[Federal Register Volume 61, Number 128 (Tuesday, July 2, 1996)]
[Proposed Rules]
[Pages 34614-34662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16744]



[[Page 34613]]


_______________________________________________________________________

Part IV





Department of Health and Human Services





_______________________________________________________________________



Health Care Financing Administration



_______________________________________________________________________



42 CFR Parts 410 and 415



Medicare Program; Revisions to Payment Policies Under the Physician Fee 
Schedule for Calendar Year 1997; Proposed Rule

Federal Register / Vol. 61, No. 128 / Tuesday, July 2, 1996 / 
Proposed Rules

[[Page 34614]]



DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 405, 410, and 415

[BPD-852-P]
RIN 0938-AH40


Medicare Program; Revisions to Payment Policies Under the 
Physician Fee Schedule for Calendar Year 1997

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This proposed rule discusses several policy changes affecting 
Medicare payment for physician services including payment for 
diagnostic services and transportation in connection with furnishing 
diagnostic tests. The proposed rule also discusses comprehensive 
locality changes and changes in the procedure status codes for a 
variety of services.

DATES: Comments will be considered if we receive them at the 
appropriate address, as provided below, no later than 5 p.m. on 
September 3, 1996.

ADDRESSES: Mail written comments (1 original and 3 copies) to the 
following address: Health Care Financing Administration, Department of 
Health and Human Services, Attention: BPD-852-P, P.O. Box 26688, 
Baltimore, MD 21207-0488.
    If you prefer, you may deliver your written comments (1 original 
and 3 copies) to one of the following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC 20201, or
Room C5-09-26, 7500 Security Boulevard, Baltimore, MD 21244-1850.

    Because of staffing and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file code BPD-852-P. Comments received timely will be available for 
public inspection as they are received, generally beginning 
approximately 3 weeks after publication of a document, in Room 309-G of 
the Department's offices at 200 Independence Avenue, SW., Washington, 
DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m. 
(phone: (202) 690-7890).
    For comments that relate to information collection requirements, 
mail a copy of the comments to: Allison Herron Eydt, HCFA Desk Officer, 
Office of Information and Regulatory Affairs, Room 10235, New Executive 
Office Building, Washington, DC 20530.
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FOR FURTHER INFORMATION CONTACT: Shana Olshan, (410) 786-5714.

SUPPLEMENTARY INFORMATION: To assist readers in referencing sections 
contained in this preamble, we are providing the following table of 
contents. Some of the issues discussed in this preamble affect the 
payment policies but do not require changes to the regulations in the 
Code of Federal Regulations.

Table of Contents

I. Background
    A. Legislative History
    B. Published Changes to the Fee Schedule
II. Specific Proposals for Calendar Year 1997
    A. Payment Area (Locality) and Corresponding Geographic Practice 
Cost Index Changes
    1. Background
    2. Locality Study
    3. Nonselected Options
    4. Proposal
    a. Proposed Variant of Option 1 (Option 1i, 5-Percent Threshold)
    b. Proposed Option 1i, 5-Percent Threshold, with Subcounty 
Payment Area Restructuring
    c. Effects of Proposed Option 1i, 5-Percent Threshold, with 
Subcounty FSA Restructuring
    B. Special Rules for the Payment of Diagnostic Tests, Including 
Diagnostic Radiologic Procedures
    1. Background
    2. Proposal
    3. Chiropractor Exception
    4. Non-Physician Practitioners
    C. Transportation in Connection with Furnishing Diagnostic Tests
    D. Bundled Services
    1. Hot or Cold Packs
    2. Dermatology Procedures
    a. Bundling of Repair Codes into Excision Codes
    b. Skin Lesion Destruction Codes
    E. Change in Coverage Status for Screening and Obsolete 
Procedures
    1. Vital Capacity Testing
    2. Certain Cardiovascular Procedures
    F. Payments for Supervising Physicians in Teaching Settings
    1. Definition of Approved Graduate Medical Education Programs
    2. Evaluation and Management Services Furnished in Certain 
Settings
    G. Change in Global Periods for Four Percutaneous Biliary 
Procedures
III. Collection of Information Requirements
IV. Response to Comments
V. Regulatory Impact Analysis
    A. Regulatory Flexibility Act
    B. Payment Area (Locality) and Corresponding Geographic Practice 
Cost Index Changes
    C. Special Rules for the Payment of Diagnostic Tests, Including 
Diagnostic Radiologic Procedures
    D. Transportation in Connection with Furnishing Diagnostic Tests
    E. Bundled Services
    1. Hot or Cold Packs
    2. Dermatology Procedures
    a. Bundling of Repair Codes into Excision Codes
    b. Skin Lesion Destruction Codes
    F. Change in Coverage Status for Screening and Obsolete 
Procedures
    1. Vital Capacity Testing
    2. Certain Cardiovascular Procedures
    G. Payments for Supervising Physicians in Teaching Settings
    H. Change in Global Periods for Four Percutaneous Biliary 
Procedures
    I. Rural Hospital Impact Statement

Addendum A--1996 Geographic Adjustment Factors (GAFs) by Medicare 
Payment Locality/Locality Part for January 1, 1996 Localities and 
Proposed Option, Fee Schedule Areas (FSAs), in Descending Order of 
Difference
Addendum B--Medicare Fee Schedule Areas (Localities) and 1996 
Geographic

[[Page 34615]]

Adjustment Factors (GAFs), Current and Proposed Option by State and 
County/County Part
    In addition, because of the many organizations and terms to which 
we refer by acronym in this final rule, we are listing these acronyms 
and their corresponding terms in alphabetical order below:

AMA                                American Medical Association         
CFR                                Code of Federal Regulations          
CPT                                [Physicians'] Current Procedural     
                                    Terminology [4th Edition, 1996,     
                                    copyrighted by the American Medical 
                                    Association]                        
CY                                 Calendar year                        
EKG                                Electrocardiogram                    
FSA                                Fee Schedule Area                    
FY                                 Fiscal year                          
GAF                                Geographic adjustment factor         
GPCI                               Geographic practice cost index       
HCFA                               Health Care Financing Administration 
HCPAC                              Health Care Professional Advisory    
                                    Council                             
HCPCS                              HCFA Common Procedure Coding System  
HHS                                [Department of] Health and Human     
                                    Services                            
MEI                                Medicare Economic Index              
MSA                                Metropolitan Statistical Area        
OBRA                               Omnibus Budget Reconciliation Act    
OMB                                Office of Management and Budget      
PMSA                               Primary Metropolitan Statistical Area
RVU                                Relative Value Unit                  
TC                                 Technical Component                  
                                                                        

I. Background

A. Legislative History

    The Medicare program was established in 1965 by the addition of 
title XVIII to the Social Security Act (the Act). Since January 1, 
1992, Medicare pays for physician services under section 1848 of the 
Act, ``Payment for Physicians' Services.'' This section contains three 
major elements: (1) A fee schedule for the payment of physician 
services; (2) a Medicare volume performance standard for the rates of 
increase in Medicare expenditures for physician services; and (3) 
limits on the amounts that nonparticipating physicians can charge 
beneficiaries. The Act requires that payments under the fee schedule be 
based on national uniform relative value units (RVUs) based on the 
resources used in furnishing a service. Section 1848(c) of the Act 
requires that national RVUs be established for physician work, practice 
expense, and malpractice expense.
    Section 1848(c)(2)(B)(ii)(II) of the Act provides that adjustments 
in RVUs because of changes resulting from a review of those RVUs may 
not cause total physician fee schedule payments to differ by more than 
$20 million from what they would have been had the adjustments not been 
made. If this tolerance is exceeded, we must make adjustments to the 
conversion factors to preserve budget neutrality.

B. Published Changes to the Fee Schedule

    We published a final rule on November 25, 1991 (56 FR 59502) to 
implement section 1848 of the Act by establishing a fee schedule for 
physician services furnished on or after January 1, 1992. In the 
November 1991 final rule (56 FR 59511), we stated our intention to 
update RVUs for new and revised codes in the American Medical 
Association's (AMA's) Physicians' Current Procedural Terminology (CPT) 
through an ``interim RVU'' process every year. The updates to the RVUs 
and fee schedule policies follow:
    <bullet> November 25, 1992, as a final notice with comment period 
on new and revised RVUs only (57 FR 55914).
    <bullet> December 2, 1993, as a final rule with comment period (58 
FR 63626) to revise the refinement process used to establish physician 
work RVUs and to revise payment policies for specific physician 
services and supplies. (We solicited comments on new and revised RVUs 
only.)
    <bullet> December 8, 1994, as a final rule with comment period (59 
FR 63410) to revise the geographic adjustment factor (GAF) values, fee 
schedule payment areas, and payment policies for specific physician 
services. The final rule also discussed the process for periodic review 
and adjustment of RVUs not less frequently than every 5 years as 
required by section 1848(c)(2)(B)(i) of the Act.
    <bullet> December 8, 1995, as a final rule with comment period (60 
FR 63124) to revise various policies affecting payment for physician 
services including Medicare payment for physician services in teaching 
settings, the RVUs for certain existing procedure codes, and to 
establish interim RVUs for new and revised procedure codes. The rule 
also included the final revised 1996 geographic practice cost indices.
    This proposed rule would affect the regulations set forth at 42 CFR 
part 405, which encompasses regulations on Federal health insurance for 
the aged and disabled; part 410, which consists of regulations on 
supplementary medical insurance benefits and part 415, which contains 
regulations on services of physicians in provider settings, supervising 
physicians in teaching settings, and residents in certain settings.

II. Specific Proposals for Calendar Year 1997

A. Payment Area (Locality) and Corresponding Geographic Practice Cost 
Index Changes

1. Background
    From the inception of Medicare in 1966 until 1992, Medicare 
payments for physicians' services were made under the reasonable charge 
system. Under the reasonable charge system, Medicare payment localities 
for physicians' services were set by local Medicare carriers based on 
their knowledge of local physician charging patterns. As such, payment 
areas have had no consistent geographic basis. In general, localities 
tended to be geographic or political subdivisions such as States, 
counties, or cities, or designations such as urban and rural. Most of 
the localities changed little between 1966 and 1992. There were about 
240 localities, including 16 States with statewide localities, under 
the reasonable charge system.
    Section 1848 of the Act replaced the reasonable charge system of 
paying for physician services under section 1842(b) of the Act, with 
the physician fee schedule effective January 1, 1992. Section 
1848(j)(2) of the Act defines a physician fee schedule payment area as 
the locality existing under section 1842(b) of the Act for purposes of 
computing payment amounts for physician services. Section 1848 did not, 
however, delete section 1842 of the Act, which gives the Secretary the 
authority to set localities. We believe the Congress enacted section 
1848(j)(2) to allow us to retain existing localities to facilitate the 
statutory transition to the physician fee schedule, but not to preclude 
us from making locality changes if warranted. All locality changes are 
now made by HCFA through the rulemaking process. Medicare carriers are 
not allowed to set or revise physician fee schedule payment localities.
    In the June 5, 1991 proposed rule for the physician fee schedule 
(56 FR 25832), we acknowledged the lack of consistency among localities 
and the significant demographic and economic changes that had occurred 
since localities were originally established. We also stated that we 
planned no large-scale locality changes until we evaluated the various 
studies on localities being done within HCFA and by outside groups such 
as the Physician Payment Review Commission and until after the 
statutory transition from the reasonable charge system to the fee 
schedule was completed in 1996. We

[[Page 34616]]

stated that until we decide on ultimate large-scale changes, the only 
locality changes we would consider would be requests for converting 
individual States with multiple localities to a single statewide 
locality if ``* * * overwhelming support from the physician community 
for the changes can be demonstrated.'' This position was repeated in 
the November 1991 final rule on the physician fee schedule (56 FR 
59514). This willingness to consider applications from physicians in a 
State for conversion to a statewide locality, if overwhelming support 
on the part of winning and losing physicians has been demonstrated, 
reflects our belief that statewide localities generally are preferable 
to the present Medicare localities because they simplify program 
administration and encourage physicians to practice in rural areas by 
reducing urban/rural payment differentials.
    We received inquiries from a number of State medical societies 
concerning conversions to a statewide payment area. Under the law, 
payments vary among physician fee schedule areas only to the extent 
that resource costs vary as measured by the Geographic Practice Cost 
Index (GPCI). The GPCI is an index developed to measure resource cost 
differences among areas in the three components of the physician fee 
schedule--physician work, practice expenses, and malpractice expenses. 
Area geographic adjustment factors (GAFs) are weighted composites of 
the area GPCIs and are useful in comparing overall resource cost and 
payment level differences among areas. (A comprehensive explanation of 
the GPCIs and GAFs can be found in the June 24, 1994 proposed rule (59 
FR 32756)).
    We explained to the States inquiring about conversions to a 
statewide payment area that these conversions involve taking a weighted 
average of the existing locality GPCIs to form a new statewide GPCI. 
This means that there may be ``losing'' (usually urban) areas, as well 
as ``winning'' (usually rural) areas within a State if a conversion is 
made. We further informed the States that a simple resolution passed by 
the State medical society is not sufficient proof of overwhelming 
support among both rural and urban physicians for the change. To assist 
States in deciding whether to convert to a statewide payment area, we 
published an informational list of projected statewide GPCIs in the 
June 1991 proposed rule (56 FR 25972). A slightly revised list of 
projected statewide GPCIs was published in the December 1993 final rule 
(58 FR 63638). The revisions were made to ensure that any change to a 
statewide payment area would be done on a budget-neutral basis. That 
is, that the same amount of payments would be made within a State after 
the conversion to a statewide payment area as would have been made had 
the conversion not been made. A comprehensive revision of all GPCIs was 
made in 1995. A list of revised projected statewide GPCIs was published 
at Addendum E of the June 1994 proposed rule (59 FR 32789).
    In most cases, States have been unable to generate the support of 
the losing physicians for the change. However, three States--Minnesota, 
Nebraska, and Oklahoma--were converted to statewide payment areas in 
1992. (These conversions were announced in the November 1991 final rule 
(56 FR 59514).) Two additional States--North Carolina and Ohio--were 
converted to statewide payment areas in 1994. (These conversions were 
announced in the December 1993 final rule (58 FR 63638).) Iowa was 
converted to a statewide payment area in 1995. (This conversion was 
announced in the December 1994 final rule (59 FR 63416).) There are 
currently 210 payment areas under the physician fee schedule: 22 States 
with single payment areas; the District of Columbia (with surrounding 
Maryland and Virginia suburbs), Puerto Rico, and the Virgin Islands are 
3 more single payment areas; and 28 multiple-locality States containing 
185 payment areas. Table 1 summarizes existing physician fee schedule 
payment areas.

  Table 1.--1996 Medicare Physician Fee Schedule Payment Localities by  
                             State and Other                            
------------------------------------------------------------------------
                            State                             Localities
------------------------------------------------------------------------
Single locality States:                                                 
  Alaska....................................................          1 
  Arkansas..................................................          1 
  Colorado..................................................          1 
  Delaware..................................................          1 
  Hawaii/Guam...............................................          1 
  Iowa......................................................          1 
  Minnesota.................................................          1 
  Montana...................................................          1 
  Nebraska..................................................          1 
  New Hampshire.............................................          1 
  New Mexico................................................          1 
  North Carolina............................................          1 
  North Dakota..............................................          1 
  Ohio......................................................          1 
  Oklahoma..................................................          1 
  Rhode Island..............................................          1 
  South Carolina............................................          1 
  South Dakota..............................................          1 
  Tennessee.................................................          1 
  Utah......................................................          1 
  Vermont...................................................          1 
  Wyoming...................................................          1 
------------------------------------------------------------------------
    22 States...............................................         22 
Other:                                                                  
  Wash. D.C.................................................          1 
  Puerto Rico...............................................          1 
  Virgin Islands............................................          1 
------------------------------------------------------------------------
    3 Other.................................................          3 
Multiple locality States:                                               
Alabama.....................................................          6 
Arizona.....................................................          6 
California..................................................         28 
Connecticut.................................................          4 
Florida.....................................................          4 
Georgia.....................................................          4 
Idaho.......................................................          2 
Illinois....................................................         16 
Indiana.....................................................          3 
Kansas......................................................          3 
Kentucky....................................................          3 
Louisiana...................................................          8 
Maine.......................................................          3 
*Maryland...................................................          3 
Massachusetts...............................................          2 
Michigan....................................................          2 
Mississippi.................................................          2 
Missouri....................................................          7 
Nevada......................................................          4 
New Jersey..................................................          3 
New York....................................................          8 
Oregon......................................................          5 
Pennsylvania................................................          4 
Texas.......................................................         32 
*Virginia...................................................          4 
Washington..................................................          3 
West Virginia...............................................          5 
Wisconsin...................................................         11 
------------------------------------------------------------------------
    28 States...............................................        185 
------------------------------------------------------------------------
 Total 1996 Physician Fee Schedule Payment Localities=210.              
*The Maryland and Virginia localities do not include the parts of       
  Maryland (Prince Georges and Montgomery Counties) and Virginia        
  (Fairfax and Arlington Counties and the city of Alexandria) included  
  in the Washington, D.C. locality.                                     

    2. Locality Study
    There are numerous possibilities for realigning payment localities. 
After considerable internal discussion, we narrowed the possibilities 
to four general options. A major goal in selecting these options is to 
continue to reduce the number of areas, leading to greater simplicity, 
understandability, ease of administration, reduction in urban/rural 
payment differences, reduction in payment differences among adjacent 
areas, and stability of payment updates resulting from the periodic 
GPCI revisions. Larger payment areas would mean larger data samples 
thereby leading to less volatile changes in the statutory periodic GPCI 
revisions. We contracted with Health Economics

[[Page 34617]]

Research, Inc. to conduct an analysis of these options. The four 
general fee schedule area (FSA) options are briefly summarized as 
follows:
    <bullet> Option 1: Use current localities as building blocks. The 
22 States currently with single localities would remain statewide FSAs. 
Statewide FSAs would be created in the 28 remaining States, except for 
current localities whose GAF exceeds the State GAF by a specified 
percentage threshold (for example, 5 percent).
    <bullet> Option 2: Use metropolitan areas (Metropolitan Statistical 
Areas (MSAs), Primary Metropolitan Statistical Areas (PMSAs), and New 
England County Metropolitan Areas) as building blocks. The 22 States 
currently with single localities would remain statewide FSAs. Statewide 
FSAs would be created in the 28 remaining States, except for 
metropolitan areas whose GAF exceeds the State GAF by a specified 
percentage threshold.
    <bullet> Option 3: Use metropolitan areas as building blocks. The 
22 States currently with single localities would remain statewide FSAs. 
Each of the 28 remaining States would be divided into 2 to 5 FSAs based 
on metropolitan area population size: greater than 3 million; 1 to 3 
million; .25 to 1 million; less than .25 million; nonmetropolitan.
    <bullet> Option 4: Use metropolitan areas as building blocks. 
Designate five nationwide FSAs based on metropolitan area population 
size: greater than 3 million; 1 to 3 million; .25 to 1 million; less 
than .25 million; nonmetropolitan.
    We also asked Health Economics Research, Inc. for any suggestions 
for variations on these options that might improve them. We 
specifically requested that it recommend restructuring FSAs in the 11 
States that have subcounty localities. These subcounty configurations, 
usually cities or zip codes, create unnecessary complexity and 
administrative burden.
    Health Economics Research, Inc. issued its final report to us on 
November 1, 1995. The report consists of three volumes and can be 
obtained by requesting the following titles from the National Technical 
Information Service by calling 1-800-553-NTIS, or (703) 487-4650 in 
Springfield, Virginia:
    <bullet> ``Assessment and Redesign of Medicare Fee Schedule Areas 
(Localities),'' Volume I: Text, NTIS PB96-118815.
    <bullet> ``Assessment and Redesign of Medicare Fee Schedule Areas 
(Localities),'' Volume II: Appendix Tables, NTIS PB96-118823.
    <bullet> ``Assessment and Redesign of Medicare Fee Schedule Areas 
(Localities),'' Volume III: Maps. NTIS PB96-118187.
3. Nonselected Options
    While we began with four basic options, numerous variations are 
possible merely depending on which threshold GAF difference is 
selected. For example, Option 1 is based on the difference between the 
existing FSA GAF and the State GAF. Many variants on this option are 
available merely depending upon what threshold GAF difference between 
the FSAs and the State is selected, for example, 1 percent, 3 percent, 
5 percent, 10 percent. Likewise, Option 2 produces many variations 
depending on the selected threshold GAF difference between the 
metropolitan area GAF and the State GAF. The major goal of revising 
FSAs is to simplify the payment areas and reduce payment differences 
among geographic areas while maintaining accuracy in tracking input 
price differences among areas. All options involve a certain trade-off 
between simplicity and understandability and accuracy of tracking of 
input prices. Many of the variations will produce a similar number of 
FSAs, but some do so at the expense of producing undesirable payment 
differences at boundaries or inaccuracies in tracking input prices.
    After careful examination of all options and their variants, we 
believe that a variant of Option 1 is clearly the best choice. Before 
discussing, in depth, our reasons for selecting this option, the 
following is a brief discussion of why we eliminated Options 2, 3, and 
4, in order of the least promising option. A more detailed discussion 
of these options with tables and maps can be found in the Health 
Economics Research, Inc. report.
    Option 4 is the least promising approach to constructing FSAs. 
While it has the smallest number of FSAs, five nationwide, it is 
unacceptably inaccurate in tracking input price differences and creates 
too many large and inappropriate GAF differences across FSA boundaries. 
Grouping all metropolitan areas of the same size into a single 
category, regardless of geographic location, would substantially 
underpay some areas while overpaying others.
    For example, the following large metropolitan areas would be 
substantially underpaid under Option 4 (Option 4 GAF/actual GAF is 
indicated in parenthesis): San Francisco (1.024/1.141); New York City 
(1.102/1.176); Nassau-Suffolk, New York (1.024/1.199); and Miami 
(1.024/1.116). Conversely, the following large cites would be overpaid 
under Option 4: Houston (1.102/1.030); Chicago (1.102/1.061); and 
Philadelphia (1.102/1.066). In addition to these inaccuracies, Option 4 
creates some severe boundary problems. For example, the Houston-
Galveston, Texas difference under Option 4 is 1.102 versus 0.937, a 
nearly 20 percentage point difference, versus an actual area GAF cost 
difference of 1.030 versus 1.001. Other examples may be found in the 
tables and maps in the Health Economics Research, Inc. report. In 
short, State-specific and metropolitan-area-specific factors, which 
Option 4 ignores, appear to be important influences on input prices. 
These factors are not captured by nationwide average inputs based on 
population size. While New York and Houston are in the same 
metropolitan area size classification of greater than 3 million, they 
have less in common with each other in terms of practice costs than 
they do with neighboring metropolitan areas of smaller size.
    Option 3, we believe, is also unpromising. It creates the largest 
number of FSAs of any option and is geographically more complex than 
either Option 1 or Option 2. This option suffers from inadequate 
tracking of input price variations and inappropriate differences across 
boundaries, which are caused, as in Option 4, by grouping metropolitan 
areas by population class. Under this option, within a State, a 
metropolitan area's costliness is assumed to be dependent only on its 
population. This is not always an accurate assumption. A small 
metropolitan area that is a component of a major metropolitan region 
(for example, a PMSA) may have much higher input prices than a small 
freestanding metropolitan area surrounded by nonmetropolitan counties. 
Grouping these types of metropolitan areas together can lead to 
inaccurate GAFs and inappropriate differences at FSA boundaries. For 
example, Houston is the only Texas metropolitan area in the highest 
population category of 3 million or more, and has a GAF under Option 3 
of 1.030. The contiguous Galveston PMSA is in the smallest population 
class of under 250,000. Its actual GAF is 1.001, but under Option 3 it 
is averaged with other small Texas metropolitan areas and is assigned a 
GAF of 0.926. Option 3, thus, underpays Galveston and creates a much 
larger GAF difference at the Houston-Galveston boundary than is 
warranted by the actual difference in input prices. Expensive Miami and 
Fort Lauderdale (with GAFs of 1.116 and 1.100) are grouped with lower-
price Orlando and Tampa-St. Petersburg (with

[[Page 34618]]

GAFs of 1.008 and 0.992) under this option.
    Option 2 is more promising than Options 3 and 4, but less promising 
than Option 1. While producing similar types and numbers of FSAs in 
some instances, depending on the threshold used, Option 1 has some 
advantages over Option 2. First, Option 1 is less disruptive because it 
uses existing localities as building blocks. Second, the urban payment 
localities in Option 1 tend to be smaller and more focused on high-cost 
urban counties and track input price variations better than the larger 
metropolitan area definitions used in Option 2. The metropolitan areas 
(MSAs, PMSAs, and New England County Metropolitan Statistical Areas) 
used as building blocks in this option are based on commuting patterns 
and are generally much larger than the current urban localities used in 
Option 1. Examples are the Washington, D.C. locality versus the 
Washington, D.C. PMSA; the Dallas locality versus the Dallas PMSA; the 
Chicago locality versus the Chicago PMSA; and the Houston locality 
versus the Houston PMSA. Input prices in the suburban counties in these 
PMSAs may be significantly lower than in the urban core and more 
similar to prices in other parts of the State. This may be especially 
true of some rural counties on the fringes of metropolitan areas that 
are categorized as part of the metropolitan area based on commuting 
patterns. For example, the Washington, D.C. PMSA includes portions of 
rural West Virginia. Under Option 2, this FSA would have a GAF of 
1.090, compared to the actual GAF of Washington, D.C. of 1.122, and the 
actual GAF of the West Virginia counties included in the Washington, 
D.C. PMSA of 0.950. Input prices in the parts of rural West Virginia 
included in the Washington, D.C. PMSA have little in common with input 
prices in the Washington, D.C. urban core. Also, Option 2 presents 
significant problems in handling metropolitan areas that cross State 
boundaries.
4. Proposal

a. Proposed Variant of Option 1 (Option 1i, 5-Percent Threshold)

    Under standard Option 1, the 22 States with a single FSA would 
remain statewide FSAs. Option 1 then presumes for the remaining 28 
States that FSAs should be statewide for each State unless a sub-State 
payment locality has sufficiently higher input prices (as measured by 
its GAF) than the average input prices of its State (as measured by the 
State GAF) to meet a threshold difference. If the percentage difference 
between the locality's GAF and the State GAF exceeds a specified 
threshold, that locality would remain a distinct FSA. Otherwise, the 
locality would be merged into a residual FSA for that State. If no sub-
State locality had sufficiently higher prices than the State average to 
meet the threshold difference, the State would become a single 
statewide locality. For example, Alabama currently has six localities. 
The GAFs range from a high of 0.957 for Locality 05, Birmingham, to a 
low of 0.902 for Locality 06, rest of Alabama. The State GAF is 0.932. 
Using a threshold of 5 percent, Alabama becomes a statewide locality as 
the Birmingham GAF exceeds the State GAF by only 2.68 percent. Using a 
threshold of 2.5 percent, Birmingham would remain a distinct FSA, while 
the other five localities would become one residual FSA as none of the 
other current localities exceed the State GAF by 2.5 percent.
    Option 1 has several advantages over Options 2, 3, and 4. By using 
the current localities as building blocks, it is the most conservative 
of the options, is likely to be the least disruptive to physicians, and 
imposes the least administrative burden on HCFA and the Medicare 
carriers. GAFs for the largest, highest priced cities and metropolitan 
areas will not change under this option. Neither will the GAFs of 
current single locality States change. Many smaller cities and rural 
areas are combined into residual State areas, eliminating GAF 
differences among these areas and, thereby, increasing payments in 
rural areas and substantially reducing the number of localities. Since 
these areas usually have the smallest price input differences, 
combining them reduces the number of FSAs at the smallest loss in 
accuracy of input price tracking. In summation, Option 1 tends to 
divide States with large variation in input prices among localities 
into multiple FSAs, albeit significantly fewer than now exist in these 
States, while combining localities in States with little price 
variation into a single statewide locality.
    However, the standard version of Option 1 has two shortcomings. 
First, some mid-sized metropolitan areas in large States such as 
California and Texas do not remain distinct FSAs despite their 
considerably higher input prices than in the rural and small city areas 
of their States with which they would be combined into a single 
residual area. Second, some large metropolitan areas in small States, 
such as Baltimore, Maryland, do not remain distinct FSAs. This is 
because the State GAF to which all locality GAFs are compared contains 
the high cost area GAFs. This makes it difficult for the mid-sized 
areas in large States to exceed the State GAF, even though their own 
GAFs may substantially exceed the GAF of all other localities in the 
residual area to which they would be assigned under Option 1. In large 
States with a wide range of GAFs, the mid-sized cities and metropolitan 
areas tend to be combined with the residual rest-of-State area. Their 
GAFs are sharply reduced, lessening the accuracy of input price 
tracking and creating large boundary differences in GAFs between large 
and mid-sized cities and at rural State boundaries that are not 
reflective of true input price differences.
    For example, with the current payment localities, the contiguous 
California counties of Los Angeles and Ventura have 1996 GAFs of 1.103 
and 1.079, respectively, a 2.4 percentage point difference. Under 
Option 1, with a 2.5-percent threshold, Ventura becomes part of the 
residual State area. Its GAF is reduced to 1.012, while Los Angeles's 
GAF remains at 1.103, a difference of 9.1 percentage points. Other 
examples of this large boundary effect, all assuming a 2.5-percent 
threshold, are: San Francisco versus Marin, California (1.153/1.063 
currently versus 1.153/1.012 under Option 1); Dallas versus Fort Worth, 
Texas (1.006/0.977 currently versus 1.006/0.934 under Option 1). In the 
case of Baltimore, its GAF of 1.032 is primarily responsible for 
bringing the State GAF up to 1.016. Under Option 1, with a 2.5-percent 
threshold, it becomes part of a single statewide locality (excluding 
Maryland counties in the Washington, D.C. locality) with a GAF of 
1.016, when in reality it is much more expensive than the rest of the 
State, which has a combined GAF excluding Baltimore of 0.964.
    These problems are addressed in our proposed option, Option 1i, 5-
percent threshold, a variant of Option 1. In this variant, the GAF of a 
locality is compared to the average GAF of lower-price localities in 
the State, rather than to the statewide average. (Like standard Option 
1, the 22 States currently having single statewide localities remain 
statewide localities.) If this difference exceeds a percentage 
threshold, 5 percent in our proposal, the locality remains a distinct 
FSA. Otherwise, it becomes part of a statewide or rest-of-State 
residual FSA. Specifically, a State's localities are ranked from the 
highest to the lowest GAF. The GAF of the highest-price locality is 
compared to the weighted average GAF of all lower-price localities. If 
the percentage difference exceeds a specified threshold,

[[Page 34619]]

the highest-price locality remains a distinct FSA. If not, the State 
becomes a single statewide locality. If the highest-price locality 
remains a distinct FSA, the process is repeated (iterated, hence the 
designation Option 1i) for the second-highest-price locality. Its GAF 
is compared to the statewide average GAF excluding the two highest-
price localities. If this difference exceeds the threshold, the second-
highest-price locality remains a distinct FSA. The logic is repeated 
(iterated), moving down the ranking of localities by costliness, until 
the highest-price locality does not exceed the threshold and does not 
remain a distinct FSA. No further comparisons are made, and the 
remaining localities become a residual rest-of-State FSA. The GAF of a 
locality always is compared only to the average GAF of all lower-price 
localities. This ensures that the statewide or residual State FSA has 
relatively homogeneous input prices.
    Option 1i, thus, has all of the advantages of Option 1, while 
addressing the problems inherent in Option 1: unwarranted boundary 
differences and large higher-price areas not being separate FSAs in 
small States. In comparison to Option 1, Option 1i breaks out more 
payment areas in large States containing a wide range of GAFs by 
defining more mid-sized cities/areas as distinct FSAs; it more 
consistently defines homogeneous residual State FSAs; and reduces 
unwarranted boundary differences.
    As with Option 1 and Option 2, numerous variants of Option 1i are 
possible depending on the GAF threshold difference selected. We are 
proposing Option 1i with a 5-percent threshold. We believe that this 
option would attain the goal of simplifying the payment areas and 
reducing payment differences among areas while maintaining accuracy in 
tracking input prices.
    A summary measure of an FSA option's accuracy in tracking input 
prices is the average percentage difference between the county GAF and 
the GAF of the payment locality to which that county is assigned. These 
differences are weighted by total physician services RVUs in each 
county so that inaccuracies in areas where more services are provided 
are emphasized. A summary measure of payment differences among adjacent 
geographic areas in an FSA option is the average difference of the GAFs 
between unique pairs of contiguous counties, weighted by the sum of the 
RVUs of the two counties. Table 2 shows these summary measures of input 
price accuracy and small area payment differences for proposed Option 
1i, 5-percent threshold, compared to the current localities, statewide 
localities, and the extremes of a national fee schedule (the same 
payment everywhere for a specific service) and separate FSAs for all 
3,223 counties.

                          Table 2.--Payment Accuracy and Small Area Payment Difference                          
----------------------------------------------------------------------------------------------------------------
                                                                                          Average      Average  
                                                                                         county/FSA     county  
                            Fee schedule area                               Number of   input price    boundary 
                                                                               FSAs     difference*  difference*
                                                                                         (percent)    (percent) 
----------------------------------------------------------------------------------------------------------------
National.................................................................            1         6.86         0.00
States...................................................................         **53         4.06         0.73
Option 1i, 5% Threshold..................................................           87         2.09         1.78
1996 Localities..........................................................          210         1.67         2.30
Counties.................................................................         3223         0.00        3.18 
----------------------------------------------------------------------------------------------------------------
* Weighted by total physician services RVUs.                                                                    
** Includes Washington D.C., Puerto Rico, and the Virgin Islands.                                               
                                                                                                                
Note: Input price accuracy is measured by the average absolute difference (weighted by total county RVUs)       
  between the county GAF and the FSA GAF. Boundary differences are measured by the average absolute difference  
  in county GAFs between all unique, contiguous county pairs, weighted by the sum of total RVUs of the          
  contiguous counties.                                                                                          

    At one extreme is a single national FSA with no geographic 
adjustments. Lack of a GAF obviously does not track input prices at 
all, resulting in an average payment error of 6.86 percent, but also 
avoids any payment boundary differences. At the other extreme is an FSA 
for each of the 3,223 counties, which perfectly tracks county input 
prices, but has the largest number of, and largest average difference 
across, payment boundaries. These two extremes highlight the tradeoff 
between tracking input price variations and avoiding differences among 
nearby areas.
    The current payment localities result in an average payment error 
of 1.67 percent, with an average difference across boundaries of 2.30 
percent. Our proposed Option 1i, 5-percent threshold, by itself, 
without the subcounty payment restructuring discussed below, would 
significantly reduce the number of payment areas from 210 to 87. It 
would reduce the average county boundary difference from 2.30 percent 
to 1.78 percent while increasing the average county input price error 
by only 0.42 percentage points from 1.67 percent to 2.09 percent.

b. Proposed Option 1i, 5-Percent Threshold, with Subcounty Payment Area 
Restructuring

    We further propose to refine payment areas by combining with 
proposed Option 1i, 5-percent threshold, an additional restructuring of 
localities in the 11 States that currently have subcounty localities. 
Three of these States--California, Mississippi, and Pennsylvania--
define subcounty localities by zip code. Eight States--Arizona, 
Connecticut, Kentucky, Massachusetts, Missouri, Nevada, New York, and 
Oregon employ city/town limits to define localities. The use of 
subcounty localities creates unnecessary complexity and administrative 
burden. One of the most compelling reasons to eliminate subcounty 
payment areas from payment localities is to reduce the administrative 
work required to maintain zip-code-to-locality crosswalks. Many States 
employ a zip-code-to-locality crosswalk when processing claims, but the 
continuous creation, deactivation, and redefinition of U.S. Postal 
Codes poses a significant obstacle in the maintenance of accurate 
locality definitions. Town boundaries can also be ambiguous. Since 
county boundaries are unambiguous and rarely change, aggregating 
subcounty parts to the county level would minimize the administrative 
burden of maintaining crosswalks.

[[Page 34620]]

    Another reason to eliminate subcounty localities is simplicity. By 
aggregating subcounty areas to the county level, a uniform fee schedule 
system with no area smaller than a county can be introduced nationwide. 
Furthermore, since the input price data for GPCIs, and ultimately GAF 
values, are not available at a subcounty level, the subcounty areas 
provide no additional accuracy in measuring practice input price 
variations. More often, subcounty localities unnecessarily complicate 
the calculation of GAF values by requiring laborious tracking by zip 
code of the subcounty parts. The obvious method for eliminating 
subcounty localities is to expand a current locality's city/town or zip 
code boundaries to the surrounding county borders. In exploring this 
option, we defined ``County Equivalent Localities'' based on the 
following criteria:
    <bullet> For a current locality that includes multiple cities/towns 
in noncontiguous counties, all counties with any areas in the current 
locality are incorporated into the new County Equivalent Locality 
definition.
    <bullet> Counties currently divided between two localities are 
assigned to the locality where the largest portion of physician fee 
schedule services (RVUs) are provided.
    The County Equivalent Option may be applied to the 11 subcounty 
locality States independent of our proposed basic Option 1i, indeed 
independent of any other changes in payment localities. When adopted 
with our basic Option 1i, 5-percent threshold, changes are made 
automatically or easily in 8 of the 11 States:
    <bullet> Five States--Arizona, Connecticut, Kentucky, Mississippi, 
and Nevada become statewide payment areas.
    <bullet> California currently has eight subcounty areas, all of 
which are in Los Angeles County. These areas have the same GAF and 
payment level and can be aggregated into a single FSA. (These eight 
localities were kept separate from 1992 to 1995 to facilitate the 
statutory fee schedule transition period.)
    <bullet> In New York, existing subcounty areas are included in the 
residual rest-of-State area.
    <bullet> In Oregon, the current town-based ``Portland'' locality, 
which includes parts of Clackamas, Multnomah, and Washington counties, 
can be redefined to encompass the boundaries of these three counties.
    Because of their unique circumstances, we believe the remaining 
three subcounty FSA States of Massachusetts, Missouri, and Pennsylvania 
require simple fundamental payment area reconfigurations.
    Massachusetts--Massachusetts currently has two noncontiguous 
payment areas: ``Urban'' and ``Suburban.'' Under Option 1i, 5-Percent 
Threshold, Massachusetts would become a single statewide locality. The 
shortcoming of both the current localities and Option 1i, 5-Percent 
Threshold, is that the high cost Boston area, comprised of parts of 
Suffolk, Norfolk, and Middlesex counties, is not separated from lower-
cost central and western Massachusetts. The problem is caused by the 
composition of the current ``Urban Massachusetts'' locality, which 
groups the Worcester, Springfield, and Pittsfield areas with the 
substantially higher-cost Boston area. We, therefore, propose to change 
Massachusetts to two new localities: 01--Boston Metropolitan Area 
(comprised of Suffolk, Norfolk, and Middlesex counties) and 02--rest of 
Massachusetts.
    Missouri--Missouri currently has seven noncontiguous payment areas: 
Northern Kansas City; Kansas City; St. Louis/large East Cities; St 
Joseph; Rural Northwest counties; small East Cities; and rest of 
Missouri. Under our proposed Option 1i, 5-Percent Threshold, Missouri 
would become a statewide payment area. This result would fail to 
recognize the significant price differences between the Kansas City and 
St. Louis metropolitan areas and the rest of the State and would result 
in significant payment area input price difference tracking 
inaccuracies. To correct this problem, we propose to change Missouri to 
three payment areas: 01--Kansas City Metropolitan Area (Platte, Clay, 
and Jackson counties); 02--St Louis Metropolitan Area (St Louis City, 
St. Louis, Jefferson, and St Charles counties); and 03--rest of 
Missouri (all other counties).
    Pennsylvania--Pennsylvania currently has four noncontiguous payment 
localities: 01--Philadelphia/Pittsburgh medical schools; 02--large 
Pennsylvania Cities; 03--smaller Pennsylvania Cities; and 04--rest of 
Pennsylvania. Under proposed Option 1i, 5-Percent Threshold, areas 03 
and 04 are combined into a residual rest-of-State area. The problem is 
that the high cost Philadelphia area is split into two areas, parts of 
01 and 02, and is not clearly distinguished from the lower-cost 
Pittsburgh area and the rest of area 02. The five counties comprising 
the Philadelphia MSA are the most costly in Pennsylvania and clearly 
belong together in a ``Philadelphia Metropolitan Area'' locality. 
Allegheny County, which contains Pittsburgh and, therefore, part of 
which is grouped with part of Philadelphia in locality 01, is much less 
expensive than the Philadelphia area and does not belong in the same 
locality, either cost-wise or geographically. Thus, we propose that 
Pennsylvania be divided into two localities: 01--Philadelphia 
Metropolitan Area (Montgomery, Philadelphia, Delaware, Bucks, and 
Chester counties); and 02--rest of Pennsylvania (all other counties).

c. Effects of Proposed Option 1i, 5-Percent Threshold, with Subcounty 
FSA Restructuring

    We believe that our proposed restructuring of Medicare payment 
areas meets the major goal of simplifying payment areas and reducing 
payment differences among adjacent geographic areas while maintaining 
accuracy in tracking input prices among areas. It significantly reduces 
the number of FSAs from 210 to 89, and increases the number of 
statewide payment areas from 22 to 34, thereby simplifying program 
administration. It also provides a more rational and understandable 
basis for localities, reduces urban/rural payment differences, and 
maintains separate payment areas for relatively high-priced large and 
mid-sized cities in large States. It decreases the number of payment 
areas by almost 60 percent, while at the same time reducing average 
county boundary payment differences, yet reduces average county input 
price accuracy by only 0.42 percent.
    The GPCIs, and, therefore, the GAFs, for the proposed new payment 
areas would be budget neutral within each State. That is, an adjustment 
would be made to them later in the year (to incorporate the most recent 
data into the adjustments) to yield the same total physician fee 
schedule payments within that State that would have been made had the 
payment areas not been changed. We are anticipating the adjustments to 
be minor. While some current individual payment areas will experience 
slight increases in payments and some areas will experience slight 
decreases in payments under our proposed FSA changes, the effects on 
the overwhelming majority of areas will be minimal. Of the total 
current areas in the 28 States currently having multiple FSAs, 82 
percent change less than 3 percent, 93 percent change less than 4 
percent, and 96 percent change less than 5 percent. Forty-three percent 
of the areas will experience increases in payments, 33 percent will 
experience decreases, and 24 percent will experience no change. 
Addendum A, ``1996 Geographic Adjustment Factors (GAFs) by Medicare 
Payment Locality/

[[Page 34621]]

Locality Part for January 1, 1996 Localities and Proposed Option, Fee 
Schedule Areas (FSAs) in Descending Order of Difference'' shows the 
effects for each of the current localities in multiple FSA States (as 
previously mentioned, the 22 States currently having a single statewide 
locality remain statewide localities) of our proposed locality 
reconfiguration by comparing existing GAFs to the GAFs for the new 
localities. Because our proposal eliminates subcounty areas, we are 
also publishing Addendum B, ``Medicare Fee Schedule Areas (Localities) 
and 1996 Geographic Adjustment Factors (GAFs), Current and Proposed 
Option by State and County/County Part'' that shows, alphabetically by 
State and county, the current locality and GAF and the proposed 
locality and GAF for each county.
    As can be seen from Addendum A, only four areas will lose more than 
4 percent under our proposal: Pennsylvania area 01, Philadelphia/
Pittsburgh Medical Schools; Pennsylvania area 02, large Pennsylvania 
Cities; Missouri area 01, St. Louis/large Eastern Cities; and 
Massachusetts area 01, Urban Massachusetts. These are unique situations 
and require explanation. As the asterisks on these areas indicate, 
these losing areas are only part of an existing locality and are in 
States in which we are recommending fundamental restructuring of FSAs 
because of existing subcounty FSAs and the current combining of areas 
with widely different input prices into a single area. In actuality, 
only part of the existing area will lose. As Addendum A shows, the 
remaining part of the area will win under our proposal. For example, 
the largest projected loser, Pennsylvania area 01, is in reality only 
the part of Pittsburgh that is currently included in area 01. The 
Philadelphia portion of Pennsylvania area 01 is a projected winner 
under our proposal. As mentioned earlier, while Pittsburgh is in 
Allegheny County, which has considerably lower input prices than the 
Philadelphia area, part of Pittsburgh is included with part of 
Philadelphia in area 01. This has the effect of overpaying the 
Pittsburgh part of area 01 and underpaying the Philadelphia part of 
area 01. Our proposal remedies this situation by grouping Philadelphia 
with similar priced counties in the Philadelphia MSA, while grouping 
Pittsburgh with similar priced areas in the rest of Pennsylvania. This 
also explains why Pennsylvania area 02 shows up as both one of the four 
largest losers and as the largest winner. Under our proposal, the part 
of area 02 comprised of larger cities outside of the Philadelphia MSA 
is no longer included with the higher priced counties in the 
Philadelphia MSA, but is included in the residual Pennsylvania FSA. 
This lowers their GAFs, while increasing the GAFs of the higher priced 
counties in the Philadelphia MSA that now become part of the 
Philadelphia FSA.
    The same logic holds true for Massachusetts and Missouri. The 
losing parts of current Massachusetts locality 01 are the Worcester, 
Springfield, and Pittsfield areas which, while having substantially 
lower costs than Boston, are currently included in the same locality. 
The winning part of Massachusetts locality 01 is the higher-cost Boston 
metropolitan area. In Missouri, the losing parts of locality 01, St. 
Louis/large East Cities, are the lower-cost Columbia, Springfield, and 
Jefferson City areas that are currently included with higher-cost St. 
Louis. The winning part of this locality is the St. Louis metropolitan 
area. These four largest losing areas then result from our correcting 
the current anomalous situation created by including low-cost and high-
cost areas in a single locality by reconfiguring the localities to more 
accurately reflect input price variations.
    We welcome comments on our proposed payment area changes. Our 
proposal is based on the application of statistical criteria to 
aggregate localities within a State that are not significantly 
different as indicated by current GAFs. We would welcome alternative 
rationale and criteria for exceptions to this statistically based 
methodology. While we are open to considering exceptions to this 
statistically based realignment, commenters suggesting variations on 
our proposal should submit an analysis of why their variation is 
preferable. For example, commenters suggesting that their particular 
area, which would become part of a residual rest-of-state area under 
our proposal, should be retained as a separate payment area should 
submit data to show that their area costs exceed the costs of the other 
areas in the residual payment area by the 5-percent threshold.
    As mentioned earlier, the great majority of existing FSAs would 
experience only very minor changes in payment levels under the proposed 
new payment area configuration. We are concerned, however, about the 
few areas estimated to experience the largest reductions in payments. 
To lessen the impact on these areas, we propose phasing in the effect 
of the proposed new payment areas over a 2-year period in States 
containing a locality that is estimated to experience a decrease in 
payments that exceeds a certain threshold. We selected a 2-year period 
because when we implement the GPCI revisions required by law every 3 
years, the law provides for a 2-year transition period. Revising 
localities requires calculating GPCIs to correspond to the revised 
localities.
    A transition period, however, adds another element to the changes 
to the physician fee schedule. For example, the law requires that the 
conversion factor be updated each year. In addition, we annually add 
new RVUs for new and revised services. In 1997, we will implement the 
comprehensive changes in work RVUs required by law. In 1998, the law 
requires us to implement new resource-based practice expense RVUs. In 
1998 and 1999, we will implement new GPCIs as required by law. A 
transition period for our locality changes would add one more payment 
change to these other changes. Since most payment areas would 
experience very minor changes, we believe that transitioning these 
areas would unnecessarily add another change.
    Since the purpose of the proposed phase-in is to limit the effect 
on the areas estimated to experience the largest decrease in payments 
because of our proposed payment area revisions, we propose that no area 
be allowed to lose more than 4 percent in the first year. We selected 
the 4-percent threshold because that is about one-half of the largest 
estimated area payment decrease. The proposed payment area changes 
would be fully effective in 1997 in all States not containing an area 
whose payments are estimated to decrease by more than 4 percent under 
our proposal. Under this phase-in, only two States, Pennsylvania and 
Missouri, would be transitioned as they are the only States with areas 
that would experience a decrease of more than 4 percent. In these 
States, areas estimated to lose more than 4 percent would be assigned 
1997 GPCIs whose values would limit the loss to 4 percent. Since the 
proposed new payment area changes would be budget-neutral within a 
State, all areas within a State would be subject to the 2-year phase-in 
if the State contained an area whose payment level is estimated to 
decrease by more than 4 percent. This means that areas estimated to 
receive increases in payments in these States would receive only part 
of the increase in 1997 as transitional 1997 GPCIs would be calculated 
to maintain budget neutrality within the State. In 1998, all areas in 
these transitioned States would be totally incorporated into their new 
localities and be assigned the fully implemented new locality GPCIs. We 
have designed this transition approach

[[Page 34622]]

to cushion the effect of the change for the localities that would be 
experiencing the greatest losses. We invite comments on this transition 
proposal and are open to suggestions about alternative transition 
approaches.
    Our proposal would leave 16 States with multiple payment areas. We 
believe our proposal justifies multiple areas in these States because 
of input price differences within these States. However, as stated 
earlier in the background discussion on this issue, we are generally in 
favor of statewide payment areas as they simplify program 
administration and encourage physicians to practice in rural areas by 
eliminating urban/rural payment differentials within the State. 
Therefore, to continue to be responsive to the physician community, 
even if our proposed payment area reconfiguration is adopted, we will 
continue to consider converting any of the remaining multiple payment 
area States into a single statewide payment area if overwhelming 
support among physicians in both winning and losing areas can be 
demonstrated. This proposed policy change does not require a change to 
the regulations set forth in Sec. 414.4 (``Fee schedule areas'').

B. Special Rules for the Payment of Diagnostic Tests, Including 
Diagnostic Radiologic Procedures

1. Background
    The payment for diagnostic procedures, including diagnostic 
radiologic procedures, under the Medicare program is made under two 
statutory benefits. Section 1861(s)(1) of the Act describes physician 
services as part of the medical and other health services benefit. This 
paragraph describes the professional component of a diagnostic test, 
which is the interpretation of the test. Under the physician fee 
schedule and the Medicare carrier payment systems, these services are 
coded with the CPT modifier ``26.''
    Payment for taking a test is made under section 1861(s)(3) of the 
Act. We have termed the taking of a test the technical component of the 
test, and it is indicated under the physician fee schedule with the 
``TC'' modifier.
    Section 2070.1 of the Medicare Carriers Manual provides that for a 
diagnostic test to be covered, the service must be related to a 
patient's illness or injury (or symptom or complaint) and ordered by a 
physician. This instruction was intended to relate a diagnostic test to 
a patient's illness or injury, symptom, or complaint. The results of 
the test were to be used to treat the patient or refer him or her for 
treatment. It has come to our attention from various sources, including 
carrier medical directors, that, in some cases, the intent of this 
instruction has been frustrated. We have heard of instances in which a 
physician is employed for the sole purpose of ordering tests. This 
physician has no relationship to the beneficiary, and it is highly 
likely that tests by this physician would not be medically necessary. 
We believe this practice generates unnecessary diagnostic tests and 
places Medicare beneficiaries at needless risk both medically and 
financially. We propose to further clarify this long-standing manual 
instruction requirement that tests be ordered by a physician by 
specifying that the physician ordering the test must be the physician 
treating the patient. This proposed policy would link the ordering of 
the diagnostic test to the physician who will use the test results to 
treat the patient.
2. Proposal
    We propose that for diagnostic tests, including diagnostic 
radiologic procedures, to be covered, they must be ordered by the 
physician who treats the beneficiary. The physician who treats the 
beneficiary is the physician responsible for the treatment of the 
patient and who orders the test or radiologic procedure to use the 
results in the management of the beneficiary's specific medical 
problem(s). (Physicians can order tests while they are consulting for 
another physician.) We believe this requirement is fundamental for 
coverage and payment of diagnostic tests and, therefore, are including 
it in the regulations at Sec. 410.32 (``Diagnostic X-ray tests, 
diagnostic laboratory tests, and other diagnostic tests: Conditions'').
3. Chiropractor Exception
    A physician who orders the x-ray that is used by a chiropractor to 
demonstrate the subluxation of the spine in a beneficiary who is 
receiving manual manipulation treatments would be exempted from this 
rule. Because no payment can be made for a diagnostic test ordered by a 
chiropractor under Sec. 410.22(b)(2), we propose to allow payment for 
the x-ray when ordered by a physician who will not be treating the 
patient for subluxation of the spine. Otherwise, beneficiaries would 
always have to pay out-of-pocket for these x-rays, which would 
frustrate their use of the chiropractic benefit.
4. Non-Physician Practitioners
    Certain non-physician practitioners who provide services that would 
be physician services if furnished by a physician under a specific 
enumerated benefit in the statute would be considered as the physician 
treating the beneficiary for the purpose of this section. Non-physician 
practitioners who meet this definition are physician assistants 
(section 1861(s)(2)(K)(i) of the Act); and nurse practitioners and 
clinical nurse specialists (sections 1861(s)(2)(K)(ii) and 
1861(s)(2)(K)(iii) of the Act), operating within the scope of their 
State licenses.

C. Transportation in Connection with Furnishing Diagnostic Tests

    Section 1861(s)(3) of the Act establishes coverage for diagnostic 
x-rays furnished in a place of residence used as the patient's home if 
the performance of the tests meets health and safety conditions 
established by the Secretary. This provision is the basis for payment 
of x-ray services furnished by approved portable suppliers to 
beneficiaries in their homes and in nursing facilities.
    Although the Congress did not explicitly so state, we determined 
that, because of the increased costs in transporting the x-ray 
equipment to the beneficiary, the Congress intended that we pay an 
additional amount for transportation expenses. Therefore, we 
established HCFA Common Procedure Coding System (HCPCS) codes R0070 and 
R0075 (for single-patient and multiple-patient trips, respectively) to 
pay approved portable x-ray suppliers a transportation ``component'' 
when they furnish the services listed in section 2070.4.C of the 
Medicare Carriers Manual.
    We later added the taking of an electrocardiogram (EKG) tracing to 
the list of services approved suppliers of portable x-ray services may 
furnish (section 2070.4.F of the Medicare Carriers Manual) and 
established HCPCS code R0076 to pay for the transportation of EKG 
equipment. In the December 1995 final rule (60 FR 63149), we published 
our revised policy of precluding separate payment for the 
transportation of diagnostic equipment except under certain 
circumstances. These circumstances include standard EKG procedures 
furnished by an approved supplier of portable x-ray services or by an 
independent physiological laboratory (section 2070.1.G of the Medicare 
Carriers Manual) under HCPCS code R0076 in connection with the 
provision of CPT codes 93000 (Electrocardiogram, complete) or 93005 
(Electrocardiogram, tracing).
    After further review of this policy, we have decided that the 
exceptions are inconsistent with the law and legislative

[[Page 34623]]

history regarding the payment for transportation of EKG equipment. 
Section 1861(s)(3) discusses only the coverage of x-rays furnished in a 
beneficiary's place of residence. Because there is no mention in the 
statute about the coverage of EKGs furnished in a beneficiary's place 
of residence, we are returning to our original interpretation of the 
law.
    We propose allowing separate payment only for the transportation of 
x-ray equipment furnished by approved suppliers of portable x-ray 
services. As a result, we would not allow separate payment for the 
transportation of EKG equipment furnished by any supplier. Therefore, 
we propose to eliminate HCPCS code R0076. Payment for CPT codes 93000 
and 93005 will not change, nor will the coverage of these services 
change. This proposed policy change is not explicitly addressed in our 
regulations.

D. Bundled Services

1. Hot or Cold Packs
    The application of hot or cold packs to one or more areas is billed 
using CPT code 97010. These modalities (that is, physical agents 
applied to produce therapeutic change to biologic tissue) are primarily 
used in conjunction with therapeutic procedures to provide analgesia, 
relieve muscle spasm, or reduce inflammation and edema. Generally, hot 
packs are used for subacute or chronic conditions, while cold packs are 
used for acute and chronic conditions.
    The results of a comprehensive analysis of Medicare claims data 
indicate that CPT code 97010 is being used extensively with a wide 
variety of services such as office visits and physical medicine and 
rehabilitative services. Therefore, we are proposing to bundle payment 
for CPT code 97010 into the payment for all other services including, 
but not limited to, those with which it historically has been billed 
with the greatest frequency (such as office visits and physical 
therapy).
    We believe that our proposal to bundle payment and, thus, to 
preclude separate payment for the application of hot and cold packs is 
justified for three reasons:
    <bullet> As a therapy, hot and cold packs are easily self-
administered. Generally, we do not cover procedures that are basically 
self-administered; hot and cold packs, by their nature, do not require 
the level of professional involvement as do the other physical medicine 
and rehabilitation modalities.
    <bullet> Although we acknowledge that professional judgment is 
involved in the use of hot and cold packs, much less judgment is 
demanded for them than for other modalities. These packs are commonly 
used in the home, and, thus, require a minimal level of professional 
attention.
    <bullet> The application of hot and cold packs is usually a 
precursor to other interventions and, as such, is appropriately used in 
combination with other procedures. Our data analysis supports this 
conclusion because the majority of claims for CPT code 97010 occurred 
in conjunction with claims for other services performed on the same 
day.
    We propose to change the status indicator for CPT code 97010 to 
``B'' to indicate that the service is covered under Medicare but 
payment for it is bundled into the payment for other services. Separate 
payment for CPT code 97010 would not be permitted under this proposed 
change. This change would be implemented in a budget neutral manner 
across all other procedures. Because the RVUs for this procedure would 
be redistributed across all physician fee schedule services, there 
would be no measurable impact. This proposed policy change is not 
explicitly addressed in our regulations.
2. Dermatology Procedures
a. Bundling of Repair Codes into Excision Codes
    Currently, the RVUs for the dermatology excision codes (CPT codes 
11400 through 11446 and 11600 through 11646) include services described 
by the simple repair codes (CPT codes 12001 through 12018). The 
dermatologist can bill separately for the intermediate or complex 
repair (closure) codes (CPT codes 12031 through 12057 and 13100 through 
13152, respectively) in addition to the excision codes. We do not allow 
separate billing for closure for any other surgical procedure. The 
closure is included in the comprehensive procedure. We believe that 
applying the same standard to dermatologists is appropriate.
    Therefore, we propose to cease paying separately for the repair 
codes when billed in conjunction with the excision codes. We are 
proposing to bundle the RVUs for the intermediate and complex repair 
codes (CPT codes 12031 through 12057 and CPT codes 13100 through 13152, 
respectively) into both the benign and malignant skin lesion excision 
codes (CPT codes 11400 through 11446 and 11600 through 11646, 
respectively). Under our proposal, we would redistribute the RVUs for 
the repair codes across CPT codes 11400 through 11446 and 11600 through 
11646. We would base the number of RVUs for redistribution on the 
frequency with which the repair codes are billed with the excision 
codes.
    We are not proposing to assign these repair codes a ``B'' status 
indicator because we acknowledge that these codes are not used 
exclusively with excision services. Instead, we would implement this 
proposed policy change through our correct coding initiative. This 
proposed change would standardize our policy for payment for wound 
closure. This proposed policy change is not explicitly addressed in our 
regulations.
b. Skin Lesion Destruction Codes
    There are several CPT codes that describe the destruction of 
various benign or premalignant lesions. Within this group of codes, the 
reporting methods vary. Sometimes the code describes the destruction of 
a single lesion but requires reporting multiple codes for the 
destruction of several lesions; other times it describes destruction of 
as many as 15 lesions. Thus, it is sometimes not clear how many codes 
to report. The codes are specific to particular areas of the body or 
particular types of lesions. Because these categories are not mutually 
exclusive, the coding system provides the opportunity to report the 
destruction of a given lesion in more than one way. Finally, this 
complicated coding structure has produced anomalies in work relative 
values. We propose to simplify the reporting of and payment for the 
destruction of benign or premalignant skin lesions.
    We propose to assign a ``G'' status indicator to CPT codes 11050 
through 11052, 11200 and 11201, 17000 through 17105, 17110, and 17200 
and 17201 to indicate that these CPT codes are not valid for Medicare 
purposes and that there is another code to use for the reporting of and 
payment for these services.
    To report the destruction of benign and premalignant skin lesions, 
we propose to create two HCPCS codes. The first code would describe the 
destruction of up to and including 15 lesions. The second code would 
describe destruction of each additional 10 lesions. To assign RVUs to 
these codes, we propose to take a weighted average of the RVUs assigned 
to CPT codes 11050 through 11052, 11200 and 11201, 17000 through 17105, 
17110, and 17200 and 17201 based on the billing frequencies and the 
code descriptors. This proposed policy change is not explicitly 
addressed in our regulations.

[[Page 34624]]

E. Change in Coverage Status for Screening and Obsolete Procedures

1. Vital Capacity Testing
    CPT code 94150 (Vital capacity, total) is a screening measure. It 
is typically performed on patients who are asymptomatic. Because these 
tests are performed on patients who do not have symptoms of breathing 
problems, they represent preventive services that are, by statute, not 
covered by Medicare. Some Medicare carriers do not cover this code at 
present. However, we inadvertently failed to identify CPT code 94150 as 
noncovered by Medicare on a national basis. Therefore, we propose 
changing the status indicator for CPT code 94150 from ``A'' to ``N'' to 
represent its noncovered status. This policy change is not specifically 
addressed in our regulations. It would be reflected in the Medicare 
physician fee schedule database and in Addendum B (Relative Value Units 
and Related Information) of the physician fee schedule final rule, 
which will be published later this year.
2. Certain Cardiovascular Procedures
    In the absence of a national Medicare policy on the following CPT 
codes, we currently allow our Medicare carriers discretion in deciding 
whether to allow coverage for these procedures:

------------------------------------------------------------------------
      CPT code                            Descriptor                    
------------------------------------------------------------------------
93201                 Phonocardiogram with or without ECG lead; with    
                       supervision during recording with interpretation 
                       and report (when equipment is supplied by the    
                       physician).                                      
93202                 Phonocardiogram * * *; tracing only, without      
                       interpretation and report (eg, when equipment is 
                       supplied by the hospital, clinic).               
93204                 Phonocardiogram * * *; interpretation and report. 
93205                 Phonocardiogram with ECG lead, with indirect      
                       carotid artery and/or jugular vein tracing, and/ 
                       or apex cardiogram; with interpretation and      
                       report).                                         
93208                 Phonocardiogram * * *; tracing only, without      
                       interpretation and report.                       
93209                 Phonocardiogram * * *; interpretation and report  
                       only.                                            
93210                 Phonocardiogram intracardiac.                     
93220                 Vectorcardiogram (VCG), with or without ECG; with 
                       interpretation and report.                       
93221                 Vectorcardiogram * * *; tracing only, without     
                       interpretation and report.                       
93222                 Vectorcardiogram * * *; interpretation and report 
                       only.                                            
------------------------------------------------------------------------

    As a result of our request for comments on the 5-year review of 
physician work RVUs in the December 1994 final rule (59 FR 63453), the 
American College of Cardiology commented that these 10 
phonocardiography and vectorcardiography diagnostic tests are outmoded 
and of little clinical value. Our review of Medicare claims data for 
these tests supports this contention because the volume of claims for 
these tests has declined significantly in recent years. Only 17,925 
claims were submitted in calendar year 1994 for all 10 tests.
    Based on the American College of Cardiology's recommendation, our 
review of our recent claims history, and our consultation with other 
medical specialty groups, we propose to discontinue coverage for these 
10 diagnostic tests. The status indicators for these 10 procedures 
would be changed from ``A'' to ``N'' to reflect their noncovered 
status. This proposed policy change is not explicitly addressed in our 
regulations.

F. Payments for Supervising Physicians in Teaching Settings

1. Definition of Approved Graduate Medical Education Programs
    Since publication of the December 1995 final rule, we have received 
questions about the difference in the definition of an approved 
residency program for purposes of the teaching physician rules under 
Sec. 415.152 (``Definitions'') and the definition used in the direct 
medical education rules under Sec. 413.86(b) (``Direct graduate medical 
education payments''). To be consistent, we propose to modify 
Sec. 415.152 to match the definition of an approved graduate medical 
education program in Sec. 413.86(b). We would add a reference to 
programs that are recognized as an ``approved medical residency 
program'' under Sec. 413.86(b). By making this change, the regulations 
text would reflect a common definition of approved graduate medical 
education programs for Medicare Part A and Part B. This is a technical 
change and would have no effect on the implementation of our revised 
policy regarding the payment for supervising physicians in teaching 
settings that is effective July 1, 1996.
2. Evaluation and Management Services Furnished in Certain Settings
    In the December 1995 final rule (60 FR 63135), we revised our 
policy regarding the payment for supervising physicians in teaching 
settings. We eliminated the attending physician criteria but clarified 
the physician presence requirement for services billed to the Medicare 
carrier. As part of our revised policy, we created a limited exception 
for residency programs that are fundamentally incompatible with a 
physical presence requirement. The exception to the physician presence 
requirement is for certain evaluation and management services (CPT 
codes 99201, 99202, 99203, 99211, 99212, and 99213) furnished in 
certain ambulatory care centers within the context of certain types of 
residency training programs. The exception is set forth in Sec. 415.174 
(``Exception: Evaluation and management services furnished in certain 
centers'').
    As the exception currently reads, one of the criteria is that ``The 
range of services furnished by residents in the center includes * * * 
Comprehensive care not limited by organ system, diagnosis, or gender.'' 
(Sec. 415.174(a)(4)(iii)). It has come to our attention that many 
obstetric and gynecological residency programs have been restructured 
over the years to have a greater primary care focus. Some of these 
programs that otherwise qualify for an exception might be denied 
payment if the gender limitation were strictly applied.
    Contrary to suggestions in correspondence we received after 
publication of the final rule, it was not our intention to prevent 
obstetric and gynecological residency programs or other residency 
programs focusing on women's health care from qualifying for the 
exception solely because of the patient's gender. Thus, we propose to 
make a technical change to the regulations text to delete the reference 
to gender in Sec. 415.174(a)(4)(iii) and change the text to 
``Comprehensive care not limited by organ system or diagnosis.'' Of 
course, such programs must satisfy the otherwise applicable criteria to 
qualify for an exception.

[[Page 34625]]

G. Change in Global Periods for Four Percutaneous Biliary Procedures

    The Society of Cardiovascular and Interventional Radiology advised 
us that a 90-day global period is inappropriate for four percutaneous 
biliary procedures. The four procedures are CPT codes 47490 
(percutaneous cholecystectomy), 47510 (introduction of percutaneous 
transhepatic catheter for biliary drainage), 47511 (introduction of 
percutaneous transhepatic stent for internal and external biliary 
drainage), and 47630 (biliary duct stone extraction, percutaneous via 
T-tube tract, basket, or snare (for example, Burhenne technique)). The 
Society believes that these four procedures should have a ``0-day'' 
global period. We agree with the Society's arguments that a 90-day 
global period is contrary to the widespread practice conventions of 
percutaneous biliary intervention and is inconsistent with other 
similar interventions in the biliary tract and urinary tract.
    We believe that the global periods for these four codes should be 
changed. Therefore, we are proposing to change the global periods for 
these services from 90 days to 0 days. To make this change, we would 
reduce the work RVUs assigned to these procedures to reflect the lack 
of postsurgical work in the shortened global period. We propose to 
reduce the work RVUs for CPT codes 47490, 47510, 47511, and 47630 by 17 
percent if we change the global periods. The 17 percent figure was 
taken from the original data developed by the Harvard School of Public 
Health Resource-Based Relative Value Study as the measure of the 
postsurgical work associated with these codes. This proposed policy 
change is not explicitly addressed in our regulations.

III. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

IV. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on Federal Register documents published for comment, we are not 
able to acknowledge or respond to them individually. We will consider 
all comments we receive by the date and time specified in the DATES 
section of this preamble, and, if we proceed with a subsequent 
document, we will respond to the comments in the preamble to that 
document.

V. Regulatory Impact Analysis

A. Regulatory Flexibility Act

    Consistent with the Regulatory Flexibility Act (5 U.S.C. 601 
through 612), we prepare a regulatory flexibility analysis unless the 
Secretary certifies that a rule would not have a significant economic 
impact on a substantial number of small entities. For purposes of the 
Regulatory Flexibility Act, all physicians are considered to be small 
entities.
    We anticipate that virtually all of the approximately 500,000 
physicians who furnish covered services to Medicare beneficiaries would 
be affected by one or more provisions of this rule. In addition, 
physicians who are paid by private insurers for non-Medicare services 
would be affected to the extent that they are paid by private insurers 
that choose to use the proposed RVUs.
    This proposed rule is expected to have varying effects on the 
distribution of Medicare physician payments and services. With few 
exceptions, we expect that the impact would be limited. Although the 
proposed rule would not have a significant economic impact on a 
substantial number of small entities, we are preparing a voluntary 
regulatory flexibility analysis.
    Section 1848(c)(2)(B) of the Act requires that adjustments in a 
year may not cause the amount of expenditures for the year to differ by 
more than $20 million from the amount of expenditures that would have 
been made if these adjustments had not been made. If this threshold is 
exceeded, we would make adjustments to the conversion factors to 
preserve budget neutrality. The proposals discussed in sections B 
through H below would have no impact on total Medicare expenditures 
because the effects of these changes would be neutralized in the 
calculation of the conversion factors for 1997.

B. Payment Area (Locality) and Corresponding Geographic Practice Cost 
Index Changes

    As mentioned earlier, our proposal would reduce existing urban/
rural payment differences. Overall, urban areas would experience an 
average decrease in payments of -0.14 percent, while rural areas will 
experience an increase in payments of 1 percent. We analyzed the 
effects of these changes on physicians by specialty. The changes are 
quite small and follow the expected pattern. We estimate that overall, 
physicians in family practice and general practice will experience 
modest increases of about 0.3 percent in payments, while most medical 
and surgical specialties will experience negligible decreases of about 
-0.1 to -0.2 percent. This pattern results from the tendency of 
specialists to be disproportionately concentrated in urban areas, which 
are estimated to experience a slight decrease in payments under our 
proposal.
    The impact on beneficiaries is likewise minor. We examined the 
impact by beneficiary age, gender, race, and income level. Roughly 20 
percent of beneficiaries reside in areas in which payments decrease by 
less than 5 percent, roughly 50 percent live in areas that experience 
no change in payments, roughly 25 percent live in areas where payments 
will increase by less than 5 percent, and about 2 percent live in areas 
where payments would rise by 5 to 10 percent.
    The distribution of beneficiaries by age and gender and of 
Caucasian beneficiaries are nearly identical to this overall 
distribution. Minority beneficiaries are more heavily concentrated in 
areas that experience no change in payments; a lower proportion of 
minority beneficiaries live in both areas experiencing a loss and areas 
experiencing a gain than do Caucasian beneficiaries. For example, 14.4 
percent of minority beneficiaries live in an area experiencing a loss 
compared to 21 percent of all beneficiaries who live in these areas. 
Beneficiaries living below poverty level are less likely than all 
beneficiaries to be living in an area experiencing a payment decrease 
under our proposal, 16 percent compared to 21 percent. It does not 
appear that vulnerable Medicare groups--minorities, the very old, or 
the poor--would suffer decreases in access resulting from our proposal.

C. Special Rules for the Payment of Diagnostic Tests, Including 
Diagnostic Radiologic Procedures

    Our proposal would require that, to be covered under Medicare, 
diagnostic tests, including diagnostic radiologic procedures, must be 
ordered by the physician who treats a beneficiary or furnishes a 
consultation to the physician who treats the beneficiary. We would 
allow an exception for x-rays that demonstrate subluxation of the spine 
that are ordered for a chiropractor. Under Sec. 410.22(b)(2), no 
payment can be made to a chiropractor who orders diagnostic tests. We 
propose to allow payment for these x-rays when ordered by a physician 
who will not be treating the patient for subluxation of the spine.

[[Page 34626]]

Non-physician practitioners functioning within the specific benefit 
would be considered the physician treating the beneficiary for the 
purpose of the proposal. Putting this requirement in regulations 
(Sec. 410.31 ``Diagnostic x-ray tests, diagnostic laboratory tests, and 
other diagnostic tests: Conditions'') would codify our current manual 
instruction. This proposed policy may result in some program savings 
due to the denial of payment for tests that may not be medically 
necessary because they were ordered by a physician who was not treating 
the beneficiary. However, we do not have sufficient data to furnish any 
reliable estimates of savings.

D. Transportation in Connection with Furnishing Diagnostic Tests

    We propose to eliminate payment for the transportation of EKG 
equipment (HCPCS code R0076) by all billers. In 1994, the last year for 
which we have complete data, we allowed 260,686 services and paid 
$9,192,434. Therefore, were it not for our budget-neutrality 
adjustment, we estimate that this proposal would result in 
approximately a $9.2 million reduction in Medicare payments.

E. Bundled Services

1. Hot or Cold Packs
    We propose to change the status indicator for CPT code 97010 
(Application of a modality to one or more areas; hot or cold packs) to 
``B'' to indicate that the service is covered under Medicare but 
payment for it is bundled into payment for other services. Separate 
payment for CPT code 97010 will not be permitted under this proposed 
change. The annual expenditures for CPT code 97010 under our current 
policy are approximately $41.2 million. Because the RVUs for this 
procedure will be redistributed across all physician fee schedule 
services in a budget neutral manner, there will be no measurable impact 
from this proposal.
2. Dermatology Procedures
a. Bundling of Repair Codes into Excision Codes We propose to cease 
paying separately for CPT codes 12031 through 12057 and 13100 through 
13152 (intermediate and complex repair codes, respectively) if these 
codes are billed in conjunction with CPT codes 11400 through 11446 and 
11600 through 11646 (dermatology excision codes for benign and 
malignant lesions, respectively). Because we would redistribute the 
RVUs for the repair codes across the excision codes, there would be 
little budgetary effect from this proposal.
b. Skin Lesion Destruction Codes
    We propose to change the way Medicare pays for the destruction of 
benign or premalignant skin lesions. Currently there are several CPT 
codes that describe a variety of ways of reporting the destruction of 
skin lesions. We propose to assign a ``G'' status code to CPT codes 
11050 through 11052, 11200 and 11201, 17000 through 17105, 17110, and 
17200 and 17201 and create two HCPCS codes to report the destruction of 
skin lesions. Because we will use a weighted average of the current 
RVUs assigned to the CPT codes that describe the destruction of benign 
or premalignant skin lesions in valuing the two proposed codes, this 
proposal would have no significant impact on Medicare expenditures.

F. Change of Coverage Status for Screening and Obsolete Procedures

1. Vital Capacity Testing
    We propose changing the coverage status for vital capacity tests 
(CPT code 94150) from ``active'' to ``noncovered.'' These vital 
capacity tests are screening services. With limited exceptions, section 
1862(a)(1)(A) of the Act precludes Medicare coverage for screening 
procedures. This code is infrequently billed; in 1994 only 101,150 
services were paid for CPT code 94150 for a total Medicare expenditure 
of $1,077,600. We do not believe that the change in coverage status 
would have a significant impact on Medicare expenditures. We would also 
budget neutralize the $1 million across all fee schedule services.
2. Certain Cardiovascular Procedures
    We propose changing the coverage status for certain cardiovascular 
procedures (CPT codes 93201, 93202, 93204, 93205, 93208, 93209, 93210, 
93220, 93221, and 93222) to noncovered. Because there has been a 
decline in the billing of these services in recent years and in 1994, 
we only allowed a total of 17,925 services with $690,326 in allowed 
charges for all 10 diagnostic tests, we do not believe that the change 
in coverage status would have a significant impact on Medicare 
expenditures.

G. Payments for Supervising Physicians in Teaching Settings

    This proposed rule would make a technical change to Sec. 415.152 
(``Definitions'') to make the definition of an approved graduate 
medical education program consistent with the definition in 
Sec. 413.86(b) (``Direct graduate medical education payments''). 
Because this is only a technical change to standardize almost identical 
definitions, it would have no budgetary impact on Medicare 
expenditures.
    We propose a technical change to remove the word ``gender'' from 
Sec. 415.174(a)(4)(iii) (``Exception: Evaluation and management 
services furnished in certain centers''). We did not include the 
reference to gender with the intention of excluding obstetric and 
gynecological or other women's care residency programs solely because 
of patient gender. This technical change would make clear that the 
exception criteria would not be applied in such a manner. Because this 
technical change merely clarifies our intent with respect to a policy 
that has not yet been implemented, there would be no budgetary effect.

H. Change in Global Period for Four Percutaneous Biliary Procedures

    To implement our proposal to change the global periods for four 
percutaneous biliary procedures (CPT codes 47490, 47510, 47511, and 
47630) from 90 days to 0 days, we are proposing to reduce the work RVUs 
for these procedures by 17 percent. These work RVUs will be 
redistributed across all services; therefore, there is no significant 
impact.

I. Rural Hospital Impact Statement

    Section 1102(b) of the Act requires the Secretary to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the 
Regulatory Flexibility Act. For purposes of section 1102(b) of the Act, 
we define a small rural hospital as a hospital that is located outside 
of a Metropolitan Statistical Area and has fewer than 50 beds.
    This proposed rule would have little direct effect on payments to 
rural hospitals since this rule would change only payments made to 
physicians and certain other practitioners under Part B of the Medicare 
program and would

[[Page 34627]]

make no change in payments to hospitals under Part A. We do not believe 
the changes would have a major, indirect effect on rural hospitals.
    Therefore, we are not preparing an analysis for section 1102(b) of 
the Act since we have determined, and the Secretary certifies, that 
this rule would not have a significant impact on the operations of a 
substantial number of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
proposed rule was reviewed by OMB.

List of Subjects

42 CFR Part 410

    Health facilities, Health professions, Kidney diseases, 
Laboratories, Medicare, Rural areas, X-rays.

42 CFR Part 415

    Health facilities, Health professions, Medicare, and Reporting and 
recordkeeping requirements.
    42 CFR chapter IV would be amended as set forth below:

PART 410--SUPPLEMENTARY MEDICAL INSURANCE (SMI) BENEFITS

    A. Part 410 is amended as set forth below:
    1. The authority citation for part 410 continues to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh), unless otherwise indicated.

    2. In Sec. 410.32 paragraphs (a) and (b) are redesignated as 
paragraphs (b) and (c), respectively, and a new paragraph (a) is added 
to read as follows:


Sec. 410.32   Diagnostic x-ray tests, diagnostic laboratory tests, and 
other diagnostic tests: Conditions.

    (a) Ordering diagnostic tests. All diagnostic x-ray tests, 
diagnostic laboratory tests, and other diagnostic tests must be ordered 
by the physician who treats the beneficiary, that is, the physician who 
is actively furnishing a consultation or treating a beneficiary for a 
specific medical problem(s) and uses the results in the management of 
the beneficiary's specific medical problem(s). Physicians who order the 
x-ray used by a chiropractor to demonstrate the subluxation of the 
spine in a beneficiary who is receiving manual manipulation treatments 
are exempted from this requirement. Non-physician practitioners 
(physician assistants, nurse practitioners, and clinical nurse 
specialists) who provide services that would be physician services if 
furnished by a physician and who are operating within the scope of 
their statutory benefit are considered the physician treating the 
beneficiary for the purpose of this section.
* * * * *

PART 415--SERVICES FURNISHED BY PHYSICIANS IN PROVIDERS, 
SUPERVISING PHYSICIANS IN TEACHING SETTINGS, AND RESIDENTS IN 
CERTAIN SETTINGS

    B. Part 415 is amended as set forth below:
    1. The authority citation for part 415 continues to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

    2. In Sec. 415.152 the introductory text is republished, and the 
definition of ``approved graduate medical education (GME) program'' is 
revised to read as follows:


Sec. 415.152   Definitions.

    As used in this subpart--
    Approved graduate medical education (GME) program means one of the 
following:
    (1) A residency program approved by the Accreditation Council for 
Graduate Medical Education of the American Medical Association, by the 
Committee on Hospitals of the Bureau of Professional Education of the 
American Osteopathic Association, by the Council on Dental Education of 
the American Dental Association, or by the Council on Podiatric 
Medicine Education of the American Podiatric Medical Association.
    (2) A program otherwise recognized as an ``approved medical 
residency program'' under Sec. 413.86(b) of this chapter.
* * * * *


Sec. 415.174   [Amended]

    3. In Sec. 415.174, in paragraph (a)(4)(iii), the phrase ``system, 
diagnosis, or gender'' is removed, and the phrase ``system or 
diagnosis'' is added in its place.
    (Catalog of Federal Domestic Assistance Program No. 93.774, 
Medicare--Supplementary Medical Insurance Program)

    Dated: June 21, 1996.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
    Dated: June 21, 1996.
Donna E. Shalala,
Secretary.

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[FR Doc. 96-16744 Filed 6-27-96; 9:43 am]
BILLING CODE 4120-01-C


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