (as indicated by the 

total number of units for the drug on the 

claim for each unique date of service), 

the computer program divided the total 

cost for the record by 10 to give a per 

unit cost. We then weighted this unit 

cost by the total number of units in the 

record. We did this by generating a 

number of line-items equivalent to the 

number of units in that particular claim. 

Thus, a claim with 100 units of ‘‘drug 

X’’ and a total cost of $200 would be 

given 100 line-items, each with a cost of 

$2, while a claim of 50 units with a cost 

of $50 would be given 50 line items, 

each with a cost of $1. 

Step 5. We trimmed the unit records 

with cost per unit greater or less than 3 

standard deviations from the geometric 

mean. 

Step 6. We aggregated the remaining 

unit records to determine the mean cost 

per unit of the drug or 

radiopharmaceutical. 

Step 7. Using only the records that 

remained after records with unit counts 

per day greater or less than 3 standard 

deviations from the geometric mean 

were trimmed (step 3), we determined 

the total number of units billed for each 

item and the total number of unique 

per-day records for each item. We 

divided the count of the total number of 

units by the total number of unique perday records for each item to calculate an 

average number of units per day. 

Step 8. Instead of using median cost 

as done in previous years, we used the 

payment rate for each drug and 

biological effective April 1, 2005 for the 

physician office setting, which was 

calculated using the ASP methodology, 

and multiplied the payment rate by the 

average number of units per day for 

each drug or biological to arrive at its 

per day cost. For items that did not have 

an ASP-based payment rate, we used 

their mean unit cost derived from the 

CY 2004 hospital claims data to 

determine their per day cost. Our 

reasoning for using these cost data is 

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

preamble. 

Step 9. We packaged the items with 

per day cost based on the ASP 

methodology or mean cost less than $50 

and made items with per day cost 

greater than $50 separately payable. 

In the past, many commenters had 

alleged that hospitals do not accurately 

bill the number of units for drugs and 

radiopharmaceuticals consistent with 

expected appropriate clinical use. We 

have consistently decided not to 

determine whether a hospital claim 

reports a clinically appropriate unit 

dose of a drug for rate-setting purposes. 

Variations among patients with respect 

to appropriate doses, the variety of 

indications with different dosing 

regimens for some agents, and the 

possibility of off-label uses make it 

difficult to know when units are 

incorrectly reported. However, we 

believed that trimming the units would 

improve the accuracy of estimates by 

removing those records with the most 

extreme units, without requiring us to 

speculate about clinically appropriate 

dosing. Therefore, we believed that 

trimming the records with unit counts 

greater or less than 3 standard 

deviations from the geometric mean 

would eliminate claims from our 

analysis that might not appropriately 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68637 

represent the actual number of units of 

a drug or radiopharmaceutical furnished 

by a hospital to a patient during a 

specific clinical encounter. Because it 

reduced extreme variation, trimming on 

greater or less than 3 standard 

deviations from the geometric mean 

made this trim more conservative and 

removed fewer records. This change in 

methodology gave us even greater 

confidence in the cost estimates we use 

for our packaging decisions. 

We specifically requested comments 

on the changes that we proposed in our 

methodology for packaging drugs and 

radiopharmaceuticals. In response, we 

received numerous public comments on 

the proposed methodology. 

Comment: Many commenters 

supported CMS’ continued use of the 

$50 per day cost threshold to determine 

whether a drug, biological, or 

radiopharmaceutical will be packaged 

or paid separately. One commenter 

indicated that this system allows 

hospital outpatient departments to have 

an efficient option for packaging and for 

collecting payments for less costly 

drugs. Numerous commenters also 

supported CMS’ proposal to exempt the 

5HT3 anti-emetic products from the 

current $50 packaging threshold and 

pay for all of them separately, noting 

that the policy will help to ensure that 

Medicare beneficiaries have access to 

the particular anti-emetic that is most 

effective for them as determined by the 

beneficiary and his or her physician. 

One commenter, to the contrary, 

indicated that the current threshold for 

separate payment of 

radiopharmaceuticals is too high and 

distorts the resource homogeneity of the 

nuclear medicine APCs and 

recommended that CMS make separate 

payments for all radiopharmaceuticals. 

Response: We appreciate the 

commenters’ support of our proposals 

for CY 2006 to establish a packaging 

threshold for drugs, biologicals, and 

radiopharmaceuticals at $50 per day 

and to pay separately for the seven 

5HT3 anti-emetic products. Section 

1833(t)(16)(B) of the Act requires that 

the threshold for establishing separate 

APCs for drugs and biologicals be set at 

$50 per administration for CY 2006. 

Therefore, we cannot change the 

threshold amount for 

radiopharmaceuticals, to which the 

policy also applies, as one of the 

commenters has suggested. 

In determining the packaging status of 

drugs, biologicals, and 

radiopharmaceuticals for CY 2006, we 

calculated the per day costs of these 

items using the general methodology 

described above. However, as it is our 

policy to use updated data for the final 

rule, to determine the final per day costs 

of these items we used the payment rate 

for each drug and biological effective 

October 1, 2005 for the physician office 

setting, which was calculated using the 

ASP methodology, along with updated 

hospital claims data from CY 2004. The 

payment rate was multiplied by the 

average number of units per day for 

each drug or biological, which were 

recalculated using all of the CY 2004 

hospital claims data used for this final 

rule with comment period, to arrive at 

each product’s per day cost. For items 

that did not have an ASP-based 

payment rate, we used their mean unit 

cost, which we also recalculated using 

all of the CY 2004 hospital claims data 

used for this final rule with comment 

period to determine their per day cost. 

We note that there are two drugs for 

which we proposed to pay separately in 

our proposed rule that now have per 

day costs less than $50 based on the 

updated cost and claims data. In these 

cases, we are applying our equitable 

adjustment authority to the packaging 

threshold according to the policy that 

we finalized in the CY 2005 final rule 

for drugs and biologicals with similar 

circumstances (69 FR 65780). Therefore, 

for CY 2006, we are applying the 

following policy to these drugs and 

biologicals: 

• Drugs and biologicals that were 

paid separately in CY 2005, were 

proposed for separate payment in CY 

2006, and have per day costs less than 

$50 based on updated ASPs and 

hospital claims data used for this CY 

2006 final rule with comment period 

will continue to receive separate 

payment in CY 2006. 

• Those drugs and biologicals that 

were packaged in CY 2005, were 

proposed for separate payment in CY 

2006, and have per day costs less than 

$50 based on updated ASPs and 

hospital claims data used for this CY 

2006 final rule with comment period 

will remain packaged in CY 2006. 

Table 21 lists the two drugs and 

biologicals to which this policy will 

apply, along with their CYs 2005 and 

2006 payment status indicators. 

TABLE 21.—DRUGS AND BIOLOGICALS WITH PER DAY COSTS LESS THAN $50 USING FINAL RULE DATA, BUT WERE

PROPOSED FOR SEPARATE PAYMENT

HCPCS Description CY 2005 status indicator 

CY 2006 status indicator 

J0580 ................................................ Penicillin g benzathine inj ......................................................................... N N 

J3350 ................................................ Urea injection ........................................................................................... K K 

We also note that there were several 

drugs, biologicals, and 

radiopharmaceuticals that we proposed 

to package in the proposed rule and that 

now have per day costs greater than $50 

using updated ASPs and all of the 

hospital claims data from CY 2004 used 

for this final rule with comment period. 

In accordance with our established 

policy for such cases, for CY 2006 we 

will pay for these drugs, biologicals, and 

radiopharmaceuticals separately. Table 

22 lists the drugs and biologicals that 

were proposed as packaged items, but 

will be paid separately in CY 2006. 

TABLE 22.—DRUGS AND BIOLOGICALS

WITH PER DAY COSTS ABOVE $50 

FOR WHICH SEPARATE PAYMENT

WILL BE MADE IN CY 2006 

HCPCS1 Description 

90665 ...... Lyme disease vaccine, im. 

90717 ...... Yellow fever vaccine, sc. 

A9504 ..... Technetium tc 99m apcitide. 

J0350 ...... Injection anistreplase 30 u. 

J0470 ...... Dimecaprol injection. 

J2700 ...... Oxacillin sodium injection. 

J2910 ...... Aurothioglucose injection. 

J3470 ...... Hyaluronidase injection. 

J7197 ...... Antithrombin iii injection. 

Comment: One commenter supported 

the addition of ‘‘step 3’’ to the 

calculation of the per day cost 

methodology used to determine the 

packaging status of drugs, biologicals, 

and radiopharmaceuticals and stated 

that the addition of the new step will 

improve the accuracy of the per day cost 

calculation by enabling CMS to trim out 

very high units of service associated 

with very low costs that may 

inappropriately lower the overall 

median cost. 

Response: We appreciate the 

commenter’s support of the change in 

our methodology to determine the per 

68638 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

day costs of drugs, biologicals, and 

radiopharmaceuticals and are finalizing 

this change for CY 2006, along with the 

other proposed changes for determining 

per day costs of these items. 

Comment: We received comments on 

the packaging status of one drug and 

several radiopharmaceuticals where the 

commenters indicated that the items 

were incorrectly packaged and should 

be paid separately in CY 2006. Specific 

items mentioned in the comments were 

HCPCS codes J1245, A9513, C1079, 

C9013, and Q3012. One commenter 

asserted that confusing HCPCS 

descriptors contributed to the 

submission of inaccurate claims data to 

CMS. This commenter also noted that 

the inconsistent market availability of 

some of these products resulted in small 

numbers of claims and variable cost 

data, which CMS used to determine the 

per day costs of these items. The 

commenters indicated that there are 

other products that are used for the 

same indication as some of these 

products, and also that there are clinical 

situations where physician would prefer 

to utilize one particular product over 

another. Therefore, commenters did not 

want payment rules to affect access to 

particular products that may be most 

clinically effective for patients. 

Response: We understand the 

commenters’ concerns about the 

packaging of these items. Based on the 

methodology we used to calculate per 

day costs of these items, as described 

earlier in the preamble, we determined 

that the per-day costs of these products 

were below $50. Therefore, these items 

were packaged. When we recalculated 

the per day costs of these items using 

updated CY 2004 claims data and ASPbased payment rates based on data from 

the second quarter of CY 2005 for the 

final rule, we observed that the per day 

costs of these items remained below 

$50. For radiopharmaceuticals, we 

recalculate their mean per day costs 

using updated CY 2004 claims data. 

As described earlier, we applied an 

additional unit trimming step in the 

methodology to determine per day costs 

of items in CY 2006. We stated our 

belief that trimming the units would 

improve the accuracy of the per day cost 

estimates by removing those records 

with the most extreme units, without 

requiring us to speculate about 

clinically appropriate dosing. Therefore, 

we believe that the new trimming step 

eliminates claims from our analysis that 

might not appropriately represent the 

actual number of units of a drug or 

radiopharmaceutical furnished by a 

hospital to a patient during a specific 

clinical encounter. We indicated that 

this change in methodology gave us 

even greater confidence in the cost 

estimates we use for our packaging 

decisions. Also, section 621(a)(2) of Pub. 

L. 108–173 requires that the threshold 

for establishing separate APCs for drugs 

and biologicals be set at $50 per 

administration for CY 2006. Therefore, 

we cannot change the packaging 

threshold amount from $50, which 

would be required of us if we were to 

pay for these items separately. For these 

reasons, we believe that it is appropriate 

for us to package these items in CY 2006 

under OPPS. We expect that the modest 

per day costs of these packaged items 

will allow hospitals to make the most 

clinically appropriate choices of 

products in their care of patients, as 

hospitals will also bill a variety of 

separately payable services for the care 

provided. 

Comment: One commenter indicated 

that it is operationally impossible to 

establish a separate process for charging 

anti-emetic drugs when they are used 

only in conjunction with chemotherapy 

since the majority of their surgical 

outpatients receive these drugs. The 

commenter inquired as to whether CMS 

could develop an edit to only pay for 

the anti-emetic drug when it is 

connected to a cancer diagnosis. 

Response: We note that separate 

payments for these 5HT3 injectable and 

oral anti-emetic drugs will be made as 

long as these drugs are covered by 

Medicare, regardless of the clinical 

indications for the drugs’ use. The 

policy described above for the 5HT3 

anti-emetic drugs applies only to the 

packaging status of these items, not to 

their coverage status. Hospitals should 

continue billing for these injectable and 

oral anti-emetic drugs in accordance 

with existing coverage rules. 

Section 1833(t)(16)(B) of the Act that 

requires the threshold for establishing 

separate APCs for drugs and biologicals 

to be set at $50 per administration will 

expire at the end of CY 2006. Therefore, 

we will be evaluating other packaging 

thresholds for these products for the CY 

2007 OPPS update. We specifically 

requested comments on the use of 

alternative thresholds for packaging 

drugs and radiopharmaceuticals in CY 

2007. 

We received a number of public 

comments in response to this request. 

Comment: Commenters made various 

suggestions for establishing the 

packaging threshold for CY 2007. 

Several commenters encouraged CMS to 

set the packaging threshold no higher 

than $50 in CY 2007 and beyond. Other 

commenters suggested that CMS 

provide separate payment for all infused 

and injectable drugs, regardless of their 

per day costs, and only continue to 

package oral drugs in CY 2007. Other 

commenters echoed this general 

suggestion, but further suggested that 

the oral anti-emetic drugs be paid 

separately along with the infused and 

injectable drugs. One commenter stated 

that CMS should continue to pay 

separately for all drugs and biologicals 

that were separately paid in the past, 

including all therapies that had received 

pass-through status. Another commenter 

suggested that, to the extent CMS may 

elect to raise the packaging threshold in 

CY 2007 and beyond, the threshold be 

linked to an appropriate price indexing 

mechanism. In establishing the 

appropriate price indexing measure, the 

commenter urged CMS to give 

substantial consideration to the impact 

resulting from capturing more high-cost 

drugs in packaged payment groups, 

including the effect such a policy may 

have on beneficiary access to needed 

treatments, with particular focus on 

avoiding unintended disadvantages for 

newer innovator products. Other 

commenters suggested that CMS 

determine appropriate payment levels 

that will be sufficient to ensure patient 

access in its consideration of the use of 

alternative thresholds for packaging 

drugs in CY 2007, and that CMS utilize 

ASP data from CY 2005 to determine the 

appropriate parameters for a packaging 

threshold in CY 2007. On the other 

hand, MedPAC indicated that it has 

long been concerned about the 

incentives created by the unpackaging 

of drugs that exists in the OPPS. For 

example, MedPAC stated that, under the 

OPPS, providers have an incentive to 

use a higher-cost drug that is paid 

separately in place of a lower-cost drug 

that is packaged. If hospitals act on this 

incentive, it could raise beneficiaries’

overall cost sharing, Part B premiums, 

and program spending. MedPAC added 

that setting payment rates for small 

packages is likely to be less accurate 

than setting rates for larger packages. It 

pointed out that, with greater packaging, 

variations in charging practices are more 

likely to balance out, leading to 

payment rates that, on average, are more 

reflective of costs. 

Response: We appreciate receiving 

these suggestions for establishing an 

appropriate packaging threshold for CY 

2007 and will take the 

recommendations into consideration as 

we work on our packaging proposal for 

the CY 2007 OPPS. 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68639 

3. Payment for Drugs, Biologicals, and 

Radiopharmaceuticals Without PassThrough Status That Are Not Packaged 

a. Payment for Specified Covered 

Outpatient Drugs 

(1) Background 

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

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

108–173, requires special classification 

of certain separately paid 

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’’ is a covered 

outpatient drug, as defined in section 

1927(k)(2) of the Act, for which a 

separate APC exists and that either is a 

radiopharmaceutical agent or is a drug 

or biological for which payment was 

made on a pass-through basis on or 

before December 31, 2002. 

Under section 1833(t)(14)(B)(ii) of the 

Act, certain drugs and biologicals are 

designated as exceptions and are not 

included in the definition of ‘‘specified 

covered outpatient drugs.’’ These 

exceptions are—

• A drug or biological for which 

payment is first made on or after 

January 1, 2003, under the transitional 

pass-through payment provision in 

section 1833(t)(6) of the Act. 

• A drug or biological for which a 

temporary HCPCS code has not been 

assigned. 

• During CYs 2004 and 2005, an 

orphan drug (as designated by the 

Secretary). 

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

defines the categories of drugs based on 

section 1861(t)(1) and sections 

1927(k)(7)(A)(ii), (k)(7)(A)(iii), and 

(k)(7)(A)(iv) of the Act. The categories of 

drugs are ‘‘sole source drugs (includes a 

biological product or a single source 

drug),’’ ‘‘innovator multiple source 

drugs,’’ and ‘‘noninnovator multiple 

source drugs.’’ The definitions of these 

specified categories for drugs, 

biologicals, and radiopharmaceuticals 

were discussed in the January 6, 2004 

OPPS interim final rule with comment 

period (69 FR 822), along with our use 

of the Medicaid average manufacturer 

price database to determine the 

appropriate classification of these 

products. Because of the many 

comments received on the January 6, 

2004 interim final rule with comment 

period, the classification of many of the 

drugs, biologicals, and 

radiopharmaceuticals changed from that 

initially published. We announced these 

changes to the public on February 27, 

2004, through Transmittal 112, Change 

Request 3144. We also implemented 

additional classification changes 

through Transmittal 132 (Change 

Request 3154, released March 30, 2004) 

and Transmittal 194 (Change Request 

3322, released June 4, 2004). 

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

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

108–173, also provides that payment for 

these specified covered outpatient drugs 

for CYs 2004 and 2005 is to be based on 

its ‘‘reference average wholesale price 

(AWP).’’ Section 1833(t)(14)(A)(ii) of the 

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

L. 108–173 requires that in CY 2005—

• A sole source drug must be paid no 

less than 83 percent and no more than 

95 percent of the reference AWP. 

• An innovator multiple source drug 

must be paid no more than 68 percent 

of the reference AWP. 

• A noninnovator multiple source 

drug must be paid no more than 46 

percent of the reference AWP. 

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

defines ‘‘reference AWP’’ as the AWP 

determined under section 1842(o) the 

Act as of May 1, 2003. We interpreted 

this to mean the AWP set under the 

CMS single drug pricer (SDP) based on 

prices published in the Red Book on 

May 1, 2003. 

For CY 2005, we finalized our policy 

to determine the payment rates for 

specified covered outpatient drugs 

under the provisions of Pub. L. 108–173 

by comparing the payment amounts 

calculated under the median cost 

methodology as done for procedural 

APCs to the AWP percentages specified 

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

(2) Changes for CY 2006 Related to Pub. 

L. 108–173 

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

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

108 173, requires that payment for 

specified covered outpatient drugs in 

CY 2006 be equal to the average 

acquisition cost for the drug for 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. 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. 

(3) Data Sources Available for Setting 

CY 2006 Payment Rates 

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

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

108–173, outlines the provisions of the 

hospital outpatient drug acquisition cost 

survey mandated for the GAO. This 

provision directs the GAO to collect 

data on hospital acquisition costs of 

specified covered outpatient drugs and 

to provide information based on these 

data that can be taken into consideration 

for setting CY 2006 payment rates for 

these products under the OPPS. 

Accordingly, the GAO conducted a 

survey of 1,400 acute care, Medicarecertified hospitals and requested 

hospitals to provide purchase prices for 

specified covered outpatient drugs 

purchased between July 1, 2003 and 

June 30, 2004. The survey yielded a 

response rate of 83 percent; 1,157 

hospitals provided usable information. 

To ensure that its methodology for data 

collection and analysis was sound, the 

GAO consulted an advisory panel of 

experts in pharmaceutical economics, 

pharmacy, medicine, survey sampling 

and Medicare payment. 

The GAO reported the average and 

median purchase prices for 55 specified 

covered outpatient drug categories for 

the period July 1, 2003 to June 30, 2004. 

These items represented 86 percent of 

Medicare spending for specified covered 

outpatient drugs during the first 9 

months of CY 2004. The initial GAO 

data did not include any 

radiopharmaceuticals. The report noted 

that the purchase price information 

accounted for volume and other 

discounts provided at the time of 

purchase, but excluded subsequent 

rebates from manufacturers and 

payments from group purchasing 

organizations. The GAO survey data 

were available in time for consideration 

in the CY 2006 OPPS proposed rule. 

At the time of issuance of the CY 2006 

OPPS proposed rule, another available 

source of drug pricing information was 

the ASP data from the fourth quarter of 

CY 2004, which were used to set 

payment rates for drugs and biologicals 

in the physician office setting effective 

April 1, 2005. We had ASP-based prices 

for approximately 475 drugs and 

biologicals (including contrast agents) 

payable under the OPPS. However, we 

did not then have (and we still do not 

have) any ASP data on 

radiopharmaceuticals. Payments for 

most of the drugs and biologicals paid 

in the physician office setting were 

based on ASP+6 percent. Payments for 

items with no reported ASP were based 

on wholesale acquisition cost (WAC). 

Lastly, the third source of cost data 

that we had at the time of issuance of 

the proposed rule for drugs, biologicals, 

and radiopharmaceuticals was the mean 

and median costs derived from the CY 

2004 hospital claims data. In our data 

analysis for the proposed rule, we 

68640 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

compared the payment rates for drugs 

and biologicals using data from all three 

sources described above. As section 

1833(t)(14)(A)(iii) of the Act clearly 

specifies that payment for specified 

covered outpatient drugs in CY 2006 be 

equal to the ‘‘average’’ acquisition cost 

for the drug, we limited our analysis to 

the mean costs of drugs determined 

using the GAO acquisition cost survey 

and the hospital claims data, instead of 

using median costs. 

For the proposed rule, we estimated 

aggregate expenditures for all drugs and 

biologicals (excluding 

radiopharmaceuticals) that would be 

separately payable in CY 2006 and for 

the 55 drugs and biologicals reported by 

the GAO using mean costs from the 

claims data, the GAO mean purchase 

prices, and the ASP-based payment 

amounts (ASP+6 percent in most cases), 

and calculated the equivalent average 

ASP-based payment rate under each of 

the three payment methodologies. The 

results which we presented in the 

proposed rule are shown in Table 23 

below. 

TABLE 23.—COMPARISON OF RELATIVE PRICING FOR OPPS DRUGS AND BIOLOGICALS UNDER VARIOUS PAYMENT

METHODOLOGIES

Type of pricing data Time period of pricing data 

ASP equivalent 

(55 GAO 

drugs only) 

ASP equivalent 

(all separately billable 

drugs) 

GAO mean purchase price ............................................. 12 months ending June 2004 ......................................... ASP+3% ...... N/A 

ASP+6% .......................................................................... 4th quarter of 2004 ......................................................... ASP+6% ...... ASP+6% 

Mean cost from claims data ............................................ 1st 9 months of 2004 ...................................................... ASP+8% ...... ASP+8% 

Prior to any adjustments for the 

differing time periods of the pricing 

data, the results indicated that using the 

GAO mean purchase prices as the basis 

for paying the 55 drugs and biologicals 

would be equivalent to paying for those 

drugs and biologicals, on average, at 

ASP+3 percent. In addition, using mean 

unit cost from hospital claims data to set 

the payment rates for the drugs and 

biologicals that would be separately 

payable in CY 2006 would be equivalent 

to basing their payment rates, on 

average, at ASP+8 percent. 

In determining the payment rates for 

drugs and biologicals in CY 2006, we 

did not propose to use the GAO mean 

purchase prices for the 55 drugs and 

biologicals because the GAO data reflect 

hospital acquisition costs from a less 

recent period of time. The survey was 

conducted from July 1, 2003 to June 30, 

2004; thus, the purchase prices are 

generally reflective of the time that is 

the midpoint of this period, which is 

January 1, 2004. The hospital purchase 

price data also do not fully account for 

rebates from manufacturers or payments 

from group purchasing organizations 

made to hospitals. We also noted that it 

would be difficult to update the GAO 

mean purchase prices during CY 2006 

and in future years. 

We also did not propose, in general, 

to use mean costs from CY 2004 hospital 

claims data to set payment rates for 

drugs and biologicals in CY 2006. In 

previous OPPS rules, we stated that 

pharmacy overhead costs are captured 

in the pharmacy revenue cost centers 

and reflected in the median costs of 

drug administration APCs, and the 

payment rate we established for a drug, 

biological, or radiopharmaceutical APC 

was intended to pay only for the cost of 

acquiring the item (66 FR 59896 and 67 

FR 66769). However, findings from a 

MedPAC survey of hospital charging 

practices indicated that hospitals set 

charges for drugs, biologicals, and 

radiopharmaceuticals high enough to 

reflect their handling costs as well as 

their acquisition costs. Therefore, the 

mean costs calculated using charges 

from hospital claims data converted to 

costs are representative of hospital 

acquisition costs for these products, as 

well as their pharmacy overhead costs. 

For CY 2006, the statute specifies that 

payments for specified covered 

outpatient drugs are required to be equal 

to the ‘‘average’’ acquisition cost for the 

drug. Payments based on mean costs 

would represent the products’

acquisition costs plus overhead costs, 

instead of acquisition costs only. 

Therefore, at the time of issuance of the 

proposed rule, we determined that it 

would be appropriate for us to use a 

source of cost information other than 

the CY 2004 hospital claims data to set 

the payment rates for most drugs and 

biologicals in CY 2006. 

Based on these considerations, we 

proposed to pay ASP+6 percent as the 

acquisition payment for separately 

payable drugs and biologicals in CY 

2006. Given the data as described above, 

we determined at the time of issuance 

of the proposed rule that this was our 

best estimate of average acquisition 

costs for CY 2006. We noted in the 

proposed rule (70 FR 42726) that the 

comparison between the GAO purchase 

price data and the ASP data indicated 

that the GAO data, on average, were 

equivalent to ASP+3 percent. However, 

as noted earlier, we determined that this 

comparison was problematic for two 

reasons. First, there were differences in 

the time periods for the two sources of 

data. The GAO data were from the 12 

months ending June 2004, and the ASP 

data were from the fourth quarter of CY 

2004. It could be argued that prices 

increased in the intervening time 

period. However, we determined that 

there was no source of reliable 

information on specific price changes 

for this time period for the drugs 

studied by the GAO. In the future, we 

will have better information on price 

trends for Medicare Part B drugs as 

more quarters of pricing information are 

reported under the ASP system. 

We also noted that the comparison 

between the GAO data and the ASP data 

was problematic as the ASP data 

included rebates and other price 

concessions and the GAO data did not. 

Inclusion of these rebates and price 

concessions in the GAO data would 

decrease the GAO prices relative to the 

ASP prices, suggesting that ASP+6 

percent may be an overestimate of 

hospitals’ average acquisition costs. 

Unfortunately, we did not have a source 

of information on the magnitude of the 

rebates and price concessions for the 

specific drugs in the GAO data at that 

time. 

Therefore, we determined in the 

proposed rule that it was difficult to 

adjust the GAO prices for inflation, 

rebates, and price concessions to make 

the comparison with ASP more precise. 

We indicated that we would continue to 

examine new data to improve our future 

estimates of acquisition costs. In future 

years, our proposed pricing would be 

modified as appropriate to reflect the 

most recent data and analyses available. 

We also noted that, in addition to the 

importance of making accurate 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68641 

estimates of acquisition costs for drug 

pricing, there were important 

implications for prices of other services 

due to the required budget neutrality of 

the OPPS. For example, drugs and 

biological prices set at ASP+3 percent 

instead of ASP+6 percent would have 

made available approximately an 

additional $60 million for other items 

and services under the OPPS. 

In the proposed rule, we also noted 

that ASP data are unavailable for some 

drugs and biologicals. For the few drugs 

and biologicals, other than 

radiopharmaceuticals as discussed later, 

where ASP data were unavailable, we 

proposed to use the mean costs from the 

CY 2004 hospital claims data to 

determine their packaging status for 

rate-setting. Until we received ASP data 

for these items, we proposed that 

payment would be based on their mean 

cost. 

Our proposal used payment rates 

based on ASP data from the fourth 

quarter of CY 2004 because these were 

the most recent numbers available to us 

during the development of the proposed 

rule. To be consistent with the ASPbased payments that would be made 

when these drugs and biologicals are 

furnished in physician offices, we stated 

in our proposed rule (70 FR 42726) that 

we planned to make any appropriate 

adjustments to the amounts shown in 

Addenda A and B to the proposed rule 

for these items based on more recent 

ASP data from the second quarter of CY 

2005, which is the basis for setting 

payment rates for drugs and biologicals 

in the physician office setting effective 

October 1, 2005, prior to our publication 

of the CY 2006 OPPS final rule, and also 

on a quarterly basis on our Web site 

during CY 2006. We noted that we 

would determine the packaging status of 

each drug or biological only once during 

the year during the update process. 

However, for the separately payable 

drugs and biologicals, we would update 

their ASP-based payment rates on a 

quarterly basis. 

We also noted that we intend for the 

quarterly updates of the ASP-based 

payment rates for separately payable 

drugs and biologicals to function as 

future surveys of hospital acquisition 

cost data, as section 1833(t)(14)(D)(ii) of 

the Act instructs us to conduct periodic 

subsequent surveys to determine 

hospital acquisition cost for each 

specified covered outpatient drug. 

We specifically requested comments 

on our proposal to pay for drugs and 

biologicals (including contrast agents) 

under the OPPS using the ASP-based 

methodology that is also used to set the 

payment rates for drugs and biologicals 

furnished in physician offices and the 

adequacy of the payment rates to 

account for hospital acquisition costs of 

the drugs and biologicals. 

During the August 2005 meeting of 

the APC Panel, the Panel recommended 

that CMS evaluate all the separately 

payable drug to be paid at ASP+6 

percent under the OPPS and pay 

particular attention to those whose 

payments would drop or rise 

precipitously. We appreciate the Panel’s 

support of our payment proposal and 

discuss the final CY 2006 policies for 

drugs and biologicals below. 

We received many public comments 

in response to our proposal to pay for 

drugs and biologicals under the OPPS 

using the ASP methodology. 

Comment: Many commenters, 

including national organizations 

representing leading pharmaceutical 

and biotechnology companies, hospital 

associations, and hospitals, supported 

CMS’ proposal to pay for most 

separately payable drugs and biologicals 

at ASP+6 percent. These commenters 

stated that paying for drugs and 

biologicals at this rate appeared to be 

both a reasonable and the best available 

estimate of average hospital acquisition 

cost. One commenter stated that ASPs 

reported by manufacturers are as close 

to real-time costs as any data source 

CMS uses for rate-setting. Some of the 

commenters indicated that this policy 

offered hospitals the assurance that the 

payment rates will reflect market 

conditions as those rates will be 

updated on a quarterly basis. Other 

supporters of this proposal noted that 

the policy had the additional benefit of 

providing consistent payment rates 

under the OPPS and under Part B in the 

physician office setting, thus helping to 

avoid financial incentives for selection 

of sites of service. One commenter 

indicated that the proposed policy also 

offered simplicity to the OPPS, both for 

CMS and providers, by treating almost 

all separately paid drugs uniformly and 

noted that paying for pass-through drugs 

the same way as other separately 

payable drugs without pass-through 

status created appropriate incentives to 

provide the most effective therapies, 

regardless of their costs and payment 

amounts. 

A comment from MedPAC 

acknowledged the problems presented 

by the GAO purchase price information 

and recognized the use of ASP data as 

a viable alternative. However, MedPAC 

indicated that a limitation of ASP data 

is that CMS derives ASPs from 

manufacturers’ sales to all distribution 

channels, including wholesalers, group 

purchasing organizations, hospitals, and 

other providers such as physicians. 

Therefore, the ASPs do not specifically 

reflect hospital acquisition costs. 

Furthermore, MedPAC indicated that 

reporting may not be consistent across 

manufacturers, and CMS may need to 

verify the accuracy of ASP data through 

confidential audits. Although MedPAC 

stated that it supports CMS’ proposed 

use of ASPs, it remained concerned 

about the proposal to pay for most 

specified covered outpatient drugs at a 

rate of ASP+8 percent, specifically 

ASP+6 percent for the drug and an 

additional 2 percent for handling costs. 

MedPAC noted that CMS’ analysis of 

hospitals’ mean purchase prices for 

drugs studied in the GAO survey 

indicated that the hospitals’ mean 

purchase prices were equivalent to 

ASP+3 percent. Given that average ASP 

values have declined in recent quarters 

and that the GAO’s data did not fully 

reflect rebates, MedPAC stated that the 

proposed payment rates for drugs alone 

may be too high. 

Several commenters, however, 

remained concerned that this proposal 

will result in significant reductions in 

payments below acquisition costs for 

certain types of drugs and biologicals, 

such as IVIG and drugs and biologicals 

used to treat rare disorders, and was 

inadequate to protect beneficiary access 

to these therapies. One commenter 

indicated that payments increased to 

ASP+8 percent also resulted in 

compensation below acquisition costs 

for certain products. Many of these 

commenters urged CMS to monitor 

patient access problems and take 

prompt steps to adjust payment rates 

where necessary to address such 

problems. Several commenters 

requested that CMS implement the APC 

Panel’s recommendation to monitor for 

‘‘precipitous’’ drops in payment rates 

during the transition to ASP-based 

payments and apply a dampening 

policy to the payment rates for certain 

drugs and biologicals. Several 

dampening options were suggested, 

such as limiting payment decreases to 

15 percent from CY 2005, paying at the 

higher of ASP+8 percent or 90 percent 

of drugs’ CY 2005 payment rates, and 

freezing payment at the CY 2005 levels. 

One commenter recommended that no 

change be made to the payment rates for 

drugs and biologicals from CY 2005 to 

CY 2006. Another commenter urged 

CMS to gather data on the adequacy of 

ASP payment over the next year and 

report to Congress if the agency finds 

that ASP is not an appropriate payment 

formula. 

A comment from a large cancer care 

provider raised several issues 

concerning the use of ASPs. The 

commenter noted that the prices and 

discounts included in the calculation of 

68642 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

ASP often are not passed along to 

providers. The commenter added that 

small hospitals without purchasing 

power are likely to purchase drugs 

above ASP rates. In addition, the 

commenter noted that because 

manufacturers typically raise prices two 

to three times per year, the two-quarter 

lag in the calculation of ASP may cause 

hospitals to suffer losses each time they 

administer drugs. Another commenter 

questioned whether ASP could be 

calculated regionally instead of 

nationally. One commenter noted that 

CMS did not make clear in the proposed 

rule what data will be used to establish 

payment rates for separately payable 

drugs and biologicals as of January 1, 

2006. The commenter indicated that 

ASP data for the third quarter of CY 

2005 will be available on October 30, 

2005 and requested that these data be 

used to set payment rates for the first 

quarter of CY 2006. 

Response: We appreciate the 

commenters’ support of our proposal to 

pay for separately payable drugs and 

biologicals at ASP+6 percent. For this 

final rule with comment period, we 

again evaluated the three data sources 

that we have available to us for setting 

the CY 2006 payment rates for drugs 

and biologicals. As described in the 

proposed rule, these data sources are the 

GAO reported average and median 

purchase prices for 55 specified covered 

outpatient drug categories for the period 

July 1, 2003 to June 30, 2004; ASP data; 

and mean and median costs derived 

from hospital claims data used for this 

final rule with comment period. For this 

final rule with comment period, we are 

able to use updated ASP data from the 

second quarter of CY 2005, which are 

used to set payment rates for drugs and 

biologicals in the physician office 

setting effective October 1, 2005. We are 

also able to use updated claims data, 

reflecting all of the hospital claims data 

from CY 2004 and updated CCRs. 

In our data analysis for this final rule 

with comment period, we again 

compared the payment rates for drugs 

and biologicals using data from all three 

sources described above. As described 

in the proposed rule, we limited our 

analysis to the mean costs of drugs and 

biologicals determined using the GAO 

acquisition cost survey and the hospital 

claims data, instead of using median 

costs. We estimated aggregate 

expenditures for all drugs and 

biologicals (excluding 

radiopharmaceuticals) that would be 

separately payable in CY 2006 and for 

the 55 drugs and biologicals reported by 

the GAO using mean costs from the 

claims data, the GAO mean purchase 

prices, and the ASP-based payment 

amounts (ASP+6 percent in most cases), 

and then calculated the equivalent 

average ASP-based payment rate under 

each of the three payment 

methodologies. The results based on 

updated ASP and claims data are 

presented in Table 24 below. 

TABLE 24.—COMPARISON OF RELATIVE PRICING FOR OPPS DRUGS AND BIOLOGICALS UNDER VARIOUS PAYMENT

METHODOLOGIES

Type of pricing data Time period of pricing data 

ASP equivalent 

(55 GAO 

drugs only) 

ASP equivalent 

(all separately billable 

drugs) 

GAO mean purchase price ............................................. 12 months ending June 2004 ......................................... ASP+4% ...... N/A 

ASP+6% .......................................................................... 2nd quarter of 2005 ........................................................ ASP+6% ...... ASP+6% 

Mean cost from claims data ............................................ 12 months of 2004 .......................................................... ASP+6% ...... ASP+6% 

Prior to any adjustments for the 

differing time periods of the pricing 

data, the results indicated that using the 

GAO mean purchase prices as the basis 

for paying the 55 drugs and biologicals 

would be equivalent to paying for those 

drugs and biologicals, on average, at 

ASP+4 percent. In addition, using mean 

unit cost from hospital claims to set the 

payment rates for the drugs and 

biologicals that would be separately 

payable in CY 2006 would be equivalent 

to basing their payment rates, on 

average, at ASP+6 percent. We note that 

these levels are slightly different from 

the estimates we determined for the 

proposed rule, where the GAO data 

were equivalent to ASP+3 percent and 

mean costs derived from the CY 2004 

claims data were equivalent to ASP+8 

percent, on average. (See Table 22 of the 

CY 2006 OPPS proposed rule, 70 FR 

42725). 

We understand the concerns raised by 

commenters about the reductions in 

payment rates for certain drugs and 

biologicals with the transition from an 

AWP-based methodology to an ASPbased methodology. However, our intent 

is to pay for drugs and biologicals based 

on their hospital acquisition costs, and 

we believe that market-based ASP data, 

which are reported by the 

manufacturers, better represent these 

costs than dampened payment rates. We 

also note that commenters did not 

present actual evidence demonstrating 

that access problems currently exist for 

some of these products. They presented 

anecdotal reports and results based on 

surveys that we can not validate. 

Therefore, we believe that it is still 

appropriate for us to base payment for 

these items on the ASP data. 

As noted earlier and in the proposed 

rule, findings from a MedPAC survey of 

hospital charging practices indicated 

that hospitals set charges for drugs, 

biologicals, and radiopharmaceuticals 

high enough to reflect their pharmacy 

handling costs as well as their 

acquisition costs. Therefore, the mean 

costs calculated using charges from 

hospital claims data converted to costs 

are representative of hospital 

acquisition costs for these products, as 

well as their related pharmacy overhead 

costs. Our calculations indicated that 

using mean unit costs to set the 

payment rates for all separately payable 

drugs and biologicals would be 

equivalent to basing their payment rates 

on the ASP+6 percent, on average. This 

result also seems to confirm MedPAC’s 

comment that paying for the acquisition 

cost of drugs alone at ASP+6 percent 

may be too high. Because pharmacy 

overhead costs are already built into the 

charges for drugs, biologicals, and 

radiopharmaceuticals, our current data 

therefore indicate that payment for 

drugs and biologicals and pharmacy 

overhead at a combined ASP+6 percent 

rate would serve as the best proxy for 

the combined acquisition and overhead 

costs of each of these products. 

Therefore, in this final rule with 

comment period for CY 2006, we are 

adopting a policy of paying for the 

acquisition and overhead costs of 

separately paid drugs and biologicals at 

a combined rate of ASP+6 percent. In 

other words, payment at ASP+6 percent 

will serve as a proxy to make 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68643 

appropriate payment for both the 

acquisition cost and overhead cost of 

each of these products. We discuss in 

additional detail our responses 

regarding payments for pharmacy 

overhead costs later in the preamble. 

As noted in the proposed rule, ASP 

data are unavailable for some drugs and 

biologicals. For these few drugs and 

biologicals, we used the mean costs 

from the CY 2004 hospital claims data 

to determine their packaging status for 

rate-setting. Until we receive ASP data 

for these items, payment will be based 

on their mean cost calculated from CY 

2004 hospital claims data. The payment 

rates for separately payable drugs and 

biologicals shown in Addenda A and B 

to this final rule with comment period 

represent payments for their acquisition 

costs in addition to their overhead costs. 

For this final rule with comment 

period, we are using payment rates 

based on ASP data from the second 

quarter of CY 2005 because these are the 

most recent numbers available for the 

development of this final rule. To be 

consistent with the ASP-based 

payments that would be made when 

these drugs and biologicals are 

furnished in physician offices, as 

proposed, we plan to make any 

appropriate adjustments to the amounts 

shown in Addenda A and B to this final 

rule with comment period for these 

items on a quarterly basis as more recent 

ASP data become available and post the 

payment rate changes on our Web site 

during each quarter of CY 2006. 

Effective January 1, 2006, we will base 

payment rates for separately payable 

drugs and biologicals on ASP data from 

the third quarter of CY 2005, which will 

also be the basis for setting payment 

rates for drugs and biologicals in the 

physician office setting effective January 

1, 2006. We discussed in the proposed 

rule that we would determine the 

packaging status of each drug or 

biological only once during the year 

during the update process; however, for 

the separately payable drugs and 

biologicals, we would update their ASPbased payment rates on a quarterly 

basis. Specifically, for CY 2006, the 

packaging status of each drug or 

biological has been established using 

the ASP data from the second quarter of 

CY 2005 and the appropriate packaging 

status indicator can be found for these 

items in Addendum B of this final rule 

with comment period. During CY 2006, 

we will only update quarterly the 

payment rates for the separately payable 

drugs and biologicals whose payments 

are based on the ASP methodology. 

Comment: One commenter requested 

that CMS standardize the HCPCS code 

descriptions in Addendum B, so that the 

drug names appear first (and can be 

sorted alphabetically), rather than using 

‘‘injection’’ as the first word. The 

commenter also sought clarification on 

the dosage sizes of several HCPCS codes 

and identified HCPCS codes for drugs 

that the commenters believed are 

obsolete. 

Response: We note that the HCPCS 

code descriptions in Addendum B of 

our final rule with comment period are 

based on the short descriptors assigned 

to the HCPCS codes by the National 

HCPCS Panel. The National HCPCS 

Panel also determines the units 

associated with the HCPCS codes. We 

suggest that the commenter pursue its 

concerns related to the HCPCS codes 

through the process set up by the 

National HCPCS Panel. 

Comment: One commenter indicated 

that there are currently five sodium 

hyaluronate products approved for use 

in the United Stated that differ in terms 

of molecular weights, proposed 

biological effects, active ingredient 

doses per treatment, number of 

treatments per course, and labeling for 

repeated treatment courses. Because of 

the existing coding mechanism for these 

products, the commenter noted that the 

proposed payment rates associated with 

the HCPCS codes may create financial 

incentives for hospitals to stock and use 

certain products instead of choosing 

products based on clinical judgment 

and appropriate treatment for patients. 

The commenter expressed the belief that 

the dosing differences among these 

agents warrant the creation of specific 

codes for each single source product 

and has submitted recommendations to 

CMS for specific coding and 

nomenclature for adoption in CY 2006. 

Response: We recognize the 

commenter’s concerns about payment 

for these sodium hyaluronate products 

under the OPPS. As noted earlier, the 

National HCPCS Panel has created 

HCPCS code J7318 (Hyaluron/derive 

intra-art inj) to describe all of the 

sodium hyaluronate products effective 

January 1, 2006. The payment rate for 

HCPCS code J7318 in CY 2006 will be 

established using the ASP data for all of 

the products described by this code. 

HCPCS code J7318 will be used in the 

OPPS during CY 2006 to report the 

administration of all products described 

by that code that do no have another 

OPPS-specific code available due to 

their pass-through status. 

Comment: We received many 

comments on the significant proposed 

reduction in payment rates from CY 

2005 to CY 2006 for several wound care 

products. The products of concern are 

Apligraf, Dermagraft, and Orcel, which 

are reported by HCPCS codes C1305, 

C9201, and C9200 respectively under 

the OPPS in CY 2005. Commenters 

indicated that the proposed CY 2006 

payment rates for the acquisition and 

overhead costs of all three of these 

products were incorrectly based on the 

CY 2004 claims data, instead of ASP+8 

percent as proposed for other separately 

payable drugs and biologicals, and they 

were very concerned that decreased 

payments will significantly underpay 

hospitals and jeopardize patient access 

to these therapies. One of the 

commenters stated that CMS based 

payment for Apligraf on mean costs 

derived from the CY 2004 claims data 

because there had been no ASP payment 

rate specific to HCPCS code C1305 and 

noted that the ASP rate for Apligraf is 

reported by CMS in the physician office 

setting under HCPCS code J7340. Other 

commenters raised similar concerns for 

Dermagraft whose ASP rate is reported 

in the physician office setting under 

HCPCS code J7342, instead of HCPCS 

code C9201. With respect to Orcel, one 

commenter stated that this product was 

not commercially available during CY 

2004 and, as a result, neither ASP data 

nor hospital outpatient claims data 

should have existed for the product. The 

commenter recommended that, in the 

absence of either claims or ASP data, 

CMS should follow its payment policy 

for drugs and biologicals that do not 

have ASP data and establish the 

payment rate for Orcel using WAC. If 

WAC was not available, then CMS 

should set payment for Orcel at 95 

percent of the May 1, 2003 AWP. 

Response: We recognize the 

commenters’ concerns about the 

proposed reduction in payment rates for 

these wound care products in CY 2006. 

The commenters were correct in stating 

that we based the payment rates for 

these items on their mean costs derived 

from the CY 2004 claims data in the 

proposed rule because we believed that 

we did not have any ASP data for these 

C-codes. We appreciate the commenters 

indicating to us that HCPCS codes 

C1305 and C9201 are billed using 

HCPCS codes J7340 and J7342, 

respectively, in the physician office, and 

the ASP data submitted for these 

products were associated with their 

permanent J-codes. 

For this final rule with comment 

period, we reviewed the NDCs for 

which ASP data from the second quarter 

of CY 2005 were reported under HCPCS 

codes J7340 and J7342, and verified that 

these NDCs included Apligraf and 

Dermagraft products, respectively. 

Therefore, for CY 2006, we will be 

deleting the HCPCS code C1305 for 

Apligraf and HCPCS code C9201 for 

Dermagraft and paying for these 

68644 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

products using the ASPs calculated for 

HCPCS codes J7340 and J7342, 

respectively. As one of the commenters 

noted, ASP data are not available 

currently for HCPCS code C9200, which 

describes Orcel. Based on our review of 

the descriptor for HCPCS code J7340, 

we determined that this code 

appropriately describes Orcel; therefore, 

we will be deleting HCPCS code C9200 

and paying for this product using 

HCPCS code J7340. Even though the 

calculation of the ASP-based payment 

rate for HCPCS code J7340 does not 

currently account for the ASP of Orcel, 

we believe that it is still appropriate for 

us to pay for Orcel using HCPCS code 

J7340 since this code appropriately 

describes this product. Also, once Orcel 

becomes available in the market and we 

receive ASP data for this product, the 

ASP-based payment rate for HCPCS 

code J7340 will properly reflect the 

market price for Orcel. We believe that 

this coding policy will lessen confusion 

for providers, enhance coding 

consistency between the OPPS and 

physician offices, and result in 

appropriate payment rates for these 

three wound care products in CY 2006. 

In addition to reviewing whether 

permanent HCPCS codes duplicate the 

three temporary C-codes describing 

wound care products in the CY 2005 

OPPS, we also reviewed whether there 

are permanent HCPCS codes that 

currently exist or will be created in CY 

2006 that describe the other C-codes for 

drugs, biologicals, and 

radiopharmaceuticals that are payable 

under the OPPS in CY 2005 to 

determine if we could streamline coding 

for other items as well. Based on our 

review, we found that there are several 

C-codes for drugs, biologicals, and 

radiopharmaceuticals that are payable 

under OPPS in CY 2005 that will be 

replaced with new permanent HCPCS 

codes in CY 2006. We also found that 

there are some C-codes that are also 

described by other permanent HCPCS 

codes that existed in CY 2005. In cases 

where it is appropriate to do so, we are 

deleting these C-codes and replacing 

them with new CY 2006 HCPCS codes 

or existing HCPCS codes that 

appropriately describe products 

currently coded in the OPPS by the Ccodes. As discussed later in the 

preamble, we are also deleting the Ccodes that were created to represent the 

innovator multiple source (brand) drugs 

and instructing hospitals to use the 

HCPCS codes for noninnovator multiple 

source (generic) drugs to bill for both 

the brand and generic forms of a drug 

in CY 2006. Table 25 lists the C-codes 

that we are deleting effective December 

31, 2005 and the permanent HCPCS 

codes that will be replacing them in CY 

2006. For services furnished on or after 

January 1, 2006, hospitals should use 

replacements codes to bill for the 

products whose C-codes will be deleted 

on December 31, 2005. 

BILLING CODE 4210–01–P 

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ER10NO05.019</GPH>
68646 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.020</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68647 

BILLING CODE 4210–01–C 

Comment: One commenter noted that 

CMS should confirm that payment for 

echocardiography contrast agents will 

be based on ASP+6 percent plus an 

appropriate amount to reflect handling 

(no less than two percent) so that 

payment for these items is consistent 

with all other separately payable drugs 

under OPPS. A few commenters 

indicated that CMS should implement 

the new HCPCS codes for 

echocardiography contrast agents, 

which will be effective January 1, 2006, 

to facilitate uniform billing for all 

echocardiography contrast agents across 

all sites of service. 

Response: In CY 2005, 

echocardiography contrast agents are 


ER10NO05.021</GPH>
68648 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

described by three C-codes, which are 

HCPCS code C9112 (Perflutren lipid 

micro, 2ml), HCPCS code C9202 

(Octafluoropropane), and HCPCS code 

C9203 (Perflexane lipid micro). In the 

proposed rule, we proposed to deleted 

these C-codes and pay for the products 

using Q-codes in CY 2006. As noted in 

the previous response to comments, 

these three C-codes will be deleted as of 

December 31, 2005 and replaced with 

HCPCS codes Q9957, Q9956, and 

Q9955, respectively. Hospitals should 

use the new Q-codes in CY 2006 when 

billing for these echocardiography 

contrast agents. We also note we will be 

paying for the acquisition and overhead 

costs of these separately payable 

echocardiography contrast agents at a 

combined rate of ASP+6 percent in CY 

2006. 

Comment: We received many 

comments that expressed concerns 

about the proposed reductions in OPPS 

payment rates for intravenous 

immunoglobulin (IVIG) products. 

Commenters requested that CMS make 

special consideration in its payment for 

IVIG due to the current access problems 

facing patients that rely on this 

lifesaving therapy. Commenters 

indicated that payment at ASP+6 

percent has not been adequate to permit 

the continued purchase and 

administration of IVIG in physician 

offices, infusion suites, and home care 

settings, resulting in a shift of care to 

hospitals. Consequently, hospitals have 

been overburdened by the increase in 

demand for IVIG, which has not been 

easily accessible. The commenters 

indicated that CMS’ goal in setting 

payment rates for IVIG should be to 

ensure that patients have access to all 

brands of IVIG in all sites of care. 

Commenters requested that CMS use 

any and all authority and flexibility to 

address the existing payment problems 

that will arise if the proposed OPPS 

payment rates for IVIG are implemented 

and recommended several actions. In 

order of priority, commenters’

recommendations were to: (1) Provide a 

proxy add-on payment rate for IVIG 

when determining the CY 2006 payment 

levels; (2) in the absence of a proxy addon, apply the 15-percent dampening 

provision proposed for devicedependent APCs to determine the CY 

2006 payment rates for IVIG; (3) 

establish unique HCPCS codes for each 

brand of IVIG and set their payment 

rates on the ASP data specific to each 

product; (4) classify IVIG as a biologic 

response modifier and pay its 

administration through a high 

complexity intravenous infusion APC; 

and (5) exclude prompt pay discounts 

when calculating the ASPs for the IVIG 

HCPCS codes and equalize the lag time 

between the ASP reporting by 

manufacturers and CMS’ posting of the 

ASP-based payment rates for the OPPS 

and Part B physician office payment 

rates. One commenter urged CMS to 

revert to the original J-codes for IVIG 

(J1563 and J1564) and maintain the CY 

2005 payment rates. Other commenters 

suggested that, at minimum, CMS 

should continue payment for IVIG at the 

CY 2005 payment rates of 83 percent of 

AWP for 2 years, during which time 

CMS, consulting with Congress, 

manufacturers, distributors, providers, 

and patient groups, should conduct a 

study to determine the best payment 

methodology for IVIG with the goal of 

ensuring access to IVIG and continuity 

of care in all practice settings. 

Response: As discussed earlier, we 

believe that ASP data are reflective of 

present hospital acquisition costs for 

separately payable drugs and biologicals 

under the OPPS. We believe this to be 

true for IVIG as well. We therefore 

cannot agree that it is appropriate to 

make adjustments to the payment rates 

for IVIG based on past prices, as we 

have more current ASP data available 

that reflect current market pricing for all 

of the brands of IVIG. 

With respect to establishing brandspecific HCPCS codes for the different 

IVIG products, we note that the 

procedures for HCPCS coding 

specifically reject brand-specific coding, 

and we do not see a compelling reason 

to override that standard. For further 

discussion of HCPCS coding, see http: 

//www.cms.hhs.gov/medicare/hcpcs/ 

codpayproc.asp. Finally, we note that in 

CY 2006 the OPPS and physician offices 

will both be paid based on the most 

recently available quarter’s ASP data, 

with implementation of payment rate 

changes in both systems on the same 

date. As noted earlier, effective January 

1, 2006 we will base payment rates for 

all separately payable drugs and 

biologicals under the OPPS on ASP data 

from the third quarter of CY 2005, 

which will also be the basis for setting 

payment rates for drugs and biologicals 

in the physician office setting effective 

January 1, 2006. After considering these 

factors, we are finalizing our proposal to 

pay for IVIG under the OPPS at ASP+6 

percent for CY 2006, the same payment 

rate as in the physician office setting. 

We will, however, continue to work 

with the IVIG community, 

manufacturers, Congress, and other 

entities to seek better understanding of 

the supply and market issues 

influencing the current IVIG 

environment. We have discussed the 

accuracy of the ASP data with the 

manufacturers and have been assured by 

these manufacturers that their ASPs 

have been developed in accordance 

with applicable guidance and that the 

resulting price reflects the current IVIG 

market. At the same time, the IVIG 

manufacturers’ association, the Plasma 

Protein Therapeutics Association, 

reports that the overall supply of IVIG 

is adequate and has improved in the 

past several months. However, based on 

the comments received and our ongoing 

work with manufacturers, patient 

groups, and other stakeholders, we 

continue to be concerned about CY 2005 

reports of patients experiencing 

difficulties in accessing timely IVIG 

treatments and reports of providers 

experiencing difficulties in obtaining 

adequate amounts of IVIG products on 

a consistent basis to meet their patients’

needs in the current marketplace. Most 

brands of IVIG have been put on 

allocation by manufacturers, and some 

manufacturers have reported allocating 

products to a smaller number of 

distributors and reducing the size of 

inventories. In addition, there have been 

reports of diversion of products to the 

secondary market and secondary 

distributors raising prices markedly. 

The Secretary’s Advisory Committee on 

Blood Safety and Availability has 

recommended immediate steps be taken 

to ensure access to IVIG so that patients’

needs are being met. However, the 

complexity of the IVIG marketplace 

makes it unclear what particular 

systematic approaches would be most 

effective in addressing the many 

individual circumstances that have been 

shared with us while not exacerbating 

what appears to be a temporary 

disruption in the marketplace. 

IVIG is a complicated biological 

product that is purified from human 

plasma obtained from human plasma 

donors. Its purification is a complex 

process that occurs along a very long 

timeline, and only a small number of 

manufacturers provide commercially 

available products. Historically, 

numerous factors, including decreased 

manufacturing capacity, increased 

usage, more sophisticated processing 

steps, and low demand for byproducts 

from IVIG fractionation have affected 

the supply of IVIG. For CY 2006, there 

are two HCPCS codes that describe all 

IVIG products, based on their 

lyophilized versus liquid preparation. 

The recent patterns of utilization of 

IVIG also are unusual in comparison 

with most other drugs and biologicals. 

Different IVIG products are FDAapproved in a number of therapeutic 

areas for various specific conditions, 

which include: Anti-infective therapy 

(bone marrow transplant); immune 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68649 

globulin replacement therapy (primary 

immune deficiencies and chronic 

lymphocytic leukemia); antiinflammatory therapy (Kawasaki 

disease); and immunomodulation 

therapy (idiopathic thrombocytopenic 

purpura). IVIG therapy, which has been 

available for about 25 years, was 

initially reserved for the treatment of 

these FDA-approved indications. More 

recently, IVIG has been increasingly 

used off-label so that off-label uses now 

significantly exceed on-label uses. Many 

of these off-label uses are for 

autoimmune, neurological, or systemic 

inflammatory conditions. Some off-label 

uses of IVIG are supported by a robust 

evidence base, while for other medical 

conditions the evidence has not 

demonstrated that IVIG infusions are of 

significant therapeutic benefit. In 

addition, despite the growing uses of 

IVIG there are definite risks associated 

with IVIG treatment, including both 

early inflammatory reactions and more 

rare but serious renal and 

thromboembolic complications, as well 

as the inherent risk associated with 

receipt of any biological product even 

with the ongoing improvements in the 

safety of these types of products. 

Medicare currently has one national 

coverage determination in place since 

CY 2002 regarding IVIG infusions to 

treat autoimmune blistering diseases, 

and there are numerous local coverage 

policies that describe Medicare coverage 

for specific off-label indications. In the 

context of these national and local 

coverage policies, IVIG use in hospital 

outpatient departments has climbed 

steeply over the most recent years for 

which data are available, from about 

40,000 infusion days in CY 2002, to 

60,000 days in CY 2003, and again to 

over 70,000 days in CY 2004. The 

infusion of IVIG in physician offices 

increased from about 2.3 million grams 

in CY 2003 to 4.0 million grams in CY 

2004. In the face of growing demand for 

IVIG in the absence of significant 

changes in the prevalence of medical 

conditions for which there is high 

quality evidence regarding the 

effectiveness of IVIG therapy, we are 

concerned that all patients with medical 

need for IVIG continue to have access to 

this expensive and valuable therapy. 

Over the upcoming year, we will be 

using our historical claims databases to 

study the epidemiology of IVIG 

treatment of Medicare beneficiaries in 

outpatient settings. We expect that the 

health system as a whole should 

encourage an accountable and 

scientifically grounded use of IVIG, and 

we welcome discussions with industry, 

providers, and other interested entities 

around efforts to ensure that IVIG is 

responsibly utilized for evidence-based 

clinical indications so that optimal 

benefit is obtained. 

Based on the potential access 

concerns, the growing demand for IVIG, 

and the unique features of IVIG detailed 

above, as well as our move to an ASP 

payment methodology for IVIG in the 

OPPS for CY 2006, as we seek to gain 

improved understanding of the 

contemporary, volatile IVIG marketplace 

we will employ a two-pronged approach 

during CY 2006 to help ensure the 

availability of IVIG to physicians and 

hospital outpatient departments who 

care for Medicare beneficiaries and will 

be paid ASP+6 percent for the IVIG 

products. 

First, in addition to ongoing 

monitoring and outreach activities 

within the Department of Health and 

Human Services, the Office of the 

Inspector General (OIG) is studying the 

availability and pricing of IVIG as part 

of its monitoring of market prices 

pursuant to section 1847A(d)(2)(A). We 

expect the OIG’s work to provide a 

significant contribution to the analysis 

of the current situation with respect to 

the specific activities of manufacturers 

and distributors that may be 

contributing to possible access problems 

for IVIG as we move to the ASP 

payment methodology in both physician 

office and hospital outpatient settings. 

We hope to understand those particular 

market behaviors that may have led to 

such public alarm about the availability 

of IVIG and the adequacy of our 

payment rate of ASP+6 percent, 

concerns that have been particularly 

strong and persistent for IVIG in 

comparison with other drugs paid under 

the same ASP methodology. 

Second, we will provide additional 

payment in CY 2006. Presently the IVIG 

marketplace is a dynamic one, where a 

significant portion of IVIG products 

previously available in CY 2005 are 

being discontinued and other products 

are expected to enter the market over 

the next year. In light of this temporary 

market instability, we understand that 

manufacturers have continued 

allocation procedures aimed at 

stabilizing the supply of IVIG. Even so, 

we understand that providers may face 

purchasing whichever brand of IVIG is 

available, even if it is not a brand the 

patient is known to tolerate. Many 

patients treated with IVIG receive 

regular infusions on a predictable 

schedule. To meet this need, hospital 

staff must conduct significant 

preadministration services prior to IVIG 

infusions to monitor and manage their 

inventory, locate available IVIG 

products, reschedule infusions 

according to product availability and 

patients’ needs, and implement 

physicians’ determinations regarding 

whether the available formulations are 

appropriate for patients and whether 

specific dosing adjustments are 

required. Product-specific factors must 

be evaluated in light of patients’ clinical 

indications for the IVIG infusions, their 

underlying medical conditions, and 

their past reactions to various IVIG 

products, and hospital staff must locate 

appropriate doses of IVIG products in 

light of these considerations. If the 

appropriate IVIG product formulations 

were more widely and reliably 

available, we do not believe that routine 

IVIG infusions would require these 

extensive preadministration-related 

services prior to each infusion. 

To continue to ensure appropriate 

patient access to IVIG in CY 2006 during 

this short-term period of market 

instability for IVIG, beginning for dates 

of service on or after January 1, 2006 

through December 31, 2006, we will 

temporarily allow a separate payment to 

hospitals to reflect the additional 

resources that are associated with 

locating and acquiring adequate IVIG 

products and preparing for an 

outpatient hospital infusion of IVIG in 

the current environment. We expect that 

making separate payment for these 

additional necessary services will help 

insure that hospitals are able continue 

to provide IVIG infusions to their 

patients who depend upon them. We 

will also provide an additional payment 

to physician offices for these special 

services, to ensure that patients 

continue to have access to IVIG 

infusions in the most medically 

appropriate settings, without 

undesirable shifts in sites of service for 

their care. 

Because the extra hospital resources 

currently associated with the 

preadministration-related services for 

intravenous infusion of 

immunoglobulin are not accounted for 

in the CY 2004 hospital claims data 

used to establish payments rates for the 

CY 2006 drug administration HCPCS 

codes that will be billed for IVIG 

infusions, we are creating a temporary 

G-code to describe these additional 

preadministration services related to the 

intravenous infusion of 

immunoglobulin. We have established 

the following G-code for hospital 

outpatient billing for CY 2006: 

• G0332; Preadministration-related 

services for intravenous infusion of 

immunoglobulin, per infusion 

encounter (This service is to be billed in 

conjunction with administration of 

immunoglobulin.) 

68650 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

Hospitals may bill this service once 

per day in association with a patient 

encounter for administration of IVIG, in 

addition to billing for the appropriate 

drug administration service(s) and for 

appropriate units of the HCPCS code 

that describes the IVIG product infused. 

In addition, hospitals may also bill for 

any significant and separately 

identifiable evaluation and management 

(E/M) service they perform at a level 2 

through 5 in association with the 

infusion encounter, appending modifier 

–25 to the E/M service. We have 

established the payment level for this 

service in outpatient hospital 

departments by crosswalking it to the 

payment level established for the 

physician office for CY 2006. We believe 

that the hospital resources required for 

HCPCS code G0332 should be very 

similar to the practice expense for this 

service in the physician office, and, 

because no physician work is included 

in the physician office payment for the 

new service, the HCPCS code G0332 

payment rates in physician office and 

hospital outpatient settings should be 

generally comparable. HCPCS code 

G0332 is a new service with no claims 

history under the OPPS and we cannot 

identify an appropriate clinical APC for 

its assignment based on considerations 

of clinical and resource homogeneity. 

Therefore, we are assigning HCPCS code 

G0332 to New Technology APC 1502 

(status indicator ‘‘S’’) with a payment 

rate of $75 for CY 2006, based on a 

direct crosswalk to the New Technology 

APC that corresponds with the 

physician office CY 2006 payment of 

approximately $69. 

We believe that this temporary 

separate payment provided through 

HCPCS code G0332 in CY 2006 for the 

physician office and hospital outpatient 

resources associated with additional 

IVIG preadministration-related services 

due to the present significant 

fluctuations in the IVIG marketplace 

will ensure that Medicare beneficiaries 

depending on IVIG experience no 

adverse health consequences from the 

market instability for IVIG products. In 

the meantime, we will continue to 

evaluate the market factors affecting the 

pricing and availability of IVIG products 

in the context of our ASP+6 percent 

payment methodology and our separate 

payment for HCPCS code G0332 in CY 

2006. We expect that in CY 2006 with 

continued collection of updated ASP 

data for IVIG; improved understanding 

of the IVIG marketplace; more focused 

attention on the medical necessity of the 

utilization of IVIG; ongoing 

collaboration between CMS, the IVIG 

community, manufacturers, providers, 

and other interested entities; and this 

temporary separate payment for hospital 

and physician office resources required 

for the intensive preadministration 

services related to IVIG infusion, the 

IVIG marketplace will stabilize over the 

upcoming year. Substantial 

preadministration-related services for 

IVIG infusions should no longer be 

required of physician offices and 

hospital outpatient departments that 

provide IVIG infusions to patients who 

need them. Therefore, this additional 

payment for G0332 is effective for CY 

2006 only. Thus, we will be closely 

monitoring this issue once again in the 

context of our rulemaking for CY 2007. 

Comment: One commenter requested 

that CMS provide separate payment for 

all magnetic resonance imaging contrast 

agents, including imaging agents 

covered by HCPCS code Q9953. 

Response: In CY 2006, the HCPCS 

codes that will be used to describe 

magnetic resonance imaging contrast 

agents are HCPCS codes Q9952 (Inj Gadbase MR contrast, ml), Q9953 (Inj Febased MR contrast, ml) and Q9954 (Oral 

MR contrast, 100 ml). In the proposed 

rule, we proposed to pay separately for 

HCPCS code Q9952 and HCPCS code 

Q9954; however, we proposed to 

package HCPCS code Q9953 because we 

were not able to estimate its per 

administration cost. For CY 2006, we 

will be paying separately for HCPCS 

code Q9952 and HCPCS code Q9954, as 

proposed. Additionally, we will provide 

separate payment for HCPCS code 

Q9953 since we have now determined 

its per day cost to be higher than $50 in 

this final rule with comment period. 

Comment: One commenter indicated 

that WinRho SDF Liquid is a new 

intravenous gamma globulin product 

that recently received marketing 

clearance from the FDA, and that this 

product was created to replace the first 

generation therapy, WinRho SDF. The 

commenter noted that WinRho SDF 

Liquid does not require reconstitution, 

whereas WinRho SDF is a lyophilized 

product that requires reconstitution and 

is described by HCPCS code J2792. 

According to the commenter, if WinRho 

SDF Liquid is also assigned to HCPCS 

code J2792, then the OPPS payment in 

CY 2006 is likely to be below the 

acquisition cost of this new product. 

Therefore, the commenter requested that 

CMS establish separate codes to 

distinguish between the liquid and 

lyophilized forms of Rho D Immune 

Globulin. 

Response: We recognize the 

commenter’s concern about payment for 

this new intravenous gamma globulin 

product under the OPPS. The National 

HCPCS Panel coordinates decisions 

regarding the creation of permanent 

HCPCS codes; therefore, comments 

related to the HCPCS code creation 

process are outside the scope of this 

rule. 

Comment: One commenter was 

concerned that where the ASP 

information does not exist, CMS will 

use the CY 2004 hospital claims data, 

and with drug cost increases averaging 

5 to 10 percent over the past two years, 

the payments would not be enough to 

cover the costs of providing these drugs. 

Response: We understand the 

commenter’s concern. However, as we 

stated in the proposed rule, until ASP 

data are available for certain drugs and 

biologicals, their payment rates will be 

based on their mean costs derived from 

the CY 2004 claims data. We note that 

with respect to items for which we 

currently do not have ASP data, once 

their ASP data become available in later 

quarter submissions, their payment rates 

under the OPPS will be adjusted so that 

the rates are based on the ASP 

methodology and set to ASP+6 percent. 

Therefore, we encourage the 

manufacturers of these drugs and 

biologicals to report their ASPs to CMS. 

We received several public comments 

on the November 15, 2004 final rule 

with comment period concerning issues 

related to payment for drugs and 

biologicals in CY 2005. For those issues 

that have not already been addressed in 

other sections of this preamble, below is 

a summary of those comments and our 

responses. 

Comment: One commenter stated that 

CMS incorrectly calculated a payment 

rate of $6.60 per cm2 for the product 

Integra described by HCPCS code C9206 

(Collagen-Glycosaminoglycan Bilayer 

Matrix, per cm2) and that the payment 

rate was inappropriate in the OPPS 

setting. The commenter noted that 

Integra is provided in four sizes that are 

appropriate for different clinical needs 

and settings, and the payment rate set 

by CMS represented a single payment 

rate based on the cost of the largest 

package size used in the inpatient 

setting. The commenter recommended 

that either three additional and separate 

payment HCPCS codes be established 

for the different sizes, with payment 

rates established according to their 

different WACs, or that the payment rate 

for Integra be based on the costs of the 

smallest packaging sizes, which are the 

ones used in the hospital outpatient 

department. In addition, the commenter 

recommended that the unit descriptor 

for HCPCS code C9206 be changed to 25 

cm2 so that it is consistent with the 

descriptors of the CPT codes used with 

this product and also so that it is 

convenient and easy to apply for 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68651 

hospital personnel inputting codes on 

claim forms. 

Response: Effective January 1, 2005, 

HCPCS code C9206 (CollagenGlycosaminoglycan Bilayer Matrix, per 

cm2) was created to describe Integra. To 

accommodate the different package 

sizes that currently exist or may enter 

the market in the future, our policy is 

to create a HCPCS code descriptor based 

on the lowest possible dosage or size of 

the product; therefore, we assigned a 

unit of cm2 to HCPCS code C9206. The 

payment rate of $6.60 per cm2 for this 

biological was calculated using the 

standard methodology used to 

determine the payment rates for drugs 

and biologicals in the physician office 

setting, where for drugs and biologicals 

without an ASP, our methodology 

prescribes the use of the lesser of the 

median WAC for all sources of the 

generic forms of the product or the 

brand name product with the lowest 

WAC. Therefore, because Integra is a 

brand name product with four different 

package sizes and prices, we set the 

payment rate for HCPCS code C9206 at 

$6.60, which was the lowest WAC per 

cm2. This payment rate was in effect 

during the first quarter of CY 2005. We 

note that the payment rates for C9206 

for the second quarter of CY 2005 and 

following quarters were based on 106 

percent of its ASP, based on the ASP 

methodology for drugs furnished in the 

physician office setting on or after 

January 1, 2005. We note that for CY 

2006, HCPCS code C9206 has been 

deleted and replaced with the 

permanent HCPCS code J7343. 

Comment: One commenter requested 

that CMS revise the first quarter CY 

2005 ASP rate for HCPCS code J0180 

(Injection, agalsidase beta, 1 mg) from 

$121.12 to $121.14 because it believes 

that CMS made an error in the 

weighting of the different ASP figures 

provided to CMS for the two National 

Drug Codes for this product. 

Response: The methodology used to 

establish the ASP-based payment rates 

for drugs and biologicals is discussed in 

the CY 2006 Medicare Physician Fee 

Schedule final rule. Therefore, we will 

not respond to this comment since it is 

outside the scope of this rule. 

Comment: One commenter expressed 

concern about the creation of the new 

HCPCS code J3396 (Injection, 

verteporfin, 0.1 mg) in CY 2005 for 

verteporfin and the deletion of HCPCS 

code J3395 (Injection, verteporfin, 15 

mg). The commenter stated that the new 

code will create confusion among 

providers and urged CMS to reinstate 

HCPCS code J3395 for use with 

verteporfin injections and/or to clarify 

and implement measures to ensure that 

the change to HCPCS code J3396 will 

not impact providers’ ability to 

accurately bill for their use of this 

medication. 

Response: Decisions regarding the 

creation of permanent HCPCS codes are 

coordinated by the National HCPCS 

Panel. Comments related to the HCPCS 

code creation process and decisions 

made by the National HCPCS Panel are 

outside the scope of this rule. 

In CY 2005, we applied an equitable 

adjustment to determine the payment 

rate for darbepoetin alfa (HCPCS code 

Q0137) pursuant to section 1833(t)(2)(E) 

of the Act. However, for CY 2006, we 

proposed to establish the payment rate 

for this biological using the ASP 

methodology. The ASP data represent 

market prices for this biological; 

therefore, we believe it is appropriate to 

use the ASP methodology to establish 

payment rates for darbepoetin alfa 

because this method will permit market 

forces to determine the appropriate 

payment for this biological. We 

specifically requested comments on the 

proposed payment policy for this 

biological. 

We received several public comments 

on our proposal. 

Comment: A number of commenters 

expressed concern about our proposal to 

establish payment for both epoetin alfa 

(marketed under the trade name of 

Procrit ) and darbepoetin alfa 

(marketed under the trade name of 

Aranesp) using the ASP methodology. 

Several commenters urged CMS to 

implement this proposal so that a 

market-oriented, ASP-based payment 

system can function as the Pub.L. 108–

173 intended without any arbitrary 

government interference. In addition, 

one of the commenters indicated that 

this policy would promote appropriate 

patient and physician choice in making 

health care decisions. One of the 

commenters supported the proposal to 

establish a payment rate for darbepoetin 

alfa using the ASP methodology and to 

discontinue application of an equitable 

adjustment to its payment rate. This 

commenter also stated that CMS 

accurately noted in the CY 2006 

proposed rule that ‘‘the ASP data 

represent market prices for this 

biological,’’ and that using the ASP 

methodology to establish the CY 2006 

OPPS payment rate for darbepoetin alfa 

‘‘will permit market forces to determine 

the appropriate payment for this 

biological.’’ Therefore, the commenter 

reasoned that an equitable adjustment is 

not needed in CY 2006 since payments 

for all separately payable drugs and 

biologicals will be based on market 

prices. The commenter also provided 

clinical and economic data to further 

support CMS’ proposal not to apply an 

equitable adjustment to the payment 

rate for darbepoetin alfa in CY 2006. For 

example, the commenter noted that new 

clinical data demonstrate that 

darbepoetin alfa and epoetin alfa 

achieve comparable clinical outcomes at 

comparably priced doses. By applying 

the proposed payment rates for doses of 

the two drugs based on current clinical 

guidelines and validated randomized 

controlled trials, the commenter 

concluded that overall Medicare and 

beneficiary spending would decrease for 

similar clinical outcomes with the use 

of darbepoetin alfa rather than epoetin 

alfa. In addition, the commenter 

highlighted that applying an equitable 

adjustment to the payment rate for 

darbepoetin alfa in CY 2006 would, in 

fact, increase Medicare and beneficiary 

spending on darbepoetin alfa. This 

commenter also recommended that if 

CMS plans to utilize its equitable 

adjustment authority again, then the 

conversion ratio should be increased to 

400:1 to reflect the results of a new 

clinical study that proves the clinical 

comparability of darbepoetin alfa and 

epoetin alfa at such a dosing ratio. 

One commenter on this topic also 

provided detailed results of clinical 

studies that the commenter believes 

provide a strong rationale for continuing 

the equitable payment adjustment for 

darbepoetin alfa and demonstrate that 

the appropriate conversion ratio for 

making this adjustment is less than or 

equal to 260:1. The commenter stated 

that Medicare and beneficiary spending 

for these two drugs under the proposed 

payment policy for CY 2006 will be 

higher in order to achieve comparable 

therapeutic effects unless CMS 

maintains the equitable adjustment 

policy and re-establishes a conversion 

ratio that is less than or equal to 260:1. 

Response: We appreciate the many 

thoughtful and detailed comments on 

our proposed CY 2006 payment rates for 

darbepoetin alfa and epoetin alfa. Based 

on our ASP market price data from the 

second quarter of CY 2005 for these two 

drugs, we observed that the payment 

rates for epoetin alfa and darbepoetin 

alfa would decrease by similar levels in 

CY 2006 from their current CY 2005 

payment rates. Payment for epoetin alfa 

would decrease by 17 percent and 

payment for darbepoetin alfa would 

decrease by 18 percent. In CY 2006, if 

we continued the CY 2005 equitable 

adjustment policy of determining the 

payment rate for darbepoetin alfa using 

a conversion ratio of 330 Units of 

epoetin alfa to 1 microgram of 

darbepoetin alfa (330:1), then the 

payment rate for darbepoetin alfa would 

decrease by 17 percent, the same rate of 

68652 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

change as that for epoetin alfa. 

Following the payment methodology 

described earlier for separately payable 

drugs and biologicals where payment 

for their acquisition and overhead costs 

would be equal to ASP+6 percent in CY 

2006, the payment rate for epoetin alfa 

would be $9.22 per 1000 Units and the 

payment rate for darbepoetin alfa would 

be $3.01 per microgram. However, if we 

applied the CY 2005 conversion ratio of 

330:1, the payment rate for darbepoetin 

alfa would be $3.04 per microgram. 

In determining our payment policy for 

darbepoetin alfa in CY 2006, we 

reviewed the results of the many recent 

clinical studies that were provided in 

the comments. We independently 

assessed the methodological rigor of the 

study designs and the generalizability of 

the results of the various studies. This 

assessment included the 

appropriateness and comparability of 

the sizes and characteristics of the 

subject groups, the duration of the trials, 

the administered doses of the 

investigational agents, the drop out rates 

in the treatment arms, and the 

consideration of other possible causes of 

study bias. With the limitations of the 

studies supporting either an increase or 

a decrease in the conversion factor, the 

quality and quantity of the currently 

available published evidence do not 

provide sufficient, clear evidence to 

support a change in the appropriate 

conversion factor at this time. 

Methodological shortcomings included 

insufficient sample sizes, excessive 

dropout rates, inadequate study 

duration, and failure to adequately 

account for confounding effects. Some 

studies have yet to be published as full, 

peer-reviewed journal articles; abstracts 

do not provide sufficient detail for our 

review. Overall, the results of these 

clinical studies were not consistent or 

conclusive in defining a single, different 

conversion ratio for dosing between 

these two products, particularly with 

respect to the timing of specific doses of 

the two drugs required to achieve 

several different meaningful clinical 

outcomes. The results of contemporary 

clinical studies demonstrated that a 

wide range of conversion ratios could be 

considered, and these ratios varied by a 

factor of two or more depending on the 

specific study design, the measured 

clinical outcomes, and the treated 

patient populations. As we have noted 

above, the payment rate for darbepoetin 

alfa at ASP+6 percent ($3.01 per 

microgram) is slightly lower than but 

consistent with the payment rate for 

darbepoetin alfa using the 330:1 

conversion ratio ($3.04 per microgram) 

that we established in CY 2005. This 

conversion ratio is also well within the 

range of the conversion ratios that may 

be supported by the available clinical 

data. We therefore do not believe that 

there is sufficient clinical evidence to 

indicate that we should specifically 

employ our equitable adjustment 

authority to adjust the payment rate for 

darbepoetin alfa in CY 2006. By 

finalizing this payment policy 

specifically for the CY 2006 OPPS, 

based on our latest payment rate 

analysis and independent review of the 

recent clinical literature, it is not our 

intention to preclude the use of a 

conversion ratio to establish the OPPS 

payment rates for epoetin alfa and 

darbepoetin alfa in the future. Rather, as 

long as the market price for darbepoetin 

alfa is consistent with a payment rate 

derived using a clinically appropriate 

conversion ratio, invoking our equitable 

adjustment authority would not lead to 

a different result. However, we retain 

our authority to apply an equitable 

adjustment in the future to determine 

the payment rate for darbepoetin alfa 

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

Act. We will once again assess the need 

to exercise this authority when we next 

update the payment rates under the 

OPPS based on the latest available 

clinical evidence on the appropriate 

conversion ratio and based on the actual 

pricing experience at that time. 

Effective April 1, 2005, several 

HCPCS codes were created to describe 

various concentrations of low osmolar 

contrast material (LOCM). These new 

codes are HCPCS codes Q9945 through 

Q9951. However, in Transmittal 514 

(April 2005 Update of the OPPS), we 

instructed hospitals to continue 

reporting LOCM in CY 2005 using the 

existing HCPCS codes A4644, A4645, 

and A4646 and made Q9945 through 

Q9951 not payable under the OPPS. For 

CY 2006, we proposed to activate the 

new Q-codes for hospitals and 

discontinue the use of HCPCS codes 

A4644 through A4646 for billing LOCM 

products. We have CY 2004 hospital 

claims data for HCPCS codes A4644 

through A4646, which show that the 

mean costs per day for these products 

are greater than $50. Because we did not 

have CY 2004 hospital claims data for 

HCPCS codes Q9945 through Q9951, we 

crosswalked the cost data for the HCPCS 

A-codes to the new Q-codes. There is no 

predecessor code that crosswalks to 

HCPCS code Q9951 for LOCM with a 

concentration of 400 or greater mg/ml of 

iodine. Therefore, we proposed that our 

general payment policy of paying 

separately for new codes while hospital 

data are being collected would apply to 

HCPCS code Q9951. As our historical 

hospital mean per day costs for the three 

A-codes exceeded the packaging 

threshold and our payment policy for 

new codes without predecessors applied 

to one of the new codes, we proposed 

to pay for the HCPCS codes Q9945 

through Q9951 separately in CY 2006 at 

payment rates calculated using the ASP 

methodology. We noted that because the 

new Q-codes describing LOCM were 

more descriptively discriminating and 

had different units than the previous Acodes for LOCM, as well as widely 

varying ASPs, we expected that the 

packaging status of these Q-codes might 

change in future years when we have 

specific OPPS claims data for these new 

codes. We specifically invited 

comments on our proposed policy to 

pay separately for LOCM described by 

HCPCS codes Q9945 through Q9951 in 

CY 2006. 

We received several public comments 

in response to our request. 

Comment: Several commenters 

supported CMS’ proposal to pay 

separately for LOCM using HCPCS 

codes Q9945 through Q9951, indicating 

that this policy will help to protect 

beneficiary access to the most 

appropriate therapies. The commenters 

believed that this change would 

promote consistency across sites of 

services. A comment from a 

manufacturer of contrast agents 

expressed concern about the use of the 

new Q-codes for LOCM and the 

corresponding ASP payment 

methodology to determine their 

payment rates. The commenter noted 

that the proposed payment rates for the 

contrast media codes increase as the 

iodine or active material concentration 

decreases and believed that the coding 

tiers adopted by CMS do not 

appropriately categorize the various 

media products. The commenter was 

also concerned that such a payment 

scheme might be a perverse incentive 

for hospitals to use a lower 

concentration LOCM in diagnostic 

imaging procedures in order to qualify 

for higher payment rates or motivate 

clinically unnecessary and potentially 

dangerous switches in contrast media 

selections. The commenter 

recommended that CMS review whether 

an alternative payment mechanism 

would be more appropriate for LOCM 

and proposed a revised version of the Qcode classifications for LOCM. 

Response: We appreciate the 

commenters’ support of our proposal to 

implement new HCPCS codes for LOCM 

in CY 2006 and pay for them separately. 

In the final rule, the payment rates for 

these codes are based on their market 

prices from the second quarter of CY 

2005, and we believe that the ASP-based 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68653 

rates appropriately reflect the 

acquisition and pharmacy overhead 

costs of these products under each of 

the HCPCS codes. Decisions regarding 

the creation of permanent HCPCS codes 

are coordinated by the National HCPCS 

Panel. We suggest that commenters who 

have concerns about the new Q-codes 

for LOCM should pursue appropriate 

changes through the process set up by 

the National HCPCS Panel to establish 

HCPCS codes. 

(4) CY 2006 Proposed and Final 

Payment Policy for 

Radiopharmaceutical Agents 

We do not have ASP data for 

radiopharmaceuticals. Therefore, for CY 

2006, we proposed to calculate per day 

costs of radiopharmaceuticals using 

mean unit costs from the CY 2004 

hospital claims data to determine the 

items’ packaging status similar to the 

drugs and biologicals with no ASP data. 

In a separate report, the GAO provided 

CMS with hospital purchase price 

information for nine 

radiopharmaceuticals. As part of the 

GAO survey described earlier, the GAO 

surveyed 1,400 acute-care, Medicarecertified hospitals and requested 

hospitals to provide purchase prices for 

radiopharmaceuticals from July 1, 2003 

to June 30, 2004. The 

radiopharmaceutical part of the survey 

yielded a response rate of 61 percent, 

where 808 hospitals provided usable 

information. The GAO reported the 

average and median purchase prices for 

nine radiopharmaceuticals for the 

period July 1, 2003, to June 30, 2004. 

These items represented 9 percent of the 

Medicare spending for specified covered 

outpatient drugs during the first 9 

months of CY 2004. The report noted 

that the purchase price information 

accounted for volume and other 

discounts provided at the time of 

purchase, but excluded subsequent 

rebates from manufacturers and 

payments from group purchasing 

organizations. 

When we examined differences 

between the CY 2005 payment rates for 

these nine radiopharmaceutical and 

their GAO mean purchase prices, we 

found that the GAO purchase prices 

were substantially lower for several of 

these agents. We also found similar 

patterns when we compared the CY 

2005 payment rates for 

radiopharmaceuticals with their CY 

2004 median and mean costs from 

hospital claims data. In the proposed 

rule, we indicated that our intent was to 

maintain consistency, whenever 

possible, between the payment rates for 

these agents from CY 2005 to CY 2006, 

because such rapid reductions could 

adversely affect beneficiary access to 

services utilizing radiopharmaceuticals. 

As we did not have ASPs for 

radiopharmaceuticals that best represent 

market prices, we proposed as a 

temporary 1-year policy for CY 2006 to 

pay for radiopharmaceuticals that were 

separately payable in CY 2006 based on 

the hospital’s charge for each 

radiopharmaceutical agent adjusted to 

cost. As we noted in the proposed rule, 

MedPAC has indicated that hospitals 

currently include the charge for 

pharmacy overhead costs in their charge 

for the radiopharmaceutical. Therefore, 

we also noted in the proposed rule that 

paying for these items on the basis of 

charges converted to cost would be the 

best available proxy for the average 

acquisition cost of the 

radiopharmaceutical along with its 

handling cost until we received ASP 

and overhead information on these 

agents. We noted that we expected 

hospitals’ different purchasing and 

preparation and handling practices for 

radiopharmaceuticals to be reflected in 

their charges, which would be 

converted to costs using hospitalspecific CCRs. To better identify the 

separately payable 

radiopharmaceuticals to which this 

policy would apply, we proposed to 

assign them to status indicator ‘‘H.’’ We 

specifically requested public comment 

on the proposed payment policy for 

separately payable 

radiopharmaceuticals in CY 2006. 

We received many comments on this 

proposal. 

Comment: Numerous commenters 

expressed concern about our proposal to 

pay for separately payable 

radiopharmaceuticals at hospitals’

charges converted to cost in CY 2006. 

Most of the commenters generally 

supported the proposed payment 

methodology for radiopharmaceuticals 

in CY 2006. However, several of the 

commenters noted their belief that this 

methodology may trigger drastic 

decreases in the payment rates for 

certain items based on their review of 

hospital charge data for these agents. 

Some of the commenters urged CMS to 

consider refining the methodology for 

CY 2006 and offered several options. 

Several commenters recommended that 

CMS utilize hospital-specific overall 

CCRs, rather than departmental CCRs, 

indicating that overall CCRs were more 

reflective of hospitals’ overall charges 

and that department-specific CCRs 

would fail to convert charges for 

radiopharmaceuticals to ‘‘average’’

acquisition costs, resulting in 

significantly lower payments than the 

CY 2005 levels. Some of the 

commenters expressed concern about 

the effect of cost compression using a 

CCR method, stating that the proposed 

methodology will result in 

underpayment for more expensive 

radiopharmaceuticals. The commenters 

noted that because hospitals do not tend 

to maintain a constant CCR, as 

radiopharmaceutical costs increase, the 

differences between actual costs and the 

CMS derived costs increase 

exponentially. One commenter 

suggested that CMS address this issue 

by establishing a national and unique 

CCR for radiopharmaceuticals during 

CY 2006, which could more accurately 

account for radiopharmaceutical 

handling and overhead costs, while a 

few other commenters recommended 

that CMS facilitate hospital reporting of 

accurate charges for 

radiopharmaceuticals by clarifying 

exactly which cost-to-charge ratio 

would apply to each hospital to 

calculate the hospital outpatient 

payment for radiopharmaceuticals in CY 

2006. Another commenter suggested 

that CMS provide a template that 

hospitals may use to prepare their 

claims for radiopharmaceuticals, 

including handling and other costs, and 

provide instructions to fiscal 

intermediaries regarding the 

implementation of this policy. One of 

the commenters suggested that CMS 

recognize the general reasonable 

concern regarding using the hospitalspecific overall cost-to-charge 

methodology for highly expensive 

radiopharmaceuticals, and identified 19 

radiopharmaceuticals with hospital 

acquisition costs per patient study 

greater than $500, for which it 

recommended that CMS use external 

data to verify and pay based on invoice 

acquisition costs plus handling fees, or 

freeze the CY 2005 payment rates for 

these radiopharmaceuticals, or both. 

Other commenters suggested limiting 

decreases in payment rates for 

separately payable 

radiopharmaceuticals from CY 2005 to 

CY 2006, including (1) establishing a 

payment floor during CY 2006, based on 

an appropriate percentage of the CY 

2005 payment rate for specific 

radiopharmaceuticals; (2) ensuring that 

the resultant payment rate for each 

product in CY 2006 does not fall below 

the level identified in the GAO data or, 

if GAO data were unavailable, that the 

payment not be less than 95 percent of 

the CY 2005 payment rate for the 

product; and (3) ensuring that payments 

for these products do not fall below 95 

percent of their CY 2005 rates. One 

commenter, to the contrary, indicated 

that while the concerns of other 

commenters advocating a payment floor 

68654 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

under the proposed methodology for CY 

2006 are understandable, CMS should 

not implement a floor in addition to 

implementing a CCR approach for 

payment. This commenter noted that 

there were variations in the cost data 

reported by hospitals in their charge 

reports, and it was important that 

hospitals, as well as manufacturers, be 

encouraged to report accurately to CMS 

and that setting an artificial payment 

floor reduces hospitals’ incentives to do 

so. The commenter further stated that 

because the proposed policy already 

would provide hospitals with an 

opportunity to report charges accurately 

for each claim, there was no need for 

CMS to provide any additional 

safeguards to ensure sufficient payment 

and that hospitals would already have 

the ability to receive appropriate 

payment by reporting appropriate 

charges for these agents in their claims. 

Lastly, several of the commenters 

indicated that CMS incorrectly stated 

that overhead costs for 

radiopharmaceuticals are included in 

the hospital charges for the 

radiopharmaceuticals. One commenter 

stated that some hospital costs 

associated with radiopharmaceutical 

purchase and use are captured in 

hospital charges. However, the 

preparation, distribution, 

administration, and safe disposal of 

radiopharmaceuticals, along with labor 

costs and necessary patient and hospital 

staff protection costs, are not uniformly 

and accurately reflected in hospital 

charges. These commenters urged CMS 

to provide hospital outpatient 

departments with clear guidance on the 

array of costs associated with 

radiopharmaceutical acquisition and 

handling that should be appropriately 

included in their charges for 

radiopharmaceuticals, so that payments 

and data in CY 2006 accurately reflect 

hospital acquisition and pharmacy 

overhead costs for each 

radiopharmaceutical. One commenter 

also noted that an additional payment 

for overhead and handling of 

radiopharmaceuticals should be made 

because these costs are not captured in 

charges for the radiopharmaceuticals. 

Response: We appreciate the 

commenters’ support of our proposed 

payment policy for separately payable 

radiopharmaceuticals in CY 2006. As 

recommended by several commenters, 

in this final rule with comment period, 

we are using hospital-specific overall 

CCRs to derive the costs of these items 

from the hospitals’ reported charges. We 

acknowledge the commenters’ concerns 

about the use of the CCRs resulting in 

cost compression. We believe that 

hospitals have the ability to set charges 

for items properly so that charges 

converted to costs can appropriately 

account fully for their acquisition and 

overhead costs. The specific payment 

rates for separately payable 

radiopharmaceuticals are not being 

determined on a prospective basis in CY 

2006 because hospitals will receive a 

newly calculated payment for each 

claim submitted for a separately payable 

radiopharmaceutical, based on the 

specific radiopharmaceutical charge on 

that claim and the applicable overall 

hospital CCR. Therefore, if necessary we 

believe that hospitals can appropriately 

adjust their charges for 

radiopharmaceuticals so that the 

calculated costs properly reflect their 

actual costs. Specifically, it is 

appropriate for hospitals to set charges 

for these agents in CY 2006 based on all 

costs associated with the acquisition, 

preparation, and handling of these 

products so that their payments under 

the OPPS can accurately reflect all of 

the actual costs associated with 

providing these products to hospital 

outpatients. We believe that payment for 

these items using charges converted to 

costs will be the best available proxy for 

the average acquisition costs of the 

radiopharmaceuticals along with their 

handling costs and that no additional 

dampening based on historical payment 

rates is necessary to pay appropriately 

for radiopharmaceuticals. Therefore, for 

CY 2006, we are finalizing the proposed 

policy to pay for radiopharmaceuticals 

that are separately payable based on the 

hospital’s charge for each 

radiopharmaceutical adjusted to cost. 

We note that we will not be indicating 

exactly which cost-to-charge ratio will 

apply to each hospital, as the fiscal 

intermediaries determine those values. 

We also note that we have never 

provided such information in previous 

years for pass-through devices and 

brachytherapy sources which are also 

paid under the same methodology. As 

indicated in the proposed rule, we are 

assigning all radiopharmaceuticals that 

will be separately payable in CY 2006, 

to which this policy will apply, status 

indicator ‘‘H’’ in Addendum B of this 

final rule with comment period. 

Comment: A commenter indicated 

that the OPPS Final Rule should reflect 

the use of HCPCS code A9523, rather 

than HCPCS code C1083, to describe the 

imaging agent in the Zevalin therapeutic 

regimen in the event that the HCPCS 

Committee modifies the HCPCS 

descriptor of HCPCS code A9523 to 

reflect a per dose unit. 

Response: We note that HCPCS codes 

C1083 and A9523 will be deleted on 

December 31, 2005 and replaced with 

the new HCPCS code A9543 (Yttrium 

Y–90 ibritumomab tiuxetan, 

therapeutic, per treatment dose, up to 40 

millicuries) for services furnished on or 

after January 1, 2006. 

Comment: One commenter 

recommended that HCPCS code G3001 

(Administration and supply of 

tositumomab, 450 mg), currently 

applicable to both doses of the nonradioactive component of therapy and 

its administration, be amended to apply 

only to the non-radioactive component 

of the regimen. The commenter also 

recommended that hospitals should be 

allowed to use CPT code 90784 for the 

administration of the non-radioactive 

component of BEXXAR and HCPCS 

code G3001 to reflect the supply of 

tositumomab, thus allowing hospitals to 

identify the non-radioactive product 

accurately in their claims with a 

familiar product code and receive 

appropriate payment for the infusion of 

the product. Consequently, the 

commenter strongly urged CMS to retain 

HCPCS code G3001 as a product-only 

code, so that these facilities can 

continue to provide treatment to 

Medicare beneficiaries. 

Response: As we had stated in the 

November 7, 2003 final rule with 

comment period for CY 2004 (68 FR 

63443), unlabeled tositumomab is not 

approved as either a drug or a 

radiopharmaceutical, but it is a supply 

that is required as part of the Bexxar 

treatment regimen. We do not make 

separate payment for supplies used in 

services provided under the OPPS. 

Payments for necessary supplies are 

packaged into payments for the 

separately payable services provided by 

the hospital. Administration of 

unlabeled tositumomab is a complete 

service that qualifies for separate 

payment under its own APC. This 

complete service is currently described 

by HCPCS code G3001. Therefore, we 

do not agree with the commenter’s 

recommendation that we assign a 

separate code to the supply of unlabeled 

tositumomab. Rather, we will continue 

to make separate payment for the 

administration of tositumomab, and 

payment for the supply of unlabeled 

tositumomab is packaged into the 

administration payment. 

Comment: One commenter suggested 

that CMS establish HCPCS descriptors 

based on ‘‘per dose’’ units for 

radiopharmaceuticals, indicating that 

such a policy would help facilitate a 

smoother transition as CMS moves to 

establish payments for 

radiopharmaceuticals based on average 

acquisition costs and pharmacy 

handling APCs. 

Response: For CY 2006, the National 

HCPCS Panel has changed the 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68655 

descriptors of many of the 

radiopharmaceutical product to indicate 

per dose units. The new CY 2006 

HCPCS codes and their descriptors can 

be found on the HCPCS Web site at 

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

hcpcs/. The payment status indicators 

associated with these codes can be 

found in Addendum B of this final rule 

with comment period. 

Comment: One commenter suggested 

that CMS require hospitals to report 

HCPCS codes and charges for all 

radiopharmaceuticals to facilitate 

accurate data collection and help ensure 

that the costs and charges of 

radiopharmaceuticals (as well as the 

associated handling costs) are 

considered in establishing payment 

rates under the OPPS. Another 

commenter commended CMS for 

clarification and education provided to 

hospitals regarding the importance of 

coding and reporting charges for 

radiopharmaceuticals and encouraged 

CMS to continue to remind hospitals to 

report charges regardless of N, K, or H 

status indicators assigned to the 

radiopharmaceuticals, as these charges 

have a key role in setting future APC 

rates and assignment of appropriate 

status indicators. 

Response: We will continue to 

strongly encourage hospitals to report 

charges for all drugs, biologicals, and 

radiopharmaceuticals using the correct 

HCPCS codes for the items used, 

including the items that have packaged 

status in CY 2006. We agree with the 

commenters, that a robust set of claims 

for each packaged or separately payable 

item paid under the OPPS aids in 

obtaining the most accurate data for 

future packaging decisions and ratesetting. In the CY 2005 final rule, we 

noted that, with just a very few 

exceptions, hospitals appeared to be 

reporting charges for drugs, biologicals 

and radiopharmaceuticals using the 

existing HCPCS codes, even when such 

items had packaged status (69 FR 

65811). Therefore, we do not believe it 

is necessary to institute a coding 

requirement for drugs, biologicals, and 

radiopharmaceuticals in CY 2006 as we 

are currently doing for device category 

codes required to be reported when 

used in procedures. 

Section 303(h) of Pub. L. 108–173 

exempted radiopharmaceuticals from 

ASP pricing in the physician office 

setting where the fewer numbers 

(relative to the hospital outpatient 

setting) of radiopharmaceuticals are 

priced locally by Medicare contractors. 

However, the statute does not exempt 

radiopharmaceutical manufacturers 

from ASP reporting. We currently do 

not require reporting for 

radiopharmaceuticals because we do not 

pay for any of the radiopharmaceuticals 

using the ASP methodology. However, 

for CY 2006, we proposed to begin 

collecting ASP data on all 

radiopharmaceuticals for purposes of 

ASP-based payment of 

radiopharmaceuticals beginning in CY 

2007. 

As we had stated in the November 7, 

2003 final rule with comment period for 

CY 2004 (68 FR 42728), in the CY 2006 

proposed rule we recognized that there 

are significant complex issues 

surrounding the reporting of ASPs for 

radiopharmaceuticals. Most 

radiopharmaceuticals must be 

compounded from a ‘‘cold kit’’

containing necessary nonradioactive 

materials for the final product to which 

a radioisotope is added. There are 

critical timing issues, given the short 

half-lives of many radioisotopes used 

for diagnostic or therapeutic purposes. 

Significant variations in practices exist 

with respect to what entity purchases 

the constituents and who then 

compounds the radiopharmaceutical to 

develop a final product for 

administration to a patient. For 

example, manufacturers may sell the 

components of a radiopharmaceutical to 

independent radiopharmacies. These 

radiopharmacies may then sell unit or 

multi-doses to many hospitals. 

However, some hospitals also may 

purchase the components of the 

radiopharmaceutical and prepare the 

radiopharmaceutical themselves. In 

some cases, hospitals may generate the 

radioisotope on-site, rather than 

purchasing it. The costs associated with 

acquiring the radiopharmaceutical in 

these instances may vary significantly. 

In addition, there may only be 

manufacturer pricing for the 

components. However, the price set by 

the manufacturer for one component of 

a radiopharmaceutical may not directly 

translate into the acquisition cost of the 

‘‘complete’’ radiopharmaceutical, which 

may result from the combination of 

several components. In general, for 

drugs other than radiopharmaceuticals, 

the products sold by manufacturers with 

National Drug Codes (NDCs) correspond 

directly with the HCPCS codes for the 

products administered to patients so 

ASPs may be directly calculated for the 

HCPCS codes. In the case of 

radiopharmaceuticals, this 1 to 1 

relationship may not hold, potentially 

making the calculation of ASPs for 

radiopharmaceuticals more complex. 

In addition, some hospitals may 

generate their own radioisotopes, which 

they then use for radiopharmaceutical 

compounding, and they may sell these 

complete products to other sites. The 

costs associated with this practice could 

be difficult to capture through ASP 

reporting. We invited very specific 

comments on these and all other 

relevant issues surrounding 

implementation of ASP reporting for 

radiopharmaceuticals. 

We received numerous public 

comments on our proposal to begin 

collecting ASP data on all 

radiopharmaceuticals for purposes of 

ASP-based payment of 

radiopharmaceuticals beginning in CY 

2007. 

Comment: Many commenters 

provided detailed discussions of the 

policy, including practical and legal 

challenges related to our proposal to 

require ASP reporting for 

radiopharmaceuticals in CY 2006. Some 

of these commenters indicated that 

radiopharmaceuticals are formulated, 

distributed, compounded, and 

administered in unique distribution 

channels that preclude the 

determination of ASP relevant to a 

radiopharmaceutical HCPCS code by the 

manufacturer. Most 

radiopharmaceuticals are typically 

formed from two or more components. 

Thus, one manufacturer does not know 

if a hospital combining individual 

components to generate the end 

product, a patient dose, uses exclusively 

the manufacturer’s raw materials, or 

instead combines raw materials from 

more than one manufacturer. In this 

case, the manufacturer has no way to 

calculate the ASP of the end product 

patient dose, as the manufacturer only 

knows the sales prices of its own 

components. Consequently, 

radiopharmaceutical manufacturers 

could not in good faith sign CMS 

required ASP-reporting certifications as 

they generally have no knowledge or 

access to end product unit prices. In 

addition, the components may be 

combined to generate a vial of 

radiopharmaceutical from which 

multiple patient doses can be drawn. 

Pricing for a patient unit dose would 

thus vary, depending on how many 

patient doses are drawn from a vial. 

Commenters also noted that a 

significant proportion of 

radiopharmaceuticals are sold as 

components to independent 

freestanding radiopharmacies or nuclear 

pharmacies. These radiopharmacies 

prepare patient unit doses, which are 

then purchased by hospitals. The 

manufacturer of the component may not 

know what the radiopharmacies’ prices 

are for a final unit dose product, and 

may be precluded from accessing such 

information. Some of the commenters 

indicated that if ASP reporting were 

imposed, it might require reporting from 

68656 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

commercial radiopharmacies, entities 

that are currently not subject to ASP 

reporting. 

Many commenters also questioned 

whether CMS has the legal authority to 

impose ASP reporting on 

radiopharmaceutical manufacturers and 

the authority to implement payment for 

radiopharmaceuticals based on ASP. 

They noted that Pub. L. 108–173 

exempted radiopharmaceuticals from 

the ASP-based payment methodology in 

physician offices. One of the 

commenters stated that when Congress 

exempted radiopharmaceuticals from 

the Pub. L. 108–173 provision 

modifying Part B payments for drugs 

and biologicals furnished in the 

physician office setting, it did so 

because of the unique nature and 

complexities associated with 

radiopharmaceuticals rather than the 

unique nature of the physician office 

setting. Therefore, it was unlikely that 

Congress intended for CMS to collect 

ASP data for radiopharmaceuticals that 

would be precluded from use in a Part 

B radiopharmaceutical payment 

methodology. 

Most of the commenters agreed that 

the variability and complexities 

associated with radiopharmaceuticals 

and their preparation make uniform 

application of the ASP processes to 

products virtually impossible for CMS. 

One commenter believed that it may be 

appropriate to pay hospitals for 

therapeutic radioimmunotherapies 

based on the same calculation for ASP 

as used for physician-administered 

pharmaceuticals. However, this 

commenter did not provide an opinion 

on the applicability of the ASP 

methodology for diagnostic 

radiopharmaceuticals. Another 

commenter suggested that ASP data 

could be adapted to the unique features 

of radiopharmaceuticals if CMS 

considered collecting ASP data from 

independent radiopharmacies in 

addition to manufacturers. The 

commenter noted that if CMS were to 

use some form of ASPs for outpatient 

hospital radiopharmaceutical payments, 

it must—(1) qualify manufacturer 

reporting; (2) use a weighted average 

that includes manufacturer and 

radiopharmacy ASP data; (3) work with 

stakeholders to determine the 

appropriate crosswalk between NDCs 

and HCPCS codes; (4) conduct surveys 

of the relationships between end-user 

acquisition costs at the HCPCS level 

from independent radiopharmacies and 

hospital radiopharmacies and the 

manufacturer-reported ASPs; and (5) 

develop a specific proposal for reporting 

radiopharmaceutical ASPs 

appropriately and allow stakeholders to 

comment on the proposal before it is 

finalized. 

Most commenters urged CMS to 

recognize the operational and statutory 

impediments to ASP reporting for 

radiopharmaceuticals and the inherent 

difficulties in establishing the OPPS 

payments for these products based upon 

any ASP methodology. Rather than 

attempting to determine ASP for 

radiopharmaceuticals based on some 

manipulation of a hypothetical 

radiopharmaceutical ASP, many 

commenters urged CMS to consider 

continuation of the CCR methodology to 

pay for separately payable 

radiopharmaceuticals using the overall 

hospital-specific CCRs with some 

refinements in CY 2007, as this policy 

may generate combined hospital average 

acquisition and overhead costs, 

consistent with statutory requirements. 

One commenter suggested that CMS 

consider all issues surrounding 

radiopharmaceutical acquisition, 

dispensing, and dosage before adopting 

any alternative payment mechanisms. 

Other commenters urged CMS to 

continue working with hospitals and 

manufacturers to ensure that both shortterm and long-term payment 

methodologies for radiopharmaceuticals 

would sufficiently pay providers for 

medically necessary diagnostic tests and 

therapies and generate valid and reliable 

data to support future payment rates. 

Response: We appreciate all of the 

comments that we received on our 

proposal to begin ASP reporting for 

radiopharmaceuticals in CY 2006. We 

recognize that there are many complex 

issues surrounding our ability to collect 

accurate ASP data for these agents in CY 

2006. At this time, we agree with the 

commenters about the difficulties in 

translating ASP information gathered 

from manufacturers regarding 

radiopharmaceutical raw materials into 

individual patient doses of specific 

radiopharmaceuticals, as described by 

particular HCPCS codes. As this 

transitional step would be essential to 

any future OPPS radiopharmaceutical 

payment methodology based on ASP 

data, we are hesitant at this time to 

establish required ASP reporting for 

radiopharmaceuticals, with its 

accompanying administrative 

complexities. Therefore, in this final 

rule with comment period, we are not 

adopting our proposal to require 

reporting of ASP data by 

radiopharmaceutical manufacturers in 

CY 2006. Instead, we will continue to 

further explore the issues surrounding 

ASP reporting and crosswalking ASPs to 

patient doses of radiopharmaceuticals. 

In addition, we will take into 

consideration other 

radiopharmaceutical payment 

alternatives to ASP reporting suggested 

by commenters as we develop our 

policies for the CY 2007 OPPS. We will 

continue to seek input and guidance 

from hospitals, radiopharmaceutical 

manufacturers, and other interested 

organizations as we contemplate 

alternative payment methodologies for 

radiopharmaceuticals. 

Comment: Several commenters 

requested that for CY 2007 and future 

years CMS carefully review and analyze 

radiopharmaceutical costs acquired in 

CY 2006 and consider continuing the 

use of the CCR methodology for 

payment, along with other possible 

options. Some commenters suggested 

that CMS consider the impact to the 

payment system and the burden to 

hospitals to significantly change 

payment methods for 

radiopharmaceuticals from year to year. 

Other commenters encouraged CMS to 

work in close consultation in the future 

with hospitals and manufacturers to 

help ensure that the costs of 

radiopharmaceuticals are properly 

captured in the OPPS rates beyond CY 

2006. One commenter stated that data 

from the GAO survey of hospital 

acquisition costs could be one basis for 

acquiring information on which 

national payment rates could be 

established. Another commenter 

recommended that CMS explore the 

possibility of treating radiotherapies 

such as Bexxar and Zevalin differently 

from traditional radiopharmaceuticals 

in order to preserve patient access to 

them. 

Response: We appreciate receiving 

these suggestions for establishing an 

appropriate payment methodology for 

radiopharmaceuticals beyond CY 2006 

and will take all of the 

recommendations into consideration 

when we start developing our payment 

proposal for radiopharmaceuticals for 

the CY 2007 OPPS. Other payment 

options for radiopharmaceuticals that 

we will also consider include basing 

payments on mean costs derived from 

hospital claims data or creating chargebased payment rates for these items. 

Another option would be to develop a 

hospital payment methodology using 

the invoice data submitted to carriers 

when radiopharmaceuticals are 

administered in physician offices. It is 

not our intention to maintain the CY 

2006 methodology of paying for 

radiopharmaceuticals on the basis of 

charges converted to costs permanently. 

Rather, we will actively seek other 

sources of information on 

radiopharmaceutical costs that might 

provide a basis for payment. We 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68657 

welcome suggestions about such sources 

of data and alternative methodologies. 

We discuss in section V.B.3.a.(5) of 

this preamble our CY 2006 proposed 

payment policies for overhead costs of 

drugs, biologicals, and 

radiopharmaceuticals. In section V.D. of 

this preamble, we discuss the 

methodology that we proposed to use to 

determine the CY 2006 payment rates 

for new drugs, biologicals, and 

radiopharmaceuticals. 

While payments for drugs, biologicals 

and radiopharmaceuticals are taken into 

account when calculating budget 

neutrality, we note that we proposed to 

pay for the acquisition costs of drugs, 

biologicals, and radiopharmaceuticals 

without scaling these payment amounts. 

We proposed not to scale these 

payments because we believed that 

Congress, in section 621 of Pub.L. 103–

178, intended for payments for these 

drugs to be based on average acquisition 

costs. Scaling these payments would 

mean that they are no longer based 

solely on acquisition costs. Therefore, at 

the time of the proposed rule we 

believed that it was most consistent 

with the statute not to scale these 

payment rates. In section V.B.3.a.(5) of 

this preamble, we also discuss that we 

proposed to add 2 percent of the ASP 

to the payment rates for drugs and 

biologicals with rates based on the ASP 

methodology to provide payment to 

hospitals for pharmacy overhead costs 

associated with furnishing these 

products. We proposed to scale these 

additional payment amounts for 

pharmacy overhead costs. In the CY 

2006 proposed rule, we specifically 

invited public comments on whether it 

was appropriate to exempt payment 

rates for drugs, biologicals, and 

radiopharmaceuticals from scaling and 

scale the additional payment amount for 

pharmacy overhead costs. 

We note that further discussion of the 

budget neutrality implications of the 

various drug payment proposals that we 

considered is included in section XIX.C. 

of this preamble. 

We received a few public comments 

on these scaling issues associated with 

drugs, biologicals, and 

radiopharmaceuticals. 

Comment: MedPAC expressed 

concern that CMS proposed to apply 

budget neutrality adjustments to all 

APCs, while exempting payment for the 

acquisition costs of specified covered 

outpatient drugs from these 

adjustments. MedPAC’s concern was 

that this policy, by reducing the 

payment rates for clinical APCs but not 

drugs, may exacerbate any existing 

incentives for hospitals to use separately 

payable products. For example, the 

financial incentive to use a SCOD 

instead of a packaged drug would be 

increased by the proposed method of 

budget neutrality adjustment, creating 

higher payments for hospitals that are 

relatively high users of SCODs and 

reducing payments for low users. 

Another commenter supported the use 

of these rates for budget neutrality 

estimates and impact analysis. 

Response: We understand MedPAC’s 

concern about our proposal to not scale 

the payment rates for separately payable 

drugs and biologicals. The statute 

contains a general requirement (section 

1833(t)(9)(B)) that changes to the APC 

relative weights, APC groups, and other 

adjustments ‘‘for a year may not cause 

the estimated amount of expenditures 

under this part for the year to increase 

or decrease.’’ We therefore apply a 

budget neutrality adjustment, or scalar, 

to the APC relative weights to satisfy 

this requirement. Section 

1833(t)(14)(A)(iii)(I) requires that, 

beginning in CY 2006, we pay for a 

separately payable drug on the basis of 

‘‘the average acquisition cost of the 

drug.’’ We believe that the best 

interpretation of the specific 

requirement that we pay for such drugs 

on the basis of average acquisition cost, 

is that these payments themselves 

should not be adjusted as part of 

meeting the statutory budget neutrality 

requirement. If we were to apply the 

budget neutrality scalar to these 

payments, we would no longer be 

paying the average acquisition cost, but 

rather an adjusted average acquisition 

cost, for separately payable drugs. For 

CY 2006, as described earlier, we will be 

paying for the acquisition and overhead 

costs of drugs and biologicals at ASP+6 

percent, without scaling for budget 

neutrality. We believe that these 

amounts are the best proxies we have 

for the aggregate average acquisition and 

pharmacy overhead costs of drugs and 

biologicals. We continue to believe that 

not scaling these payments is most 

consistent with the statutory 

requirement of paying for the 

acquisition costs of drugs on the basis 

of average costs. Because we are no 

longer identifying a separate payment 

amount for overhead costs, we will not 

scale any part of the ASP+6 percent 

payment for drugs in order to maintain 

consistency with the statutory 

requirement to pay on the basis of 

average acquisition costs. It is also 

worth noting that the budget neutrality 

adjustment is not always negative. For 

CY 2006, for example, the budget 

neutrality adjustment is 1.012508103. 

Therefore applying the adjustment to 

clinical APCs but not to drug payments 

does not always increase any incentive 

that otherwise may exist for a hospital 

to use a SCOD instead of a packaged 

drug. 

(5) MedPAC Report on APC Payment 

Rate Adjustment for Specified Covered 

Outpatient Drugs 

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

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

108–173, required MedPAC to submit a 

report to the Secretary, not later than 

July 1, 2005, on adjusting the APC rates 

for specified covered outpatient drugs to 

take into account overhead and related 

expenses, such as pharmacy services 

and handling costs. This provision also 

required that the MedPAC report 

include the following: a description and 

analysis of the data available for 

adjusting such overhead expenses; 

recommendation as to whether a 

payment adjustment should be made; 

and the methodology for adjusting 

payment, if an adjustment is 

recommended. Section 1833(t)(14)(E)(ii) 

of the Act, as added by section 621(a)(1) 

of Pub. L. 108–173, authorized the 

Secretary to adjust the APC weights for 

specified covered outpatient drugs to 

reflect the MedPAC recommendation. 

The statute mandates MedPAC to 

report on whether drug APC payments 

under the OPPS should be adjusted to 

account for pharmacy overhead and 

nuclear medicine handling costs 

associated with providing specified 

covered outpatient drugs. In creating its 

framework for analysis, MedPAC 

interviewed stakeholders, analyzed cost 

report data, conducted four individual 

hospital case studies, and received 

technical advice on grouping items with 

similar handling costs from a team of 

experts in hospital pharmacy, hospital 

finance, cost accounting, and nuclear 

medicine. 

As we discussed in the CY 2006 OPPS 

proposed rule (70 FR 42728), MedPAC 

concluded that the handling costs for 

drugs, biologicals, and 

radiopharmaceuticals delivered in the 

hospital outpatient department are not 

insignificant, as medications typically 

administered in outpatient departments 

generally require greater pharmacy 

preparation time than do those provided 

to inpatients. MedPAC found that little 

information is currently available about 

the magnitude of these costs. According 

to the MedPAC analysis, hospitals 

historically set charges for drugs, 

biologicals, and radiopharmaceuticals at 

levels that reflected their respective 

handling costs, and payments covered 

both drug acquisition and handling. 

Moreover, hospitals vary considerably 

in their likelihood of providing specific 

services which utilize drugs, biologicals, 

68658 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

or radiopharmaceuticals with different 

handling costs. 

As we also reported in the CY 2006 

OPPS proposed rule, MedPAC 

developed seven drug categories for 

pharmacy and nuclear medicine 

handling costs, according to the level of 

resources used to prepare the products 

(Table 23 of the proposed rule, 70 FR 

42729) Characteristics associated with 

the level of handling resources required 

included radioactivity, toxicity, mode of 

administration, and the need for special 

handling. Groupings ranged from 

dispensing an oral medication on the 

low end of relative cost to providing 

radiopharmaceuticals on the high end. 

MedPAC collected cost data from four 

hospitals that were then used to develop 

relative median costs for all categories 

but radiopharmaceuticals (Category 7+). 

The case study facilities were not able 

to provide sufficient cost information 

regarding the handling of outpatient 

radiopharmaceuticals to develop a cost 

relative for Category 7+. The MedPAC 

study classified about 230 different 

drugs, biologicals, and 

radiopharmaceuticals into the seven 

categories based on input from their 

expert panel and each case study 

facility. 

In its report, MedPAC recommended 

the following: 

• Establish separate, budget neutral 

payments to cover the costs hospitals 

incur for handling separately payable 

drugs, biologicals, and 

radiopharmaceuticals; and 

• Define a set of handling fee APCs 

that group drugs, biologicals, and 

radiopharmaceuticals based on 

attributes of the products that affect 

handling costs; instruct hospitals to 

submit charges for these APCs; and base 

payment rates for the handling fee APCs 

on submitted charges reduced to costs. 

MedPAC found some differences in 

the categorizations of drug and 

radiopharmaceutical products by 

different experts and across the case 

study sites. In the majority of cases 

where groupings disagreed, hospitals 

used different forms of the products, 

which were coded with the same 

HCPCS code. For example, a drug may 

be purchased as a prepackaged liquid or 

as a powder requiring reconstitution. 

Such a drug would vary in the handling 

resources required for its preparation 

and would fall into a different drug 

category depending on its form. In 

addition, the handling cost groupings 

may vary depending on the intended 

method of drug delivery, such as via 

intravenous push or intravenous 

infusion. For a number of commonly 

used drugs, MedPAC provided two 

categories in their final consensus 

categorizations, with the categories 2 

and 3 reported as the most frequent 

combination. For example, MedPAC 

placed HCPCS codes J1260 (Injection, 

dolasetron mesylate, 10 mg) and J2020 

(Injection, linezolid, 200 mg) in 

consensus categories 2 and 3, 

acknowledging that the appropriate 

categorization could vary depending on 

the clinical preparation and use of the 

drug. We noted in the proposed rule (70 

FR 42729) that we have no information 

regarding hospitals’ frequencies of use 

of various forms of drugs provided in 

the outpatient department under the 

OPPS, as the case studies only included 

four facilities and the technical advisory 

committee was similarly small. Thus, in 

many cases it is impossible to assign a 

drug exclusively and appropriately to a 

certain overhead category that would 

apply to all hospital outpatient uses of 

the drug because of the different 

handling resources required to prepare 

different forms of the drugs. 

There are over 100 separately payable 

drugs, biologicals, and 

radiopharmaceuticals that are separately 

payable under the OPPS but for which 

MedPAC provided no consensus 

categorizations in its 7 drug groups. In 

preparation for the CY 2006 proposed 

rule, we independently examined these 

products and considered the handling 

cost categories that could be 

appropriately assigned to each product 

as described by an individual HCPCS 

code. As discussed above, many of the 

drugs had several forms, which would 

place them in different handling cost 

groupings depending on the specific 

form of the drug prepared by the 

hospital pharmacy for a patient’s 

treatment. In addition, as we stated in 

the proposed rule, we believe that 

hospitals may have difficulty 

discriminating among the seven 

categories for some drugs, because the 

applicability of a given category 

description to a specific clinical 

situation could be ambiguous. Indeed, 

in the MedPAC study, initially only 

about 80 percent of the case study 

pharmacists agreed with the expert 

panel category assignments. However, 

concurrence increased that percentage 

to almost 90 percent after discussion 

and review. Nevertheless, there 

remained a number of drugs for which 

differences in categorization by the case 

study facilities and the expert panel 

persisted. 

In light of our concerns over our 

ability to appropriately assign drugs to 

the seven MedPAC drug categories so 

that the categories accurately described 

the drugs’ attributes in all of the OPPS 

hospitals and the MedPAC 

recommendations, for CY 2006 we 

proposed to establish three distinct 

HCPCS C-codes and three 

corresponding APCs for drug handling 

categories to differentiate overhead costs 

for drugs and biologicals, by combining 

several of the categories identified in the 

MedPAC report. We proposed to 

collapse the MedPAC categories 2, 3, 

and 4 into a single category described by 

HCPCS code CXXXX, and MedPAC 

categories 5 and 6 into another category 

described by HCPCS code CYYYY, 

while maintaining MedPAC category 1 

as described by HCPCS code CWWWW. 

(Our rationale for not proposing to 

create an overhead payment category for 

radiopharmaceuticals is discussed 

below.) We proposed merging categories 

in this way generally because we 

believed that doing so would resolve the 

categorization dilemmas resulting from 

the most common scenarios where 

drugs might fall into more than one 

grouping and minimized the 

administrative burden on hospitals to 

determine which category applied to the 

handling of a drug in a specific clinical 

situation. In addition, these broader 

handling cost groupings would 

minimize any undesirable payment 

policy incentives to utilize particular 

forms of drugs or specific preparation 

methods. We proposed only to collapse 

those categories whose MedPAC relative 

weights differed by less than a factor of 

two, consistent with the principle 

outlined in section 1833(t)(2) of the Act 

that provides that items and services 

within an APC group cannot be 

considered comparable with respect to 

the use of resources if the median cost 

of the highest cost item or service 

within an APC group is more than 2 

times greater than the median cost of the 

lowest cost item or service within that 

same group. 

As discussed in previous final rules 

and in the CY 2006 OPPS proposed rule, 

we believed that pharmacy overhead 

costs are captured in the pharmacy 

revenue cost centers and reflected in the 

median cost of drug administration 

APCs, and the payment rate we 

established for a drug, biological, or 

radiopharmaceutical APC was intended 

to pay only for the cost of acquiring the 

item (66 FR 59896, 67 FR 66769, and 70 

FR 42729 through 42730). As a MedPAC 

survey of hospital charging practices 

indicated that hospitals’ charges for 

drugs, biologicals, and 

radiopharmaceuticals reflect their 

handling costs as well as their 

acquisition costs, we believed pharmacy 

overhead costs would be incorporated 

into the OPPS payment rates for drugs, 

biologicals, and radiopharmaceuticals if 

the rates were based on hospital claims 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68659 

data. However, in light of our proposal 

to establish three distinct C-codes for 

drug handling categories, we also 

proposed to instruct hospitals to charge 

the appropriate pharmacy overhead Ccode for overhead costs associated with 

each administration of each separately 

payable drug and biological based on 

the code description that best reflected 

the service the hospital provided to 

prepare the product for administration 

to a patient. We would collect hospital 

charges for these C-codes for 2 years, 

and consider basing payment for the 

corresponding drug handling APCs on 

the charges reduced to costs in CY 2008, 

similar to the payment methodology for 

other procedural APCs. Median hospital 

costs for the drug handling APCs should 

reflect the CY 2006 practice patterns 

across all OPPS hospitals of handling 

drugs whose preparation was described 

by each of the C-codes, reflecting the 

differential utilization of various forms 

of drugs and alternative methods of 

preparation and delivery through 

hospitals’ billing and charges for the Ccodes. Table 24 of the proposed rule (70 

FR 42730) listed the drug handling 

categories, C-codes, and APCs we 

proposed for CY 2006. 

We proposed these three categories 

because we believed that they were 

sufficiently distinct and reflective of the 

resources necessary for drug handling to 

permit appropriate hospital billing and 

to capture the varying overhead costs of 

the drugs and biologicals separately 

payable under the OPPS. We did not 

propose to adopt the median cost 

relatives reported for MedPAC’s six 

categories (excluding 

radiopharmaceuticals). This was 

because it was very difficult to 

accurately crosswalk the cost relatives 

for the six categories to the three 

categories we proposed. In addition, we 

were not confident that the cost 

relatives that were based on cost data 

from four hospitals appropriately 

reflected the median relative resource 

costs of all hospitals that would bill 

these drug handling services under the 

OPPS. Instead, we believed it was most 

appropriate to collect hospital charges 

for the drug handling services based on 

attributes of the products that affected 

the hospital resources required for their 

handling, and to consider making future 

payments under the OPPS using the 

proposed C-codes based on the medians 

of charges converted to costs for the 

drug handling APC associated with each 

administration of a separately payable 

drug or biological. 

For CY 2006, pursuant to section 

1833(t)(14)(E)(ii) of the Act, we 

proposed an adjustment to cover the 

costs hospitals incur for handling 

separately payable drugs and 

biologicals. As we did not have separate 

hospital charge data on pharmacy 

overhead, we proposed for CY 2006 to 

pay for drug and biological overhead 

costs based on 2 percent of the ASP. As 

described earlier, we estimated 

aggregate expenditure for all separately 

payable OPPS drugs and biologicals 

(excluding radiopharmaceuticals) using 

mean costs from the claims data and 

then determined the equivalent average 

ASP-based rates. Our calculations at the 

time of the proposed rule indicated that 

using mean unit costs to set the 

payment rates for all separately payable 

drugs and biologicals would be 

equivalent to basing their payment rates 

on ASP+8 percent. As noted previously, 

because pharmacy overhead costs are 

already built into the charges for drugs, 

biologicals, and radiopharmaceuticals as 

indicated by the MedPAC study 

described above, we believed on the 

basis of the data available at the time of 

our development of the proposed rule 

that payments for drugs and biologicals 

and overhead at a combined ASP+8 

percent would serve as a proxy for 

representing both the acquisition and 

overhead cost of each of these products. 

Moreover, as we proposed to pay for all 

separately payable drugs and biologicals 

using the ASP methodology, where 

payment rates for most of these items 

were set at ASP+6 percent, we believed 

that an additional 2 percent of the ASP 

would provide adequate additional 

payment for the overhead costs of these 

products and be consistent with 

historical hospital costs for drug 

acquisition and handling. Even though 

we did not propose to scale the payment 

rates for drugs and biologicals based on 

the ASP methodology, we proposed to 

scale the additional payment amount of 

2 percent of the ASP for pharmacy 

overhead costs. Therefore, for CY 2006, 

we proposed to pay an additional 2 

percent of the ASP scaled for budget 

neutrality for overhead costs associated 

with separately payable drugs and 

biologicals, along with paying ASP+6 

percent for the acquisition costs of the 

drugs and biologicals. We specifically 

requested public comments on this 

proposed policy for paying for 

pharmacy overhead costs in CY 2006 

and on the proposed policy regarding 

hospital billing of drug handling charges 

associated with each administration of 

each separately payable drug or 

biological using the proposed C-codes. 

During the August 2005 meeting of 

the APC Panel, the Panel made three 

recommendations regarding our 

proposals for determining and paying 

for overhead costs associated with 

providing drugs and biologicals. The 

Panel recommended that CMS: (1) 

Reconsider carefully the proposal to pay 

2 percent of ASP for hospital pharmacy 

overhead costs to ensure that it is in line 

with hospital costs and that CMS take 

into account external data gathered 

during the comment period; (2) pay for 

the pharmacy overhead costs of both 

packaged and separately paid drugs, 

employing a mechanism that adds only 

minimal additional administrative 

burden for hospitals; and (3) delay the 

implementation of the proposed codes 

for drug handling cost categories until 

January 2007 so that further data and 

alternative solutions for making 

payments to hospitals for pharmacy 

overhead costs can be collected, 

analyzed by CMS, and presented to the 

Panel at its winter 2006 meeting. The 

final CY 2006 policies on pharmacy 

overhead costs are discussed below. 

We received many public comments 

concerning our proposals. 

Comment: Commenters were pleased 

that CMS recognized that additional 

payments should be provided to 

hospitals to cover handling costs 

associated with administering drugs and 

biologicals in the hospital outpatient 

setting. However, many commenters 

were concerned that the proposed 

payment of 2 percent of the ASP for 

these costs was not adequate to ensure 

that hospitals would be able to continue 

to provide these services. Commenters 

indicated that these handling costs 

could be substantial and cited 

comments in the MedPAC study on 

pharmacy handling costs attributing 26 

to 28 percent of pharmacy department 

costs to overhead costs. Several 

commenters noted that MedPAC stated 

in its report that pharmacy overhead 

costs are inconsistently reported in 

hospital charge data. Therefore, these 

commenters concluded that our analysis 

of the HCPCS drug charge data derived 

from CY 2004 provider claims is not 

likely to reflect pharmacy handling 

charges accurately and consistently. 

One commenter stated that an 

additional payment of 2 percent of ASP 

for drug handling is not adequate for 

certain drugs that have very high 

handling costs due to special equipment 

or procedures related to the drug’s 

toxicity, or special compounding or 

preparation requirements. Several other 

commenters stated that hospitals are 

facing increased pharmacy handling 

costs and overhead expenses as a result 

of at least one, and possibly two, new 

government requirements that reflect 

new criteria for compounding sterile 

products and new procedures to ensure 

staff and patient safety. According to the 

commenters, these additional costs were 

68660 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

not reflected in the CY 2004 hospital 

claims data, and therefore were not 

accounted for in CMS’ estimate of 2 

percent of ASP for the pharmacy 

overhead costs of drugs and biologicals. 

Commenters provided various 

recommendations for CMS to consider 

in determining appropriate payment 

levels for drug handling costs in CY 

2006. One commenter encouraged CMS 

to use industry data to set an equitable 

payment rate for these pharmacy 

overhead costs instead of the percentage 

of ASP proposed. Another commenter 

recommended that CMS increase the 

payment for pharmacy overhead costs to 

more closely approximate the findings 

reported by MedPAC. Several 

commenters recommended 

implementing a dampening policy in 

CY 2006, so that drug payments are no 

lower than 95 percent of the CY 2005 

payment levels. Another dampening 

policy suggested was that CMS pay for 

separately payable drugs and biologicals 

at the higher of ASP+8 percent or 90 

percent of the CY 2005 payment rate. 

One commenter recommended that 

CMS consider freezing payments in CY 

2006 for those drugs whose payments 

would decline significantly from the CY 

2005 rates, particularly those drugs that 

may have especially complex and costly 

handling requirements. Some of these 

commenters indicated that a dampening 

policy would allow CMS to provide 

hospitals with a transition mechanism 

as it moved toward an ASP-based 

payment methodology, and at the same 

time provide adequate payment for 

these items until CMS collected 

sufficient pharmacy overhead charge 

data to establish accurate cost-based 

payment rates for drug handling 

expenses. 

MedPAC expressed concern about the 

methodology to pay hospitals 2 percent 

of ASP for each separately payable drug 

administered because of the 

proportional nature of this proposal. 

MedPAC suggested that CMS consider 

another alternative because the 

proposed method ties payment for 

handling costs directly to the 

acquisition cost of a drug. MedPAC 

noted that payment for the handling 

cost of a particular drug could differ 

sharply from the handling cost hospitals 

actually incur; for example, a drug with 

a high acquisition cost does not 

necessarily also have high handling 

costs. MedPAC also expressed concern 

that this method of paying for pharmacy 

overhead could result in higher drug 

acquisition costs for hospitals because it 

gives manufacturers an incentive to 

increase prices. MedPAC proposed an 

alternative methodology under which 

CMS would estimate the total dollars 

that should be dedicated to paying 

pharmacy handling costs and determine 

how much of the total should be 

allocated to groups of drugs that are 

similar with respect to their handling 

costs. MedPAC noted that 2 percent of 

ASP, as suggested by our analysis of the 

data on hospitals’ acquisition and 

overhead costs, would be a viable basis 

for creating such a pool. Under the 

MedPAC methodology, hospitals would 

receive the same payment for the 

handling cost of each specified covered 

outpatient drug within the same 

category of handling costs, regardless of 

the acquisition costs of the specific 

drugs assigned to the category. 

One commenter urged CMS to 

implement a pharmacy service and 

handling add-on of at least 8 percent of 

ASP, in addition to the acquisition cost 

payment of ASP+6 percent. The 

commenter used the hospital outpatient 

claims data to examine the percentage 

add-on to ASP that would be necessary 

to maintain aggregate payments in CY 

2006 at 95 or 100 percent of the CY 2005 

level. The commenter found that, to 

maintain payments at 95 or 100 percent 

of the CY 2005 levels for chemotherapy 

or supportive care drugs, except 

radiopharmaceuticals, add-on amounts 

of 7.6 percent of ASP or 13.3 percent of 

ASP, respectively, would be necessary. 

The commenter stated that payment at 

this level would be an appropriate 

interim measure to limit the potential 

decreases in drug payments until data 

are collected to implement a better longterm solution. Many other commenters 

supported this proposal to pay 8 percent 

of ASP for overhead costs in addition to 

paying ASP+6 percent for acquisition 

costs (for a total payment of ASP plus 

14 percent for drug acquisition and 

overhead costs). 

Another commenter recommended 

that CMS adopt a process similar to 

what it proposed to support the 2 

percent payment for CY 2006 and 

suggested a variation to the proposed 

methodology. The commenter indicated 

that CMS could compute a reasonable 

estimate of handling costs by use of 

current claims data by first computing 

the mean cost of each drug and then 

deducting the ASP+6 percent amount. 

The commenter added that, after 

statistical outliers are excluded, CMS 

would have a reasonable estimate of the 

handling costs either by drug HCPCS 

code or by three categories without 

hospitals incurring the additional 

burden of billing a new handling charge. 

The commenter stated that CMS could 

then add the estimated handling costs to 

the drug ASP+6 percent payment to 

create a single payment for both the 

acquisition and handling costs. The 

commenter indicated that this method 

should also be more accurate than the 

current proposal of 2 percent of ASP for 

handling costs that applies equally to all 

three categories. The commenter 

expressed concern that the proposed 2 

percent of ASP for handling costs is 

significantly lower than the percentage 

indicated by both MedPAC and CMS 

studies. Because the drug handling cost 

must be paid in a budget neutral 

manner, the commenter questioned the 

adoption of an administratively 

burdensome process which attempted to 

redistribute OPPS payments for only 2 

percent of drug payments. The 

commenter recommended that CMS 

withdraw its proposed billing 

requirement for handling charges and 

simply adopt the 2 percent of ASP 

payment method proposed for CY 2006 

and future years if CMS believes that its 

data indicate that drug handling costs 

are only 2 percent of drug payments. 

The commenter added that submitting 

handling charges for the proposed Ccodes would be burdensome for such a 

relatively small payment refinement 

benefit. Several other commenters 

believed that, while an imperfect 

measure, increasing payment for drug 

handling costs by 2 percent of ASP 

would be appropriate as a temporary 

measure. 

Some commenters also indicated that 

CMS should work with hospital and 

pharmacy stakeholders to develop an 

approach to establish differential add-on 

payments for drug handling costs to 

account for a wide variety of drug 

handling categories. Lastly, one 

commenter noted that if CMS 

implements this policy, it should 

continue to analyze and refine payment 

for pharmacy overhead costs in the 

future to ensure that 2 percent of the 

ASP adjustment provides adequate 

payment for these services. 

Response: We understand the 

commenters’ concerns about basing the 

additional payment amount for 

overhead costs of drugs and biologicals 

on 2 percent of an item’s ASP. We agree 

with MedPAC and other commenters on 

the proposed rule that hospital charges 

for drugs and biologicals are generally 

reflective of both their acquisition and 

overhead costs. MedPAC did indicate in 

its comments that 2 percent would be a 

viable basis for creating the drug 

overhead pool. Therefore, we are not 

convinced by those commenters who 

contended that drug overhead costs are 

much higher than 2 percent of ASP (for 

example, 25 to 30 percent of total drug 

costs). As described earlier, using 

updated CY 2004 claims data and ASP 

information from the second quarter of 

CY 2005, we determined that using 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68661 

mean unit costs to set the payment rates 

for the drugs and biologicals that would 

be separately payable in CY 2006 would 

be equivalent to basing their payment 

rates, on average, at ASP+6 percent. 

Consequently, we believe that it is 

appropriate for us to base payment for 

average acquisition and overhead costs 

for separately payable drugs and 

biologicals on ASP+6 percent for CY 

2006 because both acquisition and 

overhead costs are reflected in the 

charges submitted by hospitals for these 

items. We have no reason to believe 

that, in the aggregate, a payment rate of 

ASP+6 percent would be insufficient to 

provide combined appropriate payment 

for both the hospital acquisition and 

overhead costs related to providing 

drugs and biologicals to hospital 

outpatients. 

In the light of this decision to proceed 

with an integrated payment of ASP+6 

percent for the acquisition and overhead 

costs of drugs, we also are not adopting 

MedPAC’s recommendation to create 

and appropriately distribute a drug 

overhead payment pool in this final rule 

with comment period. We understand 

MedPAC’s concern that a flat percentage 

add-on payment for overhead costs 

might underpay these costs for some 

drugs and overpay for others. However, 

on the basis of our claims data, we 

believe that the payment rate that we are 

adopting will provide adequate payment 

for both acquisition and overhead costs 

in the aggregate. We also note the 

difficulties in determining the relative 

values of the separate drug handling 

cost categories in order to allocate 

spending from MedPAC’s overhead drug 

pool. However, we will continue to 

study and consider this alternative as 

we develop our future policies on 

payment for drug costs in general and 

overhead costs in particular. As we 

evaluate other options for paying for 

drug handling costs in the future, we 

will also consider different 

methodologies that could be used to 

develop clinically meaningful and 

distinct payment levels for the diverse 

pharmacy overhead resources associated 

with administration of drugs and 

biologicals. We welcome comments and 

information about sources of data that 

could be useful in further developing a 

methodology for payment of drug 

overhead costs for the CY 2007 

proposed rule. 

Comment: Two commenters were 

concerned that the proposed additional 

payment of 2 percent of ASP did not 

fully cover hospital costs of procuring, 

storing, and furnishing clotting factors 

to patients with hemophilia. The 

commenters noted that the CY 2005 

payment for a clotting factor in the 

physician office setting is based on 

ASP+6 percent plus an additional 

furnishing fee to cover the costs of 

providing the product to Medicare 

beneficiaries. According to the 

commenters, this fee was set at $0.14 

per unit of clotting factor for CY 2005 

and is required to be updated annually. 

The commenters also noted that an addon payment is made to hospitals for 

clotting factors provided to patients in 

the hospital inpatient setting. They 

indicated that for hospital inpatient 

services the current additional payment 

for a clotting factor equals 95 percent of 

its AWP; however, for CY 2006, CMS 

proposed to set the payment rate and 

the furnishing fee for clotting factors 

used in the hospital inpatient setting at 

the same rate as for clotting factors 

provided in physician offices under Part 

B. The commenters argued that the 

hospital outpatient handling costs 

should not be treated differently than in 

the physician office because the costs of 

inventory, specialized refrigeration, 

assay management, and formulation of 

clotting factors are similar for all 

providers of these drugs and do not very 

between the hospital inpatient and 

outpatient setting. The commenters 

were concerned that the proposed 2 

percent of ASP did not fully cover the 

additional costs of furnishing clotting 

factors to Medicare beneficiaries in the 

hospital outpatient setting and urged 

CMS to apply the Part B furnishing fee 

to the hospital outpatient setting as 

well. One of the commenters 

additionally requested that CMS not 

include clotting factors in the collection 

of overhead cost data using the 

proposed C-codes, as CMS has already 

established a mechanism for calculating 

and updating the costs associated with 

providing these drugs under the 

Medicare Physician Fee Schedule and 

Inpatient Prospective Payment System, 

and it sought clarification in the 

preamble and regulatory text of the final 

rule on all payment provisions related 

to clotting factors. 

Response: Section 303 of Pub. L. 108–

173 established section 1847A of the 

Act which requires that almost all 

Medicare Part B drugs not paid on a cost 

or prospective basis be paid at 106 

percent of average sales price (ASP) and 

provided for payment of a furnishing fee 

for blood clotting factors, effective 

January 1, 2005. In CY 2006, payment 

for clotting factors furnished in both the 

physician office setting and inpatient 

hospital setting will be made at ASP+6 

percent plus an additional amount for 

the furnishing fee. We agree with the 

commenters’ statements about the use of 

similar resources to furnish clotting 

factors across all types of service 

settings and believe that it is 

appropriate to adopt a methodology for 

paying for clotting factors under the 

OPPS that is consistent with the 

methodology applied in the physician 

office setting and the inpatient hospital 

setting. Therefore, in CY 2006, we will 

be paying for clotting factors at ASP+6 

percent in the OPPS and providing 

payment for the furnishing fee that will 

also be a part of the payment for clotting 

factors furnished in physician offices 

under Medicare Part B. This furnishing 

fee will be updated each calendar year 

based on the consumer price index, and 

we will update the amount 

appropriately each year under the 

OPPS. In CY 2005, the furnishing fee is 

$0.14 per unit, and for CY 2006, it will 

be updated to $0.146 per unit. Effective 

January 1, 2006, we will make payment 

for clotting factors at ASP+6 percent 

using ASP data from the third quarter of 

2005 along with paying for the 

furnishing fee using the updated 

amount for CY 2006. The final CY 2006 

regulations establishing the ASP 

methodology and the furnishing fee for 

blood clotting factors under Medicare 

Part B can be found in the CY 2006 

Medicare Physician Fee Schedule final 

rule. We believe that this methodology 

will allow us to provide adequate 

payment for both the acquisition and 

overhead costs of clotting factors under 

the OPPS in CY 2006. 

Comment: One commenter requested 

that CMS clarify how it will pay 

hospitals for the costs incurred with 

handling intrathecal drugs, noting that 

MedPAC did not discuss the handling 

costs of intrathecal drugs in its report on 

pharmacy overhead costs. The 

commenter noted that intrathecal drugs 

involve significant handling costs; 

therefore, CMS should ensure that 

intrathecal drugs are paid a sum 

sufficient to cover their handling costs. 

Response: In CY 2006, payment for 

intrathecal drugs will be determined 

using the same ASP methodology as 

will be used for other separately payable 

drugs and biologicals, where payment 

for acquisition and overhead costs will 

be set at ASP+6 percent. 

Comment: We received many 

comments on our proposal to 

implement C-codes for drug handling 

categories in CY 2006. Many of the 

commenters opposed the proposal, 

while other commenters supported it. 

A national association of hospitals 

expressed strong opposition to the 

proposal to require hospitals to report 

their drug handling charges using Ccodes in order for CMS to pay pharmacy 

overhead costs and recommended that 

CMS find an alternative method to 

68662 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

identify drug handling costs. The 

commenter raised several concerns 

regarding this proposal. For example, 

the commenter indicated that by 

proposing to require hospitals to bill a 

handling charge when the industry 

practice has been to bill a combined 

charge to reflect both the drug 

acquisition cost and handling cost is 

contrary to a basic, long standing tenet 

of the Medicare Act in 42 U.S.C. 1395 

that CMS interpreted as prohibiting any 

interference with hospital charge 

structures. Also, the commenter noted 

that Medicare providers must have a 

consistent charge structure in order to 

prepare the Medicare cost report and to 

apportion costs within the Medicare 

cost report. The proposal to require 

hospitals to begin billing the drug 

handling charge as a separate line-item 

charge will present billing and payment 

concerns for all other payers because 

drug handling charges would also have 

to be billed also to private payers and 

the Medicaid program, or the provider 

would have to be able to generate 

consistent charges for proper Medicare 

apportionment costs. However, since 

most other payers do not recognize Ccodes and may refuse to accept and/or 

pay for such handling charges, it would 

raise concern for a provider as to 

whether it must pursue collection in 

order to have a consistent charge 

structure for payment and 

apportionment. The commenter noted 

that drug handling costs are not 

presently billed separately by the vast 

majority of hospitals, and most of these 

hospitals do not have sophisticated cost 

accounting systems that would permit 

the determination of handling costs for 

each billable drug. Reporting pharmacy 

overhead charges with C-codes would 

result in a tremendous burden to 

hospitals, requiring the modification of 

their pharmacy charge masters to reduce 

each current drug charge to reflect only 

the drug acquisition cost and to remove 

the drug handling costs currently 

included in each drug line item’s 

charge. Hospitals that do not have 

sophisticated cost accounting systems 

would have difficulty in determining 

the applicable amount attributable to 

the handling costs. The commenter 

indicated that even if this 

administratively burdensome process of 

billing for handling charges is adopted, 

CMS would still be unable to determine 

the drug handling costs at the 

individual drug level because an 

average pharmacy department CCR 

would be applied to billed charges to 

determine drug handling costs, and 

these CCRs were never intended to 

determine cost at the specific procedure 

level, such as drug handling costs for 

individual drugs. The commenter also 

expressed concern that CMS’ proposal 

to pay the drug handling costs only for 

separately payable drugs would create 

an additional burden for hospitals as 

they must identify and modify only 

those drug charge items that qualify for 

separate payment under the OPPS. 

Charges for packaged drugs must 

continue to include the overhead costs 

as part of the drug’s line item charge or 

the appropriate revenue code charge. 

Because Medicare beneficiaries 

frequently require more than one drug 

in an outpatient encounter, it may be 

impossible to identity any correlation 

between the drug HCPCS code reported 

and the drug handling category HCPCS 

code reported. Additionally, there 

would be no incentives for hospitals to 

perform the charge master maintenance 

and educate pharmacy staff as neither 

the presence nor accuracy of the drug 

handling HCPCS codes will impact the 

proposed CY 2006 payment of drug 

handling costs. Another concern raised 

was that CMS would be able to 

determine appropriate payment rates for 

these C-codes in future years using the 

claims data only if hospitals can 

reasonably estimate their drug handling 

costs and if hospitals mark up their drug 

handling costs in line with their overall 

pharmacy mark-up. The last concern 

cited by the commenter was that there 

may be an issue if hospitals report the 

new drug handling costs separately 

without restructuring their existing drug 

charges to remove the drug handling 

costs already included in the drug 

charges. 

Other commenters echoed these 

concerns. One commenter indicated that 

even though collecting charge data for 

handling costs may be useful for CMS, 

the reporting requirement would 

overwhelm coding and nursing staffs 

already challenged with the complex 

task of ensuring that the correct dosage 

of the drug is billed. Another 

commenter strongly opposed the use of 

C-codes to bill for drug handling costs 

because it would present an operational 

nightmare because every drug required 

‘‘handling.’’ The commenter, therefore, 

requested that CMS not implement this 

proposal until further assessments of the 

system implications associated with 

such a change are completed. 

Several commenters raised other 

coding, billing, and charging issues 

related to this proposal. For example, 

commenters questioned whether CMS 

would expect multiple line-items to be 

reported per date of service if multiple 

drugs from the same drug handling 

family are provided. They also asked 

whether CMS would require providers 

to report a single revenue code with the 

pharmacy handling C-codes, or would 

the revenue codes need to match the 

actual drug revenue code. The 

commenters urged CMS to review the 

coding and billing requirements 

necessary to implement such a 

mechanism correctly. 

One commenter strongly opposed the 

proposal requiring hospitals to establish 

separate pharmacy overhead charges for 

separately payable drugs and biologicals 

and use the three proposed C-codes for 

charging these overhead costs in CY 

2006. This commenter indicated that it 

would be extremely burdensome and 

difficult for hospitals to implement the 

proposal. The commenter also indicated 

that there are many complex issues and 

administratively burdensome aspects to 

adopting this proposal for charging for 

drug handling using these new C-codes. 

The commenter pointed out that even 

assuming that hospitals could provide 

differential charges, other concerns 

remain. For example, the commenter 

indicated that hospitals would have to 

evaluate the normal mark-up formula 

for all pharmacy items and deduct the 

handling costs for only the separately 

payable drugs under Medicare, while 

the drug handling charges for packaged 

drugs would remain incorporated 

within overall charges for those drugs. 

The commenter stated that because the 

C-codes would only be recognized by 

and acceptable to Medicare, but not to 

other payers, hospitals would have to 

modify their billing systems to separate 

out the drug handling charge from the 

drug charge for Medicare claims, but bill 

them as a single line-item for other 

payers. The commenter believed that 

there would also be confusion about 

how the drug handling C-codes would 

apply when a hospital pharmacy mixes 

multiple doses of a drug for a patient, 

and in particular the question of 

whether the hospital would report a 

single C-code for handling costs or 

multiple C-codes in this situation. The 

commenter also expressed concern that 

some hospitals may not be able to 

accommodate the proposed C-codes 

because drug pricing is generated 

through a pharmacy charging system 

often located outside the hospital’s 

normal charging system. For these 

reasons, the commenter indicated that it 

is unclear how CMS would expect 

providers to report drug charges in the 

inpatient setting versus the outpatient 

setting because many hospitals use the 

same charge master for inpatient and 

outpatient services. 

One of the commenters noted that 

when hospital clinic nurses and 

pharmacies bill for drugs, they do not 

view the patient-specific data to 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68663 

determine if the patient has Medicare 

coverage and whether the drug is 

separately payable to make decisions 

about whether to report additional 

services. The commenter pointed out 

that dispensing fees vary significantly in 

each hospital due to variances in 

overhead and handling fees incurred. 

The commenter believed that the 

proposal requires more research and 

consideration in order to reduce the 

administrative burden that would be 

required of hospital staff and adequately 

capture all pharmacy overhead and 

handling costs incurred. This 

commenter supported establishing 

payment for pharmacy overhead costs 

based on the additional 2 percent of 

ASP added to each APC drug payment, 

as this method simplifies the payment 

mechanism. 

Many commenters stated that CMS 

should not implement the proposed 

drug handling C-codes in CY 2006 and 

should instead study alternate 

mechanisms for obtaining drug handling 

cost data, including using the cost 

report to compute an average pharmacy 

handling percentage that may be used in 

the future along with the ASP+6 percent 

model for drug acquisition costs. Other 

commenters recommended that CMS 

work with stakeholder groups to collect 

additional data and develop simpler, 

alternative solutions for ensuring that 

hospitals are appropriately paid for their 

pharmacy overhead and drug handling 

costs. Some commenters stated that 

such approaches should incorporate the 

payment for drug handling directly into 

the payment rate for the drug itself, 

rather than requiring separate coding 

systems. One commenter suggested that 

CMS obtain more accurate information 

by surveying hospital pharmacy 

departments and studying data on the 

departmental costs of hospital 

pharmacies. Another commenter stated 

that CMS should collect data and make 

payments in a manner similar to the 

way in which data are collected and 

payments provided through the Quality 

Measurement Demonstration Project 

that was implemented in physicians’

offices in CY 2005. 

Several commenters supported our 

proposal to implement the C-codes for 

drug handling categories. They 

supported the development of the three 

proposed distinct C-codes for drug 

handling categories and the collection of 

hospital claims data over the next 2 

years for use in establishing payment 

rates based on actual costs in CY 2008 

and beyond. One of the commenters 

supported basing payment for these new 

categories in CY 2008 on a weighted 

average of the overhead costs for all 

drugs to which the categories will 

apply, thus ensuring the most accurate 

payment level possible while meeting 

the objective of the proposal to 

streamline the overhead payment 

system. 

A few commenters did not believe the 

three drug handling categories proposed 

were sufficient to cover the wide range 

of drug handling costs for all of the 

separately payable drugs used by 

hospital outpatient departments and 

stated that the categories proposed by 

MedPAC would allow greater 

differentiation of drug handling costs. 

One commenter explained that more 

refined categories can and should be 

developed and urged CMS to reevaluate 

the use of the MedPAC categories and 

to release a listing of the drugs assigned 

to each drug handling category for 

hospital review. These commenters 

indicated that limiting the number of 

categories for which hospitals report 

their drug handling costs would not 

provide accurate cost data and were 

concerned that CMS’ descriptions of 

these categories did not provide 

sufficient clarity for hospitals to 

appropriately classify all of their drugs. 

One commenter noted that intrathecal 

drugs should be assigned to category 

three or a new overhead cost category 

for intrathecal drugs should be created. 

MedPAC was pleased that CMS’

proposed methodology to pay for 

overhead and handling costs beginning 

in CY 2008 reflected its 

recommendations and noted that the 

methodology would be similar to that 

used to set payment rates for procedural 

APCs. However, MedPAC encouraged 

CMS to explore whether it would be 

reasonable to expand the number of 

handling cost APCs beyond the 

proposed three categories after the 

charge data necessary to set rates for the 

three handling cost APCs are collected. 

Several commenters supported the 

creation of a mechanism for hospitals to 

begin capturing and reporting pharmacy 

costs. However, they indicated that it 

will take hospitals considerable time 

and effort to develop this approach as 

most hospitals do not currently report 

pharmacy costs directly or capture these 

costs fully. One commenter 

recommended that CMS tie reporting of 

the new C-codes for handling fees to 

actual payment amounts for the services 

so that hospitals would have an 

incentive to quickly develop a 

mechanism to report these codes. Other 

commenters supported the general Ccode methodology, but were concerned 

that there was insufficient time to 

properly instruct and educate hospitals 

on how and when to use these codes. 

Therefore, to ensure that the new Ccodes can be used effectively, these 

commenters recommended that CMS 

consult with hospital organizations on 

this issue, and after reviewing their 

feedback, consider delaying C-code 

implementation until January 1, 2007 

while continuing to refine the codes and 

develop instructions for their use. The 

APC Panel also recommended that CMS 

delay implementation of this proposal 

in order to collect more data and study 

alternatives. 

If this policy is implemented for CY 

2006, some commenters suggested that 

CMS provide a grace period of no less 

than 90 days after the implementation of 

the CY 2006 OPPS to allow hospitals 

time to make necessary system changes 

and to educate pharmacy staff, finance 

staff, and coders on the required use of 

the drug handling C-codes. Other 

commenters noted that a grace period of 

no less than 6 months would be 

required after the implementation of the 

CY 2006 OPPS. One commenter insisted 

that CMS collect hospital charge data for 

overhead costs for 2 years to determine 

if the proposed 2 percent of the ASP 

add-on rate is adequate and consider 

new payment rates for these pharmacy 

overhead services in CY 2008. 

Response: We have carefully 

considered all the comments and the 

concerns raised by the commenters. In 

light of the extensive operational issues 

related to coding, billing, and charging 

for C-codes for drug handling categories 

identified by commenters, we believe 

there is good reason at this time not to 

proceed with our proposal for CY 2006. 

Therefore, we are not finalizing our 

proposal to collect data on pharmacy 

overhead costs in CY 2006. Rather, we 

will continue to solicit input from the 

industry, APC Panel, and hospitals to 

explore alternative methodologies for 

capturing meaningful and complete 

pharmacy overhead costs, for potential 

use in providing appropriate payments 

to hospitals for such services in future 

updates of the OPPS. We note that for 

CY 2006 we are requiring specific 

coding for certain devices, as we require 

the billing of all separately payable 

drugs and request that hospitals report 

packaged drugs. We believe that 

hospitals can easily ascertain the 

acquisition costs of devices and decide 

on an appropriate markup that includes 

device handling, and these device costs 

(except for devices with pass-through 

status) are then appropriately packaged 

into payments for the separately payable 

procedures that utilize the devices. 

Similarly, we believe that hospitals are 

aware of the acquisition costs of drugs 

and provide an appropriate markup that 

includes pharmacy overhead. These 

billed drugs are then either separately 

paid at ASP+6% for CY 2006 or their 

68664 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

payment is packaged into payments for 

the separately payable procedures 

where the drugs are administered. 

However, as discussed above, hospitals 

do not keep track of their pharmacy 

overhead costs nor their device 

handling costs separately. Rather, these 

broad overhead and handling costs are 

typically built into the charges for the 

drugs or devices themselves, In many 

ways, the device charge reported on a 

claim is like the drug charge, in that 

both currently reflect the acquisition 

cost of the device or drug and the 

handling cost of the device or drug 

(special handling, storage, etc.). Just as 

we do not require hospitals at this time 

to further differentiate their device 

charges into acquisition and handling 

components, based on our review of 

comments to the CY 2006 proposed rule 

we are also not going to require 

hospitals for CY 2006 to separate the 

traditionally highly linked drug 

acquisition and pharmacy overhead 

charges. 

Comment: Several commenters urged 

CMS to recognize that low-cost drugs 

and biologicals may have substantial 

handling costs depending on the type 

and volume of the drugs administered, 

and therefore, recommended that CMS 

apply additional payments to packaged 

drugs and biologicals, as well as to 

separately payable therapies. The APC 

Panel also recommended that CMS pay 

for the overhead costs of both packaged 

and separately paid drugs. One of the 

commenters suggested that the use of 

the proposed C-codes for drug handling 

categories also be extended to include 

packaged drugs. One commenter 

recommended that CMS make an addon payment of at least $14.80 per dose 

of packaged drug administered, and that 

CMS consider establishing a new Gcode for pharmacy handling services 

associated with packaged drugs for this 

purpose. The commenter based its 

recommendation on an analysis of the 

amount of required pharmacist and 

pharmacy technician time, plus indirect 

overhead costs, associated with 

preparing each dose of a packaged drug. 

Another commenter indicated that CMS 

may believe that overhead costs for 

packaged drugs are reflected in the 

payments for drug administration APCs; 

however, the commenter did not believe 

that the drug administration APC 

payment rates are sufficient to pay 

providers for administration services, or 

the acquisition and handling costs 

associated with packaged drugs. In 

addition, one commenter indicated that 

CMS should ensure that the add-on 

payment is applied equally to all drugs, 

including those on pass-through and 

new to the market. 

One commenter strongly opposed the 

expansion of the drug handling C-code 

reporting proposal to packaged drugs, 

citing that this policy would 

exponentially increase the coding and 

administrative burden on hospitals due 

to the large number of drugs that would 

require special charging practices for 

Medicare purposes. For example, the 

commenter noted that hospitals 

generally do not provide detailed billing 

for drugs that are not separately paid. 

The commenter believed that because 

all drugs do not have their own unique 

HCPCS codes, creating new codes for all 

drugs would be a significant burden. 

The commenter added that, given the 

large volume of drugs used in hospital 

outpatient departments, expanding drug 

handling coding requirements to all of 

these drugs, regardless of their 

packaging status, would dramatically 

increase hospital administrative costs 

associated with this proposal. Other 

commenters expressed similar views. 

Response: We agree with the 

commenters who stated that extending 

specific payment for handling costs to 

packaged drugs would impose an 

excessive burden on hospitals. As the 

commenters noted, this policy would 

exponentially increase the coding and 

administrative burden that our proposed 

use of C-codes would have imposed. In 

addition, as we have stated previously, 

overhead costs are built into the charges 

for drugs, and these charges are already 

accounted for in setting the weights for 

the procedural APCs into which some 

drugs are packaged. Accordingly, we 

believe that additional payment for 

overhead costs of packaged drugs would 

be duplicative and have not made a 

separate provision for additional 

payment. 

As discussed earlier, we proposed to 

pay for separately payable 

radiopharmaceuticals based on their 

charges on the claims submitted by 

hospitals converted to costs. MedPAC 

found that the handling resource costs 

associated with radiopharmaceuticals 

were especially difficult to study and 

estimate because of the varying resource 

requirements for handling 

radiopharmaceuticals in a variety of 

hospital outpatient settings for different 

clinical uses. These various methods of 

preparation of radiopharmaceuticals, 

and the individual 

radiopharmaceuticals themselves, differ 

significantly in the costs of their 

handling, with substantial variation in 

such factors as site of preparation, 

personnel time, shielding, 

transportation, equipment, waste 

disposal, and regulatory compliance 

requirements. However, as MedPAC 

also found that handling costs for drugs, 

biologicals, and radiopharmaceuticals 

were built into hospitals’ charges for the 

products themselves, we stated in the 

proposed rule that we believed that the 

charges from hospital claims converted 

to costs were representative of hospital 

acquisition costs for these agents, as 

well as their overhead costs. These costs 

would appropriately reflect each 

hospital’s potentially diverse patterns of 

acquisition or production of 

radiopharmaceuticals for use in the 

outpatient hospital setting and their 

related handling costs that vary across 

radiopharmaceutical products and the 

circumstances of their production and 

use. Therefore, we did not propose to 

create separate handling categories for 

radiopharmaceuticals for CY 2006. 

We received many public comments 

on this radiopharmaceutical proposal. 

Comment: Several commenters stated 

that CMS should not assume that the 

hospitals have incorporated handling 

costs in their hospital charges for 

radiopharmaceuticals. They indicated 

that there has been some ambiguity 

about what costs should be included in 

radiopharmaceutical charges, as 

opposed to procedure charges, and this 

matter is complicated by the difference 

in payment policies for physician 

offices as compared to the hospital 

outpatient setting. They also stated that 

differing payment policies and lack of 

clear billing instructions in the different 

settings contribute to uncertainty about 

where radiopharmaceutical costs are 

reported by hospitals. Commenters 

suggested that CMS specifically declare 

where the costs for radiopharmaceutical 

handling should reside for all delivery 

settings and give clear direction to 

providers. One commenter stated that, 

due to the variety of 

radiopharmaceuticals that can be used 

with the same procedure, it is most 

accurate to incorporate 

radiopharmaceutical handling costs in 

the charge for the radiopharmaceutical 

rather than in the charge for the nuclear 

medicine procedure. 

Response: We understand the 

commenters’ concerns. We would 

emphasize that, in light of the policy 

that we are adopting in this final rule 

with comment period of paying for 

radiopharmaceuticals based on 

hospitals’ charges converted to costs, it 

is appropriate for hospitals to include 

all the costs associated with acquiring 

and handling radiopharmaceuticals in 

their charges for the 

radiopharmaceuticals. 

However, because we proposed to 

collect ASP information for 

radiopharmaceuticals in CY 2006, we 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68665 

requested specific comments on 

appropriate categories for potentially 

capturing radiopharmaceutical handling 

costs. We stated in the proposed rule 

that we believed that these handling 

costs may vary depending on many 

factors. We also indicated that the 

handling cost categories should exclude 

any resources associated with specific 

diagnostic procedures or administration 

codes for patient services that utilize the 

radiopharmaceuticals. However, the 

handling cost categories should include 

all aspects of radiopharmaceutical 

handling and preparation, including 

transportation, storage, compounding, 

required shielding, inventory 

management, revision of dosages based 

on patient conditions, documentation, 

disposal, and regulatory compliance. 

The MedPAC study contractor suggested 

a variety of discriminating factors that 

may be related to the magnitude of 

radiopharmaceutical handling costs, 

including the complexity of the 

calculations and manipulations 

involved with compounding, the 

intended use of the product for 

diagnostic or therapeutic purposes, the 

item’s status as a radioimmunoconjugate 

or nonradioimmunoconjugate, shortlived agents produced in-house, and 

preparation of the radiopharmaceutical 

in-house versus production in a 

commercial radiopharmacy. We sought 

comments on the construction of 

radiopharmaceutical handling cost 

categories that would meaningfully 

reflect differences in the levels of 

necessary hospital resources and that 

could easily be understood and applied 

by hospitals characterizing their 

preparation of radiopharmaceuticals. 

We received numerous public 

comments concerning 

radiopharmaceutical handling cost 

categories. 

Comment: We received comments 

describing various proposals for creating 

radiopharmaceutical handling cost 

categories. One commenter 

recommended the creation of five 

handling categories for 

radiopharmaceuticals and assigning 

them G-codes, instead of C-codes as 

proposed, for drug handling categories. 

The commenter recommended this 

approach because G-codes are available 

to all insurers and would assist 

hospitals in more accurate, consistent, 

and efficient billing for 

radiopharmaceuticals. Another 

commenter suggested seven potential 

radiopharmaceutical handling 

categories for our consideration. Still 

another commenter proposed four 

categories for capturing the costs of 

radiopharmaceuticals. MedPAC also 

encouraged CMS to further study how to 

best construct categories of handling 

cost APCs for radiopharmaceuticals, 

which are generally likely to require 

greater resources for their preparation 

than drugs and biologicals. One 

commenter recommended that all 

radiopharmaceuticals be paid 

separately. The commenter believed that 

because of the potential for hospitals to 

bill one of the radiopharmaceutical 

handling category codes, this policy 

would facilitate appropriate data 

gathering, recognition, and payment of 

handling costs for all 

radiopharmaceuticals. 

One commenter was pleased that 

CMS did not intend to create C-codes 

for radiopharmaceutical handling costs 

for CY 2006. Other commenters stated 

that, if CMS implements its proposal to 

create handling cost categories for drugs 

and biologicals in CY 2006, it should 

also create handling cost categories for 

radiopharmaceuticals in CY 2006. These 

commenters added, however, if CMS 

delays implementation of these drug 

handling categories, it would be 

appropriate to delay the adoption of 

handling cost category codes for 

radiopharmaceuticals. 

Several commenters noted that if CMS 

implemented specific coding for 

handling and overhead costs of 

radiopharmaceuticals in CY 2006, it 

would have to initiate well in advance 

of January 2006 an educational effort to 

communicate to providers the need to 

use the new codes and to adjust 

radiopharmaceutical charges during CY 

2006 to accurately reflect any changes in 

HCPCS code descriptors, along with 

identification of the relevant hospital 

CCR appropriate for calculating 

radiopharmaceutical payments. Another 

commenter suggested that CMS advise 

hospitals to make timely updates in 

charges to ensure that they fully, 

accurately, and uniformly report all 

relevant costs for radiopharmaceuticals. 

A few commenters were concerned 

about the usefulness of creating 

additional C-codes for hospitals to 

report radiopharmaceutical handling 

costs in CY 2006 for use in CY 2007 

without providing any payment to 

hospitals for this additional work, citing 

that the process will place an undue 

administrative burden on hospitals. 

They recommended that CMS work 

with medical specialty societies and 

industry to develop appropriate 

handling cost categories for 

radiopharmaceuticals and establish a 

specific payment rate for each category 

to help deflect the additional costs to 

hospitals for this added burden and to 

ensure adequate data collection. In 

addition, the commenters asked for 

concurrent direction to hospitals about 

including the costs of handling in their 

charges for radiopharmaceuticals. 

Another commenter recommended that 

CMS incorporate these added handling 

costs directly into the final payment 

rates for radiopharmaceuticals by 

individual HCPCS codes. 

Response: As discussed earlier, we 

will not be implementing the C-code 

handling categories for drugs and 

biologicals in CY 2006 due to the 

complex operational and policy issues 

surrounding this proposal. We will 

continue to study the possibility of 

creating handling cost categories for 

radiopharmaceuticals, as well as drugs, 

in order to develop viable options for 

making accurate payments for drug and 

radiopharmaceutical handling costs for 

consideration in future updates of the 

OPPS. In the meantime, as discussed 

earlier, payment for both acquisition 

and handling costs of 

radiopharmaceuticals in CY 2006 will 

be made based on hospital charges for 

these items converted to costs using 

each hospital’s overall CCR. This 

methodology will allow us to pay 

simultaneously for radiopharmaceutical 

acquisition and handling costs, without 

creating additional administrative 

burden for hospitals. 

Comment: One commenter noted that 

CMS should include the costs 

associated with specially trained 

personnel to handle and compound 

radiopharmaceuticals, waste, and 

spoilage in its list of elements to 

consider including as part of 

radiopharmaceutical handling costs. 

The commenter also suggested that CMS 

make clear whether the 

radiopharmaceutical ‘‘transportation’’

costs should reside with the acquisition 

costs or with the handling costs. At 

present, many radiopharmaceutical 

invoice acquisition costs could include 

the ‘‘transportation’’ costs, therefore, the 

commenter cautioned CMS regarding 

the potential for double counting. 

Response: Since in CY 2006 payment 

for both acquisition and handling costs 

of radiopharmaceuticals will be made 

based on hospital charges for these 

items converted to costs, we encourage 

hospitals to include in their charges the 

costs associated with specially trained 

personnel to handle and compound 

radiopharmaceuticals, waste, spoilage, 

and transportation costs as noted by the 

commenter. Whether hospitals associate 

these costs with radiopharmaceutical 

acquisition or handling is not 

significant, as both types of costs should 

be fully reflected in the hospitals’

charges for radiopharmaceuticals. 

68666 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

b. Final CY 2006 Payment for NonpassThrough Drugs, Biologicals, and 

Radiopharmaceuticals With HCPCS 

Codes, But Without OPPS Hospital 

Claims Data 

Pub. L. 108–173 does not address the 

OPPS payment in CY 2005 and after for 

new 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 is no statutory provision 

that dictated payment for such drugs 

and biologicals 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). 

In the CY 2006 OPPS proposed rule, 

we proposed to use the same 

methodology that we used in CY 2005. 

That is, we proposed to pay for these 

new drugs and biologicals with HCPCS 

codes but which do not have passthrough status at a rate that is equivalent 

to the payment they would receive in 

the physician office setting, which 

would be established in accordance 

with the ASP methodology described in 

the CY 2006 Medicare Physician Fee 

Schedule final rule. As discussed in the 

CY 2005 final rule with comment period 

(69 FR 65797), new drugs, biologicals, 

and radiopharmaceuticals may be 

expensive, and we were concerned that 

packaging these new items might 

jeopardize beneficiary access to them. In 

addition, we did not want to delay 

separate payment for these items solely 

because a pass-through application was 

not submitted. We noted in the 

proposed rule that this payment 

methodology is the same as the 

methodology that would be used to 

calculate the OPPS payment amount 

that pass-through drugs and biologicals 

would be paid in CY 2006 in accordance 

with section 1842(o) of the Act, as 

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

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

Thus, we proposed to continue to treat 

new drugs, biologicals, and 

radiopharmaceuticals with established 

HCPCS codes the same, irrespective of 

whether pass-through status has been 

determined. We also proposed to assign 

status indicator ‘‘K’’ to HCPCS codes for 

new drugs and biologicals for which we 

have not received a pass-through 

application. 

In the proposed rule, we stated that 

there were several drugs, biologicals, 

and radiopharmaceuticals that were 

payable during CY 2004 or where 

HCPCS codes for products were created 

effective January 1, 2005, for which we 

did not have any CY 2004 hospital 

claims data. In order to determine the 

packaging status of these items for CY 

2006, in the proposed rule we 

calculated an estimate of the per day 

cost of each of these items by 

multiplying the payment rate for each 

product, as determined using the ASP 

methodology, by an estimated average 

number of units of each product that 

would be furnished to a patient during 

one administration. We proposed to 

package items for which we estimated 

the per administration cost to be less 

than $50 and pay separately for items 

with an estimated per administration 

cost greater than $50. We indicated that 

payment for the separately payable 

items would be based on rates 

determined using the ASP methodology 

established in the physician office 

setting. There were two codes HCPCS 

codes 90393 (Vaccina ig, im) and Q9953 

(Inj Fe-based MR contrast, ml), for 

which we were not able to determine 

payment rates based on the ASP 

methodology. Because we were unable 

to estimate the per administration cost 

of these items, we proposed to package 

them in CY 2006. We specifically 

requested public comments on our 

proposed policy for determining the per 

administration cost of these drugs, 

biologicals, and radiopharmaceuticals 

that were payable under the OPPS, but 

did not have any CY 2004 claims data. 

We received several public comments 

in response to our request. 

Comment: One commenter supported 

the proposal to price drugs that have a 

HCPCS code but do not have passthrough status at the same rate they 

would be paid in the physician office 

setting based on the ASP methodology. 

Response: We appreciate the 

commenter’s support. We are finalizing 

our proposed policy to pay for new 

drugs, biologicals, and 

radiopharmaceuticals with HCPCS 

codes but which do not have passthrough status at a rate that is equivalent 

to the payment they would receive in 

the physician office setting, which will 

be established in accordance with the 

ASP methodology. We are also paying 

separately for drugs, biologicals, and 

radiopharmaceuticals whose HCPCS 

codes will be payable for the first time 

under the OPPS in CY 2006 but whose 

codes do not crosswalk to other HCPCS 

codes previously recognized under the 

OPPS. 

In CY 2006, payment for these new 

drugs, biologicals, and 

radiopharmaceuticals will be based on 

ASP+6 percent. In accordance with the 

ASP methodology used in the physician 

office setting, in the absence of ASP 

data, we will use wholesale acquisition 

cost (WAC) for the product to establish 

the initial payment rate. We note, 

however, that if WAC is also 

unavailable, then we will calculate 

payment at 95 percent of the most 

recent AWP that we have available at 

the time of the development of this final 

rule and for the quarterly updates. We 

note that with respect to items for which 

we currently do not have ASP data, 

once their ASP data become available in 

later quarter submissions, their payment 

rates under the OPPS will be adjusted 

so that the rates are based on the ASP 

methodology and set to ASP+6 percent. 

For this final rule with comment 

period, we are basing the payment rates 

for these items on ASP data from the 

second quarter of CY 2005, which are 

effective in the physician office setting 

on October 1, 2005, because these are 

the most recent values available for the 

development of this rule. To be 

consistent with the ASP-based 

payments that would be made when 

these drugs and biologicals are 

furnished in physician offices as 

proposed, we plan to make any 

appropriate adjustments to the amounts 

shown in Addenda A and B to this final 

rule with comment period for these 

items on a quarterly basis as more recent 

ASP data become available. Changes in 

the payment rates will be posted on our 

Web site during each quarter of CY 

2006. Accordingly, effective January 1, 

2006, we will base payment rates for all 

separately payable drugs and biologicals 

on ASP data from the third quarter of 

CY 2005, which will also be the basis 

for setting payment rates for drugs and 

biologicals in the physician office 

setting effective January 1, 2006. 

For CY 2006, we will apply this 

policy to several drugs, biologicals, and 

radiopharmaceuticals that are new 

effective January 1, 2006 and do not 

have pass-through status or hospital 

claims data. These items are listed in 

Table 26 below and will be separately 

payable under OPPS in CY 2006, and 

thus, we have assigned them to status 

indicator ‘‘K’’. 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68667 

TABLE 26.—CY 2006 PAYMENT METHODOLOGY FOR NEW DRUGS, BIOLOGICALS, AND RADIOPHARMACEUTICALS WITHOUT

PASS-THROUGH STATUS AND CY 2004 CLAIMS DATA

HCPCS code Description APC CY 2006 

SI 

90714 ..................... Td vaccine no prsrv >/= 7 im ...................................................................................................... 1634 K 

A9567 ..................... Technetium TC–99m aerosol ..................................................................................................... 1679 H 

A9535 ..................... Injection, methylene blue ............................................................................................................ 1640 K 

J0132 ..................... Acetylcysteine injection ............................................................................................................... 1680 K 

J0278 ..................... Amikacin sulfate injection ........................................................................................................... 1681 K 

J2425 ..................... Palifermin injection ...................................................................................................................... 1696 K 

J2805 ..................... Sincalide injection ....................................................................................................................... 1699 K 

J2850 ..................... Inj secretin synthetic human ....................................................................................................... 1700 K 

J3471 ..................... Ovine, up to 999 USP units ........................................................................................................ 1702 K 

J3472 ..................... Ovine, 1000 USP units ............................................................................................................... 1703 K 

J7341 ..................... Non-human, metabolic tissue ..................................................................................................... 1707 K 

J8540 ..................... Oral dexamethasone ................................................................................................................... 1708 K 

J9225 ..................... Histrelin implant .......................................................................................................................... 1711 K 

Q9958 .................... HOCM <=149 mg/ml iodine, 1ml ................................................................................................ 1714 K 

Q9960 .................... HOCM 200–249mg/ml iodine, 1ml ............................................................................................. 1715 K 

Q9961 .................... HOCM 250–299mg/ml iodine, 1ml ............................................................................................. 1734 K 

Q9962 .................... HOCM 300–349mg/ml iodine, 1ml ............................................................................................. 1735 K 

Q9963 .................... HOCM 350–399mg/ml iodine, 1ml ............................................................................................. 1736 K 

Q9964 .................... HOCM >= 400 mg/ml iodine, 1ml ............................................................................................... 1737 K 

Comment: One commenter agreed in 

principle with CMS’ proposed 

methodology for determining the 

packaging status for drugs for which 

CMS did not have CY 2004 claims data. 

However, the commenter expressed 

concern about the proposal to package 

HCPCS code Q9953 (Inj Fe-based MR 

contrast, ml). The commenter noted that 

ASP data are available for Q9953, and 

the data demonstrated that the average 

per administration cost of Q9953 

exceeded the $50 packaging threshold. 

Thus, the commenter believed that 

HCPCS code Q9953 should be paid 

separately in CY 2006. The commenter 

indicated that the most current ASP 

data submission, which was submitted 

to CMS on July 29, 2005, showed an 

ASP for Feridex I.V., the product 

described by HCPCS code Q9953, of 

$28.68 per ml. The commenter pointed 

out that using an average dosing of 3.5 

ml per the Feridex I.V. package insert, 

the average cost per administration 

would be $100.39 for HCPCS code 

Q9953, which far exceeds the CY 2006 

OPPS $50 packaging threshold. 

Therefore, the commenter requested that 

CMS use the ASP data as reported to 

establish a CY 2006 OPPS payment 

amount for HCPCS code Q9953. 

Response: Consistent with the 

commenter’s statement, we received 

ASP data from the second quarter of CY 

2005 for HCPCS code Q9953 after the 

proposed rule was issued. For this final 

rule with comment period, we are using 

updated ASP data under the 

methodology we proposed to determine 

the packaging status for items that did 

not have any CY 2004 hospital claims 

data, and our calculation of the per day 

cost of HCPCS code Q9953 indicated 

that it is higher than $50 per day. 

Therefore, we will make separate 

payment for HCPCS code Q9953 in CY 

2006 and set payment at the rate 

determined using the ASP methodology. 

In this final rule with comment 

period, we are finalizing the proposed 

policy for determining the per 

administration cost of drugs, biologicals, 

and radiopharmaceuticals that are 

payable under the OPPS, but which do 

not have any CY 2004 claims data to 

determine their packaging status in CY 

2006. Table 27 below lists all of the 

drugs and biologicals to which this 

policy will apply in CY 2006. 

We note that in the proposed rule, we 

indicated that we are packaging HCPCS 

code 90393 (Vaccina ig, im) as we were 

unable to determine a payment rate for 

this item based on the ASP 

methodology; thus, we were also unable 

to estimate the per administration cost 

of this item, For this final rule with 

comment period, we were still not able 

to determine an ASP-based payment for 

this item to estimate its per 

administration cost. Therefore, we will 

continue to package this code in this 

final rule with comment period. 

TABLE 27.—DRUGS, BIOLOGICALS, AND RADIOPHARMACEUTICALS WITHOUT CY 2004 CLAIMS DATA

HCPCS code Description ASP-based 

payment rate 

Est. average 

number of units 

per administration 

CY 2006 

SI 

90581 ..................... Anthrax vaccine, sc ....................................................................................... $126.46 1 K 

C1093* ................... TC99M fanolesomab ..................................................................................... 1,197.00 1 H 

C9206* ................... Integra, per cm2 ............................................................................................ 10.69 19 K 

C9224 .................... Injection, galsulfase ....................................................................................... 1,522.15 14 K 

J0135 ..................... Adalimumab injection .................................................................................... 293.98 2 K 

J0190 ..................... Inj biperiden lactate/5 mg .............................................................................. 3.14 1 N 

J0200 ..................... Alatrofloxacin mesylate ................................................................................. 16.03 2 .5 N 

J0288 ..................... Ampho b cholesteryl sulfate .......................................................................... 12.00 35 K 

J0395 ..................... Arbutamine HCl injection ............................................................................... 160.00 1 K 

J1180 ..................... Dyphylline injection ........................................................................................ 8.05 8 .4 K 

J1457 ..................... Gallium nitrate injection ................................................................................. 1.25 340 K 

J3315 ..................... Triptorelin pamoate ....................................................................................... 372.86 1 K 

68668 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

TABLE 27.—DRUGS, BIOLOGICALS, AND RADIOPHARMACEUTICALS WITHOUT CY 2004 CLAIMS DATA—Continued 

HCPCS code Description ASP-based 

payment rate 

Est. average 

number of units 

per administration 

CY 2006 

SI 

J3530 ..................... Nasal vaccine inhalation ............................................................................... 15.00 1 N 

J7350 ..................... Injectable human tissue ................................................................................ 5.35 33 K 

J7674 ..................... Methacholine chloride, neb ........................................................................... 0.40 8 .875 N 

J9357 ..................... Valrubicin, 200 mg ........................................................................................ 369.60 4 K 

Q2012* ................... Pegademase bovine, 25 iu ........................................................................... 166.07 56 K 

Q2018* ................... Urofollitropin, 75 iu ........................................................................................ 48.45 2 K 

* For CY 2006, C1093, C9206, Q2012, and Q2018 are deleted and replaced with A9566, J7343, J2504, and J3355 respectively. 

Comment: One commenter requested 

that CMS clarify the coding and 

payment policies for high osmolar 

contrast medium (HOCM) that will be 

applicable during CY 2006. The 

commenter supported the proposal that 

would allow hospitals to bill and be 

paid for these agents using the recently 

assigned HCPCS codes Q9958—Q9964 

and revenue code 636. In addition, the 

commenter requested that HOCM agents 

be paid using the ASP methodology in 

CY 2006. The commenter noted that 

section 3631 of CMS’ Intermediary 

Manual currently states that ‘‘if billing 

separately, hospitals use revenue code 

255 for contrast material other than 

LOCM. To prevent confusion and the 

inappropriate denial of claims, the 

commenter further requested that CMS 

specify that hospitals should disregard 

the program manual instruction and use 

revenue code 636 and the Q-codes when 

billing for HOCM. 

Response: The HCPCS codes Q9958—

Q9964 for HOCM were created effective 

July 1, 2005. We believe that these codes 

should be paid separately according to 

the ASP methodology in CY 2006, 

similar to our policy of paying 

separately for new items in CY 2006 

because these codes had no predecessor 

codes in the OPPS and the codes 

themselves will first be recognized 

under the OPPS in CY 2006. In this final 

rule with comment period, we were able 

to determine ASP-based payment rates 

for all of the HOCM codes, except 

HCPCS code Q9959. We were unable to 

identify a product that crosswalked to 

this code; therefore, we could not 

calculate an appropriate payment for 

this code. Therefore, we are packaging 

HCPCS code Q9959 in this final rule 

with comment period. We note that if 

ASP data become available in later 

quarter submissions for this code, then 

we will pay for this code separately 

based on an appropriate payment rate. 

The ASP-based payment rates for the 

separately payable HOCM codes that are 

listed in Addenda A and B of this final 

rule with comment period are estimates 

and have not been published before as 

these codes are not currently separately 

paid in the physician office setting. In 

response to one of the commenter’s 

concerns about appropriate billing for 

HOCM, the hospitals may wish to post 

their charges for HOCM on the claim 

with the revenue code that crosswalks 

to the cost center on the hospital 

Medicare cost report where the costs for 

HOCM are reported. We note that we 

will be closely examining hospital 

claims data for HOCM codes, as for all 

drugs, biologicals, and 

radiopharmaceuticals, to assess whether 

packaging or separate payment is 

appropriate for future OPPS updates. 

C. Coding and Billing Changes for 

Specified Covered Outpatient Drugs 

1. Background 

As discussed in the January 6, 2004 

interim final rule with comment period 

(69 FR 826), we instructed hospitals to 

bill for sole source drugs using the 

existing HCPCS codes, which were 

priced in accordance with the 

provisions of section 1833(t)(14)(A)(i) of 

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

However, at that time, the existing 

HCPCS codes did not allow us to 

differentiate payment amounts for 

innovator multiple source and 

noninnovator multiple source forms of 

the drug. Therefore, effective April 1, 

2004, we implemented new HCPCS 

codes via Program Transmittal 112 

(Change Request 3144, February 27, 

2004) and Program Transmittal 132 

(Change Request 3154, March 30, 2004) 

that providers were instructed to use to 

bill for innovator multiple source drugs 

in order to receive appropriate payment 

in accordance with section 

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

instructed providers to continue to use 

the existing HCPCS codes to bill for 

noninnovator multiple source drugs to 

receive payment in accordance with 

section 1833(t)(14)(A)(i)(III) of the Act. 

These coding policies allowed hospitals 

to appropriately code for drugs, 

biologicals, and radiopharmaceuticals 

based on their classification and to be 

paid accordingly. We continued this 

coding practice in CY 2005 with 

payment made in accordance with 

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

2. CY 2006 Payment Policy 

In the CY 2006 OPPS proposed rule, 

we proposed to base the payment rates 

for drugs and biologicals and their 

pharmacy overhead costs on the ASP 

methodology that is used to set payment 

rates for these items in the physician 

office setting. Under this methodology, 

a single payment rate for the drug is 

calculated by considering the prices for 

both the innovator multiple source 

(brand) and noninnovator multiple 

source (generic) forms of the drug. 

Therefore, under the OPPS, we noted in 

the proposed rule that we believed that 

there was no longer a need to 

differentiate between the brand and 

generic forms of a drug. Thus, we 

proposed to discontinue use of the Ccodes that were created to represent the 

innovator multiple source drugs. In CY 

2006, hospitals would use the HCPCS 

codes for noninnovator multiple source 

(generic) drugs to bill for both the brand 

and generic forms of a drug as they did 

prior to implementation of section 

1833(t)(14)(A) in Pub. L. 108–173. We 

specifically requested comments on this 

proposed policy. 

We received a few public comments 

concerning this proposal. 

Comment: Several commenters 

supported the proposal to eliminate the 

use of the brand name drug C-codes in 

CY 2006 as there was no longer a need 

to distinguish between innovator (brand 

name) and noninnovator (generic) 

multiple source drugs. The commenters 

indicated that this policy will reduce 

the administrative burden of 

maintaining and reporting separate 

HCPCS codes for both generic and brand 

name drugs. However, some 

commenters pointed out that the 

availability of these drugs varies in the 

marketplace, and they asked CMS to 

clarify how it determines a single ASP 

payment for both brand and generic 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68669 

drugs to ensure that the calculated APC 

payment accurately reflects the 

combined cost of both brand and 

generic forms of the drug. One 

commenter also requested that CMS 

clarify whether the ASP is based on the 

volume of brand versus generic drugs 

purchased by providers during a given 

quarter. 

Response: Section 1847A(b)(3) of the 

Act specifies that the payment amount 

for multiple source drugs is the volumeweighted average of the ASPs reported 

by the manufacturers of the NDCs 

assigned to the billing HCPCS code. The 

computation is weighted by the number 

of units sold during the reporting 

period. As availability of products 

changes in the marketplace, changes in 

purchasing patterns will be reported in 

the ASP data. For further discussion of 

the methodology used to determine the 

ASP-based payment amounts, see the 

related ‘‘Frequently Asked Question’’ at 

http://questions.cms.hhs.gov. This issue 

is also addressed in the CY 2006 

Medicare Physician Fee Schedule final 

rule. 

For CY 2006, we are finalizing our 

proposal to discontinue use of the Ccodes that were created to represent the 

innovator multiple source drugs, and 

note that hospitals are to use the HCPCS 

codes for noninnovator multiple source 

(generic) drugs to bill for both the brand 

and generic forms of a drug. 

D. Payment for New Drugs, Biologicals, 

and Radiopharmaceuticals Before 

HCPCS Codes Are Assigned 

1. Background 

Historically, hospitals have used a 

HCPCS code for an unlisted or 

unclassified drug, biological, or 

radiopharmaceutical or used an 

appropriate revenue code to bill for 

drugs, biologicals, and 

radiopharmaceuticals furnished in the 

outpatient department that do not have 

an assigned HCPCS code. The codes for 

not otherwise classified drugs, 

biologicals, and radiopharmaceuticals 

are assigned packaged status under the 

OPPS. That is, separate payment is not 

made for the code, but charges for the 

code would be eligible for an outlier 

payment and, in future OPPS updates, 

the charges for the code are packaged 

with the separately payable service with 

which the code is reported for the same 

date of service. 

Drugs and biologicals that are newly 

approved by the FDA and for which a 

HCPCS code has not yet been assigned 

by the National HCPCS Alpha-Numeric 

Workgroup could qualify for passthrough payment under the OPPS. An 

application must be submitted to CMS 

in order for a drug or biological to be 

assigned pass-through status, a 

temporary C-code assigned for billing 

purposes, and an APC payment amount 

determined. Pass-through applications 

are reviewed on a flow basis, and 

payment for drugs and biologicals 

approved for pass-through status is 

implemented throughout the year as 

part of the quarterly updates of the 

OPPS. 

2. CY 2006 Payment Policy 

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

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

108–173, provides for payment for new 

drugs and biologicals until HCPCS 

codes are assigned under the OPPS. 

Under this provision, we are required to 

make payment for an outpatient drug or 

biological that is furnished as part of 

covered outpatient hospital services but 

for which a HCPCS code has not yet 

been assigned in an amount equal to 95 

percent of AWP. This provision applies 

only to payments made under the OPPS 

on or after January 1, 2004. 

As noted in the proposed rule (70 FR 

42733), we initially adopted the 

methodology for determining payment 

under section 1833(t)(15) of the Act on 

an interim basis on May 28, 2004, via 

Transmittal 188, Change Request 3287, 

and finalized the methodology for CY 

2005 in our CY 2005 OPPS final rule 

with comment period. In that final rule 

with comment period, we also 

expanded the methodology to include 

payment for new radiopharmaceuticals 

to which a HCPCS code is not assigned 

(69 FR 65804 through 65807). We 

instructed hospitals to bill for a drug or 

biological that is newly approved by the 

FDA by reporting the NDC for the 

product along with new HCPCS code 

C9399 (Unclassified drug or biological). 

When HCPCS code C9399 appears on a 

claim, the OCE suspends the claim for 

manual pricing by the fiscal 

intermediary. The fiscal intermediary 

prices the claim at 95 percent of its 

AWP using the Red Book or an 

equivalent recognized compendium, 

and processes the claim for payment. 

This approach enables hospitals to bill 

and receive payment for a new drug, 

biological, or radiopharmaceutical 

concurrent with its approval by the 

FDA. The hospital does not have to wait 

for the next OPPS quarterly release or 

for approval of a product-specific 

HCPCS code to receive payment for a 

newly approved drug, biological, or 

radiopharmaceutical. In addition, the 

hospital does not have to resubmit 

claims for adjustment. Hospitals 

discontinue billing HCPCS code C9399 

and the NDC upon implementation of a 

HCPCS code, status indicator, and 

appropriate payment amount with the 

next OPPS quarterly update. 

For CY 2006, we proposed to continue 

the same methodology for paying for 

new drugs, biologicals, and 

radiopharmaceuticals without HCPCS 

codes. We received a few public 

comments in response to our proposal. 

Comment: Several commenters 

supported CMS’ proposal to pay for new 

drugs prior to the assignment of a 

HCPCS code at an amount equal to 95 

percent of the drug’s AWP and 

reiterated that the AWP should 

correspond to the payment rate 

established by the fiscal intermediaries 

using the Red Book or an equivalent 

recognized compendium. One 

commenter noted that this policy allows 

providers to receive payment for newer 

drugs in a timely fashion. 

Response: We appreciate the 

commenters’ support for the 

continuation of our policy to pay for 

new drugs, biologicals, and 

radiopharmaceuticals without HCPCS 

codes at 95 percent of AWP. For CY 

2006, we are finalizing our proposed 

methodology, without modification. 

E. Payment for Vaccines 

Outpatient hospital departments 

administer large numbers of 

immunizations for influenza (flu) and 

pneumococcal pneumonia (PPV), 

typically by participating in 

immunization programs. In recent years, 

the availability and cost of some 

vaccines (particularly the flu vaccine) 

have fluctuated considerably. As 

discussed in the November 1, 2002 final 

rule (67 FR 66718), we were advised by 

providers that the OPPS payment was 

insufficient to cover the costs of the flu 

vaccine and that access of Medicare 

beneficiaries to flu vaccines might be 

limited. They cited the timing of 

updates to the OPPS rates as a major 

concern. They indicated that our update 

methodology, which uses 2-year-old 

claims data to recalibrate payment rates, 

would never be able to take into account 

yearly fluctuations in the costs of the flu 

vaccine. We agreed with this concern 

and decided to pay hospitals for 

influenza and pneumococcal 

pneumonia vaccines based on a 

reasonable cost methodology. As a 

result of this change, hospitals, home 

health agencies (HHAs), and hospices, 

which were paid for these vaccines 

under the OPPS in CY 2002, have been 

receiving payment at reasonable cost for 

these vaccines since CY 2003. 

Influenza, pneumococcal, and 

hepatitis B vaccines and their 

administration are specifically covered 

by Medicare under section 1861(s)(10) 

of the Act. For CY 2006, we proposed 

68670 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

to continue to pay influenza and 

pneumococcal vaccines at reasonable 

cost. However, hepatitis B vaccines have 

been paid under clinical APCs that also 

included other vaccines. For CY 2006, 

we proposed to pay for all hepatitis B 

vaccines at reasonable cost, consistent 

with the payment methodology for 

influenza and pneumococcal vaccines. 

Influenza and pneumococcal vaccines 

are exempt from coinsurance and 

deductible payments under sections 

1833(a)(3) and 1833(b) of the Act and 

have been assigned status indicator ‘‘L’’. 

However, hepatitis B vaccines have no 

similar coinsurance or deductible 

exemption. Therefore, we proposed to 

assign these items status indicator ‘‘F’’. 

Previously under the OPPS, 

separately payable vaccines other than 

influenza and pneumococcal were 

grouped into clinical APCs 0355 (Level 

I Immunizations) and 0356 (Level II 

Immunizations) for payment purposes. 

Payment rates for these APCs were 

based on the APCs’ median costs, 

calculated from the costs of all of the 

vaccines grouped within the APCs. For 

CY 2006, we proposed to pay for each 

separately payable vaccine under its 

own APC, consistent with our policy for 

separately payable drugs other than 

vaccines, instead of aggregating them 

into clinical APCs with other vaccines. 

We believed this policy would allow us 

to more appropriately establish a 

payment rate for each separately 

payable vaccine based on the ASP 

methodology. Proposed and final policy 

changes to coding and payments for the 

administration of these vaccines are 

discussed in section VIII.C. of this 

preamble. 

During the August 2005 meeting of 

the APC Panel, the Panel recommended 

that CMS change the status indicator for 

CPT code 90660, intranasal influenza 

vaccine, to ‘‘L,’’ and that the code be 

reimbursed on a reasonable-cost basis. 

As discussed below, we accepted this 

recommendation. 

We specifically requested comments 

on our proposed vaccine policies for CY 

2006. We received several public 

comments concerning our proposal. 

Comment: All commenters supported 

CMS’ proposal to continue to pay for 

influenza and pneumococcal 

pneumonia vaccines based on 

reasonable cost. One commenter 

believed that payment based on 

reasonable cost helps to ensure that 

hospitals are adequately paid for 

providing these vaccines. 

Response: We appreciate the 

commenters’ continued support of our 

policy. We are finalizing our proposal to 

pay for influenza and pneumococcal 

pneumonia vaccines at reasonable cost 

for CY 2006 in this final rule with 

comment period. We did not receive 

any comments on our proposals to also 

pay for Hepatitis B vaccines at 

reasonable cost and pay for each 

separately payable vaccine under its 

own APC. For CY 2006, we are also 

finalizing these two proposals. 

Comment: Several commenters noted 

that CMS assigned CPT code 90660 

(Intranasal influenza vaccine) status 

indicator ‘‘E,’’ indicating that Medicare 

does not cover the item, does not 

recognize it, or does not provide 

separate payment for it. The 

commenters urged CMS to implement 

the APC Panel’s recommendation to pay 

for CPT code 90660 on a reasonable cost 

basis and exempt this code from 

coinsurance and deductible, similar to 

all other influenza vaccines. 

Response: We agree with the 

commenters that our proposal to pay 

influenza vaccines at reasonable cost 

should also apply to CPT code 90660. 

Therefore, CPT code 90660 will be paid 

at reasonable cost and assigned to status 

indicator ‘‘L’’ in CY 2006, similar to all 

other influenza vaccines. 

F. Changes in Payment for Single 

Indication Orphan Drugs 

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

gives the Secretary the authority to 

designate the hospital outpatient 

services to be covered. The Secretary 

has specified coverage for certain drugs 

as orphan drugs (section 

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

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

108–173). Section 1833 (t)(14)(C) of the 

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

Pub. L. 108–173, gives the Secretary the 

authority in CYs 2004 and 2005 to 

specify the amount of payment for an 

orphan drug that has been designated as 

such by the Secretary. 

In the CY 2006 OPPS proposed rule 

(70 FR 42733), we indicated that we 

recognized that orphan drugs that are 

used solely for an orphan condition or 

conditions are generally expensive and, 

by definition, are rarely used. We 

believed that if the costs of these drugs 

were packaged into the payment for an 

associated procedure or visit, the 

payment for the procedure might be 

insufficient to compensate a hospital for 

the typically high costs of this special 

type of drug. Therefore, we proposed to 

continue paying for them separately. 

In the November 1, 2002 final rule (67 

FR 66772), we identified 11 single 

indication orphan drugs that are used 

solely for orphan conditions by 

applying the following criteria: 

• The drug is designated as an orphan 

drug by the FDA and approved by the 

FDA for treatment of only one or more 

orphan condition(s). 

• The current United States 

Pharmacopoeia Drug Information 

(USPDI) shows that the drug has neither 

an approved use nor an off-label use for 

other than the orphan condition(s). 

Eleven single indication orphan drugs 

were identified as having met these 

criteria and payments for these drugs 

were made outside of the OPPS on a 

reasonable cost basis. 

In the November 7, 2003 final rule 

with comment period (68 FR 63452), we 

discontinued payment for orphan drugs 

on a reasonable cost basis and made 

separate payments for each single 

indication orphan drug under its own 

APC. Payments for the orphan drugs 

were made at 88 percent of the AWP 

listed for these drugs in the April 1, 

2003 single drug pricer, unless we were 

presented with verifiable information 

that showed that our payment rate did 

not reflect the price that was widely 

available to the hospital market. For CY 

2004, Ceredase (alglucerase) and 

Cerezyme (imiglucerase) were paid at 94 

percent of the AWP because external 

data submitted by commenters on the 

August 12, 2003 proposed rule caused 

us to believe that payment at 88 percent 

of the AWP would be insufficient to 

ensure beneficiaries’ access to these 

drugs. 

In the December 31, 2003 correction 

of the November 7, 2003 final rule with 

comment period (68 FR 75442), we 

added HCPCS code J9017 (Arsenic 

trioxide, 1 mg) to our list of single 

indication orphan drugs. In the 

November 15, 2004 final rule with 

comment period (69 FR 65807), we 

retained the same criteria for identifying 

single indication orphan drugs and 

added two HCPCS codes to our list, 

HCPCS code C9218 (Injection, 

Azactidine, per 1 mg) and HCPCS code 

J9010 (Alemtuzumab, 10 mg) (69 FR 

65808). As of CY 2005, the following are 

the 14 orphan drugs that we have 

identified as meeting our criteria: 

HCPCS code C9218 (Injection, 

Azactidine, per 1 mg); HCPCS code 

J0205 (Injection, Alglucerase, per 10 

units); HCPCS code J0256 (Injection, 

Alpha 1-proteinase inhibitor, 10 mg); 

HCPCS code J9300 (Gemtuzumab 

ozogamicin, 5mg); HCPCS code J1785 

(Injection, Imiglucerase, per unit); 

HCPCS code J2355 (Injection, 

Oprelvekin, 5 mg); HCPCS code J3240 

(Injection, Thyrotropin alpha, 0.9 mg); 

HCPCS code J7513 (Daclizumab, 

parenteral, 25 mg); HCPCS code J9010 

(Alemtuzumab, 10 mg); HCPCS code 

J9015 (Aldesleukin, per single use vial); 

HCPCS code J9017 (Arsenic trioxide, 1 

mg); HCPCS code J9160 (Denileukin 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68671 

diftitox, 300 mcg); HCPCS code J9216 

(Interferon, gamma 1-b, 3 million units); 

and HCPCS code Q2019 (Injection, 

Basiliximab, 20 mg). 

In the November 15, 2004 final rule 

with comment period (69 FR 65808), we 

stated that had we not classified these 

drugs as single indication orphan drugs 

for payment under the OPPS, they 

would have met the definition of single 

source specified covered outpatient 

drugs and received lower payments, 

which could have impeded beneficiary 

access to these unique drugs dedicated 

to the treatment of rare diseases. 

Instead, for CY 2005, under our 

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

Act, we set payment for all 14 single 

indication orphan drugs at the higher of 

88 percent of the AWP or the ASP+6 

percent. For CY 2005, we also updated 

on a quarterly basis the payment rates 

through comparison of the most current 

ASP and AWP information available to 

us. Given that CY 2005 was the first year 

of mandatory ASP reporting by 

manufacturers, we did not want 

potential significant fluctuations in the 

ASPs to affect payments to hospitals 

furnishing these drugs, which in turn 

might cause access problems for 

beneficiaries. Therefore, in the 

November 15, 2004 final rule, we did 

not implement the proposed 95 percent 

AWP cap on payments for single 

indication orphan drugs, which was 

described in the August 16, 2004 

proposed rule (69 FR 50518), as we 

intended to monitor the impact of our 

payment policy and consider the need 

for a cap in future OPPS updates if 

appropriate (69 FR 65809). 

As indicated in the proposed rule (70 

FR 42734), as a part of the GAO study 

on hospital acquisition costs of 

specified covered outpatient drugs, the 

GAO provided the average hospital 

purchase prices for four orphan drugs: 

HCPCS code J0256 (Injection, Alpha 1- 

proteinase inhibitor, 10 mg), HCPCS 

code J1785 (Injection, Imiglucerase, per 

unit), HCPCS code J9160 (Denileukin 

difitox, 300 mcg), and HCPCS code 

J9010 (Alemtuzumab, 10 mg). 

For alpha 1-proteinase inhibitor 

(HCPCS code J0256), the hospitals in the 

study sample represented only about 14 

percent of the estimated total number of 

hospitals purchasing the drug. The 

mean hospital purchase price was about 

73 percent of the payment rate based on 

ASP+6 percent rate and about 63 

percent of the CY 2005 payment rate 

updated in April 2005. We noted in the 

proposed rule (70 FR 42734) that we 

believed the GAO acquisition data for 

alpha 1-proteinase inhibitor were likely 

not representative of hospital 

acquisition costs for the drug because 

the number of hospitals providing data 

was so small compared to the total 

number of hospitals expected to utilize 

the drug. Furthermore, we recognized 

that the GAO data on hospital drug 

acquisition costs did not reflect the 

current acquisition costs experienced by 

hospitals but instead, relied on past cost 

data from late CY 2003 through early CY 

2004. On the other hand, we stated that 

the ASP data were more current and 

thus were likely more reflective of 

hospital acquisition costs for alpha 1- 

proteinase inhibitor at the time of 

issuance of the CY 2006 proposed rule. 

In contrast to the GAO data for alpha 

1-proteinase inhibitor, the GAO data for 

imiglucerase (HCPCS code J1785) 

reflected hospital purchase prices from 

about 69 percent of the hospitals 

expected to utilize the drug. For this 

drug, the mean hospital purchase price 

was about 93 percent of the CY 2005 

payment rate for imiglucerase updated 

in April 2005, which was based on 

ASP+6 percent rate. Thus, the ASPbased payment rate also appeared to be 

appropriately reflective of hospital 

acquisition costs for imiglucerase, and 

to be consistent with the GAO mean 

purchase price. 

For denileukin difitox (HCPCS code 

J9160) and alemtuzumab (HCPCS code 

J9010), the GAO data for these drugs 

reflected hospital purchase prices from 

about 77 percent and 66 percent of the 

hospitals expected to acquire these 

drugs, respectively. The mean hospital 

purchase price for denileukin difitox 

was about 94 percent of the payment 

rate based on the ASP+6 percent rate 

and about 79 percent of the CY 2005 

payment rate. As for alemtuzumab, the 

mean hospital purchase price was about 

95 percent of the payment rate based on 

the ASP+6 percent rate and about 89 

percent of the CY 2005 payment rate. 

For both of these drugs, the ASP-based 

payment rates also appeared to be 

appropriately reflective of their hospital 

acquisition costs, based on confirmation 

by the GAO average purchase price data 

from over two-thirds of the hospitals 

expected to acquire the drugs. 

During the quarterly updates to 

payment rates for single indication 

orphan drugs for CY 2005, we observed 

significant improvement in the accuracy 

and consistency of manufacturers’

reporting of the ASPs for these orphan 

drugs. Overall, we found that the ASPs 

as compared to the AWPs were less 

likely to experience dramatic 

fluctuations in prices from quarter to 

quarter. We indicated in the proposed 

rule that we expected that as the ASP 

system continues to mature, 

manufacturers will further refine their 

quarterly reporting, leading to even 

greater stability and accuracy in their 

reporting of sales prices. As the ASPs 

reflect the average sales prices to all 

purchasers, the ASP data also include 

drug sales to hospitals. Past commenters 

have indicated to us that some orphan 

drugs are administered principally in 

hospitals, and to the extent that this is 

true their ASPs should predominantly 

be based upon the sales of drugs used 

by hospitals. For three of the orphan 

drugs for which the GAO provided 

average purchase prices from a large 

percentage of hospitals expected to 

acquire the drugs, the GAO data were 

very consistent with the ASP+6 percent. 

For the fourth drug, the GAO mean was 

significantly lower than the ASP+6 

percent and the confidence interval 

around that mean was quite tight, 

although only a small proportion of 

hospitals expected to acquire the drug 

reported their purchase prices. Thus, in 

the proposed rule, we stated that we 

believed that proposing to pay for 

orphan drugs based on an ASP 

methodology was appropriate for the CY 

2006 OPPS and should assure patients’

continued access to these orphan drugs 

in the hospital outpatient department. 

Therefore, for CY 2006, we proposed to 

pay for single indication orphan drugs 

at the ASP+6 percent. 

We believed that paying for orphan 

drugs using the ASP methodology was 

consistent with our proposed general 

drug payment policy for other 

separately payable drugs and biologicals 

in the CY 2006 and reflected our general 

view that ASP-based payment rates 

serve as the best proxy for the average 

acquisition cost for these items as 

described in this section V. of the 

preamble. In addition, we proposed to 

pay an additional 2 percent of the ASP 

scaled for budget neutrality to cover the 

handling costs of these drugs, also 

consistent with our proposed general 

pharmacy overhead payment policy for 

handling costs associated with 

separately payable drugs and 

biologicals. We believed that the ASP+6 

percent for orphan drugs would provide 

appropriate payment for hospital 

acquisition costs for these drugs that are 

administered by a relatively small 

number of providers, so that patients 

would continue to have access to 

orphan drugs in the hospital outpatient 

setting. Hospitals would also receive 

additional payments for costs associated 

with their storage, handling, and 

preparation of orphan drugs. We 

proposed to update the payment rates 

on a quarterly basis to reflect the most 

current ASPs available to us, and we 

also noted that appropriate adjustments 

to the payment amounts shown in 

68672 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

Addendum A and B of this final rule 

with comment period would be made if 

the ASP submissions in a later quarter 

indicated that adjustments to the 

payment rates were necessary. (70 FR 

42735) These changes to the Addenda 

would be announced in our program 

instructions released on a quarterly 

basis and posted on our Web site at 

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

We specifically requested comments 

on our proposed payment policy for 

single indication orphan drugs in CY 

2006. We received several public 

comments regarding our proposal. 

Comment: One commenter indicated 

that, under the proposed payment 

policy for orphan drugs, it did not 

anticipate access problems generally for 

orphan drugs that will be used in the 

hospital outpatient setting in CY 2006. 

However, the commenter also stated 

that orphan drugs should be given 

special consideration as a class and 

recommended that CMS adopt the 

definition of ‘‘orphan drugs’’ used in the 

Food, Drug, and Cosmetics Act for 

purposes of identifying drugs and 

biologicals that are treatments for rare 

diseases. The commenter further 

recommended that CMS establish an 

evaluation process to determine which 

orphan products may need special 

status or assistance to assure access. For 

example, the commenter suggested that 

CMS accept orphan products designated 

by the FDA as a valid class for initial 

consideration; develop prospective 

criteria to determine which orphan 

drugs should not be part of this class; 

work with stakeholders to identify any 

access problems that may occur or are 

likely to occur in the near future; and 

provide patients and pharmaceutical 

companies an opportunity to present 

data and receive a written explanation 

with examples before making a final 

decision that an orphan drug access 

problem exists. 

Response: As we stated in the CY 

2005 final rule with comment period (69 

FR 65808), using the statutory authority 

in section 1833(t)(1)(B)(i) of the Act, 

which gives the Secretary broad 

authority to designate covered OPD 

services under the OPPS, we have 

established criteria which distinguish 

single indication orphan drugs from 

other drugs designated as orphan drugs 

by the FDA under the Orphan Drug Act. 

Our determination to provide special 

payment for these drugs in previous 

years neither affected nor deviated from 

FDA’s classification of any drugs as 

orphan drugs. The special treatment 

given to this subset of FDA-designated 

orphan drugs was intended to ensure 

that beneficiaries had continued access 

to these life-saving therapies given that 

these drugs have a relatively low 

volume of patient use, lack any other 

nonorphan indication, and are typically 

very costly. We will consider the 

recommendation to establish an 

evaluation process to determine future 

changes to the OPPS orphan drug list 

and the payment rates for these drugs. 

Based on our analysis of the ASP rates 

using data from the fourth quarter of CY 

2004 and the GAO reported mean 

purchase prices for four orphan drugs, 

we stated in the proposed rule (70 FR 

42735) that we believed proposing to 

pay for orphan drugs using the ASP 

methodology at a payment rate of 

ASP+6 percent is appropriate for the CY 

2006 OPPS and should ensure patients’

continued access to these orphan drugs 

in the hospital outpatient department. 

Using updated ASP data reported from 

the second quarter of CY 2005, we 

found that our current analysis is 

consistent with the results we found for 

the proposed rule. As indicated in the 

proposed rule, we believe that paying 

for orphan drugs using the ASP 

methodology is consistent with our CY 

2006 final drug payment policy for other 

separately payable drugs and biologicals 

and reflects our general view that ASPbased payment rates serve as the best 

proxy for the average acquisition costs 

for these items as described earlier in 

this preamble. 

Earlier in the preamble, we indicated 

that in CY 2006, we are basing payment 

for the average acquisition and overhead 

costs for other separately payable drugs 

and biologicals on ASP+6 percent 

because, in part, both the acquisition 

and pharmacy overhead costs are 

reflected in the charges submitted by 

hospitals for these items. In this final 

rule with comment period, we made 

this determination using updated ASP 

data, hospital claims data, and CCRs. 

We believe that the same observation is 

true for single indication orphan drugs, 

as we do not have any reason to believe 

that hospitals would include their 

acquisition and overhead costs in the 

charges for other separately payable 

drugs and biologicals, but would not 

follow the same charging practice when 

billing for single-indication orphan 

drugs. Therefore, we believe that in CY 

2006, a combined payment rate of 

ASP+6 percent will be sufficient and 

appropriate for both the acquisition and 

overhead costs related to providing 

single-indication drugs to hospital 

outpatients. Accordingly, in this final 

rule with comment period, we are 

adopting the policy of paying for orphan 

drugs separately at ASP+6 percent, 

which represents a combined payment 

for the acquisition and overhead costs 

associated with furnishing these 

products. We note that this policy will 

no longer differentiate how we pay for 

orphan drugs based on the use of the 

drugs because all orphan drugs, both 

single-indication and multi-indication, 

will be paid under the same 

methodology. 

For this CY 2006 OPPS final rule with 

comment period, we are using payment 

rates for single-indication orphan drugs 

based on ASP data from the second 

quarter of CY 2005, which are effective 

in the physician office setting on 

October 1, 2005, because these are the 

most recent numbers available for the 

development of this rule. To be 

consistent with the ASP-based 

payments that would be made when 

these drugs and biologicals are 

furnished in physician offices, as 

proposed, we plan to make any 

appropriate adjustments to the amounts 

shown in Addenda A and B to this final 

rule with comment period for these 

items on a quarterly basis as more recent 

ASP data become available. Changes in 

the APC payment rates for these items 

will be posted on our Web site during 

each quarter of CY 2006. Therefore, 

effective January 1, 2006, we will base 

payment rates for single-indication 

orphan drugs on ASP data from the 

third quarter of CY 2005, which will 

also be the basis for setting payment 

rates for drugs and biologicals in the 

physician office setting effective January 

1, 2006. 

Comment: One commenter indicated 

that payment at ASP+6 percent is 

inadequate for HCPCS code J9160 

(Denileukin diftitox, 300 mcg) because 

the methodology has resulted in access 

issues for patients in the physician 

office setting, which influenced the shift 

of patients from physician offices to 

hospital outpatient sites. As CMS 

proposed to use the same methodology 

to establish payment rates in the 

hospital outpatient setting, the 

commenter is concerned that the 

consequence will be that patients will 

be left with no access to this biological. 

The commenter noted that the GAO data 

that supported the belief that the 

median purchase price for hospitals was 

almost exactly the same as the WAC 

price for this item for CY 2003. 

Therefore, the commenter 

recommended that CMS consider a 

temporary payment rate for one year 

that is closer to the actual hospital 

acquisition cost such as WAC or 

implement some other special 

methodology to ensure appropriate 

payment for this product in CY 2006. 

The commenter also indicated that an 

additional payment amount of 2 percent 

of the ASP for handling costs associated 

with this biological is inadequate and 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68673 

requested a higher handling rate for a 

special class of products, like 

denileukin diftitox, that require special 

handling. 

Response: As we stated in the 

proposed rule, the GAO data for 

denileukin difitox reflected hospital 

purchase prices from about 77 percent 

of the hospitals expected to acquire 

these drugs. The mean hospital 

purchase price from the GAO study for 

denileukin difitox was about 91 percent 

of the ASP+6 percent payment rate 

based on data from the second quarter 

of CY 2005 and about 79 percent of the 

CY 2005 payment rate. We continue to 

believe in this final rule with comment 

period that the ASP-based payment rate 

for this drug appears to be appropriately 

reflective of its hospital acquisition 

costs, based on confirmation by the 

GAO average purchase price data from 

over three-fourths of the hospitals 

expected to acquire the drug. Moreover, 

as stated previously, we believe that like 

for other single-indication orphan drugs 

and other separately payable drugs and 

biologicals, a combined payment of 

ASP+6 percent in CY 2006 for this drug 

is adequate to cover both its acquisition 

and pharmacy overhead costs. 

We received two public comments on 

the proposed payment rate for HCPCS 

code J0256. 

Comment: One commenter indicated 

that HCPCS code J0256 described three 

alpha 1-augmentation therapies 

currently available and urged CMS to 

recognize the critical importance of the 

access issues surrounding these 

therapies. Therefore, the commenter 

recommended that in CY 2006 CMS set 

the payment rate for HCPCS code J0256 

at the higher of the CY 2005 fourth 

quarter payment rate or the proposed 

ASP+8 percent rate. The commenter 

added that setting a floor should 

provide access to all three therapies, 

which is critical because there is not a 

sufficient supply of any of the alpha 1- 

proteinase inhibitors to supply all 

patients for whom the therapy has been 

prescribed. Another commenter 

recommended that CMS establish 

brand-specific codes and payment rates 

for the different products described by 

HCPCS code J0256; synchronize 

operationally the lag time between the 

manufacturers’ ASP reporting and CMS’

posting of the updated ASP payment 

rates on its Web site so that such 

changes are implemented at the same 

time for drugs paid under the OPPS and 

those paid under the physician fee 

schedule; and consider a proxy add-on 

payment to cover the overhead costs 

associated with these drugs. 

Response: As discussed earlier in this 

preamble and noted in the proposed 

rule, we believe the GAO acquisition 

data for alpha 1-proteinase inhibitor are 

likely not representative of hospital 

acquisition costs for the drug because 

the number of hospitals providing data 

is so small compared to the total 

number of hospitals expected to use the 

drug. Moreover, the GAO data relied on 

past hospital cost information from late 

CY 2003 through early CY 2004. As 

previously stated, the ASP data are more 

current, and thus are likely more 

reflective of present hospital acquisition 

costs for alpha 1-proteinase inhibitor. 

We continue to believe this to be true, 

and therefore, based on rationale cited 

above, in CY 2006, we will pay for all 

single-indication orphan drugs, 

including alpha 1-proteinase inhibitor, 

at a rate of ASP+6 percent for both the 

acquisition and overhead costs 

associated with these items. We find no 

reason to establish a payment floor for 

alpha 1-proteinase inhibitor that is 

related to the CY 2005 payment rates, 

when we have more current ASP data 

available that reflect current market 

prices. 

With respect to establishing brandspecific HCPCS codes for the different 

products described by HCPCS code 

J0256, we suggest that the commenter 

pursue these changes through the 

process set up by the National HCPCS 

Panel to establish HCPCS codes. Lastly, 

we note that in CY 2006 there will not 

be a lag in the implementation of the 

ASP-based payment rates for the OPPS 

and the physician fee schedule. As 

noted earlier, effective January 1, 2006, 

we will base payment rates for singleindication orphan drugs on ASP data 

from the third quarter of CY 2005, 

which will also be the basis for setting 

payment rates for drugs and biologicals 

in the physician office setting effective 

January 1, 2006. We note that HCPCS 

codes C9128 and Q201 have been 

deleted effective December 31, 2005 and 

replaced with HCPCS codes J9025 and 

J0480, respectively, in CY 2006. 

VI. Estimate of Transitional PassThrough Spending in CY 2006 for 

Drugs, Biologicals, and Devices 

A. Total Allowed Pass-Through 

Spending 

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’’ of projected 

total Medicare and beneficiary 

payments under the hospital OPPS. For 

a year before CY 2004, the applicable 

percentage was 2.5 percent; for CY 2005 

and subsequent years, we specify the 

applicable percentage up to 2.0 percent. 

If we estimate before the beginning of 

the calendar year that the total amount 

of pass-through payments in that year 

would exceed the applicable percentage, 

section 1833(t)(6)(E)(iii) of the Act 

requires a uniform reduction in the 

amount of each of the transitional passthrough payments made in that year to 

ensure that the limit is not exceeded. 

We make an estimate of pass-through 

spending to determine not only whether 

payments exceed the applicable 

percentage, but also to determine the 

appropriate reduction to the conversion 

factor for the projected level of passthrough spending in the following year. 

As stated in the proposed rule, 

making an estimate of pass-through 

spending for devices in CY 2006 entails 

estimating spending for two groups of 

items (70 FR 42735). The first group 

consists of those items for which we 

have claims data for procedures that we 

believe used devices that were eligible 

for pass-through status in CY 2004 and 

CY 2005 and that would continue to be 

eligible for pass-through payment in CY 

2006. The second group consists of 

those items for which we have no direct 

claims data, that is, items that became, 

or would become, eligible in CY 2005 

and would retain pass-through status in 

CY 2006, as well as items that would be 

newly eligible for pass-through payment 

beginning in CY 2006. 

B. Estimate of Pass-Through Spending 

for CY 2006 

As we proposed, in this final rule 

with comment period, we are setting the 

applicable percentage cap at 2.0 percent 

of the total OPPS projected payments for 

CY 2006. As we discuss in section IV.C. 

of this preamble, the three remaining 

device categories receiving pass-through 

payment in CY 2005 will expire on 

December 31, 2005. Therefore, we 

estimate pass-through spending 

attributable to the first group of items 

described above to equal zero. 

To estimate CY 2006 pass-through 

spending for device categories in the 

second group, that is, items for which 

we have no direct claims data, as we 

proposed, in this final rule with 

comment period, we used the following 

approach: For additional device 

categories that are approved for passthrough status after July 1, 2005, but 

before January 1, 2006, we used price 

information from manufacturers and 

volume estimates based on claims for 

procedures that would most likely use 

the devices in question because we did 

not have any CY 2004 claims data upon 

which to base a spending estimate. We 

projected these data forward to CY 2006 

68674 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

using inflation and utilization factors 

based on total growth in OPPS services 

as projected by CMS’ Office of the 

Actuary (OACT) to estimate CY 2006 

pass-through spending for this group of 

device categories. For device categories 

that become eligible for pass-through 

status in CY 2006, we used the same 

methodology. We anticipated that any 

new categories for January 1, 2006, 

would be announced after the 

publication of the proposed rule, but 

before publication of this final rule with 

comment period. Therefore, as indicated 

in the proposed rule (70 FR 42735), the 

estimate of pass-through spending in 

this final rule with comment period 

incorporates any pass-through spending 

for device categories made effective 

January 1, 2006, and during subsequent 

quarters of CY 2006. 

We did not announce pass-through 

status for any new device categories 

after July 1, 2005. There is one new 

device category that we may add for 

pass-through payment as of January 1, 

2006. To estimate CY 2006 pass-through 

spending for items for which we have 

no direct claims data, we are adhering 

to the methodology, as specified above, 

for estimating pass-through spending for 

the second group of items, with a 

refinement to the growth factor. That is, 

we are projecting forward to CY 2006 

the OPPS volume of the procedure 

utilizing devices that could fall into the 

potential new device category at a 

higher rate of increase than the total rate 

of growth in OPPS services as projected 

by the OACT. The rate of growth of this 

relatively new procedure in the OPPS 

claims data from recent years is several 

times the overall growth rate of all OPPS 

services. 

With respect to CY 2006 pass-through 

spending for drugs and biologicals, as 

we noted in the proposed rule (70 FR 

42735) and as explained in section 

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

period, the pass-through payment 

amount for new drugs and biologicals 

that we determine have pass-through 

status will equal zero. Therefore, our 

estimate of pass-through spending for 

drugs and biologicals with pass-through 

status in CY 2006 equals zero. 

In the CY 2005 final rule with 

comment period (69 FR 65810), we 

indicated that we are accepting passthrough applications for new 

radiopharmaceuticals that are assigned a 

HCPCS code on or after January 1, 2005. 

The pass-through amount for new 

radiopharmaceuticals approved for 

pass-through status in CY 2005 is the 

difference between the OPPS payment 

for the radiopharmaceutical, that is, the 

payment amount determined for the 

radiopharmaceutical as a sole source 

specified covered drug, and the 

payment amount for the 

radiopharmaceutical under section 

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

new radiopharmaceuticals that were 

added for pass-through payment in CY 

2005, and we have no information 

identifying new radiopharmaceuticals to 

which a HCPCS code might be assigned 

on or after January 1, 2006, for which 

pass-through status would be sought. 

We also have no data regarding payment 

for new radiopharmaceuticals with 

pass-through status under the 

methodology that we specified in the 

CY 2005 final rule with comment 

period. However, we do not believe that 

pass-through spending for new 

radiopharmaceuticals in CY 2006 will 

be significant enough to materially 

affect our estimate of total pass-through 

spending in CY 2006. Therefore, we are 

not including radiopharmaceuticals in 

our estimate of pass-through spending 

for CY 2006. 

In accordance with the methodology 

described above and the methodology 

for estimating pass-through spending 

discussed in our proposed rule for CY 

2006, we estimate that total passthrough spending for device categories 

that first become eligible for passthrough status during CY 2006 will 

equal approximately $45.5 million, 

which represents 0.17 percent of total 

OPPS projected payments for CY 2006. 

This figure includes estimates for the 

current device categories continuing 

into CY 2006, which equal zero, in 

addition to projections for categories 

that first become eligible during CY 

2006. 

This estimate of total pass-through 

spending for CY 2006 is significantly 

lower than many previous years’

estimates (except for the CY 2005 

estimate, which was approximately 

$23.4 million) both because of the 

method we used, as discussed in section 

V.A.3. of this preamble, for determining 

the amount of pass-through payment for 

drugs and biologicals with pass-through 

status, and the fact that there are no CY 

2005 pass-through device categories that 

are being carried over to CY 2006. 

Because we estimate pass-through 

spending in CY 2006 will not amount to 

2.0 percent of total projected OPPS CY 

2006 spending, we will return 1.83 

percent of the pass-through pool to 

adjust the conversion factor, as we 

discuss in section II.C. of this preamble. 

We received one public comment on 

our estimated pass-through spending for 

CY 2006. 

Comment: One commenter 

commended us for returning, via an 

adjustment to the conversion factor, the 

portion of the pass-through spending 

pool that exceeds the estimated amount 

for pass-through payments in CY 2006. 

The commenter indicated that this will 

ensure beneficiary access to basic 

services. 

Response: We appreciate the 

commenter’s support. 

Accordingly, we are finalizing our 

proposed methodology for estimating 

CY 2006 OPPS pass-through spending 

for drugs, biologicals, and categories of 

devices with the modification as 

discussed above. Our adoption of this 

proposal as modified will return 1.83 

percent of the pass-through pool to 

adjust the conversion factor. 

VII. Brachytherapy Source Payment 

Changes 

A. Background 

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

1833(t)(2)(H) of the Act, as added by 

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

108–173, respectively, establish separate 

payment for devices of brachytherapy 

consisting of a seed or seeds (or 

radioactive source) based on a hospital’s 

charges for the service, adjusted to cost. 

Charges for the brachytherapy devices 

may not be used in determining any 

outlier payments under the OPPS. In 

addition, consistent with our practice 

under the OPPS to exclude items paid 

at cost from budget neutrality 

consideration, these items must be 

excluded from budget neutrality as well. 

The period of payment under this 

provision is for brachytherapy sources 

furnished from January 1, 2004, through 

December 31, 2006. 

Section 621(b)(3) of Pub. L. 108–173 

requires the Government Accountability 

Office (GAO) to conduct a study to 

determine appropriate payment 

amounts for devices of brachytherapy, 

and to submit a report on its study to 

the Congress and the Secretary, 

including recommendations. As 

indicated in the CY 2006 proposed rule, 

we are awaiting the report and any 

recommendations on the payment of 

devices of brachytherapy, which would 

pertain to brachytherapy payments after 

December 31, 2006. 

In the OPPS interim final rule with 

comment period published on January 

6, 2004 (69 FR 827), we implemented 

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

L. 108–173. In that rule, we stated that 

we will pay for the brachytherapy 

sources listed in Table 4 of the interim 

final rule with comment period (69 FR 

828) on a cost basis, as required by the 

statute. Since January 1, 2004, we have 

used status indicator ‘‘H’’ to denote 

nonpass-through brachytherapy sources 

paid on a cost basis, a policy that we 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68675 

finalized in the CY 2005 final rule with 

comment period (69 FR 65838). 

As we indicated in the January 6, 

2004 interim final rule with comment 

period, we began payment for the 

brachytherapy source in HCPCS code 

C1717 (High Dose Rate Iridium 192) 

based on the hospital’s charge adjusted 

to cost beginning January 1, 2004. Prior 

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

sources were paid as packaged services 

in APC 0313. As a result of the 

requirement under Pub. L. 108–173 to 

pay for HCPCS code C1717 separately, 

we adjusted the payment rate for APC 

0313, Brachytherapy, to reflect the 

unpackaging of the brachytherapy 

source. We finalized this payment 

methodology in our November 15, 2004 

final rule with comment period (69 FR 

65839). 

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

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

108–173, mandated the creation of 

separate groups of covered OPD services 

that classify brachytherapy devices 

separately from other services or groups 

of services. The additional groups must 

be created in a manner that reflects the 

number, isotope, and radioactive 

intensity of the devices of 

brachytherapy furnished, including 

separate groups for Palladium-103 and 

Iodine-125 devices. In accordance with 

this provision and based on 

recommendations of the APC Panel in 

the February 2004 meeting, we 

established the following two new 

brachytherapy source codes for CY 2005 

(69 FR 65839): 

• C2634 Brachytherapy source, 

High Activity Iodine-125, greater than 

1.01 mCi (NIST), per source 

• C2635 Brachytherapy source, 

High Activity Palladium-103, greater 

than 2.2 mCi (NIST), per source 

In addition to adopting the APC 

Panel’s recommendation to establish 

new HCPCS codes that would 

distinguish high activity Iodine-125 

from high activity Palladium-103 on a 

per source basis, we adopted this policy 

for other brachytherapy code 

descriptors, as well. Therefore, 

beginning January 1, 2005, we included 

‘‘per source’’ in the HCPCS code 

descriptors for all those brachytherapy 

source descriptors for which units of 

payment were not already delineated. 

Table 40 published in the November 15, 

2004 final rule with comment period (69 

FR 65840) included a complete listing of 

the HCPCS codes, long descriptors, APC 

assignments, and status indicators that 

we used for brachytherapy sources paid 

under the OPPS in CY 2005 (69 FR 

65840 and 65841). 

Further, for CY 2005, we added the 

following code of linear source 

Palladium-103 to be paid at cost: C2636 

Brachytherapy linear source, Palladium103, per 1 mm. We had indicated in our 

August 16, 2004 proposed rule that we 

were aware of a new linear source 

Palladium-103, which came to our 

attention in CY 2003 through an 

application for a new device category 

for pass-through payment. We stated 

that, while we decided not to create a 

new category for pass-through payment, 

we believed that the new linear source 

fell under the provisions of Pub. L. 108–

173. Therefore, we made final our 

proposal to add HCPCS code C2636 as 

a new brachytherapy source to be paid 

at cost in CY 2005. 

B. Changes Related to Pub. L. 108–173 

As stated in the CY 2006 OPPS 

proposed rule (70 FR 42736), we 

consistently invite the public to submit 

recommendations for new codes to 

describe brachytherapy sources in a 

manner reflecting the number, 

radioisotope, and radioactivity intensity 

of the sources. We request that 

commenters provide a detailed rationale 

to support recommended new codes and 

to send recommendations to us. We 

endeavor to add new brachytherapy 

source codes and descriptors to our 

systems for payment on a quarterly 

basis. Such recommendations should be 

directed to the Division of Outpatient 

Care, Mail Stop C4–05–17, Centers for 

Medicare & Medicaid Services, 7500 

Security Boulevard, Baltimore, MD 

21244. 

Prior to the publication of the CY 

2006 OPPS proposed rule, we had then 

recently received only one such request 

for coding and payment of a new 

brachytherapy source since we added 

separate APC payment beginning in CY 

2005 for the three brachytherapy 

sources discussed above. Therefore, we 

did not propose any coding changes to 

the sources of brachytherapy for CY 

2006 but listed in Table 26 of the CY 

2006 proposed rule (70 FR 42737) the 

separately payable brachytherapy 

sources that we proposed to continue 

for CY 2006. In addition, in that same 

proposed rule, we stated that we would 

evaluate the one request that we had 

received for establishment of a new 

brachytherapy source code prior to 

publishing this final rule with comment 

period (70 FR 42736). Our decision 

regarding that coding request is 

discussed below. 

At the end of May 2005, we received 

a recommendation for the creation of a 

new code and descriptor that would be 

used to pay separately for Ytterbium169, a new high activity brachytherapy 

source for use in High Dose Rate (HDR) 

brachytherapy, in accordance with 

sections 1833(t)(16)(C) and 1833(t)(2)(H) 

of the Act, as added by sections 

621(b)(1) and (b)(2), respectively, of 

Pub. L. 108–173. We evaluated this new 

source and agree with the 

recommendation to establish a new 

code and descriptor for Ytterbium-169, 

effective October 1, 2005. The new 

coding information was first announced 

in Program Transmittal 662, dated 

August 26, 2005, for OPPS 

implementation effective October 1, 

2005. The new code and long descriptor 

are as follow: 

• C2637 Brachytherapy source, 

Ytterbium-169, per source 

This code and descriptor are also 

listed in Table 29 below. 

We received one public comment 

concerning payment for brachytherapy 

sources. 

Comment: One commenter requested 

CMS to identify a form of radiation 

therapy as utilizing a source of 

brachytherapy and provide a separate 

payment for the source. 

Response: We will evaluate this 

request and, if warranted, establish a 

code, descriptor, and separate payment 

for a source of brachytherapy. 

Evaluation of potential brachytherapy 

sources is often complex and requires a 

significant evaluation period. Because 

this request was received as one of our 

comments to the proposed rule for CY 

2006, we will continue to evaluate it 

and provide a code and descriptor, if 

appropriate, through one of our 

quarterly OPPS updates. 

C. Final Policy for CY 2006 

Table 28 provides a complete listing 

of the HCPCS codes, long descriptors, 

APC assignments, and status indicators 

that we will use for brachytherapy 

sources paid separately on a cost basis 

under the OPPS in CY 2006. 

68676 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

TABLE 28.— SEPARATELY PAYABLE BRACHYTHERAPY SOURCES FOR CY 2006 

HCPCS Long descriptor APC APC title 

New 

status 

indicator 

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

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

192, per source.

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

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

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

Iridium 192, per source.

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

C1720 ..................... Brachytherapy source, Palladium 103, per 

source.

1720 Brachytx source, Palladium 103 ........................ H 

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

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

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

C2634 ..................... Brachytherapy source, High Activity, Iodine125, greater than 1.01 mCi (NIST), per 

source.

2634 Brachytx source, HA, I-125 ................................ H 

C2635 ..................... Brachytherapy source, High Activity, Palladium103, greater than 2.2 mCi (NIST), per source.2635 Brachytx source, HA, P-103 .............................. H 

C2636 ..................... Brachytherapy linear source, Palladium-103, 

per 1MM.

2636 Brachytx linear source, P-103 ............................ H 

C2637 ..................... Brachytherapy source, Ytterbium-169, per 

source.

2637 Brachytx, Ytterbium-169 ..................................... H 

VIII. Coding and Payment for Drug 

Administration 

A. Background 

From the start of the OPPS until the 

end of CY 2004, three HCPCS codes 

were used to bill drug administration 

services provided in the hospital 

outpatient department: 

• Q0081 (Infusion therapy, using 

other than chemotherapeutic drugs, per 

visit) 

• Q0083 (Chemotherapy 

administration by other than infusion 

technique only, per visit) 

• Q0084 (Chemotherapy 

administration by infusion technique 

only, per visit). 

A fourth OPPS drug administration 

HCPCS code, Q0085 (Administration of 

chemotherapy by both infusion and 

another route, per visit) was active from 

the beginning of the OPPS through the 

end of CY 2003. 

Each of these four HCPCS codes 

mapped to an APC (that is, Q0081 

mapped to APC 0120, Q0083 mapped to 

APC 0116, Q0084 mapped to APC 0117, 

and Q0085 mapped to APC 0118), and 

the APC payment rates for these codes 

were made on a per-visit basis. The pervisit payment included payment for all 

hospital resources (except separately 

payable drugs) associated with the drug 

administration procedures. For CY 

2004, we discontinued using HCPCS 

code Q0085 to identify drug 

administration services and moved to a 

combination of HCPCS codes Q0083 

and Q0084 that allowed more accurate 

calculations when determining OPPS 

payment rates. 

In response to comments we received 

concerning the available opportunities 

to gather additional drug administration 

data (and subsequently facilitate 

development of more accurate payment 

rates for drug administration services in 

future years) and to reduce hospital 

administrative burden, we proposed for 

the CY 2005 OPPS to change our coding 

and payment methodologies related to 

drug administration services. 

After examining comments and 

suggestions, including 

recommendations of the APC Panel, we 

adopted a crosswalk for the CY 2005 

OPPS that identified all active CY 2005 

CPT drug administration codes and the 

corresponding OPPS Q-codes, which 

hospitals had previously used to report 

their charges for drug administration 

services. Hospitals were instructed to 

begin billing CPT codes for drug 

administration services in the hospital 

outpatient department effective January 

1, 2005. 

Payment rates for CY 2005 drug 

administration services were set using 

CY 2003 claims data. These data 

reflected per-visit costs associated with 

the four Q-codes listed above. To allow 

for the time necessary to collect data at 

the more specific CPT code level and to 

continue accurate payments based on 

available claims data, we used the Qcode crosswalk to map CPT drug 

administration codes to existing drug 

administration APCs. While hospitals 

were instructed to bill all relevant CPT 

codes that describe the services 

provided, the OCE collapsed payments 

for drug administration services 

attributed to the same APC and paid a 

single APC amount for those services for 

each visit, unless a modifier was used 

to identify drug administration services 

provided more than once in a separate 

encounter on the same day. 

In 2004, the CPT Editorial Panel 

approved several new drug 

administration codes and revised 

several existing codes for use beginning 

in CY 2006. Those physicians paid 

under the Medicare Physician Fee 

Schedule were given HCPCS G-codes 

corresponding to these expected CY 

2006 CPT codes to bill for drug 

administration services provided in CY 

2005 in the physician office setting. 

B. CY 2006 Drug Administration Policy 

Changes 

For CY 2006 OPPS billing purposes, 

we proposed to continue our policy of 

using CPT codes to bill for drug 

administration services provided in the 

hospital outpatient department, 

understanding that the CY 2005 CPT 

codes were likely going to change 

significantly for CY 2006. We 

anticipated that the CY 2005 CPT codes 

would no longer be active in CY 2006. 

Therefore, we proposed a CY 2006 

crosswalk that mapped CY 2005 CPT 

codes to the CPT drug administration 

codes approved by the CPT Editorial 

Panel in CY 2004. Our closest proxy to 

the expected CY 2006 CPT codes was 

the set of HCPCS G-codes used in the 

physician office setting for CY 2005 and 

we used these G-codes in an extensive 

crosswalk (Table 27 in the proposed 

rule) that provided an overview of our 

proposed billing and payment policies 

for CY 2006. 

The OPPS drug administration 

payment rates that we proposed for CY 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68677 

2006 were dependent on CY 2004 data 

containing per-visit charges for HCPCS 

codes Q0081, Q0083, and Q0084. While 

HCPCS code Q0085 was used to inform 

payment rates for drug administration 

APCs for CY 2005, there are no data 

from this code to develop payment rates 

for drug administration APCs for CY 

2006 because this code was not used in 

CY 2004. We proposed to map the new 

CY 2006 CPT codes to existing drug 

administration APC groups (APC 0116, 

APC 0117, and APC 0120) as we did in 

CY 2005. Again, we indicated in our 

proposal that hospitals would be 

expected to bill all relevant CPT codes 

for services provided, despite the perencounter payment hospitals would 

receive for services billed within the 

same APC group without the use of a 

proper modifier to signify services that 

were provided in a separate visit on the 

same day. 

The APC Panel approved the 

crosswalk presented in Table 27 of the 

CY 2006 OPPS proposed rule at both the 

February 2005 and August 2005 

meetings, and further recommended 

that CMS evaluate hospital claims data 

to ensure appropriate payments for 

subsequent hours of infusion. 

We received a number of public 

comments on several aspects of our 

proposed drug administration policy for 

CY 2006. 

Comment: Numerous commenters 

generally supported our proposed 

policy to use CPT codes to report drug 

administration services in the hospital 

outpatient setting in CY 2006. They 

stated that consistent coding across sites 

of service reduces hospital burden by 

simplifying the coding process. The 

majority of these commenters offered 

support in the context of the overall 

principle of utilizing CPT codes when 

applicable in the hospital outpatient 

setting to bill for services under the 

OPPS. 

Response: We agree with the 

commenters that consistent coding 

across sites of service is preferable when 

codes are applicable across settings. Our 

transition to CPT codes in CY 2005 was 

in response to numerous comments 

requesting that the OPPS recognize CPT 

drug administration codes to reduce the 

overall hospital administrative burden 

of billing one set of codes for Medicare 

and another set of codes for nonMedicare payers. 

Comment: Commenters expressed 

concern over the complexity and 

specificity of the CPT codes and the 

billing guidelines provided by the AMA 

for the new CY 2006 CPT codes for drug 

administration. Specifically, the 

commenters stated that CPT code 

descriptions that contain ‘‘initial,’’

‘‘sequential,’’ or ‘‘concurrent’’ either did 

not apply or would be very difficult to 

correctly apply in the hospital setting 

due to the patient’s likelihood of 

receiving numerous drug administration 

services from multiple hospital 

departments during the course of a 

patient’s hospital outpatient encounter. 

The commenters recommended that 

CMS instruct hospitals to disregard 

these terms, particularly the word 

‘‘initial’’ and the related CPT instruction 

to bill only one initial service when 

multiple intravenous injections and 

infusion are provided, when billing for 

outpatient services as these codes do not 

sufficiently describe the way hospital 

services are often provided. The 

commenters pointed out that because 

hospital outpatient charging for drug 

administration services currently occurs 

at the departmental level on a flow basis 

as services are provided, if hospitals 

were required to use the CPT codes in 

full accordance with the CPT 

instructions, extensive, disruptive, and 

burdensome involvement of medical 

records staff and coders would be 

required to bill for these very common 

hospital outpatient services. 

Response: While we understand the 

commenters’ concerns regarding the 

granularity of the CY 2006 CPT codes, 

we do not agree that the concepts 

embedded in CPT codes described with 

the terms ‘‘initial,’’ ‘‘sequential,’’ or 

‘‘concurrent,’’ and the accompanying 

expectations of differential resources 

required to perform those services, are 

inapplicable in the hospital setting. 

Similar to a physician office setting, we 

believe it is reasonable to expect that 

different hospital resources would be 

used for the first (initial) drug 

administration service provided to a 

patient in a hospital outpatient setting 

on a single day. For example, the first 

intravenous infusion provided to a 

hospital outpatient would generally 

require either the start of an intravenous 

line or the accessing of an indwelling 

catheter or port. All subsequent 

intravenous infusions in the hospital on 

the same day would likely not involve 

those additional resources associated 

with the initial infusion. We understand 

that the concepts associated with drug 

administration coding using CY 2006 

CPT codes are substantially different 

from the principles of drug 

administration coding used by the OPPS 

in the past. However, this conceptual 

difference alone does not lead us to 

conclude that the full adoption of the 

CY 2006 CPT codes and their 

descriptors in the hospital setting is 

inappropriate. 

While we acknowledge that hospital 

charging practices might need to change 

with implementation of the new CY 

2006 CPT codes and their descriptors, in 

the OPPS we originally moved to the 

use of CPT codes for the billing of drug 

administration services at the request of 

hospitals so they could use one standard 

code set for billing all payers. We would 

expect that hospitals would nonetheless 

need to implement some administrative 

changes for other payers who will be 

making payments for hospital outpatient 

drug administration services based on 

the CY 2006 CPT codes. While we do 

not doubt the administrative burden on 

hospitals associated with billing 

changes, we cannot and do not 

understand how our instructing 

hospitals to ignore certain concepts in 

the code descriptors for the new CY 

2006 CPT codes would substantially 

reduce the administrative changes 

necessary for hospitals to bill the codes 

appropriately to other payers, in 

addition to Medicare. 

Comment: Several commenters 

pointed out that if the proposed 

crosswalk were implemented as 

displayed in Table 27 of the proposed 

rule and no exceptions to CPT billing 

guidance were provided, our CY 2005 

payment policy of providing separate 

APC payments for chemotherapy 

services and nonchemotherapy 

infusions during the same episode of 

care would no longer apply. The 

commenters believed that if our 

proposal is to package all subsequent 

hours of infusion therapy 

(chemotherapy and nonchemotherapy), 

hospitals following CPT billing 

guidelines would have coded only one 

initial code, and therefore only received 

one APC payment. The commenters 

expressed concern about this situation 

and stated that they did not believe it 

was CMS’ intent to reduce payment in 

this scenario. 

Response: The commenters are correct 

in that it was not our intent to change 

the drug administration payment 

policies in place in CY 2005. We 

appreciate the analysis submitted by the 

commenters who provided us with 

detailed recommendations to remedy 

this situation. 

Under CY 2006 CPT guidelines, 

hospitals would be required to bill one, 

and only one, initial service code for 

intravenous drug administration 

services (unless a modifier is used to 

indicate an additional episode of care 

on the same date of service). As many 

commenters noted, hospital billing 

personnel recently transitioned from a 

per-visit concept under the CY 2004 Qcodes to a per-treatment concept under 

CY 2005 CPT codes, and an additional 

transition in CY 2006 to even more 

complex concepts does not allow 

68678 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

sufficient time to properly train and 

educate hospital personnel regarding 

correct coding for drug administration. 

As we considered the above 

comments, we developed preliminary 

OCE logic that would have potentially 

permitted some of the CY 2006 CPT 

codes for sequential and additional 

infusion services to be assigned status 

indicator ‘‘Q,’’ consistent with a variable 

payment status. That is, under some 

circumstances where the sequential 

infusion was the same type of infusion 

(that is, chemotherapy or 

nonchemotherapy) as the initial 

infusion, payment for the sequential 

infusion would be packaged into 

payment for the initial drug 

administration service. In contrast, for 

situations where the sequential infusion 

was of a different type than the initial 

infusion, separate OPPS payment for the 

sequential infusion would be made. 

Thus, in order to determine the payment 

status of some drug administration CPT 

codes (packaged or separately payable), 

hospitals would have to be meticulous 

in correctly coding their claims. 

Therefore, only expected code pairs that 

had been built into OCE logic were 

present on claims. Otherwise, claims 

would have to be returned to hospitals 

for correction. We grew concerned that 

hospitals would have an overwhelming 

burden not only implementing these 

new CPT codes in hospital software but 

also providing the necessary training to 

a variety of staff who provide and bill 

these high-volume drug administration 

services. It is our understanding that a 

system change this complex may have 

unintended consequences if 

implemented for January 1, 2006. One of 

our main concerns is that without 

sufficient time to train and educate staff, 

hospitals may experience a great 

number of returned claims and, 

therefore, experience a delay in 

payment for these high-volume services. 

We believe that the level of 

understanding required to properly bill 

for services under the CY 2006 CPT 

codes will require substantial hospital 

efforts to minimize unintentional coding 

errors that could lead to returned 

claims. 

We have developed the advanced 

OCE logic that identifies separately 

payable instances of multiple drug 

administration services provided in the 

same episode of care but with only one 

initial CPT code. Claims not passing this 

extensive logic would not provide 

sufficient information in order to assign 

APC payment to the services billed, and 

would subsequently result in a return of 

such claims to providers. We are still 

reviewing the future use of such logic 

for drug administration services under 

the OPPS. 

Comment: Commenters provided a 

variety of other solutions that could 

permit continuation of CY 2005 OPPS 

drug administration payment policies 

while using CY 2006 CPT codes. The 

commenters’ suggestions included 

reverting back to the three Q-codes 

(used prior to CY 2005), creating HCPCS 

codes to mimic the CY 2005 CPT codes, 

or creating a hybrid of CY 2005 and CY 

2006 drug administration codes. 

Response: We appreciate the many 

ideas discussed in the comments we 

received on the proposed rule, and we 

considered the above mentioned options 

in addition to many others before 

making our decision. However, we 

believe we have discussed the inherent 

advantages of using CPT codes, and in 

order to continue in our efforts to use 

CPT codes whenever possible, we will 

be adopting 20 of the 33 CY 2006 drug 

administration CPT codes for billing 

and payment purposes under the OPPS 

for CY 2006 (Table 29). 

BILLING CODE 4120–01–P 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68679 

BILLING CODE 4120–01–C 

In addition, we will not recognize 

under the OPPS 13 of the 33 CY 2006 

CPT codes, but instead will instruct 

hospitals to use 6 new HCPCS C-codes 

for billing and payment purposes under 

OPPS for CY 2006 (Table 31). The Ccodes generally parallel the less 

complex CY 2005 CPT codes for 

infusions and intravenous pushes, as 

those codes will be deleted for the CY 

2006 OPPS. We are adopting these 6 

newly created C-codes in an effort to 

minimize the administrative burden 

hospitals have indicated they will face 

if the OPPS were to adopt all 33 of the 

CY 2006 drug administration CPT 

codes. The CY 2006 CPT drug 

administration codes that we will not be 

using in the OPPS for CY 2006 are codes 

that require determinations of initial, 

sequential, and concurrent infusions or 

intravenous pushes. The C-codes will 

permit straightforward billing of types 

of infusions and intravenous pushes, for 

the first hour and then each additional 

hour of infusion or for each intravenous 


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push, an approach to coding that 

commenters indicated was consistent 

with current patterns of delivery and 

billing of drug administration services 

in the hospital outpatient setting. The 

OCE logic to determine the appropriate 

CY 2006 APC payments to make for a 

single drug administration encounter in 

one day or multiple separate encounters 

in the same day will operate as it did 

for CY 2005. As the C-codes are similar 

to the CY 2005 CPT codes, we expect 

that their implementation for CY 2006 

billing should be clear, as hospitals have 

1 year of experience already with the 

use of very similar codes during CY 

2005. 

We believe that providing hospitals 

with additional time to train staff on the 

correct billing of the CY 2006 drug 

administration CPT codes, combined 

with the opportunity for hospital staff to 

use these codes for non-Medicare payers 

during CY 2006, should allow a less 

burdensome transition to the remaining 

CPT drug administration codes in the 

future. In addition, because we will 

have more specific drug administration 

median cost data for use in the CY 2007 

OPPS and beyond with the first 

availability of CY 2005 cost data for the 

CPT codes for drug administration 

services, we anticipate that ensuring 

more accurate payment with respect to 

these remaining CPT drug 

administration codes may be more 

feasible for future OPPS updates. 

TABLE 30.—CY 2006 OPPS DRUG ADMINISTRATION C-CODES

Code Description Add-On SI APC 

C8950 .................... Intravenous infusion for therapy/diagnosis; up to 1 hour ........................................... ................ S 0120 

C8951 .................... Intravenous infusion for therapy/diagnosis; each additional hour (List separately in 

addition to C8950).

Y N 

C8952 .................... Therapeutic, prophylactic or diagnostic injection; intravenous push .......................... ................ X 0359 

C8953 .................... Chemotherapy administration, intravenous; push technique ...................................... ................ S 0116 

C8954 .................... Chemotherapy administration, intravenous; infusion technique, up to one hour ....... ................ S 0117 

C8955 .................... Chemotherapy administration, intravenous; infusion technique, each additional 

hour (List separately in addition to C8954).

Y N 

Comment: Commenters requested that 

CMS provide various billing and coding 

instructions relating to the CY 2006 CPT 

drug administration codes, and that 

CMS include more specific definitions 

of CPT drug administration terminology 

in the final rule. 

Response: We appreciate the 

commenters’ request for clarity on 

aspects of the proposed CY 2006 drug 

administration CPT codes. As we have 

done in the past, we will release 

instructions separately from this final 

rule with comment period that include 

drug administration billing and coding 

guidance for hospitals for CY 2006. In 

addition, as is our longstanding 

practice, we defer questions about CPT 

code definitions to the AMA CPT 

Editorial Panel members who are the 

creators and maintainers of CPT codes. 

Comment: Several commenters 

requested that CMS provide explicit 

billing and coding instructions 

regarding the administration of specific 

drugs and agents. 

Response: As stated above, we do not 

provide billing guidance to hospitals in 

the final rule. Information for hospitals 

that discusses billing and coding 

specifics will be distributed separately 

via CMS transmittal following the 

publication of this final rule with 

comment period. In addition, we expect 

that all drug administration codes used 

in the CY 2006 OPPS, including the new 

C-codes, will conform to CPT guidance 

regarding under what clinical 

circumstances they may be 

appropriately billed, including 

instructions related to appropriate 

coding for the administration of certain 

complex biologics. 

Comment: Commenters requested that 

a section within the AMA CPT Manual 

be created to identify and provide 

hospital-specific definitions for CPT 

codes that are used by the OPPS. 

Response: The OPPS does not issue or 

maintain CPT codes. Comments 

regarding the AMA CPT Manual or CPT 

codes should be directed to the AMA. 

Comment: Commenters requested that 

CMS create non-chemotherapy HCPCS 

codes similar to the CPT codes for 

initiation of a prolonged chemotherapy 

infusion requiring a pump and pump 

maintenance and refilling codes so 

hospitals can bill for these services 

when provided to patients who require 

extended infusions of nonchemotherapy medications, including 

drugs for pain. They argued that the CY 

2006 CPT codes for drug administration 

do not include appropriate codes to bill 

for these services, which require 

specific and significant hospital 

resources. 

Response: We agree that codes for 

these services were needed, and we 

have created HCPCS codes C8956 

(Refilling and maintenance of portable 

or implantable pump or reservoir for 

drug delivery for therapy/diagnosis, 

systemic (eg. intravenous, intra-arterial)) 

and C8957 (Intravenous infusion for 

therapy/diagnosis; initiation of 

prolonged infusion (more than 8 hours), 

requiring use of portable or implantable 

pump) for this purpose (Table 31). 

TABLE 31.—NONCHEMOTHERAPY PROLONGED INFUSION CODES THAT REQUIRE A PUMP

Code Description Add-On SI APC 

C8956 .................... Refilling and maintenance of portable or implantable pump or reservoir for drug delivery for therapy/diagnosis, systemic (eg. intravenous, intra-arterial)................. T 0125 

C8957 .................... Intravenous infusion for therapy/diagnosis; initiation of prolonged infusion (more 

than 8 hours), requiring use of portable or implantable pump.

................ S 0120 

Comment: One commenter requested 

that the OPPS use the information 

present on the claim, specifically the 

pharmacy revenue code (636), to 

identify which payment would be best 

suited for administration of that type of 

drug. 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68681 

Response: We support minimizing the 

administrative burden that hospitals 

incur when billing for drug 

administration services in the outpatient 

department. However, we do not believe 

that this suggestion would yield more 

accurate claims data or reduce the 

administrative burden on hospitals to 

code for drug administration services. 

Hospitals are responsible for identifying 

which drug administration services are 

provided and establishing appropriate 

charges for those services, and 

implementing a system such as that 

conceived by the commenter that 

removes the determination from 

hospitals would be unproductive. 

Comment: Commenters noted that CY 

2006 drug administration APC payment 

rates are derived from CY 2004 claims 

data and expressed concern that these 

data are outdated and inaccurate. 

Response: While we acknowledge the 

concern presented by commenters, we 

do not believe that our reliance on the 

most recent claims data available 

provides inaccurate payments for drug 

administration services provided in 

hospital outpatient departments. It has 

been the OPPS policy to set payments 

for drug administration services, as well 

as almost all other OPPS services, based 

on the most recent claims year data 

available, and we are continuing that 

methodology in CY 2006. 

Comment: Several commenters 

requested that CMS implement a 

chemotherapy demonstration program 

similar to the Quality of Care 

Demonstration program that was 

instituted in the physician office setting 

throughout CY 2005. 

Response: While we recognize the 

desire of the commenters to ensure 

beneficiary access to drug 

administration services by providing 

additional payments to hospitals for 

drug administration-related services, we 

believe that the drug administration 

payment methodology we are finalizing 

in this final rule with comment period 

provides accurate payments for hospital 

drug administration services. Further, 

we do not believe that there is a 

beneficiary access issue directly 

attributable to the OPPS payment 

policies for drug administration 

services. 

Comment: Many commenters 

requested that the OPPS provide 

payment for additional hours of 

infusion, instead of packaging 

subsequent hours of infusion into the 

payment for the initial hour of infusion 

therapy. 

Response: As discussed in the 

proposed rule, CY 2006 OPPS payment 

rates rely upon CY 2004 claims data that 

only has information on the three Qcodes mapped to APCs 0116, 0117 and 

0120. For CY 2006, while the codes for 

initial hour of infusion and subsequent 

hour(s) of infusion were available for 

hospitals to report in CY 2005, 

appropriate CY 2005 claims data are not 

available to use for ratesetting purposes 

for the CY 2006 OPPS. As the most 

recent and complete year of data 

available from CY 2004 reflects per-visit 

payment rates for drug administration 

services, we must continue to use both 

our crosswalk methodology and the 

OCE claims logic during CY 2006 which 

allows us to collect more specific drug 

administration cost data while 

continuing to make appropriate drug 

administration payments. Because of the 

descriptors of the previous drug 

administration Q-codes upon which CY 

2006 drug administration payment rates 

are based, each payment for a drug 

administration APC in CY 2006 is 

necessarily a payment that reflects an 

‘‘average’’ infusion service in CY 2004, 

constituting one or more hours. We 

appreciate hospitals’ continued 

diligence in accurately billing for the 

additional hours of infusion for 

chemotherapy and nonchemotherapy 

treatments that will once again be 

packaged for CY 2006, as we gather 

additional hospital claims data to 

support our move to more specific 

payments for individual drug 

administration services in the future. 

Comment: One commenter noted that 

in Addendum B, Payment Status by 

HCPCS Code and Related Information 

Calendar Year 2006, HCPCS code G0258 

(IV infusion during obs stay) was 

incorrectly listed as payable with a 

status indicator of ‘‘X.’’

Response: We agree that HCPCS code 

G0258 was incorrectly listed in 

Addendum B of the proposed rule as 

having status indicator ‘‘X’’ rather than 

‘‘B.’’ However, HCPCS code G0258 is 

deleted for CY 2006; therefore, it will 

have no payment status in the CY 2006 

OPPS. 

Comment: One commenter requested 

that CMS not reassign CPT codes 95144 

through 95165 (Antigen therapy 

services) to the injection APCs as listed 

in Addendum B of the proposed rule. 

Instead, the commenter suggested 

keeping these services within APC 0371 

because of their similarity in resource 

use and for reasons of clinical 

coherence. 

Response: We agree with the 

commenter that the median cost data 

available for these codes do not 

correspond to the expected levels of 

service based on the CPT code 

descriptors. For example, in the 

proposed rule, HCPCS code 95149 

(Professional services for the 

supervision of preparation and 

provision of antigens for allergen 

immunotherapy; five single stinging 

insect venoms) was mapped to APC 

0352 (Level I Injections) based on a 

median cost of $11.43 from 9 single 

claims, while HCPCS code 95146 

(Professional services for the 

supervision of preparation and 

provision of antigens for allergen 

immunotherapy; two single stinging 

venoms) was mapped to APC 0359 

(Level III Injections) based on a median 

cost of $70.64 from 43 single claims. 

These unexpected median cost results 

may have arisen from miscoding or from 

the inherently high volatility in costs 

that may occur due to small numbers of 

claims. While we are unable to retain 

these codes in APC 0371 as 

recommended by the commenter due to 

the restructuring of the injection codes 

into three levels of injection APCs, we 

have decided to place CPT codes 95144 

through 95165 in APC 0353 (Level II 

Injections) because we believe that the 

services provided by these HCPCS codes 

are similar to other HCPCS codes within 

this APC and the CY 2006 median cost 

for APC 0353 most closely matches the 

CY 2005 median cost these codes 

experienced in APC 0371. 

C. 2006 Vaccine Administration Policy 

Changes 

Hospitals currently use three HCPCS 

G-codes to indicate the administration 

of the following vaccines that have 

specific statutory coverage: 

• G0008—Administration of 

Influenza Virus Vaccine. 

• G0009—Administration of 

Pneumococcal Vaccine. 

• G0010—Administration of Hepatitis 

B Vaccine. 

HCPCS codes G0008 and G0009 are 

exempt from beneficiary coinsurance 

and deductible applications and, as 

such, payment has been made outside of 

the OPPS since CY 2003 based on 

reasonable cost. We have made payment 

for HCPCS code G0010 through a 

clinical APC (that is, APC 0355) that 

included vaccines along with this 

vaccine administration code. Additional 

vaccine administration codes have been 

packaged or not paid under the OPPS. 

As stated in the CY 2006 OPPS 

proposed rule, we believe that HCPCS 

codes G0008, G0009 and G0010 are 

clinically similar and comparable in 

resource use to one another and to the 

administration of other immunizations 

and other therapeutic, prophylactic, or 

diagnostic injections. To that end, we 

concluded that the appropriate APC 

assignment for these vaccine 

administration services was newly 

reconfigured APC 0353 (Injection, Level 

68682 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

II). However, because of their statutory 

exemption regarding beneficiary 

deductible and coinsurance, for 

operational reasons we were unable to 

include HCPCS codes G0008 and G0009 

in an APC with codes that did not share 

this exemption. 

Instead of including these codes 

within the same APC, we proposed to 

map HCPCS codes G0008 and G0009 to 

APC 0350 (Administration of flu and 

PPV vaccines). As dictated by statute, 

HCPCS codes G0008 and G0009 would 

continue to be exempt from beneficiary 

coinsurance and deductible. 

We also proposed to change the status 

indicator for HCPCS code G0010 from 

‘‘K’’ (Separate APC Payment) to ‘‘B’’

(Not paid under OPPS; Alternate code 

may be available), and to change the 

status indicators for vaccine 

administration codes 90471 and 90472 

from ‘‘N’’ (Packaged) to ‘‘X’’ (Separate 

APC Payment), in agreement with the 

recommendation of the APC Panel to 

unpackage these services. Hospitals 

would code for hepatitis B vaccine 

administration using codes 90471 or 

90472 (as appropriate), and payment 

would be mapped to reconfigured APC 

0353 (Injection, Level II) that would 

include other injection services that 

were clinically similar and comparable 

in resource use. 

In order to pay appropriately for 

services that we believed were clinically 

similar and comparable in resource use 

and, barring technical restrictions, 

would otherwise be assigned to the 

same APC, we proposed to calculate a 

combined median cost for all services 

assigned to APC 0350 and APC 0353 

that would then serve as the median 

cost for both APCs. This combined 

median would be calculated using 

charges converted to costs from claims 

for services in both APCs and would 

have the effect of making the OPPS 

payment rates for APC 0350 and APC 

0353 identical, although beneficiary 

copayment and deductible would not be 

applied to services in APC 0350. 

Our vaccine administration proposed 

policy also included proposed changes 

to the status indicators for vaccine 

administration codes 90473 and 90474 

from ‘‘E’’ (Not paid under OPPS) to ‘‘S’’

(Paid under OPPS) and proposed to 

make payments for these services when 

they were covered through proposed 

APC 1491 (New Technology—Level IA 

($0–$10)). 

Finally, we proposed to change the 

status indicators for the four remaining 

vaccine administration codes involving 

physician counseling (90465, 90466, 

90467 and 90468) from ‘‘N’’ (Packaged) 

to ‘‘B’’ (Not paid under OPPS; Alternate 

code may be available). We proposed 

that hospitals providing immunization 

services with physician counseling 

would use the vaccine administration 

codes 90471, 90472, 90473, and 90474 

to report such services, as we did not 

believe the provision of physician 

counseling would significantly affect 

the hospital resources required for 

administration of immunizations. 

During its August 2005 meeting, the 

APC Panel made a recommendation to 

CMS to pay for the administration of flu 

vaccines similarly under the OPPS 

regardless of their method of 

administration. We agree that hospitals 

should always use the most specific 

HCPCS codes available, whose 

descriptors are consistent with the 

method of administration and type of 

vaccine, to bill for all vaccine 

administration services but, in 

particular, to bill for vaccine services 

that are congressionally exempt from 

deductible and coinsurance. However, 

we note that vaccine administration 

codes other than G0008 for 

administration of influenza virus 

vaccine and G0009 for administration of 

pneumococcal vaccine are not exempted 

in the OCE from charging beneficiary 

deductible and coinsurance and should 

not be used to report these services 

which are exempt from copayment. 

Comment: Similar to the APC Panel 

recommendation discussed above, 

commenters requested that CMS 

provide payment for the administration 

of intranasal influenza vaccine similar 

to payments for other methods of 

administration of the influenza vaccine. 

Response: As stated above, vaccine 

administration codes other than G0008 

for administration of influenza virus 

vaccine are not exempted in the OCE 

from charging beneficiary deductible 

and coinsurance and they should not be 

used to report these services which are 

exempt from copayment. 

Comment: Numerous commenters 

supported our proposal to pay 

separately for vaccine administration 

services. 

Response: We appreciate the 

commenters’ support of our proposed 

policy and are adopting it as final in this 

rule. 

Comment: Several commenters noted 

a typographical error in the CY 2006 

OPPS proposed rule preamble that 

incorrectly listed two codes to be used 

for the administration of hepatitis B 

vaccine as codes 96471 and 96472 

instead of codes 90741 and 90742. 

Response: We appreciate the 

commenters’ note, and we have 

corrected the error in this final rule with 

comment period. 

After consideration of the public 

comments received, in this final rule 

with comment period, we are finalizing 

our proposed CY 2006 methodology to 

pay separately for vaccine 

administration services as discussed 

above. Table 32 below specifies the CY 

2006 vaccine administration codes, their 

APC median costs, the status indicator 

assigned to each code, and the APC 

payment amount. 

BILLING CODE 4120–01–P 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68683 

BILLING CODE 4120–01–C 

IX. Hospital Coding for Evaluation and 

Management (E/M) Services 

In the CY 2006 proposed rule (70 FR 

42740), we again stated our concerns 

and directions for developing a set of 

national facility coding guidelines for 

emergency department and clinic visits. 

We noted that we intend to make 

available for public comment the 

proposed coding guidelines that we are 

considering through the CMS OPPS 

Web site as soon as we have completed 

them. We also stated that we will notify 

the public through our listserve when 

these proposed guidelines become 

available, and instructed interested 

parties to subscribe to this listserve by 

going to the following CMS Web site: 

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

listserv.asp and following the directions 

to the OPPS listserve. 

We received a number of public 

comments on our proposal. 

Comment: Several commenters 

expressed disappointment that CMS has 

not yet proposed national E/M 

guidelines for facilities. While the 

majority of commenters were pleased 

that CMS is continuing to develop and 

test draft codes and guidelines, they 

were concerned that the ongoing lack of 

uniformity places hospitals at risk for 


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68684 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

multiple interpretations of the level of 

service that should be coded, and 

hampers CMS’ ability to gather 

consistent, meaningful data on services 

provided in the emergency department 

and hospital clinics. One commenter 

emphasized that the implementation of 

a uniform set of national guidelines for 

E/M services is especially important 

because CMS uses the mid-level clinic 

visit (APC 0601) to scale the relative 

payment weights for all other services 

paid under the OPPS. A few 

commenters recommended that CMS 

implement the E/M guidelines drafted 

by the independent panel of experts 

from the AHA and the AHIMA. Two 

other commenters provided their own 

model guidelines for CMS to consider. 

Several commenters reminded CMS 

that adoption of a new set of guidelines 

for E/M services will involve an 

enormous undertaking by large medical 

centers and that CMS had committed to 

providing a minimum of between 6 and 

12 months’ notice prior to 

implementation to allow providers 

adequate time to make necessary 

systems changes and educate their staff. 

The commenters also urged CMS to 

ensure adequate opportunity for the 

public to review and comment on the 

proposed guidelines before they are 

finalized. 

Response: Over the past year, we have 

engaged a contractor to assist us with 

testing the validity and reliability of a 

slightly modified draft of the guidelines 

recommended by the independent 

Hospital Evaluation and Management 

Coding Panel of the AHA and AHIMA. 

We have contracted a study of these 

guidelines using a sample of hospital 

outpatient claims to analyze the 

potential financial impact of the 

proposed guidelines on classes of 

hospitals and on the OPPS, as well as 

the potential burden that adoption of 

such guidelines might impose on 

hospitals. Although we have made 

much progress in our efforts to develop 

a set of national facility guidelines for 

emergency department and clinic visits, 

we believe additional testing is 

necessary and essential to providing 

hospitals with the least burdensome 

standard for achieving uniformity and to 

yielding more accurate, meaningful 

information related to hospital resources 

upon which to set the OPPS payments 

for emergency department and clinic 

services. We are committed to the goal 

of paying appropriately under the OPPS 

for the costs of hospital E/M services 

across the levels of care. Therefore, we 

will continue to develop and test the 

draft codes and guidelines. However, we 

have not yet set a date for their 

implementation. 

As stated in the CY 2006 OPPS 

proposed rule, we intend to make 

available for public comment the 

proposed coding guidelines that we are 

considering through the CMS OPPS 

Web site once we are satisfied with the 

results of the testing and have made 

appropriate modifications in light of 

these testing results. Furthermore, we 

will provide ample opportunity for the 

public to comment on such a major 

proposal. We will continue to be 

considerate of the time necessary to 

educate clinicians and coders on the use 

of the new codes and guidelines and for 

hospitals to modify their systems. We 

still anticipate providing a minimum 

notice of between 6 and 12 months prior 

to implementation of the new 

evaluation and management codes and 

guidelines. 

Comment: One commenter expressed 

a number of concerns that the 

commenter believed were related to 

proposals on the manner in which the 

Medicare program uses CPT code 

definitions that have been adopted by 

the AMA as a basis to classify patients 

who receive emergency department 

services for payment purposes under the 

Medicare OPPS. 

Response: In the CY 2006 OPPS 

proposed rule, we did not propose to 

make any changes related to the manner 

in which we use CPT code definitions 

as a basis to classify patients. We are not 

making any changes to our use of the 

CPT code definitions in this final rule 

with comment period. However, we 

remind the public that regulations 

implementing the HIPAA (42 CFR Parts 

160 and 162) require that the HCPCS be 

used to report health care services, 

including outpatient services paid 

under the OPPS. The OPPS regulations 

at 42 CFR 419.2(a) establish HCPCS 

codes as the means for identifying 

services paid under the OPPS. The 

HIPAA regulations require that these 

codes be used in the manner described 

by the maintainer’s guidelines. In 

accordance with our policy that was 

established in the April 7, 2000 final 

rule with comment period that 

implemented the OPPS, hospitals use 

internal guidelines only to distinguish 

among varying levels of resource 

intensity when determining an 

appropriate CPT code to bill for 

outpatient E/M services. 

X. Payment for Blood and Blood 

Products 

A. Background 

Since the implementation of the OPPS 

in August 2000, separate payments have 

been made for blood and blood products 

through APCs rather than packaging 

them into payments for the procedures 

with which they were administered. 

Hospital payments for the costs of blood 

and blood products, as well as the costs 

of collecting, processing, and storing 

blood and blood products, are made 

through the OPPS payments for specific 

blood product APCs. On April 12, 2001, 

CMS issued the original billing 

guidance for blood products to hospitals 

(Program Transmittal A–01–50). In 

response to requests for clarification of 

these instructions, CMS issued 

Transmittal 496 on March 4, 2005. The 

comprehensive billing guidelines in the 

Transmittal also addressed specific 

concerns and issues related to billing for 

blood-related services, which the public 

had brought to our attention. 

In CY 2000, payments for blood and 

blood products were established based 

on external data provided by 

commenters due to limited Medicare 

claims data. From CY 2000 to CY 2002, 

payment rates for blood and blood 

products were updated for inflation. For 

CY 2003, as described in the November 

1, 2002 final rule with comment period 

(67 FR 66773), we applied a special 

dampening methodology to blood and 

blood products that had significant 

reductions in payment rates from CY 

2002 to CY 2003, when median costs 

were first calculated from hospital 

claims. Using the dampening 

methodology, we limited the decrease in 

payment rates for blood and blood 

products to approximately 15 percent. 

For CY 2004, as recommended by the 

APC Panel, we froze payment rates for 

blood and blood products at CY 2003 

levels as we studied concerns raised by 

commenters and presenters at the 

August 2003 and February 2004 APC 

Panel meetings. 

For CY 2005, we established new 

APCs that allowed each blood product 

to be assigned to its own separate APC, 

as several of the previous blood product 

APCs contained multiple blood 

products with no clinical homogeneity 

or whose product-specific median costs 

may not have been similar. Some of the 

blood product HCPCS codes were 

reassigned to the new APCs (Table 34 of 

the November 15, 2004 final rule with 

comment period (69 FR 65819)). 

We also noted in the November 15, 

2004 final rule with comment period 

that public comments on previous OPPS 

rules had stated that the CCRs that were 

used to adjust charges to costs for blood 

products in past years were too low. 

Past commenters indicated that this 

approach resulted in an 

underestimation of the true hospital 

costs for blood and blood products. In 

response to these comments and APC 

Panel recommendations from its 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68685 

February 2004 and September 2004 

meetings, we conducted a thorough 

analysis of the OPPS CY 2003 claims 

(used to calculate the CY 2005 APC 

payment rates) to compare CCRs 

between those hospitals reporting a 

blood-specific cost center and those 

hospitals defaulting to the overall 

hospital CCR in the conversion of their 

blood product charges to costs. As a 

result of this analysis, we observed a 

significant difference in CCRs utilized 

for conversion of blood product charges 

to costs for those hospitals with and 

without blood-specific cost centers. The 

median hospital blood-specific CCRs 

were almost two times the median 

overall hospital CCR. As discussed in 

the November 15, 2004 final rule with 

comment period, we applied a 

methodology for hospitals not reporting 

a blood-specific cost center, which 

simulated a blood-specific CCR for each 

hospital that we then used to convert 

charges to costs for blood products. 

Thus, we developed simulated medians 

for all blood and blood products based 

on CY 2003 hospital claims data (69 FR 

65816). 

For CY 2005, we also identified a 

subset of blood products that had less 

than 1,000 units billed in CY 2003. For 

these low-volume blood products, we 

based the CY 2005 payment rate on a 

50/50 blend of CY 2004 product-specific 

OPPS median costs and the CY 2005 

simulated medians based on the 

application of blood-specific CCRs to all 

claims. We were concerned that, given 

the low frequency in which these 

products were billed, a few occurrences 

of coding or billing errors may have led 

to significant variability in the median 

calculation. The claims data may not 

have captured the complete costs of 

these products to hospitals as fully as 

possible. This low-volume adjustment 

methodology also allowed us to further 

study the issues raised by commenters 

and by presenters at the September 2004 

APC Panel meeting, without putting 

beneficiary access to these low-volume 

blood products at risk. 

B. Proposed and Final Policy Changes 

for CY 2006 

For CY 2006, we proposed to continue 

to make separate payments for blood 

and blood products under the OPPS 

through individual APCs for each 

product. We also proposed to establish 

payment rates for these blood and blood 

products by using the same simulation 

methodology described in the November 

15, 2004 final rule with comment period 

(69 FR 65816), which utilized hospitalspecific actual or simulated CCRs for 

blood cost centers to convert hospital 

charges to costs, with an adjustment 

applied to some products. We continue 

to believe that using blood-specific 

CCRs applied to hospital claims data 

will result in reasonably accurate 

payments that more fully reflect 

hospitals’ true costs of providing blood 

and blood products than our general 

methodology of defaulting to the overall 

hospital CCR when more specific CCRs 

are unavailable. 

For blood and blood products whose 

CY 2006 simulated medians 

experienced a decrease of more than 10 

percent in comparison to their CY 2005 

payment medians, we proposed to limit 

the decrease in medians to 10 percent. 

Therefore, overall we proposed to base 

median costs for blood and blood 

products in CY 2006 on the greater of: 

(1) Simulated medians calculated using 

CY 2004 claims data; or (2) 90 percent 

of the APC payment median for CY 2005 

for such products. We recognize that 

possible errors in hospital billing or 

coding for blood products in CY 2004 

may have contributed to these decreases 

in medians. In particular, hospitals may 

have been uncertain about which of 

their many different costs for providing 

blood and blood products should be 

captured in their charges for the 

products, based on variations in the 

specific circumstances of the services 

they provided. In addition, the six 

products affected by the proposed CY 

2006 adjustment policy all were 

relatively low volume with fewer than 

7,000 units billed in CY 2004. Three of 

these products were affected by the lowvolume payment adjustment for CY 

2005 because there were less than 1,000 

units billed, and their CY 2005 payment 

medians would have decreased without 

the adjustment. In the interim, as 

hospitals become more familiar with the 

comprehensive billing guidelines for 

blood and blood products that are 

described in Program Transmittal 496 

(Change Request 3681 dated March 4, 

2005), we acknowledge the need to 

protect beneficiaries’ access to a safe 

blood supply and proposed to do so by 

limiting significant decreases in 

payment rates for blood and blood 

products from CY 2005 to CY 2006. We 

expect that our billing guidance will 

assist hospitals in more fully including 

all appropriate costs for providing blood 

and blood products in their charges for 

those products, so that our data for CY 

2005, which will be used to set median 

costs for blood and blood products in 

the CY 2007 OPPS update, should more 

accurately capture the hospital costs 

associated with each different blood 

product. 

Therefore, for CY 2006, we proposed 

to establish payment rates for blood and 

blood products under the OPPS using 

the same simulation methodology 

described in the November 15, 2004 

final rule with comment period (69 FR 

65816). For blood and blood products 

whose CY 2006 medians would have 

otherwise experienced a decrease of 

more than 10 percent in comparison 

with their CY 2005 payment rates, we 

proposed to adjust the simulated 

medians by limiting their decrease to 10 

percent. 

At the August 2005 APC Panel 

meeting, the Panel recommended that 

CMS use its CY 2005 payment rates as 

the floor for its CY 2006 payment rates 

for all blood and blood products. 

Specifically, the Panel recommended 

that CMS should pay the greater of: (1) 

The simulated median costs calculated 

from the CY 2004 hospitals claims data; 

or (2) the CY 2005 APC payment 

medians for these products. For reasons 

discussed in detail below, we are not 

adopting the Panel’s recommendation 

for setting the CY 2006 payment rates 

for blood and blood products. Instead, 

for CY 2006, we are setting the final 

median costs for blood and blood 

products at the greater of: (1) The 

simulated median costs calculated from 

the CY 2004 hospital claims data; or (2) 

95 percent of the CY 2005 adjusted 

median costs for these products. 

We received numerous public 

comments concerning our proposed 

payment for blood and blood products. 

Comment: Numerous commenters 

applauded our March 2005 issuance of 

comprehensive billing guidelines 

(Program Transmittal 496) for blood and 

blood products, stating that the 

guidelines clarified many areas of 

confusion for providers and should 

result in improved hospital coding of 

blood and blood products. Other 

commenters recommended that CMS 

release guidance on blood and blood 

products on an annual basis. 

Response: We appreciate the 

comment and expect that the billing 

guidance that we issued in March 2005 

will result in improved hospital coding 

of blood and blood products. We will 

continue to support educational efforts 

by interested organizations to clarify 

areas of confusion and improve 

accuracy of billing for hospitals related 

to the billing of blood and blood 

products. In addition, we will continue 

to issue guidance on billing for blood 

and blood products to provide 

clarification or additional explanation 

as needed, based on additional 

questions and issues that are brought to 

our attention. 

Comment: Numerous commenters 

expressed concern that the proposed 

payment rates for several blood 

products had decreased from their CY 

68686 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

2005 payment rates. Commenters stated 

that such payment declines would 

likely jeopardize beneficiary access to 

these products. Most notably, according 

to several organizations providing blood 

and blood products to hospitals, the 

proposed CY 2006 payment rate for 

leukocyte-reduced red blood cells 

(HCPCS code P9016), the most 

commonly billed blood product in the 

hospital outpatient setting, is 

significantly below hospitals’ actual 

acquisition costs. Commenters urged 

CMS to set the CY 2006 payment rates 

for blood and blood products at the 

greater of: (1) The simulated medians 

calculated using the CY 2004 claims 

data; or (2) the CY 2005 APC payment 

medians for these products. 

Response: We are displaying in Table 

33 of this final rule with comment 

period the list of blood product HCPCS 

codes with their final CY 2006 adjusted 

median costs. Overall, median costs 

from CY 2005 and CY 2006 were 

relatively stable, with significant 

increases and adjusted decreases for 

some specific blood products. In 

addition, we expect that as hospitals 

improve their billing and coding 

practices, medians based on historical 

hospital claims data should continue to 

become more consistent and reflective 

of all hospital costs associated with 

providing blood products to hospital 

outpatients. We agree with commenters 

that beneficiary access to the safest and 

most immediately available blood 

supply is critical to saving lives. In 

addition, we understand that, in most 

cases, the hospital costs related to 

providing blood and blood products 

stem mainly from the costs of 

processing and storing the blood. We 

also acknowledge that new blood testing 

due to technological advances and 

challenges associated with donor 

recruitment and retention may 

contribute to rising costs of blood and 

blood products. However, there may be 

other environmental forces, including 

improved efficiencies through new 

technologies and changes in the clinical 

circumstances surrounding outpatient 

hospital transfusions, that may reduce 

the costs of providing blood products. 

While the above-mentioned issues must 

all be carefully considered, we also 

remind commenters that the payment 

rates for services paid under the OPPS 

will naturally experience fluctuations 

from year to year. Such variation is 

inherent in any budget-neutral 

prospective payment system such as the 

OPPS, where payment rates are 

developed based on historical hospital 

claims data. However, when such 

fluctuations become large enough to 

potentially jeopardize access to services 

paid under the OPPS, we may 

acknowledge the need to balance these 

payment fluctuations with protecting 

beneficiary access to such services by 

moderating abrupt payment declines 

that occur over a 1-year period. We were 

concerned that our proposed allowance 

of a 10 percent decrease in median costs 

from the CY 2005 adjusted final medial 

costs might affect beneficiary access to 

these services. Therefore, for CY 2006, 

for blood and blood products whose CY 

2006 simulated median costs would 

have otherwise experienced a decrease 

of more than 5 percent in comparison 

with their CY 2005 adjusted final 

median costs, we are adjusting the 

simulated medians by limiting their 

decrease to 5 percent. We applied this 

adjustment to 11 blood and blood 

product APCs for CY 2006. Table 33 of 

this final rule with comment period 

contains the adjusted payment medians 

for CY 2006. Those CY 2006 final 

median costs that we adjusted by 

moderating their decrease to 5 percent 

are indicated by an asterisk in the table. 

In summary, for the CY 2006 OPPS, the 

final median costs for blood and blood 

products are set at the greater of: (1) the 

simulated median costs calculated from 

the CY 2004 claims data; or (2) 95 

percent of the CY 2005 adjusted median 

costs for these products. 

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BILLING CODE 4120–01–C 

Comment: While one commenter 

thanked CMS for providing hospitals 

with detailed billing guidance for blood 

and blood products when furnished 

under the hospital outpatient setting, 

the commenter requested additional 

clarification on whether hospitals 

should charge inpatients, as they do 

outpatients, for blood administration 

services. The commenter explained that 

some hospitals do not charge inpatients 

separately for blood administration 

services; rather they consider such 

services to be included in the room and 

board rate. The commenter urged CMS 

to instruct hospitals to establish a 

charge structure for blood transfusion 

and administration services that applies 

uniformly to both inpatients and 

outpatients. 

Response: We appreciate the 

comment’s recommendation. However, 

we do not consider the OPPS final rule, 

which addresses hospital outpatient 

payment policies, to be an appropriate 

forum for addressing detailed billing 

guidance for inpatient services. Rather, 

we encourage hospitals to consult their 

fiscal intermediaries with any concerns 

related to the billing of blood 

transfusion and administration services 

to inpatients. 

Comment: One commenter supported 

our proposal to set CY 2006 OPPS 

payments for blood and blood products 

based on hospital claims data rather 

than blood industry data. This 

commenter recommended that if CMS 

does consider using external data in 

some fashion for setting the payment 

rates for blood and blood products, that 


ER10NO05.024</GPH>
68688 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

CMS proceed very cautiously in 

considering whether to utilize blood 

industry data. The commenter stated 

that it is crucial that the external data 

be valid, reliable, publicly available, 

reflective of geographic variations in 

costs, and subject to audit. 

Response: Although we are not using 

external data for setting the CY 2006 

payment rates for blood and blood 

products, we thank the commenter for 

the recommended and considered 

caution toward using such external data 

in this case. 

After carefully considering all 

comments received on our proposed CY 

2006 OPPS methodology for 

establishing APC payment for blood and 

blood products, we are adopting as final 

our proposal with modification. To 

ensure beneficiaries’ access to a safe 

blood supply, we are adopting a 

payment adjustment policy that will 

limit significant decreases in APC 

payment rates for blood and blood 

products from CY 2005 to CY 2006 by 

not more than 5 percent rather than 10 

percent as proposed. Therefore, for the 

CY 2006 OPPS, the final median costs 

for blood and blood products are set at 

the greater of: (1) The simulated median 

costs calculated from the CY 2004 

claims data; or (2) 95 percent of the CY 

2005 adjusted median costs for these 

products, as reflected in Table 34 above. 

For CY 2006, we also proposed to 

change the status indicator for CPT code 

85060 (Blood smear, peripheral, 

interpretation by physician with written 

report) from ‘‘X’’ (separately paid under 

the OPPS) to ‘‘B’’ (not paid under the 

OPPS). When a hospital provides a 

physician interpretation of an abnormal 

peripheral blood smear interpretation 

for a hospital outpatient, the charge for 

the facility resources associated with the 

interpretation should be bundled into 

the charge reported for the ordered 

hematology lab service, such as CPT 

code 85007 (Blood count; blood smear, 

microscopic examination with manual 

differential WBC count) or CPT code 

85008 (Blood count; blood smear, 

microscopic examination without 

manual differential WBC count), that are 

paid under the Clinical Laboratory Fee 

Schedule (CLFS). A physician 

interpretation of an abnormal peripheral 

blood smear is considered a routine part 

of the ordered hematology lab service, 

such as CPT codes 85007 and 85008 

paid under the CLFS, so hospitals will 

receive duplicate payment for the 

facility resources associated with a 

physician’s blood smear interpretation if 

we were to continue to pay separately 

for CPT code 85060 under the OPPS for 

hospital outpatients. Therefore, for CY 

2006, we proposed to discontinue 

payment under the OPPS for CPT code 

85060 by changing its status indicator 

from ‘‘X’’ to ‘‘B.’’

We did not receive any public 

comments on this proposal. 

Accordingly, we are finalizing our 

proposal to discontinue payment under 

the OPPS effective for services 

furnished on or after January 1, 2006, for 

CPT code 85060 by changing its status 

indicator from ‘‘X’’ to ‘‘B.’’

XI. Payment for Observation Services 

A. Background 

Observation care is a well-defined set 

of specific, clinically appropriate 

services, which include ongoing shortterm treatment, assessment, and 

reassessment, before a decision can be 

made regarding whether patients will 

require further treatment as hospital 

inpatients or if they are able to be 

discharged from the hospital. 

Observation status is commonly 

assigned to patients with unexpectedly 

prolonged recovery after surgery and to 

patients who present to the emergency 

department and who then require a 

significant period of treatment or 

monitoring before a decision is made 

concerning their next placement. For a 

detailed discussion of the clinical and 

payment history of observation services 

under the OPPS, we refer readers to the 

November 1, 2002 final rule with 

comment period (67 FR 66794). 

For a detailed discussion of our 

proposed changes to payments for 

observation services for CY 2006, we 

refer readers to the CY 2006 OPPS 

proposed rule at 70 FR 42742 through 

42745. A summary of the proposed 

changes is included below, followed by 

our responses to the public comments, 

and our final policies for CY 2006. 

B. Proposed and Final CY 2006 Coding 

Changes for Observation Services and 

Direct Admission to Observation 

In response to comments received 

regarding the continuing administrative 

burden on hospitals when attempting to 

differentiate between packaged and 

separately payable observation services 

for purposes of billing correctly, and 

recommendations made by the APC 

Panel and participants at the February 

2005 APC Panel meeting, in the CY 

2006 OPPS proposed rule, we proposed 

two changes in observation coding and 

implementation of the OPPS payment 

policies for observation services in CY 

2006. As we stated in the CY 2006 

proposed rule (70 FR 42743), these 

administrative changes were prompted 

by the fact that CY 2004 hospital data 

do not reflect the CY 2005 policy 

changes implemented for separately 

payable observation services. We 

continued to receive incomplete and 

unreliable data as a result of 

inconsistent hospital reporting, with 

some hospitals reporting observation 

services per day, and others reporting 

each hour of observation as one unit. 

The CY 2006 proposed changes were an 

effort to ensure more consistent hospital 

billing for both separately payable and 

packaged observation services in order 

to guide our future analyses of 

observation care and to shift the 

administrative burden for determining 

separately payable observation services 

from hospitals to the OCE. We do not 

expect to see an increase in the number 

of separately payable observations 

services as a result of these changes. 

First, we proposed to discontinue 

HCPCS codes G0244 (Observation care 

by facility to patient), G0263 (Direct 

admission with CHF, CP, asthma), and 

G0264 (Assessment other than CHF, CP, 

asthma) and to create two new HCPCS 

codes to be used by hospitals to report 

all observation services, whether 

separately payable or packaged, and 

direct admission for observation care, 

whether separately payable or packaged: 

• G0378—Hospital observation 

services, per hour (cited in the proposed 

rule as ‘‘GXXXX’’). 

• G0379—Direct admission of patient 

for hospital observation care (cited in 

the proposed rule as ‘‘GYYYY’’). 

Second, we proposed to shift 

determination of whether or not 

observation services are separately 

payable under APC 0339 (Observation) 

from the hospital billing department to 

the OPPS claims processing logic. That 

is, hospitals would bill HCPCS code 

G0378 when observation services are 

provided to any patient admitted to 

‘‘observation status,’’ regardless of the 

patient’s condition. In addition to the 

HCPCS code G0378, hospitals would 

bill HCPCS code G0379 when 

observation services are the result of a 

direct admission to ‘‘observation status’’

without an associated emergency room 

visit, hospital outpatient clinic visit, or 

critical care service on the day of or day 

before the observation services. 

We proposed to assign both of these 

proposed new HCPCS codes a new 

status indicator ‘‘Q’’ (packaged service 

subject to separate payment based on 

criteria) that would trigger the OCE logic 

during the processing of the claim to 

determine if the observation service or 

direct admission service is packaged 

with the other separately payable 

hospital services provided, or if a 

separate APC payment for observation 

services or direct admission to 

observation is appropriate in accordance 

with the criteria discussed in section 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68689 

XI.C. or XI.D. of this preamble. In 

addition, we proposed to change the 

status indicator for CPT codes 99217 

through 99220 and 99234 through 99236 

from ‘‘N’’ (packaged) to ‘‘B’’ (code not 

recognized by the OPPS). We noted we 

would expect hospitals to use HCPCS 

code G0378 to accurately report all 

observation services provided to 

beneficiaries, whether the observation 

would be packaged or separately 

payable, to assist us in developing 

consistent and complete hospital claims 

data regarding the utilization and costs 

of observation services. The units of 

service reported with HCPCS code 

G0378 would equal the number of hours 

the patient is in observation status. 

Comment: Several commenters 

expressed support for the proposed 

changes and CMS’ and the APC Panel’s 

efforts to streamline the billing process 

for observation services in hospitals. 

Nine commenters stated that they 

appreciated our proposal to shift the 

burden of determining if observation is 

separately payable from the hospitals to 

the OCE logic. 

While most of these commenters 

approved the proposal to use the new 

HCPCS code G0378 to bill for hospital 

observation services, two commenters 

believed that HCPCS code G0378 is 

unnecessary. They recommended that 

providers should use CPT evaluation 

and management codes for observation 

care, specifically CPT codes 99218, 

99219, and 99220. The commenters also 

suggested that CMS should require 

hospitals to provide the hour 

information in the unit field and 

develop edits for these codes to edit for 

the qualifying conditions. A third 

commenter requested clarification on 

why G-codes are needed at all. 

Response: We disagree with the 

commenters that HCPCS code G0378 is 

unnecessary and disagree that the 

requirement of reporting the code per 

hour could be handled in the unit field 

for CPT observation codes. The CPT 

observation codes are per day codes by 

CPT definition. We believe that to 

instruct hospitals to bill multiple units 

of a per day code to report the hours of 

observation care provided would create 

confusion and many variances in claims 

reporting resulting in poor hospital 

claims data. Generally, we follow CPT 

instructions for coding, and in this case 

we believe that it would be most 

prudent to establish a per hour G-code 

for observation services to facilitate ease 

of coding observation services and to 

ensure that we will be able to obtain 

useful and consistent data from future 

claims. 

Comment: Five commenters sought 

clarification of the language in section 

XI.B. of the CY 2006 proposed rule on 

page 70 FR 42743 where we stated that 

hospitals would bill HCPCS code G0378 

when observation services are provided 

to any patient admitted to ‘‘observation 

status,’’ regardless of the patient’s status 

as inpatient or outpatient. 

Response: We mistakenly included 

the word ‘‘inpatient’’ in this statement. 

The statement should instead read, 

‘‘Hospitals would bill HCPCS code 

G0378 when observation services are 

provided to any patient admitted to 

‘observation status’ regardless of the 

patient’s condition.’’

Comment: One commenter notified 

CMS of an omission on page 70 FR 

42745, under section XI.C.3.a of the CY 

2006 proposed rule. The commenter 

pointed out that we had omitted direct 

admission from the bulleted list of 

additional hospital services. 

Response: We appreciate the 

commenter bringing this error to our 

attention. The omission was 

inadvertent. In this final rule with 

comment period, we have made the 

appropriate change to make the policy 

consistent with the CY 2005 OPPS 

payment policy. The corrected policy 

reads as follows for the billing of 

hospital observation services: 

‘‘Additional Hospital Services: 

a. The hospital must provide on the 

same day or the day before and report 

on the same claim: 

• An emergency department visit 

(APC 0610 or 0612); or 

• A clinic visit (APC 0600, 0601, or 

0602); or 

• Critical care (APC 0620); or 

• Direct admission to observation 

using HCPCS code G0379.’’

Comment: Many commenters 

expressed overall approval for our 

proposed policy changes concerning the 

new G-codes for observation services 

and, specifically, approval of the new 

HCPCS code G0379 to report direct 

admission to observation when a 

Medicare beneficiary is directly 

admitted into a hospital outpatient 

department for observation care after 

being seen by a physician in the 

community. 

However, seven commenters believed 

that HCPCS code G0379 would be 

unnecessary if CMS would alter the 

OCE logic to look for revenue codes 45X 

(Emergency Department) and 516 

(urgent care) on claims for observation 

services coded with HCPCS code G0378. 

They reasoned that if one of these 

revenue codes is not on the claim, the 

OCE logic should determine that the 

observation services billed were as a 

result of a direct admission to 

observation care. 

Response: While we appreciate this 

suggestion and we agree that the OCE 

logic could recognize these revenue 

codes, we will implement HCPCS code 

G0379 as proposed. The OCE logic has 

no method of identifying if the direct 

admission to observation care service 

was actually provided. For example, the 

observation care billed with HCPCS 

code G0378 may have been an error in 

coding by a hospital, or the hospital 

may have failed to bill for an emergency 

room or clinic visit on the same day on 

the same claim as the observation 

services. Because we plan to pay 

separately for HCPCS code G0379 in 

some circumstances and the OPPS pays 

for services that were provided and 

billed with HCPCS codes on claims, the 

HCPCS code G0379 is necessary for 

billing and possible separate payment. 

In addition, if hospitals did not 

appropriately bill HCPCS code G0379 

with its associated charges in cases of 

direct admission to observation, we 

would have no direct way of calculating 

the median cost of the direct admission 

to observation to facilitate analysis of its 

median cost in comparison with the 

OPPS payment rate for that service. If 

the observation care itself was not 

separately payable, and there were no 

other separately payable services on the 

claim, there would be no billed direct 

admission service with which to 

package the observation care and other 

packaged costs on the claim. Thus, in 

the absence of a code on a claim 

reporting a direct admission to 

observation services billed as HCPCS 

code G0379, Medicare will not use the 

OCE logic to infer that the patient was 

previously seen by a physician outside 

of the hospital who ordered the direct 

admission of the patient for observation 

services. 

In summary, while a few commenters 

questioned the necessity of creating new 

G-codes for reporting observation 

services and direct admission to 

observation, we agree with the many 

commenters who encouraged us to 

implement the new codes and to use the 

OCE logic to determine when 

observation services are separately 

payable for the CY 2006 OPPS. Like 

those commenters, we believe that this 

change will both reduce the 

administrative burden on hospitals and 

will improve CMS claims data which 

will allow us to continue to evaluate our 

payment policies for observation 

services under the OPPS. 

C. Proposed and Final Criteria for 

Separate Payment for Direct Admission 

to Observation 

Through claims processing logic, we 

proposed to continue paying for direct 

68690 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

admission to observation at a rate equal 

to that of a Low Level Clinic Visit (APC 

0600) when a Medicare beneficiary seen 

by a physician in the community and 

then is directly admitted into a hospital 

outpatient department for observation 

care that does not qualify for separate 

payment under APC 0339. In order to 

receive separate payment for a direct 

admission into observation (APC 0600), 

the claim must show: 

1. Both HCPCS codes G0378 (Hourly 

Observation) and G0379 (Direct Admit 

to Observation) with the same date of 

service. 

2. That no services with a status 

indicator ‘‘T’’ or ‘‘V’’ or Critical care 

(APC 0620) were provided on the same 

day of service as HCPCS code G0379. 

3. The observation care does not 

qualify for separate payment under APC 

0339. 

Comment: One commenter disagreed 

with our proposal that no service with 

a status indicator of ‘‘V’’ (clinic or 

emergency department visit) can be on 

the claim when provided on the same 

day of service as HCPCS code G0379. 

The commenter stated that because 

OPPS services performed on the same 

date of service must be reported on the 

same claim, the hospital would not 

receive any payment for observation 

services for patients who receive a 

service in a provider-based clinic in the 

morning and later in the day are directly 

admitted to observation by their primary 

care practitioner for an unrelated 

reason. The commenter recommended 

that CMS eliminate the requirement that 

a hospital must combine separate 

outpatient encounters on a single claim. 

Response: We appreciate the 

commenter’s suggestion, but at this time 

we are not removing the requirement 

that services with status indicator ‘‘V’’

cannot be billed on the same claim with 

the same date of service as HCPCS code 

G0379 for direct admission to 

observation care for separate payment 

for HCPCS code G0379 to be made. We 

believe that the circumstances under 

which a patient would have a hospital 

visit (clinic or emergency room), sees a 

physician outside the hospital for an 

unrelated reason later in the same day, 

and then be directed on that same day 

to the same hospital where he or she 

had the first hospital visit for direct 

admission to observation for observation 

services that would be packaged (that is, 

not for chest pain, congestive heart 

failure, or asthma) but for which we 

would make separate payment for the 

direct admission to observation would 

be very rare. The OCE editing cannot 

deal with the complexity of this unusual 

sequence of events. Thus, if the 

observation services were not separately 

payable in such a scenario, payment for 

the direct admission to observation and 

the accompanying observation services 

would be packaged with payments for 

the other separately payable services on 

the claim, including the day’s earlier 

hospital visit if all of these services were 

billed on the claim. 

As discussed in the data section 

(section II.A.) of this final rule with 

comment period and in Change Request 

4047, issued on October 14, 2005, some 

nonrepetitive OPPS services provided 

on the same day by a hospital may be 

billed on different claims, provided that 

all charges associated with each 

procedure or service being reported are 

billed on the same claim with the 

HCPCS code which describes that 

service. We reiterate that it is vitally 

important that all of the charges that 

pertain to a nonrepetitive, separately 

paid procedure or service be reported on 

the same claim with that procedure or 

service. Only thus can we develop 

complete and accurate median costs for 

ratesetting purposes. We also emphasize 

that this relaxation of same day billing 

requirements for some nonrepetitive 

services does not apply to nonrepetitive 

services provided on the same day as 

either direct admission to observation 

care or observation services because the 

OCE claim-by-claim logic cannot 

function properly unless all services 

related to the episode of observation 

care, including hospital clinic visits, 

emergency department visits, critical 

care services, and ‘‘T’’ status 

procedures, are reported on the same 

claim. Further instruction on billing 

repetitive and nonrepetitive hospital 

services can be found in Change Request 

4047 cited above. 

Specifically with respect to the billing 

of HCPCS code G0379 for direct 

admission to observation care, we 

expect that hospitals will only bill this 

service if a patient is admitted directly 

to observation care after being seen by 

a physician in the community. Although 

our OCE logic is performed on a claimby-claim basis, hospitals should not bill 

HCPCS code G0379 for direct admission 

to observation care on the same day as 

hospital clinic visits, emergency room 

visits, critical care services, and ‘‘T’’

status procedures that are related to the 

subsequent admission to observation 

care. Instead, hospitals should bill all of 

the services associated with the 

observation care, including hospital 

clinic visits, emergency room visits, 

critical care services, and ‘‘T’’ status 

procedures, on the same claim so that 

the OCE logic may appropriately 

determine the separately payable or 

packaged payment status of HCPCS 

codes G0378 and G0379. 

In summary, we are implementing as 

final our proposed CY 2006 payment 

policies for observation services under 

the OPPS. We are also implementing the 

policy related to the new HCPCS code 

G0379 as proposed in order to continue 

paying for direct admission to 

observation at a rate equal to that of a 

Low Level Clinic Visit when a Medicare 

beneficiary is directly admitted into a 

hospital outpatient department for 

observation care that does not qualify 

for separate payment under APC 0339. 

D. Proposed and Final Criteria for 

Separately Payable Observation Services 

(APC 0339) 

For CY 2006, we proposed to continue 

applying the existing CY 2005 criteria 

(69 FR 65830), which determine if 

hospitals may receive separate payment 

for medically necessary observation care 

provided to a patient with congestive 

heart failure, chest pain, or asthma. In 

addition, we proposed to continue our 

policy of packaging payment for all 

other observation services into the 

payments for the separately payable 

services with which the observation 

service is reported. As explained 

previously in section XI.B. of this 

preamble, the only changes we 

proposed are related to the code 

hospitals will use to report observation 

services, and the point at which a 

payment determination is made. Rather 

than requiring the hospital to determine 

prior to claims submission whether 

patient condition and the services 

furnished meet the criteria for payment 

of APC 0339, that determination would 

shift to the claims processing modules 

installed by the fiscal intermediaries to 

process all OPPS bills, thereby reducing 

the administrative burden on hospitals. 

Criteria for separate observation 

service payments include 

documentation of specific ICD–9–CM 

diagnostic codes; the length of time a 

patient is in observation status; hospital 

services provided before, during, and 

after the patient receives observation 

care; and ongoing physician evaluation 

of the patient’s status. 

As we stated in Program Transmittal 

A–02–129 released in January 2003, we 

will continue to update any changes in 

the list of ICD–9–CM codes required for 

payment of HCPCS code G0378 

resulting from the October 1 annual 

update of ICD–9–CM in the October 

quarterly update of the OPPS. The ICD–

9–CM codes for CY 2006 through 

October 2006 are listed in Table 35. As 

we proposed, below are the criteria that 

we will continue using in CY 2006 to 

determine if hospitals may receive 

separate OPPS payment for medically 

necessary observation care provided to 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68691 

a patient with congestive heart failure, 

chest pain, or asthma. 

1. Diagnosis Requirements 

a. The beneficiary must have one of 

three medical conditions: congestive 

heart failure, chest pain, or asthma. 

b. The hospital bill must report as the 

reason for visit or principal diagnosis an 

appropriate ICD–9–CM code (as shown 

in Table 30 below) to reflect the 

condition. 

c. The qualifying ICD–9–CM diagnosis 

code must be reported in Form Locator 

(FL) 76, Patient Reason for Visit, or FL 

67, principal diagnosis, or both, in order 

for the hospital to receive separate 

payment for APC 0339. If a qualifying 

ICD–9–CM diagnosis code(s) is reported 

in the secondary diagnosis field but is 

not reported in either the Patient Reason 

for Visit field (FL 76) or in the principal 

diagnosis field (FL 67), separate 

payment for APC 0339 will not be 

allowed. 

BILLING CODE 4120–01–P 

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BILLING CODE 4120–01–C 

2. Observation Time 

a. Observation time must be 

documented in the medical record. 

b. A beneficiary’s time in observation 

(and hospital billing) begins with the 

beneficiary’s admission to an 

observation bed. 

c. A beneficiary’s time in observation 

(and hospital billing) ends when all 

clinical or medical interventions have 

been completed, including followup 

care furnished by hospital staff and 

physicians that may take place after a 

physician has ordered the patient be 

released or admitted as an inpatient. 

d. The number of units reported with 

HCPCS code G0378 must equal or 

exceed 8 hours. 

3. Additional Hospital Services 

a. The hospital must provide on the 

same day or the day before and report 

on the same claim: 

• An emergency department visit 

(APC 0610, 0611, or 0612) or 

• A clinic visit (APC 0600, 0601, or 

0602); or 

• Critical care (APC 0620); or 

• Direct admission to observation 

services using HCPCS code G0379 (APC 

0600). 

b. No procedure with a ‘‘T’’ status 

indicator can be reported on the same 

day or day before observation care is 

provided. 

4. Physician Evaluation 

a. The beneficiary must be in the care 

of a physician during the period of 

observation, as documented in the 

medical record by admission, discharge, 

and other appropriate progress notes 

that are timed, written, and signed by 

the physician. 

b. The medical record must include 

documentation that the physician 

explicitly assessed patient risk to 

determine that the beneficiary would 

benefit from observation care. 

The APC Panel met in August 2005 

and made several recommendations for 

clarification of the observation policy, 

including that CMS offer further 

guidance regarding the definition of 

end-time of observation services, billing 

the new HCPCS G-codes in relation to 

the currently required evaluation and 

management visit codes, the typical 

length of observation time, and if the 

hospital has the ability to issue an 

Advance Beneficiary Notice (ABN) and 

under what circumstances. 

We appreciate the consideration of 

the issues by the APC Panel and will 

continue to evaluate its 

recommendations as we gather claims 

data based on the new G-codes. We also 

appreciate the APC Panel’s concern for 

clear coding and billing guidance. We 

will provide detailed guidance 

regarding billing for observation 

services in an upcoming Internet-only 

manual update and ‘‘Medlearn Matters’’

article. For further clarification, this 

guidance will also include a restatement 

of when observation hours begin and 

end, and a discussion of appropriate 

billing of the G-codes for observation 

services in relationship to other services 

also billed by hospitals. As we have 

stated before in reference to the 

appropriate duration of observation 

services, we believe that in the 

overwhelming majority of cases, 

decisions can be and are routinely made 

in less than 48 hours, and generally in 

less than 24 hours, regarding whether to 

release a beneficiary from the hospital 

following resolution of the reason for 

the outpatient visit or whether to admit 

the beneficiary as an inpatient (69 FR 

65830, November 15, 2004). 

In response to the APC Panel’s 

recommendation for clarification 

concerning if and when a hospital may 

issue an ABN, all hospital observation 

services, regardless of the duration of 

the observation care, that are medically 

reasonable and necessary are covered by 

Medicare, and hospitals receive OPPS 

payments for such observation services. 

We make separate payment for 

observation care only for the three 

conditions previously defined that also 

meet our specific criteria, and payments 

for all other reasonable and necessary 

observation services are packaged into 

the payments for other separately 

payable services provided to the patient 

on the same day. An ABN should not be 

issued in the context of reasonable and 

necessary observation services, whether 

packaged or not. 

The APC Panel also recommended 

that CMS reevaluate expanding the list 

of diagnoses eligible for separate 

payment for observation. 

We appreciate this recommendation 

by the APC Panel. While we believe that 

it is premature to expand the conditions 

for which we would separately pay for 

observation services, we believe that the 

coding changes we are finalizing for CY 

2006 will result in more consistent and 

accurate hospital claims. The data 

gathered from these claims will allow 

further analysis of the appropriateness 

of expanding the number of separately 

payable conditions. 

In addition, the APC Panel 

recommended that CMS establish a 

mechanism to reimburse separately for 

observation services when specific 

HCPCS codes with status indicator ‘‘T’’

are also on the claim with observation 

services on the day of or the day 

preceding observation care. The APC 

Panel believed that sometimes 

observation services could be provided 

on the same day as ‘‘T’’ status 

procedures, but be unassociated with 

those procedures, as the observation 

care could be related to treatment of 

chest pain, asthma, or congestive heart 

failure for which we might otherwise 

make separate payment. 

Although we appreciate the 

discussion of the APC Panel and this 

recommendation, we believe that in 

most cases, where observation care is 

billed on a claim on the same date as a 

‘‘T’’ status procedure, the observation 

services are most likely related to postprocedural observation for which we do 

not make separate payment. As we take 

on the administrative responsibility for 

determining which observation services 

we will pay separately for, we have 

limited ability to determine the 

temporal order of ‘‘T’’ status procedures 

in relationship to the observation 

services. In addition, considering that 

there are over 13,000 ‘‘T’’ status codes 

paid under the OPPS, it would be an 

extremely large administrative burden 

for us to individually evaluate each ‘‘T’’

status code to determine if there may be 

an exception to the rule in some clinical 

circumstances, where observation care 

would precede or be unassociated with 

the ‘‘T’’ status procedure. We will 

discuss this issue again with the APC 

Panel in future APC Panel meetings and 

will examine the utilization patterns 

and costs of procedure-related 

observation services in our claims data 

based on the new G-code reporting of 

observation care. 

We note, as described earlier in the 

context of billing HCPCS code G0379 for 

direct admission to observation, that 

through Change Request 4047 issued on 

October 14, 2005, we have recently 

relaxed our previous requirement to bill 

all OPPS services provided on the same 

day on the same claim. In the case of 

observation care, because of the OCE 

claim-by-claim logic, in order for us to 

make proper determinations regarding 

packaging or separate payment for 

observation services consistent with our 

payment policy to make separate 

observation payment only for the three 

specified medical conditions, all 

services associated with the observation 

care, including hospital clinic visits, 

emergency room visits, critical care 

services, and ‘‘T’’ status procedures that 

may have resulted in the need for 

observation care, must be reported on 

the same claim. 

Comment: Several commenters 

requested clarification of the billing 

process, such as how to bill observation 

services when the patient is seen over 

68694 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

the midnight hour. Three commenters 

requested that CMS issue further billing 

guidance in the form of prompt issuance 

of program transmittals and manual 

changes, as well as a possible training 

package for hospitals to use when 

training physicians so that physicians 

can receive the same instructions from 

all facilities to which they admit 

patients. 

Response: We appreciate these 

suggestions and, as stated earlier, we 

will provide detailed guidance 

regarding billing for observation 

services in an upcoming Internet-only 

manual update and ‘‘Medlearn Matters’’

article. 

Comment: Several commenters 

recommended that CMS reevaluate 

expanding the list of diagnoses eligible 

for separate payment for observation. 

One commenter requested that CMS 

consider adding the following 

diagnoses: 466.0—Acute bronchitis; 

466.11 (Acute bronchitis due to RSV); 

466.19 (Acute bronchitis due to oth 

infects organism); 491.21 (Chr 

obstructive bronchitis, w acute 

exacerbation); 491.22 (Chr obstructive 

bronchitis, w acute bronchitis); and 496 

(Chr obstructive pulmonary disease). 

The commenter stated that the current 

asthma diagnoses that receive separate 

payment include some patients with 

chronic obstructive pulmonary disease 

(COPD), but not all patients with COPD, 

and that physicians are frequently 

nonspecific when stating a diagnosis, 

which then leads to a wide variety of 

assignments of asthma and COPD codes. 

In addition, the commenter reasoned 

that the care of a patient with asthma, 

bronchitis, or COPD is very similar as 

far as the diagnostic tests performed, 

medications ordered, and clinical care 

provided. 

Response: Our separately payable 

observation policy includes only 

diagnoses directly related to asthma. 

While we acknowledge that some of 

these conditions may have similar 

symptoms or a similar clinical course to 

asthma, we do not consider these 

diagnoses codes to represent asthma. In 

addition, there may be significant 

differences in responses to treatment for 

patients with these other diagnoses. 

Therefore, we are not adding the 

suggested diagnoses at this time. 

Comment: One commenter requested 

that CMS and the APC Panel study the 

possible expansion of the conditions for 

which separate payment would be 

provided to include the diagnoses of 

febrile neutropenia, chemotherapy 

hypersensitivity reaction, and 

hypovolemia, electrolyte imbalance. 

Another commenter requested that CMS 

consider adding the diagnosis codes for 

coronary artery disease as valid 

conditions for separate payment of 

observation. 

Response: We appreciate the 

comments that we received from these 

commenters regarding possible 

additions to the list of diagnoses eligible 

for separate payment for observation 

services. Although we are not 

implementing in the CY 2006 OPPS the 

recommendations made by commenters 

and the APC Panel to expand separate 

payment for observation to include 

conditions in addition to congestive 

heart failure, asthma, and chest pain, we 

will continue to analyze our data based 

on the new G-codes and will study the 

feasibility and impact of such changes 

in eligible diagnoses as we consider 

future updates of the OPPS. We believe 

that the use of the new G-code for 

reporting hourly observation services 

should yield much more robust and 

reliable claims data upon which to base 

such further analyses. 

Comment: One commenter 

recommended that CMS establish a 

mechanism to reimburse separately for 

observation services when specific 

HCPCS codes with status indicator ‘‘T’’

are also on the claim with observation 

services on the day of or the day 

preceding observation care. The 

commenter stated that the intensity and 

types of service for these types of 

procedures can be similar and that 

procedural complications or physician 

planned overnight observation can 

apply to status ‘‘T’’ procedures such as 

breast procedures and interventional 

radiology procedures. The commenter 

also expressed concern that patients 

initially in observation for chest pain 

may proceed to cardiac catheterization 

evaluations, and the current rule would 

seem to limit separate payment for 

observation services in this situation, 

even though the observation was for 

chest pain and it preceded the cardiac 

catheterization. The commenter 

requested that CMS either allow both 

‘‘S’’ and ‘‘T’’ status services to be on the 

claim or discontinue this edit. 

Response: Our changes in coding and 

OCE logic for CY 2006 do not affect the 

criteria for separately payable 

observation services. We do not intend 

to make separate payment for 

observation services following surgical 

or interventional procedures, and, in 

general, these services may be most 

readily identified by their ‘‘T’’ status 

under the OPPS. As we stated 

previously in response to a similar 

recommendation by the APC Panel, we 

believe that in most cases, where 

observation care is billed on a claim on 

the same date as a ‘‘T’’ status procedure, 

the observation services are most likely 

related to post-procedural observation 

for which we do not make separate 

payment. We refer the readers to the 

previous response for further 

explanation. 

Comment: One commenter 

recommended that CMS reconsider 

requiring hospitals to report one of the 

ICD–9–CM diagnosis codes designated 

for payment of APC 0339 as the 

admitting or primary diagnosis on the 

hospital claim. The commenter was 

concerned that if we restrict the position 

of the diagnosis code to the admitting or 

principal field, many claims that 

otherwise meet the criteria for separate 

payment of observation services will not 

be payable because coding rules and the 

frequency by which Medicare 

beneficiaries with asthma, congestive 

heart failure, or chest pains have other 

presenting signs, symptoms, and 

clinical conditions will result in 

inappropriate placement of the requisite 

diagnosis code. The commenter 

recommended that CMS accept the 

required diagnosis in any diagnosis 

field. 

Response: As we stated in the CY 

2005 OPPS final rule with comment 

period, we do not agree that this 

requirement will result in many claims 

for APC 0339 not being paid. Rather, we 

believe that requiring hospitals to report 

the signs, symptoms, and conditions 

that are the reason for the patient’s visit 

will enhance coding accuracy and 

ensure that Medicare is paying 

appropriately for APC 0339 by limiting 

separate payment to those observation 

services furnished to monitor asthma, 

chest pain, and congestive heart failure. 

If we were to accept the required ICD–

9–CM diagnosis code as a secondary 

diagnosis, we would remain concerned 

that we may be making separate 

payment for observation for conditions 

other than asthma, congestive heart 

failure, or chest pain because these 

conditions are reported in the secondary 

diagnosis field even though they are not 

the clinical reason that the patient is 

receiving observation services. 

In summary, after careful 

consideration of the comments we 

received related to the criteria required 

for separate payment of observation 

services (APC 0339), we have decided to 

continue using the criteria as proposed 

for CY 2006. We will analyze the data 

that will be gathered through the 

reporting of the new HCPCS codes 

G0378 and G0379 to further study the 

implications of expanding the list of 

conditions eligible for separate payment 

for observation services. In addition, we 

will be issuing additional guidance for 

reporting and billing observation 

services in the form of a change request 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68695 

updating the Internet-only manual and 

a ‘‘Medlearn Matters’’ article. 

XII. Procedures That Will Be Paid Only 

as Inpatient Procedures 

A. Background 

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

the Secretary broad authority to 

determine the services to be covered 

and paid for under the OPPS. Before 

implementation of the OPPS in August 

2000, Medicare paid reasonable costs for 

services provided in the outpatient 

department. The claims submitted were 

subject to medical review by the fiscal 

intermediaries to determine the 

appropriateness of providing certain 

services in the outpatient setting. We 

did not specify in regulations those 

services that were appropriate to 

provide only in the inpatient setting and 

that, therefore, should be payable only 

when provided in that setting. 

In the April 7, 2000 final rule with 

comment period, we identified 

procedures that are typically provided 

only in an inpatient setting and, 

therefore, would not be paid by 

Medicare under the OPPS (65 FR 

18455). These procedures comprise 

what is referred to as the ‘‘inpatient 

list.’’ The inpatient list specifies those 

services that are only paid when 

provided in an inpatient setting because 

of the nature of the procedure, the need 

for at least 24 hours of postoperative 

recovery time or monitoring before the 

patient can be safely discharged, or the 

underlying physical condition of the 

patient. As we discussed in the April 7, 

2000 final rule with comment period (65 

FR 18455) and the November 30, 2001 

final rule (66 FR 59856), we use the 

following criteria when reviewing 

procedures to determine whether or not 

they should be moved from the 

inpatient list and assigned to an APC 

group for payment under the OPPS: 

• Most outpatient departments are 

equipped to provide the services to the 

Medicare population. 

• The simplest procedure described 

by the code may be performed in most 

outpatient departments. 

• The procedure is related to codes 

that we have already removed from the 

inpatient list. 

In the November 1, 2002 final rule 

with comment period (67 FR 66792), we 

removed 43 procedures from the 

inpatient list for payment under OPPS. 

We also added the following criteria for 

use in reviewing procedures to 

determine whether they should be 

removed from the inpatient list and 

assigned to an APC group for payment 

under the OPPS: 

• We have determined that the 

procedure is being performed in 

multiple hospitals on an outpatient 

basis; or 

• We have determined that the 

procedure can be appropriately and 

safely performed in an ambulatory 

surgical center (ASC) and is on the list 

of approved ASC procedures or 

proposed by us for addition to the ASC 

list. 

We believe that these additional 

criteria help us to identify procedures 

that are appropriate for removal from 

the inpatient list. 

In the November 7, 2003 final rule 

with comment period (68 FR 63465), no 

significant changes were made to the 

inpatient list. In the November 15, 2004 

final rule with comment period (69 FR 

65834), we removed 22 procedures from 

the inpatient list, effective for services 

furnished on or after January 1, 2005. 

B. Proposed and Final Changes to the 

Inpatient List 

For CY 2006 OPPS, we used the same 

methodology as described in the 

November 15, 2004 final rule with 

comment period (69 FR 65837) to 

identify a subset of procedures currently 

on the inpatient list that were being 

widely performed on an outpatient 

basis. These procedures were then 

clinically reviewed for possible removal 

from the inpatient list. We solicited 

input from the APC Panel on the 

appropriateness of the removal of 26 

procedures from the inpatient list at the 

February 2005 APC Panel meeting. The 

APC Panel recommended that these 26 

procedures be removed from the list and 

further recommended that CMS 

consider CPT code 37183 (Remove 

hepatic shunt (TIPS)) for removal. We 

agreed with the APC Panel’s 

recommendation that CPT code 37183 

be removed from the inpatient list for 

CY 2006 and we proposed to remove it 

from the inpatient list. In addition, the 

APC Panel recommended that CMS 

review site of service data on 

laminectomy services, which currently 

have status indicator C and are on the 

inpatient list, to determine whether the 

procedures are being performed in the 

hospital outpatient setting with enough 

frequency to be assigned to APCs for 

payment under the OPPS. 

However, subsequent to the APC 

Panel’s February 2005 meeting, we 

conducted further clinical evaluations 

of three procedures (CPT codes 33420, 

65273, and 59856) included among the 

26 procedures that the APC Panel 

recommended for removal from the 

inpatient list. Upon further clinical 

evaluation of CPT code 33420 

(Valvotomy, mitral valve; closed heart), 

we found that the utilization data 

suggesting that this procedure is an 

office-based procedure were errant. 

Additional sources of utilization data 

suggested that this procedure is 

predominately performed on an 

inpatient basis. Concomitant with not 

meeting our criteria of being performed 

on an outpatient basis in multiple 

hospitals and not appearing on the ASC 

list of approved procedures, we were 

not compelled to support the removal of 

this procedure from the inpatient list. 

For this reason, we proposed to retain 

CPT code 33420 on the inpatient list for 

CY 2006. 

CPT codes 65273 and 59856 were 

similarly reevaluated because of our 

concern with the HCPCS long 

descriptors for these two codes. The 

long descriptors for these codes are as 

follows: CPT code 65273 (Repair of 

laceration; conjunctiva, by mobilization 

and rearrangement, with 

hospitalization) and CPT code 59856 

(Induced abortion, by one or more 

vaginal suppositories (eg, prostaglandin) 

with or without cervical dilation (eg, 

laminaria), including hospital 

admission and visits, delivery of fetus 

and secundines; with dilation and 

curettage and/or evacuation). The long 

descriptors indicate that hospital 

admission or hospitalization is included 

in the codes for these two procedures, 

which leads us to believe that these two 

procedures do not meet the established 

criteria for removal from the inpatient 

list. The same code descriptor for CPT 

code 65273, but without hospitalization, 

is assigned to CPT code 65272, which is 

already separately payable under the 

OPPS. Therefore, we proposed to retain 

CPT codes 65273 and 59856 on the 

inpatient list for CY 2006. 

In addition, we proposed to remove 

CPT code 62160 (Neuroendoscopy) from 

the inpatient list. Questions about this 

service have been raised to us by the 

hospital community because CPT code 

62160 is an add-on CPT code (that is, a 

code that is commonly performed as an 

‘‘additional or supplemental’’ procedure 

to the primary procedure). Two of the 

separately coded services that CPT 

indicates are to be used with the addon code are currently payable under the 

OPPS. Further clinical evaluation of this 

add-on procedure and its use in various 

sites of service leads us to believe it is 

appropriate for removal from the 

inpatient list. 

Therefore, for CY 2006, we proposed 

to remove 25 procedures from the 

inpatient list and to assign 23 of these 

procedures to clinically appropriate 

APCs. We did not propose to assign two 

of these procedures to APC groups, that 

is, CPT codes 00634 (Anesthesia for 

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procedures in lumbar region; 

chemonucleoysis) and 01190 

(Anesthesia for obturator neurectomy; 

intrapelvic) because they are anesthesia 

procedures for which no separate 

payment is made under the OPPS. 

Payment for these two procedures will 

be packaged into the procedures with 

which they are billed. We proposed that 

the changes to the inpatient list would 

be effective for services furnished on or 

after January 1, 2006. 

We received numerous public 

comments on our proposed assignment 

of procedures to the inpatient list for the 

CY 2006 OPPS. 

Comment: No commenter objected to 

the removal of the 25 procedures from 

the inpatient list. However, commenters 

requested that CMS eliminate the 

inpatient list. Among the reasons cited 

in the comments is that physicians are 

not bound by the list for payment for 

their professional services but are the 

decisionmakers regarding where a 

procedure is performed. The 

commenters stated that physicians often 

are unaware of the payment restrictions 

placed on the hospital by the inpatient 

list or, because their payment is 

unaffected by the list’s constraints, may 

not be concerned with the hospital’s 

payment. They pointed out that these 

factors make implementation and 

administration of the inpatient list very 

difficult for hospitals. 

The commenters requested that if 

CMS does retain the list, that CMS make 

a strong effort to educate physicians 

about the hospital issues related to the 

inpatient list by, at a minimum, posting 

the inpatient list and an explanation of 

it on CMS’ physician Web sites and on 

carrier Web sites. 

Commenters also stated that teaching 

hospitals, where many of the procedures 

that are on the inpatient list are 

performed on an outpatient basis for the 

first time, are affected by the policy 

more than are nonteaching hospitals, 

because there is usually a significant 

time gap between when the services are 

performed safely in teaching hospital 

outpatient departments and ‘‘most’’

hospital outpatient departments. They 

asserted that criteria should be revised 

to allow a procedure to be removed from 

the list when it can be performed safely 

in a hospital outpatient department 

rather than based on the number of 

outpatient departments in which it may 

be safely performed. 

The commenters also urged CMS to 

establish an appeal process in the event 

that the list is not eliminated. They 

believe that a process that would allow 

for case-by-case review of the 

documentation for inpatient procedures 

that were performed in the outpatient 

department may serve to alleviate some 

hospital losses and provide information 

to CMS regarding procedures that may 

be good candidates for removal from the 

list. 

Finally, the commenters once again 

stated that they strongly supported the 

February, 2004 APC Panel’s 

recommendation that CMS eliminate the 

inpatient list. 

Response: We are not eliminating the 

inpatient list at this time. We continue 

to believe that there are services that 

cannot be safely and effectively 

delivered to Medicare beneficiaries in 

the hospital outpatient setting. We are 

concerned that elimination of the 

inpatient list could result in unsafe or 

uncomfortable care for Medicare 

beneficiaries. Among the potential 

results of eliminating the list are long 

observation stays after some procedures 

and imposition of OPPS copayments, 

which could differ significantly from a 

beneficiary’s inpatient cost-sharing 

responsibilities. 

We believe that it is important for 

hospitals to educate physicians on 

Medicare services provided under the 

OPPS to avoid inadvertently providing 

services in a hospital outpatient setting 

that are more appropriately performed 

in an inpatient setting. However, we 

will follow up on the commenters’

recommendations regarding what CMS 

may be able to do to supplement 

hospitals’ physician education efforts. 

Comment: Several commenters 

requested that CMS issue billing 

instructions for instances where 

hospitals have charges for an inpatient 

procedure performed in the outpatient 

department in addition to other services 

on the bill. Commenters were concerned 

that some fiscal intermediaries allow 

payment for the services other than the 

inpatient procedure, while other fiscal 

intermediaries do not. They also 

requested that CMS include in the 

proposed rule explanations for any new 

Category III CPT codes that CMS assigns 

to the inpatient list. 

Response: Billing instructions are 

outside of the scope of the final rule, but 

we will look into the billing issues as 

suggested by the commenters. With 

regard to new Category III CPT codes 

released by the AMA on January 1 for 

implementation on July 1 of a given 

year, we refer the readers to section 

III.E. of this final rule for a description 

of our process for recognizing these 

codes and receiving public comments 

on their status under the OPPS. We will 

respond to those comments in the final 

rule, here for CY 2007. With regard to 

new Category III CPT codes released by 

the AMA on July 1 for implementation 

in January and new Category I CPT 

codes released in the fall for 

implementation in January, because of 

the timing of the release of these codes 

we are unable to provide discussions of 

those assignments in any proposed rule. 

Instead, consistent with current 

practice, we will continue to designate 

these codes with comment indicator 

‘‘NI’’ in the final rule to indicate that we 

are assigning them an interim payment 

status which is subject to public 

comment following publication of the 

final rule that implements the annual 

OPPS update. We believe that these 

processes provide ample opportunity for 

the public to comment regarding the 

assignments of new CPT codes to the 

inpatient list prior to our finalizing such 

assignments. 

Comment: One commenter requested 

that CMS clarify that just because 

services are not on the inpatient list that 

does not mean they can only be 

provided in the outpatient setting. 

Response: Many services payable 

under the OPPS may also be payable by 

Medicare when they are provided in 

other outpatient settings, including 

ASCs and physician offices, and in 

inpatient settings, depending on the 

clinical circumstances and health care 

delivery practices surrounding the care 

of specific Medicare beneficiaries. As 

we have stated previously, the OPPS 

inpatient list is a list of procedures that 

are only paid by Medicare when they 

are provided in an inpatient setting, and 

the absence of procedures from the 

inpatient list should not be interpreted 

as identifying those procedures as 

appropriately performed only in the 

outpatient setting. 

Comment: Several commenters 

requested that CMS remove additional 

procedures from the inpatient list. In 

addition, the APC Panel recommended 

that CMS review site of service data on 

certain laminectomy services, which 

currently have status indicator C and are 

on the inpatient list, to determine 

whether the procedures are being 

performed in the hospital outpatient 

setting with enough frequency to be 

assigned to APCs for payment under the 

OPPS. None of the commenters 

provided us with specific evidence to 

support statements that the procedures 

were being performed on an outpatient 

basis in a safe and effective manner, nor 

did they suggest appropriate APC 

assignments for the procedures. 

The commenters requested that the 

CPT codes for procedures shown in 

Table 35 below be removed from the 

inpatient list. 

BILLING CODE 4210–01–P 

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BILLING CODE 4210–01–C 

Response: We carefully evaluated 

each of the 17 procedures the 

commenters requested for deletion from 

the inpatient list. With the exception of 

one of the procedures, we found that 16 

of the procedures are performed on 

Medicare beneficiaries more than 90 

percent of the time in the inpatient 

setting and are associated with more 

than 23 hour recovery times. Some of 

the procedures are associated with an 

expectation of 4 to 5 day hospital stays. 

Two of the codes (63043 and 63044) are 

for ‘‘add-ons’’ to procedures that are not 

included on the inpatient list (63040, 

Laminotomy (hemilaminectomy), with 

decompression of nerve root(s), 

including parital facetectomy, 

foraminotomy and/or excision of 

herniated intervertebral disk, 

reexploration, single interspace; cervical 

and 63042, Laminotomy 

(hemilaminectomy), with 

decompression of nerve root(s), 

including parital facetectomy, 

foraminotomy and/or excision of 

herniated intervertebral disk, 

reexploration, single interspace; 

lumbar). We are retaining codes 63043 

and 63044 on the inpatient list because 

when these ‘‘add-on’’ services are 

performed in addition to the base 

procedures, the resulting complete 

surgical sessions involve more extensive 

surgery, longer intraoperative times, 

longer recovery periods, and a higher 

frequency of performance in the 

inpatient setting, than do the base 

procedures alone that are not included 

on the inpatient list. 

We will take this opportunity to 

remind the public that the 

determinations for inclusion on the 

inpatient list are made for the Medicare 

population. Thus, although some 

procedures may be routinely performed 

on an outpatient basis for younger 


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patients, their safe performance in the 

outpatient hospital setting may be much 

rarer for older individuals who are 

likely to have a number of comorbidities 

and slower recovery times. For 

procedures that are not included on the 

inpatient list, we rely on the 

practitioners’ judgment to determine on 

a patient-by-patient basis whether or not 

a particular procedure would be most 

appropriately performed in the inpatient 

setting. We believe that these 16 

procedures should remain on the 

inpatient list for the CY 2006 OPPS. 

The one procedure that we believe is 

appropriate for deletion from the 

inpatient list is code 63075. We found 

evidence that this procedure is being 

performed safely in some outpatient 

settings with increasing frequency. We 

are deleting the procedure from the 

inpatient list and assigning it to APC 

0208 (Laminotomies and 

Laminectomies) for CY 2006. 

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C. Ancillary Outpatient Services When 

Patient Expires (-CA Modifier) 

In the November 1, 2002 final rule 

with comment period (67 FR 66798), we 

discussed the creation of a new HCPCS 

modifier -CA to address situations 

where a procedure on the OPPS 

inpatient list must be performed to 

resuscitate or stabilize a patient (whose 

status is that of an outpatient) with an 

emergent, life-threatening condition, 

and the patient dies before being 

admitted as an inpatient. In Transmittal 

A–02–129, issued on January 3, 2003, 

we instructed hospitals on the use of 

this modifier when submitting a claim 

on bill type 13x for a procedure that is 

on the inpatient list and assigned the 

payment status indicator (SI) ‘‘C.’’

Conditions to be met for hospital 

payment for a claim reporting a service 

billed with modifier -CA include a 

patient with an emergent, lifethreatening condition on whom a 

procedure on the inpatient list is 

performed on an emergency basis to 

resuscitate or stabilize the patient. For 

CY 2003, a single payment for otherwise 

payable outpatient services billed on a 

claim with a procedure appended with 

this new -CA modifier was made under 

APC 0977 (New Technology Level VIII, 

$1,000–$1,250), due to the lack of 

available claims data to establish a 

payment rate based on historical 

hospital costs. 

As discussed in the November 7, 2003 

final rule with comment period, we 

created APC 0375 to pay for services 

furnished on the same date as a 

procedure with SI ‘‘C’’ and billed with 

the modifier -CA (68 FR 63467) because 

we were concerned that payment under 

a New Technology APC would not 

result in an appropriate payment. 

Payment under a New Technology APC 

is a fixed amount that does not have a 

relative payment weight and, therefore, 

is not subject to recalibration based on 

hospital costs. In the absence of hospital 

claims data to determine costs, the 

clinical APC 0375 payment rate for CY 

2004 was set at of $1,150, which was the 

payment amount for the newly 

structured New Technology APC that 

replaced APC 0977. 

For CY 2005, payment for otherwise 

payable outpatient services furnished on 

the same date of service that a 

procedure with SI ‘‘C’’ was performed 

on an emergent basis on an outpatient 

who died before inpatient admission 

and where modifier -CA was appended 

to the inpatient procedure continued to 

be made under APC 0375 (Ancillary 

Outpatient Services When Patient 

Expires) at a payment rate of $3,217.47. 

As discussed in the November 15, 2004 

final rule with comment period (69 FR 

65841), the payment median was set in 

accordance with the same methodology 

we followed to set payment rates for the 

other procedural APCs in CY 2005, 

based on the relative payment weight 

calculated for APC 0375. A review of 

the 18 hospital claims utilized for 

ratesetting revealed a reasonable mix of 

outpatient services that a hospital could 

be expected to furnish during an 

encounter with a patient with an 

emergency condition requiring 

immediate medical intervention, as well 

as a wide range of costs. 

For CY 2006, we did not propose any 

changes to our payment policy for 

services billed on the same date as a ‘‘C’’

status procedure appended with 

modifier -CA. We proposed to continue 

to make one payment under APC 0375 

for the services that meet the specific 

conditions discussed in previous rules 

for using modifier -CA, based on 

calculation of the relative payment 

weight for APC 0375, using charge data 

from CY 2004 claims for line items with 

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

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

in addition to charges for revenue codes 

without a HCPCS code. 

In accordance with this methodology, 

for the CY 2006 proposed rule, we 

calculated a median cost of $2,528.61 

for APC 0375 for the aggregated 

otherwise payable outpatient hospital 

services based on 300 CY 2004 hospital 

claims reporting modifier -CA with an 

inpatient procedure. These 300 claims 

were billed by 218 different hospital 

providers, each submitting between 1 

and 10 claims with modifier -CA 

appended to a ‘‘C’’ status procedure. 

This median cost for APC 0375 is 

relatively consistent with the median 

calculated for the CY 2005 OPPS 

update, and, as expected, the hospital 

claims once again show a wide range of 

costs. Nevertheless, we are concerned 

with the very large increase in the 

volume of hospital claims billed with 

the -CA modifier from CY 2003 to CY 

2004, growing from 18 to 300 claims 

over that 1-year time period. We 

acknowledge that modifier -CA was first 

introduced in CY 2003, and in CY 2003 

and CY 2004 hospitals may have been 

experiencing a learning curve with 

respect to its appropriate use on claims 

for services payable under the OPPS. 

However, our clinical review for the 

proposed rule of the 300 claims 

reporting modifier -CA lends some 

support to our early concerns regarding 

the increased CY 2004 modifier volume 

and hospitals’ possible incorrect use of 

the modifier for services that do not 

meet the payment conditions we 

established. Hospitals should be using 

this modifier only under circumstances 

described in section VI of Transmittal 

A–02–129, which provided specific 

billing guidance for the use of modifier 

-CA. In addition to expected use of the 

-CA modifier for exploratory 

laparotomies and insertions of intraaortic balloon assist devices, other 

unanticipated examples of ‘‘C’’ status 

procedures reported with the -CA 

modifier by hospitals in CY 2004 

include knee arthroplasty, 

thyroidectomy, repair of nonunion or 

malunion of the femur, and 

thromboendarterectomy of the carotid, 

vertebral, or subclavian arteries. 

Moreover, few of the claims also include 

a clinic or emergency room visit on the 

same date of service as the procedure 

appended with modifier -CA, as might 

be expected for some patients 

presenting to a hospital with serious 

medical conditions which require 

urgent interventions with inpatient 

procedures. We are concerned that some 

procedures reported by hospitals with 

the -CA modifier in CY 2004 may not 

have been provided to patients with 

emergent, life-threatening conditions, 

where the inpatient procedure was 

performed on an emergency basis to 

resuscitate or stabilize the patient. 

Instead, those procedures may have 

been provided to hospital outpatients as 

scheduled inpatient procedures that 

were not emergency interventions for 

patients in critical or unstable condition 

and such circumstances would have 

been inconsistent with our billing and 

payment rules regarding correct use of 

the -CA modifier to receive payment for 

APC 0375. In light of these claims 

findings and our current analysis, we 

will continue to closely monitor 

hospital use of modifier -CA, following 

changes in the claims volume, noting 

inpatient procedures to which the -CA 

modifier is appended, examining other 

services billed on the same date as the 

inpatient procedure, and analyzing 

specific hospital patterns of billing for 

services with modifier -CA appended, to 

assess whether a proposal to change our 

policies regarding payment for APC 

0375 would be warranted in the future 

or whether hospitals require further 

education regarding correct use of the 

modifier -CA. 

We received several public comments 

concerning our proposed payment for 

APC 0375. 

Comment: A few commenters 

indicated that the -CA modifier policy 

supports an important function for 

hospitals and should be retained. 

Commenters suggested that the 

increased use of the modifier noted by 

CMS may be due to hospitals only 

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recently becoming aware of the 

relatively new modifier. 

In response to CMS’ question about 

why few of the claims with a -CA 

modifier included a clinic or emergency 

department visit on the same date of 

service, the commenters speculated that 

perhaps the beneficiary came in for a 

scheduled procedure but due to 

complications, the physician finds it 

necessary to provide a service that they 

had not otherwise intended to perform 

in an outpatient setting and the patient 

then died prior to inpatient admission. 

Response: Despite the comments we 

received, we remain concerned that, 

while our billing and payment rules 

indicate that the inpatient procedure on 

the claim should be performed on an 

emergency basis to stabilize the patient 

if the modifier -CA is to be reported, on 

many of our claims, the -CA modifier 

was appended to inpatient list 

procedures that would likely not have 

been emergency resuscitative 

procedures. We remind hospitals to 

review our billing and payment rules for 

using the -CA modifier described in 

section VI. Of Transmittal A–02–129. 

Hospitals should limit their use of the 

-CA modifier to only those claims where 

all of the conditions outlined are met. 

After careful consideration of the 

public comments received, we have 

decided that we will make no change to 

our -CA modifier policy at this time. We 

will continue to monitor the use of the 

modifier and will continue to encourage 

educational efforts by interested parties 

regarding appropriate use of the -CA 

modifier on OPPS claims. 

XIII. Indicator Assignments 

A. Status Indicator Assignments 

The payment status indicators (SIs) 

that we assign to HCPCS codes and 

APCs under the OPPS play an important 

role in determining payment for services 

under the OPPS because they indicate 

whether a service represented by a 

HCPCS code is payable under the OPPS 

or another payment system and also 

whether particular OPPS policies apply 

to the code. In the CY 2006 OPPS 

proposed rule, we provided for CY 2006 

our proposed status indicator 

assignments for APCs in Addendum A, 

for the HCPCS codes in Addendum B, 

and the definitions of the status 

indicators in Addendum D1. 

Specifically, for CY 2006, we 

proposed to use the following status 

indicators in the specified manner: 

• ‘‘A’’ to indicate services that are 

billable to fiscal intermediaries but are 

paid under some payment method other 

than OPPS, such as under the durable 

medical equipment, prosthetics, 

orthotics, and supplies (DMEPOS) fee 

schedule or the Medicare Physician Fee 

Schedule. Some, but not all, of these 

other payment systems are identified in 

Addendum D1. 

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

billable to fiscal intermediaries but are 

not payable under the OPPS when 

submitted on an outpatient hospital Part 

B bill type, but that may be payable by 

fiscal intermediaries to other provider 

types when submitted on an appropriate 

bill type. 

• ‘‘C’’ to indicate inpatient services 

that are not payable under the OPPS. 

• ‘‘D’’ to indicate a code that is 

discontinued, effective January 1, 2006. 

• ‘‘E’’ to indicate items or services 

that are not covered by Medicare or 

codes that are not recognized by 

Medicare. 

• ‘‘F’’ to indicate acquisition of 

corneal tissue which is paid on a 

reasonable cost basis, certain CRNA 

services, and hepatitis B vaccines that 

are paid on a reasonable cost basis. 

• ‘‘G’’ to indicate drugs and 

biologicals that are paid under the OPPS 

transitional pass-through rules. 

• ‘‘H’’ to indicate pass-through 

devices, brachytherapy sources, and 

separately payable 

radiopharmaceuticals that are paid on a 

cost basis. 

• ‘‘K’’ to indicate drugs and 

biologicals (including blood and blood 

products) that are paid in separate APCs 

under the OPPS, but that are not paid 

under the OPPS transitional passthrough rules. 

• ‘‘L’’ to indicate flu and 

pneumococcal immunizations that are 

paid at reasonable cost but to which no 

coinsurance or copayment apply. 

• ‘‘M’’ to indicate services that are 

only billable to carriers and not to fiscal 

intermediaries and that are not payable 

under the OPPS. 

• ‘‘N’’ to indicate services that are 

paid under the OPPS, but for which 

payment is packaged into another 

service or APC group. 

• ‘‘P’’ to indicate services that are 

paid under the OPPS, but only in partial 

hospitalization programs. 

• ‘‘Q’’ to indicate packaged services 

subject to separate payment under OPPS 

payment criteria. 

• ‘‘S’’ to indicate significant 

procedures that are not discounted 

when multiple and that are subject to 

separate APC payment under the OPPS. 

• ‘‘T’’ to indicate significant services 

that are paid under the OPPS and to 

which the multiple procedure payment 

discount under the OPPS applies. 

• ‘‘V’’ to indicate medical visits 

(including emergency department or 

clinic visits) that are paid under the 

OPPS. 

• ‘‘X’’ to indicate ancillary services 

that are paid under the OPPS. 

• ‘‘Y’’ to indicate nonimplantable 

durable medical equipment that must be 

billed directly to the durable medical 

equipment regional carrier rather than 

to the fiscal intermediary. 

We proposed the payment status 

indicators identified above, of which 

indicators ‘‘M’’ and ‘‘Q’’ are new for CY 

2006, for each HCPCS code and each 

APC listed in Addenda A and B and we 

requested comments on the 

appropriateness of the indicators that 

we proposed to assign. 

We received numerous comments 

regarding the appropriateness of the 

status indicator assignment for specific 

HCPCS codes which we discuss in other 

related sections of this final rule with 

comment period. In addition, we 

received several general comments 

regarding the payment status indicators 

and their proposed uses, which are 

discussed below. 

Comment: Several commenters 

recommended that CMS revise the 

definition of status indicator ‘‘H’’ which 

had been initially used only for passthrough device categories paid on a cost 

basis that were not subject to 

coinsurance. The commenters argued 

that the proposed expansion of ‘‘H’’ to 

include brachytherapy sources that are 

paid on a cost basis and 

radiopharmaceuticals that we proposed 

to pay on a cost basis for CY 2006 is 

inconsistent in classification because 

coinsurance applies to these items. 

One commenter made 

recommendations regarding other status 

indicators. For indicator ‘‘A,’’ the 

commenter requested that CMS identify 

what fee schedule each HCPCS code is 

paid under. For indicator ‘‘B,’’ the 

commenter recommended that if the 

HCPCS code was paid to physicians, the 

same code should be paid to hospitals. 

The commenter also requested that CMS 

revise the definition of status indicator 

‘‘E’’ to separately identify services that 

were not covered by Medicare according 

to statute from those not covered for 

other reasons. Lastly, the commenter 

asked whether hospitals could 

automatically follow the language in the 

‘‘C’’ status indicator descriptor, which 

states, ‘‘Not paid under the OPPS. 

Admit patient. Bill as inpatient.’’

Response: We have established 

specific status indicators in the OPPS 

for the principal purpose of making 

appropriate payment for services under 

the OPPS because we must signal the 

claims processing system through the 

OCE software as to HCPCS codes that 

are paid under the OPPS and those 

codes to which particular OPPS 

payment policies apply. 

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With respect to those HCPCS codes 

proposed for CY 2006 with the status 

indicator ‘‘H,’’ all of those codes have 

individual APC assignments that are 

unique. Because the APCs for these 

items each contain only one HCPCS 

code, we have chosen to associate the 

application of coinsurance or the lack 

thereof within each of these APCs in our 

claims processing system. Therefore, in 

CY 2005, the APCs for pass-through 

device categories do not have associated 

coinsurance, whereas the APCs for 

brachytherapy sources are subject to a 

20-percent coinsurance. Similarly, for 

separately payable 

radiopharmaceuticals in CY 2006, their 

APCs will be subject to a 20-percent 

coinsurance. Therefore, we have no 

operational need to establish a new 

status indicator to separately identify 

the coinsurance status of HCPCS codes 

paid on a cost basis under the OPPS. 

However, we will indicate that passthrough device categories receive 

separate cost-based pass-through 

payments that are not subject to 

coinsurance in the OPPS payment status 

description of status indicator ‘‘H’’ in 

Addendum D. We are finalizing for CY 

2006 our proposed expansion of the 

definition of status indicator ‘‘H’’ to 

include radiopharmaceutical agents. 

With respect to the comments 

concerning status indicators ‘‘A’’ and 

‘‘E,’’ the OPPS has no administrative 

need to make the distinctions suggested 

by the commenter. Regarding HCPCS 

codes assigned status indicator ‘‘B,’’ in 

some cases such services may be paid to 

physicians and not to hospitals because 

the services are professional services 

only, not requiring hospital resources. 

In other cases, there may be alternate 

HCPCS codes that are recognized for the 

services under the OPPS. Therefore, we 

do not believe that status indicator ‘‘B’’

needs to be modified. 

Lastly, status indicator ‘‘C’’ identifies 

services that are only paid in an 

inpatient setting because of the nature of 

the procedures, their associated 

recovery times, or the physical 

conditions of the patients. Therefore, 

these services are not paid by Medicare 

under the OPPS. While the OPPS 

payment status explanation suggests 

what a hospital might do regarding 

admission and billing for such services, 

hospitals must follow all of their own 

and Medicare’s policies and procedures 

regarding inpatient hospital admissions 

and inpatient billing. 

We are finalizing the definitions of 

status indicators ‘‘H’’ and ‘‘K’’ as noted 

in Table 37 below. Consequently, all 

pass-through device categories active in 

CY 2006 are assigned status indicator 

‘‘H’’ and are not subject to coinsurance, 

while brachytherapy sources and 

radiopharmaceuticals assigned status 

indicator ‘‘H’’ will be subject to 

coinsurance. 

TABLE 37.—CY 2006 DEFINITIONS OF STATUS INDICATORS ‘‘H’’ AND ‘‘K’’

Status indicator Item/code/service OPPS payment status 

H .............................. (1) Pass-Through Device Categories .................................... (1) Separate cost-based pass-through payment; Not subject to coinsurance. 

(2) Brachytherapy Sources .................................................... (2) Separate cost-based nonpass-through payment. 

(3) Radiopharmaceutical Agents ........................................... (3) Separate cost-based nonpass-through payment. 

K .............................. Non-Pass-Through Drugs and Biologicals ............................ Paid under OPPS; Separate APC payment. 

We are also finalizing our policy 

regarding status indicator ‘‘Q.’’ HCPCS 

codes with status indicator ‘‘Q’’ are 

either separately payable or packaged, 

depending on the specific 

circumstances of their billing. 

Addendum B displays the APC 

assignments of those codes with ‘‘Q’’

status when they are separately payable. 

OCE claims processing logic will be 

applied to codes assigned status 

indicator ‘‘Q’’ in order to determine if 

the service will be packaged or 

separately payable. In the event that a 

code is separately payable, the HCPCS 

code will receive an APC payment that 

corresponds to the APC listed in 

Addendum B, and would be subject to 

any discounting policies applied to that 

APC (identified by the APC status 

indicator). For CY 2006, hospital 

observation G-codes are assigned ‘‘Q’’

status; specific discussion of the 

payment policy applying to these 

services can be found in section IX. of 

this final rule with comment period. 

B. Comment Indicators for the CY 2006 

OPPS Final Rule 

In the CY 2006 proposed rule, we 

proposed to continue to use the two 

comment indicators finalized in the 

November 15, 2004 final rule with 

comment period (69 FR 65827 and 

65828) to identify in this CY 2006 final 

rule the assignment status of a specific 

HCPCS code to an APC and the 

timeframe when comments on the 

HCPCS APC assignment will be 

accepted. The two comment indicators 

are listed below and in Addendum D2. 

• ’’NF’’—New code, final APC 

assignment; Comments were accepted 

on a proposed APC assignment in the 

Proposed Rule; APC assignment is no 

longer open to comment. 

• ’’NI’’—New code, interim APC 

assignment; Comments will be accepted 

on the interim APC assignment for the 

new code. 

Comment: Several commenters 

expressed concern regarding changes in 

the proposed APC assignments for 

several codes (for example, CPT codes 

63655 and 78700) that were not 

specifically addressed in the proposed 

rule. The commenters believed that the 

proposed new APC assignments for 

these codes were made in error. 

Response: In general, changes in 

proposed APC assignments that were 

not discussed in detail in the proposed 

rule were made to improve clinical and 

resource homogeneity of the APC 

groups. We noted in the proposed rule 

that the payment status indicators for 

each APC and HCPCS code in Addenda 

A and B are subject to comment (70 FR 

42748), and included the APC 

assignment of all individual HCPCS 

codes. 

Specific changes based on APC Panel 

recommendations are noted in the 

related topic sections of this final rule 

with comment period under section I.D. 

We discuss other changes throughout 

the final rule to address particular 

interests or concerns of the public. 

Addendum B of this final rule with 

comment period provides the status 

indicator and, where applicable, the 

APC assignment for those HCPCS codes 

that are payable under the OPPS, as well 

as those HCPCS codes that are being 

discontinued in CY 2006. To facilitate 

review of these changes, we are 

establishing new comment indicator 

‘‘CH’’ in this final rule with comment 

period to designate HCPCS codes in 

Addendum B whose status indicator or 

APC assignment, or both, for the 

upcoming year will change from what 

they are in the current year: 

• ‘‘CH’’—Active HCPCS codes in 

current year and next calendar year; 

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status indicator and/or APC assignment 

have changed. 

For example, in Addendum B of this 

final rule with comment period, the 

APC assignment and/or status indicator 

assignment for HCPCS codes flagged 

with comment indicator ‘‘CH’’ will be 

different for services furnished on or 

after January 1, 2006, than they were for 

services furnished on December 31, 

2005. A HCPCS code showing comment 

indicator ‘‘CH’’ in Addendum B is not 

open to comment as they are so 

indicated only for the ease of the public 

to review the changes made from FY 

2005 to CY 2006. Rather, in Addendum 

B of this final rule with comment 

period, only HCPCS codes flagged with 

comment indicator ‘‘NI’’ are subject to 

public comment. 

XIV. Nonrecurring Policy Changes 

A. Payments for Multiple Diagnostic 

Imaging Procedures 

Currently, under the OPPS, hospitals 

billing for diagnostic imaging 

procedures receive full APC payments 

for each service on a claim, regardless 

of how many procedures are performed 

using a single imaging modality and 

whether or not contiguous areas of the 

body are studied in the same session. In 

its March 2005 Report to Congress, 

MedPAC recommended that the 

Secretary should improve Medicare 

coding edits that detect unbundled 

diagnostic imaging services and reduce 

the technical component payment for 

multiple imaging services when they are 

performed on contiguous areas of the 

body (Recommendation 3–B). MedPAC 

pointed out that Medicare’s payment 

rates are based on each service being 

provided independently and that the 

rates do not account for efficiencies that 

may be gained when multiple studies 

using the same imaging modality are 

performed in the same session. Further, 

MedPAC stated that those efficiencies 

are especially likely when contiguous 

body areas are the focus of the imaging 

because the patient and equipment have 

already been prepared for the second 

and subsequent procedures, potentially 

yielding resource savings in areas such 

as clerical time, technical preparation, 

and supplies, elements of hospital costs 

for imaging procedures that are reflected 

in APC payment rates under the OPPS. 

Under the OPPS, we have a 

longstanding policy of reducing 

payment for multiple surgical 

procedures performed on the same 

patient in the same operative session 

(§ 419.44(a) of the regulations). In such 

cases, full payment is made for the 

procedure with the highest APC 

payment rate, and each subsequent 

procedure is paid at 50 percent of its 

respective APC payment rate. In the 

proposed rule, we indicated that we 

believed that a similar policy for 

payment of diagnostic imaging services 

would be more appropriate than our 

current policy because it would lead to 

more appropriate payment for multiple 

imaging procedures of contiguous body 

areas that are performed during the 

same session. 

In our efforts to determine whether or 

not such a policy would improve the 

accuracy of OPPS payments, in the CY 

2006 OPPS proposed rule, we identified 

11 ‘‘families’’ of imaging procedures by 

imaging modality (ultrasound, 

computerized tomography (CT) and 

computerized tomography angiography 

(CTA), magnetic resonance imaging 

(MRI) and magnetic resonance 

angiography (MRA)) and contiguous 

body area (for example, CT and CTA of 

Chest/Thorax/Abdomen/Pelvis), as 

displayed in Table 38. Using those 

families of procedures, we examined 

OPPS bills for CY 2004 and found that 

there were numerous claims reporting 

more than one imaging procedure 

within the same family provided to a 

beneficiary by a hospital on the same 

day. 

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BILLING CODE 4210–01–C For example, the imaging procedures 

described by CPT codes 72192 

(Computed tomography, pelvis; without 

contrast material) and 74150 (Computed 


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tomography, abdomen; without contrast 

material) are for studies of two adjacent 

body regions. Appropriate diagnostic 

evaluation of many constellations of 

patients’ signs and symptoms and 

potentially affected organ systems may 

involve assessment of pathology in both 

the abdomen and pelvis, body areas that 

are anatomically and functionally 

closely related. Therefore, both studies 

are frequently performed in the same 

session to provide the necessary clinical 

information to diagnose and treat a 

patient. Although each procedure, by 

itself, entails the use of hospital 

resources, including certain staff, 

equipment, and supplies, some of those 

resource costs are not incurred twice 

when the procedures are performed in 

the same session and, thus we believed, 

should not be paid as if they were. 

Beginning with the beneficiary’s arrival 

in the outpatient department, costs are 

incurred only once for registering the 

patient, taking the patient to the 

procedure room, positioning the patient 

on the table for the CT scan, among 

others. We proposed a reduction 

because we believed that reducing the 

payment for the second and subsequent 

procedures within the identified 

families might result in more accurate 

payments with respect to the hospital 

resources utilized for multiple imaging 

procedures performed in the same 

session. 

OPPS bills do not contain detailed 

information on the hospitals’ costs that 

are incurred in furnishing imaging 

procedures. Much of the cost is 

packaged and included in the overall 

charges for the procedures. Even if 

bundled costs are reported with charges 

on separate lines either with HCPCS 

codes or with revenue codes, when 

there are multiple procedures on the 

claims, it is impossible for us to 

accurately attribute bundled costs to 

each procedure. However, at the time of 

issuance of the proposed rule, our 

analysis of CY 2004 hospital claims 

convinced us that some discounting of 

multiple imaging procedures is 

warranted. In order to determine the 

level of adjustment that would be 

appropriate for the second and 

subsequent procedures performed 

within a family in the same session, we 

used the MPFS methodology and data. 

Under the resource-based practice 

expense methodology used for Medicare 

payments to physicians, specific 

practice expense inputs of clinical labor, 

supplies and equipment are used to 

calculate ‘‘relative value units’’ on 

which physician payments are based. 

When multiple images are acquired in a 

single session, most of the clinical labor 

activities are not performed twice and 

many of the supplies are not furnished 

twice. Specifically, we consider that the 

following clinical labor activities 

included in the ‘‘technical component’’

(TC) of the MPFS are not duplicated for 

subsequent procedures: Greeting, 

positioning and escorting the patient; 

providing education and obtaining 

consent; retrieving prior exams; setting 

up the IV; and preparing and cleaning 

the room. In addition, we consider that 

supplies, with the exception of film, are 

not duplicated for subsequent 

procedures. Equipment time and 

indirect costs are allocated based on 

clinical labor time in the physician 

payment methodology and therefore, we 

believe, these inputs should be reduced 

accordingly. 

We performed analyses and found 

that excluding those practice expense 

inputs, along with the corresponding 

portion of equipment time and indirect 

costs, supported a 50-percent reduction 

in the payment for the TC portion of 

subsequent procedures. The items and 

services that make up hospitals’ facility 

costs are generally very similar to those 

that are counted in the TC portion of the 

MPFS for diagnostic imaging 

procedures. We believed that the 

analytic justification for a 50-percent 

reduction of the TC for the second and 

subsequent imaging procedures using 

the MPFS input data also provided a 

basis for a similar relative reduction to 

payments for multiple imaging 

procedures performed in the hospital 

outpatient department. Therefore, we 

proposed to make a 50-percent 

reduction in the OPPS payments for 

some second and subsequent imaging 

procedures performed in the same 

session, similar to our policy of 

reducing payments for some second and 

subsequent surgical procedures. 

We proposed to apply the multiple 

imaging procedure reduction only to 

individual services described by codes 

within one family, not across families. 

Reductions would apply when more 

than one procedure within the family is 

performed in the same session. For 

example, no reduction would apply to 

an MRI of the brain (CPT code 70552) 

in code Family 5, when performed in 

the same session as an MRI of the spinal 

canal and contents (CPT code 72142) in 

code Family 6. We proposed to make 

full payment for the procedure with the 

highest APC payment rate, and payment 

at 50 percent of the applicable APC 

payment rate for every additional 

procedure in the same family, when 

performed in the same session. 

At its August 2005 meeting, the APC 

Panel heard testimony that provided 

evidence against proceeding with the 

proposal to discount for multiple 

diagnostic imaging procedures at this 

time based on logic that efficiencies 

related to multiple imaging procedures 

were already captured in the OPPS 

claims data. The Panel made its 

recommendation that CMS should 

postpone implementation of the policy 

for a year so that we may gather more 

data on the implications of those 

changes. The Panel also recommended 

that CMS work with the American 

College of Radiology and other 

stakeholders in that process. 

Comment: Many commenters on the 

proposed rule requested that we 

postpone implementation of the 

proposed discounting policy until we 

perform further analyses and are able to 

find more substantial, supporting 

hospital-based data. The commenters 

stated that our use of the MPFS data was 

an inappropriate basis for estimating 

costs and cost efficiencies in the 

hospital outpatient department and that 

a 50-percent reduction for second and 

subsequent services provided in the 

same imaging session was unwarranted. 

Commenters stated that the hospital cost 

data used by CMS to set payment rates 

already reflect savings due to the 

efficiencies of performing multiple 

procedures during the same session, and 

that the proposed policy to discount 

second and subsequent procedures is 

actually tantamount to discounting 

those procedures twice. 

In addition, other commenters 

suggested that a lower percentage 

reduction may be more accurate. Some 

commenters also provided specific 

recommendations for modifications to 

the procedures included in the families 

eligible for discounting. One commenter 

indicated that CMS had failed to 

consider differences in patient 

preparation requirements for some 

imaging procedures that would 

necessitate significant additional time 

between the two tests, even though they 

are being performed during the same 

session. The commenters asserted that 

any discounting payment policy would 

systematically disadvantage hospitals 

relative to other settings for imaging 

services and that the negative effect on 

rural hospitals, who commonly lease 

expensive capital equipment such as 

MRI machines, would result in 

discontinuation of essential diagnostic 

radiology services in many areas. 

Finally, the commenters identified 

implementation issues that we had not 

addressed in the proposed rule, such as 

defining what we meant as ‘‘the same 

session.’’

Response: After careful consideration 

of the public comments received, the 

results of additional analyses of CY 

2004 OPPS claims data, and the APC 

68708 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

Panel recommendation, we have 

decided not to finalize our proposal to 

discount for multiple diagnostic 

imaging procedures at this time. In 

calculating median costs for outpatient 

imaging procedures in the radiology 

families we proposed for discounting, 

for most hospitals’ claims, we used a 

hospital-specific diagnostic radiology 

CCR for the conversion of charges to 

costs. Some hospitals reported costs and 

charges in nonstandard cost centers for 

ultrasound, CT, or MRI services, and, in 

general, those modality-specific CCRs 

were lower than their CCRs for 

diagnostic radiology. Those lower CCRs 

were not inconsistent with hospitals’

experiences of particular efficiencies in 

providing multiple ultrasound, CT, or 

MRI services in a single setting, without 

reductions in charges for those multiple 

procedure sessions. 

For the majority of hospitals for 

which we used diagnostic radiology 

CCRs to convert charges to costs for 

ultrasound, CT, and MRI procedures, we 

were concerned about whether these 

CCRs were too general and broad to 

reflect the efficiencies of providing 

multiple imaging procedures on 

contiguous body parts. We found that 

the imaging procedures we identified as 

eligible for the proposed payment 

reductions accounted for approximately 

half of the total OPPS charges attributed 

by the OPPS to hospitals’ diagnostic 

radiology cost centers. This result 

suggests that costs and charges related 

to ultrasound, CT, and MRI services in 

the 11 proposed families are significant 

contributors from the OPPS to hospitals’

diagnostic radiology cost centers; we 

also recognize that costs and charges are 

incurred in diagnostic radiology cost 

centers for inpatients and patients not 

insured by Medicare. We have no way 

of knowing how patterns of costs and 

charges for those patients contribute to 

hospitals’ diagnostic radiology CCRs, 

but we have no specific reason to 

believe that their patterns of services 

would be very different than those for 

Medicare beneficiaries in the hospital 

outpatient setting. Thus, it may be 

correct that our median costs for 

imaging services in the 11 families 

proposed for the reduction policy reflect 

a reduced median based, in part, on 

hospitals’ provision of multiple scans in 

one session. 

Although our analyses provided no 

definite answer regarding whether, and 

by how much, the OPPS median costs 

for single imaging services in the 11 

proposed families are reduced due to 

existing hospital efficiencies related to 

multiple services as compared with the 

hypothetical median costs for actual 

single services, our analyses do not 

disprove the commenters’ contentions 

that there are efficiencies already 

reflected in their hospital costs, and 

therefore, their CCRs and the median 

costs for the procedures. Further, the 

results of our initial analyses do support 

the recommendation that we should 

defer implementation of the proposed 

multiple imaging procedure reduction 

policy to perform additional analyses. 

Depending upon the results of our 

analyses, in a future rule we may 

propose revisions to the structure of our 

rates in order to ensure that these rates 

properly reflect the relative costs of 

initial and subsequent imaging 

procedures. 

Comment: MedPAC expressed 

support of our multiple imaging 

discounting proposal and suggested that 

it would be preferable for CMS to be 

able to make the proposed reductions 

without the requirement for budget 

neutrality so that budget savings and 

lower cost sharing for beneficiaries 

would result. MedPAC realized that 

CMS is statutorily required to maintain 

budget neutrality in all changes made to 

the OPPS and, therefore, suggested that 

the Secretary offer a legislative proposal 

to Congress to allow us to capture 

potential savings. 

Response: We appreciate MedPAC’s 

support for our proposed policy. We are 

also appreciative of the preliminary 

work that MedPAC has provided in this 

area. We have carefully considered its 

suggestions, as well as those of other 

commenters, in determining whether to 

finalize our proposed multiple 

diagnostic imaging policy and will 

consider their suggestions regarding 

budget neutrality issues in our ongoing 

work on this issue. 

Given the evidence presented by the 

commenters, the recommendation of the 

APC Panel, and our further analysis of 

this issue, we are convinced that 

additional analyses are in order. 

Therefore, during the coming year, we 

will perform analyses of relevant data to 

determine what, if any, changes in our 

median cost calculations for imaging 

services or discounting policies, or both, 

could be appropriate to enable us to 

make more accurate payments for 

diagnostic imaging services. To the 

extent feasible, as recommended by the 

APC Panel, we will look to the 

stakeholders in this policy for 

additional information and input 

concerning further development. As we 

have stated, in a future rule we may 

propose revisions to the structure of our 

rates in order to ensure that these rates 

properly reflect the relative costs of 

initial and subsequent imaging 

procedures. 

B. Interrupted Procedure Payment 

Policies (Modifiers –52, –73, and –74) 

1. Modifier –52 

Since implementation of the OPPS in 

2000, we have required hospitals to 

report modifiers –52, –73, and –74 to 

indicate procedures that were 

terminated before their completion. 

Modifier –52 indicates partial reduction 

or discontinuation of services that do 

not require anesthesia, while modifiers 

–73 and –74 are used for procedures 

requiring anesthesia, where the patient 

was taken to the treatment room and the 

procedure was discontinued before 

anesthesia administration or after 

anesthesia administration/procedure 

initiation, respectively. The elective 

cancellation of procedures is not 

reported. Hospitals are paid 50 percent 

of the APC payment for services with 

modifier –73 appended and 100 percent 

for procedures with modifier –52 or –74 

reported, in accordance with § 419.44(b) 

of the regulations. In January 2005, we 

clarified, in Program Transmittal 442, 

the definition of anesthesia for purposes 

of billing for services furnished in the 

hospital outpatient department in the 

context of reporting modifiers –73 and 

–74. The APC Panel considered the 

current OPPS payment policies for 

interrupted procedures at its February 

2005 meeting and made a number of 

recommendations that are addressed in 

the following discussion. 

Current OPPS policy requires 

providers to use modifier –52 to 

indicate that a service that did not 

require anesthesia was partially reduced 

or discontinued at the physician’s 

discretion. The physician may 

discontinue or cancel a procedure that 

is not completed in its entirety due to 

a number of circumstances, such as 

adverse patient reaction or medical 

judgment that completion of the full 

study is unnecessary. The modifier is 

reported most often to identify 

interrupted or reduced radiological and 

imaging procedures, and our current 

policy is to make full payment for 

procedures with a –52 modifier. 

We have reconsidered our payment 

policy for interrupted or reduced 

services not requiring anesthesia and 

reported with a –52 modifier. At its 

February 2005 meeting, the APC Panel 

recommended continuing current OPPS 

payment policy at 100 percent of the 

APC payment for reduced services 

reported with modifier –52, although 

the APC Panel members acknowledged 

their limited familiarity with the 

specific outpatient hospital services and 

their clinical circumstances that would 

warrant the reporting of modifier –52. 

We examined our data to determine the 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68709 

appropriateness of our current policy 

regarding payment for services that are 

reduced, and although some hospital 

resources are used to provide even an 

incomplete service, such as a radiology 

service, we are skeptical that it is 

accurate to pay the full rate for a 

discontinued or reduced radiological 

service. Compared to surgical 

procedures that require anesthesia, a 

number of general and procedurespecific supplies, and reserved 

procedure rooms that must be cleaned 

and prepared prior to performance of 

each specific procedure, the costs to the 

hospital outpatient department for the 

rooms and supplies typically associated 

with procedures not requiring 

anesthesia are much more limited. For 

example, the scheduling maintained for 

radiological services not requiring 

anesthesia generally exhibits greater 

flexibility than that for surgical 

procedures, and the procedure rooms 

are used for many unscheduled services 

that are fit in, when possible, between 

those that are scheduled. Consequently, 

we believe that the loss of revenue that 

may result from a surgical procedure 

being discontinued prior to its initiation 

in the procedure room is usually more 

substantial than that lost as the result of 

a discontinued service not requiring 

anesthesia, such as a radiology 

procedure. Nonetheless, under our 

current policy, Medicare makes the full 

APC payment for discontinued or 

reduced radiological procedures and 

only 50 percent of the APC payment for 

surgical procedures that are 

discontinued prior to initiation of the 

procedure or the administration of 

anesthesia. 

Therefore, we proposed to pay 50 

percent of the APC payment amount for 

a discontinued procedure that does not 

require anesthesia where modifier –52 is 

reported. We believed that this 

proposed payment would appropriately 

recognize the hospital’s costs involved 

with the delivery of a typical reduced 

service, similar to our payment policies 

for interrupted procedures that require 

anesthesia. 

We received many comments on our 

proposal to reduce by 50 percent the 

OPPS payment for claims for 

discontinued procedures reported with 

modifier –52. 

Comment: All of the commenters 

requested that CMS continue to make 

full payment for those procedures. One 

argument presented by commenters was 

that the modifier cannot be used for 

elective cancellations, and that 

discontinuations are often associated 

with some unanticipated incident 

related to the beneficiary’s clinical 

condition. They asserted that, in those 

cases, the provider must address the 

beneficiary’s clinical needs and because 

of the costs incurred as a result of those 

interventions, no fewer resources are 

used during the attempt to complete the 

procedure than there would have been 

if it had been completed without 

complications. 

In fact, many commenters asserted 

that failed attempts to complete 

procedures often result in much higher 

resource use than completed, 

uncomplicated procedures because the 

procedure’s discontinuation may come 

after many supplies and much time 

were expended. Further, they stated that 

a reduction in the OPPS payment is 

unfair because there are many times that 

no other procedures can be performed 

during the period that was scheduled 

for the incomplete procedure. 

Commenters also stated that CMS 

does not fully understand hospital 

operations and urged CMS to learn more 

before we implement such a payment 

reduction policy. They stated that there 

was no indication in the proposed rule 

that CMS conducted any analysis to 

support the proposed reduction. They 

believed that CMS must perform cost 

analyses regarding the procedures to 

which the modifier is applied in order 

to evaluate the types of other services 

delivered when procedures are 

interrupted and the resources expended 

in their delivery. 

Further, the commenters believed 

there is still confusion among providers 

regarding how to use the –52 modifier, 

and suggested that CMS review the data 

to evaluate the potential financial 

impact of the proposed policy because 

it may be applied disproportionately to 

those providers who use the modifier 

appropriately. 

Response: We have conducted 

analyses of our hospital claims data to 

examine the usage of the –52 modifier 

in CY 2004. Those analyses are the basis 

for our determination that a reduction in 

the OPPS payments for interrupted 

procedures reported with a –52 modifier 

is warranted. We discovered 120,000 

procedures in the CY 2004 hospital 

claims data with a –52 modifier 

appended. That level of use seemed 

high, and more in-depth analysis 

revealed that, although most of the 

usage was for imaging procedures, some 

of the services reported with the –52 

modifier were unexpected and 

inappropriate (that is, office visit and 

diagnostic colonoscopy). 

The results of our data analysis 

appear, to some degree, to conflict with 

much of the anecdotal information 

presented by the commenters. Although 

the commenters asserted that many 

times, discontinuation of procedures is 

associated with emergency 

interventions and use of additional 

resources, the data did not indicate that 

this was likely to have been the primary 

reason for the procedures to which the 

–52 modifier was appended in CY 2004. 

The highest frequency use of the –52 

modifier was among diagnostic imaging 

procedures that are typically not 

associated with adverse reactions (the 

top three procedures are imaging 

services without contrast), and we 

believe that there are some cost savings 

that result from not performing the 

entire procedure (for example, less film, 

less computer time, and less room time). 

As the claims for many of these 

procedures included little packaging 

and we found the line item charges for 

the services were not reduced when the 

–52 modifier was reported, we could 

generally not detect significant 

differences in costs for the same 

procedure, with and without the –52 

modifier reported. However, because the 

line item charges for the services were 

typically similar for completed and 

interrupted procedures, we do not 

believe that our claims analysis had the 

potential to reflect any true hospital cost 

savings when procedures were 

discontinued. In general, we did not 

observe increased costs for claims for 

services reported with the –52 modifier. 

Further, some of the services that had 

the –52 modifier appended do not 

require significant supplies or 

procedure rooms, but, rather, are 

provided in examination rooms or other 

nonspecific areas of the outpatient 

department. Therefore, only minimal 

costs would be incurred by the hospital 

for an incomplete procedure. 

Our data also indicated that the –52 

modifier was often used 

inappropriately. For example, 

diagnostic colonoscopies ordinarily 

require anesthesia and, therefore, when 

discontinued, are to be reported using 

the –73 or –74 modifiers, rather than 

modifier –52. However, what we found 

in the hospital claims data was that 

diagnostic colonoscopy was the fifth 

most frequently reported procedure 

with the –52 modifier. We expect that 

the frequency of –52 modifier use with 

procedures in which anesthesia was 

administered will have decreased for CY 

2005 as a result of our clarification 

regarding the use of modifiers –52, –73 

and –74 published in Transmittal 442 

issued in January 2005. 

We have examined our data and given 

careful consideration to the public 

comments and the APC Panel’s 

discussion and recommendations 

regarding OPPS payment policies for 

interrupted procedures. Given the 

nature of the procedures that were likely 

68710 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

reported appropriately with the –52 

modifier in CY 2004, we continue to 

believe that there are considerable 

savings associated with their incomplete 

performance. We think that in the 

hospital outpatient setting, there are 

generally many opportunities to utilize 

the rooms and equipment that would 

otherwise be left unused as a result of 

discontinued procedures. We also 

believe that, although there may be 

occasional instances in which a 

discontinued procedure appropriately 

reported with the –52 modifier 

consumes more resources than one that 

is completed without interruption, those 

are unusual events and the vast majority 

of discontinued cases are significantly 

less costly than completed procedures. 

Therefore, we are finalizing our 

proposed policy to apply a 50 percent 

reduction to the APC payments for 

interrupted procedures reported with 

the –52 modifier in CY 2006. 

Comment: One commenter requested 

that CMS give special consideration to 

capsule endoscopy of the esophagus if 

CMS makes final its proposal to reduce 

payment for procedures with the –52 

modifier. The commenter indicated that 

the procedure is correctly coded using 

CPT 91110 (Gastrointestinal tract 

imaging, intraluminal (e.g., capsule 

endoscopy), esophagus through ileum, 

with physician interpretation and 

report), with –52 appended to indicate 

that the ileum was not visualized, even 

in cases where visualization of the 

ileum was not intended. The commenter 

stated that, although the professional 

component costs are reduced if the 

ileum is not included in the test, the 

technical costs of the procedure are the 

same whether or not the ileum is 

visualized. 

The commenter suggested several 

options for accommodating the capsule 

endoscopy of the esophagus procedure 

in case CMS goes forward with the 

proposed –52 modifier policy. These 

included exempting hospitals from 

reporting the modifier with CPT 91110, 

establishing an administrative exception 

so that intermediaries would not reduce 

payment under the OPPS for the 

procedure, and establishing a different 

code for the procedure that would 

obviate the need for the –52 modifier. 

Response: We are finalizing our 

proposal to reduce payments for 

procedures to which the –52 modifier is 

appended. We do not believe that 

exempting the capsule endoscopy 

procedure from the reduction policy is 

practical or warranted, given our 

consideration of specific information 

available to use concerning the capsule 

endoscopy of the esophagus procedure 

and hospital cost and clinical 

information regarding other separately 

payable services under the OPPS. 

Moreover, even if we believed that it 

was appropriate, it is not feasible for us 

to selectively exempt individual 

procedures from the requirements of our 

OPPS payment policy for the –52 

modifier, nor should providers 

knowingly misuse a CPT code in 

contradiction to CPT instructions. 

While we do not establish HCPCS 

codes for new technology procedures 

that are described by existing HCPCS 

codes or combinations of HCPCS codes, 

we acknowledge that the commenter is 

concerned about the current CPT coding 

structure and its applicability to capsule 

endoscopy of the esophagus, along with 

the implications of the CY 2006 OPPS 

payment policy for services reported 

with the –52 modifier. As the AMA, 

through the CPT Editorial Panel, 

develops new CPT codes, provides 

coding instructions, and makes editorial 

changes to existing CPT codes, we 

encourage the commenter to bring its 

concerns about appropriate CPT coding 

for capsule endoscopy of the esophagus 

to the attention of the CPT Editorial 

Panel. 

2. Modifiers –73 and –74 

When a procedure requiring 

anesthesia is discontinued after the 

beneficiary was prepared for the 

procedure and taken to the room where 

it was to be performed but before the 

administration of anesthesia, hospitals 

currently report modifier –73 and 

receive 50 percent of the APC payment 

for the planned service. The APC Panel 

recommended that we make full APC 

payment for services with modifier –73 

reported, because significant hospital 

resources were expended to prepare the 

patient and the treatment room or 

operating room for the procedure. 

Although the circumstances that require 

use of modifier –73 occur infrequently, 

we continue to believe that hospitals 

realize significant savings when 

procedures are discontinued prior to 

initiation but after the beneficiary is 

taken to the procedure room. We believe 

savings are recognized for treatment/ 

operating room time, single use devices, 

drugs, equipment, supplies, and 

recovery room time. Thus, we believe 

our policy of paying 50 percent of the 

procedure’s APC payment when 

modifier –73 is reported remains 

appropriate. 

Further, in the CY 2006 proposed 

rule, we explored the possibility of 

applying a payment reduction for 

interrupted procedures in which 

anesthesia was to be used (and may 

have been administered) and the 

procedure was initiated. Currently, 

those cases are reported using modifier 

–74, and we make the full APC payment 

for the planned service. 

The payment policy for interrupted 

procedures reported with modifier –74 

was originally adopted because we 

believed that the facility costs incurred 

for discontinued procedures that were 

initiated to some degree were as 

significant to the hospital provider as 

for a completed procedure, including 

resources for patient preparation, 

operating room use, and recovery room 

care. However, we had come to question 

that underlying assumption, especially 

as many surgical procedures have come 

to require specialized and costly devices 

and equipment, and our APC payments 

include the costs for those devices and 

equipment. At the time of the CY 2006 

proposed rule, we expressed our belief 

that there may be costs that are not 

incurred in the event of a procedure’s 

discontinuation, if a hospital is 

managing its use of devices, supplies, 

and equipment efficiently and 

conservatively. For example, the 

patient’s recovery time may be less than 

the recovery time would have been for 

the planned procedure, because less 

extensive surgery was performed or 

costly devices planned for the 

procedure may not be used. 

The APC Panel recommended that we 

continue to pay 100 percent of the 

procedural APC payment when modifier 

–74 is appended to the surgical service 

because, in its opinion, procedures may 

frequently be terminated prior to 

completion because the patient is 

experiencing adverse effects from the 

surgical service or the anesthesia. The 

APC Panel speculated that, in fact, 

significant additional resources could be 

expended in such a situation to stabilize 

and treat the patient if a procedure were 

discontinued because of patient 

complications. However, we believed 

that many of such additional services, 

including critical care, drugs, blood and 

blood products, and x-rays that may be 

necessary to manage and treat such 

patients, are separately payable under 

the OPPS and thus the hospital’s costs 

need not be paid through the APC 

payment for the planned procedure. 

Because the OPPS is paying for the time 

in the operating room, recovery room, 

outpatient department staff, and 

supplies related to the typical 

procedure, it seemed that those costs 

might be lower in those infrequent cases 

when the procedure is initiated but not 

completed. We acknowledged that the 

costs on claims reporting a service with 

modifier –74 might be particularly 

diverse, depending upon the point in 

the procedure when the service was 

interrupted. Thus, in the proposed rule, 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68711 

we specifically invited comment on the 

clinical circumstances in which 

modifier –74 is used in the hospital 

outpatient department, and the degree 

to which hospitals may experience cost 

savings in such situations where 

procedures are not completed. We were 

specifically interested in comments 

regarding the disposition of devices and 

specialized equipment that are not used 

because a procedure is discontinued 

after its initiation. In particular, we were 

interested in obtaining information 

about when during the procedure the 

decision to discontinue is typically 

made. 

We received numerous public 

comments on the use of modifiers–73 

and –74 and the associated costs of 

procedures billed with one of those 

modifiers. 

Comment: A number of commenters 

encouraged CMS to continue to make 

full OPPS payments for interrupted 

services requiring anesthesia that were 

coded with the –74 modifier to indicate 

that the procedures were interrupted 

after their initiation or after the 

administration of anesthesia. In 

response to the proposed rule in which 

we discussed our concerns about the 

appropriateness of our current policy of 

making full payment for those 

discontinued procedures, the 

commenters provided extensive detail 

about the variable clinical 

circumstances where the –74 modifier is 

correctly reported and provided 

examples of the hospital resources 

required in such circumstances. They 

believed that the resources were 

definitely not reduced because, in most 

cases, all supplies would have been 

opened, the patient would continue to 

require recovery time, and the operative 

session might actually be longer than 

usual because of patient complications 

or multiple unsuccessful attempts to 

complete a complicated procedure. 

In addition, numerous commenters 

recommended that CMS make full APC 

payments for services reported with a 

–73 modifier because of significant 

hospital resources required to prepare 

patients for those procedures. The 

commenters pointed out that the current 

OPPS payment policy indicates that 

CMS makes 50 percent of the APC 

payment when a –73 modifier is 

appended to a procedure that requires 

anesthesia and was interrupted after the 

patient was taken into the treatment 

room but prior to the administration of 

anesthesia. The commenters provided 

multiple examples of the types of costs 

incurred by hospitals in such 

circumstances, noting that the 

procedure might have been interrupted 

because a patient required treatment for 

an evolving medical condition, 

requiring significant hospital resources. 

They added that sterile supplies may 

have been opened and other resources, 

including staff time and allocated 

procedure room time, used. The 

commenters recommended that CMS 

make 100 percent of the APC payment 

when a –73 modifier is reported with a 

procedure. In addition, several 

commenters requested that CMS modify 

the definition of when the –73 modifier 

is to be used. They indicated a 

preference that the modifier be used 

earlier, when a procedure is cancelled 

while a patient is still in a holding room 

or preoperative suite where the patient 

has been prepared for surgery, rather 

than being applicable only after the 

patient has been taken into the 

treatment room. 

Response: We made no proposals to 

change our payment policies for 

procedures reported with modifiers –73 

and –74 for CY 2006. We appreciate the 

detailed comments we received on 

hospitals’ experiences with their use. 

We continue to believe that payment at 

50 percent of the APC rate is 

appropriate for procedures reported 

with modifier –73, as we believe, in 

particular, that there are significant 

savings associated with decreased 

procedure or operating room times and 

markedly reduced recovery times. We 

do not believe it is appropriate to make 

procedural APC payments for services 

cancelled prior to a patient’s entering 

the treatment or operating room. While 

specific hospital resources used in 

individual circumstances to prepare 

patients for surgery differ, in general, 

costs incurred in preoperative 

preparation are similar across surgical 

procedures (for example, establishment 

of intravenous access, pre-operative 

medication) and are unlikely to be 

closely related to the APC payments for 

the planned procedures. We expect that 

hospitals will continue to be cautious in 

expending resources preoperatively for 

procedures that may be cancelled prior 

to the patient entering the treatment 

room. Therefore, we will continue our 

current policy of a 50-percent reduction 

in the APC payment for services 

reported with the –73 modifier for the 

CY 2006 OPPS. 

We also will maintain our current 

policy of paying 100 percent of the APC 

payment for procedures reported with 

the –74 modifier for CY 2006. We agree 

with the commenters that, in general, 

the clinical circumstances where the 

–74 modifier is reported may be 

particularly diverse and unpredictable. 

While we understand that any 

reductions in APC payments under such 

circumstances could pose some risk of 

the OPPS making inappropriate 

payments for hospital resources utilized 

for such discontinued procedures, we 

remain concerned that making the full 

APC payment could also be 

inappropriate if a discontinued 

procedure with the –74 modifier 

appended was a high cost service 

requiring an expensive device that was 

not actually utilized. In the future, we 

may further examine our hospital claims 

data to analyze cost information for 

procedures reported with and without 

the –74 modifier. 

We will provide billing guidance for 

CY 2006 regarding modifiers –52, –73, 

and –74 to offer hospitals additional 

instructions regarding the appropriate 

use of the three modifiers in the OPPS. 

Our goal is to assure that hospitals 

understand and report these modifiers 

correctly so that they receive 

appropriate payments for the services 

they provide. 

XV. OPPS Policy and Payment 

Recommendations 

A. MedPAC Recommendations 

1. Report to the Congress: Medicare 

Payment Policy (March 2005) 

The Medicare Payment Advisory 

Commission (MedPAC) submits reports 

to Congress in March and June that 

summarize payment policy 

recommendations. The March 2005 

MedPAC report included the following 

two recommendations relating 

specifically to the hospital OPPS: 

a. Recommendation 1: The Congress 

should increase payment rates for the 

outpatient prospective payment system 

by the projected increase in the hospital 

market basket index less 0.4 percent for 

calendar year 2006. A discussion 

regarding hospital update payments, 

and the effect of the market basket 

update in relation to other factors 

influencing OPPS payment rates, is 

included in section II.C. (‘‘Conversion 

Factor Update for CY 2006’’) of this 

preamble. 

b. Recommendation 2: The Congress 

should extend hold-harmless payments 

under the outpatient prospective 

payment system for rural sole 

community hospitals and other rural 

hospitals with 100 or fewer beds 

through calendar year 2006. A 

discussion of the expiration of the holdharmless provision is included in 

section II.F. of this preamble. See also 

section II.G. (‘‘Adjustment for Rural 

Hospitals’’) of this preamble for a 

discussion of section 411 of Pub. L. 

108–173. 

68712 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

2Mundinger, M.O., Kane, R.I., Lenez, E.R., et al., 

Primary Care Outcomes in Patients Treated by 

Nurse Practitioners or Physicians, A Randomized 

Trial, The Journal of the American Medical 

Association, January 5, 2000, Vol. 283, No. 1, pages 

59–68. 

3Brown, S.A. and Grimes, D.E., Nurse 

Practitioners and Certified Nurse Midwives: A Meta 

Analysis of Studies on Nurses in Primary Care 

Roles, American Nurses Association, Washington, 

DC, March 1993. 

4Ryan, S.A., Nurse Practitioners: Educational 

Issues, Practice Styles, and Service Barriers. In 

Clawson, D.K., Osterweis, M., eds: The Role of 

Physician Assistants and Nurse Practitioners in 

Primary Health Care Association of Academic 

Health Centers, Washington, DC, 1993. 

5Office of Technology Assessment, U.S. 

Congress: Nurse Practitioners, Physician Assistants, 

and Certified Nurse Midwives: A Policy Analysis, 

Health Technology Case Study 37, Washington, DC, 

U.S. Government Printing Office, 1986. 

2. Report to the Congress: Issues in a 

modernized Medicare Program—

Payment for Pharmacy Handling Costs 

in Hospital Outpatient Departments 

(June 2005) 

A discussion of the MedPAC 

recommendations relating to pharmacy 

overhead payments in the hospital 

outpatient department can be found in 

section V. of the preamble of this final 

rule with comment period. 

B. APC Panel Recommendations 

Recommendations made by the APC 

Panel are discussed in sections of this 

preamble that correspond to topics 

addressed by the APC Panel. Minutes of 

the APC Panel’s February 2005 and 

August 2005 meeting are available 

online at http://www.cms.hhs.gov/faca/ 

apc/default.asp. 

C. GAO Hospital Outpatient Drug 

Acquisition Cost Survey 

A discussion of the June 30, 2005 

GAO report entitled ‘‘Medicare: Drug 

Purchase Prices for CMS Consideration 

in Hospital Outpatient Rate-Setting’’

and section 621(a)(1) of the MMA is 

included in section V. of the preamble 

of this final rule with comment period. 

XVI. Physician Oversight of 

Nonphysician Practitioners in Critical 

Access Hospitals 

A. Background 

Section 1820 of the Act, as amended 

by section 4201 of the Balanced Budget 

Act of 1997, Pub. L. 105–33, provides 

for the establishment of Medicare Rural 

Hospital Flexibility Programs 

(MRHFPs), under which individual 

States may designate certain facilities as 

critical access hospitals (CAHs). 

Facilities that are so designated and 

meet the CAH conditions of 

participations (COPs) under 42 CFR part 

485, subpart F, will be certified as CAHs 

by CMS. The MRHFP replaced the 

Essential Access Community Hospital 

(EACH)/ Rural Primary Care Hospital 

(RPCH) program. 

B. Proposed Policy Change in the 

Proposed Rule 

Under the former EACH/RPCH 

program, physician oversight was 

required for services provided by 

nonphysician practitioners such as 

physician assistants (PAs), nurse 

practitioners (NPs), and clinical nurse 

specialists (CNSs) in a CAH. Under the 

MRHFP, the statute likewise requires 

physician oversight for nonphysician 

practitioners. 

We note that under the EACH/RPCH 

program, we allowed for situations 

when the RPCH had an unusually high 

volume of outpatients (100 or more 

during a 2-week period) that were 

treated by nonphysician practitioners. 

We stated that it would be sufficient for 

a physician to review and sign a 25- 

percent sample of medical records for 

patients cared for by a nonphysician 

practitioner unless State practice and 

laws require higher standards for 

physician oversight for nonphysician 

practitioners. 

However, the current regulation does 

not distinguish between inpatient and 

outpatient physician oversight. 

Although the CAH CoPs at 

§ 485.631(b)(iv) provide that a doctor of 

medicine or osteopathy periodically 

reviews and signs the records of patients 

cared for by NPs, CNSs, or PAs, section 

1820(c)(2)(B)(iv)(III) of the Act states 

that CAH inpatient care provided by a 

PA or NP is subject to the oversight of 

a physician. The review of outpatient 

records is not addressed in the statute. 

Presently, for patients cared for by 

nonphysician practitioners, the 

interpretative guidelines set forth in 

Appendix W of the State Operations 

Manual (CMS Publication 7) set 

parameters for inpatient and outpatient 

physician reviews. To maintain 

consistency from the EACH/RPCH 

program to the CAH program, we 

indicated in the Interpretative 

Guidelines that CAHs with a high 

volume of outpatients need to have a 

physician review and sign a random 

sample of 25 percent of outpatient 

medical records. Therefore, the 

interpretative guidelines allow a 

physician to review and sign a 25- 

percent sample of outpatient records for 

patients under the care of a 

nonphysician practitioner. 

Nonphysician practitioners recently 

brought to our attention their concerns 

regarding their ability to practice under 

their State laws governing scope of 

practice. Particularly, the nonphysician 

practitioners believe the current 

regulations and guidelines impede their 

ability to practice in CAHs. Certified 

nurse midwives, NPs, and CNSs 

disagree with the need for a physician 

to review records of patients that have 

been in their care when State law 

permits them to practice independently. 

MedPAC, in its June 2002 Report to 

Congress, stated that certified nurse 

midwives, NPs, CNSs, and PAs are 

health care practitioners who furnish 

many of the same health care services 

traditionally provided by physicians, 

such as diagnosing illnesses, performing 

physical examinations, ordering and 

interpreting laboratory tests, and 

providing preventive health services. In 

many States, advance practice nurses 

are permitted to practice independently 

or in collaboration with a physician. 

MedPAC reported that NPs have 

independent practice authority in 21 

States, and CNSs have independent 

practice authority in 20 States. PAs, by 

law, must work under the supervision of 

a physician. Based on the American 

Medical Association’s guidelines for 

PAs, the definition of supervision varies 

by State. Generally, the physician 

assistant is a representative of the 

physician, treating the patient in the 

style and manner developed and 

directed by the supervising physician. 

MedPAC further reported that several 

studies have shown comparable patient 

outcomes for the services provided by 

physician and nonphysician 

practitioners. MedPAC reported that 

research conducted by Mundinger et al.2

in 2000, Brown and Grimes 3 in 1993, 

Ryan in 1993,4 and the Office of 

Technology Assessment 5 in 1986 has 

shown that nonphysician practitioners 

can perform about 80 percent of the 

services provided by primary care 

physicians with comparable quality. A 

randomized trial of physicians and NPs 

providing care in ambulatory care 

settings who had the same authority, 

responsibilities, productivity, and 

administrative requirements were 

shown to have comparable patient 

outcomes (see pages 5 and 11 of the 

June 2002 MedPAC report). 

Nonphysician practitioners are trained 

with the expectation that they will 

exercise a certain degree of autonomy 

when providing patient care. About 90 

percent of NPs and 50 percent of PAs 

provide primary care. 

We believe sufficient control and 

oversight of these nonphysician 

practitioners is generated by State laws 

which allow independent practice 

authority. However, we remain 

concerned that, in those States without 

independent practice laws, we have a 

responsibility to continue to ensure the 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68713 

safety and quality of services provided 

to Medicare beneficiaries. 

Therefore, in the CY 2006 OPPS 

proposed rule (70 FR 42753), we 

proposed to revise the regulation at 

§ 485.631(b)(1)(iv) and to add new 

paragraphs (b)(1)(v) and (b)(1)(vi) to 

§ 485.631 to defer to State law regarding 

the review of records for outpatients 

cared for by nonphysician practitioners. 

We proposed that if State law allows 

these practitioners to practice 

independently, we would not require 

physicians to review and sign medical 

records of outpatients cared for by these 

nonphysician practitioners in CAHs. 

However, for those States that do not 

allow independent practice of 

nonphysician practitioners, we 

proposed to continue to maintain the 

requirement that periodic review is 

performed by the physician on 

outpatient records under the care of a 

nonphysician practitioner in a CAH. We 

believe a review at least every 2 weeks 

provides a sufficient time period 

without unduly imposing an 

administrative burden on the physician 

or the CAH. In addition, we proposed to 

allow the CAH to determine the sample 

size of the reviewed records in 

accordance with current standards of 

practice to allow the CAH flexibility in 

adapting the review to its particular 

circumstances. Specifically, we 

proposed that the physician periodically 

(that is, at least once every 2 weeks) 

reviews and signs a sample of the 

outpatient records of nonphysician 

practitioners according to the facility 

policy and current standards of practice. 

We proposed to still require periodic 

review and oversight of all inpatient 

records by physicians. 

C. Public Comments Received on the 

Proposed Rule and Our Responses 

We received 11 public comments 

concerning our proposed revision of 

§ 485.631(b)(1)(iv) and the addition of 

§§ 485.631(b)(1)(v) and (b)(1)(vi). 

Comment: The majority of 

commenters supported our proposal to 

defer to State law regarding the need for 

physicians to review and sign the 

medical records for outpatients cared for 

by nonphysician practitioners in CAHs. 

The commenters also stated that CMS 

should extend the application of this 

policy to physician review of inpatient 

records for patients cared for by 

nonphysician practitioners. 

Response: We appreciate the 

commenters’ support of our proposed 

policy change to defer to State law for 

physician oversight of outpatients cared 

for by nonphysician practitioners in 

CAHs. However, we believe the statute 

is very specific as to the oversight 

requirement for inpatients treated by a 

nonphysician practitioner in a CAH. As 

we stated in the proposed rule, section 

1820(c)(2)(B)(iv)(III) of the Act provides 

that CAH inpatient care provided by a 

PA, NP, or CNS is subject to the 

oversight of a physician. Therefore, we 

will still require physicians to 

periodically review and sign medical 

records of all inpatients cared for by a 

nonphysician practitioner. 

Comment: Two commenters stated 

that, given the growing clinical 

independence of NPs, they have 

concern with CMS adding additional 

Federal requirements for patient record 

reviews that go beyond existing State 

licensure laws. Some commenters stated 

that most States do not use the term 

‘‘independent practice,’’ but instead 

define independent practice as the 

practitioner functioning autonomously. 

Another commenter stated that some 

States do not address independent 

practice and, instead, describe their 

oversight agreement as a ‘‘collaborative’’

agreement between the physician and 

the nonphysician practitioner. 

Response: We share the commenters’

concern with imposing requirements 

that do not increase the safety and 

health outcomes of patients. We 

proposed the new policy to eliminate 

the requirement for a physician to 

review and sign all medical records of 

outpatients (or a random sample of 25 

percent for CAHs with a high volume of 

outpatients) cared for by a nonphysician 

practitioner to provide CAHs with the 

flexibility to comply with State laws for 

outpatient oversight. We believe that 

sufficient control and oversight of 

nonphysician practitioners are 

generated by State laws. 

We also believe that the proposed 

policy on physician oversight of 

outpatient care provided by 

nonphysician practitioners allows for 

collaborative arrangements. 

Nonphysician practitioners who are 

required by State law to have a 

collaborative agreement with a 

physician would be expected to follow 

any State law, current standards of 

practice, and the CAH’s policies 

concerning physicians collaborating 

with nonphysician practitioners who 

provide care for outpatients. We further 

understand that, in many instances, the 

terms ‘‘autonomous’’ and 

‘‘independent’’ are synonymous. 

Although PAs are not considered 

independent practitioners because they 

always work under physician 

supervision, PAs perform their duties 

with a high degree of autonomy in 

providing patient care and making 

medical decisions. Based on these 

comments, and to provide clarity, we 

are removing the word ‘‘independently’’

from the final regulation at 

§ 485.63(b)(1)(v) and (vi) and further 

revising the regulation to state that, 

where State law requires record reviews 

or co-signatures, or both, by a 

collaborating physician, physicians 

must periodically, but not less than 

every 2 weeks, review and sign a sample 

of outpatient records of patients who 

were cared for by nonphysician 

practitioners in accordance with the 

policies of the CAH and current 

standards of practice. In addition, where 

State law does not require record 

reviews or co-signatures, or both, by a 

collaborating physician, physician are 

not required to review and sign 

outpatient records of patients who were 

cared for by nonphysician practitioners. 

D. Final Policy 

After carefully considering the public 

comments received, we are adopting the 

proposed policy changes as final with 

the following modifications: We are 

revising the regulation at 

§ 485.63(b)(1)(v) and (vi) by removing 

references to independent practice. We 

are further providing that physicians 

must review and sign a sample of 

outpatient records periodically, but not 

less than every 2 weeks, only if State 

law requires such record reviews or cosignatures, or both, by a collaborating 

physician. 

XVII. Files Available to the Public Via 

the Internet 

Addenda A and B to this final rule 

with comment period provide various 

data pertaining to CY 2006 payment for 

services under the OPPS. In previous 

years, we have listed in Addendum B 

hundreds of HCPCS codes describing 

services that are not paid under the 

hospital OPPS. To conserve resources 

and to make Addendum B more relevant 

to the OPPS, in this final rule with 

comment period that updates the OPPS 

for CY 2006, we are including in 

Addendum B only the HCPCS codes for 

services that are paid under the OPPS, 

as well as HCPCS codes that will be 

discontinued in CY 2006. The HCPCS 

codes published in Addendum B to this 

final rule with comment period, as well 

as HCPCS codes for items or services 

furnished in a hospital outpatient 

setting that are paid under a fee 

schedule or payment methodology other 

than the OPPS, and HCPCS codes for 

items or services not recognized or 

covered by Medicare, are available to 

the public on the CMS Web site at: 

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

hopps. 

For the convenience of the public, we 

are also including on this same CMS 

68714 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

Web site, in a format that can be readily 

downloaded and manipulated, a table 

that displays the HCPCS data in 

Addendum B sorted by APC 

assignment, which is identified on the 

Web site as Addendum C. In addition, 

we are including on the CMS Web site, 

in a format that can be easily 

downloaded and manipulated, 

Addendum A. 

We note that in the CY 2006 OPPS 

proposed rule, we included, as Addenda 

H, I, J, K, L, M, N, and O, reprints of 

wage index related tables from the IPPS 

that would be used for the OPPS for CY 

2006. In this final rule with comment 

period, we are not reprinting these 

tables as they were issued in the final 

FY 2006 IPPS rule, and corrected. 

Rather, we are providing a link on the 

CMS Web site at: http:// 

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

all of the FY 2006 IPPS wage index 

related tables, except for the table 

containing the out-migration wage 

adjustment data referenced in section 

II.D. of this preamble. The out-migration 

table is presented as Addendum L in 

this final rule with comment period. For 

additional assistance, contact Rebecca 

Kane, (410) 786–0378. 

XVIII. Collection of Information 

Requirements 

In the CY 2006 OPPS proposed rule, 

we solicited public comments on the 

following information collection 

requirement and the associated burden 

that is subject to the Paperwork 

Reduction Act of 1995 (PRA): 

Section 485.631(b)(1)(iv), (b)(1)(v), and 

(b)(1)(vi)—Condition of Participation: 

Staffing and Staff Responsibilities 

In the proposed rule, we proposed to 

revise § 485.631(b)(1)(iv) and add new 

§§ 485.631(b)(v) and (vi) of the 

regulations to require, as a condition of 

participation for a CAH, that a doctor of 

medicine or osteopathy (1) periodically 

review and sign the records of all 

inpatients cared for by nurse 

practitioners, clinical nurse specialists, 

certified nurse midwives, or physician 

assistants; and (2) periodically, but not 

less than every 2 weeks, review and sign 

a sample of outpatient records of 

patients cared for by nurse practitioners, 

clinical nurse specialists, certified nurse 

midwives, or physician assistants 

according to the policy and standard 

practice of the CAH when State law 

does not allow these nonphysician 

practitioners to practice independently. 

In addition, we proposed to provide that 

a doctor of medicine or osteopathy is 

not required to review and sign 

outpatient records of patients cared for 

by nurse practitioners, clinical nurse 

specialists, certified nurse midwives, or 

physician assistants when State law 

allows these nonphysician practitioners 

to practice independently. 

Based on public comments received 

on the proposed policy changes in 

§ 485.631(b)(1), in this final rule with 

comment period, we have revised the 

proposed section to remove the term 

‘‘independently’’ and to specify that 

where State law requires record review 

or co-signatures, or both, by a 

collaborating physician, physicians 

must review and sign a sample of 

outpatient records of patients who were 

cared for by nonphysician practitioners 

in accordance with the policies of the 

CAH and current standards of practice. 

We refer the readers to section XVI.C. of 

this preamble for a fuller discussion of 

these final changes. 

The information collection 

requirements associated with these 

provisions are subject to the PRA. 

However, the collection requirement is 

currently approved under OMB control 

number 0938–0328 with an expiration 

date of January 31, 2008. 

XIX. Regulatory Impact Analysis 

A. OPPS: General 

We have examined the impacts of this 

final rule with comment period as 

required by Executive Order 12866 

(September 1993, Regulatory Planning 

and Review), the Regulatory Flexibility 

Act (RFA) (September 19, 1980, Pub. L. 

96–354), section 1102(b) of the Social 

Security Act, the Unfunded Mandates 

Reform Act of 1995 (Pub. L. 104–4), and 

Executive Order 13132. 

1. Executive Order 12866 

Executive Order 12866 (as amended 

by Executive Order 13258, which 

merely reassigns responsibility of 

duties) directs agencies to assess all 

costs and benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

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

We estimate that the effects of the 

provisions that will be implemented by 

this final rule with comment period will 

result in expenditures exceeding $100 

million in any 1 year. We estimate the 

total increase (from changes in this final 

rule with comment period as well as 

enrollment, utilization, and case-mix 

changes) in expenditures under the 

OPPS for CY 2006 compared to CY 2005 

to be approximately $1.4 billion. 

Therefore, this final rule with comment 

period is an economically significant 

rule under Executive Order 12866, and 

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

2. Regulatory Flexibility Act (RFA) 

The RFA requires agencies to 

determine whether a rule would have a 

significant economic impact on a 

substantial number of small entities. For 

purposes of the RFA, small entities 

include small businesses, nonprofit 

organizations, and government agencies. 

Most hospitals and most other providers 

and suppliers are small entities, either 

by nonprofit status or by having 

revenues of $6 million to $29 million in 

any 1 year (65 FR 69432). 

For purposes of the RFA, we have 

determined that approximately 37 

percent of hospitals would be 

considered small entities according to 

the Small Business Administration 

(SBA) size standards. We do not have 

data available to calculate the 

percentages of entities in the 

pharmaceutical preparation 

manufacturing, biological products, or 

medical instrument industries that 

would be considered to be small entities 

according to the SBA size standards. For 

the pharmaceutical preparation 

manufacturing industry (NAICS 

325412), the size standard is 750 or 

fewer employees and $67.6 billion in 

annual sales (1997 business census). For 

biological products (except diagnostic) 

(NAICS 325414), with $5.7 billion in 

annual sales, and medical instruments 

(NAICS 339112), with $18.5 billion in 

annual sales, the standard is 50 or fewer 

employees (see the standards Web site 

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

siccodes/). Individuals and States are 

not included in the definition of a small 

entity. 

3. Small Rural Hospitals 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 604 of the 

RFA. With the exception of hospitals 

located in certain New England 

counties, for purposes of section 1102(b) 

of the Act, we previously defined a 

small rural hospital as a hospital with 

fewer than 100 beds that is located 

outside of a Metropolitan Statistical 

Area (MSA) (or New England County 

Metropolitan Area (NECMA)). However, 

under the new labor market definitions 

that we adopted in the November 15, 

2004 final rule with comment period, 

for CY 2005 (consistent with the FY 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68715 

2005 IPPS final rule), we no longer 

employ NECMAs to define urban areas 

in New England. Therefore, we now 

define a small rural hospital as a 

hospital with fewer than 100 beds that 

is located outside of an MSA. Section 

601(g) of the Social Security 

Amendments of 1983 (Pub. L. 98–21) 

designated hospitals in certain New 

England counties as belonging to the 

adjacent NECMA. Thus, for purposes of 

the OPPS, we classify these hospitals as 

urban hospitals. We believe that the 

changes in this final rule with comment 

period will affect both a substantial 

number of rural hospitals as well as 

other classes of hospitals and that the 

effects on some may be significant. 

Therefore, we conclude that this final 

rule with comment period will have a 

significant impact on a substantial 

number of small entities. 

4. Unfunded Mandates 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4) also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule that may result in a 

single expenditure in any 1 year by 

State, local, or tribal governments, in the 

aggregate, or by the private sector, of 

$120 million. This final rule with 

comment period does not mandate any 

requirements for State, local, or tribal 

governments. This final rule with 

comment period also does not impose 

unfunded mandates on the private 

sector of more than $120 million 

dollars. 

5. Federalism 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it publishes any rule 

(proposed or final rule) that imposes 

substantial direct costs on State and 

local governments, preempts State law, 

or otherwise has Federalism 

implications. 

We have examined this final rule with 

comment period in accordance with 

Executive Order 13132, Federalism, and 

have determined that it will not have an 

impact on the rights, roles, and 

responsibilities of State, local or tribal 

governments. As reflected in Table 39, 

the impact analysis shows that 

payments to governmental hospitals 

(including State, local, and tribal 

governmental hospitals) will increase by 

1.9 percent under this final rule with 

comment period. 

Comment: Several commenters noted 

that OPPS is the only major Medicare 

payment system that does not include a 

teaching adjustment and urged CMS to 

compare the unit costs of teaching 

hospitals with other types of hospitals 

in order to support a teaching 

adjustment to the OPPS. One 

commenter suggested that such a study 

was necessary in light of the lower 

average payment increase estimated for 

major teaching hospitals in the 

proposed rule, 0.6 percent. The 

commenter hypothesized that teaching 

hospitals are more dependent on passthrough, outlier, and device-dependent 

APC payments, for which payments are 

less stable than for other hospitals, and 

that this is one reason for an adjustment. 

Finally, the commenter cited the 

statement in the April 7, 2000 final rule, 

where CMS indicated that it would 

study cost and payment differentials 

among hospitals, including teaching 

facilities, once there was reliable claims 

data under the OPPS. 

Response: We do not believe that a 

study of the unit costs of teaching 

hospitals relative to other classes of 

hospitals is necessary at this time. As 

we stated in our April 7, 2000 final rule, 

we believe it is important to monitor 

ongoing trends for specific classes of 

hospitals. However, we also believe that 

such studies are especially warranted 

when hospitals experience a negative 

increase in payments. In this specific 

instance, major teaching hospitals are 

projected to experience an overall 

increase in payments of 1.0 percent. 

This increase is lower than the market 

basket update to the conversion factor 

because it reflects extra payments for 

drugs authorized by Pub. L. 108–173 for 

2 years that expire in CY 2006. For the 

past 2 years, teaching hospitals have 

been receiving more payment for drugs 

than budget neutrality would allow. The 

increase in total payments for teaching 

hospitals is less this year because the 

provision allowing extra drug payments 

expires. Without considering these 

expiring payments for drugs, major 

teaching hospitals are projected to 

receive a 3.5 percent increase in total 

payments and minor teaching hospitals 

are projected to experience an increase 

of 4.1 percent. In light of such large 

increases, we do not believe that a study 

of unit costs for teaching hospitals is 

necessary. In addition, we are not 

convinced that a reliance on passthrough, outlier, or device-dependent 

APCs is a reason to propose an 

adjustment. We believe that the source 

of payments is less important than total 

payments for each hospital. 

B. Impact of Changes in This Final Rule 

With Comment Period 

We are adopting as final several 

proposed changes to the OPPS that are 

required by the statute. We are required 

under section 1833(t)(3)(C)(ii) of the Act 

to update annually the conversion factor 

used to determine the APC payment 

rates. We are also required under 

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

not less often than annually, the wage 

index and other adjustments. In 

addition, we must review the clinical 

integrity of payment groups and weights 

at least annually. Accordingly, in this 

final rule with comment period, we are 

updating the conversion factor and the 

wage index adjustment for hospital 

outpatient services furnished beginning 

January 1, 2006, as we discuss in 

sections II.C. and II.D., respectively, of 

this preamble. We also are revising the 

relative APC payment weights using 

claims data from January 1, 2004, 

through December 31, 2004 and updated 

cost report information. In response to 

a provision in Pub. L. 108–173 that we 

analyze the cost of outpatient services in 

rural hospitals relative to urban 

hospitals, we are increasing payments to 

rural SCHs. Section II.G. of this 

preamble provides greater detail on this 

rural adjustment. Finally, we are 

removing three device categories from 

pass-through payment status. In 

particular, section IV.C.1. of this 

preamble discusses the expiration of 

pass-through status for devices. 

Under this final rule with comment 

period, the update change to the 

conversion factor as provided by statute 

will increase total OPPS payments by 

3.7 percent in CY 2006. The inclusion 

in CY 2006 of payment for specific 

covered outpatient drugs within budget 

neutrality, and the expiration of 

additional drug payment outside budget 

neutrality, result in a net increase of 2.2 

percent. The changes to the APC 

weights, changes to the wage indices, 

and the introduction of a payment 

adjustment for rural SCHs will not 

increase OPPS payments because these 

changes to the OPPS are budget neutral. 

However, these updates do change the 

distribution of payments within the 

budget neutral system as shown in 

Table 39 and described in more detail 

in this section. 

C. Alternatives Considered 

Alternatives to the changes we are 

making and the reasons that we have 

chosen the options that we have are 

discussed throughout this final rule 

with comment period. Some of the 

major issues discussed in this final rule 

with comment period and the options 

considered are discussed below. 

1. Option Considered for Payment 

Policy for Separately Payable Drugs and 

Biologicals 

As discussed in detail in section V.B.3 

of this preamble, section 

1833(t)(14)(A)(iii) of the Act requires 

68716 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

that payment for specified covered 

outpatient drugs in CY 2006, as adjusted 

for pharmacy overhead costs, be equal 

to the average acquisition cost for the 

drug for that year as determined by the 

Secretary and taking into account the 

hospital acquisition cost survey data 

collected by the GAO in CY 2004 and 

CY 2005. 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. 

The payment policy that we are 

adopting for CY 2006 is to pay for the 

acquisition and pharmacy overhead 

costs of all separately payable drugs and 

biologicals at the payment rates effective 

in the physician office setting as 

determined using the manufacturer’s 

average sales price (ASP) methodology. 

(The payment rate in the physician 

office setting is ASP+6 percent.) These 

payment rates listed in this final rule 

with comment period are based on ASP 

data from the second quarter of 2005, 

which were used to set payment rates 

for drugs and biologicals in the 

physician office setting effective 

October 1, 2005, as these are the most 

recent numbers available to us during 

the development of this final rule with 

comment period. For the few drugs and 

biologicals, other than 

radiopharmaceuticals as discussed 

earlier, where ASP data are unavailable, 

we used the mean costs from the CY 

2004 hospital claims data to determine 

their packaging status and for 

ratesetting. We believe that the ASPbased payment rates serve as the best 

proxy for the average acquisition and 

pharmacy overhead costs for the drug or 

biological because the rates calculated 

using the ASP methodology are based 

on the manufacturers’ sales prices from 

the second quarter of CY 2005 and take 

into consideration information on sales 

prices to hospitals. Furthermore, 

payments for drugs and biologicals 

using the ASP methodology will allow 

for consistency of drug pricing between 

the physician offices and hospital 

outpatient departments. 

In the CY 2006 proposed rule, we 

proposed paying for acquisition costs of 

drugs alone at the rate of ASP+6 

percent, with an additional 2 percent of 

ASP for the pharmacy overhead costs of 

drugs. At that time, we also considered 

paying for separately payable drugs and 

biologicals (before payment for 

pharmacy overhead) at ASP+3 percent, 

based on the average relationship 

between the GAO mean purchase prices 

and ASP. We also considered ASP+8 

percent (again before payment for 

pharmacy overhead) based on the 

average relationship between the mean 

costs from hospital claims data and 

ASP. 

In the proposed rule, we did not set 

payment rates for separately payable 

drugs and biologicals at ASP+3 percent 

because the GAO data reflect hospital 

acquisition costs from a less recent 

period of time, as the midpoint of the 

time period when the survey was 

conducted is January 1, 2004, and it will 

be difficult to update the GAO mean 

purchase prices during CY 2006 and in 

future years. Because the changes in 

drug payments are required to be budget 

neutral by law, we note that paying for 

separately payable drugs and biologicals 

at ASP+3 percent relative to ASP+6 

percent would have made available 

approximately an additional $60 million 

for other items and services paid under 

the OPPS. 

In the proposed rule, we also did not 

use ASP+8 percent to set payment rates 

for drugs and biologicals in CY 2006. 

The statute specifies that CY 2006 

payments for specified covered 

outpatient drugs are required to be equal 

to the ‘‘average’’ acquisition cost for the 

drug. Payment at ASP+8 percent for 

drugs or biologicals, which represented 

the average relationship between the 

mean cost from hospital claims data and 

ASP at the time of the proposed rule, 

would reflect the product’s acquisition 

cost plus pharmacy overhead cost, 

instead of acquisition cost only. 

Therefore, we believed at that time that 

it would not be appropriate for us to use 

ASP+8 percent to set the payment rates 

for drugs and biologicals in CY 2006. 

In this final rule with comment 

period, we have updated data on drug 

costs, and we have reviewed the 

available alternatives in the light of 

those data. Based on our updated data, 

the average relationship between the 

mean costs from hospital claims data 

and ASP is now ASP+6 percent, rather 

than ASP+8 percent as in the proposed 

rule. Therefore, in this final rule with 

comment period, we are adopting the 

policy of paying both for the acquisition 

and pharmacy overhead costs of 

separately payable drugs at a combined 

rate of ASP+6 percent. As in the 

proposed rule, we considered several 

alternatives. We again considered 

paying for separately payable drugs and 

biologicals at ASP+3 percent, reflecting 

the GAO survey data on drug costs. 

However, payment at this level would 

reflect only the acquisition costs of 

drugs and, therefore, would not be 

sufficient to pay for acquisition and 

overhead costs. We also considered 

paying for the acquisition costs of drugs 

alone at the proposed rate of ASP+6 

percent. A commenter from MedPAC 

noted that, given that ASP values have 

declined in recent quarters and that the 

GAO’s data did not fully reflect rebates, 

the proposed drug payment rates of 

ASP+6 percent could be too high. In 

addition, our more recent claims data 

indicate that this rate would represent 

excessive payment for acquisition costs 

of drugs alone. Instead, the hospital 

claims data suggest that ASP+6 percent 

is an appropriate rate for the acquisition 

and pharmacy overhead costs of drugs 

because pharmacy overhead costs are 

already built into hospital charges for 

drugs. Therefore, we are adopting that 

policy in this final rule with comment 

period. 

Payment for drugs and biologicals 

under this methodology adds 

approximately $500 million to the 

amount of drug costs that was included 

in our budget neutrality calculation for 

the CY 2005 OPPS. The effect of the 

addition of this amount is offset by 

reductions in weights for other services 

that are largely a function of updated, 

reduced CCRs. 

2. Payment Adjustment for Rural SCHs 

In section II.G. of this preamble, we 

are finalizing a 7.1 percent payment 

adjustment increase for rural SCHs. 

Section 1833(t)(13)(A) of the Act 

instructs the Secretary to conduct a 

study to determine if rural hospital 

outpatient costs exceed urban hospital 

outpatient costs. In addition, under 

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

Secretary is given authorization to 

provide an appropriate adjustment to 

rural hospitals, by January 1, 2006, if 

rural hospital costs are determined to be 

greater than urban hospital costs. 

For this final rule with comment 

period, we conducted the same analyses 

that we conducted for the proposed rule 

with updated data, and in addition, we 

examined the relative costliness of 

several classes of hospitals identified in 

public comments. We used regression 

analysis to analyze the differences in the 

outpatient cost per unit between rural 

and urban hospitals in order to compare 

costs after accounting for other factors 

that influence unit cost, including local 

labor supply, and complexity and 

volume of services. 

As in the proposed rule, our initial 

regression analysis found that all rural 

hospitals give some indication of having 

higher cost per unit, after controlling for 

labor input prices, service-mix 

complexity, volume, facility size, and 

type of hospital. In order to assess 

whether the small difference in costs 

was uniform across rural hospitals or 

whether all of the variation was 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68717 

attributable to a specific class of rural 

hospitals, we included more specific 

categories of rural hospitals in our 

explanatory regression analysis. We 

divided rural hospitals into categories 

indicated by their eligibility for the 

expiring hold harmless provision: rural 

SCHs, small rural hospitals with 100 or 

fewer beds, and all other rural hospitals. 

Further analysis revealed that only rural 

SCHs are more costly than urban 

hospitals holding all other variables 

constant. We also examined the relative 

costliness of other types of hospitals 

suggested by public comments, 

including urban SCHs and MDHs. We 

observed no significant difference in the 

unit costs of small rural hospitals with 

100 or fewer beds, all other rural 

hospitals, MDHs, urban SCHs, and all 

other urban hospitals. Therefore, we are 

adopting a 7.1 percent payment increase 

for rural SCHs on all services except 

drugs, biologicals, and those paid under 

pass-through for CY 2006. 

3. Change in the Percentage of Total 

OPPS Payments Dedicated to Outlier 

Payments 

In section II.H. of this preamble, we 

are changing the percentage of total 

OPPS payments dedicated to outlier 

payments to 1.0 percent in CY 2006 

from the current policy of 2.0 percent. 

We also will continue using a fixeddollar threshold in addition to the 

threshold based on a multiple of the 

APC amount, which we have applied 

since the beginning of the OPPS. In 

response to findings reported by the 

MedPAC in its March 2004 Report to 

Congress that the OPPS outlier policy 

based on a multiple threshold only 

targeted outlier payments to simple and 

low cost procedures. In the same report, 

MedPAC recommended eliminating the 

entire outlier policy from the OPPS 

because the OPPS pays by service rather 

than by case and, therefore, hospitals 

are already paid for every increased 

service associated with a costly case. In 

addition, cost variability is lower for 

expensive, complex procedures than 

less expensive and simpler procedures. 

We implemented the fixed-dollar 

threshold in the CY 2005 OPPS that 

targets outlier payments to complex and 

expensive procedures that ultimately 

could impact beneficiary access to 

services. Our decision to reduce the 

percentage of total payments dedicated 

to outlier payments continues to refine 

our outlier policy to improve its 

appropriateness for the OPPS. A 

reduction in the percentage of total 

payment set aside for outlier payments 

with the fixed-dollar threshold 

continues to target outlier payments to 

those services where one costly 

occurrence could pose a financial risk 

for hospitals, but limits these payments 

to the most complex and costly services. 

At 1.0 percent, the OPPS outlier policy 

becomes catastrophic insurance against 

an occurrence of a very costly service. 

At the same time, reducing the 

percentage of total payments dedicated 

to outlier payments increases the 

conversion factor, redistributing 1.0 

percent of total payments to almost all 

services. 

Alternatives to this policy are either 

to remain at 2.0 percent or to increase 

the percentage of payments dedicated to 

outliers to the statutory limit of 3.0 

percent. Increasing the percentage of 

payments dedicated to outliers could 

target more payment to outliers, but is 

at odds with OPPS payment by service 

rather than case. It is not possible to 

eliminate outlier payments entirely 

without a statutory change. 

D. Limitations of Our Analysis 

The distributional impacts presented 

here are the projected effects of the final 

policy changes, as well as the statutory 

changes that will be effective for CY 

2006, on various hospital groups. We 

estimate the effects of individual policy 

changes by estimating payments per 

service while holding all other payment 

policies constant. We use the best data 

available but do not attempt to predict 

behavioral responses to our policy 

changes. In addition, we do not make 

adjustments for future changes in 

variables such as service volume, 

service-mix, or number of encounters. 

E. Estimated Impacts of This Final Rule 

With Comment Period on Hospitals 

The estimated increase in the total 

payments made under OPPS is limited 

by the increase to the conversion factor 

set under the methodology in the 

statute. The distributional impacts 

presented do not include assumptions 

about changes in volume and servicemix. The enactment of Pub. L. 108–173 

on December 8, 2003, provided for the 

payment of additional dollars in CY 

2004 and CY 2005 to providers of OPPS 

services outside of the budget neutrality 

requirement for specified covered 

outpatient drugs. These provisions 

expire in CY 2006. Pub. L. 108–173 also 

provided for additional payment outside 

of the budget neutrality requirement for 

wage indices for specific hospitals 

reclassified under section 508 through 

CY 2007. Table 39 shows the estimated 

redistribution of hospital payments 

among providers as a result of a new 

APC structure, wage indices, and 

adjustment for rural SCHs, which are 

budget neutral; the estimated 

distribution of increased payments in 

CY 2006 resulting from the combined 

impact of APC recalibration, wage 

effects, the rural SCH adjustment, and 

the market basket update to the 

conversion factor; and, finally, 

estimated payments considering all 

payments for CY 2006 relative to all 

payments for CY 2005, including the 

expiration of extra payment for 

specified covered outpatient drugs 

outside budget neutrality and the 

change in the percentage of total 

payments dedicated to outlier 

payments. Because the expiring 

payments for drugs were not budget 

neutral, most classes of hospitals will 

experience a positive update for CY 

2006 that is lower than the market 

basket update. In essence, the presence 

of extra payment in previous years 

makes the increase for CY 2006 look 

artificially low. We also estimate that a 

few classes of hospitals may receive less 

payment in CY 2006. Because updates 

to the conversion factor, including the 

update of the market basket, the removal 

of additional money for pass-through 

payments, and a change in the 

percentage of total payments dedicated 

to outlier payments are applied 

uniformly, observed redistributions of 

payments in the impact table largely 

depends on the mix of services 

furnished by a hospital (for example, 

how the APCs for the hospital’s most 

frequently furnished services would 

change), the impact of the wage index 

changes on the hospital, and the impact 

of the payment adjustment for rural 

SCHs. However, total payments made 

under this system and the extent to 

which this final rule with comment 

period redistributes money during 

implementation would also depend on 

changes in volume, practice patterns, 

and the mix of services billed between 

CY 2005 and CY 2006, which CMS 

cannot forecast. Overall, the final OPPS 

rates for CY 2006 will have a positive 

effect for all hospitals paid under the 

OPPS. Adopted changes will result in a 

2.2 percent increase in Medicare 

payments to all hospitals, exclusive of 

transitional pass-through payments. 

Removing cancer and children’s 

hospitals because their payments are 

held harmless to the pre-BBA ratio 

between payment and cost, suggests that 

adopted changes will result in a 2.3 

percent increase in Medicare payments 

to all other hospitals. 

To illustrate the impact of the CY 

2006 changes adopted in this final rule 

with comment period, our analysis 

begins with a baseline simulation model 

that uses the final CY 2005 weights, the 

FY 2005 final post-reclassification IPPS 

wage indices, as subsequently corrected 

68718 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

and without additional increases 

resulting from section 508 

reclassifications, and the final CY 2005 

conversion factor. Columns 2, 3, and 4 

in Table 39 reflect the independent 

effects of the APC reclassification and 

recalibration changes, updated wage 

indices, and the new adjustment for 

rural SCHs, respectively. These effects 

are budget neutral, which is apparent in 

the overall zero impact in payment for 

all hospitals in the top row. Column 2 

shows the independent effect of changes 

resulting from the reclassification of 

services codes among APC groups and 

the recalibration of APC weights based 

on a complete year of CY 2004 hospital 

OPPS claims data and more recent cost 

report data. This column also shows the 

impact of incorporating drug payment at 

106 percent of ASP and, for 

radiopharmaceuticals, payment at cost, 

within budget neutrality. We modeled 

the independent effect of APC 

recalibration by varying only the 

weights, the final CY 2005 weights 

versus the final CY 2006 weights, in our 

baseline model, and calculating the 

percent difference in payments. Column 

3 shows the impact of updating the 

wage index used to calculate payment 

by applying the final FY 2006 IPPS 

wage index, as subsequently corrected. 

The OPPS wage index used in Column 

3 does not include changes to the wage 

index for hospitals reclassified under 

section 508 of Pub. L. 108–173. We 

modeled the independent effect of 

updating the wage index by varying 

only the wage index, using the final CY 

2006 scaled weights, and a CY 2005 

conversion factor that included a budget 

neutrality adjustment for changes in 

wage effects between CY 2005 and CY 

2006. Column 4 shows the budget 

neutral impact of adding a 7.1 percent 

adjustment to payment for services 

other than drugs, biologicals, and those 

receiving pass-through payments to 

rural SCHs. We modeled the 

independent effect of the payment 

adjustment for rural SCHs by varying 

only the presence of the rural 

adjustment, using CY 2006 scaled 

weights, the FY 2006 wage indices, and 

a CY 2005 conversion factor with budget 

neutrality adjustments for the new wage 

index and the adjustment for rural 

SCHs. 

Column 5 demonstrates the combined 

‘‘budget neutral’’ impact of APC 

recalibration, the wage index update, 

and the new adjustment for rural SCHs 

on various classes of hospitals, as well 

as the impact of updating the 

conversion factor with the market basket 

update. We modeled the independent 

effect of budget neutrality adjustments 

and the market basket update by using 

the weights and wage indices for each 

year to model CY 2006 requirements, 

and using a CY 2005 conversion factor 

that included the market basket update 

and budget neutrality adjustments for 

differences in wages and the adjustment 

for rural SCHs. 

Finally, Column 6 depicts the full 

impact of the CY 2006 policy on each 

hospital group by including the effect of 

all the changes for CY 2006 and 

comparing them to all payments in CY 

2005, including those required by Pub. 

L. 108–173. Column 6 shows the 

combined budget neutral effects of 

Columns 2 through 5, plus the impact 

of changing the percentage of total 

payments dedicated to outlier payments 

to 1.0 percent, the impact of changing 

the percentage of total payments 

dedicated to transitional pass-through 

payments to 0.17 percent, the impact of 

expiring payments for drugs added on 

top of OPPS payments in CY 2005 as a 

result of Pub. L. 108–173, and the 

continued presence of payment for wage 

index increases for hospitals reclassified 

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

We modeled the independent effect of 

all changes in Column 6 using the final 

weights for CY 2005 with additional 

money for drugs authorized by Pub. L. 

108–173 and the final weights for CY 

2006. The wage indices in each year 

include wage index increases for 

hospitals eligible for reclassification 

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

We used the final conversion factor for 

CY 2005 of $56.983 and the final CY 

2006 conversion factor of $59.511. 

Column 6 also contains simulated 

outlier payments for each year. We used 

the charge inflation factor used in the 

final FY 2006 IPPS rule of 7.21 percent 

to increase individual costs on the CY 

2004 claims to reflect CY 2005 dollars, 

and we used the most recent overall 

CCR for each hospital as calculated for 

the APC median setting process. Using 

the CY 2004 claims and a 7.21 percent 

charge inflation factor, we currently 

estimate that actual outlier payments for 

CY 2005, using a multiple threshold of 

1.75 and a fixed-dollar threshold of 

$1,175 will be 1.15 percent of total 

payments, which is .85 percent lower 

than the 2.0 percent that we projected 

in setting outlier policies for CY 2005. 

Outlier payments of only 1.15 percent 

appear in the CY 2005 comparison in 

Column 6. We used the same set of 

claims and a charge inflation factor of 

14.94 percent to model the CY 2006 

outliers at 1.0 percent of total payments 

using a multiple threshold of 1.75 and 

a fixed-dollar threshold of $1,250. 

Column 1: Total Number of Hospitals 

Column 1 in Table 39 shows the total 

number of hospital providers (4,222) for 

which we were able to use CY 2004 

hospital outpatient claims to model CY 

2005 and CY 2006 payments by classes 

of hospitals. We excluded all hospitals 

for which we could not accurately 

estimate CY 2005 or CY 2006 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, and the State of Maryland. This 

process is discussed in greater detail in 

section II.A. of this preamble. 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 

psychiatric hospitals, rehabilitation 

hospitals, and long-term care hospitals. 

Finally, section 1833(t)(7)(D) of the Act 

permanently holds harmless cancer 

hospitals and children’s hospitals to the 

proportion of their pre-BBA payment 

relative to their costs. Because this final 

rule with comment period will not 

impact these hospitals negatively, we 

removed them from our impact 

analyses. We show the total number 

(4,162) of OPPS hospitals, excluding the 

hold-harmless cancer hospitals and 

children’s hospitals, on the second line 

of the table. 

Column 2: APC Recalibration 

The combined effect of APC 

reclassification and recalibration, 

including the payment for drugs and 

biologicals at 106 percent of ASP for 

acquisition and pharmacy overhead 

costs, resulted in larger changes in 

Column 2 than are typically observed 

for APC recalibration. Overall, these 

changes have no impact on all urban 

hospitals, which show no projected 

change in payments, although some 

classes of urban hospitals experience 

decreases in payments. However, 

changes to the APC structure for CY 

2006 tend to favor, slightly, urban 

hospitals that are not located in large 

urban areas. We estimate that large 

urban hospitals will experience a 

decline of 0.7 percent, while ‘‘other’’

urban hospitals experience an increase 

of 0.9 percent. Urban hospitals with 

between 0 and 99 beds and between 100 

and 199 beds experience decreases, 

while the largest urban hospitals, those 

with beds greater than 500 experience 

increases of 0.7 percent. With regard to 

volume, all urban hospitals except those 

with the highest volume, experience 

decreases in payments. The lowest 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68719 

volume hospitals experience the largest 

decrease of 5.4 percent. Urban hospitals 

providing the highest volume of services 

demonstrate a projected increase of 0.2 

percent as a result of APC recalibration. 

Estimated decreases in payment for 

urban hospitals are also concentrated in 

some regions, specifically, New 

England, Pacific, South Atlantic, and 

Mountain, with the first two 

experiencing the largest decreases of 1.0 

each. On the other hand, a few regions 

experience moderate increases. Urban 

hospitals in the East South Central and 

West North Central regions experience 

increases of 1.6 and 2.3 percent, 

respectively. 

Overall, rural hospitals show a 

modest 0.2 percent decrease as a result 

of changes to the APC structure, and 

this 0.2 percent decrease appears to be 

concentrated in rural hospitals that are 

not rural SCHs, which experience a 0.6 

percent increase. Notwithstanding a 

modest overall decline in payments, 

there is substantial variation among 

classes of rural hospitals. Specifically, 

rural hospitals with less than 100 beds 

and between 150 and 199 beds 

experience decreases, with hospitals 

having less than 50 beds experiencing 

the largest decrease of 1.6 percent. Rural 

hospitals with greater than 200 beds 

experience the largest increase of 1.6 

percent. With regard to volume, all rural 

hospitals, except those with the highest 

volume, experience decreases in 

payments. The lowest volume hospitals 

experience the largest decrease of 5.7 

percent. Rural hospitals providing the 

highest volume of services demonstrate 

a projected increase of 0.8 percent as a 

result of APC recalibration. Decreases 

for rural hospitals occur in every region 

except West North Central and the 

Middle Atlantic. The largest decreases 

are observed in the Pacific (¥1.8 

percent), New England (¥1.4 percent), 

and West South Central (¥1.4 percent) 

regions. On the other hand, rural 

hospitals in the Middle Atlantic and 

West North Central regions experience 

increases of 1.8 and 3.5 percent, 

respectively. 

Among other classes of hospitals, the 

largest observed impacts resulting from 

APC recalibration include declines of 

0.6 percent for nonteaching hospitals 

and increases of 0.4 percent for major 

teaching hospitals. Hospitals treating 

the most low-income patients (high DSH 

percentage) and the least low-income 

patients demonstrate declines of 0.2 

percent. Urban hospitals that are 

treating DSH patients and are also 

teaching hospitals experience increases 

of 0.5 percent. We project that hospitals 

for which a DSH percentage is not 

available, including psychiatric 

hospitals, rehabilitation hospitals, and 

long-term care hospitals will experience 

decreases in payments of 4.5 percent, 

and for the urban subset, 5.9 percent. 

Classifying hospitals by type of 

ownership suggests that proprietary and 

government hospitals will lose 1.1 and 

0.1 percent, respectively, while 

voluntary hospitals will gain 0.2 

percent. 

Column 3: New Wage Indices 

Changes introduced by the final FY 

2006 IPPS wage indices will have a 

modest impact in CY 2006, increasing 

payments to rural hospitals slightly and 

having no effect overall on urban 

hospitals. We estimate that rural SCHs 

will experience an increase in payments 

of 0.1 percent, while all other rural 

hospitals experience an increase of 0.2 

percent. With respect to volume, rural 

hospitals with the least volume and 

rural hospitals with moderate volume 

experience decreases of 0.1 and 0.2 

percent, respectively. For both facility 

size and volume, no category of rural 

hospitals experiences an increase 

greater than 0.3 percent. Examining 

hospitals by region reveals slightly 

greater variability. We estimate that 

rural hospitals in several regions will 

experience decreases in payment up to 

0.3 percent due to wage changes, 

including the Middle Atlantic, South 

Atlantic, West North Central, and West 

South Central regions. However, rural 

hospitals in the remaining regions 

experience increases. We estimate that 

the New England region will see the 

largest increase of 2.2 percent. 

Overall, urban hospitals experience 

no change in payments as a result of the 

new wage indices. With respect to 

facility size, we estimate that urban 

hospitals with between 300 and 499 

beds will experience a decrease in 

payments of 0.2 percent. Urban 

hospitals with less than 99 beds 

experience the largest increase of 0.2 

percent. When categorized by volume, 

urban hospitals with the largest volumes 

experience no change in payment as a 

result of changes to the wage index, and 

urban hospitals with the lowest volume 

experience a 0.4 percent increase in 

payment. We estimate that urban 

hospitals in all but the Pacific, New 

England and the Middle Atlantic 

regions will experience modest 

decreases due to wage changes of no 

more than 0.5 percent (except for urban 

hospitals in Puerto Rico, with a decrease 

of 1 percent). Urban hospitals in the 

Pacific and New England regions will 

experience an increase of 1.2, and 0.2 

percent, respectively. Urban hospitals in 

the Middle Atlantic region will 

experience no change in payments. 

Looking across other categories of 

hospitals, we estimate that updating the 

wage index will lead major teaching 

hospitals to lose 0.2 percent and 

hospitals without graduate medical 

education programs are estimated to 

gain 0.1 percent. Hospitals serving 

between 0.0 and 0.10 percent of lowincome patients lose up to 0.1 percent, 

whereas hospitals serving other 

percentages of low-income patients 

experience no change. Government, 

voluntary, and proprietary hospitals as 

classes will experience no change in 

payment due to wage changes. 

Column 4: New Adjustment for Rural 

SCHs 

As discussed in section II.G. of this 

preamble, we have increased payments 

for all services except drugs and 

biologicals to rural SCHs by 7.1 percent. 

This resulted in an adjustment to the 

conversion factor of 0.996. Targeting 

payments to these rural hospitals 

uniformly reduces payments to all other 

hospitals by 0.4 percent. The uniform 

reduction for all urban and other rural 

hospitals is evident in Column 4. The 

periodic appearance of a ¥ 0.3 among 

urban classes of hospitals is due to the 

difference between the definition of 

rural used for this impact table and the 

broader definition of rural employed for 

the adjustment for rural SCHs. SCHs 

located in urban areas that are 

reclassified as rural for wage index 

purposes are eligible for the adjustment. 

The observed increase of 5.6 percent for 

rural SCHs is lower than 7.1 percent 

because drugs and biologicals do not 

receive the payment adjustment. The 

remaining classes of rural hospitals 

show variable increases that reflect the 

distribution of rural SCHs. The largest 

increases are observed among rural 

hospitals with small numbers of beds, 

with moderate volume, and regions in 

the western half of the country. 

Column 5: All Budget Neutrality 

Changes and Market Basket Update 

The addition of the market basket 

update alleviates any negative impacts 

on payments for CY 2006 created by the 

budget neutrality adjustments made in 

Columns 2, 3, and 4, with the exception 

of hospitals with the lowest volume of 

services and hospitals not paid under 

IPPS, including psychiatric hospitals, 

rehabilitation hospitals, and long-term 

care hospitals. In many instances, the 

redistribution of payments created by 

APC recalibration offset those 

introduced by updating the wage 

indices. However, in a few instances, 

negative APC recalibration changes 

compound a reduction in payment from 

updating the wage index. In addition, 

68720 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

all urban and rural hospitals that are not 

SCHs experience a decrease in payment 

of 0.4 percent as a result of the payment 

adjustment for rural SCHs. 

We estimate that the cumulative 

impact of the budget neutrality 

adjustments and the addition of the 

market basket update will result in an 

increase in payments for urban hospitals 

of 3.3 percent, which is less than the 

market basket update of 3.7 percent. 

Large urban hospitals will experience an 

increase of 2.5 percent and other urban 

hospitals will experience an increase of 

4.2 percent. Most other classes of urban 

hospitals experience updates lower than 

the market basket update. Urban 

hospitals with the lowest volume 

experience a negative market basket 

update, which is largely a function of 

the 5.4 percent decrease in payments 

attributable to changes to the APC 

structure. Urban hospitals with 

moderate volume will also lose the bulk 

of the market basket update as a result 

of a 2.9 percent decrease resulting from 

the APC recalibration and the addition 

of the payment adjustment for rural 

SCHs. The same compounding effect 

holds true for urban hospitals in the 

New England and South Atlantic 

regions and Puerto Rico, which 

experience the lowest overall increases 

of 2.5, 2.3, and 1.4 percent, respectively. 

Urban hospitals in the East South 

Central and West North Central regions 

experience increases in payment for CY 

2006 above the market basket update. 

We estimate that the cumulative 

impact of budget neutrality adjustments 

and the market basket update will result 

in an overall increase for rural hospitals 

of 5.7 percent, with rural SCHs 

experiencing an update of 10.2 percent 

and other rural hospitals experiencing 

an update of 2.9 percent. In general, 

rural hospitals with more than 50 beds 

and the highest volume rural hospitals 

experience increases of more than 5.3 

percent, which generally results from 

the combined impact of increases in 

payment from APC recalibration, wage 

changes, and the new adjustment for 

rural SCHs. We estimate that lowvolume rural hospitals will experience a 

decrease in payments of 1.1 percent, 

which results from the combined impact 

of decreased payments attributable to 

APC recalibration and wage index 

update that are larger than the estimated 

1.2 percent increase from the 

adjustment for rural SCHs. Rural 

hospitals also demonstrate large 

increases by region. We estimate that all 

regions except East South Central will 

experience increases larger than the 

market basket update. For these regions, 

in aggregate, the payment adjustment for 

rural SCHs compensates for observed 

decreases in payment due to APC 

recalibration or the update for the wage 

indices. 

The changes across columns for other 

classes of hospitals are fairly moderate 

and most show updates relatively close 

to the market basket update with the 

exception of hospitals not paid under 

the IPPS. These hospitals show negative 

payment updates as a result of negative 

payment changes for APC recalibration 

and the adjustment for rural SCHs. 

Proprietary hospitals also show an 

increase much less than the market 

basket as a result of negative payments 

under APC recalibration. 

Column 6: All Changes for CY 2006 

Column 6 compares all changes for 

CY 2006 to final payment for CY 2005 

and includes any additional dollars 

resulting from provisions in Pub. L. 

108–173 in both years, changes in 

outlier payment percentages and 

thresholds, and the difference in passthrough estimates. Overall, we estimate 

that hospitals will gain 2.2 percent 

under this final rule with comment 

period in CY 2006 relative to total 

spending in CY 2005, which included 

Pub. L. 108–173 dollars for drugs and 

wage indices. When we excluded cancer 

and children’s hospitals, which are held 

harmless, the gain is 2.3 percent. While 

hospitals receive the 3.7 percent 

increase due to the market basket 

update appearing in Column 5 and the 

additional 0.85 percent in outlier 

payments that we estimate as not being 

paid in CY 2005, we estimate that 

hospitals also experience an overall 2.25 

percent loss due to the expiration of 

additional payment for drugs in CY 

2005, as well as a 0.07 percent reduction 

due to the change in estimated passthrough payments for CY 2006. That is, 

without the net additional 0.78 (0.85–

0.07) percent increase in outlier 

payments due to lower than expected 

payment for outliers in CY 2005, 

hospitals will receive a positive increase 

in payments of 1.5 percent. Paying the 

net additional 0.78 percent in CY 2006 

increases overall gains to 2.2 (rounded 

2.23) percent, which is lower than the 

market basket update. The change in the 

outlier thresholds has a small 

redistributive impact by class of 

hospital and the vast majority of 

redistributive impacts observed between 

Columns 5 and 6 can be attributed to the 

loss of additional payment for drugs 

outside budget neutrality required by 

Pub. L. 108–173. The redistributive 

impact of the change in the outlier target 

from 2 to 1 percent is discussed in 

greater detail under section XIX.F. of 

this preamble. 

In general, urban hospitals appear to 

experience the largest negative impacts 

from the combined effects of losing 

additional payments for drugs, the 

decreases in payment from the payment 

adjustment for rural SCHs, and, 

frequently, negative changes in 

payments due to APC recalibration. We 

estimate that hospitals in large urban 

areas will gain 1.2 percent in CY 2006 

and hospitals in other urban areas will 

gain 2.8 percent. We estimate that lowvolume urban hospitals will experience 

a decrease in total payments of 1.0 

percent between CY 2005 and CY 2006. 

This negative update includes the 

cumulative effect of negative payments 

from APC recalibration, a negative 

impact of the payment adjustment for 

rural SCHs, a loss of payments outside 

budget neutrality for drugs and a loss of 

some outlier payments. All other classes 

of urban hospitals show increases 

between 0.4 and 3.8 percent. We note 

that urban hospitals in the East South 

Central and West North Central regions 

are estimated to receive slightly more 

than the market basket in spite of 

expiring drug payments, the largest 

increases for urban hospitals. 

Overall, rural hospitals experience 

larger increases than those observed for 

urban hospitals because the payment 

adjustment for rural SCHs tends to 

buffer the loss of payments for drugs 

from Pub. L. 108–173. However, this 

adjustment is only for rural SCHs. 

Overall, we estimate that rural hospitals 

will experience an increase in payments 

of 3.9 percent. However, we also 

estimate that rural SCHs will experience 

an increase of 7.6 percent, and that the 

other rural hospitals will only 

experience an increase of 1.5 percent. 

With the exception of low-volume rural 

hospitals, no category of rural hospitals 

experiences a decrease in payments 

between CY 2005 and CY 2006, and a 

few groups of rural hospitals show 

increases comparable to, or better than, 

the market basket. For example, rural 

hospitals with more than 100 beds 

experience increases of at least 4.1 

percent. Rural hospitals with moderate 

to high volume experience increases of 

no less than 2.8 percent. Across the 

regions, all rural hospitals except those 

in the New England and East North 

Central regions experience increases in 

payments greater than 3.2 percent. Rural 

hospitals in the West North Central 

region experience an increase of 6.1 

percent. We project that low-volume 

rural hospitals, like low-volume urban 

hospitals, will experience a decrease in 

payments of 2.2 percent (due to 

decreases in payments for mid-level and 

high-level emergency visits). 

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Among other classes of hospitals, we 

estimate that hospitals not paid under 

the IPPS (DSH Not Available) will 

experience decreases in payments 

between CY 2005 and CY 2006 of 1.5 

percent. Factoring in expiring payments 

for drugs through Pub. L. 108–173, we 

estimate that major teaching hospitals 

will experience an increase of 1.0 

percent. 

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BILLING CODE 4210–01–C 

F. Estimated Impact of the Change in 

Outlier Policy 

As stated in section II.H. of this 

preamble, we are changing the 

percentage of payments that we have set 

aside for outlier payments from 2.0 

percent to 1.0 percent. In order to 

accommodate this reduction in outlier 

payments, we increased the fixed-dollar 

threshold to $1,250. This threshold 

changed from the $1,575 in the 

proposed rule because we used updated 

claims, final rule APC payment rates, an 

updated charge inflation factor of 14.94 

percent, and each hospital’s overall CCR 

that we calculate as part of our APC 

median estimation process. 

Table 40 shows the impact of 

reducing the amount of total aggregate 

OPPS payments set aside for outlier 

payments to 1.0 percent of CY 2006 

payments. Column 2 compares 

estimated CY 2006 total payments with 

a 1.0 percent outlier policy and an 

additional 1.0 percent of total payments 

in the conversion factor with estimated 

CY 2006 total payment under a 2.0 

percent policy. Using updated claims 

data, a new charge inflation factor, new 

APC payment rates, and CCRs, we 

estimate that the fixed-dollar threshold 

associated with a 2.0 percent outlier 

policy would have been $550. We used 

this fixed-dollar threshold to model the 

2.0 percent outlier policy. All other 

components of the payment system are 

held constant, including the multiple 

threshold of 1.75 times the APC 

payment rate. This impact differs from 

any impact attributable to outlier 

payments in Table 40 because the 

comparison here is within estimates of 

CY 2006 and not across CY 2005 and CY 

2006. We expect that this policy change 

would slightly redistribute payments 

away from hospitals receiving a lot of 

outlier payments to hospitals generally 

not receiving outlier payments. We also 

would expect the losses to be 

concentrated in a few classes of 

hospitals and the benefits to be diffused 

across all other classes of hospitals. 

Table 40 depicts small changes in 

total payments across all classes of 

hospitals from reducing the amount of 

total payments set aside for outlier 

payments from 2.0 percent to 1.0 

percent. As expected, modest reductions 

in total payments are observed for 

hospitals that probably receive a larger 

percentage of their total payments as 

outlier payments, including major 

teaching hospitals and large urban 

hospitals. We estimate that major 

teaching hospitals will experience a 

decrease of 0.7 percent in total 

payments and that large urban hospitals 

will experience a decrease of 0.1 percent 

in total payments. These same hospitals 

are also responsible for the 0.4 percent 

decrease in total payments for urban 

hospitals with more than 500 beds, the 

0.1 percent decrease for teaching 

hospitals with a disproportionate share 

of low-income patients, and the 0.5 

percent decrease for hospitals serving a 

large percentage of low-income patients. 

Also evident are slight increases in total 

payments for most other hospitals 

arising from the increase in the 

conversion factor. For example, rural 

hospitals gain 0.2 percent overall. The 


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decreases in total payments for lowvolume rural and low-volume urban 

hospitals appear to be attributable to a 

concentrated loss of outlier payments 

for moderate cost and moderate 

complexity services that fail to meet the 

higher fixed-dollar threshold. 

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BILLING CODE 4210–01–C 

G. Accounting Statement 

As required by OMB Circular A–4 

(available at http://www.whitehousegov/ 

omb/circulars/a004/a–4.pdf, in Table 41 

below, we have prepared an accounting 

statement showing the classification of 

the expenditures associated with the 

provisions of this final rule with 

comment period. This table provides 

our best estimate of the increase in 

Medicare payments under the OPPS as 

a result of the changes presented in this 

final rule with comment period based 

on the data for 4,222 hospitals. All 

expenditures are classified as transfers 

to Medicare providers (that is, OPPS). 

TABLE 41.—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES FROM CY 2005 TO CY 2006 

Category Transfers 

Annualized Monetized Transfers .............................................................. $660 Billion. 

From Whom to Whom .............................................................................. Federal Government to OPPS Medicare Providers. 

Category ................................................................................................... Reduction in Costs. 

Annualized Monetized Reduction ............................................................. $436 Million. 

From Whom to Whom .............................................................................. Reduction in Payments from Beneficiaries to Federal Government. 

Total ................................................................................................... $1.1 Billion. 

H. Estimated Impacts of This Final Rule 

With Comment Period on Beneficiaries 

For services for which the beneficiary 

pays a copayment of 20 percent of the 

payment rate, the beneficiary share of 

payment will increase for services for 

which OPPS payments will rise and will 

decrease for services for which OPPS 

payments will fall. For example, for a 

mid-level office visit (APC 0601), the 

minimum unadjusted copayment in CY 

2005 was $11.22. In this final rule with 

comment period, the minimum 

unadjusted copayment for APC 601 is 

$12.05 because the OPPS payment for 

the service will increase under this final 

rule with comment period, and there is 

no national unadjusted copayment. In 


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another example, for a Level IV Needle 

Biopsy (APC 0037), in the CY 2005 

OPPS, the national unadjusted 

copayment in CY 2005 was $234.20, and 

the minimum unadjusted copayment 

was $106.47. In this final rule with 

comment period, the national 

unadjusted copayment for APC 0037 is 

$228.76 because the national unadjusted 

copayment is limited to 40 percent of 

the APC payment rate for CY 2006, as 

discussed in section II. of the preamble 

to this final rule with comment period. 

The minimum unadjusted copayment 

for APC 0037 is $114.38. However, in all 

cases, the statute limits beneficiary 

liability for copayment for a service to 

the inpatient hospital deductible for the 

applicable year. For 2006, the inpatient 

deductible is $952. 

In order to better understand the 

impact of changes in copayment on 

beneficiaries we modeled the percent 

change in total copayment liability 

using CY 2004 claims. We estimate that 

total beneficiary liability for copayments 

will decline as an overall percentage of 

total payments from 33 percent in CY 

2005 to 29 percent in CY 2006. This 

represents a decline in beneficiary 

liability of more than $400 million from 

the CY 2005 OPPS to the CY 2006 

OPPS. 

Conclusion 

The changes in this final rule with 

comment period will affect all classes of 

hospitals. Some hospitals experience 

significant gains and others less 

significant gains, but almost all 

hospitals will experience positive 

updates in OPPS payments in CY 2006. 

Table 39 demonstrates the estimated 

distributional impact of the OPPS 

budget neutrality requirements and an 

additional 2.2 percent increase in 

payments for CY 2006, after considering 

the expiring provision for additional 

drug payment under Pub. L. 108–173 

and a change in the percentage of total 

payments dedicated to outliers and 

transitional pass-through payments, 

exclusive of transitional pass-through 

payments, across various classes of 

hospitals. The accompanying 

discussion, in combination with the rest 

of this final rule with comment period 

constitutes a regulatory impact analysis. 

In accordance with the provisions of 

Executive Order 12866, this final rule 

with comment period was reviewed by 

the Office of Management and Budget. 

XX. Waiver of Proposed Rulemaking 

We ordinarily publish a notice of 

proposed rulemaking in the Federal 

Register and invite public comment on 

the proposed rule. The notice of 

proposed rulemaking includes a 

reference to the legal authority under 

which the rule is proposed, and the 

terms and substances of the proposed 

rule or a description of the subjects and 

issues involved. This procedure can be 

waived, however, if an agency finds 

good cause that a notice-and-comment 

procedure is impracticable, 

unnecessary, or contrary to the public 

interest and incorporates a statement of 

the finding and its reasons in the rule 

issued. 

As established in regulations, HCPCS 

codes are used to identify services for 

which predetermined amounts are paid 

under the OPPS (42 CFR 419.2(a)). The 

HCPCS is a national coding system 

comprised of Level I (CPT) codes and 

Level II (HCPCS National Codes) that 

are intended to provide uniformity to 

coding procedures, services, and 

supplies across all types of medial 

providers and suppliers. Level I (CPT) 

codes are copyrighted by the AMA and 

consist of several categories, including 

Category I codes which are five-digit 

numeric codes, and Category II codes 

which are temporary codes to track 

emerging technology, services, and 

procedures, as we discuss elsewhere in 

this preamble. 

AMA issues an annual update of the 

CPT code set each fall, with January 1 

as the effective date for implementing 

the updated CPT codes. The HCPCS, 

including both Level I and Level II 

codes, is similarly updated annually on 

a calendar year basis. Annual coding 

changes are not available to the public 

until the fall immediately preceding the 

annual January update of the OPPS. 

Because of the timing of the release of 

these codes, it is impracticable for us to 

provide prior notice and solicit 

comment on these codes in advance of 

the publication of the annual final rule 

that implements the OPPS update. Yet 

it is imperative that these codes be 

accounted for and recognized timely 

under the OPPS for payment because 

services represented by these codes will 

be provided to Medicare beneficiaries 

by outpatient hospital departments once 

issued by the applicable group. 

Moreover, as we explain above, 

regulations implementing HIPAA (42 

CFR parts 160 and 162) require that the 

HCPCS be used to report health care 

services, including outpatient services 

paid under the OPPS. Therefore, we 

believe it would be contrary to the 

public interest to delay recognition of 

these codes as payment could not then 

be made for those services provided 

under these codes and public access to 

these services would be impeded. 

Therefore, for good cause, we waive 

notice and comment rulemaking 

procedures with respect to these codes 

noted in Addendum B with the status 

indicator ‘‘NI.’’ However, we are 

providing a 60-day public comment 

period on these codes. 

List of Subjects 

42 CFR Part 419 

Hospitals, Medicare, Reporting and 

recordkeeping requirements. 

42 CFR Part 485 

Grant program-health, Health 

facilities, Medicaid, Medicare, 

Reporting and recordkeeping 

requirements. 

■ For the reasons stated in the preamble 

of this final rule with comment period, 

the Centers for Medicare & Medicaid 

Services is amending 42 CFR Chapter IV 

as set forth below: 

PART 419—PROSPECTIVE PAYMENT 

SYSTEM FOR HOSPITAL OUTPATIENT 

DEPARTMENT SERVICES 

■ A. Part 419 is amended as follows: 

■ 1. The authority citation for Part 419 

continues to read as follows: 

Authority: Secs. 1102, 1833(t), and 1871 of 

the Social Security Act (42 U.S.C. 1302, 

1395l(t), and 1395hh). 

■ 2. Section 419.43 is amended by 

adding a new paragraph (g) to read as 

follows: 

§ 419.43 Adjustments to national program 

payment and beneficiary copayment 

amounts. 

* * * * * 

(g) Payment adjustment for certain 

rural hospitals. (1) General rule. CMS 

provides for additional payment for 

covered hospital outpatient services not 

excluded under paragraph (g)(4) of this 

section, furnished on or after January 1, 

2006, if the hospital—

(i) Is a sole community hospital under 

§ 412.92 of this chapter; and 

(ii) Is located in a rural area as defined 

in § 412.64(b) of this chapter or is 

treated as being located in a rural area 

under § 412.103 of this chapter. 

(2) Amount of adjustment. The 

amount of the additional payment under 

paragraph (g)(1) of this section is 

determined by CMS and is based on the 

difference between costs incurred by 

hospitals that meet the criteria in 

paragraphs (g)(1)(i) and (g)(1)(ii) of this 

section and costs incurred by hospitals 

located in urban areas. 

(3) Budget neutrality. CMS establishes 

the payment adjustment under 

paragraph (g)(2) of this section in a 

budget neutral manner, excluding 

services and groups specified in 

paragraph (g)(4) of this section. 

(4) Excluded services and groups. 

Drugs and biologicals that are paid 

68728 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

under a separate APC and devices of 

brachytheraphy consisting of a seed or 

seeds (including a radioactive source) 

are excluded from qualification for the 

payment adjustment in paragraph (g)(2) 

of this section. 

(5) Copayment. The payment 

adjustment in paragraph (g)(2) of this 

section is applied before calculating 

copayment amounts. 

(6) Outliers. The payment adjustment 

in paragraph (g)(2) of this section is 

applied before calculating outlier 

payments. 

■ 3. Section 419.66 is amended by 

revising paragraph (c)(1) to read as 

follows: 

§ 419.66 Transitional pass-through 

payments: Medical devices. 

* * * * * 

(c) Criteria for establishing device 

categories. * * * 

(1) CMS determines that a device to 

be included in the category is not 

appropriately described by any of the 

existing categories or by any category 

previously in effect, and was not being 

paid for as an outpatient service as of 

December 31, 1996. 

* * * * * 

PART 485—CONDITIONS OF 

PARTICIPATION: SPECIALIZED 

PROVIDERS 

■ B. Part 485 is amended as follows: 

■ 1. The authority citation for Part 485 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

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

1395hh). 

■ 2. Section 485.631 is amended by—

■ a. Republishing paragraph (b)(1) 

introductory text. 

■ b. Revising paragraph (b)(1)(iv). 

■ c. Adding new paragraphs (b)(1)(v) 

and (b)(1)(vi). 

The revision and additions read as 

follows: 

§ 485.631 Condition of participation: 

Staffing and staff responsibilities. 

* * * * * 

(b) Standard: Responsibilities of the 

doctor of medicine or osteopathy. (1) 

The doctor of medicine or osteopathy—

* * * * * 

(iv) Periodically reviews and signs the 

records of all inpatients cared for by 

nurse practitioners, clinical nurse 

specialists, certified nurse midwives, or 

physician assistants. 

(v) Periodically, but not less than 

every 2 weeks, reviews and signs a 

sample of outpatient records of patients 

cared for by nurse practitioners, clinical 

nurse specialists, certified nurse 

midwives, or physician assistants 

according to the policies of the CAH and 

according to current standards of 

practice where State law requires record 

reviews or co-signatures, or both, by a 

collaborating physician. 

(vi) Is not required to review and sign 

outpatient records of patients cared for 

by nurse practitioners, clinical nurse 

specialists, certified nurse midwives, or 

physician assistants where State law 

does not require record reviews or cosignatures, or both, by a collaborating 

physician. 

* * * * * 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Dated: October 26, 2005. 

Mark B. McClellan, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Dated: November 1, 2005. 

Michael O. Leavitt, 

Secretary. 

Editorial Note: The following Addenda 

will not be published in the Code of Federal 

Regulations. 

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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68789 


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68790 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68791 


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68792 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68793 


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68794 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68795 


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68796 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68797 


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68798 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68799 


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68800 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68801 


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68802 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68803 


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68804 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68805 


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68806 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68807 


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68808 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68809 


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68810 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68811 


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68812 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68813 


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68814 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68815 


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68816 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68817 


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68818 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68819 


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68820 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68821 


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68822 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68823 


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68824 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68825 


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68826 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68827 


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68828 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68829 


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68830 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68831 


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68832 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68833 


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68834 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68835 


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68836 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68837 


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68838 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68839 


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68840 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68841 


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68842 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68843 


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68844 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68845 


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68846 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68847 


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68848 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68849 


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68850 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68851 


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68852 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68853 


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68854 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68855 


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68856 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68857 


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68858 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68859 


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68860 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68861 


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68862 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68863 


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68864 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68865 


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68866 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68867 


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68868 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68869 


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68870 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68871 


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68872 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68873 


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68874 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68875 


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68876 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68877 


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68878 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68879 


ER10NO05.186</GPH>
68880 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68881 


ER10NO05.188</GPH>
68882 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68883 


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68884 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68885 


ER10NO05.192</GPH>
68886 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68887 


ER10NO05.194</GPH>
68888 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.195</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68889 


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68890 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68891 


ER10NO05.198</GPH>
68892 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68893 


ER10NO05.200</GPH>
68894 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68895 


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68896 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68897 


ER10NO05.204</GPH>
68898 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68899 


ER10NO05.206</GPH>
68900 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.207</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68901 


ER10NO05.208</GPH>
68902 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68903 


ER10NO05.210</GPH>
68904 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.211</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68905 


ER10NO05.212</GPH>
68906 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68907 


ER10NO05.214</GPH>
68908 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


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Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68909 


ER10NO05.216</GPH>
68910 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.217</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68911 


ER10NO05.218</GPH>
68912 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.219</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68913 


ER10NO05.220</GPH>
68914 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.221</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68915 


ER10NO05.222</GPH>
68916 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.223</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68917 


ER10NO05.224</GPH>
68918 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.225</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68919 


ER10NO05.226</GPH>
68920 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.227</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68921 


ER10NO05.228</GPH>
68922 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.229</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68923 


ER10NO05.230</GPH>
68924 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.231</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68925 


ER10NO05.232</GPH>
68926 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.233</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68927 


ER10NO05.234</GPH>
68928 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.235</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68929 


ER10NO05.236</GPH>
68930 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.237</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68931 


ER10NO05.238</GPH>
68932 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.239</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68933 


ER10NO05.240</GPH>
68934 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.241</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68935 


ER10NO05.242</GPH>
68936 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.243</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68937 


ER10NO05.244</GPH>
68938 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.245</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68939 


ER10NO05.246</GPH>
68940 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.247</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68941 


ER10NO05.248</GPH>
68942 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.249</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68943 


ER10NO05.250</GPH>
68944 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.251</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68945 


ER10NO05.252</GPH>
68946 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.253</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68947 


ER10NO05.254</GPH>
68948 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.255</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68949 


ER10NO05.256</GPH>
68950 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.257</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68951 


ER10NO05.258</GPH>
68952 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.259</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68953 


ER10NO05.260</GPH>
68954 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.261</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68955 


ER10NO05.262</GPH>
68956 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.263</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68957 


ER10NO05.264</GPH>
68958 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.265</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68959 


ER10NO05.266</GPH>
68960 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.267</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68961 


ER10NO05.268</GPH>
68962 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.269</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68963 


ER10NO05.270</GPH>
68964 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.271</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68965 


ER10NO05.272</GPH>
68966 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.273</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68967 


ER10NO05.274</GPH>
68968 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.275</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68969 


ER10NO05.276</GPH>
68970 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.277</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68971 


ER10NO05.278</GPH>
68972 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.279</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68973 


ER10NO05.280</GPH>
68974 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.281</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68975 


ER10NO05.282</GPH>
68976 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.283</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68977 


ER10NO05.284</GPH>
68978 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 


ER10NO05.285</GPH>
Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 68979 


ER10NO05.286</GPH>
68980 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Rules and Regulations 

[FR Doc. 05–22136 Filed 11–2–05; 4:13 pm] 

BILLING CODE 4120–01–C 


ER10NO05.287</GPH>