[Federal Register Volume 75, Number 226 (Wednesday, November 24, 2010)]
[Rules and Regulations]
[Pages 71800-72580]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-27926]



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Part II





Department of Health and Human Services





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Center for Medicare & Medicaid Services



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42 CFR Parts 410, 411, 412, et al.



Medicare Program: Hospital Outpatient Prospective Payment System and CY 
2011 Payment Rates; Ambulatory Surgical Center Payment System and CY 
2011 Payment Rates; Payments to Hospitals for Graduate Medical 
Education Costs; Physician Self-Referral Rules and Related Changes to 
Provider Agreement Regulations; Payment for Certified Registered Nurse 
Anesthetist Services Furnished in Rural Hospitals and Critical Access 
Hospitals; Final Rule

Federal Register / Vol. 75 , No. 226 / Wednesday, November 24, 2010 / 
Rules and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 410, 411, 412, 413, 416, 419, and 489

[CMS-1504-FC and CMS-1498-IFC2]
RIN 0938-AP82 and RIN 0938-AP80


Medicare Program: Hospital Outpatient Prospective Payment System 
and CY 2011 Payment Rates; Ambulatory Surgical Center Payment System 
and CY 2011 Payment Rates; Payments to Hospitals for Graduate Medical 
Education Costs; Physician Self-Referral Rules and Related Changes to 
Provider Agreement Regulations; Payment for Certified Registered Nurse 
Anesthetist Services Furnished in Rural Hospitals and Critical Access 
Hospitals

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

ACTION: Final rule with comment period; final rules; and interim final 
rule with comment period.

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SUMMARY: The final rule with comment period in this document revises 
the Medicare hospital outpatient prospective payment system (OPPS) to 
implement applicable statutory requirements and changes arising from 
our continuing experience with this system and to implement certain 
provisions of the Patient Protection and Affordable Care Act, as 
amended by the Health Care and Education Reconciliation Act of 2010 
(Affordable Care Act). In this final rule with comment period, we 
describe the changes to the amounts and factors used to determine the 
payment rates for Medicare hospital outpatient services paid under the 
prospective payment system. These changes are applicable to services 
furnished on or after January 1, 2011.
    In addition, this final rule with comment period updates the 
revised Medicare ambulatory surgical center (ASC) payment system to 
implement applicable statutory requirements and changes arising from 
our continuing experience with this system and to implement certain 
provisions of the Affordable Care Act. In this final rule with comment 
period, we set forth the applicable relative payment weights and 
amounts for services furnished in ASCs, specific HCPCS codes to which 
these changes apply, and other pertinent ratesetting information for 
the CY 2011 ASC payment system. These changes are applicable to 
services furnished on or after January 1, 2011.
    In this document, we also are including two final rules that 
implement provisions of the Affordable Care Act relating to payments to 
hospitals for direct graduate medical education (GME) and indirect 
medical education (IME) costs; and new limitations on certain physician 
referrals to hospitals in which they have an ownership or investment 
interest.
    In the interim final rule with comment period that is included in 
this document, we are changing the effective date for otherwise 
eligible hospitals and critical access hospitals that have been 
reclassified from urban to rural under section 1886(d)(8)(E) of the 
Social Security Act and 42 CFR 412.103 to receive reasonable cost 
payments for anesthesia services and related care furnished by 
nonphysician anesthetists from cost reporting periods beginning on or 
after October 1, 2010, to December 2, 2010.

DATES: Effective Dates: The provisions of these rules are effective 
January 1, 2011, except for the amendment to 42 CFR 
412.113(c)(2)(i)(A), which is effective on December 2, 2010.
    Applicability Dates: (1) The amendments to 42 CFR 
412.105(f)(1)(ii)(A), (B), (C), and (D) are applicable retroactive to 
January 1, 1983; (2) the amendment to 42 CFR 412.105(f)(1)(ii)(E) is 
applicable retroactive to July 1, 2010; (3) the amendments to 42 CFR 
412.105(f)(1)(iii)(C) and (D) are applicable retroactive to January 1, 
1983; (4) the amendment to 42 CFR 413.75(b) is applicable retroactive 
to July 1, 2009; (5) the amendment to 42 CFR 413.78(f)(1) is applicable 
retroactive to July 1, 2009; (6) the amendment to 42 CFR 413.78(g) is 
applicable retroactive to July 1, 2010; and (7) the amendment to 42 CFR 
413.78(h) is applicable retroactive to January 1, 1983. In accordance 
with sections 1871(e)(1)(A)(i) and (e)(1)(A)(ii) of the Social Security 
Act, the Secretary has determined that the retroactive application of 
the specified regulatory amendments is necessary to comply with the 
statute and that failure to apply these changes retroactively would be 
contrary to public interest.
    Comment Period: To be assured consideration, comments on the 
payment classifications assigned to HCPCS codes identified in Addenda 
B, AA, and BB to the final rule with comment period with the ``NI'' 
comment indicator and on other areas specified throughout the final 
rule with comment period, must be received at one of the addresses 
provided in the ADDRESSES section no later than 5 p.m. EST on January 
3, 2011.
    To be assured consideration, comments on the interim final rule 
with comment period (under section XXIII. of the preamble and the 
amendment to 42 CFR 412.113(c)(2)(i)(A)) relating to reasonable cost 
payments to otherwise eligible hospitals and critical access hospitals 
that have reclassified from urban to rural for anesthesia services and 
related care furnished by nonphysician anesthetists must be received at 
one of the addresses provided in the ADDRESSES section no later than 5 
p.m. EST on January 3, 2011.
    Application Deadline--New Class of New Technology Intraocular 
Lenses: Requests for review of applications for a new class of new 
technology intraocular lenses must be received by 5 p.m. EST on March 
5, 2011.

ADDRESSES: In commenting, please refer to file code CMS-1504-FC for the 
provisions of the OPPS/ASC final rule with comment period, and to CMS-
1498-IFC2 for the interim final rule with comment period. Because of 
staff and resource limitations, we cannot accept comments by facsimile 
(FAX) transmission.
    You may submit comments in one of four ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the instructions under 
the ``More Search Options'' tab.
    2. By regular mail. You may mail written comments to the following 
address only: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1504-FC or CMS-1498-IFC2, as 
applicable, P.O. Box 8013, Baltimore, MD 21244-1850.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address only: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-1504-FC or CMS-
1498-IFC2, as applicable, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments before the close of the comment period 
to either of the following addresses:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and

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Human Services, Room 445-G, Hubert H. Humphrey Building, 200 
Independence Avenue, SW., Washington, DC 20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal Government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call the telephone number (410) 786-7195 in advance to schedule 
your arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Gift Tee, (410) 786-9316, Hospital 
outpatient prospective payment issues.
    Paula Smith, (410) 786-0378, Ambulatory surgical center issues.
    Michele Franklin, (410) 786-4533, and Jana Lindquist, (410) 786-
4533, Partial hospitalization and community mental health center 
issues.
    James Poyer, (410) 786-2261, Reporting of quality data issues.
    Tzvi Hefter, (410) 786-4487 and Ing-Jye Cheng, (410) 786-4548, 
Direct graduate medical education and indirect medical education 
payments issues.
    Jacqueline Proctor, (410) 786-8852, Physician ownership and 
investment in hospitals issues.
    Marc Hartstein, (410) 786-4539, Pass-through payments for certified 
registered nurse anesthetists services furnished in rural hospitals and 
critical access hospitals.

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments 
received before the close of the comment period are available for 
viewing by the public, including any personally identifiable or 
confidential business information that is included in a comment. We 
post all comments received before the close of the comment period on 
the following Web site as soon as possible after they have been 
received: http://www.regulations.gov. Follow the search instructions on 
that Web site to view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, MD 21244, on Monday through Friday of each week from 8:30 
a.m. to 4 p.m. EST. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

Electronic Access

    This Federal Register document is also available from the Federal 
Register online database through GPO Access, a service of the U.S. 
Government Printing Office. Free public access is available on a Wide 
Area Information Server (WAIS) through the Internet and via 
asynchronous dial-in. Internet users can access the database by using 
the World Wide Web; the Superintendent of Documents' home page address 
is http://www.gpoaccess.gov/index.html, by using local WAIS client 
software, or by telnet to swais.access.gpo.gov, then login as guest (no 
password required). Dial-in users should use communications software 
and modem to call (202) 512-1661; type swais, then login as guest (no 
password required).

Alphabetical List of Acronyms Appearing in This Federal Register 
Document

ACEP American College of Emergency Physicians
AHA American Hospital Association
AHIMA American Health Information Management Association
AMA American Medical Association
AMP Average manufacturer price
AOA American Osteopathic Association
APC Ambulatory payment classification
ASC Ambulatory Surgical Center
ASP Average sales price
AWP Average wholesale price
AWV Annual Wellness Visit
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999, Public 
Law 106-113
BCA Blue Cross Association
BCBSA Blue Cross and Blue Shield Association
BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000, Public Law 106-554
CAH Critical access hospital
CAP Competitive Acquisition Program
CBSA Core-Based Statistical Area
CCR Cost-to-charge ratio
CERT Comprehensive Error Rate Testing
CMHC Community mental health center
CMS Centers for Medicare & Medicaid Services
CoP Conditions of Participation
CORF Comprehensive outpatient rehabilitation facility
CPT [Physicians'] Current Procedural Terminology, Fourth Edition, 
2009, copyrighted by the American Medical Association
CRNA Certified registered nurse anesthetist
CY Calendar year
DMEPOS Durable medical equipment, prosthetics, orthotics, and 
supplies
DMERC Durable medical equipment regional carrier
DRA Deficit Reduction Act of 2005, Public Law 109-171
DSH Disproportionate share hospital
EACH Essential Access Community Hospital
E/M Evaluation and management
EPO Erythropoietin
ESRD End-stage renal disease
FACA Federal Advisory Committee Act, Public Law 92-463
FAR Federal Acquisition Regulations
FDA Food and Drug Administration
FFS Fee-for-service
FSS Federal Supply Schedule
FTE Full-time equivalent
FY Federal fiscal year
GAO Government Accountability Office
GME [Direct] Graduate medical education
HCERA Health Care and Education Reconciliation Act of 2010, Public 
Law 111-152
HCPCS Healthcare Common Procedure Coding System
HCRIS Hospital Cost Report Information System
HHA Home health agency
HIPAA Health Insurance Portability and Accountability Act of 1996, 
Public Law 104-191
HOPD Hospital outpatient department
HOP QDRP Hospital Outpatient Quality Data Reporting Program
ICD-9-CM International Classification of Diseases, Ninth Edition, 
Clinical Modification
ICD-10-CM International Classification of Diseases, Tenth Revision, 
Clinical Modification
ICD-10-PCS International Classification of Diseases, Tenth Revision, 
Procedure Coding System
IDE Investigational device exemption
IHS Indian Health Service
IME Indirect medical education
I/OCE Integrated Outpatient Code Editor
IOL Intraocular lens
IPPE Initial preventive physical examination
IPPS [Hospital] Inpatient prospective payment system
IVIG Intravenous immune globulin
MAC Medicare Administrative Contractor
MedPAC Medicare Payment Advisory Commission
MDH Medicare-dependent, small rural hospital
MIEA-TRHCA Medicare Improvements and Extension Act under Division B, 
Title I of the Tax Relief Health Care Act of 2006, Public Law 109-
432
MIPPA Medicare Improvements for Patients and Providers Act of 2008, 
Public Law 110-275

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MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003, Public Law 108-173
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public 
Law 110-173
MPFS Medicare Physician Fee Schedule
MSA Metropolitan Statistical Area
NCCI National Correct Coding Initiative
NCD National Coverage Determination
NTIOL New technology intraocular lens
OIG [HHS] Office of the Inspector General
OMB Office of Management and Budget
OPD [Hospital] Outpatient department
OPPS [Hospital] Outpatient prospective payment system
PHP Partial hospitalization program
PM Program memorandum
PPACA Patient Protection and Affordable Care Act of 2010, Public Law 
111-148
PPI Producer Price Index
PPPS Personalized preventive plan services
PPS Prospective payment system
PR Pulmonary rehabilitation
PRA Paperwork Reduction Act
QAPI Quality Assessment and Performance Improvement
QIO Quality Improvement Organization
RAC Recovery Audit Contractor
RFA Regulatory Flexibility Act
RHQDAPU Reporting Hospital Quality Data for Annual Payment Update 
[Program]
RHHI Regional home health intermediary
SBA Small Business Administration
SCH Sole community hospital
SDP Single Drug Pricer
SI Status indicator
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Public Law 
97-248
TOPS Transitional outpatient payments
USPDI United States Pharmacopoeia Drug Information
USPSTF United States Preventive Services Task Force
WAC Wholesale acquisition cost

    In this document, we address two payment systems under the Medicare 
program: The hospital outpatient prospective payment system (OPPS) and 
the revised ambulatory surgical center (ASC) payment system. In 
addition, we address provisions of the Affordable Care Act, relating to 
payments to hospitals for direct graduate medical education (GME) and 
indirect medical education (IME) costs. We also address provisions 
relating to new limitations on certain physician referrals to hospitals 
in which they have an ownership or investment interest and making 
related changes to the provider agreement regulations. The provisions 
relating to the OPPS are included in sections I. through XIV. and XVI. 
through XIX. of this final rule with comment period and in Addenda A, 
B, C (Addendum C is available on the Internet only; we refer readers to 
section XVIII.A. of this final rule with comment period), D1, D2, E, L, 
and M to this final rule with comment period. The provisions related to 
the revised ASC payment system are included in sections XV., XVI. 
through XIX. of this final rule with comment period and in Addenda AA, 
BB, DD1, DD2, and EE to this final rule with comment period. (Addendum 
EE is available on the Internet only; we refer readers to section 
XVII.B. of this final rule with comment period.) The provisions related 
to payments to hospitals for direct GME and IME costs are included in 
the final rule in section XXI. of this document. The provisions 
relating to the new limitations on certain physician referrals to 
hospitals in which they have an ownership or investment interest and 
related changes to the provider agreement regulations are included in 
the final rule in section XXII. of this document. The provision 
relating to a change in the effective date for otherwise eligible rural 
hospitals and critical access hospitals (CAHs) that have reclassified 
from urban to rural areas to receive reasonable cost payments for 
anesthesia services and related care furnished by nonphysician 
anesthetists is included in the interim final rule with comment period 
in section XXIII. of this document.

Table of Contents

I. Background and Summary of the CY 2011 OPPS/ASC Proposed and Final 
Rules
    A. Legislative and Regulatory Authority for the Hospital 
Outpatient Prospective Payment System
    B. Excluded OPPS Services and Hospitals
    C. Prior Rulemaking
    D. The Affordable Care Act
    E. Advisory Panel on Ambulatory Payment Classification (APC) 
Groups
    1. Authority of the APC Panel
    2. Establishment of the APC Panel
    3. APC Panel Meetings and Organizational Structure
    F. Background and Summary of the CY 2011 OPPS/ASC Proposed Rule
    1. Updates Affecting OPPS Payments
    2. OPPS Ambulatory Payment Classification (APC) Group Policies
    3. OPPS Payment for Devices
    4. OPPS Payment Changes for Drugs, Biologicals, and 
Radiopharmaceuticals
    5. Estimate of OPPS Transitional Pass-Through Spending for 
Drugs, Biologicals, Radiopharmaceuticals, and Devices
    6. OPPS Payment for Brachytherapy Sources
    7. OPPS Payment for Drug Administration Services
    8. OPPS Payment for Hospital Outpatient Visits
    9. Payment for Partial Hospitalization Services
    10. Procedures That Would Be Paid Only as Inpatient Procedures
    11. OPPS Nonrecurring Technical and Policy Changes and 
Clarifications
    12. OPPS Payment Status and Comment Indicators
    13. OPPS Policy and Payment Recommendations
    14. Updates to the Ambulatory Surgical Center (ASC) Payment 
System
    15. Reporting Quality Data for Annual Payment Rate Updates
    16. Changes Relating to Payments to Hospitals for GME and IME 
Costs
    17. Changes to Whole Hospital and Rural Provider Exceptions to 
the Physician Self-Referral Prohibition and Related Changes to 
Provider Agreement Regulations
    18. Regulatory Impact Analysis
    G. Public Comments Received in Response to the August 3, 2010 
OPPS/ASC Proposed Rule
    H. Public Comments Received on the November 20, 2009 OPPS/ASC 
Final Rule with Comment Period
    I. Interim Final Rule on Certified Registered Nurse Anesthetist 
(CRNA) Services Furnished in Rural Hospitals and Critical Access 
Hospitals
II. Updates Affecting OPPS Payments
    A. Recalibration of APC Relative Weights
    1. Database Construction
    a. Database Source and Methodology
    b. Use of Single and Multiple Procedure Claims
    c. Calculation of Cost to Charge Ratios (CCRs)
    2. Data Development Process and Calculation of Median Costs
    a. Claims Preparation
    b. Splitting Claims and Creation of ``Pseudo'' Single Procedure 
Claims
    (1) Splitting Claims
    (2) Creation of ``Pseudo'' Single Procedure Claims
    c. Completion of Claim Records and Median Cost Calculations
    d. Calculation of Single Procedure APC Criteria-Based Median 
Costs
    (1) Device-Dependent APCs
    (2) Blood and Blood Products
    (3) Single Allergy Tests (APCs 0370 and 0381)
    (4) Hyperbaric Oxygen Therapy (APC 0659)
    (5) Payment for Ancillary Outpatient Services When Patient 
Expires (APC 0375)
    (6) Pulmonary Rehabilitation (APC 0102)
    (7) Endovascular Revascularization of the Lower Extremity (APCs 
0083, 0229, and 0319)
    (8) Non-Congenital Cardiac Catheterization (APC 0080)
    (9) Cranial Neurostimulator and Electrodes (APCs 0318)
    (10) Cardiac and Intensive Cardiac Rehabilitation (APC 0095)
    e. Calculation of Composite APC Criteria-Based Median Costs
    (1) Extended Assessment and Management Composite APCs (APCs 8002 
and 8003)
    (2) Low Dose Rate (LDR) Prostate Brachytherapy Composite APC 
(APC 8001)
    (3) Cardiac Electrophysiologic Evaluation and Ablation Composite 
APC (APC 8000)
    (4) Mental Health Services Composite APC (APC 0034)
    (5) Multiple Imaging Composite APCs (APCs 8004, 8005, 8006, 
8007, and 8008)
    3. Changes to Packaged Services
    a. Background
    b. Packaging Issues

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    (1) CMS Presentation of Findings Regarding Expanded Packaging at 
the February 2010 APC Panel
    (2) Packaging Recommendations of the APC Panel at Its February 
2010 Meeting
    (3) Packaging Services Addressed by the August 2010 APC Panel 
Recommendations and Other Issues Raised in Public Comments
    (4) Other Service-Specific Packaging Issues
    4. Calculation of OPPS Scaled Payment Weights
    B. Conversion Factor Update
    C. Wage Index Changes
    D. Statewide Average Default CCRs
    E. OPPS Payment to Certain Rural and Other Hospitals
    1. Hold Harmless Transitional Payment Changes Made by Public Law 
110-275 (MIPPA)
    2. Adjustment for Rural SCHs Implemented in CY 2006 Related to 
Public Law 108-173 (MMA)
    F. OPPS Payments to Certain Cancer Hospitals Described by 
Section 1886(d)(1)(B)(v) of the Act
    1. Background
    2. Study of Cancer Hospital Costs Relative to Other Hospitals
    3. Adjustment for Certain Cancer Hospitals
    G. Hospital Outpatient Outlier Payments
    1. Background
    2. Proposed Outlier Calculation
    3. Final Outlier Calculation
    4. Outlier Reconciliation
    H. Calculation of an Adjusted Medicare Payment From the National 
Unadjusted Medicare Payment
    I. Beneficiary Copayments
    1. Background
    2. OPPS Copayment Policy
    3. Calculation of an Adjusted Copayment Amount for an APC Group
III. OPPS Ambulatory Payment Classification (APC) Group Policies
    A. OPPS Treatment of New CPT and Level II HCPCS Codes
    1. Treatment of New Level II HCPCS Codes and Category I CPT 
Vaccine Codes and Category III CPT Codes for Which We Solicited 
Public Comment in the Calendar Year 2010 Proposed Rule
    2. Process for New Level II HCPCS Codes and Category I and 
Category III CPT Codes for Which We Are Soliciting Public Comments 
on This Calendar Year 2011 OPPS/ASC Final Rule With Comment Period
    3. Temporary HCPCS Codes for 2010-2011 Seasonal Influenza 
Vaccines
    B. OPPS Changes--Variations Within APCs
    1. Background
    2. Application of the 2 Times Rule
    3. Exceptions to the 2 Times Rule
    C. New Technology APCs
    1. Background
    2. Movement of Procedures From New Technology APCs to Clinical 
APCs
    D. OPPS APC-Specific Policies
    1. Cardiovascular Services
    a. Cardiovascular Telemetry (APC 0209)
    b. Myocardial Position Emission Tomography (PET) Imaging (APC 
0307)
    c. Cardiovascular Computed Tomography (CCT) (APC 0340 and 0383)
    d. Multifunction Cardiogram (APC 0340)
    e. Unlisted Vascular Surgery Procedure (APC 0624)
    f. Implantable Loop Recorder Monitoring (APC 0691)
    2. Gastrointestinal (GI) Services: Upper GI Endoscopy (APC 0141, 
0384, and 0422)
    3. Genitourinary Services
    a. Radiofrequency Remodeling of Bladder Neck (APC 0165)
    b. Percutaneous Renal Cryoablation (APC 0423)
    4. Nervous System Services
    a. Pain-Related Procedures (APCs 0203, 0204, 0206, 0207, and 
0388)
    b. Revision Removal of Neurotransmitter Electrodes (APC 0687)
    5. Radiation Therapy Services
    a. Stereotactic Radiosurgery (SRS) Treatment Delivery Services 
(APCs 0065, 0066, 0067, and 0127)
    b. Proton Beam Therapy (APCs 0664 and 0667)
    c. Device Construction for Intensity Modulated Radiation Therapy 
(APC 303)
    d. High Dose Rate Brachytherapy (APC 0313)
    e. Electronic Brachytherapy (APC 0313)
    f. Tumor Imaging (APCs 0406 and 0414)
    6. Other Services
    a. Skin Repair (APCs 0134 and 0135)
    b. Insertion of Anterior Segment Aqueous Drainage Device (APCs 
0234, 0255 and 0673)
    c. Group Psychotherapy (APCs 0322, 0323, 0324, and 0325)
IV. OPPS Payment for Devices
    A. Pass-Through Payments for Devices
    1. Expiration of Transitional Pass-Through Payments for Certain 
Devices
    2. Provisions for Reducing Transitional Pass-Through Payments To 
Offset Costs Packaged Into APC Groups
    a. Background
    b. Proposed and Final Calendar Year 2011 Policy
    B. Adjustment to OPPS Payment for No Cost/Full Credit and 
Partial Credit Devices
    1. Background
    2. APCs and Devices Subject to the Adjustment Policy
V. OPPS Payment Changes for Drugs, Biologicals, and 
Radiopharmaceuticals
    A. OPPS Transitional Pass-Through Payment for Additional Costs 
of Drugs, Biologicals, and Radiopharmaceuticals
    1. Background
    2. Drugs and Biologicals With Expiring Pass-Through Status in CY 
2010
    3. Drugs, Biologicals, and Radiopharmaceuticals With New or 
Continuing Pass-Through Status in CY 2011
    4. Provision for Reducing Transitional Pass-Through Payments for 
Diagnostic Radiopharmaceuticals and Contrast Agents To Offset Costs 
Packaged Into APC Groups
    a. Background
    b. Payment Offset Policy for Diagnostic Radiopharmaceuticals
    c. Payment Offset Policy for Contrast Agents
    B. OPPS Payment for Drugs, Biologicals, and Radiopharmaceuticals 
Without Pass-Through Status
    1. Background
    2. Criteria for Packaging Payment for Drugs, Biologicals, and 
Radiopharmaceuticals
    a. Background
    b. Cost Threshold for Packaging of Payment for HCPCS Codes That 
Describe Certain Drugs, Nonimplantable Biologicals, and Therapeutic 
Radiopharmaceuticals (``Threshold-Packaged Drugs'')
    c. Packaging Determination for HCPCS Codes That Describe the 
Same Drug or Biological But Different Dosages
    d. Packaging of Payment for Diagnostic Radiopharmaceuticals, 
Contrast Agents, and Implantable Biologicals (``Policy-Packaged'' 
Drugs and Devices)
    3. Payment for Drugs and Biologicals Without Pass-Through Status 
That Are Not Packaged
    a. Payment for Specified Covered Outpatient Drugs (SCODs) and 
Other Separately Payable and Packaged Drugs and Biologicals
    b. Payment Policy
    c. Payment Policy for Therapeutic Radiopharmaceuticals
    4. Payment for Blood Clotting Factors
    5. Payment for Nonpass-Through Drugs, Biologicals, and 
Radiopharmaceuticals With HCPCS Codes, But Without OPPS Hospital 
Claims Data
VI. Estimate of OPPS Transitional Pass-Through Spending for Drugs, 
Biologicals, Radiopharmaceuticals, and Devices
    A. Background
    B. Estimate of Pass-Through Spending
VII. OPPS Payment for Brachytherapy Sources
    A. Background
    B. OPPS Payment Policy
VIII. OPPS Payment for Drug Administration Services
    A. Background
    B. Coding and Payment for Drug Administration Services
IX. OPPS Payment for Hospital Outpatient Visits
    A. Background
    B. Policies for Hospital Outpatient Visits
    1. Clinic Visits: New and Established Patient Visits
    2. Emergency Department Visits
    3. Visit Reporting Guidelines
X. Payment for Partial Hospitalization Services
    A. Background
    B. PHP APC Update for CY 2011
    C. Changes to Regulations To Incorporate Provisions of HCERA 
2010
    D. Separate Threshold for Outlier Payments to CMHCs
XI. Procedures That Will Be Paid Only as Inpatient Procedures
    A. Background
    B. Changes to the Inpatient List
XII. OPPS Nonrecurring Technical and Policy Changes and 
Clarifications
    A. Physician Supervision
    1. Background
    a. Outpatient Therapeutic Services
    b. Outpatient Diagnostic Services
    2. Issues Regarding the Supervision of Hospital Outpatient 
Services Raised by Hospitals and Other Stakeholders

[[Page 71804]]

    3. Policies for Supervision of Outpatient Therapeutic Services 
in Hospital and CAHs
    4. Supervision of Hospital Outpatient Diagnostic Services
    B. Payment for Preventive Services
    1. Definition of ``Preventive Services''
    2. Coinsurance and Deductible for Preventive Services
    3. Extension of Waiver of Part B Deductible to Services 
Furnished in Connection With or in Relation to a Colorectal Cancer 
Screening Test That Becomes Diagnostic or Therapeutic
    C. Payment for Pulmonary Rehabilitation, Cardiac Rehabilitation, 
and Intensive Cardiac Rehabilitation Services Furnished to Hospital 
Outpatients
    D. Expansion of Multiple Procedure Payment Reduction Under the 
Medicare Physician Fee Schedule (MPFS) to Therapy Services
XIII. OPPS Payment Status and Comment Indicators
    A. OPPS Payment Status Indicator Definitions
    1. Payment Status Indicators To Designate Services That Are Paid 
Under the OPPS
    2. Payment Status Indicators To Designate Services That Are Paid 
Under a Payment System Other Than the OPPS
    3. Payment Status Indicators To Designate Services That Are Not 
Recognized Under the OPPS But That May Be Recognized by Other 
Institutional Providers
    4. Payment Status Indicators To Designate Services That Are Not 
Payable by Medicare on Outpatient Claims
    B. Comment Indicator Definitions
XIV. OPPS Policy and Payment Recommendations
    A. MedPAC Recommendations
    B. APC Panel Recommendations
    C. OIG Recommendations
XV. Updates to the Ambulatory Surgical Center (ASC) Payment System
    A. Background
    1. Legislative Authority for the ASC Payment System
    2. Prior Rulemaking
    3. Policies Governing Changes to the Lists of Codes and Payment 
Rates for ASC Covered Surgical Procedures and Covered Ancillary 
Services
    B. Treatment of New Codes
    1. Process for Recognizing New Category I and Category III CPT 
Codes and Level II HCPCS Codes
    2. Treatment of New Level II HCPCS Codes and Category III CPT 
Codes Implemented in April and July 2010 for Which We Solicited 
Public Comments in Calendar Year 2011 OPPS/ASC Proposed Rule
    3. Process for New Level II HCPCS Codes and Category I and 
Category III CPT Codes for Which We Are Soliciting Public Comments 
in This Calendar Year 2011 OPPS/ASC Final Rule With Comment Period
    C. Update to the List of ASC Covered Surgical Procedures and 
Covered Ancillary Services
    1. Covered Surgical Procedures
    a. Additions to the List of ASC Covered Surgical Procedures
    b. Covered Surgical Procedures Designated as Office-Based
    (1) Background
    (2) Changes to Covered Surgical Procedures Designated as Office-
Based for CY 2011
    c. ASC Covered Surgical Procedures Designated as Device-
Intensive
    (1) Background
    (2) Changes to List of Covered Surgical Procedures Designated as 
Device-Intensive for CY 2011
    d. ASC Treatment of Surgical Procedures Removed From the OPPS 
Inpatient List for CY 2011
    2. Covered Ancillary Services
    D. ASC Payment for Covered Surgical Procedures and Covered 
Ancillary Services
    1. Payment for Covered Surgical Procedures
    a. Background
    b. Update to ASC Covered Surgical Procedure Payment Rates for CY 
2011
    c. Adjustment to ASC Payments for No Cost/Full Credit and 
Partial Credit Devices
    d. Waiver of Coinsurance and Deductible for Certain Preventive 
Services
    2. Payment for Covered Ancillary Services
    a. Background
    b. Payment for Covered Ancillary Services for CY 2011
    E. New Technology Intraocular Lenses (NTIOLs)
    1. Background
    2. NTIOL Application Process for Payment Adjustment
    3. Classes of NTIOLs Approved and New Requests for Payment 
Adjustment
    a. Background
    b. Request To Establish New NTIOL Class for CY 2011
    4. Payment Adjustment
    5. ASC Payment for Insertion of IOLs
    6. Announcement of Calendar Year 2011 Deadline for Submitting 
Request for CMS Review of Appropriateness of ASC Payment for 
Insertion of an NTOL Following Cataract Surgery
    F. ASC Payment and Comment Indicators
    1. Background
    2. ASC Payment and Comment Indicators
    G. ASC Policy and Payment Recommendations
    H. Calculation of the ASC Conversion Factor and the ASC Payment 
Rates
    1. Background
    2. Calculation of the ASC Payment Rates
    a. Updating the ASC Relative Payment Weights for CY 2011 and 
Future Years
    b. Updating the ASC Conversion Factor
    3. Display of Calendar Year 2011 ASC Payment Rates
XVI. Reporting Quality Data for Annual Payment Rate Updates
    A. Background
    1. Overview
    2. Hospital Outpatient Quality Data Reporting under Section 
109(a) of MIEA-TRHCA
    3. ASC Quality Data Reporting Under Section 109(b) of MIEA-TRHCA
    4. HOP QDRP Quality Measures for the CY 2009 Payment 
Determination
    5. HOP QDRP Quality Measures for the CY 2010 Payment 
Determination
    6. HOP QDRP Quality Measures, Technical Specification Updates, 
and Data Publication for the CY 2011 Payment Determination
    a. Quality Measures
    b. Maintenance of Technical Specifications for Quality Measures
    c. Publication of HOP QDRP Data
    B. Expansion of HOP QDRP Quality Measures for the CY 2012, CY 
2013, and CY 2014 Payment Determinations
    1. Considerations in Expanding and Updating Quality Measures 
Under the HOP QRDP
    2. Retirement of HOP QDRP Quality Measures
    3. HOP QDRP Quality Measures for the CY 2012 Payment 
Determination
    a. Retention of Existing HOP QDRP Measures for the CY 2012 
Payment Determination
    b. New Structural Measure for CY 2012 Payment Determination
    c. New Claims-Based Measures for CY 2012 Payment Determination
    d. New Chart-Abstracted Measures for CY 2012 Payment 
Determination
    4. HOP QDRP Quality Measures for the CY 2013 Payment 
Determination
    a. Retention of CY 2012 HOP QDRP Measures for the CY 2013 
Payment Determination
    b. New Structural Measure for the CY 2013 Payment Determination
    c. New Chart-Abstracted Measures for the CY 2013 Payment 
Determination
    5. HOP QDRP Quality Measures for the CY 2014 Payment 
Determination
    a. Retention of CY 2013 HOP QDRP Measures for the CY 2014 
Payment Determination
    b. New Chart-Abstracted Measures for the CY 2014 Payment 
Determination
    6. Possible Quality Measures Under Consideration for Future 
Inclusion in the HOP QDRP
    C. Payment Reduction for Hospitals That Fail To Meet the HOP 
QDRP Requirements for the CY 2011 Payment Update
    1. Background
    2. Reporting Ratio Application and Associated Adjustment Policy 
for CY 2011
    D. Requirements for HOPD Quality Data Reporting for CY 2012 and 
Subsequent Years
    1. Administrative Requirements
    2. Data Collection and Submission Requirements
    a. General Data Collection and Submission Requirements
    b. Extraordinary Circumstance Extension or Waiver for Reporting 
Quality Data
    3. HOP QDRP Validation Requirements for Chart-Abstracted Data: 
Data Validation Approach for CY 2012 and Subsequent Years
    a. Background
    b. Data Validation Requirements for CY 2012
    c. Additional Data Validation Conditions Under Consideration for 
CY 2013 and Subsequent Years
    E. HOP QDRP Reconsideration and Appeals Procedures
    F. Reporting of ASC Quality Data
    G. Electronic Health Records

[[Page 71805]]

XVII. Files Available to the Public via the Internet
    A. Information in Addenda Related to the CY 2011 Hospital OPPS
    B. Information in Addenda Related to the CY 2011 ASC Payment 
System
XVIII. Collection of Information Requirements
    A. Legislative Requirements for Solicitation of Comments
    B. Associated Information Collections Not Specified in 
Regulatory Text
    1. Hospital Outpatient Quality Data Reporting Program (HOP QDRP)
    2. HOP QDRP Quality Measures for the CY 2011 and CY 2012 Payment 
Determinations
    3. HOP QDRP Validation Requirements
    4. HOP QDRP Reconsideration and Appeals Procedures
    5. Additional Topics
XIX. Response to Comments
XX. Regulatory Impact Analysis
    A. Overall Impact
    1. Executive Order 12866
    2. Regulatory Flexibility Act
    3. Small Rural Hospitals
    4. Unfunded Mandates
    5. Federalism
    B. Effects of OPPS Changes in This Final Rule With Comment 
Period
    1. Alternatives Considered
    2. Limitations of Our Analysis
    3. Estimated Effects of This Final Rule With Comment Period on 
Hospitals
    4. Estimated Effects of This Final Rule With Comment Period on 
CMHCs
    5. Estimated Effects of This Final Rule With Comment Period on 
Beneficiaries
    6. Conclusion
    7. Accounting Statement
    C. Effects of ASC Payment System Changes in This Final Rule With 
Comment Period
    1. Alternatives Considered
    2. Limitations of Our Analysis
    3. Estimated Effects of This Final Rule With Comment Period on 
Payments to ASCs
    4. Estimated Effects of This Final Rule With Comment Period on 
Beneficiaries
    5. Conclusion
    6. Accounting Statement
    D. Effects of Requirements for Reporting of Quality Data for 
Annual Hospital Payment Update
    E. Executive Order 12866
XXI. Final Rule: Changes Relating to Payments to Hospitals for 
Direct Graduate Medical Education (GME) and Indirect Medical 
Education (IME) Costs
    A. Background
    B. Counting Resident Time in Nonprovider Settings (Section 5504 
of the Affordable Care Act)
    1. Background and Changes Made by the Affordable Care Act
    2. Elimination of the ``All or Substantially All of the Costs 
for the Training Program in the Nonhospital Setting'' Requirement 
and New Cost Requirements for Hospitals
    3. Revision to Regulations To Allow More Than One Hospital To 
Incur the Costs of Training Programs at Nonhospital Settings, Either 
Directly or Through a Third Party
    4. Changes to Regulations Regarding Recordkeeping and Comparison 
to a Base Year
    C. Counting Resident Time for Didactic and Scholarly Activities 
and Other Activities (Section 5505 of the Affordable Care Act)
    1. Background and Changes Made by the Affordable Care Act
    2. Definition of ``Nonprovider Setting That is Primarily Engaged 
in Furnishing Patient Care''
    3. Distinguishing Between Allowed ``Nonpatient Care Activities'' 
and Nonallowable Research Time
    4. Approved Leave of Absence
    D. Reductions and Increases to Hospitals' FTE Resident Caps for 
GME Payment Purposes
    1. General Background on Methodology for Determining the FTE 
Resident Count
    2. Reduction of Hospitals' FTE Resident Caps Under the 
Provisions of Section 5503 of the Affordable Care Act
    3. Hospitals Subject to the FTE Resident Cap Reduction
    4. Exemption From FTE Resident Cap Reduction for Certain Rural 
Hospitals
    5. Application of Section 5503 to Hospitals That Participate in 
Demonstration Projects or Voluntary Reduction Programs and Certain 
Other Hospitals
    6. Determining the Estimated Number of FTE Resident Slots 
Available for Redistribution
    7. Reference Cost Reports That Are Under Appeal
    8. Determining the Reduction to a Hospital's FTE Resident Cap
    a. Reference Resident Level--General
    b. Audits of the Reference Cost Reporting Period
    c. Medicare GME Affiliation Agreements
    d. Treatment of Hospitals That Have Merged
    9. Application of Section 5503 to Hospitals That File Low 
Utilization Medicare Cost Reports
    10. Treatment of Hospitals With Caps That Have Been Reduced or 
Increased Under Section 422 of Public Law 108-173
    11. Criteria for Determining Hospitals That Will Receive 
Increases in Their FTE Resident Caps
    12. Application Process for the Increases in Hospitals' FTE 
Resident Caps
    13. CMS Evaluation of Applications for Increases in FTE Resident 
Caps
    14. CMS Evaluation of Application for Increases in FTE Resident 
Caps--Evaluation Criteria
    15. Exception If Positions Are Not Redistributed by July 1, 2011
    16. Application of Direct GME PRAs for Primary Care and 
Nonprimary Care Residents and Conforming Changes for the IME 
Multiplier
    17. Other Issues Related to a Request for Increase in the FTE 
Caps Under Section 5503 of the Affordable Care Act
    a. Rural Hospitals or Urban Nonteaching Hospitals
    b. Closed Teaching Hospitals
    c. Requirements for Hospitals That Receive Additional Slots 
Under Section 5503
    d. No Administrative or Judicial Review
    E. Preservation of Resident Cap Positions From Closed Hospitals 
(Section 5506 of the Affordable Care Act)
    1. Background
    2. Definition of a ``Closed Hospital''
    3. Priority for Hospitals in Certain Areas
    4. Application Process
    5. Ranking Criteria
    6. Demonstrated Likelihood of Filling the Positions Within a 
Certain Time Period
    7. No Duplication of FTE Cap Slots
    8. Other Payment Issues Regarding Hospitals That Receive 
Increase in FTE Caps Based on Slots From Closed Hospitals
    9. Other Comments and Responses Regarding Section 5506
    10. Application--No Reopening of Settled Cost Reports
    11. No Administrative or Judicial Review Under Section 5506
    F. Collection of Information Requirements
    G. Regulatory Impact Analysis
XXII. Final Rule: Changes to Whole Hospital and Rural Provider 
Exceptions to the Physician Self-Referral Prohibition and Related 
Changes to Provider Agreement Regulations
    A. Background
    B. Changes Made by the Affordable Care Act Relating to the Whole 
Hospital and Rural Provider Exceptions to Ownership and Investment 
Prohibition
    C. Changes to Physician Self-Referral Regulations
    1. Physician Ownership and Provider Agreement
    2. Limitation on Expansion of Facility Capacity
    3. Preventing Conflicts of Interest
    4. Ensuring Bona Fide Investment
    5. Patient Safety
    6. Conversion From Ambulatory Surgery Center (ASC)
    7. Publication of Information Reported
    8. Enforcement
    D. Related Changes to Provider Agreement Regulations
    E. Conditions of Participation for Hospitals
    F. Collection of Information Requirements
    G. Regulatory Impact Analysis
XXIII. Interim Final Rule With Comment Period: Certified Nurse 
Anesthetists (CRNAs) Services Furnished in Rural Hospitals and 
Critical Access Hospitals (CAHs)
    A. Background
    B. Revised Policy
    C. Waiver of Notice of Proposed Rulemaking and Delay in the 
Effective Date
    D. Response to Comments
    E. Collection of Information Requirements
    F. Regulatory Impact Analysis
Regulation Text
Addenda
Addendum A--Final OPPS APCs for CY 2011
Addendum AA--Final ASC Covered Surgical Procedures for CY 2011 
(Including Surgical Procedures for Which Payment Is Packaged)
Addendum B--Final OPPS Payment by HCPCS Code for CY 2011
Addendum BB--Final ASC Covered Ancillary Services Integral to 
Covered

[[Page 71806]]

Surgical Procedures for CY 2011 (Including Ancillary Services for 
Which Payment Is Packaged)
Addendum D1--Final OPPS Payment Status Indicators for CY 2011
Addendum DD1--Final ASC Payment Indicators for CY 2011
Addendum D2--Final OPPS Comment Indicators for CY 2011
Addendum DD2--Final ASC Comment Indicators for CY 2011
Addendum E--HCPCS Codes That Will Be Paid Only as Inpatient 
Procedures for CY 2011
Addendum L--Final CY 2011 OPPS Out-Migration Adjustment
Addendum M--Final HCPCS Codes for Assignment to Composite APCs for 
CY 2011

I. Background and Summary of the CY 2011 OPPS/ASC Proposed and Final 
Rules

A. Legislative and Regulatory Authority for the Hospital Outpatient 
Prospective Payment System

    When Title XVIII of the Social Security Act (the Act) was enacted, 
Medicare payment for hospital outpatient services was based on 
hospital-specific costs. In an effort to ensure that Medicare and its 
beneficiaries pay appropriately for services and to encourage more 
efficient delivery of care, the Congress mandated replacement of the 
reasonable cost-based payment methodology with a prospective payment 
system (PPS). The Balanced Budget Act (BBA) of 1997 (Pub. L. 105-33) 
added section 1833(t) to the Act authorizing implementation of a PPS 
for hospital outpatient services. The OPPS was first implemented for 
services furnished on or after August 1, 2000. Implementing regulations 
for the OPPS are located at 42 CFR part 419.
    The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act 
(BBRA) of 1999 (Pub. L. 106-113) made major changes in the hospital 
outpatient prospective payment system (OPPS). The following Acts made 
additional changes to the OPPS: the Medicare, Medicaid, and SCHIP 
Benefits Improvement and Protection Act (BIPA) of 2000 (Pub. L. 106-
554); the Medicare Prescription Drug, Improvement, and Modernization 
Act (MMA) of 2003 (Pub. L. 108-173); the Deficit Reduction Act (DRA) of 
2005 (Pub. L. 109-171), enacted on February 8, 2006; the Medicare 
Improvements and Extension Act under Division B of Title I of the Tax 
Relief and Health Care Act (MIEA-TRHCA) of 2006 (Pub. L. 109-432), 
enacted on December 20, 2006; the Medicare, Medicaid, and SCHIP 
Extension Act (MMSEA) of 2007 (Pub. L. 110-173), enacted on December 
29, 2007; the Medicare Improvements for Patients and Providers Act 
(MIPPA) of 2008 (Pub. L. 110-275), enacted on July 15, 2008; and most 
recently the Patient Protection and Affordable Care Act (Pub. L. 111-
148), enacted on March 23, 2010, as amended by the Health Care and 
Education Reconciliation Act of 2010 (Pub. L. 111-152), enacted on 
March 30, 2010. We refer readers to section I.D. of this final rule 
with comment period for a summary of the provisions of Public Law 111-
148, as amended by Public Law 111-152, that we are implementing in this 
final rule with comment period.
    Under the OPPS, we pay for hospital outpatient services on a rate-
per-service basis that varies according to the ambulatory payment 
classification (APC) group to which the service is assigned. We use the 
Healthcare Common Procedure Coding System (HCPCS) codes (which include 
certain Current Procedural Terminology (CPT) codes) and descriptors to 
identify and group the services within each APC group. The OPPS 
includes payment for most hospital outpatient services, except those 
identified in section I.B. of this final rule with comment period. 
Section 1833(t)(1)(B)(i) of the Act provides for payment under the OPPS 
for hospital outpatient services designated by the Secretary (which 
includes partial hospitalization services furnished by community mental 
health centers (CMHCs)) and hospital outpatient services that are 
furnished to inpatients who have exhausted their Part A benefits, or 
who are otherwise not in a covered Part A stay.
    The OPPS rate is an unadjusted national payment amount that 
includes the Medicare payment and the beneficiary copayment. This rate 
is divided into a labor-related amount and a nonlabor-related amount. 
The labor-related amount is adjusted for area wage differences using 
the hospital inpatient wage index value for the locality in which the 
hospital or CMHC is located.
    All services and items within an APC group are comparable 
clinically and with respect to resource use (section 1833(t)(2)(B) of 
the Act). In accordance with section 1833(t)(2) of the Act, subject to 
certain exceptions, items and services within an APC group cannot be 
considered comparable with respect to the use of resources if the 
highest median cost (or mean cost, if elected by the Secretary) for an 
item or service in the APC group is more than 2 times greater than the 
lowest median cost for an item or service within the same APC group 
(referred to as the ``2 times rule''). In implementing this provision, 
we generally use the median cost of the item or service assigned to an 
APC group.
    For new technology items and services, special payments under the 
OPPS may be made in one of two ways. Section 1833(t)(6) of the Act 
provides for temporary additional payments, which we refer to as 
``transitional pass-through payments,'' for at least 2 but not more 
than 3 years for certain drugs, biological agents, brachytherapy 
devices used for the treatment of cancer, and categories of other 
medical devices. For new technology services that are not eligible for 
transitional pass-through payments, and for which we lack sufficient 
data to appropriately assign them to a clinical APC group, we have 
established special APC groups based on costs, which we refer to as New 
Technology APCs. These New Technology APCs are designated by cost bands 
which allow us to provide appropriate and consistent payment for 
designated new procedures that are not yet reflected in our claims 
data. Similar to pass-through payments, an assignment to a New 
Technology APC is temporary; that is, we retain a service within a New 
Technology APC until we acquire sufficient data to assign it to a 
clinically appropriate APC group.

B. Excluded OPPS Services and Hospitals

    Section 1833(t)(1)(B)(i) of the Act authorizes the Secretary to 
designate the hospital outpatient services that are paid under the 
OPPS. While most hospital outpatient services are payable under the 
OPPS, section 1833(t)(1)(B)(iv) of the Act excludes payment for 
ambulance, physical and occupational therapy, and speech-language 
pathology services, for which payment is made under a fee schedule. It 
also excludes screening mammography, diagnostic mammography, and 
effective January 1, 2011, an annual wellness visit providing 
personalized prevention plan services. The Secretary exercised the 
authority granted under the statute to also exclude from the OPPS those 
services that are paid under fee schedules or other payment systems. 
Such excluded services include, for example, the professional services 
of physicians and nonphysician practitioners paid under the Medicare 
Physician Fee Schedule (MPFS); laboratory services paid under the 
Clinical Diagnostic Laboratory Fee Schedule (CLFS); services for 
beneficiaries with end-stage renal disease (ESRD) that are paid under 
the ESRD composite rate; and services and procedures that require an 
inpatient stay that are paid under the hospital inpatient prospective 
payment system

[[Page 71807]]

(IPPS). We set forth the services that are excluded from payment under 
the OPPS in 42 CFR 419.22 of the regulations.
    Under Sec.  419.20(b) of the regulations, we specify the types of 
hospitals and entities that are excluded from payment under the OPPS. 
These excluded entities include: Maryland hospitals, but only for 
services that are paid under a cost containment waiver in accordance 
with section 1814(b)(3) of the Act; critical access hospitals (CAHs); 
hospitals located outside of the 50 States, the District of Columbia, 
and Puerto Rico; and Indian Health Service (IHS) hospitals.

C. Prior Rulemaking

    On April 7, 2000, we published in the Federal Register a final rule 
with comment period (65 FR 18434) to implement a prospective payment 
system for hospital outpatient services. The hospital OPPS was first 
implemented for services furnished on or after August 1, 2000. Section 
1833(t)(9) of the Act requires the Secretary to review certain 
components of the OPPS, not less often than annually, and to revise the 
groups, relative payment weights, and other adjustments that take into 
account changes in medical practices, changes in technologies, and the 
addition of new services, new cost data, and other relevant information 
and factors.
    Since initially implementing the OPPS, we have published final 
rules in the Federal Register annually to implement statutory 
requirements and changes arising from our continuing experience with 
this system. These rules can be viewed on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/. The CY 2010 OPPS/ASC final rule 
with comment period appears in the November 20, 2009 Federal Register 
(74 FR 60316). In that final rule with comment period, we revised the 
OPPS to update the payment weights and conversion factor for services 
payable under the CY 2010 OPPS on the basis of claims data from January 
1, 2008, through December 31, 2008, and to implement certain provisions 
of Public Law 110-173 and Public Law 110-275. In addition, we responded 
to public comments received on the provisions of the November 18, 2008 
final rule with comment period (73 FR 68502) pertaining to the APC 
assignment of HCPCS codes identified in Addendum B to that rule with 
the new interim (``NI'') comment indicator, and public comments 
received on the July 20, 2009 OPPS/ASC proposed rule for CY 2010 (74 FR 
35232). On December 31, 2009, we issued in the Federal Register (74 FR 
69502) a notice that corrected technical and typographic errors that 
appeared in the CY 2010 OPPS/ASC final rule with comment period issued 
on November 20, 2009. On August 3, 2010, we issued in the Federal 
Register (75 FR 45700) a notice that contained further corrections of 
technical errors in the CY 2010 OPPS/ASC final rule with comment period 
issued in the Federal Register on November 20, 2009 (74 FR 60316), and 
in the correction document for that final rule with comment period that 
was issued in the Federal Register on December 31, 2009 (74 FR 69502).
    On August 3, 2010, we issued in the Federal Register (75 FR 46169) 
a proposed rule for the CY 2011 OPPS/ASC payment systems to implement 
statutory requirements and changes arising from our continuing 
experience with both systems and to implement certain provisions of the 
Affordable Care Act.
    On August 3, 2010, we issued a notice in the Federal Register (75 
FR 45769) that contained the final wage indices, hospital 
reclassifications, payment rates, impacts, and addenda for payments 
made under the OPPS for CY 2010 and the final payment rates and addenda 
for payments under the ASC payment system for CY 2010, that were 
revised to address the provisions of the Affordable Care Act that 
impacted both the CY 2010 OPPS and the ASC payment system.

D. Provisions of the Patient Protection and Affordable Care Act (Pub. 
L. 111-148), as Amended by the Health Care and Education Reconciliation 
Act of 2010 (Pub. L. 111-152)

    On March 23, 2010, the Patient Protection and Affordable Care Act, 
Public Law 111-148, was enacted. Following the enactment of Public Law 
111-148, the Health Care and Education Reconciliation Act of 2010, 
Public Law 111-152 (enacted on March 30, 2010), amended certain 
provisions of Public Law 111-148. (These two public laws are 
collectively known as the Affordable Care Act.) A number of the 
provisions of the Affordable Care Act affect the OPPS and the ASC 
payment system and the providers and suppliers addressed in this final 
rule with comment period. Listed below are the provisions of the 
Affordable Care Act that we proposed to implement in the CY 2011 OPPS/
ASC proposed rule and that we are finalizing in this final rule with 
comment period. We note that, due to the timing of the passage of the 
legislation, we were unable to address some of the provisions of the 
Affordable Care Act that affected the IPPS and the LTCH PPS in the FY 
2011 IPPS/LTCH PPS proposed rule published in the Federal Register on 
May 4, 2010. Therefore, we also included some proposals to implement 
certain provisions relating to the IPPS and LTCH PPS in the CY 2011 
OPPS/ASC proposed rule and are finalizing them in this final rule. In 
addition, we noted in the CY 2011 OPPS/ASC proposed rule that we had 
issued or planned to issue separate documents in the Federal Register 
addressing other provisions of the Affordable Care Act (75 FR 30756 and 
75 FR 31118).
    <bullet> Section 1301 of the Affordable Care Act amended sections 
1861(ff)(3))(A) and (B) of the Act to establish new additional 
requirements for CMHCs applicable to items or services furnished to 
Medicare beneficiaries on or after the first day of the first calendar 
quarter that begins at least 12 months after the date of enactment of 
Public Law 111-152 (that is, beginning April 1, 2011). The new 
requirements specify that a CMHC provide at least 40 percent of its 
services to individuals who are not eligible for Medicare benefits 
under Title XVIII of the Act and that a partial hospitalization program 
must be a distinct and organized intensive ambulatory treatment service 
offering less than 24-hour daily care ``other than an individual's home 
or in an inpatient or residential setting.'' This provision is 
addressed in section X. of this final rule with comment period.
    <bullet> Section 3121(a) of the Affordable Care Act amended section 
1833(t)(7)(D)(i) of the Act to extend hold harmless payment adjustments 
(called transitional corridor payments or transitional outpatient 
payments (TOPS)) to rural hospitals with 100 or fewer beds and that are 
not sole community hospitals for covered OPD services furnished on or 
after January 1, 2006 and before January 1, 2011. Section 3121(b) 
amended section 1833(t)(7)(D)(i)(III) of the Act to provide that, for 
SCHs, in the case of covered OPD services furnished on or after January 
1, 2010, and before January 1, 2011, the hold harmless TOPS provisions 
shall be applied without regard to the 100-bed limitation. These 
provisions are addressed in section II.E. of this final rule with 
comment period.
    <bullet> Section 3138 of the Affordable Care Act amended section 
1833(t) of the Act to direct the Secretary to conduct a study to 
determine if costs incurred by cancer hospitals (described in section 
1886(d)(1)(B)(v) of the Act) for outpatient hospital services with 
respect to APC groups exceed those costs incurred by other hospitals 
furnishing these services. In so far as the Secretary determines that 
such costs exceed those

[[Page 71808]]

costs incurred by other hospitals, the Secretary shall provide for an 
appropriate adjustment under the authority of section 1833(t)(2)(E) to 
reflect those higher costs effective for services furnished on or after 
January 1, 2011. This provision is addressed in section II.F. of this 
final rule with comment period.
    <bullet> Section 3401(i) of the Affordable Care Act amended section 
1833(t)(3) of the Act by, among other things, adding new paragraphs 
(C)(iv)(F) and (G) to reduce the OPD fee schedule increase factor by a 
productivity adjustment and an additional adjustment for payments to 
hospital OPDs beginning in various years from CY 2010 through CY 2019 
as applicable. These hospital OPD provisions are addressed in section 
II.B.1. of this final rule with comment period. Section 3401(k) of the 
Affordable Care Act amended section 1833(i)(2)(D) of the Act by 
redesignating clause (v) as clause (iv) and adding a new clause (v) to 
provide for a similar productivity adjustment for payment for ASC 
services. This ASC provision is addressed in section XV.H.2.b. of this 
final rule with comment period.
    <bullet> Section 4103(a) of the Affordable Care Act amended section 
1861(s)(2) of the Act by adding a new subsection (FF) to provide 
Medicare coverage of ``personalized prevention plan services,'' 
beginning January 1, 2011. Section 4103(b) of the Affordable Care Act 
amended section 1861 of the Act by adding a new subsection (hhh) to 
define ``personalized prevention plan services'' (also cited as the 
``annual wellness visit''). Section 4103(c) of the Affordable Care Act 
excludes the annual wellness visit from payment under the OPPS and 
provides for the elimination of beneficiary coinsurance requirements 
for certain preventive services in outpatient hospital settings and for 
waiver of application of the deductible for these services. These 
provisions are addressed in section XII.B. of this final rule with 
comment period.
    <bullet> Section 4104(a) of the Affordable Care Act amended section 
1861(ddd) of the Act to define ``preventive services'' under Medicare 
to include screening and preventive services described under subsection 
(ww)(2) of the Act (other than services under subparagraph (M)); an 
initial preventive physical examination as defined in subsection (ww) 
of the Act; and personalized prevention plan services as defined in 
subsection (hhh)(1) of the Act. Sections 4104(b) and 10406 of the 
Affordable Care Act amended section 1833(a)(1) of the Act, as amended 
by section 4103(c)(1) of the Affordable Care Act, to provide for the 
elimination of coinsurance for preventive services, and section 4104(c) 
amended section 1833(b) of the Act to provide for the waiver of the 
application of the deductible for both preventive services and, 
specifically, for colorectal cancer screening tests that become 
diagnostic and any related services performed with that diagnostic 
colorectal cancer screening test performed in the same clinical 
encounter, effective for items and services furnished on or after 
January 1, 2011. These provisions are addressed in section XII.B. of 
this final rule with comment period.
    <bullet> Sections 5503, 5504, 5505, and 5506 of the Affordable Care 
Act made a number of changes to various sections of the Act relating to 
payment for direct GME and IME costs to hospitals.
    (1) Section 5503 amended the Act to add a provision to redistribute 
medical residency positions that have been unfilled during a prior cost 
reporting period to other hospitals and to direct slots for training 
primary care physicians, effective for portions of cost reporting 
periods occurring on or after July 1, 2011.
    (2) Section 5504 amended sections 1886(h)(4)(E) and 
1886(d)(5)(B)(iv) of the Act to allow any time spent by residents 
training in a nonprovider setting to count toward direct GME and IME 
costs if the hospital incurs the costs of residents' salaries and 
fringe benefits, effective for cost reporting periods beginning on or 
after July 1, 2010, for direct GME, and for discharges occurring on or 
after July 1, 2010, for IME.
    (3) Section 5505 amended section 1886(h) and section 1886(d)(5)(B) 
of the Act to add a provision to allow hospitals to count resident time 
spent in certain non-patient care activities while training in certain 
nonprovider settings for direct GME purposes, effective for cost 
reporting periods beginning on or after July 1, 2009; to allow 
hospitals to count resident time spent in certain non-patient care 
activities while training in certain hospital settings for IME purposes 
for cost reporting periods beginning on or after January 1, 1983; and 
to prohibit the counting of time spent by residents in research not 
associated with the treatment or diagnosis of a particular patient for 
IME purposes effective October 1, 2001 (with certain limitations).
    (4) Section 5506 amended section 1886(h)(4)(H) and section 
1886(d)(5)(B)(iv) of the Act to add a provision to allow for the 
redistribution to other hospitals in the same or contiguous areas of 
FTE resident positions from a hospital that closes (on or after the 
date that is 2 years before the date of enactment of Pub. L. 111-148).
    These provisions are addressed in section XXI. of this document.
    <bullet> Section 6001 of the Affordable Care Act amended section 
1877 of the Act to add provisions under new subsection (i) relating to 
the prohibition against referrals to a hospital by a physician who has 
an ownership or investment interest in the hospital. This provision is 
addressed in section XXII. of this document.
    <bullet> Section 10324(b) of the Affordable Care Act amended 
section 1833(t) of the Act by adding a new subsection (19) to provide 
for a floor on the area wage adjustment factor for hospital outpatient 
department services furnished on or after January 1, 2011, in a State 
in which at least 50 percent of the counties in the State are frontier 
counties, that is, a county in which the population per square mile is 
less than 6. This provision is addressed in section II.C. of this 
document.

E. Advisory Panel on Ambulatory Payment Classification (APC) Groups

1. Authority of the Advisory Panel on Ambulatory Payment Classification 
(APC) Groups (the APC Panel)
    Section 1833(t)(9)(A) of the Act, as amended by section 201(h) of 
Public Law 106-113, and redesignated by section 202(a)(2) of Public Law 
106-113, requires that we consult with an outside panel of experts to 
review the clinical integrity of the payment groups and their weights 
under the OPPS. The Act further specifies that the panel will act in an 
advisory capacity. The APC Panel, discussed under section I.E.2. of 
this final rule with comment period, fulfills these requirements. The 
APC Panel is not restricted to using data compiled by CMS, and it may 
use data collected or developed by organizations outside the Department 
in conducting its review.
2. Establishment of the APC Panel
    On November 21, 2000, the Secretary signed the initial charter 
establishing the APC Panel. This expert panel, which may be composed of 
up to 15 representatives of providers (currently employed full-time, 
not as consultants, in their respective areas of expertise) subject to 
the OPPS, reviews clinical data and advises CMS about the clinical 
integrity of the APC groups and their payment weights. The APC Panel is 
technical in nature, and it is governed by the provisions of the 
Federal Advisory Committee Act (FACA). Since its initial chartering, 
the Secretary has renewed the APC Panel's charter four times: On 
November 1, 2002; on

[[Page 71809]]

November 1, 2004; on November 21, 2006; and on November 2, 2008. (We 
note that the charter is scheduled to be renewed on or before November 
21, 2010.) The current charter specifies, among other requirements, 
that: The APC Panel continues to be technical in nature; is governed by 
the provisions of the FACA; may convene up to three meetings per year; 
has a Designated Federal Official (DFO); and is chaired by a Federal 
official designated by the Secretary.
    The current APC Panel membership and other information pertaining 
to the APC Panel, including its charter, Federal Register notices, 
membership, meeting dates, agenda topics, and meeting reports, can be 
viewed on the CMS Web site at: http://www.cms.hhs.gov/FACA/05_
AdvisoryPanelonAmbulatoryPaymentClassificationGroups.asp#TopOfPage.
3. APC Panel Meetings and Organizational Structure
    The APC Panel first met on February 27 through March 1, 2001. Since 
the initial meeting, the APC Panel has held 18 meetings, with the last 
meeting taking place on August 23-24, 2010. Prior to each meeting, we 
publish a notice in the Federal Register to announce the meeting and, 
when necessary, to solicit nominations for APC Panel membership and to 
announce new members.
    The APC Panel has established an operational structure that, in 
part, includes the use of three subcommittees to facilitate its 
required APC review process. The three current subcommittees are the 
Data Subcommittee, the Visits and Observation Subcommittee, and the 
Subcommittee for APC Groups and Status Indicator (SI) Assignments 
(previously known as the Packaging Subcommittee).
    The Data Subcommittee is responsible for studying the data issues 
confronting the APC Panel and for recommending options for resolving 
them. The Visits and Observation Subcommittee reviews and makes 
recommendations to the APC Panel on all technical issues pertaining to 
observation services and hospital outpatient visits paid under the OPPS 
(for example, APC configurations and APC payment weights). The 
Subcommittee for APC Groups and SI Assignments advises the Panel on the 
following issues: The appropriate SIs to be assigned to HCPCS codes, 
including but not limited to whether a HCPCS code or a category of 
codes should be packaged or separately paid; and the appropriate APCs 
to be assigned to HCPCS codes regarding services for which separate 
payment is made.
    Each of these subcommittees was established by a majority vote from 
the full APC Panel during a scheduled APC Panel meeting, and the APC 
Panel recommended that the subcommittees continue at the August 2010 
APC Panel meeting. We accept those recommendations of the APC Panel. 
All subcommittee recommendations are discussed and voted upon by the 
full APC Panel.
    Discussions of the other recommendations made by the APC Panel at 
the February and August 2010 meetings are included in the sections of 
this final rule with comment period that are specific to each 
recommendation. For discussions of earlier APC Panel meetings and 
recommendations, we refer readers to previously published hospital 
OPPS/ASC proposed and final rules, the CMS Web site mentioned earlier 
in this section, and the FACA database at: http://fido.gov/facadatabase/public.asp.

F. Summary of the Major Contents of the CY 2011 OPS/ASC Proposed Rule

    A proposed rule appeared in the August 3, 2010 Federal Register (75 
FR 46170) that set forth proposed changes to the Medicare hospital OPPS 
and the revised Medicare ASC payment system for CY 2011 to implement 
statutory requirements and changes arising from our continuing 
experience with the system and to implement certain provisions of 
Public Law 111-148, as amended by Public Law 111-152 (collectively 
known as the Affordable Care Act). We proposed quality measures for the 
Hospital Outpatient Quality Data Reporting Program (HOP QDRP) for 
reporting quality data for annual payment rate updates for CY 2012 and 
subsequent calendar years, the proposed requirements for data 
collection and submission for the annual payment update, and a proposed 
reduction in the OPPS payment for hospitals that fail to meet the HOP 
QDRP requirements for the CY 2011 payment update, in accordance with 
the statutory requirement. We also proposed changes to implement 
provisions of the Affordable Care Act relating to payments to hospitals 
for direct GME and IME costs and the rules relating to physician self-
referrals to hospitals in which they have an ownership or investment 
interest. In addition, we set forth proposals affecting certain 
payments under the Medicare IPPS. The following is a summary of the 
major changes that we proposed to make:
1. Updates Affecting OPPS Payments
    In section II. of the proposed rule, we set forth--
    <bullet> The methodology used to recalibrate the proposed APC 
relative payment weights.
    <bullet> The proposed changes to packaged services.
    <bullet> The proposed update to the conversion factor used to 
determine payment rates under the OPPS. In this section, we proposed 
changes in the amounts and factors for calculating the full annual 
update increase to the conversion factor.
    <bullet> The proposed retention of our current policy to use the 
IPPS wage indices to adjust, for geographic wage differences, the 
portion of the OPPS payment rate and the copayment standardized amount 
attributable to labor-related cost. This proposal addressed the 
provisions of section 10324 of the Affordable Care Act relating to the 
establishment of a floor for the area wage adjustment factor for OPD 
services furnished in frontier States.
    <bullet> The proposed update of statewide average default CCRs.
    <bullet> The proposed application of hold harmless transitional 
outpatient payments (TOPs) for certain small rural hospitals, extended 
by section 3121 of the Affordable Care Act.
    <bullet> The proposed payment adjustment for rural SCHs.
    <bullet> The proposed calculation of the hospital outpatient 
outlier payment.
    <bullet> The calculation of the proposed national unadjusted 
Medicare OPPS payment.
    <bullet> The proposed beneficiary copayments for OPPS services.
2. OPPS Ambulatory Payment Classification (APC) Group Policies
    In section III. of the proposed rule, we discussed--
    <bullet> The proposed additions of new HCPCS codes to APCs.
    <bullet> The proposed establishment of a number of new APCs.
    <bullet> Our analyses of Medicare claims data and certain 
recommendations of the APC Panel.
    <bullet> The application of the 2 times rule and proposed 
exceptions to it.
    <bullet> The proposed changes to specific APCs.
    <bullet> The proposed movement of procedures from New Technology 
APCs to clinical APCs.
3. OPPS Payment for Devices
    In section IV. of the proposed rule, we discussed the proposed 
pass-through payment for specific categories of

[[Page 71810]]

devices and the proposed adjustment for devices furnished at no cost or 
with partial or full credit.
4. OPPS Payment Changes for Drugs, Biologicals, and 
Radiopharmaceuticals
    In section V. of the proposed rule, we discussed the proposed CY 
2011 OPPS payment for drugs, biologicals, and radiopharmaceuticals, 
including the proposed payment for drugs, biologicals, and 
radiopharmaceuticals with and without pass-through status.
5. Estimate of OPPS Transitional Pass-Through Spending for Drugs, 
Biologicals, Radiopharmaceuticals, and Devices
    In section VI. of the proposed rule, we discussed the estimate of 
CY 2011 OPPS transitional pass-through spending for drugs, biologicals, 
and devices.
6. OPPS Payment for Brachytherapy Sources
    In section VII. of the proposed rule, we discussed our proposal for 
payment for brachytherapy sources.
7. OPPS Payment for Drug Administration Services
    In section VIII. of the proposed rule, we set forth our proposed 
policy concerning coding and payment for drug administration services.
8. OPPS Payment for Hospital Outpatient Visits
    In section IX. of the proposed rule, we set forth our proposed 
policies for the payment of clinic and emergency department visits and 
critical care services based on claims data.
9. Payment for Partial Hospitalization Services
    In section X. of the proposed rule, we set forth our proposed 
payment for partial hospitalization services, including the proposed 
separate threshold for outlier payments for CMHCs. We also set forth 
our proposals to implement the new requirements for CMHCs established 
by section 1301 of the Affordable Care Act.
10. Procedures That Would Be Paid Only as Inpatient Procedures
    In section XI. of the proposed rule, we discussed the procedures 
that we proposed to remove from the inpatient list and assign to APCs 
for payment under the OPPS.
11. OPPS Nonrecurring Technical and Policy Changes and Clarifications
    In section XII. of the proposed rule, we discussed nonrecurring 
technical issues and proposed policy changes relating to physician 
supervision of OPD services in hospitals, including CAHs. We also 
proposed to implement the provisions of sections 4103 and 4104 of the 
Affordable Care Act relating to payment for preventive services, 
including personalized prevention plan services, and the waiver of 
beneficiary coinsurance and deductibles.
12. OPPS Payment Status and Comment Indicators
    In section XIII. of the proposed rule, we discussed our proposed 
changes to the definitions of status indicators assigned to APCs and 
present our proposed comment indicators.
13. OPPS Policy and Payment Recommendations
    In section XIV. of the proposed rule, we addressed recommendations 
made by the Medicare Payment Advisory Commission (MedPAC) in its March 
2010 report to Congress, by the Office of Inspector General (OIG), and 
by the APC Panel regarding the OPPS for CY 2011.
14. Updates to the Ambulatory Surgical Center (ASC) Payment System
    In section XV. of the proposed rule, we discussed the proposed 
updates of the revised ASC payment system and payment rates for CY 
2011.
15. Reporting Quality Data for Annual Payment Rate Updates
    In section XVI. of the proposed rule, we discussed the proposed 
quality measures for reporting hospital outpatient (HOP) quality data 
for the annual payment update factor for CY 2012 and subsequent 
calendar years; set forth the requirements for data collection and 
submission for the annual payment update; and discussed the reduction 
in the OPPS payment for hospitals that fail to meet the HOP Quality 
Data Reporting Program (QDRP) requirements for CY 2011.
16. Payments to Hospitals for Direct GME and IME Costs
    In section XVII. of the proposed rule, we discussed our proposed 
implementation of the provisions of section 5503, 5504, 5505, and 5506 
of the Affordable Care Act relating to redistribution of FTE resident 
slots of closed hospitals and policy changes for the counting of FTE 
residents in determining payments to hospitals for direct GME and IME 
costs.
17. Physician Self-Referrals to Hospitals
    In section XVIII. of the proposed rule, we discussed our proposal 
to implement the changes made by section 6001 of the Affordable Care 
Act relating to the rules governing the prohibition on referrals to a 
hospital by a physician who has an ownership or investment interest in 
the hospital.
18. Regulatory Impact Analysis
    In section XXII. of the proposed rule, we set forth an analysis of 
the impact that the proposed changes would have on affected entities 
and beneficiaries.

G. Public Comments Received in Response to the CY 2011 OPPS/ASC 
Proposed Rule

    We received approximately 774 timely pieces of correspondence 
containing multiple comments on the CY 2011 OPPS/ASC proposed rule that 
appeared in the Federal Register on August 3, 2010. We note that we 
received some public comments that were outside the scope of the CY 
2011 OPPS/ASC proposed rule. These public comments are not addressed in 
this CY 2011 OPPS/ASC final rule with comment period. Summaries of the 
public comments that are within the scope of the proposals and our 
responses to those public comments are set forth in the various 
sections of this final rule with comment period under the appropriate 
headings.

H. Public Comments Received on the November 20, 2009 OPPS/ASC Final 
Rule With Comment Period

    We received approximately 18 timely pieces of correspondence on the 
CY 2010 OPPS/ASC final rule with comment period that appeared in the 
Federal Register on November 20, 2009 (74 FR 60316), some of which 
contained multiple comments on the interim APC assignments and/or 
status indicators of HCPCS codes identified with comment indicator 
``NI'' in Addendum B to that final rule with comment period. Summaries 
of those public comments on topics open to comment in the CY 2010 OPPS/
ASC final rule with comment period and our responses to them are set 
forth in the various sections of this final rule with comment period 
under the appropriate headings.

I. Interim Final Rule on Certified Registered Nurse Anesthetist (CRNA) 
Services Furnished in Rural Hospitals and Critical Access Hospitals

    Under section XXIII. of this document, we set forth an interim 
final rule with comment period that changes the effective date for 
otherwise eligible hospitals and CAHs that have been reclassified from 
urban to rural status under section 1886(d)(8)(E) of the Act and 42 CFR 
412.103 to receive reasonable cost payments for anesthesia services and 
related care furnished by

[[Page 71811]]

nonphysician anesthetists, from cost reporting periods beginning on or 
after October 1, 2010, to December 2, 2010.

II. Updates Affecting OPPS Payments

A. Recalibration of APC Relative Weights

1. Database Construction
a. Database Source and Methodology
    Section 1833(t)(9)(A) of the Act requires that the Secretary review 
and revise the relative payment weights for APCs at least annually. In 
the April 7, 2000 OPPS final rule with comment period (65 FR 18482), we 
explained in detail how we calculated the relative payment weights that 
were implemented on August 1, 2000 for each APC group.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46179), we proposed to 
use for CY 2011 the same basic methodology that we described in the 
November 20, 2009 OPPS final rule with comment period to recalibrate 
the APC relative payment weights for services furnished on or after 
January 1, 2011, and before January 1, 2012 (CY 2011). That is, we 
proposed to recalibrate the relative payment weights for each APC based 
on claims and cost report data for hospital outpatient department 
(HOPD) services. We proposed to use the most recent available data to 
construct the database for calculating APC group weights. Therefore, 
for the purpose of recalibrating the proposed APC relative payment 
weights for CY 2011, we used approximately 133 million final action 
claims for hospital outpatient department services furnished on or 
after January 1, 2009, and before January 1, 2010. For this final rule 
with comment period, for the purpose of recalibrating the final APC 
relative payment weights for CY 2011, we used approximately 145 million 
final action claims for hospital outpatient department services 
furnished on or after January 1, 2009, and before January 1, 2010, 
based on more recent updated data. (For exact counts of claims used, we 
refer readers to the claims accounting narrative under supporting 
documentation for the proposed rule and this final rule with comment 
period on the CMS Web site at: http://www.cms.gov/
HospitalOutpatientPPS/HORD/.)
    Of the 145 million final action claims for services provided in 
hospital outpatient settings used to calculate the CY 2011 OPPS payment 
rates for this final rule with comment period, approximately 109 
million claims were the type of bill potentially appropriate for use in 
setting rates for OPPS services (but did not necessarily contain 
services payable under the OPPS). Of the 109 million claims, 
approximately 4 million claims were not for services paid under the 
OPPS or were excluded as not appropriate for use (for example, 
erroneous cost-to-charge ratios (CCRs) or no HCPCS codes reported on 
the claim). From the remaining 105 million claims, we created 
approximately 103 million single records, of which approximately 71 
million were ``pseudo'' single or ``single session'' claims (created 
from 24 million multiple procedure claims using the process we discuss 
later in this section). Approximately 792,000 claims were trimmed out 
on cost or units in excess of +/-3 standard deviations from the 
geometric mean, yielding approximately 102 million single bills for 
median setting. As described in section II.A.2. of this final rule with 
comment period, our data development process is designed with the goal 
of using appropriate cost information in setting the APC relative 
weights. The bypass process is described in section II.A.1.b. of this 
final rule with comment period. This section discusses how we develop 
``pseudo'' single procedure claims (as defined below), with the 
intention of using more appropriate data from the available claims. In 
some cases, the bypass process allows us to use some portion of the 
submitted claim for cost estimation purposes, while the remaining 
information on the claim continues to be unusable. Consistent with the 
goal of using appropriate information in our data development process, 
we only use claims (or portions of each claim) that are appropriate for 
ratesetting purposes. Ultimately, we were able to use for CY 2011 
ratesetting some portion of approximately 95 percent of the CY 2009 
claims containing services payable under the OPPS.
    The final APC relative weights and payments for CY 2011 in Addenda 
A and B to this final rule with comment period were calculated using 
claims from CY 2009 that were processed before July 1, 2010, and 
continue to be based on the median hospital costs for services in the 
APC groups. We selected claims for services paid under the OPPS and 
matched these claims to the most recent cost report filed by the 
individual hospitals represented in our claims data. We continue to 
believe that it is appropriate to use the most current full calendar 
year claims data and the most recently submitted cost reports to 
calculate the median costs underpinning the APC relative payment 
weights and the CY 2011 payment rates.
b. Use of Single and Multiple Procedure Claims
    For CY 2011, in general, we proposed to continue to use single 
procedure claims to set the medians on which the APC relative payment 
weights would be based, with some exceptions as discussed below in this 
section. We generally use single procedure claims to set the median 
costs for APCs because we believe that the OPPS relative weights on 
which payment rates are based should be derived from the costs of 
furnishing one unit of one procedure and because, in many 
circumstances, we are unable to ensure that packaged costs can be 
appropriately allocated across multiple procedures performed on the 
same date of service.
    We agree that, optimally, it is desirable to use the data from as 
many claims as possible to recalibrate the APC relative payment 
weights, including those claims for multiple procedures. As we have for 
several years, we continued to use date of service stratification and a 
list of codes to be bypassed to convert multiple procedure claims to 
``pseudo'' single procedure claims. Through bypassing specified codes 
that we believe do not have significant packaged costs, we were able to 
use more data from multiple procedure claims. In many cases, this 
enabled us to create multiple ``pseudo'' single procedure claims from 
claims that were submitted as multiple procedure claims spanning 
multiple dates of service, or claims that contained numerous separately 
paid procedures reported on the same date on one claim. We refer to 
these newly created single procedure claims as ``pseudo'' single 
procedure claims. The history of our use of a bypass list to generate 
``pseudo'' single procedure claims is well documented, most recently in 
the CY 2010 OPPS/ASC final rule with comment period (74 FR 60324 
through 60342). In addition, for CY 2008, we increased packaging and 
created the first composite APCs. We have continued our packaging 
policies and the creation of composite APCs for CY 2009 and 2010, and 
we proposed to continue them for CY 2011. This also increased the 
number of bills that we were able to use for median calculation by 
enabling us to use claims that contained multiple major procedures that 
previously would not have been usable. Further, for CY 2009, we 
expanded the composite APC model to one additional clinical area, 
multiple imaging services (73 FR 68559 through 68569), which also 
increased the number of bills we were able to use to calculate APC 
median costs. We have continued the composite APCs for

[[Page 71812]]

multiple imaging services for CY 2010, and we proposed to continue to 
create them for CY 2011. We refer readers to section II.A.2.e. of the 
proposed rule and this final rule with comment period for discussion of 
the use of claims to establish median costs for composite APCs.
    We proposed to continue to apply these processes to enable us to 
use as much claims data as possible for ratesetting for the CY 2011 
OPPS. This methodology enabled us to create, for the proposed rule, 
approximately 64 million ``pseudo'' single procedure claims, including 
multiple imaging composite ``single session'' bills (we refer readers 
to section II.A.2.e.(5) of the proposed rule for further discussion), 
to add to the approximately 31 million ``natural'' single procedure 
claims. For the proposed rule, ``pseudo'' single procedure and ``single 
session'' procedure bills represented approximately 67 percent of all 
single procedure bills used to calculate median costs.
    For CY 2011, we proposed to bypass 448 HCPCS codes for CY 2011 that 
were identified in Table 1 of the proposed rule. Since the inception of 
the bypass list, which is the list of codes to be bypassed to convert 
multiple procedure claims to ``pseudo'' single procedure claims, we 
have calculated the percent of ``natural'' single bills that contained 
packaging for each HCPCS code and the amount of packaging on each 
``natural'' single bill for each code. Each year, we generally retain 
the codes on the previous year's bypass list and use the update year's 
data (for CY 2011, data available for the February 2010 APC Panel 
meeting from CY 2009 claims processed through September 30, 2009, and 
CY 2008 claims data processed through June 30, 2009, used to model the 
payment rates for CY 2010) to determine whether it would be appropriate 
to propose to add additional codes to the previous year's bypass list. 
For CY 2011, we proposed to continue to bypass all of the HCPCS codes 
on the CY 2010 OPPS bypass list. We updated HCPCS codes on the CY 2010 
bypass list that were mapped to new HCPCS codes for CY 2011 ratesetting 
by adding the new replacement codes and also removing the deleted 
codes, which were listed in Table 2 of the proposed rule. None of these 
deleted codes were ``overlap bypass codes'' (those HCPCS codes that are 
both on the bypass list and are members of the multiple imaging 
composite APCs). We also proposed to add to the bypass list for CY 2011 
all HCPCS codes not on the CY 2010 bypass list that, using both CY 2010 
final rule data (CY 2008 claims) and February 2010 APC Panel data 
(first 9 months of CY 2009 claims), met the same previously established 
empirical criteria for the bypass list that are summarized below. The 
entire list proposed for CY 2011 (including the codes that remain on 
the bypass list from prior years) was open to public comment. Because 
we must make some assumptions about packaging in the multiple procedure 
claims in order to assess a HCPCS code for addition to the bypass list, 
we assumed that the representation of packaging on ``natural'' single 
procedure claims for any given code is comparable to packaging for that 
code in the multiple procedure claims. The proposed criteria for the 
bypass list were:
    <bullet> There are 100 or more ``natural'' single procedure claims 
for the code. This number of single procedure claims ensures that 
observed outcomes are sufficiently representative of packaging that 
might occur in the multiple claims.
    <bullet> Five percent or fewer of the ``natural'' single procedure 
claims for the code have packaged costs on that single procedure claim 
for the code. This criterion results in limiting the amount of 
packaging being redistributed to the separately payable procedures 
remaining on the claim after the bypass code is removed and ensures 
that the costs associated with the bypass code represent the cost of 
the bypassed service.
    <bullet> The median cost of packaging observed in the ``natural'' 
single procedure claims is equal to or less than $50. This criterion 
also limits the amount of error in redistributed costs. Throughout the 
bypass process, we do not know the dollar value of the packaged cost 
that should be appropriately attributed to the other procedures on the 
claim. Ensuring that redistributed costs associated with a bypass code 
are small in amount and volume protects the validity of cost estimates 
for low cost services billed with the bypassed service.
    In response to comments to the CY 2010 OPPS/ASC proposed rule 
requesting that the packaged cost threshold be updated, we noted that 
we would consider whether it would be appropriate to update the $50 
packaged cost threshold for inflation when examining potential bypass 
list additions (74 FR 60328). For the CY 2011 OPPS, based on CY 2009 
claims data, we proposed to apply the final market basket of 3.6 
percent published in the CY 2009 OPPS/ASC final rule with comment 
period (73 FR 26584) to the $50 packaged cost threshold used in the CY 
2010 OPPS/ASC final rule with comment period (74 FR 60325) that we 
initially established in the CY 2005 OPPS final rule based on our 
analysis of the data (69 FR 65731), rounded to the nearest $5 
increment. This calculation led us to a proposed packaged cost 
threshold for bypass list additions of $50 ($51.80 rounded to $50). We 
stated that we believe that applying the market basket from the year of 
claims data to the packaged cost threshold, rounded to the nearest $5 
increment, would appropriately account for the effects of inflation 
when considering additions to the bypass list because the market basket 
increase percentage reflects the extent to which the price of inputs 
for hospital services has increased compared to the price of inputs for 
hospital services in the prior year. As discussed in the CY 2010 OPPS/
ASC final rule with comment period (74 FR 60328), the real value of 
this packaged cost threshold criterion has declined due to inflation, 
making the packaged cost threshold more restrictive over time when 
considering additions to the bypass list. Therefore, adjusting the 
threshold by the market basket would prevent continuing decline in the 
threshold's real value. The dollar threshold would not change for CY 
2011 under this proposed policy, because when rounded to the nearest $5 
increment after adjustment for the market basket increase, the 
threshold would for CY 2011 remain at $50. Therefore, we did not 
propose to add any additional bypass codes for CY 2011 as a result of 
the proposed policy.
    <bullet> The code is not a code for an unlisted service.
    In addition, we proposed to continue to include, on the bypass 
list, HCPCS codes that CMS medical advisors believe have minimal 
associated packaging based on their clinical assessment of the complete 
CY 2011 OPPS proposal. Some of these codes were identified by CMS 
medical advisors and some were identified in prior years by commenters 
with specialized knowledge of the packaging associated with specific 
services. We also proposed to continue to include on the bypass list 
certain HCPCS codes in order to purposefully direct the assignment of 
packaged costs to a companion code where services always appear 
together and where there would otherwise be few single procedure claims 
available for ratesetting. For example, we have previously discussed 
our reasoning for adding HCPCS code G0390 (Trauma response team 
associated with hospital critical care service) and the CPT codes for 
additional hours of drug administration to the bypass list (73 FR 68513 
and 71 FR 68117 through 68118).

[[Page 71813]]

    As a result of the multiple imaging composite APCs that we 
established in CY 2009, the program logic for creating ``pseudo'' 
single procedure claims from bypassed codes that are also members of 
multiple imaging composite APCs changed. When creating the set of 
``pseudo'' single procedure claims, claims that contain ``overlap 
bypass codes'' (those HCPCS codes that are both on the bypass list and 
are members of the multiple imaging composite APCs), were identified 
first. These HCPCS codes were then processed to create multiple imaging 
composite ``single session'' bills, that is, claims containing HCPCS 
codes from only one imaging family, thus suppressing the initial use of 
these codes as bypass codes. However, these ``overlap bypass codes'' 
were retained on the bypass list because, at the end of the ``pseudo'' 
single processing logic, we reassessed the claims without suppression 
of the ``overlap bypass codes'' under our longstanding ``pseudo'' 
single process to determine whether we could convert additional claims 
to ``pseudo'' single procedure claims. (We refer readers to section 
II.A.2.b. of the proposed rule and this final rule with comment period 
for further discussion of the treatment of ``overlap bypass codes.'') 
This process also created multiple imaging composite ``single session'' 
bills that could be used for calculating composite APC median costs. 
``Overlap bypass codes'' that are members of the proposed multiple 
imaging composite APCs were identified by asterisks (*) in Table 1 of 
the proposed rule.
    Table 1 published in the CY 2011 OPPS/ASC proposed rule includes 
the proposed list of bypass codes for CY 2011. As noted in that 
proposed rule (75 FR 46181), the list of bypass codes contained codes 
that were reported on claims for services in CY 2009 and, therefore, 
included codes that were in effect in 2009 and used for billing but 
were deleted for CY 2010. We retained these deleted bypass codes on the 
proposed CY 2011 bypass list because these codes existed in CY 2009 and 
were covered OPD services in that period. Since these bypass codes were 
deleted for billing in CY 2010, we did not need to retain them for the 
CY 2010 bypass list. Keeping these deleted bypass codes on the bypass 
list potentially allowed us to create more ``pseudo'' single procedure 
claims for ratesetting purposes. ``Overlap bypass codes'' that were 
members of the proposed multiple imaging composite APCs were identified 
by asterisks (*) in the third column of Table 1 of the proposed rule. 
HCPCS codes that we proposed to add for CY 2011 also were identified by 
asterisks (*) in the fourth column of Table 1 of the proposed rule. 
Table 2 of the proposed rule contained the list of codes that we 
proposed to remove from the CY 2011 bypass list because they were 
deleted from the HCPCS before CY 2009. None of these proposed deleted 
codes were ``overlap bypass'' codes.
    Comment: Several commenters expressed support for the ratesetting 
methodology using single and ``pseudo'' single claims and recommended 
that CMS continue to explore additional methodologies to increase the 
number of multiple procedure claims used for ratesetting, including 
expanding the empirical criteria for inclusion on the bypass list. One 
commenter recommended that CMS examine the bypass list on an annual 
basis to ensure that the Agency is utilizing as many claims as possible 
for ratesetting. One commenter supported the proposal to maintain the 
current radiation oncology procedure codes on the CY 2011 bypass list.
    Response: We appreciate the commenters' support. We expect to 
continue to use our established methodologies and to evaluate 
additional refinements and improvements to our methodologies, with the 
goal of achieving appropriate and accurate estimates of the costs of 
services in the HOPD. We examine the bypass list on an annual basis to 
ensure that we are using as much information as is available through 
our claims data.
    Comment: One commenter requested that CMS explore alternative 
methodologies to capture more multiple procedure claims used for future 
rate setting of composite APC 8001 (LDR Prostate Brachytherapy 
Composite), noting that a number of multiple procedure claims were not 
used to model the composite due to containing other payable radiation 
therapy codes.
    Response: As described above, one of the challenges in estimating 
costs for individual items and services is in how to address the 
allocation of packaged costs in multiple procedure claims. While we 
continue to apply the empirical criteria and examine CMS medical 
advisor and public commenter recommendations in determining additions 
to the bypass list, we must ensure that the bypass process itself does 
not improperly allocate packaged costs. We will continue to explore 
methods through which we might obtain more information from our 
existing set of claims data.
    Comment: Several commenters recommended that CPT codes 93306 
(Echocardiography, transthoracic, real-time with image documentation 
(2D), includes M-mode recording, when performed, complete, with 
spectral Doppler echocardiography, and with color flow Doppler 
echocardiography) and 93307 (Echocardiography, transthoracic, real-time 
with image documentation (2D), includes M-mode recording, when 
performed, complete, without spectral or color Doppler 
echocardiography) be removed from the bypass list. The commenters 
believed that adding those codes to the bypass list would not 
appropriately capture costs associated with providing the services. 
Moreover, they believed that these codes do not meet the criteria for 
the bypass list. The commenters suggested that hospitals were 
continuing to bill CPT 93307 in conjunction with CPT codes 93320 
(Doppler echocardiography, pulsed wave and/or continuous wave with 
spectral display (List separately in addition to codes for 
echocardiographic imaging); complete) and 93325 (Doppler 
echocardiography color flow velocity mapping (List separately in 
addition to codes for echocardiography) rather than using new CY 2009 
CPT code 93306 because they were still adjusting to billing with CPT 
code 93306. They noted that because CPT code 93307 was a proposed 
addition to the bypass list, the code would not include the packaged 
costs of CPT codes 93320 and 93325. The commenters also noted that CPT 
code 93307 did not appear to meet the empirical criteria in the 
proposed rule claims data. They suggested that, if CMS did not remove 
CPT code 93307 from the CY 2011 bypass list, claims with combinations 
of CPT codes 93307, 93320, and 93325 be reconstructed as CPT code 93306 
and that the simulated claims be used, together with the claims for CPT 
code 99306, to set the median costs for CPT code 99306. A few 
commenters suggested that assigning CPT code 93307 to the same APC as 
CPT code 93306 was inappropriate because that reassignment was based on 
the addition of both codes to the bypass list. The commenters also 
identified APC 0269 (Level II Echocardiogram Without Contrast) as 
having a 2 times rule violation because, they stated, the median cost 
of the code with the highest median cost in the APC is more than twice 
that of the code with the lowest median cost. The application of the 2 
times rule is discussed in section III.B.2. of this final rule with 
comment period. Thus, the commenters recommended that CMS review the 
coding issues associated with the creation of those codes to ensure 
that they are not unduly

[[Page 71814]]

influencing the respective APC payment rates.
    Response: We note that, in the CY 2011 OPPS/ASC proposed rule (75 
FR 46180), we described our process for identifying additions to the 
bypass code list by determining codes that, ``using both CY 2010 final 
rule data (CY 2008 claims) and February 2010 APC Panel data (first 9 
months of CY 2009 claims), met the same previously established 
empirical criteria for the bypass list.'' However, we wish to clarify 
that proposed additions to the bypass list were identified by applying 
the empirical criteria to both sets of data individually. Thus, a code 
that met the empirical criteria in either of the two sets of claims 
data would be eligible for addition to the proposed bypass list.
    In proposing to add CPT code 93307 to the CY 2011 bypass list, we 
had examined the single major claims using CY 2010 final rule data, 
after performing the process described in the CY 2010 OPPS/ASC final 
rule with comment period to simulate billing for CPT code 93306 (74 FR 
60374 through 60376). That is, after we removed the claims that we used 
to simulate the code configuration for CPT code 93306, we assessed only 
the remaining claims for CPT code 93307 for the bypass list. When we 
applied the bypass criteria to these residual final rule claims for CPT 
code 93307, CPT code 93307 met the empirical criteria and we added it 
to the proposed rule bypass list. However, when we assessed CPT code 
93307 against the CY 2009 claims in the APC Panel data, it did not meet 
the criteria and, similarly, it does not meet the criteria when 
assessed against the proposed rule data. Therefore we are accepting the 
comment, and for the CY 2011 OPPS final rule, we are removing CPT code 
93307 from the CY 2011 bypass list. However, we are not creating 
simulated claims for CPT code 93306 from the claims that report these 
services using CPT codes 93307, 93320, and 93325 in place of reporting 
CPT code 93306. We have approximately 765,000 single bills for CPT code 
93306, and we see no reason to create simulated median costs for 
services for which we have adequate cost data from correctly coded 
claims. We note that, although miscoded claims for CPT code 93306 (that 
is, CPT code 93307 plus CPT code 93320 plus CPT code 93325) appeared in 
the data, only CPT code 93307 was paid on these claims because we 
implemented NCCI edits on January 1, 2009, that stopped CPT codes 93320 
and 93325 from being paid if reported with CPT code 93307. Hospitals 
that reported the service using the three codes instead of reporting 
CPT code 93306 received payments based on the CY 2009 national 
unadjusted payment rate of $255.05 for CPT code 93307 rather than a 
payment based on a national unadjusted payment rate of $431.37 that 
they would have received if they had reported the correct code for the 
service.
    Regarding the issue of reassignment of CPT code 93307 from APC 0697 
(Level I Echocardiogram Without Contrast) to APC 0269, after removing 
CPT code 93306 from the bypass list, the calculated median cost for CPT 
code 93306 based on final rule data was approximately $399. The 
calculated median cost of approximately $399 for CPT code 93306 
suggests that the costs of these two procedures are similar. CPT codes 
93306 and 93307 would thus meet the APC recalibration standards of 
clinical and resource homogeneity. Thus, we are finalizing our proposal 
to assign CPT code 93307 to APC 0269.
    As we discussed in the CY 2010 OPPS/ASC final rule with comment 
period (74 FR 60436), in the determination of APCs that violate the 2 
times rule, we apply the 2 times rule to HCPCS codes that are 
determined to be significant, either based on having a frequency of 
more than 1,000 single major claims or having both more than 99 single 
major claims and contributing more than 2 percent of the claims used to 
determine the APC median cost. Codes that do not meet these criteria as 
``significant procedures'' are not used to determine if there is a 2 
times rule violation in an APC. The 2 times rule is discussed in 
section III.B. of this final rule with comment period.
    Comment: One commenter requested that the proposed application of 
market basket update to the median cost of packaging threshold for the 
bypass criteria be applied retroactively beginning from CY 2005, when 
the $50 median packaged cost threshold criterion was first applied.
    Response: In the CY 2011 OPPS/ASC proposed rule, we proposed to 
apply the final market basket update for CY 2009, since it is the most 
appropriate representation of changes for hospital input prices for CY 
2009 and, therefore, most applicable to CY 2009 claims data used to set 
the CY 2011 OPPS payment rates, to the median packaged cost threshold 
of $50 established in the CY 2010 OPPS/ASC final rule with comment 
period (75 FR 46181). We believe that this would ensure that the 
packaged cost threshold would accurately reflect changes in costs from 
the prior year. However, we proposed that this market basket adjustment 
to the packaged cost criterion would apply prospectively. The $50 
threshold has historically been an appropriate measure for limiting the 
impact of redistributing the packaged costs on the multiple procedure 
claims. We established a criterion of a maximum median amount of 
packaging of $50 as a means of ensuring that the typical packaging for 
the service being placed on the bypass list is minimal in amount. With 
respect to the comment that we apply a market basket update to the 
median cost of the packaging threshold for the bypass criteria 
retroactively to CY 2005, we note that, in general, we update our 
payment rates on a prospective basis and, as explained above, we 
believe that our proposed and final policy adequately and appropriately 
accounts for the effects of inflation over time.
    Therefore, for the CY 2011 OPPS, we are applying the final CY 2009 
market basket update (which is 3.6 percent) to the $50 median packaged 
cost criterion and rounding the result ($51.80) to the neared $5 
increment. Thus, for this CY 2011 OPPS/ASC final rule with comment 
period, the median cost of packaging criterion for the CY 2011 OPPS 
bypass list remains at $50.
    Comment: One commenter requested that CPT codes 77310 (Teletherapy, 
isodose plan (whether hand or computer calculated); intermediate (3 or 
more treatment ports directed to a single area of interest)) and 77789 
(Surface application of radiation source) be added to the bypass list 
because they believed that these codes meet the bypass criteria. The 
commenter also suggested that there was a lack of transparency in how 
the criteria were applied, and that when codes were not added that met 
the empirical criteria the reasons for doing so should be explained.
    Response: Both CPT codes 77310 and 77789 failed to meet the 
empirical criterion for addition to the bypass list of having 100 or 
more ``natural'' single procedure claims in both the APC Panel data and 
the proposed rule data. Specifically, CPT code 77310 had 0 natural 
single bills in the CY 2010 final rule data and 2 natural single bills 
in the CY 2011 APC Panel data; CPT code 77789 had 30 natural single 
bills in the CY 2010 final rule data and 13 natural single bills in the 
CY 2011 APC Panel data. As described above, this criterion ensures that 
we have an adequate base of claims billed for each code so that we can 
bypass lines with the bypass code from the multiple procedure claims. 
In addition to failing the number of ``natural'' single procedure 
claims criterion, CPT code 77789 failed to meet the percentage of 
single claims with packaged costs criterion (no more than

[[Page 71815]]

5 percent of ``natural'' single procedure claims can have any 
packaging) because packaged cost appeared on 6.7 percent of the code's 
``natural'' single major claims in the CY 2010 final rule data and 38.5 
percent of the code's ``natural'' single major claims in the CY 2011 
APC Panel data. We are not aware of any codes that met the empirical 
criteria for addition to the bypass list that are not included on the 
bypass list.
    However, in the course of our review of the comment, we realized 
that CPT code 77315 (Teletherapy; isodose plan (whether hand or 
computer calculated); complex (mantle or inverted Y, tangential ports, 
the use of wedges, compensators, complex blocking, rotational beam, or 
special beam considerations)) meets the empirical criteria and is on 
the bypass list and that two other CPT codes that are very similar were 
not on any of the previous bypass code lists. There are three CPT codes 
for teletherapy, isodose plan, for which CPT code 77315 reports the 
complex level of service. CPT code 77310, which the commenters 
requested be added to the bypass list, reports the intermediate level 
of the service and CPT code 77305 (Teletherapy, isodose plan (whether 
hand or computer calculated); simple (1 or 2 parallel opposed 
unmodified ports directed to a single area of interest)) reports the 
simple level of the service. However, neither CPT codes 77305 (simple) 
nor CPT code 77310 (intermediate) were on any of the previous bypass 
code lists, notwithstanding that CPT code 77315 meets the empirical 
criteria and is on the bypass list. Agency clinicians believe that the 
packaging for CPT codes 77305 and 77310 would be less than for CPT code 
77315, because CPT code 77315 represents the most complex level of the 
service. Moreover, while the ``natural'' single major claims for CPT 
codes 77305 (9 claims) and 77310 (6 claims) did not meet the 
``natural'' single major claims criteria of a minimum of 100 claims 
each in the CY 2011 proposed rule data, they met all other criteria for 
addition to the bypass list. After consultation with our CMS clinical 
advisors, we believe that because of the nature of the services and the 
fact that both codes meet all criteria for the bypass list other than 
the minimum number of single bills, it is appropriate to add them to 
the bypass list. We note that, in prior years, we have added low volume 
services to the bypass list that are similar to requested additions, 
such as CPT codes for hyperthermia added to the CY 2010 bypass list in 
the CY 2010 OPPS/ASC final rule with comment period (74 FR 60329). 
Thus, for this CY 2011 OPPS/ASC final rule with comment period, we are 
adding CPT codes 77305 and 77310 to the bypass list.
    However, CPT code 77789 failed to meet both the ``natural'' single 
major claims criterion of 100 natural single procedure claims and 
greatly exceeded the maximum percentage of single claims with packaging 
criteria. Specifically, there were only 30 natural single procedure 
claims and 38.5 percent of the ``natural'' single procedure claims for 
CPT code 77789 had packaging and thus failed, by a significant amount, 
the 5 percent maximum allowable percent of claims with packaging. 
Therefore, we are not adding the code to the CY 2011 bypass list.
    We believe that the empirical criteria described above are 
transparent and clear, and explain the purpose of each criterion in 
detail. Moreover we make available our claims data for the public's use 
in assessing the bypass criteria or any other purpose. We believe the 
extremely detailed comments we receive on our proposals, such as the 
comments we received on CPT codes 93306 and 93307, demonstrate that the 
information we make public is fully sufficient for purposes of 
analyzing our proposed bypass list. In addition, we have a longstanding 
practice of adding or removing codes to or from the bypass list through 
analysis other than application of the empirical criteria. When we do 
this, we explain our rationale for adding or removing those codes from 
the bypass list, as we did with the addition of codes for additional 
hours of drug administration (71 FR 68117 through 68118), which did not 
meet the empirical criteria but which were added because otherwise we 
would have had very few claims on which to base the median costs of 
both initial and additional drug administration services.
    We always appreciate the empirical information that commenters 
submit regarding their suggested additions to the bypass list. However, 
we note that, due to the redistributive properties of the bypass list 
and our process for creating ``pseudo'' single procedure claims, we 
carefully consider the redistributive impact of additions to the bypass 
list on all HCPCS code and APC median costs. Future recommendations 
from the public for additions to the bypass list should consider the 
global changes to the bypass list in order to facilitate our evaluation 
of codes suggested for inclusion on the bypass list in the future.
    After consideration of the public comments we received, we are 
adopting as final the proposed ``pseudo'' single claims process and the 
final CY 2011 bypass list of 449 HCPCS codes, as displayed in Tables 1 
and 2 below. The list has been modified from the CY 2011 proposed list, 
with the removal of CPT code 93307 from the CY 2011 bypass list and the 
addition of CPT codes 77305 and 77310, as discussed above in this 
section.

Table 1--Final CY 2009 Bypass Codes for Creating ``Pseudo'' Single Procedure Claims for Calculating Median Costs
                                                for CY 2011 OPPS
----------------------------------------------------------------------------------------------------------------
                                                                                     ``Overlap
              CY 2009 HCPCS code                    CY 2009 Short descriptor      bypass codes''     Additions
----------------------------------------------------------------------------------------------------------------
11056.........................................  Trim skin lesions, 2 to 4.......  ..............  ..............
11057.........................................  Trim skin lesions, over 4.......  ..............  ..............
11300.........................................  Shave skin lesion...............  ..............  ..............
11301.........................................  Shave skin lesion...............  ..............  ..............
11719.........................................  Trim nail(s)....................  ..............  ..............
11720.........................................  Debride nail, 1-5...............  ..............  ..............
11721.........................................  Debride nail, 6 or more.........  ..............  ..............
11954.........................................  Therapy for contour defects.....  ..............  ..............
17000.........................................  Destruct premalg lesion.........  ..............  ..............
17003.........................................  Destruct premalg les, 2-14......  ..............  ..............
23600.........................................  Treat humerus fracture..........  ..............               *
29220.........................................  Strapping of low back...........  ..............  ..............
29530.........................................  Strapping of knee...............  ..............               *
31231.........................................  Nasal endoscopy, dx.............  ..............  ..............

[[Page 71816]]

 
31579.........................................  Diagnostic laryngoscopy.........  ..............  ..............
51798.........................................  Us urine capacity measure.......  ..............  ..............
53661.........................................  Dilation of urethra.............  ..............  ..............
54240.........................................  Penis study.....................  ..............  ..............
56820.........................................  Exam of vulva w/scope...........  ..............  ..............
57150.........................................  Treat vagina infection..........  ..............  ..............
57452.........................................  Exam of cervix w/scope..........  ..............               *
57454.........................................  Bx/curett of cervix w/scope.....  ..............               *
67820.........................................  Revise eyelashes................  ..............  ..............
69210.........................................  Remove impacted ear wax.........  ..............  ..............
69220.........................................  Clean out mastoid cavity........  ..............  ..............
70030.........................................  X-ray eye for foreign body......  ..............  ..............
70100.........................................  X-ray exam of jaw...............  ..............  ..............
70110.........................................  X-ray exam of jaw...............  ..............  ..............
70120.........................................  X-ray exam of mastoids..........  ..............  ..............
70130.........................................  X-ray exam of mastoids..........  ..............  ..............
70140.........................................  X-ray exam of facial bones......  ..............  ..............
70150.........................................  X-ray exam of facial bones......  ..............  ..............
70160.........................................  X-ray exam of nasal bones.......  ..............  ..............
70200.........................................  X-ray exam of eye sockets.......  ..............  ..............
70210.........................................  X-ray exam of sinuses...........  ..............  ..............
70220.........................................  X-ray exam of sinuses...........  ..............  ..............
70240.........................................  X-ray exam, pituitary saddle....  ..............               *
70250.........................................  X-ray exam of skull.............  ..............  ..............
70260.........................................  X-ray exam of skull.............  ..............  ..............
70320.........................................  Full mouth x-ray of teeth.......  ..............               *
70328.........................................  X-ray exam of jaw joint.........  ..............  ..............
70330.........................................  X-ray exam of jaw joints........  ..............  ..............
70336.........................................  Magnetic image, jaw joint.......               *  ..............
70355.........................................  Panoramic x-ray of jaws.........  ..............  ..............
70360.........................................  X-ray exam of neck..............  ..............  ..............
70370.........................................  Throat x-ray & fluoroscopy......  ..............  ..............
70371.........................................  Speech evaluation, complex......  ..............  ..............
70450.........................................  Ct head/brain w/o dye...........               *  ..............
70480.........................................  Ct orbit/ear/fossa w/o dye......               *  ..............
70486.........................................  Ct maxillofacial w/o dye........               *  ..............
70490.........................................  Ct soft tissue neck w/o dye.....               *  ..............
70544.........................................  Mr angiography head w/o dye.....               *  ..............
70547.........................................  Mr angiography neck w/o dye.....               *               *
70551.........................................  Mri brain w/o dye...............               *  ..............
71010.........................................  Chest x-ray.....................  ..............  ..............
71015.........................................  Chest x-ray.....................  ..............  ..............
71020.........................................  Chest x-ray.....................  ..............  ..............
71021.........................................  Chest x-ray.....................  ..............  ..............
71022.........................................  Chest x-ray.....................  ..............  ..............
71023.........................................  Chest x-ray and fluoroscopy.....  ..............  ..............
71030.........................................  Chest x-ray.....................  ..............  ..............
71034.........................................  Chest x-ray and fluoroscopy.....  ..............  ..............
71035.........................................  Chest x-ray.....................  ..............  ..............
71100.........................................  X-ray exam of ribs..............  ..............  ..............
71101.........................................  X-ray exam of ribs/chest........  ..............  ..............
71110.........................................  X-ray exam of ribs..............  ..............  ..............
71111.........................................  X-ray exam of ribs/chest........  ..............  ..............
71120.........................................  X-ray exam of breastbone........  ..............  ..............
71130.........................................  X-ray exam of breastbone........  ..............  ..............
71250.........................................  Ct thorax w/o dye...............               *  ..............
72010.........................................  X-ray exam of spine.............  ..............  ..............
72020.........................................  X-ray exam of spine.............  ..............  ..............
72040.........................................  X-ray exam of neck spine........  ..............  ..............
72050.........................................  X-ray exam of neck spine........  ..............  ..............
72052.........................................  X-ray exam of neck spine........  ..............  ..............
72069.........................................  X-ray exam of trunk spine.......  ..............  ..............
72070.........................................  X-ray exam of thoracic spine....  ..............  ..............
72072.........................................  X-ray exam of thoracic spine....  ..............  ..............
72074.........................................  X-ray exam of thoracic spine....  ..............  ..............
72080.........................................  X-ray exam of trunk spine.......  ..............  ..............
72090.........................................  X-ray exam of trunk spine.......  ..............  ..............
72100.........................................  X-ray exam of lower spine.......  ..............  ..............
72110.........................................  X-ray exam of lower spine.......  ..............  ..............
72114.........................................  X-ray exam of lower spine.......  ..............  ..............

[[Page 71817]]

 
72120.........................................  X-ray exam of lower spine.......  ..............  ..............
72125.........................................  Ct neck spine w/o dye...........               *  ..............
72128.........................................  Ct chest spine w/o dye..........               *  ..............
72131.........................................  Ct lumbar spine w/o dye.........               *  ..............
72141.........................................  Mri neck spine w/o dye..........               *  ..............
72146.........................................  Mri chest spine w/o dye.........               *  ..............
72148.........................................  Mri lumbar spine w/o dye........               *  ..............
72170.........................................  X-ray exam of pelvis............  ..............  ..............
72190.........................................  X-ray exam of pelvis............  ..............  ..............
72192.........................................  Ct pelvis w/o dye...............               *  ..............
72202.........................................  X-ray exam sacroiliac joints....  ..............  ..............
72220.........................................  X-ray exam of tailbone..........  ..............  ..............
73000.........................................  X-ray exam of collar bone.......  ..............  ..............
73010.........................................  X-ray exam of shoulder blade....  ..............  ..............
73020.........................................  X-ray exam of shoulder..........  ..............  ..............
73030.........................................  X-ray exam of shoulder..........  ..............  ..............
73050.........................................  X-ray exam of shoulders.........  ..............  ..............
73060.........................................  X-ray exam of humerus...........  ..............  ..............
73070.........................................  X-ray exam of elbow.............  ..............  ..............
73080.........................................  X-ray exam of elbow.............  ..............  ..............
73090.........................................  X-ray exam of forearm...........  ..............  ..............
73100.........................................  X-ray exam of wrist.............  ..............  ..............
73110.........................................  X-ray exam of wrist.............  ..............  ..............
73120.........................................  X-ray exam of hand..............  ..............  ..............
73130.........................................  X-ray exam of hand..............  ..............  ..............
73140.........................................  X-ray exam of finger(s).........  ..............  ..............
73200.........................................  Ct upper extremity w/o dye......               *  ..............
73218.........................................  Mri upper extremity w/o dye.....               *  ..............
73221.........................................  Mri joint upr extrem w/o dye....               *  ..............
73510.........................................  X-ray exam of hip...............  ..............  ..............
73520.........................................  X-ray exam of hips..............  ..............  ..............
73540.........................................  X-ray exam of pelvis & hips.....  ..............  ..............
73550.........................................  X-ray exam of thigh.............  ..............  ..............
73560.........................................  X-ray exam of knee, 1 or 2......  ..............  ..............
73562.........................................  X-ray exam of knee, 3...........  ..............  ..............
73564.........................................  X-ray exam, knee, 4 or more.....  ..............  ..............
73565.........................................  X-ray exam of knees.............  ..............  ..............
73590.........................................  X-ray exam of lower leg.........  ..............  ..............
73600.........................................  X-ray exam of ankle.............  ..............  ..............
73610.........................................  X-ray exam of ankle.............  ..............  ..............
73620.........................................  X-ray exam of foot..............  ..............  ..............
73630.........................................  X-ray exam of foot..............  ..............  ..............
73650.........................................  X-ray exam of heel..............  ..............  ..............
73660.........................................  X-ray exam of toe(s)............  ..............  ..............
73700.........................................  Ct lower extremity w/o dye......               *  ..............
73718.........................................  Mri lower extremity w/o dye.....               *  ..............
73721.........................................  Mri jnt of lwr extre w/o dye....               *  ..............
74000.........................................  X-ray exam of abdomen...........  ..............  ..............
74010.........................................  X-ray exam of abdomen...........  ..............  ..............
74020.........................................  X-ray exam of abdomen...........  ..............  ..............
74022.........................................  X-ray exam series, abdomen......  ..............  ..............
74150.........................................  Ct abdomen w/o dye..............               *  ..............
74210.........................................  Contrst x-ray exam of throat....  ..............  ..............
74220.........................................  Contrast x-ray, esophagus.......  ..............  ..............
74230.........................................  Cine/vid x-ray, throat/esoph....  ..............  ..............
74246.........................................  Contrst x-ray uppr gi tract.....  ..............  ..............
74247.........................................  Contrst x-ray uppr gi tract.....  ..............  ..............
74249.........................................  Contrst x-ray uppr gi tract.....  ..............  ..............
76100.........................................  X-ray exam of body section......  ..............  ..............
76510.........................................  Ophth us, b & quant a...........  ..............  ..............
76511.........................................  Ophth us, quant a only..........  ..............  ..............
76512.........................................  Ophth us, b w/non-quant a.......  ..............  ..............
76513.........................................  Echo exam of eye, water bath....  ..............  ..............
76514.........................................  Echo exam of eye, thickness.....  ..............  ..............
76516.........................................  Echo exam of eye................  ..............  ..............
76519.........................................  Echo exam of eye................  ..............  ..............
76536.........................................  Us exam of head and neck........  ..............  ..............
76645.........................................  Us exam, breast(s)..............  ..............  ..............
76700.........................................  Us exam, abdom, complete........               *  ..............
76705.........................................  Echo exam of abdomen............               *  ..............

[[Page 71818]]

 
76770.........................................  Us exam abdo back wall, comp....               *  ..............
76775.........................................  Us exam abdo back wall, lim.....               *  ..............
76776.........................................  Us exam k transpl w/Doppler.....               *  ..............
76801.........................................  Ob us < 14 wks, single fetus....  ..............  ..............
76805.........................................  Ob us >/= 14 wks, sngl fetus....  ..............  ..............
76811.........................................  Ob us, detailed, sngl fetus.....  ..............  ..............
76816.........................................  Ob us, follow-up, per fetus.....  ..............  ..............
76817.........................................  Transvaginal us, obstetric......  ..............  ..............
76830.........................................  Transvaginal us, non-ob.........  ..............  ..............
76856.........................................  Us exam, pelvic, complete.......               *  ..............
76857.........................................  Us exam, pelvic, limited........               *  ..............
76870.........................................  Us exam, scrotum................               *  ..............
76880.........................................  Us exam, extremity..............  ..............  ..............
76970.........................................  Ultrasound exam follow-up.......  ..............  ..............
76977.........................................  Us bone density measure.........  ..............  ..............
77072.........................................  X-rays for bone age.............  ..............  ..............
77073.........................................  X-rays, bone length studies.....  ..............  ..............
77074.........................................  X-rays, bone survey, limited....  ..............  ..............
77075.........................................  X-rays, bone survey complete....  ..............  ..............
77076.........................................  X-rays, bone survey, infant.....  ..............  ..............
77077.........................................  Joint survey, single view.......  ..............  ..............
77078.........................................  Ct bone density, axial..........  ..............  ..............
77079.........................................  Ct bone density, peripheral.....  ..............  ..............
77080.........................................  Dxa bone density, axial.........  ..............  ..............
77081.........................................  Dxa bone density/peripheral.....  ..............  ..............
77082.........................................  Dxa bone density, vert fx.......  ..............  ..............
77083.........................................  Radiographic absorptiometry.....  ..............  ..............
77084.........................................  Magnetic image, bone marrow.....  ..............  ..............
77300.........................................  Radiation therapy dose plan.....  ..............  ..............
77301.........................................  Radiotherapy dose plan, imrt....  ..............  ..............
77305.........................................  Teletx isodose plan simple......  ..............  ..............
77310.........................................  Teletx isodose plan intermediate  ..............  ..............
77315.........................................  Teletx isodose plan complex.....  ..............  ..............
77327.........................................  Brachytx isodose calc interm....  ..............  ..............
77331.........................................  Special radiation dosimetry.....  ..............  ..............
77336.........................................  Radiation physics consult.......  ..............  ..............
77370.........................................  Radiation physics consult.......  ..............  ..............
77401.........................................  Radiation treatment delivery....  ..............  ..............
77600.........................................  Hyperthermia treatment..........  ..............  ..............
77605.........................................  Hyperthermia treatment..........  ..............  ..............
77610.........................................  Hyperthermia treatment..........  ..............  ..............
78350.........................................  Bone mineral, single photon.....  ..............               *
80500.........................................  Lab pathology consultation......  ..............  ..............
80502.........................................  Lab pathology consultation......  ..............  ..............
85097.........................................  Bone marrow interpretation......  ..............  ..............
86510.........................................  Histoplasmosis skin test........  ..............  ..............
86850.........................................  RBC antibody screen.............  ..............  ..............
86870.........................................  RBC antibody identification.....  ..............  ..............
86880.........................................  Coombs test, direct.............  ..............  ..............
86885.........................................  Coombs test, indirect, qual.....  ..............  ..............
86886.........................................  Coombs test, indirect, titer....  ..............  ..............
86890.........................................  Autologous blood process........  ..............  ..............
86900.........................................  Blood typing, ABO...............  ..............  ..............
86901.........................................  Blood typing, Rh (D)............  ..............  ..............
86903.........................................  Blood typing, antigen screen....  ..............  ..............
86904.........................................  Blood typing, patient serum.....  ..............  ..............
86905.........................................  Blood typing, RBC antigens......  ..............  ..............
86906.........................................  Blood typing, Rh phenotype......  ..............  ..............
86930.........................................  Frozen blood prep...............  ..............  ..............
86970.........................................  RBC pretreatment................  ..............  ..............
86977.........................................  RBC pretreatment, serum.........  ..............  ..............
88104.........................................  Cytopath fl nongyn, smears......  ..............  ..............
88106.........................................  Cytopath fl nongyn, filter......  ..............  ..............
88107.........................................  Cytopath fl nongyn, sm/fltr.....  ..............  ..............
88108.........................................  Cytopath, concentrate tech......  ..............  ..............
88112.........................................  Cytopath, cell enhance tech.....  ..............  ..............
88160.........................................  Cytopath smear, other source....  ..............  ..............
88161.........................................  Cytopath smear, other source....  ..............  ..............
88162.........................................  Cytopath smear, other source....  ..............  ..............
88172.........................................  Cytopathology eval of fna.......  ..............  ..............

[[Page 71819]]

 
88173.........................................  Cytopath eval, fna, report......  ..............  ..............
88182.........................................  Cell marker study...............  ..............  ..............
88184.........................................  Flowcytometry/tc, 1 marker......  ..............  ..............
88185.........................................  Flowcytometry/tc, add-on........  ..............  ..............
88300.........................................  Surgical path, gross............  ..............  ..............
88302.........................................  Tissue exam by pathologist......  ..............  ..............
88304.........................................  Tissue exam by pathologist......  ..............  ..............
88305.........................................  Tissue exam by pathologist......  ..............  ..............
88307.........................................  Tissue exam by pathologist......  ..............  ..............
88311.........................................  Decalcify tissue................  ..............  ..............
88312.........................................  Special stains group 1..........  ..............  ..............
88313.........................................  Special stains group 2..........  ..............  ..............
88314.........................................  Histochemical stain add-on......  ..............               *
88321.........................................  Microslide consultation.........  ..............  ..............
88323.........................................  Microslide consultation.........  ..............  ..............
88325.........................................  Comprehensive review of data....  ..............  ..............
88331.........................................  Path consult intraop, 1 bloc....  ..............  ..............
88342.........................................  Immunohistochemistry............  ..............  ..............
88346.........................................  Immunofluorescent study.........  ..............  ..............
88347.........................................  Immunofluorescent study.........  ..............  ..............
88348.........................................  Electron microscopy.............  ..............  ..............
88358.........................................  Analysis, tumor.................  ..............  ..............
88360.........................................  Tumor immunohistochem/manual....  ..............  ..............
88361.........................................  Tumor immunohistochem/comput....  ..............  ..............
88365.........................................  Insitu hybridization (fish).....  ..............  ..............
88368.........................................  Insitu hybridization, manual....  ..............  ..............
89049.........................................  Chct for mal hyperthermia.......  ..............  ..............
89230.........................................  Collect sweat for test..........  ..............  ..............
89240.........................................  Pathology lab procedure.........  ..............  ..............
90472.........................................  Immunization admin, each add....  ..............  ..............
90474.........................................  Immune admin oral/nasal addl....  ..............  ..............
90801.........................................  Psy dx interview................  ..............  ..............
90802.........................................  Intac psy dx interview..........  ..............  ..............
90804.........................................  Psytx, office, 20-30 min........  ..............  ..............
90805.........................................  Psytx, off, 20-30 min w/e&m.....  ..............  ..............
90806.........................................  Psytx, off, 45-50 min...........  ..............  ..............
90807.........................................  Psytx, off, 45-50 min w/e&m.....  ..............  ..............
90808.........................................  Psytx, office, 75-80 min........  ..............  ..............
90809.........................................  Psytx, off, 75-80 min, w/e&m....  ..............  ..............
90810.........................................  Intac psytx, off, 20-30 min.....  ..............  ..............
90811.........................................  Intac psytx, 20-30 min, w/e&m...  ..............  ..............
90812.........................................  Intac psytx, off, 45-50 min.....  ..............  ..............
90816.........................................  Psytx, hosp, 20-30 min..........  ..............  ..............
90818.........................................  Psytx, hosp, 45-50 min..........  ..............  ..............
90826.........................................  Intac psytx, hosp, 45-50 min....  ..............  ..............
90845.........................................  Psychoanalysis..................  ..............  ..............
90846.........................................  Family psytx w/o patient........  ..............  ..............
90847.........................................  Family psytx w/patient..........  ..............  ..............
90853.........................................  Group psychotherapy.............  ..............  ..............
90857.........................................  Intac group psytx...............  ..............  ..............
90862.........................................  Medication management...........  ..............  ..............
92002.........................................  Eye exam, new patient...........  ..............  ..............
92004.........................................  Eye exam, new patient...........  ..............  ..............
92012.........................................  Eye exam established pat........  ..............  ..............
92014.........................................  Eye exam & treatment............  ..............  ..............
92020.........................................  Special eye evaluation..........  ..............  ..............
92025.........................................  Corneal topography..............  ..............  ..............
92060.........................................  Special eye evaluation..........  ..............               *
92081.........................................  Visual field examination(s).....  ..............  ..............
92082.........................................  Visual field examination(s).....  ..............  ..............
92083.........................................  Visual field examination(s).....  ..............  ..............
92135.........................................  Ophth dx imaging post seg.......  ..............  ..............
92136.........................................  Ophthalmic biometry.............  ..............  ..............
92225.........................................  Special eye exam, initial.......  ..............  ..............
92226.........................................  Special eye exam, subsequent....  ..............  ..............
92230.........................................  Eye exam with photos............  ..............  ..............
92240.........................................  Icg angiography.................  ..............  ..............
92250.........................................  Eye exam with photos............  ..............  ..............
92275.........................................  Electroretinography.............  ..............  ..............
92285.........................................  Eye photography.................  ..............  ..............

[[Page 71820]]

 
92286.........................................  Internal eye photography........  ..............  ..............
92520.........................................  Laryngeal function studies......  ..............  ..............
92541.........................................  Spontaneous nystagmus test......  ..............  ..............
92542.........................................  Positional nystagmus test.......  ..............               *
92546.........................................  Sinusoidal rotational test......  ..............  ..............
92548.........................................  Posturography...................  ..............  ..............
92552.........................................  Pure tone audiometry, air.......  ..............  ..............
92553.........................................  Audiometry, air & bone..........  ..............  ..............
92555.........................................  Speech threshold audiometry.....  ..............  ..............
92556.........................................  Speech audiometry, complete.....  ..............  ..............
92557.........................................  Comprehensive hearing test......  ..............  ..............
92567.........................................  Tympanometry....................  ..............  ..............
92582.........................................  Conditioning play audiometry....  ..............  ..............
92585.........................................  Auditor evoke potent, compre....  ..............  ..............
92603.........................................  Cochlear implt f/up exam 7 >....  ..............  ..............
92604.........................................  Reprogram cochlear implt 7 >....  ..............  ..............
92626.........................................  Eval aud rehab status...........  ..............  ..............
93005.........................................  Electrocardiogram, tracing......  ..............  ..............
93017.........................................  Cardiovascular stress test......  ..............  ..............
93225.........................................  ECG monitor/record, 24 hrs......  ..............  ..............
93226.........................................  ECG monitor/report, 24 hrs......  ..............  ..............
93231.........................................  Ecg monitor/record, 24 hrs......  ..............  ..............
93232.........................................  ECG monitor/report, 24 hrs......  ..............  ..............
93236.........................................  ECG monitor/report, 24 hrs......  ..............  ..............
93270.........................................  ECG recording...................  ..............  ..............
93271.........................................  Ecg/monitoring and analysis.....  ..............  ..............
93278.........................................  ECG/signal-averaged.............  ..............  ..............
93279.........................................  Pm device progr eval, sngl......  ..............               *
93280.........................................  Pm device progr eval, dual......  ..............               *
93281.........................................  Pm device progr eval, multi.....  ..............               *
93282.........................................  Icd device progr eval, 1 sngl...  ..............               *
93283.........................................  Icd device progr eval, dual.....  ..............               *
93284.........................................  Icd device progr eval, mult.....  ..............               *
93285.........................................  Ilr device eval progr...........  ..............               *
93288.........................................  Pm device eval in person........  ..............               *
93289.........................................  Icd device interrogate..........  ..............               *
93290.........................................  Icm device eval.................  ..............               *
93291.........................................  Ilr device interrogate..........  ..............               *
93292.........................................  Wcd device interrogate..........  ..............               *
93293.........................................  Pm phone r-strip device eval....  ..............               *
93296.........................................  Pm/icd remote tech serv.........  ..............               *
93306.........................................  Tte w/doppler, complete.........  ..............               *
93786.........................................  Ambulatory BP recording.........  ..............  ..............
93788.........................................  Ambulatory BP analysis..........  ..............  ..............
93797.........................................  Cardiac rehab...................  ..............  ..............
93798.........................................  Cardiac rehab/monitor...........  ..............  ..............
93875.........................................  Extracranial study..............  ..............  ..............
93880.........................................  Extracranial study..............  ..............  ..............
93882.........................................  Extracranial study..............  ..............  ..............
93886.........................................  Intracranial study..............  ..............  ..............
93888.........................................  Intracranial study..............  ..............  ..............
93922.........................................  Extremity study.................  ..............  ..............
93923.........................................  Extremity study.................  ..............  ..............
93924.........................................  Extremity study.................  ..............  ..............
93925.........................................  Lower extremity study...........  ..............  ..............
93926.........................................  Lower extremity study...........  ..............  ..............
93930.........................................  Upper extremity study...........  ..............  ..............
93931.........................................  Upper extremity study...........  ..............  ..............
93965.........................................  Extremity study.................  ..............  ..............
93970.........................................  Extremity study.................  ..............  ..............
93971.........................................  Extremity study.................  ..............  ..............
93975.........................................  Vascular study..................  ..............  ..............
93976.........................................  Vascular study..................  ..............  ..............
93978.........................................  Vascular study..................  ..............  ..............
93979.........................................  Vascular study..................  ..............  ..............
93990.........................................  Doppler flow testing............  ..............  ..............
94015.........................................  Patient recorded spirometry.....  ..............  ..............
94690.........................................  Exhaled air analysis............  ..............  ..............
95115.........................................  Immunotherapy, one injection....  ..............  ..............
95117.........................................  Immunotherapy injections........  ..............  ..............

[[Page 71821]]

 
95165.........................................  Antigen therapy services........  ..............  ..............
95250.........................................  Glucose monitoring, cont........  ..............  ..............
95805.........................................  Multiple sleep latency test.....  ..............  ..............
95806.........................................  Sleep study unatt & resp efft...  ..............  ..............
95807.........................................  Sleep study, attended...........  ..............  ..............
95808.........................................  Polysomnography, 1-3............  ..............  ..............
95812.........................................  Eeg, 41-60 minutes..............  ..............  ..............
95813.........................................  Eeg, over 1 hour................  ..............  ..............
95816.........................................  Eeg, awake and drowsy...........  ..............  ..............
95819.........................................  Eeg, awake and asleep...........  ..............  ..............
95822.........................................  Eeg, coma or sleep only.........  ..............  ..............
95869.........................................  Muscle test, thor paraspinal....  ..............  ..............
95872.........................................  Muscle test, one fiber..........  ..............  ..............
95900.........................................  Motor nerve conduction test.....  ..............  ..............
95921.........................................  Autonomic nerv function test....  ..............  ..............
95925.........................................  Somatosensory testing...........  ..............  ..............
95926.........................................  Somatosensory testing...........  ..............  ..............
95930.........................................  Visual evoked potential test....  ..............  ..............
95950.........................................  Ambulatory eeg monitoring.......  ..............  ..............
95953.........................................  EEG monitoring/computer.........  ..............  ..............
95970.........................................  Analyze neurostim, no prog......  ..............  ..............
95972.........................................  Analyze neurostim, complex......  ..............  ..............
95974.........................................  Cranial neurostim, complex......  ..............  ..............
95978.........................................  Analyze neurostim brain/1h......  ..............  ..............
96000.........................................  Motion analysis, video/3d.......  ..............  ..............
96101.........................................  Psycho testing by psych/phys....  ..............  ..............
96111.........................................  Developmental test, extend......  ..............  ..............
96116.........................................  Neurobehavioral status exam.....  ..............  ..............
96118.........................................  Neuropsych tst by psych/phys....  ..............  ..............
96119.........................................  Neuropsych testing by tec.......  ..............  ..............
96150.........................................  Assess hlth/behave, init........  ..............  ..............
96151.........................................  Assess hlth/behave, subseq......  ..............  ..............
96152.........................................  Intervene hlth/behave, indiv....  ..............  ..............
96153.........................................  Intervene hlth/behave, group....  ..............  ..............
96361.........................................  Hydrate iv infusion, add-on.....  ..............               *
96366.........................................  Ther/proph/diag iv inf addon....  ..............               *
96367.........................................  Tx/proph/dg addl seq iv inf.....  ..............               *
96370.........................................  Sc ther infusion, addl hr.......  ..............               *
96371.........................................  Sc ther infusion, reset pump....  ..............               *
96375.........................................  Tx/pro/dx inj new drug addon....  ..............               *
96402.........................................  Chemo hormon antineopl sq/im....  ..............  ..............
96411.........................................  Chemo, iv push, addl drug.......  ..............  ..............
96415.........................................  Chemo, iv infusion, addl hr.....  ..............  ..............
96417.........................................  Chemo iv infus each addl seq....  ..............  ..............
96423.........................................  Chemo ia infuse each addl hr....  ..............  ..............
96900.........................................  Ultraviolet light therapy.......  ..............  ..............
96910.........................................  Photochemotherapy with UV-B.....  ..............  ..............
96912.........................................  Photochemotherapy with UV-A.....  ..............  ..............
96913.........................................  Photochemotherapy, UV-A or B....  ..............  ..............
96920.........................................  Laser tx, skin < 250 sq cm......  ..............  ..............
98925.........................................  Osteopathic manipulation........  ..............  ..............
98926.........................................  Osteopathic manipulation........  ..............  ..............
98927.........................................  Osteopathic manipulation........  ..............  ..............
98940.........................................  Chiropractic manipulation.......  ..............  ..............
98941.........................................  Chiropractic manipulation.......  ..............  ..............
98942.........................................  Chiropractic manipulation.......  ..............  ..............
99203.........................................  Office/outpatient visit, new....  ..............               *
99204.........................................  Office/outpatient visit, new....  ..............  ..............
99212.........................................  Office/outpatient visit, est....  ..............  ..............
99213.........................................  Office/outpatient visit, est....  ..............  ..............
99214.........................................  Office/outpatient visit, est....  ..............  ..............
99241.........................................  Office consultation.............  ..............  ..............
99242.........................................  Office consultation.............  ..............  ..............
99243.........................................  Office consultation.............  ..............  ..............
99244.........................................  Office consultation.............  ..............  ..............
99245.........................................  Office consultation.............  ..............  ..............
99406.........................................  Behav chng smoking 3-10 min.....  ..............               *
99407.........................................  Behav chng smoking > 10 min.....  ..............               *
0144T.........................................  CT heart wo dye; qual calc......  ..............  ..............
G0008.........................................  Admin influenza virus vac.......  ..............  ..............

[[Page 71822]]

 
G0101.........................................  CA screen; pelvic/breast exam...  ..............  ..............
G0127.........................................  Trim nail(s)....................  ..............  ..............
G0130.........................................  Single energy x-ray study.......  ..............  ..............
G0166.........................................  Extrnl counterpulse, per tx.....  ..............  ..............
G0175.........................................  OPPS Service,sched team conf....  ..............  ..............
G0248.........................................  Demonstrate use home inr mon....  ..............               *
G0249.........................................  Provide INR test mater/equip....  ..............               *
G0340.........................................  Robt lin-radsurg fractx 2-5.....  ..............  ..............
G0365.........................................  Vessel mapping hemo access......  ..............  ..............
G0389.........................................  Ultrasound exam AAA screen......  ..............  ..............
G0390.........................................  Trauma Respons w/hosp criti.....  ..............  ..............
G0402.........................................  Initial preventive exam.........  ..............               *
G0404.........................................  EKG tracing for initial prev....  ..............               *
M0064.........................................  Visit for drug monitoring.......  ..............  ..............
Q0091.........................................  Obtaining screen pap smear......  ..............  ..............
----------------------------------------------------------------------------------------------------------------


 Table 2--HCPCS Codes Removed From the CY 2011 Bypass List Because They
                      Were Deleted Prior to CY 2009
------------------------------------------------------------------------
            HCPCS Code                     HCPCS Short descriptor
------------------------------------------------------------------------
90761.............................  Hydrate iv infusion, add-on.
90766.............................  Ther/proph/dg iv inf, add-on.
90767.............................  Tx/proph/dg addl seq iv inf.
90770.............................  Sc ther infusion, addl hr.
90771.............................  Sc ther infusion, reset pump.
90775.............................  Tx/pro/dx inj new drug add-on.
93727.............................  Analyze ilr system.
93731.............................  Analyze pacemaker system.
93732.............................  Analyze pacemaker system.
93733.............................  Telephone analy, pacemaker.
93734.............................  Analyze pacemaker system.
93735.............................  Analyze pacemaker system.
93736.............................  Telephonic analy, pacemaker.
93741.............................  Analyze ht pace device sngl.
93742.............................  Analyze ht pace device sngl
93743.............................  Analyze ht pace device dual.
93744.............................  Analyze ht pace device dual.
G0344.............................  Initial preventive exam.
G0367.............................  EKG tracing for initial prev.
G0376.............................  Smoke/tobacco counseling >10.
------------------------------------------------------------------------

c. Calculation and Use of Cost-to-Charge Ratios (CCRs)
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46195), we proposed to 
continue for CY 2011 to use the hospital-specific overall ancillary and 
departmental CCRs to convert charges to estimated costs through 
application of a revenue code-to-cost center crosswalk. To calculate 
the APC median costs on which the proposed CY 2011 APC payment rates 
were based, we calculated hospital-specific overall ancillary CCRs and 
hospital-specific departmental CCRs for each hospital for which we had 
CY 2009 claims data from the most recent available hospital cost 
reports, in most cases, cost reports beginning in CY 2008. For the CY 
2011 OPPS proposed rates, we used the set of claims processed during CY 
2009. We applied the hospital-specific CCR to the hospital's charges at 
the most detailed level possible, based on a revenue code-to-cost 
center crosswalk that contains a hierarchy of CCRs used to estimate 
costs from charges for each revenue code. That crosswalk is available 
for review and continuous comment on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/03_crosswalk.asp#TopOfPage.
    To ensure the completeness of the revenue code-to-cost center 
crosswalk, we reviewed changes to the list of revenue codes for CY 2009 
(the year of the claims data we used to calculate the CY 2011 OPPS 
proposed payment rates). For CY 2009, there were several changes to 
these revenue codes. The National Uniform Billing Committee (NUBC) is 
the organization that is responsible for the data specifications for 
the Uniform Bill (currently the UB-04). For CY 2009, the NUBC changed 
the title of revenue code series 076X from ``Specialty Room--Treatment/
Observation Room'' to ``Specialty Services'' and changed the title of 
subclassification revenue code 0762 from ``Observation Room'' to 
``Observation Hours.'' We did not propose to change the revenue code-
to-cost center crosswalk as a result of this change because we believe 
that hospitals have historically reported charges for observation based 
on hours of care and that this change reflects existing practices. In 
addition, for CY 2009, NUBC removed a note that indicated that 
subcategory revenue codes 0912, Behavioral Health Treatment/Services 
(also see 091X, an extension of 090X), and 0913, Behavioral Health 
Treatment/Services--Extension of 090X, were designed as zero-billed 
revenue codes (that is, no dollar in the amount field). This change has 
no impact on the revenue code-to-cost center crosswalk. We note that 
the addition of revenue codes with effective dates in CY 2010 is not 
relevant to this process because the revenue codes were not applicable 
to claims for services furnished during CY 2009.
    We calculated CCRs for the standard and nonstandard cost centers 
accepted by the electronic cost report database. In general, the most 
detailed level at which we calculated CCRs was the hospital-specific 
departmental level. For a discussion of the hospital-specific overall 
ancillary CCR calculation, we refer readers to the CY 2007 OPPS/ASC 
final rule with comment period (71 FR 67983 through 67985). One 
longstanding exception to this general methodology for calculation of 
CCRs used for converting charges to costs on each claim is the 
calculation of median blood costs, as discussed in section II.A.2.d.(2) 
of the proposed rule and this final rule with comment period and which 
has been our standard policy since the CY 2005 OPPS.
    For the CCR calculation process, we used the same general approach 
that we used in developing the final APC rates for CY 2007 and 
thereafter, using the revised CCR calculation that excluded the costs 
of paramedical education programs and weighted the outpatient charges 
by the volume of outpatient services furnished by the hospital. We 
refer readers to the CY 2007 OPPS/ASC final rule with comment period 
for more information (71 FR 67983 through 67985). We first limited the 
population of cost reports to only those for hospitals that filed 
outpatient claims in CY 2009 before determining whether the CCRs for 
such hospitals were valid.
    We then calculated the CCRs for each cost center and the overall 
ancillary CCR for each hospital for which we had claims data. We did 
this using hospital-specific data from the Hospital Cost

[[Page 71823]]

Report Information System (HCRIS). We used the most recent available 
cost report data, in most cases, cost reports with cost reporting 
periods beginning in CY 2007. For the proposed rule, we used the most 
recently submitted cost reports to calculate the CCRs to be used to 
calculate median costs for the proposed CY 2011 OPPS payment rates. If 
the most recent available cost report was submitted but not settled, we 
looked at the last settled cost report to determine the ratio of 
submitted to settled cost using the overall ancillary CCR, and we then 
adjusted the most recent available submitted but not settled cost 
report using that ratio. We then calculated both an overall ancillary 
CCR and cost center-specific CCRs for each hospital. We used the 
overall ancillary CCR referenced in section II.A.1.c. of the proposed 
rule for all purposes that require use of an overall ancillary CCR.
    Since the implementation of the OPPS, some commenters have raised 
concerns about potential bias in the OPPS cost-based weights due to 
``charge compression,'' which is the practice of applying a lower 
charge markup to higher-cost services and a higher charge markup to 
lower-cost services. As a result, the cost-based weights may reflect 
some aggregation bias, undervaluing high-cost items and overvaluing 
low-cost items when an estimate of average markup, embodied in a single 
CCR, is applied to items of widely varying costs in the same cost 
center.
    To explore this issue, in August 2006, we awarded a contract to RTI 
International (RTI) to study the effects of charge compression in 
calculating the IPPS cost-based relative weights, particularly with 
regard to the impact on inpatient diagnosis-related group (DRG) 
payments, and to consider methods to better capture the variation in 
cost and charges for individual services when calculating costs for the 
IPPS relative weights across services in the same cost center. RTI 
issued a report in March 2007 with its findings on charge compression, 
which is available on the CMS Web site at: http://www.cms.gov/reports/
downloads/Dalton.pdf. Although this report was focused largely on 
charge compression in the context of the IPPS cost-based relative 
weights, because several of the findings were relevant to the OPPS, we 
discussed that report in the CY 2008 OPPS/ASC proposed rule (72 FR 
42641 through 42643) and discussed those findings again in the CY 2008 
OPPS/ASC final rule with comment period (72 FR 66599 through 66602).
    In August 2007, we contracted with RTI to evaluate the cost 
estimation process for the OPPS relative weights because its 2007 
report had concentrated on IPPS DRG cost-based relative weights. The 
results of RTI's analyses had implications for both the OPPS APC cost-
based relative weights and the IPPS MS-DRG (Medicare severity) cost-
based relative weights. The RTI final report can be found on RTI's Web 
site at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/
Refining_Cost_to_Charge_Ratios_200807_Final.pdf. For a complete 
discussion of the RTI recommendations, public comments, and our 
responses, we refer readers to the CY 2009 OPPS/ASC final rule with 
comment period (73 FR 68519 through 68527).
    We addressed the RTI finding that there was aggregation bias in 
both the IPPS and the OPPS cost estimation of expensive and inexpensive 
medical supplies in the FY 2009 IPPS final rule. Specifically, we 
finalized our proposal for both the OPPS and IPPS to create one cost 
center for ``Medical Supplies Charged to Patients'' and one cost center 
for ``Implantable Devices Charged to Patients,'' essentially splitting 
the then current CCR for ``Medical Supplies and Equipment'' into one 
CCR for low-cost medical supplies and another CCR for high-cost 
implantable devices in order to mitigate some of the effects of charge 
compression. Accordingly, in Transmittal 20 of the Provider 
Reimbursement Manual, Part II (PRM-II), Chapter 36, Form CMS-2552-96, 
which was issued in July 2009, we created a new subscripted Line 55.01 
on Worksheet A for the ``Implantable Devices Charged to Patients'' cost 
center. This new subscripted cost center, placed under the standard 
line for ``Medical Supplies Charged to Patients,'' is available for use 
for cost reporting periods beginning on or after May 1, 2009. A 
subscripted cost center is the addition of a separate new cost center 
line and description which bears a logical relationship to the standard 
cost center line and is located immediately following a standard cost 
center line. Subscripting a cost center line adds flexibility and cost 
center expansion capability to the cost report. For example, Line 55 of 
Worksheet A on Form CMS 2552-96 (the Medicare hospital cost report) is 
``Medical Supplies Charged to Patients.'' The additional cost center, 
which isolates the costs of ``Implantable Medical Supplies Charged to 
Patients'', was created by adding subscripted Line 55.01 to Worksheet 
A.
    Because there is approximately a 3-year lag in the availability of 
cost report data for IPPS and OPPS ratesetting purposes in a given 
calendar year, we believe we will be able to use data from the revised 
cost report form to estimate costs from charges for implantable devices 
for the CY 2013 OPPS relative weights. For a complete discussion of the 
rationale for the creation of the new cost center for ``Implantable 
Devices Charged to Patients,'' public comments, and our responses, we 
refer readers to the FY 2009 IPPS final rule (73 FR 48458 through 
45467).
    In the CY 2009 OPPS/ASC final rule with comment period, we 
indicated that we would be making some OPPS-specific changes in 
response to the RTI report recommendations. Specifically, these changes 
included modifications to the cost reporting software and the addition 
of three new nonstandard cost centers. With regard to modifying the 
cost reporting preparation software in order to offer additional 
descriptions for nonstandard cost centers to improve the accuracy of 
reporting for nonstandard cost centers, we indicated that the change 
would be made for the next release of the cost report software. These 
changes have been made to the cost reporting software with the 
implementation of CMS Transmittal 21, under Chapter 36 of the Provider 
Reimbursement Manual--Part II, available online at http://www.cms.hhs.gov/Manuals/PBM/, which is effective for cost reporting 
periods ending on or after October 1, 2009.
    We also indicated that we intended to add new nonstandard cost 
centers for Cardiac Rehabilitation, Hyperbaric Oxygen Therapy, and 
Lithotripsy. We note that in January 2010, CMS issued Transmittal 21 
which updated the PRM-II, Chapter 36, Form CMS-2552-96. One of the 
updates in this transmittal established nonstandard cost centers for 
Cardiac Rehabilitation, Hyperbaric Oxygen Therapy, and Lithotripsy for 
use on Worksheet A. These three new nonstandard cost centers are now 
available for cost reporting periods ending on or after October 1, 
2009.
    Furthermore, we noted in the FY 2010 IPPS/LTCH PPS final rule (74 
FR 43781 through 43782) that we were updating the cost report form to 
eliminate outdated requirements, in conjunction with the Paperwork 
Reduction Act (PRA), and that we had proposed actual changes to the 
cost reporting form, the attending cost reporting software, and the 
cost report instructions in Chapters 36 and 40 of the PRM-II. The new 
draft hospital cost report Form CMS-2552-10

[[Page 71824]]

was published in the Federal Register on July 2, 2009, and was subject 
to a 60-day review and comment period, which ended on August 31, 2009. 
We received numerous comments on the draft hospital cost report Form 
CMS-2552-10, specifically regarding the creation of new cost centers 
from which data might be used in the OPPS cost-based relative weights 
calculation. We proposed to create new standard cost centers for 
Computed Tomography (CT), Magnetic Resonance Imaging (MRI), and Cardiac 
Catheterization in Form CMS-2552-10. We also stated that if these 
standard cost centers are finalized, when the data become available, we 
would analyze the cost and charge data to determine if it is 
appropriate to use those data to create distinct CCRs from these cost 
centers in setting the relative weights. For a discussion of these cost 
centers, we refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 
FR 50075 through 50080). Comments will be addressed in detail in the 
Federal Register notice that will finalize Form CMS-2552-10. The 
revised draft of hospital cost report Form CMS-2552-10 went on public 
display on April 23, 2010, and appeared in the Federal Register on 
April 30, 2010 (75 FR 22810) with a 30-day public comment period. The 
public comment period ended on June 1, 2010. We believe that improved 
cost report software, the incorporation of new standard and nonstandard 
cost centers, and the elimination of outdated requirements will improve 
the accuracy of the cost data contained in the electronic cost report 
data files and, therefore, the accuracy of our cost estimation 
processes for the OPPS relative weights. We will continue our standard 
practice of examining ways in which we can improve the accuracy of our 
cost estimation processes.
    Comment: One commenter noted that Medicare cost report data show 
that there is still much confusion about how hospitals should report 
the costs of large imaging equipment. Consequently, the commenter 
recommended that CMS delay implementation of the new CT and MRI cost 
center data until the cost reports reflect at least 90 percent of CT 
and MRI capital costs, based on a comparison to industry average 
equipment purchases. Some commenters requested that CMS delay 
establishing the new standard cost centers for CT and MRI until the 
causes of the associated payment distortions are understood and cost 
reporting is improved to more properly allocate large capital costs. 
The commenters requested more careful analysis of the impact of 
creating the cost centers because of the payment impacts on other 
Medicare payment systems. Several commenters encouraged CMS to continue 
monitoring the reporting of CT and MRI capital costs over the next few 
years. Some commenters recommended that CMS provide explicit, 
unambiguous guidance to hospitals on how to improve allocation of the 
large capital costs of imaging equipment directly to the new MRI or CT 
cost centers. Several commenters supported the decision to establish a 
standard cost center for cardiac catheterization but did not support 
the creation of cost centers for CT and MRI. Other commenters asked 
that CMS ensure that all hospitals are fully educated about the cost 
center requirements, ensure that the cost centers are implemented in a 
timely manner, and validate the accuracy of the data produced by the 
new cost centers to ensure that they are correct and result in more 
accurate ratesetting. They did not support use of the resulting cost 
center data at the departmental level for ratesetting until after CMS 
has produced information on the impact of the use of such data.
    Response: We understand the commenters' statements regarding the 
challenges and difficulties in appropriately reporting the cost and 
charge data accurately for these standard cost centers. We responded to 
these concerns in the FY 2011 IPPS/LTCH final rule, including the 
treatment of CT and MRI equipment costs as ``major moveable equipment'' 
rather than as a ``building equipment cost,'' our goal of obtaining 
more accurate data in creating these new standard cost centers, the 
application of these standard cost centers only for those hospitals who 
maintain distinct departments or accounts in their internal accounting 
systems for CT scanning, MRI or cardiac catheterization, and other 
concerns (75 FR 50076 through 50080). However, we note that hospitals 
have been responsible for properly reporting the cost of the equipment 
and facilities that are necessary to furnish services for the many 
years since the inception of the Medicare program and that the creation 
of cost centers for CT, MRI, and cardiac rehabilitation does not alter 
the fundamental principles of cost reporting to which hospitals have 
been and remain bound and for which they should follow the instructions 
in the Medicare Provider Reimbursement Manual.
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50080), we finalized 
a policy of establishing standard cost centers for CT scanning, MRI 
scans, and cardiac catheterization. This policy required hospitals that 
furnish these services and maintain distinct departments or accounts in 
their internal accounting systems for them to report the costs and 
charges under the new cost centers on the revised Medicare cost report 
Form CMS 2552-10 for cost report periods beginning on or after May 1, 
2010. We established these standard cost centers because we believe 
that we should collect cost and charge data for these areas, and use 
those data to assess the resulting CCRs specific to CT scanning and MRI 
services as a possible means of eliminating aggregation bias for these 
and other radiology services in the IPPS and the OPPS. We believe that 
establishing these standard cost centers is necessary to improving the 
accuracy of estimating costs for imaging services and will allow us to 
perform the impact assessment that some commenters want us to do.
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23880) and the CY 
2011 OPPS/ASC proposed rule (75 FR 46196), we noted that there is 
typically a 3-year lag between the availability of the cost report data 
that we use to calculate the relative weights both under the IPPS and 
the OPPS and a given fiscal or calendar year, and therefore the data 
from the standard cost centers for CT scans, MRI, and cardiac 
catheterization respectively, should they be finalized, would not be 
available for possible use in calculating the relative weights earlier 
than 3 years after Form CMS-2552-10 becomes available. At that time, we 
would analyze the data and determine if it is appropriate to use those 
data to create distinct CCRs from these cost centers for use in the 
relative weights for the respective payment systems. Therefore, we wish 
to reassure the commenters that there is no need for immediate concern 
regarding possible negative payment impacts on MRI and CT scans under 
the IPPS and the OPPS. We will first thoroughly analyze and run impacts 
on the data and provide the public with the opportunity to comment, as 
usual, before distinct CCRs for MRI and CT scans would be finalized for 
use in the calculation of the relative weights. Our decision to 
finalize our proposal regarding cost centers for these services is only 
the first step to a longer process during which we will continue to 
consider public comment.
    Comment: One commenter expressed concern over potential payment 
changes for cryoablation probes as a result of the cost center creation 
of ``Implantable Devices Charged to Patients'' and how hospitals bill 
for them. The commenter stated that claims data show hospitals 
typically billing for cryoablation probes using revenue code 0272 
(Medical/

[[Page 71825]]

Surgical Supplies; Sterile Supplies) rather than revenue code 0278 
(Medical/Surgical Supplies; Other Implants). The commenter requested 
that interim payment measures regarding how the rates are calculated be 
considered until the data demonstrates appropriate revenue assignment 
of the devices into revenue code 0278, suggesting that, in the event 
that payment for the probes decreases, hospitals may elect not to 
provide the service.
    Response: In the FY 2009 IPPS final rule (73 FR 48458 through 
48467), we explained in detail the reasoning behind the development of 
the cost center split for the ``Medical Supplies Charged to Patients'' 
cost center and our decision to ultimately have hospitals use the 
American Hospital Association's National Uniform Billing Committee 
(NUBC) revenue codes to determine what would be reported in the 
``Medical Supplies Charged to Patients'' and the ``Implantable Devices 
Charged to Patients'' cost centers. In that discussion, we noted that 
while we require that the device broadly be considered implantable to 
have its costs and charges included in the new ``Implantable Devices 
Charged to Patients'' cost center, our final policy did not require the 
device to remain in the patient at discharge (73 FR 48462 through 
48463). In response to comments on our proposal to create the new cost 
center in the FY 2009 IPPS final rule, we did define the new 
``Implantable Devices Charged to Patients'' cost center by the revenue 
codes that we believe would map to this cost center to facilitate ease 
of reporting by hospitals. We note that revenue code definitions are 
established by the NUBC, and we fully expect hospitals to follow 
existing guidelines regarding revenue code use. As we stated in the CY 
2010 OPPS/ASC final rule with comment period, with regard to reporting 
cryoablation probes, we do not believe that the current NUBC definition 
of revenue code 0278 (Medical/Surgical Supplies and Devices (also see 
062x, an extension of 027x); Other implants (a)) precludes reporting 
hospital charges for cryoablation probes under this revenue code (74 FR 
60344). Therefore, we believe hospitals can report charges for 
cryoablation probes under the revenue code 0278 using the definitions 
in the official UB-04 Data Specifications Manual.
    In the FY 2009 IPPS final rule, we noted that using existing 
revenue codes and definitions as they have been currently established 
by the NUBC made sense, as the definitions have been in place for some 
time and are used across all payors (73 FR 48461). Further, we noted 
that that methodology and the accuracy of the relative weights are 
heavily dependent upon hospitals' reporting practices. Nothing 
precludes a hospital that currently reports charges for cryoablation 
probes under revenue code 0272 from changing the revenue code under 
which it reports charges for cryoablation probes to revenue code 0278 
or otherwise, if it determines that doing so would result in more 
appropriate payment for the service.
    While CMS is responsible for issuing cost reporting instructions 
that are clear, hospitals are responsible for ensuring that their cost 
reporting and billing practices are consistent and conform to Medicare 
policy. We fully expect providers to follow existing guidelines 
regarding revenue code use, and we see no basis on which to make 
payment on a basis other than the standard OPPS methodology. Therefore, 
we are not adopting an interim payment measure in the median cost 
calculation of cryoablation probes.
    Comment: One commenter requested that CMS acknowledge current 
payment inaccuracies for Magnetoencephalography (MEG), also known as 
Magnetic Source Imaging. The commenter asked CMS to create a cost 
center on the Medicare cost report that would be used solely to capture 
hospitals' costs of MEG and indicated that the NUBC had approved a 
request for a dedicated revenue code for the reporting of charges for 
MEG. The commenter argued that if CMS would create a cost center for 
the costs of MEG from which a specific CCR could be developed for 
application to MEG charges, the resulting median cost would be a more 
accurate reflection of the cost of MEG and would, therefore, result in 
more appropriate payment. The commenter suggested that, based on 
previous experience where subscripted lines created for MEG identified 
significantly different CCRs for the service, there was evidence that 
the current methodology of calculating payment for MEG was flawed.
    Response: We disagree that a new cost center is needed to capture 
the costs of MEG. Over the past several years, we have either proposed 
or discussed potential new standard and nonstandard cost centers for 
the Medicare hospital cost report in our 2008, 2009, and 2010 hospital 
inpatient and outpatient final rules. All of the potential cost centers 
that we have discussed for addition to the cost report, whether 
standard or nonstandard, have demonstrated volume in the electronic 
hospital cost report data. In its July 2008 report on using cost report 
data to estimate costs for both the IPPS and OPPS (http://www.rti.org/reports/cms/), RTI International examined the electronic hospital cost 
report database and recommended new standard and nonstandard cost 
centers on the basis of reporting volume across hospitals. RTI 
International typically identified no fewer than 200 institutions 
reporting a specific service category, such as cardiac catheterization 
or cardiac rehabilitation, in subscripted or other lines for the new 
nonstandard and standard cost centers. Historically, our rationale for 
adding official nonstandard cost centers to the cost report has been at 
the request of Medicare contractors experiencing a significant volume 
of requests for a cost center for a specific type of service.
    In contrast, the volume of MEG services is extremely low. In the 
hospital outpatient CY 2010 OPPS claims data, hospitals reported 131 
units of MEG spread among the three CPT codes for MEG among the three 
CPT codes for MEG: 52 units of CPT code 95965 (Magnetoencephalography 
(MEG), recording and analysis; for spontaneous brain magnetic activity 
(e.g. epileptic cerebral cortex localization)); 39 units of CPT code 
95966 (Magnetoencephalography (MEG), recording and analysis; for 
spontaneous brain magnetic activity (e.g. epileptic cerebral cortex 
localization) for evoked magnetic fields, single modality (e.g. 
sensory, motor, language or visual cortex localization)); and 40 units 
of CPT code 95967 (Magnetoencephalography (MEG), recording and 
analysis; for spontaneous brain magnetic activity (e.g. epileptic 
cerebral cortex localization), for evoked magnetic fields, each 
additional modality (e.g. sensory, motor language, or visual cortex 
localization (List separately in addition to code for primary 
procedure))). This continues the pattern of low volumes of the total of 
the 3 MEG codes that have been reported in the outpatient setting since 
the creation of the codes in CY 2005 (39 in CY 2005, 75 in CY 2006, 102 
units in CY 2007, 75 units in 2008, 131 units in 2009). Moreover in CY 
2009, only 13 hospitals reported CPT code 95965, the highest volume of 
the 3 MEG codes. We do not believe that it is necessary to create a 
cost center for a service for which so few providers furnish so few 
services in a year. We recognize that our claims data show only 
Medicare hospital outpatient billings and that there are likely to be 
more MEG services that are furnished to Medicare beneficiaries who are 
in covered inpatient stays and to patients who are not Medicare 
beneficiaries. However,

[[Page 71826]]

the extremely low volume of claims for MEG services furnished to 
Medicare beneficiaries in the hospital outpatient setting and the 
extremely low number of hospitals that report these codes relative to 
the volumes we typically have considered in adding both standard and 
nonstandard cost centers to the cost report lead us to conclude that a 
specific cost center for MEG is not justified at this time.
    After consideration of the public comments we received, we are 
finalizing our CY 2011 proposal, without modification, to continue to 
assign CPT code 95965 (which has a CPT level median of approximately 
$2,521) to APC 0067, with a final CY 2010 APC median cost of 
approximately $3,272, on which payment will be based, and to continue 
to assign CPT codes 95966 (which has a CPT level median of 
approximately $1,632) and 96967 (which has a CPT level median of 
approximately $1,415) to APC 0065, with a final CY 2010 APC median cost 
of approximately $967, on which the payment will be based.
2. Data Development Process and Calculation of Median Costs
    In this section of this final rule with comment period, we discuss 
the use of claims to calculate final OPPS payment rates for CY 2011. 
The hospital OPPS page on the CMS Web site on which this final rule 
with comment period is posted provides an accounting of claims used in 
the development of the final payment rates at: http://www.cms.gov/
HospitalOutpatientPPS. The accounting of claims used in the development 
of this final rule with comment period is included on the CMS Web site 
under supplemental materials for this CY 2011 OPPS/ASC final rule with 
comment period. That accounting provides additional detail regarding 
the number of claims derived at each stage of the process. In addition, 
below in this section we discuss the file of claims that comprises the 
data set that is available for purchase under a CMS data use agreement. 
Our CMS Web site, http://www.cms.gov/HospitalOutpatientPPS, includes 
information about purchasing the ``OPPS Limited Data Set,'' which now 
includes the additional variables previously available only in the OPPS 
Identifiable Data Set, including ICD-9-CM diagnosis codes and revenue 
code payment amounts. This file is derived from the CY 2009 claims that 
were used to calculate the final payment rates for the CY 2011 OPPS.
    We used the methodology described in sections II.A.2.a. through 
II.A.2.e. of this final rule with comment period to calculate the 
median costs we use to establish the relative weights used in 
calculating the final OPPS payment rates for CY 2011 shown in Addenda A 
and B to this final rule with comment period. We refer readers to 
section II.A.4. of this final rule with comment period for a discussion 
of the conversion of APC median costs to scaled payment weights.
a. Claims Preparation
    For this final rule with comment period, we used the CY 2009 
hospital outpatient claims processed before July 1, 2010 to calculate 
the median costs of APCs that underpin the final relative weights for 
CY 2011. To begin the calculation of the relative weights for CY 2011, 
we pulled all claims for outpatient services furnished in CY 2009 from 
the national claims history file. This is not the population of claims 
paid under the OPPS, but all outpatient claims (including, for example, 
critical access hospital (CAH) claims and hospital claims for clinical 
laboratory services for persons who are neither inpatients nor 
outpatients of the hospital).
    We then excluded claims with condition codes 04, 20, 21, and 77. 
These are claims that providers submitted to Medicare knowing that no 
payment would be made. For example, providers submit claims with a 
condition code 21 to elicit an official denial notice from Medicare and 
document that a service is not covered. We then excluded claims for 
services furnished in Maryland, Guam, the U.S. Virgin Islands, American 
Samoa, and the Northern Mariana Islands because hospitals in those 
geographic areas are not paid under the OPPS.
    We divided the remaining claims into the three groups shown below. 
Groups 2 and 3 comprise the 110 million claims that contain hospital 
bill types paid under the OPPS.
    1. Claims that were not bill types 12X, 13X (hospital bill types), 
14x (laboratory specimen bill types), or 76X (CMHC bill types). Other 
bill types are not paid under the OPPS and, therefore, these claims 
were not used to set OPPS payment.
    2. Claims that were bill types 12X, 13X or 14X. Claims with bill 
types 12X and 13X are hospital outpatient claims. Claims with bill type 
14X are laboratory specimen claims, of which we use a subset for the 
limited number of services in these claims that are paid under the 
OPPS.
    3. Claims that were bill type 76X (CMHC).
    To convert charges on the claims to estimated cost, we multiplied 
the charges on each claim by the appropriate hospital specific CCR 
associated with the revenue code for the charge as discussed in section 
II.A.1.c. of this final rule with comment period. We then flagged and 
excluded CAH claims (which are not paid under the OPPS) and claims from 
hospitals with invalid CCRs. The latter included claims from hospitals 
without a CCR; those from hospitals paid an all-inclusive rate; those 
from hospitals with obviously erroneous CCRs (greater than 90 or less 
than 0.0001); and those from hospitals with overall ancillary CCRs that 
were identified as outliers (3 standard deviations from the geometric 
mean after removing error CCRs). In addition, we trimmed the CCRs at 
the cost center (that is, departmental) level by removing the CCRs for 
each cost center as outliers if they exceeded +/- 3 standard deviations 
from the geometric mean. We used a four-tiered hierarchy of cost center 
CCRs, which is the revenue code-to-cost center crosswalk, to match a 
cost center to every possible revenue code appearing in the outpatient 
claims that is relevant to OPPS services, with the top tier being the 
most common cost center and the last tier being the default CCR. If a 
hospital's cost center CCR was deleted by trimming, we set the CCR for 
that cost center to ``missing'' so that another cost center CCR in the 
revenue center hierarchy could apply. If no other cost center CCR could 
apply to the revenue code on the claim, we used the hospital's overall 
ancillary CCR for the revenue code in question as the default CCR. For 
example, if a visit was reported under the clinic revenue code but the 
hospital did not have a clinic cost center, we mapped the hospital-
specific overall ancillary CCR to the clinic revenue code. The revenue 
code-to-cost center crosswalk is available for inspection and comment 
on the CMS Web site: http://www.cms.gov/HospitalOutpatientPPS. Revenue 
codes that we do not use to set medians or to model impacts are 
identified with an ``N'' in the revenue code-to-cost center crosswalk.
    At the February 17-18, 2010 APC Panel Meeting, the Panel 
recommended that CMS present to the Data Subcommittee an analysis of 
the effect of using a different lower-level threshold in the overall 
CCR error trim as part of the standard methodology. The Panel members 
were concerned that our current CCR trimming policy (excluding 
providers with an overall ancillary CCR greater than 90 or less than 
0.0001 or above and then excluding remaining providers with overall 
ancillary CCRs beyond +/-3 standard deviations from the geometric mean) 
could result in the exclusion of

[[Page 71827]]

claims from providers that could otherwise be used for ratesetting and 
modeling. As we indicated in the proposed rule (75 FR 46198), we 
accepted this recommendation. At the August 23-24, 2010 APC Panel 
meeting, we provided the Data Subcommittee with an analysis that 
displayed the number of hospitals trimmed by our current process for 
removing hospitals based on aberrant overall ancillary CCRs, as well as 
our assessment of the impact if we were to use the error CCR thresholds 
established by the IPPS of less than 0.01 and greater than 10.0 (75 FR 
50136). Specifically, we found that, using our current trimming 
methodology, we trimmed out data from 36 hospitals due to having error 
CCRs, while we trimmed data from 61 hospitals because they have CCRs 
that were outside 3 standard deviations from the geometric mean. When 
we applied the IPPS tolerances, we found that we would trim out data 
from 46 hospitals due to having error CCRs, while we would trim data 
from 57 hospitals due to the outlier trim (beyond +/-3 standard 
deviations from the geometric mean). The slight change between the 
numbers occurs because changing the error CCR trim to match the IPPS 
tolerances shifts hospitals from being trimmed based on the outlier 
trim to being trimmed based on the error trim. The standard outlier 
trim is more significant in removing data from hospitals with aberrant 
CCRs because it ensures that our claims data are accurately reflective 
of hospitals under the OPPS, independent of the actual numeric values 
of the CCRs. Observing that the number of hospitals whose data were 
removed based on the error CCR trim was limited, that a more 
significant number of hospitals were trimmed by the standard trim of 
three standard deviations beyond the geometric mean, and that the 
impact of adopting the IPPS CCR tolerances had minimal impact on a 
small subset of APCs, the Data Subcommittee recommended that CMS 
continue to use the current error CCR thresholds of 0.0001 and 90.
    We applied the CCRs as described above to claims with bill type 
12X, 13X, or 14X, excluding all claims from CAHs and hospitals in 
Maryland, Guam, the U.S. Virgin Islands, American Samoa, and the 
Northern Mariana Islands and claims from all hospitals for which CCRs 
were flagged as invalid.
    We identified claims with condition code 41 as partial 
hospitalization services of hospitals and moved them to another file. 
We note that the separate file containing partial hospitalization 
claims is included in the files that are available for purchase as 
discussed above.
    We then excluded claims without a HCPCS code. We moved to another 
file claims that contained nothing but influenza and pneumococcal 
pneumonia (PPV) vaccines. Influenza and PPV vaccines are paid at 
reasonable cost and, therefore, these claims are not used to set OPPS 
rates.
    We next copied line-item costs for drugs, blood, and brachytherapy 
sources (the lines stay on the claim, but are copied onto another file) 
to a separate file. No claims were deleted when we copied these lines 
onto another file. These line-items are used to calculate a per unit 
mean and median cost and a per day mean and median cost for drugs and 
nonimplantable biologicals, therapeutic radiopharmaceutical agents, and 
brachytherapy sources, as well as other information used to set payment 
rates, such as a unit-to-day ratio for drugs.
    To implement our policy adopted in this final rule with comment 
period to redistribute some portion of total cost of packaged drugs and 
biologicals to the separately payable drugs and biologicals as 
acquisition and pharmacy overhead and handling costs discussed in 
section V.B.3. of this final rule with comment period, we used the 
line-item cost data for drugs and biologicals for which we had a HCPCS 
code with ASP pricing information to calculate the ASP+X values, first 
for all drugs and biologicals, and then for separately payable drugs 
and biologicals and for packaged drugs and biologicals, respectively, 
by taking the ratio of total claim cost for each group relative to 
total ASP dollars (per unit of each drug or biological HCPCS code's 
July 2010 ASP amount multiplied by total units for each drug or 
biological in the CY 2009 claims data). These values are ASP+13 percent 
(for all drugs and biologicals with HCPCS codes, whether separately 
paid or packaged), ASP-1 percent (for drugs and biologicals that are 
separately paid), and ASP+296 percent (for drugs and biologicals that 
have HCPCS codes and that are packaged), respectively. As we discuss in 
section V.B.3. of this final rule with comment period, as we proposed, 
in this final rule with comment period, we are redistributing $150 
million of the total cost in our claims data for packaged drugs and 
biologicals that have an associated ASP from packaged drugs with an ASP 
to separately payable drugs and biologicals. As we also proposed, in 
this final rule with comment period, we are redistributing an 
additional $50 million of the total cost in our claims data for drugs 
and biologicals lacking an ASP, largely for estimated costs associated 
with uncoded charges billed under pharmacy revenue code series 025X 
(Pharmacy (also see 063X, an extension of 025X)), 026X (IV Therapy), 
and 063X (Pharmacy--Extension of 025X). We observe approximately $652 
million for packaged drugs lacking a HCPCs code and an ASP in our CY 
2009 claims data. This total excludes the cost of diagnostic and 
therapeutic radiopharmaceuticals because they are not reported under 
pharmacy revenue codes or under the pharmacy cost center on the 
hospital cost report.
    Removing a total of $150 million in pharmacy overhead cost from 
packaged drugs and biologicals reduces the $612 million cost of 
packaged drugs and biologicals with HCPCS codes and ASPs to $462 
million, approximately a 25-percent reduction. Removing $50 million 
from the cost of drugs lacking an ASP reduces the $652 million to $602 
million, approximately an 8-percent reduction. To implement our CY 2011 
policy adopted in this final rule with comment period to redistribute 
$150 million in claim cost from packaged drugs and biologicals with an 
ASP to separately payable drugs and biologicals and $50 million in 
claim cost from packaged drugs and biologicals lacking an ASP, 
including uncoded pharmacy revenue code charges, we multiplied the cost 
of each packaged drug or biological with a HCPCS code and ASP pricing 
information in our CY 2009 claims data by 0.75, and we multiplied all 
other packaged drug costs in our CY 2009 claims data, excluding those 
for diagnostic radiopharmaceuticals, by 0.92. We also added the 
redistributed $200 million to the total cost of separately payable 
drugs and biologicals in our CY 2009 claims data, which increased the 
relationship between the total cost for separately payable drugs and 
biologicals and ASP dollars for the same drugs and biologicals from 
ASP-1 percent to ASP+5 percent. We refer readers to section V.B.3. of 
this final rule with comment period for a complete discussion of our 
policy to pay for separately paid drugs and biologicals and pharmacy 
overhead for CY 2011.
    We then removed line-items that were not paid during claim 
processing, presumably for a line-item rejection or denial. We added 
this process to our median cost calculation methodology for the CY 2010 
OPPS, as discussed in the CY 2010 OPPS/ASC final rule with comment 
period (74 FR 60359). The number of edits for valid OPPS payment in the 
Integrated Outpatient Code Editor (I/OCE) and elsewhere has grown 
significantly in the past few years, especially with the implementation 
of

[[Page 71828]]

the full spectrum of National Correct Coding Initiative (NCCI) edits. 
To ensure that we are using valid claims that represent the cost of 
payable services to set payment rates, we removed line-items with an 
OPPS status indicator for the claim year and a status indicator of 
``S,'' ``T,'' ``V,'' or ``X'' when separately paid under the 
prospective year's payment system. This logic preserves charges for 
services that would not have been paid in the claim year but for which 
some estimate of cost is needed for the prospective year, such as 
services newly proposed to come off the inpatient list for CY 2010 that 
were assigned status indicator ``C'' in the claim year. It also 
preserves charges for packaged services so that the costs can be 
included in the cost of the services with which they are reported, even 
if the CPT codes for the packaged services were not paid because the 
service is part of another service that was reported on the same claim 
or the code otherwise violates claims processing edits.
    For CY 2011, for this final rule with comment period, we are 
expanding the application of this trim to exclude line-item data for 
pass-through drugs and biologicals (status indicator ``G'' for CY 2009) 
and nonpass-through drugs and biologicals (status indicator ``K'' for 
CY 2009) where the charges reported on the claim for the line were 
either denied or rejected during claims processing. Removing lines that 
were eligible for payment but were not paid ensures that we are using 
appropriate data. The trim avoids using cost data on lines that we 
believe were defective or invalid because those rejected or denied 
lines did not meet the Medicare requirements for payment. For example, 
edits may reject a line for a separately paid drug because the number 
of units billed exceeded the number of units that would be reasonable 
and, therefore, is likely a billing error (for example, a line 
reporting 55 units of a drug for which 5 units is known to be a fatal 
dose). For approximately 90 percent of the codes with status indicators 
``G'' and ``K'' in their claims year, to which the expansion of the 
trim would apply, between 0 and 10 percent of lines would be removed 
due to receiving zero payment. As with our trimming in the CY 2010 
OPPS/ASC final rule with comment period (74 FR 60359) of line items 
with a status indicator of ``S,'' ``T,'' ``V,'' or ``X'', we believe 
that unpaid line-items represent services that are invalidly reported 
and, therefore, should not be used for ratesetting. We believe that 
removing lines with valid status indicators that were edited and not 
paid during claims processing increases the accuracy of the single 
bills used to determine the mean unit costs for use in the ASP+X 
calculation described in section V.B.3. of this final rule with comment 
period.
    Comment: One commenter requested that CMS conduct analysis of the 
overall CCR error trim in 2010 and provide APC-specific impacts for all 
radiation oncology services. The commenter also recommended that CMS 
consider implementation of a lower-level threshold for the CCR error 
trim in future rulemaking.
    Response: As we noted above, the impact of moving the lower-level 
error CCR threshold is minimal because of its interaction with the 
standard trim of all hospitals whose overall ancillary CCR is three 
standard deviations beyond the geometric mean. Established tolerances 
of 0.0001 and 90 remove those hospitals whose CCRs are highly aberrant 
relative to the others in the data set, in particular because they 
apply at the hospital level and not at the departmental level. While 
the commenter has requested that we conduct an analysis of the impact 
of the overall CCR error trim on the APCs for radiation oncology, we 
note that this standard error CCR trim is intended to remove all claims 
(not limited to a particular category of care) from hospitals with 
highly aberrant CCRs so that the relativity of the APC payment weights 
is accurate. Therefore, the impact on selected APCs, such as radiation 
oncology APCs, is not relevant to a determination of whether a 
hospital's overall CCR is so extreme that all claims for the hospital 
should be excluded from the data on which the OPPS relative weights are 
based. We will continue to monitor whether our established error CCR 
thresholds are appropriate. However, based on the recent study we 
provided to the APC Panel Data Subcommittee, we agree with the Panel's 
assessment that the current error CCR tolerances are appropriate.
b. Splitting Claims and Creation of ``Pseudo'' Single Procedure Claims
(1) Splitting Claims
    We then split the remaining claims into five groups: single majors; 
multiple majors; single minors; multiple minors; and other claims. 
(Specific definitions of these groups follow below.) For CY 2011, we 
proposed to continue our current policy of defining major procedures as 
any HCPCS code having a status indicator of ``S,'' ``T,'' ``V,'' or 
``X;'' defining minor procedures as any code having a status indicator 
of ``F,'' ``G,'' ``H,'' ``K,'' ``L,'' ``R,'' ``U,'' or ``N,'' and 
classifying ``other'' procedures as any code having a status indicator 
other than one that we have classified as major or minor. For CY 2011, 
we proposed to continue assigning status indicator ``R'' to blood and 
blood products; status indicator ``U'' to brachytherapy sources; status 
indicator ``Q1'' to all ``STVX-packaged codes;'' status indicator 
``Q2'' to all ``T-packaged codes;'' and status indicator ``Q3'' to all 
codes that may be paid through a composite APC based on composite-
specific criteria or paid separately through single code APCs when the 
criteria are not met. As discussed in the CY 2009 OPPS/ASC final rule 
with comment period (73 FR 68709), we established status indicators 
``Q1,'' ``Q2,'' and ``Q3'' to facilitate identification of the 
different categories of codes. We proposed to treat these codes in the 
same manner for data purposes for CY 2011 as we have treated them since 
CY 2008. Specifically, we proposed to continue to evaluate whether the 
criteria for separate payment of codes with status indicator ``Q1'' or 
``Q2'' are met in determining whether they are treated as major or 
minor codes. Codes with status indicator ``Q1'' or ``Q2'' are carried 
through the data either with status indicator ``N'' as packaged or, if 
they meet the criteria for separate payment, they are given the status 
indicator of the APC to which they are assigned and are considered as 
``pseudo'' single procedure claims for major codes. Codes assigned 
status indicator ``Q3'' are paid under individual APCs unless they 
occur in the combinations that qualify for payment as composite APCs 
and, therefore, they carry the status indicator of the individual APC 
to which they are assigned through the data process and are treated as 
major codes during both the split and ``pseudo'' single creation 
process. The calculation of the median costs for composite APCs from 
multiple procedure major claims is discussed in section II.A.2.e. of 
this final rule with comment period.
    Specifically, we divided the remaining claims into the following 
five groups:
    1. Single Procedure Major Claims: Claims with a single separately 
payable procedure (that is, status indicator ``S,'' ``T,'' ``V,'' or 
``X,'' which includes codes with status indicator ``Q3''); claims with 
one unit of a status indicator ``Q1'' code (``STVX-packaged'') where 
there was no code with status indicator ``S,'' ``T,'' ``V,'' or ``X'' 
on the same claim on the same date; or claims with one unit of a status 
indicator ``Q2'' code (``T-packaged'') where there was no code with a 
status indicator ``T'' on the same claim on the same date.

[[Page 71829]]

    2. Multiple Procedure Major Claims: Claims with more than one 
separately payable procedure (that is, status indicator ``S,'' ``T,'' 
``V,'' or ``X,'' which includes codes with status indicator ``Q3''), or 
multiple units of one payable procedure. These claims include those 
codes with a status indicator ``Q2'' code (``T-packaged'') where there 
was no procedure with a status indicator ``T'' on the same claim on the 
same date of service but where there was another separately paid 
procedure on the same claim with the same date of service (that is, 
another code with status indicator ``S,'' ``V,'' or ``X''). We also 
include, in this set, claims that contained one unit of one code when 
the bilateral modifier was appended to the code and the code was 
conditionally or independently bilateral. In these cases, the claims 
represented more than one unit of the service described by the code, 
notwithstanding that only one unit was billed.
    3. Single Procedure Minor Claims: Claims with a single HCPCS code 
that was assigned status indicator ``F,'' ``G,'' ``H,'' ``K,'' ``L,'' 
``R,'' ``U,'' or ``N'' and not status indicator ``Q1'' (``STVX-
packaged'') or status indicator ``Q2'' (``T-packaged'') code.
    4. Multiple Procedure Minor Claims: Claims with multiple HCPCS 
codes that are assigned status indicator ``F,'' ``G,'' ``H,'' ``K,'' 
``L,'' ``R,'' ``U,'' or ``N;'' claims that contain more than one code 
with status indicator ``Q1'' (``STVX-packaged'') or more than one unit 
of a code with status indicator ``Q1'' but no codes with status 
indicator ``S,'' ``T,'' ``V,'' or ``X'' on the same date of service; or 
claims that contain more than one code with status indicator ``Q2'' (T-
packaged), or ``Q2'' and ``Q1,'' or more than one unit of a code with 
status indicator ``Q2'' but no code with status indicator ``T'' on the 
same date of service.
    5. Non-OPPS Claims: Claims that contain no services payable under 
the OPPS (that is, all status indicators other than those listed for 
major or minor status). These claims were excluded from the files used 
for the OPPS. Non-OPPS claims have codes paid under other fee 
schedules, for example, durable medical equipment or clinical 
laboratory tests, and do not contain a code for a separately payable or 
packaged OPPS service. Non-OPPS claims include claims for therapy 
services paid sometimes under the OPPS but billed, in these non-OPPS 
cases, with revenue codes indicating that the therapy services would be 
paid under the Medicare Physician Fee Schedule (MPFS).
    The claims listed in numbers 1, 2, 3, and 4 above are included in 
the data file that can be purchased as described above. Claims that 
contain codes to which we have assigned status indicators ``Q1'' 
(``STVX-packaged'') and ``Q2'' (``T-packaged'') appear in the data for 
the single major file, the multiple major file, and the multiple minor 
file used in this final rule with comment period. Claims that contain 
codes to which we have assigned status indicator ``Q3'' (composite APC 
members) appear in both the data of the single and multiple major files 
used in this final rule with comment period, depending on the specific 
composite calculation.
    We did not receive any public comments on our proposed process of 
organizing claims by type. Therefore, for the reasons set forth in the 
proposed rule (75 CFR 46199), we are finalizing our CY 2011 proposal 
without modification.
(2) Creation of ``Pseudo'' Single Procedure Claims
    As proposed, to develop ``pseudo'' single procedure claims for this 
final rule with comment period, we examined both the multiple procedure 
major claims and the multiple procedure minor claims. We first examined 
the multiple major procedure claims for dates of service to determine 
if we could break them into ``pseudo'' single procedure claims using 
the dates of service for all lines on the claim. If we could create 
claims with single major procedures by using dates of service, we 
created a single procedure claim record for each separately payable 
procedure on a different date of service (that is, a ``pseudo'' 
single).
    As proposed, for this final rule with comment period, we also used 
the bypass codes listed earlier in Table 1 and discussed in section 
II.A.1.b. of this final rule with comment period to remove separately 
payable procedures that we determined contained limited or no packaged 
costs or that were otherwise suitable for inclusion on the bypass list 
from a multiple procedure bill. As discussed above, we ignore the 
``overlap bypass codes,'' that is, those HCPCS codes that are both on 
the bypass list and are members of the multiple imaging composite APCs, 
in this initial assessment for ``pseudo'' single procedure claims. The 
CY 2011 ``overlap bypass codes'' are listed in Table 1 in section 
II.A.1.b. of this final rule with comment period. When one of the two 
separately payable procedures on a multiple procedure claim was on the 
bypass list, we split the claim into two ``pseudo'' single procedure 
claim records. The single procedure claim record that contained the 
bypass code did not retain packaged services. The single procedure 
claim record that contained the other separately payable procedure (but 
no bypass code) retained the packaged revenue code charges and the 
packaged HCPCS code charges. We also removed lines that contained 
multiple units of codes on the bypass list and treated them as 
``pseudo'' single procedure claims by dividing the cost for the 
multiple units by the number of units on the line. Where one unit of a 
single, separately payable procedure code remained on the claim after 
removal of the multiple units of the bypass code, we created a 
``pseudo'' single procedure claim from that residual claim record, 
which retained the costs of packaged revenue codes and packaged HCPCS 
codes. This enabled us to use claims that would otherwise be multiple 
procedure claims and could not be used.
    As proposed, for this final rule with comment period, we then 
assessed the claims to determine if the criteria for the multiple 
imaging composite APCs, discussed in section II.A.2.e.(5) of this final 
rule with comment period, were met. Where the criteria for the imaging 
composite APCs were met, we created a ``single session'' claim for the 
applicable imaging composite service and determined whether we could 
use the claim in ratesetting. For HCPCS codes that are both 
conditionally packaged and are members of a multiple imaging composite 
APC, we first assessed whether the code would be packaged and, if so, 
the code ceased to be available for further assessment as part of the 
composite APC. Because the packaged code would not be a separately 
payable procedure, we considered it to be unavailable for use in 
setting the composite APC median cost. Having identified ``single 
session'' claims for the imaging composite APCs, we reassessed the 
claim to determine if, after removal of all lines for bypass codes, 
including the ``overlap bypass codes,'' a single unit of a single 
separately payable code remained on the claim. If so, we attributed the 
packaged costs on the claim to the single unit of the single remaining 
separately payable code other than the bypass code to create a 
``pseudo'' single procedure claim. We also identified line-items of 
overlap bypass codes as a ``pseudo'' single procedure claim. This 
allowed us to use more claims data for ratesetting purposes.
    As proposed, for this final rule with comment period, we also 
examined the multiple procedure minor claims to determine whether we 
could create ``pseudo'' single procedure claims. Specifically, where 
the claim contained multiple codes with status indicator

[[Page 71830]]

``Q1'' (``STVX-packaged'') on the same date of service or contained 
multiple units of a single code with status indicator ``Q1,'' we 
selected the status indicator ``Q1'' HCPCS code that had the highest CY 
2010 relative weight, set the units to one on that HCPCS code to 
reflect our policy of paying only one unit of a code with a status 
indicator of ``Q1.'' We then packaged all costs for the following into 
a single cost for the ``Q1'' HCPCS code that had the highest CY 2010 
relative weight to create a ``pseudo'' single procedure claim for that 
code: Additional units of the status indicator ``Q1'' HCPCS code with 
the highest CY 2010 relative weight; other codes with status indicator 
``Q1''; and all other packaged HCPCS codes and packaged revenue code 
costs. We changed the status indicator for selected codes from the data 
status indicator of ``N'' to the status indicator of the APC to which 
the selected procedure was assigned for further data processing and 
considered this claim as a major procedure claim. We used this claim in 
the calculation of the APC median cost for the status indicator ``Q1'' 
HCPCS code.
    Similarly, as we proposed, for this final rule with comment period, 
where a multiple procedure minor claim contained multiple codes with 
status indicator ``Q2'' (``T-packaged'') or multiple units of a single 
code with status indicator ``Q2,'' we selected the status indicator 
``Q2'' HCPCS code that had the highest CY 2010 relative weight, set the 
units to one on that HCPCS code to reflect our policy of paying only 
one unit of a code with a status indicator of ``Q2.'' We then packaged 
all costs for the following into a single cost for the ``Q2'' HCPCS 
code that had the highest CY 2010 relative weight to create a 
``pseudo'' single procedure claim for that code: Additional units of 
the status indicator ``Q2'' HCPCS code with the highest CY 2010 
relative weight; other codes with status indicator ``Q2;'' and other 
packaged HCPCS codes and packaged revenue code costs. We changed the 
status indicator for the selected code from a data status indicator of 
``N'' to the status indicator of the APC to which the selected code was 
assigned, and we considered this claim as a major procedure claim.
    Lastly, as proposed, for this final rule with comment period, where 
a multiple procedure minor claim contained multiple codes with status 
indicator ``Q2'' (``T-packaged'') and status indicator ``Q1'' (``STVX-
packaged''), we selected the status indicator ``Q2'' HCPCS code (``T-
packaged'') that had the highest relative weight for CY 2010 and set 
the units to one on that HCPCS code to reflect our policy of paying 
only one unit of a code with a status indicator of ``Q2.'' We then 
packaged all costs for the following into a single cost for the 
selected (``T-packaged'') HCPCS code to create a ``pseudo'' single 
procedure claim for that code: Additional units of the status indicator 
``Q2'' HCPCS code with the highest CY 2010 relative weight; other codes 
with status indicator ``Q2;'' codes with status indicator ``Q1'' 
(``STVX-packaged''); and other packaged HCPCS codes and packaged 
revenue code costs. We favor status indicator ``Q2'' over ``Q1'' HCPCS 
codes because ``Q2'' HCPCS codes have higher CY 2010 relative weights. 
If a status indicator ``Q1'' HCPCS code had a higher CY 2010 relative 
weight, it would become the primary code for the simulated single bill 
process. We changed the status indicator for the selected status 
indicator ``Q2'' (``T-packaged'') code from a data status indicator of 
``N'' to the status indicator of the APC to which the selected code was 
assigned and we considered this claim as a major procedure claim.
    In public comments received on the CY 2010 OPPS/ASC proposed rule, 
a public commenter suggested that CMS could use more claims data to 
develop medians for these conditionally packaged codes if CMS applied 
the ``pseudo'' single creation process to the conditionally packaged 
codes in the multiple major claims that still contained unusable data. 
We agreed with the commenter and in the CY 2011 proposed rule, we 
proposed to use the otherwise unusable multiple procedure claims data 
that remain after the standard pseudo single creation process is 
applied to them, in order to create more pseudo single procedure 
claims. We did not receive any public comments on this proposal, and 
therefore, for the reasons set forth in the proposed rule (75 FR 
46201), we followed this practice in creating pseudo single bills for 
the proposed rule and this final rule with comment period. We do this 
by treating the conditionally packaged codes that do not meet the 
criteria for packaging as if they were separately payable major codes 
and applying the pseudo single process to the claims data to create 
single procedure claims from them if they meet the criteria for single 
procedure claims. Conditionally packaged codes are identified using 
status indicators ``Q1'' and ``Q2,'' and are described in section 
XIII.A.1. of this final rule with comment period. Using the February 
2010 APC Panel data, we estimated that the impact of adding this 
proposed additional step to the pseudo single creation process would 
result in a small increase in the number of claims usable for 
ratesetting in most cases, but with more significant increases of 
between 5 to 10 percent of claims for a few codes. For most of the 
codes affected by adding this proposed additional step to the 
``pseudo'' single creation process, we found no significant changes to 
the APC medians. Some HCPCS codes do experience some fluctuations, with 
the impact of additional claims causing their APC median to decrease. 
We believe that this change is consistent with our goal of using more 
available data from within the existing set of claims information and 
results in a more accurate estimation of the APC median cost for 
conditionally packaged services.
    As proposed, for this final rule with comment period, we excluded 
those claims that we were not able to convert to single procedure 
claims even after applying all of the techniques for creation of 
``pseudo'' single procedure claims to multiple procedure major claims 
and to multiple procedure minor claims. As has been our practice in 
recent years, we also excluded claims that contained codes that were 
viewed as independently or conditionally bilateral and that contained 
the bilateral modifier (Modifier 50 (Bilateral procedure)) because the 
line-item cost for the code represented the cost of two units of the 
procedure, notwithstanding that hospitals billed the code with a unit 
of one.
c. Completion of Claim Records and Median Cost Calculations
    As proposed, for this final rule with comment period, we then 
packaged the costs of packaged HCPCS codes (codes with status indicator 
``N'' listed in Addendum B to this final rule with comment period and 
the costs of those lines for codes with status indicator ``Q1'' or 
``Q2'' when they are not separately paid), and the costs of the 
services reported under packaged revenue codes in Table 3 that appeared 
on the claim without a HCPCS code into the cost of the single major 
procedure remaining on the claim.
    As noted in the CY 2008 OPPS/ASC final rule with comment period (72 
FR 66606), for the CY 2008 OPPS, we adopted an APC Panel recommendation 
that CMS should review the final list of packaged revenue codes for 
consistency with OPPS policy and ensure that future versions of the I/
OCE edit accordingly. As we have in the past, we will continue to 
compare the final list of packaged revenue codes that we adopt for CY 
2011 to the revenue codes that

[[Page 71831]]

the I/OCE will package for CY 2011 to ensure consistency.
    In the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68531), we replaced the NUBC standard abbreviations for the revenue 
codes listed in Table 2 of the CY 2009 OPPS/ASC proposed rule with the 
most current NUBC descriptions of the revenue code categories and 
subcategories to better articulate the meanings of the revenue codes 
without changing the proposed list of revenue codes. In the CY 2010 
OPPS/ASC final rule with comment period (74 FR 60362 through 60363), we 
finalized changes to the packaged revenue code list based on our 
examination of the updated NUBC codes and public comment to the CY 2010 
proposed list of packaged revenue codes. As proposed, for this CY 2011 
OPPS/ASC final rule with comment period, we reviewed the changes to 
revenue codes that were effective during CY 2009 for purposes of 
determining the charges reported with revenue codes but without HCPCS 
codes that we would package for the CY 2011 OPPS. As we discuss in the 
context of the revenue code-to-cost center crosswalk in section 
II.A.1.c. of this final rule with comment period, for CY 2009, the NUBC 
changed the title of revenue code series 076x from ``Specialty Room--
Treatment/Observation Room'' to ``Specialty Services'' and changed the 
title of subclassification revenue code 0762 from ``Observation Room'' 
to ``Observation Hours.'' In addition, the NUBC deleted an explanatory 
note following revenue code 0913, ``Behavioral Health Treatment 
Services--Extension of 090x.'' As we proposed, for this final rule with 
comment period, we are revising the title for revenue code 076x, 
Observation Hours, in Table 3 to comport to the CY 2009 revenue code 
title for revenue code 076x. There is no need to revise the table as a 
result of the deletion of the explanatory note. We believe that the 
charges reported under the revenue codes listed in Table 3 continue to 
reflect ancillary and supportive services for which hospitals report 
charges without HCPCS codes. Therefore, as we proposed, we are 
continuing to package the costs that we derive from the charges 
reported under the revenue codes displayed in Table 3 below for 
purposes of calculating the median costs on which the CY 2011 OPPS are 
based.
    We did not receive any public comments on the proposed packaged 
revenue codes for CY 2011. Therefore, for the reasons set forth in the 
proposed rule (75 FR 46201) we are finalizing the proposed packaged 
revenue codes for CY 2011, without modification, which are identified 
in Table 3 below. We note that these revenue codes include only revenue 
codes that were in effect for CY 2009, the year of the claims data on 
which the CY 2011 OPPS payment rates are based.

                 Table 3--CY 2011 Packaged Revenue Codes
------------------------------------------------------------------------
     Revenue code                          Description
------------------------------------------------------------------------
0250..................  Pharmacy; General Classification.
0251..................  Pharmacy; Generic Drugs.
0252..................  Pharmacy; Non-Generic Drugs.
0254..................  Pharmacy; Drugs Incident to Other Diagnostic
                         Services.
0255..................  Pharmacy; Drugs Incident to Radiology.
0257..................  Pharmacy; Non-Prescription.
0258..................  Pharmacy; IV Solutions.
0259..................  Pharmacy; Other Pharmacy.
0260..................  IV Therapy; General Classification.
0261..................  IV Therapy; Infusion Pump.
0262..................  IV Therapy; IV Therapy/Pharmacy Svcs.
0263..................  IV Therapy; IV Therapy/Drug/Supply Delivery.
0264..................  IV Therapy; IV Therapy/Supplies.
0269..................  IV Therapy; Other IV Therapy.
0270..................  Medical/Surgical Supplies and Devices; General
                         Classification.
0271..................  Medical/Surgical Supplies and Devices; Non-
                         sterile Supply.
0272..................  Medical/Surgical Supplies and Devices; Sterile
                         Supply.
0275..................  Medical/Surgical Supplies and Devices;
                         Pacemaker.
0276..................  Medical/Surgical Supplies and Devices;
                         Intraocular Lens.
0278..................  Medical/Surgical Supplies and Devices; Other
                         Implants.
0279..................  Medical/Surgical Supplies and Devices; Other
                         Supplies/Devices.
0280..................  Oncology; General Classification.
0289..................  Oncology; Other Oncology.
0343..................  Nuclear Medicine; Diagnostic
                         Radiopharmaceuticals.
0344..................  Nuclear Medicine; Therapeutic
                         Radiopharmaceuticals.
0370..................  Anesthesia; General Classification.
0371..................  Anesthesia; Anesthesia Incident to Radiology.
0372..................  Anesthesia; Anesthesia Incident to Other DX
                         Services.
0379..................  Anesthesia; Other Anesthesia.
0390..................  Administration, Processing and Storage for Blood
                         and Blood Components; General Classification.
0392..................  Administration, Processing and Storage for Blood
                         and Blood Components; Processing and Storage.
0399..................  Administration, Processing and Storage for Blood
                         and Blood Components; Other Blood Handling.
0621..................  Medical Surgical Supplies--Extension of 027X;
                         Supplies Incident to Radiology.
0622..................  Medical Surgical Supplies--Extension of 027X;
                         Supplies Incident to Other DX Services.
0623..................  Medical Supplies--Extension of 027X, Surgical
                         Dressings.
0624..................  Medical Surgical Supplies--Extension of 027X;
                         FDA Investigational Devices.
0630..................  Pharmacy--Extension of 025X; Reserved.
0631..................  Pharmacy--Extension of 025X; Single Source Drug.
0632..................  Pharmacy--Extension of 025X; Multiple Source
                         Drug.
0633..................  Pharmacy--Extension of 025X; Restrictive
                         Prescription.
0681..................  Trauma Response; Level I Trauma.
0682..................  Trauma Response; Level II Trauma.
0683..................  Trauma Response; Level III Trauma.

[[Page 71832]]

 
0684..................  Trauma Response; Level IV Trauma.
0689..................  Trauma Response; Other.
0700..................  Cast Room; General Classification.
0710..................  Recovery Room; General Classification.
0720..................  Labor Room/Delivery; General Classification.
0721..................  Labor Room/Delivery; Labor.
0732..................  EKG/ECG (Electrocardiogram); Telemetry.
0762..................  Specialty services; Observation Hours.
0801..................  Inpatient Renal Dialysis; Inpatient
                         Hemodialysis.
0802..................  Inpatient Renal Dialysis; Inpatient Peritoneal
                         Dialysis (Non-CAPD).
0803..................  Inpatient Renal Dialysis; Inpatient Continuous
                         Ambulatory Peritoneal Dialysis (CAPD).
0804..................  Inpatient Renal Dialysis; Inpatient Continuous
                         Cycling Peritoneal Dialysis (CCPD).
0809..................  Inpatient Renal Dialysis; Other Inpatient
                         Dialysis.
0810..................  Acquisition of Body Components; General
                         Classification.
0819..................  Inpatient Renal Dialysis; Other Donor.
0821..................  Hemodialysis-Outpatient or Home; Hemodialysis
                         Composite or Other Rate.
0824..................  Hemodialysis-Outpatient or Home; Maintenance.--
                         100%.
0825..................  Hemodialysis-Outpatient or Home; Support
                         Services.
0829..................  Hemodialysis-Outpatient or Home; Other OP
                         Hemodialysis.
0942..................  Other Therapeutic Services (also see 095X, an
                         extension of 094x); Education/Training.
0943..................  Other Therapeutic Services (also see 095X, an
                         extension of 094X), Cardiac Rehabilitation.
0948..................  Other Therapeutic Services (also see 095X, an
                         extension of 094X), Pulmonary Rehabilitation.
------------------------------------------------------------------------

    In accordance with our longstanding policy, we are continuing to 
exclude: (1) Claims that had zero costs after summing all costs on the 
claim; and (2) claims containing packaging flag number 3. Effective for 
services furnished on or after July 1, 2004, the I/OCE assigned 
packaging flag number 3 to claims on which hospitals submitted token 
charges less than $1.01 for a service with status indicator ``S'' or 
``T'' (a major separately payable service under the OPPS) for which the 
fiscal intermediary or MAC was required to allocate the sum of charges 
for services with a status indicator equaling ``S'' or ``T'' based on 
the relative weight of the APC to which each code was assigned. We do 
not believe that these charges, which were token charges as submitted 
by the hospital, are valid reflections of hospital resources. 
Therefore, we deleted these claims. We also deleted claims for which 
the charges equaled the revenue center payment (that is, the Medicare 
payment) on the assumption that where the charge equaled the payment, 
to apply a CCR to the charge would not yield a valid estimate of 
relative provider cost. As we proposed, for this final rule with 
comment period, we are continuing these processes for the CY 2011 OPPS.
    As proposed, for this final rule with comment period, for the 
remaining claims, we then standardized 60 percent of the costs of the 
claim (which we have previously determined to be the labor-related 
portion) for geographic differences in labor input costs. We made this 
adjustment by determining the wage index that applied to the hospital 
that furnished the service and dividing the cost for the separately 
paid HCPCS code furnished by the hospital by that wage index. The 
claims accounting that we provide for the proposed and final rule 
contains the formula we use to standardize the total cost for the 
effects of the wage index. As has been our policy since the inception 
of the OPPS, we proposed to use the pre-reclassified wage indices for 
standardization because we believe that they better reflect the true 
costs of items and services in the area in which the hospital is 
located than the post-reclassification wage indices and, therefore, 
would result in the most accurate unadjusted median costs.
    In accordance with our longstanding practice, as proposed, for this 
final rule with comment period, we also excluded single and pseudo 
single procedure claims for which the total cost on the claim was 
outside 3 standard deviations from the geometric mean of units for each 
HCPCS code on the bypass list (because, as discussed above, we used 
claims that contain multiple units of the bypass codes).
    After removing claims for hospitals with error CCRs, claims without 
HCPCS codes, claims for immunizations not covered under the OPPS, and 
claims for services not paid under the OPPS, approximately 105 million 
claims were left. Using these 105 million claims, we created 
approximately 103 million single and ``pseudo'' single procedure 
claims, of which we used slightly more than 101 million single bills 
(after trimming out approximately 792,000 claims as discussed above in 
this section) in the final CY 2011 median development and ratesetting.
    We used these claims to calculate the final CY 2011 median costs 
for each separately payable HCPCS code and each APC. The comparison of 
HCPCS code-specific and APC medians determines the applicability of the 
2 times rule. Section 1833(t)(2) of the Act provides that, subject to 
certain exceptions, the items and services within an APC group cannot 
be considered comparable with respect to the use of resources if the 
highest median (or mean cost, if elected by the Secretary) for an item 
or service in the group is more than 2 times greater than the lowest 
median cost for an item or service within the same group (the 2 times 
rule). We note that, for purposes of identifying significant HCPCS for 
examination in the 2 times rule, we consider codes that have more than 
1,000 single major claims or codes that have both more than 99 single 
major claims and contribute at least 2 percent of the single major 
claims used to establish the APC median cost to be significant. 
Unlisted codes are not used in establishing the percent of claims 
contributing to the APC, nor are their costs used in the calculation of 
the APC median. Finally, we reviewed the median costs for the services 
for which we are paying separately under this final rule with comment 
period, and we reassigned HCPCS codes to different APCs where it was 
necessary to ensure clinical and resource homogeneity within the APCs. 
Section III of this final

[[Page 71833]]

rule with comment period includes a discussion of many of the HCPCS 
code assignment changes that resulted from examination of the median 
costs and for other reasons. The APC medians were recalculated after we 
reassigned the affected HCPCS codes. Both the HCPCS code-specific 
medians and the APC medians were weighted to account for the inclusion 
of multiple units of the bypass codes in the creation of ``pseudo'' 
single procedure claims.
    As we discuss in sections II.A.2 d. and II.A.2.e. and in section 
X.B. of this final rule with comment period, in some cases, APC median 
costs are calculated using variations of the process outlined above. 
Specifically, section II.A.2.d. of this final rule with comment period 
addresses the calculation of single APC criteria-based median costs. 
Section II.A.2.e. of this final rule with comment period discusses the 
calculation of composite APC criteria-based median costs. Section X.B. 
of this final rule with comment period addresses the methodology for 
calculating the median cost for partial hospitalization services.
    We received several general comments on the payment rates CMS 
proposed in the CY 2011 OPPS/ASC proposed rule:
    Comment: Several commenters objected to the volatility of the OPPS 
rates from year to year. The commenters asserted that the absence of 
stability in the OPPS rates creates budgeting, planning, and operating 
problems for hospitals. One commenter suggested that the median costs 
from claims be adjusted to limit changes from year to year. Some 
commenters asked that CMS limit any decreases in payment compared to 
the prior year to no more than a 10-percent decline.
    Response: There are a number of factors pertinent to the OPPS that 
may cause median costs to change from one year to the next. Some of 
these are a reflection of hospital behavior, and some of them are a 
reflection of fundamental characteristics of the OPPS as defined in 
statute. For example, the OPPS payment rates are based on hospital cost 
report and claims data. However, hospital costs and charges change each 
year and this results in both changes to the CCRs taken from the most 
currently available cost reports and also differences in the charges on 
the claims that are the basis of the calculation of the median costs on 
which OPPS rates are based. Similarly, hospitals adjust their mix of 
services from year to year by offering new services and ceasing to 
furnish services and changing the proportion of the various services 
they furnish, which have an impact on the CCRs that we derive from 
their cost reports. CMS cannot stabilize these hospital-driven 
fundamental inputs to the calculation of OPPS payment rates.
    Moreover, there are other essential elements of the OPPS that 
contribute to the changes in relative weights each year. These include, 
but are not limited to, reassignments of HCPCS codes to APCs to rectify 
2 times rule violations as required by the law, to address the costs of 
new services, to address differences in hospitals' costs that may 
result from changes in medical practice, and to respond to public 
comments. Our efforts to improve payment accuracy may also contribute 
to payment volatility in the short run, as may be the case when we may 
eventually be able to use more specific CCRs to estimate the costs of 
implantable devices, based on the final policy that we adopted to 
disaggregate the single cost center for medical supplies into two more 
specific cost centers, as described in the FY 2009 IPPS final rule (73 
FR 48458 through 48467). Moreover, for some services, we cannot avoid 
using small numbers of claims, either because the volume of services is 
naturally low or because the claims data do not facilitate the 
calculation of a median cost for a single service. Where there are 
small numbers of claims that are used in median calculation, there is 
more volatility in the median cost from one year to the next. Lastly, 
changes to OPPS payment policy (for example, changes to packaging) also 
contribute, to some extent, to the fluctuations in the OPPS payment 
rates for the same services from year to year.
    We cannot avoid the naturally occurring volatility in the cost 
report and claims data that hospitals submit and on which the payment 
rates are based. Moreover (with limited exceptions), we reassign HCPCS 
codes to APCs where it is necessary to avoid 2 times rule violations. 
However, we have made other changes to resolve some of the other 
potential reasons for instability from year to year. Specifically, we 
continue to seek ways to use more claims data so that we have fewer 
APCs for which there are small numbers of single bills used to set the 
APC median costs. Moreover, we have tried to eliminate APCs with very 
small numbers of single bills where we could do so. We recognize that 
changes to payment policies, such as the packaging of payment for 
ancillary and supportive services and the implementation of composite 
APCs, may contribute to volatility in payment rates in the short term, 
but we believe that larger payment packages and bundles should help to 
stabilize payments in the long term by enabling us to use more claims 
data and by establishing payments for larger groups of services.
    While we recognize the reasoning behind a request to limit 
reductions in the weights or payment rates of the OPPS, this would not 
be as simple or beneficial as commenters have implied. Implementing 
such a policy would require the assumption that payment policy is 
static from year to year. Based on the data used to develop the OPPS, 
we know that this is not true. Further, in seeking to mitigate 
fluctuations in the OPPS, implementing such a system would make 
payments less reflective of the true service costs. Limiting decreases 
to payments across all APCs in a budget neutral payment system could 
unfairly reduce the payments for other services due to the effects of 
the scaling that is necessary to maintain budget neutrality and would 
distort the realtivity of payment that is based on the cost of all 
services.
    Comment: Several commenters noted that an analysis of the hospital 
Medicare cost reports showed a disturbing trend of negative margins and 
a wide gap between the outpatient margins of major teaching hospitals 
and those of all other hospitals. The commenters recommended that CMS 
study whether the hospital outpatient costs of teaching hospitals are 
higher than the costs of other hospitals for purposes of determining 
whether there should be a teaching hospital adjustment. The commenters 
requested that CMS conduct its own analysis and that if that analysis 
showed a difference due to the unique missions of teaching hospitals, 
CMS should add a teaching adjustment to the OPPS.
    Response: Unlike payment under the IPPS, section 1833(t) of the Act 
does not require payment for indirect medical education costs to be 
made under the OPPS. However, section 1833(t)(2)(E) of the Act provides 
the Secretary with authority to make adjustments under the OPPS in 
certain circumstances. Specifically, section 1833(t)(2)(E) of the Act 
states that the Secretary shall establish, in a budget neutral manner 
``* * * other adjustments as determined to be necessary to ensure 
equitable payments, such as adjustments for certain classes of 
hospitals.'' We have not found such an adjustment to be necessary to 
ensure equitable payments to teaching hospitals and, therefore, have 
not developed such an adjustment. Furthermore, in this final rule with 
comment period, we have developed payment weights that we believe 
provide appropriate and adequate payment for the complex medical 
services, such as new technology

[[Page 71834]]

services and device-dependent procedures, which we understand are 
furnished largely by teaching hospitals. We note that teaching 
hospitals benefit from the recalibration of the APCs in this final rule 
with comment period and that teaching hospitals benefit from being 
generally located in areas with relatively high wage indices. With 
respect to the comment that teaching hospitals experience negative 
margins and a wide gap in payment between teaching hospitals and other 
hospitals, we note it is not clear the extent to which a gap between 
teaching hospitals and other hospitals may be attributable to OPPS or 
to the costs of medical education for which the law provides payment 
outside the OPPS. The final CY 2011 impacts by class of hospital are 
displayed in Table 66 in section XX.B. of this final rule with comment 
period.
APC Panel Recommendations Regarding Data Development
    At the August 2010 APC Panel Meeting, we provided the APC Panel a 
list of all APCs decreasing by more than 5 percent and increasing by 
more than 15 percent when comparing the proposed CY 2011 median costs 
based on data available for the August 2010 APC Panel meeting from CY 
2009 claims processed through June 30, 2010, to those based on CY 2010 
OPPS/ASC final rule data (CY 2008 claims). The APC Panel reviewed these 
fluctuations in the APC median costs and recommended that CMS continue 
to identify increases or decreases in APC median costs of 10 percent or 
greater and that CMS develop and present explanatory information on 
APCs with significant changes. The Panel believes that this would help 
the Data Subcommittee to be able to identify APCs that fluctuate due to 
coding and APC reassignment changes, and allow them to focus on those 
that required more investigation. We accept this comment and will 
furnish the Panel with these data. We note that, in some cases, we may 
be unable to clearly identify causes for median cost changes, but we 
will provide explanatory information to the extent possible.
    At its August 23-24, 2010 meeting, the APC Panel made a number of 
recommendations related to the data process. The Panel's 
recommendations and our responses follow. In instances where we discuss 
the issue on which the Panel made a recommendation elsewhere in this 
preamble, we provide the cross-reference to the appropriate section of 
this final rule with comment period.
Recommendation 1
    The Panel recommends that CMS retain the current overall ancillary 
cost-to-charge ratio (CCR) trim tolerances of 0.0001, 90, and +/- 3 
standard deviations from the geometric mean for determining the 
hospitals whose claims are to be included in ratesetting. The study 
upon which the Panel based this recommendation is described in section 
II.A.2.a. of this final rule with comment period.
    We are accepting this recommendation.
Recommendation 2
    The Panel recommends that CMS investigate and report at a future 
Panel meeting on the reason for the decline in median cost for APC 0307 
(Myocardial Positron Emission Tomography (PET) Imaging) from the 
calendar year (CY) 2010 OPPS to the proposed CY 2011 OPPS.
    This recommendation and APC specific-policies are discussed in 
section III.D. of this final rule with comment period.
Recommendation 3
    The Panel recommends that CMS identify increases or decreases in 
APC median costs of 10 percent or greater and that CMS develop and 
present explanatory information on APCs with significant changes.
    We are accepting this recommendation, and we discuss APC median 
cost fluctuations and the recommendation to identify these changes and 
their potential causes in this section.
Recommendation 4
    The Panel commends CMS for providing data analyses requested by the 
Data Subcommittee.
    We appreciate this recommendation.
Recommendation 5
    The Panel recommends that Patrick Grusenmeyer, Sc.D., be named 
chair of the Data Subcommittee.
    We are accepting this recommendation.
Recommendation 6
    The Panel recommends that the work of the Data Subcommittee 
continue.
    We are accepting this most recent recommendation, and we will 
continue to work closely with the APC Panel's Data Subcommittee to 
prepare and review data and analyses relevant to the APC configurations 
and OPPS payment policies for hospital outpatient items and services.
d. Calculation of Single Procedure APC Criteria-Based Median Costs
(1) Device-Dependent APCs
    Device-dependent APCs are populated by HCPCS codes that usually, 
but not always, require that a device be implanted or used to perform 
the procedure. For a full history of how we have calculated payment 
rates for device-dependent APCs in previous years and a detailed 
discussion of how we developed the standard device-dependent APC 
ratesetting methodology, we refer readers to the CY 2008 OPPS/ASC final 
rule with comment period (72 FR 66739 through 66742). Overviews of the 
procedure-to-device edits and device-to-procedure edits used in 
ratesetting for device-dependent APCs are available in the CY 2005 OPPS 
final rule with comment period (69 FR 65761 through 65763) and the CY 
2007 OPPS/ASC final rule with comment period (71 FR 68070 through 
68071).
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46204 through 46205), 
we proposed to continue for CY 2011 to use the standard methodology for 
calculating median costs for device-dependent APCs that was finalized 
in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60365). 
This methodology utilizes claims data that generally represent the full 
cost of the required device. Specifically, we proposed to calculate the 
median costs for device-dependent APCs for CY 2011 using only the 
subset of single procedure claims from CY 2009 claims data that pass 
the procedure-to-device and device-to-procedure edits; do not contain 
token charges (less than $1.01) for devices; do not contain the ``FB'' 
modifier signifying that the device was furnished without cost to the 
provider, supplier, or practitioner, or where a full credit was 
received; and do not contain the ``FC'' modifier signifying that the 
hospital received partial credit for the device. The ``FC'' modifier 
became effective January 1, 2008, and was present for the first time on 
claims that were used in OPPS ratesetting for CY 2010. The procedure-
to-device edits require that when a particular procedural HCPCS code is 
billed, the claim must also contain an appropriate device code, while 
the device-to-procedure edits require that a claim that contains one of 
a specified set of device codes also contain an appropriate procedure 
code. We stated in the proposed rule that we continue to believe the 
standard methodology for calculating median costs for device-dependent 
APCs gives us the most appropriate median costs for device-

[[Page 71835]]

dependent APCs in which the hospital incurs the full cost of the 
device.
    The median costs for the majority of device-dependent APCs that 
were calculated using the CY 2011 proposed rule claims data were 
generally stable, with most median costs increasing moderately compared 
to the median costs upon which the CY 2010 OPPS payment rates were 
based. However, the median costs for APC 0225 (Implantation of 
Neurostimulator Electrodes, Cranial Nerve) and APC 0418 (Insertion of 
Left Ventricular Pacing Electrode) demonstrated significant 
fluctuation. Specifically, the proposed CY 2011 median cost for APC 
0225 increased approximately 40 percent compared to its final CY 2010 
median cost, while the proposed CY 2011 median cost for APC 0418, which 
had increased approximately 53 percent from CY 2009 to CY 2010, showed 
a decrease of approximately 27 percent based on the claims data 
available for the proposed rule. We indicated in the CY 2011 OPPS/ASC 
proposed rule that we believe the fluctuations in median costs for 
these two APCs are a consequence of the small number of single bills 
upon which the median costs are based and the small number of providers 
of these services. As we have stated in the past, some fluctuation in 
relative costs from year to year is to be expected in a prospective 
payment system for low volume device-dependent APCs, particularly where 
there are small numbers of single bills from a small number of 
providers.
    Comment: Several commenters supported CMS' proposal to continue 
using the standard methodology for calculating median costs for device-
dependent APCs. Some commenters recommended that CMS continue examining 
and refining the ratesetting methodology for procedures involving 
devices in order to encourage the continued development and 
proliferation of new technology. Some commenters also requested the 
mandatory reporting of all HCPCS device C-codes on hospital claims for 
services involving devices. The commenters urged CMS to continue 
educating hospitals on the importance of accurate coding for devices, 
supplies, and other technologies, and to continue to encourage 
hospitals to remain vigilant in reporting the costs of performing 
services involving devices, in order to help ensure that these items 
are more appropriately reflected in future years' payment rates for 
outpatient services.
    Response: We appreciate the commenters' support of the continued 
use of the standard device-dependent APC ratesetting methodology.
    As we have stated in the past (73 FR 68535 through 68536 and 74 FR 
60367), we agree that accurate reporting of device, supply, and 
technology charges will help to ensure that these items are 
appropriately accounted for in future years' OPPS payment rates. We 
encourage stakeholders to carefully review HCPCS code descriptors, as 
well as any guidance CMS may have provided for specific HCPCS codes. In 
addition, we have provided further instructions on the billing of 
medical and surgical supplies in the October 2008 OPPS update 
(Transmittal 1599, Change Request 6196, dated September 19, 2008) and 
the April 2009 OPPS update (Transmittal 1702, Change Request 6416, 
dated March 13, 2009). For HCPCS codes that are paid under the OPPS, 
providers may also submit inquiries to the AHA Central Office on HCPCS, 
which serves as a clearinghouse on the proper use of Level I HCPCS 
codes for hospitals and certain Level II HCPCS codes for hospitals, 
physicians, and other health professionals. Inquiries must be submitted 
using the approved form, which may be downloaded from the AHA Web site 
(http://www.ahacentraloffice.org) and either faxed to 312-422-4583 or 
mailed directly to the AHA Central Office: Central Office on HCPCS, 
American Hospital Association, One North Franklin, Floor 29, Chicago, 
IL 60606.
    As we have stated in the past (74 FR 60367), we agree with the 
commenters that we should continue to encourage the development and 
proliferation of new technology under the OPPS. We have special 
mechanisms to provide payment for new technologies and services under 
the OPPS, including new technology APCs and transitional pass-through 
payments devices. We refer readers to sections III.C. and IV.A., 
respectively, of this final rule with comment period for more 
information on these payment methodologies. For all OPPS services, we 
continue our efforts to use the data from as many claims as possible, 
through approaches such as use of the bypass list and date splitting of 
claims as described further in section II.A. of this final rule with 
comment period, and through methodologies such as increased packaging 
and composite APCs.
    Comment: Several commenters supported the proposed CY 2011 payment 
rate for the implantation of auditory osseointegrated devices, 
described by CPT codes 69714 (Implantation, osseointegrated implant, 
temporal bone, with percutaneous attachment to external speech 
processor/cochlear stimulator; without mastoidectomy); 69715 
(Implantation, osseointegrated implant, temporal bone, with 
percutaneous attachment to external speech processor/cochlear 
stimulator; with mastoidectomy); 69717 (Replacement (including removal 
of existing device), osseointegrated implant, temporal bone, with 
percutaneous attachment to external speech processor/cochlear 
stimulator; without mastoidectomy); and 69718 (Replacement (including 
removal of existing device), osseointegrated implant, temporal bone, 
with percutaneous attachment to external speech processor/cochlear 
stimulator; with mastoidectomy), which are assigned to APC 0425. Other 
commenters also supported the proposed payment rate for APC 0259 (Level 
VII ENT Procedures), which includes the insertion of a cochlear 
implant.
    Response: We appreciate the commenters' support of the proposed 
payment rates for procedures involving auditory osseointegrated devices 
and cochlear implants. We agree that the payment rates for APCs 0259 
and 0425, calculated according to the standard device-dependent APC 
ratesetting methodology for the proposed rule and this final rule with 
comment period, appropriately reflect hospitals' relative costs for 
providing these procedures as reported to us in the claims and cost 
report data.
    Comment: One commenter concurred with CMS' determination that APC 
0385 (Level I Prosthetic Urological Procedures) and APC 0386 (Level II 
Prosthetic Urological Procedures) continue to be recognized as device-
dependent APCs. The commenter supported CMS' continued application of 
procedure-to-device edits for procedures assigned to these APCs to 
ensure the reporting of the appropriate C-code for all device-dependent 
APCs.
    Response: We appreciate the commenter's support of the continued 
recognition of APCs 0385 and 0386 as device-dependent APCs. We agree 
that claims processing edits for devices that are integral to the 
performance of procedures assigned to device-dependent APCs are an 
important element of the standard device-dependent APC ratesetting 
methodology.
    Comment: Some commenters recommended that CMS create a new APC for 
three CPT codes currently assigned to APC 0425 (Level II Arthroplasty 
or Implantation with Prosthesis): CPT code 24363 (Arthroplasty, elbow; 
with distal humerus and proximal ulnar prosthetic

[[Page 71836]]

replacement (e.g.., total elbow)); CPT code 25446 (Arthroplasty with 
prosthetic replacement; distal radius and partial or entire carpus 
(total wrist)); and CPT code 27446 (Arthroplasty, knee, condyle and 
plateau; medial OR lateral compartment). One commenter suggested that 
it would be acceptable also to include CPT code 23470 (Arthroplasty, 
glenohumeral joint; hemiarthroplasty) in the new APC. According to the 
commenters, CMS should create a new APC because the proposed payment 
rate for APC 0425 would result in a significant underpayment for these 
arthroplasty procedures. The commenters argued that the broad range in 
the median costs of procedures assigned to APC 0425 violates the 2 
times rule.
    Response: We do not believe that it is necessary to create a new 
APC for arthroplasty procedures. We do not agree with the assertion 
that the current placement of CPT codes 24363, 25446, and 27446 in APC 
0425 would result in significant underpayment for these services. 
Payment based on a measure of central tendency is a principle of any 
prospective payment system. As we have stated in the past (73 FR 
68562), in some individual cases, payment exceeds the average cost, and 
in other cases, payment is less than the average cost. However, on 
balance, payment should approximate the relative cost of the average 
case, recognizing that, as a prospective payment system, the OPPS is a 
system of averages. As stated in the CY 2008 OPPS/ASC final rule with 
comment period (72 FR 66639) and the CY 2009 OPPS/ASC final rule with 
comment period (73 FR 68546), a fundamental characteristic of a 
prospective payment system is that payment is to be set at an average 
for the service which, by definition, means that some services are paid 
more or less than the average.
    We also do not agree with the commenters' claim that the current 
configuration of APC 0425 violates the 2 times rule, which indicates 
that an APC group cannot be considered comparable with respect to the 
use of resources if the highest median cost (or mean cost if elected by 
the Secretary) for an item or service in the group is more than 2 times 
greater than the lowest median cost (or mean cost, if so elected) for 
an item or service within the same group. As we describe in section 
III.B.2. of the proposed rule and this final rule with comment period, 
we make exceptions to the 2 times rule in unusual cases, such as low-
volume items and services, and we only consider significant procedures 
for purposes of the 2 times assessment. We define significant 
procedures as those with a single claim frequency of greater than 1,000 
or those with a frequency of greater than 99 and that constitute at 
least 2 percent of single claims in the APC. There are three 
significant procedures in APC 0425, CPT codes 27446, 23470, and 69714. 
The CY 2009 hospital outpatient claims used for CY 2011 ratesetting 
show that the median cost of the lowest cost significant service in the 
APC, described by CPT code 69714, is approximately $8,212, compared to 
approximately $9,557 for the highest cost significant service. Based on 
our claims data, there is no 2 times violation in APC 0425.
    Comment: Several commenters have noted that, as discussed earlier 
in this section, APC 0418 (Insertion of Left Ventricular Pacing 
Electrode) has demonstrated a significant fluctuation in median costs. 
The commenters agreed that a significant contributing factor to this 
fluctuation is a low volume of single bills available for use in 
ratesetting. The commenters suggested that CMS develop composite APCs 
for cardiac resynchronization services in order to enable CMS to use 
more claims data in median cost calculations and to create more 
appropriate payment rates.
    Response: For all OPPS services, we continue our efforts to use the 
data from as many multiple procedure claims as possible, through 
approaches such as use of the bypass list and date splitting of claims 
as described further in section II.A. of this final rule with comment 
period, and through methodologies such as increased packaging and 
composite APCs. We refer readers to section II.A.2.e. of this final 
rule with comment period for a detailed summary of the public comments 
related to the establishment of a composite payment methodology for 
procedures involving cardiac resynchronization therapy services and our 
responses.
    After consideration of the public comments we received, we are 
finalizing our proposed CY 2011 payment policies for device-dependent 
APCs without modification. The CY 2011 OPPS payment rates for device-
dependent APCs are based on their median costs calculated from CY 2009 
claims and the most recent cost report data, using only single 
procedure claims that pass the procedure-to-device and device-to-
procedure edits, do not contain token charges for devices, do not have 
an ``FB'' modifier signifying that the device was furnished without 
cost or with full credit, and do not contain an ``FC'' modifier 
signifying that the hospital received partial credit for the device. We 
continue to believe that the median costs calculated from the single 
claims that meet these criteria represent the most valid estimated 
relative costs of these services to hospitals when they incur the full 
cost of the devices required to perform the procedures.
    Table 4 below lists the APCs for which we used our standard device-
dependent APC ratesetting methodology for CY 2011. We note that we are 
adding two new device-dependent APCs for CY 2011 to Table 4 APC 0318 
(Implantation of Cranial Neurostimulator Pulse Generator and Electrode) 
and APC 0319 (Endovascular Revascularization of the Lower Extremity). 
As discussed in sections II.A.2.d.7. and II.A.2.d.9. of this final rule 
with comment period, we are creating these new device-dependent APCs in 
order to accommodate revisions to coding in CY 2011 for services that 
were previously assigned to other device-dependent APCs. We also are 
deleting APC 0225 from Table 4 below because it is replaced with APC 
0318 for CY 2011. We refer readers to Addendum A to this final rule 
with comment period for the final payment rates for these APCs.

                 Table 4--CY 2011 Device-Dependent APCs
------------------------------------------------------------------------
                                  CY 2011 Status
          CY 2011 APC               indicator        CY 2011 APC Title
------------------------------------------------------------------------
0039...........................  S                Level I Implantation
                                                   of Neurostimulator
                                                   Generator.
0040...........................  S                Percutaneous
                                                   Implantation of
                                                   Neurostimulator
                                                   Electrodes.
0061...........................  S                Laminectomy,
                                                   Laparoscopy, or
                                                   Incision for
                                                   Implantation of
                                                   Neurostimulator
                                                   Electrodes.
0082...........................  T                Coronary or Non-
                                                   Coronary Atherectomy.
0083...........................  T                Coronary or Non-
                                                   Coronary Angioplasty
                                                   and Percutaneous
                                                   Valvuloplasty.
0084...........................  S                Level I
                                                   Electrophysiologic
                                                   Procedures.

[[Page 71837]]

 
0085...........................  T                Level II
                                                   Electrophysiologic
                                                   Procedures.
0086...........................  T                Level III
                                                   Electrophysiologic
                                                   Procedures.
0089...........................  T                Insertion/Replacement
                                                   of Permanent
                                                   Pacemaker and
                                                   Electrodes.
0090...........................  T                Insertion/Replacement
                                                   of Pacemaker Pulse
                                                   Generator.
0104...........................  T                Transcatheter
                                                   Placement of
                                                   Intracoronary Stents.
0106...........................  T                Insertion/Replacement
                                                   of Pacemaker Leads
                                                   and/or Electrodes.
0107...........................  T                Insertion of
                                                   Cardioverter-
                                                   Defibrillator.
0108...........................  T                Insertion/Replacement/
                                                   Repair of
                                                   Cardioverter-
                                                   Defibrillator Leads.
0115...........................  T                Cannula/Access Device
                                                   Procedures.
0202...........................  T                Level VII Female
                                                   Reproductive
                                                   Procedures.
0227...........................  T                Implantation of Drug
                                                   Infusion Device.
0229...........................  T                Transcatheter
                                                   Placement of
                                                   Intravascular Shunts.
0259...........................  T                Level VII ENT
                                                   Procedures.
0293...........................  T                Level V Anterior
                                                   Segment Eye
                                                   Procedures.
0315...........................  S                Level II Implantation
                                                   of Neurostimulator
                                                   Generator.
0318...........................  S                Implantation of
                                                   Cranial
                                                   Neurostimulator Pulse
                                                   Generator and
                                                   Electrode.
0319...........................  T                Endovascular
                                                   Revascularization of
                                                   the Lower Extremity.
0384...........................  T                GI Procedures with
                                                   Stents.
0385...........................  S                Level I Prosthetic
                                                   Urological
                                                   Procedures.
0386...........................  S                Level II Prosthetic
                                                   Urological
                                                   Procedures.
0418...........................  T                Insertion of Left
                                                   Ventricular Pacing
                                                   Electrode.
0425...........................  T                Level II Arthroplasty
                                                   or Implantation with
                                                   Prosthesis.
0427...........................  T                Level II Tube or
                                                   Catheter Changes or
                                                   Repositioning.
0622...........................  T                Level II Vascular
                                                   Access Procedures.
0623...........................  T                Level III Vascular
                                                   Access Procedures.
0648...........................  T                Level IV Breast
                                                   Surgery.
0652...........................  T                Insertion of
                                                   Intraperitoneal and
                                                   Pleural Catheters.
0653...........................  T                Vascular
                                                   Reconstruction/
                                                   Fistula Repair with
                                                   Device.
0654...........................  T                Insertion/Replacement
                                                   of a Permanent Dual
                                                   Chamber Pacemaker.
0655...........................  T                Insertion/Replacement/
                                                   Conversion of a
                                                   Permanent Dual
                                                   Chamber Pacemaker.
0656...........................  T                Transcatheter
                                                   Placement of
                                                   Intracoronary Drug-
                                                   Eluting Stents.
0674...........................  T                Prostate Cryoablation.
0680...........................  S                Insertion of Patient
                                                   Activated Event
                                                   Recorders.
------------------------------------------------------------------------

(2) Blood and Blood Products
    Since the implementation of the OPPS in August 2000, we have made 
separate payments for blood and blood products through APCs rather than 
packaging payment for them into payments for the procedures with which 
they are administered. Hospital payments for the costs of blood and 
blood products, as well as for the costs of collecting, processing, and 
storing blood and blood products, are made through the OPPS payments 
for specific blood product APCs.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46206), we proposed 
for CY 2011 to continue to establish payment rates for blood and blood 
products using our blood-specific CCR methodology, which utilizes 
actual or simulated CCRs from the most recently available hospital cost 
reports to convert hospital charges for blood and blood products to 
costs. This methodology has been our standard ratesetting methodology 
for blood and blood products since CY 2005. It was developed in 
response to data analysis indicating that there was a significant 
difference in CCRs for those hospitals with and without blood-specific 
cost centers, and past public comments indicating that the former OPPS 
policy of defaulting to the overall hospital CCR for hospitals not 
reporting a blood-specific cost center often resulted in an 
underestimation of the true hospital costs for blood and blood 
products. Specifically, in order to address the differences in CCRs and 
to better reflect hospitals' costs, we proposed to continue to simulate 
blood CCRs for each hospital that does not report a blood cost center 
by calculating the ratio of the blood-specific CCRs to hospitals' 
overall CCRs for those hospitals that do report costs and charges for 
blood cost centers. We would then apply this mean ratio to the overall 
CCRs of hospitals not reporting costs and charges for blood cost 
centers on their cost reports in order to simulate blood-specific CCRs 
for those hospitals. We calculated the median costs upon which the 
proposed CY 2011 payment rates for blood and blood products were based 
using the actual blood-specific CCR for hospitals that reported costs 
and charges for a blood cost center and a hospital-specific simulated 
blood-specific CCR for hospitals that did not report costs and charges 
for a blood cost center.
    We indicated in the CY 2011 OPPS/ASC proposed rule (75 FR 46206) 
that we continue to believe the hospital-specific, blood-specific CCR 
methodology better responds to the absence of a blood-specific CCR for 
a hospital than alternative methodologies, such as defaulting to the 
overall hospital CCR or applying an average blood-specific CCR across 
hospitals. Because this methodology takes into account the unique 
charging and cost accounting structure of each hospital, we believe 
that it yields more accurate estimated costs for these products. We 
indicated that we believe that continuing with this methodology in CY 
2011 would result in median costs for blood and blood products that 
appropriately reflect the relative estimated costs of these products 
for hospitals without blood cost centers and, therefore, for these 
blood products in general.
    We requested public comments in the CY 2010 OPPS/ASC final rule 
with comment period (74 FR 60373) that addressed whether plasma protein 
fraction (PPF) products should be recognized as blood and blood 
products,

[[Page 71838]]

designated with status indicator ``R,'' or as nonpass-through drugs and 
biologicals, designated with status indicator ``K.'' Specifically, we 
were interested in how PPF is derived and manufactured, and whether the 
same access and safety concerns that apply to the blood and blood 
products recognized under the OPPS for payment purposes also apply to 
PPF. Finally, we were interested in the relationship between albumin 
and PPF, from clinical, manufacturing, and safety perspectives, and 
whether there would be a rationale for treating these products 
similarly for OPPS payment purposes.
    Comment: Several commenters asserted that CMS' proposed payments 
for blood and blood products fail to cover the acquisition and overhead 
costs incurred by hospitals for procuring, storing, and processing 
blood and blood products, especially high volume products such as 
leukocyte reduced red blood cells, described by HCPCS code P9016 (Red 
blood cells, leukocytes reduced, each unit). Several commenters noted 
that the most recent preliminary data from the National Blood 
Collection and Utilization Survey support this assertion, and that the 
Bureau of Labor and Statistics Producer Price Index (PPI) for blood and 
blood products increased 1.8 percent in 2010 compared to 2009. Other 
commenters stated that, as the costs of blood and blood products 
continue to rise, it is important for CMS to ensure that APC payment 
rates keep pace with technological advances, safety measures, and donor 
recruitment challenges. They believed that the 2-year lag inherent in 
the OPPS ratesetting process does not allow current payment rates to 
reflect these rising costs.
    Response: As we indicated in the CY 2010 OPPS/ASC final rule with 
comment period (74 FR 60372), we continue to believe that using blood-
specific CCRs applied to hospital claims data results in payments that 
appropriately reflect hospitals' relative costs of providing blood and 
blood products as reported to us by hospitals. We do not believe it is 
necessary or appropriate to use the PPI for blood and organ banks or 
survey data as a benchmark for updating the payment rates for blood and 
blood products from year to year, because it is not our standard 
process under the OPPS for any item or service to update payment rates 
by implementing across-the-board, product-specific inflation updates, 
or updates based on survey data, to the payment rates that were in 
place the year before. Rather, we annually update payment groups and 
payment weights using the most recently available hospital claims and 
cost report data. This process allows us to recalibrate the payment 
groups and payment weights in response to changes in hospitals' costs 
from year to year. A fundamental principle of the OPPS is that it is 
based on relative weights, and as we have stated in the past (73 FR 
68541), it is the relativity of the costs to one another, rather than 
absolute cost, that is important in setting payment rates. To deviate 
from our standard OPPS ratesetting methodology and update the payment 
rates for blood and blood products by the PPI or based on survey data 
would skew this relativity. We also note that the median costs per unit 
(calculated using the blood-specific CCR methodology) for this final 
rule with comment period increase for the majority of the most commonly 
provided blood and blood products (including the highest volume blood 
and blood product, described by HCPCS code P9016) by 4 percent or 
greater compared to the CY 2010 median costs.
    For all APCs whose payment rates are based upon relative payment 
weights, we note that the quality and accuracy of reported units and 
charges significantly influence the median costs that are the basis for 
our payment rates, especially for low volume items and services. Beyond 
our standard OPPS trimming methodology (described in section II.A.2. of 
this final rule with comment period) that we apply to those claims that 
have passed various types of claims processing edits, it is not our 
general policy to judge the accuracy of hospital coding and charging 
for purposes of ratesetting.
    Comment: One commenter requested that CMS exclude blood and blood 
products from the reductions to the increase factor for OPPS services 
that are mandated by section 3401(i) of the Affordable Care Act.
    Response: As discussed in section II.B.1. of this final rule with 
comment period, for CY 2011, section 3401(i) of the Affordable Care Act 
mandates a 0.25 percent reduction to the OPPS increase factor. The law 
does not exclude blood and blood products from this reduction in 
payment for CY 2011, and we see no basis to implement an exclusion.
    Comment: One commenter responded to the request for public comments 
made in the CY 2010 OPPS/ASC final rule with comment period (74 FR 
60373) concerning whether CMS should recognize PPF products as drugs 
under the OPPS and assign status indicator ``K,'' rather than 
recognizing them as blood and blood products and assigning them status 
indicator ``R.'' The same stakeholder also commented on the proposal in 
the CY 2011 OPPS/ASC proposed rule to maintain the ``R'' status 
indicators for these products in CY 2011. In both comment letters, the 
commenter delineated the relationship between PPF and albumin, 
indicating that, according to the American Association of Blood Banks 
(AABB) and the American Hospital Formulary Service, albumin and PPF are 
derived through very similar processes from human plasma, although PPF 
is subject to fewer purification steps. According to the commenter, 
neither albumin nor PPF is given through a filter as is common with 
blood products, they possess similar pharmacologic properties, 
contraindications, precautions and adverse reactions; and they are 
commonly administered interchangeably. The commenter stated that, 
unlike blood products, PPF and albumin should be stored similarly and 
not frozen, and although there is potential for transmission of human 
virus, the risk is rare. The commenter further stated that they do not 
require type and crossmatching, contain no coagulation factors, and are 
compatible with whole blood and whole packed red blood cells. Finally, 
according to the commenter, the AABB indicates in its billing guide for 
transfusion that albumin and PPF are both blood derivatives. The 
commenter again recommended that CMS assign HCPCS codes P9043 
(Infusion, plasma protein fraction (human), 5%, 50 ml) and P9048 
(Infusion, plasma protein fraction (human), 5%, 250 ml) to status 
indicator ``K.'' The commenter also requested that CMS instruct 
hospitals to bill for PPF using pharmacy revenue codes, and appropriate 
injection or infusion CPT codes rather than the CPT code for blood 
transfusion because the commenter believed this product is a blood 
derivative.
    Response: In the CY 2010 OPPS/ASC final rule with comment period 
(74 FR 60373), we indicated that, because changing the status 
indicators for these products as the commenter recommended could have 
significant payment implications, we are seeking information and input 
from all interested stakeholders. Specifically, changing the status 
indicator from ``R'' to ``K'' would require us to calculate the payment 
rates for PPF using mean unit costs from hospital claims data, as we 
currently do for albumin products, rather than using our standard 
blood-specific CCR methodology for blood and blood products. We did not 
receive public comments from other stakeholders within the blood 
community regarding this potential change in policy, either in response 
to

[[Page 71839]]

the CY 2010 OPPS/ASC final rule with comment period or to the CY 2011 
OPPS/ASC proposed rule, and we do not believe we have sufficient 
clinical information at this time to warrant changing how we have paid 
for PPF for the last several years. Therefore, we do not believe it is 
appropriate to change the status indicator assignments for HCPCS codes 
P9043 and P9048 from status indicator ``R'' to status indicator ``K'' 
for CY 2011.
    After consideration of the public comments we received, we are 
finalizing, without modification, our CY 2011 proposal to calculate 
median costs upon which the CY 2011 payments rates for blood and blood 
products are based using our blood-specific CCR methodology, which 
utilizes actual or simulated CCRs from the most recently available 
hospital cost reports to convert hospital charges for blood and blood 
products to costs (the methodology we have utilized since CY 2005). We 
believe that continuing this methodology in CY 2011 results in median 
costs for blood and blood products that appropriately reflect the 
relative estimated costs of these products for hospitals without blood 
cost centers and, therefore, for these products in general.
    We refer readers to Addendum B to this final rule with comment 
period for the final CY 2011 payment rates for blood and blood 
products, which are identified with status indicator ``R.'' For a more 
detailed discussion of the blood-specific CCR methodology, we refer 
readers to the CY 2005 OPPS proposed rule (69 FR 50524 through 50525). 
For a full history of OPPS payment for blood and blood products, we 
refer readers to the CY 2008 OPPS/ASC final rule with comment period 
(72 FR 66807 through 66810).
(3) Single Allergy Tests
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46206), we proposed to 
continue with our methodology of differentiating single allergy tests 
(``per test'') from multiple allergy tests (``per visit'') by assigning 
these services to two different APCs to provide accurate payments for 
these tests in CY 2011. Multiple allergy tests are currently assigned 
to APC 0370 (Allergy Tests), with a median cost calculated based on the 
standard OPPS methodology. We provided billing guidance in CY 2006 in 
Transmittal 804 (issued on January 3, 2006) specifically clarifying 
that hospitals should report charges for the CPT codes that describe 
single allergy tests to reflect charges ``per test'' rather than ``per 
visit'' and should bill the appropriate number of units (as defined in 
the CPT code descriptor) of these CPT codes to describe all of the 
tests provided. However, as noted in the proposed rule, our CY 2009 
claims data available for the proposed rule for APC 0381 did not 
reflect improved and more consistent hospital billing practices of 
``per test'' for single allergy tests. The median cost of APC 0381, 
calculated for the proposed rule according to the standard single 
claims OPPS methodology, was approximately $52, significantly higher 
than the CY 2010 median cost of APC 0381 of approximately $29 
calculated according to the ``per unit'' methodology, and greater than 
we would expect for these procedures that are to be reported ``per 
test'' with the appropriate number of units. Some claims for single 
allergy tests still appear to provide charges that represent a ``per 
visit'' charge, rather than a ``per test'' charge. Therefore, 
consistent with our payment policy for single allergy tests since CY 
2006, we calculated a proposed ``per unit'' median cost for APC 0381, 
based upon 595 claims containing multiple units or multiple occurrences 
of a single CPT code. The proposed CY 2011 median cost for APC 0381 
using the ``per unit'' methodology was approximately $29. For a full 
discussion of this methodology, we refer readers to the CY 2008 OPPS/
ASC final rule with comment period (72 FR 66737).
    We did not receive any public comments on our CY 2011 proposal for 
determining payment of single allergy tests. We are finalizing our CY 
2011 proposal, without modification, to calculate a ``per unit'' median 
cost for APC 0381 as described above in this section. The final CY 2011 
median cost of APC 0381 is approximately $33.
(4) Hyperbaric Oxygen Therapy (APC 0659)
    Since the implementation of OPPS in August 2000, the OPPS has 
recognized HCPCS code C1300 (Hyperbaric oxygen under pressure, full 
body chamber, per 30 minute interval) for hyperbaric oxygen therapy 
(HBOT) provided in the hospital outpatient setting. In the CY 2005 
final rule with comment period (69 FR 65758 through 65759), we 
finalized a ``per unit'' median cost calculation for APC 0659 
(Hyperbaric Oxygen) using only claims with multiple units or multiple 
occurrences of HCPCS code C1300 because delivery of a typical HBOT 
service requires more than 30 minutes. We observed that claims with 
only a single occurrence of the code were anomalies, either because 
they reflected terminated sessions or because they were incorrectly 
coded with a single unit. In the same rule, we also established that 
HBOT would not generally be furnished with additional services that 
might be packaged under the standard OPPS APC median cost methodology. 
This enabled us to use claims with multiple units or multiple 
occurrences. Finally, we also used each hospital's overall CCR to 
estimate costs for HCPCS code C1300 from billed charges rather than the 
CCR for the respiratory therapy or other departmental cost centers. The 
public comments on the CY 2005 OPPS proposed rule effectively 
demonstrated that hospitals report the costs and charges for HBOT in a 
wide variety of cost centers. Since CY 2005, we have used this 
methodology to estimate the median cost for HBOT. The median costs of 
HBOT using this methodology have been relatively stable for the last 5 
years.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46206), for CY 2011, 
we proposed to continue using the same methodology to estimate a ``per 
unit'' median cost for HCPCS code C1300. This methodology resulted in a 
proposed APC median cost of approximately $109 using 328,960 claims 
with multiple units or multiple occurrences for HCPCS code C1300 for CY 
2011.
    We did not receive any public comments on our proposal to continue 
to use our established ratesetting methodology for calculating the 
median cost of APC 0659 for payment of HBOT for CY 2011. We are 
finalizing our CY 2011 proposal, without modification, to continue to 
use our established ratesetting methodology for calculating the median 
cost of APC 0659 for payment of HBOT, with a final CY 2011 median cost 
of approximately $150.
(5) Payment for Ancillary Outpatient Services When Patient Expires (APC 
0375)
    In the November 1, 2002 final rule with comment period (67 FR 
66798), we discussed the creation of the new HCPCS modifier -CA to 
address situations where a procedure on the OPPS inpatient list must be 
performed to resuscitate or stabilize a patient (whose status is that 
of an outpatient) with an emergent, life-threatening condition, and the 
patient dies before being admitted as an inpatient. HCPCS modifier -CA 
is defined as a procedure payable only in the inpatient setting when 
performed emergently on an outpatient who expires prior to admission. 
In Transmittal A-02-129, issued on January 3, 2003, we instructed 
hospitals on the use of this modifier. For a complete description of 
the history of the policy and the development of the

[[Page 71840]]

payment methodology for these services, we refer readers to the CY 2007 
OPPS/ASC final rule with comment period (71 FR 68157 through 68158).
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46207), for CY 2011, 
we proposed to continue to use our established ratesetting methodology 
for calculating the median cost of APC 0375 (Ancillary Outpatient 
Services When Patient Expires) and to continue to make one payment 
under APC 0375 for the services that meet the specific conditions for 
using HCPCS modifier -CA. We proposed to calculate the relative payment 
weight for APC 0375 by using all claims reporting a status indicator 
``C'' (inpatient procedures) appended with HCPCS modifier -CA, using 
estimated costs from claims data for line-items with a HCPCS code 
assigned to status indicators ``G,'' ``H,'' ``K,'' ``N,'' ``Q1,'' 
``Q2,'' ``Q3,'' ``R,'' ``S,'' ``T,'' ``U,'' ``V,'' and ``X'' and 
charges for packaged revenue codes without a HCPCS code. (We refer 
readers to section XIII.A.1. of this final rule with comment period for 
a complete listing of status indicators). We continue to believe that 
this methodology results in the most appropriate aggregate median cost 
for the ancillary services provided in these unusual clinical 
situations.
    As discussed in the CY 2011 OPPS/ASC proposed rule (75 FR 46207), 
we believe that hospitals are reporting the HCPCS modifier -CA 
according to the policy initially established in CY 2003. We note that 
the claims frequency for APC 0375 has been relatively stable over the 
past few years. Although the median cost for APC 0375 has increased, 
the median in the CY 2009 OPPS claims data used for development of 
proposed rates for CY 2011 was only slightly higher than that for CY 
2010. Variation in the median cost for APC 0375 is expected because of 
the small number of claims and because the specific cases are grouped 
by the presence of the HCPCS modifier -CA appended to an inpatient 
procedure and not according to the standard APC criteria of clinical 
and resource homogeneity. Cost variation for APC 0375 from year to year 
is anticipated and acceptable as long as hospitals continue judicious 
reporting of the HCPCS modifier -CA. Table 5 of the proposed rule (75 
FR 46207) showed the number of claims and the proposed median costs for 
APC 0375 for CYs 2007, 2008, 2009, and 2010. For CY 2011, we proposed a 
median cost of approximately $6,566 for APC 0375 based on 117 claims.
    We did not receive any public comments regarding this proposal. 
Therefore, for the reasons explained in the CY 2011 OPPS/ASC proposed 
rule (75 FR 46207), we are finalizing our CY 2011 proposal, without 
modification, to continue to use our established ratesetting 
methodology for calculating the median cost of APC 0375, which has a 
final CY 2011 APC median cost of approximately $6,304. Table 5 below 
shows the number of claims and the final median costs for APC 0375 for 
CYs 2007, 2008, 2009, 2010, and 2011.

Table 5--Claims for Ancillary Outpatient Services When Patient Expires (-
                 CA Modifier) for CYs 2007 Through 2011
------------------------------------------------------------------------
                                                                  APC
             Prospective payment year               Number of    median
                                                      claims      cost
------------------------------------------------------------------------
CY 2007...........................................        260     $3,549
CY 2008...........................................        183      4,945
CY 2009...........................................        168      5,545
CY 2010...........................................        182      5,911
CY 2011...........................................        168      6,304
------------------------------------------------------------------------

(6) Pulmonary Rehabilitation (APC 0102)
    Section 144(a)(1) of Public Law 110-275 (MIPPA) added section 
1861(fff) to the Act to provide Medicare Part B coverage and payment 
for a comprehensive program of pulmonary rehabilitation services 
furnished to beneficiaries with chronic obstructive pulmonary disease, 
effective January 1, 2010. Accordingly, in the CY 2010 OPPS/ASC final 
rule with comment period, we established a policy to pay for pulmonary 
rehabilitation (PR) services furnished as a part of the comprehensive 
PR program benefit (74 FR 60567). We created new HCPCS code G0424 
(Pulmonary rehabilitation, including exercise (includes monitoring), 
one hour, per session, up to two sessions per day) and assigned the 
code to new APC 0102 (Level II Pulmonary Treatment).
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46207 through 46208), 
for CY 2011, we proposed to continue to require hospitals to report PR 
services provided under the comprehensive PR benefit provided by 
section 1861(fff) of the Act using HCPCS code G0424. We also proposed 
to continue to use the methodology described in the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60567 through 60570) to calculate 
the median cost on which the proposed payment rate for CY 2011 is 
based. Specifically, we proposed to continue to assign HCPCS code G0424 
to APC 0102 and to calculate a median ``per session'' cost simulated 
from historical hospital claims data for similar pulmonary therapy 
services for the CY 2011 OPPS.
    To simulate the proposed ``per session'' median cost of HCPCS code 
G0424 from claims data for existing services, we used only hospital 
claims that contained at least one unit of HCPCS code G0239 
(Therapeutic procedures to improve respiratory function or increase 
strength or endurance of respiratory muscles, two or more individuals 
(includes monitoring)), the group code that is without limitation on 
time duration, and one unit of HCPCS code G0237 (Therapeutic procedures 
to increase strength or endurance of respiratory muscles, face to face, 
one on one, each 15 minutes (includes monitoring)) or G0238 
(Therapeutic procedures to improve respiratory function, other than 
described by G0237, one on one, face to face, per 15 minutes (includes 
monitoring)), the individual, face-to-face codes that report 15 minutes 
of service on the same date of service. We continue to believe that 
patients in a PR program would typically receive individual and group 
services during each session of approximately 1 hour in duration. This 
proposal is consistent with public comments received on the CY 2010 
OPPS/ASC proposed rule that were addressed in the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60569). The commenters to the CY 
2010 OPPS/ASC proposed rule suggested that PR is often provided in 
group sessions in the HOPD, although patients commonly require 
additional one-on-one care in order to fully participate in the 
program. We note that our use of ``per session'' claims that report one 
unit of HCPCS code G0237 or G0238 and one unit of HCPCS code G0239 in 
this simulation methodology is also consistent with our overall finding 
that approximately 2.4 service units of the HCPCS G-codes are furnished 
per day on a single date of service, usually consisting of both 
individual and group services, for patients receiving pulmonary therapy 
services in the HOPD based upon CY 2008 claims used for CY 2010 OPPS 
final rule ratesetting. We continue to believe that the typical session 
of PR is 1 hour based on public comments that indicated a session of PR 
is typically 1 hour and on our findings that the most commonly reported 
HCPCS code for pulmonary treatment is HCPCS code G0239, which has no 
time definition for this group service.
    In the calculation of the CY 2011 proposed median cost for APC 
0102, we included all costs of the related tests and assessment 
services, including CPT codes 94620 (Pulmonary stress testing, simple 
(e.g. 6-minute walk test,

[[Page 71841]]

prolonged exercise test for bronchospasm with pre- and post-spirometry 
and oximetry)), 94664 (Demonstration and/or evaluation of patient 
utilization of an aerosol generator, nebulizer, metered dose inhaler or 
IPPB device), and 94667 (Manipulation chest wall, such as cupping, 
percussing, and vibration to facilitate lung function; initial 
demonstration and/or evaluation) and all the costs of all CPT codes for 
established patient clinic visits on the same date of service as the 
HCPCS codes in the claims we used to simulate the median cost for HCPCS 
code G0424, which is the only HCPCS code in APC 0102. After identifying 
these ``per session'' claims, which we believe represent 1 hour of 
care, we summed the costs and calculated the median cost for the set of 
selected claims. In light of the cost and clinical similarities of PR 
and the existing services described by HCPCS codes G0237, G0238, and 
G0239 and the CPT codes for related assessments and tests, and the 
significant number of ``per session'' hospital claims we found, we 
indicated in the CY 2011 OPPS/ASC proposed rule that we were confident 
that the proposed simulated median cost for HCPCS code G0424 and APC 
0102 of approximately $68 was a valid estimate of the expected hospital 
cost of a PR session. We noted that this proposed median cost was 
higher than the CY 2010 final rule median cost for HCPCS code G0424 and 
APC 0102 of approximately $50 on which the CY 2010 payment is based.
    Comment: Several commenters approved the increase in payment for PR 
services to $68 per hour for CY 2011, stating that the rate better 
represents actual costs. One commenter noted a CPT proposal to change 
the reference code for the pulmonary rehabilitation portion of lung 
volume reduction surgery from CPT code 93797 (Physician services for 
outpatient cardiac rehabilitation; without continuous ECG monitoring 
(per session) to CPT code 93798 (Physician services for outpatient 
cardiac rehabilitation; with continuous ECG monitoring (per session). 
The commenter stated that CPT code 93798 is a more appropriate 
comparison for HCPCS code G0424. In addition, the commenters noted that 
CPT code 94620 (Pulmonary stress testing; simple (e.g. 6-minute walk 
test, prolonged exercise test for bronchospasm with pre- and post-
spirometry and oximetry)) is paid at a rate of $65 in the office 
setting when performed alone, and when performed with pulmonary 
rehabilitation, they are bundled into APC 0102 with a proposed payment 
rate of $68 in the hospital outpatient setting and with a proposed 
payment rate of $28.58 when the service is provided in the office 
setting.
    Response: We appreciate the provided information on the change to 
the reference code for the pulmonary rehabilitation portion of lung 
volume reduction surgery. We believe the commenter relayed this 
information to support the proposed increase in payment for HCPCS code 
G0424 because CPT code 97398 contains continuous ECG monitoring and CPT 
code 97397 does not. While we observe a minimal difference in estimated 
cost for CPT codes 93797 and 93798 in the CY 2009 claims data that we 
used to model payments in this final rule with comment period, we do 
not believe this influenced the observed increase between the CY 2010 
median cost of $50 and the proposed CY 2011 median cost of $68. The 
proposed CY 2011 median cost for HCPCS code G0424 was based on costs 
estimated from hospital charges on CY 2009 claims for HCPCS codes 
G0237, G0238, and G0239 and supporting services CPT codes 94620, 94664, 
and 94667 and all costs of all CPT codes for established patient clinic 
visits reported on the same date. We believe the observed increase in 
the median cost for HCPCS code G0424 may be attributable to changes in 
hospital charges for these codes or to a change in the mix of hospitals 
reporting these services in the CY 2009 claims data.
    With regard to the comment about CPT code 94620, we believe the 
commenter intended to point out that the median cost for HCPCS code 
G0424 does not adequately reflect the cost associated with the 6 minute 
walk test. In our analysis for creating a simulated median cost for 
G0424 in the CY 2010 final rule with comment period, we observed that 
CPT code 94620 appeared on the same claim as HCPCS codes G0237, G0238, 
and G0239 in approximately 3 percent of the cases, indicating that this 
service is rarely performed as part of a typical pulmonary 
rehabilitation session. The proposed median cost of $68 for HCPCS code 
G0424 reflects the packaged cost of CPT code 94620 and related services 
to the extent that hospitals report this service in conjunction with 
pulmonary rehabilitation.
    After consideration of the public comments we received, we are 
finalizing our proposal, without modification, to establish a median 
cost for APC 0102 by using claims with one unit of HCPCS code G0239, 
and one unit of HCPCS code G0237 or G0238, and including all costs of 
the related tests and assessment services (CPT codes 94620, 94664, and 
94667 and all the costs of all CPT codes for established patient clinic 
visits reported on the same date), which results in a final CY 2011 
median cost for HCPCS code G0424 of approximately $62.
(7) Endovascular Revascularization of the Lower Extremity (APCs 0083, 
0229, and 0319)
    For CY 2011, the AMA's CPT Editorial Panel created 16 new CPT codes 
in the Endovascular Revascularization section of the 2011 CPT Code Book 
to describe endovascular revascularization procedures of the lower 
extremity performed for occlusive disease. Table 6 lists the 16 new CPT 
codes that will be effective January 1, 2011.

     Table 6--New Endovascular Revascularization CPT Procedure Codes
                        Effective January 1, 2011
------------------------------------------------------------------------
             CPT Code                          Long descriptor
------------------------------------------------------------------------
37220.............................  Revascularization, endovascular,
                                     open or percutaneous, iliac artery,
                                     unilateral, initial vessel; with
                                     transluminal angioplasty.
37221.............................  Revascularization, endovascular,
                                     open or percutaneous, iliac artery,
                                     unilateral, initial vessel; with
                                     transluminal stent placement(s),
                                     includes angioplasty within the
                                     same vessel, when performed.
37222.............................  Revascularization, endovascular,
                                     open or percutaneous, iliac artery,
                                     each additional ipsilateral iliac
                                     vessel; with transluminal
                                     angioplasty (List separately in
                                     addition to code for primary
                                     procedure).
37223.............................  Revascularization, iliac artery,
                                     each additional ipsilateral iliac
                                     vessel; with transluminal stent
                                     placement(s) (List separately in
                                     addition to code for primary
                                     procedure), includes angioplasty
                                     within the same vessel, when
                                     performed.
37224.............................  Revascularization, endovascular,
                                     open or percutaneous, femoral/
                                     popliteal artery(s), unilateral;
                                     with transluminal angioplasty.
37225.............................  Revascularization, endovascular,
                                     open or percutaneous, femoral/
                                     popliteal artery(s), unilateral;
                                     with atherectomy, includes
                                     angioplasty within the same vessel,
                                     when performed.

[[Page 71842]]

 
37226.............................  Revascularization, endovascular,
                                     open or percutaneous, femoral/
                                     popliteal artery(s), unilateral;
                                     with transluminal stent
                                     placement(s), includes angioplasty
                                     within the same vessel, when
                                     performed.
37227.............................  Revascularization, endovascular,
                                     open or percutaneous, femoral/
                                     popliteal artery(s), unilateral;
                                     with transluminal stent
                                     placement(s) and atherectomy,
                                     includes angioplasty within the
                                     same vessel, when performed.
37228.............................  Revascularization, endovascular,
                                     open or percutaneous, tibial/
                                     peroneal artery, unilateral,
                                     initial vessel; with transluminal
                                     angioplasty.
37229.............................  Revascularization, endovascular,
                                     open or percutaneous, tibial/
                                     peroneal artery, unilateral,
                                     initial vessel; with atherectomy,
                                     includes angioplasty within the
                                     same vessel, when performed.
37230.............................  Revascularization, endovascular,
                                     open or percutaneous, tibial/
                                     peroneal artery, unilateral,
                                     initial vessel; with transluminal
                                     stent placement(s), includes
                                     angioplasty within the same vessel,
                                     when performed.
37231.............................  Revascularization, endovascular,
                                     open or percutaneous, tibial/
                                     peroneal artery, unilateral,
                                     initial vessel; with transluminal
                                     stent placement(s) and atherectomy,
                                     includes angioplasty within the
                                     same vessel, when performed.
37232.............................  Revascularization, endovascular,
                                     open or percutaneous, tibial/
                                     peroneal artery, unilateral, each
                                     additional vessel; with
                                     transluminal angioplasty (List
                                     separately in addition to code for
                                     primary procedure).
37233.............................  Revascularization, endovascular,
                                     open or percutaneous, tibial/
                                     peroneal artery, unilateral, each
                                     additional vessel; with atherectomy
                                     (List separately in addition to
                                     code for primary procedure),
                                     includes angioplasty within the
                                     same vessel, when performed.
37234.............................  Revascularization, endovascular,
                                     open or percutaneous, tibial/
                                     peroneal artery, unilateral, each
                                     additional vessel; with
                                     transluminal stent placement(s)
                                     (List separately in addition to
                                     code for primary procedure),
                                     includes angioplasty within the
                                     same vessel, when performed.
37235.............................  Revascularization, endovascular,
                                     open or percutaneous, tibial/
                                     peroneal artery, unilateral, each
                                     additional vessel; with
                                     transluminal stent placement(s) and
                                     atherectomy (List separately in
                                     addition to code for primary
                                     procedure), includes angioplasty
                                     within the same vessel, when
                                     performed.
------------------------------------------------------------------------

    Our standard process for dealing with new CPT codes is to assign 
the code to the APC that we believe contains services that are 
comparable with respect to clinical characteristics and resources 
required to furnish the service. The new CPT code is given a comment 
indicator of ``NI'' to identify it as a new interim APC assignment for 
the new year and the APC assignment for the new codes is then open to 
public comment. In some, but not all, cases, we are able to use the 
existing data from established codes to simulate an estimated median 
cost for the new code to guide us in the assignment of the new code to 
an APC. In the case of the new endovascular revascularization codes, we 
were able to use the existing CY 2009 claims and most current cost 
report data to create simulated median costs for 12 of the 16 new 
separately payable codes.
    Specifically, to estimate the hospital costs associated with the 16 
new endovascular revascularization CPT codes based on their CY 2011 
descriptors, we used claims data from hospital outpatient claims 
submitted in CY 2009 and the most recent cost report information 
submitted by the hospitals that submitted claims for the services as 
they were reported in CY 2009. We note that all of the services that 
were previously reported to describe endovascular revascularization of 
the lower extremity for occlusive disease were assigned to three APCs 
in CY 2009. These included APCs 0082 (Coronary or Non-Coronary 
Atherectomy), 0083 (Coronary or Non-Coronary Angioplasty and 
Percutaneous Valvuloplasty), and 0229 (Transcatheter Placement of 
Intravascular Shunts).
    Because the endovascular revascularization CPT codes are new for CY 
2011, we used our CY 2009 single and ``pseudo'' single claims data to 
simulate the new CY 2011 CPT code definitions. As shown in Table 7 
below, many of the new endovascular revascularization CPT codes were 
previously reported using a combination of CY 2009 CPT codes. In order 
to simulate median costs, we selected claims that we believe meet the 
definition for each of the new endovascular revascularization CPT 
codes. Table 7 shows the criteria we applied to select a claim to be 
used in the calculation of the median cost for the new codes (shown in 
column A). We developed these criteria based on our clinicians' 
understanding of services that were reported by CY 2009 CPT codes that, 
in various combinations, reflect the services provided that are 
described by the new CPT codes for CY 2011. For example, in CY 2009, 
the procedure described by new CY 2011 CPT code 37222 
(Revascularization, endovascular, open or percutaneous, iliac artery, 
each additional ipsilateral iliac vessel; with transluminal angioplasty 
(List separately in addition to code for primary procedure)) would have 
been reported using the following combination of procedures: (1) The 
transluminal balloon angioplasty of the iliac would have been reported 
using CPT code 35454 (Transluminal balloon angioplasty, open; iliac) or 
35473 (Transluminal balloon angioplasty, percutaneous; iliac); (2) the 
catheter placement would have been reported using CPT code 36248 
(Selective catheter placement, arterial system; additional second 
order, third order, and beyond, abdominal, pelvic, or lower extremity 
artery branch, within a vascular family (List in addition to code for 
initial second or third order vessel as appropriate)); and (3) the 
radiological supervision and interpretation of the transluminal balloon 
angioplasty would have been reported using CPT code 75962 (Transluminal 
balloon angioplasty, peripheral artery, other than cervical carotid, 
renal or other visceral artery, iliac or lower extremity, radiological 
supervision and interpretation) and/or 75964 (Transluminal balloon 
angioplasty, each additional peripheral artery other than cervical 
carotid, renal or other visceral artery, iliac and lower extremity, 
radiological supervision and interpretation (List separately in 
addition to code for primary procedure)). In columns B, C, D, and E of 
Table 7, for each new CY 2011 CPT code listed under column A, we 
identified the CY 2009 CPT codes that we believed corresponded to each 
new code for which we had CY 2009 claims data and that we required or 
permitted to be reported on the same line-item date of service for a 
particular claim to be used for calculating the median costs for the 
new codes. Specifically, we

[[Page 71843]]

required that at least one unit of one of the separately payable codes 
in column B must be on the claim (we permitted any number of units of 
these codes to be on the claim). Where there are codes listed in column 
C, we also required that at least one unit of one and only one of the 
codes that appears under column C must be on the claim (we permitted 
any number of units of the code to be on the claim). Where there are 
codes in column D, we required at least one unit of each of the codes 
in column D (we permitted any number of units of these codes to be on 
the claim). In addition, in column E, we identified several codes that 
were paid separately in CY 2009 but which we decided should be packaged 
into the new endovascular revascularization CPT codes if they appeared 
on the claim with the other codes in columns B through D.
    For example, in determining the CPT median cost for new CPT code 
37221, we used only those claims that contained one unit of one and 
only one of the CPT codes listed under column B, specifically CPT code 
37205 or 37207, and at least one unit (while allowing multiple units) 
of one and only one of the CPT codes that appear under column C, 
specifically CPT codes 36000, 36245, or 36246. We allowed any number of 
units for the code in column D, and packaged the costs for the codes in 
column E (CPT codes 35454 and 35473) if they appeared on the claim. We 
applied this same methodology to select claims that we believe 
reflected the services defined in each new CPT code. In addition, we 
excluded claims that met these criteria if the claim contained a 
service to which a status indicator of ``S,'' ``T,'' ``V,'' or ``X'' 
was assigned, if such code did not meet the criteria for the new code. 
By doing this, we simulated a single procedure bill for the new code. 
In addition, we applied the standard packaging, trimming, and wage 
standardization that we apply in the median calculation process. We 
used approximately 19,283 claims that met the code specific criteria to 
calculate CPT level medians and the median cost for these new codes. 
Table 7 below displays the combinations of CY 2009 code data that we 
used to select the claims we used to create simulated median costs for 
the new codes (columns A through E), and the frequency of claims that 
met the criteria (column F) we calculated for each new code using the 
CY 2009 data for the previously existing CPT codes for these services. 
We note that we did not identify any claims that met the criteria for 
new CPT codes 37222, 37223, 37234 and 37235, in part due to the 
requirement that there must be no major separately paid procedures on 
the claim other than those we identified for the new code.

[[Page 71844]]



                Table 7--Simulated CY 2009 Code Combinations and Frequencies for the New CY 2011 Endovascular Revascularization CPT Codes
--------------------------------------------------------------------------------------------------------------------------------------------------------
                           First Required CY 2009    Second Required CY 2009   Third Required CY 2009
                           CPT Code (At least one    CPT Code (At least one    CPT Code (At least one
                             unit (and allow any       unit (and allow any      unit of each code is    Fourth Required CY 2009
    CY 2011 CPT Code       number of units) of one   number of units) of one   required and any number   CPT Code (Packaged if         Frequencies
                           and only one code must    and only one code must     of units of all codes      appeared on claim)
                            appear on the claim)      appear on the claim)           permitted)
              Column A                  Column B                  Column C                  Column D                  Column E                 Column F
--------------------------------------------------------------------------------------------------------------------------------------------------------
                 37220                     35454                     36000                     75962    .......................                     508
                                           35473                     36245    ........................  .......................  .......................
                          ........................                   34246    ........................  .......................  .......................
                 37221                     37205                     36000                     75960                     35454                    4,758
                                           37207                     36245    ........................                   35473   .......................
                          ........................                   36246    ........................  .......................  .......................
                 37222                     35454                     36248                     75962    .......................                       0
                                           35473    ........................                   75964    .......................  .......................
                 37223                     37206                     36248                     75960                     35454                        0
                                           37208    ........................  ........................                   35473   .......................
                 37224                     35456    ........................                   75962    .......................                   3,653
                                           35474    ........................                   36247    .......................  .......................
                 37225                     35483    ........................                   75992                     35456                    1,974
                                           35493    ........................                   36247                     35474   .......................
                 37226                     37205    ........................                   75960                     35456                    2,927
                                           37207    ........................                   36247                     35474   .......................
                 37227                     37205                     35483                     75960                     35456                      647
                                           37207                     35493                     75992                     35474   .......................
                          ........................  ........................                   36247    .......................  .......................
                 37228                     35459    ........................                   75962    .......................                   1,431
                                           35470    ........................                   36247    .......................  .......................
                 37229                     35485    ........................                   75992                     35459                      780
                                           35495    ........................                   36247                     35470   .......................
                 37230                     37205    ........................                   75960                     35459                    2,542
                                           37207    ........................                   36247                     35470   .......................
                 37231                     37205                     35485                     75960                     35459                       53
                                           37207                     35495                     75992                     35470   .......................
                          ........................  ........................                   36247    .......................  .......................
                 37232                     35459    ........................                   75964    .......................                       7
                                           35470    ........................                   36248    .......................  .......................
                 37233                     35485    ........................                   75993                     35459                        3
                                           35495    ........................                   36248                     35470   .......................
                 37234                     37206    ........................                   75960                     35459                        0
                                           37208    ........................                   36248                     35470   .......................
                 37235                     37206                     35485                     36247                     35459                        0
                                           37208                     35495                     36248                     35470   .......................
                          ........................  ........................                   75960    .......................  .......................
                          ........................  ........................                   75993    .......................  .......................
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 71845]]

    After determining the simulated median costs for the procedures, we 
assigned each CPT code to appropriate APCs based on their clinical 
homogeneity and resource use. Of the 16 new codes, we assigned nine CPT 
codes to APC 0083, five to APC 0229, and created a new APC for two CPT 
codes. Specifically, we assigned CPT codes 37220, 37221, 37222, 37223, 
37224, 37228, 37232, 37234, and 37235 to APC 0083, which has a final CY 
2011 APC median cost of approximately $3,740. In addition, we assigned 
CPT codes 37225, 37226, 37229, 37230, and 37233 to APC 0229, which has 
a final CY 2011 APC median cost of approximately $7,940. Because the 
resource costs associated with CPT codes 37227 and 37231 are not 
similar to the costs of procedures in the existing APCs, we established 
a new APC, specifically APC 0319 (Endovascular Revascularization of the 
Lower Extremity), which has a final CY 2011 APC median cost of 
approximately $13,751 to appropriately pay for these services.
    The new CY 2011 endovascular revascularization CPT codes and their 
final CY 2011 APC assignments and APC median costs are displayed in 
Table 8 below. We note that because these codes are new for CY 2011, 
they will be identified with comment indicator ``NI'' in Addendum B of 
this final rule to identify them as subject to public comment. We 
specifically request public comment on our methodology for simulating 
the median costs for these new CY 2011 CPT codes, in addition to public 
comments on the payment rates themselves.

    Table 8--Final CY 2011 APC Assignments and Median Costs for the Endovascular Revascularization CPT Codes
----------------------------------------------------------------------------------------------------------------
                                                                                                   Final CY 2011
             CY 2011 CPT Code                     CY 2011 Long descriptor          Final CY 2011    CPT median
                                                                                        APC            cost
----------------------------------------------------------------------------------------------------------------
37220....................................  Revascularization, endovascular, open            0083          $5,080
                                            or percutaneous, iliac artery,
                                            unilateral, initial vessel; with
                                            transluminal angioplasty.
37221....................................  Revascularization, endovascular, open            0083           6,710
                                            or percutaneous, iliac artery,
                                            unilateral, initial vessel; with
                                            transluminal stent placement(s),
                                            includes angioplasty within the same
                                            vessel, when performed.
37222....................................  Revascularization, endovascular, open            0083             N/A
                                            or percutaneous, iliac artery, each
                                            additional ipsilateral iliac vessel;
                                            with transluminal angioplasty (List
                                            separately in addition to code for
                                            primary procedure).
37223....................................  Revascularization, endovascular, open            0083             N/A
                                            or percutaneous, iliac artery, each
                                            additional ipsilateral iliac vessel;
                                            with transluminal stent placement(s)
                                            (List separately in addition to code
                                            for primary procedure), includes
                                            angioplasty within the same vessel,
                                            when performed.
37224....................................  Revascularization, endovascular, open            0083           5,247
                                            or percutaneous, femoral/popliteal
                                            artery(s), unilateral; with
                                            transluminal angioplasty.
37225....................................  Revascularization, endovascular, open            0229           9,023
                                            or percutaneous, femoral/popliteal
                                            artery(s), unilateral; with
                                            atherectomy, includes angioplasty
                                            within the same vessel, when
                                            performed.
37226....................................  Revascularization, endovascular, open            0229           9,600
                                            or percutaneous, femoral/popliteal
                                            artery(s), unilateral; with
                                            transluminal stent placement(s),
                                            includes angioplasty within the same
                                            vessel, when performed.
37227....................................  Revascularization, endovascular, open            0319          13,754
                                            or percutaneous, femoral/popliteal
                                            artery(s), unilateral; with
                                            transluminal stent placement(s) and
                                            atherectomy, includes angioplasty
                                            within the same vessel, when
                                            performed.
37228....................................  Revascularization, endovascular, open            0083           5,563
                                            or percutaneous, tibial/peroneal
                                            artery, unilateral, initial vessel;
                                            with transluminal angioplasty.
37229....................................  Revascularization, endovascular, open            0229           9,231
                                            or percutaneous, tibial/peroneal
                                            artery, unilateral, initial vessel;
                                            with atherectomy, includes
                                            angioplasty within the same vessel,
                                            when performed.
37230....................................  Revascularization, endovascular, open            0229           7,868
                                            or percutaneous, tibial/peroneal
                                            artery, unilateral, initial vessel;
                                            with transluminal stent placement(s)
                                            , includes angioplasty within the
                                            same vessel, when performed.
37231....................................  Revascularization, endovascular, open            0319          13,604
                                            or percutaneous, tibial/peroneal
                                            artery, unilateral, initial vessel;
                                            with transluminal stent placement(s)
                                            and atherectomy, includes
                                            angioplasty within the same vessel,
                                            when performed.
37232....................................  Revascularization, endovascular, open            0083           9,412
                                            or percutaneous, tibial/peroneal
                                            artery, unilateral, each additional
                                            vessel; with transluminal
                                            angioplasty (List separately in
                                            addition to code for primary
                                            procedure).
37233....................................  Revascularization, endovascular, open            0229          10,183
                                            or percutaneous, tibial/peroneal
                                            artery, unilateral, each additional
                                            vessel; with atherectomy (List
                                            separately in addition to code for
                                            primary procedure), includes
                                            angioplasty within the same vessel,
                                            when performed.
37234....................................  Revascularization, endovascular, open            0083             N/A
                                            or percutaneous, tibial/peroneal
                                            artery, unilateral, each additional
                                            vessel; with transluminal stent
                                            placement(s) (List separately in
                                            addition to code for primary
                                            procedure), includes angioplasty
                                            within the same vessel, when
                                            performed.
37235....................................  Revascularization, endovascular, open            0083             N/A
                                            or percutaneous, tibial/peroneal
                                            artery, unilateral, each additional
                                            vessel; with transluminal stent
                                            placement(s) and atherectomy (List
                                            separately in addition to code for
                                            primary procedure), includes
                                            angioplasty within the same vessel,
                                            when performed.
----------------------------------------------------------------------------------------------------------------


[[Page 71846]]

(8) Non-Congenital Cardiac Catheterization (APC 0080)
    For CY 2011, the AMA CPT Editorial Panel deleted 19 non-congenital 
cardiac catheterization-related CPT codes and replaced them with 20 new 
CPT codes in the Cardiac Catheterization and Injection-Related section 
of the 2011 CPT Code Book to describe more precisely the specific 
services provided during cardiac catheterization procedures. In 
particular, the CPT Editorial Panel deleted 19 non-congenital cardiac 
catheterization-related CPT codes from the 93500 series and created 14 
new CPT codes in the 93400 series and 6 in the 93500 series. Table 9 
below lists the specific CPT codes that will be deleted December 31, 
2010, and Table 10 lists the new CPT codes that will be effective 
January 1, 2011.

  Table 9--Non-Congenital Cardiac Catheterization-Related CPT Procedure
              Codes That Will Be Deleted December 31, 2010
------------------------------------------------------------------------
         CY 2010 CPT Code                      Long descriptor
------------------------------------------------------------------------
93501.............................  Right heart catheterization
93508.............................  Catheter placement in coronary
                                     artery(s), arterial coronary
                                     conduit(s), and/or venous coronary
                                     bypass graft(s) for coronary
                                     angiography without concomitant
                                     left heart catheterization
93510.............................  Left heart catheterization,
                                     retrograde, from the brachial
                                     artery, axillary artery or femoral
                                     artery; percutaneous
93511.............................  Left heart catheterization,
                                     retrograde, from the brachial
                                     artery, axillary artery or femoral
                                     artery; by cutdown
93514.............................  Left heart catheterization by left
                                     ventricular puncture
93524.............................  Combined transseptal and retrograde
                                     left heart catheterization
93526.............................  Combined right heart catheterization
                                     and retrograde left heart
                                     catheterization
93527.............................  Combined right heart catheterization
                                     and transseptal left heart
                                     catheterization through intact
                                     septum (with or without retrograde
                                     left heart catheterization)
93528.............................  Combined right heart catheterization
                                     with left ventricular puncture
                                     (with or without retrograde left
                                     heart catheterization)
93529.............................  Combined right heart catheterization
                                     and left heart catheterization
                                     through existing septal opening
                                     (with or without retrograde left
                                     heart catheterization)
93539.............................  Injection procedure during cardiac
                                     catheterization; for selective
                                     opacification of arterial conduits
                                     (e.g., internal mammary), whether
                                     native or used for bypass
93540.............................  Injection procedure during cardiac
                                     catheterization; for selective
                                     opacification of aortocoronary
                                     venous bypass grafts, one or more
                                     coronary arteries
93541.............................  Injection procedure during cardiac
                                     catheterization; for pulmonary
                                     angiography
93542.............................  Injection procedure during cardiac
                                     catheterization; for selective
                                     right ventricular or right atrial
                                     angiography
93543.............................  Injection procedure during cardiac
                                     catheterization; for selective left
                                     ventricular or left atrial
                                     angiography
93544.............................  Injection procedure during cardiac
                                     catheterization; for aortography
93545.............................  Injection procedure during cardiac
                                     catheterization; for selective
                                     coronary angiography (injection of
                                     radiopaque material may be by hand)
93555.............................  Imaging supervision, interpretation
                                     and report for injection
                                     procedure(s) during cardiac
                                     catheterization; ventricular and/or
                                     atrial angiography
93556.............................  Imaging supervision, interpretation
                                     and report for injection
                                     procedure(s) during cardiac
                                     catheterization; pulmonary
                                     angiography, aortography, and/or
                                     selective coronary angiography
                                     including venous bypass grafts and
                                     arterial conduits (whether native
                                     or used in bypass)
------------------------------------------------------------------------


    Table 10--New Cardiac Catheterization-Related CPT Procedure Codes
                        Effective January 1, 2011
------------------------------------------------------------------------
         CY 2011 CPT Code                      Long descriptor
------------------------------------------------------------------------
93451.............................  Right heart catheterization
                                     including measurement(s) of oxygen
                                     saturation and cardiac output, when
                                     performed
93452.............................  Left heart catheterization including
                                     intraprocedural injection(s) for
                                     left ventriculography, imaging
                                     supervision and interpretation,
                                     when performed
93453.............................  Combined right and left heart
                                     catheterization including
                                     intraprocedural injection(s) for
                                     left ventriculography, imaging
                                     supervision and interpretation,
                                     when performed
93454.............................  Catheter placement in coronary
                                     artery(s) for coronary angiography,
                                     including intraprocedural
                                     injection(s) for coronary
                                     angiography, imaging supervision
                                     and interpretation
93455.............................  Catheter placement in coronary
                                     artery(s) for coronary angiography,
                                     including intraprocedural
                                     injection(s) for coronary
                                     angiography, imaging supervision
                                     and interpretation; with catheter
                                     placement(s) in bypass graft(s)
                                     (internal mammary, free arterial
                                     venous grafts) including
                                     intraprocedural injection(s) for
                                     bypass graft angiography
93456.............................  Catheter placement in coronary
                                     artery(s) for coronary angiography,
                                     including intraprocedural
                                     injection(s) for coronary
                                     angiography, imaging supervision
                                     and interpretation; with right
                                     heart catheterization
93457.............................  Catheter placement in coronary
                                     artery(s) for coronary angiography,
                                     including intraprocedural
                                     injection(s) for coronary
                                     angiography, imaging supervision
                                     and interpretation; with catheter
                                     placement(s) in bypass graft(s)
                                     (internal mammary, free arterial,
                                     venous grafts) including
                                     intraprocedural injection(s) for
                                     bypass graft angiography and right
                                     heart catheterization
93458.............................  Catheter placement in coronary
                                     artery(s) for coronary angiography,
                                     including intraprocedural
                                     injection(s) for coronary
                                     angiography, imaging supervision
                                     and interpretation; with left heart
                                     catheterization including
                                     intraprocedural injection(s) for
                                     left ventriculography, when
                                     performed
93459.............................  Catheter placement in coronary
                                     artery(s) for coronary angiography,
                                     including intraprocedural
                                     injection(s) for coronary
                                     angiography, imaging supervision
                                     and interpretation; with left heart
                                     catheterization including
                                     intraprocedural injection(s) for
                                     left ventriculography, when
                                     performed, catheter placement(s) in
                                     bypass graft(s) (internal mammary,
                                     free arterial, venous grafts) with
                                     bypass graft angiography

[[Page 71847]]

 
93460.............................  Catheter placement in coronary
                                     artery(s) for coronary angiography,
                                     including intraprocedural
                                     injection(s) for coronary
                                     angiography, imaging supervision
                                     and interpretation; with right and
                                     left heart catheterization
                                     including intraprocedural
                                     injection(s) for left
                                     ventriculography, when performed
93461.............................  Catheter placement in coronary
                                     artery(s) for coronary angiography,
                                     including intraprocedural
                                     injection(s) for coronary
                                     angiography, imaging supervision
                                     and interpretation; with right and
                                     left heart catheterization
                                     including intraprocedural
                                     injection(s) for left
                                     ventriculography, when performed,
                                     catheter placement(s) in bypass
                                     graft(s) (internal mammary, free
                                     arterial, venous grafts) with
                                     bypass graft angiography
93462.............................  Left heart catheterization by
                                     transseptal puncture through intact
                                     septum or by transapical puncture
                                     (List separately in addition to
                                     code for primary procedure)
93463.............................  Pharmacologic agent administration
                                     (e.g., inhaled nitric oxide,
                                     intravenous infusion of
                                     nitroprusside, dobutamine,
                                     milrinone, or other agent)
                                     including assessing hemodynamic
                                     measurements before, during, after
                                     and repeat pharmacologic agent
                                     administration, when performed
93464.............................  Physiologic exercise study (e.g.,
                                     bicycle or arm ergometry including
                                     assessing hemodynamic measurements
                                     before and after) (List separately
                                     in addition to code for primary
                                     procedure)
93563.............................  Injection procedure during cardiac
                                     catheterization including imaging
                                     supervision, interpretation, and
                                     report; for selective coronary
                                     angiography during congenital heart
                                     catheterization (List separately in
                                     addition to code for primary
                                     procedure)
93564.............................  Injection procedure during cardiac
                                     catheterization including imaging
                                     supervision, interpretation, and
                                     report; for selective opacification
                                     of aortocoronary venous or arterial
                                     bypass graft(s) (e.g.,
                                     aortocoronary saphenous vein, free
                                     radial artery, or free mammary
                                     artery graft) to one or more
                                     coronary arteries and in situ
                                     arterial conduits (e.g., internal
                                     mammary), whether native or used
                                     for bypass to one or more coronary
                                     arteries during congenital heart
                                     catheterization, when performed
                                     (List separately in addition to
                                     code for primary procedure)
93565.............................  Injection procedure during cardiac
                                     catheterization including imaging
                                     supervision, interpretation, and
                                     report; for selective left
                                     ventricular or left atrial
                                     angiography (List separately in
                                     addition to code for primary
                                     procedure)
93566.............................  Injection procedure during cardiac
                                     catheterization including imaging
                                     supervision, interpretation, and
                                     report; for selective right
                                     ventricular or right atrial
                                     angiography (List separately in
                                     addition to code for primary
                                     procedure)
93567.............................  Injection procedure during cardiac
                                     catheterization including imaging
                                     supervision, interpretation, and
                                     report; for supravalvular
                                     aortography (List separately in
                                     addition to code for primary
                                     procedure)
93568.............................  Injection procedure during cardiac
                                     catheterization including imaging
                                     supervision, interpretation, and
                                     report; for pulmonary angiography
                                     (List separately in addition to
                                     code for primary procedure)
------------------------------------------------------------------------

    Of the 19 deleted non-congenital cardiac catheterization-related 
CPT codes, 9 of the CPT codes describe either a left heart 
catheterization, right heart catheterization, or a combined left and 
right heart catheterization, 7 CPT codes describe injection procedures 
during cardiac catheterization, 2 CPT codes describe imaging 
supervision during cardiac catheterization, and only 1 CPT code 
describes a catheter placement. Of the 19 deleted non-congenital 
cardiac catheterization-related CPT codes, 10 CPT codes have been 
separately payable under the hospital OPPS, while the other 9 CPT codes 
that describe injection procedures and imaging supervision during 
cardiac catheterization have been packaged. Specifically, the 10 non-
congenital cardiac catheterization-related CPT codes that have been 
separately payable under the hospital OPPS include CPT codes 93501, 
93508, 93510, 93511, 93514, 93524, 93526, 93527, 93528, and 93529. 
Alternatively, the nine non-congenital cardiac catheterization-related 
CPT codes that have been packaged under the hospital OPPS include CPT 
codes 93539, 93540, 93541, 93542, 93543, 93544, 93545, 93555, and 
93556.
    Of the 20 new CPT codes, 4 CPT codes describe either a left heart 
catheterization, right heart catheterization, or a combined left and 
right heart catheterization, 8 CPT codes describe a catheter placement, 
1 CPT code describes a pharmacologic agent administration, 1 CPT code 
describes a physiologic exercise study, and 6 CPT codes describe a 
combination of injection procedures with imaging supervision during 
cardiac catheterization. With the exception of one CPT code (CPT code 
93451), many of the new CY 2011 CPT codes are described by multiple CY 
2010 CPT codes.
    Our standard process for assigning new CPT codes to APCs is to 
assign the code to the APC that we believe contains services that are 
comparable with respect to clinical characteristics and resources 
required to furnish the service. The new CPT code is given a comment 
indicator of ``NI'' to identify it as a new interim APC assignment for 
the new first year and the APC assignment for the new codes is then 
open to public comment. In some, but not all, cases, we are able to use 
the existing data from established codes to simulate an estimated 
median cost for the new code to guide us in the assignment of the new 
code to an APC. In the case of the new cardiac catheterization codes, 
we were able to use the existing CY 2009 claims data and the most 
recent cost report data to create simulated medians for the new 
separately payable CPT codes.
    Specifically, to estimate the hospital costs associated with the 20 
new non-congenital cardiac catheterization-related CPT codes based on 
their CY 2011 descriptors, we used claims and cost report data from CY 
2009. We note that all of the services that describe cardiac 
catheterization procedures, which include both congenital and non-
congenital cardiac catheterization, are assigned to APC 0080 
(Diagnostic Cardiac Catheterization) in CY 2010. Because of the 
substantive coding changes associated with the new non-congenital 
cardiac catheterization-related CPT codes for CY 2011, we used our CY 
2009 single and ``pseudo'' single claims data to simulate the new CY 
2011 CPT code definitions. As shown in Table 11 and as stated above, 
many of the new CPT codes were previously reported using multiple CY 
2009 CPT codes. In order to simulate median costs, we selected claims 
that we believe meet the definition for each of the new CY 2011 non-
congenital cardiac catheterization codes. Table 11 shows the criteria 
we applied to select a claim to be used in the calculation of the 
median cost for the new codes (shown in column A). We developed these

[[Page 71848]]

criteria based on our clinicians' understanding of services that were 
reported by CY 2009 CPT codes that, in various combinations, reflect 
the services provided that are described in the new CPT codes. For 
example, in CY 2009, the procedure described by new CY 2011 CPT code 
93454 (Catheter placement in coronary artery(s) for coronary 
angiography, including intraprocedural injection(s) for coronary 
angiography, imaging supervision and interpretation) would have been 
reported using the following combination of procedures: (1) The 
catheter placement would have been reported using CPT code 93508 
(Catheter placement in coronary artery(s), arterial coronary 
conduit(s), and/or venous coronary bypass graft(s) for coronary 
angiography without concomitant left heart catheterization); and (2) 
the injection procedure would have been reported using CPT code 93545 
(Injection procedure during cardiac catheterization; for selective 
coronary angiography (injection of radiopaque material may be by hand); 
and CPT code 93556 (Imaging supervision, interpretation and report for 
injection procedure(s) during cardiac catheterization; pulmonary 
angiography, aortography, and/or selective coronary angiography 
including venous bypass grafts and arterial conduits (whether native or 
used in bypass)). In columns B, C, and D of Table 11, for each new CY 
2011 CPT code listed under column A, we identified both the CPT codes 
that corresponded to each new code for which we had CY 2009 claims data 
and that we required or permitted to be reported on the same line-item 
date of service for a particular claim to be used for median setting 
for the new codes. Specifically, we required that only one unit of one 
and only one of the separately payable codes in column B must be 
present on the claim. We also required that at least one unit of each 
code that appears under column C must be present on the claim, and we 
permitted any number of these codes and any number of units of these 
codes to be present on the claim. Where there are codes in column D, we 
required at least one unit of one of at least one of the codes in 
column D must be on the claim, but we permitted any number of units of 
any of the codes shown in column D for the new code.
    For example, in determining the CPT median cost for new CPT code 
93452, we used only those claims that contained one unit of one and 
only one of the CPT codes listed under column B, specifically, CPT 
codes 93510, 93511, 93514, or 93524, and at least one unit (while 
allowing multiple units) of each of the CPT codes that appear under 
column C, specifically, CPT codes 93543 and 93555. Because, in the case 
of CPT code 93452, there are no third level codes in the definition of 
CPT code 93452, no other code criteria applied and column D is left 
blank. In the case of new CPT codes 93459 and 93461, there are third 
level criteria in column D, and for those two CPT codes, we required 
that the claim contain at least one unit of one code in column D, and 
we allowed any number of units for any code in column D. We applied 
this same methodology to select claims that we believe reflected the 
services defined in each new CPT code. We used approximately 175,000 
claims for the new non-congenital catheterization-related CPT codes, 
together with the single and pseudo single procedure claims for the 
remaining congenital catheterization-related CPT codes in APC 0080, to 
calculate CPT level median costs and the median cost for APC 0080 of 
approximately $2,698. Table 11 displays the combinations of CY 2009 CPT 
code data that we used to select the claims we used to create simulated 
median costs for the new CPT codes (columns A through D), the frequency 
of claims that met the criteria (column E), and the median costs we 
calculated for each new CPT code using the CY 2009 claims data for the 
previously existing CPT codes describing these services (column F). We 
note that because the CPT codes listed in column A are new for CY 2011, 
they will be identified with comment indicator ``NI'' in Addendum B of 
this final rule with comment period to identify them as subject to 
public comment. We are specifically requesting public comment on our 
methodology for simulating the median costs for these new CY 2011 CPT 
codes, in addition to public comments on the payment rates themselves.

[[Page 71849]]



           Table 11--CY 2009 Code Combinations, Frequencies, and Simulated Median Costs for New CY 2011 Cardiac Catheterization-Related Codes
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Second Required CY 2009   Third Required CY 2009
                           First Required CY 2009    CPT Code (At least one    CPT Code (Any number of
                           CPT Code (Only one unit   unit of each code; any     units of at least one
    CY 2011 CPT Code      of one and only one code  number of codes or units     code; any number of          Frequencies              CPT Medians
                             must appear on the      of a code may be on the     units of all codes
                                   claim)                    claim)                  permitted)
Column A                                Column B                  Column C                  Column D                  Column E                 Column F
--------------------------------------------------------------------------------------------------------------------------------------------------------
                 93451                     93501    ........................  ........................                   3,552                    1,493
                 93452                     93510                     93543    ........................                   1,055                    2,876
                                           93511                     93555    ........................  .......................  .......................
                                           93514    ........................  ........................  .......................  .......................
                                           93524    ........................  ........................  .......................  .......................
                 93453                     93526                     93543    ........................                     225                    3,182
                                           93527                     93555    ........................  .......................  .......................
                                           93528    ........................  ........................  .......................  .......................
                                           93529    ........................  ........................  .......................  .......................
                 93454                     93508                     93545    ........................                   7,852                    2,497
                          ........................                   93556    ........................  .......................  .......................
                 93455                     93508                     93545    ........................                   1,683                    2,673
                          ........................                   93556    ........................  .......................  .......................
                          ........................                   93539    ........................  .......................  .......................
                          ........................                   93540    ........................  .......................  .......................
                 93456                     93508                     93501    ........................                     914                    2,502
                          ........................                   93545    ........................  .......................  .......................
                          ........................                   93556    ........................  .......................  .......................
                 93457                     93508                     93545    ........................                     159                    3,923
                          ........................                   93556    ........................  .......................  .......................
                          ........................                   93539    ........................  .......................  .......................
                          ........................                   93540    ........................  .......................  .......................
                          ........................                   93501    ........................  .......................  .......................
                 93458                     93510                     93545    ........................                 112,395                    2,663
                                           93511                     93555    ........................  .......................  .......................
                                           93514                     93556    ........................  .......................  .......................
                                           93524                     93543    ........................  .......................  .......................
                 93459                     93510                     93545                     93539                    23,352                    2,911
                                           93511                     93555                     93540    .......................  .......................
                                           93514                     93556    ........................  .......................  .......................
                                           93524                     93543    ........................  .......................  .......................
                 93460                     93526                     93545    ........................                  20,697                    3,135
                                           93527                     93556    ........................  .......................  .......................
                                           93528                     93543    ........................  .......................  .......................
                                           93529                     93555    ........................  .......................  .......................
                 93461                     93526                     93545                     93539                     3,445                    3,382
                                           93527                     93556                     93540    .......................  .......................
                                           93528                     93543    ........................  .......................  .......................
                                           93529                     93555    ........................  .......................  .......................
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 71850]]

(9) Cranial Neurostimulator and Electrodes (APC 0318)
    For CY 2011, the AMA CPT Editorial Panel created a new CPT code 
64568 (Incision for implantation of cranial nerve (e.g., vagus nerve) 
neurostimulator electrode array and pulse generator) and indicates that 
it describes the services formerly included in the combinations of (1) 
CPT code 64573 (Incision for implantation of neurostimulator 
electrodes; cranial nerve) and CPT code 61885 (Insertion or replacement 
of cranial neurostimulator pulse generator or receiver, direct or 
inductive coupling; with connection to a single electrode array); or 
(2) CPT code 64573 and CPT code 61886 (Insertion or replacement of 
cranial neurostimulator pulse generator or receiver, direct or 
inductive coupling; with connection to two or more electrode arrays). 
Our standard process for assigning new CPT codes to APCs is to assign 
the code to the APC that we believe contains services that are 
comparable with respect to clinical characteristics and resources 
required to furnish the service. The new CPT code is given a comment 
indicator of ``NI'' to identify it as a new interim APC assignment for 
the new first year and the APC assignment for the new code is then open 
to public comment. In some, but not all, cases, we are able to use the 
existing data from established codes to simulate an estimated median 
cost for the new code to guide us in the assignment of the new code to 
an APC. In the case of the new neurostimulator electrode and pulse 
generator implantation CPT code, we were able to use the existing CY 
2009 claims and most current cost report data to create a simulated 
median cost.
    Specifically, to estimate the hospital costs of CPT code 64568 
based on its CY 2011 descriptor, we used CY 2009 claims and the most 
recent cost report data, using the single and ``pseudo'' single claims 
within this data set to simulate the new CY 2011 definition of this 
service. Specifically, we selected claims with CPT code 64573 on which 
CPT code 61885 or 61886 was also present and consistent with the 
description of the new CPT code 64568, and we treated the summed costs 
on these claims as if they were a single procedure claim for CPT code 
64568. We created an estimated median cost of approximately $22,562 for 
CPT code 64568 from 298 single claims to set a final payment rate for 
CY 2011 for the new code. We are creating new APC 0318 (Implantation of 
Cranial Neurostimulator Pulse Generator and Electrode) for CY 2011, to 
which CPT code 64568 is the only procedure assigned. APC 0225 
(Implantation of Neurostimulator Electrodes, Cranial Nerve), which 
contained only the predecessor CPT code 64573, is deleted effective 
January 1, 2011.
    We note that because CPT code 64568 is new for CY 2011, it is 
identified with comment indicator ``NI'' in Addendum B of this final 
rule with comment period to identify it as subject to public comment. 
We are specifically requesting public comment on our methodology for 
simulating the median cost for this new CY 2011 CPT code, in addition 
to public comments on the payment rate itself.
(10) Cardiac and Intensive Cardiac Rehabilitation (APC 0095)
    In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60566 
through 60574), we implemented the provisions of section 144(a) of the 
Medicare Improvements for Patients and Providers Act (MIPPA, Pub. L. 
110-275). Section 144(a) of Public Law 110-275 amended the Act to 
expand Medicare Part B coverage for cardiac rehabilitation (CR) and 
intensive cardiac rehabilitation (ICR) services furnished to 
beneficiaries with certain conditions, effective January 1, 2010. 
Section 144(a) of Public Law 110-275 also expanded coverage for 
pulmonary rehabilitation. Section 1861(eee)(4)(C) of the Act provides 
for up to 72 one-hour sessions of ICR with up to 6 sessions per day, 
over a period of 18 weeks. Medicare limits the number of cardiac 
rehabilitation program sessions to a maximum of 2 1-hour sessions per 
day, for up to 36 sessions, over up to 36 weeks. Medicare contractors 
have the authority to approve additional CR sessions, up to 72 total 
sessions, over an additional period of time. Section 144(a)(2) of Pub. 
Law 110-275 also includes specific language governing payment for 
services furnished in an ICR program under the MPFS, including a 
requirement that the Secretary shall substitute the Medicare OPD fee 
schedule amount established under the prospective payment system for 
hospital outpatient department services under the OPPS.
    Last year, we also finalized our requirement that all ICR programs 
be approved through the NCD process. Once we have approved an ICR 
program or programs through the NCD process, individual sites wishing 
to furnish ICR items and services via an approved ICR program may 
enroll with their local Medicare contractor to become an ICR program 
supplier as outlined in Sec.  424.510. This enrollment is designed to 
ensure that the specific sites meet the specific statutory and 
regulatory requirements to furnish these services and will provide a 
mechanism to appeal a disapproval of a prospective ICR program site. 
With regards to billing and payment for CR and ICR services, we stated 
that hospital providers will continue to use their CMS Certification 
Number (CCN or provider number) and that appeals related to the payment 
of claims will follow those established processes.
    For CY 2010, we finalized two new HCPCS codes G0422 (Intensive 
cardiac rehabilitation; with or without continuous ECG monitoring, with 
exercise, per hour, per session) and G0423 (Intensive cardiac 
rehabilitation; with or without continuous ECG monitoring, without 
exercise, per hour, per session) to describe intensive cardiac 
rehabilitation and accompany the CPT codes for cardiac rehabilitation 
already recognized for payment under the OPPS: CPT codes 93797 
(Physician services for outpatient cardiac rehabilitation; without 
continuous ECG monitoring (per session)) and 93798 (Physician services 
for outpatient cardiac rehabilitation; with continuous ECG monitoring 
(per session)). We finalized payment for all of these HCPCS codes in 
APC 0095 with a payment rate of approximately $38 per session. We noted 
our belief that hospital costs for a single session would be similar 
and that OPPS payment for both CR and ICR services would be provided on 
a per session basis (74 FR 60571). Because there were historic claims 
data for CR services, we used our standard methodology to estimate a 
median cost and $38 payment rate for CR and ICR services.
    As discussed in section II.A.2 of this final rule with comment 
period, the standard OPPS rate setting methodology we used to establish 
a median cost for APC 0095 relies upon converting hospital charges for 
CPT codes 97397 and 97398 on claims to costs using hospital-specific 
cost-to-charge ratios (CCRs) from the hospital's Medicare cost report 
and crosswalking them to claim services based on a ``revenue code-to-
cost center crosswalk'' that matches the revenue codes on a claim to a 
hierarchy of cost centers. The OPPS uses this uniform approach to 
setting the cost-based relative payment weights for its payment groups, 
and these annually updated cost-based weights are the basis for the 
prospective payment rates for hospital outpatient services.
    In 2008, the results of a study by RTI International (RTI) 
commissioned by CMS indicated that cost estimates for CR services may 
be under-estimated (``Refining Cost to Charge Ratios for Calculating 
APC and MS-DRG Relative Payment Weights: Final Report''

[[Page 71851]]

available at http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/
Refining_Cost_to_Charge_Ratios_200807_Final.pdf). Specifically, 
RTI indicated that several changes in cost reporting methods would 
result in a more accurate estimated median cost. Accordingly, in 
February 2010, CMS established a CR-specific cost center for voluntary 
use on the cost report to create a CR-specific CCR and thereby improve 
the accuracy of cost estimation. However, we will not have the new cost 
report data available for ratesetting until CY 2013. We did not propose 
to use interim data from the new cost center to set CY 2011 payment 
rates because, as we previously explained, we would have to modify the 
data from its submitted form and make assumptions in a methodology that 
would be contrary to our principle of using data as submitted by 
hospitals in OPPS ratesetting (74 FR 60571 and 73 FR 68525).
    Comment: One commenter indicated that the finalized payment of $38 
is too low for ICR services, does not cover the extensive cost to 
providers to offer these services, and that many providers are closing 
due to insufficient payment. The commenter cited the RTI report again 
as a source of key recommendations to improve CMS cost estimation 
methodology. The commenter indicated that, in comparison to RTI's 
finding of about $100 median cost after incorporating all 
recommendations, the CMS proposed payment rate of about $39 is 
artificially low. The commenter suggested that CMS possesses special 
authority to conduct payment evaluations and make changes for services 
that are being implemented under national coverage determinations. With 
respect to ICR services, the commenter indicated that while more 
resources are consumed than during traditional CR programs in terms of 
hospital, physician, and patient commitments, ICR services are more 
efficacious and yield better outcomes than alternative treatment 
measures not only for cardiac conditions but also for comorbidities 
such as obesity and diabetes. The commenter stated that Congress 
recognized these principles in subjecting ICR programs to a heightened 
demonstration of efficacy through a series of measures, as proved 
through peer-reviewed literature. The commenter also stated that the 
two ICR demonstration programs at Highmark Blue Cross Blue Shield and 
Mutual of Omaha evidenced cost savings.
    Response: In response to the commenter, we revisited RTI's study. 
In further reviewing its recommendations, we agree with the commenter 
that payment for CR and ICR services could be improved in this final 
rule with comment period. Specifically, we believe that, in addition to 
adding the non-standard cost center, we may improve the accuracy of 
payment for CR and ICR services by incorporating a second policy that 
was recommended in the RTI study. RTI also recommended that we 
incorporate a clinic CCR into the ``revenue code-to-cost center 
crosswalk'' for cardiac rehabilitation as we did for pulmonary 
rehabilitation last year. Therefore, we will add a clinic cost center 
to revenue code-to-cost center crosswalk for the hierarchy of cost 
centers used to estimate costs from charges for revenue code 0943 for 
cardiac rehabilitation. With this revision, the estimated median cost 
for CR services rises to $68.08. We are establishing $68.08 as the 
median cost for APC 0095 for CR and ICR services. We also believe that 
there are other revenue codes for OPPS clinic services that could 
include a clinic CCR in their hierarchy, and we will assess potential 
changes to the crosswalk for CY 2012.
    This policy would follow RTI's general approach of including a 
clinic revenue code for services provided in the clinic setting, which 
we incorporated last year for pulmonary rehabilitation when we updated 
the crosswalk by adding a clinic CCR into the hierarchy for the PR 
revenue code 0948 (74 FR 60347). Adding a clinic revenue code to the 
crosswalk is consistent with our approach of having up to four tiers in 
our hierarchy of cost centers used to apply CCRs to charges by revenue 
code on claims data. We also note that the specific new benefits of CR 
and PR are similar under the OPPS and that the authorizing statute 
defines comparable components for CR, ICR, and PR services, which we 
believe supports using a comparable cross-walk approach for these 
services.
    We appreciate the commenter's information on the efficacy of ICR 
programs and their cost effectiveness, but note that this has no 
bearing on establishing payments under the OPPS. Also, we disagree with 
the commenter that the facility resources required to provide a one 
hour session of ICR services differ from the resources required to 
provide a one hour session of CR. In our CY 2010 OPPS/ASC final rule 
with comment period, we noted our belief that hospital costs for a 
single session would be similar and that OPPS payment for both CR and 
ICR services would be provided on a per session basis (74 FR 60571). 
Therefore, because we believe that CR and ICR services are similar from 
a per hour resource perspective, we will continue to assign the CPT 
codes for both CR and ICR services per hour to the same APC for CY 
2011. However, because we implemented HCPCS codes G0422 and G0423 in CY 
2010, we will have historic charge information specific to ICR programs 
for CY 2012 ratesetting, and we will reevaluate whether estimated costs 
for ICR are sufficiently different from standard CR services to warrant 
proposing placement in a different APC. Finally, when the new cost 
report information becomes available beginning in CY 2013, we will 
reassess placement of CR and ICR in the same APC.
e. Calculation of Composite APC Criteria-Based Median Costs
    As discussed in the CY 2008 OPPS/ASC final rule with comment period 
(72 FR 66613), we believe it is important that the OPPS enhance 
incentives for hospitals to provide only necessary, high quality care 
and to provide that care as efficiently as possible. For CY 2008, we 
developed composite APCs to provide a single payment for groups of 
services that are typically performed together during a single clinical 
encounter and that result in the provision of a complete service. 
Combining payment for multiple independent services into a single OPPS 
payment in this way enables hospitals to manage their resources with 
maximum flexibility by monitoring and adjusting the volume and 
efficiency of services themselves. An additional advantage to the 
composite APC model is that we can use data from correctly coded 
multiple procedure claims to calculate payment rates for the specified 
combinations of services, rather than relying upon single procedure 
claims which may be low in volume and/or incorrectly coded. Under the 
OPPS, we currently have composite APC policies for extended assessment 
and management services, low dose rate (LDR) prostate brachytherapy, 
cardiac electrophysiologic evaluation and ablation services, mental 
health services, and multiple imaging services. We refer readers to the 
CY 2008 OPPS/ASC final rule with comment period for a full discussion 
of the development of the composite APC methodology (72 FR 66611 
through 66614 and 66650 through 66652).
    At its February 2010 meeting, the APC Panel recommended that, in 
order to support stem cell transplantation, CMS consider creating a 
composite APC or custom APC that captures the costs of stem cell 
acquisition performed in conjunction with recipient transplantation and 
preparation of tissue. In the CY 2011 OPPS/ASC

[[Page 71852]]

proposed rule (75 FR 46208), we indicated that we were accepting this 
APC Panel recommendation to consider creating a composite APC or custom 
APC that captures the costs of stem cell acquisition performed in 
conjunction with recipient transplantation and preparation of tissue, 
and would report the results of our assessment to the APC Panel at a 
future meeting.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46208), for CY 2011, 
we proposed to continue our established composite APC policies for 
extended assessment and management, LDR prostate brachytherapy, cardiac 
electrophysiologic evaluation and ablation, mental health services, and 
multiple imaging services, as discussed in sections II.A.2.e.(1), 
II.A.2.e.(2), II.A.2.e.(3), II.A.2.e.(4), and II.A.2.e.(5), 
respectively, of the proposed rule and this final rule with comment 
period.
    Comment: A number of commenters recommended that we establish new 
composite APCs in the clinical areas of cardiac resynchronization 
therapy (CRT) and stem cell transplantation. Regarding a request for a 
new CRT composite APC, a few commenters stated that a CRT composite is 
appropriate, recalling that the APC Panel at its February and August 
2009 meetings recommended that we evaluate the implications of the 
creation of a new composite APC for CRT and recommended that we 
reconsider creating a composite APC or group of composite APCs for CRT. 
The commenters were concerned that we have not yet reported back to the 
APC Panel with an evaluation or a proposed composite APC for CRT 
services. Some commenters noted that the procedures involved with 
implantation of CRT, CRT with defibrillator (CRT-D) or CRT with 
pacemaker (CRT-P) are never captured in claims data as single bills, 
which we use in our standard ratesetting methodology; rather, the 
correctly coded CRT services always involve the submission of two CPT 
codes on the same claim. These commenters asserted that the CY 2011 
proposed rule claims data demonstrate that the percentage of single 
claims available for use in CRT ratesetting is very low compared to the 
total number of claims submitted for CRT-D or CRT-P services. The 
result, the commenters claimed, is payment fluctuations over the years 
for APC 0418 (Insertion of Left Ventricular Pacing Electrode), which a 
CRT composite APC payment methodology will lessen through a more robust 
set of claims.
    Several commenters supported the APC Panel's recommendation and 
welcomed our acceptance of that APC Panel recommendation to consider 
creating a composite APC or custom APC that captures the costs of stem 
cell acquisition performed in conjunction with recipient 
transplantation and preparation of tissue.
    Response: While we continue to consider the development and 
implementation of larger payment bundles, such as composite APCs (a 
long-term policy objective for the OPPS), and continue to explore other 
areas where this payment model may be utilized, in the CY 2011 OPPS/ASC 
proposed rule, we did not propose any new composite APCs for CY 2011 so 
that we may monitor the effects of the existing composite APCs on 
utilization and payment, similar to our treatment of the composite APC 
methodology mentioned in the CY 2010 OPPS/ASC final rule with comment 
period (74 FR 60391). As indicated below, we have accepted the APC 
Panel recommendations to consider composite APCs for CRT, and we will 
reconsider whether it would be appropriate to propose in the future 
composite APCs for CRT services and evaluate the implications of such a 
potential policy change, and report our findings to the APC Panel at a 
future meeting. We note that several commenters to the CY 2011 proposed 
rule supported that we did not propose any new composite APCs for CY 
2011, such as new multiple imaging APCs, without public notice and 
comment.
    As noted by a few commenters, at its February 2009 meeting, the APC 
Panel recommended that CMS evaluate the implications of creating 
composite APCs for CRT services with a defibrillator or pacemaker and 
report its findings to the APC Panel. The APC Panel also recommended at 
its August 2009 meeting that CMS reconsider creating a new composite 
APC or group of composite APCs for CRT procedures. While we did not 
propose any new composite APCs for CY 2010 or CY 2011, we accepted both 
of these APC Panel recommendations, as noted in the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60391). We will reconsider 
proposing to create composite APCs for CRT services and evaluate the 
implications of such a potential policy change, and report our findings 
to the APC Panel at a future meeting. As discussed in the 2011 OPPS/ASC 
proposed rule (75 FR 46208), we accepted the APC Panel recommendation 
made at its February 2010 meeting, that we consider creating a 
composite APC or custom APC that captures the costs of stem cell 
acquisition performed in conjunction with recipient transplantation and 
preparation of tissue. We also will consider bringing other potential 
composite APCs to the APC Panel for further discussion.
    After consideration of the public comments we received, for CY 
2011, we are finalizing, without modification, our proposal to continue 
our established composite APC policies for extended assessment and 
management, LDR prostate brachytherapy, cardiac electrophysiologic 
evaluation and ablation, mental health services, and multiple imaging 
services, as discussed in sections II.A.2.e.(1), II.A.2.e.(2), 
II.A.2.e.(3), II.A.2.e.(4), and II.A.2.e.(5), respectively, of this 
final rule with comment period.
(1) Extended Assessment and Management Composite APCs (APCs 8002 and 
8003)
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46208), we proposed to 
continue to include composite APC 8002 (Level I Extended Assessment and 
Management Composite) and composite APC 8003 (Level II Extended 
Assessment and Management Composite) in the OPPS for CY 2011. For CY 
2008, we created these two composite APCs to provide payment to 
hospitals in certain circumstances when extended assessment and 
management of a patient occur (an extended visit). In most 
circumstances, observation services are supportive and ancillary to the 
other services provided to a patient. In the circumstances when 
observation care is provided in conjunction with a high level visit or 
direct referral and is an integral part of a patient's extended 
encounter of care, payment is made for the entire care encounter 
through one of two composite APCs as appropriate.
    As defined for the CY 2008 OPPS, composite APC 8002 describes an 
encounter for care provided to a patient that includes a high level 
(Level 5) clinic visit or direct referral for observation services in 
conjunction with observation services of substantial duration (72 FR 
66648 through 66649). Composite APC 8003 describes an encounter for 
care provided to a patient that includes a high level (Level 4 or 5) 
Type A emergency department visit, a high level (Level 5) Type B 
emergency department visit, or critical care services in conjunction 
with observation services of substantial duration. HCPCS code G0378 
(Observation services, per hour) is assigned status indicator ``N,'' 
signifying that its payment is always packaged. As noted in the CY 2008 
OPPS/ASC final rule with comment period (72 FR 66648 through 66649), 
the Integrated Outpatient Code Editor (I/OCE) evaluates every claim 
received to determine if payment through a composite APC is 
appropriate. If

[[Page 71853]]

payment through a composite APC is inappropriate, the I/OCE, in 
conjunction with the OPPS Pricer, determines the appropriate status 
indicator, APC, and payment for every code on a claim. The specific 
criteria that must be met for the two extended assessment and 
management composite APCs to be paid are provided below in the 
description of the claims that were selected for the calculation of the 
proposed CY 2011 median costs for these composite APCs. We did not 
propose to change these criteria for the CY 2011 OPPS.
    When we created composite APCs 8002 and 8003 for CY 2008, we 
retained as general reporting requirements for all observation services 
those criteria related to physician order and evaluation, 
documentation, and observation beginning and ending time as listed in 
the CY 2008 OPPS/ASC final rule with comment period (72 FR 66812). 
These are more general requirements that encourage hospitals to provide 
medically reasonable and necessary care and help to ensure the proper 
reporting of observation services on correctly coded hospital claims 
that reflect the full charges associated with all hospital resources 
utilized to provide the reported services. We also issued guidance 
clarifying the correct method for reporting the starting time for 
observation services sections 290.2.2 through 290.5 in the Medicare 
Claims Processing Manual (Pub. 100-4), Chapter 4, through Transmittal 
1745, Change Request 6492, issued May 22, 2009 and implemented July 6, 
2009. We did not propose to change these reporting requirements for the 
CY 2011 OPPS.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46209), for CY 2011, 
we proposed to continue the extended assessment and management 
composite APC payment methodology for APCs 8002 and 8003. We stated in 
the proposed rule that we continue to believe that the composite APCs 
8002 and 8003 and related policies provide the most appropriate means 
of paying for these services. We proposed to calculate the median costs 
for APCs 8002 and 8003 using all single and ``pseudo'' single procedure 
claims for CY 2009 that meet the criteria for payment of each composite 
APC.
    Specifically, to calculate the proposed median costs for composite 
APCs 8002 and 8003, we selected single and ``pseudo'' single procedure 
claims that met each of the following criteria:
    1. Did not contain a HCPCS code to which we have assigned status 
indicator ``T'' that is reported with a date of service 1 day earlier 
than the date of service associated with HCPCS code G0378. (By 
selecting these claims from single and ``pseudo'' single claims, we had 
already assured that they would not contain a code for a service with 
status indicator ``T'' on the same date of service.);
    2. Contained 8 or more units of HCPCS code G0378; and
    3. Contained one of the following codes:
    <bullet> In the case of composite APC 8002, HCPCS code G0379 
(Direct referral of patient for hospital observation care) on the same 
date of service as G0378; or CPT code 99205 (Office or other outpatient 
visit for the evaluation and management of a new patient (Level 5)); or 
CPT code 99215 (Office or other outpatient visit for the evaluation and 
management of an established patient (Level 5)) provided on the same 
date of service or one day before the date of service for HCPCS code 
G0378.
    <bullet> In the case of composite APC 8003, CPT code 99284 
(Emergency department visit for the evaluation and management of a 
patient (Level 4)); CPT code 99285 (Emergency department visit for the 
evaluation and management of a patient (Level 5)); CPT code 99291 
(Critical care, evaluation and management of the critically ill or 
critically injured patient; first 30-74 minutes); or HCPCS code G0384 
(Level 5 hospital emergency department visit provided in a Type B 
emergency department) provided on the same date of service or one day 
before the date of service for HCPCS code G0378. (As discussed in 
detail in the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68684), we added HCPCS code G0384 to the eligibility criteria for 
composite APC 8003 for CY 2009.)
    As discussed further in section IX. of the proposed rule and this 
final rule with comment period, and consistent with our CY 2008, CY 
2009, and CY 2010 final policies, when calculating the median costs for 
the clinic, Type A emergency department visit, Type B emergency 
department visit, and critical care APCs (0604 through 0617 and 0626 
through 0630), we utilize our methodology that excludes those claims 
for visits that are eligible for payment through the two extended 
assessment and management composite APCs, that is APC 8002 or APC 8003. 
We believe that this approach results in the most accurate cost 
estimates for APCs 0604 through 0617 and 0626 through 0630 for CY 2011.
    At its February 2010 meeting, the APC Panel recommended that CMS 
study the feasibility of expanding the extended assessment and 
management composite APC methodology to include services commonly 
furnished in conjunction with visits and observation services, such as 
drug infusion, electrocardiogram, and chest X-ray. As we indicated in 
the proposed rule, we are accepting this recommendation, and we will 
share our assessment with the APC Panel at a future meeting. At the 
August 2010 APC Panel meeting, a similar recommendation was made that 
CMS consider including other services commonly provided with extended 
assessment and management services in the extended assessment and 
management composite APC. We are accepting this recommendation as well.
    In summary, for CY 2011, we proposed to continue to include 
composite APCs 8002 and 8003 in the OPPS. We proposed to continue the 
extended assessment and management composite APC payment methodology 
and criteria that we finalized for CYs 2009 and 2010. We also proposed 
to calculate the median costs for APCs 8002 and 8003 using the same 
methodology that we used to calculate the medians for composite APCs 
8002 and 8003 for the CY 2008 OPPS (72 FR 66649). That is, we used all 
single and ``pseudo'' single procedure claims from CY 2009 that met the 
criteria for payment of each composite APC and applied the standard 
packaging and trimming rules to the claims before calculating the 
proposed CY 2011 median costs. The proposed CY 2011 median cost 
resulting from this methodology for composite APC 8002 was 
approximately $401, which was calculated from 17,398 single and 
``pseudo'' single bills that met the required criteria. The proposed CY 
2011 median cost for composite APC 8003 was approximately $743, which 
was calculated from 201,189 single and ``pseudo'' single bills that met 
the required criteria.
    Comment: One commenter supported CMS' policy to package payment for 
observation care and to not provide additional payment through an 
extended assessment and management composite APC payment when 
observation services are billed with significant surgical procedures. 
According to the commenter, the observation services in such cases are 
most likely related to post-procedural recovery, and thus no additional 
payment is warranted. The commenter stated that minor procedures with 
extended observation care, on the other hand, should be eligible for 
additional payment through APCs 8002 and 8003.
    Response: We appreciate the commenter's support of our policy not 
to allow payment of APC 8002 or 8003 for claims that include a HCPCS 
code to which we have assigned status indicator

[[Page 71854]]

``T'' that is reported with a date of service on the same day as or one 
day prior to the date of the service associated with HCPCS code G0378. 
We agree that payment for such services is included in the payment for 
the surgical procedure. It is unclear to us exactly how the commenter 
defines minor procedures; however, we do allow payment of APCs 8002 and 
8003 when ancillary services with status indicator ``X'' or packaged 
services with status indicator ``N'' appear on the same claim as HCPCS 
code G0378.
    Comment: One commenter recommended that CMS consider adopting the 
National Universal Billing Committee (NUBC) guidelines, utilized by 
private insurance carriers, which permit payment for observation care 
furnished during the time of an inpatient hospital stay that is 
subsequently overturned by a hospital's utilization review committee.
    Response: This comment is outside of the scope of the proposals in 
the CY 2011 OPPS/ASC proposed rule. However, we will consider the 
possibility of addressing this concern through other available 
mechanisms, as appropriate. We note that we have continued to emphasize 
that observation care is a hospital outpatient service, ordered by a 
physician and reported with a HCPCS code, like any other outpatient 
service. It is not a patient status for Medicare payment purposes.
    After consideration of the public comments we received, we are 
adopting as final, without modification, our CY 2011 proposal to 
continue to include composite APCs 8002 and 8003 in the OPPS and to 
continue the extended assessment and management composite APC payment 
methodology and criteria that we finalized for CYs 2009 and 2010. We 
also are calculating the median costs for APCs 8002 and 8003 using all 
single and ``pseudo'' single procedure claims from CY 2009 that meet 
the criteria for payment of each composite APC. The final CY 2011 
median cost resulting from this methodology for APC 8002 is 
approximately $390, which was calculated from 19,156 single and 
``pseudo'' single bills that met the required criteria. The final CY 
2011 median cost for composite APC 8003 is approximately $707, which 
was calculated from 221,246 single and ``pseudo'' single bills that met 
the required criteria.
(2) Low Dose Rate (LDR) Prostate Brachytherapy Composite APC (APC 8001)
    LDR prostate brachytherapy is a treatment for prostate cancer in 
which hollow needles or catheters are inserted into the prostate, 
followed by permanent implantation of radioactive sources into the 
prostate through the needles/catheters. At least two CPT codes are used 
to report the composite treatment service because there are separate 
codes that describe placement of the needles/catheters and the 
application of the brachytherapy sources: CPT code 55875 (Transperineal 
placement of needles or catheters into prostate for interstitial 
radioelement application, with or without cystoscopy) and CPT code 
77778 (Interstitial radiation source application; complex). Generally, 
the component services represented by both codes are provided in the 
same operative session in the same hospital on the same date of service 
to the Medicare beneficiary being treated with LDR brachytherapy for 
prostate cancer. As discussed in the CY 2008 OPPS/ASC final rule with 
comment period (72 FR 66653), OPPS payment rates for CPT code 77778, in 
particular, had fluctuated over the years. We were frequently informed 
by the public that reliance on single procedure claims to set the 
median costs for these services resulted in use of mainly incorrectly 
coded claims for LDR prostate brachytherapy because a correctly coded 
claim should include, for the same date of service, CPT codes for both 
needle/catheter placement and application of radiation sources, as well 
as separately coded imaging and radiation therapy planning services 
(that is, a multiple procedure claim).
    In order to base payment on claims for the most common clinical 
scenario, and to further our goal of providing payment under the OPPS 
for a larger bundle of component services provided in a single hospital 
encounter, beginning in CY 2008, we provide a single payment for LDR 
prostate brachytherapy when the composite service, reported as CPT 
codes 55875 and 77778, is furnished in a single hospital encounter. We 
base the payment for composite APC 8001 (LDR Prostate Brachytherapy 
Composite) on the median cost derived from claims for the same date of 
service that contain both CPT codes 55875 and 77778 and that do not 
contain other separately paid codes that are not on the bypass list. In 
uncommon occurrences in which the services are billed individually, 
hospitals continue to receive separate payments for the individual 
services. We refer readers to the CY 2008 OPPS/ASC final rule with 
comment period (72 FR 66652 through 66655) for a full history of OPPS 
payment for LDR prostate brachytherapy and a detailed description of 
how we developed the LDR prostate brachytherapy composite APC.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46210), for CY 2011, 
we proposed to continue paying for LDR prostate brachytherapy services 
using the composite APC methodology proposed and implemented for CYs 
2008, 2009, and 2010. That is, we proposed to use CY 2009 claims on 
which both CPT codes 55875 and 77778 were billed on the same date of 
service with no other separately paid procedure codes (other than those 
on the bypass list) to calculate the payment rate for composite APC 
8001. Consistent with our CY 2008 through CY 2010 practice, we proposed 
not to use the claims that meet these criteria in the calculation of 
the median costs for APCs 0163 (Level IV Cystourethroscopy and Other 
Genitourinary Procedures) and 0651 (Complex Interstitial Radiation 
Source Application), the APCs to which CPT codes 55875 and 77778 are 
assigned, respectively. The median costs for APCs 0163 and 0651 would 
continue to be calculated using single and ``pseudo'' single procedure 
claims. We indicated in the proposed rule that we continue to believe 
that this composite APC contributes to our goal of creating hospital 
incentives for efficiency and cost containment, while providing 
hospitals with the most flexibility to manage their resources. We also 
continue to believe that data from claims reporting both services 
required for LDR prostate brachytherapy provide the most accurate 
median cost upon which to base the composite APC payment rate.
    Using partial year CY 2009 claims data available for the CY 2011 
proposed rule, we were able to use 788 claims that contained both CPT 
codes and 55875 and 77778 to calculate the median cost upon which the 
proposed CY 2011 payment for composite APC 8001 was based. The proposed 
median cost for composite APC 8001 for CY 2011 was approximately 
$3,265. This is an increase compared to the CY 2010 OPPS/ASC final rule 
with comment period in which we calculated a final median cost for this 
composite APC of approximately $3,084 based on a full year of CY 2008 
claims data. The proposed CY 2011 median cost for this composite APC 
was slightly less than $3,604, the sum of the proposed median costs for 
APCs 0163 and 0651 ($2,606 + $998), the APCs to which CPT codes 55875 
and 77778 map if one service is billed on a claim without the other. We 
indicated in the proposed rule that we believe the proposed CY 2011 
median cost for composite APC 8001 of approximately $3,265, calculated 
from

[[Page 71855]]

claims we believe to be correctly coded, would result in a reasonable 
and appropriate payment rate for this service in CY 2011.
    Comment: One commenter expressed appreciation for the proposed 
payment increase for composite APC 8001 based on an increase in median 
costs, and recommended that CMS finalize the proposed CY 2011 payment 
rate. Another commenter was concerned that the 788 claims with both CPT 
codes 55875 and 77778 were used for development of the proposed CY 2011 
payment rate for APC 8001 was an extremely low number of claims 
compared to the number of these procedures performed in hospitals for 
cancer patients, and encouraged CMS to explore ways to capture more 
multiple claims to be used in future ratesetting for composite APC 
8001.
    Response: We appreciate the commenter's support for our proposed 
payment rate for composite APC 8001. Regarding the commenter's concern 
with the number of CY 2011 proposed rule claims used for APC 8001 
proposed rate, for the CY 2011 final rule with comment period, we have 
849 claims that contain both CPT codes 55875 and 77778 to calculate the 
median cost of APC 8001 of approximately $3,195. We believe this is a 
robust number of claims from which to calculate accurate and 
appropriate payment rates for the services assigned to APC 8001. For 
all OPPS services, we continue our efforts to use the data from as many 
multiple procedure claims as possible, through approaches such as use 
of the bypass list and date splitting of claims as described further in 
section II.A. of this final rule with comment period, and through 
methodologies such as increased packaging and composite APCs.
    After consideration of the public comments we received, we are 
finalizing, without modification, our proposal to continue paying for 
LDR prostate brachytherapy services using the composite APC methodology 
implemented for CYs 2008, 2009, and 2010 described above in this 
section. The final CY 2011 median cost for composite APC 8001 is 
approximately $3,195 calculated from 849 single bills.
(3) Cardiac Electrophysiologic Evaluation and Ablation Composite APC 
(APC 8000)
    Cardiac electrophysiologic evaluation and ablation services 
frequently are performed in varying combinations with one another 
during a single episode-of-care in the hospital outpatient setting. 
Therefore, correctly coded claims for these services often include 
multiple codes for component services that are reported with different 
CPT codes and that, prior to CY 2008, were always paid separately 
through different APCs (specifically, APC 0085 (Level II 
Electrophysiologic Evaluation), APC 0086 (Ablate Heart Dysrhythm 
Focus), and APC 0087 (Cardiac Electrophysiologic Recording/Mapping)). 
As a result, there would never be many single bills for cardiac 
electrophysiologic evaluation and ablation services, and those that are 
reported as single bills would often represent atypical cases or 
incorrectly coded claims. As described in the CY 2008 OPPS/ASC final 
rule with comment period (72 FR 66655 through 66659), the APC Panel and 
the public expressed persistent concerns regarding the limited and 
reportedly unrepresentative single bills available for use in 
calculating the median costs for these services according to our 
standard OPPS methodology.
    Effective January 1, 2008, we established APC 8000 (Cardiac 
Electrophysiologic Evaluation and Ablation Composite) to pay for a 
composite service made up of at least one specified electrophysiologic 
evaluation service and one specified electrophysiologic ablation 
service. Calculating a composite APC for these services allowed us to 
utilize many more claims than were available to establish the 
individual APC median costs for these services, and we also saw this 
composite APC as an opportunity to advance our stated goal of promoting 
hospital efficiency through larger payment bundles. In order to 
calculate the median cost upon which the payment rate for composite APC 
8000 is based, we used multiple procedure claims that contained at 
least one CPT code from group A for evaluation services and at least 
one CPT code from group B for ablation services reported on the same 
date of service on an individual claim. Table 9 in the CY 2008 OPPS/ASC 
final rule with comment period (72 FR 66656) identified the CPT codes 
that are assigned to groups A and B. For a full discussion of how we 
identified the group A and group B procedures and established the 
payment rate for the cardiac electrophysiologic evaluation and ablation 
composite APC, we refer readers to the CY 2008 OPPS/ASC final rule with 
comment period (72 FR 66655 through 66659). Where a service in group A 
is furnished on a date of service that is different from the date of 
service for a code in group B for the same beneficiary, payments are 
made under the appropriate single procedure APCs and the composite APC 
does not apply.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46210), for CY 2011, 
we proposed to continue to pay for cardiac electrophysiologic 
evaluation and ablation services using the composite APC methodology 
proposed and implemented for CY 2008, CY 2009, and CY 2010. Consistent 
with our CY 2008 through CY 2010 practice, we proposed not to use the 
claims that meet the composite payment criteria in the calculation of 
the median costs for APC 0085 and APC 0086, to which the CPT codes in 
both groups A and B for composite APC 8000 are otherwise assigned. 
Median costs for APCs 0085 and 0086 would continue to be calculated 
using single procedure claims. As we indicated in the proposed rule, we 
continue to believe that the composite APC methodology for cardiac 
electrophysiologic evaluation and ablation services is the most 
efficient and effective way to use the claims data for the majority of 
these services and best represents the hospital resources associated 
with performing the common combinations of these services that are 
clinically typical. Furthermore, this approach creates incentives for 
efficiency by providing a single payment for a larger bundle of major 
procedures when they are performed together, in contrast to continued 
separate payment for each of the individual procedures.
    For CY 2011, using partial year CY 2009 claims data available for 
the proposed rule, we were able to use 8,964 claims containing a 
combination of group A and group B codes and calculated a proposed 
median cost of approximately $10,834 for composite APC 8000. This was 
an increase compared to the CY 2010 OPPS/ASC final rule with comment 
period in which we calculated a final median cost for this composite 
APC of approximately $10,026 based on a full year of CY 2008 claims 
data. We indicated in the proposed rule that we believe the proposed 
median cost of $10,834 calculated from a high volume of correctly coded 
multiple procedure claims would result in an accurate and appropriate 
proposed payment for cardiac electrophysiologic evaluation and ablation 
services when at least one evaluation service is furnished during the 
same clinical encounter as at least one ablation service.
    Comment: One commenter supported CMS' proposal to continue to pay 
for cardiac electrophysiologic evaluation and ablation services using 
composite APC 8001, as the most efficient and

[[Page 71856]]

effective way to use claims data for these services.
    Response: We appreciate the supportive comment, and agree that 
composite APC 8001 promotes efficient use of resources and results in 
accurate and appropriate payment rates for cardiac electrophysiologic 
evaluation and ablation services.
    After consideration of the public comments received, we are 
finalizing our proposal, without modification, to continue to pay for 
cardiac electrophysiologic evaluation and ablation services using the 
composite APC methodology implemented for CY 2008, CY 2009, and CY 
2010. For this final rule with comment period, we were able to use 
9,736 claims from CY 2009 containing a combination of group A and group 
B codes and calculated a final CY 2011 median cost of approximately 
$10,673 for composite APC 8000. Table 12 below lists the groups of 
procedures upon which we based composite APC 8000 for CY 2011.

 Table 12--Groups of Cardiac Electrophysiologic Evaluation and Ablation Procedures Upon Which Composite APC 8000
                                                    Is Based
----------------------------------------------------------------------------------------------------------------
                                                                                   Final single
 Codes used in combinations: At least one in group A and one in     CY 2011 CPT    code CY 2011    Final CY 2011
                             group B                                   code             APC       SI (composite)
----------------------------------------------------------------------------------------------------------------
                                                     Group A
----------------------------------------------------------------------------------------------------------------
Comprehensive electrophysiologic evaluation with right atrial              93619            0085              Q3
 pacing and recording, right ventricular pacing and recording,
 His bundle recording, including insertion and repositioning of
 multiple electrode catheters, without induction or attempted
 induction of arrhythmia........................................
Comprehensive electrophysiologic evaluation including insertion            93620            0085              Q3
 and repositioning of multiple electrode catheters with
 induction or attempted induction of arrhythmia; with right
 atrial pacing and recording, right ventricular pacing and
 recording, His bundle recording................................
----------------------------------------------------------------------------------------------------------------
                                                     Group B
----------------------------------------------------------------------------------------------------------------
Intracardiac catheter ablation of atrioventricular node                    93650            0085              Q3
 function, atrioventricular conduction for creation of complete
 heart block, with or without temporary pacemaker placement.....
Intracardiac catheter ablation of arrhythmogenic focus; for                93651            0086              Q3
 treatment of supraventricular tachycardia by ablation of fast
 or slow atrioventricular pathways, accessory atrioventricular
 connections or other atrial foci, singly or in combination.....
Intracardiac catheter ablation of arrhythmogenic focus; for                93652            0086              Q3
 treatment of ventricular tachycardia...........................
----------------------------------------------------------------------------------------------------------------

(4) Mental Health Services Composite APC (APC 0034)
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46211), we proposed to 
continue our longstanding policy of limiting the aggregate payment for 
specified less resource-intensive mental health services furnished on 
the same date to the payment for a day of partial hospitalization, 
which we consider to be the most resource-intensive of all outpatient 
mental health treatment for CY 2011. We refer readers to the April 7, 
2000 OPPS final rule with comment period (65 FR 18452 through 18455) 
for the initial discussion of this longstanding policy. We continue to 
believe that the costs associated with administering a partial 
hospitalization program represent the most resource-intensive of all 
outpatient mental health treatment. Therefore, we do not believe that 
we should pay more for a day of individual mental health services under 
the OPPS than the partial hospitalization per diem payment.
    As discussed in detail in section X. of the CY 2011 OPPS/ASC 
proposed rule (75 FR 46298 through 46301) and this final rule with 
comment period, for CY 2011, we proposed to use a provider-specific two 
tiered payment approach for partial hospitalization services that 
distinguishes payment made for services furnished in a CMHC from 
payment made for services furnished in a hospital. Specifically, we 
proposed one APC for partial hospitalization program days with three 
services furnished in a CMHC (APC 0172, Level I Partial Hospitalization 
(3 services) for CMHCs) and one APC for days with four or more services 
furnished in a CMHC (APC 0173, Level II Partial Hospitalization (4 or 
more services) for CMHCs). We proposed that the payment rates for these 
two APCs be based upon the median per diem costs calculated using data 
only from CMHCs. Similarly, we proposed one APC for partial 
hospitalization program days with three services furnished in a 
hospital (APC 0175, Level I Partial Hospitalization (3 services) for 
Hospital-Based PHPs), and one APC for days with four or more services 
furnished in a hospital (APC 0176, Level II Partial Hospitalization (4 
or more services) for Hospital-Based PHPs). We proposed that the 
payment rates for these two APCs be based on the median per diem costs 
calculated using data only from hospitals.
    Because our longstanding policy of limiting the aggregate payment 
for specified less resource-intensive mental health services furnished 
on the same date to the payment rate for the most resource-intensive of 
all outpatient mental health treatment, we proposed to set the CY 2011 
payment rate for APC 0034 (Mental Health Services Composite) at the 
same rate as we proposed for APC 0176, which is the maximum partial 
hospitalization per diem payment. As we stated in the CY 2011 OPPS/ASC 
proposed rule (75 FR 46212), we believe this APC payment rate would 
provide the most appropriate payment for composite APC 0034, taking 
into consideration the intensity of the mental health services and the 
differences in the HCPCS codes for mental health services that could be 
paid through this composite APC compared with the HCPCS codes that 
could be paid through partial hospitalization APC 0176. When the 
aggregate payment for specified mental health services provided by one 
hospital to a single beneficiary on one date of service based on the 
payment rates associated with the APCs for the individual services 
exceeds the maximum per diem partial hospitalization payment, we 
proposed that those specified mental health services would be assigned 
to APC 0034. We proposed that APC 0034 would have the same payment rate 
as APC 0176 and that the hospital would continue to be paid one unit of 
APC

[[Page 71857]]

0034. The I/OCE currently determines, and we proposed for CY 2011 that 
it would continue to determine, whether to pay these specified mental 
health services individually or to make a single payment at the same 
rate as the APC 0176 per diem rate for partial hospitalization for all 
of the specified mental health services furnished by the hospital on 
that single date of service.
    Comment: Many commenters strongly supported the CMS proposal to use 
the hospital-based partial hospitalization APC 0176 (4 or more units of 
service) as the daily payment cap for less intensive mental health 
services provided in hospital outpatient departments.
    Response: We appreciate the commenters' support for utilizing the 
hospital-based partial hospitalization APC 0176 (4 or more units of 
service) as the daily payment cap for less intensive mental health 
services provided in hospital outpatient departments. We continue to 
believe that the costs associated with administering a partial 
hospitalization program represent the most resource intensive of all 
outpatient mental health treatment, and we do not believe CMS should 
pay more for a day of individual mental health services under the OPPS.
    After consideration of the public comments we received, we are 
finalizing our CY 2011 proposal, without modification, to limit the 
aggregate payment for specified less intensive outpatient mental health 
services furnished on the same date by a hospital to the payment for a 
day of partial hospitalization, specifically APC 0176.
(5) Multiple Imaging Composite APCs (APCs 8004, 8005, 8006, 8007, and 
8008)
    Prior to CY 2009, hospitals received a full APC payment for each 
imaging service on a claim, regardless of how many procedures were 
performed during a single session using the same imaging modality. 
Based on extensive data analysis, we determined that this practice 
neither reflected nor promoted the efficiencies hospitals can achieve 
when performing multiple imaging procedures during a single session (73 
FR 41448 through 41450). As a result of our data analysis, and in 
response to ongoing recommendations from MedPAC to improve payment 
accuracy for imaging services under the OPPS, we expanded the composite 
APC model developed in CY 2008 to multiple imaging services. Effective 
January 1, 2009, we provide a single payment each time a hospital bills 
more than one imaging procedure within an imaging family on the same 
date of service. We utilize three imaging families based on imaging 
modality for purposes of this methodology: (1) Ultrasound; (2) computed 
tomography (CT) and computed tomographic angiography (CTA); and (3) 
magnetic resonance imaging (MRI) and magnetic resonance angiography 
(MRA). The HCPCS codes subject to the multiple imaging composite 
policy, and their respective families, are listed in Table 13 of the CY 
2010 OPPS/ASC final rule with comment period (74 FR 60403 through 
60407).
    While there are three imaging families, there are five multiple 
imaging composite APCs due to the statutory requirement at section 
1833(t)(2)(G) of the Act that we differentiate payment for OPPS imaging 
services provided with and without contrast. While the ultrasound 
procedures included in the policy do not involve contrast, both CT/CTA 
and MRI/MRA scans can be provided either with or without contrast. The 
five multiple imaging composite APCs established in CY 2009 are:
    <bullet> APC 8004 (Ultrasound Composite);
    <bullet> APC 8005 (CT and CTA without Contrast Composite);
    <bullet> APC 8006 (CT and CTA with Contrast Composite);
    <bullet> APC 8007 (MRI and MRA without Contrast Composite); and
    <bullet> APC 8008 (MRI and MRA with Contrast Composite).
    We define the single imaging session for the ``with contrast'' 
composite APCs as having at least one or more imaging procedures from 
the same family performed with contrast on the same date of service. 
For example, if the hospital performs an MRI without contrast during 
the same session as at least one other MRI with contrast, the hospital 
will receive payment for APC 8008, the ``with contrast'' composite APC.
    Hospitals continue to use the same HCPCS codes to report imaging 
procedures, and the I/OCE determines when combinations of imaging 
procedures qualify for composite APC payment or map to standard (sole 
service) APCs for payment. We make a single payment for those imaging 
procedures that qualify for composite APC payment, as well as any 
packaged services furnished on the same date of service. The standard 
(noncomposite) APC assignments continue to apply for single imaging 
procedures and multiple imaging procedures performed across families. 
For a full discussion of the development of the multiple imaging 
composite APC methodology, we refer readers to the CY 2009 OPPS/ASC 
final rule with comment period (73 FR 68559 through 68569).
    At its February 2010 meeting, the APC Panel recommended that CMS 
continue providing analysis on an ongoing basis of the impact on 
beneficiaries of the multiple imaging composite APCs as data become 
available. In the CY 2011 OPPS/ASC proposed rule, we indicated that we 
are accepting this recommendation and will provide the requested 
analysis to the APC Panel at a future meeting.
    In summary, for CY 2011, we proposed to continue paying for all 
multiple imaging procedures within an imaging family performed on the 
same date of service using the multiple imaging composite payment 
methodology. The proposed CY 2011 payment rates for the five multiple 
imaging composite APCs (APC 8004, APC 8005, APC 8006, APC 8007, and APC 
8008) were based on median costs calculated from the partial year CY 
2009 claims available for the proposed rule that would have qualified 
for composite payment under the current policy (that is, those claims 
with more than one procedure within the same family on a single date of 
service). To calculate the proposed median costs, we used the same 
methodology that we used to calculate the final CY 2010 median costs 
for these composite APCs. That is, we removed any HCPCS codes in the 
OPPS imaging families that overlapped with codes on our bypass list 
(``overlap bypass codes'') to avoid splitting claims with multiple 
units or multiple occurrences of codes in an OPPS imaging family into 
new ``pseudo'' single claims. The imaging HCPCS codes that we removed 
from the bypass list for purposes of calculating the proposed multiple 
imaging composite APC median costs appeared in Table 8 of the proposed 
rule. (We note that, consistent with our proposal in section II.A.1.b. 
of the proposed rule to add CPT code 70547 (Magnetic resonance 
angiography, neck; without contrast material(s)) to the list of bypass 
codes for CY 2011, we also proposed to add CPT code 70547 to the list 
of proposed OPPS imaging family services overlapping with HCPCS codes 
on the proposed CY 2010 bypass list.) We integrated the identification 
of imaging composite ``single session'' claims, that is, claims with 
multiple imaging procedures within the same family on the same date of 
service, into the creation of ``pseudo'' single procedure claims to 
ensure that claims were split in the ``pseudo'' single process into 
accurate reflections of either a composite ``single session'' imaging 
service or a standard sole imaging

[[Page 71858]]

service resource cost. Like all single bills, the new composite 
``single session'' claims were for the same date of service and 
contained no other separately paid services in order to isolate the 
session imaging costs. Our last step after processing all claims 
through the ``pseudo'' single process was to reassess the remaining 
multiple procedure claims using the full bypass list and bypass process 
in order to determine if we could make other ``pseudo'' single bills. 
That is, we assessed whether a single separately paid service remained 
on the claim after removing line-items for the ``overlap bypass 
codes.''
    We were able to identify 1.7 million ``single session'' claims out 
of an estimated 2.7 million potential composite cases from our 
ratesetting claims data, or well over half of all eligible claims, to 
calculate the proposed CY 2011 median costs for the multiple imaging 
composite APCs. We listed in Table 7 of the proposed rule the HCPCS 
codes that would be subject to the proposed multiple imaging composite 
policy and their respective families for CY 2011.
    Comment: A large number of commenters were concerned with the 
composite APC policy for imaging services, and recommended separate 
payment for all imaging procedures regardless of whether multiple 
procedures are performed during the same session. Commenters supported 
the fact that CMS did not propose new composite APCs or to expand the 
multiple imaging composite APC policy for CY 2011, opining that no 
expansion of the imaging composite APCs should be considered until 
substantial data on the initial five APCs are available for public 
review and comment. The commenters further recommended that future 
proposals for expanding the imaging composite APCs should be subject to 
public notice and comment. A few commenters suggested that CMS 
undertake robust data collection to determine if imaging costs are 
correctly captured. Other commenters appreciated our proposed increases 
in payment for multiple imaging composite APCs. However, the commenters 
were concerned that the multiple imaging composite APC payment rates 
remained insufficient to reflect the current costs of diagnostic 
imaging procedures, particularly when more than two imaging procedures 
are performed. One commenter recommended that we evaluate whether the 
methodology used to establish existing composite APCs results in 
payments that accurately reflect all of the resources needed to perform 
these services. A number of commenters voiced agreement with the APC 
Panel's recommendation that we continue to provide analyses on an 
ongoing basis of the impact on beneficiaries of the multiple imaging 
composite APC methodology as data becomes available.
    One commenter requested separate payment when imaging services of 
the same modality are performed on the same day but at different times. 
The commenter claimed that for some patients, such as cancer or trauma 
patients, such protocols are essential for safety and efficacy, and 
that the same economies of scale that can be achieved by performing 
multiple imaging procedures during the same sitting may not be realized 
if a significant amount of time passes between the first and subsequent 
imaging procedures. The commenter recommended that CMS implement a 
modifier or condition code to distinguish between imaging services 
performed during the same sitting and imaging services performed at 
different times on the same day.
    Another commenter opposed the multiple imaging composite APCs, 
stating that the policy penalizes specific imaging services under the 
guise of creating incentives for efficiencies, which will not be 
achieved because payment rates are already very low under the Deficit 
Reduction Act. The commenter further asserted that hospitals will be 
encouraged to perform imaging studies on separate days to avoid payment 
under composite APCs, thus causing inconvenience to Medicare 
beneficiaries.
    Response: We appreciate the support for our decision not to propose 
any new composite APCs for CY 2011, and for the proposed CY 2011 
payment rate for the multiple imaging composite APCs. We would subject 
any future proposals on composite APCs to public notice and opportunity 
for comment through our normal rulemaking process. As noted previously, 
we are accepting the APC Panel recommendation to provide analysis on an 
ongoing basis of the impact on beneficiaries of the multiple imaging 
composite APCs as data become available, which would include analysis 
of whether imaging costs are correctly captured. We do not agree with 
the comments that the composite APC payment rates are insufficient to 
reflect the current costs of diagnostic imaging procedures when more 
than two imaging procedures are performed. As we stated in the CY 2010 
OPPS/ASC final rule with comment period (74 FR 60400), we do not 
believe that, in aggregate, OPPS payment for multiple imaging services 
will be inadequate under the multiple imaging composite APC payment 
methodology so as to limit beneficiary access, even considering the 
minority of cases in which hospitals provide more than two imaging 
procedures on a single date of service. The median costs upon which the 
payment rates for the multiple imaging composite APCs are based are 
calculated using CY 2009 claims that would have qualified for composite 
payment, including those with only two imaging procedures and those 
with substantially higher numbers of imaging procedures. Payment based 
on a measure of central tendency is a principle of any prospective 
payment system. In some individual cases, payment exceeds the average 
cost and in other cases payment is less than the average cost. On 
balance, however, payment should approximate the relative cost of the 
average case, recognizing that, as a prospective payment system, the 
OPPS is a system of averages. Moreover, consistent with our policy 
regarding APC payments made on a prospective basis, multiple composite 
imaging services are subject to the outlier provision of section 
1833(t)(5) of the Act for high cost cases meeting specific conditions. 
We also do not agree with the commenters that the multiple imaging 
composite APC payment methodology will result in hospitals requiring 
patients who need more than two imaging procedures to return for 
additional sittings on other days. As we stated in the CY 2009 OPPS/ASC 
final rule with comment period (73 FR 68562), we do not believe that, 
in general, hospitals would routinely and for purposes of financial 
gain put patients at unnecessary risk of harm from radiation or 
contrast exposure, or inconvenience them or risk lack of timely follow-
up to the point of making them return to the hospital on separate days 
to receive medically necessary diagnostic studies. However, we again 
note that we do have the capacity to examine our claims data for 
patterns of fragmented care. If we were to find a pattern in which a 
hospital appears to be fragmenting imaging services across multiple 
days for individual beneficiaries, we could refer it for review by the 
Quality Improvement Organizations (QIOs) with respect to the quality of 
care furnished, or for review by the Program Safeguard Contractors of 
claims against the medical record, as appropriate to the circumstances 
we found.
    As we stated in the CY 2010 final rule with comment period (74 FR 
60399), we do not agree with the commenters that multiple imaging 
procedures of the same modality provided on the same date of service 
but at different times

[[Page 71859]]

should be exempt from the multiple imaging composite payment 
methodology. As we indicated in the CY 2009 OPPS/ASC final rule with 
comment period (73 FR 68565) and the CY 2010 OPPS/ASC final rule with 
comment period (74 FR 60399), we believe that composite payment is 
appropriate even when procedures are provided on the same date of 
service but at different times because hospitals do not expend the same 
facility resources each and every time a patient is seen for a distinct 
imaging service in a separate imaging session. In most cases, we expect 
that patients in these circumstances would receive imaging procedures 
at different times during a single prolonged hospital outpatient 
encounter. The efficiencies that may be gained from providing multiple 
imaging procedures during a single session are achieved in ways other 
than merely not having to reposition the patient. Even if the same 
level of efficiencies could not be gained for multiple imaging 
procedures performed on the same date of service but at different 
times, we expect that any higher costs associated with these cases 
would be reflected in the claims data and cost reports we use to 
calculate the median costs for the multiple imaging composite APCs and, 
therefore, in the payment rates for the multiple imaging composite 
APCs. Therefore, we do not believe it is necessary or appropriate for 
hospitals to report imaging procedures provided on the same date of 
service but during different sittings any differently than they would 
report imaging procedures performed consecutively in one sitting with 
no time in between the imaging services. In addition, for the above 
reasons, we do not believe it is necessary to implement a modifier or 
condition code to distinguish between such cases.
    We disagree with the commenter that multiple imaging composite APCs 
penalize specific imaging services rather than create incentives for 
efficiencies, and that efficiencies cannot be achieved because payment 
rates are already very low under the DRA. As stated in the CY 2009 
OPPS/ASC final rule with comment period (72 FR 66613) and previously in 
this section, we believe that combining payment for multiple 
independent services into a single OPPS payment in this way enables 
hospitals to manage their resources with maximum flexibility by 
monitoring and adjusting the volume and efficiency of services 
themselves. The DRA does not reduce OPPS payment rates for imaging, so 
we do not agree that this contributes in any way to payment rates for 
imaging services that are too low under the OPPS.
    After consideration of the public comments we received, we are 
adopting our CY 2011 proposal, without modification, to continue paying 
for all multiple imaging procedures within an imaging family performed 
on the same date of service using the multiple imaging composite 
payment methodology. The CY 2011 payment rates for the five multiple 
imaging composite APCs (APC 8004, APC 8005, APC 8006, APC 8007, and APC 
8008) are based on median costs calculated from the CY 2009 claims that 
would have qualified for composite payment under the current policy 
(that is, those claims with more than one procedure within the same 
family on a single date of service). Using the same ratesetting 
methodology described in the CY 2011 OPPS/ASC proposed rule (75 FR 
46213), we were able to identify 1.9 million ``single session'' claims 
out of an estimated 2.9 million potential composite cases from our 
ratesetting claims data, or well over half of all eligible claims, to 
calculate the final CY 2011 median costs for the multiple imaging 
composite APCs.
    Table 13 below lists the HCPCS codes that will be subject to the 
multiple imaging composite policy and their respective families for CY 
2011. We note that we have updated Table 13 to reflect HCPCS coding 
changes for CY 2011. Specifically, we added CPT code 74176 (Computed 
tomography, abdomen and pelvis; without contrast material), CPT code 
74177 (Computed tomography, abdomen and pelvis; with contrast 
material(s)), and CPT code 74178 (Computed tomography, abdomen and 
pelvis; without contrast material in one or both body regions, followed 
by contrast material(s) and further sections in one or both body 
regions) to the CT and CTA family. These codes are new for CY 2011. We 
also added codes C8931 (Magnetic resonance angiography with contrast, 
spinal canal and contents), C8932 (Magnetic resonance angiography 
without contrast, spinal canal and contents), C8933 (Magnetic resonance 
angiography without contrast followed by with contrast, spinal canal 
and contents), C8934 (Magnetic resonance angiography with contrast, 
upper extremity), C8935 (Magnetic resonance angiography without 
contrast, upper extremity), and C8936 (Magnetic resonance angiography 
without contrast followed by with contrast, upper extremity), to the 
MRI and MRA family. These codes were recognized for OPPS payment in the 
October 2010 OPPS Update (Transmittal 2050, Change Request 7117, dated 
September 17, 2010). The HCPCS codes listed in Table 13 are assigned 
status indicated ``Q3''' in Addendum B to this final rule with comment 
period to identify their status as potentially payable through a 
composite APC. Their composite APC assignment is identified in Addendum 
M to this final rule with comment period. Table 14 below lists the OPPS 
imaging family services that overlap with HCPCS codes on the CY 2011 
bypass list.

Table 13--OPPS Imaging Families and Multiple Imaging Procedure Composite
                                  APCs
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                          Family 1--Ultrasound
------------------------------------------------------------------------
  CY 2011 APC 8004 (Ultrasound composite)      CY 2011 Approximate APC
                                                        median
                                            cost = $188
------------------------------------------------------------------------
76604.....................................  Us exam, chest.
76700.....................................  Us exam, abdom, complete.
76705.....................................  Echo exam of abdomen.
76770.....................................  Us exam abdo back wall,
                                             comp.
76775.....................................  Us exam abdo back wall, lim.
76776.....................................  Us exam k transpl w/Doppler.
76831.....................................  Echo exam, uterus.
76856.....................................  Us exam, pelvic, complete.
76870.....................................  Us exam, scrotum.
76857.....................................  Us exam, pelvic, limited.
------------------------------------------------------------------------
             Family 2--CT and CTA with and without Contrast
------------------------------------------------------------------------
   CY 2011 APC 8005 (CT and CTA without        CY 2011 Approximate APC
           Contrast Composite)*                   Median Cost = $416
------------------------------------------------------------------------
70450.....................................  Ct head/brain w/o dye.
70480.....................................  Ct orbit/ear/fossa w/o dye.
70486.....................................  Ct maxillofacial w/o dye.
70490.....................................  Ct soft tissue neck w/o dye.
71250.....................................  Ct thorax w/o dye.
72125.....................................  Ct neck spine w/o dye.
72128.....................................  Ct chest spine w/o dye.
72131.....................................  Ct lumbar spine w/o dye.
72192.....................................  Ct pelvis w/o dye.
73200.....................................  Ct upper extremity w/o dye.
73700.....................................  Ct lower extremity w/o dye.
74150.....................................  Ct abdomen w/o dye.
74261.....................................  Ct colonography, w/o dye.
74176.....................................  Ct angio abd & pelvis.
------------------------------------------------------------------------
 

[[Page 71860]]

 
CY 2011 APC 8006 (CT and CTA with Contrast     CY 2011 Approximate APC
                Composite)                        Median Cost = $622
------------------------------------------------------------------------
70487.....................................  Ct maxillofacial w/dye.
70460.....................................  Ct head/brain w/dye.
70470.....................................  Ct head/brain w/o & w/dye.
70481.....................................  Ct orbit/ear/fossa w/dye.
70482.....................................  Ct orbit/ear/fossa w/o & w/
                                             dye.
70488.....................................  Ct maxillofacial w/o & w/
                                             dye.
70491.....................................  Ct soft tissue neck w/dye.
70492.....................................  Ct sft tsue nck w/o & w/dye.
70496.....................................  Ct angiography, head.
70498.....................................  Ct angiography, neck.
71260.....................................  Ct thorax w/dye.
71270.....................................  Ct thorax w/o & w/dye.
71275.....................................  Ct angiography, chest.
72126.....................................  Ct neck spine w/dye.
72127.....................................  Ct neck spine w/o & w/dye.
72129.....................................  Ct chest spine w/dye.
72130.....................................  Ct chest spine w/o & w/dye.
72132.....................................  Ct lumbar spine w/dye.
72133.....................................  Ct lumbar spine w/o & w/dye.
72191.....................................  Ct angiograph pelv w/o & w/
                                             dye.
72193.....................................  Ct pelvis w/dye.
72194.....................................  Ct pelvis w/o & w/dye.
73201.....................................  Ct upper extremity w/dye.
73202.....................................  Ct uppr extremity w/o & w/
                                             dye.
73206.....................................  Ct angio upr extrm w/o & w/
                                             dye.
73701.....................................  Ct lower extremity w/dye.
73702.....................................  Ct lwr extremity w/o & w/
                                             dye.
73706.....................................  Ct angio lwr extr w/o & w/
                                             dye.
74160.....................................  Ct abdomen w/dye.
74170.....................................  Ct abdomen w/o & w/dye.
74175.....................................  Ct angio abdom w/o & w/dye.
74262.....................................  Ct colonography, w/dye.
75635.....................................  Ct angio abdominal arteries.
74177.....................................  Ct angio abd & pelv w/
                                             contrast.
74178.....................................  Ct angio abd & pelv 1+
                                             regns.
------------------------------------------------------------------------
* If a ``without contrast'' CT or CTA procedure is performed during the
 same session as a ``with contrast'' CT or CTA procedure, the I/OCE will
 assign APC 8006 rather than APC 8005.
------------------------------------------------------------------------
 
             Family 3--MRI and MRA with and without Contrast
------------------------------------------------------------------------
   CY 2011 APC 8007 (MRI and MRA without       CY 2011 Approximate APC
           Contrast Composite)*                   Median Cost = $699
------------------------------------------------------------------------
70336.....................................  Magnetic image, jaw joint.
70540.....................................  Mri orbit/face/neck w/o dye.
70544.....................................  Mri angiography head w/o
                                             dye.
70547.....................................  Mri angiography neck w/o
                                             dye.
70551.....................................  Mri brain w/o dye.
70554.....................................  Fmri brain by tech.
71550.....................................  Mri chest w/o dye.
72141.....................................  Mri neck spine w/o dye.
72146.....................................  Mri chest spine w/o dye.
72148.....................................  Mri lumbar spine w/o dye.
72195.....................................  Mri pelvis w/o dye.
73218.....................................  Mri upper extremity w/o dye.
73221.....................................  Mri joint upr extrem w/o
                                             dye.
73718.....................................  Mri lower extremity w/o dye.
73721.....................................  Mri jnt of lwr extre w/o
                                             dye.
74181.....................................  Mri abdomen w/o dye.
75557.....................................  Cardiac mri for morph.
75559.....................................  Cardiac mri w/stress img.
C8901.....................................  MRA w/o cont, abd.
C8904.....................................  MRI w/o cont, breast, uni.
C8907.....................................  MRI w/o cont, breast, bi.
C8910.....................................  MRA w/o cont, chest.
C8913.....................................  MRA w/o cont, lwr ext.
C8919.....................................  MRA w/o cont, pelvis.
C8932.....................................  MRA, w/o dye, spinal canal.
C8935.....................................  MRA, w/o dye, upper extr.
------------------------------------------------------------------------
    CY 2011 APC 8008 (MRI and MRA with         CY 2011 Approximate APC
            Contrast Composite)                   Median Cost = $984
------------------------------------------------------------------------
70549.....................................  Mri angiograph neck w/o & w/
                                             dye.
70542.....................................  Mri orbit/face/neck w/dye.
70543.....................................  Mri orbt/fac/nck w/o & w/
                                             dye.
70545.....................................  Mri angiography head w/dye.
70546.....................................  Mri angiograph head w/o & w/
                                             dye.
70548.....................................  Mri angiography neck w/dye.
70552.....................................  Mri brain w/dye.
70553.....................................  Mri brain w/o & w/dye.
71551.....................................  Mri chest w/dye.
71552.....................................  Mri chest w/o & w/dye.
72142.....................................  Mri neck spine w/dye.
72147.....................................  Mri chest spine w/dye.
72149.....................................  Mri lumbar spine w/dye.
72156.....................................  Mri neck spine w/o & w/dye.
72157.....................................  Mri chest spine w/o & w/dye.
72158.....................................  Mri lumbar spine w/o & w/
                                             dye.
72196.....................................  Mri pelvis w/dye.
72197.....................................  Mri pelvis w/o & w/dye.
73219.....................................  Mri upper extremity w/dye.
73220.....................................  Mri uppr extremity w/o & w/
                                             dye.
73222.....................................  Mri joint upr extrem w/dye.
73223.....................................  Mri joint upr extr w/o & w/
                                             dye.
73719.....................................  Mri lower extremity w/dye.
73720.....................................  Mri lwr extremity w/o & w/
                                             dye.
73722.....................................  Mri joint of lwr extr w/dye.
73723.....................................  Mri joint lwr extr w/o & w/
                                             dye.
74182.....................................  Mri abdomen w/dye.
74183.....................................  Mri abdomen w/o & w/dye.
75561.....................................  Cardiac mri for morph w/dye.
75563.....................................  Card mri w/stress img & dye.
C8900.....................................  MRA w/cont, abd.
C8902.....................................  MRA w/o fol w/cont, abd.
C8903.....................................  MRI w/cont, breast, uni.
C8905.....................................  MRI w/o fol w/cont, brst,
                                             un.
C8906.....................................  MRI w/cont, breast, bi.
C8908.....................................  MRI w/o fol w/cont, breast,
C8909.....................................  MRA w/cont, chest.
C8911.....................................  MRA w/o fol w/cont, chest.
C8912.....................................  MRA w/cont, lwr ext.
C8914.....................................  MRA w/o fol w/cont, lwr ext.
C8918.....................................  MRA w/cont, pelvis.
C8920.....................................  MRA w/o fol w/cont, pelvis.
C8931.....................................  MRA, w/dye, spinal canal.
C8933.....................................  MRA, w/o & w/dye, spinal
                                             canal.
C8934.....................................  MRA, w/dye, upper extremity.
C8936.....................................  MRA, w/o & w/dye, upper
                                             extr.
------------------------------------------------------------------------
* If a ``without contrast'' MRI or MRA procedure is performed during the
 same session as a ``with contrast'' MRI or MRA procedure, the I/OCE
 will assign APC 8008 rather than 8007..
------------------------------------------------------------------------


[[Page 71861]]


 Table 14--OPPS Imaging Family Services Overlapping With HCPCS Codes on
                         the CY 2011 Bypass List
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                          Family 1--Ultrasound
------------------------------------------------------------------------
76700.....................................  Us exam, abdom, complete.
76705.....................................  Echo exam of abdomen.
76770.....................................  Us exam abdo back wall,
                                             comp.
76775.....................................  Us exam abdo back wall, lim.
76776.....................................  Us exam k transpl w/Doppler.
76856.....................................  Us exam, pelvic, complete.
76870.....................................  Us exam, scrotum.
76857.....................................  Us exam, pelvic, limited.
------------------------------------------------------------------------
             Family 2--CT and CTA with and without Contrast
------------------------------------------------------------------------
70450.....................................  Ct head/brain w/o dye.
70480.....................................  Ct orbit/ear/fossa w/o dye.
70486.....................................  Ct maxillofacial w/o dye.
70490.....................................  Ct soft tissue neck w/o dye.
71250.....................................  Ct thorax w/o dye.
72125.....................................  Ct neck spine w/o dye.
72128.....................................  Ct chest spine w/o dye.
72131.....................................  Ct lumbar spine w/o dye.
72192.....................................  Ct pelvis w/o dye.
73200.....................................  Ct upper extremity w/o dye.
73700.....................................  Ct lower extremity w/o dye.
74150.....................................  Ct abdomen w/o dye.
------------------------------------------------------------------------
             Family 3--MRI and MRA with and without Contrast
------------------------------------------------------------------------
70336.....................................  Magnetic image, jaw joint.
70544.....................................  Mri angiography head w/o
                                             dye.
70551.....................................  Mri brain w/o dye.
72141.....................................  Mri neck spine w/o dye.
72146.....................................  Mri chest spine w/o dye.
72148.....................................  Mri lumbar spine w/o dye.
73218.....................................  Mri upper extremity w/o dye.
73221.....................................  Mri joint upr extrem w/o
                                             dye.
73718.....................................  Mri lower extremity w/o dye.
73721.....................................  Mri jnt of lwr extre w/o
                                             dye.
------------------------------------------------------------------------

3. Changes to Packaged Services
a. Background
    The OPPS, like other prospective payment systems, relies on the 
concept of averaging, where the payment may be more or less than the 
estimated cost of providing a service or bundle of services for a 
particular patient, but with the exception of outlier cases, the 
payment is adequate to ensure access to appropriate care. Packaging 
payment for multiple interrelated services into a single payment 
creates incentives for providers to furnish services in the most 
efficient way by enabling hospitals to manage their resources with 
maximum flexibility, thereby encouraging long-term cost containment. 
For example, where there are a variety of supplies that could be used 
to furnish a service, some of which are more expensive than others, 
packaging encourages hospitals to use the least expensive item that 
meets the patient's needs, rather than to routinely use a more 
expensive item. Packaging also encourages hospitals to negotiate 
carefully with manufacturers and suppliers to reduce the purchase price 
of items and services or to explore alternative group purchasing 
arrangements, thereby encouraging the most economical health care. 
Similarly, packaging encourages hospitals to establish protocols that 
ensure that necessary services are furnished, while carefully 
scrutinizing the services ordered by practitioners to maximize the 
efficient use of hospital resources. Packaging payments into larger 
payment bundles promotes the stability of payment for services over 
time. Finally, packaging also may reduce the importance of refining 
service-specific payment because there is more opportunity for 
hospitals to average payment across higher cost cases requiring many 
ancillary services and lower cost cases requiring fewer ancillary 
services. For these reasons, packaging payment for services that are 
typically ancillary and supportive to a primary service has been a 
fundamental part of the OPPS since its implementation in August 2000.
    We assign status indicator ``N'' to those HCPCS codes that we 
believe are always integral to the performance of the primary modality; 
therefore, we always package their costs into the costs of the 
separately paid primary services with which they are billed. Services 
assigned status indicator ``N'' are unconditionally packaged.
    We assign status indicator ``Q1'' (``STVX-Packaged Codes''), ``Q2'' 
(``T-Packaged Codes''), or ``Q3'' (Codes that may be paid through a 
composite APC) to each conditionally packaged HCPCS code. An ``STVX-
packaged code'' describes a HCPCS code whose payment is packaged when 
one or more separately paid primary services with the status indicator 
of ``S,'' ``T,'' ``V,'' or ``X'' are furnished in the hospital 
outpatient encounter. A ``T-packaged code'' describes a code whose 
payment is packaged when one or more separately paid surgical 
procedures with the status indicator of ``T'' are provided during the 
hospital encounter. ``STVX-packaged codes'' and ``T-packaged codes'' 
are paid separately in those uncommon cases when they do not meet their 
respective criteria for packaged payment. ``STVX-packaged codes'' and 
``T-packaged codes'' are conditionally packaged. We refer readers to 
section XIII.A.1. of this final rule with comment period for a complete 
listing of status indicators.
    We use the term ``dependent service'' to refer to the HCPCS codes 
that represent services that are typically ancillary and supportive to 
a primary diagnostic or therapeutic modality. We use the term 
``independent service'' to refer to the HCPCS codes that represent the 
primary therapeutic or diagnostic modality into which we package 
payment for the dependent service. In future years, as we consider the 
development of larger payment groups that more broadly reflect services 
provided in an encounter or episode-of-care, it is possible that we 
might propose to bundle payment for a service that we now refer to as 
``independent.''
    Hospitals include HCPCS codes and charges for packaged services on 
their claims, and the estimated costs associated with those packaged 
services are then added to the costs of separately payable procedures 
on the same claims in establishing payment rates for the separately 
payable services. We encourage hospitals to report all HCPCS codes that 
describe packaged services that were provided, unless the CPT Editorial 
Panel or CMS provide other guidance. The appropriateness of the OPPS 
payment rates depend on the quality and completeness of the claims data 
that hospitals submit for the services they furnish to our Medicare 
beneficiaries.
    In the CY 2008 OPPS/ASC final rule with comment period (72 FR 66610 
through 66659), we adopted the packaging of payment for items and 
services in seven categories into the payment for the primary 
diagnostic or therapeutic modality to which we believe these items and 
services are typically ancillary and supportive. The seven categories 
are: (1) Guidance services; (2) image processing services; (3) 
intraoperative services; (4) imaging

[[Page 71862]]

supervision and interpretation services; (5) diagnostic 
radiopharmaceuticals; (6) contrast media; and (7) observation services. 
We specifically chose these categories of HCPCS codes for packaging 
because we believe that the items and services described by the codes 
in these categories are typically ancillary and supportive to a primary 
diagnostic or therapeutic modality and, in those cases, are an integral 
part of the primary service they support.
    In addition, in the CY 2008 OPPS/ASC final rule with comment period 
(72 FR 66650 through 66659), we finalized additional packaging for the 
CY 2008 OPPS, which included the establishment of new composite APCs 
for CY 2008, specifically APC 8000 (Cardiac Electrophysiologic 
Evaluation and Ablation Composite), APC 8001 (LDR Prostate 
Brachytherapy Composite), APC 8002 (Level I Extended Assessment & 
Management Composite), and APC 8003 (Level II Extended Assessment & 
Management Composite). In the CY 2009 OPPS/ASC final rule with comment 
period (73 FR 68559 through 68569), we expanded the composite APC model 
to one new clinical area--multiple imaging services. We created five 
multiple imaging composite APCs for payment in CY 2009 that incorporate 
statutory requirements to differentiate between imaging services 
provided with contrast and without contrast as required by section 
1833(t)(2)(G) of the Act. The multiple imaging composite APCs are: APC 
8004 (Ultrasound Composite); APC 8005 (CT and CTA without Contrast 
Composite); APC 8006 (CT and CTA with Contrast Composite); APC 8007 
(MRI and MRA without Contrast Composite); and APC 8008 (MRI and MRA 
with Contrast Composite). We discuss composite APCs in more detail in 
section II.A.2.e. of this final rule with comment period.
    We recognize that decisions about packaging and bundling payment 
involve a balance between ensuring that payment is adequate to enable 
the hospital to provide quality care and establishing incentives for 
efficiency through larger units of payment. Therefore, we welcomed 
public comments regarding our packaging proposals for the CY 2011 OPPS.
b. Packaging Issues
(1) CMS Presentation of Findings Regarding Expanded Packaging at the 
February 2010 APC Panel Meeting
    In deciding whether to package a service or pay for a code 
separately, we have historically considered a variety of factors, 
including whether the service is normally provided separately or in 
conjunction with other services; how likely it is for the costs of the 
packaged code to be appropriately mapped to the separately payable 
codes with which it was performed; and whether the expected cost of the 
service is relatively low.
    As discussed in section I.E. of this final rule with comment 
period, the APC Panel advises CMS on the clinical integrity of payment 
groups and their weights, and the APC Panel has had a Packaging 
Subcommittee, now renamed the Subcommittee for APC Groups and Status 
Indicator (SI) Assignments, that studies and makes recommendations on 
issues pertaining to services that are not separately payable under the 
OPPS, but whose payments are bundled or packaged into APC payments. The 
APC Panel has considered packaging issues at several earlier meetings. 
For discussions of earlier APC Panel meetings and recommendations, we 
refer readers to previously published hospital OPPS/ASC proposed and 
final rules on the CMS Web site at: http://www.cms.gov/FACA/05_
AdvisoryPanelonAmbulatoryPaymentClassificationGroups.asp#TopOfPage.
    During the August 5-6, 2009 meeting of the APC Panel, we agreed to 
continue to provide the Panel with information on the impact of 
increased packaging on Medicare beneficiaries building on the analyses 
we had presented at the February 2009 APC Panel meeting. We did not 
share additional packaging data with the APC Panel at the August 2009 
meeting because we had already presented analysis comparing CY 2007 and 
CY 2008 claims data and believed the APC Panel's discussions would 
benefit from analyses of CY 2007 and CY 2009 claims data. We indicated 
that we planned to incorporate analysis of CY 2009 claims into the 
information we would bring to the APC Panel for its review at the 
winter 2010 meeting.
    At the February 17-18, 2010 APC Panel meeting, we presented 
subsequent analyses that compared CY 2007 claims processed through 
September 30, 2007 to CY 2009 claims processed through September 30, 
2009. Similar to the initial analysis that we presented to the APC 
Panel in 2009, the HCPCS codes that we compared are the ones that we 
identified in the CY 2008 OPPS final rule with comment period as 
fitting into one of the packaging categories, including HCPCS codes 
that became effective for CY 2009. As noted above, the seven packaging 
categories in our CY 2008 packaging proposal are guidance services, 
image processing services, intraoperative services, imaging supervision 
and interpretation services, diagnostic radiopharmaceuticals, contrast 
media, and observation services. We note that, similar to the initial 
analysis, we did not make any adjustments for inflation, changes in the 
Medicare population, changes in payment due to APC recalibration, 
changes in frequency due to known changes in code definitions and 
coding practices, or changes in the population of hospitals paid under 
the OPPS. A summary of these data analyses is provided below.
    Analysis of the diagnostic radiopharmaceuticals category showed 
that the diagnostic radiopharmaceuticals were billed 1 percent more 
often during the first 9 months of CY 2009 as compared to the first 9 
months of CY 2007. We noticed very little change in the frequency of 
hospitals reporting one or more diagnostic radiopharmaceutical between 
CY 2007 and CY 2009. Beginning in CY 2008, we required reporting of a 
radiolabeled product (including diagnostic radiopharmaceuticals) when 
billing a nuclear medicine procedure, and we believe that the modest 
increases in frequency of reporting diagnostic radiopharmaceuticals and 
the percentage of reporting hospitals generally reflects hospitals 
adhering to our reporting requirements.
    We also found that nuclear medicine procedures (into which 
diagnostic radiopharmaceuticals were packaged) and associated 
diagnostic radiopharmaceuticals were billed approximately 3 million 
times during the first 9 months of both CY 2007 and CY 2009. Further 
analysis revealed that we paid hospitals over $637 million for nuclear 
medicine procedures and diagnostic radiopharmaceuticals during the 
first 9 months of CY 2007, when diagnostic radiopharmaceuticals were 
separately payable, and approximately the same amount for nuclear 
medicine procedures and diagnostic radiopharmaceuticals during the 
first 9 months of CY 2009, when payment for diagnostic 
radiopharmaceuticals was packaged. This suggests that frequency and 
payment for nuclear medicine procedures remained fairly steady between 
the first 9 months of CY 2007 and the first 9 months of CY 2009.
    We conducted the same analysis for guidance services that were 
packaged beginning in CY 2008. Analysis of the guidance category (which 
includes image-guided radiation therapy services) showed that guidance 
services were billed 8 percent more often during CY 2009 as compared to 
CY 2007 and that the number of hospitals reporting

[[Page 71863]]

guidance services declined by 1 percent between CY 2007 and CY 2009.
    We also analyzed the same data for all contrast services that were 
packaged beginning in CY 2008. Analysis of this category showed that 
contrast services were billed 9 percent more often during CY 2009 as 
compared to CY 2007 and that the number of hospitals reporting contrast 
media increased by 1 percent between CY 2007 and CY 2009.
    Analysis of the data for image supervision and interpretation 
services showed that these services were billed 10 percent more often 
during CY 2009 as compared to CY 2007 and, similar to guidance services 
and contrast agents, the number of hospitals reporting image 
supervision and interpretation services declined by 1 percent between 
CY 2007 and CY 2009.
    We also analyzed the first 9 months of CY 2007 and CY 2009 data 
related to all image processing services that were packaged beginning 
in the CY 2008 OPPS. This analysis was difficult because there were 
significant changes to the CPT codes in this category for CY 2009. For 
example, the procedures described by CPT codes 93320 (which describes 
spectral Doppler and which we classified as an intraoperative service) 
and 93325 (which describes color flow Doppler and which we classified 
as an image processing service) are now reported using one 
comprehensive code, CPT 93306, which describes complete transthoracic 
echocardiogram with spectral and color flow Doppler. In an effort to 
isolate the effects of the changes to coding from our analysis, we 
removed the data for any codes experiencing significant modifications 
and observed a 7 percent decrease from CY 2007 to CY 2009 in the 
frequency of image processing services billed. However, as we pointed 
out to the APC panel, these numbers are not necessarily the majority of 
services in the category or reflective of behavioral changes for the 
services of interest. When we included the image processing services 
with the revised coding for CY 2009, the data showed a 61-percent 
decrease in the billing of these services between CY 2007 and CY 2009 
and a 6-percent decrease in the number of hospitals reporting these 
services during the same timeframe.
    Our analysis of changes in intraoperative services between CY 2007 
and CY 2009 showed a 5-percent decrease in the billing of these 
services and a 5-percent decrease in the number of hospitals reporting 
these services during the same timeframe.
    As we did for our presentation at the February 2009 APC Panel 
meeting, we also found that cardiac catheterization and other 
percutaneous vascular procedures that would typically be accompanied by 
Intravascular Ultrasound (IVUS), Intracardiac echocardiography (ICE), 
and Fractional flow reserve (FFR) (including IVUS, ICE, and FFR) were 
billed approximately 376,000 times in CY 2007 and approximately 473,000 
times in CY 2009, representing an increase of 26 percent in the number 
of services and items billed between CY 2007 and CY 2009. IVUS, ICE, 
and FFR are intraoperative and image supervision and interpretation 
services that have received a lot of attention. Further analysis showed 
that the OPPS paid hospitals over $912 million for cardiac 
catheterizations, other related services, and IVUS, ICE, and FFR in CY 
2007, when IVUS, ICE, and FFR were paid separately. In the first 9 
months of CY 2009, the OPPS paid hospitals approximately $1.4 billion 
for cardiac catheterization and other percutaneous vascular procedures 
and IVUS, ICE, and FFR, when payments for IVUS, ICE, and FFR were 
packaged. This is a 58-percent increase in payment from CY 2007. Using 
the first 9 months of claims data for both CY 2007 and CY 2009, we 
calculated an average payment per service or item provided of $2,430 in 
CY 2007 and $3,048 in CY 2009 for cardiac catheterization and other 
related services, an increase of 25 percent in average payment per item 
or service. This observed increase in average payment per service is 
most likely attributable to the observed increase in the frequency of 
these cardiac catheterization and other percutaneous vascular 
procedures that would typically be accompanied by IVUS, ICE and FFR 
(including IVUS, ICE, and FFR) billed in CY 2009.
    We also cannot determine how much of the 58-percent increase in 
aggregate payment for these services may be due to the packaging of 
payment for IVUS, ICE, and FFR (and other services that were newly 
packaged for CY 2008) and how much may be due to annual APC 
recalibration and typical fluctuations in service frequency. However, 
we believe that all of these factors contributed to the notable 
increase in aggregate payment between CY 2007 and CY 2009.
    We further analyzed the first 9 months of CY 2007 and CY 2009 
claims data for radiation oncology services that would be accompanied 
by radiation oncology guidance. We found that radiation oncology 
services (including radiation oncology guidance services) were billed 
approximately 4 million times in CY 2007 and 3.8 million times in CY 
2009, representing a decrease in frequency of approximately 6 percent 
between CY 2007 and CY 2009. These numbers represented each instance 
where a radiation oncology service or a radiation oncology guidance 
service was billed. Our analysis indicated that hospitals were paid 
over $811 million for radiation oncology services and radiation 
oncology guidance services under the OPPS during the first 9 months of 
CY 2007, when radiation oncology guidance services were separately 
payable. During the first 9 months of CY 2009, when payments for 
radiation oncology guidance were packaged, hospitals were paid over 
$827 million for radiation oncology services under the OPPS. This $827 
million included packaged payment for radiation oncology guidance 
services and represented a 2-percent increase in aggregate payment from 
CY 2007 to CY 2009. Using the first 9 months of claims data for both CY 
2007 and CY 2009, we calculated an average payment per radiation 
oncology service or item billed of $199 in CY 2007 and $216 in CY 2009, 
representing a per service increase of 8 percent from CY 2007 to CY 
2009.
    At the February 2009 meeting, the APC panel also requested that CMS 
provide separate analyses of radiation oncology guidance, by type of 
radiation oncology service, specifically, intensity modulated radiation 
therapy (IMRT), stereotactic radiosurgery (SRS), brachytherapy, and 
conventional radiation therapy. The results from these analyses are 
discussed below:
    We conducted these analyses on the specified categories using the 
first 9 months of claims and cost report data from CY 2007, before the 
expanded packaging went into effect, and the first 9 months of claims 
and cost report data from CY 2009--the second year of packaged payment 
for the radiation guidance services. We found that IMRT services were 
billed approximately 670,000 times during the first 9 months of CY 
2007. During this same timeframe, Medicare paid hospitals approximately 
$227 million for IMRT services. In comparison, during the first 9 
months of CY 2009, IMRT services were billed 713,000 times, 
representing an increase in frequency of 6 percent. Further, during the 
first 9 months of CY 2009, when payments for radiation oncology 
guidance were packaged into the payments for the separately paid IMRT 
procedures, we paid hospitals over $298 million, representing a 31-
percent increase in payments from CY 2007 to CY 2009.
    We further analyzed the data for SRS services and found that, for 
the first 9 months of CY 2007 and CY 2009, SRS services were billed 
approximately

[[Page 71864]]

9,000 and 13,000 times, respectively, representing an increase in 
frequency of 43 percent. Aggregate Medicare payments for these SRS 
services increased by 24 percent from $34 million in CY 2007 to $42 
million in CY 2009.
    Our review of the data for brachytherapy services revealed that, 
for the first 9 months of CY 2007 and CY 2009, these services were 
billed approximately 10,000 and 11,000 times, respectively, 
representing an increase in frequency of 8 percent. During this 
timeframe, aggregate Medicare payments for these brachytherapy services 
increased by 1 percent from $9.8 million in CY 2007 to $9.9 million in 
CY 2009.
    Our review of the data for conventional radiation therapy services 
revealed that conventional radiation therapy services were billed 1.4 
million times and 1.1 million times, in the first 9 months of CY 2007 
and CY 2009, respectively, representing a decrease in frequency of 20 
percent. During this timeframe, aggregate Medicare payments for these 
conventional radiation services decreased by 10 percent from $189 
million in CY 2007 to $169 million in CY 2009.
    In reviewing our early CY 2009 claims data, which reflect the 
second year of packaged payment for services in the packaged categories 
identified in the CY 2008 OPPS/ASC final rule with comment period, we 
generally observed increases in the billing and reporting of packaged 
services described by these categories, with the caveat that we were 
not able to untangle the various causes of declines in the image 
processing category, indicating steady beneficiary access to these 
categories of supporting and ancillary services. In aggregate, our 
analysis showed that hospitals do not appear to have significantly 
changed their reporting patterns as a result of the expanded packaging 
policy nor do the analyses suggest that hospitals have stopped offering 
these supporting and ancillary services with the primary diagnostic and 
therapeutic modalities that they support.
(2) Packaging Recommendations of the APC Panel at Its February 2010 
Meeting
    During the February 2010 APC panel meeting, the APC Panel accepted 
the report of the Packaging Subcommittee (the Subcommittee for APC 
Groups and Status Indicator (SI) Assignments beginning in August 2010) 
heard several presentations related to packaged services, discussed the 
deliberations of the Packaging Subcommittee, and made six 
recommendations. The Report of the February 2010 meeting of the APC 
Panel may be found at the Web site at: http://www.cms.gov/FACA/05_
AdvisoryPanelonAmbulatoryPaymentClassificationGroups.asp.
    To summarize, the APC Panel made the following recommendations 
regarding packaging of payment under the CY 2011 OPPS:
    1. That CMS consider whether CPT code 31627 (Bronchoscopy, rigid or 
flexible, including fluoroscopic guidance, when performed; with 
computer-assisted, image-guided navigation) (also known as 
electromagnetic navigational bronchoscopy (ENB)) should be packaged or 
paid separately; if it should be paid separately, CMS should 
investigate the appropriate APC assignment. The Panel suggested that 
CMS use bronchoscopic ultrasonography (EBUS) as a clinical example for 
comparison. (Recommendation 1)
    2. That CMS make CPT code 96368 (Intravenous infusion, for therapy, 
prophylaxis, or diagnosis (specify substance or drug); concurrent 
infusion) and CPT code 96376 (Therapeutic, prophylactic, or diagnostic 
injection (specify substance or drug); subcutaneous or intramuscular, 
each additional sequential intravenous push of the same substance/drug 
provided in the facility (List separately in addition to code for 
primary procedure)) separately payable in the CY 2011 OPPS/ASC final 
rule with comment period at an appropriate payment rate as determined 
by CMS. (Recommendation 2)
    3. That CMS conditionally package payment for the guidance 
procedures that would accompany breast needle placement (specifically 
CPT code 19290 (Preoperative placement of needle localization wire, 
breast); CPT code 19291 (Preoperative placement of needle localization 
wire, breast; each additional lesion (List separately in addition to 
code for primary procedure)); CPT code 19295 (Image guided placement, 
metallic localization clip, percutaneous, during breast biopsy/
aspiration (List separately in addition to code for primary 
procedure)); CPT code 77031 (Stereotactic localization guidance for 
breast biopsy or needle placement (e.g., for wire localization or for 
injection)), each lesion, radiological supervision and interpretation); 
CPT code 77032 (Mammographic guidance for needle placement, breast 
(e.g., for wire localization or for injection), each lesion, 
radiological supervision and interpretation); CPT code 76942 
(Ultrasonic guidance for needle placement (e.g., biopsy, aspiration, 
injection, localization device), imaging supervision and 
interpretation)) when these guidance services are performed separately. 
(Recommendation 3)
    4. The Panel encourages the public to submit common clinical 
scenarios involving currently packaged HCPCS codes and recommendations 
of specific services or procedures for which payment would be most 
appropriately packaged under the OPPS for review by the Packaging 
Subcommittee members. (Recommendation 4)
    5. That CMS continue providing analysis on an ongoing basis of the 
impact on beneficiaries of the multiple imaging composite APCs as data 
become available. (Recommendation 5)
    6. That the work of the Packaging Subcommittee continue. 
(Recommendation 6)
    We address each of these recommendations in the discussion that 
follows:
Recommendation 1
    At the APC Panel's February 2010 meeting, the manufacturer asserted 
that use of ENB technology during a bronchoscopy procedure enables 
access to distal lesions that are otherwise not accessible without use 
of the ENB technology. The manufacturer also argued that without 
separate payment for ENB, hospitals would likely not adopt the 
technology and the population that would likely benefit from ENB would 
not have access to this technology. In response to the manufacturer's 
assertion, the APC Panel asked CMS to consider whether CPT code 31627, 
which describes Electromagnetic Navigational Bronchoscopy (ENB), should 
be packaged or paid separately; and if it should be paid separately, 
the APC Panel asked CMS to investigate the appropriate APC assignment.
    CPT code 31627 is new for CY 2010, and we assigned it a new interim 
status indicator of ``N'' in our CY 2010 OPPS/ASC final rule with 
comment period based on our packaging policies (discussed in section 
II.A.3.a. of this final rule with comment period). We stated in the 
proposed rule that we considered the information available to us for 
CPT code 31627 and believed that the code describes a procedure that is 
supportive of and ancillary to the primary diagnostic or therapeutic 
modality, in this case, bronchoscopy procedures (for example, CPT code 
31622 (Bronchoscopy, rigid or flexible, including fluoroscopic 
guidance, when performed: Diagnostic, with cell washing, when performed 
(separate procedure)). We stated that we currently package payment for 
CPT code 31627,

[[Page 71865]]

and that we continued to believe that this is the appropriate treatment 
of that code. Therefore, in the CY 2011 OPPS/ASC proposed rule (75 FR 
46223), we proposed to package payment for CPT code 31627. As we have 
discussed in past rules, in making our decision on whether to package a 
service or pay for it separately we consider a variety of factors, 
including whether the service is normally provided separately or in 
conjunction with other services because it supports those services. By 
proposing to packaging payment for this procedure, we would be treating 
it in the same manner as similar computer-assisted, navigational 
diagnostic procedures that are supportive of and ancillary to a primary 
diagnostic or therapeutic modality.
    In its recommendation regarding whether to make separate payment 
under an APC for CPT code 31627, the APC Panel suggested that we use 
bronchoscopic ultrasonography as a clinical example for comparison. We 
considered CPT code 31620 (Endobronchial ultrasound (EBUS) during 
bronchoscopic diagnostic or therapeutic intervention(s) (List 
separately in addition to code for primary procedure)) to be a suitable 
comparison because it describes another bronchoscopic procedure in 
which a guidance technology (that is, ultrasonography) is used to 
achieve the therapeutic benefit of the procedure. Similar to our 
proposed payment for CPT code 31627, payment for CPT code 31620 is 
currently packaged into the primary modality with which it would be 
appropriately billed. In CY 2008, as part of our increased packaging 
proposal, we identified the EBUS procedure as an intraoperative 
ancillary service that would typically be reported in conjunction with 
an independent service. In addition, similar to CPT code 31627, CPT 
code 31620 is an add-on code that, in accordance with CPT reporting 
guidelines, would only be appropriately reported in conjunction with 
specified bronchoscopy procedures with which it would be performed. 
Based on these general comparisons of CPT code 31627 to the EBUS 
procedure described by CPT code 31620, we stated in the proposed rule 
that we believe that our proposal to package payment for CPT code 31627 
would be consistent with the packaging approach that we have adopted in 
recent years. As we have stated in past rules with regard to EBUS, we 
also fully expected that, to the extent these services are billed 
appropriately, payment for the primary service would reflect the cost 
of the packaged ENB procedure. For example, in the CY 2009 OPPS/ASC 
final rule with comment period (73 FR 68584), we discussed packaging of 
CPT code 31620; we state that we observed increased packaged costs 
associated with the services into which CPT code 31620 had been 
packaged, which increased the APC payment rates for bronchoscopy 
procedures.
    In summary, we stated in the proposed rule that we continued to 
believe that CPT code 31627 describes a procedure that is ancillary to 
and supportive of the primary service with which it is often billed. 
Therefore, in the CY 2011 OPPS/ASC proposed rule, for CY 2011, we 
proposed to maintain CPT code 31627 as a packaged service.
    The APC Panel at its August 23-24, 2010 meeting heard presentations 
from the public and discussed whether ENB should remain packaged for CY 
2011. We discuss the public comments we received and the Panel 
recommendation, and provide our response to the public comments on ENB, 
in section II.A.3.b.(2) of this final rule with comment period.
Recommendation 2
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46223), we stated that 
we did not accept the APC Panel's recommendation that CMS make CPT code 
96368 and CPT code 96376 separately payable for the CY 2011 OPPS. We 
consider a variety of factors in making a decision whether to package a 
service or pay for it separately, including whether the service is 
normally provided separately or in conjunction with other services and 
how likely it is for the costs of the packaged code to be appropriately 
mapped to the separately payable codes with which it was performed. In 
the proposed rule, we stated that CPT codes 93676 and 96368 describe 
concurrent and sequential services that have always been packaged under 
the OPPS. We stated that from the inception of the OPPS through CY 
2006, we paid for drug administration under the OPPS using HCPCS 
alphanumeric codes that packaged payment for concurrent infusions and 
administration of new drugs into the payment for the alphanumeric codes 
for drug administration. In CY 2007, we adopted CPT codes for drug 
administration services. The CY 2007 CPT codes did not separately 
recognize administration of new drugs during the same encounter with a 
separate CPT code. Therefore, administration of a new drug continued to 
be packaged into payment for the service of which it was a part. 
Moreover, for CY 2007, CPT code 90768 (Intravenous infusion, for 
therapy, prophylaxis, or diagnosis; concurrent infusion), which was 
replaced by CPT code 96368, was packaged under the OPPS, continuing the 
longstanding practice of not making separate payment for concurrent 
infusion. We also pointed out that, during our implementation of this 
new CPT code, while it was new for CY 2007, it represented the same 
procedures as described by the previous drug administration HCPCS code 
set, and, as a result, the payment data for these procedures would be 
captured in the claims that were available to us for ratesetting 
purposes.
    Similarly, CPT codes 96368 and 96376, which were created by CPT in 
2008, are replacement codes for those same procedures that were 
described by the previous drug administration code sets and their 
associated data would be captured in our claims database. We proposed 
that the costs for these services, concurrent infusion and additional 
push of the same drug, would continue to be packaged into payment for 
the drug administration codes with which they are reported. In the 
proposed rule, we indicated that we considered a variety of factors, 
including whether the service is normally provided separately or in 
conjunction with other services. CPT codes 96368 and 96376 describe 
concurrent and sequential drug administration services that, in 
accordance with CPT guidelines, are always provided in association with 
an initial drug administration service. Therefore, we indicated that we 
believe that they continue to be appropriately packaged into the 
payment for the separately payable services that they usually 
accompany. For example, CPT code 96376 would be billed with CPT code 
96374 (Therapeutic, prophylactic, or diagnostic injection; intravenous 
push, single or initial substance/drug), which describes an initial 
intravenous push code and, as a result, the cost for CPT code 96376 
would be reflected in the total cost for CPT code 96374. Moreover, we 
said that payment for these services has always been packaged into 
payment for the drug administration services without which they cannot 
be correctly reported.
    In the proposed rule, we stated that these two codes each describe 
services that, by definition, are always provided in conjunction with 
an initial drug administration code and that we believed that these 
services have been packaged since the inception of the OPPS. We further 
stated that we continued to believe that they are appropriately 
packaged into the payment for the separately payable services without 
which, under CPT

[[Page 71866]]

guidelines and definition, they cannot be appropriately reported. 
Therefore, for CY 2011, we proposed to continue our established policy 
of making packaged payment for CPT code 96368 and CPT code 96376, and 
we proposed to assign them a status indicator of ``N.''
    Comment: Commenters objected to CMS' proposal to package payment 
for CPT codes 96376 and 96368 into payment for the services with which 
they are furnished. The commenters believed that the resources 
associated with CPT code 96376 are similar to those associated with CPT 
code 96374 (Therapeutic, prophylactic, or diagnostic injection (specify 
substance or drug); intravenous push, single or initial substance/drug) 
(status indicator ``S''). They also believed that while the resources 
associated with CPT code 96368 somewhat resemble the resources 
associated with CPT code 96366 (Intravenous infusion, for therapy, 
prophylaxis, or diagnosis (specify substance or drug); each additional 
hour (List separately in addition to code for primary procedure) 
(status indicator ``S''), they are more similar to the services 
described by CPT code 96375 (Therapeutic, prophylactic, or diagnostic 
injection (specify substance or drug); each additional sequential 
intravenous push of a new substance/drug (List separately in addition 
to code for primary procedure) (status indicator ``S''). The commenters 
believed that the fact that CPT codes 96376 and 96368 are add-on codes 
does not preclude them from being separately paid.
    Several commenters disagreed with CMS' statement that these 
services have been packaged since the inception of the OPPS. They 
stated that hospitals formerly used a single CPT code for reporting IV 
push administrations, CPT code 90784. They further stated that this 
code was reported and paid separately for each and every IV push of 
either the same or different medications. The commenters indicated that 
when the CPT coding system changed, the payment for the ``initial'' 
successor CPT code (90774 [now 96374]) remained virtually identical to 
the rate for the previous code. Similarly, they indicated that services 
now reported with CPT code 96368 were historically reported under CPT 
codes 90780 and 90781 and received separate payment.
    Response: As we discussed in the CY 2008 OPPS/ASC final rule with 
comment period (72 FR 66787 through 66788) and in the CY 2009 OPPS/ASC 
final rule with comment period (73 FR 68674), in deciding whether to 
package a service or pay for it separately, we consider a variety of 
factors, including whether the service is normally provided separately 
or in conjunction with other services; how likely it is for the costs 
of the packaged code to be appropriately mapped to the separately 
payable codes with which it was performed; and whether the expected 
cost of the service is relatively low. CPT codes 96376 and 96368, by 
definition, are always provided in association with other drug 
administration services and the costs of these services are highly 
likely to be mapped to the separately paid codes with which they are 
performed and reported. For these reasons, we continue to believe that 
they are most appropriately packaged under the OPPS. Therefore, we are 
not accepting the APC Panel's recommendation to pay them separately.
    Furthermore, we do not agree with the commenters that the services 
described by CPT code 96376 are similar to those described by CPT code 
96374. CPT code 96374 is an initial intravenous push code, and, per CPT 
instructions, special billing guidelines apply. Commonly, this service 
requires the initial establishment of intravenous access in a patient, 
a resource-intensive task performed by hospital staff using special 
supplies. In contrast, CPT code 96376 is an add-on code and is reported 
for each additional sequential intravenous push of the same substance/
drug. In the case of this sequential service, the patient already has 
established intravenous access, so we would expect the service to 
require fewer hospital resources. In addition, we do not agree with 
commenters that the services described by CPT code 96368 are similar to 
those described by CPT code 96375. CPT code 96368 describes a 
concurrent intravenous infusion while CPT code 96375 describes a 
sequential intravenous push, and we would expect these services to 
require different hospital resources because the services require 
different medical supplies, require different nursing skills, and 
require different amounts of staff time.
    With regard to the comment that the predecessor codes were 
separately payable until CY 2008 under the OPPS, we acknowledge that 
CPT code 90784 (Therapeutic, prophylactic or diagnostic injection 
(specify material injected; intravenous) was separately paid from the 
inception of the OPPS until its deletion, which was effective December 
31, 2005, and might have been reported for an additional sequential 
intravenous push of the same substance, although the code was not 
defined as being for an additional sequential push. Similarly, CPT code 
C8952 (Therapeutic, prophylactic or diagnostic injection; intravenous 
push of each new substance/drug), which was effective January 1, 2006, 
and was deleted effective December 31, 2006, also was separately paid 
during the period that it was effective and might also have been 
reported for an additional sequential intravenous push of the same 
substance, although the code was not defined as being for an additional 
sequential push. CPT code 90776 (Therapeutic, prophylactic or 
diagnostic injection (specify substance or drug); each additional 
sequential intravenous push of the same substance/drug provided in a 
facility (list separately in addition to code for primary procedure)), 
which was effective January 1, 2008, and deleted effective December 31, 
2008, is the first code to specify that the service is an additional 
sequential intravenous push of the same substance/drug and CPT code 
90776 was packaged. Hence, before the creation of CPT code 90776, no 
code existed to specifically report an additional sequential 
intravenous push of the same substance; therefore, when the incidental 
service was furnished, there was no separate payment specifically for 
this service. We believe that hospital charges for the separately 
payable codes for the initial administration would have included a 
charge for this service, and therefore, the payment for it would have 
been packaged into payment for the separately paid code for the initial 
administration service. However, we acknowledge that it is possible 
that hospitals reported the service using separately paid codes that 
were not defined to be an additional sequential intravenous push of the 
same substance, in which case we would have paid for the service under 
the code that was reported. When CPT code 96376, which replaces CPT 
code 90776, was created effective January 1, 2009, we assigned it the 
packaged status of its predecessor code, CPT code 90776. For the 
reasons we articulate above, we disagree with the commenter that 
predecessor codes were separately payable and continue to believe that 
we should continue our policy of packaging the payment for the service 
reported by this code.
    With respect to CPT code 96368, we disagree with the commenters 
that the service has been paid separately since the inception of the 
OPPS. CPT code 96368 was made effective January 1, 2009, and for CYs 
2009 and 2010, we assigned this code to status indicator ``N'' to 
indicate that it is a packaged code under the OPPS. Prior to 2009, CPT 
code 96368 was described by its predecessor CPT code 90768 
((Intravenous infusion, for therapy, prophylaxis, or diagnosis (specify

[[Page 71867]]

substance or drug); concurrent infusion), which was also assigned to 
status indicator ``N'' from January 1, 2006 through December 30, 2008. 
Prior to January 2006, there was no specific code that accurately 
described this service, and as a result, payment for this service was 
packaged. Therefore, we do not believe that we have paid separately in 
the past for concurrent intravenous infusions for therapeutic, 
prophylaxis, or diagnostic purposes under the OPPS.
    After consideration of the APC Panel's recommendation and the 
public comments that we received, we are finalizing our CY 2011 
proposal, without modification, to continue to assign HCPCS codes 96368 
and 96376 to status indicator ``N'' to indicate that payment for these 
codes is packaged into the payment for the primary service with which 
they are reported.
Recommendation 3
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46224), we indicated 
that we were not accepting the APC Panel's recommendation that we 
propose to conditionally package CPT codes 19290 (Preoperative 
placement of needle localization wire, breast), 19291 (Preoperative 
placement of needle localization wire, breast; each additional lesion 
(List separately in addition to code for primary procedure)), 19295 
(Image guided placement, metallic localization clip, percutaneous, 
during breast biopsy/aspiration (List separately in addition to code 
for primary procedure)), 77031 (Stereotactic localization guidance for 
breast biopsy or needle placement (e.g., for wire localization or for 
injection)), each lesion, radiological supervision and interpretation), 
77032 (Mammographic guidance for needle placement, breast (e.g., for 
wire localization or for injection), each lesion, radiological 
supervision and interpretation), and 76942 (Ultrasonic guidance for 
needle placement (e.g., biopsy, aspiration, injection, localization 
device), imaging supervision and interpretation). During the APC 
Panel's February 2010 meeting, we shared with the Packaging 
Subcommittee our most recent claims data for the guidance procedures 
that would accompany breast needle placement, demonstrating that, for 
some of these services, the code was billed by itself up to 25 percent 
of the time. While the Packaging Subcommittee broadly discussed 
clinical scenarios in which these services may be billed separately, it 
remains unclear to us why these services are being performed separately 
and whether they should be paid separately. We believe that these 
services typically are performed in conjunction with surgical 
procedures involving the breast and, therefore, are appropriately 
packaged. Therefore, we indicated that we were not accepting the APC 
Panel's recommendation that we conditionally package payment for these 
guidance procedures when they are performed separately.
    For CY 2011, we proposed to maintain the unconditional packaged 
payment status for these procedures. Specifically, we proposed to 
package payment, indicated by a status indicator of ``N,'' for CPT 
codes 19290, 19291, 19295, 77031, 77032, and 76942, into the primary 
modality with which they would be appropriately billed. However, 
observing such a sizable percentage of services that are the only 
service appearing on a claim for a packaged item, especially when these 
services do not receive separate payment, led us to encourage the 
public to submit any clinical scenarios in their public comments 
involving these services that show the circumstances under which these 
services may be appropriately billed without a primary procedure that 
is furnished on the same date.
    Comment: Commenters asked that CMS accept the APC Panel's February 
2010 recommendation to conditionally package the placement of needle 
localization wires and the supporting procedures. Specifically, they 
asked that CMS permit CPT codes 19290, 19291, 19295, 77031, 77032, and 
76942 to be paid when they are not furnished with a service to which we 
have assigned a payable status indicator (for example, ``S,'' ``T,'' 
``V,'' and ``X'').
    Commenters noted that CMS has found that these services are 
furnished without a base procedure approximately 25 percent of the 
time. They indicated that they believed that this occurs because the 
patient is taken to a freestanding radiology center or ASC (which may 
or may not be located on the hospital campus) with which the hospital 
has a collaborative arrangement for the non-hospital entity to perform 
the base procedure and that therefore the hospital does not bill for 
the base procedure. The commenters believed that the hospitals should 
be paid for the service that they furnish in these circumstances and, 
therefore, CMS should change the status of the procedure to 
conditionally packaged.
    Commenters indicated that it is becoming increasingly common for a 
patient to have a radiographic marker (not a wire exiting the skin, 
which has the potential for bleeding and infection) on one day, and to 
have a stereotactic or ultrasound wire localization breast biopsy on a 
different day. This technique permits intraoperative x-ray verification 
that the MRI targeted lesion has been removed. The commenters indicated 
that this is becoming increasingly common with the growing use of 
breast MRI. They stated that, in addition, some patients undergo image-
guided percutaneous placement of a radioactive pellet which is 
identified days later at the time of surgery using an intraoperative 
hand held gamma probe. Some surgeon and radiology groups have found 
that this separation of placement of localization ``wire'' from the 
surgical procedure has facilitated scheduling so that any difficulties 
or delays in the localization do not translate into delay in the 
operating room. Moreover, they stated that some patients with locally 
advanced breast cancer benefit from placement of multiple radiographic 
markers around the tumor prior to initiating neoadjuvant chemotherapy 
because the newer chemotherapy regimens have become so effective at 
shrinking aggressive locally advanced breast cancers that surgeons are 
faced with performing lumpectomies on patients with no clinically or 
radiographically detectable breast cancer. The commenters stated 
further that while, in many cases, residual calcifications combined 
with the initial marker placed at the time of the needle biopsy are 
sufficient for localization, in some cases, it is necessary to 
delineate the extent of the primary tumor using several percutaneously 
placed markers. The commenters indicated that, in these cases, the 
markers are placed after the initial breast biopsy but months before 
the patient's definitive surgery.
    Response: After further analysis, we agree that it is appropriate 
to pay separately for the placement of CPT code 19295 (Image guided 
placement, metallic localization clip, percutaneous, during breast 
biopsy/aspiration (List separately in addition to code for primary 
procedure)) when it is not reported on a claim with any other 
separately paid procedure with a status indicator of ``S,'' ``T,'' 
``V,'' or ``X.'' This makes CPT code 19295 an ``STVX-packaged code.'' 
As already discussed, an ``STVX-packaged code'' describes a HCPCS code 
whose payment is packaged when one or more separately paid primary 
services with the status indicator of ``S,'' ``T,'' ``V,'' or ``X'' are 
furnished in the hospital outpatient encounter. We are convinced by the 
clinical scenarios provided by the commenter that it is appropriate for 
a metallic localization clip to be inserted at some point significantly 
prior to the procedure for which the localization is needed. Therefore, 
separate payment for the performance of the procedure

[[Page 71868]]

described by CPT code 19295 will be made in those circumstances when 
the hospital does not report another separately paid procedure with a 
status indicator of ``S,'' ``T,'' ``V,'' or ``X'' on the same claim. 
CPT code 19295 is used to report the placement of a radiographic marker 
(not a wire exiting the skin, which has the potential for bleeding and 
infection).
    However, we continue to believe that it remains appropriate to 
package payment for CPT codes 19290, 19291, 77031, 77032, and 76942 
into the payment for the procedures of which these services are a part. 
CPT codes 19290 and 19291 may be used to report the placement of 
external wires, which, the commenters note, carry a risk of bleeding 
and infection, and, therefore, they are not appropriately performed on 
a different date than the primary procedure of which they are a part. 
With regard to CPT code 76942, the clinical scenario the commenters 
presented does not apply to this code, and the commenters did not 
present an additional clinical scenario to support the need to pay 
separately for this service. In addition, while hospitals reported CPT 
codes 77031 and 77032 on claims without any other procedure with a 
status indicator of ``S,'' ``T,'' ``V,'' or ``X'' approximately 21 
percent and 20 percent of time, respectively, the definitions of the 
codes do not fit the clinical scenarios for which the commenters 
presented convincing arguments, and the commenters presented no 
additional clinical scenarios that supported separate payment for these 
codes. For these reasons, we believe that it is inappropriate to make 
separate payment that may encourage hospitals to furnish CPT codes 
19290, 19291, 77031, 77032, and 76942 without also providing the 
primary service.
    After considering the APC Panel's recommendation and the public 
comments we received on this issue, we believe that it is appropriate 
to pay separately for CPT code 19295 when it is not furnished on the 
same date as a procedure that is separately paid and, therefore, we 
have assigned it a status indicator of ``Q1'' (packaged when reported 
with a procedure with a status indicator of ``S,'' ``T,'' ``V,'' or 
``X''; otherwise separately paid), and have assigned CPT code 19295 to 
APC 0340 (Minor Ancillary Procedures), for which the median cost for CY 
2011 is $48.72. We chose APC 0340 because, in the absence of cost data 
for the service for CY 2011, we believe that the resources required to 
furnish the service are most similar to the resources required to 
furnish other separately paid minor ancillary services. However, we 
continue to believe that payment for CPT codes 19290, 19291, 77031, 
77032, and 76942 should be made as part of the payment for the 
procedures with which these codes are reported and, therefore, for CY 
2011, we are retaining the status indicator of ``N'' for these codes.
Recommendation 4
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46224), we indicated 
that we were accepting the APC Panel's recommendation to continue to 
encourage submission of common clinical scenarios involving currently 
packaged HCPCS codes to the Packaging Subcommittee for its ongoing 
review. We also encouraged recommendations from the public on specific 
services or procedures whose payment would be most appropriately 
packaged under the OPPS. Additional detailed suggestions for the 
Packaging Subcommittee could be submitted by e-mail to 
<a href="/cdn-cgi/l/email-protection#3978697a6958575c55795a544a1751514a175e564f"><span class="__cf_email__" data-cfemail="7a3b2a392a1b141f163a19170954121209541d150c">[email protected]</span></a> with Packaging Subcommittee in the subject line.
Recommendation 5
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46224), we indicated 
that we were accepting the APC Panel's recommendation that CMS provide 
information to the APC Panel on the impact of the creation of the 
imaging composite APCs on services to beneficiaries. We will present 
information on the impact of the imaging composites to the APC Panel at 
its winter CY 2011 meeting. Information on the impact of the creation 
of the imaging composites and our proposal with regard to the imaging 
composite APCs was discussed in detail in section II.A.2.e.(5) of the 
proposed rule. Our discussion of the imaging composite APCs is 
contained in section II.A.2.e.(5) of this final rule with public 
comment period.
Recommendation 6
    The Packaging Subcommittee of the APC Panel was established to 
review packaging issues. In the CY 2011 OPPS/ASC proposed rule (75 FR 
46224), we indicated that we were accepting the APC Panel's 
recommendation that the Packaging Subcommittee remain active until the 
next APC Panel meeting. That meeting occurred on August 23-24, 2010, 
and resulted in a recommendation to broaden the function of the 
Packaging Subcommittee and revise its name to Subcommittee for APC 
Groups and Status Indicator (SI) Assignments. We refer readers to our 
discussion of Recommendation 4 in section II.A.3.b.(2) of this final 
rule with comment period.
    (3) Packaged Services Addressed by the August 2010 APC Panel 
Recommendations and Other Issues Raised in Public Comments
    The APC Panel met again on August 23-24, 2010 to hear public 
presentations on the proposals set forth in the CY 2011 OPPS/ASC 
proposed rule. The APC Panel's Packaging Subcommittee reviewed the 
packaging status of several CPT codes and reported its findings to the 
APC Panel. The full report of the August 23-24, 2010 APC Panel meeting 
can be found on the CMS Web site at: http://www.cms.hhs.gov/FACA/05_
AdvisoryPanelonAmbulatoryPaymentClassificationGroups.asp. The APC Panel 
accepted the report of the Packaging Subcommittee, heard several 
presentations related to packaged services, discussed the deliberations 
of the Packaging Subcommittee, and made the following eight 
recommendations:
    1. The Panel recommends that Current Procedural Terminology (CPT) 
code 31627, Bronchoscopy, rigid or flexible, including fluoroscopic 
guidance, when performed; with computer-assisted, image-guided 
navigation (List separately in addition to code for primary 
procedure[s]), continue to be assigned a status indicator of ``N.''
    2. The Panel recommends that CMS provide claims data at the Panel's 
winter 2012 meeting about CPT code 31627, Bronchoscopy, rigid or 
flexible, including fluoroscopic guidance, when performed; with 
computer-assisted, image-guided navigation (List separately in addition 
to code for primary procedure[s]), for the Panel's consideration.
    3. The Panel recommends that CMS assign CPT 0191T, Insertion of 
anterior segment aqueous drainage device, without extraocular 
reservoir; internal approach, to APC 0673, Level V Anterior Segment Eye 
Procedures, on the basis of its clinical similarity with both CPT 
0192T, Insertion of anterior segment aqueous drainage device, without 
extraocular reservoir; external approach, and HCPCS code 66180, Aqueous 
shunt to extraocular reservoir (e.g., Molteno, Schocket, Denver-
Krupin).
    4. The Panel recommends that the Packaging Subcommittee be renamed 
the Subcommittee for APC Groups and Status Indicator (SI) Assignments.
    5. The Panel requests that CMS provide data for all unconditionally 
packaged items and services that appear by themselves on separate bills 
in outpatient claims data to the Subcommittee for APC Groups and SI 
Assignments.
    6. The Panel encourages the public to submit common clinical 
scenarios

[[Page 71869]]

involving currently packaged HCPCS codes and recommendations of 
specific services or procedures for which payment would be most 
appropriately packaged under the Outpatient Prospective Payment System 
(OPPS) for review by the Subcommittee for APC Groups and Status 
Indicator (SI) Assignments.
    7. The Panel recommends that Judith Kelly, R.H.I.T., R.H.I.A., 
C.C.S., be named chair of the Subcommittee for APC Groups and SI 
Assignments.
    8. The Panel recommends that the work of the Subcommittee for APC 
Groups and Status Indicator (SI) Assignments continue.
    Our response to the APC Panel's recommendations resulting from its 
August 23-24, 2010 public meeting, a summary of the public comments we 
received on the proposed rule for related topics, and our responses to 
those public comments follow:
Recommendation 1--Packaged Status of CPT Code 31627 (Electromagnetic 
Navigational Bronchoscopy (ENB))
    Comment: Commenters asked that CMS pay separately for ENB and that 
CMS assign it to APC 0415 with a status indicator of ``T''. Another 
commenter asked that CMS create a composite APC for ENB that would 
establish a separate payment when ENB is performed on the same date as 
CPT codes 31625 (Bronchoscopy, rigid or flexible, including 
fluoroscopic guidance, when performed; with bronchial or endobronchial 
biopsy(s), single or multiple sites), 31626 (Bronchoscopy, rigid or 
flexible, including fluoroscopic guidance, when performed; with 
placement of fiducial markers, single or multiple), 31628 
(Bronchoscopy, rigid or flexible, including fluoroscopic guidance, when 
performed; with transbronchial lung biopsy(s), single lobe), or 31629 
(Bronchoscopy, rigid or flexible, including fluoroscopic guidance, when 
performed; with transbronchial needle aspiration biopsy(s), trachea, 
main stem and/or lobar bronchus(i)). The commenters believed that such 
a composite APC would ensure that the payment would include the full 
costs of the bronchoscopy and the service described by CPT code 31627.
    One commenter stated that it is inconsistent for CMS to package 
payment for ENB when CMS pays separately for services that are very 
similar. The commenter described in detail how ENB is most clinically 
similar to CPT code 31636 (Bronchoscopy, rigid or flexible, including 
fluoroscopic guidance, when performed; with placement of bronchial 
stent(s) (includes tracheal/bronchial dilation as required), initial 
bronchus), which is separately paid under the OPPS. The commenter 
further stated that both procedures use a computer for registration and 
use a bronchoscope to facilitate access for either a guide wire or 
catheter. In both procedures, once the guide wire or catheter is in 
place, then either a stent or a fiducial marker is placed. In addition, 
the commenter noted that CPT code 19103 (Biopsy of breast; 
percutaneous, automated vacuum assisted or rotating biopsy device, 
using imaging guidance) is not packaged, notwithstanding that it uses 
imaging to guide the needle to the lesion for biopsy and is similar to 
ENB where the previously obtained CT scan is used to plan the pathway 
to the lung lesion and then the ENB catheter is used to reach the 
lesion for biopsy. The commenter stated that ENB is different from the 
other computer-assisted navigational procedures that CMS has packaged 
because, for example, those procedures use a computer only to assist 
with coordinate determination (for example, CPT 61795 (Stereotactic 
computer-assisted volumetric (navigational) procedure, intracranial, 
extracranial, or spinal (List separately in addition to code for 
primary procedure)) or anatomy determination (for example, CPT code 
20985 (Computer-assisted surgical navigational procedure for 
musculoskeletal procedures, image-less (List separately in addition to 
code for primary procedure)) but do not describe the steering of a 
catheter through an airway of the lung for the purpose of a biopsy or 
treatment. The commenter disagreed with the APC Panel that CPT code 
31620 (Endobronchial ultrasound (EBUS) during bronchoscopic diagnostic 
or therapeutic intervention(s) (List separately in addition to code for 
primary procedure)) is a comparable procedure because they stated that 
ENB, unlike EBUS, does not produce an image, is not an ancillary 
procedure and does not enable a biopsy or placement of a marker for 
radiation therapy. The commenter believed that the definition of CPT 
code 31627 as an add-on code that can only be correctly reported with a 
primary procedure, does not justify packaging payment for the code into 
the payment for the primary procedure with which it is furnished 
because CMS routinely pays separately for add-on codes.
    Several commenters noted that physicians are reimbursed for both 
the bronchoscopy and CPT code 31627 when they perform both and that 
several physician organizations support that separate payment should be 
made for CPT code 31627. Commenters also disagreed that payment for the 
primary service would reflect the cost of the packaged ENB procedure 
because they believed that a study performed in 2005 found the cost of 
ENB to be approximately $2,700 but the payment for bronchoscopy is much 
less than $2,700. Other commenters believed that packaging ENB violates 
the 2 times rule because CMS proposed to package ENB under a standard 
bronchoscopy procedure which is reimbursed under APC 0076 with a 
proposed payment of $719.84, although they believed that ENB costs 
$2,875.50, which is more than two times the highest median in APC 0076 
(CPT code 31899 (Unlisted procedure, trachea, bronchi) at $1,247.56). 
In addition, the commenter stated that all Medicare Administrative 
Contractor medical directors are covering and making payment for ENB. 
In addition, the commenters stated that Administrative Law Judges have, 
on multiple occasions, overturned denials of separate payment for ENB 
and have ordered CMS to pay for ENB in addition to standard 
bronchoscopy. In addition, the commenter stated that all Medicare 
Administrative Contractor (MAC) Medicare Directors are covering and 
making payment for ENB.
    Response: For the CY 2011 OPPS, we proposed to continue to package 
the payment for ENB into the payment for the bronchoscopy to which we 
believe that it is ancillary and supportive (75 FR 46223). The APC 
Panel met on August 23-24, 2010, to discuss the CMS proposed rule and 
recommended that CMS continue to package payment for CPT code 31627 
into payment for the procedure with which it is performed and asked 
that CMS bring claims data on the cost of CPT code 31627 to the APC 
Panel's winter 2011 meeting for review. The full set of APC Panel 
recommendations that resulted from the Panel's August 23-24, 2010 
meeting is provided in this section.
    After consideration of all of the information provided by 
commenters on this issue, and discussing the issue with the APC Panel 
at its August 23-24, 2010 meeting, we are accepting the APC Panel's 
Recommendation 1 to continue to package payment for CPT code 31627 into 
the payment for the major separately paid procedure with which it is 
reported for CY 2011. In addition, we are accepting the APC Panel's 
Recommendation 2, discussed below, that CMS bring claims data to the 
winter 2011 APC Panel meeting.
    We continue to believe that packaging payment for ENB into payment 
for the procedure in which it is furnished is appropriate because CPT 
code 31627

[[Page 71870]]

describes the computer assisted image guided navigation that is 
reported in addition to a specified range of bronchoscopy codes. As 
such, we believe that it is an ancillary and dependent service that 
enhances and supplements another service. The CPT code does not 
describe an independent service that can be reported alone.
    We do not believe that CPT code 31627 describes a service that is 
similar to the services described by CPT code 31636 or 19103 because 
CPT code 31627 is neither for placement of a stent (CPT code 31636) nor 
for a biopsy (CPT code 19103). Similarly, we do not agree that ENB is 
significantly different from the services described by CPT codes 61795 
and 20985 and from EBUS. The commenter stated that these navigation 
codes are unlike ENB (CPT code 31627 (Bronchoscopy, rigid or flexible, 
including fluoroscopic guidance, when performed; with computer-
assisted, image-guided navigation (List separately in addition to code 
for primary procedure[s])) because ENB requires steering a catheter 
through an airway of the lung for the purpose of a biopsy or treatment. 
While a catheter may be used to accomplish localization of the target 
during the ENB procedure, when the services described by CPT codes 
61795 and 20985 are utilized, another method of localization of the 
target is utilized. For example, when CPT code 20985 (Computer-assisted 
surgical navigational procedure for musculoskeletal procedures, image-
less (List separately in addition to code for primary procedure)) is 
performed, an infra-red, electromagnetic or other form of tracker may 
be utilized for localization of the target. Like CPT codes 61795 and 
20985, ENB is an add-on code that adds computer-assisted navigation to 
the primary procedure, which, in the case of ENB, is a bronchoscopy.
    We believe that ENB is an enhancement to the bronchoscopy with 
which it must be performed and as such is an ancillary and dependent 
service in the same manner that CPT code 31620 (EBUS) is an ancillary 
and supportive procedure. Both of these procedures enable the 
bronchoscopy with which they are performed to be more effective. We 
agree with the APC Panel that EBUS is the most suitable comparison 
because it describes another bronchoscopic procedure in which a 
guidance technology (that is, ultrasonography) is used to achieve the 
therapeutic benefit of the procedure. Similar to our proposed payment 
for CPT code 31627, payment for CPT code 31620 is currently packaged 
into the primary modality with which it would be appropriately billed. 
In CY 2008, as part of our increased packaging proposal, we identified 
the EBUS procedure as an intraoperative ancillary service that would 
typically be reported in conjunction with an independent service. In 
addition, similar to CPT code 31627, CPT code 31620 would only be 
appropriately reported in conjunction with specified bronchoscopy 
procedures with which it would be performed. Like EBUS, CPT code 31627, 
ENB is not an independent separately furnished procedure.
    We agree that the status of CPT code 31627 as an add-on code does 
not, of its own accord, justify packaged payment for the service as is 
evidenced, as the commenter noted, by separate payment under the OPPS 
for many add-on services. However, the status of the code as an add-on 
code supports the view that the procedure is a service that is always 
furnished in addition to another procedure and cannot be performed 
independently. We recognize that the Medicare Physician Fee Schedule 
(MPFS) pays separately for CPT code 31627, as it does for all add-on 
codes, but the MPFS and the OPPS are very different payment systems. 
Each is established under a different set of statutory and regulatory 
principles and the policies established under the physician fee 
schedule do not have bearing on the payment policies under the OPPS. 
With regard to the commenter's view that the costs of ENB cannot be 
packaged into payment for a bronchoscopy because a study shows the cost 
of ENB to be $2,700 or $2,875.50, depending on the commenter, while the 
proposed payment CMS proposed for CY 2011 for a bronchoscopy assigned 
to APC 0076 is $719.84, we note that we will develop, analyze, and 
provide to the APC Panel at its winter 2011 meeting, the cost and 
frequency data we derive from the CY 2010 claims for CPT code 31627 for 
purposes of illuminating consideration of whether the costs of ENB are 
being reflected in the claims for the service with which they are 
furnished. With regard to making a composite APC for ENB that would 
establish a separate payment for ENB when it is performed on the same 
date as the services that are reported using CPT code 31625, 31626, 
31628 or 31629, it is unclear whether ENB is a good candidate for a 
composite APC because composite APCs usually make payment for two 
separately paid procedures that are commonly performed together, and 
CPT code 31627 is currently a packaged service.
    With regard to the comment that packaging ENB is a violation of the 
2 times rule, we note that a 2 times rule violation can exist only 
within an APC and ENB has not been assigned to an APC because it is 
packaged and hence there is no application of the 2 times rule. We 
refer readers to section III. B. of this final rule with comment period 
for a more complete discussion of the 2 times rule.
    With regard to the argument that CMS should pay separately for ENB 
because MAC medical directors cover it and may have made separate 
payment for it, and that Administrative Law Judges may have overturned 
denials of separate payment for ENB is not relevant to whether the 
payment for it should be packaged into the payment for the bronchoscopy 
to which it is ancillary and supportive.
    After consideration of the public comments we received on this 
issue and the APC Panel's August 2010 recommendation on ENB, we are 
packaging payment for the service represented by CPT code 31627 into 
payment for the procedure with which it is performed for the CY 2011 
OPPS.
Recommendation 2--Developing and Sharing Cost Data for ENB
    We accept the APC Panel's recommendation to provide cost data on 
ENB, and we will provide the APC Panel with cost and frequency data at 
the winter 2011 APC Panel meeting for the Panel's use in providing CMS 
with a recommendation for CY 2012.
Recommendation 3--APC Assignment for CPT Code 0192T
    We are accepting the APC Panel's recommendation. We refer readers 
to section III.D. of this final rule with comment period for a 
discussion of CPT code 0192T.
Recommendation 4--Name and Function of the Packaging Subcommittee
    We agree with the APC Panel's recommendation and have changed the 
name and function of the committee to include the assessment of the 
content of APCs as well as the appropriate status indicator for each 
CPT code, including but not limited to the decision of whether, and if 
so when, to package payment for the service into payment for the 
services with which it is furnished. The Packaging Subcommittee will be 
renamed the ``Subcommittee for APC Groups and Status Indicator (SI) 
Assignments.''
Recommendation 5
    We agree and will, at the winter 2011 APC Panel meeting, furnish 
data about the frequency with which hospitals report unconditionally 
packaged HCPCS

[[Page 71871]]

codes on claims without another separately paid procedure.
Recommendation 6
    We support the APC Panel's recommendation that the public submit 
common clinical scenarios involving currently packaged HCPCS codes and 
make recommendations of specific services or procedures for which 
payment would be most appropriately packaged under the OPPS for review 
by the Subcommittee for APC Groups and Status Indicator (SI) 
Assignments.
Recommendation 7--Chair of the Subcommittee for APC Groups and Status 
Indicator (SI) Assignments
    We are accepting the APC Panel's recommendation that Judith Kelly, 
R.H.I.T., R.H.I.A., C.C.S., be named chair of the Subcommittee for APC 
Groups and Status Indicator (SI) Assignment.
Recommendation 8
    We are accepting the APC Panel's recommendation that the work of 
the Subcommittee for APC Groups and Status Indicator (SI) Assignments 
continue. We are continuing the work of the APC Panel Subcommittee for 
APC Groups and Status Indicator (SI) Assignments, and we appreciate the 
Subcommitee's expertise and experience regarding packaging under the 
OPPS and the valuable advice the Subcommittee continues to provide to 
us. We will continue to bring to the Subcommittee's attention clinical 
scenarios identified by us or the public regarding services that are 
currently packaged or are candidates for future packaging under the 
OPPS.
    We received public comments in response to the proposed rule on 
several issues related to packaging of payment that were in addition to 
those about which the APC Panel has made a recommendation that are 
related to packaging payment for ancillary and dependent services into 
payment for services that may be furnished independently.
    Comment: Commenters stated that CMS' packaging policies would 
likely lead to less efficient use of resources, limited access to 
innovative treatment options and greater instability in payments 
because the policies are based on several flawed assumptions. 
Commenters believed that to the extent that hospitals control the array 
of services they provide, CMS' packaging policies assume that the same 
incentives apply to hospital outpatient departments as to inpatient 
services. One commenter stated that under the inpatient prospective 
payment system (IPPS), hospitals have an incentive to provide care, 
including advanced technologies, in an efficient manner to ensure the 
lowest cost for the patient's diagnosis. In contrast, in hospital 
outpatient departments, because Medicare payment is based on procedures 
rather than diagnoses, the commenter believed that a hospital has an 
incentive to provide the lowest cost item or service included in an 
APC. The commenter further believed that if that service does not fully 
address the patient's needs, the hospital would receive better 
reimbursement by bringing the patient back for a second visit or 
admitting the patient for inpatient care than by providing a more 
costly option within the same APC. Moreover, the commenters believed 
that when an APC's payment rate is significantly less than the cost of 
a technology, hospitals have a strong disincentive to use that 
technology, even if it could reduce the costs of care at a later date. 
The commenters believed that CMS' use of expanded packaging has the 
risk of encouraging hospitals to forego performing needed services and 
using new technologies that may be more resource intensive during one 
visit, but could save the patient future outpatient department visits 
or inpatient care.
    Response: Packaging payment for items and services that are 
ancillary to and dependent on the major procedure for which a payment 
rate is established is a fundamental concept of the OPPS, based in 
regulation in the definition of costs that are included in the national 
payment rate for a service (42 CFR 419.2(b)) and in place since the 
inception of the OPPS (65 FR 18447). We continue to believe that 
packaging creates incentives for hospitals and their physician partners 
to work together to establish appropriate protocols that eliminate 
unnecessary services where they exist and institutionalize approaches 
to providing necessary services more efficiently. With respect to new 
services or new applications of existing technology, we believe that 
packaging payment for ancillary and dependent services creates 
appropriate incentives for hospitals to seriously consider whether a 
new service or a new technology offers a benefit that is sufficient to 
justify the cost of the new service or technology. Where this review 
results in reductions in services that are only marginally beneficial 
or hospitals' choices not to utilize certain technologies, we believe 
that this could improve, rather than harm, the quality of care for 
Medicare beneficiaries because every service furnished in a hospital 
carries some level of risk to the patient. Moreover, we believe that 
hospitals strive to provide the best care they can to the patients they 
serve so that when new technologies are proven to improve the quality 
of care, their utilization will increase appropriately, whether the 
payment for them is packaged or not.
    However, we are aware that there are financial pressures on 
hospitals that might motivate some providers to split services among 
different hospital encounters in such a way as to maximize payments. 
While we do not expect that hospitals would routinely change the way 
they furnish services or the way they bill for services in order to 
maximize payment, we recognize that it would be possible and we 
consider that possibility as we annually review hospital claims data. 
We will continue to examine claims data for patterns of fragmented 
care, and if we find a pattern in which a hospital appears to be 
dividing care across multiple days, we will refer it for investigation 
to the QIO or to the program safeguard contractor, as appropriate to 
the circumstances we find.
    In section II.A.1. of this final rule with comment period, we 
discuss the established methodology we use to incorporate the costs of 
packaged services into payment for the associated independent 
procedures. We package the costs of services into the payment for the 
major separately paid procedure on the same claim on which the packaged 
service appears. Hence, it is the practice of hospitals with regard to 
reporting and charging for packaged services that determines the 
separately paid service into which the cost of a packaged service is 
incorporated and the amount of packaged cost included the payment for 
that separately paid procedure.
    We believe it is important to continue to advance value-based 
purchasing by Medicare in the hospital outpatient setting by furthering 
the focus on value of care rather than volume. While we acknowledge the 
concerns of the commenters and, as discussed below, are committed to 
considering the impact of packaging payment on Medicare beneficiaries 
further in the future, we must balance the concerns of the commenters 
with our goal of continuing to encourage efficient use of hospital 
resources. As we noted in the CY 2009 OPPS/ASC final rule with comment 
period in our response to comments on the CY 2009 OPPS/ASC proposed 
rule (73 FR 68572) and as we note in our responses to public comments 
on the CY 2011 OPPS/ASC proposed rule, the suggestions and packaging 
criteria

[[Page 71872]]

recommended by most commenters are focused almost exclusively on 
preventing packaging, rather than on determining when packaging would 
be appropriate. We also welcome suggestions from the public on 
approaches to packaging that would encourage efficient use of hospital 
resources.
    Comment: Commenters asked that CMS make underlying payment rates 
for packaged services, including utilization rates, estimated median 
costs and numbers of hospitals furnishing various services available to 
the public. Commenters also asked that CMS continue to compare 
utilization of services in 2007 prior to packaging to utilization of 
the same services after packaging at the CPT level and make that 
information public. In addition, commenters asked that CMS study and 
report annually on the impact of packaged payment on beneficiary access 
to care. Commenters urged CMS to continue to monitor use of and payment 
for these services and share these reports with stakeholders, so that 
they can verify that Medicare's payment policies do not harm access to 
care. Commenters stated that CMS should provide data that demonstrates 
that the full cost of packaged services is reflected in the median cost 
for the services in which they are used.
    Response: As we note in our discussion above, we have reviewed the 
provision of packaged services for several years since we expanded 
packaging in CY 2008 and we see no evidence that increased packaging 
has caused harm to patient access to care, nor have we been presented 
with evidence that documents that packaging has been responsible for 
harm to patient access. Each year, CMS makes available an extensive 
amount of OPPS data that can be used for any data analysis an 
interested party would care to perform. Specifically, we make available 
a considerable amount of data for public analysis each year through the 
supporting data files that are posted on the CMS Web site in 
association with the display of the proposed and final rules. In 
addition, we make available the public use files of claims, including, 
for CY 2008 and later, supplemental line item cost data for every HCPCS 
code under the OPPS and a detailed narrative description of our data 
process for the annual OPPS/ASC proposed and final rules that the 
public can use to perform any desired analyses. Therefore, commenters 
are able to examine and analyze these data to develop specific 
information to assess the impact and effect of packaging for the 
services of interest to them. Therefore, this information is available 
to support their requests for changes to payments under the OPPS, 
whether with regard to separate payment for a packaged service or other 
issues. We understand that the OPPS is a complex payment system and 
that it may be difficult to determine the quantitative amount of 
packaged cost included in the median cost for every independent 
service. However, commenters routinely provide us with meaningful 
analyses at a very detailed and service-specific level based on the 
claims data we make available. We routinely receive complex and 
detailed public comments including extensive code-specific data 
analysis on packaged and separately paid codes, using the data from 
this and prior proposed and final rules. With respect to the request 
for assurance that the full cost of packaged services is included in 
the median cost used to set the payment rate for the independent 
service with which the packaged services are reported, we note that the 
use of a median cost as the measure of central tendency means that the 
full cost of a packaged service becomes part of the cost of the service 
with which it is furnished and is reflected in the median cost for the 
independent procedure since the median cost reflects the cost at the 
50th percentile of the array of the total costs for all claims in the 
set of single bills used to calculate the median cost for the CPT code 
or the APC.
    Comment: Commenters stated that, for packaged services such as 
guidance, image processing, and intraoperative services, CMS should 
provide separate, additional payment for innovative procedures. They 
urged CMS establish a 2- to 3-year data collection period during which 
separate payment would be made for these packaged services (or any new 
applications of these services). The commenters stated that the data 
collected during this period should be used to evaluate the clinical 
utilization and financial effects of the new services and that CMS 
should use this information to determine whether to propose packaging 
for the services or whether to maintain separate payment. They further 
stated that hospitals are reluctant to invest in new technologies 
because they are uncertain whether they will be able to recoup the cost 
of the services and that packaging payment for new technologies into 
payment for existing major separately paid procedures discourages them 
from making the investment.
    Response: We do not agree that innovative guidance, image 
processing, and intraoperative services or innovative uses of guidance, 
image processing, and intraoperative services should always be 
separately paid for a 2- to 3-year data collection period before a 
decision to make separate or packaged payment for them. We do not 
believe that making separate payment for 2 to 3 years would create 
incentives for hospitals to carefully consider whether the innovative 
service or innovative use of a pre-existing service represents 
sufficient value to be worthy of the investment. We continue to believe 
that hospitals will invest in innovative services or services with 
innovative uses where these services represent genuinely increased 
value to patient care, and where hospitals can furnish them 
efficiently. Of course, we will continue to pay separately for 
innovative technologies where a device meets the conditions for 
separate payment as a pass-through device or where a new procedure 
meets the criteria for payment as a new technology APC.
    Comment: Commenters believed that CMS assumes that its packaging 
policies will allow it to continue to collect the data it needs to set 
appropriate, stable payment rates in the future. The commenters 
believed that CMS' review of data from 2009 indicates that hospitals 
have continued to report codes for packaged services, but they stated 
that it remains to be seen if hospitals will continue this practice in 
subsequent years, particularly for services that have been packaged 
since their introduction. Commenters further stated that CMS' past 
experience with packaging payment for ancillary items indicates that 
hospitals do not submit codes for services that do not directly affect 
their payment and see no reason to believe that this will change and 
ask that CMS require complete and correct coding for packaged services 
so that all items and services that are not individually reimbursed 
must be included on the claim to provide CMS with essential data for 
future OPPS updates. Commenters expressed concern about what they 
believed to be decreases in the number of hospitals reporting services 
as a result of packaging and bundling. They believed that the decline 
could be due to one or both of two reasons: Hospitals may no longer be 
providing these services or hospitals could be providing these services 
but not reporting codes and charges for them, denying CMS accurate data 
for use in ratesetting. The commenters were concerned that decreased 
reporting of services will result in the costs of packaged services not 
being included in the payment for the independent service with which 
they are furnished.

[[Page 71873]]

    Response: We do not believe that there has been or will be a 
significant change in what hospitals report and charge for the 
outpatient services they furnish to Medicare beneficiaries and other 
patients as a result of our current packaging methodology. Medicare 
cost reporting standards specify that hospitals must impose the same 
charges for Medicare patients as for other patients. We are often told 
by hospitals that many private payers pay based on a percentage of 
charges and that, in accordance with Medicare cost reporting rules and 
generally accepted accounting principles, hospital chargemasters do not 
differentiate between the charges to Medicare patients and other 
patients. Therefore, we have no reason to believe that hospitals will 
stop reporting HCPCS codes and charges for packaged services they 
provide to Medicare beneficiaries. As we stated in the CY 2009 OPPS/ASC 
final rule with comment period (74 FR 68575), we strongly encourage 
hospitals to report a charge for each packaged service they furnish, 
either by billing the packaged HCPCS code and a charge for that service 
if separate reporting is consistent with CPT and CMS instructions, by 
increasing the charge for the separately paid associated service to 
include the charge for the packaged service, or by reporting the charge 
for the packaged service with an appropriate revenue code but without a 
HCPCS code. Any of these means of charging for the packaged service 
will result in the cost of the packaged service being incorporated into 
the cost we estimate for the separately paid service. If a HCPCS code 
is not reported when a packaged service is provided, we acknowledge 
that it can be challenging to specifically track the utilization 
patterns and resource cost of the packaged service itself. However, we 
have no reason to believe that hospitals have not considered the cost 
of the packaged service in reporting charges for the independent, 
separately paid service.
    We expect that hospitals, as other prudent businesses, have a 
quality review process that ensures that they accurately and completely 
report the services they furnish, with appropriate charges for those 
services to Medicare and all other payers. We encourage hospitals to 
report on their claim for payment all HCPCS codes that describe 
packaged services that were furnished, unless the CPT Editorial Panel 
or CMS provides other guidance. To the extent that hospitals include 
separate charges for packaged services on their claims, the estimated 
costs of those packaged services are then added to the costs of 
separately paid procedures on the same claims and used in establishing 
payment rates for the separately paid services.
    It is impossible to know with any certainty whether hospitals are 
failing to report HCPCS codes and charges for services for which the 
payment is packaged into payment for the independent service with which 
the packaged service is furnished. Moreover, where hospitals fail to 
report the HCPCS codes and charges for packaged services, the reason 
may be that the hospital has chosen to package the charge for the 
ancillary and dependent service into the charge for the service with 
which it is furnished. Although we prefer that hospitals report HCPCS 
codes and charges for all services they furnish, if the hospital's 
charge for the independent service also reflects the charge for all 
ancillary and supportive services it typically provides, the absence of 
HCPCS codes and separate charges would not result in inappropriately 
low median cost for the independent service, although CMS would not 
know which specific ancillary and supportive services were being 
furnished. Where a hospital is no longer providing a service, there may 
be many reasons that a hospital chooses not to provide a particular 
service or chooses to cease providing a particular service, including, 
but not limited to, because the hospital has determined that it is no 
longer cost effective for the hospital to furnish the service and that 
there may be other hospitals in the community that can furnish the 
service more efficiently.
    Comment: Many commenters who objected to payment for ancillary and 
dependent services being packaged into payment for the procedures that 
they support said that packaged payment will cause hospitals not to 
make these important services available to Medicare beneficiaries 
because they are not being paid separately for them by Medicare.
    Response: We do not believe that hospitals will cease to furnish 
Medicare beneficiaries with the ancillary and dependent services that 
are available in the facility when they are necessary to achieve the 
best therapeutic effect for their patients because the payment for the 
service is made as part of the payment for the procedure that they 
support. Instead, we believe that packaging will encourage hospitals to 
carefully review whether the ancillary and dependent services are 
genuinely necessary in individual cases to all patients and will 
carefully evaluate whether the staff and capital investments that are 
often necessary to furnish them are worthwhile. We note also that 
hospitals that fail to provide Medicare beneficiaries with the same 
services that they make available to other patients with the same 
conditions are subject to termination from the Medicare program under 
42 CFR 489.53(a)(2). Therefore, hospitals have a significant 
disincentive to treat Medicare patients differently from other patients 
with regard to the nature and scope of the services they furnish them.
    Comment: One commenter stated that CMS should provide further 
transparency and clarification of its analysis of image processing 
procedures because it is not clear why CMS has discussed coding issues 
pertaining to intraoperative procedures to support conclusions about 
packaging of image processing procedures. Specifically, the commenter 
stated that CMS notes that the intraoperative procedures described by 
CPT codes 93320 (which describes spectral Doppler) and 93325 (which 
describes color flow Doppler) are now reported using one comprehensive 
code, CPT 93306, which describes complete transthoracic echocardiogram 
with spectral and color flow Doppler. The commenter further reiterated 
CMS' statements that when data for any codes experiencing significant 
modifications were removed, there was a 7 percent decrease from CY 2007 
to CY 2009 in the frequency of image processing services billed. In a 
second analysis involving all image processing services, including 
those with revised codes, the data showed a 61-percent decrease in the 
billing of these services between CY 2007 and CY 2009 and a 6-percent 
decrease in the number of hospitals reporting these services during the 
same timeframe. The commenter believed the estimated declines in 
utilization of imaging processing services should not simply be 
disregarded, but in fact may suggest negative impacts on beneficiary 
access to these services.
    Response: The example we provided was not optimal and we were 
incorrect to characterize both CPT codes 93320 and 93325 as 
intraoperative services. For purposes of our analysis, we treated CPT 
code 93320 as an intraoperative service and we treated CPT code 93325 
as an imaging processing service. The point of the example is that 
because both codes are reported using CPT code 93306, effective for 
services on and after January 1, 2009, the CY 2009 data for these codes 
(93320 and 93325) cannot be compared to the data for them in CY 2007 in 
a meaningful way and for that reason we believe that the decreases we 
found are suspect.

[[Page 71874]]

(4) Other Service-Specific Packaging Issues
    We received the following public comments regarding the proposal to 
package specific services or services in a specific category.
    Comment: Commenters recommended that CMS eliminate packaging of 
IGRT services represented by CPT codes 76950 (Ultrasonic guidance for 
aspiration of ova, imaging supervision and interpretation), 76965 
(Ultrasonic guidance for interstitial radioelement application), 77417 
(Therapeutic radiology port film(s)), 77421 (Stereoscopic X ray 
guidance for localization of target volume for the delivery of 
radiation therapy), and 77014 (Computed tomography guidance for 
placement of radiation fields) for CY 2011. The commenters believed 
that if packaging is continued, closer monitoring of the claims data is 
necessary to better approximate the real costs associated with these 
services. They believed that these services are vital to the safe 
provision of radiation therapy, and unconditionally packaging payment 
for them may discourage hospitals from providing them. The commenters 
also believed that hospitals may not be reporting the services 
correctly and, therefore, not charging for them, which would lead to 
the cost of the service not being reflected into the packaged payment 
for the service for which separate payment is made.
    Response: We continue to believe that these services are ancillary 
and dependent services that, as the commenters indicated, are 
fundamental to the provision of optimal radiation therapy services and 
that the payment for them should be packaged into the payment for the 
procedure to which they are ancillary and supportive. We agree that it 
is vital that hospitals ensure that they report the charges for these 
services so that the cost of the independent service reflects the cost 
of these important ancillary services. We strongly encourage hospitals 
to report both the codes and the charges for these services, 
recognizing that some hospitals may prefer to incorporate the charge 
for the ancillary service into the charge for the service it supports. 
We remind hospitals that the payments they receive are developed from 
the charges they submit on claims and the charge and costs they report 
on their Medicare cost report. Therefore, it behooves them to ensure 
that they are fully reporting the charges on the claims they submit for 
payment. Moreover, we do not believe that there is value in closer 
monitoring of claims data for the purpose of better approximation of 
the real costs associated with ancillary and dependent services because 
we believe that our standard data process ensures that, to the extent 
that hospitals report charges for these services, whether with separate 
HCPCS codes or as part of the charge for the procedure to which they 
are ancillary and supportive, the cost of the service will be included 
in the APC median cost and, therefore, in the payment for the APC to 
which the separately paid procedure is assigned.
    Comment: One commenter was concerned that intravascular ultrasound 
and intracardiac echocardiography services are relatively high cost and 
low frequency services and, therefore, a small proportion of their cost 
is reflected in the payments for the services with which they are used. 
Although the commenter recognized that CMS found increases in reporting 
of these codes and payment for the procedures into which they are 
packaged from CY 2007 to CY 2009, the commenter continued to be 
concerned that payment is not adequate to protect access to these 
services and asked that CMS reinstate separate payment for 
intravascular ultrasound and intracardiac echocardiography services.
    Response: We note that IVUS, ICE, and FFR services are existing, 
established, technologies and that hospitals have provided some of 
these services in the HOPD since the implementation of the OPPS in CY 
2000. IVUS, FFR, and ICE are all dependent services that are always 
provided in association with independent services. Given the sizable 
increase in the number of services furnished and the associated payment 
between CY 2007 and CY 2009, as demonstrated by the analysis we 
presented in the proposed rule and recapped earlier in this section, we 
have seen no evidence from our claims data that beneficiary access to 
care is being harmed by packaging payment for IVUS, ICE, and FFR 
services or that payment is inadequate for hospitals to be able to 
afford to furnish these services with their associated independent 
services. We believe that packaging creates appropriate incentives for 
hospitals and their physician partners to carefully consider the 
technologies that are used in the care of patients in order to ensure 
that technologies are selected for use in each case based on their 
expected benefit to a particular Medicare beneficiary.
    Comment: Some commenters recommended that if the existing policy to 
package payment for nonpass-through implantable biologicals were to 
continue, CMS develop a crosswalk that includes specific procedure 
codes for nonpass-through implantable biologicals so that procedures 
involving those products could be reassigned to new APCs. The 
commenters also recommended that CMS provide an in-depth analysis of 
the packaging methodology to ensure that the costs of nonpass-through 
implantable biologicals are included in the procedural APCs.
    Response: We believe that creating and maintaining a crosswalk of 
nonpass-through implantable biological HCPCS codes and associated 
procedure codes would not be feasible because implantable biologicals 
may be used in a wide variety of surgical procedures. We also do not 
believe that it is necessary to develop such a crosswalk to ensure that 
the costs of nonpass-through implantable biologicals are included in 
the APC payment rates. As we discuss in section II.A.3. of this final 
rule with comment period, hospitals include HCPCS codes and charges for 
packaged services on their claims. Our packaging methodology ensures 
that the estimated costs associated with those packaged services are 
added to the costs of separately payable procedures on the same claims 
in establishing payment rates for the separately payable services.
    Regarding the request for in-depth data analysis, we note that each 
year CMS makes available an extraordinary amount of OPPS data that can 
be used for any data analysis an interested party would care to 
perform. Specifically, we make available a considerable amount of data 
for public analysis each year through the supporting data files that 
are posted on the CMS Web site in association with the display of the 
proposed and final rules. In addition, we make available the public use 
files of claims, including, for CY 2008 and later, supplemental line 
item cost data for every HCPCS code under the OPPS and a detailed 
narrative description of our data process for the annual OPPS/ASC 
proposed and final rules that the public can use to perform any desired 
analyses. Therefore, commenters are able to examine and analyze these 
data to develop specific information to assess the impact and effect of 
packaging for the services of interest to them or to support their 
requests for changes to payments under the OPPS, whether with regard to 
separate payment for a packaged service or other issues. We understand 
that the OPPS is a complex payment system and that it may be difficult 
to determine the quantitative amount of packaged cost included in the 
median cost for every independent service. However, commenters 
routinely provide us with meaningful analyses at a very detailed and 
service-specific level

[[Page 71875]]

based on the claims data we make available. We routinely receive 
complex and detailed public comments including extensive code-specific 
data analysis on packaged and separately paid codes, using the data 
from this and prior proposed and final rules.
    Comment: One commenter objected to CMS' policy of packaging payment 
for tositumomab into HCPCS code G3001 (Administration and supply of 
tositumomab, 450 mg) and requested that CMS create a HCPCS J-code for 
tositumomab, which is currently provided under a radioimmunotherapy 
regiment and billed as part of HCPCS code G3001. The commenter argued 
that because tositumomab is listed in compendia, is approved by the FDA 
as part of the BEXXAR[supreg] regimen, and has its own National Drug 
Code (NDC) number, it should be recognized as a drug and, therefore, be 
paid as other drugs are paid under the OPPS methodology, instead of 
having a payment rate determined by hospital claims data. The commenter 
suggested that a payment rate could be established using the ASP 
methodology.
    Response: As we stated in the CY 2010 OPPS/ASC final rule with 
comment period (75 FR 60517), we have consistently noted that unlabeled 
tositumomab is not approved as either a drug or a radiopharmaceutical, 
but it is a supply that is required as part of the radioimmunotherapy 
treatment regiment (CY 2009 OPPS/ASC final rule with comment period (73 
FR 68658); CY 2008 OPPS/ASC final rule with comment period (72 FR 
66765); CY 2006 OPPS final rule with comment period (70 FR 68654); and 
CY 2004 OPPS final rule with comment period (68 FR 63443)). We do not 
make separate payment for supplies used in services provided under the 
OPPS. Payments for necessary supplies are packaged into payment for the 
separately payable services provided by the hospital. Specifically, 
administration of unlabeled tostitumomab is a complete service that 
qualifies for separate payment under its own clinical APC. This 
complete service is currently described by HCPCS code G3001. Therefore, 
we do not agree with the commenter's recommendation that we assign a 
separate HCPCS code to the supply of unlabeled tositumomab. Rather, we 
will continue to make separate payment for the administration of 
tositumomab while payment for the supply of unlabeled tostitumomab will 
continue to be packaged into the administration payment.
    In addition to our final policies for specific packaged services, 
we will continue to package payment for the services we identified with 
a status indicator of ``N'' in Addendum B of the proposed rule with 
public comment into the payment for the separately paid procedures with 
which they are reported on a claim. We refer readers to section 
V.B.2.d. of this final rule with comment period for further discussion 
of our final policy to package payment for contrast agents and 
diagnostic radiopharmaceuticals. We refer readers to section 
II.A.2.e.(1) of this final rule with comment period for further 
discussion of our final policy to pay for observation services through 
extended assessment and management composite APCs under certain 
circumstances.
4. Calculation of OPPS Scaled Payment Weights
    As we proposed in the CY 2011 OPPS/ASC proposed rule (75 FR 46224 
through 46225), using the APC median costs discussed in sections 
II.A.1. and II.A.2. of this final rule with comment period, we 
calculated the final relative payment weights for each APC for CY 2011 
shown in Addenda A and B to this final rule with comment period. In 
years prior to CY 2007, we standardized all the relative payment 
weights to APC 0601 (Mid Level Clinic Visit) because mid-level clinic 
visits were among the most frequently performed services in the 
hospital outpatient setting. We assigned APC 0601 a relative payment 
weight of 1.00 and divided the median cost for each APC by the median 
cost for APC 0601 to derive the relative payment weight for each APC.
    Beginning with the CY 2007 OPPS (71 FR 67990), we standardized all 
of the relative payment weights to APC 0606 (Level 3 Clinic Visits) 
because we deleted APC 0601 as part of the reconfiguration of the 
clinic visit APCs. We selected APC 0606 as the base because APC 0606 
was the mid-level clinic visit APC (that is, Level 3 of five levels). 
Therefore, in the CY 2011 OPPS/ASC proposed rule (75 FR 46225), for CY 
2011, to maintain consistency in using a median for calculating 
unscaled weights representing the median cost of some of the most 
frequently provided services, we proposed to continue to use the median 
cost of the mid-level clinic visit APC (APC 0606) to calculate unscaled 
weights. Following our standard methodology, but using the proposed CY 
2011 median cost for APC 0606, for CY 2011 we assigned APC 0606 a 
relative payment weight of 1.00 and divided the median cost of each APC 
by the proposed median cost for APC 0606 to derive the proposed 
unscaled relative payment weight for each APC. The choice of the APC on 
which to base the proposed relative weights for all other APCs does not 
affect the payments made under the OPPS because we scale the weights 
for budget neutrality.
    Section 1833(t)(9)(B) of the Act requires that APC reclassification 
and recalibration changes, wage index changes, and other adjustments be 
made in a budget neutral manner. Budget neutrality ensures that the 
estimated aggregate weight under the OPPS for CY 2011 is neither 
greater than nor less than the estimated aggregate weight that would 
have been made without the changes. To comply with this requirement 
concerning the APC changes, we proposed to compare the estimated 
aggregate weight using the CY 2010 scaled relative weights to the 
estimated aggregate weight using the proposed CY 2011 unscaled relative 
weights. For CY 2010, we multiplied the CY 2010 scaled APC relative 
weight applicable to a service paid under the OPPS by the volume of 
that service from CY 2009 claims to calculate the total weight for each 
service. We then added together the total weight for each of these 
services in order to calculate an estimated aggregate weight for the 
year. For CY 2011, we performed the same process using the proposed CY 
2011 unscaled weights rather than scaled weights. We then calculated 
the weight scaler by dividing the CY 2010 estimated aggregate weight by 
the proposed CY 2011 estimated aggregate weight. The service-mix is the 
same in the current and prospective years because we use the same set 
of claims for service volume in calculating the aggregate weight for 
each year. For a detailed discussion of the weight scaler calculation, 
we refer readers to the OPPS claims accounting document available on 
the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/. We 
included payments to CMHCs in our comparison of estimated unscaled 
weight in CY 2011 to estimated total weight in CY 2010 using CY 2009 
claims data, holding all other components of the payment system 
constant to isolate changes in total weight. Based on this comparison, 
we adjusted the unscaled relative weights for purposes of budget 
neutrality. The proposed CY 2011 unscaled relative payment weights were 
adjusted by multiplying them by a proposed weight scaler of 1.3650 to 
ensure budget neutrality of the proposed CY 2011 relative weights.
    Section 1833(t)(14) of the Act provides the payment rates for 
certain ``specified covered outpatient drugs.'' That section states 
that ``Additional expenditures resulting from this paragraph shall not 
be taken into

[[Page 71876]]

account in establishing the conversion factor, weighting and other 
adjustment factors for 2004 and 2005 under paragraph (9) but shall be 
taken into account for subsequent years.'' Therefore, the cost of those 
specified covered outpatient drugs (as discussed in section V.B.3. of 
the proposed rule and this final rule with comment period) was included 
in the proposed budget neutrality calculations for the CY 2011 OPPS.
    We did not receive any public comments on the proposed methodology 
for calculating scaled weights from the median costs for the CY 2011 
OPPS. Therefore, for the reasons set forth in the proposed rule (75 FR 
46224 and 46225), we are finalizing our proposed methodology without 
modification, including updating of the budget neutrality scaler for 
this final rule with comment period as we proposed. Under this 
methodology, the final unscaled payment weights were adjusted by a 
weight scaler of 1.4477 for this final rule with comment period. The 
final scaled relative payment weights listed in Addenda A and B to this 
final rule with comment period incorporate the recalibration 
adjustments discussed in sections II.A.1. and II.A.2. of this final 
rule with comment period.

B. Conversion Factor Update

    Section 1833(t)(3)(C)(ii) of the Act requires us to update the 
conversion factor used to determine payment rates under the OPPS on an 
annual basis by applying the OPD fee schedule increase factor. For CY 
2011, for purposes of section 1833(t)(3)(C)(iv) of the Act, subject to 
sections 1833(t)(17) and (t)(3)(F), the OPD fee schedule increase 
factor is equal to the hospital inpatient market basket percentage 
increase applicable to hospital discharges under section 
1886(b)(3)(B)(iii) of the Act, which we refer to as the hospital market 
basket update, or simply the market basket, in this discussion.
    The proposed hospital market basket increase for FY 2011 published 
in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24062) prior to 
changes required by the Affordable Care Act was 2.4 percent. New 
sections 1833(t)(3)(F)(iii) and 1833(t)(3)(G)(i) of the Act, as added 
by section 3401(i) of the Affordable Care Act and as amended by section 
10319(g) of such Act and further amended by section 1105(e) of such 
Act, require a 0.25 percentage point reduction to the CY 2011 OPD fee 
schedule increase factor, which resulted in a proposed CY 2011 OPPS 
market basket update of 2.15 percent. The applicable percentage 
increase for FY 2011 published in the IPPS final rule on August 16, 
2010, is 2.35 percent (75 FR 50352), which is the 2.6 percent market 
basket update, less the 0.25 percentage point reduction required by the 
Affordable Care Act. We announced the CY 2010 OPPS conversion factor of 
$67.241 in an OPPS/ASC notice (CMS 1504-N), issued in the Federal 
Register on August 3, 2010 (75 FR 45771). Hospitals that fail to meet 
the reporting requirements of the Hospital Outpatient Quality Data 
Reporting Program (HOP QDRP) are subject to a reduction of 2.0 
percentage points from the OPD fee schedule increase factor adjustment 
to the conversion factor. For a complete discussion of the HOP QDRP 
requirements and the payment reduction for hospitals that fail to meet 
those requirements, we refer readers to section XVI. of this final rule 
with comment period.
    To set the OPPS conversion factor for CY 2011, we increased the CY 
2010 conversion factor of $67.241 by 2.35 percent. In accordance with 
section 1833(t)(9)(B) of the Act, we further adjusted the conversion 
factor for CY 2011 to ensure that any revisions we make to the updates 
for a revised wage index and rural adjustment are made on a budget 
neutral basis. We calculated an overall budget neutrality factor of 
1.0009 for wage index changes by comparing total payments from our 
simulation model using the FY 2011 IPPS final wage indices to those 
payments using the current (FY 2010) IPPS wage indices, as adopted on a 
calendar year basis for the OPPS, as indicated in the August 3, 2010 
OPPS/ASC Federal Register notice announcing Affordable Care Act changes 
to the wage indices (CMS-1504-N, 75 FR 45771). For CY 2011, as we 
proposed, we are not making a change to our rural adjustment policy. 
Therefore, the budget neutrality factor for the rural adjustment is 
1.0000. For CY 2011, we are not finalizing a cancer hospital adjustment 
policy, as discussed in section II.G. of this final rule with comment 
period, and, therefore, would not have a budget neutrality adjustment 
for that policy.
    For this final rule with comment period, we estimated that pass-
through spending for both drugs and biologicals and devices for CY 2011 
would equal approximately $57.7 million, which represents 0.15 percent 
of total projected CY 2011 OPPS spending. Therefore, the conversion 
factor was also adjusted by the difference between the 0.14 percent 
estimate of pass-through spending for CY 2010 and the 0.15 percent 
estimate of CY 2011 pass-through spending. Finally, estimated payments 
for outliers remain at 1.0 percent of total OPPS payments for CY 2011.
    The OPD fee schedule increase factor of 2.35 percent for CY 2011 
(that is, the CY 2011 estimate of the hospital market basket increase 
of 2.6 percent minus a 0.25 percentage point adjustment as required by 
the Affordable Care Act), the required wage index budget neutrality 
adjustment of approximately 1.0009, and the adjustment of 0.01 percent 
of projected OPPS spending for the difference in the pass-through 
spending resulted in a conversion factor for CY 2011 of $68.876, which 
reflects the full OPD fee schedule increase, after the adjustment 
required by the Affordable Care Act. To calculate the CY 2011 reduced 
market basket conversion factor for those hospitals that fail to meet 
the requirements of the HOP QDRP for the full CY 2011 payment update, 
we made all other adjustments discussed above, but used a reduced 
market basket increase update factor of 0.35 percent (that is, an 
unadjusted OPD fee schedule increase factor (market basket update) of 
2.6 percent reduced by 0.25 percentage point as required by the 
Affordable Care Act and further reduced by 2.0 percentage points as 
required by section 1833(t)(17)(A)(i) of the Act for failure to comply 
with the OPD quality reporting requirements) . This resulted in a 
reduced conversion factor for CY 2011 of $67.530 for those hospitals 
that fail to meet the HOP QDRP requirements (a difference of -$1.346 in 
the conversion factor relative to those hospitals that met the HOP QDRP 
requirements).
    As we mentioned above, in accordance with section 1833(t)(3)(C)(iv) 
of the Act, each year we update the OPPS conversion factor by an OPD 
fee schedule increase factor. For purposes of section 1833(t)(3)(C)(iv) 
of the Act, subject to sections 1833(t)(17) and 1833(t)(3)(F) of the 
Act, the OPD fee schedule increase factor is equal to the market basket 
percentage increase applicable under section 1886(b)(3)(B)(iii) of the 
Act to hospital discharges occurring during the fiscal year ending in 
such year, reduced by 1 percentage point for such factor for services 
furnished in each of 2000 and 2002.
    For hospitals that do not meet the HOP QDRP reporting requirements 
discussed in section XVI. of this final rule with comment period, the 
update is equal to the OPD fee schedule increase factor less an 
additional 2.0 percentage points. In accordance with these statutory 
provisions, in the CY 2010 OPPS/ASC final rule with comment period (74 
FR 60419), we finalized an OPD fee schedule increase factor equal

[[Page 71877]]

to the IPPS full market basket update of 2.1 percent. Hospitals that 
failed to meet the HOP QDRP reporting requirements were subject to a 
reduced OPD fee schedule increase factor of 0.1 percent.
    We note that sections 1833(t)(3)(F)(ii) and 1833(t)(3)(G)(i) of the 
Act, as added by section 3401(i) of the Affordable Care Act and as 
amended by section 10319(g) and section 1105(e) of such Act, require 
that, after determining the OPD fee schedule increase factor, the 
Secretary shall reduce such factor for CY 2010 by 0.25 percentage 
point. Therefore, the reduction of 0.25 percentage point applied to the 
full IPPS hospital operating market basket increase factor of 2.1 
percent results in a revised OPD fee schedule increase factor of 1.85 
percent. For hospitals that do not meet the HOP QDRP reporting 
requirements, the update is equal to the OPD fee schedule increase 
factor, less the additional 0.25 percentage point required by sections 
1833(t)(3)(F)(ii) and 1833(t)(3)(G)(i) of the Act, minus 2.0 percentage 
points. New section 1833(t)(3)(F) of the Act further states that the 
application of section 1833(t)(3)(F) of the Act may result in the OPD 
fee schedule increase factor under section 1833(t)(3)(C)(iv) of the Act 
being less than zero for a given year. Thus, the CY 2010 OPD fee 
schedule increase factor was 1.85 percent (that is, 2.1 percent minus 
0.25 percentage point) for hospitals that met the HOP QDRP reporting 
requirements and negative 0.15 percent (2.1 percent, less the 0.25 
percentage point, minus the 2.0 percentage points) for hospitals 
failing to meet the HOP QDRP reporting requirements.
    As with the CY 2010 OPD fee schedule increase factor, new sections 
1833(t)(3)(F)(ii) and (t)(3)(G)(i) of the Act require that the CY 2011 
OPD fee schedule increase factor be reduced by 0.25 percentage point, 
subject to the hospital submitting quality information under rules 
established by the Secretary in accordance with section 1833(t)(17) of 
the Act. For hospitals that do not meet the HOP QDRP reporting 
requirements, the update is equal to the OPD fee schedule increase 
factor minus 0.25 percentage point minus 2.0 percentage points. Section 
1833(t)(3)(F) of the Act further states that this amendment may result 
in the applicable percentage increase being less than zero.
    In the FY 2011 IPPS/LTCH final rule (75 FR 50352), consistent with 
current law, based on IHS Global Insight, Inc.'s second quarter 2010 
forecast of the FY 2011 market basket increase, we estimated that the 
FY 2011 IPPS market basket update is 2.6 percent. However, consistent 
with the amendments to sections 1833(t)(3)(F)(ii) and (t)(3)(G)(i) of 
the Act, we are required to reduce the OPD fee schedule increase factor 
by 0.25 percentage point. Therefore, the market basket update to the CY 
2011 OPD fee schedule increase factor is 2.35 percent (that is, the CY 
2011 estimate of the OPD fee schedule increase factor of 2.6 percent 
minus 0.25 percentage point). For hospitals that do not meet the HOP 
QDRP reporting requirements, the update to the OPPS conversion factor 
is 0.35 percent (that is, the adjusted CY 2011 estimate of the market 
basket rate-of increase of 2.35 percent minus 2.0 percentage points).
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46226), we proposed to 
revise Sec.  419.32(b)(1)(iv) of the regulations to reflect 
requirements of the Affordable Care Act for a 0.25 percentage point 
reduction to the OPPS fee schedule increase factor for each of CY 2010 
and CY 2011.
    Comment: One commenter supported the increase in the proposed 
conversion factor, which was updated by the market basket.
    Response: We appreciate the commenter's support.
    After consideration of the public comment we received, we are 
finalizing our proposed changes to Sec.  419.32(b)(1)(iv), without 
modification, to reflect requirements of the Affordable Care Act for a 
0.25 percentage point reduction to the OPPS fee schedule increase 
factor for each of CY 2010 and CY 2011. We are finalizing our CY 2011 
proposal, without modification, to update the OPPS conversion factor by 
the FY 2011 OPD fee schedule increase factor, which is set at the IPPS 
market basket percentage increase of 2.6 percent minus the 0.25 
percentage point reduction required under the Affordable Care Act, 
resulting in a final full conversion factor of $68.876 and in a reduced 
conversion factor of $67.530 for those hospitals that fail to meet the 
HOP QDRP reporting requirements for the full CY 2011 payment update.

C. Wage Index Changes

    Section 1833(t)(2)(D) of the Act requires the Secretary to 
determine a wage adjustment factor to adjust, for geographic wage 
differences, the portion of the OPPS payment rate, which includes the 
copayment standardized amount, that is attributable to labor and labor-
related cost. This adjustment must be made in a budget neutral manner 
and budget neutrality is discussed in section II.B. of this final rule 
with comment period.
    The OPPS labor-related share is 60 percent of the national OPPS 
payment. This labor-related share is based on a regression analysis 
that determined that, for all hospitals, approximately 60 percent of 
the costs of services paid under the OPPS were attributable to wage 
costs. We confirmed that this labor-related share for outpatient 
services is still appropriate during our regression analysis for the 
payment adjustment for rural hospitals in the CY 2006 OPPS final rule 
with comment period (70 FR 68553). Therefore, in the CY 2011 OPPS/ASC 
proposed rule (75 FR 46226), we did not propose to revise this policy 
for the CY 2011 OPPS. We refer readers to section II.H. of this final 
rule with comment period for a description and example of how the wage 
index for a particular hospital is used to determine the payment for 
the hospital.
    As discussed in section II.A.2.c. of this final rule with comment 
period, for estimating national median APC costs, we standardize 60 
percent of estimated claims costs for geographic area wage variation 
using the same FY 2011 pre-reclassified wage index that the IPPS uses 
to standardize costs. This standardization process removes the effects 
of differences in area wage levels from the determination of a national 
unadjusted OPPS payment rate and the copayment amount.
    As published in the original OPPS April 7, 2000 final rule with 
comment period (65 FR 18545), the OPPS has consistently adopted the 
final fiscal year IPPS wage index as the calendar year wage index for 
adjusting the OPPS standard payment amounts for labor market 
differences. Thus, the wage index that applies to a particular acute 
care short-stay hospital under the IPPS would also apply to that 
hospital under the OPPS. As initially explained in the September 8, 
1998 OPPS proposed rule, we believed and continue to believe that using 
the IPPS wage index as the source of an adjustment factor for the OPPS 
is reasonable and logical, given the inseparable, subordinate status of 
the HOPD within the hospital overall. In accordance with section 
1886(d)(3)(E) of the Act, the IPPS wage index is updated annually. 
Therefore, in accordance with our established policy, we proposed to 
use the final FY 2011 version of the IPPS wage index used to pay IPPS 
hospitals to adjust the CY 2011 OPPS payment rates and copayment 
amounts for geographic differences in labor cost for all providers that 
participate in the OPPS, including providers that are not paid under 
the IPPS (referred to in this section as ``non-IPPS'' providers).
    The Affordable Care Act contains a number of provisions affecting 
the FY 2011 IPPS wage index values, including revisions to the 
reclassification wage

[[Page 71878]]

comparability criteria that were finalized in the FY 2009 IPPS final 
rule (73 FR 48568 through 48570), and the application of rural floor 
budget neutrality on a national, rather than State-specific, basis 
through a uniform, national adjustment to the area wage index. These 
specific provisions are discussed in more detail in the supplemental FY 
2011 IPPS/LTCH PPS proposed rule published on June 2, 2010 in the 
Federal Register (75 FR 30920) and in the FY 2011 IPPS/LTCH PPS final 
rule which appears in the August 16, 2010 issue of the Federal Register 
(75 FR 50159). The Affordable Care Act also required CMS to establish 
an adjustment to create a wage index floor of 1.00 for hospitals 
located in States determined to be frontier States (section 10324). We 
discuss this provision and how it applies to hospital outpatient 
departments in more detail below.
    Section 10324 of the Affordable Care Act specifies that, for 
services furnished beginning CY 2011, the wage adjustment factor 
applicable to any hospital outpatient department that is located in a 
frontier State (as defined in section 1886(d)(3)(E)(iii)(II) of the 
Act) may not be less than 1.00. Further, section 10324 states that this 
adjustment to the wage index for these outpatient departments should 
not be made in a budget neutral manner. As such, for the CY 2011 OPPS, 
we proposed to adjust the wage index for all HOPDs, including those 
providers that are not paid under the IPPS, which are identified as 
being located in a frontier State, in the manner specified in the 
Affordable Care Act. Specifically, we proposed to adjust the FY 2011 
IPPS wage index, as adopted on a calendar year basis for the OPPS, for 
all hospitals paid under the OPPS, including non-IPPS hospitals, 
located in a frontier State to 1.00 in instances where the assigned FY 
2011 wage index (that reflects MGCRB reclassifications, application of 
the rural floor and rural floor budget neutrality adjustment) for these 
hospitals is less than 1.00. Similar to our current policy for HOPDs 
that are affiliated with multicampus hospital systems, we fully expect 
that the HOPD would receive a wage index based on the geographic 
location of the specific inpatient hospital with which it is 
associated. Therefore, if the associated hospital is located in a 
frontier State, the wage index adjustment applicable for the hospital 
would also apply for the affiliated HOPD. We refer readers to the FY 
2011 IPPS/LTCH PPS final rule (75 FR 50160) for a detailed discussion 
regarding this provision, including our methodology for identifying 
which areas meet the definition of frontier States as provided for in 
section 1886(d)(3)(E)(iii)(II)) of the Act.
    Comment: Commenters supported CMS' frontier State wage index 
proposal.
    Response: We appreciate the commenters' support.
    After consideration of the comments we received, we are finalizing 
our proposal, without modification, to adjust the FY IPPS 2011 wage 
index, as adopted on a calendar year basis for the OPPS, for all 
hospitals paid under the OPPS, including non-IPPS hospitals, located in 
a frontier State to 1.00 in instances where the assigned final FY 2011 
wage index (that reflects MGCRB reclassifications, application of the 
rural floor and rural floor budget neutrality adjustment) for these 
hospitals is less than 1.00.
    In addition, in the CY 2011 OPPS/ASC proposed rule (75 FR 46227), 
we proposed to revise 42 CFR 419.43(c) of the regulations to 
incorporate the amendments made by section 10324 of the Affordable Care 
Act. Specifically, we proposed to include a provision under a new 
paragraph (c)(2) of Sec.  419.43 to state that, for services furnished 
beginning January 1, 2011, the wage adjustment factor referenced in the 
existing regulations applicable to any HOPD that is located in a 
frontier State, as defined in the statute and regulations, may not be 
less than 1.00. We also proposed to add a new paragraph (c)(3) to Sec.  
419.43 to not consider these additional payments in budget neutrality 
calculations.
    We did not receive any public comments concerning our proposal to 
revise Sec.  419.43(c) of the regulations to incorporate the amendments 
made by section 10324 of the Affordable Care Act. Therefore, we are 
finalizing our proposed revisions to Sec.  419.43(c)(2) and (c)(3) 
without modification.
    In addition to the changes required by the Affordable Care Act, we 
note that the FY 2011 IPPS wage indices continue to reflect a number of 
adjustments implemented over the past few years, including, but not 
limited to, revised Office of Management and Budget (OMB) standards for 
defining geographic statistical areas (Core-Based Statistical Areas or 
CBSAs), reclassification of hospitals to different geographic areas, 
rural floor provisions, an adjustment for out-migration labor patterns, 
an adjustment for occupational mix, and a policy for allocating hourly 
wage data among campuses of multicampus hospital systems that cross 
CBSAs. We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 
50157 through 50180) for a detailed discussion of all changes to the 
final FY 2011 IPPS wage indices, including changes required by the 
Affordable Care Act. In addition, we refer readers to the CY 2005 OPPS 
final rule with comment period (69 FR 65842 through 65844) and 
subsequent OPPS rules for a detailed discussion of the history of these 
wage index adjustments as applied under the OPPS.
    The IPPS wage index that we are adopting in this final rule with 
comment period includes all reclassifications that are approved by the 
Medicare Geographic Classification Review Board (MGCRB) for FY 2011. We 
note that reclassifications under section 508 of Public Law 108-173 and 
certain special exception wage indices that were extended by section 
106(a) of Public Law 109-432 (MIEA--TRHCA) and section 117 (a)(1) of 
Public Law 110-173 (MMSEA) were set to terminate September 30, 2008, 
but were further extended by section 124 of Public Law 110-275 (MIPPA) 
through September 30, 2009, and, most recently, by section 3137, as 
amended by section 10317, of the Affordable Care Act through September 
30, 2010. We did not make any proposals related to these provisions for 
the CY 2010 OPPS wage index because the Affordable Care Act was enacted 
after issuance of the CY 2010 OPPS/ASC proposed and final rules. In 
accordance with section 10317 of the Affordable Care Act, for CY 2010, 
we adopted all section 508 geographic reclassifications through 
September 30, 2010. Similar to our treatment of section 508 
reclassifications extended under Public Law 110-173 (MMSEA) as 
described in the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68586), hospitals with section 508 reclassifications will revert to 
their home area wage index, with out-migration adjustment if 
applicable, or a current MGCRB reclassification, for the last quarter 
of CY 2010 (October 1, 2010 to December 31, 2010). In addition, as we 
did for CY 2009, we will recognize the revised wage index values for 
certain special exception hospitals from January 1, 2010 through 
December 31, 2010, under the OPPS, in order to give these hospitals the 
special exception wage indices under the OPPS for the same time period 
as under the IPPS. We refer readers to the section 508 reclassification 
discussion in the FY 2010 IPPS/LTCH PPS notice issued in the Federal 
Register on June 2, 2010 (75 FR 31118) for a detailed discussion of the 
changes to the wage indices as required by section 10317 of the 
Affordable Care Act. We also discuss the impact of the extension of 
reclassifications under section 508 and

[[Page 71879]]

special exception wage indices in the OPPS/ASC notice (CMS-1504-N) 
published in the Federal Register on August 3, 2010 (75 FR 45771). 
Because the provisions of section 10317 of the Affordable Care Act 
expire in 2010 (September 30, 2010) and are not applicable to FY 2011, 
as we proposed, we are not making any changes related to those 
provisions for the OPPS wage indices for CY 2011.
    For purposes of the OPPS, as we proposed in the CY 2011 OPPS/ASC 
proposed rule (75 FR 46228), we are continuing our policy in CY 2011 to 
allow non-IPPS hospitals paid under the OPPS to qualify for the out-
migration adjustment if they are located in a section 505 out-migration 
county. We note that because non-IPPS hospitals cannot reclassify, they 
are eligible for the out-migration wage adjustment. Table 4J in the FY 
2011 IPPS/LTCH PPS final rule (75 FR 50540) identifies counties 
eligible for the out-migration adjustment and providers receiving the 
adjustment. As we have done in prior years, we are reprinting Table 4J 
as Addendum L to this final rule with comment period with the addition 
of non-IPPS hospitals that will receive the section 505 out-migration 
adjustment under the CY 2011 OPPS.
    As stated earlier in this section, we continue to believe that 
using the IPPS wage index as the source of an adjustment factor for the 
OPPS is reasonable and logical, given the inseparable, subordinate 
status of the HOPD within the hospital overall. Therefore, as we 
proposed, we are using the final FY 2011 IPPS wage indices for 
calculating OPPS payments in CY 2011. With the exception of the out-
migration wage adjustment table (Addendum L to this final rule with 
comment period), which includes non-IPPS hospitals paid under the OPPS, 
we are not reprinting the FY 2011 IPPS final wage indices referenced in 
this discussion of the wage index. We refer readers to the CMS Web site 
for the OPPS at: http://www.cms.gov/HospitalOutpatientPPS/. At this 
link, readers will find a link to the FY 2011 IPPS final wage index 
tables.
    Comment: Several commenters expressed support for the CMS proposal 
to extend the IPPS wage indices to the OPPS in CY 2011, consistent with 
prior year policies under the OPPS.
    Response: We appreciate the commenters' support of our proposed CY 
2011 wage index policies.
    Comment: One commenter recommended that CMS incorporate a different 
labor-related share for APCs with high device or supply costs. The 
commenter suggested, based on its internal data analysis, that a labor-
related share of 20 percent, rather than the current labor-related 
share of 60 percent, would be more appropriate for these APCs.
    Response: We do not believe it is appropriate to vary the 
percentage of the national payment that is wage adjusted for different 
services provided under the OPPS. Such a change could not be considered 
without first assessing its impact on the OPPS labor-related share 
calculation. The OPPS labor-related share of 60 percent was determined 
through regression analyses conducted for the initial OPPS proposed 
rule (63 FR 47581) and confirmed for the CY 2006 OPPS final rule with 
comment period (70 FR 68556). The labor-related share is a provider-
level adjustment based on the relationship between the labor input 
costs and a provider's average OPPS unit cost, holding all other things 
constant. While numerous individual services may have variable labor 
shares, these past analyses identified 60 percent as the appropriate 
labor-related share across all types of outpatient services and are the 
basis for our current policy. The provider-level adjustment is an 
aggregate, not service-specific, adjustment; it addresses payment for 
almost all services paid under the OPPS.
    After consideration of the public comments we received, we are 
finalizing our CY 2011 proposal, without modification, to use the final 
FY 2011 IPPS wage indices to adjust the OPPS standard payment amounts 
for labor market differences.

D. Statewide Average Default CCRs

    In addition to using CCRs to estimate costs from charges on claims 
for ratesetting, CMS uses overall hospital-specific CCRs calculated 
from the hospital's most recent cost report to determine outlier 
payments, payments for pass-through devices, and monthly interim 
transitional corridor payments under the OPPS during the PPS year. 
Medicare contractors cannot calculate a CCR for some hospitals because 
there is no cost report available. For these hospitals, CMS uses the 
statewide average default CCRs to determine the payments mentioned 
above until a hospital's Medicare contractor is able to calculate the 
hospital's actual CCR from its most recently submitted Medicare cost 
report. These hospitals include, but are not limited to, hospitals that 
are new, have not accepted assignment of an existing hospital's 
provider agreement, and have not yet submitted a cost report. CMS also 
uses the statewide average default CCRs to determine payments for 
hospitals that appear to have a biased CCR (that is, the CCR falls 
outside the predetermined ceiling threshold for a valid CCR) or for 
hospitals whose most recent cost report reflects an all-inclusive rate 
status (Medicare Claims Processing Manual (Pub. 100-04), Chapter 4, 
Section 10.11). As we proposed, in this final rule with comment period, 
we are updating the default ratios for CY 2011 using the most recent 
cost report data. We discuss our policy for using default CCRs, 
including setting the ceiling threshold for a valid CCR, in the CY 2009 
OPPS/ASC final rule with comment period (73 FR 68594 through 68599) in 
the context of our adoption of an outlier reconciliation policy for 
cost reports beginning on or after January 1, 2009.
    For CY 2011, as proposed, we are continuing to use our standard 
methodology of calculating the statewide average default CCRs using the 
same hospital overall CCRs that we use to adjust charges to costs on 
claims data for setting the CY 2011 OPPS relative weights. Table 9 
published in the CY 2011 OPPS/ASC proposed rule listed the proposed CY 
2011 default urban and rural CCRs by State and compared them to last 
year's default CCRs. These proposed CCRs represented the ratio of total 
costs to total charges for those cost centers relevant to outpatient 
services from each hospital's most recently submitted cost report, 
weighted by Medicare Part B charges. We also adjusted ratios from 
submitted cost reports to reflect final settled status by applying the 
differential between settled to submitted overall CCR for the cost 
centers relevant to outpatient services from the most recent pair of 
final settled and submitted cost reports. We then weighted each 
hospital's CCR by the volume of separately paid line-items on hospital 
claims corresponding to the year of the majority of cost reports used 
to calculate the overall CCRs. We refer readers to the CY 2008 OPPS/ASC 
final rule with comment period (72 FR 66680 through 66682) and prior 
OPPS rules for a more detailed discussion of our established 
methodology for calculating the statewide average default CCRs, 
including the hospitals used in our calculations and our trimming 
criteria.
    We did not receive any public comments on our CY 2011 proposal. We 
are finalizing our proposal to apply our standard methodology of 
calculating the statewide average default CCRs using the same hospital 
overall CCRs that we used to adjust charges to costs on claims data. We 
used this methodology to calculate the statewide average default CCRs 
listed in Table 15 below.

[[Page 71880]]

    For this CY 2011 OPS/ASC final rule with comment period, 
approximately 47 percent of the submitted cost reports utilized in the 
default ratio calculations represented data for cost reporting periods 
ending in CY 2009 and 52 percent were for cost reporting periods ending 
in CY 2008. For Maryland, we used an overall weighted average CCR for 
all hospitals in the nation as a substitute for Maryland CCRs. Few 
hospitals in Maryland are eligible to receive payment under the OPPS, 
which limits the data available to calculate an accurate and 
representative CCR. In general, observed changes in the statewide 
average default CCRs between CY 2010 and CY 2011 were modest and the 
few significant changes are associated with areas that have a small 
number of hospitals.
    Table 15 below list the finalized statewide average default CCRs 
for OPPS services furnished on or after January 1, 2011.

                                    Table 15--CY 2011 Statewide Average CCRs
----------------------------------------------------------------------------------------------------------------
                                                                                                     Previous
                                                                                   Final CY 2011    default CCR
                              State                                 Urban/Rural     default CCR    (CY 2010 OPPS
                                                                                                    final rule)
----------------------------------------------------------------------------------------------------------------
ALASKA..........................................................           RURAL           0.479           0.499
ALASKA..........................................................           URBAN           0.315           0.328
ALABAMA.........................................................           RURAL           0.212           0.220
ALABAMA.........................................................           URBAN           0.193           0.193
ARKANSAS........................................................           RURAL           0.223           0.251
ARKANSAS........................................................           URBAN           0.282           0.263
ARIZONA.........................................................           RURAL           0.231           0.251
ARIZONA.........................................................           URBAN           0.202           0.217
CALIFORNIA......................................................           RURAL           0.195           0.208
CALIFORNIA......................................................           URBAN           0.205           0.210
COLORADO........................................................           RURAL           0.350           0.345
COLORADO........................................................           URBAN           0.233           0.255
CONNECTICUT.....................................................           RURAL           0.356           0.375
CONNECTICUT.....................................................           URBAN           0.291           0.319
DISTRICT OF COLUMBIA............................................           URBAN           0.313           0.324
DELAWARE........................................................           RURAL           0.279           0.320
DELAWARE........................................................           URBAN           0.362           0.363
FLORIDA.........................................................           RURAL           0.185           0.198
FLORIDA.........................................................           URBAN           0.172           0.184
GEORGIA.........................................................           RURAL           0.246           0.265
GEORGIA.........................................................           URBAN           0.220           0.246
HAWAII..........................................................           RURAL           0.356           0.359
HAWAII..........................................................           URBAN           0.308           0.307
IOWA............................................................           RURAL           0.252           0.332
IOWA............................................................           URBAN           0.288           0.302
IDAHO...........................................................           RURAL           0.419           0.507
IDAHO...........................................................           URBAN           0.384           0.409
ILLINOIS........................................................           RURAL           0.251           0.273
ILLINOIS........................................................           URBAN           0.239           0.253
INDIANA.........................................................           RURAL           0.302           0.299
INDIANA.........................................................           URBAN           0.270           0.296
KANSAS..........................................................           RURAL           0.286           0.291
KANSAS..........................................................           URBAN           0.215           0.226
KENTUCKY........................................................           RURAL           0.220           0.223
KENTUCKY........................................................           URBAN           0.244           0.254
LOUISIANA.......................................................           RURAL           0.256           0.271
LOUISIANA.......................................................           URBAN           0.235           0.259
MARYLAND........................................................           RURAL           0.284           0.294
MARYLAND........................................................           URBAN           0.256           0.267
MASSACHUSETTS...................................................           URBAN           0.314           0.323
MAINE...........................................................           RURAL           0.460           0.433
MAINE...........................................................           URBAN           0.450           0.452
MICHIGAN........................................................           RURAL           0.312           0.318
MICHIGAN........................................................           URBAN           0.320           0.320
MINNESOTA.......................................................           RURAL           0.483           0.502
MINNESOTA.......................................................           URBAN           0.311           0.330
MISSOURI........................................................           RURAL           0.258           0.266
MISSOURI........................................................           URBAN           0.264           0.270
MISSISSIPPI.....................................................           RURAL           0.229           0.244
MISSISSIPPI.....................................................           URBAN           0.182           0.192
MONTANA.........................................................           RURAL           0.444           0.438
MONTANA.........................................................           URBAN           0.399           0.462
NORTH CAROLINA..................................................           RURAL           0.254           0.270
NORTH CAROLINA..................................................           URBAN           0.264           0.285
NORTH DAKOTA....................................................           RURAL           0.351           0.333
NORTH DAKOTA....................................................           URBAN           0.360           0.361
NEBRASKA........................................................           RURAL           0.328           0.340
NEBRASKA........................................................           URBAN           0.259           0.260
NEW HAMPSHIRE...................................................           RURAL           0.323           0.329

[[Page 71881]]

 
NEW HAMPSHIRE...................................................           URBAN           0.290           0.285
NEW JERSEY......................................................           URBAN           0.221           0.235
NEW MEXICO......................................................           RURAL           0.277           0.259
NEW MEXICO......................................................           URBAN           0.307           0.329
NEVADA..........................................................           RURAL           0.269           0.296
NEVADA..........................................................           URBAN           0.178           0.187
NEW YORK........................................................           RURAL           0.415           0.423
NEW YORK........................................................           URBAN           0.375           0.383
OHIO............................................................           RURAL           0.327           0.350
OHIO............................................................           URBAN           0.241           0.250
OKLAHOMA........................................................           RURAL           0.260           0.267
OKLAHOMA........................................................           URBAN           0.208           0.225
OREGON..........................................................           RURAL           0.306           0.303
OREGON..........................................................           URBAN           0.340           0.344
PENNSYLVANIA....................................................           RURAL           0.275           0.280
PENNSYLVANIA....................................................           URBAN           0.210           0.223
PUERTO RICO.....................................................           URBAN           0.505           0.514
RHODE ISLAND....................................................           URBAN           0.284           0.299
SOUTH CAROLINA..................................................           RURAL           0.222           0.232
SOUTH CAROLINA..................................................           URBAN           0.227           0.242
SOUTH DAKOTA....................................................           RURAL           0.316           0.320
SOUTH DAKOTA....................................................           URBAN           0.251           0.261
TENNESSEE.......................................................           RURAL           0.221           0.233
TENNESSEE.......................................................           URBAN           0.204           0.214
TEXAS...........................................................           RURAL           0.245           0.251
TEXAS...........................................................           URBAN           0.216           0.222
UTAH............................................................           RURAL           0.386           0.397
UTAH............................................................           URBAN           0.362           0.400
VIRGINIA........................................................           RURAL           0.241           0.242
VIRGINIA........................................................           URBAN           0.263           0.255
VERMONT.........................................................           RURAL           0.411           0.413
VERMONT.........................................................           URBAN           0.365           0.397
WASHINGTON......................................................           RURAL           0.367           0.365
WASHINGTON......................................................           URBAN           0.327           0.340
WISCONSIN.......................................................           RURAL           0.412           0.384
WISCONSIN.......................................................           URBAN           0.334           0.329
WEST VIRGINIA...................................................           RURAL           0.291           0.283
WEST VIRGINIA...................................................           URBAN           0.337           0.339
WYOMING.........................................................           RURAL           0.393           0.407
WYOMING.........................................................           URBAN           0.296           0.315
----------------------------------------------------------------------------------------------------------------

E. OPPS Payment to Certain Rural and Other Hospitals

1. Hold Harmless Transitional Payment Changes Made by Public Law 110-
275 (MIPPA)
    When the OPPS was implemented, every provider was eligible to 
receive an additional payment adjustment (called either transitional 
corridor payments or transitional outpatient payment (TOPs)) if the 
payments it received for covered OPD services under the OPPS were less 
than the payments it would have received for the same services under 
the prior reasonable cost-based system (referred to as the pre-BBA 
amount). Section 1833(t)(7) of the Act provides that the transitional 
corridor payments are temporary payments for most providers and were 
intended to ease their transition from the prior reasonable cost-based 
payment system to the OPPS system. There are two exceptions to this 
provision, cancer hospitals and children's hospitals, and those 
hospitals receive the transitional corridor payments on a permanent 
basis. Section 1833(t)(7)(D)(i) of the Act originally provided for 
transitional corridor payments to rural hospitals with 100 or fewer 
beds for covered OPD services furnished before January 1, 2004. 
However, section 411 of Public Law 108-173 amended section 
1833(t)(7)(D)(i) of the Act to extend these payments through December 
31, 2005, for rural hospitals with 100 or fewer beds. Section 411 also 
extended the transitional corridor payments to sole community hospitals 
(SCHs) located in rural areas for services furnished during the period 
that began with the provider's first cost reporting period beginning on 
or after January 1, 2004, and ending on December 31, 2005. Accordingly, 
the authority for making transitional corridor payments under section 
1833(t)(7)(D)(i) of the Act, as amended by section 411 of Public Law 
108-173, for rural hospitals having 100 or fewer beds and SCHs located 
in rural areas expired on December 31, 2005.
    Section 5105 of Public Law 109-171 reinstituted the TOPs for 
covered OPD services furnished on or after January 1, 2006, and before 
January 1, 2009, for rural hospitals having 100 or fewer beds that are 
not SCHs. When the OPPS payment was less than the provider's pre-BBA 
amount, the amount of payment was increased by 95 percent of the amount 
of the difference between the two amounts for CY 2006, by 90 percent of 
the amount of that difference for CY 2007, and by 85 percent of the 
amount of that difference for CY 2008.
    For CY 2006, we implemented section 5105 of Public Law 109-171 
through Transmittal 877, issued on February 24, 2006. In the 
Transmittal, we did not

[[Page 71882]]

specifically address whether TOPs apply to essential access community 
hospitals (EACHs), which are considered to be SCHs under section 
1886(d)(5)(D)(iii)(III) of the Act. Accordingly, under the statute, 
EACHs are treated as SCHs. In the CY 2007 OPPS/ASC final rule with 
comment period (71 FR 68010), we stated that EACHs were not eligible 
for TOPs under Public Law 109-171. However, we stated they were 
eligible for the adjustment for rural SCHs. In the CY 2007 OPPS/ASC 
final rule with comment period (71 FR 68010 and 68228), we updated 
Sec.  419.70(d) of our regulations to reflect the requirements of 
Public Law 109-171.
    In the CY 2009 OPPS/ASC proposed rule (73 FR 41461), we stated 
that, effective for services provided on or after January 1, 2009, 
rural hospitals having 100 or fewer beds that are not SCHs would no 
longer be eligible for TOPs, in accordance with section 5105 of Public 
Law 109-171. However, subsequent to issuance of the CY 2009 OPPS/ASC 
proposed rule, section 147 of Public Law 110-275 amended section 
1833(t)(7)(D)(i) of the Act by extending the period of TOPs to rural 
hospitals with 100 beds or fewer for 1 year, for services provided 
before January 1, 2010. Section 147 of Public Law 110-275 also extended 
TOPs to SCHs (including EACHs) with 100 or fewer beds for covered OPD 
services provided on or after January 1, 2009, and before January 1, 
2010. In accordance with section 147 of Public Law 110-275, when the 
OPPS payment is less than the provider's pre-BBA amount, the amount of 
payment is increased by 85 percent of the amount of the difference 
between the two payment amounts for CY 2009.
    For CY 2009, we revised our regulations at Sec. Sec.  419.70(d)(2) 
and (d)(4) and added a new paragraph (d)(5) to incorporate the 
provisions of section 147 of Public Law 110-275. In addition, we made 
other technical changes to Sec.  419.70(d)(2) to more precisely capture 
our existing policy and to correct an inaccurate cross-reference. We 
also made technical corrections to the cross-references in paragraphs 
(e), (g), and (i) of Sec.  419.70.
    For CY 2010, we made a technical correction to the heading of Sec.  
419.70(d)(5) to correctly identify the policy as described in the 
subsequent regulation text. The paragraph heading now indicates that 
the adjustment applies to small SCHs, rather than to rural SCHs.
    In the CY 2010 OPPS/ASC final rule with comment period (74 FR 
60425), we stated that, effective for services provided on or after 
January 1, 2010, rural hospitals and SCHs (including EACHs) having 100 
or fewer beds would no longer be eligible for TOPs, in accordance with 
section 147 of Public Law 110-275. However, subsequent to issuance of 
the CY 2010 OPPS/ASC final rule with comment period, section 3121(a) of 
the Affordable Care Act amended section 1833(t)(7)(D)(i)(III) of the 
Act by extending the period of TOPs to rural hospitals that are not 
SCHs with 100 beds or fewer for 1 year, for services provided before 
January 1, 2011. Section 3121(a) of the Affordable Care Act amended 
section 1833(t)(7)(D)(i)(III) of the Act and extended the period of 
TOPs to SCHs (including EACHs) for 1 year, for services provided before 
January 1, 2011, with section 3121(b) of the Affordable Care Act 
removing the 100-bed limitation applicable to such SCHs for covered OPD 
services furnished on and after January 1, 2010, and before January 1, 
2011. In accordance with section 3121 of the Affordable Care Act, when 
the OPPS payment is less than the provider's pre-BBA amount, the amount 
of payment is increased by 85 percent of the amount of the difference 
between the two payment amounts for CY 2010. Accordingly, in the CY 
2011 OPPS/ASC proposed rule (75 FR 46232), we proposed to update Sec.  
419.70(d) of the regulations to reflect the TOPs extensions and 
amendments described in section 3121 of the Affordable Care Act.
    We did not receive any public comments on our proposed policy for 
updating the language in Sec.  419.70(d) of the regulations. For the 
reasons we specify in the CY 2011 OPPS/ASC proposed rule (75 FR 46231-
46232), we are finalizing our proposed revisions of Sec.  419.70(d) 
without modification. Effective for services provided on or after 
January 1, 2011, rural hospitals having 100 or fewer beds that are not 
SCHs and SCHs (including EACHs) will no longer be eligible for hold 
harmless TOPs, in accordance with section 3121 of the Affordable Care 
Act.
2. Adjustment for Rural SCHs Implemented in CY 2006 Related to Public 
Law 108-173 (MMA)
    In the CY 2006 OPPS final rule with comment period (70 FR 68556), 
we finalized a payment increase for rural SCHs of 7.1 percent for all 
services and procedures paid under the OPPS, excluding drugs, 
biologicals, brachytherapy sources, and devices paid under the pass-
through payment policy in accordance with section 1833(t)(13)(B) of the 
Act, as added by section 411 of Public Law 108-173. Section 411 gave 
the Secretary the authority to make an adjustment to OPPS payments for 
rural hospitals, effective January 1, 2006, if justified by a study of 
the difference in costs by APC between hospitals in rural areas and 
hospitals in urban areas. Our analysis showed a difference in costs for 
rural SCHs. Therefore, for the CY 2006 OPPS, we finalized a payment 
adjustment for rural SCHs of 7.1 percent for all services and 
procedures paid under the OPPS, excluding separately payable drugs and 
biologicals, brachytherapy sources, and devices paid under the pass-
through payment policy, in accordance with section 1833(t)(13)(B) of 
the Act.
    In CY 2007, we became aware that we did not specifically address 
whether the adjustment applies to EACHs, which are considered to be 
SCHs under section 1886(d)(5)(D)(iii)(III) of the Act. Thus, under the 
statute, EACHs are treated as SCHs. Therefore, in the CY 2007 OPPS/ASC 
final rule with comment period (71 FR 68010 and 68227), for purposes of 
receiving this rural adjustment, we revised Sec.  419.43(g) to clarify 
that EACHs are also eligible to receive the rural SCH adjustment, 
assuming these entities otherwise meet the rural adjustment criteria. 
Currently, fewer than 10 hospitals are classified as EACHs and as of CY 
1998, under section 4201(c) of Public Law 105-33, a hospital can no 
longer become newly classified as an EACH.
    This adjustment for rural SCHs is budget neutral and applied before 
calculating outliers and copayment. As stated in the CY 2006 OPPS final 
rule with comment period (70 FR 68560), we would not reestablish the 
adjustment amount on an annual basis, but we may review the adjustment 
in the future and, if appropriate, would revise the adjustment. We 
provided the same 7.1 percent adjustment to rural SCHs, including 
EACHs, again in CY 2008 and CY 2009. Further, in the CY 2009 OPPS/ASC 
final rule with comment period (73 FR 68590), we updated the 
regulations at Sec.  419.43(g)(4) to specify, in general terms, that 
items paid at charges adjusted to costs by application of a hospital-
specific CCR are excluded from the 7.1 percent payment adjustment.
    For the CY 2011 OPPS, we proposed to continue our policy of a 
budget neutral 7.1 percent payment adjustment for rural SCHs, including 
EACHs, for all services and procedures paid under the OPPS, excluding 
separately payable drugs and biologicals, devices paid under the pass-
through payment policy, and items paid at charges reduced to costs (75 
FR 46232). In the CY 2011 OPPS/ASC proposed rule, we indicated that we 
intend to reassess the 7.1 percent adjustment in the near future by

[[Page 71883]]

examining differences between urban and rural hospitals' costs using 
updated claims, cost reports, and provider information.
    Comment: One commenter supported our proposal to continue to apply 
the budget neutral 7.1 percent adjustment to OPPS payment for rural 
sole community hospitals. The commenter also recommended that CMS 
update the analysis in the near future to assess if the 7.1 percent 
payment adjustment remains a valid figure.
    Response: We agree that it is appropriate to continue the 7.1 
percent adjustment for rural SCHs (including EACHs) as we proposed for 
CY 2011. As we indicated above, and in the proposed rule (75 FR 46232), 
we intended to reassess the 7.1 percent rural adjustment in the near 
future by examining differences between urban rural hospitals' costs 
using updated claims, cost reports, and provider information.
    After consideration of the public comments we received, we are 
finalizing our CY 2011 proposal, without modification, to apply the 7.1 
percent payment adjustment to rural SCHs, including EACHs, for all 
services and procedures paid under the OPPS in CY 2011, excluding 
separately payable drugs and biologicals, devices paid under the pass-
through payment policy, and items paid at charges reduced to costs.

F. OPPS Payments to Certain Cancer Hospitals Described by Section 
1886(d)(1)(B)(v) of the Act

1. Background
    Since the inception of the OPPS, which was authorized by the 
Balanced Budget Act of 1997 (BBA), Medicare has paid cancer hospitals 
identified in section 1886(d)(1)(B)(v) of the Act (cancer hospitals) 
under the OPPS for covered outpatient hospital services. There are 11 
cancer hospitals that meet the classification criteria in section 
1886(d)(1)(B)(v) of the Act. These 11 cancer hospitals are exempted 
from payment under the IPPS. With the Medicare, Medicaid and SCHIP 
Balanced Budget Refinement Act of 1999, Congress created section 
1833(t)(7) of the Act, ``Transitional Adjustment to Limit Decline in 
Payment,'' to serve as a permanent payment floor by limiting cancer 
hospitals' potential losses under the OPPS. Through section 
1833(t)(7)(D)(ii) of the Act, a cancer hospital receives the full 
amount of the difference between payments for covered outpatient 
services under the OPPS and a pre-BBA amount. That is, cancer hospitals 
are permanently held harmless to their ``pre-BBA'' amount, and they 
receive TOPs to ensure that they do not receive a payment that is lower 
under the OPPS than the payment they would have received before 
implementation of the OPPS, as set forth in section 1833(t)(7)(F) of 
the Act. The pre-BBA payment amount is an amount equal to the product 
of the reasonable cost of the hospital for such services for the 
portions of the hospital's cost reporting period (or periods) occurring 
in the year and the base payment to cost ratio (base PCR) for the 
hospital. The pre-BBA amount, including the determination of the base 
PCR, are defined at 42 CFR 419.70(f). TOPs are calculated on Worksheet 
E, Part B, of the Hospital and Hospital Health Care Complex Cost Report 
(Form CMS-2552-96) each year. Section 1833(t)(7)(I) of the Act exempts 
TOPs from budget neutrality calculations. Almost all of the 11 cancer 
hospitals receive TOPs each year. The volume weighted average payment 
to cost ratio (PCR) for the cancer hospitals is 0.83, or outpatient 
payment with TOPs to cancer hospitals is 83 percent of reasonable cost.
    Section 3138 of the Affordable Care Act instructs the Secretary to 
conduct a study to determine if, under the OPPS, outpatient costs 
incurred by cancer hospitals described in section 1886(d)(1)(B)(v) of 
the Act with respect to ambulatory classification groups exceed the 
costs incurred by other hospitals furnishing services under this 
subsection (section 1833(t) of the Act) as determined appropriate by 
the Secretary. In addition, section 3138 of the Affordable Care Act 
requires the Secretary to take into consideration the cost of drugs and 
biologicals incurred by such hospitals when studying cancer hospital 
costliness. Further, section 3138 of the Affordable Care Act states 
that if the cancer hospitals' costs are determined to be greater than 
the costs of other hospitals paid under the OPPS, the Secretary shall 
provide an appropriate adjustment to reflect these higher costs. 
Section 3138 of the Affordable Care Act also requires that this 
adjustment be budget neutral, and that the adjustment be effective for 
outpatient services provided at cancer hospitals on or after January 1, 
2011. Cancer hospitals described in section 1886(d)(1)(B)(v) of the Act 
remain eligible for TOPs (which are not budget neutral) and outlier 
payments (which are budget neutral).
2. Study of Cancer Hospitals' Costs Relative to Other Hospitals
    It has been our standard analytical approach to use a combination 
of explanatory and payment regression models to assess the costliness 
of a class of hospitals while controlling for other legitimate 
influences of costliness, such as ability to achieve economies of 
scale, to ensure that costliness is due to the type of hospital and to 
identify appropriate payment adjustments. We used this approach in our 
CY 2006 OPPS final rule with comment period to establish the 7.1 
percent payment adjustment for rural SCHs (70 FR 68556 through 68561). 
In our discussion for the CY 2006 OPPS proposed rule, we stated that a 
simple comparison of unit costs would not be sufficient to assess the 
costliness of a class of hospitals because the costs faced by 
individual hospitals, whether urban or rural, are a function of many 
varying factors, including local labor supply and the complexity and 
volume of services provided (70 FR 42699).
    In constructing our analysis of cancer hospitals' costs relative to 
other hospitals, we considered whether our standard analytical approach 
to use a combination of explanatory and payment regression models would 
lead to valid results for this particular study, or whether we should 
develop a different or modified analytic approach. We note that the 
analyses presented in the CY 2006 OPPS proposed and final rules were 
designed to establish an adjustment for a large class of rural 
hospitals. In contrast, section 3138 of the Affordable Care Act is 
specifically limited to identifying an adjustment for 11 cancer 
hospitals. With such a small sample size (11 out of approximately 4,000 
hospitals paid under the OPPS), we are concerned that the standard 
explanatory and payment regression models used to establish the rural 
hospital adjustment would lead to imprecise estimates of payment 
adjustments for this small group of hospitals. Further, section 3138 of 
the Affordable Care Act specifies explicitly that cost comparisons 
between classes of hospitals must include the cost of drugs and 
biologicals. In our CY 2006 analysis of rural hospitals, we excluded 
the cost of drugs and biologicals in our model because the extreme 
units associated with proper billing for some drugs and biologicals can 
bias the calculation of a service mix index, or volume weighted average 
APC relative weight, for each hospital (70 FR 42698). Therefore, we 
chose not to pursue our standard combination of explanatory and payment 
regression modeling to identify costliness and determine a cancer 
hospital adjustment.
    While we chose not to use our standard models to calculate a 
proposed cancer hospital adjustment, we determined it still would be 
appropriate

[[Page 71884]]

to construct our usual provider-level analytical dataset consisting of 
variables related to assessing costliness, including average cost per 
unit for a hospital and the hospitals average APC relative weight as an 
indicator of the hospitals resource intensity, as measured by the APC 
relative weights. We used these variables to calculate univariate 
statistics that describe the costliness and related aspects of cancer 
hospitals and other hospitals paid under the OPPS. While descriptive 
statistics cannot control for the myriad factors that contribute to 
observed costs, we believe that we can assume that stark differences in 
cost between cancer hospitals and other hospitals paid under the OPPS 
that would be observable by examining descriptive univariate statistics 
would provide some indication of relative costliness. We began our 
analysis of the cancer hospitals as we did for the rural hospitals by 
creating an analytical dataset of hospitals billing under the OPPS for 
CY 2009 (a total of 3,933) that were included in our claims dataset for 
establishing the CY 2011 OPPS proposed APC relative weights (discussed 
in detail in section II.A. of this final rule with comment period). 
This analytical dataset includes the 3,933 OPPS hospitals' total 
estimated cost (including packaged cost), total lines, total discounted 
units as modeled for CY 2011 OPPS payment, and the average weight of 
their separately payable services (total APC weight divided by total 
units) as modeled for CY 2011 OPPS. We create this dataset from the 
hospital-specific service utilization files that we use to model budget 
neutrality and to perform impact analyses after we complete estimating 
a median cost (or equivalent amount depending on unique APC 
methodologies as discussed in section II of this final rule with 
comment period) for each APC. Using the CY 2009 claims that we use to 
model the CY 2011 proposed OPPS, we used the utilization on those 
claims to model APC payment under the CY 2011 proposed payment 
policies, such as proposed payment for drugs and biologicals at ASP+6 
percent and proposed reassignment of some HCPCS codes to different 
APCs. We then summarized this estimated utilization and payment for 
each hospital (``hospital-level''). These files consist of hospital-
level aggregate costs (including the cost of packaged items and 
services), total estimated discounted units under the modeled proposed 
CY 2011 OPPS, total estimated volume of number of occurrences of 
separately payable HCPCS codes under the modeled proposed CY 2011 OPPS, 
and total relative weight of separately payable services under the 
modeled proposed CY 2011 OPPS. The calculation of these summary files 
are discussed in Stage 6 of our claims accounting narrative available 
under supporting documentation for the proposed rule on the CMS Web 
site at: http://www.cms.gov/HospitalOutpatientPPS/HORD/. After 
summarizing modeled payment to the hospital-level, we removed 48 
hospitals in Puerto Rico from our dataset because we do not believe 
that their cost structure reflects the costs of most hospitals paid 
under the OPPS and because they could bias the calculation of hospital-
weighted statistics. We then removed an additional 66 hospitals with a 
cost per unit of more than 3 standard deviations from the geometric 
mean (mean of the natural log) because including outliers in hospital-
weighted descriptive statistics also could bias those statistics. This 
resulted in a dataset with 11 cancer hospitals and 3,808 other 
hospitals.
    We included the following standard hospital-level variables that 
describe hospital costliness in our analysis file: Outpatient cost per 
discounted unit under the modeled CY 2011 OPPS (substituting a cost per 
administration, rather than a cost per unit, for drugs and 
biologicals); each hospital's proposed CY 2011 wage index as a measure 
of relative labor cost; the service mix index, or volume-weighted 
average proposed CY 2011 APC relative weight (including a simulated 
weight for drugs and biologicals created by dividing the CY 2010 April 
ASP-based payment amount at ASP+6 percent appearing in Addendum A and B 
of the proposed rule by the proposed conversion factor of $68.267); 
outpatient volume based on number of occurrences of HCPCS codes in the 
CY 2009 claims data; and number of beds. We used these variables 
because they are key indicators of costliness under the modeled OPPS 
system, and they allow us to assess the relative costliness of classes 
of hospitals under the proposed CY 2011 OPPS. We further discussed 
these variables in our CY 2006 proposed rule analysis (70 FR 42698 
through 42701). A hospital's service mix index is a measure of resource 
intensity of the services provided by the hospital as measured by the 
proposed CY 2011 OPPS relative weights, and standardizing the cost per 
discounted unit by the service mix index creates an adjusted cost per 
unit estimate that reflects the remaining relative costliness of a 
hospital remaining after receiving the estimated payments that we 
proposed to make under the CY 2011 OPPS. In short, if a class of 
hospitals demonstrates higher cost per unit after standardization by 
service mix, it is an early indication that the class of hospitals may 
be significantly more costly in the regression models. We used these 
data to calculate the descriptive univariate statistics for cancer 
hospitals appearing in Table 16 below. We note that because drugs and 
biologicals are such a significant portion of the services that the 
cancer hospitals provide, and because section 3138 of the Affordable 
Care Act explicitly requires us to consider the cost of drugs and 
biologicals, we included the cost of these items in our total cost 
calculation for each hospital, counting each occurrence of a drug in 
the modeled proposed CY 2011 data (based on units in CY 2009 claims 
data). That is, we sought to treat each administration of a drug or 
biological as one unit.
    In reviewing these descriptive statistics, we observe that cancer 
hospitals had a standardized cost per discounted unit of $150.12 
compared to a standardized cost per discounted unit of $94.14 for all 
other hospitals. That is, cancer hospitals' average cost per discounted 
unit remains high even after accounting for payment under the modeled 
proposed CY 2011 payment system, which is not true for all other 
hospitals. Observing such differences in standardized cost per 
discounted unit led us to conclude that cancer hospitals are more 
costly than other hospitals paid under the OPPS, even without the 
inferential statistical models that we typically employ.

        Table 16--Means and Standard Deviations for Key Variables by Cancer and Non-Cancer OPPS Hospitals
----------------------------------------------------------------------------------------------------------------
                                                                  Cancer hospitals        Non-cancer hospitals
                                                             ---------------------------------------------------
                          Variable                                           Standard                  Standard
                                                                  Mean      deviation       Mean      deviation
----------------------------------------------------------------------------------------------------------------
Outpatient Cost per Unit *..................................      $344.20      (64.68)      $264.11     (165.86)

[[Page 71885]]

 
Unit Cost Standardized by Service Mix Wage Indices..........       150.12      (31.64)        94.14      (81.19)
Wage Index..................................................         1.10       (0.13)         0.98       (0.16)
Service Mix Index *.........................................         2.19       (0.26)         3.18       (2.25)
Outpatient Volume...........................................      192,197    (186,063)       34,578     (43,094)
Beds........................................................          173     (162.33)          173     (171.46)
Number of Hospitals.........................................           11  ...........        3,808  ...........
----------------------------------------------------------------------------------------------------------------
* Includes drugs and biologicals based on per administration rather than per unit.

3. Adjustment for Certain Cancer Hospitals
    Having reviewed the cost data from the standard analytic database 
and determined that cancer hospitals are more costly than other 
hospitals within the OPPS system, we decided to examine hospital cost 
report data from Worksheet E, Part B (where TOPs are calculated on the 
Hospital and Hospital Health Care Complex Cost Report each year) in 
order to determine whether our findings were further supported by cost 
report data and to determine an appropriate proposed payment adjustment 
methodology. Analyses on our standard analytic database and descriptive 
statistics presented in Table 16 above, did not consider TOPs in 
assessing costliness of cancer hospitals relative to other hospitals 
furnishing services under section 1833(t) of the Act. This is because 
section 3138 of the Affordable Care Act requires that any cancer 
adjustment be made within the budget neutral system. In making a 
determination about a payment adjustment subject to budget neutrality, 
we believe it is appropriate to assess costliness and payments within 
the budget neutral payment system. We note that TOPs are based on 
reasonable cost and are not part of the budget neutral payment system. 
Further, TOPs have no associated relative weight that could be included 
in an assessment of APC-based payment. TOPs are paid at cost report 
settlement on an aggregate basis, not a per service basis, and we would 
have no way to break these payments down into a relative weight to 
incorporate these retrospective aggregate payments in the form of 
relative weight under the proposed modeled CY 2011 OPPS. The cost 
report data we selected for the analysis were limited to the OPPS-
specific payment and cost data available on Worksheet E, Part B, which 
is also where TOPs are calculated including aggregate OPPS payments, 
including outlier payments and the cost of medical and other health 
services. These aggregate measures of cost and payment also include the 
cost and payment for drugs and biologicals and other adjustments that 
we typically include in our regression modeling, including wage index 
adjustment and rural adjustment, if applicable. While these cost report 
data cannot provide an estimate of cost per unit after controlling for 
other potential factors that could influence cost per unit, we can use 
this aggregate cost and payment data to examine the cancer hospitals' 
OPPS PCR and OPPS PCR with TOPs, and compare these to the OPPS PCR for 
other hospitals.
    PCRs calculated from the most recent cost report data also indicate 
that costs relative to payments at cancer hospitals are higher than 
those at other hospitals paid under the OPPS (that is, cancer hospitals 
have lower PCRs). In order to calculate PCRs for hospitals paid under 
the OPPS (including cancer hospitals), we used the same extract of cost 
report data from the HCRIS, as discussed in section II.A. of this final 
rule with comment period, that we used to calculate the CCRs that we 
used to estimate median costs for the CY 2011 OPPS. Using these cost 
report data, we included data from Worksheet E, Part B for each 
hospital, keeping data from each hospital's most recent cost report, 
whether as submitted or settled. We then limited the dataset to the 
hospitals with CY 2009 claims data that we used to model the CY 2011 
proposed APC relative weights (3,933 hospitals) because we used the 
claims from these hospitals to calculate the estimated costs we used 
for the descriptive statistics in our first analysis and because it is 
appropriate to use the same set of hospitals that we used to calibrate 
the modeled proposed CY 2011 OPPS. The cancer hospitals in this dataset 
largely had cost report data from cost reporting periods ending in FY 
2008 and FY 2009. The cost report data for the other hospitals were 
from cost report periods with fiscal year ends ranging from 2005 to 
2009. We then removed the cost report data for 48 hospitals from Puerto 
Rico from our dataset because we do not believe that their cost 
structure reflects the costs of most hospitals paid under the OPPS and, 
therefore, may bias the results of the study. We also removed 301 
hospitals with cost report data that were not complete (missing OPPS 
payments including outliers, missing aggregate cost data, or both) so 
that all cost reports in the study would have both the payment and cost 
data necessary to calculate a PCR for each hospital, leading to a final 
analytic file of 3,584 hospitals with cost report data. We believe that 
the costs, PPS payments, and TOPs reported on Worksheet E, Part B for 
the hospitals included in our CY 2011 modeling should be sufficiently 
accurate for assessing hospital's relative costliness because all of 
the key elements that we believe to be necessary for the analysis 
(payment, cost, and TOPs) are contained on this worksheet.
    Using this much smaller dataset of cost report data, we estimate 
that, on average, the OPPS payments to the 11 cancer hospitals, not 
including TOPs, are approximately 62 percent of reasonable cost (that 
is, we calculated a PCR of 0.615 for the cancer hospitals), whereas we 
estimate that, on average, the OPPS payments to other hospitals paid 
under the OPPS are approximately 87 percent of reasonable cost 
(resulting in a PCR of 0.868). Individual cancer hospitals' OPPS PCRs 
range from approximately 48 percent to approximately 82 percent. When 
TOPS are included in the calculation of the PCR, cancer hospitals, as a 
group, receive payments that are approximately 83 percent of reasonable 
cost, which is still lower than the average PCR of other OPPS hospitals 
of approximately 87 percent of reasonable cost. Considering these data, 
we find that the cancer hospitals are more costly than other hospitals 
paid under the OPPS. The dataset of hospital cost report data that

[[Page 71886]]

we used to model the proposed adjustment is available under supporting 
documentation for the proposed rule on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/HORD/.)
    Based on our findings that cancer hospitals, as a class, have a 
significantly lower volume weighted average PCR than the volume 
weighted PCR of other hospitals paid under the OPPS and our findings 
above that the cancer hospitals cost per discounted unit standardized 
for service mix remains much higher than the standardized cost per 
discounted unit of all other hospitals, in the CY 2011 OPPS/ASC 
proposed rule (75 FR 46235 to 46237), we proposed an adjustment for 
cancer hospitals to reflect these higher costs, effective January 1, 
2011, as mandated by section 3138 of the Affordable Care Act. For 
purposes of calculating a proposed adjustment, we chose to rely on this 
straightforward assessment of payments and costs from the cost report 
data because of the concerns outlined above with respect to the small 
number of hospitals, and because of the challenges associated with 
accurately including drug and biological costs in our standard 
regression models. We believe that an appropriate adjustment would 
redistribute enough payments from other hospitals paid under the OPPS 
to the cancer hospitals to give cancer hospitals a PCR that is 
comparable to the average PCR for other hospitals paid under the OPPS. 
Therefore, we proposed a hospital-specific payment adjustment 
determined as the percentage of additional payment needed to raise each 
cancer hospital's PCR to the weighted average PCR for all other 
hospitals paid under OPPS (0.868) in the CY 2011 dataset. This would be 
accomplished by adjusting each cancer hospital's OPPS payment by the 
percentage difference between their individual PCR (without TOPs) and 
the weighted average PCR of the other hospitals paid under OPPS.
    We stated in the proposed rule that the proposed methodology would 
result in the proposed percentage payment adjustments for the 11 cancer 
hospitals that appeared in Table 11 of the proposed rule. We proposed 
that this hospital-specific adjustment would be applied to the wage 
adjusted payments for all items, except for items and services paid at 
charges adjusted to cost or devices receiving pass-through status 
defined in 42 CFR 419.66. We proposed that the proposed cancer hospital 
adjustment would not be applied to items and services paid at charges 
adjusted to cost because these items and services are always paid the 
estimated full cost of the item or service. We proposed to amend the 
regulations at Sec.  419.43 to add a new paragraph (i)(2) which would 
establish the amount of the adjustment to cancer hospitals. We also 
proposed that this adjustment would be budget neutral as set forth in 
proposed new Sec.  419.43(i)(3), consistent with section 3138 of the 
Affordable Care Act. We note that outlier payments would be 
appropriately assessed after application of the cancer adjustment and 
that TOPs would continue to apply. The changes made by section 3138 of 
the Affordable Care Act do not affect the existing statutory provisions 
that provide for outlier payment for all hospitals paid under the OPPS, 
including cancer hospitals and TOPs payments for cancer hospitals. 
Further, both outlier payments and TOPs serve as a safety net for 
hospitals, although outliers are budget neutral and TOPs are not, and 
TOPs are limited to certain hospitals. As a means of buffering the 
financial risk associated with a prospective payment system, both 
adjustments (outliers and TOPs) only should be assessed after final 
payments have been made. Because outlier payments are made within the 
budget neutrality, outlier payments should be assessed after all budget 
neutral payments for an individual service have been made, including 
the cancer adjustment. The TOPs payments would be assessed after all 
payments have been made for a cost reporting period. We noted that the 
proposed adjustment for all cancer hospitals would have result in an 
estimated aggregate increase in OPPS payments to cancer hospitals of 
41.2 percent for CY 2011 within the PPS system, based on cost report 
data, and a net increase in total payments, including TOPs payments, of 
5 percent.
    Comment: Many commenters urged CMS to consider TOPs when 
calculating the cancer hospital payment adjustment. The commenters 
stated that the proposed methodology to adjust each cancer hospital's 
OPPS payment by the percentage difference between their individual PCR 
without TOPs and the weighted average PCR of the other hospitals paid 
under OPPS results, largely, in a change in the form of outpatient 
payments to cancer hospitals by shifting payment from hold harmless 
payments under the TOPs provision to APC payments. This substitution of 
TOPs for APC payments, in turn, results in savings to the Medicare 
program which, the commenters asserted, is in violation of the 
statutory requirement that the policy be budget neutral. The commenters 
suggested that because the Congressional Budget Office scoring of 
section 3138 of the Affordable Care Act estimates no federal budgetary 
impact, Congress did not intend for savings under this provision.
    Commenters also suggested that the associated budget neutral 
payment reduction of 0.7 percent is not appropriate or equitable to 
other hospitals paid under the OPPS. The commenters indicated that it 
was not the intent of Congress for the provision to impact the non-
cancer hospitals in a manner that is disproportionate to the benefits 
obtained by the cancer hospitals. Many commenters noted that the 
majority of cancer care provided in the country is provided by the non-
cancer hospitals that would experience a payment reduction under the 
proposal.
    Commenters also expressed concern that the proposed payment 
adjustment increases beneficiary copayments. That is, they believed 
that the proposed cancer hospital adjustment would increase APC 
payments and, because beneficiary copayment is a percentage of the APC 
payment, Medicare beneficiaries seeking services at the 11 designated 
cancer hospitals will experience higher copayments due to the proposed 
methodology. One commenter suggested that the cancer hospitals could 
potentially lose more payment to bad debt under increased copayments 
than benefit from the proposed adjustment. The commenters strongly 
encouraged CMS to implement the adjustment in a way that does not 
increase beneficiary copayments.
    Several commenters indicated that CMS selected an inappropriate 
benchmark against which to compare each cancer hospital's PCR. 
Specifically, the commenters indicated that CMS should have taken into 
account the concentration of outpatient services at the designated 
cancer hospitals as compared to other PPS hospitals and adjust the PCR 
benchmark higher. The commenters argued that other PPS hospitals have 
the ability to improve their Medicare margins through other payment 
systems, but that cancer hospitals receive the majority of their 
Medicare payments through the OPPS. These commenters asserted that 
because concentration of outpatient services was not considered in 
establishing the benchmark, the proposed adjustment was not valid.
    Several commenters addressed CMS' study methodology. One commenter 
suggested that the CMS analysis is inadequate to conclude that costs 
are higher in cancer hospitals and that an adjustment is warranted. 
This commenter noted that the CMS analysis did not control for the many 
factors that

[[Page 71887]]

might explain differences in costliness or assess to what extent cost 
differences could be explained by differences in efficiency. This 
commenter also asserted that the exclusion of TOPs from the comparison 
of costliness distorts the analysis and makes the findings invalid. 
Another commenter suggested that CMS examine the costs of cancer 
patients generally for all hospitals, and compare the costs of these 11 
hospitals to all hospitals providing cancer care to ensure an 
adjustment does not reinforce high-cost characteristics of the 11 
designated cancer hospitals. One commenter requested that CMS confirm 
that it used a regression analysis, similar to that used to determine 
the current adjustment for rural SCHs (discussed in section II.E. of 
this final rule with comment period) and provide detail on coefficients 
and how CMS incorporated drugs into that model. Finally, the commenter 
requested that CMS confirm the bed size estimates in the analytic file 
that CMS made available with the proposed rule. Another commenter 
requested that CMS recalibrate the adjustment annually suggesting that 
the PCR for other hospitals will decline proportionate to the cancer 
hospital increase and that this should be reflected in any adjustment 
for future years.
    Another commenter indicated that additional payments to cancer 
hospitals should be guided by quality of care and, because the 
Affordable Care Act requires the 11 cancer hospitals to begin 
submitting quality data in fiscal year 2014, suggested that additional 
payments to cancer hospitals be delayed until these quality data are 
available to serve as a basis for payment. Another commenter favored 
the adjustment, stating that it offered improved beneficiary access to 
cancer care.
    Response: The many public comments we received have identified a 
broad range of very important issues and concerns associated with the 
proposed cancer hospital adjustment. After consideration of these 
public comments, we have determined that further study and deliberation 
related to these issues is critical. This process, however, will take a 
longer period of time than is permitted in order for us to meet the 
publication deadline of this final rule with comment period. Therefore, 
we are not finalizing an adjustment for certain cancer hospitals 
identified in section 1886(d)(1)(B)(v) of the Act at this time.

G. Hospital Outpatient Outlier Payments

1. Background
    Currently, the OPPS pays outlier payments on a service-by-service 
basis. For CY 2010, the outlier threshold is met when the cost of 
furnishing a service or procedure by a hospital exceeds 1.75 times the 
APC payment amount and exceeds the APC payment rate plus a $2,175 
fixed-dollar threshold. We introduced a fixed-dollar threshold in CY 
2005 in addition to the traditional multiple threshold in order to 
better target outliers to those high cost and complex procedures where 
a very costly service could present a hospital with significant 
financial loss. If the cost of a service meets both of these 
conditions, the multiple threshold and the fixed-dollar threshold, the 
outlier payment is calculated as 50 percent of the amount by which the 
cost of furnishing the service exceeds 1.75 times the APC payment rate. 
Before CY 2009, this outlier payment had historically been considered a 
final payment by longstanding OPPS policy. We implemented a 
reconciliation process similar to the IPPS outlier reconciliation 
process for cost reports with cost reporting periods beginning on or 
after January 1, 2009 (73 FR 68594 through 68599).
    It has been our policy for the past several years to report the 
actual amount of outlier payments as a percent of total spending in the 
claims being used to model the proposed OPPS. Our current estimate of 
total outlier payments as a percent of total CY 2009 OPPS payment, 
using available CY 2009 claims and the revised OPPS expenditure 
estimate for the Trustee's Report for FY 2010, is approximately 1.3 
percent of the total aggregated OPPS payments. Therefore, for CY 2009, 
we estimate that we paid 0.3 percent more than the CY 2009 outlier 
target of 1.0 percent of total aggregated OPPS payments.
    As explained in the CY 2010 OPPS/ASC final rule with comment period 
(74 FR 60426 through 60427), we set our projected target for aggregate 
outlier payments at 1.0 percent of the aggregate total payments under 
the OPPS for CY 2010. The outlier thresholds were set so that estimated 
CY 2010 aggregate outlier payments would equal 1.0 percent of the total 
aggregated payments under the OPPS. Using CY 2009 claims data and CY 
2010 payment rates, we currently estimate that the aggregate outlier 
payments for CY 2010 would be approximately 0.85 percent of the total 
CY 2010 OPPS payments. The difference between 1.0 percent and 0.85 
percent is reflected in the regulatory impact analysis in section XXII. 
of this final rule with comment period. We note that we provide 
estimated CY 2011 outlier payments for hospitals and CMHCs with claims 
included in the claims data that we used to model impacts in the 
Hospital--Specific Impacts--Provider-Specific Data file on the CMS Web 
site at: http://www.cms.hhs.gov/HospitalOutpatientPPS/.
2. Proposed Outlier Calculation
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46237 through 46238), 
we proposed for CY 2011 to continue our policy of estimating outlier 
payments to be 1.0 percent of the estimated aggregate total payments 
under the OPPS for outlier payments. We proposed that a portion of that 
1.0 percent, specifically 0.04 percent, would be allocated to CMHCs for 
PHP outlier payments. This is the amount of estimated outlier payments 
that would result from the proposed CMHC outlier threshold as a 
proportion of total estimated outlier payments. As discussed in section 
X.D. of this final rule with comment period, for CMHCs, as we proposed, 
we are continuing our longstanding policy that if a CMHC's cost for 
partial hospitalization services, paid under either APC 0172 (Level I 
Partial Hospitalization (3 services)) or APC 0173 (Level II Partial 
Hospitalization (4 or more services)), exceeds 3.40 times the payment 
for APC 0173, the outlier payment would be calculated as 50 percent of 
the amount by which the cost exceeds 3.40 times the APC 0173 payment 
rate. For further discussion of CMHC outlier payments, we refer readers 
to section X.D. of this final rule with comment period.
    To ensure that the estimated CY 2011 aggregate outlier payments 
would equal 1.0 percent of estimated aggregate total payments under the 
OPPS, we proposed that the hospital outlier threshold be set so that 
outlier payments would be triggered when the cost of furnishing a 
service or procedure by a hospital exceeds 1.75 times the APC payment 
amount and exceeds the APC payment rate plus a $2,025 fixed-dollar 
threshold. This proposed threshold reflects the methodology discussed 
below in this section, as well as the proposed APC recalibration for CY 
2011.
    We calculated the proposed fixed-dollar threshold for the CY 2010 
OPPS/ASC proposed rule using largely the same methodology as we did in 
CY 2009 (73 FR 41462). For purposes of estimating outlier payments for 
the proposed rule, we used the hospital-specific overall ancillary CCRs 
available

[[Page 71888]]

in the April 2010 update to the Outpatient Provider-Specific File 
(OPSF). The OPSF contains provider-specific data, such as the most 
current CCR, which are maintained by the Medicare contractors and used 
by the OPPS Pricer to pay claims. The claims that we use to model each 
OPPS update lag by 2 years. For the proposed rule, we used CY 2009 
claims to model the CY 2011 OPPS. In order to estimate the proposed CY 
2011 hospital outlier payments for the proposed rule, we inflated the 
charges on the CY 2009 claims using the same inflation factor of 1.1059 
that we used to estimate the IPPS fixed-dollar outlier threshold for 
the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24068). We used an 
inflation factor of 1.0516 to estimate CY 2010 charges from the CY 2009 
charges reported on CY 2009 claims. The methodology for determining 
this charge inflation factor was discussed in the FY 2011 IPPS/LTCH PPS 
proposed rule (75 FR 24068). As we stated in the CY 2005 OPPS final 
rule with comment period (69 FR 65845), we believe that the use of this 
charge inflation factor is appropriate for the OPPS because, with the 
exception of the inpatient routine service cost centers, hospitals use 
the same ancillary and outpatient cost centers to capture costs and 
charges for inpatient and outpatient services.
    As noted in the CY 2007 OPPS/ASC final rule with comment period (71 
FR 68011), we are concerned that we could systematically overestimate 
the OPPS hospital outlier threshold if we did not apply a CCR inflation 
adjustment factor. Therefore, we proposed to apply the same CCR 
inflation adjustment factor that we proposed to apply for the FY 2011 
IPPS outlier calculation to the CCRs used to simulate the proposed CY 
2011 OPPS outlier payments that determine the fixed-dollar threshold. 
Specifically, for CY 2011, we proposed to apply an adjustment of 0.9890 
to the CCRs that were in the April 2010 OPSF to trend them forward from 
CY 2010 to CY 2011. The methodology for calculating this adjustment was 
discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24068 
through 24070).
    Therefore, to model hospital outlier payments for the CY 2011 OPPS/
ASC proposed rule, we applied the overall CCRs from the April 2010 OPSF 
file after adjustment (using the proposed CCR inflation adjustment 
factor of 0.9890 to approximate CY 2011 CCRs) to charges on CY 2009 
claims that were adjusted (using the proposed charge inflation factor 
of 1.1059 to approximate CY 2011 charges). We simulated aggregated CY 
2011 hospital outlier payments using these costs for several different 
fixed-dollar thresholds, holding the 1.75 multiple threshold constant 
and assuming that outlier payments would continue to be made at 50 
percent of the amount by which the cost of furnishing the service would 
exceed 1.75 times the APC payment amount, until the total outlier 
payments equaled 1.0 percent of aggregated estimated total CY 2011 OPPS 
payments. We estimated that a proposed fixed-dollar threshold of 
$2,025, combined with the proposed multiple threshold of 1.75 times the 
APC payment rate, would allocate 1.0 percent of aggregated total OPPS 
payments to outlier payments. We proposed to continue to make an 
outlier payment that equals 50 percent of the amount by which the cost 
of furnishing the service exceeds 1.75 times the APC payment amount 
when both the 1.75 multiple threshold and the proposed fixed-dollar 
threshold of $2,025 are met. For CMHCs, if a CMHC's cost for partial 
hospitalization services, paid under either APC 0172 or APC 0173, 
exceeds 3.40 times the payment for APC 0173, the outlier payment would 
be calculated as 50 percent of the amount by which the cost exceeds 
3.40 times the APC 0173 payment rate.
    Section 1833(t)(17)(A) of the Act, which applies to hospitals as 
defined under section 1886(d)(1)(B) of the Act, requires that hospitals 
that fail to report data required for the quality measures selected by 
the Secretary, in the form and manner required by the Secretary under 
1833(t)(17)(B) of the Act, incur a 2.0 percentage point reduction to 
their OPD fee schedule increase factor, that is, the annual payment 
update factor. The application of a reduced OPD fee schedule increase 
factor results in reduced national unadjusted payment rates that will 
apply to certain outpatient items and services furnished by hospitals 
that are required to report outpatient quality data and that fail to 
meet the HOP QDRP requirements. For hospitals that fail to meet the HOP 
QDRP requirements, we proposed to continue our policy that we 
implemented in CY 2009 that the hospitals' costs would be compared to 
the reduced payments for purposes of outlier eligibility and payment 
calculation. For more information on the HOP QDRP, we refer readers to 
section XVI. of this final rule with comment period.
    Comment: Several commenters supported the proposed fixed-dollar 
threshold for CY 2011 in order to maintain the target outlier spending 
percentage of 1.0 percent of total OPPS payments. One commenter 
supported CMS' proposal to develop the OPPS fixed-dollar outlier 
threshold using the same assumptions and projections that are used in 
the IPPS. One commenter believed that the proposed outlier fixed-dollar 
threshold was inappropriate and should be reduced because the CMS 
projection of estimated outlier spending for CY 2010 was only 0.85 
percent in the CY 2011 OPPS/ASC proposed rule (75 FR 46237). That 
commenter recommended that the threshold be proportionally reduced 
based on the percentage difference between target and actual outlier 
percentage spending. One commenter requested that CMS release the 
``actual'' percent that outlier payments represent of total OPPS 
payments for CY 2007 through CY 2009. One commenter believed that the 
threshold calculation should be based on actual payments rather than 
estimated payments, and requested that CMS provide the actual percents 
of OPPS spending that OPPS outliers represent. One commenter suggested 
that visit intensity data or diagnoses are not the only issues when 
looking at outliers, and that any methodology related to outliers 
should also consider a comprehensive look at resource utilization.
    Response: We appreciate the commenters' support regarding the 
development of the OPPS outlier policy. We agree that the charge and 
CCR inflation factors that apply to inpatient hospitals services are 
equally applicable to services provided under the OPPS. As we discussed 
in our CY 2005 OPPS final rule, we believe that the use of this charge 
inflation factor is appropriate for OPPS because, with the exception of 
the routine service cost centers, hospitals use the same cost centers 
to capture costs and charges across inpatient and outpatient services 
(69 FR 65845). Therefore, as specified below, we are applying the 
charge inflation factors that were used to calculate the outlier fixed-
dollar threshold for the IPPS in the calculation of the fixed-dollar 
threshold for the CY 2011 OPPS. We are not raising the threshold to 
account for the 0.15 percent of OPPS payment that we estimated was not 
paid relative to the target outlier percent of 1 percent for CY 2010 
because we do not adjust the fixed-dollar threshold for prior year 
differences in actual expenditure of outlier payments. We believe that 
our proposed and final methodology uses the best available data we have 
at the time to yield the most accurate prospective fixed-dollar outlier 
threshold for the CY 2011 OPPS. The multiple and fixed-dollar 
thresholds are important parts of a prospective

[[Page 71889]]

payment system and should be based on projected payments using the 
latest available historical data without adjustments for prior year 
outlier payments. In this case, the 0.85 percent is only an estimate 
made from CY 2009 claims for purposes of presenting an impact of the 
change in the outlier threshold in the regulatory impact analysis. 
Although estimated outlier payments for the current PPS year, which 
appear in the impact tables, frequently are below the 1 percent target 
outlier spending percentage, as we discuss below, we more often than 
not pay slightly more than 1 percent of aggregate total OPPS payments 
in outlier payments in a given year. We continue to believe that it is 
appropriate to maintain the target outlier percentage of 1.0 percent of 
estimated aggregate total payment under the OPPS and to have a fixed-
dollar threshold so that OPPS outlier payments are made only when the 
hospital would experience a significant loss for supplying a particular 
service.
    With respect to the commenter that requested that we release the 
``actual'' payment percentages for CY 2007 through CY 2009, we note 
that we have previously provided and continue to provide estimated 
actual percentage spending based on the claims data. In the CY 2009 
OPPS/ASC final rule with comment period (73 FR 68592), using CY 2007 
claims, we found OPPS outlier spending was 0.9 percent of the total 
aggregated OPPS payment for CY 2007. In the CY 2010 OPPS/ASC final rule 
with comment period (74 FR 60426), using CY 2008 claims, we found that 
OPPS outlier spending was 1.2 percent of the total aggregated OPPS 
payments for CY 2008. As discussed earlier in this section, using CY 
2009 claims, we found that OPPS outlier spending was 1.3 percent of the 
total aggregated OPPS payments for CY 2009. We note that actual outlier 
payments can only be determined based on the claims data available and 
setting a prospective fixed-dollar outlier threshold without accounting 
for changes in CCRs and charges would potentially lead to greater 
inaccuracy in establishing the outlier fixed-dollar threshold. OPPS 
outliers account for the financial risk hospitals experience when 
providing an extraordinarily costly and complex service, and account 
for the resource utilization in the methodology by identifying the 
costs associated with providing services on each claim. We note that 
visit intensity data and diagnoses data are not incorporated into the 
calculation of the threshold because these are not components of OPPS 
payments or our longstanding policy for determining outlier eligibility 
and payment amount.
3. Final Outlier Calculation
    For CY 2011, we are applying the overall CCRs from the July 2010 
Outpatient Provider-Specific File with a CCR adjustment factor of 
0.9910 to approximate CY 2011 CCRs to charges on the final CY 2009 
claims that were adjusted to approximate CY 2011 charges (using the 
final 2-year charge inflation factor of 1.0988). These are the same CCR 
adjustment and charge inflation factors that were used to set the IPPS 
fixed-dollar threshold for the FY 2011 IPPS/LTCH PPS final rule (75 FR 
50427 through 50431). We simulated aggregated CY 2011 hospital outlier 
payments using these costs for several different fixed-dollar 
thresholds, holding the 1.75 multiple threshold constant and assuming 
that outlier payment would continue to be made at 50 percent of the 
amount by which the cost of furnishing the service would exceed 1.75 
times the APC payment amount, until the total outlier payments equaled 
1.0 percent of aggregated estimated total CY 2011 OPPS payments. We 
estimate that a fixed-dollar threshold of $2,025, combined with the 
multiple threshold of 1.75 times the APC payment rate, will allocate 
1.0 percent of estimated aggregated total OPPS payments to outlier 
payments.
    In summary, for CY 2011, we will continue to make an outlier 
payment that equals 50 percent of the amount by which the cost of 
furnishing the service exceeds 1.75 times the APC payment amount when 
both the 1.75 multiple threshold and the final fixed-dollar $2,025 
threshold are met. For CMHCs, if a CMHC's cost for partial 
hospitalization services, paid under either APC 0172 or APC 0173, 
exceeds 3.40 times the payment for APC 0173, the outlier payment is 
calculated as 50 percent of the amount by which the cost exceeds 3.40 
times the APC 0173 payment rate. We estimate that this threshold will 
allocate 0.02 percent of outlier payments to CMHCs for PHP outlier 
payments.
4. Outlier Reconciliation
    In the CY 2009 OPPS/ASC final rule with comment period (73 CFR 
68599), we adopted as final policy a process to reconcile hospital or 
CMHC outlier payments at cost report settlement for services furnished 
during cost reporting periods beginning in CY 2009. OPPS outlier 
reconciliation more fully ensures accurate outlier payments for those 
facilities whose CCRs fluctuate significantly relative to the CCRs of 
other facilities, and who receive a significant amount of outlier 
payments (73 FR 68598). As under the IPPS, we do not adjust the fixed-
dollar threshold or the amount of total OPPS payments set aside for 
outlier payments for reconciliation activity because such action would 
be contrary to the prospective nature of the system. Our outlier 
threshold calculation assumes that overall ancillary CCRs accurately 
estimate hospital costs based on the information available to us at the 
time we set the prospective fixed-dollar outlier threshold. For these 
reasons, as we stated in the proposed rule, and have previously 
discussed in the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68596), we are not incorporating any assumptions about the effects of 
reconciliation into our calculation of the OPPS fixed-dollar outlier 
threshold.
    Comment: One commenter asked that CMS report the amount of outlier 
reconciliation activity suggesting that, if the reconciled amounts are 
significant, these amounts should be factored into the annual fixed-
dollar outlier threshold in the future. One commenter supported the 
current criteria for when OPPS outlier payments would go through a 
reconciliation process.
    Response: We appreciate the commenter's support for our policy. As 
we discuss above, we do not take outlier reconciliation amounts into 
account in our projections of future outlier payments. It is difficult 
to predict the specific hospitals that will have CCRs and outlier 
payments that may be reconciled in any given year. We also note that 
reconciliation occurs because hospitals' actual CCRs for the cost 
reporting period are different from the interim CCRs used to calculate 
outlier payment when a bill is processed. Our fixed-dollar threshold 
calculation assumes that CCRs accurately estimate hospital costs based 
on information available to us at the time we set the prospective 
fixed-dollar threshold. Furthermore, we do not believe that estimating 
the fixed-dollar threshold to account for the amount of payment that is 
recovered or removed as a result of outlier reconciliation in any given 
year would necessarily result in a more accurate estimate of outlier 
payments or a more accurate calculation of the fixed-dollar threshold 
for outlier payment for the prospective payment year. In our experience 
modeling the OPPS fixed dollar threshold each year, changing the CCRs 
for a handful for hospitals would not typically result in enough change 
in estimated total outlier payments to change the modeled fixed dollar

[[Page 71890]]

threshold. For these reasons, we will not make any assumptions about 
the amount of anticipated reconciliation of outlier payments on the 
outlier threshold calculation nor will we report the amount of 
reconciliation activity.

H. Calculation of an Adjusted Medicare Payment From the National 
Unadjusted Medicare Payment

    The basic methodology for determining prospective payment rates for 
HOPD services under the OPPS is set forth in existing regulations at 42 
CFR Part 419, subparts C and D. As proposed, for this final rule with 
comment period, the payment rate for most services and procedures for 
which payment is made under the OPPS is the product of the conversion 
factor calculated in accordance with section II.B. of this final rule 
with comment period and the relative weight determined under section 
II.A. of this final rule with comment period. Therefore, as proposed, 
for this final rule with comment period, the national unadjusted 
payment rate for most APCs contained in Addendum A to this final rule 
with comment period and for most HCPCS codes to which separate payment 
under the OPPS has been assigned in Addendum B to this final rule with 
comment period was calculated by multiplying the CY 2011 scaled weight 
for the APC by the CY 2011 conversion factor.
    We note that section 1833(t)(17) of the Act, which applies to 
hospitals as defined under section 1886(d)(1)(B) of the Act, requires 
that hospitals that fail to submit data required to be submitted on 
quality measures selected by the Secretary, in the form and manner and 
at a time specified by the Secretary, incur a 2.0 percentage point 
reduction to their OPD fee schedule increase factor, that is, the 
annual payment update factor. The application of a reduced OPD fee 
schedule increase factor results in reduced national unadjusted payment 
rates that apply to certain outpatient items and services provided by 
hospitals that are required to report outpatient quality data and that 
fail to meet the Hospital Outpatient Quality Data Reporting Program 
(HOP QDRP) requirements. For further discussion of the payment 
reduction for hospitals that fail to meet the requirements of the HOP 
QDRP, we refer readers to section XVI.C. of this final rule with 
comment period.
    We demonstrate in the steps below how to determine the APC payments 
that will be made in a calendar year under the OPPS to a hospital that 
fulfills the HOP QDRP requirements and to a hospital that fails to meet 
the HOP QDRP requirements for a service that has any of the following 
status indicator assignments: ``P,'' ``Q1,'' ``Q2,'' ``Q3,'' ``R,'' 
``S,'' ``T,'' ``U,'' ``V,'' or ``X'' (as defined in Addendum D1 to this 
final rule with comment period), in a circumstance in which the 
multiple procedure discount does not apply, the procedure is not 
bilateral, and conditionally packaged services (status indicator of 
``Q1'' and ``Q2'') qualify for separate payment. We note that, although 
blood and blood products with status indicator ``R'' and brachytherapy 
sources with status indicator ``U'' are not subject to wage adjustment, 
they are subject to reduced payments when a hospital fails to meet the 
HOP QDRP requirements.
    Individual providers interested in calculating the payment amount 
that they would receive for a specific service from the national 
unadjusted payment rates presented in Addenda A and B to this final 
rule with comment period should follow the formulas presented in the 
following steps. For purposes of the payment calculations below, we 
refer to the national unadjusted payment rate for hospitals that meet 
the requirements of the HOP QDRP as the ``full'' national unadjusted 
payment rate. We refer to the national unadjusted payment rate for 
hospitals that fail to meet the requirements of the HOP QDRP as the 
``reduced'' national unadjusted payment rate. The reduced national 
unadjusted payment rate is calculated by multiplying the reporting 
ratio of 0.980 times the ``full'' national unadjusted payment rate. The 
national unadjusted payment rate used in the calculations below is 
either the full national unadjusted payment rate or the reduced 
national unadjusted payment rate, depending on whether the hospital met 
its HOP QDRP requirements in order to receive the full CY 2011 OPPS 
increase factor.
    Step 1. Calculate 60 percent (the labor-related portion) of the 
proposed national unadjusted payment rate. Since the initial 
implementation of the OPPS, we have used 60 percent to represent our 
estimate of that portion of costs attributable, on average, to labor. 
We refer readers to the April 7, 2000 OPPS final rule with comment 
period (65 FR 18496 through 18497) for a detailed discussion of how we 
derived this percentage. We confirmed that this labor-related share for 
hospital outpatient services is still appropriate during our regression 
analysis for the payment adjustment for rural hospitals in the CY 2006 
OPPS final rule with comment period (70 FR 68553).
    The formula below is a mathematical representation of Step 1 and 
identifies the labor-related portion of a specific payment rate for a 
specific service.

X is the labor-related portion of the national unadjusted payment rate.
X = .60 * (national unadjusted payment rate)

    Step 2. Determine the wage index area in which the hospital is 
located and identify the wage index level that applies to the specific 
hospital. The wage index values assigned to each area reflect the 
geographic statistical areas (which are based upon OMB standards) to 
which hospitals are assigned for FY 2011 under the IPPS, 
reclassifications through the MGCRB, section 1886(d)(8)(B) ``Lugar'' 
hospitals, reclassifications under section 1886(d)(8)(E) of the Act, as 
defined in Sec.  412.103 of the regulations, and hospitals designated 
as urban under section 601(g) of Public Law 98-21. We note that the 
reclassifications of hospitals under section 508 of Public Law 108-173, 
as extended by section 3137 of the Affordable Care Act, expired on 
September 30, 2010, and, therefore, are not applicable under the IPPS 
for FY 2011. Therefore, these reclassifications will not apply to the 
CY 2011 OPPS. (For further discussion of the changes to the FY 2011 
IPPS wage indices, as applied to the CY 2011 OPPS, we refer readers to 
section II.C. of this final rule with comment period.) In section II.C. 
of this final rule with comment period, we also discuss our 
implementation of section 10324 of the Affordable Care Act, which 
establishes a wage index floor of 1.00 for frontier States, effective 
for services furnished on and after January 1, 2011.
    Step 3. Adjust the wage index of hospitals located in certain 
qualifying counties that have a relatively high percentage of hospital 
employees who reside in the county, but who work in a different county 
with a higher wage index, in accordance with section 505 of Public Law 
108-173. Addendum L to this final rule with comment period contains the 
qualifying counties and the associated wage index increase developed 
for the FY 2011 IPPS and published as Table 4J in the FY 2011 IPPS/LTCH 
PPS final rule (75 FR 50450 through 50646). This step is to be followed 
only if the hospital is not reclassified or redesignated under section 
1886(d)(8) or section 1886(d)(10) of the Act.
    Step 4. Multiply the applicable wage index determined under Steps 2 
and 3 by the amount determined under Step 1 that represents the labor-
related portion of the national unadjusted payment rate.
    The formula below is a mathematical representation of Step 4 and 
adjusts the

[[Page 71891]]

labor-related portion of the national payment rate for the specific 
service by the wage index.

Xa is the labor-related portion of the national unadjusted payment rate 
(wage adjusted).
Xa = .60 * (national unadjusted payment rate) * applicable wage index.

    Step 5. Calculate 40 percent (the nonlabor-related portion) of the 
national unadjusted payment rate and add that amount to the resulting 
product of Step 4. The result is the wage index adjusted payment rate 
for the relevant wage index area.
    The formula below is a mathematical representation of Step 5 and 
calculates the remaining portion of the national payment rate, the 
amount not attributable to labor, and the adjusted payment for the 
specific service.

Y is the nonlabor-related portion of the national unadjusted payment 
rate.
Y = .40 * (national unadjusted payment rate)
Adjusted Medicare Payment = Y + Xa

    Step 6. If a provider is a SCH, set forth in the regulations at 
Sec.  412.92, or an EACH, which is considered to be a SCH under section 
1886(d)(5)(D)(iii)(III) of the Act, and located in a rural area, as 
defined in Sec.  412.64(b), or is treated as being located in a rural 
area under Sec.  412.103, multiply the wage index adjusted payment rate 
by 1.071 to calculate the total payment.
    The formula below is a mathematical representation of Step 6 and 
applies the rural adjustment for rural SCHs.

Adjusted Medicare Payment (SCH or EACH) = Adjusted Medicare Payment * 
1.071

    We have provided examples below of the calculation of both the full 
and reduced national unadjusted payment rates that will apply to 
certain outpatient items and services performed by hospitals that meet 
and that fail to meet the HOP QDRP requirements, using the steps 
outlined above. For purposes of this example, we use a provider that is 
located in Brooklyn, New York that is assigned to CBSA 35644. This 
provider bills one service that is assigned to APC 0019 (Level I 
Excision/Biopsy). The CY 2011 full national unadjusted payment rate for 
APC 0019 is $350.49. The reduced national unadjusted payment rate for a 
hospital that fails to meet the HOP QDRP requirements is $343.48. This 
reduced rate is calculated by multiplying the reporting ratio of 0.980 
by the full unadjusted payment rate for APC 0019.
    The FY 2011 wage index for a provider located in CBSA 35644 in New 
York is 1.3122. The labor-related portion of the full national 
unadjusted payment is $275.95 (.60 * $350.49 * 1.3122). The labor-
related portion of the reduced national unadjusted payment is $270.43 
(.60 * $343.48 * 1.3122). The nonlabor-related portion of the full 
national unadjusted payment is $140.20 (.40 * $350.49). The nonlabor-
related portion of the reduced national unadjusted payment is $137.39 
(.40 * $343.48). The sum of the labor-related and nonlabor-related 
portions of the full national adjusted payment is $416.15 ($275.95 + 
$140.19). The sum of the reduced national adjusted payment is $407.82 
($270.43 + $137.39).

I. Beneficiary Copayments

1. Background
    Section 1833(t)(3)(B) of the Act requires the Secretary to set 
rules for determining the unadjusted copayment amounts to be paid by 
beneficiaries for covered OPD services. Section 1833(t)(8)(C)(ii) of 
the Act specifies that the Secretary must reduce the national 
unadjusted copayment amount for a covered OPD service (or group of such 
services) furnished in a year in a manner so that the effective 
copayment rate (determined on a national unadjusted basis) for that 
service in the year does not exceed a specified percentage. As 
specified in section 1833(t)(8)(C)(ii)(V) of the Act, for all services 
paid under the OPPS in CY 2010, and in calendar years thereafter, the 
percentage is 40 percent of the APC payment rate.
    Section 1833(t)(3)(B)(ii) of the Act provides that, for a covered 
OPD service (or group of such services) furnished in a year, the 
national unadjusted copayment amount cannot be less than 20 percent of 
the OPD fee schedule amount. Until CY 2011, sections 1834(d)(2)(C)(ii) 
and 1834(d)(3)(C)(ii) of the Act further require that the copayment for 
screening flexible sigmoidoscopies and screening colonoscopies be equal 
to 25 percent of the payment amount. Since the beginning of the OPPS, 
we have applied the 25 percent copayment to screening flexible 
sigmoidoscopies and screening colonoscopies. However, section 4104 of 
the Affordable Care Act eliminated the coinsurance (to which section 
1833(t)(2)(B) refers as the ``copayment'') for preventive services that 
meet certain requirements, including flexible sigmoidoscopies and 
screening colonscopies, and waived the Part B deductible for screening 
colonoscopies that become diagnostic during the procedure. We discuss 
our implementation of this provision in section XII.B. of this final 
rule with comment period.
2. OPPS Copayment Policy
    In the CY 2011 OPPS/ASC proposed rule, for CY 2011, we proposed to 
determine copayment amounts for new and revised APCs using the same 
methodology that we implemented beginning in CY 2004. (We refer readers 
to the November 7, 2003 OPPS final rule with comment period (68 FR 
63458).) In addition, we proposed to use the same standard rounding 
principles that we have historically used in instances where the 
application of our standard copayment methodology would result in a 
copayment amount that is less than 20 percent and cannot be rounded, 
under standard rounding principles, to 20 percent. (We refer readers to 
the CY 2008 OPPS/ASC final rule with comment period (72 FR 66687) in 
which we discuss our rationale for applying these rounding principles.) 
The national unadjusted copayment amounts for services payable under 
the OPPS that will be effective January 1, 2011, are shown in Addenda A 
and B to this final rule with comment period. As discussed in section 
XVI.D. of this final rule with comment period, for CY 2011, the 
Medicare beneficiary's minimum unadjusted copayment and national 
unadjusted copayment for a service to which a reduced national 
unadjusted payment rate applies would equal the product of the 
reporting ratio and the national unadjusted copayment, or the product 
of the reporting ratio and the minimum unadjusted copayment, 
respectively, for the service.
    We did not receive any public comments regarding the proposed 
methodology for calculating copayments for CY 2011. Therefore, for the 
reasons set forth in the proposed rule (74 FR 46240), we are finalizing 
our CY 2011 copayment amounts without modification. We note that we 
received comments on the copayments that would apply to beneficiaries 
who receive services from dedicated cancer hospitals under our proposal 
to provide an adjustment to payments to these hospitals. Those 
copayment-related public comments are discussed in section II.F of this 
final rule with comment period.
3. Calculation of an Adjusted Copayment Amount for an APC Group
    Individuals interested in calculating the national copayment 
liability for a Medicare beneficiary for a given service provided by a 
hospital that met or failed to meet its HOP QDRP requirements should 
follow the formulas presented in the following steps.

[[Page 71892]]

    Step 1. Calculate the beneficiary payment percentage for the APC by 
dividing the APC's national unadjusted copayment by its payment rate. 
For example, using APC 0019, $70.10 is 20 percent of the full national 
unadjusted payment rate of $350.49. For APCs with only a minimum 
unadjusted copayment in Addendum A and B of this final rule with 
comment period, the beneficiary payment percentage is 20 percent.
    The formula below is a mathematical representation of Step 1 and 
calculates national copayment as a percentage of national payment for a 
given service.

B is the beneficiary payment percentage.
B = National unadjusted copayment for APC/national unadjusted payment 
rate for APC

    Step 2. Calculate the appropriate wage-adjusted payment rate for 
the APC for the provider in question, as indicated in Steps 2 through 4 
under section II.H. of this final rule with comment period. Calculate 
the rural adjustment for eligible providers as indicated in Step 6 
under section II.H. of this final rule with comment period.
    Step 3. Multiply the percentage calculated in Step 1 by the payment 
rate calculated in Step 2. The result is the wage-adjusted copayment 
amount for the APC.
    The formula below is a mathematical representation of Step 3 and 
applies the beneficiary percentage to the adjusted payment rate for a 
service calculated under section II.H. of this final rule with comment 
period, with and without the rural adjustment, to calculate the 
adjusted beneficiary copayment for a given service.

Wage-adjusted copayment amount for the APC = Adjusted Medicare Payment 
* B
Wage-adjusted copayment amount for the APC (SCH or EACH) = (Adjusted 
Medicare Payment * 1.071) * B

    Step 4. For a hospital that failed to meet its HOP QDRP 
requirements, multiply the copayment calculated in Step 3 by the 
reporting ratio of 0.980.
    The unadjusted copayments for services payable under the OPPS that 
are effective January 1, 2011, are shown in Addenda A and B to this 
final rule with comment period. We note that the national unadjusted 
payment rates and copayment rates shown in Addenda A and B to this 
final rule with comment period reflect the full market basket 
conversion factor increase, as discussed in section XVI.D. of this 
final rule with comment period.

III. OPPS Ambulatory Payment Classification (APC) Group Policies

A. OPPS Treatment of New HCPCS and CPT Codes

    CPT and Level II HCPCS codes are used to report procedures, 
services, items, and supplies under the hospital OPPS. Specifically, 
CMS recognizes the following codes on OPPS claims: (1) Category I CPT 
codes, which describe medical services and procedures; (2) Category III 
CPT codes, which describe new and emerging technologies, services, and 
procedures; and (3) Level II HCPCS codes, which are used primarily to 
identify products, supplies, temporary procedures, and services not 
described by CPT codes. CPT codes are established by the American 
Medical Association (AMA) and the Level II HCPCS codes are established 
by the CMS HCPCS Workgroup. These codes are updated and changed 
throughout the year. CPT and HCPCS code changes that affect the OPPS 
are published both through the annual rulemaking cycle and through the 
OPPS quarterly update Change Requests (CRs). CMS releases new Level II 
HCPCS codes to the public or recognizes the release of new CPT codes by 
the AMA and makes these codes effective (that is, the codes can be 
reported on Medicare claims) outside of the formal rulemaking process 
via OPPS quarterly update CRs. This quarterly process offers hospitals 
access to codes that may more accurately describe items or services 
furnished and/or provides payment or more accurate payment for these 
items or services in a timelier manner than if CMS waited for the 
annual rulemaking process. We solicit comments on these new codes and 
finalize our proposals related to these codes through our annual 
rulemaking process. In the CY 2011 OPPS/ASC proposed rule (75 FR 46241 
through 46246, we summarized and sought public comments on our process 
for updating codes as well as our proposed treatment of certain codes. 
As we proposed, in Table 17 below, using the April 1, 2010 through 
January 1, 2011 time period, we summarize our process for updating 
codes through our OPPS quarterly update CRs, seeking public comments, 
and finalizing their treatment under the OPPS. We note that because of 
the timing of the publication of the proposed rule, the codes 
implemented through the July 2010 OPPS quarterly update were not 
included in Addendum B but were listed in Table 14 of the proposed rule 
(75 FR 46243), while those codes based upon the April 2010 OPPS 
quarterly update were included in Addendum B.

                           Table 17--Comment Timeframe for New or Revised HCPCS Codes
----------------------------------------------------------------------------------------------------------------
    OPPS quarterly update CR         Type of code       Effective date      Comments sought     When finalized
----------------------------------------------------------------------------------------------------------------
April 1, 2010...................  Level II HCPCS      April 1, 2010.....  CY 2011 OPPS/ASC    CY 2011 OPPS/ASC
                                   Codes.                                  proposed rule.      final rule with
                                                                                               comment period.
July 1, 2010....................  Level II HCPCS      July 1, 2010......  CY 2011 OPPS/ASC    CY 2011 OPPS/ASC
                                   Codes.                                  proposed rule.      final rule with
                                                                                               comment period.
                                  Category I          July 1, 2010......  CY 2011 OPPS/ASC    CY 2011 OPPS/ASC
                                   (certain vaccine                        proposed rule.      final rule with
                                   codes) and III                                              comment period.
                                   CPT codes.
October 1, 2010.................  Level II HCPCS      October 1, 2010...  CY 2011 OPPS/ASC    CY 2012 OPPS/ASC
                                   Codes.                                  final rule with     final rule with
                                                                           comment period.     comment period.
January 1, 2011.................  Level II HCPCS      January 1, 2011...  CY 2011 OPPS/ASC    CY 2012 OPPS/ASC
                                   Codes.                                  final rule with     final rule with
                                                                           comment period.     comment period.
                                  Category I and III  January 1, 2011...  CY 2011 OPPS/ASC    CY 2012 OPPS/ASC
                                   CPT Codes.                              final rule with     final rule with
                                                                           comment period.     comment period.
----------------------------------------------------------------------------------------------------------------


[[Page 71893]]

    This process is discussed in detail below. We have separated our 
discussion into two sections based on whether we proposed to solicit 
public comments in the CY 2011 OPPS/ASC proposed rule or are soliciting 
public comments in this CY 2011 OPPS/ASC final rule with comment 
period. In the CY 2011 OPPS/ASC proposed rule, we noted that we sought 
public comments in the CY 2010 OPPS/ASC final rule with comment period 
on the new CPT and Level II HCPCS codes that were effective January 1, 
2010. We also sought public comments in the CY 2010 OPPS/ASC final rule 
with comment period on the new Level II HCPCS codes effective October 
1, 2009. These new codes with an effective date of October 1, 2009, or 
January 1, 2010, were flagged with comment indicator ``NI'' (New code, 
interim APC assignment; comments will be accepted on the interim APC 
assignment for the new code) in Addendum B to the CY 2010 OPPS/ASC 
final rule with comment period to indicate that we were assigning them 
an interim payment status and an APC and payment rate, if applicable, 
which were subject to public comment following publication of the CY 
2010 OPPS/ASC final rule with comment period. We received public 
comments on the interim APC assignments for CPT codes 63663 (Revision 
including replacement, when performed, of spinal neurostimulator 
electrode percutaneous array(s), including fluoroscopy, when 
performed), 63664 (Revision including replacement, when performed, of 
spinal neurostimulator electrode plate/paddle(s) placed via laminotomy 
or laminectomy, including fluoroscopy, when performed), 75571 (Computed 
tomography, heart, without contrast material, with quantitative 
evaluation of coronary calcium), and 77338 (Multi-leaf collimator (MLC) 
device(s) for intensity modulated radiation therapy (IMRT), design and 
construction per IMRT plan) in the CY 2010 OPPS/ASC final rule with 
comment period. These codes were assigned to comment indicator ``NI'' 
in that final rule with comment period. We note that we also received 
the same comments for these codes from the CY 2011 OPPS/ASC proposed 
rule, and a summary of the comments and our responses with our 
discussion of our final treatment of these CPT codes can be found in 
section III.D. of this final rule with comment period.
1. Treatment of New Level II HCPCS Codes and Category I CPT Vaccine 
Codes and Category III CPT Codes for Which We Solicited Public Comments 
in the CY 2011 Proposed Rule
    As of April 1 and July 1 of CY 2010, we made effective a total of 
22 new Level II HCPCS codes, 4 new Category I CPT vaccine codes, and 11 
new Category III CPT codes that were not addressed in the CY 2010 OPPS/
ASC final rule with comment period that updated the OPPS. Twenty-two 
new Level II HCPCS codes were effective for the April and July 2010 
updates, and of the 22 new HCPCS codes, a total of 14 Level II HCPCS 
codes were newly recognized for separate payment under the OPPS.
    Through the April 2010 OPPS quarterly update CR (Transmittal 1924, 
Change Request 6857, dated February 26, 2010), we allowed separate 
payment for a total of 6 of the 22 Level II HCPCS codes. Specifically, 
as displayed in Table 18 below, these included HCPCS codes C9258 
(Injection, telavancin, 10 mg), C9259 (Injection, pralatrexate, 1 mg), 
C9260 (Injection, ofatumumab, 10 mg), C9261 (Injection, ustekinumab, 1 
mg), C9262 (Fludarabine phosphate, oral, 1 mg), and C9263 (Injection, 
ecallantide, 1 mg).
    In addition to the six HCPCS C-codes, five new HCPCS G-codes were 
made effective on April 1, 2010. We did not recognize the five new 
HCPCS G-codes for separate payment under the OPPS because they were 
either paid under another Medicare payment system or were noncovered 
services under Medicare. Specifically, we assigned HCPCS codes G0432 
(Infectious agent antigen detection by enzyme immunoassay (EIA) 
technique, qualitative or semi-quantitative, multiple-step method, HIV-
1 or HIV-2, screening), G0433 (Infectious agent antigen detection by 
enzyme-linked immunosorbent assay (ELISA) technique, antibody, HIV-1 or 
HIV-2, screening), G0435 (Infectious agent antigen detection by rapid 
antibody test of oral mucosa transudate, HIV-1 or HIV-2, screening), 
and G9143 (Warfarin responsiveness testing by genetic technique using 
any method, any number of specimen(s)), to status indicator ``A'' (Not 
paid under OPPS. Paid by fiscal intermediaries/MACs under a fee 
schedule or payment system other than OPPS) to indicate that these 
services are paid under the Medicare Clinical Laboratory Fee Schedule 
(CLFS). Further, we did not recognize for separate payment HCPCS code 
G9147 (Outpatient Intravenous Insulin Treatment (OIVIT) and assigned it 
to status indicator ``E'' (Not paid by Medicare when submitted on 
outpatient claims (any outpatient bill type)) because this service is 
nationally a noncovered service under Medicare.
    In the CY 2011 OPPS/ASC proposed rule, we solicited public comments 
on the status indicators and APC assignments of the 11 Level II HCPCS 
codes, which were listed in Table 13 of that proposed rule (75 FR 
46242) and now appear in Table 18 of this final rule with comment 
period.
    We did not receive any public comments on the proposed APC 
assignments and status indicators for the 11 Level II HCPCS codes 
included in Table 13 of the proposed rule. However, for CY 2011, the 
HCPCS Workgroup replaced the five of the six HCPCS C-codes with 
permanent HCPCS J-codes. Specifically, HCPCS code C9258 was replaced 
with HCPCS code J3095 (Injection, telavancin, 10 mg); HCPCS code C9259 
with HCPCS code J9307 (Injection, pralatrexate, 1 mg); HCPCS code C9260 
with HCPCS code J9302 (Injection, ofatumumab, 10 mg); HCPCS code C9261 
with HCPCS code J3357 (Injection, ustekinumab, 1 mg); and HCPCS code 
C9263 with HCPCS code J1290 (Injection, ecallantide, 1 mg). We also 
note that HCPCS code C9262 was deleted on June 30, 2010, and replaced 
with HCPCS code Q2025 (Fludarabine phosphate oral, 1 mg) effective July 
1, 2010. Finally, for the CY 2011 update, the HCPCS Workgroup deleted 
HCPCS code Q2025 and replaced it with HCPCS code J8562 (Fludarabine 
phosphate oral, 10 mg) effective January 1, 2011.
    Consistent with our general policy of streamlining coding by using 
permanent HCPCS codes if appropriate rather than HCPCS C-codes for the 
reporting of drugs under the OPPS, we are showing the replacement HCPCS 
J-codes for the same descriptor in Table 18 that replace the HCPCS C-
codes first implemented in April 2010, effective January 1, 2011. With 
the exception of HCPCS code C9262, which was deleted June 30, 2010, all 
five HCPCS C-codes will be deleted on December 31, 2010. Because HCPCS 
codes C9258, C9259, C9260, C9261, and C9263 describe the same drugs and 
the same dosages currently designated by HCPCS codes J3095, J9307, 
J9302, J3357, and J1290, respectively, these drugs will continue their 
pass-through status in CY 2011. Therefore, we are assigning HCPCS codes 
J3095, J9307, J9302, J3357, and J1290 to the same status indicators and 
APCs as their predecessor C-codes, as shown in Table 18.
    We did not receive any public comments on the new Level II HCPCS

[[Page 71894]]

codes that were implemented in April 2010. Therefore, as discussed in 
the CY 2011 OPPS/ASC proposed rule (75 FR 46242), we are adopting as 
final for CY 2011, without modification, our proposal to assign the 
Level II HCPCS codes listed in Table 18 to the specific APCs and status 
indicators set forth in the CY 2011 OPPS/ASC proposed rule. Table 18 
below shows the final APC and status indicator assignments for all 11 
Level II HCPCS codes.

    Table 18--Level II HCPCS Codes With a Change in OPPS Status Indicator or Newly Implemented in April 2010
----------------------------------------------------------------------------------------------------------------
                                                                                  Final CY 2011
      CY 2011  HCPCS Code         CY 2010 HCPCS      CY 2011 Long descriptor          Status       Final CY 2011
                                      Code                                          Indicator           APC
----------------------------------------------------------------------------------------------------------------
J3095..........................           C9258  Injection, telavancin, 10 mg..               G             9258
J9307..........................           C9259  Injection, pralatrexate, 1 mg.               G             9259
J9302..........................           C9260  Injection, ofatumumab, 10 mg..               G             9260
J3357..........................           C9261  Injection, ustekinumab, 1 mg..               G             9261
J8562..........................           C9262  Fludarabine phosphate, oral,                 G             1339
                                                  10 mg.
J1290..........................           C9263  Injection, ecallantide, 1 mg..               G             9263
G0432..........................           G0432  Infectious agent antibody                    A               NA
                                                  detection by enzyme
                                                  immunoassay (EIA) technique,
                                                  qualitative or
                                                  semiquantitative, multiple-
                                                  step method, HIV-1 or HIV-2,
                                                  screening.
G0433..........................           G0433  Infectious agent antibody                    A               NA
                                                  detection by enzyme-linked
                                                  immunosorbent assay (ELISA)
                                                  technique, antibody, HIV-1 or
                                                  HIV-2, screening.
G0435..........................           G0435  Infectious agent detection by                A               NA
                                                  rapid antibody test of oral
                                                  mucosa transudate, HIV-1 or
                                                  HIV-2, screening.
G9143..........................           G9143  Warfarin responsiveness                      A               NA
                                                  testing by genetic technique
                                                  using any method, any number
                                                  of specimen(s).
G9147..........................           G9147  Outpatient Intravenous Insulin               E               NA
                                                  Treatment (OIVIT) either
                                                  pulsatile or continuous, by
                                                  any means, guided by the
                                                  results of measurements for:
                                                  respiratory quotient; and/or,
                                                  urine urea nitrogen (UUN);
                                                  and/or, arterial, venous or
                                                  capillary glucose; and/or
                                                  potassium concentration.
----------------------------------------------------------------------------------------------------------------
* Level II HCPCS code C9262 was deleted June 30, 2010, and replaced with HCPCS code Q2025 effective July 1,
  2010. Level II HCPCS code Q2025 will be deleted on December 31, 2010, and replaced with HCPCS code J8562
  effective January 1, 2011.

    Through the July 2010 OPPS quarterly update CR (Transmittal 1980, 
Change Request 6996, dated June 4, 2010), which included HCPCS codes 
that were made effective July 1, 2010, we allowed separate payment for 
8 of the 22 new Level II HCPCS codes. Specifically, as displayed in 
Table 14 of the proposed rule, we provided separate payment for HCPCS 
codes C9264 (Injection, tocilizumab, 1 mg), C9265 (Injection, 
romidepsin, 1 mg), C9266 (Injection, collagenase clostridium 
histolyticum, 0.1 mg), C9267 (Injection, von Willebrand factor complex 
(human), Wilate, per 100 IU VWF: RCO), C9268 (Capsaicin, patch, 10cm2), 
C9367 (Skin substitute, Endoform Dermal Template, per square 
centimeter), Q2025 (Fludarabine phosphate oral, 10mg), and C9800 
(Dermal injection procedure(s) for facial lipodystrophy syndrome (LDS) 
and provision of Radiesse or Sculptra dermal filler, including all 
items and supplies).
    We note that HCPCS code C9262 was made effective April 1, 2010, and 
deleted June 30, 2010, when it was replaced with HCPCS code Q2025. As 
discussed in section V.A.3. of the CY 2011 OPPS/ASC proposed rule, 
pass-through status began for this drug on April 1, 2010. Because HCPCS 
code Q2025 describes the same drug as HCPCS code C9262, we are 
continuing its pass-through status and assigning the HCPCS Q-code to 
the same APC and status indicator as its predecessor HCPCS C-code, as 
shown in Table 19. Specifically, HCPCS code Q2025 is assigned to APC 
9262 with a status indicator ``G.''
    Of the 12 HCPCS codes that were made effective July 1, 2010, we did 
not recognize 4 HCPCS codes for separate payment. Specifically, we did 
not recognize HCPCS codes G0428 (Collagen Meniscus Implant procedure 
for filling meniscal defects (e.g., CMI, collagen scaffold, Menaflex)), 
G0429 (Dermal filler injection(s) for the treatment of facial 
lipodystrophy syndrome (LDS) (e.g., as a result of highly active 
antiretroviral therapy), Q2026 (Injection, Radiesse, 0.1 ml), and Q2027 
(Injection, Sculptra, 0.1 ml). Under the hospital OPPS, we have 
assigned HCPCS code G0428 to status indicator ``E'' (Not paid by 
Medicare when submitted on outpatient claims (any outpatient bill 
type)) because this service is nationally noncovered by Medicare. 
Further, because HCPCS code C9800 describes both the injection 
procedure and the dermal filler supplies, we have assigned HCPCS codes 
G0429, Q2026, and Q2027 to status indicator ``B'' to indicate that 
these HCPCS codes are not recognized by OPPS when submitted on an 
outpatient hospital Part B bill type 12x and 13x. Specifically, 
hospitals must report HCPCS code C9800 to report the dermal filler 
supplies and the dermal filler injection procedure. Under the hospital 
OPPS, we have assigned HCPCS code C9800 to APC 0135 with a status 
indicator ``T.''
    Comment: One commenter stated that the proposed payment rate for 
HCPCS code C9800 does not cover the cost of Sculptra. The commenter 
requested that CMS reevaluate the proposed payment rate for HCPCS code 
C9800 to ensure that it covers a hospital's acquisition cost and that 
Medicare provide access to this nationally covered therapy. The 
commenter provided no pricing information for Sculptra or other 
supplies used in this procedure.
    Response: The payment rate for HCPCS code C9800 for CY 2011 
includes both the administration of the dermal fillers as well as the 
dermal filler supplies. We further stated in the CY 2011 OPPS/ASC 
proposed rule (75 FR 46242) that because the payment for HCPCS code 
C9800 includes both the injection procedure and the dermal filler 
supplies, we have assigned HCPCS codes G0429, Q2026, and Q2027 to 
indicator ``B'' to indicate that these HCPCS codes are not recognized 
by OPPS when submitted on a hospital outpatient Part B bill types 12x 
and 13x.

[[Page 71895]]

Specifically, hospital outpatient facilities must use HCPCS code C9800 
to report dermal filler supplies and the dermal filler injection 
procedure. Although there are two HCPCS codes that describe dermal 
filler supplies, specifically, HCPCS codes Q2026 for Radiesse and Q2027 
for Sculptra, CMS has not received ASP pricing for these two products. 
Under the OPPS, there is no provision to contractor-price drugs and 
biologicals, and without ASP information, we could not recognize the Q-
codes for separate payment. We will reevaluate the status indicator 
assignments for the HCPCS codes that describe dermal injection 
procedure(s) for facial lipodystrophy syndrome (LDS) once we receive 
ASP information for the dermal filler supplies. That is, we will 
reevaluate the APC and status indicator assignments for HCPCS codes 
C9800, G0429, Q2026, and Q20207.
    Also, it should be noted that with all new codes for which we lack 
pricing information, our policy has been to assign the service to an 
existing APC based on input from a variety of sources, including, but 
not limited to, review of the clinical similarity of the service to 
existing procedures; input from CMS medical advisors; information from 
interested specialty societies; and review of all other information 
available to us. The OPPS is a prospective payment system that provides 
payment for groups of services that share clinical and resource use 
characteristics. Based on our review, we believe that the service 
described by HCPCS code C9800 shares similar resource and clinical 
characteristics to the procedures included in APC 0135 (Level III Skin 
Repair). Although we currently do not have ASP information for the 
dermal filler supplies, we believe that the service is appropriately 
placed in APC 0135 based on the latest available information that we 
have. We believe that the service described by HCPCS code C9800 is 
analogous to those services currently assigned to APC 0135 because 
HCPCS code C9800 and the procedures listed in this APC relate to 
procedures involving the skin, and HCPCS code C8900 and other 
procedures in this APC involve injection(s) into the dermal layers.
    Therefore, after consideration of the public comment we received, 
we are adopting as final, without modification, our proposal to 
continue to assign HCPCS code C9800 to APC 0135, which has a final CY 
2011 APC median cost of approximately $316.
    We did not receive any public comments on the other proposed APC 
assignments and status indicators for the other 11 Level II HCPCS codes 
listed in Table 14 of the CY 2011 OPPS/ASC proposed rule. However, for 
CY 2011, the HCPCS Workgroup replaced the six HCPCS C-codes with 
permanent HCPCS J-codes. Specifically, HCPCS code C9264 was replaced 
with HCPCS code J3262 (Injection, tocilizumab, 1 mg); HCPCS code C9265 
was replaced with HCPCS code J9315 (Injection, romidepsin, 1 mg); HCPCS 
code C9266 was replaced with HCPCS code J0775 (Injection, collagenase 
clostridium histolyticum, 0.01 mg); HCPCS code C9267 was replaced with 
HCPCS code J7184 (Injection, von Willebrand factor complex (human), 
Wilate, per 100 IU VWF: RCO); HCPCS code C9268 was replaced with J7335 
(Capsaicin 8% patch, per 10 square centimeters); and HCPCS code Q2025 
(previously described as HCPCS code C9262) was replaced with HCPCS code 
J8562 (Fludarabine phosphate oral, 10 mg).
    Consistent with our general policy of using permanent HCPCS codes 
if appropriate rather than HCPCS C-codes for the reporting of drugs 
under the OPPS in order to streamline coding, we are showing the 
replacement HCPCS J-codes in Table 19 that will replace the HCPCS C-
codes, effective January 1, 2011. Because HCPCS codes C9264, C9265, 
C9267, and C9268 describe the same drugs and the same dosages currently 
designated by HCPCS codes J3262, J9315, J7184, and J7335, respectively, 
these drugs will continue their pass-through status in CY 2011. 
Therefore, we are assigning HCPCS codes J3262, J9315, J7184, and J7335 
to the same status indicators and APCs as their predecessor C-codes, as 
shown in Table 19. We note that replacement codes for HCPCS codes C9266 
and Q2025 do not describe the same dosage descriptors, and 
consequently, the replacement HCPCS codes will be given new APCs. 
Specifically, HCPCS code C9266 describes a dosage descriptor of 0.1 mg, 
however, its replacement HCPCS code J0775 describes a dosage descriptor 
of 0.01 mg. Similarly, HCPCS code Q2025 describes a dosage descriptor 
of 1 mg; however, its replacement HCPCS code J8562 describes a dosage 
descriptor of 10 mg. For CY 2011, HCPCS codes J0775 and J8562 are 
assigned to APC 1340 and APC 1339, respectively. Because their 
predecessor codes were assigned to pass-through status, both HCPCS 
codes J0775 and J8562 continue to be assigned to status indicator ``G'' 
for CY 2011. We note that we generally assign only one APC to those 
HCPCS codes that describe separately payable drugs, and maintain that 
same APC when there is no change to the dosage descriptor of a HCPCS 
drug code. Alternatively, when there is a change to the dosage 
descriptor, we will reassign the separately payable HCPCS drug code to 
a new APC to maintain data consistency for future rulemaking.
    After consideration of the public comment that we received, we are 
adopting as final, without modification, our proposal to assign the 
Level II HCPCS codes listed in Table 19 to the APCs and status 
indicators as proposed for CY 2011. Table 19 below includes a complete 
list of the HCPCS codes that were made effective July 1, 2010, with 
their status indicators and APC assignment for CY 2011.

                           Table 19--New Level II HCPCS Codes Implemented in July 2010
----------------------------------------------------------------------------------------------------------------
                                                                                  Final CY 2011
       CY 2011 HCPCS Code         CY 2010 HCPCS      CY 2011 Long descriptor          status      Final  CY 2011
                                      Code                                          indicator           APC
----------------------------------------------------------------------------------------------------------------
J3262..........................           C9264  Injection, tocilizumab, 1 mg..               G             9264
J9315..........................           C9265  Injection, romidepsin, 1 mg...               G             9265
J0775..........................           C9266  Injection, collagenase                       G             1340
                                                  clostridium histolyticum,
                                                  0.01 mg.
J7184..........................           C9267  Injection, von Willebrand                    G             9267
                                                  factor complex (human),
                                                  Wilate, per 100 IU VWF: RCO.
J7335..........................           C9268  Capsaicin 8% patch, per 10                   G             9268
                                                  square centimeters.
C9367..........................           C9367  Skin substitute, Endoform                    G             9367
                                                  Dermal Template, per square
                                                  centimeter.
C9800..........................           C9800  Dermal injection procedure(s)                T             0135
                                                  for facial lipodystrophy
                                                  syndrome (LDS) and provision
                                                  of Radiesse or Sculptra
                                                  dermal filler, including all
                                                  items and supplies.

[[Page 71896]]

 
G0428..........................           G0428  Collagen meniscus implant                    E               NA
                                                  procedure for filling
                                                  meniscal defects (e.g., CMI,
                                                  collagen scaffold, Menaflex).
G0429..........................           G0429  Dermal filler injection(s) for               B               NA
                                                  the treatment of facial
                                                  lipodystrophy syndrome (LDS)
                                                  (e.g., as a result of highly
                                                  active antiretroviral
                                                  therapy).
J8562..........................           Q2025  Fludarabine phosphate oral, 10               G             1339
                                                  mg.
Q2026..........................           Q2026  Injection, Radiesse, 0.1 ml...               B               NA
Q2027..........................           Q2027  Injection, Sculptra, 0.1 ml...               B               NA
----------------------------------------------------------------------------------------------------------------

    For CY 2011, we proposed to continue our established policy of 
recognizing Category I CPT vaccine codes for which FDA approval is 
imminent and Category III CPT codes that the AMA releases in January of 
each year for implementation in July through the OPPS quarterly update 
process. Under the OPPS, Category I vaccine codes and Category III CPT 
codes that are released on the AMA Web site in January are made 
effective in July of the same year through the July quarterly update 
CR, consistent with the AMA's implementation date for the codes. 
Through the July 2010 OPPS quarterly update CR, we allowed separate 
payment for 10 of the 11 new Category III CPT codes effective July 1, 
2010. Specifically, as displayed in Table 15 of the proposed rule, we 
allow separate payment for CPT codes 0223T (Acoustic cardiography, 
including automated analysis of combined acoustic and electrical 
intervals; single, with interpretation and report), 0224T (Multiple, 
including serial trended analysis and limited reprogramming of device 
parameter--AV or VV delays only, with interpretation and report), 0225T 
(Multiple, including serial trended analysis and limited reprogramming 
of device parameter--AV and VV delays, with interpretation and report), 
0226T (Anoscopy, high resolution (HRA) (with magnification and chemical 
agent enhancement); diagnostic, including collection of specimen(s) by 
brushing or washing when performed), 0227T (Anoscopy, high resolution 
(HRA) (with magnification and chemical agent enhancement); with 
biopsy(ies)), 0228T (Injection(s), anesthetic agent and/or steroid, 
transforaminal epidural, with ultrasound guidance, cervical or 
thoracic; single level), 0229T (Injection(s), anesthetic agent and/or 
steroid, transforaminal epidural, with ultrasound guidance, cervical or 
thoracic; each additional level (List separately in addition to code 
for primary procedure)), 0230T (Injection(s), anesthetic agent and/or 
steroid, transforaminal epidural, with ultrasound guidance, lumbar or 
sacral; single level), 0231T (Injection(s), anesthetic agent and/or 
steroid, transforaminal epidural, with ultrasound guidance, lumbar or 
sacral; each additional level (List separately in addition to code for 
primary procedure)), and 0232T (Injection(s), platelet rich plasma, any 
tissue, including image guidance, harvesting and preparation when 
performed). We note that CMS has issued a national coverage 
determination (NCD) of noncoverage specifically for chronic, non-
healing cutaneous wounds and acute surgical wounds when the autologous 
platelet rich plasma (PRP) is applied directly to the closed incision 
or for dehiscent wounds. Category III CPT code 0232T has been assigned 
to APC 0340 to provide a payment amount when payment is appropriate, 
both under the NCD provisions and any local coverage determinations. 
Under the hospital OPPS, Category III CPT code 0233T (Skin advanced 
glycation endproducts (AGE) measurement by multi-wavelength fluorescent 
spectroscopy) is not recognized under the hospital OPPS. However, the 
service is paid under the MPFS.
    Further, CMS does not recognize the four new H1N1 Category I CPT 
vaccine codes or the administration code that are effective on July 1, 
2010, for separate payment under the OPPS because we already recognize 
an existing HCPCS G-code for reporting the H1N1 vaccine, specifically 
HCPCS code G9142 (Influenza a (h1n1) vaccine, any route of 
administration) and an existing HCPCS G-code G9141 ((Influenza a (h1n1) 
immunization administration (includes the physician counseling the 
patient/family)) for reporting the administration of that vaccine, 
which was effective September 1, 2009. We have assigned HCPCS code 
G9142 to status indicator ``E'' under the OPPS because the vaccine is 
expected to be free. Consequently, Category I CPT vaccine codes 90470 
(H1N1 immunization administration (intramuscular, intranasal), 
including counseling when performed), 90664 (Influenza virus vaccine, 
pandemic formulation, live, for intranasal use), 90666 (Influenza virus 
vaccine, pandemic formulation, split virus, preservative free, for 
intramuscular use), 90667 (Influenza virus vaccine, pandemic 
formulation, split virus, adjuvanted, for intramuscular use), and 90668 
(Influenza virus vaccine, pandemic formulation, split virus, for 
intramuscular use), are assigned to status indicator ``E'' (Not paid 
under OPPS or any other Medicare payment system). We note that CPT code 
90470 was effective September 28, 2009, when it was released by the AMA 
on its Web site.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46243 through 46245), 
we solicited public comments on the proposed status indicators and the 
APC assignments for the new Category I and III CPT codes. We received 
public comments on our payment proposal for CPT code 0232T, and our 
coding proposal not to recognize the H1N1 CPT codes 90470, 90664, 
90666, 90667, and 90668.
    Comment: One commenter requested that CMS reevaluate the APC 
assignment for CPT code 0232T, which is assigned to APC 0340 (Minor 
Ancillary Procedures) with a proposed payment rate of $47.10 for CY 
2011, based on additional cost data that may be provided to CMS.
    Response: As part of our review for new CPT codes available mid-
year, we examine the APC assignments for all items and services under 
the OPPS for appropriate placements in the context of our proposed 
policies for the update year. This review involves careful analysis of 
data we have available to us, such as the cost of comparable items or 
services, as well as input from our medical advisors, the APC Panel, 
and recommendations from the public. Based on our analysis of the 
service associated with Category III CPT code 0232T, we believe that 
APC 0340 is the

[[Page 71897]]

most appropriate assignment based on its clinical and resource 
considerations to other procedures currently assigned in APC 0340. When 
the CY 2011 claims data become available for future rulemaking, we will 
reevaluate the cost of the service described by Category III CPT code 
0232T to assess the appropriateness of the structure of APC 0340 and 
its payment rate.
    Therefore, after consideration of the public comments we received, 
we are finalizing our proposal, without modification, to continue to 
assign CPT code 0232T to APC 0340, which has a final CY 2011 APC median 
cost of approximately $46.
    Comment: Several commenters requested that CMS recognize the H1N1 
vaccine administration CPT code 90470 and the four H1N1 vaccine CPT 
codes, specifically CPT codes 90664, 906606, 90667, and 90668, because 
they are more descriptive than the Level II HCPCS codes G9141 and G9142 
describing to the same vaccine and its administration. These commenters 
stated that it is operationally burdensome for hospitals to report one 
code to Medicare and another code to other payers for the same service, 
and requested the deletion of the temporary HCPCS codes G9141 and G9142 
to enable a single, standard mechanism for reporting these services 
across all payers.
    Response: While we agree that CPT codes 90470, 90664, 906606, 
90667, and 90668 are more descriptive than the Level II HCPCS codes 
G9141 and G9142, payment for H1N1 services are not based on specific 
formulations of the H1N1 administered to Medicare beneficiaries. The 
new CPT codes describe specific formulations of H1N1, which are not 
required for Medicare payment. Further, we do not recognize the H1N1 
vaccine and administration CPT codes because Medicare already 
recognizes two existing Level II HCPCS codes G9141 and G9142 to 
describe the H1N1 vaccine and its administration. As we stated in the 
October 2009 OPPS update change request (Transmittal 1803, Change 
Request 6626), Level II HCPCS codes G9141 and G9142 were made effective 
September 1, 2009.
    After consideration of the public comments we received, we are 
finalizing our proposal, without modification. For CY 2011, we are 
continuing our established policy of recognizing Category I CPT vaccine 
codes for which FDA approval is imminent and Category III CPT codes 
that the AMA releases in January of each year for implementation in 
July through the OPPS quarterly update process. Specifically, for CY 
2011 under the OPPS, we are recognizing the current HCPCS codes G9141 
and G9142 and are not recognizing the H1N1 vaccine and administration 
CPT codes 90470, 90664, 90666, 90667, and 90668. Moreover, we are 
assigning HCPCS code G9141 to APC 0350, which has a final CY 2011 APC 
median cost of approximately $26, and assigning HCPCS code G9142 to 
status indicator ``E.'' Table 20 below lists the Category I CPT vaccine 
and Category III CPT codes that were implemented in July 2010 for which 
we are allowing separate payment, along with their status indicators, 
APC assignments, and payment rates for CY 2011.

 Table 20--Category I Vaccine and Category III CPT Codes Implemented in
                                July 2010
------------------------------------------------------------------------
                                          Final  CY 2011
 CY 2011 CPT Code       CY 2011 Long          status      Final  CY 2011
                         descriptor         indicator           APC
------------------------------------------------------------------------
0223T.............  Acoustic                          S             0099
                     cardiography,
                     including
                     automated analysis
                     of combined
                     acoustic and
                     electrical
                     intervals; single,
                     with
                     interpretation and
                     report.
0224T.............  Multiple, including               S             0690
                     serial trended
                     analysis and
                     limited
                     reprogramming of
                     device parameter--
                     AV or VV delays
                     only, with
                     interpretation and
                     report.
0225T.............  Multiple, including               S             0690
                     serial trended
                     analysis and
                     limited
                     reprogramming of
                     device parameter--
                     AV and VV delays,
                     with
                     interpretation and
                     report.
0226T.............  Anoscopy, high                    X             0340
                     resolution (HRA)
                     (with
                     magnification and
                     chemical agent
                     enhancement);
                     diagnostic,
                     including
                     collection of
                     specimen(s) by
                     brushing or
                     washing when
                     performed.
0227T.............  Anoscopy, high                    T             0146
                     resolution (HRA)
                     (with
                     magnification and
                     chemical agent
                     enhancement); with
                     biopsy(ies).
0228T.............  Injection(s),                     T             0207
                     anesthetic agent
                     and/or steroid,
                     transforaminal
                     epidural, with
                     ultrasound
                     guidance, cervical
                     or thoracic;
                     single level.
0229T.............  Injection(s),                     T             0206
                     anesthetic agent
                     and/or steroid,
                     transforaminal
                     epidural, with
                     ultrasound
                     guidance, cervical
                     or thoracic; each
                     additional level
                     (List separately
                     in addition to
                     code for primary
                     procedure).
0230T.............  Injection(s),                     T             0207
                     anesthetic agent
                     and/or steroid,
                     transforaminal
                     epidural, with
                     ultrasound
                     guidance, lumbar
                     or sacral; single
                     level.
0231T.............  Injection(s),                     T             0206
                     anesthetic agent
                     and/or steroid,
                     transforaminal
                     epidural, with
                     ultrasound
                     guidance, lumbar
                     or sacral; each
                     additional level
                     (List separately
                     in addition to
                     code for primary
                     procedure).
0232T.............  Injection(s),                     X             0340
                     platelet rich
                     plasma, any
                     tissue, including
                     image guidance,
                     harvesting and
                     preparation when
                     performed.
0233T.............  Skin advanced                     A               NA
                     glycation
                     endproducts (AGE)
                     measurement by
                     multi-wavelength
                     fluorescent
                     spectroscopy.
90664.............  Influenza virus                   E               NA
                     vaccine, pandemic
                     formulation, live,
                     for intranasal use.
90666.............  Influenza virus                   E               NA
                     vaccine, pandemic
                     formulation, split
                     virus,
                     preservative free,
                     for intramuscular
                     use.
90667.............  Influenza virus                   E               NA
                     vaccine, pandemic
                     formulation, split
                     virus, adjuvanted,
                     for intramuscular
                     use.
90668.............  Influenza virus                   E               NA
                     vaccine, pandemic
                     formulation, split
                     virus, for
                     intramuscular use.
------------------------------------------------------------------------

    In the CY 2011 OPPS/ASC proposed rule (75 FR 46243 through 46246), 
we solicited public comments on the CY 2011 proposed status indicators 
and the proposed APC assignments and payment rates, if applicable, for 
the Level II HCPCS codes and the Category I vaccine codes and Category 
III CPT codes that are newly recognized in April or July 2010 through 
the respective OPPS quarterly update CRs. These codes were listed in 
Tables 13, 14, and

[[Page 71898]]

15 of the proposed rule. We proposed to finalize their status 
indicators and their APC assignments and payment rates, if applicable, 
in this CY 2011 OPPS/ASC final rule with comment period. Because the 
July 2010 OPPS quarterly update CR is issued close to the publication 
of the proposed rule, the Level II HCPCS codes and the Category I 
vaccine and Category III CPT codes implemented through the July 2010 
OPPS quarterly update CR could not be included in Addendum B to the 
proposed rule. These codes are listed in Tables 19 and 20, 
respectively, of this final rule with comment period, and are 
incorporated into Addendum B to this final rule with comment period, 
which is consistent with our annual OPPS update policy. The Level II 
HCPCS codes implemented or modified through the April 2010 OPPS update 
CR and displayed in Table 18 are included in Addendum B to this final 
rule with comment period, where their CY 2011 payment rates also are 
shown. We did not receive any additional comment on this process. 
Therefore, as we explained in the CY 2011 OPPS/ASC proposed rule (75 FR 
46243 through 46246), we are finalizing the status indicators and their 
APC assignments and payment rates, if applicable, for Category I 
vaccine codes and Category III CPT codes that are newly recognized in 
April or July 2010, in this CY 2011 OPPS/ASC final rule with comment 
period.
2. Process for New Level II HCPCS Codes and Category I and Category III 
CPT Codes for Which We Are Soliciting Public Comments on This CY 2011 
OPPS/ASC Final Rule With Comment Period
    As has been our practice in the past, we incorporate those new 
Category I and III CPT codes and new Level II HCPCS codes that are 
effective January 1 in the final rule with comment period updating the 
OPPS for the following calendar year. These codes are released to the 
public via the CMS HCPCS (for Level II HCPCS codes) and AMA Web sites 
(for CPT codes), and also through the January OPPS quarterly update 
CRs. In the past, we also have released new Level II HCPCS codes that 
are effective October 1 through the October OPPS quarterly update CRs 
and incorporated these new codes in the final rule with comment period 
updating the OPPS for the following calendar year. All of these codes 
are flagged with comment indicator ``NI'' in Addendum B to the OPPS/ASC 
final rule with comment period to indicate that we are assigning them 
an interim payment status which is subject to public comment. 
Specifically, the status indicator and the APC assignment, and payment 
rate, if applicable, for all such codes flagged with comment indicator 
``NI'' are open to public comment in the final rule with comment 
period, and we respond to these comments in the OPPS/ASC final rule 
with comment period for the next calendar year's OPPS/ASC update. In 
the CY 2011 OPPS/ASC proposed rule (75 FR 46246), we proposed to 
continue this process for CY 2011. Specifically, for CY 2011, we 
proposed to include in Addendum B to the CY 2011 OPPS/ASC final rule 
with comment period the new Category I and III CPT codes effective 
January 1, 2011 (including those Category I vaccine and Category III 
CPT codes that were released by the AMA in July 2010) that would be 
incorporated in the January 2011 OPPS quarterly update CR and the new 
Level II HCPCS codes, effective October 1, 2010, or January 1, 2011, 
that would be released by CMS in its October 2010 and January 2011 OPPS 
quarterly update CRs. As proposed, these codes are flagged with comment 
indicator ``NI'' in Addendum B to this CY 2011 OPPS/ASC final rule with 
comment period to indicate that we have assigned them an interim OPPS 
payment status for CY 2011. Their status indicators and their APC 
assignments and payment rates, if applicable, are open to public 
comment in this final rule with comment period and will be finalized in 
the CY 2012 OPPS/ASC final rule with comment period. We note that the 
Category I vaccine and Category III CPT codes that were released by the 
AMA in July 2010 that were subject to comment in the CY 2011 OPPS/ASC 
proposed rule, and were listed in Table 15, will not be assigned to 
comment indicator ``NI'' in Addendum B because comments about these 
codes are addressed in this final rule with comment period.
    Comment: Some commenters requested that CMS reconsider the timeline 
for APC assignments for new CPT and HCPCS codes for which comments are 
sought. The commenters indicated that the current schedule has the 
potential to produce long gaps of inappropriate payment with no 
mechanism for changes over the short term period. One commenter 
suggested including the new Category I CPT codes that are approved in 
February to be included in the proposed rule to enable interested 
parties to comment on the interim payment values before they are 
finalized. This commenter further recommended that CMS should be 
prepared to implement corrections on a quarterly basis.
    Response: With respect to the comment regarding new Category I CPT 
codes that are effective in February, we believe the commenter meant 
the new Category I CPT codes that are released in late September or 
October when the annual CPT code book for the upcoming year are 
published that are then implemented in January, which are not discussed 
in the proposed rule but are published in the final rule with comment 
period. Because the CPT codes for the January 2011 update were not 
issued to the public until October 2010 when AMA published the CY 2011 
CPT codes, we could not include them in the CY 2011 OPPS/ASC proposed 
rule for comment because the proposed rule is published in the summer, 
usually several months in advance of the publication of the CPT code 
books. Similarly, the Level II HCPCS codes that are made effective in 
October are published after the publication of the proposed rule. 
Because these codes are released after the publication of the proposed 
rule, we do not discuss either the new Category I CPT codes or the 
Level II HCPCS codes that are effective for the upcoming January in the 
proposed rule, which is published sometime in the summer.
    As has been our practice for the past several years, we list the 
new Category I CPT codes and the Level II HCPCS codes in the final 
rules and flag them with comment indicator ``NI'' (New code, interim 
APC assignment; comments will be accepted on the interim APC assignment 
for the new code) in Addendum B to indicate that the codes are assigned 
to an interim payment status and an APC and payment rate, if 
applicable, that is subject to public comment following the publication 
of the final rule with comment period. For these new codes, we are only 
able to finalize their assignments in another OPPS final rule in order 
to allow for the necessary public notice and comment period and to 
allow time for CMS to respond to such comments. Therefore, we only 
assign HCPCS codes permanently for the year through the annual 
regulatory process.
    Because we are not able to revise APC and/or status indicator 
assignments for the newly implemented HCPCS codes in CY 2010 that are 
assigned an interim final status in this CY 2011 OPPS/ASC final rule 
with comment period outside of the rulemaking process, the next 
available opportunity to update an APC or status indicator for these 
codes is in the CY 2012 final rule with comment period. These HCPCS 
codes retain their interim final APC and status indicator assignments 
for all of CY 2011. Therefore, only in the CY 2012 OPPS/ASC final rule 
with comment period will we be able to finalize the APC and/

[[Page 71899]]

or status indicator assignments of the new CY 2011 HCPCS codes and 
respond to all public comments received on their interim designations.
    We also cannot implement any changes in status indicator or APC 
assignment on a quarterly basis because we have an annual process 
subject to notice and comment for the assignment of a status indicator 
and, if applicable, APC group. Therefore, actual changes to status 
indicator or APC assignments cannot be implemented on a quarterly 
basis.
    After consideration of the public comments we received, we are 
finalizing our policy to include in Addendum B to the CY 2011 OPPS/ASC 
final rule with comment period the new Category I and III CPT codes 
effective January 1, 2011 (including those Category I vaccine and 
Category III CPT codes that were released by the AMA in July 2010) that 
would be incorporated in the January 2011 OPPS quarterly update CR and 
the new Level II HCPCS codes, effective October 1, 2010, or January 1, 
2011, that would be released by CMS in its October 2010 and January 
2011 OPPS quarterly update CRs.
3. Temporary HCPCS Codes for 2010-2011 Seasonal Influenza Vaccines
    In Addendum B of the CY 2011 OPPS/ASC proposed rule (75 FR 46662), 
CPT code 90658 (Influenza virus vaccine, split virus, when administered 
to 3 years of age and older, for intramuscular use) was assigned to 
status indicator ``L'' to indicate that the code is not paid under the 
OPPS; rather, it is paid at a reasonable cost that is not subject to a 
deductible or coinsurance. Under the Medicare ASP pricing methodology, 
CPT code 90658 currently includes multiple brand name products. For 
influenza vaccines, the payment limit is 95 percent of the AWP of the 
lowest brand-name product within each billing code. We understand that 
the production capacity and supply of the lowest priced brand-name 
influenza vaccine product will not meet the program demands of the 
Medicare population for the 2010-2011 influenza season. Because of this 
patient access problem, we believe it necessary to establish separate 
HCPCS codes for the individual brand products currently associated with 
CPT code 90658. Thus, Medicare has established five HCPCS Q-codes to 
identify the individual influenza products that are reported with CPT 
code 90658. The specific list of HCPCS Q-codes can be found in Table 21 
below CY 2011. Because the HCPC Q-codes will be recognized by Medicare, 
CPT code 90658 will be assigned to status indicator ``E'' to indicate 
that the code is not recognized under the hospital OPPS. Hospitals are 
advised to report the influenza HCPCS Q-codes rather than CPT code 
90658 for CY 2011. These codes have been included in the HCPCS file 
with an added date of January 1, 2011, but the HCPCS codes will be 
implemented effective October 1, 2010. That is, CPT code 90658 is 
assigned to status indicator ``E'' effective October 1, 2010, and HCPCS 
Q-codes Q2035, Q2036, Q2037, Q2038, and Q2039 are assigned to status 
indicator ``L'' effective January 1, 2011. Table 21 below contains the 
final CY 2011 status indicators for CPT code 90658 and HCPCS Q-codes 
Q2035, Q2036, Q2037, Q2038, and Q2039.

              Table 21--Influenza HCPCS Q-Codes for CY 2011
------------------------------------------------------------------------
                       Short                              Final CY 2011
      HCPCS          descriptor       Long descriptor           SI
------------------------------------------------------------------------
90658...........  Flu vaccine, 3   Influenza virus                    E
                   yrs & >, im.     vaccine, split
                                    virus, when
                                    administered to 3
                                    years of age and
                                    older, for
                                    intramuscular use.
Q2035...........  Afluria vacc, 3  Influenza virus                    L
                   yrs & >, im.     vaccine, split
                                    virus, when
                                    administered to
                                    individuals 3 years
                                    of age and older,
                                    for intramuscular
                                    use (afluria).
Q2036...........  Flulaval vacc,   Influenza virus                    L
                   3 yrs & >, im.   vaccine, split
                                    virus, when
                                    administered to
                                    individuals 3 years
                                    of age and older,
                                    for intramuscular
                                    use (flulaval).
Q2037...........  Fluvirin vacc,   Influenza virus                    L
                   3 yrs & >, im.   vaccine, split
                                    virus, when
                                    administered to
                                    individuals 3 years
                                    of age and older,
                                    for intramuscular
                                    use (fluvirin).
Q2038...........  Fluzone vacc, 3  Influenza virus                    L
                   yrs & >, im.     vaccine, split
                                    virus, when
                                    administered to
                                    individuals 3 years
                                    of age and older,
                                    for intramuscular
                                    use (fluzone).
Q2039...........  NOS flu vacc, 3  Influenza virus                    L
                   yrs & >, im.     vaccine, split
                                    virus, when
                                    administered to
                                    individuals 3 years
                                    of age and older,
                                    for intramuscular
                                    use (not otherwise
                                    specified).
------------------------------------------------------------------------

B. OPPS Changes--Variations Within APCs

1. Background
    Section 1833(t)(2)(A) of the Act requires the Secretary to develop 
a classification system for covered hospital outpatient department 
services. Section 1833(t)(2)(B) of the Act provides that the Secretary 
may establish groups of covered OPD services within this classification 
system, so that services classified within each group are comparable 
clinically and with respect to the use of resources (and so that an 
implantable item is classified to the group that includes the services 
to which the item relates). In accordance with these provisions, we 
developed a grouping classification system, referred to as APCs, as set 
forth in Sec.  419.31 of the regulations. We use Level I and Level II 
HCPCS codes and descriptors to identify and group the services within 
each APC. The APCs are organized such that each group is homogeneous 
both clinically and in terms of resource use. Using this classification 
system, we have established distinct groups of similar services, as 
well as medical visits. We also have developed separate APC groups for 
certain medical devices, drugs, biologicals, therapeutic 
radiopharmaceuticals, and brachytherapy devices.
    We have packaged into payment for each procedure or service within 
an APC group the costs associated with those items or services that are 
directly related to, and supportive of, performing the main independent 
procedures or furnishing the services. Therefore, we do not make 
separate payment for these packaged items or services. For example, 
packaged items and services include: (1) Use of an operating, 
treatment, or procedure room; (2) use of a recovery room; (3) 
observation services; (4) anesthesia; (5) medical/surgical supplies; 
(6) pharmaceuticals (other than those for which separate payment may be 
allowed under the provisions discussed in section V. of this final rule 
with comment period); (7) incidental services such as venipuncture; and 
(8) guidance services, image processing services, intraoperative 
services, imaging supervision and interpretation services, diagnostic 
radiopharmaceuticals, and

[[Page 71900]]

contrast media. Further discussion of packaged services is included in 
section II.A.3. of this final rule with comment period.
    In CY 2008, we implemented composite APCs to provide a single 
payment for groups of services that are typically performed together 
during a single clinical encounter and that result in the provision of 
a complete service (72 FR 66650 through 66652). Under CY 2010 OPPS 
policy, we provide composite APC payment for certain extended 
assessment and management services, low dose rate (LDR) prostate 
brachytherapy, cardiac electrophysiologic evaluation and ablation, 
mental health services, and multiple imaging services. Further 
discussion of composite APCs is included in section II.A.2.e. of this 
final rule with comment period.
    Under the OPPS, we generally pay for hospital outpatient services 
on a rate-per-service basis, where the service may be reported with one 
or more HCPCS codes. Payment varies according to the APC group to which 
the independent service or combination of services is assigned. Each 
APC weight represents the hospital median cost of the services included 
in that APC relative to the hospital median cost of the services 
included in APC 0606 (Level 3 Hospital Clinic Visits). The APC weights 
are scaled to APC 0606 because it is the middle level hospital clinic 
visit APC (that is, where the Level 3 hospital clinic visit CPT code of 
five levels of hospital clinic visits is assigned), and because middle 
level hospital clinic visits are among the most frequently furnished 
services in the hospital outpatient setting.
    Section 1833(t)(9)(A) of the Act requires the Secretary to review 
and revise the groups, the relative payment weights, and the wage and 
other adjustments to take into account changes in medical practice, 
changes in technology, the addition of new services, new cost data, and 
other relevant information and factors; the Act further requires us to 
repeat this process on a basis that is not less often than annually. 
Section 1833(t)(9)(A) of the Act, as amended by section 201(h) of the 
BBRA, also requires the Secretary, beginning in CY 2001, to consult 
with an expert outside advisory panel composed of an appropriate 
selection of representatives of providers to review (and advise the 
Secretary concerning) the clinical integrity of the APC groups and the 
relative payment weights (the APC Panel recommendations for specific 
services for the CY 2011 OPPS and our responses to them are discussed 
in the relevant specific sections throughout this final rule with 
comment period).
    Finally, section 1833(t)(2) of the Act provides that, subject to 
certain exceptions, the items and services within an APC group cannot 
be considered comparable with respect to the use of resources if the 
highest median cost (or mean cost as elected by the Secretary) for an 
item or service in the group is more than 2 times greater than the 
lowest median cost (or mean cost, if so elected) for an item or service 
within the same group (referred to as the ``2 times rule''). We use the 
median cost of the item or service in implementing this provision. The 
statute authorizes the Secretary to make exceptions to the 2 times rule 
in unusual cases, such as low-volume items and services (but the 
Secretary may not make such an exception in the case of a drug or 
biological that has been designated as an orphan drug under section 526 
of the Federal Food, Drug, and Cosmetic Act).
2. Application of the 2 Times Rule
    In accordance with section 1833(t)(2) of the Act and Sec.  419.31 
of the regulations, we annually review the items and services within an 
APC group to determine, with respect to comparability of the use of 
resources, if the median cost of the highest cost item or service 
within an APC group is more than 2 times greater than the median of the 
lowest cost item or service within that same group. In making this 
determination, we consider only those HCPCS codes that are significant 
based on the number of claims. That is, we consider only those HCPCS 
codes whose claim data reflect more than 1,000 singles, or if less than 
1,000 singles, at least those HCPCS codes with more than 99 singles and 
represent more than 2 percent of the claims for a given APC (74 FR 
60436). In the CY 2011 OPPS/ASC proposed rule (75 FR 46247), we 
proposed to make exceptions to this limit on the variation of costs 
within each APC group in unusual cases, such as low-volume items and 
services for CY 2011.
    During the APC Panel's February 2010 meeting, we presented median 
cost and utilization data for services furnished during the period of 
January 1, 2009 through September 30, 2009, about which we had concerns 
or about which the public had raised concerns regarding their APC 
assignments, status indicator assignments, or payment rates. The 
discussions of most service-specific issues, the APC Panel 
recommendations, if any, and our proposals for CY 2011 were contained 
mainly in sections III.C. and III.D. of the proposed rule and are 
included in the same sections of this final rule with comment period.
    In addition to the assignment of specific services to APCs that we 
discussed with the APC Panel, we also identified APCs with 2 times 
violations that were not specifically discussed with the APC Panel but 
for which we proposed changes to their HCPCS codes' APC assignments in 
Addendum B to the proposed rule. In these cases, to eliminate a 2 times 
violation or to improve clinical and resource homogeneity, we proposed 
to reassign the codes to APCs that contain services that are similar 
with regard to both their clinical and resource characteristics. We 
also proposed to rename existing APCs or create new clinical APCs to 
complement proposed HCPCS code reassignments. In many cases, the 
proposed HCPCS code reassignments and associated APC reconfigurations 
for CY 2011 included in the proposed rule were related to changes in 
median costs of services that were observed in the CY 2009 claims data 
newly available for CY 2011 ratesetting. We also proposed changes to 
the status indicators for some codes that are not specifically and 
separately discussed in the proposed rule. In these cases, we proposed 
to change the status indicators for some codes because we believe that 
another status indicator would more accurately describe their payment 
status from an OPPS perspective based on the policies that we proposed 
for CY 2011.
    We received many public comments regarding the proposed APC and 
status indicator assignments for CY 2011 for specific HCPCS codes. 
These public comments are discussed mainly in sections III.C. and 
III.D. of this final rule with comment period, and the final action for 
CY 2011 related to each HCPCS code is noted in those sections.
    Addendum B to this final rule with comment period identifies with 
comment indicator ``CH'' those HCPCS codes for which we are finalizing 
in this final rule with comment period a change to the APC assignment 
or status indicator that were initially assigned in the April 2010 
Addendum B update (via Transmittal 1924, Change Request 6857, dated 
February 26, 2010).
3. Exceptions to the 2 Times Rule
    As discussed earlier, we may make exceptions to the 2 times limit 
on the variation of costs within each APC group in unusual cases such 
as low-volume items and services. Taking into account the APC changes 
that we proposed for CY 2011 based on the APC Panel recommendations 
that were discussed mainly in sections III.C. and III.D. of the 
proposed rule, the other

[[Page 71901]]

proposed changes to status indicators and APC assignments as identified 
in Addendum B to the proposed rule, and the use of CY 2009 claims data 
to calculate the median costs of procedures classified in the APCs, we 
reviewed all the APCs to determine which APCs would not satisfy the 2 
times rule. We used the following criteria to decide whether to propose 
exceptions to the 2 times rule for affected APCs:
    <bullet> Resource homogeneity.
    <bullet> Clinical homogeneity.
    <bullet> Hospital outpatient setting.
    <bullet> Frequency of service (volume).
    <bullet> Opportunity for upcoding and code fragments.
    For a detailed discussion of these criteria, we refer readers to 
the April 7, 2000 OPPS final rule with comment period (65 FR 18457 and 
18458). Table 16 of the proposed rule listed 17 APCs that we proposed 
to exempt from the 2 times rule for CY 2011 based on the criteria cited 
above (75 FR 46248).
    We did not receive any general public comments related to the list 
of proposed exceptions to the 2 times rule. We received a number of 
specific public comments about some of the procedures assigned to APCs 
that we proposed to make exempt from the 2 times rule for CY 2011. 
Those public comments are discussed elsewhere in this preamble, and can 
be found in sections related to the types of procedures that were the 
subjects of the public comments.
    For the proposed rule, the list of 17 APCs that appeared in Table 
16 of the CY 2011 OPPS/ASC proposed rule (75 FR 46248) that were 
exempted from the 2 times rule were based on data from January 1, 2009, 
through September 30, 2009. For this final rule with comment period, we 
used claims data for dates of service between January 1, 2009, and 
December 31, 2009, that were processed on or before June 30, 2010, and 
updated CCRs, if available. Thus, after responding to all of the public 
comments on the CY 2010 OPPS/ASC proposed rule and making changes to 
APC assignments based on those comments, we analyzed the CY 2009 claims 
data used for this final rule with comment period to identify the APCs 
with 2 times violations. Based on the final rule CY 2009 claims data, 
we found 22 APCs with 2 times rule violations, which is a cumulative 
increase of 5 APCs from the proposed rule. We applied the criteria as 
described earlier to identify the APCs that are exceptions to the 2 
times rule for CY 2010, and identified 10 APCs that meet the criteria 
for exception to the 2 times rule for this final rule with comment 
period, but that did not meet those criteria using proposed rule data: 
APC 0060 (Manipulation Therapy); APC 0076 (Level I Endoscopy Lower 
Airway); APC 0083 (Coronary or Non Coronary Angioplasty and 
Percutaneous Valvuloplasty), APC 0133 (Level I Skin Repair); APC 0203 
(Level IV Nerve Injections); APC 0304 (Level I Therapeutic Radiation 
Treatment Preparation); APC 0341 (Skin Tests); APC 0343 (Level III 
Pathology); APC 0433 (Level II Pathology); and APC 0607 (Level 4 
Hospital Clinic Visits). These APC exceptions are listed in Table 22 
below. For this final rule with comment period, we also determined that 
there are 5 APCs that no longer violate the 2 times rule: APC 0051 
(Level III Musculoskeletal Procedures Except Hand and Foot); APC 0138 
(Level II Closed Treatment Fracture Finger/Toe/Trunk); APC 0173 (Level 
II Partial Hospitalization (4 or more services)); APC 0325 (Group 
Psychotherapy); and APC 0344 (Level IV Pathology). We have not included 
in this count those APCs where a 2 times violation is not a relevant 
concept, such as APC 0375 (Ancillary Outpatient Services When Patient 
Expires), with an APC median cost set based on multiple procedure 
claims. As a result, we have identified only final APCs, including 
those with criteria-based median costs, such as device-dependent APCs, 
with 2 times violations. Table 22 below lists 22 APCs that we are 
exempting from the 2 times rule for CY 2011 based on the criteria cited 
above and a review of updated claims data.
    For cases in which a recommendation by the APC Panel appeared to 
result in or allow a violation of the 2 times rule, we generally 
accepted the APC Panel's recommendation because those recommendations 
were based on explicit consideration of resource use, clinical 
homogeneity, hospital specialization, and the quality of the CY 2009 
claims data used to determine the APC payment rates that we are 
finalizing for CY 2011. The median costs for hospital outpatient 
services for these and all other APCs that were used in the development 
of this final rule with comment period can be found on the CMS Web site 
at: http://www.cms.gov/HospitalOutpatientPPS/01_overview.asp.

     Table 22--Final APC Exceptions to the 2 Times Rule for CY 2011
------------------------------------------------------------------------
            CY 2011 APC                       CY 2011 APC title
------------------------------------------------------------------------
0057..............................  Bunion Procedures.
0058..............................  Level I Strapping and Cast
                                     Application.
0060..............................  Manipulation Therapy.
0076..............................  Level I Endoscopy Lower Airway.
0080..............................  Diagnostic Cardiac Catheterization.
0083..............................  Coronary and Noncoronary Angioplasty
                                     and Percutaneous Valvuloplasty.
0105..............................  Repair/Revision/Removal of
                                     Pacemakers, AICDs, or Vascular
                                     Devices.
0133..............................  Level I Skin Repair.
0142..............................  Small Intestine Endoscopy.
0203..............................  Level IV Nerve Injections.
0235..............................  Level I Posterior Segment Eye
                                     Procedures.
0245..............................  Level I Cataract Procedures without
                                     IOL Insert.
0303..............................  Treatment Device Construction.
0304..............................  Level I Therapeutic Radiation
                                     Treatment Preparation.
0340..............................  Minor Ancillary Procedures.
0341..............................  Skin Tests.
0343..............................  Level III Pathology.
0432..............................  Health and Behavior Services.
0433..............................  Level II Pathology.
0604..............................  Level 1 Hospital Clinic Visits.
0607..............................  Level 4 Hospital Clinic Visits.
0664..............................  Level I Proton Beam Radiation
                                     Therapy.
------------------------------------------------------------------------

C. New Technology APCs

1. Background
    In the November 30, 2001 final rule (66 FR 59903), we finalized 
changes to the time period a service was eligible for payment under a 
New Technology APC. Beginning in CY 2002, we retain services within New 
Technology APC groups until we gather sufficient claims data to enable 
us to assign the service to a clinically appropriate APC. This policy 
allows us to move a service from a New Technology APC in less than 2 
years if sufficient data are available. It also allows us to retain a 
service in a New Technology APC for more than 2 years if sufficient 
data upon which to base a decision for reassignment have not been 
collected.
    We note that the cost bands for New Technology APCs range from $0 
to $50 in increments of $10, from $50 to $100 in increments of $50, 
from $100 to $2,000 in increments of $100, and from $2,000 to $10,000 
in increments of $500. These cost bands identify the APCs to which new 
technology procedures and services with estimated service costs that 
fall within those cost bands are assigned under the OPPS. Payment for 
each APC is made at the mid-point of the APC's assigned cost band. For 
example, payment for New Technology APC 1507 (New Technology--Level VII

[[Page 71902]]

($500-$600)) is made at $550. Currently, there are 82 New Technology 
APCs, ranging from the lowest cost band assigned to APC 1491 (New 
Technology--Level IA ($0-$10)) through the highest cost band assigned 
to APC 1574 (New Technology--Level XXXVII ($9,500-$10,000). In CY 2004 
(68 FR 63416), we last restructured the New Technology APCs to make the 
cost intervals more consistent across payment levels and refined the 
cost bands for these APCs to retain two parallel sets of New Technology 
APCs, one set with a status indicator of ``S''' (Significant 
Procedures, Not Discounted when Multiple. Paid under OPPS; separate APC 
payment) and the other set with a status indicator of ``T'' 
(Significant Procedure, Multiple Reduction Applies. Paid under OPPS; 
separate APC payment). These current New Technology APC configurations 
allow us to price new technology services more appropriately and 
consistently.
    Every year we receive many requests for higher payment amounts 
under our New Technology APCs for specific procedures under the OPPS 
because they require the use of expensive equipment. We are taking this 
opportunity to reiterate our response in general to the issue of 
hospitals' capital expenditures as they relate to the OPPS and 
Medicare.
    Under the OPPS, one of our goals is to make payments that are 
appropriate for the services that are necessary for the treatment of 
Medicare beneficiaries. The OPPS, like other Medicare payment systems, 
is budget neutral and increases are limited to the hospital inpatient 
market basket increase. We believe that our payment rates generally 
reflect the costs that are associated with providing care to Medicare 
beneficiaries in cost efficient settings, and we believe that our rates 
are adequate to ensure access to services.
    For many emerging technologies, there is a transitional period 
during which utilization may be low, often because providers are first 
learning about the techniques and their clinical utility. Quite often, 
parties request that Medicare make higher payment amounts under our New 
Technology APCs for new procedures in that transitional phase. These 
requests, and their accompanying estimates for expected total patient 
utilization, often reflect very low rates of patient use of expensive 
equipment, resulting in high per use costs for which requesters believe 
Medicare should make full payment. Medicare does not, and we believe 
should not, assume responsibility for more than its share of the costs 
of procedures based on Medicare beneficiary projected utilization and 
does not set its payment rates based on initial projections of low 
utilization for services that require expensive capital equipment. For 
the OPPS, we rely on hospitals to make informed business decisions 
regarding the acquisition of high cost capital equipment, taking into 
consideration their knowledge about their entire patient base (Medicare 
beneficiaries included) and an understanding of Medicare's and other 
payers' payment policies.
    We note that, in a budget neutral environment, payments may not 
fully cover hospitals' costs in a particular circumstance, including 
those for the purchase and maintenance of capital equipment. We rely on 
hospitals to make their decisions regarding the acquisition of high 
cost equipment with the understanding that the Medicare program must be 
careful to establish its initial payment rates, including those made 
through New Technology APCs, for new services that lack hospital claims 
data based on realistic utilization projections for all such services 
delivered in cost-efficient hospital outpatient settings. As the OPPS 
acquires claims data regarding hospital costs associated with new 
procedures, we regularly examine the claims data and any available new 
information regarding the clinical aspects of new procedures to confirm 
that our OPPS payments remain appropriate for procedures as they 
transition into mainstream medical practice.
2. Movement of Procedures From New Technology APCs to Clinical APCs
    As we explained in the November 30, 2001 final rule (66 FR 59902), 
we generally keep a procedure in the New Technology APC to which it is 
initially assigned until we have collected sufficient data to enable us 
to move the procedure to a clinically appropriate APC. However, in 
cases where we find that our original New Technology APC assignment was 
based on inaccurate or inadequate information (although it was the best 
information available at the time), or where the New Technology APCs 
are restructured, we may, based on more recent resource utilization 
information (including claims data) or the availability of refined New 
Technology APC cost bands, reassign the procedure or service to a 
different New Technology APC that most appropriately reflects its cost.
    Consistent with our current policy, in the CY 2011 OPPS/ASC 
proposed rule (75 FR 46249), we proposed for CY 2011 to retain services 
within New Technology APC groups until we gather sufficient data to 
enable us to assign the service to a clinically appropriate APC. The 
flexibility associated with this policy allows us to move a service 
from a New Technology APC in less than 2 years if sufficient data are 
available. It also allows us to retain a service in a New Technology 
APC for more than 2 years if sufficient data upon which to base a 
decision for reassignment have not been collected. Table 17 of the 
proposed rule listed the HCPCS codes and associated status indicators 
that we proposed to reassign from a New Technology APC to a clinically 
appropriate APC or to a different New Technology APC for CY 2011.
    We note that, for CY 2010, there are four services described by 
four HCPCS G-codes receiving payment through a New Technology APC. 
Specifically, HCPCS code G0416 (Surgical pathology, gross and 
microscopic examination for prostate needle saturation biopsy sampling, 
1-20 specimens) is assigned to New Technology APC 1505 (New 
Technology--Level V ($300-$400)); HCPCS code G0417 (Surgical pathology, 
gross and microscopic examination for prostate needle saturation biopsy 
sampling, 21-40 specimens) is assigned to New Technology APC 1507 (New 
Technology--Level VII ($500-$600)); HCPCS code G0418 (Surgical 
pathology, gross and microscopic examination for prostate needle 
saturation biopsy sampling, 41-60 specimens) is assigned to New 
Technology APC 1511 (New Technology--Level XI ($900-$1,000)); and HCPCS 
code G0419 (Surgical pathology, gross and microscopic examination for 
prostate needle saturation biopsy sampling, greater than 60 specimens), 
is assigned to New Technology APC 1513 (New Technology--Level XIII 
($1,100-$1,200)).
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46249), we proposed to 
reassign HCPCS code G0416 from New Technology APC 1505 to clinical APC 
0661 (Level V Pathology), and HCPCS code G0417 from New Technology APC 
1507 (New Technology-Level VII ($500 to $600)) to New Technology APC 
1506 (New Technology--Level VI ($400-$500)). Based on our claims data 
used for CY 2011 rate setting, as well as clinical characteristics, we 
believed that HCPCS code G0416 is comparable clinically and with 
respect to the use of resources as other pathology services currently 
assigned to APC 0661. Further, we believed that HCPCS code G0417 is 
more appropriately placed in New Technology APC 1506 based on the 
median cost data for the CY 2011 ratesetting and based on its clinical 
and

[[Page 71903]]

resource similarities to procedures currently in APC 1506.
    We did not receive any public comments on the APC reassignments of 
HCPCS codes G0416 and G0417. Therefore, for the reasons explained 
above, we are finalizing our proposal, without modification, to assign 
HCPCS code G0416 to APC 0616, which has a final CY 2011 APC median cost 
of approximately $149, and to assign HCPCS code G0417 to APC 1506, 
which has a final CY 2011 APC median cost of approximately $489. Table 
23 below lists the HCPCS codes and associated status indicators that we 
are reassigning from a New Technology APC to a clinically appropriate 
APC or to a different New Technology APC for CY 2011.
    For CY 2011, we also proposed to continue the New Technology APC 
assignments for HCPCS codes G0418 and G0419 based on our understanding 
of the clinical and cost characteristics of the procedures described by 
these HCPCS codes. As we stated in the CY 2011 OPPS/ASC proposed rule 
(75 FR 46249), we do not believe we have enough claims data to assign 
these codes to a different APC. While we believed that these services 
will always be low volume, given the number of specimens being 
collected, we believed that we should continue the New Technology 
payments for HCPCS codes G0418 and G0419 for another year to see if 
more claims data become available. Specifically, we proposed to 
continue to assign HCPCS code G0418 to New Technology APC 1511 (New 
Technology--Level XI ($900-$1,000)) and HCPCS code G0419 to New 
Technology APC 1513 (New Technology--Level XIII ($1,100-$1,200)).
    We did not receive any public comments on the continuation of the 
APC assignments of HCPCS code G0418 and G0419. Therefore, for the 
reasons explained above, we are finalizing our proposal, without 
modification, to continue to assign HCPCS code G0418 to APC 1511, and 
to continue to assign HCPCS code G0419 to APC 1513. The final CY 2011 
payment rates for HCPCS codes G048 and G0419 can be found in Addendum B 
of this final rule with comment period.

             Table 23--CY 2011 Reassignment of Procedures Assigned to New Technology APCS in CY 2010
----------------------------------------------------------------------------------------------------------------
                             CY 2010 Short                                        Final CY 2011    Final CY 2011
   CY 2010 HCPCS code          descriptor          CY 2010 SI      CY 2010 APC          SI              APC
----------------------------------------------------------------------------------------------------------------
G0416..................  Sat biopsy prostate 1-              S             1505               X             0661
                          20 spc.
G0417..................  Sat biopsy prostate                 S             1507               S             1506
                          21-40.
----------------------------------------------------------------------------------------------------------------

D. OPPS APC-Specific Policies

1. Cardiovascular Services
a. Cardiovascular Telemetry (APC 0209)
    For CY 2011, we proposed to continue to assign CPT code 93229 
(Wearable mobile cardiovascular telemetry with electrocardiographic 
recording, concurrent computerized real time data analysis and greater 
than 24 hours of accessible ECG data storage (retrievable with query) 
with ECG-triggered and patient-selected events transmitted to a remote 
attended surveillance center for up to 30 days; technical support for 
connection and patient instructions for use, attended surveillance, 
analysis and physician prescribed transmission of daily and emergent 
data reports) to APC 0209 (Level II Extended EEG, Sleep, and 
Cardiovascular Studies), with a proposed payment rate of approximately 
$782.
    Comment: Some commenters recommended that CMS assign status 
indicator ``A'' (Services furnished to a hospital outpatient that are 
paid under a fee schedule or payment system other than OPPS) to CPT 
code 93229 in order to make this service nonpayable under the OPPS for 
CY 2011. The commenters stated that there are currently no hospitals 
that can provide the type of constant monitoring that the service 
described by CPT code 93229 requires. For this reason, according to the 
commenters, any claims submitted for CPT code 93229 by hospitals are 
incorrectly coded. The commenters suggested that, if CMS chose not to 
adopt their recommendation and instead chose to continue recognizing 
CPT code 93229 as payable under the OPPS, CMS reconsider the proposed 
assignment of the service to APC 0209. According to the commenters, the 
service described by CPT code 93229 is not similar, clinically or in 
terms of resource utilization, to the other procedures assigned to APC 
0209, in particular, the polysomnography procedures described by CPT 
codes 95810 (Polysomnography; sleep staging with 4 or more additional 
parameters of sleep, attended by a technologist) and 95811 
(Polysomnography; sleep staging with 4 or more additional parameters of 
sleep, with initiation of continuous positive airway pressure therapy 
or bilevel ventilation, attended by a technologist), which are the most 
commonly reported procedures in APC 0209 with the highest number of 
single claims contributing to the APC's median cost. The commenters 
urged CMS to assign CPT code 93229 to the New Technology APC 1513 (New 
Technology--Level XIII ($1,100-$1,200)), with a proposed payment rate 
of approximately $1,150. The commenters stated that, if any hospitals 
were to provide the remote cardiac monitoring service described by CPT 
code 93229, the proposed payment rate for APC 0209 would be less than 
hospitals' costs for providing this service.
    Response: We do not agree with the commenters that we should assign 
status indicator ``A'' to CPT code 93229 in order to make the service 
nonpayable under the OPPS for CY 2011. We typically recognize, for OPPS 
payment purposes, HCPCS codes describing services that could be covered 
by Medicare when provided to hospital outpatients, regardless of 
whether, as the commenters indicated, those services are actually being 
provided by hospitals at the time the OPPS/ASC final rule with comment 
period for the upcoming year is issued. We believe that CPT code 93229 
describes a diagnostic study that could be provided to Medicare 
beneficiaries in the hospital outpatient setting and, therefore, could 
be covered by Medicare. We also do not agree with the commenters' 
statement that there are currently no hospitals that can provide the 
type of constant monitoring that the service described by CPT code 
93229 requires. Our ratesetting methodology is based on claims 
submitted by hospitals, and our final rule claims data show 103 single 
claims and 114 total claims for this service. Based on these claims 
data, we calculated a final median cost for CPT code 93229 of 
approximately $287. (We note that placement of CPT code 93229 in APC 
0209 with higher median cost procedures does not violate the 2 times 
rule because this service is a low

[[Page 71904]]

volume procedure relative to the other procedures in APC 0209.) As to 
whether these claims are miscoded, it is generally not our policy to 
judge the accuracy of hospital coding and charging for purposes of 
ratesetting. New Technology APCs are designed to allow us to provide 
appropriate and consistent payment for designated new procedures that 
are not yet reflected in our claims data (74 FR 60438). Because we 
already have sufficient claims data for CPT code 93229 to assign it to 
a clinically appropriate APC, it would be inappropriate to move it to 
the New Technology APC 1513.
    As we stated in the CY 2010 OPPS/ASC final rule with comment period 
(74 FR 60441), we also continue to believe the service described by CPT 
code 93229 is similar, clinically and in terms of resource utilization, 
to the other procedures assigned to APC 0209 for CY 2011. For example, 
similar to the remote cardiac monitoring service described by CPT code 
93229, the polysomnography procedures described by CPT codes 95810 and 
95811 involve continuous and simultaneous monitoring and recording of 
various physiological and pathophysiological parameters, with 
attendance by a technologist.
    After consideration of the public comments we received, we are 
finalizing our CY 2011 proposal, without modification, to assign CPT 
code 93229 to APC 0209, with a final CY 2011 APC median cost of 
approximately $772.
b. Myocardial Positron Emission Tomography (PET) Imaging (APC 0307)
    For CY 2011, we proposed to assign CPT codes 78459 (Myocardial 
imaging, positron emission tomography (PET), metabolic evaluation), 
78491 (Myocardial imaging, positron emission tomography (PET), 
perfusion; single study at rest or stress), and 78492 (Myocardial 
imaging, positron emission tomography (PET), perfusion; multiple 
studies at rest and/or stress) to APC 0307 (Myocardial Position 
Emission Tomography (PET) Imaging), with a proposed median cost of 
approximately $1,121. For CY 2010, APC 0307 has a national unadjusted 
payment rate of approximately $1,433 based on a CY 2010 OPPS final rule 
median cost of approximately $1,420. At its August 2010 meeting, the 
APC Panel recommended that CMS investigate and report at a future Panel 
meeting on the reason for the decline in median cost for APC 0307 from 
the CY 2010 OPPS to the proposed CY 2011 OPPS.
    Comment: Commenters objected to the proposed decrease in the 
payment rate for myocardial PET under APC 0307. They indicated that 
there is increasing interest in the service due to shortages of 
radioisotopes required for SPECT myocardial perfusion imaging as well 
as developing evidence favoring use of myocardial PET imaging and 
growing expertise in the use of myocardial PET imaging. The commenters 
were concerned that the volatility of the payment rates from one year 
to the next at least since 2006, and the reduction in the payment rate 
from $1,433 in CY 2010 to the $1,099 proposed payment rate for APC 0307 
for CY 2011 will make it hard for hospitals to plan and budget for the 
forthcoming year. The commenters urged CMS to validate the estimated 
costs on the CY 2009 claims data for the limited numbers of hospitals 
reporting CPT codes 78459, 78491, and 78492 (APC 0307) to determine the 
reason for the proposed change in payment. The commenters believed that 
the proposed payment rate is a result of the service largely being 
furnished by a relatively small number of facilities that may be 
driving the observed reduction. One commenter stated that hospitals do 
not always align the costs and charges for the service properly in 
their accounts and, therefore, the CCRs that result from the cost 
reports understate the cost of the services. Another commenter believed 
that hospitals with disproportionately low CCRs may have been 
disproportionately included in the single bills (compared to the total 
volume of service that they furnish). This commenter also stated that 
the median cost for single scans, represented by CPT code 78491 has 
been higher than the median cost for multiple scans, represented by CPT 
code 78492 in 2007, 2009 and 2010 and that the evidence indicates that 
the data on which CMS is basing the payment rate are flawed.
    One commenter urged CMS to average the median costs over a 4-year 
period to provide stability to the payment rates or to assign CPT codes 
78459, 78491, and 78492 to New Technology APC Level XIV so that the 
services would be paid $1,250 for CY 2011. Another commenter stated 
that payment under the MPFS for these services is carrier priced and, 
therefore, has remained stable over the years. The commenter asked that 
CMS use the payment rates being paid under the MPFS as the basis for 
payment under the OPPS for these services. One commenter asked that CMS 
eliminate all single bills from hospitals that have a CCR that is less 
than 0.2 for the calculation of costs for myocardial PET services and 
that CMS establish a cost center and CCR specific to PET that would be 
used to reduce charges for PET to costs. Several commenters asked that 
CMS limit to 10 percent the amount of decrease in the median cost for 
CY 2011 compared to CY 2010 and slowly phase in any reduction beyond 10 
percent. Other commenters asked that CMS set the relative weight for 
payment for APC 0307 using the mean cost rather than the median cost.
    Response: To determine the reason that the median cost declined 
from CY 2010 to CY 2011, we examined the data for the single bills that 
were used to set the median cost for APC 0307 for CY 2010, the proposed 
CY 2011 proposed rule, and the CY 2011 final rule with comment period, 
and we determined that there are multiple reasons that the median cost 
for APC 0307 declined from CY 2010 to CY 2011. In general, when we 
looked the charges and the CCRs for CPT codes 78459, 78491, and 78492 
in APC 0307, we found that the charges either stayed the same or 
declined, that the CCRs used to estimate cost from charges for these 
codes declined, and that the cost of HCPCS code A9555 (Rb82 rubidium), 
the radiopharmaceutical that is used in a myocardial PET scan, also 
declined. Specifically, the median of the line item charge for CPT code 
78492, the highest volume code in APC 0307 (comprising 96 percent of 
single bills used to establish the median cost for APC 0307 in the CY 
2011 final rule claims data) remained virtually unchanged between the 
CY 2010 final rule claims data ($3,859.00) and the CY 2011 final rule 
claims data ($3,858.75). However, the median hospital CCR applicable to 
the line item charge for CPT code 78492, largely derived from cost 
center 4100 (Radiology-Diagnostic), declined from 0.2342 in the CY 2010 
HCRIS data to 0.1708 in the CY 2011 final rule claims data. Moreover, 
the estimated per day cost of rubidium, which is reported with 95 
percent of claims for CPT code 78492, declined from $418.05 per day in 
the CY 2010 final rule claims data to $330.06 in the CY 2011 final rule 
claims data. The hospital CCR used to estimate costs from charges for 
rubidium also is based on cost center 4100. The other two myocardial 
PET codes, CPT codes 78459 and 78491, show similar patterns of charges 
and CCRs, although they account for a much lower percent of single 
bills than CPT code 78492, which causes them to have much less 
influence on the median cost for APC 0307. We believe that the absence 
of increase in the line item charge, the significant decline in the 
applicable CCRs for CPT code 78492, and the significant decline in the 
estimated cost

[[Page 71905]]

of rubidium combine to explain the reduction in the median cost for APC 
0307 for CY 2011 compared to CY 2010. We also used a substantial volume 
of single bills for the APC (3,638 single bills out of 5,732 total 
frequency or approximately 64 percent of the claims for services in APC 
0307). In addition, as is our standard practice, we used the most 
recently submitted cost reports to calculate the CCRs (largely CCRs for 
cost center 4100 that are applied to the charges for these imaging 
services) to estimate the cost.
    We agree that the modest number of hospitals that furnish the 
service (50 in the CY 2010 final rule claims data and 61 in the CY 2011 
final rule claims data) and the addition of claims from 11 hospitals 
that reported the service for the first time in CY 2009 may have some 
bearing on the volatility in the median costs, and we will continue to 
monitor these data in the future. However, it is also possible that 
hospitals are becoming more efficient and that the cost of the service 
is declining as it becomes better established. Our standard methodology 
of estimating costs from charges and creating single claims with a 
unique resource cost for individual services resulted in the use of 64 
percent of the claims for services in APC 0307 for ratesetting; and, we 
used the most current claims and cost report data that are available 
for the estimation of the cost of the service. With regard to the 
comment that the estimated cost for CPT code 78491 has been higher than 
CPT code 78492 in past years, the low sample size and differences in 
the mix of hospitals reporting these codes likely accounts for this 
observation and do not suggest the data are flawed. We also note that 
any difference in estimated cost between single and multiple studies 
would not impact the payment rate as claims for CPT code 78492 drive 
the estimated median cost for this APC.
    Based on our review of the claim charge data and cost report data, 
we believe our estimated cost data for the services in APC 0307 are 
accurate and, therefore, will not adopt an alternative methodology, 
such as commenters requests to limit CCRs to those at 0.2 or above, 
calculating a rolling average based on 4 years of past medians, 
assigning the codes to a new technology APC, limiting the decline in 
the median cost to 10 percent, setting the weight on the mean cost 
rather than the median cost, or setting the payment rate at the amount 
paid to physicians for the service. Similarly, we do not believe that 
the CCRs that are applied to the charges for myocardial PET result in 
flawed estimated costs for the service and that a cost center specific 
to PET services is necessary to provide valid CCRs for PET services.
    After consideration of the public comments we received and 
examination of the reasons for the decline in the median cost for APC 
0307, we are not making any of the adjustments to the median cost that 
commenters request because we believe that the data on which the median 
is calculated are valid and that the median is accurate. Therefore we 
are finalizing a payment rate for APC 0307 for CY 2011 based on the CY 
2011 OPPS final rule median cost of approximately $1,096. We are 
accepting the APC Panel's recommendation and will report the findings 
of our investigation into the reason for the decline in median cost for 
APC 0307 from the CY 2010 OPPS to the proposed CY 2011 OPPS at the 
winter 2011 APC Panel meeting.
c. Cardiovascular Computed Tomography (CCT) (APCs 0340 and 0383)
    The AMA CPT Editorial Panel created the following new codes for 
Cardiovascular Computed Tomography (CCT) services, effective January 1, 
2010: CPT codes 75571 (Computed tomography, heart, without contrast 
material, with quantitative evaluation of coronary calcium), 75572 
(Computed tomography, heart, with contrast material, for evaluation of 
cardiac structure and morphology (including 3D image postprocessing, 
assessment of cardiac function, and evaluation of venous structures, if 
performed)), 75573 (Computed tomography, heart, with contrast material, 
for evaluation of cardiac structure and morphology in the setting of 
congenital heart disease (including 3D image postprocessing, assessment 
of LV cardiac function, RV structure and function and evaluation of 
venous structures, if performed)), and 75574 (Computed tomographic 
angiography, heart, coronary arteries and bypass grafts (when present), 
with contrast material, including 3D image postprocessing (including 
evaluation of cardiac structure and morphology, assessment of cardiac 
function, and evaluation of venous structures, if performed). For CY 
2010, we assigned CPT code 75571 to APC 0340 (Minor Ancillary 
Procedures). For CY 2010, we also assigned CPT codes 75572, 75573, and 
75574 to APC 0383 (Cardiac Computed Tomographic Imaging). For CY 2011, 
we proposed to maintain these APC assignments, with a proposed rule 
median cost for APC 0340 of approximately $48 and a proposed rule 
median cost for APC 0383 of approximately $263.
    Comment: One commenter urged CMS to consider using data sources in 
addition to our claims and cost report data to establish the basis for 
payment for CCT because the commenter believed that hospitals have 
reported incorrect or incomplete data for CY 2009 for CCT services. The 
commenter stated that the incorrect data are due to unfamiliarity or 
misinterpretation of Category III CPT codes that were used prior to CY 
2010, and are reflected in the charges on the claims for services in CY 
2009 on which the median costs for CY 2011 will be based. The commenter 
stated that it is developing a data collection to present to CMS to 
substantiate that CCT services are more costly than the CY 2009 data 
that CMS used. The commenter urged CMS to be open to accepting new 
data.
    Response: We have no reason to believe that the median costs we 
have calculated for CPT codes 75571, 75572, 75573, and 75574 do not 
reflect valid estimates of the cost of these services. We proposed to 
continue to assign CPT code 75571 to APC 0340, which had a CY 2011 
proposed rule APC median cost of approximately $46. We also proposed to 
continue to assign CPT codes 75572, 75573, and 75574 to APC 0383, which 
had a proposed rule CY 2011 APC median cost of approximately $254. 
Because CPT codes 75571, 75572, 75573, and 75574 are all new for CY 
2010, we do not have CY 2009 claims data for these codes for CY 2011 
OPPS ratesetting. However, we assigned them to APCs 0340 and 0383 based 
on what we believe to be their clinical and resource similarity to the 
other services in the APC, for which we have claims data.
    Concerning the request that we review external data that may be 
provided in the future, we do review data that the public wishes to 
share with us. However, because the OPPS is a budget neutral relative 
weight based system, we believe that it is critical that the same 
source of data and the same cost estimation process be used to 
establish the median costs for services paid under the OPPS so that the 
payment rates derived from the median costs are correct in relativity 
to one another.
    After considering the public comments we received and reviewing our 
updated CY 2009 claims data, we are continuing to maintain the 
assignment of CPT code 75571 to APC 0340 for CY 2011, for which we have 
calculated a final rule median cost of approximately $46. We also are 
maintaining the assignment of CPT codes 75572, 75573, and 75574 to APC 
0383, for which we have calculated a

[[Page 71906]]

final rule median cost of approximately $254 for CY 2011.
d. Multifunction Cardiogram (APC 0340)
    For CY 2011, we proposed to continue to assign Category III CPT 
code 0206T (Algorithmic analysis, remote, of electrocardiographic-
derived data with computer probability assessment, including report) to 
APC 0340 (Minor Ancillary Procedures), with a proposed payment rate of 
approximately $47.
    Comment: One commenter defined the procedure described by CPT code 
0206T as a multifunction cardiogram. The commenter stated that CMS 
should reconsider the proposed assignment of CPT code 0206T to APC 0340 
because it is not similar, clinically or in terms of resource 
utilization, to the other procedures assigned to APC 0340. The 
commenter stated that the majority of the other procedures in APC 0340 
are minor office procedures that are quickly done and do not require 
data transmission or analysis. According to the commenter, the complex 
data obtained and analyzed by the multifunction cardiogram is 
comparable to the data obtained and analyzed during cardiac stress 
tests or electrocardiograms, and serve as an alternative to 
radionuclide stress testing in the diagnosis of coronary artery 
disease. Based on the use of the multifunction cardiogram and the data 
it generates, the commenter believed that the procedure described by 
CPT code 0206T is most similar clinically to the procedures assigned to 
APC 0100 (Cardiac Stress Tests), which had a proposed payment rate of 
approximately $180. However, in terms of resource utilization, the 
commenter claimed that payment for the multifunction cardiogram should 
be $75 more than the payment for APC 0100. The commenter pointed out 
that CPT code 0206T was new for CY 2010, and, therefore, no CY 2009 
claims data are available for CY 2011 OPPS ratesetting. The commenter 
described a multifunction cardiogram as a non-traditional systems 
analysis tool that creates a mathematical model for the detection of 
myocardial ischemia, and argued that this tool represents a completely 
new technology. The commenter recommended that CMS reassign CPT code 
0206T to APC 1504 (New Technology--Level IV ($200-$300)).
    Response: We appreciate the commenter's submission of this clinical 
information for the procedure described by Category III CPT code 0206T 
for our review. As a new Category III CPT code for CY 2010, we do not 
yet have hospital claims data for the procedure. Category III CPT codes 
are temporary codes that describe emerging technology, procedures, and 
services, and they are created by the AMA to allow for data collection 
for new services or procedures. Under the OPPS, we generally assign a 
payment rate to a new Category III CPT code based on input from a 
variety of sources, including but not limited to, review of resource 
costs and clinical homogeneity of the service to existing procedures, 
information from specialty societies, input from CMS medical advisors, 
and other information available to us. Based on our review of the 
clinical characteristics of CPT code 0206T and the information provided 
by the commenter, we do not believe that we have sufficient clinical or 
cost information to justify a reassignment to a different APC at this 
time. However, the APC Panel Subcommittee for APC Groups and Status 
Indicator (SI) Assignments provides substantive advice to us on the 
correct assignment of services to APCs, and the Subcommittee members 
bring expertise and experience to their review of clinical issues. 
Therefore, we will review the procedure described by the commenter with 
the APC Panel's Subcommittee for APC Groups and Status Indicator (SI) 
Assignments at the winter 2011 APC Panel meeting.
    After review of the public comment we received, we are finalizing 
our CY 2011 proposal, without modification, to continue to assign 
Category III CPT code 0206T to APC 0340. As we indicated earlier, we 
also will review the APC assignment of Category III CPT code 0206T with 
the APC Panel's Subcommittee for APC Groups and SI Assignments at the 
winter 2011 APC Panel meeting.
e. Unlisted Vascular Surgery Procedure (APC 0624)
    For CY 2011, we proposed to continue to assign CPT code 37799 
(Unlisted procedure, vascular surgery) to APC 0624 (Phlebotomy and 
Minor Vascular Access Device Procedures), which had a proposed payment 
rate of approximately $43.
    Comment: One commenter requested that CMS reassign CPT code 37799 
from APC 0624 to APC 0103 (Miscellaneous Vascular Procedures), which 
had a proposed CY 2011 OPPS payment rate of approximately $1,309. The 
commenter stated that CPT code 37799 is most clinically related to the 
services assigned to APC 0103. The commenter further stated that 
continuing to assign CPT code 37799 to APC 0624 would limit patient 
access to new technology and clinically advanced procedures.
    Response: As a matter of policy, which we have stated previously in 
the OPPS final rules with comment period since 2005 (69 FR 65724 
through 65725), HCPCS codes that are unlisted procedures, not otherwise 
classified, or not otherwise specified codes, are assigned to the 
lowest level APC that is appropriate to the clinical nature of the 
service. We also do not consider the costs of these services in 
assessing APCs for 2 times rule violations. We do not believe that the 
assignment of CPT code 37799 to APC 0103, as the commenter suggested, 
would be consistent with our policy to assign HCPCS codes for unlisted 
procedures to the lowest level APC that is appropriate to the clinical 
nature of the service. Because unlisted codes do not describe any 
specific service, we believe that assigning them to the lowest level 
APC is appropriate under the hospital OPPS. Furthermore, we cannot 
assess whether the procedure described by CPT code 37799 is similar to 
procedures in APC 0103 because the CPT code does not describe any 
particular service. We note that the CPT instruction that appears 
underneath CPT code 36592 (Collection of blood specimen using 
established central or peripheral catheter, venous, not otherwise 
specified) refers to the use of unlisted CPT code 37799 for blood 
collection from an established arterial catheter, a very low intensity 
service. We also note that we would assign a service or procedure to a 
more appropriate APC once it is assigned to a specific CPT or HCPCS 
code.
    After consideration of the public comment we received, we are 
finalizing our proposal, without modification, to continue to assign 
CPT code 37799 to APC 0624, which has a final CY 2011 APC median cost 
of approximately $43.
f. Implantable Loop Recorder Monitoring (APC 0691)
    For CY 2011, we proposed to assign CPT code 93299 (Interrogation 
device evaluation(s), (remote) up to 30 days; implantable 
cardiovascular monitor system or implantable loop recorder system, 
remote data acquisition(s), receipt of transmissions and technician 
review, technical support and distribution of results) to APC 0691 
(Level III Electronic Analysis of Devices), with a proposed payment 
rate of approximately $169.
    Comment: Some commenters acknowledged that APC 0691 is a reasonable 
placement for CPT code 93299 based on its proposed rule median cost of 
approximately $274, but questioned the accuracy of the CY 2009 proposed 
rule claims data that CMS used to calculate the median cost. One

[[Page 71907]]

commenter stated that claims data were available for this service for 
the first time for CY 2011 ratesetting and argued that the proposed 
rule median cost for CPT code is too high, pointing out that the 
average physician charge for the same service in CY 2009 was only 
$42.87. In addition, the commenter stated that the OPPS median cost for 
a similar service, described by CPT 93296 (Interrogation device 
evaluation(s), (remote), up to 90 days; single, dual, or multiple lead 
pacemaker system or implantable cardioverter-defibrillator system, 
remote data acquisition(s), receipt of transmissions and technician 
review, technical support and distribution of results) is significantly 
lower than the median cost for CPT code 93299. Therefore, the commenter 
suggested that CPT code 93299 be assigned to APC 0690 (Level I, 
Electronic Analysis of Devices), the same APC to which CPT code 93296 
is assigned.
    Response: The commenters mistakenly cited $274 as the proposed rule 
median cost for CPT code 93299 for CY 2011. The proposed rule 
``median'' cost for CPT code 93299 was approximately $184, while the 
proposed rule ``mean'' cost for CPT code 93299 was approximately $274. 
We understand that the commenters are concerned about differences in 
costs for services provided in different settings (HOPDs versus 
physicians' offices) when the same services are provided to Medicare 
beneficiaries. Even though both settings use the standard CPT code set, 
the costs of providing these services in one setting may not be the 
same as the costs in another setting. The OPPS and the MPFS are 
fundamentally different payment systems with essential differences in 
their payment policies. Specifically, the OPPS is a prospective payment 
system, based on the concept of paying for groups of services that 
share clinical and resource characteristics. Payment is made under the 
OPPS according to prospectively established payment rates that are 
related to the relative costs of hospital resources for services, as 
calculated from claims data and Medicare cost reports. The MPFS is a 
fee schedule that generally provides separate payment for each 
individual service, reflecting the expected typical inputs into these 
services. The OPPS methodology allows hospitals to actively contribute 
on an ongoing basis to the ratesetting process through its annual 
updates and to influence future payment rates for services by 
submitting correctly coded and accurately priced claims for the 
services they provide. According to this methodology, it is generally 
not our policy to judge the accuracy of hospital coding and charging 
for purposes of ratesetting. The CY 2011 final rule median cost for CPT 
code 93299 is approximately $180, calculated from 558 single claims. 
Therefore, we do not agree with commenters that we should assign this 
procedure to APC 0690, which has a final rule median cost of only $35.
    After consideration of the public comments we received, we are 
finalizing our CY 2011 proposal, without modification, to continue to 
assign CPT code 93299 to APC 0691, with a final CY 2011 APC median cost 
of approximately $165.
2. Gastrointestinal (GI) Services: Upper GI Endoscopy (APCs 0141, 0384, 
and 0422)
    For CY 2011, we proposed to reassign four upper gastrointestinal 
endoscopy CPT codes from APC 0141 (Level I Upper GI Procedures) to APC 
0422 (Level II Upper GI Procedures). Specifically, we proposed to 
reassign CPT codes 43216 (Esophagoscopy, rigid or flexible; with 
removal of tumor(s), polyp(s), or other lesion(s) by hot biopsy forceps 
or bipolar cautery), 43242 (Upper gastrointestinal endoscopy including 
esophagus, stomach, and either the duodenum and/or jejunum as 
appropriate; with transendoscopic ultrasound-guided intramural or 
transmural fine needle aspiration/biopsy(s) (includes endoscopic 
ultrasound examination of the esophagus, stomach, and either the 
duodenum and/or jejunum as appropriate), 43510 Gastrotomy; with 
esophageal dilation and insertion of permanent intraluminal tube (e.g., 
celestin or mousseaux-barbin)), and 43870 (Closure of gastrostomy, 
surgical) from APC 0141, with a proposed payment rate of approximately 
$606, to APC 0422, with a proposed payment rate of approximately 
$1,113.
    For CY 2011, we proposed to continue to assign CPT code 43240 
(Upper gastrointestinal endoscopy including esophagus, stomach, and 
either the duodenum and/or jejunum as appropriate; with transmural 
drainage of pseudocyst) to APC 0141, with a proposed payment rate of 
approximately $600. We also proposed to continue to assign CPT code 
43228 (Esophagoscopy, rigid or flexible; with ablation of tumor(s), 
polyp(s), or other lesion(s), not amenable to removal by hot biopsy 
forceps, bipolar cautery or snare technique) to APC 0422 with a 
proposed payment rate of approximately $1,113.
    Comment: Several commenters disagreed with the reassignment of CPT 
codes 43216, 43242, 43510, and 43870 from APC 0141 to APC 0422 because, 
they stated, these procedures are similar to those services that will 
continue to be assigned to APC 0141, specifically CPT codes 43231 
(Esophagoscopy, rigid or flexible; with endoscopic ultrasound 
examination), 43232 (Esophagoscopy, rigid or flexible; with 
transendoscopic ultrasound-guided intramural or transmural fine needle 
aspiration/biopsy(s)), 43237 (Upper gastrointestinal endoscopy 
including esophagus, stomach, and either the duodenum and/or jejunum as 
appropriate; with endoscopic ultrasound examination limited to the 
esophagus), 43238 (Upper gastrointestinal endoscopy including 
esophagus, stomach, and either the duodenum and/or jejunum as 
appropriate; with transendoscopic ultrasound-guided intramural or 
transmural fine needle aspiration/biopsy(s), esophagus (includes 
endoscopic ultrasound examination limited to the esophagus)), and 43259 
(Upper gastrointestinal endoscopy including esophagus, stomach, and 
either the duodenum and/or jejunum as appropriate; with endoscopic 
ultrasound examination, including the esophagus, stomach, and either 
the duodenum and/or jejunum as appropriate). The commenters stated that 
the reassignment to APC 0422 does not maintain the clinical homogeneity 
and resource characteristics of these services.
    Response: Section 1833(t)(9)(A) of the Act requires the Secretary 
to review and revise the groups, the relative payment weights, and the 
wage and other adjustments to take into account changes in medical 
practice, changes in technology, the addition of new services, new cost 
data, and other relevant information and factors; the Act further 
requires us to repeat this process on a basis that is not less often 
than annually. As such, we review, on an annual basis, all APC 
assignments for both general appropriateness and for violations of the 
2 times rule and, when necessary, reassign CPT codes to more 
appropriate APCs. Although there was no violation of the 2 times rule 
in APC 0141, based on our review of the CY 2009 proposed rule claims 
data used for ratesetting, we believed that a change in APC assignment 
was necessary for CPT codes 43216, 43242, 43510, and 43870. For CY 
2011, the proposed median cost for APC 0141 was approximately $618. 
However, the median cost for CPT codes 43216, 43242, 43510, and 43870 
were significantly higher. Specifically, CPT code 43216 had a median 
cost of approximately $1,329, CPT code 43242

[[Page 71908]]

had a median cost of approximately $1,074, CPT code 43510 had a median 
cost of approximately $1,471, and CPT code 43870 had a median cost of 
approximately $1,509. Based on the proposed rule median costs, we 
proposed to reassign the four CPT codes to APC 0422, which had a 
proposed APC median cost of approximately $1,136.
    Our review of the CY 2011 final rule claims data indicates that the 
median costs for these CPT codes continue to be more consistent with 
assignment to APC 0422. Specifically, CY 2011 final rule claims data 
shows that CPT code 43216 has a final rule median cost of approximately 
$1,100, CPT code 43242 has a final rule median cost of approximately 
$1,067, CPT code 43510 has a final rule median cost of approximately 
$1,362, and CPT code 43870 has a final rule median cost of 
approximately $1,454. Based on our examination of the CY 2011 OPPS 
final rule claims data, we continue to believe that CPT codes 43216, 
43242, 43510, and 43870 are appropriately placed in APC 0422, which has 
a final rule APC median cost of approximately $1,137, based on clinical 
homogeneity and resource costs.
    Comment: Some commenters specifically disagreed with the APC 
reassignment of CPT code 43242, which describes an ultrasound 
procedure, because, the commenters stated, all the other ultrasound 
procedures would continue to be assigned to APC 0141. The commenters 
believed that the change may result in upcoding that could lead to 
incorrect coding or inappropriate payment, and suggested that, to help 
eliminate upcoding, CMS create a new APC specifically for ultrasound 
upper GI procedures. Specifically, the commenters suggested the 
creation of a new APC whose payment rate would be between the Level I 
Upper GI Procedures APC 0141 and Level II Upper GI Procedures APC 0422. 
The commenters stated that the restructuring of the current two APCs to 
three upper level GI APCs would provide appropriate payment for upper 
GI procedures consistent with CMS' policy of APC restructuring based on 
resource homogeneity, clinical homogeneity, provider concentration, 
frequency of service, and minimal opportunities for upcoding and code 
fragmentation.
    Response: Based on our review of the hospital outpatient claims 
data used for ratesetting for the proposed rule, we determined that a 
change in APC assignment for CPT code 43242 was necessary. As we 
describe above, we continue to believe that the service associated with 
CPT code 43242 is more similar in resource use to those services 
assigned to APC 0422.
    We do not agree with the commenters' suggestion for creating a new 
APC specific to ultrasound upper GI procedures. Based on our medical 
review team's assessment of the clinical characteristics of the 
procedure described by CPT code 43242 and the other procedures assigned 
to APC 0422, and based on the proposed rule and final rule claims data, 
we believe that CPT code 43242 is similar clinically and in terms of 
resource utilization to the upper GI procedures in APC 0422. Therefore, 
for CY 2011, as we proposed, we will reassign CPT code 43242 to APC 
0422. We note that, in all cases, hospitals must report HCPCS codes 
that accurately reflect the services furnished; upcoding in order to 
receive higher payment is considered fraudulent billing.
    Comment: Several commenters requested that CMS reassign CPT code 
43240 from APC 0141 to APC 0384 (GI Procedures with Stents), which had 
a proposed payment rate of approximately $1,876. The commenters 
believed that CPT code 43240 would be appropriately placed in APC 0384 
based on resource and clinical homogeneity to other procedures assigned 
to APC 0384.
    Response: After review of our claims data for both the proposed 
rule and the final rule and consideration of the clinical 
characteristics, we do not agree with the commenters' recommendation to 
reassign CPT code 43240 to APC 0384. We believe that the procedure 
described by CPT code 43240 shares clinical similarities with the other 
upper GI procedures assigned to APC 0141. Furthermore, our CY 2011 
final rule claims data show that the median cost for CPT code 43240 of 
approximately $738 based on 30 single claims (out of a total of 116 
total claims) is substantially dissimilar to the median cost of 
approximately $1,893 for APC 0384. We believe that the final rule 
median cost of approximately $738 is more similar to the median cost of 
approximately $605 for APC 0141. Therefore, for CY 2011, we will 
continue to assign CPT code 43240 to APC 0141.
    Comment: One commenter stated that the proposed payment reduction 
for APC 0422 from $1,635 for CY 2010 to $1,113.48 for CY 2011 will 
restrict Medicare beneficiary access to services that are in APC 0422. 
The commenter further stated that the payment rate for APC 0422 is 
inadequate to pay for the medical device required to perform the 
service described by CPT code 43228.
    Response: Review of our CY 2011 final rule claims data shows that 
the median cost for CPT code 43228 is approximately $1,797 based on 
1,759 single claims (out of a total of 2,199 claims), which is 
relatively similar to the final rule median cost of $1,137 for APC 
0422, which includes many upper GI procedures such as the procedure 
described by CPT code 43228. Therefore, we continue to believe that the 
procedure described by CPT code 43228 is appropriately placed in APC 
0422 based on resource and clinical homogeneity to other procedures 
currently assigned to APC 0422. We note that our cost-finding 
methodology is based on reducing each hospital's charge for its 
services to an estimated cost by applying the most discrete hospital-
specific CCR available for the hospital that submitted the claim. 
Hence, it is the hospital's claims and cost reports that determine the 
estimated costs that are used to calculate the median cost for each 
service and, when aggregated into APC groups, the hospital data is used 
to calculate the median cost for the APC on which the APC payment rate 
is based.
    With regard to the commenter's statement that hospitals will reduce 
access to these services for Medicare beneficiaries if the payment for 
them declines, we note that our regulations at 42 CFR 489.53(a)(2) 
permit CMS to terminate a hospital's provider agreement if the hospital 
places restriction on the persons it will accept for treatment and 
fails either to exempt Medicare beneficiaries from those restrictions 
or to apply them to Medicare beneficiaries the same as to all other 
persons seeking care.
    After consideration of the public comments we received, we are 
finalizing our CY 2011 proposal, without modification, to reassign CPT 
codes 43216, 43242, 43510, and 43870 from APC 0141 to APC 0422, which 
has a final CY 2011 APC median cost of approximately $1,137. We also 
are finalizing our CY 2011 proposal, without modification, to continue 
to assign CPT code 43240 to APC 0141, which has a final CY 2011 APC 
median cost of approximately $605, and to continue to assign CPT code 
43228 to APC 0422, which has a final CY 2011 APC median cost of 
approximately $1,137.
3. Genitourinary Services
a. Radiofrequency Remodeling of Bladder Neck (APC 0165)
    For CY 2011, we proposed to continue to assign Category III CPT 
code 0193T

[[Page 71909]]

(Transurethral, radiofrequency micro-remodeling of the female bladder 
neck and proximal urethra for stress urinary incontinence) to APC 0165 
(Level IV Urinary and Anal Procedures), with a proposed payment rate of 
approximately $1,403. This CPT code has been assigned to APC 0165 since 
it became effective in CY 2009.
    Comment: Some commenters disagreed with the proposed continued APC 
assignment of CPT code 0193T to APC 0165. The commenters believed that 
the proposed payment rate for APC 0165 does not accurately reflect the 
costs incurred by hospitals that perform the procedure described by CPT 
code 0193T, especially because the procedure itself utilizes a costly 
single-use disposable medical device. The commenters suggested the 
assignment of CPT code 0193 to APC 0202 (Level VII Female Reproductive 
Procedures), which had a proposed payment rate of $3,086, because APC 
0202 contains procedures that are very similar to the provedure 
described by CPT code 0193T. Specifically, the commenters indicated 
that CPT code 0193T is similar in clinical characteristics and resource 
costs to HCPCS codes 58356 (Endometrial cryoablation with ultrasonic 
guidance, including endometrial curettage, when performed) and 58565 
(Hysteroscopy, surgical; with bilateral fallopian tube cannulation to 
induce occlusion by placement of permanent implants), which are 
assigned to APC 0202. As an alternative, the commenters recommended the 
reassignment of CPT code 0193T to APC 0168 (Level II Urethral 
Procedures), which had a proposed payment rate of $2,211, because CPT 
code 0193T is also similar clinically and resource costs to CPT code 
51715 (Endoscopic injection of implant material into the submucosal 
tissues of the urethra and/or bladder neck), which are assigned to APC 
0168. The commenters added that the probe used in the procedure 
associated with CPT code 0193T costs $1,095, and, overall, the total 
procedure cost with the probe is approximately $2,600.
    Response: We do not have any CY 2009 hospital claims data for CPT 
code 0193T, which became effective on January 1, 2009. Category III CPT 
codes are temporary codes that describe emerging technology, 
procedures, and services, and these CPT codes were created by AMA to 
allow for data collection for new services or procedures. Under the 
OPPS, we generally assign new Category III CPT codes to clinical APCs 
based on input from a variety of sources, including, but not limited 
to, review of resource costs and clinical homogeneity of the service to 
existing procedures, information from specialty societies, input from 
our medical officers, and other information available to us. Based on 
our review of the clinical characteristics of CPT code 0193T, as well 
as the other procedures assigned to APCs 0165, 0168, and 0202, we 
continue to believe that the most appropriate APC for CPT code 0193T is 
APC 0165, and that the procedures contained in APC 0165 are clinically 
similar to that of CPT code 0193T. As we have stated in the past (74 FR 
60446), we do not agree with the commenters that the procedures 
assigned to APC 0202 that involve fallopian tube cannulation or 
endometrial ablation are sufficiently similar to the procedure 
described by CPT code 0193T based on procedure duration, device 
utilization, use of guidance, or other characteristics to warrant 
reassignment of CPT code 0193T to APC 0202 based on considerations of 
clinical homogeneity. We also do not believe that CPT code 0193T is 
sufficiently similar to CPT code 51715, which involves an endoscopic 
injection of implant material, to warrant reassignment.
    Furthermore, we note that, at the August 2009 APC Panel meeting, a 
presenter requested that the APC Panel recommend that CMS reassign CPT 
code 0193T to either APC 0202 or APC 0168 based on resource 
intensiveness and therapeutic benefit. The presenter claimed that the 
device cost associated with CPT code 0193T is comparable to those 
single-use devices that are used with certain procedures listed under 
APC 0202, specifically those described by CPT codes 58356, 58565, and 
57288. This same presenter indicated that, unlike the medical devices 
used in the procedures that are in APC 0202, the costs of the single-
use medical devices for the procedures in APC 0165 are very minimal. 
After a discussion, the APC Panel recommended that CMS maintain the APC 
assignment of CPT code 0193T to APC 0165.
    After consideration of the public comments we received, we are 
finalizing our proposal, without modification, to continue to assign 
CPT code 0193T to APC 0165, which has a final CY 2011 median cost of 
approximately $1,369.
    For CY 2011, the AMA CPT Editorial Panel decided to delete Category 
III CPT code 0193T on December 31, 2010, and replace it with CPT code 
53860 (Transurethral radiofrequency micro-remodeling of the female 
bladder neck and proximal urethra for stress urinary incontinence) 
effective January 1, 2011. Similar to its predecessor CPT code, the 
replacement CPT code 53860 will be assigned to APC 0165 effective 
January 1, 2011.
b. Percutaneous Renal Cryoablation (APC 0423)
    For CY 2011, we proposed to continue to assign CPT code 50593 
(Ablation, renal tumor(s), unilateral, percutaneous, cryotherapy) to 
APC 0423 (Level II Percutaneous Abdominal and Biliary Procedures), with 
a proposed payment rate of approximately $3,905. This CPT code was a 
new code in CY 2008; however, the same service was previously described 
by CPT code 0135T (Ablation renal tumor(s), unilateral, percutaneous, 
cryotherapy). We note that, for CY 2007, based upon the APC Panel's 
recommendation made at its March 2006 meeting, we reassigned CPT code 
50593 (then CPT code 0135T) from APC 0163 (Level IV Cystourethroscopy 
and other Genitourinary Procedures) to APC 0423, effective January 1, 
2007.
    Comment: One commenter expressed concern that the proposed payment 
rate of approximately $3,905 for CPT code 50593 is inadequate because 
the payment does not accurately account for the costs incurred by 
hospitals in performing the procedure described by this code. The 
commenter argued that the proposed payment rate for CPT code 50593, 
which the commenter considered low, is attributable to claims data that 
do not accurately capture the full costs of CPT code 50593 because only 
57 percent of the claims data used to establish the median cost for 
this procedure were correctly coded, and that the single claims do not 
contain the HCPCS code and associated charge for the required device, 
specifically HCPCS code C2618 (Probe, cryoablation). The commenter 
requested that CMS designate CPT code 50593 as a device-dependent 
procedure, which would require hospitals to submit claims with the 
appropriate device HCPCS code, assign the procedure to its own APC, and 
set the payment rate for that APC based on claims for CPT code 50593 
reported with HCPCS code C2618. The commenter argued that this request 
would be appropriate because the procedure described by CPT code 50593 
cannot be performed without the utilization of the device described by 
HCPCS code C2618. The commenter's analysis concluded that the median 
cost on which payment for CPT code 50593 would be based if the request 
were honored would be approximately $5,598, resulting in a more 
accurate payment rate for the procedure and continued Medicare 
beneficiary access to percutaneous renal cryoablation in the hospital 
outpatient setting. The

[[Page 71910]]

commenter further stated that, although APC 0423 groups similar 
ablation procedures, none of the other procedures in the APC involve 
high-cost devices.
    Response: We continue to believe that CPT code 50593 is 
appropriately assigned to APC 0423 based on clinical and resource 
considerations when compared to other procedures also proposed for 
assignment to APC 0423 for CY 2011. As we stated in the CY 2007 OPPS 
final rule with comment period (71 FR 68049 through 68050), the CY 2008 
OPPS/ASC final rule with comment period (72 FR 66709), the CY 2009 
OPPS/ASC final rule with comment period (73 FR 68611), and the CY 2010 
OPPS/ASC final rule with comment period (74 FR 60444), we initially 
revised the APC assignment for the percutaneous renal cryoablation 
procedure from APC 0163 to APC 0423 in CY 2007 based on the APC Panel's 
recommendation to reassign the procedure to APC 0423. The median costs 
of the four HCPCS codes assigned to APC 0423 for CY 2011 range from 
approximately $3,477 to $4,736, well within the two-fold variation in 
median cost that is permitted by law for an OPPS payment group. Even if 
we were to calculate the median cost for CPT code 50593 using only 
claims that also contain HCPCS code C2618, estimated by the commenter 
to be approximately $5,598 using proposed rule data, the grouping of 
these procedures in the same APC would not violate the 2 times rule.
    We also do not agree that CPT code 50593 should be designated as a 
device-dependent procedure and assigned to its own separate APC. We 
have only 344 single claims (out of a total of 757 claims) for CPT code 
50593 from CY 2009 and, as such, the procedure has the second lowest 
frequency of the four procedures assigned to APC 0423. As we stated in 
the CY 2010 OPS/ASC final rule with comment period (74 FR 60444 through 
60445), we continue to believe this relatively low volume procedure 
should be assigned to a payment group with similar services, as we have 
proposed, in order to promote payment stability and encourage hospital 
efficiency. In addition, we do not identify individual HCPCS codes as 
device-dependent HCPCS codes under the OPPS. Rather, we first consider 
the clinical and resource characteristics of a procedure and determine 
the most appropriate APC assignment. When we determine that we should 
assign a procedure to an APC that is device-dependent, based on whether 
that APC has been historically identified under the OPPS as having very 
high device costs, we then consider the implementation of device edits, 
as appropriate. We again note that the identification of device-
dependent APCs was particularly important in the early years of the 
OPPS when separate pass-through payment for many implantable devices 
expired. At that time, a variety of methodologies to package the costs 
of those devices into procedural APCs was utilized over several years 
to ensure appropriate incorporation of the device costs into the 
procedure payments. At this point in time, hospitals have significantly 
more experience reporting HCPCS codes for packaged and separately 
payable items and services under the OPPS and the payment groups are 
more mature. We believe our standard ratesetting methodology typically 
results in appropriate payment rates for new procedures that utilize 
devices, as well as those that do not use high cost devices. In recent 
years, we have not encountered circumstances for which we have had to 
establish new device-dependent APCs because we were not able to 
accommodate the clinical and resource characteristics of a procedure by 
assigning it to an existing APC (whether device-dependent or non-
device-dependent), and the procedure described by CPT code 50593 is not 
an exception.
    While all of the procedures assigned to APC 0423 require the use of 
implantable devices, for many of the procedures, there are no Level II 
HCPCS codes that describe all of the technologies that may be used in 
the procedures. Therefore, as we indicated in the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60445), it would not be possible 
for us to develop procedure-to-device edits for all of the CPT codes 
assigned to APC 0423. Under the OPPS, there are many other procedures 
that require the use of implantable devices that, because they are 
assigned to OPPS APCs that are not device-dependent, do not have 
procedure-to-device edits applied, even if those claims processing 
edits would be feasible. We continue to believe that our payments for 
procedures that utilize high cost devices are appropriate for those 
services, even when those services are grouped with other procedures 
that either do not require the use of implantable devices or which 
utilize devices that are not described by specific Level II HCPCS 
codes.
    When reporting CPT code 50593, we expect hospitals to also report 
the device HCPCS code C2618, which is associated with this procedure. 
We also remind hospitals that they must report all of the HCPCS codes 
that appropriately describe the items used to provide services, 
regardless of whether the HCPCS codes are packaged or paid separately. 
If hospitals use more than one probe in performing the procedure 
described by CPT code 50593, we expect hospitals to report this 
information on the claim and adjust their charges accordingly. 
Hospitals should report the number of cryoablation probes used to 
perform the procedure described by CPT code 50593 as the units of HCPCS 
code C2618 which describes these devices, with their charges for the 
probes. Since CY 2005, we have required hospitals to report device 
HCPCS codes for all devices used in procedures if there are appropriate 
HCPCS codes available. In this way, we can be confident that hospitals 
have included charges on their claims for costly devices used in 
procedures when they submit claims for those procedures.
    After consideration of the public comment we received, we are 
finalizing our CY 2011 proposal, without modification, to continue to 
assign CPT code 50593 to APC 0423, which has a final CY 2011 APC median 
cost of approximately $3,855.
4. Nervous System Services
a. Pain-Related Procedures (APCs 0203, 0204, 0206, 0207, and 0388)
    For CY 2011, we proposed to set the payment rates for APCs to which 
pain-related procedures were assigned based on the median costs 
determined under the standard OPPS ratesetting methodology. 
Specifically, we proposed the following CY 2011 payment rates for the 
pain-related APCs: APC 0203 (Level IV Nerve Injections), with a 
proposed payment rate of approximately $908; APC 0204 (Level I Nerve 
Injections), with a proposed payment rate of approximately $182; APC 
0206 (Level II Nerve Injections), with a (proposed payment rate of 
approximately $265); APC 0207 (Level III Nerve Injections), with a 
proposed payment rate of approximately $527), and APC 0388 
(Discography), with a proposed payment rate of approximately $1,702).
    For CY 2011, we proposed to reassign CPT codes 62273 (Injection, 
epidural, of blood or clot patch) and 64408 (Injection, anesthetic 
agent; vagus nerve) from APC 0206 to APC 0207, and to reassign CPT code 
62319 (Injection, including catheter placement, continuous infusion or 
intermittent bolus, not including neurolytic substances, with or 
without contrast (for either localization or epidurography), of 
diagnostic or therapeutic substance(s) (including anesthetic, 
antispasmodic, opioid, steroid, other solution), epidural

[[Page 71911]]

or subarachnoid; lumbar, sacral (caudal)) from APC 0207 to APC 0203. 
Table 24 provides the CPT codes on which we received comments together 
with the CY 2010 APC assignment, the CY 2011 proposed rule APC 
assignment, and the CY 2011 final rule APC assignment for each code.

                     Table 24--Pain-Related Procedures On Which We Received Public Comments
----------------------------------------------------------------------------------------------------------------
                                                                                    Proposed CY    Final CY 2011
         CPT Code                     Long descriptor               CY 2010 APC      2011 APC           APC
----------------------------------------------------------------------------------------------------------------
62273....................  Injection, epidural, of blood or clot            0206            0207            0207
                            patch), 64408 (Injection, anesthetic
                            agent; vagus nerve.
62318....................  Injection, including catheter                    0207            0207            0207
                            placement, continuous infusion or
                            intermittent bolus, not including
                            neurolytic substances, with or
                            without contrast (for either
                            localization or epidurography), of
                            diagnostic or therapeutic
                            substance(s) (including anesthetic,
                            antispasmodic, opioid, steroid,
                            other solution), epidural or
                            subarachnoid; cervical or thoracic.
62319....................  Injection, including catheter                    0207            0203            0203
                            placement, continuous infusion or
                            intermittent bolus, not including
                            neurolytic substances, with or
                            without contrast (for either
                            localization or epidurography), of
                            diagnostic or therapeutic
                            substance(s) (including anesthetic,
                            antispasmodic, opioid, steroid,
                            other solution), epidural or
                            subarachnoid; lumbar, sacral
                            (caudal).
64408....................  Injection, anesthetic agent; vagus               0207            0207            0207
                            nerve.
64410....................  Injection, anesthetic agent; phrenic             0207            0207            0207
                            nerve.
64412....................  Injection, anesthetic agent; spinal              0207            0207            0207
                            accessory nerve.
64480....................  Injection, anesthetic agent and/or               0206            0206            0206
                            steroid, transforaminal epidural;
                            cervical or thoracic, each
                            additional level (List separately in
                            addition to code for primary
                            procedure).
64484....................  Injection, anesthetic agent and/or               0206            0206            0206
                            steroid, transforaminal epidural;
                            lumbar or sacral, each additional
                            level (List separately in addition
                            to code for primary procedure).
64491....................  Injection(s), diagnostic or                      0204            0204            0204
                            therapeutic agent, paravertebral
                            facet (zygapophyseal) joint (or
                            nerves innervating that joint) with
                            image guidance (fluoroscopy or CT),
                            cervical or thoracic; second level
                            (List separately in addition to code
                            for primary procedure).
64492....................  Injection(s), diagnostic or                      0204            0204            0204
                            therapeutic agent, paravertebral
                            facet (zygapophyseal) joint (or
                            nerves innervating that joint) with
                            image guidance (fluoroscopy or CT),
                            cervical or thoracic; third and any
                            additional level(s) (List separately
                            in addition to code for primary
                            procedure).
64493....................  Injection(s), diagnostic or                      0207            0207            0207
                            therapeutic agent, paravertebral
                            facet (zygapophyseal) joint (or
                            nerves innervating that joint) with
                            image guidance (fluoroscopy or CT),
                            lumbar or sacral; single level.
64494....................  Injection(s), diagnostic or                      0204            0204            0204
                            therapeutic agent, paravertebral
                            facet (zygapophyseal) joint (or
                            nerves innervating that joint) with
                            image guidance (fluoroscopy or CT),
                            lumbar or sacral; second level (List
                            separately in addition to code for
                            primary procedure).
64623....................  Destruction by neurolytic agent,                 0207            0207            0207
                            paravertebral facet joint nerve;
                            lumbar or sacral, each additional
                            level (List separately in addition
                            to code for primary procedure).
64626....................  Destruction by neurolytic agent,                 0207            0207            0207
                            paravertebral facet joint nerve;
                            cervical or thoracic, single level.
64627....................  Destruction by neurolytic agent,                 0204            0204            0204
                            paravertebral facet joint nerve;
                            cervical or thoracic, each
                            additional level (List separately in
                            addition to code for primary
                            procedure).
72285....................  Discography, cervical or thoracic,               0338            0338            0338
                            radiological supervision and
                            interpretation.
72295....................  Discography, lumbar, radiological                0338            0338            0338
                            supervision and interpretation.
----------------------------------------------------------------------------------------------------------------

    Comment: One commenter objected to what the commenter stated were 
continuing declines in OPPS payment for CPT add-on codes 64491, 64492, 
64493, 64494, 64480, 64484, 64623, and 64627. The commenter objected 
both to the declines in the payment rates, which they indicate have 
been as much as 50 percent since CY 2007, and to the application of the 
multiple procedure reduction to them which further reduces the payment 
for them by both Medicare and other payers.
    Response: CPT codes 64491, 64492, 64493, and 64494 were new codes 
in CY 2010. Therefore, we do not have CY 2009 claims data on which to 
calculate a median cost for CY 2011 ratesetting purposes. In accordance 
with our standard ratesetting policy, we proposed to assign the new 
codes to the APCs that our clinicians believe are appropriate based on 
their understanding of the nature of the service and the resources that 
are required by services that they believe to be comparable. These 
codes had new interim APC placements for CY 2010 and were open to a 60-
day public comment period. We received no public comments objecting to 
the APC placement of the new codes.
    With regard to the variation in costs for CPT codes 64480, 64484, 
64623, and 64627, as we have stated in the past, OPPS payment rates 
fluctuate based on a variety of factors, including, but not limited to, 
changes in the mix of hospitals billing the services, differential 
changes in hospital charges and costs for the services, and changes in 
the volumes of services reported (74 FR 60447). Therefore, the median 
costs upon which the OPPS payment rates are based vary from one year to 
another. We note that the median costs of all of the APCs to which CPT 
codes 64480, 64484, 64623, and 64627 are assigned increased

[[Page 71912]]

between CY 2009 and CY 2010 and again between CY 2010 and CY 2011. 
Specifically, for CPT codes 64480 and 64484, the median cost of APC 
0206 to which they are assigned increased from approximately $236 in CY 
2009 to approximately $249 in CY 2010 and to approximately $265 based 
on CY 2011 final rule data. In the case of CPT code 64627, the median 
cost of APC 0204 to which CPT code 64627 is assigned increased from 
approximately $161 in CY 2009 to approximately $171 in CY 2010 and to 
approximately $182 based on CY 2011 final rule data. Lastly, for CPT 
code 64623, the median cost of APC 0207 to which the code is assigned 
increased from approximately $463 in CY 2009 to approximately $481 in 
CY 2010 and to approximately $517 based on final rule data for CY 2011. 
We are finalizing the APC assignments for all of these procedures as 
shown in Table 24.
    With regard to the application of the multiple procedure reduction 
for APCs 0204, 0206, and 0207, we continue to believe that it is 
appropriate to reduce the payment for services furnished in these APCs 
by 50 percent when they are furnished with a procedure that is paid at 
the same or a higher rate because we believe that there are significant 
efficiencies associated with providing multiple procedures during the 
same encounter.
    Comment: One commenter objected to the proposed payment rate for 
CPT codes 72285 and 72295, which the commenter indicated is a 73-
percent increase compared to the CY 2007 OPPS payment rate. The 
commenter stated that CPT codes 62290 (Injection procedure for 
discography, each level; lumbar) and 62291 (Injection procedure for 
discography, each level; cervical or thoracic) describe the procedures 
and that CPT codes 72285 and 72295 are paid at an unreasonable rate.
    Response: As we have noted in the past (74 FR 60447), CPT codes 
72285 and 72295, both of which are assigned to APC 0388, are ``T'' 
packaged codes and, as such, are paid separately only if there is no 
separately paid surgical procedure with a status indicator of ``T'' on 
the same claim. When there is a separate payment made for these 
services, the payment is not only payment for the service itself but 
also includes payment for all services reported on the claim that are 
always packaged (that is, those with a status indicator of ``N''). The 
median cost of APC 0388 to which CPT codes 72285 and 72295 are assigned 
for payment when separate payment can be made increased from 
approximately $1,470 in CY 2009 to approximately $1,727 in CY 2010 and 
decreased to approximately $1,654 based on final rule data for CY 2011. 
The median costs reflect the cost of all conditionally and 
unconditionally packaged services on the claim. Payment for CPT codes 
62290 and 62291 is always packaged into payment for the independent, 
separately paid procedures with which these codes are reported because 
we believe that these codes are ancillary and supportive to other major 
separately paid procedures and that they are furnished only as an 
ancillary and dependent part of an independent separately paid 
procedure. Therefore when CPT codes 72285 and 72295 are the only 
separately paid procedures that appear on the claim, payment for CPT 
codes 72285 and 72295 includes the payment for CPT codes 62290 and 
62291.
    Comment: One commenter supported the proposed payment for CPT code 
62273 and 62318.
    Response: We appreciate the commenter's support.
    Comment: One commenter argued that the proposed payment rates for 
CPT codes 64408, 64410, and 64412 are excessive because these codes 
were proposed to be paid at the same level as epidural and neurolytic 
injections. The commenter objected to neurolytic epidural injections 
receiving less payment than the payment proposed for these services. 
The commenter did not identify the CPT codes of concern.
    Response: We proposed to assign CPT codes 64408, 64410, and 64412 
to APC 0207 based on what our clinicians believe to be clinical 
similarity with other procedures in APC 0207 and because these 
procedures have median costs that are similar to the median costs of 
other procedures in APC 0207. We continue to believe that these APC 
assignments are correct and are finalizing the proposed assignments. We 
are unable to compare the clinical characteristics of the services 
without knowing the specific CPT codes of the epidural and neurolytic 
injections of concern to the commenter.
    Comment: One commenter objected to the proposed reassignment of CPT 
code 62319 from APC 0207 to APC 0203. The commenter believed this 
proposed reassignment would result in excessive payment for CPT code 
62319.
    Response: CPT code 62319 is assigned to APC 0207 for CY 2010, with 
a national unadjusted payment rate of approximately $485. We proposed 
to reassign CPT code 62319 from APC 0207 to APC 0203 because the 
proposed rule median cost for CPT code 62319 was approximately $887 
and, therefore, was far more similar to the proposed rule median cost 
of approximately $926 for APC 0203 than it was similar to the proposed 
rule median cost of approximately $537 for APC 0207. In the final rule 
claims data, the median cost for CPT code 62319, which is approximately 
$801, continues to be more similar to the median cost of approximately 
$872 for APC 0203 than to the median cost of approximately $517 for APC 
0207. Therefore, we are assigning CPT code 62319 to APC 0203 for CY 
2011 as we proposed.
    Comment: One commenter objected to the proposed reduction in 
payment for CPT code 64626 from $908.40 for CY 2010 to $527.12 for CY 
2011. The commenter believed that the proposed reduction results from a 
reassignment of the code to a new category.
    Response: CPT code 64626 is assigned to APC 0207 for CY 2010 and 
the national unadjusted payment rate is approximately $485. For CY 
2011, we did not propose to reassign CPT code 64626 as the commenter 
believed. For CY 2011, we proposed to continue to assign CPT code 64626 
to APC 0207, for which we proposed a national unadjusted payment rate 
of approximately $527. Based on our analysis of final rule claims data, 
we are continuing to assign CPT code 64626, which has a final rule 
median cost of approximately $915, to APC 0207, which has a final rule 
median cost of approximately $517. We continue to believe that CPT code 
64626 is clinically similar and requires resources similar to the other 
codes that are assigned to APC 0207. We note that there are no 2 times 
violations in APC 0207.
    After consideration of the public comments we received, we are 
finalizing our CY 2011 proposals, without modification, to pay for CPT 
codes 64491, 64492, 64493, 64494, 64480, 64484, 64623, 64627, 72285, 
72295, 64408, 64410, 64412, 62318, 62319, and 64626 through APCs 0203, 
0204, 0206, 0207, and 0388, as shown in Table 24 above. APC 0203 has a 
CY 2011 final rule median cost of approximately $872, APC 0204 has a CY 
2011 final rule median cost of approximately $182, APC 0206 has a CY 
2011 final rule median cost of approximately $265, APC 0207 has a CY 
2011 final rule median cost of approximately $517, and APC 0388 has a 
CY 2011 final rule median cost of approximately $1,654. We are 
finalizing our proposed assignment of CPT code 62273 to APC 0207. We 
also are finalizing our proposed reassignment of CPT code 62319 from 
APC 0207 to APC 0203, and we are continuing to assign CPT code 64626 to 
APC 0207.

[[Page 71913]]

b. Revision/Removal of Neurostimulator Electrodes (APC 0687)
    For CY 2011, we proposed to continue to assign CPT codes 63661 
(Removal of spinal neurostimulator electrode percutaneous array(s), 
including fluoroscopy, when performed), 63662 (Removal of spinal 
neurostimulator electrode plate/paddle(s) placed via laminotomy or 
laminectomy, including fluoroscopy, when performed), 63663 (Revision, 
including replacement, when performed, of spinal neurostimulator 
electrode percutaneous array(s), including fluoroscopy, when 
performed), and 63664 (Revision, including replacement, when performed, 
of spinal neurostimulator electrode plate/paddle(s) placed via 
laminotomy or laminectomy, including fluoroscopy, when performed) to 
APC 0687 (Revision/Removal of Neurostimulator Electrodes), for which we 
proposed a CY 2011 median cost of approximately $1,527. For CY 2010, 
these CPT codes were assigned to APC 0687, which has a CY 2010 national 
unadjusted payment rate of approximately $1,324. These new codes were 
created effective for services performed on or after January 1, 2010, 
when the AMA CPT Editorial Board deleted CPT code 63660 (Revision or 
removal of spinal neurostimulator electrode percutaneous array(s) or 
plate/paddle(s)) and created new CPT codes 63661, 63662, 63663, and 
63664 to differentiate between revision and removal procedures, and to 
also differentiate between percutaneous leads (arrays) and surgical 
leads (plates/paddles). In accordance with our standard policy, we 
indicated in Addendum B of the CY 2010 final rule that the APC 
assignments for these new CPT codes for CY 2010 were new interim APC 
assignments by showing comment indicator ``NI'' for each new code, and 
we accepted public comment on them. We received public comments both in 
response to the CY 2010 final rule interim APC assignment and in 
response to our CY 2011 proposal to continue to assign the new codes to 
APC 0687. We have incorporated the CY 2010 final rule comments and 
responses into the summary of the comments and responses on our 
proposal to continue to assign the new codes to APC 0687 for CY 2011.
    Comment: Commenters supported the placement of CPT codes 63661 and 
63662 in APC 0687. However, they objected to the placement of CPT codes 
63664 and 63665 in APC 0687 because, they stated, these codes are used 
to report both revision and replacement of neurostimulator electrodes. 
The commenters believed that hospital resources are substantially 
greater when neurostimulator electrodes are being replaced rather than 
revised. They asked that CMS create and require hospitals to use four 
new Level II alpha numeric codes to report these services in place of 
the CPT codes. Specifically, they asked that CMS create Level II alpha 
numeric HCPCS codes for (1) Revision of spinal neurostimulator 
electrode percutaneous arrays; (2) Revision of spinal neurostimualtor 
electrode plate/paddle arrays; (3) Replacement of spinal 
neurostimulator electrode percutaneous arrays; and (4) Replacement of 
spinal neurostimulator electrode plate/paddle arrays. They stated that 
CMS could continue to assign the two new HCPCS codes for revision of 
electrodes to APC 0687, which has a CY 2010 national unadjusted payment 
rate of approximately $1,324. However, the commenters suggested stated 
that CMS assign the new HCPCS codes for replacement of percutaneous 
electrodes to device-dependent APC 0040 (Percutaneous Implantation of 
Neurostimulator Electrodes), which has a CY 2010 national unadjusted 
payment rate of approximately $4,429. They also suggested that CMS 
assign the new HCPCS codes for replacement of plate/paddle electrodes 
to device dependent APC 0061 (Laminectomy, Laproscopy, or Incision for 
Implantation of Neurostimulator Electrodes), which has a CY 2010 
national unadjusted payment rate of approximately $5,832. The 
commenters believed that the creation of the two Level II alpha numeric 
HCPCS codes for replacement of the neurostimulator electrode devices 
and their assignment to device-dependent APCs 0040 and 0061 are 
necessary to ensure that hospitals are paid appropriately for the cost 
of the electrodes that are inserted during a replacement procedure. One 
commenter stated that an analysis of the registration information it 
maintains on individual patients, products, and associated procedures 
from June 2004 to April 2010 shows that 343 lead revisions would 
currently fall into CPT code 63663 or 63664. The commenter further 
stated that, of these 343 cases, 22 percent were revised without a 
device while 78 percent were revised with replacement of a device (the 
commenter provided aggregate information across both CPT codes). The 
commenter indicated that its data support the need to create the new 
Level II alpha numeric HCPCS codes and to assign the codes for 
neurostimulator electrode replacement to APCs 0040 and 0061. The 
commenter stated that CMS has created Level II alpha numeric HCPCS 
codes for the same reason in the past and, therefore, has a precedent 
for creating the Level II alpha numeric HCPCS codes as the commenter 
requested.
    Response: For CY 2011, we are assigning CPT codes 63661, 63662, 
63663, and 63664 to APC 0687 as we proposed, with a CY 2011 final rule 
median cost of approximately $1,480. We do not have CY 2009 claims data 
on the cost of these codes upon which to make an assessment of whether 
there is a meaningful difference between the cost of revising the 
electrodes or replacing them. Therefore, we are not convinced by the 
commenters that the use of the CPT codes for these services and the 
assignment of the codes for revision/replacement of neurostimulator 
electrodes to APC 0687 are inappropriate. Further, the OPPS is a 
payment system of averages in which the payment for a service is based 
on the estimated relative cost of the service, including a range of 
supply and other input costs, as well as other services in the same APC 
that are comparable in resource cost and clinical homogeneity. We 
expect that hospital charges for a service, which are derived from the 
cost of a service, can vary across individual patients. Therefore, we 
expect variability in the estimated cost of a service, across cases in 
a hospital and among hospitals, to be reflected at some level in the 
final APC relative payment weight. Further, hospitals frequently advise 
us that when we create and require that they report Level II alpha 
numeric HCPCS codes to report services for which CPT codes exist, it 
imposes a significant and costly administrative burden on them. Hence, 
we prefer not to create Level II alpha numeric codes unless there is a 
strong need to do so to administer the Medicare program, particularly 
when there are CPT codes that can be used to accurately report the 
service. However, we will examine estimated costs for these four new 
CPT codes in the CY 2010 claims data we will use to model the CY 2012 
proposed rule when that data are available.
    After carefully considering the public comments we received in 
response to the CY 2010 final rule with comment period and the CY 2011 
proposed rule, we are continuing to assign CPT codes 63661, 63662, 
63663, and 63664 to APC 0687, with a CY 2011 final rule median cost of 
approximately $1,480.

[[Page 71914]]

5. Radiation Therapy Services
a. Stereotactic Radiosurgery (SRS) Treatment Delivery Services (APCs 
0065, 0066, 0067, and 0127)
    For CY 2011, we proposed to continue to assign CPT code 77371 
(Radiation treatment delivery, stereotactic radiosurgery (SRS), 
complete course of treatment of cranial lesion(s) consisting of 1 
session; multi-source Cobalt 60 based) to APC 0127 (Level IV 
Stereotactic Radiosurgery, MRgFUS, and MEG), with a proposed payment 
rate of approximately $7,221.
    We also proposed to continue to recognize four existing HCPCS G-
codes that describe linear accelerator-based SRS treatment delivery 
services for separate payment in CY 2011. Specifically, we proposed the 
following: to assign HCPCS code G0173 (Linear accelerator based 
stereotactic radiosurgery, complete course of therapy in one session) 
and HCPCS code G0339 (Image-guided robotic linear accelerator-based 
stereotactic radiosurgery, complete course of therapy in one session or 
first session of fractionated treatment) to APC 0067 (Level III 
Stereotactic Radiosurgery, MRgFUS, and MEG), with a proposed payment 
rate of approximately $3,414; to assign HCPCS code G0251 (Linear 
accelerator-based stereotactic radiosurgery, delivery including 
collimator changes and custom plugging, fractionated treatment, all 
lesions, per session, maximum five sessions per course of treatment) to 
APC 0065 (Level I Stereotactic Radiosurgery, MRgFUS, and MEG), with a 
proposed payment rate of approximately $960; and to assign HCPCS code 
G0340 (Image-guided robotic linear accelerator-based stereotactic 
radiosurgery, delivery including collimator changes and custom 
plugging, fractionated treatment, all lesions, per session, second 
through fifth sessions, maximum five sessions per course of treatment) 
to APC 0066 (Level II Stereotactic Radiosurgery, MRgFUS, and MEG), with 
a proposed payment rate of approximately $2,517.
    Further, we proposed to continue to assign SRS CPT codes 77372 
(Radiation treatment delivery, stereotactic radiosurgery (SRS) 
(complete course of treatment of cerebral lesion(s) consisting of 1 
session); linear accelerator based) and 77373 (Stereotactic body 
radiation therapy, treatment delivery, per fraction to 1 or more 
lesions, including image guidance, entire course not to exceed 5 
fractions) status indicator ``B'' (Codes that are not recognized by 
OPPS when submitted on an outpatient hospital Part B bill type (12x and 
13x)) under the OPPS, to indicate that these CPT codes are not payable 
under the OPPS.
    Comment: One commenter urged CMS to reevaluate the APC assignments 
for the linear accelerator-based (LINAC) and robotic Cobalt-60 based 
stereotactic radiosurgery (r-SRS) HCPCS codes, given the recent 
introduction of a frameless Cobalt-60 system that can be used to 
deliver treatments in multiple sessions. The commenter stated that no 
clinical data exist to support the need for differential payments for 
LINAC-based and Cobalt-60 r-SRS procedures. The commenter further 
explained that current medical literature cites no difference in 
clinical effectiveness for one system over another, and stated that 
treatment with a Cobalt-60 system, when compared to LINAC-based system, 
does not lead to superior outcomes. The commenter recommended that CMS 
assign HCPCS code G0339 and CPT code 77371 to the same APC, thereby 
establishing payment parity for the complete course of treatment for 
intracranial and other head and neck r-SRS, regardless of equipment, 
energy source, or whether a frame is used in the procedure. In 
addition, the commenter argued that this APC reevaluation is necessary 
to protect the Medicare program and beneficiaries from excessive costs 
associated with Cobalt-60 system, when both the LINAC-based and Cobalt-
60 systems are similar in clinical homogeneity and resource costs.
    Response: We disagree with the comment's argument that the LINAC-
based and Cobalt-60 based systems have similar resource costs. For the 
past several years, we have seen resource differences based on the 
median costs for the LINAC-based and Cobalt-60 based systems, and 
analysis of our claims data show that the median costs for LINAC-based 
and Cobalt-60 SRS procedures vary significantly. Since CY 2007, when 
CPT code 77371 became effective, our claims data have shown 
consistently a median cost of more than $7,000 for the service 
associated with the Cobalt-60 system, which is higher than the median 
cost of approximately $3,500 for the LINAC-based system (described by 
HCPCS G-code G0339).
    Analysis of the updated CY 2009 claims data used for this final 
rule with comment period indicates that the code-specific median costs 
for the LINAC-based and Cobalt-60 systems continue to vary. Our updated 
claims data on the hospital outpatient claims available for CY 2011 
ratesetting show a median cost of approximately $7,580 for CPT code 
77371 based on 529 single claims (out of a total of 4,336 claims), 
which is significantly higher than the median costs associated with 
HCPCS codes G0173, G0251, G0339, and G0340. Specifically, our claims 
data indicate a median cost of approximately $2,960 for HCPCS code 
G0173 based on 627 single claims (out of a total of 1,460 claims), a 
median cost of approximately $964 for HCPCS code G0251 based on 7,005 
single claims (out of a total of 7,739 claims), a median cost of 
approximately $3,510 for HCPCS code G0339 based on 5,762 single claims 
(out of a total of 7,735 claims), and a median cost of approximately 
$2,478 for HCPCS code G0340 based on 18,539 single claims (out of a 
total of 18,713 claims). Because the median costs of HCPCS code G0339 
and CPT code 77371 vary significantly, we do not believe it would be 
appropriate to provide OPPS payment through a single APC for these r-
SRS treatment delivery services in CY 2011. We continue to believe that 
APC 0127 is an appropriate APC assignment for CPT code 77371, and, 
similarly, that APC 0067 is an appropriate APC assignment for HCPCS 
code G0339 based on consideration of the clinical characteristics 
associated with these procedures and based on the median costs for 
these services calculated from the most recently available hospital 
outpatient claims and cost report data. Consistent with our current 
policy to annually assess the appropriateness of the APC assignments 
for all services under the hospital OPPS, we will continue to monitor 
our claims data for the SRS treatment delivery services in the future.
    As we have stated in the past (74 FR 60456), the OPPS is a 
prospective payment system, where APC payment rates are based on the 
relative costs of services as reported to us by hospitals according to 
the most recent claims and cost report data as described in section 
II.A. of this final rule with comment period. The 2 times rule 
specifies that the median cost of the highest cost item or service 
within a payment group may be no more than 2 times greater than the 
median cost of the lowest cost item or service within the same group. 
Based on the 2 times rule, HCPCS code G0339 and CPT code 77371 could 
not be assigned to the same APC and, because hospitals continue to 
report very different costs for these services, we believe it is 
appropriate to maintain their assignments to different payment groups 
for CY 2011. As a matter of payment policy, the OPPS does not set 
payment rates for services based on considerations of clinical 
effectiveness. Furthermore, in accordance with the statute, we budget 
neutralize the OPPS each year in the annual update so that projected 
changes in spending for

[[Page 71915]]

certain services are redistributed to payment for other services.
    After consideration of the public comments we received, we are 
finalizing our CY 2011 proposals, without modification, to continue to 
assign CPT code 77371 to APC 0127, which has a final CY 2011 APC median 
cost of approximately $7,580, and to continue to assign HCPCS code 
G0339 to APC 0067, which has a final CY 2011 APC median cost of 
approximately $3,372.
    Comment: One commenter recommended that CMS redefine HCPCS G-code 
G0340 to include subsequent fractions delivered with both robotic 
LINAC-based and Cobalt-60 based systems because r-SRS can now be 
performed with the Cobalt-60 system based over 2 to 5 fractions.
    Response: Earlier this year, we met with stakeholders to discuss 
this topic, particularly with respect to the OPPS payment assignment of 
the LINAC-based and Cobalt-60 SRS procedures. At this meeting we were 
informed of recent technological developments that existed in Europe 
that utilizes the Cobalt-60 systems to deliver treatments over multiple 
fractions. We were informed that, while the technology currently exists 
in Europe, it would eventually migrate to the United States. Because 
only one CPT code exists currently that describes a procedure that 
utilizes a Cobalt-60 system, we believe that stakeholders would seek 
guidance from the AMA CPT Editorial Panel on the appropriate reporting 
of this service if it is being provided in the United States in a 
manner that makes the current CPT coding insufficient or inappropriate. 
Specifically, CPT code 77371 is defined as ``Radiation treatment 
delivery, stereotactic radiosurgery (SRS), complete course of treatment 
of cranial lesion(s) consisting of 1 session; multi-source Cobalt 60 
based,'' and does not describe a Cobalt-60 based multi-fraction 
service.
    We believe that HCPCS G-code G0340 appropriately describes the 
service associated with a LINAC-based system that is delivered in 
multiple fractions. We do not agree that there is a programmatic need 
to modify the descriptor for HCPCS G-code G0340 due to potential 
changes in the Cobalt-60 system. We remind hospitals that HCPCS code 
G0340 describes a multi-fraction treatment delivery that utilizes a 
LINAC-based SRS technology.
    Comment: One commenter requested that CMS finalize the proposed APC 
and status indicator assignments for HCPCS codes G0173, G0251, G0339, 
and G0340 for CY 2011 and the proposed assignment of status indicator 
``B'' to CPT codes 77372 and 77373. The commenter also recommended that 
CMS revise the code descriptors for HCPCS code G0173, G0251, G0339, and 
G0340 to distinguish between robotic and non-robotic gantry-based SRS 
systems. Based on analysis of claims data for HCPCS codes G0339 and 
G0340, the commenter found that 33 percent of the claims submitted 
during CY 2009 were paid to hospitals without image-guided robotic SRS 
systems. The commenter suggested specific code descriptor changes for 
the four HCPCS G-codes to ensure submission of correctly coded claims. 
Alternatively, the commenter requested that CMS provide guidance on the 
reporting of the existing SRS HCPCS G-codes if no change is made to the 
HCPCS code descriptors.
    Response: These HCPCS G-codes for SRS have been in effect for 
several years and, based on questions brought to our attention by 
hospitals, we have no reason to believe that hospitals are confused 
about the reporting of these codes. Moreover, based on our analysis of 
the hospital outpatient claims data that we use for ratesetting, we see 
resource differences reflected in the median costs of the four HCPCS G-
codes that are reasonably consistent with our expectations for 
different median costs for the services based on the current code 
descriptors. We believe it would be confusing to hospitals if we were 
to revise the code descriptors for HCPCS codes G0173, G0251, G0339, and 
G0340 at this point in time and could lead to instability in our median 
costs and inaccurate payments for some services. Therefore, we believe 
that modifying the G-code descriptors is not necessary for us to 
continue to provide appropriate payment for the services they describe. 
Further, we have provided instruction on the reporting of these SRS 
codes in Chapter 4, Section 200.3 of the Medicare Claims Processing 
Manual of the Internet-Only Manual.
    After consideration of the public comments we received, we are 
finalizing our CY 2011 proposals, without modification, to maintain the 
existing CY 2010 APC assignments for the SRS HCPCS codes for CY 2011. 
Specifically, we are continuing to assign HCPCS G-codes G0173 and G0339 
to APC 0067, which has a final CY 2011 APC median cost of approximately 
$3,372; HCPCS G-code G0251 to APC 0065, which has a final CY 2011 APC 
median cost of approximately $967; HCPCS G-code G0340 to APC 0066, 
which has a final CY 2011 APC median cost of approximately $2,478; and 
CPT code 77371 to APC 0127, which has a final CY 2011 APC median cost 
of approximately $7,580. In addition, we are finalizing our proposals, 
without modification, to continue to assign CPT codes 77372 and 77373 
to status indicator ``B'' under the OPPS.
b. Proton Beam Therapy (APCs 0664 and 0667)
    For CY 2011, we proposed to continue to assign CPT codes 77520 
(Proton treatment delivery; simple, without compensation) and 77522 
(Proton treatment delivery; simple, with compensation) to APC 0664 
(Level I Proton Beam Radiation Therapy), which had a proposed payment 
rate of approximately $902. We also proposed to continue to assign CPT 
codes 77523 (Proton treatment delivery; intermediate) and 77525 (Proton 
treatment delivery; complex) to APC 0667 (Level II Proton Beam 
Radiation Therapy), which had a proposed payment rate of approximately 
$1,180.
    Comment: Several commenters supported the proposed payments for the 
proton beam treatment CPT codes. However, one commenter expressed 
concern over the proposed payment rates and requested an explanation on 
the fluctuation in payments for CPT codes 77520, 77522, 77523, and 
77525 for the past 6 years, which the commenter displayed in a 
submitted table.
    Another commenter expressed concern with the reduction in the 
relative weights for APCs 0664 and 0667. The commenter indicated that 
it understood that APC 0664 is exempt from the 2 times rule violation 
based on the list of APCs that appeared in Table 16 of the CY 2011 
OPPS/ASC proposed rule, but stated that the decrease in the relative 
weights would result in decreased payments for these four CPT codes.
    Response: In accordance with section 1833(t)(2)(B) of the Act and 
Sec.  419.31 of the regulations, we annually review the items and 
services within an APC group to determine, with respect to 
comparability of the use of resources and clinical homogeneity. The 
payment rates, including the relative weights, set annually for these 
services are based on review of the claims data used for ratesetting. 
For the CY 2011 update, the payment rates for APCs 0664 and 0667 are 
based on data from claims submitted during CY 2009 according to the 
standard OPPS ratesetting methodology. Specifically, we used 11,963 
single claims (out of 12,995 total claims) from CY 2011 proposed rule 
claims data (and we used 11,963 single claims (out of 12,995 total 
claims) from CY 2011 final rule claims data) to calculate the median 
cost upon which the CY 2011 payment rate for APC 0664 is based. In 
addition,

[[Page 71916]]

we used 2,799 single claims (out of 3,081 total claims) from CY 2011 
proposed rule claims data (and we used 2,799 single claims (out of 
3,081 total claims) from CY 2011 final rule claims data) to calculate 
the median cost for APC 0667.
    For CY 2011, we are setting the final payment rate for proton beam 
therapy based on median costs of approximately $1,021 for APC 0664 and 
approximately $1,335 for APC 0667. These median costs result in modest 
declines in the final CY 2011 payment rates for proton beam therapy 
compared to the CY 2010 final payment rates. We note that our cost-
finding methodology is based on reducing each hospital's charge for its 
services to an estimated cost by applying the most discrete hospital-
specific CCR available for the hospital that submitted the claim. 
Hence, it is the hospital's claims and cost reports that determine the 
estimated costs that are used to calculate the median cost for each 
service and, when aggregated into APC groups, the hospital data are 
used to calculate the median cost for the APC on which the APC payment 
rate is based.
    After consideration of the public comments we received, we are 
finalizing our CY 2011 proposal, without modification, to pay for 
proton beam therapy through APCs 0664 and 0667, with payment rates 
based upon the most current claims and cost report data for these 
services. Specifically, we will continue to assign CPT codes 77520 and 
77522 to APC 0664, with a final CY 2011 APC median cost of 
approximately $1,021, and CPT codes 77523 and 77525 to APC 0667, with a 
final CY 2011 APC median cost of approximately $1,335.
c. Device Construction for Intensity Modulated Radiation Therapy (APC 
0303)
    For CY 2011, we proposed to continue to assign CPT code 77338 
(Multi-leaf collimator (MLC) device(s) for intensity modulated 
radiation therapy (IMRT), design and construction per IMRT plan) to APC 
0303 (Treatment Device Construction), with a proposed payment rate of 
approximately $198. CPT code 77338 is a new code for CY 2010 and, 
therefore, there are no claims for it in the CY 2009 claims data on 
which we are basing the CY 2011 OPPS payment rates. In CY 2009, the 
services represented by CPT code 77338 were reported using CPT code 
77334 (Treatment devices, design and construction; complex (irregular 
blocks, special shields, compensators, wedges, molds or casts)). For CY 
2010, CPT code 77338 is assigned to APC 0303, the same APC to which CMS 
assigned CPT code 77334. The CY 2010 OPPS payment rate for APC 0303 is 
approximately $191.
    Comment: Commenters objected to the assignment of CPT code 77338 to 
APC 0303 for CY 2010 and to the proposal to continue to assign CPT code 
77338 to APC 0303 for CY 2011. The commenters stated that CPT code 
77338 is used to report all devices that are necessary for an intensive 
modulated radiation therapy (IMRT) treatment and that a typical 
treatment requires 3 to 9 devices, whereas CPT code 77334 is used to 
report a single device. Therefore, the commenters believed that the 
payment for one unit of 77338 should not be paid the same amount as one 
unit of CPT code 77334. The commenters stated that there are typically 
two courses of IMRT treatment furnished to patients; hence, before the 
creation of CPT code 77338, hospitals reported and were paid for 3 to 9 
units of CPT code 77334 for each of the two treatments, resulting in an 
approximate total payment for all devices required for two courses of 
treatment ranging from roughly $1,500 to $3,500. The commenters stated 
that assignment of CPT code 77338 to the same APC as CPT code 77334 
results in an inappropriate reduction in payment for the creation of 
the devices that are necessary to furnish IMRT. One commenter asked CMS 
to use the first 6 months of CY 2010 claims data, which would contain 
charges for CPT code 77338, to establish an appropriate payment rate 
for CPT code 77338.
    Response: We examined our updated claims data to determine how many 
units of CPT code 77334 were reported in CY 2009 for each Medicare 
beneficiary who also received IMRT services. We found that the median 
number of units of CPT code 77334 that were furnished to patients who 
received IMRT in CY 2009 was eight. This finding is consistent with the 
commenters' statement that hospitals furnish three to nine devices per 
each of two IMRT treatments (a range of 6 to 18 devices across two 
treatments in a year). We then developed a simulated cost for one unit 
of CPT code 77338 by using the frequency information we acquired from 
the study and the median cost of one unit of CPT code 77334. We assumed 
that if a total of eight devices were typically furnished across two 
treatments, then approximately four devices were furnished for each 
treatment. We assumed that the cost of each device for IMRT would be 
approximately the same as a single unit of CPT code 77334 because one 
unit of CPT code 77334 represents one device. CPT code 77334 has a 
final rule median cost of approximately $198. Therefore, we estimated 
that the cost of the devices that would be reported by one unit of CPT 
code 77338 would be approximately $792 (4 devices at an estimated per 
device cost of $198 each). Using this hypothetical cost per unit for 
CPT code 77338, we determined that CPT code 77338 would most 
appropriately be assigned to APC 0310 (Level III Therapeutic Radiation 
Treatment Preparation), which has a final rule median cost of 
approximately $917. We chose not to use our estimated per unit cost for 
CPT code 77338 in the calculation of the CY 2011 median cost for APC 
0310 because our estimated cost is not derived from claims and cost 
report data according to our standard process, and because we made 
several assumptions modeling a representative cost, such as whether the 
per unit cost for CPT code 77334 for treatment devices specific to IMRT 
patients was an appropriate proxy for the cost of each of the multiple 
devices, all of which would be reported by one unit of CPT code 77338. 
Moreover, we did not consider the other option that commenters 
recommended, using CY 2010 claims data to calculate a median cost for 
CPT code 77338, because costs estimated from CY 2010 claims would not 
be consonant with costs estimated from claims in CY 2009. Our standard 
methodology is to use the claims from the same year for all services to 
set the relative weights for payment under the OPPS. We believe that 
using claims from different years for different services has the 
potential to skew the relativity of the median costs on which the OPPS 
relative payment weights are based.
    After consideration of the public comments we received and 
examination of updated CY 2009 claims data, we are reassigning CPT code 
77338 from APC 0303 to APC 0310 for CY 2011. For CY 2012 OPPS 
ratesetting, we will have claims data for CPT code 77338. For CY 2012, 
we plan to use our standard cost estimation process using the CY 2010 
claims data and the most recent cost report data to establish a median 
cost for CPT code 77338. In addition, we will assess whether placement 
of CPT code 77338 in APC 0310 remains appropriate for the CY 2012 OPPS.
d. High Dose Rate Brachytherapy (APC 0313)
    For CY 2011, we proposed to include four CPT codes in APC 0313 
(Brachytherapy). Specifically, APC 0313 would contain CPT codes 77785 
(Remote afterloading high dose rate radionuclide brachytherapy; 1 
channel), 77786 (Remote afterloading high dose rate radionuclide 
brachytherapy; 2-12

[[Page 71917]]

channels), 77787 (Remote afterloading high dose rate radionuclide 
brachytherapy; over 12 channels), and 0182T (High dose rate electronic 
brachytherapy, per fraction). For the CY 2011 OPPS, the proposed APC 
median cost of APC 0313 was approximately $724.
    Comment: One commenter objected to the proposed payment rate of 
approximately $724 for APC 0313 because it would be a reduction in 
payment from the CY 2010 payment rate of $777.55. The commenter 
questioned whether there was an error in the data or calculation of the 
proposed median cost for APC 0313. The commenter noted that, for the CY 
2010 calculation of the median cost for APC 0313, deleted CPT code 
77784 (Remote afterloading high intensity brachytherapy; over 12 source 
positions or catheters) had 7,577 total claims, while currently active 
CPT code 77787, which the commenter believes is analogous to CPT code 
77784 in complexity, had only 1,899 CY 2010 proposed rule total claims. 
The commenter stated that, for the CY 2010 OPPS, deleted CPT code 
77784, the most complex level of high intensity brachytherapy, 
accounted for 23.4 percent of the single bills used to calculate the 
median cost for APC 0313, while the most analogous currently active 
code, CPT code 77787, accounted for only 4.4 percent of the claims used 
to calculate the CY 2011 proposed median cost. The commenter suggested 
that the lower percentage of single frequency claims for CPT code 
77787, which had a proposed rule median cost of approximately $812, 
resulted in a lower median cost for APC 0313. The commenter also noted 
that less than half of the total claims were used for CPT codes 77785 
and 77786 in the proposed rule median cost calculations. The commenter 
asked that CMS check for possible errors in the calculation of the 
median cost and the payment rate for APC 0313 and that CMS closely 
monitor this APC.
    Response: We have reviewed the CY 2011 final rule claims data for 
APC 0313, and we have not identified flaws in the data or the process 
we used to calculate the median cost of APC 0313. The CY 2011 final 
rule median cost for APC 0313 is approximately $693, and the median 
cost for CPT code 77785 is approximately $654 based on 11,075 single 
bills (out of a total frequency of 19,799 for CPT code 77785). For CPT 
code 77786, the median is approximately $748 based on 4,164 single 
bills (out of a total frequency of 9,421). For CPT code 77787, the 
median cost is approximately $811 based on 687 single bills (out of a 
total frequency of 2,149). For CPT code 0182T, the median cost is 
approximately $994 based on 101 single bills (out of a total frequency 
of 334).
    The commenter is correct that the relative weights and median costs 
of the procedures that make up APC 0313 influence the overall APC 
median cost. However, some fluctuation in median costs across APCs is 
always present due to changes in hospital charging practices and costs. 
In addition, the CY 2011 median costs are based on CY 2009 claims. CPT 
codes 77785, 77786, and 77787 were new for CY 2009. Therefore, the 
charge for each of these codes represents a charge for a different 
combination of services than was true for the charges of the four CY 
2008 predecessor codes on which the median costs for the CY 2010 OPPS 
were based. Hence, it is not clear to us that the medians from CY 2010 
(based on charges for the four CY 2008 predecessor codes) and CY 2011 
(based on charges for the first year for the new codes) can be 
appropriately compared. We have reviewed the claims and cost report 
data for APC 0313, and have found nothing that causes us to believe 
that the median costs at either the CPT code or APC level for APC 0313 
are flawed.
    After consideration of the public comments we received and analysis 
of our CY 2011 final rule claims data, we are finalizing our proposal 
to base the APC 0313 payment rate on its CY 2011 final rule median 
cost, which is approximately $693.
e. Electronic Brachytherapy (APC 0313)
    The AMA CPT Editorial Panel created CPT code 0182T (High dose rate 
electronic brachytherapy, per fraction) effective July 1, 2007. We 
assigned CPT code 0182T to New Technology APC 1519 from July 1, 2007 
through December 31, 2010, with a payment rate of $1,750. For CY 2010, 
we assigned CPT code 0182T to APC 0313 (Brachytherapy) because the CY 
2010 OPPS final rule median cost for CPT code 0182T was approximately 
$506 and the final rule median cost for APC 0313, which contained 
services that we believed were clinically similar, was approximately 
$770. For CY 2011, we proposed to retain CPT code 0182T in APC 0313, 
with a proposed payment rate of approximately $710.
    Comment: Several commenters recommended that CPT code 0182T be 
removed from APC 0313 and assigned its own APC. The commenters stated 
there are significant clinical differences between CPT code 0182T and 
the remaining three high dose rate (HDR) service codes in APC 0313: CPT 
code 77785 (Remote afterloading high dose rate radionuclide 
brachytherapy, 1 channel); CPT code 77786 (Remote afterloading high 
dose rate radionuclide brachytherapy, 2-12 channels); and CPT code 
77787 (Remote afterloading high dose rate radionuclide brachytherapy, 
over 12 channels). However, the commenters did not provide a clinical 
rationale to support their statement. The commenters further stated 
that the total payment for CPT code 0182T is dissimilar to the total 
payment for CPT codes 77785, 77786, and 77787. They stated that CPT 
codes 77785, 77786, and 77787 are proposed to be paid both the APC 0313 
payment rate, plus the payment rate for the separately paid 
brachytherapy source code C1717 (Brachytherapy source, non-stranded, 
High Dose Rate Iridium-192, per source), which had a proposed CY 2011 
payment rate of approximately $220, thereby resulting in a total 
payment of approximately $949 for these codes. In contrast, the 
commenters stated that CMS does not allow providers to report the 
separate costs of the electronic brachytherapy source, but instead 
proposed to pay only the APC 0313 national unadjusted payment rate of 
approximately $710. The commenters believed that CMS should permit 
providers to capture the cost of the electronic brachytherapy source by 
establishing a separate APC for CPT code 0182T based on the median cost 
of CPT code 0182T alone.
    Response: We believe the clinical characteristics of high dose rate 
brachytherapy and electronic brachytherapy are similar because both use 
brachytherapy to treat malignancies. Moreover, we do not agree that 
there is a need for an additional APC specific to electronic 
brachytherapy to ``capture the cost of the electronic brachytherapy 
source'' because there is no separate source in the case of electronic 
brachytherapy. The costs of electronic brachytherapy are included in 
the fractionated costs of the procedure.
    The CY 2011 final rule median cost for CPT code 0182T of 
approximately $994, based on 101 single service claims, falls well 
within two times the APC 0313 median cost. The CY 2011 final rule APC 
0313 median is approximately $693, based on 16,027 single bills for CPT 
codes 77785, 77786, 77787, and 0182T, which are assigned to APC 0313. 
We believe that CPT code 0182T is appropriately placed in APC 0313 for 
both resource and clinical reasons, as discussed above. We note that, 
in a system of averages, such as the OPPS, we expect that the cost of 
some services will fall above the APC median

[[Page 71918]]

cost and that the cost of other services will fall below the APC median 
cost.
    After consideration of the public comments we received and analysis 
of the CY 2011 OPPS final rule claims data, we are assigning CPT code 
0182T to APC 0313 for CY 2011. Based on the CY 2011 final rule claims 
data, we determined a median cost for CPT code 0182T of approximately 
$994 and a median cost for APC 0313 of approximately $693.
f. Tumor Imaging (APC 0406 and 0414)
    For CY 2011, we proposed to assign CPT codes 78805 
(Radiopharmaceutical localization of inflammatory process; limited 
area) and 78806 (Radiopharmaceutical localization of inflammatory 
process; whole body) to APC 0414 (Level II Tumor/Infection Imaging), 
with a proposed rule APC median cost of approximately $497. We proposed 
to assign CPT code 78807 (Radiopharmaceutical localization of 
inflammatory process; tomographic (SPECT)) to APC 0406 (Level I Tumor/
Infection Imaging), with a proposed rule APC median cost of 
approximately $298. For CY 2011, CPT code 78805 had a proposed median 
cost of approximately $545; CPT code 78806 had a proposed median cost 
of approximately $561; and CPT code 78807 had a proposed median cost of 
approximately $442.
    Comment: One commenter asked CMS to restructure APCs 0406 and 0414 
to separate tumor imaging procedures from infection imaging procedures 
because the respective procedures use different drugs and resources. 
Specifically, the commenter recommended that CMS create a new APC for 
CPT codes 78805, 78806, and 78807 that would be for infection imaging.
    Response: We continue to believe that tumor imaging and infection 
imaging are sufficiently clinically similar because they are all 
imaging services to justify the inclusion of CPT codes 78805, 78806, 
and 78807, which are for infection imaging, in APC 0414 with tumor 
imaging procedures. Therefore, we are not creating an APC that is 
limited to CPT codes 78805, 78806, and 78807 for infection imaging. 
However, after review of the CY 2011 OPPS final rule median costs for 
CPT codes 78805, 78806, and 78807, we believe that it is appropriate to 
reassign CPT code 78807 to APC 0414 (instead of APC 0406) for CY 2011 
because the median cost for CPT code 78807 is similar to the median 
cost for CPT codes 78805 and 78806, which are also assigned to this 
APC. Based on the CY 2011 OPPS final rule claims data, CPT code 78805 
has a median cost of approximately $519, CPT code 78806 has a median 
cost of approximately $539, and CPT code 78807 has a final rule median 
cost of approximately $428.
    At its February 17-18, 2010 meeting, the APC Panel recommended that 
CMS analyze claims data for the tumor imaging APCs in terms of the 
average, median, and range of costs of packaged diagnostic 
radiopharmaceuticals. We are accepting the APC Panel's recommendation 
and will present the statistics regarding the use of diagnostic 
radiopharmaceuticals in tumor imaging at a forthcoming APC Panel 
meeting.
    After consideration of the public comments we received and analysis 
of the final rule cost data for CPT codes 78805, 78806, and 78807, for 
CY 2011, we are retaining CPT codes 78805 and 78806 in APC 0414; we are 
assigning CPT code 78807 to APC 0414 (instead of APC 0406 as proposed); 
and we are basing the payment for APC 0414 on the CY 2011 final rule 
median cost of approximately $470.
6. Other Services
a. Skin Repair (APCs 0134 and 0135)
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46251), we proposed to 
continue to assign the CPT skin repair codes for the application of 
Apligraf, Oasis, and Dermagraft skin substitutes to the same procedural 
APCs to which they were assigned for CY 2010. Specifically, we proposed 
to continue to assign the Apligraf application CPT codes 15340 (Tissue 
cultured allogeneic skin substitute; first 25 sq cm or less) and 15341 
(Tissue cultured allogeneic skin substitute; each additional 25 sq cm, 
or part thereof) to APC 0134 (Level II Skin Repair), with a proposed 
payment rate of approximately $217. Likewise, we proposed to continue 
to assign the Dermagraft application CPT codes 15365 (Tissue cultured 
allogeneic dermal substitute, face, scalp, eyelids, mouth, neck, ears, 
orbits, genitalia, hands, feet, and/or multiple digits; first 100 sq cm 
or less, or 1% of body area of infants and children) and 15366 (Tissue 
cultured allogeneic dermal substitute, face, scalp, eyelids, mouth, 
neck, ears, orbits, genitalia, hands, feet, and/or multiple digits; 
each additional 100 sq cm, or each additional 1% of body area of 
infants and children, or part thereof) to APC 0134. We proposed to 
continue to assign the Oasis application CPT codes 15430 (Acellular 
xenograft implant; first 100 sq cm or less, or 1% of body area of 
infants and children) and 15431 (Acellular xenograft implant; each 
additional 100 sq cm, or each additional 1% of body area of infants and 
children, or part thereof) to APC 0135 (Level III Skin Repair), with a 
proposed payment rate of approximately $318. In addition, we proposed 
to pay the Apligraf, Oasis, and Dermagraft skin substitutes separately. 
Specifically, we proposed to pay separately for the Apligraf skin 
product HCPCS Q-code Q4101 (Skin substitute, Apligraf, per square 
centimeter), the Dermagraft skin product HCPCS Q-code Q4106 ('Skin 
substitute, Dermagraft, per square centimeter), and the Oasis skin 
product HCPCS Q-codes Q4102 (Skin substitute, Oasis Wound Matrix, per 
square centimeter) and Q4103 (Skin substitute, Oasis burn matrix, per 
square centimeter), Also, as discussed in more detail below, we also 
proposed for CY 2011 to create two new Level II HCPCS G-codes to report 
the application of Apligraf or Dermagraft specific to the lower 
extremities in order to provide appropriate and consistent payment for 
these services as they are commonly furnished, consistent with the CY 
2011 proposal for the MPFS.
    With regard to the assignment of CPT codes 15340, 15341, 15365, 
15366, 15430 and 15431, at the August 2009 APC Panel meeting, one 
public presenter requested that the APC Panel recommend that CMS 
reassign the Apligraf application CPT codes, specifically CPT codes 
15340 and 15341, from APC 0134 to APC 0135. The same presenter 
requested that CMS continue to assign the Dermagraft application CPT 
codes, specifically CPT codes 15365 and 15366, to APC 0134. The public 
presenter believed that the CY 2010 proposal to continue to assign both 
the Apligraf and the Dermagraft application CPT codes to APC 0134 would 
create a financial incentive favoring the Dermagraft application. 
Specifically, the presenter explained that CPT instructions allow the 
separate reporting of the CPT codes for site preparation and 
debridement when Dermagraft is applied, while the CPT instructions for 
Apligraf application codes specify that site preparation and 
debridement cannot be separately reported. The presenter believed that 
this reporting difference and the resulting expected differences in the 
associated application procedure costs could be addressed by assigning 
the Apligraf application CPT codes to a higher paying APC than the 
Dermagraft application CPT codes, instead of the same APC as CMS 
proposed for CY 2010.
    During the discussion, the APC Panel members were provided with the 
historical information on the coding and APC assignments for the skin 
substitute application procedures assigned to

[[Page 71919]]

APCs 0134 and 0135. Specifically, the Apligraf application CPT codes 
15340 and 15341, the Dermagraft application CPT codes 15365 and 15366, 
as well as the Oasis application CPT codes 15430 and 15431, were at one 
time assigned to the same APC level (Level II Skin Repair). However, 
because of violations of the 2 times rule, CMS reconfigured the skin 
repair APCs and reassigned the Oasis application CPT codes 15430 and 
15431 to APC 0135 in CY 2008.
    At the August 2009 APC Panel meeting, panel members debated whether 
the differences in sizes in each product's application CPT codes and 
the ability to bill separately for site preparation and debridement for 
Dermagraft application required different APC placement for any of the 
skin substitute application codes. We note that the long descriptors 
for the Apligraf application CPT codes 15340 and 15341 are scaled to 
``25 sq cm,'' whereas the Oasis application CPT codes 15430 and 15431 
and the Dermagraft application CPT codes 15365 and 15366 are scaled to 
``100 sq cm.'' After review of median cost data from the CY 2008 
hospital outpatient claims available at that time (those processed from 
January 1, 2008 through December 31, 2009), the APC Panel recommended 
that CMS continue to assign all six skin substitute application CPT 
codes to their existing APCs for CY 2010. In addition, because of the 
variable sizes associated with the skin repair application CPT codes, 
the Panel requested that CMS provide data at the next Panel meeting on 
the frequency of primary and add-on CPT codes billed for the Apligraf, 
Oasis, and Dermagraft applications in order to assess the variability 
in billing for the application of these products. In addition, because 
of the CPT instructions allowing site preparation and debridement to be 
reported separately only for the Dermagraft application, the Panel 
requested median cost data for site preparation and debridement.
    We accepted the APC Panel's recommendation to continue to assign 
the skin repair CPT codes for the application of Apligraf, Oasis, and 
Dermagraft skin substitutes to the same procedural APCs for CY 2010 as 
their CY 2009 assignments. As a result, we continued to assign the 
Apligraf application CPT codes 15340 and 15341 and the Dermagraft 
application CPT codes 15365 and 15366 to APC 0134 and assigned the 
Oasis application CPT codes 15430 and 15431 to APC 0135 for CY 2010.
    At the February 2010 APC Panel meeting, CMS presented the results 
of the data requested at the August 2009 meeting to the APC Panel. In 
response to data on the frequency of primary and add-on CPT codes, 
based on our analysis of the available CY 2009 hospital outpatient 
claims data on frequency of primary and add-on CPT codes billed for the 
Apligraf, Oasis, and Dermagraft applications (claims processed from 
January 1 through September 30, 2009), we found that hospitals report 
the application of Apligraf with only the primary code (CPT code 15340) 
on 77 percent of claims, while the add-on CPT code 15341 is billed in 
addition to the primary code on another 23 percent of claims. 
Specifically, our data showed that, for the Apligraf application, there 
were a total of 8,614 claims with only the primary CPT code 15340 
reported, and 2,545 claims with the add-on CPT code 15341 also reported 
on the same date of service. We note that each unit of the add-on CPT 
code is paid at 50 percent of the payment for the primary code in 
addition to the full payment for the primary code. We also found in our 
analysis that, on claims with the Dermagraft and Oasis application CPT 
codes, hospitals report the primary code only in approximately 98 to 99 
percent of the cases. In addition, in response to the request for data 
for site preparation and debridement that may be reported separately 
for the Dermagraft application, we found that approximately 87 percent 
of procedures for the application of Dermagraft were reported without 
debridement or site preparation on the same day. Similarly, we found 
that the Apligraf and Oasis procedures were rarely reported with the 
site preparation or debridement CPT procedure codes on the same day. 
Specifically, we found that the CPT procedure code for the application 
of Apligraf was reported without site preparation or debridement in 
approximately 94 percent of these cases, and that the CPT procedure 
code for application of Oasis was reported without site preparation or 
debridement in approximately 95 percent of these cases. Our data 
analysis also showed that the CPT median costs for the Apligraf 
application CPT code 15340 and the Dermagraft application CPT code 
15365 are very similar. Specifically, the CPT code-specific median cost 
of CPT code 15340 is approximately $234 for the Apligraf application 
and approximately $237 for CPT code 15365 for the Dermagraft 
application. In contrast, the CPT median cost for the Oasis application 
primary CPT code 15430 of approximately $299 is higher.
    At the February 2010 APC Panel meeting, a public presenter again 
requested that the APC Panel recommend that CMS reassign the Apligraf 
application CPT codes 15340 and 15341 from APC 0134 to APC 0135. The 
presenter indicated that the additional payment for site preparation 
and debridement procedures that may be reported separately with the 
Dermagraft application can significantly affect the total payment for 
the procedure. The presenter also provided data on the use of each 
product in relation to the size of the wounds treated, and concluded 
that the size of the wound treated does not affect the resources used. 
After further review of the available CY 2009 hospital outpatient 
claims data, the APC Panel recommended that CPT codes 15340 and 15341 
remain in APC 0134.
    As noted above, in the CY 2011 OPPS/ASC proposed rule (75 FR 
46251), we proposed to continue to assign the Apligraf application CPT 
codes 15340 and 15341 and the Dermagraft application CPT codes 15365 
and 15366 to APC 0134, and, at the same time, continue to assign the 
Oasis application CPT codes 15430 and 15431 to APC 0135. Secondly, we 
proposed to continue to pay separately for the Apligraf, Dermagraft, 
and Oasis products in CY 2011.
    Comment: One commenter disagreed with the APC assignment for the 
Apligraf CPT codes 15340 and 15341 and recommended a reassignment from 
APC 0134 to APC 0135.
    Response: We examined the updated CY 2009 claims data available for 
the CY 2011 final rule with comment period and, based on the claims 
data, we believe that CPT codes 15340 and 15341 are appropriately 
placed in APC 0134. Specifically, our claims data show that the median 
cost of approximately $231 for CPT code 15340, based on 15,648 single 
claims (out of a total of 19,949 claims), and the median cost of 
approximately $189 for CPT code 15341, based on 2,621 single claims 
(out of a total of 5,468 claims), are relatively similar to the median 
cost of approximately $215 for APC 0134, and are dissimilar to the 
median cost of approximately $316 for APC 0135. Therefore, we are 
assigning CPT codes 15340 and 15341 to APC 0134 for CY 2011.
    As noted above, we also proposed for CY 2011 to create two new 
Level II HCPCS G-codes to report the application of Apligraf or 
Dermagraft specific to the lower extremities in order to provide 
appropriate and consistent payment for these services as they are 
commonly furnished, consistent with

[[Page 71920]]

the CY 2011 proposal for the MPFS. (We refer readers to the CY 2011 
MPFS proposed rule for additional information regarding the MPFS 
proposal and to the MPFS final rule for the final CMS decision 
regarding the use of these codes for the MPFS.) The proposed HCPCS 
codes were: GXXX1 (Application of tissue cultured allogeneic skin 
substitute or dermal substitute; for use on lower limb, includes the 
site preparation and debridement if performed; first 25 sq cm or less); 
and GXXX2 (Application of tissue cultured allogeneic skin or dermal 
substitute; for use on lower limb, includes the site preparation and 
debridement if performed; each additional 25 sq cm). We note that, for 
this CY 2011 OPPS/ASC final rule with comment period, GXXX1 has been 
designated as HCPCS code G0440 and HCPCS code GXXX2 as HCPCS code 
G0441. As indicated in the HCPCS G-code descriptors, these codes will 
not allow separate reporting of CPT codes for site preparation or 
debridement. In the proposed rule, we indicated that we believed the 
descriptors of the proposed HCPCS G-codes more specifically reflect the 
characteristics of the application of Apligraf or Dermagraft to the 
lower limb so that reporting would result in more accurate cost data 
for OPPS ratesetting and, ultimately, more appropriate payment. 
Consistent with the proposed CY 2011 APC assignment for the Apligraf 
and Dermagraft application CPT codes, we proposed to assign new HCPCS 
codes G0440 and G0441 to APC 0134, with a proposed APC median cost of 
approximately $222. We indicated that we were specifically interested 
in public comment on the appropriateness of recognizing these proposed 
new HCPCS G-codes under the OPPS and their proposed APC assignments.
    Comment: Some commenters agreed with the establishment of HCPCS 
codes GXXX1 and GXXX2, and supported their APC assignment to APC 0134. 
One commenter suggested that, if CMS finalizes the proposal to 
establish the HCPCS G-codes, then it should recognize for CY 2011 the 
skin repair CPT codes, and also recommended that the HCPCS G-codes be 
assigned to APC 0135 rather than the proposed APC 0134. The commenter 
requested clarification on the definition of ``dermal substitute.''
    However, many commenters disagreed with the establishment of the 
HCPCS G-codes. The commenters argued that, although they understood the 
need to report the services accurately, they did not believe that 
creating two HCPCS G-codes is appropriate because there are existing 
CPT codes that describe the application of both the Apligraf and 
Dermagraft. They stated that if a revision to the CPT code descriptors 
is necessary to accurately describe the services associated with these 
products, CMS should work with the AMA CPT Editorial Panel in making 
the revisions rather than creating two new HCPCS G-codes. One commenter 
stated that the inappropriate reimbursement for the application of 
these products is a MPFS issue and does not apply to the hospital OPPS. 
The commenter suggested that the proposed changes to create two HCPCS 
G-codes would cause providers to use the two more expensive products 
and, thereby, inadvertently create a competitive disadvantage for other 
products.
    Response: We are persuaded from the commenters' statements that 
this is a payment issue that applies to the MPFS and not to the 
hospital OPPS, because the existing CPT codes for the application of 
these products does not impede our ability, under the standard OPPS 
ratesetting methodology, to calculate accurate median costs for these 
procedures and to assign them to appropriate APCs. Therefore, we are 
not finalizing our proposal to assign HCPCS G-codes G0440 and G0441 to 
APC 0134. For CY 2011, we are assigning the status indicators for both 
HCPCS G-codes to status indicator ``B'' to indicate that these HCPCS 
codes are not recognized under the hospital OPPS, and that hospitals 
should use a more specific HCPCS code(s) to describe the services 
associated with HCPCS codes G0440 and G0441.
    With regard to the definition of ``dermal substitute,'' we are 
directing our Medicare contractors to provide further guidance if 
specific questions arise.
    After consideration of the public comments we received, we are 
finalizing our proposal, without modification, to continue to assign 
the Apligraf application CPT codes 15340 and 15341 and the Dermagraft 
application CPT codes 15365 and 15366 to APC 0134, with a final CY 2011 
APC median cost of approximately $215 and to assign the Oasis 
application CPT codes 15430 and 15431 to APC 0135, with a final CY 2011 
APC median cost of approximately $316. In addition, we received no 
comments on our proposal to continue to pay separately for the skin 
products. For CY 2011, we are finalizing our proposal, without 
modification, to continue to pay separately for the skin products, 
which are described by Level II HCPCS Q-codes. That is, we are 
finalizing our proposal to pay separately for the Apligraf skin product 
HCPCS Q-code Q4101, the Dermagraft skin product HCPCS Q-code Q4106, and 
the Oasis skin product HCPCS Q-codes Q4102 and Q4103. Further, HCPCS Q-
codes Q4101, Q4102, Q4103, and Q4106 are assigned to status indicator 
``K'' to indicate that they are separately payable under the hospital 
OPPS for CY 2011. In addition, we are not finalizing our proposal to 
recognize new HCPCS G-codes G0440 and G0441 as payable under the 
hospital OPPS. New HCPCS codes G0440 and G0441 are assigned to status 
indicator ``B'' to indicate that hospitals must report a more specific 
HCPCS code(s) to describe the services associated with HCPCS codes 
G0440 and G0441 for CY 2011.
    b. Insertion of Anterior Segment Aqueous Drainage Device (APCs 
0234, 0255, and 0673)
    The AMA CPT Editorial Panel created Category III CPT code 0191T 
(Insertion of anterior segment aqueous drainage device, without 
extraocular reservoir; internal approach) effective on July 1, 2008. We 
assigned CPT code 0191T to APC 0234 (Level III Anterior Segment Eye 
Procedures) in the OPPS, effective July 1, 2008, and maintained this 
APC assignment for CY 2009 and CY 2010. For CY 2011, we proposed to 
continue to assign CPT code 0191T to APC 0234, with a proposed payment 
rate of approximately $1,674. For CY 2011, we also proposed to create 
new APC 0255 (Level III Anterior Segment Eye Procedures), and to rename 
APC 0234 as ``Level IV Anterior Segment Eye Procedures'' and APC 0673 
as ``Level V Anterior Segment Eye Procedures.''
    At its August 2010 meeting, the APC Panel recommended that CMS 
assign CPT code 0191T to APC 0673 (Level V Anterior Segment Eye 
Procedures), on the basis of its clinical similarity to both CPT code 
0192T (Insertion of anterior segment aqueous drainage device, without 
extraocular reservoir; external approach), and to CPT code 66180 
(Aqueous shunt to extraocular reservoir (e.g., Molteno, Schocket, 
Denver-Krupin)), which were proposed to be assigned to APC 0673 for CY 
2011.
    The AMA CPT Editorial Panel revised the descriptor of CPT code 
0191T to ``Insertion of anterior segment aqueous drainage device, 
without extraocular reservoir; internal approach, into the trabecular 
meshwork,'' to be effective January 1, 2011.
    Comment: A large number of commenters recommended that CMS reassign 
CPT code 0191T from APC 0234 to APC 0673, with a proposed CY 2011 
payment rate of approximately $3,039. The commenters claimed that CPT 
code 0191T is more appropriately assigned to APC 0673 based on clinical

[[Page 71921]]

homogeneity and resource costs. They pointed out that none of the 
procedures in APC 0234 have implanted device costs associated with the 
procedures, except CPT code 0191T, while most procedures in APC 0673 
have implanted device costs, including glaucoma procedures with 
implanted device costs, namely CPT code 66180 and CPT code 0192T. A few 
commenters claimed that each of the shunt devices in APC 0673 serve to 
shunt the aqueous fluid in the eye to another region in order to lower 
intraocular pressure, a common clinical purpose related to CPT code 
0191T. Commenters asserted that the major cost of performing the 
procedure described by CPT code 0191T is the device itself, and that 
the proposed payment rate for APC 0234 is too low to compensate 
hospitals and ASCs for the cost of the procedure, thus preventing 
Medicare beneficiary access. Commenters also pointed out that cataract 
surgery is almost always performed with CPT code 0191T, as many 
cataract patients have mild to moderate glaucoma, resulting in a 
multiple procedure surgical session with a 50 percent multiple 
procedure reduction in payment for CPT code 0191T, which is 
predominantly performed in the ASC setting.
    Many commenters asserted that the shunt device implantation 
performed with CPT code 0191T has much in common clinically with the 
implantation of the shunt device procedure performed with CPT code 
0192T, which is assigned to APC 0673. Some commenters stated that the 
CPT code 0191T procedure is well within the skill set of a general 
ophthalmologist performing cataract surgery and promises to avoid some 
glaucoma medication usage.
    One commenter argued that the resource costs of CPT code 0191T as 
demonstrated by CMS claims data is closer to the costs in APC 0673 than 
APC 0234, pointing out that the CY 2011 proposed rule median cost of 
approximately $2,964 for CPT code 0191T is appreciably higher than the 
range of costs of approximately $1,726 to approximately $2,026 for the 
10 most frequent procedures in APC 0234. On the other hand, the 
commenter stated that the CY 2011 proposed rule median cost of CPT code 
0191T is closer to the proposed rule median cost of approximately 
$3,099 for APC 0673 and the costs of its two most frequent procedures, 
that of CPT code 66180 (approximately $3,092) and CPT code 0192T 
(approximately $3,131). The commenter claimed that CMS has grouped 
clinically similar CPT codes together into an APC even though some 
services are significantly below the proposed APC costs. The commenter 
also noted that the procedure's device, the iStent Trabecular Micro-
Bypass Stent (iStent), is currently under an investigational device 
exemption (IDE) and is awaiting full premarket approval (PMA) from the 
FDA, which it expects to receive by the end of 2011.
    Response: After further analysis of this issue, we agree with the 
APC Panel and the commenters that CPT code 0191T is similar clinically 
and in terms of resource utilization to the procedures in APC 0673. 
Several procedures in APC 0673 have device implants that are related to 
glaucoma, such as CPT 0192T and CPT code 66180, and the CY 2011 final 
median cost for CPT code 0191T of approximately $3,139 is very similar 
to the median cost calculated for APC 0673 of approximately $2,946. 
Therefore, we are accepting the APC Panel's and the commenters' 
recommendation to reassign CPT code 0191T to APC 0673 for CY 2011.
    After consideration of the public comments we received, we are 
modifying our CY 2011 proposal and reassigning CPT code 0191T to APC 
0673 for CY 2011. We will continue to monitor claims and cost report 
data for CPT code 0191T in APC 0673.
c. Group Psychotherapy (APCs 0322, 0323, 0324, and 0325)
    For CY 2011, we proposed to set the CY 2011 payment rates for APCs 
0322 (Brief Individual Psychotherapy), 0323 (Extended Individual 
Psychotherapy), 0324 (Family Psychotherapy), and 0325 (Group 
Psychotherapy) based on the median costs determined under the OPPS 
standard ratesetting methodology. We also proposed to continue to 
assign CPT codes 90849 (Multiple family group psychotherapy), 90853 
(Group psychotherapy (other than of a multiple-family group)), and 
90857 (Interactive group psychotherapy) to APC 0325, with a proposed 
payment rate of approximately $54, calculated according to the standard 
OPPS ratesetting methodology. In CY 2010, these three CPT codes also 
were the only codes assigned to APC 0325, with a payment rate of 
approximately $60.
    Comment: Some commenters expressed concern over the decreases in 
the proposed payment rates for APCs 0322, 0323, 0324, and 0325. 
Particularly, several commenters expressed concern that the CY 2011 
proposed payment rate for APC 0325 of approximately $54 is 10 percent 
less than the CY 2010 payment rate for this APC. The commenters 
believed that the proposed payment rate would be insufficient to cover 
hospitals' costs for providing group mental health services and, as a 
result, would threaten Medicare beneficiary access to these services. 
Some commenters stated that the utilization of recent cost report data 
lags behind the provision of current services by approximately 3 to 5 
years, and a stronger level of reimbursement would seem justified and 
appropriate.
    Response: We set the payment rates for APCs 0322, 0323, 0324, and 
0325 using our standard OPPS methodology based on relative costs from 
hospital outpatient claims and the most recent cost report data that 
are available. We have no reason to believe that our claims and cost 
report data, as reported by hospitals, do not accurately reflect 
hospitals' costs of the services assigned to these APCs. As we have 
stated in the past, specifically with respect to APC 0325 (72 FR 66739 
and 73 FR 68627), we cannot speculate as to why the median cost of 
group psychotherapy services has decreased significantly in recent 
years. We again note that we have robust claims data for the CPT codes 
that map to APC 0325. Specifically, we were able to use more than 99 
percent of the approximately 1.7 million claims submitted by hospitals 
to report group psychotherapy services. It would appear that the 
relative cost of providing these mental health services, in comparison 
with other HOPD services, has decreased in recent years.
    After consideration of the public comments we received, we are 
finalizing our CY 2011 proposal, without modification, to calculate the 
payment rate for APCs 0322, 0323, 0324, and 0325 by applying our 
standard OPPS ratesetting methodology that relies on all single claims 
for all procedures assigned to these APCs, and to continue to assign 
CPT codes 90849, 90853, and 90857 to APC 0325, with a final payment 
rate of approximately $54.

IV. OPPS Payment for Devices

A. Pass-Through Payments for Devices

1. Expiration of Transitional Pass-Through Payments for Certain Devices
    Section 1833(t)(6)(B)(iii) of the Act requires that, under the 
OPPS, a category of devices be eligible for transitional pass-through 
payments for at least 2, but not more than 3, years. This pass-through 
payment eligibility period begins with the first date on which 
transitional pass-through payments may be made for any medical device 
that is described by the category. We may establish a new device 
category for pass-through payment in any quarter. Under our established 
policy, we base the pass-through status expiration dates for the 
category codes

[[Page 71922]]

on the date on which a category is in effect. The date on which a 
category is in effect is the first date on which pass-through payment 
may be made for any medical device that is described by such category. 
We propose and finalize the dates for expiration of pass-through status 
for device categories as part of the OPPS annual update.
    We also have an established policy to package the costs of the 
devices that are no longer eligible for pass-through payments into the 
costs of the procedures with which the devices are reported in the 
claims data used to set the payment rates (67 FR 66763). Brachytherapy 
sources, which are now separately paid in accordance with section 
1833(t)(2)(H) of the Act, are an exception to this established policy.
    There currently is one new device category eligible for pass-
through payment, described by HCPCS code C1749 (Endoscope, retrograde 
imaging/illumination colonoscope device (implantable), which we 
announced in the October 2010 OPPS Update (Transmittal 2050, Change 
Request 7117, dated September 17, 2010). There are no categories for 
which we proposed expiration of pass-through status in CY 2011. If we 
create new device categories for pass-through payment status during the 
remainder of CY 2010 or during CY 2011, we will propose future 
expiration dates in accordance with the statutory requirement that they 
be eligible for pass-through payments for at least 2, but not more than 
3, years from the date on which pass-through payment for any medical 
device described by the category may first be made.
    Comment: Some commenters expressed concern that there currently are 
no pass-through categories for new devices, and that there have been 
very few new categories approved over the past several years. The 
commenters were concerned that CMS may not be recognizing technologies 
that demonstrate a substantial clinical improvement for Medicare 
beneficiaries, even though the commenters believed that there have been 
past applications that have met or exceeded that criterion. One 
commenter recommended that CMS reevaluate the criteria and approval 
process currently used for device pass-through applications. Another 
commenter believed that the need for separate payment for new 
technologies is even more acute because of the OPPS policy of increased 
packaging and bundled payment into composite APCs. One commenter 
recommended that CMS annually publish a list of all devices for which 
pass-through status was requested, along with the rationale supporting 
its decisions regarding approval or denial of pass-through status.
    Response: The criteria for establishing additional pass-through 
categories for medical devices are included in the interim final rule 
with comment period issued in the November 2, 2001 Federal Register (66 
FR 55850), the final rule with comment period issued in the November 1, 
2002 Federal Register (67 FR 66781), and the November 10, 2005 OPPS 
final rule with comment period (70 FR 68628). We made no proposals 
regarding our device pass-through process or criteria for CY 2011. 
However, industry members have, from time to time, requested that we 
provide additional information on our new technology processes, which 
we have attempted to do in the past. We agree with the commenters that 
separate payment for new technologies through the device pass-through 
process is an important feature of the OPPS, and we continue to review 
applications on an ongoing basis using our established process and 
criteria and to establish new categories of pass-through devices when 
those criteria are met. We disagree with the commenters who believe 
that we may not be recognizing technologies that demonstrate a 
substantial clinical improvement. We carefully evaluate each 
application based on the established criteria, including whether the 
device demonstrates a substantial clinical improvement.
    We are not making any changes to the device pass-through process or 
criteria in this final rule with comment period because we believe any 
changes would require public input, including input from affected 
parties, and, therefore, should be addressed through our rulemaking 
cycle. For example, while some parties may approve of putting specific 
information about pass-through applications on our Web site, such as 
the basis for an application's denial, others who request that we treat 
all or part of their applications as confidential may not support such 
a change in the pass-through process. (We note that filing an 
application to CMS does not guarantee that CMS is able to treat any 
information as confidential because such information is used as part of 
the OPPS ratesetting process.) However, we do appreciate the 
commenters' perspectives and will take their comments under advisement 
as we consider our device pass-through criteria and process in the 
future.
2. Provisions for Reducing Transitional Pass-Through Payments to Offset 
Costs Packaged into APC Groups
    a. Background
    We have an established policy to estimate the portion of each APC 
payment rate that could reasonably be attributed to the cost of the 
associated devices that are eligible for pass-through payments (66 FR 
59904). We deduct from the pass-through payments for identified device 
categories eligible for pass-through payments an amount that reflects 
the portion of the APC payment amount that we determine is associated 
with the cost of the device, defined as the device APC offset amount, 
as required by section 1833(t)(6)(D)(ii) of the Act. We have 
consistently employed an established methodology to estimate the 
portion of each APC payment rate that could reasonably be attributed to 
the cost of an associated device eligible for pass-through payment, 
using claims data from the period used for the most recent 
recalibration of the APC rates (72 FR 66751 through 66752). We 
establish and update the applicable device APC offset amounts for 
eligible pass-through device categories through the transmittals that 
implement the quarterly OPPS updates.
    We currently have published a list of all procedural APCs with the 
CY 2010 portions (both percentages and dollar amounts) of the APC 
payment amounts that we determine are associated with the cost of 
devices, on the CMS Web site at: http://www.cms.gov/
HospitalOutpatientPPS/01_overview.asp. The dollar amounts are used as 
the device APC offset amounts. In addition, in accordance with our 
established practice, the device APC offset amounts in a related APC 
are used in order to evaluate whether the cost of a device in an 
application for a new device category for pass-through payment is not 
insignificant in relation to the APC payment amount for the service 
related to the category of devices, as specified in our regulations at 
Sec.  419.66(d).
    As of CY 2009, the costs of implantable biologicals without pass-
through status are packaged into the payment for the procedures in 
which they are inserted or implanted because implantable biologicals 
without pass-through status are not separately paid (73 FR 68633 
through 68636). For CY 2010, we finalized a new policy to specify that 
the pass-through evaluation process and pass-through payment 
methodology for implantable biologicals that are surgically inserted or 
implanted (through a surgical incision or a natural orifice) and that 
are newly approved for pass-through status beginning on or after 
January 1, 2010, be the device pass-through process and payment 
methodology only. As a result, for CY 2010, we included implantable

[[Page 71923]]

biologicals in our calculation of the device APC offset amounts (74 FR 
60476). We calculated and set the device APC offset amount for a newly 
established device pass-through category, which could include a newly 
eligible implantable biological, beginning in CY 2010 using the same 
methodology we have historically used to calculate and set device APC 
offset amounts for device categories eligible for pass-through payment 
(72 FR 66751 through 66752), with one modification. Because implantable 
biologicals are considered devices rather than drugs for purposes of 
pass-through evaluation and payment under our established policy, the 
device APC offset amounts include the costs of implantable biologicals. 
For CY 2010, we also finalized a policy to utilize the revised device 
APC offset amounts to evaluate whether the cost of an implantable 
biological in an application for a new device category for pass-through 
payment is not insignificant in relation to the APC payment amount for 
the service related to the category of devices. Further, for CY 2010, 
we also no longer used the ``policy-packaged'' drug APC offset amounts 
for evaluating the cost significance of implantable biological pass-
through applications under review and for setting the APC offset 
amounts that would apply to pass-through payment for those implantable 
biologicals, effective for new pass-through status determinations 
beginning in CY 2010 (74 FR 60463).
b. Proposed and Final CY 2011 Policy
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46252), we proposed to 
continue our policy that the pass-through evaluation process and pass-
through payment methodology for implantable biologicals that are 
surgically inserted or implanted (through a surgical incision or a 
natural orifice) and that are newly approved for pass-through status 
beginning on or after January 1, 2010, be the device pass-through 
process and payment methodology only. The rationale for this policy is 
provided in the CY 2010 OPPS/ASC final rule with comment period (74 FR 
60471 through 60477). We also proposed to continue our established 
policies for calculating and setting the device APC offset amounts for 
each device category eligible for pass-through payment. In addition, we 
proposed to continue to review each new device category on a case-by-
case basis to determine whether device costs associated with the new 
category are already packaged into the existing APC structure. If 
device costs packaged into the existing APC structure are associated 
with the new category, we would deduct the device APC offset amount 
from the pass-through payment for the device category. As stated 
earlier, these device APC offset amounts also would be used in order to 
evaluate whether the cost of a device in an application for a new 
device category for pass-through payment is not insignificant in 
relation to the APC payment amount for the service related to the 
category of devices (Sec.  419.66(d)).
    We also proposed to continue our policy established in CY 2010 to 
include implantable biologicals in our calculation of the device APC 
offset amounts. In addition, we proposed to continue to calculate and 
set any device APC offset amount for a new device pass-through category 
that includes a newly eligible implantable biological beginning in CY 
2011 using the same methodology we have historically used to calculate 
and set device APC offset amounts for device categories eligible for 
pass-through payment, and to include the costs of implantable 
biologicals in the calculation of the device APC offset amounts, as we 
did for CY 2010.
    In addition, we proposed to update, on the CMS Web site at http://www.cms. gov/HospitalOutpatientPPS, the list of all procedural APCs 
with the final CY 2011 portions of the APC payment amounts that we 
determine are associated with the cost of devices so that this 
information is available for use by the public in developing potential 
CY 2011 device pass-through payment applications and by CMS in 
reviewing those applications.
    In summary, for CY 2011, consistent with the policy established for 
CY 2010, we proposed to continue the following policies related to 
pass-through payment for devices: (1) Treating implantable biologicals, 
that are surgically inserted or implanted (through a surgical incision 
or a natural orifice) and that are newly approved for pass-through 
status on or after January 1, 2010, as devices for purposes of the OPPS 
pass-through evaluation process and payment methodology; (2) including 
implantable biologicals in calculating the device APC offset amounts; 
(3) using the device APC offset amounts to evaluate whether the cost of 
a device (defined to include implantable biologicals) in an application 
for a new device category for pass-through payment is not insignificant 
in relation to the APC payment amount for the service related to the 
category of devices; and (4) reducing device pass-through payments 
based on device costs already included in the associated procedural 
APCs, when we determine that device costs associated with the new 
category are already packaged into the existing APC structure.
    Comment: Some commenters recommended that CMS not continue the 
policy it began for CY 2010 to specify that the pass-through evaluation 
process and pass-through payment methodology for implantable 
biologicals that are surgically inserted or implanted (through a 
surgical incision or a natural orifice) be the device pass-through 
process and payment methodology only. One commenter asserted that some 
implantable biologicals meet the definition of biological under section 
1861(t) of the Act, even though they are approved by the FDA as 
devices. The commenter recommended that biologicals approved by the FDA 
under a biologics license application (BLA) should be eligible for 
pass-through payment under the drug and nonimplantable biological pass-
through process, regardless of whether or not they are implanted. The 
commenter claimed that Congress intended for biologicals approved under 
BLAs to be paid as pass-through drugs because the commenter believed 
that Congress intended that biologicals be included under the specific 
OPPS statutory provisions that apply to specified covered outpatient 
drugs (SCODs). The commenter alternatively requested that if CMS 
continues to define implantable biologicals as devices for pass-through 
purposes, CMS clarify that it will apply device process and payment 
only if the devices are solely surgically implanted according to their 
FDA-approved indications. The commenter claimed that the current pass-
through policy is unclear regarding how CMS would evaluate eligibility 
for pass-through payment of a biological that has both implantable and 
nonimplantable indications.
    Another commenter believed that CMS has not sufficiently defined 
the term ``surgically inserted or implanted'' regarding applicability 
of pass-through device process and payment for implantable biologicals. 
The commenter questioned whether biologicals inserted into the body via 
catheter (which requires a surgical incision to place a catheter) or an 
injection of a biological administered through a natural orifice should 
be considered implantable biologicals. The commenter asked whether a 
biological that is inserted into the body as a drug administration, 
that is, by means of injection or infusion, is considered surgically 
inserted or implanted for purposes of pass-through status evaluation 
and payment. The commenter also recommended paying for implantable 
biologicals using the

[[Page 71924]]

drug payment methodology, proposed at ASP plus 6 percent, rather than 
the current methodology of charges adjusted to costs. The commenter 
asserted the advantages of the ASP payment methodology are as follows: 
there would be identical payment methodologies for biologicals that 
function as both implantable and nonimplantable biologicals; the ASP 
methodology is well-understood by providers and contractors; the ASP 
methodology avoids the problem of hospitals being reluctant to mark up 
charges for new implantable biologicals, thereby resulting in charge 
compression and an underestimation of costs; and the ASP methodology 
assures a consistent payment method, rather than the hospital-specific, 
charges-adjusted-to-cost methodology.
    Response: As stated in the CY 2010 OPPS/ASC final rule with comment 
period, we evaluate implantable biologicals that function as and are 
substitutes for implantable devices, regardless of their category of 
FDA approval, as devices for OPPS payment purposes (74 FR 60476). We do 
not believe it is necessary to make our OPPS payment policies regarding 
implantable biologicals dependent on categories of FDA approval, the 
intent of which is to ensure the safety and effectiveness of medical 
products.
    We do not agree with the commenter who asserted that Congress 
intended biologicals approved under BLAs to be paid under the specific 
OPPS statutory provisions that apply to SCODs, including the pass-
through provisions. Moreover, as we stated in the CY 2010 OPPS/ASC 
final rule with comment period, Congress did not specify that we must 
pay for implantable biologicals as biologicals rather than devices, if 
they also meet our criteria for payment as a device (74 FR 60476). We 
continue to believe that implantable biologicals meet the definitions 
of a device and a biological and that, for payment purposes, it is 
appropriate for us to consider implantable biologicals as implantable 
devices in all cases, not as biologicals.
    We also do not agree with the commenter's request that we pay for 
pass-through implantable biologicals using the ASP payment methodology. 
As we stated in the CY 2010 OPPS/ASC final rule with comment period (74 
FR 60474), we do not believe that this payment methodology would be 
appropriate because payment based on ASP for pass-through implantable 
biologicals would not provide similar OPPS payment treatment of 
biological and nonbiological implantable devices, which is our goal for 
new devices. Given the shared payment methodologies for implantable 
biological and nonbiological devices during their nonpass-through 
payment periods, as well as their overlapping and sometimes identical 
clinical uses and their generally similar regulation by the FDA as 
devices, we continue to believe that the most consistent pass-through 
payment policy for these different types of items that are surgically 
inserted or implanted and that may sometimes substitute for one another 
is to evaluate and pay for all of these devices, both biological and 
nonbiological, only under the device pass-through payment and 
methodology.
    Regarding the comment that claimed we have not sufficiently defined 
the term ``surgically inserted or implanted'' regarding applicability 
of pass-through device process and payment for implantable biologicals, 
we believe that infusion or injection of a biological product through a 
catheter is generally not considered implantation of a device since 
these products are being administered through a catheter rather than 
inserted or implanted into the body, in the same way that we have 
stated in the past with respect to drug and device combination products 
that it is not our intention to consider biologicals under the device 
pass-through evaluation process when these products are merely 
administered through the implantation of a delivery system for the 
biological (74 FR 60476). We believe that applicants seeking pass-
through payment for a particular technology must determine whether to 
apply through the drug or device pass-through process based on how the 
individual product will be administered.
    In response to the comment seeking clarity regarding how CMS would 
evaluate eligibility for pass-through payment of a biological that has 
both implantable and non-implantable indications, we again note that 
applicants for pass-through status must determine whether to apply 
through the drug or device pass-through process based on how the 
individual product will be used. If we were to receive applications for 
the same product for both drug pass-through status and device pass-
through status, and if both applications met the respective criteria 
for approval, we would evaluate how it is administered in order to 
determine whether it would be appropriate to differentiate the payment 
methodology for the product depending on how it is used, as we do for 
nonpass-through biologicals that may be sometimes used as drugs, and 
sometimes used as devices.
    After consideration of the public comments we received, we are 
finalizing our proposal, without modification, to continue the policy 
to specify that the pass-through evaluation process and pass-through 
payment methodology for implantable biologicals that are surgically 
inserted or implanted (through a surgical incision or a natural 
orifice) and that are newly approved for pass-through status on or 
after January 1, 2010, be the device pass-through process and payment 
methodology only. We also are finalizing our other proposals, without 
modification, to continue the following policies regarding device 
offsets: (1) Including implantable biologicals in calculating the 
device APC offset amounts; (2) using the device APC offset amounts to 
evaluate whether the cost of a device (defined to include implantable 
biologicals) in an application for a new device category for pass-
through payment is not insignificant in relation to the APC payment 
amount for the service related to the category of devices; and (3) 
reducing device pass-through payments based on device costs already 
included in the associated procedural APCs, when we determine that 
device costs associated with the new category are already packaged into 
the existing APC structure.

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

1. Background
    In recent years, there have been several field actions on and 
recalls of medical devices as a result of implantable device failures. 
In many of these cases, the manufacturers have offered devices without 
cost to the hospital or with credit for the device being replaced if 
the patient required a more expensive device. In order to ensure that 
payment rates for procedures involving devices reflect only the full 
costs of those devices, our standard ratesetting methodology for 
device-dependent APCs uses only claims that contain the correct device 
code for the procedure, do not contain token charges, do not contain 
the ``FB'' modifier signifying that the device was furnished without 
cost or with a full credit, and do not contain the ``FC'' modifier 
signifying that the device was furnished with partial credit. As 
discussed in section II.A.2.d.(1) of this final rule with comment 
period, as we proposed, we are continuing to use our standard 
ratesetting methodology for device-dependent APCs for CY 2011.
    To ensure equitable payment when the hospital receives a device 
without

[[Page 71925]]

cost or with full credit, in CY 2007 we implemented a policy to reduce 
the payment for specified device-dependent APCs by the estimated 
portion of the APC payment attributable to device costs (that is, the 
device offset) when the hospital receives a specified device at no cost 
or with full credit (71 FR 68071 through 68077). Hospitals are 
instructed to report no cost/full credit cases using the ``FB'' 
modifier on the line with the procedure code in which the no cost/full 
credit device is used. In cases in which the device is furnished 
without cost or with full credit, the hospital is instructed to report 
a token device charge of less than $1.01. In cases in which the device 
being inserted is an upgrade (either of the same type of device or to a 
different type of device) with a full credit for the device being 
replaced, the hospital is instructed to report as the device charge the 
difference between its usual charge for the device being implanted and 
its usual charge for the device for which it received full credit. In 
CY 2008, we expanded this payment adjustment policy to include cases in 
which hospitals receive partial credit of 50 percent or more of the 
cost of a specified device. Hospitals are instructed to append the 
``FC'' modifier to the procedure code that reports the service provided 
to furnish the device when they receive a partial credit of 50 percent 
or more of the cost of the new device. We reduce the OPPS payment for 
the implantation procedure by 100 percent of the device offset for no 
cost/full credit cases when both a specified device code is present on 
the claim and the procedure code maps to a specified APC. Payment for 
the implantation procedure is reduced by 50 percent of the device 
offset for partial credit cases when both a specified device code is 
present on the claim and the procedure code maps to a specified APC. 
Beneficiary copayment is based on the reduced payment amount when 
either the ``FB'' or the ``FC'' modifier is billed and the procedure 
and device codes appear on the lists of procedures and devices to which 
this policy applies. We refer readers to the CY 2008 OPPS/ASC final 
rule with comment period for more background information on the ``FB'' 
and ``FC'' payment adjustment policies (72 FR 66743 through 66749).
2. APCs and Devices Subject to the Adjustment Policy
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46253 through 46256), 
we proposed to continue for CY 2011 the existing policy of reducing 
OPPS payment for specified APCs by 100 percent of the device offset 
amount when a hospital furnishes a specified device without cost or 
with a full credit and by 50 percent of the device offset amount when 
the hospital receives partial credit in the amount of 50 percent or 
more of the cost for the specified device. Because the APC payments for 
the related services are specifically constructed to ensure that the 
full cost of the device is included in the payment, we stated in the CY 
2011 OPPS/ASC proposed rule (75 FR 46253) that we continue to believe 
it is appropriate to reduce the APC payment in cases in which the 
hospital receives a device without cost, with full credit, or with 
partial credit, in order to provide equitable payment in these cases. 
(We refer readers to section II.A.2.d.(1) of this final rule with 
comment period for a description of our standard rate-setting 
methodology for device-dependent APCs). Moreover, the payment for these 
devices comprises a large part of the APC payment on which the 
beneficiary copayment is based, and we continue to believe it is 
equitable that the beneficiary cost sharing reflects the reduced costs 
in these cases.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46253), we also 
proposed to continue using the three criteria established in the CY 
2007 OPPS/ASC final rule with comment period for determining the APCs 
to which this policy applies (71 FR 68072 through 68077). Specifically: 
(1) All procedures assigned to the selected APCs must involve 
implantable devices that would be reported if device insertion 
procedures were performed; (2) the required devices must be surgically 
inserted or implanted devices that remain in the patient's body after 
the conclusion of the procedure (at least temporarily); and (3) the 
device offset amount must be significant, which, for purposes of this 
policy, is defined as exceeding 40 percent of the APC cost. We proposed 
to continue to restrict the devices to which the APC payment adjustment 
would apply to a specific set of costly devices to ensure that the 
adjustment would not be triggered by the implantation of an inexpensive 
device whose cost would not constitute a significant proportion of the 
total payment rate for an APC. We stated in the CY 2011 OPPS/ASC 
proposed rule (75 FR 46253) that we continue to believe these criteria 
are appropriate because free devices and device credits are likely to 
be associated with particular cases only when the device must be 
reported on the claim and is of a type that is implanted and remains in 
the body when the beneficiary leaves the hospital. We believe that the 
reduction in payment is appropriate only when the cost of the device is 
a significant part of the total cost of the APC into which the device 
cost is packaged, and that the 40-percent threshold is a reasonable 
definition of a significant cost.
    As indicated in the CY 2011 OPPS/ASC proposed rule (75 FR 46253), 
we examined the offset amounts calculated from the CY 2011 proposed 
rule data and the clinical characteristics of APCs to determine whether 
the APCs to which the no cost/full credit and partial credit device 
adjustment policy applies in CY 2010 continue to meet the criteria for 
CY 2011, and to determine whether other APCs to which the policy does 
not apply in CY 2010 would meet the criteria for CY 2011. Based on the 
CY 2009 claims data available for the proposed rule, we did not propose 
any changes to the APCs and devices to which this policy applies. Table 
18 of the CY 2011 OPPS/APC proposed rule (75 FR 46254) listed the 
proposed APCs to which the payment adjustment policy for no cost/full 
credit and partial credit devices would apply in CY 2011 and displayed 
the proposed payment adjustment percentages for both no cost/full 
credit and partial credit circumstances. We proposed that the no cost/
full credit adjustment for each APC to which this policy would continue 
to apply would be the device offset percentage for the APC (the 
estimated percentage of the APC cost that is attributable to the device 
costs that are packaged into the APC). We also proposed that the 
partial credit device adjustment for each APC would continue to be 50 
percent of the no cost/full credit adjustment for the APC. Table 19 of 
the CY 2011 OPPS/APC proposed rule (75 FR 46256) listed the proposed 
devices to which the payment adjustment policy for no cost/full credit 
and partial credit devices would apply in CY 2011. We stated in the CY 
2011 proposed rule (75 FR 46253) that we would update the lists of APCs 
and devices to which the no cost/full credit and partial credit device 
adjustment policy would apply for CY 2011, consistent with the three 
selection criteria discussed earlier in this section, based on the 
final CY 2009 claims data available for the CY 2011 OPPS/ASC final rule 
with comment period.
    Comment: One comment supported the 40-percent threshold as a 
reasonable definition of significant cost when determining the APCs to 
which the no cost/full credit and partial device adjustment policy 
applies. However, the commenter expressed concern about the application 
of this standard and questioned how CMS determines which

[[Page 71926]]

APCs meet the threshold based on claims data. The commenter also 
expressed concern that, for implantable orthopedic devices in 
particular, the existing codes do not include all of the devices 
currently being used. The commenter stated that currently available 
HCPCS codes do not comprehensively describe all implantable devices, 
and that this may negatively impact calculations of the device offset. 
For example, the commenter indicated that a large number of implantable 
devices are reported using HCPCS code C1713 (Anchor/screw for opposing 
bone-to-bone or soft tissue-to-bone (implantable)). The commenter 
recommended that CMS evaluate the adequacy of the device codes to 
facilitate accurate tracking and cost estimation.
    Response: We appreciate the commenter's support for the 40 percent 
threshold as a reasonable definition of significant cost. As described 
in the CY 2007 OPPS final rule with comment period (71 FR 68063 through 
68066), we calculate the APC offset amount used to determine which APCs 
meet the 40-percent threshold by first calculating an APC median cost 
including device costs and then calculating an APC median cost 
excluding device costs using single bills that contain devices.
    The device cost is estimated from the device HCPCS codes present on 
the claims and charges in the lines for four specific revenue codes: 
275 (Medical/Surgical Supplies: Pacemaker), 276 (Medical/Surgical 
Supplies: Intraocular lens), 278 (Medical/Surgical Supplies: Other 
implants), and 624 (Medical/Surgical Supplies: FDA investigational 
devices). We then divide the ``without device'' median cost by the 
``with device'' median cost and subtract the percent from 100 to 
acquire the percent of cost attributable to devices in the APC.
    We do not agree with the commenter that the available HCPCS codes 
are not sufficiently specific to allow hospitals to accurately report 
charges for implantable devices on their claims and for us to derive 
accurate device offset amount estimates from those claims. We are aware 
that devices of varying description and cost are billed with individual 
device category codes, such as HCPCS code C1713, but we do not believe 
that this limits hospitals' ability to report accurate costs and 
charges for items that may be described by those codes. Hospitals must 
determine how best to accurately report costs and charges for all items 
and services they provide, such as assigning device charges to a C-code 
or an uncoded revenue line. As described above, we use both the C-codes 
and uncoded revenue lines to calculate the device offset.
    After consideration of the public comment we received, we are 
finalizing our CY 2011 proposals, without modification, to continue the 
established no cost/full credit and partial credit adjustment policy. 
Table 25 below lists the APCs to which the payment adjustment policy 
for no cost/full credit and partial credit devices will apply in CY 
2011 and displays the final payment adjustment percentages for both no 
cost/full credit and partial credit circumstances. Table 26 below lists 
the devices to which no cost/full credit and partial credit device 
adjustment policy will apply for CY 2011, consistent with the three 
selection criteria discussed earlier in this section, based on the 
final CY 2009 claims data available for this final rule with comment 
period. For CY 2011, OPPS payments for implantation procedures to which 
the ``FB'' modifier is appended are reduced by 100 percent of the 
device offset for no cost/full credit cases when both a device code 
listed in Table 26 below, is present on the claim and the procedure 
code maps to an APC listed in Table 25 below. OPPS payments for 
implantation procedures to which the ``FC'' modifier is appended are 
reduced by 50 percent of the device offset when both a device code 
listed in Table 26 is present on the claim and the procedure code maps 
to an APC listed in Table 25. Beneficiary copayment is based on the 
reduced amount when either the ``FB'' modifier or the ``FC'' modifier 
is billed and the procedure and device codes appear on the lists of 
procedures and devices to which this policy applies.
    We note that we are adding one new APC for CY 2011 to Table 25, APC 
0318 (Implantation of Cranial Neurostimulator Pulse Generator and 
Electrode), and deleting APC 0225 (Implantation of Neurostimulator 
Electrodes, Cranial Nerve). As discussed in section II.A.2.d.9. of this 
final rule with comment period, we are making changes to these device-
dependent APCs in order to accommodate revisions to coding in CY 2011.

   Table 25--APCs To Which The No Cost/Full Credit and Partial Credit
             Device Adjustment Policy Will Apply in CY 2011
------------------------------------------------------------------------
                                         Final CY 2011    Final CY 2011
                                         device offset    device offset
  Final CY 2011     CY 2011 APC Title    percentage for   percentage for
       APC                                no cost/full    partial credit
                                          credit case          case
------------------------------------------------------------------------
0039............  Level I Implantation               86               43
                   of Neurostimulator
                   Generator.
0040............  Percutaneous                       58               29
                   Implantation of
                   Neurostimulator
                   Electrodes.
0061............  Laminectomy,                       64               32
                   Laparoscopy, or
                   Incision for
                   Implantation of
                   Neurostimulator
                   Electrodes.
0089............  Insertion/                         71               35
                   Replacement of
                   Permanent Pacemaker
                   and Electrodes.
0090............  Insertion/                         73               36
                   Replacement of
                   Pacemaker Pulse
                   Generator.
0106............  Insertion/                         46               23
                   Replacement of
                   Pacemaker Leads and/
                   or Electrodes.
0107............  Insertion of                       88               44
                   Cardioverter-
                   Defibrillator.
0108............  Insertion/                         87               44
                   Replacement/Repair
                   of Cardioverter-
                   Defibrillator Leads.
0227............  Implantation of Drug               81               41
                   Infusion Device.
0259............  Level VII ENT                      85               43
                   Procedures.
0315............  Level II                           88               44
                   Implantation of
                   Neurostimulator
                   Generator.
0318............  Implantation of                    85               43
                   Cranial
                   Neurostimulator
                   Pulse Generator and
                   Electrode.
0385............  Level I Prosthetic                 61               31
                   Urological
                   Procedures.
0386............  Level II Prosthetic                71               36
                   Urological
                   Procedures.
0418............  Insertion of Left                  73               36
                   Ventricular Pacing
                   Elect.
0425............  Level II                           59               30
                   Arthroplasty or
                   Implantation with
                   Prosthesis.
0648............  Level IV Breast                    46               23
                   Surgery.
0654............  Insertion/                         74               37
                   Replacement of a
                   permanent dual
                   chamber pacemaker.
0655............  Insertion/                         74               37
                   Replacement/
                   Conversion of a
                   permanent dual
                   chamber pacemaker.

[[Page 71927]]

 
0680............  Insertion of Patient               71               35
                   Activated Event
                   Recorders.
------------------------------------------------------------------------


  Table 26--Devices To Which the No Cost/Full Credit and Partial Credit
             Device Adjustment Policy Will Apply in CY 2011
------------------------------------------------------------------------
     CY 2011 device HCPCS code            CY 2011 short descriptor
------------------------------------------------------------------------
C1721.............................  AICD, dual chamber.
C1722.............................  AICD, single chamber.
C1728.............................  Cath, brachytx seed adm.
C1764.............................  Event recorder, cardiac.
C1767.............................  Generator, neurostim, imp.
C1771.............................  Rep dev, urinary, w/sling.
C1772.............................  Infusion pump, programmable.
C1776.............................  Joint device (implantable).
C1777.............................  Lead, AICD, endo single coil.
C1778.............................  Lead, neurostimulator.
C1779.............................  Lead, pmkr, transvenous VDD.
C1785.............................  Pmkr, dual, rate-resp.
C1786.............................  Pmkr, single, rate-resp.
C1789.............................  Prosthesis, breast, imp.
C1813.............................  Prosthesis, penile, inflatab.
C1815.............................  Pros, urinary sph, imp.
C1820.............................  Generator, neuro rechg bat sys.
C1881.............................  Dialysis access system.
C1882.............................  AICD, other than sing/dual.
C1891.............................  Infusion pump, non-prog, perm.
C1895.............................  Lead, AICD, endo dual coil.
C1896.............................  Lead, AICD, non sing/dual.
C1897.............................  Lead, neurostim, test kit.
C1898.............................  Lead, pmkr, other than trans.
C1899.............................  Lead, pmkr/AICD combination.
C1900.............................  Lead coronary venous.
C2619.............................  Pmkr, dual, non rate-resp.
C2620.............................  Pmkr, single, non rate-resp.
C2621.............................  Pmkr, other than sing/dual.
C2622.............................  Prosthesis, penile, non-inf.
C2626.............................  Infusion pump, non-prog, temp.
C2631.............................  Rep dev, urinary, w/o sling.
L8600.............................  Implant breast silicone/eq.
L8614.............................  Cochlear device/system.
L8680.............................  Implt neurostim elctr each.
L8685.............................  Implt nrostm pls gen sng rec.
L8686.............................  Implt nrostm pls gen sng non.
L8687.............................  Implt nrostm pls gen dua rec.
L8688.............................  Implt nrostm pls gen dua non.
L8690.............................  Aud osseo dev, int/ext comp.
------------------------------------------------------------------------

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

A. OPPS Transitional Pass-Through Payment for Additional Costs of 
Drugs, Biologicals, and Radiopharmaceuticals

1. Background
    Section 1833(t)(6) of the Act provides for temporary additional 
payments or ``transitional pass-through payments'' for certain drugs 
and biologicals (also referred to as biologics). As enacted by the 
Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act (BBRA) of 
1999 (Pub. L. 106-113), this provision requires the Secretary to make 
additional payments to hospitals for current orphan drugs, as 
designated under section 526 of the Federal Food, Drug, and Cosmetic 
Act (Pub. L. 107-186); current drugs and biologicals and brachytherapy 
sources used for the treatment of cancer; and current 
radiopharmaceutical drugs and biologicals. For those drugs and 
biologicals referred to as ``current,'' the transitional pass-through 
payment began on the first date the hospital OPPS was implemented.
    Transitional pass-through payments also are provided for certain 
``new'' drugs and biologicals that were not being paid for as an HOPD 
service as of December 31, 1996, and whose cost is ``not 
insignificant'' in relation to the OPPS payments for the procedures or 
services associated with the new drug or biological. For pass-through 
payment purposes, radiopharmaceuticals are included as ``drugs.'' Under 
the statute, transitional pass-through payments for a drug or 
biological described in section 1833(t)(6)(C)(i)(II) of the Act can be 
made for a period of at least 2 years but not more than 3 years after 
the product's first payment as a hospital outpatient service under 
Medicare Part B. CY 2011 pass-through drugs and biologicals and their 
designated APCs are assigned status indicator ``G'' in Addenda A and B 
to this final rule with comment period.
    Section 1833(t)(6)(D)(i) of the Act specifies that the pass-through 
payment amount, in the case of a drug or biological, is the amount by 
which the amount determined under section 1842(o) of the Act for the 
drug or biological exceeds the portion of the otherwise applicable 
Medicare OPD fee schedule that the Secretary determines is associated 
with the drug or biological. If the drug or biological is covered under 
a competitive acquisition contract under section 1847B of the Act, the 
pass-through payment amount is determined by the Secretary to be equal 
to the average price for the drug or biological for all competitive 
acquisition areas and the year established under such section as 
calculated and adjusted by the Secretary.
    This methodology for determining the pass-through payment amount is 
set forth in regulations at 42 CFR 419.64, which specify that the pass-
through payment equals the amount determined under section 1842(o) of 
the Act minus the portion of the APC payment that CMS determines is 
associated with the drug or biological. Section 1847A of the Act 
establishes the use of the average sales price (ASP) methodology as the 
basis for payment for drugs and biologicals described in section 
1842(o)(1)(C) of the Act that are furnished on or after January 1, 
2005. The ASP methodology, as applied under the OPPS, uses several 
sources of data as a basis for payment, including the ASP, the 
wholesale acquisition cost (WAC), and the average wholesale price 
(AWP). In this final rule with comment period, the term ``ASP 
methodology'' and ``ASP-based'' are inclusive of all data sources and 
methodologies described therein. Additional information on the ASP 
methodology can be found on the CMS Web site at: http://www.cms.hhs.gov/McrPartBDrugAvgSalesPrice.
    As noted above, section 1833(t)(6)(D)(i) of the Act also provides 
that, if a drug or biological is covered under a competitive 
acquisition contract under section 1847B of the Act, the payment rate 
is equal to the average price for the drug or biological for all 
competitive acquisition areas and the year established as calculated 
and adjusted by the Secretary. Section 1847B of the Act establishes the 
payment methodology for Medicare Part B drugs and biologicals under the 
competitive acquisition program (CAP). The Part B drug CAP was 
implemented on July 1, 2006, and included approximately 190 of the most 
common Part B drugs provided in the physician's office setting. As we 
noted in the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68633), the Part B drug CAP program was postponed beginning in CY 2009 
(Medicare Learning Network (MLN) Matters Special Edition 0833, 
available via the Web site: http://www.medicare.gov). As

[[Page 71928]]

of publication of this final rule with comment period, the postponement 
of the Part B drug CAP program remains in effect and, there is no 
effective CAP program rate for pass-through drugs and biologicals as of 
January 1, 2009. Consistent with what we indicated in the CY 2010 OPPS/
ASC final rule with comment period (74 FR 60466), if the program is 
reinstituted during CY 2011 and Part B drug CAP rates become available, 
we would again use the Part B drug CAP rate for pass-through drugs and 
biologicals if they are a part of the Part B drug CAP program. 
Otherwise, we would continue to use the rate that would be paid in the 
physician's office setting for drugs and biologicals with pass-through 
status.
    For CYs 2005, 2006, and 2007, we estimated the OPPS pass-through 
payment amount for drugs and biologicals to be zero based on our 
interpretation that the ``otherwise applicable Medicare OPD fee 
schedule'' amount was equivalent to the amount to be paid for pass-
through drugs and biologicals under section 1842(o) of the Act (or 
section 1847B of the Act, if the drug or biological is covered under a 
competitive acquisition contract). We concluded for those years that 
the resulting difference between these two rates would be zero. For CYs 
2008 and 2009, we estimated the OPPS pass-through payment amount for 
drugs and biologicals to be $6.6 million and $23.3 million, 
respectively. For CY 2010, we estimated the OPPS pass-through payment 
estimate for drugs and biologicals to be $35.5 million. Our OPPS pass-
through payment estimate for drugs and biologicals in CY 2011 is $15.5 
million, which is discussed in section VI.B. of this final rule with 
comment period.
    The pass-through application and review process for drugs and 
biologicals is explained on the CMS Web site at: http://www.cms.hhs.gov/HospitalOutpatientPPS/04_passthrough_payment.asp.
2. Drugs and Biologicals With Expiring Pass-Through Status in CY 2010
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46257 through 46258), 
we proposed that the pass-through status of 18 drugs and biologicals 
would expire on December 31, 2010, as listed in Table 20 of the 
proposed rule (75 FR 46258). All of these drugs and biologicals will 
have received OPPS pass-through payment for at least 2 years, and no 
more than 3 years, by December 31, 2010. These drugs and biologicals 
were approved for pass-through status on or before January 1, 2009. 
With the exception of those groups of drugs and biologicals that are 
always packaged when they do not have pass-through status, specifically 
diagnostic radiopharmaceuticals, contrast agents, and implantable 
biologicals, our standard methodology for providing payment for drugs 
and biologicals with expiring pass-through status in an upcoming 
calendar year is to determine the product's estimated per day cost and 
compare it with the OPPS drug packaging threshold for that calendar 
year (which is $70 for CY 2011), as discussed further in section V.B.2. 
of this final rule with comment period. If the drug's or biological's 
estimated per day cost is less than or equal to the applicable OPPS 
drug packaging threshold, we would package payment for the drug or 
biological into the payment for the associated procedure in the 
upcoming calendar year. If the estimated per day cost of the drug or 
biological is greater than the OPPS drug packaging threshold, we would 
provide separate payment at the applicable relative ASP-based payment 
amount (which is at ASP+5 percent for CY 2011, as discussed further in 
section V.B.3. of this final rule with comment period). Section 
V.B.2.d. of this final rule with comment period discusses the packaging 
of all nonpass-through contrast agents, diagnostic 
radiopharmaceuticals, and implantable biologicals.
    Two of the products for which we proposed to expire pass-through 
status in CY 2011 are biologicals that are solely surgically implanted 
according to their Food and Drug Administration approved indications. 
As discussed in the CY 2010 OPPS/ASC final rule with comment period (74 
FR 60467), we package payment for those implantable biologicals that 
have expiring pass-though status into payment for the associated 
surgical procedure. In the CY 2011 OPPS/ASC proposed rule, we proposed 
to package payment for two products described by HCPCS codes C9356 
(Tendon, porous matrix of cross-linked collagen and glycosaminoglycan 
matrix (TenoGlide Tendon Protector Sheet), per square centimeter) and 
C9359 (Porous purified collagen matrix bone void filler (Integra Mozaik 
Osteoconductive Scaffold Putty, Integra OS Osteoconductive Scaffold 
Putty), per 0.5 cc).
    To date, for other nonpass-through biologicals paid under the OPPS 
that may sometimes be used as implantable devices, we have instructed 
hospitals, via Transmittal 1336, Change Request 5718, dated September 
14, 2007, to not separately bill for drug and biological HCPCS codes 
for the biologicals when they are used as implantable devices 
(including as a scaffold or an alternative to human or nonhuman 
connective tissue or mesh used in a graft) during surgical procedures. 
When using drugs and biologicals during surgical procedures as 
implantable devices, hospitals may include the charge for these items 
in their charge for the procedure, report the charge on an uncoded 
revenue center line, or report the charge under a device HCPCS code if 
one exists, so the costs would appropriately contribute to the future 
median setting for the associated procedure. In such cases, we consider 
payment for the biological used as an implantable device in a specific 
clinical case to be included in payment for the surgical procedure.
    As we established in the CY 2003 OPPS final rule with comment 
period (67 FR 66763), when the pass-through payment period for an 
implantable device ends, it is standard OPPS policy to package payment 
for the implantable device into payment for its associated surgical 
procedure. We consider nonpass-through implantable devices to be 
integral and supportive items and services for which packaged payment 
is most appropriate. According to our regulations at Sec.  419.2(b), as 
a prospective payment system, the OPPS establishes a national payment 
rate that includes operating and capital-related costs that are 
directly related and integral to performing a procedure or furnishing a 
service on an outpatient basis including, but not limited to, 
implantable prosthetics, implantable durable medical equipment, and 
medical and surgical supplies. Therefore, when the period of 
nonbiological device pass-through payment ends, we package the costs of 
the devices no longer eligible for pass-through payment into the costs 
of the procedures with which the devices were reported in the claims 
data used to set the payment rates for the upcoming calendar year. As 
described in the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68634), we believed that this policy to package payment for implantable 
devices that are integral to the performance of separately paid 
procedures should also apply to payment for implantable biologicals 
without pass-through status, when those biologicals are used as 
implantable devices. As stated above, implantable biologicals may be 
used in place of other implantable nonbiological devices whose costs 
are already accounted for in the associated procedural APC payments for 
surgical procedures. If we were to provide separate payment for these 
implantable

[[Page 71929]]

biologicals without pass-through status, we would potentially be 
providing duplicate device payment, both through the packaged 
nonbiological device cost included in the surgical procedure's payment 
and separate biological payment. We indicated in the CY 2009 OPPS/ASC 
final rule with comment period (73 FR 68634) that we saw no basis for 
treating implantable biological and nonbiological devices without pass-
through status differently for OPPS payment purposes because both are 
integral to and supportive of the separately paid surgical procedures 
in which either may be used.
    We did not receive any public comments on our proposal to expire 
the 18 drugs and biologicals that were identified in the proposed rule 
from pass-through status, effective December 31, 2010. We are 
finalizing our proposal, without modification, to expire the pass-
through status of the 18 drugs and biologicals listed in Table 27 
below, effective December 31, 2010.

           Table 27--Drugs and Biologicals for Which Pass-Through Status Will Expire December 31, 2010
----------------------------------------------------------------------------------------------------------------
                                                                                  Final CY 2011    Final CY 2011
   CY 2010 HCPCS Code       CY 2011 HCPCS Code       CY 2011 long descriptor            SI              APC
----------------------------------------------------------------------------------------------------------------
A9581                    A9581..................  Injection, gadoxetate                       N              N/A
                                                   disodium, 1 ml.
C9248                    C9248..................  Injection, clevidipien                      K             9248
                                                   butyrate, 1 mg.
C9356                    C9356..................  Tendon, porous matrix of                    N              N/A
                                                   cross-linked collagen and
                                                   glycosaminoglycan matrix
                                                   (TenoGlide Tendon Protector
                                                   Sheet), per square
                                                   centimeter.
C9358                    C9358..................  Dermal substitute, native,                  K             9358
                                                   non-denatured collagen,
                                                   fetal bovine origin
                                                   (SurgiMend Collagen Matrix),
                                                   per 0.5 square centimeters.
C9359                    C9359..................  Porous purified collagen                    N              N/A
                                                   matrix bone void filler
                                                   (Integra Mozaik
                                                   Osteoconductive Scaffold
                                                   Putty, Integra OS
                                                   Osteoconductive Scaffold
                                                   Putty), per 0.5 cc.
J1267                    J1267..................  Injection, doripenem, 10 mg..               N              N/A
J1453                    J1453..................  Injection, fosaprepitant, 1                 K             9242
                                                   mg.
J1459                    J1459..................  Injection, immune globulin                  K             1214
                                                   (privigen), intravenous, non-
                                                   lyophilized (e.g. liquid),
                                                   500 mg.
J1571                    J1571..................  Injection, hepatitis b immune               K             0946
                                                   globulin (hepagam b),
                                                   intramuscular, 0.5 ml.
J1573                    J1573..................  Injection, hepatitis B immune               K             1138
                                                   globulin (Hepagam B),
                                                   intravenous, 0.5 ml.
J1953                    J1953..................  Injection, levetiracetam, 10                N              N/A
                                                   mg.
J2785                    J2785..................  Injection, regadenoson, 0.1                 K             9244
                                                   mg.
J2796                    J2796..................  Injection,romiplostim, 10                   K             9245
                                                   micrograms.
J9033                    J9033..................  Injection, bendamustine hcl,                K             9243
                                                   1 mg.
J9207                    J9207..................  Injection, ixabepilone, 1 mg.               K             9240
J9225                    J9225..................  Histrelin implant (vantas),                 K             1711
                                                   50 mg.
J9226                    J9226..................  Histrelin implant (supprelin                K             1142
                                                   la), 50 mg.
Q4114                    Q4114..................  Dermal substitute, granulated               K             1251
                                                   cross-linked collagen and
                                                   glycosaminoglycan matrix
                                                   (Flowable Wound Matrix), 1
                                                   cc.
----------------------------------------------------------------------------------------------------------------

3. Drugs, Biologicals, and Radiopharmaceuticals With New or Continuing 
Pass-Through Status in CY 2011
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46258), we proposed to 
continue pass-through status in CY 2011 for 31 drugs and biologicals. 
None of these drugs and biologicals will have received OPPS pass-
through payment for at least 2 years and no more than 3 years by 
December 31, 2010. These drugs and biologicals, which were approved for 
pass-through status between April 1, 2009 and July 1, 2010, were listed 
in Table 21 of the proposed rule. The APCs and HCPCS codes for these 
drugs and biologicals were assigned status indicator ``G'' in Addenda A 
and B to the proposed rule (75 FR 46259).
    Section 1833(t)(6)(D)(i) of the Act sets the amount of pass-through 
payment for pass-through drugs and biologicals (the pass-through 
payment amount) as the difference between the amount authorized under 
section 1842(o) of the Act (or, if the drug or biological is covered 
under a CAP under section 1847B of the Act, an amount determined by the 
Secretary equal to the average price for the drug or biological for all 
competitive acquisition areas and the year established under such 
section as calculated and adjusted by the Secretary) and the portion of 
the otherwise applicable OPD fee schedule that the Secretary determines 
is associated with the drug or biological. Payment for drugs and 
biologicals with pass-through status under the OPPS is currently made 
at the physician's office payment rate of ASP+6 percent. In the 
proposed rule, we stated that we believe it is consistent with the 
statute to continue to provide payment for drugs and biologicals with 
pass-through status at a rate of ASP+6 percent in CY 2011, the amount 
that drugs and biologicals receive under section 1842(o) of the Act. 
Thus, for CY 2011, we proposed to pay for pass-through drugs and 
biologicals at ASP+6 percent, equivalent to the rate these drugs and 
biologicals would receive in the physician's office setting in CY 2011. 
We proposed that a zero pass-through payment amount would be paid for 
most pass-through drugs and biologicals under the CY 2011 OPPS because 
the difference between the amount authorized under section 1842(o) of 
the Act, which is ASP+6 percent, and the portion of the otherwise 
applicable OPD fee schedule that the Secretary determines is 
appropriate, proposed at ASP+6 percent, is zero. In the case of pass-
through contrast agents, diagnostic radiopharmaceuticals, and 
implantable biologicals, their pass-through payment amount would be 
equal to ASP+6 percent because, if not on pass-through status, payment 
for these products would be packaged into the associated procedures.
    In addition, we proposed to continue to update pass-through payment 
rates on a quarterly basis on the CMS Web site during CY 2011, if later 
quarter ASP submission (or more recent WAC or AWP information, as 
applicable) indicate that adjustments to the payment rates for these 
pass-through drugs or biologicals are necessary. For a full description 
of this policy, we refer readers to the CY 2006 OPPS/ASC final rule 
with comment period (70 FR 42722 and 42723). If the Part B drug CAP is 
reinstated during CY 2011, and a drug or biological that has been 
granted pass-

[[Page 71930]]

through status for CY 2011 becomes covered under the Part B drug CAP, 
we proposed to provide pass-though payment at the Part B drug CAP rate 
and to make the adjustments to the payment rates for these drugs and 
biologicals on a quarterly basis, as appropriate. As is our standard 
methodology, we annually review new permanent HCPCS codes and delete 
temporary HCPCS C-codes if an alternate permanent HCPCS code is 
available for purposes of OPPS billing and payment.
    In CY 2011, as is consistent with our CY 2010 policy for diagnostic 
and therapeutic radiopharmaceuticals, we proposed to provide payment 
for both diagnostic and therapeutic radiopharmaceuticals that are 
granted pass-through status based on the ASP methodology. As stated 
above, for purposes of pass-through payment, we consider 
radiopharmaceuticals to be drugs under the OPPS. Therefore, if a 
diagnostic or therapeutic radiopharmaceutical receives pass-through 
status during CY 2011, we proposed to follow the standard ASP 
methodology to determine the pass-through payment rate that drugs 
receive under section 1842(o) of the Act, which is, ASP+6 percent. If 
ASP data are not available for a radiopharmaceutical, we proposed to 
provide pass-through payment at WAC+6 percent, the equivalent payment 
provided to pass-through drugs and biologicals without ASP information. 
If WAC information is also not available, we proposed to provide 
payment for the pass-through radiopharmaceutical at 95 percent of its 
most recent AWP.
    As discussed in more detail in section V.B.2.d. of this final rule 
with comment period, over the last 3 years, we implemented a policy 
whereby payment for all nonpass-through diagnostic 
radiopharmaceuticals, contrast agents, and implantable biologicals is 
packaged into payment for the associated procedure. In the CY 2011 
OPPS/ASC proposed rule (75 FR 46271), we proposed to continue the 
packaging of these items, regardless of their per day cost, in CY 2011. 
As stated earlier, pass-through payment is the difference between the 
amount authorized under section 1842(o) of the Act (or, if the drug or 
biological is covered under a CAP under section 1847B of the Act, an 
amount determined by the Secretary equal to the average price for the 
drug or biological for all competitive acquisition areas and the year 
established under such section as calculated and adjusted by the 
Secretary) and the portion of the otherwise applicable OPD fee schedule 
that the Secretary determines is associated with the drug or 
biological. Because payment for a drug that is either a diagnostic 
radiopharmaceutical or a contrast agent (identified as a ``policy-
packaged'' drug, first described in the CY 2009 OPPS/ASC final rule 
with comment period (73 FR 68639)) or for an implantable biological 
(which we consider to be a device when it functions as an implantable 
device for all payment purposes, as discussed in sections V.A.4. and 
V.B.2.d. of the CY 2010 OPPS/ASC final rule with comment period (74 FR 
60458)) would otherwise be packaged if the product did not have pass-
through status, we believe the otherwise applicable OPPS payment amount 
would be equal to the ``policy-packaged'' drug or device APC offset 
amount for the associated clinical APC in which the drug or biological 
is utilized. The calculation of the ``policy-packaged'' drug and device 
APC offset amounts are described in more detail in section IV.A.2. of 
this final rule with comment period. It follows that the copayment for 
the nonpass-through payment portion (the otherwise applicable fee 
schedule amount that we would also offset from payment for the drug or 
biological if a payment offset applies) of the total OPPS payment for 
those drugs and biologicals would, therefore, be accounted for in the 
copayment for the associated clinical APC in which the drug or 
biological is used.
    According to section 1833(t)(8)(E) of the Act, the amount of 
copayment associated with pass-through items is equal to the amount of 
copayment that would be applicable if the pass-through adjustment was 
not applied. Therefore, as we did in CY 2010, we proposed to continue 
to set the associated copayment amount for pass-through diagnostic 
radiopharmaceuticals, contrast agents, and implantable biologicals that 
would otherwise be packaged if the item did not have pass-through 
status to zero for CY 2011. The separate OPPS payment to a hospital for 
the pass-through diagnostic radiopharmaceutical, contrast agent, or 
implantable biological, after taking into account any applicable 
payment offset for the item due to the device or ``policy-packaged'' 
APC offset policy, is the item's pass-through payment, which is not 
subject to a copayment according to the statute. Therefore, we proposed 
to not publish a copayment amount for these items in Addenda A and B to 
the proposed rule.
    As is our standard methodology, we annually review new permanent 
HCPCS codes and delete temporary HCPCS C-codes if an alternative 
permanent HCPCS code is available for purposes of OPPS billing and 
payment. We specifically review drugs with pass-through status for CY 
2011 that will change from C-code to a permanent J-code for CY 2011. 
For our CY 2011 review, we have determined that HCPCS code J2426 
(Injection, paliperidone palmitate, extended release, 1 mg) describes 
the product reported under HCPCS code C9255 (Injection, paliperidone 
palmitate, 1 mg); HCPCS code J7312 (Injection, dexamethasone 
intravitreal implant, 0.1 mg) describes the product reported under 
HCPCS code C9256 (Injection, dexamethasone intravitreal implant, 0.1 
mg); HCPCS code J3095 (Injection, telavancin, 10 mg) describes the 
product reported under HCPCS code C9258 (Injection, telavancin, 10 mg); 
HCPCS code J9307 (Injection, pralatrexate, 1 mg) describes the product 
reported under HCPCS code C9259 (Injection, pralatrexate, 1 mg); HCPCS 
code J9302 (Injection, ofatumumab, 10 mg) describes the product 
reported under HCPCS code C9260 (Injection, ofatumumab, 10 mg); HCPCS 
code J3357 (Injection, ustekinumab, 1 mg) describes the product 
reported under HCPCS code C9261 (Injection, ustekinumab, 1 mg); HCPCS 
code J1290 (Injection, ecallantide, 1 mg) describes the product 
reported under HCPCS code C9263 (Injection, ecallantide, 1 mg); HCPCS 
code J3262 (Injection, tocilizumab, 1 mg) describes the product 
reported under HCPCS code C9264 (Injection, tocilizumab, 1 mg); HCPCS 
code J9315 (Injection, romidepsin, 1 mg) describes the product reported 
under HCPCS code C9265 (Injection, romidepsin, 1 mg); HCPCS code J0775 
(Injection, collagenase clostridium histolyticum, 0.01 mg) describes 
the product reported under HCPCS code C9266 (Injection, collagenase 
clostridium histolyticum, 0.1 mg); HCPCS code J7184 (Injection, von 
Willebrand factor complex (human), Wilate, per 100 IU VWF: RCO) 
describes the product reported under HCPCS code C9267 (Injection, von 
Willebrand factor complex (human), Wilate, per 100 IU VWF: RCO); HCPCS 
code J7335 (Capsaicin 8% patch, per 10 square centimeters) describes 
the product reported under HCPCS code C9268 (Capsaicin, patch, 10cm2); 
HCPCS code J0597 (Injection, C-1 Esterase inhibitor (human), Berinert, 
10 units) describes the product reported under HCPCS code C9269 
(Injection, C-1 Esterase inhibitor (human), Berinert, 10 units); HCPCS 
code J3385 (Injection, velaglucerase alfa, 100 units) describes the 
product reported under HCPCS code C9271 (Injection, velaglucerase alfa, 
100 units); and HCPCS code J8562

[[Page 71931]]

(Fludarabine phosphate, oral, 10 mg) describes the product reported 
under HCPCS code Q2025 (Fludarabine phosphate, oral, 1 mg).
    Comment: Several commenters supported CMS' proposal to provide 
payment at ASP+6 percent for drugs, biologicals, contrast agents, and 
radiopharmaceuticals that are granted pass-through status. One 
commenter approved of the proposal to use the ASP methodology that 
would provide payment based on WAC if ASP information is not available, 
and payment at 95 percent of AWP if WAC information is not available. 
Some commenters requested that CMS provide an additional payment for 
radiopharmaceuticals that are granted pass-through status.
    Response: As discussed above, the statutorily mandated pass-through 
payment for CY 2011, in general, equals the amount determined under 
section 1842(o) of the Act minus the portion of the APC payment that 
CMS determines is associated with the drug or biological. Therefore, 
the pass-through payment is determined by subtracting the otherwise 
applicable payment amount under the OPPS (determined to be ASP+5 
percent for CY 2011) from the amount determined under section 1842(o) 
of the Act (ASP+6 percent).
    For CY 2011, consistent with our CY 2010 payment policy for 
diagnostic and therapeutic radiopharmaceuticals, we proposed to provide 
payment for both diagnostic and therapeutic radiopharmaceuticals with 
pass-through status based on the ASP methodology. As stated above, the 
ASP methodology, as applied under the OPPS, uses several sources of 
data as a basis for payment, including the ASP, WAC if ASP is 
unavailable, and 95 percent of the radiopharmaceutical's most recent 
AWP if ASP and WAC are unavailable. For purposes of pass-through 
payment, we consider radiopharmaceuticals to be drugs under the OPPS. 
Therefore, if a diagnostic or therapeutic radiopharmaceutical receives 
pass-through status during CY 2011, we proposed to follow the standard 
ASP methodology to determine its pass-through payment rate under the 
OPPS. We have routinely provided a single payment for drugs, 
biologicals, and radiopharmaceuticals under the OPPS to account for the 
acquisition and pharmacy overhead costs, including compounding costs. 
We continue to believe that a single payment is appropriate for 
diagnostic radiopharmaceuticals with pass-through status in CY 2011 and 
that the payment rate of ASP+6 percent (or payment based on the ASP 
methodology) is appropriate to provide payment for both the 
radiopharmaceutical's acquisition cost and any associated nuclear 
medicine handling and compounding costs. We refer reader to section 
V.B.3.c. of this final rule with comment period for further discussion 
of payment for therapeutic radiopharmaceuticals based on ASP 
information submitted by manufacturers and the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/.
    Comment: Some commenters expressed concern that a 
radiopharmaceutical may receive pass-through payment for a period of 
possibly only 2 years. Several commenters recommended providing pass-
through payment for approved radiopharmaceuticals for a full 3 year 
time period to allow hospitals time to incorporate new products into 
their chargemasters and billing practices.
    Response: The statute specifically allows for pass-through payment 
for drugs and biologicals to be made for at least 2 years, but no more 
than 3 years. We believe this period of payment facilitates 
dissemination of these new products into clinical practice and for the 
collection of hospital claims data reflective of their costs for future 
OPPS ratesetting. Our longstanding practice has been to provide pass-
through payment for a period of 2 to 3 years, with expiration of pass-
through status proposed and finalized through the annual rulemaking 
process. Each year, when proposing to expire the pass-through status of 
certain drugs and biologicals, we examine our claims data for these 
products. We observe that hospitals typically have incorporated these 
products into their chargemasters based on the utilization and costs 
observed in our claims data. Under the existing pass-through policy, 
which has been generally supported by commenters, we begin pass-through 
payment on a quarterly basis that depends on when applications are 
submitted to us for consideration and we expire pass-through status 
only on an annual basis, so there is no way to ensure that all pass-
through drugs and biologicals receive pass-through payment for a full 3 
years, while also providing pass-through payment for no more than 3 
years as the statute requires. Therefore, we will continue to provide 
drug and biologicals pass-through payment for at least 2 years, but no 
more than 3 years, as required by the statute.
    There is currently one diagnostic radiopharmaceutical, described by 
HCPCS code A9582 (Iodine I-123 iobenguane, diagnostic, per study dose, 
up to 15 millicuries), that has been granted pass-through status at the 
time of issuance of this final rule with comment period. We proposed to 
continue pass-through status for this diagnostic radiopharmaceutical as 
it would not have received at least 2 years but not more than 3 years 
of pass-through payment by December 31, 2010. This is consistent with 
the OPPS provision that provides for at least 2 years but not more than 
3 years of pass-through payment for drugs and biologicals that are 
approved for pass-through payments.
    We provide an opportunity through the annual OPPS/ASC rulemaking 
cycle for public comment on those drugs and biologicals that are 
proposed for expiration of pass-through payment at the end of the next 
calendar year. We have often received public comments related to our 
proposed expiration of pass-through status for drugs and biologicals in 
the future. In this manner, we address specific concerns about the 
pass-through payment period for individual drugs, biologicals, and 
radiopharmaceuticals.
    Comment: One commenter recommended that CMS monitor the cost and 
utilization data on HCPCS code A9583 (Injection, gadofosveset 
trisodium, 1 ml) on a quarterly basis throughout CY 2010 and CY 2011 to 
determine whether a third year of pass-through payment is necessary. 
The commenter noted that HCPCS code A9583, as a contrast agent and a 
``policy-packaged'' item, would be packaged after its pass-through 
status ends.
    Response: As stated above, section 1833(t)(6)(C)(i)(II) of the Act 
provides transitional pass-through payments for a drug or biological 
for at least 2 years, but not more than 3 years, beginning on the first 
date on which payment is made as hospital outpatient services under 
Medicare Part B. Under our current policy, supported by commenters, we 
begin pass-though payment on a quarterly basis that depends on when 
applications are submitted to us for consideration, and we expire pass-
through status only on an annual basis through the rulemaking process. 
Accordingly, there is no way to ensure that all pass-through drugs and 
biologicals receive pass-through payment for a full 3 years, while also 
providing pass-through payment for no more than 3 years, as the statute 
requires. Although it is our standard practice to monitor and review 
the cost and utilization data of all drugs and biologicals, because of 
our policy to expire pass-through status only on an annual basis 
through rulemaking, we could not use this information to authorize a 
full third year of pass-

[[Page 71932]]

through payment for an individual drug or biological. Therefore, once 
pass-through status ends for the item described by HCPCS code A9583 
(Injection, gadofosveset trisodium, 1 ml) after at least 2 years but 
not more than 3 years according to the statute, as a contrast agent, it 
will be packaged according to our policy described in section V.B.2.d. 
of this final rule with comment period. We are finalizing our proposal 
to continue pass-through status for the item described by HCPCS code 
A9583 for CY 2011.
    Comment: Several commenters supported the CY 2011 proposal to 
continue to set the associated copayment amounts for pass-through 
diagnostic radiopharmaceuticals, contrast agents, and implantable 
biologicals that would otherwise be packaged if the product did not 
have pass-through status to zero. The commenters noted that this policy 
is consistent with statutory requirements and provides cost-saving 
benefits to beneficiaries.
    Response: We appreciate the commenters' support of our proposal. As 
discussed in the CY 2011 OPPS/ASC proposed rule (75 FR 46259), we 
believe that, for drugs and biologicals that are ``policy-packaged,'' 
the copayment for the nonpass-through payment portion of the total OPPS 
payment for this subset of drugs and biologicals is accounted for in 
the copayment for the associated clinical APC in which the drug or 
biological is used. According to section 1833 (t)(8)(E) of the Act, the 
amount of copayment associated with pass-through items is equal to the 
amount of copayment that would be applicable if the pass-through 
adjustment was not applied. Therefore, we believe that the amount 
should be zero for drugs and biologicals that are ``policy-packaged,'' 
including diagnostic radiopharmaceuticals.
    Comment: One commenter noted that CMS omitted 7 of the 31 pass-
through drugs and biologicals proposed to continue on pass-through 
status for CY 2011 in Addendum B to the CY 2011 OPPS/ASC proposed rule. 
The commenter was concerned that the absence of these drugs and 
biologicals in Addendum B could cause hospitals or Medicare contractors 
to believe that the products are not paid for under the OPPS as pass-
through drugs.
    Response: Table 21 of the CY 2011 OPPS/ASC proposed rule (75 FR 
46260) contained 31 drugs, biologicals, and radiopharmaceuticals that 
we proposed to continue on pass-through status for CY 2011. This table 
included drugs, biologicals, and radiopharmaceuticals approved for 
pass-through status for the July 2010 quarterly update. While the 
commenter did not specifically mention which codes were omitted from 
Addendum B to the proposed rule, we note that HCPCS codes C9264 
(Injection, tocilizumab, 1 mg), C9265 (Injection, romidepsin, 1 mg), 
C9266 (Injection, collagenase clostridium histolyticum, 0.1 mg), C9267 
(Injection, von Willebrand factor complex (human), Wilate, per 100 IU 
VWF: RCO), C9268 (Capsaicin, patch, 10cm2), C9367 (Skin substitute, 
Endoform Dermal Template, per square centimeter), all approved for 
pass-through status for the July 2010 quarterly update, and Q2025 
(Fludarabine phosphate, oral, 1 mg) were not included in Addendum B of 
the proposed rule.
    According to our current practice, we did not include pass-through 
payment rates for those drugs, biologicals, and radiopharmaceuticals 
that were newly approved for pass-through status for July 2010 in 
Addendum B to the CY 2011 OPPS/ASC proposed rule. It has been our 
longstanding practice to include only payment rates for pass-through 
drugs, biologicals, and radiopharmaceuticals in Addendum B to the 
proposed rule that have been approved for payment under the OPPS 
through the April quarterly update because of the difficulty of 
coordinating production of the Addendum B to the proposed rule 
concurrently with decisions about pass-through drugs and biologicals 
for the July quarterly update transmittal. Payment rates for all pass-
through drugs, biologicals, and radiopharmaceuticals that are proposed 
and finalized to continue on pass-through status for a given calendar 
year are included in Addendum B to the final rule with comment period.
    Additionally, pass-through payment for the product described by 
HCPCS code Q2025 (Fludarabine phosphate, oral, 1 mg) was included in 
Addendum B to the CY 2011 OPPS/ASC proposed rule under the now 
discontinued HCPCS code C9262 (Fludarabine phosphate, oral, 1 mg). 
Beginning in July 2010, HCPCS code C9262 was deleted and replaced with 
HCPCS code Q2025. For CY 2011, HCPCS code Q2025 is finalized as HCPCS 
code J8562 (Fludarabine phosphate oral, 10mg) and will continue under 
pass-through status for CY 2011.
    We did not receive any public comments on our proposal to update 
pass-through payment rates on a quarterly basis on the CMS Website 
during CY 2011 if later quarter ASP submissions (or more recent WAC or 
AWP information, as applicable) indicate that adjustments to the 
payment rates for these pass-through drugs and biologicals are 
necessary.
    After consideration of the public comments we received, we are 
finalizing our CY 2011 pass-through payment proposals, without 
modification. Specifically, we are providing pass-through payment in CY 
2011 for those drugs, biologicals, and radiopharmaceuticals listed in 
Table 28 below. Payment for drugs, biologicals, and 
radiopharmaceuticals granted pass-through status will be made at the 
payment rate specified in section 1842(o) of the Act, that is, ASP+6 
percent. For drugs and biologicals that are not diagnostic 
radiopharmaceuticals, contrast agents, or implantable biologicals, the 
pass-through payment amount is equal to the difference between payment 
for the otherwise applicable Medicare OPD fee schedule that the 
Secretary determines is associated with the drug or biological, which 
is payment at ASP+5 percent and the payment rate specified in section 
1842(o) of the Act, ASP+6 percent or the Part B drug CAP rate as 
applicable. For contrast agents, diagnostic radiopharmaceuticals, and 
implantable biologicals, the pass-through payment is equal to the 
difference between the policy-packaged offset amount associated with an 
APC (discussed in V.A.4. of this final rule with comment period) and 
the payment rate specified in section 1842(o) of the Act of ASP+6 
percent. If ASP data are not available, payment for these pass-through 
drugs and biologicals will be based on the standard OPPS ASP 
methodology, that is, payment at WAC+6 percent if ASP data are not 
available, and payment at 95 percent of the pass-through drug's, 
biological's, or radiopharmaceutical's most recent AWP if WAC 
information is not available. We will update pass-through payment rates 
on a quarterly basis on the CMS website during CY 2011 if later ASP 
submissions (or more recent WAC or AWP information, as applicable) 
indicate that adjustments to the payment rates for pass-through drugs 
and biologicals are necessary. We will set the associated copayment 
amount for pass-through diagnostic radiopharmaceuticals, contrast 
agents, and implantable biologicals approved for pass-through as a 
biological prior to January 1, 2010 that would otherwise be packaged if 
the item did not have pass-through status to zero. The separate OPPS 
payment to a hospital for pass-through diagnostic radiopharmaceuticals, 
contrast agents, or implantable biologicals, after taking into account 
any applicable payment offset for the item due to the device or

[[Page 71933]]

``policy packaged'' APC offset policy, is the item's pass-through 
payment, which is not subject to a copayment, according to the statute. 
Finally, if a drug or biological that has been granted pass-through 
status for CY 2011 becomes covered under the Part B drug CAP if the 
program is reinstituted, we will provide pass-through payment at the 
Part B drug CAP rate and make the appropriate adjustment to the payment 
rates for the drugs and biologicals on a quarterly basis as 
appropriate.
    The 42 drugs and biologicals that are continuing on pass-through 
status for CY 2011 or that have been granted pass-through status as of 
January 2011 are displayed in Table 28 below.

                       Table 28--Drugs and Biologicals With Pass-Through Status in CY 2011
----------------------------------------------------------------------------------------------------------------
                                  CY 2011 HCPCS                                   Final CY 2011    Final CY 2011
       CY 2010 HCPCS code             code           CY 2011 long descriptor            SI              APC
----------------------------------------------------------------------------------------------------------------
A9582..........................           A9582  Iodine I-123 iobenguane,                     G             9247
                                                  diagnostic, per study dose,
                                                  up to 15 millicuries.
A9583..........................           A9583  Injection, gadofosveset                      G             1299
                                                  trisodium, 1 ml.
C9250..........................           C9250  Human plasma fibrin sealant,                 G             9250
                                                  vapor-heated, solvent-
                                                  detergent (Artiss), 2 ml.
C9255..........................           J2426  Injection, paliperidone                      G             9255
                                                  palmitate, extended release,
                                                  1 mg.
C9256..........................           J7312  Injection, dexamethasone                     G             9256
                                                  intravitreal implant, 0.1 mg.
C9258..........................           J3095  Injection, telavancin, 10 mg..               G             9258
C9259..........................           J9307  Injection, pralatrexate, 1 mg.               G             9259
C9260..........................           J9302  Injection, ofatumumab, 10 mg..               G             9260
C9261..........................           J3357  Injection, ustekinumab, 1 mg..               G             9261
C9263..........................           J1290  Injection, ecallantide, 1 mg..               G             9263
C9264..........................           J3262  Injection, tocilizumab, 1 mg..               G             9624
C9265..........................           J9315  Injection, romidepsin, 1 mg...               G             9625
C9266..........................           J0775  Injection, collagenase                       G             1340
                                                  clostridium histolyticum,
                                                  0.01 mg.
C9267..........................           J7184  Injection, von Willebrand                    G             9267
                                                  factor complex (human),
                                                  Wilate, per 100 IU VWF: RCO.
C9268..........................           J7335  Capsaicin 8% patch, per 10                   G             9268
                                                  square centimeters.
C9269..........................           J0597  Injection, C-1 Esterase                      G             9269
                                                  inhibitor (human), Berinert,
                                                  10 units.
C9270..........................           C9270  Injection, immune globulin                   G             9270
                                                  (Gammaplex), intravenous, non-
                                                  lyophilized (e.g. liquid),
                                                  500 mg.
C9271..........................           J3385  Injection, velaglucerase alfa,               G             9271
                                                  100 units.
C9272..........................           C9272  Injection, denosumab, 1 mg....               G             9272
C9273..........................           C9273  Sipuleucel-T, minimum of 50                  G             9273
                                                  million autologous CD54+
                                                  cells activated with PAPGM-
                                                  CSF in 250 mL of Lactated
                                                  Ringer's, including
                                                  leukapheresis and all other
                                                  preparatory procedures, per
                                                  infusion.
                                          C9274  Crotalidae polyvalent immune                 G             9274
                                                  fab (ovine), 1 vial.
                                          C9275  Injection, hexaminolevulinate                G             9275
                                                  hydrochloride, 100 mg, per
                                                  study dose.
                                          C9276  Injection, cabazitaxel, 1 mg..               G             9276
                                          C9277  Injection, alglucosidase alfa                G             9277
                                                  (Lumizyme), 1 mg.
                                          C9278  Injection, incobotulinumtoxin                G             9278
                                                  A, 1 unit.
                                          C9279  Injection, ibuprofen, 100 mg..               G             9279
C9360..........................           C9360  Dermal substitute, native, non-              G             9360
                                                  denatured collagen, neonatal
                                                  bovine origin (SurgiMend
                                                  Collagen Matrix), per 0.5
                                                  square centimeters.
C9361..........................           C9361  Collagen matrix nerve wrap                   G             9361
                                                  (NeuroMend Collagen Nerve
                                                  Wrap), per 0.5 centimeter
                                                  length.
C9362..........................           C9362  Porous purified collagen                     G             9362
                                                  matrix bone void filler
                                                  (Integra Mozaik
                                                  Osteoconductive Scaffold
                                                  Strip), per 0.5 cc.
C9363..........................           C9363  Skin substitute, Integra                     G             9363
                                                  Meshed Bilayer Wound Matrix,
                                                  per square centimeter.
C9364..........................           C9364  Porcine implant, Permacol, per               G             9364
                                                  square centimeter.
C9367..........................           C9367  Skin substitute, Endoform                    G             9367
                                                  Dermal Template, per square
                                                  centimeter.
J0598..........................           J0598  Injection, C1 esterase                       G             9251
                                                  inhibitor (human), 10 units.
J0641..........................           J0641  Injection, levoleucovorin                    G             1236
                                                  calcium, 0.5 mg.
J0718..........................           J0718  Injection, certolizumab pegol,               G             9249
                                                  1 mg.
J1680..........................           J1680  Injection, human fibrinogen                  G             1290
                                                  concentrate, 100 mg.
J2562..........................           J2562  Injection, plerixafor, 1 mg...               G             9252
J8705..........................           J8705  Topotecan, oral, 0.25 mg......               G             1238
J9155..........................           J9155  Injection, degarelix, 1 mg....               G             1296
J9328..........................           J9328  Injection, temozolomide, 1 mg.               G             9253
Q0138..........................           Q0138  Injection, Ferumoxytol, for                  G             1297
                                                  treatment of iron deficiency
                                                  anemia, 1 mg.
Q2025..........................           J8562  Fludarabine phosphate, oral,                 G             1339
                                                  10 mg.
----------------------------------------------------------------------------------------------------------------


[[Page 71934]]

4. Provisions for Reducing Transitional Pass-Through Payments for 
Diagnostic Radiopharmaceuticals and Contrast Agents to Offset Costs 
Packaged into APC Groups
a. Background
    Prior to CY 2008, diagnostic radiopharmaceuticals and contrast 
agents were paid separately under the OPPS if their mean per day costs 
were greater than the applicable year's drug packaging threshold. In CY 
2008 (72 FR 66768), we began a policy of packaging payment for all 
nonpass-through diagnostic radiopharmaceuticals and contrast agents as 
ancillary and supportive items and services into their associated 
nuclear medicine procedures. Therefore, beginning in CY 2008, nonpass-
through diagnostic radiopharmaceuticals and contrast agents were not 
subject to the annual OPPS drug packaging threshold to determine their 
packaged or separately payable payment status, and instead all nonpass-
through diagnostic radiopharmaceuticals and contrast agents were 
packaged as a matter of policy. In the CY 2011 OPPS/ASC proposed rule 
(75 FR 46261), for CY 2011, we proposed to continue to package payment 
for all nonpass-through diagnostic radiopharmaceuticals and contrast 
agents, as discussed in section V.B.2.d. of the proposed rule and this 
final rule with comment period.
b. Payment Offset Policy for Diagnostic Radiopharmaceuticals
    As previously noted, radiopharmaceuticals are considered to be 
drugs for OPPS pass-through payment purposes. As described above, 
section 1833(t)(6)(D)(i) of the Act specifies that the transitional 
pass-through payment amount for pass-through drugs and biologicals is 
the difference between the amount paid under section 1842(o) of the Act 
(or the Part B drug CAP rate) and the otherwise applicable OPD fee 
schedule amount. There is currently one radiopharmaceutical with pass-
through status under the OPPS, HCPCS code A9582 (Iobenguane, I-123, 
diagnostic, per study dose, up to 10 millicuries). HCPCS code A9582 was 
granted pass-through status beginning April 1, 2009 and will continue 
on pass-through status in CY 2011. We currently apply the established 
radiopharmaceutical payment offset policy to pass-through payment for 
this product. As described earlier in section V.A.3. of this final rule 
with comment period, new pass-through diagnostic radiopharmaceuticals 
will be paid at ASP+6 percent, while those without ASP information will 
be paid at WAC+6 percent or, if WAC is not available, payment will be 
based on 95 percent of the product's most recently published AWP.
    As a payment offset is necessary in order to provide an appropriate 
transitional pass-through payment, we deduct from the payment for pass-
through radiopharmaceuticals an amount that reflects the portion of the 
APC payment associated with predecessor radiopharmaceuticals in order 
to ensure no duplicate radiopharmaceutical payment is made. In CY 2009, 
we established a policy to estimate the portion of each APC payment 
rate that could reasonably be attributed to the cost of predecessor 
diagnostic radiopharmaceuticals when considering a new diagnostic 
radiopharmaceutical for pass-through payment (73 FR 68638 through 
68641). Specifically, we utilize the ``policy-packaged'' drug offset 
fraction for APCs containing nuclear medicine procedures, calculated as 
1 minus (the cost from single procedure claims in the APC after 
removing the cost for ``policy-packaged'' drugs divided by the cost 
from single procedure claims in the APC). In the CY 2010 OPPS/ASC final 
rule with comment period (74 FR 60480 through 60484), we finalized a 
policy to redefine ``policy-packaged'' drugs as only nonpass-through 
diagnostic radiopharmaceuticals and contrast agents, as a result of the 
policy discussed in sections V.A.4. and V.B.2.d. of the CY 2010 OPPS/
ASC final rule with comment period (74 FR 60471 through 60477 and 60495 
through 60499, respectively) that treats nonpass-through implantable 
biologicals that are surgically inserted or implanted (through a 
surgical incision or a natural orifice) and implantable biologicals 
that are surgically inserted or implanted (through a surgical incision 
or a natural orifice) with newly approved pass-through status beginning 
in CY 2010 or later as devices, rather than drugs. To determine the 
actual APC offset amount for pass-through diagnostic 
radiopharmaceuticals that takes into consideration the otherwise 
applicable OPPS payment amount, we multiply the ``policy-packaged'' 
drug offset fraction by the APC payment amount for the nuclear medicine 
procedure with which the pass-through diagnostic radiopharmaceutical is 
used and, accordingly, reduce the separate OPPS payment for the pass-
through diagnostic radiopharmaceutical by this amount.
    The I/OCE processes claims for nuclear medicine procedures only 
when they are performed with a radiolabeled product. Therefore, the 
radiolabeled product edits in the I/OCE require a hospital to report a 
diagnostic radiopharmaceutical with a nuclear medicine scan in order to 
receive payment for the nuclear medicine scan. We have received 
questions from hospitals on how to bill for a nuclear medicine scan 
when they receive a diagnostic radiopharmaceutical free of charge or 
with full credit. Currently, if a hospital receives a diagnostic 
radiopharmaceutical free of charge or with full credit and uses it to 
provide a nuclear medicine scan, the hospital could choose not to bill 
for both the nuclear medicine scan and the diagnostic 
radiopharmaceutical in order to bypass the radiolabeled product edits, 
but the hospital clearly would not receive OPPS payment for the scan or 
the diagnostic radiopharmaceutical. The hospital also could report the 
diagnostic radiopharmaceutical with the nuclear medicine scan and 
receive an APC payment that includes payment for the diagnostic 
radiopharmaceutical, but this would lead to inaccurate billing and 
incorrect payment. The OPPS should not pay for a free item. We believe 
neither of the above alternatives is satisfactory.
    In order to ensure that the OPPS is making appropriate and 
equitable payments under such circumstances and that a hospital can 
comply with the required radiolabeled product edits, in the CY 2011 
OPPS/ASC proposed rule (75 FR 46261 through 46262), we proposed for CY 
2011 to instruct hospitals to report the ``FB'' modifier on the line 
with the procedure code for the nuclear medicine scan in the APCs 
listed in Table 22 of the proposed rule in which the no cost/full 
credit diagnostic radiopharmaceutical is used. Modifier ``FB'' is 
defined as an ``Item Provided Without Cost to Provider, Supplier or 
Practitioner, or Credit Received for Replacement Device (Examples, but 
not Limited to: Covered Under Warranty, Replaced Due to Defect, Free 
Samples).'' Although this modifier is specific to devices, it captures 
the concept of the hospital receiving a key component of the service 
without cost. In cases in which the diagnostic radiopharmaceutical is 
furnished without cost or with full credit, we proposed to instruct the 
hospital to report a token charge of less than $1.01. We refer readers 
to the CY 2008 OPPS/ASC final rule with comment period for more 
background information on the ``FB'' modifier payment adjustment 
policies (72 FR 66743 through 66749). We proposed that when a hospital 
bills with an ``FB'' modifier with the nuclear medicine

[[Page 71935]]

scan, the payment amount for procedures in the APCs listed in Table 22 
of the proposed rule would be reduced by the full ``policy-packaged'' 
offset amount appropriate for diagnostic radiopharmaceuticals.
    As discussed in the CY 2009 OPPS/ASC final rule with comment 
period, the ``policy packaged'' offset amount that we calculate 
estimates the portion of each APC payment rate that could reasonably be 
attributed to the cost of predecessor diagnostic radiopharmaceuticals 
when considering a new diagnostic radiopharmaceutical for pass through 
payment (73 FR 68638 through 68641). As in our offset policy, discussed 
below, we believe it is appropriate to remove the ``policy packaged'' 
offset amount from payment for a nuclear medicine scan with a 
diagnostic radiopharmaceutical received at no cost or full credit which 
is billed using one of the APCs appearing in Table 29 below, because it 
represents the portion of the APC payment attributable to diagnostic 
radiopharmaceuticals used in the performance of a nuclear medicine 
scan. Using the ``FB'' modifier with radiolabeled products will allow 
the hospital to bill accurately for a diagnostic radiopharmaceutical 
received free of charge and will allow the hospital to comply with the 
radiolabeled product edits to ensure appropriate payment.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46262), we did not 
propose to recognize modifier ``FC,'' which is defined as ``Partial 
credit received for replaced device,'' because we were unsure of the 
circumstances in which hospitals would receive a diagnostic 
radiopharmaceutical at reduced cost to replace a previously provided 
diagnostic radiopharmaceutical. We note that most of the questions that 
we have received pertain to coding of free sample or trial diagnostic 
radiopharmaceuticals received free of charge. We invited public comment 
on when a diagnostic radiopharmaceutical is provided for a 
significantly reduced price and whether the ``FC'' modifier is 
appropriate for radiolabeled products.
    Comment: Several commenters supported CMS' proposal to instruct 
hospitals to report modifier ``FB'' on the line with the procedure code 
for the nuclear medicine scan when a diagnostic radiopharmaceutical is 
received free of charge or with full credit. The commenters stated that 
implementing this proposal would lead to more accurate billing and 
would prevent inappropriate payment for diagnostic radiopharmaceuticals 
received free of charge or with full credit. One commenter opposed CMS' 
proposal to instruct hospitals to report modifier ``FB'' on the line 
with the procedure code for the nuclear medicine scan, stating that a 
modifier for radiopharmaceuticals is unnecessary. The commenter further 
stated that radiopharmaceuticals cannot be compared to devices because 
of their pricing differences, since devices generally constitute a 
significant portion of the total procedure charges and 
radiopharmaceuticals only make up a small portion of the charge for 
radiology services. In addition, the commenter stated that the reasons 
for free or partial charge devices are generally manufacturer-related 
defects, such as recalls and other failures during the warranty period, 
and that radiopharmaceuticals are treated differently, in that when 
they are recalled, hospitals do not continue to stock them and, 
therefore, they would not be administered or billed.
    Response: We appreciate commenter's support for our proposal. As 
stated in the CY 2011 OPPS/ASC proposed rule (75 FR 46261 through 
46262), instructing hospitals to use the ``FB'' modifier on the line 
with the procedure code for the nuclear medicine scan would allow the 
hospital to bill accurately for a diagnostic radiopharmaceutical 
received free of charge and will allow the hospital to comply with the 
radiolabeled product edits to ensure appropriate payment.
    We have received questions from hospitals that have asked how to 
properly bill for diagnostic radiopharmaceuticals obtained free of 
charge. We believe that there is a need for hospitals to properly 
account for diagnostic radiopharmaceuticals received free of charge. 
Therefore, we disagree with the commenter's assertion that there is no 
need for a modifier for diagnostic radiopharmaceuticals received with 
no cost or free of charge. In addition, we do not find the argument 
compelling that a modifier for radiopharmaceuticals is not necessary 
because the cost of a radiopharmaceutical is lower than the cost of a 
device and because the cost of a radiopharmaceutical constitutes a 
lower percentage of the total charge for the associated primary 
procedure. We believe the commenter is making a marginal cost argument, 
that coding the ``FB'' modifier for devices makes sense because the 
recouped costs to the Medicare program could be significant depending 
on the device. While we agree that the device portion of a device-
dependent APC subject to the ``FB'' and ``FC'' policy will have a 
higher absolute dollar value than the policy-packaged portion of a 
nuclear medicine APC, we do not believe this should preclude a hospital 
from being able to bill and be paid correctly for a nuclear medicine 
scan when provided with a diagnostic radiopharmaceutical that the 
hospital received free of charge or at no cost. We have consistently 
emphasized the importance of correct coding for all drugs, biologicals, 
and radiopharmaceuticals administered in the, regardless of the cost, 
in our instructions to hospitals. Establishing the ``FB'' modifier to 
correctly account for diagnostic radiopharmaceuticals received free of 
charge allows for the diagnostic radiopharmaceutical to be reported and 
coded correctly on the same claim as the nuclear medicine scan, 
therefore fulfilling the required radiolabeled product edits. It also 
is possible that volume for nuclear medicine scans may result in more 
total aggregated savings on free-of-charge radiopharmaceuticals than 
devices, but our primary goal in instituting the ``FB'' modifiers for 
radiopharmaceuticals received free-of-charge or at no cost is for 
accurate billing and payment. With regard to the comment that using the 
``FB'' modifier with diagnostic radiopharmaceuticals is not necessary 
because hospitals would choose not to stock any radiopharmaceuticals 
after they are recalled or identified as having defects, we note that 
most of the questions that we have received pertain to coding of free 
sample or trial diagnostic radiopharmaceuticals received free of 
charge.
    Comment: One commenter supported CMS' proposal to require hospitals 
to report the ``FB'' modifier but suggested that CMS revise the 
description to read ``Item provided without cost to provider, supplier, 
or practitioner, or full credit received for replaced device or 
radiopharmaceutical (examples, but not limited to, covered under 
warranty, replaced due to defect, free sample)'' (emphasis added).
    Response: We appreciate the commenter's support. However, we do not 
establish HCPCS code modifiers through rulemaking, including this OPPS 
final rule with comment period. The CMS HCPCS Workgroup develops, 
revises, and deletes Level II HCPCS codes and Level II HCPCS modifiers. 
The ``FB'' modifier is a Level II HCPCS modifier. We will consider 
taking this request to the CMS HCPCS Workgroup for their consideration.
    Comment: One commenter suggested that CMS instruct hospitals to use 
the ``FB'' modifier when hospitals incur no cost for the diagnostic 
radiopharmaceutical when a diagnostic radiopharmaceutical is 
administered in

[[Page 71936]]

a nonhospital location and then the nuclear medicine scan is performed 
at another facility.
    Response: We do not believe that the use of the ``FB'' modifier 
should be extended to the situation where a nonhospital location 
administers the diagnostic radiopharmaceutical under arrangement with a 
hospital administering the nuclear medicine scan because the ``FB'' 
modifier is defined as ``Item Provided Without Cost to Provider, 
Supplier or Practitioner, or Credit Received for Replacement Device 
(Examples, but not Limited to: Covered Under Warranty, Replaced Due to 
Defect, Free Samples)''. The hospital administering the scan didn't 
receive the item at no cost or full credit. We believe it would be rare 
for a nonhospital location, such as a physician office, to voluntarily 
administer a diagnostic radiopharmaceutical and then refer the patient 
to the hospital for the nuclear medicine scan as a hospital outpatient. 
In that circumstance, the physician's office would already have billed 
Medicare for the radiopharmaceutical. The hospital would be unable to 
bill Medicare for that scan because our radiolabeled product edits 
require a hospital always to bill a nuclear medicine scan with a 
diagnostic radiopharmaceutical, and in this circumstance, the hospital 
did not administer a diagnostic radiopharmaceutical. We do not believe 
it is likely that a facility other than the hospital administering the 
nuclear medicine scan would administer a diagnostic radiopharmaceutical 
without conducting the nuclear medicine scan themselves unless the 
facility had an arrangement with a hospital to provide the diagnostic 
radiopharmaceutical for the hospital. We will monitor our 
correspondence with hospitals about our radiolabeled product edits to 
see if this situation is more common than we believe. We note that we 
have addressed the more common scenario of an inpatient receiving a 
diagnostic radiopharmaceutical in the inpatient setting, and having a 
follow-up nuclear medicine scan the next day as a hospital outpatient 
after discharge by creating HCPCS code C9898 (Input stay radiolabeled 
item) for hospitals to report in place of a radiopharmaceutical.
    We believe it is more likely that a nonhospital location, such as 
an independent testing facility (IDTF), would provide a diagnostic 
radiopharmaceutical under arrangement with a hospital. In this 
circumstance, it would be inappropriate to remove the ``policy-
packaged'' offset amount from payment for the nuclear medicine scan 
because the hospital location would incur the cost of the 
radiopharmaceutical by paying the nonhospital location for furnishing 
the radiopharmaceutical to the hospital's registered outpatient under 
arrangement. We have given instructions in CMS Transmittal 2050, Change 
Request 7117, issued September 17, 2010, addressing when a radiolabeled 
product is administered in one hospital and the nuclear medicine scan 
is subsequently performed at another hospital. Where a hospital or 
other entity (a nonhospital location in this example) administers a 
diagnostic radiopharmaceutical product for a different hospital 
providing the nuclear medicine scan, the first hospital or other entity 
may enter into an arrangement under section 1861(w)(1) of the Act, and 
as discussed in 42 CFR 410.28(a)(1) and defined in 42 CFR 409.3, where 
the second hospital that administers the nuclear medicine scan both 
bills Medicare for the administration of the nuclear medicine scan with 
diagnostic radiopharmaceutical and pays the first hospital or other 
entity that administers the diagnostic radiopharmaceutical some amount 
for administration of the diagnostic radiopharmaceutical.
    Comment: A few commenters supported CMS' decision not to propose to 
require hospitals to use the ``FC'' modifier in cases where a hospital 
receives a diagnostic radiopharmaceutical at reduced cost to replace a 
previously provided diagnostic radiopharmaceutical. The commenters 
stated that this type of partial pricing is not common in the nuclear 
medicine field, and hospitals already have ways to set two different 
charges for the same radiopharmaceutical to account for reduced costs.
    Response: We appreciate the commenters' response.
    After consideration of the public comments we received, we are 
finalizing our proposal to instruct hospitals to report the ``FB'' 
modifier on the line with the procedure code for the nuclear medicine 
scan in the APCs listed in Table 29 in which the no cost/full credit 
diagnostic radiopharmaceutical is used for CY 2011. We are also 
finalizing our proposal to instruct hospitals to report a token charge 
of less than $1.01 in cases in which the diagnostic radiopharmaceutical 
is furnished without cost or with full credit. We did not propose to 
finalize a policy to require hospitals to add an ``FC'' modifier to the 
procedure code for the nuclear medicine scan to account for diagnostic 
radiopharmaceuticals that are received at reduced cost.
    Comment: One commenter supported the continuation of the pass-
through diagnostic radiopharmaceutical offset policy for CY 2011.
    Response: We appreciate the commenter's support. We continue to 
believe that a diagnostic radiopharmaceutical offset policy is 
necessary in order to ensure that duplicate payment is not made for 
diagnostic radiopharmaceuticals with pass-through status. We believe it 
is appropriate to remove the radiopharmaceutical payment amount that is 
already packaged into the payment for the associated nuclear medicine 
procedure when we provide pass-through payment for a diagnostic 
radiopharmaceutical with pass-through status.
    Comment: One commenter requested that CMS post all data used to 
calculate the offset amounts and stated that, without these amounts, 
the public cannot make comments on the accuracy and appropriateness of 
CMS' calculation of radiopharmaceutical costs packaged into the nuclear 
medicine APC or the corresponding offset amounts for pass-through 
radiopharmaceuticals. One commenter also requested that CMS post the 
offset files at the same time that the OPPS/ASC proposed rules are 
issued. The commenter stated that without these files, they are unable 
to predict or comment prior to final offsets being implemented. These 
commenters further stated that adequate pricing of all 
radiopharmaceuticals is important as new technologies are being 
developed and utilized.
    Response: The exact data used to calculate all of the proposed and 
final payment rates, including the associated offset amounts, for the 
CY 2011 OPPS are available for purchase under a CMS data use agreement 
through the CMS Web site at: http://www.cms.gov/hospitalOutpatientPPS. 
This Web site includes information about purchasing the ``OPPS Limited 
Data Set,'' which now includes the additional variables previously 
available only in the OPPS Identifiable Data Set, including ICD-9-CMS 
diagnosis codes and revenue code payment amounts. We refer readers to 
section II.A.2. of this final rule with comment period for more 
information on data development and the calculation of median costs. We 
note that our description of the payment offset policy calculation for 
diagnostic radiopharmaceuticals is referenced above. We typically have 
not posted the offset amounts by APC until publication of the final 
rule because we assign services to APCs based on our estimate

[[Page 71937]]

of their full resource cost, including, but not limited to, packaged 
diagnostic radiopharmaceuticals. The offset amount is the portion of 
each APC payment rate that could reasonably be attributed to the cost 
of predecessor diagnostic radiopharmaceuticals when considering a new 
diagnostic radiopharmaceutical for pass-through payment and has no 
bearing on APC assignment. We will consider making preliminary offset 
amounts available for the CY 2011 proposed rule. With regard to pricing 
for new radiopharmaceuticals and technologies, we note that the purpose 
of the pass-through provision, with specific payment at ASP+6 using the 
ASP methodology, is to make it easier for hospitals to try these new 
products.
    Comment: One commenter asked about the proper billing of diagnostic 
radiopharmaceuticals and nuclear medicine scans when the diagnostic 
radiopharmaceutical is administered in the HOPD and the nuclear 
medicine scan is subsequently performed in the inpatient department of 
a hospital.
    Response: If a patient received a diagnostic radiopharmaceutical as 
an outpatient and was then admitted as an inpatient before receiving a 
nuclear medicine scan, payment to the hospital for this patient would 
be paid using a Medicare Severity Diagnosis-Related Group (MS-DRG) 
under the IPPS and would include the cost of both the nuclear medicine 
scan and the diagnostic radiopharmaceutical because it is our long 
standing policy to bundle billing of outpatient diagnostic services 
into payment for the inpatient admission (42 CFR 412.2(c)(5)(ii)).
    After consideration of the public comments we received, we are 
finalizing our CY 2011 proposal, without modification, to apply the 
diagnostic radiopharmaceutical offset policy to payment for pass-
through diagnostic radiopharmaceuticals, as described above. Table 29 
below displays the APCs to which nuclear medicine procedures are 
assigned in CY 2011 and for which we expect that an APC offset could be 
applicable in the case of diagnostic radiopharmaceuticals with pass-
through status.
    We will continue to post annually on the CMS Web site at http://www.cms.gov/HospitalOutpatientPPS a file that contains the APC offset 
amounts that will be used for that year for purposes of both evaluating 
cost significance for candidate pass-through device categories and 
drugs and biologicals, including diagnostic radiopharmaceuticals, and 
establishing any appropriate APC offset amounts. Specifically, the file 
will continue to provide, for every OPPS clinical APC, the amounts and 
percentages of APC payment associated with packaged implantable 
devices, including implantable biologicals; ``policy-packaged'' drugs, 
including diagnostic radiopharmaceuticals and contrast agents; and 
``threshold-packaged'' drugs and biologicals, which are all other 
drugs, therapeutic radiopharmaceuticals, and nonimplantable 
biologicals.

 Table 29--APCs To Which Nuclear Medicine Procedures Are Assigned for CY
                                  2011
------------------------------------------------------------------------
                CY 2011 APC                       CY 2011 APC Title
------------------------------------------------------------------------
0307......................................  Myocardial Positron Emission
                                             Tomography (PET) Imaging.
0308......................................  Non-Myocardial Positron
                                             Emission Tomography (PET)
                                             Imaging.
0377......................................  Level II Cardiac Imaging.
0378......................................  Level II Pulmonary Imaging.
0389......................................  Level I Non-imaging Nuclear
                                             Medicine.
0390......................................  Level I Endocrine Imaging.
0391......................................  Level II Endocrine Imaging.
0392......................................  Level II Non-imaging Nuclear
                                             Medicine.
0393......................................  Hematologic Processing &
                                             Studies.
0394......................................  Hepatobiliary Imaging.
0395......................................  GI Tract Imaging.
0396......................................  Bone Imaging.
0397......................................  Vascular Imaging.
0398......................................  Level I Cardiac Imaging.
0400......................................  Hematopoietic Imaging.
0401......................................  Level I Pulmonary Imaging.
0402......................................  Level II Nervous System
                                             Imaging.
0403......................................  Level I Nervous System
                                             Imaging.
0404......................................  Renal and Genitourinary
                                             Studies.
0406......................................  Level I Tumor/Infection
                                             Imaging.
0408......................................  Level II Tumor/Infection
                                             Imaging.
0414......................................  Level II Tumor/Infection
                                             Imaging.
------------------------------------------------------------------------

c. Payment Offset Policy for Contrast Agents
    As described above, section 1833(t)(6)(D)(i) of the Act specifies 
that the transitional pass-through payment amount for pass-through 
drugs and biologicals is the difference between the amount paid under 
section 1842(o) of the Act (or the Part B drug CAP rate) and the 
otherwise applicable OPD fee schedule amount. There are currently two 
contrast agents with pass-through status under the OPPS: HCPCS code 
A9583 (Injection, gadoxetate disodium, per ml) and HCPCS code C9275 
(Injection, hexaminolevulinate hydrochloride, 100 mg, per study dose). 
HCPCS code A9583 was granted pass-through status beginning January 1, 
2010, and will continue with pass-through status in CY 2011, and HCPCS 
code C9275 was granted pass-through status beginning January 1, 2011, 
and will continue with pass-through status in CY 2011. As described 
earlier in section V.A.3. of this final rule with comment period, new 
pass-through contrast agents will be paid at ASP+6 percent, while those 
without ASP information will be paid at WAC+6 percent or, if WAC is not 
available, payment will be based on 95 percent of the product's most 
recently published AWP.
    We believe that a payment offset is necessary in order to provide 
an appropriate transitional pass-through payment for contrast agents, 
because all of these items are packaged when they do not have pass-
through status. In accordance with our standard offset

[[Page 71938]]

methodology, in the CY 2011 OPPS/ASC proposed rule (75 FR 46263), we 
proposed for CY 2011 to deduct from the payment for pass-through 
contrast agents an amount that reflects the portion of the APC payment 
associated with predecessor contrast agents, in order to ensure no 
duplicate contrast agent payment is made.
    In CY 2010, we established a policy to estimate the portion of each 
APC payment rate that could reasonably be attributed to the cost of 
predecessor contrast agents when considering new contrast agents for 
pass-through payment (74 FR 60482 through 60484). For CY 2011, we 
proposed to continue to apply this same policy to contrast agents. 
Specifically, we proposed to utilize the ``policy-packaged'' drug 
offset fraction for clinical APCs calculated as 1 minus (the cost from 
single procedure claims in the APC after removing the cost for 
``policy-packaged'' drugs divided by the cost from single procedure 
claims in the APC). As discussed above, in CY 2010, we finalized a 
policy to redefine ``policy-packaged'' drugs as only nonpass-through 
diagnostic radiopharmaceuticals and contrast agents (74 FR 60495 
through 60499). To determine the actual APC offset amount for pass-
through contrast agents that takes into consideration the otherwise 
applicable OPPS payment amount, we proposed to multiply the ``policy-
packaged'' drug offset fraction by the APC payment amount for the 
procedure with which the pass-through contrast agent is used and, 
accordingly, reduce the separate OPPS payment for the pass-through 
contrast agent by this amount.
    We did not receive any public comments on our proposal to deduct, 
from the payment for pass-through contrast agents, an amount that 
reflects the portion of the APC payment associated with predecessor 
contrast agents in order to ensure no duplicate contrast agent payment 
is made. We are finalizing the proposed CY 2011 pass-through contrast 
agent offset policy to specify the procedural APCs to which offsets for 
pass-through contrast agents would apply. In addition, as proposed, for 
this final rule with comment period, we have identified in Table 30 
below procedural APCs for which we expect a contrast agent offset could 
be applicable in the case of a pass-through contrast agent as any 
procedural APC with a ``policy-packaged'' drug amount greater than $20 
that is not a nuclear medicine APC identified in Table 27 above. The 
methodology used to determine a threshold cost for application of a 
contrast agent offset policy is described in detail in the CY 2010 
OPPS/ASC final rule with comment period (70 FR 60483 through 60484). We 
are finalizing this methodology for CY 2011 to continue to recognize 
that when a contrast agent with pass-through status is billed with any 
procedural APC listed in Table 30, a specific offset based on the 
procedural APC would be applied to payment for the contrast agent to 
ensure that duplicate payment is not made for the contrast agent.
    As proposed, for this final rule with comment period, we will 
continue to post annually on the CMS Web site at http://www.cms.gov/
HospitalOutpatientPPS a file that contains the APC offset amounts that 
will be used for that year for purposes of both evaluating cost 
significance for candidate pass-through device categories and drugs and 
biologicals, including contrast agents, and establishing any 
appropriate APC offset amounts. Specifically, the file will continue to 
provide, for every OPPS clinical APC, the amounts and percentages of 
APC payment associated with packaged implantable devices, ``policy-
packaged'' drugs, and ``threshold-packaged'' drugs and biologicals.

Table 30--APCs To Which a Contrast Agent Offset May Be Applicable for CY
                                  2011
------------------------------------------------------------------------
                CY 2011 APC                       CY 2011 APC Title
------------------------------------------------------------------------
0080......................................  Diagnostic Cardiac
                                             Catheterization.
0082......................................  Coronary or Non-Coronary
                                             Atherectomy.
0083......................................  Coronary or Non-Coronary
                                             Angioplasty and
                                             Percutaneous Valvulopasty.
0093......................................  Vascular Reconstruction/
                                             Fistula Repair without
                                             Device.
0104......................................  Transcatheter Placement of
                                             Intracoronary Stents.
0128......................................  Echocardiogram with
                                             Contrast.
0152......................................  Level I Percutaneous
                                             Abdominal and Biliary
                                             Procedures.
0229......................................  Transcatheter Placement of
                                             Intravascular Shunts.
0278......................................  Diagnostic Urography.
0279......................................  Level II Angiography and
                                             Venography.
0280......................................  Level III Angiography and
                                             Venography.
0283......................................  Computed Tomography with
                                             Contrast.
0284......................................  Magnetic Resonance Imaging
                                             and Magnetic Resonance
                                             Angiography with Contrast.
0333......................................  Computed Tomography without
                                             Contrast followed by
                                             Contrast.
0337......................................  Magnetic Resonance Imaging
                                             and Magnetic Resonance
                                             Angiography without
                                             Contrast followed by
                                             Contrast.
0375......................................  Ancillary Outpatient
                                             Services When Patient
                                             Expires.
0383......................................  Cardiac Computed Tomographic
                                             Imaging.
0388......................................  Discography.
0418......................................  Insertion of Left
                                             Ventricular Pacing Elect.
0442......................................  Dosimetric Drug
                                             Administration.
0653......................................  Vascular Reconstruction/
                                             Fistula Repair with Device.
0656......................................  Transcatheter Placement of
                                             Intracoronary Drug-Eluting
                                             Stents.
0662......................................  CT Angiography.
0668......................................  Level I Angiography and
                                             Venography.
8006......................................  CT and CTA with Contrast
                                             Composite.
8008......................................  MRI and MRA with Contrast
                                             Composite.
------------------------------------------------------------------------


[[Page 71939]]

B. OPPS Payment for Drugs, Biologicals, and Radiopharmaceuticals 
Without Pass-Through Status

1. Background
    Under the CY 2010 OPPS, we currently pay for drugs, biologicals, 
and radiopharmaceuticals that do not have pass-through status in one of 
two ways: As a packaged payment into the payment for the associated 
service; or as a separate payment (individual APCs). We explained in 
the April 7, 2000 OPPS final rule with comment period (65 FR 18450) 
that we generally package the cost of drugs and radiopharmaceuticals 
into the APC payment rate for the procedure or treatment with which the 
products are usually furnished. Hospitals do not receive separate 
payment for packaged items and supplies, and hospitals may not bill 
beneficiaries separately for any packaged items and supplies whose 
costs are recognized and paid within the national OPPS payment rate for 
the associated procedure or service. (Transmittal A-01-133, issued on 
November 20, 2001, explains, in greater detail, the rules regarding 
separate payment for packaged services.)
    Packaging costs into a single aggregate payment for a service, 
procedure, or episode-of-care is a fundamental principle that 
distinguishes a prospective payment system from a fee schedule. In 
general, packaging the costs of items and services into the payment for 
the primary procedure or service with which they are associated 
encourages hospital efficiencies and also enables hospitals to manage 
their resources with maximum flexibility.
    Section 1833(t)(16)(B) of the Act, as added by section 621(a)(2) of 
Public Law 108-173, set the threshold for establishing separate APCs 
for drugs and biologicals at $50 per administration for CYs 2005 and 
2006. Therefore, for CYs 2005 and 2006, we paid separately for drugs, 
biologicals, and radiopharmaceuticals whose per day cost exceeded $50 
and packaged the costs of drugs, biologicals, and radiopharmaceuticals 
whose per day cost was equal to or less than $50 into the procedures 
with which they were billed. For CY 2007, the packaging threshold for 
drugs, biologicals, and radiopharmaceuticals that were not new and did 
not have pass-through status was established at $55. For CYs 2008 and 
2009, the packaging threshold for drugs, biologicals, and 
radiopharmaceuticals that were not new and did not have pass-through 
status was established at $60. For CY 2010, the packaging threshold for 
drugs, biologicals, and radiopharmaceuticals that were not new and did 
not have pass-through status was established at $65. The methodology 
used to establish the $55 threshold for CY 2007, the $60 threshold for 
CYs 2008 and 2009, the $65 threshold for CY 2010, and our approach for 
CY 2011 are discussed in more detail in section V.B.2.b. of this final 
rule with comment period.
2. Criteria for Packaging Payment for Drugs, Biologicals, and 
Radiopharmaceuticals
a. Background
    As indicated in section V.B.1. of this final rule with comment 
period, in accordance with section 1833(t)(16)(B) of the Act, the 
threshold for establishing separate APCs for payment of drugs and 
biologicals was set to $50 per administration during CYs 2005 and 2006. 
In CY 2007, we used the four quarter moving average Producer Price 
Index (PPI) levels for Pharmaceutical Preparations (Prescription) to 
trend the $50 threshold forward from the third quarter of CY 2005 (when 
the Pub. L. 108-173 mandated threshold became effective) to the third 
quarter of CY 2007. We then rounded the resulting dollar amount to the 
nearest $5 increment in order to determine the CY 2007 threshold amount 
of $55. Using the same methodology as that used in CY 2007 (which is 
discussed in more detail in the CY 2007 OPPS/ASC final rule with 
comment period (71 FR 68085 through 68086)), we set the packaging 
threshold for establishing separate APCs for drugs and biologicals at 
$60 for CYs 2008 and 2009. For CY 2010, we set the packaging threshold 
at $65.
    Following the CY 2007 methodology, for CY 2011, we used updated 
four quarter moving average PPI levels to trend the $50 threshold 
forward from the third quarter of CY 2005 to the third quarter of CY 
2011 and again rounded the resulting dollar amount ($70.64) to the 
nearest $5 increment, which yielded a figure of $70. In performing this 
calculation, we used the most recent forecast of the quarterly index 
levels for the PPI for Pharmaceuticals for Human Use (Prescription) 
(Bureau of Labor Statistics (BLS) series code WPUSI07003) from CMS' 
Office of the Actuary (OACT). We note that we are not making a change 
to the PPI that is used to calculate the threshold for CY 2011; 
however, there was a recent change to the BLS naming convention for 
this series. We refer to this series generally as the PPI for 
Prescription Drugs below. We chose this PPI as it reflects price 
changes associated with the average mix of all pharmaceuticals in the 
overall economy. In addition, we chose this price series because it is 
publicly available and regularly published improving public access and 
transparency. Forecasts of the PPI for Prescription Drugs are developed 
by IHS Global Insight, Inc., a nationally recognized economic and 
financial forecasting firm. As actual inflation for past quarters 
replaced forecasted amounts, the PPI estimates for prior quarters have 
been revised (compared with those used in the CY 2007 OPPS/ASC final 
rule with comment period) and have been incorporated into our 
calculation. Based on the calculations described above, in the CY 2011 
OPPS/ASC proposed rule (75 FR 46265), we proposed a packaging threshold 
for CY 2011 of $70. (For a more detailed discussion of the OPPS drug 
packaging threshold and the use of the PPI for Prescription Drugs, we 
refer readers to the CY 2007 OPPS/ASC final rule with comment period 
(71 FR 68085 through 68086).)
b. Cost Threshold for Packaging of Payment for HCPCS Codes that 
Describe Certain Drugs, Nonimplantable Biologicals, and Therapeutic 
Radiopharmaceuticals (``Threshold-Packaged Drugs'')
    To determine their proposed CY 2011 packaging status, for the CY 
2011 OPPS/ASC proposed rule, we calculated the per day cost of all 
drugs on a HCPCS code-specific basis (with the exception of those drugs 
and biologicals with multiple HCPCS codes that include different 
dosages as described in section V.B.2.c. of the proposed rule and this 
final rule with comment period and excluding diagnostic 
radiopharmaceuticals, contrast agents, and implantable biologicals that 
we proposed to continue to package in CY 2011, as discussed in section 
V.B.2.d. of the proposed rule and this final rule with comment period), 
nonimplantable biologicals, and therapeutic radiopharmaceuticals 
(collectively called ``threshold-packaged'' drugs) that had a HCPCS 
code in CY 2009 and were paid (via packaged or separate payment) under 
the OPPS, using CY 2009 claims data processed before January 1, 2010. 
In order to calculate the per day costs for drugs, nonimplantable 
biologicals, and therapeutic radiopharmaceuticals to determine their 
proposed packaging status in CY 2011, we used the methodology that was 
described in detail in the CY 2006 OPPS proposed rule (70 FR 42723 
through 42724) and finalized in the CY 2006 OPPS final rule with 
comment period (70 FR 68636 through 70 FR 68638).
    To calculate the CY 2011 proposed rule per day costs, we used an 
estimated

[[Page 71940]]

payment rate for each drug and nonimplantable biological HCPCS code of 
ASP+6 percent (which was the payment rate we proposed for separately 
payable drugs and nonimplantable biologicals in CY 2011, as discussed 
in more detail in section V.B.3.b. of the proposed rule and this final 
rule with comment period). We used the manufacturer submitted ASP data 
from the fourth quarter of CY 2009 (data that were used for payment 
purposes in the physician's office setting, effective April 1, 2010) to 
determine the proposed rule per day cost.
    As is our standard methodology, for CY 2011, we proposed to use 
payment rates based on the ASP data from the fourth quarter of CY 2009 
for budget neutrality estimates, packaging determinations, impact 
analyses, and completion of Addenda A and B to the proposed rule, 
because these were the most recent data available for use at the time 
of development of the proposed rule. These data were also the basis for 
drug payments in the physician's office setting, effective April 1, 
2010. For items that did not have an ASP-based payment rate, such as 
some therapeutic radiopharmaceuticals, we used their mean unit cost 
derived from the CY 2009 hospital claims data to determine their per 
day cost. We proposed to package items with a per day cost less than or 
equal to $70 and identified items with a per day cost greater than $70 
as separately payable. Consistent with our past practice, we 
crosswalked historical OPPS claims data from the CY 2009 HCPCS codes 
that were reported to the CY 2010 HCPCS codes that we displayed in 
Addendum B to the proposed rule for payment in CY 2011.
    Comment: The majority of commenters objected to the proposed 
increase in the OPPS packaging threshold to $70 for CY 2011. A few 
commenters recommended that CMS consider either eliminating the drug 
packaging threshold and providing separate payment for all drugs with 
HCPCS codes or freezing the packaging threshold at $65 for CY 2011. One 
commenter, in particular, suggested that CMS freeze the packaging 
threshold for at least one year. Some commenters objected to the use of 
a packaging threshold under the OPPS when one is not used for 
physician's office payment. These commenters expressed concern that the 
packaging threshold may impede beneficiary access to lower-cost 
packaged drugs in the HOPD setting. A few commenters suggested that CMS 
limit increases in the packaging threshold amount to the market basket 
update for the year. One commenter also recommended that CMS not round 
up the threshold amount to the nearest $5 increment and instead defer 
increases in the threshold until changes in prices exceed $5.
    Some commenters believed that eliminating the packaging threshold 
and paying separately for all drugs in the HOPD setting would allow a 
more accurate calculation of the separately payable payment amount for 
drugs (otherwise referred to as the ASP+X calculation).
    Response: As discussed in detail in the CY 2008 OPPS/ASC final rule 
with comment period (72 FR 66757 through 66758), the CY 2009 OPPS/ASC 
final rule with comment period (73 FR 68643), and the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60485 through 60487), we continue 
to believe that unpackaging payment for all drugs, biologicals and 
radiopharmaceuticals is inconsistent with the concept of a prospective 
payment system and that such a change could create an additional 
reporting burden for hospitals. The OPPS and the MPFS that applies to 
physician's office services are fundamentally different payment systems 
with essential differences in their payment policies and structures. 
Specifically, the OPPS is a prospective payment system, based on the 
concept of payment for groups of services that share clinical and 
resource characteristics. Payment is made under the OPPS according to 
prospectively established payment rates that are related to the 
relative costs of hospital resources for services. The MPFS is a fee 
schedule based on the relative value of each individual component of 
services. Under the MPFS approach, separate payment is made for each 
drug provided in the physician's office, but the OPPS packages payment 
for certain drugs into the associated procedure payment for the APC 
group. Given the fundamental difference between the MPFS payment 
mechanism and the OPPS payment mechanism, differences in the degrees of 
packaged payment and separate payment between these two systems are to 
be expected.
    In general, we do not believe that our packaging methodology under 
the OPPS results in limited beneficiary access to drugs because 
packaging is a fundamental component of a prospective payment system 
that account for the cost of certain items and services in larger 
payment bundles, recognizing that some clinical cases may be more 
costly and others less costly, but that, on average, OPPS payment is 
appropriate for the services provided. The growing utilization 
associated with packaged drugs and biologicals in our claims data 
suggest Medicare beneficiaries have sufficient access to these items.
    We note that, in CYs 2005 and 2006, the statutorily mandated drug 
packaging threshold was set at $50, and we continue to believe that it 
is appropriate to continue a modest drug packaging threshold for the CY 
2011 OPPS for the reasons set forth below. As stated in the CY 2007 
OPPS/ASC final rule with comment period (71 FR 68086), we believe that 
packaging certain items is a fundamental component of a prospective 
payment system, that packaging these items does not lead to beneficiary 
access issues and does not create a problematic site of service 
differential, that the packaging threshold is reasonable based on the 
initial establishment in law of a $50 threshold for the CY 2005 OPPS, 
that updating the $50 threshold is consistent with industry and 
government practices, and that the PPI for Prescription Drugs is an 
appropriate mechanism to gauge Part B drug inflation. Therefore, 
because of our continued belief that packaging is a fundamental 
component of a prospective payment system that continues to provide 
important flexibility and efficiency in the delivery of high quality 
hospital outpatient services, we are not adopting the commenters' 
recommendations to pay separately for all drugs, biologicals, and 
radiopharmaceuticals for CY 2011 or to eliminate or to freeze the 
packaging threshold at $65.
    We disagree with the commenters who suggested that CMS should limit 
increases in the outpatient drug packaging threshold amount to the 
market basket update for the year. As stated above, we continue to 
believe that updating the $50 threshold is consistent with industry and 
government practices and that the PPI for Prescription Drugs is an 
appropriate mechanism to gauge Part B drug inflation. As we stated in 
the CY 2007 OPPS/ASC final rule with comment period (71 FR 68085), we 
believe that the PPI for Prescription Drugs reflects price changes at 
the wholesale or manufacturer stage. Because OPPS payment rates for 
drugs and biologicals are generally based on the ASP data that are 
reported by their manufacturers, we believe that the PPI for 
Prescription Drugs is an appropriate price index to use to update the 
packaging threshold for CY 2007 and beyond.
    We note that the market basket update contains numerous price 
proxies, including but not limited to proxies for wages and salaries, 
utilities, and nonlabor-related expenses, that are not related to price 
increases for prescription drugs. Therefore, we

[[Page 71941]]

believe that the market basket as a whole is not an appropriate 
mechanism for determining the outpatient drug packaging threshold 
amount. Within the calculation of the market basket update, we use the 
PPI for Prescription Drugs specifically to measure the price growth for 
prescription drugs but price changes for prescription drugs are only 
one component of price changes for the numerous items and services 
hospital purchase. Additionally, we disagree with the commenters' 
suggestion that we not round up the packaging threshold to the nearest 
$5 increment and, instead, defer any increases in the threshold until 
changes in prices exceed $5. We note that we equally round up or round 
down to the nearest $5 increment, and we continue to believe that 
rounding to the nearest $5 increment is appropriate when determining 
the drug packaging threshold.
    Finally, we believe that our continued application of the 
methodology initially adopted in CY 2007 to update the drug packaging 
threshold does not inhibit our ability to pay accurately for drugs and 
biologicals. We have made several refinements to the ASP+X drug payment 
methodology under the OPPS for nonpass-through drugs and biologicals 
over the past several years to improve its accuracy. During that time, 
we have continued to implement our established methodology for annually 
updating the drug packaging threshold. For CY 2010, we finalized an 
overhead adjustment methodology for determining payment for separately 
payable drugs without pass-through status while we have continued to 
consistently apply the methodology described above to update the drug 
packaging threshold.
    For purposes of this final rule with comment period, we again 
followed the CY 2007 methodology for CY 2011 and used updated four 
quarter moving average PPI index levels to trend the $50 threshold 
forward from the third quarter of CY 2005 to the third quarter of CY 
2011 and again rounded the resulting dollar amount ($68.57) to the 
nearest $5 increment, which yielded a figure of $70. In performing this 
calculation, we used the most recent forecast of the quarterly PPI 
index levels from CMS' OACT.
    After consideration of the public comments we received, we are 
finalizing our CY 2011 proposal, without modification, to continue 
using the established methodology for annually updating the OPPS 
packaging threshold for drugs and biologicals by the PPI for 
Prescription Drugs. The final CY 2011 drug packaging threshold is $70, 
calculated according to the threshold update methodology that we have 
applied since CY 2007.
    Our policy during previous cycles of the OPPS has been to use 
updated ASP and claims data to make final determinations of the 
packaging status of HCPCS codes for drugs, nonimplantable biologicals, 
and therapeutic radiopharmaceuticals for the final rule with comment 
period. We note that it is also our policy to make an annual packaging 
determination for a HCPCS code only when we develop the OPPS/ASC final 
rule for the update year. Only HCPCS codes that are identified as 
separately payable in the final rule with comment period are subject to 
quarterly updates. For our calculation of per day costs of HCPCS codes 
for drugs and nonimplantable biologicals in this CY 2011 OPPS/ASC final 
rule with comment period, as we proposed, we used ASP data from the 
first quarter of CY 2010, which is the basis for calculating payment 
rates for drugs and biologicals in the physician's office setting using 
the ASP methodology, effective July 1, 2010, along with updated 
hospital claims data from CY 2009. We note that we also used these data 
for budget neutrality estimates and impact analyses for this CY 2011 
OPPS/ASC final rule with comment period. Payment rates for HCPCS codes 
for separately payable drugs and nonimplantable biologicals included in 
Addenda A and B to this final rule with comment period are based on ASP 
data from the second quarter of CY 2010, which are the basis for 
calculating payment rates for drugs and biologicals in the physician's 
office setting using the ASP methodology, effective October 1, 2010. 
These rates would then be updated in the January 2011 OPPS update, 
based on the most recent ASP data to be used for physician's office and 
OPPS payment as of January 1, 2011. For items that do not currently 
have an ASP-based payment rate, we recalculate their mean unit cost 
from all of the CY 2009 claims data and updated cost report information 
available for this CY 2011 final rule with comment period to determine 
their final per day cost.
    Consequently, the packaging status of some HCPCS codes for drugs, 
nonimplantable biologicals, and therapeutic radiopharmaceuticals in 
this CY 2011 OPPS/ASC final rule with comment period using the updated 
data may be different from the same drug HCPCS code's packaging status 
determined based on the data used for the proposed rule. Under such 
circumstances, as we proposed, we are continuing to follow the 
established policies initially adopted for the CY 2005 OPPS (69 FR 
65780) in order to more equitably pay for those drugs whose median cost 
fluctuates relative to the CY 2011 OPPS drug packaging threshold and 
the drug's payment status (packaged or separately payable) in CY 2010. 
Specifically, as we proposed, for CY 2011, we applied the following 
policies to these HCPCS codes for drugs, nonimplantable biologicals, 
and therapeutic radiopharmaceuticals whose relationship to the $70 drug 
packaging threshold changes based on the final updated data:
    <bullet> HCPCS codes for drugs and nonimplantable biologicals that 
were paid separately in CY 2010 and that were proposed for separate 
payment in CY 2011, and then have per day costs equal to or less than 
$70, based on the updated ASPs and hospital claims data used for this 
CY 2011 final rule with comment period, will continue to receive 
separate payment in CY 2011.
    <bullet> HCPCS codes for drugs and nonimplantable biologicals that 
were packaged in CY 2010 and that were proposed for separate payment in 
CY 2011, and then have per day costs equal to or less than $70, based 
on the updated ASPs and hospital claims data used for this CY 2011 
final rule with comment period, will remain packaged in CY 2011.
    <bullet> HCPCS codes for drugs and nonimplantable biologicals for 
which we proposed packaged payment in CY 2011 but then have per day 
costs greater than $70, based on the updated ASPs and hospital claims 
data used for this CY 2011 final rule with comment period, will receive 
separate payment in CY 2011.
    We did not receive any public comments on our proposal to apply the 
established policies initially adopted for the CY 2005 OPPS (69 FR 
65780) in order to more equitably pay for those drugs whose median cost 
fluctuates relative to the CY 2011 OPPS drug packaging threshold and 
the drug`s payment status (packaged or separately payable) in CY 2010. 
Therefore, we are finalizing our proposal, without modification, for CY 
2011.
    We note that HCPCS codes J0945 (injection, brompheniramine maleate, 
per 10 mg), J2320 (injection, nandrolone decanoate, up to 50 mg), and 
J2724 (Injection, protein c concentrate, intravenous, human, 10 iu) 
were paid separately for CY 2010 and were proposed for separate payment 
in CY 2011 and had final per day costs of less than the $70 drug 
packaging threshold, based on updated ASPs and the CY 2009 hospital 
claims data available for this CY 2011 final rule with comment period. 
Therefore HCPCS codes J0945,

[[Page 71942]]

J2320, and J2724 will continue to be paid separately in CY 2011 
according to the established methodology set forth above.
    In addition, we proposed to provide separate payment for HCPCS code 
J1835 (injection, itraconazole, 50 mg) in CY 2011, although its payment 
was packaged in CY 2010. Using updated ASPs and the CY 2009 hospital 
claims data available for this final rule with comment period, HCPCS 
code J1835 now has a per day cost of less than $70. In accordance with 
our established policy for such cases, for CY 2011 we will package 
payment for HCPCS code J1835.
    Finally, we proposed to package HCPCS codes J0348 (Injection, 
anidulafungin, 1 mg), J2510 (injection, penicillin g procaine, aqueous, 
up to 600,000 units), J2700 (injection, oxacillin sodium, up to 250 
mga), and J2805 (Injection, sincalide, 5 micrograms) for CY 2011. Using 
updated ASPs and the CY 2009 hospital claims data available for this 
final rule with comment period, HCPCS codes J0348, J2510, J2700, and 
J2805 now have per day costs greater than $70. In accordance with our 
established policy for such cases, for CY 2011 we will pay for HCPCS 
codes J0348, J2510, J2700, and J2805 separately.
    In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60485 
through 60489), we implemented a policy to treat oral and injectable 
forms of 5-HT3 antiemetics comparable to all other threshold packaged 
drugs, nonimplantable biologicals, and therapeutic radiopharmaceuticals 
under our standard packaging methodology of packaging drugs with a per 
day cost less than $70. In the CY 2011 OPPS/ASC proposed rule (75 FR 
46266), we proposed for CY 2011 to continue our policy of not exempting 
these 5-HT3 antiemetic products from our standard packaging methodology 
and to package payment for all of the 5-HT3 antiemetics except 
palonosetron hydrochloride, consistent with their estimated per day 
costs from the CY 2009 claims data.
    Comment: The majority of commenters opposed the proposal to 
continue the CY 2010 policy of no longer exempting the oral and 
injectable forms of 5-HT3 antiemetics from the packaging threshold, 
thereby packaging all but one 5-HT3 antiemetic. Many commenters 
requested that CMS exempt all 5-HT3 antiemetics from the packaging 
methodology in order to preserve access to these products.
    Response: We continue to believe that use of these antiemetics is 
an integral part of an anticancer treatment regimen and that OPPS 
claims data demonstrate their increasingly common hospital outpatient 
utilization. As we stated in the CY 2010 OPPS/ASC final rule with 
comment period (74 FR 60488), we no longer believe that a specific 
exemption to our standard drug payment methodology is necessary to 
ensure access to the most appropriate antiemetic products for Medicare 
beneficiaries. We continue to believe that our analysis conducted in 
the CY 2010 OPPS/ASC proposed rule on 5-HT3 antiemetics (74 FR 35320), 
along with the historical stability in prescribing patterns for these 
products and the availability of generic alternatives for several of 
these products, allows us to continue our policy of specifically not 
exempting these products from the OPPS drug packaging threshold. 
Therefore, we are finalizing our proposal of not exempting 5-HT3 
antiemetic products from our standard packaging methodology and to 
packaged payment for all of the 5-HT3 antiemetics consistent with their 
per day costs from the CY 2009 claims data. Under this methodology, 
palonosetron hydrochloride will receive separate payment for CY 2011. 
We expect that packaging will encourage hospitals to use the most cost-
efficient 5-HT3 antiemetic that is clinically appropriate. We also 
anticipate that hospitals will continue to provide care that is aligned 
witht the best interests of the patient. We do not believe that our CY 
2011 policy to apply the drug packaging threshold to 5-HT3 antiemetics 
will limit beneficiaries' ability to receive clinically appropriate 
drugs and biologicals.
    Comment: One commenter suggested that CMS institute a packaging 
threshold exemption for antineoplastic agents and other anticancer 
therapeutic agents. The commenter believed that anticancer agents, as a 
class, are not appropriate for packaging because of the toxicity, side 
effects, potential interactions with other drugs, and level of patient 
specificity associated with these therapies. The commenter requested 
that CMS not apply the drug packaging threshold for anticancer agents 
and any product that is typically used in chemotherapy supportive care 
regimens. Instead the commenter requested that CMS provide separate 
payment for all these products in CY 2011.
    Response: As we discussed in the CY 2008 OPPS/ASC final rule with 
comment period (72 FR 66757), the CY 2009 OPPS/ASC final rule with 
comment period (73 FR 68643), and the CY 2010 OPPS/ASC final rule with 
comment period (74 FR 60488), as we continue to explore the possibility 
of additional encounter-based or episode based payment in future years, 
we may consider additional options for packaging drug payment in the 
future. For example, a higher drug packaging threshold could eliminate 
existing disparities in payment methodologies for other drug groups and 
provide similar methods of payment across items in a group. 
Nevertheless, as discussed in the CY 2009 OPPS/ASC final rule with 
comment period (73 FR 68643), while we may be interested in alternative 
threshold methodologies for future ratesetting purposes, we realize 
that there are existing situations where drugs in a particular category 
vary in their payment treatment under the OPPS with some drugs packaged 
and other separately paid.
    We continue to believe the challenges associated with categorizing 
drugs to assess them for differences in their OPPS payment 
methodologies are significant, and we do not agree that ensuring the 
same payment treatment for all drugs in any particular drug category is 
essential at this time. Therefore, it would not be appropriate at this 
time to take any additional steps to ensure that all drugs in a 
specific category, including antineoplastic agents, are all separately 
paid (or alternatively, all packaged), as requested by the commenter.
    While some commenters requested that we seek feedback from 
interested stakeholders when the packaging threshold creates a payment 
methodology disparity between drugs within a single therapeutic class, 
we note that we provide an opportunity through the annual OPPS/ASC 
rulemaking cycle for public comment on the proposed packaging status of 
drugs and biologicals for the next calendar year. Further, we regularly 
accept meeting requests from interested providers and stakeholders on a 
variety of issues, and we address the APC Panel's recommendations in 
our annual proposed and final rules. We have often received public 
comments related to our proposed packaging status for particular drugs 
and biologicals, and we expect to continue to receive public comments 
regarding the proposed packaging status for drugs and biologicals in 
the future. In this manner, we would address specific concerns about 
the proposed packaging status for individual drugs and biologicals in 
the future, including those within a single therapeutic class where 
some drugs may be proposed to be packaged while others are proposed to 
be separately payable.
    In summary, after consideration of the public comments we received, 
for CY

[[Page 71943]]

2011, we are finalizing our proposal to continue our policy of not 
exempting 5-HT3 antiemetics from the drug packaging threshold. We will 
pay separately for palonosetron hydrochloride for CY 2011 because its 
per day cost is greater than the $70 packaging threshold. In addition, 
we are not providing any exceptions to the standard drug packaging 
methodology for any class of drugs, including anticancer therapies, for 
CY 2011.
c. Packaging Determination for HCPCS Codes That Describe the Same Drug 
or Biological But Different Dosages
    In the CY 2008 OPPS/ASC final rule with comment period (72 FR 
66776), we began recognizing, for OPPS payment purposes, multiple HCPCS 
codes reporting different dosages for the same covered Part B drugs or 
biologicals in order to reduce hospitals' administrative burden by 
permitting them to report all HCPCS codes for drugs and biologicals. In 
general, prior to CY 2008, the OPPS recognized for payment only the 
HCPCS code that described the lowest dosage of a drug or biological. We 
extended this recognition to multiple HCPCS codes for several other 
drugs under the CY 2009 OPPS (73 FR 68665). During CYs 2008 and 2009, 
we applied a policy that assigned the status indicator of the 
previously recognized HCPCS code to the associated newly recognized 
code(s), reflecting the new code(s)' packaged or separately payable 
status. In the CY 2008 OPPS/ASC final rule with comment period (72 FR 
66775), we explained that once claims data were available for these 
previously unrecognized HCPCS codes, we would determine the packaging 
status and resulting status indicator for each HCPCS code according to 
the general, established HCPCS code-specific methodology for 
determining a code's packaging status for a given update year. However, 
we also stated that we planned to closely follow our claims data to 
ensure that our annual packaging determinations for the different HCPCS 
codes describing the same drug or biological did not create 
inappropriate payment incentives for hospitals to report certain HCPCS 
codes instead of others.
    In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60490 
through 60491), we finalized a policy to make a single packaging 
determination for a drug, rather than an individual HCPCS code, when a 
drug has multiple HCPCS codes describing different dosages. We analyzed 
CY 2008 claims data for the HCPCS codes describing different dosages of 
the same drug or biological that were newly recognized in CY 2008 and 
found that our claims data would result in several different packaging 
determinations for different codes describing the same drug or 
biological. Furthermore, we found that our claims data would include 
few units and days for a number of newly recognized HCPCS codes, 
resulting in our concern that these data reflected claims from only a 
small number of hospitals, even though the drug or biological itself 
may be reported by many other hospitals under the most common HCPCS 
code. Based on these findings from our first available claims data for 
the newly recognized HCPCS codes, we believed that adopting our 
standard HCPCS code-specific packaging determinations for these codes 
could lead to payment incentives for hospitals to report certain HCPCS 
codes instead of others, particularly because we do not currently 
require hospitals to report all drug and biological HCPCS codes under 
the OPPS in consideration of our previous policy that generally 
recognized only the lowest dosage HCPCS code for a drug or biological 
for OPPS payment. For CY 2011, we continue to believe that adopting the 
standard HCPCS code-specific packaging determinations for these codes 
could lead to payment incentives for hospitals to report certain HCPCS 
codes for drugs instead of others. Making packaging determinations on a 
drug-specific basis eliminates these incentives and allows hospitals 
flexibility in choosing to report all HCPCS codes for different dosages 
of the same drug or only the lowest dosage HCPCS code. Therefore, in 
the CY 2011 OPPS/ASC proposed rule (75 FR46267), we proposed to 
continue our policy to make packaging determinations on a drug-specific 
basis, rather than a HCPCS code-specific basis, for those HCPCS codes 
that describe the same drug or biological but different dosages in CY 
2011.
    For CY 2011, in order to propose a packaging determination that is 
consistent across all HCPCS codes that describe different dosages of 
the same drug or biological, we aggregated both our CY 2009 claims data 
and our pricing information at ASP+6 percent across all of the HCPCS 
codes that describe each distinct drug or biological in order to 
determine the mean units per day of the drug or biological in terms of 
the HCPCS code with the lowest dosage descriptor. In the CY 2011 OPPS/
ASC proposed rule (75 FR 46267), we noted that HCPCS codes J9093 
(cyclophosphamide, lyophilized, 100 mg), J9094 (cyclophosphamide, 
lyophilized, 200 mg), J9095 (cyclophosphamide, lyophilized, 500 mg), 
J9096 (cyclophosphamide, lyophilized, 1g), and J9097 (cyclophosphamide, 
lyophilized, 2g) did not have pricing information available for the ASP 
methodology and, as is our current policy for determining the packaging 
status of other drugs, we used the mean unit cost available from fourth 
quarter CY 2009 claims data to make the packaging determinations for 
these drugs. For all other drugs and biologicals that have HCPCS codes 
describing different dosages, we then multiplied the weighted average 
ASP+6 percent or mean unit cost payment amount across all dosage levels 
of a specific drug or biological by the estimated units per day for all 
HCPCS codes that describe each drug or biological from our claims data 
to determine the estimated per day cost of each drug or biological at 
less than or equal to $70 (whereupon all HCPCS codes for the same drug 
or biological would be packaged) or greater than $70 (whereupon all 
HCPCS codes for the same drug or biological would be separately 
payable). The proposed packaging status of each drug and biological 
HCPCS code, to which this methodology would apply was displayed in 
Table 24 of the proposed rule.
    We did not receive any public comments on our proposal to make 
packaging determinations on a drug-specific basis for CY 2011. 
Therefore, we are finalizing our CY 2011 proposal, without 
modification, to make a single packaging determination for a drug, 
rather than an individual HCPCS code, when a drug has multiple HPCS 
codes describing different dosages. For this CY 2011 final rule with 
comment period, we are finalizing our proposal to use the mean unit 
cost available from CY 2009 claims data to make the packaging 
determination for HCPCS codes J9097. We discuss the final status 
indicator for HCPCS code J9097 and the discontinuation of HCPCS codes 
J9093, J9094, J9095 and J9096 for CY 2011 below.
    For CY 2011, we have aggregated both our CY 2009 claims data and 
our pricing information at ASP+5 percent across all of the HCPCS codes 
that describe each distinct drug or biological in order to determine 
the mean units per day of the drug or biological in terms of the HCPCS 
code with the lowest dosage descriptor. We then multiplied the weighted 
average ASP+5 percent or mean unit cost payment amount across all 
dosage levels of a specific drug or biological by the estimated units 
per day for all HCPCS codes that describe each drug or biological from 
our claims data to

[[Page 71944]]

determine the estimated per day cost of each drug or biological at less 
than or equal to $70 (whereupon all HCPCS codes for the same drug or 
biological would be packaged) or greater than $70 (whereupon all HCPCS 
codes for the same drug or biological would be separately payable). The 
final CY 2011 packaging status of each drug and biological HCPCS code 
to which this methodology applies is displayed in Table 31 below.
    We note that several HCPCS codes that were previously proposed in 
the CY 2011 OPPS/ASC proposed rule (75 FR 46266 through 46270) to be 
treated as drugs with multiple HCPCS codes with multiple dosage 
descriptors and, therefore, calculated using the methodology described 
above, are being deleted for CY 2011. Billing for these drugs will 
continue under a new or already existing code as described below, for 
CY 2011: HCPCS codes J0970 (Injection, estradiol valerate, up to 40 mg) 
and J1390 (Injection, estradiol valerate, up to 20 mg) have been 
deleted for CY 2011 and billing for these drugs will continue under 
currently existing HCPCS code J1380 (Injection, estradiol valerate, up 
to 10 mg). In order to make a packaging determination for HCPCS code 
J1380, we used updated hospital claims data from HCPCS codes J0970, 
J1390, and J1380 and ASP pricing information to determine the estimated 
per day cost for the drug described above. Because the estimated per 
day cost was less than our CY 2011 packaging threshold of $70, we 
assigned status indicator ``N'' to HCPCS code J1380 for CY 2011.
    HCPCS codes J1470 (Injection, gamma globulin, intramuscular 2 cc), 
J1480 (Injection, gamma globulin, intramuscular 3 cc), J1490 
(Injection, gamma globulin, intramuscular 4 cc), J1500 (Injection, 
gamma globulin, intramuscular 5 cc), J1510 (Injection, gamma globulin, 
intramuscular 6 cc), J1520 (Injection, gamma globulin, intramuscular 7 
cc), J1530 (Injection, gamma globulin, intramuscular 8 cc), J1540 
(Injection, gamma globulin, intramuscular 9 cc), and J1550 (Injection, 
gamma globulin, intramuscular 10 cc) have been deleted for CY 2011 and 
billing for these drugs will continue under two currently existing 
HCPCS codes, J1460 (Injection, gamma globulin, intramuscular, 1 cc) and 
J1560 (Injection, gamma globulin, intramuscular over 10 cc). In order 
to make a packaging determination for HCPCS code J1460 and J1560, we 
used updated hospital claims data from HCPCS codes J1460, J1470, J1480, 
J1490, J1500, J1510, J1520, J1530, J1540, J1550 and J1560 and ASP 
pricing information to determine the estimated per day cost for the 
drugs described above. Because the estimated per day cost was more than 
our CY 2011 packaging threshold of $70, we assigned status indicator 
``K'' to HCPCS codes J1460 and J1560 for CY 2011.
    HCPCS codes J2321 (Injection, nandrolone decanoate, up to 100 mg) 
and J2322 (Injection, nandrolone decanoate, up to 200 mg) have been 
deleted for CY 2011 and billing for these drugs will continue under 
already existing HCPCS code J2320 (Injection, nandrolone decanoate, up 
to 50 mg). In order to make a packaging determination for HCPCS code 
J2320, we used updated hospital claims data from HCPCS codes J2320, 
J2321, and J2322 and ASP pricing information to determine the estimated 
per day cost for the drug described above. Although the estimated per 
day cost was less than our CY 2011 packaging threshold of $70, we are 
assigning status indicator ``K'' to HCPCS code J2320 for CY 2011, based 
upon the policy that was finalized in section V.B.2.b. of this final 
rule with comment period for HCPCS codes for drugs and nonimplantable 
biologicals for which we paid separately in CY 2010 and that were 
proposed for separate payment in CY 2011 and then have per day costs 
equal to or less than $70, based on the updated ASPs and hospital 
claims data used for this CY 2011 OPPS/ASC final rule with comment 
period. We describe the assignment of J2320 to status indicator ``K'' 
above.
    HCPCS code J9062 (Cisplatin, 50 mg) has been deleted for CY 2011 
and billing for this drug will continue under existing HCPCS code J0960 
(Cisplatin, powder or solution, per 10 mg). In order to make a 
packaging determination for HCPCS code J9060, we used updated hospital 
claims data from HCPCS codes J0960 and J9062 and ASP pricing 
information to determine the estimated per day cost for the drug 
described above. Because the estimated per day cost was less than our 
CY 2011 packaging threshold of $70 and because these codes were 
assigned status indicator ``N'' for the CY 2011 proposed rule, we 
assigned status indicator ``N'' to HCPCS code J0960 for CY 2011.
    HCPCS codes J9080 (Cyclophosphamide, 200 mg), J9090 
(Cyclophosphamide, 500 mg), J9091 (Cyclophosphamide, 1.0 gram), J9092 
(Cyclophosphamide, 2.0 gram), J9093 (Cyclophosphamide, lyophilized, 100 
mg), J9094 (Cyclophosphamide, lyophilized, 200 mg), J9095 
(Cyclophosphamide, lyophilized, 500 mg), J9096 (Cyclophosphamide, 
lyophilized, 1.0 gram), and J9097 (Cyclophosphamide, lyophilized, 2.0 
gram) have been deleted for CY 2011 and billing for these drugs will 
continue under existing HCPCS code J9070 (Cyclophosphamide, 100 mg). In 
order to make a packaging determination for HCPCS code J9070, we used 
updated hospital claims data from HCPCS codes J9070, J9080, J9090, 
J9091, J9092, J9093, J9094, J9095, J9096, and J9097 and ASP pricing 
information to determine the estimated per day cost for the drug 
described above. Because the estimated per day cost was less than our 
CY 2011 packaging threshold of $70 and because these codes were 
assigned status indicator ``N'' for the CY 2011 proposed rule, we 
assigned status indicator ``N'' to HCPCS code J9070 for CY 2011 in this 
final rule with comment period.
    HCPCS code J9110 (Injection, cytarabine, 500 mg) has been deleted 
for CY 2011 and billing for this drug will continue under existing 
HCPCS code J9100 (Injection, cytarabine, 100 mg). In order to make a 
packaging determination for HCPCS code J9100, we used updated hospital 
claims data from HCPCS codes J9100 and J9110 and ASP pricing 
information to determine the estimated per day cost for the drug 
described above. Because the estimated per day cost was less than our 
CY 2011 packaging threshold of $70 and because these codes were 
assigned status indicator ``N'' for the CY 2011 proposed rule, we 
assigned status indicator ``N'' to HCPCS code J9100 for CY 2011 in this 
final rule with comment period.
    HCPCS code J9140 (Dacarbazine, 100 mg) has been deleted for CY 2011 
and billing for this drug will continue under HCPCS code J9130 
(Injection, dacarbazine, 200 mg). In order to make a packaging 
determination for HCPCS code J9130, we used updated hospital claims 
data from HCPCS codes J9130 and J9140 and ASP pricing information to 
determine the estimated per day cost for the drug described above. 
Because the estimated per day cost was less than our CY 2011 packaging 
threshold of $70 and because these codes were assigned status indicator 
``N'' for the CY 2011 proposed rule, we assigned status indicator ``N'' 
to HCPCS code J9130 for CY 2011 in this final rule with comment period.
    HCPCS codes J9290 (Mitomycin, 20 mg) and J9291 (Mitomycin, 40 mg) 
have been deleted for CY 2011 and billing for these drugs will continue 
under existing HCPCS code J9280 (Mitomycin, 5 mg). In order to make a 
packaging determination for HCPCS code J9280, we used updated hospital 
claims data from HCPCS codes J9280, J9290, and J9291 and ASP pricing 
information to determine the estimated per day cost for

[[Page 71945]]

the drug described above. Because the estimated per day cost was more 
than our CY 2011 packaging threshold of $70, we assigned status 
indicator ``K'' to HCPCS code J9280 for CY 2011.
    HCPCS codes J9375 (Vincristine sulfate, 2 mg) and J9380 
(Viscristine sulfate, 5 mg) have been deleted for CY 2011 and billing 
for these drugs will continue under existing HCPCS code J9370 
(Vincristine sulfate, 1 mg). In order to make a packaging determination 
for HCPCS code J9370, we used updated hospital claims data from HCPCS 
codes J9370, J9375, and J9380 and ASP pricing information to determine 
the estimated per day cost for the drug described above. Because the 
estimated per day cost was less than our CY 2011 packaging threshold of 
$70 and because these codes were assigned status indicator ``N'' for 
the CY 2011 proposed rule, we assigned status indicator ``N'' to HCPCS 
code J9370 for CY 2011 in this final rule with comment period.
    We note that, in the CY 2011 OPPS/ASC proposed rule, HCPCS codes 
J0560 (Injection, penicillin g benzathine, up to 600,000 units), J0570 
(Injection, penicillin g benzathine, 1,200,000 units), and J0580 
(Injection, penicillin g benzathine, up to 2,400,000 units) were 
erroneously omitted from Table 24 of the proposed rule. As we did for 
CY 2010 and several years before that, we continued to treat these as 
drugs with multiple HCPCS codes with multiple dosage descriptors; 
therefore, we calculated using the methodology described above for our 
calculations for the CY 2011 proposed rule. The payment rates for these 
HCPCS codes were given in Addendum B to the CY 2011 OPPS/ASC proposed 
rule. For this CY 2011 OPPS/ASC final rule with comment period, HCPCS 
codes J0560, J0570, and J0580 are being deleted and billing for these 
drugs will continue under new HCPCS code J0561 (Injection, penicillin g 
benzathine, 100,00 units). In order to make a packaging determination 
for HCPCS code J0561, we used updated hospital claims data from HCPCS 
codes J0560, J0570, and J0580 and ASP pricing information to determine 
the estimated per day cost for the drug described above. Because the 
estimated per day cost was less than our CY 2011 packaging threshold of 
$70 and because these codes were assigned status indicator ``N'' for 
the CY 2011 proposed rule, we assigned status indicator ``N'' to HCPCS 
code J0561 for CY 2011 in this final rule with comment period.
    Table 31 below displays the packaging status of each drug and 
biological HCPCS code determined under the finalized package 
determination methodology. We note that HCPCS codes J0560, J0570, 
J0580, J0970, J1390, J1470, J1480, J1490, J1500, J1510, J1520, J1530, 
J1540, J1550, J2321, J2322, J9062, J9080, J9090, J9091, J9092, J9093, 
J9094, J9095, J9096, J9097, J9110, J9140, J9290, J9291, J9375, and 
J9380 are not displayed in Table 31 below because they are deleted for 
CY 2011.

   Table 31--HCPCS Codes to Which the CY 2011 Drug-Specific Packaging
                    Determination Methodology Applies
------------------------------------------------------------------------
 CY 2011  HCPCS  Code    CY 2011 Long descriptor         CY 2011 SI
------------------------------------------------------------------------
C9257                  Injection, bevacizumab,      K
                        0.25 mg.
J9035                  Injection, bevacizumab, 10   K
                        mg.
J1380                  Injection, estradiol         N
                        valerate, up to 10 mg.
J1020                  Injection,                   N
                        methylprednisolone
                        acetate, 20 mg.
J1030                  Injection,                   N
                        methylprednisolone
                        acetate, 40 mg.
J1040                  Injection,                   N
                        methylprednisolone
                        acetate, 80 mg.
J1070                  Injection, testosterone      N
                        cypionate, up to 100 mg.
J1080                  Injection, testosterone      N
                        cypionate, 1 cc, 200 mg.
J1440                  Injection, filgrastim (g-    K
                        csf), 300 mcg.
J1441                  Injection, filgrastim (g-    K
                        csf), 480 mcg.
J1460                  Injection, gamma globulin,   K
                        intramuscular, 1 cc.
J1560                  Injection, gamma globulin,   K
                        intramuscular over 10 cc.
J1642                  Injection, heparin sodium,   N
                        (heparin lock flush), per
                        10 units.
J1644                  Injection, heparin sodium,   N
                        per 1000 units.
J1850                  Injection, kanamycin         N
                        sulfate, up to 75 mg.
J1840                  Injection, kanamycin         N
                        sulfate, up to 500 mg.
J2270                  Injection, morphine          N
                        sulfate, up to 10 mg.
J2271                  Injection, morphine          N
                        sulfate, 100mg.
J2320                  Injection, nandrolone        K
                        decanoate, up to 50 mg.
J2788                  Injection, rho d immune      K
                        globulin, human, minidose,
                        50 micrograms (250 i.u.).
J2790                  Injection, rho d immune      K
                        globulin, human, full
                        dose, 300 micrograms (1500
                        i.u.).
J2920                  Injection,                   N
                        methylprednisolone sodium
                        succinate, up to 40 mg.
J2930                  Injection,                   N
                        methylprednisolone sodium
                        succinate, up to 125 mg.
J3120                  Injection, testosterone      N
                        enanthate, up to 100 mg.
J3130                  Injection, testosterone      N
                        enanthate, up to 200 mg.
J3471                  Injection, hyaluronidase,    N
                        ovine, preservative free,
                        per 1 usp unit (up to 999
                        usp units).
J3472                  Injection, hyaluronidase,    N
                        ovine, preservative free,
                        per 1000 usp units.
J7050                  Infusion, normal saline      N
                        solution , 250 cc.
J7040                  Infusion, normal saline      N
                        solution, sterile (500
                        ml=1 unit).
J7030                  Infusion, normal saline      N
                        solution , 1000 cc.
J7515                  Cyclosporine, oral, 25 mg..  N
J7502                  Cyclosporine, oral, 100 mg.  N
J8520                  Capecitabine, oral, 150 mg.  K
J8521                  Capecitabine, oral, 500 mg.  K
J9060                  Cisplatin, powder or         N
                        solution, per 10 mg.
J9070                  Cyclophosphamide, 100 mg...  N
J9100                  Injection, cytarabine, 100   N
                        mg.
J9130                  Injection, dacarbazine, 100  N
                        mg.

[[Page 71946]]

 
J9250                  Methotrexate sodium, 5 mg..  N
J9260                  Methotrexate sodium, 50 mg.  N
J9280                  Mitomycin, 5 mg............  K
J9370                  Vincristine sulfate, 1 mg..  N
Q0164                  Prochlorperazine maleate, 5  N
                        mg, oral, FDA approved
                        prescription anti-emetic,
                        for use as a complete
                        therapeutic substitute for
                        an IV anti-emetic at the
                        time of chemotherapy
                        treatment, not to exceed a
                        48-hour doseage regimen.
Q0165                  Prochlorperazine maleate,    N
                        10 mg, oral, FDA approved
                        prescription anti-emetic,
                        for use as a complete
                        therapeutic substitute for
                        an IV anti-emetic at the
                        time of chemotherapy
                        treatment, not to exceed a
                        48-hour doseage regimen.
Q0167                  Dronabinol, 2.5 mg, oral,    N
                        FDA approved prescription
                        anti-emetic, for use as a
                        complete therapeutic
                        substitute for an IV
                        anit0emetic at the time of
                        chemotherapy treatment,
                        not to exceed a 48-hour
                        dosage regimen.
Q0168                  Dronabinol, 5 mg, oral, FDA  N
                        approved prescription anti-
                        emetic, for use as a
                        complete therapeutic
                        substitute for an IV
                        anit0emetic at the time of
                        chemotherapy treatment,
                        not to exceed a 48-hour
                        dosage regimen.
Q0169                  Promethazine hydrochloride,  N
                        12.5 mg, oral, FDA
                        approved prescription anti-
                        emetic, for use as a
                        complete therapeutic
                        substitute for an IV
                        antiemetic at the time of
                        chemotherapy treatment,
                        not to exceed a 48-hour
                        dosage regimen.
Q0170                  Promethazine hydrochloride,  N
                        25 mg, oral, FDA approved
                        prescription anti-emetic,
                        for use as a complete
                        therapeutic substitute for
                        an IV antiemetic at the
                        time of chemotherapy
                        treatment, not to exceed a
                        48-hour dosage regimen.
Q0171                  Chlorpromazine               N
                        hydrochloride, 10 mg,
                        oral, FDA approved
                        prescription antiemetic,
                        for use as a complete
                        therapeutic substitute for
                        an IV antiemetic at the
                        time of chemotherapy
                        treatment, not to exceed a
                        48-hour dosage regimen.
Q0172                  Chlorpromazine               N
                        hydrochloride, 25 mg,
                        oral, FDA approved
                        prescription anti-emetic,
                        for use as a complete
                        therapeutic substitute for
                        an IV anti-emetic at the
                        time of chemotheapy
                        treatment, not to exceed a
                        48-hour dosage regimen.
Q0175                  Perphenazine, 4 mg, oral,    N
                        FDA approved prescription
                        anti-emetic, for use as a
                        complete therapeutic
                        substitute for an IV anti-
                        emetic at the time of
                        chemotherapy treatment,
                        not to exceed a 48-hour
                        dosage regimen.
Q0176                  Perphenazine, 8 mg, oral,    N
                        FDA approved prescription
                        anti-emetic, for use as a
                        complete therapeutic
                        substitute for an IV anti-
                        emetic at the time of
                        chemotherapy treatment,
                        not to exceed a 48-hour
                        dosage regimen.
Q0177                  Hydroxyzine pamoate, 25 mg,  N
                        oral, FDA approved
                        prescription anti-emetic,
                        for use as a complete
                        therapeutic substitute for
                        an IV anti-emetic at the
                        time of chemotherapy
                        treatment, not to exceed a
                        48-hour dosage regimen.
Q0178                  Hydroxyzine pamoate, 50 mg,  N
                        oral, FDA approved
                        prescription anti-emetic,
                        for use as a complete
                        therapeutic substitute for
                        an IV anti-emetic at the
                        time of chemotherapy
                        treatment, not to exeed a
                        48-hour dosage regimen.
------------------------------------------------------------------------

d. Packaging of Payment for Diagnostic Radiopharmaceuticals, Contrast 
Agents, and Implantable Biologicals (``Policy-Packaged'' Drugs and 
Devices)
    Prior to CY 2008, the methodology of calculating a product's 
estimated per day cost and comparing it to the annual OPPS drug 
packaging threshold was used to determine the packaging status of 
drugs, biologicals, and radiopharmaceuticals under the OPPS (except for 
our CYs 2005 through 2009 exemption for 5-HT3 antiemetics). However, as 
established in the CY 2008 OPPS/ASC final rule with comment period (72 
FR 66766 through 66768), we began packaging payment for all diagnostic 
radiopharmaceuticals and contrast agents into the payment for the 
associated procedure, regardless of their per day costs. In addition, 
in CY 2009 we adopted a policy that packaged the payment for nonpass-
through implantable biologicals into payment for the associated 
surgical procedure on the claim (73 FR 68633 through 68636). We refer 
to diagnostic radiopharmaceuticals and contrast agents collectively as 
``policy-packaged'' drugs and to implantable biologicals as devices 
because, in CY 2010, we began to treat implantable biologicals as 
devices for all OPPS payment purposes.
    According to our regulations at Sec.  419.2(b), as a prospective 
payment system, the OPPS establishes a national payment rate that 
includes operating and capital-related costs that are directly related 
and integral to performing a procedure or furnishing a service on an 
outpatient basis including, but not limited to, implantable 
prosthetics, implantable durable medical equipment, and medical and 
surgical supplies. Packaging costs into a single aggregate payment for 
a service, encounter, or episode-of-care is a fundamental principle 
that distinguishes a prospective payment system from a fee schedule. In 
general, packaging the costs of items and services into the payment for 
the primary procedure or service with which they are associated 
encourages hospital efficiencies and also enables hospitals to manage 
their resources with maximum flexibility.
    Prior to CY 2008, we noted that the proportion of drugs, 
biologicals, and radiopharmaceuticals that were separately paid under 
the OPPS had increased in recent years, a pattern that we also observed 
for procedural services under the OPPS. Our final CY 2008 policy that 
packaged payment for all nonpass-through diagnostic 
radiopharmaceuticals and contrast agents, regardless of their per day 
costs, contributed significantly to expanding the size of the OPPS 
payment bundles and is consistent with the principles of a prospective 
payment system.
    We believe that packaging the payment for diagnostic 
radiopharmaceuticals and contrast agents into the payment for their 
associated procedures continues to be appropriate for CY 2011. As 
discussed in more detail in the CY 2009 OPPS/ASC final rule with 
comment period (73 FR 68645 through 68649), we presented several 
reasons supporting our initial policy to package payment of diagnostic 
radiopharmaceuticals and contrast agents into their associated 
procedures on a claim. Specifically, we stated that we believed 
packaging was appropriate because: (1) The statutorily required OPPS 
drug packaging threshold has expired; (2) we believe that diagnostic 
radiopharmaceuticals and contrast agents function effectively as 
supplies that enable the provision of an independent service; and (3) 
section 1833(t)(14)(A)(iii) of the Act requires that payment for 
specified covered outpatient drugs (SCODs) be set prospectively based 
on a measure of average hospital acquisition cost. As we stated in the 
CY 2011 OPPS/ASC proposed rule, for these reasons, we

[[Page 71947]]

believe it is appropriate to continue to treat diagnostic 
radiopharmaceuticals and contrast agents differently from other SCODs 
for CY 2011. Therefore, in the CY 2011 OPPS/ASC proposed rule (75 FR 
46271), we proposed to continue packaging payment for all contrast 
agents and diagnostic radiopharmaceuticals, collectively referred to as 
``policy-packaged'' drugs, regardless of their per day costs, for CY 
2011. We also proposed to continue to package the payment for 
diagnostic radiopharmaceuticals into the payment for the associated 
nuclear medicine procedure and to package the payment for contrast 
agents into the payment of the associated echocardiography imaging 
procedure, regardless of whether the contrast agent met the OPPS drug 
packaging threshold. We refer readers to the CY 2010 OPPS/ASC final 
rule with comment period for a detailed discussion of nuclear medicine 
and echocardiography services (74 FR 35269 through 35277).
    Comment: Several commenters expressed concerns about the 
fluctuation in data for echocardiography APCs used with contrast codes, 
particularly the reductions in median cost from CY 2010. The commenters 
believed this fluctuation in the data is due to the lack of familiarity 
among hospital coders on contrast codes and C-codes used for contrast 
enhanced echocardiography. They pointed out that CY 2009 is only the 
second year of claims data for the new echocardiography CPT codes and 
associated C-codes. The commenters also cited a smaller number of 
``days'' for contrast agents used with echocardiography, HCPCS codes 
Q9956 (Injection, octafluoropropane microspheres, per ml) and Q9957 
(Injection, perflutren lipid microspheres, per ml), in the published 
``brachy-blood-drug'' median cost file that CMS published with the 
proposed rule than total frequency of services for contrast enhanced 
echocardiography. In addition, the commenters stated that the average 
cost of HCPCS codes Q9957 and Q9956 for any given contrast enhanced 
echocardiography is approximately $120, and that the observed 
difference in median cost between APC 0128 (Echocardiogram with 
Contrast) and APC 0269 (Level II Echocardiogram without Contrast) is 
approximately $100, suggesting that the difference in cost for with and 
without contrast is not sufficient to cover the cost of the contrast 
agent. Therefore, these commenters concluded that the reduction in the 
median cost for APC 0128 in the CY 2011 proposed rule is due to the 
fact that the median cost for these codes do not contain the cost of 
contrast agents. A few commenters suggested that CMS institute a claims 
edit that would require a code for contrast on claims that contain a 
procedure code specified as ``with'' contrast. Another commenter 
suggested that CMS limit fluctuations that occur from year to year on 
APC payment rates to no more than 10 percent for any unexplained and 
substantial changes in cost data.
    Response: We find no evidence that would suggest that the 
fluctuations in cost data for echocardiography APCs are due to 
incorrect hospital billing practices. Because some of the 
echocardiography codes were new for CY 2009, we believe the observed 
reduction in median cost for CY 2011 is due to the difference between 
CMS' best estimate of a median cost for these echocardiography codes 
based on simulated CY 2008 claims data for CY 2010 payment, and median 
cost based on actual hospital billing for these echocardiography codes 
in CY 2009 for CY 2011 payment. Specifically, while most 
echocardiography codes and associated C-codes for contrast enhanced 
echocardiography were implemented in CY 2008, the CPT code 93306 
(Initial nursing facility care, per day, for the evaluation and 
management of a patient, which requires these 3 key components) was not 
implemented until CY 2009 and incorporated services previously 
described in CY 2008 by three CPT codes: 93307 (Echocardiography, 
transthoracic, real-time with image documentation (2D) with or without 
M-mode recording; complete); 93320 (Doppler echocardiography, pulsed 
wave and/or continuous wave with spectral display; complete); and 93325 
(Doppler echocardiography color flow velocity mapping). As we discussed 
in our CY 2010 OPPS/ASC final rule with comment period (74 FR 60374), 
we simulated a median cost for both CPT code 93306 and associated HCPCS 
code C8929, which describe services billed with CPT code 93306 but 
enhanced with contrast. For CY 2009 (73 FR 68542) and CY 2010 (74 FR 
60374), we simulated a median cost for CPT code 93306 and HCPCS code 
C8929 based on the long descriptor for the new code, indentifying 
claims with CPT codes 93307, 93220, and 93225 as representing the costs 
of CPT code 93306. We simulated the CY 2010 medians for 93306 and C8929 
to provide the most accurate payment possible based on available cost 
information in the CY 2008 claims without having actual charge data for 
93306 and C8929 from hospitals.
    CPT code 93306 and HCPCS code C8929 are the highest volume 
echocardiography codes, and their median costs largely drive the median 
cost of their respective APCs for CY 2011: APC 0269 (Level II 
Echocardiogram without Contrast) and APC 0128 (Echocardiogram with 
Contrast). Therefore, changes in the median cost of 93306 and C8929 
will significantly impact the median cost for those APCs. Because CY 
2011 OPPS ratesetting is based on CY 2009 claims data, as discussed in 
section II.A. of this final rule with comment period, the CY 2011 
median cost data for CPT code 93306 and HCPCS code C8929 represent the 
first year of actual claims data for these services. For this reason, 
we believe that our CY 2011 estimated cost for CPT code 93306 and HCPCS 
code C8929 based on CY 2009 claim charges and the most recent cost 
report data available is more accurate than CY 2010 and CY 2009 
simulated median costs. We note that almost all of the median cost 
estimates for all of the other contrast enhanced echocardiography 
services in APC 0128, which did not rely on a simulated median cost in 
CY 2010, increase between CY 2010 and CY 2011.
    Commenters suggested that the discrepancy between observed 
frequency of days for the two HCPCS for contrast agents used with 
echocardiography, HCPCS codes Q9956 and Q9957, indicates that the 
median costs for APC 0128 do not reflect the cost of contrast. We do 
not observe a sizable discrepancy between observed frequency of days, 
instead, we observe fairly comparable numbers of procedures for 
contrast enhanced echocardiography and the number of days associated 
with these contrast agents. Specifically, we observe approximately 
53,000 procedures for contrast enhanced echocardiography and 
approximately 48,000 days of administration for HCPCS codes Q9956 and 
Q9957 in our final rule claims data. Finally, we believe that an 
observed differential in payment of approximately $100 between the APC 
median cost for APC 0128 of approximately $494 and APC 0269 of 
approximately $398 in the final rule with comment period both 
demonstrates that hospitals are including the cost of contrast in their 
charges for HCPCS code C8929 and that this amount is sufficient to 
capture the cost of contrast in a prospective payment system that 
includes packaging and averaging. In summary, we have no reason to 
believe that these first years of actual costs for

[[Page 71948]]

CPT code 93306 and HCPCS code C8929 are inaccurate. For this reason, we 
do not believe there is any need to edit for contrast agents, nor do we 
believe that we should moderate these observed reductions in median 
cost, because, we believe, this year's cost estimate is more accurate 
than the simulated median costs used in previous years.
    In the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68634), we began packaging the payment for all nonpass-through 
implantable biologicals into payment for the associated surgical 
procedure. Because implantable biologicals may sometimes substitute for 
nonbiological devices, we noted that if we were to provide separate 
payment for implantable biologicals without pass-through status, we 
would potentially be providing duplicate device payment, both through 
the packaged nonbiological device cost already included in the surgical 
procedure's payment and the separate biological payment. We concluded 
that we saw no basis for treating implantable biological and 
nonbiological devices without pass-through status differently for OPPS 
payment purposes, because both are integral to and supportive of the 
separately paid surgical procedures in which either may be used. 
Therefore, in CY 2009, we adopted a final policy to package payment for 
all nonpass-through implantable biologicals that are surgically 
inserted or implanted (through a surgical incision or a natural 
orifice), similar to our longstanding policy that packages payment for 
all implantable nonbiological devices without pass-through status. We 
finalized a policy in CY 2010 to package payment for nonpass-through 
implantable biologicals that are surgically inserted or implanted 
(through a surgical incision or a natural orifice) into the body, known 
as devices. In the CY 2011 OPPS/ASC proposed rule (75 FR 46271), for CY 
2011, we proposed to continue to package payment for nonpass-through 
implantable biologicals that are surgically inserted or implanted 
(through a surgical incision or a natural orifice) into the body, 
referred to as devices. In accordance with this proposal, two of the 
products with expiring pass-through status for CY 2011 are biologicals 
that are solely surgically implanted according to their FDA-approved 
indications. These products are described by HCPCS codes C9356 (Tendon, 
porous matrix of cross-linked collagen and glycosaminoglycan matrix 
(TenoGlide Tendon Protector Sheet), per square centimeter) and C9359 
(Porous purified collagen matrix bone void filler (Integra Mozaik 
Osteoconductive Scaffold Putty, Integra OS Osteoconductive Scaffold 
Putty), per 0.5 cc). Similar to the two implantable biologicals with 
expiring pass-through status in CY 2010 that were discussed in the CY 
2010 OPPS/ASC final rule with comment period (74 FR 60459 through 
60499), we believe that the two biologicals described by HCPCS codes 
C9356 and C9359 with expiring pass-through status for CY 2011 differ 
from other biologicals paid under the OPPS, in that they specifically 
function as surgically implanted devices. As a result of the CY 2010 
packaged payment methodology for all nonpass-through implantable 
biologicals, we proposed to package payment for HCPCS codes C9356 and 
C9359 and assign them status indicator ``N'' for CY 2011. In addition, 
any new biologicals without pass-through status that are surgically 
inserted or implanted (through a surgical incision or a natural 
orifice) would be packaged in CY 2011. Moreover, for nonpass-through 
biologicals that may sometimes be used as implantable devices, we 
continue to instruct hospitals to not bill separately for the HCPCS 
codes for the products when used as implantable devices. This reporting 
ensures that the costs of these products that may be, but are not 
always, used as implanted biologicals are appropriately packaged into 
payment for the associated implantation procedures.
    Comment: Several commenters objected to CMS' proposal to package 
payment for all diagnostic radiopharmaceuticals and contrast agents in 
CY 2011. A number of commenters stated that diagnostic 
radiopharmaceuticals and contrast agents with per day costs over the 
proposed OPPS drug packaging threshold are defined as SCODs and, 
therefore, should be assigned separate APC payments. In particular, the 
commenters questioned CMS' authority to classify groups of drugs, such 
as diagnostic radiopharmaceuticals and contrast agents, and implement 
packaging and payment policies that do not reflect their status as 
SCODs. Several comments disagreed with CMS' labeling of 
radiopharmaceuticals as supplies and stated instead that they should be 
treated as other SCODs. The commenters recommended that diagnostic 
radiopharmaceuticals should be subject to the same per day cost drug 
packaging threshold that applies to other drugs, in order to determine 
whether their payment would be packaged or made separately.
    Response: As discussed in the CY 2008 OPPS/ASC final rule with 
comment period (72 FR 66766), the CY 2009 OPPS/ASC final rule with 
comment period (73 FR 68645 and the CY 2010 OPPS/ASC final rule with 
comment period (74 FR 35323), we continue to believe that diagnostic 
radiopharmaceuticals and contrast agents are different from other drugs 
and biologicals for several reasons. We note that the statutorily 
required OPPS drug packaging threshold has expired, and we continue to 
believe that diagnostic radiopharmaceuticals and contrast agents 
function effectively as supplies that enable the provision of an 
independent service and are always ancillary and supportive to an 
independent service, rather than serving themselves as the therapeutic 
modality. We packaged their payment in CYs 2008, 2009, and 2010 as 
ancillary and supportive services in order to provide incentives for 
greater efficiency and to provide hospitals with additional flexibility 
in managing their resources. In order for payment to be packaged, it is 
not necessary that all products be interchangeable in every case, and 
we recognized that, in some cases, hospitals may utilize higher cost 
products and, in some cases, lower cost products, taking into 
consideration the clinical needs of the patient and efficiency 
incentives. While we recognize this variability from case to case, on 
average under a prospective payment system, we expect payment to pay 
appropriately for the services furnished. In the past, we have 
classified different groups of drugs for specific payment purposes, as 
evidenced by our CY 2005 through CY 2009 policy regarding 5-HT3 
antiemetics and their exemption from the drug packaging threshold. We 
note that we treat diagnostic radiopharmaceuticals and contrast agents 
as ``policy-packaged'' drugs because our policy is to package payment 
for all of the products in the category.
    In the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68634), we also began packaging the payment for all nonpass-through 
implantable biologicals into payment for the associated surgical 
procedure because we consider these products to always be ancillary and 
supportive to independent services, similar to implantable 
nonbiological devices that are always packaged. Therefore, we currently 
package payment for nonpass-through implantable biologicals, also known 
as devices that are surgically inserted or implanted (through a 
surgical incision or a natural orifice) into the body. As we stated in 
the CY 2011 OPPS/ASC proposed rule (75 FR 46267), we

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continue to believe that payment should be packaged for nonpass-through 
implantable biologicals for CY 2011.
    Although our final CY 2009 policy which we are continuing for CY 
2011, as discussed below, packages payment for all diagnostic 
radiopharmaceuticals, contrast agents, and nonpass-through implantable 
biologicals into the payment for their associated procedures, we are 
continuing to provide payment for these items in CY 2011 based on a 
proxy for average acquisition cost, as we did in CY 2009. We continue 
to believe that the line-item estimated cost for a diagnostic 
radiopharmaceutical, contrast agent, or nonpass-through implantable 
biologicals in our claims data is a reasonable approximation of average 
acquisition and preparation and handling costs for diagnostic 
radiopharmaceuticals, contrast agents, and nonpass-through implantable 
biologicals, respectively. As we discussed in the CY 2009 OPPS/ASC 
final rule with comment period (73 FR 68645), we believe that hospitals 
have adapted to the CY 2006 coding changes for radiopharmaceuticals and 
responded to our instructions to include charges for 
radiopharmaceutical handling in their charges for the 
radiopharmaceutical products. Further, because the standard OPPS 
packaging methodology packages the total estimated cost of each 
radiopharmaceutical, contrast agent, or nonimplantable biological on 
each claim (including the full range of costs observed on the claims) 
with the cost of associated procedures for ratesetting, this packaging 
approach is consistent with considering the average cost for 
radiopharmaceuticals, contrast agents, or nonpass-through implantable 
biologicals, rather than the median cost. In addition, as we noted in 
the CY 2009 OPPS/ASC final rule with comment period (73 FR 68646), 
these drugs, biologicals, or radiopharmaceuticals for which we have not 
established a separate APC and therefore, for which payment would be 
packaged rather than separately provided under the OPPS, could be 
considered to not be SCODs. Similarly, drugs and biologicals with per 
day costs of less than $70 in CY 2011 that are packaged and for which a 
separate APC has not been established also would not be SCODs. 
Similarly, drugs and biologicals with per day costs of less than $70 in 
CY 2011 that are packaged and for which a separate APC has not been 
established also would not be SCODs. This reading is consistent with 
our final payment policy whereby we package payment for diagnostic 
radiopharmaceuticals, contrast agents, and nonpass-through implantable 
biologicals and provide payment for these products through payment for 
their associated procedures.
    Comment: Several commenters disagreed with the proposal to 
distinguish between diagnostic and therapeutic radiopharmaceuticals for 
payment purposes under the OPPS. The commenters noted that CMS' 
identification of HCPCS codes A9542 (Indium In-111 ibritumomabituxetan, 
diagnostic, per study dose, up to 5 millicuries) and A9544 (Iodine I-
131 tositumomab, diagnostic, per study dose) as diagnostic 
radiopharmaceuticals was inappropriate because these 
radiopharmaceuticals function as dosimetric radiopharmaceuticals and 
not as diagnostic radiopharmaceuticals. A few commenters explained that 
these radiopharmaceutical products are used as part of a therapeutic 
regimen and, therefore, should be considered therapeutic for OPPS 
payment purposes.
    Response: As discussed above and in the CY 2008 OPPS/ASC final rule 
with comment period (72 FR 66641), the CY 2009 OPPS/ASC final rule with 
comment period (73 FR 68645), and the CY 2010 OPPS/ASC final rule with 
comment period (74 FR 60498), we classified each radiopharmaceutical 
into one of the two groups according to whether its long descriptor 
contained the term ``diagnostic'' or ``therapeutic''. HCPCS codes A9542 
and A9544 both contain the term ``diagnostic'' in their long code 
descriptors. Therefore, according to our established methodology, we 
continue to classify them as diagnostic for the purposes of CY 2011 
OPPS payment. While we understand that these items are provided in 
conjunction with additional supplies, imaging tests, and therapeutic 
radiopharmaceuticals for patients already diagnosed with cancer, we 
continue to believe that the purpose of administering the products 
described by HCPCS codes A0542 and A9544 is diagnostic in nature. As we 
first stated in the CY 2008 OPPS/ASC final rule with comment period (72 
FR 66641), we continue to believe that HCPCS codes A9542 and A9544 are 
diagnostic radiopharmaceuticals. While they are not used to diagnose 
diseases, they are used to determine whether future therapeutic 
services would be beneficial to the patient and to determine how to 
proceed with therapy. While a group of associated services may be 
considered a therapeutic regimen by some commenters, HCPCS codes A9542 
and A9544 are provided in conjunction with a series of nuclear medicine 
imaging scans. Many nuclear medicine studies using diagnostic 
radiopharmaceuticals are provided to patients who already have an 
established diagnosis. We continue to consider HCPCS codes A9542 and 
A9544 to be diagnostic because these items are provided for the purpose 
of a diagnostic imaging procedure and are used to identify the proposed 
dose of the therapeutic agent to be provided at a later time.
    Comment: Some commenters recommended using the ASP methodology to 
make payment for nonpass-through diagnostic radiopharmaceuticals, 
noting that it would be inconsistent for CMS to treat diagnostic 
radiopharmaceuticals as ``drugs'' for pass-through payment purposes, 
provide payment for diagnostic radiopharmaceuticals that have pass-
through status based on the ASP methodology, and, then, after the 
diagnostic radiopharmaceutical's pass-through payment status expires, 
package the costs included in historical hospital claims data, rather 
than use the ASP methodology to pay for the product and treat the drug 
as a supply. A few commenters recommended that CMS pay for diagnostic 
radiopharmaceuticals under the pass-through policy as we currently pay 
for A9582 (Iodine I-123 iobenguane, diagnostic, per study dose, up to 
15 millicuries) and thereby issue an offset amount and no coinsurance 
amount. One commenter suggested that diagnostic radiopharmaceuticals 
could be paid separately as therapeutic radiopharmaceuticals are paid, 
which would allow manufacturers to voluntarily submit ASP data, and 
then default to the mean unit cost when ASP data are unavailable.
    Response: As we stated above, the statutorily required OPPS drug 
packaging threshold has expired, and we continue to believe that 
diagnostic radiopharmaceuticals and contrast agents are always 
ancillary and supportive to an independent service, rather than 
services themselves as the therapeutic modality. We disagree with 
commenters who suggest that nonpass-through diagnostic 
radiopharmaceuticals should be paid under the ASP methodology, that 
nonpass-through diagnostic radiopharmaceuticals be paid as pass-through 
drugs and biologicals, or that nonpass-through diagnostic 
radiopharmaceuticals should be paid similarly to therapeutic 
radiopharmaceuticals. We continue to believe that nonpass-through 
diagnostic radiopharmaceuticals and contrast agents function 
effectively as supplies that enable the provision of an independent 
service. As we noted in the CY 2009 OPPS/ASC final rule with

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comment period (73 FR 68646), and restate above, drugs, biologicals, or 
radiopharmaceuticals for which we have not established a separate APC, 
and which will therefore receive packaged payment under the OPPS, could 
be considered to not be SCODs. We are continuing to provide payment for 
these items in CY 2011 based on a proxy for average acquisition cost. 
We continue to believe that the line-item estimated cost for a 
diagnostic radiopharmaceutical, contrast agent, or nonpass-through 
implantable biologicals in our claims data is a reasonable 
approximation of average acquisition and preparation and handling costs 
for diagnostic radiopharmaceuticals, contrast agents and nonpass-
through implantable biologicals, respectively. Therefore, we do not 
believe that diagnostic radiopharmaceuticals should be paid separately 
under the OPPS. We believe they are appropriately packaged into a 
single aggregate payment for the accompanying service provided.
    Comment: A few commenters recommended that CMS provide separate 
payment for all diagnostic radiopharmaceuticals with a median per day 
cost greater than $200. The commenters believed that this 
recommendation is most consistent with the APC Panel's recommendation 
to CMS at the Panel's September 2007 meeting.
    Response: As we stated in the CY 2010 OPPS/ASC final rule with 
comment period (74 FR 60499), at the September 2007 APC Panel meeting, 
the APC Panel recommended that CMS package radiopharmaceuticals with a 
median per day cost of less than $200 but pay separately for 
radiopharmaceuticals with a median per day cost of $200 or more. In the 
CY 2008 OPPS/ASC final rule with comment period (72 FR 66638), we did 
not accept the APC Panel's recommendation, citing an inability to 
determine an empirical basis for paying separately for 
radiopharmaceuticals with a median per day cost in excess of $200. 
Instead, as proposed, for CY 2008, we finalized the packaging of 
payment for all diagnostic radiopharmaceuticals. Consistent with the CY 
2011 OPPS/ASC proposed rule, for this final rule with comment period, 
we continue to believe that diagnostic radiopharmaceuticals are 
ancillary and supportive to the nuclear medicine procedures in which 
they are used and that their costs should be packaged into the primary 
procedures with which they are associated. We do not believe it would 
be appropriate to set a cost threshold for packaging diagnostic 
radiopharmaceuticals because, regardless of their per day cost, they 
are always supportive of an independent procedure that is the basis for 
administration of the diagnostic radiopharmaceutical.
    After consideration of the public comments we received, we are 
finalizing our CY 2011 proposals, without modification, to continue to 
package payment for all nonpass-through diagnostic 
radiopharmaceuticals, contrast agents, and implantable biologicals that 
are surgically inserted or implanted into the body through a surgical 
incision or a natural orifice, regardless of their per day costs. Given 
the inherent function of contrast agents and diagnostic 
radiopharmaceuticals as ancillary and supportive to the performance of 
an independent procedure and the similar functions of implantable 
biologicals and nonbiological devices as integral to and supportive of 
the separately paid surgical procedures in which either may be used we 
continue to view the packaging of payment for contrast agents, 
diagnostic radiopharmaceuticals, and implantable biologicals as a 
logical expansion of packaging payment for drugs and biologicals. In 
addition, as we initially established in the CY 2008 OPPS/ASC final 
rule with comment period, (72 FR 66768), we will continue to identify 
diagnostic radiopharmaceuticals specifically as those Level II HCPCS 
codes that include the term ``diagnostic'' along with a 
radiopharmaceutical in their long code descriptors, and therapeutic 
radiopharmaceuticals as those Level II HCPCS codes that include the 
term ``therapeutic'' along with a radiopharmaceutical in their long 
code descriptors. Finally, we are finalizing our proposal to package 
payment for HCPCS C9356 and C9359 and to assign status indicator ``N'' 
for CY 2011. In addition, any new biological lacking pass-through 
status that is surgically inserted or implanted through a surgical 
incision or natural orifice would be packaged in CY 2011. For more 
information on how we set CY 2011 payment rates for nuclear medicine 
procedures in which diagnostic radiopharmaceuticals are used and 
echocardiography services provided with and without contrast agents, we 
refer readers to the CY 2010 OPPS/ASC final rule with comment period 
for a detailed discussion of nuclear medicine and echocardiography 
services (74 FR 35269 through 35277).
3. Payment for Drugs and Biologicals Without Pass-Through Status That 
Are Not Packaged
a. Payment for Specified Covered Outpatient Drugs (SCODs) and Other 
Separately Payable and Packaged Drugs and Biologicals
    Section 1833(t)(14) of the Act defines certain separately payable 
radiopharmaceuticals, drugs, and biologicals and mandates specific 
payments for these items. Under section 1833(t)(14)(B)(i) of the Act, a 
``specified covered outpatient drug'' is a covered outpatient drug, as 
defined in section 1927(k)(2) of the Act, for which a separate APC has 
been established and that either is a radiopharmaceutical agent or is a 
drug or biological for which payment was made on a pass-through basis 
on or before December 31, 2002.
    Under section 1833(t)(14)(B)(ii) of the Act, certain drugs and 
biologicals are designated as exceptions and are not included in the 
definition of ``specified covered outpatient drugs,'' known as SCODs. 
These exceptions are--
    <bullet> A drug or biological for which payment is first made on or 
after January 1, 2003, under the transitional pass-through payment 
provision in section 1833(t)(6) of the Act.
    <bullet> A drug or biological for which a temporary HCPCS code has 
not been assigned.
    <bullet> During CYs 2004 and 2005, an orphan drug (as designated by 
the Secretary).
    Section 1833(t)(14)(A)(iii) of the Act requires that payment for 
SCODs in CY 2006 and subsequent years be equal to the average 
acquisition cost for the drug for that year as determined by the 
Secretary, subject to any adjustment for overhead costs and taking into 
account the hospital acquisition cost survey data collected by the 
Government Accountability Office (GAO) in CYs 2004 and 2005. If 
hospital acquisition cost data are not available, the law requires that 
payment be equal to payment rates established under the methodology 
described in section 1842(o), section 1847A, or section 1847B of the 
Act, as calculated and adjusted by the Secretary as necessary. Most 
physician Part B drugs are paid pursuant to ASP+6 percent pursuant to 
section 1842(o) and section 1847A of the Act.
    Section 1833(t)(14)(E) of the Act provides for an adjustment in 
OPPS payment rates for overhead and related expenses, such as pharmacy 
services and handling costs. Section 1833(t)(14)(E)(i) of the Act 
required MedPAC to study pharmacy overhead and to make recommendations 
to the

[[Page 71951]]

Secretary regarding whether, and if so how, a payment adjustment should 
be made to compensate hospitals for them. Section 1833(t)(14)(E)(ii) of 
the Act authorizes the Secretary to adjust the weights for ambulatory 
procedure classifications for SCODs to take into account the findings 
of the MedPAC study.
    In the CY 2006 OPPS proposed rule (70 FR 42728), we discussed the 
June 2005 report by MedPAC regarding pharmacy overhead costs in HOPDs 
and summarized the findings of that study:
    <bullet> Handling costs for drugs, biologicals, and 
radiopharmaceuticals administered in the HOPD are not insignificant;
    <bullet> Little information is available about the magnitude of 
pharmacy overhead costs;
    <bullet> Hospitals set charges for drugs, biologicals, and 
radiopharmaceuticals at levels that reflect their respective handling 
costs; and
    <bullet> Hospitals vary considerably in their likelihood of 
providing services which utilize drugs, biologicals, or 
radiopharmaceuticals with different handling costs.
    As a result of these findings, MedPAC developed seven drug 
categories for pharmacy and nuclear medicine handling costs based on 
the estimated level of hospital resources used to prepare the products 
(70 FR 42729). Associated with these categories were two 
recommendations for accurate payment of pharmacy overhead under the 
OPPS.
    1. CMS should establish separate, budget neutral payments to cover 
the costs hospitals incur for handling separately payable drugs, 
biologicals, and radiopharmaceuticals.
    2. CMS should define a set of handling fee APCs that group drugs, 
biologicals, and radiopharmaceuticals based on attributes of the 
products that affect handling costs; CMS should instruct hospitals to 
submit charges for these APCs and base payment rates for the handling 
fee APCs on submitted charges reduced to costs.
    In response to the MedPAC findings, in the CY 2006 OPPS proposed 
rule (70 FR 42729), we discussed our belief that, because of the varied 
handling resources required to prepare different forms of drugs, it 
would be impossible to exclusively and appropriately assign a drug to a 
certain overhead category that would apply to all hospital outpatient 
uses of the drug. Therefore, our CY 2006 OPPS proposal included a 
proposal to establish three distinct Level II HCPCS C-codes and three 
corresponding APCs for drug handling categories to differentiate 
overhead costs for drugs and biologicals (70 FR 42730). We also 
proposed: (1) To combine several overhead categories recommended by 
MedPAC; (2) to establish three drug handling categories, as we believed 
that larger groups would minimize the number of drugs that may fit into 
more than one category and would lessen any undesirable payment policy 
incentives to utilize particular forms of drugs or specific preparation 
methods; (3) to collect hospital charges for these HCPCS C-codes for 2 
years; and (4) to ultimately base payment for the corresponding drug 
handling APCs on CY 2006 claims data available for the CY 2008 OPPS.
    In the CY 2006 OPPS final rule with comment period (70 FR 68659 
through 68665), we discussed the public comments we received on our 
proposal regarding pharmacy overhead. The overwhelming majority of 
commenters did not support our proposal regarding pharmacy overhead and 
urged us not to finalize this policy, as it would be administratively 
burdensome for hospitals to establish charges for HCPCS codes for 
pharmacy overhead and to report them. Therefore, we did not finalize 
this proposal for CY 2006. Instead, we established payment for 
separately payable drugs and biologicals at ASP+6 percent, which we 
calculated by comparing the estimated aggregate cost of separately 
payable drugs and biologicals in our claims data to the estimated 
aggregate ASP dollars for separately payable drugs and biologicals, 
using the ASP as a proxy for average acquisition cost (70 FR 68642). 
Hereinafter, we refer to this methodology as our standard drug payment 
methodology. We concluded that payment for drugs and biologicals and 
pharmacy overhead at a combined ASP+6 percent rate would serve as the 
best proxy for the combined acquisition and overhead costs of each of 
these products.
    In the CY 2007 OPPS/ASC final rule with comment period (71 FR 
68091), we finalized our proposed policy to provide a single payment of 
ASP+6 percent for the hospital's acquisition cost for the drug or 
biological and all associated pharmacy overhead and handling costs. The 
ASP+6 percent rate that we finalized was higher than the equivalent 
average ASP-based amount calculated from claims of ASP+4 percent 
according to our standard drug payment methodology, but we adopted 
payment at ASP+6 percent for stability while we continued to examine 
the issue of the costs of pharmacy overhead in the HOPD.
    In the CY 2008 OPPS/ASC proposed rule (72 FR 42735), in response to 
ongoing discussions with interested parties, we proposed to continue 
our methodology of providing a combined payment rate for drug and 
biological acquisition and pharmacy overhead costs. We also proposed to 
instruct hospitals to remove the pharmacy overhead charge for both 
packaged and separately payable drugs and biologicals from the charge 
for the drug or biological and report the pharmacy overhead charge on 
an uncoded revenue code line on the claim. We believed that this would 
provide us with an avenue for collecting pharmacy handling cost data 
specific to drugs in order to package the overhead costs of these items 
into the associated procedures, most likely drug administration 
services. Similar to the public response to our CY 2006 pharmacy 
overhead proposal, the overwhelming majority of commenters did not 
support our CY 2008 proposal and urged us to not finalize this policy 
(72 FR 66761). At its September 2007 meeting, the APC Panel recommended 
that hospitals not be required to separately report charges for 
pharmacy overhead and handling and that payment for overhead be 
included as part of drug payment. The APC Panel also recommended that 
CMS continue to evaluate alternative methods to standardize the capture 
of pharmacy overhead costs in a manner that is simple to implement at 
the organizational level (72 FR 66761). Because of concerns expressed 
by the APC Panel and public commenters, we did not finalize the 
proposal to instruct hospitals to separately report pharmacy overhead 
charges for CY 2008. Instead, in the CY 2008 OPPS/ASC final rule with 
comment period (72 FR 66763), we finalized a policy of providing 
payment for separately payable drugs and biologicals and their pharmacy 
overhead at ASP+5 percent as a transition from their CY 2007 payment of 
ASP+6 percent to payment based on the equivalent average ASP-based 
payment rate calculated from hospital claims according to our standard 
drug payment methodology, which was ASP+3 percent for the CY 2008 OPPS/
ASC final rule with comment period. Hospitals continued to include 
charges for pharmacy overhead costs in the line-item charges for the 
associated drugs reported on claims.
    For CY 2009, we proposed to pay separately payable drugs and 
biologicals at ASP+4 percent, including both SCODs and other drugs 
without CY 2009 OPPS pass-through status, based on our standard drug 
payment methodology. We also proposed to split the ``Drugs Charged to 
Patients'' cost center into two cost centers: One for

[[Page 71952]]

drugs with high pharmacy overhead costs and one for drugs with low 
pharmacy overhead costs (73 FR 41492). We noted that we expected that 
CCRs from the proposed new cost centers would be available in 2 to 3 
years to refine OPPS drug cost estimates by accounting for differential 
hospital markup practices for drugs with high and low overhead costs. 
After consideration of the public comments received and the APC Panel 
recommendations, we finalized a CY 2009 policy (73 FR 68659) to provide 
payment for separately payable nonpass-through drugs and biologicals 
based on costs calculated from hospital claims at a 1-year transitional 
rate of ASP+4 percent, in the context of an equivalent average ASP-
based payment rate of ASP+2 percent calculated according to our 
standard drug payment methodology from the final rule claims data and 
cost report data. We did not finalize our proposal to split the single 
standard ``Drugs Charged to Patients'' cost center into two cost 
centers largely due to concerns raised to us by hospitals about the 
associated administrative burden. Instead, we indicated in the CY 2009 
OPPS/ASC final rule with comment period (73 FR 68659) that we would 
continue to explore other potential approaches to improve our drug cost 
estimation methodology, thereby increasing payment accuracy for 
separately payable drugs and biologicals.
    In response to the CMS proposals for the CY 2008 and CY 2009 OPPS, 
a group of pharmacy stakeholders (hereinafter referred to as the 
pharmacy stakeholders), including some cancer hospitals, some 
pharmaceutical manufacturers, and some hospital and professional 
associations, commented that CMS should pay an acquisition cost of 
ASP+6 percent for separately payable drugs, should substitute ASP+6 
percent for the packaged cost of all packaged drugs and biologicals on 
procedure claims, and should redistribute the difference between the 
aggregate estimated packaged drug cost in claims and payment for all 
drugs, including packaged drugs at ASP+6 percent, as separate pharmacy 
overhead payments for separately payable drugs. They indicated that 
this approach would preserve the aggregate drug cost observed in the 
claims data, while significantly increasing payment accuracy for 
individual drugs and procedures by redistributing drug cost from 
packaged drugs. Their suggested approach would provide a separate 
overhead payment for each separately payable drug or biological at one 
of three different levels, depending on the pharmacy stakeholders' 
assessment of the complexity of pharmacy handling associated with each 
specific drug or biological (73 FR 68651 through 68652). Each 
separately payable drug or biological HCPCS code would be assigned to 
one of the three overhead categories, and the separate pharmacy 
overhead payment applicable to the category would be made when each of 
the separately payable drugs or biologicals was paid.
    In the CY 2010 OPPS/ASC proposed rule (74 FR 35332), we proposed to 
redistribute between one-third and one-half of the estimated overhead 
cost associated with coded packaged drugs and biologicals with an ASP, 
which resulted in our proposal to pay for the acquisition and pharmacy 
overhead costs of separately payable drugs and biologicals that did not 
have pass-through payment status at ASP+4 percent. We calculated 
estimated overhead cost for coded packaged drugs and biologicals by 
determining the difference between the aggregate claims cost for coded 
packaged drugs and biologicals with an ASP and the ASP dollars (ASP 
multiplied by the drug's or biological's units in the claims data) for 
those same coded drugs and biologicals; this difference was our 
estimated overhead cost for coded packaged drugs and biologicals. In 
our rationale described in the CY 2010 OPPS/ASC proposed rule (74 FR 
35326 through 35333), we stated that we believed that approximately 
$150 million of the estimated $395 million total in pharmacy overhead 
cost included in our claims data for coded packaged drugs and 
biologicals with reported ASP data should be attributed to separately 
payable drugs and biologicals and that the $150 million serves as the 
adjustment for the pharmacy overhead costs of separately payable drugs 
and biologicals. As a result, we also proposed to reduce the costs of 
coded drugs and biologicals that are packaged into payment for 
procedural APCs to offset the $150 million adjustment to payment for 
separately payable drugs and biologicals. In addition, we proposed that 
any redistribution of pharmacy overhead cost that may arise from CY 
2010 final rule data would occur only from coded packaged drugs and 
biologicals with an ASP to separately payable drugs and biologicals, 
thereby maintaining the estimated total cost of drugs and biologicals.
    Using our CY 2010 proposed rule data, and applying our longstanding 
methodology for calculating the total cost of separately payable drugs 
and biologicals in our claims compared to the ASP dollars for the same 
drugs and biologicals, without applying the proposed overhead cost 
redistribution, we determined that the estimated aggregate cost of 
separately payable drugs and biologicals (status indicators ``K'' and 
``G''), including acquisition and pharmacy overhead costs, was 
equivalent to ASP-2 percent. Therefore, under the standard methodology 
for establishing payment for separately payable drugs and biologicals, 
we would have paid for those drugs and biologicals at ASP-2 percent for 
CY 2010, their equivalent average ASP-based payment rate. We also 
determined that the estimated aggregate cost of coded packaged drugs 
and biologicals with an ASP (status indicator ``N''), including 
acquisition and pharmacy overhead costs, was equivalent to ASP+247 
percent.
    While we had no way of assessing whether this current distribution 
of overhead cost to coded packaged drugs and biologicals with an ASP 
was appropriate, we acknowledged that the established method of 
converting billed charges to costs had the potential to ``compress'' 
the calculated costs to some degree. Further, we recognized that the 
attribution of pharmacy overhead costs to packaged or separately 
payable drugs and biologicals through our standard drug payment 
methodology of a combined payment for acquisition and pharmacy overhead 
costs depends, in part, on the treatment of all drugs and biologicals 
each year under our annual drug packaging threshold. Changes to the 
packaging threshold may result in changes to payment for the overhead 
cost of drugs and biologicals that do not reflect actual changes in 
hospital pharmacy overhead cost for those products. For these reasons, 
we stated that we believed some portion, but not all, of the total 
overhead cost that is associated with coded packaged drugs and 
biologicals (the difference between aggregate cost for those drugs on 
the claims and ASP for the same drugs), based on our standard drug 
payment methodology, should, at least for CY 2010, be attributed to 
separately payable drugs and biologicals.
    We acknowledged that the observed combined payment for acquisition 
and pharmacy overhead costs of ASP-2 percent for separately payable 
drugs and biologicals may be too low and ASP+247 percent for coded 
packaged drugs and biologicals with reported ASP data in the CY 2010 
claims data may be too high (74 FR 35328). We stated that a middle 
ground of approximately one-third to one-half of the total pharmacy 
overhead cost currently associated with

[[Page 71953]]

coded packaged drugs and biologicals in the CY 2008 claims data would 
represent the most accurate redistribution of pharmacy overhead cost. 
We included a discussion of indirect overhead costs, such as 
administrative and general costs, capital costs, staff benefits, and 
other facility costs that do not vary across drugs, and direct overhead 
costs, including staff, supplies, and equipment that are directly 
attributable only to the storage, handling, preparation, and 
distribution of drugs and biologicals and which do vary, sometimes 
considerably, depending upon the drug being furnished. We presented 
analyses that modeled the redistribution of overhead costs in the 
packaged drugs to all drugs and biologicals based on overhead relative 
weights derived from industry and from MedPAC's recommended overhead 
relative weights and by assigning each drug, both packaged and 
separately paid, to a category of overhead complexity. Analyses relying 
on both sets of relative weights suggested that indirect costs are a 
sizable component of the overhead costs associated with all drugs and 
biologicals (74 FR 60505 to 60508).
    Within the one-third to one-half parameters, we proposed that 
reallocating $150 million in drug and biological cost observed in the 
claims data from coded packaged drugs and biologicals with an ASP to 
separately payable drugs and biologicals for CY 2010 would more 
appropriately distribute pharmacy overhead cost among packaged and 
separately payable drugs and biologicals. Based on this redistribution, 
we proposed a CY 2010 payment rate for separately payable drugs and 
biologicals of ASP+4 percent. Redistributing $150 million represented a 
reduction in cost of coded packaged drug and biologicals with reported 
ASP data in the CY 2010 proposed rule claims data of 27 percent.
    We also proposed that any redistribution of pharmacy overhead cost 
that may arise from CY 2010 final rule data would occur only from some 
drugs and biologicals to other drugs and biologicals, thereby 
maintaining the estimated total cost of drugs and biologicals in our 
claims data (no redistribution of cost would occur from other services 
to drugs and biologicals or vice versa). We further proposed that the 
claims data for 340B hospitals be included in the calculation of 
payment for drugs and biologicals under the CY 2010 OPPS and that 
hospitals which participate in the 340B program would be paid the same 
amounts for separately payable drugs and biologicals as hospitals that 
do not participate in the 340B program. Finally, we proposed that, in 
accordance with our standard drug payment methodology, the estimated 
payments for separately payable drugs and biologicals would be taken 
into account in the calculation of the weight scaler that would apply 
to the relative weights for all procedural services (but would not 
apply to separately payable drugs and biologicals) paid under the OPPS, 
as required by section 1833(t)(14)(H) of the Act.
    In the CY 2010 OPPS final rule with comment period, we adopted a 
transitional payment rate of ASP+4 percent based on a pharmacy overhead 
adjustment methodology for CY 2010 that redistributed $200 million from 
packaged drug cost to separately payable drug cost. This $200 million 
included the proposed $150 million redistribution from the pharmacy 
overhead cost of coded packaged drugs and biologicals for which an ASP 
is reported and an additional $50 million dollars from the total 
uncoded drug and biological cost to separately payable drugs and 
biologicals as a conservative estimate of the pharmacy overhead cost of 
uncoded packaged drugs and biologicals that should be appropriately 
associated with the cost of separately payable drugs and biologicals 
(74 FR 60517). We noted that our final CY 2010 payment policy for 
separately payable drugs and biologicals at ASP+4 percent fell within 
the range of ASP-3 percent, that would have resulted from no pharmacy 
overhead cost redistribution from packaged to separately payable drugs 
and biologicals, to ASP+7 percent, that would have resulted from 
redistribution of pharmacy overhead cost based on expansive assumptions 
about the nature of uncoded packaged drug and biological cost. We 
acknowledged that, to some unknown extent, there are pharmacy overhead 
costs being attributed to the items and services reported under the 
pharmacy revenue code without HCPCS codes that are likely pharmacy 
overhead for separately payable drugs. We redistributed $50 million in 
uncoded packaged drug cost and stated that we could not know the amount 
of overhead associated with these drugs without making significant 
further assumptions about the amount of pharmacy overhead cost 
associated with the drugs and biologicals captured by these uncoded 
packaged drug costs. We finalized a policy of redistributing pharmacy 
overhead cost from some drugs and biologicals to other drugs and 
biologicals, thereby maintaining the estimated total cost of drugs and 
biologicals in our claims data (no redistribution of cost would occur 
from other services to drugs and biologicals or vice versa).
b. Payment Policy
    Section 1833(t)(14)(A)(iii) of the Act, as described above, 
continues to be applicable to determining payments for SCODs for CY 
2011. This provision requires that payment for SCODs be equal to the 
average acquisition cost for the drug for that year as determined by 
the Secretary, subject to any adjustment for overhead costs and taking 
into account the hospital acquisition cost survey data collected by the 
GAO in CYs 2004 and 2005. If hospital acquisition cost data are not 
available, section 1833(t)(14)(A)(iii)(II) of the Act requires that 
payment be equal to payment rates established under the methodology 
described in section 1842(o) of the Act, section 1847A of the Act 
(ASP+6 percent as paid for physician Part B drugs), or section 1847B of 
the Act (CAP), as the case may be, as calculated and adjusted by the 
Secretary as necessary. In accordance with sections 1842(o) and 1847A 
of the Act, payment for most Medicare Part B drugs furnished on or 
after January 1, 2005, are paid based on the ASP methodology. Medicare 
Part B drugs generally fall into three categories: physician drugs 
(drugs furnished incident to a physician's service), DME drugs (drugs 
furnished under the durable medical equipment benefit), and drugs 
specifically covered by statute (certain oral anti-cancer and 
immunosuppressive drugs). In addition, section 1833(t)(14)(E)(ii) of 
the Act authorizes, but does not require, the Secretary to adjust APC 
weights to take into account the 2005 MedPAC report relating to 
overhead and related expenses, such as pharmacy services and handling 
costs. As discussed in V.B.3.a. of this final rule with comment period, 
since CY 2006, we have used ASP data and costs estimated from charges 
on hospital claims data as a proxy for both the average hospital 
acquisition cost that the statute requires for payment of SCODs and the 
associated pharmacy overhead cost to establish a combined payment rate 
for acquisition cost and pharmacy overhead. Until CY 2010, we applied 
this methodology to payment for all separately payable drugs and 
biologicals without pass-through status, including both SCODs and other 
drugs and biologicals that do not meet the statutory definition of 
SCODs.
    However, for the CY 2010 OPPS, we revised the standard methodology 
to include an adjustment for pharmacy

[[Page 71954]]

overhead. We acknowledged that the established method of converting 
billed charges to costs had the potential to ``compress'' the 
calculated costs to some degree. We recognized that the attribution of 
pharmacy overhead costs to packaged or separately payable drugs and 
biologicals through our standard drug payment methodology of a combined 
payment for acquisition and pharmacy overhead costs depends, in part, 
on the treatment of all drugs and biologicals each year under our 
annual drug packaging threshold. To some unknown extent, we believe 
that some pharmacy overhead costs are being attributed to packaged 
drugs and biologicals that are likely pharmacy overhead costs for 
separately payable drugs.
    For the CY 2011 OPPS/ASC proposed rule, using our standard 
methodology for determining the total cost of separately payable drugs 
in our CY 2009 claims data and comparing these costs to the ASP dollars 
(April 2010 ASP quarterly payment rates multiplied by units for the 
separately payable drugs and biologicals in the claims data) for the 
same drugs, we determined that the total payment for separately payable 
drugs (status indicators ``K'' and ``G''), including acquisition and 
pharmacy overhead costs, was ASP+0 percent, which also would be the 
ASP-based payment rate under the standard methodology that we 
established in CY 2006 (75 FR 46275). Additionally, we determined that 
the total aggregate cost for packaged drugs with a HCPCS code for which 
manufacturers report ASP data (status indicator ``N''), including 
acquisition and pharmacy overhead costs, was equivalent to ASP+283 
percent. Finally, we determined that the total cost for both packaged 
drugs with a HCPCS code and separately payable drugs (status indicators 
``N,'' ``K,'' and ``G'') for which we also have ASP data, including 
acquisition and pharmacy overhead costs, was ASP+14 percent. Table 25 
in the proposed rule displayed our findings with regard to the 
percentage of ASP in comparison to the cost for packaged coded drugs 
and for separately payable coded drugs before application of the 
overhead adjustment methodology.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46276), we stated that 
we believed that the combined payment for average acquisition and 
pharmacy overhead costs under our standard methodology may understate 
the cost of separately payable drugs and biologicals and related 
pharmacy overhead for those drugs and biologicals. Specifically, we 
stated that we believed payment at ASP+0 percent for such costs may not 
be sufficient. We also acknowledged that ASP +283 percent may overstate 
the combined acquisition and pharmacy overhead cost of packaged drugs 
and biologicals. In the CY 2011 OPPS/ASC proposed rule (75 FR 46276 
through 46279), for CY 2011, we proposed to continue our CY 2010 
pharmacy overhead adjustment methodology (74 FR 60500 through 60512). 
We proposed to redistribute $150 million from the pharmacy overhead 
cost of coded packaged drugs and biologicals with reported ASP data and 
to redistribute $50 million from the cost of uncoded packaged drugs and 
biologicals without an ASP, for a total redistribution of $200 million 
in drug cost from the cost of coded and uncoded packaged drugs to the 
cost of separately payable drugs, as we did for the CY 2010 final rule.
    We estimated the overhead cost for coded packaged drugs to be $438 
million ($593 million in total cost for coded packaged drugs and 
biologicals with a reported ASP less $155 million in total ASP dollars 
for coded packaged drugs and biologicals with a reported ASP). Similar 
to the CY 2010 proposal, we proposed for CY 2011 that any 
redistribution of pharmacy overhead cost would occur only among drugs 
and biologicals in our claims data, that no redistribution of cost 
would occur from other services to drugs and biologicals or vice versa. 
We continued to believe that redistributing $200 million from packaged 
to separately payable drugs and biologicals was an appropriate 
redistribution of pharmacy overhead costs to address any charge 
compression in the standard methodology. This would have resulted in a 
proposed CY 2011 payment rate for separately payable drugs and 
biologicals of ASP+6 percent. We emphasized that we proposed a pharmacy 
overhead adjustment methodology based on a redistribution of overhead 
cost and that our proposal for payment at ASP+6 percent was a 
coincidental outcome of the proposed methodology to redistribute $200 
million from packaged drugs to separately payable drugs. We did not 
propose payment of ASP+6 percent for separately payable drugs as an 
alternative to payment of average acquisition costs based on a survey 
under section 1833(t)(14)(A)(iii)(I) of the Act. We indicated that we 
continue to believe that the ASP information collected under section 
1847A(b)(1)(A) of the Act and our hospital claims data is a suitable 
proxy for the acquisition cost data. For a full explanation of our 
rationale for using ASP data and our hospital claims data as a suitable 
proxy for acquisition cost data, we refer readers to the CY 2010 OPPS/
ASC final rule with comment period (74 FR 60515). We further noted 
that, in past years, the proposed ASP+X amount decreased by at least 1 
percentage point when we updated the ASP data, claims data, and cost 
report data between the proposed rule and the final rule with comment 
period, from ASP+5 to ASP+4 for example. Therefore, we stated that it 
was possible that the proposed methodology would result in an ASP+X 
amount that is different from ASP+6.
    As indicated in Table 25 of the proposed rule, if we had proposed 
to establish payment for separately payable drugs and biologicals under 
the standard methodology established in CY 2006 without applying a 
pharmacy overhead adjustment, we would have proposed to pay for 
separately payable drugs and biologicals at ASP+0 percent. However, 
because we were concerned about underpaying separately payable drugs 
and biologicals, we stated our belief that a pharmacy overhead 
adjustment using a redistribution methodology for determining the 
amount of payment for drugs and biologicals as we did for CY 2010 was 
appropriate. We believed the observed ASP+0 percent reflected some 
amount of charge compression and variability attributable to choice of 
a packaging threshold.
    We indicated in the proposed rule that we continue to believe that 
the methodology to redistribute $200 million in drug overhead cost from 
packaged coded and uncoded drugs to separately payable drugs, while 
keeping the total cost of drugs in the claims data constant, continues 
to be appropriate for the reasons set forth in the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60501 through 60517). Therefore, 
we proposed to redistribute $200 million in drug overhead costs from 
coded and uncoded packaged drugs to separately payable drugs while 
keeping the total cost of drugs in the claims data constant. Table 26 
of the proposed rule presented the ASP+X amount after redistribution of 
$150 million from the estimated overhead of $438 million for coded 
packaged drugs with reported ASP data to separately payable drugs and 
biologicals and $50 million from uncoded packaged drug cost for which 
an estimate of overhead cannot be calculated, resulting in a total 
redistribution of $200 million in cost from packaged drugs and 
biologicals to separately payable drugs and biologicals.
    We generally received positive comments on our CY 2010 proposal to 
redistribute $150 million of drug cost

[[Page 71955]]

from packaged drugs and biologicals to separately payable drugs and 
biologicals to establish their final combined payment level. The 
general comment we received on our pharmacy overhead adjustment 
methodology was that the amount of drug cost that should be 
redistributed should be greater, a sentiment reiterated at the February 
2010 APC Panel meeting and discussed in greater detail below. 
Commenters and presenters to the APC Panel specifically argued that our 
CY 2010 proposal had not fully acknowledged the potential overhead cost 
available for redistribution in the uncoded packaged drugs.
    We explain below our rationale for why we did not propose to 
redistribute more cost from uncoded packaged drugs. Conversations with 
stakeholders and hospitals over the past year suggest that hospitals do 
not always report HCPCS codes for drugs for a variety of reasons, 
including an internal practice not to code for packaged drugs, building 
the cost of the drugs into the associated procedure charge, lack of an 
HCPCS code for some drugs and biologicals, and purchased vendor billing 
software functionality that removes codes. A key premise of our 
pharmacy overhead adjustment redistribution methodology was our 
assessment of the amount of drug cost in the claims data above 
aggregate ASP available as ``overhead'' for redistribution. Knowing the 
specific HCPCS codes for packaged drugs and their associated ASP allows 
us to assess the differential between aggregate ASP and claim cost for 
packaged drugs and to assess the intensity of pharmacy overhead 
associated with these drugs. The inability to know which drugs are 
captured by uncoded drug charges on a claim is challenging because we 
cannot know what is being charged or what the overhead complexity might 
be. Further, we understand that there is wide variation in how 
hospitals set charges for items and services in their chargemasters, 
sometimes charging separately for overhead (for example, paper cups, 
gloves, transportation, staff consultations) and sometimes including 
charges for those supplies in the charge for drugs. Therefore, we 
cannot be certain that the amount of uncoded pharmacy overhead cost is 
as high as the public has suggested or that hospitals mark up these 
uncoded drugs and biologicals in the same way as packaged drugs and 
biologicals with HCPCS codes.
    In addition, at its February 2010 meeting, the APC Panel 
recommended that CMS reallocate a larger portion of the pharmacy 
overhead costs from packaged drugs to separately payable drugs for CY 
2011. We did not accept the APC Panel's recommendation to redistribute 
a larger portion of the pharmacy overhead costs from packaged drugs to 
separately payable drugs because we did not find the analysis provided 
by the presenters at the February 2010 APC Panel meeting to be 
sufficient to determine that it is appropriate to propose to 
redistribute more payment from uncoded packaged drugs and biologicals 
to separately paid drugs and biologicals. Although presenters at the 
APC Panel meeting acknowledged that CMS could not know the ASP for 
these uncoded drug costs, they provided analyses examining the 
proportion of estimated coded packaged drug cost relative to estimated 
uncoded packaged drug cost out of all packaged drug cost (both coded 
and uncoded) and concluded that uncoded and coded packaged drugs are 
probably the same drugs because hospitals tend to have roughly the same 
amount of estimated packaged drug cost in their claims data but wide 
variation on the proportion of coded packaged drugs. They also 
presented analyses stating that the relationship between pharmacy 
overhead and handling costs and the cost of drugs in the cost report 
data can be interpreted as providing a relationship between cost and 
overhead comparable to the ASP+X calculated for all drug cost in the 
claims data, if an aggregate ASP amount is assumed to be the same for 
uncoded drugs and biologicals as it is for coded packaged drugs. The 
presenters concluded that the uncoded packaged drug and biological cost 
accounts for exactly the same drugs and biologicals as those in the 
coded packaged drug and biological cost and that CMS could assume the 
same proportional amount of overhead cost that appears in the uncoded 
packaged drug and biological cost as observed in the coded packaged 
drug cost. They asked that CMS assume that uncoded packaged drugs and 
biologicals resemble coded packaged drugs and biologicals and treat 
them comparably for purposes of estimating ``overhead.'' We reviewed 
the presenters' analyses, but we believe the information they provided 
is insufficient in order to enable us to isolate the portion of the 
uncoded packaged drug and biological cost that is pharmacy overhead 
cost. In order to isolate the portion of uncoded packaged drug and 
biological cost that is pharmacy overhead cost, we believe that we 
would need more drug-specific information reported to us by hospitals, 
either through more reporting of packaged drugs on claims or through 
more granular cost centers on the cost report. We noted that we 
investigated uncoded drugs further. We evaluated the services, by 
status indicator, with which uncoded packaged drug cost appears in the 
claims data in an effort to assess how much uncoded drugs resemble 
coded packaged drugs. We isolated this analysis to single and pseudo 
single bills. We found that most uncoded packaged drug costs appear 
with surgical services (status indicator ``T,'') and that most coded 
packaged drug costs appear with medical services, (status indicators of 
``S'' and ``X''). In light of this information, we were not confident 
that the drugs captured by uncoded packaged drug cost were the same 
drugs captured by coded packaged drug cost. Therefore, we did not 
believe we could assume that they are the same drugs, with comparable 
overhead and handling costs. Without being able to calculate an ASP for 
these drugs and without being able to gauge the magnitude of the 
overhead complexity associated with these drugs, we did not believe we 
should assume that the same amount of proportional overhead would be 
available for redistribution for the CY 2011 OPPS/ASC proposed rule. We 
were not convinced that the same proportionate amount of overhead cost 
should be redistributed from the packaged uncoded drugs as the amount 
of overhead cost that is appropriate to redistribute for packaged coded 
drugs. In addition, we stated in the proposed rule that we remain 
committed to using hospital claims data reported to us by hospitals to 
set the OPPS payment rates because it provides more specificity about 
the provided drugs and biologicals and would allow us to assess an 
overhead amount for those drugs and biologicals. Therefore, we proposed 
to redistribute a conservative estimate, $50 million, in cost from 
uncoded packaged drugs to separately payable drugs and biologicals.
    Based on the reasons set forth above, and consistent with our 
rationale outlined in the CY 2010 OPPS/ASC final rule with comment 
period (74 FR 60511 through 60512), we cannot be certain that we know 
what portion of the uncoded drugs and biologicals cost is acquisition 
cost versus pharmacy overhead costs, and we have no compelling reason 
to redistribute a greater amount of drug cost. Therefore, our proposal 
to redistribute $200 million in drug cost from packaged drugs to 
separately payable drugs, while maintaining the total cost of drugs in 
our claims data, consisted of redistributing $150 million in 
``overhead'' cost from packaged coded drugs and biologicals with 
reported ASP

[[Page 71956]]

data to separately payable drugs and biologicals and redistributing $50 
million in drug cost from uncoded packaged drugs and biologicals to 
separately payable drugs and biologicals as a conservative estimate of 
potential overhead cost appearing in uncoded packaged drugs that should 
have been associated with separately payable drugs and biologicals.
    We have indicated that the basis for our CY 2011 proposal to 
redistribute $150 million dollars from packaged coded drugs and 
biologicals to separately payable drugs and biologicals as a pharmacy 
overhead adjustment was the same as our CY 2010 final policy. The CY 
2010 final policy was based on our assessment that between one-third 
and one-half of the overhead cost in coded packaged drugs could be 
attributable to charge compression due to our cost estimation 
methodology and our choice of a packaging threshold. We continue to 
believe that a precise amount of drug cost attributable to charge 
compression cannot be known, but that $150 million is an appropriate 
adjustment. We stated in the CY 2011 OPS/ASC proposed rule that the CY 
2011 proposal to redistribute $150 million fell within the approximate 
one-third to one-half range established in CY 2010 OPPS/ASC final rule 
with updated CY 2009 claim and cost report data, and that we 
anticipated that the $150 million would continue to roughly approximate 
one-third to one-half or thereabouts of overhead cost in the coded 
packaged drugs with updated ASP data, and claim and cost report data 
for the final rule. In order to redistribute the $150 million in 
pharmacy overhead from packaged costs of drugs and biologicals for 
which a HCPCS code was reported, we reduced the costs attributable to 
these items and services by multiplying the costs derived from the 
revenue center charges for packaged HCPCs codes by 0.75 (a 25-percent 
reduction).
    To redistribute the $50 million in total cost from packaged costs 
of drugs and biologicals for which no HCPCS code was reported, we 
reduced the costs attributable to these items and services by 
multiplying the costs derived from revenue center charges for pharmacy 
by 0.92 (an 8-percent reduction). We noted in the CY 2011 OPPS/ASC 
proposed rule (75 FR 46279) that the $50 million in drug overhead cost 
that we proposed to redistribute from packaged uncoded drugs and 
biologicals to separately payable drugs and biologicals was 8 percent, 
comparable to the amount in the CY 2010 OPPS/ASC final rule with 
comment period. We noted that $50 million as a percent of uncoded drug 
cost may be close to the 8 percent range, or thereabouts, of uncoded 
drug and biological cost in the final rule with updated claim and cost 
data. In addition, although we arrived at a proposed payment rate of 
ASP+6 percent, we emphasized that the ASP+6 percent amount may change 
when ASP+X is recalculated using updated ASP data and claims and cost 
report data for the CY 2011 OPPS/ASC final rule with comment period.
    We also note that although it is CMS' longstanding policy under the 
OPPS to refrain from instructing hospitals on the appropriate revenue 
code to use to charge for specific services, we continue to encourage 
hospitals to bill all drugs and biologicals with HCPCS codes, 
regardless of whether they are separately payable or packaged using 
appropriate revenue codes. We noted that we make packaging 
determinations for drugs annually based on cost information reported 
under HCPCS codes, and the OPPS ratesetting is best served when 
hospitals report charges for all items and services with HCPCS codes 
when they are available, whether or not Medicare makes separate payment 
for the items and services.
    The APC Panel also recommended during its February 2010 public 
meeting that CMS evaluate the impact of changes in its drug payment 
policy on hospitals (categorized by type and size) of such a 
reallocation and present this analysis to the APC Panel at its next 
meeting. In the proposed rule, we indicated that we accepted this 
recommendation and would present this analysis to the APC Panel at its 
next meeting. We presented the analysis at the August 2010 APC Panel 
meeting.
    The APC Panel also recommended at its February 2010 public meeting 
that CMS continue to evaluate the impact of CMS' drugs and biologicals 
overhead payment policy on hospitals. We accepted this recommendation 
in the proposed rule. We note that our regulatory impact analysis 
presented in section XXIII. of the proposed rule and this final rule 
with comment period include some of the analysis requested in these 
last two recommendations.
    In conclusion, we proposed for CY 2011 to continue our CY 2010 
redistribution methodology (74 FR 60500 through 60512). We proposed to 
redistribute $150 million from the pharmacy overhead cost of coded 
packaged drugs and biologicals with an ASP and to redistribute $50 
million from the cost of uncoded packaged drugs and biologicals, for a 
total of $200 million from cost in coded and uncoded packaged drugs to 
separately payable drugs. We proposed to redistribute pharmacy overhead 
cost among drugs and biologicals, thereby maintaining the estimated 
total cost of drugs and biologicals in our claims data (no 
redistribution of cost would occur from other services to drugs and 
biologicals or vice versa). The proposed methodology, when applied 
using April 2010 ASPs, data for claims for services furnished during CY 
2009 and processed through the common working file before January 1, 
2010, and the most current submitted cost reports as of January 1, 
2010, resulted in ASP+6 percent. We further proposed to continue to 
include the claims data for 340B hospitals in the calculation of 
payment for drugs and biologicals under the CY 2011 OPPS because 
excluding data from hospitals that participate in the 340B program from 
our ASP+X calculation, but paying those hospitals at that derived 
payment amount, would effectively redistribute payment to drugs or 
biologicals from payment for other services under the OPPS, and we do 
not believe this redistribution would be appropriate (74 FR 35332). In 
addition, we proposed that hospitals that participate in the 340B 
program continue to be paid the same amounts for separately payable 
drugs and biologicals as hospitals that do not participate in the 340B 
program for CY 2011 because commenters have generally opposed 
differential payment for hospitals based on their 340B participation 
status. In addition, we proposed to include claims from 340B hospitals 
in our assessment of average acquisition cost under section 
1833(t)(14)(A)(iii) of the Act. We proposed that the estimated payments 
for separately payable drugs and biologicals be taken into account in 
the calculation of the weight scaler that would apply to the relative 
weights for all procedural services (but would not apply to separately 
payable drugs and biologicals) paid under the OPPS, as required by 
section 1833(t)(14)(H) of the Act.
    Comment: Most commenters supported ASP+6 percent as the appropriate 
amount of payment to be made for separately paid drugs for CY 2011. 
Many of those commenters recommended that payment for separately 
payable drugs and biologicals be made at least at ASP+6 percent. A few 
commenters expressed concern that CMS' established methodology is 
arbitrary in nature, in part because CMS does not truly know the amount 
of overhead to move for the proposed overhead adjustment. A few 
commenters generally agreed with CMS' proposal to redistribute pharmacy

[[Page 71957]]

overhead cost from packaged drugs and biologicals to separately payable 
drugs and biologicals. However, several commenters expressed concern 
that, under this methodology, the projected CY 2011 ASP+X amount of 
ASP+6 percent may decline to ASP+5 percent or ASP+4 percent in the 
final rule with comment period. The commenters reasserted their belief 
that payment at less than ASP+6 percent is insufficient for payment for 
separately payable drugs and biologicals.
    Several commenters supported the payment of ASP+6 percent for 
separately paid drugs and biologicals and the redistribution 
methodology on a whole, but did not support the proposed redistribution 
amount of $200 million from packaged drugs and biologicals ($150 
million from coded packaged drugs and biologicals and $50 million from 
uncoded packaged drugs and biologicals). A majority of commenters 
recommended that CMS increase the amount redistributed from coded and 
uncoded packaged drugs and biologicals to separately payable drugs and 
biologicals. A few of these commenters stated that a larger portion of 
the overhead costs should be reallocated from packaged uncoded packaged 
drugs and biologicals to separately payable drugs and biologicals, 
noting that coded and uncoded drugs and biologicals have similar 
overall charge mark-up and, therefore, warrant a similar redistribution 
of costs. Several commenters recommended that an equal or close to 
equal amount of cost should be redistributed from packaged coded and 
uncoded drug and biological cost to separately payable drugs and 
biologicals. A few commenters also disagreed with the results of CMS' 
study on uncoded drugs, stating that pharmacy overhead and services 
applies to all drugs, including surgical services, and that these 
pharmacy services and overhead costs are similar to those costs 
associated with coded packaged drugs. One commenter recommended that 
CMS continue to monitor and reevaluate the claims data in the upcoming 
years to determine whether a larger amount of cost should be 
redistributed from packaged drugs and biologicals to separately payable 
drugs and biologicals.
    The APC Panel, at its August 2010 meeting, recommended that CMS pay 
for the acquisition and pharmacy overhead costs of all separately 
payable drugs at no less than ASP+6 percent for CY 2011 (APC Panel 
Recommendation 21).
    Response: We are not convinced by the commenters that we should 
necessarily pay separately paid drugs and biologicals at ASP+6 percent 
or higher for CY 2011, regardless of whether such payment amount 
results from the methodology we proposed to use to set final payment 
rates for separately paid drugs and biologicals for CY 2011 in this 
final rule with public comment period. We believe that to pay for 
separately paid drugs and biologicals at ASP+6 percent for CY 2011 
would redistribute more pharmacy overhead than we believe is 
appropriate because our application of the proposed methodology results 
in ASP+5 percent for this final rule with comment period. Our analysis 
in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60505 
through 60512) indicated that a redistribution was appropriate to 
address charge compression. In our modeling for this OPPS/ASC final 
rule with comment period, the redistribution amount for CY 2011 of $150 
million in overhead cost from coded packaged drugs and $50 million in 
cost from uncoded packaged drugs that we are finalizing for the CY 2011 
OPPS, remains within the parameters of roughly one-third to one-half of 
overhead cost in coded packaged drugs and about 8 percent of drug cost 
in uncoded packaged drugs that we finalized for CY 2010, and, 
therefore, we believe that redistribution of these amounts remains 
appropriate. Also, we were clear in the CY 2011 OPPS/ASC proposed rule 
that we were proposing to continue the CY 2010 pharmacy overhead 
adjustment methodology and that the projected result of ASP+6 percent 
was coincidental (75 FR 46276).
    In addition, we disagree that payment at less than ASP+6 percent 
would be insufficient to adequately pay for the costs of separately 
paid drugs and biologicals because our review of claims and cost report 
data provides no evidence that supports that payment at less than ASP+6 
percent is insufficient to pay adequately for the costs of separately 
paid drugs and biologicals. To the contrary, the utilization of drugs 
and biologicals continues to increase. In addition, we note that 
payment for pharmacy overhead is not only paid through payment for 
specifically identified drugs and biologicals, but pharmacy overhead 
payment also is packaged into payment for the procedure in which the 
cost of packaged drugs and biologicals is included. When a separately 
paid drug or biological is furnished during a procedure, pharmacy 
overhead is being paid both through the ASP+5 percent payment for the 
separately paid drug and biological and, to some extent, in the payment 
for the procedure, because the APC payment for any procedure includes 
the cost of packaged drugs and the overhead cost associated with those 
packaged drugs and biologicals.
    Although several commenters, and the APC Panel at its February 2010 
panel meeting, recommended that CMS reallocate a larger portion of the 
pharmacy overhead costs from packaged drugs to separately payable drugs 
for CY 2011 under the overhead adjustment methodology, and others have 
argued that we should redistribute an equal or nearly equal amount of 
cost from both packaged drugs and biologicals with HCPCS codes and 
packaged drugs and biologicals without HCPCS codes, for the reasons set 
forth below and consistent with our rationale outlined in the CY 2010 
OPPS/ASC final rule with public comment period (74 FR 60501 through 
60512), we do not believe that we should redistribute a higher portion 
of drug cost from coded packaged drugs and biologicals, nor can we 
assume that uncoded packaged drugs and biologicals have the same or 
higher pharmacy overhead costs as coded packaged drugs and biologicals 
and, therefore, we do not believe that we can treat them comparably for 
purposes of estimating overhead. With regard to redistributing more 
from uncoded packaged drugs and biologicals, first, as indicated in the 
CY 2011 OPPS/ASC proposed rule (75 FR 46277 through 46278), 
conversations with stakeholders and hospitals over the past year 
suggest that hospitals do not always report HCPCS codes for drugs for a 
variety of reasons. A key premise of the pharmacy overhead adjustment 
redistribution methodology is our assessment of the amount of drug cost 
in the claims data above aggregate ASP available as ``overhead'' for 
redistribution. Knowing the specific HCPCS codes for packaged drugs and 
their associated ASP allows us to assess the difference between the 
aggregate ASP and claim cost for packaged drugs and to assess the 
intensity of pharmacy overhead associated with these drugs. The 
inability to know which drugs are captured by uncoded drug charges on a 
claim is challenging because we cannot know the hospitals' charges for 
the drug, which include overhead costs, or what the overhead complexity 
may be. Therefore we cannot be certain that the amount of uncoded 
pharmacy overhead costs is as high as the public has suggested or that 
hospitals mark up these uncoded drugs and biologicals in the same way 
as packaged drugs and biologicals with HCPCS codes. Second, we continue 
to believe that the information presented by presenters at the February 
2010 APC Panel meeting is

[[Page 71958]]

insufficient to enable us to isolate the portion of the uncoded 
packaged drug and biological cost that is pharmacy overhead cost. In 
order to isolate the portion of uncoded packaged drug and biological 
cost that is pharmacy overhead cost, we believe that we would need more 
drug specific information reported to us by hospitals, either through 
more reporting of packaged drugs on claims or through more granular 
cost centers on the cost report. As indicated in the CY 2011 OPPS/ASC 
proposed rule we also evaluated claims data in an effort to assess how 
much uncoded packaged drugs resemble coded packaged drugs (75 FR 
46278). We found that most uncoded packaged drug costs appear with 
surgical services and that most coded packaged drug costs appear with 
medical services. In light of this information, we are not confident 
that the drugs captured by uncoded drug costs are the same drugs 
captured by the coded packaged drug cost. Therefore we do not agree 
that we can assume that they are the same drugs, with comparable 
overhead and handling costs. Without being able to calculate an ASP for 
these drugs and without being able to gauge the magnitude of the 
overhead complexity associated with these drugs, we do not believe we 
should assume the same or a greater proportional overhead is 
appropriate for redistribution. Third, we also do not believe the 
commenter's assertions that pharmacy services and overhead costs for 
all uncoded packaged drugs are similar to the costs associated with 
coded packaged drugs and are a sufficient basis for redistributing 
equal or close to equal amounts of dollars from uncoded packaged drugs 
as from coded packaged drugs to separately paid drugs under this 
overhead adjustment policy. As we have stated elsewhere, we remain 
committed to using hospital data as reported to us by hospitals to set 
OPPS payment rates. Therefore, we continue to believe that it would be 
inappropriate to assume that the costs reported under uncoded pharmacy 
revenue code lines are for the same drugs and biologicals with the same 
ASPs, as the costs of packaged drugs and biologicals reported with 
HCPCS codes. Therefore, for the reasons set forth above, we continue to 
believe that we should not make broad assumptions that the same overall 
charge markup exists for both coded and uncoded packaged drugs or that 
we should redistribute a similar or greater amount of cost from both 
coded and uncoded packaged cost to separately payable drugs and 
biologicals.
    We also do not agree that our pharmacy overhead adjustment 
methodology is arbitrary. The basis for the proposed and final pharmacy 
overhead adjustment methodology is the same as our CY 2010 final 
policy. The CY 2010 policy for redistributing $150 million from coded 
packaged drugs and biologicals to separately payable drugs and 
biologicals was based on our assessments using both industry and MedPAC 
data (74 FR 60505 through 60507). We believed and continue to believe 
that between approximately one- third and one-half of the overhead cost 
in coded packaged drugs could be attributable to charge compression due 
to our cost estimation methodology and our choice of a packaging 
threshold. We continue to believe that an amount of packaged drug cost 
attributable to charge compression cannot be precisely known, but we do 
not believe we should distribute more than $150 million from coded 
packaged drugs. The proposed and final CY 2011 policy of redistributing 
$150 million from coded packaged drugs and biologicals to separately 
payable drugs and biologicals roughly approximates one-third to one-
half of overhead cost in the coded packaged drugs with updated ASP 
data, and the CY 2009 claims and most current cost report data used in 
this final rule with comment period.
    The proposed and final CY 2011 policy of redistributing $50 million 
of the total cost of uncoded packaged drugs and biologicals to 
separately payable drugs and biologicals falls in the approximate 8 
percent range of total uncoded drug and biological cost using the CY 
2009 claims and most currently available cost report data used in this 
final rule with comment period. As indicated in the CY 2010 OPPS/ASC 
final rule with comment period, this is a conservative estimate, as 
compared to the case of coded packaged drugs and biologicals with an 
ASP and for which we have a specific pharmacy overhead cost estimate in 
relationship to their known ASPs. As explained previously in this 
response we remain unwilling to make sweeping assumptions that uncoded 
packaged drug and biological cost included a pharmacy overhead amount 
comparable to those of coded packaged drugs and biologicals with an 
ASP. We continue to be confident that this conservative estimate of $50 
million for redistribution from the cost of uncoded packaged drugs and 
biologicals to separately payable drugs and biologicals is an 
appropriate amount in light of our uncertainty about the relationship 
between ASP and pharmacy overhead costs for the uncoded drugs and 
biologicals. We also do not believe this policy is arbitrary because we 
finalized our CY 2010 policy for an overhead adjustment methodology in 
response to public commenter consensus that this approach was an 
appropriate avenue for addressing charge compression in the drug and 
biological payment rates for separately paid drugs. We believe that the 
consensus among commenters on a redistribution methodology is further 
evidence that the policy adopted last year and which we are continuing 
for CY 2011 has a rational basis and is not arbitrary.
    After careful consideration of the comments and reassessment of the 
most current claims data, cost report data and ASP data, for the 
reasons discussed above, we are finalizing our proposal to continue the 
CY 2010 pharmacy overhead adjustment methodology as set forth at 74 FR 
60500 through 60512. We are redistributing $150 million from the 
pharmacy overhead cost of coded packaged drugs and biologicals with an 
ASP and redistributing $50 million from the cost of uncoded packaged 
drugs and biologicals, for a total redistribution of $200 million from 
costs for coded and uncoded packaged drugs to separately payable drugs, 
with the result that we will pay separately paid drugs and biologicals 
at ASP+5 percent for CY 2011. For the reasons stated above, we also are 
not accepting the APC Panel's recommendation to pay for acquisition and 
pharmacy overhead costs of all separately payable drugs at no less than 
average sales price plus 6 percent for CY 2011.
    After applying our longstanding methodology for calculating the 
total cost of separately payable drugs and biologicals in the claims on 
which the CY 2011 final rule payment rates are based, compared to the 
ASP dollars for the same drugs and biologicals and without applying the 
proposed overhead cost redistribution using updated claims, cost 
report, and ASP data, we determined that the estimated aggregate cost 
of separately payable drugs and biologicals (status indicators ``K'' 
and ``'G''), including acquisition and pharmacy overhead costs, is 
equivalent to ASP-1 percent (compared to ASP+0 percent in the proposed 
rule). Therefore, under our standard drug payment methodology, if we 
did not adopt our proposed redistribution of $200 million, we would pay 
for separately payable drugs and biologicals at ASP-1 percent for CY 
2011, their equivalent average ASP-based payment rate. During our 
assessment of the final rule data, we also determined that the 
estimated aggregate cost of coded packaged drugs

[[Page 71959]]

and biologicals with an ASP (status indicator ``N'') including 
acquisition and pharmacy overhead costs, is equivalent to ASP+296 
(compared to ASP+283 in the proposed rule). We found that the estimated 
aggregate cost for all coded drugs and biologicals (status indicators 
``N,'' ``K,'' and ``G''), including acquisition and pharmacy overhead 
costs, is equivalent to ASP+13 percent (compared to ASP+14 in the 
proposed rule). These values are shown in Table 32 below.

    Table 32--CY 2011 Proposed and Final ASP+X Values for all Coded Drugs and Biologicals With an ASP, Coded
   Packaged Drugs and Biologicals With an ASP, and Separately Payable Drugs and Biologicals Under the Standard
                                                   Methodology
----------------------------------------------------------------------------------------------------------------
                                                 ASP+X for all coded     ASP+X for coded
                                                      drugs and        packaged drugs and   ASP+X for separately
                                                 biologicals with an   biologicals with an    payable drugs and
                                                         ASP                   ASP               biologicals
----------------------------------------------------------------------------------------------------------------
CY 2011 Proposed Rule *.......................                ASP+14               ASP+283                 ASP+0
CY 2011 Final Rule **.........................                ASP+13               ASP+296                 ASP-1
----------------------------------------------------------------------------------------------------------------
* Based on CY 2011 proposed rule claims data and April 2010 ASPs.
** Based on CY 2011 final rule claims data and July 2010 ASPs.

    We continue to believe that the combined payment for average 
acquisition and pharmacy overhead costs under our standard methodology 
may understate the cost of separately payable drugs and biologicals and 
related pharmacy overhead for those drugs and biologicals. 
Specifically, payment at ASP-1 percent for such costs may not be 
sufficient to compensate hospitals for payment for both the acquisition 
cost of separately paid drugs and biologicals and for the associated 
pharmacy overhead.
    In finalizing our proposed overhead adjustment methodology for CY 
2011, we observed that, using updated 2009 claims data and ASPs from 
July 2010, the overhead cost for coded packaged drugs and biologicals 
is $457 million ($612 million in total cost for coded packaged drugs 
and biologicals with a reported ASP less $155 million in total ASP 
dollars as a proxy for acquisition cost for coded packaged drugs and 
biological with a reported ASP). Table 33 below displays our final 
findings with regard to the percentage of ASP in comparison to the cost 
for packaged coded drugs and for separately payable coded drugs before 
application of the overhead adjustment methodology.

                 Table 33--CY 2011 Final Rule Data: ASP+X Calculation Under Standard Methodology
----------------------------------------------------------------------------------------------------------------
                                                              Total cost of
                                     Total ASP dollars for      drugs and     Ratio of cost to
                                     drugs and biologicals   biologicals  in   ASP (column C/     ASP+X percent
                                       in claims data (in   claims data  (in      column B)
                                           millions)*          millions)**
----------------------------------------------------------------------------------------------------------------
Uncoded packaged pharmacy revenue    Unknown..............              $652                NA                NA
 code costs.
Coded Packaged Drugs and             $155.................               612              3.96           ASP+296
 Biologicals with a reported ASP.
Separately Payable Drugs and         3,334................             3,316              0.99             ASP-1
 Biologicals with a reported ASP.
All Coded Drugs and Biologicals      3,489................             3,927              1.13            ASP+13
 with a reported ASP.
----------------------------------------------------------------------------------------------------------------
* Total July 2010 ASP dollars (ASP multiplied by drug or biological units in CY 2009 claims) for drugs and
  biologicals with a HCPCS code and ASP information.
** Total cost in the CY 2009 claims data for drugs and biologicals.

    When we redistribute $200 million in overhead cost from packaged 
coded and uncoded drugs and biologicals to separately payable drugs and 
biologicals, while keeping the total cost of drugs in the claims data 
constant, the resulting final ASP+X payment rate for CY 2011 for 
separately payable drugs and biologicals is ASP+5 percent. In order to 
redistribute the $150 million in pharmacy overhead from packaged costs 
of drugs and biologicals for which a HCPCS code was reported, we 
reduced the costs attributable to these items and services by 
multiplying the costs derived from the revenue center charges for 
packaged HCPCs codes by 0.75 (a 25-percent reduction). To redistribute 
the $50 million in total cost from packaged costs of drugs and 
biologicals for which no HCPCS code was reported, we reduced the costs 
attributable to these items and services by multiplying the costs 
derived from revenue center charges for pharmacy by 0.92 (an 8-percent 
reduction). We note that this is consistent with our CY 2011 proposal 
and our CY 2010 final rule policy. Table 34 below displays our final 
findings after the overhead adjustment methodology is applied.

[[Page 71960]]



              Table 34--CY 2011 Pharmacy Overhead Adjustment Payment Methodology: ASP+X Calculation
----------------------------------------------------------------------------------------------------------------
                                                              Total cost of
                                     Total ASP dollars for      drugs and
                                     drugs and biologicals   biologicals in   Ratio of cost to
                                       in claims data (in      claims data     ASP (column C/     ASP+X percent
                                           millions)*       after adjustment      column B)
                                                             (in millions)**
----------------------------------------------------------------------------------------------------------------
Uncoded packaged pharmacy revenue    Unknown..............              $602                NA                NA
 code costs.
Coded Packaged Drugs and             $155.................               462              2.98           ASP+198
 Biologicals with a reported ASP.
Separately Payable Drugs and         3,334................             3,516              1.05             ASP+5
 Biologicals with a reported ASP.
All Coded Drugs and Biologicals      3,489................             3,927              1.13            ASP+13
 with a reported ASP.
----------------------------------------------------------------------------------------------------------------
* Total July 2010 ASP dollars (ASP multiplied by drug or biological units in CY 2009 claims) for drugs and
  biologicals with a HCPCS code and ASP information.
** Total cost in the CY 2009 claims data for drugs and biologicals.

    In summary, therefore, for the reasons set forth above, we are 
finalizing our proposal to continue our CY 2010 pharmacy overhead 
redistribution methodology. For CY 2011, we are redistributing $150 
million in overhead costs from coded packaged drugs and $50 million in 
overhead costs from uncoded packaged drugs to result in $200 million in 
costs redistributed from packaged coded and uncoded drugs to separately 
payable drugs for CY 2011. The redistribution amount of $150 million in 
overhead cost from coded packaged drugs and $50 million in cost from 
uncoded packaged drugs are within the redistribution parameters 
established in our CY 2010 final rule with comment period of roughly 
one-third to one-half of overhead cost in coded packaged drugs and 
biologicals and approximately 8 percent of drug cost in uncoded 
packaged drugs and biologicals.
    Adoption of this redistribution methodology results in payment for 
separately paid drugs and biologicals at ASP+5 percent for CY 2011.
    Comment: Some commenters stated that section 1833 (t)(14)(A) of the 
Act requires CMS to pay for separately payable drugs at a rate that is 
equal to the average acquisition cost for the drug for a year, as 
determined by the GAO or CMS surveys of hospital acquisition cost. The 
commenters stated that the most recent survey available is outdated, as 
it was performed in CY 2004 by the GAO. In absence of hospital 
acquisition cost data, the commenters urged CMS to pay for separately 
payable drugs at ASP+6 percent or the rate applicable in the 
physician's office setting. The commenters stated that CMS has the 
authority to pay for separately payable drugs at ASP+6 percent under 
the statute. Many of these commenters suggested that CMS discontinue 
the use of the standard methodology altogether and use the default 
payment rate of ASP+6 percent, as is given by Congress in statute.
    Response: While the commenters are correct that the statute 
provides for the use of the methodology described in section 1842(o), 
section 1847A, or section 1847B of the Act, as the case may be, as 
calculated and adjusted by the Secretary as necessary, payment under 
these provisions for a SCOD is required only when the average hospital 
acquisition cost for the drug for that year (which at the option of the 
Secretary may vary by hospital group (as defined by the Secretary based 
on the volume of covered OPD services or other relevant 
characteristics)), as determined by the Secretary taking into account 
the hospital acquisition cost survey data under subparagraph (D), are 
unavailable. We continue to believe that we have established both our 
hospital claims data and ASP data as an appropriate proxy for average 
hospital acquisition cost, taking the GAO survey information into 
account for the base year (70 FR 68641). Many of the drugs and 
biologicals covered under the OPPS are provided a majority of the time 
in the hospital setting, and we believe that the ASP information we 
collect is an adequate proxy for hospital acquisition cost. Further, 
the commenters have not disputed the accuracy of the total drug and 
biological cost estimated in our claims data, only the estimated cost 
of separately payable drugs and biologicals. As we stated in the CY 
2006 OPPS final rule, we intend for the quarterly updates of the ASP 
based payment rates for separately paid drugs and biologicals to 
function as the surveys of hospital acquisition costs that are required 
by section 1833(t)(14)(D)(ii) (70 FR 68641). We continue to believe 
that average sales prices for separately paid drugs and biologicals 
represent a generally appropriate source of hospital average 
acquisition cost for drugs and biologicals. Not only are the prices 
paid by hospitals (which purchase large quantities of drugs and 
biologicals, often through group purchasers) included in the ASP but 
also the prices paid by physician groups that furnish much smaller 
quantities of these drugs and biologicals are included. In addition the 
prices paid by hospitals that participate in the 340B discount program 
are not included in the ASP and thus the cost savings to these 
hospitals is not reflected in the ASP. For this reason, we believe that 
the ASP is a generous proxy for hospitals' average acquisition cost for 
separately paid drugs and biologicals. Therefore, we disagree that we 
are not complying with the statute by not performing a survey and not 
paying at the physician's office rate. For the reasons explained above, 
we do not believe that it is appropriate at this time to provide 
payment at an amount other than average acquisition cost, with a 
redistribution for pharmacy overhead, based on the drug and biological 
costs observed in hospital claims data and pricing information observed 
in ASP data.
    Comment: One commenter stated that the statute requires that CMS 
make payment for SCODs at ASP+6 percent, citing that cost data derived 
from claims data cannot accurately be said to equal average acquisition 
cost. The commenter noted that CMS' methodology in using claims data 
reduced by CCRs to derive proxies for hospital costs is a methodology 
dependent on assumptions about the relationship between charges and 
costs and, therefore, does not typify actual hospital costs for drugs 
and biologicals. These cost data, the commenter argued, therefore 
cannot equal average acquisition cost for drugs and biologicals.
    Response: As we discuss in the response to the previous comment, we 
believe that ASP is an appropriate proxy for the acquisition cost of 
drugs. We use

[[Page 71961]]

hospital charges and cost report data to estimate the total cost of 
drugs and biologicals, including both pharmacy overhead costs and the 
acquisition cost of drugs and biologicals. We believe that our claims 
data and cost report data provide the best estimate of the national 
aggregate total cost of drugs and biologicals. We do not believe that 
this methodology for estimating the total cost of drugs and 
biologicals, including pharmacy overhead cost, is based on assumptions 
about costs and charges, but the actual relationship between costs and 
charges for the same hospital for the same services. We estimate costs 
from charges submitted on claims for payment, using cost and charge 
information from cost report data that are certified to be correct by 
the hospital. We note that we view the ASP data, not the cost data, to 
be the best proxy for hospital acquisition cost for drugs and 
biologicals, without pharmacy overhead costs, while the cost of drugs 
and biologicals that we estimate from claims and cost report data is 
the only source of the total cost of drugs and biologicals, that 
includes both pharmacy overhead and acquisition cost.
    Comment: MedPAC remained concerned about our policy of setting 
payment rates for drugs and biologicals as a percentage of ASP because 
they stated that pharmacy overhead, as a percentage of total costs, 
vary widely across individual drugs. MedPAC previously had recommended 
that CMS collect data on hospital's pharmacy overhead costs separately 
from drug acquisition costs and that these data could be used to create 
separate payment to hospitals for pharmacy overhead and drug 
acquisition costs.
    Response: While we acknowledge that pharmacy overhead varies by the 
drug to which it applies, we believe that as long as payment is 
distributed among hospitals in a manner that, on average, reflects 
relative costs of drugs and biologicals they furnish, including 
pharmacy overhead, the goals of the OPPS are met as it is a system of 
averages. With regard to the comment that CMS should collect data on 
hospitals' pharmacy overhead costs separately from drug acquisition 
costs and that these data could be used to create separate payment to 
hospitals for pharmacy overhead and drug acquisition costs, as we 
discuss in detail above, we proposed to create HCPCS codes for pharmacy 
overhead services so that hospitals could charge for these services and 
provide us a basis for making separate payments for pharmacy overhead. 
However, hospitals strongly objected and provided convincing arguments 
that to do so would impose an enormous burden on them and on other 
payers that would not provide an offsetting benefit. We believe that 
hospitals would find any option requiring them to identify the cost 
associated with the overhead component of a drug or biological or a 
class of drugs or biologicals burdensome and imprecise.
    Comment: Several commenters cited methodological concerns about the 
approach CMS used to calculate the proposed equivalent average ASP-
based payment amount for separately payable drugs and biologicals. 
Specifically, several commenters noted that, for the proposed rule, CMS 
used ASP data from the fourth quarter of CY 2009, which is the basis 
for calculating payment rates for drugs and biologicals in the 
physician's office setting using the ASP methodology effective April 1, 
2009, along with hospital claims data from CY 2009 to determine the 
relative ASP amount for CY 2011 under CMS' proposed payment 
methodology. The commenters requested that CMS use an alternative ASP 
file for the final rule calculation of ASP+X to better align ASP data 
with hospital claims and cost report data. The commenters stated that 
the CMS methodology, which they stated uses fourth quarter CY 2009 ASP 
data as a proxy for drug acquisition costs, provides ASPs that are well 
after the time hospitals would have purchased most of their drugs for 
administration in CY 2009. As an alternative, the commenters requested 
that CMS use an earlier ASP file that is more representative of the 
costs to hospitals when they purchase drugs for the claims year. 
Specifically, some commenters requested that CMS use the July 1, 2009 
ASP file that represents sales from the first quarter of CY 2009 when 
comparing CY 2009 hospital claims data to ASP data to determine an 
ASP+X amount. One commenter requested that CMS clarify a statement made 
in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60516) 
that CMS would need to offset any increases in the relative ASP amount 
resulting from the use of a different ASP file with a deflation 
adjustment for each hospital's CCRs for cost center 5600 ``Drugs 
Charges to Patients'' in order to simulate costs from claim charges in 
the claim year.
    One commenter suggested that CMS' standard methodology was 
inappropriate because it utilizes estimated costs from claims data that 
was part of the drug ratesetting methodology that the MMA (Pub. L. 108-
173) replaced with the requirement for payment for SCODs at average 
acquisition cost. Another commenter suggested that CMS' estimated cost 
from claims was not reliable and that CMS discontinue using the 
standard methodology and substitute the ASPs for these drugs as the 
starting point for the overhead adjustment methodology. One commenter 
indicated that it would expect a fixed redistribution amount to 
increase each year, similar to CMS' inflation of the packaging 
threshold each year to reflect increases in the price of drugs and 
biologicals.
    Response: For our calculation of the per day costs for drugs and 
biologicals in this CY 2011 OPPS/ASC final rule with comment period, we 
use the ASP data from the first quarter of CY 2010 (which is used to 
calculate payment rates for drugs and biologicals in the physician's 
office setting for services furnished on and after July 1, 2010) and 
with updated hospital claims data (that is, claims for services 
furnished during CY 2009 which were processed through the Common 
Working File on or before July 1, 2010). Payment rates for HCPCS codes 
for separately payable drugs and biologicals included in Addenda A and 
B to this final rule with comment period are based on ASP data from the 
second quarter of CY 2010 (which is used to calculate payment rates for 
drugs and biologicals in the physician's office setting for services 
furnished on and after October 1, 2010).
    Since implementing the ASP+X methodology in CY 2006, we have used 
the most recently available data to establish our relative ASP payment 
rate for the upcoming year, consistent with our overall policy of 
updating the OPPS using the most recent claims and cost report data. 
For this CY 2011 OPPS/ASC final rule with comment period, this results 
in using July 2010 ASP payment rates (based on first quarter CY 2010 
sales), CY 2009 hospital claims data, and the most recently available 
hospital cost reports. For this final rule with comment period, the 
majority of cost reports are from CY 2008, with good representation 
from CY 2009 and some cost report periods from as early as CY 2004. As 
we have noted in previous years, the relative ASP+X amount is likely to 
change from the proposed rule to the final rule as a result of updated 
ASP data, hospital claims data, and updated hospital cost reports. We 
do not have evidence that we are introducing significant errors into 
our ASP+X percent calculation by not aligning all pricing and cost data 
to a single period of time. However, as we stated in the CY 2010 OPPS/
ASC final rule with comment period (74 FR 60516), we believe that if we 
were to use an ASP file from CY 2009, which the

[[Page 71962]]

commenters claimed would more accurately represent hospital costs 
associated with procuring drugs and biologicals for that claims year, 
we would need to offset any increases in the relative ASP amount 
resulting from the use of a different ASP file with a deflation 
adjustment for each hospital's CCR for cost center 5600 ``Drugs Charged 
to Patient'' in order to simulate costs from claim charges in the 
claims year. As discussed in section II.A. 1.c. of this final rule with 
comment period, we calculated the APC median costs on which the final 
CY 2011 APC payment rates are based by applying hospital-specific 
overall ancillary CCRs and hospital-specific departmental CCRs for each 
hospital for which we had CY 2009 claims data to charges on claims 
data. These CCRs are calculated from the most recent available hospital 
cost reports, in most cases, cost reports for CY 2008. If we follow the 
commenters' suggestion to use the CY 2009 claims data (with estimated 
cost on claims created by applying a CY 2008 CCR to CY 2009 charges) 
with a July 2009 ASP file to calculate the ASP+X percent, we would 
align two but not three of the data time periods for the majority of 
hospitals: Cost report data for CY 2008, claims data for CY 2009, and 
ASP data for July 2009. In general, CCRs typically decline over time. 
Because of this, our estimated cost in the CY 2009 claims data that we 
use to model this OPPS modestly overestimates actual cost by applying a 
CY 2008 CCR to CY 2009 charges. Because CCRs decline each year, we 
expect that, on balance, CY 2009 CCRs will be lower than CY 2008 CCRs. 
Therefore, our current methodology applies a higher than actual CCR 
from CY 2008 to the CY 2009 charges on claims.
    Therefore, in order to bring all time periods for the various data 
elements in the calculation (cost report data, claims data, and ASP 
data) into alignment, we would need to estimate CCR deflation (the 
differential in charge and cost inflation) for cost center 5600 between 
CY 2008 and CY 2009 and apply this deflation factor to the CCRs we use 
to estimate costs from claims for the majority of hospitals. To be 
precise, we would need to consider making additional assumptions for 
hospitals with cost reporting periods before CY 2008. We make 
comparable CCR deflation estimates when we estimate our fixed dollar 
eligibility threshold for outlier payments described in section II.F. 
of this final rule with comment period. We base those estimates on an 
established IPPS methodology for estimating charge and CCR inflation 
for all hospital inputs, not just drugs and biologicals.
    We have evaluated the impact of using dated CCRs in our estimation, 
and we find that the slightly higher estimated cost created by using a 
CCR from the year prior to the claim year (CY 2008 instead of CY 2009) 
generally offsets the increases in prices in a more recent ASP file for 
sales from first quarter 2010 for this final rule with comment period, 
and we believe making assumptions about charge or cost inflation 
specific to drug charges and costs captured in cost center 5600, which 
we have not yet estimated, has the potential to introduce error into 
this calculation. Therefore, we are continuing our current policy of 
using the most recently available claims data, cost report data, and 
ASP data when performing our ASP+X calculation under the final 
redistribution methodology in order to set payment rates for separately 
payable drugs and biologicals.
    We disagree with the commenter who believed our standard ASP+X 
methodology is inappropriate because it utilizes estimated costs from 
claims data. We believe the commenter is suggesting that Congress does 
not want the agency to use estimated costs from claims data in any part 
of our drug ratesetting methodology for SCODs because the drug 
ratesetting methodology that we used prior to the MMA (which utilized 
estimated costs from claims) was replaced with the methodology set 
forth in section 1833(t)(14) of the Act that was created by the MMA. 
Section 1833(t)(14)(A)(iii) of the Act sets forth the payment 
methodology for SCODs for years after 2005, and subjects that payment 
methodology to section 1833(t)(14)(E) of the Act. Under section 
1833(t)(14)(E)(i) of the Act, MedPAC was required to submit a report to 
the Secretary on the adjustment of the APCs for SCODs to take into 
account overhead and related expenses, such as pharmacy services and 
handling costs. Further, section 1833(t)(14)(E)(ii) of the Act 
authorizes the Secretary to adjust the weights for APCs for SCODs to 
take into account the recommendations contained in the MedPAC report 
referenced above. In their June 2005 report, MedPAC indicated that 
charges for drugs and biologicals are based on both acquisition cost 
and on the cost of overhead and handling. In order to adjust the 
payment rates to appropriately account for those overhead and handling 
costs, as is permitted under the statute, it is necessary for us to use 
estimated costs from claims data because this information is not 
available from ASP data. Consequently, we disagree with the commenter 
that our use of the claims data in the standard ratesetting methodology 
is inappropriate. Moreover, we continue to believe that we have 
established our hospital claims data and ASP data as an appropriate 
proxy for average acquisition cost, taking into account the GAO survey 
information for the base year (70 FR 68641).
    In addition, we note that we believe that we are using our 
estimated cost on claims data in our ASP+X methodology in a very 
different way than we did prior to the MMA. Prior to the MMA, we used 
estimated cost on claims data to calculate a median cost estimate for 
each drug or biological as we do for each APC, and we based payment on 
that median cost. After the MMA, we have used ASP data and costs 
estimated from charges on hospital claims as a proxy for both the 
average hospital acquisition cost and the pharmacy overhead cost to 
establish a combined payment rate for acquisition cost and pharmacy 
overhead. Unlike our methodology prior to the MMA, we are using ASP 
data in our drug payment calculation in addition to aggregate cost data 
from claims. In addition, unlike our methodology prior to the MMA, we 
are not estimating individual cost per drug, but aggregating that cost 
data. By comparing total ASP dollars for separately paid drugs to total 
estimated cost on claims data for separately paid drugs, we are 
estimating an average cost of pharmacy overhead and handling associated 
with the separately paid drugs and biologicals.
    For reasons already discussed, we also do not believe it is 
appropriate to exclude our claims data from our ASP+X calculation by 
simply applying a $200 million assessment of overhead to total ASP 
dollars to arrive at an average weighted ASP+X percent payment level as 
suggested by one commenter. As noted above, in their June 2005 report, 
MedPAC found that charges for drugs and biologicals are based both on 
acquisition cost and on the cost of overhead. Estimating an appropriate 
overhead amount requires using this data, and we continue to believe 
that this data is accurate.
    With regard to inflating the redistribution amount as we do for the 
drug packaging threshold, as we discuss below, our proposed 
redistribution amount of $150 million in overhead cost from coded 
packaged drugs and $50 million in cost from uncoded packaged drugs 
remained within the parameters of roughly one-third to one-half of 
overhead cost in coded packaged drugs and approximately 8 percent of 
drug

[[Page 71963]]

cost in uncoded packaged drugs. We will take the commenter's suggestion 
into consideration for future years.
    Comment: A few commenters expressed concern that when CMS applies a 
single CCR to adjust charges to costs for drugs and biologicals, charge 
compression leads to misallocation of pharmacy overhead costs 
associated with high and low cost drugs and biologicals during 
ratesetting. The commenters noted that hospitals disproportionately 
mark up their charges for low cost drugs and biologicals to account for 
pharmacy overhead costs. Therefore, some commenters suggested using the 
costs of both packaged drugs and separately payable drugs when 
calculating the equivalent average ASP-based payment amount for 
separately payable drugs. They argued that this would provide a more 
accurate ASP-based payment amount for separately payable drugs. As an 
alternative, the commenters recommended that CMS eliminate the drug 
packaging threshold and provide separate payment for all Part B drugs 
under the OPPS at an ASP+X percent amount calculated from the cost for 
all drugs with HCPCS codes.
    Several commenters objected to the inclusion of data from hospitals 
that receive Federal discounts on drug prices under the 340B program in 
the ASP calculation for separately payable drugs and biologicals. The 
commenters pointed out that hospital participation in the 340B program 
had grown substantially over the past few years, will further increase 
due to the provisions in the Affordable Care Act; they believed that 
the costs from these hospitals now constituted a significant proportion 
of hospital drug costs on CY 2009 OPPS claims. The commenters stated 
that including 340B hospital claims data when comparing aggregate 
hospital costs based on claims data to ASP rates contributed to an 
artificially low equivalent average ASP-based payment rate because ASP 
data specifically exclude drug sales under the 340B program.
    In addition, MedPAC encouraged CMS to exclude data from 340B 
hospitals from the ratesetting. MedPAC stated that analysis indicates 
that exclusion of the 340B hospitals would increase CMS' estimates of 
the cost of separately paid drugs by about 3.5 percent above the 
estimate obtained when the 340B hospital claims data are included in 
the ratesetting calculations and that excluding the 340B hospital 
claims data would result in payment rates for separately paid drugs 
that more accurately reflect the costs incurred by other hospitals.
    One commenter supported the inclusion of claims data for 340B 
hospitals in the calculation of the ASP+X payment for separately 
payable drugs and biologicals and equal payment to 340B hospitals for 
separately payable drugs and biologicals as hospitals that do not 
participate in the 340B program. The commenter noted that continuing 
this policy would maintain an important benefit of the 340B program.
    Response: In proposing to continue our CY 2010 overhead adjustment 
methodology for CY 2011, we attempted to address the issue of charge 
compression by redistributing some portion of the estimated overhead 
cost in coded packaged drugs ($150 million) and a conservative estimate 
of overhead cost in the uncoded packaged drug cost ($50 million). 
Further, we have made several proposals in the past to more precisely 
identify pharmacy overhead costs and to address charge compression in 
the pharmacy revenue center, which were not finalized in response to 
public comments. As we note in our discussion of the MedPAC comment 
above, for the CY 2006 OPPS, we proposed to establish three distinct 
Level II HCPCS C-codes and three corresponding APCs for drug handling 
categories to differentiate overhead costs for drugs and biological (70 
FR 42730). In the CY 2008 OPPS/ASC proposed rule (72 FR 42735), we 
proposed to instruct hospitals to remove the pharmacy overhead charge 
for both packaged and separately payable drugs and biologicals from the 
charge for the drug or biological and report the pharmacy overhead 
charge on an uncoded revenue code line on the claim. We believed that 
this would provide us with an avenue for collecting pharmacy handling 
cost data specific to drugs in order to package the overhead costs of 
these items into the associated procedures, most likely drug 
administration services. However, we did not finalize this proposal due 
to strong objection from hospitals. For CY 2009, we proposed to split 
the ``Drugs Charged to Patients'' cost center into two cost centers: 
One for drugs with high pharmacy overhead costs and one for drugs with 
low pharmacy overhead costs (73 FR 41492). We note that we expected 
that CCRs from the proposed new cost centers would be available in 2 to 
3 years to refine OPPS drug cost estimates by accounting for 
differential hospital markup practices for drugs with high and low 
overhead costs. However, we did not finalize any of these proposals due 
to concerns from the hospital community that these proposals would 
create an overwhelming burden on hospitals and staff. By proposing to 
continue our CY 2010 overhead adjustment methodology, we were once 
again attempting to address the issue of charge compression without 
requiring any changes to current hospital reporting practices.
    It has been our policy since CY 2006 to only use separately payable 
drugs and biologicals in the calculation of the equivalent average ASP-
based payment amount under the OPPS. We do not include packaged drugs 
and biologicals in this standard analysis because cost data for these 
items are already accounted for within the APC ratesetting process 
through the median cost calculation methodology discussed in section 
IIA.2 of this final rule with comment period. To include the costs of 
coded packaged drugs and biologicals in both our APC ratesetting 
process (for associated procedures present on the same claim) and in 
our ratesetting process to establish an equivalent average ASP-based 
payment amount for separately payable drugs and biologicals would give 
these data disproportionate emphasis in the OPPS by skewing our 
analyses, as the costs of these packaged items would be, in effect, 
counted twice. Accordingly, we are not adopting the suggestion from 
commenters that we include all packaged and separately payable drugs 
and biologicals when establishing an equivalent average ASP-based rate 
to provide payment for the hospital acquisition and pharmacy handling 
costs of drugs and biologicals. However, we remind commenters that, 
because the costs of packaged drugs and biologicals, including their 
pharmacy overhead costs, are packaged into the payment for the 
procedures in which they are administered, the OPPS provides payment 
for both the drugs and the associated pharmacy overhead costs through 
the applicable procedural APC payments.
    Furthermore, we disagree with the commenters who recommended that 
we should pay separately for all drugs and biologicals with HCPCS 
codes. We continue to believe that packaging is a fundamental component 
of a prospective payment system that contributes to important 
flexibility and efficiency in the delivery of high quality hospital 
outpatient services. Therefore, we believe it is appropriate to 
maintain a modest drug packaging threshold that packages the costs of 
inexpensive drugs into payment for the associated procedures.
    With respect to the comment that we should not include data from 
hospitals that receive discounts on outpatient drug prices under the 
340B program in

[[Page 71964]]

our estimation of the total cost of separately paid drugs and 
biologicals and pharmacy overhead, as we stated in the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60517), we continue to believe 
that excluding data from hospitals that participate in the 340B program 
from our ASP+X calculation, and paying those hospitals at that derived 
payment amount, would inappropriately redistribute payment to drugs and 
biologicals from payment for other services under the OPPS. The ASP-
equivalent cost of drugs under the OPPS that would be calculated only 
from claims data for hospitals that do not participate in the 340B 
program would likely be higher than the cost of all drugs from our 
aggregate claims from all hospitals. To set drug payment rates for all 
hospitals based on a subset of hospital cost data, determined only from 
claims data from hospitals that do not participate in the 340B program 
would increase the final APC payment weights for drugs in a manner that 
does not reflect the drug costs of all hospitals, although all 
hospitals, including 340B hospitals, would be paid at these rates for 
drugs. Furthermore, as a consequence of the statutory requirement for 
budget neutrality, increasing the payment weights for drugs by 
excluding 340B hospital claims would reduce the relative payment weight 
for other services in a manner that does not reflect the procedural 
costs of all hospitals relative to the drug costs of all hospitals, 
thereby distorting the relativity of payment weights for services based 
on hospital costs. Many commenters on the CY 2009 OPPS/ASC final rule 
with comment period were generally opposed to differential payment for 
hospitals based on their 340B participation status, and we do not 
believe it would be appropriate to exclude claims from this subset of 
hospitals in the context of a CY 2011 drug and biological payment 
policy that is based on average acquisition cost and pays all hospitals 
at the same rate for separately payable drugs and biologicals.
    Comment: One commenter expressed concern over the proposed overhead 
adjustment methodology, stating that ``policy packaged'' drugs, similar 
to contrast agents and diagnostic radiopharmaceuticals, are subject to 
charge compression and, therefore, should not be included in the 
redistribution of packaged drug costs to avoid a potential 
underestimation of costs. The commenter further suggested that CMS 
remove contrast agents from the pool of ``policy packaged'' drugs that 
are redistributed to separately payable drugs and instead redistribute 
more costs from threshold packaged drugs, or those drugs with per day 
costs less than the packaging threshold that the commenter attested are 
not subject to charge compression, to arrive at a payment rate of ASP+6 
percent.
    Another commenter stated that CMS should not reduce the pharmacy 
overhead costs for radiology procedures with packaged diagnostic 
radiopharmaceuticals because of their ``policy packaged'' status and 
because of special handling costs associated with radiology procedures. 
The commenter further stated that CMS should consider using ASP data, 
if available, to benchmark offset amounts in APCs and to account for 
pharmacy and overhead costs.
    A few commenters expressed concern regarding how CMS accounts for 
radiopharmaceuticals in the overhead adjustment methodology to 
redistribute pharmacy overhead costs from packaged drugs and 
biologicals to separately paid drugs and biologicals and requested that 
CMS provide details on how costs for radiopharmaceuticals are included 
in the overhead adjustment methodology. The commenters also asked for 
clarification on how hospitals are to code for radiopharmaceuticals, 
citing that CMS' statement on not including the cost of 
radiopharmaceuticals because they are not reported under pharmacy 
revenue codes or under the pharmacy cost center on the hospital cost 
report is contradictory to previous statements urging hospitals to 
report pass-through diagnostic radiopharmaceutical cost under revenue 
code 0636.
    Response: As we stated in the CY 2010 OPPS/ASC final rule with 
comment period (74 FR 60513), we believe that contrast agents are 
contributing to the overall charge compression for all drugs and 
biologicals that are the specific target of our redistribution 
methodology and that, in almost all cases, hospitals capture the costs 
and charges for pharmacy revenue codes, including contrast agents, in 
the cost center 5600 ``Drugs Charged to Patients.'' We stated that this 
is the cost center that we used to estimate costs from charges for the 
pharmacy revenue codes in our claims data each year. The proposed 
methodology of redistributing pharmacy overhead cost from packaged 
drugs and biologicals to separately payable drugs and biologicals was a 
proposal to address charge compression observed within this specific 
cost center that captures the vast majority of costs and charges for 
drugs and biologicals billed on hospital claims. Therefore, as most 
hospitals billing contrast agents with pharmacy revenue codes are 
associating the contrast agent costs with the cost center 5600, we 
believe it is appropriate to redistribute cost from contrast agents to 
separately payable drugs and biologicals under our final CY 2011 
pharmacy overhead cost redistribution methodology.
    In response to the commenter's suggestion that the cost from 
contrast agents should not be included in the pool of packaged 
redistributed cost because it has been OPPS policy to package payment 
for all contrast agents since CY 2008 (as discussed in V.B.2.d of this 
final rule with comment period), as we stated in the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60514), the proposed methodology 
for redistributing pharmacy overhead cost from packaged drugs and 
biologicals was not only a proposal to address charge compression, but 
specifically a proposal to address charge compression in light of our 
adoption of a specific drug packaged threshold, which is $70 for CY 
2011. The argument that it would, therefore, be inappropriate to 
redistribute cost from contrast agents could have merit if there was a 
sizeable amount of aggregate cost for contrast agents with per day 
costs greater than the drug packaging threshold of $70. In that case, 
it could be argued that the compression in cost estimates for expensive 
contrast agents (those with per day costs greater than the $70 
packaging threshold) created by estimating costs for those agents by 
applying the CCR for the single cost center 5600 to expensive contrast 
agents' charges would be offset by the overestimation of costs for 
inexpensive contrast agents (those with per day costs less than the $70 
packaging threshold) created by application of the same single CCR to 
inexpensive contrast agents' charges, assuming that hospitals apply a 
lower markup to expensive contrast agents and a higher markup to 
inexpensive contrast agents. If the mix of expensive and inexpensive 
contrast agents resembled the mix of expensive and inexpensive drugs 
generally captured in the cost center 5600, the use of a single CCR 
would accurately estimate total cost of contrast agents in aggregate. 
Because all contrast agents not receiving pass-through payment are 
packaged, packaging an accurate aggregate cost estimate for contrast 
agents could argue against redistributing cost from packaged contrast 
agents to separately payable drugs and biologicals. However, we have 
not observed any evidence of this in our CY 2011 final rule claims 
data.

[[Page 71965]]

    In conclusion, because contrast agents are billed under pharmacy 
revenue codes and accounted for in the cost center 5600 and because the 
per day cost of almost all contrast agents falls under the CY 2010 
packaging threshold of $70, we believe the estimated cost of contrast 
agents (which are packaged drugs with HCPCS codes and ASPs for which we 
have found the estimated cost to be ASP+296 percent), along with all 
other packaged drugs billed under pharmacy revenue codes and accounted 
for in cost center 5600, contain a disproportionate amount of pharmacy 
overhead cost, and that it is appropriate to include them in our final 
CY 2011 redistribution methodology as this methodology is targeted to 
packaged drugs and biologicals accounted for in cost center 5600.
    While we believe that contrast agents are commonly billed under 
pharmacy revenue codes and that hospitals largely account for the cost 
of contrast agents under the cost center 5600 on their Medicare 
hospital cost report, we did not observe that hospitals apply the same 
practice for diagnostic radiopharmaceuticals. After reviewing our 
claims data, we found that the majority of diagnostic 
radiopharmaceuticals are billed under revenue code 0343 (Nuclear 
medicine; Diagnostic Radiopharmaceuticals), which we believe is 
appropriate. As specified in our revenue code-to-cost center crosswalk, 
we believe hospitals largely account for the costs and charges 
associated with revenue code 0343 in a nonstandard cost center for 
Diagnostic Nuclear medicine or the cost center 4100 ``Radiology-
Diagnostic.'' Because the redistribution of pharmacy overhead cost from 
packaged drugs and biologicals to separately payable drugs and 
biologicals is intended to specifically address charge compression in 
the pharmacy cost center, in light of the above information, we 
excluded the costs of both diagnostic and therapeutic 
radiopharmaceuticals from our estimate of total drug and biological 
cost in the claims data from the final CY 2011 redistribution 
methodology, as we proposed. As a result, the final payment rates for 
nuclear medicine procedures that incorporate the costs of packaged 
diagnostic radiopharmaceuticals are not impacted by the final 
redistribution methodology. With regard to the comment that we should 
use ASP data to benchmark offset amounts for APCs that require 
radiopharmaceuticals, we note that we do not collect ASP data on 
diagnostic radiopharmaceuticals. Moreover, the current process for 
identifying the cost of a radiopharmaceutical for purposes of 
offsetting the cost when a radiopharmaceutical with pass through status 
is furnished is based on the historic costs for the radiopharmaceutical 
being replaced by the pass-through radiopharmaceutical and therefore 
represents the complete cost, including overhead costs. We believe that 
the historic cost of radiopharmaceuticals that were supplied to furnish 
the nuclear medicine procedure is a more complete and appropriate 
offset amount than the ASP amount would be, if CMS gathered ASP data 
for diagnostic radiopharmaceuticals, because the historic cost of the 
radiopharmaceuticals includes the overhead cost as well as the 
acquisition cost of the radiopharmaceuticals being replaced by the 
pass-through radiopharmaceuticals.
    With regard to the request for coding advice, we note that we 
generally require hospitals to follow National Uniform Billing 
Committee (NUBC) guidance for the choice of an appropriate revenue code 
that also is appropriate for the hospital's internal accounting 
processes. As we discuss below, we have encouraged hospitals to 
consider reporting all drugs in revenue code 0636 (Pharmacy-Extension 
of 025X; Drugs Requiring Detailed Coding) only to improve HCPCS coding 
for packaged drugs and biologicals in our claims data to improve the 
accuracy of our ASP+X calculation. We continue to believe that more 
complete data from hospitals identifying the specific drugs that were 
provided during an episode of care will improve payment accuracy for 
separately payable drugs in the future. However, we believe hospitals 
should report diagnostic radiopharmaceuticals with the most appropriate 
revenue code, and we are confident that coding for diagnostic 
radiopharmaceuticals will occur because of our claims edits for 
radiolabeled products.
    Comment: Several commenters were concerned with statements in the 
CY 2011 OPPS/ASC proposed rule that all drugs and biologicals with 
HCPCS codes should be billed under revenue code 0636. These commenters 
stated that the statements may confuse hospitals and recommended that 
CMS clarify that the original intent of revenue code 0636 was to 
capture those drugs for which a health plan requires special tracking, 
such as for costly cancer drugs. These commenters believed that 
hospitals should continue to use other revenue code categories along 
with their respective HCPCS codes, such as revenue codes 025x 
(Pharmacy) or 062x (Pharmacy-Extension of 025x). In addition, the 
commenters noted that there are drugs that do not have a specific 
revenue code, such as aspirin, for which an ``unspecified drugs'' HCPCS 
code could be used. One commenter requested that CMS clarify whether it 
intended that a new revenue code for unspecified drugs should be 
created and whether these codes should be captured on a different line 
item on the cost report.
    At its August 2010 meeting, the APC Panel recommended that CMS 
require hospitals to report all drugs with a HCPCS code using revenue 
code 0636, regardless of payment status (Recommendation 20). Some 
commenters supported the APC Panel recommendation and requested that 
CMS require all hospitals to report all drugs with a HCPCS code using 
revenue code 0636, whether the drug was packaged or paid separately. 
These commenters indicated that they believed that reporting all drugs 
with HCPCS codes under revenue code 0636 would not only support better 
ratesetting for drugs and biologicals but would also support the 
implementation of section 9008 of the Affordable Care Act. Other 
commenters asked that CMS require that hospitals report HCPCS codes for 
all drugs that have them and report HCPCS code J3490 (Unclassified 
biologics) for all drugs that do not have a HCPCS code that is specific 
to the drug or biological. The commenters stated that to do so would 
impose virtually no burden on hospitals, which must already report both 
HCPCS codes and national drug codes (NDCs) for all drugs they furnish 
when they bill Medicaid. Although the commenters asked that CMS require 
mandatory reporting of all drugs using either specific HCPCS codes or 
J3490, they believed that CMS should leave the choice of the revenue 
code that must be reported on the line to the discretion of the 
hospital.
    Response: We did not intend to suggest in the proposed rule that 
all drugs and biologicals with HCPCS codes should be billed under 
revenue code 0636 solely. We cannot provide the original intent of the 
creation of revenue code 0636 because the NUBC establishes revenue 
codes. However, we agree with commenters that drugs and biologicals 
with HCPCS codes may be appropriately reported in revenue code 
categories other than revenue code 0636, including, but not limited to, 
revenue codes 025x and 062x. Therefore, we are not accepting the APC 
Panel recommendation and the recommendation of some commenters that we 
require that all drugs and biologicals with HCPCS codes must be

[[Page 71966]]

reported with revenue code 0636. We recognize that hospitals may carry 
the costs of drugs and biologicals in multiple cost centers and that it 
may not be appropriate to report the cost of all drugs and biologicals 
in one specified revenue code. Similarly, we are not accepting the 
recommendation of some commenters that we require that hospitals report 
all drugs and biologicals using HCPCS codes and report drugs and 
biologicals that do not have specific HCPCS codes using HCPCS code 
J3490 for the CY 2011 OPPS. We do not believe that it would be 
appropriate to impose such a requirement without first proposing it and 
considering the comments of the public.
    However, we continue to believe that OPPS ratesetting is most 
accurate when hospitals report charges for all items and services that 
have HCPCS codes using those HCPCS codes, regardless of whether payment 
for the items and services is packaged. As we state in this final rule 
with comment period, it is our standard ratesetting methodology to rely 
on hospital cost report and charge information as it is reported to us 
through the claims data. We continue to believe that more complete data 
from hospitals identifying the specific drugs that were provided during 
an episode of care will improve payment accuracy for separately payable 
drugs in the future. Therefore, we continue to encourage hospitals to 
change their reporting practices if they are not already reporting 
HCPCS codes for all drugs and biologicals furnished, where specific 
HCPCS codes are available for those drugs and biologicals.
    In response to the commenters' request that CMS address the need 
for a new revenue code for drugs and biologicals without HCPCS codes 
and whether the costs of these drugs and biologicals should be captured 
on a different line on the cost report, we do not at this time see a 
benefit in implementing a new revenue code for drugs and biologicals 
nor do we see a need to require hospitals to capture these costs on a 
specified line on the cost report at this time. Neither creation of a 
new revenue code for drugs nor specifying that hospitals must capture 
drug and biological costs on a specified line in the cost report are 
necessary for us to redistribute pharmacy overhead from packaged drugs 
to separately paid drugs and biologicals and we believe that they would 
impose unnecessary burden on hospitals without improving payment for 
drugs and biologicals.
    Comment: One commenter requested that CMS release all details 
pertaining to the study mentioned in the CY 2011 OPPS/ASC proposed rule 
on uncoded drugs and biologicals.
    Response: We make available to the public the claims data we use 
for purposes of the establishment of the OPPS payment rates so that the 
public may undertake studies of interest to them. Our Web site includes 
information about purchasing the ``OPPS Limited Data Set,'' which now 
includes the additional variables previously available only in the OPPS 
Identifiable Data Set, including ICD-9-CMS diagnosis codes and revenue 
code payment amounts. Information on acquiring these data is available 
on the CMS Web site at: http://www.cms.gov/hospitalOutpatientPPS.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46278), we discuss our 
analysis of uncoded packaged drug and biological cost and our 
evaluation of the services with which uncoded packaged drug cost 
appears in the claims data, in an effort to assess how much uncoded 
drugs resemble coded packaged drugs. We found that most uncoded 
packaged drug costs appear with surgical services (status indicator 
``T''), and that most coded packaged drug costs appear with medical 
services (status indicators ``S'', ``V'', ``X''). We stated that, in 
light of this information, we were not confident that the drugs 
captured by uncoded drug cost are the same drugs captured by coded 
packaged drug cost. Therefore, we stated that we did not believe we 
could assume that they are the same drugs, with comparable overhead and 
handling costs. We continue to believe redistributing $150 million in 
coded packaged drug cost and $50 million in uncoded packaged drug cost 
to separately payable drugs is a fair and sufficient amount for 
adequate payment for separately payable drugs. Because we cannot be 
certain that we know what portion of the uncoded drugs and biologicals 
cost is acquisition cost versus pharmacy overhead costs, we have no 
compelling reason to redistribute a greater amount of drug cost. 
Without being able to calculate an ASP for these drugs and biologcials 
and without being able to gauge the magnitude of overhead complexity 
associated with these drugs and biologicals, we do not believe that we 
should assume that the same amount of proportional overhead should be 
redistributed.
    Comment: One commenter recommended that CMS implement a payment 
rate floor of ASP+4 percent if the current methodology is not 
discontinued.
    Response: We do not see a need to implement a payment rate floor of 
ASP+4 percent. We believe that the CY 2011 OPPS policy that combines 
payment for average acquisition and pharmacy overhead costs under our 
standard methodology appropriately captures the cost of separately 
payable drugs and biologicals and related pharmacy overhead for those 
drugs and biologicals and, therefore, a payment floor is unnecessary. 
We proposed and are finalizaing an overhead adjustment methodology to 
pay for separately payable drugs and biologicals at what we believed 
was an appropriate ASP+X payment amount. We continue to believe that 
this methodology is appropriate for CY 2011, as explained elsewhere in 
this preamble. In addition, we disagree with commenters that a payment 
floor of specifically ASP+4 percent should be implemented, as there is 
no data or evidence to support that ASP+4 percent is an appropriate 
amount to be used as a payment floor for the payment rate for 
separately paid drugs and biologicals.
    Comment: One commenter recommended that CMS pay for all separately 
payable drugs and biologicals at ASP+14 percent or at the cost for all 
coded drugs and biologicals as presented in the CY 2011 OPPS/ASC 
proposed rule.
    Response: We disagree with the commenter that all separately 
payable drugs and biologicals should be paid at ASP+14 percent. The 
commenter makes this recommendation, noting that ASP+14 percent was the 
cost we found in the proposed rule data for packaged and separately 
payable drugs and biologicals that have HCPCs codes. Paying for 
separately payable drugs at this payment rate would deviate from our 
proposed and final overhead adjustment methodology and our standard 
methodology, as it would pay for separately payable drugs and 
biologicals at the cost for all coded drugs. As we noted above, we do 
not include packaged drugs and biologicals in the standard analysis 
because cost data for these items are already accounted for within the 
APC ratesetting process through the median cost calculation methodology 
discussed in section IIA.2 of this final rule with comment period. To 
include the costs of coded packaged drugs and biologicals in both our 
APC ratesetting process (for associated procedures present on the same 
claim) and in our ratesetting process to establish an equivalent 
average ASP-based payment amount for separately payable drugs and 
biologicals would give these data disproportionate emphasis in the OPPS 
by skewing our analyses, as the costs of these packaged items would be, 
in effect, counted twice.

[[Page 71967]]

    Therefore, we find no basis to pay for separately payable drugs and 
biologicals at ASP+14 percent under our overhead adjustment 
methodology, which redistributes $200 million in cost from coded and 
uncoded packaged drugs and biologicals to separately payable drugs and 
biologicals. We continue to believe that redistributing $200 million 
under our overhead adjustment methodology is appropriate for CY 2011. 
Therefore, for CY 2011, we are finalizing our proposal to continue our 
CY 2010 overhead adjustment methodology. This methodology results in a 
redistribution of $200 million in cost from packaged drugs and 
biologicals to separately payable biologicals, resulting in a payment 
rate of ASP+5 percent for CY 2011.
    After consideration of the public comments we received, we are 
finalizing our proposal, without modification, to continue our CY 2010 
redistribution methodology. Under this methodology, we will 
redistribute $150 million from the pharmacy overhead cost of coded 
packaged drugs and biologicals with an ASP and will redistribute $50 
million from the cost of uncoded packaged drugs and biologicals for a 
total of $200 million to be redistributed from cost in coded and 
uncoded packaged drugs to payment for separately payable drugs for CY 
2011. We will redistribute pharmacy overhead cost among drugs and 
biologicals, thereby maintaining the estimated total cost of drugs and 
biologicals in our claims data (no redistribution of cost would occur 
from other services to drugs and biologicals or vice versa). The result 
of the proposed methodology when applied using July 2010 ASP, data for 
claims for services furnished during CY 2009 and processed through the 
Common Working File before January 1, 2010, and the most recent 
submitted cost reports as of January 1, 2010, is a final payment rate 
for separately paid drugs and biologicals of ASP+5 percent for CY 2011. 
We will continue to include the claims data for 340B hospital in our 
assessment of the total cost of drugs and biologicals that we use to 
calculate the amount above ASP that represents pharmacy overhead under 
the CY 2011 OPPS for the reasons stated above. In addition, we are 
finalizing our proposal to continue to pay hospitals that participate 
in the 340B program at the same rate for separately payable drugs and 
biologicals as we will pay hospitals that do not participate in the 
340B programs for CY 2011 because we are continuing to include the cost 
of drugs and biologicals furnished by 340B hospitals in our 
methodology. In addition, we will include claims from 340B hospitals in 
our calculation of the final payment rate for separately paid drugs and 
biologicals. The estimated payment for separately payable drugs and 
biologicals is taken into account in the calculation of the weight 
scaler that will apply to the relative weights for all procedures 
services (but will not apply to separately payable drugs and 
biologicals) paid under the OPPS, as required by section 1833(t)(14)(H) 
of the Act.
    We note that we continue to pursue the most appropriate methodology 
for establishing payment for drugs and biologicals under the OPPS and 
that we will continue to evaluate the appropriateness of this 
methodology when we establish each year's payment for drugs and 
biologicals under the OPPS.
    We note that separately payable drug and biological payment rates 
listed in Addenda A and B to this final rule with comment period, which 
illustrate the final CY 2011 payment of ASP+5 percent for separately 
payable nonpass-through drugs and nonimplantable biologicals and ASP+6 
percent for pass-through drugs and biologicals, reflect either ASP 
information that is the basis for calculating payment rates for drugs 
and biologicals in the physician's office setting effective October 1, 
2010, or mean unit cost from CY 2009 claims data and updated cost 
report information available for this final rule with comment period. 
In general, these published payment rates are not reflective of actual 
January 2011 payment rates. This is because payment rates for drugs and 
biologicals with ASP information for January 2011 will be determined 
through the standard quarterly process where ASP data submitted by 
manufacturers for the third quarter of 2010 (July 1, 2010 through 
September 30, 2010) are used to set the payment rates that are released 
for the quarter beginning in January 2011 near the end of December 
2010. In addition, payment rates for drugs and biologicals in Addendum 
A and B to this final rule with comment period for which there was no 
ASP information available for October 2010 are based on mean unit cost 
in the available CY 2009 claims data. If ASP information becomes 
available for payment for the quarter beginning in January 2011, we 
will price payment for these drugs and biologicals based on their newly 
available ASP information. Finally, there may be drugs and biologicals 
that have ASP information available for this final rule with comment 
period (reflecting October 2010 ASP data) that do not have ASP 
information available for the quarter beginning in January 2011. These 
drugs and biologicals will then be paid based on mean unit cost data 
derived from CY 2009 hospital claims. Therefore, the payment rates 
listed in Addenda A and B to this final rule with comment period are 
not for January 2011 payment purposes and are only illustrative of the 
CY 2011 OPPS payment methodology using the most recently available 
information at the time of issuance of this final rule with comment 
period.
c. Payment Policy for Therapeutic Radiopharmaceuticals
    Beginning in the CY 2005 OPPS final rule with comment period, CMS 
exempted radiopharmaceutical manufacturers from reporting ASP data for 
all radiopharmaceuticals for payment purposes under the OPPS. (For more 
information, we refer readers to the CY 2005 OPPS final rule with 
comment period (69 FR 65811) and the CY 2006 OPPS final rule with 
comment period (70 FR 68655).) Consequently, we did not have ASP data 
for radiopharmaceuticals for consideration for OPPS ratesetting until 
we began collecting ASP for nonpass-through separately paid therapeutic 
radiopharmaceuticals for CY 2010. In accordance with section 
1833(t)(14)(B)(i)(I) of the Act, we have classified 
radiopharmaceuticals under the OPPS as SCODs. As such, we have paid for 
radiopharmaceuticals at average acquisition cost as determined by the 
Secretary and subject to any adjustment for overhead costs. For CYs 
2006 and 2007, we used mean unit cost data from hospital claims to 
determine each radiopharmaceutical's packaging status and implemented a 
temporary policy to pay for separately payable radiopharmaceuticals 
based on the hospital's charge for each radiopharmaceutical adjusted to 
cost using the hospital's overall CCR. The methodology of providing 
separate radiopharmaceutical payment based on charges adjusted to cost 
through application of an individual hospital's overall CCR for CYs 
2006 and 2007 was finalized as an interim proxy for average acquisition 
cost.
    In CY 2008, we packaged payment for all diagnostic 
radiopharmaceuticals and we proposed and finalized a methodology to 
provide prospective payment for therapeutic radiopharmaceuticals 
(defined as those Level II HCPCS codes that include the term 
``therapeutic'' along with a radiopharmaceutical in their long code 
descriptors) using mean costs derived from the CY 2006 claims data, 
where the costs were determined using our

[[Page 71968]]

standard methodology of applying hospital-specific departmental CCRs to 
radiopharmaceutical charges, defaulting to hospital-specific overall 
CCRs only if appropriate departmental CCRs were unavailable (72 FR 
66772). Following issuance of the CY 2009 OPPS/ASC proposed rule, 
section 142 of the Medicare Improvements for Patients and Providers Act 
of 2008 (Pub. L. 110-275) amended section 1833(t)(16)(C) of the Act, as 
amended by section 106(a) of the Medicare, Medicaid, and SCHIP 
Extension Act of 2007 (Pub. L. 110-173), to further extend the payment 
period for therapeutic radiopharmaceuticals based on hospital's charges 
adjusted to cost through December 31, 2009. Therefore, for CY 2009, we 
finalized a policy to continue to pay hospitals for therapeutic 
radiopharmaceuticals at charges adjusted to cost through the end of CY 
2009.
    For CY 2010, we proposed and finalized a policy to pay for 
separately paid therapeutic radiopharmaceuticals under the ASP 
methodology adopted for separately payable drugs and biologicals. We 
allowed manufacturers to submit the ASP data in a patient-specific dose 
or patient-ready form in order to properly calculate the ASP amount for 
a given HCPCs code. This resulted in payment for nonpass-through 
separately paid therapeutic radiopharmaceuticals at ASP+4 percent for 
CY 2010 for products for which the manufacturer submitted ASP. We also 
finalized a policy to base therapeutic radiopharmaceutical payment on 
CY 2008 mean unit cost data derived from hospital claims if ASP 
information was unavailable.
    We believe that the rationale outlined in the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60524 through 60525) continues to 
be appropriate for nonpass-through separately payable therapeutic 
radiopharmaceuticals in CY 2011. Therefore, in the CY 2011 OPPS/ASC 
proposed rule (75 FR 46280), we proposed to continue to pay all 
nonpass-through, separately payable therapeutic radiopharmaceuticals 
under the ASP+X payment level established using the proposed pharmacy 
overhead adjustment based on a redistribution methodology to set 
payment for separately payable drugs and biologicals (as discussed in 
section V.B.3.b.) based on ASP information, if available, for a 
``patient ready'' dose and updated on a quarterly basis for products 
for which manufacturers report ASP data. For a full discussion of how a 
``patient ready'' dose is defined, we refer readers to the CY 2010 
OPPS/ASC final rule with comment period, 74 FR 60520 through 60521. We 
also proposed to rely on CY 2009 mean unit cost data derived from 
hospital claims data for payment rates for therapeutic 
radiopharmaceuticals for which ASP data are unavailable and to update 
the payment rates for separately payable therapeutic 
radiopharmaceuticals, according to our usual process for updating the 
payment rates for separately payable drugs and biologicals, on a 
quarterly basis if updated ASP information is available.
    Comment: A majority of commenters supported CMS' proposal to 
continue to pay for separately payable therapeutic radiopharmaceuticals 
under the ASP+X payment level established using the proposed pharmacy 
overhead adjustment based on a redistribution methodology to set 
payment for separately payable drugs and biologicals based on ASP 
information, if available, for a ``patient ready'' dose and updated on 
a quarterly basis for products for which manufacturers report ASP data. 
One commenter supported the proposed payment rate for nonpass-through 
separately payable drugs, biologicals, and therapeutic 
radiopharmaceuticals at ASP+6 percent.
    Several commenters disagreed with CMS' proposal to rely on CY 2009 
mean unit cost data derived from hospital claims data for payment rates 
for therapeutic radiopharmaceuticals for which ASP data are 
unavailable. The commenters suggested that CMS instead use hospital's 
charges adjusted to cost when ASP data are unavailable for nonpass-
through separately payable therapeutic radiopharmaceuticals. Some 
commenters also recommended that CMS provide cost-based payment to 
hospitals when ASP is not available. A few commenters further noted 
that CMS should require all manufacturers of therapeutic 
radiopharmaceuticals to submit ASP data for all therapeutic 
radiopharmaceuticals currently paid under the OPPS.
    Response: We appreciate the commenters' support. We continue to 
believe that providing payment for therapeutic radiopharmaceuticals 
based on ASP or mean unit cost if ASP information is not available 
would provide appropriate payment for these products. When ASP data are 
not available, we believe that paying for therapeutic 
radiopharmaceuticals using mean unit cost would appropriately pay for 
the average hospital acquisition and associated handling costs of 
nonpass-through separately payable therapeutic radiopharmaceuticals. As 
we stated in the CY 2010 OPPS/ASC final rule with comment period (74 FR 
60523), although using mean unit cost for payment for therapeutic 
radiopharmaceuticals when ASP data are not available is not the usual 
OPPS process (that relies on alternative data source, such as WAC or 
AWP, when ASP information is temporarily unavailable, prior to 
defaulting to the mean unit cost from hospital claims data), we 
continue to believe that WAC or AWP is not an appropriate proxy to 
provide OPPS payment for average therapeutic radiopharmaceutical 
acquisition cost and associated handling costs when manufacturers are 
not required to submit ASP data. In addition, we do not believe that we 
should provide payment at charges reduced to cost or reasonable cost 
when ASP data is not available. We have stated previously, in the CY 
2008 OPPS/ASC final rule with comment period, that we continue to 
believe that payment on a claim-specific basis is not consistent with 
the payment of items and services on a prospective basis under the OPPS 
and may lead to extremely high or low payments to hospitals for 
radiopharmaceuticals, even when those products would be expected to 
have relatively predictable and consistent acquisition and handling 
costs across individual clinical cases and hospitals. For CY 2011, 
Medicare pays for only a few outpatient services at reasonable cost, 
which are not paid under the OPPS but through cost report settlement. 
These include but are not limited to corneal tissue acquisition, and 
influenza vaccines. Corneal tissue acquisition and influenza vaccines 
are paid at reasonable cost because the input costs for future years 
are hugely unpredictable and to set a prospective payment rate for them 
may result in payment that is so deficient that hospitals would not be 
able to provide the services and the general public could be denied the 
benefits. In particular, it is not possible to forecast with confidence 
what the cost of influenza vaccine would be a year in advance. In 
contrast, however, the input costs of therapeutic radiopharmaceuticals 
are not hugely unpredictable. Therefore, we do not believe that 
therapeutic radiopharmaceuticals should be paid in the same manner as 
outpatient services paid at reasonable cost. We continue to believe 
that when ASP data are unavailable for therapeutic 
radiopharmaceuticals, payment based upon mean-unit cost is an 
appropriate proxy for hospital's acquisition and handling data.
    We disagree with the commenters who suggested that CMS require all 
manufacturers of therapeutic

[[Page 71969]]

radiopharmaceuticals to submit ASP data for all therapeutic 
radiopharmaceuticals currently paid under the OPPS. We continue to 
believe that requiring ASP data for all therapeutic 
radiopharmaceuticals currently paid under the OPPS would potentially be 
burdensome for manufacturers. As we stated in the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60524), the challenges involved 
in reporting ASP for a radiopharmaceutical, given the variety of 
manufacturing processes, are significant in some cases and, therefore, 
payment based on mean unit cost from historical hospital claims data 
offers the best proxy for average hospital acquisition cost and 
associated handling costs for a radiopharmaceutical in the absence of 
ASP. We continue to believe that we should allow, but not require, 
manufacturers to submit ASP information for therapeutic 
radiopharmaceuticals. If ASP information is unavailable for a 
therapeutic radiopharmaceutical, meaning that a manufacturer is not 
willing or not able to submit ASP information, we will provide payment 
based on the mean unit cost of the product that is applicable to 
payment rates for the year the nonpass-through therapeutic 
radiopharmaceutical is administered.
    Comment: One commenter stated that while it supported paying 
separately payable therapeutic radiopharmaceuticals under the ASP+X 
payment methodology established in the CY 2011 proposed rule, it 
believed that payment for radiopharmaceuticals should be made at a 
higher level than other drugs and biologicals because of the unique 
pharmacy handling and overhead costs association with 
radiopharmaceuticals. The commenter therefore recommended that CMS pay 
for radiopharmaceuticals at a payment rate of at least ASP+10 percent 
while continuing to develop detailed data on the overhead and handling 
costs associated with radiopharmaceuticals.
    Response: We continue to believe that paying for therapeutic 
radiopharmaceuticals under the ASP+X payment amount established for 
separately payable drugs and biologicals, established at ASP+5 percent 
for CY 2011, is the most appropriate proxy for acquisition and pharmacy 
overhead and handling costs for separately payable therapeutic 
radiopharmaceuticals. As we stated in the CY 2010 OPPS/ASC final rule 
with comment period (74 FR 60522), we established our interpretation of 
``patient-ready'' for purposes of the OPPS to mean the ASP, reported in 
terms that reflect the applicable HCPCS code descriptor, for all 
component materials of the radiopharmaceutical and any additional 
processing, including radiolabeling, that is reflected in the price the 
manufacturer charges for the radiopharmaceutical so long as the fees 
paid for such additional processing meet the ``bona fide service fee'' 
test under the regulations implementing section 1847A of the Act. We 
explicitly noted that because radiopharmaceuticals uniquely require 
radiolabeling of their component materials, we believe that, for 
purposes of OPPS ASP reporting, radiolabeling could constitute a bona 
fide service on behalf of the manufacturer and the fees could meet the 
``bona fide service fee'' test. Given our position on radiolabeling, we 
similarly believe that significant processing costs associated with 
handling radiopharmaceuticals may be reflected in the prices used to 
calculate the manufacturer's ASP data for OPPS purposes. Therefore, the 
combined single payment for nonpass-through separately payable 
therapeutic radiopharmaceutical acquisition and overhead costs embodied 
in the ASP+5 percent payment rate for CY 2011 would address any other 
processing after the sale by the manufacturer, and we continue to 
believe this payment is sufficient for these additional handing costs 
borne by the hospital. Under this interpretation of ``patient-ready'' 
dose, we do not believe that making an additional payment for more 
intensive handling costs is necessary.
    Comment: One commenter indicated that CMS did not publish a payment 
rate that reflected the most recently available price for HCPCS code 
A9545 (Iodine I-131 tositumomab, therapeutic, per treatment dose) in 
the CY 2011 OPPS/ASC proposed rule. The commenter noted that the 
payment rate published in the proposed rule reflected second quarter 
ASP instead of the third quarter ASP. The commenter suggested that CMS 
ensure that the CY 2011 final rule payment rate reflects the most 
current ASP data for HCPCS code A9545.
    Response: The proposed payment rate published in Addenda A and B to 
the CY 2011 OPPS/ASC proposed rule for HCPCS code A9545 reflected 
second quarter ASP payment rates as of April 1, 2010. We disagree with 
the commenter's assertion that we should have published the ASP 
released for the third quarter of 2010 or ASP payment rates as of July 
1, 2010. We do not include payment rates in Addenda A and B reflecting 
third quarter ASP payment rates (July payment rates) for proposed rules 
because ASP pricing information for the third quarter of 2010 was not 
available, at the time of the development of the proposed rule, As we 
state above, separately payable drug and biological payment rates 
listed in Addenda A and B of this final rule with comment period, which 
illustrate the final CY 2011 payment of ASP+5 percent for separately 
payable nonpass-through drugs, reflect either ASP information effective 
October 1, 2010, or mean unit cost from CY 2009 claims data and updated 
cost report information available for this final rule with comment 
period. In general, these published payment rates are not reflective of 
actual January 2011 payment rates. This is because payment rates for 
drugs and biologicals with ASP information for January 2011 will be 
determined through the standard quarterly process where ASP data 
submitted by manufacturers for the third quarter of 2010 (July 1, 2010 
through September 30, 2010) are used to set the payment rates that are 
released for the quarter beginning in January 2011 near the end of 
December 2010. The payment rate for HCPCS code A9545 is contained in 
Addenda A and B of this final rule with comment period.
    After consideration of the public comments we received, we are 
finalizing our proposal, without modification, to continue to pay all 
nonpass-through, separately payable therapeutic radiopharmaceuticals 
under the ASP+X payment level established using the pharmacy overhead 
adjustment based on a redistribution methodology to set payment for 
separately payable drugs and biologicals (as discussed in section 
V.B.3.b. of this final rule with comment period) based on ASP 
information, if available, for a ``patient ready'' dose and updated on 
a quarterly basis for products for which manufacturers report ASP data. 
For CY 2011, nonpass-through separately payable therapeutic 
radiopharmaceuticals will be paid at ASP+5 percent under the ASP+X 
payment methodology for nonpass-through separately payable drugs and 
biologicals. We will base nonpass-through, separately payable 
therapeutic radiopharmaceutical payment rates on mean unit cost derived 
from CY 2009 claims data when ASP pricing is not available. The final 
CY 2011 payment rates for nonpass-through separately payable 
therapeutic radiopharmaceuticals are included in Addenda A and B to 
this final rule with comment period.

[[Page 71970]]

4. Payment for Blood Clotting Factors
    For CY 2010, we provided payment for blood clotting factors under 
the same methodology as other nonpass-through separately payable drugs 
and biologicals under the OPPS and continued paying an updated 
furnishing fee. That is, for CY 2010, we provided payment for blood 
clotting factors under the OPPS at ASP+4 percent, plus an additional 
payment for the furnishing fee. We note that when blood clotting 
factors are provided in physicians' offices under Medicare Part B and 
in other Medicare settings, a furnishing fee is also applied to the 
payment. The CY 2010 updated furnishing fee is $0.170 per unit.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46280), we proposed to 
pay for blood clotting factors at ASP+6 percent, consistent with our 
proposed payment policy for other nonpass-through separately payable 
drugs and biologicals, and to continue our policy for payment of the 
furnishing fee using an updated amount. The furnishing fee update is 
based on the percentage increase in the Consumer Price Index (CPI) for 
medical care for the 12-month period ending with June of the previous 
year. Because the Bureau of Labor Statistics releases the applicable 
CPI data after the MPFS and OPPS/ASC proposed rules are published, we 
are not able to include the actual updated furnishing fee in the 
proposed rules. Therefore, in accordance with our policy, as finalized 
in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66765), 
we proposed to announce the actual figure for the percent change in the 
applicable CPI and the updated furnishing fee calculated based on that 
figure through applicable program instructions and posting on the CMS 
Web site at:  http://www.cms.hhs.gov/McrPartBDrugAvgSalesPrice/.
    Comment: A few commenters supported CMS' proposal to continue to 
apply the furnishing fee for blood clotting factors provided in the 
OPD. One commenter stated that the furnishing fee helps ensure patient 
access to blood clotting factors by increasing the payment rate for 
these items. Other commenters supported payment for blood clotting 
factors at no less than ASP+6 percent for CY 2011 and stated that 
payment at less than ASP+6 percent for all drugs and biologicals, 
especially blood clotting factors and all drugs and biologicals, is 
inappropriate. Finally, one commenter supported the payment of blood 
clotting factors at the same rate that applies to other nonpass-through 
separately payable drugs and biologicals in the OPD.
    Response: We appreciate the commenters' support. We continue to 
believe that applying the furnishing fee for blood clotting factors is 
appropriate for CY 2011. However, we see no compelling reason to 
provide payment for blood clotting factors under a different 
methodology for OPPS purposes at this time. For CY 2011, under this 
final rule with comment period, we will pay for blood clotting factors 
under the same methodology as other separately payable drugs and 
biologicals under the OPPS and to continue paying an updated furnishing 
fee. For the reasons we discuss in section V.B.3. of this final rule 
with comment period, we believe that the payment rate of ASP+5 percent 
is appropriate payment for the acquisition cost and pharmacy overhead 
related to drugs and biologicals that are not packaged, which includes 
blood clotting factors. In addition, because we recognize that there is 
additional work involved in acquiring the product, that is neither 
acquisition cost nor pharmacy overhead, we believe that it continues to 
be appropriate to pay a furnishing fee for blood clotting factors under 
the OPPS as is done in the physician's office setting and the inpatient 
hospital setting.
    After consideration of the public comments we received, we are 
finalizing our CY 2011 proposal, without modification, to provide 
payment for blood clotting factors under the same methodology as other 
separately payable drugs and biologicals under the OPPS and to continue 
paying an updated furnishing fee. We will announce the actual figure 
for the percent change in the applicable CPI and the updated furnishing 
fee calculation based on that figure through the applicable program 
instructions and postings on the CMS Web site.
5. Payment for Nonpass-Through Drugs, Biologicals, and 
Radiopharmaceuticals With HCPCS Codes, But Without OPPS Hospital Claims 
Data
    The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (Pub. L. 108-173) does not address the OPPS payment in CY 2005 
and after for drugs, biologicals, and radiopharmaceuticals that have 
assigned HCPCS codes, but that do not have a reference AWP or approval 
for payment as pass-through drugs or biologicals. Because there is no 
statutory provision that dictated payment for such drugs, biologicals, 
and radiopharmaceuticals in CY 2005, and because we had no hospital 
claims data to use in establishing a payment rate for them, we 
investigated several payment options for CY 2005 and discussed them in 
detail in the CY 2005 OPPS final rule with comment period (69 FR 65797 
through 65799).
    For CYs 2005 to 2007, we implemented a policy to provide separate 
payment for new drugs, biologicals, and radiopharmaceuticals with HCPCS 
codes (specifically those new drug, biological, and radiopharmaceutical 
HCPCS codes in each of those calendar years that did not crosswalk to 
predecessor HCPCS codes) but which did not have pass-through status, at 
a rate that was equivalent to the payment they received in the 
physician's office setting, established in accordance with the ASP 
methodology for drugs and biologicals, and based on charges adjusted to 
cost for radiopharmaceuticals. For CYs 2008 and 2009, we finalized a 
policy to provide payment for new drugs (excluding contrast agents and 
diagnostic radiopharmaceuticals) and biologicals (excluding implantable 
biologicals for CY 2009) with HCPCS codes, but which did not have pass-
through status and were without OPPS hospital claims data, at ASP+5 
percent and ASP+4 percent, respectively, consistent with the final OPPS 
payment methodology for other separately payable drugs and biologicals. 
New therapeutic radiopharmaceuticals were paid at charges adjusted to 
cost based on the statutory requirement for CY 2008 and CY 2009 and 
payment for new diagnostic radiopharmaceuticals was packaged in both 
years. For CY 2010, we continued to provide payment for new drugs 
(excluding contrast agents), and nonimplantable biologicals with HCPCS 
codes that do not have pass-through status and are without OPPS 
hospital claims data, at ASP+4 percent, consistent with the CY 2010 
payment methodology for other separately payable nonpass-through drugs, 
and nonimplantable biologicals. We also finalized a policy to extend 
the CY 2009 payment methodology to new therapeutic radiopharmaceutical 
HCPCS codes, consistent with our final policy providing separate 
payment for therapeutic radiopharmaceuticals in the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60581 through 60526), that do not 
crosswalk to CY 2009 HCPCS codes, do not have pass-through status, and 
are without OPPS hospital claims data, at ASP+4 percent.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46281), for CY 2011, 
we proposed to continue the CY 2010 payment methodology for new drugs 
(excluding contrast agents and

[[Page 71971]]

diagnostic radiopharmaceuticals), nonimplantable biologicals, and 
therapeutic radiopharmaceuticals that meet the following conditions: 
Those drugs, biologicals and therapeutic radiopharmaceuticals that have 
HCPCS codes that do not crosswalk to CY 2010 HCPCS codes, those that do 
not have pass-through status, and those that are without OPPS hospital 
claims data. We proposed to provide payment for new CY 2011 drugs 
(excluding contrast agents and diagnostic radiopharmaceuticals), 
nonimplantable biologicals, and therapeutic radiopharmaceuticals, at 
ASP+6 percent, consistent with the proposed CY 2011 payment methodology 
for other separately payable nonpass-through drugs, nonimplantable 
biologicals, and therapeutic radiopharmaceuticals. We indicated that we 
believe this proposed policy would ensure that new nonpass-through 
drugs, nonimplantable biologicals, and therapeutic radiopharmaceuticals 
would be treated like other drugs, nonimplantable biologicals, and 
therapeutic radiopharmaceuticals under the OPPS, unless they are 
granted pass-through status. Only if they are pass-through drugs, 
nonimplantable biologicals, or therapeutic radiopharmaceuticals would 
they receive a different payment for CY 2011, generally equivalent to 
the payment these drug and biologicals would receive in the physician's 
office setting, consistent with the requirements of the statute.
    We proposed to continue our CY 2010 policy of packaging payment for 
all new nonpass-through diagnostic radiopharmaceuticals, contrast 
agents, and implantable biologicals with HCPCS codes but without claims 
data (those new CY 2011 diagnostic radiopharmaceutical, contrast agent, 
and implantable biological HCPCS codes that do not crosswalk to 
predecessor HCPCS codes), consistent with the proposed packaging of all 
existing nonpass-through diagnostic radiopharmaceuticals, contrast 
agents and implantable biologicals (as discussed in more detail in 
section V.B.2.d. and IV.A.2. of this final rule with comment period).
    In accordance with the OPPS ASP methodology, in the absence of ASP 
data, for CY 2011, we proposed to continue the policy we implemented 
beginning in CY 2005 of using the WAC for the product to establish the 
initial payment rate for new nonpass-through drugs and biologicals with 
HCPCS codes, but which are without OPPS claims data. However, we noted 
that if the WAC is also unavailable, we would make payment at 95 
percent of the product's most recent AWP. We also proposed to assign 
status indicator ``K'' to HCPCS codes for new drugs and nonimplantable 
biologicals without OPPS claims data and for which we have not granted 
pass-through status. We further noted that, with respect to new items 
for which we do not have ASP data, once their ASP data become available 
in later quarterly submissions, their payment rates under the OPPS 
would be adjusted so that the rates would be based on the ASP 
methodology and set to the finalized ASP-based amount (proposed for CY 
2011 at ASP+6 percent) for items that have not been granted pass-
through status. We indicated that the proposed policy would ensure that 
new nonpass-through drugs, nonimplantable biologicals, and therapeutic 
radiopharmaceuticals would be treated like other drugs, nonimplantable 
biologicals, and therapeutic radiopharmaceuticals under the OPPS, 
unless they are granted pass-through status. Only if they are pass-
through drugs, nonimplantable biologicals, or therapeutic 
radiopharmaceuticals would they receive a different payment for CY 
2011, generally equivalent to the payment these drugs and biologicals 
would receive in the physician's office setting, consistent with the 
requirements of the statute.
    We did not receive any public comments specific to these proposals. 
While commenters generally supported our proposal to pay for separately 
payable drugs at ASP+6 percent and recommended that we pay no less than 
ASP+6 percent for separately payable drugs in CY 2011, these comments 
were not specific to new drugs and biologicals with HCPCS codes but 
without OPPS claims data. For more information regarding payment for 
separately payable drugs, including general public comments and our 
responses, we refer readers to section V.B.3.b of this final rule with 
comment period. In addition, commenters on the CY 2011 OPPS/ASC 
proposed rule objected to packaging payment for diagnostic 
radiopharmaceuticals and contrast agents in general, but these comments 
were not directed to new diagnostic radiopharmaceuticals or contrast 
agents with HCPCS codes but without OPPS claims data. We summarize 
these comments and provide our response in section V.A.2.d. of this 
final rule with comment period.
    We are finalizing our CY 2011 proposal, without modification, as 
follows: Payment for new drugs (excluding contrast agents and 
diagnostic radiopharmaceuticals), nonimplantable biologicals, and 
therapeutic radiopharmaceuticals with HCPCS codes that do not crosswalk 
to CY 2010 HCPCS codes, but which do not have pass-through status and 
for which we do not have OPPS hospital claims data, will be made at 
ASP+5 percent for CY 2011, consistent with the proposed CY 2011 payment 
methodology for other new separately payable nonpass-through drugs, 
nonimplantable biologicals and therapeutic radiopharmaceuticals, for 
this final rule with comment period. In cases where ASP information is 
not available, payment will be made using WAC, and, if WAC is also 
unavailable, payment will be made at 95 percent of the product's most 
recent AWP. Further, payment for all new nonpass-through diagnostic 
radiopharmaceuticals, contrast agents, and implantable biologicals with 
HCPCS codes but for which we do not have OPPS claims data will be 
packaged for CY 2011. Finally, we are assigning status indicator ``K'' 
to HCPCS codes for new drugs and nonimplantable biologicals for which 
we do not have OPPS claims data and for which we have not granted pass-
through status for CY 2011. With respect to new items for which we do 
not have ASP data, once their ASP data becomes available in later 
quarterly submissions, their payments will be adjusted so that the 
rates will be based on the ASP methodology and set to the finalized ASP 
amount of ASP+5 percent. This policy will ensure that they are paid for 
actual acquisition cost and pharmacy overhead for these new products.
    For CY 2011, we also proposed to continue our CY 2010 policy to 
base payment for new therapeutic radiopharmaceuticals with HCPCS codes, 
but which do not have pass-through status and for which we do not have 
claims data, on the WACs for these products if ASP data for these 
therapeutic radiopharmaceuticals are not available. If the WACs are 
also unavailable, we proposed to make payment for a new therapeutic 
radiopharmaceutical at 95 percent of the product's most recent AWP 
because we would not have mean costs from hospital claims data upon 
which to base payment. Analogous to new drugs and biologicals, we 
proposed to continue our policy of assigning status indicator ``K'' to 
HCPCS codes for new therapeutic radiopharmaceuticals without OPPS 
claims data for which we have not granted pass-through status.
    We did not receive any public comments specific to our proposal for 
new therapeutic radiopharmaceuticals with HCPCS codes but without pass-
through status. However, commenters on the CY 2011 OPPS/ASC proposed

[[Page 71972]]

rule were generally supportive of the ASP methodology for payment for 
therapeutic radiopharmaceuticals in the HOPD, and we are finalizing an 
ASP payment methodology for separately payable therapeutic 
radiopharmaceuticals for CY 2011, as discussed in section V.B.3.c. of 
this final rule with comment period.
    We are finalizing our CY 2011 proposals, without modification, to 
provide payment for new therapeutic radiopharmaceuticals with HCPCS 
codes but without pass-through status, if ASP information is not 
available, based on WAC. If WAC information is also unavailable, we 
will make payment for new therapeutic radiopharmaceuticals at 95 
percent of the product's most recent AWP. In addition, we are assigning 
status indicator ``K'' to HCPCS codes for new therapeutic 
radiopharmaceuticals in CY 2010 that do not have pass-through status.
    Consistent with other ASP-based payments, for CY 2011, we proposed 
to announce any changes to the payment amounts for new drugs and 
biologicals in the CY 2011 OPPS/ASC final rule with comment period and 
also on a quarterly basis on the CMS Web site during CY 2011 if later 
quarter ASP submissions (or more recent WACs or AWPs) indicate that 
changes to the payment rates for these drugs and biologicals are 
necessary. The payment rates for new therapeutic radiopharmaceuticals 
will also be changed accordingly, based on later quarter ASP 
submissions. We note that the new CY 2011 HCPCS codes for drugs, 
biologicals, and therapeutic radiopharmaceuticals were not available at 
the time of development of the proposed rule. However, they are 
included in Addendum B to this CY 2011 OPPS/ASC final rule with comment 
period. They are assigned comment indicator ``NI'' in Addendum B to 
reflect that their interim final OPPS treatment is open to public 
comment on this CY 2011 OPPS/ASC final rule with comment period.
    We did not receive any public comments on our proposal to announce, 
via the CMS Web site, any changes to the OPPS payment amounts for new 
drugs and biologicals on a quarterly basis. Therefore, we are 
finalizing our proposal and will update payment rates for new drugs, 
biologicals, and therapeutic radiopharmaceuticals, as necessary, in 
association with our quarterly update process and provide this 
information on the CMS Web site.
    There are several nonpass-through drugs and biologicals that were 
payable in CY 2009 and/or CY 2010, for which we did not have CY 2009 
hospital claims data available for the proposed rule and for which 
there are no other HCPCS codes that describe different doses of the 
same drug. These drugs and biologicals do have pricing information 
available for the ASP methodology. In the CY 2011 OPPS/ASC proposed 
rule (75 FR46281), we noted that there are currently no therapeutic 
radiopharmaceuticals in this category. In order to determine the 
packaging status of these products for CY 2011, we calculated an 
estimate of the per day cost of each of these items by multiplying the 
payment rate for each product based on ASP+6 percent, similar to other 
nonpass-through drugs and biologicals paid separately under the OPPS, 
by an estimated average number of units of each product that would 
typically be furnished to a patient during one administration in the 
hospital outpatient setting. We proposed to package items for which we 
estimated the per administration cost to be less than or equal to $70, 
which was the general packaging threshold that we proposed for drugs, 
nonimplantable biologicals, and therapeutic radiopharmaceuticals in CY 
2011. We proposed to pay separately for items with an estimated per day 
cost greater than $70 (with the exception of diagnostic 
radiopharmaceuticals, contrast agents, and implantable biologicals, 
which we proposed to continue to package regardless of cost (as 
discussed in more detail in section V.B.2.d. of this final rule with 
comment period)) in CY 2011. We proposed that the CY 2011 payment for 
separately payable items without CY 2009 claims data would be ASP+6 
percent, similar to payment for other separately payable nonpass-
through drugs and biologicals under the OPPS. In accordance with the 
ASP methodology used in the physician's office setting, in the absence 
of ASP data, we proposed to use the WAC for the product to establish 
the initial payment rate. However, we noted that if the WAC is also 
unavailable, we would make payment at 95 percent of the most recent AWP 
available.
    We did not receive any public comments on our proposal to use 
estimated per day costs for these drugs and biologicals or on the 
resulting packaging status of these drugs and biologicals. However, 
upon receiving updated CY 2009 claims data for HCPCS codes J1835 
(Injection, itraconazole, 50 mg), J2724 (Injection, protein c 
concentrate, intravenous, human 10 iu) and CPT code 90725 (Cholera 
vaccine for injectable use), for this final rule with comment period, 
we determined that we no longer needed to calculate an estimated 
average number of units for these two items. Therefore, for CY 2011, we 
calculated the packaging status for HCPCS codes J1835 and J2724 using 
our standard methodology as described above. These codes and their 
packaging status are discussed further in section V.B.2.b. of this 
final rule with comment period. We discuss the CY 2011 final status 
indicator for 90725 below. Therefore, we are finalizing our CY 2011 
proposal, with modification, to use the estimated number of units per 
day included in Table 35 below, excluding the estimated number of units 
for HCPCS codes J1835, J2724 and CPT code 90725, to determine estimated 
per day costs for the corresponding drugs and biologicals for CY 2011. 
Further, we are finalizing our proposal to package those drugs with an 
estimated per day cost less than or equal to $70 and to provide 
separate payment for those drugs and biologicals (other than diagnostic 
radiopharmaceuticals, contrast agents and implantable biologicals) with 
estimated per day costs over $70 for CY 2011. For those drugs and 
biologicals that we determined to be separately payable in CY 2011, 
payment will be made at ASP+5 percent. If ASP information is not 
available, payment will be based on WAC or 95 percent of the most 
recently published AWP if WAC is not available. The final estimated 
units per day and status indicators for these items are displayed in 
Table 35 below.

                           Table 35--Drugs and Biologicals Without CY 2009 Claims Data
----------------------------------------------------------------------------------------------------------------
                                                                    Estimated
                                                                 average number
       CY 2011 HCPCS code            CY 2011 long descriptor      of units per      CY 2011 SI     CY 2011  APC
                                                                 administration
----------------------------------------------------------------------------------------------------------------
90681..........................  Rotavirus vaccine, human,                    1               K             1239
                                  attenuated, 2 dose schedule,
                                  live, for oral use.
J0205..........................  injection, alglucerase, per 10             420               K             0900
                                  units.

[[Page 71973]]

 
J0364..........................  Injection, apomorphine                      12               N
                                  hydrochloride, 1 mg.
J3355..........................  Injection, urofollitropin, 75                2               K             1741
                                  IU.
J3485..........................  Injection, zidovudine, 10 mg..              42               N
J7185..........................  Injection, factor viii                    1750               K             1268
                                  (antihemophilic factor,
                                  recombinant) (xyntha), per
                                  i.u.
J9215..........................  Injection, interferon, alfa-                 5               K             0865
                                  n3, (human leukocyte
                                  derived), 250,000 iu.
J9226..........................  Histrelin implant (supprelin                 1               K             1142
                                  la), 50 mg.
J9357..........................  Injection, valrubicin,                       4               K             1235
                                  intravesical, 200 mg.
Q0515..........................  Injection, sermorelin acetate,              70               K             3050
                                  1 microgram.
Q2017..........................  Injection, teniposide, 50 mg..            9.35               K             7035
----------------------------------------------------------------------------------------------------------------

    Finally, there were five drugs and biologicals, shown in Table 36 
below, that were payable in CY 2009, but for which we lacked CY 2009 
claims data and any other pricing information for the ASP methodology 
for the CY 2011 OPPS/ASC proposed rule. In CY 2009, for similar items 
without CY 2007 claims data and without pricing information for the ASP 
methodology, we previously stated that we were unable to determine 
their per day cost and we packaged these items for the year, assigning 
these items status indicator ``N.''
    For CY 2010, we finalized a policy to change the status indicator 
for nine drugs and biologicals to status indicator ``E'' (Not paid by 
Medicare when submitted on outpatient claims (any outpatient bill 
type)) that we understood were not currently sold or had been 
identified as obsolete. In addition, we noted that we would provide 
separate payment for these drugs and biologicals if pricing information 
reflecting recent sales becomes available mid-year in CY 2010 for the 
ASP methodology. If pricing information became available, we would 
assign the products status indicator ``K'' and pay for them separately 
for the remainder of CY 2010. In the CY 2011 OPPS/ASC proposed rule (75 
FR 46282), for CY 2011, we proposed to continue our CY 2010 policy to 
assign status indicator ``E'' to drugs and biologicals that lack CY 
2009 claims data and pricing information for the ASP methodology. We 
also proposed that if pricing information were to become available, we 
would assign the products status indicator ``K'' and would pay for them 
separately for the remainder of CY 2011.
    We did not receive any public comments on our proposal to change 
the status indicators for drugs and biologicals without CY 2009 claims 
data or pricing information for the ASP methodology. We are finalizing 
our CY 2011 proposal, without modification, to assign status indicator 
``E'' to these drugs and biologicals. As we have used updated claims 
data and ASP pricing information for this final rule with comment 
period, we have newly identified, for this final rule with comment 
period, HCPCS codes Q4117 (Hyalomatrix, per square centimeter), Q4119 
(Matristem wound matrix, per square centimeter), Q4120 (Matristem burn 
matrix, per square centimeter), and CPT code 90725 (Cholera vaccine for 
injectable use) as lacking CY 2009 claims data and any other pricing 
information for the ASP methodology. Therefore, in addition to the 
HCPCS codes we proposed to assign status indicator ``E'' for CY 2011 on 
this basis in the proposed rule, we are assigning status indicator 
``E'' to HCPCS codes Q4117, Q4119, and Q4120 and CPT code 90725 for CY 
2011. All drugs and biologicals without CY 2009 hospital claims data 
and data based on the ASP methodology that are assigned status 
indicator ``E'' on this basis at the time of this final rule with 
comment period for CY 2011 are displayed in Table 36 below.

 Table 36--Drugs and Biologicals Without CY 2009 Claims Data and Without
               Pricing Information for the ASP Methodology
------------------------------------------------------------------------
                                                          Final CY 2011
     CY 2011 HCPCS code        CY 2011 long descriptor          SI
------------------------------------------------------------------------
90725......................  Cholera vaccine for                      E
                              injectable use.
J0190......................  Injection, biperiden                     E
                              lactate, per 5 mg.
J1435......................  Injection, estrone, per 1                E
                              mg.
J3320......................  Injection, spectinomycin                 E
                              dihydrochloride, up to 2
                              gm.
J3400......................  Injection, triflupromazine               E
                              hcl, up to 20 mg.
Q0174......................  Thiethylperazine maleate,                E
                              10 mg, oral, FDA approved
                              prescription anti-emetic,
                              for use as a compl.
Q4117......................  Hyalomatrix, per square                  E
                              centimeter.
Q4119......................  Matristem wound matrix,                  E
                              per square centimeter.
Q4120......................  Matristem burn matrix, per               E
                              square centimeter.
------------------------------------------------------------------------


[[Page 71974]]

VI. Estimate of OPPS Transitional Pass-Through Spending for Drugs, 
Biologicals, Radiopharmaceuticals, and Devices

A. Background

    Section 1833(t)(6)(E) of the Act limits the total projected amount 
of transitional pass-through payments (defined in sections IV.A.1. and 
V.A.1. of this final rule with comment period) for drugs, biologicals, 
radiopharmaceuticals, and categories of devices for a given year to an 
``applicable percentage'' (defined below) of total program payments 
estimated to be made for all covered services under the hospital OPPS 
furnished for that year. For a year (or portion of a year) before CY 
2004, the applicable percentage is 2.5 percent; for CY 2004 and 
subsequent years, the applicable percentage is a percentage specified 
by the Secretary up to (but not to exceed) 2.0 percent.
    If we estimate before the beginning of the calendar year that the 
total amount of pass-through payments in that year would exceed the 
applicable percentage, section 1833(t)(6)(E)(iii) of the Act requires a 
uniform prospective reduction in the amount of each of the transitional 
pass-through payments made in that year to ensure that the limit is not 
exceeded. We make an estimate of pass-through spending to determine not 
only whether payments exceed the applicable percentage, but also to 
determine the appropriate prorata reduction to the conversion factor 
for the projected level of pass-through spending in the following year 
in order to ensure that total estimated pass-through spending for the 
prospective payment year is budget neutral as required by section 
1883(t)(6)(E) of the Act.
    For devices, developing an estimate of pass-through spending in CY 
2011 entails estimating spending for two groups of items. The first 
group of items consists of device categories that were recently made 
eligible for pass-through payment and that will continue to be eligible 
for pass-through payment in CY 2011. The CY 2008 OPPS/ASC final rule 
with comment period (72 FR 66778) describes the methodology we have 
used in previous years to develop the pass-through spending estimate 
for known device categories continuing into the applicable update year. 
The second group contains items that we know are newly eligible, or 
project would be newly eligible, for device pass-through payment in the 
remaining quarters of CY 2010 or beginning in CY 2011. As discussed in 
section V.A.4. of the CY 2010 OPPS/ASC final rule with comment period 
(74 FR 60476), beginning in CY 2010, the pass-through evaluation 
process and pass-through payment for implantable biologicals newly 
approved for pass-through payment beginning on or after January 1, 
2010, that are surgically inserted or implanted (through a surgical 
incision or a natural orifice) is the device pass-through process and 
payment methodology only. As we proposed in the CY 2010 OPPS/ASC 
proposed rule (75 FR 46283), for this final rule with comment period, 
the estimate of pass-through spending for implantable biologicals newly 
eligible for pass-through payment beginning in CY 2011 is included in 
the pass-through spending estimate for this second group of device 
categories. The sum of the CY 2011 pass-through estimates for these two 
groups of device categories equals the total CY 2011 pass-through 
spending estimate for device categories with pass-through status.
    For devices eligible for pass-through payment, section 
1833(t)(6)(D)(ii) of the Act establishes the pass-through payment 
amount as the amount by which the hospital's charges for the device, 
adjusted to cost, exceeds the portion of the otherwise applicable 
Medicare OPD fee schedule that the Secretary determines is associated 
with the device. As discussed in section IV.A.2. of this final rule 
with comment period, we deduct from the pass-through payment for an 
identified device category eligible for pass-through payment an amount 
that reflects the portion of the APC payment amount that we determine 
is associated with the cost of the device, defined as the device APC 
offset amount, when we believe that predecessor device costs for the 
device category newly approved for pass-through payment are already 
packaged into the existing APC structure. For each device category that 
becomes newly eligible for device pass-through payment, including 
implantable biologicals from CY 2010 forward, we estimate pass-through 
spending to be the difference between payment for the device category 
and the device APC offset amount, if applicable, for the procedures 
that would use the device. If we determine that predecessor device 
costs for the new device category are not already included in the 
existing APC structure, the pass-through spending estimate for the 
device category is the full payment at charges adjusted to cost.
    For drugs and biologicals eligible for pass-through payment, 
section 1833(t)(6)(D)(i) of the Act establishes the pass-through 
payment amount as the amount by which the amount authorized under 
section 1842(o) of the Act (or, if the drug or biological is covered 
under a competitive acquisition contract under section 1847B of the 
Act, an amount determined by the Secretary equal to the average price 
for the drug or biological for all competitive acquisition areas and 
year established under such section as calculated and adjusted by the 
Secretary) exceeds the portion of the otherwise applicable fee schedule 
amount that the Secretary determines is associated with the drug or 
biological. Because we are paying for most nonpass-through separately 
payable drugs and nonimplantable biologicals under the CY 2011 OPPS at 
ASP+5 percent, which represents the otherwise applicable fee schedule 
amount associated with most pass-through drugs and biologicals, and 
because we are paying for CY 2011 pass-through drugs and nonimplantable 
biologicals at ASP+6 percent or the Part B drug CAP rate, if 
applicable, our estimate of drug and nonimplantable biological pass-
through payment for CY 2011 is not zero, as discussed below. 
Furthermore, payment for certain drugs, specifically diagnostic 
radiopharmaceuticals, contrast agents, and implantable biologicals 
without pass-through status, will always be packaged into payment for 
the associated procedures because these products will never be 
separately paid. However, all pass-through diagnostic 
radiopharmaceuticals, contrast agents, and those implantable 
biologicals with pass-through status approved prior to CY 2010 will be 
paid at ASP+6 percent or the Part B drug CAP rate, if applicable, like 
other pass-through drugs and biologicals. Therefore, our estimate of 
pass-through payment for all diagnostic radiopharmaceuticals and 
contrast agents and those implantable biologicals with pass-through 
status approved prior to CY 2010 is not zero.
    In section V.A.4. of this final rule with comment period, we 
discuss our policy to determine if the cost of certain ``policy-
packaged'' drugs, including diagnostic radiopharmaceuticals and 
contrast agents, are already packaged into the existing APC structure. 
If we determine that a ``policy-packaged'' drug approved for pass-
through payment resembles predecessor diagnostic radiopharmaceuticals 
or contrast agents already included in the costs of the APCs that would 
be associated with the drug receiving pass-through payment, we offset 
the amount of pass-through payment for diagnostic radiopharmaceuticals 
and contrast agents. For these drugs, the APC offset amount is the 
portion of the APC payment for the specific procedure

[[Page 71975]]

performed with the pass-through diagnostic radiopharmaceutical or 
contrast agent that is attributable to diagnostic radiopharmaceuticals 
or contrast agents, which we refer to as the ``policy-packaged'' drug 
APC offset amount. If we determine that an offset is appropriate for a 
specific diagnostic radiopharmaceutical or contrast agent receiving 
pass-through payment, we reduce our estimate of pass-through payment 
for these drugs by this amount. We have not established a policy to 
offset pass-through payment for implantable biologicals when approved 
for pass-through payment as a drug or biological, that is, for CY 2009 
and earlier, so we consider full payment at ASP+6 percent for these 
implantable biologicals receiving biological pass-through payment as of 
CY 2011 in our estimate of CY 2011 pass-through spending for drugs and 
biologicals.
    We note that the Part B drug CAP program has been postponed 
beginning January 1, 2009. We refer readers to the Medicare Learning 
Network (MLN) Matters Special Edition article SE0833 for more 
information. As of the publication of this final rule with comment 
period, the postponement of the Part B drug CAP program is still in 
effect. As in past years, consistent with our proposal, for this final 
rule with comment period, we do not have an effective Part B drug CAP 
rate for pass-through drugs and biologicals.
    Similar to pass-through estimates for devices, the first group of 
drugs and biologicals requiring a pass-through payment estimate 
consists of those products that were recently made eligible for pass-
through payment and that will continue to be eligible for pass-through 
payment in CY 2011. The second group contains drugs and nonimplantable 
biologicals that we know are newly eligible, or project will be newly 
eligible, in the remaining quarters of CY 2010 or beginning in CY 2011. 
The sum of the CY 2011 pass-through estimates for these two groups of 
drugs and biologicals equals the total CY 2011 pass-through spending 
estimate for drugs and biologicals with pass-through status.

B. Estimate of Pass-Through Spending

    As we proposed in the CY 2011 OPPS/ASC proposed rule (75 FR 46284), 
we are finalizing a policy of setting the applicable pass-through 
payment percentage limit at 2.0 percent of the total projected OPPS 
payments for CY 2011, consistent with our OPPS policy from CY 2004 
through CY 2010 (74 FR 60530).
    For the first group of devices for pass-through payment estimate 
purposes, there currently are no device categories receiving pass-
through payment in CY 2010 that will continue for payment during CY 
2011. Therefore, there is no device pass-through payment estimate for 
the first group of pass-through device categories.
    We proposed for CY 2011 to continue to employ the device pass-
through process and payment methodology for implantable biologicals 
that are always surgically inserted or implanted (through a surgical 
incision or a natural orifice) that we used for CY 2010. We proposed to 
consider existing implantable biologicals approved for pass-through 
payment under the drugs and biologicals pass-through provision prior to 
CY 2010 as drugs and biologicals for pass-through payment estimate 
purposes until they expire from pass-through status and, therefore, the 
pass-through spending estimate for the first group of pass-through 
devices did not include implantable biologicals that were granted pass-
through status prior to CY 2010. Finally, we proposed to continue to 
provide payment for implantable biologicals newly eligible for pass-
through payment beginning in CY 2010 or CY 2011 based on hospital 
charges adjusted to cost that is applicable for pass-through device 
categories, rather than the ASP methodology that is applicable to pass-
through drugs and biologicals. Therefore, the proposed estimate of 
pass-through spending for implantable biologicals first paid as pass-
through devices in CY 2011 was based on the payment methodology for 
pass-through devices and was included in the device pass-through 
spending estimate.
    In estimating our proposed CY 2011 pass-through spending for device 
categories in the second group, that is, device categories that we knew 
at the time of the development of the CY 2011 OPPS/ASC proposed rule 
would be newly eligible for pass-through payment in CY 2011 (of which 
there were none), additional device categories (including categories 
that describe implantable biologicals) that we estimated could be 
approved for pass-through status subsequent to the development of the 
proposed rule and before January 1, 2011, and contingent projections 
for new categories (including categories that describe implantable 
biologicals in the second through fourth quarters of CY 2011), we 
proposed to use the general methodology described in the CY 2008 OPPS/
ASC final rule with comment period (72 FR 66778), while also taking 
into account recent OPPS experience in approving new pass-through 
device categories.
    For this CY 2011 OPPS/ASC final rule with comment period, one new 
device category, C1749 (Endoscope, retrograde imaging/illumination 
colonoscope device (implantable)) became effective October 1, 2010, and 
will continue for CY 2011. There also are possible new device 
categories for pass-through payment based on current applications. 
Therefore, the estimate of CY 2011 pass-through spending for this 
second group of device categories is $42.3 million.
    For this CY 2011 final rule with comment period, we are finalizing 
our proposal to continue our established methodology. Employing our 
established methodology that the estimate of pass-through device 
spending in CY 2011 incorporates CY 2011 estimates of pass-through 
spending for known device categories continuing in CY 2011, those known 
or projected to be first effective January 1, 2011, and those device 
categories projected to be approved during subsequent quarters of CY 
2010 or CY 2011, we estimate for this CY 2011 OPPS/ASC final rule with 
comment period the total pass-through spending for device categories 
for CY 2011 to be $42.3 million.
    We did not receive any public comments regarding our proposed 
methodology for estimating transitional pass-through spending for 
devices for CY 2011. Therefore we are adopting our final estimate of 
$42.3 million for total pass-through spending for device categories for 
CY 2011.
    To estimate CY 2011 proposed pass-through spending for drugs and 
biologicals in the first group, specifically those drugs (including 
radiopharmaceuticals and contrast agents) and biologicals (including 
implantable biologicals) recently made eligible for pass-through 
payment and continuing on pass-through status for CY 2011, we proposed 
to utilize the most recent Medicare physician's office data regarding 
their utilization, information provided in the respective pass-through 
applications, historical hospital claims data, pharmaceutical industry 
information, and clinical information regarding those drugs or 
biologicals, in order to project the CY 2011 OPPS utilization of the 
products.
    In the CY 2011 OPPS/ASC proposed rule, for the known drugs and 
biologicals (excluding diagnostic radiopharmaceuticals, contrast 
agents, and implantable biologicals) that would be continuing on pass-
through status in CY 2011, we estimated the proposed pass-through 
payment amount as the difference between ASP+6 percent or the Part B 
drug CAP rate, as applicable, and the proposed payment rate for non-
pass through drugs and nonimplantable

[[Page 71976]]

biologicals that are separately paid at ASP+6 percent, aggregated 
across the projected CY 2011 OPPS utilization of these products, which 
was zero for this group of drugs and biologicals for the proposed rule. 
However, as discussed in V.B.3. of this final rule with comment period, 
the final payment rate for nonpass-through drugs and nonimplantable 
biologicals that receive separate payment will be ASP+5 percent for CY 
2011. Therefore, for this final rule with comment period, we estimate 
the pass-through payment amount for this group of drugs and biologicals 
as the difference between ASP+6 percent or the Part B drug CAP rate, as 
applicable, and the final CY 2011 payment rate for nonpass-through 
drugs and nonimplantable biologicals of ASP+5 percent, which is not 
zero. Because payment for a diagnostic radiopharmaceutical or contrast 
agent would be packaged if the product were not paid separately due to 
its pass-through status, as we proposed and are finalizing in the final 
rule with comment period, we include in the final CY 2011 pass-through 
estimate the difference between payment for the drug or biological at 
ASP+6 percent (or WAC+6 percent, or 95 percent of AWP, if ASP 
information is not available) and the ``policy-packaged'' drug APC 
offset amount, if we determined that the diagnostic radiopharmaceutical 
or contrast agent approved for pass-through payment resembles 
predecessor diagnostic radiopharmaceuticals or contrast agents already 
included in the costs of the APCs that would be associated with the 
drug receiving pass-through payment. Because payment for an implantable 
biological eligible for pass-through payment in CY 2009 and continuing 
on pass-through status in CY 2011 would be packaged if the product were 
not paid separately due to its pass-through status and because we had 
not established a pass-through payment offset policy for implantable 
biologicals when approved for pass-through payment as biologicals, that 
is, for CY 2009 and earlier, as we proposed, we include in the final CY 
2011 pass-through spending estimate the full payment for these 
implantable biologicals at ASP+6 percent (or WAC+6 percent or 95 
percent of AWP, if ASP information is not available). For this final 
rule with comment period, we are finalizing our proposed methodology 
and, using that methodology, we calculated a final spending estimate 
for this first group of drugs and biologicals to be $8.9 million and we 
are finalizing our established methodology.
    To estimate CY 2011 pass-through spending for drugs and 
nonimplantable biologicals in the second group (that is, drugs and 
nonimplantable biologicals that we knew at the time of development of 
the proposed rule would be newly eligible for pass-through payment in 
CY 2011, additional drugs and nonimplantable biologicals that we 
estimated could be approved for pass-through status subsequent to the 
development of the proposed rule and before January 1, 2011, and 
projections for new drugs and nonimplantable biologicals that could be 
initially eligible for pass-through payment in the second through 
fourth quarters of CY 2011), we proposed to use utilization estimates 
from pass-through applicants, pharmaceutical industry data, clinical 
information, recent trends in the per unit ASPs of hospital outpatient 
drugs, and projected annual changes in service volume and intensity as 
our basis for making the CY 2011 proposed pass-through payment 
estimate. We also considered the most recent OPPS experience in 
approving new pass-through drugs and nonimplantable biologicals. 
Consistent with our policy established in CY 2010 (74 FR 60531 through 
60532), we also proposed to include new implantable biologicals that we 
expect to be approved for pass-through status as devices beginning in 
CY 2011 in the second group of items considered for device pass-through 
estimate purposes. Therefore, we did not propose to include implantable 
biologicals in the second group of items in the proposed drug and 
biological pass-through spending estimate.
    We are finalizing our proposed methodology for estimating CY 2011 
pass-through payments for this second group of drugs, and for this 
final rule with comment period, we calculated a final spending estimate 
for this second group of drugs and biologicals to be $6.6 million.
    As described in the CY 2010 OPPS/ASC final rule with comment period 
(74 FR 60476), under our current policy, beginning in CY 2010, 
implantable biologicals that are surgically inserted or implanted 
(through a surgical incision or a natural orifice) and that were not 
receiving pass-through payment as biologicals prior to January 1, 2010, 
will be evaluated under the device pass-through process and paid 
according to the device payment methodology. We proposed to continue to 
consider implantable biologicals approved for pass-through payment 
under the drug and biological pass-through provision prior to CY 2010 
as drugs and biologicals for pass-through payment estimate purposes. 
These implantable biologicals that have been approved for pass-through 
status prior to CY 2010 continue to be considered drugs and biologicals 
for pass-through payment purposes until they expire from pass-through 
status. Therefore, the pass-through spending estimate for the first 
group of pass-through device categories does not include implantable 
biologicals that have been granted pass-through status prior to CY 
2010.
    Consistent with the current policy established in the CY 2010 OPPS/
ASC final rule with comment period (74 FR 60476), we proposed for CY 
2011 to continue to provide that payment for implantable biologicals 
newly eligible for pass-through payment beginning in CY 2011 be based 
on hospital charges adjusted to cost, rather than on the ASP 
methodology that is applicable to pass-through drugs and biologicals. 
Therefore, we proposed that the estimate of pass-through spending for 
implantable biologicals first paid as pass-through devices in CY 2011 
would be based on the payment methodology for pass-through devices, and 
would be included in the proposed CY 2011 device pass-through spending 
estimate for the second group of pass-through device categories.
    The final CY 2011 pass-through spending estimate for the first 
group of pass-through device categories is $0. The final estimate for 
this final rule with comment period for the second group of pass-
through device categories is $42.3 million. Therefore, our estimate for 
total pass-through spending for device categories for this final rule 
with comment period is $42.3 million.
    The final estimate for pass-through spending for the first group of 
drugs and biologicals is $8.9 million for CY 2011. The final estimate 
for pass-through spending for the second group of drugs and biologicals 
is $6.6 million for CY 2011. As discussed in section V.A. of this final 
rule with comment period, radiopharmaceuticals are considered drugs for 
pass-through purposes. Therefore, we included radiopharmaceuticals in 
our final CY 2011 pass-through spending estimate for drugs and 
biologicals. Our CY 2011 allocation in this final rule with comment 
period for total pass-through spending for drugs and biologicals is 
$15.5 million.
    In summary, in accordance with the methodology described above in 
this section, for this final rule with comment period, we estimate that 
total pass-through spending for the device categories and the drugs and 
biologicals that are continuing to receive pass-through payment in CY 
2011 and those device categories, drugs, and

[[Page 71977]]

nonimplantable biologicals that first become eligible for pass-through 
payment during CY 2011 will be approximately $57.7 million 
(approximately $42.3 million for device categories and approximately 
$15.5 million for drugs and biologicals), which represents 0.15 percent 
of total OPPS projected total payments for CY 2011. We estimate that 
pass-through spending in CY 2011 would not amount to 2.0 percent of 
total projected OPPS CY 2011 program spending.
    We did not receive any public comments on our proposed methodology 
or estimates. Accordingly, we are finalizing our proposed methodology 
for estimating CY 2011 OPPS pass-through spending for drugs, 
biologicals, radiopharmaceuticals, and device categories without 
modification. Our final pass-through estimate for CY 2011 is $57.7 
million.

VII. OPPS Payment for Brachytherapy Sources

A. Background

    Section 1833(t)(2)(H) of the Act, as added by section 621(b)(2)(C) 
of Public Law 108-173 (MMA), mandated the creation of additional groups 
of covered OPD services that classify devices of brachytherapy 
consisting of a seed or seeds (or radioactive source) (``brachytherapy 
sources'') separately from other services or groups of services. The 
additional groups must reflect the number, isotope, and radioactive 
intensity of the brachytherapy sources furnished and include separate 
groups for palladium-103 and iodine-125 sources.
    Section 1833(t)(16)(C) of the Act, as added by section 621(b)(1) of 
Public Law 108-173, established payment for brachytherapy sources 
furnished from January 1, 2004 through December 31, 2006, based on a 
hospital's charges for each brachytherapy source furnished adjusted to 
cost. Under section 1833(t)(16)(C) of the Act, charges for the 
brachytherapy sources may not be used in determining any outlier 
payments under the OPPS for that period in which payment is based on 
charges adjusted to cost. Consistent with our practice under the OPPS 
to exclude items paid at cost from budget neutrality consideration, 
these items were excluded from budget neutrality for that time period 
as well.
    In our CY 2007 annual OPPS rulemaking, we proposed and finalized a 
policy of prospective payment based on median costs for the 11 
brachytherapy sources for which we had claims data. We based the 
prospective payment rates on median costs for each source from our CY 
2005 claims data (71 FR 68102 through 71 FR 68115).
    Subsequent to publication of the CY 2007 OPPS/ASC final rule with 
comment period, section 107 of Public Law 109-432 (MIEA-TRHCA) amended 
section 1833 of the Act. Specifically, section 107(a) of Public Law 
109-432 amended section 1833(t)(16)(C) of the Act by extending the 
payment period for brachytherapy sources based on a hospital's charges 
adjusted to cost for one additional year, through December 31, 2007. 
Therefore, we continued to pay for brachytherapy sources based on 
charges adjusted to cost for CY 2007.
    Section 107(b)(1) of Public Law 109-432 amended section 
1833(t)(2)(H) of the Act by adding a requirement for the establishment 
of separate payment groups for ``stranded and non-stranded'' 
brachytherapy sources furnished on or after July 1, 2007, in addition 
to the existing requirements for separate payment groups based on the 
number, isotope, and radioactive intensity of brachytherapy sources 
under section 1833(t)(2)(H) of the Act. Section 107(b)(2) of Public Law 
109-432 authorized the Secretary to implement this requirement by 
``program instruction or otherwise.'' We note that public commenters 
who responded to the CY 2007 OPPS/ASC proposed rule asserted that 
stranded sources, which they described as embedded into the stranded 
suture material and separated within the strand by material of an 
absorbable nature at specified intervals, had greater production costs 
than non-stranded sources (71 FR 68113 through 68114).
    As a result of the statutory requirement to create separate groups 
for stranded and non-stranded sources as of July 1, 2007, we 
established several coding changes through a transmittal, effective 
July 1, 2007 (Transmittal 1259, dated June 1, 2007). Based on public 
comments received on the CY 2007 OPPS/ASC proposed rule and industry 
input, we were aware of three sources available in stranded and non-
stranded forms at that time: Iodine-125; palladium-103; and cesium-131 
(72 FR 42746). We created six new HCPCS codes to differentiate the 
stranded and non-stranded versions of iodine, palladium, and cesium 
sources.
    In Transmittal 1259, we indicated that if we receive information 
that any of the other sources now designated as non-stranded are also 
FDA-approved and marketed as a stranded source, we would create a code 
for the stranded source. We also established two ``Not Otherwise 
Specified'' (NOS) codes for billing stranded and non-stranded sources 
that are not yet known to us and for which we do not have source-
specific codes. We established HCPCS code C2698 (Brachytherapy source, 
stranded, not otherwise specified, per source) for stranded NOS sources 
and HCPCS code C2699 (Brachytherapy source, non-stranded, not otherwise 
specified, per source) for non-stranded NOS sources.
    In the CY 2008 OPPS/ASC final rule with comment period (72 FR 
66784), we again finalized prospective payment for brachytherapy 
sources, beginning in CY 2008, with payment rates determined using the 
CY 2006 claims-based costs per source for each brachytherapy source. 
Consistent with our policy regarding APC payments made on a prospective 
basis, we finalized the policy in the CY 2008 OPPS/ASC final rule with 
comment period (72 FR 66686) to subject the cost of brachytherapy 
sources to the outlier provision of section 1833(t)(5) of the Act, and 
also to subject brachytherapy source payment weights to scaling for 
purposes of budget neutrality. Therefore, brachytherapy sources could 
receive outlier payments if the costs of furnishing brachytherapy 
sources met the criteria for outlier payment, that is, if brachytherapy 
sources are paid prospectively. In addition, as noted in the CY 2008 
OPPS/ASC final rule with comment period (72 FR 66683), implementation 
of prospective payment for brachytherapy sources would provide 
opportunities for hospitals to receive additional payments under 
certain circumstances through the 7.1 percent rural SCH adjustment 
(discussed in section II.E. of this final rule with comment period).
    For CY 2008, we also proposed and finalized a policy regarding 
payment for new brachytherapy sources for which we have no claims data 
(72 FR 42749 and 72 FR 66786, respectively). We indicated we would 
assign future new HCPCS codes for new brachytherapy sources to their 
own APCs, with prospective payment rates set based on our consideration 
of external data and other relevant information regarding the expected 
costs of the sources to hospitals. Finally, we proposed and finalized 
our policy to discontinue using status indicator ``H'' (Pass-Through 
Device Categories. Separate cost based pass-through payment; not 
subject to copayment) because we would not be paying charges adjusted 
to costs after December 31, 2007, and instead adopted a policy of using 
status indicator ``K'' (which includes, among others, ``Brachytherapy 
Sources. Paid under OPPS; separate APC payment'') for CY 2008 (72 FR 
42749 and 72 FR 66785, respectively).

[[Page 71978]]

    After we finalized these policies for CY 2008, section 106(a) of 
Public Law 110-173 (MMSEA) extended the charges-adjusted-to-cost 
payment methodology for brachytherapy sources for an additional 6 
months, through June 30, 2008. Because our final CY 2008 policies paid 
for brachytherapy sources at prospective rates based on median costs, 
we were unable to implement these policies during this extension.
    In the CY 2009 OPPS/ASC proposed rule (73 FR 41502), we again 
proposed prospective payment rates for brachytherapy sources for CY 
2009. We proposed to pay for brachytherapy sources at prospective rates 
based on their source-specific median costs as calculated from CY 2007 
claims data available for CY 2009 ratesetting. Subsequent to issuance 
of the CY 2009 OPPS/ASC proposed rule, Public Law 110-275 (MIPPA) was 
enacted on July 15, 2008. Section 142 of Public Law 110-275 amended 
section 1833(t)(16)(C) of the Act, as amended by section 106(a) of 
Public Law 110-173 (MMSEA), to further extend the payment period for 
brachytherapy sources based on a hospital's charges adjusted to cost 
from July 1, 2008 through December 31, 2009. Therefore, we continued to 
pay for brachytherapy sources at charges adjusted to cost in CY 2008 
from July 1 through December 31, and we maintained the assignment of 
status indicator ``H'' to brachytherapy sources for claims processing 
purposes in CY 2008. For CY 2009, we continued to pay for all 
separately payable brachytherapy sources based on a hospital's charges 
adjusted to cost. Because brachytherapy sources are paid at charges 
adjusted to cost, we did not subject them to outlier payments under 
section 1833(t)(5) of the Act, or subject brachytherapy source payment 
weights to scaling for purposes of budget neutrality. Moreover, during 
the CY 2009 period of payment at charges adjusted to cost, 
brachytherapy sources were not eligible for the 7.1 percent rural SCH 
adjustment (as discussed in detail in section II.E. of this final rule 
with comment period).
    Furthermore, for CY 2009, we did not adopt the policy we 
established in the CY 2008 OPPS/ASC final rule with comment period of 
paying stranded and non-stranded NOS codes for brachytherapy sources, 
HCPCS codes C2698 and C2699, based on a rate equal to the lowest 
stranded or non-stranded prospective payment for such sources. Also, 
for CY 2009, we did not adopt the policy we established in the CY 2008 
OPPS/ASC final rule with comment period regarding payment for new 
brachytherapy sources for which we have no claims data. Not Otherwise 
Specified (NOS) HCPCS codes C2698 and C2699 and newly established 
specific source codes were paid at charges adjusted to cost through 
December 31, 2009, consistent with the provisions of section 142 of 
Public Law 110-275.
    For CY 2009, we finalized our proposal to create new status 
indicator ``U'' (Brachytherapy Sources. Paid under OPPS; separate APC 
payment) for brachytherapy source payment, instead of using status 
indicator ``K'' as proposed and finalized for CY 2008 for prospective 
payment, or status indicator ``H,'' used during the period of charges 
adjusted to cost payment. As noted in the CY 2009 OPPS/ASC final rule 
with comment period (73 FR 68670), assigning a status indicator, such 
as status indicator ``K,'' to several types of items and services with 
potentially differing payment policies added unnecessary complexity to 
our operations. Status indicator ``U'' is used only for brachytherapy 
sources, regardless of their specific payment methodology for any 
period of time.
    Under section 142 of Public Law 110-275, payment for brachytherapy 
sources was mandated at charges adjusted to cost only through CY 2009. 
In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60533 
through 60537), we adopted for CY 2010 the general OPPS prospective 
payment methodology for brachytherapy sources, consistent with section 
1833(t)(2)(C) of the Act.

B. OPPS Payment Policy

    As we have previously stated (72 FR 66780, 73 FR 41502, and 74 FR 
60533 and 60534), we believe that adopting the general OPPS prospective 
payment methodology for brachytherapy sources is appropriate for a 
number of reasons. The general OPPS payment methodology uses median 
costs based on claims data to set the relative payment weights for 
hospital outpatient services. This payment methodology results in more 
consistent, predictable, and equitable payment amounts per source 
across hospitals by eliminating some of the extremely high and low 
payment amounts resulting from payment based on hospitals' charges 
adjusted to cost. We believe the OPPS prospective payment methodology 
would also provide hospitals with incentives for efficiency in the 
provision of brachytherapy services to Medicare beneficiaries. 
Moreover, this approach is consistent with our payment methodology for 
the vast majority of items and services paid under the OPPS.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46287), we proposed to 
use the median costs from CY 2009 claims data for setting the proposed 
CY 2011 payment rates for brachytherapy sources, as we proposed for 
most other items and services that will be paid under the CY 2011 OPPS. 
We proposed to continue the other payment policies for brachytherapy 
sources we finalized in the CY 2010 OPPS/ASC final rule with comment 
period (74 FR 60537). We proposed to pay for the stranded and non-
stranded NOS codes, HCPCS codes C2698 and C2699, at a rate equal to the 
lowest stranded or non-stranded prospective payment rate for such 
sources, respectively, on a per source basis (as opposed, for example, 
to a per mCi), which is based on the policy we established in the CY 
2008 OPPS/ASC final rule with comment period (72 FR 66785). The 
proposed payment methodology for NOS sources would provide payment to a 
hospital for new sources, and at the same time encourage interested 
parties to quickly bring new sources to our attention so that specific 
coding and payment could be established.
    We also proposed to continue the policy we implemented in the CY 
2010 OPPS/ASC final rule with comment period (74 FR 60537) regarding 
payment for new brachytherapy sources for which we have no claims data, 
based on the same reasons we discussed in the CY 2008 OPPS/ASC final 
rule with comment period (72 FR 66786; which was superseded by section 
142 of Pub. L. 110-275). That policy is intended to enable us to assign 
future new HCPCS codes for new brachytherapy sources to their own APCs, 
with prospective payment rates set based on our consideration of 
external data and other relevant information regarding the expected 
costs of the sources to hospitals.
    Consistent with our policy regarding APC payments made on a 
prospective basis, as we did for CY 2010, we proposed to subject 
brachytherapy sources to outlier payments under section 1833(t)(5) of 
the Act, and also to subject brachytherapy source payment weights to 
scaling for purposes of budget neutrality. Therefore, brachytherapy 
sources could receive outlier payments if the costs of furnishing 
brachytherapy sources meet the criteria for outlier payment, that is, 
if they are prospectively paid. In addition, as noted in the CY 2010 
OPPS/ASC final rule with comment period (74 FR 60534), implementation 
of prospective payments for brachytherapy sources would provide 
opportunities for eligible hospitals to receive additional

[[Page 71979]]

payments in CY 2011 under certain circumstances through the 7.1 percent 
rural adjustment, as described in section II.E. of this final rule with 
comment period.
    Comment: Several commenters recommended that brachytherapy sources 
be paid at charges adjusted to cost for CY 2011. A few commenters 
stated that some providers have decided to discontinue offering 
brachytherapy services because the OPPS payment rates for sources were 
too low. Several commenters noted several reasons why they recommend 
that CMS revert to the charges-adjusted-to-cost methodology for 
determining payment rates for brachytherapy sources. These commenters 
contended that there are ongoing concerns regarding the claims data 
used to establish the prospective payment. The commenters asserted that 
CY 2009 brachytherapy source claims data show significant variations in 
unit median cost, that there is continuation in the CY 2009 data of 
longstanding instability and fluctuation of costs, and that one-half of 
the sources have proposed payment rates based on 50 or fewer hospitals 
(and a decline from CY 2010 to CY 2011). One commenter asserted that 
some brachytherapy sources showed decreased frequencies for CY 2009, 
and that decreased claims result in decreased payment.
    One commenter gave an example of a rank order anomaly in median 
cost of HCPCS code C2635, high activity palladium (proposed rule median 
of $30.19 per unit), versus low activity palladium, HCPCS codes C2641 
and C2640, non-stranded and stranded palladium sources, with proposed 
rule medians of $63.59 and $64.98, respectively. This commenter also 
opined that the number of Medicare beneficiaries treated with 
brachytherapy may have declined from CY 2008 to CY 2009, claiming its 
data analysis generated 17,681 brachytherapy source claims using 2008 
data, and 16,456 claims using CY 2009 data. One commenter claimed that 
Medicare program payment would be $9.5 million less using the charges-
adjusted-to-cost payment methodology than Medicare payment for 
brachytherapy sources when made under the prospective payment system 
based on median costs in CY 2011, as it claimed was the case for CY 
2010.
    One commenter noted its support for our proposed continuance of the 
policy of assigning new brachytherapy sources for which we have no 
claims data to their own APCs, and to consider external data for 
establishing rates, and recommended that we finalize this proposal.
    Response: As we stated previously (72 FR 66782 and 74 FR 60534), we 
believe that median costs based on hospital claims data for 
brachytherapy sources have produced reasonably consistent per-source 
cost estimates over the past several years, comparable to the patterns 
we have observed for many other OPPS services whose payments are set 
based upon relative payment weights from claims data. We believe that 
our per-source payment methodology specific to each source's 
radioisotope, radioactive intensity, and stranded or non-stranded 
configuration, supplemented by payment based on the number of sources 
used in a specific clinical case, adequately accounts for the major 
expected sources of variability across treatments. As we also explained 
previously (72 FR 66782 and 74 FR 60535), a prospective payment system 
such as the OPPS relies on the concept of averaging, where the payment 
may be more or less than the estimated cost of providing a service for 
a particular patient, but with the exception of outlier cases, it is 
adequate to ensure access to appropriate care. In the case of 
brachytherapy sources for which the law requires separate payment 
groups, without packaging, the costs of these individual items could be 
expected to show greater variation than some other APCs under the OPPS 
because higher variability in costs for some component items and 
services is not balanced with lower variability for others and because 
relative weights are typically estimated using a smaller set of claims. 
Nevertheless, we believe that prospective payment for brachytherapy 
sources based on median costs from claims calculated according to the 
standard OPPS methodology is appropriate and provides hospitals with 
the greatest incentives for efficiency in furnishing brachytherapy 
treatment.
    Under the budget neutral provision for the OPPS, it is the 
relativity of costs of services, not their absolute costs, that is 
important, and we believe that brachytherapy sources are appropriately 
paid according to the standard OPPS payment approach. Furthermore, we 
are not concerned that some sources may have median costs and payment 
rates based on 50 or fewer providers, because it is not uncommon for 
OPPS prospective payment rates to be based on claims from a relatively 
small number of hospitals that furnished the service in the year of 
claims data available for the OPPS update year. Fifty hospitals may 
report hundreds of brachytherapy source claims for many cases and 
comprise the universe of providers using particular low volume sources, 
for which we are required to pay separately by statute. Further, our 
methodology for estimating median costs for brachytherapy sources 
utilizes all line-item charges for those sources, which allows us to 
use all hospital reported charge and estimated cost information to set 
payment rates for these items. Therefore, no brachytherapy source 
claims are lost. We have no reason to believe that prospective payment 
rates based on claims from those providers furnishing a particular 
source do not appropriately reflect the cost of that source to 
hospitals. As for most other OPPS services, we note that the median 
costs for brachytherapy sources are based upon the costs of those 
providers that furnished the sources in CY 2009. Hospitals individually 
determine their charge for an item or service, and one of Medicare's 
primary requirements for setting a charge is that it be reasonably and 
consistently related to the cost of the item or service for that 
facility (Medicare Provider Reimbursement Manual, Part I, Section 
2203). We then estimate a cost from that charge using the hospital's 
most recent Medicare hospital cost report data in our standard OPPS 
ratesetting process. In as much as we paid hospitals at charges 
adjusted to cost for brachytherapy sources in CY 2009 based on these 
exact charges, we believe a hospital's individual charges are accurate 
for its institution.
    In the case of high and low activity iodine-125 sources, our claims 
data showed that the cost of the high activity source is greater than 
the low activity sources. However, this relationship is reversed for 
palladium-103 sources, as one commenter pointed out. We have no 
information about the expected cost differential between high and low 
activity sources of various isotopes other than what is available in 
our claims and hospital cost report data. For high activity palladium-
103, only 11 hospitals reported this service in CY 2009, compared to 
158 and 256 providers for low activity palladium sources described by 
HCPCS codes C2640 and C2641, respectively. As we stated regarding this 
issue in the CY 2010 OPPS/ASC final rule with comment period (74 FR 
60535), it is clear that fewer providers furnished high activity 
palladium-103 sources than low activity palladium sources, and we 
expect that the hospital cost distribution for those hospitals could be 
different than the cost distribution of the large number of providers 
reporting the low activity sources. These varied cost distributions 
clearly contribute to the observed relationship in median

[[Page 71980]]

costs between the different types of sources. However, we see no reason 
why our standard ratesetting methodology for brachytherapy sources that 
relies on all claims from all hospitals furnishing brachytherapy 
sources would not yield valid median costs for those hospitals 
furnishing the different brachytherapy sources upon which CY 2011 
prospective payments rates are based.
    Prospective payment for brachytherapy sources based on their median 
costs makes the source payment an integral part of the OPPS, rather 
than a separate cost-based payment methodology within the OPPS. We 
believe that consistent and predictable prospectively established 
payment rates under the OPPS for brachytherapy sources are appropriate 
because we do not believe that the hospital resource costs associated 
with specific brachytherapy sources would vary greatly across hospitals 
or clinical conditions under treatment, other than through differences 
in the numbers of sources utilized that would be accounted for in the 
standard OPPS payment methodology we are finalizing for CY 2011.
    We agree that high dose rate (HDR) brachytherapy sources such as 
HDR irirdium-192 have a fixed active life and must be replaced every 90 
days; as a result, hospitals' per-treatment cost for the source would 
be dependent on the number of treatments furnished per source. The 
source cost must be amortized over the life of the source. Therefore, 
in establishing their charges for HDR iridium, we expect hospitals to 
project the number of treatments that would be provided over the life 
of the source and establish their charges for the source accordingly, 
as we have stated previously (72 FR 66783 and 74 FR 60535). For most 
such OPPS services, our practice is to establish prospective payment 
rates based on the median costs from hospitals' claims data, to provide 
incentives for efficient and cost-effective delivery of these services.
    We do not agree with the commenters that prospective brachytherapy 
source payment based on median costs would increase aggregate Medicare 
expenditures using the charges-adjusted-to-cost methodology compared to 
the proposed prospective payment methodology. Our past studies, such as 
that discussed in the CY 2010 final rule with comment period (74 FR 
60535), have shown that payment at charges adjusted to cost results in 
higher aggregate payment for brachytherapy sources than does 
prospective payment. As we indicated in last year's final rule with 
comment period (74 FR 60535), we have traditionally found that charge 
inflation for brachytherapy sources appears to be higher than the 
market basket inflation update applicable to prospective payments under 
the OPPS. Therefore, we found that the estimated payments we calculated 
for brachytherapy charges adjusted to cost were greater than the 
estimated prospective payment rates because the hospital market basket 
grows more slowly than the charges for brachytherapy sources. The 
commenter did not provide its aggregate payments study, and we do not 
know whether the commenter's study took into account factors such as 
charge inflation. Moreover, the OPPS is a prospective payment system 
that ensures equitable prospective payment of services across 
providers, and efficient use of resources, including brachytherapy 
sources, which since CY 2010 are part of OPPS prospective payment.
    Concerning the comment that some providers have decided to 
discontinue offering brachytherapy services because the OPPS payment 
rates for sources were too low, there are many reasons why some 
providers may discontinue services, such as brachytherapy. For example, 
changes in medical technology or emphasis on different treatment forms 
for a medical condition can influence whether a set of services are 
continued. In addition, providers accept payment from a number of 
payers in addition to Medicare, and we believe a global shift by a 
provider to discontinue any services would be influenced by factors 
other than our payment rates alone.
    We believe that the comment that compared the frequency of 
brachytherapy sources in the CY 2010 final rule data to the frequency 
of brachytherapy sources in the CY 2011 proposed rule data and 
concluded that there is a significant decrease between the frequency of 
services is flawed because the volume of claims in a proposed rule data 
set and the final rule data set will never be comparable for any given 
year. Typically, the volume of claims in final rule data generally 
increases in frequency between 10 and 15 percent above the volume in 
the proposed rule data due to addition of claims processed between 
January 1 and July 1 of the current year between the proposed and final 
OPPS rules. For the CY 2011 proposed rule, we used CY 2009 claims 
processed before January 1, 2010, but for this final rule, we used CY 
2009 claims processed before July 1, 2010. Comparing the frequency of 
brachytherapy sources in the CY 2010 final rule data (CY 2008 claims 
processed before July 1, 2009) to the frequency of brachytherapy 
sources in the CY 2011 final rule data (CY 2009 claims processed before 
July 1, 2010), we do observe that the aggregate frequency of 
brachytherapy sources used for setting the medians in this CY 2011 
OPPS/ASC final rule with comment period (approximately 34,000 in the CY 
2009 claims) is less than the frequency of brachytherapy sources in the 
CY 2010 OPPS (slightly less than 36,000 in the CY 2008 claims). 
However, we note that this reduction between CY 2008 and CY 2009 cannot 
be attributed to the effects of prospective payment under the OPPS 
because payment for brachytherapy sources in both CY 2008 and CY 2009 
was made at charges adjusted to cost.
    We appreciate the support for our proposed continuance of the 
policy of assigning new brachytherapy sources for which we have no 
claims data to their own APCs, with prospective payment rates set based 
on our consideration of external data and other relevant information 
regarding the expected costs of the sources to hospitals. We will 
continue that policy.
    After consideration of the public comments we received, we are 
finalizing our proposal to pay for brachytherapy sources at prospective 
payment rates based on their source-specific median costs for CY 2011. 
The separately payable brachytherapy source HCPCS codes, long 
descriptors, APCs, status indicators, and approximate APC median costs 
for CY 2011 are presented in Table 37 below. We also are finalizing our 
proposals to continue our policies regarding payment for NOS codes for 
stranded and non-stranded sources and new brachytherapy sources for 
which we have no claims data. Specifically, we are finalizing our 
proposals to continue payment for stranded and non-stranded NOS codes, 
HCPCS codes C2698 and C2699, at a rate equal to the lowest stranded or 
non-stranded prospective payment for such sources, respectively, as 
discussed in the CY 2008 OPPS/ASC final rule with commenter period (72 
FR 66786); and our proposal to assign HCPCS codes for new brachytherapy 
sources to their own APCs, with payment rates based on consideration of 
external data and other relevant information, in the absence of claims 
data. Once claims data are available, our standard ratesetting process 
will be applied to the calculation of the median cost for the new 
brachyhterapy source.
    Consistent with our policy regarding APC payments made on a 
prospective basis, we are finalizing our proposal to subject the cost 
of brachytherapy

[[Page 71981]]

sources to the outlier provision of section 1833(t)(5) of the Act, and 
also to subject brachytherapy source payment weights to scaling for 
purposes of budget neutrality.

                         Table 37--Separately Payable Brachytherapy Sources for CY 2011
----------------------------------------------------------------------------------------------------------------
                                                                                                      CY 2011
                                                                                                    approximate
      CY 2010 HCPCS code            CY 2010 long descriptor        CY 2011 APC      CY 2011 SI      APC median
                                                                                                       cost
----------------------------------------------------------------------------------------------------------------
A9527........................  Iodine I-125, sodium iodide                 2632               U              $21
                                solution, therapeutic, per
                                millicurie.
C1716........................  Brachytherapy source, non-                  1716               U              188
                                stranded, Gold-198, per source.
C1717........................  Brachytherapy source, non-                  1717               U              217
                                stranded, High Dose Rate
                                Iridium-192, per source.
C1719........................  Brachytherapy source, non-                  1719               U               28
                                stranded, Non-High Dose Rate
                                Iridium-192, per source.
C2616........................  Brachytherapy source, non-                  2616               U           16,392
                                stranded, Yttrium-90, per
                                source.
C2634........................  Brachytherapy source, non-                  2634               U               56
                                stranded, High Activity, Iodine-
                                125, greater than 1.01 mCi
                                (NIST), per source.
C2635........................  Brachytherapy source, non-                  2635               U               28
                                stranded, High Activity,
                                Palladium-103, greater than 2.2
                                mCi (NIST), per source.
C2636........................  Brachytherapy linear source, non-           2636               U               37
                                stranded, Palladium-103, per
                                1MM.
C2638........................  Brachytherapy source, stranded,             2638               U               41
                                Iodine-125, per source.
C2639........................  Brachytherapy source, non-                  2639               U               36
                                stranded, Iodine-125, per
                                source.
C2640........................  Brachytherapy source, stranded,             2640               U               72
                                Palladium-103, per source.
C2641........................  Brachytherapy source, non-                  2641               U               65
                                stranded, Palladium-103, per
                                source.
C2642........................  Brachytherapy source, stranded,             2642               U              123
                                Cesium-131, per source.
C2643........................  Brachytherapy source, non-                  2643               U               66
                                stranded, Cesium-131, per
                                source.
C2698........................  Brachytherapy source, stranded,             2698               U              *41
                                not otherwise specified, per
                                source.
C2699........................  Brachytherapy source, non-                  2699               U              *28
                                stranded, not otherwise
                                specified, per source.
----------------------------------------------------------------------------------------------------------------
* Median cost is that of the lowest cost stranded or non-stranded source upon which proposed CY 2011 payment for
  the NOS HCPCS code is based.

    We continue to invite hospitals and other parties to submit 
recommendations to us for new HCPCS codes to describe new brachytherapy 
sources consisting of a radioactive isotope, including a detailed 
rationale to support recommended new sources. Such recommendations 
should be directed to the Division of Outpatient Care, Mail Stop C4-05-
17, Centers for Medicare and Medicaid Services, 7500 Security 
Boulevard, Baltimore, MD 21244. We will continue to add new 
brachytherapy source codes and descriptors to our systems for payment 
on a quarterly basis.

VIII. OPPS Payment for Drug Administration Services

A. Background

    In CY 2005, in response to the recommendations made by public 
commenters and the hospital industry, OPPS transitioned from Level II 
HCPCS Q-codes to the use of CPT codes for drug administration services. 
These CPT codes allowed specific reporting of services regarding the 
number of hours for an infusion and provided consistency in coding 
between Medicare and other payers. (For a discussion regarding coding 
and payment for drug administration services prior to CY 2005, we refer 
readers to the CY 2008 OPPS/ASC final rule with comment period (72 FR 
66787).)
    While hospitals began adopting CPT codes for outpatient drug 
administration services in CY 2005, physicians paid under the MPFS were 
using HCPCS G-codes in CY 2005 to report office-based drug 
administration services. These HCPCS G-codes were developed in 
anticipation of substantial revisions to the drug administration CPT 
codes by the CPT Editorial Panel that were expected for CY 2006.
    In CY 2006, as anticipated, the CPT Editorial Panel revised its 
coding structure for drug administration services and incorporated new 
concepts, such as initial, sequential, and concurrent services, into a 
structure that previously distinguished services based on type of 
administration (chemotherapy/nonchemotherapy), method of administration 
(injection/infusion/push), and for infusion services, first hour and 
additional hours. For CY 2006, we implemented the CY 2006 drug 
administration CPT codes that did not reflect the concepts of initial, 
sequential, and concurrent services under the OPPS, and we created 
HCPCS C-codes that generally paralleled the CY 2005 CPT codes for 
reporting these other services.
    For CY 2007, as a result of public comments on the proposed rule 
and feedback from the hospital community and the APC Panel, we 
implemented the full set of CPT codes for drug administration services, 
including codes that incorporated the concepts of initial, sequential, 
and concurrent services. In addition, the CY 2007 update process 
offered us the first opportunity to consider data gathered from the use 
of CY 2005 CPT codes for purposes of ratesetting. For CY 2007, we used 
CY 2005 claims data to implement a six-level APC structure for drug 
administration services. In CY 2008, we continued to use the full set 
of CPT codes for drug administration services and continued our 
assignment of drug administration services to this six-level APC 
structure.
    For CY 2009, we continued to allow hospitals to use the full set of 
CPT codes for drug administration services but moved from a six-level 
APC structure to a five-level APC structure, as a result of a hospital 
cost analysis and detailed clinical review. We note that, while there 
were changes in the CPT numerical coding for nonchemotherapy drug 
administration services in CY 2009, the existing CPT codes were only 
renumbered, and there were no significant changes to the code 
descriptors themselves. As we discussed in the CY 2009 OPPS/ASC final 
rule with comment period (73 FR 68672), the CY 2009 ratesetting process 
afforded us the first opportunity to examine hospital claims data for 
the full set of CPT codes that reflected the concepts of initial,

[[Page 71982]]

sequential, and concurrent services. For CY 2009, we performed our 
standard annual OPPS review of the clinical and resource 
characteristics of the drug administration CPT codes assigned to the 
six-level CY 2008 APC structure based on the CY 2007 claims data 
available for the CY 2009 OPPS/ASC proposed rule. As a result of our 
hospital cost analysis and detailed clinical review, we adopted a five-
level APC structure for CY 2009 drug administration services to more 
appropriately reflect their resource utilization in APCs that also 
group clinically similar services. As we noted in the CY 2009 OPPS/ASC 
final rule with comment period (73 FR 68671), these APCs generally 
demonstrated the clinically expected and actually observed comparative 
relationships between the median costs of different types of drug 
administration services, including initial and additional services; 
chemotherapy and other diagnostic, prophylactic, or therapeutic 
services; injections and infusions; and simple and complex methods of 
drug administration.
    After analyzing the assignment of CPT codes for drug administration 
into the five-level APC structure by utilizing our standard annual OPPS 
review for clinical cohesiveness and resource homogeneity, we continued 
our five-level APC structure for payment for drug administration 
services in the HOPD for CY 2010. In addition, we used the full set of 
CPT codes for drug administration and included all separately payable 
drug administration add-on codes on the CY 2010 bypass list in order to 
create ``pseudo'' single claims for these codes that would enable us to 
use the claims data to set payment rates for them. As we stated in the 
CY 2010 OPPS/ASC final rule with comment period (74 FR 60538) since CY 
2007, we continued to update the bypass methodology to reflect the 
changing drug administration HCPCS codes that are recognized under the 
OPPS.

B. Coding and Payment for Drug Administration Services

    In the CY 2011 OPPS/ASC proposed rule (75 FR 46290), for CY 2011, 
we proposed to continue to use the full set of CPT codes for reporting 
drug administration services and to continue to pay separately for the 
same set of drug administration codes under the CY 2011 OPPS as were 
paid separately in the CY 2010 OPPS. In addition, as a part of our 
standard annual review, we analyzed the CY 2009 claims data that 
reflect assignments of CPT codes for drug administration into the five-
level APC structure and found that the assignment of separately paid 
drug administration codes to five APCs continued to appropriately 
reflect the relative resources required to furnish these services. In 
addition, as has been our standard policy since the CY 2007 OPPS (71 FR 
68117), we proposed to continue to include all separately payable drug 
administration add-on codes on the bypass list so that we can use the 
cost data we derive from claims for these codes to establish payment 
rates for them.
    Since this approach was first adopted for CY 2007, we have updated 
and expanded the bypass methodology to reflect the changing drug 
administration HCPCS codes that are recognized under the OPPS. We 
placed all of the separately payable add-on CPT codes for drug 
administration services, including the sequential infusion and 
intravenous push codes, on the bypass list in CY 2009 (73 FR 68513) in 
order to continue this framework for transforming these otherwise 
unusable multiple bills into ``pseudo'' single claims that can be used 
for OPPS ratesetting purposes. We believe that this longstanding 
methodology results in the appropriate payment rates for the add-on CPT 
codes for drug administration. As such, in the CY 2011 OPPS/ASC 
proposed rule (75 FR 46290), we proposed to continue to use this 
methodology for the CY 2011 OPPS because we believe this takes into 
account all of the packaging on claims for drug administration services 
and, therefore, provides a reasonable framework for developing the 
median costs for drug administration services that are often provided 
in combination with one another (74 FR 60539).
    At its February 2010 meeting, the APC Panel recommended that CMS 
make CPT code 96368 (Intravenous infusion, for therapy, prophylaxis, or 
diagnosis (specify substance or drug); concurrent infusion (List 
separately in addition to code for primary procedure)) and CPT code 
93676 (Therapeutic, prophylactic, or diagnostic injection (specify 
substance or drug); each additional sequential intravenous push of the 
same substance/drug provided in a facility (List separately in addition 
to code for primary, separately payable procedure)) separately payable 
for the CY 2011 OPPS at an appropriate payment rate as determined by 
CMS. In the CY 2011 OPPS/ASC proposed rule (75 FR 46290), we proposed 
to not accept this APC Panel recommendation because each of these two 
codes describe services that, by definition, are always provided in 
conjunction with an initial drug administration code and therefore are 
appropriately packaged into the payment for the separately payable 
services that they usually accompany. We stated that these services 
have been packaged since the inception of the OPPS, and we continue to 
believe they are appropriately packaged into the payment for the 
separately payable services without which, under CPT guidelines and 
definitions, they cannot be appropriately reported. We refer readers to 
section II.A.3. of this final rule with comment period for a more 
detailed discussion of payment for packaged services, including our 
discussion of the comments we received and our responses to comments on 
our proposal to continue to package payment for CPT codes 96368 and 
96376 into the payment for the separately paid procedures with which 
they are furnished.
    Comment: Several commenters supported the proposed five-level APC 
structure for drug administration services. Some commenters requested 
that CMS continue to evaluate the five-level structure annually.
    Response: We appreciate the commenters' support. As part of our 
standard methodology, we expect to continue to annually review the 
configuration of drug administration APCs in the future.
    After consideration of the public comments we received, we are 
finalizing our CY 2011 proposal, without modification, to continue to 
use the five-level APC structure for drug administration services CY 
2011. Table 38 below displays the final configurations of the five drug 
administration APCs for CY 2011. We believe the updated CY 2009 claims 
data and the most recent cost report data for the drug administration 
CPT show that these codes share sufficiently similar clinical and 
resource characteristics to justify their continued placement in the 
five levels of drug administration APCs that were in effect in the CY 
2010 OPPS. The median cost for each of the separately paid drug 
administration CPT codes is contained in the CPT median cost file that 
is provided as supporting documentation to this final rule with comment 
period at the CMS Web site at: http://www.cms.hhs.gov/
HospitalOutpatientPPS/. The CY 2011 payment rate for each of the drug 
administration APCs is contained in Addendum B of this final rule with 
comment period.

[[Page 71983]]



                                   Table 38--CY 2011 Drug Administration APCs
----------------------------------------------------------------------------------------------------------------
                                                      Final CY 2011
                                                       approximate
       CY 2011 HCPCS Code         Final CY 2011 APC    APC median              CY 2011 long descriptor
                                                          cost
----------------------------------------------------------------------------------------------------------------
90471...........................               0436             $26  Immunization administration (includes
                                                                      percutaneous, intradermal, subcutaneous,
                                                                      or intramuscular injections); one vaccine
                                                                      (single or combination vaccine/toxoid).
90472...........................  .................  ..............  Immunization administration (includes
                                                                      percutaneous, intradermal, subcutaneous,
                                                                      or intramuscular injections); each
                                                                      additional vaccine (single or combination
                                                                      vaccine/toxoid) (List separately in
                                                                      addition to code for primary procedure).
90473...........................  .................  ..............  Immunization administration by intranasal
                                                                      or oral route; one vaccine (single or
                                                                      combination vaccine/toxoid).
90474...........................  .................  ..............  Immunization administration by intranasal
                                                                      or oral route; each additional vaccine
                                                                      (single or combination vaccine/toxoid)
                                                                      (List separately in addition to code for
                                                                      primary procedure).
95115...........................  .................  ..............  Professional services for allergen
                                                                      immunotherapy not including provision of
                                                                      allergenic extracts; single injection.
95117...........................  .................  ..............  Professional services for allergen
                                                                      immunotherapy not including provision of
                                                                      allergenic extracts; 2 or more injections.
95165...........................  .................  ..............  Professional services for the supervision
                                                                      of preparation and provision of antigens
                                                                      for allergen immunotherapy; single or
                                                                      multiple antigens (specify number of
                                                                      doses).
96361...........................  .................  ..............  Intravenous infusion, hydration; each
                                                                      additional hour (List separately in
                                                                      addition to code for primary procedure).
96366...........................  .................  ..............  Intravenous infusion, for therapy,
                                                                      prophylaxis, or diagnosis (specify
                                                                      substance or drug); each additional hour
                                                                      (List separately in addition to code for
                                                                      primary procedure).
96371...........................  .................  ..............  Subcutaneous infusion for therapy or
                                                                      prophylaxis (specify substance or drug);
                                                                      additional pump set-up with establishment
                                                                      of new subcutaneous infusion site(s) (List
                                                                      separately in addition to code for primary
                                                                      procedure).
96372...........................  .................  ..............  Therapeutic, prophylactic, or diagnostic
                                                                      injection (specify substance or drug);
                                                                      subcutaneous or intramuscular.
96379...........................  .................  ..............  Unlisted therapeutic, prophylactic, or
                                                                      diagnostic intravenous or intra-arterial
                                                                      injection or infusion.
96549...........................  .................  ..............  Unlisted chemotherapy procedure.
95144...........................               0437             $36  Professional services for the supervision
                                                                      of preparation and provision of antigens
                                                                      for allergen immunotherapy, single dose
                                                                      vial(s) (specify number of vials).
95145...........................  .................  ..............  Professional services for the supervision
                                                                      of preparation and provision of antigens
                                                                      for allergen immunotherapy (specify number
                                                                      of doses); single stinging insect venom.
95148...........................  .................  ..............  Professional services for the supervision
                                                                      of preparation and provision of antigens
                                                                      for allergen immunotherapy (specify number
                                                                      of doses); 4 single stinging insect
                                                                      venoms.
95149...........................  .................  ..............  Professional services for the supervision
                                                                      of preparation and provision of antigens
                                                                      for allergen immunotherapy (specify number
                                                                      of doses); 5 single stinging insect
                                                                      venoms.
95170...........................  .................  ..............  Professional services for the supervision
                                                                      of preparation and provision of antigens
                                                                      for allergen immunotherapy; whole body
                                                                      extract of biting insect or other
                                                                      arthropod (specify number of doses).
96367...........................  .................  ..............  Intravenous infusion, for therapy,
                                                                      prophylaxis, or diagnosis (specify
                                                                      substance or drug); additional sequential
                                                                      infusion, up to 1 hour (List separately in
                                                                      addition to code for primary procedure).
96370...........................  .................  ..............  Subcutaneous infusion for therapy or
                                                                      prophylaxis (specify substance or drug);
                                                                      each additional hour (List separately in
                                                                      addition to code for primary procedure).
96373...........................  .................  ..............  Therapeutic, prophylactic, or diagnostic
                                                                      injection (specify substance or drug);
                                                                      intra-arterial.
96374...........................  .................  ..............  Therapeutic, prophylactic, or diagnostic
                                                                      injection (specify substance or drug);
                                                                      intravenous push, single or initial
                                                                      substance/drug.
96375...........................  .................  ..............  Therapeutic, prophylactic, or diagnostic
                                                                      injection (specify substance or drug);
                                                                      each additional sequential intravenous
                                                                      push of a new substance/drug (List
                                                                      separately in additional to code for
                                                                      primary procedure).
96401...........................  .................  ..............  Chemotherapy administration, subcutaneous
                                                                      or intramuscular; non-hormonal anti-
                                                                      neoplastic.
96402...........................  .................  ..............  Chemotherapy administration, subcutaneous
                                                                      or intramuscular; hormonal anti-
                                                                      neoplastic.
96405...........................  .................  ..............  Chemotherapy administration; intralesional,
                                                                      up to and including 7 lesions.
96415...........................  .................  ..............  Chemotherapy administration, intravenous
                                                                      infusion technique; each additional hour
                                                                      (List separately in addition to code for
                                                                      primary procedure).
95146...........................  .................  ..............  Professional services for the supervision
                                                                      of preparation and provision of antigens
                                                                      for allergen immunotherapy (specify number
                                                                      of doses); 2 single stinging insect
                                                                      venoms.
95147...........................  .................  ..............  Professional services for the supervision
                                                                      of preparation and provision of antigens
                                                                      for allergen immunotherapy (specify number
                                                                      of doses); 3 single stinging insect
                                                                      venoms.
96360...........................  .................  ..............  Intravenous infusion, hydration; initial,
                                                                      31 minutes to 1 hour.
96411...........................  .................  ..............  Chemotherapy administration; intravenous,
                                                                      push technique, each additional substance/
                                                                      drug (List separately in addition to code
                                                                      for primary procedure).
96417...........................               0438             $75  Chemotherapy administration, intravenous
                                                                      infusion technique; each additional
                                                                      sequential infusion (different substance/
                                                                      drug), up to 1 hour (List separately in
                                                                      addition to code for primary procedure).
96420...........................  .................  ..............  Chemotherapy administration, intra-
                                                                      arterial; push technique.
96423...........................  .................  ..............  Chemotherapy administration, intra-
                                                                      arterial; infusion technique, each
                                                                      additional hour (List separately in
                                                                      addition to code for primary procedure).
96542...........................  .................  ..............  Chemotherapy injection, subarachnoid or
                                                                      intraventricular via subcutaneous
                                                                      reservoir, single or multiple agents.

[[Page 71984]]

 
95990...........................               0439            $127  Refilling and maintenance of implantable
                                                                      pump or reservoir for drug delivery,
                                                                      spinal (intrathecal, epidural) or brain
                                                                      (intraventricular).
95991...........................  .................  ..............  Refilling and maintenance of implantable
                                                                      pump or reservoir for drug delivery,
                                                                      spinal (intrathecal, epidural) or brain
                                                                      (intraventricular); administered by
                                                                      physician.
96365...........................  .................  ..............  Intravenous infusion, for therapy,
                                                                      prophylaxis, or diagnosis (specify
                                                                      substance or drug); initial, up to 1 hour.
96369...........................  .................  ..............  Subcutaneous infusion for therapy or
                                                                      prophylaxis (specify substance or drug);
                                                                      initial, up to 1 hour, including pump set-
                                                                      up and establishment of subcutaneous
                                                                      infusion site(s).
96406...........................  .................  ..............  Chemotherapy administration; intralesional,
                                                                      more than 7 lesions.
96409...........................  .................  ..............  Chemotherapy administration; intravenous,
                                                                      push technique, single or initial
                                                                      substance/drug.
96440...........................  .................  ..............  Chemotherapy administration into pleural
                                                                      cavity, requiring and including
                                                                      thoracentesis.
96521...........................  .................  ..............  Refilling and maintenance of portable pump.
96522...........................  .................  ..............  Refilling and maintenance of implantable
                                                                      pump or reservoir for drug delivery,
                                                                      systemic (e.g., intravenous, intra-
                                                                      arterial).
96413...........................               0440            $204  Chemotherapy administration; intravenous
                                                                      infusion technique; up to 1 hour, single
                                                                      or initial substance/drug.
96416...........................  .................  ..............  Chemotherapy administration, intravenous
                                                                      infusion technique; initiation of
                                                                      prolonged chemotherapy infusion (more than
                                                                      8 hours), requiring use of a portable or
                                                                      implantable pump.
96422...........................  .................  ..............  Chemotherapy administration, intra-
                                                                      arterial; infusion technique, up to 1
                                                                      hour.
96425...........................  .................  ..............  Chemotherapy administration, intra-
                                                                      arterial; infusion technique, initiation
                                                                      of prolonged infusion (more than 8 hours),
                                                                      requiring the use of a portable or
                                                                      implantable pump.
96445...........................  .................  ..............  Chemotherapy administration into peritoneal
                                                                      cavity, requiring and including
                                                                      peritoneocentesis.
96450...........................  .................  ..............  Chemotherapy administration, into CNS
                                                                      (e.g., intrathecal), requiring and
                                                                      including spinal puncture.
C8957...........................  .................  ..............  Intravenous infusion for therapy/diagnosis;
                                                                      initiation of prolonged infusion (more
                                                                      than eight hours), requiring use of
                                                                      portable or implantable pump.
----------------------------------------------------------------------------------------------------------------

IX. OPPS Payment for Hospital Outpatient Visits

A. Background

    Currently, hospitals report visit HCPCS codes to describe three 
types of OPPS services: clinic visits; emergency department visits; and 
critical care services. For OPPS purposes, we recognize clinic visit 
codes as those codes defined in the CPT code book to report evaluation 
and management (E/M) services provided in the physician's office or in 
an outpatient or other ambulatory facility. We recognize emergency 
department visit codes as those codes used to report E/M services 
provided in the emergency department. Emergency department visit codes 
consist of five CPT codes that apply to Type A emergency departments 
and five Level II HCPCS codes that apply to Type B emergency 
departments. For OPPS purposes, we recognize critical care codes as 
those CPT codes used by hospitals to report critical care services that 
involve the ``direct delivery by a physician(s) of medical care for a 
critically ill or critically injured patient,'' as defined by the CPT 
code book. In Transmittal 1139, Change Request 5438, dated December 22, 
2006, we stated that, under the OPPS, the time that can be reported as 
critical care is the time spent by a physician and/or hospital staff 
engaged in active face-to-face critical care of a critically ill or 
critically injured patient. Under the OPPS, we also recognize HCPCS 
code G0390 (Trauma response team associated with hospital critical care 
service) for the reporting of a trauma response in association with 
critical care services.
    As we proposed in the CY 2011 OPPS/ASC proposed rule (75 FR 46294), 
we are continuing to recognize these CPT and HCPCS codes describing 
clinic visits, Type A and Type B emergency department visits, critical 
care services, and trauma team activation provided in association with 
critical care services for CY 2011. These codes are listed below in 
Table 39.

  Table 39--HCPCS Codes Used to Report Clinic and Emergency Department
                    Visits and Critical Care Services
------------------------------------------------------------------------
      CY 2011 HCPCS Code                   CY 2011 descriptor
------------------------------------------------------------------------
                        Clinic Visit HCPCS Codes
------------------------------------------------------------------------
99201........................  Office or other outpatient visit for the
                                evaluation and management of a new
                                patient (Level 1).
99202........................  Office or other outpatient visit for the
                                evaluation and management of a new
                                patient (Level 2).
99203........................  Office or other outpatient visit for the
                                evaluation and management of a new
                                patient (Level 3).
99204........................  Office or other outpatient visit for the
                                evaluation and management of a new
                                patient (Level 4).
99205........................  Office or other outpatient visit for the
                                evaluation and management of a new
                                patient (Level 5).
99211........................  Office or other outpatient visit for the
                                evaluation and management of an
                                established patient (Level 1).
99212........................  Office or other outpatient visit for the
                                evaluation and management of an
                                established patient (Level 2).
99213........................  Office or other outpatient visit for the
                                evaluation and management of an
                                established patient (Level 3).
99214........................  Office or other outpatient visit for the
                                evaluation and management of an
                                established patient (Level 4).

[[Page 71985]]

 
99215........................  Office or other outpatient visit for the
                                evaluation and management of an
                                established patient (Level 5).
------------------------------------------------------------------------
                 Emergency Department Visit HCPCS Codes
------------------------------------------------------------------------
99281........................  Emergency department visit for the
                                evaluation and management of a patient
                                (Level 1).
99282........................  Emergency department visit for the
                                evaluation and management of a patient
                                (Level 2).
99283........................  Emergency department visit for the
                                evaluation and management of a patient
                                (Level 3).
99284........................  Emergency department visit for the
                                evaluation and management of a patient
                                (Level 4).
99285........................  Emergency department visit for the
                                evaluation and management of a patient
                                (Level 5).
G0380........................  Type B emergency department visit (Level
                                1).
G0381........................  Type B emergency department visit (Level
                                2).
G0382........................  Type B emergency department visit (Level
                                3).
G0383........................  Type B emergency department visit (Level
                                4).
G0384........................  Type B emergency department visit (Level
                                5).
------------------------------------------------------------------------
                   Critical Care Services HCPCS Codes
------------------------------------------------------------------------
99291........................  Critical care, evaluation and management
                                of the critically ill or critically
                                injured patient; first 30-74 minutes.
99292........................  Critical care, evaluation and management
                                of the critically ill or critically
                                injured patient; each additional 30
                                minutes.
G0390........................  Trauma response associated with hospital
                                critical care service
------------------------------------------------------------------------

    During the February 2010 APC Panel meeting, the APC Panel 
recommended that CMS continue to report on clinic and emergency 
department visits and observation services in the claims data, and that 
if CMS identifies changes in patterns of utilization or cost, it bring 
those issues before the Visits and Observation Subcommittee for future 
consideration. The APC Panel also recommended that the work of the 
Visits and Observation Subcommittee continue. In the CY 2011 OPPS/ASC 
proposed rule (75 FR 46296), we indicated that we are adopting these 
recommendations and plan to provide the requested data and analyses to 
the APC Panel at an upcoming meeting.
    At its August 2010 meeting, the APC Panel recommended that CMS 
continue to report claims data for clinic and emergency department 
visits and observation services, critical care, and trauma activation 
services and, if CMS identifies changes in patterns of utilization or 
cost, that it bring those issues before the APC Panel for future 
consideration. The APC Panel also recommended that CMS provide 
additional information about critical care patients with a primary 
diagnosis of unspecified chest pain or other chest pain, such as the 
three most common secondary diagnoses and patient disposition. The APC 
Panel recommended that the work of the Visits and Observation 
Subcommittee continue and that Randall Oyer, M.D., be named chair of 
the Visits and Observation Subcommittee beginning at the next meeting. 
We are accepting all of these recommendations and will present the 
available requested data at an upcoming meeting of the APC Panel.

B. Policies for Hospital Outpatient Visits

1. Clinic Visits: New and Established Patient Visits
    As reflected in Table 39, hospitals use different CPT codes for 
clinic visits based on whether the patient being treated is a new 
patient or an established patient. Beginning in CY 2009, we refined the 
definitions of a new patient and an established patient to reflect 
whether or not the patient has been registered as an inpatient or 
outpatient of the hospital within the past 3 years. A patient who has 
been registered as an inpatient or outpatient of the hospital within 
the 3 years prior to a visit would be considered to be an established 
patient for that visit, while a patient who has not been registered as 
an inpatient or outpatient of the hospital within the 3 years prior to 
a visit would be considered to be a new patient for that visit. We 
refer readers to the CY 2009 OPPS/ASC final rule with comment period 
(73 FR 68677 through 68680) for a full discussion of the refined 
definitions.
    We stated in the CY 2010 OPPS/ASC proposed rule (75 FR 46296) that 
we continue to believe that defining new or established patient status 
based on whether the patient has been registered as an inpatient or 
outpatient of the hospital within the 3 years prior to a visit will 
reduce hospitals' administrative burden associated with reporting 
appropriate clinic visit CPT codes. For CY 2011, we proposed to 
continue recognizing the refined definitions of a new patient and an 
established patient, and applying our policy of calculating median 
costs for clinic visits under the OPPS using historical hospital claims 
data. As discussed in section II.A.2.e.(1) of the proposed rule and 
consistent with our CY 2010 policy, when calculating the median costs 
for the clinic visit APCs (0604 through 0608), we proposed to continue 
to utilize our methodology that excludes those claims for visits that 
are eligible for payment through the extended assessment and management 
composite APC 8002 (Level I Extended Assessment and Management 
Composite). We stated in the proposed rule that we continue to believe 
that this approach results in the most accurate cost estimates for APCs 
0604 through 0608 for CY 2011.
    Comment: Several commenters recommended that CMS remove the 
distinction between new and established patient clinic visits, arguing 
that facilities must expend the same level of resources regardless of 
whether the patient was registered as an inpatient or an outpatient in 
the hospital within the past 3 years. Some commenters also asserted 
that a patient is still ``new'' the first time he or she receives 
services at a particular hospital clinic even if the patient has been 
seen elsewhere in the hospital within the last 3 years. In addition, 
some commenters stated that there are significant operational issues 
involved with

[[Page 71986]]

implementing the 3-year criterion for hospital clinic visit billing 
purposes. Some commenters argued that any differences in costs that is 
evident in claims data for new patient visits versus established 
patient visits would be the result of hospitals' erroneous reporting of 
these codes, rather than any real difference in the level of resources 
expended treating a new versus an established patient.
    Many commenters suggested that, as an alternative to the clinic 
visit CPT codes for new and established patients, hospitals bill for 
visits based on the resources expended in the visit at a level 
determined by the hospitals' internal reporting guidelines, regardless 
of whether the patient is new or established. Some commenters stated 
that, if CMS chooses to continue to require hospitals to report both 
new and established patient visit codes, the distinction should be 
based upon whether the patient has a medical record.
    Response: As we stated in the CY 2010 OPPS/ASC final rule with 
comment period (74 FR 60547), because hospital claims data continue to 
show significant cost differences between new and established patient 
visits, we continue to believe it is necessary and appropriate to 
recognize the CPT codes for both new and established patient visits 
and, in some cases, provide differential payment for new and 
established patient visits of the same level. For example, the final CY 
2011 median cost for the Level 3 new patient clinic visit, described by 
CPT code 99203 and calculated using over 200,000 single claims from CY 
2009, is approximately $101, while the final CY 2011 median cost for 
the Level 3 established patient clinic visit, described by CPT code 
99213 and calculated using over 4.8 million single claims from CY 2009, 
is approximately $76. We believe this difference in median costs 
warrants continued assignment of these CPT codes to different APCs for 
CY 2011.
    Given that we have a substantial volume of single claims from a 
significant number of hospitals upon which to calculate the median 
costs for all levels of clinic visits, we do not agree with the 
commenters that the differences in costs for new versus established 
patient visits are flawed. We expect hospitals to report all HCPCS 
codes in accordance with correct coding principles, CPT code 
descriptions, and relevant CMS guidance, which, in this case, specifies 
that the meanings of ``new'' and ``established'' patients as included 
in the clinic visit CPT code descriptors pertain to whether or not the 
patient has been registered as an inpatient or an outpatient of the 
hospital within the past 3 years (73 FR 68679). As we have stated in 
the past (74 FR 60547), we have no reason to believe that hospitals are 
systematically disregarding these principles to the extent that our 
median costs for clinic visits, which are based on data from millions 
of single claims, would be artificially skewed.
    As we stated in the CY 2009 OPPS/ASC final rule with comment period 
(73 FR 68678), with respect to a patient being new the first time he or 
she receives services at a particular hospital clinic even if the 
patient has been seen elsewhere in the hospital within the last 3 
years, we believe this approach could be problematic because we do not 
believe that every clinic has clear administrative boundaries that 
define whether the patient was previously seen in that particular 
clinic. We also note that, as we have stated in the past (73 FR 68678) 
concerning commenters' request that the distinction between new and 
established patients be based upon whether the patient has a medical 
record, we continue to believe it is appropriate to include a time 
limit when determining whether a patient is new or established because 
we would expect that care of a patient who was not treated at the 
hospital for several years prior to a visit could require significantly 
greater hospital resources than care for a patient who was recently 
treated at the hospital.
    After consideration of the public comments we received, we are 
finalizing our CY 2011 proposal, without modification, to continue to 
define new or established patient status for the purpose of reporting 
the clinic visit CPT codes, on the basis of whether or not the patient 
has been registered as an inpatient or outpatient of the hospital 
within the past 3 years. We also are finalizing our CY 2011 proposal, 
without modification, to continue our policy of calculating median 
costs for clinic visits under the OPPS using historical hospital claims 
data. As discussed in detail in section II.A.2.e.(1) of this final rule 
with comment period and consistent with our CY 2010 policy, when 
calculating the median costs for the clinic visit APCs (0604 through 
0608), we utilized our methodology that excludes those claims for 
visits that are eligible for payment through the extended assessment 
and management composite APC 8002 (Level I Extended Assessment and 
Management Composite). We continue to believe that this approach 
results in the most accurate cost estimates for APCs 0604 through 0608 
for CY 2011.
2. Emergency Department Visits
    Since CY 2007, we have recognized two different types of emergency 
departments for payment purposes under the OPPS--Type A emergency 
departments and Type B emergency departments. As described in greater 
detail below, by providing payment for two types of emergency 
departments, we recognize, for OPPS payment purposes, both the CPT 
definition of an emergency department, which requires the facility to 
be available 24 hours, and the requirements for emergency departments 
specified in the provisions of the Emergency Medical Treatment and 
Labor Act (EMTALA) (Pub. L. 99-272), which do not stipulate 24-hour 
availability but do specify other obligations for hospitals that offer 
emergency services. For more detailed information on the EMTALA 
provisions, we refer readers to the CY 2009 OPPS/ASC final rule with 
comment period (73 FR 68680).
    In the CY 2007 OPPS/ASC final rule with comment period (71 FR 
68132), we finalized the definition of a Type A emergency department to 
distinguish it from a Type B emergency department. A Type A emergency 
department must be available to provide services 24 hours a day, 7 days 
a week, and meet one or both of the following requirements related to 
the EMTALA definition of a dedicated emergency department specified at 
42 CFR 489.24(b), specifically: (1) It is licensed by the State in 
which it is located under the applicable State law as an emergency room 
or emergency department; or (2) it is held out to the public (by name, 
posted signs, advertising, or other means) as a place that provides 
care for emergency medical conditions on an urgent basis without 
requiring a previously scheduled appointment. For CY 2007 (71 FR 
68140), we assigned the five CPT E/M emergency department visit codes 
for services provided in Type A emergency departments to five created 
Emergency Visit APCs, specifically APC 0609 (Level 1 Emergency Visits), 
APC 0613 (Level 2 Emergency Visits), APC 0614 (Level 3 Emergency 
Visits), APC 0615 (Level 4 Emergency Visits), and APC 0616 (Level 5 
Emergency Visits). We defined a Type B emergency department as any 
dedicated emergency department that incurred EMTALA obligations but did 
not meet the CPT definition of an emergency department. For example, a 
hospital department that may be characterized as a Type B emergency 
department would meet the definition of a dedicated emergency 
department but may not be available 24 hours a day,

[[Page 71987]]

7 days a week. Hospitals with such dedicated emergency departments 
incur EMTALA obligations with respect to an individual who presents to 
the department and requests, or has a request made on his or her 
behalf, examination or treatment for a medical condition.
    To determine whether visits to Type B emergency departments have 
different resource costs than visits to either clinics or Type A 
emergency departments, in the CY 2007 OPPS/ASC final rule with comment 
period (71 FR 68132), we finalized a set of five HCPCS G-codes for use 
by hospitals to report visits to all entities that meet the definition 
of a dedicated emergency department under the EMTALA regulations but 
that are not Type A emergency departments. These codes are called 
``Type B emergency department visit codes.'' In the CY 2007 OPPS/ASC 
final rule with comment period (71 FR 68132), we explained that these 
new HCPCS G-codes would serve as a vehicle to capture median cost and 
resource differences among visits provided by Type A emergency 
departments, Type B emergency departments, and clinics. We stated that 
the reporting of specific HCPCS G-codes for emergency department visits 
provided in Type B emergency departments would permit us to 
specifically collect and analyze the hospital resource costs of visits 
to these facilities in order to determine if, in the future, a proposal 
for an alternative payment policy might be warranted. We expected 
hospitals to adjust their charges appropriately to reflect differences 
in Type A and Type B emergency department visit costs.
    As we noted in the CY 2009 OPPS/ASC final rule with comment period 
(73 FR 68681), the CY 2007 claims data used for that rulemaking were 
from the first year of claims data available for analysis that included 
hospitals' cost data for these new Type B emergency department HCPCS 
visit codes. Based on our analysis of the CY 2007 claims data, we 
confirmed that the median costs of Type B emergency department visits 
were less than the median costs of Type A emergency department visits 
for all but the level 5 visit. In other words, the median costs from 
the CY 2007 hospital claims represented real differences in the 
hospital resource costs for the same level of visits in a Type A or 
Type B emergency department. Therefore, for CY 2009, we adopted the 
August 2008 APC Panel recommendation to assign Levels 1 through 4 Type 
B emergency department visits to their own APCs and to assign the Level 
5 Type B emergency department visit to the same APC as the Level 5 Type 
A emergency department visit.
    As discussed in the CY 2010 OPPS/ASC final rule with comment period 
(74 FR 60548 through 60551), analyses of CY 2008 hospitals' cost data 
from claims data used for CY 2010 ratesetting for the emergency 
department HCPCS G-codes demonstrated that the pattern of relative cost 
differences between Type A and Type B emergency department visits was 
largely consistent with the distributions we observed in the CY 2007 
data, with the exception that, in the CY 2008 data, we observed a 
relatively lower HCPCS code-specific median cost associated with Level 
5 Type B emergency department visits compared to the HCPCS code-
specific median cost of Level 5 Type A emergency department visits. As 
a result, for CY 2010, we finalized a policy to continue to pay Levels 
1 through 4 Type B emergency department visits through four levels of 
APCs, and to pay for Level 5 Type B emergency department visits through 
new APC 0630 (Level 5 Type B Emergency Department Visit), to which the 
Level 5 Type B emergency department visit HCPCS code is the only 
service assigned.
    As we noted in the CY 2011 OPPS/ASC proposed rule (75 FR 46297), 
based on the CY 2009 claims data available for the proposed rule, we 
note that the pattern of relative cost differences between Type A and 
Type B emergency department visits is consistent with the distributions 
we observed in the CY 2008 claims data, as demonstrated in Table 32 of 
the proposed rule. Therefore, we proposed to continue to pay for Type B 
emergency department visits in CY 2011 based on their median costs 
through five levels of APCs: APC 0626 (Level 1 Type B Emergency 
Department Visit), APC 0627 (Level 2 Type B Emergency Department 
Visit), APC 0628 (Level 3 Type B Emergency Department Visit), APC 0629 
(Level 4 Type B Emergency Department Visit), and APC 0630. We stated 
that we continue to believe that this configuration pays appropriately 
for each level of Type B emergency department visits based on estimated 
resource costs from more recent claims data. We also noted that, as 
discussed in section II.A.2.e.(1) of the proposed rule and consistent 
with our CY 2010 policy, when calculating the median costs for the 
emergency department visit and critical care APCs (0609 through 0617 
and 0626 through 0630), we proposed to utilize our methodology that 
excludes those claims for visits that are eligible for payment through 
the extended assessment and management composite APC 8002. We stated 
that we believe that this approach will result in the most accurate 
cost estimates for APCs 0604 through 0608 for CY 2011.
    Comment: One commenter requested clarification regarding ``triage 
only'' visits in which a patient is seen by a nurse and triaged in the 
hospital emergency department but leaves prior to a physician's 
examination and treatment. The commenter asked if hospitals can bill 
visit codes for such cases when facility resources are incurred if the 
patient is not seen by a physician.
    Response: As we have stated in the past (73 FR 68686 and 74 FR 
60551), under the OPPS, unless indicated otherwise, we do not specify 
the type of hospital staff (for example, nurses or pharmacists) who may 
provide services in hospitals because the OPPS only makes payment for 
services provided incident to physicians' services. Hospitals providing 
services incident to physicians' services may choose a variety of 
staffing configurations to provide those services, taking into account 
other relevant factors, including State and local laws, hospital 
policies, and other Federal requirements such as EMTALA and the 
Medicare conditions of participation related to hospital staffing. 
Billing a visit code in addition to another service merely because the 
patient interacted with hospital staff or spent time in a room for that 
service is inappropriate. A hospital may bill a visit code based on the 
hospital's own coding guidelines which must reasonably relate the 
intensity of hospital resources to different levels of HCPCS codes. 
Services furnished must be medically necessary and documented.
    After consideration of the public comments we received, we are 
adopting our proposal, without modification, to continue paying for 
Type B emergency department visits in CY 2011, consistent with their 
median costs through 5 levels of Type B emergency department visit 
APCs: APC 0626 (Level 1 Type B Emergency Visits), APC 0627 (Level 2 
Type B Emergency Visits), APC 0628 (Level 3 Type B Emergency Visits), 
APC 0629 (Level 4 Type B Emergency Visits), and APC 0630 (Level 5 Type 
B Emergency Visits). We are assigning HCPCS codes G0380, G0381, G0382, 
G0383, and G0384 (the levels 1, 2, 3, 4, and 5 Type B emergency 
department visit Level II HCPCS codes) to APCs 0626, 0627, 0628, 0629, 
and 0630, respectively, for CY 2011. We continue to believe that this 
configuration pays appropriately for each level of Type B emergency 
department visits based on

[[Page 71988]]

estimated resource costs from the most recent claims data.
    We also note that, as discussed in section II.A.2.e.(1) of this 
final rule with comment period and consistent with our CY 2010 policy, 
when calculating the median costs for the emergency department visit 
and critical care APCs (0609 through 0617 and 0626 through 0630), we 
utilized our methodology that excludes those claims for visits that are 
eligible for payment through the extended assessment and management 
composite APC 8002 (Level I Extended Assessment and Management 
Composite). We continue to believe that this approach will result in 
the most accurate cost estimates for APCs 0604 through 0608 for CY 
2011.
    Table 40 below displays the median costs for each level of Type B 
emergency department visit APCs under the final CY 2011 configuration, 
compared to the final median costs for each level of clinic visit APCs 
and each level of Type A emergency department visit APCs.

 Table 40--Comparison of Median Costs for Clinic Visit APCs, TYPE B Emergency Department Visit APCs, and Type A
                                         Emergency Department Visit APCs
----------------------------------------------------------------------------------------------------------------
                                                                     CY 2011 type B           CY 2011 type A
                                         CY 2011 clinic visit     emergency department       emergency visit
             Visit level               approximate APC  median   approximate APC median   approximate APC median
                                                 cost                     cost                     cost
----------------------------------------------------------------------------------------------------------------
Level 1..............................                      $52                      $41                      $51
Level 2..............................                       74                       59                       86
Level 3..............................                       99                      100                      138
Level 4..............................                      127                      164                      220
Level 5..............................                      167                      270                      326
----------------------------------------------------------------------------------------------------------------

    For CY 2010 and in prior years, The AMA CPT Editorial Panel has 
defined critical care CPT codes 99291 (Critical care, evaluation and 
management of the critically ill or critically injured patient; first 
30-74 minutes) and 99292 (Critical care, evaluation and management of 
the critically ill or critically injured patient; each additional 30 
minutes (List separately in addition to code for primary service)) to 
include a wide range of ancillary services such as electrocardiograms, 
chest X-rays and pulse oximetry. As we have stated in manual 
instruction, we expect hospitals to report in accordance with CPT 
guidance unless we instruct otherwise. For critical care in particular, 
we have instructed hospitals that any services that the CPT Editorial 
Panel indicates are included in the reporting of CPT code 99291 
(including those services that would otherwise be reported by and paid 
to hospitals using any of the CPT codes specified by the CPT Editorial 
Panel) should not be billed separately. Instead, hospitals should 
report charges for any services provided as part of the critical care 
services. In establishing payment rates for critical care services, and 
other services, CMS packages the costs of certain items and services 
separately reported by HCPCS codes into payment for critical care 
services and other services, according to the standard OPPS methodology 
for packaging costs (Medicare Claims Processing Manual (Pub. L. 100-
04), Chapter 4, Section 160.1).
    For CY 2011, the AMA CPT Editorial Panel is revising its guidance 
for the critical care codes to specifically state that, for hospital 
reporting purposes, critical care codes do not include the specified 
ancillary services. Beginning in CY 2011, hospitals that report in 
accordance with the CPT guidelines will begin reporting all of the 
ancillary services and their associated charges separately when they 
are provided in conjunction with critical care. Because the CY 2011 
payment rate for critical care services is based on hospital claims 
data from CY 2009, during which time hospitals would have reported 
charges for any ancillary services provided as part of the critical 
care services, we believe it is inappropriate to pay separately in CY 
2011 for the ancillary services that hospitals may now report in 
addition to critical care services. Therefore, for CY 2011, we will 
continue to recognize the existing CPT codes for critical care services 
and are establishing a payment rate based on our historical data, into 
which the cost of the ancillary services is intrinsically packaged, and 
we will implement claims processing edits that will conditionally 
package payment for the ancillary services that are reported on the 
same date of service as critical care services in order to avoid 
overpayment. The payment status of the ancillary services will not 
change when they are not provided in conjunction with critical care 
services.
    Our treatment of the revised CY 2011 critical care codes is open to 
public comment for 60 days following issuance of this final rule with 
comment period, and we will respond to the comments in the CY 2012 
final rule with comment period. We are assigning status indicator 
``Q3'' (Codes That May Be Paid Through a Composite APC) to the 
ancillary services to indicate that payment for them is packaged into a 
single payment for specific combinations of services and made through a 
separate APC payment or packaged in all other circumstances, in 
accordance with the OPPS payment status indicated for status indicator 
``Q3'' in Addendum D1 to this final rule with comment period. The 
ancillary services that were included in the definition of critical 
care prior to CY 2011 and that will be conditionally packaged into the 
payment for critical care services when provided on the same date of 
service as critical care services in CY 2011 are listed in Addendum M 
to this final rule with comment period.
3. Visit Reporting Guidelines
    Since April 7, 2000, we have instructed hospitals to report 
facility resources for clinic and emergency department hospital 
outpatient visits using the CPT E/M codes and to develop internal 
hospital guidelines for reporting the appropriate visit level. Because 
a national set of hospital-specific codes and guidelines do not 
currently exist, we have advised hospitals that each hospital's 
internal guidelines that determine the levels of clinic and emergency 
department visits to be reported should follow the intent of the CPT 
code descriptors, in that the guidelines should be designed to 
reasonably relate the intensity of hospital resources to the different 
levels of effort represented by the codes.
    As noted in detail in the CY 2008 OPPS/ASC final rule with comment 
period (72 FR 66802 through 66805), we observed a normal and stable 
distribution of clinic and emergency department visit levels in 
hospital claims over the past several years. The data indicated that 
hospitals, on

[[Page 71989]]

average, were billing all five levels of visit codes with varying 
frequency, in a consistent pattern over time. Overall, both the clinic 
and emergency department visit distributions indicated that hospitals 
were billing consistently over time and in a manner that distinguished 
between visit levels, resulting in relatively normal distributions 
nationally for the OPPS, as well as for specific classes of hospitals. 
The results of these analyses were generally consistent with our 
understanding of the clinical and resource characteristics of different 
levels of hospital outpatient clinic and emergency department visits. 
In the CY 2008 OPPS/ASC proposed rule (72 FR 42764 through 42765), we 
specifically invited public comment as to whether a pressing need for 
national guidelines continued at this point in the maturation of the 
OPPS, or if the current system where hospitals create and apply their 
own internal guidelines to report visits was currently more practical 
and appropriately flexible for hospitals. We explained that, although 
we have reiterated our goal since CY 2000 of creating national 
guidelines, this complex undertaking for these important and common 
hospital services was proving more challenging than we initially 
anticipated as we received new and expanded information from the public 
on current hospital reporting practices that led to appropriate payment 
for the hospital resources associated with clinic and emergency 
department visits. We stated our belief that many hospitals had worked 
diligently and carefully to develop and implement their own internal 
guidelines that reflected the scope and types of services they provided 
throughout the hospital outpatient system. Based on public comments, as 
well as our own knowledge of how clinics operate, it seemed unlikely 
that one set of straightforward national guidelines could apply to the 
reporting of visits in all hospitals and specialty clinics. In 
addition, the stable distribution of clinic and emergency department 
visits reported under the OPPS over the past several years indicated 
that hospitals, both nationally in the aggregate and grouped by 
specific hospital classes, were generally billing in an appropriate and 
consistent manner as we would expect in a system that accurately 
distinguished among different levels of service based on the associated 
hospital resources.
    Therefore, we did not propose to implement national visit 
guidelines for clinic or emergency department visits for CY 2008. Since 
publication of the CY 2008 OPPS/ASC final rule with comment period, we 
have again examined the distribution of clinic and Type A emergency 
department visit levels based upon updated CY 2009 claims data 
available for the CY 2011 proposed rule and this final rule with 
comment period and confirmed that we continue to observe a normal and 
stable distribution of clinic and emergency department visit levels in 
hospital claims. We continue to believe that, based on the use of their 
own internal guidelines, hospitals are generally billing in an 
appropriate and consistent manner that distinguishes among different 
levels of visits based on their required hospital resources. As a 
result of our updated analyses, we are encouraging hospitals to 
continue to report visits during CY 2011 according to their own 
internal hospital guidelines. In the absence of national guidelines, we 
will continue to regularly reevaluate patterns of hospital outpatient 
visit reporting at varying levels of disaggregation below the national 
level to ensure that hospitals continue to bill appropriately and 
differentially for these services. As originally noted in detail in the 
CY 2008 OPPS/ASC final rule with comment period (72 FR 66648), we 
continue to expect that hospitals will not purposely change their visit 
guidelines or otherwise upcode clinic and emergency department visits 
for purposes of extended assessment and management composite APC 
payment.
    In addition, we note our continued expectation that hospitals' 
internal guidelines will comport with the principles listed in the CY 
2008 OPPS/ASC final rule with comment period (72 FR 66805). We 
encourage hospitals with more specific questions related to the 
creation of internal guidelines to contact their servicing fiscal 
intermediary or MAC.
    Comment: Several commenters expressed appreciation for CMS' 
approach of studying the challenges associated with national guidelines 
prior to their implementation. One commenter indicated that, while a 
standardized coding methodology adopted by CMS would be ideal, it would 
be preferable for CMS to replace the existing visit CPT codes with 
hospital-specific HCPCS codes rather than require hospitals to adapt to 
national guidelines, because providers are now accustomed to using 
their own guidelines.
    Several commenters urged CMS to move forward with the 
implementation of national guidelines for hospitals to report clinic 
visits, citing a need for standardization and consistency in the 
definition and reporting of facility resource utilization and the 
challenges of having different guidelines in place by different payers. 
Other commenters asserted that variations in hospitals' internal 
guidelines may result in inconsistent cost data upon which payment 
rates for visits are based, and that the use of hospital-specific 
internal guidelines is contrary to government and industry goals of 
data uniformity, consistency, and comparability. Some commenters noted 
that some Medicare contractors use their own auditing methods rather 
than reviewing each hospital's internal guidelines while conducting 
medical reviews, putting hospitals at an increased risk during audits 
or fraud investigations.
    Several commenters also recommended that, in the absence of 
national guidelines for hospital visit reporting, CMS support a request 
to the American Medical Association CPT Editorial Panel to create 
unique CPT codes for hospital reporting of ED and clinic visits based 
on internally developed guidelines. Some commenters also recommended 
that CMS take a fresh look at approaches for adopting national visit 
guidelines by carefully reevaluating proposals that have been submitted 
in the past, as well as evaluating different sets of hospital-developed 
internal guidelines that appear to be working well. According to the 
commenters, the national guidelines should be clear, concise, and 
specific with little or no room for varying interpretations, and 
hospitals should have at least 1 year to prepare for the transition. 
One commenter recommended 12 to18 months lead time in the issuance of 
national guidelines in order to allow facilities sufficient time for 
education and the process of converting their existing system to the 
national standard.
    Response: As we have in the past (74 FR 60553), we acknowledge that 
it would be desirable to many hospitals to have national guidelines. 
However, we also understand that it would be disruptive and 
administratively burdensome to other hospitals that have successfully 
adopted internal guidelines to implement any new set of national 
guidelines while we address the problems that would be inevitable in 
the case of any new set of guidelines that would be applied by 
thousands of hospitals. We will continue to regularly reevaluate 
patterns of hospital outpatient visit reporting at varying levels of 
disaggregation below the national level to ensure that hospitals 
continue to bill appropriately and differentially for these services. 
We

[[Page 71990]]

reiterate our expectation that hospitals' internal guidelines fully 
comply with the principles listed in the CY 2008 OPPS/ASC final rule 
with comment period (72 FR 68805). As noted in the CY 2008 OPPS/ASC 
final rule with comment period (72 FR 66806), we encourage fiscal 
intermediaries and MACs to review a hospital's internal guidelines when 
an audit occurs. While we also would encourage RACs to review a 
hospital's internal guidelines when an audit occurs, we note that 
currently there are no RAC activities involving visit services. RAC 
audits may involve CMS-approved issues only and must be posted to each 
RAC's Web site.
    We agree with the commenters that national guidelines should be 
clear, concise, and specific with little or no room for varying 
interpretations, and that hospitals should have at least 1 year to 
prepare for the transition. If the AMA were to create facility-specific 
CPT codes for reporting visits provided in HOPDs, we would certainly 
consider such codes for OPPS use.
    We appreciate all of the comments we have received in the past from 
the public on visit guidelines, and we encourage continued submission 
of comments throughout the year that would assist us and other 
stakeholders interested in the development of national guidelines. 
Until national guidelines are established, hospitals should continue 
using their own internal guidelines to determine the appropriate 
reporting of different levels of clinic and emergency department 
visits. While we understand the interest of some hospitals in having us 
move quickly to promulgate national guidelines that would ensure 
standardized reporting of hospital outpatient visit levels, we believe 
that the issues and concerns identified both by us and others are 
important and require serious consideration prior to the implementation 
of national guidelines. Because of our commitment to provide hospitals 
with 6 to 12 months notice prior to implementation of national 
guidelines, we would not implement national guidelines prior to CY 
2012. Our goal is to ensure that OPPS national or hospital-specific 
visit guidelines continue to facilitate consistent and accurate 
reporting of hospital outpatient visits in a manner that is resource-
based and supportive of appropriate OPPS payments for the efficient and 
effective provision of visits in hospital outpatient settings.

X. Payment for Partial Hospitalization Services

A. Background

    Partial hospitalization is an intensive outpatient program of 
psychiatric services provided to patients as an alternative to 
inpatient psychiatric care for individuals who have an acute mental 
illness. Sections 1861(ff)(1) and (ff)(2) of the Act specify the items 
and services that are defined as partial hospitalization services and 
the conditions under which Medicare payment for the items and services 
will be made. Section 1861(ff)(3) of the Act specifies that a partial 
hospitalization program (PHP) is one that is furnished by a hospital or 
community mental health center (CMHC) that meets the requirements 
specified under that subsection of the Act.
    Section 1301(a) of the recently enacted Health Care and Education 
Reconciliation Act of 2010 (HCERA 2010) (Pub. L. 111-152, enacted on 
March 30, 2010) revised the definition of a CMHC set forth at section 
1861(ff)(3)(B) of the Act by adding a provision that the CMHC, 
effective on the first day of the first calendar quarter that begins at 
least 12 months after the date of enactment (that is, April 1, 2011), 
must provide at least 40 percent of its services to individuals who are 
not eligible for benefits under Title XVIII of the Act (Medicare). 
Section 1301(b) of HCERA 2010 amended the description of a PHP to 
specify that the program must be a distinct and organized intensive 
ambulatory treatment program offering less than 24-hour daily care 
``other than in an individual's home or in an inpatient or residential 
setting.'' We discuss our finalized policies that incorporate these two 
provisions of HCERA 2010 in our regulations under section X.C. of this 
final rule with comment period.
    Section 1833(t)(1)(B)(i) of the Act provides the Secretary with the 
authority to designate the OPD services to be covered under the OPPS. 
The existing Medicare regulations at 42 CFR 419.21 that implement this 
provision specify that payments under the OPPS will be made for partial 
hospitalization services furnished by CMHCs as well as those services 
furnished by hospitals to their outpatients. Section 1833(t)(2)(C) of 
the Act requires the Secretary to establish relative payment weights 
for covered OPD services (and any APCs) based on median (or mean, at 
the election of the Secretary) hospital costs using data on claims from 
1996 and data from the most recent available cost reports. Section 
1833(t)(9)(A) of the Act requires the Secretary to ``review not less 
often than annually and revise the groups, the relative payment 
weights, and the wage and other adjustments described in paragraph (2) 
to take into account changes in medical practice, changes in 
technology, the addition of new services, new cost data, and other 
relevant information and factors.'' Because a day of care is the unit 
that defines the structure and scheduling of partial hospitalization 
services, we established a per diem payment methodology for the PHP 
APCs, effective for services furnished on or after August 1, 2000 (65 
FR 18452 through 18455).
    From CY 2003 through CY 2006, the median per diem cost for CMHCs 
fluctuated significantly from year to year, while the median per diem 
cost for hospital-based PHPs remained relatively constant. We believe 
that CMHCs may have increased and decreased their charges in response 
to Medicare payment policies.
    Due to these significant fluctuations and declines in CMHC PHP 
median per diem costs, in developing the CY 2008 update, we began an 
effort to strengthen the PHP benefit through extensive data analysis 
and policy and payment changes (72 FR 66670 through 66676). 
Specifically, we proposed and finalized two refinements to the 
methodology for computing the PHP median. First, we remapped 10 revenue 
codes that are common among hospital-based PHP claims to the most 
appropriate cost centers. Secondly, we refined our methodology for 
calculating PHP per diem costs by computing the median using a per day 
methodology. A complete discussion of these refinements can be found in 
the CY 2008 OPPS/ASC final rule with comment period (72 FR 66671 
through 66672).
    In CY 2009, we implemented several regulatory, policy, and payment 
changes, including a two-tiered payment approach for PHP services under 
which we pay one amount for days with 3 services (APC 0172 (Level I 
Partial Hospitalization)) and a higher amount for days with 4 or more 
services (APC 0173 (Level II Partial Hospitalization)). We refer 
readers to section X.C.2. of the CY 2009 OPPS/ASC final rule with 
comment period (73 FR 68688 through 68693) for a full discussion of the 
two-tiered payment system. In addition, for CY 2009, we finalized our 
policy to deny payment for any PHP claims for days when fewer than 3 
units of therapeutic services are provided. As noted in the CY 2009 
OPPS/ASC final rule with comment period (73 FR 68694), we believe that 
3 services should be the minimum

[[Page 71991]]

number of services allowed in a PHP day because a day with 1 or 2 
services does not meet the statutory intent of a PHP. We continue to 
believe that the minimum threshold of three services is appropriate 
because it takes into consideration unforeseen circumstances, such as 
medical appointments, while maintaining the integrity of the PHP 
benefit.
    Furthermore, for CY 2009, we revised the regulations at 42 CFR 
410.43 to codify existing basic PHP patient eligibility criteria and to 
add a reference to current physician certification requirements at 42 
CFR 424.24 to conform our regulations to our longstanding policy (73 FR 
68694 through 68695). We believe these changes have helped to 
strengthen the PHP benefit. We also revised the partial hospitalization 
benefit to include several coding updates. We refer readers to section 
X.C.2. of the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68694 through 68697) for a full discussion of these requirements.
    For CY 2010, we retained the two-tiered payment approach for PHP 
services and used only hospital-based PHP data in computing the per 
diem payment rates. We used only hospital-based PHP data because we 
were concerned about further reducing both PHP APC per diem payment 
rates without knowing the impact of the policy and payment changes we 
made in CY 2009. Because of the 2-year lag between data collection and 
rulemaking, the changes we made in CY 2009 are reflected for the first 
time in the claims data that we are using to determine payment rates 
for this CY 2011 rulemaking.

B. PHP APC Update for CY 2011

    To develop proposed payment rates for the CY 2011 OPPS/ASC proposed 
rule (75 FR 46299), we used CY 2009 claims data and computed median per 
diem costs in the following categories: (1) All days; (2) days with 3 
services; and (3) days with 4 or more services. These proposed median 
per diem costs were computed separately for CMHC PHPs and hospital-
based PHPs and are shown in Table 41 below.

  Table 41--Proposed PHP Median Per Diem Costs for CMHC and Hospital-Based PHPs, by Category, Based on CY 2009
                                                   Claims Data
----------------------------------------------------------------------------------------------------------------
                                                                                  Hospital-based
                            Category                                 CMHC PHPs         PHPs          Combined
----------------------------------------------------------------------------------------------------------------
All Days........................................................         $123.17         $235.58         $132.28
Days with 3 services............................................          118.19          184.47          140.96
Days with 4 or more services....................................          123.35          235.58          131.56
----------------------------------------------------------------------------------------------------------------

    Using CY 2009 claims data and the refined methodology for computing 
PHP per diem costs that we adopted in the CY 2008 OPPS/ASC final rule 
with comment period (72 FR 66672), we computed a median per diem cost 
from all claims for CY 2011 of $132.28. As stated in the CY 2011 OPPS/
ASC proposed rule (75 FR 46299), the data indicate that, although CMHCs 
provided more days with 4 or more services in CY 2009 than in CY 2008, 
their median per diem cost for 4 or more services ($123.35) is 
substantially lower than the median per diem cost for the same units of 
service provided in hospital-based PHPs ($235.58). The median per diem 
cost for claims containing 4 or more services for all PHP claims, 
regardless of site of service, is $131.56. The median per diem costs 
for claims containing 3 services are $118.19 for CMHC PHPs and $184.47 
for hospital-based PHPs, and $140.96 for all PHP service claims, 
regardless of site of service.
    We stated in the CY 2011 OPPS/ASC proposed rule that these data, 
along with data from previous years, show the shift in cost and 
utilization for CMHCs and hospital-based PHPs under the two-tiered 
payment system (75 FR 46299 through 46300). Since CY 2009 (using 2007 
data), we noted that CMHCs' costs decreased from $139 in CY 2009 to 
$118 in CY 2011 for Level I services (3 services) and from $172 in CY 
2009 to $123 in CY 2011 for Level II services (4 or more services). For 
hospital-based PHPs, costs increased from $157 in CY 2009 (using 2007 
data) to $184 in CY 2011 for Level I services (3 services) and from 
$200 in CY 2009 to $236 in CY 2011 for Level II services (4 or more 
services). We stated that, for the past 2 years, we have based the PHP 
APC per diem payment rates on only hospital-based PHP data because 
including the CMHC data would have lowered the PHP APC per diem rates 
and raised concerns about appropriate payment for PHP services. 
Specifically, we stated that we were concerned about paying hospital-
based PHP programs a rate that is lower than what their cost structure 
reflects, which in turn could lead to hospital-based program closures 
and possible access problems for Medicare beneficiaries. We also stated 
that we were concerned about further reducing the payment rates without 
knowing the impact of the policy and payment changes we made in CY 
2009.
    Because the CMHC cost data has significantly decreased again this 
year, we stated that we believe that we can no longer ignore the 
pattern and continue to base the PHP payment rates using only hospital-
based data. We noted that we are confident that the CY 2009 claims data 
reflect that CMHCs continue to have a lower cost structure than 
hospitals and not the impact of CY 2009 policies. We believe that CMHCs 
have a lower cost structure than their hospital-based PHP counterparts 
because the data show that CMHCs provide fewer PHP services in a day 
and use less costly staff than hospital-based PHPs. Therefore, we 
stated that we believe that it would be inappropriate to treat these 
two provider types in the same manner regarding payment, particularly 
because their cost differences continue to be so disparate. We also 
stated that we believe that we need to continue to protect hospital-
based PHPs from receiving inadequate payments, given that they offer 
the widest access to PHP services because they are located across the 
country. Our analysis of the claims data indicate a need to establish 
separate payment rates for each provider type based on its own unique 
cost structures.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46300), we proposed to 
compute four separate PHP APC per diem payment rates, two for CMHC PHPs 
(for Level I and Level II services using only CMHC data) and two for 
hospital-based PHPs (Level I and Level II services using only hospital-
based PHP data). Creating the four proposed payment rates (two for CMHC 
PHPs and two for hospital-based PHPs) would support continued access to 
the PHP benefit, including a more intensive level of care, while also 
providing appropriate payment based on the unique cost structures of 
CMHC PHPs and hospital-based PHPs. We proposed the following APC median 
per diem costs for PHP services for CY 2011:

[[Page 71992]]



 Table 42--Proposed CY 2011 Median Per Diem Costs for CMHC PHP Services
------------------------------------------------------------------------
                                                     Proposed median per
     Proposed APC               Group title              diem costs
------------------------------------------------------------------------
0172..................  Level I Partial                          $118.19
                         Hospitalization (3
                         services) for CMHCs.
0173..................  Level II Partial                          123.35
                         Hospitalization (4 or
                         more services) for CMHCs.
------------------------------------------------------------------------


 Table 43--Proposed CY 2011 Median Per Diem Costs for Hospital-Based PHP
                                Services
------------------------------------------------------------------------
                                                     Proposed median per
     Proposed APC               Group title              diem costs
------------------------------------------------------------------------
0175..................  Level I Partial                          $184.47
                         Hospitalization (3
                         services) for hospital-
                         based PHPs.
0176..................  Level II Partial                          235.58
                         Hospitalization (4 or
                         more services) for
                         hospital-based PHPs.
------------------------------------------------------------------------

    We noted in the CY 2011 OPPS/ASC proposed rule (75 FR 46300) that 
this proposed policy is consistent with the recommendation made by 
several commenters in the CY 2010 OPPS/ASC final rule with comment 
period that urged CMS to adopt two additional payment rates that are 
site-specific APCs for PHP services, where the hospital-based PHP APCs 
for Level I services (3 services) and Level II services (4 or more 
services) would be established using only hospital-based data and the 
CMHC PHP APCs for Level I services (3 services) and Level II services 
(4 or more services) would be established using only CMHC data (74 FR 
60557).
    We requested public comments on our proposal to provide four 
separate PHP APC per diem payment rates, two for CMHC PHPs and two for 
hospital-based PHPs. We received numerous public comments in response 
to our proposal. A summary of the comments received and our responses 
follow:
    Comment: Several commenters representing hospital-based PHPs 
supported CMS' proposal to establish four separate PHP APC per diem 
payment rates, two for CMHCs (using CMHC data only) and two for 
hospital-based PHPs (using hospital-based data only). However, these 
commenters urged CMS to consider transitioning the CMHC reduction in 
payment over 2 to 3 years to prevent possible CMHC closures.
    Several commenters representing CMHCs also expressed their concern 
that a single large reduction in payment, without a mitigating 
transition, may result in CMHC closures and may limit access to mental 
health services to an already vulnerable population. A few of the 
commenters further stated that CMHC closures, especially in rural 
areas, may result in mentally ill individuals ending up homeless, in 
jail, or in emergency rooms. A couple of commenters also pointed out 
that CMHCs located in the Gulf region are also dealing with the oil 
spill and its devastating impact on communities.
    Several commenters representing CMHCs also urged CMS to reconsider 
its proposed exclusion of hospital costs from the calculation of APC 
rates for partial hospitalization services furnished by CMHCs. The 
commenters stated that excluding hospital costs from the calculation is 
contrary to section 1833(t)(2)(C) of the Act and correlating regulation 
42 CFR 419.31(b)(1).
    A few commenters suggested that CMS freeze PHP rates for CMHCs at 
the CY 2010 levels. These commenters stated that freezing the rates 
would allow CMHCs time to assess the impact of the rate reduction and 
section 1301(a) of HCERA 2010 on their operations. These commenters 
also expressed concern that moving forward with the proposed rate 
reduction could cause potential CMHC closures.
    A couple of commenters also stated that the proposed changes in the 
CY 2011 OPPS/ASC proposed rule do not support the Patient Protection 
and Affordable Care Act and the Mental Health Parity and Addiction 
Equity Act of 2008.
    Response: We appreciate the commenters who supported our proposal 
to create four separate PHP APC per diem payment rates, two for CMHC 
PHPs (using only CMHC data) and two for hospital-based PHPs (using only 
hospital-based PHP data). We understand commenters' concerns about the 
proposed CMHC per diem rate reduction and the impact the reduction may 
have on access to the PHP benefit in both provider settings. However, 
we also believe that we can no longer ignore the different cost 
structures of CMHCs and hospital-based PHPs. As we discussed earlier in 
this section, CMHCs' costs have fluctuated significantly and then 
declined over the years. Conversely, the hospital-based PHP costs have 
been relatively stable since the inception of the OPPS. Furthermore, in 
the past, we have provided different measures to control the CMHC cost 
fluctuation in order to protect access to care and with the hope that 
the cost structures for both provider types would eventually become 
more consistent. However, after several years of generally paying CMHCs 
relatively more than their cost data, while at times generally paying 
hospital-based PHPs relatively less than their cost data, we conclude 
that we need to create more appropriate payments that reflect the cost 
structure of each provider type. Section 1833(t)(9)(A) of the Act 
requires the Secretary to ``review not less often than annually and 
revise the groups, the relative payment weights, and the wage and other 
adjustments described in paragraph (2) to take into account changes in 
medical practice, changes in technology, the addition of new services, 
new cost data, and other relevant information and factors.'' We believe 
that we have authority to revise the groups and relative payment 
weights and to make other adjustments to the payment rates for PHP 
services, including basing rates on hospital-based PHP data only, 
combined hospital-based PHP and CMHC data, or CMHC data only, to take 
into account relevant information and factors that would allow us to 
more appropriately pay providers for the resource costs associated with 
providing PHP services. Therefore, we are finalizing the four separate 
PHP APC per diem payment rates, two for CMHC PHPs (for Level I and 
Level II services using only CMHC data) and two for hospital-based PHPs 
(for Level I and Level II services using only hospital-based PHP data).
    Although we are committed to paying providers appropriately, based 
on cost data, we are just as concerned about protecting access to care. 
The PHP benefit and mental health services are very important to us. We 
understand the commenters' concerns that a single large reduction in 
payment could potentially result in access to care issues in both CMHCs 
and hospital-based PHPs

[[Page 71993]]

because the hospital-based PHPs potentially may need to provide 
additional services to accommodate those individuals displaced by any 
potential closures.
    After consideration of the public comments we received and for 
reasons we have discussed, we have decided to provide a 2-year 
transition to CMHC rates based solely on CMHC data for the two CMHC PHP 
APC per diem rates. For CY 2011, the CMHC PHP APC Level I and Level II 
rates will be calculated by taking 50 percent of the difference between 
the CY 2010 final hospital-based medians and the CY 2011 final CMHC 
medians and adding that number to the CY 2011 final CMHC medians. We 
believe a 2-year transition under this methodology will move us in the 
direction of our goal, which is to pay appropriately for PHP services 
based on each provider type's cost data, while at the same time 
allowing providers time to adjust their business operations and to 
protect access to care for beneficiaries. For CY 2011, the CMHC APC for 
Level I Partial Hospitalization (3 services) will be calculated by 
taking 50 percent of the difference between the CY 2010 final hospital-
based median for Level I Partial Hospitalization (3 services) and the 
CY 2011 final CMHC median for Level I Partial Hospitalization (3 
services) and adding that number to the CY 2011 final CMHC median for 
Level I Partial Hospitalization (3 services) or in numerical terms: 
$148.48 minus $108.01 equals $40.47, then take 50 percent of $40.47, 
which equals $20.24. The $20.24 amount will be added to the CY 2011 
CMHC final Level I Partial Hospitalization (3 services) median of 
$108.01 to yield $128.25. The CMHC APC for Level II Partial 
Hospitalization (4 or more services) will be calculated in the same 
manner, by taking 50 percent of the difference between the CY 2010 
final hospital-based median for Level II Partial Hospitalization (4 or 
more services) and the CY 2011 final CMHC median for Level II Partial 
Hospitalization (4 or more services) and adding that number to the CY 
2011 final CMHC median for Level II Partial Hospitalization (4 or more 
services) or in numerical terms: $208.96 minus $116.37 equals $92.59, 
then take 50 percent of $92.59,which equals $46.30. The $46.30 amount 
will be added to the CY 2011 final CMHC Level II Partial 
Hospitalization (4 or more services) median of $116.37 to yield 
$162.67. The CY 2011 CMHC PHP APC Level I (3 services) cost is $128 and 
the Level II (4 or more services) cost is $163. The CY 2011 hospital-
based PHP Level I (3 services) median cost is $203 and the Level II (4 
or more services) cost is $236.
    For CY 2012, we plan to implement the CMHC per diem rate using only 
CMHC data. However, we will review and analyze the data during the CY 
2012 rulemaking cycle and may, based on these analyses, further refine 
the payment mechanism.
    Finally, in response to the request to freeze the PHP payment rates 
at CY 2010 levels, we will not adopt this suggestion because we believe 
that it is most appropriate to pay for PHP services based on the cost 
data for each provider type, and the CY 2010 payment rates are 
calculated using only hospital-based data. Further, in response to 
concern from commenters' that we are not supporting the Patient 
Protection and Affordable Care Act and the Mental Health Parity and 
Addiction Equity Act of 2008, we believe that we are in compliance with 
both Acts and, as discussed in this section and elsewhere, are 
supportive of mental health.
    Comment: Several commenters suggested alternative methodologies for 
paying PHP providers, such as requesting that CMS form a study group 
comprised of providers, CMS representatives and members of the APC 
committee to determine a more accurate reimbursement methodology for 
providers. One commenter offered to assist in analyzing the 
methodology, suggesting a methodology based upon a percentage of base 
rates for inpatient psychiatric daily rates or perhaps unbundling PHP 
services and base payment on the individual HCPCS codes. One commenter 
suggested removing PHP from the APC codes and, instead, establishing a 
separate payment system similar to home health. Other commenters 
believed that CMS should include non-Medicare reimbursable costs in the 
ratesetting calculations, such as meals, transportation, 24-hour on 
call service, community education and screenings for admission to State 
facilities, operational costs for other outpatient services, as well as 
case management. A few commenters pointed out that the methodology, 
although mathematically correct, has not yielded reimbursement rates 
satisfactory to providers. Several commenters expressed concern that 
the methodology used reflects many variables that provide for an 
incorrect cost per day forcing CMHCs to cut costs to stay in business, 
and produces a lower CCR the following year. A couple of commenters 
suggested perhaps a GAO true cost analysis to determine fair costing.
    Response: Currently, the statute does not provide for a separate or 
alternative payment system for partial hospitalization services, as 
requested by commenters, and any significant change in payment 
methodology would require a statutory change. Also, we would not 
include non-Medicare reimbursable costs in our calculation of Medicare 
PHP payments because we do not base Medicare PHP payments on non-
Medicare reimbursable costs. Further, section 1861(ff) of the Act, 
which defines partial hospitalization services, explicitly excludes 
meals and transportation from the items and services included in 
partial hospitalization services.
    In response to the commenters who find our methodology 
mathematically correct, but resulting payments unsatisfactory, we 
believe our methodology to be accurate and the resulting payments to be 
appropriate. We determine median cost by computing a separate per diem 
cost for each day rather than for each bill. Under this method, a cost 
is computed separately for each day of PHP care. When there are 
multiple days of care entered on a claim, a unique cost is computed for 
each day of care. In this manner, we can accurately assess and 
recognize the costs associated with each day of care. All of these 
costs are then arrayed from lowest to highest and the middle value of 
the array would be the median per diem cost. We adopted this method of 
computing PHP per diem median cost because we believe it produces a 
more accurate estimate because each day gets an equal weight towards 
computing the median. This method for computing a PHP per diem median 
cost more accurately reflects the costs of a PHP and uses all available 
PHP data.
    Furthermore, we disagree with the commenters who suggested that our 
methodology reflects many variables that provide for an incorrect cost 
per day. We believe that this comment reflects confusion about how the 
CCRs influence the medians. We disagree that reduction in cost leads to 
reduction in CCRs. This outcome only occurs if charges remain the same.
    We welcome any input and information that the industry can provide 
about the costs of their programs and encourage providers to submit 
information on their costs. We also welcome reports on this issue, 
including a GAO or other cost analyses. We note, however, that we do 
not direct GAO activities.
    Comment: A few commenters requested that CMHC cost report 
information be included in the Healthcare Cost Report Information 
System (HCRIS).

[[Page 71994]]

    Response: We appreciate the commenters' request to make CMHC data 
available through the HCRIS and starting in early 2011, CMHC cost 
report information will begin to be available in the HCRIS. The 
hospital-based PHP data are based on cost report information currently 
in and accessible through the HCRIS.
    Comment: A few commenters expressed their concern as to why CMS 
continues to state that a day of partial hospitalization should not 
equal the cost of the separate services provided in a non-PHP setting. 
They stated that, for example, four individual group psychotherapy 
services (APC 0325) add up to more than a proposed Level II day of PHP 
for CMHCs.
    Response: We do not believe that it is appropriate to compare the 
partial hospitalization services to separate mental health services. 
The payment rates for individual APC services cited by the commenter 
(APC 0325) are not computed from PHP bills. As stated earlier, we used 
data from PHPs to determine the median cost of a day of PHP service. A 
PHP is a program of services where savings can be realized by hospitals 
and CMHCs over delivering individual psychotherapy services.
    We structured the PHP APCs (APCs 0172, 0173, 0175, and 0176) as a 
per diem methodology in which the day of care is the unit that reflects 
the structure and scheduling of PHPs and the composition of the PHP 
APCs consist of the cost of all services provided each day. Although we 
require that each PHP day include a psychotherapy service, we do not 
specify the specific mix of other services provided, and our payment 
methodology reflects the cost per day rather than the cost of each 
service furnished within the day. We believe the data used for setting 
the PHP payment appropriately reflect the typical PHP day and its costs 
should not be compared to the costs of providing separate services. A 
PHP is a complete program of services with efficiencies and economies 
of scale provided in contrast to individual psychotherapy services.
    In summary, after consideration of the public comments we received, 
we are finalizing our CY 2011 proposal, with modification, to establish 
four separate PHP APC per diem payment rates, two for CMHC PHPs and two 
for hospital-based PHPs, based on each provider's own unique cost data. 
As discussed above, we are instituting a 2-year transition to CMHC 
rates based solely on CMHC data for the two CMHC PHP APC per diem 
payments, which will help mitigate the rate reduction. Specifically, 
for CY 2011, we are calculating the CMHC PHP APC Level I and Level II 
rates by taking 50 percent of the difference between the CY 2010 final 
hospital-based medians and the CY 2011 final CMHC medians and adding 
that number to the CY 2011 final CMHC medians. The two hospital-based 
PHP APCs per diem payments are finalized as proposed.
    The updated PHP APCs median per diem costs that we are finalizing 
for CY 2011 are shown in Tables 44 and 45 below:

   Table 44--CY 2011 Median Per Diem Costs for CMHC PHP Services Plus
                               Transition
------------------------------------------------------------------------
                                                        Median per diem
              APC                    Group title           costs plus
                                                           transition
------------------------------------------------------------------------
0172..........................  Level I Partial                  $128.25
                                 Hospitalization (3
                                 services) for CMHCs.
0173..........................  Level II Partial                  162.67
                                 Hospitalization (4
                                 or more services)
                                 for CMHCs.
------------------------------------------------------------------------


 Table 45--CY 2011 Median Per Diem Costs for Hospital-Based PHP Services
------------------------------------------------------------------------
                                                        Median per diem
              APC                    Group title             costs
------------------------------------------------------------------------
0175..........................  Level I Partial                  $202.71
                                 Hospitalization (3
                                 services) for
                                 hospital-based PHPs.
0176..........................  Level II Partial                  235.79
                                 Hospitalization (4
                                 or more services)
                                 for hospital-based
                                 PHPs.
------------------------------------------------------------------------

C. Changes to Regulations to Incorporate Provisions of HCERA 2010

    As stated in section X.A. of this final rule with comment period, 
section 1301 of HCERA 2010 made a change to the statutory definition of 
a CMHC and a change to the description of what constitutes a PHP. 
Specifically, section 1301(a) of HCERA 2010 revised the definition of a 
CMHC set forth at section 1861(ff)(3)(B) of the Act by adding to the 
existing provisions a new requirement under which a CMHC must provide 
at least 40 percent of its services to individuals who are not eligible 
for benefits under Title XVIII of the Act (Medicare), effective on the 
first day of the first calendar quarter that begins at least 12 months 
after the date of enactment (that is, April 1, 2011). Section 1301(b) 
of HCERA 2010 amended the description of a PHP to specify that the 
program must be a distinct and organized intensive ambulatory treatment 
service offering less than 24-hour daily care ``other than in an 
individual's home or in an inpatient or residential setting.'' This 
revised description applies to both CMHC and hospital-based PHPs.
    Our existing regulations at 42 CFR 410.2 incorporate the statutory 
definitions of ``Community mental health center (CMHC)'' and ``Partial 
hospitalization services.'' We proposed to revise the definition of a 
CMHC in Sec.  410.2 to include the additional requirement provided for 
under the amendment made by section 1301(a) of HCERA 2010. Under 
existing Sec.  410.2, we define ``partial hospitalization services'' to 
mean ``a distinct and organized intensive ambulatory treatment program 
that offers less than 24-hour daily care and furnishes the services 
described in Sec.  410.43.'' We proposed to revise this definition to 
incorporate the amendment made by section 1301(b) of HCERA 2010 to 
describe partial hospitalization services as a distinct and organized 
intensive ambulatory treatment program that offers less than 24-hour 
daily care ``other than in an individual's home or in an inpatient or 
residential setting'' and furnishes the services described in Sec.  
410.43.
    Comment: Several of the commenters requested that CMS delay or 
transition the implementation of the provisions of section 1301(a) of 
HCERA2010, which amended the current definition for Community Mental 
Health Centers to require that at least 40 percent of its services be 
provided to individuals who are not eligible for benefits under this

[[Page 71995]]

title. Several commenters requested that CMS provide further guidance 
on how this provision will be applied. Several commenters expressed 
concern that a large reduction in Medicare payment, combined with the 
40 percent threshold provision, will impact access to care and 
potentially cause CMHC closures.
    Response: We understand the commenters' concerns, but we do not 
have discretion to provide a transition or to delay the effective date 
of this provision. CMS' inclusion of the HCERA 2010 statutory language 
in the CY 2011 OPPS proposed and final rules is to update our 
regulations to reflect current law. Furthermore, Congress included in 
this particular provision of the law the specific effective date: ``the 
first day of the first calendar quarter that begins at least 12 months 
after the date of enactment,'' that is April 1, 2011. The provision 
also does not provide for any Secretarial discretion. Therefore, 
effective April 1, 2011, a CMHC will be required ``to provide at least 
40 percent of its services to individuals who are not eligible for 
benefits under Title XVIII of the Act'' (Medicare). CMS will provide 
further guidance on application of this provision in the coming months.
    We did not receive any public comments related to section 1301(b) 
of HCERA 2010 and, therefore, are finalizing the language as proposed 
for Sec.  410.2. The revised definition for partial hospitalization 
specifies that the program must be a distinct and organized intensive 
ambulatory treatment program offering less than 24-hour daily care 
``other than in an individual's home or in an inpatient or residential 
setting.''

D. Separate Threshold for Outlier Payments to CMHCs

    In the November 7, 2003 final rule with comment period (68 FR 63469 
through 63470), we indicated that, given the difference in PHP charges 
between hospitals and CMHCs, we did not believe it was appropriate to 
make outlier payments to CMHCs using the outlier percentage target 
amount and threshold established for hospitals. Prior to that time, 
there was a significant difference in the amount of outlier payments 
made to hospitals and CMHCs for PHP services. In addition, further 
analysis indicated that using the same OPPS outlier threshold for both 
hospitals and CMHCs did not limit outlier payments to high-cost cases 
and resulted in excessive outlier payments to CMHCs. Therefore, 
beginning in CY 2004, we established a separate outlier threshold for 
CMHCs. The separate outlier threshold for CMHCs has resulted in more 
commensurate outlier payments.
    In CY 2004, the separate outlier threshold for CMHCs resulted in 
$1.8 million in outlier payments to CMHCs. In CY 2005, the separate 
outlier threshold for CMHCs resulted in $0.5 million in outlier 
payments to CMHCs. In contrast, in CY 2003, more than $30 million was 
paid to CMHCs in outlier payments. We believe this difference in 
outlier payments indicates that the separate outlier threshold for 
CMHCs has been successful in keeping outlier payments to CMHCs in line 
with the percentage of OPPS payments made to CMHCs.
    As noted in section II.F. of this final rule with comment period, 
we proposed to continue our policy of identifying 1.0 percent of the 
aggregate total payments under the OPPS for outlier payments for CY 
2011. We proposed that a portion of that 1.0 percent, an amount equal 
to 0.04 percent of outlier payments (or 0.0004) percent of total OPPS 
payments, would be allocated to CMHCs for PHP outlier payments. As 
discussed in section II.F. of this final rule with comment period, we 
proposed to set a dollar threshold in addition to an APC multiplier 
threshold for OPPS outlier payments. However, because the PHP APCs are 
the only APC for which CMHCs may receive payment under the OPPS, we 
would not expect to redirect outlier payments by imposing a dollar 
threshold. Therefore, we did not propose to set a dollar threshold for 
CMHC outlier payments. As noted in section II.F. of this final rule 
with comment period, we proposed to set the outlier threshold for CMHCs 
for CY 2011 at 3.40 times the APC payment amount and the CY 2011 
outlier payment percentage applicable to costs in excess of the 
threshold at 50 percent. Specifically, we proposed to establish that if 
a CMHC's cost for partial hospitalization services, paid under either 
APC 0172 or APC 0173, exceeds 3.40 times the payment for APC 0173, the 
outlier payment would be calculated as 50 percent of the amount by 
which the cost exceeds 3.40 times the APC 0173 payment rate.
    Comment: A couple of commenters stated that none of the programs 
that they worked with receive outlier payments and have not for several 
years. The commenters suggested that if outlier payments to CMHCs are 
an issue that CMS discontinue the outlier payment policy.
    Response: We are unsure what the commenters mean, but to the extent 
that commenters suggest that we discontinue outlier payments for CMHCs, 
we note that we are required to provide outlier payments in accordance 
with the statute and regulations. In accordance with the requirements 
set forth in section 1833(t)(5) of the Act and the applicable 
regulations, the Secretary shall provide for outlier payments under 
specific circumstances. Under Sec.  419.43(d) of the regulations, 
subject to paragraph (d)(4) of this section, CMS provides for an 
additional payment for a hospital outpatient service (or group of 
services) not excluded under paragraph (f) of this section for which a 
hospital's charges, adjusted to cost, exceed the following: (i) A fixed 
multiple of the sum of the applicable Medicare hospital outpatient 
payment amount determined under Sec.  419.32(c), as adjusted under 
paragraph Sec.  419.43 (other than for adjustments under this paragraph 
(d) or paragraph (e) of this section); and any transitional pass-
through payment under Sec.  419.66; and (ii) at the option of CMS, a 
fixed dollar amount. Because CMHCs are a provider of PHP services, 
which are a type of covered OPD service, outlier payments must be 
provided for them in accordance with the statute and regulations.
    After consideration of the public comments we received, we are 
finalizing our CY 2011 proposal to set a separate outlier threshold for 
CMHCs. As discussed in section II.F. of this final rule with comment 
period, using more recent data for this final rule with comment period, 
we set the target for hospital outpatient outlier payments at 0.86 
percent of total estimated OPPS payments. We allocated a portion of 
that 0.86 percent, an amount equal to 0.02 percent of outlier payments 
or 0.0002 percent of total estimated OPPS payments to CMHCs for PHP 
outlier payments. For CY 2011, as proposed, we are setting the outlier 
threshold at 3.40 multiplied by the APC payment amount and CY 2011 
outlier percentage applicable to costs in excess of the threshold at 50 
percent.

XI. Procedures That Will Be Paid Only as Inpatient Procedures

A. Background

    Section 1833(t)(1)(B)(i) of the Act gives the Secretary broad 
authority to determine the services to be covered and paid for under 
the OPPS. Before implementation of the OPPS in August 2000, Medicare 
paid reasonable costs for services provided in the HOPD. The claims 
submitted were subject to medical review by the fiscal intermediaries 
to determine the appropriateness of providing certain services in the 
outpatient setting. We did not specify in our regulations those 
services that were appropriate to

[[Page 71996]]

provide only in the inpatient setting and that, therefore, should be 
payable only when provided in that setting.
    In the April 7, 2000 final rule with comment period (65 FR 18455), 
we identified procedures that are typically provided only in an 
inpatient setting and, therefore, would not be paid by Medicare under 
the OPPS. These procedures comprise what is referred to as the 
``inpatient list.'' The inpatient list specifies those services for 
which the hospital will be paid only when provided in the inpatient 
setting because of the nature of the procedure, the underlying physical 
condition of the patient, or the need for at least 24 hours of 
postoperative recovery time or monitoring before the patient can be 
safely discharged. As we discussed in that rule and in the November 30, 
2001 final rule with comment period (66 FR 59856), we may use any of a 
number of criteria we have specified when reviewing procedures to 
determine whether or not they should be removed from the inpatient list 
and assigned to an APC group for payment under the OPPS when provided 
in the hospital outpatient setting. Those criteria include the 
following:
    <bullet> Most outpatient departments are equipped to provide the 
services to the Medicare population.
    <bullet> The simplest procedure described by the code may be 
performed in most outpatient departments.
    <bullet> The procedure is related to codes that we have already 
removed from the inpatient list.
    In the November 1, 2002 final rule with comment period (67 FR 
66741), we added the following criteria for use in reviewing procedures 
to determine whether they should be removed from the inpatient list and 
assigned to an APC group for payment under the OPPS:
    <bullet> A determination is made that the procedure is being 
performed in numerous hospitals on an outpatient basis; or
    <bullet> A determination is made that the procedure can be 
appropriately and safely performed in an ASC, and is on the list of 
approved ASC procedures or has been proposed by us for addition to the 
ASC list.
    The list of codes that will be paid by Medicare in CY 2011 only as 
inpatient procedures is included as Addendum E to this final rule with 
comment period.

B. Changes to the Inpatient List

    In the CY 2011 OPPS/ASC proposed rule (75 FR 46301), we proposed to 
use the same methodology for the CY 2011 OPPS as described in the 
November 15, 2004 final rule with comment period (69 FR 65835) to 
identify a subset of procedures currently on the inpatient list that 
are being performed a significant amount of the time on an outpatient 
basis. Using this methodology, we identified three procedures that met 
the criteria for potential removal from the inpatient list. We then 
clinically reviewed these three potential procedures for possible 
removal from the inpatient list and found them to be appropriate 
candidates for removal from the inpatient list. During the February 
2010 meeting of the APC Panel, we solicited the APC Panel's input on 
the appropriateness of removing the following three procedures from the 
CY 2011 inpatient list: CPT codes 21193 (reconstruction of mandibular 
rami; horizontal, vertical, C, or L osteotomy; without bone graft); 
21395 (open treatment of orbital floor blowout fracture; periorbital 
approach with bone graft (includes obtaining graft)); and 25909 
(amputation, forearm, through radius and ulna; reamputation). Following 
the discussion at its February 2010 meeting, the APC Panel recommended 
that CMS remove from the CY 2011 inpatient list the three CPT codes 
that we had identified: CPT codes 21193, 21395, and 25909.
    For the CY 2011 OPPS, we proposed to accept the APC Panel's 
recommendations to remove the procedures described by CPT codes 21193, 
21395, and 25909 from the inpatient list because we agree with the APC 
Panel that the procedures may be appropriately provided as hospital 
outpatient procedures for some Medicare beneficiaries.
    Comment: Commenters supported the CMS proposal to accept the APC 
recommendation to remove CPT procedures codes 21193, 21395, and 25909 
from the inpatient list.
    Response: We appreciated the commenters' support of our proposal.
    Comment: Several commenters requested that CMS remove 25 additional 
codes from the inpatient list based on their own experience, specialty 
society recommendation, or designation of a procedure as safe in the 
outpatient setting under one of the many clinical guidelines available, 
such as Milliman Care Guidelines.
    Response: We reevaluated the 25 additional procedure codes 
requested by the commenters using more recent utilization data and 
further clinical review by CMS medical advisors. These codes are listed 
in Table 47 below. As a result of the reevaluation, we remain convinced 
that these procedures could be safely performed only in the inpatient 
setting.
    One of the suggested procedures, CPT code 35045 (direct repair of 
aneurysm, pseudoaneurysm, or excision (partial or total) and graft 
insertion, with or without patch graft; for aneurysm, pseudoaneurysm, 
and associated occlusive disease, radial or ulnar artery), appears to 
have some volume in the outpatient hospital setting. Therefore, we will 
present CPT code 35045 to the APC panel at the winter 2011 meeting for 
the Panel's consideration for removal from the inpatient list.
    One commenter provided clinical arguments for a second procedure, 
CPT code 54650 (Orchiopexy, abdominal approach, for intra-abdominal 
testis (e.g., Fowler-Stephens), that was low in volume but appeared to 
be performed some of the time in the outpatient hospital setting. We 
also will present CPT code 54650 to the APC Panel at the winter 2011 
meeting for the panel's consideration for removal from the inpatient 
list.
    Comment: Many commenters suggested that regulations should not 
supersede the physician's level of knowledge and assessment of the 
patient's condition, and that the physician can appropriately determine 
whether a procedure can be performed in a hospital outpatient setting. 
Other commenters stated that physician's payment should be aligned with 
the hospital payment; if the hospital is not paid, then the physician 
payment should not be allowed. They further stated that physicians have 
little incentive to ensure that inpatient only procedures are performed 
in the correct setting because their payments are not impacted by an 
incorrect site of service. One commenter believed that CMS and hospital 
efforts to educate physicians have not been effective.
    Many commenters suggested that the inpatient list be eliminated in 
its entirety. They indicated that hospitals already meet minimum safety 
standards through Joint Commission accreditation and the Medicare 
hospital conditions of participation. Commenters suggested that, if the 
inpatient list cannot be eliminated in its entirety, an appeals process 
be developed. Commenters believed that an appeal process would give the 
hospital the opportunity to submit documentation on the physician's 
intent, the patient's clinical condition, and the circumstances that 
enabled the patient to be sent home safely without an inpatient stay. 
One commenter requested that CMS give its Medicare contractors 
authority to pay for ancillary services performed with the procedure on 
the inpatient list if the provider can demonstrate that it could

[[Page 71997]]

not have known the physician was going to perform that procedure.
    Response: We appreciate these comments and thoughtful suggestions. 
We continue to believe that the inpatient list is a valuable tool for 
ensuring that the OPPS only pays for services that can safely be 
performed in the hospital outpatient setting, and we will not eliminate 
the inpatient list at this time. We believe that there are many 
surgical procedures that are never safely performed for a Medicare 
beneficiary in the hospital outpatient setting. Therefore, it would be 
inappropriate for us to assign them separately payable status 
indicators and establish payment rates in the OPPS. We recognize that 
hospitals already meet minimum safety standards through accreditation 
or State surveys which assure compliance with the Medicare hospital 
conditions of participation. However, while accreditation or State 
survey and certification of compliance with the hospital conditions of 
participation ensure that a hospital is generally a safe and 
appropriate environment for providing care, they do not determine 
whether a particular service can be safely provided in the outpatient 
setting to Medicare beneficiaries.
    Although the commenters suggested that we apply the same payment 
restrictions to physicians and hospitals when inpatient procedures are 
performed inappropriately, payment for physicians'services are outside 
of the scope of the OPPS payment policy and of this OPPS/ASC final rule 
with comment period. Notwithstanding concern that education has not yet 
been able to stop some physicians from performing a procedure on the 
inpatient list in the hospital outpatient setting, we continue to 
believe that education is critical to ensuring that physicians do not 
inadvertently provide services in a hospital outpatient setting that 
only are covered during an inpatient stay. We expect hospitals to be 
aware of the services that are being provided in the outpatient 
setting. Hence, we do not believe that it is appropriate to pay the 
hospital for the ancillary services furnished when the patient receives 
an inpatient-only service in the hospital outpatient setting. Further, 
we expect hospitals to use this knowledge and to educate physicians 
with regard to the appropriate setting for the procedures they furnish. 
We recognize that there are cases in which the patient expires before 
he or she can be admitted and has received an inpatient-only service 
without being admitted. In these cases, we have long made payment for 
the ancillary services under APC 0375.
    As we have stated in the past, we also are concerned about the 
impact of eliminating the inpatient list on Medicare beneficiary 
liability. Elimination of the inpatient list might lead to longer time 
in the hospital outpatient setting, during which Medicare beneficiaries 
are responsible for copayments for a complex surgery and any individual 
services supporting that surgery, as well as financial liability for 
most self-administrable drugs and biological under Medicare Part B. 
Cost sharing is very different between the hospital inpatient setting 
and the hospital outpatient setting, and Medicare beneficiaries may 
incur higher out-of-pocket costs in the hospital outpatient setting for 
complex surgical procedures. We do not plan to adopt a specific appeals 
process for claims related to inpatient list procedures performed in 
the HOPD, and the existing processes established for a beneficiary or a 
provider to appeal a specific claim remain in effect. We are committed 
to reviewing the inpatient list timely to reflect changes in medical 
practice, and we plan to continue our current practice of reviewing 
procedures for removal from the inpatient list through the public 
notice-and-comment process.
    After consideration of the public comments we received, we are 
finalizing our proposal without modification. The three procedures that 
we are removing from the inpatient list for CY 2011 and their CPT 
codes, long descriptors, and final APC assignments are displayed in 
Table 46 below.
    We are retaining the 25 procedures requested by commenters and 
reviewed by CMS medical advisors for possible removal from the 
inpatient list on the inpatient list for CY 2011. These procedures are 
displayed in Table 47 below. However, two procedures that were 
requested for removal from the inpatient list by commenters, CPT code 
35045 and CPT code 54650, will be presented to the APC Panel at the 
winter 2011 meeting for the Panel's consideration for removal from the 
list.
    For the complete listing of inpatient only procedures for CY 2011, 
we refer readers to Addendum E to this final rule.

        Table 46--Procedures Removed From the Inpatient List and Their Final APC Assignments for CY 2011
----------------------------------------------------------------------------------------------------------------
                                                                                   CY 2011 APC    CY 2011 status
                   CPT code                             Long descriptor            assignment       indicator
----------------------------------------------------------------------------------------------------------------
21193........................................  Reconstruction of mandibular                0256               T
                                                rami; horizontal, vertical, C,
                                                or L osteotomy; without bone
                                                graft.
21395........................................  Open treatment of orbital floor             0256               T
                                                blowout fracture; periorbital
                                                approach with bone graft
                                                (includes obtaining graft).
25909........................................  Amputation, forearm, through                0049               T
                                                radius and ulna; reamputation.
----------------------------------------------------------------------------------------------------------------


Table 47--Additional Procedures Requested by Commenters for Removal From
                     the Inpatient List for CY 2011
------------------------------------------------------------------------
                                                          CY 2011 status
             CPT code                 Long descriptor       indicator
------------------------------------------------------------------------
01214............................  Anesthesia for open                 C
                                    procedures
                                    involving hip
                                    joint; total hip
                                    arthroplasty.
01402............................  Anesthesia for open                 C
                                    or surgical
                                    arthroscopic
                                    procedures on knee
                                    joint; total knee
                                    arthroplasty.
01638............................  Anesthesia for open                 C
                                    or surgical
                                    arthroscopic
                                    procedures on
                                    humeral head and
                                    neck,
                                    sternoclavicular
                                    joint,
                                    acromioclavicular
                                    joint, and shoulder
                                    joint; total
                                    shoulder
                                    replacement.

[[Page 71998]]

 
19305............................  Mastectomy, radical,                C
                                    including pectoral
                                    muscles, axillary
                                    lymph nodes.
19361............................  Breast                              C
                                    reconstruction with
                                    latissimus dorsi
                                    flap, without
                                    prosthetic implant.
20938............................  Autograft for spine                 C
                                    surgery only
                                    (includes
                                    harvesting the
                                    graft); structural,
                                    bicortical or
                                    tricortical
                                    (through separate
                                    skin or fascial
                                    incision). (List
                                    separately in
                                    addition to code
                                    for primary
                                    procedure.)
21196............................  Reconstruction of                   C
                                    mandibular rami and/
                                    or body, sagittal
                                    split; with
                                    internal rigid
                                    fixation.
21422............................  Open treatment of                   C
                                    palatal or
                                    maxillary fracture
                                    (LeFort I type).
22554............................  Arthrodesis,                        C
                                    anterior interbody
                                    technique,
                                    including minimal
                                    discectomy to
                                    prepare interspace
                                    (other than for
                                    decompression);
                                    cervical below C2.
22585............................  Arthrodesis,                        C
                                    anterior interbody
                                    technique,
                                    including minimal
                                    discectomy to
                                    prepare interspace
                                    (other than for
                                    decompression);
                                    each additional
                                    interspace. (List
                                    separately in
                                    addition to code
                                    for primary
                                    procedure.)
22845............................  Anterior                            C
                                    instrumentation; 2
                                    to 3 vertebral
                                    segments. (List
                                    separately in
                                    addition to code
                                    for primary
                                    procedure.)
27557............................  Open treatment of                   C
                                    knee dislocation,
                                    includes internal
                                    fixation, when
                                    performed; with
                                    primary ligamentous
                                    repair.
28800............................  Amputation of                       C
                                    midfoot--Amputation
                                    , foot; midtarsal
                                    (e.g., Chopart type
                                    procedure).
35045............................  Direct repair of                    C
                                    aneurysm,
                                    pseudoaneurysm, or
                                    excision (partial
                                    or total) and graft
                                    insertion, with or
                                    without patch
                                    graft; for
                                    aneurysm,
                                    pseudoaneurysm, and
                                    associated
                                    occlusive disease,
                                    radial or ulnar
                                    artery.
37182............................  Insertion of                        C
                                    transvenous
                                    intrahepatic
                                    portosystemic
                                    shunt(s) (TIPS)
                                    (includes venous
                                    access, hepatic and
                                    portal vein
                                    catheterization,
                                    portography with
                                    hemodynamic
                                    evaluation,
                                    intrahepatic tract
                                    formation/
                                    dilatation, stent
                                    placement and all
                                    associated imaging
                                    guidance and
                                    documentation).
38724............................  Cervical                            C
                                    lymphadenectomy
                                    (modified radical
                                    neck dissection).
39000............................  Mediastinotomy with                 C
                                    exploration,
                                    drainage, removal
                                    of foreign body, or
                                    biopsy; cervical
                                    approach.
43770............................  Laparoscopy,                        C
                                    surgical, gastric
                                    restrictive
                                    procedure;
                                    placement of
                                    adjustable gastric
                                    restrictive device
                                    (e.g., gastric band
                                    and subcutaneous
                                    port components).
54650............................  Orchiopexy,                         C
                                    abdominal approach,
                                    for intra-abdominal
                                    testis (e.g.,
                                    Fowler-Stephens).
55845............................  Prostatectomy,                      C
                                    retropubic radical,
                                    with or without
                                    nerve sparing; with
                                    bilateral pelvic
                                    lymphadenectomy,
                                    including external
                                    iliac, hypogastric,
                                    and obturator nodes.
55866............................  Laparoscopy,                        C
                                    surgical
                                    prostatectomy,
                                    retropubic radical,
                                    including nerve
                                    sparing.
58548............................  Laparoscopy,                        C
                                    surgical, with
                                    radical
                                    hysterectomy, with
                                    bilateral total
                                    pelvic
                                    lymphadenectomy and
                                    para-aortic lymph
                                    node sampling
                                    (biopsy), with
                                    removal of tube(s)
                                    and ovary(s), if
                                    performed.
59856............................  Induced abortion, by                C
                                    1 or more vaginal
                                    suppositories
                                    (e.g.,
                                    prostaglandin) with
                                    or without cervical
                                    dilation (e.g.,
                                    laminaria),
                                    including hospital
                                    admission and
                                    visits, delivery of
                                    fetus and
                                    secundines; with
                                    dilation and
                                    curettage and/or
                                    evacuation.
60270............................  Thyroidectomy,                      C
                                    including
                                    substernal thyroid;
                                    sternal split of
                                    transthoracic
                                    approach.
63267............................  Laminectomy for                     C
                                    excision or
                                    evacuation of
                                    intraspinal lesion
                                    other than
                                    neoplasm,
                                    extradural; lumbar.
------------------------------------------------------------------------

XII. OPPS Nonrecurring Technical and Policy Changes and Clarifications

A. Physician Supervision

1. Background
    In the CY 2000 OPPS final rule with comment period (65 FR 18524 
through 18526), we amended our regulations to establish, as a condition 
of payment, the requirements for physician supervision of diagnostic 
and therapeutic services provided to hospital outpatients incident to a 
physician's service. We adopted physician supervision policies as a 
condition of payment to ensure that Medicare pays for high quality 
hospital outpatient services provided to beneficiaries in a safe and 
effective manner and consistent with Medicare requirements. In the CY 
2009 OPPS/ASC proposed rule and final rule with comment period (73 FR 
41518 through 41519 and 73 FR 68702 through 68704, respectively), we 
clarified and restated the various payment requirements for physician 
supervision of hospital outpatient therapeutic and diagnostic services. 
In response to concerns about our policy restatement that were 
expressed following the publication of the CY 2009 final rule with 
comment period, we met with stakeholders and further delineated our 
physician supervision policies for both therapeutic and diagnostic 
services in the CY 2010 OPPS/ASC proposed rule and the final rule with 
comment period (74 FR 35365 and 74 FR 60679 through 60680, 
respectively).

[[Page 71999]]

    While we received and responded to many comments in the course of 
the CY 2010 rulemaking, addressing supervision for both diagnostic and 
therapeutic services, it was not until after the publication of the CY 
2010 OPPS/ASC final rule with comment period that we received 
substantial comments from the CAH community in response to a technical 
correction we made to codify our longstanding view that CAHs are 
subject to the supervision policy for payment of therapeutic services 
in the regulations at 42 CFR 410.27. In addition, the broader hospital 
community continues to indicate that it would prefer that we modify the 
current supervision policy to permit a lower level of supervision for 
therapeutic services.
    By way of introduction, we have defined supervision in the hospital 
outpatient setting by drawing on the three levels of supervision that 
were defined for the physician office setting at Sec.  410.32(b) prior 
to the OPPS: General, direct, and personal supervision. Over time, we 
have tailored these definitions to apply them in the hospital 
outpatient setting, but to date we have maintained the following 
premises. General supervision means that a service is furnished under 
the overall direction and control of the physician, but his or her 
physical presence is not required during the performance of the 
procedure. Direct supervision means that the physician is physically 
present on-site and is immediately available to furnish assistance and 
direction throughout the performance of the procedure; however, the 
physician does not have to be present in the same room when the 
procedure is being performed. Personal supervision means the physician 
is present in the room when the service is being performed.
a. Outpatient Therapeutic Services
    As set forth in the CY 2000 OPPS final rule with comment period 
establishing the hospital outpatient prospective payment system, direct 
supervision is the current standard for supervision of hospital 
outpatient therapeutic services covered and paid by Medicare in 
hospitals and provider-based departments (PBDs) of hospitals. In that 
rule, we defined ``direct supervision'' to mean that ``the physician 
must be present and on the premises of the location and immediately 
available to furnish assistance and direction throughout the 
performance of the procedure. It does not mean that the physician must 
be present in the room when the procedure is performed.'' The 
requirement to be ``immediately available'' was a component of the 
requirement for direct supervision but we did not define the term at 
that time.
    We clarified that our intention in defining direct supervision for 
services furnished at a department of a hospital was that a physician 
be present on the premises of the entity accorded status as a 
department of the hospital for as long as patients are being treated at 
that site (65 FR 18525). In that CY 2000 OPPS final rule with comment 
period, we finalized regulation text in Sec.  410.27(f) specifying that 
direct supervision is required in PBDs of hospitals, and in the 
preamble discussion, we emphasized the importance of the direct 
supervision requirement for off-campus PBDs. We also stated that the 
language of Sec.  410.27(f) ``applies to services furnished at an 
entity that is located off the campus of a hospital that we designate 
as having provider-based status as a department of a hospital in 
accordance with Sec.  413.65.'' We disagreed with commenters that the 
requirement for direct supervision in the off-campus PBD was more 
stringent than the standard we required on the hospital campus. We 
noted that section 1861(s)(2)(B) of the Act authorizes payment for 
hospital services provided incident to physicians' services furnished 
to outpatients. We stated that ``we require that hospital services and 
supplies furnished to outpatients that are incident to physician 
services be furnished on a physician's order by hospital personnel and 
under a physician's supervision'' (65 FR 18525). We further stated that 
``we assume the physician supervision requirement is met on hospital 
premises because staff physicians would always be nearby within the 
hospital.''
    In manual guidance, we have clarified that we expect outpatient 
services incident to physicians' services to be performed under direct 
supervision. We provide in Section 20.5.1, Chapter 6, of the Medicare 
Benefit Policy Manual (Pub. L. 100-02) that outpatient services and 
supplies must be furnished on a physician's order and delivered under 
supervision. Section 20.5.1 indicates further that each occasion of a 
service by a nonphysician does not need to also be the occasion of the 
actual rendition of a personal professional service by the physician 
responsible for the care of the patient. Nevertheless, as stipulated in 
that same section of the Manual ``during any course of treatment 
rendered by auxiliary personnel, the physician must personally see the 
patient periodically and sufficiently often enough to assess the course 
of treatment and the patient's progress and, where necessary, to change 
the treatment regimen.''
    In the CY 2009 OPPS/ASC final rule with comment period, we provided 
a restatement and clarification of the requirements for physician 
supervision of hospital outpatient diagnostic and therapeutic services 
that were set forth in the CY 2000 OPPS final rule with comment period. 
We chose to restate the existing physician supervision policy for 
hospital outpatient therapeutic services in part because we were 
concerned that some stakeholders may have misunderstood our use of the 
term ``assume'' in the following statement: ``We assume the physician 
requirement is met on hospital premises because staff physicians would 
always be nearby within the hospital. The effect of the regulations in 
this final rule is to extend this assumption to a department of a 
hospital that is located on the campus of the hospital'' (65 FR 18525). 
We were concerned that stakeholders might believe that this statement 
meant that we do not require any supervision in the hospital or in an 
on-campus PBD for hospital outpatient therapeutic services, or that we 
only require general supervision for those services.
    In our policy restatement in the CY 2009 OPPS/ASC final rule with 
comment period, we reiterated that direct supervision is the standard 
for physician supervision, as set forth in the CY 2000 OPPS final rule 
with comment period, for supervision of hospital outpatient therapeutic 
services covered and paid by Medicare in hospitals as well as in PBDs 
of hospitals. We stated clearly that we expect direct physician 
supervision of all hospital outpatient therapeutic services, regardless 
of their on-campus or off-campus location, but indicated that we would 
continue to emphasize the physician supervision requirements in off-
campus PBDs as we did in the CY 2000 OPPS final rule with comment 
period. We noted that if there were problems with outpatient care in a 
hospital or in an on-campus PBD where direct supervision was not in 
place (that is, the expectation of direct supervision was not met), we 
would consider that to be a quality concern.
    After we published the CY 2009 OPPS/ASC final rule with comment 
period, we received significantly more public feedback than during the 
rulemaking cycle about our restatement of our supervision policy for 
both diagnostic and therapeutic services. We met with stakeholders in 
the early part of 2009 as we prepared for the CY 2010 rulemaking cycle, 
as well as reviewed all public input that we received, to craft a 
response to these concerns regarding the supervision requirements. For 
therapeutic services, we considered the concerns of various 
stakeholders

[[Page 72000]]

along with our position that direct supervision for therapeutic 
services is appropriate and aligned with the statutory requirement that 
Medicare only makes payment for therapeutic services in the hospital 
outpatient setting that are ``incident to'' physician services.
    In the CY 2010 OPPS/ASC final rule with comment period, we 
finalized our proposal to allow, in addition to clinical psychologists, 
certain other nonphysician practitioners to directly supervise services 
that they may perform themselves under their State license and scope of 
practice and hospital or CAH-granted privileges. The nonphysician 
practitioners who were permitted to provide direct supervision of 
therapeutic services under the CY 2010 OPPS/ASC final rule with comment 
period are physician assistants, nurse practitioners, clinical nurse 
specialists, certified nurse-midwives, and licensed clinical social 
workers. These nonphysician practitioners may directly supervise 
outpatient therapeutic services that they may personally furnish in 
accordance with State law and all additional requirements, including 
the Medicare coverage rules relating to their services specified in our 
regulations at 42 CFR 410.71, 410.73, 410.74, 410.75, 410.76, and 
410.77 (for example, requirements for collaboration with, or general 
supervision by, a physician). In implementing the new benefits for 
pulmonary rehabilitation, cardiac rehabilitation, and intensive cardiac 
rehabilitation added by the Medicare Improvements for Patients and 
Providers Act of 2008 (MIPPA, Pub. L. 110-275), we required that direct 
supervision of services furnished in the hospital outpatient department 
must be provided by a doctor of medicine or osteopathy as required by 
statute. The statute does not permit general supervision or supervision 
by a nonphysician practitioner of PR, CR, or ICR services.
    For services furnished on a hospital's main campus, we finalized a 
modification of our proposed definition of ``direct supervision'' in 
new paragraph (a)(1)(iv)(A) of Sec.  410.27 that allowed for the 
supervisory physician or nonphysician practitioner to be anywhere on 
the hospital campus. Therefore, as of CY 2010, direct supervision on 
the hospital or CAH campus or in an on-campus PBD meant that ``the 
supervisory physician or nonphysician practitioner must be present on 
the same campus and immediately available to furnish assistance and 
direction throughout the performance of the procedure.'' In the CY 2010 
OPPS/ASC final rule with comment period, we interpreted ``immediate 
availability'' to mean ``immediate physical presence'' and 
interruptible (74 FR 60580). We stated that while we had not previously 
defined ``immediately available,'' we believed that, in the context of 
the existing definitions of direct supervision in Sec. Sec.  410.27(f) 
and 410.32(b)(3)(ii) of the regulations which indicated that the 
physician must be physically present in PBDs of hospitals or 
physicians' offices, we had previously established that direct 
supervision requires immediate physical presence. While we had not 
specifically defined the word ``immediate'' for direct supervision in 
terms of time or distance, we noted that the general definition of the 
word means ``without interval of time.'' Therefore, the supervisory 
physician or nonphysician practitioner could not be immediately 
available while, for example, performing another procedure or service 
that he or she could not interrupt. In addition, we stated that we 
understood that advances in medical technology, changes in the patterns 
of health care delivery, and changes in the organizational structure of 
hospitals have led to the development of extensive hospital campuses, 
sometimes spanning several city blocks. However, in the context of 
direct supervision, we believed that it would not be ``immediate'' for 
the supervisory physician or nonphysician practitioner to be so 
physically far away on the main campus from the location where hospital 
outpatient services are being furnished that he or she could not 
intervene right away. In sum, the requirement to be physically present 
and ``immediately available,'' whether within the hospital or PBD, 
ultimately determined how far away the supervisory practitioner could 
be located.
    Because the term ``in the hospital or CAH'' applies broadly to 
``incident to'' requirements such as the site-of-service requirement 
for therapeutic services provided by the hospital directly and under 
arrangement, we also established a definition of ``in the hospital'' in 
new paragraph Sec.  410.27(g) as meaning areas in the main building(s) 
of a hospital or CAH that are under the ownership, financial, and 
administrative control of the hospital or CAH; that are operated as 
part of the hospital; and for which the hospital bills the services 
furnished under the hospital's or CAH's CMS Certification Number (CCN). 
In the preamble to the CY 2010 OPPS/ASC final rule with comment period, 
as part of the discussion of various public comments on the definition 
of the hospital campus, and on the supervision requirement 
specifically, we stated that we would recognize other areas or 
structures of the hospital's campus that are not part of the hospital, 
such as physician offices, rural health centers, skilled nursing 
facilities, or other entities that participate separately under 
Medicare to be part of the hospital's campus.
    In the CY 2010 OPPS/ASC final rule with comment period, we also 
finalized our proposal to add paragraph (a)(1)(iv)(B) to Sec.  410.27. 
This paragraph updated our previous regulation at Sec.  410.27(f) to 
reflect that, for off-campus PBDs of hospitals, the physician or 
nonphysician practitioner must be present in the off-campus PBD, as 
defined in Sec.  413.65, and immediately available to furnish 
assistance and direction throughout the performance of the procedure. 
It does not mean that the physician or nonphysician practitioner must 
be in the room when the procedure is performed. In addition, we 
finalized the proposed technical change to clarify the language in 
Sec.  410.27(f) by removing the phrase ``present and on the premises of 
the location'' and replacing it with the phrase ``present in the off-
campus provider-based department.''
    Finally, we finalized a technical correction to the title of Sec.  
410.27 to read ``Outpatient hospital or CAH services and supplies 
incident to a physician service: Conditions,'' to clarify in the title 
that the requirements for payment of hospital outpatient therapeutic 
services incident to a physician or nonphysician practitioner service 
in that section apply to both hospitals and CAHs. Similarly, we 
included the phrase ``hospital or CAH'' throughout the text of Sec.  
410.27 wherever the text referred only to ``hospital.'' We viewed this 
as a technical correction because the statute applies the same 
regulations to hospitals and CAHs when appropriate. Specifically, the 
definition of ``hospital'' in section 1861(e) of the Act expressly 
excludes CAHs ``unless the context otherwise requires.'' Accordingly, 
we do not believe it is necessary for a payment regulation to reference 
specifically the applicability to CAHs for those regulations to be 
appropriate given the ``context'' for CAHs. Although payment to CAHs is 
authorized under section 1834(g) of the Act, many of the payment rules 
applicable to hospitals paid under sections 1886(d) and 1833(t) of the 
Act apply to CAHs.
    We believe that the supervision requirements should apply in the 
context of CAHs because they represent appropriate safety and quality

[[Page 72001]]

requirements for Medicare payment of outpatient services. In the early 
part of this year, the CAH community asserted that the CAH conditions 
of participation (CoPs) offer more flexibility in staffing requirements 
than the rule requiring direct supervision, and that the CAH CoPs 
address the general availability of physician and nonphysician 
practitioners on the CAH campus. The hospital CoPs at 42 CFR 482.22 
require hospital medical staff to be composed of doctors of medicine or 
osteopathy and, in accordance with State law, may also be composed of 
other practitioners appointed by the governing body. They also require 
24-hour nursing services that are provided by or supervised by a 
registered nurse. Under section 1820(c)(2)(B) of the Act, among other 
criteria, a CAH must meet the same staffing requirements as would apply 
under section 1861(e) of the Act to a hospital located in a rural area. 
However, there are some exceptions to these staffing requirements. 
Section 1820(c)(2)(B)(iv) of the Act specifies that a CAH need not meet 
hospital staffing requirements under section 1861(e) of the Act 
regarding the days and hours in which it is open and fully staffed; the 
facility may provide certain services under arrangement at an off-site 
location; that inpatient care may be provided by a physician assistant, 
nurse practitioner, or clinical nurse specialist subject to the 
oversight of a physician, who need not be present in the facility.
    The CAH CoPs in 42 CFR 485.631 are specific in recognizing the 
statutory authority to be staffed by nonphysician practitioners rather 
than physicians, provided a doctor of medicine or osteopathy, nurse 
practitioner, clinical nurse specialist, or physician assistant is 
available to furnish patient care services at all times the CAH 
operates. The requirement that the practitioner ``be available'' in 
Sec.  485.631 has been interpreted to mean that the nonphysician 
practitioner or physician is available by phone, but not necessarily 
physically present on the CAH campus. The CAH CoPs also specify 
standards for emergency personnel under Sec.  485.618, requiring that a 
doctor of medicine or osteopathy, or a nonphysician practitioner such 
as a physician assistant, a nurse practitioner, or a clinical nurse 
specialist, with training or experience in emergency care, be on call 
and immediately available by telephone or radio contact, and available 
onsite within 30 minutes, on a 24-hour a day basis in most areas.
    However, in the Medicare program, payment requirements are 
frequently different from those identified in the CoPs because the two 
sets of rules serve very separate and distinct purposes. CoPs apply 
largely at the facility level, while payment regulations apply at the 
service level. Payment regulations, such as requirements for how 
contracted entities provide services to hospital patients, support 
program goals of appropriate and accurate payment for quality services. 
In contrast, for all providers including CAHs, the CoPs authorize 
hospitals to participate in the Medicare program. We establish CoPs as 
minimum standards for patient health and safety, and CoPs focus on 
creating a foundation to ensure quality and safe care for beneficiaries 
throughout a given facility, irrespective of the payment system or 
service provided. As previously mentioned, CoPs generally do not apply 
on the service level and do not ensure that payment is appropriate for 
specific types of purchased services nor can they substitute for 
payment requirements since that is not their function.
    In summary, requirements established for purposes of payment 
frequently differ from the requirements established by the CoPs for 
many providers, including hospitals and CAHs. Whereas payment 
regulations establish basic parameters defining the services being 
purchased, CoPs (including both the hospital CoPs and the CAH CoPs) 
establish standards to ensure a minimum level of quality and safety for 
operating as a hospital or a CAH. The minimum standards established as 
CoPs are not always adequate to address the particular quality, safety 
and other requirements for payment for a service or group of services.
b. Outpatient Diagnostic Services
    As we stated in the CY 2009 OPPS/ASC and CY 2000 OPPS proposed 
rules and final rules with comment period, section 1861(s)(2)(C) of the 
Act authorizes payment for diagnostic services that are furnished to a 
hospital outpatient for the purpose of diagnostic study. We have 
further defined the requirements for diagnostic services furnished to 
hospital outpatients, including requirements for physician supervision 
of diagnostic services, in Sec. Sec.  410.28 and 410.32 of our 
regulations. In CY 2000, we established in Sec.  410.28(e) that in 
order to receive payment, outpatient diagnostic services furnished in 
PBDs of hospitals must be supervised according to the levels assigned 
for the individual tests as listed in the MPFS Relative Value Unit 
File. For these services, we also adopted the definitions of general, 
direct and personal supervision used in the MPFS and delineated in 
Sec. Sec.  410.32(b)(3)(i), (b)(3)(ii) and (b)(3)(iii). For CY 2010, we 
finalized a proposal to extend the rules we had established for PBDs to 
the hospital setting or any other location where diagnostic services 
may be provided under arrangement (for example, a nonhospital location 
such as an independent diagnostic testing facility or IDTF). Where 
Sec.  410.28(e) had previously only referenced the MPFS supervision 
requirements for services ``furnished at a facility * * * having 
provider-based status,'' we broadened the reference to those 
requirements for ``services furnished by or under arrangements made by 
the participating hospital'' and we added further requirements for 
direct supervision. In the CY 2010 OPPS/ASC rulemaking cycle, in 
Sec. Sec.  410.28(e)(1) and (e)(2), we redefined direct supervision for 
outpatient diagnostic services to mean (with the exception of services 
provided under arrangement in nonhospital locations) the definition 
that we adopted at this time for outpatient therapeutic services, 
specifically that for services furnished directly or under arrangement 
in the hospital or in the on-campus or off-campus PBD, ``direct 
supervision'' means that the physician must be immediately available 
and present on the same campus or in the off-campus PBD to furnish 
assistance and direction throughout the performance of the procedure. 
For purposes of defining direct supervision of diagnostic services, in 
Sec.  410.28, we applied the definition of ``in the hospital'' as 
incorporated in Sec.  410.27(g) for therapeutic services. For 
diagnostic services furnished under arrangement in nonhospital 
locations such as an IDTF, in Sec.  410.28(e)(3), we applied the 
definition of direct supervision used in the MPFS and at Sec.  
410.32(b)(3)(ii).
    The MPFS Relative Value Unit File is updated quarterly and is 
available on the CMS Web site at: http://www.cms.gov/
PhysicianFeeSched/. For diagnostic services not listed in the MPFS 
Relative Value Unit File, we have indicated that Medicare contractors, 
in consultation with their medical directors, would define appropriate 
supervision levels in order to determine whether claims for these 
services are reasonable and necessary.
    We note that the existing requirement in Sec. Sec.  410.28(e)(1), 
(e)(2), and (e)(3) that physician supervision of diagnostic services 
provided by or under arrangements made by the participating hospital or 
in any PBD follow the levels for diagnostic services established under 
the MPFS explicitly applies to hospitals that are paid in accordance 
with to section 1833(t) of the Act, which is the statutory authority 
for the OPPS.

[[Page 72002]]

Because Medicare makes payments to CAHs in accordance with section 
1834(g) of the Act, at this time, CAHs are not subject to this 
supervision requirement.
2. Issues Regarding the Supervision of Hospital Outpatient Services 
Raised by Hospitals and Other Stakeholders
    Following the adoption of our policies in the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60575 through 60591), beginning 
in January 2010, we began to receive a sizable amount of 
correspondence, as well as numerous phone calls, and questions through 
other public avenues, including the regular open door forum calls, from 
the rural hospital and CAH community indicating its belief that the 
requirement for direct supervision for therapeutic services finalized 
in that rule is at odds with longstanding and prevailing practice in 
rural communities. These hospitals and their representatives stated 
that they generally function with a reduced level of supervision for 
the provision of therapeutic services and that while they furnish 
services under a physician's or appropriate nonphysician practitioner's 
order, frequently no physician or nonphysician practitioner is 
physically present anywhere in the CAH or small rural hospital while 
the therapeutic services are being furnished. CAHs, in particular, 
noted that the provisions in their CoPs allow a CAH to operate under 
reduced staffing requirements. Specifically, under Sec. Sec.  485.631 
and 485.618 as described above, CAHs must have a physician or one of 
several types of nonphysician practitioners available by phone at all 
times, but not on campus. For emergencies, in most areas of the 
country, the CAH must have a physician or certain other nonphysician 
practitioners with training or experience in emergency care physically 
available onsite within 30 minutes.
    Both CAHs and rural hospitals have stated that the flexibility to 
allow nonphysician practitioners to supervise services that we 
authorized in the CY 2010 OPPS/ASC final rule with comment period is 
helpful for meeting the direct supervision requirement for all 
therapeutic services, but that a shortage of qualified practitioners in 
rural areas continues to make it difficult to staff a physician or 
nonphysician practitioner for supervision purposes. They also noted 
that a practitioner retained on the campus of a small rural hospital or 
CAH to meet supervision requirements may not have other patients or 
medical activities to complete. In an urban or large urban hospital, a 
practitioner would be able to see other patients or engage in other 
activities so long as those activities could be interrupted, such that 
they would be immediately available to supervise.
    In a series of questions and answers about supervision on the CMS 
Web site (http://www.cms.gov/HospitalOutpatientPPS/05_
OPPSGuidance.asp#TopOfPage), we provided additional guidance regarding 
our regulations about who can supervise services in order to explain to 
CAHs and small rural hospitals the flexibility we believe exists within 
our requirement for direct supervision. For example, in that document, 
we state that we believe the emergency physician or the nonphysician 
practitioner, who would be the most likely practitioners staffing a 
small rural hospital or CAH, can directly supervise outpatient services 
so long as the emergency physician or nonphysician practitioner in the 
emergency department of the campus meets the other requirements of 
direct supervision. That is, the emergency physician or the 
nonphysician practitioner needs to be immediately available, so that, 
if needed, he or she could reasonably be interrupted to furnish 
assistance and direction in the delivery of therapeutic services 
provided elsewhere in the hospital. We believe that most emergency 
physicians and appropriate nonphysician practitioners can supervise 
many services within the scope of their knowledge, skills, licensure, 
and hospital-granted privileges, including observation services. With 
regard to whether an emergency physician or a nonphysician practitioner 
could be interrupted, such that the individual could be immediately 
available, we have stated that each hospital would need to assess the 
level of activity in its emergency department and determine whether at 
least one emergency physician or nonphysician practitioner could be 
interrupted to furnish assistance and direction in the treatment of 
outpatients.
    In their correspondence and discussion in public forums, CAHs and 
small rural hospitals explicitly have raised concerns about services 
that extend after regular operating hours, especially observation 
services. They also have asserted that direct supervision is not 
clinically necessary for some services that have a significant 
monitoring component that is typically performed by nursing or other 
auxiliary staff, including IV hydration, blood transfusions, and 
chemotherapy. They stated that their facilities have protocols to 
safely deliver all of these services, relying on nursing or other 
hospital staff to provide the service and having a physician or 
nonphysician practitioner available by phone to furnish assistance and 
direction throughout the duration of the therapeutic service.
    In the early part of this year, small rural hospitals and CAHs 
indicated that, regulations notwithstanding, many of them did not have 
appropriate staff arrangements to provide the required supervision of 
some services, particularly services being provided after hours or 
consisting of a significant monitoring component that last for an 
extended period of time. In response to rising concerns among the rural 
community about these rules and the inability of some hospitals to meet 
the direct supervision requirement, we issued a statement on March 15, 
2010, indicating that we would not enforce the rules for supervision of 
hospital outpatient therapeutic procedures furnished in CAHs in CY 2010 
(http://www.cms.gov/HospitalOutpatientPPS/01_overview.asp#TopOfPage). 
We also stated that we would proactively revisit the rules surrounding 
the supervision of services furnished by CAHs in the CY 2011 OPPS/ASC 
proposed rule.
    Compared to supervision of therapeutic services, we have had 
relatively limited dialogue with stakeholders about our CY 2010 policy 
to recognize the supervision levels for diagnostic services under the 
MPFS for the provision of diagnostic services in the hospital. 
Individual stakeholders have asked about supervision of specific 
diagnostic services and have noted that our requirement that the 
hospitals follow the supervision levels for diagnostic services in the 
hospital identified in the MPFS Relative Value Unit File has required 
some modest changes in hospital staffing practices. We also have 
received questions requesting clarification about related supervision 
requirements for nonphysician practitioners. We note that adopting the 
supervision levels defined under the MPFS for diagnostic services in 42 
CFR 410.32 means that nonphysician practitioners who are not 
specifically excluded under Sec.  410.32(b) from the level of 
supervision required by the MPFS are subject to supervision by a 
physician at the level of supervision required by the diagnostic test. 
We also discussed in our CY 2010 OPPS/ASC final rule with comment 
period that diagnostic X-ray and other diagnostic tests must be 
furnished under the appropriate level of supervision by a physician as 
defined in section 1861(r) of the Act (74 FR 60588 through 60590).

[[Page 72003]]

3. Policies for Supervision of Outpatient Therapeutic Services in 
Hospitals and CAHs
    As indicated in our March 15, 2010 statement, we are revisiting the 
issue of supervision of outpatient therapeutic services in CAHs to 
ensure a robust public discussion about supervision requirements for 
payment in hospital outpatient departments, including those located in 
rural communities, and CAH outpatient departments. In the CY 2011 OPPS/
ASC proposed rule, we proposed modest changes to our supervision policy 
for therapeutic services that reflect our continuing commitment to 
require direct supervision for the provision of therapeutic services in 
the hospital outpatient setting as a requirement for payment (75 FR 
46303). We proposed these changes for all hospitals, including CAHs, 
because we believe that Medicare should purchase a basic quality of 
service for all Medicare beneficiaries. Specifically, we proposed to 
identify a limited set of services with a significant monitoring 
component that can extend for a sizable period of time, that are not 
surgical, and that typically have a low risk of complication after 
assessment at the beginning of the service, as ``nonsurgical extended 
duration therapeutic services'' (also referred to as ``extended 
duration services''). We listed these services in Table 37 of the 
proposed rule (75 FR 46308). We proposed for these services that there 
would be a requirement for direct supervision for the initiation of the 
service followed by general supervision for the remainder of the 
service. We proposed to adopt the definition of ``general supervision'' 
in existing Sec.  410.32(b)(3)(i), which is the same definition of 
general supervision that we already recognize as appropriate for 
diagnostic services with a general supervision level requirement under 
the MPFS. Finally, at the end of the proposal, we included several 
discussion points designed to focus public comments and generate 
sufficient detail to assist us in crafting a final policy.
    In considering the significant correspondence from CAHs and rural 
communities, as well as public discussion on the issue of supervision 
through the open door forum and calls with individual hospitals and 
other hospital representatives, we sought to propose modifications to 
the supervision standards that would balance several countervailing 
interests. While we sought to identify some means of offering 
flexibility within the direct supervision requirement and address 
industry concerns about specific services, we also believed strongly 
that Medicare should continue to purchase services that are delivered 
with a basic level of quality and safety and that fulfill the statutory 
requirement for payment of incident to services. We recognized the 
concerns of CAHs and rural hospitals that it could be difficult to 
staff a physician or nonphysician practitioner on the campus to 
supervise services that have a significant monitoring component and 
lack an active component being performed by the physician or 
nonphysician practitioner, especially when these services extend into 
after business hours or overnight. CAHs and rural hospitals explicitly 
identified observation services, IV hydration, chemotherapy, and blood 
transfusions as the services that are particularly challenging to 
provide under direct supervision. Observation services, in particular, 
can extend for a significant period of time. Data from the CAH 
outpatient claims indicate that most observation care lasts longer than 
12 hours and that it frequently lasts 24 to 48 hours, suggesting that 
observation care often extends after business hours and through the 
night.
    We recognized that any service with an extended duration and a 
significant monitoring component could challenge hospitals' ability to 
ensure direct supervision, and we decided to concentrate on those 
services. We set out to identify services with a significant monitoring 
component extending after business hours as identified by the CAHs and 
hospitals in rural communities and for which we could offer some 
flexibility in meeting the requirement for direct supervision of 
therapeutic services without compromising the quality and safety of 
services for which Medicare makes payment. One way to provide 
flexibility would be to allow a reduced level of supervision for part 
of these services. We established a requirement for direct supervision 
for all hospital outpatient services in our CY 2000 and CY 2010 
rulemaking processes. However, we reasoned that, for certain extended 
duration services, for CY 2011 we could adopt a general supervision 
requirement for some portion of the service, as long as we believed 
that such flexibility would not undermine the quality and safety of 
purchased services. Therefore, we proposed to require, for a limited 
set of nonsurgical extended duration therapeutic services, direct 
supervision during the initiation of the service followed by general 
supervision for the remainder of the service (75 FR 46306).
    We proposed to define ``initiation of the service'' as the 
beginning portion of a service ending when the patient is stable and 
the supervising physician or appropriate nonphysician practitioner 
believes the remainder of the service can be delivered safely under his 
or her general direction and control without his or her physical 
presence on the hospital campus or in the PBD of the hospital. We 
listed our proposed definition of initiation of the service in proposed 
Sec.  410.27(a)(1)(v)(B). We considered further defining the term 
``stable'' in this definition as there is an established definition in 
the Emergency Medical Treatment and Labor Act (EMTALA) regulations at 
42 CFR 489.24(b). In those regulations, ``stabilized'' with respect to 
an emergency medical condition means ``that no material deterioration 
of the condition is likely, within reasonable medical probability, to 
result from or occur during the transfer for the individual from a 
facility * * *'' However, this language is set within the context of 
emergency services, not hospital outpatient therapeutic services 
generally, and we have been clear that supervision is more than 
emergency response. Ultimately, we were not certain that this 
definition would be appropriate for a payment requirement for 
supervision of outpatient therapeutic services.
    We also did not propose to further define the term ``initiation'' 
or to set time limits on this portion of the service because we believe 
that the determination that a patient is sufficiently stable to 
transfer from direct supervision to general supervision, and the timing 
of that decision, are clinical judgments. We believed it would be best 
to leave the determination of when to move from direct to general 
supervision to the discretion of the supervising physician or 
nonphysician practitioner. However, we considered whether the point of 
transfer from direct supervision to general supervision should be 
documented in the medical record or identified in a hospital protocol, 
and we invited public comment on how CMS might review the physician or 
nonphysician practitioner's decision to move from direct to general 
supervision to monitor for proper billing should an adverse event 
occur.
    We considered four criteria when identifying the list of services 
to which this new policy of direct supervision during the initiation of 
the service followed by general supervision for the remainder of the 
service would apply. We first accepted the two criteria identified in 
correspondence and discussion with CAHs and rural hospitals, that the 
service be of extended duration, frequently extending

[[Page 72004]]

beyond normal business hours, and that the service largely consist of a 
significant monitoring component typically conducted by nursing or 
other auxiliary staff. We added a third criterion that the service must 
be of sufficiently low risk, such that the service typically would not 
require direct supervision often during the service. We added this 
criterion because, as we have previously discussed, our requirement for 
direct supervision has been grounded in the statutory ``incident to'' 
payment authority as well as the need to ensure that Medicare purchases 
services that represent a basic level of quality and safety. We have 
noted that, unlike an inpatient admission, the provision of outpatient 
services lacks certain safeguards such as a detailed medical history 
and a plan of care (74 FR 60578 through 60588). Finally, we excluded 
all surgical services including recovery time from potential inclusion 
because we believed the surgeon should be immediately available during 
the recovery period. We defined nonsurgical extended duration 
therapeutic services in proposed regulation text for Sec.  
410.27(a)(1)(v)(A).
    Using these four criteria, we identified a list of nonsurgical 
therapeutic services that have a tendency to last for a long period of 
time, that largely consist of monitoring, and that have a low risk that 
the physician's physical presence will be needed once the patient is 
stable. To identify this list of potential services, we reviewed all 
medical services, including the services and procedures specifically 
identified by CAHs and rural hospitals in their correspondence and 
public discussion. The proposed list of nonsurgical extended duration 
therapeutic services appeared in Table 37 of the proposed rule. We 
explicitly did not include chemotherapy or blood transfusions in our 
proposed list of nonsurgical extended duration therapeutic services 
because we believed that these services would require the physician's 
or nonphysician practitioner's recurrent physical presence in order to 
evaluate the patient's condition in the event it is necessary to 
redirect the service.
    We included observation services on the proposed list of 
nonsurgical extended duration services. In Section 20.6 of Chapter 2 of 
the Medicare Benefit Policy Manual (Pub. 100-02), we define observation 
care as ``a well-defined set of specific, clinically appropriate 
services, which include ongoing short term treatment, assessment, and 
reassessment before a decision can be made regarding whether patients 
will require further treatment as hospital inpatients or if they are 
able to be discharged from the hospital.'' Therefore, the acuity of 
patients receiving observation services and the amount of recurrent 
supervisory review that may be necessary for these services can vary 
significantly. Observation services can be of low acuity and can have a 
low probability that the supervising physician or nonphysician 
practitioner's physical presence would be needed to step in and perform 
the service or otherwise furnish assistance. We noted in Section 
290.5.1 of Chapter 4 of the Medicare Claims Processing Manual (Pub. No 
100-04) that, among other requirements for observation services, ``(a) 
the beneficiary must be in the care of a physician during the period of 
observation, as documented in the medical record by outpatient 
registration, discharge, and other appropriate progress notes that are 
timed, written, and signed by the physician,'' and ``(b) the medical 
record must include documentation that the physician explicitly 
assessed patient risk to determine that the beneficiary would benefit 
from observation care.'' We stated that we would continue to expect 
hospitals and CAHs to fulfill these specific requirements associated 
with observation care, so the supervising physician or appropriate 
nonphysician practitioner must continue to evaluate the patient 
periodically and include written notes in the medical record.
    In crafting our policy for nonsurgical extended duration 
therapeutic services, we considered other avenues to offer flexibility 
within our requirement for direct supervision. We considered and 
presented the following alternatives in the proposed rule in order to 
focus public comments and generate sufficient detail to assist us in 
developing the final policy. Although we reconsidered these 
alternatives for this final rule, ultimately we did not adopt either of 
them.
    In addition to considering the proposed policy to permit general 
supervision after an initial period of direct supervision for a limited 
subset of services, we also considered offering hospitals the 
flexibility to broaden the list to include chemotherapy and blood 
transfusions, which some stakeholders also maintain do not require 
direct supervision. Because we were concerned that these services had a 
high probability of needing a physician or nonphysician practitioner to 
redirect the service, we reasoned that under this option, we would have 
to require hospitals to create internal guidelines specifying a 
supervision level and protocols for staffing that supervision level for 
every nonsurgical extended duration therapeutic service. We considered 
proposing minimum requirements for these internal supervision 
guidelines, including annual review and approval by a governing 
committee, periodic internal evaluation of implementation, and the 
ability to make these guidelines available to Medicare program auditors 
if requested. Further, these guidelines would be reviewed thoroughly by 
CMS should a quality issue arise. We did not propose this policy 
because we believe that an independent entity should evaluate services 
such as chemotherapy administration and blood transfusion to determine 
whether or not general supervision is appropriate and safe. In our 
deliberations on policies for the final rule, we were concerned that 
this policy would not address many concerns that were brought to our 
attention by the rural hospital community (shorter duration services 
and supervision from locations in close proximity to the hospital). We 
also rejected this alternative because a variable standard of 
supervision could be administratively difficult for us to audit and 
evaluate.
    We also considered whether for payment purposes we should 
explicitly or implicitly exclude outpatient therapeutic services 
provided in CAHs from the requirements for direct supervision. We 
considered limiting CAHs to their CoPs, which in effect only require 
them to operate under general supervision. As we stated in the proposed 
rule, we believe there are strong grounds for applying the same 
supervision requirements to CAHs as to all other hospital types. One of 
our grounds for applying the direct supervision requirement to CAHs is 
that outpatient hospital services are furnished ``incident to'' 
physicians' services, and we believe that the incident to rules apply 
equally to critical access and other types of hospitals. Outpatient 
hospital services are furnished ``incident to'' physicians' services 
under section 1861(s)(2)(B) of the Act and are paid under the OPPS in 
accordance with section 1833(t) of the Act. In contrast, ``outpatient 
critical access hospital services'' are defined under section 
1861(mm)(3) of the Act, and CAHs are reimbursed for outpatient CAH 
services based on their reasonable costs pursuant to section 1834(g) of 
the Act. We believe that outpatient CAH services are correctly viewed 
as being furnished ``incident to'' physicians' services. Section 
1861(mm)(3) of the Act defines ``outpatient critical access hospital 
services'' as ``medical and other

[[Page 72005]]

health services furnished by a critical access hospital on an 
outpatient basis.'' The term ``medical and other health services'' is 
defined at section 1861(s) of the Act as including ``hospital services 
* * * incident to physicians' services rendered to outpatients.'' 
Furthermore, the same considerations regarding the need to ensure that 
services furnished to Medicare beneficiaries represent a basic level of 
quality and safety that apply to outpatient hospital services are 
equally applicable to outpatient CAH services. As a result, we believe 
it is appropriate to apply the same supervision requirements to 
outpatient therapeutic services furnished in hospitals and CAHs.
    We acknowledge that statutory provisions allow CAHs some 
flexibility in their staffing requirements to operate with more nursing 
staff and nonphysician practitioners rather than physicians if those 
are the practitioners that are available, and that our regulations 
recognize those reduced staffing requirements in the CoPs by 
establishing that, at a minimum, the physician or nonphysician 
practitioner must be available within 30 minutes of an emergency. 
However, as discussed above, we believe that CAHs are subject to 
payment rules independent of their CoPs. Moreover, some have suggested 
that the regulations which establish only minimal requirements reduce 
the quality and safety of CAH services and that CAHs should be required 
to disclose their reduced staffing levels to patients prior to 
providing services. We elected not to limit the CAHs to their 
conditions of participation or to exclude them from direct supervision 
requirements, because we believe that Medicare should purchase 
outpatient services from CAHs and other hospitals that are of the same 
basic level of safety and quality. Also, we believe that both small 
rural hospitals paid under the OPPS through section 1833(t) of the Act 
and CAHs paid at reasonable cost under section 1834(g) of the Act have 
similar staffing and resource constraints. In fact, given that CAHs are 
reimbursed based on their reasonable costs, in our proposal we reasoned 
that CAHs might be better able than small rural PPS hospitals to hire 
staff to provide direct supervision and we did not receive comments as 
to why this would not be the case.
    Comment: Many commenters asserted that there is no evidence of 
compromised quality of care or patient safety that justifies the new 
and burdensome change in supervision rules, and that commenters know of 
no adverse events that have necessitated a change in CMS' supervision 
policies from general supervision to direct supervision. One commenter 
suggested that CMS commission an outcomes study to measure a need for 
direct supervision compared to general supervision in the hospital 
outpatient department. Many commenters requested that CMS continue to 
study potential negative effects of enforcing its requirement for 
direct supervision and that CMS extend the notice indicating that it 
will not enforce the rules for supervision of hospital outpatient 
therapeutic procedures furnished in CAHs through CY 2011. Commenters 
also requested that CMS expand its decision not to enforce the 
requirement for direct supervision of therapeutic outpatient services 
in CAHs to other small and rural hospitals that are paid under the OPPS 
and are located in areas experiencing workforce shortages.
    Several commenters asserted that the Act does not prescribe a 
specific level of supervision for ``incident to'' physician's services. 
These commenters believed that CMS has discretion to select an 
appropriate level of supervision for hospital outpatient ``incident 
to'' physician's services other than direct supervision and that the 
requirement for direct supervision of incident to physician services is 
technologically outdated. They requested that CMS depart from its 
historic interpretation of the incident to provision by allowing 
general supervision for those services. They commented that, for some 
low-risk and low-complexity services, a physician does not need to be 
physically present. Many commenters requested that CMS set the minimum 
standard as general supervision for all services and allow individual 
facilities to establish other supervision levels for certain services 
at their discretion. Many commenters also requested that CMS establish 
an independent panel representative of geographic areas, particularly 
rural areas, and provider types to identify the appropriate supervision 
level for individual services.
    Response: Our supervision policy is designed to preserve both 
quality and safety of purchased hospital outpatient services for 
Medicare beneficiaries. While our recent attention to supervision is 
not being informed by a specific quality event, we received a 
substantial number of inquiries from stakeholders prior to 2009 leading 
us to believe that hospitals were practicing general supervision or no 
supervision in the provision of services that are paid ``incident to'' 
physician's services in the outpatient setting and for which we had 
established a policy of direct supervision. While literature or 
clinical opinions may exist on the risk of adverse outcomes and 
susceptibility to medical error associated with the provision of 
specific hospital outpatient procedures when a physician is not 
present, we do not know of any analyses that have directly examined 
levels of supervision and patient outcomes in the hospital outpatient 
setting. This may be an area for future study.
    We disagree with commenters that our requirement for direct 
supervision is new or a change from previous policy, and appreciate 
that several commenters acknowledge that CMS' requirement for direct 
supervision of hospital outpatient services is not new. One of our 
longstanding interpretations of the statutory authorization for 
hospital services ``incident to'' physicians' services under section 
1861(s)(2)(B) of the Act is that these services should be provided 
under direct supervision. As we have already discussed, we clearly 
stated in the CY 2000 final rule our regulatory requirement for direct 
supervision in the off-campus PBD and our presumption that the 
requirement for direct supervision would be met in the hospital.
    In the CY 2010 OPPS/ASC final rule with comment period (74 FR 
60580), we noted that, prior to 2000, we already required hospitals to 
meet a direct supervision of ``incident to'' services requirement for 
outpatient therapeutic services. That is, we required that hospital 
services and supplies furnished to outpatients that are incident to 
physicians' services ``must be furnished on a physician's order by 
hospital personnel and under a physician's supervision'' (Section 
3112.4 of the Medicare Intermediary Manual). In longstanding manual 
guidance, we have expressed our historical belief that direct 
supervision is required for hospital outpatient therapeutic services, 
and we have suggested that this requirement stems from the ``incident 
to'' nature of those services. We have stated in the Medicare Benefit 
Policy Manual (Pub. No. 100-02), Chapter 6, Section 20.5.2 (revised May 
28, 2010) and previously discussed in the CY 2010 OPPS/ASC final rule 
with comment period (74 FR 60576) that we require direct supervision 
for the provision of therapeutic services to hospital outpatients: 
``Therapeutic services and supplies which hospitals provide on an 
outpatient basis are those services and supplies (including the use of 
hospital facilities) which are incident to the services of physicians 
and practitioners in the treatment of patients * * * The services and 
supplies must be furnished under the order of a physician or other 
practitioner

[[Page 72006]]

practicing within the extent of the Act, the Code of Federal 
Regulations, and State law, and furnished by hospital personnel under 
the direct supervision of a physician or nonphysician practitioner as 
defined at 42 CFR 410.27(f) and 482.12. This does not mean that each 
occasion of service by a nonphysician need also be the occasion of the 
actual rendition of a personal professional service by the physician 
responsible for care of the patient. However, during any course of 
treatment rendered by auxiliary personnel, the physician must 
personally see the patient periodically and sufficiently often to 
assess the course of treatment and the patient's progress and, where 
necessary, to change the treatment regimen. A hospital service or 
supply would not be considered incident to a physician's service if the 
attending physician merely wrote an order for the services or supplies 
and referred the patient to the hospital without being involved in the 
management of that course of treatment.''
    With respect to whether CMS has the authority to recognize a 
supervision level other than direct supervision for payment of 
``incident to'' physician's services under section 1861(s)(2)(B) of the 
Act, we agree that the statute does not explicitly mandate direct 
supervision, but we continue to believe that direct supervision is the 
most appropriate level of supervision for most hospital outpatient 
services that are authorized for payment ``incident to'' physician's 
services. While we believe that the ``incident to'' authorization 
permits us to recognize specific circumstances appropriate for general 
supervision, such as we proposed for extended duration services, we 
also believe that our historical interpretation of section 
1861(s)(2)(B) of the Act, specifically, that these services are 
furnished under the order of a physician (or nonphysician 
practitioner), the physician is involved in the management of the 
patient, and the physician supervises the provision of those services 
when he or she does not provide them directly, is reflected in a 
requirement for direct supervision. Therefore, we do not believe it is 
appropriate to authorize payment for ``incident to'' services to 
hospitals with a default supervision level of ``general'' for all 
services. In our proposed rule, we focused on extended duration 
services both because CAHs and small rural hospitals had identified 
these services as a primary source of their difficulty in complying 
with our requirement for direct supervision and because we agreed that 
the monitoring and low risk attributes of the services did not 
necessarily dictate direct supervision for the entire performance of 
those services. We also believed that our requirements for ``incident 
to'' services (that the physician be involved in the management of the 
patient and that the services be provided under the physician's 
supervision) would be met when a period of general supervision followed 
a period of direct supervision for the initiation of the service.
    Comment: In addition to our proposed list of nonsurgical extended 
duration services (which we are finalizing for this CY 2011 final rule 
with comment period and discuss in greater detail later in this 
section), commenters requested that CMS recognize general supervision 
for many additional services that they considered to be of low risk and 
low complexity, such as minor surgical procedures, immunization 
administration, minor wound debridement, group psychotherapy, sleep 
laboratory services, and patient-controlled anesthesia pumps. One 
commenter indicated that the organization he represents had convened a 
physician panel to assess appropriate supervision levels of outpatient 
services and that the panel found 160 services eligible for general 
supervision based on a low physician work RVU. Commenters argued that 
technology has reduced the risk of needing a physician or nonphysician 
practitioner to furnish assistance and direction during some services.
    Response: We agree with commenters that there may be some 
outpatient services that could be identified as appropriate for general 
supervision among these and other identified services. However, we are 
not confident that stakeholders would necessarily agree with our 
assessment of appropriate supervision levels and we observed through 
our review of comments that stakeholders did not always agree among 
themselves about the appropriate supervision level for any given 
service. For example, we received numerous requests from CAHs and small 
rural hospitals that we recognize blood transfusions and chemotherapy 
administration for general supervision, arguing that protocols were in 
place to handle changes in treatment or emergency situations. However, 
we also received opposing comments indicating that chemotherapy should 
not be provided without direct supervision. We note that many of the 
chemotherapy administration HCPCS codes, like many services, have 
physician work relative value units associated with them, suggesting 
that the physician typically would be involved in the provision of 
these services.
    In light of heightened stakeholder interest in supervision 
requirements, CMS' continuing goal of purchasing safe, quality services 
that are provided ``incident to'' a physician's service; and potential 
disagreement among commenters regarding appropriate levels of 
supervision, we agree with commenters that there should be a mechanism 
for independent consideration of the most appropriate supervision level 
for individual therapeutic services to ensure that CMS purchases safe, 
quality outpatient care. Accordingly, while we are maintaining our 
policy that, in general, direct supervision is required for all 
outpatient therapeutic services, we will establish a process that 
provides for independent evaluation of the appropriate level of 
supervision for specific therapeutic services. We note that in 
considering the appropriate level of supervision for individual 
services, we may find that a higher level of supervision, (personal 
supervision) is appropriate for certain services, as well as finding 
that general supervision is appropriate for some services.
    Therefore, in the CY 2012 OPPS rulemaking cycle, we will propose to 
establish an independent review process that will allow for an 
assessment of the appropriate supervision levels for individual 
hospital outpatient therapeutic services. At this point, we believe 
this process should include a committee with representation of many 
types of providers including rural providers, and that it should 
include a time frame for submitting requests for the assessment of 
individual services and considering potential changes, criteria for 
evaluating each service, and a means for documenting recommended 
supervision levels. We are considering the possibility of using CMS' 
Federal Advisory Panel on Ambulatory Classification Groups (the APC 
Panel) as the independent technical committee that would review 
requests for consideration of supervision levels other than direct for 
individual services and make recommendations to CMS regarding the 
appropriate levels. (http://www.cms.gov/FACA/05_
AdvisoryPanelonAmbulatoryPaymentClassificationGroups.asp). As described 
previously in this final rule with comment period, the APC Panel is 
chartered by statute and consists of up to 15 members, selected by the 
HHS Secretary or CMS Administrator, who are full-time employees of 
hospitals and other Medicare providers paid under the OPPS. The Panel 
members are

[[Page 72007]]

representative of various geographic areas (rural and urban) and 
hospital professions (administration and clinical). We request comments 
regarding other potential entities that may serve as a technical panel 
to consider supervision levels for individual services. We also request 
comments on how this independent review process for an alternative 
level of supervision might work, and on potential criteria for 
evaluating a service for the appropriate level of supervision.
    Because we believe that it would be best to develop such a process 
through notice and comment rulemaking, for CY 2011, we are extending 
our decision not to enforce the requirement for direct supervision of 
therapeutic services provided to CAH outpatients. As we stated in our 
proposed rule (75 FR 46309), we remain concerned about establishing 
policies that apply only to CAHs, because that small and rural PPS 
hospitals experience similar resource constraints. Therefore, for CY 
2011 we are expanding the scope of our decision not to enforce the 
requirement for direct supervision of therapeutic services to include 
small rural hospitals having 100 or fewer beds. For purposes of this 
provision, we are using the same definition of small rural hospitals as 
Congress recognizes for Transitional Outpatient Payments (TOPs) under 
section 1833(t)(7) of the Act. Our decision not to enforce the 
requirement for direct supervision of therapeutic outpatient services 
applies to rural hospitals with 100 or fewer beds for CY 2011. As we do 
for TOPs, we will consider hospitals to be rural if they are either 
geographically located in a rural area or are paid through the OPPS 
with a wage index for a rural area (section 70, Chapter 4, of the 
Medicare Claims Processing Manual (Pub. 100-04)).
    Comment: Several commenters stated that the requirement for the 
supervisory practitioner to have hospital privileges and State 
licensure to perform the services they are supervising translates into 
requiring licensure in the same specialty as those services. One 
hospital expressed concern about the language regarding ``hospital 
privileges,'' stating that it forced hospitals to modify their bylaws 
and privileging documents to assure that a large majority of their 
medical staff could supervise. They stated that, in the past, 
supervision was carried out based on ``scope of practice'' and that 
CMS' new language regarding privileges presents new requirements.
    Response: We do not believe that we have made substantive changes 
to the requirements regarding the supervisory practitioner's ability to 
perform services that he or she is supervising since we issued the 
first supervision rules in CY 2000. In the CY 2000 regulation text 
requiring direct supervision for therapeutic outpatient services in a 
PBD, we required that the supervisory physician be immediately 
available to furnish assistance and direction throughout the 
performance of the procedure. In order to furnish assistance and 
direction, we believe that a physician would have to be State licensed 
and possess hospital privileges to perform that procedure. As the 
commenter noted, in our CY 2010 OPPS/ASC final rule with comment 
period, we elaborated on this requirement when we stated that the 
supervisory practitioner ``must have, within his or her State scope of 
practice and hospital-granted privileges, the ability to perform the 
service or procedure'' that he or she is supervising (74 FR 60580).
    However, we also have stated since 2000 that, in many 
circumstances, we believe that the supervising physician can furnish 
assistance and direction within their State scope of practice and 
hospital granted privileges without being of the same specialty as the 
service that is being performed (65 FR 18525). For example, we believe 
that blood transfusions do not require supervision by a hematologist 
and that an internist would typically possess hospital privileges and 
State licensure to provide and to supervise blood transfusion services. 
On the other hand, we have been clear that we require the supervisory 
practitioner to be knowledgeable enough about the service to be able to 
furnish assistance and direction, and not merely manage an emergency. 
Therefore, not all practitioners are qualified to supervise services of 
any specialty. Nonetheless, for many common OPPS services, we believe 
that hospitals can adjust their bylaws and privileging standards 
sufficiently to cover practitioners whom they wish to act in a 
supervisory capacity.
    Comment: Commenters requested that CMS redefine direct supervision 
to broaden the definition of ``immediate availability'' and to allow 
the supervisory practitioner to be located in areas that are in close 
proximity to the hospital or PBD, but not on the hospital campus (or 
nonhospital space on the hospital campus) or in the PBD. With regard to 
``immediate availability,'' some commenters stated that, in many cases, 
the requirement to be immediately available (which we have described as 
physically present, interruptible, and able to furnish assistance and 
direction throughout the performance of the service) negates any 
benefit of allowing the supervisory practitioner to be present anywhere 
on campus. As discussed above, the commenters noted that the 
requirement to be ``immediately available'' in CMS' current definition 
of direct supervision in the hospital actually determines how far away 
the supervisory practitioner can be located because he or she must use 
their discretion to decide where they can be physically located within 
the hospital campus, given other activities they may be involved in and 
the amount of time it would take to reach the hospital nursing and 
auxiliary staff that he or she is supervising. Commenters stated that, 
practically speaking, emergency room physicians or nonphysician 
practitioners cannot supervise because they would not be interruptible 
if they were engaged in any other activity. With regard to being on the 
hospital campus or in the PBD, commenters indicated that there are many 
locations that would allow a physician to be immediately available that 
are not on the hospital campus or in the PBD. Specifically, commenters 
provided personal situations where a physician office or clinic is 
located in buildings adjacent to a PBD or hospital campus. Commenters 
noted that many of these locations are closer to the site of service 
than are parts of the hospital campus. In a similar case, a 
practitioner may perform services in two adjacent clinics within a 
single building, but one clinic is provider based and the other is not. 
We have received requests during the normal course of the year as well 
in public comments to our proposed rule requesting that we allow 
supervision from both locations.
    Commenters also indicated that many CAHs and small or rural PPS 
hospitals have particular difficulty staffing a hospital in the 
situation where a primary care physician directly refers a patient 
after normal business hours for chemotherapy, drug administration, 
hydration, observation or other services from their office or from on-
call in a location that is very close to the hospital campus but not on 
the campus. In general, these commenters believed that requiring any 
physician or nonphysician practitioner to be available is excessively 
burdensome and difficult to staff if there is no other activity to 
occupy the physician in the hospital. In addition, several commenters 
requested that CMS redefine direct supervision or immediate 
availability to allow for availability in ways other than appearing in 
person, and asked that CMS consider availability using technological 
advances in telemedicine

[[Page 72008]]

and other remote mechanisms. Commenters also requested that CMS 
consider redefining direct supervision to allow the supervising 
physician to be in close proximity to the department or hospital.
    Response: Having carefully considered the comments regarding the 
challenges to providing direct supervision created by our requirement 
that the physician or nonphysician practitioner be either ``in the 
hospital or CAH'' or ``in the provider based department,'' we are 
revising our definition of direct supervision for hospital outpatient 
therapeutic services in Sec.  410.27(a)(1)(iv)(A) and (B) to remove the 
reference to ``on the same campus'' or ``in the off-campus provider-
based department of the hospital'' and we are removing our definition 
of ``in the hospital or CAH'' provided under Sec.  410.27(g) entirely. 
The definition of direct supervision will be revised simply to require 
immediate availability, meaning physically present, interruptible, and 
able to furnish assistance and direction throughout the performance of 
the procedure but without reference to any particular physical 
boundary. Since the new definition will now apply equally in the 
hospital or in on-campus or off-campus PBDs, we are removing paragraphs 
(a)(1)(iv)(A) and (B) of Sec.  410.27 altogether. The new definition of 
direct supervision under Sec.  410.27(a)(1)(iv) will now state, ``For 
services furnished in the hospital or CAH or in an outpatient 
department of the hospital or CAH, both on- and off-campus, as defined 
in section 413.65 of this subchapter, `direct supervision' means that 
the physician or nonphysician practitioner must be immediately 
available to furnish assistance and direction throughout the 
performance of the procedure. It does not mean that the physician or 
nonphysician practitioner must be present in the room when the 
procedure is performed. For pulmonary rehabilitation, cardiac 
rehabilitation, and intensive cardiac rehabilitation services, direct 
supervision must be furnished by a doctor or medicine or osteopathy as 
specified in Sec. Sec.  410.47 and 410.49, respectively.'' This new 
definition of direct supervision will apply to hospitals and CAHs 
equally beginning in CY 2011. However, as already discussed, we are 
extending our notice of nonenforcement to CAHs and small rural 
hospitals with 100 or fewer beds through CY 2011. For purposes of this 
provision, we are using the same definition of small rural hospitals as 
Congress recognizes for TOPs under section 1833(t)(7) of the Act. Our 
decision not to enforce the requirement for direct supervision of 
therapeutic outpatient services applies to rural hospitals with 100 or 
fewer beds for CY 2011. As we do for TOPs, we will consider hospitals 
to be rural if they are either geographically located in a rural area 
or are paid through the OPPS with a wage index for a rural area 
(Section 70, Chapter 4, of the Medicare Claims Processing Manual (Pub. 
No. 100-04)).
    This extension will allow CAHs and small rural hospitals to prepare 
to meet this definition of direct supervision in CY 2012.
    Our goal in implementing this policy is twofold. First, we wish to 
allow for flexibility in providing for direct supervision from a 
location other than the hospital campus or PBD that still allows the 
physician to be immediately available to furnish direction and 
assistance. We wish to give CAHs and other hospitals more flexibility 
to meet the direct supervision requirement by allowing physicians or 
other practitioners in locations that are close to the hospital but not 
in actual hospital space to directly supervise services that are within 
their State scope of practice and hospital granted privileges, so long 
as these individuals remain immediately available. This policy also 
allows supervision from any location within a building off-campus that 
houses multiple PBDs of a hospital as long as the supervising 
practitioner is immediately available, rather than requiring a 
supervising practitioner to be located within each PBD in that 
building.
    We note, however, that we are not relaxing the requirement that, 
for direct supervision, the supervisory physician or nonphysician 
practitioner must be immediately available, meaning that the 
supervisory practitioner must be physically present and interruptible. 
We wish to emphasize that once we remove reference to ``in the 
hospital'' or ``in the provider based department,'' we continue to 
expect the supervisory practitioner to be physically present for the 
services he or she is supervising. As in the past, we are not defining 
immediate availability in terms of time or distance. We believe that 
removing specific boundaries provides reasonable flexibility but also 
holds the practitioner accountable for determining, in individual 
circumstances, how to be physically and immediately available when 
supervising services provided ``incident to'' a physician's service in 
the outpatient setting.
    Although commenters again requested this year that we revise our 
definition of immediately available to recognize availability by 
telephone or modes other than in person, we believe that the 
requirement for physical presence distinguishes direct supervision from 
general supervision. Granting these requests would amount to revising 
the definition of direct supervision to be, for all intents and 
purposes, general supervision. Section 410.32(b)(3)(i) of the 
regulations defines general supervision to mean that ``the procedure is 
furnished under the physician's overall direction and control, but the 
physician's presence is not required during the performance of the 
procedure.'' Rather than further modify the definition of direct 
supervision to accommodate more flexibility in the definition of 
immediately available, as discussed above, we intend to establish an 
independent review process to assess the appropriate supervision levels 
for specific services. We are retaining all other current requirements 
for direct supervision such as clinical appropriateness of the 
supervisor and an ability to step in and perform as we discuss in 
Section 20.5.2, Chapter 6, of the Medicare Benefit Policy Manual (Pub. 
No. 100-02).
    With respect to telecommunication, we note that direct supervision 
requires the ability to be physically present immediately, and to be 
able to furnish assistance and direction throughout the performance of 
the procedure (74 FR 60580). We do not see how a practitioner who is 
only remotely available by phone or other means of telecommunication 
could fulfill these requirements and, therefore, we do not consider 
availability by means of telecommunication to be an acceptable means of 
providing direct supervision. However, this issue might potentially be 
considered by the independent panel in future years.
    Comment: Several commenters asked CMS to continue to allow nurse 
practitioners and physician assistants to perform hospital outpatient 
therapeutic services under general supervision.
    Response: As we have delineated in prior rules (74 FR 60590 through 
60591) and manual guidance (Medicare Benefit Policy Manual (Pub. No. 
100-02), Chapter 6, Section 20.5.2), beginning January 1, 2010, in 
accordance with 42 CFR 410.27(a)(1)(iv), in addition to physicians and 
clinical psychologists, licensed clinical social workers, physician 
assistants, nurse practitioners, clinical nurse specialists, and a 
certified nurse-midwife may directly supervise therapeutic services 
that they may personally furnish in accordance with State law and all 
additional requirements, including those specified at 42 CFR 410.71, 
410.73, 410.74, 410.75, 410.76, and 410.77. These

[[Page 72009]]

nonphysician practitioners are specified at 42 CFR 410.27(f). Under our 
current policy, a physician assistant may perform hospital outpatient 
therapeutic services under general supervision because, in accordance 
with Sec.  410.74, a physician assistant must perform outpatient 
therapeutic services under general supervision. Similarly, nurse 
practitioners can perform hospital outpatient therapeutic services so 
long as they furnish them ``in collaboration with'' a physician in 
accordance with Sec.  410.75. The rules for provision of diagnostic 
services by nurse practitioners and physician assistants are delineated 
in Section 20.4.4 of the Medicare Benefit Policy Manual and we 
summarize them below in our discussion of supervision of outpatient 
diagnostic services.
    Comment: Commenters made many of the same requests that were made 
during the previous rulemaking period, specifically that CMS allow PR, 
CR, and ICR services to be supervised by nonphysician practitioners. 
Commenters also requested that CMS change the required level of 
supervision for these services from direct to general supervision. One 
commenter stated that services provided ``off-site,'' should not 
require direct supervision because the staff is specially trained and 
the patients are medically strong enough to participate in the 
treatments. Another commenter expressed appreciation for the 
clarification in the proposed rule that the outpatient departments of 
CAHs are a covered setting for the provision of PR, CR, and ICR 
services. However, the commenter asserted that the outpatient 
departments of hospitals, including CAHs, are deemed to have met the 
direct supervision requirement by the ``presumption'' language in 
section 144(a)(2)(B) of Public Law 110-275 (MIPPA) and that 
consequently these facilities are not required to provide direct 
supervision.
    Response: As we stated in the CY 2010 OPPS/ASC final rule with 
comment period, we do not believe that the statute provides the 
flexibility for us to permit anyone other than a physician to supervise 
hospital outpatient PR, CR, and ICR services because nonphysician 
practitioners are not physicians as defined in section 1861(r)(1) of 
the Act. The statutory language of sections 1861(eee)(2)(B) and 
(eee)(4)(A) and section 1861(fff)(1) of the Act (as added by section 
144(a)(1) of Pub. L. 110-275) defines PR, CR, and ICR programs as 
``physician-supervised.'' More specifically, section 1861(eee)(2)(B) of 
the Act establishes that, for PR, CR and ICR programs, ``a physician is 
immediately available and accessible for medical consultation and 
medical emergencies at all times items and services are being furnished 
under the program, except that, in the case of items and service 
furnished under such a program in a hospital, such availability shall 
be presumed.* * *'' The text of the statute uses the word ``physician'' 
and does not include nonphysician practitioners. Also, as we explained 
in the CY 2009 OPPS/ASC proposed rule and final rule with comment 
period (73 FR 41518 through 41519 and 73 FR 68702 through 68704, 
referencing the April 7, 2000 OPPS final rule (65 FR 18525)), the 
``presumption'' or ``assumption'' that a physician is available to 
provide direct supervision means that direct physician supervision is 
the standard. We have assumed this requirement is met on hospital 
premises (meaning we have expected that hospitals are meeting this 
requirement) because staff physicians would always be nearby in the 
hospital. In other words, the requirement is not negated by a 
presumption that the requirement is being met. Hence, while we have 
some flexibility to determine the type of practitioner who may 
supervise other hospital outpatient therapeutic services, in the case 
of PR, CR, and ICR services specifically, the statutory language does 
not provide such flexibility. Instead, the statute imposes strict 
requirements, describing the direct physician supervision standard for 
PR, CR, and ICR services, and gives us no flexibility to modify the 
requirement to allow for other supervisory practitioners or another 
level of supervision. Nevertheless, we refer the commenters to our 
revised definition of direct supervision, which requires only the 
supervisory practitioner's immediate availability rather than any 
particular geographic location in Sec.  410.27(a)(1)(iv) for CY 2011, 
and note that this new definition applies to the direct physician 
supervision of PR, CR, and ICR services.
    Comment: Several commenters asserted that registered nurses (RNs) 
are board-certified or otherwise qualified to provide all necessary 
supervision of the extended duration services CMS proposed and of other 
services, for example, observation, IV hydration, chemotherapy, blood 
transfusions and patient-controlled anesthesia pumps. Commenters 
provided many examples of nurses handling initial reactions to blood 
transfusions, chemotherapy and other services by redirecting the 
service according to protocol or specialized knowledge of the service 
(for example, changing rate of infusion), or by referring emergencies 
to medical response or ``code'' teams. One commenter stated that CMS 
should add clinical experience as a qualification under ``clinical 
appropriateness'' for direct supervision; the commenter asserted that 
nurses are more qualified than physicians to supervise certain 
procedures because they have more experience in performing them.
    Response: We support all specific training nurses may receive to 
administer safe and quality specialized services, such as chemotherapy, 
under direct supervision. However, we believe there is an important 
distinction between ability and training to administer a service, and 
ability to supervise a service or to administer it without supervision. 
The Act specifically recognizes certain professionals (nonphysician 
practitioners) to furnish certain services that would be considered 
physicians' services if furnished by a physician, and we have 
recognized that it is appropriate to permit these individuals to 
supervise or to perform the services themselves. In general, nurses are 
not afforded this authority. For example, we received a comment 
referencing safety standards for chemotherapy administration which 
supported specialized training of nurses, mid-level practitioners or 
physicians to administer chemotherapy, but these standards also 
recommended that either a mid-level practitioner or a physician be on 
site at all times to supervise the administration of those services. We 
emphasize that Medicare's supervision rules do not govern who may 
perform a service. Rather, they govern who must be available to furnish 
assistance and direction through the procedure should developments 
require a change in the course of treatment in order to ensure a 
therapeutic outcome. For these reasons, we do not believe that RNs 
should be permitted to provide all necessary supervision of outpatient 
therapeutic services.
    We are concerned with the number of comments we received suggesting 
that protocols, processes, and procedures may substitute for evaluation 
by a physician or nonphysician practitioner and orders for treatment. 
As previously stated in this discussion, Sec.  410.27(a)(1)(ii) of the 
regulations states that Medicare Part B pays for hospital services and 
supplies furnished incident to a physician's service to outpatients if 
they are provided ``as an integral though incidental part of 
physician's services.'' In addition, we have stated in section 20.5.1, 
Chapter 6 of the Medicare Benefit Policy Manual that ``during any 
course of treatment rendered by auxiliary personnel, the physician must

[[Page 72010]]

personally see the patient periodically and sufficiently often enough 
to assess the course of treatment and the patient's progress and, where 
necessary, to change the treatment regimen.'' Well-developed protocols, 
processes, and procedures can assist nurses in their management of a 
particular patient, allowing them to assess the patient's reaction to a 
course of treatment. We believe that quality and thoughtful nursing 
staff are a key component in the delivery of safe and quality care. 
However, protocols cannot address every possible development during a 
course of treatment. We believe that a physician or nonphysician 
practitioner who has had specific training and met further licensure 
and qualification requirements permitting a broader scope of practice 
must be available to evaluate the patient, provide assistance and 
direction, and order additional services if needed. Protocols cannot 
address all circumstances, nor can they substitute for the training and 
authority to redirect the service or potentially order a different 
course of treatment.
    Comment: Many commenters continued to express the opinion that 
supervision requirements in CAHs should be limited to the requirements 
of their CoPs and that CAHs should be able to maintain a general 
supervision standard for the provision of all hospital outpatient 
therapeutic services. They asserted that CMS is promulgating two 
conflicting rules in that the supervision requirements for payment 
conflict with the supervision requirements delineated in the CAH CoPs. 
They asserted that Medicare is ``forcing CAHs to provide life-saving 
services'' for which they will not be reimbursed since they are not 
able to provide direct supervision. Another commenter asked if Advanced 
Beneficiary Notices (ABNs) could be distributed to patients who present 
to the hospital for services requiring direct supervision when such 
supervision is not available. On the other hand, several commenters 
recommended that CMS require CAHs to operate under the same supervision 
rules as all other types of hospitals. One commender recommended that 
supervision levels should only vary by type of service and safety 
requirements. One commenter, MedPAC, supported our recommendation to 
treat CAHs and small rural hospitals equally, and suggested that we 
better align the CAH CoPs with final payment requirements to better 
clarify supervision requirements for hospitals.
    Response: As we discussed above, we disagree that our payment 
regulations requiring direct supervision for payment of outpatient 
services conflict with CAH CoPs. The CoPs and payment rules are written 
for different purposes. As we stated in our proposed rule (75 FR 
46304), in order to participate in Medicare, CAHs must, at a minimum, 
follow their CoPs which ensure a basic environment of safety in the 
hospital. Under their CoPs, CAHs are permitted but not required to 
provide a broad array of hospital outpatient services. However, in 
order to bill and be paid for outpatient services, CAHs must meet 
additional payment requirements for specific services, including 
supervision requirements or, for example, the requirement for timed 
notes in the medical record for observation services. We have 
previously indicated why we believe supervision is an important 
requirement to ensure that Medicare purchase safe, quality outpatient 
care. We continue to believe that supervision is an important payment 
requirement for CAHs as well as other hospitals, and that Medicare 
should ensure the program is purchasing a minimum level of safe, 
quality care, wherever that care is provided. We have stated that 
unlike inpatients, outpatients do not have a plan of care, that a 
treating physician in the community may not be aware that outpatient 
services are being delivered, and that hospitals do not necessarily 
have an established relationship with registered outpatients the way 
they do for admitted inpatients (74 FR 60582).
    We continue to disagree with commenters that we need to somehow 
``reconcile'' the payment regulations for outpatient therapeutic 
services with CAH CoPs establishing minimum institutional safety and 
quality requirements for the services that CAHs provide. However, while 
we expect to retain a default requirement of direct supervision for 
outpatient therapeutic services, we believe that the issue of perceived 
discrepancy may be resolved as we move forward with our plan to 
establish a process that will lead to the assessment and adoption of an 
appropriate level of supervision for individual services. Specifically, 
as we begin to consider and adopt different levels of supervision for 
individual services, the distinction between the CAH CoPs and payment 
regulations should become more evident. We believe that recognizing a 
modified supervision approach for the extended duration services for CY 
2011, discussed in more detail below, is a step towards clarifying the 
distinction between the payment rules that are applicable for specific 
services from the CoPs that apply to the facility in general.
    As described in our manual provisions (Medicare Claims Processing 
Manual (IOM 100-04), Chapter 30, Sections 50.2.1 and 50.5), providers 
may only issue ABNs when Medicare will deny an otherwise covered item 
or service either as not reasonable and necessary under section 
1862(a)(1) of the Act or because the item or service constitutes 
custodial care under section 1862(a)(9) of the Act. If Medicare 
withheld payment for a hospital outpatient service due to lack of 
direct supervision as required in our rules and regulations, the 
payment denial would not be for lack of medical necessity or because 
the item or service constituted custodial care. Therefore, failure to 
provide direct supervision is not a valid reason to issue a beneficiary 
an ABN, and hospitals are not permitted to do so.
    Comment: Many commenters appreciated our proposal for extended 
duration services as an attempt to offer flexibility to CAHs and small 
rural hospitals to meet supervision requirements when providing these 
services. Many commenters favored the proposal overall, but offered 
several recommended refinements or revisions. First, commenters 
expressed concern that the requirement for direct supervision during 
the initiation of an extended duration service would compromise patient 
safety in small rural hospitals and CAHs because auxiliary staff would 
have to wait for the supervisory practitioner to arrive before 
initiating critical treatment. They recommended that CMS allow these 
services to be provided under general supervision for the duration of 
the service.
    Many commenters did not believe that the list was long enough and 
suggested that we add additional services, although many of these 
services did not meet the stated criteria to be considered a 
nonsurgical extended duration service. We note that we addressed other 
services requested for general supervision in our first comment and 
response in this section. Many commenters requested general supervision 
of chemotherapy administration and blood transfusion. Several 
commenters also believed that certain portions of the post-operative 
recovery period did not need direct supervision and that after a 
certain amount of time has passed, patients are typically stable enough 
to be monitored by auxiliary personnel. They requested that CMS allow 
general supervision for portions of the post-operative period or 
designate the post-operative period as an extended duration service.
    Several commenters agreed that CMS should not further define 
``initiation'' or ``stable.'' They noted that these are new unfamiliar 
terms in the context of extended duration services and were

[[Page 72011]]

concerned about liability. Commenters believed that they might be 
subject to inspection and interpretation of their decision about the 
transition of care by individuals who were not qualified to make a 
medical judgment about the need for a practitioner, and that they would 
be penalized for failures to adequately document the transition. The 
commenters stated that the determination that a patient is stable 
enough to transition to general supervision may create personal 
liability. They indicated that it may be difficult to properly judge or 
navigate the terms ``initiation'' and ``stable'' because they will vary 
with different circumstances, for example the practitioner who 
transfers the patient to a reduced level of supervision care may not be 
the same practitioner who initiated care.
    Finally, commenters expressed their views as to whether the point 
of transition from direct supervision to general supervision should be 
documented in the medical record or identified in a hospital protocol, 
and on how CMS might review the supervisory practitioner's decision to 
move from direct to general supervision to monitor for proper billing 
should an adverse event occur. Several commenters favored documenting 
the transition to general supervision in the medical record or in 
progress notes, and one commenter specified that a physician order 
should be used. One commenter suggested a system that would grade the 
level of clinical decision making, similar to an existing system that 
grades level of risk and patient stability with parameters such as 
``Abrupt Change in Neurologic Status.'' However, many other commenters 
expressed reservations about documentation, concerned that documenting 
the point of transfer will provide ample opportunity for practitioner 
audit and liability since carrying out the transition is an unfamiliar 
arena involving clinical judgment and newly defined or undefined terms. 
Some commenters expressed concern about increasing providers' paperwork 
and administrative burden.
    Response: We appreciate commenters support for our proposal to 
require, for certain extended duration services, direct supervision at 
the initiation of the service followed by general supervision for the 
remainder of a service at the discretion of the supervising physician 
or nonphysician practitioner once that physician has determined that 
the patient is stable.
    We do not believe that requiring direct supervision for the 
initiation of the service for extended duration services will 
compromise patient safety in CAHs and small rural hospitals when they 
provide these services. We believe that many of the extended duration 
services frequently are referred services, giving the hospital or CAH 
time to arrange for a supervisory physician or nonphysician 
practitioner to be available. Specifically with regard to observation 
services, we noted in Section 290.5.1 of Chapter 4 of the Medicare 
Claims Processing Manual (Pub. No. 100-04) that ``(a) the beneficiary 
must be in the care of a physician during the period of observation, as 
documented in the medical record by outpatient registration, discharge, 
and other appropriate progress notes that are timed, written, and 
signed by the physician,'' and ``(b) the medical record must include 
documentation that the physician explicitly assessed patient risk to 
determine that the beneficiary would benefit from observation 
services.'' Because we require an evaluation of patient risk at the 
beginning of observation services, except in cases of direct referral 
we did not believe that the physician would not be available during the 
initiation of the service.
    We also believe that hospitals typically would not need to stop 
delivery of extended duration services to a patient because a 
supervisory physician or nonphysician practitioner is not yet 
available. We note that the hospital frequently conducts diagnostic 
tests for patients presenting to the emergency department, many of 
which require a general level of supervision, which can allow time for 
a supervising physician or nonphysician practitioner to become 
available for the initiation of therapeutic services. Thus, in those 
circumstances where the patient presents to the emergency department 
and requires an extended duration service, we believe that the 
supervising physician or nonphysician practitioner could be immediately 
available for most, if not all, of the initiation period. We further 
note that we have removed the physical boundary requirement in the 
definition of direct supervision in order to allow for the supervising 
practitioner greater flexibility in location while still meeting the 
requirement to be immediately available.
    We do not believe it would be appropriate without further 
assessment to define chemotherapy, blood transfusion, and the recovery 
period for surgical services as nonsurgical, extended duration 
therapeutic services. After a preliminary review of literature on 
chemotherapy administration, we believe that service-specific 
assessment may be necessary to determine the level of supervision that 
is safe. Adverse events can be severe, even fatal, and they seem to 
vary by type of chemotherapy being administered as well as the 
mechanism of administration. We also note that recent safety standards 
seem to support the equivalent of direct supervision of chemotherapy 
(http://www.asco.org/ASCOv2/Practice+%26+Guidelines/Quality+Care/Quality+Measurement+%26+Improvement/ASCO-ONS+Standards+for+Safe+Chemotherapy+Administration). We remain equally 
concerned about the safety of blood transfusion should circumstances 
require a physician to assess the situation and order a change in the 
course of treatment. We also do not believe it would be appropriate, 
without further assessment, to require general supervision for the 
recovery period for surgical services. We excluded all surgical 
services including recovery time from our proposal regarding extended 
duration services because we believe the surgeon should evaluate his or 
her patient during the recovery period. We believe that the best course 
of action is to exclude these services from our list of nonsurgical 
extended duration services and to include them in the list of services 
to be evaluated early on through the independent review process for 
service-specific supervision levels that we will establish for CY 2012.
    We thank commenters who agreed with our proposal not to define the 
term ``stable'' and not to further define the term ``initiation,'' and 
as we proposed, we will not further define these terms. Thus, the 
finalized definition of ``initiation'' in Sec.  410.27(a)(1)(v)(B) is 
``the beginning portion of a service ending when the patient is stable 
and the supervising physician or appropriate nonphysician practitioner 
believes the remainder of the service can be delivered safely under 
general supervision.''
    With regard to documentation of transition from direct to general 
supervision, we are sympathetic to commenter concerns regarding 
potential liability and administrative burden. However, we also believe 
that in order to assure adequate patient safety and communication among 
hospital staff, the point of transition to general supervision should 
be documented prominently in progress notes or in the medical record. 
Therefore, we are finalizing our requirement that the transition from 
direct to general supervision be documented in the progress notes or in 
the medical record,

[[Page 72012]]

but we are otherwise leaving the manner of documentation to the 
discretion of each supervising practitioner.
    After review of the public comments, we are finalizing our proposed 
nonsurgical extended duration services described in new Sec.  
410.27(a)(1)(v).
    Comment: During the past year, we were often questioned about 
clinical requirements for practitioners supervising extremely 
specialized services, notably radiation oncology services. One 
commenter requested that CMS consider the direct supervision 
requirement to be met for diagnostic or therapeutic radiation oncology 
services if a non-specialist practitioner who can handle an emergency 
provides the direct supervision and also has access by phone or other 
telemedicine link to a specialist who is able to change the plan of 
care should the need arise. One commenter asserted that one does not 
have to posses the clinical skills to fully provide a service in order 
to be an effective supervisor.
    Response: As we have stated in the Medicare Benefit Policy Manual 
(Pub. No. 100-02), Chapter 6, Section 20.5.24, ``the supervisory 
physician or nonphysician practitioner must have, within his or her 
State scope of practice and hospital-granted privileges, the knowledge, 
skills, ability, and privileges to perform the service or procedure. 
Specially trained ancillary staff and technicians are the primary 
operators of some specialized diagnostic or therapeutic equipment, and 
while in such cases CMS does not expect the supervisory practitioner to 
operate this equipment instead of a technician, CMS does expect the 
physician or nonphysician practitioner that supervises the provision of 
the service must be knowledgeable about the test and clinically 
appropriate to furnish the test. The supervisory responsibility is more 
than the capacity to respond to an emergency, and includes furnishing 
assistance and direction throughout the performance of a procedure and, 
as appropriate to the supervisory physician or nonphysician 
practitioner and the patient, to change a procedure or the course of 
care for a particular patient. CMS would not expect that the 
supervisory practitioner would make all decisions unilaterally without 
informing or consulting the patient's treating physician or 
nonphysician practitioner.'' We do not believe it is sufficient or 
consistent with our rules for direct supervision for the individual on 
site to be capable of only emergency management. The supervisory 
practitioner or nonphysician practitioner who is physically present 
should have the training and knowledge to clinically redirect the 
service or provide additional orders.
    Comment: Commenters remain concerned about the potential for 
liability for services provided prior to CY 2009. They requested that 
CMS prohibit enforcement of the direct supervision requirements applied 
to services furnished since January 1, 2001. They also commented that 
CMS' statement regarding enforcement in the CY 2010 final rule with 
comment period (74 FR 60587) forces hospitals to assert and provide 
supporting evidence that any divergence from CMS' rules during that 
time period was a result of error or mistake.
    Response: In the CY 2010 OPPS/ASC final rule with comment period, 
we stated that in the case of services furnished in 2000 through 2008, 
``we plan to exercise our discretion and decline to enforce in 
situations involving claims where the hospital's noncompliance with the 
direct physician supervision policy resulted from error or mistake.'' 
(74 FR 60587)
    In summary, after consideration of the public comments we received, 
we are maintaining our general requirement for direct supervision of 
all outpatient therapeutic services. However, we are redefining our 
definition of direct supervision in Sec.  410.27(a)(1)(iv) to remove 
all references to physical boundaries and require only ``immediate 
availability.'' We are removing Sec.  407.27(g), which defines ``in the 
hospital'', because it is no longer necessary. In addition, through CY 
2011 we will develop an independent review process for annual 
consideration of requests for alternative service-specific supervision 
levels, supported by an independent technical committee, potentially 
the APC Panel. We are specifically seeking comment on what the process 
should look like and the criteria that should be considered for 
identifying services for which personal, direct, or general supervision 
is appropriate. We will establish this process in the coming year 
through the CY 2012 rulemaking cycle, selecting a specific independent 
entity to assist in the process and establishing criteria for 
determining that a given service should be furnished under general or 
personal supervision rather than direct supervision. At least until the 
independent entity is in place (likely through CY 2011), we are 
establishing a new category of ``nonsurgical extended duration 
therapeutic services'' that require direct supervision as defined in 
Sec.  410.27(a)(1)(iv) during an initiation period, followed by a 
minimum standard of general supervision as defined in Sec.  
410.32(b)(3)(i) for the duration of the service. The extended duration 
services will include the limited set of procedures identified in Table 
48A of this final rule with comment period. We are adding a new 
paragraph (a)(1)(v) to Sec.  410.27 to reflect this policy. In new 
Sec.  410.27(a)(1)(v)(A), we are defining ``nonsurgical extended 
duration therapeutic services'' as services that can last a significant 
period of time, have a substantial monitoring component that is 
typically performed by auxiliary personnel, have a low risk of 
requiring the physician's or appropriate nonphysician practitioner's 
immediate availability after the initiation of the service, and are not 
primarily surgical in nature. In new Sec.  410.27(a)(1)(v)(B), we are 
finalizing our definition of ``initiation of the service'' as the 
beginning portion of a service ending when the patient is stable and 
the supervising physician or appropriate nonphysician practitioner 
believes the remainder of the service can be delivered safely under his 
or her general direction and control without needing his or her 
immediate availability. We believe that these policies will address 
commenters' concerns while maintaining an adequate level of safety and 
quality of care in the hospital outpatient services that Medicare 
purchases.
    As another interim measure, we are extending the nonenforcement 
policy for direct supervision of therapeutic services provided in CAHs 
for another year, through CY 2011, and we are expanding it during this 
year to include small and rural hospitals that have 100 or fewer beds. 
For purposes of this provision, we are using the same definition of 
small rural hospitals as Congress recognizes for TOPs under section 
1833(t)(7) of the Act. Our decision not to enforce the requirement for 
direct supervision of therapeutic outpatient services applies to CAHs 
and rural hospitals with 100 or fewer beds for CY 2011. As we do for 
TOPs, we will consider hospitals to be rural if they are either 
geographically located in a rural area or are paid through the OPPS 
with a wage index for a rural area (Section 70, Chapter 4, of the 
Medicare Claims Processing Manual (Pub. No. 100-04)). We believe this 
nonenforcement policy will permit the CAHs and small and rural 
hospitals that do not consistently meet our direct supervision standard 
for outpatient therapeutic services to make appropriate adjustments 
over the coming year.
    Finally, in our proposal, we noted that in the CY 2010 OPPS/ASC 
final rule with comment period, in presenting the regulation text 
changes for Sec.  410.27, paragraph (a)(2) (relating to PHP

[[Page 72013]]

services) was inadvertently deleted from the Code of Federal 
Regulations. We did not receive any comments on this proposal. We are 
finalizing our proposal to restore paragraph (a)(2) as it originally 
appeared in the regulations.

  Table 48A--List of Nonsurgical Extended Duration Therapeutic Services
------------------------------------------------------------------------
        HCPCS Code                        Long description
------------------------------------------------------------------------
C8957....................  Intravenous infusion for therapy/diagnosis;
                            initiation of prolonged infusion (more than
                            8 hours), requiring use of portable or
                            implantable pump.
G0378....................  Hospital observation service, per hour.
G0379....................  Direct admission of patient for hospital
                            observation care.
96360....................  Intravenous infusion, hydration; initial, 31
                            minutes to 1 hour.
96361....................  Intravenous infusion, hydration; each
                            additional hour (List separately in addition
                            to code for primary procedure).
96365....................  Intravenous infusion, for therapy,
                            prophylaxis, or diagnosis (specify substance
                            or drug); initial, up to 1 hour.
96366....................  Intravenous infusion, for therapy,
                            prophylaxis, or diagnosis (specify substance
                            or drug); each additional hour (List
                            separately in addition to code for primary
                            procedure).
96367....................  Intravenous infusion, for therapy,
                            prophylaxis, or diagnosis (specify substance
                            or drug); additional sequential infusion, up
                            to 1 hour (List separately in addition to
                            code for primary procedure).
96368....................  Intravenous infusion, for therapy,
                            prophylaxis, or diagnosis (specify substance
                            or drug); concurrent infusion (List
                            separately in addition to code for primary
                            procedure).
96369....................  Subcutaneous infusion for therapy or
                            prophylaxis (specify substance or drug);
                            initial, up to 1 hour, including pump set-up
                            and establishment of subcutaneous infusion
                            site(s).
96370....................  Subcutaneous infusion for therapy or
                            prophylaxis (specify substance or drug);
                            each additional hour (List separately in
                            addition to code for primary procedure).
96371....................  Subcutaneous infusion for therapy or
                            prophylaxis (specify substance or drug);
                            additional pump set-up with establishment of
                            new subcutaneous infusion site(s) (List
                            separately in addition to code for primary
                            procedure).
96372....................  Therapeutic, prophylactic, or diagnostic
                            injection (specify substance or drug);
                            subcutaneous or intramuscular.
96374....................  Therapeutic, prophylactic, or diagnostic
                            injection (specify substance or drug);
                            intravenous push, single or initial
                            substance/drug.
96375....................  Therapeutic, prophylactic, or diagnostic
                            injection (specify substance or drug); each
                            additional sequential intravenous push of a
                            new substance/drug (List separately in
                            addition to code for primary procedure).
96376....................  Therapeutic, prophylactic, or diagnostic
                            injection (specify substance or drug); each
                            additional sequential intravenous push of
                            the same substance/drug provided in a
                            facility (List separately in addition to
                            code for primary procedure).
------------------------------------------------------------------------

    In the CY 2010 OPPS/ASC final rule with comment period, we 
requested comments on the issue of standardizing the levels of 
supervision required for partial hospitalization services (PHP) 
provided in CMHCs and in hospital outpatient departments. To date, we 
require direct supervision for PHP services provided to hospital 
outpatients as for all outpatient therapeutic services, and we require 
only general supervision for PHP services provided at CMHCs. We 
appreciate the comments we received in response to the final rule with 
comment period and are taking them into consideration. In the CY 2010 
OPPS/ASC final rule with comment period, we also requested comments on 
supervision requirements for payment to ASCs. We have no payment-
related supervision requirement for ASCs. We appreciate the comments we 
received in response to the final rule with comment period and are 
taking them into consideration.
4. Supervision of Hospital Outpatient Diagnostic Services
    We have received limited correspondence and questions on our policy 
finalized in the CY 2010 OPPS/ASC final rule with comment period to 
adopt for outpatient diagnostic services furnished in hospitals and in 
non-hospital locations the physician supervision levels in Sec.  
410.32(b)(3) established under the MPFS and indicated on the Practice 
Expense Relative Value Unit file. We also applied a new definition of 
direct supervision in new Sec.  410.28(e)(1) and (e)(2). As discussed 
above, the CY 2010 policy applies to hospitals and not to CAHs. As we 
discuss above, nonphysician practitioners previously performing 
diagnostic tests without physician supervision, within their State 
scope of practice and hospital-granted privileges, can continue to 
perform those tests without physician supervision. The CY 2010 policy 
now requires physician supervision of those services, unless the 
nonphysician practitioner is specifically exempted under Sec.  
410.32(b)(2) or there is some other provision addressing supervision 
for that type of nonphysician practitioner.
    In this final rule with comment period, in the interest of clarity 
we are adopting the same change in definition of direct supervision and 
immediate availability for outpatient diagnostic services as we are 
adopting for outpatient therapeutic services, except for diagnostic 
services performed under arrangement in non-hospital locations under 
Sec.  410.28(e)(3). For diagnostic services furnished under arrangement 
in non-hospital locations, direct supervision will continue to mean 
physical presence in the office suite as defined in Sec.  
410.32(b)(3)(ii) (``in the office suite and immediately available to 
furnish assistance and direction throughout the performance of the 
procedure''). For all other outpatient diagnostic services, direct 
supervision will now mean immediately available, without reference to 
any physical boundary. To this end, we are amending the definition of 
direct supervision in Sec. Sec.  410.28(e)(1) and (2).

B. Payment for Preventive Services

1. Definition of ``Preventive Services''
    Section 4104(a) of the Affordable Care Act revised section 
1861(ddd) of the Act by adding a new paragraph (3), which defines the 
term ``preventive services.'' Preventive services are defined as:
    <bullet> Screening and preventive services currently described in 
section 1861(ww)(2) of the Act, except for electrocardiograms described 
in section 1861(ww)(2)(M) of the Act;
    <bullet> An initial preventive physical examination (IPPE) as 
defined in section 1861(ww) of the Act; and
    <bullet> Personalized prevention plan services (PPPS), also known 
as the ``Annual Wellness Visit'' (AWV), as defined in section 1861(hhh) 
of the Act (which was added by section 4103 of the Affordable Care 
Act).
    The services specified in the definition of ``preventive services'' 
at section 1861(ddd)(3)(A) of the Act, as

[[Page 72014]]

cross-referenced to section 1861(ww)(2) of the Act, excluding 
electrocardiograms, include the following:
    <bullet> Pneumococcal, influenza, and hepatitis B vaccine and 
administration;
    <bullet> Screening mammography;
    <bullet> Screening pap smear and screening pelvic examination;
    <bullet> Prostate cancer screening tests;
    <bullet> Colorectal cancer screening tests;
    <bullet> Diabetes outpatient self-management training (DSMT);
    <bullet> Bone mass measurement;
    <bullet> Screening for glaucoma;
    <bullet> Medical nutrition therapy (MNT) services;
    <bullet> Cardiovascular screening blood tests;
    <bullet> Diabetes screening tests;
    <bullet> Ultrasound screening for abdominal aortic aneurysm (AAA); 
and
    <bullet> Additional preventive services identified for coverage 
through the national coverage determination (NCD) process.
    We note that, at the time of issuance of the CY 2011 OPPS/ASC 
proposed rule, the only additional preventive service identified for 
coverage through the NCD process was HIV testing. We released a 
proposed national coverage determination for smoking cessation services 
for asymptomatic patients (CAG-00420N, ``Proposed Coverage Decision 
Memorandum for Counseling to Prevent Tobacco Use'') in May 2010 on the 
CMS Web site at: http://www.cms.gov/mcd/index_list.asp?list--type=nca. 
We indicated that we would address the applicability of section 4104 of 
the Affordable Care Act to these services if an NCD establishing them 
as additional preventive services was finalized before the CY 2011 
OPPS/ASC final rule with comment period was issued (75 FR 46310). As of 
August 25, 2010, CMS finalized an NCD for ``Counseling to Prevent 
Tobacco Use,'' and established coverage of smoking cessation services 
for asymptomatic patients, thus qualifying them as ``additional 
preventive services'' as defined at section 1861(ddd)(3)(A) of the Act, 
as cross-referenced to section 1861(ww)(2) of the Act.
    We included our proposals to implement the coverage and payment 
provisions for the AWV providing PPPS in the CY 2011 MPFS proposed rule 
(75 FR 40128 through 40129). Therefore, individuals were instructed to 
submit public comments on the proposed coverage of and payment for the 
AWV providing PPPS under the provisions of the Affordable Care Act in 
response to the CY 2011 MPFS proposed rule. The implementing 
regulations regarding coverage of the IPPE are already established 
under existing 42 CFR 410.16 and remain unchanged by the Affordable 
Care Act. As discussed below in section XII.B.2. of this final rule 
with comment period, we are presenting our proposed and final policies 
for the application or waiver of coinsurance and the Part B deductible 
for preventive services as required by sections 4104(b) and (c) of the 
Affordable Care Act. While commenters were directed to submit public 
comments on the proposed coverage of and payment for the AWV providing 
PPPS under the provisions of the Affordable Care Act in response to the 
CY 2011 MPFS proposed rule, we did receive some comments on hospital 
payment for these services, which we address below.
2. Coinsurance and Deductible for Preventive Services
    Sections 4104(b) and 10406 of the Affordable Care Act amended 
section 1833(a)(1) of the Act to require 100 percent payment for the 
IPPE and for those Medicare-covered preventive services that are 
recommended by the United States Preventive Services Task Force 
(USPSTF) with a grade of A or B for any indication or population and 
that are appropriate for the individual. This requirement waives any 
coinsurance or copayment that would otherwise apply under section 
1833(a)(1) of the Act for the IPPE and for those items and services 
listed in section 1861(ww)(2) of the Act (excluding electrocardiograms) 
to which the USPSTF has given a grade of A or B. In addition, section 
4103(c) of the Affordable Care Act waives the coinsurance or copayment 
for the AWV providing PPPS. The coinsurance or copayment represents the 
beneficiary's share of the payment to the provider or supplier for 
furnished services. Coinsurance generally refers to a percentage (for 
example, 20 percent) of the Medicare payment rate for which the 
beneficiary is liable and is applicable under the MPFS and ASC payment 
system, while copayment generally refers to an established amount that 
the beneficiary must pay that is not necessarily related to a 
particular percentage of the Medicare payment rate, and is applicable 
under the OPPS. We refer readers to the CY 2011 MPFS final rule with 
comment period for the provisions related to payment for preventive 
services, including waiver of the deductible and copayment, under the 
MPFS, and to section XV.D.1.d. of this final rule with comment period 
for our proposed and final policies to implement the provisions related 
to payment for preventive services under the ASC payment system.
    Section 4104(c) of the Affordable Care Act amended section 
1833(b)(1) of the Act to waive the Part B deductible for preventive 
services described in section 1861(ddd)(3)(A) of the Act that have a 
grade of A or B from the USPSTF for any indication or population and 
are appropriate for the individual. In addition, section 4103(c)(4) of 
the Affordable Care Act waives the Part B deductible for the AWV 
providing PPPS. These provisions are effective for services furnished 
on or after January 1, 2011. We note that section 101(b)(2) of the 
MIPPA previously amended section 1833(b) of the Act to waive the Part B 
deductible for the IPPE, effective January 1, 2009.
    As we indicated in the CY 2011 OPPS/ASC proposed rule (75 FR 46310 
through 46311), not all preventive services described in paragraph (A) 
of section 1861(ddd)(3) of the Act are recommended by the USPSTF with a 
grade of A or B, and therefore, some of the preventive services do not 
meet the criteria in sections 1833(a)(1) and 1833(b)(1) of the Act for 
the waiver of the deductible and coinsurance. However, the changes made 
by section 4104 of the Affordable Care Act do not affect most of the 
preexisting specific provisions listed in existing Sec.  410.160(b) and 
Sec.  410.152 of the regulations (which reflect the provisions found in 
sections 1833(a) and 1833(b) of the Act) that waive the deductible and 
coinsurance for specific services. For example, section 1833(a)(1)(D) 
of the Act waives the coinsurance and section 1833(b)(3) of the Act 
waives the deductible for clinical laboratory tests (including those 
furnished for screening purposes). Section 4104 of the Affordable Care 
Act does not change these provisions and the waiver of both the 
deductible and coinsurance remains in place for all laboratory tests, 
regardless of whether the particular clinical laboratory test meets the 
criteria of section 4104 for the waiver of the deductible and 
coinsurance as a preventive service.
    The following preventive services listed in section 1833(ddd)(3)(A) 
of the Act are not recommended by the USPSTF with a grade of A or B for 
any indication or population: (1) Digital rectal examination provided 
as a prostate cancer screening service; (2) glaucoma screening; (3) 
diabetes outpatient self-management training; and (4) barium enema 
provided as a colorectal cancer screening service.
    Specifically, HCPCS code G0102 (Prostate cancer screening; digital 
rectal exam), which does not have a grade of

[[Page 72015]]

A or B from the USPSTF for any indication or population, will continue 
to be subject to the deductible and coinsurance. However, the 
deductible and coinsurance for HCPCS code G0103 (Prostate cancer 
screening; prostate specific antigen test (PSA)) will continue to be 
waived under sections 1833(a)(1)(D) and 1833(b)(3) of the Act as a 
clinical laboratory test, even though it also does not have a grade of 
A or B from the USPSTF.
    Glaucoma screening services, described by HCPCS codes G0117 
(Glaucoma screening for high risk patients furnished by an optometrist 
or ophthalmologist) and G0118 (Glaucoma screening for high risk patient 
furnished under the direct supervision of an optometrist or 
ophthalmologist), will continue to be subject to the deductible and 
coinsurance requirements because these services are not recommended 
with a grade of A or B by the USPSTF for any indication or population. 
Similarly, diabetes outpatient self-management training is currently 
not rated by the USPSTF; therefore, the deductible and coinsurance 
requirements will continue to apply.
    Barium enemas provided as colorectal cancer screening tests, 
described by HCPCS codes G0106 (Colorectal cancer screening; 
alternative to G0104, screening sigmoidoscopy, barium enema) and G0120 
(Colorectal cancer screening; alternative to G0105, screening 
colonoscopy, barium enema) do not have a grade of A or B from the 
USPSTF for any indication or population. However, the deductible does 
not apply to barium enemas provided as colorectal cancer screening 
tests because colorectal cancer screening tests are explicitly excluded 
from the deductible under section 1833(b)(8) of the Act. However, there 
is no specific exclusion of barium enemas from the coinsurance 
requirement at section 1833(b)(1) of the Act. Therefore, this 
requirement, as applicable, continues to apply to barium enemas. We 
note that the USPSTF has given a grade of A to colonoscopy, flexible 
sigmoidoscopy, and fecal occult blood screening tests, and, as a 
result, these services qualify for the statutory waiver of both the 
deductible and coinsurance.
    We also note that the USPSTF ceased to make recommendations with 
regard to vaccines and vaccine administration after CY 1996, so as not 
to conflict with the recommendations of the CDC's Advisory Committee on 
Immunization Practices. However, the USPSTF's most recent vaccine 
recommendations, which were never withdrawn by the USPSTF, gave a grade 
of B to the influenza and pneumococcal vaccines and their 
administration and a grade of A to the hepatitis B vaccine and its 
administration. While sections 1833(a)(1) and 1833(b)(1) of the Act (as 
amended by section 4104 of the Affordable Care Act) require that the 
preventive services receive a grade of A or B from the USPSTF for the 
coinsurance and deductible to be waived, the statute does not specify 
that the recommended grade must be furnished within any given 
timeframe. The USPSTF's grades from 1996 for these preventive services 
are the most current USPSTF grades and have never been withdrawn. 
Therefore, we believe that these preventive services meet the 
requirements of the statute for the waiver of the deductible and 
coinsurance. We also note that the CDC's Advisory Committee on 
Immunization Practices currently recommends influenza, pneumococcal, 
and hepatitis B vaccines.
    Table 38 of the CY 2011 OPPS/ASC proposed rule (75 FR 46312) 
displayed the CPT/HCPCS codes (paid under the OPPS or at reasonable 
cost) that we proposed as ``preventive services'' under section 
1861(ddd)(3)(A) of the Act. Table 38 also provided the most recent 
USPSTF grade, if any, that was the basis for our proposed policy with 
regard to the waiver of the deductible and coinsurance, as applicable. 
In the proposed rule, we noted that, in developing recommendations 
regarding preventive services, we recognize that the USPSTF may make 
recommendations that are specific to an indication or population, at 
times including characteristics such as gender and age in its 
recommendations. In accordance with section 4101 of the Affordable Care 
Act, we proposed to waive the deductible and coinsurance for any 
Medicare covered preventive service with no limits on the indication or 
population as long as the USPSTF has recommended the preventive service 
for at least one indication and/or population with a grade of A or B. 
However, we noted in the CY 2011 OPPS/ASC proposed rule (75 FR 46311) 
that all existing Medicare coverage policies for such services, 
including any limitations based on indication or population, continue 
to apply. In some cases, national coverage policies may currently limit 
Medicare coverage based on the indication or population, consistent 
with the USPSTF's recommendations with a grade of A or B for the 
indication or population. In other cases where Medicare does not 
explicitly noncover preventive services for a specific population or 
indication, we would expect that, particularly in those cases where the 
USPSTF recommendation grade is a D (that is, the USPSTF recommends 
against the service because there is moderate or high certainty that 
the service has no net benefit or that the harms outweigh the 
benefits), practitioners would only order those preventive services 
that are clinically appropriate for the beneficiary. We stated in the 
proposed rule that if we have future concerns about the appropriateness 
of preventive services for an indication or population in light of the 
USPSTF's recommendations, we may consider using our authority under 
section 1834(n)(1) of the Act (as added by section 4105 of the 
Affordable Care Act) to modify Medicare coverage of any preventive 
service consistent with the recommendations of the USPSTF (75 FR 
46311).
    We noted in the proposed rule that section 4103(c)(3)(A) of the 
Affordable Care Act excludes the PPPS from payment under the OPPS and 
establishes payment for the AWV providing PPPS when performed in a 
hospital outpatient department under the MPFS. In the CY 2011 OPPS/ASC 
proposed rule (75 FR 46311), we proposed to add a new paragraph (t) 
under Sec.  419.22 of the regulations to specify that the AWV providing 
PPPS is excluded from payment under the OPPS. In the process of 
revising the regulations to reflect the exclusion of AWV providing PPPS 
from the OPPS, we noticed the need for existing Sec.  419.21(e) to be 
updated to reflect that an IPPE may be performed within 12 months after 
the date of the individual's initial enrollment in Part B, effective 
January 1, 2009. We also noticed that existing Sec.  419.22(m) of the 
regulations needed to be updated to reflect that a revised payment 
methodology for end-stage renal disease (ESRD) services will go into 
effect on January 1, 2011. Therefore, we also proposed to revise 
Sec. Sec.  419.21(e) and 419.22(m). We referred readers to the CY 2011 
MPFS proposed rule for a discussion of the proposed changes to Sec.  
410.160(b) and Sec.  410.152 of the regulations to implement the 
provisions related to the definition of ``preventive services'' and the 
waiver of the coinsurance and deductible for preventive services as 
specified by sections 4103 and 4104 of the Affordable Care Act.
    Comment: Several commenters supported CMS' proposed implementation 
of the Affordable Care Act provision to waive beneficiary cost-sharing 
for preventive services identified in section 1861(ddd)(3)(A) of the 
Act, and recommended by the USPSTF with a grade of A or B for any

[[Page 72016]]

indication or population that are appropriate for the individual, and 
urged CMS to finalize the proposed policy. Some commenters expressed 
concern that CMS' proposed implementation of the Affordable Care Act 
provision to waive beneficiary cost-sharing did not include an 
extension of the waiver of the deductible and coinsurance for vaccines 
recommended by CDC's Advisory Committee on Immunization Practices 
(ACIP) that are covered under Medicare Part D and preventive services 
which, while identified in section 1861(ddd)(3)(A) of the Affordable 
Care Act, are not designated with a grade of A or B by the USPSTF 
(specifically, prostate cancer screening including digital rectal 
examinations; glaucoma screening for high risk patients furnished by, 
or under direct supervision of, an optometrist or ophthalmologist; 
diabetes outpatient self-management training; and barium enemas 
provided as colorectal cancer screening tests).
    Response: We appreciate the commenters' support of our proposal to 
waive beneficiary cost-sharing for preventive services identified in 
section 1861(ddd)(3)(A) of the Act, and recommended by the USPSTF with 
a grade of A or B for any indication or population that are appropriate 
for the individual. Services that are not recommended by the USPSTF 
with a grade of A or B do not meet the criteria in sections 1833(a)(1) 
and 1833(b)(1) of the Act for the waiver of the coinsurance and 
deductible. We also cannot waive the deductible and coinsurance for 
ACIP-recommended vaccines that are covered under Medicare Part D 
because these services do not fall under the definition of ``preventive 
services'' at section 1861(ddd)(3)(A) of the Act.
    Comment: One commenter requested that CMS clarify that tobacco 
cessation counseling will be available to Medicare beneficiaries 
without application of cost-sharing or deductible requirements.
    Response: As stated above, as of August 25, 2010, CMS finalized a 
NCD for ``Counseling to Prevent Tobacco Use,'' and established coverage 
of smoking cessation services for asymptomatic patients, thus 
qualifying them as ``additional preventive services'' as defined at 
section 1861(ddd)(3)(A) of the Act, as cross-referenced to section 
1861(ww)(2) of the Act. As reflected in Table 48B below, the deductible 
and coinsurance requirements will not apply to these services, 
effective January 1, 2011.
    Comment: A few commenters requested that CMS provide clarity on the 
hospital billing method for the AWV providing PPPS performed in 
hospital outpatient facilities and requested further explanation about 
how hospitals may submit claims and receive payment for furnishing the 
AWV providing PPPS in a facility setting.
    Response: Hospital outpatient facilities may bill for the first and 
subsequent AWVs providing PPPS, furnished to an eligible beneficiary 
and in a hospital outpatient facility. As noted above, section 
4103(c)(3)(A) of the Affordable Care Act specifically excludes the AWV 
providing PPPS from payment under the OPPS and establishes payment for 
the AWV providing PPPS when performed in a hospital outpatient 
department under the MPFS. We will accept claims for payment from 
facilities furnishing the AWV providing PPPS in a facility setting if 
no physician claim for professional services has been submitted to CMS 
for payment. That is, we will pay either the practitioner or the 
facility for furnishing the AWV providing PPPS in a facility setting, 
and only a single payment under the MPFS will be allowed. We refer 
readers to section V.Q.2. of the MPFS final rule with comment period 
for a full discussion of the final coverage and payment provisions 
implemented for the AWV providing PPPS.
    After consideration of the public comments we received, we are 
finalizing our proposal, without modification, to waive the coinsurance 
and Part B deductible for preventive services as specified by sections 
4103 and 4104 of the Affordable Care Act. We also are finalizing our 
proposals to add a new paragraph (t) to Sec.  419.22 of the regulations 
to specify that the AWV providing PPPS is excluded from payment under 
the OPPS, and to update Sec.  419.21(e) to reflect that an IPPE may be 
performed within 12 months after the date of the individual's initial 
enrollment in Part B, effective January 1, 2009. We also are finalizing 
our proposals to update Sec.  419.22(m) to reflect that a revised 
payment methodology for ESRD services will go into effect on January 1, 
2011. We refer readers to the CY 2011 MPFS proposed rule for a 
discussion of the changes to Sec.  410.160(b) and Sec.  410.152 of the 
regulations to implement the provisions related to the definition of 
``preventive services'' and the waiver of the Part B deductible and 
coinsurance for preventive services as specified by sections 4103 and 
4104 of the Affordable Care Act.
    Table 48B below displays the HCPCS codes (paid under the OPPS or at 
reasonable cost) that will be recognized as ``preventive services'' 
under section 1861(ddd)(3)(A) of the Act. Table 48B also provides the 
most recent USPSTF grade, if any, that is the basis for our final 
policy with regard to waiver of the Part B deductible and coinsurance, 
as applicable. We note that, effective January 1, 2011, CPT code 90658 
is no longer payable under OPPS and has been replaced by the following 
HCPCS codes: Q2035 (Influenza virus vaccine, split virus, when 
administered to individuals 3 years of age and older, for intramuscular 
use (afluria)); Q2036 (Influenza virus vaccine, split virus, when 
administered to individuals 3 years of age and older, for intramuscular 
use (flulaval)); Q2037 (Influenza virus vaccine, split virus, when 
administered to individuals 3 years of age and older, for intramuscular 
use (fluvirin)); Q2038 (Influenza virus vaccine, split virus, when 
administered to individuals 3 years of age and older, for intramuscular 
use (fluzone)); and Q2039 (Influenza virus vaccine, split virus, when 
administered to individuals 3 years of age and older, for intramuscular 
use (not otherwise specified)).

 Table 48B--CY 2011 Deductible and Coinsurance for OPPS Preventive Services Specified in Section 1861(ddd)(3)(A)
                                                  of the Act *
                          [includes the initial preventive physical examination (IPPE)]
----------------------------------------------------------------------------------------------------------------
                                                                                    CY 2010          CY 2011
           Service             CY 2011 CPT/   Long descriptor   USPSTF ratings    coinsurance      coinsurance
                                HCPCS code                           \1\           deductible       deductible
----------------------------------------------------------------------------------------------------------------
Initial Preventive Physical            G0402  Initial          Not Rated......  Coinsurance      Waived.
 Examination (IPPE).                           preventive                        applies and
                                               physical                          deductible is
                                               examination;                      waived.
                                               face to face
                                               visits,
                                               services
                                               limited to new
                                               beneficiary
                                               during the
                                               first 12
                                               months of
                                               Medicare
                                               enrollment.

[[Page 72017]]

 
                                       G0404  Electrocardiogr  ...............  Not Waived.....  Not Waived.
                                               am, routine
                                               ECG with 12
                                               leads; tracing
                                               only, without
                                               interpretation
                                               and report,
                                               performed as a
                                               screening for
                                               the initial
                                               preventive
                                               physical
                                               examination.
Ultrasound Screening for               G0389  Ultrasound, B-   B..............  Coinsurance      Waived.
 Abdominal Aortic Aneurysm                     scan and/or                       applies and
 (AAA).                                        real time with                    deductible is
                                               image                             waived.
                                               documentation;
                                               for abdominal
                                               aortic
                                               aneurysm (AAA)
                                               ultrasound
                                               screening.
Screening Pap Test (Specimen           Q0091  Screening        A..............  Coinsurance      Waived.
 Collection).                                  papanicolaou                      applies and
                                               smear;                            deductible is
                                               obtaining,                        waived.
                                               preparing and
                                               conveyance of
                                               cervical or
                                               vaginal smear
                                               to laboratory.
Screening Pelvic Exam.......           G0101  Cervical or      A..............  Coinsurance      Waived.
                                               vaginal cancer                    applies and
                                               screening;                        deductible is
                                               pelvic and                        waived.
                                               clinical
                                               breast
                                               examination.
Bone Mass Measurement.......           G0130  Single energy x- B..............  Not Waived.....  Waived.
                                               ray
                                               absorptiometry
                                               (sexa) bone
                                               density study,
                                               one or more
                                               sites;
                                               appendicular
                                               skeleton
                                               (peripheral)
                                               (e.g., radius,
                                               wrist, heel).
                                       77078  Computed         ...............  Not Waived.....  Waived.
                                               tomography,
                                               bone mineral
                                               density study,
                                               1 or more
                                               sites; axial
                                               skeleton
                                               (e.g., hips,
                                               pelvis, spine).
                                       77079  Computed         ...............  Not Waived.....  Waived.
                                               tomography,
                                               bone mineral
                                               density study,
                                               1 or more
                                               sites;
                                               appendicular
                                               skeleton
                                               (peripheral)
                                               (e.g., radius,
                                               wrist, heel).
                                       77080  Dual-energy x-   ...............  Not Waived.....  Waived.
                                               ray
                                               absorptiometry
                                               (dxa), bone
                                               density study,
                                               1 or more
                                               sites; axial
                                               skeleton
                                               (e.g., hips,
                                               pelvis, spine).
                                       77081  Dual-energy x-   ...............  Not Waived.....  Waived.
                                               ray
                                               absorptiometry
                                               (dxa), bone
                                               density study,
                                               1 or more
                                               sites;
                                               appendicular
                                               skeleton
                                               (peripheral)
                                               (e.g., radius,
                                               wrist, heel).
                                       77083  Radiographic     ...............  Not Waived.....  Waived.
                                               absorptiometry
                                               (e.g.,
                                               photodensitome
                                               try,
                                               radiogrammetry
                                               ), 1 or more
                                               sites.
                                       76977  Ultrasound bone  ...............  Not Waived.....  Waived.
                                               density
                                               measurement
                                               and
                                               interpretation
                                               , peripheral
                                               site(s), any
                                               method.
                                       G0104  Colorectal       ...............  Coinsurance      Waived.
                                               cancer                            applies and
                                               screening;                        deductible is
                                               flexible                          waived.
                                               sigmoidoscopy.
                                       G0105  Colorectal       A..............  Coinsurance      Waived.
                                               cancer                            applies and
                                               screening;                        deductible is
                                               colonoscopy on                    waived.
                                               individual at
                                               high risk.
Colorectal Cancer Screening.           G0121  Colorectal       ...............  Coinsurance      Waived.
                                               cancer                            applies and
                                               screening;                        deductible is
                                               colonoscopy on                    waived.
                                               individual not
                                               meeting
                                               criteria for
                                               high risk.
                                       G0106  Colorectal       Not Rated......  Coinsurance      Coinsurance
                                               cancer                            applies and      applies and
                                               screening;                        deductible is    deductible is
                                               alternative to                    waived.          waived.
                                               G0104,
                                               screening
                                               sigmoidoscopy,
                                               barium enema.
                                       G0120  Colorectal       ...............  Coinsurance      Coinsurance
                                               cancer                            applies and      applies and
                                               screening;                        deductible is    deductible is
                                               alternative to                    waived.          waived.
                                               G0105,
                                               screening
                                               colonoscopy,
                                               barium enema.
Prostate Cancer Screening...           G0102  Prostate cancer  D..............  Not Waived.....  Not Waived.
                                               screening;
                                               digital rectal
                                               examination.
Glaucoma Screening..........           G0117  Glaucoma         I..............  Not Waived.....  Not Waived.
                                               screening for
                                               high risk
                                               patients
                                               furnished by
                                               an optometrist
                                               or
                                               ophthalmologis
                                               t.

[[Page 72018]]

 
                                       G0118  Glaucoma         ...............  Not Waived.....  Not Waived.
                                               screening for
                                               high risk
                                               patient
                                               furnished
                                               under the
                                               direct
                                               supervision of
                                               an optometrist
                                               or
                                               ophthalmologis
                                               t.
Influenza Virus Vaccine.....           90655  Influenza virus  B..............  Waived.........  Waived.
                                               vaccine, split
                                               virus,
                                               preservative
                                               free, when
                                               administered
                                               to children 6-
                                               35 months of
                                               age, for
                                               intramuscular
                                               use.
                                       90656  Influenza virus  ...............  Waived.........  Waived.
                                               vaccine, split
                                               virus,
                                               preservative
                                               free, when
                                               administered
                                               to individuals
                                               3 years and
                                               older, for
                                               intramuscular
                                               use.
                                       90657  Influenza virus  ...............  Waived.........  Waived.
                                               vaccine, split
                                               virus, when
                                               administered
                                               to children 6-
                                               35 months of
                                               age, for
                                               intramuscular
                                               use.
                                       Q2035  Influenza virus  ...............  N/A............  Waived.
                                               vaccine, split
                                               virus, when
                                               administered
                                               to individuals
                                               3 years of age
                                               and older, for
                                               intramuscular
                                               use (afluria).
                                       Q2036  Influenza virus  ...............  N/A............  Waived.
                                               vaccine, split
                                               virus, when
                                               administered
                                               to individuals
                                               3 years of age
                                               and older, for
                                               intramuscular
                                               use (flulaval).
                                       Q2037  Influenza virus  ...............  N/A............  Waived.
                                               vaccine, split
                                               virus, when
                                               administered
                                               to individuals
                                               3 years of age
                                               and older, for
                                               intramuscular
                                               use (fluvirin).
                                       Q2038  Influenza virus  ...............  N/A............  Waived.
                                               vaccine, split
                                               virus, when
                                               administered
                                               to individuals
                                               3 years of age
                                               and older, for
                                               intramuscular
                                               use (fluzone).
                                       Q2039  Influenza virus  ...............  N/A............  Waived.
                                               vaccine, split
                                               virus, when
                                               administered
                                               to individuals
                                               3 years of age
                                               and older, for
                                               intramuscular
                                               use (not
                                               otherwise
                                               specified).
                                       90660  Influenza virus  ...............  Waived.........  Waived.
                                               vaccine, live,
                                               for intranasal
                                               use.
                                       90662  Influenza virus  ...............  Waived.........  Waived.
                                               vaccine, split
                                               virus,
                                               preservative
                                               free, enhanced
                                               immunogenicity
                                               via increased
                                               antigen
                                               content, for
                                               intramuscular
                                               use.
                                       G0008  Administration   ...............  Waived.........  Waived.
                                               of influenza
                                               virus vaccine.
                                       G9141  Influenza a      ...............  Waived.........  Waived.
                                               (h1n1)
                                               immunization
                                               administration
                                               (includes the
                                               physician
                                               counseling the
                                               patient/
                                               family).
                                       G9142  Influenza a      ...............  Waived.........  Waived.
                                               (h1n1)
                                               vaccine, any
                                               route of
                                               administration.
                                       90669  Pneumococcal     ...............  Waived.........  Waived.
                                               conjugate
                                               vaccine,
                                               polyvalent,
                                               when
                                               administered
                                               to children
                                               younger than 5
                                               years, for
                                               intramuscular
                                               use.
Pneumococcal Vaccine........           90670  Pneumococcal     ...............  Waived.........  Waived.
                                               vacc, 13 val
                                               im.
                                       90732  Pneumococcal     B..............  Waived.........  Waived.
                                               polysaccharide
                                               vaccine, 23-
                                               valent, adult
                                               or
                                               immunosuppress
                                               ed patient
                                               dosage, when
                                               administered
                                               to individuals
                                               2 years or
                                               older, for
                                               subcutaneous
                                               or
                                               intramuscular
                                               use.
                                       G0009  Administration   ...............  Waived.........  Waived.
                                               of
                                               pneumococcal
                                               vaccine.

[[Page 72019]]

 
Hepatitis B Vaccine.........           90740  Hepatitis B      A..............  Not Waived.....  Waived.
                                               vaccine,
                                               dialysis or
                                               immunosuppress
                                               ed patient
                                               dosage (3 dose
                                               schedule), for
                                               intramuscular
                                               use.
                                       90743  Hepatitis B      ...............  Not Waived.....  Waived.
                                               vaccine,
                                               adolescent (2
                                               dose
                                               schedule), for
                                               intramuscular
                                               use.
                                       90744  Hepatitis B      ...............  Not Waived.....  Waived.
                                               vaccine,
                                               pediatric/
                                               adolescent
                                               dosage (3 dose
                                               schedule), for
                                               intramuscular
                                               use.
                                       90746  Hepatitis B      ...............  Not Waived.....  Waived.
                                               vaccine, adult
                                               dosage, for
                                               intramuscular
                                               use.
                                       90747  Hepatitis B      ...............  Not Waived.....  Waived.
                                               vaccine,
                                               dialysis or
                                               immunosuppress
                                               ed patient
                                               dosage (4 dose
                                               schedule), for
                                               intramuscular
                                               use.
Smoking and Tobacco                    G0436  Smoking and      A..............  Not Waived.....  Waived.
 Cessation.                                    tobacco
                                               cessation
                                               counseling
                                               visit for the
                                               asymptomatic
                                               patient;
                                               intermediate,
                                               greater than 3
                                               minutes, up to
                                               10 minutes.
                                       G0437  Smoking and      ...............  Not Waived.....  Waived.
                                               tobacco
                                               cessation
                                               counseling
                                               visit for the
                                               asymptomatic
                                               patient;
                                               intensive,
                                               greater than
                                               10 minutes.
----------------------------------------------------------------------------------------------------------------
* This table lists only the preventive services, as defined by the Affordable Care Act, that are paid under the
  OPPS or at reasonable cost, and excludes preventive services such as screening mammography and cardiovascular
  screening blood tests that are paid under another fee schedule such as the MPFS or the Clinical Laboratory Fee
  Schedule. A listing of all services defined by the Affordable Care Act as preventive services can be found in
  this preamble and in the CY 2011 MPFS final rule with comment period. We note that any preventive service must
  meet the Medicare coverage guidelines for the service including being appropriate to the beneficiary to whom
  it is being furnished.
\1\ U.S. Preventive Services Task Force Recommendations
A--The USPSTF strongly recommends that clinicians routinely provide [the service] to eligible patients. (The
  USPSTF found good evidence that [the service] improves important health outcomes and concludes that benefits
  substantially outweigh harms.)
B--The USPSTF recommends that clinicians routinely provide [the service] to eligible patients. (The USPSTF found
  at least fair evidence that [the service] improves important health outcomes and concludes that benefits
  outweigh harms.)
C--The USPSTF makes no recommendation for or against routine provision of [the service]. (The USPSTF found at
  least fair evidence that [the service] can improve health outcomes but concludes that the balance of benefits
  and harms is too close to justify a general recommendation.)
D--The USPSTF recommends against routinely providing [the service] to asymptomatic patients. (The USPSTF found
  at least fair evidence that [the service] is ineffective or that harms outweigh benefits.)
I--The USPSTF concludes that the evidence is insufficient to recommend for or against routinely providing [the
  service]. (Evidence that [the service] is effective is lacking, of poor quality, or conflicting and the
  balance of benefits and harms cannot be determined.)

3. Extension of Waiver of Part B Deductible to Services Furnished in 
Connection With or in Relation to a Colorectal Cancer Screening Test 
That Becomes Diagnostic or Therapeutic
    Section 4104(c) of the Affordable Care Act amended section 1833(b) 
of the Act to waive the Part B deductible for colorectal cancer 
screening tests that become diagnostic. Specifically, section 
4104(c)(2) of the Affordable Care Act waives the Part B deductible with 
respect to a colorectal cancer screening test regardless of the code 
that is billed for the establishment of a diagnosis as a result of the 
test, or for the removal of tissue or other matter or other procedure 
that is furnished in connection with, as a result of, and in the same 
clinical encounter as a screening test.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46317), we proposed 
that all surgical services furnished on the same date as a planned 
screening colonoscopy, planned flexible sigmoidoscopy, or barium enema 
be viewed as being furnished in connection with, as a result of, and in 
the same clinical encounter as the screening test. We stated in the 
proposed rule that we believe this interpretation is appropriate 
because we believe that it would be very rare for an unrelated surgery 
to occur on the same date as one of these scheduled screening tests. 
Moreover, we believe that the risk of improper expenditures would be 
very small under this policy because it is the deductible, and not the 
coinsurance, that is waived for the related procedures other than the 
screening tests. In the event of a legislative change to this policy 
(for example, a statutory change that would waive the coinsurance for 
these related services in addition to the deductible), we stated that 
we would reassess the appropriateness of the proposed definition of 
services that are furnished in connection with, as a result of, and in 
the same clinical encounter as the colorectal cancer screening test 
that becomes diagnostic. We also noted that the annual deductible would 
likely be met when any surgical procedure (related or not) is performed 
on the same day as the scheduled screening test.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46317), we proposed to 
implement this provision by creating a HCPCS modifier that providers 
would append to the diagnostic procedure code that is reported instead 
of the screening colonoscopy or screening flexible sigmoidoscopy HCPCS 
code or as a result of the barium enema when the screening test becomes 
a diagnostic

[[Page 72020]]

service. The claims processing system would respond to the modifier by 
waiving the deductible for all surgical services on the same date as 
the diagnostic test. Coinsurance or copayment would continue to apply 
to the diagnostic test and to other services furnished in connection 
with, as a result of, and in the same clinical encounter as the 
screening test.
    Comment: Several commenters supported CMS' proposal to extend the 
waiver of the deductible to surgical services provided on the same date 
as a colorectal cancer screening test, such as a planned screening 
colonoscopy, planned flexible sigmoidoscopy, or barium enema, when 
these become diagnostic. The commenters supported the proposed creation 
of a HCPCS modifier that would be appended to the diagnostic procedure 
code that is reported instead of the screening colonoscopy or screening 
flexible sigmoidoscopy HCPCS code or as a result of the barium enema 
when the screening test becomes a diagnostic service.
    One commenter disagreed with CMS' proposal, arguing that CMS' 
definition of services furnished in connection with or in relation to a 
colorectal cancer screening test that becomes diagnostic or therapeutic 
as any and all surgical procedures performed on the same date was too 
broad, and asked that CMS clarify its policy to exclude the services 
that are not directly linked to the colorectal cancer screening test. 
Another commenter requested that CMS seek authority under section 4104 
of the Affordable Care Act to waive coinsurance for a colorectal cancer 
screening test, regardless of the code that is billed for the 
establishment of a diagnosis as a result of the test, or for the 
removal of tissue or other matter or other procedure that is furnished 
in connection with, as a result of, and in the same clinical encounter 
as a screening test, or at a minimum waive the coinsurance requirement 
for the increment of the procedure that is screening in nature.
    Response: We appreciate the commenters' support of our proposal to 
extend the waiver of the deductible to surgical services provided on 
the same date as a colorectal cancer screening test, such as a planned 
screening colonoscopy, planned flexible sigmoidoscopy, or barium enema, 
when these become diagnostic and to create a HCPCS modifier that would 
be appended to the diagnostic procedure code that is reported instead 
of the screening colonoscopy or screening flexible sigmoidoscopy HCPCS 
code or as a result of the barium enema when the screening test becomes 
a diagnostic service.
    We do not agree with the commenter that recognizing all surgical 
procedures performed on the same date as the colorectal cancer 
screening that becomes diagnostic or therapeutic as being furnished in 
connection with or in relation to the screening test is too broad, 
because we believe it is highly unlikely that an unrelated surgery 
would take place on the same day as a scheduled screening test. We note 
that section 4104 of the Affordable Care Act only grants us the 
authority to waive the deductible for a colorectal cancer screening 
test when it is billed for the establishment of a diagnosis as a result 
of the test, or for the removal of tissue or other matter or other 
procedure that is furnished in connection with, as a result of, and in 
the same clinical encounter as a screening test and does not grant us 
the authority to waive the coinsurance in such cases. A statutory 
change would be required to waive the Part B coinsurance for a 
colorectal cancer screening test that becomes diagnostic or 
therapeutic.
    After consideration of the public comments we received, we are 
finalizing our proposal, without modification, that all surgical 
services furnished on the same date as a planned screening colonoscopy, 
planned flexible sigmoidoscopy, or barium enema be viewed as being 
furnished in connection with, as a result of, and in the same clinical 
encounter as the screening test for purposes of implementing section 
4104(c)(2) of the Affordable Care Act. We are creating new HCPCS 
modifier PT, effective January 1, 2011, that providers will append to 
the diagnostic procedure code that is reported instead of the screening 
colonoscopy or screening flexible sigmoidoscopy HCPCS code or as a 
result of the barium enema when the screening test becomes a diagnostic 
service.

C. Payment for Pulmonary Rehabilitation, Cardiac Rehabilitation, and 
Intensive Cardiac Rehabilitation Services Furnished to Hospital 
Outpatients

    In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60566 
through 60574), we addressed the provisions of section 144(a) of the 
Medicare Improvements for Patients and Providers Act (MIPPA, Pub. L. 
110-275). Section 144(a) provided for Medicare Part B coverage and 
payment for pulmonary and cardiac rehabilitation services, effective 
January 1, 2010. Medicare Part B coverage is provided for items and 
services under a cardiac rehabilitation (CR) program, a pulmonary 
rehabilitation (PR) program, and an intensive cardiac rehabilitation 
(ICR) program furnished in a physician's office, a hospital on an 
outpatient basis, or in other settings as the Secretary determines 
appropriate. We have received questions as to whether a CAH outpatient 
department is a covered setting for services furnished under these 
programs because the amendments made to the Act by section 144(a) of 
the MMA do not specifically define CAHs as hospitals for this benefit.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46317), we clarified 
that a CAH outpatient department is considered a covered setting for 
PR, CR, and ICR programs, provided that the programs meet all of the 
regulatory requirements including, but not limited to, direct 
supervision of all services by a physician as specified in 42 CFR 
410.27(a)(1)(iv)(A). We can establish that CAHs are a covered setting 
because the law and implementing regulations specify that PR, CR, and 
ICR services are covered in the hospital outpatient setting, and we 
define a hospital outpatient in the regulations and program 
instructions as ``a person * * * who * * * receives services * * * 
directly from the hospital or CAH'' (42 CFR 410.2 and the Medicare 
Benefit Policy Manual, Chapter 6, Section 20.2, available at the CMS 
Web site at: http://www.cms.gov/manuals/Downloads/bp102c06.pdf ). We 
also noted that under section 1861(e) of the Act, the context of the 
term ``hospital'' as used in the coverage provisions for PR, CR, and 
ICR reflects the inclusion of CAHs.
    We did not receive any public comments on our clarification of this 
policy as finalized in the CY 2010 OPPS/ASC final rule with comment 
period (74 FR 60566 through 60574).

D. Expansion of Multiple Procedure Payment Reduction Under the Medicare 
Physician Fee Schedule (MPFS) to Therapy Services

    Hospitals are paid for outpatient physical therapy (which includes 
speech language pathology services) and outpatient occupational therapy 
under the Medicare Physician Fee Schedule (MPFS). Outpatient physical 
therapy (which includes speech language pathology services) and 
outpatient occupational therapy services, as described in section 
1833(a)(8) of the Act, are excluded from the OPPS by section 
1833(t)(1)(B)(iv) of the Act. Section 1833(a)(8) of the Act provides 
that outpatient physical and occupational therapy are to be paid as 
provided in section 1834(k) of the Act.

[[Page 72021]]

Section 1834(k)(3) of the Act specifies that these services are paid 
under the fee schedule established under section 1848 of the Act, and 
section 1848 of the Act establishes payment under the MPFS.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46317), we noted that 
we proposed to revise the MPFS to apply a multiple procedure payment 
reduction to payment for all outpatient physical and occupational 
therapy services paid under the MPFS. We indicated that this proposal 
was contained in the CY 2011 MPFS proposed rule (CMS-1503-P) (75 FR 
40075). To be considered in the development of the final policy for CY 
2011, individuals were instructed to submit public comments on this 
issue in response to the CY 2011 MPFS proposed rule.
    As we stated in the CY 2011 OPPS/ASC proposed rule, our proposal to 
expand the multiple procedure payment reduction under the MPFS to 
therapy services was included in the CY 2011 MPFS proposed rule because 
payment to hospitals for outpatient therapy services is made under the 
MPFS. We refer readers to the CY 2011 MPFS final rule with comment 
period for our discussion of public comments we received and for the 
statement of CMS policy in this regard for CY 2011.

XIII. OPPS Payment Status and Comment Indicators

A. OPPS Payment Status Indicator Definitions

    Payment status indicators (SIs) that we assign to HCPCS codes and 
APCs play an important role in determining payment for services under 
the OPPS. They indicate whether a service represented by a HCPCS code 
is payable under the OPPS or another payment system and also whether 
particular OPPS policies apply to the code. The final CY 2011 status 
indicator assignments for APCs and HCPCS codes are shown in Addendum A 
and Addendum B, respectively, to this final rule with comment period.
    As we proposed in the CY 2011 OPPS/ASC proposed rule (75 FR 46317 
through 46321), for CY 2011, we are not making any changes to the 
status indicators that were listed in Addendum D1 of the CY 2010 OPPS/
ASC final rule with comment period. The final status indicators are 
listed in the tables under sections XIII.A.1., 2., 3., and 4. of this 
final rule with comment period.
1. Payment Status Indicators to Designate Services That Are Paid Under 
the OPPS

------------------------------------------------------------------------
        Indicator            Item/code/service      OPPS payment status
------------------------------------------------------------------------
G.......................  Pass-Through Drugs and  Paid under OPPS;
                           Biologicals.            separate APC payment.
H.......................  Pass-Through Device     Separate cost-based
                           Categories.             pass-through payment;
                                                   not subject to
                                                   copayment.
K.......................  Nonpass-Through Drugs   Paid under OPPS;
                           and Nonimplantable      separate APC payment.
                           Biologicals,
                           including Therapeutic
                           Radiopharmaceuticals.
N.......................  Items and Services      Paid under OPPS;
                           Packaged into APC       payment is packaged
                           Rates.                  into payment for
                                                   other services.
                                                   Therefore, there is
                                                   no separate APC
                                                   payment.
P.......................  Partial                 Paid under OPPS; per
                           Hospitalization.        diem APC payment.
Q1......................  STVX-Packaged Codes...  Paid under OPPS;
                                                   Addendum B displays
                                                   APC assignments when
                                                   services are
                                                   separately payable.
                                                  (1) Packaged APC
                                                   payment if billed on
                                                   the same date of
                                                   service as a HCPCS
                                                   code assigned status
                                                   indicator ``S,''
                                                   ``T,'' ``V,'' or
                                                   ``X.''
                                                  (2) In all other
                                                   circumstances,
                                                   payment is made
                                                   through a separate
                                                   APC payment.
Q2......................  T-Packaged Codes......  Paid under OPPS;
                                                   Addendum B displays
                                                   APC assignments when
                                                   services are
                                                   separately payable.
                                                  (1) Packaged APC
                                                   payment if billed on
                                                   the same date of
                                                   service as a HCPCS
                                                   code assigned status
                                                   indicator ``T.''
                                                  (2) In all other
                                                   circumstances,
                                                   payment is made
                                                   through a separate
                                                   APC payment.
Q3......................  Codes that may be paid  Paid under OPPS;
                           through a composite     Addendum B displays
                           APC.                    APC assignments when
                                                   services are
                                                   separately payable.
                                                   Addendum M displays
                                                   composite APC
                                                   assignments when
                                                   codes are paid
                                                   through a composite
                                                   APC.
                                                  (1) Composite APC
                                                   payment based on OPPS
                                                   composite-specific
                                                   payment criteria.
                                                   Payment is packaged
                                                   into a single payment
                                                   for specific
                                                   combinations of
                                                   service.
                                                  (2) In all other
                                                   circumstances,
                                                   payment is made
                                                   through a separate
                                                   APC payment or
                                                   packaged into payment
                                                   for other services.
R.......................  Blood and Blood         Paid under OPPS;
                           Products.               separate APC payment.
S.......................  Significant Procedure,  Paid under OPPS;
                           Not Discounted When     separate APC payment.
                           Multiple.
T.......................  Significant Procedure,  Paid under OPPS;
                           Multiple Reduction      separate APC payment.
                           Applies.
U.......................  Brachytherapy Sources.  Paid under OPPS;
                                                   separate APC payment.
V.......................  Clinic or Emergency     Paid under OPPS;
                           Department Visit.       separate APC payment.
X.......................  Ancillary Services....  Paid under OPPS;
                                                   separate APC payment.
------------------------------------------------------------------------

    Section 142 of Public Law 110-275 (MIPPA) required CMS to pay for 
therapeutic radiopharmaceuticals for the period of July 1, 2008, 
through December 31, 2009, at hospitals' charges adjusted to the costs. 
The status indicator ``H'' was assigned to therapeutic 
radiopharmaceuticals to indicate that an item was paid at charges 
adjusted to cost during CY 2009. In the CY 2010 OPPS/ASC final rule 
with comment period (74 FR 60593), we changed our policy to pay 
prospectively and separately for therapeutic radiopharmaceuticals with 
average per day costs greater than the CY 2010 drug packaging threshold 
of $65 under the OPPS. Therefore, we changed the status indicator for 
HCPCS codes used to report separately payable therapeutic 
radiopharmaceuticals from ``H'' to ``K,'' which indicated that an item 
is separately paid under the OPPS at the APC payment rate established 
for the item. We refer readers to section V.B.5. of the CY 2010 OPPS/
ASC final rule with comment period for discussion of

[[Page 72022]]

the final CY 2010 changes to our payment policy for therapeutic 
radiopharmaceuticals (74 FR 60593). For CY 2011 OPPS, as we proposed, 
we are continuing to pay for therapeutic radiopharmaceuticals under the 
OPPS at the APC payment rate established for the item. (We refer 
readers to our discussion of payment of therapeutic 
radiopharmaceuticals in section V.B.3. of this final rule with comment 
period.)
    For CY 2010, we established a policy to consider implantable 
biologicals that are not on pass-through status as a biological before 
January 1, 2010, as devices for pass-through evaluation and payment 
beginning in CY 2010. Therefore, pass-through implantable biologicals 
were assigned a status indicator of ``H,'' while nonpass-through 
implantable biologicals were assigned a status indicator of ``N'' 
beginning in CY 2010. Those implantable biologicals that have been 
granted pass-through status under the drug and biological criteria 
prior to January 1, 2010, continued to be assigned a status indicator 
of ``G'' until they are proposed for expiration from pass-through 
status during our annual rulemaking cycle. In the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60593), we assigned status 
indicator ``K'' to nonimplantable biologicals and adjusted the 
definition of status indicator ``K'' accordingly. As we proposed, for 
CY 2011, we are not making any changes to current policy. We discuss 
our treatment of drugs, biologicals, and radiopharmaceuticals with new 
or continuing pass-through status in CY 2011 in section V.A.3. of this 
final rule with comment period, and we discuss our treatment of drugs 
and biologicals with expiring pass-through status in CY 2010 including 
the specific implantable biologicals to which this policy applies for 
CY 2011 OPPS in section V.A.2. of this final rule with comment period.
    We did not receive any public comments regarding definitions of the 
payment status indicators that designate services that are paid under 
the OPPS. Therefore, for the reasons set forth in the proposed rule (75 
FR 46318), we are finalizing our CY 2011 proposal to continue the 
current definitions without modification.
    The CY 2011 final status indicators are displayed in both the table 
above and in Addendum D1 to this final rule with comment period.
2. Payment Status Indicators To Designate Services That Are Paid Under 
a Payment System Other Than the OPPS
    We did not propose to make any changes to the status indicators 
listed below for the CY 2011 OPPS.

------------------------------------------------------------------------
       Indicator            Item/Code/Service       OPPS payment status
------------------------------------------------------------------------
A......................  Services furnished to a  Not paid under OPPS.
                          hospital outpatient      Paid by fiscal
                          that are paid under a    intermediaries/MACs
                          fee schedule or          under a fee schedule
                          payment system other     or payment system
                          than OPPS, for           other than OPPS.
                          example:
                         <bullet> Ambulance       ......................
                          Services.
                         <bullet> Clinical        Not subject to
                          Diagnostic Laboratory    deductible or
                          Services                 coinsurance.
                         <bullet> Non-            ......................
                          Implantable Prosthetic
                          and Orthotic Devices
                         <bullet> EPO for ESRD    ......................
                          Patients
                         <bullet> Physical,       ......................
                          Occupational, and
                          Speech Therapy
                         <bullet> Routine         ......................
                          Dialysis Services for
                          ESRD Patients Provided
                          in a Certified
                          Dialysis Unit of a
                          Hospital
                         <bullet> Diagnostic      ......................
                          Mammography
                         <bullet> Screening       Not subject to
                          Mammography              deductible.
C......................  Inpatient Procedures...  Not paid under OPPS.
                                                   Admit patient. Bill
                                                   as inpatient.
F......................  Corneal Tissue           Not paid under OPPS.
                          Acquisition; Certain     Paid at reasonable
                          CRNA Services; and       cost.
                          Hepatitis B Vaccines.
L......................  Influenza Vaccine;       Not paid under OPPS.
                          Pneumococcal Pneumonia   Paid at reasonable
                          Vaccine.                 cost; not subject to
                                                   deductible or
                                                   coinsurance.
M......................  Items and Services Not   Not paid under OPPS.
                          Billable to the Fiscal
                          Intermediary/MAC.
Y......................  Non-Implantable Durable  Not paid under OPPS.
                          Medical Equipment.       All institutional
                                                   providers other than
                                                   home health agencies
                                                   bill to DMERC.
------------------------------------------------------------------------

    We did not receive any public comments related to payment status 
indicators that designate services that are paid under a payment system 
other than the OPPS. Therefore, for the reasons set forth in the 
proposed rule (75 FR 46320), we are finalizing our CY 2011 proposal 
without modification. The CY 2011 final status indicators displayed in 
the table above are also displayed in Addendum D1 to this final rule 
with comment period.
3. Payment Status Indicators to Designate Services That Are Not 
Recognized under the OPPS But That May Be Recognized by Other 
Institutional Providers
    We did not propose changes to the status indicators listed below 
for the CY 2011 OPPS.

------------------------------------------------------------------------
       Indicator            Item/Code/Service       OPPS payment status
------------------------------------------------------------------------
B......................  Codes that are not       Not paid under OPPS.
                          recognized by OPPS
                          when submitted on an
                          outpatient hospital
                          Part B bill type (12x
                          and 13x).
                         .......................  <bullet> May be paid
                                                   by fiscal
                                                   intermediaries/MACs
                                                   when submitted on a
                                                   different bill type,
                                                   for example, 75x
                                                   (CORF), but not paid
                                                   under OPPS.
                         .......................  <bullet> An alternate
                                                   code that is
                                                   recognized by OPPS
                                                   when submitted on an
                                                   outpatient hospital
                                                   Part B bill type (12x
                                                   and 13x) may be
                                                   available.
------------------------------------------------------------------------


[[Page 72023]]

    We did not receive any public comments regarding payment status 
indicators that designate services that are not recognized under the 
OPPS but that may be recognized by other institutional providers. 
Therefore, for the reasons set forth in the proposed rule (75 FR 
46320), we are finalizing, without modification, our CY 2011 proposal. 
The final status indicators listed in the table above are also 
displayed in Addendum D1 to this final rule with comment period.
4. Payment Status Indicators To Designate Services That Are Not Payable 
by Medicare on Outpatient Claims
    We did not propose changes to the payment status indicators listed 
below for the CY 2011 OPPS.

------------------------------------------------------------------------
       Indicator            Item/Code/Service       OPPS payment status
------------------------------------------------------------------------
D......................  Discontinued Codes.....  Not paid under OPPS or
                                                   any other Medicare
                                                   payment system.
E......................  Items, Codes, and        Not paid by Medicare
                          Services:.               when submitted on
                                                   outpatient claims
                                                   (any outpatient bill
                                                   type).
                         <bullet> That are not
                          covered by any
                          Medicare outpatient
                          benefit based on
                          statutory exclusion..
                         <bullet> That are not
                          covered by any
                          Medicare outpatient
                          benefit for reasons
                          other than statutory
                          exclusion..
                         <bullet> That are not
                          recognized by Medicare
                          for outpatient claims;
                          alternate code for the
                          same item or service
                          may be available..
                         <bullet> For which
                          separate payment is
                          not provided on
                          outpatient claims..
------------------------------------------------------------------------

    We did not receive any public comments related to payment status 
indicators that designate services that are not payable by Medicare on 
outpatient claims. Therefore, for the reasons set forth in the proposed 
rule (75 FR 46320), we are finalizing, without modification, our 
proposal for CY 2011. The final status indicators listed in the table 
above are also displayed in Addendum D1 to this final rule with comment 
period.
    Addendum B, with a complete listing of HCPCS codes including final 
payment status indicators for each code and final APC assignments for 
CY 2011, is available electronically on the CMS Web site under 
supporting documentation for this final rule with comment period at: 
http://www.cms.hhs.gov/HospitalOutpatientPPS/HORD/list.asp#TopOfPage.

B. Comment Indicator Definitions

    As we proposed in the CY 2011 OPPS/ASC proposed rule (75 FR 46321 
and 46322), for the CY 2011 OPPS, we are using the same two comment 
indicators that are in effect for the CY 2010 OPPS.
    <bullet> ``CH''--Active HCPCS codes in current and next calendar 
year; status indicator and/or APC assignment have changed or active 
HCPCS code that will be discontinued at the end of the current calendar 
year.
    <bullet> ``NI''--New code for the next calendar year or existing 
code with substantial revision to its code descriptor in the next 
calendar year as compared to current calendar year, interim APC 
assignment; comments will be accepted on the interim APC assignment for 
the new code.
    We proposed in the CY 2011 OPPS/ASC proposed rule (75 FR 46321), to 
use the ``CH'' comment indicator in this CY 2011 OPPS/ASC final rule 
with comment period to indicate HCPCS codes for which the status 
indicator or APC assignment, or both, will change in CY 2011 compared 
to their assignment in the current year.
    We believe that using the ``CH'' indicator in this CY 2011 OPPS/ASC 
final rule with comment period facilitates the public's review of the 
changes that we are making for CY 2011. The use of the comment 
indicator ``CH'' in association with a composite APC indicates that the 
configuration of the composite APC is changed in this CY 2011 OPPS/ASC 
final rule with comment period.
    We did not propose any changes to our policy regarding the use of 
comment indicator ``NI.''
    Any existing HCPCS code numbers with substantial revisions to the 
code descriptors for CY 2011, compared to the CY 2010 descriptors, such 
that we consider them to describe a new service or procedures for which 
their OPPS treatment may change, are labeled with comment indicator 
``NI'' in Addendum B to this CY 2011 OPPS/ASC final rule with comment 
period. We use comment indicator ``NI'' to indicate that these HCPCS 
codes are open to comment on this final rule with comment period. Like 
all codes labeled with comment indicator ``NI,'' we will respond to 
public comments and finalize their OPPS treatment in the CY 2012 OPPS/
ASC final rule with comment period.
    In accordance with our usual practice, CPT and Level II HCPCS code 
numbers that are new for CY 2011 are also be labeled with comment 
indicator ``NI'' in Addendum B to this CY 2011 OPPS/ASC final rule with 
comment period.
    Only HCPCS codes with comment indicator ``NI'' in this CY 2011 
OPPS/ASC final rule with comment period are subject to comment. HCPCS 
codes that do not appear with comment indicator ``NI'' in this CY 2011 
OPPS/ASC final rule with comment period are not be open to public 
comment, unless we specifically request additional comments elsewhere 
in this final rule with comment period. The CY 2011 treatment of HCPCS 
codes that appears in this CY 2011 OPPS/ASC final rule with comment 
period to which comment indicator ``NI'' is not appended were opened to 
public comment during the comment period for the proposed rule, and we 
are responding to those comments in this final rule with comment 
period.
    We did not receive any public comments on the proposed comment 
indicators. Therefore, for the reasons set forth in the proposed rule 
(75 FR 46321 and 46322), we are finalizing, without modification, our 
CY 2011 proposal and are continuing to use comment indicators ``CH'' 
and ``NI'' for CY 2011. Their definitions are listed in Addendum D2 to 
this final rule with comment period.

XIV. OPPS Policy and Payment Recommendations

A. MedPAC Recommendations

    MedPAC was established under section 1805 of the Act to advise the 
U.S. Congress on issues affecting the Medicare program. As required 
under the statute, MedPAC submits reports to Congress not later than 
March and June of each year that contain its Medicare

[[Page 72024]]

payment policy recommendations. This section describes recent 
recommendations relevant to the OPPS that have been made by MedPAC.
    The March 1, 2010 MedPAC ``Report to Congress: Medicare Payment 
Policy'' included the following recommendation relating specifically to 
the Medicare hospital OPPS:
    Recommendation 2A-1: The Congress should increase payment rates for 
the acute inpatient and outpatient prospective payment systems in 2011 
by the projected rate of increase in the hospital market basket index, 
concurrent with implementation of a quality incentive payment program.
    CMS Response: Subsequent to the issuance of the MedPAC report, 
Congress enacted the Affordable Care Act. Section 1833(t)(3)(F) of the 
Act, as added by section 3401 of the Affordable Care Act and as amended 
by section 10319 of the Affordable Care Act and section 1105 of the 
HCERA, provides that after determining the OPD fee schedule increase 
factor, the Secretary shall reduce such increase factor by a 0.25 
percentage point in 2011. As discussed in section II.B. of this final 
rule with comment period, we are increasing the full CY 2011 conversion 
factor by the projected rate of increase in the hospital market basket 
less the mandated 0.25 percentage point reduction. Simultaneously, for 
CY 2011, as proposed, we are reducing the annual update factor by 2.0 
percentage points for hospitals that are defined under section 
1886(d)(1)(B) of the Act and that do not meet the hospital outpatient 
quality data reporting required by section 1833(t)(17) of the Act. We 
are making this adjustment after the application of the 0.25 percentage 
point reduction. For the adjustment under section 1833(t)(17) of the 
Act, as proposed, for this final rule with commenter period, we 
calculated two conversion factors: A full conversion factor based on 
the annual update factor, adjusted by the 0.25 percentage point 
reduction required by the Affordable Care Act for CY 2011; and a 
reduced conversion factor that reflects the 2.0 percentage points 
reduction to the annual update factor, as adjusted by the 0.25 
percentage point reduction. CMS implemented the Hospital Outpatient 
Quality Data Reporting Program (HOP QDRP) in CY 2008 and is continuing 
this program in CY 2011 (as discussed in section XVI. of this final 
rule with comment period).
    The full March 1, 2010 MedPAC report can be downloaded from 
MedPAC's Web site at: http://www.medpac.gov/documents/Mar10_EntireReport.pdf.
    On June 15, 2010, MedPAC issued a report to Congress titled 
``Aligning Incentives in Medicare.'' The June 15, 2010 MedPAC report 
did not contain any recommendations that pertain to the OPPS. The June 
15, 2010 MedPAC report can be downloaded from MedPAC's Web site at: 
http://www.medpac.gov/documents/Jun10_EntireReport.pdf

B. APC Panel Recommendations

    Recommendations made by the APC Panel at its February 2010 and 
August 2010 meetings are discussed in the sections of this final rule 
with comment period that correspond to topics addressed by the APC 
Panel. The reports and recommendations from the APC Panel's February 
and August 2010 meetings regarding payment under the OPPS for CY 2011 
are available on the CMS Web site at: http://www.cms.gov/FACA/05_
AdvisoryPanelonAmbulatoryPaymentClassificationGroups.asp.

C. OIG Recommendations

    The mission of the Office of the Inspector General (OIG), as 
mandated by Public Law 95-452, as amended, is to protect the integrity 
of the U.S. Department of Health and Human Services (HHS) programs, as 
well as the health and welfare of beneficiaries served by those 
programs. This statutory mission is carried out through a nationwide 
network of audits, investigations, and inspections. On October 22, 
2010, the OIG published memorandum report ``Payment for Drugs Under the 
Hospital Outpatient Prospective Payment System,'' OIG-03-09-00420. The 
report may be viewed at http://oig.hhs.gov/oei/reports/oei-03-09-00420.pdf. CMS has begun evaluating the recommendations contained in 
this report.

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

A. Background

1. Legislative Authority for the ASC Payment System
    Section 1832(a)(2)(F)(i) of the Act provides that benefits under 
Medicare Part B include payment for facility services furnished in 
connection with surgical procedures specified by the Secretary that are 
performed in an Ambulatory Surgical Center (ASC). To participate in the 
Medicare program as an ASC, a facility must meet the standards 
specified in section 1832(a)(2)(F)(i) of the Act, which are set forth 
in 42 CFR Part 416, Subpart B and Subpart C of our regulations. The 
regulations at 42 CFR Part 416, Subpart B describe the general 
conditions and requirements for ASCs, and the regulations at Subpart C 
explain the specific conditions for coverage for ASCs.
    Section 141(b) of the Social Security Act Amendments of 1994, 
Public Law 103-432, required establishment of a process for reviewing 
the appropriateness of the payment amount provided under section 
1833(i)(2)(A)(iii) of the Act for intraocular lenses (IOLs) that belong 
to a class of new technology intraocular lenses (NTIOLs). That process 
was the subject of a final rule entitled ``Adjustment in Payment 
Amounts for New Technology Intraocular Lenses Furnished by Ambulatory 
Surgical Centers,'' published on June 16, 1999, in the Federal Register 
(64 FR 32198).
    Section 626(b) of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA), Public Law 108-173, added subparagraph 
(D) to section 1833(i)(2) of the Act, which required the Secretary to 
implement a revised ASC payment system to be effective not later than 
January 1, 2008. Section 626(c) of the MMA amended section 1833(a)(1) 
of the Act by adding new subparagraph (G), which requires that, 
beginning with implementation of the revised ASC payment system, 
payment for surgical procedures furnished in ASCs shall be 80 percent 
of the lesser of the actual charge for the services or the amount 
determined by the Secretary under the revised payment system.
    Section 5103 of the Deficit Reduction Act of 2005 (DRA), Public Law 
109-171, amended section 1833(i)(2) of the Act by adding new 
subparagraph (E) to place a limitation on payment amounts for surgical 
procedures furnished in ASCs on or after January 1, 2007, but before 
the effective date of the revised ASC payment system (that is, January 
1, 2008). Section 1833(i)(2)(E) of the Act provides that if the 
standard overhead amount under section 1833(i)(2)(A) of the Act for an 
ASC facility service for such surgical procedures, without application 
of any geographic adjustment, exceeds the Medicare payment amount under 
the hospital OPPS for the service for that year, without application of 
any geographic adjustment, the Secretary shall substitute the OPPS 
payment amount for the ASC standard overhead amount.
    Section 109(b) of the Medicare Improvements and Extension Act of 
2006 of the Tax Relief and Health Care Act of 2006 (MIEA-TRHCA), Public 
Law 109-432, amended section 1833(i)(2)(D) of the Act, in part, by 
redesignating clause (iv) as clause (v) and adding a new clause (iv) 
and by

[[Page 72025]]

adding new section 1833(i)(7)(A). These amendments provide the 
Secretary the authority to require ASCs to submit data on quality 
measures and to reduce the annual update by 2 percentage points for an 
ASC that fails to submit data as required by the Secretary on selected 
quality measures. Section 109(b) of the MIEA-TRHCA also amended section 
1833(i) of the Act by adding new section 1833(i)(7)(B), which requires 
that, to the extent the Secretary establishes such an ASC quality 
reporting program, certain quality of care reporting requirements 
mandated for hospitals paid under the OPPS, under sections 
1833(t)(17)(B), (C), (D) and (E) of the Act, as added by section 109(a) 
of the MIEA-TRHCA, be applied in a similar manner to ASCs unless 
otherwise specified by the Secretary.
    Sections 4104 and 10406 of the Affordable Care Act, Public Law 111-
148, amend sections 1833(a)(1) and (b)(1) of the Act to waive the 
coinsurance and the Part B deductible for those preventive services 
under section 1861(ddd)(3)(A) of the Act as described in section 
1861(ww)(2) of the Act (excluding electrocardiograms) that are 
recommended by the United States Preventive Services Task Force 
(USPSTF) with a grade of A or B for any indication or population and 
that are appropriate for the individual. Section 4104(c) of the 
Affordable Care Act amends section 1833(b)(1) of the Act to waive the 
Part B deductible for colorectal cancer screening tests that become 
diagnostic. These provisions apply to these items and services 
furnished in an ASC on or after January 1, 2011.
    Section 3401(k) of the Affordable Care Act amends section 
1833(i)(2)(D) of the Act to require that, effective for CY 2011 and 
subsequent years, any annual update under the ASC payment system be 
reduced by a productivity adjustment, which is equal to the 10-year 
moving average of changes in annual economy-wide private nonfarm 
business multi-factor productivity (as projected by the Secretary for 
the 10-year period ending with the applicable fiscal year, year, cost 
reporting period, or other annual period). Application of this 
productivity adjustment to the ASC payment system may result in the 
update to the ASC payment system being less than zero for a year and 
may result in payment rates under the ASC payment system for a year 
being less than such payment rates for the preceding year.
    For a detailed discussion of the legislative history related to 
ASCs, we refer readers to the June 12, 1998 proposed rule (63 FR 32291 
through 32292).
2. Prior Rulemaking
    On August 2, 2007, we published in the Federal Register (72 FR 
42470) the final rule for the revised ASC payment system, effective 
January 1, 2008 (the ``August 2, 2007 final rule''). In that final 
rule, we revised our criteria for identifying surgical procedures that 
are eligible for Medicare payment when furnished in ASCs and adopted 
the method we would use to set payment rates for ASC covered surgical 
procedures and covered ancillary services furnished in association with 
those covered surgical procedures beginning in CY 2008. We also 
established a policy for treating new and revised HCPCS and CPT codes 
(Physicians' Current Procedural Terminology) under the ASC payment 
system. This policy is consistent with the OPPS to the extent possible 
(72 FR 42533). Additionally, we established a standard ASC ratesetting 
methodology that bases payment for most services on the list of ASC 
covered surgical procedures on the OPPS relative payment weight 
multiplied by an ASC conversion factor. We also established 
modifications to this methodology for subsets of services, such as 
device-intensive services (where the estimated device portion of the 
ASC payment is the same as that paid under the OPPS) and services that 
are predominantly performed in the office setting and covered ancillary 
radiology services (where ASC payment may be based on the MPFS non-
facility practice expense (PE) Relative Value Units (RVUs)). 
Additionally, we established a policy for updating the conversion 
factor, the relative payment weights, and the ASC payment rates on an 
annual basis. We also annually update the list of procedures for which 
Medicare would not make an ASC payment.
    In the CY 2008 OPPS/ASC final rule with comment period (72 FR 
66827), we updated and finalized the CY 2008 ASC rates and lists of 
covered surgical procedures and covered ancillary services. We also 
made regulatory changes to 42 CFR Parts 411, 414, and 416 related to 
our final policies to provide payments to physicians who perform 
noncovered ASC procedures in ASCs based on the facility PE RVUs, to 
exclude covered ancillary radiology services and covered ancillary 
drugs and biologicals from the categories of designated health services 
(DHS) that are subject to the physician self-referral prohibition, and 
to reduce ASC payments for surgical procedures when the ASC receives 
full or partial credit toward the cost of the implantable device. In 
the CY 2009 OPPS/ASC final rule with comment period (73 FR 68722), we 
updated and finalized the CY 2009 ASC rates and lists of covered 
surgical procedures and covered ancillary services.
    In the CY 2010 OPPS/ASC final rule with comment period (74 FR 
60596), we updated and finalized the CY 2010 ASC rates and lists of 
covered surgical procedures and covered ancillary services. We also 
corrected some of those ASC rates in a correction notice published in 
the Federal Register on December 31, 2009 (74 FR 69502). In that 
correction notice, we revised the ASC rates to reflect changes in the 
MPFS conversion factor and PE RVUs listed for some CPT codes in 
Addendum B to the CY 2010 MPFS final rule with comment period (74 FR 
62017), which were incorrect due to methodological errors and, 
consequently, were corrected in a correction notice to that final rule 
with comment period (74 FR 65449). We also published a second 
correction notice in the Federal Register, to address changes to the 
ASC rates resulting from corrections to the PE RVUs identified 
subsequent to publication of the December 31, 2009 correction notice 
(75 FR 45700). Finally, we published a notice in the Federal Register, 
to reflect changes to CY 2010 ASC payment rates for certain ASC 
services due to changes to the OPPS and MPFS under the Affordable Care 
Act and to reflect technical changes to the ASC payment rates announced 
in prior correction notices (75 FR 45769).
3. Policies Governing Changes to the Lists of Codes and Payment Rates 
for ASC Covered Surgical Procedures and Covered Ancillary Services
    The August 2, 2007 final rule established our policies for 
determining which procedures are ASC covered surgical procedures and 
covered ancillary services. Under Sec. Sec.  416.2 and 416.166 of the 
regulations, subject to certain exclusions, covered surgical procedures 
are surgical procedures that are separately paid under the OPPS, that 
would not be expected to pose a significant risk to beneficiary safety 
when performed in an ASC, and that would not be expected to require 
active medical monitoring and care at midnight following the procedure 
(``overnight stay''). We adopted this standard for defining which 
surgical procedures are covered surgical procedures under the ASC 
payment system as an indicator of the complexity of the procedure and 
its appropriateness for Medicare payment in ASCs. We use this standard 
only for purposes of

[[Page 72026]]

evaluating procedures to determine whether or not they are appropriate 
for Medicare beneficiaries in ASCs. We define surgical procedures as 
those described by Category I Current Procedural Terminology (CPT) 
codes in the surgical range from 10000 through 69999, as well as those 
Category III CPT codes and Level II Healthcare Common Procedure Coding 
System (HCPCS) codes that crosswalk or are clinically similar to ASC 
covered surgical procedures (72 FR 42478). We note that we added over 
800 surgical procedures to the list of covered surgical procedures for 
ASC payment in CY 2008, the first year of the revised ASC payment 
system, based on the criteria for payment that we adopted in the August 
2, 2007 final rule as described above in this section. Patient safety 
and health outcomes continue to be important to us as more health care 
moves to the ambulatory care setting. Therefore, as we gain additional 
experience with the ASC payment system, we are interested in any 
information the public may have regarding the comparative patient 
outcomes of surgical care provided in ambulatory settings, including 
HOPDs, ASCs, and physicians' offices, particularly with regard to the 
Medicare population.
    In the August 2, 2007 final rule, we also established our policy to 
make separate ASC payments for the following ancillary items and 
services when they are provided integral to ASC covered surgical 
procedures: Brachytherapy sources; certain implantable items that have 
pass-through status under the OPPS; certain items and services that we 
designate as contractor-priced, including, but not limited to, 
procurement of corneal tissue; certain drugs and biologicals for which 
separate payment is allowed under the OPPS; and certain radiology 
services for which separate payment is allowed under the OPPS. These 
covered ancillary services are specified in Sec.  416.164(b) and, as 
stated previously, are eligible for separate ASC payment (72 FR 42495). 
Payment for ancillary items and services that are not paid separately 
under the ASC payment system is packaged into the ASC payment for the 
covered surgical procedure.
    We update the lists of, and payment rates for, covered surgical 
procedures and covered ancillary services, in conjunction with the 
annual proposed and final rulemaking process to update the OPPS and the 
ASC payment system (Sec.  416.173; 72 FR 42535). In addition, as 
discussed in detail below in section XV.B., because we base ASC payment 
policies for covered surgical procedures, drugs, biologicals, and 
certain other covered ancillary services on the OPPS payment policies, 
we also provide quarterly updates for ASC services throughout the year 
(January, April, July, and October), just as we do for the OPPS. The 
updates are to implement newly created Level II HCPCS and Category III 
CPT codes for ASC payment and to update the payment rates for 
separately paid drugs and biologicals based on the most recently 
submitted ASP data. New Category I CPT codes, except vaccine codes, are 
released only once a year and, therefore, are implemented through the 
January quarterly update. New Category I CPT vaccine codes are released 
twice a year and thus are implemented through the January and July 
quarterly updates.
    In our annual updates to the ASC list of, and payment rates for, 
covered surgical procedures and covered ancillary services, we 
undertake a review of excluded surgical procedures (including all 
procedures newly proposed for removal from the OPPS inpatient list), 
new procedures, and procedures for which there is revised coding, to 
identify any that we believe meet the criteria for designation as ASC 
covered surgical procedures or covered ancillary services. Updating the 
lists of covered surgical procedures and covered ancillary services, as 
well as their payment rates, in association with the annual OPPS 
rulemaking cycle is particularly important because the OPPS relative 
payment weights and, in some cases, payment rates, are used as the 
basis for the payment of covered surgical procedures and covered 
ancillary services under the revised ASC payment system. This joint 
update process ensures that the ASC updates occur in a regular, 
predictable, and timely manner.
    Comment: Several commenters provided a number of general 
suggestions related to the ASC list of covered surgical procedures. 
They contended that CMS should not restrict which procedures are 
payable in ASCs any more than CMS restricts which procedures are 
payable in HOPDs. According to the commenters, when CMS declines to add 
a service to the ASC list that can be performed in hospitals and 
physician offices, CMS should articulate a clinical rationale for why 
the procedure should be excluded from the ASC setting. They also stated 
that CMS should use as one of its evaluation measures for additions to 
the ASC list the number of procedures performed in the office setting. 
Some commenters urged CMS to eliminate unlisted codes from the 
exclusionary criteria at Sec.  416.166(c), and other commenters 
requested that ASCs be allowed to use unlisted codes to bill for 
procedures that are from anatomic sites that could not possibly pose a 
potential risk to beneficiary safety. The commenters reported that 
unlisted codes enable surgeons to utilize innovative techniques or new 
technologies and are paid under the OPPS and by commercial insurers. 
They suggested that ASCs could provide documentation to the contractor 
that explains and justifies the procedure reported by an unlisted code; 
thus ensuring that Medicare does not make payment for a service that 
would otherwise be excluded from payment.
    Response: We appreciate the commenters' suggestions related to our 
decisions about which procedures are excluded from the ASC list of 
covered surgical procedures. However, as we explained in the August 2, 
2007 final rule (72 FR 42479), we do not believe that all procedures 
that are appropriate for performance in HOPDs are appropriate in ASCs. 
HOPDs are able to provide much higher acuity care than ASCs. ASCs have 
neither patient safety standards consistent with those in place for 
hospitals, nor are they required to have the trained staff and 
equipment needed to provide the breadth and intensity of care that 
hospitals are required to maintain. Therefore, there are some 
procedures that we believe may be appropriately provided in the HOPD 
setting that are unsafe for performance in ASCs. Thus, we are not 
modifying our policy and will continue to exclude certain procedures 
for which payment is made in HOPDs from the ASC list of covered 
surgical procedures.
    We do not agree with the commenters' request that we provide 
specific reasons for our decisions to exclude each procedure from the 
ASC list of covered surgical procedures. Our decisions to exclude 
procedures from the ASC list are based on a number of the criteria 
listed at Sec.  416.166 of the regulations, and we believe that it 
would be unnecessary and overly burdensome to list each reason for 
those decisions. As we have stated in the past (74 FR 60598), we 
continue to believe that these reasons are sufficiently specific to 
enable the public to provide meaningful comments on our decisions to 
exclude procedures from the list of covered surgical procedures. In 
response to the commenter's request that we use as one of our 
evaluation measures for additions to the ASC list the number of 
procedures performed in the office setting, we note that the criteria 
listed in Sec.  416.166 do not include the number of procedures done in 
the office setting. We also do not agree with the

[[Page 72027]]

commenters' recommendation that we include certain unlisted codes on 
the list of covered procedures. Even though it may be highly unlikely 
that any procedures that would be expected to pose a significant risk 
to beneficiary safety when performed in an ASC or expected to require 
an overnight stay would be reported by an unlisted code from certain 
anatomic sites, we cannot know what surgical procedure is being 
reported by an unlisted code. Therefore, as we have explained in the CY 
2010 OPPS/ASC final rule with comment period (74 FR 60598), because we 
cannot evaluate any such procedure, we continue to believe that we must 
exclude unlisted codes as a group from the list of covered surgical 
procedures. We also do not believe it is reasonable, or within the 
scope of our contractors' work, to accept the commenters' suggestion 
that ASCs could provide documentation to our Medicare contractors in 
order for the contractors to make a determination about whether or not 
a procedure that was billed using an unlisted code represented a 
significant risk to beneficiary safety or would be expected to require 
an overnight stay.
    After consideration of the public comments we received, we are 
continuing our established policies without modification for 
determining which procedures are ASC covered surgical procedures and 
covered ancillary services.

B. Treatment of New Codes

1. Process for Recognizing New Category I and Category III CPT Codes 
and Level II HCPCS Codes
    CPT and Level II HCPCS codes are used to report procedures, 
services, items, and supplies under the ASC payment system. 
Specifically, we recognize the following codes on ASC claims: (1) 
Category I CPT codes, which describe medical services and procedures; 
(2) Category III CPT codes, which describe new and emerging 
technologies, services, and procedures; and (3) Level II HCPCS codes, 
which are used primarily to identify products, supplies, temporary 
procedures, and services not described by CPT codes. CPT codes are 
established by the American Medical Association (AMA) and the Level II 
HCPCS codes are established by the CMS HCPCS Workgroup. These codes are 
updated and changed throughout the year. CPT and HCPCS code changes 
that affect ASCs are addressed both through the ASC quarterly update 
Change Requests (CRs) and through the annual rulemaking cycle. CMS 
releases new Level II HCPCS codes to the public or recognizes the 
release of new CPT codes by the AMA and makes these codes effective 
(that is, the codes are recognized on Medicare claims) outside of the 
formal rulemaking process via ASC quarterly update CRs. This quarterly 
process offers ASCs access to codes that may more accurately describe 
items or services furnished and/or provides payment or more accurate 
payment for these items or services in a more timely manner than if we 
waited for the annual rulemaking process. We solicit comments on the 
new codes recognized for ASC payment and finalize our proposals related 
to these codes through our annual rulemaking process.
    We finalized a policy in the August 2, 2007 final rule to evaluate 
each year all new Category I and Category III CPT codes and Level II 
HCPCS codes that describe surgical procedures, and to make preliminary 
determinations in the annual OPPS/ASC final rule with comment period 
regarding whether or not they meet the criteria for payment in the ASC 
setting as covered surgical procedures and, if so, whether they are 
office-based procedures (72 FR 42533 through 42535). In addition, we 
identify new codes as ASC covered ancillary services based upon the 
final payment policies of the revised ASC payment system.
    In Table 39 of the CY 2011 OPPS/ASC proposed rule (75 FR 46325), we 
summarized our proposed process for updating the HCPCS codes recognized 
under the ASC payment system.
    This process is discussed in detail below and we have separated our 
discussion based on whether we proposed to solicit public comments in 
the CY 2011 proposed rule on a specific group of the CPT and Level II 
HCPCS codes (and respond to those comments in this CY 2011 OPPS/ASC 
final rule with comment period) or whether we proposed to solicit 
public comments on another specific group of the codes in this CY 2011 
final rule with comment period (and respond to those comments in the CY 
2012 OPPS/ASC final rule with comment period). We sought public 
comments in the CY 2010 OPPS/ASC final rule with comment period on the 
new CPT and HCPCS codes that were effective January 1, 2010. These new 
codes were flagged with comment indicator ``N1'' in Addendum AA and BB 
to the CY 2010 OPPS/ASC final rule with comment period to indicate that 
we were assigning them an interim payment status and payment rate, if 
applicable, which were subject to public comment following publication 
of the CY 2010 OPPS/ASC final rule with comment period. We stated that 
we would respond to public comments and finalizing our proposed ASC 
treatment of these codes in the CY 2011 OPPS/ASC final rule with 
comment period.
    We received no public comments regarding our process for 
recognizing new HCPCS codes under the ASC payment system and are 
implementing our proposed policy without modification.
2. Treatment of New Level II HCPCS Codes and Category III CPT Codes 
Implemented in April and July 2010 for Which We Solicited Public 
Comments in the CY 2011 OPPS/ASC Proposed Rule
    In the April and July CRs, we made effective for April 1 or July 1, 
2010, a total of 14 new Level II HCPCS codes and 7 new Category III CPT 
codes that were not addressed in the CY 2010 OPPS/ASC final rule with 
comment period. (We note that one Level II HCPCS code that was added in 
the April 2010 CR, C9262, was deleted June 30, 2010, and replaced with 
Q2025 effective July 1, 2010). The 13 new Level II HCPCS codes describe 
covered ancillary services.
    Through the April 2010 ASC quarterly update (Transmittal 1943, CR 
6866, dated April 6, 2010), we added six new drug and biological Level 
II HCPCS codes to the list of covered ancillary services. Specifically, 
as displayed in Table 40 of the CY 2011 OPPS/ASC proposed rule (75 FR 
46327), these included HCPCS codes C9258 (Injection, telavancin, 10 
mg), C9259 (Injection, pralatrexate, 1 mg), C9260 (Injection, 
ofatumumab, 10 mg), C9261 (Injection, ustekinumab, 1 mg), C9262 
(Fludarabine phosphate, oral, 1 mg), and C9263 (Injection, ecallantide, 
1 mg).
    Through the July 2010 quarterly update (Transmittal 1984, Change 
Request 7008, dated June 11, 2010), we added seven new drug and 
biological Level II HCPCS codes to the list of covered ancillary 
services. Specifically, as displayed in Table 41 of the CY 2011 OPPS/
ASC proposed rule (75 FR 46327), we provided separate payment for HCPCS 
codes C9264 (Injection, tocilizumab, 1 mg), C9265 (Injection, 
romidepsin, 1 mg), C9266 (Injection, collagenase clostridium 
histolyticum, 0.1 mg), C9267 (Injection, von Willebrand factor complex 
(human), Wilate, per 100 IU VWF: RCO), C9268 (Capsaicin, patch, 10cm2), 
C9367 (Skin substitute, Endoform Dermal Template, per square 
centimeter), and Q2025 (Fludarabine phosphate oral, 10 mg). As noted 
above, HCPCS code C9262 was made effective April 1, 2010, and

[[Page 72028]]

deleted June 30, 2010, when it was replaced with HCPCS code Q2025.
    We assigned payment indicator ``K2'' (Drugs and biologicals paid 
separately when provided integral to a surgical procedure on the ASC 
list; payment based on OPPS rate) to these 13 new Level II HCPCS codes 
to indicate that they are separately paid when provided in ASCs. In the 
CY 2011 OPPS/ASC proposed rule, we solicited public comment on the 
proposed CY 2010 ASC payment indicators and payment rates for the drugs 
and biologicals, as listed in Tables 40 and 41 of the CY 2011 OPPS/ASC 
proposed rule (75 FR 46326 through 46327). Those HCPCS codes became 
payable in ASCs, beginning in April or July 2010, and are paid at the 
ASC rates posted for the appropriate calendar quarter on the CMS Web 
site at http://www.cms.gov/ASCPayment/.
    The HCPCS codes listed in Table 40 were included in Addendum BB to 
the CY 2011 OPPS/ASC proposed rule. (We note that Level II HCPCS code 
C9262 was deleted June 30, 2010, and replaced with Q2025 effective July 
1, 2010, and therefore was not included in Addendum BB and was not open 
to public comment. Instead, Level II HCPCS code Q2025 was open for 
public comment.)
    However, because HCPCS codes that became effective for July (listed 
in Table 41 of the CY 2011 OPPS/ASC proposed rule) were not available 
to us in time for incorporation into the Addenda to the OPPS/ASC 
proposed rule, our policy is to include these HCPCS codes and their 
proposed payment indicators and payment rates in the preamble to the 
proposed rule but not in the Addenda to the proposed rule. These codes 
and their final payment indicators and rates are included in the 
appropriate Addendum to this CY 2011 OPPS/ASC final rule with comment 
period. Thus, the codes implemented by the July 2010 ASC quarterly 
update CR and their proposed CY 2011 payment rates (based on July 2010 
ASP data) that were displayed in Table 41 of the CY 2011 OPPS/ASC 
proposed rule were not included in Addendum BB to that proposed rule. 
We proposed to include these services reported using the new Level II 
HCPCS codes displayed in Tables 40 and 41 of the CY 2011 OPPS/ASC 
proposed rule (75 FR 46327) as covered ancillary services for payment 
to ASCs for CY 2011. The final list of covered ancillary services and 
the associated payment weights and payment indicators is included in 
Addendum BB to this CY 2011 OPPS/ASC final rule with comment period, 
consistent with our annual update policy. We solicited public comments 
on these proposed payment indicators and the payment rates, if any, for 
the new Level II HCPCS codes that were newly recognized as ASC covered 
ancillary services in April or July 2010 through the respective 
quarterly update CRs, as listed in Tables 40 and 41 of the CY 2011 
OPPS/ASC proposed rule (75 FR 46327, 46329). We proposed to finalize 
their payment indicators and their payment rates, if applicable, in 
this CY 2011 OPPS/ASC final rule with comment period.
    We did not receive any public comments regarding our proposals. We 
are adopting as final the ASC payment indicators for the covered 
ancillary services described by the new Level II HCPCS codes 
implemented in April and July 2010 through the respective quarterly 
update CR as shown below, in Tables 49 and 50, respectively. We note 
that after publication of the CY 2011 OPPS/ASC proposed rule, the CMS 
HCPCS Workgroup created permanent HCPCS J-codes for CY 2011 to replace 
certain temporary HCPCS C-codes made effective for CY 2010. These 
permanent CY 2011 HCPCS J-codes are listed alongside the temporary CY 
2010 HCPCS C-codes in Tables 49 and 50 below. The final payment 
indicators and payment rates for these codes are displayed in Addendum 
BB to this final rule with comment period.

    Table 49--New Level II HCPCS Codes for Covered Ancillary Services
                        Implemented in April 2010
------------------------------------------------------------------------
                                                          Final CY 2011
 CY 2011 HCPCS code   CY 2010 HCPCS      CY 2011 long        payment
                           code           descriptor        indicator
------------------------------------------------------------------------
J3095..............                C92Injection,                     K2
                                       telavancin, 10
                                       mg.
J9307..............                C92Injection,                     K2
                                       pralatrexate, 1
                                       mg.
J9302..............                C92Injection,                     K2
                                       ofatumumab, 10
                                       mg.
J3357..............                C92Injection,                     K2
                                       ustekinumab, 1
                                       mg.
J8562..............                C92Fludarabine                    K2
                                       phosphate, oral,
                                       10 mg.
J1290..............                C92Injection,                     K2
                                       ecallantide, 1
                                       mg.
------------------------------------------------------------------------
* Level II HCPCS code C9262 was deleted June 30, 2010, and replaced with
  Q2025 effective July 1, 2010.


    Table 50--New Level II HCPCS Codes for Covered Ancillary Services
                        Implemented in July 2010
------------------------------------------------------------------------
                                                          Final CY 2011
 CY 2011 HCPCS code   CY 2010 HCPCS      CY 2011 long        payment
                           code           descriptor        indicator
------------------------------------------------------------------------
J3262..............                C92Injection,                     K2
                                       tocilizumab, 1
                                       mg.
J9315..............                C92Injection,                     K2
                                       romidepsin, 1 mg.
J0775..............                C92Injection,                     K2
                                       collagenase
                                       clostridium
                                       histolyticum,
                                       0.01 mg.
J7184..............                C92Injection, von                 K2
                                       Willebrand
                                       factor complex
                                       (human), Wilate,
                                       per 100 IU VWF:
                                       RCO.
J7335..............                C92Capsaicin, patch,              K2
                                       per 10 square
                                       centimeters.
C9367..............                C93Skin substitute,               K2
                                       Endoform Dermal
                                       Template, per
                                       square
                                       centimeter.
J8562..............           Q2025   Fludarabine                    K2
                                       phosphate oral,
                                       10 mg.
------------------------------------------------------------------------

    Through the July 2010 quarterly update CR, we also implemented ASC 
payment for seven new Category III CPT codes and one new Level II HCPCS 
code as ASC covered surgical procedures, effective July 1, 2010. These 
codes were listed in Table 42 of the CY 2011 OPPS/ASC proposed rule (75 
FR 46328), along with their proposed payment indicators and proposed 
payment rates for CY 2011. Because new Category III CPT and Level II 
HCPCS codes that become

[[Page 72029]]

effective for July are not available to us in time for incorporation 
into the Addenda to the OPPS/ASC proposed rule, our policy is to 
include the codes, their proposed payment indicators, and proposed 
payment rates in the preamble to the proposed rule but not in the 
Addenda to the proposed rule. These codes and their final payment 
indicators and rates are included in the Addenda to this CY 2011 OPPS/
ASC final rule with comment period. We solicited public comments on 
these proposed payment indicators and the payment rates for the new 
Level II HCPCS code and Category III CPT codes that were newly 
recognized as ASC covered surgical procedures in the July 2010 through 
the respective quarterly update CRs, as listed in Table 42 of the CY 
2011 OPPS/ASC proposed rule (75 FR 46328 through 46329). We proposed to 
finalize their payment indicators and their payment rates in this CY 
2011 OPPS/ASC final rule with comment period.
    Comment: Some commenters asserted that the procedures described by 
CPT codes 0228T (Injection(s), anesthetic agent and/or steroid, 
transforaminal epidural, with ultrasound guidance, cervical or 
thoracic; single level), 0229T (Injection(s), anesthetic agent and/or 
steroid, transforaminal epidural, with ultrasound guidance, cervical or 
thoracic; each additional level (List separately in addition to code 
for primary procedure)), 0230T (Injection(s), anesthetic agent and/or 
steroid, transforaminal epidural, with ultrasound guidance, lumbar or 
sacral; single level) and 0231T (Injection(s), anesthetic agent and/or 
steroid, transforaminal epidural, with ultrasound guidance, lumbar or 
sacral; each additional level (List separately in addition to code for 
primary procedure)) are using ultrasound without fluoroscopy, which the 
commenters believed is inappropriate because, according to the 
commenters, there is no evidence of accurate needle placement or 
effectiveness for these procedures. The commenters believed that 
Medicare should not pay for these procedures when they are performed in 
the ASC setting.
    Response: In order for any procedure to be added to the ASC list of 
covered surgical procedures, the procedure must meet the criteria set 
forth at 42 CFR 416.166, including that it would not be expected to 
pose a significant safety risk to a Medicare beneficiary when performed 
in an ASC and it would not be expected to require an overnight stay. 
After careful medical review of these procedures, our clinical staff 
has determined that the procedures described by CPT codes 0228T, 0229T, 
0230T, and 0213T meet these criteria and may be paid for by Medicare 
when provided in the ASC setting. Therefore, we disagree with the 
commenter and will continue to include these CPT codes on the ASC list 
of covered surgical procedures.
    After consideration of the public comments received, for CY 2011, 
we are continuing our established policy for recognizing new mid-year 
CPT and HCPCS codes. We also are adopting as final the ASC payment 
indicators for the covered surgical procedures described by the new 
Category III CPT codes and the new Level II HCPCS code implemented in 
the July 2010 CR as shown in Table 51 below and Table 50. The new CPT 
and HCPCS codes implemented in July 2010 are displayed in Addendum AA 
to this final rule with comment period as well.

Table 51--New Category III CPT Codes and Level II HCPCS Code Implemented
             in July 2010 as ASC Covered Surgical Procedures
------------------------------------------------------------------------
                                                          Final CY 2011
   CY 2011 HCPCS code        CY 2011 Long descriptor         payment
                                                           indicator **
------------------------------------------------------------------------
0226T..................  Anoscopy, high resolution                 R2 *
                          (HRA) (with magnification and
                          chemical agent enhancement);
                          diagnostic, including
                          collection of specimen(s) by
                          brushing or washing when
                          performed.
0227T..................  Anoscopy, high resolution                 R2 *
                          (HRA) (with magnification and
                          chemical agent enhancement);
                          with biopsy(ies).
0228T..................  Injection(s), anesthetic agent              G2
                          and/or steroid,
                          transforaminal epidural, with
                          ultrasound guidance, cervical
                          or thoracic; single level.
0229T..................  Injection(s), anesthetic agent              G2
                          and/or steroid,
                          transforaminal epidural, with
                          ultrasound guidance, cervical
                          or thoracic; each additional
                          level (List separately in
                          addition to code for primary
                          procedure).
0230T..................  Injection(s), anesthetic agent              G2
                          and/or steroid,
                          transforaminal epidural, with
                          ultrasound guidance, lumbar
                          or sacral; single level.
0231T..................  Injection(s), anesthetic agent              G2
                          and/or steroid,
                          transforaminal epidural, with
                          ultrasound guidance, lumbar
                          or sacral; each additional
                          level (List separately in
                          addition to code for primary
                          procedure).
0232T..................  Injection(s), platelet rich                R2*
                          plasma, any tissue, including
                          image guidance, harvesting
                          and preparation when
                          performed.
C9800..................  Dermal injection procedure(s)             R2 *
                          for facial lipodystrophy
                          syndrome (LDS) and provision
                          of Radiesse or Sculptra
                          dermal filler, including all
                          items and supplies.
------------------------------------------------------------------------
* If designation is temporary.
** Payment indicators are based on a comparison of the rates according
  to the ASC standard ratesetting methodology and the MPFS rates. At the
  time this final rule with comment period is being finalized for
  publication, current law authorizes a negative update to the MPFS
  payment rates for CY 2011. Therefore, this final rule with comment
  period reflects a negative update to the MPFS payment rates for CY
  2011. If Congress revises the MPFS update for CY 2011, we will
  recalculate the ASC payment rates using the revised update factor in
  the January 2011 payment rate files issued to contractors and posted
  to the ASC Web site at http://www.cms.gov/ASCPayment/.

3. Process for New Level II HCPCS Codes and Category I and III CPT 
Codes for Which We Are Soliciting Public Comments in This CY 2011 OPPS/
ASC Final Rule With Comment Period
    As has been our practice in the past, we incorporate those new 
Category I and Category III CPT codes and new Level II HCPCS codes that 
are effective January 1 in the final rule with comment period updating 
the ASC payment system for the following calendar year. These codes are 
released to the public via the CMS HCPCS (for Level II HCPCS codes) and 
AMA Web sites (for CPT codes), and also through the January ASC 
quarterly update CRs. In the past, we also have released new Level II 
HCPCS codes that are effective October 1 through the October ASC 
quarterly update CRs and incorporated these new codes in the final rule 
with comment period updating the ASC payment system for the following 
calendar year. All of these codes are flagged with comment indicator 
``NI'' in Addenda AA and BB to the OPPS/ASC

[[Page 72030]]

final rule with comment period to indicate that we are assigning them 
an interim payment status which is subject to public comment. 
Specifically, the payment indicator and payment rate, if applicable, 
for all such codes flagged with comment indicator ``NI'' are open to 
public comment in the OPPS/ASC final rule with comment period, and we 
respond to these comments in the final rule with comment period for the 
next calendar year's OPPS/ASC update. In the CY 2011 OPPS/ASC proposed 
rule (75 FR 46329), we proposed to continue this process for CY 2011.
    For CY 2011, we also proposed to include in Addenda AA and BB to 
the CY 2011 OPPS/ASC final rule with comment period the new Category I 
and III CPT codes effective January 1, 2011 (including those Category 
III CPT codes that were released by the AMA in July 2010) that would be 
incorporated in the January 2011 ASC quarterly update CR and the new 
Level II HCPCS codes, effective October 1, 2010 or January 1, 2011, 
that would be released by CMS in its October 2010 and January 2011 ASC 
quarterly update CRs. These codes would be flagged with comment 
indicator ``NI'' in Addenda AA and BB to this CY 2011 OPPS/ASC final 
rule with comment period to indicate that we have assigned them an 
interim payment status. Their payment indicators and payment rates, if 
applicable, would be open to public comment in the CY 2011 OPPS/ASC 
final rule with comment period and would be finalized in the CY 2012 
OPPS/ASC final rule with comment period.
    We did not receive any comments regarding this proposed process. 
For CY 2011, we are finalizing our proposal, without modification, to 
continue our established process for recognizing and soliciting public 
comments on new Level II HCPCS codes and Category I and III CPT codes 
for the following calendar year, as described above.

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

1. Covered Surgical Procedures
a. Additions to the List of ASC Covered Surgical Procedures
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46329 through 46330), 
we proposed to update the list of ASC covered surgical procedures by 
adding five procedures to the list. These five procedures were among 
those excluded from the ASC list for CY 2010 because we believed they 
did not meet the definition of a covered surgical procedure based on 
our expectation that they would pose a significant safety risk to 
Medicare beneficiaries or would require an overnight stay if performed 
in ASCs. We conducted a review of all HCPCS codes that currently are 
paid under the OPPS, but not included on the ASC list of covered 
surgical procedures, to determine if changes in technology and/or 
medical practice changed the clinical appropriateness of these 
procedures for the ASC setting. We determined that these five 
procedures could be safely performed in the ASC setting and therefore 
proposed to include them on the list of ASC covered surgical procedures 
for CY 2011.
    The five procedures that we proposed to add to the ASC list of 
covered surgical procedures, including their HCPCS code long 
descriptors and proposed CY 2010 payment indicators, were displayed in 
Table 43 of the CY 2011 OPPS/ASC proposed rule (75 FR 46330). 
Subsequent to the release of the CY 2011 OPPS/ASC proposed rule, we 
recognized that the long descriptors for CPT codes 37210 (Uterine 
fibroid embolization (UFE, embolization of the uterine arteries to 
treat uterine fibroids, leiomyomata), percutaneous approach inclusive 
of vascular access, vessel selection, embolization, and all 
radiological supervision and interpretation, intraprocedural 
roadmapping, and imaging guidance necessary to complete the procedure) 
and 50593 (Ablation, renal tumor(s), unilateral, percutaneous, 
cryotherapy) in Table 43 were incorrect. We also realized that CPT code 
52649 (Laser enucleation of the prostate with morcellation, including 
control of postoperative bleeding, complete (vasectomy, meatotomy, 
cystourethroscopy, urethral calibration and/or dilation, internal 
urethrotomy and transurethral resection of prostate are included if 
performed)) and its payment indicator were missing from Table 43 (the 
descriptor for CPT code 52649 was listed incorrectly for CPT code 
50593). We corrected Table 43 on the CMS Web site for the CY 2011 OPPS/
ASC proposed rule at http://www.cms.gov/ASCPayment/. Therefore, we 
proposed to add six procedures (described by CPT codes 37204, 37205, 
37206, 37210, 50593, and 52649) to the ASC list of covered surgical 
procedures for CY 2011.
    Since publication of the proposed rule, the CPT Editorial Panel 
significantly changed the descriptors for two CPT codes we had proposed 
to add to the list of ASC surgical procedures. The CPT code descriptors 
previously read as follows: 37205 (Transcatheter placement of an 
intravascular stent(s) (except coronary, carotid, and vertebral 
vessel), percutaneous; initial vessel) and 37206 (Transcatheter 
placement of an intravascular stent(s) (except coronary, carotid, and 
vertebral vessel), percutaneous; each additional vessel (List 
separately in addition to code for primary procedure)). After the CPT 
Editorial Panel change, the CPT descriptors read as follows: 37205 
(Transcatheter placement of an intravascular stent(s) (except coronary, 
carotid, and vertebral vessel, and lower extremity arteries), 
percutaneous; initial vessel) and 37206 (Transcatheter placement of an 
intravascular stent(s) (except coronary, carotid, and vertebral vessel, 
and lower extremity arteries), percutaneous; each additional vessel 
(List separately in addition to code for primary procedure)). Because 
the CPT Editorial Panel changes are effective January 1, 2011, we 
reevaluated the appropriateness of these procedures in the ASC setting. 
Based on the review of our clinical staff, we determined that the level 
of care indicated by the new descriptors for CPT codes 37205 and 37206 
make these codes ineligible for payment in the ASC setting because they 
do not meet the criteria for ASC coverage listed at Sec.  416.166 of 
the regulations. However, we will recognize as ASC covered surgical 
procedures two new CY 2011 CPT codes that, prior to January 1, 2011, 
would have been described in part under the CY 2010 CPT code 
descriptors for 37205 and 37206. Specifically, we believe that the 
procedures described by CPT codes 37221 (Revascularization, iliac 
artery, unilateral, initial vessel; with transluminal stent 
placement(s)) and 37223 (Revascularization, iliac artery, each 
additional ipsilateral iliac vessel; with transluminal stent 
placement(s) (List separately in addition to code for primary 
procedure)) may be safely performed and would not require an overnight 
stay in the ASC setting, and that the addition of these procedures to 
the ASC list of covered surgical procedures in CY 2011 is consistent 
with our proposal to add CPT codes 37205 and 37206 to the ASC list of 
covered surgical procedures in CY 2011, because the CPT codes for 37221 
and 37223 now describe services that would have been described by CPT 
codes 37205 and 37206 had the CPT Editorial Panel not changed the 
descriptors for these codes (as with all new HCPCS codes for the 
upcoming year that are recognized for payment under the ASC payment 
system, CPT codes 37221 and 37223 are listed in the Addenda to this 
final rule with comment period with comment indicator ``NI'' to 
indicate that

[[Page 72031]]

their payment assignments are interim and open to public comment).
    Comment: One commenter reiterated a previous request to remove the 
hand and cleft lip and palate reconstruction procedures described by 
the following CPT codes from the ASC list of covered surgical 
procedures because they believe these procedures are inappropriate for 
an ASC setting: 21215 (Graft, bone; mandible (includes obtaining 
graft)); 26037 (Decompressive fasciotomy, hand); 40700 (Plastic repair 
of cleft lip/nasal deformity; primary, partial or complete, 
unilateral); 40701 (Plastic repair of cleft lip/nasal deformity, 
primary bilateral, one stage procedure); 42200 (Palatoplasty for cleft 
palate, soft and/or hard palate only); 42205 (Palatoplasty for cleft 
palate, with closure of alveolar ridge; soft tissue only); 42210 
(Palatoplasty for cleft palate, with closure of alveolar ridge; with 
bone graft to alveolar ridge includes obtaining graft); 42215 
(Palatoplasty for cleft palate; major revision); 42220 (Palatoplasty 
for cleft palate; secondary lengthening procedure); 42225 (Palatoplasty 
for cleft palate; attachment pharyngeal flap); and 42227 (Lengthening 
of palate, with island flap).
    Response: As we have done in the past, our medical advisors 
reviewed all these procedures and as a result of that review, we 
continue to believe that they may be appropriately provided to a 
Medicare beneficiary in an ASC. As we stated in the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60603), we do not see a basis for 
removing these procedures from the ASC list as requested by the 
commenter. All of these procedures were on the list of covered surgical 
procedures even before CY 2007 and, to our knowledge, have been 
performed safely in ASCs for many years. We continue to believe that 
these 11 procedures would not pose a significant safety risk to 
Medicare beneficiaries and would not require an overnight stay if 
performed in ASCs.
    As established at Sec.  416.166(b), decisions regarding whether a 
surgical procedure should be excluded from the Medicare ASC list of 
covered surgical procedures are based on assessments of the needs of 
Medicare beneficiaries and not all patient populations. We include on 
the ASC list all procedures we believe are appropriate for some 
Medicare beneficiaries in order to provide physicians and patients with 
the greatest possible choice for sites-of-service. We expect that 
physicians will consider for each individual patient which site-of-
service is most appropriate. We understand that the procedures on the 
ASC list are sometimes more appropriately performed on an inpatient 
basis due to the individual's age or other clinical considerations.
    Comment: Many commenters supported the addition of the procedures 
listed in Table 43 of the CY 2011 OPPS/ASC proposed rule to the list of 
ASC covered surgical procedures, including the procedures described by 
CPT codes 37205 and 37206. Commenters also requested that CMS add the 
procedures described by the 48 CPT codes displayed in Table 52 below to 
the list of ASC covered surgical procedures. Some commenters also 
requested that a total of 9 specific CPT unlisted codes be added to the 
ASC list, displayed in Table 53, below. The commenters argued that 
these procedures are less complex and/or as safe as procedures already 
paid for when performed in the ASC setting.

 Table 52--Surgical Procedures Requested for Addition to the CY 2011 ASC
                   List of Covered Surgical Procedures
------------------------------------------------------------------------
     CY 2011 CPT code                 CY 2011 long descriptor
------------------------------------------------------------------------
21141....................  Reconstruction midface, LeFort I; single
                            piece, segment movement in any direction
                            (e.g., for Long Face Syndrome), without bone
                            graft.
21142....................  Reconstruction midface, LeFort I; 2 pieces,
                            segment movement in any direction, without
                            bone graft.
21143....................  Reconstruction midface, LeFort I; 3 or more
                            pieces, segment movement in any direction,
                            without bone graft.
21145....................  Reconstruction midface, LeFort I; single
                            piece, segment movement in any direction,
                            requiring bone grafts (includes obtaining
                            autografts).
21146....................  Reconstruction midface, LeFort I; 2 pieces,
                            segment movement in any direction, requiring
                            bone grafts (includes obtaining autografts)
                            (e.g., ungrafted unilateral alveolar cleft).
21147....................  Reconstruction midface, LeFort I; 3 or more
                            pieces, segment movement in any direction,
                            requiring bone grafts (includes obtaining
                            autografts) (e.g., ungrafted bilateral
                            alveolar cleft or multiple osteotomies).
21151....................  Reconstruction midface, LeFort II; any
                            direction, requiring bone grafts (includes
                            obtaining autografts).
21188....................  Reconstruction midface, osteotomies (other
                            than LeFort type) and bone grafts (includes
                            obtaining autografts).
21193....................  Reconstruction of mandibular rami,
                            horizontal, vertical, C, or L osteotomy;
                            without bone graft.
21194....................  Reconstruction of mandibular rami,
                            horizontal, vertical, C, or L osteotomy;
                            with bone graft (includes obtaining graft).
21195....................  Reconstruction of mandibular rami and/or
                            body, sagittal split; without internal rigid
                            fixation.
21196....................  Reconstruction of mandibular rami and/or
                            body, sagittal split; with internal rigid
                            fixation.
21247....................  Reconstruction of mandibular condyle with
                            bone and cartilage autografts (includes
                            obtaining grafts) (e.g., for hemifacial
                            microsomia).
21343....................  Open treatment of depressed frontal sinus
                            fracture.
21346....................  Open treatment of nasomaxillary complex
                            fracture (LeFort II type); with wiring and/
                            or local fixation.
21365....................  Open treatment of complicated (e.g.,
                            comminuted or involving cranial nerve
                            foramina) fracture(s) of malar area,
                            including zygomatic arch and malar tripod;
                            with internal fixation and multiple surgical
                            approaches.
21385....................  Open treatment of orbital floor blowout
                            fracture; transantral approach (Caldwell-Luc
                            type operation).
21386....................  Open treatment of orbital floor blowout
                            fracture; periorbital approach.
21387....................  Open treatment of orbital floor blowout
                            fracture; combined approach.
21395....................  Open treatment of orbital floor blowout
                            fracture; periorbital approach with bone
                            graft (includes obtaining graft).
21408....................  Open treatment of fracture of orbit, except
                            blowout; with bone grafting (includes
                            obtaining graft).
21422....................  Open treatment of palatal or maxillary
                            fracture (LeFort I type);
21423....................  Open treatment of palatal or maxillary
                            fracture (LeFort I type); complicated
                            (comminuted or involving cranial nerve
                            foramina), multiple approaches.
21431....................  Closed treatment of craniofacial separation
                            (LeFort III type) using interdental wire
                            fixation of denture or splint.
21470....................  Open treatment of complicated mandibular
                            fracture by multiple surgical approaches
                            including internal fixation, interdental
                            fixation, and/or wiring of dentures or
                            splints.

[[Page 72032]]

 
22554....................  Arthrodesis, anterior interbody technique,
                            including minimal discectomy to prepare
                            interspace (other than for decompression);
                            cervical below C2.
22851....................  Application of intervertebral biomechanical
                            device(s) (e.g., synthetic cage(s), threaded
                            bone dowel(s), methylmethacrylate) to
                            vertebral defect or interspace (List
                            separately in addition to code for primary
                            procedure).
27415....................  Osteochondral allograft, knee, open.
29867....................  Arthroscopy, knee, surgical; osteochondral
                            allograft (e.g., mosaicplasty).
30999....................  Unlisted procedure, nose.
31292....................  Nasal/sinus endoscopy, surgical; with medial
                            or inferior orbital wall decompression.
31293....................  Nasal/sinus endoscopy, surgical; with medial
                            orbital wall and inferior orbital wall
                            decompression.
54332....................  1-stage proximal penile or penoscrotal
                            hypospadias repair requiring extensive
                            dissection to correct chordee and
                            urethroplasty by use of skin graft tube and/
                            or island flap.
54336....................  1-stage perineal hypospadias repair requiring
                            extensive dissection to correct chordee and
                            urethroplasty by use of skin graft tube and/
                            or island flap.
54535....................  Orchiectomy, radical, for tumor; with
                            abdominal exploration.
57310....................  Closure of urethrovaginal fistula;
60260....................  Thyroidectomy, removal of all remaining
                            thyroid tissue following previous removal of
                            a portion of thyroid.
63001....................  Laminectomy with exploration and/or
                            decompression of spinal cord and/or cauda
                            equina, without facetectomy, foraminotomy or
                            discectomy (e.g., spinal stenosis), 1 or 2
                            vertebral segments; cervical.
63020....................  Laminotomy (hemilaminectomy), with
                            decompression of nerve root(s), including
                            partial facetectomy, foraminotomy and/or
                            excision of herniated intervertebral disc,
                            including open and endoscopically-assisted
                            approaches; 1 interspace, cervical.
63030....................  Laminotomy (hemilaminectomy), with
                            decompression of nerve root(s), including
                            partial facetectomy, foraminotomy and/or
                            excision of herniated intervertebral disc,
                            including open and endoscopically-assisted
                            approaches; 1 interspace, lumbar.
63035....................  Laminotomy (hemilaminectomy), with
                            decompression of nerve root(s), including
                            partial facetectomy, foraminotomy and/or
                            excision of herniated intervertebral disc,
                            including open and endoscopically-assisted
                            approaches; each additional interspace,
                            cervical or lumbar (List separately in
                            addition to code for primary procedure).
63042....................  Laminotomy (hemilaminectomy), with
                            decompression of nerve root(s), including
                            partial facetectomy, foraminotomy and/or
                            excision of herniated intervertebral disc,
                            reexploration, single interspace; lumbar.
63045....................  Laminectomy, facetectomy and foraminotomy
                            (unilateral or bilateral with decompression
                            of spinal cord, cauda equina and/or nerve
                            root[s], [eg, spinal or lateral recess
                            stenosis]), single vertebral segment;
                            cervical.
63047....................  Laminectomy, facetectomy and foraminotomy
                            (unilateral or bilateral with decompression
                            of spinal cord, cauda equina and/or nerve
                            root[s], [eg, spinal or lateral recess
                            stenosis]), single vertebral segment;
                            lumbar.
63048....................  Laminectomy, facetectomy and foraminotomy
                            (unilateral or bilateral with decompression
                            of spinal cord, cauda equina and/or nerve
                            root[s], [eg, spinal or lateral recess
                            stenosis]), single vertebral segment; each
                            additional segment, cervical, thoracic, or
                            lumbar (List separately in addition to code
                            for primary procedure).
63056....................  Transpedicular approach with decompression of
                            spinal cord, equina and/or nerve root(s)
                            (e.g., herniated intervertebral disc),
                            single segment; lumbar (including
                            transfacet, or lateral extraforaminal
                            approach) (e.g., far lateral herniated
                            intervertebral disc).
63075....................  Discectomy, anterior, with decompression of
                            spinal cord and/or nerve root(s), including
                            osteophytectomy; cervical, single
                            interspace.
63076....................  Discectomy, anterior, with decompression of
                            spinal cord and/or nerve root(s), including
                            osteophytectomy; cervical, each additional
                            interspace (List separately in addition to
                            code for primary procedure).
------------------------------------------------------------------------


 Table 53--CPT Unlisted Codes Requested for Addition to the CY 2011 ASC
                   List of Covered Surgical Procedures
------------------------------------------------------------------------
         CY 2011 CPT code                  CY 2011 long descriptor
------------------------------------------------------------------------
21089.............................  Unlisted maxillofacial prosthetic
                                     procedure.
21299.............................  Unlisted craniofacial and
                                     maxillofacial procedure.
21499.............................  Unlisted musculoskeletal procedure,
                                     head.
30999.............................  Unlisted procedure, nose.
40799.............................  Unlisted procedure, lips.
40899.............................  Unlisted procedure, dento alveolar
                                     structures.
41599.............................  Unlisted procedure, tongue, floor of
                                     mouth.
41899.............................  Unlisted procedure, dento alveolar
                                     structures.
42299.............................  Unlisted procedure, palate, uvula.
------------------------------------------------------------------------

    Response: We appreciate commenters' support of the proposed 
addition of the procedures listed in Table 43 of the CY 2011 OPPS/ASC 
proposed rule to the ASC list of covered surgical procedures for CY 
2011. As stated above, we note that the descriptors for CPT codes 37205 
and 37206 are significantly changing effective January 1, 2011, which 
required us to reevaluate their appropriateness in the ASC setting. 
Based on the review of our clinical staff, we determined that the level 
of care indicated by the new descriptors for CPT codes 37205 and 37206 
make these codes ineligible for payment in the ASC setting. However, we 
will recognize as ASC covered surgical procedures two new CY 2011 CPT 
codes that, prior to January 1, 2011, would have been described in part 
under the CY 2010 CPT code descriptors for 37205 and 37206. 
Specifically, we believe that the procedures described by CPT codes 
37221 and 37223 may be safely performed in the ASC setting, and that 
the addition of these procedures to the ASC list of covered surgical 
procedures in CY 2011 is consistent with our proposal to add CPT codes 
37205 and 37206 to the ASC list of covered surgical procedures in CY 
2011, because the CPT codes for 37221 and 37223 now describe services 
that would have been described by CPT codes 37205 and 37206 had the CPT 
Editorial Panel not changed the descriptors for these codes.
    We reviewed all of the surgical procedures that commenters 
requested be added to the ASC list of covered surgical procedures, 
except the procedures that may be reported by the CPT unlisted codes 
listed in Table 53, above, because those codes are not eligible for 
addition to the ASC list, consistent with our final policy which is 
discussed in detail in the August 2, 2007 final rule (72 FR 42484 
through

[[Page 72033]]

42486). We do not agree that most of the procedures recommended by the 
commenters are appropriate for provision to Medicare beneficiaries in 
ASCs. Although the commenters asserted that the procedures they were 
requesting for addition to the list are less complex than and as safe 
as procedures already on the list, our review did not support those 
assertions. We exclude from ASC payment any procedure for which 
standard medical practice dictates that the beneficiary who undergoes 
the procedure would typically be expected to require active medical 
monitoring and care at midnight following the procedure (overnight 
stay) as well as all surgical procedures that our medical advisors 
determine may be expected to pose a significant safety risk to Medicare 
beneficiaries when performed in an ASC. The criteria used under the 
revised ASC payment system to identify procedures that would be 
expected to pose a significant safety risk when performed in an ASC 
include, but are not limited to, those procedures that: Generally 
result in extensive blood loss; require major or prolonged invasion of 
body cavities; directly involve major blood vessels; are emergent or 
life threatening in nature; commonly require systemic thrombolytic 
therapy; or are designated as requiring inpatient care (Sec.  416.166). 
In our review of the procedures listed in Table 52, we determined that 
most of the procedures either would be expected to pose a significant 
risk to beneficiary safety or would be expected to require an overnight 
stay. Specifically, we found that prevailing medical practice called 
for inpatient hospital stays for beneficiaries undergoing many of the 
procedures and that some of the procedures directly involve major blood 
vessels and/or may result in extensive blood loss.
    After consideration of the public comments we received, we are 
finalizing the addition of four of the six proposed procedures to the 
CY 2011 ASC list of covered surgical procedures. We are not finalizing 
the proposed addition of CPT codes 37205 and 37206. The CPT Editorial 
Panel changed the descriptors for these codes effective January 1, 
2011. We reviewed these codes and, based on our review, determined that 
the level of care indicated by the new descriptors for these codes make 
these codes ineligible for payment in the ASC setting. However, we are 
adding procedures described by CPT codes 37221 and 37223 to the list of 
covered surgical procedures for CY 2011 because we believe that these 
procedures may be safely performed in the ASC setting and that the 
addition of these procedures is consistent with our proposal to add CPT 
codes 37205 and 37206 to the ASC list of covered surgical procedures in 
CY 2011, because the CPT codes for 37221 and 37223 now describe 
services that would have been described by CPT codes 37205 and 37206 
had the CPT Editorial Panel not changed the descriptors for these 
codes. The six procedures that we are adding to the list of ASC covered 
surgical procedures for CY 2011, their descriptors, and payment 
indicators are displayed in Table 54 below.

        Table 54--New ASC Covered Surgical Procedures for CY 2011
------------------------------------------------------------------------
                                                           CY 2011 ASC
   CY 2011 CPT/HCPCS code      CY 2011 long descriptor       payment
                                                            indicator
------------------------------------------------------------------------
37204......................  Transcatheter occlusion or              G2
                              embolization (e.g., for
                              tumor destruction, to
                              achieve hemostasis, to
                              occlude a vascular
                              malformation),
                              percutaneous, any method,
                              non-central nervous
                              system, non-head or neck.
37210......................  Uterine fibroid                         G2
                              embolization (ufe,
                              embolization of the
                              uterine arteries to treat
                              uterine fibroids,
                              leiomyomata),
                              percutaneous approach
                              inclusive of vascular
                              access, vessel selection,
                              embolization, and all
                              radiological supervision
                              and interpretation,
                              intraprocedural road
                              mapping, and imaging
                              guidance necessary to
                              complete the procedure.
37221......................  Revascularization, iliac                G2
                              artery, unilateral,
                              initial vessel; with
                              transluminal stent
                              placement(s).
37223......................  Revascularization, iliac                G2
                              artery, each additional
                              ipsilateral iliac vessel;
                              with transluminal stent
                              placement(s). (List
                              separately in addition to
                              code for primary
                              procedure).
50593......................  Ablation, renal tumor(s),               G2
                              unilateral, percutaneous,
                              cryotherapy..
52649......................  Laser enucleation of the                G2
                              prostate with
                              morcellation, including
                              control of postoperative
                              bleeding, complete
                              (vasectomy, meatotomy,
                              cystourethroscopy,
                              urethral calibration and/
                              or dilation, internal
                              urethrotomy and
                              transurethral resection
                              of prostate are included
                              if performed)
------------------------------------------------------------------------

b. Covered Surgical Procedures Designated as Office-Based
(1) Background
    In the August 2, 2007 ASC final rule, we finalized our policy to 
designate as ``office-based'' those procedures that are added to the 
ASC list of covered surgical procedures in CY 2008 or later years that 
we determine are performed predominantly (more than 50 percent of the 
time) in physicians' offices based on consideration of the most recent 
available volume and utilization data for each individual procedure 
code and/or, if appropriate, the clinical characteristics, utilization, 
and volume of related codes. In that rule, we also finalized our policy 
to exempt all procedures on the CY 2007 ASC list from application of 
the office-based classification (72 FR 42512). The procedures that were 
added to the ASC list of covered surgical procedures beginning in CY 
2008 that we determined were office-based were identified in Addendum 
AA to that rule by payment indicator ``P2'' (Office-based surgical 
procedure added to ASC list in CY 2008 or later with MPFS non-facility 
PE RVUs; payment based on OPPS relative payment weight); ``P3'' 
(Office-based surgical procedures added to ASC list in CY 2008 or later 
with MPFS non-facility PE RVUs; payment based on MPFS non-facility PE 
RVUs); or ``R2'' (Office-based surgical procedure added to ASC list in 
CY 2008 or later without MPFS non-facility PE RVUs; payment based on 
OPPS relative payment weight), depending on whether we estimated it 
would be paid according to the standard ASC payment methodology based 
on its OPPS relative payment weight or at the MPFS non-facility PE RVU 
amount.
    Consistent with our final policy to annually review and update the 
list of surgical procedures eligible for payment in ASCs, each year we 
identify surgical procedures as either temporarily or permanently 
office-based after taking into account updated volume and utilization 
data.

[[Page 72034]]

(2) Changes to Covered Surgical Procedures Designated as Office-Based 
for CY 2011
    In developing the CY 2011 OPPS/ASC proposed rule (75 FR 46330), we 
followed our policy to annually review and update the surgical 
procedures for which ASC payment is made and to identify new procedures 
that may be appropriate for ASC payment, including their potential 
designation as office-based. We reviewed CY 2009 volume and utilization 
data and the clinical characteristics for all surgical procedures that 
are assigned payment indicator ``G2'' in CY 2010, as well as for those 
procedures assigned one of the temporary office-based payment 
indicators, specifically ``P2*,'' ``P3*,'' or ``R2*'' in the CY 2010 
OPPS/ASC final rule with comment period (74 FR 60605 through 60608). We 
also examined the data for the five procedures that we proposed to add 
to the ASC list of covered surgical procedures for CY 2011 (listed in 
Table 43 of the CY 2011 OPPS/ASC proposed rule (75 FR 46330)) to 
determine if these procedures should be designated as office-based.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46331), we indicated 
that our review of the CY 2009 volume and utilization data resulted in 
our identification of six surgical procedures that we believed met the 
criteria for designation as office-based. We stated that the data 
indicated that the procedures are performed more than 50 percent of the 
time in physicians' offices, and that our medical advisors believed the 
services are of a level of complexity consistent with other procedures 
performed routinely in physicians' offices. The six CPT codes we 
proposed to permanently designate as office-based were listed in Table 
44 of the CY 2011 OPPS/ASC proposed rule (75 FR 46332) and include the 
following: 20697 (Application of multiplane (pins or wires in more than 
one plane), unilateral, external fixation with stereotactic computer-
assisted adjustment (e.g., spatial frame), including imaging; exchange 
(i.e., removal and replacement) of strut, each), 27767 (Closed 
treatment of posterior malleolus fracture; without manipulation), 
37205, 37206, 37210, and 50593. Subsequent to the release of the CY 
2011 OPPS/ASC proposed rule, we recognized that the long descriptors 
for CPT codes 50593 and 37210 in Table 44 were incorrect. We corrected 
Table 44 on the CMS Web site for the CY 2011 OPPS/ASC proposed rule at 
http://www.cms.gov/ASCPayment/. We noted in the proposed rule that four 
of these six procedures are procedures that we also proposed to add to 
the ASC list of covered surgical procedures for CY 2011: CPT codes 
37205, 37206, 37210, and 50593. The other two procedures, described by 
CPT codes 20697 and 27767, are already on the ASC list of covered 
surgical procedures.
    Comment: Some commenters expressed their continued disagreement 
with the policy to make payment at the lower of the ASC rate or MPFS 
nonfacility PE RVU payment amount for procedures we identify as office-
based and requested that CMS not finalize any of the proposed office-
based designations. They believed that, due to the payment limits 
required by CMS' payment policy for providing these services in ASCs, 
beneficiaries who require the level of care provided in ASCs instead 
have to receive treatment in the more costly HOPD setting. They pointed 
out that even when a procedure is frequently performed in an office, 
there are circumstances when the office is an inappropriate or 
unavailable setting, and that the site-of-service criterion fails to 
recognize the variation in practice patterns across the country. The 
commenters also stated that the continuation of this policy expands the 
gap between the rates that ASCs should receive based upon the OPPS APC 
relative weights and the actual payment they receive based on the 
revised ASC payment system policies.
    The commenters recommended that CMS establish a minimum volume 
threshold before designating a procedure office-based in order to 
ensure that the data used to apply this policy are reliable. They 
asserted that unless CMS includes multiple years of data in its 
calculation, services with low volume can reach the 50 percent 
threshold with little change in the distribution of procedures across 
sites of care. They also recommended that CMS raise the utilization 
threshold above 50 percent for designating a procedure as office-based 
and only use current data to make the office-based assessment.
    Response: As we have stated in the past (74 FR 60605 through 
60606), we continue to believe that our policy of identifying low 
complexity procedures that are performed predominantly in physicians' 
offices and limiting their payment in ASCs to the physician's office 
payment amount is necessary and valid. We believe this is the most 
appropriate approach to preventing the creation of payment incentives 
for services to move from physicians' offices to ASCs for the many 
newly covered low complexity procedures on the ASC list. We do not 
agree with the commenter that this policy creates incentives for 
patients to be treated in the HOPD, because we believe that paying for 
these services that are typically performed in a physician office at 
the lower of the ASC or the MPFS nonfacility PE RVU payment amount is 
appropriate and adequate to ensure beneficiary access in the ASC 
setting. We continue to believe that it is appropriate that ASCs be 
paid no more for performing office-based procedures than those 
procedures would be paid when performed in physicians' offices, in 
order to deter inappropriate migration of these surgical procedures to 
ASCs based on financial considerations rather than clinical needs. 
Although our policy to pay for some services at the MPFS non-facility 
PE RVU amount does introduce payment for a number of procedures at 
rates not based on the ASC relative payment weights and, as such, may 
be viewed as expanding the gap between the rates that ASCs should 
receive based upon the OPPS APC relative weights and the actual payment 
they receive based on the revised ASC payment system policies between 
the OPPS and ASC payment system, we do not believe that the alternative 
of making payments at the higher ASC rate is preferable. None of the 
office-based procedures was eligible for ASC payment prior to 
implementation of the revised payment system and we see no inherent 
unfairness in limiting ASC payment to the rate for the lower-intensity 
site-of-service (physician's office) that our data indicate is the care 
setting for most Medicare cases. We expect physicians in all cases to 
choose a care setting that is appropriate for the individual patient.
    We do not agree with the commenters who asserted that we should 
alter our established office-based payment methodology to establish a 
minimum volume threshold or include multiple years of data. As we have 
stated in the past (74 FR 60605 through 60606), we are confident that 
the CY 2009 claims data, the most recent full year of volume and 
utilization data, are an appropriate source to inform our decisions 
regarding the site-of-service for procedures. Because this is national 
data, it also reflects variation in practice patterns across the 
Nation. In our review process, when we believe that the available data 
are inadequate bases upon which to make a determination that a 
procedure should be office-based, we either make no change to the 
procedure's payment status or make the change temporary and reevaluate 
our decision using data that become available for our next evaluation. 
We believe that it is appropriate to continue using our judgment 
regarding whether the volume

[[Page 72035]]

of cases and the proportion of cases that are provided in the 
physicians' office setting indicate that the procedure is an office-
based procedure in addition to our medical advisors' clinical 
judgments, utilization data for procedures that are closely related to 
the procedures being evaluated, and any other information that is 
available to us. Thus, we will continue to use our existing review and 
decision processes.
    Comment: Several commenters specifically addressed our proposals to 
designate the procedures listed in Table 44 of the CY 2011 OPPS/ASC 
proposed rule as office-based, and argued that the procedures described 
by the following CPT codes are not performed more than 50 percent of 
the time in a physician's office: 37205, 37206, 37210, and 50593.
    Response: We appreciate commenters' assessment of the specific CPT 
codes we proposed to newly designate as office-based for CY 2011. We 
reviewed the most current utilization data and agree that the 
procedures described by CPT codes 37205, 37206, 37210, and 50593 are 
not performed more than 50 percent of the time in a physician's office. 
Therefore, we are not designating these CPT codes as office-based 
procedures for CY 2011 as we proposed. We also note that, as stated 
previously, the descriptors for CPT codes 37205 and 37206 are 
significantly changing for CY 2011 and will not be added to the ASC 
list of covered surgical procedures.
    The utilization data for the other procedures listed in Table 44 of 
the proposed rule, described by CPT codes 20697 and 27767, continue to 
indicate that these procedures are performed more than 50 percent of 
the time in physicians' offices and did not change between the proposed 
rule and this final rule with comment period. Therefore, we continue to 
believe it is appropriate to designate these CPT codes as office-based 
for CY 2011.
    After consideration of the public comments we received, we are 
finalizing our CY 2011 proposals, with modification, to designate the 
procedures displayed in Table 55 below as office-based for CY 2011. We 
also examined the clinical characteristics and utilization data for 
procedures related to the two new CY 2011 CPT codes we are adding to 
the ASC list of covered surgical procedures, CPT codes 37221 and 37223, 
as discussed in section XV.C. of this final rule with comment period, 
and we determined that these codes should not be designated as office-
based for CY 2011.

 Table 55--CY 2011 Final Designations of ASC Covered Surgical Procedures Newly Designated as Permanently Office-
                                                      Based
----------------------------------------------------------------------------------------------------------------
                                                                                        Proposed CY    Final CY
                                                                           CY 2010 ASC    2011 ASC     2011 ASC
          CY 2011 CPT code                  CY 2010 long descriptor           payment     payment      payment
                                                                            indicator   indicator *   indicator
----------------------------------------------------------------------------------------------------------------
20697...............................  Application of multiplane (pins or            G2           P2           P2
                                       wires in more than one plane),
                                       unilateral, external fixation with
                                       stereotactic computer-assisted
                                       adjustment (e.g., spatial frame),
                                       including imaging; exchange (i.e.,
                                       removal and replacement of strut,
                                       each).
27767...............................  Closed treatment of posterior                 G2           P2           P2
                                       malleolus fracture; without
                                       manipulation.
----------------------------------------------------------------------------------------------------------------
* Payment indicators are based on a comparison of the rates according to the ASC standard ratesetting
  methodology and the MPFS rates. At the time this final rule with comment period is being finalized for
  publication, current law authorizes a negative update to the MPFS payment rates for CY 2011. Therefore, this
  final rule with comment period reflects a negative update to the MPFS payment rates for CY 2011. If Congress
  revises the MPFS update for CY 2011, we will recalculate the ASC payment rates using the revised update factor
  in the January 2011 payment rate files issued to contractors and posted to the ASC Web site at http://www.cms.gov/ASCPayment/.

    We also reviewed CY 2009 volume and utilization data and other 
information for the six procedures proposed for temporary office-based 
status in the CY 2010 OPPS/ASC proposed rule (74 FR 35382) and 
finalized for temporary office-based status in the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60607). Among these six 
procedures, there were almost no claims data for three procedures: CPT 
code 0099T (Implantation of intrastromal corneal ring segments); CPT 
code 0124T (Conjunctival drug placement); and CPT code 67229 (Treatment 
of extensive or progressive retinopathy, one or more sessions; preterm 
infant (less than 37 weeks gestation at birth), performed from birth up 
to 1 year of age (e.g., retinopathy of prematurity), photocoagulation 
or cryotherapy). Consequently, we proposed to maintain their temporary 
office-based designations for CY 2011. We also proposed to maintain in 
CY 2011 the temporary office-based designation for the four codes that 
became effective in the July 2010 ASC quarterly update: CPT code 0226T 
(Angoscopy, high resolution (HRA) (with magnification and chemical 
agent enhancement); diagnostic, including collection of specimen(s) by 
brushing or washing when performed); CPT code 0227T (Angoscopy, high 
resolution (HRA) (with magnification and chemical agent enhancement); 
with biopsy(ies)); CPT code 0232T (Injection(s), platelet rich plasma, 
any tissue, including image guidance, harvesting and preparation when 
performed); and HCPCS code C9800 (Dermal injection procedure(s) for 
facial lipodystrophy syndrome (LDS) and provision of Radiesse or 
Sculptra dermal filler, including all items and supplies), because no 
data were available for these codes at the time of the proposed rule.
    As a result of our review of the remaining three procedures that 
have temporary office-based designations for CY 2010 for which we do 
have claims data, we proposed to make permanent the office-based 
designations for all of them for CY 2011. The three surgical procedure 
codes are: CPT code 46930 (Destruction of internal hemorrhoid(s) by 
thermal energy (e.g., infrared coagulation, cautery, radiofrequency)); 
CPT code 64455 (Injection(s), anesthetic agent and/or steroid, plantar 
common digital nerve(s) (e.g., Morton's neuroma)); and CPT code 64632 
(Destruction by neurolytic agent; plantar common digital nerve). We 
stated in the CY 2011 OPPS/ASC proposed rule (75 FR 46333) that the 
volume and utilization data for these CPT codes are sufficient to 
support our determination that these procedures are performed 
predominantly in physicians' offices. Therefore, we proposed to make 
permanent the office-based designations for the three procedures for CY 
2011.
    The procedures that we proposed to permanently designate as office-
based for CY 2011 that were temporarily designated as office-based 
procedures in CY 2010 were displayed in Table 45 of the CY 2011 OPPS/
ASC proposed rule

[[Page 72036]]

(75 FR 46334). The procedures that we proposed to temporarily designate 
as office-based for CY 2011 were displayed in Table 46 of the CY 2011 
OPPS/ASC proposed rule (75 FR 4635). The procedures for which the 
proposed office-based designation for CY 2011 is temporary also were 
indicated by an asterisk in Addendum AA to the proposed rule.
    We did not receive any public comments that addressed our proposals 
to designate the three procedures listed in Table 45 of the CY 2011 
OPPS/ASC proposed rule (75 FR 46334), and restated in Table 56, below, 
as permanently office-based for CY 2011. Therefore, we are finalizing 
our proposal to designate the three procedures listed in Table 45 of 
the CY 2011 OPPS/ASC proposed rule, which were designated as 
temporarily office-based for CY 2010, as permanently office-based for 
CY 2011. We list the codes, long descriptors, CY 2010 ASC payment 
indicators, and CY 2011 ASC payment indicators for these three 
procedures in Table 56 below. We also did not receive any public 
comments on our proposal to temporarily designate as office-based for 
CY 2011 the seven procedures listed in Table 46 of the CY 2011 OPPS/ASC 
proposed rule (75 FR 46335) and restated in Table 57, below. We are 
finalizing our proposal to designate the seven procedures listed in 
Table 46 of the CY 2011 OPPS/ASC proposed rule, which were designated 
as temporarily office-based for CY 2010, as temporarily office-based 
for CY 2011. We list the codes, long descriptors, CY 2010 ASC payment 
indicators, and CY 2011 ASC payment indicators for these seven 
procedures in Table 57 below.

    Table 56--CY 2010 Temporarily Designated Office-Based ASC Covered
 Surgical Procedures That Are Designated as Permanently Office-Based for
                                 CY 2011
------------------------------------------------------------------------
                                                              Final CY
                            CY 2011 long       CY 2010 ASC    2011 ASC
   CY 2011 CPT code          descriptor          payment       payment
                                                indicator   indicator **
------------------------------------------------------------------------
46930................  Destruction of                P3 *            P3
                        internal
                        hemorrhoid(s) by
                        thermal energy
                        (e.g., infrared
                        coagulation,
                        cautery,
                        radiofrequency).
64455................  Injection(s),                 P3 *            P3
                        anesthetic agent and/
                        or steroid, plantar
                        common digital
                        nerve(s) (e.g.,
                        Morton's neuroma).
64632................  Destruction by                P3 *            P3
                        neurolytic agent;
                        plantar common
                        digital nerve.
------------------------------------------------------------------------
* If designation is temporary.
** Payment indicators are based on a comparison of the rates according
  to the ASC standard ratesetting methodology and the MPFS rates. At the
  time this final rule with comment period is being finalized for
  publication, current law authorizes a negative update to the MPFS
  payment rates for CY 2011. Therefore, this final rule with comment
  period reflects a negative update to the MPFS payment rates for CY
  2011. If Congress revises the MPFS update for CY 2011, we will
  recalculate the ASC payment rates using the revised update factor in
  the January 2011 payment rate files issued to contractors and posted
  to the ASC Web site at http://www.cms.gov/ASCPayment/.


  Table 57--CY 2010 Temporarily Designated Office-Based ASC Covered Surgical Procedures That Are Designated as
                                      Temporarily Office-Based for CY 2011
----------------------------------------------------------------------------------------------------------------
                                                                                                      Final CY
                                                                                       CY 2010 ASC    2011 ASC
               CY 2011 HCPCS code                       CY 2011 long descriptor          payment       payment
                                                                                        indicator    indicator**
----------------------------------------------------------------------------------------------------------------
0099T...........................................  Implantation of intrastromal                R2*           R2*
                                                   corneal ring segments.
0124T...........................................  Conjunctival incision with                  R2*           R2*
                                                   posterior extrascleral placement
                                                   of pharmacological agent (does
                                                   not include supply of medication).
0226T...........................................  Angoscopy, high resolution (HRA)            R2*           R2*
                                                   (with magnification and chemical
                                                   agent enhancement); diagnostic,
                                                   including collection of
                                                   specimen(s) by brushing or
                                                   washing when performed.
0227T...........................................  Angoscopy, high resolution (HRA)            R2*           R2*
                                                   (with magnification and chemical
                                                   agent enhancement); with
                                                   biopsy(ies).
0232T...........................................  Injection(s), platelet rich                 R2*           R2*
                                                   plasma, any tissue, including
                                                   image guidance, harvesting and
                                                   preparation when performed.
67229...........................................  Treatment of extensive or                   R2*           R2*
                                                   progressive retinopathy, one or
                                                   more sessions; preterm infant
                                                   (less than 37 weeks gestation at
                                                   birth), performed from birth up
                                                   to 1 year of age (e.g.,
                                                   retinopathy of prematurity),
                                                   photocoagulation or cryotherapy.
C9800...........................................  Dermal injection procedure(s) for           R2*           R2*
                                                   facial lipodystrophy syndrome
                                                   (LDS) and provision of Radiesse
                                                   or Sculptra dermal filler,
                                                   including all items and supplies.
----------------------------------------------------------------------------------------------------------------
* If designation is temporary.
**Payment indicators are based on a comparison of the rates according to the ASC standard ratesetting
  methodology and the MPFS rates. At the time this final rule with comment period is being finalized for
  publication, current law authorizes a negative update to the MPFS payment rates for CY 2011. Therefore, this
  final rule with comment period reflects a negative update to the MPFS payment rates for CY 2011. If Congress
  revises the MPFS update for CY 2011, we will recalculate the ASC payment rates using the revised update factor
  in the January 2011 payment rate files issued to contractors and posted to the ASC Web site at http://www.cms.gov/ASCPayment/.


[[Page 72037]]

    Displayed in Table 47 of the CY 2011 OPPS/ASC proposed rule (75 FR 
46337) were new (or substantially revised) CY 2010 CPT codes to which 
we assigned temporary office-based payment indicators in the CY 2010 
OPPS/ASC final rule with comment period (74 FR 60608). As explained in 
section XV.B.1. of that final rule with comment period (74 FR 60599 and 
60607), we reviewed all of the newly created HCPCS codes that became 
available after the issuance of the CY 2009 OPPS/ASC proposed rule that 
are used to report surgical procedures in CY 2010 to evaluate their 
appropriateness for the ASC list of covered surgical procedures. Of the 
procedures reported by new or substantially revised CY 2010 CPT codes 
that we determined should not be excluded from the ASC list based on 
our clinical review, including assessment of available utilization and 
volume data for any closely related procedures and consideration of 
other available information, we determined that 16 of the procedures 
would predominantly be performed in physicians' offices. However, 
because we had no utilization data for the procedures specifically 
described by these new CPT codes, we made the office-based designations 
temporary rather than permanent and stated that we would reevaluate the 
procedures when data become available (74 FR 60607 through 60608). The 
temporary payment indicators for the 16 office-based procedures 
displayed in Table 47 were interim designations and were open to public 
comment during the 60-day comment period following the release of the 
CY 2010 OPPS/ASC final rule with comment period. We indicated that we 
would respond to public comments received during that 60-day comment 
period as well as the comment period following the CY 2011 OPPS/ASC 
proposed rule in this CY 2011 OPPS/ASC final rule with comment period.
    Comment: Some commenters to the CY 2010 OPPS/ASC final rule with 
comment period and the CY 2011 OPPS/ASC proposed rule disagreed with 
the designation of CPT code 21015 (Radical resection of tumor (e.g., 
malignant neoplasm, soft tissue of the face or scalp; less than 2 cm) 
as temporarily office-based. According to the commenters, Medicare 
claims data indicate that this procedure is not performed in the 
physician office setting more than 50 percent of the time.
    Response: We disagree with the commenters' assertion that CPT code 
21015 should not be temporarily office-based. We also do not agree with 
the commenters that we can use the Medicare claims data to assess 
whether the procedure described by CPT code 21015 is predominantly 
performed in the office or non-office setting. As we explained in the 
CY 2010 OPPS/ASC final rule with comment period and in the CY 2011 
OPPS/ASC proposed rule (74 FR 60599, 60607, and 60608 and 75 FR 46337), 
the CPT code descriptor for CPT code 21015 was one of several HCPCS 
codes with descriptors that were so substantially revised for CY 2010 
that we consider them to be new for CY 2010. Therefore, the most 
current available Medicare claims data from 2009 does not reflect the 
procedure now described by CPT code 21015 and should not be used to 
determine site-of-service. Our medical review team reviewed the 
clinical characteristics of this procedure and the utilization data for 
related procedures, and we continue to believe that it would 
predominantly be performed in the physician office. Therefore, we are 
maintaining its designation as temporarily office-based in CY 2011.
    After consideration of the public comments we received, we are 
finalizing our CY 2011 proposal, without modification, to maintain the 
temporary office-based payment indicators for the new CY 2010 CPT codes 
as displayed in Table 58 below.

Table 58--Final CY 2011 Payment Indicators for New CY 2010 CPT Codes for
 ASC Covered Surgical Procedures Designated as Temporarily Office-Based
   on an Interim Basis in the CY 2010 OPPS/ASC Final Rule With Comment
                                 Period
------------------------------------------------------------------------
                                                               Final CY
                                 CY 2011 long   CY 2010 ASC    2011 ASC
       CY 2011 CPT code           descriptor       payment     payment
                                                 indicator   indicator**
------------------------------------------------------------------------
21015........................  Radical                  R2*          R2*
                                resection of
                                tumor (e.g.,
                                malignant
                                neoplasm),
                                soft tissue of
                                face or scalp;
                                less than 2
                                cm).
21555........................  Excision,                P3*          P3*
                                tumor, soft
                                tissue of neck
                                or anterior
                                thorax,
                                subcutaneous;
                                less than 3 cm.
21930........................  Excision,                P3*          P3*
                                tumor, soft
                                tissue of back
                                or flank,
                                subcutaneous;
                                less than 3 cm.
23075........................  Excision,                P3*          P3*
                                tumor, soft
                                tissue of
                                shoulder area,
                                subcutaneous;
                                less than 3 cm.
24075........................  Excision,                P3*          P3*
                                tumor, soft
                                tissue of
                                upper arm or
                                elbow area,
                                subcutaneous;
                                less than 3 cm.
25075........................  Excision,                P3*          P3*
                                tumor, soft
                                tissue of
                                forearm and/or
                                wrist area,
                                subcutaneous;
                                less than 3 cm.
26115........................  Excision, tumor          P3*          P3*
                                or vascular
                                malformation,
                                soft tissue of
                                hand or
                                finger,
                                subcutaneous;
                                less than 1.5
                                cm.
27047........................  Excision,                P3*          P3*
                                tumor, soft
                                tissue of
                                pelvis and hip
                                area,
                                subcutaneous;
                                less than 3 cm.
27327........................  Excision,                P3*          P3*
                                tumor, soft
                                tissue of
                                thigh or knee
                                area,
                                subcutaneous;
                                less than 3 cm.
27618........................  Excision,                P3*          P3*
                                tumor, soft
                                tissue of leg
                                or ankle area,
                                subcutaneous;
                                less than 3 cm.
28039........................  Excision,                P3*         P3**
                                tumor, soft
                                tissue of foot
                                or toe,
                                subcutaneous;
                                1.5 cm or
                                greater.
28041........................  Excision,                R2*          R2*
                                tumor, soft
                                tissue of foot
                                or toe,
                                subfascial
                                (e.g.,
                                intramuscular)
                                ; 1.5 cm or
                                greater.
28043........................  Excision,                P3*          P3*
                                tumor, soft
                                tissue of foot
                                or toe,
                                subcutaneous;
                                less than 1.5
                                cm.
28045........................  Excision,                P3*          P3*
                                tumor, soft
                                tissue of foot
                                or toe,
                                subfascial
                                (e.g.,
                                intramuscular)
                                ; less than
                                1.5 cm.

[[Page 72038]]

 
28046........................  Radical                  R2*          R2*
                                resection of
                                tumor (e.g.,
                                malignant
                                neoplasm),
                                soft tissue of
                                foot or toe;
                                less than 3 cm.
37761........................  Ligation of              R2*          R2*
                                perforator
                                vein(s),
                                subfascial,
                                open,
                                including
                                ultrasound
                                guidance, when
                                performed, 1
                                leg.
------------------------------------------------------------------------
* If designation is temporary.
**Payment indicators are based on a comparison of the rates according to
  the ASC standard ratesetting methodology and the MPFS rates. At the
  time this final rule with comment period is being finalized for
  publication, current law authorizes a negative update to the MPFS
  payment rates for CY 2011. Therefore, this final rule with comment
  period reflects a negative update to the MPFS payment rates for CY
  2011. If Congress revises the MPFS update for CY 2011, we will
  recalculate the ASC payment rates using the revised update factor in
  the January 2011 payment rate files issued to contractors and posted
  to the ASC Web site at http://www.cms.gov/ASCPayment/.

    In addition to the comments we received on the office-based 
designations of procedures specifically discussed in the CY 2011 OPPS/
ASC proposed rule, we received the following comments on the proposed 
office-based status of procedures as listed in Addendum AA of the 
proposed rule.
    Comment: One commenter requested that CMS not consider as office-
based CPT codes 21011 (Excision, tumor, soft tissue of face or scalp, 
subcutaneous; less than 2 cm), 21012 (Excision, tumor, soft tissue of 
face or scalp, subcutaneous; 2 cm or greater), 21013 (Excision, tumor, 
soft tissue of face and scalp, subfascial (e.g., subgaleal, 
intramuscular); less than 2 cm), 21014 (Excision, tumor, soft tissue of 
face and scalp, subfascial (e.g., subgaleal, intramuscular); 2 cm or 
greater), and 21016 (Radical resection of tumor (e.g., malignant 
neoplasm), soft tissue of face or scalp; 2 cm or greater) until there 
are significant data to show that these codes are performed over 50 
percent of the time in physicians' offices.
    Response: Because CPT codes 21011, 21012, 21013, 21014, and 21016 
are new for CY 2010, we have no claims data showing in which setting 
these codes are performed the majority of the time. As is our standard 
process, we examined the available utilization and volume data for 
closely related procedures and considered other relevant clinical 
information to determine whether these procedures should be considered 
office-based. We continue to believe that the procedures described by 
CPT codes 21011, 21012, 21013, and 21014 would be performed 
predominantly in the physician office-setting and are therefore 
maintaining the office-based designations for these procedures in CY 
2011 as proposed. We note that we did not propose, nor are we 
finalizing, an office-based designation for the procedure described by 
CPT code 21016.
    Comment: Several commenters disagreed with the proposed assignment 
of payment indicator ``P2'' to CPT codes 37765 (Stab phlebectomy of 
varicose veins, 1 extremity; more than 20 incisions stab phlebectomy of 
varicose veins, 1 extremity; 10-20 stab incisions) and 37766 (Stab 
phlebectomy of varicose veins, 1 extremity; more than 20 incisions). 
According to the commenters, the CY 2011 MPFS proposed rule included 
nonfacility payment for these two procedures, but they requested that 
we postpone changing the payment indicator for CPT codes 37765 and 
37766 from ``R2'' to ``P3'' for one year and continue to base payment 
on the OPPS rather than the MPFS despite the availability of MPFS non-
facility PE RVUs for these procedures.
    Response: We do not agree with the commenter that it would be 
appropriate to maintain payment indicator ``R2'' for the office-based 
procedures described by CPT codes 37765 and 37766 for CY 2011. As the 
commenter notes, there are now non-facility PE RVUs upon which to base 
payment for these procedures, and we only assign payment indicator 
``R2'' to those office-based surgical procedures added to the ASC list 
in CY 2008 or later without MPFS non-facility PE RVUs. Therefore, we 
are finalizing our proposal to assign payment indicator P3 to CPT codes 
37765 and 37766 for CY 2011.
c. ASC Covered Surgical Procedures Designated as Device-Intensive
(1) Background
    As discussed in the August 2, 2007 final rule (72 FR 42503 through 
42508), we adopted a modified payment methodology for calculating the 
ASC payment rates for covered surgical procedures that are assigned to 
the subset of OPPS device-dependent APCs with a device offset 
percentage greater than 50 percent of the APC cost under the OPPS, in 
order to ensure that payment for the procedure is adequate to provide 
packaged payment for the high-cost implantable devices used in those 
procedures. We assigned payment indicators ``H8'' (Device-intensive 
procedure on ASC list in CY 2007; paid at adjusted rate) and ``J8'' 
(Device-intensive procedure added to ASC list in CY 2008 or later; paid 
at adjusted rate) to identify the procedures that were eligible for ASC 
payment calculated according to the modified methodology, depending on 
whether the procedure was included on the ASC list of covered surgical 
procedures prior to CY 2008 and, therefore, subject to transitional 
payment as discussed in the CY 2009 OPPS/ASC final rule with comment 
period (73 FR 68739 through 68742). The device-intensive procedures for 
which the modified rate calculation methodology applies in CY 2010 were 
displayed in Table 68 and in Addendum AA to the CY 2010 OPPS/ASC final 
rule with comment period (74 FR 60610 through 60611, and 60692 through 
60752).
(2) Changes to List of Covered Surgical Procedures Designated as Device 
Intensive for CY 2011
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46338 through 46341), 
we proposed to update the ASC list of covered surgical procedures that 
are eligible for payment according to the device-intensive procedure 
payment methodology for CY 2011, consistent with the proposed OPPS 
device-dependent APC update, reflecting the proposed APC assignments of 
procedures, designation of APCs as device-dependent, and APC device 
offset percentages based on the CY 2009 OPPS claims and cost report 
data

[[Page 72039]]

available for the proposed rule. The OPPS device-dependent APCs were 
discussed further in section II.A.2.d.(1) of the proposed rule. The ASC 
covered surgical procedures that we proposed to designate as device-
intensive and that would be subject to the device-intensive procedure 
payment methodology for CY 2011 were listed in Table 48 in the CY 2011 
OPPS/ASC proposed rule (75 FR 46339 through 46341).
    Comment: Some commenters expressed general concerns regarding the 
sufficiency of ASC payment for device-related services and recommended 
modifications to the ASC device-intensive payment methodology. First, 
the commenters argued that CMS should not adjust the device-related 
portion of the ASC payment for device-intensive procedures by the wage 
index. According to the commenters, the acquisition of devices occurs 
on a national market, and the price is the same regardless of the 
location of the ASC. Second, the commenters argued that CMS should not 
apply the ASC conversion factor to the device-related portion of the 
payment for all procedures for which CMS can establish a median device 
cost, regardless of whether they meet the criteria to be designated as 
device-intensive under the established methodology. The commenters 
stated that, unlike ASCs' general abilities to achieve greater 
operational efficiencies than HOPDs, ASCs are unable to extract greater 
discounts on devices and expensive operative supplies than their 
hospital counterparts.
    Response: In the August 2, 2007 final rule (72 FR 42508), we 
established that the modified payment methodology for calculating ASC 
payment rates for device-intensive procedures shall apply to ASC 
covered surgical procedures that are assigned to device-dependent APCs 
under the OPPS for the same calendar year, where those APCs have a 
device cost of greater than 50 percent of the APC cost (that is, the 
device offset percentage is greater than 50). We continue to believe 
these criteria ensure that ASC payment rates are adequate to provide 
packaged payment for high cost implantable devices and ensure Medicare 
beneficiaries have access to these procedures in all appropriate 
settings of care. As we have stated in the past (74 FR 60609), we do 
not agree that we should change our criteria and treat as device-
intensive those services that are assigned to APCs for which the device 
offset percentage is less than 50 percent or ASC services that are not 
assigned to device-dependent APCs. Under the modified payment 
methodology for ASC covered surgical procedures designated as device-
intensive, we separately determine both the device payment and service 
payment portions of the ASC payment rate, and apply the ASC conversion 
factor only to the specifically calculated OPPS relative payment weight 
for the service portion, while providing the same packaged payment for 
the device portion as would be made under the OPPS. The 50-percent 
device offset threshold is established to ensure that the ASC 
conversion factor is not applied to the costs of high cost implantable 
devices, which likely do not vary between ASCs and HOPDs in the same 
manner service costs have been shown to vary. As we have stated in the 
past (73 FR 68734 and 74 FR 60609), we continue to believe that when 
device costs comprise less than 50 percent of total procedure costs, 
those costs are less likely to be as predictable across sites-of-
service. Accordingly, we believe that it is possible for ASCs to 
achieve efficiencies relative to HOPDs when providing those procedures, 
and that the application of the ASC conversion factor to the entire ASC 
payment weight is appropriate.
    We also continue to believe it would not be appropriate to vary the 
percentage of the national payment that is wage adjusted for different 
services such as applying the wage index only to the service portion of 
the ASC payment for device-intensive procedures as the commenters 
request. Under the revised ASC payment system, we utilize 50 percent as 
the labor-related share to adjust national ASC payment rates for 
geographic wage differences. We apply to ASC payments the IPPS pre-
floor, pre-reclassification wage index values associated with the June 
2003 OMB geographic localities, as recognized under the IPPS and OPPS, 
in order to adjust the labor-related portion of the national ASC 
payment rates for geographic wage differences. Consistent with the 
OPPS, we apply the ASC geographic wage adjustment to the entire ASC 
payment rate for device-intensive procedures. As we have noted in the 
past (73 FR 68735 and 74 FR 60609), MedPAC has indicated its intent to 
evaluate our method for adjusting payments for variations in labor 
costs in light of differences in labor-related costs for device-
implantation services. We look forward to reviewing the results of its 
evaluation, as well as any recommendations it may provide, regarding 
the OPPS or ASC wage adjustment policy.
    Comment: One commenter requested that CMS adjust the OPPS device 
offset percentages for ASC device-intensive payment purposes to account 
for the effects of charge compression, specifically for APCs 0385 and 
0386. The commenter suggested that CMS ``decompress'' the supply median 
costs to minimize any artificial reductions that charge compression 
causes in the estimate of the OPPS device offset percentages.
    Response: Charge compression is the practice of applying a lower 
charge markup to higher-cost services and a higher charge markup to 
lower-cost services. As a result of charge compression, the cost-based 
OPPS weights incorporate aggregation bias, undervaluing high cost items 
and overvaluing low cost items when an estimate of average markup, 
embodied in a single CCR, is applied to items of widely varying costs 
in the same cost center. As discussed in the CY 2009 OPPS/ASC final 
rule with comment period (73 FR 68524), we did not adopt any short-term 
statistical regression based adjustments under the OPPS that would 
serve to ``decompress'' the median costs for procedures involving 
devices, or for any other procedures. Rather, we chose to focus on 
long-term changes to Medicare cost reporting to address the effects of 
charge compression, including the creation of two new cost centers, 
``Medical Supplies Charged to Patients'' and ``Implantable Devices 
Charged to Patients,'' as discussed in more detail in the CY 2010 OPPS/
ASC final rule with comment period (74 FR 60342 through 60346). As we 
stated in that final rule with comment period, we believe that this 
change to how hospitals report costs for devices and supplies will 
improve our future estimates of costs related to high cost implantable 
devices, including the device offset percentages upon which we base the 
device portions of ASC payment rates for device-intensive procedures 
(74 FR 60609).
    Comment: Several commenters remarked on the adequacy of the 
proposed payment rates calculated according to the ASC device-intensive 
payment methodology for procedures involving auditory osseointegrated 
devices, described by CPT codes 69714 (Implantation, osseointegrated 
implant, temporal bone, with percutaneous attachment to external speech 
processor/cochlear stimulator; without mastoidectomy); 69715 
(Implantation, osseointegrated implant, temporal bone, with 
percutaneous attachment to external speech processor/cochlear 
stimulator; with mastoidectomy); 69717 (Replacement (including removal 
of existing device), osseointegrated implant, temporal bone, with 
percutaneous attachment to external speech processor/cochlear 
stimulator;

[[Page 72040]]

without mastoidectomy); and 69718 (Replacement (including removal of 
existing device), osseointegrated implant, temporal bone, with 
percutaneous attachment to external speech processor/cochlear 
stimulator; with mastoidectomy). The commenters expressed appreciation 
for the proposed increase in payment for these procedures but indicated 
that the proposed payment rates remain insufficient for covering ASCs' 
costs for providing the procedures and requested that CMS further 
increase these rates for CY 2011. They believed that the rates might 
have a negative impact on the availability of these services in an ASC 
setting and therefore might limit patient access. Other commenters 
stated that paying ASCs a higher rate than hospital outpatient 
departments would encourage movement of the procedures to the ``more 
economical'' ASC environment.
    Response: We appreciate commenters' support of the proposed payment 
rates for procedures involving auditory osseointegrated devices, but we 
disagree with the commenters' assertion that we should increase payment 
rates for these procedures further in order to maintain beneficiary 
access. We believe that the final CY 2011 ASC payment rates for these 
procedures, calculated according to the ASC device-intensive 
ratesetting methodology, are appropriate and adequate to ensure 
beneficiaries have access to these procedures in the ASC setting.
    Comment: Some commenters asked that CMS add to the ASC list of 
device-intensive procedures those procedures that require items that 
would have been separately payable under the Durable Medical Equipment, 
Prosthetics, Orthotics, and Supplies (DMEPOS) fee schedule prior to the 
implementation of the revised ASC payment system on January 1, 2008. 
These commenters requested that specific procedures that were not 
included in Table 48 of the CY 2011 OPPS/ASC proposed rule be 
recognized as device-intensive for CY 2011, specifically those 
procedures involving CPT codes 19325 (Mammaplasty, augmentation; with 
prosthetic implant), 19340 (Immediate insertion of breast prosthesis 
following mastopexy, mastectomy or in reconstruction), and 19357 
(Breast reconstruction, immediate or delayed, with tissue expander, 
including subsequent expansion). The commenters argued that the device 
costs are inadequately covered in an ASC setting now that ASCs are no 
longer paid separately under the DMEPOS fee schedule for the breast 
prostheses used in these procedures.
    Response: We appreciate commenters' recommendations on how we 
should designate procedures as device-intensive under the revised ASC 
payment system. In the August 2, 2007 revised ASC payment system final 
rule (72 FR 42508), we established that the modified payment 
methodology for calculating ASC payment rates for device-intensive 
procedures shall apply to ASC covered surgical procedures that are 
assigned to device-dependent APCs under the OPPS for the same calendar 
year, where those APCs have a device cost of greater than 50 percent of 
the APC cost (that is, the device offset percentage is greater than 
50). We believe these criteria ensure that ASC payment rates are 
adequate to provide packaged payment for high cost implantable devices 
and ensure beneficiaries have access to these procedures in all 
appropriate care settings. The procedure described by CPT code 19340 is 
not assigned to a device-dependent APC under the OPPS, and while the 
procedures described by CPT codes 19325 and 19357 are assigned to a 
device-dependent APC under the OPPS (APC 0648 (Level IV Breast 
Surgery)), the device offset percentage for this APC is less than 50 
percent. Therefore, none of these procedures qualify as being 
recognized as device-intensive for ASC payment purposes.
    We do not agree that we should change our criteria and treat as 
device-intensive all ASC services that map to OPPS device-dependent 
APCs, or the subset of procedures that are assigned to OPPS device-
dependent APCs with device offset percentages less than 50 percent, 
regardless of whether those procedures require items that would have 
been separately payable under the DMEPOS fee schedule prior to the 
implementation of the revised ASC payment system on January 1, 2008. We 
continue to believe that our current criteria ensure that ASC payment 
rates are adequate to provide packaged payment for high cost 
implantable devices and ensure Medicare beneficiaries have access to 
these procedures in all appropriate settings of care.
    After consideration of the public comments we received, we are 
designating the ASC covered surgical procedures displayed in Table 59 
below as device-intensive for CY 2011. The CPT code, the CPT code short 
descriptor, the CY 2011 ASC payment indicator, the CY 2011 OPPS APC 
assignment, the OPPS APC Title, and the CY 2011 OPPS APC device offset 
percentage are listed in Table 59. Each device-intensive procedure is 
assigned payment indicator ``H8'' or ``J8,'' depending on whether it 
was subject to transitional payment prior to CY 2011. All of these 
procedures are included in Addendum AA to this final rule with comment 
period. The OPPS device-dependent APCs are discussed further in section 
II.A.2.d.(1) of this final rule with comment period. We note that, as 
discussed in section II.A.2.d.9. of this final rule with comment 
period, CPT code 64573 (incision for implantation of neurostimulator 
electrodes; cranial nerve), which we had proposed to continue to 
recognize as device-intensive for ASC payment purposes in CY 2011, is 
being deleted effective January 1, 2011, and is being replaced by CPT 
code 64568 (Incision for implantation of cranial nerve (e.g., vagus 
nerve) neurostimulator electrode array and pulse generator). As we 
discuss in that section, we are deleting APC 0225 (Implantation of 
Neurostimulator Electrodes, Cranial Nerve), the APC to which CPT code 
64573 was the only code assigned in CY 2010, and creating new APC 0318 
(Implantation of Cranial Neurostimulator Pulse Generator and Electrode) 
to which CPT code 64568 will be assigned. Because CPT code 64568 is 
replacing CPT code 64573, we are recognizing CPT code 64568 as device-
intensive for ASC payment purposes for CY 2011. These CPT and APC 
changes are reflected in Table 59, below.

[[Page 72041]]



                                  Table 59--ASC Covered Surgical Procedures Designated as Device-Intensive for CY 2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                           Final CY 2011
                                                                         Final CY 2011                                                        device-
             CY 2011 CPT code                CY 2011 short descriptor     ASC payment    Final CY 2011           OPPS APC title            dependent APC
                                                                           indicator       OPPS APC                                           offset
                                                                                                                                            percentage
--------------------------------------------------------------------------------------------------------------------------------------------------------
24361....................................  Reconstruct elbow joint....              H8            0425  Level II Arthroplasty or                      59
                                                                                                         Implantation with Prosthesis.
24363....................................  Replace elbow joint........              H8            0425  Level II Arthroplasty or                      59
                                                                                                         Implantation with Prosthesis.
24366....................................  Reconstruct head of radius.              H8            0425  Level II Arthroplasty or                      59
                                                                                                         Implantation with Prosthesis.
25441....................................  Reconstruct wrist joint....              H8            0425  Level II Arthroplasty or                      59
                                                                                                         Implantation with Prosthesis.
25442....................................  Reconstruct wrist joint....              H8            0425  Level II Arthroplasty or                      59
                                                                                                         Implantation with Prosthesis.
25446....................................  Wrist replacement..........              H8            0425  Level II Arthroplasty or                      59
                                                                                                         Implantation with Prosthesis.
27446....................................  Revision of knee joint.....              J8            0425  Level II Arthroplasty or                      59
                                                                                                         Implantation with Prosthesis.
33206....................................  Insertion of heart                       J8            0089  Insertion/Replacement of                      71
                                            pacemaker.                                                   Permanent Pacemaker and
                                                                                                         Electrodes.
33207....................................  Insertion of heart                       J8            0089  Insertion/Replacement of                      71
                                            pacemaker.                                                   Permanent Pacemaker and
                                                                                                         Electrodes.
33208....................................  Insertion of heart                       J8            0655  Insertion/Replacement/Conversion              74
                                            pacemaker.                                                   of a permanent dual chamber
                                                                                                         pacemaker.
33212....................................  Insertion of pulse                       H8            0090  Insertion/Replacement of                      73
                                            generator.                                                   Pacemaker Pulse Generator.
33213....................................  Insertion of pulse                       H8            0654  Insertion/Replacement of a                    74
                                            generator.                                                   permanent dual chamber
                                                                                                         pacemaker.
33214....................................  Upgrade of pacemaker system              J8            0655  Insertion/Replacement/Conversion              74
                                                                                                         of a permanent dual chamber
                                                                                                         pacemaker.
33224....................................  Insert pacing lead &                     J8            0418  Insertion of Left Ventricular                 73
                                            connect.                                                     Pacing Elect.
33225....................................  Lventric pacing lead add-on              J8            0418  Insertion of Left Ventricular                 73
                                                                                                         Pacing Elect.
33240....................................  Insert pulse generator.....              J8            0107  Insertion of Cardioverter-                    88
                                                                                                         Defibrillator.
33249....................................  Eltrd/insert pace-defib....              J8            0108  Insertion/Replacement/Repair of               87
                                                                                                         Cardioverter-Defibrillator
                                                                                                         Leads.
33282....................................  Implant pat-active ht                    J8            0680  Insertion of Patient Activated                71
                                            record.                                                      Event Recorders.
53440....................................  Male sling procedure.......              H8            0385  Level I Prosthetic Urological                 61
                                                                                                         Procedures.
53444....................................  Insert tandem cuff.........              H8            0385  Level I Prosthetic Urological                 61
                                                                                                         Procedures.
53445....................................  Insert uro/ves nck                       H8            0386  Level II Prosthetic Urological                71
                                            sphincter.                                                   Procedures.
53447....................................  Remove/replace ur sphincter              H8            0386  Level II Prosthetic Urological                71
                                                                                                         Procedures.
54400....................................  Insert semi-rigid                        H8            0385  Level I Prosthetic Urological                 61
                                            prosthesis.                                                  Procedures.
54401....................................  Insert self-contd                        H8            0386  Level II Prosthetic Urological                71
                                            prosthesis.                                                  Procedures.
54405....................................  Insert multi-comp penis                  H8            0386  Level II Prosthetic Urological                71
                                            pros.                                                        Procedures.
54410....................................  Remove/replace penis prosth              H8            0386  Level II Prosthetic Urological                71
                                                                                                         Procedures.
54416....................................  Remv/repl penis contain                  H8            0386  Level II Prosthetic Urological                71
                                            pros.                                                        Procedures.
55873....................................  Cryoablate prostate........              H8            0674  Prostate Cryoablation...........              58
61885....................................  Insrt/redo neurostim 1                   H8            0039  Level I Implantation of                       86
                                            array.                                                       Neurostimulator Generator.
61886....................................  Implant neurostim arrays...              H8            0315  Level II Implantation of                      88
                                                                                                         Neurostimulator Generator.
62361....................................  Implant spine infusion pump              H8            0227  Implantation of Drug Infusion                 81
                                                                                                         Device.
62362....................................  Implant spine infusion pump              H8            0227  Implantation of Drug Infusion                 81
                                                                                                         Device.
63650....................................  Implant neuroelectrodes....              H8            0040  Percutaneous Implantation of                  58
                                                                                                         Neurostimulator Electrodes.
63655....................................  Implant neuroelectrodes....              J8            0061  Laminectomy, Laparoscopy, or                  64
                                                                                                         Incision for Implantation of
                                                                                                         Neurostimulator Electr.
63685....................................  Insrt/redo spine n                       H8            0039  Level I Implantation of                       86
                                            generator.                                                   Neurostimulator Generator.
64553....................................  Implant neuroelectrodes....              H8            0040  Percutaneous Implantation of                  58
                                                                                                         Neurostimulator Electrodes.

[[Page 72042]]

 
64555....................................  Implant neuroelectrodes....              J8            0040  Percutaneous Implantation of                  58
                                                                                                         Neurostimulator Electrodes.
64560....................................  Implant neuroelectrodes....              J8            0040  Percutaneous Implantation of                  58
                                                                                                         Neurostimulator Electrodes.
64561....................................  Implant neuroelectrodes....              H8            0040  Percutaneous Implantation of                  58
                                                                                                         Neurostimulator Electrodes.
64565....................................  Implant neuroelectrodes....              J8            0040  Percutaneous Implantation of                  58
                                                                                                         Neurostimulator Electrodes.
64568....................................  Implant neuroelectrodes....              J8            0318  Implantation of Neurostimulator               85
                                                                                                         Electrodes, Cranial Nerve.
64575....................................  Implant neuroelectrodes....              H8            0061  Laminectomy, Laparoscopy, or                  64
                                                                                                         Incision for Implantation of
                                                                                                         Neurostimulator Electr.
64577....................................  Implant neuroelectrodes....              H8            0061  Laminectomy, Laparoscopy, or                  64
                                                                                                         Incision for Implantation of
                                                                                                         Neurostimulator Electr.
64580....................................  Implant neuroelectrodes....              H8            0061  Laminectomy, Laparoscopy, or                  64
                                                                                                         Incision for Implantation of
                                                                                                         Neurostimulator Electr.
64581....................................  Implant neuroelectrodes....              H8            0061  Laminectomy, Laparoscopy, or                  64
                                                                                                         Incision for Implantation of
                                                                                                         Neurostimulator Electr.
64590....................................  Insrt/redo pn/gastr stimul.              H8            0039  Level I Implantation of                       86
                                                                                                         Neurostimulator Generator.
65770....................................  Revise cornea with implant.              H8            0293  Level VI Anterior Segment Eye                 56
                                                                                                         Procedures.
69714....................................  Implant temple bone w/                   H8            0425  Level II Arthroplasty or                      59
                                            stimul.                                                      Implantation with Prosthesis.
69715....................................  Temple bne implnt w/                     H8            0425  Level II Arthroplasty or                      59
                                            stimulat.                                                    Implantation with Prosthesis.
69717....................................  Temple bone implant                      H8            0425  Level II Arthroplasty or                      59
                                            revision.                                                    Implantation with Prosthesis.
69718....................................  Revise temple bone implant.              H8            0425  Level II Arthroplasty or                      59
                                                                                                         Implantation with Prosthesis.
69930....................................  Implant cochlear device....              H8            0259  Level VII ENT Procedures........              85
--------------------------------------------------------------------------------------------------------------------------------------------------------

d. ASC Treatment of Surgical Procedures Removed From the OPPS Inpatient 
List for CY 2011
    As we discussed in the CY 2009 OPPS/ASC final rule with comment 
period (73 FR 68724), we adopted a policy to include in our annual 
evaluation procedures proposed for removal from the OPPS inpatient list 
for possible inclusion on the ASC list of covered surgical procedures. 
For the CY 2011 OPPS/ASC proposed rule, we evaluated each of the three 
procedures we proposed to remove from the OPPS inpatient list for CY 
2011 according to the criteria for exclusion from the list of covered 
ASC surgical procedures (75 FR 46341). We stated in the CY 2011 OPPS/
ASC proposed rule (75 FR 46341) that we believe that all of these 
procedures should continue to be excluded from the ASC list of covered 
surgical procedures for CY 2011 because they would be expected to pose 
a significant risk to beneficiary safety or to require an overnight 
stay in ASCs. A full discussion about the APC Panel's recommendations 
regarding the procedures we proposed to remove from the OPPS inpatient 
list for CY 2011 may be found in section XI.B. of the CY 2011 OPPS/ASC 
proposed rule (75 FR 46301 through 46302). The HCPCS codes for these 
three procedures and their long descriptors were listed in Table 49 of 
the CY 2011 OPPS/ASC proposed rule (75 FR 46342).
    Comment: One commenter requested that we add CPT codes 21193 
(reconstruction of mandibular rami, horizontal, vertical, C, or L 
osteotomy; without bone graft) and 21395 (reconstruction of mandibular 
rami and/or body, sagittal split; without internal rigid fixation) to 
the ASC covered surgical procedure list.
    Response: We do not agree with the commenter that we should add CPT 
codes 21193 and 21395 to the ASC list of covered surgical procedures. 
We continue to believe that these procedures should be excluded from 
the ASC list of covered surgical procedures for CY 2011 because they 
would be expected to pose a significant risk to beneficiary safety or 
to require an overnight stay in ASCs.
    After consideration of the public comment we received, we are 
finalizing our proposal, without modification, to continue to exclude 
the procedures described by the CPT codes listed in Table 49 of the CY 
2011 OPPS/ASC proposed rule, and restated in Table 60 below, from the 
ASC list of covered surgical procedures.

  Table 60--Procedures Excluded From the ASC List of Covered Procedures
   for CY 2011 That Were Removed From the CY 2011 OPPS Inpatient List
------------------------------------------------------------------------
     CY 2011 CPT code                 CY 2011 long descriptor
------------------------------------------------------------------------
21193....................  Reconstruction of mandibular rami,
                            horizontal, vertical, C, or L osteotomy;
                            without bone graft.
21395....................  Open treatment of orbital floor blowout
                            fracture; periorbital approach with bone
                            graft (includes obtaining graft).

[[Page 72043]]

 
25909....................  Amputation, forearm, through radius and ulna;
                            re-amputation.
------------------------------------------------------------------------

2. Covered Ancillary Services
    Consistent with the established ASC payment system policy, in the 
CY 2011 OPPS/ASC proposed rule (75 FR 46342), we proposed to update the 
ASC list of covered ancillary services to reflect the proposed payment 
status for the services under the CY 2011 OPPS. Maintaining consistency 
with the OPPS may result in proposed changes to ASC payment indicators 
for some covered ancillary items and services because of changes that 
are being proposed under the OPPS for CY 2011. For example, a covered 
ancillary service that was separately paid under the revised ASC 
payment system in CY 2010 may be proposed for packaged status under the 
CY 2011 OPPS and, therefore, also under the ASC payment system for CY 
2011. Comment indicator ``CH,'' discussed in section XV.F. of the CY 
2011 OPPS/ASC proposed rule (75 FR 46356), was used in Addendum BB to 
that proposed rule to indicate covered ancillary services for which we 
proposed a change in the ASC payment indicator to reflect a proposed 
change in the OPPS treatment of the service for CY 2011.
    Except for the Level II HCPCS codes listed in Table 41 of the CY 
2011 OPPS/ASC proposed rule (75 FR 46327), all ASC covered ancillary 
services and their proposed payment indicators for CY 2011 were 
included in Addendum BB to that proposed rule.
    We did not receive any public comments on our proposal. Therefore, 
we are finalizing, without modification, our proposal to update the ASC 
list of covered ancillary services to reflect the payment status for 
the services under the OPPS. All CY 2011 ASC covered ancillary services 
and their final payment indicators are included in Addendum BB to this 
final rule with comment period.

D. ASC Payment for Covered Surgical Procedures and Covered Ancillary 
Services

1. Payment for Covered Surgical Procedures
a. Background
    Our ASC payment policies for covered surgical procedures under the 
revised ASC payment system are fully described in the CY 2008 OPPS/ASC 
final rule with comment period (72 FR 66828 through 66831). Under our 
established policy for the revised ASC payment system, the ASC standard 
ratesetting methodology of multiplying the ASC relative payment weight 
for the procedure by the ASC conversion factor for that same year is 
used to calculate the national unadjusted payment rates for procedures 
with payment indicator ``G2.'' For procedures assigned payment 
indicator ``A2,'' our final policy established blended rates to be used 
during the transitional period and, beginning in CY 2011, ASC rates 
calculated according to the ASC standard ratesetting methodology. The 
rate calculation established for device intensive procedures (payment 
indicators ``H8'' and ``J8'') is structured so that the packaged device 
payment amount is the same as under the OPPS, and only the service 
portion of the rate is subject to the ASC standard ratesetting 
methodology. In the CY 2010 OPPS/ASC final rule with comment period (74 
FR 60596 through 60629), we updated the CY 2009 ASC payment rates for 
ASC covered surgical procedures with payment indicators of ``A2,'' 
``G2,'' ``H8,'' and ``J8'' using CY 2008 data, consistent with the CY 
2010 OPPS update. Payment rates for device-intensive procedures also 
were updated to incorporate the CY 2010 OPPS device offset percentages.
    Payment rates for office-based procedures (payment indicators 
``P2,'' ``P3,'' and ``R2'') are the lower of the MPFS non-facility PE 
RVU amount (we refer readers to the CY 2011 MPFS final rule with 
comment period) or the amount calculated using the ASC standard 
ratesetting methodology for the procedure. In the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60596 through 60629), we updated 
the payment amounts for office-based procedures (payment indicators 
``P2,'' ``P3,'' and ``R2'') using the most recent available MPFS and 
OPPS data. We compared the estimated CY 2010 rate for each of the 
office-based procedures, calculated according to the ASC standard 
ratesetting methodology, to the MPFS nonfacility PE RVU amount 
(multiplied by the conversion factor) to determine which was lower and, 
therefore, would be the CY 2010 payment rate for the procedure 
according to the final policy of the revised ASC payment system (Sec.  
416.171(d)).
b. Update to ASC-Covered Surgical Procedure Payment Rates for CY 2011
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46342 through 46343), 
we proposed to update ASC payment rates for CY 2011 using the 
established rate calculation methodologies under Sec.  416.171. Under 
Sec.  416.171(c)(4), the transitional payment rates are no longer used 
for CY 2011 and subsequent calendar years for a covered surgical 
procedure designated in accordance with Sec.  416.166. Thus, we 
proposed to calculate CY 2011 payments for procedures formerly subject 
to the transitional payment methodology (payment indicators ``A2'' and 
``H8'') using the proposed CY 2011 ASC rate calculated according to the 
ASC standard ratesetting methodology, incorporating the device-
intensive procedure methodology, as appropriate, for procedures 
assigned ASC payment indicator ``H8.'' We did not propose to modify the 
payment indicators for procedures that were subject to transitional 
payment prior to CY 2011 but will consider doing so in future 
rulemaking. We proposed to continue to use the amount calculated under 
the ASC standard ratesetting methodology for procedures assigned 
payment indicator ``G2.''
    We proposed that payment rates for office-based procedures (payment 
indicators ``P2,'' ``P3,'' and ``R2'') and device-intensive procedures 
that were not subject to transitional payment (payment indicator 
``J8'') be calculated according to our established policies, 
incorporating the device-intensive procedure methodology as 
appropriate. Thus, we proposed to update the payment amounts for 
device-intensive procedures based on the CY 2011 OPPS proposal that 
reflects updated OPPS device offset percentages, and to make payment 
for office-based procedures at the lesser of the CY 2011 proposed MPFS 
non-facility PE RVU amount or the proposed CY 2011 ASC payment amount 
calculated according to the standard ratesetting methodology.

[[Page 72044]]

    Comment: One commenter did not understand the rationale for the 
payment rate for the following CPT codes: (1) CPT code 62319 
(injection, including catheter placement, continuous infusion or 
intermittent bolus, not including neurolytic substances, with or 
without contrast (for either localization or epidurography), of 
diagnostic or therapeutic substance(s) (including anesthetic, 
antispasmodic, opioid, steroid, other solution), epidural or 
subarachnoid; lumbar, sacral (caudal)), which the commenter stated 
should be paid at a rate similar to CPT codes 62318 (injection, 
including catheter placement, continuous infusion or intermittent 
bolus, not including neurolytic substances, with or without contrast 
(for either localization or epidurography), of diagnostic or 
therapeutic substance(s) (including anesthetic, antispasmodic, opioid, 
steroid, other solution), epidural or subarachnoid; cervical or 
thoracic), 62310 (injection, single (not via indwelling catheter), not 
including neurolytic substances, with or without contrast (for either 
localization or epidurography), of diagnostic or therapeutic 
substance(s) (including anesthetic, antispasmodic, opioid, steroid, 
other solution), epidural or subarachnoid; cervical or thoracic); or 
62311 (injection, single (not via indwelling catheter), not including 
neurolytic substances, with or without contrast (for either 
localization or epidurography), of diagnostic or therapeutic 
substance(s) (including anesthetic, antispasmodic, opioid, steroid, 
other solution), epidural or subarachnoid; lumbar, sacral (caudal)); 
(2) CPT code 64410 (injection, anesthetic agent; phrenic nerve), which 
the commenter stated should be paid at a rate similar to CPT codes 
64415 (injection, anesthetic agent; brachial plexus, single), 64417 
(injection, anesthetic agent; axillary nerve), or 64420 (injection, 
anesthetic agent; intercostal nerve, single); and (3) CPT code 64626 
(destruction by neurolytic agent, paravertebral facet joint nerve; 
cervical or thoracic, single level), which the commenter stated should 
be paid at rate similar to CPT code 64622 (destruction by neurolytic 
agent, paravertebral facet joint nerve; lumbar or sacral, single 
level).
    Response: We reviewed the proposed payment rates, payment 
indicators, and OPPS APC assignments for these three procedures and 
found that they are all correct. Because these procedures are assigned 
payment indicator ``A2'' under the revised ASC payment system, their 
payment is calculated using the ASC standard ratesetting methodology of 
multiplying the ASC relative payment weight for the procedure by the 
ASC conversion factor for the same year. We do not agree with the 
commenter that there is any basis to deviate from our standard 
ratesetting methodology for these procedures under the revised ASC 
payment system. The standard ASC methodology is based on OPPS APC 
groups; since these codes are assigned to different APCs, different 
payment rates are appropriate for these codes.
    After consideration of the public comment we received, we are 
finalizing our CY 2011 proposal, without modification, to calculate the 
CY 2011 final ASC payment rates for ASC-covered surgical procedures 
according to our established methodologies.
c. Adjustment to ASC Payments for No Cost/Full Credit and Partial 
Credit Devices
    Our ASC policy with regard to payment for costly devices implanted 
in ASCs at no cost or with full or partial credit as set forth in Sec.  
416.179 is consistent with the OPPS policy. The CY 2011 OPPS APCs and 
devices subject to the adjustment policy are discussed in section 
IV.B.2. of this final rule with comment period. The established ASC 
policy includes adoption of the OPPS policy for reduced payment to 
providers when a specified device is furnished without cost or with 
full or partial credit for the cost of the device for those ASC covered 
surgical procedures that are assigned to APCs under the OPPS to which 
this policy applies. We refer readers to the CY 2009 OPPS/ASC final 
rule with comment period for a full discussion of the ASC payment 
adjustment policy for no cost/full credit and partial credit devices 
(73 FR 68742 through 68745).
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46343), consistent 
with the OPPS, we proposed to update the list of ASC covered device 
intensive procedures and devices that would be subject to the no cost/
full credit and partial credit device adjustment policy for CY 2011. 
Table 50 of the CY 2011 OPPS/ASC proposed rule (75 FR 46344 through 
46346) displayed the ASC covered device-intensive procedures that we 
proposed would be subject to the no cost/full credit and partial credit 
device adjustment policy for CY 2011. Specifically, when a procedure 
that is listed in Table 50 is performed to implant a device that is 
listed in Table 51 of the CY 2011 OPPS/ASC proposed rule (75 FR 46347), 
where that device is furnished at no cost or with full credit from the 
manufacturer, the ASC would append the HCPCS ``FB'' modifier on the 
line with the procedure to implant the device. The contractor would 
reduce payment to the ASC by the device offset amount that we estimate 
represents the cost of the device when the necessary device is 
furnished without cost to the ASC or with full credit. We would provide 
the same amount of payment reduction based on the device offset amount 
in ASCs that would apply under the OPPS under the same circumstances. 
We stated in the CY 2011 OPPS/ASC proposed rule (75 FR 46343) that we 
continue to believe that the reduction of ASC payment in these 
circumstances is necessary to pay appropriately for the covered 
surgical procedure being furnished by the ASC.
    We also proposed to reduce the payment for implantation procedures 
listed in Table 50 of the CY 2011 OPPS/ASC proposed rule by one-half of 
the device offset amount that would be applied if a device was provided 
at no cost or with full credit, if the credit to the ASC is 50 percent 
or more of the cost of the new device. The ASC would append the HCPCS 
``FC'' modifier to the HCPCS code for a surgical procedure listed in 
Table 50 of the CY 2011 OPPS/ASC proposed rule when the facility 
receives a partial credit of 50 percent or more of the cost of a device 
listed in Table 51 of the CY 2011 OPPS/ASC proposed rule. In order to 
report that they received a partial credit of 50 percent or more of the 
cost of a new device, ASCs would have the option of either: (1) 
Submitting the claim for the device replacement procedure to their 
Medicare contractor after the procedure's performance but prior to 
manufacturer acknowledgment of credit for the device, and subsequently 
contacting the contractor regarding a claim adjustment once the credit 
determination is made; or (2) holding the claim for the device 
implantation procedure until a determination is made by the 
manufacturer on the partial credit and submitting the claim with the 
``FC'' modifier appended to the implantation procedure HCPCS code if 
the partial credit is 50 percent or more of the cost of the replacement 
device. Beneficiary coinsurance would continue to be based on the 
reduced payment amount.
    We did not receive any comments on our CY 2011 proposal to continue 
the no cost/full credit and partial credit device adjustment policy for 
ASCs. For CY 2011, as we proposed, we will reduce the payment for the 
device implantation procedures listed in Table 61, below, by the full 
device offset amount for no cost/full credit cases. ASCs must append 
the modifier ``FB'' to the HCPCS procedure code when the device 
furnished without cost or with full credit is listed in Table

[[Page 72045]]

62, below, and the associated implantation procedure code is listed in 
Table 61 In addition, for CY 2011, we will reduce the payment for 
implantation procedures listed in Table 61 by one half of the device 
offset amount that would be applied if a device were provided at no 
cost or with full credit, if the credit to the ASC is 50 percent or 
more of the device cost. If the ASC receives a partial credit of 50 
percent or more of the cost of a device listed in Table 62, the ASC 
must append the modifier ``FC'' to the associated implantation 
procedure code if the procedure is listed in Table 61. We note that, as 
discussed in section II.A.2.d.9. of this final rule with comment 
period, CPT code 64573 (incision for implantation of neurostimulator 
electrodes; cranial nerve), which we had proposed to continue to 
recognize as subject to the no cost/full credit and partial credit 
device adjustment for ASCs in CY 2011, is being deleted effective 
January 1, 2011, and is being replaced by CPT code 64568 (incision for 
implantation of cranial nerve (e.g., vagus nerve) neurostimulator 
electrode array and pulse generator). As we discuss in that section, we 
are deleting APC 0225 (Implantation of Neurostimulator Electrodes, 
Cranial Nerve), the APC to which CPT code 64573 was the only code 
assigned in CY 2010, and creating new APC 0318 (Implantation of Cranial 
Neurostimulator Pulse Generator and Electrode) to which we are 
assigning CPT code 64568. Because CPT code 64568 is replacing CPT code 
64573, we are recognizing CPT code 64568 as subject to the no cost/full 
credit and partial credit device adjustment for ASCs in CY 2011. These 
CPT and APC changes are reflected in Table 61, below.

                    Table 61--CY 2011 Procedures To Which the No Cost/Full Credit and Partial Credit Device Adjustment Policy Applies
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                  Final CY     Final CY
                                                                           Final CY     Final CY                                 2011 OPPS    2011 OPPS
             CY 2011 CPT Code                CY 2011 Short descriptor      2011 ASC    2011 OPPS          OPPS APC Title          full APC   partial APC
                                                                           payment        APC                                      offset       offset
                                                                          indicator                                              percentage   percentage
--------------------------------------------------------------------------------------------------------------------------------------------------------
24361....................................  Reconstruct elbow joint.....           H8         0425  Level II Arthroplasty or              59           30
                                                                                                    Implantation with
                                                                                                    Prosthesis.
24363....................................  Replace elbow joint.........           H8         0425  Level II Arthroplasty or              59           30
                                                                                                    Implantation with
                                                                                                    Prosthesis.
24366....................................  Reconstruct head of radius..           H8         0425  Level II Arthroplasty or              59           30
                                                                                                    Implantation with
                                                                                                    Prosthesis.
25441....................................  Reconstruct wrist joint.....           H8         0425  Level II Arthroplasty or              59           30
                                                                                                    Implantation with
                                                                                                    Prosthesis.
25442....................................  Reconstruct wrist joint.....           H8         0425  Level II Arthroplasty or              59           30
                                                                                                    Implantation with
                                                                                                    Prosthesis.
25446....................................  Wrist replacement...........           H8         0425  Level II Arthroplasty or              59           30
                                                                                                    Implantation with
                                                                                                    Prosthesis.
27446....................................  Revision of knee joint......           J8         0425  Level II Arthroplasty or              59           30
                                                                                                    Implantation with
                                                                                                    Prosthesis.
33206....................................  Insertion of heart pacemaker           J8         0089  Insertion/Replacement of              71           35
                                                                                                    Permanent Pacemaker and
                                                                                                    Electrodes.
33207....................................  Insertion of heart pacemaker           J8         0089  Insertion/Replacement of              71           35
                                                                                                    Permanent Pacemaker and
                                                                                                    Electrodes.
33208....................................  Insertion of heart pacemaker           J8         0655  Insertion/Replacement/                74           37
                                                                                                    Conversion of a permanent
                                                                                                    dual chamber pacemaker.
33212....................................  Insertion of pulse generator           H8         0090  Insertion/Replacement of              73           36
                                                                                                    Pacemaker Pulse Generator.
33213....................................  Insertion of pulse generator           H8         0654  Insertion/Replacement of a            74           37
                                                                                                    permanent dual chamber
                                                                                                    pacemaker.
33214....................................  Upgrade of pacemaker system.           J8         0655  Insertion/Replacement/                74           37
                                                                                                    Conversion of a permanent
                                                                                                    dual chamber pacemaker.
33224....................................  Insert pacing lead & connect           J8         0418  Insertion of Left                     73           36
                                                                                                    Ventricular Pacing Elect.
33225....................................  Lventric pacing lead add-on.           J8         0418  Insertion of Left                     73           36
                                                                                                    Ventricular Pacing Elect.
33240....................................  Insert pulse generator......           J8         0107  Insertion of Cardioverter-            88           44
                                                                                                    Defibrillator.
33249....................................  Eltrd/insert pace-defib.....           J8         0108  Insertion/Replacement/                87           44
                                                                                                    Repair of Cardioverter-
                                                                                                    Defibrillator Leads.
33282....................................  Implant pat-active ht record           J8         0680  Insertion of Patient                  71           35
                                                                                                    Activated Event Recorders.
53440....................................  Male sling procedure........           H8         0385  Level I Prosthetic                    61           31
                                                                                                    Urological Procedures.
53444....................................  Insert tandem cuff..........           H8         0385  Level I Prosthetic                    61           31
                                                                                                    Urological Procedures.

[[Page 72046]]

 
53445....................................  Insert uro/ves nck sphincter           H8         0386  Level II Prosthetic                   71           36
                                                                                                    Urological Procedures.
53447....................................  Remove/replace ur sphincter.           H8         0386  Level II Prosthetic                   71           36
                                                                                                    Urological Procedures.
54400....................................  Insert semi-rigid prosthesis           H8         0385  Level I Prosthetic                    61           31
                                                                                                    Urological Procedures.
54401....................................  Insert self-contd prosthesis           H8         0386  Level II Prosthetic                   71           36
                                                                                                    Urological Procedures.
54405....................................  Insert multi-comp penis pros           H8         0386  Level II Prosthetic                   71           36
                                                                                                    Urological Procedures.
54410....................................  Remove/replace penis prosth.           H8         0386  Level II Prosthetic                   71           36
                                                                                                    Urological Procedures.
54416....................................  Remv/repl penis contain pros           H8         0386  Level II Prosthetic                   71           36
                                                                                                    Urological Procedures.
61885....................................  Insrt/redo neurostim 1 array           H8         0039  Level I Implantation of               86           43
                                                                                                    Neurostimulator Generator.
61886....................................  Implant neurostim arrays....           H8         0315  Level II Implantation of              88           44
                                                                                                    Neurostimulator Generator.
62361....................................  Implant spine infusion pump.           H8         0227  Implantation of Drug                  81           41
                                                                                                    Infusion Device.
62362....................................  Implant spine infusion pump.           H8         0227  Implantation of Drug                  81           41
                                                                                                    Infusion Device.
63650....................................  Implant neuroelectrodes.....           H8         0040  Percutaneous Implantation             58           29
                                                                                                    of Neurostimulator
                                                                                                    Electrodes.
63655....................................  Implant neuroelectrodes.....           J8         0061  Laminectomy, Laparoscopy,             64           32
                                                                                                    or Incision for
                                                                                                    Implantation of
                                                                                                    Neurostimulator Electr.
63685....................................  Insrt/redo spine n generator           H8         0039  Level I Implantation of               86           43
                                                                                                    Neurostimulator Generator.
64553....................................  Implant neuroelectrodes.....           H8         0040  Percutaneous Implantation             58           29
                                                                                                    of Neurostimulator
                                                                                                    Electrodes.
64555....................................  Implant neuroelectrodes.....           J8         0040  Percutaneous Implantation             58           29
                                                                                                    of Neurostimulator
                                                                                                    Electrodes.
64560....................................  Implant neuroelectrodes.....           J8         0040  Percutaneous Implantation             58           29
                                                                                                    of Neurostimulator
                                                                                                    Electrodes.
64561....................................  Implant neuroelectrodes.....           H8         0040  Percutaneous Implantation             58           29
                                                                                                    of Neurostimulator
                                                                                                    Electrodes.
64565....................................  Implant neuroelectrodes.....           J8         0040  Percutaneous Implantation             58           29
                                                                                                    of Neurostimulator
                                                                                                    Electrodes.
64568....................................  Implant neuroelectrodes.....           H8         0318  Implantation of                       85           43
                                                                                                    Neurostimulator
                                                                                                    Electrodes, Cranial Nerve.
64575....................................  Implant neuroelectrodes.....           H8         0061  Laminectomy, Laparoscopy,             64           32
                                                                                                    or Incision for
                                                                                                    Implantation of
                                                                                                    Neurostimulator Electr.
64577....................................  Implant neuroelectrodes.....           H8         0061  Laminectomy, Laparoscopy,             64           32
                                                                                                    or Incision for
                                                                                                    Implantation of
                                                                                                    Neurostimulator Electr.
64580....................................  Implant neuroelectrodes.....           H8         0061  Laminectomy, Laparoscopy,             64           32
                                                                                                    or Incision for
                                                                                                    Implantation of
                                                                                                    Neurostimulator Electr.
64581....................................  Implant neuroelectrodes.....           H8         0061  Laminectomy, Laparoscopy,             64           32
                                                                                                    or Incision for
                                                                                                    Implantation of
                                                                                                    Neurostimulator Electr.
64590....................................  Insrt/redo pn/gastr stimul..           H8         0039  Level I Implantation of               86           43
                                                                                                    Neurostimulator Generator.
69714....................................  Implant temple bone w/stimul           H8         0425  Level II Arthroplasty or              59           30
                                                                                                    Implantation with
                                                                                                    Prosthesis.
69715....................................  Temple bne implnt w/stimulat           H8         0425  Level II Arthroplasty or              59           30
                                                                                                    Implantation with
                                                                                                    Prosthesis.
69717....................................  Temple bone implant revision           H8         0425  Level II Arthroplasty or              59           30
                                                                                                    Implantation with
                                                                                                    Prosthesis.
69718....................................  Revise temple bone implant..           H8         0425  Level II Arthroplasty or              59           30
                                                                                                    Implantation with
                                                                                                    Prosthesis.
69930....................................  Implant cochlear device.....           H8         0259  Level VII ENT Procedures...           85           43
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 72047]]


    Table 62--Devices For Which the ``FB'' OR ``FC'' Modifier Must be
Reported With the Procedure Code in CY 2011 When Furnished at No Cost or
                       With Full or Partial Credit
------------------------------------------------------------------------
     CY 2011 device HCPCS code             CY 2011 short descriptor
------------------------------------------------------------------------
C1721..............................  AICD, dual chamber.
C1722..............................  AICD, single chamber.
C1764..............................  Event recorder, cardiac.
C1767..............................  Generator, neurostim, imp.
C1771..............................  Rep dev, urinary, w/sling.
C1772..............................  Infusion pump, programmable.
C1776..............................  Joint device (implantable).
C1778..............................  Lead, neurostimulator.
C1779..............................  Lead, pmkr, transvenous VDD.
C1785..............................  Pmkr, dual, rate-resp.
C1786..............................  Pmkr, single, rate-resp.
C1813..............................  Prosthesis, penile, inflatab.
C1815..............................  Pros, urinary sph, imp.
C1820..............................  Generator, neuro rechg bat sys.
C1881..............................  Dialysis access system.
C1882..............................  AICD, other than sing/dual.
C1891..............................  Infusion pump, non-prog, perm.
C1897..............................  Lead, neurostim, test kit.
C1898..............................  Lead, pmkr, other than trans.
C1900..............................  Lead coronary venous.
C2619..............................  Pmkr, dual, non rate-resp.
C2620..............................  Pmkr, single, non rate-resp.
C2621..............................  Pmkr, other than sing/dual.
C2622..............................  Prosthesis, penile, non-inf.
C2626..............................  Infusion pump, non-prog, temp.
C2631..............................  Rep dev, urinary, w/o sling.
L8614..............................  Cochlear device/system.
L8680..............................  Implt neurostim elctr each.
L8685..............................  Implt nrostm pls gen sng rec.
L8686..............................  Implt nrostm pls gen sng non.
L8687..............................  Implt nrostm pls gen dua rec.
L8688..............................  Implt nrostm pls gen dua non.
L8690..............................  Aud osseo dev, int/ext comp.
------------------------------------------------------------------------

d. Waiver of Coinsurance and Deductible for Certain Preventive Services
    As discussed in detail in section XII.B. of the CY 2011 OPPS/ASC 
proposed rule (75 FR 46310 through 46316) and in the CY 2011 MPFS 
proposed rule (75 FR 40129 through 40136), sections 4104(b) and 10406 
of the Affordable Care Act amended section 1833(a)(1) of the Act, in 
pertinent part, to waive the coinsurance for those preventive services 
under section 1861(ddd)(3)(A) of the Act as described in section 
1861(ww)(2) of the Act (excluding electrocardiograms) that are 
recommended by the USPSTF with a grade of A or B for any indication or 
population and that are appropriate for the individual. Section 4104(c) 
of the Affordable Care Act amended section 1833(b)(1) of the Act to 
waive the Part B deductible for these preventive services. These 
provisions apply to these items and services furnished in ASCs on or 
after January 1, 2011. In section XII.B. of the CY 2011 OPPS/ASC 
proposed rule (75 FR 46310 through 46316) and in the CY 2011 MPFS 
proposed rule (75 FR 40129 through 40136), we proposed to define the 
preventive services to which this provision applies and to apply the 
criteria specified in section 4104 of the Affordable Care Act for the 
waiver of coinsurance and deductible.
    Table 52 of the CY 2011 OPPS/ASC proposed rule (75 FR 46348 through 
46350) identified the ASC covered surgical and ancillary services that 
we proposed to include in the definition of preventive services in 
section XII.B. of the proposed rule and in the CY 2011 MPFS proposed 
rule. All of the ASC covered surgical and ancillary services that are 
included in the chart below are preventive services that are 
recommended by the USPSTF with a grade of A or B. Therefore, we 
proposed to update Sec.  416.160(a)(4) and add new Sec.  416.160(a)(5) 
on the scope and basis of the ASC regulations and to update Sec.  
410.152(i) to reflect the waiver of coinsurance and deductible for 
these services.
    Comment: Several commenters supported CMS' proposed implementation 
of the Affordable Care Act provision to waive beneficiary cost sharing 
for preventive services identified in section 1861(ddd)(3)(A) of the 
Act, and recommended by the USPSTF with a grade of A or B for any 
indication or population that are appropriate for the individual, and 
urged CMS to finalize the proposed policy.
    Response: We appreciate commenters' support of our proposed 
implementation of sections 4104 and 10406 of the Affordable Care Act.
    After consideration of the public comments we received, we are 
finalizing our proposal, without modification, to waive beneficiary 
cost sharing for preventive services identified in section 
1861(ddd)(3)(A) of the Act, and recommended by the USPSTF with a grade 
of A or B for any indication or population that are appropriate for the 
individual. Table 63, below, identifies the ASC covered surgical and 
ancillary services that are included in the definition of preventive 
services in section XII.B. of this final rule with comment period and 
in the CY 2011 MPFS final rule with comment period. All of the ASC 
covered surgical and ancillary services that are included in the chart 
below are preventive services that are recommended by the USPSTF with a 
grade of A or B. We note that, as reflected in Table 63, effective 
January 1, 2011, CPT code 90658 is no longer payable under the ASC 
payment system and has been replaced by the following HCPCS codes: 
Q2035 (Influenza virus vaccine, split virus, when administered to 
individuals 3 years of age and older, for intramuscular use (afluria)), 
Q2036 (Influenza virus vaccine, split virus, when administered to 
individuals 3 years of age and older, for intramuscular use 
(flulaval)), Q2037 (Influenza virus vaccine, split virus, when 
administered to individuals 3 years of age and older, for intramuscular 
use (fluvirin)), Q2038 (Influenza virus vaccine, split virus, when 
administered to individuals 3 years of age and older, for intramuscular 
use (fluzone)), and Q2039 (Influenza virus vaccine, split virus, when 
administered to individuals 3 years of age and older, for intramuscular 
use (not otherwise specified)).
    We also are implementing our proposal, without modification, to 
update Sec.  416.160(a)(4) and add new Sec.  416.160(a)(5) on the scope 
and basis of the ASC regulations and to update Sec.  410.152(i) to 
reflect the waiver of coinsurance and deductible for these services.

      Table 63--CY 2011 ASC Preventive Services For Which Coinsurance and Deductible Are Waived in CY 2011
----------------------------------------------------------------------------------------------------------------
                                      CY 2011 CPT/
              Service                  HCPCS code      CY 2011 Long descriptor      CY 2011 Coins./ deductible
----------------------------------------------------------------------------------------------------------------
Bone Mass Measurement..............           G0130  Single energy x-ray         Waived.
                                                      absorptiometry (sexa)
                                                      bone density study, one
                                                      or more sites;
                                                      appendicular skeleton
                                                      (peripheral) (e.g.,
                                                      radius, wrist, heel).
                                              77078  Computed tomography, bone   Waived.
                                                      mineral density study, 1
                                                      or more sites; axial
                                                      skeleton (e.g., hips,
                                                      pelvis, spine).
                                              77079  Computed tomography, bone   Waived.
                                                      mineral density study, 1
                                                      or more sites;
                                                      appendicular skeleton
                                                      (peripheral) (e.g.,
                                                      radius, wrist, heel).
                                              77080  Dual-energy x-ray           Waived.
                                                      absorptiometry (dxa),
                                                      bone density study, 1 or
                                                      more sites; axial
                                                      skeleton (e.g., hips,
                                                      pelvis, spine).

[[Page 72048]]

 
                                              77081  Dual-energy x-ray           Waived.
                                                      absorptiometry (dxa),
                                                      bone density study, 1 or
                                                      more sites; appendicular
                                                      skeleton (peripheral)
                                                      (e.g., radius, wrist,
                                                      heel).
                                              77083  Radiographic                Waived.
                                                      absorptiometry (e.g.,
                                                      photodensitometry,
                                                      radiogrammetry), 1 or
                                                      more sites.
                                              76977  Ultrasound bone density     Waived.
                                                      measurement and
                                                      interpretation,
                                                      peripheral site(s), any
                                                      method.
Colorectal Cancer Screening........           G0104  Colorectal cancer           Waived.
                                                      screening; flexible
                                                      sigmoidoscopy.
                                              G0105  Colorectal cancer           Waived.
                                                      screening; colonoscopy on
                                                      individual at high risk.
                                              G0121  Colorectal cancer           Waived.
                                                      screening; colonoscopy on
                                                      individual not meeting
                                                      criteria for high risk.
Influenza Virus Vaccine............           90655  Influenza virus vaccine,    Waived.
                                                      split virus, preservative
                                                      free, when administered
                                                      to children 6-35 months
                                                      of age, for intramuscular
                                                      use.
                                              90656  Influenza virus vaccine,    Waived.
                                                      split virus, preservative
                                                      free, when administered
                                                      to individuals 3 years
                                                      and older, for
                                                      intramuscular use.
                                              90657  Influenza virus vaccine,    Waived.
                                                      split virus, when
                                                      administered to children
                                                      6-35 months of age, for
                                                      intramuscular use.
                                              Q2035  Influenza virus vaccine,    Waived.
                                                      split virus, when
                                                      administered to
                                                      individuals 3 years of
                                                      age and older, for
                                                      intramuscular use
                                                      (afluria).
                                              Q2036  Influenza virus vaccine,    Waived.
                                                      split virus, when
                                                      administered to
                                                      individuals 3 years of
                                                      age and older, for
                                                      intramuscular use
                                                      (flulaval).
                                              Q2037  Influenza virus vaccine,    Waived.
                                                      split virus, when
                                                      administered to
                                                      individuals 3 years of
                                                      age and older, for
                                                      intramuscular use
                                                      (fluvirin).
                                              Q2038  Influenza virus vaccine,    Waived.
                                                      split virus, when
                                                      administered to
                                                      individuals 3 years of
                                                      age and older, for
                                                      intramuscular use
                                                      (fluzone).
                                              Q2039  Influenza virus vaccine,    Waived.
                                                      split virus, when
                                                      administered to
                                                      individuals 3 years of
                                                      age and older, for
                                                      intramuscular use (not
                                                      otherwise specified).
                                              90660  Influenza virus vaccine,    Waived.
                                                      live, for intranasal use.
                                              90662  Influenza virus vaccine,    Waived.
                                                      split virus, preservative
                                                      free, enhanced
                                                      immunogenicity via
                                                      increased antigen
                                                      content, for
                                                      intramuscular use.
                                              G9141  Influenza a (h1n1)          Waived.
                                                      immunization
                                                      administration (includes
                                                      the physician counseling
                                                      the patient/family).
                                              G9142  Influenza a (h1n1)          Waived.
                                                      vaccine, any route of
                                                      administration.
Pneumococcal Vaccine...............           90669  Pneumococcal conjugate      Waived.
                                                      vaccine, polyvalent, when
                                                      administered to children
                                                      younger than 5 years, for
                                                      intramuscular use.
                                              90670  Pneumococcal conjugate      Waived.
                                                      vaccine, 13 valent, for
                                                      intramuscular use.
                                              90732  Pneumococcal                Waived.
                                                      polysaccharide vaccine,
                                                      23-valent, adult or
                                                      immunosuppressed patient
                                                      dosage, when administered
                                                      to individuals 2 years or
                                                      older, for subcutaneous
                                                      or intramuscular use.
Hepatitis B Vaccine................           90740  Hepatitis B vaccine,        Waived.
                                                      dialysis or
                                                      immunosuppressed patient
                                                      dosage (3 dose schedule),
                                                      for intramuscular use.
                                              90743  Hepatitis B vaccine,        Waived.
                                                      adolescent (2 dose
                                                      schedule), for
                                                      intramuscular use.
                                              90744  Hepatitis B vaccine,        Waived.
                                                      pediatric/adolescent
                                                      dosage (3 dose schedule),
                                                      for intramuscular use.
                                              90746  Hepatitis B vaccine, adult  Waived.
                                                      dosage, for intramuscular
                                                      use.
                                              90747  Hepatitis B vaccine,        Waived.
                                                      dialysis or
                                                      immunosuppressed patient
                                                      dosage (4 dose schedule),
                                                      for intramuscular use.
----------------------------------------------------------------------------------------------------------------

    Section 4104(c) of the Affordable Care Act amended section 1833(b) 
of the Act to waive the Part B deductible for colorectal cancer 
screening tests that become diagnostic. Specifically, section 
4104(c)(2) of the Affordable Care Act waives the deductible with 
respect to a colorectal cancer screening test ``regardless of the code 
that is billed for the establishment of a diagnosis as a result of the 
test, or for the removal of tissue or other matter or other procedure 
that is furnished in connection with, as a result of, and in the same 
clinical encounter as a screening test.'' As discussed in section 
XII.B.3. of the CY 2011 OPPS/ASC proposed rule (75 FR 46317) and in the 
CY 2011 MPFS proposed rule (75 FR 40136), we proposed that all surgical 
services furnished on the same date as a planned screening colonoscopy 
or planned flexible sigmoidoscopy would be considered as being 
``furnished in connection with, as a result of, and in the same 
clinical encounter as the screening test.'' We stated that we believe 
this interpretation is appropriate because we believe that it would be 
very rare for an unrelated surgery to occur on the same date as one of 
these scheduled screening tests. Moreover, we stated that we believe 
that the risk of improper expenditures would be very small under this 
policy because it is the deductible, and not the coinsurance, that is 
waived for the related procedures other than the screening tests. In 
the event of a legislative change to this policy (for example, a 
statutory change that would waive the coinsurance for these related 
services in addition to the deductible), we stated that we would 
reassess the appropriateness of this proposed definition of services 
that are furnished in connection with, as a result of, and in the same 
clinical encounter as the colorectal cancer screening test that becomes 
diagnostic. We also noted that the annual deductible would likely be 
met when any surgical procedure (related or not) is performed on the 
same day as the scheduled screening test.

[[Page 72049]]

    We proposed to implement this provision by creating a HCPCS 
modifier that ASCs would append to the diagnostic procedure code that 
is reported instead of the screening colonoscopy or screening flexible 
sigmoidoscopy HCPCS code. The claims processing system would respond to 
the modifier by waiving the deductible for all surgical services on the 
same date as the diagnostic test. Coinsurance or copayment would 
continue to apply to the diagnostic test and to other services 
furnished in connection with, as a result of, and in the same clinical 
encounter as the screening test.
    Comment: Several commenters supported CMS' proposal to extend the 
waiver on the deductible to surgical services provided on the same date 
as a colorectal cancer screening test, such as a planned screening 
colonoscopy or planned flexible sigmoidoscopy, when these become 
diagnostic. Commenters supported the proposed creation of a HCPCS 
modifier that would be appended to the diagnostic procedure code that 
is reported instead of the screening colonoscopy or screening flexible 
sigmoidoscopy HCPCS code when the screening test becomes a diagnostic 
service.
    Response: We appreciate commenters' support of our proposed 
implementation of section 4104(c) of the Affordable Care Act.
    After consideration of the public comments we received, we are 
finalizing our proposal, without modification, that all surgical 
services furnished on the same date as a planned screening colonoscopy 
or planned flexible sigmoidoscopy be viewed as being furnished in 
connection with, as a result of, and in the same clinical encounter as 
the screening test for purposes of implementing section 4104(c)(2) of 
the Affordable Care Act. We are creating new HCPCS modifier ``PT,'' 
effective January 1, 2011, that ASCs will append to the diagnostic 
procedure code that is reported instead of the screening colonoscopy or 
screening flexible sigmoidoscopy HCPCS code when the screening test 
becomes a diagnostic service.
2. Payment for Covered Ancillary Services
a. Background
    Our final payment policies under the revised ASC payment system for 
covered ancillary services vary according to the particular type of 
service and its payment policy under the OPPS. Our overall policy 
provides separate ASC payment for certain ancillary items and services 
integrally related to the provision of ASC covered surgical procedures 
that are paid separately under the OPPS and provides packaged ASC 
payment for other ancillary items and services that are packaged under 
the OPPS. Thus, we established a final policy to align ASC payment 
bundles with those under the OPPS (72 FR 42495).
    Our ASC payment policies provide separate payment for drugs and 
biologicals that are separately paid under the OPPS at the OPPS rates, 
while we pay for separately payable radiology services at the lower of 
the MPFS non-facility PE RVU (or technical component) amount or the 
rate calculated according to the ASC standard ratesetting methodology 
(72 FR 42497). In all cases, ancillary items and services must be 
provided integral to the performance of ASC covered surgical procedures 
for which the ASC bills Medicare, in order for those ancillary services 
also to be paid.
    ASC payment policy for brachytherapy sources generally mirrors the 
payment policy under the OPPS. We finalized our policy in the CY 2008 
OPPS/ASC final rule with comment period (72 FR 42499) to pay for 
brachytherapy sources applied in ASCs at the same prospective rates 
that were adopted under the OPPS or, if OPPS rates were unavailable, at 
contractor-priced rates. Subsequent to publication of that rule, 
section 106 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 
(Pub. L. 110-173) mandated that, for the period January 1, 2008 through 
June 30, 2008, brachytherapy sources be paid under the OPPS at charges 
adjusted to cost. Therefore, consistent with our final overall ASC 
payment policy, we paid ASCs at contractor-priced rates for 
brachytherapy sources provided in ASCs during that period of time. 
Beginning July 1, 2008, brachytherapy sources applied in ASCs were to 
be paid at the same prospectively set rates that were finalized in the 
CY 2008 OPPS/ASC final rule with comment period (72 FR 67165 through 
67188). Immediately prior to the publication of the CY 2009 OPPS/ASC 
proposed rule, section 142 of the Medicare Improvements for Patients 
and Providers Act of 2008 (Pub. L. 110-275) amended section 
1833(t)(16)(C) of the Act (as amended by section 106 of the Medicare, 
Medicaid, and SCHIP Extension Act of 2007, Pub. L. 110-173) to extend 
the requirement that brachytherapy sources be paid under the OPPS at 
charges adjusted to cost through December 31, 2009. Therefore, 
consistent with final ASC payment policy, ASCs continued to be paid at 
contractor-priced rates for brachytherapy sources provided integral to 
ASC covered surgical procedures during that period of time.
    Other separately paid covered ancillary services in ASCs, 
specifically corneal tissue acquisition and device categories with OPPS 
pass-through status, do not have prospectively established ASC payment 
rates according to the final policies of the revised ASC payment system 
(72 FR 42502 and 42509; Sec.  416.164(b)). Under the revised ASC 
payment system, corneal tissue acquisition is paid based on the 
invoiced costs for acquiring the corneal tissue for transplantation. As 
discussed in section IV.A.1. of this final rule with comment period, 
new pass-through device categories may be established on a quarterly 
basis. One new device category eligible for pass-through payment under 
the OPPS and, therefore, under the ASC payment system, described by 
HCPCS code C1749 (Endoscope, retrograde imaging/illumination 
colonoscope device (Implantable), was announced in the October 2010 ASC 
CR (Transmittal 2045, Change Request 7147, dated September 10, 2010). 
Payment for HCPCS code C1749 under the ASC payment system is contractor 
priced.
b. Payment for Covered Ancillary Services for CY 2011
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46351), for CY 2011, 
we proposed to update the ASC payment rates and make changes to ASC 
payment indicators as necessary to maintain consistency between the 
OPPS and ASC payment system regarding the packaged or separately 
payable status of services and the proposed CY 2011 OPPS and ASC 
payment rates. The proposed CY 2011 OPPS payment methodologies for 
separately payable drugs and biologicals and brachytherapy sources were 
discussed in sections V. and VII. of the CY 2011 OPPS/ASC proposed rule 
(75 FR 46257 through 46283 and 46286 through 46289), respectively, and 
we proposed to set the CY 2011 ASC payment rates for those services 
equal to the proposed CY 2011 OPPS rates.
    Consistent with established ASC payment policy (72 FR 42497), the 
proposed CY 2011 payment for separately payable covered radiology 
services was based on a comparison of the CY 2011 proposed MPFS non-
facility PE RVU amounts (we refer readers to the CY 2011 MPFS proposed 
rule) and the proposed CY 2011 ASC payment rates calculated according 
to the ASC standard ratesetting methodology and then set at the lower 
of the two amounts. Alternatively, payment for a radiology service may 
be packaged into the payment for the ASC

[[Page 72050]]

covered surgical procedure if the radiology service is packaged under 
the OPPS. The payment indicators in Addendum BB of the CY 2011 OPPS/ASC 
proposed rule indicated whether the proposed payment rates for 
radiology services are based on the MPFS nonfacility PE RVU amount or 
the ASC standard ratesetting methodology, or whether payment for a 
radiology service is packaged into the payment for the covered surgical 
procedure (payment indicator ``N1''). Radiology services that we 
proposed to pay based on the ASC standard ratesetting methodology are 
assigned payment indicator ``Z2'' (Radiology service paid separately 
when provided integral to a surgical procedure on ASC list; payment 
based on OPPS relative payment weight) and those for which the proposed 
payment is based on the MPFS non-facility PE RVU amount are assigned 
payment indicator ``Z3'' (Radiology service paid separately when 
provided integral to a surgical procedure on ASC list; payment based on 
MPFS non-facility PE RVUs).
    All covered ancillary services and their proposed payment 
indicators were listed in Addendum BB to the CY 2011 OPPS/ASC proposed 
rule.
    Comment: One commenter expressed continued disagreement with the 
ASC packaging policy related to discography services. Although it is 
not completely clear what the commenter was requesting, we infer that 
the commenter questioned the appropriateness of packaging payment for 
discography services. According to the commenter, the injection 
procedures reported by CPT codes 62290 (Injection procedure for 
discography, each level; lumbar) and 62291 (Injection procedure for 
discography, each level; cervical or thoracic) are packaged into the 
services reported by CPT codes 72285 (Discography, cervical or 
thoracic, radiological supervision and interpretation) and 72295 
(Discography, lumbar, radiological supervision and interpretation) and, 
therefore, payment is made to an ASC only when the radiology service is 
provided integral to a covered surgical procedure. The commenter 
asserted that discography should be a separately payable service in an 
ASC and that the ASC payment should be 62 percent of OPPS payments.
    Response: As we explained fully in the CY 2009 OPPS/ASC final rule 
with comment period (73 FR 68747) and the CY 2010 OPPS/ASC final rule 
with comment period (74 FR 60619), we continue to believe that our 
packaging policy for discography services is appropriate and we do not 
agree that packaging policies under the ASC payment system should vary 
from those under the OPPS. Also, we continue to believe that 
discography is a radiology service, even though a component of it may 
be defined as surgical, and that radiology services are not appropriate 
for performance and separate payment in ASCs unless they are integral 
to covered surgical procedures.
    Comment: One commenter argued that it is inappropriate to use the 
MPFS-based payment methodology for nuclear medicine procedures in the 
ASC setting without providing separate payment for diagnostic 
radiopharmaceuticals. According to the commenter, under the MPFS, a 
separate payment is made for the radiopharmaceutical used with the 
nuclear medicine procedure, while under the ASC payment system, payment 
for the radiopharmaceutical is currently packaged. The commenter 
asserted that, therefore, basing ASC payment on the MPFS non-facility 
PE RVU without separate payment for the radiopharmaceutical leaves the 
ASC uncompensated for the diagnostic radiopharmaceutical cost. The 
commenter recommended that CMS establish a separate payment methodology 
for diagnostic radiopharmaceuticals in the ASC setting.
    Response: We do not agree with the commenter that we should 
establish separate payment for diagnostic radiopharmaceuticals under 
the ASC payment system, because we follow the OPPS packaging policies 
which require that payment for these items is always packaged. However, 
we understand the commenter's concern about the MPFS non-facility PE 
RVU amounts not reflecting the diagnostic radiopharmaceutical costs. 
Therefore, for CY 2011, we are setting the payment indicators for all 
nuclear medicine procedures (defined as CPT codes in the range of 78000 
through 78999) that are designated as radiology services that are paid 
separately when provided integral to a surgical procedure on the ASC 
list to ``Z2'' so that payment for these procedures will be made based 
on the OPPS relative payment weight rather than the MPFS non-facility 
PE RVU amount, regardless of which is lower. We will consider whether 
and how we should change the payment policy for nuclear medicine 
procedures under the ASC payment system in future rulemaking.
    After consideration of the public comments we received, we are 
providing CY 2011 payment for covered ancillary services in accordance 
with the final policies of the revised ASC payment system as described 
in the CY 2008 OPPS/ASC final rule with comment period (72 FR 42493 
through 42508), with one modification. As described above, we are 
setting the payment indicators for all nuclear medicine procedures 
(defined as CPT codes in the range of 78000 through 78999) that are 
designated as radiology services that are paid separately when provided 
integral to a surgical procedure on the ASC list to ``Z2'' for CY 2011 
so that payment for these procedures will be made based on the OPPS 
relative payment weight rather than the MPFS non-facility PE RVU 
amount, regardless of which is lower. Covered ancillary services and 
their final CY 2011 payment indicators are listed in Addendum BB to 
this final rule with comment period.

E. New Technology Intraocular Lenses (NTIOLs)

1. Background
    In the CY 2007 OPPS/ASC final rule with comment period (71 FR 
68176), we finalized our current process for reviewing applications to 
establish new active classes of new technology intraocular lenses 
(NTIOLs) and for recognizing new candidate intraocular lenses (IOLs) 
inserted during or subsequent to cataract extraction as belonging to a 
NTIOL class that is qualified for a payment adjustment. Specifically, 
we established the following process:
    <bullet> We announce annually in the Federal Register a document 
that proposes the update of ASC payment rates for the following 
calendar year, a list of all requests to establish new NTIOL classes 
accepted for review during the calendar year in which the proposal is 
published and the deadline for submission of public comments regarding 
those requests. In accordance with section 141(b)(3) of Public Law 103-
432 and our regulations at Sec.  416.185(b), the deadline for receipt 
of public comments is 30 days following publication of the list of 
requests.
    <bullet> In the Federal Register document that finalizes the update 
of ASC payment rates for the following calendar year, we--
    [cir] Provide a list of determinations made as a result of our 
review of all new class requests and public comments; and
    [cir] Announce the deadline for submitting requests for review of 
an application for a new NTIOL class for the following calendar year.
    In determining whether a lens belongs to a new class of NTIOLs and 
whether the ASC payment amount for insertion of that lens in 
conjunction with cataract surgery is appropriate, we expect that

[[Page 72051]]

the insertion of the candidate IOL would result in significantly 
improved clinical outcomes compared to currently available IOLs. In 
addition, to establish a new NTIOL class, the candidate lens must be 
distinguishable from lenses already approved as members of active or 
expired classes of NTIOLs that share a predominant characteristic 
associated with improved clinical outcomes that was identified for each 
class. Furthermore, in the CY 2007 OPPS/ASC final rule with comment 
period (71 FR 68227), we finalized our proposal to base our 
determinations on consideration of the following factors set out at 
Sec.  416.195:
    <bullet> The IOL must have been approved by the FDA and claims of 
specific clinical benefits and/or lens characteristics with established 
clinical relevance in comparison with currently available IOLs must 
have been approved by the FDA for use in labeling and advertising;
    <bullet> The IOL is not described by an active or expired NTIOL 
class; that is, it does not share the predominant, class-defining 
characteristic associated with improved clinical outcomes with 
designated members of an active or expired NTIOL class; and
    <bullet> Evidence demonstrates that use of the IOL results in 
measurable, clinically meaningful, improved outcomes in comparison with 
use of currently available IOLs. According to the statute, and 
consistent with previous examples provided by CMS, superior outcomes 
that we consider include the following:
    [cir] Reduced risk of intraoperative or postoperative complication 
or trauma;
    [cir] Accelerated postoperative recovery;
    [cir] Reduced induced astigmatism;
    [cir] Improved postoperative visual acuity;
    [cir] More stable postoperative vision; and/or
    [cir] Other comparable clinical advantages, such as--
    [squ] Reduced dependence on other eyewear (for example, spectacles, 
contact lenses, and reading glasses);
    [squ] Decreased rate of subsequent diagnostic or therapeutic 
interventions, such as the need for YAG laser treatment;
    [squ] Decreased incidence of subsequent IOL exchange; and
    [squ] Decreased blurred vision, glare, other quantifiable symptom 
or vision deficiency.
    For a request to be considered complete, we require submission of 
the information that is found in the guidance document entitled 
``Application Process and Information Requirements for Requests for a 
New Class of New Technology Intraocular Lens (NTIOL)'' posted on the 
CMS Web site at: http://www.cms.gov/ASCPayment/08_
NTIOLs.asp#TopOfPage.
    As we stated in the CY 2007 OPPS/ASC final rule with comment period 
(71 FR 68180), there are three possible outcomes from our review of a 
request for establishment of a new NTIOL class. As appropriate, for 
each completed request for consideration of a candidate IOL into a new 
class that is received by the established deadline, one of the 
following determinations is announced annually in the final rule 
updating the ASC payment rates for the next calendar year:
    <bullet> The request for a payment adjustment is approved for the 
candidate IOL for 5 full years as a member of a new NTIOL class 
described by a new HCPCS code;
    <bullet> The request for a payment adjustment is approved for the 
candidate IOL for the balance of time remaining as a member of an 
active NTIOL class; or
    <bullet> The request for a payment adjustment is not approved.
    We also discussed our plan to summarize briefly in the final rule 
with comment period the evidence that we reviewed, the public comments, 
and the basis for our determinations in consideration of applications 
for establishment of a new NTIOL class. We established that when a new 
NTIOL class is created, we identify the predominant characteristic of 
NTIOLs in that class that sets them apart from other IOLs (including 
those previously approved as members of other expired or active NTIOL 
classes) and that is associated with improved clinical outcomes. The 
date of implementation of a payment adjustment in the case of approval 
of an IOL as a member of a new NTIOL class would be set prospectively 
as of 30 days after publication of the ASC payment update final rule, 
consistent with the statutory requirement.
2. NTIOL Application Process for Payment Adjustment
    In CY 2007, we posted an updated guidance document to the CMS Web 
site to provide process and information requirements for applications 
requesting a review of the appropriateness of the payment amount for 
insertion of an IOL to ensure that the ASC payment for covered surgical 
procedures includes payment that is reasonable and related to the cost 
of acquiring a lens that is approved as belonging to a new class of 
NTIOLs. This guidance document can be accessed on the CMS Web site at: 
http://www.cms.gov/ASCPayment/downloads/NTIOLprocess.pdf.
    We note that we have also issued a guidance document entitled 
``Revised Process for Recognizing Intraocular Lenses Furnished by 
Ambulatory Surgery Centers (ASCs) as Belonging to an Active Subset of 
New Technology Intraocular Lenses (NTIOLs).'' This guidance document 
can be accessed on the CMS Web site at: http://www.cms.gov/ASCPayment/
Downloads/Request_for_inclusion_in_current_NTIOL_subset.pdf.
    This second guidance document provides specific details regarding 
requests for recognition of IOLs as belonging to an existing, active 
NTIOL class, the review process, and information required for a request 
to review. Currently, there is one active NTIOL class whose defining 
characteristic is the reduction of spherical aberration. We accept 
requests throughout the year to review the appropriateness of 
recognizing an IOL as a member of an active class of NTIOLs. That is, 
review of candidate lenses for membership in an existing, active NTIOL 
class is ongoing and not limited to the annual review process that 
applies to the establishment of new NTIOL classes. We ordinarily 
complete the review of such a request within 90 days of receipt of all 
information that we consider pertinent to our review, and upon 
completion of our review, we notify the requestor of our determination 
and post on the CMS Web site notification of a lens newly approved for 
a payment adjustment as an NTIOL belonging to an active NTIOL class 
when furnished in an ASC.
3. Classes of NTIOLs Approved and New Requests for Payment Adjustment
a. Background
    Since implementation of the process for adjustment of payment 
amounts for NTIOLs that was established in the June 16, 1999 Federal 
Register, we have approved three classes of NTIOLs, as shown in the 
following table, with the associated qualifying IOLs to date:

[[Page 72052]]



----------------------------------------------------------------------------------------------------------------
                                                     $50 Approved for
           NTIOL Class               HCPCS Code     services furnished         NTIOL          IOLs Eligible for
                                                       on or after         Characteristic         adjustment
----------------------------------------------------------------------------------------------------------------
1................................           Q1001  May 18, 2000,        Multifocal.........  Allergan AMO Array
                                                    through May 18,                           Multifocal lens,
                                                    2005.                                     model SA40N.
2................................           Q1002  May 18, 2000,        Reduction in         STAAR Surgical
                                                    through May 18,      Preexisting          Elastic
                                                    2005.                Astigmatism.         Ultraviolet-
                                                                                              Absorbing Silicone
                                                                                              Posterior Chamber
                                                                                              IOL with Toric
                                                                                              Optic, models
                                                                                              AA4203T, AA4203TF,
                                                                                              and AA4203TL.
3................................           Q1003  February 27, 2006,   Reduced Spherical    Abbott Medical
                                                    through February     Aberration.          Optics (AMO)
                                                    26, 2011.                                 Tecnis[reg] IOL
                                                                                              models Z9000,
                                                                                              Z9001, Z9002,
                                                                                              ZA9003, and
                                                                                              AR40xEM and
                                                                                              Tecnis[reg] 1-
                                                                                              Piece model ZCB00;
                                                                                              Alcon Acrysof[reg]
                                                                                              IQ Model SN60WF,
                                                                                              Acrysert Delivery
                                                                                              System model
                                                                                              SN60WS and
                                                                                              Acrysof[reg] IQ
                                                                                              Toric model
                                                                                              SN6ATT; Bausch &
                                                                                              Lomb Sofport AO
                                                                                              models LI61AO and
                                                                                              LI61AOV and Akreos
                                                                                              AO models AO60 and
                                                                                              MI60,
                                                                                              Crystalens[reg] AT-
                                                                                              50AO and AT-52AO;
                                                                                              STAAR Affinity
                                                                                              Collamer model
                                                                                              CQ2015A and
                                                                                              CC4204A and
                                                                                              Elastimide model
                                                                                              AQ2015A; Hoya
                                                                                              model FY-60AD, FC-
                                                                                              60AD, PY-60AD, and
                                                                                              PC-60AD; Lenstec
                                                                                              HD IOL.
----------------------------------------------------------------------------------------------------------------

b. Request To Establish New NTIOL Class for CY 2011
    As explained in the guidance document on the CMS Web site, the 
deadline for each year's requests for review of the appropriateness of 
the ASC payment amount for insertion of a candidate IOL as a member of 
a new class of NTIOLs is announced in the final rule updating the ASC 
and OPPS payment rates for that calendar year. Therefore, a request for 
review for a new class of NTIOLs for CY 2011 must have been submitted 
to CMS by March 8, 2010, the due date published in the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60621). We received one request 
for review to establish a new NTIOL class for CY 2011 by the March 8, 
2010 due date. A summary of this request follows.
    Requestor/Manufacturer: Alcon Laboratories, Inc.
    Lens Model Number: Acrysof[reg] Natural IOLs, Models: SN60WF, 
SN60AT, MN60MA, and MN60AC.
    Summary of the Request: Alcon Laboratories, Inc. (Alcon) submitted 
a request for CMS to determine that its Acrysof[reg] Natural 
intraocular lenses meet the criteria for recognition as NTIOL and to 
concurrently establish a new class of NTIOLs for blue light filtering 
to improve driving safety under glare conditions, with these lenses as 
members. As part of its request, Alcon submitted descriptive 
information about the candidate IOLs as outlined in the guidance 
document that we make available on the CMS Web site for the 
establishment of a new class of NTIOLs, as well as information 
regarding approval of the candidate IOL by the U.S Food and Drug 
Administration (FDA). This information included the approved labeling 
for the candidate lenses, a summary of the IOLs' safety and 
effectiveness, a copy of the FDA's approval notification, and 
instructions for their use. In addition, Alcon also submitted a number 
of studies in support of its claim that the blue light filtering design 
features of the candidate lenses would improve driving safety under 
glare conditions. We note that we have previously considered another 
candidate IOL for which ASC payment review was requested on the basis 
of blue light filtering properties. We discussed these lenses in the 
July 23, 2004 and March 25, 2005 NTIOL proposed and final rules 
published in the Federal Register (69 FR 44029 and 70 FR 15337, 
respectively).
    In its CY 2011 request, Alcon asserts that its request is based on 
new research and measurement technologies that demonstrate that the 
Acrysof[reg] Natural IOLs with a blue light filtering chromophore 
filters light in a manner that approximates the human crystalline lens 
in the 400-475 nm blue light wavelength range to reduce glare that 
impairs the ability of the eye to differentiate objects from the 
background. Alcon further states that glare reduction can help 
beneficiaries avoid hazards that can be caused by glare. Alcon also 
states that at present, there are no active or expired NTIOL classes 
that describe IOLs similar to its IOL.
    We established in the CY 2007 OPPS/ASC final rule with comment 
period that when reviewing a request for recognition of an IOL as an 
NTIOL and a concurrent request to establish a new class of NTIOLs, we 
would base our determination on consideration of the three major 
criteria that are outlined in the discussion above. In the CY 2011 
proposed rule we noted that we had begun our review of Alcon's request 
to recognize its Acrysof[reg] Natural IOLs as NTIOLs and concurrently 
establish a new class of NTIOLs. In the CY 2011 proposed rule we 
solicited comment on these candidate IOLs with respect to the 
established NTIOL criteria as discussed above (75 FR 46354).
    First, for an IOL to be recognized as an NTIOL we require that the 
IOL must have been approved by the FDA and claims of specific clinical 
benefits and/or lens characteristics with established clinical 
relevance in comparison with currently available IOLs must have been 
approved by the FDA for use in labeling and advertising. We note that 
FDA approval for the candidate lens was granted in May 2007 and that 
Alcon provided FDA approval documentation, including a copy of the 
FDA's approval notification, the FDA's summary of the IOL's safety and 
effectiveness, and the labeling approved by the FDA in its request for 
a new class of NTIOLs. The approved labels for the Alcon IOLs all 
state, ``Alcon's proprietary blue light filtering chromophore filters 
light in a manner that approximates the human crystalline lens in the 
400-475 nm blue light wavelength range.'' The FDA label

[[Page 72053]]

does not otherwise reference specific clinical benefits or lens 
characteristics of blue light filtering on glare. In the CY 2011 OPPS/
ASC proposed rule (75 FR 46354) we noted that we were interested in 
public comments on the specific clinical benefits or lens 
characteristics with established clinical relevance for the blue light 
filter effects on glare. We specifically noted that we were interested 
in public comments regarding the assertion that the specific blue light 
filter properties associated with the candidate IOLs improve driving 
safety via the reduction of glare.
    Second, we also require that the candidate IOL not be described by 
an active or expired NTIOL class; that is, it does not share the 
predominant, class-defining characteristic associated with improved 
clinical outcomes with designated members of an active or expired NTIOL 
class. As noted in the table above regarding active and expired NTIOL 
classes, since implementation of the NTIOL review process that was 
established in the June 16, 1999 Federal Register, we have approved 
three classes of NTIOLs: Multifocal and Reduction in Preexisting 
Astigmatism classes, both of which were created in 2000 and expired in 
2005, and the currently active Reduced Spherical Aberration class, 
which was created in 2006 and will expire in 2011. The class-defining 
characteristic specific to IOLs that are members of these classes is 
evident in the name assigned to the class. For example, IOLs recognized 
as members of the reduced spherical aberration class are characterized 
by their aspheric design that results in reduced spherical aberration. 
We refer readers to the table above for information about the NTIOL 
classes that have been created since the implementation of the review 
process. Based on this information, the candidate lens may not be 
described by an active or expired NTIOL class. Its proposed class-
defining characteristic and associated clinical benefits that were 
described in the submitted request, specifically the blue light 
filtering properties, may not be similar to the class-defining 
characteristics and associated benefits of the two expired NTIOL 
classes, the Multifocal and Reduction in Preexisting Astigmatism 
classes, or to the class-defining characteristic and associated 
benefits of the currently active Reduced Spherical Aberration class. In 
the CY 2011 OPPS/ASC proposed rule we noted that we welcomed public 
comments that address whether the proposed class-defining 
characteristic and associated clinical benefits of the candidate Alcon 
IOLs are described by the expired or currently active NTIOL classes (75 
FR 46354).
    Third, our NTIOL evaluation criteria also require that an applicant 
submit evidence demonstrating that use of the IOL results in 
measurable, clinically meaningful, improved outcomes in comparison to 
use of currently available IOLs. We note that in the CY 2007 OPPS/ASC 
final rule with comment period, we sought comments as to what 
constitutes currently available IOLs for purposes of such comparisons, 
and we received several comments in response to our solicitation (71 FR 
68178). We agreed with commenters that we should remain flexible with 
respect to our view of ``currently available lenses'' for purposes of 
reviewing NTIOL requests, in order to allow for consideration of 
technological advances in lenses over time. For purposes of reviewing 
this request to establish a new NTIOL class for CY 2011, we believe 
that foldable, spherical, monofocal IOLs made of acrylic, silicone, or 
polymethylmethacrylate materials represent the currently available 
lenses against which the candidate NTIOL to establish a new class 
should be compared. The Alcon request asserts that the proprietary blue 
light filtering chromophore incorporated into the design of the 
candidate lenses and its associated benefits makes them different from 
IOLs that are currently available in the U.S. market. In the CY 2011 
OPPS/ASC proposed rule we again sought public comment on our view of 
``currently available lenses'' for the purposes of this CY 2011 review 
(75 FR 46354).
    We reviewed the evidence submitted as part of the request, 
including two peer-reviewed articles and two related clinical studies. 
The first of the submitted articles discussed the effect of the 
candidate lenses on glare disability, while the second article 
discussed the effects of glare on driving in simulated driving 
conditions. The requestor also submitted data from two clinical studies 
directly related to the submitted articles discussed above. One cross 
sectional study with a planned sample size of 70 subjects evaluated 
glare disability by comparing the candidate lenses against control 
lenses which did not include the blue light filtering chromophore. 
Results from this study suggest that subjects implanted with the 
applicant IOLs had significantly faster photostress recovery times than 
subjects who had control IOLs implanted without the blue light 
filtering chromophore. We noted in the CY 2011 OPPS/ASC proposed rule 
that this cross sectional study was ongoing; consequently the 
preliminary results submitted with the request only reflected 40 
subjects from the planned total sample size. The requestor also 
submitted data from a second clinical study with a total sample size of 
34 that evaluated the benefit of the blue light filtering chromophore 
on driving performance in patients implanted with the candidate IOLs 
compared to patients implanted with non blue light filtering IOLs. The 
results from this study suggested that incorporation of the yellow 
chromophore into the design of the candidate lenses reduce glare 
disability and thereby improve the ability of older drivers implanted 
with the candidate lenses to drive safely. Overall, the evidence 
submitted provided us with important information critical to our review 
of this request. However, in making our decision as to whether to 
establish a new class of NTIOL based on the primary characteristic of 
the candidate lenses, we indicated in the CY 2011 OPPS/ASC proposed 
rule (75 FR 46355) that we were also interested in what other 
information the public could contribute related to the asserted 
benefits of the blue light filtering optic. Specifically, we sought 
public comment and relevant data on the following:
    <bullet> Are there other peer-reviewed data that would support or 
disprove the claims of clinical benefit made by the applicant?
    <bullet> The presented studies compare the blue filtering optic to 
clear IOLs, are there other IOLs or other clinical alternatives for 
reducing glare?
    <bullet> Is the sample size used in both studies sufficient 
considering all confounding variables including, but not limited to 
age, sex, race, time from surgery, status of eyes (which eye received 
the IOL or both eyes, for example) to conclude that a blue light 
filtering optic would reduce glare in the Medicare population?
    <bullet> What kind of study design would be appropriate to prove 
the claim of significant clinical benefit due to glare reduction on 
which the new class would be based?
    <bullet> Are the submitted data enough to clarify that the blue 
filtering optic is responsible for reduction in glare disability as 
asserted by applicant?
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46355), we welcomed 
public comments and relevant data specifically addressing whether use 
of the Alcon Acrysof[reg] Natural IOLs result in measurable, clinically 
meaningful, improved outcomes in comparison with use of currently 
available IOLs. Additionally, in accordance with our established NTIOL 
review process, we sought public comments on all of the

[[Page 72054]]

review criteria for establishing a new NTIOL class that would be based 
on the ability of the Acrysof[reg] Natural IOLs to filter blue light 
and subsequently help beneficiaries avoid hazards that can be caused by 
glare while driving. All comments on this request must have been 
received by September 2, 2010. In the proposed rule, we stated that the 
announcement of CMS' determination regarding this request will appear 
in this CY 2011 OPPS/ASC final rule with comment period. If a 
determination of membership of the candidate lens in a new or currently 
active NTIOL class is made, this determination would be effective 30 
days following the date that this final rule with comment period is 
published in the Federal Register.
    We thank the public for their comments concerning our review of the 
request from Alcon Laboratories, Inc. (Alcon) to establish a new class 
of NTIOL based on the characteristics of its Acrysof[reg] Natural 
intraocular lenses. Some of the comments we received raised additional 
questions about the proven effectiveness of the Acrysof[reg] Natural 
intraocular lenses, especially when compared to other currently 
available lenses. These comments and our responses to them are 
summarized below.
    Comment: A few commenters presented several arguments suggesting 
that CMS recognize the Acrysof[reg] natural IOLs as belonging to a new 
class of NTIOLS. With regard to our requirement that the IOL must have 
been approved by the FDA and that claims of specific clinical benefits 
and/or lens characteristics with established clinical relevance in 
comparison with currently available IOLs must have been approved by the 
FDA for use in labeling and advertising, one commenter disagreed with 
the statement in the proposed rule that ``the FDA label does not 
otherwise reference specific clinical benefits or lens characteristics 
of blue light filtering on glare'' (75 FR 46354). The commenter 
asserted that the submitted studies established the clinical relevance 
of the blue-light filter in the AcrySof[reg] Natural intraocular lens 
models and that the blue-light filter is described in the FDA-approved 
label. This same commenter indicated that no current or expired NTIOL 
class exists for IOLs that offer this characteristic.
    This same commenter also provided feedback on CMS' request for 
comment on our definition of ``currently available lenses,'' 
specifically with regards to this review. The commenter questioned 
whether polymethylmethacrylate (PMMA) IOLs should be deemed 
``conventional'', and stated that less than 1 percent of cataract 
surgeries in the United States are performed with lenses made of PMMA. 
The commenters suggested that, after expiration of the currently active 
NTIOL class for aspheric-optic IOLs that reduce spherical aberration, 
CMS consider updating the description of conventional lenses from 
``spherical'' to ``spheric and aspheric.''
    With regard to establishing substantial clinical benefit, one 
commenter asserted that the study design utilized to assess driving 
performance allowed specifically for the observation of the effect of 
the yellow chromophore used in the design of the candidate lenses on 
glare disability in the absence of any other confounding factors. The 
commenter argued that the sample sizes used in each of the clinical 
studies presented were adequate to demonstrate the benefit of the blue 
light filtering technology to Medicare beneficiaries, and were 
determined such that they were sufficiently powerful to detect 
clinically significant differences. Specifically, the commenter noted 
that for one of the studies, which was based on a contralateral design, 
the sample size was specified for up to 70 subjects and ultimately was 
based on data from 52 subjects. The commenter claimed that the subjects 
enrolled in this study were an average age of 75.6 years old, with 53.8 
percent females and were typical for patients in the Medicare 
population, and further asserted that subject-descriptive variables 
such as age, sex, and race did not impact the treatment comparison as 
the study was conducted using a contralateral design. The commenter 
asserted that the sample size for the second study was determined to be 
in the safety margin with a statistical power of 80 percent.
    Another commenter also provided comments in support of the blue 
light filtering IOLS. This commenter asserted that the requestor had 
provided sufficient evidence to support the claims of real-world 
benefit alluded to in the request to establish a new class of NTIOL for 
the blue light filtering IOLs. This commenter offered to provide 
additional evidence to substantiate the requestors' claims with data 
gathered from an assessment of its own blue light filtering IOLs. Both 
of these commenters claimed that the Acrysof[reg] Natural IOLs 
application to open a new NTIOL category meets the specific CMS NTIOL 
review criteria and that the applicant lenses are not described by 
current or prior subsets of NTIOLs.
    Response: With regard to FDA labeling, we are not certain that the 
blue light filtering characteristic of the applicant IOLs specifically 
results in the reduction of glare in comparison with use of currently 
available IOLs in order to fulfill our requirement that the FDA approve 
the lens for characteristics with established clinical relevance in 
comparison with currently available IOLs for use in labeling and 
advertising. We discuss in more detail below our thorough review of the 
application and submitted studies on the applicant's lenses, as well as 
comments that we received. We appreciate the commenters' clarification.
    We agree that the applicant lens is not described by current or 
prior subsets of NTIOLs. However, we note that these lenses are not 
unique with respect to the blue light filtering optic. As stated above, 
we have previously considered another candidate IOL for which ASC 
payment review was requested on the basis of blue light filtering 
properties.
    With respect to our definition of ``currently available IOLs,'' we 
thank the commenters for their feedback on this matter and we will 
carefully consider and evaluate this particular definition of 
``currently available lenses'' for use in future reviews of NTIOL 
applications. As discussed in the CY 2007 OPS/ASC final rule with 
comment period (71 FR 68178), we continue to believe that flexibility 
is critical when identifying what the public considers ``currently 
available lenses,'' in order to allow for consideration of 
technological advances in lenses over time.
    Comment: Other commenters argued that NTIOL status has been a 
valuable resource to allow practicing physicians to attain access to 
IOLs that can provide additional benefits for their patients at the 
time of cataract surgery and that CMS should establish the new class to 
allow beneficiaries to gain access to technology that improves driving 
conditions.
    Some commenters provided anecdotal information citing their 
clinical experiences with the applicant lenses, and asserted that 
elimination/reduction of glare disability with the chromophore lens is 
of such value to patients as to make it deserving of NTIOL status in 
order to encourage the utilization of this extremely important 
technology. One commenter asserted that the basis for the NTIOL 
application is unique, and that the Natural chromophore was designed to 
filter potentially harmful blue light, to reduce the amount of harmful 
light reaching the retina, without appreciable reduction in visual 
quality (that is, night vision, color vision, contrast sensitivity). 
This commenter further stated that the vast majority of the published 
research to date indicated that this goal had been

[[Page 72055]]

achieved, but did not provide specific citations.
    Generally, these commenters urged that CMS establish a new class of 
NTIOL based on the blue light filtering characteristic for the primary 
purpose of offering beneficiaries access to an intraocular lens that 
the applicant argued offers the real world benefit of improving driving 
in glare conditions.
    Response: We thank these commenters for their feedback and agree 
that Medicare beneficiaries should be allowed access to new 
technologies that offer substantial clinical improvement over existing 
technologies. However, as discussed further below, in our review of 
studies submitted to CMS as part of the NTIOL request and additional 
data submitted by commenters, we are not certain that the blue light 
filtering characteristic of the applicant IOLs specifically results in 
the reduction of glare in comparison with use of currently available 
IOLs. Moreover, in our review of other references submitted by 
commenters regarding the blue light filtering optic, we found evidence 
suggesting that the blue-filtering lenses could decrease best possible 
vision.
    Comment: We also received several comments requesting that CMS 
disapprove this request to establish a new class of NTIOL based on the 
blue light characteristic. These commenters argued that there is 
insufficient clinical and scientific evidence to support the claim of a 
clinical benefit for a blue-light filtering optic. Several of these 
commenters asserted that the requestor's claim that use of the IOL 
results in substantial clinical benefit in comparison to use of 
currently available IOLs is not based in sound science and will 
increase the cost to Medicare without providing any significant 
additional benefit to patients. With regard to the requirement that the 
IOL must have been approved by the FDA and claims of specific clinical 
benefits and/or lens characteristics with established clinical 
relevance in comparison with currently available IOLs must have been 
approved by the FDA for use in labeling and advertising, these 
commenters pointed out that the claim of clinical benefit--reduction of 
glare--is not included in the FDA label, as required by CMS. These 
commenters also pointed out that the use of a blue filter is not 
unique, further stating that another IOL manufacturer also creates IOLs 
with a blue light filter.
    Other commenters also opposed the creation of a new NTIOL class 
based on the blue light filtering characteristic. With regard to the 
requirement that the NTIOL result in a substantial clinical benefit 
through measurable, clinically meaningful, improved outcomes, 
commenters argued that they were relatively few articles potentially 
related to blue light filtration and reduction of glare, and of these 
identified articles, only one directly addressed the specific topic. 
They argued that the one study, funded by the requestor, has numerous 
flaws in the study protocol and night driving simulator testing 
methodology. They asserted that it is impossible to tell whether the 
beneficial results associated with one of the applicant IOLs, 
specifically model SN60WF are due to the lens' blue light filtering 
optic or its aspheric optic, given that aspheric lenses have been shown 
to improve contrast sensitivity in mesopic conditions with and without 
glare. These commenters questioned the mean postoperative time for the 
blue light filtering IOLs (10.4 months) versus the same measure for the 
control IOL (4.7 years). They asserted that the disparity between the 
measures makes it nearly impossible to account for the clarity of the 
posterior capsule or the impact of progressive glistenings on light 
scatter. They further stated that in any IOL study one would expect 
visual performance to be superior at 10 months post-op versus 4 years 
post-op. These commenters suggested that the study uses a biased 
experimental glare tester, where the visual target has a different 
light spectrum (color) to the glare source. They explained that in 
almost all real-world situations, the spectrum of the glare source is 
similar or identical to that of the visual target. Thus, heavily 
weighting the glare source with short wavelength blue light does not 
represent real-world glare situations and would favor a performance 
benefit for a blue-light filtering IOL. They asserted that in a real 
world situation where the visual target and the glare source have the 
same light spectrum, a blue blocking IOL cannot reduce glare disability 
because it will decrease stray light in exactly the same proportion as 
the target brightness.
    Some commenters suggested that CMS and the FDA consider mandating 
the withdrawal of the applicant and other similarly designed lenses 
from the market, or at least require that a clear lens alternative be 
offered for each model that the company produces so that the surgeon 
may take advantage of the other features of the lenses that are 
available without having to be forced into using yellow chromophore 
permeated lenses.
    Another commenter provided a number of citations of studies in peer 
reviewed journals that supported the fact that there are no differences 
in the disability glare performance of pseudophakes (people who had 
cataract surgery with IOL replacement) with colorless versus blue-
filtering IOLs. This commenter also stated that glare disability is not 
a scientifically proven predictor of older driver's safety and 
moreover, that yellow tinted, blue filtering design of the Acrysof[reg] 
Natural IOL chromophores permanently limits the blue light part of the 
visible spectrum that aids older adults to see as well as possible. The 
commenter further pointed out that this type of lens undesirably 
restricts pseudophakic scotopic (night vision), mesopic (a combination 
of photopic vision and scotopic vision in low but not quite dark 
lighting situations), and S-cone and retinal ganglion photoreception. 
Finally, this commenter stated that the glistening associated with 
Acrysof[reg] Natural lenses that develops overtime causes disability 
glare rather than reduces it. The commenter described glistenings as 
fluid-filled microvacuoles that form within the IOL optic when the IOL 
is in an aqueous environment, and noted that glistenings are observed 
in all types of IOLs, but have been mainly associated with hydrophobic 
acrylic IOLs, similar to the requestor's IOL.
    Response: We appreciate all of the feedback regarding the issues 
posed in our proposed rule, and regarding our review of this applicant 
IOL. These comments have been very helpful in pointing us to additional 
resources relevant to the asserted connection between the blue light 
filtering characteristic of the applicant IOLs and the proposed benefit 
of glare reduction.
    With regards to those comments questioning whether the FDA approved 
labels for the applicant IOLs included claims of clinical benefit, we 
note that our specific criteria asks that the FDA approved label 
include ``[c]laims of specific clinical benefits and/or lens 
characteristics with established clinical relevance in comparison to 
currently available IOLs.'' While the FDA label does not include any 
claims regarding the asserted reduction in glare properties of the 
applicant lens, it does mention the blue light filtering optic which 
the applicant asserts is proven to have established clinical relevance. 
We note that having two manufacturers create an IOL with a blue-light 
filter or other optic is not sufficient to disqualify a request for a 
new class of IOL.
    We have reviewed the public comments received and the available 
data. Although the requestor submitted several supporting studies with 
its application, as discussed above, commenters provided compelling 
evidence arguing against CMS establishing a new class of IOL for blue-

[[Page 72056]]

filtering. We conclude that the Acrysof[reg] Natural IOLs do not 
demonstrate substantial clinical benefit in comparison with currently 
available IOLs. Therefore, we are disapproving Alcon's request to 
recognize its Acrysof[reg] Natural IOLs as NTIOLs, and subsequently to 
establish a new class of NTIOL for payment in CY 2011.
4. Payment Adjustment
    The current payment adjustment for a 5-year period from the 
implementation date of a new NTIOL class is $50. In the CY 2007 OPPS/
ASC final rule with comment period, we revised Sec.  416.200(a) through 
(c) to clarify how the IOL payment adjustment is made and how an NTIOL 
is paid after expiration of the payment adjustment, and made minor 
editorial changes to Sec.  416.200(d). For CY 2008, CY 2009, and CY 
2010, we did not revise the payment adjustment amount, and we did not 
propose to revise the payment adjustment amount for CY 2011 in light of 
our limited experience with the revised ASC payment system, implemented 
initially on January 1, 2008.
5. ASC Payment for Insertion of IOLs
    In accordance with the final policies of the revised ASC payment 
system, for CY 2011, payment for IOL insertion procedures is 
established according to the standard payment methodology of the 
revised payment system, which multiplies the ASC conversion factor by 
the ASC payment weight for the surgical procedure to implant the IOL. 
The CY 2011 ASC payment for the cost of a conventional lens is packaged 
into the payment for the associated covered surgical procedures 
performed by the ASC. The HCPCS codes for IOL insertion procedures were 
included in Table 53 of the CY 2011 OPPS/ASC proposed rule (75 FR 
46355), and their proposed CY 2011 payment rates were found in Addendum 
AA to the proposed rule.
    We did not receive any public comments concerning the proposed CY 
2011 payment rates for the insertion of IOL procedures. Therefore, we 
are finalizing the payment rates for the insertion of IOL procedures, 
calculated according to the standard methodology of the revised ASC 
payment system. The HCPCS codes for IOL insertion procedures are 
displayed in Table 64 below, and their final CY 2011 payment rates may 
be found in Addendum AA to this final rule with comment period.

                  Table 64--Insertion of IOL Procedures
------------------------------------------------------------------------
        CY 2010 HCPCS code                 CY 2010 Long descriptor
------------------------------------------------------------------------
66983.............................  Intracapsular cataract extraction
                                     with insertion of intraocular lens
                                     prosthesis (one stage procedure).
66984.............................  Extracapsular cataract removal with
                                     insertion of intraocular lens
                                     prosthesis (one stage procedure),
                                     manual or mechanical technique
                                     (e.g., irrigation and aspiration or
                                     phacoemulsification).
66985.............................  Insertion of intraocular lens
                                     prosthesis (secondary implant), not
                                     associated with concurrent cataract
                                     removal.
66986.............................  Exchange of intraocular lens.
------------------------------------------------------------------------

6. Announcement of CY 2011 Deadline for Submitting Requests for CMS 
Review of Appropriateness of ASC Payment for Insertion of an NTIOL 
Following Cataract Surgery
    In accordance with Sec.  416.185(a) of our regulations as revised 
by the CY 2007 OPPS/ASC final rule with comment period, CMS announces 
that in order to be considered for payment effective January 1, 2012, 
requests for review of applications for a new class of new technology, 
IOLs must be received at CMS by 5 p.m. EST, on March 5, 2011. Send 
requests to ASC/NTIOL, Division of Outpatient Care, Mailstop C4-05-17, 
Centers for Medicare and Medicaid, 7500 Security Boulevard, Baltimore, 
MD 21244-1850.
    To be considered, requests for NTIOL reviews must include the 
information on the CMS Web site at: http://www.cms.gov/ASCPayment/
downloads/NTIOLprocess.pdf.

F. ASC Payment and Comment Indicators

1. Background
    In addition to the payment indicators that we introduced in the 
August 2, 2007 final rule, we also created final comment indicators for 
the ASC payment system in the CY 2008 OPPS/ASC final rule with comment 
period (72 FR 66855). We created Addendum DD1 to define ASC payment 
indicators that we use in Addenda AA and BB to provide payment 
information regarding covered surgical procedures and covered ancillary 
services, respectively, under the revised ASC payment system. The ASC 
payment indicators in Addendum DD1 are intended to capture policy 
relevant characteristics of HCPCS codes that may receive packaged or 
separate payment in ASCs, such as whether they were on the ASC list of 
covered services prior to CY 2008; payment designation, such as device-
intensive or office-based, and the corresponding ASC payment 
methodology; and their classification as separately payable ancillary 
services including radiology services, brachytherapy sources, OPPS 
pass-through devices, corneal tissue acquisition services, drugs or 
biologicals, or NTIOLs.
    We also created Addendum DD2 that lists the ASC comment indicators. 
The ASC comment indicators used in Addenda AA and BB to the proposed 
rules and final rules with comment period serve to identify, for the 
revised ASC payment system, the status of a specific HCPCS code and its 
payment indicator with respect to the timeframe when comments will be 
accepted. The comment indicator ``NI'' is used in the OPPS/ASC final 
rule with comment period to indicate new HCPCS codes for the next 
calendar year for which the interim payment indicator assigned is 
subject to comment. The comment indicator ``NI'' is also assigned to 
existing codes with substantial revisions to their descriptors such 
that we consider them to be describing new services, as discussed in 
the CY 2010 OPPS/ASC final rule with comment period (74 FR 60622). We 
stated in the CY 2011 OPPS/ASC proposed rule that will respond to 
public comments and finalize the ASC treatment of all codes labeled 
with comment indicator ``NI'' in the CY 2011 OPPS/ASC final rule with 
comment period (75 FR 46356).
    The ``CH'' comment indicator is used in Addenda AA and BB to this 
CY 2011 proposed rule to indicate that a new payment indicator (in 
comparison with the indicator for the CY 2010 ASC April quarterly 
update) is proposed for assignment to an active HCPCS code for the next 
calendar year; an active HCPCS code is proposed for addition to the 
list of procedures or services payable in ASCs; or an active HCPCS code 
is proposed for deletion at the end of the current calendar year. The 
``CH'' comment indicators that are published in the final rule with 
comment period are provided to alert readers that a change has been 
made from one calendar year to the next, but do not indicate that the 
change is subject to comment. The full definitions of the payment 
indicators and comment indicators are provided in Addenda DD1 and DD2 
to this final rule with comment period.

[[Page 72057]]

2. ASC Payment and Comment Indicators
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46356), we did not 
propose any changes to the definitions of the ASC payment and comment 
indicators for CY 2011. We stated that we will consider proposing to 
modify the payment indicators for procedures that were subject to 
transitional payment prior to CY 2011 in future rulemaking.
    We did not receive any public comments on the ASC payment and 
comment indicators. We are finalizing our proposed CY 2011 payment and 
comment indicators, without modification, in Addenda DD1 and DD2 to 
this final rule with comment period.

G. ASC Policy and Payment Recommendations

    MedPAC was established under section 1805 of the Act to advise 
Congress on issues affecting the Medicare program. Subparagraphs (B) 
and (D) of section 1805(b)(1) of the Act require MedPAC to submit 
reports to Congress not later than March 1 and June 15 of each year 
that present its Medicare payment policy reviews and recommendations 
and its examination of issues affecting the Medicare program, 
respectively. The following section describes a recent MedPAC 
recommendation that is relevant to the ASC payment system.
    The March 2010 MedPAC ``Report to the Congress: Medicare Payment 
Policy'' included the following recommendation relating specifically to 
the ASC payment system for CY 2011:
    Recommendation 2C: The Congress should implement a 0.6 percent 
increase in payment rates for ambulatory surgical center services in 
calendar year 2011 concurrent with requiring ambulatory surgical 
centers to submit cost and quality data.
    CMS Response: In the August 2, 2007 final rule (72 FR 42518 through 
42519), we adopted a policy to update the ASC conversion factor for 
consistency with section 1833(i)(2)(C) of the Act, which requires that, 
if the Secretary has not updated the ASC payment amounts in a calendar 
year, the payment amounts shall be increased by the percentage increase 
in the Consumer Price Index for All Urban Consumers (CPI-U) as 
estimated by the Secretary for the 12-month period ending with the 
midpoint of the year involved. The statute set the update at zero for 
CY 2008 and CY 2009. We indicated that we planned to implement the 
annual updates through an adjustment to the conversion factor under the 
ASC payment system beginning in CY 2010 when the statutory requirement 
for a zero update no longer applies. Further, we noted that that we 
would update the conversion factor for the CY 2010 ASC payment system 
by the percentage increase in the CPI-U, consistent with our policy as 
codified under Sec.  416.171(a)(2).
    As we indicated in the CY 2010 OPPS/ASC final rule with comment 
period (74 FR 60622), we did not require ASCs to submit cost data to 
the Secretary for CY 2010. We explained that the 2006 GAO report, 
``Medicare: Payment for Ambulatory Surgical Centers Should Be Based on 
the Hospital Outpatient Payment System'' (GAO-07-86), concluded that 
the APC groups in the OPPS reflect the relative costs of surgical 
procedures performed in ASCs in the same way they reflect the relative 
costs of the same procedures when they are performed in HOPDs. 
Consistent with the GAO findings, CMS is using the OPPS as the basis 
for the ASC payment system, which provides for an annual revision of 
the ASC payment rates under the budget neutral ASC payment system. In 
addition, we noted that, under the methodology of the revised ASC 
payment system, we do not utilize ASC cost information to set and 
revise the payment rates for ASCs but, instead, rely on the relativity 
of hospital outpatient costs developed for the OPPS, consistent with 
the recommendation of the GAO. Furthermore, we explained that we have 
never required ASCs to routinely submit cost data and expressed our 
concern that a new Medicare requirement for ASCs to do so could be 
administratively burdensome for ASCs. In 2009, MedPAC made a similar 
recommendation to that made in Recommendation 2C above. In light of 
that MedPAC recommendation, in the CY 2010 OPPS/ASC proposed rule (74 
FR 35391), we solicited public comment on the feasibility of ASCs 
submitting cost information to CMS, including whether costs should be 
collected from a sample or the universe of ASCs, the administrative 
burden associated with such an activity, the form that such a 
submission could take considering existing Medicare requirements for 
other types of facilities and the scope of ASC services, the expected 
accuracy of such cost information, and any other issues or concerns of 
interest to the public on this topic.
    In the CY 2010 OPPS/ASC final rule with comment period (74 FR 
60623), we summarized and responded to these comments. As noted in that 
final rule with comment period, commenters' expressed varied opinions 
regarding the feasibility of requiring ASCs to submit cost data to the 
Secretary. Some commenters believed that requiring ASC to submit such 
data would not be an insurmountable obstacle and pointed out that other 
small facilities submit cost reports to CMS. They stated that ASC cost 
reports are necessary to assess the adequacy of Medicare payments and 
evaluate the ASC update. Other commenters, however, opposed the 
requirement that ASCs submit cost data to CMS because they believed 
such a requirement would be unnecessary and administratively 
burdensome. Commenters generally supported a requirement that ASCs 
report quality data. We refer readers to the CY 2010 OPPS/ASC final 
rule with comment period for a full discussion of the comments we 
received on the feasibility of requiring ASCs to report cost and 
quality data (74 FR 60623). We responded that we would keep the 
commenters' perspectives in mind as we further consider the adequacy of 
the Medicare ASC payment rates and move toward implementation of ASC 
quality reporting.
    Consistent with our CY 2010 policy, in the CY 2011 OPPS/ASC 
proposed rule (75 FR 46357), we proposed not to require ASCs to submit 
cost data to the Secretary for CY 2011. We stated that we continue to 
believe that our established methodology results in appropriate payment 
rates for ASCs. As noted in the CY 2010 OPPS/ASC final rule with 
comment period (74 FR 60623), section 109(b) of the MIEA-TRHCA (Pub. L. 
109-432) gives the Secretary the authority to implement ASC quality 
measure reporting and to reduce the payment update for ASCs that fail 
to report those required measures. We restated our belief that 
promoting high quality care in the ASC setting through quality 
reporting is highly desirable and fully in line with our efforts under 
other payment systems. As discussed in section XVI.F. of the CY 2011 
OPPS/ASC proposed rule (75 FR 46382 through 46383), we proposed not to 
require ASC quality data reporting for CY 2011, but stated our 
intention to implement ASC quality reporting in a future rulemaking.
    We noted in the proposed rule that section 3006(f) of the 
Affordable Care Act, as added by section 10301(a) of the Affordable 
Care Act, requires CMS to develop a plan on implementing a value-based 
purchasing program for ASCs that will consider measures of quality and 
efficiency in ASCs, among other requirements. The Secretary must submit 
a report to Congress containing this plan not later than January 1, 
2011.
    Comment: Many commenters urged CMS to require ASCs to routinely 
report

[[Page 72058]]

cost data to allow for future validation of the relative 
appropriateness of ASC payment weights and rates. MedPAC commented that 
ASCs should be required to submit cost and quality data, concurrent 
with a 0.6 percent increase in ASC payment rates for CY 2011, arguing 
that ASC cost data are needed to examine whether an existing input 
price index is an appropriate proxy for the costs of ASCs or whether an 
ASC-specific market basket should be developed. MedPAC pointed out that 
businesses such as ASCs typically keep records of their costs for 
filing taxes and other purposes, and those other small providers such 
as home health agencies and hospices submit cost data to CMS. MedPAC 
stated that CMS should create a streamlined process for ASCs to submit 
cost data in order to minimize the burden on ASCs and CMS.
    Other commenters, however, supported CMS' proposal not to require 
ASCs to routinely submit cost data, a process that the commenters 
characterized as administratively burdensome. The commenters stated 
that the quality of such data, if required, would be questionable 
because of the varying types of services and cost structures among ASCs 
and would not be suitable for ratesetting.
    Many commenters, including MedPAC, urged CMS to require ASCs to 
report quality measures, while others supported CMS' proposal to defer 
quality reporting for ASCs while they adjust to the revised ASC payment 
system. Commenters also supported the implementation of a value-based 
purchasing program for ASCs.
    Response: We did not propose to require ASCs to submit cost data to 
the Secretary for CY 2011 because, as noted previously in this section 
and in the CY 2010 OPPS/ASC final rule with comment period (74 FR 
60622), we continue to believe that our established methodology results 
in appropriate payment rates for ASCs. Therefore, we are finalizing our 
proposal not to require cost reporting in this final rule with comment 
period. We thank all of the commenters for their thoughts regarding the 
feasibility and value of requiring ASCs to submit cost data that could 
be used to evaluate the adequacy of the Medicare ASC payment rates. We 
will keep the commenters' perspectives about collecting cost 
information from ASCs in mind as we further consider the adequacy of 
the Medicare ASC payment rates. We also appreciate the commenters' 
perspectives' regarding ASC quality reporting and refer readers to 
section XVI.F. of this final rule with comment period for more detailed 
discussion of ASC quality data reporting. As mentioned in the proposed 
rule, a plan to implement an ASC value based purchasing program will be 
prepared for Congress by January 1, 2011, as required by the Affordable 
Care Act.

H. Calculation of the ASC Conversion Factor and ASC Payment Rates

1. Background
    In the August 2, 2007 final rule (72 FR 42493), we established our 
policy to base ASC relative payment weights and payment rates under the 
revised ASC payment system on APC groups and relative payment weights. 
Consistent with that policy and the requirement at section 
1833(i)(2)(D)(ii) of the Act that the revised payment system be 
implemented so that it would be budget neutral, the initial ASC 
conversion factor (CY 2008) was calculated so that estimated total 
Medicare payments under the revised ASC payment system in the first 
year would be budget neutral to estimated total Medicare payments under 
the prior (CY 2007) ASC payment system (the ASC conversion factor is 
multiplied by the relative payment weights calculated for many ASC 
services in order to establish payment rates). That is, application of 
the ASC conversion factor was designed to result in aggregate Medicare 
expenditures under the revised ASC payment system in CY 2008 equal to 
aggregate Medicare expenditures that would have occurred in CY 2008 in 
the absence of the revised system, taking into consideration the cap on 
ASC payments in CY 2007 as required under section 1833(i)(2)(E) of the 
Act (72 FR 42522).
    We note that we consider the term ``expenditures'' in the context 
of the budget neutrality requirement under section 1833(i)(2)(D)(ii) of 
the Act to mean expenditures from the Medicare Part B Trust Fund. We do 
not consider expenditures to include beneficiary coinsurance and 
copayments. This distinction was important for the CY 2008 ASC budget 
neutrality model that considered payments across hospital outpatient, 
ASC, and MPFS payment systems. However, because coinsurance is almost 
always 20 percent for ASC services, this interpretation of expenditures 
has minimal impact for subsequent budget neutrality adjustments 
calculated within the revised ASC payment system.
    In the CY 2008 OPPS/ASC final rule with comment period (72 FR 66857 
through 66858), we set out a step-by-step illustration of the final 
budget neutrality adjustment calculation based on the methodology 
finalized in the August 2, 2007 final rule (72 FR 42521 through 42531) 
and as applied to updated data available for the CY 2008 OPPS/ASC final 
rule with comment period. The application of that methodology to the 
data available for the CY 2008 OPPS/ASC final rule with comment period 
resulted in a budget neutrality adjustment of 0.65.
    For CY 2008, we adopted the OPPS relative payment weights as the 
ASC relative payment weights for most services and, consistent with the 
final policy, we calculated the CY 2008 ASC payment rates by 
multiplying the ASC relative payment weights by the final CY 2008 ASC 
conversion factor of $41.401. For covered office-based surgical 
procedures and covered ancillary radiology services, the established 
policy is to set the relative payment weights so that the national 
unadjusted ASC payment rate does not exceed the MPFS unadjusted non-
facility PE RVU amount. Further, as discussed in the CY 2008 OPPS/ASC 
final rule with comment period (72 FR 66841 through 66843), we also 
adopted alternative ratesetting methodologies for specific types of 
services (for example, device-intensive procedures).
    As discussed in the August 2, 2007 final rule (72 FR 42518) and as 
codified under Sec.  416.172(c) of the regulations, the revised ASC 
payment system accounts for geographic wage variation when calculating 
individual ASC payments by applying the pre-floor and pre-reclassified 
hospital wage indices to the labor-related share, which is 50 percent 
of the ASC payment amount. Beginning in CY 2008, CMS accounted for 
geographic wage variation in labor cost when calculating individual ASC 
payments by applying the pre-floor and pre-reclassified hospital wage 
index values that CMS calculates for payment, using updated Core-Based 
Statistical Areas (CBSAs) issued by the Office of Management and Budget 
in June 2003. The reclassification provision provided at section 
1886(d)(10) of the Act is specific to hospitals. We believe the use of 
the most recent available raw pre-floor and pre-reclassified hospital 
wage indices results in the most appropriate adjustment to the labor 
portion of ASC costs. In addition, use of the unadjusted hospital wage 
data avoids further reductions in certain rural statewide wage index 
values that result from reclassification. We continue to believe that 
the unadjusted hospital wage indices, which are updated yearly and are 
used by many other Medicare payment systems, appropriately account for 
geographic variation in labor costs for ASCs.
    We noted that in certain instances there might be urban or rural 
areas for

[[Page 72059]]

which there is no IPPS hospital whose wage index data would be used to 
set the wage index for that area. For these areas, our policy has been 
to use the average of the wage indices for CBSAs (or metropolitan 
divisions as applicable) that are contiguous to the area that has no 
wage index (where ``contiguous'' is defined as sharing a border). We 
have applied a proxy wage index based on this methodology to ASCs 
located in CBSA 25980 Hinesville-Fort Stewart, GA, and CBSA 22 Rural 
Massachusetts. For CY 2011, we have identified another area, 
specifically, CBSA 11340 Anderson, SC for which there is no IPPS 
hospital whose wage index data would be used to set the wage index for 
that area. Generally, we would use the methodology described above; 
however in this situation all of the areas contiguous to CBSA 11340 
Anderson, SC are rural. Therefore, for this type of unique situation, 
in the CY 2011 OPPS/ASC proposed rule (75 FR 46358), we proposed to set 
the ASC wage index by calculating the average of all wage indices for 
urban areas in the State. In other situations, where there are no IPPS 
hospitals located in a relevant labor market area, we would continue 
our current policy of calculating an urban or rural area's wage index 
by calculating the average of the wage indices for CBSAs (or 
metropolitan divisions where applicable) that are contiguous to the 
area with no wage index.
    Comment: Several commenters recommended that CMS adopt for the ASC 
payment system the same wage index values used for hospital payment 
under the OPPS. They believe that applying different wage indices in 
the ASC payment system than are used in the OPPS is inequitable 
because, in many market areas, ASCs compete directly with hospitals for 
employees with skills and functions that are applicable in both 
settings. The commenters also argued that applying different wage index 
values for ASCs and hospitals causes rates between the two systems to 
diverge at the local level, and that using the pre-floor and pre-
reclassified hospital wage indices for ASCs is inconsistent with the 
principle of aligning the OPPS and ASC payment systems. They asserted 
that the ASC payment system is subordinate to the OPPS--the ASC 
conversion factor having been derived from the OPPS conversion factor 
and the OPPS relative weights being the annual starting point for ASC 
relative weights--and thus policies applicable under the OPPS should 
apply to the ASC setting.
    The commenters believed that, in all but a few instances, the 
adjusted wage index values used in the OPPS would be higher than the 
current wage index values used in the ASC payment system. Specifically, 
the commenters believe the adjustments that are applied to the wage 
indices used in the OPPS system also should be applied to the ASC wage 
indices. The adjustments that commenters requested be applied to the 
wage index values used in the ASC payment system are: Application of 
the ``frontier States'' wage index floor of 1.0 for providers in 
Montana, Nevada, Wyoming, North Dakota, and South Dakota; an imputed 
statewide rural wage index for States with no counties outside of an 
urban area; a mechanism to prevent urban areas from having indices 
below the statewide rural wage index; a mechanism to prevent the wage 
index of urban areas that cross State lines from falling below the 
State-specific rural floor; and an adjustment for counties where a 
significant proportion of residents commute to other counties for work.
    Response: As we have stated in the past (74 FR 60625), we continue 
to believe that the unadjusted hospital wage indices, which are updated 
yearly and are used by almost all Medicare payment systems, 
appropriately account for geographic variance in labor costs for ASCs. 
The post-reclassification wage indices for hospitals that fall under 
section 1886(d) of the Act (``section 1886(d) hospitals'') include many 
statutory adjustments specific to section 1886(d) hospitals and some 
regulatory adjustments for section 1886(d) hospitals including, but not 
limited to, the areas requested by commenters: application of the 
``frontier States'' wage index floor of 1.0 for providers in Montana, 
Nevada, Wyoming, North Dakota, and South Dakota; an imputed Statewide 
rural wage index for States with no counties outside of an urban area; 
a ``rural floor'' mechanism to prevent urban areas from having indices 
below the Statewide rural wage index; a mechanism to prevent the wage 
index of urban areas that cross State lines from falling below the 
State-specific rural floor; and an adjustment for counties where a 
significant proportion of residents commute to other counties. Because 
many of these adjustments are specified in statute for section 1886(d) 
hospitals, we believe it is appropriate to apply these adjustments only 
to section 1886(d) hospitals. The OPPS adopts the post-reclassification 
wage indices (adjusted hospital wage indices) because the majority of 
participating hospitals are section 1886(d) hospitals and, in these 
hospitals, the exact same personnel staff the ancillary departments of 
the hospital that simultaneously treat both inpatients and outpatients. 
For payment systems for other providers and suppliers for which there 
is no specific statutory provision for adjustments to the wage index 
values, we calculate and apply unadjusted hospital wage indices that 
reflect the reported cost of hospital labor in each area. Specifically, 
we use some form of the unadjusted hospital wage indices to pay long-
term care, psychiatric, and inpatient rehabilitation hospitals for 
inpatient care, as well as skilled nursing facilities, hospice 
programs, home health agencies, and ESRD facilities. Historically, we 
have only applied the adjusted, post-reclassification hospital wage 
indices to pay section 1886(d) hospitals for both inpatient and 
outpatient services for the reasons noted above. It is our policy to 
treat ASCs as we do all other providers and suppliers using hospital 
wage index values.
    Further, adopting the post-reclassification hospital wage indices 
with rural floor and associated statewide budget neutrality adjustment 
would not increase overall ASC payment because we apply a budget 
neutrality adjustment for changes in the wage indices to the conversion 
factor. Therefore, any anticipated increases in aggregate ASC payment 
created by adopting the post-reclassification wage indices would lead 
to a comparable downward adjustment to the conversion factor to ensure 
that the only increase in payments to ASCs are those allowed by the 
update factor. We discuss our budget neutrality adjustment for changes 
to the wage indices below in section XV.H.2.b. of this final rule with 
comment period.
    After consideration of the public comments we received, we are 
continuing our established policy to account for geographic wage 
variation in labor cost when calculating individual ASC payments by 
applying the pre-floor and pre-reclassified hospital wage index values 
that CMS calculates for payment, using updated CBSAs. We also are 
implementing our proposal, without modification, to set the ASC wage 
index by calculating the average of all wage indices for urban areas in 
the State when all contiguous areas to a CBSA are rural and there is no 
IPPS hospital whose wage index data could be used to set the wage index 
for that area.
2. Calculation of the ASC Payment Rates
a. Updating the ASC Relative Payment Weights for CY 2011 and Future 
Years
    We update the ASC relative payment weights each year using the 
national

[[Page 72060]]

OPPS relative payment weights (and MPFS non-facility PE RVU amounts, as 
applicable) for that same calendar year and uniformly scale the ASC 
relative payment weights for each update year to make them budget 
neutral (72 FR 42531 through 42532). Consistent with our established 
policy, in the CY 2011 OPPS/ASC proposed rule (75 FR 46358), we 
proposed to scale the CY 2011 relative payment weights for ASCs 
according to the following method. Holding ASC utilization and the mix 
of services constant from CY 2008 for CY 2011, we proposed to compare 
the total payment weight using the CY 2010 ASC relative payment weights 
under the 75/25 blend (of the CY 2007 payment rate and the ASC payment 
rate calculated under the ASC standard methodology) with the total 
payment weight using the CY 2011 ASC relative payment weights 
(calculated under the ASC standard ratesetting methodology) to take 
into account the changes in the OPPS relative payment weights between 
CY 2010 and CY 2011. We would use the ratio of CY 2010 to CY 2011 total 
payment weight (the weight scaler) to scale the ASC relative payment 
weights for CY 2011. The proposed CY 2011 ASC scaler was 0.9090 (75 FR 
46358) and scaling would apply to the ASC relative payment weights of 
the covered surgical procedures and covered ancillary radiology 
services for which the ASC payment rates are based on OPPS relative 
payment weights.
    Scaling would not apply in the case of ASC payment for separately 
payable covered ancillary services that have a predetermined national 
payment amount (that is, their national ASC payment amounts are not 
based on OPPS relative payment weights), such as drugs and biologicals 
that are separately paid or services that are contractor-priced or paid 
at reasonable cost in ASCs. Any service with a predetermined national 
payment amount would be included in the ASC budget neutrality 
comparison, but scaling of the ASC relative payment weights would not 
apply to those services. The ASC payment weights for those services 
without predetermined national payment amounts (that is, those services 
with national payment amounts that would be based on OPPS relative 
payment weights if a payment limitation did not apply) would be scaled 
to eliminate any difference in the total payment weight between the 
current year and the update year.
    For any given year's ratesetting, we typically use the most recent 
full calendar year of claims data to model budget neutrality 
adjustments. At the time of the proposed rule, we had available 98 
percent of CY 2009 ASC claims data. For this final rule with comment 
period, we have approximately 99 percent of all ASC claims data for CY 
2009.
    To create an analytic file to support calculation of the weight 
scaler and budget neutrality adjustment for the wage index (discussed 
below), we summarized available CY 2009 ASC claims by provider and by 
HCPCS code. We created a unique supplier identifier solely for the 
purpose of identifying unique ASCs within the CY 2009 claims data. We 
used the supplier zip code reported on the claim to associate State, 
county, and CBSA with each ASC. This file, available to the public as a 
supporting data file for the proposed rule, is posted on the CMS Web 
site at: http://www.cms.gov/ASCPayment/01_Overview.asp#TopOfPage.
    Comment: Many commenters again expressed their opposition to 
scaling the ASC relative payment weights. Many of the commenters on the 
CY 2011 OPPS/ASC proposed rule offered the same views as the public 
commenters on the CY 2010 OPPS/ASC final rule with comment period and 
the CY 2009 OPPS/ASC final rule with comment period, the year when CMS 
first applied the scaling policy that was finalized in the August 2, 
2007 final rule. The commenters expressed many concerns, including that 
scaling is contrary to the intent of using the cost-based OPPS relative 
payment weights as the basis for determining the relative payments for 
the same services in ASCs and that scaling would continue to erode the 
payment relationship between the OPPS and ASC payment system. They 
asserted that, although scaling is intended to maintain budget 
neutrality within the ASC payment system, it is instead creating 
increasingly large payment differentials between the ASC and OPPS 
payments for the same services without evidence of growing differences 
in capital and operating costs between the two settings, and depriving 
ASCs of real increases in the relative costs of procedures. The 
commenters believed that the CY 2011 OPPS relative payment weights 
reflected real growth in the relative costs of surgical services 
provided in HOPDs and that the ASC scaler should not reclaim dollars 
from the ASC payment system because there also has been real cost 
growth for the surgical services provided in ASCs. The commenters 
argued that only the difference in the conversion factor should drive 
differences in the payment for ASC and HOPD services from year to year, 
and that because CMS bases the ASC payment system on the OPPS relative 
weights, the weights should be the same in both payment systems.
    The commenters also pointed out that while CMS has suggested that 
scaling of the relative weights is a design element that will protect 
ASCs from changes in the OPPS relative weights that could significantly 
decrease payments for certain procedures, the trend in the OPPS 
relative weights suggests that the scaling factor for ASCs will rarely 
result in an increase in ASC relative weights. According to the 
commenters, ASCs would have received a negative adjustment to their 
weights in seven of the last nine years, indicating that the 
application of scaling in the ASC setting will continue to hurt, rather 
than protect, ASCs in the future. The commenters estimated that scaling 
of the ASC relative payment weights will reduce ASC weights by 9 
percent in CY 2011.
    The commenters argued that CMS is not required to scale the ASC 
relative weights and that it should use its authority to suspend the 
application of scaling the ASC relative weights for CY 2011. They noted 
that the regulations establishing the revised ASC payment system give 
CMS the flexibility to scale ``as needed.'' In addition, some 
commenters stated that Congress imposed a budget neutrality requirement 
on the ASC payment system only during the CY 2008 implementation year, 
and that CMS is under no legal obligation to continue to apply a 
scaling factor.
    The commenters also expressed their continuing disagreement with 
aspects of the budget neutrality adjustment methodology used by CMS to 
establish the conversion factor. Specifically, they stated that CMS 
estimated that ASCs would grow significantly in the volume and 
diversity of services offered. According to the commenters, in addition 
to overestimating volume growth, CMS likewise overestimated the level 
and distribution of spending. They provided 2008 and 2009 spending data 
and indicated that volume has grown at the lowest rate in program 
history and that the diversity of services provided is largely 
unchanged. They believe that these findings provide a further basis for 
CMS not to scale the ASC relative payment weights for CY 2011 after the 
weights are scaled under the OPPS.
    Response: Many of these comments are similar to public comments on 
the proposal for the revised ASC payment system that we responded to in 
the August 2, 2007 final rule (72 FR 42531 through 42533). For example, 
with regard to scaling, we addressed these same concerns raised by 
commenters that annual rescaling would cause

[[Page 72061]]

divergence of the relative weights between the OPPS and the revised ASC 
payment system for individual procedures in the August 2, 2007 final 
rule (72 FR 42532). We refer the commenters to that discussion for our 
detailed response in promulgating the scaling policy that was initially 
applied in CY 2009 (72 FR 42531 through 42533).
    As we have stated in the past (74 FR 60627), the ASC weight scaling 
methodology is entirely consistent with the OPPS methodology for 
scaling the relative payment weights and, for the most part, the 
increasing payment differentials between the ASC and OPPS payments for 
the same services are not attributable to scaling ASC relative payment 
weights. Considerations of differences between the capital and 
operating costs of ASCs and HOPDs are not part of the ASC standard 
ratesetting methodology, which relies only on maintaining the same 
relativity of payments for services under the two payment systems, as 
well as budget neutrality within each payment system. Furthermore, 
unlike HOPDs, we do not have information about the costs of ASC 
services in order to assess differences in capital and operating costs 
over time between the two settings. In order to maintain budget 
neutrality of the ASC payment system, we need to adjust for the effects 
of changes in relative weights. The ASC payment system adopts the OPPS 
relative weights as the mechanism for apportioning total payments, 
after application of the update factor, among all of the services 
covered by the ASC payment system. The OPPS relative weights serve the 
same purpose in the OPPS. The OPPS relative weights do not represent an 
estimate of absolute cost of any given procedure; rather, they reflect 
our estimate of the cost of the procedure within the context of our 
cost estimation methodology for the OPPS. With the exception of 
services with a predetermined national payment amount, the use of a 
uniform scaling factor for changes in total weight between years in the 
ASC payment system does not alter the relativity of the OPPS payment 
weights as used in the ASC payment system. Differences in the 
relativity between the ASC relative payment weights and the OPPS 
relative payment weights are not driven by the application of the 
uniform scaling factor. The ASC weight scaling methodology is entirely 
consistent with the OPPS weight scaling methodology and the weights 
serve the same purpose in both systems, to apportion total budget 
neutral payment allowed under the update.
    We do not agree with commenters' assertion that we should alter or 
eliminate the scaling methodology because the scaling factor will 
rarely result in an increase in ASC relative weights, therefore 
continuing to hurt rather than protect ASCs in the future. As we stated 
in the August 2, 2007 final rule (72 FR 42532), aggregate payments to 
ASCs could, in the absence of rescaling, be affected by changes in the 
cost structure of HOPDs that ought to be relevant only under the OPPS. 
A sudden increase in the costs of hospital outpatient emergency 
department or clinical visits due, for instance, to an increase in the 
volume of cases, would have the effect of increasing the weights for 
these services relative to the weights for surgical procedures in the 
hospital outpatient setting. In the absence of scaling the ASC payment 
weights, this change in the relative weights under the OPPS would 
result in a decrease in the relative weights for surgical procedures 
under the ASC payment system, and, therefore, a decrease in aggregate 
ASC payments for these same procedures. We continue to believe that 
changes in relative weights each year under the OPPS should not, in and 
of themselves, cause aggregate payments under the revised ASC payment 
system to increase or decrease. It is important to note that the 
specific adjustment factor applied in the scaling process could be 
positive or negative in any particular year; the fact that the scaler 
has not resulted in an increase to the ASC payment weights in any given 
year or series of years does not mean the same trend will continue, nor 
does it mean that the principle of preventing the ASC payment weights 
from being affected by fluctuations in the OPPS payment weights is 
inherently flawed.
    As stated in the CY 2009 OPPS/ASC final rule with comment period 
(73 FR 68754), with respect to the use of ``as needed'' in the text of 
Sec.  416.171(e)(2) that commenters have interpreted to mean that CMS 
has the authority to suspend scaling the relative payment weights if it 
determines there is not a need to do so, the phrase does not mean that 
CMS will determine whether or not to adjust for budget neutrality. 
Rather, it means that CMS adjusts the relative payment weights as 
needed to ensure budget neutrality. Therefore, we do not agree with the 
commenters' assertion that we are under no legal obligation to continue 
to apply a scaling factor. If we were not to scale the ASC relative 
payment weights, we estimate that the CY 2011 revisions would not be 
budget neutral.
    We agree that there are differences between the service volume 
estimates CMS used to establish budget neutrality based on CY 2006 
claims data and those reflected in the CY 2009 claims data. In the 
final regulations implementing the revised ASC payment system, we made 
our best actuarial estimate to ensure budget neutrality. We did not 
intend to revisit the actuarial budget neutrality regardless of whether 
it could be determined that there was a difference between actual 
experience and our underlying data assumptions and regardless of 
whether or not any difference that could be determined resulted in 
increased or decreased expenditures under the revised ASC payment 
system.
    Establishing budget neutrality under the OPPS does not result in 
budget neutrality under the revised ASC payment system; it is only to 
maintain budget neutrality under the OPPS. Scaling the ASC relative 
payment weights is an integral and separate process for maintaining 
budget neutrality under the ASC prospective payment system. Scaling is 
the budget neutrality adjustment that ensures that changes in the 
relative weights do not, in and of themselves, change aggregate payment 
to ASCs. It ensures a specific amount of payment for ASCs in any given 
year. Without scaling, total ASC payment could increase or decrease 
relative to changes in hospital outpatient payment.
    We do not agree with the commenters' assertion that the ASC scaler 
should not reclaim dollars from the ASC payment system because, 
according to the commenters, there also has been real cost growth for 
the surgical services provided in ASCs. Although the commenters believe 
that scaling prevents increases in ASC spending that may be appropriate 
because ASC costs have increased over time, increases in cost in a 
prospective payment system are handled by the update factor. In a 
budget neutral system, we remove the independent effects of increases 
or decreases in payments as a result of changes in the relative payment 
weights or the wage indices and constrain increases to the allowed 
update factor. Therefore, changes in aggregate ASC expenditures related 
to payment rates should be determined by the update to the ASC 
conversion factor, the CPI-U.
    For this final rule with comment period, we used our proposed 
methodology described above to calculate the scaler adjustment using 
updated ASC claims data. The final CY 2011 scaler adjustment for the 
first fully implemented year of the revised ASC payment system is 
0.9238. This scaler

[[Page 72062]]

adjustment is necessary to budget neutralize the difference in 
aggregate ASC payments calculated using the CY 2010 ASC transitional 
(75/25 blend) relative payment weights and the CY 2011 fully 
implemented relative payment weights. We calculated the difference in 
aggregate payments due to the change in relative payment weights 
(including drugs and biologicals) holding constant the ASC conversion 
factor, the most recent CY 2009 ASC utilization from our claims data, 
and the CY 2010 wage index values. For this final CY 2011 calculation, 
we used the CY 2010 ASC conversion factor updated by the CY 2011 CPI-U, 
which is estimated as 1.5 percent, less the multifactor productivity 
adjustment of 1.3 percent, as discussed in section XV.H.2.b. of this 
final rule with comment period.
    After consideration of the public comments we received, we are 
finalizing our CY 2010 ASC relative payment weight scaling methodology, 
without modification. The final CY 2011 ASC payment weight scaler is 
0.9238.
b. Updating the ASC Conversion Factor
    Under the OPPS, we typically apply a budget neutrality adjustment 
for provider level changes, most notably a change in the wage index 
values for the upcoming year, to the conversion factor. Consistent with 
our final ASC payment policy, for the CY 2011 ASC payment system, in 
the CY 2011 OPPS/ASC proposed rule (75 FR 46358), we proposed to 
calculate and apply the pre-floor and pre-reclassified hospital wage 
indices that are used for ASC payment adjustment to the ASC conversion 
factor, just as the OPPS wage index adjustment is calculated and 
applied to the OPPS conversion factor (73 FR 41539). For CY 2011, we 
calculated this proposed adjustment for the ASC payment system by using 
the most recent CY 2009 claims data available and estimating the 
difference in total payment that would be created by introducing the CY 
2011 pre-floor and pre-reclassified hospital wage indices. 
Specifically, holding CY 2009 ASC utilization and service-mix and CY 
2010 national payment rates after application of the weight scaler 
constant, we calculated the total adjusted payment using the CY 2011 
pre-floor and pre-reclassified hospital wage indices and the total 
adjusted payment using the proposed CY 2011 pre-floor and pre-
reclassified hospital wage indices. We used the 50-percent labor-
related share for both total adjusted payment calculations. We then 
compared the total adjusted payment calculated with the CY 2010 pre-
floor and pre-reclassified hospital wage indices to the total adjusted 
payment calculated with the proposed CY 2011 pre-floor and pre-
reclassified hospital wage indices and applied the resulting ratio of 
1.0006 (the proposed CY 2011 ASC wage index budget neutrality 
adjustment) to the CY 2010 ASC conversion factor to calculate the 
proposed CY 2011 ASC conversion factor.
    Section 1833(i)(2)(C)(i) of the Act requires that, if the Secretary 
has not updated the ASC payment amounts in a calendar year, the payment 
amounts ``shall be increased by the percentage increase in the Consumer 
Price Index for all urban consumers (U.S. city average) as estimated by 
the Secretary for the 12-month period ending with the midpoint of the 
year involved.'' Because the Secretary does update the ASC payment 
amounts annually, we adopted a policy, which we codified at Sec.  
416.171(a)(2)(ii), to update the ASC conversion factor using the CPI-U 
for CY 2010 and subsequent calendar years. Therefore, the annual update 
to the ASC payment system is the CPI-U (referred to as the CPI-U update 
factor). Section 3401(k) of the Affordable Care Act amends section 
1833(i)(2)(D) of the Act by adding a new clause (v) which requires that 
``any annual update under [the ASC payment] system for the year [after 
application of any reduction in any update for failure to report on 
quality measures, if the Secretary implements a quality reporting 
program for ASCs] shall be reduced by the productivity adjustment 
described in section 1886(b)(3)(B)(xi)(II)'' (which we refer to as the 
MFP adjustment) effective with the calendar year beginning January 1, 
2011. Section 3401(k) of the Affordable Care Act states that 
application of the MFP adjustment to the ASC payment system may result 
in the update to the ASC payment system being less than zero for a year 
and may result in payment rates under the ASC payment system for a year 
being less than such payment rates for the preceding year. In the CY 
2011 OPPS/ASC proposed rule (75 FR 46359), we proposed to revise Sec.  
416.160 and Sec.  416.171 to reflect this provision of the Affordable 
Care Act.
    In accordance with section 1833(i)(2)(C)(i) of the Act, before 
applying the MFP adjustment, the Secretary first determines the 
``percentage increase'' in the CPI-U, which we interpret cannot be a 
negative number. Thus, in the instance where the percentage change in 
the CPI-U for a year is negative, in the CY 2011 OPPS/ASC proposed rule 
(75 FR 46359), we proposed to hold the CPI-U update factor for the ASC 
payment system to zero. Section 1833(i)(2)(D)(v) of the Act, as added 
by section 3401(k) of the Affordable Care Act, then requires that the 
Secretary reduce the CPI-U update factor (which would be held to zero 
if the CPI-U percentage change is negative) by the MFP adjustment, and 
states that application of the MFP adjustment may reduce this 
percentage change below zero. If the application of the MFP adjustment 
to the CPI-U percentage increase would result in a MFP-adjusted CPI-U 
update factor that is less than zero, then the annual update to the ASC 
payment rates would be negative and payments would decrease relative to 
the prior year.
    Table 54 in the CY 2011 OPPS/ASC proposed rule (75 FR 46359), set 
out again as Table 65 below, provides illustrative examples of how the 
MFP adjustment would be applied to the ASC payment system. These 
examples show the implication of a positive CPI-U update factor with a 
small MFP adjustment, a positive CPI-U update factor with a large MFP 
adjustment, and a CPI-U update factor of zero. We discussed in greater 
detail the methodology for calculating the MFP adjustment for the ASC 
payment system and the other payment systems affected by the MFP 
adjustment (found in section 1886(b)(3)(B)(xi)(II) of the Act, as added 
by section 3401(a) of the Affordable Care Act), in the CY 2011 MPFS 
proposed rule. We stated that comments on the specific mathematical 
calculation of the MFP adjustment should be made to that proposed rule, 
while comments on the application of the MFP adjustment to the CPI-U 
update factor under the ASC payment system should be made to the CY 
2011 OPPS/ASC proposed rule.

[[Page 72063]]



Table 65--Multifactor Productivity Adjusted Payment Update: Illustrative
                                Examples
------------------------------------------------------------------------
                                                           MFP--Adjusted
                                                MFP        CPI-U update
             CPI-U (percent)                Adjustment        factor
                                             (percent)       (percent)
------------------------------------------------------------------------
4.0.....................................             1.3             2.7
4.0.....................................             4.7            -0.7
0.0.....................................             0.2            -0.2
------------------------------------------------------------------------
Note: Numbers may not sum due to rounding.

    In the CY 2011 OPPS/ASC proposed rule (75 FR 46359), for the 12-
month period ending with the midpoint of CY 2011, the Secretary 
estimated that the CPI-U is 1.6 percent. The Secretary estimated that 
the MFP adjustment is 1.6 percent. As discussed in the CY 2011 MPFS 
proposed rule, we proposed to reduce the CPI-U of 1.6 percent by the 
MFP adjustment specific to this CPI-U, resulting in an MFP-adjusted 
CPI-U update factor of 0 percent. Therefore, we proposed to apply to 
the ASC conversion factor a 0 percent MFP-adjusted update.
    For CY 2011, we also proposed to adjust the CY 2010 ASC conversion 
factor ($41.873) by the wage adjustment for budget neutrality of 1.0006 
in addition to the MFP-adjusted update factor of zero discussed above, 
which resulted in a proposed CY 2011 ASC conversion factor of $41.898.
    Comment: As in prior years, many commenters requested that CMS 
adopt the hospital market basket to update the ASC payment system. They 
explained that not only is the CPI-U lower than the hospital market 
basket but it is not appropriate for updating health care providers 
because, unlike the hospital market basket which analyzes hospital 
spending, the CPI-U is designed to capture household spending. The 
commenters stated that, in the most recent years, the CPI-U has been 
dominated by energy and housing costs rather than healthcare provider 
spending, and that the goods and services provided by ASCs are very 
similar to those provided by hospitals. Further, the commenters stated 
CMS uses different proxies for price increases for most of the 
categories of goods and services in the market basket, and provided the 
example of the hospital market basket being assigned a combined weight 
of 2.84 percent to food products, while the CPI-U assigns a weight of 
14.914 percent to all food and beverages. According to commenters, the 
disparity in weights illustrates the inherently different cost 
pressures faced by the typical U.S. household and the hospital sector. 
The commenters also argued that the CPI-U is a poor proxy of ASC cost 
inflation, noting that the CPI-U has faced criticism from independent 
researchers and economists, who indicate, according to the commenters, 
that the CPI-U consistently underestimates the rate of inflation. One 
commenter noted that several sources forecast different CPI-U rates, 
suggesting that it does not make sense to use the CPI-U as the ASC 
update factor. The commenters argued that the difference between the 
ASC and OPPS conversion factors is not due to real differences in the 
growth of costs of goods and services furnished by ASCs and HOPDs and 
should not be perpetuated if the ASC payment system is to remain tied 
to the OPPS. The commenters asserted that CMS has the authority to use 
an alternative update mechanism, and believe CMS should adopt the 
hospital market basket as the update for the ASC payment system. The 
commenters stated that adopting the hospital market basket would 
minimize the divergence in CY 2011 payment between the ASC payment 
system and the OPPS and prevent the update from causing further 
divergence when the productivity adjustment is applied to both settings 
in the future.
    As mentioned previously in section XV.G. of this final rule with 
comment period, MedPAC commented that ASCs should be required to submit 
cost and quality data, concurrent with a 0.6 percent increase in ASC 
payment rates for CY 2011, arguing that ASC cost data are needed to 
examine whether an existing input price index is an appropriate proxy 
for the costs of ASCs or whether an ASC-specific market basket should 
be developed.
    Response: We understand the commenters' concerns regarding the 
update to the conversion factor for CY 2011, but note that we did not 
propose to change the conversion factor update methodology. We refer 
readers to the discussion in the August 2, 2007 final rule on this 
issue (72 FR 42518 through 42519).
    After consideration of the public comments we received, we are 
generally applying our established methodology for determining the 
final CY 2011 ASC conversion factor. However, the methodology for 
determining the conversion factor now includes the MFP adjustment and 
we are finalizing the methodology for applying the MFP adjustment to 
the CPI-U update factor as proposed and discussed above. (In the CY 
2011 MPFS final rule with comment period, we responded to public 
comments and finalized the methodology for calculating the MFP 
adjustment. For CY 2011, the MFP adjustment is 1.3 percent.) Using more 
complete CY 2009 data for this final rule with comment period than was 
available for the proposed rule, we calculated a wage index budget 
neutrality adjustment of 0.9996. Based on updated data, the CPI-U for 
the 12-month period ending with the midpoint of CY 2011 is now 
estimated to be 1.5 percent, while the MFP adjustment is 1.3 percent, 
resulting in an MFP-adjusted CPI update factor of 0.2 percent. The 
final ASC conversion factor of $41.939 is the product of the CY 2010 
conversion factor of $41.873 multiplied by the wage index budget 
neutrality adjustment of 0.9996 and the MFP-adjusted CPI-U payment 
update of 0.2 percent. We note that we have factored into our budget 
neutrality calculations the price change resulting from the expiration 
of the current NTIOL class in February 2011, as discussed in section 
XV.E. of this final rule with comment period. As a result of the 
expiration of this NTIOL class, the $50 add-on payment will no longer 
apply in CY 2011 after February. We also note that we have not factored 
in the budget neutrality calculations increased spending for the new 
pass-through device category described by HCPCS code C1749, because it 
is unclear how quickly this new technology will be adopted by ASCs. We 
will closely monitor utilization of this device and the financial 
impact during CY 2011 in order to propose any appropriate budget 
neutrality adjustment for CY 2012.
    We also are finalizing our proposal, without modification, to 
revise Sec.  416.160 and Sec.  416.171 of the

[[Page 72064]]

regulations to reflect section 3401(k) of the Affordable Care Act.
3. Display of CY 2011 ASC Payment Rates
    Addenda AA and BB to this CY 2011 final rule with comment period 
display the updated ASC payment rates for CY 2011 for covered surgical 
procedures and covered ancillary services, respectively. These addenda 
contain several types of information related to the CY 2011 payment 
rates. Specifically, in Addendum AA, a ``Y'' in the column titled 
``Subject to Multiple Procedure Discounting'' indicates that the 
surgical procedure will be subject to the multiple procedure payment 
reduction policy. As discussed in the CY 2008 OPPS/ASC final rule with 
comment period (72 FR 66829 through 66830), most covered surgical 
procedures are subject to a 50-percent reduction in the ASC payment for 
the lower-paying procedure when more than one procedure is performed in 
a single operative session. Display of the comment indicator ``CH'' in 
the column titled ``Comment Indicator'' indicates a change in payment 
policy for the item or service, including identifying discontinued 
HCPCS codes, designating items or services newly payable under the ASC 
payment system, and identifying items or services with changes in the 
ASC payment indicator for CY 2011. Display of the comment indicator 
``NI'' in the column titled ``Comment Indicator'' indicates that the 
code is new (or substantially revised) and that the payment indicator 
assignment is an interim assignment that is open to comment on the 
final rule with comment period.
    The values displayed in the column titled ``CY 2011 Payment 
Weight'' are the relative payment weights for each of the listed 
services for CY 2011. The payment weights for all covered surgical 
procedures and covered ancillary services whose ASC payment rates are 
based on OPPS relative payment weights are scaled for budget 
neutrality. Thus, scaling was not applied to the device portion of the 
device intensive procedures, services that are paid at the MPFS 
nonfacility PE RVU amount, separately payable covered ancillary 
services that have a predetermined national payment amount, such as 
drugs and biologicals that are separately paid under the OPPS, or 
services that are contractor-priced or paid at reasonable cost in ASCs.
    To derive the CY 2011 payment rate displayed in the ``CY 2011 
Payment'' column, each ASC payment weight in the ``CY 2011 Payment 
Weight'' column is multiplied by the CY 2011 conversion factor of 
$41.939. The conversion factor includes a budget neutrality adjustment 
for changes in the wage index values and the CPI-U update factor as 
reduced by the productivity adjustment (as discussed in section 
XV.H.2.b. of this final rule with comment period).
    In Addendum BB, there are no relative payment weights displayed in 
the ``CY 2011 Payment Weight'' column for items and services with 
predetermined national payment amounts, such as separately payable 
drugs and biologicals. The ``CY 2011 Payment'' column displays the CY 
2011 national unadjusted ASC payment rates for all items and services. 
The CY 2011 ASC payment rates listed in Addendum AA for separately 
payable drugs and biologicals are based on ASP data used for payment in 
physicians' offices in October 2010.
    We did not receive any public comments regarding the continuation 
of our policy to provide CY 2011 ASC payment information as detailed in 
Addenda AA and BB. Therefore, Addenda AA and BB to this final rule with 
comment period display the updated ASC payment rates for CY 2011 for 
covered surgical procedures and covered ancillary services, 
respectively, and provide additional information related to the CY 2011 
rates.

XVI. Reporting Quality Data for Annual Payment Rate Updates

A. Background

1. Overview
    CMS has implemented quality measure reporting programs for multiple 
settings of care. These programs promote higher quality, more efficient 
health care for Medicare beneficiaries. The quality data reporting 
program for hospital outpatient care, known as the Hospital Outpatient 
Quality Data Reporting Program (HOP QDRP), has been generally modeled 
after the quality data reporting program for hospital inpatient 
services (referred to as the Reporting Hospital Quality Data for Annual 
Payment Update (RHQDAPU) program in the proposed rule and now referred 
to as the Hospital Inpatient Quality Reporting Program). Both of these 
quality reporting programs for hospital services, as well as the 
program for physicians and other eligible professionals, known as the 
Physician Quality Reporting Initiative (PQRI), have financial 
incentives for the reporting of quality data to CMS. CMS also has 
implemented quality reporting programs for home health agencies and 
skilled nursing facilities that are based on conditions of 
participation, and an end-stage renal disease quality reporting program 
that is based on conditions for coverage.
2. Hospital Outpatient Quality Data Reporting Under Section 109(a) of 
MIEA-TRHCA
    Section 109(a) of the MIEA-TRHCA (Pub. L. 109-432) amended section 
1833(t) of the Act by adding a new paragraph (17) which affects the 
annual payment update factor applicable to OPPS payments for services 
furnished by hospitals in outpatient settings on or after January 1, 
2009. Section 1833(t)(17)(A) of the Act states that subsection (d) 
hospitals (as defined under section 1886(d)(1)(B) of the Act) that fail 
to report data required for the quality measures selected by the 
Secretary in the form and manner required by the Secretary under 
section 1833(t)(17)(B) of the Act will incur a 2.0 percentage point 
reduction to their annual payment update factor. Section 1833(t)(17)(B) 
of the Act requires that hospitals submit quality data in a form and 
manner, and at a time, that the Secretary specifies. Section 
1833(t)(17)(A)(ii) of the Act specifies that any reduction would apply 
only to the payment year involved and would not be taken into account 
in computing the applicable annual payment update factor for a 
subsequent payment year.
    Section 1833(t)(17)(C)(i) of the Act requires the Secretary to 
develop measures appropriate for the measurement of the quality of care 
(including medication errors) furnished by hospitals in outpatient 
settings, that these measures reflect consensus among affected parties 
and, to the extent feasible and practicable, that these measures 
include measures set forth by one or more national consensus building 
entities. The National Quality Forum (NQF) is a voluntary consensus 
standard setting organization that is composed of a diverse 
representation of consumer, purchaser, provider, academic, clinical, 
and other health care stakeholder organizations. NQF was established to 
standardize health care quality measurement and reporting through its 
consensus development process. We generally prefer to adopt NQF-
endorsed measures for CMS quality reporting programs. However, we 
believe that consensus among affected parties also can be reflected by 
other means, including: Consensus achieved during the measure 
development process; consensus shown through broad acceptance and use 
of measures; and consensus through public comment. We also note that 
section 1833(t)(17) of the Act does not require that each measure we 
adopt for the HOP QDRP be endorsed by a national

[[Page 72065]]

consensus building entity, or by the NQF specifically.
    Section 1833(t)(17)(C)(ii) of the Act allows the Secretary to 
``[select] measures that are the same as (or a subset of) the measures 
for which data are required to be submitted under section 
1886(b)(3)(B)(viii)'' of the Act (the Hospital Inpatient Quality 
Reporting Program). As we stated in the CY 2009 OPPS/ASC final rule 
with comment period (73 FR 68758 through 68759), we do not believe that 
we should, without further analysis, adopt the Hospital Inpatient 
Quality Reporting Program measures as the measures for the HOP QDRP. We 
continue to believe that it is most appropriate and desirable to adopt 
measures that specifically apply to the hospital outpatient setting for 
the HOP QDRP.
    Section 1833(t)(17)(D) of the Act gives the Secretary the authority 
to replace measures or indicators as appropriate, such as when all 
hospitals are effectively in compliance or when the measures or 
indicators have been subsequently shown not to represent the best 
clinical practice. Section 1833(t)(17)(E) of the Act requires the 
Secretary to establish procedures for making data submitted under the 
HOP QDRP available to the public. Such procedures include providing 
hospitals with the opportunity to review their data before these data 
are released to the public.
    Comment: A few commenters appreciated CMS's acknowledgement of the 
consensus-based process and supported CMS's movement toward a 
consistent goal in using consensus-based measures that are endorsed by 
the NQF or other entities. Some commenters recommended that CMS only 
adopt measures that are NQF-endorsed and HQA-adopted in order to 
maintain consistency in the selection processes for quality measures 
across physician and hospital services. Commenters encouraged CMS to 
continue to work with the NQF to harmonize measures and measure 
specifications. Commenters believed that both the HQA and the NQF can 
help to identify and prioritize measures that have an important linkage 
to improved clinical outcomes with minimal unintended consequences. 
Many commenters indicated that they prefer that measures adopted for 
the HOP QDRP go through the rigorous, consensus-based assessment 
processes of both the NQF and HQA. Other commenters indicated that 
although a consensus-based process may have been used by CMS to develop 
measures, that process is not parallel to the rigorous process that 
precedes an NQF endorsement or an HQA adoption of a measure. One 
commenter was very pleased that all of the measures that were 
conditionally approved by the HQA Principals in March 2010 are being 
considered for future implementation.
    Response: We thank the commenters for their support and 
suggestions. Section 1833(t)(17)(C)(i) of the Act requires the 
Secretary to ``develop measures that the Secretary determines to be 
appropriate for the measurement of the quality of care (including 
medication errors) furnished by hospitals in outpatient settings and 
that reflect consensus among affected parties and, to the extent 
feasible and practicable, shall include measures set forth by one or 
more national consensus building entities.'' This provision does not 
require that the measures we adopt for the HOP QDRP be endorsed by any 
particular entity, and we believe that consensus among affected parties 
can be achieved by means other than endorsement by a national consensus 
building entity, including through the measure development process, 
through broad acceptance and use of the measure(s), and through public 
comment. Nevertheless, we have stated on numerous occasions that we 
prefer to adopt quality measures that have been endorsed by the NQF 
because the NQF uses a formal consensus development process and has 
been recognized as a voluntary consensus standards-setting organization 
as defined by the National Technology Transfer and Advancement Act of 
1995 (NTTAA) and Office of Management and Budget Circular A 119 (see 
http://www.qualityforum.org/Measuring_Performance/Consensus_Development_Process.aspx). Moreover, when we propose and adopt quality 
measures, we take into consideration the measures adopted by the HQA as 
well as an array of input from the public. The HQA is a public-private 
collaboration that works to improve the quality of care provided by the 
nation's hospitals by measuring and publicly reporting on that care. We 
appreciate HQA's integral efforts to improve hospital quality of care 
by supporting our public reporting programs.
    Comment: One commenter applauded the decision to not automatically 
adopt the Hospital Inpatient Quality Reporting Program measures for the 
HOP QDRP without analysis for appropriateness. One commenter stated 
that some of the proposed chart-abstracted measures for CYs 2012 and 
2013 are found in both the Hospital Inpatient Quality Reporting Program 
and the HOP QDRP and requested limiting the implementation to either 
the hospital inpatient or outpatient setting only.
    Response: We thank the commenters for the support and 
recommendations. Some of the inpatient quality measures (for example, 
Aspirin at Arrival for AMI patients, Timing of Antibiotic Prophylaxis 
for Surgical Patients, and Antibiotic Selection for Surgical Patients) 
are also appropriate for the hospital outpatient setting because they 
address important care processes that are provided in both settings and 
allow us to compare the quality of care a patient is receiving in both 
settings. However, we continue to believe that it is also appropriate 
and desirable to adopt for the HOP QDRP measures that have been 
specifically developed for application only in the hospital outpatient 
setting because hospital outpatient settings present unique challenges 
in the operational and clinical aspects of care (for example, 
differences in the types of interventions, treatments, services and 
clinical level of care).
    Comment: One commenter urged CMS to consider in its measure 
selection process for the HOP QDRP whether valid clinical studies 
support the use of the measure.
    Response: In section XVI.B.1. of the proposed rule and this final 
rule with comment period, we describe the considerations we take into 
account when selecting measures to add to the HOP QDRP measure set. As 
part of this process, we review current science and clinical guidelines 
to determine whether the measure is appropriate for data collection 
under the HOP QDRP.
3. ASC Quality Data Reporting Under Section 109(b) of MIEA-TRHCA
    Section 109(b) of the MIEA-TRHCA amended section 1833(i) of the Act 
by redesignating clause (iv) as clause (v) and adding new clause (iv) 
to paragraph (2)(D) and by adding new paragraph (7). Section 
1833(i)(2)(D)(iv) of the Act authorizes, but does not require, the 
Secretary to implement the revised ASC payment system ``so as to 
provide for a reduction in any annual update for failure to report on 
quality measures'' beginning with payment for ASC services furnished on 
or after January 1, 2009.
    Section 1833(i)(7)(A) of the Act states that the Secretary may 
provide that any ASC that fails to report data required for the quality 
measures selected by the Secretary in the form and manner required by 
the Secretary under section 1833(i)(7) of the Act will incur a 
reduction in any annual payment update of 2.0 percentage points. 
Section 1833(i)(7)(A) of the Act also specifies

[[Page 72066]]

that a reduction for one year cannot be taken into account in computing 
the annual ASC payment update for a subsequent year.
    Section 1833(i)(7)(B) of the Act provides that, ``[e]xcept as the 
Secretary may otherwise provide,'' the hospital outpatient quality data 
provisions of subparagraphs (B) through (E) of section 1833(t)(17) of 
the Act, summarized above, shall apply to ASCs in a similar manner to 
the manner in which they apply under these paragraphs to hospitals 
under the HOP QDRP. We did not implement an ASC quality reporting 
program for CY 2008 (72 FR 66875), for CY 2009 (73 FR 68780), or for CY 
2010 (74 FR 60656).
    We refer readers to section XVI.F. of this final rule with comment 
period for further discussion of ASC quality data reporting.
4. HOP QDRP Quality Measures for the CY 2009 Payment Determination
    For the CY 2009 annual payment update, we required HOP QDRP 
reporting using seven quality measures--five Emergency Department (ED) 
Acute Myocardial Infarction (AMI) Cardiac Care measures and two 
Surgical Care measures. These measures address care provided to a large 
number of adult patients in hospital outpatient settings across a 
diverse set of conditions, and were selected for the initial set of HOP 
QDRP measures based on their relevance as a set to all HOPDs.
    Specifically, for hospitals to receive their full OPPS annual 
payment update for services furnished in CY 2009, in the CY 2008 OPPS/
ASC final rule with comment period (72 FR 66865 and 66871), we required 
that subsection (d) hospitals paid under the OPPS submit data on the 
following seven measures for hospital outpatient services furnished on 
or after April 1, 2008: (1) ED-AMI-1: Aspirin at Arrival; (2) ED-AMI-2: 
Median Time to Fibrinolysis; (3) ED-AMI-3: Fibrinolytic Therapy 
Received within 30 Minutes of Arrival; (4) ED-AMI-4: Median Time to 
Electrocardiogram (ECG); (5) ED-AMI-5: Median Time to Transfer for 
Primary PCI; (6) PQRI <greek-i>20: Surgical Care--Timing of Antibiotic 
Prophylaxis; and (7) PQRI <greek-i>21: Surgical Care--Selection of 
Antibiotic.
5. HOP QDRP Quality Measures for the CY 2010 Payment Determination
    For the CY 2010 payment update, we required continued submission of 
data on the existing seven measures discussed above (73 FR 68761), and 
adopted four new imaging measures (73 FR 68766). For CY 2010, we also 
changed the measure designations for the existing seven measures to an 
``OP-<greek-i>'' format. For example, the designations of ED-AMI-2 and 
ED-AMI-3 were changed to OP-1 and OP-2 so that the eleven measures for 
the CY 2010 payment update were designated as OP-1 through OP-11. This 
change allowed us to maintain a consistent sequential designation 
system that we could expand as we add additional measures.
    The four imaging measures that we adopted beginning with the CY 
2010 payment determination (OP-8: MRI Lumbar Spine for Low Back Pain, 
OP-9: Mammography Follow-up Rates, OP-10: Abdomen CT--Use of Contrast 
Material, and OP-11: Thorax CT--Use of Contrast Material) are claims-
based measures that CMS will calculate using Medicare Part B claims 
data without imposing upon hospitals the burden of additional chart 
abstraction. For purposes of the CY 2010 payment determination, we 
calculated these measures using CY 2008 Medicare administrative claims 
data.
    In the CY 2009 OPPS/ASC proposed rule, OP-10 had two submeasures 
listed: OP-10a: CT Abdomen--Use of contrast material excluding calculi 
of the kidneys, ureter, and/or urinary tract, and OP-10b: CT Abdomen--
Use of contrast material for diagnosis of calculi in the kidneys, 
ureter, and or urinary tract. In the CY 2009 OPPS/ASC final rule with 
comment period (73 FR 68766), we finalized OP-10 (previously known as 
OP-10a): Abdomen CT--Use of Contrast Material. In the CY 2010 OPPS/ASC 
proposed rule and final rule with comment period (74 FR 35396 and 
60631, respectively), we clarified that we are calculating OP-10 
excluding patients with impaired renal functions because they are not 
candidates for an abdominal CT with contrast. This exclusion is 
described in greater detail in the Specifications Manual for Hospital 
Outpatient Department Quality Measures (HOPD Specifications Manual) 
located at the QualityNet Web site (http://www.QualityNet.org).
    The complete set of 11 measures that we used for the CY 2010 
payment determination is listed at 73 FR 68766.
6. HOP QDRP Quality Measures, Technical Specification Updates, and Data 
Publication for the CY 2011 Payment Determination
a. Quality Measures
    For the CY 2011 payment determination, we required hospitals to 
continue to submit data on the existing 11 HOP QDRP measures. These 
measures continue to address areas of clinical importance regarding the 
quality of care provided in HOPDs, and reflect consensus among affected 
parties. Seven of these 11 measures are chart-abstracted measures in 
two areas of importance that are also measured for the inpatient 
setting--AMI cardiac care and surgical care. The remaining four 
measures address imaging efficiency in HOPDs.
    For the CY 2011 payment determination, we did not add any new HOP 
QDRP measures. We indicated our sensitivity to the burden upon HOPDs 
associated with chart abstraction and stated that we seek to minimize 
the collection burden associated with quality measurement. We also 
stated that we will continue to assess whether we can collect data on 
additional quality measures through mechanisms other than chart 
abstraction, such as from Medicare administrative claims data and EHRs.
    The complete set of 11 measures that will be used for the CY 2011 
payment determination is listed at 74 FR 60637.
    Comment: One commenter expressed appreciation for CMS's sensitivity 
to the burden associated with chart abstraction and CMS's desire to 
minimize the collection burden associated with quality reporting by not 
proposing new measures for the CY 2011 payment determination. Another 
commenter believed it is inappropriate to use measures based solely on 
claims data without the use of clinical records. This commenter was 
concerned that claims data may not portray an accurate picture of the 
care provided to a patient.
    Response: We thank the commenter for the support of our efforts to 
minimize the data collection burden under the HOP QDRP. We intend to 
limit the burden associated with chart abstraction by proposing in the 
future to adopt measures for the HOP QDRP for which data can be 
collected via EHRs. We disagree that measures for which data are 
collected via Medicare FFS claims cannot provide an accurate picture of 
hospital quality. We believe that claims data are an appropriate source 
of data for the HOP QDRP. We also note that the NQF has endorsed many 
evidence-based quality measures that are calculated using claims and 
other administrative data. Furthermore, the use of claims-based 
measures reduces the burden on hospitals associated with chart 
abstraction.
    We also received specific comments, discussed below, on the 
measures we proposed to use for the CY 2011 payment determination.

[[Page 72067]]

<bullet> OP-3: Median Time To Transfer to Another Facility for Acute 
Coronary Intervention
    Comment: One commenter recommended that CMS consider measuring the 
overall median time to PCI in transferred patients since this captures 
the entire process of care and will encourage collaboration between 
transferring and receiving ST-segment elevation myocardial infarction 
(STEMI) centers.
    Response: We thank the commenter for this suggestion. The current 
OP-3 measure assesses the quality of care provided at the initial 
(transferring) facility rather than at both the transferring and 
receiving facility. Thus, this measure focuses on how long a patient 
spent at hospital outpatient department from the time of he/she arrived 
to the time he/she departed, which is an important component of the 
total time to reperfusion (reperfusion in acute myocardial infarction 
is the process by which blocked arteries are opened to restore blood 
flow to the tissues). A modification to the measure as suggested would 
not currently be feasible to implement as it would require capturing 
information from medical records at two separate facilities. However, 
in the future, we may consider linking the required data collection on 
the transfer of patients for PCI including arrival time at the 
transferring hospital and PCI time at the receiving hospital.
<bullet> OP-4: Aspirin at Arrival & OP-5: Median Time to ECG
    Comment: One commenter noted that the OP-4: Aspirin at Arrival 
measure has the potential to become ``topped out'' as the program 
matures. The commenter encouraged CMS to work with the measure 
developer to determine at which point it may be appropriate for this 
measure to be retired. One commenter requested that CMS consider adding 
patient exclusion criteria to the OP-4 and OP-5 AMI/Chest Pain measures 
(ASA at arrival and Median Time to EKG). The commenter noted that 
patients with chest pain Not Elsewhere Classified (NEC) are not 
probable cardiac cases and recommended that patients in the observation 
units should be excluded as well.
    Response: We thank the commenters for the input and we will 
evaluate the continued utility of OP-4 over time as we do with all 
measures that we have adopted for the HOP QDRP. We disagree with the 
commenter's suggestion that we exclude patients with chest pain NEC in 
the measure population because the diagnosis codes assigned after 
evaluation of the patient may not reflect the unknown nature of chest 
pain when a patient initially presents at the ED. However, patients are 
excluded from the measure population if there is sufficient 
documentation that the focus of care was non-cardiac. Additionally, 
patients placed in observation units and later transferred to a 
facility are included in the measure population to assess how timely 
they are receiving care.
<bullet> OP-6: Timing of Antibiotic Prophylaxis & OP-7: Prophylactic 
Antibiotic Selection for Surgical Patients
    Comment: One commenter disagreed with the patient inclusion and 
exclusion criteria of the OP-6 measure in the HOP QDRP measure set, and 
noted that it is inappropriate and burdensome to implement the OP-6 
measure, and urged CMS to reassess the utility of this measure. The 
commenter recommended replacing the current OP-6 and OP-7 measures with 
the ``Timing of Antibiotic Prophylaxis and Prophylactic Antibiotic 
Selection for Surgical Patient'' measures developed by the ASC Quality 
Collaboration.
    One commenter requested that CMS consider including in the measure 
specifications one or more oral alternatives to ciprofloxacin for 
transrectal prostate biopsy antibiotic prophylaxis. This commenter 
believed that second generation oral cephalosporins offer the adequate 
bioavailability and pathogen spectrum in situations where ciprofloxacin 
may not be optimal or if local epidemiology indicates that there is an 
increased rate of ciprofloxacin-resistant enteric gram-negative 
pathogens in the community. The commenter stated that third generation 
oral cephalosporins would be reasonable as well.
    One commenter believed that OP-7 is appropriate only for physician 
reporting.
    Response: The OP-6 measure is designed to assess whether hospital 
outpatient departments administer prophylactic antibiotics immediately 
before the surgical incision takes place which has been shown to 
decrease the likelihood of surgical site infections, rather than hours 
before (which has been shown to increase the likelihood of surgical 
site infections). We do not believe that it is overly burdensome for 
hospital outpatient departments to report data on this measure because 
the measure only applies to operations for which antibiotics are always 
recommended in various clinical guidelines. We also note that the OP-6 
measure has been used in the inpatient setting for quality reporting 
since July 2006. While there may be controversy about whether an 
antibiotic should be started, at most, 30 minutes before the incision 
is made, or from 30-59 minutes before the incision is made, there is 
little controversy in multiple published studies that the rate of 
surgical site infections increases for each hour that an antibiotic is 
not administered before a surgical incision is made. We thank the 
commenters for their suggested alternative measures and alternative 
antibiotics to include in the measure. We believe that optimal 
antibiotic prophylaxis with respect to timing and selection ensures 
that there will be adequate concentrations of an antimicrobial in the 
serum, tissue, and wound while the incision is open and, therefore, 
affects the quality of care. With respect to the commenter's suggestion 
regarding oral alternatives to ciprofloxacin, we note that we have 
examined this issue, including raising it with a technical expert panel 
that we convened for the purpose of advising CMS on the development and 
maintenance of quality measures. This panel is comprised of interested 
stakeholders, including hospital representatives, payers, practitioners 
from various medical specialties, consumers, and clinical, scientific, 
and performance measurement experts. After examining the issue, we 
concluded that fluoroquinolones should be the only oral antibiotics 
included in the measure specifications. The infections that occur after 
prostate biopsy are soft tissue infections (not urinary tract 
infections) and, therefore, urinary concentrations of antibiotics are 
not relevant. Hospitals may report their use of first and second 
generation cephalosporins under the measure specifications, but the 
specifications say that these antibiotics must be administered 
intravenously as there are no studies of sufficient validity showing 
the efficacy of these agents orally for prostate biopsy.
    With regard to the comment on the appropriateness of reporting OP-7 
at only a physician level, we note that this quality measure assesses 
the appropriate selection of antibiotics for patients having surgery 
performed in a hospital outpatient department and mirrors the SCIP 
Infection 2 quality measure that we have adopted for the Hospital 
Inpatient Quality Reporting program. We also note that the measure is 
based on published guidelines for surgical antimicrobial prophylaxis, 
and we believe that it is appropriate for a hospital outpatient 
department to report

[[Page 72068]]

whether its patients are receiving care consistent with these 
guidelines.
<bullet> Imaging Efficiency Measures
    We received the following comments on the imaging efficiency 
measures that we are including in the HOP QDRP measure set for CY 2011:
    Comment: Many commenters objected to our adoption of the four 
imaging efficiency measures into the HOP QDRP CY 2011 measure set. Many 
of these commenters objected because none of the four measures have 
been adopted by the HQA and only two are NQF-endorsed. Commenters 
stated that the two non-NQF-endorsed measures: ``OP-10 Use of Contrast: 
Abdomen CT'' and ``OP-9 Mammography Follow-up Rates'' are particularly 
inappropriate for the HOP QDRP and believed that they could also cause 
harm to patients. Additionally, the commenters noted that CMS' own 
consumer testing of the Web site display of the imaging efficiency 
measures suggests that healthcare consumers do not understand how to 
interpret these measures, and that their confusion has grown since CMS 
published the measure data on Hospital Compare in July 2010.
    Response: Many of the concerns raised by the commenters about the 
imaging efficiency measures we adopted for the CY 2011 payment 
determination were also raised at the time these measures were first 
proposed for the CY 2010 payment determination. We responded to these 
concerns when we adopted the measures (73 FR 68762 through 68766). We 
stated that the measures meet the statutory requirement of reflecting 
consensus among affected parties because of their consensus-based 
development, and that the measures address important patient safety 
concerns related to exposure to unnecessary radiation and contrast 
materials. We also stated that the Secretary is not required to limit 
measures considered for HOP QDRP adoption only to those adopted by the 
HQA or endorsed by the NQF. Regarding whether there is consumer 
understanding of the measures, we engage in extensive consumer testing 
to ensure that each measure is meaningful to and understandable by 
consumers. If we are made aware that the way a measure is publicly 
reported is confusing to consumers, we work to revise the descriptive 
information made available on the measure. Experience has also shown 
that as the public becomes more familiar with measure reporting, their 
understanding regarding how to interpret and use the information 
improves. Additionally, on the Hospital Compare Web site, in the 
``Learn more * * * '' section of the Compare page, we explain that 
consumers should ``Talk with your doctor about the results shown here 
and what a facility's results mean for you and your care.''
    Comment: Two commenters stated that the terminology used on 
Hospital Compare to explain the quality data to the public may be 
misleading or have negative connotations, which could have unintended 
consequences such as potentially alarming patients and the public. As 
an example, the commenters stated that the use of the term ``double 
scan'' to explain OP-10 (Abdomen CT--Use of Contrast Material) and OP-
11 (Thorax CT--Use of Contrast Material) to the public may create a 
false impression that these exams are always unnecessarily duplicative. 
The commenters supported these measures and believed that they have the 
potential to reduce unnecessary imaging, however they stated that there 
are instances when combination with and without contrast exams provide 
necessary and valuable information about abnormalities, many of which 
are cancers, and many of which could not be adequately diagnosed 
without pre- and post-contrast scanning.
    Response: We recognize the commenters' concerns and agree that the 
terminology used on the Hospital Compare Web site should convey enough 
information so that the public can make informed decisions regarding 
their healthcares. We also appreciate the commenters' drawing 
particular attention to the use of the term ``double scan,'' and we 
will revisit whether the use of this term on the Hospital Compare Web 
site is appropriate.
    We further agree that there are instances when combination CT 
studies may be appropriate for the diagnosis of certain conditions, and 
that such studies may provide essential medical information. The 
imaging efficiency measures we have adopted for the CY 2011 payment 
determination use three specific CPT codes that indicate that the study 
is a combined study: without contrast, with contrast, and with and 
without contrast (combined study). In developing these imaging 
efficiency measures, we completed an extensive review of the relevant 
literature and medical guidelines and criteria, and worked closely with 
a technical expert panel we convened for the purposes of making 
recommendations regarding which conditions, for example certain cancers 
in the case of CT abdomen, should be excluded from the calculation of 
these measures. We will revisit whether such exclusions should be 
explained on the Web site in order to provide more context to consumers 
about appropriateness of combined studies in these instances. We note 
that on the Hospital Compare Web site there is a specific link, ``Learn 
more about the use of medical imaging tests and why these measures are 
important.'' This section provides information about the use of 
contrast material, and the use of studies with and without contrast. 
The information provided indicates that for some parts of the body and 
some medical conditions, combination scans are appropriate. In 
addition, where the Hospital Compare Web site compares a hospital's 
ratio calculation to State and national averages, as well as to the 
ratio calculations of other hospitals, the purpose is not to suggest 
that we expect hospitals not to perform any combination studies, but 
rather to make hospitals that perform a high number of combination 
studies aware of their outlier imaging patterns.
<bullet> OP-8: MRI Lumbar Spine for Lower Back Pain
    Comment: One commenter noted that the OP-8: MRI Lumbar Spine for 
Lower Back Pain measure is inappropriate as a hospital outpatient 
quality measure because it is highly likely that the information 
relating to services performed on a patient in the previous 60 days 
would not be readily available at the point of service. The commenter 
recommended that the measure focus on the practice of the ordering 
physician and not on the facility's utilization of imaging services.
    Response: Hospitals routinely deal with patients for whom they may 
not have prior history information readily available. We are aware that 
there are commonly used approaches for obtaining this prior history 
information, such as through the use of initial forms that patients 
complete or quick assessment questions asked by clinical staff. For 
this reason, we believe that the measure is appropriate in the hospital 
outpatient setting.
<bullet> OP-9 Mammography Follow-Up Rates
    Comment: Commenters noted that the NQF did not endorse OP-9 because 
of its concern that the reporting of the measure will motivate 
hospitals to lower their follow-up rates and, as a result, will lead to 
a higher number of missed cancers.
    Response: We believe that this measure meets the requirement in 
section 1833(t)(17)(C)(i) of the Act that the Secretary develop 
measures appropriate for measurement of quality of care furnished by 
hospitals in outpatient settings that reflect

[[Page 72069]]

consensus among affected parties, and, to the extent feasible and 
practicable, that the measures include measures set forth by one or 
more national consensus building entities. Specifically, we convened a 
technical expert panel for the purpose of making recommendations to CMS 
regarding the development and maintenance of the imaging efficiency 
measures, including OP-9, which we adopted for the HOP QDRP CY 2011 
payment determination. This technical expert panel was comprised of 
interested stakeholders, including hospital representatives, payers, 
practitioners from various medical specialties, consumers, and 
clinical, scientific, and performance measurement experts. In addition, 
we solicited informal public comment on the measures and measure 
specifications, which was used to refine the measures. We are very 
interested in continuing its work on mammography imaging measures and 
intend to pursue the feasibility of also developing a cancer detection 
rate measure.
    We do not believe that the measure encourages HOPDs to reduce 
appropriate mammography follow-up study. The mammography follow-up rate 
measure was developed through an extensive process that included review 
by a technical expert panel convened by CMS. The measure assesses an 
HOPD's rate of ``call-backs'' from indeterminate or inadequate 
mammography screening studies.
    We want to emphasize that the measure looks at the entire spectrum 
in terms of call-backs. Specifically, we are concerned not only with 
rates that seem higher than the majority of HOPDs, but also with rates 
that seem too low, which could possibly be indicative of inadequate 
cancer detection processes. We emphasize that we are concerned with 
both of these considerations.
b. Maintenance of Technical Specifications for Quality Measures
    Technical specifications for each HOP QDRP measure are listed in 
the HOPD Specifications Manual, which is posted on the CMS QualityNet 
Web site at http://www.QualityNet.org. We maintain the technical 
specifications for the measures by updating this HOPD Specifications 
Manual and including detailed instructions and calculation algorithms. 
In some cases where the specifications are available elsewhere, we may 
include links to Web sites hosting technical specifications. These 
resources are for hospitals to use when collecting and submitting data 
on required measures.
    In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68766 
through 68767), we established a subregulatory process for updates to 
the technical specifications that we use to calculate HOP QDRP 
measures. This process is used when changes to the measure 
specifications are necessary due to changes in scientific evidence or 
in the measure as endorsed by the consensus entity. Changes of this 
nature may not coincide with the timing of our regulatory actions, but 
nevertheless require inclusion in the measure specifications so that 
the HOP QDRP measures are calculated based on the most up-to-date 
scientific and consensus standards. We indicated that notification of 
changes to the measure specifications on the QualityNet Web site, 
http://www.QualityNet.org, and in the HOPD Specifications Manual that 
occurred as a result of changes in scientific evidence or national 
consensus would occur no less than 3 months before any changes become 
effective for purposes of reporting under the HOP QDRP.
    The HOPD Specifications Manual is released every 6 months and 
addenda are released as necessary providing at least 3 months of 
advance notice for insubstantial changes such as changes to ICD-9, CPT, 
NUBC, and HCPCS codes, and at least 6 months notice for substantive 
changes to data elements that would require significant systems 
changes.
    Comment: One commenter stated that frequently, there are 
significant differences in the technical specifications for measures 
endorsed by the NQF and the technical specifications for the same 
measures when published in the HOPD Specifications Manual. Two 
commenters recommended that CMS post measure specifications on 
QualityNet at the same time that the OPPS/ASC proposed rule is 
published, in order to ensure that at the time CMS proposes to adopt 
measures, their exact specifications and methodologies for calculation 
are completely publicly available. This would provide more time for 
hospitals to align the measure specifications with EHRs. The commenters 
also suggested that subsequent changes to data specifications be posted 
on QualityNet and notices go to providers through the QualityNet.org 
listserv notification. One commenter was pleased with the biannual 
(twice a year) release of the HOPD Specifications Manual update as it 
provided hospitals more lead time to prepare for compliance.
    Response: We strive to make the measure specifications publicly 
available at the time the measures are proposed for the HOP QDRP. 
However, at the time many measures are proposed, the specifications are 
still in draft form, and we believe that posting them before they have 
been finalized could cause confusion. Where this is the case, we strive 
to provide detailed descriptions of the proposed measures so that the 
public can submit informed comments. As soon as the specifications are 
finalized, we post them on QualityNet.org. Revisions to data 
specifications are also posted on QualityNet along with a Release Notes 
document that provides each change along with the rationale for the 
change.
    We recognize that measure maintenance is a continuous and dynamic 
process. Therefore, to the extent that we want to modify the technical 
specifications for an NQF-endorsed measure that we have adopted for the 
HOP QDRP, we cannot always secure a completed NQF review of the 
modifications prior to the times we need to make them. However, we 
submit any modifications we choose to make to an NQF-endorsed measure 
to the NQF for review as part of the regular measure re-evaluation 
process conducted by the NQF. We welcome specific information that 
would identify where significant differences exist in measure 
specifications between CMS and the NQF for what is meant to be the same 
measure. This would permit CMS and the NQF to reconcile significant 
inconsistencies that should not exist.
c. Publication of HOP QDRP Data
    Section 1833(t)(17)(E) of the Act requires that the Secretary 
establish procedures to make data collected under the HOP QDRP program 
available to the public. It also states that such procedures must 
ensure that a hospital has the opportunity to review the data that are 
to be made public with respect to the hospital prior to such data being 
made public. To meet these requirements, data that a hospital has 
submitted for the HOP QDRP are typically displayed on CMS Web sites 
such as the Hospital Compare Web site, http://www.hospitalcompare.hhs.gov after a preview period. The Hospital 
Compare Web site is an interactive Web tool that assists beneficiaries 
by providing information on hospital quality of care. This information 
encourages beneficiaries to work with their doctors and hospitals to 
discuss the quality of care hospitals provide to patients, thereby 
providing an additional incentive to hospitals to improve the quality 
of care that they furnish.
    In general, we strive to display hospital quality measures on the 
Hospital Compare Web site as soon as

[[Page 72070]]

possible after they have been adopted and are available to CMS for 
reporting. However, if there are unresolved display issues or pending 
design considerations, we may make the data available on other non-
interactive CMS Web sites such as http://www.cms.hhs.gov/
HospitalQualityInits/. Publicly reporting the information in this 
manner, though not on the Hospital Compare Web site, allows CMS to meet 
the requirement under section 1833(t)(17)(E) of the Act for 
establishing procedures to make quality data submitted available to the 
public following a preview period. We proposed that, under 
circumstances when we display hospital quality information on non-
interactive CMS Web sites for reasons discussed earlier, affected 
parties would be notified via CMS listservs, CMS e-mail blasts, 
national provider calls, and QualityNet announcements regarding the 
release of preview reports followed by the posting of data on a Web 
site other than Hospital Compare (75 FR 46362). The release of preview 
reports allows CMS to meet the requirement under section 1833(t)(17)(E) 
of the Act for establishing procedures to make submitted quality data 
available to the public following a preview period. CMS also requires 
hospitals to complete and submit a registration form (``participation 
form'') in order to participate in the HOP QDRP. With submission of 
this form, participating hospitals agree that they will allow CMS to 
publicly report the quality measures, including those that CMS 
calculates using Medicare claims, as required by the Act and the HOP 
QDRP.
    In the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68778), we established that, for CY 2010, hospitals sharing the same 
CMS Certification Number (CCN, previously known as the Medicare 
Provider Number (MPN)) must combine data collection and submission 
across their multiple campuses for the clinical measures for public 
reporting purposes. We finalized the policy that, under the HOP QDRP, 
we will publish quality data by the corresponding CCN. This approach is 
consistent with the approach taken under the Hospital Inpatient Quality 
Reporting Program. In the CY 2009 OPPS/ASC final rule with comment 
period, we also stated that we intend to indicate instances where data 
from two or more hospitals are combined to form the publicly reported 
measures on the Web site.
    In the CY 2010 OPPS/ASC final rule with comment period, we 
finalized our CY 2010 policy regarding publication of HOP QDRP data (74 
FR 60652 through 60654). Section 1833(t)(17)(E) of the Act requires 
that the Secretary establish procedures to make data collected under 
the HOP QDRP available to the public; however, this section does not 
require that such data be validated before it is made public. We 
explained that, initially, we decided not to post ``[i]nformation from 
non-validated data, including the initial reporting period (April-June 
2008)'' as discussed in the CY 2008 OPPS/ASC final rule with comment 
period (72 FR 66874). We noted, however, that data submitted by 
hospitals are publicly reported regardless of whether those data are 
successfully validated for payment determination purposes under 
existing procedures for the Hospital Inpatient Quality Reporting 
Program. We also noted that, in the CY 2009 OPPS/ASC final rule with 
comment period, we stated that we intended to make the information 
collected under the HOP QDRP available to the public in 2010 (73 FR 
68778).
    In the CY 2010 OPPS/ASC proposed rule (74 FR 35404), we proposed to 
make data collected for quarters beginning with the third quarter of CY 
2008 (July-September 2008) under the HOP QDRP publicly available, 
regardless of whether those data have been validated for payment 
determination purposes. In the CY 2010 OPPS/ASC final rule with comment 
period (74 FR 60654), we finalized our proposal to publicly report HOP 
QDRP data on Hospital Compare in 2010 with some modifications in the 
periods of time to be reported.
    Comment: Some commenters recognized and supported CMS's efforts to 
publicly report hospital outpatient measures on Hospital Compare. Other 
commenters argued that the data presented in the Hospital Compare Web 
site are vague and confusing to providers and beneficiaries. As an 
example, these commenters noted that there is no explanation of what 
``not available'' means.
    Response: We strive to make complex quality data submitted by 
hospitals under the HOP QDRP comprehensible and useful to a wide range 
of audiences including patients and providers. We agree that there is 
room for improvement and will continue to work toward improving the 
Hospital Compare Web site. We employ `Not Available' to indicate that 
measure data for a particular hospital or hospital outpatient 
department is not available. CMS does not generally indicate the reason 
that data are not available. Situations in which measure data might not 
be available include:
    <bullet> A hospital outpatient department has voluntarily submitted 
data but has chosen not to have that data made publicly available 
either because it opted out of the HOP QDRP program or is not a 
subsection (d) hospital paid under the OPPS;
    <bullet> No data were reported because the hospital outpatient 
department does not provide the services to which the measure applies; 
and
    <bullet> No data were reported because the hospital outpatient 
department provides the services to which the measure applies but had 
no cases.
    Comment: One commenter suggested allowing the public to comment on 
the format of public reporting of data on Hospital Compare, and on 
proposed measures for the future prior to their implementation.
    Response: We provide the public with many opportunities to submit 
comments on the format for the public reporting of data on Hospital 
Compare, including during the measure development process (if the 
measure is developed by CMS), during preliminary national ``dry runs'' 
for hospitals held prior to implementation of the measure in formal 
public reporting, in which we issue confidential reports with 
calculations and methodological information, as well as during the 
rulemaking process.
    Comment: Commenters made several suggestions that they believed 
would enhance the public reporting of HOP QDRP data:
    <bullet> Add a narrative to explain the impact of reporting 
individual measures on hospital quality of care;
    <bullet> Group like measures by condition or disease, and 
distinguish them by care setting;
    <bullet> Display volume-related measures in a manner that makes 
clear that they should not be equated with quality of care measures;
    <bullet> Conduct consumer testing and allow multi-stakeholders to 
comment on changes in the Hospital Compare architecture, navigation, 
display and language that would make it more user friendly; and
    <bullet> Add more notations to the terminology used.
    Response: We thank the commenters for these suggestions and will 
consider them as we further develop our procedures for the public 
reporting of HOP QDRP quality data.
    After consideration of the public comments we received, we have 
decided to finalize our proposal to use other non interactive CMS Web 
sites such as http://www.cms.hhs.gov/HospitalQualityInits/ to publicly 
report HOP QDRP data for which there are unresolved display issues or 
pending design considerations. We will provide hospitals with an 
opportunity to

[[Page 72071]]

preview the data to be posted in this manner prior to doing so.

B. Expansion of HOP QDRP Quality Measures for the CY 2012, CY 2013, and 
CY 2014 Payment Determinations

1. Considerations in Expanding and Updating Quality Measures Under the 
HOP QDRP
    In general, when selecting measures for the HOP QDRP program, we 
take into account several considerations and goals. These include: (a) 
Expanding the types of measures beyond process of care measures to 
include an increased number of outcome measures, efficiency measures, 
and patients' experience-of-care measures; (b) expanding the scope of 
hospital services to which the measures apply; (c) considering the 
burden on hospitals in collecting chart-abstracted data; (d) 
harmonizing the measures used in the HOP QDRP program with other CMS 
quality programs to align incentives and promote coordinated efforts to 
improve quality; (e) seeking to use measures based on alternative 
sources of data that do not require chart abstraction or that utilize 
data already being reported by many hospitals, such as data that 
hospitals report to clinical data registries, or all-payer claims data 
bases; and (f) weighing the relevance and utility of the measures 
compared to the burden on hospitals in submitting data under the HOP 
QDRP program.
    Specifically, we assign priority to quality measures that assess 
performance on: (a) Conditions that result in the greatest mortality 
and morbidity in the Medicare population; (b) conditions that are high 
volume and high cost for the Medicare program; and (c) conditions for 
which wide cost and treatment variations have been reported, despite 
established clinical guidelines. We have used and continue to use these 
criteria to guide our decisions regarding what measures to add to the 
HOP QDRP measure set.
    In the CY 2009 OPPS/ASC final rule with comment period, we adopted 
four claims-based quality measures that do not require a hospital to 
submit chart-abstracted clinical data (73 FR 68766). This supports our 
goal of expanding the measures for the HOP QDRP while minimizing the 
burden upon hospitals and, in particular, without significantly 
increasing the chart abstraction burden. In addition to claims-based 
measures, we are considering registries \1\ and EHRs as alternative 
ways to collect data from hospitals. Many hospitals submit data to and 
participate in existing registries. In addition, registries often 
capture outcome information and provide ongoing quality improvement 
feedback to registry participants. Instead of requiring hospitals to 
submit the same data to CMS that they are already submitting to 
registries, we could collect the data directly from the registries with 
the permission of the hospital, thereby enabling us to expand the HOP 
QDRP measure set without increasing the burden of data collection for 
those hospitals participating in the registries. The data that we would 
receive from registries would be used to calculate quality measures 
required under the HOP QDRP, and would be publicly reported like other 
HOP QDRP quality measures, encouraging improvements in the quality of 
care. In the CY 2010 OPPS/ASC final rule with comment period (74 FR 
60633), we responded to public comments on such an approach.
---------------------------------------------------------------------------

    \1\ A registry is a collection of clinical data for purposes of 
assessing clinical performance, quality of care, and opportunities 
for quality improvement.
---------------------------------------------------------------------------

    In the CY 2009 OPPS/ASC final rule with comment period, we also 
stated our intention to explore mechanisms for data submission using 
EHRs (73 FR 68769). We have adopted the definition of Qualified EHR set 
forth by the Office of the National Coordinator for Health Information 
Technology (ONC) (45 CFR 170.102) which has adopted the statutory 
definition of Qualified EHR found in section 3000(13) of the Public 
Health Service Act. That section defines a Qualified EHR as ``an 
electronic record of health-related information on an individual that--
(A) includes patient demographic and clinical health information, such 
as medical history and problem lists; and (B) has the capacity--(i) to 
provide clinical decision support; (ii) to support physician order 
entry; (iii) to capture and query information relevant to health care 
quality; and (iv) to exchange electronic health information with, and 
integrate such information from other sources.''
    We also have adopted the definition of Certified EHR Technology set 
forth by the ONC at 45 CFR 170.102 as follows: ``Certified EHR 
Technology'' means (1) a complete EHR that meets the requirements 
included in the definition of a Qualified EHR and has been tested and 
certified in accordance with the certification program established by 
the National Coordinator as having met all applicable certification 
criteria adopted by the Secretary; or (2) a combination of EHR Modules 
in which each constituent EHR Module of the combination has been tested 
and certified in accordance with the certification program established 
by the National Coordinator as having met all applicable certification 
criteria adopted by the Secretary, and the resultant combination also 
meets the requirements included in the definition of a Qualified EHR.
    Establishing a data submission mechanism using EHRs system will 
require interoperability between EHRs and our data collection systems, 
additional infrastructure development on the part of hospitals and CMS, 
and the adoption of standards for the capturing, formatting, and 
transmission of data elements that make up the measures. However, once 
these activities are accomplished, the adoption of measures that rely 
on data obtained directly from EHRs would enable us to expand the HOP 
QDRP measure set with less cost and burden to hospitals. In the CY 2010 
OPPS/ASC final rule with comment period (74 FR 60633 through 60634), we 
responded to public comments on such an approach.
    In prior years, we have proposed measures for one payment 
determination in a given rulemaking cycle. In prior rules, we have 
identified measures for future consideration, but have not proposed or 
finalized measures beyond those to be collected and used for the next 
sequential payment determination. In the CY 2011 OPPS/ASC proposed rule 
(75 FR 46363), we proposed to adopt new measures over a three-year 
period of time for the CY 2012, CY 2013, and CY 2014 payment 
determinations. We believe this proposed process will assist hospitals 
in planning, meeting future reporting requirements, and implementing 
quality improvement efforts. We will also have more time to develop, 
align, and implement the infrastructure necessary to collect data on 
the measures and make payment determinations. To the extent that we 
finalize some or all of these measures for the CY 2012, CY 2013 and CY 
2014 payment determinations, this would not preclude us from proposing 
to adopt additional measures or changing the list of measures for 
future payment determinations through subsequent rulemaking cycles that 
affect these future payment determinations. We invited comments on our 
intention to propose measures for more than one payment determination 
in a single rulemaking.
    Comment: Several commenters were very pleased to see that some of 
the proposed measures have a strong focus on overuse, efficiency, care 
coordination and transitions, and process linking to outcomes. Several 
commenters stated their belief that the HOP QDRP has a positive impact 
on the quality of care. A commenter stated that all of the proposed 
quality measures reflect the National Priorities Partnership-

[[Page 72072]]

identified goal for these areas and that these measures will provide 
meaningful information to consumers, purchasers, and providers.
    Some commenters stated that they did not believe CMS follows a 
methodical framework and a clear set of criteria to prioritize and 
integrate measures into the HOP QDRP.
    Response: We thank the commenters for the recognition of our 
efforts. We agree that the proposed HOP QDRP measures are important to 
the quality of care patients receive in the HOPD.
    The National Priorities Partnership is a 28-member organization 
convened by the NQF for the purpose of identifying improvement goals 
and action steps for the U.S. healthcare system. CMS is a member of the 
National Priorities Partnership and participates in its framework-
setting activity. Our measure selection activities and measure 
development activities take into account the priorities established by 
this organization as well as other criteria described earlier.
    We strive to ensure that the HOP QDRP measure set reflects HHS 
priorities as well as changes in legislation. One of our goals is to 
align the quality measures for which hospitals submit data under 
various HHS programs, including the HITECH EHR Incentive Program, in 
order to reduce the burden on hospitals that report data to multiple 
programs. We also try to adopt measures for the HOP QDRP program that 
are broadly applicable to hospitals paid under the OPPS, because HOP 
QDRP measures are made publicly available in comparative reporting 
tools. The measures that we are adopting for the HOP QDRP in this final 
rule with comment period represent established HHS priorities, which 
include some of the priorities selected by the NQF National Priorities 
Partners process. These include patient safety, population health, and 
care coordination.
    With regard to the comments about using a methodical framework and 
a clear set of criteria to prioritize and integrate measures into the 
HOP QDRP, we have set out explicit criteria that we use to guide our 
decisions regarding what measures to add to the HOP QDRP measure set in 
section XVI.B.1. of this final rule with comment period.
    Comment: A few commenters felt that the burden on hospitals 
stemming from a simultaneous implementation of new quality reporting 
and pay for performance programs would be too great, and requested that 
CMS limit the adoption of new measures to one program at a time. In 
addition, commenters recommended that CMS ease the burden on hospitals 
by putting a moratorium on the adoption of new quality measures until 
hospitals have transitioned into ICD-10 codes and adopted EHRs to meet 
the meaningful use objectives under the HITECH EHR Incentive Program. 
Some commenters were very concerned about the burden of the proposed 
chart-abstracted measures and doubted whether the codes used in chart-
abstraction will be consistently accurate.
    Response: We understand the burden faced by hospitals stemming from 
implementing multiple technological changes including the ICD-10 coding 
system, as well as meeting the requirements of various quality 
reporting programs. We will continue to weigh the burden associated 
with adding chart-abstracted measures to the HOP QDRP against the 
benefit of adding such measures while exploring other alternative data 
collection mechanisms for the HOP QDRP. Nonetheless, we are committed 
to broadening the scope of the HOP QDRP and, therefore, are adopting 
additional measures in this final rule with comment period. We also 
have solicited comments on measures being considered for adoption in 
future years.
    Comment: Commenters submitted some suggestions to make the HOP QDRP 
measure development process more transparent in the future:
    <bullet> Analysis for the need of the measure
    <bullet> Risk-adjustment methodology
    <bullet> Name of the developer of the measure
    <bullet> Name of the organization that field-tested the measure
    <bullet> Field testing status of the measure and its readiness for 
inclusion in a quality reporting program
    <bullet> Identification of unintended consequences
    <bullet> HQA adoption and NQF-endorsed status
    <bullet> CMS collaboration with the Centers for Disease Control and 
Prevention (CDC) and the Agency for Healthcare Research and Quality 
(AHRQ)
    <bullet> Adopt related evidence-based practice guidelines
    <bullet> Clearly define the patient population for which the 
measure would apply
    <bullet> Detailed measure specifications
    <bullet> Describe clearly the impact of the measure on hospital 
quality
    <bullet> A robust feedback loop to ascertain issues identified 
during implementation that would necessitate a change to a measure
    <bullet> Describe the time-frame for any time-based measures
    <bullet> Provide the rationale for inclusion of a proposed measure 
in the HOP QDRP instead of as an meaningful use objective under the 
HITECH rule
    <bullet> Location of the measure data elements in an EHR
    Response: We thank the commenters for these suggestions. We provide 
detailed information on each measure we adopt for the HOP QDRP at the 
time that we propose it or as soon as it becomes available. However, 
some of the suggested information, including the identification of 
unintended consequences and the measure's impact on hospital quality, 
may not be available until after we have adopted the measure. We also 
believe that our measure development process is transparent as it 
includes an extensive review of current guidelines and peer-reviewed 
literature, as well as collaboration with a technical expert panel. 
Additionally, in instances when there is uncertainty about the 
appropriateness of a measure for a particular patient population, the 
patients are treated as ``exclusions'' (that is, they are not included 
in the measurement calculation). The public has the opportunity to 
comment on measures that we develop during the measure development 
process. Additionally, the measure specifications, including the 
methodology used to calculate the measures, are made publicly available 
as soon as they are finalized either in the HOPD Specifications Manual 
on an ``informational'' basis, or on a separate Web site such as http://www.imagingmeasures.com.
    Comment: One commenter recommended that CMS adopt a strong set of 
outcome, patient experience, and care transition measures for the next 
three-year payment determination periods. Many commenters suggested 
that CMS consider the following measure selection criteria for the HOP 
QDRP:
    <bullet> Whether the measures are associated with better outcomes;
    <bullet> The adoption of measures for one disease or condition at a 
time, thereby limiting the number of measures for a disease or 
condition;
    <bullet> The collection of data via alternative mechanisms such as 
electronic health records (EHRs), registries, and claims;
    <bullet> The operational burden on hospitals presented by data 
collection;
    <bullet> Develop new measures with e-specifications;
    <bullet> The harmonization of HOP QDRP measures with measures used 
by the Joint Commission, which are based on large patient volumes, 
evidence-based care, and patient outcomes;

[[Page 72073]]

    <bullet> The harmonization of HOP QDRP measures with measures 
adopted for other quality reporting programs involving similar 
settings;
    <bullet> The testing of measures in a variety of outpatient 
settings;
    <bullet> The alignment of HOP QDRP measures with measures used by 
private payers; and
    <bullet> The alignment of HOP QDRP measures with the national 
priority strategy as described in the NQF NPP project.
    Response: We thank the commenters for the suggestions and for 
sharing their views regarding HOP QDRP measure selection. In section 
XVI.B.1. of this final rule with comment period, we have set out the 
criteria that we use to guide our decisions regarding what measures to 
add to the HOP QDRP measure set. As indicated in section XVI.B.1, we 
agree that quality measures should be associated with better outcomes 
for patients, that quality measures should be harmonized across care 
settings, and that measures selected for HOP QDRP should be aligned 
with national quality measurement and improvement priorities. We take 
these criteria into consideration when selecting measures for the HOP 
QDRP and we also consider the burden of data collection on hospitals 
relative to benefit that would result from public reporting and quality 
improvement.
    Comment: Some commenters noted that none of the measures proposed 
through CY 2014 uses registry data and suggested that CMS explore 
outpatient registries as data sources for quality measure data. 
Commenters noted that data collection through registries is less 
burdensome as many hospitals are already reporting to registries. One 
commenter recommended that CMS use data submitted to established 
registries by hospitals. Commenters believed that registries impose and 
create readily-available reporting benchmarks which may be absent in 
EHRs. Commenters stated that if registries are used, clear criteria for 
participating registries must be defined and CMS should give adequate 
time for hospitals to prepare for registry participation. One commenter 
inquired whether CMS plans to propose that registries directly submit 
raw data to CMS with facility and patient identifiers.
    Response: We thank the commenters for their support for registries 
as a vehicle for data collection. Although we agree that registries may 
have readily-available reporting benchmarks, we believe that EHR 
technology also has merits as an alternative data collection tool. 
Despite the fact that we did not propose any registry-based measures in 
the proposed rule, we remain interested in minimizing the burden 
associated with quality reporting and are continuing to explore 
registries as an alternative data collection vehicle for the future. If 
hospitals are participating in registries and submit the same data to 
those registries that they would otherwise have to submit for measures 
that are part of the HOP QDRP, we believe that the registry-based data 
would be an efficient alternative data source, and that this would 
prevent the hospital from having to report the same data twice. As the 
commenters stated, many hospitals are currently participating in a 
number of registries that collect data on quality measures on topics of 
interest to us. With respect to the comments on registry criteria and 
registry data submission, we thank the commenters for these suggestions 
and will consider them as we consider registry-based measures for the 
HOP QDRP. Should CMS propose to receive data from registries in the 
future, facility-level identifiers would be required for any hospital-
level calculations that would be required by CMS, and patient-level 
identifiers may be required for any patient-level data required by CMS 
for validation purposes.
    Comment: One commenter believed that using a registry as the sole 
source of data collection would place undue burden on hospitals. One 
commenter believed it is short-sighted to impose registry participation 
on hospitals when hospitals may soon be able to submit data using EHRs. 
One commenter suggested that registries that do not provide feedback to 
hospitals should be excluded from a qualified registry database should 
registries become an alternative data submission mechanism.
    Response: We thank the commenters for sharing their views about 
registries and we will take them into consideration as we consider 
using registries in the collection and public reporting of HOP QDRP 
quality data.
    Comment: Commenters commended CMS for encouraging the development 
and adoption of information technology standards across the health care 
industry that will support automated data collection and the reporting 
of clinical data from EHR systems. These commenters believed that such 
efforts will streamline hospital data submission procedures.
    Response: We thank the commenters for their support of the adoption 
of information technology standards, such as EHRs, as a data collection 
vehicle. We envision that the EHRs will become an important data source 
as we develop electronic measures for the HOP QDRP. Initially, we 
expect that the finalized measure OP-18: Median Time from ED Arrival to 
ED Departure for Discharged ED Patients (discussed below) will be 
electronically specified by December 31, 2010.
    Comment: Many commenters strongly supported CMS's proposal to adopt 
quality measures 3 years in advance to enable hospitals to better 
prepare for the impending reporting requirements, amid implementation 
of meaningful use objectives set forth in the HITECH EHR Incentive 
Program final rule and the transition into the ICD-10-CM/PCS code sets. 
Some commenters appreciated CMS's intention of providing greater 
predictability about the measures to be used in future years. Some 
commenters believed that proposing measures for more than one payment 
determination in a single rulemaking cycle provides more time for 
providers to study the measures and formulate comments while enabling 
CMS to more effectively develop comprehensive quality reporting 
programs.
    Response: We thank the commenters for their support of our 
proposals. In proposing quality measures for three payment 
determinations, our goal is to assist hospitals in planning, meeting 
future reporting requirements, and implementing quality improvement 
efforts. The adoption of quality measures far in advance also enables 
CMS to create the infrastructure necessary to collect data on the 
measures.
    Comment: Some commenters supported CMS's statement that the 
requirements for the future HOP QDRP payment determinations may change 
due to changing priorities and new legislative requirements. A few 
commenters suggested that instead of finalizing all the proposed 
measures for the next 3 years, CMS should ask for comments in the 
annual OPPS proposed rule for each year and only finalize measures 
pertaining to the year in which the measures are to be implemented. 
Some commenters requested that CMS provide an overall strategic 
perspective for the HOP QDRP 3-year expansion plan, the objectives set 
forth in the HITECH Act and the Affordable Care Act which promotes more 
integration of care across the health care delivery system. One 
commenter suggested setting a timeline in the three-year expansion plan 
for the NQF to review current HOP QDRP measures as rapidly as possible 
through its maintenance process, so that the HOP QDRP measures align 
with the NQF standards for endorsement and so

[[Page 72074]]

that their potential for quality improvement can be evaluated.
    Response: We thank the commenters for supporting our 
acknowledgement that while we may finalize measures for multiple years, 
the measures are subject to change should we need to adapt in light of 
changing priorities and new legislation. Given the support we received 
on our proposal to propose new measures for three payment 
determinations, we will proceed in this direction for future measure 
proposal and finalization. With regard to our overall strategic 
perspective for the HOP QDRP 3 year expansion plan, we intend where 
feasible to propose to integrate into the HOP QDRP applicable 
meaningful use objectives set forth under the HITECH EHR Incentive 
Program as well as applicable quality priorities set forth in the 
Affordable Care Act.
    While the NQF regularly reviews measures that it has endorsed as 
part of its regular 3-year measure reevaluation cycle (2-years for 
measures with time-limited endorsement), not all of the HOP QDRP 
measures are NQF endorsed.
    Comment: Some commenters noted that under the HOP QDRP, hospitals 
must submit data on measures, whereas under the PQRI, individual 
eligible professionals or group practices submit the data. Commenters 
encouraged CMS to harmonize the two programs.
    Response: We understand the commenters' desire for harmonization of 
our various quality reporting programs and we attempt to do so when 
feasible and practical. For example, we include the same AMI and 
Surgical Care measures in both the Hospital Inpatient Quality Reporting 
Program and the HOP QDRP. We note that the PQRI is a quality data 
reporting program for individual professional or group practices, while 
the HOP QDRP is a quality data reporting program that applies to 
hospital outpatient departments. A particular eligible professional or 
group practice generally provides a relatively specialized set of 
services with their patient population generally being much smaller 
than that enrolled in hospital outpatient departments. Given the 
different focus of these two programs, there are different 
considerations that are taken into account when establishing reporting 
requirements for each of these programs.
2. Retirement of HOP QDRP Quality Measures
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we finalized a 
process for immediate retirement of Hospital Inpatient Quality 
Reporting Program measures based on evidence that the continued use of 
the measure as specified raises patient safety concerns (74 FR 43864 
through 43865). In circumstances such as those prompting immediate 
retirement of the AMI-6 measure from the Hospital Inpatient Quality 
Reporting Program in December 2008 (as discussed in the FY 2010 IPPS/RY 
LTCH PPS final rule (74 FR 43864 through 43865)), we do not believe 
that it would be appropriate to wait for the annual rulemaking cycle to 
retire a measure. We adopted this same immediate retirement policy for 
the HOP QDRP in the CY 2010 OPPS/ASC final rule with comment period (74 
FR 60635).
    Specifically, we stated that if we receive evidence that continued 
collection of a measure that has been adopted for the HOP QDRP raises 
patient safety concerns, we would promptly retire the measure and 
notify hospitals and the public of the retirement of the measure and 
the reasons for its retirement through the usual means by which we 
communicate with hospitals, including but not limited to hospital e-
mail blasts and the QualityNet Web site. We also stated that we would 
confirm the retirement of a measure retired in this manner in the next 
OPPS rulemaking cycle. However, for other circumstances in which we do 
not believe that continued use of a measure raises specific patient 
safety concerns, we stated that we intend to use the regular rulemaking 
process to retire a measure.
    Comment: Several commenters encouraged CMS to establish consistent 
and transparent processes that address changes in evidence-based 
guidelines more quickly and to establish channels to exchange this type 
of information between CMS and measure developers. Commenters supported 
the measure retirement criteria and also encouraged CMS to retire 
measures under the following additional conditions:
    <bullet> Another indicator exists that is better, or more 
accurately assesses good quality of care;
    <bullet> A measure is no longer consistent with the standard of 
care or evidence-based guidelines; and
    <bullet> When an outcome measure is available.
    Response: We thank the commenters for their suggestions for measure 
retirement and will take them into consideration when evaluating 
whether to retire a measure in the HOP QDRP. At this time, we have not 
proposed to retire any measures from the HOP QDRP.
3. HOP QDRP Quality Measures for the CY 2012 Payment Determination
a. Retention of Existing HOP QDRP Measures for the CY 2012 Payment 
Determination
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46363), for the CY 
2012 payment determination, we proposed to retain the existing 11 HOP 
QDRP measures. These measures continue to address areas of topical 
importance regarding the quality of care provided in HOPDs, and reflect 
consensus among affected parties. Seven of these 11 measures are chart-
abstracted measures in two areas of importance that are also measured 
for the inpatient setting--AMI cardiac care and surgical care. The 
remaining four measures are claims-based measures that address imaging 
efficiency in HOPDs.
    We invited public comment on our proposal to retain the existing 11 
HOP QDRP measures for the CY 2012 payment determination.
    Comment: Some commenters supported the retention of CY 2012 
measures, specifically the prophylactic antibiotic measures.
    Response: We thank the commenters for their support.
    After consideration of the public comments we received, we have 
decided to adopt as final our proposal to retain the existing 11 HOP 
QDRP measures for the CY 2012 payment determination.
b. New Structural Measure for the CY 2012 Payment Determination
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46363), for the CY 
2012 payment determination, we proposed to add one structural measure: 
``Ability for Providers with HIT to Receive Laboratory Data 
Electronically Directly into their Qualified/Certified EHR System as 
Discrete Searchable Data'' (NQF <greek-i> 0489). Structural measures 
allow the assessment of the conduciveness of the provider environment 
to processes and technologies that enable delivery of high quality 
care. This particular structural measure assesses the extent to which a 
provider uses a certified/qualified EHR system that incorporates an 
electronic data interchange with one or more laboratories allowing for 
direct electronic transmission of laboratory data into the EHR as 
discrete searchable data elements. We believe that electronic 
transmission of laboratory data into EHRs would enable greater 
timeliness of results reporting, because the results of the reports 
would be transmitted to the HOPD as soon as the laboratory data are 
available which

[[Page 72075]]

allows for the merger with clinical information to provide laboratory 
value alerts and more timely clinical assessments. Electronic 
transmission of laboratory data can lead to cost efficiency, expedite 
the clinical decision process, reduce redundancy of laboratory orders, 
and reduce human errors.
    Section 1833(t)(17)(C)(i) of the Act requires the Secretary to 
develop measures appropriate for the measurement of the quality of care 
furnished by hospitals in outpatient settings, that these measures 
reflect consensus among affected parties and, to the extent feasible 
and practicable, that these measures include measures set forth by one 
or more national consensus building entities. As discussed above, this 
structural measure is appropriate for measuring quality of care in the 
hospital outpatient department setting. This measure also meets the 
consensus requirement because it was endorsed in 2008 as part of an NQF 
project entitled ``National Voluntary Consensus Standards for Health 
Information Technology: Structural Measures.'' Additionally, this 
measure was conditionally adopted by the HQA in 2010.
    We proposed that this structural measure would be submitted by 
HOPDs beginning with January 1, 2011 discharges via a Web-based tool 
available on the QualityNet Web site that is currently employed for the 
collection of structural measures for the Hospital Inpatient Quality 
Reporting Program. For this structural measure, HOPDs would submit the 
number of encounters out of all encounters for which laboratory results 
were documented in the EHR. We invited comments on our proposal to add 
this new structural measure to the HOP QDRP measurement set and the 
submission process for the CY 2012 payment determination.
    Comment: Some commenters appreciated that the proposed structural 
measure relates to an issue that is meaningful to consumers and 
purchasers, and believed that it is important for both public reporting 
and payment policy. One commenter noted that with timely receipt of 
results and a rapid diagnosis, patients can be treated while they are 
being seen and do not need to return or wait for a follow-up phone 
call. This fast turnaround time improves the quality of care and 
reduces medical costs. Furthermore, some commenters stated their belief 
that the addition of this measure to the HOP QDRP will raise hospital 
outpatient departments' electronic awareness, and motivate hospitals to 
adopt EHRs to improve care coordination, patient safety, and outcomes.
    Response: We appreciate the commenters' support and encouragement 
and agree with commenters that this measure will improve the quality of 
care and promote the adoption of EHR technology.
    Comment: One commenter stated that CMS will be better able to 
assess the EHR functionality of hospitals by adopting a similar measure 
for the HITECH EHR Incentive Program. One commenter was concerned about 
the duplication of this measure with the meaningful use objectives set 
forth in the HITECH EHR Incentive Program final rule. Many commenters 
did not support this measure and stated that the measure is not 
evidence-based and has not been field-tested. Some commenters did not 
support the measure because they believed the measure only assesses HIT 
functionality and does not assess the quality of care provided. 
Commenters recommended maintaining this measure solely as a meaningful 
use HIT functionality objective under the HITECH EHR Incentive Program.
    Response: We strongly believe that the adoption of this measure in 
the two programs would have a complementary effect rather than a 
duplicative effect. Since hospital outpatient departments provide 
clinical laboratory testing services, we believe that this measure is 
appropriate for the HOP QDRP. The meaningful use objective set forth in 
the HITECH EHR Incentive Program requires the incorporation of clinical 
lab test results into EHR as structured data while the measure we are 
finalizing in this final rule with comment period assesses whether 
hospital outpatient departments are capable of receiving laboratory 
data directly into a qualified/certified EHR system as discrete 
searchable data.
    Comment: Some commenters stated that this measure is too burdensome 
for providers, especially for providers with limited EHR capability or 
that are transitioning to EHR technology. The commenters stated that 
EHR vendors are still developing qualified/certified technology to 
accommodate this EHR capability. The commenters suggested that CMS 
delay the adoption of this measure until all hospitals have adopted 
qualified/certified EHRs. Commenters indicated this measure would be 
more appropriate for CY 2013 or CY 2014. Otherwise, it is 
counterproductive to penalize hospitals for lacking the type of EHR 
capability for which they have been given flexibility in adopting under 
the HITECH EHR Incentive Program.
    A few commenters urged CMS not to impose this CY 2012 structural 
measure until providers have gained experience with Stage 1--Meaningful 
Use and demonstrated widespread participation in the Incentive Program. 
Commenters stated the proposed data submission date for this measure 
beginning with January 1, 2011 discharges may compromise a HOPD's 
flexibility derived from the HITECH EHR Incentive Program final rule 
(75 FR 44314), under which hospitals potentially have until CY 2014 to 
adopt qualified/certified EHRs for the purpose of participating in the 
incentive program to demonstrate meaningful use of EHR technology for 
any given payment year. Furthermore, for Stage 1 of meaningful use, the 
objective of ``Incorporate clinical lab-test results into qualified/
certified EHR technology'' is a menu-set measure, and may be deferred. 
The commenters expected that many hospitals would choose to implement 
this measure early to avoid foregoing their full annual payment update. 
One commenter expressed concern that hospitals without qualified EHR 
systems that are capable of receiving lab data would be effectively 
precluded from receiving the full payment update for CY 2012.
    Response: We understand the commenters' concerns. We note that many 
certified/qualified EHRs already have the capability to receive 
laboratory data directly into their systems as discrete searchable 
data. Since the hospital would satisfy the reporting requirement for 
the measure under the HOP QDRP by reporting ``yes'' or ``no,'' we do 
not believe the adoption of this measure in the HOP QDRP will impede 
hospitals from receiving their full annual payment update in CY 2012 or 
beyond.
    Comment: One commenter recommended that the measure focus only on 
the progress of implementing this EHR functionality by requiring 
hospitals to report quarterly updates on the progress of EHR technology 
adoption. Many commenters strongly recommended that CMS adopt a ``yes/
no'' structural measure format as the measure indicator in order to 
minimize burden. Some commenters claimed that otherwise, it will be a 
huge burden to sort out the data. Specifically, these commenters 
requested clarifications on:
    <bullet> The numerator and denominator definitions (for instance, 
what lab tests are to be included or excluded);
    <bullet> The distinction between encounters where laboratory data 
are ordered as part of the encounter, and encounters where lab data are 
ordered as a standalone encounter;
    <bullet> Issues for hospital-based clinics where patients choose to 
receive

[[Page 72076]]

laboratory services outside the hospital outpatient setting;
    <bullet> The type of laboratories to which this measure applies, 
that is, if it is applicable to both external/reference lab interfaces 
and hospital internal facility laboratories;
    <bullet> The definition of EHR versus qualified/certified EHR;
    <bullet> The data collection frequency, for example, monthly, 
quarterly, or yearly; and,
    <bullet> Whether the data collection includes all electronically 
submitted laboratory data from a physician's office or electronic 
submission of the number of tests out of all encounters including 
laboratory data not ordered in a physician's office.
    Response: We thank the commenters for their input. To minimize the 
burden on hospitals in connection with this measure, we have adopted 
the commenters' suggestion and will only require hospital outpatient 
departments to disclose whether they have HIT with the capability to 
receive laboratory data electronically directly into a certified/
qualified EHR as discrete searchable data. A ``yes/no'' format will be 
used for this structural measure.
    After consideration of the public comments we received, we are 
finalizing this measure ``Ability for Providers with HIT to Receive 
Laboratory Data Electronically Directly into their Qualified/Certified 
EHR System as Discrete Searchable Data'' for the CY 2012 annual payment 
update. Hospitals will be required to submit the information needed to 
calculate this measure via a Web-based collection tool beginning in 
July 2011 and HOPDs will report on the period from January 1, 2011 
through June 30, 2011. The Web-based tool will be made available on the 
QualityNet Web site that we currently use to collect structural 
measures that we have adopted for the Hospital Inpatient Quality 
Reporting Program.
c. New Claims-Based Measures for the CY 2012 Payment Determination
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46364), for the CY 
2012 payment determination, we proposed to add four new claims-based 
imaging efficiency measures to the HOP QDRP measurement set, all of 
which were listed as under consideration for CY 2012 and subsequent 
years in the CY 2010 OPPS/ASC final rule with comment period (74 FR 
60637 through 60641). Imaging efficiency is a new area of measurement 
that we first implemented in the HOP QDRP for the CY 2010 payment 
determination and subsequently retained for the CY 2011 payment 
determination. There are currently four claims-based imaging efficiency 
measures in the HOP QDRP measurement set (OP-8 through OP-11). The four 
new proposed imaging efficiency measures for the CY 2012 payment 
determination are: (1) Pre-Operative Evaluation for Low-Risk Non-
Cardiac Surgery Risk Assessment, (2) Use of Stress Echocardiography, 
SPECT MPI, and Cardiac Stress MRI post CABG, (3) Simultaneous Use of 
Brain Computed Tomography (CT) and Sinus Computed Tomography (CT), and 
(4) Use of Brain Computed Tomography (CT) in the Emergency Department 
for Atraumatic Headache.
    The first new proposed imaging efficiency measure for the CY 2012 
payment determination seeks to calculate relative use of stress 
echocardiography, stress MRI, and SPECT MPI prior to low-risk non-
cardiac surgical procedures in the 30 days preceding the surgery. The 
second new proposed claim-based imaging efficiency measure for the CY 
2012 payment determination seeks to estimate relative use of stress 
echocardiography and SPECT MPI in asymptomatic patients less than five 
years after a coronary artery bypass graft (CABG) procedure.
    Cardiac imaging is an area that was not addressed in CMS' first set 
of outpatient Imaging Efficiency measures. It is among the most common 
imaging services in the Medicare population. In the hospital outpatient 
setting, 762,419 SPECT MPI, Stress MRI and Stress Echocardiography 
procedures were performed in 2008 alone.\2\ Further, between 1998 and 
2006, the rate of myocardial perfusion imaging (MPI) use in Medicare 
beneficiaries increased 51 percent among cardiologists in the hospital 
setting, and by 215 percent in private offices. During the same time 
period, total Medicare Part B payments for MPI across all settings of 
care increased by 227 percent.\3\
---------------------------------------------------------------------------

    \2\ The Lewin Group analysis of Medicare Calendar Year 2007 
claims data prepared for the Centers for Medicare & Medicaid 
Services, HHS Contract No: HHSM-500-2005-0024I, Order No. 0002.
    \3\ Levin DC, Rao VM, Parker L, et al. Recent payment and 
utilization trends in radionuclide myocardial perfusion imaging: 
Comparison between self-referral and referral to radiologists. J Am 
Coll Radiol 2009;6:437-441.
---------------------------------------------------------------------------

    SPECT MPI, Stress MRI, and Stress Echocardiography are specific 
procedures that must be ordered by a physician to be performed. 
Therefore, there is a distinct opportunity for the physician to order 
this procedure prudently based on best practices. While SPECT MPI, 
Stress MRI, and Stress Echocardiography enhance the quality of care 
when used appropriately, inappropriate usage of imaging would cause 
unnecessary waste of services, contribute no benefit to the quality of 
care, and could increase the patient's risk of cancer. An analysis by 
Gibbons et al.\4\ found that, of all SPECT MPI procedures performed at 
the Mayo Clinic Rochester in May 2005, 14 percent were considered 
inappropriate using criteria published by the American College of 
Cardiology Foundation and the American Society of Nuclear Cardiology, 
and an additional 11 percent were of indeterminate appropriateness.\5\ 
This study also found that during the same time period, 18 percent of 
all stress echocardiograms performed were inappropriate, and an 
additional 9 percent were indeterminate.
---------------------------------------------------------------------------

    \4\ Gibbons RJ, Miller TD, Hodge D, et al. Application of 
appropriateness criteria to stress single-photon emission computed 
tomography sestamibi studies and stress echocardiograms in an 
academic medical center. J Am Coll Cardiology 2008;51:1283-9.
    \5\ Brenner DJ, Hall EJ. November 29, 2007. Computer 
Tomography--An Increasing Source of Radiation Exposure. New England 
J of Medicine 2007:357(22): 2277-84.
---------------------------------------------------------------------------

    The third and fourth new proposed imaging efficiency measures for 
the CY 2012 payment determination pertain to appropriate use of Brain 
CT imaging in HOPDs. These are ``Simultaneous Use of Brain Computed 
Tomography (CT) and Sinus Computed Tomography (CT),'' and ``Use of 
Brain Computed Tomography (CT) in the Emergency Department for 
Atraumatic Headache.''
    A report in the New England Journal of Medicine \5\ raised serious 
concerns about the use and overuse of CT scanning, stating that for an 
estimated 62 million CT scans being performed per year, a third are 
unnecessary, resulting in patient safety issues including unnecessary 
radiation and contrast material exposure, and the danger associated 
with ``false positive'' findings. A CT scan exposes the patient to 
higher doses of radiation than a conventional x-ray and increases the 
patient's risk of cancer.
    Brain CTs are often ordered in addition to a sinus CT for patients 
with sinusitis because headache is a common symptom related to 
sinusitis. However, simultaneous CT sinus and brain imaging for 
headache without suspected complications is generally considered 
inappropriate, as the standard anatomic coverage of a CT of the head 
includes large portions of the paranasal sinuses; thus, ordering both 
procedures is duplicative and inefficient.<SUP>5 6</SUP> The third

[[Page 72077]]

new proposed imaging efficiency measure for the CY 2012 payment 
determination ``Simultaneous Use of Brain CT and Sinus CT'' assesses 
the extent to which patients with a headache who have a brain CT also 
have a sinus CT performed on the same date at the same facility. The 
measure excludes patients with trauma diagnoses, tumors or orbital 
cellulitis.
---------------------------------------------------------------------------

    \6\ Appropriateness Criteria--Headache. Reston, VA: American 
College of Radiology, 2009. Accessed November 25, 2009 at http://www.acr.org/SecondaryMainMenuCategories/quality_safety/app_criteria.aspx
---------------------------------------------------------------------------

    The fourth new proposed imaging efficiency measure for the CY 2012 
payment determination, ``Use of Brain Computed Tomography (CT) in the 
Emergency Department for Atraumatic Headache,'' assesses the extent to 
which patients presenting with a headache receive brain CT studies. The 
measure excludes patients admitted or transferred to an acute care 
hospital, patients with lumbar punctures, dizziness, paresthesia, lack 
of coordination, subarachnoid hemorrhage or thunderclap headaches. The 
lifetime prevalence of headache is over 90 percent for men and women 
and according to some studies, headache accounts for 16 million 
physician visits annually in the U.S.\7\ According to Goldstein et al. 
(2006) for U.S. emergency departments (EDs) from 1992 to 2001, 
headaches represented approximately 2 percent of U.S. ED visits.\8\ An 
analysis of 2007 Medicare claims data found that approximately 200,000 
Medicare beneficiaries had a visit to an ED with a primary diagnosis of 
headache with about half of these patients (not taking into account the 
previously mentioned exclusion of lumbar punctures, dizziness, 
paresthesia, lack of coordination, subarachnoid hemorrhage or 
thunderclap headaches) receiving a Brain CT coincident with the ED 
visit.\9\ Unnecessary or duplicative studies are inefficient and 
detrimental to the patient because CT exposes the patient to higher 
doses of radiation than conventional x-ray and increases the patient's 
risk for cancer.\10\
---------------------------------------------------------------------------

    \7\ Mellion ML, Jayaraman MV. August 2007. Use of neuroimaging 
in the workup of headache. Med Health RI.; 90(8):249-50.
    \8\ Goldstein JN, CA Camargo, AJ Pelletier, JA Edlow. 2006. 
Headache in the United States Emergency Departments: demographics, 
work-up and frequency of pathological diagnoses. Cephalalgia; 26(6) 
684.
    \9\ The Lewin Group analysis of Medicare Calendar Year 2007 
claims data prepared for the Centers for Medicare & Medicaid 
Services, HHS Contract No: HHSM-500-2005-00241, Order No. 0002.
    \10\ Brenner DJ and Hall EJ. November 29, 2007. Computed 
Tomography--An Increasing Source of Radiation Exposure. N Engl J 
Med; 357(22):2277-84.
---------------------------------------------------------------------------

    Concern over the inappropriate use of CT Imaging in the ED setting 
has been driven by three major factors: False positive interpretations, 
radiation exposure, and cost. There is generally a lower threshold for 
ordering neuro-imaging for headache in the ED because of physician time 
constraints and lack of ED physician familiarity with headache 
presentation.\11\ Because of this lower threshold, the measurement of 
the use of CT Brain in the ED for patients with a diagnosis of a 
traumatic headache can raise awareness of the need for appropriate use 
of CT brain imaging in the ED and, as a result improve patient safety 
through reduction in unnecessary radiation exposure.
---------------------------------------------------------------------------

    \11\ Ward TN, Leven M, Phillips JM. Evaluation and management of 
headache in the emergency department. Med Clin N Am 2001;85(4) 971-
85.
---------------------------------------------------------------------------

    Section 1833(t)(17)(C)(i) of the Act requires the Secretary to 
develop measures appropriate for the measurement of the quality of care 
furnished by hospitals in outpatient settings, that these measures 
reflect consensus among affected parties and, to the extent feasible 
and practicable, that these measures include measures set forth by one 
or more national consensus building entities. As discussed above, these 
measures are appropriate for measuring quality of care in the hospital 
outpatient department setting. These measures also meet the consensus 
requirement because these measures were developed through a consensus-
based process involving stakeholder input. For the CY 2012 payment 
determination, we proposed to calculate these four measures using 
Medicare claims from CY 2010. We invited comments on our proposal to 
add these four new imaging efficiency measures to the HOP QDRP 
measurement set based on Medicare claims from CY 2010 for the CY 2012 
payment determination.
    Like the current imaging efficiency measures in the HOP QDRP 
measurement set, these four measures are based on Medicare claims and 
will not require additional data submission on the part of hospitals. 
All four of these proposed measures are currently undergoing NQF 
review, and specifications for these measures are available at http://www.imagingmeasures.com.
<bullet> Imaging Efficiency Measures
    We received several general comments on the proposed new imaging 
efficiency measures.
    Comment: Some commenters agreed that the 4 proposed new claim-based 
imaging efficiency measures will enhance patient safety in the hospital 
outpatient setting, based on the evidence of the potential harmful 
effects of excessive radiation exposure associated with the use of 
imaging services. One commenter encouraged CMS to publish analysis 
findings, and seek public comments before making policy decisions to 
adopt these four measures. This commenter believed that the analysis of 
utilization of the four proposed imaging procedures should be performed 
separately.
    Response: We thank the commenters for the support and suggestions. 
We developed the proposed Imaging Efficiency measures by means of a 
rigorous process that included reviewing current literature and 
clinical guidelines, and seeking the recommendations of a technical 
expert panel. Also, prior to proposing to adopt these measures for the 
HOP QDRP, we asked for public comment on them and considered the 
comments as we refined the measure specifications. The rulemaking 
process provided another opportunity for the public to provide input 
and voice support and concerns regarding the proposed measures. We will 
work on publishing findings for the imaging efficiency measures.
    Comment: One commenter noted that the American College of 
Cardiology (ACC) and the American Society of Nuclear Cardiology (ASNC) 
guidelines for imaging are conservative and that their guidelines tend 
to be based on expert opinion rather than on evidence data. The 
commenter stated that when the clinical conditions for some patients do 
not fall within the scope of these guidelines, providers are compelled 
to perform the imaging study. According to the commenter, imaging 
studies performed under such circumstances should not be automatically 
considered inappropriate or medically unnecessary. Another commenter 
requested that before CMS adopts the proposed imaging measures, it 
should conduct a comprehensive assessment of the impact of the existing 
imaging measures and the appropriateness of preoperative use of 
cardiovascular imaging using the ACC and the American College of 
Radiology (ACR) Appropriateness Criteria as references. One commenter 
suggested that CMS adopt the quality data measures used by the the ACC 
registry for purposes of consistency with the cardiovascular 
community's appropriateness criteria and in order to reduce burden.
    Response: Our measure development process includes an extensive 
review of available imaging guidelines, including the ACC and the ACR 
Appropriateness Criteria and peer-reviewed literature, as well as 
collaboration with a technical expert panel. Additionally, in instances

[[Page 72078]]

when there is uncertainty about the appropriateness of an imaging 
study, they are treated as ``exclusions'' in the measurement (that is, 
they are not included in the measurement calculation). Regarding the 
ACC registry measures; we will consider this suggestion and will 
evaluate the feasibility of including these measures in the HOP QDRP 
program.
    Comment: One commenter strongly believed that the proposed imaging 
efficiency measures are in fact ``gross unadjusted utilization rates'' 
measures and stated that they should be named as such to avoid 
confusion to the public and the payers.
    Response: We do not believe that the proposed imaging efficiency 
measures should be named differently. We have undertaken work on 
imaging efficiency as an educational effort, aimed at educating the 
public about the appropriate use of and risks associated with imaging 
services and respective optimal imaging treatment guidelines. We 
recognize that imaging services may be essential in the diagnosis and 
treatment of certain conditions; however, we also recognize that both 
the over- and underutilization of these services may affect both the 
safety and quality of care an individual receives. The proposed 
outpatient imaging efficiency measures address important patient safety 
concerns related to exposure to unnecessary radiation and/or contrast 
materials, and promote the efficient use of imaging procedures. For 
this reason, we do not believe that they are simply ``gross unadjusted 
utilization rates'' as the commenter suggests.
    Comment: Some commenters did not support the measures for the 
following reasons: (1) The absence of NQF-endorsement; (2) the lack of 
evidence-based correlation between the number of imaging studies 
performed and the quality of care provided; (3) absence of field-
testing; and (4) absence of benchmarks.
    Response: The area of imaging efficiency quality measures is 
relatively new and challenging. In conjunction with our rigorous 
consensus-based measure development process, we also reviewed Medicare 
data which indicates that there are HOPDs that have imaging practice 
patterns that are very different than the majority of hospitals. We 
anticipate that the public reporting process will heighten provider 
awareness of patient safety and encourage hospitals to proactively 
improve their quality of care.
    By way of illustration, our analysis of 2008 Medicare claims data 
found that for OP-10 Abdomen CT Use of Contrast Material, the national 
average ratio was 0.191, with half of the hospitals at or below 0.107. 
However, 5 percent of the hospitals had measure ratios at or above 
0.685, and 1 percent of the hospitals had ratios at or above 0.811. 
Radiation exposure from a single CT scan of the abdomen is about 11 
times higher than it is for an ordinary x-ray of the abdomen. For a 
combination CT scan, radiation exposure is 22 times higher than it is 
for an x-ray of the abdomen because the patient is given two scans. We 
continue to believe that the act of quality measure reporting and its 
impact can be powerful catalysts for improvement.
    As we stated in a response to a previous comment, we have 
undertaken the work on imaging measures as an educational effort, aimed 
at educating the public about the appropriate use of and risks 
associated with imaging services and the best practices for utilizing 
them. We believe that identifying imaging practice patterns is 
consistent with educational and quality improvement efforts for 
hospitals, and public reporting related to these practice patterns can 
play an important role in the quality improvement process.
    Additionally, the collection of data on the proposed imaging 
efficiency measures is a foundation building exercise that will help us 
determine the distribution of provider experiences and results across a 
national data set. With regard to the commenters' concern that there 
has been no field-testing of these measures, we do not believe that 
field-testing is necessary for these claims-based measures because we 
can calculate them for all OPPS hospitals based on claims. Outpatient 
imaging is a common and frequently performed diagnostic and therapeutic 
procedure. With respect to commenters' concern about the lack of 
benchmarks, we recognize that while the quality and safety of 
outpatient imaging services are critically important, few national 
standards exist to address the variations in the delivery of outpatient 
imaging services. However, analysis of Medicare outpatient hospital 
claims data indicates that some hospital outpatient departments have 
patterns of care in their use of imaging services that are 
significantly different than the patterns of care seen in most other 
hospital outpatient departments. We believe that identifying these 
practice patterns is consistent with educational and quality 
improvement efforts for these providers, and that public reporting 
related to these patterns can play an important role in the quality 
improvement process.
    We intend to publicly report average rates and ratios of imaging 
study utilization, so that a hospital may compare its values with 
national and State values. We note that there are currently no 
benchmarks or CMS definitions of appropriate usage rates associated 
with these measures. However, as HOPDs become more familiar with these 
measures, we are hopeful that such benchmarks can be developed.
    Comment: A commenter believed that the inclusion of risk-adjustment 
and a ``within range'' in imaging measures are crucial for a fair and 
unbiased comparison of different facility use rates.
    Response: As stated above, the outpatient imaging efficiency 
measures were developed after an extensive review of literature and 
medical society guidelines, such as those published by the ACR, the ACC 
Foundation and the American College of Physicians, and after 
consultation with a technical expert panel. As a result of this 
process, we were able to identify medical conditions for which imaging 
services are considered appropriate, and these conditions will be 
treated as ``exclusions'' and will not be included in the measure 
calculations. We were also able to conclude, based on this process, 
that we do not need to risk adjust the measures once the exclusion 
criteria have been applied. Accordingly, the outpatient imaging 
efficiency measures will not be risk adjusted but instead will be 
calculated as raw/observed rates after the exclusion and inclusion 
criteria are applied.
    Comment: Some commenters stated that patient variables coupled with 
a lack of clinical information in the chart make it difficult for a 
physician to gauge if an imaging test is appropriate for a patient. 
Some commenters were concerned that the proposed claims-based imaging 
efficiency measures do not capture all of the medical reasons why a 
physician would order a particular imaging study. Several commenters 
were concerned that they may not have the opportunity to review the 
claims data and to provide CMS with additional clinical information for 
appropriate exclusions to be made.
    Response: During the development of the proposed outpatient imaging 
efficiency measures, we completed extensive literature reviews and 
analyzed appropriate medical guidelines to determine the 
appropriateness of imaging studies for various medical conditions, such 
as cancer and trauma. In addition, we looked to see whether patient 
variables, such as age, needed to be taken into account based on the 
medical guidelines. As a result of this research, certain diagnoses 
will be excluded from

[[Page 72079]]

the measure calculations for each of the proposed imaging measures 
because we have concluded that an imaging study would be appropriate 
for those diagnoses.
    We have developed the specifications for the proposed imaging 
efficiency measures by looking at Medicare claims data, which we will 
also use to calculate the measures. We believe that the use of claims 
data is a non-burdensome data collection approach for hospitals. During 
the measure development process, we have determined that additional 
clinical information beyond what is present on claims is not necessary 
in order to identify exclusions. However, we regularly review whether 
additional codes should be added in order to determine exclusions.
    Additionally, as we do for all HOP QDRP measures, we will make 
various resources available to hospitals, including measure 
specifications and literature, and will send a hospital specific report 
to each hospital prior to the time we publicly report the measures. The 
hospital specific reports will contain average State and National 
measure calculations, as well as measure specific data for the 
hospital, so that the hospital may review the measure calculations. 
This allows hospitals to review the ordering behavior of physicians. 
The intent of the proposed imaging efficiency measures is to encourage 
hospital outpatient departments to improve their quality of care and to 
equip consumers with quality of care information to help them make more 
informed decisions about their health care.
    Comment: A few commenters were concerned about the potential 
perception that lower imaging usage rate is better or that certain uses 
of imaging technologies results in inferior care being provided to 
patients.
    Response: The goal of the imaging efficiency measures is not to 
suggest that lower rates of imaging services are necessarily better or 
that certain types of imaging studies are better than the others, but 
to promote the efficient use of imaging procedures in hospital 
outpatient departments. Our analysis of Medicare claims data indicates 
that there are hospital outpatient departments that use imaging 
services significantly more or less than most other hospital outpatient 
departments. The proposed imaging measures are intended to identify 
outlier practice patterns, which we believe is consistent with our 
educational and quality improvement efforts, and for which public 
reporting can play an important role in the quality improvement 
process.
    Comment: One commenter noted that different hospitals have 
different preoperative checklists for surgery and that the 
documentation of imaging studies will differ accordingly.
    Response: The proposed imaging efficiency measures are claims-based 
measures, which means that hospitals do not need to submit any 
additional data in order for us to calculate them under the HOP QDRP.
    We also received comments on individual imaging measures.
<bullet> Cardiac Imaging Preoperative Risk Assessment for Non-Cardiac 
Low-risk Surgery
    (This measure was labeled Pre-operative Evaluation for Low-Risk 
Non-Cardiac Surgery Risk Assessment in the proposed rule (75 FR 46364). 
However, we are changing the title in order to make explicit reference 
to the type of preoperative evaluation for risk assessment and the type 
of imaging that was performed.)
    Comment: A few commenters supported the proposed measure and noted 
that the metric is reasonable to monitor unnecessary imaging testing 
and expenses.
    Response: We thank the commenters for their support and their 
recognition of the importance of this proposed measure.
    Comment: Two commenters believe that because the imaging study must 
be ordered by a physician, the proposed measure is focused on a 
physician service, rather than on the quality of care performed by a 
hospital outpatient department. Commenters requested clarification on 
the accountability for the imaging procedure when it is ordered by a 
physician outside the hospital in which the study is performed. One 
commenter recommended that the proposed measure be included in the PQRI 
so that physicians who order the study will also be held accountable.
    Response: We thank the commenters for the suggestions. The intent 
of the Cardiac Imaging Preoperative Risk Assessment for Non-Cardiac 
Low-risk Surgery measure is to encourage both hospitals and clinicians 
to improve their quality of care and to equip consumers with quality of 
care information to help them make more informed decisions about their 
health care. We strongly believe that this measure will provide 
hospitals with an opportunity to look for areas of improvement. Because 
hospitals submit claims to Medicare for the services they furnish both 
to inpatients and outpatients, they have a responsibility to ensure 
that the services they furnish and that are paid by Medicare are 
appropriate and necessary.
    Comment: Some commenters cited the Appropriateness Criteria, 
established by the ACC and endorsed by the American Society of 
Echocardiography (ASE), which state that a stress echocardiogram may be 
appropriate for low-risk non-cardiac surgery patients if they 
experienced cardiac symptoms within 30 days prior to surgery. 
Commenters also stated that, in other instances, the imaging study may 
be ordered 30 days prior to the surgery for reasons not tied to pre-
operative evaluation. Therefore, the commenters believed that the 
measure numerator should exclude patients who underwent stress imaging 
within 30 days of low-risk surgery for unrelated, acceptable 
indications.
    Response: Clinical guidelines, including those published by or in 
collaboration with the ACC, ASE, ASNC, AHA, ACP, ACEP, SCAI, and SCMR, 
generally indicate that cardiac imaging is not needed prior to low-risk 
surgery in low-risk patients; however, it is not possible to determine 
high-risk patients from claims data. For this reason, we do not expect 
the measure ratio to be zero.
    Comment: Some commenters remarked that given the infrequent 
occurrence of low risk non-cardiac surgeries, this measure may not 
actually assess whether there are significant differences in the 
provision of the imaging tests and their impact on the quality of care 
provided.
    Response: We understand the commenters' point of view. The number 
of imaging studies that the measure assesses may not be large, however 
for the reasons we discussed above, we believe this measure can satisfy 
our goal to identify outlier practice patterns and encourage HOPDs to 
improve their quality of care.
    Comment: Two commenters asked for clarifications on data 
collection, the potential need for separate codes, and the criteria for 
determining overuse of echocardiography for the proposed ``Pre 
Operative Evaluation for Low-Risk Non-Cardiac Surgery Risk Assessment'' 
measure.
    Response: The specifications for this measure are available online 
through QualityNet for HOP QDRP-adopted measures and through http://www.imagingmeasures.com. These specifications include the diagnostic 
and procedural codes included in the measure, as well as any exclusion 
criteria that will be applied.
    Comment: A commenter inquired if a stress test can be ordered for a 
patient having low risk surgery if chest pain or

[[Page 72080]]

dyspnea on exertion (DOE) are documented in the history and physical, 
provided the surgery diagnosis is listed on the order form or the care 
plan as well.
    Response: The goal of the measure is not to dictate how to practice 
medicine or under what circumstances imaging studies should be ordered. 
We refer the commenter to the measure specifications on Preoperative 
Risk Assessment at http://www.imagingmeasures.com for detailed 
information about the measure. We also refer readers to our previous 
discussion about exclusion criteria for the quality measures.
    Comment: A commenter was concerned about the potential absence of 
documentation by a referring physician regarding which low-risk surgery 
would be performed.
    Response: The specifications for the measure include a list of the 
applicable low-risk surgeries. We expect that the referring physician 
would document which low-risk surgery was going to be performed.
    Comment: Some commenters suggested that CMS delay adopting this 
measure until meaningful differentiation of quality is provided by the 
imaging efficiency measure.
    Response: This measure shows substantial variation among hospitals, 
and thus presents an opportunity for hospitals to engage in quality 
improvement efforts. We believe that preoperative risk assessment for 
low-risk surgeries is an important clinical topic for quality 
improvement.
    Comment: Commenters requested that CMS define the term ``low-risk'' 
and provide the sources used to make the determination and identify 
what is the appropriate usage rate.
    Response: For the Cardiac Imaging for Preoperative Risk Assessment 
for Non-Cardiac Low-Risk Surgery measure, low-risk surgery is defined 
in the measure specifications as ``cardiac death or myocardial 
infarction'' in less than 1 percent of performed procedures. This 
definition was chosen after a literature review including Auerbach A., 
Goldman L., Assessing and reducing the cardiac risk of noncardiac 
surgery. Circulation. 2006 Mar 14;113(10):1361-76; Schouten O., Bax J., 
Poldermans D., Assessment of cardiac risk before non-cardiac general 
surgery. Heart. 2006 Dec 92 (12): 1866-1872. Doi: 10.1136/
hrt.2005.073627; Gregoratos G., Current guideline-based preoperative 
evaluation provides the best management of patients undergoing 
noncardiac surgery. Circulation. 2008 Jun 17;117(24):3145-51; 
discussion 3151; Wijeysundera DN, Austin PC, Beattie WS, Hux JE, 
Laupacis A., A population-based study of anesthesia consultation before 
major noncardiac surgery. Arch Intern Med. 2009 Mar 23;169(6):595-602. 
PMID: 19307523; and Fleisher LA, et al, ACC/AHA 2006 Guidelines update 
on perioperative cardiovascular evaluation for noncardiac surgery: 
focused update on perioperative beta-blocker therapy: a report of the 
ACC/AHA Task Force on Practice Guidelines. Circulation. 2006 Jun 
6;113(22):2662-74. The categories for low-risk surgery are also 
identified in the measure specifications, and CMS consulted with the 
ACC to harmonize the list of low-risk surgeries that are included in 
the measure. ACC Appropriateness Criteria for SPECT MPI, include low-
risk categories such as endoscopic procedures, superficial procedure, 
cataract surgery, and breast biopsy. Using these categories, we 
identified what CPT procedure codes would apply for purposes of the 
measure. With regard to the comment about usage rate, medical specialty 
society guidelines generally indicate that cardiac imaging is not 
needed prior to low-risk surgery in regular- and low-risk patients. As 
noted above, we do not expect the measure ratio to be zero. The purpose 
of the measure is to identify HOPD practice patterns and to alert HOPDs 
if their imaging patterns appear to be significantly different than the 
imaging patterns of the majority of HOPDs.
    After consideration of the public comments we received, we are 
finalizing the Cardiac Imaging Preoperative Risk Assessment for Non-
Cardiac Low-risk Surgery measure for the CY 2012 payment determination.
<bullet> Use of Stress Echocardiography, SPECT MPI, and Cardiac Stress 
MRI Post-CABG
    Comment: A few commenters stated that the measure is consistent 
with currently published guidelines. Furthermore, commenters believed 
the measure has a reasonable metric to monitor unnecessary testing and 
expenses, and addresses the appropriate use of SPECT to detect graft 
occlusions and progressive disease in native arteries, especially if 
the denominator population is asymptomatic patients who are free of 
both signs and symptoms.
    Response: We appreciate the commenters' recognition of the benefits 
of this measure. However, as we describe more fully below, we are 
opting to not finalize it at this time.
    Comment: A commenter stated that there is no clinical consensus on 
the appropriateness of the performance of stress imaging within 5 years 
of CABG. The commenter was unclear about the purpose of tracking 
utilization of stress imaging post-CABG.
    Response: This measure was developed through a consensus-based 
process that included consultation with a technical expert panel, an 
analysis of available and appropriate medical guidelines, and a review 
of peer-reviewed literature. Guidelines consulted in the development of 
this measure were issued by numerous medical societies, including the 
ACC Foundation, American Heart Association, American Society of 
Echocardiography, American College of Emergency Physicians, American 
College of Radiology, Society of Cardiovascular Computed Tomography, 
and American Society of Nuclear Cardiology.
    Cardiac imaging is among the most common imaging services in the 
Medicare population, and has experienced significant growth in the past 
decade. Nuclear imaging has been one of the major contributors to the 
growth in radiation exposure in the Medicare population. SPECT MPI, 
Stress MRI, and Stress Echocardiography are specific procedures that 
must be ordered by a physician to be performed. We believe that the 
adoption of this measure would provide an opportunity for HOPDs to 
evaluate their practice patterns and reduce the incidence of 
unnecessary imaging studies without compromising the quality of care 
that they provide to their patients. However, for reasons discussed 
below, we are not finalizing this proposed measure at this time.
    Comment: Some commenters noted that the proposed measure, with the 
exclusions as written, may result in insufficient denominators and 
numerators, and this could lead to statistically invalid comparisons of 
hospital care. Commenters were concerned that the exclusions may not 
include asymptomatic patients (such as in some diabetic patients or 
women), or all of the postoperative issues that could appropriately 
trigger the use of stress perfusion testing, for example, new onset or 
other indications of heart failure, new left ventricular enlargement 
and ventricular arrhythmias, chest pain, and dyspnea on exertion. 
Additionally, commenters noted that providers may not have access to 
all of the clinical information required to consider and fully evaluate 
such issues. One commenter was concerned that the measure may not 
correctly identify the symptomatic status of the patients based on the 
ICD-9 codes obtained from claims data. Commenters suggested that CMS 
not adopt the measure until it has

[[Page 72081]]

been endorsed by the NQF, has undergone more refinement to allow for 
differentiation of quality and been appropriately structured to avoid 
unintended consequences.
    Response: The NQF Steering Committee has suggested a number of 
changes to this measure, including expanding it to include Percutaneous 
Coronary Intervention (PCI). The Steering Committee encouraged us to 
consider the recommended changes and to submit a revised measure to NQF 
at a later date. While we are not required to adopt only NQF-endorsed 
measures, we want to take the opportunity to consider the suggestions 
made by the Steering Committee for potential improvements to the 
measure and further examine some of the technical issues raised during 
the Committee's discussion. Therefore, we are not finalizing this 
measure for the CY 2012 payment determination.
    Comment: One commenter asked for clarification on data validation 
for this measure. The commenter was concerned by the fact that 
physicians do not routinely indicate a diagnosis of ``Post-CABG'' on 
orders for the diagnostic services and this may hamper CMS's efforts to 
identify these cases through claim submission.
    Response: As noted above, we have opted to not finalize this 
measure at this time. However, should we decide to finalize it in the 
future, we would calculate it using Medicare FFS claims data.
    Comment: Some commenters believe that the measure is inconsistent 
with the ACC Appropriate Use Criteria, which state that the 
determination of SPECT imaging appropriateness for patients who are 
less than 5 years post-CABG includes consideration of physician 
judgment and patient condition. Two commenters were concerned that the 
adoption of this measure will suggest to the public that there is 
consensus that post-CABG use of the imaging studies is inefficient and 
is not high quality care.
    Response: We do not agree that the measure is inconsistent with the 
ACC Appropriate Use Criteria, or that its adoption into the HOP QDRP 
will suggest to the public that post-CABG use of imaging studies is 
always inefficient. However, as explained above, in light of the NQF 
Steering Committee's recent recommendations to expand the measure to 
include PCI, we have decided to not finalize the measure at this time.
    After considering the public comments we received, we are not 
finalizing the Use of Stress Echocardiography, SPECT MPI, and Cardiac 
Stress MRI post-CABG measure for the CY 2012 payment determination. We 
will, however, consider proposing this measure for the HOP QDRP in the 
future.
<bullet> Simultaneous Use of Brain Computed Tomography (CT) and Sinus 
Computed Tomography (CT)
    Comment: Some commenters believed that the percentage of patients 
who receive both a brain CT and a sinus CT on the same day is so small 
(only 5 percent) that it would be hard to pinpoint how many of the 
scans would be considered inappropriate or over-utilized. 
Alternatively, commenters recommended that CMS adopt the ``CT dose 
reduction'' measure developed by the AMA Consortium and the ACR. 
Commenters believed that this measure would apply to a larger number of 
patients and that it could be used to track larger critical organ 
doses.
    Response: The intent of the Simultaneous Use of Brain CT and Sinus 
CT measure is to assess whether potentially unnecessary sinus CTs are 
being performed on patients who have already undergone brain CTs. We do 
not intend for the rate to be reduced to zero. Despite the fact that a 
small proportion of claims indicate same day combined studies, we have 
substantial concerns regarding radiation exposure from the simultaneous 
use of these two imaging modalities. Our analysis of Medicare data for 
2008 found that over 68,000 Medicare patients received this dual 
radiation exposure. Although we agree that the relative incidence of 
dual imaging would be low, we believe that the measure establishes a 
clear opportunity for improvement by heightening providers' awareness 
of patient safety in imaging studies.
    Comment: One commenter felt that there was an accountability issue 
because a physician orders the study and the hospital outpatient 
department follows the order and provides the imaging service.
    Response: The intent of this imaging efficiency measure is to 
encourage hospitals to improve their quality of care. Although we 
recognize that these studies are ordered by physicians, we believe that 
hospitals have a responsibility to ensure that the services they 
furnish and for which they are paid by Medicare are appropriate and 
necessary. This measure will provide hospitals with an opportunity to 
look for areas of improvement and, we hope, reduce the incidence of 
unnecessary radiation exposure.
    Comment: One commenter supported the measure's focus on patient 
safety and unnecessary radiation exposure.
    Response: We thank the commenter for the support.
    After considering the public comments we received, we are 
finalizing the Simultaneous Use of Brain Computed Tomography (CT) and 
Sinus Computed Tomography (CT) measure for the CY 2012 payment 
determination.
<bullet> Use of Brain Computed Tomography (CT) in the Emergency 
Department for Atraumatic Headache
    Comment: Some commenters supported the measure because (1) It 
targets an area of known overuse, (2) it is consistent with ACR 
Appropriateness Criteria which indicates that CT of the head is usually 
appropriate in a wide range of clinical circumstances (for example, 
sudden onset of severe headache, sudden onset of unilateral headache, 
suspected carotid or vertebral dissection, ipsilateral Horner's 
syndrome, new headache in a patient older than 60 with a sedimentation 
rate high than 55, etc.), but is not appropriate for patients who 
present with a headache but do not have other neurological symptoms, 
and (3) it serves a public health need. Commenters noted that headache 
imaging performed in the ED on patients with non-focal neurologic exams 
yields a low percentage of positive studies, and they believed that 
cumulative population radiation dose is a valid concern. Commenters 
believed the measure's exclusion criteria are well thought out.
    Response: We appreciate the commenters' recognition of our efforts 
and thank them for the support.
    Comment: Some commenters opposed this measure because they believed 
the measure is a flawed utilization measure rather than a true 
efficiency measure. Commenters stated that the measure does not follow 
published guidelines for care and will not produce reliable and valid 
results about the quality of care. A commenter was concerned that ED 
physicians may face a liability issue if they do not order a CT in 
these circumstances.
    Response: We disagree with the commenters. As we explained earlier, 
our consensus-based measure development process for this imaging 
measure was rigorous and included an extensive review of available 
imaging guidelines and peer-reviewed literature, as well as 
collaboration with a technical expert panel. The guidelines used in the 
development of this measure included those from the U.S. Headache 
Consortium in collaboration with the American Academy of Neurology, the 
Singapore Ministry of Health, the American College of Emergency 
Physicians, and the American College of

[[Page 72082]]

Radiology. We note that the imaging efficiency measures are designed to 
look at practice patterns in the aggregate instead of individual case 
decisions. We believe that patient safety concerns should play a role 
in medical decision making in addition to other concerns (such as 
malpractice liability).
    After considering the public comments we received, we are 
finalizing the Use of Brain Computed Tomography (CT) in the Emergency 
Department for Atraumatic Headache measure for the CY 2012 payment 
determination.
    In summary, after consideration of the public comments we received, 
we are finalizing three imaging efficiency measures: ``Cardiac Imaging 
for Preoperative Risk Assessment for Non-Cardiac Low-Risk Surgery''; 
``Simultaneous Use of Brain Computed Tomography (CT) and Sinus Computed 
Tomography (CT)''; and ``Use of Brain Computed Tomography (CT) in the 
Emergency Department for Atraumatic Headache'' for the CY 2012 payment 
determination and subsequent payment determinations.
d. New Chart-Abstracted Measures for the CY 2012 Payment Determination
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46365), we proposed to 
add one new chart-abstracted measure to the HOP QDRP measurement set 
for the CY 2012 payment determination: ``Troponin Results for Emergency 
Department acute myocardial infarction (AMI) patients or chest pain 
patients (with Probable Cardiac Chest Pain) Received within 60 minutes 
of arrival.'' Troponin is used to help diagnose a heart attack, to 
detect and evaluate mild to severe heart injury, and to distinguish 
chest pain that may be due to other causes.
    This measure is based upon the existing ED-AMI/Chest Pain 
populations for which we have adopted five measures in the current HOP 
QDRP measurement set. In the proposed rule, we noted that this measure 
was undergoing NQF review.
    Both patients and clinicians are affected by the timeliness of 
laboratory reporting.\12\ Decreasing laboratory turnaround times 
increases ED efficiency, specifically by decreasing diversion time from 
treatment of patients and decreasing length of stay.\13\ Decreasing the 
number of hours a day on diversion as well as decreasing patients' 
lengths of stay in EDs allows for the treatment of a greater number of 
patients. In addition, the length of hospital stays and mean turnaround 
times have been found to be correlated.\14\ Efficiencies in throughput 
with tasks can lead to less diversion, less overcrowding, fewer 
elopements and less financial loss.\15\
---------------------------------------------------------------------------

    \12\ Howanitz JH, and Howanitz PJ. Laboratory results: 
Timeliness as a quality attribute and strategy. Am J Clin Pathol. 
2002 Sep;116(3):311-5.
    \13\ Storrow AB, Zhou C, Gaddis G, Han JH, Miller K, Klubert D, 
Laidig A, and Aronsky D. Decreasing lab turnaround time improves 
emergency department throughput and decreases emergency medical 
services diversion: A simulation model. Acad Emerg Med. 2008 
Nov;15(11):1130-5.
    \14\ Holland LL, Smith LL, and Blick KE. Reducing laboratory 
turnaround time outliers can reduce emergency department length of 
stay: An 11-hospital study. Am J Clin Pathol. 2005 Nov;124(5):672-4.
    \15\ Falvo T, Grove L, Stachura R, and Zirkin W. The financial 
impact of ambulance diversions and patient elopements. Acad Emerg 
Med. 2007 Jan;14(1):58-62.
---------------------------------------------------------------------------

    Section 1833(t)(17)(C)(i) of the Act requires the Secretary to 
develop measures appropriate for the measurement of the quality of care 
furnished by hospitals in outpatient settings, that these measures 
reflect consensus among affected parties and, to the extent feasible 
and practicable, that these measures include measures set forth by one 
or more national consensus building entities. As discussed above, this 
measure is appropriate for measuring quality of care in the hospital 
outpatient department setting. This measure also meets the consensus 
requirement because this measure underwent development through a 
consensus-based measure development process involving stakeholder 
input. We noted in the proposed rule that we anticipated that this 
measure would be endorsed by the NQF.
    In the proposed rule we stated that if adopted, data collection for 
this measure would begin with January 1, 2011 discharges, and data 
would be submitted quarterly.
    We invited public comment on our proposal to add this new chart-
abstracted measure to the HOP QDRP measure set and the submission 
process for the CY 2012 payment determination.
    Comment: Many commenters supported this measure because it 
supplements the existing measures on the topic of heart attack/chest 
pain care for ED patients who are transferred to other hospitals for 
advanced cardiac care. Commenters noted that the proposed time frame is 
reasonable and the measure is a useful quality metric. Commenters 
commended CMS for proposing to adopt the measure because it relates to 
an issue that is meaningful to the public, and they recognized that the 
measure is important for both public reporting and payment policy. One 
commenter appreciated that only one chart-abstracted measure was 
proposed for the CY 2012 payment determination as this would lessen the 
burden on hospital outpatient departments.
    Response: We thank the commenters for their support and 
appreciation of our efforts to limit the reporting burden for 
hospitals.
    Comment: A few commenters were very concerned about the burden 
generated from chart-abstraction for this measure and recommended that 
CMS first assess whether HOPDs have the ability to collect and report 
additional chart-abstracted measures before proceeding to adopt this 
measure. Commenters suggested a ``yes/no'' measure format to minimize 
the reporting burden. One commenter requested delaying the 
implementation of this measure until there is NQF-endorsement.
    Response: We thank the commenters for their suggestions. We 
recognize the additional burden of collection of data via chart 
abstraction. However, we anticipate that the additional data that 
hospitals will need to submit for this measure will be minimal because 
there are only two chart abstracted data elements required, and the 
measure applies to a patient population for which charts are already 
being abstracted for other measures (ED-AMI). This measure is currently 
under NQF review and is expected to be endorsed in the fall of 2010. 
However, as we have previously stated, NQF endorsement is not a 
requirement for adopting measures for the HOP QDRP.
    Comment: Many commenters were concerned that the measure may have 
an unintended consequence of inadvertently encouraging hospitals to 
hold patients in the EDs longer than necessary in order to run the 
Troponin test and comply with the measure requirement. A commenter was 
concerned that the Troponin test may hold up lab slots and prolong the 
lab waiting time for other patients. Other commenters were concerned 
about the applicability of the measure to smaller hospitals which have 
less resources and less technology and, thus, may not be able to meet 
the requirement in a timely manner. One commenter recommended field 
testing the measure at small hospitals to determine its feasibility in 
those facilities.
    Response: The measure does not require HOPDs to run a Troponin test 
on patients for management of acute myocardial infarction in the ED. 
However, we believe that use of the test facilitates decision making in 
the treatment of time sensitive conditions such as AMI and, for that 
reason, believe that results of the test should be

[[Page 72083]]

available on a timely basis. The denominator of the measure will only 
consist of those cases for which a Troponin test is ordered. We use 
field-testing to the extent it is feasible and practical in order to 
assess the completeness of the measure specifications in capturing 
numerators, denominators, and exclusions for chart abstracted measures. 
We will consider whether to field test of this measure in small 
hospitals as suggested by the commenter.
    Comment: One commenter did not see the evidence linking the 
reporting of this measure with improved patient outcomes.
    Response: The use of a Troponin test is important in the triage of 
patients with chest pain that do not have ST elevation. Use of the test 
facilitates decision making in the treatment of time sensitive 
conditions such as AMI. A timely report of Troponin results is crucial 
to being able to provide the most optimal care for the patient. The 
measure focuses on the timeliness of care as well as delays in ED 
management of this type of patients caused by delays in the 
availability of laboratory data.
    Comment: Some commenters believed that Troponin is not an effective 
marker for the diagnosis of AMI, and for patients with a positive ST-
elevation myocardial infarction (STEMI), their Troponin level will not 
affect physicians' decisions to transfer patients to bigger hospitals. 
Commenters indicated that the proposed 60-minute timeframe is 
unrealistic in the event that the Troponin test has to be repeated for 
verification. Commenters requested that CMS not adopt this measure due 
to concerns about the inconsistencies surrounding the use and 
interpretation of Troponin testing. Other commenters indicated that the 
lack of standardization in Troponin assays may yield different Troponin 
test results. One commenter cautioned that a Troponin test should not 
be the only criterion used to diagnose a patient with an AMI, and noted 
that other diagnostic criteria such as EKG results should be considered 
as well.
    Response: We agree that the Troponin test is not necessary in the 
evaluation of a patient with an ST-elevation MI and clinical decision 
making in those cases is usually based on the electrocardiogram and 
clinical history. We agree with the commenter that other diagnostic 
measures should be performed in conjunction with Troponin which is only 
one piece of the diagnostic workup of patients with chest pain. 
Troponin assays may be negative for the first time or results may vary 
due to different calibrations. As mentioned earlier, Troponin 
assessment is not a requirement for management of acute myocardial 
infarction, and the measure we proposed, and are adopting in this final 
rule with comment period, does not implement a requirement to perform 
the test. The focus of this measure is on the timeliness of the receipt 
of the Troponin results and not on its use or interpretation.
    Comment: Some commenters recommended the exclusion of patients who 
spend less than an hour in the hospital ED prior to transfer. 
Commenters also asked for clarification regarding the measurement of 
the 60-minute timeframe.
    Response: We thank the commenters for the recommendation. We note 
that only patients who are transferred after one hour will be included 
in the denominator in the event the test is ordered.
    Comment: A commenter asked for clarification of the target 
population to which this measure would apply. One commenter inquired if 
it is acceptable to give patients Point of Care Troponin instead of 
Troponin.
    Response: The target population of this measure is ED patients with 
a diagnosis of AMI, and Angina, Acute Coronary Syndrome, or Chest Pain 
patients presumed to be cardiac in nature and have been prescribed a 
Troponin test. Point of Care Troponin is acceptable.
    Comment: Some commenters urged CMS to delay the data collection 
start date from January 1, 2011 to July 1, 2011 discharges because 
otherwise, hospitals would only have 60 days from the publication of 
this final rule comment period to begin reporting data to CMS.
    Response: We agree that the proposed collection start date may not 
allow sufficient time for hospitals to begin submitting data to CMS. 
Therefore, we have decided not to finalize the Troponin measure for the 
CY 2012 payment determination. Instead, we are adopting the measure for 
the CY 2013 annual payment update, which we believe will give hospitals 
sufficient time to prepare for the reporting of this measure. Hospitals 
will begin submitting data on the measure beginning with first quarter 
CY 2012 discharges, and hospitals will be required to submit data 
quarterly thereafter.
    After consideration of the public comments we received, we are 
finalizing the ``Troponin Results for Emergency Department Acute 
Myocardial Infarction (AMI) Patients or Chest Pain Patients (with 
Probable Cardiac Chest Pain) Received within 60 minutes of arrival'' 
measure for the CY 2013 payment determination rather than the CY 2012 
payment determination. Collection for the Troponin measure will begin 
with January 1, 2012 discharges.
    In summary, for the CY 2012 payment determination, we are retaining 
the 11 existing HOP QDRP measures from the CY 2011 payment 
determination, adding one new structural measure, and adding 3 new 
claims-based imaging efficiency measures for a total of 15 measures. We 
will calculate the three imaging measures using Medicare claims from CY 
2010. Submission of data regarding the new structural measure will 
begin in July 2011, with a reference period beginning January 1, 2011. 
Collection will occur using a Web-based collection tool available on 
the QualityNet Web site.
    The complete list of 15 measures for the CY 2012 payment 
determination is shown below.

       HOP QDRP Measurement Set To Be Used for the CY 2012 Payment
                              Determination
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
OP-1: Median Time to Fibrinolysis.
OP-2: Fibrinolytic Therapy Received Within 30 Minutes.
OP-3: Median Time to Transfer to Another Facility for Acute Coronary
 Intervention.
OP-4: Aspirin at Arrival.
OP-5: Median Time to ECG.
OP-6: Timing of Antibiotic Prophylaxis.
OP-7: Prophylactic Antibiotic Selection for Surgical Patients.
OP-8: MRI Lumbar Spine for Low Back Pain.
OP-9: Mammography Follow-up Rates.
OP-10: Abdomen CT--Use of Contrast Material.
OP-11: Thorax CT--Use of Contrast Material.

[[Page 72084]]

 
OP-12: The Ability for Providers with HIT to Receive Laboratory Data
 Electronically Directly into their Qualified/Certified EHR System as
 Discrete Searchable Data *.
OP-13: Cardiac Imaging for Preoperative Risk Assessment for Non-Cardiac
 Low-Risk Surgery *.
OP-14: Simultaneous Use of Brain Computed Tomography (CT) and Sinus
 Computed Tomography (CT) *.
OP-15: Use of Brain Computed Tomography (CT) in the Emergency Department
 for Atraumatic Headache *.
------------------------------------------------------------------------
* New measure for the CY 2012 payment determination.

4. HOP QDRP Quality Measures for the CY 2013 Payment Determination
a. Retention of CY 2012 HOP QDRP Measures for the CY 2013 Payment 
Determination
    In general, unless otherwise specified in the retirement section of 
a rule, we retain measures from one payment determination to another. 
In the CY 2011 OPPS/ASC proposed rule (75 FR 46366), for the CY 2013 
payment determination, we proposed to retain all of the measures 
adopted for the CY 2012 payment determination. We invited public 
comment on this proposal for the CY 2013 payment determination.
    Comment: One commenter strongly supported the proposed retention of 
CY 2012 HOP QDRP Measures for the CY 2013 payment determination.
    Response: We thank the commenter for the support.
    After consideration of the public comments we received, we have 
decided to adopt as final our proposal to retain the 15 HOP QDRP 
measures adopted for the CY 2012 payment determination, for the CY 2013 
payment determination.
b. New Structural Measure for the CY 2013 Payment Determination
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46366), we proposed to 
add one structural measure to the HOP QDRP measurement set for the CY 
2013 payment determination: Tracking Clinical Results Between Visits. 
EHRs enable providers to issue reminders when clinical results are not 
received within a predefined timeframe. This measure assesses the 
extent to which a provider uses a certified/qualified EHR system to 
track pending laboratory tests, diagnostic studies (including common 
preventive screenings) or patient referrals.
    Section 1833(t)(17)(C)(i) of the Act requires the Secretary to 
develop measures appropriate for the measurement of the quality of care 
furnished by hospitals in outpatient settings, that these measures 
reflect consensus among affected parties and, to the extent feasible 
and practicable, that these measures include measures set forth by one 
or more national consensus building entities. As discussed above, this 
structural measure is appropriate for measuring quality of care in the 
hospital outpatient department setting. This measure also meets the 
consensus requirement because it was endorsed as part of an NQF Project 
entitled ``National Voluntary Consensus Standards for Health IT'' (NQF 
<greek-i> 0491). Additionally, this measure was conditionally approved 
by the HQA in March of 2010.
    Submission of this measure would begin with first quarter CY 2012 
discharges to be submitted via the Web-based tool used to collect other 
structural measures, such as the registry participation structural 
measures for the Hospital Inpatient Quality Reporting Program. We 
invited comments on this proposal to add this new structural measure to 
the HOP QDRP measurement set and the submission process for the CY 2013 
payment determination.
    Comment: Some commenters noted that the proposed structural measure 
relates to an issue that is meaningful to the public, and that is 
important for both public reporting and payment policy. One commenter 
stated the measure is a useful quality metric, and asserted that the 
tracking of clinical results between visits improves the quality of 
care and reduces medical costs. Furthermore, some commenters recognized 
that the addition of this measure to the outpatient pay-for-reporting 
program and subsequent public reporting on the Hospital Compare Web 
site will accelerate hospitals' efforts to adopt EHRs to improve care 
coordination, patient safety, and outcomes.
    Response: We appreciate the commenters' support and encouragement 
and agree with commenters that this measure would promote the adoption 
of EHR technology which will ultimately enhance the quality of care.
    Comment: One commenter was concerned about the duplication of this 
measure with the meaningful use objectives set forth in the HITECH EHR 
Incentive Program final rule. Some commenters recommended maintaining 
this measure as a meaningful use HIT functionality objective under the 
HITECH EHR Incentive Program, and requested that CMS not adopt it for 
the HOP QDRP. Many commenters did not support this measure and stated 
that the measure is not evidence-based and has not been field-tested. 
Some commenters recommended using a ``yes/no'' format for the measure 
to reduce provider burden. Some commenters did not support this measure 
which they believed assesses HIT functionality rather than the quality 
of care provided. One commenter indicated that this measure is only 
warranted when EHRs are fully functional across hospital outpatient 
settings. Commenters suggested that this measure would be better suited 
as a physician office-based measure since physicians, not the 
hospitals, are the ones that order and track pending laboratory tests, 
diagnostic studies and patient referrals.
    Response: We thank the commenters for the recommendations. We note 
that this measure does not duplicate any of the Stage 1 meaningful use 
objectives set forth in the HITECH EHR Incentive Program final rule. We 
note that this measure has NQF-time-limited endorsement and we plan to 
seek extension for the endorsement. The measure was also conditionally 
adopted by HQA in 2010. As suggested, we will adopt a ``yes/no'' format 
in the final specifications for this measure. This measure is a HIT 
functionality measure that can enhance the quality of care by helping 
providers to track clinical results between visits. The structural 
measure will provide CMS with information regarding the number of HOPDs 
that have acquired this HIT functionality. It will not penalize 
hospitals that do not have this capability.
    Comment: Some commenters requested clarifications on the measure's 
targeted patient population. Commenters also asked for definitions of 
the numerator, denominator, inclusions, and exclusions, and the 
frequency of data collection.
    Response: This measure population includes all patients who receive 
care at an HOPD. We will further clarify the requirements for this 
measure in the adaptation of the measure specifications for the HOPD 
setting.
    After consideration of the public comments we received, we are 
finalizing this measure: Tracking

[[Page 72085]]

Clinical Results between Visits Using Certified/Qualified EHRs as 
Discrete Searchable Data for the CY 2013 annual payment update. HOPDs 
will be required to begin submitting data on this measure beginning in 
July 2012 with a reference period beginning January 1, 2012 via a Web-
based tool available on the QualityNet Web site that is currently 
employed for the collection of structural measures for the Hospital 
Inpatient Quality Reporting Program.
c. New Chart-Abstracted Measures for the CY 2013 Payment Determination
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46367), we proposed to 
add six new chart-abstracted measures to the HOP QDRP measurement set 
for the CY 2013 payment determination.
    The six new chart-abstracted measures we proposed for the CY 2013 
payment determination are: (1) Median Time from ED Arrival to ED 
Departure for Discharged ED Patients, (2) Transition Record with 
Specified Elements Received by Discharged Patients, (3) Door to 
Diagnostic Evaluation by a Qualified Medical Professional, (4) ED-
Median Time to Pain Management for Long Bone Fracture, (5) ED-Patient 
Left Before Being Seen, and (6) ED-Head CT Scan Results for Acute 
Ischemic Stroke or Hemorrhagic Stroke Who Received Head CT Scan 
Interpretation Within 45 minutes of Arrival. The topics addressed by 
these measures include ED efficiency, Imaging Efficiency, and care 
coordination/transition for hospital outpatient departments. Many of 
these measures would expand the chart-abstraction population for the 
HOP QDRP measurement set beyond the current ED-AMI/Chest Pain, and 
Surgical Care patients for which we have currently adopted seven 
measures in the HOP QDRP measurement set. However, this population 
expansion would be occurring at a time when subsection (d) hospitals 
would begin collection of more global ED population measures for the 
Hospital Inpatient Quality Reporting Program. Thus, we have timed the 
expansion of the chart-abstracted measures for HOP QDRP to coincide 
with expansions that will be occurring for the Hospital Inpatient 
Quality Reporting Program in order to reduce the burden associated with 
expansion. We also anticipate that, in the future, these measures could 
be captured and submitted via EHRs, eliminating the chart abstraction 
burden associated with these measures.
<bullet> ED Measures
    We received several general comments on the proposed ED measures.
    Comment: Some commenters supported all the proposed chart-
abstracted measures for the CY 2013 payment determination. Commenters 
believed the reporting of the ED measures would provide data needed to 
develop solutions to ED overcrowding and heavy emergency resource 
demand.
    Response: We appreciate the commenters' support and we strive to 
develop measures to improve ED efficiency and quality of care.
    Comment: Commenters suggested the chart-abstraction burden could be 
reduced if the patient population to which the measures apply is well-
defined.
    Response: We appreciate the suggestions. The ED measures apply to 
patients who present in and are treated at a hospital emergency 
department.
    Comment: Commenters commended CMS' intent to align the time-
sensitive ED measures with the meaningful use ED-focus quality measures 
under the HITECH EHR Incentive Program. Commenters recommended using 
EHR-compatible metrics to capture data for burden reduction. Several 
commenters recommended delaying the adoption of this measure until EHRs 
are fully functional in all hospital ED settings so that the data can 
be tracked electronically.
    Response: We are committed to aligning ED quality measures in the 
HOP QDRP and in the HITECH EHR Incentive Program. As we stated, we 
anticipate that data on the proposed ED throughput measures will be 
able to be captured via an EHR-based collection tool in the future, and 
we expect that once the electronic data submission is possible, it will 
greatly reduce the burden on hospitals to submit data on these 
measures. However, we do not believe we should wait until EHR-
specification has occurred and widespread adoption of EHRs has occurred 
in order to adopt these measures for the HOP QDRP.
    Comment: Some commenters did not support the proposed ED measures 
as they did not believe the measures relate to clinical outcomes. One 
commenter believed that ED wait time is a process indicator rather than 
a quality indicator. Commenters believed that the proposed ED measures 
are simply arbitrary numbers that only measure how busy the ED is or 
how fast the care is delivered. Commenters stated that the proposed ED 
measures do not reflect the actual quality of care rendered; rather, 
the commenters believed that they reflect issues that are outside of 
the ED's control. Commenters voiced concerns that the measures may have 
unintended consequences resulting in hospitals providing faster care 
but not better care. Commenters were concerned that the introduction of 
the proposed ED measures will indirectly support the continued 
inappropriate use of EDs.
    Response: We disagree with these comments. We believe that the 
proposed ED measures target the quality of care provided in the ED 
setting. Reducing the time patients spend in the ED can impact quality 
by increasing access to the ED for other patients needing emergent 
care. Reduced throughput time also increases the facility's capability 
to provide appropriate treatment and, as a result, contributes to 
better patient outcomes. Studies have already demonstrated that for a 
number of conditions, prolonged ED waiting times and delays results in 
patient harm and poor patient satisfaction. We intend to monitor the 
literature for evidence of any unintended consequences associated with 
these measures.
    Comment: Commenters noted that the proposed ED measures did not 
take into consideration the ED's location, seasonal variations in ED 
use, the different socio-economic backgrounds of the ED patient 
population served by different hospitals, the misuse of EDs for primary 
care service, as well as other variables that are out of the ED's 
control. One commenter recommended that CMS use a risk-adjustment 
methodology for the ED measures to accommodate the multiple factors 
that can lead to ED overcrowding.
    Response: Currently, we do not intend to risk-adjust the ED 
throughput measures. It is our belief that the public desires 
meaningful information about usual ED wait times, delays, and 
expectations for transition to inpatient care when needed. However, we 
will examine the data submitted on these measures to determine if 
stratification of the results based on hospital characteristics (such 
as ED volume, bed size, geographic location, or other factors) is 
needed.
    Comment: A few commenters objected to the ED measures because they 
have not been field-tested, and commenters stated that field-testing is 
necessary to identify the potential challenges in data collection of 
the time elements.
    Response: Many of these ED measures have undergone field testing in 
a project funded by the Robert Wood Johnson Foundation. A report can be 
found at http://urgentmatters.org/media/file/

[[Page 72086]]

UM%20LN%20II%20-%202nd%20IB%20-%20FINAL.pdf.
    Comment: Commenters noted that data collection will be challenging 
as the time elements that the proposed measures assess are generally 
not part of a patient's health record, but instead are more often part 
of a patient tracking system used by the ED. Some commenters questioned 
if random sampling is acceptable. Other commenters noted that random 
sampling may miss some ``mean time'' and ``median time'' outliers.
    Response: We are aware of the amount of chart-abstraction burden 
for the ED measures which target all patients seen in the ED. While the 
electronic specification for these measures is under development, 
specification for sampling is being developed to assist hospital EDs in 
chart-abstraction in the interim.
    Commenters also made specific comments on the proposed ED measures.
<bullet> Median Time From ED Arrival to ED Departure for Discharged ED 
Patients
    This measure, which was listed as under consideration for CY 2012 
and subsequent years in the CY 2010 OPPS/ASC final rule with comment 
period (74 FR 60637 through 60641), addresses ED efficiency in the form 
of the median time from ED arrival to time of departure from the ED for 
patients discharged from the ED (also known as ED throughput). Reducing 
the time patients spend in the ED can improve the quality of care. 
Reducing this time potentially improves access for other patients 
needing emergency care and increases hospitals' capability to provide 
additional treatment as necessary. Overcrowding and heavy emergency 
resource demand have led to a number of problems, including ambulance 
refusals, prolonged patient waiting times, increased suffering for 
those who wait, rushed and unpleasant treatment environments, and 
potentially poor patient outcomes. ED crowding may result in delays in 
the administration of medication such as antibiotics for pneumonia and 
has been associated with perceptions of delayed emergency care. When 
EDs are overwhelmed, their ability to respond to community emergencies 
and disasters may be compromised.
    Section 1833(t)(17)(C)(i) of the Act requires the Secretary to 
develop measures appropriate for the measurement of the quality of care 
furnished by hospitals in outpatient settings, that these measures 
reflect consensus among affected parties and, to the extent feasible 
and practicable, that these measures include measures set forth by one 
or more national consensus building entities. As discussed above, this 
chart-abstracted measure is appropriate for measuring quality of care 
in the hospital outpatient department setting. This measure also meets 
the consensus requirement because it was endorsed in 2009 (NQF 
<greek-i>0496) as part of an NQF project entitled ``National Voluntary 
Consensus Standards for Emergency Care.'' Additionally, this measure 
was conditionally approved by the HQA in March of 2010.
    Comment: Some commenters expressed strong support for this ED 
throughput measure and recommended its inclusion in the HOP QDRP. Some 
commenters stated that a measure assessing delays in patient care is 
important as providers experience a growth in demand for ED services. 
Commenters believed that public reporting of the measure will encourage 
HOPDs to make improvements, such as reducing overcrowding and improving 
patient access to EDs, and, as a result, will increase the quality of 
care they deliver.
    Some commenters stated that based on their experience, the 
information provided by the measure was very important and useful to a 
hospital's quality improvement program. Commenters also stated that 
they were aware of hospitals that already collected this information 
and that, to their knowledge, these hospitals had no difficulty in 
collecting it.
    Response: We thank the commenters for their supportive statements. 
We also appreciate the commenters' insightful experience, and we are 
pleased to learn that commenters believe this measure addresses the 
issue of timely emergency department care and the role it plays in 
reducing ED overcrowding.
    Comment: A few commenters indicated it will be overly burdensome 
for hospitals to collect data on a patient's arrival time in the ED 
because they will have to note the arrival time for each patient. Many 
commenters indicated that, as currently structured, the measure 
includes the time spent receiving care in the ED in addition to the 
time spent waiting in the ED. These commenters indicated that the time 
spent receiving care in the ED should not be counted against the 
hospital, as it does not represent a delay in care. The commenters 
suggested that CMS modify the measure so that it reflects only the time 
spent waiting in the ED to receive care.
    Response: We do not agree that it will be overly burdensome for 
hospitals to submit data on this measure because hospitals routinely 
collect the key information needed to calculate the median time (ED 
arrival date and time and ED departure date and time) for each 
emergency department patient. We also note that ED arrival times must 
already be reported by hospitals under the Hospital Inpatient Quality 
Reporting Program for conditions such as acute myocardial infarction 
and pneumonia. We believe that revising the measure as suggested by the 
commenters to exclude active treatment times would actually increase 
the burden on hospitals because they would be required to accurately 
track and collect all the wait time that a patient spent in the ED not 
receiving care.
    Comment: A few commenters stated that the proposed ED throughput 
measure does not take into consideration typical ED operating 
principles such as serving patients with the most urgent needs first, 
or other factors that are out of an ED's control, such as the fact that 
teaching hospitals usually treat sicker patients. One commenter 
recommended stratifying the reporting results by type of hospital so as 
to obtain a more appropriate comparison among institutions. Another 
commenter requested exclusions for psychiatric or placement issues, age 
and co-morbidities. Alternatively, some commenters suggested that the 
proposed ``Door to Diagnostic Evaluation by a Qualified Medical 
Professional'' measure is a more appropriate measure to determine ED 
efficiency and throughput.
    Response: We agree that the Door to Diagnostic Evaluation is an 
appropriate measurement of time to assessment. Nonetheless, we also 
believe that the proposed median time from arrival to departure measure 
provides valuable information regarding the total time a patient spent 
in the ED, starting from arrival time at the ED to the time the patient 
is discharged. The public desires meaningful information about usual 
wait times, delays, and expectations for transition time to inpatient 
care. As we have stated, we believe that prolonged ED visits and 
waiting times could cause patient harm and increase the likelihood that 
the hospital's ED will need to divert potential patients elsewhere for 
care. We will, however, examine the measure results to determine 
whether alternative stratification reporting based on hospital 
characteristics (ED volume, bed size, geographic location, etc.) is 
necessary.
    After consideration of the public comments we received, we are 
finalizing the Median Time from ED Arrival to ED Departure for 
Discharged ED Patients measure for the CY 2013 payment determination.

[[Page 72087]]

<bullet> Transition Record With Specified Elements Received by 
Discharged Patients
    This chart-abstracted measure assesses the percentage of patients, 
regardless of age, discharged from an ED to ambulatory care or home 
healthcare, or their caregiver(s) at home, who received a transition 
record at the time of ED discharge including at a minimum, the 
following elements: Major procedures and tests performed during the ED 
visit; principal diagnosis at discharge or chief complaint; patient 
instructions; plan for follow-up care (or statement that none is 
required)--including primary physician, other health care professional, 
or site designated for follow-up care; and list of new medications and 
changes to continued medications that patient should take after ED 
discharge, with the quantity prescribed and/or dispensed (or intended 
duration) and instructions for each. Transitions of care are a weakness 
in maintaining continuity of care and proper adherence/compliance with 
follow-up instructions. Hand-offs between settings should be 
accompanied by clear instructions for medications and follow-up care. 
Information should be provided about the care delivered while in each 
setting, and for what reasons, not only for the benefit of the patient 
and their caregivers, but for practitioners that will be following up 
with the patient after they leave an acute care setting.
    Section 1833(t)(17)(C)(i) of the Act requires the Secretary to 
develop measures appropriate for the measurement of the quality of care 
furnished by hospitals in outpatient settings, that these measures 
reflect consensus among affected parties and, to the extent feasible 
and practicable, that these measures include measures set forth by one 
or more national consensus building entities. As discussed above, this 
measure is appropriate for measuring quality of care in the hospital 
outpatient department setting. This measure also meets the consensus 
requirement because it was endorsed by the NQF as part of a Project 
entitled ``Endorsing Preferred Practices and Performance Measures for 
Measuring and Reporting Care Coordination'' (NQF <greek-i>0649). This 
measure was conditionally approved by the HQA in March of 2010.
    Comment: Some commenters strongly supported this measure and noted 
that the measure is scientifically valid and well-specified, and will 
fill a significant gap in the current health-care system which does not 
have standardized data elements in patient's health records.
    Response: We thank the commenters for their support.
    Comment: Some commenters noted that the measure is purely a 
documentation measure rather than a measure for accountability and the 
true quality of care. Commenters asked for clarification of the target 
patient population for this measure.
    Response: Although the measure assesses whether certain 
documentation was provided to discharged patients, its purpose is to 
facilitate a continuity of care and a seamless transition when a 
patient is discharged from an ED to home or home care setting. The 
target patient population for this measure is the discharged patients 
from a hospital ED to home or a home care setting.
    Comment: Several commenters stated their belief that this measure 
is overly burdensome as new data elements may have to be included in 
patients' ED transition records, and ED patient transfer procedures may 
have to be modified. One commenter suggested that CMS use a consensus-
based process to develop standardized data elements for this measure. 
One commenter recommended that CMS field-test the measure for 
feasibility.
    Response: Standardized data elements have been developed and field-
tested for this measure. We believe that the use of standardized 
transition records and data elements across hospital outpatient 
department settings actually increase the efficiency of the transition 
and discharge process and allow hospitals to pre-plan transition 
procedures. We also believe that the use of standardized transition 
records will make it easier for hospitals to find the information when 
conducting chart abstraction, therefore minimizing the burden.
    Comment: Some commenters were concerned that HOPDs may be held 
accountable for the omission of data elements in a transition record 
that they have no control over, for instance, a physician's medication 
instructions for medication changes (this information may not be 
available to the ED), a patient's adherence to discharge instructions, 
and whether a patient followed up with doctor's appointments. The 
commenter recommended removing the data elements of ``(medications) 
quantity prescribed and/or dispensed'' from the measure specifications.
    Response: We hope that documentation practices will improve so that 
complete information will be available in patients' discharge records. 
We believe that documentation of medications prescribed as well as 
dosages are important parameters for transitional care and we do not 
agree that the documentation of this element should be removed. We 
encourage hospitals to examine their ED discharge procedures to ensure 
that discharged patients receive a copy of the transition records with 
the specific data elements required under the measure.
    After consideration of the public comments we received, we are 
finalizing the Transition Record with Specified Elements Received by 
Discharged Patients measure for the CY 2013 payment determination.
<bullet> Door to Diagnostic Evaluation by a Qualified Medical 
Professional (Door to Provider)
    This measure assesses mean time between patient presentation to the 
ED and the first moment the patient is seen by a person who can 
initiate a diagnostic evaluation or therapeutic plan (for example, 
medical student, resident, or nurse practitioner; not including triage 
personnel). Long wait times in the ED before diagnosis increases the 
likelihood that someone will leave the ED without treatment for a 
serious condition, and can worsen the severity of the condition with 
which they presented.
    Section 1833(t)(17)(C)(i) of the Act requires the Secretary to 
develop measures appropriate for the measurement of the quality of care 
furnished by hospitals in outpatient settings, that these measures 
reflect consensus among affected parties and, to the extent feasible 
and practicable, that these measures include measures set forth by one 
or more national consensus building entities. As discussed above, this 
measure is appropriate for measuring quality of care in the hospital 
outpatient department setting. This measure also meets the consensus 
requirement because it gained NQF endorsement as part of the project 
entitled ``National Voluntary Consensus Standards for Emergency Care'' 
(NQF <greek-i>0498). This measure was conditionally approved by the HQA 
in March of 2010.
    Comment: A few commenters supported this measure and believed the 
measure helps to expedite the triage, evaluation, and discharge process 
especially for patients who present with non-emergent conditions.
    Response: We thank the commenters for the supportive statements.
    Comment: Some commenters noted that current technical 
specifications for this measure exclude registered nurses as qualified 
medical professionals. These commenters supported the adoption of this 
measure if the definition of ``qualified medical professional' is 
expanded to include a

[[Page 72088]]

registered nurse, advanced practice nurse, resident or medical student.
    Response: We thank the commenters for the suggestions and will take 
them into consideration.
    Comment: Some commenters recommended CMS risk-adjust this measure 
to distinguish the average wait time spent by urgent versus non-urgent 
patients, based on the belief that non-urgent patients who present in 
hospital EDs or trauma centers usually have longer wait times for 
evaluation than critically ill or injured patients. One commenter 
recommended tracking the patient's triage level to distinguish urgent 
care from non-urgent care.
    Response: We thank the commenters for the recommendation. There are 
no plans for risk-adjustment for this measure at the time because we 
expect the measure metric will provide valuable information regarding 
the timeliness of assessment regardless of what condition the patient 
presents.
    Comment: One commenter noted that the door to evaluation time is 
rarely captured electronically in the ED and there are still many EDs 
that do not use EHR technology.
    Response: We believe that many EDs routinely electronically 
document door to evaluation time. For facilities that have not done so, 
we encourage them to start documenting it. There are no requirements 
for EDs to use EHR technology. However, because of the efficiency 
benefit from EHR technology, we anticipate there will be a widespread 
utilization of EHR technology in the future.
    Comment: One commenter expressed concerns that the structure of the 
measure may stifle innovation in ED staffing by measuring hospitals on 
the time it takes for a patient to reach only a subset of all the staff 
that provide care to patients in EDs.
    Response: We acknowledge that ED care is a well-defined set of 
specific, clinically appropriate services, which include ongoing short-
term treatment, assessment, and reassessment, before a decision can be 
made regarding whether a patient will require further treatment as a 
hospital inpatient. We also acknowledge that this measure assesses one 
aspect of ED quality. However, we do not believe that implementation of 
this measure stifles innovation in ED staffing, because the level of 
coordination and efficiency of the aforementioned processes impacts 
performance on this measure.
    After consideration of the public comments we received, we are 
finalizing the Door to Diagnostic Evaluation by a Qualified Medical 
Professional (Door to Provider) measure for the CY 2013 payment 
determination.
<bullet> ED-Median Time to Pain Management for Long Bone Fracture
    This chart-abstracted measure addresses the topic of efficient pain 
management in the ED, and is currently being reviewed by NQF. Pain 
management in patients with long bone fractures is currently 
undertreated in emergency departments.\16\ Patients with bone fractures 
are many times not given pain medication as part of treatment 
regimens.\17\ When standards are implemented for pain management of 
these patients, treatment for pain improves.\18\
---------------------------------------------------------------------------

    \16\ Ritsema, T.S., Kelen, G.D., Pronovost, R.J., and Pham, 
J.C.: The national trend in quality of emergency department pain 
management of long bone fractures. Acad Emerg Med. 2007 Feb 14; 
14(2):163-9.
    \17\ Brown, J.C., Klein, E.J., Lewis, C.W., Johnston, B.D., and 
Cummings, P.: Emergency department analgesia for fracture pain. Ann 
Emerg Med. 2003 Aug;42(2):197-205.
    \18\ Titler, M.G., Herr, K., Brooks, J.M., Xie, X.J., Ardery, 
G., Schilling, M.L., Marsh, J.L., Everett, L.Q., Clark, W.R: 
Translating research into practice intervention improves management 
of acute pain in older hip fracture patients. Health Serv Res. 
2009;44(1),264-87.
---------------------------------------------------------------------------

    Section 1833(t)(17)(C)(i) of the Act requires the Secretary to 
develop measures appropriate for the measurement of the quality of care 
furnished by hospitals in outpatient settings, that these measures 
reflect consensus among affected parties and, to the extent feasible 
and practicable, that these measures include measures set forth by one 
or more national consensus building entities. As discussed above, this 
measure is appropriate for measuring quality of care in the hospital 
outpatient department setting. This measure also meets the consensus 
requirement because it underwent development through a consensus-based 
measure development process involving stakeholder input. In the 
proposed rule we stated that we anticipated that this measure would be 
endorsed by the NQF.
    Comment: A few commenters supported the adoption of this measure 
because it measures a process that affects quality of care and is 
patient centered. Some commenters requested that we adopt more pain 
management measures for long bone fracture as part of a larger 
framework for pain management in the ED setting. One commenter 
requested guidelines for the ``median time'' (when the patient arrives 
at the facility or when the diagnosis of a long bone fracture is made).
    Response: We thank the commenters for the support and suggestions 
and we will consider them in future measure development. Currently the 
``median time'' calculation is based on arrival time and time to 
administration of medication.
    Comment: Several commenters did not support this measure because it 
is not NQF-endorsed. Commenters requested the evidence that prompted 
the need for this measure. One commenter stated this measure did not 
rise to the top in significance as a singular measure and stated that 
it is not appropriate for public reporting.
    Response: Although we generally prefer to adopt NQF-endorsed 
measures for CMS quality reporting programs, we have stated that 
consensus among affected parties can be achieved in other ways 
including consensus achieved during the measure development process; 
consensus shown through broad acceptance and use of measures; and 
consensus through public comment. We also note that section 1833(t)(17) 
of the Act does not require that each measure we adopt for the HOP QDRP 
be endorsed by a national consensus building entity, or by the NQF 
specifically. Over the years, we have recognized that pain management 
in ED patients with long bone fracture is inadequate and that treatment 
disparities for this condition exist among EDs. We anticipate the 
measure will serve to facilitate improvements in pain management for 
this patient population in EDs. This measure is recommended for 
endorsement by the NQF Steering Committee, and we believe that it meets 
the requirement that the measure reflect consensus among affected 
parties.
    Comment: One commenter noted the measure does not take into account 
whether the level of pain warrants pain medication, or whether the pain 
is relieved with the medication given.
    Response: The measure is calculated based solely on the timeliness 
of pain medication administration and not on the level of pain. The 
final measure specifications for the numerator will exclude patients 
who are offered medication but refuse it.
    After consideration of the public comments we received, we are 
finalizing the ED--Median Time to Pain Management for Long Bone 
Fracture measure for the CY 2013 payment determination.
<bullet> ED-Patient Left Without Being Seen
    This measure is the percentage of all patients leaving an ED who 
were not seen by a provider (for example, medical student, resident, 
nurse practitioner). Although we stated in the CY 2011 OPPS/ASC 
proposed rule (75

[[Page 72089]]

FR 46368) that ``this measure is the sum of all patients leaving an ED 
who were not seen by a provider,'' the technical specifications for the 
measure, which were publicly available at the time we issued the 
proposed rule, state that this measure is calculated based on a 
percentage. Therefore, we are clarifying that this measure looks at 
percentages. A patient leaving before being seen is an indicator of 
emergency department overcrowding.\19\ Patients who leave before being 
seen may not receive appropriate medical care and this lack of care may 
result in adverse outcomes.\20\ National estimates for patients who 
leave before being seen by a provider average 1.9 percent.\21\
---------------------------------------------------------------------------

    \19\ United States General Accounting Office. Hospital emergency 
departments: Crowded conditions vary among hospitals and 
communities. Publication GAO-03-460, 2003.
    \20\ Rowe, B.H., Channan, P., Bullard, M., Blitz, S., Saunders, 
L.D., Rosychuk, R.J., Lari, H., Craig, W.R., Holroyd, B.R.: 
Characteristics of patients who leave emergency departments without 
being seen. Acad Emerg Med. 2006 Aug;13(8):848-52.
    \21\ McCaig, L.F., Nawar, E.W.: National hospital ambulatory 
medical care survey: 2004 Emergency department summary. Adv Data. 
2006 Jun 23;(372):1-29.
---------------------------------------------------------------------------

    Section 1833(t)(17)(C)(i) of the Act requires the Secretary to 
develop measures appropriate for the measurement of the quality of care 
furnished by hospitals in outpatient settings, that these measures 
reflect consensus among affected parties and, to the extent feasible 
and practicable, that these measures include measures set forth by one 
or more national consensus building entities. As discussed above, this 
measure is appropriate for measuring quality of care in the hospital 
outpatient department setting. This measure also meets the consensus 
requirement because it was endorsed by the NQF (NQF <greek-i> 0499) as 
part of the National Voluntary Consensus Standards for Emergency Care.
    Comment: Some commenters supported this measure because it is an 
indicator of efficiency in the ED and they noted the measure appears to 
be scientifically valid in providing valuable information to hospitals 
to assess their ability to provide quality care to all patients in 
their EDs in a timely manner.
    Some commenters shared that these measure metrics are very 
important and useful to a hospital's quality improvement program. 
Commenters stated that hospitals participating in the field test 
reported no difficulty in collecting the data for the measure.
    Response: We thank the commenters for their supportive statements. 
We also appreciate the commenters' insightful experience and we are 
pleased to learn that hospitals acknowledged this measure addresses the 
issue of timely emergency department care and the role it plays in 
reducing ED overcrowding.
    Comment: Some commenters noted that hospitals have had difficulty 
collecting the relevant information needed for this measure due to 
insufficient record-keeping, such as the lack of documentation noting 
the patient departure time from the ED. Commenters requested more 
explicit, standardized definitions for time-sensitive terms like ``left 
without being seen'' (before or after triage). One commenter noted that 
generally, only a very small percentage of patients leave without being 
seen by ED staff and these patients may have been overly impatient. At 
many facilities, no medical record is created when a patient leaves 
prior to registration, and commenters stated that ED staff must be 
educated regarding what documentation is necessary to comply with this 
measure.
    Response: We will provide detailed specifications of the measure in 
the HOPD Specifications Manual to facilitate hospital data collection. 
We agree that hospitals need to educate ED staff to ensure that patient 
arrival and departure times are recorded correctly.
    After consideration of the public comments we received, we are 
finalizing the ED-Patient Left Without Being Seen measure for the CY 
2013 payment determination.
<bullet> ED-Head CT Scan Results for Acute Ischemic Stroke or 
Hemorrhagic Stroke Who Received Head CT Scan Interpretation Within 45 
Minutes of Arrival
    This measure assesses whether head CT scan results for acute 
ischemic stroke or hemorrhagic stroke patients who received head CT 
scans in the ED were interpreted within 45 minutes of arrival. This 
chart-abstracted measure is currently under NQF review. Improved access 
to diagnostics assists clinicians in decision making. Delayed 
diagnostic imaging and laboratory reports are expected to slow down the 
clinical decision making process and subsequently increase the length 
of stay in the ED. In addition to helping reduce the length of stay in 
the ED, decreasing radiology report turnaround times can improve care 
throughout the facility. Timely diagnostic imaging can enhance decision 
making capabilities for patient treatment plans because timely 
diagnostic imaging is available.\22\ The Food and Drug Administration 
(FDA) approved the use of tissue plasminogen activator (t-PA) for 
treatment of acute ischemic strokes, which comprise 87 percent of 
stokes, when given within three hours of stroke symptom 
onset.<SUP>23 24</SUP> Because of the therapeutic time window for 
treatment possibilities, timely completion and results of the CT scan 
are imperative for timely clinical decision making and favorable 
outcomes. Section 1833(t)(17)(C)(i) of the Act requires the Secretary 
to develop measures appropriate for the measurement of the quality of 
care furnished by hospitals in outpatient settings, that these measures 
reflect consensus among affected parties and, to the extent feasible 
and practicable, that these measures include measures set forth by one 
or more national consensus building entities. As discussed above, this 
measure is appropriate for measuring the quality of care in the 
hospital outpatient department setting. This measure also meets the 
consensus requirement because this measure underwent development 
through a consensus-based measure development process involving 
stakeholder input. We anticipate that this measure will be endorsed by 
the NQF.
---------------------------------------------------------------------------

    \22\ Marquez L.O. Improving medical imaging report turnaround 
times. Radiol Mange. 2005 Jan.-Feb;27(1):34-7.
    \23\ National Stroke Association. STROKE the First Hours 
Guidelines for Acute Treatment, 2000.
    \24\ The ATLANTIS, ECASS, and NINDS rt-PA Study Group 
Investigators. Association of Outcome with early stroke treatment: 
pooled analysis of ATLANTIS, ECASS, and NINDS rt-PA stroke Trials. 
Lancet 2004;363:768-774.
---------------------------------------------------------------------------

    We proposed that the submission of the new chart-abstracted 
measures for the CY 2013 payment determination would begin with first 
quarter 2012 discharges, and data would be submitted quarterly, as with 
all other chart-abstracted measures. We invited comments on our 
proposal to add these new measures to the HOP QDRP measurement set and 
on the submission process for the CY 2013 payment determination.
    Comment: Some commenters supported the measure and agreed with CMS 
that timely completion of CT scan results are imperative for the 
treating neurologist to make timely clinical decisions. One commenter 
noted that the measure has been modified by the measure developer to 
include MRI in addition to CT.
    Response: We thank the commenters for the supportive comments and 
for the suggestion. We will consider whether MRI should be added to the 
measure in

[[Page 72090]]

our process for ongoing maintenance of the measure.
    Comment: Many commenters requested clarifications on: (1) Whether 
the measure requires the actual CT scan report to be present in the 
medical record within 45 minutes of arrival (or will verbal 
communication between caregivers that is documented in the medical 
record suffice); and (2) the definition of arrival time (is it the time 
the patient was registered, the time of first clinical staff 
discussion, or the time the physician first saw the patient). Some 
commenters were concerned about the challenge for hospitals to 
consistently collect the information necessary to determine whether 
patients are arriving at the ED within two hours of the onset of 
symptoms, as well as collect information on the timing of when the scan 
was interpreted. One commenter expressed concerns that this measure may 
inadvertently encourage patient referral to a CT scan even before a 
full clinical evaluation occurs. The commenter noted that frequently, 
the Neurology Stroke Team reviews and makes decisions upon CT scans 
before the scan is officially read and documented by the radiologist.
    Response: Current specifications require the earliest documented 
time, which include verbal documentation of interpretation. We intend 
to provide detailed specifications regarding the collection of arrival 
time for the measure in the HOPD Specifications Manual.
    Comment: One commenter suggested that a measure that assesses the 
time from decision (order) to interpretation (preliminary result) would 
be a better marker of quality of care in the ED. A few commenters 
recommended harmonizing the measure with the set of NQF-endorsed stroke 
care measures.
    Response: We considered the option suggested by the commenter, but 
ultimately made the decision to align the measure with the existing ED 
measures that have been endorsed by the NQF so that all of the measures 
for the ED utilize consistent definitions. We thank the commenters for 
the recommendation.
    After consideration of the public comments we received, we are 
finalizing the ED-Head CT Scan Results for Acute Ischemic Stroke or 
Hemorrhagic Stroke Who Received Head CT Scan Interpretation within 45 
minutes of Arrival measure for the CY 2013 payment determination.
    In summary, after consideration of the public comments we received, 
we are finalizing for the CY 2013 payment determination: (1) The 15 
quality measures that we are adopting in this final rule with comment 
period for the CY 2012 payment determination; (2) one new structural 
measure (Tracking Clinical Results Between Visits); (3) six new chart-
abstracted measures on the topics of HOPD care transitions and ED 
efficiency; and (4) one new chart-abstracted measure that we originally 
proposed to adopt for the CY 2012 payment determination (Troponin 
Results for Emergency Department AMI Patients or Chest Pain Patients 
(with probable cardiac chest pain) Received Within 60 Minutes of 
Arrival), for a total of 23 measures for the CY 2013 payment 
determination. As stated above, hospitals will be required to begin 
submitting data on the new structural measure via a Web-based tool on 
the QualityNet Web site in July 2012 for the period January 1, 2012 
through June 2012. The submission of data for the new chart-abstracted 
measures for the CY 2013 payment determination will be due in August 
2012.
    The complete list of 23 measures for the CY 2013 payment 
determination is shown below.

       HOP QDRP Measurement Set To Be Used for the CY 2013 Payment
                              Determination
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
OP-1: Median Time to Fibrinolysis
OP-2: Fibrinolytic Therapy Received Within 30 Minutes
OP-3: Median Time to Transfer to Another Facility for Acute Coronary
 Intervention
OP-4: Aspirin at Arrival
OP-5: Median Time to ECG
OP-6: Timing of Antibiotic Prophylaxis
OP-7: Prophylactic Antibiotic Selection for Surgical Patients
OP-8: MRI Lumbar Spine for Low Back Pain
OP-9: Mammography Follow-up Rates
OP-10: Abdomen CT--Use of Contrast Material
OP-11: Thorax CT--Use of Contrast Material
OP-12: The Ability for Providers with HIT to Receive Laboratory Data
 Electronically Directly into their Qualified/Certified EHR System as
 Discrete Searchable Data*
OP-13: Cardiac Imaging for Preoperative Risk Assessment for Non Cardiac
 Low Risk Surgery*
OP-14: Simultaneous Use of Brain Computed Tomography (CT) and Sinus
 Computed Tomography (CT)*
OP-15: Use of Brain Computed Tomography (CT) in the Emergency Department
 for Atraumatic Headache*
OP-16: Troponin Results for Emergency Department acute myocardial
 infarction (AMI) patients or chest pain patients (with Probable Cardiac
 Chest Pain) Received Within 60 minutes of Arrival**
OP-17: Tracking Clinical Results between Visits**
OP-18: Median Time from ED Arrival to ED Departure for Discharged ED
 Patients**
OP-19: Transition Record with Specified Elements Received by Discharged
 Patients**
OP-20: Door to Diagnostic Evaluation by a Qualified Medical
 Professional**
OP-21: ED-Median Time to Pain Management for Long Bone Fracture **
OP-22: ED-Patient Left Before Being Seen**
OP-23: ED-Head CT Scan Results for Acute Ischemic Stroke or Hemorrhagic
 Stroke who Received Head CT Scan Interpretation Within 45 minutes of
 Arrival **
------------------------------------------------------------------------
* New measure for the CY 2012 payment determination.
** New measure for the CY 2013 payment determination.


[[Page 72091]]

5. HOP QDRP Quality Measures for the CY 2014 Payment Determination
a. Retention of CY 2013 HOP QDRP Measures for the CY 2014 Payment 
Determination
    In general, unless otherwise specified in the retirement section of 
a rule, we retain measures from one payment determination to another. 
In the CY 2011 OPPS/ASC proposed rule (75 FR 46370), for the CY 2014 
payment determination, we proposed to retain all of the measures 
adopted for the CY 2013 payment determination. We invited comment on 
this proposal.
    We did not receive any comments. Accordingly, we are finalizing our 
proposal to retain the 23 CY 2013 HOP QDRP measures for the CY 2014 
payment determination.
b. New Chart-Abstracted Measures for the CY 2014 Payment Determination
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46370 through 46372), 
we proposed to adopt six new chart-abstracted measures for the CY 2014 
payment determination. Five of the six measures are Diabetes Care 
measures for HOPDs, and one measure is an additional imaging efficiency 
measure. The six measures we proposed for the CY 2014 payment 
determination are: (1) Hemoglobin A1c Poor Control in Diabetic 
Patients; (2) Low Density Lipoprotein (LDL-C) Control in Diabetic 
Patients; (3) High Blood Pressure Control in Diabetic Patients; (4) 
Dilated Eye Exam in Diabetic Patients; (5) Urine Screening for 
Microalbumin or Medical Attention for Nephropathy in Diabetic Patients; 
and (6) Exposure Time Reported for Procedures Using Fluoroscopy. We 
proposed that submission of these measures for the CY 2014 payment 
determination begin with the first quarter CY 2013 discharges. These 
measures are discussed below.
<bullet> Diabetes Care Measures
    Comment: A few commenters appreciated CMS' proposal to add diabetes 
care measures to the HOP QDRP because they will enhance the quality of 
care provided to the growing diabetic patient population in the 
hospital outpatient setting. One commenter suggested reporting the 
diabetes care measures as a single composite measure of quality of 
diabetes care so that hospitals can identify improvement opportunities. 
Some commenters requested clarification on the diabetes care measure 
specifications in terms of chart-abstracted data elements and current 
physician CPT-II coding requirements. Commenters noted that the PQRI 
program is already collecting data for similar measures. Commenters 
provided recommendations to reduce the chart-abstraction burden 
including harmonizing the measures for the physician and HOPD settings, 
developing EHR-compatible metrics, and collecting data from diabetes 
registries. Many commenters believed that the five diabetes care 
measures do not assess the quality of care provided by HOPDs, because 
the care furnished in that setting is fragmented and episodic, and 
stated that the measures more appropriately assessed the care provided 
by physician practices. Some commenters suggested that CMS should limit 
the targeted patient population to ambulatory care clinics only so that 
hospitals would not be unduly burdened with chart-abstraction.
    Several commenters expressed concerns about the administrative and 
financial burden associated with chart-abstracted quality measures 
while the industry is transitioning into ICD-10 codes, adopting EHRs to 
meet the meaningful use objectives under the EHR Incentive Program, and 
preparing to comply with the quality provisions in the Affordable Care 
Act. Commenters indicated that CMS should delay the adoption of the 
chart-abstracted diabetes care measures.
    Response: We appreciate the commenters' recognition of the value of 
the diabetes care measures. The diabetes care measures apply to 
hospital outpatient departments that provide primary care services, and 
we are aware that many hospital outpatient departments provide ongoing 
primary care for patients. Thus, we disagree with the comments 
questioning the appropriateness of applying the diabetes measures to 
hospital outpatient departments. However, we acknowledge the challenges 
faced by hospitals amid implementation of various programs.
    We are currently refining the chart abstracted numerator 
definitions for these measures and expect to include them in an 
upcoming HOPD Specification Manual release. For this reason, we are 
deferring our finalization of these 5 diabetes care measures in this 
final rule with comment period, but intend to propose these measures 
again in the CY 2012 OPPS/ASC proposed rule for the CY 2014 payment 
determination. We also intend to develop electronic specifications for 
these measures so that they can be captured and reported by EHRs, which 
we believe will reduce the burden associated with chart abstraction. We 
thank the commenters for the suggestions and input on the measures and 
we will take them into consideration as we further refine the 
specifications for these 5 measures.
<bullet> Diabetes Mellitus: Hemoglobin A1c Poor Control in Diabetic 
Patients
    This NQF-endorsed measure (NQF <greek-i>0059) measures the 
percentage of adult patients with diabetes aged 18-75 years with most 
recent HgA1c level greater than 9 percent (poor control). Glycosylated 
hemoglobin (HgA1c) assay measures average blood glucose over the 
preceding two to three months, rather than just one point in time. 
HgA1c values vary less than fasting glucose values and give clinicians 
a better integrated view of the patient's average blood sugar over 
time. High HgA1c is a more reliable indicator of chronic high blood 
sugar. Lowered HgA1c levels are associated with reduced microvascular 
and neuropathic complications of diabetes.
    In general, diabetes mellitus is a chronic disease that impacts the 
lives of a large portion of the population and consumes a significant 
amount of U.S. healthcare dollars. With the prevalence of diabetes in 
the Medicare-eligible population expected to double, costs are expected 
to increase almost fourfold to $171 million.\25\ Uncontrolled diabetes 
often leads to biochemical imbalances that can lead to acute life-
threatening events, such as diabetic ketoacidosis and hyperosmolar, or 
nonketotic, coma. In patients with insulin-dependent diabetes, the risk 
of development or progression of retinopathy, nephropathy, and 
neuropathy can be reduced by 50 to 75 percent by intensive outpatient 
treatment of hyperglycemia compared to conventional treatment. Early 
treatment may help slow or halt the progression of diabetic 
complications, and following the guidelines for screening may assist 
those patients with no outward sign of diabetic complications to be 
identified earlier through regular screening tests. HgA1c should be 
performed during an initial assessment and during follow-up 
assessments, which should occur at no longer than three-month 
intervals.\26\ Section 1833(t)(17)(C)(i) of the Act requires the 
Secretary to develop measures appropriate for the measurement of the 
quality of care furnished by hospitals in outpatient settings, that 
these measures reflect

[[Page 72092]]

consensus among affected parties and, to the extent feasible and 
practicable, that these measures include measures set forth by one or 
more national consensus building entities. As discussed above, this 
measure is appropriate for measuring quality of care in the hospital 
outpatient department setting. This measure also meets the consensus 
requirement because, as noted above, it has been endorsed by the NQF.
---------------------------------------------------------------------------

    \25\ Huang, E.S., Basu, A., O'Grady, M., Capretta, J.C.: 
Projecting the future diabetes population size and related costs for 
the U.S. Diabetes Care. 2009;32(12):2225-29.
    \26\ The American Association of Clinical Endocrinologists 
Medical Guidelines for the Management of Diabetes Mellitus: The AACE 
System of Intensive Diabetes Self-Management--2002 Update.
---------------------------------------------------------------------------

    Comment: One commenter agreed that this is a good measure for 
patients with diabetes but recommended the threshold for poor control 
of diabetes be lowered to mean a most recent HgA1c level of greater 
than 7 percent.
    Response: We will take the recommendation into consideration in our 
measure refinement process.
    As we stated above, we are not finalizing the Diabetes Mellitus: 
Hemoglobin A1c Poor Control in Diabetic Patients measure in this final 
rule with comment period, but we intend to propose this measure again 
in the CY 2012 OPPS/ASC proposed rule for the CY 2014 payment 
determination.
<bullet> Diabetes Mellitus: Low Density Lipoprotein (LDL-C) Control in 
Diabetic Patients
    This NQF-endorsed measure (NQF <greek-i>0064) measures the 
percentage of adult patients with diabetes aged 18-75 years whose most 
recent LDL-C test result during the measurement year was < 100 mg/dl. 
LDL-C measures the development of atherosclerotic plague which 
increases cardiac events risks for diabetic patients whose heart 
disease death rates are about two to four times higher than non-
diabetics.\27\ Improved dyslipidemia management helps to mitigate the 
risk for cardiovascular disease. Lipid-lowering therapy for diabetics 
has been a consistent recommendation in several guidelines, prompted by 
randomized trials supporting statin therapy to lower the risk of 
cardiovascular involvement for this population. Despite the evidence 
basis and guideline support, only a minority of patients with diabetes 
are prescribed statin treatment or achieve target LDL-C goals.\28\ 
Early treatment may help slow or halt the progression of cardiovascular 
disease and impact the quality of the life of the diabetic patient, 
affecting the patient's life expectancy and decreasing costs involved 
in treating diabetic complications. Section 1833(t)(17)(C)(i) of the 
Act requires the Secretary to develop measures appropriate for the 
measurement of the quality of care furnished by hospitals in outpatient 
settings, that these measures reflect consensus among affected parties 
and, to the extent feasible and practicable, that these measures 
include measures set forth by one or more national consensus building 
entities. As discussed above, this measure is appropriate for measuring 
quality of care in the hospital outpatient department setting. This 
measure also meets the consensus requirement because, as noted above, 
it has been endorsed by the NQF. We also note that this measure was 
listed as under consideration for CY 2012 and subsequent years in the 
CY 2010 OPPS/ASC final rule with comment period (74 FR 60637 through 
60641).
---------------------------------------------------------------------------

    \27\ American Diabetes Association. Standards of medical care in 
diabetes. Diabetes Care. 2007 Jan;30 (Suppl 1):S8-15.
    \28\ Das, S.R., Vaeth, P.A., Stanek, H.G., de Lemos, J.A., 
Dobbins, R.L., McGuire, D.K.: Increased cardiovascular risk 
associated with diabetes in Dallas County. Am Heart J 2006;151:1087-
93.
---------------------------------------------------------------------------

    Comment: One commenter supported this measure.
    Response: We thank the commenter for the support.
    After consideration of the public comments we received, we are not 
finalizing the Diabetes Mellitus: Low Density Lipoprotein (LDL-C) 
Control in Diabetic Patients measure in this final rule with comment 
period, but intend to propose this measure again in the CY 2012 OPPS/
ASC proposed rule for the CY 2014 payment determination.
<bullet> Diabetes Mellitus: High Blood Pressure Control in Diabetic 
Patients
    This NQF-endorsed measure (NQF <greek-i>0061) measures the 
percentage of patients visits with blood pressure measurement recorded 
among all patients visits aged > 18 years with diagnosed hypertension. 
Blood pressure control reduces the risk of cardiovascular disease and 
microvascular complications in patients with diabetes. Most 
importantly, early treatment of high blood pressure may help slow or 
halt the progression of kidney involvement and damage.\29\ Well-
controlled blood pressure impacts the quality of the life of the 
diabetic patient, affects the patient's life expectancy, and decreases 
the costs involved in treating diabetic complications. Section 
1833(t)(17)(C)(i) of the Act requires the Secretary to develop measures 
appropriate for the measurement of the quality of care furnished by 
hospitals in outpatient settings, that these measures reflect consensus 
among affected parties and, to the extent feasible and practicable, 
that these measures include measures set forth by one or more national 
consensus building entities. As discussed above, this measure is 
appropriate for measuring quality of care in the hospital outpatient 
department setting. This measure also meets the consensus requirement 
because, as noted above, it has been endorsed by the NQF.
---------------------------------------------------------------------------

    \29\ Centers for Disease Control and Prevention. National 
diabetes fact sheet: general information and national estimates on 
diabetes in the United States, 2007. Atlanta, GA: U.S. Department of 
Health and Human Services, Centers for Disease Control and 
Prevention, 2008.
---------------------------------------------------------------------------

    Comment: A few commenters supported the measure and noted that the 
target blood pressure has become controversial based on the recent 
ACCORD trials. One commenter suggested lowering the threshold to 130/80 
mm/Hg as recommended by the American Diabetes Association and the 
American Association of Clinical Endocrinologists. Another commenter 
recommended a target blood pressure of 140/80 mm/Hg.
    Response: We thank the commenters for the support and input and 
will take it into consideration in the measure refinement process.
    After consideration of the public comments we received, we are not 
finalizing the Diabetes Mellitus: High Blood Pressure Control in 
Diabetic Patients measure in this final rule with comment period, but 
intend to propose this measure again in the CY 2012 OPPS/ASC proposed 
rule for the CY 2014 payment determination.
<bullet> Diabetes Mellitus: Dilated Eye Exam in Diabetic Patients
    This NQF-endorsed measure (NQF <greek-i>0055) measures the 
percentage of adult patients with diabetes age 18 to 75 years who 
received a dilated eye exam or seven standard field stereoscopic photos 
with interpretation by an ophthalmologist or optometrist, or imaging to 
verify diagnosis from stereoscopic photos during the reporting year, or 
during the prior year, if the patient is at low risk for retinopathy. A 
patient is considered low risk if the patient has no evidence of 
retinopathy in the prior year. A dilated eye exam helps to detect the 
risk for vision-threatening diabetic retinopathy which is prevalent 
among people with diabetes. Data from the 2007 National Diabetes Fact 
Sheet (using the most recent year of available data) shows that 
diabetic retinopathy causes up to 24,000 new cases of blindness each 
year.\30\ However, dilated eye exams for diabetic

[[Page 72093]]

patients can prevent retinopathy through early detection.\31\
---------------------------------------------------------------------------

    \30\ Centers for Disease Control and Prevention. National 
diabetes fact sheet: general information and national estimates on 
diabetes in the United States, 2007. Atlanta, GA: U.S. Department of 
Health and Human Services, Centers for Disease Control and 
Prevention, 2008.
    \31\ American Diabetes Association. Standards of medical care in 
diabetes. Diabetes Care. 2007 Jan;30 (Suppl 1):S8-15.
---------------------------------------------------------------------------

    Section 1833(t)(17)(C)(i) of the Act requires the Secretary to 
develop measures appropriate for the measurement of the quality of care 
furnished by hospitals in outpatient settings, that these measures 
reflect consensus among affected parties and, to the extent feasible 
and practicable, that these measures include measures set forth by one 
or more national consensus building entities. As discussed above, this 
measure is appropriate for measuring quality of care in the hospital 
outpatient department setting. This measure also meets the consensus 
requirement because, as noted above, this measure has been endorsed by 
the NQF. We note that this measure was listed as under consideration 
for CY 2012 and subsequent years in the CY 2010 OPPS/ASC final rule 
with comment period (74 FR 60637 through 60641).
    Comment: One commenter recommended adopting the American Diabetes 
Association Standards of Care for annual dilated eye examination. Two 
commenters suggested that this measure should be a claim-based measure 
because CMS can access the billings of the ophthalmologist who most 
likely provides the dilated eye exam to diabetic patients.
    Response: We thank the commenters for the input and will take the 
feedback into consideration in the measure refinement process.
    After consideration of the public comments we received, we are not 
finalizing the Diabetes Mellitus: Dilated Eye Exam in Diabetic Patients 
measure in this final rule with comment period, but intend to propose 
this measure again in the CY 2012 OPPS/ASC proposed rule for the CY 
2014 payment determination.
<bullet> Diabetes Mellitus: Urine Screening for Microalbumin or Medical 
Attention for Nephropathy in Diabetic Patients
    This NQF-endorsed measure (NQF <greek-i>0062) measures the 
percentage of adult diabetic patients ages 18-75 years with at least 
one test for microalbumin during the measurement year or who had 
evidence of medical attention for existing nephropathy (diagnosis of 
nephropathy or documentation of microalbuminuria or albuminuria). Urine 
screening for microalbumin detects abnormal amount of protein albumin 
leaks in the urine by the capillaries of the kidney. High levels of 
blood sugar in uncontrolled diabetes can cause damage to the 
capillaries in the kidneys. Early urine screenings for microalbumin may 
prevent kidney disease from worsening to end-stage renal disease 
(ESRD). Diabetics accounted for 44 percent of new cases of kidney 
disease. In 2005, a total of 178,689 diabetics with ESRD were on 
dialysis or received a kidney transplant in the United States and 
Puerto Rico.\32\ In 2009, MedPAC reported costs for the 330,000 
Medicare recipients receiving dialysis treatment for ESRD at over 8 
billion dollars.\33\
---------------------------------------------------------------------------

    \32\ Centers for Disease Control and Prevention. National 
diabetes fact sheet: general information and national estimates on 
diabetes in the United States, 2007. Atlanta, GA: U.S. Department of 
Health and Human Services, Centers for Disease Control and 
Prevention, 2008.
    \33\ MedPAC. Outpatient dialysis service: assessing payment 
adequacy and updating payments. Report to the Congress: Medicare 
payment policy. 2009 Mar;131-56.
---------------------------------------------------------------------------

    Section 1833(t)(17)(C)(i) of the Act requires the Secretary to 
develop measures appropriate for the measurement of the quality of care 
furnished by hospitals in outpatient settings, that these measures 
reflect consensus among affected parties and, to the extent feasible 
and practicable, that these measures include measures set forth by one 
or more national consensus building entities. As discussed above, this 
measure is appropriate for measuring quality of care in the hospital 
outpatient department setting. This measure also meets the consensus 
requirement because, as noted above, it has been endorsed by the NQF. 
We also note that this measure was listed as under consideration for CY 
2012 and subsequent years in the CY 2010 OPPS/ASC final rule with 
comment period (74 FR 60637 through 60641).
    Comment: Two commenters supported this measure but suggested that 
it be a claim-based measure.
    Response: We thank the commenters for the suggestion.
    Comment: Some commenters requested clarification on the diabetes 
care specifications in regards to the interface of the current 
physician CPT-II code data and the chart-abstracted data.
    Response: We thank the commenters for the input and will take it 
into consideration in the measure refinement process.
    After consideration of the public comments we received, we are not 
finalizing the Diabetes Mellitus: Urine Screening for Microalbumin or 
Medical Attention for Nephropathy in Diabetic Patients measure in this 
final rule with comment period, but intend to propose this measure 
again in the CY 2012 OPPS/ASC proposed rule for the CY 2014 payment 
determination.
<bullet> Exposure Time Reported for Procedures Using Fluoroscopy
    This measure documents the percentage of final reports for 
procedures using fluoroscopy that include documentation of radiation 
exposure or exposure time, an important measure for the HOPD setting. 
This measure is currently specified for physician level data collection 
through the PQRI program (74 FR 61825), and can be used for the 
hospital outpatient facility level. This measure evaluates the 
documentation of radiation exposure or radiation time during 
fluoroscopy. Data suggests that the lifetime risk for cancer can be 
increased, albeit by a small amount, with frequent or repeated exposure 
to ionizing radiation, including procedures using fluoroscopy.\34\ To 
monitor these long term effects, the exposure time or radiation dose 
that a patient receives as a result of the procedure should be measured 
and recorded in the patient's record. The ACR encourages practices to 
record actual fluoroscopy time for all fluoroscopic procedures. The 
fluoroscopy time for various procedures (for example, upper 
gastrointestinal, or pediatric voiding cystourethrography) should then 
be compared with benchmark figures.<SUP>35 36</SUP> The National Cancer 
Institute recommends measuring and recording patient radiation dose, 
fluoroscopy time and that additional measures be developed regarding 
dose area product, cumulative dose, and skin dose.\37\ Section 
1833(t)(17)(C)(i) of the Act requires the Secretary to develop measures 
appropriate for the measurement of the quality of care furnished by 
hospitals in outpatient settings, that these measures reflect consensus 
among affected parties and, to the extent feasible and practicable,

[[Page 72094]]

that these measures include measures set forth by one or more national 
consensus building entities. As discussed above, this measure is 
appropriate for measuring quality of care in the hospital outpatient 
department setting. This measure also meets the consensus requirement 
because it is NQF-endorsed (NQF <greek-i> 0510). Additionally, this 
measure was conditionally approved by the HQA for the hospital 
outpatient setting in March of 2010.
---------------------------------------------------------------------------

    \34\ National Cancer Institute (NCI), The Society for Pediatric 
Radiology (SPR). Brochure: Radiation & pediatric computed 
tomography. A guide for health care providers. 2002. Available at; 
http://www/cancer.gov/cancertopics/cause/radiation-risks-pediatric-CT.pdf.
    \35\ Amis E Jr, Butler P, Applegate K, Birnbaum S, Brateman L, 
Hevezi J, Mettler F, Morin R, Pentecost M, Smith G. American College 
of radiology white paper on radiation dose in medicine. Journal of 
American College of Radiology, 2007:4:272-284.
    \36\ National Cancer Institute. Interventional fluoroscopy: 
Reducing radiation risks for patients and staff. 2005. Available at: 
http://www.cancer.gov/cancertopics/interventionalfluoroscopy.
    \37\ National Cancer Institute. Interventional fluoroscopy: 
reducing radiation risks for patients and staff. 2005 available at: 
http://www.cancer.gov/cancertopics/interventionalfluoroscopy.
---------------------------------------------------------------------------

    Comment: Many commenters supported this measure. Commenters 
believed it is an important measure for monitoring radiation safety, 
and stated that the measure is in line with NCI recommendations.
    Response: We appreciate the commenters' support.
    Comment: Several commenters did not support this measure for 
several reasons. One commenter stated that fluoroscopy time is a 
relatively poor proxy for the measurement of radiation as it does not 
take into account the dose received. One commenter noted that the 
exposure to fluoroscopy time is impossible to measure since the service 
is bundled into the primary procedure (the time-based fluoroscopy CPT 
codes 76000/76001 are infrequently used), and noted that radiologists 
and physicians seldom document the time and codes. Commenters were 
concerned about the administrative and financial burdens associated 
with the measure. Two commenters suggested field-testing the measure 
and developing electronic specifications for data collection. One 
commenter supported the inclusion of this measure in the PQRI program 
only.
    Response: The chart-abstracted numerator definition for this 
measure is currently being refined. For this reason, we are not 
finalizing this measure in this final rule with comment period. We 
appreciate the input from the commenters and will take the input into 
consideration in the measure refinement process.
    After consideration of the public comments we received, we are not 
finalizing the Exposure Time Reported for Procedures Using Fluoroscopy 
measure at this time.
    In summary, for the reasons discussed above, we have decided to not 
finalize at this time the 6 chart-abstracted measures we proposed to 
adopt for the CY 2014 payment determination. However, we still intend 
to propose them for inclusion in the HOP QDRP CY 2014 measure set and 
intend to do so in the CY 2012 OPPS/ASC proposed rule.
    After consideration of the public comments we received, we are 
finalizing the retention of the 23 measures adopted for the CY 2013 
payment determination, but are not at this time adopting any of the new 
measures proposed for the CY 2014 payment determination. As of now, a 
total of 23 measures will be used for the CY 2014 payment 
determination. These measures are shown below.

       HOP QDRP Measurement Set To Be Used for the CY 2014 Payment
                              Determination
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
OP-1: Median Time to Fibrinolysis
OP-2: Fibrinolytic Therapy Received Within 30 Minutes
OP-3: Median Time to Transfer to Another Facility for Acute Coronary
 Intervention
OP-4: Aspirin at Arrival
OP-5: Median Time to ECG
OP-6: Timing of Antibiotic Prophylaxis
OP-7: Prophylactic Antibiotic Selection for Surgical Patients
OP-8: MRI Lumbar Spine for Low Back Pain
OP-9: Mammography Follow-up Rates
OP-10: Abdomen CT--Use of Contrast Material
OP-11: Thorax CT--Use of Contrast Material
OP-12: The Ability for Providers with HIT to Receive Laboratory Data
 Electronically Directly into their Qualified/Certified EHR System as
 Discrete Searchable Data*
OP-13: Cardiac Imaging for Preoperative Risk Assessment for Non Cardiac
 Low Risk Surgery*
OP-14: Simultaneous Use of Brain Computed Tomography (CT) and Sinus
 Computed Tomography (CT)*
OP-15: Use of Brain Computed Tomography (CT) in the Emergency Department
 for Atraumatic Headache*
OP-16: Troponin Results for Emergency Department acute myocardial
 infarction (AMI) patients or chest pain patients (with Probable Cardiac
 Chest Pain) Received Within 60 minutes of Arrival**
OP-17: Tracking Clinical Results between Visits**
OP-18: Median Time from ED Arrival to ED Departure for Discharged ED
 Patients**
OP-19: Transition Record with Specified Elements Received by Discharged
 Patients**
OP-20: Door to Diagnostic Evaluation by a Qualified Medical
 Professional**
OP-21: ED-Median Time to Pain Management for Long Bone Fracture**
OP-22: ED-Patient Left Before Being Seen**
OP-23: ED-Head CT Scan Results for Acute Ischemic Stroke or Hemorrhagic
 Stroke who Received Head CT Scan Interpretation Within 45 minutes of
 Arrival**
------------------------------------------------------------------------
* New measure for the CY 2012 payment determination.
** New measure for the CY 2013 payment determination.

6. Possible Quality Measures Under Consideration for Future Inclusion 
in the HOP QDRP
    In previous years' rulemakings, we have provided lists of quality 
measures that are under consideration for future adoption into the HOP 
QDRP measurement set. In the CY 2011 OPPS/ASC proposed rule (75 FR 
46373), we set out the following list of measures under consideration 
for future rulemaking cycles.

 Measures and Measurement Topics Under Consideration for Future Payment
                  Determinations Beginning With CY 2013
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Measures for future development:
    Adjuvant Chemotherapy is Considered or Administered within 4 Months
     of Surgery to Patients Under Age 80 with AJCC III Colon Cancer.
    Adjuvant Hormonal Therapy for Patients with Breast Cancer

[[Page 72095]]

 
    Needle Biopsy to Establish Diagnosis of Cancer Precedes Surgical
     Excision/Resection.
    Pneumococcal Vaccination Status
    Influenza Vaccination Status
    Cardiac Rehabilitation Referral
    Medication Reconciliation
    Appropriate surgical site hair removal
    Heart Failure: Angiotensin-Converting Enzyme (ACE) Inhibitor or
     Angiotensin Receptor Blocker (ARB) Therapy for Left Ventricular
     Systolic Dysfunction (LVSD)
    Heart Failure: Left Ventricular Ejection Fraction Assessment
    Heart Failure: Combination Medical Therapy for Left Ventricular
     Systolic Dysfunction
    Heart Failure: Beta-Blocker Therapy for Left Ventricular Systolic
     Dysfunction
    Heart Failure: Counseling regarding Implantable Cardioverter-
     Defibrillator (ICD) Implantation for Patients with Left Ventricular
     Systolic Dysfunction on Combination Medical Therapy
    Heart Failure: Patients with Left Ventricular Systolic Dysfunction
     on Combination Medical Therapy
    Heart Failure: Symptom Management
    Heart Failure: Symptom and Activity Assessment
    Heart Failure: Patient Education
    Heart Failure: End of Life Care Plan
    Heart Failure: Overuse of Echocardiography
    Heart Failure: Post-Discharge Appointment for Heart Failure Patients
    Emergency Department Transfer Communication: Administrative
     Communications
    Emergency Department Transfer Communication: Medication Information
    Emergency Department Transfer Communication: Nursing Information
    Emergency Department Transfer Communication: Patient Information
    Emergency Department Transfer Communication: Physician Information
    Emergency Department Transfer Communication: Procedures and Tests
    Emergency Department Transfer Communication: Vital Signs
Measurement Topics for future development:
    Chemotherapy
    Unplanned Reintubation
    Unplanned Inpatient Transfer
    Post-discharge follow up
    Post-discharge ED visit within 72 hours
    Safe Surgery Checklist
    Immunization Refusal rate
    Breast cancer detection rate
------------------------------------------------------------------------

    We invited public comment on these quality measures and topics so 
that we may consider proposing to adopt them beginning with the CY 2013 
payment determination. We also sought suggestions and rationales to 
support the adoption of measures and topics for the HOP QDRP which do 
not appear in the table above.
    We received general comments on the measure topics under 
consideration or targeted for future development.
    Comment: One commenter urged CMS to not adopt measures for the HOP 
QDRP that are duplicative of measures adopted for the Hospital 
Inpatient Quality Reporting Program. One commenter opposed the adoption 
of any of these future measures because they will impose an additional 
burden on HOPDs that will increase patient wait times and decrease 
their satisfaction.
    Response: As we have previously stated, our goal is to align the 
HOP QDRP and the Hospital Inpatient Quality Reporting Program measures 
to reduce the burden for hospitals. Nonetheless, there are instances 
when the inclusion of the same measures is appropriate for both 
settings because the measures assess important aspects of care that are 
furnished in both settings, and because adopting them for both settings 
allows us to make comparisons across care settings. Although we 
understand the commenter's concerns regarding the increased burden that 
may accompany the adoption of additional quality measures for the HOP 
QDRP, we believe that expanding the scope of the HOP QDRP is an 
important tool that will heighten hospitals' awareness of the quality 
of care they provide and highlight opportunities for quality 
improvement.
    Comment: One commenter encouraged CMS to require mammogram 
providers to track individual rates or use the ACR national mammography 
database registry.
    Response: We thank the commenter for the input and will take it 
into consideration as we engage in future measure development.
    Comment: One commenter requested that CMS avoid using vague 
language and instead provide more details on proposed measures. One 
commenter requested that CMS focus on issues that are identified as 
national concerns and are supported by evidence-based practice 
guidelines. Another commenter recommended that CMS adopt more claim-
based measures and less chart-abstracted measures. The commenter also 
suggested that CMS minimize the number of measures it adopts on certain 
topics, such as documentation-based universal protocol measures like 
the ``Safety Surgery Checklist'' measure, which the commenter believed 
has little correlation to patient outcomes, and the heart failure 
measures listed in the table of measures under consideration for the 
future, which the commenter believed have no impact on reducing 
readmission rates.
    Response: We thank the commenters for the suggestions and will take 
them into consideration as we consider what measures to adopt for the 
HOP QDRP.
    Comment: We also received recommendations for new measure topics 
for the HOP QDRP:
    <bullet> Healthcare Associated Infections
    <bullet> Interactions between hospital EDs and ambulances
    <bullet> Day-to-day treatment of cancer patients (adopt the Quality 
Oncology Practice Initiative measure)
    <bullet> EHR-based measure to track to send reminders to patients 
with chronic

[[Page 72096]]

conditions about using preventive services
    <bullet> Vital signs frequency
    <bullet> Medication errors
    <bullet> Diagnostic Mammography Positive Predictive Value 2 (PPV2--
Biopsy recommended)
    <bullet> Screening Mammography Positive Predictive Value 2 (PPV2--
Biopsy Recommended)
    <bullet> Cancer Detection Rate
    <bullet> Abnormal Interpretation Rate (Recall Rate)
    <bullet> Patient Experience survey (reporting the data as a Heart 
Failure Quality of Care composite)
    <bullet> ED AMI Mortality measure and ED Non-Mortality Outcome 
measures
    <bullet> Appropriate use of Vancomycin to reduce MRSA
    <bullet> Appropriate nursing staffing ratios
    <bullet> Patient seen in the ED with a STEMI who did not receive a 
fibrinolytic or PCI or transfer for further coronary care
    <bullet> Care transition
    <bullet> PET Myocardial Perfusion Imaging
    Response: We thank the commenters for their input regarding future 
quality measures for the HOP QDRP.
    We also received comments on individual measure topics under 
consideration or targeted for future development.
<bullet> Needle Biopsy To Establish Diagnosis of Cancer Precedes 
Surgical Excision/Resection
    Comment: One commenter supported this measure because it is a 
standard practice.
    Response: We thank the commenter for the support and will take the 
comment into consideration as we consider additional measures to adopt 
for the HOP QDRP.
<bullet> Pneumococcal Vaccination Status
    Comment: Two commenters supported this measure and one commenter 
did not support this measure.
    Response: We thank the commenters for their input and will take the 
comments into consideration as we consider additional measures to adopt 
for the HOP QDRP.
<bullet> Influenza Vaccination Status
    Comment: One commenter supported the measure and one commenter did 
not support this measure.
    Response: We thank the commenters for their input and will take the 
comments into consideration as we consider additional measures to adopt 
for the HOP QDRP.
<bullet> Cardiac Rehabilitation Referral
    Comment: One commenter supported this measure. One commenter 
recommended that CMS adopt the NQF-endorsed Cardiac Rehabilitation 
Referral performance measure as published by the ACC and the American 
Heart Association as a quality indicator in the acute myocardial 
infarction measure set.
    Response: We thank the commenters for their input and will take the 
comments into consideration as we consider additional measures to adopt 
for the HOP QDRP.
<bullet> Medication Reconciliation
    Comment: One commenter supported this measure.
    Response: We thank the commenter for supporting the measure and 
will take the comment into consideration as we consider additional 
measures to adopt for the HOP QDRP.
<bullet> Appropriate Surgical Site Hair Removal
    Comment: Two commenters did not support this measure because they 
believed that it is not meaningful for consumers and purchasers.
    Response: We thank the commenters for their input and we will take 
the comments into consideration as we consider additional measures to 
adopt for the HOP QDRP.
<bullet> Heart Failure Measures
    Comment: Two commenters supported the Heart Failure measures. One 
commenter supported the use of a registry while another commenter was 
concerned about the potential cost burden due to the potential 
requirement for registry participation. Commenters also recommended 
harmonizing 7 of the 14 heart failure measures that are duplicative of 
the Hospital Inpatient Quality Reporting Program measures.
    Response: We thank the commenters for their input and will take the 
comments into consideration as we consider additional measures to adopt 
for the HOP QDRP.
<bullet> Heart Failure: Patient Education
    Comment: One commenter supported this measure.
    Response: We thank the commenter for the support and will take the 
comments into consideration as we consider additional measures to adopt 
for the HOP QDRP.
<bullet> Heart Failure: End of Life Care Plan
    Comment: One commenter supported this measure.
    Response: We thank the commenter for the support and will take the 
comments into consideration as we consider additional measures to adopt 
for the HOP QDRP.
<bullet> Heart Failure: Overuse of Echocardiography
    Comment: One commenter supported this measure.
    Response: We thank the commenter for the support and will take it 
into consideration as we consider additional measures to adopt for the 
HOP QDRP.
<bullet> Heart Failure: Post-Discharge Appointment for Heart Failure 
Patients
    Comment: One commenter supported this measure.
    Response: We thank the commenter for the support and will take it 
into consideration as we consider additional measures to adopt for the 
HOP QDRP.
<bullet> Emergency Department Transfer Communication
    Comment: Many commenters supported this NQF-endorsed measure. 
Commenters believed this measure is relevant for measuring the 
performance of CAHs and rural hospitals which handle a large volume of 
patient transfers. Commenters stated that the measure will facilitate 
the standardized transfer of information provided by EDs, rural, and 
critical access hospitals. Commenters also encouraged CMS to consider 
adopting more quality measures for rural facilities. Some commenters 
raised concerns about medical staff documentation and patient 
communication issues associated with this measure. One commenter 
cautioned that CMS needs to ensure that the measure is in conformity 
with current EMTALA regulations and guidelines.
    Response: We thank the commenters for their input and will take the 
comments into consideration as we consider additional measures to adopt 
for the HOP QDRP.
<bullet> Unplanned Reintubation
    Comment: One commenter did not believe the measure is linked to 
quality of care and stated that there is no evidence-based standard of 
practice.
    Response: We thank the commenter for the input and will take it 
into consideration as we consider additional measures to adopt for the 
HOP QDRP.
<bullet> Post-Discharge Emergency Visits Within 72 Hours
    Comment: One commenter suggested that CMS consider whether an ED 
patient previously received care at another hospital ED when 
attributing responsibility for performance on a measure like this to an 
individual hospital.
    Response: We thank the commenter for the input and will take it 
into

[[Page 72097]]

consideration as we consider additional measures to adopt for the HOP 
QDRP.
<bullet> Immunization Refusal Rate Measure
    Comment: One commenter did not support the measure based on the 
notion that a patient's right to refuse immunization should not be 
construed as a reflection of hospital quality. The commenter requested 
that CMS provide evidence that supports the correlation between the 
immunization refusal rate and the quality of care furnished by an HOP 
QDRP.
    Response: We thank the commenter for the input and will take it 
into consideration as we consider additional measures to adopt for the 
HOP QDRP.
<bullet> Breast Cancer Detection Rate
    Comment: One commenter was pleased with this measure, but was 
concerned about how the measure would be specified, collected and 
reported. The commenter recommended that at a minimum, the Breast 
Cancer Detection Rate measure should be calculated in concert with the 
Mammography Follow-Up Rate measure.
    Response: This measure is currently under development, and this 
input will be taken under consideration.
    In addition, we expressed concern about the lack of progress in 
reducing the rates of healthcare associated infections (HAIs) that was 
recently reported in the 2009 National Healthcare Quality Report 
(http://www.ahrq.gov/qual/nhqr09/nhqr09.pdf). For example, the report 
found that rates of postoperative sepsis increased by 8 percent. We 
view healthcare associated infections as a significant priority for 
quality measurement in order to ensure that health care does not result 
in avoidable harm and to inform the public about hospitals' performance 
with respect to these infections. We invited public comment on the 
option to include among our prioritization criteria quality measures 
that assess performance on healthcare associated infections. Also, 
while some HOP QDRP measures cover aspects of healthcare associated 
infections, we invited suggestions on additional measures that could be 
added to those that hospitals would report and that we would make 
available to the public in order to promote improvement in healthcare 
associated infection rates.
    Comment: A few commenters were very pleased with CMS' concerns 
regarding the issue of HAIs and believed they should be ranked high 
priority. Commenters encouraged CMS to continue to explore whether it 
would be feasible to adopt more HAIs in the HOP QDRP and hospital-
value-based purchasing program (HVBP), specifically the ``never 
events.'' A few commenters expressed support for evidence-based HAI 
measures.
    Response: We appreciate the commenters' strong support and 
encouragement. We will look for opportunities to include such measures 
in our quality reporting and pay for performance programs in the 
future.
    Comment: Many commenters made suggestions with respect to the HAI 
selection criteria CMS should use in the HOP QDRP. Some commenters 
recommended using the metrics/targets that will be specified in the 
National Strategy for Quality Improvement that the Secretary 
establishes under the Affordable Care Act as guidance to develop new 
HAI measures. Some commenters favored the HHS HAI Action Plan. One 
commenter believed the HAI quality measures that are currently reported 
to the CDC's National Healthcare Safety Network (NHSN) will provide 
more robust data (compared to administrative data) for HAI tracking and 
assessment. The commenter stated that the adoption of CDC-NHSN measures 
will increase harmonization of State and Federal HAI reporting 
requirements while minimizing the additional reporting effort required 
of hospitals. One commenter suggested developing HAIs based on sentinel 
events reported to the Joint Commission, and using the Joint 
Commission--Hospital Accreditation Program: Infection Preventions 
Standards as a guide. One commenter recommended the adoption of the 
guidelines developed by the Association for Professionals in Infection 
Control & Epidemiology.
    Response: We thank the commenters for making suggestions regarding 
t HAI measure selection criteria and guidelines. The HHS HAI Action 
Plan to reduce Healthcare Associated Infections is a Department-wide 
action plan to reduce healthcare associated infections. It was released 
in 2009 and is currently undergoing revision. It contains a set of 
seven metrics selected by HHS that are meant to be used for nationwide 
quality improvement, and also contains national improvement goals for 
these metrics. We contribute to the HHS Action Plan to reduce 
Healthcare Associated Infections, and we also are collaborating closely 
with the CDC to incorporate the NHSN measures for infection rate 
reporting into our hospital quality reporting and pay for performance 
programs. Measures of process of care for sepsis will be considered in 
the future.
    Comment: Many commenters indicated their preferences with respect 
to the types of HAI measures that should be included in the HOP QDRP. 
One commenter recommended Surgical Care Improvement Project (SCIP) 
Infection, and the Surgical Site Infection measures (NQF <greek-i>0299) 
that NHSN reports. Specifically, the commenter recommended the 
inclusion of this measure in conjunction with the ``Ability for 
Providers with HIT to Receive Laboratory Data Electronically Directly 
into Their Qualified/Certified EHR System as Discrete Searchable Data'' 
measure (NQF <greek-i>0489). The commenter strongly believed the two 
measures would make a difference between life and death for patients 
with sepsis, deep wound or surgical site infections. With rapid 
diagnosis and timely receipt of lab results, healthcare providers are 
able to treat patients while they are being seen rather than 
necessitating a return visit or follow-up phone call. For HAI measure 
topics, one commenter recommended MRSA colonization prior to invasive 
surgery or at admission to an acute care facility, hand-hygiene 
adherence, and use of barrier precautions. One commenter opposed the 
inclusion of the catheter-associated urinary tract infections (UTIs) 
HAI because the commenter believed that UTIs are not fully preventable 
and stated that they are hard to diagnose at the time of admission 
without urine screening and cultures. Furthermore, the commenter was 
concerned with the high cost for screening all patients undergoing 
surgery in HOPDs and added that the practice is inconsistent with the 
``Diagnosis, Prevention and Treatment of Catheter-Associated Urinary 
Tract Infection in Adults: 2009 International Clinical Practice 
Guidelines from the Infectious Diseases Society of America'', which 
recommended that catheter-associated asymptomatic bacteriuria should 
not be screened.
    Response: We thank the commenters for their suggestions for HAI 
measure topics. We disagree with the statement that UTIs are not 
preventable. In fact, the majority of CAUTIs are preventable by 
avoiding unnecessary catheterization, and by limiting the duration of 
catheterization. In our view, it is unnecessary to screen all patients 
on arrival because the vast majority of patients do not have a urinary 
tract infection at arrival. Catheters are used too commonly, often 
without appropriate justification. Very often, many catheters are left 
in far too long and most hospitals do not have good systems to identify 
patients that need to

[[Page 72098]]

have the catheter removed. We are working with CDC to develop metrics 
of infection control and outcomes.
    Comment: One commenter was very concerned about the outdated 
infection control data used by CMS to make policy decisions.
    Response: We agree that there is a need for more current data on 
the actual rates of healthcare-associated infections and we are working 
closely with the CDC to obtain this information and performance 
metrics.
    We thank the commenters for their input regarding the adoption of 
HAI quality measures in the HOP QDRP measure set.

C. Payment Reduction for Hospitals That Fail To Meet the HOP QDRP 
Requirements for the CY 2011 Payment Update

1. Background
    Section 1833(t)(17)(A) of the Act, which applies to subsection (d) 
hospitals (as defined under section 1886(d)(1)(B) of the Act), requires 
that hospitals that fail to report data required for the quality 
measures selected by the Secretary, in the form and manner required by 
the Secretary under section 1833(t)(17)(B) of the Act, incur a 2.0 
percentage point reduction to their OPD fee schedule increase factor, 
that is, the annual payment update factor. Section 1833(t)(17)(A)(ii) 
of the Act specifies that any reduction would apply only to the payment 
year involved and would not be taken into account in computing the 
applicable OPD fee schedule increase factor for a subsequent payment 
year.
    In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68769 
through 68772), we discussed how the payment reduction for failure to 
meet the administrative, data collection, and data submission 
requirements of the HOP QDRP affected the CY 2009 payment update 
applicable to OPPS payments for HOPD services furnished by the 
hospitals defined under section 1886(d)(1)(B) of the Act to which the 
program applies. The application of a reduced OPD fee schedule increase 
factor results in reduced national unadjusted payment rates that apply 
to certain outpatient items and services provided by hospitals that are 
required to report outpatient quality data and that fail to meet the 
HOP QDRP requirements. All other hospitals paid under the OPPS receive 
the full OPPS payment update without the reduction.
    The national unadjusted payment rates for many services paid under 
the OPPS equal the product of the OPPS conversion factor and the scaled 
relative weight for the APC to which the service is assigned. The OPPS 
conversion factor, which is updated annually by the OPD fee schedule 
increase factor, is used to calculate the OPPS payment rate for 
services with the following status indicators (listed in Addendum B to 
this final rule with comment period): ``P,'' ``Q1,'' ``Q2,'' ``Q3,'' 
``R,'' ``S,'' ``T,'' ``V,'' ``U,'' or ``X.'' In the CY 2009 OPPS/ASC 
final rule with comment period (73 FR 68770), we adopted a policy that 
payment for all services assigned these status indicators would be 
subject to the reduction of the national unadjusted payment rates for 
applicable hospitals, with the exception of services assigned to New 
Technology APCs with assigned status indicator ``S'' or ``T,'' and 
brachytherapy sources with assigned status indicator ``U,'' which were 
paid at charges adjusted to cost in CY 2009. We excluded services 
assigned to New Technology APCs from the list of services subject to 
the reduced national unadjusted payment rates because the OPD fee 
schedule increase factor is not used to update the payment rates for 
these APCs.
    In addition, section 1833(t)(16)(C) of the Act, as amended by 
section 142 of the Medicare Improvements for Patients and Providers Act 
of 2008 (MIPPA) (Pub. L. 110-275), specifically required that 
brachytherapy sources be paid during CY 2009 on the basis of charges 
adjusted to cost, rather than under the standard OPPS methodology. 
Therefore, the reduced conversion factor also was not applicable to CY 
2009 payment for brachytherapy sources because payment would not be 
based on the OPPS conversion factor and, consequently, the payment 
rates for these services were not updated by the OPD fee schedule 
increase factor. However, in accordance with section 1833(t)(16)(C) of 
the Act, as amended by section 142 of the MIPPA, payment for 
brachytherapy sources at charges adjusted to cost expired on January 1, 
2010. Therefore, in the CY 2010 OPPS/ASC final rule with comment period 
(74 FR 60641), we finalized our CY 2010 proposal, without modification, 
to apply the reduction to payment for brachytherapy sources to 
hospitals that fail to meet the quality data reporting requirements of 
the HOP QDRP for the CY 2010 OPD fee schedule increase factor.
    The OPD fee schedule increase factor, or market basket update, is 
an input into the OPPS conversion factor, which is used to calculate 
OPPS payment rates. To implement the requirement to reduce the market 
basket update for hospitals that fail to meet reporting requirements, 
we calculate two conversion factors: A full market basket conversion 
factor (that is, the full conversion factor), and a reduced market 
basket conversion factor (that is, the reduced conversion factor). We 
then calculate a reduction ratio by dividing the reduced conversion 
factor by the full conversion factor. We refer to this reduction ratio 
as the ``reporting ratio'' to indicate that it applies to payment for 
hospitals that fail to meet their reporting requirements. Applying this 
reporting ratio to the OPPS payment amounts results in reduced national 
unadjusted payment rates that are mathematically equivalent to the 
reduced national unadjusted payment rates that would result if we 
multiplied the scaled OPPS relative weights by the reduced conversion 
factor. To determine the reduced national unadjusted payment rates that 
applied to hospitals that failed to meet their quality reporting 
requirements for the CY 2010 OPPS, we multiply the final full national 
unadjusted payment rate in Addendum B to the CY 2010 OPPS/ASC final 
rule with comment period by the CY 2010 OPPS final reporting ratio of 
0.980 (74 FR 60642).
    In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68771 
through 68772), we established a policy that the Medicare beneficiary's 
minimum unadjusted copayment and national unadjusted copayment for a 
service to which a reduced national unadjusted payment rate applies 
would each equal the product of the reporting ratio and the national 
unadjusted copayment or the minimum unadjusted copayment, as 
applicable, for the service. Under this policy, we apply the reporting 
ratio to both the minimum unadjusted copayment and national unadjusted 
copayment for those hospitals that receive the payment reduction for 
failure to meet the HOP QDRP reporting requirements. This application 
of the reporting ratio to the national unadjusted and minimum 
unadjusted copayments is calculated according to Sec.  419.41 of our 
regulations, prior to any adjustment for hospitals' failure to meet the 
quality reporting standards according to Sec.  419.43(h). Beneficiaries 
and secondary payers thereby share in the reduction of payments to 
these hospitals.
    In the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68772), we established the policy that all other applicable adjustments 
to the OPPS national unadjusted payment rates apply in those cases when 
the OPD fee schedule increase factor is reduced for hospitals that fail 
to meet the requirements of the HOP QDRP. For example, the following 
standard adjustments apply to the reduced national unadjusted payment 
rates: The

[[Page 72099]]

wage index adjustment; the multiple procedure adjustment; the 
interrupted procedure adjustment; the rural sole community hospital 
adjustment; and the adjustment for devices furnished with full or 
partial credit or without cost. We believe that these adjustments 
continue to be equally applicable to payments for hospitals that do not 
meet the HOP QDRP requirements. Similarly, outlier payments will 
continue to be made when the criteria are met. For hospitals that fail 
to meet the quality data reporting requirements, the hospitals' costs 
are compared to the reduced payments for purposes of outlier 
eligibility and payment calculation. This policy conforms to current 
practice under the IPPS. In the CY 2010 OPPS/ASC final rule with 
comment period (74 FR 60642), we continued this policy. For a complete 
discussion of the OPPS outlier calculation and eligibility criteria, we 
refer readers to section II.G. of this CY 2011 OPPS/ASC final rule with 
comment period.
2. Reporting Ratio Application and Associated Adjustment Policy for CY 
2011
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46376), we proposed to 
continue our established policy of applying the reduction of the OPD 
fee schedule increase factor through the use of a reporting ratio for 
those hospitals that fail to meet the HOP QDRP requirements for the 
full CY 2011 annual payment update factor. For the CY 2011 OPPS, the 
proposed reporting ratio was 0.980, calculated by dividing the reduced 
conversion factor of $66.930 by the full conversion factor of $68.267. 
The final CY 2011 OPPS reporting ratio is 0.980, calculated by dividing 
the reduced conversion factor of $67.530 by the full conversion factor 
of $68.876. We proposed to continue to apply the reporting ratio to all 
services calculated using the OPPS conversion factor. For the CY 2011 
OPPS, we proposed to apply the reporting ratio, when applicable, to all 
HCPCS codes to which we have assigned status indicators ``P,'' ``Q1,'' 
``Q2,'' ``Q3,'' ``R,'' ``S,'' ``T,'' ``V,'' ``U,'' and ``X'' (other 
than new technology APCs to which we have assigned status indicators 
``S'' and ``T''). We proposed to continue to exclude services paid 
under New Technology APCs. We proposed to continue to apply the 
reporting ratio to the national unadjusted payment rates and the 
minimum unadjusted and national unadjusted copayment rates of all 
applicable services for those hospitals that fail to meet the HOP QDRP 
reporting requirements. We also proposed to continue to apply all other 
applicable standard adjustments to the OPPS national unadjusted payment 
rates for hospitals that fail to meet the requirements of the HOP QDRP. 
Similarly, we proposed to continue to calculate OPPS outlier 
eligibility and outlier payment based on the reduced payment rates for 
those hospitals that fail to meet the reporting requirements.
    We did not receive any public comments on our CY 2011 proposal to 
apply the HOP QDRP reduction in the manner described in the paragraph 
above and, therefore, are finalizing our proposal, without 
modification. For the CY 2011 OPPS, we are applying a reporting ratio 
of 0.980 to the national unadjusted payments, minimum unadjusted 
copayments, and national unadjusted copayments for all applicable 
services for those hospitals failing to meet the HOP QDRP reporting 
requirements. This reporting ratio applies to HCPCS codes assigned 
status indicators ``P,'' ``Q1,'' ``Q2,'' ``Q3,'' ``R,'' ``S,'' ``T,'' 
``U,'' ``V,'' or ``X,'' excluding services paid under New Technology 
APCs. All other applicable standard adjustments to the OPPS national 
unadjusted payment rates for hospitals that fail to meet the 
requirements of the HOP QDRP will continue to apply. We continue to 
calculate OPPS outlier eligibility and outlier payment based on the 
reduced rates for those hospitals that fail to meet the reporting 
requirements.

D. Requirements for HOPD Quality Data Reporting for CY 2012 and 
Subsequent Years

    In order to participate in the HOP QDRP, hospitals must meet 
administrative, data collection and submission, and data validation 
requirements (if applicable). Hospitals that do not meet the 
requirements of the HOP QDRP, as well as hospitals not participating in 
the program and hospitals that withdraw from the program, will not 
receive the full OPPS payment rate update. Instead, in accordance with 
section 1833(t)(17)(A) of the Act, those hospitals will receive a 
reduction of 2.0 percentage points in their annual payment update 
factor for the applicable payment year. We established the payment 
determination requirements for the CY 2011 payment update in the CY 
2010 OPPS/ASC final rule with comment period (74 FR 60642 through 
60652).
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46376 through 46381), 
for payment determinations affecting the CY 2012 payment update, we 
proposed to implement the requirements listed below. Most of these 
requirements are the same as the requirements we implemented for the CY 
2011 payment determination, with some proposed modifications.
1. Administrative Requirements
    To participate in the HOP QDRP, we proposed that several 
administrative steps be completed. These steps would require the 
hospital to:
    <bullet> Identify a QualityNet security administrator who follows 
the registration process located on the QualityNet Web site (http://www.QualityNet.org) and submits the information to the appropriate CMS-
designated contractor. All CMS-designated contractors would be 
identified on the QualityNet Web site. The same person may be the 
QualityNet security administrator for both the Hospital Inpatient 
Quality Reporting Program and the HOP QDRP. From our experience, we 
believe that the QualityNet security administrator typically fulfills a 
variety of tasks related to the hospital's ability to participate in 
the HOP QDRP, such as: Creating, approving, editing and/or terminating 
QualityNet user accounts within the organization; monitoring QualityNet 
usage to maintain proper security and confidentiality measures; and 
serving as a point of contact for information regarding QualityNet and 
the HOP QDRP. The hospital would be required to maintain a current 
QualityNet security administrator for as long as the hospital 
participates in the program due to CMS information systems security 
requirements. While only a single QualityNet security administrator 
would be required for program purposes, we suggest to hospitals that it 
may be beneficial to have more than one QualityNet security 
administrator for back-up purposes.
    <bullet> Register with QualityNet, regardless of the method used 
for data submission.
    <bullet> Complete and submit an online participation form if this 
form (or a paper Notice of Participation form) has not been previously 
completed, if a hospital has previously withdrawn, or if the hospital 
acquires a new CCN. For HOP QDRP decisions affecting the CY 2012 
payment determination, hospitals that share the same CCN would be 
required to complete a single online participation form. In the CY 2009 
OPPS/ASC final rule with comment period (73 FR 68772), we implemented 
an online registration form and eliminated the paper form. At this 
time, the participation form for the HOP QDRP is separate from the 
Hospital Inpatient Quality Reporting Program and completing a form for 
each program is required. Agreeing to participate includes 
acknowledging that the data submitted to the CMS-designated

[[Page 72100]]

contractor would be submitted to CMS, shared with one or more other CMS 
contractors that support the implementation of the HOP QDRP and be 
publicly reported.
    We proposed to update and retain the following deadlines, which we 
established in the CY 2010 OPPS/ASC final rule with comment period (74 
FR 60643), for submitting the participation form:
    Hospitals with Medicare acceptance dates on or after January 1, 
2011: For the CY 2012 payment update, we proposed that any hospital 
that has a Medicare acceptance date on or after January 1, 2011 
(including a new hospital and hospitals that have merged) must submit a 
completed participation form no later than 180 days from the date 
identified as its Medicare acceptance date on the CMS Online System 
Certification and Reporting (OSCAR) system. Hospitals typically receive 
a package notifying them of their new CCN after they receive their 
Medicare acceptance date. The Medicare acceptance date is the earliest 
date that a hospital can receive Medicare payment for the services that 
it furnishes. Completing the participation form would include supplying 
the name and address of each hospital campus that shares the same CCN.
    The use of the Medicare acceptance date as beginning the timeline 
for HOP QDRP participation allows CMS to monitor more effectively 
hospital compliance with the requirement to complete a participation 
form because a hospital's Medicare acceptance date is readily available 
to CMS through its data systems. In addition, providing an extended 
time period to register for the program would allow newly functioning 
hospitals sufficient time to get their operations fully functional 
before having to collect and submit quality data. We invited public 
comment on this proposed policy.
    Hospitals with Medicare acceptance dates before January 1, 2011: 
For the CY 2012 payment update, we proposed that any hospital that has 
a Medicare acceptance date on or before December 31, 2010 that is not 
currently participating in the HOP QDRP and wishes to participate in 
the CY 2012 HOP QDRP must submit a participation form by March 31, 
2011. We proposed a deadline of March 31, 2011, because we believe it 
would give hospitals sufficient time to decide whether they wish to 
participate in the HOP QDRP, as well as put into place the necessary 
staff and resources to timely report data for first quarter CY 2011 
services. This requirement would apply to all hospitals whether or not 
the hospital billed for payment under the OPPS.
    Under our current requirements, hospitals that want to withdraw 
from participation must follow the same deadlines as hospitals that 
want to participate. We proposed to change this requirement. We 
proposed to lengthen the time during which hospitals may withdraw from 
participation because we believe that hospitals should be allowed more 
time to consider this decision. In addition, this increased time to 
withdraw is comparable programmatically to our approach under the 
Hospital Inpatient Quality Reporting Program (75 FR 23996 and 50231). 
Specifically, for the CY 2012 payment update, we proposed that any HOP 
QDRP participating hospital that wants to withdraw may do so at any 
time from January 1, 2011 to November 1, 2011. Hospitals that withdraw 
during this time period for the CY 2012 payment update would not be 
able to sign up to participate for the CY 2012 payment update, would 
have a 2.0 percentage point reduction in their CY 2012 payment update, 
and would be required to resubmit a participation form in order to 
participate for purposes of any future payment updates. We note that 
once a hospital has submitted a participation form, it is considered to 
be an active HOP QDRP participant until such time as the hospital 
submits a withdrawal form to CMS or the facility is designated as 
closed in the CMS OSCAR system. We invited public comment on this 
proposed policy.
    We did not receive any public comments on our CY 2011 proposals for 
HOP QDRP administrative requirements for the CY 2012 payment 
determination; therefore, we are finalizing our proposals without 
modification.
2. Data Collection and Submission Requirements
a. General Data Collection and Submission Requirements
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46377 through 46379), 
we proposed that, to be eligible for the full CY 2012 OPPS payment 
update, hospitals would be required to:
    <bullet> Submit data: Hospitals that would be participating in the 
HOP QDRP would be required to submit data for each applicable quarter 
by the deadline posted on the QualityNet Web site; there must be no 
lapse in data submission. For the CY 2012 annual payment update, the 
applicable quarters would be as follows: 3rd quarter CY 2010, 4th 
quarter CY 2010, 1st quarter CY 2011, and 2nd quarter CY 2011. 
Hospitals that did not participate in the CY 2011 HOP QDRP, but would 
like to participate in the CY 2012 HOP QDRP, and that have a Medicare 
acceptance date on the OSCAR system before January 1, 2011, would begin 
data submission for 1st quarter CY 2011 services using the CY 2012 
measure set that would be finalized in the CY 2011 OPPS/ASC final rule 
with comment period. For those hospitals with Medicare acceptance dates 
on or after January 1, 2011, data submission must begin with the first 
full quarter following the submission of a completed online 
participation form. For the claims-based measures, we would calculate 
the measures using the hospital's Medicare claims data. For the CY 2012 
payment update, we would utilize paid Medicare FFS claims submitted 
prior to January 1, 2011, to calculate these measures. For the 
structural measure to be used for the CY 2012 payment determination, 
hospitals would be required to submit data beginning with January 1, 
2011 discharges using a Web-based tool available on QualityNet 
beginning in 2011.
    Sampling and Case Thresholds: It would not be necessary for a 
hospital to submit data for all eligible cases for some measures if 
sufficient eligible case thresholds are met. Instead, for those 
measures where a hospital has a sufficiently large number of cases, the 
hospital would sample cases and submit data for these sampled cases 
rather than submitting data from all eligible cases. This sampling 
scheme, which includes the minimum number of cases based upon case 
volume, would be set out in the HOPD Specifications Manual at least 3 
months in advance of the required data collection. We proposed to 
change this notification timeframe for this sampling scheme to at least 
3 months from at least 4 months to be consistent with the HOPD 
Specifications Manual release schedule. Hospitals would be required to 
meet the sampling requirements for required quality measures each 
reporting quarter.
    In addition, in order to reduce the burden on hospitals that treat 
a low number of patients but otherwise meet the submission requirements 
for a particular quality measure, hospitals that have five or fewer 
claims (both Medicare and non-Medicare) for any measure included in a 
measure topic in a quarter would not be required to submit patient 
level data for the entire measure topic for that quarter. Even if 
hospitals would not be required to submit patient level data because 
they have five or fewer claims (both Medicare and non-Medicare) for any 
measure included in a measure topic in

[[Page 72101]]

a quarter, we proposed that they may voluntarily do so.
    Hospitals would be required to submit all required data according 
to the data submission schedule that will be available on the 
QualityNet Web site (https://www.QualityNet.org). This Web site meets 
or exceeds all current HIPAA requirements. Submission deadlines would, 
in general, be 4 months after the last day of each calendar quarter. 
Thus, for example, the submission deadline for data for services 
furnished during the first quarter of CY 2011 (January-March 2011) 
would be on or around August 1, 2011. The actual submission deadlines 
would be posted on the http://www.QualityNet.org Web site.
    Hospitals would be required to submit data to the OPPS Clinical 
Warehouse using either the CMS Abstraction and Reporting Tool for 
Outpatient Department (CART-OPD) measures or the tool of a third-party 
vendor that meets the measure specification requirements for data 
transmission to QualityNet.
    Hospitals would be required to submit quality data through My 
QualityNet, the secure portion of the QualityNet Web site, to the OPPS 
Clinical Warehouse. The OPPS Clinical Warehouse, which is maintained by 
a CMS-designated contractor, would submit the OPPS Clinical Warehouse 
data to CMS. OPPS Clinical Warehouse data are not currently considered 
to be Quality Improvement Organization (QIO) data; rather, we consider 
such data to be CMS data. However, it is possible that the information 
in the OPPS Clinical Warehouse may at some point become QIO 
information. If this occurs, these data would also become protected 
under the stringent QIO confidentiality regulations in 42 CFR part 480.
    Hospitals would be required to collect HOP QDRP data from 
outpatient episodes of care to which the required measures apply. For 
the purposes of the HOP QDRP, an outpatient ``episode of care'' is 
defined as care provided to a patient who has not been admitted as an 
inpatient, but who is registered on the hospital's medical records as 
an outpatient and receives services (rather than supplies alone) 
directly from the hospital. Every effort would be made to ensure that 
data elements common to both inpatient and outpatient settings are 
defined consistently for purposes of quality reporting (such as ``time 
of arrival'').
    Hospitals would be required to submit quality data using the CCN 
under which the care was furnished.
    To be accepted into the OPPS Clinical Warehouse, data submissions, 
at a minimum, would be required to be timely, complete, and accurate. 
Data submissions are considered to be ``timely'' when data are 
successfully accepted into the OPPS Clinical Warehouse on or before the 
reporting deadline. A ``complete'' submission would be determined based 
on whether the data satisfy the sampling criteria that are published 
and maintained in the HOPD Specifications Manual, and must correspond 
to both the aggregate number of cases submitted by a hospital and the 
number of Medicare claims the hospital submits for payment. We are 
aware of ``data lags'' that occur when hospitals submit claims, then 
cancel and correct those claims; efforts would be made to take such 
events into account that can change the aggregate Medicare case counts. 
To be considered ``accurate,'' submissions would be required to pass 
validation, if applicable.
    We strongly recommend that hospitals review OPPS Clinical Warehouse 
feedback reports and the HOP QDRP Provider Participation Reports that 
are accessible through their QualityNet accounts. These reports enable 
hospitals to verify whether the data they or their vendors submitted 
were accepted into the OPPS Clinical Warehouse and the date/time that 
such acceptance occurred. We also note that irrespective of whether a 
hospital submits data to the OPPS Clinical Warehouse itself or uses a 
vendor to complete the submissions, the hospital would be responsible 
for ensuring that HOP QDRP requirements are met.
    Finally, during the past two years of the HOP QDRP, the submission 
of population and sampling data was not required, though hospitals 
could submit, on a voluntary basis, the aggregate numbers of outpatient 
episodes of care which are eligible for submission under the HOP QDRP 
and sample size counts. These aggregated numbers of outpatient episodes 
represent the number of outpatient episodes of care in the universe of 
all possible cases eligible for data reporting under the HOP QDRP. For 
the CY 2012 payment update, we proposed to require submission of this 
population and sample size data. Specifically, we proposed that 
hospitals must submit on a quarterly basis, aggregate population and 
sample size counts for Medicare and non-Medicare encounters for the 
measure populations for which chart-abstracted data must be submitted. 
Under this proposal, hospitals would submit aggregate population and 
sample size counts for measure populations even if the hospital had not 
treated patients in a specific measure population; that is, if a 
hospital has not treated any patients in a specific HOP QDRP measure 
population, the hospital would still be required to submit a zero for 
its quarterly aggregate population and sample counts to meet the 
requirement.
    We believe that hospitals have had sufficient time to become 
familiar with HOP QDRP data and to develop data systems necessary to 
support this requirement. We view it as vital for quality data 
reporting for hospitals to be able to determine accurately their 
aggregate population and appropriate sampling size data to assess their 
completeness of data reporting. We rely on hospitals to properly sample 
cases where sampling occurs so that representative data are submitted; 
for hospitals to correctly sample, it is necessary for them to be able 
to determine their aggregate population sizes. In addition, we believe 
it is beneficial for hospitals to develop systems that can determine 
whether or not they have furnished services or billed for five or fewer 
cases for a particular measure topic on a quarterly basis.
    We proposed that the deadlines for the reporting of aggregate 
numbers of outpatient episodes of care and sample size counts would be 
the same as those for the reporting of data for the measures requiring 
chart abstraction, and these deadlines would be posted on the data 
submission schedule that would be available on the QualityNet Web site. 
Hospitals would be permitted to submit this information prior to the 
deadline; this would allow CMS to advise hospitals regarding their 
incomplete submission status as appropriate and give hospitals 
sufficient time to make appropriate revisions before the data 
submission deadline.
    We plan to use the aggregate population and sample size data to 
assess data submission completeness and adherence to sampling 
requirements for Medicare and non-Medicare patients.
    We invited public comment on these proposed requirements. The 
public comments we received and our responses are outlined below.
    Comment: One commenter supported the requirement that hospital 
outpatient departments report quality data under the HOP QDRP. This 
commenter stated a belief that payment incentives to increase the 
reporting of data by hospital outpatient departments represent a useful 
tool in promoting transparency.
    Response: We thank the commenter for supporting hospital outpatient 
quality data reporting under the HOP QDRP, the use of the 2.0 
percentage

[[Page 72102]]

point reduction for hospitals that do not successfully report quality 
data, and the use of payment incentives to promote transparency.
    Comment: One commenter stated that frontline workers are important 
in data collection and reporting for the HOP QDRP and that the best 
interests of patients would be served if frontline healthcare workers 
are guaranteed a voice in the development and implementation of 
mechanisms to collect quality data.
    Response: We agree with the commenter that those that perform the 
work for data collection and reporting for the HOP QDRP should have a 
voice in the development and implementation of mechanisms to collect 
quality data. To that end, we encourage these workers as well as other 
members of the public to participate in the comment process for the 
OPPS/ASC proposed rule with comment period. In addition, CMS offers 
educational programs, including programs that include discussions of 
proposed and final HOP QDRP requirements and encourages the public to 
submit input directly to the HOP QDRP support contractor or via a 
question and answer tool located at https://cms-ocsq.custhelp.com/cgi-bin/cms_ocsq.cfg/php/enduser/home.php?p_sid=_*crJryj&p_accessibility=0&p_redirect=.
    Comment: One commenter asked for the definition of an outpatient 
and whether this definition would include patients obtaining testing 
only or must patients be in an outpatient bed.
    Response: The term ``outpatient'' is defined in the Medicare Claims 
Processing Manual, Chapter 1, Section 50.3.1. This section states that 
``outpatient'' means a person who has not been admitted as an inpatient 
but who is registered on the hospital or critical access hospital (CAH) 
records as an outpatient and receives services (rather than supplies 
alone) directly from the hospital or CAH.'' Therefore, ``outpatients'' 
could include patients solely obtaining diagnostic services, as well as 
those patients who have been placed in a bed, provided they meet the 
applicable definition of ``outpatient.''
    Comment: Some commenters agreed that hospitals with five or fewer 
claims for a specific measure should not be required to submit patient-
level data for the entire measure topic for that quarter, but should be 
allowed to submit data voluntarily. These commenters stated their 
belief that this exception should apply to hospitals with less than six 
Medicare claims, not less than six claims across all payers.
    Response: We thank the commenters for supporting our policy to not 
require hospitals with five or fewer claims for a specific measure for 
a quarter to submit data while allowing these hospitals to report data 
voluntarily. With respect to the commenters' suggestion that we modify 
our policy to apply to five or fewer Medicare claims (rather than five 
or fewer Medicare and non-Medicare claims), we selected more than 5 
cases per quarter (more than 20 cases per year) as the minimum 
threshold to ensure that the vast majority of hospitals with sufficient 
caseload would be required to submit data, while easing the burden on 
hospitals whose patient counts were too small to reliably report 
hospital measure results. Because we collect data on both Medicare and 
non-Medicare patients, we believe it is appropriate to set our case 
thresholds using the population for which we are collecting data, which 
includes both Medicare and non-Medicare patients.
    Comment: One commenter stated that the term ``encounter'' is not 
defined in the outpatient setting, and it is not so clear cut. This 
commenter questioned for what purpose does the CMS need population and 
sampling data as the proposed rule was not clear about the ultimate 
purpose for these data collections.
    Response: We disagree with the commenter that the term 
``encounter'' is not defined in the outpatient setting. We refer the 
commenter to the definition of hospital outpatient ``encounter'' in the 
CMS Medicare Benefit Policy Manual, Chapter 6, Section 20.3, which 
states the following: ``A hospital outpatient `encounter' is a direct 
personal contact between a patient and a physician, or other person who 
is authorized by State licensure law and, if applicable, by hospital or 
CAH staff bylaws, to order or furnish hospital services for diagnosis 
or treatment of the patient.'' Regarding the ultimate purpose of 
reported population and sampling data, as we have stated previously, 
(74 FR 60645), and in this proposed rule with comment period, we plan 
to use the aggregate population and sample size data to assess data 
submission completeness and adherence to sampling requirements for 
Medicare and non-Medicare patients. Further, as we stated in our 
proposal, we view it as vital for quality data reporting that hospitals 
be able to determine accurately their aggregate population and 
appropriate sampling size data to assess their completeness of data 
reporting.
    Comment: Many commenters stated their belief that collecting 
population and sampling data for outpatient measures is burdensome and 
time-consuming for hospitals. These commenters urged CMS to not 
finalize this provision to collect such data as the challenges to do so 
are particularly great for both larger hospitals and smaller hospitals. 
Some of these commenters cited specific underlying factors for 
hospitals of certain size; that larger hospitals have very large 
patient populations and smaller hospitals have less integrated HIT 
systems. Some commenters expressed concern that identifying outpatient 
populations is difficult and that it may not be possible for an all-
payer patient population because outpatient billing is more varied and 
less defined than inpatient billing. One commenter stated that unlike 
inpatient information which is located in a single facility, outpatient 
population and sample size data may be located in diverse outpatient 
settings and a hospital's ability to manage this data from diverse 
sources could be problematic because of the time, cost, and resource 
commitment for this requirement. One commenter stated that in some 
cases hospital charges are written off or not billed in favor of 
physician charges so querying the UB-04 data for such cases would 
retrieve an incomplete patient population and would exclude non-
Medicare patients. One commenter suggested that CMS wait until the 
meaningful use implementation of EHRs is completed before requiring the 
reporting of population and sampling data because this would eliminate 
the burden on hospital staff to pull data from multiple sources to 
obtain population size. One commenter stated that it foresaw the 
implementation of the population and sample data reporting requirement 
as extremely problematic.
    Response: We understand the commenters' concerns that outpatient 
billing could be more varied and less defined than inpatient billing 
and that there could be issues with charge write-offs and other billing 
factors that could complicate a hospital's determination of outpatient 
population sizes. We acknowledge that the adoption of EHRs could 
facilitate the determination of outpatient population sizes. We also 
acknowledge that we have seen evidence that some hospitals would not be 
able to meet the reporting of population and sampling size requirement 
due to issues such as the information being located in multiple areas. 
We have noted this issue in previous rulemaking (74 FR 60645). We note 
that the HOP QDRP is entering its third year of quality data reporting 
and believe that it would be beneficial for hospitals to develop 
systems that can determine their population sizes for

[[Page 72103]]

outpatient quality measures so they can assess their completeness of 
reporting and accuracy of their sample size selections.
    However, after consideration of the public comments we received, we 
have decided to not finalize our proposal to require the reporting of 
population and sample size data and instead continue our policy of 
accepting the submission of this information on a voluntary basis for 
the CY 2012 payment determination. In the past we have recognized that 
collecting this information can be burdensome and time consuming for 
some hospitals for their outpatient populations. Based upon the 
comments we received, we are convinced that these issues remain for a 
significant number of hospitals.
    For all other CY 2011 proposals for general data collection and 
submission requirements (that is, those proposals aside from the 
population and sampling data reporting requirement), we did not receive 
any comments and we are finalizing these proposals without 
modification.
b. Extraordinary Circumstance Extension or Waiver for Reporting Quality 
Data
    In our experience, there have been times when hospitals have been 
unable to submit required quality data due to extraordinary 
circumstances that are not within their control. It is our goal to not 
penalize hospitals for such circumstances and we do not want to unduly 
increase their burden during these times. Therefore, in the CY 2010 
OPPS/ASC final rule with comment period (74 FR 60046 through 600647), 
we adopted a process for hospitals to request and for CMS to grant 
extensions or waivers with respect to the reporting of required quality 
data when there are extraordinary circumstances beyond the control of 
the hospital. In the CY 2011 OPPS/ASC proposed rule (75 FR 46379), we 
proposed to retain these procedures with some proposed modifications.
    Under the process, in the event of extraordinary circumstances, 
such as a natural disaster, not within the control of the hospital, for 
the hospital to receive consideration for an extension or waiver of the 
requirement to submit quality data for one or more quarters, a hospital 
would submit to CMS a request form that would be made available on the 
QualityNet Web site. The following information should be noted on the 
form:
    <bullet> Hospital CCN;
    <bullet> Hospital Name;
    <bullet> CEO and any other designated personnel contact 
information, including name, e-mail address, telephone number, and 
mailing address (must include a physical address; a post office box 
address is not acceptable);
    <bullet> Hospital's reason for requesting an extension or waiver;
    <bullet> Evidence of the impact of the extraordinary circumstances, 
including but not limited to photographs, newspaper and other media 
articles; and
    <bullet> A date when the hospital would again be able to submit HOP 
QDRP data, and a justification for the proposed date.
    The request form would be signed by the hospital's CEO. A request 
form would be required to be submitted within 45 days of the date that 
the extraordinary circumstance occurred. We proposed to remove the 
requirement found in the CY 2010 OPPS/ASC final rule with comment 
period (74 FR 60646) that the hospital include an identified reason for 
requesting an extension or waiver in addition to the hospital's reason 
for requesting an extension or waiver as a requirement. We believe that 
this requirement is redundant and removing it will reduce unnecessary 
hospital burden.
    Following receipt of such a request, CMS would--
    (1) Provide a written acknowledgement using the contact information 
provided in the request, to the CEO and any additional designated 
hospital personnel, notifying them that the hospital's request has been 
received;
    (2) Provide a formal response to the CEO and any additional 
designated hospital personnel using the contact information provided in 
the request notifying them of our decision; and
    (3) Complete any CY 2011 request for Extraordinary Circumstance 
Extension or Waiver for Reporting Quality Data requests reviews and 
communicate the results of these determinations within 90 days 
following our receipt of such a request. We proposed to add a deadline 
for a CMS response so that hospitals can have a designated timeline for 
when they should receive such a response.
    This proposal would not preclude us from granting waivers or 
extensions to hospitals that have not requested them when we determine 
that an extraordinary circumstance, such as an act of nature (for 
example, hurricane) affects an entire region or locale. If we make the 
determination to grant a waiver or extension to hospitals in a region 
or locale, we would communicate this decision to hospitals and vendors 
through routine communication channels, including but not limited to e-
mails and notices on the QualityNet Web site. We invited public comment 
on these proposals.
    We did not receive any public comments on our CY 2011 proposals for 
extraordinary circumstance extensions or waivers for the reporting of 
quality data under the HOP QDRP; therefore, we are finalizing our 
proposals without modification.
3. HOP QDRP Validation Requirements for Chart-Abstracted Data: Data 
Validation Approach for CY 2012 and Subsequent Years
a. Background
    In the CY 2010 OPPS/ASC proposed rule, we solicited public comments 
on our proposed validation methodology (74 FR 35403 through 35404). We 
stated that we are considering building upon what we proposed as a 
validation approach for CY 2012 and subsequent years by, in addition to 
selecting a random sample of hospitals for validation purposes, 
selecting targeted hospitals based on criteria designed to measure 
whether the data they have reported raises a concern regarding data 
accuracy. These possible targeting criteria included identified 
abnormal data patterns, whether a hospital had previously failed 
validation, whether a hospital had not been previously selected for 
validation for 2 or more consecutive years, and some combination of 
some or all of the criteria.
    We solicited public comments on whether such criteria, or another 
approach, should be applied in future years. We especially solicited 
suggestions for additional criteria that could be used to target 
hospitals for validation. We greatly appreciate all the public comments 
we received regarding the validation process proposed for CY 2012 and 
subsequent years. We responded to public comments on our proposed 
methodology for CY 2012 and subsequent years but did not finalize a 
validation process in the CY 2010 OPPS/ASC final rule with comment 
period 74 FR 60650 through 60652). We noted that we would take all of 
the comments we received into account when we develop our validation 
proposals for CY 2012.
b. Data Validation Requirements for CY 2012
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46379 through 46381), 
similar to our proposed and adopted validation plan for the FY 2012 
Hospital Inpatient Quality Reporting Program, we proposed to validate 
data from 800 randomly selected hospitals (approximately 20 percent of 
all participating HOP QDRP hospitals) each year, beginning with CY 2012 
payment determination. We proposed to sample 800 hospitals because we 
believe, based

[[Page 72104]]

upon sampling simulation studies using HOP QDRP data, that sampling 
this number would provide a sufficient number for a representative 
sample of hospitals on various strata (for example, urban, rural, bed-
size) while significantly reducing overall hospital burden. For the CY 
2012 payment determination, we would select only from hospitals 
participating for the CY 2012 payment update, so if a hospital 
submitted data for the CY 2011, but withdrew, this hospital would not 
be deemed as eligible for selection. We noted that because 800 
hospitals would be selected randomly, every HOP QDRP-participating 
hospital would be eligible each year for validation selection.
    For each selected hospital, we proposed to randomly select up to a 
total of 48 self-reported cases from the total number of cases (12 per 
quarter) that the hospital successfully submitted to the OPPS Clinical 
Warehouse. However, if a selected hospital has submitted less than 12 
cases in any quarter, only those cases available would be validated. We 
believe that validating a larger number of cases per hospital, but only 
for 800 randomly selected hospitals, and validating these cases at the 
measure level (rather than the data element level) has several 
benefits. We proposed up to a total of 48 cases per hospital because a 
sample size of about 50 is considered sufficient for detecting 
relationships and correlations, so a larger sample size is not deemed 
necessary (for reference, see Wilson Van Voohis, Carmen R. and Morgan, 
Betsey L., (2007), Understanding Power and Rules of Thumb for 
Determining Sample Sizes, Tutorials in Quantitative Methods for 
Psychology, Volume 3(2), Pages 43-50). We believe that this approach is 
suitable for HOP QDRP data because it will: Produce a more reliable 
estimate of whether a hospital's submitted data have been abstracted 
accurately; provide more statistically reliable estimates of the 
quality of care delivered in each selected hospital as well as at a 
national level; and reduce overall hospital burden because most 
hospitals will not be selected to undergo validation each year.
    We would not be selecting cases stratified by measure or topic; our 
interest is whether the data submitted by hospitals accurately reflect 
the care delivered and documented in the medical record, not what the 
accuracy is by measure or whether there are differences by topic. 
Additionally, we note that, due to the distribution of HOP QDRP data 
submitted to date by hospital size, the data do not lend themselves to 
sampling by topic area. Specifically, small hospitals tend to have more 
AMI Cardiac Care cases and fewer Surgical Care cases, whereas, larger 
hospitals tend to have few if any AMI Cardiac Care cases and more 
Surgical Care cases.
    Analysis of submitted HOP QDRP data indicate that this sampling 
design would provide sufficient number of denominator cases per measure 
for determination of national and individual hospital measure estimates 
with acceptable levels of statistical certainty.
    We proposed to sample data for April 1, 2010 to March 31, 2011 
services because this would provide a full year of the most recent data 
possible to use for the purpose of completing the validation in 
sufficient time for us to make the CY 2012 payment determinations.
    A designated CMS contractor would, each quarter that applies to the 
validation, ask each of the 800 selected hospitals to submit medical 
documentation for up to 12 randomly selected cases submitted to and 
accepted by the HOP QDRP Clinical Warehouse. The CMS contractor would 
request paper copies of medical documentation corresponding to selected 
cases from each hospital via certified mail or other trackable method 
that requires a hospital representative to sign for the request letter; 
a trackable method would be utilized so that CMS would be assured that 
the hospital received the request. The hospital would have 45 calendar 
days from the date of the request as documented in the request letter 
to submit the requested documentation and have the documentation 
received by the CMS contractor. If the hospital does not comply within 
30 calendar days of receipt of the initial medical documentation 
request, the CMS contractor would send a second letter by certified 
mail or other trackable method to the hospital, reminding the hospital 
that paper copies of the requested documentation must be submitted and 
received within 45 calendar days following the date of the initial CMS 
contractor request. If the hospital does not submit the requested 
documentation and the documentation is not received by the CMS 
contractor within the 45 calendar days, then the CMS contractor would 
assign a ``zero'' score to each data element for each selected case and 
the case would fail for all measures in the same topic (for example, 
OP-6 and OP-7 measures for a Surgical Care case).
    We proposed that the letter from the designated CMS contractor 
would be addressed to the hospital's medical record staff identified by 
the hospital for the submission of records under the Hospital Inpatient 
Quality Reporting Program (that is, the hospital's medical records 
staff identified by the hospital to their State QIO). If CMS has 
evidence that the hospital received both letters requesting medical 
records, the hospital would be deemed responsible for not returning the 
requested medical record documentation and the hospital would not be 
allowed to submit such medical documentation as part of its 
reconsideration request so that information not utilized in making a 
payment determination is not included in any reconsideration request.
    Once the CMS contractor receives the requested medical 
documentation, the contractor would independently reabstract the same 
quality measure data elements that the hospital previously abstracted 
and submitted, and the contractor would then compare the two sets of 
data to determine whether the two sets of data match. Specifically, the 
contractor would conduct a measures level validation by calculating 
each measure within a submitted case using the independently 
reabstracted data and then comparing this to the measure reported by 
the hospital; a percent agreement would then be calculated. 
Specifically, the validation score for a hospital would equal the total 
number of measure matches divided by the total number of measures 
multiplied by 100 percent.
    This method is the same as recommended in the CMS Hospital Value-
Based Purchasing Report to Congress and is illustrated more fully on 
pages 83-84 of this report which can be found on our Web site at: 
http://www.cms.hhs.gov/AcuteInpatientPPS/downloads/
HospitalVBPPlanRTCFINALSUBMITTED2007.pdf. We believe that this approach 
is appropriate and it was supported by many commenters when we 
requested comment on HOP QDRP validation requirements outlined in the 
CY 2010 OPPS/ASC proposed rule (74 FR 35402 through 35403; 74 FR 60647 
through 60652).
    To receive the full OPPS payment update, we proposed that hospitals 
must attain at least a 75 percent validation score, based upon our 
validation process, for the designated time period. We have selected 75 
percent as the threshold for the validation score because we believe 
this level is reasonable for hospitals to achieve while still ensuring 
accuracy of the data. Additionally, this level is consistent with what 
we proposed and adopted for the Hospital Inpatient Quality Reporting 
Program (75 FR 23993 and 75 FR 50226). Since we are not validating all 
hospital measures submitted, it is necessary to calculate a confidence

[[Page 72105]]

interval that incorporates sampling error. We would use the upper bound 
of a one-tailed 95 percent confidence interval to estimate the 
validation score. We proposed to use a one-tail confidence interval to 
calculate the validation score because it appropriately reflects our 
concern of whether the confidence interval for the calculated 
validation score includes or is above the 75 percent validation 
threshold for a hospital to be considered as submitting accurate data. 
If the calculated upper limit is above the required 75 percent 
validation score threshold, we would consider a hospital's data to be 
``validated'' for payment purposes. The use of a one-tailed confidence 
interval and the 75 percent and threshold level are the same as those 
finalized for the Hospital Inpatient Quality Reporting Program for FY 
2012 payment determinations (75 FR 23991 through 23993).
    For derivation of the upper bound of a one-tailed 95 percent 
confidence interval we proposed to use a binomial distribution approach 
as we are looking at the percentage of measures submitted by a hospital 
matching what is calculated from the reabstracted data. Since the 
measure match rate for each hospital is a proportion, a binomial 
approach is appropriate, see Pagano, Robert R., (1990), Understanding 
Statistics in the Behavioral Sciences, 3rd Edition, Pages 175-188.
    Thus, we proposed the following formula which includes a finite 
population correction factor and a continuity correction factor for 
calculating the upper bound of the one-tailed 95 percent confidence 
interval:
[GRAPHIC] [TIFF OMITTED] TR24NO10.313

    In this formula, N represents the population for the reporting 
year, n represents the sample size for the reporting year, p 
(calculated as a percentage) represents the validation score for the 
reporting year (that is, the percentage of measures matching), and 1-p 
represents the percentage of measures not matching. It should be noted 
that a confidence interval would not need to be calculated for 
hospitals that did not have enough cases to sample as the confidence 
interval is equal to zero (when the value of N is equal to n, N minus n 
equals zero and the upper confidence limit is equal to the validation 
score in the above formula). In addition, a confidence interval would 
not need to be calculated for those hospitals that have a validation 
score, p, that is greater than or equal to 75 percent because the 
hospital has attained the minimum threshold; the upper bound of any 
calculated confidence interval would be 75 percent or greater.
    For further information on the proposed methodology for calculation 
of a 95 percent confidence interval for a binomial distribution 
utilizing a finite population correction, see http://itl.nist.gov/div898/handbook/prc/section2/prc24.htm and http://courses.wcupa.edu/rbove/Berenson/10th%20ed%20CD-ROM%20topics/section7_3.pdf.
    We solicited public comments on this proposed validation 
methodology. The public comments we received and our responses are 
outlined below.
    Comment: Several commenters supported the proposal to validate the 
accuracy of a hospital's measurement rate rather than on individual 
data elements and stated that by focusing on the hospital's measure 
rate, CMS is focusing on the information most important to patient 
care.
    Response: We thank the commenters and appreciate their support. We 
agree that by utilizing a match rate at the measure level, we are 
focusing on the information most relevant to measuring the accuracy of 
this data which is important to patient care.
    Comment: Several commenters supported the proposed validation 
approach of reviewing 48 medical charts (12 per quarter) from 800 
randomly selected hospitals each year with the review assessing the 
accuracy of each hospital's measure rate, reflecting whether or not the 
hospital classified patients appropriately into the measure 
denominators and numerators. Some of these commenters stated their 
belief that this approach holds promise as a reasonable approach to 
ensure the accuracy of the data.
    Response: We thank the commenters and appreciate their support. We 
agree with the commenters that the proposed validation process 
beginning with CY 2012 is an improved and reasonable approach for 
ensuring data accuracy. We also agree that a validation process is 
important in public reporting of quality data and believe that 
consistency between quality data reporting programs is important. 
Regarding the commenters who stated that our proposed validation method 
for assessing accuracy reflects whether or not the hospital classified 
patients appropriately into the measure denominators and numerators, we 
want to clarify that what we are assessing is whether, for each 
selected hospital-reported measure, the data that the hospital reported 
matches what is determined by independent abstraction. We are not 
assessing whether the hospital classified patients appropriately into 
the measure denominators and numerators.
    Comment: One commenter disagreed with the random sampling of 
hospitals methodology and believed that all hospitals should be held 
accountable equally via a valid sample based on local practice 
patterns. This commenter also urged CMS to delegate targeted reviews to 
the State QIOs on a more proactive basis so that they are addressed in 
a more immediate timeframe, not leaving it to chance that a hospital 
with poor data quality will be identified randomly.
    Response: Under the HOP QDRP, all hospitals are responsible for 
submitting accurate data. Because all reporting hospitals will be 
subject to selection for validation each payment determination year, we 
believe that all hospitals will have incentive to maintain data 
quality. Regarding the use of State QIOs in performing targeted 
reviews, the HOP QDRP was implemented separately from the QIO program 
and State QIOs have not been involved with the HOP QDRP to date. We 
note that we intend to provide support for data quality issues to 
individual hospitals through existing support mechanisms, including 
QualityNet reports and existing support contractors. In addition, we 
have included criteria aimed at data quality concerns among our 
targeting criteria for data validation conditions under consideration 
for CY 2013 and subsequent years.
    Comment: Several commenters agreed with having a minimum of 75 
percent reliability from chart abstraction for hospitals to pass 
validation. These commenters stated their view that adopting the same 
approach regarding validation for the inpatient and

[[Page 72106]]

outpatient quality measure programs enhanced consistency between the 
two programs. One commenter supported the proposed validation program 
for outpatient data reporting as it is harmonized with the inpatient 
program. One commenter stated its recognition of the important role of 
validation in the public reporting process and because the proposed 
process mirrors some of the current validation processes they supported 
the proposed approach.
    Response: We thank the commenters and appreciate their support. We 
agree that consistency between quality data reporting programs is 
important. We note that we strive to maintain consistency between the 
inpatient and outpatient data reporting programs, with differences 
occurring due to differences in data or data systems between the 
programs.
    Comment: One commenter stated that the proposed validation 
requirements are reasonable and would be acceptable to providers if it 
were the only Federal data submission requirement. This commenter was 
concerned that the record requests for validation would supplement 
those already established as part of Federal integrity audit processes 
(for example, RAC, Medicaid Integrity, ZPIC, and MAC) and facilities 
would receive multiple requests from each contracted entity 
significantly increasing hospital provider's labor investment and 
costs. This commenter urged CMS to review the validation process with 
respect to other data requirements rather than seeing it as a single 
request, and to consider the operational impact that receiving multiple 
audit entity requests will have on any single provider.
    Response: We understand the commenter's concern regarding multiple 
Federal medical record requests. For HOP QDRP validation, we have 
worked to limit overall burden by reducing the number of hospitals 
participating annually in validation through our random sampling of 
hospitals. In addition, hospitals will be reimbursed for photocopying 
and mailing costs as they are under the Hospital Inpatient Quality 
Reporting Program, thus, reducing the burden in submitting medical 
record documentation for HOP QDRP validation purposes. We agree that 
efforts should be made to keep record requests for validation purposes 
at the minimum necessary to ensure accuracy of submitted data and will 
consider ways to do so in future rulemaking.
    Comment: Some commenters asked if their assumption that validation 
of the Imaging Efficiency measures would not be required as part of the 
data validation process since the analysis is done through claims data 
is correct.
    Response: The commenters' assumption is correct. Validation of the 
Imaging Efficiency measures would not be required as part of the data 
validation process because that process, at the present time, only 
applies to chart-abstracted measures.
    Comment: One commenter recommended a phased-in approach, with the 
first year being a ``test run'' to allow hospitals the opportunity to 
become familiar with the HOP QDRP validation program.
    Response: We believe the commenter is asking CMS to allow hospitals 
to first receive experience with the validation process without their 
payment being affected. We also believe that our validation process for 
the CY 2011 payment determination (74 FR 60647 through 60648) fulfills 
this recommendation.
    After consideration of the public comments we received we are 
adopting as final, without modification, our proposals regarding 
validation for the CY 2012 payment determination.
c. Additional Data Validation Conditions under Consideration for CY 
2013 and Subsequent Years
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46381), we stated that 
we are considering building upon what we proposed as a validation 
approach for the HOP QDRP. We are considering, in addition to selecting 
a random sample of hospitals for validation purposes, selecting 
targeted hospitals based on criteria designed to measure whether the 
data they have reported raises a concern regarding data accuracy. 
Because hospitals have gained little experience with validation under 
the HOP QDRP, we are considering this approach for possible use 
beginning with the CY 2013 payment determination. Examples of targeting 
criteria could include:
    <bullet> Abnormal data patterns identified such as consistently 
high HOP QDRP measure denominator exclusion rates resulting in 
unexpectedly low denominator counts;
    <bullet> Whether a hospital had previously failed validation;
    <bullet> Whether a hospital had not been previously selected for 
validation for 2 or more consecutive years;
    <bullet> Whether a hospital had low submitted case numbers relative 
to population sizes; and/or
    <bullet> Whether a hospital had any extreme outlier values for 
submitted data elements.
    We invited comment on whether, in addition to random sampling for 
validation, we should use targeted validation and, if so, what criteria 
for targeting we should adopt.
    Comment: One commenter believed that no single hospital should be 
at risk for being selected for validation for multiple years and that 
targeting criteria should be used to ensure that hospitals are not 
over-selected.
    Response: We understand the commenter's concern that hospitals 
could be selected for validation in multiple years due to the use of 
targeting criteria. We will take this comment into consideration as we 
consider whether to propose targeting criteria that could result in a 
hospital being selected for validation for multiple years as a part of 
the validation process.
    We thank the commenters for their views on these issues and will 
take them into account when considering further criteria for the 
validation process for CY 2013 and subsequent years. We note that for 
the CY 2013 payment determination, HOP QDRP quality data reporting will 
have been completed for four payment determinations: CYs 2009, 2010, 
2011, and 2012. Further, hospitals will have had the opportunity to 
learn from the validation process for the CY 2011 and CY 2012 payment 
determinations. We also believe that all of the targeting criteria we 
discuss above are reasonable. We intend to propose targeting criteria 
in the validation process for CY 2013 and subsequent years in our CY 
2012 OPPS/ASC proposed rule.

E. HOP QDRP Reconsideration and Appeals Procedures

    When the Hospital Inpatient Quality Reporting Program was initially 
implemented, it did not include a reconsideration process for 
hospitals. Subsequently, we received many requests for reconsideration 
of those payment decisions and, as a result, established a process by 
which participating hospitals would submit requests for 
reconsideration. We anticipated similar concerns with the HOP QDRP and, 
therefore, in the CY 2008 OPPS/ASC final rule with comment period (72 
FR 66875), we stated our intent to implement for the HOP QDRP a 
reconsideration process modeled after the reconsideration process we 
implemented for the Hospital Inpatient Quality Reporting Program. In 
the CY 2009 OPPS/ASC final rule with comment period (73 FR 68779), we 
adopted a mandatory reconsideration process that applied to the CY 2010 
payment decisions. In the CY 2010 OPPS/ASC final rule with comment 
period (74 FR 60654 through

[[Page 72107]]

60655), we continued this process for the CY 2011 payment update. In 
the CY 2011 OPPS/ASC proposed rule (75 FR 46381 through 46382), we 
proposed to continue this process for the CY 2012 payment update with 
some modification. Under this proposed process, the hospitals must--
    <bullet> Submit to CMS, via QualityNet, a Reconsideration Request 
form that would be made available on the QualityNet Web site; this form 
would be submitted by February 3, 2012, and would contain the following 
information:
    oo Hospital CCN.
    oo Hospital Name.
    oo CMS-identified reason for failure (as provided in any CMS 
notification of failure to the hospital).
    oo Hospital basis for requesting reconsideration. This would 
identify the hospital's specific reason(s) for believing it met the HOP 
QDRP requirements and should receive a full annual payment update.
    oo CEO and any additional designated hospital personnel contact 
information, including name, e-mail address, telephone number, and 
mailing address (must include physical address, not just a post office 
box).
    oo A copy of all materials that the hospital submitted in order to 
receive the full payment update for CY 2012. Such material would 
include, but may not be limited to, the applicable Notice of 
Participation form or completed online registration form, and quality 
measure data that the hospital submitted via QualityNet.
    <bullet> Submit paper copies of all the medical record 
documentation that it submitted for the initial validation. Hospitals 
would submit this documentation to a designated CMS contractor which 
would have authority to review patient level information. We would post 
the address where hospitals are to ship this documentation on the 
QualityNet Web site. Final review of all mismatched data under a 
reconsideration request would be done by CMS.
    <bullet> Provide a written justification for each appealed data 
element classified during the validation process as a mismatch. Only 
data elements that affect a hospital's validation score would be 
subject to reconsideration. We would review the data elements that were 
labeled as mismatched as well as the written justifications provided by 
the hospitals, and make a decision on the reconsideration request.
    For CY 2011 reconsiderations, we required that a reconsideration 
request must be signed by the hospital CEO (74 FR 60654). However, we 
have found that this requirement increases the burden for hospitals as 
it hampers the electronic submission of the HOP QDRP reconsideration 
request form. Thus, we did not propose to include this requirement; for 
CY 2012 reconsiderations, reconsideration request forms would not need 
to be signed by the hospital's CEO.
    Following receipt of a request for reconsideration, CMS would--
    <bullet> Provide an e-mail acknowledgement, using the contact 
information provided in the reconsideration request, to the CEO and any 
additional designated hospital personnel notifying them that the 
hospital's request has been received.
    <bullet> Provide a formal response to the hospital CEO and any 
additional designated hospital personnel, using the contact information 
provided in the reconsideration request, notifying the hospital of the 
outcome of the reconsideration process.
    We intend to complete any CY 2012 reconsideration reviews and 
communicate the results of these determinations within 90 days 
following the deadline for submitting requests for reconsideration. In 
the CY 2010 OPPS/ASC final rule with comment period 74 FR 60654 through 
60655), in response to a comment, we indicated that we would ``complete 
any reconsideration reviews and communicate the results of these 
determinations within 60 to 90 days following the date we receive the 
request for reconsideration.'' In the CY 2011 OPPS/ASC proposed rule 
(75 FR 46382), we proposed to refine how we describe the time frame for 
CY 2011 from ``60 to 90 days'' to within ``90 days'' because 
designating a range of dates is unnecessary for this provision.
    If a hospital is dissatisfied with the result of a HOP QDRP 
reconsideration decision, we proposed that the hospital may file an 
appeal under 42 CFR Part 405, Subpart R (PRRB appeal).
    Similar to what we proposed and finalized for the Hospital 
Inpatient Quality Reporting Program, the scope of our review when a 
hospital requests reconsideration because it failed our validation 
requirement would be as follows:
    <bullet> Hospital requests reconsideration for CMS contractor-
abstracted data elements classified as mismatches affecting validation 
scores. Hospitals would be required to have timely submitted requested 
medical record documentation to the CMS contractor during the quarterly 
validation process for the requested case to be eligible to be 
reconsidered on the basis of mismatched data elements.
    <bullet> Hospital requests reconsideration for medical records 
submitted during the quarterly validation process and classified as 
invalid record selection. Invalid record selections would be defined as 
medical records submitted by hospitals during the quarterly validation 
process that do not match the patient's episode of care information as 
determined by the designated re-abstracting CMS contractor. In other 
words, the contractor determines that the hospital returned medical 
documentation that is different from that which was requested. If this 
designated contractor determines that the hospital submitted invalid or 
incorrect medical documentation, it would award a zero validation score 
for the case. During the reconsideration process, our review of invalid 
record selection would initially be limited to determining whether the 
medical documentation submitted initially to the designated CMS 
contractor was for the designated episode of care. If we determine 
during reconsideration that the hospital did submit medical 
documentation corresponding to the designated episode of care, then we 
would abstract data elements from the medical record documentation 
submitted by the hospital; otherwise, the case would not be abstracted.
    <bullet> Hospital requests reconsideration for medical records not 
submitted to the CMS contractor within the 45 calendar day deadline. 
Our review would initially be limited to determining whether the CMS 
contractor received the requested medical record documentation within 
45 calendar days, and whether the hospital received the initial medical 
record request and reminder notice. If we determine during 
reconsideration that the CMS contractor did receive the paper copy of 
the requested, supporting medical record documentation within 45 
calendar days, then we would abstract data elements from the medical 
record documentation submitted by the hospital. If we determine that 
the hospital received two letters requesting medical documentation and 
still did not submit the requested documentation within the 45 calendar 
day period, CMS would not accept this documentation as part of the 
reconsideration and CMS would not abstract data from this 
documentation.
    In sum, we proposed to initially limit the scope of our 
reconsideration reviews involving validation to information already 
submitted by the hospital during the quarterly validation process, and 
we would not abstract submitted medical record documentation that was 
not submitted to the CMS contractor during the quarterly validation 
process.

[[Page 72108]]

We would expand the scope of our reconsideration reviews involving 
validation only if we find during the initial review that the hospital 
correctly and timely submitted the requested medical record 
documentation; only then would we abstract data elements from the 
medical record documentation submitted by the hospital as part of our 
reconsideration review.
    If a hospital is dissatisfied with the result of a HOP QDRP 
reconsideration decision, the hospital would be able to file an appeal 
under 42 CFR Part 405, Subpart R (PRRB appeal).
    We did not receive any public comments on our CY 2012 proposals for 
HOP QDRP reconsideration and appeals procedures; therefore, we are 
finalizing our proposals without modification.

F. Reporting of ASC Quality Data

    As discussed above, section 109(b) of the MIEA-TRHCA amended 
section 1833(i) of the Act by redesignating clause (iv) as clause (v) 
and adding new clause (iv) to paragraph (2)(D) and by adding new 
paragraph (7). These amendments authorize the Secretary to require ASCs 
to submit data on quality measures and to reduce the annual payment 
update in a year by 2.0 percentage points for ASCs that fail to do so. 
However, these provisions permit, but do not require, the Secretary to 
take such action.
    In the CY 2008 OPPS/ASC final rule with comment period (72 FR 
66875), the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68780), and the CY 2010 OPPS/ASC final rule with comment period (74 FR 
60656), we indicated that we intend to implement the provisions of 
section 109(b) of the MIEA-TRHCA in a future rulemaking. While 
promoting high quality care in the ASC setting through quality 
reporting is highly desirable and fully in line with our efforts under 
other payment systems, the transition to the revised payment system in 
CY 2008 posed significant challenges to ASCs, and we determined that it 
would be most appropriate to allow time for ASCs to gain some 
experience with the revised payment system before introducing other new 
requirements. Further, by implementing quality reporting under the OPPS 
prior to establishing quality reporting for ASCs, CMS would gain 
experience with quality measurement in the ambulatory setting in order 
to identify the most appropriate measures for quality reporting in ASCs 
prior to the introduction of the requirement for ASCs. Finally, we are 
sensitive to the potential burden on ASCs associated with chart 
abstraction and believe that adopting such measures at this time is in 
contrast with our desire to minimize collection burden, particularly 
when measures may be reported via EHRs in the future.
    We continue to believe that promoting high quality care in the ASC 
setting through quality reporting is highly desirable and fully in line 
with our efforts under other payment systems. However, we continue to 
have the concerns outlined above for CY 2011. In the CY 2011 OPPS/ASC 
proposed rule (75 FR 46383), we stated that we intend to implement the 
provisions of section 109(b) of the MIEA-TRHCA in a future rulemaking. 
We invited public comment on: (1) The deferral of quality data 
reporting for ASCs; (2) suggestions for quality measures geared toward 
the services provided by ASCs; and (3) potential reporting mechanisms 
for ASC quality data, including electronic submission of these data. In 
addition, we invited public comment on the following measures under 
future consideration for ASC quality data reporting:
    <bullet> Patient Fall in the ASC;
    <bullet> Patient Burn;
    <bullet> Hospital Transfer/Admission;
    <bullet> Wrong Site, Side, Patient, Procedure, Implant;
    <bullet> Prophylactic IV Antibiotic Timing;
    <bullet> Appropriate Surgical Site Hair Removal;
    <bullet> Surgical site infection (SSI);
    <bullet> Medication administration variance (MAV);
    <bullet> Medication reconciliation; and
    <bullet> VTE measures: Outcome/assessment/prophylaxis.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46383), we note that 
section 3006(f) of the Affordable Care Act, added by section 10301(a) 
of the Affordable Care Act, requires CMS to develop a plan to implement 
a value-based purchasing program for ASCs; this plan is due to Congress 
by January 1, 2011. We stated that we intend to align implementation of 
ASC quality reporting to be consistent with the value-based purchasing 
plan that will be developed and that we intend to propose implementing 
the provisions of section 109(b) of the MIEA-TRHCA in CY 2012 
rulemaking. We invited public comment on: (1) The timing of 
implementing quality data reporting for ASCs; (2) suggestions for 
quality measures for services provided by ASCs; and (3) potential 
reporting mechanisms for ASC quality data, including electronic 
submission of these data.
    Comment: Several commenters agreed with CMS' intention to defer 
quality data reporting for ASCs. Some commenters supported CMS's 
rationale for the approach, that is, enabling ASCs to gain experience 
with the recently launched payment system and permitting CMS to gain 
experience in the HOPD setting before implementing quality data 
reporting requirements for ASCs. Several commenters supported CMS' 
decision to move with caution in expanding quality data reporting to 
the ASC setting and appreciated CMS' sensitivity to administrative 
burdens faced by ASCs. Commenters stated that it would be beneficial to 
allow extra time in planning a quality data reporting program for ASCs 
in order to assess implementation challenges and identify appropriate 
measures.
    Response: We thank the commenters for their support for delaying 
quality data reporting for ASCs and their agreement with our reasons 
for doing so.
    Comment: Numerous commenters urged CMS to begin the ASC quality 
data reporting program as soon as possible. Many commenters indicated 
that the collection and reporting of quality data is a common practice 
for ASC facilities, as 35 States are currently collecting ASC quality 
data. The industry is eager to make quality data available to consumers 
in a manner that facilitates direct comparisons between equivalent 
surgical care delivered in HOPDs and ASCs. Some commenters urged CMS to 
implement a quality data reporting system for ASCs, out of concern that 
data has shown there are common occurrences of lapses in infection 
control in ASCs in three States. One commenter was concerned about the 
continued delay in a quality measurement and reporting program for the 
rapidly growing ASC setting and indicated that, by now, it should be 
technically feasible for ASCs to report on quality measures. One 
commenter recommended the adoption of NQF-endorsed electronic measures 
and limiting implementation to no more than three measures in the first 
reporting year. The commenter also urged CMS to keep the results of ASC 
quality reporting confidential for the first year.
    Response: We recognize that it is beneficial for consumers to be 
able to compare the quality of surgical care across HOPDs and ASCs. We 
intend to begin this reporting program as soon as it is feasible. We 
thank the commenters for these suggestions. We will take them into 
consideration in the planning process for ASC quality measure data 
reporting.
    Comment: One commenter stated that the use of EHRs in ASCs is still 
not widespread, so CMS should consider alternative reporting mechanisms 
such as registry-based reporting.

[[Page 72109]]

    Response: We thank the commenter for the suggestion and we will 
evaluate the feasibility of alternative reporting mechanisms, such as 
registry-based reporting, for ASCs in conjunction with using EHR 
technology.
    Comment: One commenter encouraged CMS to align potential ASC 
quality measure metrics with State and Federal legislative requirements 
as well as consider some inpatient measure collection process for 
applicability. One commenter recommended that a future ASC quality 
reporting program should: (1) Provide a mechanism for providers to 
raise concerns prior to public display of information; (2) include a 
provider narrative section to inform consumers of the reliability or 
accuracy of the information presented; and (3) include facility 
accreditation status, state licensure and Medicare certification.
    Response: We thank the commenters for their input. We will take the 
comments into consideration in the planning process for ASC quality 
measure data reporting.
    As stated previously, we invited public comment on 10 quality 
measures under future consideration for ASC quality data reporting (75 
FR 46383). We received the following comments on these quality 
measures:
    Comment: One commenter supported the Patient Fall measure.
    Response: We thank the commenter for the support. We will consider 
it in the planning process for ASC quality measure data reporting.
    Comment: One commenter supported the Patient Burn measure.
    Response: We thank the commenter for the support. We will consider 
it in the planning process for ASC quality measure data reporting.
    Comment: One commenter supported the Hospital Transfer/Admission 
measure. Another commenter stated that this measure only measures 
transfer/admission status which is controlled by insurance companies 
and not by ASCs. The commenter recommended the exclusion of this 
measure in ASC reporting program.
    Response: We thank the commenters for the input. We will consider 
it in the planning process for ASC quality measure data reporting.
    Comment: Two commenters supported the Prophylactic IV Antibiotic 
Timing measure.
    Response: We thank the commenters for the support. We will consider 
it in the planning process for ASC quality measure data reporting.
    Comment: Two commenters supported the Appropriate Surgical Site 
Hair Removal measure.
    Response: We thank the commenters for the support. We will consider 
it in the planning process for ASC quality measure data reporting.
    Comment: One commenter supported the Surgical Site Infection (SSI) 
measure. Two commenters stated the tracking of surgical complications 
is resource intensive and the accuracy of reporting of post-operative 
surgical site infections is resource-dependent. One commenter stated 
the measure involves many procedures and variables. The commenter 
recommended that CMS learn from the implementation of SSI measures in 
the Hospital Inpatient Quality Reporting Program, with respect to 
definition standardization, data collection and data validation. One 
commenter suggested using one single set of SSI measures to track SSI 
continuum across hospital inpatient, hospital outpatient and ASC 
settings. The commenter also indicated the review of diagnosis/services 
on claim data, antibiotic prescribed within 30 days of a surgical 
procedure, and post-surgical visits could be used for ASC pay-for-
performance metrics. One commenter recommended the exclusion of this 
measure in ASCs.
    Response: We thank the commenters for the support and suggestions. 
We will consider them in the planning process for ASC quality measure 
data reporting.
    Comment: One commenter supported the VTE measures: Outcome/
assessment/prophylaxis. Two commenters recommended postponing the VTE 
measures until there is more evidence to support the measure.
    Response: We thank the commenters for the support and suggestions. 
We will consider them in the planning process for ASC quality measure 
data reporting.
    Comment: Two commenters suggested the adoption of hospital measures 
that are applicable in the ASC settings: (1) Selection of prophylactic 
antibiotic; and (2) presence of physician during entire recovery 
period.
    Response: We thank the commenters for the suggestions. We will 
consider them in the planning process for ASC quality measure data 
reporting.
    Comment: Some commenters recommended additional measures and 
measure topics for ASCs:
    <bullet> Sedation safety (rescue required, delayed recovery)
    <bullet> Patient experience/satisfaction
    <bullet> 6 NQF-endorsed, ASC QC-developed, facility-level measures
    <bullet> Wrong Site/wrong side/wrong patient/wrong procedure/wrong 
implant
    <bullet> Timing of the administration of intravenous antibiotics 
for prophylaxis of surgical site infection
    <bullet> Infection control
    <bullet> HAC
    Response: We thank the commenters for the recommendations. We will 
consider them in the planning process for ASC quality measure data 
reporting.
    Comment: Several comments supporting the implementation of a value-
based purchasing program for ASCs. One commenter stated that CMS should 
engage all stakeholders to preview the ASC value-based purchasing 
report prior to its submission to Congress on January 1, 2011. One 
commenter recommended that CMS start ASC quality reporting in the HOP 
QDRP in CY 2012 to prepare for ASC value-based purchasing for ASCs.
    Response: Section 3006(f) of the Affordable Care Act, added by 
section 10301(a) of the Affordable Care Act, requires the Secretary to 
develop a plan to implement a value-based purchasing program for ASCs. 
In developing the plan, the Secretary must consult with relevant 
affected parties. We are aware that, in order to implement any such 
plan, a quality reporting program must be initiated. We thank the 
commenters for their support and recommendations.
    After consideration of the public comments we received, we are 
restating our intent to propose implementing an ASC quality measure 
reporting program in the CY 2012 proposed rule. We continue to believe 
that promoting high quality care in the ASC setting through quality 
data reporting is highly desirable and fully in line with our efforts 
under other payment systems.

G. Electronic Health Records

    As we stated in the CY 2010 OPPS/ASC final rule (74 FR 60656), we 
are actively seeking alternatives to manual chart abstraction for the 
collection of quality measures for our quality data reporting programs. 
Among these alternatives are claims-based measure calculations, 
collection of data from systematic registries widely used by hospitals, 
and electronic submission of quality measures using EHRs. In response 
to the CY 2009 OPPS/ASC final rule (73 FR 68769), we received 
suggestions during the public comment period that we adopt measures 
that can be collected via EHRs. We agree with the commenters about the 
importance of actively working to move to a system of data collection 
based on submission from EHRs. In section XVI.B.5.b. of this final rule 
with comment period, for the CY 2014 payment determination we stated 
that we were considering for the future several chart-abstracted 
quality measures for diabetes mellitus, some of which have already been 
specified for EHR-based capture and submission, and

[[Page 72110]]

others for which EHR-based submission is planned. We have been engaged 
with health IT standard-setting organizations to promote the 
development of the necessary standards regarding data capture to 
facilitate data collection via EHRs, and have been collaborating with 
such organizations on standards for a number of quality measures. We 
encourage hospitals to take steps toward the adoption of EHRs that will 
allow for reporting of clinical quality data from the EHR directly to a 
CMS data repository. We also encourage hospitals that are implementing, 
upgrading, or developing EHR systems to ensure that such systems 
conform to standards adopted by HHS. We invited public comment on the 
future direction of EHR-based quality measurement submission.
    Comment: Some commenters strongly urged CMS to adopt quality 
measures that have electronic specifications. Commenters supported the 
use of EHRs and other health information technology (IT) and encouraged 
CMS to collaborate with the HHS Office of the National Coordinator on 
Health IT (ONC) to further advance such efforts. The commenters 
recognized the capability and the huge benefits from such technology. 
Commenters commended CMS for encouraging the development and adoption 
of uniform data content and information technology standards across the 
health care industry that will support automated data collection and 
reporting of clinical data from EHR systems. The commenters believed 
that such efforts would streamline hospital data submission procedures 
and significantly reduce the burden for hospitals.
    One commenter noted that the availability of e-measures is still 
limited. For instance, the commenter believes that it is difficult to 
find EHR systems that can easily interface with disease registries. 
Some commenters encouraged CMS to consider postponing the adoption of 
new quality measures for the HOP QDRP for CY 2012 until those measures 
can be collected via EHRs. The commenters noted that delaying the 
adoption of new measures for this reason was also warranted given the 
challenges hospitals will face in implementing ICD-10 coding system and 
complying with the Affordable Care Act.
    Response: We appreciate the supportive comments we received 
regarding EHR-based data collection as an alternative data source for 
quality measures. We agree that EHR-based data submission may provide 
an alternative means of submitting quality data that would reduce the 
burden of chart abstraction for hospitals. Although we encourage 
hospitals to adopt EHRs, we acknowledge the challenges that must be met 
both by hospitals and CMS to establish the infrastructure and 
interoperability necessary to collect data on quality measures via 
EHRs. We also recognize the burden faced by hospitals in making 
multiple technological changes, including the ICD-10 coding system, and 
complying with the Affordable Care Act. We will carefully consider any 
additional burden that may be imposed on hospitals as a result of 
adopting additional measures for the HOP QDRP and will continue to 
consider other feasible alternatives to data collection such as 
registries. We will also continue to work collaboratively with health 
IT voluntary consensus standards organizations to ensure that quality 
measures can be collected in a standardized manner.
    We have worked with the Healthcare Information Technology Standards 
Panel (HITSP), a public private partnership whose purpose was to 
recommend ways to harmonize health IT interoperability standards, 
including the specifications of data elements used in several measure 
sets so that they may be collected and reported via EHRs. We are 
currently working with the HIT Standards Committee and the HIT Policy 
Committee established by HITECH to continue this standardization work. 
Standardization of the specifications allows software to convert 
clinical data of different types into a form that can be analyzed for 
quality measurement. We encourage collaboration among standard-setting 
organizations and measure developers, on the creation of standards for 
electronic collection of data elements for other quality measures as 
well, particularly those used in our quality data reporting programs.
    Comment: One commenter did not support a policy that would allow 
CMS to have access to clinical information via an EHR for purposes of 
quality measure reporting because it believed that CMS would be 
invading the privacy of patients.
    Response: We will take these concerns into consideration when 
developing a system to collect information from EHRs in the future.
    Comment: Some commenters recommended that CMS harmonize the HOP 
QDRP quality measures with the meaningful use objectives under the 
HITECH EHR Incentive Program, as well as with other quality programs 
that have been authorized under the Affordable Care Act. Commenters 
also suggested that CMS test, adopt, and validate EHR specifications. 
Commenters recommended that CMS initially adopt for EHR data collection 
under the HOP QDRP quality measures that apply to the Emergency 
Department and delay adopting measures that apply to the broader 
outpatient setting until both hospital and CMS' technical capabilities 
mature. Commenters were strongly opposed to a policy under which 
providers would be required to submit data on the same measure multiple 
times under different reporting programs, but instead supported a 
policy under which providers could report data on a measure one time 
for use in multiple reporting programs.
    Response: One of our important objectives is to align the quality 
measures used in the various existing quality data reporting programs, 
and to align these measures with the measures we are developing for use 
in new programs authorized under the Affordable Care Act. However, when 
considering whether particular measures can be aligned, we must take 
into account the needs and requirements of the various individual 
quality reporting programs.
    We thank the commenters and will take these comments into 
consideration as we consider the future direction of EHR-based quality 
measure submission with respect to the HOP QDRP.

XVII. Files Available to the Public Via the Internet

A. Information in Addenda Related to the CY 2011 Hospital OPPS

    Addenda A and B to this final rule with comment period provide 
various data pertaining to the CY 2011 payment for items and services 
under the OPPS. Addendum A, which includes a list of all APCs payable 
under the OPPS, and Addendum B, which includes a list of all active 
HCPCS codes with their CY 2011 OPPS payment status and comment 
indicators, are available to the public by clicking ``Hospital 
Outpatient Regulations and Notices'' on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/.
    For the convenience of the public, we also are including on the CMS 
Web site a table that displays the HCPCS code data in Addendum B sorted 
by APC assignment, identified as Addendum C.
    Addendum D1 defines the payment status indicators that are used in 
Addenda A and B. Addendum D2 defines the comment indicators that are 
used in Addendum B. Addendum E lists the HCPCS codes that are only 
payable to hospitals as inpatient procedures and are not payable under 
the OPPS. Addendum L contains the out-migration wage adjustment for CY 
2011.

[[Page 72111]]

Addendum M lists the HCPCS codes that are members of a composite APC 
and identifies the composite APC to which each is assigned. This 
addendum also identifies the status indicator for the HCPCS code and a 
comment indicator if there is a change in the code's status with regard 
to its membership in the composite APC. Each of the HCPCS codes 
included in Addendum M has a single procedure payment APC, listed in 
Addendum B, to which it is assigned when the criteria for assignment to 
the composite APC are not met. When the criteria for payment of the 
code through the composite APC are met, one unit of the composite APC 
payment is paid, thereby providing packaged payment for all services 
that are assigned to the composite APC according to the specific I/OCE 
logic that applies to the APC. We refer readers to the discussion of 
composite APCs in section II.A.2.e. of this final rule with comment 
period for a complete description of the composite APCs.
    These addenda and other supporting OPPS data files are available on 
the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/.

B. Information in Addenda Related to the CY 2011 ASC Payment System

    Addenda AA and BB to this final rule with comment period provide 
various data pertaining to the CY 2011 payment for the covered surgical 
procedures and covered ancillary services for which ASCs may receive 
separate payment. Addendum AA lists, for CY 2011, the ASC covered 
surgical procedures, whether the procedure is subject to multiple 
procedure discounting, the comment and payment indicators for each 
procedure, and the payment weights and rates for each procedure. 
Addendum BB displays, for CY 2011, the ASC covered ancillary services, 
the comment and payment indicators for each service and the payment 
weights and rates for each service. All ASC relative payment weights 
and payment rates for CY 2011 are a result of applying the revised ASC 
payment system methodology established in the final rule for the 
revised ASC payment system published in the Federal Register on August 
2, 2007 (72 FR 42470 through 42548) to the CY 2011 OPPS and MPFS 
ratesetting information.
    Addendum DD1 defines the payment indicators that are used in 
Addenda AA and BB. Addendum DD2 defines the comment indicators that are 
used in Addenda AA and BB.
    Addendum EE (available only on the CMS Web site) lists the surgical 
procedures that are excluded from Medicare payment if furnished in 
ASCs. The excluded procedures listed in Addendum EE are surgical 
procedures that are assigned to the OPPS inpatient list, are not 
covered by Medicare, are reported using a CPT unlisted code, or have 
been determined to pose a significant safety risk to a Medicare 
beneficiary when performed in an ASC or for which standard medical 
practice dictates that the beneficiary typically requires active 
medical monitoring and care at midnight following the procedure.
    These addenda and other supporting ASC data files are included on 
the CMS Web site at: http://www.cms.gov/ASCPayment/. The MPFS data 
files are located at: http://www.cms.gov/PhysicianFeeSched/.
    The links to all of the FY 2011 IPPS wage index-related tables 
(that are used for the CY 2011 OPPS) that were published in the FY 2011 
IPPS/LTCH PPS final rule (75 FR 50450 through 50456) are accessible on 
the CMS Web site at: http://www.cms.gov/AcuteInpatientPPS/WIFN.

XVIII. Collection of Information Requirements

A. Legislative Requirement for Solicitation of Comments

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and to solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
    <bullet> The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    <bullet> The accuracy of our estimate of the information collection 
burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    In the CY 2011 OPPS/ASC proposed rule (75 FR 46436 through 46440), 
we solicited public comments on each of the issues outlined above as 
discussed below that contained information collection requirements. We 
address any public comments that we received on these information 
collection requirements below.

B. Associated Information Collections Not Specified in Regulatory Text

    In the CY 2011 OPPS/ASC proposed rule, we made reference to 
proposed associated information collection requirements that were not 
discussed in the regulation text contained in this document. The 
following is a discussion of those requirements.
1. Hospital Outpatient Quality Data Reporting Program (HOP QDRP)
    As previously stated in section XVI. of the proposed rule and this 
final rule with comment period, the quality data reporting program for 
hospital outpatient care, known as the Hospital Outpatient Quality Data 
Reporting Program (HOP QDRP), has been generally modeled after the 
quality data reporting program for hospital inpatient services, the 
Hospital Inpatient Quality Reporting Program. Section 109(a) of the 
MIEA-TRHCA (Pub. L. 109-432) amended section 1833(t) of the Act by 
adding a new subsection (17) which affects the annual payment update 
factor applicable to OPPS payments for services furnished by hospitals 
in outpatient settings on or after January 1, 2009. Section 
1833(t)(17)(A) of the Act states that subsection (d) hospitals (as 
defined under section 1886(d)(1)(B) of the Act) that fail to report 
data required for the quality measures selected by the Secretary in the 
form and manner required by the Secretary under section 1833(t)(17)(B) 
of the Act will incur a 2.0 percentage point reduction to their annual 
payment update factor. Section 1833(t)(17)(B) of the Act requires that 
hospitals submit quality data in a form and manner, and at a time, that 
the Secretary specifies. Section 1833(t)(17)(A)(ii) of the Act 
specifies that any reduction would apply only to the payment year 
involved and would not be taken into account in computing the 
applicable annual payment update factor for a subsequent payment year. 
Section 1833(t)(17)(C)(i) of the Act requires the Secretary to develop 
measures appropriate for the measurement of the quality of care 
(including medication errors) furnished by hospitals in outpatient 
settings, that these measures reflect consensus among affected parties 
and, to the extent feasible and practicable, that these measures 
include measures set forth by one or more national consensus building 
entities.
    We did not receive any public comments on these information 
collection requirements.

[[Page 72112]]

2. HOP QDRP Quality Measures for the CY 2012, CY 2013 and CY 2014 
Payment Determinations
    In the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68766), we retained the 7 chart-abstracted quality measures we used in 
CY 2009 and adopted 4 new claims-based imaging measures for the CY 2010 
payment determination, bringing the total number of quality measures 
for which hospitals must submit data to 11 measures. In the CY 2010 
OPPS/ASC final rule with comment period (74 FR 60637), we required 
hospitals to continue to submit data on the same 11 measures for the CY 
2011 payment determination. The burden associated with the 
aforementioned data submission requirements is currently approved under 
OCN: 0938-1109 and expires October 31, 2013.
    We are finalizing our proposal to retain for the CY 2012 payment 
determination the 7 chart-abstracted quality measures and the 4 claims-
based imaging measures we used for the CY 2011 payment determinations. 
For the CY 2012 payment determination, we are also adopting 1 
structural HIT measure that tracks HOPDs' capacity to receive 
laboratory results electronically, and 3 claims-based imaging 
efficiency measures, bringing the total number of quality measures for 
which hospitals must submit data to 15 measures. We will calculate the 
claims-based measures using Medicare FFS claims data and do not require 
additional hospital data submissions, and we are using the same data 
submission requirements related to the seven data abstracted measures 
that we used for the CY 2011 payment determination. For the structural 
measure, hospitals will enter data into a Web-based collection tool 
during a specified collection period once annually.
    For the CY 2013 payment update, we are requiring that hospitals 
continue to submit data for all of the quality measures that we adopted 
for the CY 2012 payment determination. We are also adopting 1 
structural HIT measure assessing the ability to track clinical results 
between visits, 6 new chart-abstracted measures on the topics of HOPD 
care transitions and ED efficiency, as well as 1 chart-abstracted ED-
AMI measure that was proposed for the CY 2012 payment determination but 
which we decided to finalize for the CY 2013 payment determination, 
bringing the total number of quality measures for which hospitals must 
submit data to 23 measures. We are requiring hospitals to submit data 
related to the 14 chart-abstracted measures. We will calculate the 7 
claims-based measures using Medicare FFS claims data and do not require 
additional hospital data submission for these measures. For the 2 
structural measures, hospitals will enter data into a Web-based 
collection tool during a specified collection period once annually.
    For the CY 2014 payment determination, we are not adopting any new 
measures at this time. These measures that, as of now, will be used for 
the CY 2012 through CY 2014 payment determinations are listed in the 
table below.

  HOP QDRP Measurement Set To Be Used for the CY 2012, CY 2013, and Cy
                       2014 Payment Determinations
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
OP-1: Median Time to Fibrinolysis
OP-2: Fibrinolytic Therapy Received Within 30 Minutes
OP-3: Median Time to Transfer to Another Facility for Acute Coronary
 Intervention
OP-4: Aspirin at Arrival
OP-5: Median Time to ECG
OP-6: Timing of Antibiotic Prophylaxis
OP-7: Prophylactic Antibiotic Selection for Surgical Patients
OP-8: MRI Lumbar Spine for Low Back Pain
OP-9: Mammography Follow-up Rates
OP-10: Abdomen CT--Use of Contrast Material
OP-11: Thorax CT--Use of Contrast Material
OP-12: The Ability for Providers with HIT to Receive Laboratory Data
 Electronically Directly into their Qualified/Certified EHR System as
 Discrete Searchable Data *
OP-13: Cardiac Imaging for Preoperative Risk Assessment for Non Cardiac
 Low Risk Surgery *
OP-14: Simultaneous Use of Brain Computed Tomography (CT) and Sinus
 Computed Tomography (CT) *
OP-15: Use of Brain Computed Tomography (CT) in the Emergency Department
 for Atraumatic Headache *
OP-16: Troponin Results for Emergency Department acute myocardial
 infarction (AMI) patients or chest pain patients (with Probable Cardiac
 Chest Pain) Received Within 60 minutes of Arrival **
OP-17: Tracking Clinical Results between Visits **
OP-18: Median Time from ED Arrival to ED Departure for Discharged ED
 Patients **
OP-19: Transition Record with Specified Elements Received by Discharged
 Patients **
OP-20: Door to Diagnostic Evaluation by a Qualified Medical Professional
 **
OP-21: ED-Median Time to Pain Management for Long Bone Fracture **
OP-22: ED-Patient Left Before Being Seen **
OP-23: ED-Head CT Scan Results for Acute Ischemic Stroke or Hemorrhagic
 Stroke who Received Head CT Scan Interpretation Within 45 minutes of
 Arrival **
------------------------------------------------------------------------
* New measure for CY 2012 payment determination.
** New measure for CY 2013 payment determination.

    As part of the data submission process pertaining to the quality 
measures we are finalizing for the CY 2012 payment determination, 
hospitals must complete and submit a notice of participation form for 
the HOP QDRP. By submitting this document, hospitals agree that they 
will allow CMS to publicly report the quality measures as required by 
the HOP QDRP.
    For the CY 2012 payment determination, the burden associated with 
this requirement is the time and effort associated with completing the 
notice of participation form as well as collecting and submitting the 
data on the required quality measures. We estimate that there will be 
approximately 3,200 respondents per year. For hospitals to collect and 
submit the information on the required measures, we estimate it will 
take 35 minutes per sampled case. We estimate there will be a total of 
930,000 cases per year, approximately 290 cases per year per 
respondent. The estimated annual burden associated with the

[[Page 72113]]

aforementioned submission requirements for the chart-abstracted data is 
542,500 hours (930,000 cases per year x 0.583 hours/case). For the 
structural measure, we estimate that each participating hospital will 
spend 10 minutes per year to collect and submit the required data, 
making the estimated annual burden associated with this measure 533 
hours (3,200 hospitals x 0.167 hours per hospital).
    For the CY 2013 payment determination, the burden associated with 
this requirement is the time and effort associated with completing the 
notice of participation form as well as collecting and submitting the 
data on the required quality measures. We estimate that there will be 
approximately 3,200 respondents per year. For hospitals to collect and 
submit the information on the required measures, we estimate it will 
take 35 minutes per sampled case. We estimate there will be a total of 
1,860,000 cases per year, approximately 580 cases per year per 
respondent. The estimated annual burden associated with the 
aforementioned submission requirements for the chart-abstracted data is 
1,084,380 hours (1,860,000 cases per year x 0.583 hours/case). For the 
structural measures, we estimate that each participating hospital will 
spend 20 minutes per year to collect and submit the required data, 
making the estimated annual burden associated with this measure 1,066 
hours (3,200 hospitals x 0.334 hours per hospital).
    In the proposed rule, we invited public comment on the burden 
associated with these information collection requirements. We did not 
receive any public comments on these information collection 
requirements.
3. HOP QDRP Validation Requirements
    In addition to finalizing requirements related to the submission of 
quality data, in this final rule with comment period we are finalizing 
requirements related to data validation for CY 2012. Similar to our 
proposed and final policy for the FY 2012 Hospital Inpatient Quality 
Reporting Program (75 FR 23991 through 23993 and 50225 through 50227), 
we will validate data from 800 randomly selected hospitals each year 
under the HOP QDRP, beginning with the CY 2012 payment determination. 
We note that, because the 800 hospitals would be selected randomly, 
every HOP QDRP-participating hospital would be eligible each year for 
validation selection. For each selected hospital, we would randomly 
select up to 48 patient episodes of care per year (12 per quarter) for 
validation purposes from the total number of cases that the hospital 
successfully submitted to the OPPS Clinical Warehouse during the 
applicable time period. However, if a selected hospital submitted less 
than 12 cases in one or more quarters, only those cases available would 
be validated.
    The burden associated with the CY 2012 requirement is the time and 
effort necessary to submit validation data to a CMS contractor. We 
estimate that it will take each of the 800 sampled hospitals 
approximately 12 hours to comply with these data submission 
requirements. To comply with the requirements, we estimate each 
hospital must submit 48 cases for the affected year for review. We are 
requiring that 800 hospitals comply with these requirements per year, 
which will result in a total of 38,400 charts being submitted by the 
sampled hospitals. The estimated annual burden associated with the data 
validation process for CY 2012 and subsequent years is 9,600 hours. 
While these requirements are subject to the PRA, they are currently 
approved under OCN: 0938-1109 and expire October 31, 2013.
    In the proposed rule, we invited public comment on the burden 
associated with these information collection requirements.
    Comment: One commenter stated that the proposed validation 
requirements are reasonable and would be acceptable to providers if 
they were the only Federal data submission requirements. The commenter 
stated its concern that the record requests for validation would 
supplement those already established as part of Federal integrity audit 
processes (for example, RAC, Medicaid Integrity, ZPIC, and MAC) and 
facilities would receive multiple requests from each contracted entity, 
significantly increasing a hospital provider's labor investment and 
costs. The commenter urged CMS to review the validation process with 
respect to other data requirements rather than seeing it as a single 
request, and to consider the operational impact that receiving multiple 
audit entity requests will have on any single provider.
    Response: We understand the commenter's concern regarding multiple 
Federal medical record requests. For HOP QDRP validation, we have 
worked to limit overall burden by reducing the number of hospitals 
participating annually in validation through our random sampling of 
hospitals. In addition, hospitals will be reimbursed for photocopying 
and mailing costs as they are under the Hospital Inpatient Quality 
Reporting Program, thus reducing the burden in submitting medical 
record documentation for HOP QDRP validation purposes. We agree that 
efforts should be made to keep record requests for validation purposes 
at the minimum necessary to ensure the accuracy of submitted data and 
will consider ways to do so in future rulemaking.
4. HOP QDRP Reconsideration and Appeals Procedures
    In the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68779), we adopted a mandatory reconsideration process that applied to 
the CY 2010 payment decisions. In the CY 2010 OPPS/ASC final rule with 
comment period (74 FR 60654 through 60655), we continued this process 
for the CY 2011 payment update. In the CY 2011 OPPS/ASC proposed rule 
(75 FR 46381 through 46382), we proposed to continue this process for 
the CY 2012 payment update with some modifications. We proposed to 
eliminate a requirement that the reconsideration request form be signed 
by the hospital CEO to facilitate electronic submission of the form and 
reduce hospital burden. Under this proposed process, the hospitals 
would be required to meet all of the requirements specified in section 
XVI.E. of the CY 2011 OPPS/ASC proposed rule. We are finalizing this 
proposal in this final rule with comment period. While there is burden 
associated with filing a reconsideration request, section 5 CFR 1320.4 
of the Paperwork Reduction Act of 1995 regulations excludes collection 
activities during the conduct of administrative actions such as re-
determinations, reconsiderations, and/or appeals.
    We did not receive any public comments on these information 
collection requirements.
5. Additional Topics
    In addition to seeking OMB approval for the information collection 
requirements associated with the HOP QDRP and the data validation 
processes, we sought public comment on several issues that may 
ultimately affect the burden associated with the HOP QDRP and 
associated data validation processes. Specifically, in the proposed 
rule we proposed to adopt quality measures for the CY 2012 through CY 
2014 payment determinations, as well as sought comments on other 
possible quality measures under consideration for adoption into the HOP 
QDRP. We also solicited public comments on the use of registries to 
comply with the HOP QDRP submission requirements, the use of EHRs as a 
data submission tool, the use of a standardized process for the 
retirement of HOP QDRP quality

[[Page 72114]]

measures, the continued use of an extraordinary circumstance extension 
or waiver for reporting quality data, and additional data validation 
conditions that we are considering adopting beginning with the CY 2013 
payment determination.
    Comments and responses for the issues of registries, EHRs, quality 
measure retirements, the continued use of an extraordinary circumstance 
extension or waiver for reporting quality data, and additional data 
validation conditions are addressed in section XVI. of this final rule 
with comment period.

XIX. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this final rule 
with comment period, and, when we proceed with a subsequent 
document(s), we will respond to those comments in the preamble to that 
document(s).

XX. Regulatory Impact Analysis

A. Overall Impact

    We have examined the impacts of this final rule with comment period 
as required by Executive Order 12866 (September 1993, Regulatory 
Planning and Review), the Regulatory Flexibility Act (RFA) (September 
19, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, 
the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), Executive 
Order 13132 on Federalism, and the Congressional Review Act (5 U.S.C. 
804(2)).
1. Executive Order 12866
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules that have economically 
significant effects ($100 million or more in any 1 year) or adversely 
affect in a material way the economy, a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local, or tribal government or communities (58 FR 
51741).
    We estimate that the effects of the OPPS provisions that will be 
implemented by this final rule with comment period will result in 
expenditures exceeding $100 million in any 1 year. We estimate the 
total increase (from changes in this final rule with comment period as 
well as enrollment, utilization, and case-mix changes) in expenditures 
under the OPPS for CY 2011 compared to CY 2010 to be approximately $3.2 
billion. Because this final rule with comment period for the OPPS is 
``economically significant'' as measured by the $100 million threshold 
and also a major rule under the Congressional Review Act, we have 
prepared a regulatory impact analysis that, to the best of our ability, 
presents the costs and benefits of this rulemaking. Table 66 of this 
final rule with comment period displays the redistributional impact of 
the CY 2011 changes on OPPS payment to various groups of hospitals.
    We estimate that the effects of the ASC provisions that will be 
implemented by this final rule with comment period for the ASC payment 
system will result in expenditures exceeding $100 million in any one 
year. We estimate the total increase (from changes in this final rule 
with comment period as well as enrollment, utilization, and case-mix 
changes) in expenditures under the ASC payment system for CY 2011 
compared to CY 2010 to be approximately $230 million. Because this 
final rule with comment period for the ASC payment system is 
``economically significant'' as measured by the $100 million threshold 
and also a major rule under the Congressional Review Act, we have 
prepared a regulatory impact analysis of changes to the ASC payment 
system that, to the best of our ability, presents the costs and 
benefits of this rulemaking. Table 68 and Table 69 of this final rule 
with comment period display the redistributional impact of the CY 2011 
changes on ASC payment, grouped by specialty area and then grouped by 
procedures with the greatest ASC expenditures, respectively.
2. Regulatory Flexibility Act (RFA)
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations, and small 
governmental jurisdictions. Many hospitals, other providers, ASCs, and 
other suppliers are considered to be small entities, either by being 
nonprofit organizations or by meeting the Small Business Administration 
(SBA) definition of a small business (hospitals having revenues of 
$34.5 million or less in any 1 year and ASCs having revenues of $10 
million or less in any 1 year). (For details on the latest standards 
for health care providers, we refer readers the SBA's Web site at: 
http://sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf (refer to the 620000 series).)
    For purposes of the RFA, we have determined that many hospitals and 
most ASCs will be considered small entities according to the SBA size 
standards. Individuals and States are not included in the definition of 
a small entity. Therefore, the Secretary has determined that this final 
rule with comment period will have a significant impact on a 
substantial number of small entities. Because we acknowledge that many 
of the affected entities are small entities, the analyses presented 
throughout this final rule with comment period constitute our 
regulatory flexibility analysis. Therefore, in the CY 2011 OPPS/ASC 
proposed rule (75 FR 46441), we solicited public comments on our 
estimates and analyses of the impact of the proposed rule on those 
small entities.
3. Small Rural Hospitals
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. With 
the exception of hospitals located in certain New England counties, for 
purposes of section 1102(b) of the Act, we now define a small rural 
hospital as a hospital that is located outside an urban area and has 
fewer than 100 beds. Section 601(g) of the Social Security Amendments 
of 1983 (Pub. L. 98-21) designated hospitals in certain New England 
counties as belonging to the adjacent urban areas. Thus, for OPPS 
purposes, we continue to classify these hospitals as urban hospitals. 
We believe that the changes to the OPPS in this final rule with comment 
period will affect both a substantial number of rural hospitals as well 
as other classes of hospitals and that the effects on some may be 
significant. Also, the changes to the ASC payment system in this final 
rule with comment period will affect rural ASCs. Therefore, the 
Secretary has determined that this final rule with comment period will 
have a significant impact on the operations of a substantial number of 
small rural hospitals.
4. Unfunded Mandates
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)

[[Page 72115]]

also requires that agencies assess anticipated costs and benefits 
before issuing any rule whose mandates require spending in any 1 year 
of $100 million in 1995 dollars, updated annually for inflation. That 
threshold level is currently approximately $135 million. This final 
rule with comment period will not mandate any requirements for State, 
local, or tribal governments, nor will it affect private sector costs.
5. Federalism
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct costs on State and local 
governments, preempts State law, or otherwise has Federalism 
implications.
    We have examined the OPPS and ASC provisions included in this final 
rule with comment period in accordance with Executive Order 13132, 
Federalism, and have determined that they will not have a substantial 
direct effect on State, local or tribal governments, preempt State law, 
or otherwise have a Federalism implication. As reflected in Table 66 
below, we estimate that OPPS payments to governmental hospitals 
(including State and local governmental hospitals) will increase by 2.9 
percent under this final rule with comment period. While we do not know 
the number of ASCs with government ownership, we anticipate that it is 
small. We believe that the provisions related to payments to ASCs in CY 
2011 will not affect payments to any ASCs owned by government entities.
    The following analysis, in conjunction with the remainder of this 
document, demonstrates that this final rule with comment period is 
consistent with the regulatory philosophy and principles identified in 
Executive Order 12866, the RFA, and section 1102(b) of the Act.
    This final rule with comment period will affect payments to a 
substantial number of small rural hospitals and a small number of rural 
ASCs, as well as other classes of hospitals and ASCs, and some effects 
may be significant.

B. Effects of OPPS Changes in This Final Rule With Comment Period

    We are making several changes to the OPPS that are required by the 
statute. We are required under section 1833(t)(3)(C)(ii) of the Act to 
update annually the conversion factor used to determine the APC payment 
rates. We also are required under section 1833(t)(9)(A) of the Act to 
revise, not less often than annually, the wage index and other 
adjustments, including pass-through payments and outlier payments. In 
addition, we must review the clinical integrity of payment groups and 
weights at least annually. Accordingly, in this final rule with comment 
period, we are updating the conversion factor and the wage index 
adjustment for hospital outpatient services furnished beginning January 
1, 2011, as we discuss in sections II.B. and II.C., respectively, of 
this final rule with comment period. We discuss our implementation of 
section 10324 of the Affordable Care Act, as amended by HCERA, 
authorizing a wage index of 1.00 for certain frontier states. We also 
are revising the relative APC payment weights using claims data for 
services furnished from January 1, 2009, through December 31, 2009, and 
updated cost report information. We are continuing the current payment 
adjustment for rural SCHs, including EACHs. Finally, we list the 18 
drugs and biologicals in Table 27 of this final rule with comment 
period that we are removing from pass-through payment status for CY 
2011.
    Under this final rule with comment period, we estimate that the 
update change to the conversion factor and other adjustments (but not 
including the effects of outlier payments, pass through estimates, the 
expiration of section 508 wages on September 30, 2010, and the 
application of the frontier wage adjustment for CY 2011) as provided by 
the statute, will increase total OPPS payments by 2.3 percent in CY 
2011. The changes to the APC weights, the changes to the wage indices, 
and the continuation of a payment adjustment for rural SCHs, including 
EACHs, will not increase OPPS payments because these changes to the 
OPPS are budget neutral. However, these updates do change the 
distribution of payments within the budget neutral system as shown in 
Table 66 below and described in more detail in this section. We also 
estimate that the total change in payments between CY 2010 and CY 2011, 
considering all payments, including changes in estimated total outlier 
payments, pass through payments, the expiration of additional money for 
specified section 508 reclassification and special exception wages 
indices, and the application of the frontier adjustment outside of 
budget neutrality, in addition to the application of the hospital 
market basket will increase total OPPS payments by 2.5 percent.
1. Alternatives Considered
    Alternatives to the changes we are making and the reasons that we 
have chosen the options are discussed throughout this final rule with 
comment period. Some of the major issues discussed in this final rule 
with comment period and the options considered are discussed below.
    a. Alternatives Considered for the Extension of Waiver of 
Deductible to Services Furnished in Connection With or in Relation to a 
Colorectal Screening Test That Becomes Diagnostic
    Section 4104(c)(2) of the Affordable Care Act waives the deductible 
with respect to a colorectal cancer screening test regardless of the 
code that is billed for the establishment of a diagnosis as a result of 
the test, or for the removal of tissue or other matter or other 
procedure that is furnished in connection with, as a result of, and in 
the same clinical encounter as a screening test. We are finalizing our 
proposal for CY 2011 that the deductible be waived for all surgical 
services furnished on the same date as a planned screening colonoscopy, 
planned flexible sigmoidoscopy, or barium enema as being furnished in 
connection with, as a result of, and in the same clinical encounter as 
the screening test. As discussed in detail in XII.B.3. of this final 
rule with comment period, we are implementing this provision by 
creating a HCPCS modifier that hospitals will append to the diagnostic 
procedure code that is reported instead of the screening colonoscopy or 
screening flexible sigmoidoscopy HCPCS code or as a result of the 
barium enema when the screening test becomes a diagnostic service. The 
claims processing system will respond to the modifier by waiving the 
deductible for all surgical services on the same date as the diagnostic 
test. Coinsurance or copayment will continue to apply to the diagnostic 
test and other services furnished in connection with, as a result of, 
and in the same clinical encounter as the screening test.
    We considered three alternatives for the extension of wavier of 
deductible to services furnished in connection with or in relation to a 
colorectal screening test that becomes diagnostic for CY 2011. The 
first alternative we considered was to define a limited set of 
colonoscopy codes to which the waiver could apply when performed on the 
same date as a procedure that began as a screening colonoscopy, 
screening flexible sigmoidoscopy, or barium enema. We did not choose 
this alternative because it is virtually impossible to create a valid 
and complete list of appropriate procedures to handle all situations, 
due to the range of problems that could be identified and complications 
that could occur with any invasive procedures.

[[Page 72116]]

    Furthermore, we believe this alternative would be complex to 
implement. Although this alternative narrows the potential for 
hospitals to abuse the waiver of the deductible by applying it to 
unrelated services, we believe the potential for abuse of the waiver of 
the deductible to be minimal. The Part B deductible is a fixed amount 
that the beneficiary pays before Medicare begins to pay and typically 
will be met after receiving one to two services.
    The second alternative we considered was to define a broader, but 
still limited set of codes (for example, selected surgical services) to 
which the waiver would apply when performed on the same date as a 
procedure that began as a screening colonoscopy, screening flexible 
sigmoidoscopy, or barium enema. Although this alternative would 
encompass a broader set of codes, we believe it is virtually impossible 
to create a valid and complete list of appropriate procedures to handle 
all situations, due to the range of problems that could be identified 
and complications that could occur with any invasive procedures. While 
we acknowledge that this alternative would narrow the potential for 
abuse of the waiver of the deductible, we believe the potential for 
abuse is minimal and that this alternative also would be complex to 
implement. For these reasons we did not choose to define a broader set 
of limited codes to which the waiver could apply when performed on the 
same date as a procedure that began as a screening colonoscopy, 
screening flexible sigmoidoscopy, or barium enema.
    The third alternative we considered, and the one we are adopting 
for CY 2011, is to apply the waiver to any surgical procedure that is 
reported with the same date as a screening colonoscopy, flexible 
sigmoidoscopy, or barium enema and that providers report is ``in 
connection with or as a result of'' the procedure that began as a 
screening test. As we discuss in detail in section XII.B.3. of this 
final rule with comment period, we have created HCPCS modifier ``PT'' 
that providers will append to the diagnostic procedure code that is 
reported instead of the screening colonoscopy or screening flexible 
sigmoidoscopy HCPCS code or as a result of the barium enema when the 
screening test becomes a diagnostic service. We chose this alternative 
because we believe it provides the greatest ease of public 
understanding and provider application. We believe that this 
alternative is appropriate because we believe that it will be very rare 
for an unrelated surgery to occur on the same date as one of these 
scheduled screening tests. Moreover, we believe that the risk of 
improper expenditures will be very small under this policy because it 
is the deductible, and not the coinsurance, that is waived for the 
related procedures other than the screening tests. As noted above, the 
Part B deductible is a fixed amount that the beneficiary pays before 
Medicare begins to pay and typically will be met after receiving one to 
two services.
b. Alternatives Considered for Payment of the Acquisition and Pharmacy 
Overhead Costs of Drugs and Biologicals That Do Not Have Pass-Through 
Status
    We are finalizing our proposal that, for CY 2011, the OPPS will 
make payment for separately payable drugs and biologicals under the 
methodology that we proposed, which, for CY 2011, results in payment 
for separately paid drugs and biologicals at ASP+5 percent. This 
payment will continue to represent combined payment for both the 
acquisition and pharmacy overhead costs of separately payable drugs and 
biologicals. As discussed in detail in section V.B.3. of this final 
rule with comment period, we believe that approximately $150 million of 
the estimated $457 million in pharmacy overhead cost currently 
attributed to coded packaged drugs with an ASP and $50 million of the 
overhead cost currently attributed to uncoded packaged drugs without an 
ASP should, instead, be attributed to separately payable drugs and 
biologicals to provide an adjustment for the pharmacy overhead costs of 
these separately payable products. As a result, we also are reducing 
the cost of packaged drugs and biologicals that is included in the 
payment for procedural APCs to offset the $200 million adjustment to 
payment for separately payable drugs and biologicals. We are finalizing 
our proposal that any redistribution of pharmacy overhead cost that may 
arise from CY 2011 final rule claims data will occur only from some 
drugs and biologicals to other drugs and biologicals, thereby 
maintaining the estimated total cost of drugs and biologicals under the 
OPPS.
    We considered three alternatives for payment of the acquisition and 
pharmacy overhead costs of drugs and biologicals that do not have pass-
through status for CY 2011. The first alternative we considered was to 
continue our standard policy of comparing the estimated aggregate cost 
of separately payable drugs and biologicals in our claims data to the 
estimated aggregate ASP dollars for separately payable drugs and 
biologicals, using the ASP as a proxy for average acquisition cost, to 
calculate the estimated percent of ASP that will serve as the best 
proxy for the combined acquisition and pharmacy overhead costs of 
separately payable drugs and biologicals (70 FR 68642). Under this 
standard methodology, using July 2010 ASP information and costs derived 
from CY 2009 OPPS final rule claims data, we estimated the combined 
acquisition and overhead costs of separately payable drugs and 
biologicals to be ASP minus 1 percent. As discussed in section V.B.3. 
of this final rule with comment period, we also determined that the 
combined acquisition and overhead costs of packaged drugs are 296 
percent of ASP. We did not choose this alternative because we believe 
that this analysis indicates that our standard drug payment methodology 
has the potential to ``compress'' the calculated costs of separately 
payable drugs and biologicals to some degree. Further, we recognize 
that the attribution of pharmacy overhead costs to packaged or 
separately payable drugs and biologicals through our standard drug 
payment methodology of a combined payment for acquisition and pharmacy 
overhead costs depends, in part, on the treatment of all drugs and 
biologicals each year under our annual drug packaging threshold. 
Changes to the packaging threshold may result in changes to payment for 
the overhead cost of drugs and biologicals that do not reflect actual 
changes in hospital pharmacy overhead cost for those products.
    The second alternative we considered was to adopt the APC Panel's 
February 2010 recommendation to redistribute a larger portion of the 
overhead cost from packaged drugs to separately payable drugs for 
payment of drugs and biologicals that do not have pass-through status. 
We did not choose this alternative because, as we discussed in V.B.3. 
of this final rule with comment period, we are not confident that we 
know the amount of overhead cost available for redistribution in the 
uncoded packaged drugs and, therefore, do not know if it is appropriate 
to redistribute more payment from uncoded packaged drugs to separately 
paid drugs. Presenters at the February 2010 APC Panel meeting provided 
analyses suggesting that the uncoded packaged drug cost contain exactly 
the same drugs as those in the coded packaged drug cost, leading to a 
recommendation that we could assume the same proportional amount of 
overhead cost appears in the uncoded packaged drug cost as observed in 
the coded packaged drug cost in order to increase the amount of 
``overhead'' drug

[[Page 72117]]

cost available for redistribution from uncoded packaged drugs to 
separately payable drugs. Public comments on the proposed rule make 
comparable comments, and presenters at the August 2010 APC Panel 
meeting reiterated their recommended assumption of comparable overhead 
amounts. However, we do not believe we should assume that the costs 
reported under uncoded pharmacy revenue code lines are for the same 
drugs and biologicals, with the same ASPs, and overhead costs as the 
costs of packaged drugs and biologicals reported with a HCPCS code. For 
these reasons, we are not accepting the APC Panel's recommendation to 
redistribute a larger portion of overhead costs from packaged drugs to 
separately payable drugs for CY 2011.
    The third alternative we considered and the one we selected for CY 
2011 is to continue our CY 2010 redistribution methodology and 
redistribute $200 million in overhead costs from packaged coded and 
uncoded drugs to separately payable drugs which will result in a 
payment for non-pass-through separately payable drugs and biologicals 
at ASP+5 percent, which will continue to represent a combined payment 
for both the acquisition costs of separately payable drugs and the 
pharmacy overhead costs applicable to these products. We also are 
reducing the cost of packaged drugs that is included in the payment for 
procedural APCs to offset the $200 million adjustment to payment for 
separately payable drugs and biologicals, resulting in payment for 
packaged drugs and biologicals of ASP+198 percent. We chose this 
alternative because we believe that it provides the most appropriate 
redistribution of pharmacy overhead costs associated with drugs and 
biologicals, based on the analyses discussed in section V.B.3. of this 
final rule with comment period, and is the alternative that is most 
consistent with the principles of a prospective payment system.
c. Alternatives Considered for the Physician Supervision of Hospital 
Outpatient Services
    Our proposed revision to our requirement for direct supervision of 
therapeutic services provided to hospital and CAH outpatients attempted 
to address industry concerns brought to our attention since we issued 
our CY 2010 final rule with comment period. The primary issue raised by 
CAHs, rural hospitals and other small hospitals following CY 2010 
rulemaking was difficulty in staffing their facilities to meet our 
requirement for direct supervision of all outpatient therapeutic 
services, but especially services that involve a significant amount of 
monitoring by auxiliary staff, that may extend past regular business 
hours, and that typically are lower clinical complexity and risk. Our 
proposal to establish a limited set of ``non-surgical extended duration 
therapeutic services'' (extended duration services) was designed to 
address these issues. For these services, we proposed to require only a 
minimum of direct supervision during an initial period, followed by 
general supervision for the remainder of the service. Public commenters 
appreciated our attempt to offer flexibility through our proposal for 
non-surgical extended duration services, but made several additional 
requests. First, they note that direct supervision should require the 
supervising physician or nonphysician practitioner be available, but 
not specify a physical location. Commenters also requested that CMS 
adopt general supervision for all therapeutic services. They noted that 
there are other types of outpatient services that they believe qualify 
for general supervision, and they made extensive requests for an 
independent assessment of the clinically appropriate supervision level 
for any given outpatient service. In order to address these concerns 
while maintaining an adequate level of safety and quality of care, we 
are finalizing a supervision policy with the following four components:
    1. We are maintaining our default requirement for direct 
supervision of all outpatient therapeutic services. However, we are 
revising our definition of direct supervision of both outpatient 
therapeutic and diagnostic services (except for diagnostic services 
provided under arrangement in non-hospital locations) to require only 
``immediate availability,'' meaning physically immediately available, 
without specifying a particular physical boundary.
    2. Through rulemaking for CY 2012, we will develop a process to 
consider industry requests for alternative service-specific supervision 
levels that will include an independent technical advisory committee, 
potentially the APC Panel.
    3. In the interim, we are extending for one year (through CY 2011) 
our notice of non-enforcement of the current policy for direct 
supervision of all outpatient therapeutic services furnished in CAHs 
(http://www.cms.gov/HospitalOutpatientPPS/Downloads/WebNotice.pdf). 
Because CAHs and small rural hospitals paid under the OPPS face 
comparable staffing challenges, we are extending this provision to 
hospitals geographically located in a rural area or designated to be 
located in a rural area for their wage index that have 100 or fewer 
beds.
    4. Finally, for CY 2011, we are finalizing our proposal to 
establish a limited set of nonsurgical extended duration services for 
which we would allow direct supervision during the initiation of the 
service followed by general supervision for the remainder of service at 
the discretion of the supervising physician or nonphysician 
practitioner. The list of nonsurgical extended duration therapeutic 
services subject to this policy for CY 2011 appears in Table 48A of 
this final rule with comment period.
    We considered two alternatives that we believed may have increased 
flexibility while sustaining our payment requirement for direct 
supervision of therapeutic hospital outpatient services provided 
incident to physicians' services. First, we considered offering 
hospitals the flexibility of broadening the list of extended duration 
services to include more complex and potentially acute services like 
chemotherapy administration and blood transfusions, which some 
stakeholders also maintain do not require direct supervision. Because 
we were concerned that these services had a higher probability of 
needing a physician or nonphysician practitioner to furnish assistance 
and direction through provision of the service, we had reasoned that we 
could require hospitals to create internal guidelines specifying a 
supervision level and protocols for staffing that supervision level for 
every extended duration service, including chemotherapy administration 
and blood transfusions. We considered minimum requirements for these 
internal supervision guidelines, including annual review and approval 
by a governing committee, periodic internal evaluation, and the ability 
to make these guidelines available to auditors if requested. Further, 
auditors would review those guidelines if a quality or patient safety 
event were to occur. Fundamentally, we did not choose this policy 
because, while many commenters liked this option for the flexibility 
that it offered, it did not address commenters fundamental concern that 
our uniform requirement for direct supervision as a condition of 
payment did not consider the relative risk for needing a supervising 
physician or nonphysician practitioner's physical presence against the 
cost of providing direct supervision. Because commenters disagreed 
about the appropriate level of supervision for individual services, 
such as chemotherapy, and because we continue

[[Page 72118]]

to believe supervision is a key component of the service Medicare 
purchases for its beneficiaries, we believe that an independent entity, 
whether the APC Panel or other technical committee, should evaluate 
services for the appropriate supervision level, potentially something 
other than direct supervision, to support provision of a safe, quality 
service. We also did not choose this alternative because some 
commenters did believe the policy would be burdensome to implement and 
maintain. Finally, we rejected this alternative because a variable 
standard of supervision across hospitals could be administratively 
difficult for us to audit and evaluate.
    Second, we considered whether to exclude CAHs from the requirements 
for direct supervision of therapeutic services. We considered limiting 
CAHs to their CoPs, which in effect only require them to operate under 
general supervision. We also considered extending the notice of 
nonenforcement while we further develop policies. As discussed above, 
we believe there are strong grounds for applying the same supervision 
requirements to CAHs as to all other hospitals. One of these grounds is 
that hospital outpatient services are furnished ``incident to'' 
physicians' services, and we believe that the incident to rules apply 
equally to critical access and other types of hospitals. We continue to 
believe that Medicare should purchase the same basic level of quality 
and safe outpatient care for all beneficiaries, whether from a CAH, a 
small rural hospital, or other hospitals. Moreover, having reviewed 
public comments, we do not believe it is safe to permit general 
supervision of all hospital outpatient therapeutic services. At the 
same time, we acknowledge that in order to purchase the same outpatient 
care from CAHs as other hospitals, we need to have a national 
discussion about what constitutes the appropriate supervision for a 
given service. Therefore, we decided to extend the notice of 
nonenforcement for CAHs, as well as adding in small rural hospitals, 
while we propose and finalize a process for evaluating service-specific 
supervision levels.
    We believe that the policies in this final rule will address 
industry concerns while maintaining an adequate level of safety and 
quality of care in the hospital outpatient services that Medicare 
purchases.
2. Limitations of Our Analysis
    The distributional impacts presented here are the projected effects 
of the CY 2011 policy changes on various hospital groups. We post on 
the CMS Web site our hospital-specific estimated payments for CY 2011 
with the other supporting documentation for this final rule with 
comment period. To view the hospital-specific estimates, we refer 
readers to the CMS Web site at: http://www.cms.hhs.gov/
HospitalOutpatientPPS/. Select ``regulations and notices'' from the 
left side of the page and then select ``CMS-1504-FC'' from the list of 
regulations and notices. The hospital-specific file layout and the 
hospital-specific file are listed with the other supporting 
documentation for this final rule with comment period. We show 
hospital-specific data only for hospitals whose claims were used for 
modeling the impacts shown in Table 66 below. We do not show hospital-
specific impacts for hospitals whose claims we were unable to use. We 
refer readers to section II.A.2. of this final rule with comment period 
for a discussion of the hospitals whose claims we do not use for 
ratesetting and impact purposes.
    We estimate the effects of the individual policy changes by 
estimating payments per service, while holding all other payment 
policies constant. We use the best data available, but do not attempt 
to predict behavioral responses to our policy changes. In addition, we 
do not make adjustments for future changes in variables such as service 
volume, service mix, or number of encounters. As we have done in 
previous rules, in the CY 2011 OPPS/ASC proposed rule (75 FR 46445), we 
solicited public comment and information about the anticipated effects 
of our changes on providers and our methodology for estimating them.
    We received many public comments on the proposed changes to payment 
policies and to proposed payment rates for the CY 2011 OPPS. We have 
summarized these public comments and provided our responses to them in 
other sections of this final rule with comment period as part of our 
discussions of the specific topics to which the comments pertained. We 
did not receive any public comments on our methodology for estimating 
the anticipated effects of our proposed changes on providers or other 
parties. For the reasons set forth in the proposed rule (75 FR 46444), 
we are finalizing our proposed methodology for estimating the 
anticipated effects of our proposed changes on providers or other 
parties.
3. Estimated Effects of This Final Rule with Comment Period on 
Hospitals
    Table 66 below shows the estimated impact of this final rule with 
comment period on hospitals. Historically, the first line of the impact 
table, which estimates the change in payments to all hospitals, has 
always included cancer and children's hospitals, which are held 
harmless to their pre-BBA payment-to-cost ratio. As discussed in 
section II.F. of this final rule with comment period, we are not 
finalizing our proposal to extend an adjustment to certain cancer 
hospitals under section 3138 of the Affordable Care Act. Because these 
hospitals will continue to receive hold harmless payments, per our 
standard policy, we have excluded them from this impact table. We also 
include CMHCs in the first line that includes all providers because we 
include CMHCs in our weight scalar estimate.
    We present separate impacts for CMHCs in Table 66 because CMHCs are 
paid only for partial hospitalization services and CMHCs are a 
different provider type from hospitals. For CY 2010, CMHCs and 
hospitals were paid under two APCs for services under the OPPS: APC 
0172 (Level 1 Partial Hospitalization (3 services)) and APC 0173 (Level 
II Partial Hospitalization (4 or more services)). For CY 2011, we are 
paying CMHCs under APC 0172 (Level I Partial Hospitalization (3 
services) for CMHCs) and APC 0173 (Level II Partial Hospitalization (4 
or more services) for CMHCs), and we are paying hospitals for partial 
hospitalization services under APC 0175 (Level I Partial 
Hospitalization (3 services) for Hospital-based PHPs) and APC 0176 
(Level II Partial Hospitalization (4 or more services) for Hospital-
based PHPs). We display the impact on CMHCs of this policy change below 
and we discuss the impact on CMHCs in section XX.B.4. of this final 
rule with comment period.
    The estimated increase in the total payments made under the OPPS is 
limited by the increase to the conversion factor set under the 
methodology in the statute. The distributional impacts presented do not 
include assumptions about changes in volume and service mix. The 
increase to the conversion factor is reduced by 0.25 percentage point 
as required by section 3401(i) of the Affordable Care Act and as 
amended by section 10319(g) of such Act and further amended by section 
1105(e) of such Act. Section 3137 of the Affordable Care Act, as 
amended by the HCERA, extended additional payment to section 508 
reclassification hospitals and special exception hospital wages outside 
budget neutrality through September 30, 2010. The amounts attributable 
to these reclassifications are incorporated into the CY 2010 estimates 
in Table 66. Section 10324 of the Affordable Care Act, as amended by 
HCERA, further authorized additional

[[Page 72119]]

expenditures outside budget neutrality for hospitals in certain 
frontier States to have a wage index of 1.00. The amounts attributable 
to this frontier State wage index adjustment are incorporated into the 
CY 2011 estimates in Table 66.
    Table 66 shows the estimated redistribution of hospital and CMHC 
payments among providers as a result of APC reconfiguration and 
recalibration; wage indices and the rural adjustment; the combined 
impact of the APC recalibration, wage and rural adjustment effects, and 
the market basket update to the conversion factor; the frontier State 
wage index adjustment; and, finally, estimated redistribution 
considering all payments for CY 2011 relative to all payments for CY 
2010, including the impact of changes in estimated outlier payments, 
expiring section 508 wage indices, and changes to the pass-through 
payment estimate. We did not model an explicit budget neutrality 
adjustment for the rural adjustment for SCHs because we are not making 
any changes to the policy for CY 2011. Because the updates to the 
conversion factor, including the update of the market basket, less the 
market basket reduction authorized under the Affordable Care Act, and 
the subtraction of additional money dedicated to pass-through payment 
for CY 2011, are applied uniformly across services, observed 
redistributions of payments in the impact table for hospitals largely 
depend on the mix of services furnished by a hospital (for example, how 
the APCs for the hospital's most frequently furnished services will 
change), and the impact of the wage index changes on the hospital. 
However, total payments made under this system and the extent to which 
this final rule with comment period will redistribute money during 
implementation also will depend on changes in volume, practice 
patterns, and the mix of services billed between CY 2010 and CY 2011 by 
various groups of hospitals, which CMS cannot forecast.
    Overall, the OPPS rates for CY 2011 will have a positive effect for 
providers paid under the OPPS, resulting in a 2.5 percent estimated 
increase in Medicare payments. Removing cancer and children's hospitals 
because their payments are held harmless to the pre-OPPS ratio between 
payment and cost and CMHCs suggests that these changes will result in a 
2.8 percent estimated increase in Medicare payments to all other 
hospitals.
    To illustrate the impact of the final CY 2011 changes, our analysis 
begins with a baseline simulation model that uses the final CY 2010 
weights, the FY 2010 final IPPS wage indices that include 
reclassifications, and the final CY 2010 conversion factor. Column 2 in 
Table 66 shows the independent effect of the changes resulting from the 
reclassification of services among APC groups and the recalibration of 
APC weights, based on 12 months of CY 2009 OPPS hospital claims data 
and the most recent cost report data. We modeled the effect of the APC 
recalibration changes for CY 2011 by varying only the weights (the 
final CY 2010 weights versus the final CY 2011 weights calculated using 
the service mix and volume in the CY 2009 claims used for this final 
rule with comment period) and calculating the percent difference in 
weight. Column 2 also reflects the effect of the changes resulting from 
the APC reclassification and recalibration changes and any changes in 
multiple procedure discount patterns or conditional packaging that 
occur as a result of the changes in the relative magnitude of payment 
weights.
    Column 3 reflects the independent effects of the updated wage 
indices, including the application of budget neutrality for the rural 
floor policy on a nationwide basis. This column excludes the effects of 
the frontier wage index adjustment, which is not budget neutral and is 
shown in column 5. We did not model a budget neutrality adjustment for 
the rural adjustment for SCHs because we are making no changes to the 
policy for CY 2011. We modeled the independent effect of updating the 
wage indices by varying only the wage indices, holding APC relative 
weights, service mix, and the rural adjustment constant and using the 
CY 2011 scaled weights and a CY 2010 conversion factor that included a 
budget neutrality adjustment for the effect of changing the wage 
indices between CY 2010 and CY 2011.
    Column 4 demonstrates the combined ``budget neutral'' impact of APC 
recalibration (that is, Column 2), the wage index update (that is, 
Column 3), as well as the impact of updating the conversion factor with 
the adjusted OPD fee schedule increase (also commonly known as the 
market basket update, in this case, the 2.6 percent hospital market 
basket update less the 0.25 percentage point reduction required by the 
Affordable Care Act). We modeled the independent effect of the budget 
neutrality adjustments and the adjusted OPD fee schedule increase by 
using the weights and wage indices for each year, and using a CY 2010 
conversion factor that included the adjusted OPD fee schedule increase 
and a budget neutrality adjustment for differences in wage indices.
    Column 5 demonstrates the impact of the budget neutral adjustments 
and the OPD fee schedule increase reflected in Column 4 combined with 
the non-budget neutral frontier State wage index adjustment, discussed 
in section II.C.1. of this final rule with comment period.
    Finally, Column 6 depicts the full impact of the CY 2011 policies 
on each hospital group by including the effect of all the changes for 
CY 2011 (including the APC reconfiguration and recalibration shown in 
Column 2) and comparing them to all estimated payments in CY 2010 
(these CY 2010 estimated payments include the payments resulting from 
the non-budget neutral increases to wage indices under section 508 of 
Public Law 108-173 as extended by Public Law 111-148 through September 
30, 2010). Column 6 shows the combined budget neutral effects of 
Columns 2 through 4, plus the impact of the frontier State wage index 
adjustment; the change to the fixed-dollar outlier threshold from 
$2,175 to $2,025 as discussed in section II.G. of this final rule with 
comment period; the expiration of section 508 reclassifications; the 
change in the HOP QDRP payment reduction for the small number of 
hospitals in our impact model that failed to meet the reporting 
requirements (see section XVI.D. of this final rule with comment 
period); and the impact of increasing the estimate of the percentage of 
total OPPS payments dedicated to transitional pass-through payments. Of 
the 90 hospitals that failed to meet the HOP QDRP reporting 
requirements for the full CY 2010 update (and assumed, for modeling 
purposes, to be the same number for CY 2011), we included 11 hospitals 
in our model because they had both CY 2009 claims data and recent cost 
report data. We estimate that the cumulative effect of all changes for 
CY 2011 will increase payments to all providers by 2.5 percent for CY 
2011. We modeled the independent effect of all changes in Column 6 
using the final weights for CY 2010 and the final weights for CY 2011. 
We used the final conversion factor for CY 2010 of $67.241, which was 
announced in the notice describing implementation of the Affordable 
Care Act provisions (75 FR 45769) and the CY 2011 conversion factor of 
$68.876 discussed in section II.B. of this final rule with comment 
period.
    Column 6 also contains simulated outlier payments for each year. We 
used the charge inflation factor used in the FY 2011 IPPS/LTCH PPS 
final rule of 4.83 percent (1.0483) to increase individual costs on the 
CY 2009 claims, and we used the most recent overall CCR in the July 
2010 Outpatient Provider-Specific File (OPSF). Using the CY 2009 claims 
and a 4.83 percent

[[Page 72120]]

charge inflation factor, we currently estimate that outlier payments 
for CY 2010, using a multiple threshold of 1.75 and a fixed-dollar 
threshold of $2,175, will be approximately 0.85 percent of total 
payments. Outlier payments of 0.85 percent are incorporated in the CY 
2010 comparison in Column 6. We used the same set of claims and a 
charge inflation factor of 9.88 percent (1.0988) and the CCRs in the 
July 2010 OPSF, with an adjustment of 0.9910, to reflect relative 
changes in cost and charge inflation between CY 2009 and CY 2011, to 
model the CY 2011 outliers at 1.0 percent of estimated total payments 
using a multiple threshold of 1.75 and a fixed-dollar threshold of 
$2,025.
Column 1: Total Number of Hospitals
    The first line in Column 1 in Table 66 shows the total number of 
providers (4,185), including designated cancer and children's hospitals 
and CMHCs for which we were able to use CY 2009 hospital outpatient 
claims to model CY 2010 and CY 2011 payments, by classes of hospitals. 
We excluded all hospitals for which we could not accurately estimate CY 
2010 or CY 2011 payment and entities that are not paid under the OPPS. 
The latter entities include CAHs, all-inclusive hospitals, and 
hospitals located in Guam, the U.S. Virgin Islands, Northern Mariana 
Islands, American Samoa, and the State of Maryland. This process is 
discussed in greater detail in section II.A. of this final rule with 
comment period. At this time, we are unable to calculate a 
disproportionate share (DSH) variable for hospitals not participating 
in the IPPS. Hospitals for which we do not have a DSH variable are 
grouped separately and generally include freestanding psychiatric 
hospitals, rehabilitation hospitals, and long-term care hospitals. We 
show the total number (3,906) of OPPS hospitals, excluding the hold-
harmless cancer and children's hospitals and CMHCs, on the second line 
of the table. We excluded cancer and children's hospitals because 
section 1833(t)(7)(D) of the Act permanently holds harmless cancer 
hospitals and children's hospitals to their proportional payment 
relative to reasonable cost prior to payment under the OPPS and, 
therefore, we removed them from our impact analyses. We show the 
isolated impact on 217 CMHCs at the bottom of the impact table and 
discuss that impact separately below.
Column 2: APC Changes Due to Reassignment and Recalibration
    This column shows the combined effects of the reconfiguration, 
recalibration, and other policies (such as setting payment for 
separately payable drugs and biologicals at ASP+5 percent with an 
accompanying reduction in the amount of cost associated with packaged 
drugs and biologicals and changes in payment for PHP services). 
Overall, we estimate that changes in APC reassignment and recalibration 
across all services paid under the OPPS will increase payments to urban 
hospitals by 0.3 percent. We estimate that both large and other urban 
hospitals will see an increase of 0.3 percent, all attributable to 
recalibration. We estimate that urban hospitals billing fewer than 
5,000 lines for OPPS services will experience an increases of 2.2, 
while urban hospitals billing 5,000 or more lines for OPPS services 
will see increases of 0.1 to 0.7 percent.
    Overall, we estimate that rural hospitals will experience no change 
as a result of changes to the APC structure. We estimate that rural 
hospitals with fewer than 101 beds will experience decreases of 0.1 to 
0.5 percent as a result of APC recalibration and that rural hospitals 
with 101 beds or more will experience increases up to 0.4 percent as a 
result of APC recalibration. We estimate that rural hospitals that 
report fewer than 43,000 lines for OPPS services will experience 
decreases of 1.2 to 0.4 percent, while rural hospitals that report 
43,000 or more lines for OPPS services will see an increase of 0.1 
percent in payment as a result of APC recalibration.
    Among teaching hospitals, we estimate that the impact resulting 
from APC recalibration will include an increase of 0.4 percent for 
major teaching hospitals and an increase of 0.3 for minor teaching 
hospitals.
    Classifying hospitals by type of ownership suggests that voluntary, 
proprietary and governmental hospitals will see an estimated increase 
of 0.3 percent as a result of APC recalibration.
    Finally, we estimate that hospitals for which DSH payments are not 
available will experience a decrease of 0.7 to 0.4 percent. We estimate 
that most other classes of hospitals will experience modest increases 
from CY 2010 to CY 2011 resulting from APC recalibration.
Column 3: New Wage Indices and the Effect of the Rural Adjustment
    This column estimates the impact of applying the final FY 2011 IPPS 
wage indices for the CY 2011 OPPS without the influence of the frontier 
State wage index adjustment or the expiration of the section 508 wage 
index adjustment, which are not budget neutral. The frontier State wage 
index adjustment is reflected in the combined impact shown in columns 5 
and 6. The expiring section 508 adjustment is reflected in column 6. We 
are not changing the rural payment adjustment for CY 2011. We estimate 
that the combination of updated wage data and nationwide application of 
rural floor budget neutrality will redistribute payment among regions. 
We also updated the list of counties qualifying for the section 505 
out-migration adjustment. Overall, we estimate that urban hospitals 
will experience no change from CY 2010 to CY 2011, and that rural 
hospitals will experience a decrease of 0.2 percent as a result of the 
updated wage indices. We estimate that hospitals in rural New England 
States and rural West South Central States will experience increases of 
0.8 and 0.7 percent, respectively, while other rural regions will 
experience decreases from 0.6 to 0.1 percent. We estimate that 
hospitals located in urban New England, East North Central, West South 
Central and Pacific regions will experience increases of 0.1 to 0.5 
percent while other urban regions will experience no change or 
decreases of 0.4 to 0.1 percent.
Column 4: All Budget Neutrality Changes Combined with the Adjusted OPD 
Fee Schedule Increase
    We estimate that the addition of the adjusted OPD fee schedule 
increase factor of 2.35 percent (which includes the reduction to the 
OPD fee schedule update factor of a 0.25 percentage point as required 
by section 3401(i), 10319(g), and section 1105(e) of the Affordable 
Care Act) will mitigate the negative impacts on hospital payments for 
CY 2011 created by the budget neutrality adjustments made in Columns 2 
and 3. Rural hospitals with fewer than 43,000 lines experience the 
smallest increases of between 1.4 and 1.9 percent. In general, Column 4 
shows that all hospitals will experience an estimated increase of 2.6 
percent, attributable to the 2.35 percent adjusted OPD fee schedule 
increase factor combined with the budget neutrality adjustments.
    Overall, we estimate that these changes will increase payments to 
urban hospitals by 2.7 percent. We estimate that large urban hospitals 
will experience an increase of 2.8 percent, and ``other'' urban 
hospitals will experience a 2.6 percent increase. We estimate that 
rural hospitals will experience a 2.2 percent increase as a result of 
the adjusted OPD fee schedule increase factor and other budget 
neutrality adjustments. We estimate that urban hospitals that bill less 
than 5,000 lines of OPPS services will experience the largest increase 
of 4.8 percent and that rural hospitals will experience increases of 
1.4 to 2.2 percent.

[[Page 72121]]

    Among teaching hospitals, we estimate that the observed impacts 
resulting from the adjusted OPD fee schedule increase factor and other 
budget neutrality adjustments will include an increase of 2.8 and 2.6 
percent, respectively, for major and minor teaching hospitals.
    Classifying hospitals by type of ownership suggests that 
proprietary and government hospitals will experience estimated 
increases of 2.7 percent, while voluntary hospitals will experience 
increases of 2.6 percent.
Column 5: Frontier State Wage Index Adjustment
    This column shows the impact of all budget neutrality adjustments, 
application of the 2.35 percent adjusted OPD fee schedule increase 
factor, and the non-budget neutral impact of applying the frontier 
State wage adjustment (that is, the frontier State wage index change in 
addition to all changes reflected in column 4). In general, we estimate 
that all facilities will see a combined increase of 2.4 percent and 
that all hospitals will see a combined increase of 2.7 percent. 
Hospitals in the rural Mountain Region will see an increase of 4.0 
percent as a result of the combined effects of all budget neutrality 
adjustments, application of the 2.35 percent adjusted OPD fee schedule 
increase factor, and the non-budget neutral impact of applying the 
frontier State wage adjustment.
Column 6: All Changes for CY 2011
    Column 6 compares all changes for CY 2011 to estimated final 
payment for CY 2010, including the change in the outlier threshold, 
payment reductions for hospitals that failed to meet the HOP QDRP 
reporting requirements, the influence of the expiration of the section 
508 wage adjustment, and the difference in pass-through estimates that 
are not included in the combined percentages shown in Column 5. This 
column includes estimated payment for a handful of hospitals receiving 
reduced payment because they did not meet their hospital outpatient 
quality measure reporting requirements; however, we estimate that the 
anticipated change in payment between CY 2010 and CY 2011 for these 
hospitals will be negligible. (We further discuss the estimated impacts 
of hospitals' failure to meet these requirements below in section XX.D. 
of this final rule with comment period.) Overall, we estimate that 
facilities will experience an increase of 2.5 percent under this final 
rule with comment period in CY 2011 relative to total spending in CY 
2010. The projected 2.5 percent increase for all facilities in Column 6 
of Table 66 reflects the 2.35 percent OPD fee schedule increase, less 
0.01 percent for the change in the pass-through estimate between CY 
2010 and CY 2011, plus 0.15 percent for the difference in estimated 
outlier payments between CY 2010 (0.85 percent) and CY 2011 (1.0 
percent), and less 0.06 percent due to the expiration of the special, 
non-budget neutral wage index payments made under section 508, plus 
0.10 percent due to the frontier wage index adjustment. When we exclude 
cancer and children's hospitals (which are held harmless to their pre-
OPPS costs) and CMHCs, the estimated increase is 2.8 percent.
    We estimate that the combined effect of all changes for CY 2011 
will increase payments to urban hospitals by 2.9 percent. We estimate 
that large urban hospitals will experience a 2.9 percent increase, 
while ``other'' urban hospitals will experience an increase of 2.8 
percent. We estimate that urban hospitals that bill less than 5,000 
lines of OPPS services will experience an increase of 5.1 percent, and 
we estimate that urban hospitals that bill 5,000 or more lines of OPPS 
services will experience increases between 2.7 percent and 3.6 percent.
    Overall, we estimate that rural hospitals will experience a 2.4 
percent increase as a result of the combined effects of all changes for 
CY 2011. We estimate that rural hospitals that bill less than 5,000 
lines of OPPS services will experience an increase of 3.6 percent and 
rural hospitals that bill 5,000 or more lines of OPPS services will 
experience increases ranging from 1.9 percent to 2.5 percent.
    Among teaching hospitals, we estimate that the impacts resulting 
from the combined effects of all changes will include an increase of 
3.0 percent for major teaching hospitals and 2.9 percent for minor 
teaching hospitals.
    Classifying hospitals by type of ownership, we estimate that 
voluntary and proprietary hospitals will gain 2.8 percent, and that 
governmental hospitals will experience an increase of 2.9 percent.
4. Estimated Effects of This Final Rule With Comment Period on CMHCs
    The last line of Table 66 demonstrates the isolated impact on 
CMHCs. CMHCs are currently paid under two APCs for services under the 
OPPS: APC 0172 (Level 1 Partial Hospitalization (3 services)) and APC 
0173 (Level II Partial Hospitalization (4 or more services)). This 
final rule with comment period further refines payment within these 
partial hospitalization APCs for CY 2011 by providing two payment rates 
for partial hospitalization services for each provider type (CMHCs and 
hospital-based PHPs). Specifically, APC 0172 is retitled: ``Level I 
Partial Hospitalization (3 services) for CMHCs;'' APC 0173 is retitled: 
``Level II Partial Hospitalization (4 or more services) for CMHCs;'' 
new APC 0175 is titled: ``Level I Partial Hospitalization (3 services) 
for Hospital-Based PHPs'' and new APC 0176 is titled: ``Level II 
Partial Hospitalization (4 or more services) for Hospital-Based PHPs.'' 
We are adopting payment rates for each APC based on the cost data 
derived from claims and cost reports for the provider type to which the 
APC is specific and are providing a 2-year transition to CMHC rates 
based solely on CMHC data for the two CMHC PHP per diem rates. For CY 
2011, we are calculating the CMHC PHP APC Level I and Level II rates by 
taking 50 percent of the difference between the CY 2010 final hospital-
based medians and the CY 2011 final CMHC medians and adding that number 
to the CY 2011 final CMHC medians. We modeled the impact of this APC 
policy change assuming that CMHCs will continue to provide the same 
number of days of PHP care, with each day having either three services 
or four or more services, as seen in the CY 2009 claims data. We 
excluded days with one or two services. Because the relative weights 
for APC 0172 (Level 1 Partial Hospitalization (3 services)) and APC 
0173 (Level II Partial Hospitalization (4 or more services)) both 
decline in CY 2011 to reflect CMHC cost data for partial 
hospitalization services provided by CMHCs under this final rule with 
comment period, we estimate that there will be a 24.1 percent decrease 
in payments to CMHCs due to these APC policy changes (shown in Column 
2).
    Column 3 shows that the estimated impact of adopting the CY 2011 
wage index values will result in a 0.9 percent increase in payments to 
CMHCs. We note that all providers paid under the OPPS, including CMHCs, 
will receive a 2.35 percent OPD fee schedule increase. Combining this 
OPD fee schedule increase, along with changes in APC policy for CY 2011 
and the CY 2011 wage index updates, changes in outlier and pass-though 
payments, and the expiration of section 508 wages, we estimate that the 
combined impact on CMHCs for CY 2011 will be a 21.1 percent decrease in 
payment.
    The impact on hospitals of the changes to payment rates to 
hospitals for partial hospitalization services is reflected in the 
impact of all changes on hospitals.

[[Page 72122]]

    All providers paid under the OPPS will receive a 2.35 percent OPD 
fee schedule increase under this policy. Combining this OPD fee 
schedule increase, along with changes in APC policy for CY 2011 and the 
CY 2011 wage index updates, changes in outlier and pass-through 
payments, and the expiration of section 508 wages, we estimate that the 
combined impact hospitals within the PPS system will be a 2.5 percent 
increase in total payment for CY 2011.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR24NO10.314


[[Page 72123]]


[GRAPHIC] [TIFF OMITTED] TR24NO10.315


[[Page 72124]]


[GRAPHIC] [TIFF OMITTED] TR24NO10.316


[[Page 72125]]


[GRAPHIC] [TIFF OMITTED] TR24NO10.317

BILLING CODE 4120-01-C
6. Estimated Effect of This Final Rule With Comment Period on 
Beneficiaries
    For services for which the beneficiary pays a copayment of 20 
percent of the payment rate, the beneficiary share of payment will 
increase for services for which the OPPS payments will rise and will 
decrease for services for which the OPPS payments will fall. For 
example, for a service assigned to Level IV Needle Biopsy/Aspiration 
Except Bone Marrow (APC 0037) in the CY 2010 OPPS, the national 
unadjusted copayment is $228.76, and the minimum unadjusted copayment 
is $208.97. For CY 2011, the national unadjusted copayment for APC 0037 
will be $228.76, the same rate in effect for CY 2010. The minimum 
unadjusted copayment for APC 0037 will be $216.29 or 20 percent of the 
CY 2011 national unadjusted payment rate for APC 0037 of $1,081.42. The 
minimum unadjusted copayment will rise because the payment rate for APC 
0037 will rise for CY 2011. In all cases, the statute limits 
beneficiary liability for copayment for a procedure to the hospital 
inpatient deductible for the applicable year. The CY 2010 hospital 
inpatient deductible is $1,100. The CY 2011 hospital inpatient 
deductible was not known at the time this final rule was written.
    In order to better understand the impact of changes in copayment on 
beneficiaries, we modeled the percent change in total copayment 
liability using CY 2009 claims. We estimate, using the claims of the 
4,185 hospitals and CMHCs on which our modeling is based, that total 
beneficiary liability for copayments will decline as an overall 
percentage of total payments, from 22.3 percent in CY 2010 to 21.9 
percent in CY 2011.
7. Conclusion
    The changes in this final rule with comment period will affect all 
classes of hospitals and CMHCs. We estimate that some classes of 
hospitals will experience significant gains and others less significant 
gains, but all classes of hospitals will experience positive updates in 
OPPS payments in CY 2011 with one exception. We estimate that CMHCs 
will see an overall decrease in payment of 21.1 percent during this 
first year of a two-year transition to payment rates for partial 
hospitalization services

[[Page 72126]]

at CMHCs based on cost report and claims data submitted by CMHCs.
    Table 66 demonstrates the estimated distributional impact of the 
OPPS budget neutrality requirements that will result in a 2.5 percent 
increase in payments for all services paid under the OPPS in CY 2011, 
after considering all changes to APC reconfiguration and recalibration, 
as well as the adjusted market basket increase, wage index changes, 
including the frontier State wage index adjustment and the expiration 
of section 508 wage index reclassifications, estimated payment for 
outliers, and changes to the pass-through payment estimate. The 
accompanying discussion, in combination with the rest of this final 
rule with comment period, constitutes a regulatory impact analysis.
8. Accounting Statement
    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 67, we have 
prepared an accounting statement showing the CY 2011 estimated hospital 
OPPS incurred benefit impact associated with the CY 2011 OPD fee 
schedule increase shown in this final rule with comment period based on 
the FY 2011 President's Budget. All estimated impacts are classified as 
transfers.

     Table 67--Accounting Statement: CY 2011 Estimated Hospital OPPS
   Transfers From CY 2010 To CY 2011 Associated With the Final CY 2011
              Hospital Outpatient OPD Fee Schedule Increase
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............  $0.7 billion.
From Whom to Whom.........................  Federal Government to
                                             outpatient hospitals and
                                             other providers who
                                             received payment under the
                                             hospital OPPS.
    Total.................................  $0.7 billion.
------------------------------------------------------------------------

C. Effects of ASC Payment System Changes in This Final Rule With 
Comment Period

    On August 2, 2007, we published in the Federal Register the final 
rule for the revised ASC payment system, effective January 1, 2008 (72 
FR 42470). In that final rule, we adopted the methodologies to set 
payment rates for covered ASC services to implement the revised payment 
system so that it will be designed to result in budget neutrality as 
required by section 626 of Public Law 108-173; established that the 
OPPS relative payment weights will be the basis for payment and that we 
will update the system annually as part of the OPPS rulemaking cycle; 
and provided that the revised ASC payment rates will be phased in over 
4 years. During the 4-year transition to full implementation of the ASC 
payment rates, payments for surgical procedures performed in ASCs that 
were on the CY 2007 ASC list of covered surgical procedures were made 
using a blend of the CY 2007 ASC payment rate and the ASC payment rate 
calculated according to the ASC standard ratesetting methodology for 
the applicable transitional year. In CY 2009, we paid ASCs using a 50/
50 blend, in which payment was calculated by adding 50 percent of the 
CY 2007 ASC rate for a surgical procedure on the CY 2007 ASC list of 
covered surgical procedures and 50 percent of the CY 2009 ASC rate 
calculated according to the ASC standard ratesetting methodology for 
the same procedure. For CY 2010, we transitioned the blend to a 25/75 
blend of the CY 2007 ASC rate and the CY 2010 ASC payment rate 
calculated according to the ASC standard ratesetting methodology. In CY 
2011, we will pay ASCs for all covered surgical procedures, including 
those on the CY 2007 ASC list, at the ASC payment rates calculated 
according to the ASC standard ratesetting methodology.
    ASC payment rates are calculated by multiplying the ASC conversion 
factor by the ASC relative payment weight. As discussed fully in 
section XV. of this final rule with comment period, we set the CY 2011 
ASC relative payment weights by scaling CY 2011 ASC relative payment 
weights by the ASC scaler of 0.9238. The estimated effects of the 
updated relative payment weights on payment rates during this first 
year of full implementation of the ASC payment rates calculated 
according to the ASC standard ratesetting methodology are varied and 
are reflected in the estimated payments displayed in Tables 68 and 69 
below.
    Beginning in CY 2011, section 3401 of the Affordable Care Act 
requires that the annual update to the ASC payment system, which is the 
consumer price index for all urban consumers (CPI-U), be reduced by the 
productivity adjustment. The Affordable Care Act defines the 
productivity adjustment to be equal to the 10-year moving average of 
changes in annual economy-wide private nonfarm business multi-factor 
productivity (MFP) (as projected by the Secretary for the 10-year 
period ending with the applicable fiscal year, year, cost reporting 
period, or other annual period). We calculated the CY 2011 ASC 
conversion factor by adjusting the CY 2010 ASC conversion factor by 
0.9996 to account for changes in the pre-floor and pre-reclassified 
hospital wage indices between CY 2010 and CY 2011 and by applying the 
CY 2011 MFP-adjusted CPI-U of 0.2 percent (1.5 percent CPI-U minus 1.3 
percent MFP). The CY 2011 ASC conversion factor is $41.939.
1. Alternatives Considered
    Alternatives to the changes we are making and the reasons that we 
have chosen specific options are discussed throughout this final rule 
with comment period. Some of the major ASC issues discussed in this 
final rule with comment period and the options considered are discussed 
below.
a. Alternatives Considered for Office-Based Procedures
    According to our final policy for the revised ASC payment system, 
we designate as office-based those procedures that are added to the ASC 
list of covered surgical procedures in CY 2008 or later years and that 
we determine are predominantly performed in physicians' offices based 
on consideration of the most recent available volume and utilization 
data for each individual procedure HCPCS code and, if appropriate, the 
clinical characteristics, utilization, and volume of related HCPCS 
codes. We establish payment for procedures designated as office-based 
at the lesser of the MPFS nonfacility practice expense payment amount 
or the ASC rate developed according to the standard methodology of the 
revised ASC payment system.
    In developing this final rule with comment period, we reviewed the 
full CY 2009 utilization data for all surgical procedures added to the 
ASC list of covered surgical procedures in CY 2008 or later years and 
for those procedures for which the office-based designation is 
temporary in the CY 2010 OPPS/ASC final rule with comment period (74 FR 
60605 through 60608). Based on that review, and as discussed in section 
XV.C.1.b. of this final rule with comment period, we are newly 
designating two surgical procedures as permanently office-based and 
making permanent the office-based designations of three existing 
surgical procedures that have temporary office-based designations in CY 
2010. In addition, we are making temporary office-based designations 
for seven procedures in CY 2011 that were designated as temporarily 
office-based for CY 2010. We considered two alternatives in developing 
this policy.

[[Page 72127]]

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Part II--Continued

Book 2 of 2 Books

Pages 72127-72650





Department of Health and Human Services





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



Center for Medicare & Medicaid Services



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42 CFR Parts 410, 411, 412, et al.



Medicare Program: Hospital Outpatient Prospective Payment System and CY 
2011 Payment Rates; Ambulatory Surgical Center Payment System and CY 
2011 Payment Rates; Payments to Hospitals for Graduate Medical 
Education Costs; Physician Self-Referral Rules and Related Changes to 
Provider Agreement Regulations; Payment for Certified Registered Nurse 
Anesthetist Services Furnished in Rural Hospitals and Critical Access 
Hospitals; Final Rule

[[Page 72128]]


Federal Register / Vol. 75 , No. 226 / Wednesday, November 24, 2010 / 
Rules and Regulations
    The first alternative we considered was to make no change to the 
procedure payment designations. This would mean that we would pay for 
the five procedures we are designating as permanently office-based and 
the seven procedures we are designating as temporarily office-based at 
an ASC payment rate calculated according to the standard ratesetting 
methodology of the revised ASC payment system. We did not select this 
alternative because our analysis of the data and our clinical review 
indicated that all five procedures we are designating as permanently 
office-based, as well as the seven procedures that we are designating 
temporarily as office-based, are considered to be predominantly 
performed in physicians' offices. Consistent with our final policy 
adopted in the August 2, 2007 final rule (72 FR 42509 through 42513), 
we were concerned that making payments at the standard ASC payment rate 
for the five procedures designated as permanently office-based and 
seven procedures designated as temporarily office-based could create 
financial incentives for the procedures to shift from physicians' 
offices to ASCs for reasons unrelated to clinical decisions regarding 
the most appropriate setting for surgical care. Further, consistent 
with our policy, we believe that when adequate data become available to 
make permanent determinations about procedures with temporary office-
based designations, maintaining the temporary designation is no longer 
appropriate.
    The second alternative we considered and the one we selected for CY 
2011 is to designate two additional procedures as permanently office-
based for CY 2011 and to make permanent the office-based designations 
of three of the procedures with temporary office-based designations in 
CY 2010. We also are designating seven procedures as temporarily 
office-based in CY 2011 that were designated as temporarily office-
based for CY 2010. We chose this alternative because our claims data 
and clinical review indicate that these procedures could be considered 
to be predominantly performed in physicians' offices. We believe that 
designating these procedures as office-based, which results in the CY 
2011 ASC payment rate for these procedures potentially being capped at 
the CY 2011 physicians' office rate (that is, the MPFS nonfacility 
practice expense payment amount), if applicable, is an appropriate step 
to ensure that Medicare payment policy does not create financial 
incentives for such procedures to shift unnecessarily from physicians' 
offices to ASCs, consistent with our final policy adopted in the August 
2, 2007 final rule.
b. Alternatives Considered for Covered Surgical Procedures
    According to our final policy for the revised ASC payment system, 
we designate as covered all surgical procedures that we determine would 
not be expected to pose a significant risk to beneficiary safety or 
would not be expected to require an overnight stay when performed on 
Medicare beneficiaries in an ASC.
    In developing this final rule with comment period, we reviewed the 
clinical characteristics and full CY 2009 utilization data, if 
applicable, for all procedures reported by Category III CPT codes 
implemented July 1, 2010, and surgical procedures that were excluded 
from ASC payment for CY 2010. Based on this review, we identified 8 new 
surgical procedures described by Category III CPT codes that were new 
for July 2010 and 6 surgical procedures excluded from ASC payment for 
CY 2010, that we determined were appropriate for addition to the ASC 
list of covered surgical procedures. We considered two alternatives in 
developing this policy.
    The first alternative we considered was to make no change to the CY 
2010 ASC list of covered surgical procedures. We did not choose this 
alternative because our analysis of data and clinical review indicated 
that the 14 procedures we are designating as covered surgical 
procedures for CY 2011 would not be expected to pose a significant risk 
to beneficiary safety in ASCs and would not be expected to require an 
overnight stay. Consistent with our final policy, we were concerned 
that by continuing to exclude them from the list of ASC covered 
surgical procedures, we may unnecessarily limit beneficiaries' access 
to the services in the most clinically appropriate settings.
    The second alternative we considered and the one we selected for CY 
2011 was to designate 14 additional procedures as ASC covered surgical 
procedures for CY 2011. We chose this alternative because our claims 
data and clinical review indicate that these procedures will not be 
expected to pose a significant risk to beneficiary safety and will not 
be expected to require an overnight stay, and thus they meet the 
criteria for inclusion on the list of ASC covered surgical procedures. 
We believe that adding these procedures to the list of covered surgical 
procedures is an appropriate step to ensure that beneficiary access to 
services is not limited unnecessarily.
c. Alternatives Considered for the Extension of Waiver of Deductible to 
Services Furnished in Connection With or in Relation to a Colorectal 
Screening Test That Becomes Diagnostic
    Section 4104(c)(2) of the Affordable Care Act waives the deductible 
with respect to a colorectal cancer screening test regardless of the 
code that is billed for the establishment of a diagnosis as a result of 
the test, or for the removal of tissue or other matter or other 
procedure that is furnished in connection with, as a result of, and in 
the same clinical encounter as a screening test. We are finalizing our 
proposal, without modification, for CY 2011 that the deductible be 
waived for all surgical services furnished in an ASC on the same date 
as a planned screening colonoscopy or planned flexible sigmoidoscopy as 
being furnished in connection with, as a result of, and in the same 
clinical encounter as the screening test (we note that barium enemas 
are not ASC covered ancillary or surgical procedures). As discussed in 
detail under the alternatives considered for the OPPS (section 
XX.B.1.a. of this final rule with comment period), we considered three 
alternatives for the extension of waiver of deductible to services 
furnished in connection with or in relation to a colorectal screening 
test that becomes diagnostic for CY 2011. The first alternative we 
considered, but did not propose for the reasons previously discussed, 
was to define a limited set of colonoscopy codes to which the waiver 
could apply when performed on the same date as a procedure that began 
as a screening colonoscopy or screening flexible sigmoidoscopy. The 
second alternative we considered, but did not propose for the reasons 
previously discussed, was to define a broader, but still limited set of 
codes (for example, selected surgical services) to which the waiver 
could apply when performed on the same date as a procedure that began 
as a screening colonoscopy or screening flexible sigmoidoscopy. The 
third alternative we considered, and the one we are selecting for CY 
2011, is to apply the waiver to any surgical procedure on the same date 
as a screening colonoscopy or flexible sigmoidoscopy performed in an 
ASC that ASCs report is ``in connection with, as a result of, and in 
the same clinical encounter as the screening test.'' As we discuss in 
detail in section XII.B.3., we have created HCPCS modifier PT that ASCs 
will append to the diagnostic procedure code that is reported instead 
of the screening colonoscopy or screening flexible sigmoidoscopy HCPCS 
code when the screening test

[[Page 72129]]

becomes a diagnostic service. As already discussed, we chose this 
alternative because we believe it provides the greatest ease of public 
understanding and ASC application. We believe that this alternative is 
appropriate because we believe that it will be very rare for an 
unrelated surgery to occur on the same date as one of these scheduled 
screening tests. Moreover, we believe that the risk of improper 
expenditures will be very small under this policy because it is the 
deductible, and not the coinsurance, that is waived for the related 
procedures other than the screening tests (that is, the Part B 
deductible is a fixed amount that the beneficiary pays before Medicare 
begins to pay and typically will be met after receiving one to two 
services).
2. Limitations of Our Analysis
    Presented here are the projected effects of the changes for CY 2011 
on Medicare payment to ASCs. A key limitation of our analysis is our 
inability to predict changes in ASC service mix between CY 2009 and CY 
2011 with precision. We believe that the net effect on Medicare 
expenditures resulting from the CY 2011 changes will be small in the 
aggregate for all ASCs. However, such changes may have differential 
effects across surgical specialty groups as ASCs continue to adjust to 
the payment rates based on the policies of the revised ASC payment 
system. We are unable to accurately project such changes at a 
disaggregated level. Clearly, individual ASCs will experience changes 
in payment that differ from the aggregated estimated impacts presented 
below.
3. Estimated Effects of This Final Rule With Comment Period on Payments 
to ASCs
    Some ASCs are multispecialty facilities that perform the gamut of 
surgical procedures, from excision of lesions to hernia repair to 
cataract extraction; others focus on a single specialty and perform 
only a limited range of surgical procedures, such as eye, digestive 
system, or orthopedic procedures. The combined effect on an individual 
ASC of the update to the CY 2011 payments will depend on a number of 
factors, including, but not limited to, the mix of services the ASC 
provides, the volume of specific services provided by the ASC, the 
percentage of its patients who are Medicare beneficiaries, and the 
extent to which an ASC provides different services in the coming year. 
The following discussion presents tables that display estimates of the 
impact of the CY 2011 update to the revised ASC payment system on 
Medicare payments to ASCs, assuming the same mix of services as 
reflected in our CY 2009 claims data. Table 68 depicts the estimated 
aggregate percent change in payment by surgical specialty or ancillary 
items and services group by comparing estimated CY 2010 payments to 
estimated CY 2011 payments, and Table 69 shows a comparison of 
estimated CY 2010 payments to estimated CY 2011 payments for procedures 
that we estimate will receive the most Medicare payment in CY 2011.
    Table 68 shows the estimated effects on aggregate Medicare payments 
under the revised ASC payment system by surgical specialty or ancillary 
items and services group. We have aggregated the surgical HCPCS codes 
by specialty group, grouped all HCPCS codes for covered ancillary items 
and services into a single group, and then estimated the effect on 
aggregated payment for surgical specialty and ancillary items and 
services groups. The groups are sorted for display in descending order 
by estimated Medicare program payment to ASCs. The following is an 
explanation of the information presented in Table 68.
    <bullet> Column 1--Surgical Specialty or Ancillary Items and 
Services Group indicates the surgical specialty into which ASC 
procedures are grouped or the ancillary items and services group which 
includes all HCPCS codes for covered ancillary items and services. To 
group surgical procedures by surgical specialty, we used the CPT code 
range definitions and Level II HCPCS codes and Category III CPT codes 
as appropriate, to account for all surgical procedures to which the 
Medicare program payments are attributed.
    <bullet> Column 2--Estimated ASC Payments were calculated using CY 
2009 ASC utilization (the most recent full year of ASC utilization) and 
CY 2010 ASC payment rates. The surgical specialty and ancillary items 
and services groups are displayed in descending order based on 
estimated CY 2010 ASC payments.
    <bullet> Column 3--Estimated CY 2011 Percent Change (Fully 
Implemented Payment Rates) is the aggregate percentage increase or 
decrease in Medicare program payment to ASCs for each surgical 
specialty or ancillary items and services group that will be 
attributable to updates to ASC payment rates for CY 2011 compared to CY 
2010.
    As seen in Table 68, we estimate that the update to ASC rates for 
CY 2011 will result in a 0 percent decrease in aggregate payment 
amounts for eye and ocular adnexa procedures, a 4 percent decrease in 
aggregate payment amounts for digestive system procedures, and a 2 
percent increase in aggregate payment amounts for nervous system 
procedures.
    Generally, for the surgical specialty groups that account for less 
ASC utilization and spending, we estimate that the payment effects of 
the CY 2011 update are positive. We estimate that ASC payments for 
procedures in those surgical specialties will increase in CY 2011. For 
instance, we estimate that, in the aggregate, payment for integumentary 
system procedures will increase by 5 percent under the CY 2011 rates. 
We estimate similar effects for genitourinary, cardiovascular, 
musculoskeletal, respiratory, hematologic and lymphatic systems, and 
auditory system procedures as well.
    An estimated increase in aggregate payment for the specialty group 
does not mean that all procedures in the group will experience 
increased payment rates. For example, the estimated modest increase for 
CY 2011 for nervous system procedures is likely due to increase in the 
ASC payment weight for some of the high volume procedures, such as CPT 
code 64721 (Neuroplasty and/or transposition; median nerve at carpal 
tunnel).
    Also displayed in Table 68 is a separate estimate of Medicare ASC 
payments for the group of separately payable covered ancillary items 
and services. Payment for the current class of New Technology 
Intraocular Lenses (NTIOLs) is captured under this category. The 
current active class for NTIOLs for reduced spherical aberration 
expires on February 26, 2011. Because we did not find sufficient 
evidence of clinical benefit to implement a new class of NTIOLs for 
blue-light filtering to reduce glare, as discussed in section XV.E. of 
this final rule with comment period, we redistributed payment 
previously dedicated to separately payment for NTIOLs to other services 
for CY 2011. Therefore, we estimate that aggregate payments for these 
items and services will decrease by 58 percent for CY 2011. The payment 
estimates for the covered surgical procedures include the costs of 
packaged ancillary items and services. In rules for years prior to CY 
2010, we did not have ASC payment data for covered ancillary items and 
services because, prior to CY 2008, they were paid under other fee 
schedules or packaged into payment for the covered surgical procedures. 
Beginning with the CY 2010 OPPS/ASC rulemaking, we have utilization 
data for those services as well as for all of the covered surgical 
procedures provided in ASCs under the revised payment system.

[[Page 72130]]



 Table 68--Estimated Impact of the Final CY 2011 Update to the ASC Payment System on Aggregate CY 2011 Medicare
                  Program Payments by Surgical Speciality or Ancillary Items and Services Group
----------------------------------------------------------------------------------------------------------------
                                                                              Estimated CY 2011
 Surgical                                                                       percent change
specialty             Estimated CY 2010 ASC payments (in millions)                  (fully
  group                                                                          implemented)
-----------------------------------------------------------------------------------------------
(1)        (2)..............................................................                (3)
----------------------------------------------------------------------------------------------------------------
Total      $3,257...........................................................                  0
Eye and    1,426............................................................                  0
 ocular
 adnexa
Digestive  699..............................................................                 -4
 system
Nervous    391..............................................................                  2
 system
Musculosk  350..............................................................                 12
 eletal
 system
Genitouri  129..............................................................                  9
  nary
 system
Integumen  122..............................................................                  5
  tary
 system
Ancillary  68...............................................................                -58
 items
   and
 services
Respirato  36...............................................................                 17
    ry
 system
Cardiovas  24...............................................................                  7
 cular
 system
Auditory   8................................................................                  9
 system
Hematolog  4................................................................                 16
  ic &
 lymphati
     c
 systems
----------------------------------------------------------------------------------------------------------------

    Table 69 below shows the estimated impact of the updates to the 
revised ASC payment system on aggregate ASC payments for selected 
surgical procedures during CY 2011. The table displays 30 of the 
procedures receiving the greatest estimated CY 2010 aggregate Medicare 
payments to ASCs. The HCPCS codes are sorted in descending order by 
estimated CY 2010 program payment.
    <bullet> Column 1-HCPCS code.
    <bullet> Column 2-Short Descriptor of the HCPCS code.
    <bullet> Column 3-Estimated CY 2010 Allowed Charges were calculated 
using CY 2009 ASC utilization (the most recent full year of ASC 
utilization) and the CY 2010 ASC payment rates. The estimated CY 2010 
allowed charges are expressed in millions of dollars.
    <bullet> Column 4-Estimated CY 2011 Percent Change (Fully 
Implemented Payment Rates) reflects the percent differences between the 
estimated ASC payment for CY 2010 and the estimated payment for CY 2011 
based on the update.
    As displayed in Table 69, 22 of the 30 procedures with the greatest 
estimated aggregate CY 2010 Medicare payment are included in the 3 
surgical specialty groups that are estimated to account for the most 
Medicare payment to ASCs in CY 2011, specifically eye and ocular 
adnexa, digestive system, and nervous system surgical groups. 
Consistent with the estimated payment effects on the surgical specialty 
groups displayed in Table 68, the estimated effects of the CY 2011 
update on ASC payment for individual procedures shown in Table 69 are 
varied.
    The ASC procedure for which the most Medicare payment is estimated 
to be made in CY 2010 is the cataract removal procedure reported with 
CPT code 66984 (Extracapsular cataract removal with insertion of 
intraocular lens prosthesis (one stage procedure), manual or mechanical 
technique (e.g., irrigation and aspiration or phacoemulsification)). We 
estimate that the update to the ASC rates will result in a 1 percent 
payment decrease for this procedure in CY 2011. The estimated payment 
effects on two of the four other eye and ocular adnexa procedures 
included in Table 69 are more significant. We estimate that the payment 
rate for CPT code 66821 (Discission of secondary membranous cataract 
(opacified posterior lens capsule and/or anterior hyaloid); laser 
surgery (e.g., YAG laser) (one or more stages)) will decrease by 7 
percent and payment for CPT code 67904 (Repair eyelid defect) will 
increase by 11 percent.
    We estimate that the payment rates for all of the digestive system 
procedures included in Table 69 will decrease by 0 to 8 percent in CY 
2011. Those estimated decreases are consistent with decreases in the 
previous 3 years under the revised ASC payment system and are expected 
because, under the previous ASC payment system, the payment rates for 
many high volume endoscopy procedures were almost the same as the 
payments for the procedures under the OPPS.
    The estimated effects of the CY 2011 update on the nine nervous 
system procedures for which the most Medicare ASC payment is estimated 
to be made in CY 2010 will be variable. Our estimates indicate that the 
CY 2011 update will result in payment increases of 2 to 11 percent for 
5 of the 9 procedures and result in a 1 percent decrease for the other 
4 nervous system procedures. The nervous system procedures for which we 
estimate a positive effect on CY 2010 payments, include CPT codes 64721 
(Neuroplasty and/or transposition; median nerve at carpal tunnel) and 
63685 (Insertion or replacement of spinal neurostimulator pulse 
generator or receiver, direct or inductive coupling), which are 
expected to have payment increases of 11 percent and 7 percent 
respectively.
    The estimated payment effects for most of the remaining procedures 
listed in Table 69 will be positive. For example, the payment rates for 
musculoskeletal CPT codes 29880 (Arthroscopy, knee, surgical; with 
meniscectomy (medial and lateral, including any meniscal shaving)) and 
29881 (Arthroscopy, knee, surgical; with meniscectomy (medial OR 
lateral, including any meniscal shaving)) are estimated to increase 11 
percent over the CY 2010 transitional payment rates. Musculoskeletal 
procedures are expected to account for a greater percentage of CY 2011 
Medicare ASC spending as we estimate that payment for procedures in 
that surgical specialty group will increase under the revised payment 
system in CY 2011.

[[Page 72131]]



   Table 69--Estimated Impact of the Final CY 2011 Update to the ASC Payment System on Aggregate Payments for
                                               Selected Procedures
----------------------------------------------------------------------------------------------------------------
                                                                              Estimated CY 2011
 CPT/                                                                           percent change
HCPCS   Short descriptor    Estimated CY 2010 Allowed charges (in millions)         (fully
 Code          (2)                                (3)                            implemented
* (1)                                                                            payment) (4)
-----------------------------------------------------------------------------------------------
66984                   Cat$1,095...........................................                 -1
            iol, 1 stage
43239           Upper GI   163..............................................                 -7
       endoscopy, biopsy
45380                   Col130..............................................                 -5
                  biopsy
45378         Diagnostic   110..............................................                 -5
             colonoscopy
45385     Lesion removal   88...............................................                 -5
             colonoscopy
66982                   Cat74...............................................                 -1
                 complex
62311   Inject spine l/s   67...............................................                 -1
                    (cd)
66821     After cataract   63...............................................                 -7
           laser surgery
64483        Inj foramen   62...............................................                 -1
            epidural l/s
15823  Revision of upper   39...............................................                 -3
                  eyelid
64493  Inj paravert f jnt  36...............................................                  2
               l/s 1 lev
29826           Shoulder   32...............................................                 18
            arthroscopy/
                 surgery
G0105                   Col32...............................................                 -8
             hi risk ind
63650            Implant   31...............................................                  6
         neuroelectrodes
45384      Lesion remove   28...............................................                 -5
             colonoscopy
29881  Knee arthroscopy/   27...............................................                 11
                 surgery
G0121                   Col27...............................................                 -8
              hi rsk ind
64721                   Car26...............................................                 11
                 surgery
43235  Uppr gi endoscopy,  24...............................................                  0
               diagnosis
29880  Knee arthroscopy/   22...............................................                 11
                 surgery
52000                   Cys21...............................................                 -2
63685  Insrt/redo spine n  21...............................................                  7
               generator
64622  Destr paravertebrl  17...............................................                  4
               nerve l/s
28285          Repair of   17...............................................                 13
               hammertoe
62310   Inject spine c/t   15...............................................                 -1
67904      Repair eyelid   15...............................................                 11
                  defect
26055      Incise finger   14...............................................                  7
           tendon sheath
64623              Destr   13...............................................                 -1
         paravertebral n
                  add-on
67042    Vit for macular   13...............................................                 -1
                    hole
50590     Fragmenting of   13...............................................                 -2
            kidney stone
----------------------------------------------------------------------------------------------------------------
* Note that HCPCS codes proposed for deletion for CY 2011 are not displayed in this table.


[[Page 72132]]

    The previous ASC payment system served as an incentive to ASCs to 
focus on providing procedures for which they determined Medicare 
payments will support their continued operation. We note that, 
historically, the ASC payment rates for many of the most frequently 
performed procedures in ASCs were similar to the OPPS payment rates for 
the same procedures. Conversely, procedures with ASC payment rates that 
were substantially lower than the OPPS rates have historically been 
performed least often in ASCs. We believed that the revised ASC payment 
system will encourage greater efficiency in ASCs and will promote 
significant increases in the breadth of surgical procedures performed 
in ASCs because it distributes payments across the entire spectrum of 
covered surgical procedures based on a coherent system of relative 
weights that are related to the clinical and facility resource 
requirements of those procedures.
    The CY 2009 claims data that we used to develop the CY 2011 ASC 
payment system relative weights and rates reflect the second year of 
utilization under the revised payment system. Although the changes in 
the claims data are not large, the data reflect increased Medicare ASC 
spending for procedures that were newly added to the ASC list in CY 
2008. Our estimates based on CY 2009 data indicate that for CY 2011 
there will be especially noticeable increases in spending for 
respiratory systems, and hematologic and lymphatic systems, compared to 
the previous ASC payment system.
4. Estimated Effects of This Final Rule With Comment Period on 
Beneficiaries
    We estimate that the CY 2011 update to the ASC payment system will 
be generally positive for beneficiaries with respect to the new 
procedures that we are adding to the ASC list of covered surgical 
procedures and for those that we are designating as office-based for CY 
2011. First, as discussed in section XV.D.1.d. of this final rule with 
comment period, we are waiving the coinsurance, the Part B deductible, 
or both for certain preventive services recommended by the United 
States Preventive Services Task Force with a grade of A or B for any 
indication or population and that are appropriate for the individual to 
comply with sections 4104 and 10406 of the Affordable Care Act. Other 
than these services, the ASC coinsurance rate for all procedures is 20 
percent. This contrasts with procedures performed in HOPDs, where the 
beneficiary is responsible for copayments that range from 20 percent to 
40 percent of the procedure payment. Second, ASC payment rates under 
the revised payment system are lower than payment rates for the same 
procedures under the OPPS; therefore, the beneficiary coinsurance 
amount under the ASC payment system almost always will be less than the 
OPPS copayment amount for the same services. (The only exceptions will 
be if the ASC coinsurance amount exceeds the inpatient deductible. The 
statute requires that copayment amounts under the OPPS not exceed the 
inpatient deductible.) For new procedures that we are adding to the ASC 
list of covered surgical procedures in CY 2011, as well as for 
procedures already included on the list, and that are furnished in an 
ASC rather than the HOPD setting, the beneficiary coinsurance amount 
will be less than the OPPS copayment amount. Furthermore, the additions 
to the ASC list of covered surgical procedures will provide 
beneficiaries access to more surgical procedures in ASCs. Beneficiary 
coinsurance for services migrating from physicians' offices to ASCs may 
decrease or increase under the revised ASC payment system, depending on 
the particular service and the relative payment amounts for that 
service in the physician's office compared to the ASC. However, for 
those additional procedures that we are designating as office-based in 
CY 2011, the beneficiary coinsurance amount will be no greater than the 
beneficiary coinsurance in the physician's office.
    In addition, as finalized in the August 2, 2007 final rule (72 FR 
42521), in CY 2011, the final year of the 4-year transition to the ASC 
payment rates calculated according to the ASC standard ratesetting 
methodology of the revised ASC payment system, ASC payment rates for a 
number of commonly furnished ASC procedures will continue to be 
reduced, resulting in lower beneficiary coinsurance amounts for these 
ASC services in CY 2011.
5. Conclusion
    The updates to the ASC payment system for CY 2011 will affect each 
of the approximately 5,000 ASCs currently approved for participation in 
the Medicare program. The effect on an individual ASC will depend on 
its mix of patients, the proportion of the ASC's patients that are 
Medicare beneficiaries, the degree to which the payments for the 
procedures offered by the ASC are changed under the revised payment 
system, and the extent to which the ASC provides a different set of 
procedures in the coming year.
    The CY 2011 update to the revised ASC payment system includes an 
MFP-adjusted CPI-U increase factor of 0.2 percent that we estimate will 
result in a slightly higher amount of Medicare expenditures in CY 2011 
than was estimated to be made in CY 2010. We estimate that the update 
to the revised ASC payment system, including the addition of surgical 
procedures to the list of covered surgical procedures, will have 
minimal effect on Medicare expenditures compared to the estimated level 
of Medicare expenditures in CY 2010.
6. Accounting Statement
    As required by OMB Circular A-4 (available at http://www.whitehousegov/omb/circulars/a004/a-4.pdf), in Table 70 below, we 
have prepared an accounting statement showing the classification of the 
expenditures associated with the 0.2 percent update to the CY 2011 
revised ASC payment system, based on the provisions of this final rule 
with comment period and the baseline spending estimates for ASCs in the 
FY 2011 President's Budget. This table provides our best estimate of 
Medicare payments to suppliers as a result of the update to the CY 2011 
ASC payment system, as presented in this final rule with comment 
period. All expenditures are classified as transfers.

  Table 70--Accounting Statement: Classification of Estimated Transfers
From CY 2010 to CY 2011 as a Result of the CY 2011 Update to the Revised
                           ASC Payment System
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............  $5.9 million.
From Whom to Whom.........................  Federal Government to
                                             Medicare Providers and
                                             Suppliers.
    Total.................................  $5.9 million.
------------------------------------------------------------------------

D. Effect of Requirements for Hospitals' Reporting of Quality Data for 
Annual Hospital Payment Update

    In section XVI. of the CY 2009 OPPS/ASC final rule with comment 
period (73 FR 68758), we discussed our requirements for subsection (d) 
hospitals to report quality data under the HOP QDRP in order to receive 
the full payment update for CY 2010. In section XVI. of the CY 2010 
OPPS/ASC final rule with comment period (74 FR 60629), we discussed our 
requirements for subsection (d) hospitals to report quality data under 
the HOP QDRP in order to receive the full payment update for CY 2011. 
In section XVI. of this final rule with comment period, we established 
additional policies affecting

[[Page 72133]]

the HOP QDRP for CY 2012, CY 2013, and CY 2014. We estimate that about 
90 hospitals may not receive the full payment update in CY 2011. Most 
of these hospitals receive little to no OPPS reimbursement on an annual 
basis. However, at this time, information is not available to determine 
the precise number of hospitals that do not meet the requirements for 
the full hospital market basket increase for CY 2011. We also estimate 
that 90 hospitals may not receive the full payment update in CY 2012. 
We are unable at this time to estimate the number of hospitals that may 
not receive the full payment update in CY 2013 and CY 2014.
    In section XVI.E.3.a. of the CY 2010 OPPS/ASC final rule with 
comment period (74 FR 60647 through 60650), for the CY 2011 payment 
update, as part of the validation process, we are requiring hospitals 
to submit paper copies of requested medical records to a designated 
contractor within the required timeframe. Failure to submit requested 
documentation can result in a 2 percentage point reduction in a 
hospital's update, but the failure to attain a validation score 
threshold will not. Of the 90 hospitals that we estimate will not 
receive the full payment update for CY 2011, we estimate that no more 
than 20 hospitals will fail the validation documentation submission 
requirement for the CY 2011 payment update.
    In section XVI.E.3.b. of the CY 2010 OPPS/ASC final rule with 
comment period, we did not, at that time, adopt our proposal in the CY 
2010 OPPS/ASC proposed rule (74 FR 60650 through 60652) to expand the 
CY 2011 validation requirement for the CY 2012 payment update. Instead, 
we stated that we would consider the public comments we received on 
that proposal, as well as any analyses we conduct of the CY 2011 
validation process, and propose a CY 2012 validation process as a part 
of the CY 2011 OPPS/ASC rulemaking. We stated that we believed that 
this approach would give HOP QDRP hospitals experience with the 
validation process and allow these hospitals sufficient time to prepare 
for the CY 2012 validation.
    In this final rule with comment period, we have finalized our 
proposal to validate data submitted by 800 hospitals for purposes of 
the CY 2012 HOP QDRP payment determination. For CY 2011 and under our 
policy for CY 2012 in this final rule with comment period, we stated 
that we will conduct a measure level validation (we note, however, that 
the validation results will not affect the CY 2011 payment update) by 
assessing whether the measure data submitted by the hospital matches 
the independently reabstracted measure data. In addition, for the CY 
2012 payment update in this final rule with comment period, we have 
decided to validate data for only 800 hospitals out of the 
approximately 3,200 HOP QDRP participating hospitals. We believe that 
this approach is suitable for HOP QDRP data because it will: Produce a 
more reliable estimate of whether a hospital's submitted data have been 
abstracted accurately; provide more statistically reliable estimates of 
the quality of care delivered in each selected hospital as well as at 
the national level; and reduce overall hospital burden because most 
hospitals will not be selected to undergo validation each year. We have 
adopted a threshold of 75 percent as the threshold for the validation 
score because we believe this level is reasonable for hospitals to 
achieve while still ensuring accuracy of the data. Additionally, this 
level is consistent with what we adopted in the Hospital Inpatient 
Quality Reporting Program (formerly referred to as the Reporting 
Hospital Quality Data for Annual Payment Update (RHQDAPU) program) (75 
FR 50225 through 50229). As a result, we believe that the effect of our 
validation process for CY 2012 will be minimal in terms of the number 
of hospitals that will not meet all program requirements.
    The validation requirement for CY 2011 of 7,300 requested cases and 
for CY 2012 of a maximum of 12 cases per hospital per quarter will 
result in medical record documentation for approximately 7,300 total 
cases and 9,600 cases per quarter, respectively, being submitted to a 
designated CMS contractor. We will pay for the cost of sending this 
medical record documentation to the designated CMS contractor at the 
rate of 12 cents per page for copying and approximately $1.00 per case 
for postage. We have found that, based on experience, an outpatient 
medical chart is up to 10 pages. Thus, as a result of validation 
requirements effective for the CY 2011 annual payment update and the CY 
2012 annual payment update, respectively, we will have expenditures of 
approximately $8,760 total and $21,120 per quarter. Again, as we will 
pay for the data collection effort, we believe that a requirement for 
medical record documentation for 7,300 total cases for CY 2011 and a 
maximum of 12 cases per quarter for 800 hospitals for CY 2012 represent 
minimal burden to HOP QDRP-participating hospitals.

E. Executive Order 12866

    In accordance with the provisions of Executive Order 12866, this 
final rule with comment period was reviewed by the Office of Management 
and Budget.

XXI. Final Rule: Changes Relating to Payments to Hospitals for Direct 
Graduate Medical Education (GME) and Indirect Medical Education (IME) 
Costs

A. Background

    Section 1886(h) of the Act, as added by section 9202 of the 
Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 (Pub. L. 
99-272) and implemented in regulations at 42 CFR 413.75 through 413.83, 
establishes a methodology for determining payments to hospitals for the 
direct costs of approved graduate medical education (GME) programs. 
Section 1886(h)(2) of the Act sets forth a methodology for the 
determination of a hospital-specific base-period per resident amount 
(PRA) that is calculated by dividing a hospital's allowable direct 
costs of GME in a base period by its number of residents in the base 
period. The base period is, for most hospitals, the hospital's cost 
reporting period beginning in FY 1984 (that is, October 1, 1983 through 
September 30, 1984). The base year PRA is updated annually for 
inflation. In general, Medicare direct GME payments are calculated by 
multiplying the hospital's updated PRA by the weighted number of full-
time equivalent (FTE) residents working in all areas of the hospital 
complex (and nonprovider sites, when applicable), and the hospital's 
Medicare share of total inpatient days.
    Section 1886(d)(5)(B) of the Act provides for an additional payment 
amount under the hospital inpatient prospective payment system (IPPS) 
for hospitals that have residents in an approved GME program in order 
to reflect the higher indirect patient care costs of teaching hospitals 
relative to nonteaching hospitals. The regulations regarding the 
calculation of this additional payment, known as the indirect medical 
education (IME) adjustment, are located at 42 CFR 412.105.
    The Balanced Budget Act of 1997 (Pub. L. 105-33) established a 
limit on the number of allopathic and osteopathic residents that a 
hospital may include in its FTE resident count for direct GME and IME 
payment purposes. Under section 1886(h)(4)(F) of the Act, for cost 
reporting periods beginning on or after October 1, 1997, a hospital's 
unweighted FTE count of residents for purposes of direct GME may not 
exceed the hospital's unweighted FTE count for its most recent cost 
reporting period ending on

[[Page 72134]]

or before December 31, 1996. Under section 1886(d)(5)(B)(v) of the Act, 
a similar limit on the FTE resident count for IME purposes is effective 
for discharges occurring on or after October 1, 1997.
    The recently enacted Patient Protection and Affordable Care Act 
(Pub. L. 111-148), as amended by the Health Care and Education 
Reconciliation Act of 2010 (Pub. L. 111-152) made a number of statutory 
changes relating to the determination of a hospital's FTE resident 
count for direct GME and IME payment purposes and the manner in which 
FTE resident limits are calculated and applied to hospitals under 
certain circumstances. (These two pieces of legislation are 
collectively referred to in this document as the ``Affordable Care 
Act.'') Below we summarize the proposals to implement the provisions of 
the Affordable Care Act relating to Medicare direct GME and IME 
payments that were included in the August 3, 2010 proposed rule (75 FR 
46383) (as part of the CY 2011 OPPS/ASC proposed rule document), 
summarize the public comments we received, respond to those public 
comments, and set forth our final policy.

B. Counting Resident Time in Nonprovider Settings (Section 5504 of the 
Affordable Care Act)

1. Background and Changes Made by the Affordable Care Act
    Effective July 1, 1987, the Social Security Act was amended to 
allow hospitals to count the time residents spend training in sites 
that are not part of the hospital (referred to as ``nonprovider'' or 
``nonhospital sites'') for purposes of direct GME payments under 
certain conditions. Section 1886(h)(4)(A) of the Act (as added by 
section 9314 of the Omnibus Budget Reconciliation Act of 1986 (Pub. L. 
99-509, also known as (OBRA `86) provides that the Secretary ``shall 
establish rules consistent with this paragraph for the computation of 
the number of full-time equivalent residents in an approved medical 
residency training program.'' Specifically, section 1886(h)(4)(E) of 
the Act requires that the Secretary's rules concerning the computation 
of FTE residents for purposes of direct GME payments ``provide that 
only time spent in activities relating to patient care shall be counted 
and that all the time so spent by a resident under an approved medical 
residency training program shall be counted towards the determination 
of full-time equivalency, without regard to the setting in which the 
activities are performed, if the hospital incurs all, or substantially 
all, of the costs for the training program in that setting'' (as added 
by section 9314 of the Omnibus Budget Reconciliation Act of 1986 (Pub. 
L. 99-509) (OBRA 86)). Regulations implementing this provision were 
published in the September 29, 1989 final rule (54 FR 40292) at 42 CFR 
413.86(f)(3) (now Sec.  413.78(c)), which stated that a hospital may 
count the time residents spend in nonprovider settings for purposes of 
direct GME payment if: (1) The residents spend their time in patient 
care activities; and (2) there is a written agreement between the 
hospital and the nonprovider entity stating that the hospital will 
incur all or substantially all of the costs of the program. The 
regulations at that time defined ``all or substantially all'' of the 
costs to include the residents' compensation for the time spent at the 
nonprovider setting. Under section 1886(h)(4)(E) of the Act, only one 
single hospital was permitted to incur the costs of a particular 
training program and count the time residents spend training in a 
particular nonprovider setting.
    Prior to October 1, 1997, for purposes of the IME payment 
adjustment, hospitals were not permitted to count the time residents 
spent training in nonprovider settings. However, section 4621(b)(2) of 
the Balanced Budget Act of 1997 (Pub. L. 105-33) revised section 
1886(d)(5)(B) of the Act to allow providers to count time residents 
spend training in nonprovider sites for IME purposes, effective for 
discharges occurring on or after October 1, 1997. Specifically, section 
1886(d)(5)(B)(iv) of the Act was amended to provide that ``all the time 
spent by an intern or resident in patient care activities under an 
approved medical residency program at an entity in a nonprovider 
setting shall be counted towards the determination of full-time 
equivalency if the hospital incurs all, or substantially all, of the 
costs for the training program in that setting.'' In the July 31, 1998 
final rule (63 FR 41005), at Sec.  412.105(f)(1)(ii)(C) and Sec.  
413.86(f)(4), we specified the requirements that a hospital must meet 
in order to include the time spent by residents training in a 
nonprovider site in its FTE count for purposes of both direct GME and 
IME payments (we note that Sec.  413.86(f)(4) is now redesignated as 
Sec.  413.78(d)). In that final rule, we also redefined ``all or 
substantially all of the costs for the training program in the 
nonprovider setting'' as the residents' salaries and fringe benefits 
(including travel and lodging where applicable), and the portion of the 
cost of teaching physicians' salaries and fringe benefits that are 
attributable to GME.
    Pursuant to the statutory authority in sections 1815(a), 
1861(v)(1)(A), 1886(h)(3)(B), 1886(h)(4)(A), 1886(h)(4)(E), and 
1886(k), and in order to implement section 1886(h)(4)(E) (and later, 
section 1886(d)(5)(B)(iv)) of the Act, and to assist contractors in 
determining whether a hospital incurred ``all or substantially all'' of 
the costs of the program in the nonprovider setting, we required under 
Sec.  413.86(f)(3) and (f)(4) that there must be a written agreement 
between the hospital and the nonprovider site stating that the hospital 
will incur ``all or substantially all'' of the costs of training in the 
nonprovider setting (we note that Sec.  413.86(f)(3) and (f)(4) are now 
redesignated as Sec.  413.78(c) and (d), respectively). We later 
specified at Sec.  413.78(d)(2) that the written agreement must 
indicate the amount of compensation provided by the hospital to the 
nonprovider site for supervisory teaching activities. We have explained 
the nature of and the rationale for the written agreement requirement 
and identified the statutory authority for the written agreement in 
considerable detail in the preamble to other rules (for example, 63 FR 
40954, 40986 through 40989, 63 FR 40992 through 40994, and 63 FR 40996 
(July 31, 1998); 68 FR 45346 (August 1, 2003); 69 FR 48916, 49179 
through 49180 (August 11, 2004); and 72 FR 26870, 26969-26970 (May 11, 
2007)). We have referred to this written agreement as a ``written 
contract'' (63 FR 40954, 40989 (July 31, 1998)). We have explained that 
the written agreement requirement was a useful and easily administered 
documentation requirement, an administrative tool, a payment safeguard 
which, among other things, allowed the Secretary to identify the costs 
of offsite training and to determine whether a hospital seeking 
Medicare reimbursement for the offsite training of residents (or some 
other entity) had paid all or substantially all costs of the offsite 
training. Among other things, the written agreement requirement allowed 
the Secretary to ensure that: (a) Two or more hospitals were not paid 
for the same costs of offsite training of residents; (b) the hospital 
seeking Medicare reimbursement for the offsite training of residents 
was not reimbursed for costs which a nonprovider site really had 
incurred; and (c) that the hospital seeking Medicare reimbursement for 
the offsite training of residents and a nonprovider setting were not 
both paid for costs of offsite training.
    Section 713 of the Medicare Prescription Drug, Improvement, and

[[Page 72135]]

Modernization Act of 2003 (MMA) imposed a 1-year moratorium relating to 
certain nonprovider site teaching physician costs for the period from 
January 1, 2004, through December 31, 2004. During this 1-year period, 
we were required to allow hospitals to count FTE allopathic or 
osteopathic family practice residents training in nonprovider settings 
for IME and direct GME payment purposes without regard to the financial 
arrangement between the hospital and the teaching physician practicing 
in the nonprovider setting to which the resident was assigned. We 
instructed our Medicare contractors (then referred to as only ``fiscal 
intermediaries'' or ``FIs'') regarding the effect of section 713 of the 
MMA by stating that, when settling prior year cost reports during this 
1-year period, or for family practice residents actually training in 
nonprovider settings during this 1-year period, contractors should 
allow hospitals to count allopathic and osteopathic family practice 
residents training in a nonprovider setting for direct GME and IME 
payment purposes without regard to the financial arrangement between 
the hospital and the nonprovider site pertaining to the teaching 
physicians' costs associated with the residency program. For additional 
information on this provision and for a summary of public comments we 
received and our responses related to this provision, we refer readers 
to the FY 2005 IPPS final rule (69 FR 49176, August 11, 2004).
    In an effort to build in some flexibility and in an effort to 
respond to concerns expressed by hospitals about the administrative 
burden associated with meeting the written agreement requirements, the 
Secretary revised the written agreement rule to give hospitals more 
options. Specifically, in the FY 2005 IPPS final rule (69 FR 49179), we 
revised our regulations at Sec.  413.78(e) to allow hospitals to choose 
to either enter into a written agreement with the nonprovider site 
before the hospital may begin to count residents training at the 
nonprovider site, or to pay concurrently for the cost of training at 
the nonprovider setting. That is, in the absence of a written 
agreement, hospitals are required to pay ``all or substantially all'' 
of the costs of the training program in the nonprovider setting by the 
end of the third month following the month in which the training 
occurs. While the FY 2005 final rule preamble language indicated that 
the Secretary had concluded that the written agreement was not the only 
way for the agency to ensure that a given hospital was complying with 
the statute's ``all or substantially all'' of the cost requirement, it 
also indicated that it was and had been a sensible means of doing so 
(69 FR 48916, 49179, Aug. 11, 2004).
    On May 11, 2007, we published changes in the IPPS final rule (72 FR 
26949) that once again modified the definition of ``all or 
substantially all of the costs for the training program in the 
nonprovider setting.'' That final rule further defined ``all or 
substantially all'' under Sec.  413.75(b) to mean at least 90 percent 
of the total costs of the residents' salaries and fringe benefits 
(including travel and lodging where applicable) and the portion of the 
cost of the teaching physician's salaries attributable to GME. Although 
some public commenters had objected to our proposed redefinition of the 
``all or substantially all,'' we adopted the 90 percent rule because we 
believed it would substantially address concerns that had been voiced 
previously by the industry. With this modification, hospitals were no 
longer required to pay 100 percent of the residents' salaries and 
fringe benefits (including travel and lodging where applicable) and the 
portion of the teaching physicians' costs attributable to GME at the 
nonprovider site. This change in policy also allowed providers to use 
an alternative, less burdensome method to calculate the GME teaching 
physicians' costs attributable to direct GME at nonprovider sites. In 
addition to the redefinition of ``all or substantially all of the 
costs,'' the May 11, 2007 final rule modified the regulation text at 
Sec.  413.78(f)(3)(ii) to clarify that the required written agreement 
between a hospital and a nonprovider site must be in place before 
residents begin training at the nonprovider site. That final rule also 
specified the information that must be included in the written 
agreement, and stated that the amounts specified in the written 
agreement may be modified by June 30 of the applicable academic year.
    Section 5504(a) of the Affordable Care Act made changes to section 
1886(h)(4)(E) of the Act to reduce the costs that hospitals must incur 
for residents training in nonprovider sites in order to count the FTE 
residents for purposes of Medicare direct GME payments. Specifically, 
section 5504(a) amended the statute to allow a hospital to count all 
the time that a resident trains in activities related to patient care 
in a nonprovider site so long as the hospital incurs the costs of the 
residents' salaries and fringe benefits for the time that the resident 
spends training in the nonprovider site. Section 5504(b) of the 
Affordable Care Act made similar changes to section 1886(d)(5)(B)(iv) 
of the Act for IME payment purposes. For direct GME payments, the 
provision is effective for cost reporting periods beginning on or after 
July 1, 2010; for IME payments, the provision is effective for 
discharges occurring on or after July 1, 2010. The changes made by 
section 5504(a) and (b) of the Affordable Care Act also specify that if 
more than one hospital incurs the residency training costs in a 
nonprovider setting, those hospitals are to count a proportional share 
of the training time as determined by written agreement between the 
hospitals. In addition, section 5504(a) amended section 1886(h)(4)(E) 
of the Act to require hospitals to maintain documents indicating the 
amount of time the residents they are claiming spend training in 
nonprovider sites relative to a base year that the Secretary will 
specify, and to make those documents available to the Secretary.
    Section 5504(c) of the Affordable Care Act specifies that the 
amendments made by the provisions of sections 5504(a) and (b) shall not 
be applied in a manner that would require the reopening of settled cost 
reports, for which there is not a jurisdictionally proper appeal 
pending on the issue of direct GME or IME payments as of March 23, 2010 
(the date of the enactment of Pub. L. 111-148). In the August 3, 2010 
proposed rule (75 FR 46385), we proposed to interpret ``pending, 
jurisdictionally proper appeal on direct GME or IME payments'' to mean 
that in order for a hospital to request a change to its FTE count, for 
direct GME or IME, the ``pending, jurisdictionally proper appeal'' must 
be specific to direct GME or IME, respectively.
    Comment: One commenter asked that CMS clarify the definition of a 
nonprovider site. The commenter specifically asked whether the term 
``nonprovider site'' would apply to a situation in which residents in a 
family practice program rotate to a physician's office but accompany 
the doctor to a separate, nonteaching hospital. Another commenter 
requested that CMS clarify the definitions of nonprovider and hospital-
based settings to state that hospital-based settings can include a 
variety of ambulatory experiences.
    Response: A ``nonprovider site'' is a setting that does not qualify 
as a provider-based facility or organization in accordance with the 
criteria in the regulations at 42 CFR 413.65. In addition, the 
regulations at 42 CFR 413.78(b) state that ``a hospital cannot claim 
the time spent by residents at another hospital.'' Therefore, in the 
example given by the first commenter,

[[Page 72136]]

the hospital where the resident usually trains in his or her family 
practice program cannot count the time that the resident spends 
rotating with a physician to another hospital. We do not believe that 
the regulations need to be revised to include a separate definition of 
a ``nonprovider site'' as it applies to this provision.
    Comment: Many commenters disagreed with our interpretation of the 
application provisions of section 5504(c) of the Affordable Care Act. 
The commenters believed that the statute clearly allows hospitals to 
reopen cost reports that have a jurisdictionally proper pending appeal 
as of March 23, 2010, regardless of whether or not the issue under 
appeal is specifically related to direct GME or IME payments. Because 
many of the GME provisions in the Affordable Care Act apply 
retroactively (for example, the provisions regarding didactic time in 
section 5505), the commenters believed that CMS should not place 
additional restrictions on a hospital's ability to appeal. Another 
commenter suggested that CMS allow providers to reopen cost reports for 
an Affordable Care Act issue on direct GME or IME as long as the 
hospital has a jurisdictionally proper appeal pending for either an IME 
or direct GME issue.
    Another commenter stated that it generally considers an IME appeal 
issue to be specific to the aspect of IME that the provider is 
contesting. Therefore, the commenter suggested that an allowable appeal 
under section 5504 be limited to appeals in which the provider contests 
issues covered by section 5504, and not direct GME or IME on an overall 
basis.
    One commenter asked whether the provisions of section 5504 could be 
applied to open cost reports for which no Notice of Program 
Reimbursement (NPR) has been issued, and which, therefore, does not 
have any jurisdictionally proper appeals pending.
    Another commenter claimed that the application provisions of 
section 5504(c) clearly apply the provisions of sections 5504(a) and 
(b) to cost reporting periods occurring before July 1, 2011 [sic]. The 
commenter asserted that because section 5504(c) expressly states that 
the provisions of this section ``shall not be applied in a manner that 
requires reopening of any settled hospital cost reports as to which 
there is not a jurisdictionally proper appeal pending'' as of March 23, 
2010, such nonprovider site training time should be allowed for those 
cost reports, even though the provisions of sections 5504(a) are only 
effective as of July 1, 2010.
    Response: There appears to be a misreading of our interpretation of 
section 5504(c). The effective date of the provisions of section 5504 
is clearly July 1, 2010. This date is unambiguously stated in the plain 
text of section 5504(a), which states that it is ``effective for cost 
reporting periods beginning on or after July 1, 2010.'' Similarly, 
section 5504(b) is ``effective for discharges occurring on or after 
July 1, 2010.'' Our discussion of section 5504(c) in the August 3, 2010 
proposed rule (75 FR 46385) only intended to explain our interpretation 
of the phrase ``a jurisdictionally proper appeal pending'' in the 
context of the plain language of the statute. However, we are 
clarifying in this final rule that, as noted above, and unlike some 
other provisions of the Affordable Care Act, section 5504 is fully 
prospective, with an explicit effective date of July 1, 2010, for the 
new standards it creates. Nothing in section 5504(c) overrides that 
effective date. Section 5504(c) merely notes that the usual 
discretionary authority of Medicare contractors to reopen cost reports 
is not changed by the provisions of section 5504; it simply makes clear 
that Medicare contractors are not required by reason of section 5504 to 
reopen any settled cost report as to which a provider does not have a 
jurisdictionally proper appeal pending. It does not require reopening 
in any circumstance; and the new substantive standard is, in any event, 
explicitly prospective. We believe if Congress had wanted to require 
such action or to apply the new standards to cost years or discharges 
prior to July 1, 2010, it would have done so in far more explicit 
terms.
2. Elimination of the ``All or Substantially All of the Costs for the 
Training Program in the Nonprovider Setting'' Requirement and New Cost 
Requirements for Hospitals
    As stated earlier, in the May 11, 2007 final rule (72 FR 26949), we 
redefined the phrase ``all or substantially all of the costs for the 
training program in the nonprovider setting'' under Sec.  413.75(b) of 
the regulations to mean at least 90 percent of the total costs of the 
residents' salaries and fringe benefits (including travel and lodging 
where applicable) and the portion of the cost of the teaching 
physicians' salaries attributable to nonpatient care direct GME. 
However, section 5504 of the Affordable Care Act revised the Act, 
effective on July 1, 2010, and eliminated the requirement that a 
hospital incur ``all or substantially all of the costs for the training 
program in the nonprovider setting.'' Under the changes made by section 
5504, hospitals are only required to incur the costs of the resident's 
salaries and fringe benefits during the time the resident spends in the 
nonprovider setting, and they no longer have to incur other training 
costs in the nonprovider site in order to count such time for direct 
GME and IME purposes.
    In the August 3, 2010 proposed rule (75 FR 46385), we proposed to 
revise the regulation at Sec.  413.75(b) accordingly to conform to 
these new statutory requirements. Specifically, we proposed to revise 
the existing definition of ``all or substantially all of the costs for 
the training program in the nonprovider setting'' to be effective for 
cost reporting periods beginning on or after July 1, 2007, and before 
July 1, 2010. We also proposed to add a new Sec.  413.78(g) that 
details how hospitals should count residents that train in nonprovider 
sites for cost reporting periods beginning on or after July 1, 2010. 
Specifically, we proposed to require under Sec.  413.78(g)(2) that a 
hospital or hospitals must incur the costs of the salaries and fringe 
benefits of the resident during the time the resident spends in the 
nonprovider setting in order to count that time for direct GME payment 
purposes. We also proposed to revise Sec.  412.105(f) to reflect these 
changes for the purposes of IME payments.
    Comment: Many commenters supported the proposed changes to the 
regulations to reflect the provisions of section 5504 of the Affordable 
Care Act. Some commenters remarked that these changes vastly simplify 
the recordkeeping required of hospitals to follow the regulations, 
which will allow hospitals to focus on providing quality care and 
medical education. Similarly, other commenters noted that the proposed 
regulations removed hospitals' administrative burden of calculating 
teaching physician costs at nonprovider sites. The commenters also 
applauded the proposed changes because they reflect encouragement of 
resident training in nonprovider settings.
    Response: We appreciate this positive feedback from commenters.
    Comment: One commenter stated that it is clear that the revisions 
to the existing definition of ``all or substantially all of the costs 
for the training program in the nonprovider setting'' would be 
applicable to cost reporting periods beginning on or after July 1, 2007 
and before July 1, 2010, but that it is not clear how years prior to 
July 1, 2007 should be handled. The commenter maintained that the 
Medicare contractors should be instructed to apply these rules to all 
open cost report years.

[[Page 72137]]

    Response: The proposed changes to the definition of ``all or 
substantially all of the costs for the training program in the 
nonprovider setting'' are effective for cost reporting periods 
beginning on or after July 1, 2010 for direct GME and for discharges 
occurring on or after July 1, 2010 for IME. We did not propose any 
changes to the definition of ``all or substantially all of the costs 
for the training program in the nonprovider setting'' for cost 
reporting periods beginning before July 1, 2010 or for discharges 
occurring before July 1, 2010. Medicare contractors will continue to 
treat nonprovider site training time prior to July 1, 2010 as they were 
required to under the regulations in effect prior to July 1, 2010.
    After consideration of the public comments we received, we are 
finalizing our proposed changes to the regulations at Sec.  413.75(b), 
Sec.  413.78(f)(1), Sec.  413.78(g), and Sec.  412.105(f)(1)(iii) 
regarding new cost requirement for hospitals without modification.
3. Revision to Regulations To Allow More Than One Hospital To Incur the 
Costs of Training Programs at Nonprovider Settings, Either Directly or 
Through a Third Party
    As indicated above, prior to the enactment of the Affordable Care 
Act, section 1886(h)(4)(E) of the Act (regarding direct GME) and 
section 1886(d)(5)(B)(iv) of the Act (regarding IME) allowed a hospital 
to count the time spent by residents training in a nonprovider site 
only when one single hospital incurred the costs of a particular 
training program in a particular nonprovider setting. We note that both 
sections of the statute specified that a hospital could count the time 
spent by residents training in a nonprovider site ``if the hospital 
incurs all or substantially all of the costs for the training program 
in that setting'' (emphasis added). While we understand that, in some 
cases, hospitals share the costs of training residents in a specific 
program at the same nonprovider site, we have historically only allowed 
one hospital to count time spent by those residents at a nonprovider 
site if that single hospital met the requirement to incur ``all or 
substantially all'' of the training program costs at the nonprovider 
site. Accordingly, two or more hospitals could not count the time spent 
by residents in a specific program training at a nonprovider site if 
they shared the training costs at the site or if a third party incurred 
the costs of training at a nonprovider site on behalf of several 
hospitals. Examples of third parties that might incur nonprovider site 
training program costs are a medical or dental school, or a GME 
administrative entity that is established to operate the GME program.
    Sections 5504(a) and (b) of the Affordable Care Act specifically 
address the situation in which more than one hospital incurs the costs 
of training programs at nonprovider settings, either directly or 
through a third party. Sections 5504(a) and (b) amended sections 
1886(h)(4)(E) and 1886(d)(5)(B)(iv) of the Act, respectively, to 
provide that when more than one hospital incur these costs, either 
directly or through a third party, those hospitals ``shall count a 
proportional share of the time, as determined by written agreement 
between the hospitals, that a resident spends training in that 
setting.'' Therefore, these statutory changes now allow hospitals to 
share the costs of resident training at nonprovider sites, so long as 
those hospitals divide the resident time proportionally in accordance 
with a written agreement, for the purposes of determining their 
respective direct GME and IME FTE resident counts at the nonprovider 
site. These provisions of the statute are effective for cost reporting 
periods beginning on or after July 1, 2010, for direct GME, and for 
discharges occurring on or after July 1, 2010, for IME. Accordingly, 
although hospitals that shared training costs at nonprovider sites 
could not count any of resident time spent training at those 
nonprovider sites prior to July 1, 2010, hospitals can count that 
training time beginning on or after July 1, 2010, as long as they 
divide the resident training time proportionally and record that 
proportion in a written agreement.
    In the August 3, 2010 proposed rule (75 FR 46385 through 46387), we 
proposed to revise our regulations to reflect the statutory provision 
that allows hospitals to proportionally share the costs of resident 
training at nonprovider sites under a new paragraph (g)(2) of Sec.  
413.78 for direct GME and to make a conforming cross-reference change 
under Sec.  412.105(f)(1)(ii)(E) of the IME regulations. While the 
statute allows hospitals to determine by a written agreement the 
proportional share of time that residents spend training in the 
nonprovider site, we proposed that hospitals must use a reasonable 
basis for establishing that proportion (proposed Sec.  
413.78(g)(2)(ii), final Sec.  413.78(g)(2)(i)). One such reasonable 
basis could be that each hospital counts the number of FTEs for which 
it incurs the salaries and fringe benefits. For example, if there are 
10 FTEs training in a nonprovider setting in a particular program, and 
there are 2 hospitals that each incur the costs of the salaries and 
fringe benefits of 5 of those FTEs, each hospital could agree to count 
50 percent of the FTEs (even if each hospital is not necessarily paying 
50 percent of the cost, due to differences in resident salary amounts, 
this arrangement is acceptable, so long as 100 percent of the required 
cost is paid).
    In addition to having a reasonable basis for establishing the 
proportion, hospitals must be able to document the amount that they are 
paying, and this amount must equate to at least the sum of all the 
salaries and fringe benefits of the residents for the amount of time 
that the residents are training in that site. The salaries and fringe 
benefits of the residents will vary depending upon the program year of 
the residents, and the specialty in which they are training. As we 
indicated in the May 11, 2007 final rule (72 FR 26961), hospitals must 
``take into account the actual salary and fringe benefits for each FTE 
resident that trains in the nonprovider site, which may vary by 
resident.'' Therefore, as also indicated in the May 11, 2007 final rule 
(72 FR 26970), global agreements that cover a variety of issues (GME 
and non-GME) between the hospital(s) and the nonprovider site, and that 
only specify a lump sum payment amount with no break out of the 
residents' salaries and fringe benefits, do not provide sufficient 
information for the Medicare contractor to determine that ``all or 
substantially all'' of the costs (or, effective July 1, 2010, that all 
of the residents' salaries and fringe benefits) have been paid by the 
hospitals. Accordingly, we would expect that, regardless of whether 
there is one hospital paying the cost, or more than one hospital is 
sharing the costs, hospitals would need to determine prior to the start 
of nonprovider rotations (with allowance for modification by June 30 of 
that academic year) the total cost of the salaries and fringe benefits 
of the residents that are training for the proportion of the year spent 
in each nonprovider site. Of course, in the instance where the 
residents remain on the payroll of one or more hospitals for the entire 
year, it would be easier to document that the hospital(s) continues to 
pay the residents' salaries and fringe benefits when the residents 
rotate to nonprovider sites. Similarly, where the residents are on the 
payroll of the medical or dental school, or of a third party GME 
administrative entity, and the hospitals reimburse the school or the 
third party for the entire salary and fringe benefit costs of the 
residents, for both hospital and nonprovider training, the hospitals 
could easily document that

[[Page 72138]]

they have incurred the requisite costs of training in nonprovider 
sites. However, once the total costs for the residents' salaries and 
fringe benefits for time spent in the nonprovider site are determined 
and covered by the hospitals, the hospitals may decide among themselves 
the proportion of those costs each will incur, and may use a reasonable 
basis to allocate among themselves the proportion of FTE residents that 
each one will count, as discussed above.
    As specified in section 5504 of the Affordable Care Act, in the 
August 3, 2010 proposed rule (75 FR 46386), we proposed that hospitals 
must record the proportion of the FTE resident time spent training in 
the nonprovider site that will be counted by each hospital for purposes 
of IME and direct GME payment, as well as the reasonable basis for the 
proportion, in a written agreement between the hospitals. We proposed 
to add this requirement in regulations at Sec.  413.78(g)(2). If 
hospitals have in place written agreements with the nonprovider site in 
accordance with our existing regulations at Sec.  413.78(f)(3)(ii), we 
proposed that the proportion of the FTE resident training time to be 
counted for IME and direct GME purposes by each hospital, and the basis 
for the proportion, may be recorded in that agreement (proposed Sec.  
413.78(g)(2)(iii)). We proposed that if the hospitals choose to pay the 
training program costs concurrently as described in Sec.  
413.78(g)(3)(i), that is, without a written agreement, the hospitals 
must still agree in writing to the proportion of costs and training 
time they plan to incur and count (proposed Sec.  413.78(g)(2)(iv), 
final Sec.  413.78(g)(2)(iii)) in addition to the basis for that 
proportion, before the end of the applicable training year. That 
written agreement between the hospitals must be available for CMS 
review and for auditing purposes. In addition, we indicated that we 
would expect that the hospitals' records of resident training time and 
training costs at nonprovider sites, as required by the Affordable Care 
Act and as discussed below, reflect the proportions of training time 
and costs as agreed upon and documented in whichever type of written 
agreement the hospitals used to record the proportional shares of 
resident training time that each will count for purposes of direct GME 
and IME payment.
    Comment: One commenter supported the proposed changes regarding 
allowing hospitals to share the costs of training residents at 
nonprovider sites.
    Response: We appreciate the commenter's support.
    Comment: Several commenters requested that CMS detail the 
documentation requirements in cases where a third party incurs the 
costs of training at a nonprovider site on behalf of several hospitals, 
where hospitals have a global agreement with that third party, and when 
a hospital pays a nonprovider site concurrently. Many commenters stated 
that they did not believe that resident compensation costs must be 
itemized in order for a hospital to receive the Medicare payments to 
which it is entitled.
    A large number of these commenters noted that hospitals that pay 
residents salaries and fringe benefits through global agreements and 
that do not use an invoice system to track costs, may find it ``unduly 
burdensome'' to change their internal accounting practices in order to 
produce the proper documentation to comply with this proposed 
regulation. Some of those commenters suggested that, instead, a 
``memorandum of understanding'' between a hospital and a third party be 
sufficient for documentation of the sharing of costs between the two 
entities. They suggested that this memorandum would be effective at the 
beginning of a hospital's fiscal year, and it would project the 
expected amount of resident compensation for the year. Further, they 
suggested that the memorandum would be followed by a year-end 
reconciliation of costs. The commenters concluded by stating that all 
hospitals would benefit from clear instructions regarding these 
documentation requirements. Other commenters suggested that CMS clarify 
that as long as the hospital provides documentation that ``(1) it is 
compensating the third-party an amount that is at least equal to the 
aggregate of the salary and fringes for the resident full-time 
equivalents (FTEs) training at a nonprovider site, and (2) the amount 
paid to the third-party is identified in the global agreement as being 
for that purpose,'' this documentation would be sufficient for the 
hospital to demonstrate that it is incurring the costs of training 
those resident FTEs at the nonprovider setting. Another commenter 
believed that identifying the FTE count at nonprovider sites should be 
sufficient for these documentation requirements. Other commenters 
suggested that as long as all of the hospitals that share the 
residents' time are funding 100 percent of the resident stipends and 
benefits in the aggregate, and they are not claiming more than 100 
percent of the residents' time, CMS permit hospitals to determine for 
themselves when and how to allocate resident time spent in nonprovider 
sites.
    Response: In order to effectively implement and ensure compliance 
with section 5504, we must require that the written agreement between a 
hospital and a third party that incurs the costs of training at a 
nonprovider site contain information that clearly documents that the 
hospital is incurring the costs of the residents' salaries and fringe 
benefits at each nonprovider site. If the third party that pays the 
residents' salaries and fringe benefits also owns some or all of the 
nonprovider sites to which the residents rotate, one master agreement 
with the third party is sufficient, so long as the number of FTEs and 
dollar amount for total costs incurred for those FTEs is specified in 
the master agreement for each program at each nonprovider site.
    Similar documentation requirements exist in situations in which two 
hospitals share the costs of training residents at a nonprovider site. 
If two hospitals share the costs of training residents in a given 
program at the same nonprovider site, the hospitals must be able to 
document together that they paid the salaries and fringe benefits of 
all the residents in that program for the time spent training at that 
nonprovider site, and they also must explain in a written agreement the 
arrangement for dividing the costs and FTEs. For each nonprovider site 
in which the hospital wishes to claim the FTEs for IME and direct GME, 
a hospital must include in the written agreement (or document, if it is 
paying concurrently)--
    (1) The total number of FTE residents in each program at each 
nonprovider site (if the hospital is sharing the costs of the 
residents' salaries and fringe benefits with another hospital(s), each 
hospital would specify the number of FTEs in each program at each site 
for which they are paying the salaries and fringe benefits); and
    (2) The total dollar amount the hospital is paying for all those 
FTE residents at each nonprovider site respectively. The hospital need 
not list the program years and the individual salaries and benefits for 
each FTE in each program year for each program, but the hospital would 
be expected to supply such information at audit so that the Medicare 
contractor could replicate how the hospital arrived at the total dollar 
amount included in the written agreement (and paid by the hospital). In 
addition, the hospital must include all this information regardless of 
whether the agreement is directly between it and the nonprovider site, 
or if the agreement involves a third party.

[[Page 72139]]

    Comment: Several commenters contended that it is impractical and 
burdensome to require hospitals to identify the costs of training 
residents at nonprovider sites prior to the start of nonprovider site 
rotations on July 1 of an academic year. One commenter maintained that 
such costs can only be calculated after June 30 of an academic year. 
The commenter explained that because residents rotating at nonprovider 
sites often retain some responsibilities at a hospital, and that those 
residents' rotations between both sites varies from day to day, an 
accounting of nonprovider site training time must occur 
retrospectively.
    Response: We believe that hospitals should have a general sense of 
the salary and fringe benefit costs of the residents that will be 
training at nonprovider sites before the start of an academic year. 
Salary and fringe benefit costs for each specialty and program year are 
usually fixed before the start of an academic year, and the only 
variable that could reasonably change after the start of resident 
rotations would be the exact number of FTEs rotating to nonprovider 
sites. If residents' rotation assignments are governed by program 
directors at the medical school and not by the hospital itself, the 
hospital should be able to retrieve this information from the medical 
school.
    Written agreements can be amended by the end of the academic year 
on June 30 to account for such rotation changes, as specified in the 
new Sec.  413.78(g)(3)(ii). Hospitals also can opt to pay nonprovider 
sites concurrently according to the new Sec.  413.78(g)(2)(iii), in 
which case no written agreement regarding the payment of resident 
salaries and fringe benefits is required. (We note that in a case where 
multiple hospitals pay the nonprovider site concurrently, a written 
agreement is still required to document the reasonable basis upon which 
those multiple hospitals divide the payment of resident salaries and 
fringe benefits to the nonprovider site.)
    Comment: A number of commenters encouraged CMS to clearly state 
that section 5504 not only allows hospitals that share the cost of 
nonprovider site training to ``count a proportional share of the time'' 
of that training, but that it also allows hospitals to adjust their 
direct GME and IME caps accordingly.
    Other commenters noted that hospitals that already train above 
their cap would have no incentive to increase their residents' 
nonprovider site training under this provision because they would not 
be able to claim the additional time if the total count of nonprovider 
site training time is less than the amount the hospital is over its 
cap.
    A number of commenters who generally addressed the current system 
of Medicare GME payment called for reforms in the system and advocated 
targeted, if not wholesale, lifting of the FTE caps. However, the 
commenters noted that such measures would require Congressional 
legislation, and they acknowledged that CMS cannot implement such 
changes through rulemaking. Rather, the commenters encouraged CMS to 
work with Congress toward lifting the cap as soon as possible.
    Response: We appreciate the comments on the Medicare GME payment 
system in general. With regard to the request for cap increases under 
the provisions of section 5504, hospitals cannot adjust their caps to 
reflect the additional FTE time that is allowable under section 5504. 
Rather, a hospital is permitted to count that additional FTE time 
within the limits of its direct GME and IME caps. While hospitals that 
already train over their respective FTE caps may not have a clear 
financial incentive to increase nonprovider site training time under 
this provision, the easing of other nonprovider training requirements 
under section 5504 can still facilitate an increase in nonprovider site 
training from those hospitals.
    Comment: Some commenters requested that CMS refrain from 
disallowing resident time spent in shared nonprovider site rotations 
prior to July 1, 2010. The commenters claimed that disallowing resident 
training time in nonprovider settings harms our national health 
interests and violates the spirit of the Affordable Care Act. The 
commenters believed that CMS has the authority to refrain from 
enforcing its previous policy on counting shared nonprovider site 
training time.
    Response: The statute does not provide CMS discretion to allow the 
counting of resident time spent in shared nonprovider site rotations 
for cost reporting periods beginning prior to July 1, 2010. Section 
5504 explicitly provides that a hospital may count shared nonprovider 
site rotation time to cost reporting periods beginning on or after July 
1, 2010, for direct GME, and for discharges occurring on or after July 
1, 2010, for IME, if a hospital incurs certain costs.
    After consideration of the public comments we received, we are 
finalizing our proposed revisions of the regulations at Sec. Sec.  
413.78(g)(2) and (g)(3) to allow more than one hospital to incur the 
costs of nonprovider site training programs, either directly or through 
a third party.
4. Changes to Regulations Regarding Recordkeeping and Comparison to a 
Base Year
    As stated above, section 5504(a) of the Affordable Care Act 
requires hospitals to maintain records of the amount of time that the 
residents they are claiming spend in nonprovider settings, and to 
compare that time to the time spent by the residents in nonprovider 
sites in a base year as the Secretary may specify. This requirement is 
effective for cost reporting periods beginning on or after July 1, 
2010. In the August 3, 2010 proposed rule (75 FR 46387), we proposed to 
incorporate this statutory requirement for maintaining records under a 
new paragraph (g)(5) of Sec.  413.78 of the regulations. We also stated 
that we anticipated amending the cost report for hospitals to include 
lines where hospitals can submit the required data, which is described 
below. These data will help CMS identify whether barriers to resident 
training in nonprovider sites exist. The original allowance of IME 
payments for training in nonprovider sites, as instituted by the BBA, 
was intended to act as an incentive to hospitals to increase such 
training. However, we have not seen a marked increase in the amount of 
training that occurs in nonprovider settings in the years since the 
implementation of the BBA. Advocates of expanding training in 
nonprovider sites have alleged that CMS' rules for counting residents 
in nonprovider sites regarding teaching physician salary costs were an 
obstacle to the expansion of training in nonprovider settings. The 
recordkeeping and reporting requirement added by section 5504(a) of the 
Affordable Care Act will provide the Secretary information to assess 
whether nonprovider site resident training increases as a result of the 
statutory revision of rules that were viewed as burdensome.
    We understand that rotation schedules are a primary source of 
information that hospitals supply to Medicare contractors for 
determining where and for how much time each resident spends training 
in each hospital or nonprovider site. Therefore, in the August 3, 2010 
proposed rule (75 FR 46387), we proposed that rotation schedules be the 
source for establishing the amount of time that residents spend 
training in nonprovider sites, both in the base year and in subsequent 
years. The amendment to section 1886(h)(4)(E) of the Act by section 
5504(a) of the Affordable Care Act states that the Secretary shall 
specify the

[[Page 72140]]

aforementioned base year for the level of training at nonprovider 
sites. We proposed that cost reporting periods beginning on or after 
July 1, 2009 and before June 30, 2010 be the base year against which we 
will compare subsequent years' data to determine if the level of 
nonprovider training that occurs in subsequent years increases relative 
to that base year (proposed new Sec.  413.78(g)(5)).
    Section 5504(a) of the Affordable Care Act also made changes to 
require that these records be made available to the Secretary. In order 
for CMS to evaluate whether nonprovider site training has increased as 
a result of the changes made by section 5504 of the Affordable Care 
Act, in the August 3, 2010 proposed rule (75 FR 46387), we proposed to 
include several additional cost report lines for hospitals to submit 
data for each of their primary care programs on a program-specific 
basis. With respect to hospitals' nonprimary care programs, hospitals 
would only need to supply that data on an overall hospital basis, and 
we proposed to add one line on the cost report for hospitals to submit 
that data. We proposed to only require program-specific data with 
respect to resident training time in nonprovider sites for primary care 
specialties because we believe that that is sufficient for the intent 
of this provision. The intent of this recordkeeping requirement is to 
see whether, as a result of the policy changes required under section 
5504(a) of the Affordable Care Act, there is an increase in the volume 
of residency training that takes place in nonprovider settings. Because 
residents at nonprovider sites typically train in primary care 
specialties, and in order to minimize the documentation burden on 
hospitals, we stated that we did not believe it is necessary to require 
program-specific data for other specialties that would provide only 
marginally useful information. For the purposes of this provision, we 
proposed to use the definition of primary care resident in Sec.  
413.75(b) to identify those programs for which we proposed to require 
program-specific data.
    Once this information is made available to CMS, the data would be 
compared to the analogous data from the base year of cost reporting 
periods beginning on or after July 1, 2009 and before June 30, 2010 to 
determine whether the volume of nonprovider site training has 
increased. Specifically, we proposed to use the total unweighted direct 
GME count of FTE training time in a primary care specialty in 
nonprovider sites (prior to application of direct GME FTE resident 
limits) as the gauge to determine if residency training time in 
nonprovider settings in that specialty has increased in an academic 
year relative to the base year. Therefore, we proposed that hospitals 
would only be required to submit the respective unweighted direct GME 
FTE counts on the new cost report lines for each primary care specialty 
and for nonprimary care specialties on an overall basis. For example, 
if, in the base year, we find that 3.75 direct GME FTEs out of a total 
of 15 FTE family practice residents from a family practice residency 
program in a teaching hospital trained in nonprovider settings (that 
is, 25 percent of the FTE time of the residents in the family practice 
residency program was spent training in nonprovider sites), we would 
note the subsequent years' amount of direct GME FTE training time in 
nonprovider sites in that particular teaching program to see if that 
FTE proportion increased from 25 percent. This would help determine if 
more training time is spent by primary care residents in nonprovider 
sites. Or, for all of the nonprimary care teaching programs in a 
hospital, if 100 direct GME FTE residents out of 400 FTE residents 
spent time training in nonprovider settings (that is, 25 percent of the 
time spent by residents in the nonprimary care programs is spent 
training in nonprovider sites), we would look to see if, in subsequent 
years, more than 25 percent of the time spent by nonprimary care direct 
GME FTEs from that hospital is spent training in nonprovider sites.
    Comment: One commenter recommended that CMS specify that the 
primary sources of information that hospitals supply to Medicare 
contractors for determining where and for how much time each resident 
spends training in each hospital or nonprovider site include not only 
rotation schedules, but also ``other similar documentation normally 
maintained by the hospital,'' because some hospitals use alternative 
standards for documenting resident rotations to nonprovider sites.
    Response: The rotation schedules prepared by the program directors 
are the primary source of information regarding the residents' 
assignments because they contain a snapshot of each resident's 
rotations to multiple sites (that is, different hospitals as well as 
nonprovider sites). Therefore, this information often allows the 
Medicare contractors to determine whether more than one hospital is 
including the same rotation in its GME and/or IME FTE count. In rare 
and extenuating circumstances where the rotation schedules are not 
available, the hospital should upon request, furnish the Medicare 
contractor with similar documentation that is official (that is, is 
based on the approval of the program director), that is similar for all 
hospitals to which the residents in the program rotate, and that is 
auditable. We note that such alternative documentation must be 
contemporaneous to the academic year in which the rotations occur.
    Comment: Several commenters remarked that the data that CMS 
proposed to collect under the recordkeeping requirement of section 5504 
will not provide a full and complete portrayal of the amount of time 
that residents spend training in nonprovider sites. The commenters gave 
numerous possible reasons for a decrease in a hospital's nonprovider 
setting training time from year to year that would not be related to a 
hospital's GME policy decisions. Those reasons include a greater or 
lesser ability of the hospitals to match residents into a particular 
program and residents' leaves of absence within a particular program. 
The commenters also explained that ambulatory care training can occur 
in provider-based settings, VA hospitals, and military clinics, in 
addition to nonprovider sites, but according to the proposed 
recordkeeping requirements, such time would not be included in the data 
either. The commenters requested that CMS enumerate the limitations of 
the data that will be collected under this statutory requirement, so 
that the public and other policymakers understand why the amount of 
nonprovider site training for a particular hospital may vary from one 
year to the next.
    Response: Section 5504 requires CMS to collect the nonprovider site 
training data that is affected under this provision. We do not agree 
that the data that we are requesting for the purposes of this provision 
naturally fluctuates, even if residents leave training programs for 
reasons that bear little or no connection to a hospital's GME policy 
decisions. The data we are collecting will determine the percentage of 
time spent in nonprovider site training. We will analyze the data in 
order to determine whether CMS' former rules regarding teaching 
physician salary costs for counting residents in nonprovider sites were 
truly an obstacle to the expansion of training in nonprovider settings, 
as was claimed by advocates of such expanded training. We also remind 
providers that the use and evaluation of this data collection will have 
no direct implications for Medicare GME payments.
    Comment: Numerous commenters believed that the proposal to add 
lines to the cost report for the purposes of this

[[Page 72141]]

recordkeeping requirement was an added administrative burden to 
hospitals, as was the proposal to require such cost report data on a 
program-by-program basis for primary care specialties. The commenters 
claimed that the statute merely requires hospitals to ``maintain and 
make available to the Secretary'' records on resident training time in 
nonprovider sites, and the proposed regulations greatly complicated 
this requirement. The commenters believed that the intent of section 
5504 was to simplify the already burdensome resident reporting 
requirements on hospitals.
    Some commenters suggested that CMS instead interpret section 5504 
as only requiring hospitals to have these records and make them 
available on an as-needed basis. The commenters noted that, if CMS 
decides to finalize the policy to add lines to the cost report for the 
purposes of this section 5504 requirement, CMS limit the additional 
lines to two: one line for primary care data and one line for 
nonprimary data.
    Response: We believe that the addition of a few cost report lines 
for the purposes of this recordkeeping requirement does not pose an 
undue burden on hospitals. The data that we are requesting are already 
collected by hospitals for other GME purposes, and hospitals should not 
experience an added burden from the requirement to enter that 
information in the cost report. The Affordable Care Act gave CMS 
explicit authority to require that this recordkeeping data be 
maintained and made available, and the most direct method of making 
such data available to Medicare contractors is by reporting it on the 
Medicare cost report. Therefore, we are finalizing this policy as 
proposed.
    Comment: One commenter suggested that CMS change the base year that 
it will use to determine if nonprovider site rotations are increasing 
to cost reporting periods beginning on or after July 1, 2010 and before 
June 30, 2011. The commenter stated that providers who are currently 
unable to claim time spent at nonprovider settings, due to the 
administrative requirements in place now, would not be claiming them on 
the cost report until the 2010-2011 academic year. Therefore, the 
commenter stated, an analysis of nonprovider site training time using 
the current proposed base year would indicate a greater increase in 
such rotations than might actually exist.
    Response: We chose the base year of cost reporting periods 
beginning on or after July 1, 2009 and before June 30, 2010 because it 
is the last year before the effective date of the provisions of section 
5504. Accordingly, we believe that the base year that we proposed will 
best serve our goal of determining whether nonprovider site training 
actually increased as a result of the provisions of section 5504. 
Therefore, we are finalizing the base year as proposed.
    Comment: One commenter expressed support for the proposal to track 
resident training time in nonprovider sites and requested that CMS 
clearly report the findings of its analysis of the nonprovider site 
training data. The commenter also requested that CMS enumerate the 
various factors that influence training in nonprovider sites when it 
reports the findings.
    Response: The statute does not require CMS to report any findings 
that result from this data collection. Therefore, we are not currently 
planning to officially report any such findings.
    Comment: Some commenters requested that CMS change the definition 
of primary care to replace the outdated term ``osteopathic general 
practice'' with the term ``traditional rotating internship'' at section 
1886(h)(5)(H) of the Act.
    Response: We do not have the authority to change the statutory 
definition of ``primary care resident'' at section 1886(h)(5)(H) of the 
Act.
    After consideration of the public comments we received, we are 
finalizing our changes to the regulations at Sec.  413.78(g)(5) 
regarding recordkeeping and comparison to a base year as proposed.

C. Counting Resident Time for Didactic and Scholarly Activities and 
Other Activities (Section 5505 of the Affordable Care Act)

1. Background and Changes Made by the Affordable Care Act
    Prior to the enactment of the Affordable Care Act, only the time 
that residents spent training at a nonprovider setting in patient care 
activities, as part of an approved program, could be included in a 
hospital's direct GME or IME FTE resident count. There were also 
differences in the rules for counting FTE resident time during the time 
that residents spend training in the hospital for direct GME and IME 
payments. For direct GME payment purposes, under 42 CFR 413.78(a), 
``residents in an approved program working in all areas of the hospital 
complex may be counted.'' As explained in the September 29, 1989 
Federal Register (54 FR 40286), the hospital complex consists of the 
hospital and the hospital-based providers and subproviders. Therefore, 
a hospital need not distinguish between patient care activities and 
nonpatient care activities when determining its direct GME count when 
the residents are training in the hospital complex. However, for IME 
payment purposes, consistent with the regulations at 42 CFR 413.9 and 
412.105(f)(1)(ii) only time spent in patient care activities in the 
portion of the hospital subject to the hospital inpatient prospective 
payment system and the outpatient department of a hospital is counted. 
As stated in the FY 2002 IPPS final rule, it has been our longstanding 
policy that, regardless of the site of training, ``we do not include 
residents in the IME count to the extent that the residents are not 
involved in furnishing patient care'' (66 FR 39897). Thus, in the FY 
2002 final rule, CMS reiterated its policy that resident research time 
not associated with the diagnosis or treatment of a particular patient 
could not be included in the IME FTE count (66 FR 39897). In the FY 
2007 final rule, CMS clarified that this exclusion also applied to all 
nonpatient care activities, such as didactic conferences and seminars 
(71 FR 48040).
    Section 5505(a) of the Affordable Care Act added new subparagraph 
(J) to section 1886(h)(4) (as amended by section 5504) of the Act to 
allow hospitals to count certain nonpatient care activities that occur 
in certain nonprovider settings, including didactic conferences and 
seminars, in the hospital's direct GME FTE resident counts. The 
provision added by section 5505(a) allows a hospital to count the time 
that residents spend training in an approved program in a ``nonprovider 
setting that is primarily engaged in furnishing patient care'' for 
direct GME purposes, even if those residents are engaged in nonpatient 
care activities, such as didactic conferences and seminars (but not 
including research not associated with the treatment or diagnosis of a 
particular patient), during that training time at the nonprovider site. 
This statutory change is effective for cost reporting periods beginning 
on or after July 1, 2009. In the August 3, 2010 proposed rule (75 FR 
46388), we proposed to revise our regulations at Sec.  413.78(f)(1) and 
(g)(1) to reflect the statutory provision.
    Section 5505(b) of the Affordable Care Act addressed IME and added 
a new clause (x) to section 1886(d)(5)(B) of the Act which allows 
certain nonpatient care activities, including didactic conferences and 
seminars (but not including research not associated with the treatment 
or diagnosis of a particular patient), to be counted for IME purposes

[[Page 72142]]

as well. However, for IME purposes, this change only applies to such 
activities during training that occurs in subsection (d) hospitals 
(which are IPPS hospitals), subsection (d) Puerto Rico hospitals (IPPS 
hospitals in Puerto Rico), hospitals that are reimbursed under a 
reimbursement system authorized under section 1814(b)(3) of the Act, or 
provider-based hospital outpatient departments. The IME provision is 
applicable to cost reporting periods beginning on or after January 1, 
1983. In the August 3, 2010 proposed rule (75 FR 46388), we proposed to 
revise our regulations at Sec.  412.105(f)(1)(ii)(A) through 
(f)(1)(ii)(D) and (f)(1)(iii)(C) to reflect these statutory provisions.
    As specified in section 1886(d)(5)(B)(x)(III) of the Act, as added 
by section 5505(b) of the Affordable Care Act, research activities that 
are not associated with the treatment or diagnosis of a particular 
patient are excluded from the allowable IME count of FTE residents, and 
this specific change applies to cost reporting periods beginning on or 
after October 1, 2001. Section 5505(c) of the Affordable Care Act 
provides that section 1886(d)(5)(B)(x)(III) of the Act shall not give 
rise to any inference as to how the law in effect prior to October 1, 
2001, should be interpreted. We discuss these provisions and our 
proposed and final implementation under section XXI.C.3. of this 
preamble.
    Section 10501(j) of Public Law 111-148 amended section 5505 to 
clarify its application. The amendment prohibits the provisions of 
section 5505 from being applied in a manner that would require the 
reopening of settled cost reports except where the provider has a 
jurisdictionally proper appeal pending on the issue of direct GME or 
IME payments as of March 23, 2010 (the date of the enactment of Pub. L. 
111-148). In the August 3, 2010 proposed rule (75 FR 46388), we 
proposed to reflect this provision in the proposed revisions to our 
regulations under Sec.  412.105(f)(1)(ii), Sec.  412.105(f)(1)(iii)(C), 
and Sec.  413.78(h). We also proposed, as mentioned in section XXI.B.1. 
of this preamble with respect to section 5504 of the Affordable Care 
Act, to interpret ``jurisdictionally proper appeal pending'' on direct 
GME or IME payments for this section to mean that, in order for a 
hospital to request a change to its FTE count, direct GME or IME 
respectively, the ``jurisdictionally proper appeal pending'' must be 
specific to direct GME or IME respectively. For example, in order for a 
hospital to increase its FTE count with regard to a provision of the 
Affordable Care Act that is unique to IME (such as inclusion in the IME 
count of didactic time occurring in the hospital as specified by new 
section 1886(d)(5)(B)(x)(II)) of the Act, the hospital's 
``jurisdictionally proper appeal pending'' must be on an IME issue 
related to IME FTEs or the available bed count. However, if the 
hospital's ``jurisdictionally proper appeal pending'' is on an issue 
that only affects direct GME payments, such as the initial residency 
period or the Medicare patient load, that appeal would not be 
sufficient in order for the hospital to increase its FTE count with 
regard to a provision of the Affordable Care Act that is unique to IME, 
such as didactic time in the hospital setting.
    Comment: Several commenters provided a general statement on their 
belief that the Medicare program is intended to support all resident 
training time. The commenters explained that direct patient care, 
research activities, and educational and didactic activities all 
comprise one ``seamless educational experience'' of physician resident 
training. The commenters believed that Congress did not intend for this 
fluid training to be ``parsed'' by CMS.
    Response: We disagree with the commenters' assertions regarding 
Congressional intent to fund resident training. The Conference Report 
that accompanied the Social Security Amendments of 1965, Public Law 89-
97 (S. Rept. No. 404, 89th Cong., 1st Sess. 36 (1965); H.R. No. 213, 
89th Cong., 1st Sess. 32 (1965)) shows that Congress intended for 
Medicare GME funding to be limited in scope and temporary in its 
duration. The Conference Report also indicates that Medicare GME 
funding was only intended to assist hospitals in resident training, and 
not to fully fund such training. Finally, we note that much of the 
``parsing'' of resident training time into allowable and nonallowable 
time was mandated by Congress, and as such, CMS does not have 
discretion to allow all resident training time to count for Medicare 
GME payment purposes.
    Comment: Many commenters disagreed with our interpretation of the 
application provision of section 5505(d) of the Affordable Care Act. 
The commenters believed that the statute clearly allows hospitals to 
reopen cost reports that have a jurisdictionally proper pending appeal 
as of March 23, 2010, regardless of whether or not the issue under 
appeal is specifically related to direct GME or IME payments. Because 
many of the provisions of section 5505 apply retroactively, the 
commenters believed that CMS should not place additional restrictions 
on a hospital's ability to request reopenings of cost reports. The 
commenters also believed that hospitals with cost reports for which the 
hospitals retained a right to timely file a jurisdictionally proper 
appeal as of March 23, 2010 should be allowed to reopen such cost 
reports, whether or not the appeal was pending by that date.
    Another commenter requested that CMS clarify certain issues 
surrounding the application of section 5505. The commenter asked how 
providers will be paid for previous disallowances of didactic time for 
IME purposes, now that section 5505 allows hospitals to count such time 
retroactively since January 1, 1983, if most relevant cost reports 
cannot be reopened under the application of section 5505. The commenter 
also asked if administrative and judicial decisions that disallowed IME 
didactic time can be reversed.
    Another commenter requested that CMS clarify the cost reporting 
periods to which section 5505 applies. The commenter explained that 
providers have 180 days to appeal a Notice of Program Reimbursement 
(NPR), and, therefore, hospitals that received a final determination on 
their cost reports after September 24, 2009 would not be permitted to 
appeal or reopen a cost report for didactic time for the purposes of 
section 5505. The commenter believed that CMS should allow hospitals 
that have not received their initial NPR as of September 24, 2009 to 
reopen or appeal their respective cost reports.
    Response: Section 5505(d) of the Affordable Care Act explicitly 
states that the amendments of that section need not be applied to 
settled cost reports, unless there is a jurisdictionally proper appeal 
pending on that cost report on certain direct GME or IME issues. We do 
not have the authority to expand the scope of section 5505(d) to 
pending appeals on other issues, and we are retaining our 
interpretation of the term ``jurisdictionally proper appeal pending'' 
in the context of section 5505(d) to mean that the appeal must be 
specific to direct GME or IME respectively. We believe that the intent 
of section 5505 as a whole was to change GME policy for the future, and 
that the intent of section 5505(d) specifically was to limit the number 
of cost report adjustments, and not to encourage a mass reopening of 
cost reports. The cost report reopening process is one that is very 
costly and time-consuming for CMS and its contractors, and it is 
disruptive to the efficient operation of the Medicare program. 
Therefore, we interpreted section 5505(d) in the spirit of the section 
as a whole, to be only applicable in those limited circumstances where 
there is a ``jurisdictionally proper appeal

[[Page 72143]]

pending'' on a cost report specific to direct GME or IME respectively.
2. Definition of ``Nonprovider Setting That Is Primarily Engaged in 
Furnishing Patient Care''
    As stated above, section 5505(a) of the Affordable Care Act amended 
section 1886(h)(4) of the Act to allow a hospital to count the time 
that residents spend in certain didactic nonpatient care activities in 
nonprovider sites towards the hospital's direct GME resident count for 
cost reporting periods beginning on or after July 1, 2009. Section 
5505(a)(2) defines the term ``nonprovider setting that is primarily 
engaged in furnishing patient care'' to mean ``a nonprovider setting in 
which the primary activity is the care and treatment of patients, as 
defined by the Secretary.'' In past discussions regarding our policy to 
disallow time spent by residents in didactic nonpatient care 
activities, we have provided extensive explanations of what is meant by 
the term ``patient care activities.'' When section 1886(h)(4)(E) of the 
Act was first implemented, we specifically stated that ``only time 
spent in activities relating to patient care may be counted [in 
nonprovider sites]'' (54 FR 40292, September 29, 1989). In 1998, when 
we implemented the statute allowing FTE residents to be counted in 
nonprovider sites for IME, we reiterated that a hospital may only count 
resident training time ``in nonprovider sites for indirect and direct 
GME, respectively, if the resident is involved in patient care'' (63 FR 
40986, July 31, 1998). In addition, we note that the scope of the term 
``patient care'' had been well-established in the Medicare program even 
prior to issuance of the first rules on counting FTE residents for 
purposes of direct GME and IME payments. For example, prior to the 
IPPS, acute care hospitals were paid by Medicare for inpatient services 
based on their reasonable operating costs, or costs relating to the 
provision of reasonable and necessary ``patient care.'' The 
longstanding regulation at 42 CFR 413.9 (Costs related to patient care) 
specifies that Medicare payment is limited to those services relating 
to ``patient care,'' or to those directly related to covered services 
for the care of beneficiaries. In the August 18, 2006 Federal Register, 
we defined the term ``patient care activities'' at 42 CFR 413.75(b) in 
a way that was consistent with these previous, plain-language 
applications of the term as ``the care and treatment of particular 
patients, including services for which a physician or other 
practitioner may bill, and orientation activities as defined in this 
section'' (71 FR 48142).
    Section 5505(a) of the Affordable Care Act added a new subparagraph 
(K) to section 1886(h)(5) of the Act which defines the term 
``nonprovider setting that is primarily engaged in furnishing patient 
care'' to mean ``a nonprovider setting in which the primary activity is 
the care and treatment of particular patients, as defined by the 
Secretary.'' This definition uses the term ``patient care'' which we 
have defined previously, as discussed above. In the August 3, 2010 
proposed rule (75 FR 46388 and 46389), we proposed to continue applying 
our current definition of the term ``patient care'' as described above 
and in current regulations and other guidance. Examples of nonprovider 
settings that would be ``primarily engaged in furnishing patient care'' 
are those settings in which the main mission is to provide patient 
care, such as doctors' offices and community health clinics. 
Nonprovider settings that would not meet these criteria include those 
with a main mission other than patient care. An example of a 
nonprovider setting that does not meet the ``primarily engaged in 
furnishing patient care'' criterion set forth in this section would be 
a hotel or convention center. While residents may attend didactic 
conferences and seminars in a hotel or convention center, that didactic 
time cannot be counted toward a hospital's direct GME FTE count because 
the main mission of a hotel or convention center is the provision of 
hospitality and meeting services. Thus, any such time spent in a hotel 
or convention center would not occur in a setting that is primarily 
engaged in furnishing patient care. Another example of such settings is 
a medical school and dental school, even if those schools are part of a 
larger system that includes institutions that are primarily engaged in 
patient care. Despite any affiliations with patient care settings, 
medical and dental schools are institutions that are primarily engaged 
in educational activities as opposed to patient care. Medical and 
dental schools retain their principal mission of education regardless 
of their participation in various systems and affiliations, parts of 
which may involve settings that are primarily engaged in furnishing 
patient care.
    The exclusion of medical and dental schools from the definition of 
``nonprovider setting that is primarily engaged in furnishing patient 
care'' is consistent with longstanding CMS policy, and we have 
addressed this policy several times in the past. We explained in 
response to comments in the aforementioned August 18, 2006 Federal 
Register that, ``[W]e understand that it is quite common for hospitals, 
especially large academic medical centers, to be located on the same 
campus as a medical school, where the buildings are very closely 
situated or even connected, and the facilities are often shared. 
However * * * hospitals, nonprovider sites, and medical schools are 
structured separately for legal and financial purposes, and are 
recognized independently for state licensing and Medicare cost 
reporting purposes.'' As we stated in the FY 2007 final rule, ``to put 
it simply, a hospital is not a medical school, and a medical school is 
not a hospital'' (71 FR 48093). In the August 22, 2007 Federal 
Register, we clarified that, ``[T]he commenter is also correct that 
orientation activities in a related medical school cannot be counted * 
* * the nonprovider settings we were referring to in which orientation 
may be counted are those nonprovider settings such as physicians' 
offices or clinics, where patient care is routinely provided and a 
hospital is permitted to count the time spent by residents in 
accordance with our regulations at Sec. Sec.  412.105(f)(1)(ii)(C) and 
413.78(f), not other nonprovider settings where time spent by residents 
is not permitted to be counted for purposes of direct GME and IME'' (72 
FR 47382). Thus, while time spent by residents in certain nonpatient 
care activities may be counted for direct GME payment purposes in a 
nonprovider site primarily engaged in furnishing patient care, time 
spent by residents in nonpatient care activities at nonprovider sites 
that are not primarily engaged in patient care activities is not 
allowable for direct GME and IME payment purposes.
    In the August 3, 2010 proposed rule (75 FR 46389), we proposed to 
add, under Sec.  413.75(b), the statutory definition of ``nonprovider 
setting that is primarily engaged in furnishing patient care'' to the 
definition of general terms used throughout the GME regulations.
    Comment: A number of commenters requested that CMS adopt a one 
workday payment policy threshold for didactic time as it relates to 
resident training in the nonprovider setting. The commenters indicated 
that this threshold would allow a hospital to count a full day of 
resident training, so long as the resident engaged in some patient care 
during the day (that is, the entire day of training did not consist of 
didactic training time). The commenters believed that this suggested 
policy change would ease and simplify hospitals' administrative 
burdens. The commenter suggested that if CMS is not willing to adopt 
this policy threshold, CMS at least confirm that its current one

[[Page 72144]]

workday administrative rule, which is a documentation policy and not a 
payment policy, continues to apply for IME purposes to didactic 
training in nonprovider settings.
    Response: We believe that, with section 5505, Congress has spoken 
definitively regarding didactic time. Prior to the enactment of the 
Affordable Care Act, our strict reading of the statute regarding 
``patient care'' led us to deny counting didactic training for IME in 
the hospital settings and to deny counting didactic time for both 
direct GME and IME in the nonprovider setting. As such, we adopted the 
one workday rule as an administrative expediency policy for hospitals 
that wished to simplify documentation practices. However, now that 
Congress has specifically allowed all didactic training in the hospital 
for IME, and even allowed didactic training time in a nonprovider site 
that is ``primarily engaged in furnishing patient care'' to be counted 
for direct GME, we believe that generally, most didactic training in 
GME programs will now be allowable under the provisions of section 
5505. Accordingly, we believe it is appropriate to strictly apply the 
statutory criteria and no longer allow hospitals to apply a one workday 
administrative rule. Therefore, we are clarifying in this final rule 
that the one workday administrative rule regarding didactic training 
time will no longer be permitted for IME or direct GME documentation 
and counting of time beginning with portions of cost reporting periods 
beginning on or after January 1, 2011.
    Comment: Many commenters suggested that CMS include dental clinics 
within the definition of a ``nonprovider setting that is primarily 
engaged in providing patient care.'' The commenters explained that 
dental schools frequently train dental residents in patient-care 
clinics that are located on the dental school premises. The commenters 
pointed out that this is in contrast to medical schools, which do not 
typically operate medical clinics. As such, the commenters claimed that 
``dental residency programs are singled out by CMS' proposed 
interpretation in a way that medical residency programs are not.'' The 
commenters maintained that because the ``main mission'' of dental 
clinics is clearly to provide patient care, the time that a dental 
resident spends in a clinic, including any time the residents spends in 
didactic training in the clinic, should be counted for DGME payment 
purposes.
    Another commenter requested that, in addition to dental school 
clinics, CMS include physician offices housed within medical schools 
and homes of patients in its definition of ``a nonprovider setting that 
is primarily engaged in furnishing patient care.''
    Another commenter asked if a nonteaching hospital could be 
considered ``a nonprovider setting that is primarily engaged in 
furnishing patient care.''
    Response: We agree with the commenters who requested that we 
consider dental school clinics to be a ``nonprovider setting that is 
primarily engaged in furnishing patient care.'' In the proposed 
definition at Sec.  413.75(b), we defined ``nonprovider setting that is 
primarily engaged in furnishing patient care'' as ``a nonprovider 
setting in which the primary activity is the care and treatment of 
patients.'' We agree that dental and medical clinics fit that proposed 
criterion. Therefore, we are amending our proposed policy to include 
both dental and medical school patient care clinics in the category of 
a ``nonprovider setting that is primarily engaged in furnishing patient 
care,'' as long as the hospital clearly documents that any such 
didactic activities occurred in the clinics proper, and not in another 
location on the school campus. For example, a didactic activity that 
occurs in a conference room that is clearly located within the clinic 
may be counted, but if the same activity occurs elsewhere on the school 
campus that is outside the clinic, the time may not be counted.
    A physician's office is also considered a ``nonprovider setting 
that is primarily engaged in furnishing patient care.'' Homes of 
patients are obviously not settings that are primarily engaged in 
furnishing patient care, and nonteaching hospitals are not considered 
``nonprovider settings'' at all because they are, by definition, 
providers. Furthermore, the regulations at Sec.  413.78(b) state that a 
hospital cannot claim the time spent by residents training at another 
hospital. We are not expanding our definition of ``nonprovider setting 
that is primarily engaged in furnishing patient care'' to any other 
additional settings in this final rule.
    After consideration of the public comments we received, we are 
finalizing our proposed definition of ``nonprovider setting that is 
primarily engaged in furnishing patient care,'' at Sec.  413.75(b), but 
we are amending our proposed policy to include dental and medical 
school clinics under that definition, as discussed above.
    Comment: One commenter asked about a case in which a resident is 
transferred to train at another hospital, and which hospital should 
claim that FTE time in such a case.
    Response: This comment is out of scope of the provisions of the 
proposed rule and is not relevant to the GME changes of the Affordable 
Care Act that are being implemented. Therefore, we are not addressing 
it in this final rule.
3. Distinguishing Between Allowed ``Nonpatient Care Activities'' and 
Nonallowable Research Time
    As discussed above, research time that is not associated with the 
treatment or diagnosis of a particular patient is specifically excluded 
from the ``nonpatient care activities, such as didactic conferences and 
seminars'' that are otherwise allowable under section 5505 of the 
Affordable Care Act. There are several unique features of ``research 
not associated with the treatment or diagnosis of a particular 
patient'' that distinguish it from ``nonpatient care activities, such 
as didactic conferences and seminars.'' From the outset of the Medicare 
program, research costs have not been considered reasonable costs of 
patient care, unless the research is associated with the treatment or 
diagnosis of a particular patient. (S. Rept. No. 89-404, Part I, p. 36 
(June 30, 1965) (``Identifiable expenses for medical research * * * 
over and above the costs closely related to normal patient care, would 
not be met from the trust fund.'')); 31 FR 14814, Nov. 22, 1966 
(promulgating prior version of 42 CFR 413.90(a)).
    ``Research not associated with the treatment or diagnosis of a 
particular patient'' usually comprises activities that are focused on 
developing new medical treatments, evaluating medical treatments for 
efficacy or safety, or elaborating upon knowledge that will contribute 
to the development and evaluation of new medical treatments in the 
future, rather than on establishing a diagnosis or furnishing 
therapeutic services for a particular patient.
    Section 5505 of the Affordable Care Act further distinguishes 
``research not associated with the treatment or diagnosis of a 
particular patient'' from ``nonpatient care activities, such as 
didactic conferences and seminars,'' by specifying that nonpatient care 
activities include ``didactic conferences and seminars,'' but not 
research that is not associated with the treatment or diagnosis of a 
particular patient. Conferences or seminars could include an 
administrative rotation, which would include resident training in the 
administrative aspects of medical care such as practice management.
    Comment: Many commenters believed that the definition of ``research 
not associated with the treatment or diagnosis of a particular 
patient'' was

[[Page 72145]]

too broad. Specifically, several commenters remarked that the inclusion 
of ``evaluating medical treatments for efficacy or safety'' appeared to 
include quality and safety projects, which the commenters believed to 
be essential to train a new generation of physicians who prioritize 
quality and safety in patient care. The commenters requested that CMS 
clarify that resident time spent on quality and safety projects is 
countable as didactic time. One commenter specifically suggested that 
CMS revise the definition of research to be ``activities whose sole 
purpose is the development of new medical treatment for use in the 
future.''
    Several commenters also requested that CMS adopt a one workday 
payment policy threshold for research time. Similar to the same 
commenters' request above for a one workday threshold for didactic 
time, the commenters requested that if CMS would not be willing to 
adopt the one workday threshold suggestion, CMS adopt a one workday 
administrative rule for research time, which is a documentation policy 
and not a payment policy. The commenters were of the opinion that 
consistency between the policies for both didactic and research time is 
critical for reducing hospitals' administrative burden and preventing 
confusion between the two policies.
    Response: We are not revising our proposed definition of ``research 
not associated with the treatment or diagnosis of a particular 
patient'' at this time, nor are we expanding our proposed policy on 
research time to allow for a one workday threshold. Moreover, we are 
not establishing an administrative rule for documenting resident time 
spent in such research activities. We believe that our proposed 
definition of the term encompasses the activities that Congress 
excluded from the allowed ``nonpatient care activities'' of section 
5505. We believe that, with section 5505, Congress has spoken 
definitively regarding research time. In section 5505, Congress clearly 
excluded counting any research time for IME purposes and research time 
at nonprovider sites for direct GME purposes, unless it is associated 
with the treatment or diagnosis of a particular patient. As such, we 
believe it is appropriate to exclude even a partial day of ``research 
not associated with the treatment or diagnosis of a particular 
patient'' from the determination of the number of FTEs for GME payment 
purposes. A one workday rule would effectively allow the hospital to 
count nonallowable research time in its FTE counts. In addition, as we 
explained in response to a comment above, the one workday 
administrative rule is no longer permitted for didactic time either, 
for portions of cost reporting periods beginning on or after January 1, 
2011.
    Comment: One commenter stated that, in the proposed rule, CMS did 
not include a regulation regarding the October 1, 2001 effective date 
for the exclusion of ``research activities that are not associated with 
the treatment or diagnosis of a particular patient'' for IME payment 
purposes. The commenter noted that the statute clearly stated the 
October 1, 2001 effective date of the provision, and that the statute 
clarified that ``such section, as so added, shall not give rise to any 
inference as to how the law in effect prior to such date should be 
interpreted.'' The commenter then remarked that when CMS referred in 
the proposed rule to section 5505's allowance of didactic activities 
for IME purposes (75 FR 46387), which CMS noted as excluding such 
research, CMS referred simultaneously to two policies with effective 
dates that spanned almost 20 years. The commenter requested that CMS 
revise the regulations to include the October 1, 2001 effective date of 
the exclusion of such research, and to treat the two policies regarding 
didactic time and research time as two distinct and separate policies.
    Response: The existing regulations regarding the exclusion of 
research for IME merely reiterate longstanding policy, as we explained 
in the August 1, 2001 final rule (66 FR 39896) and, therefore, that the 
regulation at 42 CFR 412.105(f)(1)(iii)(B) does not have an effective 
date. We did not include the October 1, 2001 effective date of the 
exclusion of research time for IME payment purposes in our proposed 
regulations for the same reason. Congress specified the date we 
reiterated in our policy by regulation as an effective date for the 
statutory exclusion of research time for IME. However, Congress did not 
state that research activities prior to October 1, 2001, are allowed. 
Rather, Congress deferred to the Secretary to interpret and implement 
policy regarding research time for IME payment purposes prior to 
October 1, 2001. This is the meaning of the statement in section 5505 
that is quoted by the commenter, that ``such section, as so added, 
shall not give rise to any inference as to how the law in effect prior 
to such date should be interpreted.'' This language further means that, 
subject to the limitations of section 5505(d), in the instances where 
providers disagree with the Secretary's interpretation of research 
policy in cost reports prior to October 1, 2001, and the providers 
appeal research time that was disallowed from their IME FTE counts in 
those cost reports, the matter would be reserved for adjudication in 
the courts.
    However, there has been some confusion regarding the application of 
this provision of the Affordable Care Act. Some individuals, and one 
court decision, have interpreted section 5505(b)'s allowance of 
nonpatient care activities for IME as of January 1, 1983 to include 
research time as well. We believe that this interpretation is contrary 
to the express intent of the statute, which clearly distinguishes 
``research activities that are not associated with the treatment or 
diagnosis of a particular patient'' from ``nonpatient care activities, 
such as didactic conferences and seminars,'' and which unmistakably 
excludes research time. In addition, as explained above, Congress 
clearly provided that the October 1, 2001 effective date ``shall not 
give rise to any inference'' as to how any research time prior to that 
effective date should be counted for IME. Several other commenters on 
the proposed rule shared CMS' understanding of section 5505(c) within 
their comments. These commenters acknowledged that ``the law does not 
opine on the status of IME research time prior to October 1, 2001, 
stating that research provision of the law `shall not give rise to any 
inference as to how the law in effect prior to such date should be 
interpreted''' (emphasis added). This widespread understanding of 
section 5505(c) aligns with CMS' understanding of this Affordable Care 
Act language, and is consistent with our view that the Secretary has 
the authority to interpret section 1886(d)(5)(B) of the Act, as amended 
by section 5505, and implement policy regarding the time spent in 
research activities prior to October 1, 2001, as the Secretary 
determines appropriate.
    For all these reasons, we are exercising our authority to define 
the term ``nonpatient care activities,'' as used in section 5505(b) of 
the ACA, to adopt proposed Sec.  412.105(f)(1)(iii)(C), which excludes 
research activities not related to the treatment or diagnosis of a 
particular patient from the category of allowable ``nonpatient care 
activities.'' Instead, such research activities would continue to be 
excluded under Sec.  412.105(f)(1)(iii)(B). In addition to the language 
and structure of section 5505, as discussed above, we believe such a 
decision is also supported by important differences between these 
research activities and the types of nonpatient care activities, for 
example, didactic conferences and seminars, enumerated in section 5505. 
For example, interns and residents are often assigned to

[[Page 72146]]

blocks of research time, whereas didactic conferences and seminars may 
occur during periods when an intern or resident is otherwise assigned 
to a rotation primarily requiring the provision of patient care. In 
addition, such didactic conferences and seminars may involve 
presentations or discussions related to the treatment of current 
patients. It has been our consistent policy to exclude research 
activities, as we clarified in rulemaking in 2001. We also engaged in 
rulemaking in 2006 to clarify that didactic time would also not be 
counted for GME and IME purposes. Set against this background, we read 
section 5505 as reflecting Congress' clear intent to reverse our 2006 
policy regarding didactic time and to ratify our policy regarding 
research time from October 1, 2001, forward, while also indicating that 
it was not directing any result as to research activities before 
October 1, 2001.
    After consideration of the public comments we received, we are 
adopting revised Sec.  412.105(f)(1)(iii)(C) of the regulations to 
include allowed didactic activities for IME purposes, as proposed 
without modification. ``Research activities that are not associated 
with the treatment or diagnosis of a particular patient'' continue to 
be excluded under Sec.  412.105(f)(1)(iii)(B).
4. Approved Leaves of Absence
    In the FY 2008 IPPS proposed rule (72 FR 24814), we proposed to 
remove vacation, sick leave and other types of leave from the FTE 
calculation for IME and for direct GME purposes. We proposed this 
policy based on our belief that such leave time involved neither 
patient care nor nonpatient care activities. However, we did not 
finalize this proposed policy after many public commenters explained 
that the implementation of the policy would involve significant 
administrative burdens (FY 2008 IPPS final rule, 72 FR 47374). Instead, 
our previously existing policy, which allowed vacation and sick leave 
generally to be counted for direct GME and IME purposes, remained in 
effect. In the FY 2008 IPPS proposed rule, we also proposed to continue 
to count the time spent by residents in orientation activities in both 
the hospital and nonprovider settings. We proposed this policy because 
we recognized the distinct character of orientation activities as 
essential to the provision of patient care by residents. We did 
finalize our policy on orientation time, and in doing so, we specified 
that patient care activities means the care and treatment of particular 
patients, including services for which a physician or other 
practitioner may bill, and orientation activities (Sec.  413.75(b)), 
effective for cost reporting periods beginning on or after October 1, 
2007.
    Section 5505(a) of the Affordable Care Act added new subparagraph 
(K) to section 1886(h)(4) of the Act to clarify that hospitals may 
count residents' vacation, sick leave, and other approved leave time 
toward the hospitals' direct GME FTE resident count, so long as the 
leave does not prolong the total time the resident participates in his 
or her approved program. This direct GME provision regarding leave time 
is effective for cost reporting periods beginning on or after January 
1, 1983. In addition, section 5505(b) of the Affordable Care Act added 
section 1886(d)(5)(B)(x)(I) to the Act, which allows hospitals to count 
residents' vacation, sick leave, and other approved leave time toward 
the hospitals' IME FTE resident count, as long as the leave does not 
prolong the total time the resident participates in his or her approved 
program. This IME provision regarding leave time is effective for cost 
reporting periods beginning on or after January 1, 1983.
    In the August 3, 2010 proposed rule (75 FR 46389 and 46390), we 
proposed to revise our regulations to reflect these statutory changes 
regarding counting residents' vacation, sick leave, and other approved 
leave time toward the hospitals' direct FTE resident count under new 
Sec.  413.78(h) for GME and under Sec.  412.105(f)(1)(iii)(D) for IME. 
We noted that when a resident on leave is training at two hospitals, 
each hospital is to count the proportion of the leave of absence time 
as specified in the August 22, 2007 final rule (72 FR 47382). In that 
rule, we explained that regardless of which hospital is paying the 
resident's salaries and fringe benefits, the hospital to which the 
resident is assigned during the time the vacation is taken is the 
hospital that counts that FTE time for direct GME and IME. If the 
rotation schedule does not clearly indicate where the resident is 
assigned during the time the vacation is taken, the hospitals to which 
the resident rotates over the course of the academic year would divide 
and count the resident's vacation time proportionately based on the 
amount of time spent in actual training at the respective hospitals. In 
the August 3, 2010 proposed rule, we also proposed to specify that 
``other approved leave'' includes those types of generally accepted 
leave of short duration (those that do not prolong the total time that 
the resident is participating in the approved training program) that 
have not been included in our resident leave time policies in the past. 
Examples of such ``other approved leave'' could include jury duty, 
other court leave, or voting leave.
    Comment: Numerous commenters objected to the instructions regarding 
allocating resident vacation time when a resident's rotation schedule 
does not clearly indicate the resident's assignment during the vacation 
time. The commenters claimed that hospitals had never been given such 
strict instructions regarding the allocation of resident vacation time, 
and the methods used by hospitals to allocate such time among 
themselves have worked well up until this point. The commenters 
requested that if CMS is not willing to grant hospitals the discretion 
to allocate resident vacation time on their own, hospitals should at 
least be permitted to choose the period over which they divide the 
time, so long as the period is used consistently.
    Response: The instructions given above regarding allocating 
resident vacation time is a statement of existing policy that we 
finalized in the FY 2008 final rule (72 FR 47382). We note that this 
policy only applies in a situation where a resident's rotation schedule 
does not clearly indicate the resident's assignment during the vacation 
time. The above instructions are necessary in a case where rotation 
schedules are unclear as to which hospital a resident is assigned to at 
any given time. We also note that we have observed a number of 
hospitals successfully using the method we described to divide resident 
training time.
    Comment: One commenter requested that CMS clarify the definition of 
``other approved leave,'' specifically to address whether time away for 
education that is part of a benefit package would be considered ``other 
approved leave.''
    Response: In the proposed rule, we explained ``other approved 
leave'' as those types of generally accepted leave of short duration 
(those that do not prolong the total time that the resident is 
participating in the approved training program) that have not been 
included in our resident leave time policies in the past. We stated 
that examples of such ``other approved leave'' could include jury duty, 
other court leave, or voting leave. In general, ``other approved 
leave'' refers to leave that is taken for personal or administrative 
reasons, and not leave related to a resident's school or training 
program.
    After consideration of the public comments we received, we are 
finalizing our proposed policies regarding approved leaves of absences,

[[Page 72147]]

as reflected in the regulation at Sec. Sec.  412.105(f)(1)(iii)(D) and 
413.78(h).

D. Reductions and Increases to Hospitals' FTE Resident Caps for GME 
Payment Purposes (Sec. Sec.  412.105(f)(1)(iv) and 413.79(m) and (o))

1. General Background on Methodology for Determining the FTE Resident 
Count
    As we discuss in section XXI.A. of this preamble, Medicare makes 
both direct and indirect GME payments to hospitals that train residents 
in approved medical residency training programs. Direct GME payments 
are made in accordance with section 1886(h) of the Act, based generally 
on hospital-specific PRAs, the number of FTE residents, and the 
hospital's Medicare patient share. IME payments are made in accordance 
with section 1886(d)(5)(B) of the Act, based generally on the ratio of 
the hospital's FTE residents to the number of hospital beds applied to 
the DRG payments. Accordingly, the calculation of both direct GME and 
IME payments is affected by the number of FTE residents that a hospital 
is allowed to count; generally, the greater the number of FTE residents 
a hospital counts, the greater the amount of Medicare direct GME and 
IME payments the hospital will receive. In an attempt to end the 
implicit incentive for hospitals to increase the number of FTE 
residents, Congress instituted a cap on the number of allopathic and 
osteopathic residents a hospital is allowed to count for direct GME and 
IME purposes under the provisions of section 1886(h)(4)(F) of the Act 
for direct GME and section 1886(d)(5)(B)(v) of the Act for IME. Dental 
and podiatric residents are not included in this statutorily mandated 
cap.
2. Reduction of Hospitals' FTE Resident Caps Under the Provisions of 
Section 5503 of the Affordable Care Act
    Some hospitals have trained a number of allopathic and osteopathic 
residents in excess of their FTE resident caps. Other hospitals have 
reduced their FTE resident counts to some level below their FTE 
resident caps. Section 5503 of the Affordable Care Act added a new 
section 1886(h)(8) to the Act to provide for reductions in the 
statutory FTE resident caps for direct GME under Medicare for certain 
hospitals, and authorizes a ``redistribution'' to hospitals of the 
estimated number of FTE resident slots resulting from the reductions. 
Section 5503 also amended section 1886(d)(5)(B)(v) of the Act to 
require application of the provisions of 1886(h)(8) ``in the same 
manner'' to the FTE resident caps for IME. A previous redistribution of 
``unused'' FTE resident slots was performed under section 422 of Public 
Law 108-173 (the MMA). Section 422 provided for the redistribution of 
unused residency positions effective for portions of cost reporting 
periods beginning on or after July 1, 2005. While the redistribution 
under section 5503 of the Affordable Care Act is similar to section 422 
of Public Law 108-173, there are substantive differences between the 
two provisions.
    The new section 1886(h)(8)(A) of the Act provides that, effective 
for portions of cost reporting periods occurring on or after July 1, 
2011, a hospital's FTE resident cap will be reduced if its ``reference 
resident level'' is less than its ``otherwise applicable resident 
limit,'' as these terms are described below. We note that when we refer 
to ``otherwise applicable resident cap'' and ``otherwise applicable FTE 
resident cap'' in the regulations, we are using these phrases 
interchangeably with the statutory term ``otherwise applicable resident 
limit.'' Use of the phrases ``otherwise applicable resident cap'' and 
``otherwise applicable FTE resident cap'' is consistent with our 
reference to a hospital's ``limit'' as its ``cap.'' Rural hospitals 
with fewer than 250 acute care inpatient beds as well as those 
hospitals described in section XXI.D.4. of this preamble are exempt 
from a reduction. For other hospitals, any such reduction will be equal 
to 65 percent of the difference between the hospital's ``otherwise 
applicable resident limit'' and its ``reference resident level.''
    Under the new section 1886(h)(8)(B) of the Act, the Secretary is 
authorized to increase the FTE resident caps for certain categories of 
hospitals for portions of cost reporting periods occurring on or after 
July 1, 2011, by an aggregate number that does not exceed the estimated 
overall reduction in FTE resident caps for all hospitals under section 
1886(h)(8)(A) of the Act. A single hospital may receive an increase in 
its FTE resident cap of no more than 75 additional FTEs. That is, a 
hospital would be allowed to receive up to 75 additional slots for 
direct GME and up to 75 additional slots for IME. In determining which 
hospitals would receive an increase in their FTE resident caps, 
sections 1886(h)(8)(B) through 1886(h)(8)(E) of the Act directs us to--
    <bullet> Take into account the demonstrated likelihood of the 
hospital filling the additional positions within the first three cost 
reporting periods beginning on or after July 1, 2011.
    <bullet> Take into account whether the hospital has an accredited 
rural training track program.
    <bullet> Distribute 70 percent of the resident slots to hospitals 
located in States with resident-to-population ratios in the lowest 
quartile.
    <bullet> Distribute 30 percent of the resident slots to hospitals 
located in a State, a territory of the United States, or the District 
of Columbia that are among the top 10 States, territories, or Districts 
in terms of the ratio of the total population living in an area 
designated as a health professional shortage area (HSPA), as of March 
23, 2010, to the total population, and/or to hospitals located in rural 
areas.
    In summary, section 5503 of the Affordable Care Act added a new 
section 1886(h)(8) of the Act that prescribes a methodology for 
determining reductions to certain hospitals' FTE resident caps based on 
unused FTE resident slots, provides for certain exceptions to the FTE 
resident cap reductions, and includes general criteria that CMS must 
consider in making a ``redistribution'' to other hospitals of the 
estimated number of FTE resident slots resulting from the reductions in 
the FTE resident caps. In the August 3, 2010 proposed rule (75 FR 46391 
through 46410), we proposed procedures for determining whether, and by 
what amount, a hospital's FTE resident cap is subject to a reduction 
under section 1886(h)(8)(A) of the Act. We also specified an 
application process for hospitals that seek to receive increases in 
their FTE resident caps and the specific criteria that we will use to 
determine which hospitals will receive increases in their FTE resident 
caps under section 1886(h)(8)(B) of the Act.
3. Hospitals Subject to the FTE Resident Cap Reduction
    As indicated earlier, section 1886(h)(8)(A) of the Act, as added by 
section 5503 of the Affordable Care Act, provides that if a hospital's 
``reference resident level'' is less than its ``otherwise applicable 
resident limit,'' its FTE resident cap(s) will be reduced by 65 percent 
of the difference between its ``otherwise applicable resident limit'' 
and its ``reference resident level.'' Under section 1886(h)(8)(H)(i) of 
the Act (as added by section 5503 of the Affordable Care Act), the 
``reference resident level'' refers to the number of unweighted 
allopathic and osteopathic FTE residents who are training at a hospital 
in a given cost reporting period. That is, the ``reference resident 
level'' refers to a hospital's allopathic and osteopathic FTE resident 
count for a specific period. Under section 1886(h)(8)(H)(ii) the 
``otherwise applicable resident limit'' refers to a hospital's FTE 
resident cap established under sections

[[Page 72148]]

1886(h)(4)(F)(i) and (h)(4)(H) of the Act for direct GME payment 
purposes and a hospital's resident cap established under section 
1886(d)(5)(B)(v) for IME payment purposes. For most hospitals, the 
permanent FTE cap under section 1886(h)(4)(F)(i) of the Act is based 
on: (1) For an urban hospital, the number of unweighted allopathic and 
osteopathic FTE residents in the hospital's most recent cost reporting 
period ending on or before December 31, 1996 (the ``1996 cap''); (2) 
for a rural hospital, 130 percent of the 1996 cap, adjusted as 
specified under existing Sec.  413.79(c)(2); and (3) any adjustments to 
the hospital's cap under paragraph (7), which specifies the previous 
``redistribution'' of resident positions required by section 422 of 
Public Law 108-173. Section 1886(h)(4)(H) of the Act specifies that a 
hospital's FTE resident cap under subparagraph (F) may be adjusted for 
a new medical residency training program established on or after 
January 1, 1995, participation in a Medicare GME affiliated group, and 
establishment by an urban hospital of a separately accredited rural 
training track program. In the August 3, 2010 proposed rule (75 
FR46391), we proposed that, in defining a hospital's ``otherwise 
applicable resident limit'' for purposes of section 1886(h)(8)(A) of 
the Act, we will look at the hospital's 1996 cap during its reference 
year, as adjusted for the following criteria: New programs as defined 
at Sec.  413.79(e); participation in a Medicare GME affiliation 
agreement as defined at Sec. Sec.  413.75(b) and 413.79(f); 
participation in an emergency Medicare GME affiliation agreement as 
defined at Sec.  413.79(f); participation in a hospital merger; and 
whether an urban hospital has a separately accredited rural training 
track program as defined at Sec.  413.79(k). We discuss the 
applicability of Medicare GME affiliation agreements under section 
1886(h)(8)(A) of the Act in more detail under section XXI.D.8.c. of 
this preamble and the treatment of hospital mergers under section 
XXI.D.8.d. of this preamble. Furthermore, section 1886(h)(8)(H)(iii) of 
the Act requires that, in determining a hospital's ``otherwise 
applicable resident limit,'' section 1886(h)(7)(A) of the Act shall be 
taken into account. Section 1886(h)(7)(A) of the Act refers to the 
reduction to a hospital's cap(s) under section 422 of Public Law 108-
173. The application of section 422 of Public Law 108-173 to the 
implementation of section 5503 of the Affordable Care Act is further 
discussed under section XXI.D.10. of this preamble.
    In our discussion of the provisions of section 5503 of the 
Affordable Care Act under this section, we generally refer to a 
hospital's number of unweighted allopathic and osteopathic FTE 
residents in a particular period as a hospital's ``resident level.'' We 
also refer to a hospital's resident level in the applicable ``reference 
period,'' as explained further below, as the hospital's ``reference 
resident level.'' In addition, we refer to the ``otherwise applicable 
resident limit'' as the hospital's FTE resident cap that is applicable 
during the relevant cost reporting period. Thus, in the August 3, 2010 
proposed rule (75 FR 46391), we proposed that, effective for portions 
of cost reporting periods beginning on or after July 1, 2011, we would 
permanently reduce the hospital's FTE resident cap by 65 percent of the 
difference between the reference resident level and the hospital's 
otherwise applicable resident limit for IME and direct GME, 
respectively. For example, if a hospital's otherwise applicable 
resident limit for the reference period is 100, and its reference 
resident level is 80 FTEs, we would reduce the hospital's FTE resident 
cap by 13 FTEs (0.65*[100--80)] = 13). We proposed to add new 
regulations at Sec.  412.105(f)(1)(iv)(B)(2) for IME and at Sec.  
413.79(m) for direct GME to reflect our proposals regarding reductions 
to hospitals' FTE resident caps under section 5503 of the Affordable 
Care Act.
    Comment: One commenter requested that emergency Medicare GME 
affiliation agreements be disregarded for purposes of determining a 
hospital's otherwise applicable resident limit. The commenter agreed 
with CMS' proposed policy to consider Medicare GME affiliation 
agreements when determining a hospital's otherwise applicable resident 
limit, but stated that emergency Medicare GME affiliation agreements 
are distinctly different from regular Medicare GME affiliation 
agreements because the purpose of emergency Medicare GME affiliation 
agreements is to minimize the disruption in residents' training that 
occurs as a result of a natural disaster. The commenter stated that as 
a result of Hurricane Ike, which led to the declaration of an emergency 
area under section 1135(b) of the Act for parts of Louisiana and Texas, 
its facility quickly entered into an emergency Medicare GME affiliation 
agreement without first determining whether it needed a temporary cap 
increase. The commenter stated that facilities that acted as quickly as 
its hospital should not be penalized for taking such prompt action. The 
commenter believed that emergency Medicare GME affiliation agreements 
should not be considered in determining a hospital's otherwise 
applicable resident limit because ``[f]rom a statutory perspective, the 
provision defining the `otherwise applicable resident limit' only 
cross-references the routine Medicare GME affiliation agreement 
provisions in section 1886(h)(4)(H) of the Act. It does not cross-
reference the emergency Medicare GME affiliation agreement legislative 
authority in section 1135(b) of the Act.'' The commenter indicated that 
if CMS decides not to account for emergency Medicare GME affiliation 
agreements in determining a hospital's otherwise applicable resident 
limit, CMS would not in turn reduce the FTE resident caps of hospitals 
located in emergency areas. Rather, the commenter suggested that CMS 
could exempt hospitals located in areas affected by an emergency from 
the cap redistribution on the basis that they were unable to train up 
to their FTE resident caps due to the natural catastrophes. The 
commenter stated that because the natural catastrophe led to the 
declaration of a public health emergency under section 1135(b) of the 
Act, ``* * * the direct consequences of those events should also fall 
under the same waiver authority.'' The commenter stated ``[i]mplicitly, 
the Affordable Care Act imposes a retrospective requirement on 
hospitals to have trained at a level at least equal to their FTE 
resident caps to avoid the penalty of the FTE cap reduction. With its 
section 1135(b) authority, CMS can waive this retrospective requirement 
effective with the date of the beginning of the emergency period.''
    Response: We commend the commenters for its hospital's 
participation in an emergency Medicare GME affiliation agreement to 
provide residents training in affected hospitals with continuity of 
training. We do not agree that an emergency Medicare GME affiliation 
agreement is fundamentally different from a regular Medicare GME 
affiliation agreement. Both types of affiliation agreements allow for a 
temporary adjustment to hospitals' FTE caps to permit residents to 
train at another facility. Furthermore, section 1886(h)(4)(H)(ii) of 
the Act, which gives the Secretary the authority to prescribe rules 
which allow members of the same affiliated group to elect to apply the 
members' caps on an aggregate basis, is the statutory foundation for 
the establishment of emergency Medicare GME affiliation agreements. 
Section 1135(b) of the Act only provides the Secretary with the 
authority to temporarily waive or modify the

[[Page 72149]]

requirements of a regular Medicare GME affiliation agreement; it did 
not provide the Secretary with the authority to create emergency 
Medicare GME affiliation agreements. We further note that the 
``emergency period'' declared pursuant to section 1135(b) of the Act 
with respect to Hurricane Ike expired before the emergency Medicare GME 
affiliation agreements provision ended.
    In response to the commenters request that CMS exempt hospitals 
that were unable to train up to their caps because of a natural 
disaster, section 1886(h)(8)(A) of the Act does not provide for 
specific exemption for hospitals located in an emergency area during an 
emergency period. We believe that section 1886(h)(8)(A) of the Act 
allows a hospital to account for its participation in a regular 
Medicare GME affiliated group and to account for its participation in 
an emergency Medicare GME affiliated group in determining a hospital's 
``otherwise applicable resident limit.''
    Therefore, we are finalizing our policy as proposed that based on 
the statutory language at section 1886(h)(8)(H)(iii) of the Act, in 
determining a hospital's otherwise applicable resident limit, we will 
generally consider a hospital's 1996 cap during its reference year, as 
adjusted for the following criteria: new programs as defined at Sec.  
413.79(e); participation in a Medicare GME affiliation agreement as 
defined at Sec. Sec.  413.75(b) and 413.79(f); participation in an 
emergency Medicare GME affiliation agreement as defined at Sec.  
413.79(f); participation in a hospital merger; and whether an urban 
hospital has a separately accredited rural training track program as 
defined at Sec.  413.79(k).
4. Exemption from FTE Resident Cap Reduction for Certain Rural 
Hospitals
    Section 1886(h)(8)(A)(ii)(I) of the Act, as added by section 5503 
of the Affordable Care Act, specifically exempts rural hospitals (as 
defined in section 1886(d)(2)(D)(ii) of the Act) with fewer than 250 
acute care inpatient beds from reductions to their FTE resident caps 
under section 1886(h)(8)(A). Section 1886(d)(2)(D)(ii) of the Act 
defines a rural area as any area outside a Metropolitan Statistical 
Area (MSA). Under the existing regulations at Sec.  412.62(f)(ii), an 
``urban area'' means: (1) An MSA or New England County Metropolitan 
Area (NECMA), as defined by the Executive Office of Management and 
Budget; or (2) the following New England counties: Litchfield County, 
Connecticut; York County, Maine; Sagadahoc County, Maine; Merrimack 
County, New Hampshire; and Newport County, Rhode Island. Under existing 
Sec.  412.62(f)(iii), a ``rural area'' means any area outside an urban 
area. We note that we no longer use the term MSA, and instead use the 
term Core-Based Statistical Area (CBSA) for locality and wage index 
purposes.
    A hospital's bed size is based on its number of available beds, as 
determined for IME payment purposes under Sec.  412.105(b) of the 
regulations. For purposes of determining whether a rural hospital has 
fewer than 250 beds, we proposed to use data from the rural hospital's 
most recent cost reporting period ending on or before March 23, 2010. 
(This information may be found on Worksheet S-3, Part I of the Medicare 
cost report, CMS-2552-96: the sum of lines 1 and 6 through 10 in column 
2, minus line 26 in column 6, divided by the number of days in the cost 
reporting period.) In the August 3, 2010 proposed rule (75 FR 46391 and 
46392), we proposed that if a rural hospital has fewer than 250 beds in 
its most recent cost reporting period ending on or before March 23, 
2010, the hospital would not be subject to a possible reduction to its 
FTE resident cap(s) under section 1886(h)(8)(A) of the Act. However, if 
a rural hospital has at least 250 beds in its most recent cost 
reporting period ending on or before March 23, 2010, we proposed that 
the rural hospital would be subject to a reduction to its FTE resident 
cap(s).
    Comment: Several commenters supported the exclusion of rural 
hospitals with fewer than 250 beds from a cap reduction under section 
1886(h)(8)(A) of the Act. The commenters stated it is important that 
these hospitals be exempt from a cap reduction and that excluding 
hospitals with fewer than 250 beds will ensure that section 5503 of the 
Affordable Care Act will not cause unnecessary harm to these rural 
hospitals. The commenter added that due to the rural workforce 
shortage, these rural hospitals have a need to retain their current 
residency slots which they already struggle to maintain.
    One commenter requested clarification on the treatment of rural 
hospitals that have a temporary decrease in their available bed count 
due to, for example, a unit being closed for renovation. The commenter 
asked whether a hospital that only experiences a temporary decrease in 
its bed count would be exempt from a cap reduction because the bed 
count would probably increase once the renovation, for example, was 
completed. The commenter stated that the cost reports at issue, from 
the most recent cost reporting ending on or before March 23, 2010, will 
neither be audited nor reviewed by the Medicare contractor by the date 
cap reductions are made. The commenter asked for clarification on how 
the policy for exempting rural hospitals with fewer than 250 beds would 
be applied if the temporary reduction is later proven to be invalid. 
The commenter recommended ``* * * that CMS require a review process to 
validate the bed size of rural hospitals that claim exemption from the 
FTE cap reduction due to their bed count.''
    Response: We appreciate the commenters' support of our proposed 
policy to exclude rural hospitals with fewer than 250 beds from cap 
reductions under section 1886(h)(8)(A) of the Act. In response to the 
commenter who requested clarification on whether rural hospitals that 
only had a temporary bed reduction, such that they meet the requirement 
of having fewer than 250 beds for a limited period of time, a hospital 
will be exempt from a cap reduction, regardless of whether or not the 
bed reduction is temporary, if the data on its cost report at issue 
indicates the hospital had fewer than 250 beds. We note that the 
determination regarding the availability of beds in a unit that is 
closed for renovation would be made in accordance with the existing 
regulations at Sec.  412.105(b)(1), which states, ``[b]eds in a unit or 
ward that is not occupied to provide a level of care that would be 
payable under the acute care hospital inpatient prospective payment 
system at any time during the 3 preceding months (the beds in the unit 
or ward are to be excluded from the determination of available bed days 
during the current month).'' We also are clarifying in this final rule 
that the Medicare contractor will determine whether a rural hospital 
has fewer than 250 beds by using the number of available beds on the 
rural hospital's most recently submitted cost report for its cost 
reporting period ending on or before March 23, 2010, for which a cost 
report has been settled or has been submitted to the Medicare 
contractor by March 23, 2010. That is, we are clarifying that the cost 
report used to determine whether the rural hospital is exempt from a 
cap reduction must have been settled or have been submitted to the 
Medicare contractor by March 23, 2010. In this final rule, we are 
revising Sec.  413.79(m)(1) to reflect this clarification.
    In response to the commenter's request that CMS require a review 
process to validate a rural hospital's bed count, the Medicare 
contractors will review rural hospitals' bed size in accordance with 
normal audit procedures.

[[Page 72150]]

5. Application of Section 5503 to Hospitals That Participate in 
Demonstration Projects or Voluntary Residency Reduction Programs and 
Certain Other Hospitals
    In addition to certain rural hospitals as noted above, section 
1886(h)(8)(A)(ii) of the Act also exempts certain other hospitals from 
a residency cap reduction. Section 1886(h)(8)(A)(ii)(II) of the Act, as 
amended by section 5503 of the Affordable Care Act, specifically 
exempts ``a hospital that was part of a qualifying entity which had a 
voluntary residency reduction plan approved under paragraph (6)(B) or 
under the authority of section 402 of Public Law 90-248, if the 
hospital demonstrates to the Secretary that it has a specific plan in 
place for filling the unused positions by not later than 2 years after 
the date of enactment of this paragraph.'' This language is referring 
to the National Voluntary Residency Reduction Plan (VRRP), the New York 
Medicare GME Demonstration (New York Demonstration), and the Utah 
Medicare GME Demonstration (Utah Demonstration).
    In July 1997, 42 New York teaching hospitals participated in the 
New York Demonstration. An additional seven hospitals joined the New 
York Demonstration in July 1998. The purpose of the New York 
Demonstration was to test reimbursement changes associated with 
residency training to determine whether hospitals could use time-
limited transition funding to replace and reengineer the services 
provided by a portion of their residency trainees. In exchange for 
reducing its count of residents by 20 to 25 percent over a 5-year 
period, while maintaining or increasing its primary care-to-specialty 
ratio of residents, a participating hospital (or consortium of 
hospitals) participating in the New York Demonstration would receive 
``hold harmless payments'' for 6 years.
    Since 2003, nine Utah teaching hospitals have participated in the 
Utah Demonstration to allocate Medicare GME funding to Utah hospitals 
based on health professions workforce planning. Under the Utah 
Demonstration, Medicare contractors redirect Medicare direct GME funds 
from each of the teaching hospitals in Utah and pay those amounts to 
the Utah Medical Education Council, an agency of the State government.
    Under the VRRP approved under section 1886(h)(6)(B) of the Act, 
hospitals could use time-limited transition funding to replace the 
services provided by a portion of their residents. In exchange for 
reducing its count of residents by 20 to 25 percent over a 5-year 
period, while maintaining or increasing its primary care-to-specialty 
ratio of residents, a VRRP participating hospital would receive ``hold 
harmless payments'' for 5 years.
    Based on the language of section 1886(h)(8)(A)(ii)(II) of the Act, 
in the August 3, 2010 proposed rule (75 FR 46392), we proposed that 
hospitals that participated in the New York Demonstration, the Utah 
Demonstration, or a VRRP could be exempt from a cap reduction under 
section 1886(h)(8)(A) of the Act. We proposed to not differentiate 
between those hospitals that withdrew from either demonstration prior 
to its completion and those hospitals that completed either 
demonstration. That is, we proposed that any hospital that, at some 
point, participated in the New York Demonstration, the Utah 
Demonstration, or the VRRP could be exempt from a cap reduction. 
Specifically, consistent with the statutory language at section 
1886(h)(8) of the Act, even though only seven hospitals actually 
completed the New York Demonstration, any hospital that participated in 
the New York Demonstration could be exempt from a cap reduction. As 
required under section 1886(h)(8)(A)(ii)(II) of the Act, to be exempt 
from the cap reduction, a hospital that had a VRRP approved under 
section 1886(h)(6)(B) of the Act or hospitals that participated in a 
demonstration project approved under section 402 of Public Law 90-248 
must demonstrate to the Secretary that it has a plan in place for 
filling its unused slots within 2 years after the date of enactment of 
Public Law 111-148 (that is, by March 23, 2012). We proposed that those 
hospitals must submit their plans specifying how they would fill their 
unused slots to CMS by December 1, 2010, in order to be exempt from a 
cap reduction.
    In addition to the hospitals described under 1886(h)(8)(A)(ii)(II) 
of the Act, section 1886(h)(8)(A)(ii)(III) of the Act exempts a 
hospital described under section 1886(h)(4)(H)(v) of the Act from a cap 
reduction. Therefore, in the August 3, 2010 proposed rule (75 FR 
46392), we proposed that such a hospital described under section 
1886(h)(4)(H)(v) of the Act be exempt from a cap reduction.
    Finally, section 1886(h)(8)(H)(i) of the Act provides that the 
hospital's reference resident level is the resident level for the one 
cost reporting period out of the three most recent cost reporting 
periods ending before March 23, 2010, with the highest resident level. 
Under section 1886(h)(8)(A)(i) of the Act, that reference resident 
level is used to make the determination of whether a hospital's FTE 
resident cap(s) should be reduced. Therefore, in the August 3, 2010 
proposed rule, we proposed that if a hospital trains at or above its 
otherwise applicable resident limit in all of its three most recent 
cost reporting periods ending before March 23, 2010, the hospital would 
be exempt from a cap reduction. A separate determination would be made 
regarding any reduction to the hospital's direct GME cap and its IME 
cap.
    Comment: Several commenters supported our proposed policy to 
exclude hospitals that participated in the Utah Demonstration and the 
New York Demonstration if the hospitals submit their plans to CMS by 
December 1, 2010, specifying how they would fill their unused slots by 
March 23, 2012.
    One commenter asserted that it is important for CMS to understand 
the structure, timeline, and post-demonstration requirements associated 
with the New York Demonstration. The commenter stated the terms and 
conditions for the seven hospitals that completed the New York 
Demonstration required that, if a hospital exceeded its post-
demonstration cap, which was in effect until July 1, 2009, and reduced 
a participating hospital's cap 20 to 25 percent below its otherwise 
applicable Medicare resident cap, the hospital would be accountable for 
the Medicare GME reimbursement associated with its additional FTE 
residents. The commenter stated the hospitals that completed the New 
York Demonstration had to adhere to a separate lower Medicare resident 
cap through July 1, 2009, a requirement not applicable to other 
hospitals in the country. The commenter also noted that certain 
hospitals that did not complete the entire New York demonstration had 
already made substantial reductions to their FTE resident counts of 20 
or 25 percent before formally ending their participation in the 
demonstration. The commenter stated, for this reason, it agrees with 
CMS' proposal to apply the Affordable Care Act exemption for hospitals 
that participated in the demonstration authority to hospitals that 
participated at any time in the New York Demonstration.
    The commenter stated CMS' proposal to require that hospitals that 
participated in the New York Demonstration submit a plan to CMS by 
December 1, 2010, for how they plan to fill their slots by March 23, 
2012, is unrealistic, given that the final rule will not be available 
until November 1, 2010, and ``* * * given the magnitude of the 
reductions required by CMS and the fact that CMS mandated an incentive 
to

[[Page 72151]]

maintain those large reductions through July 1, 2009.'' The commenter 
requested that CMS finalize a policy that hospitals that participated 
in the New York Demonstration be required to submit a plan to CMS by 
March 1, 2011, for how they plan to fill their unused slots by March 
23, 2012. The commenter suggested that if CMS needs an estimate of the 
number of slots the demonstration hospitals plan to fill by March 23, 
2012, CMS could require a two-step process by which hospitals would 
provide to CMS by December 1, 2010, an estimate of the number of FTE 
resident slots they plan to fill and provide to CMS by March 1, 2011, a 
detailed plan for how they anticipate to fill those slots.
    The commenter noted that some hospitals that participated in the 
New York Demonstration accepted displaced residents from hospitals that 
closed after March 23, 2008. The commenter recommended that CMS allow, 
but not require, hospitals that participated in the New York 
Demonstration to ``* * * include as part of its submitted plan for 
filling unused slots by March 23, 2012 its intention to apply for 
additional slots to continue training residents in the same program as 
displaced residents from a closed hospital, if the hospital desires to 
do so.'' The commenter believed that CMS' interpretation that 
demonstration hospitals must have residents training in the hospitals' 
unused slots as of March 23, 2012, is not practical because it cannot 
be reconciled with the ``core characteristic of residency training,'' 
that residents begin their applicable program years July 1 of each 
calendar year. The commenter added that CMS' interpretation means that 
a hospital would have to have residents training in the unused slots by 
July 1, 2011, to ensure these residents are actually training as of 
March 23, 2012, which would only allow these hospitals approximately 15 
months to fill their unused slots rather than 2 years. The commenter 
stated ``[t]he more sensible approach to interpreting this requirement 
would be for CMS to permit the demonstration hospitals to specify a 
plan whereby the hospitals will fill the unused slots in a progressive 
and logical manner that recognizes the staggered nature of residency 
training.'' Therefore, the commenter recommended that the unused FTE 
resident cap slots of hospitals that participated in the New York 
Demonstration be considered to be filled by March 23, 2012, if any one 
of the following three scenarios occurs: (1) A resident is actually 
training at the hospital by March 23, 2012; (2) a resident is enrolled 
in a hospital's unused cap slot by March 23, 2012, and will begin 
training no later than July 1, 2012; or (3) ``there is a demonstrated 
likelihood of slots in a new program being filled in a progressive 
sequence as evidenced by the matching to or enrollment in the program 
of the first cohort of residents by that date and that first cohort 
will begin training in the slots no later than July 1, 2012.''
    Response: We appreciate the commenters' support of our proposed 
policy that if a hospital at any time participated in the New York 
Demonstration or the Utah Demonstration, it would be exempt from a cap 
reduction if it submits a plan to CMS by December 1, 2010, for how it 
plans to fill its unused slots by March 23, 2012. We understand the 
commenter's concern that the proposed requirement to submit a plan to 
CMS by December 1, 2010, for how the hospital plans to fill its slots 
by March 23, 2012, may not provide hospitals that participated in the 
New York demonstration sufficient time to draft their plans. Therefore, 
we are amending our proposed policy in this final rule to require 
hospitals that participated in the New York Demonstration, the Utah 
Demonstration, or a VRRP to submit their plans to CMS by January 21, 
2011, for how they plan to fill their unused slots by March 23, 2012. 
We are revising the proposed regulatory text at Sec.  413.79(m)(2) to 
reflect this date change.
    In response to the commenter's question of whether applying for FTE 
cap slots from a closed hospital under section 5506 of the Affordable 
Care Act could be considered part of a hospital's plan for filling 
unused slots by March 23, 2012, we do not agree that showing that a 
hospital is applying for cap slots under section 5506 demonstrates that 
the hospital will be filling its unused cap slots by March 23, 2012. On 
the contrary, applying for additional cap slots under section 5506 of 
the Affordable Care Act would give a demonstration hospital an 
additional cap, which could further increase its number of unused 
slots.
    In response to the commenter's concerns regarding the likelihood of 
having additional residents training as of March 23, 2012, we are 
stating in this final rule that if a hospital described under section 
1886(h)(8)(A)(ii)(II) of the Act can show that a resident(s) has 
matched into a program by March 23, 2012, or has signed a formal letter 
of commitment with the program by March 23, 2012, and that a 
resident(s) will begin training no later than July 1, 2012, that 
hospital has met the requirement of demonstrating that it has a plan 
for filling an unused cap slot(s) by March 23, 2012. We note that, for 
purposes of submitting a plan indicating that the hospital will fill 
its unused slots by March 23, 2012, the type of documentation required 
to demonstrate that the hospital is filling unused slots must be the 
type of documentation listed under the demonstrated likelihood criteria 
for purposes of implementing cap increases under section 5503 of the 
Affordable Care Act. For example, the hospital could submit to CMS the 
documentation it submitted to the ACGME requesting approval for a new 
program or a permanent expansion to the number of residents in its 
existing program.
    In summary, we are finalizing our proposed policies regarding the 
treatment of hospitals that participated in the New York Demonstration, 
the Utah Demonstration, and a VRRP, and a hospital described under 
section 1886(h)(4)(H)(v) of the Act, except that we are allowing 
hospitals to submit their plans to CMS by January 21, 2011, for how 
they plan to fill their unused slots by March 23, 2012. We also are 
allowing hospitals that participated in the New York Demonstration, the 
Utah Demonstration, or a VRRP to demonstrate that they are filling 
unused slots by March 23, 2012, by showing that a resident(s) has 
matched into a program by March 23, 2012, or has signed a formal letter 
of commitment with the program by March 23, 2012, and will begin 
training at the hospital at the latest by July 1, 2012.
    We also are clarifying in this final rule that a hospital that is 
training at or above its otherwise applicable resident limit in all 
three of its three most recent cost reporting periods ending before 
March 23, 2010, for which a cost report has been either settled or 
submitted (subject to audit) to the Medicare contractor by March 23, 
2010, is exempt from a cap reduction under section 1886(h)(8)(A) of the 
Act. A separate determination would be made regarding any reduction to 
the hospital's direct GME cap and its IME cap.
6. Determining the Estimated Number of FTE Resident Slots Available for 
Redistribution
    In accordance with section 1886(h)(8)(A) of the Act, as added by 
section 5503 of the Affordable Care Act, we will determine the number 
of resident positions available for redistribution by estimating the 
expected reductions to hospitals' FTE resident caps. We believe that 
section 1886(h)(8)(A) of the Act allows us to distinguish between the 
FTE counts that are used to determine the number of

[[Page 72152]]

FTE resident slots that are available for redistribution (that is, the 
``redistribution pool'') and the actual number of FTE residents by 
which hospitals' FTE resident caps are ultimately reduced. In the 
August 3, 2010 proposed rule (75 FR 46392 and 46393), we proposed to 
estimate the reduction to a hospital's FTE cap under section 
1886(h)(8)(A) of the Act for purposes of determining the number of FTEs 
that a hospital might contribute to the redistribution pool. We 
proposed to estimate the redistribution pool in accordance with section 
1886(h)(8)(B)(i) of the Act, as added by section 5503(a)(4), which 
states: ``The aggregate number of increases in the otherwise applicable 
resident limit under this subparagraph shall be equal to the aggregate 
reduction in such limits attributable to subparagraph (A) (as estimated 
by the Secretary)'' (emphasis added). Therefore, we proposed to 
estimate and redistribute the number of resident slots in the 
redistribution pool, and to ensure that the aggregate number of FTE 
residents by which we increase the FTE resident caps of qualifying 
hospitals under section 1886(h)(8)(B) of the Act is not more than CMS' 
estimate of the redistribution pool. In the proposed rule, we noted if 
we were subsequently to perform an audit, as described further in 
section XXI.D.7. of this preamble, in order to make a final 
determination regarding any reductions to a hospital's FTE resident 
cap, and find that the aggregate number of FTE resident reductions 
differed from the number CMS had initially estimated for the 
redistribution pool, the number of slots that can be redistributed from 
the redistribution pool to qualifying hospitals would not be affected.
    To ensure that we would begin making payments for most hospitals 
based on the revised FTE resident caps by July 1, 2011, as required by 
the statute, in the August 3, 2010 proposed rule (75 FR 46393), we 
proposed to set a date by which we would have determined a hospital's 
reference resident level and compared it to the hospital's otherwise 
applicable resident limit(s) to estimate whether, and by how much, the 
hospital's FTE cap(s) would be reduced. We proposed this date to be May 
1, 2011, and that date would apply for all hospitals for purposes of 
determining an estimate of whether and by how much their FTE resident 
caps should be reduced. In the event that the Medicare contractors have 
not completed an audit of a hospital's GME data (explained further 
under section XXI.D.7. of this preamble) by May 1, 2011, we proposed to 
estimate by May 1, 2011, the number of FTE residents by which a 
hospital's FTE resident cap is expected to be reduced based on the data 
in the as-submitted cost report. For example, a Medicare contractor may 
estimate by May 1, 2011, that Hospital A's FTE resident cap should be 
reduced by 10 FTEs. Thus, we would place 10 FTEs into the 
redistribution pool. It is possible that even after May 1, 2011, the 
contractor may continue to audit Hospital A's relevant cost reports to 
determine if, in fact, 10 FTEs is the appropriate number by which to 
reduce Hospital A's FTE resident cap, and could ultimately conclude 
that Hospital A's FTE resident cap should only be reduced by 8 FTEs. If 
the Medicare contractor does not make this revised determination based 
on the audit by May 1, 2011, while we would only reduce Hospital A's 
FTE resident cap by 8 FTEs effective July 1, 2011, the number of FTE 
residents in the redistribution pool attributable to Hospital A would 
remain at 10 FTEs (the estimated number as of May 1, 2011). Similarly, 
if the Medicare contractor ultimately concluded that Hospital A's FTE 
resident cap should be reduced by 12 FTEs, but this final determination 
is not made by May 1, 2011, Hospital A's FTE resident cap would be 
reduced by 12 FTEs effective July 1, 2011, but the number of FTE 
residents in the redistribution pool attributable to Hospital A would 
remain at 10 FTEs. Therefore, because we believe that section 
1886(h)(8)(B)(i) of the Act allows us to distinguish between the FTE 
counts that are used to determine the size of the redistribution pool, 
and the actual aggregate number of FTE residents by which hospitals' 
FTE resident caps are ultimately reduced, we proposed to use estimated 
information to determine possible reductions to hospitals' FTE resident 
caps to estimate the number of FTE resident slots to be distributed 
under section 1886(h)(8)(B) of the Act. In addition, we noted that, as 
was done when we implemented section 422 of Public Law 108-173, 
Medicare contractors will provide hospitals with a time-limited 
opportunity to review cap reduction determinations for possible 
technical errors before they are finalized. As set forth at section 
5503(a)(3), cap reduction determinations are not subject to 
administrative or judicial review.
    Comment: One commenter believed that the proposal for CMS to 
distinguish between the estimated number of positions available for 
redistribution and the actual number of positions by which hospitals' 
FTE residency caps ultimately would be reduced is a reasonable 
proposal. However, the commenter was concerned that an underestimate of 
available positions could result in reducing the universe of GME 
positions. The commenter recommended that CMS consider reconciling the 
number of positions lost with the number awarded after cost reports are 
audited, applications evaluated, and the redistribution process 
complete. Further, the commenter stated that this additional step 
should not result in loss of positions once they are awarded.
    One commenter asked how Medicare contractors are to estimate the 
number of slots available by May 1, 2011, because the cost reports at 
issue will not be audited in the timeframe in which the resident 
information is needed. The commenter stated that cost report 
settlements for disproportionate share hospitals (DSHs), many of which 
are also teaching hospitals, are delayed until CMS can supply revised 
Supplemental Security Income (SSI) ratios. The commenter stated that 
final settlements have not been issued for cost reporting periods 
beginning in FY 2006 and for subsequent cost reporting periods. The 
commenter asked whether CMS is proposing to use cost reports that have 
not been final settled to perform the FTE cap redistribution. The 
commenter also asked whether there would be ``* * * special, 
abbreviated audits or settlements made specific to the FTE resident 
counts for those years in order to ensure that the data used to 
redistribute the FTE caps is reviewed by the Medicare contractor and 
settled appropriately.'' The commenter suggested that, in establishing 
any additional workload requirements for Medicare contractors for 
purposes of section 5503 of the Affordable Care Act, CMS consider other 
Medicare contractor workload requirements, including settlement of DSH 
appeals under CMS Ruling 1498 and wage index reviews, which have to be 
completed in the same timeframe.
    One commenter noted that implementation of section 5505 of the 
Affordable Care Act may increase a hospital's reference resident levels 
for didactic time in the hospital's three most recent cost reporting 
periods submitted before March 23, 2010. The commenter asked whether 
hospitals' reference resident levels would be modified to account for 
any additional resident FTEs. The commenter asked whether if 
adjustments are to be made, they would be made for all affected 
hospitals or only for those hospitals that have a jurisdictionally 
valid appeal. The commenter stated that the section 5505 provisions 
will be available for all

[[Page 72153]]

providers when the FTE cap reductions are applied in subsequent cost 
reporting periods.
    One commenter believed that reference resident levels used for 
purposes of reducing hospitals' caps under section 5503 of the 
Affordable Care Act should be based on years that will include 
additional FTEs based on additional FTE time spent at nonprovider sites 
that is due to the changes made by section 5504 of the Affordable Care 
Act. The commenter stated that its hospital is below its cap because it 
has not been allowed to include weeks spent by residents at nonprovider 
sites. The commenter stated that if its hospital's cap is reduced, this 
action would eliminate any benefit it may receive by being able to 
count additional rotations at nonprovider sites. The commenter also 
referred to the recordkeeping requirement included in section 5504 of 
the Affordable Care Act. The commenter stated ``It does not seem 
logical to reduce caps while at the same time monitoring for increases 
in FTEs for time spent in nonprovider settings.'' The commenter stated 
that redistributing FTE cap slots should be delayed until adjustments 
have been made to hospitals' FTE counts for weeks spent at nonprovider 
settings.
    Several commenters supported CMS' proposal to provide hospitals 
with a time-limited opportunity to review cap reductions for any 
possible technical errors before the reductions are finalized.
    Response: In response to the commenter who recommended that CMS 
reconcile the number of FTE cap slots reduced with the number of FTE 
cap slots awarded, we note that we are not required to reconcile the 
cap reductions with the caps awarded under the provisions of section 
5503 of the Affordable Care Act. Specifically, section 1886(h)(8)(B)(i) 
of the Act, in part, states ``The aggregate number of increases in the 
otherwise applicable resident limit under this subparagraph shall be 
equal to the aggregate reduction in such limits attributable to 
subparagraph (A) (as estimated by the Secretary)'' (emphasis added). We 
believe the use of the phrase ``as estimated by the Secretary'' gives 
the Secretary the authority to estimate the FTE redistribution pool for 
purposes of finality. We and the Medicare contractors will endeavor to 
make cap reduction determinations based on the most accurate data 
available. However, because some of the audits to finally determine 
whether a hospital has excess slots will not be completed prior to July 
1, 2011, and because the statutory effective date of the increases to 
hospitals' caps is July 1, 2011, we are not changing our proposed 
policy and, therefore, we are not reconciling the number of FTE cap 
slots reduced with the number of FTE cap slots awarded. Doing so would 
preclude implementation of section 5503 of the Affordable Care Act by 
its effective date, July 1, 2011.
    In response to the commenter who requested clarification on how 
Medicare contractors can estimate the FTE redistribution pool as of May 
1, 2011, as we note in a subsequent comment, we are moving the internal 
deadline for Medicare contractors to estimate the number of slots 
available for redistribution from May 1, 2011 to May 16, 2011. As we 
did when implementing section 422 of the MMA, we will be issuing 
separate instructions to the Medicare contractors regarding the process 
for determining if and by how much a hospital's FTE resident cap should 
be reduced. We understand that many cost reports used for determining 
if and by how much a hospital's FTE resident cap might be reduced will 
not be final settled, or may not even be audited under normal cost 
report settlement procedures. We note that section 1886(h)(8)(H) of the 
Act directs the Secretary to use the highest resident level (as the 
reference resident level) for any of a hospital's three most recent 
cost reporting periods ending before the date of enactment, which is 
March 23, 2010, ``for which a cost report has been settled (or, if not, 
submitted (subject to audit)), as determined by the Secretary.'' Thus, 
the Secretary has the flexibility to use either settled cost reports, 
if available, or not as yet settled cost reports, and subject those 
cost reports, or parts of those cost reports, to audit, as appropriate. 
In response to the commenter's concern about additional Medicare 
contractor workload requirements, we understand the competing audit and 
payment priorities the Medicare contractors face in the upcoming 
months, and we will make every effort to be accommodating to those 
concerns.
    In relation to the issue of adding in FTE resident time for 
didactic time previously disallowed for purposes of IME in the hospital 
setting and for purposes of direct GME in the nonprovider setting as 
provided by section 5505, the hospital's cost report must either not 
have been settled or must have a jurisdictionally proper appeal pending 
by March 23, 2010, for IME to include didactic time in prior cost 
reporting periods for IME payment purposes. For purposes of direct GME 
in the nonprovider setting, the hospital's cost report must either not 
have been settled or must have a jurisdictionally proper appeal pending 
for direct GME to include didactic time in a prior cost reporting 
period starting on or after July 1, 2009 (but ending before March 23, 
2010) for direct GME payment purposes. If an audit of a hospital's cost 
report is performed by May 16, 2011, and as a result of that audit, a 
hospital's cost report includes the additional didactic time, that 
adjustment will be reflected in the estimate of the FTE redistribution 
pool. Because in this final rule we are finalizing our proposed policy 
to give Medicare contractors until December 31, 2011, to continue their 
audit work with respect to reductions under section 5503 of the 
Affordable Care Act, adjustments to hospitals' cost reports for 
didactic time as a result of audit work through December 31, 2011, for 
purposes of calculating any cap reductions, will be retroactive to July 
1, 2011. However, changes made between May 16, 2011 and December 31, 
2011 will not be included in the estimated pool. We note that including 
this didactic time prior to determining whether a hospital should 
receive a cap reduction is contingent on Medicare contractor workload. 
That is, we must use the most recent cost report data we have available 
in order to make the determination of whether a hospital's cap should 
be reduced in such a manner that section 5503 can be implemented by 
July 1, 2011.
    In response to the commenter who requested clarification on whether 
time FTE residents spent in nonprovider settings, which was disallowed, 
would be added into a hospital's FTE count, prior to determining 
whether the hospital should receive a cap reduction, we note that 
section 5504 of the Affordable Care Act is effective prospectively for 
cost reporting periods beginning on or after July 1, 2010. Because we 
are stating in this final rule that cost reports used to determine a 
hospital's reference resident level must be settled or submitted to the 
Medicare contractor by March 23, 2010, section 5504 will have no 
bearing on a hospital's reference cost reporting period because those 
amendments are only effective for cost reporting periods beginning on 
or after July 1, 2010.
7. Reference Cost Reports That Are Under Appeal
    We understand that there may be instances where a hospital's 
otherwise applicable resident limit or a hospital's FTE resident count 
for a reference cost reporting period might be under appeal. When 
implementing section 422 of Public Law 108-173, we stated in the August 
11, 2004 Federal Register (69 FR

[[Page 72154]]

49118) that we believe that it is in the best interest of the Medicare 
program, CMS, the contractors, and the hospitals to adopt an approach 
that allows for finality as early as possible during the process of 
implementing this provision. We stated that we believed Congress gave 
some consideration to the challenges we would encounter in implementing 
a provision as complex as section 422 in such a short timeframe by 
providing the Secretary with the discretion to distinguish between the 
FTE counts that are used to estimate the number of FTE resident slots 
that are available for redistribution (that is, the ``redistribution 
pool''), and the actual number of FTE residents by which hospitals' FTE 
resident caps are ultimately reduced.
    Furthermore, as we stated in the August 11, 2004 Federal Register 
(69 FR 49118), the fact that the Congress took the unusual step of 
including the language at section 1886(h)(7)(D) of the Act which 
provides that, ``There shall be no administrative or judicial review * 
* * with respect to determinations made under this paragraph,'' 
supports the position advocating for finality. If we had delayed 
determinations concerning hospital-specific FTE cap determinations 
until all affected cost reports are settled, audited, and appealed 
through the various channels normally available to providers, the 
language, and in particular the specified timeframe, under section 
1886(h)(7)(D) of the Act would have been rendered meaningless. 
Therefore, despite the complexity of section 422 and the potential for 
profound and long-term GME payment ramifications, we believed that the 
Congress did not expect the implementation of section 422 provision to 
linger indefinitely. Rather, by limiting appeal rights and requiring an 
effective date of July 1, 2005 for reductions in FTE resident caps 
(which required implementation in a relatively short timeframe), the 
Congress expected section 1886(h)(7) of the Act, as added by section 
422 of Public Law 108-173, to be implemented with expediency and 
finality.
    Similarly, in implementing section 5503 of the Affordable Care Act, 
we note that determinations under section 1886(h)(8)(A)(i) of the Act 
are required to be made by and effective July 1, 2011, and, for the 
same reasons cited when we implemented section 422, we believe these 
determinations should be final on, or as quickly as possible after, 
that date. We note that section 5503(a)(3) of the Affordable Care Act 
modified section 1886(h)(7)(E) of the Act by inserting ``or paragraph 
(8)'' to specify that there shall be no administrative or judicial 
review with respect to determinations made under section 5503 as well. 
Therefore, as was our final policy when implementing section 422, in 
the August 3, 2010 proposed rule (75 FR 46393), we proposed to not wait 
for all appeals of reference period cost reports to be resolved before 
making a final determination as to whether and by how much a hospital's 
FTE resident cap will be reduced. However, we indicated that we did 
perceive the need in certain instances to continue audit work for a 
limited time period past July 1, 2011, to promote the accuracy of FTE 
resident cap reduction determinations. As under section 422, we 
proposed to adopt a policy that would require the Medicare contractors 
to use the latest available cost report or audit data at the time they 
make their hospital-specific determinations. We proposed that if, as of 
the time the Medicare contractor makes the determination as to whether 
and by how much a hospital's FTE resident cap should be reduced, there 
is a pending appeal of the hospital's otherwise applicable resident 
limit for the reference cost reporting period (that is, a final 
decision has not been rendered), the Medicare contractor would not wait 
until a decision is rendered, but would use the FTE resident cap from 
the initially settled (as indicated in the Notice of Program 
Reimbursement (NPR)) reference period cost report. However, we proposed 
that if the appeal regarding the otherwise applicable resident limit 
has been resolved as of the time that the Medicare contractor makes the 
determination as to whether and by how much a hospital's FTE resident 
cap should be reduced, the Medicare contractor would use the FTE 
resident level as established through the appeal. We proposed that if a 
reference period cost report has been submitted but not settled at the 
time the Medicare contractor is making the determination as to whether 
and by how much a hospital's FTE resident cap should be reduced, the 
reference resident level is subject to audit by the Medicare 
contractor. The final determination regarding any possible reduction to 
the hospital's FTE resident cap is not subject to appeal. We indicated 
that although we would make every effort to provide contractors with 
the resources they need to complete the audits in time to notify each 
hospital by July 1, 2011, of their FTE cap determinations under section 
1886(h)(8)(A) of the Act, there may be instances where the audits of 
the reference resident levels may not be completed by July 1, 2011. We 
stated that we anticipate that, within the scope of their normal audit 
work, the Medicare contractors will complete as many of these audits as 
possible, and some of the audits may not be completed until December 
31, 2011. In the August 3, 2010 proposed rule (75 FR 46394), we 
proposed that, in accordance with section 1886(h)(8)(A) of the Act, all 
cap determinations made after July 1, 2011 and through December 31, 
2011, would be effective retroactively to July 1, 2011.
    Comment: One commenter disagreed with the proposal to not correct a 
hospital's FTE count due to the resolution of a hospital's appeal, 
unless the appeal is resolved prior to July 1, 2011. The commenter 
stated that ``* * * Congress' determination to preclude judicial and 
administrative review does not give license to CMS to lock in erroneous 
FTE counts.'' The commenter stated that this same policy negatively 
impacted its hospitals under section 422 and will likely have a 
significant future impact. The commenter indicated that, under section 
422, its ``reference period'' for calculating the section 422 cap was 
FY 1997. The commenter indicated that it had appealed its FY 1997 IME 
count as inappropriately excluding certain residents training in its 
psychiatric residency program. The commenter stated that, in June 2006, 
it entered into an administrative resolution with its Medicare 
contractor to include these psychiatric FTEs in its IME count. However, 
the commenter added, the cap was not adjusted and the IME cap remains 
permanently understated. The commenter stated that, as a result of the 
IME cap being understated, the hospital must either operate its 
residency program at the inappropriately reduced cap, or operate its 
residency program above its cap without appropriate IME reimbursement. 
The commenter stated that it may continue to appeal its FTE resident 
counts for more recent fiscal years and those years may include the 
year that is the new reference cost reporting period for purposes of 
section 5503 of the Affordable Care Act. The commenter stated that not 
correcting FTE resident caps for purposes of section 5503 would have 
the same result as under section 422. The commenter believed an 
erroneous cap could compound problems because the FTE resident caps 
could be even further reduced leading to losses in IME payments and 
could restrict a hospital's ability to operate its program at or near 
the appropriate cap levels. The commenter suggested a preferred 
approach that CMS provide for finality as late in the process as 
possible and that, at a minimum, CMS instruct its

[[Page 72155]]

Medicare contractors to resolve relevant cost report appeals and/or 
reopening requests as quickly as possible before the 2011 deadline.
    Another commenter stated that CMS in the proposed rule did not 
define ``audit.'' The commenter believed that the estimate of unused 
FTE cap slots should be derived from cost reports that are filed, 
amended filed, or settled. The commenter stated ``[i]t is unclear why 
CMS chose May 1, 2011, when all of the cost reports that will be used 
to estimate the unused FTE caps have already been submitted or 
settled.'' The commenter suggested that the ``measurement date'' be 
changed to December 31, 2010, which is prior to the ``match'' date so 
that hospitals will be able to adjust the number of residents it is 
training for the July 1, 2011-June 30, 2012 academic year and so that 
Medicare contractors will have sufficient time to resolve any 
differences in the calculation of unused caps. The commenter stated 
that, although finality is important, the proposal to retroactively 
adjust a hospital's FTE cap as a result of audit work completed by 
December 31, 2011, is not consistent with CMS' desire for finality. The 
commenter recommended that the data used to estimate the FTE cap pools 
be final with no additional adjustments. The commenter stated ``[t]his 
will ensure that the aggregate 1996 FTE cap pool is not affected by 
implementation of section 5503.''
    Another commenter stated that, in prior final rules, CMS has 
permitted determinations to be subject to audits, reopenings, and 
appeals within the appropriate guidelines. The commenter recommended 
that this final rule be treated in the same manner.
    Response: We believe that we need to consider the need for accuracy 
and for finality in determining any reductions to a hospital's cap 
under section 5503 of the Affordable Care Act. Therefore, as we stated 
in the proposed rule, we will make every effort to provide Medicare 
contractors with the resources they need to complete as many audits as 
possible in time to notify each hospital by July 1, 2011, of their FTE 
cap determinations. However, in the instances where audits of the 
reference resident levels may not be completed by July 1, 2011, as we 
stated in the proposed rule, we anticipate that within the scope of 
their normal audit work, the Medicare contractors will complete as many 
of these audits as possible, and some of the audits may not be 
completed until December 31, 2011. We believe it would be disruptive to 
the Medicare contractors and to the implementation of section 5503 of 
the Affordable Care Act if we extended the deadline to continue audit 
work past December 31, 2011.
    In regards to the commenter who suggested that we move the 
``measurement'' date from May 1, 2011 to December 31, 2010, as noted 
elsewhere in this preamble, in this final rule, we are changing the 
date by which Medicare contractors need to estimate a pool of reduced 
cap slots for purposes of redistributing the slots under section 5503 
from May 1, 2011, to May 16, 2011. We are not able to change this date 
to December 31, 2010, because this final rule is not effective until 
January 1, 2011. Furthermore, only giving Medicare contractors until 
December 31, 2010, will not give them sufficient time to review 
submitted cost reports.
    In response to the commenter who stated that CMS did not define 
``audit'' work, as noted above, we stated in the proposed rule that 
determinations related to hospitals' cap reductions under section 
1886(h)(8)(A) of the Act would be completed in the course of the CMS' 
contractors normal audit work (that is, the normal process the Medicare 
contractors utilize to review hospital cost reports for accuracy.)
    In response to the commenter who believed that determinations made 
under section 5503 of the Affordable Care Act should be subject to 
audits, reopening, and appeals within the appropriate guidelines, the 
statutory language for implementing section 5503 specifically precludes 
us from permitting administrative and judicial review of the 
determinations made under this provision.
    After consideration of the comments we received on this section, we 
are finalizing our policies as proposed. That is, we are finalizing our 
proposed policy to not wait for appeals of reference period cost 
reports to be resolved before making a final determination as to 
whether and by how much a hospital's FTE resident cap will be reduced. 
In addition, we are finalizing our proposed policy that all cap 
determinations made after July 1, 2011, and through December 31, 2011, 
would be effective retroactively to July 1, 2011.
8. Determining the Reduction to a Hospital's FTE Resident Cap
a. Reference Resident Level--General
    In order to determine if a hospital's reference resident level is 
less than the hospital's otherwise applicable FTE resident cap, section 
1886(h)(8)(H) of the Act, as added by section 5503 of the Affordable 
Care Act, directs the Secretary to use one of three reference cost 
reporting periods. Section 1886(h)(8)(H) of the Act directs the 
Secretary to use any of a hospital's three most recent cost reporting 
periods ending before the date of enactment, which is March 23, 2010, 
with the highest resident level ``for which a cost report has been 
settled (or, if not, submitted (subject to audit)), as determined by 
the Secretary,'' as the reference period. Generally, if the hospital's 
resident level for either direct GME or IME is less than the hospital's 
otherwise applicable resident limit for direct GME or IME, 
respectively, in the reference period, the hospital's FTE resident cap 
for direct GME and/or IME will be reduced by 65 percent of the 
difference between the resident level and the otherwise applicable 
resident limit. We note that, for purposes of determining a reduction 
to a hospital's direct GME cap, the unweighted direct GME cap will be 
compared to the unweighted direct GME FTE resident count. The following 
explanation is an example of how a hospital's cap(s) would be reduced 
under section 1886(h)(8)(A) of the Act. For purposes of this example, 
Hospital A's three most recent cost reporting periods ending before 
March 23, 2010, for which a cost report has been submitted to the 
Medicare contractor by March 23, 2010, are as follows: July 1, 2006-
June 30, 2007; July 1, 2007-June 30, 2008; and July 1, 2008-June 30, 
2009. Hospital A's FTE resident count and FTE resident caps (as 
adjusted for those items discussed in section XXI.D.3. of this 
preamble) are as noted in the table.

----------------------------------------------------------------------------------------------------------------
                                                                                  Direct GME
                     Cost reporting period                      IME unweighted  unweighted FTE  IME FTE   Direct
                                                                   FTE count         count        cap    GME cap
----------------------------------------------------------------------------------------------------------------
July 1, 2006--June 30, 2007...................................              17              20       18       20
July 1, 2007--June 30, 2008...................................              16              21       20       20
July 1, 2008--June 30, 2009...................................              14              20       20       20
----------------------------------------------------------------------------------------------------------------


[[Page 72156]]

    As noted earlier in this preamble, a separate determination 
regarding whether and by how much to reduce a hospital's cap will be 
made for its direct GME cap and for its IME cap. In order to determine 
whether Hospital A would be subject to a cap reduction, we must first 
determine whether Hospital A was training at or above its cap in all 
three most recent cost reporting periods ending before March 23, 2010, 
for which a cost report has been settled or has been submitted to the 
Medicare contractor by March 23, 2010. For purposes of a reduction to 
Hospital A's IME cap, we note from the chart above that in all three 
cost reporting periods, Hospital A is training below its otherwise 
applicable resident limit for IME. Therefore, we know that Hospital A 
would be subject to an IME cap reduction. In order to determine which 
cost reporting period should be used as the reference period to 
determine the FTE cap reduction for IME, we would use the cost 
reporting period with the highest FTE resident count for IME, which 
would be July 1, 2006-June 30, 2007. Therefore, we calculate the 
difference between the otherwise applicable resident limit for IME for 
the reference period (July 1, 2006-June 30, 2007) and the reference 
resident level for IME, and determine the IME cap reduction based on 65 
percent of the difference. For purposes of Hospital A's IME cap 
reduction, we would determine the difference between 18 (the otherwise 
applicable resident limit) and 17 (the reference resident level) and 
multiply that difference by 65 percent [(18-17) x .65] = 0.65. 
Therefore, the IME FTE cap for Hospital A would be reduced by 0.65 of 
an FTE. For purposes of a reduction to Hospital A's direct GME cap, we 
note from the chart above that Hospital A was training at or above its 
otherwise applicable resident limits for direct GME in all three cost 
reporting periods. Because a hospital that is training at or above its 
cap in all three cost reporting periods is exempt from a cap reduction, 
we would conclude that Hospital A's direct GME cap would not be reduced 
for direct GME payment purposes. We note that, in the August 3, 2010 
proposed rule (75 FR 46394), we proposed that if a hospital has the 
same resident level for two or more cost reporting periods and that 
resident level is the ``highest'' resident level, we would use the cost 
reporting period of those ``highest'' cost reporting periods in which 
there is the least amount of difference between the resident level and 
the otherwise applicable resident limit to determine a cap reduction.
    Comment: Many commenters disagreed with CMS' proposal that if a 
hospital's reference resident level is below its otherwise applicable 
resident limit during the hospital's reference cost reporting period, 
the hospital would receive a cap reduction even though that hospital 
might be training at or above its cap in one or both of the other two 
cost reporting periods. The commenters stated that a hospital should 
only receive a cap reduction if it is training below its FTE resident 
cap in all three of its three most recent cost reporting periods ending 
before March 23, 2010. One commenter disagreed with the suggestion by 
another commenter to exempt from a cap reduction any hospital that is 
training over its cap in any one cost reporting period out of the three 
most cost recent cost reporting periods ending before March 23, 2010. 
The commenter recommended that CMS finalize its proposal to only exempt 
hospitals that are training over their cap in all three cost reporting 
years.
    Commenters stated it is possible that a hospital that is training 
at or above its FTE resident caps in 1 or 2 years of the hospital's 
three most recent cost reporting periods ending before March 23, 2010, 
which the commenters referred to as the 3-year look-back period, may 
lose cap slots because if the hospital is participating in a Medicare 
GME affiliated group, its cap may change from year to year and the year 
with the highest FTE resident count may not be the year with the least 
amount of difference between the FTE resident cap and the FTE resident 
count. The commenters believed that Congress' intent was only to 
redistribute ``unused'' cap slots and therefore, if a hospital was 
training at its cap or exceeded its cap in any cost reporting period 
included in the 3-year look-back period, it is clearly using its cap 
slots and should not receive a cap reduction. The commenters noted that 
they understood that CMS may have been obligated to interpret the term 
``reference resident level'' as referring to the cost reporting period 
with the highest FTE resident count because of the statute's use of the 
phrase ``the highest resident level.'' However, the commenters believed 
that Congress' instruction was that the ``reference resident level'' is 
to be ``determined by the Secretary'' and, therefore, CMS has the 
authority to finalize a policy that exempts a hospital that is training 
at or above its cap at some point during the 3-year look-back period, 
from a cap reduction. The commenters requested that CMS amend the 
regulations at proposed Sec.  413.79(m)(4) to exempt, from a cap 
reduction, a hospital that is training at or above its otherwise 
applicable resident limit ``for any of the three most recent cost 
reporting periods ending prior to March 23, 2010.'' The commenters 
stated that this suggested regulatory change would prevent ``perverse 
consequences'' for hospitals that participate in Medicare GME 
affiliated groups, which cause their adjusted FTE resident caps to 
change from year to year. The commenters gave the example of a hospital 
that could be training under its cap in 2007, but is training over its 
cap in 2008 and 2009; however, 2007 is the year with the highest 
resident count and, therefore, even though the hospital is training 
above its cap in 2008 and 2009, it would receive a cap reduction based 
on 65 percent of the unused cap slots based on data from the 2007 cost 
report.
    One commenter stated the definition of ``reference resident level'' 
in the Affordable Care Act indicates that the ``reference resident 
level'' is comprised of only one year, the one cost reporting period 
out of the three most recent cost reporting periods with the highest 
resident level. The commenter believed that because a hospital's cap 
will not be reduced if its ``otherwise applicable resident limit'' 
exceeds its reference resident level,'' as long as the FTE resident 
count in any one of the three cost reporting periods exceeds the 
``otherwise applicable resident limit,'' it does not matter if the 
hospital is training below its cap in the two remaining cost reporting 
periods; the hospital will not receive a cap reduction. The commenter 
stated that this logic is not included in the preamble discussion, but, 
rather, when referring to a cost reporting period in which a hospital 
is training over its cap, the word ``any'' is replaced by the word 
``all.'' The commenter stated ``[w]hile the actual proposed definition 
included in the new regulation 42 CFR 413.79(c)(1)(ii)(A) includes the 
correct wording of `any', the subsequent discussion regarding the 
implementation of this regulation is not consistent with the plain 
reading of the definition. The inclusion of the word `all' in the 
discussion suggests that the `reference resident level' does not refer 
to a single year but to all of the three most recent years. This 
implies that if one of the resident levels falls below the `otherwise 
applicable resident limit,' then a hospital will have its cap reduced, 
even if the remaining two years of its three year reference period are 
above the `otherwise applicable reference level.''' The commenter 
stated that, historically, the Provider

[[Page 72157]]

Reimbursement Manual has been used by Medicare to provide guidance to 
auditors. However, recently, the commenter added, it appears that 
preamble discussion has been substituted as guidance for auditors. The 
commenter stated that including the word ``all'' in the preamble 
discussion is confusing and may put auditors in a position where they 
cannot correctly implement regulation and the law. The commenter stated 
that if a hospital's reference resident level is greater than its 
otherwise applicable resident limit, but its FTE count is less than its 
otherwise applicable resident limit in one or both of the two remaining 
cost reporting periods, the auditors may perceive that based on the 
preamble discussion that FTE resident counts in all three of the cost 
reporting periods must be above the otherwise applicable resident limit 
in order for the hospital to be exempt from a cap reduction and 
inappropriately reduce the hospital's FTE resident count. The commenter 
noted that because hospitals do not have appeal mechanisms available to 
them related to the cap reductions and because there is contradictory 
guidance included in the preamble of the proposed rule, hospitals may 
have their caps inappropriately reduced. The commenter suggested that 
this issue be clarified in the final rule so that audits that implement 
the cap reductions can be performed correctly and consistently.
    Another commenter stated ``CMS proposes that if a hospital trains 
at or above its otherwise applicable resident level in all of its three 
most recent cost reporting periods ending before March 23, 2010, the 
hospital would be exempt from a cap reduction.'' The commenter stated 
that this provision is unclear and asked whether CMS is referring to 
hospitals that are training FTE residents at levels above their FTE 
caps.
    Response: We stated in the proposed rule that section 
1886(h)(8)(H)(i) of the Act directs the Secretary to use as the 
reference cost report, the one cost report out of the hospital's three 
most recent cost reporting periods ending before March 23, 2010, with 
the highest unweighted resident count ``for which a cost report has 
been settled (or, if not, submitted (subject to audit), as determined 
by the Secretary.'' Generally, if the hospital's reference resident 
level for either direct GME or IME is less than the hospital's 
otherwise applicable resident limit for direct GME or IME, 
respectively, in the reference period, the hospital's FTE resident cap 
for direct GME or IME will be reduced by 65 percent of the difference 
between the reference resident level and the otherwise applicable 
resident limit. We understand the commenters' concerns that if a 
hospital is participating in a Medicare GME affiliated group, even 
though that hospital may be training below its cap, the Medicare GME 
affiliated group as whole is training above its aggregated cap and, 
therefore, the individual hospital should not have its cap reduced for 
training residents below its otherwise applicable limit. However, as 
discussed further below, section 1886(h)(8)(A) of the Act does not 
provide for treatment of GME affiliated groups as whole. In contrast, 
section 422 of the MMA included specific language at section 
1886(h)(7)(A)(iii) of the Act that specifically directed the Secretary 
to apply the provisions for determining programs subject to reductions 
under section 422 to hospitals that are members of the same affiliated 
group. Section 5503 does not include similar language. In addition, we 
note that the definition of ``reference resident level'' at section 
1886(h)(8)(H)(i) of the Act states ``* * * with respect to a hospital, 
the highest resident level for any of the three most recent cost 
reporting periods (ending before the date of enactment of this 
paragraph) of the hospital for which a cost report has been settled 
(or, if not, submitted (subject to audit)), as determined by the 
Secretary'' (emphasis added). Therefore, if a hospital has a reference 
resident level below its otherwise applicable resident limit during its 
reference cost reporting period, then that hospital will receive a cap 
reduction, even if the affiliated group as a group is not training at a 
level below its aggregate otherwise applicable resident limit. In 
addition, the statute requires the Secretary to take ``the highest 
resident level'' (emphasis added) from the applicable reference period, 
and compare that level to the hospital's otherwise applicable resident 
limit. The statute does not include language that expressly states that 
if a hospital is training below its otherwise applicable resident limit 
during its reference cost reporting period, the Secretary shall look to 
the two other cost reporting periods to determine whether the hospital 
is training at or above its cap in either of those two other cost 
reporting periods. We believe that if Congress had intended a hospital 
to be exempt from a cap reduction if it is training at or above its cap 
in any of its three most recent cost reporting periods, it would have 
included specific statutory language instructing the Secretary that 
once the determination is made as to which cost reporting period is the 
cost reporting period with the highest FTE resident count, a 
determination must also be made as to whether the hospital is training 
at or above its cap in any of its three most recent cost reporting 
periods.
    We believe there may be confusion as to the use of the terms 
``otherwise applicable resident limit'' and ``reference resident 
level.'' We are clarifying that ``otherwise applicable resident limit'' 
generally refers to a hospital's 1996 FTE cap adjusted for the 
scenarios described earlier in this preamble (including a hospital's 
participation in Medicare GME affiliated group) and for any cap 
reductions made under section 422 of Public Law 108-173 in a specific 
cost reporting period. The reference resident level refers to a 
hospital's highest resident level (the highest FTE resident count) for 
any of the three most recent cost reporting periods ending before March 
23, 2010, for which a cost report has been settled, or if not, 
submitted (subject to audit), as determined by the Secretary. We 
disagree with the commenter who stated that the proposed definition of 
``reference resident level'' for purposes of section 5503 of the 
Affordable Care Act includes the correct word ``any,'' and therefore 
the preamble discussion is not consistent with the definition. The 
commenter is referring to the proposed definition of reference resident 
level at Sec.  413.79(c)(1)(ii)(B), which stated ``[f]or purpose of 
paragraph (m) of this section, reference resident level means with 
respect to a hospital, the highest resident level for any of the three 
most recent cost reporting periods ending before March 23, 2010, for 
which a cost report has been either settled or submitted (subject to 
audit).'' We do not believe this definition is inconsistent with our 
preamble discussion regarding cap reductions under section 
1886(h)(8)(A) of the Act. The proposed definition at Sec.  
413.79(c)(1)(ii)(B) includes the same use of the word ``any,'' as the 
definition of reference resident level at section 1886(h)(8)(H)(i) of 
the Act, which states `` * * * with respect to a hospital, the highest 
resident level for any of the 3 most recent cost reporting period * * 
*'' The use of the word ``any'' is referring to the instruction that 
the Secretary is to use the one cost reporting period with the highest 
resident level (highest FTE resident count) from any of the hospital's 
three most recent cost reporting periods ending before March 23, 2010 
which have been settled or if not, submitted, subject to audit. The use 
of the word ``any'' in the proposed definition at Sec.  
413.79(c)(1)(ii)(B) does not infer that if a hospital is training FTE 
residents at or above its FTE resident cap in any of the

[[Page 72158]]

three most recent cost reporting periods, that it would be exempt from 
a cap reduction. Rather, we specifically included in the proposed 
regulation text at Sec.  413.79(m)(4) the following: ``[a] hospital 
training at or above its otherwise applicable FTE resident cap as 
determined under paragraph (c)(2) of this section for all three most 
recent cost reporting periods ending prior to March 23, 2010 (as 
described under section (iv) of this paragraph), is exempt from any 
reduction to its otherwise applicable FTE resident cap under paragraph 
(m) of this section.'' Therefore, if a hospital is training at or above 
its caps in each (that is, all) of its three most recent cost reporting 
periods used to determine the hospital's reference resident level, it 
would be exempt from a cap reduction.
    In response to the commenter's concern that previously the Provider 
Reimbursement Manual provided guidance for auditors and that, in recent 
years, Medicare has substituted instructions in the Provider 
Reimbursement Manual with preamble language, we intend to issue 
additional instructions to Medicare contractors that will provide 
further instructions regarding the implementation of section 1886(h)(8) 
of the Act. Additionally, we encourage Medicare contractors to contact 
us if they have questions regarding the situation of a specific 
hospital.
    Comment: One commenter stated that, as is probably true for other 
academic medical centers, it has experienced a number of changes over 
time concerning the GME programs it sponsors. For the commenter, these 
changes have resulted in a reduction in the number of FTE residents it 
is training from its 1996 base year. The commenter stated that its 
affiliations with other institutions also have changed; specifically, 
it had previously affiliated with an institution in Maryland but is 
currently in its third year of participating in a Medicare GME 
affiliation agreement with an institution in Virginia. The commenter 
stated that, because of this history, it is concerned with the way that 
CMS is proposing to implement section 5503 of the Affordable Care Act 
and that the proposed calculation of the otherwise applicable resident 
limit may result in an unnecessary reduction to its FTE cap. The 
commenter believed that the three cost reporting periods used to 
determine its reference cost reporting periods would be FYEs June 30, 
2007, June 30, 2008, and June 30, 2009; however, its Medicare GME 
affiliation agreement has only been in place for the July 1, 2008-June 
30, 2009 cost reporting period. The commenter believed that this period 
is its period with the highest FTE resident count. However, the 
commenter indicated that it realizes that, through the unpredictable 
audit process, the June 30, 2007 FYE or June 30, 2008 FYE could become 
the reference cost reporting period. Therefore, the commenter believed 
it is possible that the hospital's reference cost reporting period 
could be a cost reporting period in which it was participating in a 
Medicare GME affiliated group under which the cap reduction would be 
higher than if it was based on a cost reporting period where there was 
the smallest difference between the cap and the count. The commenter 
stated ``[a]lthough CMS has proposed that there be a `matching' of the 
year used to determine both the reference resident level and the 
otherwise applicable resident limit, governing legal authority does not 
compel such a policy.'' The commenter stated that, in the proposed 
rule, CMS inferred that the data used to determine the reference 
resident level and the otherwise applicable resident limit are to come 
from the same cost reporting period. The commenter believed that if a 
hospital entered into a Medicare GME affiliation agreement in the cost 
reporting period with the highest FTE resident count, the hospital's 
adjusted cap would be used to determine a cap reduction but if the 
hospital did not participate in a Medicare GME affiliated group during 
that year, its unadjusted cap would be used to determine the cap 
reduction. The commenter stated that if the hospital is not 
participating in a Medicare GME affiliated group, its unadjusted cap 
would be used even if the hospital participated in a Medicare GME 
affiliated group in one of the other two cost reporting periods, which 
resulted in a smaller difference between the cap and the count. The 
commenter stated CMS did not include the rationale for such a policy in 
the proposed rule. The commenter presented several options for CMS to 
consider regarding how to calculate cap reductions under section 5503.
    The commenter stated that one alternative would be to determine 
whether a hospital should receive a cap reduction using the year in 
which there is the least amount of difference between the cap and the 
count. The commenter stated that although the statute defines the 
``reference resident level'' as ``the highest resident level for any of 
the 3 most recent cost reporting periods,'' ``the literal wording of 
the statute is at odds with its manifest intent.'' The commenter stated 
that Congress' goal in using the highest FTE resident count included in 
the three most recent cost reporting periods ending before March 23, 
2010, is to make sure hospitals receive the minimum cap reduction 
reasonable based on recent data. The commenter asserted that because 
the literal reading of the statute is at odds with its ``manifest 
intent,'' CMS is permitted and expected to interpret the statute in a 
manner that more closely reflects its purpose. The commenter referenced 
the court case in American Water Works Association v. Environmental 
Protection Agency (40 F.3d 1266, 1271 (D.C. Cir. 1994). The commenter 
described this case as ``deferring to the agency, which prioritized a 
statute's overarching intent over its literal wording, where that 
wording would have led to `absurd results.'''
    The commenter offered a second option under which CMS could 
finalize a policy in which the otherwise applicable resident limit 
would be determined to be the lowest FTE cap from any of the three most 
recent cost reporting periods ending prior to March 23, 2010. The 
commenter stated that Congress was silent on which year should be used 
to determine the otherwise applicable resident limit; therefore, CMS 
has the discretion to decide which year to use for this limit. The 
commenter stated ``CMS can, however, glean congressional intent from 
the definition of reference resident level, which relies on a 3-year 
look-back to properly protect hospitals from excessive FTE cap 
reductions. Using the lowest FTE cap of the prior three years would 
therefore appropriately mirror the reference resident level 
provisions.''
    The commenter gave a third option under which CMS could use the FTE 
cap that a hospital had on the date of enactment to determine whether a 
hospital should receive a cap reduction. In describing this option, the 
commenter referred to the court case in Johnson v. United States (529 
U.S. 694, 702 (2000)). In reference to this case, the commenter stated 
``finding that the effective date for a statute, where Congress gives 
no clear direction, is the date of enactment.'' The commenter stated 
that, under this option, if a hospital was participating in a Medicare 
GME affiliation agreement on March 23, 2010, CMS could use the cap as 
adjusted per that affiliation agreement for purposes of determining 
whether a hospital should receive a cap reduction. The commenter 
indicated that, under this proposal, any amendments made to the 
Medicare GME affiliation agreement prior to July 1, 2010, could also be 
taken into account (because hospitals are able to amend their Medicare 
GME affiliation agreements through June 30 of the

[[Page 72159]]

academic year for which they are effective).
    The final option suggested by the commenter was to consider a 
hospital's participation in a Medicare GME affiliated group if it was 
participating in a Medicare GME affiliation agreement either in the 
year the hospital had its highest FTE resident count or the date of 
enactment (March 23, 2010). The commenter suggested that if a hospital 
participated in a Medicare GME affiliated group in both years, CMS 
could use the lower of either of the two caps for determining whether 
the hospital should receive a cap reduction.
    Response: We do not agree with the commenter's statement that 
although CMS proposed that the reference resident level and otherwise 
applicable resident limit come from the same cost reporting period, 
that legal authority does not require such a policy. We do not 
understand how comparing the FTE resident cap and FTE resident count 
from two separate cost reporting periods would provide for a valid 
comparison because both a hospital's FTE resident cap and its FTE 
resident count, for numerous reasons, could change from year to year 
and would not necessarily be a measure of excess capacity. Therefore, 
in this final rule, we are clarifying that the reference resident level 
and otherwise applicable resident level used to determine whether a 
hospital has any unused cap, must come from the same cost reporting 
period. As discussed later in this preamble, the cost reporting period 
that is used to determine whether a hospital will receive a cap 
reduction under section 5503 of the Affordable Care Act, must be based 
on a cost report that is settled or has been submitted to the Medicare 
contractor by March 23, 2010. In addition, the statute requires that 
the Secretary take ``the highest resident level'' from the applicable 
reference period, and compare that level to the hospital's otherwise 
applicable resident limit. The statute does not include language that 
would allow the Secretary to determine that the reference cost 
reporting period for hospitals is the cost reporting period where there 
is the least amount of difference between the FTE resident count and 
the cap.
    Comment: One commenter stated that Congress' intent in specifying 
the use of the three most recent cost reporting periods was ``to make 
it clear that it wanted CMS to consider the three most recent completed 
cost report years for which data would be available for each hospital 
prior to the enactment of the ACA.'' The commenter stated that this 
approach would ensure that CMS was working with the most up-to-date 
data so that inappropriate cap redistributions would not be made based 
on data from older cost reporting periods. The commenter stated there 
was some vagueness in the proposed rule regarding the application of 
cap reductions to hospitals that have a cost reporting period that 
corresponds to the calendar year. Specifically, the commenter indicated 
that there is a concern for the January 1, 2009 through December 31, 
2009 cost reporting period because these providers would not be 
required to submit their cost report to their Medicare contractor until 
May 31, 2010.
    Commenters requested that CMS confirm that its contractors will be 
directed to include the cost reporting period ending December 31, 2009 
in their review of the three most recent cost reporting periods. One 
commenter specifically requested that a hospital with a fiscal year of 
January 1-December 31 be able to use its December 31, 2009 FYE cost 
reporting period as one of the hospital's three most recent cost 
reporting periods as long as the hospital has submitted its December 
31, 2009 FYE cost report by the time the audit of the hospital's FTE 
count has taken place. Another commenter stated that the 3-year look-
back period used to determine cap reductions may disadvantage those 
hospitals that attempted to fill unused FTE resident slots after the 
Affordable Care Act was enacted. The commenter stated that, while 
generally the 3-year look-back period would be acceptable, because of 
the timing of the enactment of the Affordable Care Act in late March, 
the end of resident recruitment in June 2010, and the date of issuance 
of the proposed rule, some hospitals, in an effort to preserve their 
FTE resident slots, may have interviewed and hired additional residents 
for their current academic year. The commenter requested that CMS 
include as part of the 3-year look-back period, the count of residents 
included in the current academic year, that is July 1, 2010-June 30, 
2011, so that hospitals that acted as quickly as possible to fill their 
FTE slots, especially slots associated with primary care programs, are 
not penalized for their actions.
    One commenter indicated that recent developments have caused a 
change in the number of residents training at its hospital; 
specifically, a realignment of affiliations has caused a decrease in 
the number of residents the medical school rotates to the hospital. 
However, in its efforts to meet the community's needs and provide high 
quality medical care, the commenter indicated that the hospital has 
established several new programs, is starting one new residency program 
this year, and is in the process of receiving accreditation for nine 
new programs, which will start in the next 5 years. The commenter 
stated that, as a member of one Medicare GME affiliated group, it 
reduced its caps for the benefit of the other participant in the 
affiliated group. In another instance, where the hospital accepted 
displaced residents as part of an emergency Medicare GME affiliation 
agreement, the commenter indicated that, in order to provide a seamless 
transition to a new training site, the hospital did not have an 
opportunity to verify in advance if it needed any additional residency 
positions under its FTE cap. The commenter believed that, within a 
year, its count will at least equal its 1996 caps, and given that its 
FTE count reduction was only temporary, any permanent reduction to its 
FTE caps would result in financial hardship which could cause the 
hospital to have to reduce its caps and would be detrimental to the 
community. The commenter asserted that in the statutory definition of 
reference resident level, the phrase ``(ending before the date of 
enactment of this paragraph)'' modifies the phrase ``3 most recent cost 
reporting periods.'' The commenter stated the FYE December 31, 2009 
cost reporting period would be included in this definition of reference 
resident level because the January 1, 2009 through December 31, 2009 
cost reporting period ended prior to March 23, 2010. The commenter 
believed that even though the statutory language refers to cost reports 
being settled or at least submitted, these requirements do not need to 
occur prior to March 23, 2010. The commenter believed that, considering 
the literal wording of the statute, the only requirement that must have 
been met prior to March 23, 2010 is that the cost report must have 
ended, submission of and settling of the cost report must only occur 
prior to CMS' determination of reductions. The commenter stated that 
the interpretation of the language included in section 5503 outlined in 
its comment letter is similar to the interpretation made by CMS of the 
language included in section 422 of the MMA. The commenter included the 
following language which refers to the definition of ``reference 
resident level'' under section 422 of the MMA:

    ``[T]he reference resident level specified in this clause for a 
hospital is the resident level for the most recent cost reporting 
period of the hospital ending on or before September 30, 2002, for 
which a cost report has been settled (or, if not, submitted (subject 
to audit)), as determined by the Secretary.''


[[Page 72160]]


    The commenter pointed out that CMS, in its proposed rulemaking, 
stated it would calculate the reduction in the number of FTE resident 
slots using the cost reporting period ending on or before September 30, 
2002, using either a settled cost report or an as-submitted cost 
report, which would be subject to audit, and that CMS set a cut-off 
date of December 2005 as the date by which the cost report submission 
and audit would be completed. The commenter stated that, under section 
422, there was no express cut-off date by which the reference cost 
report was required to be submitted, and there was certainly not a cut-
off date of before September 30, 2002. The commenter stated that, for 
purposes of section 422, CMS' primary concern was timely audit of the 
cost report for the reference cost reporting period. The commenter 
asserted that a similar approach could be applied to using the cost 
reporting period January 1, 2009-December 31, 2009 to determine 
reductions under section 5503. The commenter stated that because CMS 
stated in the proposed rule that it expects decisions to be made about 
cap reductions by December 2011, Medicare contractors will have 19 
months to review, audit, and finalize audit adjustments to cost reports 
for the January 1, 2009 through December 31, 2009 cost reporting 
period. The commenter believed that there is nothing preventing CMS 
from maintaining consistency with implementation of section 422 of the 
MMA by including the January 1, 2009-December 31, 2009 cost reporting 
period as a cost reporting period that can be used to determine a 
hospital's reference resident level.
    Response: We do not agree that the cost reporting period of January 
1, 2009-December 31, 2009 should be included in the group of the three 
cost reporting periods used to determine whether a hospital will 
receive a cap reduction under section 1886(h)(8)(A) of the Act. We 
believe that the cost reports used to determine whether a hospital will 
receive a cap reduction must, at the very least, have been submitted to 
the Medicare contractor as of March 23, 2010. Furthermore, we do not 
believe it would be appropriate to include in the determination of 
which cost reports are used to establish a hospital's reference 
resident level, those cost reporting periods that occurred at the time 
the Affordable Care Act was in development. Rather the cost reporting 
period used to determine the reference resident level should be a cost 
reporting period that reflects a number of FTE residents that a 
hospital is accustomed to training, not a number of FTE residents that 
is based on a hospital's rushed attempt to avoid a cap reduction. 
Therefore, we also disagree with the commenter who requested that CMS 
include, as part of the 3-year look-back period, the count of residents 
included in the July 1, 2010-June 30, 2011 academic year. Additionally, 
this cost reporting period does not end prior to March 23, 2010.
    In response to the commenter who suggested that CMS follow a 
similar process for determining a hospital's reference resident level 
for purposes of section 5503 of the Affordable Care Act as it did for 
section 422 of the MMA, we note that the time period for implementing 
section 5503 of the Affordable Care Act is shorter than the time that 
was available to implement section 422 of the MMA. In general, the cost 
reporting period used to determine the reference resident level under 
section 422 was the most recent cost reporting period ending on or 
before September 30, 2002. Public Law 108-173, which included section 
422, was enacted on December 8, 2003. Therefore, in general, the cost 
reports used to determine the reference resident level for section 422 
had already been submitted at the time Public Law 108-173 was enacted. 
For purposes of section 5503 of the Affordable Care, a cost report for 
the cost reporting period January 1, 2009-December 31, 2009, would 
likely not have been submitted by March 23, 2010, the time section 5503 
of the Affordable Care Act was enacted. Therefore, in this final rule, 
we are clarifying that the three most recent cost reports used to 
determine a hospital's reference resident level must be cost reports 
that, if not settled, have been submitted to the Medicare contractor by 
March 23, 2010. We also are clarifying our regulation text at Sec.  
413.79(c)(1)(ii)(B) to state: ``For purposes of paragraph (m) of this 
section, reference resident level means with respect to a hospital, the 
highest resident level for any of the three most recent cost reporting 
periods ending before March 23, 2010, for which a cost report has been 
either settled or submitted (subject to audit) to the Medicare 
contractor by March 23, 2010.'' In addition, as we explain in response 
to comments below regarding the cost report data that must be submitted 
with a hospital's application for additional slots and the cost reports 
used to establish a hospital's primary care average under section 
1886(h)(8)(B)(ii)(I) of the Act, these cost reports must also be 
submitted to the Medicare contractor by March 23, 2010.
    Comment: Several commenters asked for clarification on the 
application of cap reductions to new teaching hospitals. The commenters 
believed that the final rule should clarify that hospitals which have 
had their cap established during the last three cost reporting periods 
ending prior to March 23, 2010, and those new teaching hospitals that 
do not yet have a cap established because they are in the middle of the 
three year cap building period should be exempt from any cap reduction. 
The commenters believed that these new teaching hospitals should not 
have their caps reduced under section 1886(h)(8)(A) of the Act because 
they are still in the process of building their residency training 
programs, especially those residency programs that have an initial 
residency period of longer than 3 years; therefore, these hospitals 
should not lose any cap which they are in the process of establishing.
    Response: We agree with the commenters that new teaching hospitals 
should not have their caps reduced if the hospitals are still in the 
process of establishing their cap and that some new teaching hospitals 
may still be in the process of growing their new program(s), 
particularly if the new program(s) has an initial residency period of 
greater than 3 years. Because Congress specifically required the 
Secretary to consider three cost reporting periods to determine which 
cost reporting period would be the reference cost reporting period 
based on the period with the highest resident level, we do not believe 
it would be appropriate to consider whether a new teaching hospital, 
with less than three years of cap data, should receive a cap reduction. 
Therefore, we are clarifying in this final rule that those teaching 
hospitals that do not yet have a cap established for Medicare payment 
purposes because they are in the middle of their 3-year cap building 
period will be exempt from a cap reduction. Additionally, we understand 
the commenters' concerns regarding new teaching hospitals that have a 
cap established but are still in the process of growing their program 
because the initial residency period of the program is greater than 3 
years. Therefore, after considering these comments, we are finalizing 
the policy that if a new teaching hospital has submitted cost reports 
for its three most recent cost reporting periods ending before March 
23, 2010, by March 23, 2010, but a cap is not applied in all three of 
those cost reporting periods, the new teaching hospital would be exempt 
from a cap

[[Page 72161]]

reduction. For example, if a new teaching hospital submitted three cost 
reports by March 23, 2010, but a cap was only applied to the hospital 
in two of the three cost reports, the new teaching hospital would be 
exempt from a cap reduction. We are revising the regulations at Sec.  
413.79(m) to reflect this change.
    Comment: One commenter stated there was nothing in the proposed 
rule that exempted a hospital located in Louisiana, which was 
devastated by Hurricane Katrina, from a cap reduction under section 
1886(h)(8)(A) of the Act. The commenter stated that, as a result of the 
devastation to its facilities caused by Hurricane Katrina, the hospital 
loaned 300 of its 573 FTE cap slots to other facilities located mostly 
in the New Orleans area through emergency Medicare GME affiliation 
agreements. The commenter stated that its hospital is in the process of 
rebuilding, and if the facility's 300 FTE cap slots are not exempt from 
the resident redistribution, redistributing these slots to other 
hospitals would be devastating to the New Orleans area and to the 
facility's rebuilding process.
    Response: The statute does not provide for a specific exemption 
from a cap reduction for those hospitals affected by Hurricane Katrina. 
However, we note that, in our discussion regarding cap increases under 
section 5503 of the Affordable Care Act, the State of Louisiana is 
indicated as a State that can apply for additional slots.
b. Audits of the Reference Cost Reporting Periods
    As mentioned under XXI.D.8.a. of this preamble, to determine a 
possible reduction to a hospital's FTE resident cap, section 
1886(h)(8)(H)(i) of the Act, as added by section 5503(a) of Affordable 
Care Act, directs the Secretary to use, as the reference cost report, 
the one cost report out of the hospital's three most recent cost 
reporting periods ending before March 23, 2010, with the highest 
resident count ``for which a cost report has been settled (or, if not, 
submitted (subject to audit), as determined by the Secretary'' 
(emphasis added). In the August 3, 2010 proposed rule (75 FR 46394 and 
46395), we proposed that if a hospital's cost report for the reference 
cost reporting period has been settled, the hospital's settled cost 
report, without further audit, would be used to determine possible 
reductions to the FTE resident caps. We noted that the ``settled'' cost 
report does not necessarily mean the initial cost report settlement. 
The Medicare contractor may have previously settled the cost report, 
reopened it to audit it, and then settled the cost report again, 
issuing a revised NPR. Thus, we would refer to the most recently issued 
NPR for that cost reporting period (prior to March 23, 2010). For those 
cost reporting periods that would be used as the reference cost 
reporting period, which have been submitted to the Medicare contractor 
but not settled, Medicare contractors may perform desk or onsite audits 
related to section 5503. In addition, if the reference period cost 
report is for a period other than 12 months, we proposed that for 
direct GME, the Medicare contractor would prorate the FTE resident caps 
and unweighted FTE resident count to equal 12-month counts.
    We did not receive public comments specific to this section. 
Therefore, we are finalizing the stated policy as proposed.
c. Medicare GME Affiliation Agreements
    As described above, some hospitals that have resident levels below 
their FTE resident caps may have entered into Medicare GME affiliation 
agreements (as permitted under Sec.  413.79(f) of our regulations) with 
other hospitals that would otherwise exceed their FTE resident caps. 
Thus, while some hospitals in the Medicare GME affiliated group were 
training a number of residents below their FTE resident caps prior to 
entering into a Medicare GME affiliation agreement, upon affiliating, 
their FTE resident caps were temporarily reduced because some or all of 
their excess FTE slots were temporarily added to the FTE resident caps 
of other hospitals as part of the affiliation agreement. Under section 
422 of Public Law 108-173, the statute explicitly directed the 
Secretary to apply the provisions to hospitals that were members of the 
same affiliated group as of July 1, 2003. Specifically, section 
1886(h)(7)(A)(iii) of the Act states ``The provisions of clause (i) 
shall be applied to hospitals which are members of the same affiliated 
group (as defined by the Secretary under paragraph (4)(H)(ii)) as of 
July 1, 2003.'' Therefore, in implementing section 422, we based the 
FTE resident cap reductions for hospitals that were participating in a 
Medicare GME affiliated group on the aggregate cap and count data from 
all hospitals participating in the same Medicare GME affiliated 
group(s). If a hospital was training a number of residents below its 
FTE resident cap for the reference cost reporting period but the 
hospital was part of a Medicare GME affiliated group for some or all of 
that reference cost reporting period, the Medicare contractor 
determined if the aggregate affiliated count for all hospitals in the 
affiliated group was greater than the aggregate affiliated cap. If the 
aggregate affiliated count was greater than the aggregate cap, then 
there was no reduction made to the FTE caps of any hospital in the 
affiliated group (even for the hospital that was part of the affiliated 
group, but was training below its cap). However, we note that, in 
contrast to section 422 of Public Law 108-173, section 5503 of the 
Affordable Care Act does not include language specific to affiliated 
groups as was included in section 422 under section 1886(h)(7)(A)(iii) 
of the Act. Thus, section 5503 of the Affordable Care Act does not 
provide for determinations based on the aggregate experience of a 
Medicare GME affiliated group. In addition, section 1886(h)(8)(H) of 
the Act, as added by section 5503 of the Affordable Care Act, defines 
the reference resident level and the otherwise applicable resident 
limit with respect to ``a hospital.'' Similarly, section 1886(h)(8)(A) 
of the Act refers only to ``a hospital's'' reference resident level. 
Therefore, we are determining whether a hospital should receive a cap 
reduction based on that individual hospital's experience and not the 
aggregate experience of the Medicare GME affiliated group. Therefore, 
in the August 3, 2010 proposed rule (75 FR 46395), we proposed that 
Medicare contractors would make determinations regarding FTE cap 
reductions under section 1886(h)(8)(A)(i) of the Act by considering the 
relationship of the individual hospital's otherwise applicable resident 
limit for the reference period (which is the FTE resident cap for a 
period as adjusted by any affiliation agreement(s)) to the individual 
hospital's reference resident level. That is, we proposed that in a 
hospital's reference year, if that hospital is participating in a 
Medicare GME affiliated group and is training a number of residents 
below its FTE caps as adjusted pursuant to any affiliation agreements 
which can be found on Worksheet E, Part A, line 3.06 for IME, and 
Worksheet E-3 Part IV, line 3.03 for direct GME, the hospital's FTE 
resident caps would be subject to a reduction under section 
1886(h)(8)(A)(i) even if the Medicare GME affiliated group as a whole 
may be training a number of residents above the group's aggregate FTE 
resident cap.
    Comment: Many commenters addressed the proposed policies regarding 
the treatment of affiliated groups in determining whether a hospital 
would receive a cap reduction

[[Page 72162]]

under section 1886(h)(8)(A) of the Act. Commenters supported the 
proposal to account for a hospital's participation in a Medicare GME 
affiliated group during its reference year. One commenter stated that, 
in finalizing the proposal to consider a hospital's participation in a 
Medicare GME affiliated group during its reference year, it will be 
important for the Secretary to recognize the hospital's cap as reduced 
due to participation in a Medicare GME affiliated group before 
comparing the hospital's count to its cap during the reference cost 
reporting year. Commenters disagreed with the proposal to not consider 
aggregated caps and counts of a Medicare GME affiliated group when 
determining if an individual hospital would receive a cap reduction. 
Commenters stated that if CMS does not consider affiliated groups as a 
whole when determining cap reductions, entire residency programs could 
be lost, each hospital participating in an affiliated group could be 
negatively affected, and training relationships could be damaged.
    One commenter addressed the situation of a specific Medicare GME 
affiliated group. The commenter stated that a hospital in Iowa is 
receiving a temporary cap increase through participation in the 
Medicare GME affiliated group. The commenter asserted that if the 
hospital that is transferring cap receives a cap reduction, the 
existence of the entire residency program could be put in jeopardy 
because the residents may no longer be able to rotate to various sites. 
One commenter stated that the purpose of Medicare GME affiliation 
agreements is to allow for transfer of the cap to appropriate hospitals 
to provide residents with opportunities for additional training. The 
commenter believed that, in keeping with the spirit of the law, the 
resident level and limit should be calculated in aggregate for all 
hospitals participating in a Medicare GME affiliated group. Another 
commenter stated that hospitals that are complying with the regulations 
at Sec.  413.75 should only receive cap reductions under section 5503 
after looking at the aggregate affiliated cap. The commenter noted that 
it has sponsorship under the ACGME for programs at hospitals included 
in its affiliated group and that such sponsorship supports the position 
that hospitals' caps and counts should be looked at in the aggregate. 
The commenter stated that because CMS proposed to look at an individual 
hospital's cap as adjusted for any Medicare GME affiliation agreements, 
such a proposal indicates that CMS recognizes the potential impact 
affiliation agreements may have on hospitals' caps, and, therefore, CMS 
should apply the same policy for treatment of affiliated groups to 
section 5503 as it did for section 422 of the MMA. Other commenters 
also suggested CMS be consistent in its policies and follow the 
precedent set for treatment of Medicare GME affiliated groups under the 
implementation of section 422 of the MMA. Another commenter stated that 
affiliation agreements are intended to provide stability and address 
changes in rotations and programs for participating hospitals and that 
CMS should make sure that FTE caps are not unintentionally removed from 
an affiliated group.
    Many commenters stated that redistributing slots used through a 
Medicare GME affiliation agreement was not the intent of Congress. 
Rather, the commenters believed that Congress' intent was only to 
redistribute those slots which are ``unused.'' The commenters stated 
that if the affiliated group as a whole is over its cap, the slots are 
clearly being used. One commenter stated that, in addressing the 
implementation of section 5503, Congress was certainly knowledgeable 
about the common practice of hospitals participating in Medicare GME 
affiliation agreements to ``share'' FTE slots to maximize the training 
of residents and of the FTE slots. The commenter stated ``Under any 
common language meaning of the term `unused,' FTE cap slots that are 
shared among hospitals in GME affiliated groups would not be considered 
`unused positions.' '' Some commenters noted that they plan to work to 
correct the statutory problem of not considering the aggregated caps 
and counts of hospitals participating in a Medicare GME affiliated 
group. Commenters stated that, although they appreciated that CMS is 
using adjusted cap numbers in situations where hospitals share cap 
through a Medicare GME affiliated group, the initial cap and count 
comparison should be made at the affiliated group level. The commenters 
stated that performing an initial comparison of the affiliated group's 
cap and count is supported by the statutory definition of ``otherwise 
applicable resident limit'' included in the Affordable Care Act, which 
states:

    ``The term `otherwise applicable resident limit' means, with 
respect to a hospital, the limit otherwise applicable under 
subparagraphs (F)(i) and (H) of paragraph (4) on the resident level 
for the hospital determined without regard to this paragraph but 
taking into account paragraph (7)(A).''

    The commenters also referred to language from paragraph (h)(4)(H) 
of section 1886 of the Act:

    ``(ii) Aggregation--The Secretary may prescribe rules which 
allow institutions which are members of the same affiliated group 
(as defined by the Secretary) to elect to apply the limitation of 
subparagraph (F) on an aggregate basis.''

    The commenters believed that because CMS has the authority to 
``prescribe rules'' concerning GME affiliated groups, CMS has the 
authority to view the affiliated group as a whole for purposes of 
determining cap reductions under section 1886(h)(8)(A) of the Act.
    One commenter recommended that CMS finalize a policy for treatment 
of affiliated groups such that in the case where the aggregate count is 
above the aggregate cap in any of the 3 years, none of the hospitals 
participating in the Medicare GME affiliated group would receive a cap 
reduction. The commenter stated ``* * * that surprising and 
counterintuitive outcomes may result when CMS attempts to compare an 
individual hospital's affiliated cap and count for just one year and 
then apply that result to the individual hospital's unaffiliated cap.'' 
The commenter noted there have been situations where agreements to 
provide for educational rotations among hospitals have ``worked to the 
(permanent) detriment of a hospital when reduction determinations have 
been made.'' Therefore, the commenter believed that it is important for 
CMS to include safeguards such that inappropriate redistributions do 
not occur when reducing the caps of individual hospitals. The commenter 
believed that because Congress went out of its way to provide CMS with 
the opportunity to review 3 separate years instead of just 1 year for 
purposes of cap reductions under section 1886(h)(8)(A) of the Act, the 
intent of Congress was to clarify that if a hospital is training above 
its cap in any of its three most recent cost reporting periods, the 
hospital should not receive a cap reduction. The commenter noted that 
if a hospital's cap changes during the 3 years, for example through 
participation in a Medicare GME affiliated group, only considering the 
1 year with the highest resident count ``may cause different kinds of 
results for individual hospitals.'' The commenter suggested that, to 
determine whether a hospital should receive a cap reduction, the policy 
be that if a hospital is participating in a Medicare GME affiliated 
group, the year that is used to determine a cap reduction is the

[[Page 72163]]

year where there is the smallest gap between the aggregate cap and the 
aggregate count.
    One commenter stated that if two hospitals participate in a 
Medicare GME affiliated group, under the proposed rule, these hospitals 
may be penalized for their participation because one hospital is going 
to be training residents over its cap while the other hospital is going 
to be training residents under its cap. The commenter gave an example 
where hospital A and hospital B are participating in a Medicare GME 
affiliated group and hospital A's cap prior to the affiliation was 50 
and hospital B's cap prior to the affiliation agreement was 100. Under 
the commenter's example, hospital A transfers 10 cap slots to hospital 
B for FYEs 2006-2008 such that during the affiliation agreements, 
hospital A's FTE resident count is 40 and hospital B's FTE resident 
count is 110. The commenter stated that during the Medicare GME 
affiliation agreement, the aggregate count is 150 and the aggregate cap 
is 150, but based on CMS' proposed rule, hospital A's cap would be 
reduced by 6.5 FTEs. The commenter questioned why hospitals should be 
penalized if they enter into Medicare GME affiliated groups and 
maintained an aggregate count that is the same as the aggregate cap. 
Another commenter stated that many teaching hospitals affiliated with 
colleges of osteopathic medicine train residents in rural and 
underserved areas and that even though rural hospitals with fewer than 
250 beds may be exempt from a cap reduction, those hospitals may be 
negatively impacted if the hospitals with which they affiliate have 
their caps reduced. The commenter stated that reducing the caps of 
hospitals with which these rural hospitals are affiliated could limit 
access to patient care in areas where these providers are needed to 
provide care. The commenter requested that CMS reconsider its policy 
regarding cap reductions so that areas served by osteopathic training 
programs that are in greatest need of physicians are not limited.
    Commenters reasoned that if a hospital is participating in a 
Medicare GME affiliated group and is training below its cap, the 
hospital that is receiving the temporary cap adjustment through the 
Medicare GME affiliation agreement would be the facility that receives 
a cap reduction and not the hospital that loaned slots through the 
Medicare GME affiliation agreement. The commenters requested 
clarification on this assumption. One commenter stated that not 
considering the affiliated group as a whole could potentially lead to 
not recapturing all of the unused cap slots in the situation where a 
hospital without a 1996 cap and without a new program cap is part of a 
GME affiliated group due to a shared rotational arrangement. The 
commenter stated, ``If the hospital's FTE count exceeded its cap 
affiliation adjustment, the hospital has no 1996 cap or new program cap 
that could be reduced to effect a cap recapture.''
    One commenter requested that, for purposes of the cap 
redistribution under section 5503 of the Affordable Care Act, CMS take 
into consideration the shared rotational agreement its hospital has had 
with another hospital since 1993 (``1993 Agreement''), even though the 
shared rotational agreement did not comply with the requirements of a 
Medicare GME affiliated group until July 1, 2009. The commenter 
suggested that, in the alternative, if CMS does not consider the shared 
rotational arrangement that has been in place between the two hospitals 
since 1993, CMS at the very least maintain the status quo by 
considering the fact that these two hospitals have in place fully 
compliant Medicare GME affiliation agreements for academic years July 
1, 2009 through June 30, 2011, which reflect the hospitals' 
longstanding practice of rotating the residents between the two 
facilities. The commenter stated that if CMS does not change its 
proposed rule as presented in the comment, one of the hospitals 
participating in the shared rotational arrangement will be subject to a 
large cap reduction, which in turn will place the longstanding training 
relationship between the two hospitals at risk. The commenter stated 
that one of the hospitals that participates in the shared rotational 
arrangement and the county jointly sponsor about 54 primary care and 
subspecialty residency training programs, and approximately 900 
residents participate in these programs, with 500 of these residents 
also training at the second hospital participating in the shared 
rotational arrangement. The commenter stated that both hospitals serve 
a broad demographic of patients throughout the State of California, and 
both offer specialized and advanced services that provide residents 
with a variety of educational opportunities. The commenter stated that 
the ``1993 Agreement'' provided for a ``bilateral exchange'' of 
residents, and that, without this exchange, certain ACGME opportunities 
would not be available because the hospitals offer different services. 
The commenter stated that the sending hospital employs the residents 
but the receiving hospital is financially responsible for the cost of 
the residents' salaries and fringe benefits for the time that the 
residents spend at the receiving hospital. The commenter stated that 
the ``1993 Agreement'' was in place before direct GME and IME caps or 
the concept of a Medicare GME affiliation agreement, and although it 
does not meet all the regulatory requirements of a Medicare GME 
affiliation agreement, it has been in place for more than 17 years, 
including what will be one of the hospital's reference periods. The 
commenter stated that because the ``1993 Agreement'' did not include 
all the elements of a Medicare GME affiliation agreement, one of the 
hospitals was not eligible to receive payment for about half of the 90 
FTEs it trained in FYEs May 31, 2007 through May 31, 2009. However, the 
commenter stated this problem was mostly corrected when both facilities 
entered into a Medicare GME affiliation agreement effective with the 
July 1, 2009 training year. The commenter stated that the analysis 
applied to the cap reductions ``* * * should focus on use of the FTE 
slots and whether, in practice and pursuant to a written agreement that 
is akin to a Medicare GME affiliation agreement, the hospitals were 
transferring FTEs.'' The commenter stated that the legislative history 
does not indicate that Congress wanted to disturb existing training 
relationships or not provide for payment where there were, in fact, 
residents providing care to Medicare beneficiaries but rather the 
purpose of section 1886(h)(8) of the Act is to transfer FTE slots from 
facilities that are not providing training to those that are. The 
commenter stated that CMS could view the hospitals' situation one of 
two ways, either that the FTE slots that went to the receiving hospital 
were slots that were in use by the sending hospital, or that the 
hospitals had in place a shared rotational arrangement that basically 
complied with the requirements of a Medicare GME affiliation agreement 
and under these circumstances the sending hospital's cap was reduced by 
70 or 80 FTEs through the transfer agreement. The commenter stated 
that, under either approach, the hospital that has been sending its FTE 
residents to the second facility is not presumed to have an extra gap 
of 70 to 80 FTEs between its reference resident level and its otherwise 
applicable resident limit because those 70 or 80 FTEs were being used 
at the receiving facility and being used pursuant to a written 
affiliation agreement. The commenter stated that if CMS chooses not to 
take into account the shared rotational agreement between the two 
hospitals and that the agreement

[[Page 72164]]

was in effect during the reference period, then, at the very least, CMS 
should preserve the current status quo based on the Medicare GME 
affiliation agreement in place during the current and prior academic 
years. The commenter indicated that, given the July 1, 2009-June 30, 
2010 Medicare GME affiliation agreement was executed well before 
Congress authored the Affordable Care Act and covers part of one of the 
hospital's fiscal year ending before March 2010, CMS should take this 
agreement into account when determining which hospitals will receive 
cap reductions. The commenter also noted the two hospitals have entered 
into a Medicare GME affiliation agreement effective July 1, 2010 
through June 30, 2011, which transfers the same number of FTEs as the 
July 1, 2009-June 30, 2010 Medicare GME affiliation agreement. The 
commenter stated that the Medicare GME affiliation agreement that is in 
place now will renew automatically and will continue unless CMS 
redistributes the slots. The commenter stated that, in addition to 
considering the formal FTE cap adjustments that make changes to 
hospitals' cost report worksheets on Worksheets E, Part A and E-3 Part 
IV, CMS could also consider shared rotational agreements that had the 
same effect. The commenter also stated that CMS could require, as part 
of the audit process, that providers submit to their Medicare 
contractor relevant written agreements and documentation regarding the 
exact number of FTEs exchanged between the two hospitals.
    Response: We appreciate the commenters' support of the proposed 
policy to account for an individual hospital's participation in a 
Medicare GME affiliated group for purposes of determining that 
hospital's otherwise applicable resident limit. In response to the 
commenters who stated CMS should apply the same policy for determining 
whether a hospital that is participating in a Medicare GME affiliated 
group would receive a cap reduction, as was applied for purposes of 
implementing section 422, specific statutory language was included in 
section 422, which referred to Medicare GME affiliations. Section 422 
amended section 1886(h) of the Act, by adding paragraph (7)(A)(iii) 
which stated ``[t]he provisions of clause (i) shall be applied to 
hospitals which are members of the same affiliated group (as defined 
under paragraph (4)(H)(ii)) as of July 1, 2003.'' Neither this same 
statutory language nor similar language addressing Medicare GME 
affiliated groups was included in section 5503 of the Affordable Care 
Act. As we stated in the proposed rule, the definition of ``otherwise 
applicable resident limit'' does not include language that can support 
a policy allowing Medicare contractors to look at the Medicare GME 
affiliated group in the aggregate before determining whether an 
individual hospital would receive a cap reduction based on its 
participation in the affiliated group. Rather, in the definition of 
``otherwise applicable resident limit'' in section 5503, the statute 
refers to ``a hospital.'' Although the commenters noted that the 
definition of ``otherwise applicable resident limit'' refers to section 
1886(h)(4)(H) of the Act, which includes at paragraph (ii) the 
following language: ``[t]he Secretary may prescribe rules which allow 
institutions which are members of the same affiliated group (as defined 
by the Secretary) to elect to apply the limitation of subparagraph (F) 
on an aggregate basis,'' the reference made to prescribing rules for 
Medicare GME affiliation agreements refers to developing regulations to 
implement how each hospital's cap can be adjusted for its participation 
in a Medicare GME affiliated group. The language at section 
1886(h)(4)(H)(ii) of the Act does not give the Secretary the authority 
to prescribe rules for treatment of Medicare GME affiliated groups 
under section 1886(h)(8)(A) of the Act. Furthermore, section 
1886(h)(4)(H)(ii) of the Act was not amended after implementation of 
section 422 to provide the Secretary with the authority to prescribe 
specific rules for the treatment of Medicare GME affiliated groups for 
purposes of determining cap reductions under section 422. The lack of 
amendments made to section 1886(h)(4)(H) of the Act as a result of 
section 422 is further evidence that the reference to section 
1886(h)(4)(H) of the Act in the definition of ``otherwise applicable 
resident limit'' under section 5503 is not intended to give the 
Secretary the authority to prescribe specific rules for the treatment 
of Medicare GME affiliated groups under section 5503 by mention of 
section 1886(h)(4)(H)(ii) of the Act. Rather, the reference to section 
1886(h)(4)(h)(ii) of the Act is to require the Secretary to consider 
the hospital's cap after any adjustment agreed to in an affiliation 
agreement in determining the hospital's ``otherwise applicable resident 
limit.'' To do otherwise, in a situation where a hospital has 
``affiliated away'' some of its slots and trained up to its revised 
cap, would force the hospital to lose some of its ``excess,'' even 
though in the year of the affiliation after reducing its cap in the 
affiliation, it had no excess.
    In response to the commenter who stated that, under the proposed 
rule, if two hospitals are participating in a Medicare GME affiliated 
group, one hospital would be penalized for its participation because 
one hospital would be training below its cap and the other hospital 
would be training above its cap, we stated in the proposed rule that a 
hospital's otherwise applicable resident limit would generally be its 
1996 cap adjusted for several criteria, including a hospital's 
participation in a Medicare GME affiliation agreement. Therefore, if a 
hospital's cap is temporarily reduced because it is transferring some 
of its cap slots to another hospital as part of a Medicare GME 
affiliation agreement, the hospital must only be concerned with a cap 
reduction if during its reference cost reporting period its reference 
resident level is below its adjusted cap, ``the otherwise applicable 
resident limit.'' In the commenter's example, hospital A and hospital B 
are participating in a Medicare GME affiliated group and have caps of 
50 and 100, respectively. As part of the Medicare GME affiliation, 
hospital A transfers 10 cap slots to hospital B so that for purposes of 
the Medicare GME affiliated group, hospital A's adjusted cap is 40 and 
hospital B's adjusted cap is 110. If hospital A and hospital B are 
participating in this Medicare GME affiliated group during their 
reference cost reporting period, hospital A would only have to be 
concerned with a cap reduction if its highest FTE resident count in its 
reference cost reporting period was less than 40 and hospital B would 
only have to be concerned with a cap reduction if its highest FTE 
resident count in its reference cost report was less than 110.
    In response to the commenter who stated that, even though rural 
hospitals with fewer than 250 beds would be exempt from a cap reduction 
under section 1886(h)(8)(A) of the Act, those hospitals would be 
negatively affected if the hospital(s) with which they affiliate have 
their caps reduced, we appreciate the commenter's concern to ensure 
that access to care is not limited in rural and underserved areas as a 
result of section 5503. However, section 1886(h)(8)(A) of the Act does 
not provide for a specific exemption for urban hospitals that 
participate in Medicare GME affiliated groups with rural hospitals with 
fewer than 250 beds. We note that the application for receiving cap 
slots under section 1886(h)(8) of the Act includes the following 
Evaluation Criterion, which specifically addresses residency training 
in rural areas: The hospital is in a rural area (as defined under 
section

[[Page 72165]]

1886(d)(2)(D)(ii) of the Act) and is or will be on or after July 1, 
2011, a training site for a rural track residency program (as specified 
under Sec.  413.79(k)), but is unable to count all of the FTE residents 
training in the rural track because the rural hospital's FTE cap is 
lower than its unweighted count of allopathic or osteopathic FTE 
residents as of portions of cost reporting periods on or after July 1, 
2011. Furthermore, we note that, under the regulations at Sec.  
413.79(e)(1)(iii) a rural hospital can always receive a permanent cap 
adjustment for training residents in a new residency training program.
    In response to the commenter who asked for clarification as to 
whether, if a hospital received FTE cap slots through participation in 
a Medicare GME affiliated group but was training below its cap adjusted 
under the Medicare GME affiliation agreement during its reference cost 
reporting period, we are clarifying that the hospital that received the 
cap slots or the hospital that loaned the cap slots would receive a cap 
reduction, the hospital that received the slots but is training below 
its adjusted cap would receive a cap reduction. The hospital that is 
transferring some of its FTE cap slots would not be penalized if the 
hospital to which it temporarily transferred some of its FTE cap slots 
is training below its adjusted cap during its reference cost reporting 
period.
    In response to the commenter who stated ``If the hospital's FTE 
count exceeded its cap affiliation adjustment, the hospital has no 1996 
cap or new program cap that could be reduced to effect a cap 
recapture,'' in describing a hospital that has no 1996 cap or new 
program cap but receives cap slots as part of a Medicare GME 
affiliation agreement, we believe the commenter meant to describe the 
scenario as one in which a hospital does not have a 1996 cap or a new 
program cap and receives a temporary cap adjustment as part of a 
Medicare GME affiliated group but is training below its affiliated cap 
during its reference cost reporting period. Under this scenario, the 
commenter is correct that there would be no cap to recapture because 
the hospital does not have a base year cap to reduce. Rather, it only 
has a temporary cap due to its participation in the Medicare GME 
affiliated group, and section 1886(h)(8)(A) of the Act does not provide 
for the Secretary to look at a Medicare GME affiliated group as a whole 
for purposes of determining individual hospitals' cap reductions.
    In response to the commenter who requested that CMS either take 
into consideration the shared rotational agreement it has had since 
1993 with another hospital or maintain the status quo by considering 
the fact that these two hospitals have in place a fully compliant 
Medicare GME affiliation agreements for academic years July 1, 2009 
through June 30, 2011, which reflect the hospitals' longstanding 
practice of rotating the residents between the two facilities, we 
appreciate the commenter's interest in maintaining its current level of 
training at its facilities. However, section 1886(h)(8)(A) of the Act 
does not provide the Secretary with the authority to provide an 
exception for these specific scenarios. Therefore, if either one of the 
hospitals participating in the shared rotational arrangement is 
training below its official adjusted cap during its reference cost 
reporting period, it would receive a cap reduction. The fact that the 
hospitals acted as if they had an affiliation agreement, as required by 
the regulations, is not a sufficient basis for revising the hospitals' 
caps.
    After consideration of the public comments we received, we are 
finalizing our policy regarding treatment of Medicare GME affiliated 
groups as proposed. Specifically, we are finalizing our policy to state 
that, in a hospital's reference cost reporting period, if the hospital 
is participating in a Medicare GME affiliated group and is training a 
number of residents below its FTE caps, as adjusted under any 
affiliation agreements that can be found on Worksheet E, Part A, line 
3.06 for IME, and Worksheet E-3 Part IV, line 3.03 for direct GME, the 
hospital's FTE resident caps would be subject to a reduction under 
section 1886(h)(8)(A)(i) of the Act, even if the Medicare GME 
affiliated group as a whole may be training a number of residents above 
the group's aggregate FTE resident cap.
d. Treatment of Hospitals That Have Merged
    We note that there may be instances where two hospitals merge on or 
after March 23, 2010, but were not merged in any or all of their three 
most recent cost reporting periods ending before March 23, 2010. For 
these hospitals, in the August 3, 2010 proposed rule (75 FR 46395), we 
proposed that the Medicare contractors identify the hospitals' three 
most recent cost reporting periods ending before March 23, 2010, and 
treat the hospitals for purposes of section 1886(h)(8)(A)(i) of the Act 
as if they were merged during those periods in determining whether 
there should be a reduction to the merged facility's FTE resident 
cap(s). That is, we proposed that, for each of the 3 years, we would 
combine the FTE resident counts and caps of the formerly separate 
facilities in order to identify the reference period, and to calculate 
the reference resident level and the otherwise applicable resident 
limit for the merged facility (for IME and direct GME, respectively), 
even if the two facilities have different fiscal year ends. In 
addition, if any of the cost reporting periods are less than 12 months 
or greater than 13 months, the Medicare contractor would prorate the 
FTE resident counts and FTE caps for direct GME to equal a 12-month 
cost reporting period.
    Comment: One commenter requested that hospitals that merged be 
allowed to use different cost reporting periods in determining whether 
the merged facility will receive an FTE cap reduction. The commenter 
stated that, for hospitals that have merged, the year with the highest 
reference resident level may not be the same year for all of the 
hospitals. The commenter believed that, to ensure there is the smallest 
reduction in hospitals' resident caps, the Secretary should permit 
different cost reporting periods to be used (as long as all of the 
years are within the periods contemplated by section 5003) when the 
hospital's FTE counts and caps are combined to determine whether the 
merged facility should receive a cap reduction. The commenter further 
believed that the final rule should address the treatment of hospitals 
that merged during the three most recent cost reporting periods ending 
before March 23, 2010. Commenters stated that the same policy that was 
proposed for hospitals that merge on or after March 23, 2010, should 
apply to hospitals that merged prior to March 23, 2010, as long as the 
merger occurred in any of the three most recent cost reporting periods 
ending before March 23, 2010.
    Response: Although we had proposed to apply the proposed policy to 
hospitals that had merged on or after March 23, 2010, after 
consideration of the public comments we received, we believe the policy 
does not need to be applied to hospitals that merge on or after March 
23, 2010. In fact, where two hospitals have three separate cost 
reporting periods that can be used to determine the hospitals' 
reference resident levels, we will determine the highest reference 
resident level and the otherwise applicable resident limit for each 
hospital separately, and then combine the determinations of any excess 
to apply to the merged hospitals, effective July 1, 2011. However, 
where for either 1 or 2 of the 3 years used to determine the reference 
resident level, the hospitals had merged, it will be necessary to 
determine 3 years of data

[[Page 72166]]

as if those hospitals had merged during all of those 3 years. In this 
final rule, we are revising the policy to reflect these changes.
9. Application of Section 5503 to Hospitals That File Low Utilization 
Medicare Cost Reports
    In general, section 5503 of the Affordable Care Act applies to 
Medicare-participating hospitals that train residents in approved 
residency training programs. However, some Medicare-participating 
hospitals may choose to submit low utilization cost reports. These low 
utilization cost reports may not contain the cost report worksheet that 
is used to calculate payments for direct GME, Worksheet E-3 Part IV. 
That is, these cost reports may not contain FTE resident count and cap 
information. For example, because Medicare-participating children's 
hospitals primarily serve a non-Medicare population and, therefore, 
receive minimal Medicare payments, some teaching children's hospitals 
submit low utilization cost reports. If a children's hospital files a 
low utilization cost report in a given cost reporting period, and does 
not file the Worksheet E-3 Part IV, that hospital has no data to 
determine its reference resident level. In addition, although 
children's hospitals may have an FTE resident ``cap'' that is 
applicable for purposes of the Children's Hospital Graduate Medical 
Education (CHGME) Payment Program, administered by HRSA, this cap is 
not necessarily used for Medicare payment purposes. Therefore, in the 
August 3, 2010 proposed rule (75 FR 46395), we proposed that if a low 
utilization hospital does not have a cap for Medicare payment purposes, 
it would not be subject to a negative cap reduction under section 5503. 
In addition, we proposed that if a low utilization hospital does have a 
cap for Medicare payment purposes (for example, it had filed a regular 
cost report in 1996) but did not file Worksheet E-3 Part IV as part of 
its cost report in all of its three most recent cost reporting periods 
ending before March 23, 2010, it would be exempt from cap reduction. In 
addition, we proposed that if a low utilization hospital has a cap for 
Medicare payment purposes and filed Worksheet E-3 Part IV in at least 
one of its three most recent cost reports ending before March 23, 2010, 
the Medicare contractor would determine, based on the data of the 
available cost reports with Worksheet E-3 Part IV, whether a cap 
reduction is necessary under section 1886(h)(8)(A)(i) of the Act.
    For those low utilization hospitals that have an FTE cap for 
Medicare payment purposes and have filed Worksheet E-3 Part IV in any 
of the three most recent cost reporting periods ending before March 23, 
2010, we proposed that in determining whether, and by how much, that 
low utilization hospital's cap may be reduced, we would use the same 
methodology that we proposed to use for other Medicare-participating 
teaching hospitals. In addition, for purposes of section 1886(h)(8)(B) 
of the Act, we proposed that a low utilization hospital would be 
eligible to apply for an increase in its FTE resident cap under section 
1886(h)(8)(B) of the Act, subject to the same demonstrated likelihood 
and evaluation criteria proposed for all other hospitals. However, as 
explained further below in this preamble, section 1886(h)(8)(B)(ii) of 
the Act, as added by section 5503(a)(4) of the Affordable Care Act, 
specifies certain requirements and thresholds that a hospital that 
receives additional slots must meet in order to retain those slots. One 
requirement is that the hospital must ensure that, for a 5-year period, 
its number of FTE primary care residents is not less than the average 
number of FTE primary care residents during the three most recent cost 
reporting periods ending prior to March 23, 2010. Accordingly, in the 
August 3, 2010 proposed rule (75 FR 46396), we proposed that an 
applying children's hospital must meet the same documentation 
requirements to establish this primary care average as other applying 
hospitals, which would mean that the children's hospital must have 
submitted a Worksheet E-3, Part IV with its Medicare cost report for 
those three most recent cost reporting periods ending prior to March 
23, 2010. Furthermore, we proposed that, in order to receive an 
increase in its FTE resident cap under section 1886(h)(8)(B) of the 
Act, effective July 1, 2011, in addition to complying with the proposed 
application requirements as described in this preamble, the hospital 
would be required to file Worksheet E-3, Part IV, with its Medicare 
cost report for its cost reporting period that includes July 1, 2011, 
through and including its cost reporting period that includes June 30, 
2016 (that is, the 5-year period). We proposed that the low utilization 
hospital must meet this requirement because section 1886(h)(8)(B) of 
the Act is intended to allow a hospital to increase its FTE counts for 
purposes of Medicare GME payments. We do not believe it would be 
appropriate to grant an increase in a hospital's FTE resident cap under 
section 1886(h)(8)(B) of the Act if the hospital does not use the slots 
for Medicare purposes (but only, for example, for purposes of the CHGME 
Payment Program) as would be evidenced by not filing a Worksheet E-3, 
Part IV. Moreover, as explained further below, we are required under 
sections 1886(h)(8)(B)(ii) and 1886(h)(8)(B)(iii) of the Act to ensure 
certain levels of primary care or general surgery training, and the 
information in Worksheet E-3, Part IV, would be necessary for that 
purpose.
    Comment: Commenters supported the proposed policy that if a low 
utilization hospital does not have a cap for Medicare payment purposes 
or did not file Worksheet E-3, Part IV, in any of its three most recent 
cost reporting periods ending before March 23, 2010, it would be exempt 
from a cap reduction. One commenter encouraged CMS to consider the 
differences in the patients that children's hospitals serve as well as 
the unique relationship children's hospitals have with both the 
Medicare GME and CHGME programs as CMS makes decisions about 
redistribution of slots. Specifically, the commenter recommended that 
low or no-filer children's hospitals that meet all the other criteria 
should be eligible to apply for additional slots even if they have not 
submitted Worksheet E-3, Part IV over the past 3 years, as this will 
allow children's hospitals the opportunity to expand primary care and 
general surgery programs.
    Response: We thank the commenters for their support of the proposed 
policy. In this final rule, we are finalizing a policy regarding low 
utilization hospitals such that if a low utilization hospital does not 
have a cap for Medicare payment purposes or did not file Worksheet E-3, 
Part IV for any of its three most recent cost reporting periods ending 
before March 23, 2010, for which a cost report has been settled or 
submitted to the Medicare contractor by March 23, 2010, that low 
utilization hospital would be exempt from a cap reduction. We are 
finalizing the policy that if a low utilization hospital has a cap for 
Medicare payment purposes and filed Worksheet E-3, Part IV in at least 
one of its three most recent cost reports ending before March 23, 2010, 
for which a cost report has been settled or has been submitted to the 
Medicare contractor by March 23, 2010, the Medicare contractor would 
determine, based on the data of the available cost reports with 
Worksheet E-3, Part IV, whether a cap reduction is necessary under 
section 1886(h)(8)(A)(i) of the Act. For purposes of section 
1886(h)(8)(B) of the Act, we proposed that a low utilization hospital 
would be eligible to apply for an increase in its FTE resident cap 
under section

[[Page 72167]]

1886(h)(8)(B) of the Act, subject to the same demonstrated likelihood 
and evaluation criteria proposed for all other hospitals. As explained 
further in this preamble, section 1886(h)(8)(B)(ii) of the Act, as 
added by section 5503(a)(4) of the Affordable Care Act, specifies 
certain requirements and thresholds that a hospital that receives 
additional slots must meet in order to retain those slots. One 
requirement is that the hospital must ensure for a 5-year period that 
its number of FTE primary care residents is not less than the average 
number of FTE primary care residents during the three most recent cost 
reporting periods ending prior to March 23, 2010.
    In response to the commenter's recommendation that low or no filer 
children's hospitals that meet all the other criteria should be 
eligible to apply for additional slots even if they had not submitted 
Worksheet E-3, Part IV over the past 3 years, we are changing our 
proposed policy in this final rule to allow a low utilization hospital 
to be eligible to apply for an increase in its FTE resident cap if it 
submitted by March 23, 2010, at least one cost report (instead of three 
cost reports) that includes Worksheet E-3, Part IV for cost reporting 
periods ending prior to March 23, 2010. Therefore, in determining 
whether, in its 5-year period of July 1, 2011 through June 30, 2016, 
the hospital's number of primary care residents is not less than a 
baseline amount, that baseline amount must include at least one cost 
report that includes Worksheet E-3, Part IV for a cost reporting period 
ending prior to March 23, 2010, that was submitted by March 23, 2010. 
If the low utilization hospital submits more than one cost report, the 
baseline amount will be based on an average of those cost reports (up 
to 3 years). In addition, we proposed a general requirement that all 
applicants must submit copies of their most recent as filed Worksheet 
E-3, Part IV for direct GME, Worksheet E, Part A for IME (which would 
not apply for children's hospitals), and if the hospital received slots 
under section 422 of the MMA, Worksheet E-3, Part VI as well (75 FR 
46399 and 46420). In this final rule, as explained further below, under 
the Demonstrated Likelihood Criteria, applicants are also required to 
submit copies of these same worksheets from the cost report that was 
most recently submitted to the Medicare contractor by March 23, 2010. 
Secondly, we proposed that, in order to receive an increase in its FTE 
resident cap under section 1886(h)(8)(B) of the Act, effective July 1, 
2011, in addition to complying with the proposed application 
requirements as described in this preamble, the hospital must file 
Worksheet E-3, Part IV, with its Medicare cost report for cost 
reporting periods that include July 1, 2011, through and including its 
cost reporting period that includes June 30, 2016 (that is, the 5-year 
period). In this final rule, we are finalizing these requirements for 
low utilization hospitals, without modification, and we are clarifying 
that a cost report or reports that would be used to determine whether a 
low utilization hospital would receive a cap reduction, would be a cost 
report that has been settled or submitted (subject to audit) to the 
Medicare contractor by March 23, 2010.
10. Treatment of Hospitals with Caps That Have Been Reduced or 
Increased Under Section 422 of Public Law 108-173
    For purposes of implementation of section 5503(a) of the Affordable 
Care Act, section 1886(h)(8)(H)(iii) of the Act states that the term 
``otherwise applicable resident limit,'' means, ``with respect to a 
hospital, the limit otherwise applicable under subparagraphs (F)(i) and 
(H) of paragraph (4) on the resident level for the hospital determined 
without regard to this paragraph but taking into account paragraph 
(7)(A).'' As noted earlier in this preamble, section 1886(h)(7)(A) of 
the Act, as added by section 422 of Public Law 108-173, provided for 
reductions to hospitals' caps if the hospitals were training a number 
of residents below their FTE resident caps during the relevant 
reference period, and for a ``redistribution'' that increased the FTE 
resident caps for certain hospitals. Although sections 1886(h)(4)(F)(i) 
and 1886(h)(4)(H) of the Act refer to paragraph (7), which includes 
both cap reductions and increases made pursuant to section 422 of 
Public Law 108-173, we believe that specific mention of only paragraph 
(7)(A), which refers to cap reductions made under section 422, gives 
the Secretary the authority to only take into account the reductions 
made to hospitals' caps under section 1886(h)(7)(A) of the Act, for 
purposes of implementing section 1886(h)(8)(A)(i) of the Act. That is, 
we believe specific mention of paragraph (7)(A) is meant to provide 
that in determining a hospital's otherwise applicable resident limit, 
the Secretary should take into account any reductions to its reference 
resident level made under section 1886(h)(7)(A) of the Act to determine 
whether a cap reduction under section 1886(h)(8)(A)(i) of the Act is 
necessary. Furthermore, section 1886(h)(8)(H)(i) of the Act requires 
that, for purposes of determining the reference resident level, the 
Secretary is required to consider the hospital's three most recent cost 
reporting periods ending prior to March 23, 2010, that have been 
settled (or, if not, submitted (subject to audit)), as determined by 
the Secretary. In addition, we note that increases made under section 
1886(h)(7)(B) of the Act were effective for portions of cost reporting 
periods beginning on or after July 1, 2005, and that some hospitals may 
still be filling their residency training programs with FTE resident 
slots gained under section 1886(h)(7)(B) of the Act, during what may be 
their reference cost reporting period for purposes of section 
1886(h)(8)(A)(i) of the Act. Therefore, we believe that it would be 
inappropriate to include increases made under section 1886(h)(7)(B) of 
the Act in determining the hospital's reference resident level for 
purposes of cap reductions under section 1886(h)(8)(A)(i) of the Act. 
Hospitals that received increases to their caps under section 
1886(h)(7)(B) of the Act may still be ``building'' their residency 
programs using the additional FTE resident slots they received under 
section 1886(h)(7)(B) of the Act. Therefore, it would be premature to 
remove any of those FTE resident slots. Accordingly, in the August 3, 
2010 proposed rule (75 FR 46396), we proposed that, in determining 
whether a cap reduction is necessary under section 1886(h)(8)(A)(i) of 
the Act, we would compare the hospital's FTE resident count for its 
reference period to its FTE resident cap, as adjusted under section 
1886(h)(7)(A) of the Act. We proposed that we would not consider any 
increases to its resident cap a hospital may have received under 
section 1886(h)(7) of the Act.
    Comment: Commenters supported the proposed policy to compare a 
hospital's reference resident level to its cap as reduced under section 
422 for purposes of determining whether the hospital should receive a 
cap reduction. One commenter requested that CMS confirm that its 
reference in the proposed Sec. Sec.  412.105(f)(iv)(B)(2) and (C)(2) to 
paragraph ``(f)(1)(E)(iv)(B)(1)'' is a typographical error and the 
reference should be to paragraph ``(f)(1)(iv)(B)(1).''
    Response: The commenter is correct that we made a typographical 
error and the cross-reference in Sec.  412.105(f)(iv)(B)(2) should be 
changed from paragraph ``(f)(1)(E)(iv)(B)(1)'' to paragraph 
``(f)(1)(iv)(B)(1).'' We are not making any reference to paragraph 
(f)(1)(iv)(B)(1) in Sec.  412.105(f)(1)(iv)(C)(2) because it is 
possible that a hospital may not have received a cap reduction either 
under section 1886(h)(7)(A) or section 1886(h)(8)(A) of the Act. We are

[[Page 72168]]

making these corrections to the regulations in this final rule. We 
appreciate the commenters' support of our proposed policy regarding 
treatment of hospitals' caps as reduced under section 422. We are 
finalizing our treatment of hospitals' caps as reduced under section 
422 as proposed.
11. Criteria for Determining Hospitals That Will Receive Increases in 
Their FTE Resident Caps
    Generally, under section 1886(h)(8)(A) of the Act, as added by 
section 5503(a)(4) of the Affordable Care Act, the Secretary is to 
reduce the FTE resident caps for hospitals that were training a number 
of residents below their otherwise applicable resident limit in the 
reference period by 65 percent of the ``excess'' resident slots. Under 
section 1886(h)(8)(B) of the Act, the Secretary is to ``redistribute'' 
the estimated number of FTE reductions under section 1886(h)(8)(A) of 
the Act to increase the FTE resident caps for use by other hospitals. 
Under section 1886(h)(8)(B)(i) of the Act, the Secretary is authorized 
to increase the otherwise applicable FTE resident cap for each 
qualifying hospital that submits a timely application by a number that 
the Secretary may approve, for portions of cost reporting periods 
occurring on or after July 1, 2011. In implementing section 
1886(h)(8)(B) of the Act, we note the difficulty in deciding how to 
prioritize hospitals' requests when redistributing unused resident 
slots. Therefore, in addition to some considerations and priorities in 
redistribution that are specified in section 5503 of the Affordable 
Care Act, in the August 3, 2010 proposed rule (75 FR 46396), we 
proposed certain additional criteria that we believe would allow for an 
objective decision-making process.
    Section 1886(h)(8)(B) of the Act, as added by section 5503 of the 
Affordable Care Act, establishes certain parameters in the statutory 
language for hospitals to meet to qualify to receive increases in their 
FTE resident caps. First, section 1886(h)(8)(B)(i) of the Act states 
that the aggregate number of increases in the otherwise applicable 
resident limits (caps) shall be equal to the aggregate reduction in the 
resident limits determined under section 1886(h)(8)(A) of the Act as 
estimated by the Secretary (as discussed in section XXI.D. of this 
preamble). Section 1886(h)(8)(F) of the Act states that in no case will 
any hospital receive an FTE cap increase of more than 75 FTE positions 
as a result of the redistribution. In addition, section 1886(h)(8)(C) 
of the Act specifies that, in determining which hospitals will receive 
the increases to their FTE resident caps, the Secretary is required to 
take into account the demonstrated likelihood that the hospital would 
be able to fill the position(s) within the first three cost reporting 
periods beginning on or after July 1, 2011, and whether the hospital 
has an accredited rural training track program.
    In setting up an application process for hospitals to apply for FTE 
resident cap increases from the redistribution pool (discussed in 
section XXI.D.12. of this preamble), in the August 3, 2010 proposed 
rule (75 FR 46397), we proposed to consider the ``demonstrated 
likelihood'' criterion under section 1886(h)(8)(C)(i) as an eligibility 
criterion that a hospital must meet in order for CMS to further 
consider the hospital's application for an increase in its FTE resident 
cap. We proposed that a hospital would meet the ``demonstrated 
likelihood'' criterion by demonstrating that it is either already 
training a number of FTE residents at or in excess of its current FTE 
caps (IME and direct GME FTE caps, respectively, including any 
applicable section 422 cap add-on), or that it does not have sufficient 
room under its current FTE caps to accommodate a planned new program or 
expansion of an existing program. We indicated that we believe it is 
appropriate to consider a hospital's ``demonstrated likelihood'' as a 
requirement because we believe such hospitals will be best positioned 
to make immediate and efficient use of any FTE cap increase, and 
thereby, to use any resulting increase in Medicare GME payments to 
train the physician workforce that will provide care to Medicare 
beneficiaries. Thus, we proposed that, in order to be eligible for 
consideration for an increase under section 1886(h)(8)(B) of the Act, a 
hospital must first demonstrate the likelihood that it will able to 
fill the slots within the first three cost reporting periods beginning 
on or after July 1, 2011, by meeting at least one of the following 
three criteria and by providing documentation that it meets the 
criterion in its application for an increase to its FTE resident cap:
    <bullet> Demonstrated Likelihood Criterion 1. The hospital does not 
have sufficient room under its current FTE cap for a new residency 
program that it intends to establish on or after July 1, 2011 (that is, 
a newly approved program that begins training residents at any point 
within the hospital's first three cost reporting periods beginning on 
or after July 1, 2011). Under this criterion, the hospital would select 
one of the following:
    (1) Hospital will establish a newly approved residency program. 
(Under this selection, the hospital would be required to check at least 
one of the following, if applicable):
    [squ] Application for approval of the new residency program has 
been submitted to the ACGME, AOA, or the ABMS by December 1, 2010. (The 
hospital would be required to attach a copy.)
    [squ] The hospital has submitted an institutional review document 
or program information form concerning the new program in an 
application for approval of the new program by December 1, 2010. (The 
hospital would be required to attach a copy.)
    [squ] The hospital has received written correspondence from the 
ACGME, AOA, or ABMS acknowledging receipt of the application for the 
new program, or other types of communication from the accrediting 
bodies concerning the new program approval process (such as 
notification of site visit). (The hospital would be required to attach 
a copy.)
    (2) Hospital will likely fill the slots requested. (The hospital 
would be required to select at least one of the following, if 
applicable.)
    [squ] The hospital does not have sufficient room under its FTE cap, 
and the hospital's existing residency programs had a combined resident 
fill rate of at least 85 percent in each of program years 2007 through 
2009. (The hospital would be required to attach documentation.)
    [squ] The hospital does not have sufficient room under its FTE cap, 
and the specialty program for which the hospital is applying has a 
resident fill rate either nationally, within the State, or within the 
CBSA in which the hospital is located, of at least 85 percent. (The 
hospital would be required to attach documentation.)
    <bullet> Demonstrated Likelihood Criterion 2. The hospital does not 
have sufficient room under its FTE cap, and the hospital intends to use 
the additional FTEs to expand an existing residency training program 
within the hospital's first three cost reporting periods beginning on 
or after July 1, 2011.
    (1) Hospital intends to expand an existing program. Under this 
selection, the hospital would be required to check at least one of the 
following, if applicable:
    [squ] The appropriate accrediting body (the ACGME, AOA, or ABMS) 
has approved the hospital's expansion of the number of FTE residents in 
the program. (The hospital would be required to attach documentation.)
    [squ] The American Osteopathic Association Residency Match Program

[[Page 72169]]

has accepted or will be accepting the hospital's participation in the 
match for the existing program that will include additional resident 
slots in that residency training program. (The hospital would be 
required to attach documentation.)
    [squ] The hospital has submitted an institutional review document 
or program information form for the expansion of the existing residency 
training program by December 1, 2010. (The hospital would be required 
to attach documentation.)
    (2) Hospital will likely fill the slots of the expanded existing 
residency program. Under this selection, the hospital would be required 
to check at least one of the following, if applicable:
    [squ] The hospital does not have sufficient room under its FTE cap, 
and the hospital has other previously established residency programs, 
with a resident fill rate of at least 85 percent in each of program 
years 2007 through 2009.) (The hospital would be required to attach 
documentation.)
    [squ] The hospital does not have sufficient room under its FTE cap, 
and the hospital is expanding an existing program in a particular 
specialty with a resident fill rate either nationally, within the 
State, or within the CBSA in which the hospital is located, of at least 
85 percent. (The hospital would be required to attach documentation.)
    <bullet> Demonstrated Likelihood Criterion 3. The hospital is 
applying for an increase in its FTE resident cap because the hospital 
is already training residents in an existing residency training 
program(s) in excess of its direct GME FTE cap or IME FTE cap, or both. 
The hospital would be required to attach copies of each of the 
following:

--Copies of the Medicare cost reports that have been most recently 
submitted to the Medicare contractor on or by July 1, 2010, documenting 
on Worksheet E, Part A, Worksheet E-3, Part IV, and Worksheet E-3, Part 
VI, the resident counts and FTE resident caps for both direct GME and 
IME for the relevant cost reporting periods.
--Copies of the 2010 residency match information concerning the number 
of residents at the hospital in its existing programs (that is, all 
programs, not only the ones for which the hospital may be requesting 
more slots).
--Copies of the most recent accreditation letters on all of the 
hospital's training programs in which the hospital trains and counts 
FTE residents for direct GME and IME.

    In the August 3, 2010 proposed rule, we proposed that each hospital 
applying for an increase under section 1886(h)(8)(B)(i) of the Act 
would be required to meet at least one of the above criteria in order 
to demonstrate the likelihood that it will be able to fill the 
additional slots associated with any increase in the hospital's FTE 
resident cap within the first three cost reporting periods beginning on 
or after July 1, 2011. In other words, each hospital that wishes to 
apply for an increase in its FTE resident cap, as a preliminary matter, 
would be required to meet the ``demonstrated likelihood'' criterion in 
order for CMS to further consider the hospital's application for an 
increase in its FTE resident cap.
    Although a hospital might be applying for additional slots for more 
than one specialty program, each application by a hospital must be 
program-specific. That is, the hospital would be required to complete a 
separate CMS evaluation form for each program and to demonstrate the 
likelihood of filling the slots in each program. However, in accordance 
with our general policy with respect to FTE resident caps, increases in 
hospital's FTE resident caps under section 1886(h)(8)(B)(i) of the Act 
for direct GME and IME, once granted to a hospital, would no longer be 
program-specific. Rather, the hospital's adjusted FTE resident caps 
would be applied to the hospital's FTE resident counts, including any 
residents the hospital trains. However, we noted, that for FTE 
residents counted as a result of an increase in the FTE resident caps 
under section 422 of Public Law 108-173, payment is calculated 
separately for direct GME purposes using the national average PRA and, 
for IME purposes using a multiplier of 0.66. If a hospital receives an 
increase to its FTE resident cap(s) under section 5503 of the 
Affordable Care Act, and also received a cap increase under section 
422, we proposed that the hospital would first assess whether it is 
training a number of residents in excess of its combined 1996 FTE and 
section 5503 caps and, only if its number of FTE residents still 
exceeds this combined cap would the separate 422 payment rates be 
applied to the excess FTEs for IME and direct GME respectively. 
Nevertheless, while the slots a hospital would receive under section 
1886(h)(8)(B)(i) of the Act for direct GME and IME, once granted to a 
hospital, would no longer be program-specific, the hospital that 
receives the slots must comply with the requirements specified at 
section 1886(h)(8)(B)(ii) of the Act for a 5-year period; that is, 
maintaining the primary care average and the 75-percent threshold. In 
addition, we note that because of the 75-percent threshold, a hospital 
cannot apply for slots under section 5503 only for a non-primary care 
program (other than general surgery). However, a hospital could apply 
for slots, and demonstrate that it needs 75 percent of those slots to 
start or expand a particular primary care (or general surgery) program, 
and that it needs 25 percent of those slots for use in a particular 
nonprimary care program. However, the hospital's request for each 
program will be evaluated separately. The hospital's request for slots 
to start or expand a particular primary care (or general surgery) 
program could receive some points under the Evaluation Criteria, and 
may be fulfilled, while the hospital's request for slots for use in a 
non-primary care program would not receive any points and would be 
ranked last after all other applications for primary care or general 
surgery programs. For example, a hospital could apply for a total of 4 
slots; 3, or 75 percent, for use in starting a geriatrics fellowship 
program (5 points under Evaluation Criterion Two), and 1, or 25 
percent, to be used to add a Vascular & Interventional Radiology fellow 
(0 points). The hospital would likely be awarded three slots for 
geriatrics, but the chances that it would also be rewarded one slot for 
the Vascular & Interventional Radiology fellow are very slim, as the 
request for this program would be ranked last after all requests for 
primary care or general surgery programs.
    For purposes of the application for the increase to the FTE caps 
under section 1886(h)(8)(B)(i) of the Act, we proposed to define 
``national fill rate'' for each academic year, as we did when 
implementing section 422 of Public Law 108-173. That is, we defined 
``national fill rate'' as the number of residents training in a program 
nationally as compared to the number of accredited slots in that 
program as of June 30 of that year. This information is available from 
the ACGME and the AOA. Furthermore, we proposed to require that, for 
the purposes of an application for an increase to a hospital's FTE 
resident cap under section 1886(h)(8)(B) of the Act, a hospital must 
use the ``fill rate'' for the most recent academic year for which data 
are available.
    We understand that hospitals may train fewer residents than the 
number of available accredited slots in their approved programs due to 
reasons other than an inability to fill those slots. Furthermore, 
because we understand that a national fill rate is not necessarily the 
only indicator of the ability of hospitals to fill residency positions 
in its CBSA or State, and there may be

[[Page 72170]]

characteristics particular to a region, such as population density, 
variety of practice settings, or access to technology or procedures 
that may allow a specified area to have a fill rate in a specific 
program that exceeds the program's national fill rate, we proposed 
several options for a hospital to satisfy the ``fill rate''' criterion. 
In part, as when implementing section 422 of Public Law 108-173, we 
specified that the fill rate ``threshold'' is 85 percent. We believe 
that this rate will reasonably identify those programs that are likely 
to fill FTE resident positions in newly approved or expanded programs 
(while providing some latitude to account for other factors that affect 
the national fill rate), and to fully utilize an increase in FTE 
resident cap slots that may be available under section 1886(h)(8)(B) of 
the Act as added by section 5503 of the Affordable Care Act. We 
proposed that a hospital may demonstrate the likelihood of filling FTE 
resident positions associated with a possible increase in its FTE 
resident cap under section 5503 by documenting that any of the 
following applies to the new program or to an expansion of an existing 
program:
    <bullet> The specialty program has a resident fill rate nationally, 
across all hospitals, of at least 85 percent.
    <bullet> The specialty program has a resident fill rate within the 
State in which the hospital is located of at least 85 percent.
    <bullet> If the hospital is located within an urban CBSA, the 
specialty program has a resident fill rate within the CBSA of at least 
85 percent.
    For the purposes of demonstrating the likelihood of filling FTE 
resident positions under section 1886(h)(8)(C)(i) of the Act, as added 
by section 5503, we proposed that ``national fill rate'' means, for the 
most recent academic year for which data is available, the number of 
residents training in a program nationally (combined allopathic and 
osteopathic residents) compared to the number of accredited slots in 
that program nationally as of June 30 of that year. The proposed 
Demonstrated Likelihood Criterion 1 and Demonstrated Likelihood 
Criterion 2 also allow a hospital to demonstrate the likelihood of 
filling the requested slots by demonstrating that the hospital's 
existing residency programs had a ``resident fill rate'' of at least 85 
percent in each program year from 2007 through 2009. For the purpose of 
fulfilling these demonstrated likelihood criteria, we proposed to 
define ``resident fill rate'' to mean, for the most recent academic 
year for which data is available, the number of residents training in 
each program in total at a particular hospital as compared to the 
number of accredited slots in each program in total at that hospital as 
of June 30 of that year.
    We also understand that, for certain programs, because of the 
length of the accreditation process and a relatively long match period, 
a hospital may be unable to accept its first class of PGY-1 residents 
until July 1, 2012. In the August 3, 2010 proposed rule (75 FR 46398 
through 46399), we proposed that the hospital may still apply to 
receive a full complement of residents for the 3 years beginning July 
1, 2012, assuming the applicant hospital can demonstrate the likelihood 
that it will fill the slots relating to a possible increase in its FTE 
resident caps under section 1886(h)(8)(B)(i). However, if the applicant 
hospital does not demonstrate the likelihood that it will fill any FTE 
slots for programs described by the hospital on the CMS evaluation 
form(s) at any point within the hospital's first three cost reporting 
periods beginning on or after July 1, 2011, the hospital would not be 
eligible for further consideration by CMS of an increase to the 
hospital's FTE caps under section 1886(h)(8)(B)(i). Accordingly, our 
proposed Demonstrated Likelihood Criterion 1 would reflect that the 
hospital does not have sufficient room under its FTE cap to train 
residents in a newly approved residency program that it demonstrates it 
will establish within the hospital's first three cost reporting periods 
beginning on or after July 1, 2011 (that is, a newly approved program 
that begins training residents at any point within the hospital's first 
three cost reporting periods beginning on or after July 1, 2011)'' 
(emphasis added).
    Under Demonstrated Likelihood Criterion 3, we proposed to allow a 
hospital that is already training a number of FTE residents in an 
existing residency training program(s) in excess of its direct GME FTE 
cap or IME FTE cap, or both, to meet the demonstrated likelihood 
requirement. In order to document that it meets this criterion, a 
hospital would be required to submit copies of the 2010 ``residency 
match'' information concerning the number of residents the hospital has 
in an existing program. We believed the most recent match information 
could indicate that the hospital is expected to take in more residents 
than the number of cap slots it has available. For purposes of the 
application of this demonstrated likelihood criterion, we proposed to 
define ``residency match'' as a national process administered by the 
National Residency Matching Program (NRMP), including the NRMP's 
Specialties Matching Service, the San Francisco Matching Program, the 
American Osteopathic Association Residency Match Program, or the 
Urology Matching Program, by which applicants to approved medical 
residency programs are paired with programs on the basis of preferences 
expressed by both the applicants and the program directors. (We note 
that in this final rule, we removed Demonstrated Likelihood Criterion 
3).
    We also noted in the proposed rule that under Demonstrated 
Likelihood Criteria 2 and 3, the hospital would be applying for an 
increase in its FTE cap because it is expanding an existing residency 
program, or it is already training residents in an existing residency 
training program(s) in excess of its FTE caps, respectively. By 
existing program, we proposed that, as of July 1, 2010, the hospital is 
either already training residents in this program or programs, or the 
program exists at another hospital prior to July 1, 2011, but the 
residents begin to rotate at the applying hospital on or after July 1, 
2011. We set forth several proposed methods for hospitals to be able to 
demonstrate to CMS under the proposed Demonstrated Likelihood Criterion 
1 that they can fill the slots by showing CMS that they are 
establishing a new residency program on or after July 1, 2011. We 
believe hospitals that establish new residency programs before July 1, 
2011, could possibly also meet Demonstrated Likelihood Criterion 2, 
relating to a hospital that is expanding an existing residency program 
on or after July 1, 2011. From the perspective of applying for the cap 
increase under section 1886(h)(8)(B)(i) of the Act, the new program 
that starts training residents in 2010 is an ``existing residency 
program'' because it began before July 1, 2011, and it is ``expanding'' 
if that program is increasing the number of FTE residents in the first 
three cost reporting periods beginning on or after July 1, 2011.
    We noted that the listing of programs participating in the AOA 
Match Program will be available on the National Matching Services Web 
site as of November 1, 2010. Therefore, we proposed that programs 
utilizing the AOA Match Program may, in addition to the two options 
listed above, demonstrate the intent to expand an existing program by 
documenting that the AOA has accepted the hospital's participation in 
the match program by the December 1, 2010 application deadline. 
Therefore, we proposed that this method of demonstrating the hospital's 
intent to expand an existing program would be applicable for

[[Page 72171]]

programs participating in the AOA Match Program.
    Comment: One commenter requested that CMS clarify that 
``Demonstrated Likelihood Criterion 3'' applies both to hospitals at 
their cap as well as to those training residents ``in excess of'' their 
cap. The commenter noted that on page 46397 of the proposed rule, CMS 
states that a hospital may meet this demonstrated likelihood criterion 
``by demonstrating that it is [ ] already training a number of FTE 
residents at or in excess of its current FTE caps;'' however, the 
longer description of ``Demonstrated Likelihood Criterion 3'' on page 
46398 states that a hospital ``is applying for an increase in its FTE 
resident cap because the hospital is already training residents in an 
existing residency training program(s) in excess of its direct GME FTE 
cap or IME FTE cap, or both.''
    Another commenter thought that hospitals that are currently 
exceeding their caps should qualify to receive additional cap slots 
even without adding a new program or expanding an existing program. The 
commenter stated that CMS' explanation of the application of the ``75 
percent'' test makes it appear that it is impossible to obtain 
increases to the caps without either starting or expanding a program. 
The commenter believed that there are inconsistencies in the preamble 
that permit a hospital that is over its cap to meet the ``Demonstrated 
Likelihood'' criteria without adding or expanding a program, and the 
point criteria which do not make adding or expanding a program 
essential, and the 75 percent test which cannot be satisfied without 
adding or expanding a program.
    Response: After reading these comments and reviewing the proposed 
Demonstrated Likelihood Criteria 1, 2, and 3, we agree that 
clarification and revision of the criteria are necessary. Specifically, 
we are revising Demonstrated Likelihood Criteria 1 to incorporate the 
point that a hospital is applying for additional cap slots because it 
is either already exceeding its FTE cap, or it does not have sufficient 
room under its FTE cap to start a new program. For Demonstrated 
Likelihood Criterion 2, we are incorporating the point that a hospital 
is applying for additional cap slots because it is either already 
exceeding its FTE cap, or it does not have sufficient room under its 
FTE cap to expand an existing program. Thus, Demonstrated Likelihood 
Criteria 1 and 2 may apply to a hospital that may or may not already be 
exceeding its FTE cap, but it definitely plans on starting a new or 
expanding an existing program. Because we are specifying in this final 
rule that Demonstrated Likelihood Criteria 1 and 2 may also apply for 
hospitals that are in excess of their caps (albeit not solely for cap 
relief), we are adding that hospitals applying under these criteria 
could also submit copies of their Medicare cost report worksheets, 
documenting that they are in excess of their caps. However, in this 
final rule, instead of stating that the hospital must submit a copy of 
the Medicare cost report that has been most recently submitted to the 
Medicare contractor by July 1, 2010, as we stated in the proposed rule, 
we are stating that the hospital must submit a copy of the Medicare 
cost report that has been most recently submitted to the Medicare 
contractor on or before March 23, 2010, documenting on Worksheet E, 
Part A, Worksheet E-3, Part IV, and Worksheet E-3, Part VI, the 
resident counts and FTE resident caps for both direct GME and IME for 
the relevant cost reporting periods. We are removing the proposed 
Demonstrated Likelihood Criterion 3 from this final rule because it is 
duplicative. Further, it has confused the commenters and has led some 
to believe that hospitals that are already training residents in excess 
of their caps, and are seeking the additional slots for cap relief, 
rather than for the purpose of starting a new or expanding an existing 
program, may apply for slots under section 5503. Since the intent of 
section 5503 is to increase the number of primary care or general 
surgery physicians by providing Medicare funding for new primary care 
or general surgery positions (either through establishment of new 
programs or expansions of existing programs), as the 75 percent 
requirement indicates, it would be inconsistent with this intent to 
provide funding for already existing positions. Thus, if hospitals are 
willing to increase the number of primary care or general surgery 
residents they are training above current levels, there may be some 
funding available under section 5503 for them to do so. Accordingly, we 
are clarifying that a hospital may not request additional slots under 
section 5503 solely for the purpose of cap relief. We explain in great 
detail below in response to comments regarding the primary care average 
requirement and the 75 percent threshold requirement how a hospital 
that is exceeding its FTE caps and that applies for additional slots 
would have to increase the number of residents it is training in order 
to meet the 75 percent threshold requirement. We refer readers to those 
comments and responses below.
    With regard to the commenter's belief that there are 
inconsistencies in the preamble that permit a hospital that is over its 
cap to meet the ``Demonstrated Likelihood'' criteria without adding or 
expanding a program, and the Evaluation Criteria which do not make 
adding or expanding a program essential, we have reviewed the 
Evaluation Criteria and we believe that proposed Evaluation Criteria 
Two, Three, and Four specifically state that the ``hospital will use 
the additional slots to establish a new or expand an existing 
program.'' This implies that the hospital intends to create new 
positions, rather than only seeking cap relief for existing positions. 
Proposed Evaluation Criteria One, Five, and Six are specific to the 
hospital's situation, rather than its particular programs, and they can 
be used in addition to Evaluation Criteria Two, Three, and Four. 
Therefore, we do not agree that there are inconsistencies between the 
proposed (or final) Demonstrated Likelihood Criteria and Evaluation 
Criteria.
    Comment: One commenter agreed with CMS' proposal that one way of 
demonstrating the likelihood of filling slots awarded under section 
5503 is for a hospital to show that it is already training residents in 
excess of its cap, but thought that the documentation requirements for 
such a hospital is ``excessive.'' The commenter found it to be 
``particularly perplexing'' that ``three pieces of documentation would 
be required for a criterion that is the most straightforward rationale 
for requesting additional cap slots.'' The three pieces are (1) copies 
of most recent Medicare cost reports, documenting the DGME and IME 
caps, (2) copies of the 2010 residency match information concerning the 
number of residents at the hospital in its existing programs (all 
programs--not just the programs for which the hospital is requesting 
additional slots), and (3) copies of the most recent accreditation 
letters on all of the hospital's training programs for which the 
hospital trains and counts residents for DGME and IME payments. The 
commenter did not see the need to submit 2010 residency match 
information, ``because these data do not necessarily indicate the total 
number of residents training at an institution,'' and submission of 
accreditation information is also ``unnecessary and burdensome, 
particularly for institutions with 75 or more residency and fellowship 
programs--which is not uncommon.'' The commenter urged CMS to adopt 
only the requirement that copies of the most recent Medicare cost 
reports be submitted for Demonstrated Likelihood Criterion 3, and at a 
minimum, this requirement should be the requirement

[[Page 72172]]

for hospitals that were over their caps in all of the past three cost 
reporting periods. Another commenter asked CMS to clarify which cost 
reporting periods will be used to determine whether a hospital is 
``currently'' over its cap.
    Response: As we explained in response to the previous comment, we 
are clarifying that a hospital may not request additional cap slots 
under section 5503 merely for cap relief. Furthermore, since we have 
consolidated Demonstrated Likelihood Criteria 1 and 2, we are removing 
Demonstrated Likelihood Criterion 3 and its attending documentation 
requirements that the commenter believed were overly burdensome from 
this final rule.
    Comment: One commenter believed that CMS should include an 
exception for family medicine in the fill rate requirement and expanded 
need requirement for the Demonstrated Likelihood Criteria 1 and 2. The 
commenter argued that the accreditation process for family medicine is 
unique in that it allows for ``leeway'' in the number of residents 
allowed to be trained. The commenter stated that a program may increase 
its complement of residents by a ``limited, yet unstated'' number as 
long as it is justified in its next accreditation review or approval 
cycle and as such, a specific number would not be stated. For the same 
reasons, the commenter further asserted that the information on a 
family medicine accreditation letter for Demonstrated Likelihood 
Criterion 3 would be inappropriate.
    This commenter also noted that CMS seems to switch from using fill 
rate data to match data in Demonstrated Likelihood Criterion 3. The 
commenter recommended that CMS use fill rate data because ``match data 
is incomplete and inaccurate as an aid to determining a resident 
census.''
    Response: We note first that, as stated in response to previous 
comments, we have eliminated Demonstrated Likelihood Criterion 3 from 
this final rule. Second, we are unsure of the precise question that the 
commenter is asking. It appears that the commenter is stating that 
directors of family medicine programs need not request approval from 
the ACGME every time they want to expand an existing program by a 
``limited'' number of unspecified positions, so long as the increase in 
resident positions is declared and explained at the next accreditation 
review. If we are understanding the commenter correctly, we think the 
commenter is asking that hospitals that are applying for additional 
slots for the purpose of using those slots for a family medicine 
program should not be required to submit to CMS applications for 
approval (or actual approvals) of new or expansions of existing family 
medicine programs to the ACGME, or copies of recent accreditation 
letters. However, we do not think we should make a special exception to 
the Demonstrated Likelihood Criteria for family medicine programs since 
we have heard of situations where hospitals have increased their number 
of residents training in various programs (not just family medicine) 
above the number of accredited slots without immediate approval of the 
increase and without repercussions from the ACGME. Furthermore, even if 
a hospital increases the number of residents in a particular residency 
program, and that increase is not significant enough to definitely 
require pre-approval from the ACGME, we believe that requiring 
hospitals to submit to CMS as part of the Demonstrated Likelihood 
requirements applications for approval to expand programs is 
appropriate in the context of applications for additional slots under 
section 5503. The statute requires hospitals to ``demonstrate the 
likelihood'' of filling the positions, and documents submitted to the 
ACGME either requesting approval of, or received from the ACGME showing 
approval of expansions of existing programs demonstrates a commitment 
on the part of the hospital to actually expand those programs. 
Furthermore, although the commenter asked for an exception for family 
medicine programs from Demonstrated Likelihood Criterion 1, which is 
applicable to hospitals seeking slots with which to start a new program 
(in addition to asking for an exception to Demonstrated Likelihood 
Criterion 2), we are skeptical that the ACGME would actually allow a 
hospital to start a brand new family medicine program, without any 
submission of documentation at all. Although we understand that there 
are instances where residents may begin training in a new program on 
July 1 of an academic year, and the ACGME may retroactively accredit 
that program a few months later, the hospital would certainly have 
submitted to the ACGME an institutional review document or program 
information form concerning the new program, and by such time as the 
hospital begins to train the residents, we would hope that the hospital 
would have received written correspondence from the ACGME acknowledging 
receipt of the application for the new program, and notification of a 
site visit, as described under the requirements for Demonstrated 
Likelihood Criterion 1. Therefore, we are not revising the 
documentation requirements under Demonstrated Likelihood Criteria 1 and 
2 specifically for family medicine.
    However, we do believe some revision can be made to the 
documentation requirements under Demonstrated Likelihood Criterion 1 to 
ease the burden on hospitals applying for slots under section 5503 for 
family medicine and other programs. Under the proposed Demonstrated 
Likelihood Criterion 1, a hospital could demonstrate that it would 
likely fill the slots in a new program by showing that it (1) already 
received approval from the ACGME, AOA, or ABMS, (2) has already 
submitted an institutional review document or program information form 
requesting approval for a new program, or (3) has received 
correspondence from the accrediting agencies acknowledging receipt of 
the application for the new program, or other types of communication 
regarding the approval process. We understand that completing the 
program information form can be a time-consuming and lengthy process, 
which may pose some challenges for hospitals to complete in a timely 
fashion and meet CMS' application deadline for receipt of slots under 
section 5503. Therefore, we are adding a fourth option under 
Demonstrated Likelihood Criterion 1 which we believe may make it easier 
for some hospitals to comply with this criterion. Specifically, we are 
adding that the hospital may submit documentation demonstrating that it 
has made a commitment to start a new program. One example of such a 
commitment would be for the hospital to provide the minutes from the 
meeting at which the hospital's GME committee gave approval for the 
hospital to proceed with the process of applying to the accrediting 
agency for approval to start a new program. We are not adding a similar 
option under Demonstrated Likelihood Criterion 2 because we understand 
that the process for requesting approval to expand an existing program 
is not as time-consuming and labor-intensive as the process for 
requesting approval for a brand new program.
    We are revising and consolidating the Demonstrated Likelihood 
Criteria as follows:
    <bullet> Demonstrated Likelihood Criterion 1. The hospital is 
training residents in excess of its FTE resident cap(s), or does not 
have sufficient room under its current FTE cap(s), and the hospital 
intends to use the additional FTEs for a new residency program that it 
intends to start on or after July 1, 2011 (that is, a newly approved 
program that begins training residents at any point within

[[Page 72173]]

the hospital's first three cost reporting periods beginning on or after 
July 1, 2011). Under this criterion, the hospital must select one of 
the following:
    (1) Hospital will establish a newly approved residency program. 
(Under this selection, the hospital must check at least one of the 
following, if applicable):
    [square] Application for approval of the new residency program has 
been submitted to the ACGME, AOA, or the ABMS by January 21, 2011. (The 
hospital must attach a copy.)
    [square] The hospital has submitted an institutional review 
document or program information form concerning the new program in an 
application for approval of the new program by January 21, 2011. (The 
hospital must attach a copy.)
    [square] The hospital has received written correspondence from the 
ACGME, AOA, or ABMS acknowledging receipt of the application for the 
new program, or other types of communication from the accrediting 
bodies concerning the new program approval process (such as 
notification of site visit). (The hospital must attach a copy.)
    [square] The hospital may submit documentation demonstrating that 
it has made a commitment to start a new program.
    (2) Hospital will likely fill the slots requested. (The hospital 
must select at least one of the following, if applicable.)
    [square] The hospital does not have sufficient room under its FTE 
cap, or is exceeding its FTE cap, and the hospital's existing residency 
programs had a combined resident fill rate of at least 85 percent in 
each of program years 2007 through 2009. (The hospital must attach 
documentation.)
    [square] The hospital does not have sufficient room under its FTE 
cap, or is exceeding its FTE cap, and the specialty program for which 
the hospital is applying has a resident fill rate either nationally, 
within the State, or within the CBSA in which the hospital is located, 
of at least 85 percent. (The hospital must attach documentation.)
    [square] The hospital is training residents in excess of its direct 
GME FTE cap, or IME FTE cap, or both. The hospital must submit a copy 
of the Medicare cost report that has been most recently submitted to 
the Medicare contractor on or before January 21, 2011, documenting on 
Worksheet E, Part A, Worksheet E-3, Part IV, and Worksheet E-3, Part 
VI, the resident counts and FTE resident caps for both direct GME and 
IME for the relevant cost reporting periods.
    <bullet> Demonstrated Likelihood Criterion 2. The hospital is 
training residents in excess of its FTE cap(s), or does not have 
sufficient room under its FTE cap(s), and the hospital intends to use 
the additional FTEs to expand an existing residency training program 
within the hospital's first three cost reporting periods beginning on 
or after July 1, 2011.
    (1) The hospital intends to expand an existing program. Under this 
selection, the hospital must check at least one of the following, if 
applicable:
    [square] The appropriate accrediting body (the ACGME, AOA, or ABMS) 
has approved the hospital's expansion of the number of FTE residents in 
the program. (The hospital must attach documentation.)
    [square] The American Osteopathic Association Residency Match 
Program has accepted or will be accepting the hospital's participation 
in the match for the existing program that will include additional 
resident slots in that residency training program. (The hospital must 
attach documentation.)
    [square] The hospital has submitted an institutional review 
document or program information form for the expansion of the existing 
residency training program by January 21, 2011. (The hospital must 
attach documentation.)
    (2) Hospital will likely fill the slots of the expanded existing 
residency program. Under this selection, the hospital must check at 
least one of the following, if applicable:
    [square] The hospital does not have sufficient room under its FTE 
cap, or is exceeding its FTE cap, and the hospital has other previously 
established residency programs, with a resident fill rate of at least 
85 percent in each of program years 2007 through 2009.) (The hospital 
must attach documentation.)
    [square] The hospital does not have sufficient room under its FTE 
cap, or is exceeding its FTE cap, and the hospital is expanding an 
existing program in a particular specialty with a resident fill rate 
either nationally, within the State, or within the CBSA in which the 
hospital is located, of at least 85 percent. (The hospital must attach 
documentation.)
    [square] The hospital is training residents in excess of its direct 
GME FTE cap, or IME FTE cap, or both. The hospital must submit a copy 
of the Medicare cost report that has been most recently submitted to 
the Medicare contractor by March 23, 2010, documenting on Worksheet E, 
Part A, Worksheet E-3, Part IV, and Worksheet E-3, Part VI, the 
resident counts and FTE resident caps for both direct GME and IME for 
the relevant cost reporting periods.
    Comment: One commenter requested that CMS allow hospitals to 
demonstrate their likelihood of using redistributed slots for three 
reporting periods beginning July 1, 2012, instead of July 1, 2011, as 
CMS has proposed. The commenter posited that by using the reporting 
period beginning July 1, 2012, hospitals would be able to document with 
greater precision their effective use of the redistributed slots.
    Response: We understand that three cost reporting periods after a 
date of July 1, 2012, would give the commenters more time to 
demonstrate their effective use of the redistributed slots. However, we 
do not have any flexibility in choosing this date because section 
1886(h)(8)(C) of the Act clearly specifies that the Secretary is 
required to take into account the demonstrated likelihood that a 
hospital would be able to fill the position(s) within the first 3 cost 
reporting periods beginning on or after July 1, 2011.
    After consideration of the public comments we received, we are 
revising Demonstrated Likelihood Criteria 1 to incorporate the point 
that a hospital is applying for additional cap slots because it is 
either already exceeding its FTE cap, or it does not have sufficient 
room under its FTE cap and plans to start a new program. We also are 
revising Demonstrated Likelihood Criterion 1 to add that the hospital 
may submit documentation demonstrating that it has made a commitment to 
start a new program. For Demonstrated Likelihood Criterion 2, we are 
incorporating the point that a hospital is applying for additional cap 
slots because it is either already exceeding its FTE cap, or it does 
not have sufficient room under its FTE cap and it plans to expand an 
existing program. Thus, Demonstrated Likelihood Criteria 1 and 2 may 
apply to a hospital that may or may not already be exceeding its FTE 
cap, but it definitely plans on starting a new or expanding an existing 
program. Because we are specifying in this final rule that Demonstrated 
Likelihood Criteria 1 and 2 may also apply for hospitals that are in 
excess of their caps, we are adding that hospitals applying under these 
criteria must also submit copies of their Medicare cost report 
worksheets, documenting that they are in excess of their caps. 
Therefore, we are removing the proposed Demonstrated Likelihood 
Criterion 3 from this final rule because it is duplicative. Further, we 
are clarifying that because the intent of section 5503 is to increase 
the number of primary care or general surgery physicians by providing 
Medicare funding for new primary care or general surgery positions 
(either through establishment of new programs or expansions of existing 
programs),

[[Page 72174]]

hospitals may not apply to receive slots under section 5503 for the 
purpose of cap relief.
12. Application Process for the Increases in Hospitals' FTE Resident 
Caps
    In order for hospitals to be considered for increases to their FTE 
resident caps under section 1886(h)(8)(B)(i) of the Act, as added by 
section 5503(a)(4) of the Affordable Care Act, in the August 3, 2010 
proposed rule (75 FR 46399), we proposed to require that each 
qualifying hospital submit a timely application by December 1, 2010. As 
part of the requirements that a hospital must fulfill in order to 
complete an application for an increase to its FTE resident caps, we 
proposed to require that the applicant hospital must include the total 
number of requested FTE resident slots (for all residency programs) for 
direct GME or IME, or both (not to exceed 75 FTEs for each, as 
specified under section 1886(h)(8)(F) of the Act). Thus, we would 
require that the hospital's total requests for increases in the IME and 
the direct GME caps (that is, the total number of requested FTE 
resident slots increases (for all residency programs at the hospitals)) 
would be required to be indicated on the same application for an 
increase under section 1886(h)(8)(B)(i) of the Act. We proposed that 
each hospital must submit the following information on its application 
for an increase in its FTE resident cap:
    <bullet> The name and Medicare provider number of the hospital, and 
the name of the Medicare contractor to which the hospital submits its 
cost report.
    <bullet> The total number of requested FTE resident slots (for all 
residency programs at the hospital) for direct GME or IME, or both (not 
to exceed 75 FTEs each).
    <bullet> A completed copy of the CMS evaluation form (as described 
below) for each residency program for which the applicant hospital 
intends to use the requested increase in the number of FTE residents 
and source documentation to support the assertions made by the hospital 
on the evaluation form. (For example, if the hospital checks off on the 
evaluation form that the hospital is starting a new geriatrics program, 
the hospital would include documentation to support that assertion.)
    <bullet> FTE resident counts for direct GME and IME and FTE 
resident caps for direct GME and IME reported by the hospital in the 
most recent as-filed cost report (as clarified in this final rule, 
submitted by March 23, 2010). (The hospital would be required to 
include copies of Worksheets E, Part A, E-3, Part IV, and if a hospital 
received an increase to its FTE cap(s) under section 422 of Public Law 
108-173, a copy of Worksheet E-3, Part VI.)
    <bullet> An attestation, signed and dated by an officer or 
administrator of the hospital who signs the hospital's Medicare cost 
report, of the following information in the hospital's application for 
an increase in its FTE resident cap:

    ``I hereby certify that I understand that misrepresentation or 
falsification of any information contained in this application may 
be punishable by criminal, civil, and administrative action, fine 
and/or imprisonment under federal law. Furthermore, I understand 
that if services identified in this application were provided or 
procured through payment directly or indirectly of a kickback or 
were otherwise illegal, criminal, civil, and administrative action, 
fines and/or imprisonment may result. I also certify that, to the 
best of my knowledge and belief, it is a true, correct, and complete 
application prepared from the books and records of the hospital in 
accordance with applicable instructions, except as noted. I further 
certify that I am familiar with the laws and regulations regarding 
Medicare payment to hospitals for the training of interns and 
residents.''

    We proposed that any hospital that wishes to apply for an increase 
in its FTE resident cap(s) under section 1886(h)(8)(B)(i) of the Act 
must submit a copy of its completed application (as described above) to 
the CMS Central Office and to the CMS Regional Office for the region in 
which the applicant hospital is located, and that the application must 
be received by CMS on or before December 1, 2010. (The mailing 
addresses for the CMS offices are indicated at the end of this section 
of the preamble.) We noted that some hospitals' FTE counts would be 
subject to audit for purposes of possible cap reductions under section 
1886(h)(8)(A)(i) of the Act, and those audits may not be completed by 
December 1, 2010. Because the results of such an audit may be a factor 
in a hospital's decision whether to request an increase in its FTE 
resident cap under section 1886(h)(8)(B)(i) of the Act, we proposed to 
allow a later date for those hospitals to apply for increases in their 
FTE resident caps. Therefore, if a hospital's resident level is audited 
for purposes of section 1886(h)(8)(A) of the Act, whether or not the 
hospital's FTE resident caps are reduced under section 1886(h)(8)(A) of 
the Act, if that hospital wishes to apply for an increase in its FTE 
resident cap(s) available under section 1886(h)(8)(B)(i) of the Act, we 
proposed that the hospital must submit a completed application to CMS 
and that the application must be received on or before March 1, 2011.
    We note that, although a hospital might be applying for an increase 
to its FTE caps either to start a new program or expand a particular 
program, the FTE caps are not program-specific; but rather, they are 
hospital-specific. A hospital, and not a particular residency training 
program, would be applying for an increase to its FTE caps. We proposed 
that all completed applications that are timely received according to 
the above deadlines would be evaluated by CMS according to the criteria 
described under section XXI.D.14. of this preamble for determining the 
priority distribution of FTE resident slots. Hospitals that satisfy at 
least one of the ``demonstrated likelihood'' criteria would be further 
evaluated by the evaluation criteria described below.
    Comment: Commenters expressed concern regarding the proposed 
application deadline of December 1, 2010, for hospitals to apply for 
additional slots under section 5503. The commenters understand the 
short time frame CMS has to implement section 5503, but believe this 
deadline does not provide hospitals sufficient time after November 1, 
2010, the date by which the final rule will be issued, to prepare their 
applications. The commenters noted that CMS proposed a second deadline 
of March 1, 2011, for certain hospitals that will be subject to an 
audit for purposes of determining a possible cap reduction, but those 
audits may not be completed by December 1, 2010. The commenters 
requested that CMS make March 1, 2011, the deadline for all hospitals 
to apply for slots under section 5503 since CMS would need to wait for 
the March 1 applications to be submitted before beginning the process 
of awarding slots anyway.
    Response: While we agree with the commenters that more time is 
needed by hospitals after November 1, 2010, to review the final 
policies, gather documentation, and to submit the applications to CMS, 
we do not believe that it is necessary to extend the deadline to March 
1, 2011 for all hospitals. Therefore, we are establishing the 
application deadline for hospitals requesting slots under section 5503 
in this final rule to be Friday, January 21, 2011. However, if a 
hospital is notified that it will be audited for purposes of 
determining a possible cap reduction, such a hospital would be allowed 
to submit an application for additional cap slots by March 1, 2011.
    Comment: One commenter urged CMS to reduce its proposed limit of 75 
positions allowed for distribution to a single hospital in order to 
create opportunity for more institutions and more geographically 
diverse locations to meet requirements. The commenter

[[Page 72175]]

noted that it is highly likely that many of these positions would be 
used to sustain existing positions and, therefore, not meet the intent 
of the overall legislation. Additionally, the availability of positions 
in the environment must also be approved by the accrediting body that 
will have to evaluate the overall availability of teaching experiences 
and the impact on existing programs and existing complements of 
residents.
    Response: As described in the August 3, 2010 proposed rule (75 FR 
46390), section 5503 of the Affordable Care Act, which added a new 
section 1886(h)(8)(F) to the Act, specifically provides that a hospital 
may not receive more than 75 additional FTE slots under the section 
5503 redistribution for direct GME and for IME, respectively. 
Therefore, a reduction to the limit of 75 positions for distribution to 
a single hospital is not authorized under the Affordable Care Act.
    Comment: Another commenter noted that in order to be considered for 
increases to its FTE resident cap, a hospital must submit, as part of 
its application, its FTE resident counts and FTE resident caps for 
direct GME and IME in the most recent as-filed cost report. The 
commenter stated that if these worksheets are not audited, or at least 
reviewed by the Medicare contractor, there is no assurance of the 
accuracy of the number of FTE residents claimed by the provider. For 
consistency and accuracy purposes, the commenter recommended that the 
same source documents be used for determinations of both the increase 
and decrease in FTE caps, that is, a hospital's most recent cost report 
ending on or before March 23, 2010, which is subject to audit or desk 
review by the Medicare contractor.
    Response: We agree that to the extent possible, the documentation 
used to determine whether a hospital's FTE resident caps will be 
reduced should be the same documentation used to determine whether a 
hospital qualifies for an increase in its FTE resident caps. As we 
stated above in response to a comment in section XXI.D.8.a. of this 
final rule, we believe that the cost reporting periods used to 
determine whether a hospital will receive a cap reduction must, at the 
very least, have been submitted to the Medicare contractor as of March 
23, 2010. Furthermore, we do not believe it would be appropriate to 
include in the determination of which cost reports are used to 
establish a hospital's reference resident level, those cost reporting 
periods that occurred at the time the Affordable Care Act was in 
development. Rather, the cost reporting period used to assess the 
number of residents a hospital is training for the purpose of 
determining if it qualifies for an increase to its FTE resident cap 
should be a cost reporting period that reflects a number of FTE 
residents that a hospital is accustomed to training, not a number of 
FTE residents that is based on a hospital's attempt to meet the 
Demonstrated Likelihood Criteria or the 3-year primary care average 
requirement under section 1886(h)(8)(B)(ii)(I) of the Act. Therefore, 
we are clarifying in this final rule that the cost report data to be 
submitted with a hospital's application for additional slots and the 
cost reports used to establish a hospital's 3-year primary care average 
under section 1886(h)(8)(B)(ii)(I) of the Act must also be submitted to 
the Medicare contractor by March 23, 2010.
13. CMS Evaluation of Applications for Increases in FTE Resident Caps
    In the August 3, 2010 proposed rule (75 FR 46400), we proposed to 
require hospitals to submit, with their applications for increases in 
their FTE resident caps, a completed copy of the CMS Evaluation Form. 
The CMS Evaluation Form will ask the hospital to check off which of the 
``demonstrated likelihood'' criteria (described above in section 
XXI.D.11. of this preamble) the hospital meets. We also proposed to 
require that the hospital provide the documentation that supports the 
``demonstrated likelihood'' criteria it has checked off on the 
Evaluation Form.
    Assuming that the applicant hospital meets the ``demonstrated 
likelihood'' requirement, we proposed that the applicant hospital would 
indicate on the CMS Evaluation Form the category(ies) for which it 
believes it will qualify. We would use this indication to prioritize 
the applications. This prioritization is derived from sections 
1886(h)(8)(C), (D), and (E) of the Act, as added by section 5503 of the 
Affordable Care Act. These sections established considerations in 
redistribution and a priority order that must be applied in determining 
the hospitals that will receive increases in their FTE caps. As 
discussed above, the first consideration in redistribution is that the 
applicant hospital must demonstrate the likelihood of filling the slots 
requested within the first three cost reporting periods beginning on or 
after July 1, 2011. Another consideration is ``whether the hospital has 
an accredited rural training track'' (as described in section 
1886(h)(4)(H)(iv) of the Act). Accordingly, we proposed that, in 
distinguishing between hospitals within a priority category, and 
determining which hospitals will receive FTE cap increases, we would 
give preference to a hospital that has an accredited rural training 
track over a hospital that does not have such a program. Under section 
1886(h)(4)(H)(iv) of the Act, as implemented in the regulations at 
Sec.  413.79(k), an urban hospital that operates a rural training track 
(often known as separately accredited 1-2 tracks in family medicine) 
wherein residents rotate at the urban hospital for less than one-half 
of the duration of the program, and to a rural area for the remainder 
of the program, the urban hospital may include in its FTE count the FTE 
resident time spent training in the rural track, even if that time 
would be in excess of the hospital's FTE cap. We note that if an urban 
hospital is interested in starting a new rural training track, it need 
not apply for additional slots under section 1886(h)(8)(B)(i) of the 
Act. Rather, under the existing regulations at Sec.  413.79(k), the 
urban hospital may receive an increase to its FTE cap to reflect FTE 
residents training in the rural track. (For more details on rural 
training tracks, and the direct GME and IME payment rules associated 
with them, we refer readers to 66 FR 39902, August 1, 2001, and 68 FR 
45454, August 1, 2003.) However, because section 1886(h)(8)(C) of the 
Act states that the Secretary shall take into account ``whether the 
hospital has an accredited rural training track'' (emphasis added), we 
proposed that an applying urban hospital that either has a separately 
accredited rural training track, or can document that it will have a 
separately accredited rural training track as of July 1, 2011, may 
receive preference over a hospital that, all other things being equal, 
does not and will not have a rural training track by that date. We 
noted that section 1886(h)(8)(C) of the Act does not specify that a 
hospital must be applying for additional slots in order to expand its 
existing rural training track in order to qualify to receive additional 
slots. Rather, section 1886(h)(8)(C) of the Act merely states that 
``the Secretary shall take into account * * * whether the hospital has 
an accredited rural training track (as described in paragraph 
(4)(H)(iv))'' (emphasis added). That is, the fact that an urban 
hospital already has (or, under the proposed rule and this final rule, 
would have as of July 1, 2011) a separately accredited rural training 
track is sufficient to give preference in redistribution to such a 
hospital.
    Section 1886(h)(8)(D) of the Act instructs the Secretary to 
``distribute the

[[Page 72176]]

increase to hospitals based on the following factors'':
    <bullet> Whether the hospital is located in a State with a 
resident-to-population ratio in the lowest quartile (as determined by 
the Secretary) (section 1886(h)(8)(D)(i) of the Act). In order to 
determine which States are in the lowest quartile for resident-to-
population ratios, in the August 3, 2010 proposed rule (75 FR 46400), 
we proposed to use three sources of data, and the latest data available 
for each of those three sources. First, we proposed to determine the 
number of allopathic residents in each State by using data from the 
ACGME's Data Resource Book for the Academic Year 2008-2009. As of 
publication of the proposed rule, this was the most recent data 
available from the ACGME. However, after publication of the proposed 
rule, the ACGME released its 2009-2010 Data Resource Book. Therefore, 
in this final rule, we are using data from the ACGME's Data Resource 
Book for the Academic Year 2009-2010. In this book, which is available 
free of charge on the ACGME's Web site, is a table titled ``Number of 
Residents, by State'' (http://www.acgme.org/acWebsite/databook/2009-2010_ACGME_Data_Resource_Book.pdf). This table lists each State 
(including Puerto Rico), and includes a column called ``Total 
Residents.'' We are using the data from this column called ``Total 
Residents'' as part of the numerator to determine the resident-to-
population ratio in each state. However, because these data only 
include residents enrolled in ACGME-accredited programs, we also 
proposed to add to these numbers the number of residents enrolled in 
AOA-accredited programs. We proposed to access data on the number of 
osteopathic residents in each State from the AOA, which was provided to 
CMS upon special request. These data are what is generally published in 
the AOA's Journal of the American Osteopathic Association (JAOA). For 
the proposed rule, we requested and received data from the AOA for the 
2008-2009 academic year as well. Although these data were not to be 
published in the JAOA for some months, we received permission from the 
AOA to publish it in the proposed rule. For the final rule, we 
requested and received data from the AOA for the number of osteopathic 
residents in each State for the 2009-2010 academic year. These data are 
also presented in the form of a table listing each State (there are no 
osteopathic programs in Puerto Rico), and a column for the total number 
of residents in each State. Therefore, we proposed that the numerator 
for the ratio for each State would be the sum of the residents from the 
2008-2009 ACGME's table for that State, and the residents from the 
2008-2009 AOA table for that State. However, for this final rule, the 
numerator for the ratio for each State is the sum of the residents from 
the 2009-2010 ACGME's table for that State, and the residents from the 
2009-2010 AOA table for that State.
    We understand that, although graduates of allopathic medical 
schools are precluded from training in AOA-accredited programs, there 
is no similar prohibition on osteopathic residents training in 
allopathic programs. Because there are osteopathic residents who enroll 
and participate in allopathic ACGME-accredited programs, we want to 
ensure that there is no double counting of residents in the numerator. 
We have learned from the ACGME that their data in the ACGME Data 
Resource Book include osteopaths, but only those training in ACGME-
accredited programs. The AOA data do not include osteopathic residents 
who are training in ACGME-accredited programs; AOA data only include 
osteopathic residents enrolled and training in AOA-accredited programs. 
Therefore, we do not believe there is a concern about double counting 
with respect to osteopathic residents training in allopathic programs. 
However, we also are aware that there are some programs that are dually 
accredited by the ACMGE, and the AOA, and residents completing these 
programs are able to sit for both the ABMS and the AOA board 
examination in that specialty. We understand that the ACGME will 
include a resident in its resident count as long as that resident is 
training in an ACGME-accredited program, even if that program is dually 
accredited. The AOA has the same practice of including in its total 
count of residents those who are in AOA-accredited programs, even if it 
is a dual eligible program. Therefore, there is some degree of 
unavoidable double counting of residents in the total count. However, 
we understand that, as of the publication of the proposed rule, the 
number of residents in dually-accredited programs was less than 500. We 
have not been able to receive an updated count of residents in dually 
accredited programs for this final rule. However, because 500 is only 
0.43 percent of the combined ACGME and AOA 2009-2010 resident count of 
117,191, we believe the effect of counting these residents by both the 
ACGME and AOA is negligible and would not harm the integrity of the 
data.
    In the August 3, 2010 proposed rule (75 FR 46401), we proposed to 
define ``resident'' in ``resident-to-population'' ratio as actual 
individual residents, as opposed to the FTE resident figures that are 
used for Medicare payment purposes. We believe it is appropriate to 
define ``residents'' as actual individual residents in this instance 
because the intent behind this criterion is to identify those States 
that have low numbers of physicians-in-training in relation to the 
general population for which those physicians-in-training are providing 
health care services. An ``FTE'' measure, which is the measure used for 
most Medicare payment purposes, does not accurately reflect the number 
of individual physicians-in-training providing services in a State.
    With regard to State population data to be used in the denominator 
of each State's resident-to-population ratio, we again proposed to use 
the latest available data on State populations. We proposed to use data 
from the Census Bureau that is from the 2000 Census, but that have been 
updated with the most recent data available as of July 1, 2009. We 
accessed these data from the following Web site: http://www.census.gov/popest/states/states.html. On this Web page, the following data can be 
found: State population datasets--Population, population change and 
estimated components of population change: April 1, 2000 to July 1, 
2009 (NST-EST2009-alldata). We proposed to use the CSV file at this 
link. Specifically, we proposed to use the data for State population 
from the column called POPESTIMATE2009 (Column Q of the CSV 
spreadsheet). Therefore, we proposed to determine each State's 
resident-to-population ratio, and specifically those States that fall 
within the lowest quartile by using the sum of the 2008-2009 ACGME and 
AOA resident data for each State, as described above, in the numerator 
for each State, and by using the population data updated as of July 1, 
2009, in the denominator for each State from the column called 
POPESTIMATE2009 in Column Q of the CSV spreadsheet. The following table 
has been updated for this final rule using 2009-2010 ACGME and AOA 
resident data. It lists each State, and is sorted by resident-to-
population ratio from lowest to highest. The first 13 shaded States are 
the States in the lowest quartile.
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    Based on the proposed data, the following States fall within the 
lowest quartile for resident-to-population ratios: Montana, Idaho, 
Alaska, Wyoming, Nevada, South Dakota, North Dakota, Mississippi, 
Florida, Puerto

[[Page 72179]]

Rico, Indiana, Arizona, and Georgia. Based on the revised finalized 
data, although the same States fall within the lowest quartile for 
resident-to-population ratios, the order changed somewhat as follows: 
Montana, Idaho, Alaska, Wyoming, South Dakota, Nevada, North Dakota, 
Mississippi, Indiana, Puerto Rico, Florida, Georgia, and Arizona. 
Accordingly, we proposed that, consistent with section 1886(h)(8)(D)(i) 
of the Act, a hospital located in any one of these States that applies 
for an increase to its FTE cap under section 1886(h)(8)(B) of the Act 
would receive preference over a hospital that is applying for an 
increase to its cap that is not located in one of these States.
    Comment: One commenter requested that CMS use the most recent 
resident data from the 2009-2010 academic year in the calculation of 
the resident-to-population ratios. The commenter noted that since the 
academic year 2008-2009, there are 80 additional accredited programs 
and 1,904 additional residents according to the ACGME's web site.
    Response: Since the CY 2011 OPPS/ASC proposed rule went on display 
at the Federal Register on July 2, 2010, the ACGME has posted the 2009-
2010 Data Resource Book. As we explain in the preamble to this final 
rule, this book, which is available free of charge on the ACGME's Web 
site, has a table titled ``Number of Residents, by State'' (http://www.acgme.org/acWebsite/databook/2009-2010_ACGME_Data_Resource_Book.pdf). This table lists each State (including Puerto Rico), and 
includes a column called ``Total Residents.'' We are using the data 
from this column called ``Total Residents'' as part of the numerator to 
determine the resident-to-population ratio in each state.
    <bullet> Whether the hospital is located in a State, a territory of 
the United States, or the District of Columbia that is among the top 10 
States, territories, or Districts in terms of (1) the total population 
of the State, territory, or District living in an area designated 
(under such section 332(a)(1)(A)) as a health professional shortage 
area (as of the date of enactment of this paragraph); to (2) the total 
population of the State, territory, or District (as determined by the 
Secretary based on the most recent available population data published 
by the Bureau of the Census).
    In order to determine which applying hospitals fall within this 
priority category, we need to determine the total population living in 
a HPSA in each State, territory, or District computed ``as of the date 
of enactment,'' and we need to determine the total population of each 
State, territory, or District ``(as determined by the Secretary based 
on the most recent available population data published by the Bureau of 
the Census).'' ``Territory'' is referring to Puerto Rico, which 
currently has teaching hospitals, and ``District of Columbia'' refers 
to Washington, DC. For ease of reference, and consistent with the 
definition of ``State'' at section 210 of the Act, we proposed to refer 
to ``State, territory, or District'' simply as ``State.'' We have 
received data on the population of each HPSA from the Health Resources 
and Services Administration's (HRSA) Geospatial Warehouse. HRSA's 
Shortage Designation Branch develops shortage designation criteria and 
uses them to decide whether or not a geographic area, or population 
group, is a HPSA. HRSA updates HPSA statistics on its Web site on a 
daily basis, and we have requested and received the data reflective of 
the ``date of enactment''; that is, March 23, 2010. This data, as of 
this date, remains the same for this final rule. Because HRSA updates 
the data on its Web site daily, the data as of March 23, 2010 are no 
longer available on its Web site. (General information on HPSAs and 
current data can be found on HRSA's Web site at: http://bhpr.hrsa.gov/shortage/).
    HRSA designates three different kinds of HPSAs: Primary Care HPSAs, 
Dental HPSAs, and Mental Health HPSAs. While many areas may only be 
designated as one of these kinds of HPSAs, some areas may be designated 
as two or three of these kinds of areas. Thus, if we were to add the 
population in each State that is in a Primary Care HPSA, a Dental HPSA, 
and a Mental Health HPSA, we would be duplicating the HPSA populations 
in each State. Therefore, we proposed to use only the population in 
each State that is in a Primary Care HPSA. We believe that it is 
appropriate to choose to recognize only the Primary Care HPSAs in each 
State for the purpose of implementing section 5503 because section 5503 
is intended to encourage an increase in the number of primary care 
residents that are currently being trained in hospitals, as is 
evidenced by the ``Requirements'' in section 1886(h)(8)(B)(ii) of the 
Act, as added by section 5503(a)(4), which requires hospitals that 
receive additional slots under this section to maintain a certain 
average number of primary care resident positions, and that not less 
than 75 percent of the redistributed positions must be awarded for 
slots used in a primary care or a general surgery residency.
    With respect to data on each State's total population ``as 
determined by the Secretary based on the most recent available 
population data published by the Bureau of the Census,'' we proposed to 
use the same data that we are using under the first priority category 
with regard to determining resident-to-population ratios, as explained 
above. These data, which are the most recent available, were last 
updated on July 1, 2009. As explained above, we accessed these data 
from the following Web site: http://www.census.gov/popest/states/states.html. On this Web page, the following data can be found: State 
population datasets--population change and estimated components of 
population change: April 1, 2000 to July 1, 2009 (NST-EST2009-alldata). 
We proposed to use the CSV file at this link. Specifically, we proposed 
to use the data for State population from the column called 
POPESTIMATE2009 (Column Q of the CSV spreadsheet).
    The following table lists each State, its Primary Care HPSA 
population-to-State population ratio from highest to lowest, and 
whether that State falls within the top 10 States for such Primary Care 
HPSA population-to-State population ratios:
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BILLING CODE 4120-01-C
    <bullet> Whether the hospital is located in a rural area (as 
defined in section 1886(d)(2)(D)(ii) of the Act). Section 
1886(d)(2)(D)(ii) of the Act defines a rural area as any area outside a 
MSA. Under the existing regulations at Sec.  412.62(f)(ii), an ``urban 
area'' means: (1) A Metropolitan Statistical Area (MSA) or New England 
County Metropolitan Area (NECMA); or (2) the following New England 
counties: Litchfield County, Connecticut; York County, Maine; Sagadahoc 
County, Maine; Merrimack County, New Hampshire; and Newport County, 
Rhode Island. Under existing Sec.  412.62(f)(iii), a ``rural area'' 
means any area outside an urban area. Thus, for purposes of the 
amendments made by section 5503, in the August 3, 2010 proposed rule 
(75 FR 46406), we proposed that any hospital located in an area that is 
not in a MSA is a rural hospital, regardless of any reclassification 
under Sec.  412.102 or Sec.  412.103. We also pointed out that, since 
FY 2005, we no longer use the term MSA, but instead we use CBSA, or 
Core-Based Statistical Area. There are urban CBSAs, and rural CBSAs are 
areas outside of an urban CBSA. We note that this definition of 
``rural'' is consistent with our policy concerning designation of wage 
index areas.
    We also proposed that, in determining which applicant hospitals 
receive priority within the priority category of hospitals located in a 
State in the lowest quartile for resident-to-population ratios that 
hospitals in a State that is ranked lower in the quartile (with number 
one being the lowest) would receive preference over hospitals in states 
that are still within the quartile, but ranked higher. For example, all 
other things being equal, a hospital located in Montana would receive 
preference over a hospital located in Idaho, while this hospital would 
receive preference over a hospital located in Alaska, and so on. 
Similarly, we proposed that, in determining which applicant hospitals 
receive priority within the priority category of hospitals located in a 
State that is among the top 10 of these areas in terms of the ratio of 
Primary Care HPSA population to total population, hospitals in an area 
that is ranked higher in the top 10 (with number 1 being highest and 
number 10 being lowest) would receive preference over hospitals in an 
area that are still within the top 10, but ranked lower. For example, 
all other things being equal, a hospital located in Louisiana would 
receive preference over a hospital located in Mississippi, while a 
hospital in Mississippi would receive preference over a hospital 
located in Puerto Rico, and so on.
    Comment: A couple of commenters urged CMS to consider expanding the 
slot redistribution eligibility to all States, not just those hospitals 
in States with a low resident-to-population ratio or high proportion of 
population living in a HPSA or in a rural area. The commenters stated 
that allowing all states to be eligible will be a faster way to 
increase the physician supply. The commenters believed that restricting 
redistribution eligibility would deny training opportunities to 
qualified residents that may be training at hospitals that are already 
over their caps. Other commenters also urged CMS to consider a more 
equitable method to redistribute unused slots to hospitals over their 
caps.
    Response: An action to allow hospitals in all states to be eligible 
for redistributed slots under section 5503 is not authorized under the 
Affordable Care Act. As described in the August 3, 2010 proposed rule 
(75 FR 46390), section 5503 of the Affordable Care Act, which added a 
new section 1886(h)(8)(E) to the Act, specifically directs the 
Secretary to distribute 70 percent of the resident slots to hospitals 
located in States with resident-to-population ratios in the lowest 
quartile and 30 percent to hospitals located in a State, a territory of 
the United States, or the District of Columbia that are among the top 
10 States, territories, or Districts in terms of the ratio of the total 
population living in an area designated as a health professional 
shortage area as of March 23, 2010, to the total population, and to 
hospitals located in rural areas. Therefore, only those hospitals in 
States, territories, or

[[Page 72182]]

Districts that fall into the aforementioned categories will be 
considered for redistributions under section 5503.
    Comment: One commenter asked CMS to define the cities of Anchorage 
and Fairbanks, Alaska as rural. The commenter noted that even though 
the majority of Alaskans live in Anchorage, Fairbanks, or the Mat-Su 
(57%), most hospitals outside of Anchorage and Fairbanks are not large 
enough to meet basic requirements for accreditation by the ACGME. 
Therefore, Anchorage and Fairbanks should be added to the Priority 
Category and Evaluation Criteria list of rural areas.
    Response: We cannot accommodate the commenter's request to classify 
Anchorage and Fairbanks as rural areas because the reference to rural 
areas under section 5503 regarding giving preference to hospitals 
located in rural areas is to subsection (d)(2)(D)(ii) of the Act. 
Section 1886(d)(2)(D)(ii) of the Act defines a rural area as any area 
outside a MSA. Under the existing regulations at Sec.  412.62(f)(ii), 
an ``urban area'' means, in part, a MSA. Under existing Sec.  
412.62(f)(iii), a ``rural area'' means any area outside an urban area. 
Thus, for purposes of the amendments made by section 5503, any hospital 
located in an area that is not in a MSA is a rural hospital, regardless 
of any reclassification under Sec.  412.102 or Sec.  412.103. We also 
pointed out in the proposed rule that, since FY 2005, we no longer use 
the term MSA, but instead we use CBSA, or Core-Based Statistical Area 
(75 FR 46406). Further, we note that Alaska is already given preference 
under section 5503 since it is one of the states that is in the lowest 
quartile for resident-to-population ratios.
    As we described above, we proposed that an applicant hospital 
indicate on the CMS Evaluation Form the category(ies) for which it 
believes it will qualify, and we will use this indication to prioritize 
the applications. Each of the categories (described below) was derived 
from the priorities established by section 1886(h)(8)(D) of the Act, as 
added by section 5503 of the Affordable Care Act. We proposed to use 
the following categories to determine the order in which hospitals 
would be eligible to receive increases in their FTE resident caps:
    <bullet> First Level Priority Category: The hospital is in a State 
whose resident-to-population ratio is within the lowest quartile, AND 
the hospital is in a State whose Primary Care HPSA to population ratio 
is in the top 10 States, AND the hospital is located in a rural area.
    <bullet> Second Level Priority Category: The hospital is in a State 
whose resident-to-population ratio is within the lowest quartile, and 
is either in a State whose Primary Care HPSA to population ratio is in 
the top 10 States, or it is located in a rural area, or is an urban 
hospital and has, or will have as of July 1, 2011 (we note the proposed 
rule incorrectly stated 2010), a rural training track.
    <bullet> Third Level Priority Category: The hospital is in a State 
whose resident-to-population ratio is within the lowest quartile.
    <bullet> Fourth Level Priority Category: The hospital is in a State 
whose Primary Care HPSA to population ratio is in the top 10 States, 
and either the hospital is located in a rural area or the hospital is 
an urban hospital and has, or will have as of July 1, 2011 (we note the 
proposed rule incorrectly stated 2010), a rural training track.
    <bullet> Fifth Level Priority Category: The hospital is in a State 
whose Primary Care HPSA to population ratio is in the top 10 States, or 
the hospital is located in a rural area.
    We believe it is appropriate to establish priority level categories 
based on the fact that some hospitals that apply for the additional 
resident slots may fit into more than one of the three statutory 
priority categories listed in section 1886(h)(8)(D) of the Act. 
Therefore, we proposed to give consideration first to those hospitals 
that meet more than one of the statutory priority categories over those 
hospitals that meet only one of the statutory priorities. We further 
proposed that a hospital that is in a State whose resident-to-
population ratio is within the lowest quartile would receive priority 
over a hospital that is not located in one of these States. We believe 
this is consistent with the direction established at section 
1886(h)(8)(E)(i) of the Act which specifies that the Secretary shall 
reserve 70 percent of all positions available for distribution for 
hospitals in a State whose resident-to-population ratio is within the 
lowest quartile. Only 30 percent of the positions are to be distributed 
to hospitals in States whose Primary Care HPSA to population ratio is 
in the top 10 States, and hospitals located in rural areas. In 
addition, as discussed above, the first consideration in redistribution 
under section 1886(h)(8)(C) of the Act is that the applicant hospital 
must demonstrate the likelihood of filling the slots requested within 
the first three cost reporting periods beginning on or after July 1, 
2011. The second consideration is ``whether the hospital has an 
accredited rural training track'' (as described in section 
1886(h)(4)(H)(iv) of the Act). Accordingly, we proposed that, in 
distinguishing between hospitals within priority categories, and in 
determining which hospitals qualify to receive additional slots, we 
would give preference to a hospital that has an accredited rural 
training track as compared to a hospital that does not have such a 
program.
    Because section 1886(h)(8)(E) of the Act specifies that 70 percent 
of the slots are to be reserved for hospitals that are in a State whose 
resident-to-population ratio is within the lowest quartile, and 30 
percent of the positions are to be reserved for hospitals in States 
whose Primary Care HPSA to population ratio is in the top 10 States, 
and hospitals located in rural areas, we proposed that no slots would 
be given to hospitals that do not fit within either of these 
categories.
    Comment: Some commenters reflected on the method CMS proposed to 
allocate the slots, in which there would be a single ``redistribution 
pool'', out of which 70 percent of the slots will first be awarded to 
hospitals in Priority Categories 1, 2, and 3, with the remaining 30 
percent of the slots being awarded to hospitals in Priority Categories 
4 and 5. The commenters further noticed that hospitals that qualify for 
slots from both the ``70-percent pool'' and the ``30-percent pool'' 
would be awarded slots first, with slots being awarded to these 
hospitals from only the ``70-percent pool.'' The commenters believed 
that hospitals in States further down the low resident-to-population 
list should ``not have their chances of being awarded slots unduly 
diminished by hospitals that qualify under both categories.'' The 
commenters believed it is more equitable to allocate slots to hospitals 
that qualify for both pools by prorating the number of slots awarded 
between both pools. The commenters included an example where, for a 
rural hospital in a State on the low resident-to-population list that 
is awarded 10 slots through the redistribution program, 70 percent, or 
7 slots, would come from the ``70-percent pool'' while 30 percent, or 3 
slots would come from the ``30-percent pool.'' The commenters believed 
that ``this result is more easily achieved with two distinct pools of 
slots, but we defer to CMS as to how to implement the mechanics of 
prorating.''
    One commenter suggested that CMS should review and modify its 
complex prioritization criteria to ensure that 70 percent of the slots 
go to hospitals in States with low resident-to-population ratios. The 
commenter noted that under the priority criteria that CMS proposed,

[[Page 72183]]

it is possible that a hospital located in a lowest quartile resident-
to-population State would not receive any slots. The commenter argued 
that this was not the intent of Congress and that CMS should develop a 
process that ensures that all hospitals in the lowest quartile 
resident-to-population States that apply and meet the demonstrated 
likelihood criteria receive at least some caps through the 
redistribution process.
    Response: On page 46409 of the August 3, 2010 proposed rule, we 
discussed the scenario where a hospital could qualify to receive slots 
from both the ``70-percent pool'' and the ``30-percent pool.'' We 
stated that we considered a ``possible scenario that could occur with 
respect to hospitals that fall into the Second Level Priority Category: 
The hospital is in a State whose resident-to-population ratio is within 
the lowest quartile, and is either in a State whose Primary Care HPSA 
to population ratio is in the top 10 States, or it is located in a 
rural area, or is an urban hospital and has or will have as of July 1, 
2011, a rural training track. Because a hospital in this second level 
priority category is located both in a State whose resident-to-
population ratio is within the lowest quartile, and is either in a 
State whose Primary Care HPSA to population ratio is in the top 10 
States, or it is located in a rural area, we believe that its request 
for additional slots must first be fulfilled from the ``70-percent 
pool.'' However, if there are insufficient slots in the ``70-percent 
pool'' to satisfy the requests of all otherwise qualified applicants in 
the Second Level Priority Category, then, rather than immediately 
prorating the remaining slots in the ``70-percent pool'' among the 
applicable hospitals in the second level priority category, we proposed 
to draw from the ``30-percent pool'' to grant the full FTE cap 
increases (as applicable) to qualifying hospitals in the second level 
priority category.''
    The commenters raise a fair point, in that hospitals that qualify 
to fit into either the ``70-percent pool'' or the ``30-percent pool'' 
(but not both) should not have their chances of receiving their fair 
share of slots from the respective pools diminished by hospitals that 
fall into priority categories qualifying for slots from both pools. 
Section 5503 essentially requires that two distinct pools of slots be 
created; one for hospitals located in States that are in the lowest 
quartile for resident-to-population ratios, and one for hospitals 
located in States that are the top 10 States for Primary Care HPSA to 
population ratios, or for rural hospitals. We have reconsidered our 
proposed method described above, which ranks a hospital that is in a 
State whose resident-to-population ratio is within the lowest quartile, 
and the hospital is located in a State whose Primary Care HPSA to 
population ratio is in the top 10 States, and/ory the hospital is 
rural, above a hospital that is only located in a State whose resident-
to-population ratio is within the lowest quartile. We realize that 
these ``doubled'' Priority Categories allow for the possibility that a 
hospital located only in States whose resident-to-population ratios are 
in the lowest quartile may have its chances of receiving slots 
diminished by hospitals in States that fall within both priority 
categories. Therefore, in this final rule, we are reducing the number 
and revising the Priority Categories as follows:
    <bullet> First Level Priority Category: The hospital is in a State 
whose resident-to-population ratio is within the lowest quartile, AND 
it is an urban hospital that has, or will have as of July 1, 2011, a 
rural training track.
    <bullet> Second Level Priority Category: The hospital is in a State 
whose resident-to-population ratio is within the lowest quartile.
    <bullet> Third Level Priority Category: The hospital is in a State 
whose Primary Care HPSA to population ratio is in the top 10 States, 
AND the hospital is an urban hospital that has, or will have as of July 
1, 2011, a rural training track.
    <bullet> Fourth Level Priority Category: The hospital is in a State 
whose Primary Care HPSA to population ratio is in the top 10 States, OR 
the hospital is located in a rural area.
    Priority Level Categories 1 and 2 are for distributing slots in the 
70-percent pool, and Priority Level Categories 3 and 4 are for 
distributing slots in the 30-percent pool. With regard to a hospital 
that is located in a State that falls into both priority categories, 
such a hospital's application would be evaluated first based on its 
Evaluation Criteria within the context of the First and Second Level 
Priority Categories, and if there are not enough slots left in the 70-
percent pool to satisfy the hospital's request, we believe the hospital 
must be allowed to receive the remainder of its otherwise deserved 
slots from the 30-percent pool, based on its Evaluation Criteria within 
the context of the Third and Fourth Level Priority Categories. In 
distributing the slots from both the 70-percent and the 30-percent 
pools, we would be sure to do so in a way to ensure that a hospital 
that falls into both priority categories should not be at a greater 
disadvantage than a hospital that only is in a State that is in the 
lowest quartile for resident-to-population ratios.
    We are also finalizing our proposal that, in determining which 
applicant hospitals receive priority within the priority category of 
hospitals located in a State in the lowest quartile for resident-to-
population ratios that hospitals in a State that is ranked lower in the 
quartile (with number one being the lowest) would receive preference 
over hospitals in States that are still within the quartile, but ranked 
higher (75 FR 46406). For example, all other things being equal, a 
hospital located in Montana would receive preference over a hospital 
located in Idaho, while this hospital would receive preference over a 
hospital located in Alaska, and so on. Similarly, we are finalizing our 
proposal that, in determining which applicant hospitals receive 
priority within the priority category of hospitals located in a State 
that is among the top 10 of these areas in terms of the ratio of 
Primary Care HPSA population to total population, hospitals in an area 
that is ranked higher in the top 10 (with number 1 being highest and 
number 10 being lowest) would receive preference over hospitals in an 
area that are still within the top 10, but ranked lower. For example, 
all other things being equal, a hospital located in Louisiana would 
receive preference over a hospital located in Mississippi, while a 
hospital in Mississippi would receive preference over a hospital 
located in Puerto Rico, and so on.
    Comment: One commenter stated that the ``30-percent pool'' must be 
maintained for distribution of the resident FTE cap slots to rural 
hospitals as described in section 1886(h)(8)(D)(iii) of the Act. The 
commenter asserted that ``to the extent that this proposal were to 
diminish the 30-percent pool to the degree that an eligible rural 
teaching hospital that is not located in a State whose resident-to-
population ratio is in the lowest quartile would be contrary to the 
intent of Congress in establishing the 30-percent pool for hospitals 
that include rural teaching hospitals.'' The commenter stated that the 
Secretary must interpret section 5503 of the Affordable Care Act to 
reserve some slots from the `30-percent pool' for rural teaching 
hospitals, that is, hospitals that are rural hospitals but may not also 
meet either of the other preference criteria at sections 
1886(h)(8)(D)(i) and 1886(h)(8)(D)(ii) of the Act.
    Response: As we stated in response to a previous comment, we agree 
that hospitals within States whose resident-to-population ratios are in 
the lowest quartile should receive 70 percent of the available slots, 
while hospitals located in States whose Primary Care HPSA to population 
ratio is in the top 10 States,

[[Page 72184]]

or hospitals located in rural areas should receive 30 percent of the 
available slots. Thus, the commenter need not be concerned that the 
chances of a rural hospital receiving slots from the `30-percent pool' 
would be diminished by those slots being diverted to a hospital that is 
located in a State whose resident-to-population ratio is in the lowest 
quartile. However, we disagree with the commenter that the Secretary 
``must interpret section 5503 of the Affordable Care Act to reserve 
some slots from the ``30-percent pool'' for rural teaching hospitals'' 
that may not also be located in States with the lowest resident-to-
population ratios or States in the top 10 for Primary Care HPSA to 
population ratios. We note that Congress intentionally placed hospitals 
located in rural areas and in States in the top 10 for Primary Care 
HPSA to population ratios on equal footing, by specifying clearly that 
hospitals in both these categories qualify for 30 percent of the 
redistributed slots. Therefore, all other things being equal, rural 
hospitals that fit within the final Fourth Level Priority Category, 
would receive equal preference with hospitals in States whose Primary 
Care HPSA to population ratio is in the top 10 States. The hospitals, 
both urban and rural, that fall within this Fourth Level Priority 
Category would be ranked based on the scores they receive on the 
applicable Evaluation Criteria, with a higher scoring applicant 
receiving slots before a lower scoring applicant.
    Comment: One commenter stated that section 5503 must be interpreted 
in a way that gives preference to hospitals located in rural areas that 
sponsor training programs in the same way as hospitals that have an 
accredited rural track. This commenter stated that even though it may 
be less common for a rural hospital to be large and sophisticated 
enough to support or sponsor teaching programs, these rural hospitals 
should be eligible for preference under section 1886(h)(8)(C) of the 
Act. Further, the commenter asserted that a training program located at 
a teaching hospital in a rural area is even more ``rural'' than a rural 
track training program because the overwhelming majority of the 
training takes place in a rural area, therefore it should meet the 
second redistribution consideration.
    Response: We understand that rural hospitals that engage in GME 
activities, whether they sponsor those activities directly, or serve as 
a training site for a program sponsored by another institution, provide 
valuable health care services to underserved areas. However, we do not 
believe it is necessary to give additional preference to rural 
hospitals, above that which is already provided for by section 5503. 
Section 1886(h)(8)(D)(iii) already provides that hospitals located in 
rural areas should receive some part of the ``30-percent pool.'' This 
designation provides rural hospitals with a significant advantage for 
receiving redistributed slots relative to other hospitals. We also note 
that we proposed an evaluation criterion, which we are finalizing, that 
provides a point for rural hospitals that serve as a training site for 
a rural training track program. Therefore, we do not believe it is 
necessary to modify the priority categories to give additional 
preference to rural hospitals that serve as training sites for rural 
training tracks (which are sponsored by urban hospitals).
    After consideration of the public comments we received, in this 
final rule, we are reducing the number of Priority Categories from five 
to four, and we are also significantly revising them, as discussed 
above. We are also finalizing our proposal that, in determining which 
applicant hospitals receive priority within the priority category of 
hospitals located in a State in the lowest quartile for resident-to-
population ratios that hospitals in a State that is ranked lower in the 
quartile (with number one being the lowest) would receive preference 
over hospitals in States that are still within the quartile, but ranked 
higher (75 FR 46406). Similarly, we are finalizing our proposal that, 
in determining which applicant hospitals receive priority within the 
priority category of hospitals located in a State that is among the top 
10 of these areas in terms of the ratio of Primary Care HPSA population 
to total population, hospitals in an area that is ranked higher in the 
top 10 (with number 1 being highest and number 10 being lowest) would 
receive preference over hospitals in an area that are still within the 
top 10, but ranked lower.
14. CMS Evaluation of Application for Increases in FTE Resident Caps--
Evaluation Criteria
    We anticipate that there will be a limited number of slots 
available for distribution from the redistribution pool, while there 
will be a great demand for those limited slots. Therefore, as we did 
when implementing section 422 of Public Law 108-173, in the August 3, 
2010 proposed rule (75 FR 46406), we proposed to use additional 
criteria (some of which are the same as those used to implement section 
422) for evaluating the applications for increases in hospitals' FTE 
resident caps within each of the five (we note the proposed rule 
incorrectly stated seven) level priority categories described above 
under section 5503. (In this final rule, there are four Level Priority 
Categories). In addition, in implementing section 5503, we proposed to 
assign a certain number of points to each evaluation criterion, such 
that some will be worth more points than others. We noted that the 
criteria are not mutually exclusive. Hospitals may qualify for a number 
of different criteria and their ``score'' is the total point value for 
all criteria met by the hospital for each program. Because we 
anticipate that the redistribution pool under section 5503 will be 
smaller than that under section 422, we believe a more rigorous and 
competitive ranking system is appropriate under section 5503. Thus, we 
proposed to assign a different amount of points to each Evaluation 
Criterion, rather than just assigning one point to each.
    Evaluation Criterion One. The hospital that is requesting the 
increase in its FTE resident cap(s) has a Medicare inpatient 
utilization over 60 percent, as reflected in at least two of the 
hospital's last three most recent audited cost reporting periods for 
which there is a settled cost report. (5 Points) We have selected 60 
percent utilization because we believe that level would identify 
hospitals where Medicare beneficiaries will benefit the most from the 
presence of a residency program, and, although the applicant hospital 
may be urban or rural, it is consistent with the utilization percentage 
required for Medicare-dependent, small rural hospitals (MDHs) as 
specified in Sec.  412.108. In addition, it identifies a type of 
hospital that warrants atypical treatment by the Medicare program 
because it is so reliant on Medicare funding.
    Evaluation Criterion Two. The hospital will use additional slots to 
establish a new geriatrics residency program, or to add residents to an 
existing geriatrics program. (5 Points) Section 5503 places a 
particular emphasis on increasing the number of residency positions in 
primary care specialties, as evidenced by the requirements at sections 
1886(h)(8)(B)(ii)(I) and (II) of the Act that a hospital that receives 
slots must maintain at least the same number of primary care residents 
as it had during the three most recent cost reporting periods prior to 
enactment, and that not less than 75 percent of additional positions 
received must be in a primary care or a general surgery residency. 
Geriatrics is included in the definition of ``primary care resident'' 
at section 1886(h)(5)(H) of the Act. We believe that, of all the 
medical specialties, geriatrics is the one specialty that is

[[Page 72185]]

devoted primarily to the care of the elderly, including Medicare 
beneficiaries. As such, we proposed to give special consideration to 
geriatric programs to meet the ``fill rate'' criterion for 
demonstrating the likelihood of filling FTE resident slots under 
section 5503. Geriatrics is a subspecialty of family practice or 
internal medicine. We proposed that, for the purposes of meeting the 85 
percent fill rate criterion, we would allow hospitals that are starting 
a new geriatrics program or expanding an existing geriatric program to 
use the fill rate associated with the overall specialty program (rather 
than the fill rate for the geriatric subspecialty) to meet this 
demonstrated likelihood criterion.
    Evaluation Criterion Three. The hospital will use additional slots 
to establish a new or expand an existing primary care program with a 
demonstrated focus on training residents to pursue careers in primary 
care, rather than in nonprimary subspecialties of those primary care 
programs (for example, the hospital has an internal medicine program 
with a designated primary care track). (3 Points) As stated previously, 
section 5503 places a particular emphasis on encouraging the growth in 
the number of primary care residents, and specifically, physicians who 
practice in primary care, rather than only completing a primary care 
residency as a prerequisite for further subspecialty training. Although 
this proposed Evaluation Criterion applies to any primary care 
specialty, according to the 2010-2011 ACGME Green Book, 30.1 percent of 
accredited internal medicine programs offer a primary care track. 
However, the ACGME does not have separate standards for or does not 
separately accredit primary care tracks from categorical primary care 
programs. We understand that, particularly for internal medicine 
residents, these tracks are a way for graduating medical students who 
are interested in primary care to declare that interest early on, and 
in many cases, actually match into an internal medicine program with a 
primary care track through the National Residency Match Program. These 
residents may pursue their interest in primary care by choosing to do 
more electives in ambulatory and community-based settings throughout 
the 3 years of primary care training than residents with an interest in 
specialization might do. We believe that encouraging growth of these 
programs will increase the number of primary care practitioners. 
Therefore, we proposed to give special consideration to hospitals that 
are applying for additional slots to start or expand a program(s) that 
particularly focuses on residents who wish to pursue careers in primary 
care, and we would prioritize among hospitals that are applying for 
slots in a primary care program(s) accordingly. One example of a 
hospital that demonstrates a focus on training residents to pursue 
careers in primary care is a hospital that has a primary care track in 
internal medicine. We proposed that one way hospitals may qualify for a 
point under this evaluation criterion is by documenting that they are 
advertising that they have an internal medicine program with a primary 
care track in the March 2011 National Residency Match Program.
    Evaluation Criterion Four. The hospital will use all the additional 
slots to establish a new or expand an existing primary care residency 
program or general surgery program. (5 Points) ``Primary care 
resident'' is defined at section 1886(h)(5)(H) of the Act as a resident 
enrolled in an approved medical residency training program in family 
medicine, general internal medicine, general pediatrics, preventive 
medicine, geriatric medicine, or osteopathic general practice. Section 
1886(h)(8)(B)(ii)(II) of the Act states that not less than 75 percent 
of additional positions received must be in a primary care or a general 
surgery residency. Therefore, we proposed to award 5 points to a 
hospital that goes beyond this minimum requirement, and documents that 
it will use all of the slots received for either primary care or 
general surgery programs.
    Evaluation Criterion Five. The hospital is located in a Primary 
Care HPSA. (2 Points) We believe this evaluation criterion is 
consistent with the goal of reducing the shortage of primary care 
physicians, and increasing access to care in underserved areas.
    Evaluation Criterion Six. The hospital is in a rural area (as 
defined under section 1886(d)(2)(D)(ii) of the Act) and is or will be 
on or after July 1, 2011, a training site for a rural track residency 
program (as specified under Sec.  413.79(k)), but is unable to count 
all of the FTE residents training in the rural track because the rural 
hospital's FTE cap is lower than its unweighted count of allopathic or 
osteopathic FTE residents as of portions of cost reporting periods on 
or after July 1, 2011. (1 Point) We understand that there are some 
rural hospitals that serve as training sites for an urban hospital's 
rural training track. The residents in the rural track are counted in 
the urban hospital's FTE count, but because the rural training tracks 
are not necessarily considered ``new'' medical residency programs 
according to the regulations at Sec.  413.79(l), the rural hospital 
cannot receive an increase in its FTE caps under Sec.  413.79(e)(3) 
and, therefore, cannot receive direct GME and IME payments for training 
all or some of those residents. The rural hospital may be training 
residents in excess of its FTE resident cap prior to July 1, 2011 and, 
therefore, cannot receive IME or direct GME payment for some or all of 
the FTEs in the rural training track, or it wishes to expand its rural 
training track above its FTE resident cap on or after July 1, 2011. We 
proposed this evaluation criterion as a remedy to these scenarios to 
allow the rural hospital the possibility of receiving payment for FTEs 
in its rural training track.
    We proposed to use these criteria to evaluate the applications by 
hospitals for increases in their FTE resident caps that fall within 
each of the five (we note that the proposed rule incorrectly stated 
seven) level priority categories. (In this final rule, there are four 
Level Priority Categories). We proposed to place each application in 
the appropriate priority level category based on a review of the 
information a hospital checks off on the proposed CMS Evaluation Form 
for each allopathic and osteopathic specialty program requested by the 
applicant hospital, and the corresponding requested FTE cap increase. 
We proposed to place all of these evaluation criteria on the CMS 
Evaluation Form and to ask the hospital to check off which criteria on 
the form apply for each specialty program for which an FTE cap increase 
is requested. Based on the evaluation criteria checked off on the form, 
we proposed to score each CMS Evaluation Form. The higher-scoring CMS 
Evaluation Form(s) for each applicant hospital within each level 
priority category would be awarded the FTE resident cap increases 
first. It is possible that a hospital may qualify for multiple points 
for the same program. For example, if a hospital would be applying for 
slots to start a primary care track within an internal medicine 
program, and also would be using all of the slots it receives in that 
internal medicine program, the hospital may receive points both for 
Evaluation Criterion Three and Evaluation Criterion Four. Similarly, if 
a hospital would be applying for slots to start or expand a geriatrics 
program, and the additional slots would all be used for the geriatrics 
program, then the hospital may receive points for both Evaluation 
Criterion Two and Evaluation Criterion Four. Further, as specified by 
section 1886(h)(8)(E) of the Act, 70 percent of all positions are 
reserved to be

[[Page 72186]]

distributed to qualifying hospitals that are in States with resident-
to-population ratios in the lowest quartile, and 30 percent of the 
positions are reserved to go to hospitals that are located in States 
with HPSA population to State population ratios within the top 10 and 
to rural hospitals. As we described above, we proposed to award the cap 
increases in the order of the five (we note the proposed rule 
incorrectly stated seven) specified level priority categories because, 
as a general rule, we believe hospitals that meet more than one of the 
statutory priorities should be awarded the increases in their FTE 
resident caps first before other hospitals. (In this final rule, there 
are four Level Priority Categories). We also believe that hospitals 
that meet a higher statutory priority category should receive first 
consideration over hospitals that meet lower statutory priorities. 
Furthermore, in the case where, for example, Hospital A's application 
for a program falls within the Level Priority Category One, but scores 
no points on the evaluation criteria on the CMS Evaluation Form for 
that program, and Hospital B's application for a program falls within 
the Level Priority Category Two, and scored 5 points on the evaluation 
criteria on the CMS Evaluation Form for the program, Hospital A would 
receive the section 5503 cap increase before Hospital B, because 
Hospital A qualified to be in the higher level priority category.
    Thus, first level priority category hospitals that score highest on 
the evaluation criteria on the CMS Evaluation Form for a particular 
specialty program would receive the increases in their FTE resident 
caps first. For example, if Hospital D is a hospital that is located in 
Idaho, thereby falling within the second level priority category, and 
Hospital D checks off on the CMS Evaluation Form that it has a Medicare 
utilization of 60 percent (5 points), is using all the slots to expand 
a primary care residency program (5 points), and is located in a 
Primary Care HPSA (2 points), Hospital D would receive a score of 12 
points on the completed CMS Evaluation Form. We proposed that we would 
first award FTE cap increases to hospitals whose CMS Evaluation Forms 
for a particular program receive the most points (if there are any), 
and then to those with successively fewer points within the level 
priority category. Hospital D would receive the increase in its FTE 
resident cap(s) requested on its application only after all the 
hospitals in the first level priority category whose applications 
receive 13 or more points are awarded their requests first. We proposed 
to proceed through each level priority category accordingly, and only 
move on to distribute slots to hospitals in the next priority level 
category once all the qualifying applicants in the previous priority 
level category have received slots. Once we have distributed 70 percent 
of the slots to hospitals within States with resident-to-population 
ratios in the lowest quartile in accordance with the First and Second 
Level Priority Categories (or awarded increases to all qualified 
applicant hospitals located in States with resident-to-population 
ratios in the lowest quartile), we proposed to then distribute the 
remaining slots to hospitals in the Third and Fourth Level Priority 
Categories. Because of this requirement that 70 percent of the slots be 
reserved for distribution to hospitals within States with resident-to-
population ratios in the lowest quartile, it is possible that after 
first distributing slots to hospitals with the highest scores on their 
CMS Evaluation Form, if there are requests for slots by those hospitals 
which in the aggregate exceed the 70 percent of slots available, there 
may be some remaining qualifying hospitals within the same priority 
level category that receive the same score on the CMS Evaluation Form. 
Thus, we would have no way of distinguishing among these hospitals of 
equal rank. If this situation occurs, we proposed to prorate the 
remaining amount of slots in the ``70-percent pool'', and distribute an 
equal share of slots to these hospitals of equal rank. If a similar 
situation occurs within the ``30-percent pool'', we also proposed to 
prorate the remaining amount of slots in the ``30-percent pool'', and 
distribute an equal share of slots to hospitals of equal rank.
    For example, assume all applicant hospitals in the First Level 
Priority Category receive the requested increases in their FTE resident 
caps, and that we have awarded cap increases for all the Second Level 
Priority Category hospitals that scored 5 or above on their CMS 
Evaluation Forms for each residency program. We next evaluate hospital 
applications and accompanying CMS Evaluation Forms in the Second Level 
Priority Category (The hospital is in a State whose resident-to-
population ratio is within the lowest quartile) with fewer than 5 
points and we find that there is only a sufficient number of resident 
slots remaining in the estimated ``70-percent pool'' to grant half of 
the requests for slots from hospitals that scored 4 points. We proposed 
to prorate all of the remaining FTEs among the 4-point CMS Evaluation 
Forms and accompanying applications in the Second Level Priority 
Category. Thus, after awarding slots to hospitals in the Second Level 
Priority Category with at least 5 points, and to hospitals in the First 
Level Priority Category, if we could have awarded a total of 200 FTE 
slots for direct GME and 185 FTE slots for IME to only 50 percent of 
the 4-point CMS Evaluation Forms in the Second Level Priority Category 
(at the point that the estimated ``70-percent pool'' of FTE slots is 
spent), we proposed to divide all of the 200 FTE slots remaining in the 
70-percent pool for direct GME and 185 FTE slots for IME among all of 
the 4-point CMS Evaluation Forms and accompanying applications in that 
Second Level Priority Category, no matter what level of FTE resident 
cap increase was requested on the individual hospital's application, 
but not to exceed the number of slots a hospital requested for IME and 
direct GME respectively.
    We also considered another possible scenario that could occur with 
respect to hospitals that fall into the proposed Second Level Priority 
Category: The hospital is in a State whose resident-to-population ratio 
is within the lowest quartile, and is either in a State whose Primary 
Care HPSA to population ratio is in the top 10 States, or it is located 
in a rural area, or is an urban hospital and has or will have as of 
July 1, 2010, a rural training track. Because a hospital in the 
proposed Second Level Priority Category is located both in a State 
whose resident-to-population ratio is within the lowest quartile, and 
is either in a State whose Primary Care HPSA to population ratio is in 
the top 10 States, or it is located in a rural area, we believed that 
its request for additional slots must first be fulfilled from the ``70-
percent pool.'' However, if there are insufficient slots in the ``70-
percent pool'' to satisfy the requests of all otherwise qualified 
applicants in the Second Level Priority Category, then, rather than 
immediately prorating the remaining slots in the ``70-percent pool'' 
among the applicable hospitals in the proposed Second Level Priority 
Category, we proposed to draw from the ``30-percent pool'' to grant the 
full FTE cap increases (as applicable) to qualifying hospitals in the 
proposed Second Level Priority Category. (We note that the proposed 
Second Level Priority Category and its attending policy were changed in 
this final rule).
    Alternatively, although unlikely, we recognize that the reverse 
situation may occur, where there may not be a sufficient number of 
qualified applicants or requests for FTEs in order to distribute at 
least 70 percent of the

[[Page 72187]]

slots to hospitals located in the 13 States whose resident-to-
population ratios are in the lowest quartile (the First and Second 
Level Priority Categories). Should this occur, we proposed to begin 
evaluating applications from the next category of qualifying hospitals 
(that is, those located in States that are among the top 10 States for 
Primary Care HPSA to population ratios, and rural hospitals--the Third 
and Fourth Level Priority Categories), and potentially distribute more 
than 30 percent of the slots to hospitals in those latter categories.
    We recognize the complexity of the proposed evaluation process for 
the award of increases in hospital's FTE resident caps under section 
1886(h)(8)(B) of the Act. Therefore, we included the following examples 
depicting the proposed procedures:
Example 1
    Hospital H is an urban hospital located in a State that is in the 
lowest quartile for resident-to-population ratios. Hospital H can 
demonstrate the likelihood that it will fill the requested five FTEs 
resident slots for direct GME and IME for expanding a geriatric program 
because it is currently training a number of FTE residents that exceeds 
both of its FTE caps, and has attached to its application for the 
increase a copy of Hospital H's past three Medicare cost reports (as 
filed or audited, whichever is most recent and available), which 
documents on Worksheet E, Part A, Worksheet E-3, Part IV, and Worksheet 
E-3, Part VI that, according to the resident counts and the FTE 
resident caps, Hospital H is training residents in excess of its caps. 
Hospital H is also located in a Primary Care HPSA (but is not located 
in a State that is among the top 10 States in terms of its Primary Care 
HPSA population to State population ratio).
    We would evaluate Hospital H's application as follows: Hospital H 
is in the Second Level Priority Category (The hospital is in a State 
whose resident-to-population ratio is within the lowest quartile), and 
receives a score of 12 (expanding a geriatrics program-Evaluation 
Criterion Two--5 points, using all slots for a primary care residency 
program-Evaluation Criterion Four--5 points, and is located in a 
Primary Care HPSA-Evaluation Criterion Five--2 points).
Example 2
    Hospital J is a rural hospital located in Montana. Hospital J is a 
rotation site for an urban hospital's family practice rural training 
track program, but is unable to count all of the FTE residents training 
in the rural track because Hospital J's FTE cap is lower than its 
unweighted count of allopathic or osteopathic FTE residents as of 
portions of cost reporting periods on or after July 1, 2011. Hospital J 
wishes to expand the number of FTE residents training in the family 
practice rural training track. Hospital J also wishes to serve as a 
training site for one pediatrics resident in a pediatrics program that 
already exists at the urban hospital (that is, it is not a new 
pediatrics program).
    Hospital J would need to submit two CMS Evaluation Forms; one for 
family practice and another for pediatrics, and we would evaluate each 
accordingly. Both requests would put the hospital in the Second Level 
Priority Category (The hospital is in a State whose resident-to-
population ratio is within the lowest quartile), and it can demonstrate 
the likelihood of filling the slots (because it is already over its FTE 
caps based on the family medicine residents it is training in the rural 
training track, and together with the urban hospital, it has requested 
from the ACGME accreditation to expand the number of family practice 
residents training in the rural training track and to receive a 
pediatrics resident). For the family practice request, Hospital J would 
receive 5 points under Evaluation Criterion Four because all the slots 
it is requesting (that is, family practice and pediatrics) are for 
primary care programs, and it would receive 1 point under Evaluation 
Criterion Six because it is requesting the family practice slots for 
its rural training track, for a total of 6 points for the family 
practice request. For the pediatrics request, Hospital J would be 
placed in the Second Level Priority Category, and receives 5 points 
under Evaluation Criterion Four because all the slots it is requesting 
(that is, family practice and pediatrics) are for primary care 
programs.
    Comment: Some commenters objected to the 5 points that CMS proposed 
to award to a hospital under Evaluation Criterion One: The hospital 
that is requesting the increase in its FTE residents cap(s) has a 
Medicare inpatient utilization over 60 percent, as reflected in at 
least two of the hospital's last three most recent cost reporting 
periods for which there is a settled cost report (5 points). The 
commenters urged CMS to reduce the number of points awarded from 5 to 
1, asserting that ``CMS pays hospitals their proportionate Medicare 
share for their resident training costs, regardless of what that 
Medicare share may be, and hospitals with smaller Medicare utilization 
numbers have no less need for Medicare support for their residency 
programs.'' However, another commenter stated that they are ``wholly 
supportive'' of Evaluation Criterion One because it ``gives priority 
recognition to hospitals reliant on Medicare funding, and where 
beneficiaries will benefit most from an increase in residency slots.'' 
Commenters also asked that CMS consider determining the 60 percent 
share by calculating Medicare inpatients as a share of Medicare and 
privately insured patients, or Medicare patients plus Medicaid patients 
plus uninsured patients as a share of total patients. The commenter 
believed that teaching hospitals that treat a significant number of 
Medicaid and uninsured patients should not be put at a disadvantage 
under this criterion. The commenter also requested that CMS accept 
submitted cost reports (and not just settled cost reports) for this 
evaluation criterion, due to the time lag in settling cost reports. 
Lastly, commenters asked that CMS clarify that Medicare Advantage 
patients may be counted toward a hospital's Medicare inpatient 
utilization for purposes of this evaluation criterion.
    Response: We proposed and finalized a similar Evaluation Criterion 
under section 422 of the MMA and received similar comments (we refer 
readers to 69 FR 49150, August 11, 2004). We continue to believe, as we 
did then, that an Evaluation Criterion geared to hospitals, urban or 
rural, that treat a disproportionately high percentage of Medicare 
patients is appropriate because Medicare beneficiaries at these 
hospitals will benefit greatly from the presence of a residency 
program, and further, these hospitals are typically reliant on Medicare 
funding. Therefore, we are not reducing the number of points allotted 
to this Criterion from 5 to 1. We also proposed that the determination 
of whether a hospital qualifies for this criterion should be made based 
on at least two of the hospital's last three most recent audited cost 
reporting periods for which there is a settled cost report because this 
condition is modeled after the Medicare Dependent Hospital regulations 
at Sec.  412.108. We continue to believe that the 60 percent threshold 
is appropriate for purposes of establishing priorities under section 
5503, based on most recently audited and settled cost reports. 
Therefore, we are not adopting the commenters' suggestion to lower the 
percentage threshold, or that we accept as-submitted cost reports. 
Further, we do not believe it is appropriate to include non-Medicare, 
Medicaid, or private payer utilization for purposes of Evaluation 
Criterion One. This would

[[Page 72188]]

not be consistent with longstanding regulations regarding the 
computation of Medicare utilization, be it for Medicare GME purposes or 
otherwise. Finally, we are clarifying that in determining whether a 
hospital qualifies under this Evaluation Criterion One, the hospital's 
Medicare Advantage patient load may be incorporated into the Part A 
patient load (in at least two of the hospital's last three most recent 
audited cost reporting periods for which there is a settled cost 
report) to determine whether the hospital has a Medicare inpatient 
utilization of over 60 percent. The hospital may document its Medicare 
Advantage (MA) patient days for the respective cost reports in the 
areas of the hospital subject to the IPPS, the IPF PPS (for psychiatric 
distinct part units), and the IRF PPS (for rehabilitation distinct part 
units) using data from the Provider Statistical & Reimbursement (PS&R) 
Report, report type 118.
    Comment: One commenter stated that they ``appreciate[s] CMS' 
careful construction of evaluation criteria for determining increases 
in FTE resident caps,'' but proposed that CMS consider including 
language referencing the Health Resources and Services Administration's 
(HRSA) Teaching Health Center (THC) program and the recently-awarded 
Primary Care Residency Expansion (PCRE) grants in the discussion of 
Evaluation Criteria Three and Four, which both relate to new or 
expanded primary care residency programs. The commenter believed that 
the inclusion of THC residencies in the CMS criteria and the 
possibility of receiving additional cap slots would encourage hospitals 
to participate in the formation and operation of these programs. The 
commenter also suggested that hospitals associated with HRSA's PCRE 
grants, which award 5-year grants to cover stipends of primary care 
residency programs to encourage hospitals to increase their number of 
primary care trainees, should be eligible for increases in their FTE 
resident caps. The commenter noted that these hospitals are not allowed 
to claim Medicare GME payments for the new residents until after the 
grant ends.
    Response: While the THC program, the PCRE grants, and section 5503 
are all intended to try to increase the number of primary care 
physicians training in community non-hospital settings, we are unsure 
whether it is necessary to link all three provisions for purposes of 
awarding slots under section 5503. Presumably under the THC program, 
the residents will be spending the majority of their training time in 
the THC, which is a non-hospital site and, therefore, is not subject to 
FTE resident cap rules. We further presume that the THC would be 
incurring the costs of the residents' salaries and fringe benefits for 
the time spent training at the THC. We are not convinced that a 
hospital should receive points merely because it will be associated 
with a program occurring at a THC. With regard to the PCRE grants, if, 
as the commenter stated, a hospital receiving that grant cannot claim 
Medicare GME payments anyway until the grant ends, we do not see how 
such a hospital would benefit from the receipt of additional slots 
under section 5503, which are funded by Medicare, unless those slots 
would be used for some other primary care program not associated with 
the grants. After considering the public comment, we believe it would 
be overly complicated, and possibly not even necessary, to incorporate 
into the Evaluation Criteria a preference for a hospital that is 
associated with the THC program and/or the PCRE grants. We believe that 
if the goal is to increase the number of primary care residents, the 
proposed Evaluation Criteria already clearly give preference to 
hospitals requesting slots for use in primary care programs.
    Comment: One commenter stated that Evaluation Criterion Two should 
be expanded. Although supportive of incentives for geriatrics training, 
this commenter stated that geriatrics is only a limited subspecialty of 
primary care similar to gastroenterology, sports medicine, or 
adolescent medicine.
    Response: We believe it is appropriate to have an Evaluation 
Criterion that focuses exclusively on geriatrics because not only is 
geriatrics a specialty that directly affects Medicare beneficiaries, 
but, unlike gastroenterology, sports medicine, or other subspecialties 
of primary care programs, it is specifically defined in the statute as 
being ``primary care'' (we refer readers to the definition of ``primary 
care resident'' at section 1886(h)(5)(H) of the Act). Therefore, we are 
not adopting the commenter's suggestion.
    Comment: A commenter stated that the intent behind Evaluation 
Criterion Three is excellent, ``but it has no teeth.'' The commenter 
suggested that for programs such as internal medicine, with a primary 
care track, the more important criterion is what the output of primary 
care physicians has been in recent years, and whether the new slots 
would, in fact, be used for the primary care track positions. The 
commenter recommended that CMS require applicants to include a review 
of recent graduates of the program, including information regarding 
what type of practice the graduates are involved in 2 years following 
graduation from this program. Further, the commenter suggested that if 
CMS sets a threshold of 50 percent for the percentage of graduates 
practicing only primary care within 2 years after graduation to attain 
these points, it would capture programs that are actually producing 
more primary care physicians. The commenter asserted that the same 
logic could be applied to Evaluation Criterion Four.
    Also related to Evaluation Criterion Three, this commenter 
requested that CMS clarify whether family medicine would be included in 
this criterion. Lastly, the commenter recommended that if a program 
wishes to expand its number of family medicine residents, or establish 
a new program in family medicine, it should get at least an additional 
point for Evaluation Criteria Three and Four, because ``unlike other 
primary care programs, the vast majority of family medicine graduates 
will be serving as primary care physicians upon graduation into 
practice.''
    Response: We believe that implicit in Evaluation Criterion Three, 
which is targeted to primary care programs with a ``demonstrated 
focus'' on residents who pursue careers in primary care is the 
assumption that applicant hospitals that wish to receive the 3 points 
under Evaluation Criterion Three must ``demonstrate'' that residents 
graduating from their programs actually do practice in primary care, 
and do not enroll in nonprimary care subspecialty programs or work as 
something other than a primary care practitioner. The commenter's 
recommendation that applicants include a review of recent graduates of 
the program, including information regarding what type of practice the 
graduates are involved in 2 years following graduation from this 
program, is a reasonable method for documenting that focus. For 
example, hospitals applying for consideration under Evaluation 
Criterion Three could provide documentation regarding residents who 
completed the primary care program in question in June 2008, and in 
what capacity those graduates have been practicing, at least through 
June 2010. The commenter suggested that CMS set a threshold of 50 
percent for the percentage of graduates practicing only primary care 
within 2 years after graduation to ``demonstrate'' that their program 
focuses on residents who wish to pursue careers in primary care. We 
believe that a threshold of greater than 50 percent would be acceptable 
as a basis to demonstrate that

[[Page 72189]]

a program produces physicians who pursue careers in primary care. We 
are choosing more than 50 percent as the threshold because this is 
consistent with the Evaluation Criterion added in this final rule for 
hospitals that request additional slots for an existing program(s) for 
which the hospital can demonstrate that more than 50 percent of 
residents completing the program(s) go on to practice in a rural area 
or a Primary Care HPSA.
    While Evaluation Criterion Three does focus on outcomes, which as 
explained in the previous paragraph, applicant hospitals must 
demonstrate, we do not think it is necessary that Evaluation Criterion 
Four also focus on outcomes. Considering that section 1886(h)(8)(B)(ii) 
of the Act, as added by section 5503(a)(4) of the Affordable Care Act, 
already establishes its own rules for a 5 year probationary period and 
establishes a primary care threshold for which a hospital that receives 
slots cannot fall below, we are not adopting the commenter's 
recommendation that applicants applying for the 5 points under 
Evaluation Criterion Four also be required to demonstrate the practice 
outcomes of its graduates.
    In response to the commenter's request, we are clarifying that 
slots requested for use in a family practice program may fall under 
Evaluation Criterion Three. As we stated in the proposed rule (75 FR 
46407), Evaluation Criterion Three is for primary care programs with a 
demonstrated focus on training residents to pursue careers in primary 
care, and family medicine is a primary care program. Internal medicine 
programs with primary care tracks are just one type of several primary 
care programs that may qualify for 3 points under Evaluation Criterion 
Three. Further, as we explained on page 46408 of the proposed rule, a 
hospital may qualify for multiple points for the same program. For 
example, it is possible for a primary care program to qualify for 3 
points under Evaluation Criterion Three and for 5 points under 
Evaluation Criterion Four. However, contrary to the commenter's last 
request, we do not think it is necessary to provide an extra point for 
family medicine programs that qualify under Evaluation Criteria Three 
or Four, simply because most graduates of family medicine programs 
practice as primary care physicians. While that is a laudable goal, we 
believe that each primary care specialty, family practice or otherwise, 
from which the graduates dedicate themselves to pursue careers in 
primary care, deserves an equal amount of points.
    Comment: One commenter expressed that the presence of a primary 
care track for an internal medicine residency does not justify any 
additional weighting of an application from such a residency over 
another internal medicine residency without such a track. The commenter 
explained that many internal medicine residency programs are entirely 
focused on primary care training and subsequently do not need a 
separately labeled primary care track while other programs do not want 
the burden of managing two tracks for the training program and have 
dissolved the administrative listing of a track but not the educational 
experiences in the program. The commenter requested that if CMS does 
not eliminate this preference, then it should allow non-track programs 
the opportunity to demonstrate equivalency.
    Response: We believe the commenter has misunderstood the proposed 
Evaluation Criterion Three, which already allows ``non-track'' programs 
to demonstrate equivalency. The proposed Evaluation Criterion Three 
states, ``The hospital will use additional slots to establish a new or 
expand an existing primary care program with a demonstrated focus on 
training residents to pursue careers in primary care, rather than in 
nonprimary subspecialties of those primary care programs (for example, 
the hospital has an internal medicine program with a designated primary 
care track).'' Therefore, the proposed Evaluation Criterion Three 
allows any primary care program to demonstrate a focus on training 
residents to pursue careers in primary care, rather than in nonprimary 
care subspecialties of primary care programs. We also stated on page 
46407 of the August 3, 2010 proposed rule that this Evaluation 
Criterion applies to any primary care specialty. Internal medicine 
programs with primary care tracks were provided as just one example of 
primary care programs that may be able to demonstrate a focus on 
training residents to pursue careers in primary care. Thus, as the 
commenter requested, we already intended to allow ``non-track'' 
internal medicine or other primary care programs to demonstrate 
equivalency.
    Comment: One commenter suggested that the proposed evaluation 
criteria together with the proposed prioritization framework could 
result in few or no residency slots being awarded to general surgery 
residencies. Though the commenter noted that they do not believe CMS 
intended to exclude general surgery residency programs from the 
redistribution, the commenter expressed concern that there is a 
formulaic bias in the proposed rule as a whole that could produce this 
result. The commenter urged CMS to re-examine these criteria and the 
proposed priority categorization schema or otherwise find a means to 
ensure that general surgery residency programs seeking additional slots 
will have a reasonable opportunity of securing them. Moreover, the 
commenter noted that general surgery programs would be able to 
demonstrate the likelihood of filling additional positions because 
these programs have a track record of attracting candidates and filling 
positions.
    Response: We are unsure why the commenter believes that few or no 
slots will be awarded to general surgery residencies. Section 
1886(h)(8)(B)(ii)(II) of the Act specifically requires that a hospital 
must ensure that at least 75 percent of the slots it receives are used 
to train primary care or general surgery residents. Some hospitals may 
choose to use their slots for a combination of primary care or general 
surgery residents, while others may choose to use 75 percent of their 
slots for only one or the other. Further, we have included Evaluation 
Criterion Four, which awards 5 points to applicants that will use all 
the additional slots for a primary care or a general surgery 
program(s).
    Comment: One commenter urged CMS to assign an increased point value 
for Evaluation Criterion Five. The commenter cited the 2009 National 
Healthcare Disparities Report, issued by the Agency for Healthcare 
Research and Quality that showed a lack of significant progress in 
addressing health care disparities. This commenter believes that 
primary care plays a large role in working to eliminate health care 
disparities and thus more emphasis should be placed on primary care 
HPSAs.
    Response: We agree that it is important to address the health care 
disparities in Primary Care HPSAs and underserved areas. In response to 
an earlier comment, we stated that we are adding an additional 
Evaluation Criterion for hospitals that request additional slots for an 
existing program(s) for which the hospital can demonstrate that more 
than 50 percent of residents completing the program(s) go on to 
practice in a rural area or a Primary Care HPSA. Therefore, rather than 
increase the point value under existing Evaluation Criterion Five, we 
are adding a new Evaluation Criterion to address the health care 
disparities in underserved areas.
    Comment: One commenter observed that a hospital could potentially 
``work the system'' of points because there is no requirement on how 
many additional slots would be necessary in order to be

[[Page 72190]]

considered an expanded program under Evaluation Criterion Two for 
geriatrics. The commenter argued that the same logic also applies to 
Evaluation Criterion Three. Therefore, the commenter suggested that a 
varying amount of points be assigned based on the number of geriatrics 
or primary care residents that are to be added under Evaluation 
Criteria Two and Three, respectively.
    Response: The commenter is correct that a hospital may request as 
little as one FTE slot for use in a geriatrics program (using 
Evaluation Criterion Two as an example), and simply because that slot 
is for geriatrics, the hospital will receive 5 points for that request. 
However, we note that the points are allocated by program and, 
therefore, an applicant cannot use the points awarded in response to a 
request for slots for use in a geriatrics program to gain an advantage 
in its request for slots for use in another type of program. The points 
awarded for geriatrics would only benefit the hospital in its request 
for slots to be used in a geriatrics program. Similarly, the points 
awarded under Evaluation Criterion Three would only benefit the 
hospital for that request.
    Comment: One commenter stated that the proposed system of selecting 
States for priority status in the redistribution is flawed and that it 
would ultimately only benefit the ``ultra large training 
institutions.'' The commenter noted that these institutions only 
average 9 percent of their training in primary care. Moreover, the 
commenter stated that ``the large to ultra large hospitals received 82 
percent of all FTEs redistributed to these areas in the 2003 
redistribution.'' The commenter further stated that the proposed 
requirement that 75 percent of the slots are to be used for primary 
care will also not be met. The commenter asserted that large 
institutions that train only 9 percent of their residents in primary 
care ``will gladly keep these slots in primary care for 5 years and 
then they will convert them to sub-specialty programs.'' Therefore, a 
redistribution of FTEs to these hospitals would not meet the goal of 
primary care growth. This commenter suggested that rewarding hospitals 
that already have a track record of supporting primary care would be a 
better mechanism for redistribution. Specifically, the commenter 
proposed that a descending list of ratios of primary care residents to 
other residents at each hospital would be a simple way to measure a 
hospital's level of support for primary care residents. The commenter 
suggested that any available slots should be awarded across the country 
to hospitals based upon this descending percentage list, allowing every 
teaching hospital the chance to receive new FTE slots based upon their 
past performance.
    Response: As the commenter is aware, the method for selecting 
States for priority status to receive slots is prescribed under section 
5503 and, therefore, the Secretary has little, if any, discretion to 
alter it. Although we certainly cannot predict with great accuracy 
which hospitals will apply for and receive slots under section 5503, we 
disagree with the commenter that the redistribution criteria will 
benefit the ``ultra large teaching institutions'' who, according to the 
commenter, only train about 9 percent of their residents in primary 
care. We note that under section 1886(h)(8)(D) of the Act, which 
prescribes the priority that should be given to certain areas (that is, 
to hospitals located in States that are in the lowest quartile for 
resident-to-population ratios, to hospitals located in a State that is 
among the top 10 States for primary care HPSA to population ratios, or 
hospitals located in rural areas), these States generally have teaching 
hospitals that are relatively small and moderate in size, and the 
preference categories do not include States located in the Northeast, 
which contains the country's highest concentration of residents and 
large teaching institutions. However, we do agree with the commenter 
that hospitals that already have a track record of training residents 
in primary care should be recognized in the redistribution process. We 
believe that Evaluation Criterion Three serves this purpose, under 
which hospitals that are requesting slots for a primary care program 
with a demonstrated focus on training residents to pursue careers in 
primary care may receive 3 points on their application requesting 
additional slots.
    Comment: One commenter disagreed with the First Level Priority 
Category requirement that a hospital must be located in a rural area 
and stated that many rural hospitals do not have the infrastructure to 
support GME. This commenter suggested that placement of a hospital's 
graduates in rural areas or HPSAs or in practices that serve an 
underserved population, such as Federally Qualified Health Centers, 
Medically Underserved Areas, or Medically Underserved Populations, 
would be a more logical requirement. This same commenter also requested 
that ``integrated rural training tracks'' be considered for Second 
Level Priority Category. The commenter noted that this term is included 
in the statute, but has not yet been defined by CMS. The commenter 
proposed that a program with a minimum of 3 months required rural 
training (integrated in any time frame in its curriculum) should be 
eligible to be considered an accredited training program with an 
integrated track. The commenter also reiterated that CMS should 
consider the resident placement outcomes of a hospital more than its 
physical location.
    Response: Section 1886(h)(8)(D)(iii) of the Act specifically states 
that hospitals located in rural areas receive preference for receiving 
redistributed slots. Therefore, the Secretary does not have the 
flexibility to divert those slots to hospitals in urban areas or to 
hospitals that generally serve ``underserved'' populations that are not 
located in a State that falls within the top 10 States for Primary Care 
HPSA to population ratios. Similarly, the statute specifically states 
that the Secretary shall take into account hospitals that have an 
``accredited rural training track,'' not an ``integrated rural training 
track.'' Furthermore, as we know from the ACGME, there is no defined 
category of programs called ``integrated rural training tracks'' and 
therefore, we cannot give special recognition under the priority 
categories to hospitals that operate integrated rural training tracks. 
However, the commenter raises a legitimate policy consideration with 
regard to the suggestion that CMS should consider resident placement 
outcomes more so than the hospital's physical location. Although we 
cannot create new priority categories, we do have the flexibility to 
create additional Evaluation Criteria for use in distinguishing among 
applicant hospitals within each priority category. Therefore, in this 
final rule, we are adding an additional Evaluation Criterion for 
hospitals that request additional slots for an existing program(s) for 
which the hospital can demonstrate that more than 50 percent of 
residents completing the program(s) go on to practice in a rural area 
or a Primary Care HPSA.
    Comment: One commenter stated that in addition to the proposed 
categories of hospitals that would be awarded points in applying for 
additional slots, CMS should create several additional categories for 
which hospitals could receive points in the application process as 
well. The commenter suggested the following additional Evaluation 
Criteria: (1) Hospitals that exceed their caps--hospitals that have 
undertaken to train physicians without any financial support from 
Medicare because it is their ``mission obligation'' to do so deserve 
recognition, and CMS should

[[Page 72191]]

consider ``giving even more weight to those hospitals that are 
significantly over their resident caps compared to other hospitals that 
are over their caps''; (2) Hospitals that are in the process of 
building programs and would lose slots during the build-up period--This 
would protect hospitals that have made the investment of time and 
resources to receive accreditation for a new program, and appear to 
have unused slots but actually are in the middle of a several year 
build-up process; (3) Hospitals that lose slots for ``purely technical 
reasons''--One example would be hospitals whose ``highest'' resident 
count during the three most recent cost reports ending on or before 
March 23, 2010, did not occur in the year with the smallest difference 
between its cap and its count and, therefore, would lose slots under 
CMS' proposed interpretation of the statute.
    Response: As we have stated in response to previous comments, and 
discuss in greater detail below, we believe the intent of section 5503 
is to increase the number of primary care or general surgery physicians 
and, therefore, the provision provides funding for new or expanded 
programs in primary care and general surgery, rather than funding for 
existing positions. Therefore, we are not adopting the commenter's 
request to add an Evaluation Criterion for hospitals that are exceeding 
their FTE resident caps. With regard to the second request, since we 
are exempting new teaching hospitals that do not have their FTE 
resident caps established in all three of their reference cost reports 
from cap reductions, the commenter's request to add an Evaluation 
Criterion to protect these new teaching hospitals is no longer 
necessary. Finally, in response to the commenter's third request, we 
decline to accept the recommendation to add Evaluation Criteria to 
protect hospitals that lose slots for ``purely technical'' reasons, as 
this is a difficult category to define and limit.
    Comment: One commenter noted that CMS has little discretion in 
developing regulations given how prescriptive the statutory language 
is, but that does not change the reality of the need for more residency 
trained and board-certified emergency physicians in rural America. The 
commenter asked that the redistribution criteria be modified to allow 
new or expanding emergency medicine programs in the designated shortage 
States to qualify. Moreover, this same commenter noted that current 
ACGME residency accreditation requirements cannot be met by a total 
rural residency experience so these programs cannot be established 
exclusively in rural hospitals. Nonetheless, the commenter asked CMS to 
change its regulations to allow teaching hospital payment when 
emergency medicine residents rotate through rural hospitals.
    Response: It appears that the commenter is making two separate 
requests; first, that some special consideration be given in 
redistributing slots to hospitals that are located in ``designated 
shortage areas'' and are training emergency medicine residents, and 
second, that CMS should change its regulations to allow a hospital that 
operates an emergency medicine residency program, and sends those 
residents to a rural hospital for some rotations, to continue to count 
in its direct GME and IME FTE counts the training time spent at the 
rural hospital. With regard to the first request, similar to the 
Evaluation Criterion for emergency medicine we included for the purpose 
of implementing section 422 of the MMA, we agree it is worthwhile to 
include an Evaluation Criterion regarding emergency medicine programs 
under section 5503 as well. Specifically, we are adding the following 
to this final rule: Evaluation Criterion Eight. The hospital is 
requesting slots to expand an existing emergency medicine program in 
which the residents train in Primary Care HPSAs. (1 Point)
    To answer the second request, the prohibition against one hospital 
claiming the time at another hospital is based in the statute and 
cannot be changed without legislation. We have explained this policy 
numerous times in previous Federal Register notices (we refer readers 
to 67 FR 50077, August 1, 2002). This law is implemented in the 
regulations at section 413.78(b), which states, ``A hospital cannot 
claim the time spent by residents training at another hospital.''
    Comment: One commenter expressed support for the residency slot 
redistributions under section 5503, but also asked that CMS reconsider 
the definition of primary care as it relates to section 5503. This 
commenter asked CMS to include adult psychiatry in the definition of 
primary care. This commenter noted that depression is the fourth 
leading cause of disability world-wide and mental illness and 
addictions together are the second leading cause of disability and 
premature mortality in the United States. Moreover, the commenter 
stated that national studies also suggest that two-thirds of primary 
care physicians report being unable to obtain outpatient mental health 
services for patients. The commenter also asserted that a comprehensive 
primary care Home Health Model will include mental health and 
psychiatry.
    Similarly, one commenter strongly encouraged CMS to count combined 
residencies in internal medicine-pediatrics among the primary care 
residency programs eligible for additional slots under the 
redistribution effort. The commenter explained that internal medicine-
pediatrics residencies are combined 4-year training programs in which 
residents experience the array of training opportunities open to 
residents in internal medicine and pediatrics separately. The commenter 
noted that Congress has treated internal medicine-pediatrics 
residencies unevenly over the years, including recognition as primary 
care residency programs in one section of the Affordable Care Act (ACA) 
while overlooking these residencies as primary care training 
experiences in other sections of the same law. Further, the commenter 
believed CMS has the authority to include these combined programs for 
these regulations.
    Response: The definition of ``primary care resident'' is found in 
the statute at section 1886(h)(5)(H) of the Act, and psychiatry is not 
one of the specialties defined as primary care. While we acknowledge 
the existing shortage in the provision of mental health services, the 
Secretary does not have the authority to include psychiatry in the 
definition of primary care without a change in the law. To respond to 
the second commenter that requested that combined internal medicine-
pediatrics programs be recognized as primary care programs eligible for 
slots under section 5503, we note that these programs are already 
considered to be primary care under section 1886(h)(5)(H) of the Act. 
We believe that the commenter's confusion regarding CMS's treatment of 
combined internal medicine-pediatrics programs may stem from the fact 
that the ACGME does not specifically accredit residency programs in the 
combined format. The ACGME separately accredits internal medicine 
programs and pediatrics programs. However, the ABMS recognizes combined 
programs, and provides board certification in both internal medicine 
and pediatrics for residents who train in combined internal medicine-
pediatrics programs. Because both internal medicine and pediatrics 
programs meet the definition of primary care at section 1886(h)(5)(H) 
of the Act, we agree that combined internal medicine-pediatrics 
programs also meet the definition of primary care programs. Thus, 
hospitals applying for slots under section 5503 to start or expand 
combined internal medicine-pediatrics programs might

[[Page 72192]]

qualify to receive points under Evaluation Criteria Three and Four.
    After consideration of the public comments we received, we are 
finalizing our proposed six Evaluation Criteria, and we also are adding 
two more Evaluation Criteria in this final rule. We are also clarifying 
that, because of the 75-percent threshold, a hospital cannot apply for 
slots under section 5503 only for a non-primary care program (other 
than general surgery). However, a hospital could apply for slots, and 
demonstrate that it needs 75 percent of those slots to start or expand 
a particular primary care (or general surgery) program, and that it 
needs 25 percent of those slots for use in a particular non-primary 
care program. However, the hospital's request for each program will be 
evaluated separately.
15. Exception If Positions Are Not Redistributed by July 1, 2011
    Section 1886(h)(8)(E)(ii) of the Act states that in the case where, 
by July 1, 2011, the Secretary ``does not distribute positions to 
hospitals,'' the Secretary shall distribute such positions to other 
hospitals in accordance with the considerations in redistribution 
specified at section 1886(h)(8)(C) of the Act (that is, the 
demonstrated likelihood of filling the slots and whether the hospital 
has a rural training track), and the priority for certain areas 
specified at section 1886(h)(8)(D) of the Act (that is, whether the 
hospital is located in a State with a resident-to-population ratio in 
the lowest quartile, whether the hospital is located in a State that is 
in top 10 States in terms of Primary Care HPSA population to State 
population, and whether the hospital is rural). We believe that the 
phrase ``does not distribute positions to hospitals'' contemplates the 
scenario where there would be more slots available than the amount that 
qualifying hospitals requested, and therefore, CMS would be left with 
slots in the distribution pool as of July 1, 2011. The Secretary is 
directed to initiate another round of applications after July 1, 2011, 
in which hospitals that could demonstrate that they could use the slots 
would apply and possibly receive a portion of the remaining slots, 
until all the slots in the pool are redistributed. Should the situation 
arise where there are unused slots available as of July 1, 2011, we 
would propose a process for redistributing those slots ``in accordance 
with the considerations described in subparagraph (C) and the priority 
described in subparagraph (D).'' We would then notify the public to 
establish the application timeframe, criteria, process and other 
relevant information at that time.
    Comment: Several commenters addressed additional items for 
consideration if all of the available caps are not redistributed by 
July 1, 2011, using the criteria under section 5503. One commenter 
stated that these leftover caps should be distributed to hospitals that 
are currently exceeding their caps. Another commenter recommended that 
the Secretary broaden the redistribution criteria to ensure that all 
slots are filled and utilized while emphasizing the considerations made 
by section 5503. This commenter urged CMS to consider using a 
hospital's post-residency placement of residents in rural areas, and 
not necessarily require a certified rural training track within that 
hospital's GME program. This commenter also requested that the criteria 
listed in section 5503 be used only as guidance rather than as 
prescriptive criteria in the event all available caps are not 
distributed by July 1, 2011. This commenter also recommended that CMS 
use applications from the first round of redistribution and fill those 
slots first before proposing additional rules.
    Another commenter suggested that, should slots remain in the 
distribution pool after the first round of applications has been 
processed, CMS continue down the lists of States with low resident-to-
population ratios and high HPSA populations, allowing hospitals in the 
next several States on each list to apply for slots in a second round 
of applications. This commenter further stated that should a second 
application process occur, it should not be identical in all ways to 
the first round because hospitals that were unable to accommodate 
additional residents in the first round would not be significantly more 
likely to meet the same requirements in under a year from now. 
Additionally, another commenter suggested that if there are more slots 
than the anticipated demand, hospitals that do not fit into the 
prescribed categories should be able to apply for the additional slots.
    Response: As we explained in the proposed rule (75 FR 46410), 
should the situation arise where there are unused slots available as of 
July 1, 2010, we would propose a process for redistributing those slots 
``in accordance with the considerations described in subparagraph (C) 
and the priority described in subparagraph (D).'' We would then notify 
the public to establish the application timeframe, criteria, process 
and other relevant information at that time. We appreciate the 
commenters' suggestions and will keep them in mind should the need 
arise to propose a second round for redistribution of unused slots.
16. Application of Direct GME PRAs for Primary Care and Nonprimary Care 
Residents and Conforming Changes for the IME Multiplier
    Section 1886(h)(8)(G) of the Act states that, ``With respect to 
additional residency positions in a hospital attributable to the 
increase provided under this paragraph, the approved FTE per resident 
amounts are deemed to be equal to the hospital per resident amounts for 
primary care and nonprimary care computed under paragraph (2)(D) for 
that hospital.'' Hospitals that receive increases in their FTE resident 
caps under section 1886(h)(8)(B)(i) of the Act will receive direct GME 
payments associated with those FTE residents in the same manner as they 
receive direct GME payments for their other (non-section 422) FTE 
residents, that is, using the primary care PRA that is reported on 
Worksheet E-3, Part IV, line 3.23, and the nonprimary care PRA reported 
on line 3.17 of the same worksheet. This provision in section 5503 
differs from section 422 in that hospitals that received additional 
slots under section 422 receive direct GME payment for FTE residents 
attributable to those slots using a single locality-adjusted national 
average PRA (42 CFR 413.77(g)), and the payment determination is made 
on Worksheet E-3, Part VI. Thus, if a hospital received additional 
slots under section 422, and they train a number of residents that is 
sufficient to require them to count FTE residents under those slots, 
the hospital will continue to receive direct GME payment for those 
slots using the locality-adjusted national average PRA. However, in the 
August 3, 2010 proposed rule (75 FR 46410), we proposed that a hospital 
that receives additional slots under section 5503 would be paid for FTE 
residents counted under those slots using the same primary care and 
nonprimary PRAs for which payment is made for FTE residents subject to 
the 1996 FTE cap. We indicated that we are expecting to revise 
Worksheet E-3, Part IV to add a line on which hospitals would report 
the number of FTEs by which the hospital's FTE caps were increased for 
direct GME slots received under section 5503. (We note that on the new 
Medicare cost reporting form, CMS-2552-10, the direct GME worksheet is 
E-4). To create a hospital's total adjusted direct GME FTE cap, the 
increase granted under section 1886(h)(8)(B)(i) of the Act would be 
added to the 1996 direct GME FTE cap and would include any applicable 
new

[[Page 72193]]

program adjustment received under Sec.  413.79(e), and any applicable 
adjustments for the cost reporting period due to a Medicare GME 
affiliation agreement. In a given cost reporting year, we proposed that 
a hospital would only count FTE residents under its direct GME section 
422 cap slots on Worksheet E-3, Part VI if the number of unweighted 
allopathic and osteopathic residents it is training exceeds the total 
adjusted direct GME cap (including the section 5503 slots) on Worksheet 
E-3, Part IV.
    In addition, with respect to the IME adjustment, in the August 3, 
2010 proposed rule (75 FR 46410), we proposed that a hospital that 
receives an increase in its FTE cap under section 1886(h)(8)(B)(i) of 
the Act will count FTE residents under those slots, and payment will be 
made with respect to residents counted under those slots, using the 
same IME multiplier for which payment is made for FTE residents subject 
to the 1996 FTE cap (that is, currently a multiplier of 1.35). This is 
because section 1886(d)(5)(B)(x) of the Act, as added by section 
5503(b)(2), states, ``For discharges occurring on or after July 1, 
2011, insofar as an additional payment amount under this subparagraph 
is attributable to resident positions distributed to a hospital under 
subsection (h)(8)(B), the indirect teaching adjustment factor shall be 
computed in the same manner as provided under clause (ii) with respect 
to such resident positions.'' This provision in section 5503 differs 
from section 422 in that hospitals that received additional slots under 
section 422 receive IME payment for FTE residents counted under those 
slots using a special multiplier of 0.66 (42 CFR 412.105(e)(2)), and 
the payment determination is made on Worksheet E-3, Part VI. We also 
indicated that we are expecting to revise Worksheet E, Part A to add a 
line in which applicable hospitals would report the amount of 
additional IME slots received under section 5503. To create a 
hospital's total adjusted IME FTE cap, this additional amount would be 
added to the 1996 IME FTE cap, any applicable new program adjustment 
received under Sec.  413.79(e), and any applicable adjustments for the 
period due to a Medicare GME affiliation agreement. In a given cost 
reporting year, we proposed that a hospital would only use its IME 
section 422 cap slots on Worksheet E-3, Part VI if the number of 
unweighted allopathic and osteopathic residents it is training exceeds 
the total adjusted IME cap (including the section 5503 slots) on 
Worksheet E, Part A. Finally, under section 422 of Public Law 108-173, 
hospitals that were members of the same Medicare GME affiliated group 
on or after July 1, 2005, and that received additional FTE cap slots 
under section 422 are precluded from including those additional section 
422 slots in the aggregate affiliated cap. This is in part because 
section 422 specified that a hospital would receive direct GME and IME 
payments for additional slots awarded under section 422 with rates that 
were different from the non-section 422 cap slots, and tracking the 
different direct GME and IME payment rates associated with FTE 
residents that are counted as a result of the section 422 cap increases 
and those that were not would be extremely difficult for the Medicare 
contractors. In addition, in order to qualify for additional slots 
under section 422, the hospitals had to document a need for those 
slots. Similarly, under section 5503, we proposed that hospitals that 
receive additional slots under section 5503 cannot use these slots as 
part of the aggregate cap in a Medicare GME affiliation agreement. This 
is because we believe that once a hospital has demonstrated that it 
truly needs the additional slots, has made the effort to carefully 
document that it will fill those slots within 3 years, and once we have 
determined that the characteristics of the hospital and its training 
program warrant an increase in the hospital's FTE resident caps under 
section 1886(h)(8)(B)(i) of the Act, we do not believe it would be 
appropriate for the hospital to transfer those positions to another 
hospital, albeit temporarily, under the terms of a Medicare GME 
affiliation agreement. To do so would be to undermine the goals and 
specifications for the redistribution of residency positions as set 
forth under section 5503 of the Affordable Care Act.
    We note that section 1886(h)(8)(B) of the Act, which addresses the 
increases in hospitals' FTE resident caps, makes no reference to 
section 1886(h)(4)(G) or 1886(d)(5)(B)(vi)(II) of the Act, which are 
the provisions concerning the rolling average count of FTE residents. 
Furthermore, there is no mention of section 1886(d)(5)(B)(vi)(I) of the 
Act, the provision regarding the cap on the IME resident-to-bed ratio, 
in section 1886(h)(8)(B) of the Act either. That is, the statute does 
not provide for an exclusion from application of the rolling average 
for residents counted as a result of FTE cap increases under section 
1886(h)(8)(B)(i) of the Act, nor does the statute exempt the residents 
counted pursuant to FTE cap increases under section 1886(h)(8)(B)(i) 
from the application of the cap on the IME resident-to-bed ratio. In 
light of the absence of a specific directive in section 
1886(h)(8)(B)(i) of the Act exempting those residents from application 
of the rolling average for direct GME and IME, and the cap on the IME 
resident-to-bed ratio, and with no apparent reason to treat residents 
counted as a result of the FTE cap increases under section 
1886(h)(8)(B) of the Act differently, in the August 3, 2010 proposed 
rule (75 FR 46411), we proposed to require that if a hospital increases 
its direct GME or IME FTE count of residents under an increase in the 
hospital's FTE resident cap under section 1886(h)(8)(B)(i) of the Act, 
those FTE residents would be immediately subject to the rolling average 
calculation and the cap on the IME resident-to-bed ratio. Furthermore, 
we believe that, given potentially significant shifts of FTE resident 
positions among hospitals as a result of section 1886(h)(8) of the Act, 
the inclusion of FTE residents counted as a result of FTE cap increases 
under section 1886(h)(8)(B)(i) of the Act in the rolling average would 
introduce a measure of stability and predictability, and mitigate 
radical shifts in GME payments from period to period.
    Comment: Commenters expressed support of the treatment of hospitals 
with caps that have been reduced or increased under section 422 of the 
MMA. However, one commenter suggested that payment levels should either 
be the same for all FTE cap types or that each of the three should have 
its own payment level to perhaps provide additional incentives for 
training primary care residents.
    Response: Both section 422 of the MMA and section 5503 of the 
Affordable Care Act specify clearly which direct GME and IME payment 
rates are to be used.
    Comment: One commenter agreed with CMS' proposal that if a hospital 
receives slots under 5503, and also received slots under section 422, 
only FTE residents in excess of the hospital's 1996 cap, as increased 
by the new section 5503 slots, would be paid at the section 422 payment 
rates (the locality-adjusted national average PRA for direct GME, and 
the 2.7 percent multiplier for IME).
    Response: We are finalizing our proposal that only FTE residents in 
excess of a hospital's 1996 FTE cap, as increased by the section 5503 
slots, would be paid at the section 422 rates (the locality-adjusted 
national average PRA for direct GME, and the 2.7 percent multiplier for 
IME).
    Comment: Commenters disagreed with CMS' proposal to include FTE

[[Page 72194]]

residents added to a hospital under section 5503 in the hospital's 
rolling average count for IME and direct GME, and in the cap on the IRB 
ratio for IME. The commenters acknowledged that section 5503 is silent 
on this matter, but argued that the absence of language to exclude 
redistributed FTEs from the rolling average and IRB ratio cap need not 
compel CMS to include redistributed FTEs in the rolling average and IRB 
ratio cap. The commenters noted that CMS has used its authority in the 
past to create exceptions to the rolling average and IRB ratio cap when 
the application of these provisions would ``create an unfair result'' 
(for example, to exclude residents displaced by the closure of a 
hospital or residency program from a receiving hospital's rolling 
average or IRB ratio cap). The commenters argued that ``it makes little 
sense'' to apply the rolling average and IRB ratio cap here as well. 
The commenters believed that the fact that Congress wanted 
redistributed resident slots to be used to meet specific policy goals 
for a 5-year period demonstrates that Congress did not intend the usual 
FTE counting rules to apply to redistributed FTE slots.
    Another commenter agreed with CMS' proposal to include residents 
added under section 5503 in the rolling average and the IME IRB ratio 
cap. The commenter believed that the inclusion of these FTE residents 
in the rolling average and IME IRB ratio cap would ``introduce a level 
of stability in the aggregate GME payments.''
    Response: Regarding the applicability of the rolling average and 
the IRB ratio cap to redistributed slots under section 5503, we 
explained in the August 3, 2010 proposed rule (75 FR 46411) that, ``In 
light of the absence of a specific directive in section 
1886(h)(8)(B)(i) of the Act exempting those residents from application 
of the rolling average for direct GME and IME, and the cap on the IME 
resident-to-bed ratio, and with no apparent reason to treat residents 
counted as a result of the FTE cap increases under section 
1886(h)(8)(B) of the Act differently, we are proposing to require that 
if a hospital increases its direct GME or IME FTE count of residents 
under an increase in the hospital's FTE resident cap under section 
1886(h)(8)(B)(i) of the Act, those FTE residents would be immediately 
subject to the rolling average calculation and the cap on the IME 
resident-to-bed ratio. Furthermore, we believe that, given potentially 
significant shifts of FTE resident positions among hospitals as a 
result of section 1886(h)(8) of the Act, the inclusion of FTE residents 
counted as a result of FTE cap increases under section 1886(h)(8)(B)(i) 
of the Act in the rolling average would introduce a measure of 
stability and predictability, and mitigate radical shifts in GME 
payments from period to period.'' We continue to believe that it is 
appropriate to include these FTE slots in the rolling average and in 
the IRB ratio cap. In the instance of displaced residents that result 
from the closure of a hospital or a residency program, an exemption was 
provided under sections 413.79(h) for direct GME and 412.105(b) for IME 
regarding the rolling average and the IRB ratio cap respectively so as 
to provide an incentive for hospitals that may have experienced some 
financial loss when accepting actual residents, not merely FTEs, into 
their hospitals and programs who may otherwise not have been able to 
complete their training. Such an exception is not warranted under 
section 5503, where hospitals are only applying for FTE slots to either 
start new programs or expand existing programs. We also appreciate the 
support of the commenter that wrote that the inclusion of these FTE 
residents in the rolling average and IME IRB ratio cap would 
``introduce a level of stability in the aggregate GME payments.'' We 
are finalizing our proposal to include FTE slots added under section 
5503 in the rolling average and IRB ratio cap accordingly.
    Comment: A commenter thought that CMS should permit hospitals to 
use slots awarded under section 5503 as part of Medicare GME 
affiliation agreements after a certain period of time, such as 5 years, 
coinciding with the end of the time period of other restrictions 
applicable to slots awarded under section 5503. The commenter 
understood CMS' rationale for proposing to require that hospitals not 
include slots received as part of Medicare GME affiliation agreements, 
but the commenter believed that keeping separate track of these FTEs is 
administratively burdensome, and that circumstances can change over 
time. Similarly, commenters expressed concern that redistributed 
positions could not be aggregated under a Medicare GME affiliation 
agreement. Commenters stated that this limitation seems contradictory 
in that it allows these affiliated programs to lose slots, but not gain 
them when they meet the redistribution criteria. Moreover, commenters 
thought that this policy restricts collaborative training arrangements, 
which are particularly important for resident training in rural and 
underserved areas.
    Response: In the August 3, 2010 proposed rule (75 FR 46410), we 
proposed that hospitals that receive additional slots under section 
5503 cannot use these slots as part of the aggregate cap in a Medicare 
GME affiliation agreement. This is because we believe that once a 
hospital has demonstrated that it truly needs the additional slots, has 
made the effort to carefully document that it will fill those slots 
within 3 years, and once we have determined that the characteristics of 
the hospital and its training program warrant an increase in the 
hospital's FTE resident caps under section 1886(h)(8)(B)(i) of the Act, 
we do not believe it would be appropriate for the hospital to transfer 
those positions to another hospital, albeit temporarily, under the 
terms of a Medicare GME affiliation agreement. To do so would be to 
undermine the goals and specifications for the redistribution of 
residency positions as set forth under section 5503 of the Affordable 
Care Act. However, the commenters' provide a compelling argument that 
this limitation seems contradictory in that it allows these affiliated 
programs to lose slots, but not gain them when they meet the 
redistribution criteria. Further, we understand that training needs can 
change over time, and there may be a need to cross-train residents in 
different hospital settings. In addition, because slots received under 
section 5503 are to be paid with the same direct GME PRA and IME 
multiplier as a hospital's other residents (unlike slots received under 
section 422 of the MMA which are paid at different payment rates), it 
would not present an administrative burden to include section 5503 
slots in Medicare GME affiliation agreements. Therefore, we are 
revising our proposal and adopting the commenters' suggestion to permit 
hospitals to use slots awarded under section 5503 as part of Medicare 
GME affiliation agreements after 5 years, which would coincide with the 
end of the time period of other restrictions applicable to slots 
awarded under section 5503. Thus, slots awarded under section 5503 
could first be used (either lent or received) as part of Medicare GME 
affiliation agreements for the academic year beginning July 1, 2016. 
However, we caution that section 5503 slots that are used in Medicare 
GME affiliation agreements on or after July 1, 2016, are at risk for 
removal by the Medicare contractor from those affiliation agreements 
if, while auditing a cost report that falls within the 5-year period, 
the contractor finds that the hospital did not meet the primary care 
average or 75 percent threshold requirement.
    After consideration of the public comments we received, we are

[[Page 72195]]

finalizing our proposals not to exempt slots added under section 5503 
from the rolling average or the IRB ratio. However, we are accepting 
the commenters' request regarding use of the section 5503 slots in 
Medicare GME affiliation agreements, and we are modifying our proposal 
policy to allow these slots to be used as part of the FTE caps in 
Medicare GME affiliation agreements for the academic year beginning 
July 1, 2016.
17. Other Issues Related to a Request for Increase in the FTE Caps 
under Section 5503 of the Affordable Care Act
a. Rural Hospitals or Urban Nonteaching Hospitals
    Rural hospitals may receive an adjustment to their FTE caps for 
establishing a new residency program under Sec.  413.79(e)(1)(iii) of 
the existing regulations at any time. Therefore, if a rural hospital is 
interested in starting a new program, or interested in participating in 
training residents in a new program on or after July 1, 2011, it need 
not apply for slots under section 5503 of the Affordable Care Act for 
that new program. If a rural hospital seeks to expand an existing 
program, and does not have sufficient space under its existing FTE caps 
to cover those additional residents, the rural hospital may apply for 
an increase to its FTE caps under section 5503. Similarly, an urban 
hospital may request additional slots under section 5503 for the 
purpose of expanding an existing program. A hospital, rural or urban, 
that is not yet a teaching hospital and does not have a cap 
established, may not apply for a permanent adjustment to their FTE caps 
under section 5503 since a non-teaching hospital may apply for a 
permanent cap adjustment under current Medicare regulations at Sec.  
413.79(e). Also, if an urban non-teaching hospital becomes a teaching 
hospital because it begins to serve as a rotating site for another 
hospital's existing program, it may apply for additional slots under 
section 5503, which would not preempt the hospital from later getting a 
new cap adjustment under Sec.  413.79(e) for starting a new program.
    We did not receive any public comments on this section, and we are 
finalizing our proposals accordingly.
b. Closed Teaching Hospitals
    We note that under section 5506 of the Affordable Care Act, as 
explained further in section XXI.E. of this preamble, the FTE resident 
caps of teaching hospitals that close on or after March 23, 2008, are 
to be redistributed to other qualifying hospitals according to specific 
criteria. Assuming a teaching hospital closed recently, it is possible 
that based on the closed teaching hospital's three most recent cost 
reporting periods ending prior to March 23, 2010, its FTE resident caps 
could be subject to reduction under section 5503. However, so as to 
avoid duplication of FTE resident slots in the redistribution processes 
under sections 5503 and 5506, in the August 3, 2010 proposed rule (75 
FR 46411), we proposed that if a hospital closes on or after March 23, 
2008, then its FTE resident cap slots would not be redistributed under 
section 5503, but would be reserved for redistribution under section 
5506.
    We received one public comment in support of this proposal, and we 
are finalizing our policy accordingly.
c. Requirements for Hospitals That Receive Additional Slots Under 
Section 5503
    Section 1886(h)(8)(B)(ii) of the Act, as added by section 
5503(a)(4) of the Affordable Care Act, specifies requirements and 
thresholds that a hospital that applies for and receives additional 
slots effective July 1, 2011, must meet in order to retain those slots. 
Under section 422 of Public Law 108-173, hospitals that received 
additional slots were not held accountable for meeting any requirements 
once those slots were received effective July 1, 2005, nor did section 
422 require that CMS conduct any subsequent reviews of the hospitals 
that received the slots in order to determine that the hospitals were 
meeting certain thresholds. However, section 1886(h)(8)(B)(ii) of the 
Act, as added by section 5503 of the Affordable Care Act, specifies 
requirements that a hospital that receives an increase in its FTE 
resident caps under section 1886(h)(8)(B)(i) must meet, at least for a 
5-year period beginning on or after July 1, 2011, and section 
1886(h)(8)(B)(iii) directs the Secretary to reduce the FTE caps of the 
hospital by the same number of FTE residents by which the hospital's 
FTE caps were increased if the hospital fails to meet these 
requirements. Specifically, section 1886(h)(8)(B)(ii) of the Act 
states, ``a hospital that receives an increase in the otherwise 
applicable resident limit under this subparagraph shall ensure, during 
the 5-year period beginning on the date of such increase, that--
    (I) The number of full-time equivalent primary care residents, as 
defined in paragraph (5)(H) (as determined by the Secretary), excluding 
any additional positions under subclause (II), is not less than the 
average number of full-time equivalent primary care residents (as so 
determined) during the 3 most recent cost reporting periods ending 
prior to the date of enactment of this paragraph; and
    (II) Not less than 75 percent of the positions attributable to such 
increase are in a primary care or general surgery residency (as 
determined by the Secretary).
    The Secretary may determine whether a hospital has met the 
requirements under this clause during such 5-year period in such manner 
and at such time as the Secretary determines appropriate, including at 
the end of such 5-year period.''
    Section 1886(h)(5)(H) of the Act defines ``primary care resident'' 
as a resident enrolled in an approved medical residency training 
program in family medicine, general internal medicine, general 
pediatrics, preventive medicine, geriatric medicine, or osteopathic 
general practice. In the August 3, 2010 proposed rule (75 FR 46411), we 
proposed that a hospital that is applying to receive additional slots 
would have to submit data from the three most recent cost reporting 
periods ending before March 23, 2010 (the date of enactment) on the 
number of unweighted FTE residents in these primary care programs. We 
note that this primary care average is based on the hospital's total 
FTE count that would otherwise be allowable in absence of the FTE cap; 
if a hospital is training FTE residents in excess of its FTE caps, it 
would still determine the 3-year average based on the total number of 
unweighted primary care FTE residents. A total primary care FTE count, 
one for IME and one for direct GME, is sufficient for the hospital for 
each of these three cost reporting periods; a hospital need not report 
these data by specialty. However, we note that, currently, the Medicare 
cost report does not track a hospital's number of primary care 
residents. For direct GME, on Worksheet E-3, Part IV, line 3.19, the 
hospital's number of weighted primary care and OB/GYN residents is 
reported. Thus, if a hospital trains OB/GYN residents in addition to 
primary care residents, we proposed that the OB/GYN count must be 
subtracted from the number reported on line 3.19 of Worksheet E-3, Part 
IV for the hospital's three most recent cost reporting periods ending 
before March 23, 2010. This would produce a weighted FTE count for 
direct GME, which should then be converted to an unweighted count. In 
any case, the source documentation for these data is the rotation 
schedules for the applicable years. For IME, on Worksheet E, Part A, 
there is no line that currently records the number of

[[Page 72196]]

primary care residents, as the distinction between primary care and 
nonprimary care residents is only necessary in the direct GME payment 
formula (due to the use of a primary care and OB/GYN PRA and a 
nonprimary care PRA for certain years).
    Therefore, in the August 3, 2010 proposed rule (75 FR 46412), we 
proposed that the applicant hospital must develop from its rotation 
schedules three IME FTE primary care counts to correspond to its three 
most recent cost reporting periods ending before March 23, 2010. As 
part of its application, we proposed that the hospital must include the 
documentation that it used to arrive at its direct GME and IME primary 
care FTE counts, including a copy of Worksheet E-3, Part IV for direct 
GME, and if the hospital has an OB/GYN program, the rotation schedules 
corresponding to the three most recent cost reporting periods ending 
prior to March 23, 2010 for OB/GYN, and the rotation schedules for all 
primary care residency programs used to establish the IME primary care 
FTE count corresponding to the three most recent cost reporting periods 
ending prior to March 23, 2010. Although we considered proposing that a 
hospital may demonstrate that it is complying with the requirement to 
maintain the primary care average with only a single unweighted FTE 
count, rather than one FTE count for direct GME and one FTE count for 
IME, we believed that we needed to propose to require documentation 
from both a direct GME and an IME FTE count because section 5503 of the 
Affordable Care Act amended section 1886(d)(5)(B)(v) of the Act to make 
the entire section 1886(h)(8), of which maintenance of this primary 
care average is a part, applicable for purposes of IME. Thus, both 
section 1886(h) of the Act for direct GME and section 1886(d)(5)(B) of 
the Act for IME are equally impacted by section 5503. Furthermore, we 
proposed that the FTE counts for IME and direct GME used to derive 
these primary care averages are subject to audit by the Medicare 
contractors, and that, as part of reviews or audits performed by the 
Medicare contractors in accordance with their normal audit plans, the 
Medicare contractors would check whether a hospital is maintaining its 
primary care average in each of the cost reports in the 5-year period 
as early as tentative settlement of those five respective cost reports, 
and may take prompt action accordingly to adjust a hospital's FTE caps 
and direct GME and IME interim payments.
    In addition to maintaining this average number of primary care 
residents, section 1886(h)(8)(B)(ii)(II) of the Act also requires that 
a hospital that receives an increase to its FTE resident caps under 
section 1886(h)(8)(B)(i) of the Act must ensure that 75 percent of 
those slots are used to train primary care or general surgery 
residents. A hospital that applies for additional slots may or may not 
already train at least 75 percent or more of its residents in primary 
care or general surgery programs. At a minimum, the applicant hospital 
is required to maintain the average number of FTE primary care 
residents that it trained during the three most recent cost reporting 
periods ending prior to March 23, 2010. Further, in the August 3, 2010 
proposed rule (75 FR 46412), we proposed that in addition to the 
primary care residents used to maintain the primary care average, the 
applicant hospital must separately ensure that at least 75 percent of 
the increased FTE cap slots it receives are used to count FTE residents 
in primary care or general surgery. We proposed that the hospital must 
be able to document that, during each of the 5 years in the 5-year 
period of July 1, 2011 to June 30, 2016, for IME and direct GME 
respectively, and for each cost report during those 5 years, that not 
only is it maintaining its primary care average, but that 75 percent of 
the increased FTE cap slots that it received are being used to count 
residents training in primary care or general surgery programs. For 
example, Hospital A has a June 30 fiscal year end, an FTE cap of 100 
FTEs, and a total FTE count of 110. In its three most recent cost 
reports ending prior to March 23, 2010 (fiscal year end June 30, 2009, 
June 30, 2008, and June 30, 2007), Hospital A was training 60 primary 
care FTE residents, 50 primary care FTE residents, and 40 primary care 
FTE residents respectively. The average number of primary care FTE 
residents during those 3 years is 50. Hospital A applied for and 
received 10 additional FTE cap slots under section 5503. Beginning July 
1, 2011, for each cost report ending June 30, 2012, June 30, 2013, June 
30, 2014, June 30, 2015, and June 30, 2016, Hospital A must ensure that 
it does not train less than 50 primary care FTE residents, and it must 
ensure that it trains an additional 7.5 FTEs of the 10 slots it 
receives in either primary care or general surgery. In another example, 
Hospital B has a December 31 fiscal year end, an FTE cap of 10 FTEs, 
and a total FTE count of 12. In its three most recent cost reports 
ending prior to March 23, 2010 (fiscal year end December 31, 2009, 
December 31, 2008 and December 31, 2007), Hospital A was training 12 
primary care FTE residents in each of the 3 years. The average number 
of primary care FTE residents is 12. Hospital B applied for and 
received 4 additional FTE cap slots under section 5503. Beginning July 
1, 2011 and ending June 30, 2016, Hospital B must ensure that it does 
not train less than 12 primary care FTE residents, and it must ensure 
that it trains an additional 3 FTEs of the 4 slots it receives, for a 
total of 15, in either primary care or general surgery. We proposed 
that the Medicare contractors would check whether a hospital is 
maintaining this 75-percent threshold as part of reviews or audits 
performed by the Medicare contractors in accordance with their normal 
audit plans in the 5-year period as early as tentative settlement of 
those five respective cost reports, and may take action accordingly to 
adjust a hospital's FTE resident caps and direct GME and IME interim 
payments.
    It is possible that there are hospitals that are not currently 
training, nor have they trained in any of their three cost reporting 
periods ending prior to March 23, 2010, any primary care residents at 
all, but that such hospitals are applying for an increase to their FTE 
caps for a new primary care or general surgery program that they would 
like to start. Such hospitals would have a primary care average of 
zero. Because the intent of section 5503 is to try to increase the 
number of primary care (or general surgery) residents in training, we 
proposed that such hospitals would be able to apply for additional 
slots under section 5503. Should such a hospital receive an FTE cap 
increase, we proposed that 75 percent of the increased FTE cap slots 
must be used to count FTE residents in either primary care or general 
surgery. We proposed that a hospital is required to document in each of 
the 5 years that it has maintained the primary care average and that at 
least 75 percent of the slots it receives is used for training either 
primary care and/or general surgery residents rather than only once at 
the end of the 5-year period. As explained more fully below, if a 
hospital has not met these requirements, in the proposed rule, we 
stated that we believe it would be less disruptive financially and 
administratively to a hospital if we make the adjustment to the 
hospital's FTE resident caps under section 1886(h)(8)(B)(iii)(I) of the 
Act and recover any overpayment after 1 year rather than after the 
conclusion of the

[[Page 72197]]

full 5 year monitoring period under section 1886(h)(8)(B)(ii) of the 
Act.
    Section 1886(h)(8)(B)(ii) of the Act also states that ``The 
Secretary may determine whether a hospital has met the requirements 
under this clause during such 5-year period in such manner and at such 
time as the Secretary determines appropriate, including at the end of 
such 5-year period'' (emphasis added). In the August 3, 2010 proposed 
rule (75 FR 46413), we proposed that the ``5-year period beginning on 
the date of such increase'' is July 1, 2011 through June 30, 2016, 
because the effective date of section 5503 is for portions of cost 
reporting periods beginning on or after July 1, 2011. Thus, it is 
during this 5-year period that an ``average number of full-time 
equivalent primary care residents'' must be maintained, and that 75 
percent of the additional slots must be trained in primary care or 
general surgery, for IME and direct GME respectively. However, the 
Secretary is given some discretion as to how and when she determines 
whether a hospital is meeting or has met the requirements ``during such 
5-year period.'' Although we believe that the 5-year period must be 
within July 1, 2011 through June 30, 2016, we believe we have 
flexibility to determine which cost reporting periods within that 5-
year period we may use to assess whether the hospital is consistently 
meeting the required criteria. For the sake of administrative 
simplicity, on behalf of hospitals and the Medicare contractors, we 
proposed that the Medicare contractors, in accordance with their normal 
audit plans, would make assessments based on a hospital's fiscal year 
when possible, such that the Medicare contractors could make a first 
assessment for an initial ``short'' period, then annually as each of 
the hospital's fiscal year ends until there is another final ``short'' 
assessment period that starts after the provider's last fiscal year end 
within the 5-year window and runs through June 30, 2016. If a hospital 
has a June 30 fiscal year end, we proposed that the Medicare contractor 
could assess whether the hospital is meeting the required criteria five 
times, starting with its cost reporting period beginning on July 1, 
2011, and ending with its fifth cost reporting period that starts on 
July 1, 2015 (and ending June 30, 2016). However, for hospitals that 
have a fiscal year end of other than June 30, we proposed that the 
Medicare contractors could assess whether the hospital met the 
requirements for the portion of its cost reporting period that occurs 
after July 1, 2011, its subsequent full cost reporting periods, and 
then ending with the portion of the cost reporting period prior to June 
30, 2016. In other words, we proposed that the hospital would be 
considered to meet the required criteria in ``Year 1'' if it meets the 
requirements based on an annualized FTE count from July 1, 2011 through 
the end of its cost reporting period; in each of years 2 through 4, it 
must meet the requirements based on its next three cost reporting 
periods; and in year 5, it must meet the requirements based on an 
annualized FTE count from the first day of its cost reporting period 
through June 30, 2016 (which is the last day on which a hospital has 
any obligation to meet these requirements). For example, assume 
Hospital C has a September 30 fiscal year end, and receives 16 
additional slots under section 5503, and has a primary care average of 
30 FTE residents. We proposed that during the period of July 1, 2011 
through June 30, 2016, Hospital C must demonstrate that it is training 
at least 75 percent of its 16 slots in primary care or general surgery 
(that is, 12 slots), and that it maintains a primary care FTE count of 
30, as follows:
    Year 1--July 1, 2011 to September 30, 2011, with an annualized 
count of 3 (that is, 12 divided by 4) additional FTEs in primary care/
general surgery, and an annualized count of 7.5 (that is, 30 divided by 
4) FTEs training in primary care residency programs.
    Year 2--October 1, 2011 to September 30, 2012, with 12 FTEs in 
primary care/general surgery, and 30 FTEs in primary care programs.
    Year 3--October 1, 2012 to September 30, 2013, with 12 FTEs in 
primary care/general surgery, and 30 FTEs in primary care programs.
    Year 4--October 1, 2012 to September 30, 2014, with 12 FTEs in 
primary care/general surgery, and 30 FTEs in primary care programs.
    Year 5--October 1, 2014 to September 30, 2015, with 12 FTEs in 
primary care/general surgery, and 30 FTEs in primary care programs.
    Year 6--October 1, 2015 to June 30, 2016, with an annualized count 
of 9 additional FTEs in primary care/general surgery, and an annualized 
count of 22.5 FTEs training in primary care residency programs.
    We proposed to reserve the right to assess as many times as 
necessary in the 5-year period that a hospital is meeting the required 
criteria. Furthermore, if a Medicare contractor determines during an 
audit that a hospital did not meet the requirements during, for 
example, the second year, the contractor could go back and audit the 
first year (full, or short period), and make a retroactive adjustment. 
We also understand that we should consider that hospitals might not 
immediately fill all the slots they receive, particularly because they 
are only required to demonstrate the likelihood of filling the slots 
within the first three cost reporting periods beginning on or after 
July 1, 2011. Accordingly, in the preceding example in which Hospital C 
was awarded 16 slots and has a September 30 fiscal year end, assume it 
only added 2 actual residents immediately on July 1, 2011. Two 
residents equate to 0.5 FTE for the 3-month period of July 1, 2011 to 
September 30, 2011. Seventy five percent of 0.5 FTE equals 0.375. We 
proposed that at least 0.375 of the new FTEs added for the period of 
July 1, 2011 to September 30, 2011 must be in primary care or general 
surgery in order to meet the requirement in ``Year 1.''
    In a case where the Medicare contractor determines that a hospital 
did not meet the requirements in a cost reporting year within the 5-
year time period, section 1886(h)(8)(B)(iii) of the Act states that 
``the Secretary shall--
    (I) Reduce the otherwise applicable resident limit of the hospital 
by the amount by which such limit was increased under this paragraph; 
and
    (II) Provide for the distribution of positions attributable to such 
reduction in accordance with the requirements of this paragraph.'' 
Hospitals have different fiscal year ends and are subject to different 
audit schedules, which may occur several years after a hospital's cost 
report is submitted. Therefore, even though we proposed that the 
Medicare contractors may make adjustments to a hospital's direct GME 
and IME payments as early as tentative settlement, it may be several 
years after June 30, 2016 before CMS determines the exact number of 
reductions, if any, that are applied to the FTE caps of hospitals that 
received additional slots, but that failed to meet the requirements 
under section 1886(h)(8)(B)(ii) of the Act, discussed above. However, 
once we have determined the number of slots available for a second 
redistribution, we would distribute them ``in accordance with the 
requirements of this paragraph.'' That is, we would distribute the 
slots to hospitals that applied under this first redistribution and 
that qualified to receive the slots they requested, but for whom we did 
not have sufficient slots in the ``pool'' to grant them the full number 
of FTE slots that they requested. As discussed above in section XXI.D. 
of this preamble, because of the requirement that 70 percent of the 
slots be redistributed to hospitals within States with resident-to-
population ratios in the lowest quartile,

[[Page 72198]]

it is possible that, after first distributing slots to hospitals with 
the highest scores on their CMS Evaluation Form, there may be some 
remaining qualifying hospitals within the same priority level category 
that receive the same score on the CMS Evaluation Form. Thus, we would 
have no way of distinguishing among these hospitals of equal rank. If 
this situation occurs, we proposed to prorate the remaining amount of 
slots in the ``70-percent pool'', and distribute an equal share of 
slots to these hospitals of equal rank. If a similar situation occurs 
within the ``30-percent pool'', we also proposed to prorate the 
remaining amount of slots in the ``30-percent pool'' and distribute an 
equal share of slots to hospitals of equal rank. Accordingly, in the 
event that there is a second redistribution process pursuant to section 
1886(h)(8)(B)(iii)(II) of the Act, we proposed to distribute the slots 
in the ``pool'' (created by the failure of one or more hospitals to 
meet the criteria specified under section 1886(h)(8)(B)(ii)) of the Act 
to those hospitals that did not receive all of the slots for which they 
technically qualified, and for which we had to prorate under the first 
redistribution. If we have sufficient slots to fully satisfy the 
original requests of those qualifying hospitals, we would assign them 
the difference between the prorated amount awarded under the first 
redistribution and the amount of slots they requested on their original 
application (assuming they actually otherwise qualified for all the 
slots they requested). In other words, we would go back to the original 
applications and continue to assign slots to those hospitals that 
originally qualified to receive slots under section 5503, but for which 
we did not have sufficient slots to satisfy their requests. We proposed 
to assign the additional slots in the same priority order as under the 
first redistribution process under section 5503, resuming where we left 
off, until all the slots have been distributed. After such point, there 
would be no further harvesting of slots or redistribution under section 
5503.
    In the August 3, 2010 proposed rule (75 FR 46414), we proposed to 
add new regulations at Sec.  412.105(f)(1)(iv)(C)(2) for IME and at 
Sec.  413.79(n) for direct GME to reflect our proposals regarding 
hospitals receiving increases to their FTE resident caps under section 
5503, and the requirements that hospitals must meet in order to keep 
those FTE slots, and not be subject to a removal of those FTE slots 
during the 5-year period of July 1, 2011 through June 30, 2016.
    Comment: One commenter requested clarification regarding how the 5-
year restrictions on the use of redistributed slots would apply to a 
hospital that is training residents in excess of its cap. The commenter 
believed that such a hospital would use the additional cap slots it 
receives under section 5503 for ``over-the-cap'' residents, as long as 
the hospital converts the ``over-the-cap'' positions to primary care or 
to general surgery to meet the primary care average and the 75 percent 
requirement.
    Response: Even if a hospital that is already training residents in 
excess of its caps applies for additional slots, that hospital must use 
those cap slots in accordance with the 5-year restrictions established 
by section 1886(h)(8)(B)(ii) of the Act; that is, it must maintain the 
primary care average, and at least 75 percent of the positions must be 
used for additions of primary care or general surgery residents. The 
hospital must devote at least 75 percent of those slots to new primary 
care and/or general surgery programs, or to expanding existing primary 
care and/or general surgery programs. For example, a hospital with an 
FTE cap of 100 is training 50 primary care residents and 60 non-primary 
care residents, for a total of 110 FTE residents being trained. Assume 
the hospital's primary care average is also 50. The hospital receives 
10 slots under section 5503, raising its FTE cap from 100 to 110. The 
hospital must make sure to continue to train at least 50 FTEs in 
primary care, excluding from this count any of the new primary care 
positions created under section 5503, so as to meet the primary care 
average requirement. That is, the hospital cannot reduce its primary 
care FTE count from 50 to 40, and then increase its primary care FTE 
count to 50 again using the 10 FTEs received under section 5503 for 
primary care residents in an attempt to meet the primary care average 
and the 75 percent requirement, because section 1886(h)(8)(B)(ii)(I) of 
the Act states ``excluding any additional positions under subclause 
(II).'' Rather, since the hospital received 10 slots under section 
5503, the hospital must use at least 75 percent of those 10 positions, 
or 7.5, to either create a new or expand an existing primary care or 
general surgery program. If the hospital wishes to maintain training 
110 FTE residents with a cap of 110, the hospital would need to 
eliminate 7.5 FTEs of its existing non-primary care residents, and in 
their place, train an additional 7.5 primary care or general surgery 
FTE residents. Assuming that the hospital chose to use the slots for 
primary care (and not for general surgery), the hospital would then be 
training 57.5 primary care FTE residents and 52.5 nonprimary care FTE 
residents. If the hospital does not want to reduce its non-primary care 
FTE count, then it would need to increase the number of residents it is 
training above 110, ensuring that it trains at least 7.5 additional 
FTEs in either primary care or surgery.
    The situation is somewhat different for a hospital that is training 
residents in excess of its FTE resident cap, but all of the residents 
it has been training are in primary care specialties. If this hospital 
receives slots under section 5503, then this hospital would not need to 
convert any positions to primary care or general surgery, because it is 
already training 100 percent of its FTEs as primary care residents. It 
would be using 75 percent of the additional slots to start a new or 
expand an existing primary care or general surgery program. For 
example, a hospital has an FTE cap of 15, but after July 1, 2011, it is 
training 20 primary care FTE residents (and no other residents). Assume 
its primary care average is also 20 FTEs. It applies for and receives 4 
slots, raising its FTE cap to 19. This hospital must continue to train 
20 primary care FTE residents on or after July 1, 2011, in order to 
meet the primary care average requirement. Furthermore, it must use 75 
percent of 4 of the slots it received (that is, 3) to train an 
additional 3 residents in primary care or general surgery programs, for 
a total of at least 23 primary care residents being trained (or 20 
primary care in addition to 3 new surgery residents being trained).
    Comment: One commenter said that CMS' proposed application of the 
primary care average test and the requirement that 75 percent of the 
slots received must be in primary care or general surgery appears 
``cumulative,'' which can lead to ``absurd results.'' The commenter 
gave the following example:
    The hospital has a current resident cap of 24 FTEs. For the last 3 
years, the hospital has trained an average of 36 FTE residents, so it 
is 12 over its cap. In addition, for the last 3 years, the hospital has 
had an average of 36 residents in primary care, that is, 100 percent in 
primary care. One would think that 100 percent primary care is a good 
thing, but it is impossible for this hospital to change its mix to add 
75 percent of its increased slots above the 3-year average in primary 
care.
    The commenter believed this result was not required by the ACA. 
Specifically, section 1886(h)(8)(B)(ii) of the Act states, ``a hospital 
that receives an increase in the otherwise applicable resident limit 
under this subparagraph shall ensure, during the 5-year period

[[Page 72199]]

beginning on the date of such increase, that--
    (I) The number of full-time equivalent primary care residents, as 
defined in paragraph (5)(H) (as determined by the Secretary), excluding 
any additional positions under subclause (II)[emphasis added by the 
commenter], is not less than the average number of full-time equivalent 
primary care residents (as so determined) during the 3 most recent cost 
reporting periods ending prior to the date of enactment of this 
paragraph; and
    (II) Not less than 75 percent of the positions attributable to such 
increase are in a primary care or general surgery residency (as 
determined by the Secretary).
    The commenter believed that ``excluding any additional positions'' 
added for primary care means that the number of primary care positions 
maintained in the prior 3-year period should be determined by excluding 
primary care positions over the cap for which the hospital is seeking 
an addition to its cap. Thus, the commenter believed in the example 
above, the primary care average requirement would be met by the 
hospital continuing to train 100 percent of their FTEs as primary care 
residents, and the 75 percent test would be applied to residents the 
hospital is already training in excess of its cap.
    Response: We believe the commenter has misunderstood our proposal 
regarding the requirements for meeting the 75 percent threshold 
requirement. Contrary to the commenter's assertion, the hospital in the 
commenter's example need not ``change its mix to add 75% of its 
increased slots above the 3 year average in primary care.'' Rather, the 
hospital in the example is already training only primary care 
residents. To meet the primary care average requirement, it would not 
need to convert current positions to primary care. As explained in 
response to the previous comment, to meet the test at section 
1886(h)(8)(B)(ii)(I), this hospital would need to continue to train at 
least 36 primary care FTE residents, and in so doing, would satisfy the 
primary care average requirement. In addition, to meet the 75 percent 
threshold requirement, the hospital will need to increase the number of 
residents it is training and add at least 9 FTEs (that is, 75 percent 
of 12 FTEs it receives under section 5503) for primary care or general 
surgery, for a total of 45 primary care residents (or a total of 36 
primary care and 9 new surgery residents). This is because, under 
section 1886(h)(8)(B)(ii)(I) of the Act, a hospital cannot apply the 
positions it is using to fulfill the 75 percent threshold toward 
meeting the primary care average requirement. This is also consistent 
with the example given with Hospital B in the third column on page 
46412 of the August 3, 2010 proposed rule. [``In another example, 
Hospital B has a December 31 fiscal year end, an FTE cap of 10 FTEs, 
and a total FTE count of 12. In its three most recent cost reports 
ending prior to March 23, 2010 (fiscal year end December 31, 2009, 
December 31, 2008 and December 31, 2007), Hospital A was training 12 
primary care FTE residents in each of the 3 years. The average number 
of primary care FTE residents is 12. Hospital B applied for and 
received 4 additional FTE cap slots under section 5503. Beginning July 
1, 2011 and ending June 30, 2016, Hospital B must ensure that it does 
not train less than 12 primary care FTE residents, and it must ensure 
that it trains an additional 3 FTEs of the 4 slots it receives in 
either primary care or general surgery. (75 FR 46412)] This means that 
Hospital B must add 3 additional FTEs above the 12 it is training, and 
those 3 FTEs would either be in primary care or general surgery.
    The commenter believed that ``excluding any additional positions'' 
added for primary care means that the number of primary care positions 
maintained in the prior 3-year period should be determined by excluding 
primary care positions over the cap for which the hospital is seeking 
an addition to its cap. We disagree with the commenter. Knowing that 
the overall goal of section 5503 is to increase the number of primary 
care practitioners, we believe that the phrase ``excluding any 
additional positions under subclause (II)'' simply means that a 
hospital should not attempt to meet its primary care average 
requirement, which is based on historical numbers of primary care 
residents trained, by filling in the quota with newly added primary 
care positions as a result of slots received under section 5503. That 
is, with the primary care average requirement, Congress sought a 
measure of assurance that, at least with respect to hospitals that 
receive slots under section 5503, a relatively consistent ``baseline'' 
number of primary care residents would continue to be trained, while, 
through the 75 percent requirement ``under subclause (II),'' at least 
75 percent of the redistributed slots would also be used for additional 
primary care (or general surgery) slots. To the extent that the 
redistributed slots must be used to create new or expand existing 
programs, this means that even more primary care residents above the 
``baseline'' will be trained. That is why we proposed in the proposed 
rule that, ``At a minimum, the applicant hospital is required to 
maintain the average number of FTE primary care residents that it 
trained during the three most recent cost reporting periods ending 
prior to March 23, 2010. Further, we are proposing that in addition to 
the primary care residents used to maintain the primary care average, 
the applicant hospital must separately ensure that at least 75 percent 
of the increased FTE cap slots it receives are used to count FTE 
residents in primary care or general surgery'' (emphasis added, 75 FR 
46412).
    Comment: Commenters disagreed with CMS' proposal that hospitals 
that receive additional slots under section 5503 must demonstrate that 
for each cost report during the 5 years from July 1, 2011 through June 
30, 2016, for IME and direct GME respectively, at least 75 percent of 
the FTE residents added in each year must be used for residents 
training in primary care or general surgery programs. The commenters 
believed this requirement is burdensome to both hospitals and 
contractors, and is also untenable because hospitals do not always fill 
all positions they offer. The commenters believe that CMS has the 
authority to make determinations about whether hospitals have met the 
75 percent and the primary care average requirements at the end of the 
5-year period: ``The Secretary may determine whether a hospital has met 
the requirements under this clause during such 5-year period in such 
manner and at such time as the Secretary determines appropriate, 
including at the end of such 5-year period.'' The commenter also 
encouraged CMS to allow hospitals some flexibility in meeting the 75 
percent requirement, because there are a number of reasons why a 
hospital's primary care and general surgery numbers could fluctuate 
slightly from year to year, including accreditation standards, fill 
match rates, and leaves of absence. The commenters requested that CMS 
find a hospital to have met the 75 percent requirement so long as the 
average number of residents the hospital added over the course of the 5 
years is within the greater of 2 resident FTEs or 95 percent of the 
target number of primary care and general surgery residents. For 
example, if a hospital was awarded 20 new slots through the 
redistribution program and added an additional 20 resident FTEs, 75 
percent of 20 would be 15 resident FTEs. CMS should find the hospital 
to have met the 75 percent requirement so long as on

[[Page 72200]]

average, at the end of the five year period, at least 13 of those FTE 
residents were training in primary care or general surgery.
    Another commenter recommended that hospitals demonstrate that they 
met the 75 percent test over no less than 3 years. The commenter said 
there ``is no room for mistakes under CMS' proposal.'' The commenter 
noted that FTEs are measured in fractions, and ``it is conceivable that 
a hospital could lose additions to its cap by reason of falling short 
.01 of the 75 percent standard.'' The commenter argued that there are 
various reasons why a hospital might fall short of the 75 percent 
threshold (such as residents leaving the program due to personal or 
other reasons or uncertainties in rotation schedules). The commenter 
argued that CMS has used ``multi-year measures'' in other contexts, 
such as the 3-year rolling average for the direct GME and IME FTE count 
and in the context of geographic reclassification for the wage index. 
Therefore, particularly considering the ``severe adverse consequences'' 
that could result from the loss of additions to a hospital's cap, CMS 
should apply an averaging method to measuring compliance with the 75 
percent test. However, one commenter applauded the 75 percent 
requirement and requested that CMS extend this requirement beyond 5 
years, if the statute permits.
    Another commenter asked that CMS allow for concessions to be made 
in the calculation of the average number of primary care residents that 
were trained in the last three cost reporting periods ending prior to 
March 23, 2010. The commenter stated that concessions may be necessary 
to account for changes in school, program(s), and rotation(s) that have 
occurred either during those 3 years or between the end of the last 
fiscal year and the time the additional slots are awarded. Some of 
these changes may include a closure of a program, a shifting of a 
rotation to another affiliated hospital, and a shifting of residents 
between training sites. Another commenter requested that we clarify and 
provide more detail regarding the repercussions to hospitals that are 
awarded resident slots through the redistribution program but fail to 
meet the 75 percent primary care/general surgery requirement or the 
primary care average requirement in a given hospital fiscal year.
    Response: We agree with the commenters that the Secretary has the 
authority to make determinations about whether a hospital has met the 
75 percent and the primary care average requirements at the end of the 
5-year period. Section 1886(h)(8)(B)(ii)(II) of the Act states, ``The 
Secretary may determine whether a hospital has met the requirements 
under this clause during such 5-year period in such manner and at such 
time as the Secretary determines appropriate, including at the end of 
such 5-year period.'' We stated in the proposed rule (75 FR 46413) that 
we believe we have the flexibility to determine which cost reporting 
periods within the 5-year period of July 1, 2011 to June 30, 2016 we 
may use to assess whether a hospital is consistently meeting the 
required criteria. We also proposed to reserve the right to assess as 
many times as necessary in the 5-year period that a hospital is meeting 
the criteria. Further, we also proposed that Medicare contractors, in 
accordance with their normal audit plans, would make assessments as to 
whether hospitals are meeting the criteria. Because every hospital is 
not audited every year, the Medicare contractor may not audit to 
determine if a hospital is meeting the criteria every year within the 
5-year period. We believe this proposal is fair and in accordance with 
normal audit procedures and, therefore, we are not adopting the 
comments requesting that the contractors determine that hospitals met 
the requirements over no less than 3 years or only once at the end of 
the 5-year period. While we certainly note the ``applause'' from one 
commenter regarding the 75 percent threshold requirement, the statute 
clearly limits the ``probationary period'' to 5 years and, therefore, 
we cannot extend such monitoring beyond June 30, 2016.
    We are sympathetic to the commenters' concerns that there is ``no 
room for mistakes under CMS' proposal,'' and that some kind of range or 
``multi-year'' average should be used to measure compliance with the 75 
percent test. Another commenter asked that CMS allow for concessions to 
be made in the calculation of the average number of primary care 
residents that were trained in the last three cost reporting periods 
ending prior to March 23, 2010. We have considered whether the 
Secretary has the authority at all to allow for any ``wiggle room'' in 
determining whether a hospital meets the primary care average and the 
75 percent threshold, and whether that authority would apply to the FTE 
counts on the applicable cost report being reviewed during the 5-year 
period, or whether, as the one commenter suggests, concessions could 
instead be made in the determination of the primary care average based 
on the cost reports that most recently ended on or before March 23, 
2010. We do not believe we have flexibility to adjust the number for 
the primary care average or the 75-percent threshold. The statutory 
language stating ``The number of full-time equivalent primary care 
residents, as defined in paragraph (5)(H) (as determined by the 
Secretary), excluding any additional positions under subclause (II), is 
not less than the average number of full-time equivalent primary care 
residents (as so determined) during the 3 most recent cost reporting 
periods ending prior to the date of enactment of this paragraph'' is 
very specific; ``close'' is not close enough. Therefore, we are not 
adopting the commenter's request that a hospital has met the 75 percent 
requirement so long as the average number of residents the hospital 
added over the course of the 5 years is within the greater of 2 
resident FTEs or 95 percent of the target number of primary care and 
general surgery residents. However, we believe we have the discretion 
to consider a hospital's performance over more than 1 year, rather than 
only always reviewing each year during the 5 years independently. For 
example, if Hospital A's GME payments are reviewed during Year 1 of the 
5-year period, and Hospital A is found to not meet the primary care 
average or the 75 percent threshold requirement, then Hospital A would 
lose the slots it received under section 5503. If Hospital A has met 
the requirements in Year 1, it would keep the slots. If Hospital A is 
reviewed in Year 2, and the contractor determines that in Year 2's cost 
report, the primary care average or the 75 percent threshold is not 
met, then rather than immediately removing the slots that the hospital 
received, the contractor could review Year 1's and Year 2's cost 
reports, and average the resident counts from both years to determine 
if the hospital has met the criteria over a 2-year period. If, over 
that 2-year period, the hospital met the requirements, then the 
hospital would be able to keep the slots it received under section 
5503. If not, then the contractor would remove the slots. Similarly, if 
Hospital A's GME payments are reviewed during Year 3 of the 5-year 
period, and the contractor determines that in Year 3's cost report, the 
primary care average or the 75 percent threshold is not met, then 
rather than immediately removing the slots that the hospital received, 
the contractor could review Year 1's and Year 2's cost reports, and 
average the resident counts from all 3 years to determine if the 
hospital has met the criteria over a 3-year period. If, over that 3-
year period, the hospital met the requirements, then the hospital would 
be able to keep the

[[Page 72201]]

slots it received under section 5503. If not, then the contractor would 
remove the slots from the earliest year (that is, cost reporting 
period) that is reopenable in which it would be determined that the 
hospital did not meet the requirements. The same method could apply for 
reviews occurring during Years 4 and 5 of the 5-year period.
    Comment: Another commenter noted that CMS proposed that Medicare 
contractors, in accordance with their normal audit plans, would make 
assessments based on a hospital's fiscal year ``when possible'' 
(commenter emphasis added), and as early as the tentative settlements, 
such that the Medicare contractors could make a first assessment for an 
initial short assessment period, then annually as each of the 
hospital's fiscal year ends until there is another final short 
assessment period that starts after the provider's last fiscal year end 
within the 5-year window and runs through June 30, 2016. The commenter 
stated that it is unlikely that the Medicare contractor might review a 
hospital's number of primary care residents as early as the tentative 
settlement because (1) a review of interns and residents is not part of 
the normal review process for a tentative settlement, and (2) this 
information is not on the cost report in the level of detail needed for 
review. The commenter expected the most likely scenario to be that a 
Medicare contractor would review the information, if available, at desk 
review (which is supposed to be within 1 year of cost report 
submission, for timeliness), or at audit.
    Response: In the August 3, 2010 proposed rule (75 FR 46412), we 
proposed that ``the FTE counts for IME and direct GME used to derive 
these primary care averages are subject to audit by the Medicare 
contractors, and that, as part of reviews or audits performed by the 
Medicare contractors in accordance with their normal audit plans, the 
Medicare contractors would check whether a hospital is maintaining its 
primary care average in each of the cost reports in the 5-year period 
as early as tentative settlement of those five respective cost reports, 
and may take prompt action accordingly to adjust a hospital's FTE caps 
and direct GME and IME interim payments.'' Under this proposal, we did 
not necessarily require the Medicare contractors to review compliance 
with the primary care average during every tentative settlement, and at 
that time, to also adjust a hospital's FTE caps and interim payments. 
However, it was certainly our intention to clearly state that if 
noncompliance was discovered, then the contractors would not need to 
wait until final settlement to adjust a hospital's IME and direct GME 
payments, but such action could occur as soon as possible. It is still 
our intention to clearly state that it is within CMS' and the 
contractors' rights to adjust a hospital's IME and direct GME payments 
as early as possible within a cost report's submission and review 
cycle, and that we would not need to wait until desk review, actual 
audit, or final settlement to do so. However, the commenter has 
prompted us to consider what documentation is actually available to the 
contractors at tentative settlement. When a Medicare contractor would 
review a hospital's data to determine whether a hospital that received 
slots under section 5503 is meeting the primary care average for 
portions of cost reporting periods occurring between July 1, 2011 and 
June 30, 2016, the contractor would need the documentation that the 
hospital used to arrive at its direct GME and IME primary care FTE 
counts, including a copy of Worksheet E-3, Part IV for direct GME, and 
if the hospital has an OB/GYN program, the rotation schedules 
corresponding to the three most recent cost reporting periods ending 
prior to March 23, 2010 for OB/GYN, and the rotation schedules for all 
primary care residency programs used to establish the IME primary care 
FTE count corresponding to the three most recent cost reporting periods 
ending prior to March 23, 2010. Further, the contractor would need the 
rotation schedules for the cost reporting period under review (that is, 
the portions of cost reports occurring between July 1, 2011 and June 
30, 2016). We agree with the commenter that rotation schedules and 
other documentation generally used for verifying FTE counts are not 
available at tentative settlement, as such source documentation is not 
typically submitted with the initial cost report. Source documentation 
is typically requested by the contractor and submitted by the hospital 
when a cost report is desk reviewed or audited, which would be 
subsequent to tentative settlement. Accordingly, in this final rule, we 
are emphasizing that when a Medicare contractor reviews one or more of 
a hospital's cost reports within the 5-year period as explained above, 
the contractor may take prompt action as soon as is feasible to adjust 
a hospital's FTE caps and direct GME and IME payments, and need not 
wait until final settlement to do so.
    Comment: One commenter observed that the proposed rule states that 
Medicare contractors will check that hospitals that receive slots under 
section 5503 maintain a specified level of primary care residents 
through their normal audit plans. The commenter pointed out that 
Medicare contractors do not audit each teaching hospital every year as 
part of their normal audit plans, and if Medicare contractors are to 
validate the level of primary care residents at the hospitals that 
received additions to their FTE caps, this would be outside of the 
normal audit plan.
    Response: In the August 3, 2010 proposed rule (75 FR 46413), we 
proposed to reserve the right to assess as many times as necessary in 
the 5-year period that a hospital is meeting the required criteria. 
Furthermore, if a Medicare contractor determines during an audit that a 
hospital did not meet the requirements during, for example, the second 
year, the contractor could go back and audit the first year (full, or 
short period), and make a retroactive adjustment. We will be providing 
separate instructions to the Medicare contractors regarding the 
implementation of section 5503 and the 5-year probationary period.
    Comment: One commenter asked if the hospital has one or more cost 
reporting periods in which it does not maintain the primary care 
resident level, and then achieves the primary care resident level in 
another cost reporting period, will the FTE slots be reinstated. For 
example, a hospital in the first year of its 5-year period meets the 
requirement for training primary care residents. In the second year, it 
does not meet the requirement, so the Medicare contractor removes the 
additional FTE caps from both year one and year two. However, based on 
the third year's average, which includes years one, two and three, the 
provider meets the primary care requirements. The commenter wondered 
if, in this example, the FTE cap would be reinstated for all three 
years.
    The same commenter pointed out that the information required to 
determine the level of primary care residents is not on the Medicare 
cost report, as noted in the proposed rule. Therefore, the Medicare 
cost report is insufficient as a primary source of documentation for 
this purpose. The commenter recommended that CMS require hospitals that 
receive additional slots under section 5503 to ``reconcile'' the FTE 
counts they will report on the Medicare cost report worksheets E, Part 
A, and E-3, Part IV, to their primary care resident FTE counts. The 
commenter believed the reconciliations should be submitted to the 
Medicare contractors, with documentation to support the reconciliation 
and the

[[Page 72202]]

number of primary care residents being trained at the hospital each 
year.
    Response: Once the Medicare contractor and CMS determine that a 
hospital has failed to meet the primary care average requirement or the 
75 percent threshold between July 1, 2011 and June 30, 2016, it would 
lose those slots permanently and the slots would not be reinstated, 
even if the hospital meets the requirements in a subsequent cost 
reporting period. We believe that once the Secretary determines that a 
hospital's FTE caps should be reduced, those slots are subject to 
redistribution under section 1886(h)(8)(B)(iii)(II). Therefore, we are 
not holding those slots in reserve on the chance that the hospital may 
meet the requirements in a subsequent cost reporting period. Further, 
we believe the commenter has misunderstood how the determinations 
regarding whether compliance with the primary care average requirement 
will be achieved. In the commenter's example, the commenter 
hypothesizes that based on the third year's average, which includes 
years one, two and three (that is, in cost reporting periods during the 
5-year probationary period), the provider meets the primary care 
requirements. However, determination of the primary care average is 
prescribed clearly in the law at section 1886(h)(8)(B)(ii)(I) as being 
based on ``* * * the average number of full-time equivalent primary 
care residents (as so determined) during the 3 most recent cost 
reporting periods ending prior to the date of enactment of this 
paragraph'' (emphasis added). Thus, in fact what will happen is that 
the Medicare contractor will compare the primary care FTE count from a 
given cost reporting period between July 1, 2011 and June 30, 2016, to 
the primary care average number of FTE residents that was determined 
from averaging the primary care FTE count from the 3 most recent cost 
reporting periods ending prior to March 23, 2010. However, as we have 
stated in response to the previous comments requesting flexibility in 
the determinations regarding whether a hospital has met the primary 
care average requirement, if Hospital A's GME payments are reviewed 
during Year 3 of the 5-year period, and the contractor determines that 
in Year 3's cost report, the primary care average or the 75 percent 
threshold is not met, then rather than immediately removing the slots 
that the hospital received, the contractor could review Year 1's and 
Year 2's cost reports, and average the resident counts from all 3 years 
to determine if the hospital has met the criteria over a 3-year period. 
If, over that 3-year period, the hospital met the requirements, then 
the hospital would be able to keep the slots it received under section 
5503. If not, then the contractor would remove the slots.
    This commenter is correct that the information required to 
determine the level of primary care residents is not on the Medicare 
cost report. The commenter recommended that CMS require that hospitals 
that receive additional slots under section 5503 ``reconcile'' the FTE 
counts they will report on the Medicare cost report worksheets E, Part 
A, and E-3, Part IV, to their primary care resident FTE counts, and 
that the reconciliations should be submitted to the Medicare 
contractors, with documentation to support the reconciliation and the 
number of primary care residents being trained at the hospital each 
year. As we stated in response to a previous comment, when a Medicare 
contractor would review a hospital's data to determine whether a 
hospital that received slots under section 5503 is meeting the primary 
care average for portions of cost reporting periods occurring between 
July 1, 2011 and June 30, 2016, the contractor would need the 
documentation that the hospital used to arrive at its direct GME and 
IME primary care FTE counts, including a copy of Worksheet E-3, Part IV 
for direct GME, and if the hospital has an OB/GYN program, the rotation 
schedules corresponding to the three most recent cost reporting periods 
ending prior to March 23, 2010 for OB/GYN, and the rotation schedules 
for all primary care residency programs used to establish the IME 
primary care FTE count corresponding to the three most recent cost 
reporting periods ending prior to March 23, 2010. Further, the 
contractor would need the rotation schedules for the cost reporting 
period under review (that is, the portions of cost reports occurring 
between July 1, 2011 and June 30, 2016). We believe that contractors 
and hospitals should follow normal cost report and documentation 
submission requirements in this regard. As with other audit and 
reimbursement issues, hospitals are required to have documentation 
available and provide that documentation to the contractor upon 
request. The same would apply with the aforementioned required GME 
documentation so that the contractors may review a hospital's 
compliance with section 1886(h)(8)(B)(ii) of the Act.
    Lastly, as stated previously in section XXI.D.12. of this final 
rule, we are clarifying in this final rule that ``* * * the average 
number of full-time equivalent primary care residents (as so 
determined) during the three most recent cost reporting periods ending 
prior to the date of enactment of this paragraph'' means the three most 
recent cost reports submitted to the Medicare contractor by March 23, 
2010.
    Comment: One commenter stated that some teaching hospitals that 
were awarded positions under section 422 of the MMA on the basis of 
qualifying to start or augment a residency program in one specialty 
actually used the acquired slots for other programs. The commenter 
asked CMS to explain in the final rule how the Agency will ensure that 
the awards actually go to create primary care slots.
    Response: As we explained on page 46411 of the proposed rule, 
section 422 of Public Law 108-173 did not hold hospitals that received 
slots accountable for meeting any requirements once those slots were 
received effective July 1, 2005, nor did section 422 require CMS to 
conduct subsequent reviews of the hospitals that received slots in 
order to determine if the hospitals were meeting certain thresholds. 
However, section 1886(h)(8)(B)(ii) of the Act, as amended by the 
Affordable Care Act, specifically requires a hospital that receives 
slots under this provision to meet certain thresholds regarding 
training of primary care and/or general surgery residents for a period 
of 5 years. As we explained in the proposed rule and in this final 
rule, the Medicare contractors will perform reviews or audits to 
determine whether hospitals that received slots under section 
1886(h)(8)(B)(i) of the Act are meeting those thresholds under section 
1886(h)(8)(B)(ii) of the Act, and if not, those slots will be removed 
and redistributed in accordance with section 1886(h)(8)(B)(iii) of the 
Act.
    Comment: One commenter argued that the preclusion on administrative 
and judicial review does not apply to audits that the Medicare 
contractors will complete, either every 5 years, or at the end of the 
5-year period, and therefore, hospitals should have the opportunity to 
demonstrate that they met the requirements for how slots received under 
section 5503 must be used. Another commenter noted that CMS stated that 
determinations of the FTE cap reductions may not be subject to appeal. 
However, these FTE cap additions and reductions are reported on the 
Medicare cost report, which is subject to appeal.
    Response: Section 5503(a)(3) of the Affordable Care Act amended 
section 1886(h)(7) of the Act to insert ``or paragraph (8)'' into 
paragraph (E), which, as amended, precludes administrative or judicial 
review ``with respect to determinations made under

[[Page 72203]]

this paragraph, paragraph (8) * * *.'' (This sentence was subsequently 
amended by section 5506(e) as ``this paragraph, paragraph (8), or 
paragraph (4)(H)(vi)).'' We believe that this amendment refers to the 
entirety of sections 1886(h)(7) and (h)(8) of the Act, respectively, 
which would include determinations regarding the FTE cap reductions, 
increases, whether a hospital meets the requirements during the 5-year 
``probationary'' period, and finally, the redistribution of those 
positions if a hospital no longer meets those requirements. Further, we 
note that section 1886(h)(8)(B)(ii) of the Act states, ``The Secretary 
may determine whether a hospital has met the requirements under this 
clause during such 5-year period in such manner and at such time as the 
Secretary determines appropriate * * *'' (emphasis added). Therefore, 
we disagree with the first commenter and we believe that the preclusion 
of administrative and judicial review even applies to determinations 
made regarding whether a hospital meets the requirements in the 5-year 
``probationary'' period; that is, whether the slots awarded to a 
hospital under section 1886(h)(8)(B)(i) of the Act are to be removed 
and redistributed due to failure to meet the requirements at section 
1886(h)(8)(B)(ii) of the Act. However, because, as the second commenter 
points out, the Medicare cost reports are subject to appeal, a hospital 
could appeal its FTE count on a cost report occurring between July 1, 
2011 and June 30, 2016. To the extent that this FTE count is at the 
center of a dispute as to whether the requirements at section 
1886(h)(8)(B)(ii) of the Act are met, we do not believe that this 
should affect a final determination as to whether the requirements at 
section 1886(h)(8)(B)(ii) are actually met. As we clarified in this 
final rule, even though we are proposing that the Medicare contractors 
may make adjustments to a hospital's direct GME and IME payments as 
early as is feasible, it may be several years after June 30, 2016 
before CMS determines the exact number of reductions, if any, that are 
applied to the FTE caps of hospitals that received additional slots, 
but that failed to meet the requirements under section 
1886(h)(8)(B)(ii) of the Act * * *.'' This is because under normal 
audit work plans, it often takes several years from an initial 
submission of a cost report to final settlement. However, if the Notice 
of Program Reimbursement (NPR) is issued by the contractor to the 
hospital, final settling that cost report, and as part of that final 
settlement, the contractor determined that the hospital's primary care 
FTE count in that cost report was less than the primary care average, 
or that less than 75 percent of the hospital's FTE count was used to 
train primary care or general surgery residents, that determination is 
not subject to administrative or judicial review--it is a final 
determination. This determination that the requirements at section 
1886(h)(8)(B)(ii) of the Act are not met, in turn, would trigger the 
determinations regarding the reduction and the redistribution of the 
awarded positions. These latter determinations are also not subject to 
administrative or judicial review. It is true that the cost report in 
which those determinations were made is appealable under normal 
procedures. Even if the outcome of the appeal, which could occur a 
number of years after the initial NPR, would be in favor of the 
hospital, raising its primary care FTE count in that year, for example, 
this would have no effect on the determination already made years 
before that the hospital did not meet the requirements at section 
1886(h)(8)(B)(ii) of the Act. The outcome of the appeal could only 
affect IME and direct GME payment in that particular cost reporting 
year, but would not affect payments or FTE caps in subsequent cost 
reports.
    After consideration of the public comments we received, we are 
clarifying that a hospital cannot use section 5503 slots for cap relief 
only; the hospital must use those cap slots to train more primary care 
or general surgery residents, or reduce its number of non-primary care 
residents, in accordance with the 75-percent threshold requirement. We 
also do not believe we have flexibility to adjust the number for the 
primary care average or the 75-percent threshold. Therefore, we are not 
adopting the commenter's request that a hospital has met the 75-percent 
requirement so long as the average number of residents the hospital 
added over the course of the 5 years is within the greater of 2 
resident FTEs or 95 percent of the target number of primary care and 
general surgery residents. However, we believe we have the discretion 
to consider a hospital's performance over more than 1 year as to 
whether or not the primary care average and 75 percent threshold is 
met, although we believe we also maintain the authority to review each 
year during the 5 years independently as well. We are modifying our 
proposal accordingly.
    We are also clearly stating in this final rule that it is within 
CMS' and the contractors' rights to adjust a hospital's IME and direct 
GME payments as early as is feasible within a cost report's submission 
and review cycle, and that we need not wait until final settlement to 
do so. Finally, we are clarifying that the determination of the primary 
care average is prescribed clearly in the law at section 
1886(h)(8)(B)(ii)(I) of the Act as being based on ``* * * the average 
number of full-time equivalent primary care residents (as so 
determined) during the three most recent cost reporting periods ending 
prior to the date of enactment of this paragraph'' means the three most 
recent cost reporting periods submitted to the Medicare contractor by 
March 23, 2010.
d. No Administrative or Judicial Review
    Section 5503(a)(3) of the Affordable Care Act amended section 
1886(h)(7)(E) of the Act by adding ``or paragraph (8)'' such that 
section 1886(h)(7)(E) of the Act now specifies that ``There shall be no 
administrative or judicial review under section 1869, 1878, or 
otherwise, with respect to determinations made under this paragraph or 
paragraph (8)'' (and then further amended to include paragraph 
(4)(H)(vi)). As stated in the preceding section regarding reference 
cost reports that are under appeal, we believe the fact that Congress 
included this language clearly means that the Congress intended for our 
determination with regard to FTE resident cap reductions and 
redistributions under sections 1886(h)(8)(A) and (h)(8)(B) to be final, 
and not subject to appeal. Because of this statutory language, together 
with the requirement that all reductions and increases in FTE resident 
caps be made effective July 1, 2011, we do not believe it would be 
appropriate to allow hospitals (or CMS) to appeal determinations 
concerning the FTE cap reductions or the FTE cap increases) under 
section 1886(h)(8) of the Act. In addition, as indicated previously, we 
believe that Congress intended this provision to be implemented fairly, 
but efficiently, avoiding the delays and uncertainty that would be 
produced by an appeals process. Furthermore, we note that, as explained 
previously in this preamble, as was done under section 422 of Public 
Law 108-173, Medicare contractors will provide hospitals with a time-
limited opportunity to review cap reduction determinations for possible 
technical errors before they are finalized.
    We did not receive any public comments on this section, and we are 
finalizing our proposal accordingly.
    The following are miscellaneous public comments we received on 
section 5503 and our responses to them.
    Comment: Several commenters expressed general support for the 
redistribution of resident slots through section 5503. Many commenters 
agreed

[[Page 72204]]

that redistribution preference given to hospitals in a State whose 
resident-to-population ratio is within the lowest quartile and 
hospitals in the top 10 States/territories/districts in terms of 
primary care HPSA to population ratios is appropriate. One commenter 
wrote that ``we believe the distribution of these unused medical 
education slots will help us maintain, even increase, the number of 
family practice physicians we can train.'' Another commenter considered 
these residency slot redistributions to be positive developments in the 
effort to improve the physician workforce shortage in rural areas. 
Although many commenters expressed general support for these policies, 
several commenters also mentioned that additional efforts will be 
necessary to meet the nationwide need for resident slots.
    Response: We appreciate the commenters' support for our proposals.
    Comment: One commenter asked that CMS clarify whether there is any 
relationship between the section 5503 redistribution program and the 
rules for counting residents for the IME teaching adjustments under the 
psychiatric or rehabilitation PPSs.
    Response: Section 5503(a) amended section 1886(h) of the Act, which 
covers direct GME payments to hospitals paid under the IPPS or other 
hospital PPSs, which are the Inpatient Rehabilitation Facility (IRF) 
PPS, the Inpatient Psychiatric Facility (IPF) PPS, and the Long Term 
Care Hospital (LTCH) PPS. However, section 5503(b) amended section 
1886(d)(5)(B)(v) of the Act for IPPS IME purposes. Therefore, the IME 
FTE cap reductions and increases under section 5503 only apply to 
``subsection (d)'' IPPS hospitals. Section 5503 has no applicability to 
the IME teaching adjustments under the IRF PPS or the IPF PPS.
    Comment: One commenter generally urged CMS to proceed with caution 
in the development of the final rule and to implement regulations that 
minimize, to the extent possible, the administrative burden associated 
with those requirements.
    Response: We are sensitive to the documentation burdens which 
hospitals have, and despite the exemption of section 5503 from the 
Paperwork Reduction requirements, we have attempted to require 
documentation that is crucial for us to implement this provision in as 
fair and effective manner as possible.

ADDENDUM

                                            Trainees in Osteopathic Programs as Reported by State--2009-2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Internship Programs                     Residency Programs                           Total
               State                --------------------------------------------------------------------------------------------------------------------
                                       Programs    Positions     Trainees     Programs    Positions     Trainees     Programs    Positions     Trainees
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama............................            0            0            0            1           18            0            1           18            0
Alaska.............................            0            0            0            1            9            9            1            9            9
Arizona............................            0            0            0            8           81           39            8           81           39
Arkansas...........................            0            0            0            2           15            2            2           15            2
California.........................            6           75           31           25          309          191           31          384          222
Colorado...........................            1            4            3            1            9            0            2           13            3
Connecticut........................            1           12            1            1           11            3            2           23            4
Delaware...........................            1           15           10            1           24            8            2           39           18
Florida............................           10          124           45           47          536          327           57          660          372
Georgia............................            1            4            3            3           29           18            4           33           21
Illinois...........................            6           41           29           39          427          293           45          468          322
Indiana............................            1            3            1            4           30           21            5           33           22
Iowa...............................            0            0            0            4           40           28            4           40           28
Kansas.............................            0            0            0            1           12           11            1           12           11
Kentucky...........................            2            9            3            6           42           18            8           51           21
Maine..............................            0            0            0            7           76           42            7           76           42
Massachusetts......................            2           10            5            2           12           10            4           22           15
Michigan...........................           20          213           92          185         1878         1289          205         2091         1381
Minnesota..........................            0            0            0            2           14           10            2           14           10
Mississippi........................            0            0            0            2           24            6            2           24            6
Missouri...........................            3           15            5           21          163          116           24          178          121
Nevada.............................            1           15           13            6           85           57            7          100           70
New Jersey.........................            6           57           21           54          595          350           60          652          371
New York...........................           19          212           89           64          845          507           83         1057          596
North Carolina.....................            2           17            0            3           33           11            5           50           11
Ohio...............................           11          105           42          100          872          589          111          977          631
Oklahoma...........................            2           16            7           28          291          130           30          307          137
Oregon.............................            1            6            0            8           61           11            9           67           11
Pennsylvania.......................           32          263          124           99         1190          770          131         1453          894
Rhode Island.......................            0            0            0            4           50           23            4           50           23
South Carolina.....................            0            0            0            1           14           15            1           14           15
Tennessee..........................            0            0            0            3           33           13            3           33           13
Texas..............................            4           32           13           23          194          107           27          226          120
Virginia...........................            3           33            5           14          207           72           17          240           77
Washington.........................            0            0            0            1            6            5            1            6            5
West Virginia......................            7           37           16           18          208          111           25          245          127

[[Page 72205]]

 
Wisconsin..........................            0            0            0            2           46           31            2           46           31
Wyoming............................            0            0            0            1           12            4            1           12            4
    Total..........................          142        1,318          558          792        8,501        5,247          934        9,819        5,805
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: The American Osteopathic Association.

BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C

Application Process and CMS Central Office and Regional Office Mailing 
Addresses for Receiving Increases in FTE Resident Caps

    In order for hospitals to be considered for increases in their FTE 
resident caps, each qualifying hospital must submit a timely 
application. The following information must be submitted on 
applications to receive an increase in FTE resident caps:
    <bullet> The name and Medicare provider number of the hospital.
    <bullet> The name of the Medicare contractor to which the hospital 
submits its Medicare cost report.
    <bullet> The total number of requested FTE resident slots for 
direct GME or IME, or both, up to 75 direct GME FTE and 75 IME FTE per 
hospital.
    <bullet> A completed copy of the CMS Evaluation Form for each 
residency program for which the hospital intends to use the requested 
increase in FTE residents.
    <bullet> Source documentation to support the assertions made by the 
hospital on the CMS Evaluation Form.
    <bullet> FTE resident counts for direct GME and IME and FTE 
resident caps for direct GME and IME reported by the hospital in the 
most recent cost report submitted to the Medicare contractor by March 
23, 2010. (Include copies of Worksheets E, Part A, E-3, Part IV, and if 
a hospital received an increase to its FTE cap(s) under section 422 of 
the MMA, a copy of E-3, Part VI).
    <bullet> As part of its application, for purposes of computing the 
primary care average under section 1886(h)(8)(B)(ii)(I) of the 
Affordable Care Act, the hospital must include the documentation that 
it used to arrive at its direct GME and IME primary care FTE counts, 
including a copy of Worksheet E-3, Part IV for direct GME, and if the 
hospital has an OB/GYN program, the rotation schedules corresponding to 
the three most recent cost reporting periods ending prior to March 23, 
2010 (and submitted to the Medicare contractor by March 23, 2010) for 
OB/GYN, and the rotation schedules for all primary care residency 
programs used to establish the IME primary care FTE count corresponding 
to the three most recent cost reporting periods ending prior to March 
23, 2010.
    <bullet> An attestation, signed and dated by an officer or 
administrator of the hospital who signs the hospital's Medicare cost 
report, of the following information:
    ``I hereby certify that I understand that misrepresentation or 
falsification of any information contained in this application may be 
punishable by criminal, civil, and administrative action, fine and/or 
imprisonment under federal law. Furthermore, I understand that if 
services identified in this application were provided or procured 
through payment directly or indirectly of a kickback or were otherwise 
illegal, criminal, civil, and administrative action, fines and/or 
imprisonment may result. I also certify that, to the best of my 
knowledge and belief, it is a true, correct, and complete application 
prepared from the books and records of the hospital in accordance with 
applicable instructions, except as noted. I further certify that I am 
familiar with the laws and regulations regarding Medicare payment to 
hospitals for the training of interns and residents.''
    The completed application and supporting documentation (as 
described above) must be submitted to the CMS Central Office and the 
CMS Regional Office for the region in which the applicant hospital is 
located. The application must be received on or before January 21, 
2011. The addresses of the CMS Central Office and Regional Offices are 
listed below.

CMS Central and CMS Regional Office Mailing Addresses for Applications 
for Increases in FTE Resident Caps

Central Office

    Centers for Medicare and Medicaid Services (CMS), Director, 
Division of Acute Care, 7500 Security Boulevard, Mail Stop C4-08-06, 
Baltimore, Maryland 21244, (410) 786-4548.
Region I (Connecticut, Maine, Massachusetts, New Hampshire, Rhode 
Island, and Vermont)
    Centers for Medicare and Medicaid Services (CMS), Associate 
Regional Administrator, Division of Financial Management and Fee for 
Service Operations, Region I, JFK Federal Building, Room 23275, Boston, 
MA 02203, Phone: (617) 565-1331.
Region II (New York, New Jersey, U.S. Virgin Islands, and Puerto Rico)
    Centers for Medicare and Medicaid Services (CMS), Associate 
Regional Administrator, Division of Financial Management and Fee for 
Service Operations, Region II, 26 Federal Plaza, 38th Floor, New York, 
NY 10278, Phone: (212) 616-2545.
Region III (Delaware, Maryland, Pennsylvania, Virginia and West 
Virginia, and the District of Columbia)
    Centers for Medicare and Medicaid Services (CMS), Associate 
Regional Administrator, Division of Financial Management and Fee for 
Service Operations, Region III, Public Ledger

[[Page 72212]]

Building, Suite 216, 150 South Independence Mall West, Philadelphia, PA 
19106, Phone: (215) 861-4140.
Region IV (Alabama, North Carolina, South Carolina, Florida, Georgia, 
Kentucky, Mississippi, and Tennessee)
    Centers for Medicare and Medicaid Services (CMS), Associate 
Regional Administrator, Division of Financial Management and Fee for 
Service Operations, Region IV, Atlanta Federal Center, 61 Forsyth 
Street, SW., Suite 4T20, Atlanta, GA 30303-8909, Phone: (404) 562-7300.
Region V (Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin)
    Centers for Medicare and Medicaid Services (CMS), Associate 
Regional Administrator, Division of Financial Management and Fee for 
Service Operations, Region V, 233 North Michigan Avenue, Suite 600, 
Chicago, IL 60601, Phone: (312) 886-6432.
Region VI (Arkansas, Louisiana, New Mexico, Oklahoma, and Texas)
    Centers for Medicare and Medicaid Services (CMS), Associate 
Regional Administrator, Division of Financial Management and Fee for 
Service Operations, Region VI, 1301 Young Street, Suite 714, Dallas, TX 
75202, Phone: (214) 767-6423.
Region VII (Iowa, Kansas, Missouri, and Nebraska)
    Centers for Medicare and Medicaid Services (CMS), Associate 
Regional Administrator, Division of Financial Management and Fee for 
Service Operations, Region VII, Richard Bolling Federal Building, Room 
235, 601 East 12th Street, Kansas City, MO 64106, (816) 564-1843.
Region VIII (Colorado, Montana, North Dakota, South Dakota, Utah and 
Wyoming)
    Centers for Medicare and Medicaid Services (CMS), Associate 
Regional Administrator, Division of Financial Management and Fee for 
Service Operations, Region VIII, Colorado State Bank Building, 1600 
Broadway, Suite 700, Denver, CO 80202, Phone: (303) 844-2111.
Region IX (Arizona, California, Hawaii, and Nevada and Territories of 
American Samoa, Guam and the Commonwealth of the Northern Mariana 
Islands)
    Centers for Medicare and Medicaid Services (CMS), Associate 
Regional Administrator, Division of Financial Management and Fee for 
Service Operations, Region IX, 90 7th Street, Suite 5-300 (SW), San 
Francisco, CA 94103-6708, Phone: (415) 744-3501.
Region X (Alaska, Idaho, Oregon, and Washington)
    Centers for Medicare and Medicaid Services (CMS), Associate 
Regional Administrator, Division of Medicare Financial Management, 
Region X, 2201 Sixth Avenue, MS/RX-46, Seattle, WA 98121, Phone (206) 
615-2094.

E. Preservation of Resident Cap Positions From Closed Hospitals 
(Section 5506 of the Affordable Care Act)

1. Background
    As we explain in section XXI.A. of this preamble, Medicare makes 
both direct GME and IME payments to hospitals that train residents in 
approved medical residency training programs. Direct GME payments are 
made in accordance with section 1886(h) of the Act, based generally on 
hospital-specific PRAs, the number of FTE residents a hospital trains, 
and the hospital's Medicare patient share. IME payments are made in 
accordance with section 1886(d)(5)(B) of the Act, based generally on 
the ratio of the hospital's FTE residents to the number of hospital 
beds. Accordingly, the calculation of both direct GME and IME payments 
is affected by the number of FTE residents that a hospital is allowed 
to count; generally, the greater the number of FTE residents a hospital 
counts, the greater the amount of Medicare direct GME and IME payments 
the hospital will receive. In an attempt to end the implicit incentive 
for hospitals to increase the number of FTE residents, Congress 
instituted a cap on the number of allopathic and osteopathic residents 
a hospital is allowed to count for direct GME and IME purposes under 
the provisions of section 1886(h)(4)(F) of the Act for direct GME and 
section 1886(d)(5)(B)(v) of the Act for IME. Dental and podiatric 
residents were not included in this statutorily mandated cap. For most 
hospitals, the limit, or cap, is the unweighted number of allopathic 
and osteopathic FTE residents training in the hospital's most recent 
cost reporting period ending on or before December 31, 1996. Thus, each 
teaching hospital's FTE resident cap is unique to the number of FTE 
residents that it trained in the hospital's most recent cost reporting 
period ending on or before December 31, 1996.
    Under existing regulations at Sec.  413.79(h) for direct GME and 
Sec.  412.105(f)(1)(ix) for IME, a hospital that is training FTE 
residents at or in excess of its FTE resident caps and takes in 
residents displaced by the closure of another teaching hospital may 
receive a temporary increase to its FTE residents caps so that it may 
receive direct GME and IME payment associated with those displaced FTE 
residents. However, those temporary FTE resident cap increases are 
associated with those specific displaced FTE residents, and the 
increases expire as those displaced residents complete their training 
program. Thus, if a teaching hospital closes, its direct GME and IME 
FTE resident cap slots would be ``lost,'' because those cap slots are 
associated with a specific hospital's Medicare provider agreement, 
which would be retired upon the hospital's closure. The closure of a 
teaching hospital, particularly if it is a large academic medical 
center, could mean not only the displacement of hundreds of residents, 
but also the permanent loss of hundreds of Medicare-funded residency 
training slots and a sophisticated GME infrastructure that could take 
many years to rebuild, threatening the availability of health care 
services in a community. Section 5506 of the Affordable Care Act 
addresses this situation by amending section 1886(h)(4)(H) of the Act 
to add a new clause (vi) that instructs the Secretary to establish a 
process by regulation under which, in the event a teaching hospital 
closes, the Secretary will permanently increase the FTE resident caps 
for hospitals that meet certain criteria by the number of FTE resident 
positions in the closed hospital's training programs.
    Section 5506 of the Affordable Care Act specifically instructs the 
Secretary to increase the FTE resident caps for other hospitals based 
upon the FTE resident positions in teaching hospitals that closed ``on 
or after a date that is 2 years before the date of enactment'' (that 
is, March 23, 2008). Although certain of the FTE cap increases granted 
pursuant to section 5506 will be based on hospital closures that 
occurred prior to this notice and comment rulemaking procedure, we 
indicated in the August 3, 2010 proposed rule that the process we 
proposed to establish in the final rule would also be used for all 
future teaching hospital closures. We indicated that we were in the 
process of instructing the Medicare contractors to notify us of every 
teaching hospital that has closed since March 23, 2008, and of the 
direct GME and IME FTE caps for each of those closed hospitals. We plan 
to use this information to determine how many slots are currently 
available for increases to other hospitals' FTE resident caps.
    We note that section 1886(h)(4)(H)(vi)(IV) of the Act, as

[[Page 72213]]

added by section 5506(a) of the Affordable Care Act, states that ``The 
aggregate number of increases in the otherwise applicable resident 
limits for the hospitals under this clause shall be equal to the number 
of resident positions in the approved medical residency programs that 
closed on or after'' March 23, 2008. For purposes of implementing this 
section 1886(h)(4)(H)(vi)(IV) of the Act, in the August 3, 2010 
proposed rule (75 FR 46421), we proposed to interpret ``the number of 
resident positions'' to mean the number that is equal to the IME and 
direct GME FTE resident caps of a hospital that closed, or will close. 
We do not believe the intent of this provision is to distribute and pay 
for more FTE resident slots than the amount equal to a closed 
hospital's IME and direct GME FTE resident caps, in the instance where 
a closed hospital was training more FTE residents than its FTE resident 
caps. Further, in the situation where a closed hospital was training 
FTE residents below its caps, we believe that for the sake of ensuring 
that a community could retain up to its full training strength, we 
believe it is appropriate to distribute, not the actual number of slots 
the closed hospital had been training prior to its closure, but the 
number of FTE resident slots equal to the IME and direct GME FTE caps 
of the closed hospital.
2. Definition of a ``Closed Hospital''
    Section 1886(h)(4)(H)(vi) of the Act, as added by section 5506(a) 
of the Affordable Care Act, states that ``the Secretary shall, by 
regulation, establish a process under which, in the case where a 
hospital (other than a hospital described in clause (v)) with an 
approved medical residency program closes on or after'' March 23, 2008, 
the Secretary shall increase the FTE resident caps of other hospitals 
accordingly (emphasis added). Under existing regulations at Sec.  
489.52 and Sec.  413.79(h), ``closure of a hospital'' means the 
hospital terminates its Medicare provider agreement. In the August 3, 
2010 proposed rule (75 FR 46421 and 46422), we proposed to define a 
``closed teaching hospital'' for purposes of section 5506 in a similar 
manner, but would also specify that the FTE resident cap slots of the 
hospital that closed no longer exist as part of any other hospital's 
permanent FTE resident cap. Thus, we proposed that this provision would 
not apply to hospitals that declare bankruptcy but are still 
participating under the same Medicare provider agreement, nor would it 
apply to teaching hospitals that remain open, but close one or more 
residency programs. It also would not apply to mergers, because in the 
case of a merger, the Medicare provider agreement of one hospital is 
subsumed into the provider agreement of the surviving provider; no 
provider agreement is retired, even if operations at one facility are 
scaled back or ceased.
    However, we proposed that the proposed revised definition of 
hospital closure for purposes of implementing section 5506 would apply 
in the case of acquisitions, where the new owner voluntarily terminates 
the Medicare provider agreement of the hospital it purchased by 
rejecting assignment of the previous owners' provider agreement, thus 
abdicating the FTE resident cap slots associated with that provider 
agreement, even if the new owner will continue to operate the hospital 
exactly as it had been operated before the acquisition (that is, makes 
no changes to the bed size, infrastructure, services, and GME 
programs). We believe this is appropriate because section 5506 of the 
Affordable Care Act specifically addresses hospital ``closure'' and 
ensures preservation of the FTE cap slots within a community when a 
teaching hospital does ``close,'' based on specified criteria for 
redistributing the slots from the closed hospital to increase the FTE 
caps for other hospitals. However, as we explain further below, it is 
possible for the new hospital formed in an acquisition to receive 
preference in receiving an increase to its FTE resident caps based on 
redistributed slots from the closed hospital that it acquired.
    Section 1886(h)(4)(H)(vi) of the Act, as added by section 5506(a), 
also states that ``the Secretary shall, by regulation, establish a 
process under which, in the case where a hospital (other than a 
hospital described in clause (v)) with an approved medical residency 
program closes * * *'' (emphasis added). A hospital described in 
section 1886(h)(4)(H)(v) of the Act is an entity that enters into a 
provider agreement pursuant to section 1866(a) of the Act to provide 
hospital services on the same physical site previously used by Medicare 
Provider No. 05-0578. Accordingly, we proposed not to redistribute any 
FTE cap slots associated with Medicare Provider Number 05-0578.
    Comment: One commenter noted that CMS proposed to define a closed 
teaching hospital for purposes of section 5506 as a hospital (a) that 
terminates its Medicare provider agreement, and (b) whose cap slots no 
longer exist as part of any other hospital's permanent FTE resident 
cap. The commenter asked CMS to clarify situations in which a 
hospital's Medicare provider agreement would be terminated but whose 
slots would still exist as part of another hospital's permanent FTE 
resident cap. The commenter also observed that the existing regulations 
text regarding the definition of hospital closure at Sec. Sec.  
413.79(h) and 489.52 do not indicate the concept that caps of a closed 
teaching hospital no longer exist as part of another hospital's 
permanent FTE resident cap.
    Another commenter noted the provision authorizing the 
redistribution of residency slots would apply, however, in the case of 
an acquisition wherein the new owner voluntarily terminates the 
provider agreement of the hospital it purchased, ``even if the new 
owner will continue to operate the hospital exactly as it had been 
operated before the acquisition (that is, make no changes to the bed 
size, infrastructure, services, and GME programs).'' The commenter 
understood that CMS would propose this because ``(1) CMS does not view 
this situation as a merger of two hospitals under its current policy, 
and (2) CMS has proposed a separate process whereby this situation 
could be addressed (within Ranking Criterion <greek-i>1).'' The 
commenter requested confirmation of its understanding of this policy 
proposal. Another commenter also commented on this issue and 
appreciates the extension of the definition of a closed hospital to 
include acquisitions.
    Response: We regret that there was confusion regarding the 
definition of a closed hospital for the purposes of implementing 
section 5506. By specifying that ``the FTE resident cap slots of the 
hospital that closed no longer exist as part of any other hospital's 
permanent FTE resident caps'' in the August 3, 2010 proposed rule (75 
FR 46422), we proposed to emphasize that if slots were permanently 
transferred to another provider and they continue to exist, section 
5506 would not apply. An example of such a situation would be a merger 
wherein the Medicare provider agreement of one hospital is subsumed 
into the provider agreement of the surviving provider. In this example, 
no provider agreement is terminated, and the FTE resident caps also 
would be subsumed permanently into the provider agreement of the 
surviving provider. Thus, the purpose of section 5506 is to ensure that 
slots that are not already part of another hospital's permanent cap are 
not lost, but rather will be redistributed to qualifying hospitals.
    The second commenter's understanding of our proposal regarding 
acquisitions is correct. We do include

[[Page 72214]]

acquisitions in a case in which the new owner terminates the provider 
agreement of the hospital it purchased in the definition of hospital 
closure because, in this case, a Medicare provider agreement is 
terminated, thus releasing the FTE resident cap slots associated with 
that provider agreement. In addition, we are clarifying that for a 
hospital that closed due to an acquisition on or after March 23, 2008, 
and for which CMS has not given those slots to another provider by 
March 23, 2010, that hospital's slots are governed by section 5506 and 
CMS' final policies implementing this section.
    Comment: One commenter requested that CMS provide additional 
clarification regarding the definition of a closed hospital. 
Specifically, the commenter asked: ``If the FTEs go permanently to 
another hospital because of a provision in an affiliation agreement, is 
the hospital considered closed?'' The commenter believed that, in these 
instances, the hospital is not considered closed, but requested 
clarification from CMS.
    Response: In general, a hospital is not closed unless the 
hospital's Medicare provider agreement is terminated. With regard to 
transfers of FTE caps under Medicare GME affiliation agreements, in 
other instances, we have clarified that hospitals cannot use Medicare 
GME affiliation agreements to permanently transfer FTE caps from one 
hospital to another, regardless of whether the hospital transferring 
the FTE cap slots remains open or closes. As described in the August 1, 
2002 final rule (67 FR 50076), effective for Medicare GME affiliation 
agreements that terminate after October 1, 2002 for any reason, 
including closure of a participating hospital, FTEs cannot be 
permanently transferred to another participating hospital even if this 
circumstance is outlined as a provision in the Medicare GME affiliation 
agreement. Rather, if a hospital withdraws from the agreement, or if 
the agreement terminates for any reason, the hospitals participating in 
the Medicare GME affiliation agreement would revert to their original 
FTE caps prior to entering into the Medicare GME affiliation agreement. 
FTE cap transfers occurring under Medicare GME affiliation agreements 
are temporary and are to be used solely for the purpose of cross-
training residents among hospitals that share residency training 
programs (as described in the regulations at Sec. Sec.  413.75(b) and 
413.79(f).
3. Priority for Hospitals in Certain Areas
    Section 1886(h)(4)(H)(vi)(II), as added by section 5506(a) of the 
Affordable Care Act, specifies that the Secretary shall distribute the 
FTE cap increases in the following priority order, ``with preference 
given within each category to hospitals that are members of the same 
affiliated group'' (as defined by the Secretary) as the closed 
hospital:
    <bullet> First, to hospitals located in the same core-based 
statistical area (CBSA) as, or in a CBSA contiguous to, the hospital 
that closed.
    <bullet> Second, to hospitals located in the same State as the 
closed hospital.
    <bullet> Third, to hospitals located in the same region as the 
hospital that closed.
    <bullet> Fourth, if the slots have not yet been fully distributed, 
to qualifying hospitals in accordance with the criteria established 
under section 5503 (``Distribution of Additional Residency Positions'') 
of the Affordable Care Act.
    First, in the August 3, 2010 proposed rule (75 FR 46422), we 
proposed to use the same pre-reclassification CBSAs that are used for 
wage index purposes under the IPPS in determining which hospitals are 
located in the same or contiguous CBSAs as the CBSA in which the 
hospital that closed was located, without regard to any 
reclassifications made under the provisions of Sec. Sec.  412.102, 
412.103, 412.230, 412.232, 412.234, and 412.235 of the regulations. 
Second, we proposed to define ``State'' in the second priority category 
to include Puerto Rico and the District of Columbia. Third, we proposed 
to define ``region'' in the third priority category as Census Region, 
consistent with the use of the term elsewhere in the GME regulations. 
(The term is used for purposes of establishing direct GME PRAs of 
certain new teaching hospitals at Sec.  413.77(e)(1)(iii).) Fourth, as 
specified in the fourth priority category, we proposed to employ the 
criteria for redistribution of residency positions described in section 
5503 of the Affordable Care Act, as implemented in the proposed revised 
regulations at Sec.  413.79(n), should there be any slots not 
redistributed under the first through third priority categories.
    Comment: One commenter supported CMS' proposal to define ``region'' 
as census region, consistent with the use of the term elsewhere in the 
GME regulations. The commenter stated that if CMS elects to use a 
different definition of ``region,'' the commenter would support 
defining ``region'' consistent with the CMS administrative regions (for 
example, CMS Regions I through X).
    Response: We appreciate the commenter's support. We are adopting 
this proposal as final.
    With regard to members of the same Medicare GME affiliated group, 
we proposed to give priority within each category to hospitals that are 
members of the same Medicare GME affiliated group as the hospital that 
closed. A Medicare GME affiliated group, as defined at Sec.  413.75(b), 
consists of hospitals that enter into a Medicare GME affiliation 
agreement, also as defined at Sec.  413.75(b), for the purpose of 
cross-training residents and that, under the terms of the agreement, 
aggregate and make temporary adjustments to their respective individual 
FTE resident caps. To provide flexibility to hospitals that have 
affiliated with the hospital that closed, we proposed to refer to the 
most recent Medicare GME affiliation agreement of which the closed 
hospital was a member. Hospitals that were listed as participants of 
the Medicare GME affiliated group on that most recent Medicare GME 
affiliation agreement before the closure of the hospital will receive 
preference in receiving FTE cap increases based on the redistributed 
slots.
    Comment: One commenter noted that, although the commenter 
understood that CMS is bound by the statute, it suggested that less 
emphasis be placed on whether a hospital was in an affiliation 
agreement in the distribution of residency slots resulting from a 
hospital closure. Alternatively, the commenter suggested that CMS 
prioritize increasing the caps of applying hospitals that are currently 
training residents over their caps and, therefore, are training 
residents that are not funded by Medicare. The commenter did not 
support the proposal to give preference to an applying hospital based 
solely on an affiliation that no longer exists with the closed 
hospital. The commenter posited that if less emphasis was placed on 
affiliation agreements, there could potentially be more opportunity for 
new or expanded programs in needed areas such as primary care to emerge 
as a result of increased caps. The commenter further stated that an 
applying hospital that had a previous affiliation with a closed 
hospital could use the increase in its FTE resident cap to train 
residents in a specialty for which CMS had not identified a need. To 
prevent this, the commenter suggested that hospitals applying under 
Ranking Criterion Two should be further ranked based on whether they 
are also requesting slots for use in specialties for which CMS has 
identified a need. For example, a hospital that is applying under 
proposed Ranking Criterion Six to start or expand a primary care 
program and was also part of an affiliation agreement with the closed 
hospital should be ranked higher than a hospital that is

[[Page 72215]]

applying under proposed Ranking Criterion Six and was not part of the 
same affiliated group as the closed hospital. However, both hospitals 
should be ranked higher than a hospital that had been a member of an 
affiliated group with the closed hospital but is requesting slots to 
start a non-primary care program (other than general surgery).
    Response: While we appreciate the commenter's suggestions, the 
commenter is correct that we are bound by the statute and cannot 
consider the suggestions for implementation. The statute does not allow 
us to ignore a hospital's affiliated status in determining whether the 
hospital qualifies for a cap increase under section 5506. As such, a 
hospital that was part of a Medicare GME affiliated group and received 
slots from the closed hospital would be ranked under Ranking Criterion 
Two, ahead of a hospital that was not part of the same Medicare GME 
affiliated group as the closed hospital. We further believe this is 
appropriate given that a primary consideration under section 5506 is 
continuity of training programs. Therefore, a hospital that is 
requesting slots because it seamlessly assumed a program from the 
closed hospital, even if that program is in a nonprimary care 
specialty, that hospital would qualify under a higher Ranking Criterion 
than would another hospital that is requesting the slots to start a new 
primary care program.
4. Application Process
    In the August 3, 2010 proposed rule (75 FR 46422), we proposed to 
establish an application process for hospitals to apply to CMS to 
receive an increase in FTE caps based on slots from closed hospitals. 
Section 5506 of the Affordable Care Act did not specify an effective 
date or an application deadline for hospitals to request an increase to 
their caps when a hospital closes. Accordingly, with respect to the 
first application process to be implemented for section 
1886(h)(4)(H)(vi) of the Act, as added by section 5506(a) of the 
Affordable Care Act, and which includes all teaching hospital closures 
back to March 23, 2008, we proposed that the application deadline would 
be January 1, 2011. For future teaching hospital closures, we proposed 
that we would inform the public through an appropriate medium that 
increases to hospitals' FTE resident caps are available for 
redistribution due to the closure of a teaching hospital, and the 
application deadline would be 4 months following the issuance of that 
notice to the public.
    Comment: Commenters noted that CMS proposed an application deadline 
for distribution of slots under section 5506 of January 1, 2011, for 
hospitals that closed on or after March 23, 2008, and that for future 
teaching hospital closures, CMS proposed that hospitals will have 4 
months after CMS notifies the public that slots are available to submit 
an application for those slots. The commenters asked that CMS clarify 
which deadline will apply to hospitals that close during the comment 
period between publication of the proposed rule and the final rule. Two 
commenters encouraged CMS to consider teaching hospitals that closed at 
any point after publication of the proposed rule to fall into CMS' 
second category, for which CMS would provide notice and a future 
application deadline.
    Some commenters were concerned that the proposed application 
deadlines, particularly the first one for January 1, 2011, are too 
soon. They pointed out that a hospital's decision to take on displaced 
residents permanently may depend on multiple factors, and receiving 
ACGME approval for permanent resident positions is also extremely time-
consuming. One commenter recognized that hospitals wish for the 
distribution of these slots to occur as quickly as possible, yet the 
commenter believed that April 1, 2011, would be a more realistic 
deadline than January 1, 2011, for the initial set of applications. 
However, another commenter agreed with the proposed deadline of January 
1, 2011.
    Response: We agree with the suggestion that any closures after 
August 3, 2010, the publication date of the proposed rule, should be 
part of a second hospital closure process for which CMS will send out a 
separate notice. In addition, we agree that to allow all affected 
parties sufficient time to gather the documentation necessary to 
complete and submit an application for slots from a closed hospital, 
the application date for requesting slots from hospitals that have 
closed between March 23, 2008 through August 3, 2010, should be 
extended to April 1, 2011. Therefore, in this final rule, we are 
establishing the application deadline for receipt of slots from 
hospitals that closed between March 23, 2008, through August 3, 2010, 
as April 1, 2011. Hospitals that close at any point after publication 
of the proposed rule, that is, August 3, 2010, will fall into the 
second category, for which we will provide separate notice with a 
future application deadline.
    In addition, as the commenters noted, since receiving approval for 
permanent resident positions is very time consuming, in order to ease 
the administrative burden on hospitals, similar to the change we made 
in this final rule under the Demonstrated Likelihood Criterion 1 for 
section 5503, we are adding to the Demonstrated Likelihood Criteria for 
section 5506 in this final rule that the hospital may submit 
documentation demonstrating that it has made a commitment to start a 
new program or take over a program(s) from the closed hospital. One 
example of such a commitment would be for the hospital to provide the 
minutes from the meeting at which the hospital's GME Committee gave 
approval for the hospital to proceed with the process of applying to 
the accrediting agency for approval to start a new program.
    Comment: One commenter stated that because hospitals interested in 
applying for resident cap slots under this provision must be put on 
notice of all slots that will be available through the closed hospital 
resident slot preservation program, CMS would accomplish this most 
effectively by publishing in the final rule a list of all hospitals 
that closed on or after March 23, 2008. In publishing this list, the 
commenter suggested that CMS also indicate how many cap slots are 
available from the hospital's 1996 cap versus how many cap slots are 
available from the section 422 redistribution program. Another 
commenter also suggested that, for future hospital closures, CMS 
publish a notice within 60 days from the effective date of the 
termination of the closed hospital's Medicare provider number.
    Response: We agree with the commenter's request and have included 
at the end of this section a list of teaching hospital closures on or 
after March 23, 2008 through August 3, 2010, along with their 1996 FTE 
caps and section 422 caps as applicable. We also appreciate the 
commenter's suggestion to publish a notice within 60 days from the 
effective date of the termination of the closed hospital's Medicare 
provider agreement for future hospital closures. We will publish future 
closure notices as soon as possible. However, we acknowledge that, in 
certain cases, due to various circumstances, publication within 60 days 
may not always be achievable. Therefore, we will not be adopting the 
requirement to publish a notice within 60 days from the effective date 
of the termination of the closed hospital's Medicare provider agreement 
for future hospital closures.
    After consideration of the public comments we received, in this 
final rule, we are establishing the application deadline for receipt of 
slots from hospitals that closed between March 23,

[[Page 72216]]

2008 through August 3, 2010, as April 1, 2011. Hospitals that close at 
any point after publication of the proposed rule, that is, August 3, 
2010, will fall into the second category, for which we will provide 
separate notice with a future application deadline.
5. Ranking Criteria
    Unlike the application process for FTE cap increases under section 
1886(h)(8) of the Act as added by section 5503 of the Affordable Care 
Act, we did not propose to establish a ``point'' system to distinguish 
between hospitals within each of the first three priority categories. 
Rather, within each of the three first statutory priority categories in 
section XXI.E.3. of this preamble (that is, same or contiguous CBSAs, 
same State, and same Region), in the August 3, 2010 proposed rule (75 
FR 46422), we proposed to rank categories in which we would assign 
slots first to hospitals that fall within the first ranking category 
before assigning slots to those hospitals that fall within the second 
ranking category, and would assign slots to those hospitals that fall 
within the second ranking category before assigning slots to hospitals 
in the third ranking category, and so forth. We did not propose to use 
these ranking categories within the fourth priority category because, 
under that fourth priority category, the Secretary would use the 
process established under section 5503 for section 1886(h)(8) of the 
Act. In order to maintain stability in existing GME programs, these 
proposed ranking categories generally give preference to applying 
hospitals that demonstrate a commitment to continue training residents 
in the same programs that the closed hospital operated, or that had a 
training relationship with the closed hospital (such as a Medicare GME 
affiliation agreement).
    <bullet> Ranking Criterion One. The applying hospital is requesting 
the increase in its FTE resident cap(s) because it is assuming (or 
assumed) an entire program (or programs) from the hospital that closed, 
and the applying hospital is continuing to operate the program(s) 
exactly as it had been operated by the hospital that closed (that is, 
same residents, same program director, and same (or many of the same) 
teaching staff). We proposed this ranking criterion because we 
understand that there are situations where, when a hospital is acquired 
and its provider agreement is terminated and a new provider agreement 
is established in the place of the old one, the new formed 
``acquiring'' hospital continues to operate the GME programs seamlessly 
and in the same manner as under the previous provider agreement. If 
this situation occurs, we believe the new hospital with the new 
provider agreement is demonstrating a strong commitment to not only 
maintain the GME programs in the community for the long term (that is, 
continuity), but to also allow the residents that were at the hospital 
when the change in provider agreement occurred to continue to train 
there, such that no residents are displaced and no training is 
interrupted.
    Alternatively, it is possible that perhaps a year or more prior to 
a hospital's closure, the hospital closed some or all of its residency 
programs, and another hospital assumed an entire program (or programs) 
at the time of the residency program's closure, and the applying 
hospital has continued to operate that program seamlessly, as it had 
been operated at the hospital that ultimately closed. Because the 
applying hospital has also demonstrated a strong commitment to 
continuity of the residency program(s) in the community by assuming the 
program(s) even prior to the other hospital's closure, we proposed that 
the applying hospital would be categorized in Ranking Criterion One.
    <bullet> Ranking Criterion Two. The applying hospital was listed as 
a participant of a Medicare GME affiliated group on the most recent 
Medicare GME affiliation agreement of which the closed hospital was a 
member before the hospital closed, and under the terms of that Medicare 
GME affiliation agreement, the applying hospital received slots from 
the hospital that closed, and the applying hospital will use the 
additional slots to continue to train at least the number of FTE 
residents it had trained under the terms of the Medicare GME 
affiliation agreement. We proposed this ranking criterion because 
section 1886(h)(4)(H)(vi) of the Act, as added by section 5506(a) of 
the Affordable Care Act, directs the Secretary to give preference to 
hospitals that are members of the same affiliated group as the hospital 
that closed. We believe that, generally, if the applying hospital was 
affiliated to receive slots from the hospital that closed, then the 
applying hospital was relying on that number of FTE resident slots that 
it received in order to maintain its fair share of the cross-training 
of the residents in the jointly operated programs. In the absence of 
those slots received from the closed hospital, the applying hospital 
may not be able to continue training that number of FTE residents, and 
those same residents would not only be displaced from the closed 
hospital, but might essentially become ``displaced'' from the 
affiliated hospitals in which they were used to doing a portion of 
their training. Accordingly, we proposed this ranking criterion to 
allow hospitals that were affiliated with the closed hospitals to at 
least maintain their fair share of the training of the residents in the 
programs that they had jointly operated with the closed hospital. We 
note that we proposed this ranking criterion regarding affiliated 
hospitals as second, after the first ranking criterion regarding 
applying hospitals that assume an entire program or programs from the 
closed hospital because, even though section 5506 of the Affordable 
Care Act directs the Secretary to give preference to members of the 
same affiliated group, we believe that a hospital that assumes the 
responsibility for an entire program or programs demonstrates a 
commitment to maintain the programs to an even greater degree than does 
a hospital that was affiliated with the hospital that closed and may 
only be maintaining a portion of the residency program or programs.
    <bullet> Ranking Criterion Three. The applying hospital took in 
residents displaced by the closure of the hospital, but is not assuming 
an entire program or programs, and will use the additional slots to 
continue training residents in the same programs as the displaced 
residents, even after those displaced residents complete their training 
(that is, the applying hospital is permanently expanding its own 
existing programs). Similar to Ranking Criterion Two, hospitals fitting 
into Ranking Criterion Three also demonstrate a commitment to protect 
residents displaced by a hospital's closure, and to ensure that there 
is a degree of continuity in the community with respect to the 
particular training program or programs that the closed hospital 
operated. However, because an applying hospital fitting into this 
category was not part of the same Medicare GME affiliated group as the 
closed hospital, we proposed that this category would be ranked as 
third, below Ranking Criterion Two which relates to hospitals that were 
members of the same affiliated group as the closed hospital.
    We proposed that the next five proposed ranking criteria would 
apply in the instance where there are still slots available from the 
closed hospital after distributing slots to hospitals falling within 
the first three ranking criteria. Thus, hospitals fitting into proposed 
Ranking Criteria Four through Eight would not fit into proposed Ranking 
Criteria One, Two, or Three, but they can demonstrate that they will 
use the slots in a manner that is consistent with

[[Page 72217]]

current Medicare policy goals, as indicated in section 5503 of the 
Affordable Care Act, such as using the slots for a geriatrics or for 
other primary care residency programs, or for a general surgery 
residency program.
    <bullet> Ranking Criterion Four. The applying hospital does not fit 
into Ranking Criteria One, Two, or Three, and will use additional slots 
to establish a new or expand an existing geriatrics residency program.
    <bullet> Ranking Criterion Five. The applying hospital does not fit 
into Ranking Criteria One, Two, or Three, is located in a Primary Care 
HPSA, and will use all the additional slots to establish a new or 
expand an existing primary care residency program.
    <bullet> Ranking Criterion Six. The applying hospital does not fit 
into Ranking Criteria One, Two, or Three, and will use all the 
additional slots to establish a new or expand an existing primary care 
residency program.
    <bullet> Ranking Criterion Seven. The applying hospital does not 
fit into Ranking Criteria One, Two, or Three, and will use all the 
additional slots to establish a new or expand an existing general 
surgery residency program.
    <bullet> Ranking Criterion Eight. The applying hospital does not 
fit into Ranking Criteria One through Seven.
    Comments on Ranking Criterion One
    Comment: Several commenters generally supported CMS' proposal to 
prioritize the distribution of resident slots to applying hospitals 
that assume and seamlessly continue to operate a closed hospital's 
entire program. However, the commenters also noted that additional 
efforts must be made in order to meet the nationwide need for residency 
slots.
    Response: We appreciate the commenters' support for the proposal to 
prioritize the distribution of resident slots to applying hospitals 
that assume and seamlessly continue to operate a closed hospital's 
entire program. Any additional efforts to address the commenters' 
stated need for additional residency slots would need to be addressed 
by Congress as a legislative change affecting hospitals' existing caps.
    Comment: One commenter stated that, although it was appreciative of 
CMS' attempts to create a mechanism for the redistribution of residency 
slots from closed hospitals, the proposed priority ranking criteria may 
be too restrictive for many teaching hospitals to achieve. The 
commenter asked CMS to consider the ability of current GME programs 
that are able to meet critical primary care needs as a high priority 
during the application process.
    Response: We believe we have developed a system to distribute slots 
from closed hospitals that will be administratively achievable and that 
will primarily promote the continuity of existing programs. We also 
recognize the importance of training primary care physicians, and we 
have included Ranking Criteria which reflect this accordingly.
    Comment: One commenter observed that CMS included two types of 
scenarios in which an applicant hospital would be categorized within 
Ranking Criterion One: a situation in which a closed teaching hospital 
is acquired by another hospital that continues to train all residents 
from the program on the same site; and a situation in which a hospital 
closes some or all of its residency programs a year or more prior to 
the hospital's closure, and those programs are assumed by another 
hospital at a different site. The commenter agreed that hospitals 
assuming residency programs under both of these scenarios should be 
entitled to the preferential treatment of Ranking Criterion One, but 
believed that CMS inadvertently omitted a third example of when this 
first ranking criterion would apply. That is, the commenter believed 
that a hospital should also be eligible for Ranking Criterion One if it 
is located on a site that is different from the closed hospital, and 
assumes an entire program at the time the hospital closes (not a year 
or more prior to the hospital's closure). The commenter requested that 
CMS clarify that this third scenario would fit into Ranking Criterion 
One as well.
    Response: The commenter raises a good point and is correct that we 
did not intend to exclude the third scenario from qualifying under 
Ranking Criterion One which would involve a hospital that is located on 
a different site than the closed hospital, and that hospital assumes an 
entire program simultaneous to the closure of the other hospital, and 
not a year or more prior to the hospital's closure. We are clarifying 
in this final rule that a hospital is eligible for Ranking Criterion 
One if it is located on a site that is different from the closed 
hospital, and assumes an entire program at the time the hospital closes 
(not a year or more prior to the hospital's closure). In fact, we are 
adding a fourth scenario in this final rule that could fit into Ranking 
Criterion One--that is, when one hospital acquires another hospital, 
retires the provider agreement of the acquired hospital, and creates a 
multi-campus hospital, but otherwise, the second campus continues to 
operate as before. In that case, the acquiring hospital may qualify 
under Ranking Criterion One. In addition, we are clarifying and 
refining the timeframe we had in mind when describing the scenario 
where one hospital assumes a program ``a year or more'' prior to the 
closure of another hospital (75 FR 46423). We did not mean that a 
hospital that took over a program 20 years before the closure of a 
hospital would qualify under Ranking Criterion One. Rather, we intended 
to convey a relatively short timeframe prior to the hospital's closure 
in which another hospital assumed a program. For purposes of this final 
rule, we are clarifying that in order to qualify under Ranking 
Criterion One in the instance where a hospital assumed a program(s) 
from a hospital that closed prior to the hospital's closure, the 
hospital must have assumed the program(s) in its entirety no more than 
5 years prior to the date of the hospital's closure.
    Comment: One commenter suggested that CMS reorder Ranking Criteria 
One and Two and give precedence to applicant hospitals that have an 
affiliation agreement with the closing hospital. The commenter also 
suggested that if the applicant hospital is also a member of the 
affiliated group and a corporate affiliate (subsidiary, parent or 
sister corporation) of the closing hospital, it should be given the 
highest priority within Ranking Criterion One. The commenter believed 
that Congress intended to allow hospitals that are part of an 
affiliated group, to keep FTEs that would otherwise be lost because of 
the closure of a hospital within the affiliated group. The commenter 
suggested that if CMS wishes to protect programs that would continue to 
run after a hospital ``closes'' because it is acquired (and its 
provider number terminated), CMS could specify this item as the second 
ranking criterion as long as it specifies that this scenario is a 
result of an acquisition. The commenter further noted that the 
requirement to operate the program exactly as it was operated before 
may be counterproductive. The commenter indicated that it may, for 
example, cause the acquiring hospital to avoid replacing faculty 
members that were not performing well or making other improvements.
    Response: We acknowledge that Congress desired to give preference 
to hospitals that are members of the same Medicare GME affiliated group 
as the closed hospital when distributing the slots from the closed 
hospital, as stated in section 1886(h)(4)(H)(vi) of the Act, as added 
by section 5506(a) of the Affordable Care Act. However, we are

[[Page 72218]]

not convinced that being a member of the same Medicare GME affiliated 
group alone, or being a corporate affiliate of the closed hospital, 
warrants a greater degree of preference than hospitals that assume an 
entire program or programs from the closed hospital. As we explained in 
the August 3, 2010 proposed rule (75 FR 46423), ``We note that we are 
proposing this ranking criterion regarding affiliated hospitals as 
second, after the first ranking criterion regarding applying hospitals 
that assume an entire program or programs from the closed hospital 
because, even though section 5506 of the Affordable Care Act directs 
the Secretary to give preference to members of the same affiliated 
group, we believe that a hospital that assumes the responsibility for 
an entire program or programs demonstrates a commitment to maintain the 
programs to an even greater degree than does a hospital that was 
affiliated with the hospital that closed and may only be maintaining a 
portion of the residency program or programs.''
    Furthermore, the commenter need not be concerned that hospitals 
that would fit into Ranking Criterion Two would be at a disadvantage 
and deprived of their fair share of slots to hospitals that would fit 
under Ranking Criterion One. In fact, Ranking Criteria One and Two are 
not competing with each other, and hospitals fitting into each category 
would get their ``fair'' share of slots. For example, assume a hospital 
with an FTE resident cap of 100 closes. Hospital A assumes the entire 
programs in which 80 FTE residents were training when the hospital 
closed. Hospital B had been receiving 20 FTE slots from the closed 
hospital under the terms of a Medicare GME affiliation agreement. 
Hospital A applies for 80 slots under Ranking Criterion One and, all 
other things being equal, is awarded 80 slots. Hospital A could apply 
for more than 80 slots, but it could only receive consideration under 
Ranking Criterion One for a maximum of 80 slots. Therefore, 20 slots 
would remain for Hospital B to apply for and receive under Ranking 
Criterion Two. Accordingly, we do not believe it is necessary to 
reorder Ranking Criteria One and Two.
    Comment: Some commenters asked for clarification regarding what CMS 
meant by a hospital assuming an ``entire'' program. One commenter urged 
CMS to be flexible with applicants for Ranking Criterion One and 
clarify that a hospital that takes on ``substantially all of the 
residents training in a particular program at the closed hospital prior 
to the hospital's closure or at the time of the hospital's closure'' 
would be deemed to have assumed an ``entire'' program. The commenters 
pointed out that there may be reasons beyond the control of an applying 
hospital as to why it may not be able to assume all of the residents in 
a program from the hospital that closed, unfairly placing the applying 
hospital in a lower ranking category than Ranking Criterion One. For 
example, one or more residents might choose not to train at the 
applying hospital with the rest of their program colleagues, but 
instead may choose to complete their training elsewhere.
    Additionally, the commenters asked CMS to define an ``entire 
program'' to include only FTE residents training in the closed hospital 
at the time of the hospital's closure. For example, if a particular 
program at a closed hospital consists of 50 residents, but 20 were 
training at another hospital at the time of the closure, a hospital 
that agrees to assume the remaining 30 residents who were all training 
at the closed hospital should qualify under ``Ranking Criterion One,'' 
even though the hospital did not assume the program's full complement 
of 50 residents.
    Response: We agree with the commenters that flexibility in the 
definition of ``entire'' program is appropriate because there could be 
reasons beyond the control of the applying hospital why it is unable to 
assume all of the residents from the closed hospital. The commenters 
recommended that a hospital that takes on ``substantially all of the 
residents training in a particular program at the closed hospital prior 
to the hospital's closure or at the time of the hospital's closure'' 
would be deemed to have assumed an ``entire'' program. We agree with 
this concept, and for purposes of section 5506, we are stating that a 
hospital that takes on 90 percent of the residents training in a 
particular program at the closed hospital within 5 years prior to the 
hospital's closure or at the time of the hospital's closure would be 
deemed to have assumed an ``entire'' program. We note that assuming the 
``entire'' program, even if it is 90 percent or more of the residents, 
implies no limitation based on the closed hospital's FTE resident cap. 
For example, if a closed hospital is only training residents in an 
internal medicine program, its FTE resident cap is 10, and it was 
training 15 FTEs, then assumption of the ``entire'' program does not 
mean 10 FTEs, it means at least 90 percent of 15, i.e., 13.5 FTEs. The 
applying hospital may request up to 13.5 FTEs under Ranking Criterion 
One.
    In the example that the commenters provided regarding a particular 
program at a closed hospital that consists of 50 residents, but 20 were 
training at another hospital at the time of the closure, we agree that 
a hospital that assumes the remaining 30 residents who were all 
training at the closed hospital should qualify under ``Ranking 
Criterion One,'' even though the hospital did not assume the program's 
full complement of 50 residents. This policy with regard to what 
constitutes a ``closed program'' is consistent with our current policy 
and definition of ``closure of a hospital residency program'' at Sec.  
413.79(h)(1)(ii), which means ``the hospital ceases to offer training 
for residents in a particular approved medical residency training 
program.'' This definition recognizes that hospitals often co-sponsor 
accredited programs, so that while one of the hospitals may cease to 
provide training in that accredited program, the program and rotations 
still continue to exist at the other hospitals that co-sponsor and 
train residents in that same accredited program. Furthermore, in light 
of the clarified definition of ``entire'' program above, using this 
example, an applying hospital need only assume 90 percent of the 30 FTE 
residents, or 27 FTE residents, in this particular program from the 
closing hospital. However, we note that if a hospital is only assuming 
90 percent of the residents in the program, then it may only apply to 
receive 90 percent of the slots in the program under Ranking Criterion 
One. If the applying hospital plans to further expand the program and 
can meet the demonstrated likelihood requirement for doing so, it may 
possibly qualify for those additional slots under Ranking Criterion 
Four through Seven (but not under Ranking Criterion Three because 
Ranking Criterion Three is for instances where less than an ``entire'' 
program is assumed).
    Comment: One commenter acknowledged CMS' intent to promote 
continuity and supported this requirement for hospitals that close on a 
going forward basis. However, the commenter did not believe that the 
``seamless'' operation requirement under Ranking Criterion One should 
apply to hospitals that apply for resident cap slots from hospitals 
that closed between March 23, 2008, and the date of publication of the 
final rule. Another commenter understood ``seamless'' to mean that 
there cannot have been a point at which the assumption of the program 
was interrupted. The commenter believed this requirement is ``wholly 
unfair'' to hospitals that assumed programs from hospitals that closed 
prior to the publication of the proposed or final rules. The first 
commenter believed that while these

[[Page 72219]]

hospitals may have been willing to provide a service to the community 
by continuing the entire residency program from the closed hospital, 
they were not previously on notice that they would have to do so 
``seamlessly.'' The second commenter asserted that this proposed 
requirement ``drastically minimizes the importance to these hospitals 
of Medicare GME funding.'' The commenters believed that it is 
unrealistic and unfair for CMS to expect a hospital to have applied for 
ACGME approval to train an entire program on a permanent basis without 
``any clear indication that Medicare funding would be continuing.'' For 
these reasons, the commenters urged CMS to adopt the ``seamless'' 
requirement for Ranking Criterion One on a prospective basis only.
    Response: As the commenters acknowledge, our intent in implementing 
section 5506 is to promote continuity, and, therefore, our intent is 
that ``seamless'' assumption of a program from a closed hospital does 
mean that there cannot have been a point at which the assumption of the 
program was interrupted. The commenters are describing situations where 
hospitals have closed in the past one or two years, and while the 
programs from those closed hospitals may have been transferred 
``seamlessly'' to the applying hospitals 1 or 2 years ago, the applying 
hospitals have allowed those programs to phase out, as the residents 
that had originally trained at the closed hospital have graduated. We 
understand that Medicare GME funding is extremely important to teaching 
hospitals, and the absence of it may be a strong factor in an applying 
hospital's decision to allow a transferred program to phase out. 
Further, we have never required other teaching hospitals to absorb 
additional residents on a temporary or permanent basis. While we do not 
negatively regard a hospital that did not seamlessly assume a program 
or programs from hospitals that have already closed, we also do not see 
the need to reward these same hospitals by ranking them under Ranking 
Criterion One, now that the prospect of additional Medicare GME funding 
may be available to them and they are willing to ``revive'' phased-out 
programs. Rather, we believe these hospitals could apply for slots 
under section 5506 and may, in fact, receive them, but they would be 
ranked under criteria below Ranking Criterion One, as appropriate. 
Accordingly, we do not believe it is necessary to adopt the 
``seamless'' requirement under Ranking Criterion One on a prospective 
basis.
    Comment: One commenter noted that CMS proposed that, to qualify 
under Ranking Criterion One, an applying hospital must ``continu[e] to 
operate the program(s) exactly as it had been operated by the hospital 
that closed (that is, same residents, same program director, and same 
(or many of the same) teaching staff).'' While the commenter understood 
that such continuity may be the likely outcome of moving the entire 
program to a new hospital, the commenter believed that decisions about 
who the program director and teaching staff should be are better left 
to the ``leaders of academic medicine'' to decide, and ``should not be 
dictated by CMS or used as a litmus test for whether a hospital has 
``assumed'' an entire program.'' The commenter expressed particular 
concern about these requirements in situations in which an already-
existing teaching hospital takes over the entire program. The commenter 
pointed out that, unlike nonteaching hospitals just beginning to train 
residents, such teaching hospitals may not need to hire additional 
faculty or program directors, but instead, may simply absorb the entire 
program into one of its own, already-established residency training 
programs (perhaps, for example, to avoid having two identical programs 
at the same hospital). The commenter believed that the adopting 
hospital should not be forced to hire these individuals from the closed 
hospital to meet ``Ranking Criterion One.'' The commenter argued that 
such staffing decisions should be in the hands of the academic medical 
leaders who assume responsibility for the program.
    Response: In the proposed rule, we defined ``assuming an entire 
program'' as maintaining the same residents, staff, and program 
director as the original program because that is consistent with our 
policy, as clarified in the FY 2010 IPPS/LTCH PPS final rule, regarding 
the definition of assuming an existing program (as distinguished from 
starting a brand new program). However, we believe that, in this case, 
Congress was concerned with preservation of FTE cap slots, and 
maintaining continuity for the residents. Therefore, we agree with the 
commenter that a hospital may fit into Ranking Criterion One without 
taking in the same staff and program director of the closed hospital, 
and instead it may be determined to have assumed an entire program if 
it trains all of the residents from the closed hospital's program.
    Comment: One commenter asked CMS to use its authority to give slots 
from hospitals that have closed to be used for replacement of positions 
of family medicine programs that have closed. The commenter 
acknowledged that hospitals frequently close family medicine training 
programs and use its current slots to promote production of more 
lucrative specialties. The commenter urged the Secretary to utilize the 
authority under Ranking Criterion One to distribute slots from the 
closed hospital to those hospitals in the same core-based statistical 
area (CBSA) that have continued to operate a family medicine residency 
program that was closed by another hospital with the same program 
director and the same residents with the family medicine residency 
program. The commenter requested parallel provisions under Ranking 
Criteria Two and Three.
    Response: Ranking Criterion One addresses the commenter's request 
to provide preference to hospitals in the same CBSA that assume an 
entire family medicine program that was previously operated by a 
hospital that closed. Although Ranking Criterion One does not specify 
any one specialty in particular; it does provide preference to a 
hospital that assumed an entire program in any specialty (including 
family medicine) that closed as a result of a hospital closure. It is 
important to note that in the event a program closes for reasons other 
than hospital closure (assuming the hospital does not subsequently 
close shortly thereafter as well), these slots will not be available 
for redistribution under section 5506.
Comments on Ranking Criterion Two
    Comment: Some commenters believed that CMS proposed to interpret 
too strictly the requirement for giving preference to hospitals that 
are members of the same affiliated group as the hospital that closed. 
The commenters noted that section 5506 merely states that CMS shall 
give preference within each geographic category ``to hospitals that are 
members of the same affiliated group (as defined by the Secretary under 
clause (ii)) as the closed hospital.'' The commenter further noted that 
CMS proposed that in order to receive preference, the applying hospital 
must have received slots from the closed hospital under the terms of 
the affiliation agreement. The commenters asserted that Congress never 
limited this priority to only hospitals that received slots from the 
closed hospital under the affiliation agreement. Rather, the commenters 
believed that having a relationship with the closed hospital ``in the 
context of a GME affiliated group'' should be sufficient to qualify for 
preference.
    Response: As we have explained in the proposed rule and as the 
commenters acknowledge, we believe the intent of section 5506 is to 
promote

[[Page 72220]]

continuity and limit disruption in residency training. In that light, 
we believe it is logical to give preference to a hospital that received 
slots under the terms of the Medicare GME affiliation agreement so that 
the hospital could continue to train at least the number of FTE 
residents it had trained under the terms of the Medicare GME 
affiliation agreement, avoiding the displacement of even more 
residents. We do not see why a hospital that loaned slots to the closed 
hospital under the terms of the Medicare GME affiliation agreement 
warrants special consideration if it wants more slots, simply because 
it was a member of the same affiliated group. We further disagree with 
the commenter's argument that having a relationship with the closed 
hospital ``in the context of a GME affiliated group'' should be 
sufficient to qualify for preference. We note that under the rules of 
the ``shared rotational arrangement'' (as defined at Sec.  413.75(b)) 
which is a requirement for all members within the same Medicare GME 
affiliated group, it is possible for a hospital in the same Medicare 
GME affiliated group as the closed hospital not to have any rotating 
relationship with the closed hospital--it may have a training 
relationship with other hospitals in the group which in turn, had the 
training relationship with the closed hospital. We see no reason to 
grant this hospital, which had no direct training relationship with the 
closed hospital, preference under Ranking Criterion Two, simply because 
it was a member of the same Medicare GME affiliated group as the closed 
hospital. Therefore, we are not adopting the commenter's 
recommendation, and are only giving preference to hospitals that 
received slots from the closed hospital under the terms of the Medicare 
GME affiliation agreement, so that the hospital could continue to train 
at least the number of FTE residents it had trained under the terms of 
the Medicare GME affiliation agreement. We also note that should the 
hospital that received slots from the closed hospital, or should the 
hospital that lent slots to the closed hospital, desire to assume 
additional programs or parts of programs from the closed hospital, they 
may qualify for slots for those respective programs under Ranking 
Criteria One, Three, or others, as appropriate.
    Comment: One commenter stated that limiting preference to hospitals 
that received slots under the most recent affiliation agreement would 
deny some hospitals the opportunity to regain slots unfairly lost due 
to prior affiliation agreements. Therefore, the commenter asked CMS to 
expand preference for the redistributed slots to hospitals that were 
part of the same affiliated group at any point within 5 years prior to 
the statutory cut off of March 23, 2008. The commenter also asked CMS 
to ensure that any hospitals operating under the same provider number 
as a member of the affiliated group during that time period are 
eligible for the slots.
    Response: In determining which hospitals qualify under Ranking 
Criterion Two regarding being in the same Medicare GME affiliated group 
as the hospital that closes, we believe, as the proposed Ranking 
Criterion Two specifies, that the hospital or hospitals that were most 
recently affiliated with and received slots from the closed hospital 
would have the most immediate need for those slots. Hospitals that have 
not been affiliated with the closed hospital for a year or more would 
not likely be as reliant on the slots from the closed hospital, nor 
would they be affected quite so significantly by the sudden closure of 
the hospital. Nevertheless, we acknowledge that it is possible that 
limiting Ranking Criterion Two to only hospitals that had been 
affiliated with the closed hospital on the most recent Medicare GME 
affiliation prior to the hospital's closure in some instances might be 
too restrictive, and could deny hospitals that were affiliated with the 
closed hospital in prior years some share of the slots upon which they 
are still reliant. We believe the commenter's recommendation that CMS 
expand preference for the redistributed slots to hospitals that were 
part of the same affiliated group at any point within 5 years prior to 
the statutory cut-off of March 23, 2008, has merit. We believe an 
administratively feasible approach would be one in which, as a first 
step, we would refer to the Medicare GME affiliation agreement of which 
the closed hospital was a member most recently prior to its closure. 
Those hospitals in that most recent Medicare GME affiliation agreement 
that received slots from the closed hospital would get first preference 
under Ranking Criterion Two. However, in the case where the most recent 
Medicare GME affiliation agreement of which the closed hospital is a 
member before it closes is with a hospital that also has closed or is 
closing, we would then refer to a previous affiliation agreement, or 
agreements, but not to Medicare GME affiliation agreements that were 
entered into more than 5 years prior to the hospital's closure. 
Preference would then be given to an applying hospital that was listed 
as a participant in the next most recent Medicare GME affiliation 
agreement of which the closed hospital was a member before the hospital 
closed, but would be limited to affiliations entered into in the past 5 
years, and that the applying hospital received slots from the closed 
hospital under the terms of that affiliation agreement. We are 
modifying Ranking Criterion Two to read as follows:
    <bullet> Ranking Criterion Two. The applying hospital was listed as 
a participant of a Medicare GME affiliated group on the most recent 
Medicare GME affiliation agreement of which the closed hospital was a 
member before the hospital closed, and under the terms of that Medicare 
GME affiliation agreement, the applying hospital received slots from 
the hospital that closed, and the applying hospital will use the 
additional slots to continue to train at least the number of FTE 
residents it had trained under the terms of the Medicare GME 
affiliation agreement. If the most recent Medicare GME affiliation 
agreement of which the closed hospital was a member before the hospital 
closed was with a hospital that itself has closed or is closing, 
preference would be given to an applying hospital that was listed as a 
participant in the next most recent Medicare GME affiliation agreement 
(but not one which was entered into more than 5 years prior to the 
hospital's closure) of which the first closed hospital was a member 
before the hospital closed, and that applying hospital received slots 
from the closed hospital under the terms of that affiliation agreement.
    Finally, to address the commenter's request, we are confirming that 
a hospital that undergoes a name change but whose provider number and 
agreement do not change while it is a member of the affiliated group 
during the 5 years prior to the closure, could be eligible for receipt 
of slots from the closed hospital.
    Comment: One commenter requested that CMS confirm that the Ranking 
Criterion Two preference would be given only for the total number of 
resident slots that the applying hospital actually received from the 
closed hospital pursuant to the former affiliation agreement between 
them.
    Response: In the August 3, 2010 proposed rule (75 FR 46423), we 
describe that Ranking Criterion Two gives preference to hospitals that 
are ``listed as a participant of a Medicare GME affiliated group on the 
most recent Medicare GME affiliation agreement of which the hospital 
was a member before the hospital closed, and under the terms of that 
Medicare GME affiliation agreement, the applying hospital received 
slots from the hospital that

[[Page 72221]]

closed, and the applying hospital will use the additional slots to 
continue training at least the number of FTE residents it had trained 
under the terms of the Medicare GME affiliation agreement.'' Therefore, 
under Ranking Criterion Two, a hospital may request as many slots as it 
received under its most recent affiliation agreement. This would be the 
number of FTE residents that were transferred from the closed hospital 
in the most recent affiliation agreement (or as amended by June 30 of 
that academic year, if applicable). Therefore, under Ranking Criterion 
2, preference would only be given for the total number of residents 
slots that the applying hospital actually received from the closed 
hospital.
    Comment: One commenter suggested that CMS reorder Ranking Criteria 
One and Two and give precedence to applicant hospitals that have an 
affiliation agreement with the closing hospital. The commenter also 
suggested that if the applicant hospital is also a member of the 
affiliated group and a corporate affiliate (subsidiary, parent or 
sister corporation) of the closing hospital, it should be given the 
highest priority within Ranking Criterion One. The commenter believed 
that Congress intended to allow hospitals that are part of an 
affiliated group to keep FTEs that would otherwise be lost because of 
the closure of a hospital within the affiliated group. The commenter 
suggested that if CMS wishes to protect programs that would continue to 
run after a hospital ``closes'' because it is acquired (and its 
provider number terminated), CMS could specify this item as the second 
ranking criterion as long as it specifies that this scenario is a 
result of an acquisition. The commenter further noted that the 
requirement to operate the program exactly as it was operated before 
may be counterproductive. The commenter stated that it may, for 
example, cause the acquiring hospital to avoid replacing faculty 
members that were not performing well or making other improvements.
    Response: We disagree with the commenter's suggestion that we 
reorder the Ranking Criteria to give first preference to hospitals that 
were members of the same affiliated group as the closed hospital, and 
rather, we assert that the primary principle for a section 5506 is 
continuity of existing training. Therefore, we are finalizing our 
proposal to give priority to a hospital that will continue to operate 
the existing program, either at the original site or at another 
hospital.
    Comment: One commenter noted that while under CMS' ranking 
criteria, hospitals are awarded slots from a closed hospital for 
particular uses (for example, to establish a new or expand an existing 
geriatrics residency program), CMS did not specify the period of time 
during which these slots would be restricted to these specific uses. 
The commenter believed that CMS should place a 5-year limit on 
hospitals' obligation to use the slots for the purpose for which the 
hospital is awarded the slots, as this amount of time is consistent 
with the amount of time with the restrictions Congress imposed. 
Furthermore, the commenter stated that while it is unlikely that 
hospitals would change their programs after only five years, they 
should be permitted the flexibility to adapt their programs as their 
educational needs or the patient care needs of the community change.
    Several commenters also disagreed with the proposal that any slots 
awarded through the closed hospital redistribution program may not be 
used as part of the aggregate cap in a Medicare GME affiliation 
agreement, and encouraged CMS to permit hospitals to use these slots as 
part of a GME affiliation agreement. One commenter suggested that 
perhaps CMS could permit hospitals to use these slots as part of a GME 
affiliation agreement after 5 years.
    Response: As we have stated in this final rule, each application by 
a hospital must be program specific. That is, the hospital must 
complete a separate CMS Evaluation Form for each program and 
demonstrate the likelihood of filling the slots in each program. 
However, increases in hospital's FTE resident caps under section 5506 
for direct GME and IME, once granted to a hospital, are no longer 
program specific. Rather, the caps are applied to any residents the 
hospital trains in excess of its otherwise applicable FTE cap(s) (which 
could include the hospital's 1996 caps, subject to permanent 
adjustments for new programs or reductions under section 1886(h)(4)(H) 
of the Act).
    We also note that hospitals must sign an attestation as part of the 
hospital's application for the overall increase to the cap under 
section 5506 to certify that the information claimed in the application 
is true at the time of the application. Thus, if a hospital claims on 
one of its CMS Evaluation Forms that the hospital is applying for the 
increase because it plans to use the FTEs because it is training 
residents from a program or a hospital that closed, and the applicant 
hospital no longer qualifies for a temporary adjustment to its cap, at 
least at the time of the application, the hospital intends to use at 
least that part of its section 5506 cap for this stated purposes (that 
is, the purposes documented in the hospital's application).
    We agree with the commenters that slots awarded under section 5506 
should be permitted for use as part of the aggregate cap in a Medicare 
GME affiliation agreement. As we stated in response to a similar 
comment received regarding section 5503 slots, we understand that 
training needs can change over time, and there may be a need to cross-
train residents in different hospital settings. In addition, since 
slots received under section 5506 are to be paid with the same direct 
GME PRA and IME multiplier as a hospital's other residents (unlike 
slots received under section 422 of the MMA which are paid at different 
payment rates), it would not present an administrative burden to 
include section 5506 slots in Medicare GME affiliation agreements. The 
commenter suggested that we allow the slots awarded under section 5506 
to be used in Medicare GME affiliation agreements after 5 years. We 
believe 5 years is a reasonable timeframe for hospitals to use the 
slots they received for the purpose for which they applied for those 
slots. After a 5-year period, a hospital that received slots under 
section 5506 may use those slots as part of its FTE residents caps in a 
Medicare GME affiliation agreement. The 5 years will begin 
prospectively from the date that the slots were made permanent at each 
respective hospital.
Comments on Ranking Criterion Three
    Comment: Commenters requested that, as under Ranking Criterion One, 
CMS not require that a hospital must have requested a permanent 
expansion of their residency program from the accrediting body prior to 
the conclusion of the training of a displaced resident in order to 
qualify for Ranking Criterion Three, or that CMS not require that the 
applying hospital must have permanently expanded its program 
immediately following the completion of the displaced residents' 
training. One commenter requested that here too, CMS should apply any 
similar ``seamless'' approach on a prospective basis only.
    Response: As we stated in response to the similar previous comment 
regarding Ranking Criterion One, our intent in implementing section 
5506 is to promote continuity. Therefore, in order to qualify under 
Ranking Criterion Three, the applying hospital must have permanently 
expanded its program immediately following the completion of the 
displaced residents' training. If there was an interruption in the

[[Page 72222]]

expansion of the program, perhaps the hospital could apply for slots 
under section 5506, and may in fact receive them, but the hospital 
would be ranked under a criterion below Ranking Criterion Three, as 
appropriate. Accordingly, we do not believe it is necessary to adopt 
the ``seamless'' requirement under Ranking Criterion Three on a 
prospective basis.
    Comment: Some commenters requested that Ranking Criterion Three 
should apply to a hospital that took in displaced residents, regardless 
of whether the applying hospital actually qualified for and received a 
temporary cap adjustment for the displaced resident(s). One commenter 
also observed that, in the proposed rule, CMS did not specify the means 
by which a hospital would need to demonstrate that it took in displaced 
residents (that is, CMS did not specify that only a hospital that 
actually received a temporary cap adjustment for the displaced 
resident(s) could qualify under Ranking Criterion Three). The commenter 
argued that, regardless of whether the applying hospital needed or 
received a temporary cap adjustment, the applying hospital ``performed 
no less of a service to the community and to the resident's education 
as a hospital that required temporary cap slots to be paid for the 
residents' training time.'' The commenter requested that CMS be 
flexible in the ways it would allow a hospital to demonstrate that it 
took in displaced residents, including through ACGME documents 
indicating approval for temporary training.
    Response: We disagree with the commenter's argument that regardless 
of whether the applying hospital needed or received a temporary cap 
adjustment, the applying hospital ``performed no less of a service to 
the community and to the resident's education as a hospital that 
required temporary cap slots to be paid for the residents' training 
time.'' Moreover, we believe that whether the applying hospital 
actually needs a temporary cap adjustment is indeed relevant because a 
hospital that has sufficient room under its FTE resident cap to train 
displaced residents would not need to apply for additional slots under 
section 5506 in order to continue training those residents. Therefore, 
such a hospital would only need to apply under Ranking Criterion Three 
if it is currently training residents in excess of its FTE resident 
cap. However, it is possible that a hospital may not have received a 
temporary cap adjustment because at the time of hospital closure, there 
simply were not enough available caps available to cover each of the 
displaced residents. In such a case, the hospital could demonstrate a 
need for additional caps to continue training the displaced residents 
in the absence of a temporary cap adjustment. With regard to the 
commenter's second point, we will accept ACGME documents that indicate 
approval for temporary training as legitimate documentation to 
demonstrate that a hospital took in displaced residents.
    Comment: One commenter suggested that, similar to Ranking Criterion 
One, CMS limit the number of residency slots that could be awarded to 
an applying hospital under Ranking Criterion Three to the actual number 
of individual residents that the applying hospital took in and trained 
through the completion of their residencies.
    Response: We agree with the commenter and will limit the number of 
residency slots that will be awarded to an applying hospital under 
Ranking Criterion Three to the actual number of individual displaced 
FTE residents that the applying hospital took in and trained through 
the completion of their residencies.
Comments on Ranking Criteria Four Through Seven
    Comment: One commenter acknowledged that CMS devised the Ranking 
Criteria Four through Eight consistent with the spirit of the preferred 
specialties under section 5503, but did not believe it is appropriate 
for CMS to make judgments regarding the appropriateness of one type of 
program versus another ``absent a clear directive within the ACA.'' The 
commenter believed all primary care programs and general surgery were 
deemed equally important within section 5503, and therefore, geriatrics 
should not be favored, nor should primary care be ranked above general 
surgery. The commenter recommended that Ranking Criteria Four through 
Eight be simplified and collapsed into the following three criteria:
    <bullet> Recommended Ranking Criterion Four: Applying hospital does 
not meet ranking criterion 1, 2, or 3, is located in a HPSA, and is 
seeking to establish or expand a primary care or general surgery 
residency program.
    <bullet> Recommended Ranking Criterion Five: Applying hospital does 
not meet ranking criterion 1, 2, or 3, is not located in a HPSA, and is 
seeking to establish or expand a primary care or general surgery 
residency program.
    <bullet> Recommended Ranking Criterion Six: Applying hospital seeks 
the slots for purposes that do not fit into any of the above ranking 
criteria.
    Another commenter suggested that Ranking Criteria Four, Five, and 
Six should be reorganized to place a higher priority on primary care 
rather than geriatrics. The commenter believed that, based on available 
data, there is a greater need for primary care than for geriatrics in 
communities that have large Medicare and Medicaid populations. The 
commenter also noted that Ranking Criterion 4 does not require the 
applying hospital to use every additional slot to establish a new or 
expand an existing geriatrics residency program, but proposed Criteria 
5 and 6 would require the applying hospital to use all the additional 
slots for primary care residency programs. The commenter believed that 
this distinction suggests that CMS recognizes the need for additional 
primary care residency slots and therefore should support the 
reprioritization of Ranking Criteria Four, Five, and Six.
    This same commenter was supportive of Ranking Criteria Seven and 
Eight. The commenter also provided some additional criteria that could 
be used in this process. The suggested additional criteria include: (1) 
The percentage by which the applying hospital is operating above its 
Medicare-funded GME and IME FTE caps; (2) whether the applying hospital 
qualifies for DSH payments; and (3) the ratio of unfunded residents to 
Medicare census. The commenter also suggested that, within each 
criterion, preference should be given to hospitals that were deemed 
qualified to receive additional FTE slots pursuant to section 422 of 
the MMA, but that did not receive any additional slots through that 
process.
    Response: We agree with the first commenter's suggestions regarding 
simplifying and collapsing Ranking Criteria Four, Five, and Six. 
However, the commenter did not specify that the applying hospital will 
use ``all'' the additional slots toward primary care or general 
surgery, and we are adding ``all'' to our final ranking criteria as 
follows:
    <bullet> Ranking Criterion Five: Applying hospital does not meet 
ranking criterion 1, 2, or 3, is located in a HPSA, and will use all 
the additional slots to establish or expand a primary care or general 
surgery residency program.
    <bullet> Ranking Criterion Six: Applying hospital does not meet 
ranking criterion 1, 2, or 3, is not located in a HPSA, and will use 
all the additional slots to establish or expand a primary care or 
general surgery residency program.
    <bullet> Ranking Criterion Seven: Applying hospital seeks the slots 
for purposes that do not fit into any of the above ranking criteria.
    We also agree that general surgery should not be given priority 
over other

[[Page 72223]]

primary care specialties. However, we do believe that geriatrics should 
be favored within the section 5506 ranking criteria, as the field of 
geriatrics specifically serves the beneficiaries of the Medicare 
program. Therefore, we are retaining our original Ranking Criteria 
four, and we are adopting the Ranking Criteria Five, Six, and Seven 
stated above.
    With regard to the comment that Ranking Criterion Four does not 
require all of the slots awarded to be used toward geriatrics, unlike 
the final Ranking Criteria Five, Six, and Seven that do require all of 
the slots awarded to be used toward each criterion's respective 
specialty, we are specifically not requiring all of the slots awarded 
under Ranking Criteria Four to be used for geriatrics because a 
hospital may not necessarily need so many slots for geriatrics 
fellowships, which typically are not large programs. Therefore, because 
applications under section 5506 are program-specific, we believe that a 
hospital that is applying for slots for use in a geriatrics program 
should not be precluded from also applying for slots for other programs 
(although the requests for those other programs, even other primary 
care or surgery programs, would fall under Ranking Criterion Seven). We 
are not adopting the second commenter's remaining suggestions for 
additional criteria, as they represent goals and policies that do not 
necessarily align with the policy goal of section 5506, which is 
continuity and preservation of existing GME infrastructure in an area.
    Comment: One commenter requested that a ranking criterion 
preference should be given to hospitals training primary care 
residents, particularly family medicine residents, with ``principal 
preference'' given to hospitals that have been operating a family 
medicine program as of the enactment of the Affordable Care Act, and 
have been doing so without Medicare GME reimbursement, and do not have 
an FTE cap established. The commenter believed that hospitals that are 
supporting programs that, by application of CMS regulations, have not 
qualified for payment ``would be greatly strengthened'' by the receipt 
of slots from teaching hospitals that closed. The commenter believed 
that CMS should establish a first priority Ranking Criterion for such 
hospitals, across the first three of the priority order groupings (for 
example, CBSA, State, and region). Alternatively, the commenter 
suggested that Ranking Criteria Five and Six be combined and become 
Ranking Criterion One, with the proposed Ranking Criterion One being 
redesignated as Ranking Criterion Two, and so forth. The commenter 
noted that, to the extent that an applying hospital is requesting slots 
because it is assuming or assumed an entire program, the new primary 
care Ranking Criterion One would ``work in tandem'' with the proposed 
rule's Ranking Criterion One.
    Response: We believe that the commenter is requesting that points 
be assigned to a new teaching hospital that offers family medicine 
training without receipt of Medicare payment. However, we did not 
propose to create a point system under section 5506 as it did under 
section 5503. Furthermore, there is no need for us to provide 
additional preference to family medicine programs because we already 
provide preference for primary care programs under Ranking Criteria 
Five and Six. Because family medicine is also primary care, family 
medicine programs would receive preference under these ranking 
criteria. We also note that the commenter described an applying 
hospital that is assuming or assumed an entire program; therefore, it 
is possible that the commenter's hospital may already qualify under 
Ranking Criterion One, and additional preference for family medicine or 
primary care may not be necessary.
    After consideration of the public comments we received, we are 
finalizing the following Ranking Criteria:
    [square] Ranking Criterion One. The applying hospital is requesting 
the increase in its FTE resident cap(s) because it is assuming (or 
assumed) an entire program (or programs) from the hospital that closed, 
and the applying hospital is continuing to operate the program(s) 
exactly as it had been operated by the hospital that closed (that is, 
same residents, possibly the same program director, and possibly the 
same (or many of the same) teaching staff).
    [square] Ranking Criterion Two. The applying hospital was listed as 
a participant of a Medicare GME affiliated group on the most recent 
Medicare GME affiliation agreement of which the closed hospital was a 
member before the hospital closed, and under the terms of that Medicare 
GME affiliation agreement, the applying hospital received slots from 
the hospital that closed, and the applying hospital will use the 
additional slots to continue to train at least the number of FTE 
residents it had trained under the terms of the Medicare GME 
affiliation agreement. If the most recent Medicare GME affiliation 
agreement of which the closed hospital was a member before the hospital 
closed was with a hospital that itself has closed or is closing, 
preference would be given to an applying hospital that was listed as a 
participant in the next most recent Medicare GME affiliation agreement 
(but not one which was entered into more than 5 years prior to the 
hospital's closure) of which the first closed hospital was a member 
before the hospital closed, and that applying hospital received slots 
from the closed hospital under the terms of that affiliation agreement.
    [square] Ranking Criterion Three. The applying hospital took in 
residents displaced by the closure of the hospital, but is not assuming 
an entire program or programs, and will use the additional slots to 
continue training residents in the same programs as the displaced 
residents, even after those displaced residents complete their training 
(that is, the applying hospital is permanently expanding its own 
existing programs).
    [square] Ranking Criterion Four. The applying hospital does not fit 
into Ranking Criteria One, Two, or Three, and will use additional slots 
to establish a new or expand an existing geriatrics residency program.
    [square] Ranking Criterion Five: Applying hospital does not meet 
Ranking Criterion One, Two, or Three, is located in a HPSA, and will 
use all the additional slots to establish or expand a primary care or 
general surgery residency program.
    [square] Ranking Criterion Six: Applying hospital does not meet 
Ranking Criterion One, Two, or Three, is not located in a HPSA, and 
will use all the additional slots to establish or expand a primary care 
or general surgery residency program.
    [square] Ranking Criterion Seven: Applying hospital seeks the slots 
for purposes that do not fit into any of the above ranking criteria.
    We are also finalizing the following policies with regard to the 
Ranking Criteria:
    <bullet> For purposes of section 5506, we are stating that a 
hospital that takes on 90 percent of the residents training in a 
particular program at the closed hospital within 5 years prior to the 
hospital's closure or at the time of the hospital's closure would be 
deemed to have assumed an ``entire'' program.
    <bullet> Under Ranking Criterion Two, we are only giving preference 
to hospitals that received slots from the closed hospital, under the 
terms of the Medicare GME affiliation agreement so that the hospital 
could continue to train at least the number of FTE residents it had 
trained under the terms of the Medicare GME affiliation agreement.
    <bullet> Slots awarded under section 5506 may be used as part of 
the aggregate cap

[[Page 72224]]

in a Medicare GME affiliation agreement after five years from the date 
of their award.
6. Demonstrated Likelihood of Filling the Positions Within a Certain 
Time Period
    Section 1886(h)(4)(H)(vi) of the Act, as added by section 5506(a) 
of the Affordable Care Act, does not place a limit on the number of 
slots an applying hospital may request, although under section 
1886(h)(4)(H)(iv)(IV) of the Act, the Secretary must ensure that the 
aggregate number of increases to hospitals' FTE residents caps are 
equal to the FTE residents caps of the hospital that closed. However, 
section 1886(h)(4)(H)(iv)(III) of the Act specifies that the Secretary 
may only award slots to an applying hospital ``if the Secretary 
determines that the hospital has demonstrated a likelihood of filling 
the positions made available under this clause within 3 years.'' In the 
August 3, 2010 proposed rule (75 FR 46424), we proposed that hospitals 
must provide documentation to demonstrate the likelihood of filling 
requested slots under section 5506 within 3 years. For example, the 
applying hospital would document that it does not have sufficient room 
under its FTE resident caps to take in the additional residents, and 
has approval from the relevant accrediting body to take over the closed 
hospital's residency program(s), or expand its own residency program(s) 
to reflect a permanent commitment to train additional residents. We 
proposed that ``within 3 years'' would mean within the 3 academic years 
immediately following the application deadline to receive slots after a 
particular hospital closes. For example, where the application deadline 
is April 1, 2011, the immediately following academic year is July 1, 
2011, and therefore, hospitals must demonstrate the likelihood of 
filling their slots by June 30, 2014.
    We did not receive any public comments on this section, but as 
noted in response to a previous comment, we are adding to the 
Demonstrated Likelihood Criteria for section 5506 in this final rule 
that if the hospital has made a commitment to start a new program, or 
if the hospital is seeking approval from the relevant accrediting body 
to take over the closed hospital's residency program(s), the hospital 
may submit documentation that it has made a commitment to start a new 
program or take over the program(s), respectively.
7. No Duplication of FTE Cap Slots
    Section 5506(d) of the Affordable Care Act specifies that ``the 
Secretary shall give consideration to the effect of the amendments made 
by this section on any temporary adjustment to a hospital's FTE cap 
under Sec.  413.79(h) * * * (as in effect on the date of enactment of 
this Act) in order to ensure that there is no duplication of FTE slots 
* * *.'' Under existing regulations at Sec.  413.79(h), hospitals that 
take in residents that are displaced by the closure of another hospital 
may receive temporary increases to their FTE resident caps so that they 
may receive payment for training the specific displaced residents. The 
temporary cap adjustment lasts only for the duration of a specific 
displaced resident's training. In distributing slots permanently under 
section 5506, we may need to be cognizant of the number of FTE 
residents for whom a temporary FTE cap adjustment was provided, and 
when those residents will complete their training, at which point the 
temporary slot associated with those displaced residents would be 
available for permanent redistribution.
    In the proposed rule, we stated that we believe it will only be 
necessary to delay permanent assignment of FTE cap slots in instances 
where if, after fulfilling the requests of hospitals that qualify to 
receive additional slots under Ranking Criteria One, Two, and Three, 
there are still excess slots available. In the case where an applying 
hospital fits within Ranking Criterion One, in the August 3, 2010 
proposed rule (75 FR 46424), we proposed to revise the existing 
regulations at Sec.  413.79(h) limiting temporary cap adjustments for 
displaced residents by the number of FTE residents in the program(s) in 
which the applying hospital is operating seamlessly. We proposed to 
immediately assign permanently that number of FTE slots to the 
qualifying hospital. For example, if teaching hospital B assumes an 
entire internal medicine program with 20 FTEs from closed hospital A, 
no temporary FTE cap adjustment under Sec.  413.79(h) would be needed 
for those internal medicine residents, and teaching hospital B would 
immediately receive a permanent FTE resident cap increase of 10 FTE 
residents. Similarly, in the case where an applying hospital fits 
within Ranking Criterion Two, we proposed to revise the existing 
regulations at Sec.  413.79(h) limiting temporary cap adjustments for 
displaced residents by the number of FTE residents that the applying 
hospital received under the terms of the affiliation agreement from the 
closed hospital. We proposed to immediately assign permanently that 
number of FTE slots to the qualifying hospital. For example, if 
teaching hospital D had received 30 FTE slots from closed hospital C 
under the terms of a Medicare GME affiliation agreement for the 
purposes of a shared rotational arrangement (as defined at Sec.  
413.75(b)) for a general surgery program, teaching hospital D would 
immediately receive a permanent FTE resident cap increase of 30 FTE 
residents, which would enable hospital D to continue to receive direct 
GME and IME payment for its share of training 30 general surgery 
residents.
    Lastly, in the case where an applying hospital fits within Ranking 
Criterion Three, we proposed to revise Sec.  413.79(h) to provide for 
temporary cap adjustments for displaced residents by the number of 
displaced FTE residents the applying hospital takes in, and to 
immediately assign permanently that number of FTE slots to the 
qualifying hospital. For example, if Hospital E takes in three FTE 
displaced residents in a family medicine program, and not only trains 
those three displaced residents until they complete their training, but 
permanently expands its existing family medicine program such that it 
will add three more FTEs in the place of three that completed their 
training, we would immediately assign three FTEs permanently to 
Hospital E, bypassing any temporary adjustment under Sec.  413.79(h). 
Accordingly, there would be no duplication of FTE slots when 
distributing slots to hospitals that qualify under the first three 
ranking criteria.
    If, after distributing the slots from a closed hospital to increase 
the FTE caps for applying hospitals that fall within Ranking Criteria 
One, Two, and Three, there are still excess slots available, it is 
possible that those excess slots might be associated with displaced 
residents for whom temporary cap adjustments under Sec.  413.79(h) are 
necessary. That is, it is possible that in the case where applying 
hospitals do not permanently assume all of the closed hospital's 
residents and programs, temporary cap transfers under Sec.  413.79(h) 
would be necessary to allow the remaining residents to complete their 
training. Therefore, we proposed to distribute the slots accordingly to 
increase the FTE resident caps for hospitals that fall within Ranking 
Criteria Four through Seven. However, to avoid duplicate FTE counting, 
we would only permanently assign the slots to the qualified hospitals 
falling within Ranking Criteria Four through Seven once the displaced 
residents have completed their training and their temporary cap 
adjustments have expired.
    In the August 3, 2010 proposed rule (75 FR 46424), we proposed to 
add new regulations text at Sec.  412.105(f)(1)(ix)(B)

[[Page 72225]]

for IME and Sec.  413.79(o)(2) for direct GME to reflect the provisions 
of section 5506 of the Affordable Care Act. In addition, we proposed 
some very minor changes to direct GME and IME existing text in order to 
clarify meaning and standardize the terminology that is used 
throughout.
    Comment: One commenter stated that CMS did not indicate in the 
proposed rule how the completion of displaced residents' training would 
be tracked and how this would effectuate the vacating of specific 
resident slots granted under Ranking Criteria Four through Eight. The 
commenter believed that it is ``critically important that valuable 
residency slots'' from closed hospitals that are not redistributed 
through Ranking Criteria One through Three should be redistributed to 
hospitals requesting a residency cap increase as quickly as possible. 
For this reason, the commenter recommended that CMS ensure that 
permanent resident cap increases awarded via Ranking Criteria Four 
through Eight are redistributed on an annual basis following the 
completion of their use for the purpose of supporting displaced 
residents.
    Commenters also opposed CMS' proposal to subject FTE resident slots 
received under section 5506 from a closed hospital to the three-year 
rolling average count and inclusion in the IRB ratio cap. The 
commenters expressed specific concern about this issue in situations in 
which CMS proposed to make temporary, displaced resident slots 
available immediately on a permanent basis as under Ranking Criteria 
One through Three. The commenters stated that taking in additional 
residents may be costly, particularly if a hospital is taking on an 
entire program or multiple programs, and therefore, the rolling average 
payment methodology and the IRB ratio cap should not apply to hospitals 
qualifying under Ranking Criterion One until the time the slot is 
awarded to the hospital on a permanent basis, or at the earliest, at 
the beginning of the hospital's next fiscal year.
    Response: On page 46424 of the August 3, 2010 proposed rule, we 
stated that we believe that it will only be necessary to delay 
permanent assignment of FTE cap slots in instances where if, after 
fulfilling the requests of hospitals that qualify to receive additional 
slots under Ranking Criteria One, Two, and Three, there are still 
excess slots available. In the case where an applying hospital fits 
within Ranking Criterion One, in the August 3, 2010 proposed rule (75 
FR 46424), we proposed to revise the existing regulations at Sec.  
413.79(h) limiting temporary cap adjustments for displaced residents by 
the number of FTE residents in the program(s) in which the applying 
hospital is operating seamlessly. We proposed to immediately assign 
permanently that number of FTE slots to the qualifying hospital. For 
example, if teaching hospital B assumes an entire internal medicine 
program with 20 FTEs from closed hospital A, no temporary FTE cap 
adjustment under Sec.  413.79(h) would be needed for those internal 
medicine residents, and teaching hospital B would immediately receive a 
permanent FTE resident cap increase of 20 FTE residents. Similarly, in 
the case where an applying hospital fits within Ranking Criterion Two, 
because the closed hospital had given slots to the applying hospital 
under an affiliation agreement, we proposed to immediately assign 
permanently that number of FTE slots to the qualifying hospital. For 
example, if teaching hospital D had received 30 FTE slots from closed 
hospital C under the terms of a Medicare GME affiliation agreement for 
the purposes of a shared rotational arrangement (as defined at Sec.  
413.75(b)) for a general surgery program, teaching hospital D would 
immediately receive a permanent FTE resident cap increase of 30 FTE 
residents, which would enable hospital D to continue to receive direct 
GME and IME payment for its share of training 30 general surgery 
residents. Lastly, in the case where an applying hospital fits within 
Ranking Criterion Three, we proposed to revise Sec.  413.79(h) to 
immediately assign permanently that number of FTE slots to the 
qualifying hospital. For example, if Hospital E takes in three FTE 
displaced residents in a family medicine program, and not only trains 
those three displaced residents until they complete their training, but 
permanently expands its existing family medicine program such that it 
will add three more FTEs in the place of three that completed their 
training, we would immediately assign three FTEs permanently to 
Hospital E, bypassing any temporary adjustment under Sec.  413.79(h). 
Accordingly, there would be no duplication of FTE slots when 
distributing slots to hospitals that qualify under the first three 
ranking criteria.
    In this final rule, we are making limited modification to our 
proposal regarding the overriding of the temporary cap adjustment 
regulations at Sec.  413.79(h) for Ranking Criteria One through Three. 
We had proposed that in each of these three Ranking Criteria, we would 
``immediately'' assign permanently the number of applicable slots to 
the qualifying hospital. However, we realize that taking in more 
residents may be costly for a hospital. We also want to implement 
section 5506 in a manner that is the most administratively feasible, 
particularly in terms of how the adjustments are to be reported on the 
Medicare cost report, while also distributing the slots and allowing 
them to take effect as soon as possible. Therefore, except for the case 
of a brand new hospital taking over a program(s), or an acquisition 
which we describe under the definition of ``hospital closure'' (75 FR 
46422), where the new owner receives a new provider agreement and 
operates the hospital exactly as it had been operated prior to the 
acquisition, we believe that it would still be appropriate to allow a 
hospital that ultimately would qualify to receive slots permanently 
under any of the ranking criteria and that took in displaced residents 
to receive temporary cap adjustments and, in a limited manner, 
exemptions from the rolling average and IRB ratio cap (subject to the 
regulations at Sec.  412.105(a)(1)(iii)). As a general rule, even if we 
do not make the determination as to which hospitals will receive the 
slots until sometime after the hospital closes, the effective date of 
the permanent cap adjustments to an applying hospital would be the date 
of the hospital's closure. However, for administrative ease, in that 
first cost reporting period in which the applying hospital takes in 
displaced residents and the hospital closure occurs, the applying 
hospital could receive a temporary cap adjustment, an exemption from 
the rolling average, and an exemption from the IRB ratio cap for the 
displaced residents. Then, as the commenters recommended, effective 
beginning with the cost reporting period following the one in which the 
hospital closure occurred, the applying hospital's permanent cap 
increase would take effect, and there would be no rolling average 
exemption (and no IRB ratio cap exemption in accordance with the 
existing regulations at Sec.  412.105(a)(1)(iii), which state that the 
exception from the IRB ratio cap applies only through the end of the 
first 12-month cost reporting period in which the receiving hospital 
trains the displaced FTE residents). If the hospital closure and CMS' 
determination as to whether a particular applying hospital receives a 
permanent cap increase occur within the same cost reporting period for 
the applying hospital, and the applying hospital takes in displaced 
residents, then again, the applying hospital could receive a temporary 
cap adjustment, an exemption from the

[[Page 72226]]

rolling average, and an exemption from the IRB ratio cap only until the 
end of that cost reporting period. Effective beginning with the 
following cost reporting period, the permanent cap would apply and 
there would be no exemption from the rolling average (or IRB ratio 
cap). Following is an example of how this policy regarding the 
effective date of the permanent cap increases and the exemption from 
the rolling average and IRB ratio cap would work under section 5506:
    Hospital Q closes on February 28, 2009. Hospital R, which has a 
December 31, 2009 fiscal year end (FYE), assumes Hospital Q's 
orthopedic program which is accredited for 6 positions, and 6 FTE 
residents are still training at Hospital Q at the time Hospital Q 
closes. Thus, these 6 FTEs are displaced and they transfer to Hospital 
R on March 1, 2009. Hospital R has an FTE resident cap of 50, and has 
been training approximately 50 FTEs for the past 3 years. Hospital R 
receives a temporary cap adjustment for the 6 displaced FTEs, which 
would equate to a prorated cap adjustment of 5 for the period between 
March 1, 2009 and December 31, 2009. For the IME calculation in its FYE 
December 31, 2009 cost report, Hospital R may add a prorated count of 5 
FTEs after the rolling average calculation to the numerator of its IRB 
ratio. Hospital R may also increase the numerator of its FYE December 
31, 2008 IRB ratio by 5 FTEs, so as not to be held to the IRB ratio cap 
(in accordance with the existing regulations at Sec.  
412.105(a)(1)(iii)). For the direct GME calculation in its FTE December 
31, 2009 cost report, Hospital R would also add 5 FTEs after the 
nonprimary care rolling average calculation. Thus, Hospital R's payment 
should reflect about 5 FTEs for IME and direct GME, respectively, in 
FYE December 31, 2009.
    The displaced orthopedic residents continue training at Hospital R 
in Hospital R's FYE December 31, 2010 and December 31, 2011 cost 
reporting periods (that is, these are not new orthopedic residents that 
Hospital R has recruited), and Hospital R has continued to report the 
displaced residents after the rolling average calculation on the 
Medicare cost report. On April 1, 2011, Hospital R applies for 6 slots 
under Ranking Criterion One. On November 5, 2011, CMS determines that 
Hospital R may receive a permanent increase to its cap of 6 FTEs, 
raising its FTE resident cap from 50 to 56. Hospital R continues to 
train approximately 50 other FTEs. Effective with its cost reporting 
period beginning on January 1, 2010, the permanent cap increase of 6 
takes effect, and the displaced orthopedic FTEs must be included in the 
rolling average calculation of the Medicare cost reports for FYE 
December 31, 2010 and December 31, 2011.
    As explained above, the policy is similar if the dates of the 
hospital closure and CMS's determinations of permanent cap assignments 
are in the same cost reporting period. For example, Hospital S closes 
on February 1, 2012. Hospital T, who has a December 31 FYE, assumes 
several programs and applies for slots under Ranking Criterion One. CMS 
determines that Hospital T receives a permanent cap increase on October 
1, 2012. Hospital T may receive a temporary cap adjustment, an 
exemption from the rolling average calculation, and an exemption from 
the IRB ratio cap on its FYE December 31, 2012 cost report. On its FYE 
December 31, 2013 cost report, Hospital T would report a permanent cap 
increase and any remaining displaced residents would be included in the 
rolling average calculation. During the process of reviewing the 
applications for slots after a hospital closes, be it for hospitals 
that have already closed between March 23, 2008 and August 3, 2010 (the 
first round of applications), or for future hospital closures, we would 
still assign the slots to hospitals qualifying under Ranking Criteria 
One, Two, and Three in descending order. We agree with the commenter 
that it is very important that the residency slots from closed 
hospitals that are not redistributed through Ranking Criteria One 
through Three should be redistributed to hospitals requesting a 
residency cap increase as quickly as possible.
    The commenter recommended that CMS ensure that permanent resident 
cap increases awarded via Ranking Criteria Four through Eight are 
redistributed on an annual basis following the completion of their use 
for the purpose of supporting displaced residents. First, we note that 
in this final rule, we have consolidated and reduced the number of 
Ranking Criteria from Eight to Seven. The slots that we would be 
distributing could be based on slots attributable to displaced 
residents for which the temporary cap adjustments to their receiving 
hospitals would expire upon graduation of those residents from their 
programs. We would have to hold these slots in reserve, and release 
them for permanent assignment to qualifying hospitals on an annual 
basis, as the commenter suggests, as each of those residents graduates. 
With each hospital closure, we will request and receive information 
from the closed hospital if possible, from the Medicare contractors, 
and the hospitals that take in the displaced residents, regarding, at a 
minimum, the FTE number of residents that are displaced, the programs 
the residents are in, and the program year in which each resident was 
at the time of the hospital closure, which would help us determine the 
number of years each displaced resident has to complete his or her 
training. Using this information, at the time that we are reviewing the 
applications, we will determine the point (typically July 1) at which 
each qualifying hospital will receive the FTEs permanently, and we will 
inform the qualifying hospital that effective with a certain graduation 
date, possibly in the past, but likely in the future, the qualifying 
hospital's FTE resident caps would be permanently increased by a 
specified number, as appropriate. When that graduation date arrives, 
the permanent cap increase will occur automatically for the qualifying 
hospital--the hospital need not wait for further adjudication by CMS. 
Depending on the length of the particular program and the number of 
years left for the displaced residents to train, it may take several 
years (that is, several graduation dates) until a hospital receives its 
full cap increase under section 5506. In this way, although some 
hospitals will not receive their total permanent cap increases 
``immediately,'' they will at least know the date(s) in the future that 
they will receive their permanent cap adjustments, and those cap 
adjustments will occur automatically. Of course, because residents who 
are closer to the completion of their program at the time they are 
displaced by the hospital closure will graduate sooner than those 
residents closer to the beginning of their training, their FTE slots 
are more ``valuable.'' We would assign the slots of those residents 
graduating sooner to those hospitals ranked higher, in descending 
order.
    The following example illustrates how the permanent assignment of 
slots would be effectuated when displaced residents are involved. 
Hospital G has an FTE resident cap of 8 and closes on December 31, 
2010. It had 8 residents in an internal medicine program. Hospital J 
currently has an internal medicine program with 15 residents, and wants 
to expand it permanently, and on January 1, 2011, Hospital J expands 
its internal medicine program and seamlessly assumes 5 internal 
medicine residents from Hospital G. The remaining 3 internal medicine 
residents are accepted by hospitals in various locations solely to 
complete their training. In the section 5506 application process, 
Hospital J is located in the same CBSA as Hospital G and it applies for 
5 slots and qualifies

[[Page 72227]]

to receive those slots under Ranking Criterion Three. Assume CMS 
determines on January 1, 2012 that Hospital J may receive those slots 
permanently. Hospital J has a September 30 FYE. Hospital J had been 
receiving temporary cap adjustments and the exemption from the rolling 
average and the IRB ratio cap for the 5 FTEs for its cost reporting 
period ending September 30, 2011. On January 1, 2012, the FTE cap 
adjustment is permanent for Hospital J's entire FYE September 30, 2012 
cost report, and the exemption from the rolling average does not apply 
to Hospital J's FYE September 30, 2012 cost report. Of the 3 displaced 
residents, John Doe, was a PGY1 when Hospital G closed, and is expected 
to graduate on June 30, 2013. Jane Doe was a PGY2 and is expected to 
graduate on June 30, 2012. Kreshen Doe was a PGY3 and is expected to 
graduate on June 30, 2011. Hospital M is also located in the same CBSA 
as Hospital G, which is a HPSA, and applies to receive 1 slot under 
Ranking Criterion Five to expand a primary care program. Hospital N is 
located in a CBSA that is contiguous to the CBSA that Hospital G is 
located in, it is not located in a HPSA, and is requesting 1 slot under 
Ranking Criterion Six to expand a primary care program. Hospital P is 
located in the same State but not the same CBSA as Hospital G, and 
applies under Ranking Criterion Four for 1 slot to start a geriatrics 
fellowship.
    On January 1, 2012, CMS determines that Hospital M receives the 
slot associated with PGY3 Kreshen Doe, who finished his training at 
another hospital on June 30, 2011. (The hospital that took in Kreshen 
Doe until he finished his training received a temporary cap adjustment 
under Sec.  413.79(h), which ended on June 30, 2011). Thus, Hospital 
M's permanent FTE cap increase is effective July 1, 2011. On January 1, 
2012, CMS also determines that Hospital N will receive the slot 
associated with PGY2 Jane Doe, and we inform Hospital N that its FTE 
cap will increase permanently effective July 1, 2012. Finally, on 
January 1, 2012, CMS determines that Hospital P will receive the slot 
associated with PGY1 John Doe, and we inform Hospital P that its FTE 
cap will increase permanently effective July 1, 2013. (We note that 
this example is for illustrative purposes only and we are not implying 
that all cap determinations and assignments would be made according to 
the timeline used in this example).
    The example above described how the slots would be awarded 
permanently on an annual basis under Ranking Criteria Four through 
Seven in the instance where temporary cap increases are being used in 
accordance with Sec.  413.79(h) by various hospitals and we would need 
to ensure that those residents graduated before permanently assigning 
the slots to avoid duplication in the FTE caps. In the scenario where a 
hospital closes but for whatever reason, there are no hospitals that 
receive temporary cap adjustments under Sec.  413.79(h), the effective 
date of the permanent cap increases would be prospectively from the 
date of the determination. For example, a hospital closes on April 30, 
2013. Another hospital applies under Ranking Criterion Six and will use 
all the requested slots to start a general surgery program. The 
hospital shows that it can meet the demonstrated likelihood 
requirements to fill those slots. We determine on January 15, 2014 that 
the hospital may receive the slots, and its permanent cap increase is 
effective on January 15, 2014.
    We will be making changes to the Medicare cost report, Worksheet E, 
Part A for IME, and Worksheet E-3, Part IV for direct GME, (and 
Worksheet E-4, the direct GME worksheet on CMS-2552-10), to accommodate 
the increases to the FTE resident caps of hospitals that receive slots 
under section 5506.
    Comment: One commenter support CMS' implementation of the 
Congressional mandate that there be no duplication of FTE cap slots as 
provided at section 5506(d). The commenter asked that the Secretary 
give greater priority to hospitals that could have availed themselves 
of the application of temporary cap adjustments at Sec.  413.79(h) but 
did not because, in this instance, there is ``good assurance'' that 
there is no duplication of FTE slots.
    Response: We believe that the commenter misunderstood the 
Congressional mandate that there be no duplication of FTE slots as 
provided at section 5506(d). This Congressional mandate applies not 
only to the hospital applying for slots or that took over the program, 
but rather it applies across all hospitals. It is important to note 
that although the commenter's hospital may not have availed itself to 
temporary cap adjustments at Sec.  413.79(h), other hospitals may have 
taken in residents and received temporary cap adjustments for the same 
program. Therefore, slots associated with that program cannot be 
distributed permanently until it is known that any and all temporary 
cap adjustments for those slots have expired.
    After consideration of public comments we received, we are revising 
our proposal regarding the application of the rolling average and the 
IRB ratio cap. Specifically, except for the case of a brand new 
hospital taking over a program(s), or an acquisition which we describe 
under the definition of ``hospital closure'' (75 FR 46422), where the 
new owner receives a new provider agreement and operates the hospital 
exactly as it had been operated prior to the acquisition, we believe 
that it would still be appropriate to allow a hospital that ultimately 
would qualify to receive slots permanently under any of the ranking 
criteria and that took in displaced residents to receive temporary cap 
adjustments and, in a limited manner, exemptions from the rolling 
average and IRB ratio cap (subject to the regulations at Sec.  
412.105(a)(1)(iii)), as discussed above.
8. Other Payment Issues Regarding Hospitals that Receive Increase in 
FTE Caps Based on Slots from Closed Hospitals
    In the proposed rule, we noted that section 1886(h)(4)(H)(vi) of 
the Act, as added by the Affordable Care Act, makes no reference to 
section 1886(h)(4)(G) or 1886(d)(5)(B)(vi)(II) of the Act, which are 
the provisions concerning the rolling average count of FTE residents. 
Furthermore, there is no mention of section 1886(d)(5)(B)(vi)(I) of the 
Act, the provision regarding the cap on the IME resident-to-bed ratio, 
in section 1886(h)(4)(H)(vi) either. That is, the statute does not 
provide for an exclusion from application of the rolling average for 
residents counted as a result of FTE cap increases under section 
1886(h)(4)(H)(vi) of the Act, nor does the statute exempt these 
residents from the application of the cap on the IME resident-to-bed 
ratio. In light of the absence of a specific directive in section 
1886(h)(4)(H)(vi) of the Act exempting those residents from application 
of the rolling average for direct GME and IME, and the cap on the IME 
resident-to-bed ratio, and with no apparent reason to treat residents 
counted as a result of the FTE cap increases under section 
1886(h)(4)(H)(vi) of the Act differently, in the August 3, 2010 
proposed rule (75 FR 46425), we proposed to require that if a hospital 
increases its direct GME or IME FTE count of residents as a result of 
an FTE resident cap increase under section 1886(h)(4)(H)(vi) of the 
Act, those FTE residents would be immediately subject to the rolling 
average calculation and the cap on the IME resident-to-bed ratio.
    We also note that section 1886(h)(4)(H)(vi) of the Act for direct 
GME and section 1886(d)(5)(B)(v) of the Act for IME does not specify 
use of a special direct GME PRA or IME multiplier for residents counted 
by a hospital under an FTE cap increase

[[Page 72228]]

received after the closure of another hospital. Therefore, we proposed 
that residents counted by a hospital under a permanent adjustment to 
the hospital's FTE resident caps under the provisions of section 5506 
of the Affordable Care Act would be paid for using the receiving 
hospital's otherwise applicable direct GME PRA (which is hospital-
specific) and IME multiplier (which is the same for all hospitals). 
(Further, as we proposed with respect to FTE resident cap increases 
awarded under section 5503 (section XXI.D. of this preamble), we 
proposed that these slots may not be used as part of the aggregate FTE 
resident cap under a Medicare GME affiliation agreement. However, as we 
explained in response to comments above, we are allowing slots awarded 
under section 5506 to be included in a Medicare GME affiliation 
agreement after a 5-year period).
    Comment: Commenters opposed CMS' proposal to subject FTE resident 
slots received under section 5506 from a closed hospital to the three-
year rolling average count and inclusion in the IRB ratio cap under 
Ranking Criteria One through Three.
    Response: As we explained above in response to comments under the 
``No Duplication of FTE Slots'' section, in this final rule, we are 
modifying our proposed position regarding the rolling average and the 
IRB ratio cap. Specifically, except for the case of a brand new 
hospital taking over a program(s), or an acquisition which we describe 
under the definition of ``hospital closure'' (75 FR 46422), where the 
new owner receives a new provider agreement and operates the hospital 
exactly as it had been operated prior to the acquisition, we believe 
that it would still be appropriate to allow a hospital that ultimately 
would qualify to receive slots permanently under any of the Ranking 
Criteria and that took in displaced residents to receive temporary cap 
adjustments and, in a limited manner, exemptions from the rolling 
average and IRB ratio cap (subject to the regulations at Sec.  
412.105(a)(1)(iii)).
    Comment: Two commenters requested clarification regarding which 
direct GME PRA and IME intern-and-resident to bed (IRB) ratio cap would 
be used for the hospital assuming the programs of the closed hospital, 
particularly if the hospital assumed all of the residency programs from 
the closed hospital.
    Response: In the case where a hospital assumes the programs of a 
closed hospital, and seamlessly operates those programs on the same 
site as the closed hospital, but did not assume the provider agreement 
of the closed hospital, it is then a new hospital, and therefore does 
not have its own PRA or resident and bed history for use in the IRB 
ratio cap. A new PRA would have to be calculated in accordance with 
regulations at Sec.  413.77(e), and the IRB ratio cap would not apply 
for the new hospital's first cost reporting period under Sec.  
412.105(f), but would apply for the hospital's second cost reporting 
period. Furthermore, in the new hospital's first cost reporting period, 
there would be no rolling average calculation, and in the second cost 
reporting period, there would be a 2-year rolling average calculation. 
In the third cost reporting period, the rolling average would be based 
on three years of cost report data. However, in the case where a 
hospital assumes one or more programs and does not operate them on the 
site of the closed hospital, but instead operates the program(s) on the 
site of its own hospital, then the PRA of the applying hospital would 
be used, and the bed counts and FTE counts of the applying hospital 
would be used in the IRB ratio cap calculation.
9. Other Comments and Responses Regarding Section 5506
    Comment: Two commenters noted that section 5506 appears to be 
silent as to whether, if a closed hospital also received slots under 
section 422 of the MMA, those 422 slots are subject to redistribution 
under section 5506 along with the closed hospital's 1996 FTE resident 
cap slots. The commenters believed Congress intended for all residency 
cap slots to be redistributed from a closed hospital including section 
422 slots. One commenter recognized that the IME adjustment and the 
direct GME Per Resident Amount to be used for section 422 cap slots 
differs from the rates used for regular cap slots, which could make the 
422 cap slots less attractive to qualifying hospitals. Therefore, the 
commenter encouraged CMS to consider distributing the 422 slots last 
(to hospitals lower in the priority order).
    Response: We agree with the commenter. In implementing section 
1886(h)(4)(H)(vi)(IV) of the Act, we proposed to interpret ``the number 
of resident positions'' to mean the number that is equal to the IME and 
direct GME FTE resident caps of a hospital that closed, or will close. 
Because section 422 of the MMA provided many hospitals with additional 
IME and/or direct GME FTE resident cap slots, those additional cap 
slots will also be subject to redistribution under section 5506. As the 
commenter mentioned, the IME adjustment and the direct GME PRA used for 
section 422 cap slots differs from the rates used for regular cap 
slots, making the section 422 cap slots ``less attractive'' to 
qualifying hospitals. Accordingly, we agree with the commenter's 
suggestion to distribute section 422 slots only after all regular cap 
slots from the closed hospital are assigned for redistribution. 
However, hospitals that receive section 422 slots under section 5506 
would be paid for those slots using the section 422 direct GME PRA and 
IME multiplier. If a hospital that closes has both regular FTE caps and 
section 422 caps, we envision the redistribution of all those cap slots 
in the following method. We would review and rank the applications and 
assign as many regular slots as we can to qualifying hospitals based on 
the ranking order, in a descending manner. Once the regular slots are 
all assigned, we would then assign all the section 422 slots, 
continuing to follow the ranking priorities in descending order. If the 
remaining number of requests for slots from qualified hospitals of 
equal rank exceeds the amount of section 422 cap slots available, we 
would prorate the remaining section 422 slots among those equally 
ranked hospitals (the same way we would prorate the remaining regular 
FTE cap slots in the instance where a closed hospital only had regular 
FTE cap slots but the requests exceed the number of regular FTE cap 
slots available). We would prorate as follows: [(total number of 
available slots remaining/total number of requested slots remaining) x 
number of slots requested by Hospital A] and [(number of slots 
remaining/total number of requested slots remaining) x number of slots 
requested by Hospital B] and so forth.
    It could also be possible that, in distributing the slots from a 
single closed hospital that had section 422 cap slots, there may not be 
sufficient regular cap slots to satisfy all the requests from hospitals 
of equal rank, in which case we would have to prorate both the regular 
cap slots and the section 422 cap slots. For example, assume Closed 
Hospital had a 1996 FTE cap of 50, and a section 422 FTE cap of 25. 
After ranking all the applicants, we assign 40 of the slots to 
qualified hospitals without any proration. Ten of the 1996 FTE cap 
slots remain, while requests for 50 slots from Hospitals Y and Z of 
equal rank still remain as well. Hospital Y requested and qualifies for 
30 slots and Hospital Z requested and qualifies for 20 slots. In this 
case, we would prorate and assign the remaining ten 1996 FTE cap slots 
as follows: [(total number of available 1996 slots remaining/total 
number of requested slots remaining) x number of slots requested by 
Hospital

[[Page 72229]]

Y] and [(total number of available 1996 slots remaining/total number of 
requested slots remaining) x number of slots requested by Hospital Z] 
etc. In this example, this would mean: [(10/50) x 30] = 6 of the 1996 
slots for Hospital Y, and [(10/50) x 20] = 4 of the 1996 slots for 
Hospital Z. Thus, only 10 out of the 50 requested slots have been 
assigned to Hospitals Y and Z (Hospital Y has 24 requested slots 
unfulfilled, and Hospital Z has 16 of its requested slots unfulfilled), 
and there are still 25 section 422 cap slots available. We would 
prorate the 25 section 422 slots to Hospitals Y and Z as follows: 
[(number of section 422 slots remaining/total number of requested slots 
remaining) x remaining number of slots requested by Hospital Y] and 
[(number of section 422 slots remaining/total number of requested slots 
remaining) x remaining number of slots requested by Hospital Z]. In 
this example, this would mean: [(25/40) x 24] = 15 of the section 422 
slots for Hospital Y, and [(25/40) x 16] = 10 of the section 422 slots 
for Hospital Z.
    It is also important to consider how the redistribution process 
would work in the instance where a hospital that closes is training 
residents above its FTE caps at the time it closes, and there are 
multiple hospitals that assume an entire program or programs from that 
closed hospital. In such a case, not only will the number of requested 
slots from all applicants exceed the amount of FTEs in the FTE caps of 
the hospital that closed, but the number of FTE residents that are 
being assumed also exceeds the closed hospital's FTE caps. For example, 
a closed hospital was training 700 FTE residents, but its FTE resident 
cap was 500. Hospital K assumes the entire program for 680 FTEs, and 
Hospital L assumes one program of 20 FTEs. Both hospitals qualify under 
Ranking Criterion One. As a first step, before we begin to assign any 
slots to the qualified applicants, we would first prorate each of the 
qualified applicants' requests. We would then prorate the closed 
hospital's IME and direct GME FTE caps as follows:

Hospital K: (680 FTEs assumed/700 total FTEs) x closed hospital's FTE 
resident cap of 500 = 485.71 slots.
Hospital L: (20 FTEs assumed/700 total FTEs) x closed hospital's FTE 
resident cap of 500 = 14.29 slots.
485.71 + 14.29 = 500.

    Comment: One commenter stated that they understand that by law they 
can only receive a permanent cap for interns and residents from 
hospitals that closed or close on or after March 23, 2008. However, the 
commenter recommended that in future rulemaking CMS should take into 
consideration hospitals that have consistently taken in interns and 
residents from closed hospitals (and are over their cap) prior to March 
23, 2008 and make those temporary cap adjustments into permanent caps.
    Response: We appreciate this suggestion to consider hospitals that 
have consistently taken in interns and residents from closed hospitals 
prior to March 23, 2008 in future rulemaking. However, as noted by the 
commenter, CMS is bound by statute in this instance and thus can only 
make permanent cap adjustments as a result of hospitals that have 
closed on or after March 23, 2008.
    Comment: Commenters asked CMS to clarify whether a nonteaching 
hospital that takes displaced residents and receives permanent cap 
slots through the closed hospital redistribution program may still 
start a new program under Sec.  413.79(e) and proceed through the 
normal 3-year process of building a permanent resident cap.
    Response: Whether a nonteaching hospital could receive slots under 
section 5506 and still not be precluded from still qualifying for a new 
program cap adjustment under Sec.  413.79(e) depends upon which ranking 
criteria the hospital applies for slots under 5506. In the instance 
where a non-teaching hospital is assuming entire program(s) and 
receives a permanent cap increase for the program(s) under Ranking 
Criterion One, we do not believe that hospital should still have the 
opportunity to receive a further cap increase under Sec.  413.79(e). 
Such a hospital should decide whether it wants to assume an entire 
existing program(s) from a closed hospital and receive slots under 
section 5506, or whether it wants to reserve its rights to start new 
programs and therefore, not request (and receive) slots under section 
5506. Nonteaching hospitals that would qualify to request slots under 
the other ranking criteria could still qualify to start new programs 
and receive a cap increase under Sec.  413.79(e). In general, we note 
that if a non-teaching hospital is simply interested in starting a new 
program and qualifies for a new program cap adjustment under Sec.  
413.79(e), the non-teaching hospital should not be applying for slots 
under 5503 or 5506 for the FTEs in the new program, because there is no 
need for it to do so. It would receive slots under the normal mechanism 
for new teaching hospitals, in accordance with the regulations at Sec.  
413.79(e).
    Comment: One commenter stated that CMS should clearly specify that 
a hospital operating below its cap at the time it began training 
displaced residents, and thus did not receive a temporary increase in 
its cap under the existing rules, would be considered under section 
5506. The commenter noted that a hospital may subsequently implement a 
plan to expand enrollment in its existing program, causing it to 
operate above its cap. The commenter expressed that this concern is 
particularly salient for New York hospitals that participated in the 
New York Medicare GME Demonstration Program.
    Response: All hospitals requesting slots under section 5506 will be 
considered when distributing slots from a closed hospital. It is quite 
possible that a hospital could qualify for a cap adjustment under 
section 5506 even if it did not receive a temporary cap increase at the 
time it began training displaced residents, because at that time, it 
had room below its caps. A hospital that accepted displaced residents 
in the past from a hospital or program that closed would only have been 
eligible to receive a temporary cap adjustment if it was already 
training residents in excess of its caps. Subsequent to accepting those 
displaced residents, the hospital may decide to permanently expand the 
number of residents it is training to an amount in excess of its caps. 
If such a hospital can show a demonstrated likelihood to fill slots 
within 3 years, and if the applying hospital can show that it is 
expanding in excess of its caps, then the applying hospital could apply 
under section 5506, but only for the incremental amount in excess of 
its caps that is needed. It is important to note, therefore, that a 
hospital that currently has room under its caps to expand its program 
to a level that it desires would not be considered for receipt of 
additional slots under section 5506.
10. Application--No Reopening of Settled Cost Reports
    Section 5506(c) of the Affordable Care Act specifies that the 
changes made by the provisions of sections 5506(a) and (b) should not 
be applied in a manner that would require the reopening of settled cost 
reports for which there is not a jurisdictionally proper appeal pending 
on direct GME or IME payments as of March 23, 2010 (the date of the 
enactment of Pub. L. 111-148). In the August 3, 2010 proposed rule (75 
FR 46425), we proposed to reflect this provision in the proposed 
revisions under Sec.  412.105(f)(1)(ix)(B) and Sec.  413.79(o)(2)(ii) 
of the regulations. We proposed to interpret ``jurisdictionally proper 
appeal pending'' on direct GME or IME payments to mean that in order 
for a hospital to request a change to its FTE count, direct GME or IME

[[Page 72230]]

respectively, the ``jurisdictionally proper appeal pending'' must be 
specific to direct GME or IME respectively. For example, in order for a 
hospital to increase its FTE count with regard to an Affordable Care 
Act provision that is unique to IME (such as inclusion in the IME count 
of didactic time occurring in the hospital as specified by new section 
1886(d)(5)(B)(x)(II) of the Act), the hospital's ``jurisdictionally 
proper appeal pending'' must be on an IME issue; IME FTEs or the 
available bed count. However, if the hospital's ``pending, 
jurisdictionally proper appeal'' is on an issue that only affects 
direct GME payments, such as the initial residency period or the 
Medicare patient load, that appeal would not be sufficient in order for 
the hospital to increase its FTE count with regard to an Affordable 
Care Act provision that is unique to IME, such as didactic time in the 
hospital setting.
    We did not receive any public comments specific to this section. 
However, after reviewing public comments received regarding the ``No 
Duplication of FTE Slots'' proposal, and the timing and effective dates 
of slots awarded permanently under section 5506, we have reconsidered 
the manner in which we interpreted section 5506(c) of the Affordable 
Care Act. Because section 5506 was enacted on March 23, 2010, and 
instructs the Secretary to redistribute slots from teaching hospitals 
that closed on or after March 23, 2008, there are some retroactive 
aspects to this provision. Furthermore, as we explained in response to 
comments above in the section on ``No Duplication of FTE Slots,'' there 
are instances where we would determine that an applying hospital's FTE 
resident cap would increase permanently effective with the fiscal year 
begin date of the cost reporting period that follows the cost reporting 
period in which the closure occurred. In contemplating the meaning and 
implications of section 5506(c), we have considered that, particularly 
for closures that occurred in 2008 or 2009, it is possible that those 
cost reporting periods are closed, and 180 days since the Notice of 
Program Reimbursement (NPR) was issued has passed as well. Section 
5506(c) states that the provision should not be applied in a manner 
that would require the reopening of settled cost reports for which 
there is not a pending, jurisdictionally proper appeal on direct GME or 
IME payments as of March 23, 2010. Therefore, section 5506(c) reminds 
the Secretary that in the absence of an appeal on the 2008 or 2009 cost 
report of the applying hospital, the Medicare contractor would not 
assign a permanent cap increase to cost reports that are beyond the 
180-day appeal period. Instead, the permanent cap increase would take 
effect on the next cost report that has not yet been settled.
11. No Administrative or Judicial Review Under Section 5506
    We inadvertently omitted a discussion from the proposed rule 
regarding section 5506(e), which amended section 1886(h)(7)(E) of the 
Act (as also amended by section 5503(a)) to state, ``There shall be no 
administrative or Judicial review * * * with respect to determinations 
made under this paragraph, paragraph (8), or paragraph (4)(H)(vi).'' 
The fact that Congress included this language clearly means that the 
Congress intended for our determination with regard to FTE resident cap 
redistributions under section 1886(h)(4)(H)(vi) of the Act as added by 
section 5506(a) to be final, and not subject to appeal. Because of this 
statutory language, we do not believe it would be appropriate to allow 
hospitals (or CMS) to appeal determinations concerning the FTE cap 
redistributions under section 1886(h)(4)(H)(vi) of the Act.

        List of Teaching Hospitals That Have Closed On or After March 23, 2008 and Before August 3, 2010
----------------------------------------------------------------------------------------------------------------
                                                                                  Sec. 422   Sec. 422
                                             Terminating                         Increase/  Increase/
    Provider No.         Provider name          date        DGME cap   IME cap    decrease   decrease     CBSA
                                                                                    DGME       IME
----------------------------------------------------------------------------------------------------------------
01-0064.............  Physicians Carraway      11/01/2008      65.08      65.08       -4.5       -4.5      13820
                       Medical Ctr.
03-0017.............  Mesa General             05/31/2008      20.52      13.33       0.00       0.00      38060
                       Hospital.
14-0075.............  Michael Reese            06/11/2009     199.52     200.82       0.00       0.00      16974
                       Hospital.
15-0029.............  St. Joseph Hospital      07/01/2008      13.43       7.68      -3.79      -1.23      43780
                       Mishawaka.
19-3034.............  Touro                    12/31/2009       3.20       2.99       0.00       0.00      35380
                       Rehabilitation
                       Center.
26-4011.............  Mid-Missouri Mental      06/30/2009       5.33       1.25       0.00       0.00      17860
                       Health Center.
31-0063.............  Muhlenberg Regional      08/13/2008      30.17      30.17       0.00       0.00      35620
                       Medical Center.
31-0088.............  William B Kessler        03/12/2009       2.00       2.00       0.00       0.00      12100
                       Memorial Hospital.
33-0133.............  Cabrini Medical          06/16/2008     134.01      124.1     -21.36     -23.83      35644
                       Center.
33-0357.............  Caritas Health           03/06/2009     190.23     190.23      -9.40      -9.40      35644
                       Care, Inc.
33-0390.............  North General            07/10/2010      57.17      54.29      -6.23      -4.08      35644
                       Hospital.
39-0023.............  Temple East              06/28/2009       2.36       2.36       0.00       0.00      37964
                       Hospital.
39-0169.............  Geisinger South          07/10/2009       4.00       3.33       0.98       1.67      42540
                       Wilkes-Barre.
42-0006.............  Charleston Memorial      11/25/2008      40.88      40.83       0.00       0.00      16700
                       Hospital.
----------------------------------------------------------------------------------------------------------------

BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C

Application Process and CMS Central Office and Regional Office Mailing 
Addresses for Receiving Increases in FTE Resident Caps

    In order for hospitals to be considered for increases in their FTE 
resident caps, each qualifying hospital must submit a timely 
application. The following information must be submitted on 
applications to receive an increase in FTE resident caps:
    <bullet> The name and Medicare provider number, and Medicare 
contractor (to which the hospital submits its cost report) of the 
hospital.
    <bullet> The total number of requested FTE resident slots for 
direct GME or IME, or both.
    <bullet> A completed copy of the CMS Evaluation Form for each 
residency program for which the hospital intends to use the requested 
increase in FTE residents.
    <bullet> Source documentation to support the assertions made by the 
hospital on the CMS Evaluation Form.
    <bullet> FTE resident counts for direct GME and IME and FTE 
resident caps for direct GME and IME reported by the hospital in the 
most recent as-filed cost report. (Include copies of Worksheets E, Part 
A, E-3, Part IV, and if a hospital received an increase to its FTE 
cap(s) under section 422 of the MMA, a copy of E-3, Part VI).
    <bullet> An attestation, signed and dated by an officer or 
administrator of the hospital who signs the hospital's Medicare cost 
report, of the following information:
    ``I hereby certify that I understand that misrepresentation or 
falsification of any information contained in this application may be 
punishable by criminal, civil, and administrative action, fine and/or 
imprisonment under federal law. Furthermore, I understand that if 
services identified in this application were provided or procured 
through payment directly or indirectly of a kickback or were otherwise 
illegal, criminal, civil, and administrative action, fines and/or 
imprisonment may result. I also certify that, to the best of my 
knowledge and belief, it is a true, correct, and complete application 
prepared from the books and records of the hospital in accordance with 
applicable instructions, except as noted. I further certify that I am 
familiar with the laws and regulations regarding Medicare payment to 
hospitals for the training of interns and residents.''
    The completed application and supporting documentation (as 
described above) must be submitted to the CMS Central Office and the 
CMS Regional Office for the region in which the applicant hospital is 
located. The addresses of the CMS Central Office and Regional Offices 
are listed below.

CMS Central and CMS Regional Office Mailing Addresses for Applications 
for Increases in FTE Resident Caps

Central Office

Centers for Medicare and Medicaid Services (CMS), Director, Division of 
Acute Care, 7500 Security Boulevard, Mail Stop C4-08-06, Baltimore, 
Maryland 21244, (410) 786-4548.
Region I (Connecticut, Maine, Massachusetts, New Hampshire, Rhode 
Island, and Vermont)
Centers for Medicare and Medicaid Services (CMS), Associate Regional 
Administrator, Division of Financial Management and Fee for Service 
Operations, Region I, JFK Federal Building, Room 23275, Boston, MA 
02203, Phone: (617) 565-1331.
Region II (New York, New Jersey, U.S. Virgin Islands, and Puerto Rico)
Centers for Medicare and Medicaid Services (CMS), Associate Regional 
Administrator, Division of Financial Management and Fee for Service 
Operations, Region II, 26 Federal Plaza, 38th Floor, New York, NY 
10278, Phone: (212) 616-2545.
Region III (Delaware, Maryland, Pennsylvania, Virginia and West 
Virginia, and the District of Columbia)
Centers for Medicare and Medicaid Services (CMS), Associate Regional 
Administrator, Division of Financial Management and Fee for Service 
Operations, Region III, Public Ledger Building, Suite 216, 150 South 
Independence Mall West, Philadelphia, PA 19106, Phone: (215) 861-4140.
Region IV (Alabama, North Carolina, South Carolina, Florida, Georgia, 
Kentucky, Mississippi, and Tennessee)
Centers for Medicare and Medicaid Services (CMS), Associate Regional 
Administrator, Division of Financial Management and Fee for Service 
Operations, Region IV, Atlanta Federal Center, 61 Forsyth Street, SW., 
Suite 4T20, Atlanta, GA 30303-8909, Phone: (404) 562-7300.
Region V (Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin)
Centers for Medicare and Medicaid Services (CMS), Associate Regional 
Administrator, Division of Financial Management and Fee for Service 
Operations, Region V, 233 North Michigan Avenue, Suite 600, Chicago, IL 
60601, Phone: (312) 886-6432.

[[Page 72238]]

Region VI (Arkansas, Louisiana, New Mexico, Oklahoma, and Texas)
Centers for Medicare and Medicaid Services (CMS), Associate Regional 
Administrator, Division of Financial Management and Fee for Service 
Operations, Region VI, 1301 Young Street, Suite 714, Dallas, TX 75202, 
Phone: (214) 767-6423.
Region VII (Iowa, Kansas, Missouri, and Nebraska)
Centers for Medicare and Medicaid Services (CMS), Associate Regional 
Administrator, Division of Financial Management and Fee for Service 
Operations, Region VII, Richard Bolling Federal Building, Room 235, 601 
East 12th Street, Kansas City, MO 64106, (816) 564-1843.
Region VIII (Colorado, Montana, North Dakota, South Dakota, Utah and 
Wyoming)
Centers for Medicare and Medicaid Services (CMS), Associate Regional 
Administrator, Division of Financial Management and Fee for Service 
Operations, Region VIII, Colorado State Bank Building, 1600 Broadway, 
Suite 700, Denver, CO 80202, Phone: (303) 844-2111.
Region IX (Arizona, California, Hawaii, and Nevada and Territories of 
American Samoa, Guam and the Commonwealth of the Northern Mariana 
Islands)
Centers for Medicare and Medicaid Services (CMS), Associate Regional 
Administrator, Division of Financial Management and Fee for Service 
Operations, Region IX, 90 7th Street, Suite 5-300 (SW), San Francisco, 
CA 94103-6708, Phone: (415) 744-3501.
Region X (Alaska, Idaho, Oregon, and Washington)
Centers for Medicare and Medicaid Services (CMS), Associate Regional 
Administrator, Division of Financial Management and Fee for Service 
Operations, Region X, 2201 Sixth Avenue, MS/RX-46, Seattle, WA 98121, 
Phone: (206) 615-2094.

F. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and to solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
    <bullet> The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    <bullet> The accuracy of our estimate of the information collection 
burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    In the August 3, 2010 proposed rule (75 FR 46436), we solicited 
public comments on each of the issues outlined above on the GME and IME 
provisions discussed in section XVII. Of the proposed rule (now 
discussed in sections XXI.A. through E. of this final rule) that 
contained information collection requirements, as discussed below.
    Existing regulations at Sec.  413.78 outline the requirements for 
the determination of the total number of FTE residents in determining 
direct GME payments to hospitals. Section XVII.B.3. of the preamble of 
the proposed rule (now section XXI.B.3. of this final rule) discussed 
the requirement for hospitals that share the costs of resident training 
in nonprovider settings, as permitted by the Affordable Care Act, to 
count a proportional share of the time and to record that proportion in 
a written agreement. We proposed that this proportion must be included 
on a distinct written agreement even for hospitals that have been 
paying nonprovider sites concurrently without a written agreement as 
described in existing regulations. The burden associated with this 
requirement is the time and effort put forth by the hospital to prepare 
a written agreement. We estimate it would take one hospital 15 minutes 
to meet this requirement. Hospitals that already have a written 
agreement with a nonprovider site may include the proportion on that 
existing agreement.
    In section XVII.B.4. of the preamble of the proposed rule (now 
section XXI.B.4. of this final rule), we discussed the requirement 
under the Affordable Care Act for hospitals to maintain records of the 
amount of time that their residents spend training in nonprovider 
sites, and to compare that time to the time spent by their residents in 
nonprovider sites in a base year as the Secretary may specify. We 
believe that a large part of the information that hospitals would be 
required to record for the purposes of this provision is contained in 
rotation schedules, which all hospitals are already required to 
maintain. Therefore, we do not believe that this requirement poses an 
undue administrative burden for the purposes of the PRA.
    Existing regulations at Sec.  412.105 and Sec.  413.79 outline the 
requirements for the determination of the number of FTE residents for 
IME payments to hospitals and the weighted number of FTE residents for 
direct GME payments to hospitals. In sections XVII.B.4. and 5. of the 
preamble of the proposed rule (now sections XXI.B.4. and 5. of this 
final rule), we discussed our proposals that a hospital seeking an 
adjustment to its FTE resident cap under section 5503 or section 5506 
of the Affordable Care Act must provide documentation justifying the 
adjustment. Sections XVII.D. and E. of the preamble of the proposed 
rule specified the information that a request would have to include. 
These requirements are exempt from the PRA in accordance with the 
provisions of the Affordable Care Act.
    We did not receive any public comments on these information 
collection requirements.

G. Regulatory Impact Analysis

    We have examined the impacts of this final rule as required by 
Executive Order 12866 (September 1993, Regulatory Planning and Review), 
the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-
354), section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on 
Federalism, and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules that have economically 
significant effects ($100 million or more in any 1 year) or adversely 
affect in a material way the economy, a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local, or tribal government or communities (58 FR 
51741).
    We have determined that this final rule is not a major rule as 
defined in 5 U.S.C. 804(2).
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations, and small

[[Page 72239]]

governmental jurisdictions. Many hospitals are considered to be small 
entities, either by being nonprofit organizations or by meeting the 
Small Business Administration (SBA) definition of a small business 
(hospitals having revenues of $34.5 million or less in any 1 year). 
(For details on the latest standards for health care providers, we 
refer readers to the SBA's Web site at: http://sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_table.pdf (refer to the 
620000 series).) For purposes of the RFA, we have determined that many 
hospitals will be considered small entities according to the SBA size 
standards. Individuals and States are not included in the definition of 
a small entity. Therefore, the Secretary has determined that this final 
rule will have a significant impact on a substantial number of small 
entities. Because we acknowledge that many of the affected entities are 
small entities, the analyses presented throughout this final rule 
constitute our regulatory flexibility analysis. In the August 3, 2010 
(75 FR 46459 through 46460), we solicited public comments on our 
estimates and analyses of the impact of the proposed rule on those 
small entities. We respond to any public comments that we received 
throughout this final rule.
    As discussed in section XXI.D. of this final rule, section 5503 of 
the Affordable Care Act added a new section 1886(h)(8) to the Act that 
provides for reductions in the statutory FTE resident caps under 
Medicare for certain hospitals and authorizes a ``redistribution'' of 
the FTE resident slots resulting from the reduction in the FTE resident 
caps to other hospitals. At this time, we are unable to project how 
many FTE resident slots will be available for redistribution under 
section 5503 of the Affordable Care Act. Unlike section 422 of the 
Medicare Modernization Act, which also provided for a redistribution of 
FTE resident slots but provided that the redistributed slots will be 
paid using the national average per resident amount (PRA) for direct 
GME payment purposes, section 5503 of the Affordable Care Act requires 
that hospitals be paid for their additional FTE resident slots using 
the hospitals' specific PRAs. Because we are unable to determine the 
number of FTE resident slots that will be redistributed under section 
5503 of the Affordable Care Act or which hospitals will be receiving 
additional FTE resident slots, we cannot calculate a direct GME impact 
for section 5503. We do not know the PRAs and Medicare utilization 
rates of hospitals that will be receiving additional FTE resident 
slots. For purposes of determining an impact for IME payment purposes, 
section 5503 requires us to use an IME multiplier of 1.35; however, we 
do not know the intern-to-bed ratio and resident-to-bed ratio for the 
hospitals that will receive additional FTE resident slots or the volume 
or case mix of Medicare discharges at those hospitals. Therefore, we 
cannot determine a financial impact for purposes of direct GME and IME 
for this provision.
    In section XXI.B. of this final rule, we discuss our implementation 
of several changes made by section 5504 of the Affordable Care Act with 
regard to counting resident time in nonprovider settings for GME and 
IME payment purposes. Specifically, section 5504 of the Affordable Care 
Act eliminates the requirement for hospitals to incur ``all or 
substantially all of the costs for the training program in the 
nonprovider setting,'' and now hospitals must only incur the costs of 
the salaries and fringe benefits of residents who train in nonprovider 
sites. Section 5504 also allows more than one hospital to incur the 
costs of training programs at nonprovider settings, either directly or 
through a third party. In addition, section 5504 of the Affordable Care 
Act creates a recordkeeping requirement for hospitals to track the time 
residents spend training in nonprovider settings, which CMS must 
compare to analogous data from a base year.
    With respect to the recordkeeping requirement, we are adopting our 
proposal that rotation schedules be the source for establishing the 
amount of time that residents spend training in nonprovider sites, both 
in the base year and in subsequent years. In addition, we are adopting 
our proposal that cost reporting periods beginning on or after July 1, 
2009 and before June 30, 2010 be the base year against which we will 
compare subsequent years' data to determine if the amount of 
nonprovider training that occurs in subsequent years increases relative 
to that base year. We also are adopting our proposal that hospitals 
only need to maintain records of the unweighted direct GME FTE count of 
resident training time in nonprovider settings. Finally, we are 
adopting our proposal to include several additional lines on the 
Medicare cost report for hospitals to submit these data. Hospitals will 
be required to report these data on a program-specific basis for their 
primary care programs, and on an overall hospital basis for their 
nonprimary care programs. These data will help us to identify whether 
barriers to resident training in nonprovider sites continue to exist.
    We do not believe that any of these policies will have a 
significant financial impact on the Medicare program. While these 
policies may allow hospitals to count additional FTEs training in 
nonprovider sites, we do not believe that this constitutes significant 
financial impact on the Medicare program, because those residents will 
have been training at the hospital if they were not training at the 
nonprovider site. We note that the FTE slot redistribution discussed 
above that is required by section 5503 of the Affordable Care Act may 
have an impact on the hospitals' ability to increase the number of 
residents training at nonprovider sites, unless it moves the training 
that is currently conducted at the hospital to a nonprovider site. 
Therefore, the financial impact of section 5504 will be minimal.
    In section XXI.C. of this final rule, we discuss our policies to 
implement the provisions of section 5505 of the Affordable Care Act 
that make several changes to existing CMS policy with respect to 
counting resident training time for didactic, scholarly and other 
activities. Specifically, section 5505(a) of the Affordable Care Act 
allows a hospital to count the time that residents spend training in an 
approved program in a ``nonprovider setting that is primarily engaged 
in furnishing patient care'' for direct GME purposes. Section 5505(b) 
of the Affordable Care Act allows nonpatient care activities to count 
toward resident time for IME purposes as well, but only in certain 
hospital settings. These nonpatient care activities do not include 
research activities that are not associated with the treatment or 
diagnosis or a particular patient. Section 5505 of the Affordable Care 
Act also allows hospitals to count the time spent by residents on 
vacation, sick leave, or other approved leave in the hospitals' direct 
GME and IME resident counts, as long as the leave time does not prolong 
the total time that the resident is participating in the approved 
training program. In our discussion of the provisions of section 5505, 
we described the definitions of the various new terms used in this 
section of the Affordable Care Act.
    We do not believe that any of the policies which implement section 
5505 of the Affordable Care Act will have a significant financial 
impact on the Medicare program. While all of these provisions allow 
teaching hospitals to claim more resident training time on their 
respective cost reports, a hospital is limited as to how many resident 
FTEs it can count. In addition, we note that the FTE slot 
redistribution that is

[[Page 72240]]

required by section 5503 of the Affordable Care Act discussed earlier 
may impact hospitals' ability to increase the number of residents 
training at nonprovider sites, unless a hospital moves the training 
that is currently conducted at the hospital to a nonprovider site. 
Therefore, the financial impact of section 5505 of the Affordable Care 
Act is minimal.
    In section XXI.E. of this final rule, we discuss our policies to 
implement section 5506 of the Affordable Care Act. Prior to the passage 
of the Affordable Care Act, if a teaching hospital closed, its direct 
GME and IME FTE resident cap slots would be ``lost,'' because those 
slots were associated with a specific hospital's Medicare provider 
agreement. Section 5506 of the Affordable Care Act addresses this 
situation by instructing the Secretary to establish a process by 
regulation that will redistribute FTE resident cap slots from teaching 
hospitals that close to hospitals that meet certain criteria.
    Section 5506 of the Affordable Care Act applies to teaching 
hospitals that closed ``on or after a date that is 2 years before the 
date of enactment,'' that is, March 23, 2008. Accordingly, although 
section 5506 of the Affordable Care Act does address certain teaching 
hospital closures that have already occurred, the focus of this 
provision is primarily on future teaching hospital closures, and 
ensuring that FTE resident cap slots are not lost to a community. We 
are unable to project which teaching hospitals will close, how many FTE 
resident slots they have, and to which hospitals those slots will be 
ultimately redistributed. Therefore, we cannot determine a financial 
impact for this provision.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. With 
the exception of hospitals located in certain New England counties, for 
purposes of section 1102(b) of the Act, we now define a small rural 
hospital as a hospital that is located outside an urban area and has 
fewer than 100 beds. Section 601(g) of the Social Security Amendments 
of 1983 (Pub. L. 98-21) designated hospitals in certain New England 
counties as belonging to the adjacent urban areas. Thus, we continue to 
classify these hospitals as urban hospitals. We believe that the 
changes in this final rule will affect both a substantial number of 
rural hospitals as well as other classes of hospitals and that the 
effects on some may be significant. Therefore, the Secretary has 
determined that this final rule will have a significant impact on the 
operations of a substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. That threshold 
level is currently approximately $135 million. This final rule will not 
mandate any requirements for State, local, or tribal governments, nor 
will it affect private sector costs.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct costs on State and local 
governments, preempts State law, or otherwise has Federalism 
implications. Because this regulation does not impose any costs on 
State or local governments, the requirements of Executive Order 13132 
are not applicable.
    In accordance with the provisions of Executive Order 12866, this 
final rule was reviewed by the Executive Office of Management and 
Budget.

XXII. Final Rule: Changes to Whole Hospital and Rural Provider 
Exceptions to the Physician Self-Referral Prohibition and Related 
Changes to Provider Agreement Regulations

A. Background

    Section 1877 of the Act, also known as the physician self-referral 
law: (1) Prohibits a physician from making referrals for certain 
``designated health services'' (DHS) payable by Medicare to an entity 
with which he or she (or an immediate family member) has a financial 
relationship (ownership or compensation), unless an exception applies; 
and (2) prohibits the entity from filing claims with Medicare (or 
billing another individual, entity, or third party payer) for those DHS 
furnished as a result of a prohibited referral. The Act establishes a 
number of specific exceptions and grants the Secretary the authority to 
create regulatory exceptions that pose no risk of program or patient 
abuse.
    Section 1877(d) of the Act sets forth additional exceptions related 
to ownership or investment interests held by a physician (or an 
immediate family member of a physician) in an entity that furnishes 
DHS. Section 1877(d)(1) of the Act provides that an ownership or 
investment interest in a hospital located in Puerto Rico shall not be 
considered to be an ownership or investment interest. Section 
1877(d)(2) of the Act provides an exception for ownership or investment 
interests in rural providers. In order for an entity to qualify for the 
exception, the DHS must be furnished in a rural area (as defined in 
section 1886(d)(2) of the Act) and substantially all of the DHS 
furnished by the entity must be furnished to individuals residing in a 
rural area. Section 1877(d)(3) of the Act provides an exception, known 
as the ``whole hospital'' exception, for ownership or investment 
interests in a hospital located outside of Puerto Rico, provided that 
the referring physician is authorized to perform services at the 
hospital and the ownership or investment interest is in the hospital 
itself (and not merely in a subdivision of the hospital).

B. Changes Made by the Affordable Care Act Relating to the Whole 
Hospital and Rural Provider Exceptions to Ownership and Investment 
Prohibition

    Section 6001(a) of the Affordable Care Act amended the whole 
hospital and rural provider exceptions to impose additional 
restrictions on physician ownership or investment in hospitals to 
qualify for such exceptions. The statute defines a ``physician owner or 
investor'' in a hospital as a physician or an immediate family member 
of a physician who has a direct or indirect ownership or investment 
interest in the hospital. In this document, we refer to hospitals with 
such ``physician owners or investors'' as ``physician-owned 
hospitals.''
    Section 6001(a)(2) of the Affordable Care Act provides that in 
order to satisfy the whole hospital exception, a physician-owned 
hospital must meet the requirements described in a new section 
1877(i)(1) of the Act no later than September 23, 2011. Section 
6001(a)(1) of the Affordable Care Act amended the rural provider 
exception to require that hospitals located in rural areas also satisfy 
the requirements of new section 1877(i)(1) of the Act no later than 
September 23, 2011.
    Section 6001(a)(3) of the Affordable Care Act, as amended by the 
HCERA, sets forth the terms of new section 1877(i)(1) of the Act. Under 
section 1877(i)(1) of the Act, a hospital must:
    (1) Have physician owners or investors and a provider agreement in 
effect on December 31, 2010;
    (2) Not expand facility capacity beyond the number of operating 
rooms, procedure rooms, and beds for which the hospital was licensed as 
of March 23, 2010, unless an exception is granted by the Secretary;

[[Page 72241]]

    (3) Comply with certain reporting and disclosure requirements and 
not condition any physician ownership or investment interests directly 
or indirectly on a physician making or influencing referrals to or 
generating other business for the hospital;
    (4) Comply with certain requirements designed to ensure that all 
ownership and investment interests in the hospital are bona fide;
    (5) Inform patients before admission if the hospital does not have 
a physician available on the premises during all hours and receive a 
signed acknowledgment that the patient understands this fact; and
    (6) Not have been converted from an ASC on or after March 23, 2010.
    In addition, section 1877(i)(2) of the Act requires the Secretary 
to collect, publish, and update on an annual basis on the CMS Web site 
(http://www.cms.hhs.gov) the physician and other ownership information 
submitted by hospitals under section 1877(i)(1)(C)(i) of the Act. 
Section 1877(i)(3) of the Act requires the Secretary to create an 
exception process related to the prohibition on expansion of facility 
capacity and publish in the Federal Register the final decision with 
respect to each applicant hospital.
    Section 6001(b)(1) of the Affordable Care Act requires the 
Secretary to establish policies and procedures to ensure compliance 
with the requirements described in section 1877(i)(1) of the Act, which 
may include unannounced site reviews of hospitals. Section 6001(b)(2) 
of the Affordable Care Act requires the Secretary, beginning no later 
than May 1, 2012, to conduct audits to determine whether hospitals are 
in compliance with the requirements of new section 1877(i)(1) of the 
Act.
    As noted above, physician-owned hospitals must meet the 
requirements of new section 1877(i)(1) of the Act not later than 18 
months after the date of enactment (that is, by September 23, 2011). We 
have received numerous inquiries concerning how this language relates 
to several of the requirements set forth in section 1877(i)(1) of the 
Act that specify earlier deadlines. We believe that compliance with all 
requirements must occur no later than September 23, 2011, and failure 
to satisfy earlier deadlines will preclude use of the revised 
exceptions after the earlier deadline has passed. For example, section 
1877(i)(1)(A) of the Act provides that the hospital must have had 
physician ownership or investment on December 31, 2010, and a provider 
agreement in effect on that date. Failure to obtain a provider 
agreement that is effective on or before December 31, 2010, will 
preclude use of the revised rural provider and whole hospital 
exceptions on and after January 1, 2011. Another example can be seen in 
section 1877(i)(1)(D)(i) of the Act, which provides that the percentage 
of the total value of physician ownership or investment interests held 
in the hospital, in the aggregate, must not exceed such percentage as 
of March 23, 2010. Therefore, if a hospital has no physician ownership 
or investment as of March 23, 2010, and later adds physician owners or 
investors, the hospital will not satisfy the whole hospital or rural 
provider exceptions. Most of the provisions within section 1877(i)(1) 
of the Act do not specify an explicit deadline for compliance. Thus, in 
the August 3, 2010 proposed rule (75 FR 46432), we proposed that the 
deadline for compliance with all provisions within section 1877(i)(1) 
of the Act that do not contain an explicit deadline is September 23, 
2011, that is, 18 months after the date of enactment.
    Below, we discuss changes we proposed to make to our regulations in 
response to section 6001 of the Affordable Care Act, as amended, the 
public comments we received, if any, our responses to those comments, 
and our final policies.

C. Changes to Physician Self-Referral Regulations

    In order to conform our regulations to the amendments made to the 
rural provider exception by section 6001(a)(1) of the Affordable Care 
Act, in the August 3, 2010 proposed rule (75 FR 46432), we proposed to 
revise Sec.  411.356(c)(1) to specify that, in the case where the rural 
provider is a hospital, the hospital must meet the requirements of 
proposed new Sec.  411.362 no later than September 23, 2011.
    Similarly, we proposed to revise the whole hospital exception at 
Sec.  411.356(c)(3) to add a new paragraph (iv) that provides that the 
hospital must meet the requirements in new Sec.  411.362 not later than 
September 23, 2011. In the new Sec.  411.362, we set forth the 
additional requirements for both exceptions as mandated by section 
1877(i)(1) of the Act.
1. Physician Ownership and Provider Agreement
    Section 1877(i)(1)(A) of the Act requires that, in order to use the 
rural provider or whole hospital exception under section 1877(d)(3) of 
the Act, the hospital must have physician ownership or investment on 
December 31, 2010, and a provider agreement under section 1866 of the 
Act in effect on this date. In the August 3, 2010 proposed rule (75 FR 
46432), we proposed to incorporate these requirements in Sec.  
411.362(b)(1) of the regulations.
    Section 1877(i)(5) of the Act defines a ``physician owner or 
investor'' as a physician (or an immediate family member of such 
physician) with a direct or an indirect ownership or investment 
interest in the hospital. We proposed to incorporate this statutory 
definition in Sec.  411.362(b)(1) of the regulations.
    We received many public comments concerning this proposal and have 
considered each comment as discussed below.
    Comment: Many commenters agreed with the proposed interpretation 
that, given the language in section 1877(i)(1)(D)(i) of the Act 
prohibiting the level of physician ownership from increasing after 
March 23, 2010, both existing hospitals and prospective hospitals, must 
have physician ownership or investment on March 23, 2010 regardless of 
the provision in section 1877(i)(1)(A) of the Act, which states that a 
hospital must have physician ownership on or before December 31, 2010 
and a provider agreement in effect on such date. The commenters 
asserted that this provides a bright line rule and assures that 
existing hospitals and hospitals currently under development are 
treated equally with respect to physician ownership and investment.
    Response: We appreciate the commenters' support for our proposals.
    Comment: Two commenters disagreed with our interpretation that both 
existing hospitals and prospective hospitals must have physician 
ownership or investment on March 23, 2010 regardless of the provision 
in section 1877(i)(1)(A) of the Act stating that a hospital must have 
physician ownership on December 31, 2010. One commenter believed that 
our interpretation of the statute is flawed because it is contrary to 
congressional intent and the principle of statutory construction 
providing that, wherever possible, a statute should be construed to 
give effect to every word and to avoid rendering language meaningless. 
The commenter reasoned that, in the case of a hospital under 
development, there is merely a construction project, rather than a 
licensed hospital, in existence as of March 23, 2010. The commenter 
indicated that our proposed interpretation requiring physician 
ownership to exist on March 23, 2010, would render meaningless the 
statutory language specifying that a hospital must have physician 
ownership on December 31, 2010. Both commenters asserted that the March 
23, 2010 date was a drafting

[[Page 72242]]

error that should be corrected through rulemaking. The commenters urged 
CMS to reconcile these provisions by applying the March 23, 2010 
deadline for measuring the baseline percentage of physician ownership 
only to hospitals that already had a Medicare provider agreement in 
effect on March 23, 2010 and allowing hospitals that are under 
development and without any existing physician ownership or investment 
interests as of March 23, 2010 to add physician owners until the end of 
the year.
    Response: We disagree with the commenters' proposal and reasoning. 
First, section 1877(i)(1)(D)(i) of the Act specifically states that the 
percentage of the total value of physician ownership or investment 
interests held in the hospital, or in an entity whose assets include 
the hospital, must not exceed such percentage as of date of enactment 
(March 23, 2010). Nothing in the plain language of the statute suggests 
that this provision applies only to hospitals that already have a 
provider agreement in effect on March 23, 2010. The reference to 
entities whose assets include the hospital suggest that Congress 
intended this provision to apply to hospitals that are under 
development. Therefore, if a hospital does not have physician ownership 
on March 23, 2010, and later adds physician owners, the hospital will 
be unable to qualify for the rural provider or whole hospital 
exception. Adopting the commenter's suggested interpretation would 
render section 1877(i)(1)(D)(i) of the Act entirely meaningless and 
require us to substitute its reference to the date of enactment (March 
23, 2010) with ``December 31, 2010.'' This is contrary to the principle 
that a statute must not be construed to add words that Congress has not 
included.
    Second, the interpretation in the proposed rule does not render any 
provision of the Act meaningless. Our interpretation gives meaning to 
both sections 1877(i)(1)(A) and 1877(i)(1)(D)(i) of the Act. Reading 
both of these statutory provisions together, a hospital must have at 
least some physician ownership on March 23, 2010 and, even if it 
subsequently decreases physician ownership, it must at least retain 
some physician ownership on December 31, 2010. The hospital may not, 
for example, reduce physician ownership to zero on December 31, 2010, 
and later increase physician ownership to the level that existed on 
March 23, 2010. Additionally, we are clarifying that a physician-owned 
hospital may add or increase the number of physician owners or 
investors, or replace physician owners or investors, as long as the 
aggregate percentage of physician ownership or investment does not 
increase.
    Comment: One commenter requested clarification regarding whether a 
physician-owned hospital would satisfy the exception if its provider 
agreement is issued after December 31, 2010, but with an effective date 
on or before December 31, 2010. The commenter suggested that the 
proposed regulatory language of Sec.  411.362(b)(1) should be revised 
to read `` * * * a provider agreement under section 1866 of the Act in 
effect on that date.'' Additionally, the commenter suggested that 
proposed Sec.  411.362(b)(2) be revised to include similar language 
clarifying an effective date of December 31, 2010.
    Response: A physician-owned hospital would satisfy the whole 
hospital or rural provider exception if its provider agreement is 
issued after December 31, 2010, so long as the provider agreement 
letter contains an effective date of on or before December 31, 2010.
    Comment: One commenter stated that it takes a tremendous amount of 
money, time, staff and other resources to develop a hospital, obtain 
financing, and complete other steps necessary to have a provider 
agreement in effect on December 31, 2010 deadline to be grandfathered. 
The commenter further stated that it entered into a formal physician 
contribution agreement on March 1, 2010, and closed the contribution on 
April 30, 2010, relying on the language of section 6001 of the 
Affordable Care Act, believing it had until December 31, 2010 to obtain 
a Medicare provider agreement and physician ownership. The commenter 
contended that under CMS' interpretation of section 6001 of the 
Affordable Care Act and the March 23, 2010 enactment date, this 
hospital will not qualify for the whole hospital exception if it adds 
any physician owners after that date. The commenter further asserted 
that this interpretation is inconsistent with statutory construction 
and has harsh consequences. The commenter stated that if it had known 
March 23, 2010 was the deadline, it would have conformed to that date.
    Response: The existence of the proposed legislation was well known 
and publicized. The terms of the legislation as enacted on March 23, 
2010, clearly provided that the percentage of the total value of 
physician ownership or investment interests held in the hospital, in 
the aggregate, must not increase above the level that existed on the 
date of enactment. The commenter's choice to proceed with the 
contribution and not close it sooner was extremely risky under the 
circumstances if it intended for the physician owners to be able to 
refer to the new hospital. As noted above, we disagree that our 
interpretation of the statute is impermissible.
    Comment: One commenter contended that interpreting section 6001 of 
the Affordable Care Act to require physician ownership in the hospital 
by March 23, 2010, renders meaningless the requirement that a 
physician-owned hospital must not have been converted from an 
ambulatory surgical center (ASC) to a hospital on or after the date of 
enactment.
    Response: We disagree. Section 1877(i)(1)(D)(i) provides that the 
total value of the ownership or investment interests held by physicians 
in the aggregate in the hospital ``or in an entity whose assets include 
the hospital'' cannot exceed the percentage that existed on March 23, 
2010. We believe that, depending on the facts, an ASC that later 
converts to a hospital could be an ``entity whose assets include the 
hospital.'' In our experience, the hospital that exists after 
conversion from an ASC possesses the same equipment and other assets 
that once belonged to the ASC. For example, if an ASC converted to a 
physician-owned hospital on April 1, 2010, and the hospital later has a 
provider agreement in effect on December 31, 2010, it might not qualify 
for the whole hospital or rural provider exception. The parties could 
seek an advisory opinion to address this issue.
    Comment: Another commenter raised a similar objection, asserting 
that there was an inconsistency between CMS' proposed interpretation 
that the hospital must have physician ownership by March 23, 2010, but 
that the facility expansion deadline is December 31, 2010, not March 
23, 2010. The commenter believed these distinctions are arbitrary and 
that CMS is fabricating Congressional intent by stating in the proposed 
rule (75 FR 46434) that section 1877(i)(1)(D)(i) of the Act ``assumes 
the existence of physician ownership'' on March 23, 2010.
    Response: We recognize that some commenters disagree with our 
interpretations of the statutory requirements. However, we believe 
that, in each instance, we have interpreted the various sections 
harmoniously. Also, we must clarify that we did not propose a uniform 
December 31, 2010 facility expansion deadline. Rather, consistent with 
the statute, we proposed in Sec.  411.362(b)(2) that the hospital may 
not increase the number of operating

[[Page 72243]]

rooms, procedure rooms, and beds beyond that for which the hospital is 
licensed on March 23, 2010 (or, in the case of a hospital that did not 
have a provider agreement, in effect as of that date, but does have a 
provider agreement in effect on December 31, 2010, the effective date 
of such provider agreement).
    Comment: One commenter asserted that many hospitals have projects 
that have been in the works prior to March 23, 2010, and December 31, 
2010 is not enough time to obtain all approvals, licenses, and 
inspections in order to qualify for the grandfather provision. The 
commenter stated that, because the provider agreement deadline is this 
year, some hospitals will be disadvantaged merely because complying 
with regulations in some States takes longer than others.
    Response: Section 1877(i)(1)(A) of the Act requires that, in order 
to use the whole hospital or rural provider exception, the hospital 
must have a provider agreement in effect on December 31, 2010. This is 
a statutory directive and we do not have the discretion to address the 
concern raised by the commenter.
    Comment: One commenter recommended that CMS adopt, for the purposes 
of section 1877(i)(1)(A)(ii) of the Act only, the concept of an 
``approvable'' application, similar to what is done for physicians. The 
commenter further suggested that assuming the applicant is ultimately 
successful in its certification survey, the point at which the 
application is submitted and reviewed by the fiscal intermediary or MAC 
and recommended to CMS for approval would be an appropriate point to 
establish compliance with the provider agreement deadline. An 
alternative suggestion made by the commenter was to require any fiscal 
intermediary or MAC that receives a provider application from a 
hospital trying to comply with section 1877(i)(1)(A)(ii) of the Act to 
review and respond to the applicant within 15 days.
    Response: We are not persuaded by the commenter's recommendations. 
We will consider a provider to have a provider agreement in effect on 
December 31, 2010, if the effective date of the agreement is no later 
than December 31, 2010. As set forth in Sec.  489.13(b), the effective 
date of a provider agreement may not be earlier than the latest of the 
dates on which CMS determines that the applicable Federal requirements 
are satisfied.
    After consideration of the public comments we received, we are 
adopting as final, without modification, our proposed regulations at 
Sec.  411.362(b)(1) and Sec.  411.362(a)(1).
2. Limitation on Expansion of Facility Capacity
    Section 1877(i)(1)(B) of the Act requires that the number of 
operating rooms, procedure rooms, and beds for which the hospital is 
licensed at any time on or after March 23, 2010, be no greater than the 
number of operating rooms, procedure rooms, and beds for which the 
hospital was licensed on that date. However, section 1877(i)(3)(C) of 
the Act authorizes the Secretary to permit a physician-owned hospital 
to increase capacity above its ``baseline number of operating rooms, 
procedure rooms, and beds.'' Section 1877(i)(3)(C)(iii) of the Act, as 
amended by section 1106(2)(B) of the HCERA, defines the term ``baseline 
number of operating rooms, procedure rooms, and beds'' to mean ``the 
number of operating rooms, procedure rooms, and beds for which the 
applicable hospital is licensed as of [March 23, 2010] (or, in the case 
of a hospital that did not have a provider agreement in effect as of 
that date, but does have an agreement in effect on December 31, 2010, 
the effective date of such provider agreement).'' Although section 
1877(i)(1)(B) of the Act does not reflect the language in section 
1877(i)(3)(C)(iii) permitting the baseline facility capacity to be 
determined for some hospitals as of December 31, 2010, we must read 
sections 1877(i)(1)(B) and 1877(i)(3)(C)(iii) of the Act together and 
interpret them harmoniously. Accordingly, in proposed Sec.  
411.362(b)(2) in the August 3, 2010 proposed rule (75 FR 46463), we 
specified that the hospital will be limited to the number of operating 
rooms, procedure rooms, and beds for which the hospital is licensed on 
March 23, 2010, or if the hospital did not have a provider agreement in 
effect as of that date, but does have an agreement in effect on 
December 31, 2010, the effective date of such provider agreement.
    The limitation on expansion of facility capacity applies to 
operating rooms, procedure rooms, and beds for which the hospital is 
licensed. It is important to note that the limitation on expansion 
applies to operating rooms and procedure rooms, regardless of whether a 
State licenses these rooms. Referrals are prohibited if made by 
physician owners and investors after facility expansion and prior to 
the Secretary's granting of an exception to the capacity restriction. 
Exceptions for expanding facility capacity will protect only those 
referrals made after the exception is granted.
    Section 1877(i)(3)(G) of the Act specifies that ``the term 
`procedure rooms' includes rooms in which catheterizations, 
angiographies, angiograms, and endoscopies are performed, except such 
term shall not include emergency rooms or departments (exclusive of 
rooms in which catheterizations, angiographies, angiograms, and 
endoscopies are performed).'' Under our proposed definition of 
procedure rooms at Sec.  411.362(a)(2), the term is limited to the 
types of rooms specified in the statute. Although the statute would 
permit us to define ``procedure rooms'' to include rooms where other 
services are performed, we did not propose to do so. We encouraged 
public comments on whether ``procedure rooms'' should include rooms 
where additional services, such as CT or PET scans, or other services, 
are performed.
    Section 1877(i)(3)(A) of the Act gives the Secretary until January 
1, 2012, to promulgate regulations concerning the process for a 
hospital to apply for an exception and provides that the implementation 
of this process must occur on February 1, 2012. As we indicated in the 
proposed rule, we plan to issue a separate rulemaking document that 
will provide for implementation of this exceptions process.
    We received a large number of comments on our proposal and have 
considered each comment as discussed below. Commenters in favor of our 
proposal agreed that the limitations on expansion on procedure rooms, 
operating rooms, and beds were necessary and consistent with section 
1877(i)(1)(B) of the Act. Commenters who opposed the proposal raised 
questions concerning the financial impact upon hospitals that were in 
the midst of an expansion, our interpretation of the expansion 
deadline, and the interplay with the deadlines associated with other 
provisions found in section 1877(i) of the Act. A large number of 
commenters requested clarifications regarding situations where the 
State does not license these rooms and beds. We discuss below all of 
the significant points raised by commenters to our proposal.
    Comment: One commenter urged CMS to confirm that a physician-owned 
hospital may replace operating rooms, procedure rooms, and beds with 
new ones, so long as the total number of each does not increase beyond 
the baseline number for which the hospital is licensed as of March 23, 
2010. The

[[Page 72244]]

commenter noted that while Congress significantly increased the 
requirements to satisfy the whole hospital exception, such hospitals 
are permitted to exist under the law and, therefore, will need to be 
improved to maintain their infrastructure over time.
    Response: The commenter correctly characterizes our interpretation 
of the Act. The language in section 1877(i)(1)(D) of the Act limits 
expansion of the total number of operating rooms, procedure rooms, and 
beds beyond the number for which the hospital is licensed as of March 
23, 2010. Thus, if a hospital retires old beds for new beds (or retires 
old operating rooms and procedure rooms for new operating rooms and 
procedure rooms) without increasing the baseline number, there would be 
no violation of section 1877(i)(1)(B) of the Act.
    Comment: One commenter stated that the proposed regulation did not 
address hospitals that had a provider agreement in effect on March 23, 
2010, and were in the middle of an expansion project, including those 
projects or renovations that were occurring in States that do not 
license operating or procedure rooms.
    Response: We recognize that States usually do not license the 
number of hospital operating and procedure rooms. As we stated in the 
August 3, 2010 proposed rule (75 FR 46433), the limitation on expansion 
applies to operating rooms and procedure rooms, regardless of whether a 
State licenses these rooms. We interpret the statutory phrase ``for 
which the hospital is licensed'' as applying only to beds. In other 
words, we believe the statute limits a hospital's ability to increase 
the number of beds for which it was licensed and the number of 
operating and procedure rooms that existed at the hospital and were 
operational on March 23, 2010 (or December 31, 2010, if applicable). A 
hospital that had a provider agreement in effect on March 23, 2010 and 
was in the process of expanding the number operating rooms or procedure 
rooms, but did not have the rooms in existence by March 23, 2010, would 
not be able to include in its baseline facility capacity the rooms that 
were not yet operational. The hospital could, however, seek the 
Secretary's approval of the expansion through the process that will be 
established under section 1877(i)(3)(A) of the Act.
    Comment: One commenter stated that it could be difficult to satisfy 
the criteria for obtaining the Secretary's approval for an exception to 
the prohibition against expansion of facility capacity, particularly 
for general acute care full service hospitals, within an area of 
population growth.
    Response: We understand the concerns expressed by the commenter, 
but we have no discretion to ignore the standards set forth in sections 
1877(i)(3)(E) and (i)(3)(F) of the Act.
    Comment: Several commenters objected to the proposed interpretation 
of section 1877(i)(1)(B) of the Act that the hospital will be limited 
to the number of operating rooms, procedure rooms, and beds for which 
the hospital is licensed on March 23, 2010, or in the case of a 
hospital that did not have a provider agreement in effect on that date, 
but does have an agreement in effect on December 31, 2010, the 
effective date of such agreement. Some commenters objected based on 
equity, while other commenters made arguments concerning this 
interpretation of section 1877(i)(1)(B) of the Act. Those commenters 
who objected to the interpretation suggested that the last clause in 
subsection (B) refers not the ``date of enactment,'' which Congress 
could have easily done, but rather to ``such date'' as the date by 
which expansion must be completed. The commenters asserted that this 
language could refer to either the date of enactment or December 31, 
2010, which appears in the preceding provision at section 1877(i)(1)(B) 
of the Act. The commenters further stated that this provision is 
ambiguous and capable of being interpreted several ways that do not 
necessitate limiting the number of beds, operating rooms, or procedure 
rooms to March 23, 2010 numbers. Additionally, some of the commenters 
asserted that this proposal renders the provision ``18 months after the 
date of enactment'' meaningless and superfluous. Those commenters 
stated that the statute should be read to give meaning to the 18-month 
deadline so that the hospital can add beds, operating rooms, or 
procedure rooms to its license before 18 months after the date of 
enactment.
    Response: We are not persuaded to adopt either of the expansion 
deadlines recommended by the commenters. Although there may be varying 
interpretations of the statutory language, we believe that our reading 
is a rational reading of the statute. Section 1877(i)(1)(B) of the Act 
requires that the number of operating rooms, procedure rooms, and beds 
for which the hospital is licensed at any time on or after the date of 
enactment (March 23, 2010), be no greater than the number of operating 
rooms, procedure rooms, and beds for which the hospital was licensed 
``as of such date.'' We do not believe the commenter's suggestion that 
we construe ``such date'' to mean any date other than the date of 
enactment is reasonable. We note that section 1877(i)(3)(C) of the Act 
authorizes the Secretary to permit a physician-owned hospital to 
increase capacity above its ``baseline number of operating rooms, 
procedure rooms, and beds.'' Section 1877(i)(3)(C)(iii) of the Act, as 
amended by section 1106(2)(B) of the HCERA, defines the term ``baseline 
number of operating rooms, procedure rooms, and beds'' to mean ``the 
number of operating rooms, procedure rooms, and beds for which the 
hospital is licensed as of [March 23, 2010] (or, in the case of a 
hospital that did not have a provider agreement in effect as of that 
date, but does have an agreement in effect on December 31, 2010, the 
effective date of such provider agreement).'' Although section 
1877(i)(1)(B) of the Act does not reflect the language in section 
1877(i)(3(C)(iii) of the Act permitting the baseline facility capacity 
to be determined for some hospitals as of December 31, 2010, we must 
read sections 1877(i)(1)(B) and 1877(i)(3)(C)(iii) of the Act together 
and interpret them harmoniously. Accordingly, in proposed Sec.  
411.362(b)(2), we specified that the hospital will be limited to the 
number of operating rooms, procedure rooms, and beds for which the 
hospital is licensed on March 23, 2010, or if the hospital did not have 
a provider agreement in effect as of that date, but does have an 
agreement in effect on December 31, 2010, the effective date of such 
provider agreement. Referrals are prohibited if made by physician 
owners and investors after facility expansion and prior to the 
Secretary's granting of an exception to the capacity restriction. 
Exceptions for expanding facility capacity will protect only those 
referrals made after the exception is granted.
    The other recommendation made by commenters involved interpreting 
the statute to permit facility expansion until September 23, 2011. In 
the August 3, 2010 proposed rule (75 FR 46432), we stated that 
physician-owned hospital must meet the requirements of new section 
1877(i)(1) of the Act not later than 18 months after the date of 
enactment (that is, by September 23, 2011). We believe that compliance 
with all requirements must occur no later than September 23, 2011, and 
failure to satisfy earlier deadlines (such as that forth in section 
1877(i)(1)(B) of the Act) will preclude use of the revised exceptions 
after the earlier deadlines have passed. We do not believe that the 
commenters' suggestion gives effect to other deadlines in the statute.

[[Page 72245]]

    Comment: One commenter asserted that the deadline for obtaining 
physician ownership and a provider agreement and the deadline for 
measuring the baseline facility capacity are in conflict. The commenter 
believed there was a drafting oversight and that the proposed rule 
defies logic. The commenter remarked that the ``grandfathering'' of 
providers and the limitations on expansion were clearly intended to run 
until the end of this year but because of a technical oversight, the 
grandfathered provider must have physician ownership as of March 23, 
2010.
    Response: We are obligated to follow the statutory directive, and 
we believe our interpretation of the statutory provision is reasonable. 
We believe there is no conflict between section 1877(i)(1)(A) of the 
Act, which mandates that, in order to use the rural provider and whole 
hospital exceptions, the hospital must have a provider agreement and 
physician ownership or investment on December 31, 2010, and the 
restriction on facility expansion set forth in section 1877(i)(1)(B) of 
the Act and interpreted in accordance with section 1877(i)(3)(C) of the 
Act. As we noted in the proposed rule, several of the requirements in 
section 1877(i)(1) of the Act have differing deadlines for compliance 
and we must give meaning to those deadlines.
    Comment: One commenter argued that the proposed rule will have a 
significant and deleterious effect on psychiatric hospitals in 
particular because the number of beds available for psychiatric 
patients has been declining over the years and as a result, this 
shortage has increased demands on hospital emergency rooms. The 
commenter recommended the following changes to the proposed rule at 
Sec.  411.362(b)(2):
    1. Exempt grandfathered psychiatric hospitals from Sec.  
411.362(b)(2).
    2. Revise the rule to specify that grandfathered psychiatric 
hospitals are permitted to expand bed capacity (only) beyond that for 
which it was licensed as of March 23, 2010.
    Response: We are not persuaded to adopt the commenter's 
suggestions. We have the authority pursuant to section 1877(b)(4) of 
the Act to create new regulatory exceptions for financial relationships 
such as the one recommended by the commenter, provided that such an 
exception poses no risk of program or patient abuse. At this time, we 
are unable to conclude that there is no risk of program or patient 
abuse and, therefore, we will not be promulgating the exception 
requested by the commenter. We will continue to consider whether there 
are certain types or categories of hospitals that warrant an exception. 
In addition, we remind the commenter that, pursuant to section 
1877(i)(3)(A) of the Act, there will be a process for hospitals to 
apply for an exception to the limitation on the expansion of rooms and 
beds. Individual psychiatric hospitals that are impacted by the 
limitation on expansion may wish to request an exception under this 
process.
    Comment: One commenter stated the prohibition against facility 
expansion should not apply when a physician-owned hospital relocates 
some or all of the operating rooms, procedure rooms, or beds for which 
the hospital was licensed as of March 23, 2010, to an existing or new 
site if:
    1. Relocation would not increase the number of operating rooms, 
procedure rooms, or beds for which the hospital was licensed on March 
23, 2010;
    2. Following this relocation, all of the hospital's operating 
rooms, procedure rooms, and beds (including those relocated to the 
other site) would continue to be operated by the same legal entity, 
under the same State-issued hospital license, the same Medicare 
provider agreement and the same CMS certification number;
    3. The hospital's original location and other site would be 
operated in compliance with all applicable Medicare laws and 
requirements; and
    4. The hospital would comply fully with all the requirements under 
the whole hospital exception.
    The commenter urged CMS to clarify that a hospital is free to 
relocate its existing beds under the circumstances described above.
    Response: Under the circumstances described by the commenter, the 
relocation of beds would not constitute an increase in the number of 
licensed beds. Under other circumstances, the hospital may wish to seek 
an advisory opinion regarding the applicability of the prohibition 
against expansion.
    Comment: One commenter contended that section 1877(i)(1)(B) of the 
Act does not provide any basis for including restrictions on how a 
hospital uses its beds, as long as it does not increase the number of 
beds beyond the number that were licensed on March 23, 2010. Another 
commenter similarly inquired whether operating rooms, procedure rooms, 
and beds could change purposes (for example, through the conversion of 
a cardiac catheterization room into an endoscopy room), as long as the 
number of operating rooms, procedure rooms, and beds in the aggregate 
did not increase. However, another commenter asserted that, under the 
terms of the statute, a hospital cannot reduce its operating rooms to 
increase the number of its procedure rooms, and each individual 
category must remain capped at its March 23, 2010 level.
    Response: We interpret section 1877(i)(1)(B) of the Act to impose 
restrictions only on the aggregate number of operating rooms, procedure 
rooms, and beds. Therefore, we will not impose any restrictions 
regarding the manner in which a physician-owned hospital uses its beds, 
operating rooms, or procedure rooms. In other words, if a hospital is 
authorized to operate 20 beds, 2 operating rooms, and 2 procedure 
rooms, the hospital may reduce or increase the number of beds, 
operating rooms, or procedure rooms as long as the resulting aggregate 
number of beds, operating rooms, and procedure rooms does not exceed 24 
(assuming any applicable licensure requirements are satisfied).
    Comment: Several commenters supported the statement in the preamble 
of the proposed rule (75 FR 46433) that the limitation on the expansion 
of procedure rooms and operating rooms applies regardless of whether a 
State licenses those rooms.
    Response: We appreciate the commenters' support for our position.
    Comment: One commenter recommended that CMS clarify that even if 
the hospital's State-issued license does not separately enumerate the 
number of operating rooms or procedure rooms, the State can confirm the 
number of operating rooms and procedure rooms that the hospital was 
authorized to operate as of March 23, 2010, and if no increase has 
occurred since that time, the hospital would be viewed as being 
compliant with this provision.
    Response: The commenter's suggestion is an acceptable method of 
demonstrating compliance with section 1877(i)(1)(B) of the Act.
    Comment: One commenter requested that the proposed regulation be 
revised to clarify how the number of operating rooms and procedures 
rooms at physician-owned hospitals will be determined in States that do 
not license such rooms. The commenter recommended that CMS adopt 
certain conditions which, if met, would deem an operating room or 
procedure room to be ``licensed.'' The commenter stated that if a 
hospital was conducting a construction or renovation project as of 
March 23, 2010, in a State that does not license operating rooms or 
procedure rooms, that room should be deemed licensed as of March 23, 
2010.
    Response: We are not persuaded to adopt the commenter's suggestion 
to

[[Page 72246]]

revise our proposal such that a renovation or construction project that 
was underway as of March 23, 2010, would be deemed licensed. As stated 
above, we do not interpret the statutory reference to licensure as 
applying to operating and procedure rooms. We believe the baseline 
capacity includes those operating and procedure rooms that were in 
existence and operational on March 23, 2010 (or December 31, 2010, if 
applicable). The advisory opinion process could be used to determine 
whether rooms undergoing renovation or construction were in existence 
by the applicable date.
    Comment: One commenter urged CMS to clarify whether a prohibited 
expansion would occur if a hospital has rooms ``approved'' by the State 
in ``shelled space,'' which is space included in plans for a future 
specified use, if the space has been physically built (walls, floors, 
doors) on or before the baseline date determined under subparagraph 
(3)(C)(iii) of section 1877(i) of the Act but fitted out after the 
baseline date.
    Response: We are unclear as to the situation that the commenter is 
describing. The commenter's situation may be addressed through the 
advisory opinion process or the process for obtaining an exception to 
the prohibition on facility expansion.
    Comment: The majority of commenters agreed with the proposed 
definition of ``procedure rooms.'' Many commenters stated that the 
statute makes specific references to these services, underscoring 
Congress' intent to ensure that this definition specifically mirrors 
that statutory language. Another commenter stated that to expand the 
listing of specific procedure rooms would not take into account 
continued trends in technological advancements of equipment that 
require hospitals to change the traditional and treatment option to 
modalities that are less invasive. This same commenter asserted that 
restricting hospitals' ability to add these services for their patients 
would fragment treatment plans for the patients, thus requiring 
transfers to other facilities, which may result in additional costs to 
the patients and providers.
    Response: We agree with many of the points offered by the 
commenters. Therefore, we are not adding any additional services to the 
proposed definition of procedure rooms beyond those set forth in 
section 1877(i)(3)(G) of the Act.
    Comment: One commenter recommended that the regulatory definition 
of ``procedure rooms'' be broadened in a number of respects:
    1. The definition should include rooms where the following 
additional services are provided: Radiation therapy and all diagnostic 
imaging services, including MRI, CT, and PET scans, interventional 
radiology, and mammography.
    2. The definition should include freestanding emergency 
departments, prohibiting physician-owned hospitals from adding these 
facilities after the date of enactment of the Affordable Care Act.
    3. The definition should include areas not technically defined as 
separate procedure rooms, in which medical services similar to those 
provided in procedure rooms can be provided, and the commenter believes 
that the proposed rules should account for changes in technology which 
may allow the list of procedures to be furnished in a patient room.
    Response: We are not persuaded that a broadening of the definition 
of procedure rooms is warranted at this time. However, we will continue 
to monitor expansions in procedure rooms to determine whether we should 
revisit this issue in future rulemaking, such as the separate 
rulemaking that will provide for implementation of the exceptions 
process.
    Comment: Several commenters noted that the proposed rule did not 
address the process for requesting exceptions to the growth restriction 
on existing physician-owned hospitals. The commenters stated that more 
guidance is necessary for hospitals to align their actions with section 
6001 of the Affordable Care Act.
    Response: We understand the commenters' request for more guidance, 
particularly with regards to the exception process. However, section 
1877(i)(3)(A) of the Act gives the Secretary until January 1, 2012 to 
promulgate regulations concerning the exceptions process. We believe it 
is important that we balance the commenters' sense of urgency with the 
need to develop and implement an exceptions process that adheres to the 
statute, addresses all issues necessary for a provider to request such 
an exception, and ensure that we receive all information needed in 
order to timely render an informed decision.
    After consideration of the public comments we received, we are 
finalizing our proposed Sec.  411.362(b)(2) without modification.
3. Preventing Conflicts of Interest
    Section 1877(i)(1)(C)(i) of the Act requires the hospital to submit 
to the Secretary an annual report containing a detailed description of 
the identity of each physician owner or investor and any other owners 
or investors of the hospital, and the nature and extent of all 
ownership and investment interests in the hospital. We plan to propose 
procedures for this reporting requirement in a separate rulemaking or 
guidance document.
    Sections 1877(i)(1)(C)(ii) through (i)(1)(C)(iv) of the Act 
requires hospitals to: (1) Develop procedures requiring a referring 
physician owner or investor to disclose (in time to permit the patient 
to make a meaningful decision about receipt of care) his or her 
ownership interest to the patient and, if applicable, the treating 
physician's ownership or investment interest; (2) not condition any 
physician ownership or investment interests either directly or 
indirectly on the physician making or influencing referrals to the 
hospital or otherwise generating business for the hospital; and (3) 
disclose on any public Web site for the hospital and in any public 
advertising that it is owned or invested in by physicians. Compliance 
with these three requirements must be achieved no later than September 
23, 2011.
    To incorporate these requirements into our regulations, in the 
August 3, 2010 proposed rule (75 FR 46463), we proposed to: (1) Add 
Sec.  411.362(b)(3)(ii)(A) to specify that a hospital must require each 
referring physician owner or investor to agree, as a condition of 
continued medical staff membership or admitting privileges, to provide 
written disclosure of his or her ownership or investment interest in 
the hospital (and, if applicable, the treating physician's ownership or 
investment interest in the hospital) to all patients the physician 
refers to the hospital, at the time the referral is made; (2) add Sec.  
411.362(b)(3)(ii)(B) to specify that a hospital may not condition any 
physician ownership or investment interests either directly or 
indirectly on the physician owner or investor making or influencing 
referrals to the hospital or otherwise generating business for the 
hospital; and (3) add Sec.  411.362(b)(3)(ii)(C) to specify that the 
hospital must disclose on any public Web site for the hospital and in 
any public advertising that the hospital is owned or invested in by 
physicians.
    Proposed Sec.  411.362(b)(3)(ii)(A) defines the procedures that a 
hospital must have in place to require its physician owners and 
investors to make certain patient disclosures. In the proposed rule, we 
stated that we do not believe the disclosures to be made by physicians 
will be burdensome. For example, a physician owner or investor could 
provide a written, form notice to each patient that discloses the

[[Page 72247]]

physician's ownership or investment interest in the hospital, informs 
the patient that his or her treating physician may have an ownership or 
investment interest in the hospital, and directs the patient to review 
an attached list identifying all other physician owners or investors in 
the hospital. This notice may be used by the patient to make a 
meaningful decision regarding his or her receipt of care.
    In the August 3, 2010 proposed rule, we solicited public comments 
on several different issues relating to preventing conflicts of 
interest. First, we sought public comments on the benefits and 
drawbacks of our proposal, discussed above, relating to the procedures 
hospitals must have in place to require referring physician owners and 
investors to make the patient disclosures set forth in section 
1877(i)(1)(C)(ii) of the Act. We stated that we were interested in 
receiving information about other methods and alternative approaches to 
address this issue and what should constitute sufficient hospital 
procedures to require such disclosures to a patient by a referring 
physician owner or investor.
    Second, we indicated that we were aware that a patient may have 
multiple conditions for which there are a variety of physician 
specialists who are responsible for different aspects of a patient's 
care, even though the statute refers to a single ``treating 
physician.'' We did not propose to define ``treating physician.'' We 
stated that we would consider treating physicians to be those 
physicians who are responsible for any aspect of a patient's care or 
treatment. We welcomed public comments on this approach.
    Finally, we encouraged public comments on the methods a hospital 
should be required to use in disclosing its physician ownership or 
investment in public advertising pursuant to section 1877(i)(1)(C)(iv) 
of the Act. For example, we indicated that we were interested in 
comments on whether a hospital should be required to disclose physician 
ownership or investment on its homepage, any particular page on its Web 
site (for example, an ``About Us'' page), or all pages on its Web site; 
the types of media that constitute, or do not constitute, public 
advertising; and whether a minimum font size should be required for the 
disclosure.
    We received several comments on this proposal and have considered 
each comment as discussed below. Commenters in favor of our proposal 
agreed that the proposed procedures for assuring that patients are 
informed about hospital ownership interests of referring and treating 
physicians are adequate, reasonable, and not overly burdensome. The 
commenters who were opposed to the proposal raised various issues 
concerning the appropriateness and timeliness of ownership disclosure 
to patients by hospitals and physicians. Commenters also had 
suggestions concerning the methods hospitals should utilize in 
disclosing physician ownership on Web sites and in public advertising.
    Comment: Several commenters noted that the proposed rule did not 
address the requirement under section 1877(i)(1)(C)(i) of the Act for 
hospitals to submit to the Secretary an annual report containing a 
detailed description of the identity of each physician and other owner 
or investor in the hospital and the nature and extent of all ownership 
and investment interests in the hospital. The commenters stated that 
more guidance is necessary for hospitals to ensure compliance with this 
provision by September 23, 2011.
    Response: We understand the commenters' request for more guidance 
regarding the process for reporting information to CMS. As noted above, 
the process for collecting this information will be the subject of a 
separate rulemaking or guidance document. We are using this time to 
determine the exact type of information that must be reported, the 
mechanisms for hospitals to submit the required information, 
instructions to hospitals, and how we will post the required 
information on the CMS Web site. After the process has been determined, 
we will provide hospitals and physicians with the guidance requested by 
the commenters. In the meantime, we have added a provision at Sec.  
411.362(b)(3)(i) to clarify that the hospital shall submit the annual 
report at such time and in such manner as specified by CMS.
    Comment: A few commenters had questions about the appropriateness 
and timeliness of ownership disclosures made by physicians to their 
patients. For instance, one commenter wanted to know: (1) If a separate 
disclosure is required for every admission; (2) when should a 
disclosure occur; (3) if a physician has previously disclosed 
ownership, whether another disclosure should occur before admission; 
(4) if a patient is treated in an outpatient clinic, but suddenly needs 
to be admitted as an inpatient, should disclosure be immediate or after 
treatment; and (5) if disclosures are required for confused, 
unconscious, or otherwise incoherent patients. Another commenter 
suggested that it will be problematic to require in all cases a 
referring physician to disclose to the patient his or her ownership 
interest in a timely fashion to permit the patient to make a meaningful 
decision about receipt of care.
    Response: Section 1877(i)(1)(C)(ii) of the Act requires that a 
physician disclose his or her ownership interest in a hospital to a 
referred patient by a time that permits the patient to make a 
``meaningful decision regarding the receipt of care.'' We stated in the 
proposed rule that, in order for the patient to make a meaningful 
decision regarding the receipt of care, the disclosure must occur at 
the time of referral. We have reconsidered this policy in light of the 
commenters' concerns regarding the burden of making disclosures at the 
time of each referral and the potential for this policy to result in 
disproportional overpayment liability under section 1877(g)(1) of the 
Act. We are modifying the regulation text to mirror the statutory 
language, which we believe offers more flexibility regarding the timing 
and method of disclosure. We recognize that our existing regulations 
governing provider agreements at Sec.  489.20(u)(2) require each 
physician who is a member of the hospital's medical staff to agree to 
make a similar disclosure at the time of referral. Because we did not 
propose to change this standard in Sec.  489.20(u)(2), we are not doing 
so in this final rule.
    Comment: One commenter believed that CMS should give further 
consideration as to how it can impose the disclosure requirements 
directly on the physician rather than the hospital. The commenter noted 
that the hospital, not the physician, is in a position to be sanctioned 
for a physician owner's failure to disclose. Another commenter 
recommended that the loss of a physician's medical staff membership or 
admitting privileges was too draconian a remedy for the physician's 
failure to disclose his or her hospital ownership interests. One 
commenter recommended that if a physician does not disclose his or her 
ownership in a hospital at the time of referral, the physician should 
not receive Medicare payment for his or her professional services 
provided at the hospital.
    Response: Section 1877(i)(1)(C)(ii) of the Act requires hospitals 
to have procedures in place to require a referring physician owner to 
disclose to the patient his or her ownership or investment interest in 
the hospital as well as any ownership interest, if applicable, of the 
treating physician. Those procedures, in turn, must require physicians 
to agree to make such disclosures as a condition of continued medical 
staff membership or admitting privileges. A physician's failure to 
fully comply with such agreement is a

[[Page 72248]]

disciplinary matter for the hospital to resolve in accordance with the 
medical staff bylaws and would not necessarily result in a violation of 
the physician self-referral law. As noted above, a similar requirement 
already appears in our provider agreement regulations at Sec.  
489.20(u)(2). The last comment is beyond the scope of this rulemaking.
    Comment: One commenter suggested that, in emergency situations, 
that is, non-elective admissions, it will be very difficult for 
physicians to provide the required disclosure in a timely fashion. 
Therefore, the commenter recommended that when a patient is first seen 
by a physician in a hospital emergency department, the physician should 
be exempted from the pre-admission disclosure requirement. Another 
commenter suggested that the physician ownership disclosure requirement 
can be satisfied by the hospital on behalf of the physician during the 
patient admission and registration process, as hospitals are already 
required, under Sec.  489.20(u)(1) to disclose physician ownership at 
the beginning of the patient's hospital stay or outpatient visit.
    Response: In the case of a patient who is treated by a physician 
owner in the hospital emergency department, we believe that no 
disclosure is necessary other than that required under Sec.  489.20(u). 
The statute requires hospitals to ensure that physician owners make the 
relevant disclosures ``by a time that permits the patient to make a 
meaningful decision regarding the receipt of care.'' By the time a 
patient has presented at the emergency department, the patient or the 
patient's representative has already made a decision about where to 
receive care. If a patient is admitted to the hospital, the patient or 
the patient's representative must be notified by the hospital under 
Sec.  489.20(u) that the hospital is physician-owned.
    Comment: One commenter believed that the regulations should be 
amended to allow physicians to prominently display in their offices a 
notice informing patients that the physician has an ownership interest 
in a particular hospital facility and that the patient can inquire 
further or request admission to another facility. Another commenter 
noted our suggestion that the referring physician could disclose the 
ownership or investment interest of any treating physician by directing 
the patient to review a list of other investors in the hospital. The 
commenter requested clarification as to whether physician owners would 
be required to provide such a list for each patient referral. The 
commenter suggested that if this requirement were imposed for each and 
every referral, the paperwork involved would be substantial and 
cumbersome. The commenter recommended that such a disclosure be 
required only when a patient requests a list of all other owners.
    Response: We are not revising the regulations to require any 
particular means of notification by a physician of hospital ownership. 
Physicians can inform patients of their ownership interests and the 
ownership interests of treating physicians in any manner that permits 
the patient to make a meaningful decision regarding the receipt of 
care. A prominently displayed sign and list of other treating 
physicians with an ownership or investment interest in the hospital 
could satisfy the disclosure requirement, although we note that it may 
not be a meaningful disclosure in all cases. If a patient is blind, 
unable to read, or is incapacitated, it would be incumbent upon the 
physician to notify the patient or an immediate family member of the 
patient in a manner other than the one suggested.
    Comment: One commenter noted that, in many cases, a patient of a 
referring physician with hospital ownership interests may have several 
treating physicians. The commenter recommended that the referring 
physician provide the patient with a list of all physician owners who 
are actively practicing at the hospital. Another commenter believed 
that a referring physician hospital owner, especially in an emergency 
room setting, will not have an early opportunity to inform the patient 
of the treating physician's ownership interests in the hospital. The 
commenter was concerned that the disclosure process could place the 
patient in danger by delaying patient care in order to provide timely 
ownership disclosure information.
    Response: We suggested in the preamble to the proposed rule that a 
referring physician could use a written, form notice to disclose his or 
her ownership interest to the patient. Also, we suggested that the 
referring physician could disclose the ownership interest of one or 
more treating physicians by directing the patient to review a list of 
other investors in the hospital. As we stated above, no disclosure by a 
physician owner is necessary with respect to a patient whom the 
physician treated in a hospital emergency department.
    Comment: Several commenters stated that the statutory provision at 
section 1877(i)(1)(C)(iv) of the Act requiring hospitals to disclose 
physician ownership information on the hospitals' Web sites could be 
accomplished by placing such information on the home page or ``about 
us'' section on the Web sites. The commenters also believed that the 
disclosures on the Web sites should be clearly visible to the typical 
reader.
    Response: We agree with the recommendations made by the commenters. 
We believe a hospital could satisfy this requirement by including on 
one location within its public Web site a list of the physician owners 
who actively practice at the facility. A list of the physician owners 
should be located in a conspicuous place on the Web site, on a page 
that is commonly visited by current or potential patients, such as the 
home page or ``about us'' section. We also believe the physician 
ownership information should be readily legible and in a size that is 
consistent with other text on the Web site.
    Comment: One commenter recommended that the hospital requirement to 
disclose hospital ownership information in any public advertising 
should be limited to specific activities and should not be required in 
all public advertising. The commenter suggested that the inclusion of 
physician ownership information in its public advertising should apply 
only to direct mail, Internet, and other print communications where 
such communication can be read and fully understood. The commenter 
believed that a hospital should not be required to include disclosures 
in other advertising, such as the kind found on billboards, or radio 
and television. Another commenter also recommended that hospital 
disclosures in public advertising should be confined to print media 
such as newspapers, magazines, and other internally produced print 
material for public use.
    Response: We have no flexibility regarding the disclosure of 
hospital ownership information. Section 1877(i)(1)(C)(iv) of the Act 
requires that the hospital disclose the fact that the hospital is 
partially owned or invested in by physicians in ``any public 
advertising'' for the hospital. We believe that the disclosure can be 
satisfied by simply adding a sentence to this effect in public 
advertisements. We agree that a hospital also is required to disclose 
this information in a clear and readable manner in any of its print 
advertising made available to the public, such as direct mailings and 
other print communications, for example, newspapers and magazines.
    In addition, we are finalizing our proposed Sec.  411.362(b)(3) 
regarding ``Preventing Conflicts of Interest'' with one technical 
change. We are making a

[[Page 72249]]

technical correction to proposed Sec.  411.362(b)(3)(ii)(C) by 
replacing ``or'' with ``and'' in order to conform to the precise 
language of section 1877(i)(1)(C)(iv) of the Act.
4. Ensuring Bona Fide Investment
    Section 1877(i)(1)(D) of the Act sets forth seven different 
requirements related to ensuring bona fide investment in order for 
hospitals to qualify for the rural provider and whole hospital 
exceptions set forth in the physician self-referral law. First, the 
percentage of the total value of the ownership or investment interests 
held in the hospital, or in an entity whose assets include the 
hospital, by physician owners or investors, in the aggregate may not 
exceed such percentage as of March 23, 2010. Second, any ownership or 
investment interests that the hospital offers to a physician owner or 
investor must not be offered on more favorable terms than the terms 
offered to a person who is not a physician owner or investor. Third, 
the hospital (or any owner or investor in the hospital) must not 
directly or indirectly provide loans or financing for any investment in 
the hospital by a physician owner or investor. Fourth, the hospital (or 
any owner or investor in the hospital) must not directly or indirectly 
guarantee a loan, make a payment toward a loan, or otherwise subsidize 
a loan, for any individual physician owner or investor or group of 
physician owners or investors that is related to acquiring any 
ownership or investment interest in the hospital. Fifth, ownership or 
investment returns must be distributed to each owner or investor in the 
hospital in an amount that is directly proportional to the ownership or 
investment interest of such owner or investor in the hospital. Sixth, 
physician owners and investors must not receive, directly or 
indirectly, any guaranteed receipt of or right to purchase other 
business interests related to the hospital, including the purchase or 
lease of any property under the control of other owners or investors in 
the hospital or located near the premises of the hospital. Lastly, the 
hospital must not offer a physician owner or investor the opportunity 
to purchase or lease any property under the control of the hospital or 
any other owner or investor in the hospital on more favorable terms 
than the terms offered to an individual who is not a physician owner or 
investor. We note that additional or different factors may be relevant 
to a determination of whether an investment is bona fide for purposes 
of complying with other laws, including fraud and abuse laws.
    In the August 3, 2010 proposed rule (75 FR 46434), we proposed to 
add Sec.  411.362(b)(4) to incorporate these provisions in our 
regulations. We stated that we recognized that section 1877(i)(1)(A) of 
the Act provides that the hospital must have had physician ownership or 
investment on December 31, 2010, while section 1877(i)(1)(D)(i) of the 
Act assumes the existence of physician ownership or investment on March 
23, 2010 and further provides that the percentage of the total value of 
physician ownership or investment interests held in the hospital, in 
the aggregate, on that date must not increase. Reading these provisions 
together, we conclude the following: (i) If a hospital had no physician 
ownership or investment as of March 23, 2010, it will not qualify for 
the whole hospital or rural provider exceptions if it adds any 
physician owners or investors after that date; and (ii) if a hospital 
had physician ownership or investment as of March 23, 2010, it may 
reduce the number of physician owners or investors, provided that the 
percentage of the total value of physician ownership or investment 
interests, in the aggregate, remains the same or decreases.bona fide
    The second through seventh requirements tied to ensuring bona fide 
investment (sections 1877(i)(1)(D)(ii) through 1877(i)(1)(D)(vii) of 
the Act) do not specify any deadlines for compliance. Accordingly, 
compliance with the second through seventh requirements must be 
achieved no later than September 23, 2011.
    In the proposed rule, we stated that if we determine that further 
guidance related to any aspect of section 1877(i)(1)(D) of the Act is 
necessary, we would provide clarification in future rulemaking. 
Furthermore, a hospital may request an advisory opinion (pursuant to 
Sec. Sec.  411.370 through 411.389) for a determination of whether an 
existing or proposed arrangement meets the requirements for hospitals 
to ensure that investment is bona fide.
    Comment: Some commenters stated that CMS should clarify whether 
section 1877(i)(1)(D) of the Act would be violated if the total value 
of ownership or investment interests held in the hospital by physicians 
in the aggregate (the ``bona fide investment level'') fluctuates. For 
example, one commenter inquired whether a hospital could repurchase the 
ownership interest held by a recently deceased physician (thereby 
reducing the bona fide investment level) and later resell that 
ownership interest to another physician, returning the bona fide 
investment limit to the same level it was on March 23, 2010.
    Response: The bona fide investment level may fluctuate as long it 
never exceeds the level that existed on March 23, 2010.
    Comment: Many commenters stated that CMS should clarify whether a 
hospital can reduce or increase the number of physician owners as long 
as the percentage of the total value of physician ownership remains 
unchanged. The commenters believed that nothing in the statute 
precludes the addition of new physician owners as long as the 
percentage of ownership remains constant.
    Response: We agree that section 1877(i)(1)(D) of the Act does not 
restrict the number of physicians that may have an ownership interest 
in a hospital. The bona fide investment level requirement would not be 
violated as long as the percentage of the total value of the ownership 
or investment interest held in the hospital by physician owners in the 
aggregate does not exceed such percentage as of March 23, 2010.
    Comment: One commenter sought confirmation that a hospital wishing 
to recruit a new physician would be able to give some ownership units 
from one physician to another new physician.
    Response: Any arrangement in which a hospital or physician owner 
``gives'' to another physician an ownership or investment interest in 
the hospital is highly suspect. We assume the commenter is inquiring 
whether section 1877(i)(1)(D)(i) of the Act would be violated if one or 
more physician owners transferred some of their shares in the hospital 
to the recruited physician for fair market value, possibly at the 
request of the hospital. This provision would not be violated as long 
as the bona fide investment level does not exceed that which existed as 
of March 23, 2010. In addition, the parties should carefully review the 
arrangement to ensure that it fully complies with the physician 
recruitment exception at Sec.  411.357(e), the anti-kickback statute, 
and any other applicable laws.
    Comment: Several commenters addressed the situation in which a 
hospital has physician owners, but no Medicare provider agreement, as 
of March 23, 2010. One commenter sought clarification that the level of 
physician ownership can increase prior to December 31, 2010. Several 
other commenters disagreed with this interpretation and requested that 
CMS explicitly state that the bona fide investment level is capped as 
of March 23, 2010 even if the hospital does not have a Medicare 
provider agreement as of that date.

[[Page 72250]]

    Response: The bona fide investment level may not increase for any 
hospital with physician owners as of March 23, 2010, regardless of 
whether the hospital has a Medicare provider agreement as of that date. 
In addition, as we indicated in the proposed rule (75 FR 46432), if a 
hospital has no physician owners or investors on March 23, 2010, the 
hospital will not satisfy the whole hospital or rural provider 
exception if it later adds physician owners or investors.
    Comment: One commenter inquired as to whether the bona fide 
investment level is based on the aggregate percentage of the number of 
shares held by physicians or the aggregate percentage of the value of 
shares held by physicians. The commenter suggested that the more 
workable option is for the limit to be based on a strict percentage of 
the number of outstanding shares. The commenter further contended that 
basing the limit on a hospital's value would require the hospital to 
ascertain its value on a regular basis to make certain that the 
aggregate value of the physicians' ownership never exceeds the March 
23, 2010 limit.
    Response: We are not adopting the commenter's suggestion. Section 
1877(i)(1)(D) of the Act refers to ``the total value of the ownership 
or investment interests held in the hospital * * * by physician owners 
or investors in the aggregate'' as of March 23, 2010. The plain 
language of the statute refers to the value of the investment 
interests, not the number of shares held by physicians.
    Comment: A few commenters presented differing scenarios that 
involved the sale of ownership shares in a hospital. The commenters 
stated that the statute does not appear to impose any restrictions on 
the ability to transfer ownership pursuant to a sale of the ownership/
investment interests but, nevertheless, believed it would be important 
for CMS to clarify this issue. One commenter asserted that the 
statutory language does not prohibit private sales among physician 
owners/investors where the bona fide investment level in the hospital 
remains unchanged.
    Response: We agree with the commenters. The statute does not 
restrict the transfer of physician ownership interests pursuant to a 
bona fide sale, as long as the percentage of the total value of the 
ownership or investment interests held in the hospital, or in an entity 
whose assets include the hospital, by physician owners or investors in 
the aggregate would not exceed the percentage as of March 23, 2010.
    Comment: One commenter representing a hospital system requested 
clarification concerning whether hospitals may continue to condition a 
physician's ownership interest on his or her continued practice of 
medicine and require the physician to divest his or her investment 
interest in the hospital if the physician retires or ceases to practice 
medicine in the community served by the hospital.
    Response: Section 1877(i)(1)(C)(iii) of the Act prohibits a 
hospital from conditioning any physician ownership or investment 
interest either directly or indirectly on the physician's ability to 
make or influence referrals to the hospital. Depending on the facts, 
the conditions described by the commenter could implicate this 
provision.
    Comment: Some commenters believed that the bona fide investment 
level should be calculated without regard to any ownership or 
investment interests held by physicians who do not make any referrals 
to the hospital, including physicians who are no longer practicing 
medicine. The commenters asserted that the purchase of a referring 
physician's ownership interest by a non-practicing, non-referring 
physician should not be prohibited by the statute because it has no 
potential for program or patient abuse. They suggested various 
revisions to the regulation to avoid this result, including amendments 
to the definition of ``referral,'' ``referring physician,'' and the 
creation of a new exception using our authority under section 
1877(b)(4) of the Act.
    Response: The ownership or investment interests of nonreferring 
physicians need not be considered when calculating the baseline 
physician ownership level. Section 1877(i)(1)(D)(i) of the Act provides 
that the percentage of the total value of the ownership or investment 
interests held in the hospital by ``physician owners or investors'' in 
the aggregate may not exceed such percentage that existed on March 23, 
2010. Section 1877(i)(5) broadly defines ``physician owner or 
investor'' to include any physician with a direct or indirect ownership 
or investment interest in the hospital. Under the definition of 
``indirect ownership or investment interest'' at Sec.  411.353(b)(5), 
only ``referring physicians'' can have an indirect ownership or 
investment interest in a DHS entity. We caution that we would view with 
great suspicion any arrangements in which physician owners or investors 
of a hospital in one State engage in a mutually beneficial cross-
referral or cross-investment scheme with physician owners or investors 
of a hospital in another State.
    Comment: Two commenters asserted that CMS minimized the significant 
difficulty hospitals will experience in monitoring and measuring the 
bona fide investment level, particularly with respect to indirect 
ownership interests held by non-referring physicians. The commenters 
stressed that it is unlikely that entities investing in hospitals such 
as trusts, private equity funds, and contractually affiliated health 
care providers, monitor whether they or their shareholders are directly 
or indirectly owned by physicians, particularly if those physicians are 
not referring physicians or physicians on the medical staff of the 
hospital. The commenters further stated that interests in hospitals may 
be transferred voluntarily in subsequent transactions beyond the reach 
of the hospital, or involuntarily through devise or bequest. The 
commenters contended that monitoring these transactions is a daunting 
task not suited to the normal operations of a hospital.
    Response: We appreciate the commenters' concerns. Section 6001 
defines the term ``physician owner or investor'' to mean ``a physician 
(or immediate family member of such physician) with a direct or 
indirect ownership or investment interest in the hospital.'' Under the 
definition of ``indirect ownership or investment interest'' at Sec.  
411.353(b)(5), there must be an unbroken chain of ownership or 
investments between the referring physician and the DHS entity and the 
DHS entity must have actual knowledge of, or act in reckless disregard 
or deliberate ignorance of, the fact that the referring physician (or 
immediate family member) has some ownership or investment interest in 
the entity furnishing DHS. Thus, the bona fide investment level may be 
calculated without regard to any ownership or investment interest that 
does not satisfy this standard. We note that, as provided in Sec.  
411.354(b)(5)(ii), an indirect ownership or investment interest exists 
even though the DHS entity does not know, or acts in reckless disregard 
or deliberate ignorance of, the precise composition of the unbroken 
chain or the specific terms of the ownership or investment interests 
that form the links in the chain.
    Comment: One commenter sought clarification regarding the 
requirement at section 1877(i)(1)(D)(iii) of the Act, which provides 
that a hospital may not directly or indirectly provide loans or 
financing to assist a physician acquiring an investment in the 
hospital. The commenter requested clarification that this limitation 
will not affect the current practice whereby an affiliate (for

[[Page 72251]]

example, a parent company) makes a loan to a hospital that has 
physician owners when the terms of such loans are commercially 
reasonable, provide for an interest rate above the lender's cost of 
funds, are secured by the assets of the borrower, and are repaid at 
maturity prior to distribution to the investors.
    Response: Section 1877(i)(1)(D)(iii) of the Act would not preclude 
the parent company from making a loan to the physician-owned hospital, 
as long as the loan is being made and used for purposes other than 
assisting physicians in the acquisition of ownership or investment 
interests in the hospital.
    After consideration of the public comments we received, we are 
finalizing proposed Sec.  411.362(b)(4), with the modification to 
paragraph (b)(4)(i) discussed above.
5. Patient Safety
    Section 1877(i)(1)(E) of the Act, as added by the Affordable Care 
Act, requires a hospital that is owned or invested in by physicians to 
disclose to a patient before admission if it does not have a physician 
available on the premises to provide services during all hours that the 
hospital is providing services to such patient. Following this 
disclosure, the hospital must receive a signed acknowledgment of such 
fact from the patient. In addition, the hospital must have the capacity 
to provide assessment and initial treatment for patients and refer and 
transfer such patients to hospitals with the capability to treat the 
patients involved. We see no reason to treat the safety of inpatients 
differently than outpatients. Accordingly, given the language and 
purpose of the statute, in the August 3, 2010 proposed rule (75 FR 
46434), we proposed to apply these patient safety requirements to 
inpatients as well as outpatients. Hospitals must meet these 
requirements no later than September 23, 2011. We proposed to 
incorporate these provisions into our regulations at Sec.  
411.362(b)(5).
    Comment: One commenter questioned whether a hospital would be in 
compliance with the exception contained in Sec.  411.362(b)(5)(i) if it 
inadvertently failed to obtain a written acknowledgment from the 
patient stating that the patient understood that a physician was not 
available to provide services during all hours that the hospital was 
providing services to such patient.
    Response: A failure by the hospital to obtain a signed 
acknowledgment from the patient, inadvertent or not, would constitute 
non-compliance with this statutory provision. As a matter of prudent 
business practice, hospitals should include the notice with other 
papers that must be signed by the patient or the patient's 
representative at the time of registration.
    Comment: One commenter recommended that the hospital's 
responsibility to obtain the patient's signed acknowledgment, following 
the hospital's preadmission disclosure to the patient that the hospital 
does not have a physician available on the premises to provide services 
during all hours in which the hospital is providing services to the 
patient, should be done in conjunction with the registration process 
and not in advance of admission.
    Response: If a hospital obtains the required signed acknowledgment 
during a registration process that occurs prior to admission, the 
hospital would be in compliance with this statutory provision.
    Comment: One commenter suggested that a physician-owned hospital 
would meet the requirement of having physician coverage 24 hours a day, 
7 days a week if the hospital physically adjoins another hospital and 
there is a coverage and transfer agreement in place that requires 
immediate presence of a physician to address the issue. The commenter 
believed such a physician-owned hospital should not be required to make 
a preadmission disclosure to a patient in accordance with section 
1877(i)(1)(E)(i) of the Act.
    Response: In the situation described, because the physician-owned 
hospital will always have a physician available on its premises to 
provide services during all hours in which the hospital is providing 
services to a patient, we agree that the hospital would not be required 
to make the preadmission disclosures mandated by section 
1877(i)(1)(E)(i) of the Act.
    Comment: One commenter supported the proposed amendment to Sec.  
482.12, which would require hospitals, as a condition of participation, 
to have the capacity to provide assessment and initial treatment for 
all patients and the ability to transfer patients to hospitals that 
have the ability to treat the patients. The commenter sought 
clarification regarding the terms ``capacity'' and ``initial 
treatment'' and inquired if the provision was intended to apply to 
inpatients, outpatients, or emergency department patients.
    Response: We withdraw this proposal. We do not believe it is 
necessary to modify the hospital conditions of participation to reflect 
the provision in section 1877(i)(1)(E)(ii) of the Act.
    In this final rule, we are finalizing proposed Sec.  411.362(b)(5) 
regarding ``Patient Safety'' without modification.
6. Conversion From ASC
    Section 1877(i)(1)(F) of the Act, as added by the Affordable Care 
Act, also prohibits the use of the rural provider and whole hospital 
exceptions by physician-owned hospitals that were converted from an ASC 
to a hospital on or after March 23, 2010. We proposed to add Sec.  
411.362(b)(6) to reflect this provision in our regulations.
    Comment: Two commenters stated that the proposed rule did not offer 
any guidance as to what constitutes a ``conversion.'' The commenters 
urged CMS to provide further guidance.
    Response: We decline to provide a specific definition of 
``conversion.'' Whether an ASC has been converted to a physician-owned 
hospital on or after March 23, 2010 will depend on the facts. In some 
cases, the existence of a conversion may be obvious (for example, when 
an ASC that is wholly-owned by physicians terminates its Medicare ASC 
agreement on June 1, 2010, and obtains a Medicare hospital provider 
agreement or hospital license effective on or after June 1, 2010, for a 
hospital that occupies the same premises as the former ASC and is 
physician owned). Parties may submit an advisory opinion request 
pursuant to Sec.  411.372 if they are uncertain whether a conversion 
has occurred.
    After consideration of the public comments we received, we are 
finalizing, without modification, our proposed regulations at Sec.  
411.362(b)(6) that the hospital must not have been converted from an 
ASC to a hospital on or after March 23, 2010.
7. Publication of Information Reported
    Section 1877(i)(2) of the Act requires that the Secretary publish, 
and update on an annual basis, the information submitted by hospitals 
under section 1877(i)(1)(C) of the Act on the CMS Web site. As with the 
annual report requirement set forth in section XVIII.B. of the proposed 
rule (now section XXII.B. of this final rule), we did not make a 
proposal related to this provision in the proposed rule. We did not 
receive any public comments regarding this matter.
8. Enforcement
    Section 6001(b)(1) of the Affordable Care Act requires the 
Secretary to establish policies and procedures to ensure compliance 
with the requirements described in section 1877(i) of the Act, and 
states that these policies and procedures may include

[[Page 72252]]

unannounced site reviews of hospitals. Section 6001(b)(2) of the 
Affordable Care Act requires the Secretary, beginning no later than May 
1, 2012, to conduct audits to determine if physician-owned hospitals 
are in compliance with section 1877(i)(1) of the Act. In the August 3, 
2010 proposed rule (75 FR 46434 through 46435), we indicated that we 
would comply with the statutory mandate, but did not propose any 
regulations on this topic at that time.
    Comment: Several commenters noted that the proposed rule did not 
address enforcement procedures. The commenters asserted that more 
guidance is necessary for hospitals to align their actions with section 
6001 of the Affordable Care Act. One of the commenters urged CMS to 
conduct open door forum calls and other outreach efforts to educate 
hospitals and physicians concerning enforcement procedures.
    Response: As stated in the proposed rule (75 FR 46434 through 
46435), we will comply with the statutory mandate and provide hospitals 
and physicians with further guidance after the rules are finalized. In 
addition, we will explore various forms of outreach, including, but not 
limited to, open door forums.

D. Related Changes to Provider Agreement Regulations

    Section 1866 of the Act states that a provider of services shall be 
qualified to participate in the Medicare program and shall be eligible 
for Medicare payments if it files a Medicare provider agreement and 
abides by the requirements applicable to Medicare provider agreements. 
These requirements are incorporated in our regulations at 42 CFR Part 
489, Subparts A and B (Provider Agreements and Supplier Approval). 
Section 1861(e) of the Act defines the term ``hospital.'' Section 
1861(e)(9) of the Act defines a hospital and authorizes the Secretary 
to establish requirements as determined necessary in the interest of 
patient health and safety. Section 5006 of the Deficit Reduction Act of 
2005 mandated the Secretary to develop a strategic and implementing 
plan to address certain issues with respect to physician ownership of 
specialty hospitals. As part of that plan, we used our authority under 
sections 1866 and 1861(e)(9) of the Act (as well as our general 
rulemaking authority under sections 1102 and 1871 of the Act) to impose 
certain additional requirements on physician-owned hospitals as part of 
their provider agreements. These new requirements were established in 
the FY 2008 IPPS final rule with comment period (72 FR 47385 through 
47391) and the FY 2009 IPPS final rule (73 FR 48686 through 48688).
    Specifically, we amended the regulations at Sec.  489.3 governing 
Medicare provider agreements to define a ``physician-owned hospital'' 
as any participating hospital (including a CAH) in which a physician or 
immediate family member of a physician has an ownership or investment 
interest, unless the ownership or investment interest satisfies the 
exceptions at Sec.  411.356(a) or (b) regarding publicly-traded 
securities and mutual funds. In addition, we added a new provision at 
Sec.  489.20(u)(1) to require a physician-owned hospital to agree to 
furnish patients with written notice, in a manner reasonably designed 
to be understood by all patients, that it is physician-owned and that 
the list of physician owners is available upon request. Further, we 
added a new provision at Sec.  489.20(u)(2) to compel hospitals to 
require that all physician owners who are also members of the 
hospital's medical staff to disclose, in writing, their ownership 
interest in the hospital (and that of any immediate family member) to 
all patients they refer to the hospital, as a condition of continued 
medical staff membership. Patient disclosure is required at the time 
the physician makes a referral.
    We also added a new provision to require that hospitals and CAHs: 
(1) Furnish all patients written notice at the beginning of their 
inpatient hospital stay or outpatient service if a doctor of medicine 
or a doctor of osteopathy is not present in the hospital 24 hours per 
day, 7 days per week; and (2) describe how the hospital or CAH will 
meet the medical needs of any patient who develops an emergency medical 
condition at a time when no physician is present in the hospital or 
CAH. These requirements are codified at Sec.  489.20(w). The 
requirements of Sec. Sec.  489.20(u) and (w) were made applicable to 
both inpatient hospital stays and outpatient services because, as we 
stated in the FY 2008 IPPS final rule with comment period, these 
provisions are in the interest of the health and safety of all 
individuals who receive services in these institutions. The notice 
requirements are intended to permit individuals to make more informed 
decisions regarding their treatment.
    In the August 3, 2010 proposed rule (75 FR 46435), we proposed to 
modify the Medicare provider agreement regulations in Subpart B of Part 
489 in order to make the rules consistent with new Sec.  411.362, as 
required by the Affordable Care Act. We stated our belief that 
incorporating the additional requirements of the Affordable Care Act 
into Part 489 would be in the best interest of the health and safety of 
individuals who receive services in hospitals and CAHs. With respect to 
Sec.  489.20(u), we proposed to: (1) Add a provision in Sec.  
489.20(u)(1)(ii) to specify that the hospital must disclose on any 
public Web site for the hospital and in any public advertising that it 
is owned or invested in by physicians; (2) amend Sec.  489.20(u)(2) to 
specify that a referring physician owner or investor must also disclose 
in writing, if applicable, the treating physician's ownership or 
investment interest in the hospital; and (3) add Sec.  489.20(u)(3) to 
specify that a hospital may not condition any physician ownership or 
investment interests either directly or indirectly on the physician 
making or influencing referrals to the hospital or otherwise generating 
business for the hospital.
    Regarding Sec.  489.20(w), we proposed to specify that, in the case 
of a hospital where a doctor of medicine or a doctor of osteopathy is 
not present in the hospital 24 hours per day, 7 days per week, before 
admitting a patient or providing an outpatient service, the hospital 
must receive a signed acknowledgment from the patient stating that the 
patient understands that a physician may not be present during all 
hours services are rendered to the patient.
    We encouraged public comments on whether the changes to the 
provider agreement regulations (Part 489) are necessary or whether the 
amendments and additions made to the whole hospital and rural provider 
exceptions within subpart J of Part 411 of our regulations are 
sufficient to provide guidance relating to section 6001 of the 
Affordable Care Act.
    Comment: Two commenters suggested that any changes to the existing 
provider agreement regulations in 42 CFR part 489 are unnecessary. The 
commenters stated that the proposed amendments to the whole hospital 
and rural provider exceptions in 42 CFR part 411, subpart J are 
sufficient to provide guidance to physician-owned hospitals. Another 
commenter supported entirely the proposal to make conforming changes to 
the provider agreement regulations.
    Response: We are persuaded by the commenters who suggested that the 
proposed amendments and additions made to the whole hospital and rural 
provider exceptions in subpart J of part 411 are sufficient for 
providing the necessary guidance to physician-owned hospitals. For the 
most part, the proposed conforming language we added to the provider 
agreement regulations does not substantively

[[Page 72253]]

impact the health and/or safety of patients. As a result, we are not 
finalizing the following proposed modifications to part 489: (1) In 
Sec.  489.20(u)(1)(ii) concerning a hospital's responsibility to 
disclose physician ownership on a Web site and in any public 
advertising; (2) in Sec.  489.20(u)(2) concerning a referring 
physician's responsibility to disclose to the patient any ownership 
interest in the hospital by a treating physician; and (3) in Sec.  
489.20(u)(3) concerning a hospital's responsibility not to condition 
any physician ownership either directly or indirectly on the physician 
owner making or influencing referrals to the hospital or otherwise 
generating business for the hospital.
    However, we are finalizing, as proposed, Sec.  489.20(w)(2), which 
requires a hospital to obtain a signed acknowledgment from a patient 
(before admitting the patient or providing an outpatient service to the 
patient) stating that the patient understands that a physician may not 
be present during all hours services are furnished to the patient. This 
provision is important to include in Part 489 as it addresses the 
patient health and safety concerns raised by the Affordable Care Act.

E. Conditions of Participation for Hospitals

    In the proposed rule, we inadvertently included proposed changes to 
the regulatory text at Sec.  482.12(g), concerning the condition of 
participation for a hospital's governing body. As discussed above, in 
this final rule, we are withdrawing this proposal.

F. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and to solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
    <bullet> The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    <bullet> The accuracy of our estimate of the information collection 
burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    In the August 3, 2010 proposed rule (75 FR 46436), we solicited 
public comments on each of the issues outlined above regarding the 
provisions of section 6001 of the Affordable Care Act relating to 
physician self-referrals that were discussed in section XVIII.A. 
through D. of the proposed rule (now in sections XXII.A through D. of 
this final rule) that contained information collection requirements. We 
discuss these provisions below and address any public comments that we 
received in response to our solicitation.
    As discussed in section XVII.C.4. and D. of the preamble of the 
August 3, 2010 proposed rule (and section XXII.C.4. and D. of this 
final rule), current Sec.  489.20(u)(1) states that, in the case of a 
physician-owned hospital as defined in Sec.  489.3, the hospital must 
furnish written notice to all patients at the beginning of their 
hospital stay or outpatient visit that the hospital is a physician-
owned facility. Current Sec.  489.20(u)(2) provides that hospitals must 
require each physician who is a member of the hospital's medical staff 
to agree, as a condition of his or her continued medical staff 
membership or admitting privileges, to disclose in writing to all 
patients the physician refers to the hospital any ownership or 
investment interest held by the physician or an immediate family member 
of the physician. We proposed to amend Sec.  489.20(u)(2) to correspond 
to changes we proposed at the same time to the physician self-referral 
regulations. Specifically, we proposed to modify Sec.  489.20(u)(2) to 
expand the physician disclosure obligation to include disclosure of the 
treating physician's ownership or investment interest in the hospital. 
The burden associated with the requirements in this section is the time 
and effort necessary for hospitals and physicians to furnish the 
required notices. This requirement is subject to the PRA; however, the 
associated burden under the existing Sec.  489.20(u) is currently 
approved under OCN 0938-1034, with a February 28, 2011 expiration date.
    Section 6001 of the Affordable Care Act amended the rural provider 
and whole hospital exceptions to the physician self-referral 
prohibition in section 1877 of the Act. To implement these provisions, 
we proposed to add Sec.  411.362 to our regulations and to amend Sec.  
489.20(u)(2) (we note that we are not finalizing the proposed amendment 
to Sec.  489.20(u)(2) in this final rule, as discussed below). We 
proposed new Sec.  411.362(b)(3)(ii)(A), which would require physician-
owned hospitals to have procedures in place to require that each 
referring physician agree, as a condition of his or her continued 
medical staff membership or admitting privileges, to provide written 
disclosure of his or her ownership or investment interest in the 
hospital (and, if applicable a treating physician's ownership or 
investment interest in the hospital) to all patients whom the physician 
refers to the hospital. This provision imposes a burden on both 
hospitals and physicians.
    With respect to hospitals, we indicated in the proposed rule that 
the burden associated with this requirement is the time and effort 
necessary for hospitals to develop, draft, and implement changes to its 
medical staff bylaws and other policies governing admitting privileges. 
Approximately 265 hospitals would be required to comply with these 
requirements. We estimate that it would require a hospital's general 
counsel 2 hours to revise a hospital's medical staff bylaws and 
policies governing admitting privileges. Therefore, the total annual 
hospital burden would be 530 hours at a cost of $32,875.90. As 
discussed earlier in section XXII.D. of this final rule, based upon 
public comments we received, we are not finalizing the proposed 
amendment to Sec.  489.20(u)(2) that the referring physician must 
provide written disclosure of the treating physician's ownership or 
investment interest in the hospital. However, we are finalizing the 
proposed requirement at Sec.  411.362(b)(3)(ii)(A).
    With respect to physicians, the burden associated with this 
requirement is the time and effort necessary for a referring physician 
owner or investor to develop a list of all other physician owners or 
investors in the hospital and draft a formal notice to patients that 
discloses the referring physician's ownership or investment interest in 
the hospital, informs the patient that his or her treating physician(s) 
may have an ownership or investment interest in the hospital, and 
directs the patient to review a list identifying all other physician 
owners or investors in the hospital. This list may be used by patients 
in making their health care decisions. Under existing Sec.  
489.20(u)(1), hospitals are currently required to provide a list of 
their physician owners or investors to patients upon request at the 
beginning of their inpatient stay or outpatient visit. Because 
hospitals already maintain lists of their owners and investors, we 
estimate that it will take each physician 1 hour annually to obtain 
such a list from the hospital, draft a disclosure notice, and make 
copies that will be distributed to patients. In addition, we estimate 
that it will take 30 seconds to provide the

[[Page 72254]]

disclosure notice to each patient and an additional 30 seconds to 
record proof of disclosure in each patient's medical record. Although 
we can estimate the number of physician-owned hospitals, we are unable 
to quantify the number of physicians (or their immediate family 
members), who possess an ownership or investment interest in hospitals. 
There are limited data available concerning physician ownership in 
hospitals. The studies to date, including those by CMS and the GAO, 
pertain to physician ownership in specialty hospitals (cardiac, 
orthopedic, and surgical hospitals). These specialty hospitals 
published data concerning the average percentage of shares of direct 
ownership by physicians (less than 2 percent), indirect ownership 
through group practices, and the aggregate percentage of physician 
ownership, but did not publish the number of physician owners in these 
types of hospitals. More importantly, Sec.  489.20(u)(2) applies to 
physician owners of any type of hospital. Our other research involved a 
review of enrollment data. However, the CMS Medicare enrollment 
application (CMS-855) requires physicians to report only those 
ownership interests that are 5 percent or more (direct or indirect), 
and thus, most physician ownership is not captured. While we 
acknowledge there is a burden associated with this information 
collection requirement, we have no way to quantify this requirement's 
burden. Therefore, because we are unable to estimate the total 
physician burden associated with this reporting requirement, we 
proposed to assign 1 burden hour to this requirement. We sought public 
comments pertaining to this burden. However, we did not receive any 
public comments. Therefore, we are finalizing the burden estimate of 1 
hour.
    Existing Sec.  489.20(w) requires hospitals, as defined in Sec.  
489.24(b), to furnish all patients notice in accordance with Sec.  
482.13(b)(2), at the beginning of their hospital stay or outpatient 
visit if a doctor of medicine or a doctor of osteopathy is not present 
in the hospital 24 hours per day, 7 days per week. The notice must 
indicate how the hospital will meet the medical needs of any inpatient 
who develops an emergency medical condition, as defined in Sec.  
489.24(b), at a time when there is no physician present in the 
hospital. The burden associated with this requirement is the time and 
effort necessary for each hospital to develop a standard notice to 
furnish to its patients. Although this requirement is subject to the 
PRA, the associated burden is approved under OCN 0938-1034, with an 
expiration date of February 28, 2011.
    Sections 489.20(w)(2) and 411.362(b)(5)(i) require that, following 
a hospital's disclosure to a patient that it does not have a physician 
available during all hours that the hospital is providing services to 
such patient, the hospital must obtain a signed acknowledgment from the 
patient stating that the patient understands that no physician is 
available for that period. The burden associated with these 
requirements is the time and effort necessary for each hospital to add 
an acknowledgment line to its current form, disclose the form to the 
patient, obtain the patient's signature, and copy and record the form 
in the patient's medical record. The requirements in Sec.  489.20(w) 
applies to all hospitals (not just physician-owned hospitals), as 
defined in Sec.  489.24(b). We estimate that there are approximately 
2,557 hospitals and CAHs that may not have a physician on site at all 
times. We estimate that it will take each hospital 30 minutes to amend 
its current disclosure form to add an acknowledgment line, an 
additional 30 seconds to obtain the patient's signature, and an 
additional 30 seconds to include a copy of the notice in the patient's 
medical record. The estimated annual burden associated with developing 
an amended form, obtaining patient signatures, and copying and 
recording the form is 1,196,932.6 hours at a cost of approximately 
$18,518,081. We did not receive any public comments regarding this 
requirement. Therefore, we are finalizing the burden estimate as 
proposed.
    Section 411.362(b)(3)(ii)(C) requires disclosure by a hospital, on 
any public Web site for the hospital and in any public advertising, 
that the hospital is owned or invested in by physicians. The burden 
associated with this disclosure requirement is the time and effort 
necessary for hospitals to draft and post such a disclosure on their 
Web sites (where applicable) and to include such a disclosure in any 
existing or future public advertising that the hospitals may utilize. 
We estimate that 265 hospitals will be required to comply with this 
requirement. In addition, we estimate that it will take each hospital 1 
hour to develop and place this information on its Web site and/or in a 
public advertisement. The estimated annual hospital burden associated 
with placing the aforementioned information in Web sites, public 
advertisement, or both is 265 hours at a cost of $3,993.55. In 
addition, we estimate that it will take 30 minutes annually for a 
hospital to review and update the information contained in its Web 
site, public advertising or both. The estimated annual burden 
associated with the annual review and update of the information is 
132.5 hours at a cost of $1,996.77. As discussed in section XXII.D. of 
this final rule), we have concluded that a proposed conforming change 
to Sec.  489.20(u)(1)(ii) is unnecessary, and therefore, we are not 
finalizing that proposed regulation.

G. Regulatory Flexibility Analysis

    We have examined the impacts of this final rule as required by 
Executive Order 12866 (September 1993, Regulatory Planning and Review), 
the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-
354), section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on 
Federalism, and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules that have economically 
significant effects ($100 million or more in any 1 year) or adversely 
affect in a material way the economy, a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local, or tribal government or communities (58 FR 
51741).
    We have determined that this final rule is not a major rule as 
defined in 5 U.S.C. 804(2).
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations, and small 
governmental jurisdictions. Many hospitals are considered to be small 
entities, either by being nonprofit organizations or by meeting the 
Small Business Administration (SBA) definition of a small business 
(hospitals having revenues of $34.5 million or less in any 1 year). 
(For details on the latest standards for health care providers, we 
refer readers to the SBA's Web site at: http://sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf (refer to the 
620000 series).) For purposes of the RFA, we have determined that many

[[Page 72255]]

hospitals will be considered small entities according to the SBA size 
standards. Individuals and States are not included in the definition of 
a small entity.
    As discussed in sections XXII.A. through D. of this final rule, 
section 6001 of the Affordable Care Act amended section 1877 of the Act 
to impose additional requirements in order to qualify for the rural 
provider and hospital ownership or investment exceptions. Our policies 
in this final rule incorporate these requirements into our regulations. 
Most physicians who have ownership or investment interests in hospitals 
(``physician-owned hospitals'') and who refer DHS to the hospital, are 
subject to the physician self-referral prohibition, and are unable to 
qualify for the ownership and investment exception at section 
1877(d)(1) of the Act. Section 1877(d)(1) of the Act provides an 
exception for ownership or investment in publicly traded securities in 
a corporation where there is stockholder equity exceeding $75 million 
at the end of the corporation's most recent fiscal year or on average 
during the previous 3 fiscal years; or the ownership or investment 
interest involves mutual funds in a company that has assets greater 
than $75 million. Studies by the OIG and GAO have concluded that 
physician-owned hospitals tend to be smaller and are unable to meet the 
$75 million threshold. Therefore, most physician-owned hospitals avail 
themselves of the rural provider or hospital ownership exceptions 
(sections 1877(d)(2) and (d)(3) of the Act, respectively).
    Our revisions to the regulations limit the creation of new 
Medicare-participating hospitals in which physician owners or investors 
intend to refer patients for DHS by requiring such hospitals to have 
physician ownership and a provider agreement in effect on December 31, 
2010, as provided for by section 6001 of the Affordable Care Act. This 
revision affects facilities with physician ownership or investment that 
are currently under development but may be unable to have a provider 
agreement in effect on December 31, 2010. We believe there are only a 
few facilities or hospital projects under development that will be 
unable to meet either of these criteria.
    In addition to the effect on the creation of new physician-owned 
hospitals, the revision of the regulations to incorporate the 
provisions of section 6001 of the Affordable Care Act will impact 
existing physician-owned hospitals that currently avail themselves of 
the rural provider or whole hospital exception. Specifically, a 
physician-owned hospital is prohibited from expanding the number of 
beds, operating rooms, and procedure rooms beyond those for which it 
was licensed as of March 23, 2010, or, in the case of a hospital that 
did not have a provider agreement in effect as of this date but does 
have a provider agreement in effect on December 31, 2010, the effective 
date of the provider agreement. We believe there are some hospitals 
that were in the midst of an expansion that was not completed by March 
23, 2010 (or, in the case of a hospital that did not have a provider 
agreement in effect as of this date but does have a provider agreement 
in effect on December 31, 2010), and thus, may not be able to use the 
new beds, operating rooms, and procedures rooms. We believe that most 
facilities and their investors were aware of the possible legislation 
that will limit facility expansion and, thus, did not continue to 
pursue expansion of their facilities.
    Our regulations require hospitals to have procedures in place that 
require referring physicians to disclose to patients the referring 
physicians' ownership or investment interests in the hospital, as well 
as any ownership or investment interest in the hospital held by a 
treating physician. This policy also requires hospitals to disclose on 
any public Web site for the hospital or in any public advertising that 
it is owned or invested in by physicians. Finally, under the revision 
of the regulations, a hospital may not condition any physician 
ownership or investment either directly or indirectly on the physician 
making or influencing referrals to the hospital or otherwise generating 
business for the hospital. Most physician-owned hospitals comply with 
the current provisions of Sec.  489.20(u). Thus, they have procedures 
in place to require referring physician owners or investors to disclose 
their ownership or investment interests to patients. We believe most 
physicians and hospitals will be minimally affected by the additional 
requirements.
    Our revisions to the regulations require that hospitals must ensure 
that all ownership and investment interests are bona fide, a step that 
we believe most prudent hospitals are already undertaking. We believe 
most of the new statutory and regulatory provisions will have little, 
if any, impact on physician-owned hospitals or physicians. The only 
provision that may have a minor impact is the provision found under 
section 1877(i)(1)(D)(i) of the Act and Sec.  411.362(b)(4)(i) of the 
regulations that prohibits physician-owned hospitals from increasing 
the percentage of the total value of the ownership or investment 
interests held in the hospital, or in an entity whose assets include 
the hospital, by physician owners or investors beyond that which 
existed on March 23, 2010. Therefore, hospitals and other entities that 
own the hospital must monitor the percentages of ownership or 
investment to ensure that the percentage is not increased. We believe 
this provision will have a minor effect on some hospitals and their 
physician owners or investors.
    Our revisions to the regulations also require hospitals to take 
certain steps to ensure patient safety, most of which are practices or 
procedures that we believe most hospitals currently undertake. Building 
upon the safety requirements found in existing Sec.  489.20(w), we are 
requiring under Sec. Sec.  411.362(b)(5)(i) and 489.20(w)(2) that, 
before admitting a patient, a hospital that does not have a physician 
available on the premises to provide services during all hours in which 
the hospital is providing services to the patient, must receive a 
signed acknowledgment from the patient stating that the patient 
understands that a physician may not be present during the time 
services are furnished to a patient. In addition, Sec. Sec.  
411.362(b)(5)(ii) and 489.20(w)(1) will require hospitals to have the 
capacity to provide assessment and initial treatment for patients and 
the ability to refer and transfer patients to hospitals with the 
capability to treat the needs of the patient involved. We believe 
requesting a signed acknowledgment will impose a minimal burden on 
hospitals. Also, most hospitals currently have in place procedures to 
ensure that they have the capacity to provide assessment and initial 
treatment for patients and the ability to refer and transfer patients.
    Lastly, our revisions to the regulations prohibit a facility that 
was previously an ASC and was converted into a hospital from qualifying 
for the rural provider or whole hospital ownership exceptions to the 
self-referral prohibition. Although we have no direct data on this 
issue, we believe there are only a few ASCs that are being converted to 
a hospital, and, thus, the effect is minimal.
    The changes concerning disclosure of physician ownership in 
hospitals and patient safety are consistent with the physician self-
referral statute and regulations, our existing regulations governing 
basic commitments of providers, and the current practices of most 
hospitals. Thus, our requirements will present a negligible impact on 
physician-owned hospitals. Physician-owned hospitals will have a one-
time cost associated with creating or modifying a notice to be used 
when a physician is not on the premises 24

[[Page 72256]]

hours a day. In addition, these hospitals will incur the costs 
associated with ensuring that a signed acknowledgment is received from 
patients. Similarly, the costs borne by individual physicians to 
implement the provisions will be limited to a one-time cost associated 
with developing a disclosure notice that discloses the ownership of the 
referring and, where applicable, the treating physician.
    Overall, we believe that beneficiaries will be positively impacted 
by these provisions. Specifically, additional information concerning 
disclosures of ownership and patient safety measures equip patients to 
make informed decisions about where they elect to receive care. Our 
policies make no significant changes that have the potential to impede 
patient access to health care facilities and services. We believe that 
our policies are necessary to conform our regulations to the amendments 
to section 1877 of the Act. We also believe the regulations will help 
minimize anticompetitive behavior that can affect the decision as to 
where a beneficiary receives health care services and will possibly 
enhance the quality of the services furnished.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. With 
the exception of hospitals located in certain New England counties, for 
purposes of section 1102(b) of the Act, we now define a small rural 
hospital as a hospital that is located outside an urban area and has 
fewer than 100 beds. Section 601(g) of the Social Security Amendments 
of 1983 (Pub. L. 98-21) designated hospitals in certain New England 
counties as belonging to the adjacent urban areas. Thus, we continue to 
classify these hospitals as urban hospitals.
    We believe that our policies in this final rule will affect a 
relatively small number of physician-owned hospitals and physicians. We 
are uncertain of the exact numbers of hospitals with physician 
ownership or investment that will be impacted by the policies and their 
restrictions. However, the most recent studies by CMS (August 8, 2006 
Final Report to the Congress Required under Section 5006 of the Deficit 
Reduction Act of 2005) and MedPAC (June 2005 Report to the Congress) 
concluded that there were approximately 128 physician-owned specialty 
hospitals (those that focus primarily on patients with a cardiac 
condition, orthopedic condition, or those receiving a surgical 
procedure). We recognize that there are other hospitals with physician 
ownership that do not meet the definition of a specialty hospital but 
we do not have verifiable data on the number of these facilities. 
However, we have recently received information from a trade association 
representing physician-owned hospitals that there are approximately 265 
hospitals that will be subject to the provisions of our final rule with 
comment period.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. That threshold 
level is currently approximately $135 million. This final rule will not 
mandate any requirements for State, local, or tribal governments, nor 
will it affect private sector costs.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct costs on State and local 
governments, preempts State law, or otherwise has Federalism 
implications. Because this regulation does not impose any costs on 
State or local governments, the requirements of Executive Order 13132 
are not applicable.
    In accordance with the provisions of Executive Order 12866, this 
final rule was reviewed by the Executive Office of Management and 
Budget.

XXIII. Interim Final Rule With Comment Period: Certified Registered 
Nurse Anesthetist (CRNA) Services Furnished in Rural Hospitals and 
Critical Care Hospitals (CAHs)

A. Background

    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50299), we adopted a 
policy that would allow otherwise eligible critical access hospitals 
(CAHs) or hospitals that have reclassified from urban to rural status 
under section 1886(d)(8)(E) of the Act and 42 CFR 412.103 to receive 
reasonable cost payments for anesthesia services and related care 
furnished by nonphysician anesthetists (referred to in this section as 
CRNA pass-through payments), effective for cost reporting periods 
beginning on or after October 1, 2010. After the issuance of the final 
rule, we received an inquiry from a public commenter who indicated that 
CMS had misunderstood its submitted comment on the FY 2011 IPPS/LTCH 
PPS proposed rule in which the commenter stated that the policy should 
be effective on the basis of a calendar year, not a cost reporting 
period, as a hospital can only begin receiving CRNA pass-through 
payments on the basis of a calendar year. Our response to this public 
comment in the CY 2011 IPPS/LTCH PPS final rule (75 FR 50303) indicated 
that it was unnecessary to modify the effective date in the final rule 
because ``if the provision is effective for cost reporting periods 
beginning on or after October 1, 2010, it will also be in effect for 
the calendar year beginning January 1, 2011.'' While this statement is 
accurate, it does not take into account that if a hospital's cost 
reporting period begins on or after January 1, 2011, the hospital will 
be ineligible to receive CRNA pass-through payments until the beginning 
of the next calendar year on January 1, 2012. Under the finalized 
policy in the CY 2011 IPPS/LTCH PPS final rule, hospitals reclassifying 
from urban to rural areas with cost reporting periods beginning between 
October 1, 2010, and December 31, 2011, will be able to first receive 
CRNA pass-through payments effective January 1, 2011, while hospitals 
with cost reporting periods beginning on or after January 1, 2011, will 
not be able to receive CRNA pass-through payments until one year later 
on January 1, 2012.

B. Revised Policy

    Our intention in the FY 2011 IPPS/LTCH PPS final rule was not to 
make the provision for CRNA pass-through payment for anesthesia 
services and related care furnished by nonphysician anesthetists 
effective January 1, 2011, for some hospitals and CAHs and January 1, 
2012, for other hospitals and CAHs. We believe the provision would be 
more equitable if it had a uniform effective date for all hospitals and 
CAHs. While we considered changing the effective date to January 1, 
2011, for all hospitals and CAHs to begin receiving CRNA pass-through 
payments under this provision, we note that our regulations at 42 CFR 
412.113(c)(2)(iii) state that the hospital or CAH must demonstrate to 
its fiscal intermediary prior to the start of the calendar year that it 
meets the requirements for receiving CRNA pass-through payments. For 
this reason, we believe the best option would be to adopt an effective 
date of December 2, 2010, for all hospitals and CAHs, which we are 
providing for in this interim final rule with comment period. With an 
effective date of December 2, 2010, hospitals and CAHs will be able to 
demonstrate prior to January 1, 2011, that they meet the requirements 
for receiving CRNA pass-

[[Page 72257]]

through payments beginning January 1, 2011. We are amending the 
regulations at 42 CFR 412.113(c)(2)(i)(A) to provide for an effective 
date of December 2, 2010, for all hospitals and CAHs to begin receiving 
CRNA pass-through payments for anesthesia services and related care 
furnished by nonphysician anesthetists.

C. Waiver of Notice of Proposed Rulemaking and Delay in the Effective 
Date

    Because a change to the effective date of a regulation previously 
adopted through notice-and-comment rulemaking is a substantive change, 
we would ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite public comment on the proposed rule before 
making any change to the regulation. This procedure can be waived, 
however, if an agency finds good cause that notice-and-comment 
procedure is impracticable, unnecessary, or contrary to the public 
interest and incorporates a statement of the finding and its reasons in 
the rule issued. In addition, the Administrative Procedure Act (APA) 
normally requires a 30-day delay in the effective date of a final rule. 
Furthermore, the Congressional Review Act (CRA) generally requires an 
agency to delay the effective date of a major rule by 60 days in order 
to allow for congressional review of the agency action.
    We believe there is good cause to waive notice-and-comment 
rulemaking to make a change in the effective date of the CRNA pass-
through payment provision adopted in the FY 2011 IPPS/LTCH PPS final 
rule (75 FR 50414). As stated above, we believe it would be inequitable 
and contrary to the public interest to have two different effective 
dates one year apart for hospitals and CAHs depending on when their 
cost reporting period begins. A change to the effective date will only 
advantage hospitals and CAHs without disadvantaging any hospital or CAH 
as it does not affect the ability of hospitals or CAHs with cost 
reporting periods beginning between October 1, 2010, and December 31, 
2010, to begin receiving CRNA pass-through payments on January 1, 2011, 
and allows hospitals and CAHs with cost reporting periods beginning on 
any other date to receive CRNA pass-through payments one year earlier. 
Furthermore, because the purpose of making pass-through payments for 
CRNA services is to provide more favorable payment treatment for these 
services in order to improve access to anesthesia services in hospitals 
and CAHs that are in low population density areas, we believe it would 
serve the public interest to have this provision apply to all 
qualifying hospitals and CAHs during 2011, including those hospitals 
and CAHs that, under the existing regulations, cannot receive CRNA 
pass-through payments until January 1, 2012. Further, it would be 
impracticable to go through notice-and-comment rulemaking to achieve 
what we believe would be the more equitable result because there is 
insufficient time to complete a proposed rule, allow for a public 
comment period and prepare a final rule responding to those public 
comments prior to January 1, 2011, when hospitals and CAHs can next 
begin receiving CRNA pass-through payments.
    For these reasons, in this interim final rule with comment period, 
we are adopting a change to the effective date of the CRNA pass-through 
provision originally adopted under Sec.  412.113(c)(2)(i)(A) of the 
regulations in the FY 2011 IPPS/LTCH PPS final rule for FY 2011 (75 FR 
50414) from ``cost reporting periods beginning on or after October 1, 
2010'' to ``December 2, 2010.'' Under this revision, hospitals and CAHs 
that are reclassified from urban to rural areas can demonstrate to 
their Medicare contractor on or after December 2, 2010, that they meet 
the requirements to receive CRNA pass-through payment under Sec.  
412.113(c)(2)(iii) in order to begin receiving payments on January 1, 
2011.\38\ Hospitals and CAHs may receive CRNA pass-through payment for 
any portion of a cost reporting period that occurs on or after January 
1, 2011, provided all other requirements specified in Sec.  
412.113(c)(2)(iii) are met.
---------------------------------------------------------------------------

    \38\ The December 2, 2010 effective date is intended to give 
hospitals and CAHs affected by the change in the effective date 
sufficient time to demonstrate to their Medicare contractor that 
they meet the requirements in 42 CFR 412.113(c)(2)(iii) to begin 
receiving CRNA pass-through payments effective January 1, 2011. If, 
pursuant to the terms of the existing regulations, hospitals and 
CAHs have already demonstrated prior to December 2, 2010, that they 
meet the requirements in Sec.  412.113(c)(2)(iii) to begin receiving 
CRNA pass-through payments beginning January 1, 2011, they do not 
have to do so again as they will have already demonstrated prior to 
the start of the calendar year, consistent with both the existing 
regulations and the revised regulations, that they meet the 
requirements for receiving CRNA pass-through payments.
---------------------------------------------------------------------------

    With respect to a delay in the effective date, this interim final 
rule with comment period is not a major rule because it does not have 
an annual effect on the economy of $100 million or more in any 1 year 
and will not adversely affect in a material way the economy, a section 
of the economy, productivity, competition, jobs, the environment, 
public health or safety, or State, local, or tribal government or 
communities. As this interim final rule with comment period is not a 
major rule, we are not required to provide a 60-day delay in its 
effective date. However, we are providing a 30-day delay in the 
effective date of this interim final rule with comment period, 
consistent with the APA. We also are providing a 60-day comment period 
to receive public comments, as specified in the ADDRESSES section of 
this document.

D. Response to Comments

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

E. Collection of Information Requirements

    This interim final rule with comment period does not impose any new 
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. Chapter 
35).

F. Regulatory Impact Analysis

    We have examined the impact of this interim final rule with comment 
period as required by Executive Order 12866 (September 1993, Regulatory 
Planning and Review), the Regulatory Flexibility Act (RFA) (September 
19, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, 
the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), Executive 
Order 13132 on Federalism, and the Congressional Review Act (5 U.S.C. 
804(2)).
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules that have economically 
significant effects ($100 million or more in any 1 year) or adversely 
affect in a material way the economy, a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local, or tribal government or communities (58 FR 
51741). We have determined that this

[[Page 72258]]

interim final rule with comment period is not a major rule as defined 
in 5 U.S.C. 804(2).
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations, and small 
governmental jurisdictions. Most hospitals, including CAHs, are 
considered to be small entities, either by being nonprofit 
organizations or by meeting the Small Business Administration (SBA) 
definition of a small business (hospitals having revenues of $34.5 
million or less in any 1 year). (For details on the latest standards 
for health care providers, we refer readers to the SBA's Web site at: 
http://sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf (refer to the 620000 series).) Individuals and States are 
not included in the definition of a small entity. For purposes of the 
RFA, we have determined that most of the affected hospitals and CAHs 
will be considered small entities according to the SBA size standards.
    As discussed above, in this interim final rule with comment period, 
we are making a revision to the effective date of a change to the CRNA 
pass-through provision for hospitals and CAHs that have reclassified 
under section 1886(d)(8)(E) of the Act and Sec.  412.103 of the 
regulations from ``cost reporting periods beginning on or after October 
1, 2010'' to ``December 2, 2010.'' This change to the effective date 
will allow hospitals and CAHs that have reclassified under section 
1886(d)(8)(E) of the Act and Sec.  412.103 of the regulations to begin 
receiving CRNA pass-through payments on January 1, 2011, instead of 
January 1, 2012, if they have a cost reporting period that begins on or 
after January 1, 2011. (The December 2, 2010 effective date gives these 
hospitals and CAHs 1 month to demonstrate that they are otherwise 
eligible to receive these pass-through payments). In the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50664), we indicated that it would be 
difficult to quantify the payment impact of the change to the 
regulations that would allow hospitals and CAHs reclassified under 
section 1886(d)(8)(E) of the Act and Sec.  412.103 of the regulations 
because, in order to qualify to receive reasonable cost-based payment 
for anesthesia and related services provided by qualified nonphysician 
anesthetists, a rural hospital or CAH cannot exceed an annual limit of 
800 surgical procedures requiring anesthesia. In addition, although a 
hospital or CAH may contract with more than one qualified nonphysician 
anesthetist and be paid based on reasonable cost for anesthesia and 
related services performed by these anesthetists, the total number of 
hours of services furnished by the nonphysician anesthetists may not 
exceed 2,080 hours annually. In the final rule, we indicated that we 
could not establish the number of facilities that would meet or exceed 
this threshold and, as a result, we could not quantify the impact of 
the change, but we stated our belief that the impact of the change to 
the regulations would be expected to be relatively minor. A change to 
the effective date will only affect a subset of those hospitals and 
CAHs affected by the change to the regulations adopted in the FY 2010 
IPPS/LTCH PPS final rule. For this reason, we would similarly expect 
the change to the effective date in this interim final rule with 
comment period to have a minor impact on Federal expenditures.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. With 
the exception of hospitals located in certain New England counties, for 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside an urban area and has 
fewer than 100 beds. Section 601(g) of the Social Security Amendments 
of 1983 (Pub. L. 98-21) designated hospitals in certain New England 
counties as belonging to the adjacent urban areas. Thus, we continue to 
classify these hospitals as urban hospitals. As this provision will 
only affect hospitals and CAHs that are geographically located in an 
urban area, but have reclassified as rural under section 1886(d)(8)(E) 
of the Act and Sec.  412.103 of the regulations, the change may allow 
some reclassified small rural hospitals and CAHs to receive CRNA pass-
through payments up to 1 year earlier than under the regulations with 
the prior effective date.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation, by State, 
local, or tribal governments in the aggregate, or by the private 
sector. That threshold level is currently approximately $135 million. 
This interim final rule with comment period will not mandate any 
requirements for State, local, or tribal governments, nor will it 
affect private sector costs.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct costs on State and local 
governments, preempts State law, or otherwise has Federalism 
implications. Because this regulation does not impose any costs on 
State or local governments, the requirements of Executive Order 13132 
are not applicable.
    In accordance with the provisions of Executive Order 12866, the 
Office of Management and Budget reviewed this interim final rule with 
comment period.

List of Subjects

42 CFR Part 410

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

42 CFR Part 411

    Kidney diseases, Medicare, Physician referral, Reporting and 
recordkeeping requirements.

42 CFR Part 412

    Administrative practice and procedure, Health facilities, Medicare, 
Puerto Rico, Reporting and recordkeeping requirements.

42 CFR Part 413

    Health facilities, Kidney diseases, Medicare, Puerto Rico, 
Reporting and recordkeeping requirements.

42 CFR Part 416

    Health facilities, Health professions, Medicare, Reporting and 
recordkeeping requirements.

42 CFR Part 419

    Hospitals, Medicare, Reporting and recordkeeping requirements.

42 CFR Part 489

    Health facilities, Medicare, Reporting and recordkeeping 
requirements.


0
For reasons stated in the preamble of this document, the Centers for 
Medicare & Medicaid Services is amending 42 CFR Chapter IV as set forth 
below:

PART 410--SUPPLEMENTARY MEDICAL INSURANCE (SMI) BENEFITS

0
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).

[[Page 72259]]


0
2. Section 410.2 is amended by--
0
a. Under the definitions of ``Community mental health center (CMHC)'', 
removing the word ``and'' at the end of paragraph (4); removing the 
period at the end of paragraph (5) and adding in its place ``; and''; 
and adding a new paragraph (6).
0
b. Revising the definition of ``Partial hospitalization services''.
    The revisions and additions read as follows:


Sec.  410.2  Definitions.

* * * * *
    Community mental health center (CMHC) means an entity that--
* * * * *
    (6) Provides at least 40 percent of its services to individuals who 
are not eligible for benefits under title XVIII of the Social Security 
Act.
* * * * *
    Partial hospitalization services means a distinct and organized 
intensive ambulatory treatment program that offers less than 24-hour 
daily care other than in an individual's home or in an inpatient or 
residential setting and furnishes the services as described in Sec.  
410.43.
* * * * *

0
3. Section 410.27 is amended by--
0
a. Removing the word ``and'' at the end of paragraph (a)(1)(iii).
0
b. Revising paragraph (a)(1)(iv).
0
c. Adding a new paragraph (a)(1)(v).
0
d. Adding paragraph (a)(2).
0
e. Revising paragraphs (e) and (f).
0
f. Deleting paragraph (g).
    The addition and revisions read as follows:


Sec.  410.27  Outpatient hospital or CAH services and supplies incident 
to a physician or nonphysician practitioner service: Conditions.

    (a) * * *
    (1) * * *
    (iv) Under the direct supervision of a physician or a nonphysician 
practitioner as specified in paragraph (f) of this section. 
Nonphysician practitioners may directly supervise services that they 
may personally furnish in accordance with State law and all additional 
requirements, including those specified in Sec. Sec.  410.71, 410.73, 
410.74, 410.75, 410.76, and 410.77. For services furnished in the 
hospital or CAH, or in an outpatient department of the hospital or CAH, 
both on and off-campus, as defined in Sec.  413.65 of this subchapter, 
``direct supervision'' means that the physician or nonphysician 
practitioner must be immediately available to furnish assistance and 
direction throughout the performance of the procedure. It does not mean 
that the physician or nonphysician practitioner must be present in the 
room when the procedure is performed. For pulmonary rehabilitation, 
cardiac rehabilitation, and intensive cardiac rehabilitation services, 
direct supervision must be furnished by a doctor of medicine or 
osteopathy, as specified in Sec. Sec.  410.47 and 410.49, respectively; 
and
    (v) As nonsurgical extended duration therapeutic services.
    (A) Nonsurgical extended duration therapeutic services (extended 
duration services) are hospital outpatient therapeutic services that 
can last a significant period of time, have a substantial monitoring 
component that is typically performed by auxiliary personnel, have a 
low risk of requiring the physician's or appropriate nonphysician 
practitioner's immediate availability after the initiation of the 
service, and are not primarily surgical in nature. For these services, 
Medicare requires a minimum of direct supervision during the initiation 
of the service which may be followed by general supervision at the 
discretion of the supervising physician or the appropriate nonphysician 
practitioner. For these services, ``direct supervision'' means the 
definition specified in paragraph (a)(1)(iv) of this section. ``General 
supervision'' means the definition specified at Sec.  410.32(b)(3)(i).
    (B) ``Initiation'' means the beginning portion of the non-surgical 
extended duration therapeutic service which ends when the patient is 
stable and the supervising physician or the appropriate nonphysician 
practitioner believes the remainder of the service can be delivered 
safely under general supervision.
    (2) In the case of partial hospitalization services, also meet the 
conditions of paragraph (d) of this section.
* * * * *
    (e) Services furnished by an entity other than the hospital or CAH 
are subject to the limitations specified in Sec.  410.42(a).
    (f) For purposes of this section, ``nonphysician practitioner' '' 
means a clinical psychologist, licensed clinical social worker, 
physician assistant, nurse practitioner, clinical nurse specialist, or 
certified nurse-midwife.

0
4. Section 410.28 is amended by revising paragraph (e) to read as 
follows:


Sec.  410.28  Hospital or CAH diagnostic services furnished to 
outpatients: Conditions.

* * * * *
    (e) Medicare Part B makes payment under section 1833(t) of the Act 
for diagnostic services furnished by or under arrangements made by the 
participating hospital only when the diagnostic services are furnished 
under the appropriate level of physician supervision specified by CMS 
in accordance with the definitions in this paragraph and in Sec.  
410.32(b)(3)(i), (b)(3)(ii), and (b)(3)(iii). Under general supervision 
at a facility accorded provider-based status, the training of the 
nonphysician personnel who actually perform the diagnostic procedure 
and the maintenance of the necessary equipment and supplies are the 
continuing responsibility of the facility. In addition--
    (1) For services furnished directly or under arrangement in the 
hospital or in an on-campus or off-campus outpatient department of the 
hospital, as defined in Sec.  413.65 of this subchapter, ``direct 
supervision'' means that the physician must be immediately available to 
furnish assistance and direction throughout the performance of the 
procedure. It does not mean that the physician must be present in the 
room where the procedure is performed.
    (2) For services furnished under arrangement in nonhospital 
locations, ``direct supervision'' means the definition specified in 
Sec.  410.32(b)(3)(ii).
* * * * *

0
5. Section 410.152 is amended by revising paragraph (i)(2) to read as 
follows:


Sec.  410.152  Amounts of payment.

* * * * *
    (i) * * *
    (2) For ASC services furnished on or after January 1, 2008, in 
connection with the covered surgical procedures specified in Sec.  
416.166 of this subchapter, except as provided in paragraphs (i)(2)(i), 
(i)(2)(ii), and (l) of this section, Medicare Part B pays the lesser of 
80 percent of the actual charge or 80 percent of the prospective 
payment amount, geographically adjusted, if applicable, as determined 
under Subpart F of Part 416 of this subchapter. Part B coinsurance is 
20 percent of the actual charge or 20 percent of the prospective 
payment amount, geographically adjusted, if applicable
    (i) If the limitation described in Sec.  416.167(b)(3) of this 
subchapter applies, Medicare pays 80 percent of the amount determined 
under Subpart B of Part 414 of this subchapter and Part B coinsurance 
is 20 percent of the applicable payment amount, except as provided in 
paragraph (l) of this section.
    (ii) Between January 1, 2008 and December 31, 2010, Medicare Part B

[[Page 72260]]

pays 75 percent of the applicable payment amount for screening flexible 
sigmoidoscopies and screening colonoscopies, and Part B coinsurance is 
25 percent of the applicable payment amount.
* * * * *

PART 411--EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON MEDICARE 
PAYMENT

0
6. The authority citation for part 411 continues to read as follows:

    Authority: Secs. 1102, 1860D-1 through 1860D-42, 1871, and 1877 
of the Social Security Act (42 U.S.C. 1302, 1395w-101 through 1395w-
152, 1395hh and 1395nn).


0
7. Section 411.356 is amended by--
0
a. Revising paragraph (c)(1).
0
b. Removing the word ``and'' at the end of paragraph (c)(3)(ii).
0
c. Removing the period at the end of paragraph (c)(3)(iii) and adding 
``; and'' in its place.
0
d. Adding a new paragraph (c)(3)(iv).
    The revisions and addition read as follows:


Sec.  411.356  Exceptions to the referral prohibition related to 
ownership or investment interests.

* * * * *
    (c) * * *
    (1) A rural provider, in the case of DHS furnished in a rural area 
(as defined at Sec.  411.351 of this subpart) by the provider. A 
``rural provider'' is an entity that furnishes substantially all (not 
less than 75 percent) of the DHS that it furnishes to residents of a 
rural area and, for the 18-month period beginning on December 8, 2003 
(or such other period as Congress may specify), is not a specialty 
hospital, and in the case where the entity is a hospital, the hospital 
meets the requirements of Sec.  411.362 no later than September 23, 
2011.
* * * * *
    (3) * * *
    (iv) The hospital meets the requirements described in Sec.  411.362 
not later than September 23, 2011.

0
8. A new Sec.  411.362 is added to read as follows:


Sec.  411.362  Additional requirements concerning physician ownership 
and investment in hospitals.

    (a) Definitions. For purposes of this section--
    Physician owner or investor means a physician (or immediate family 
member of the physician) with a direct or an indirect ownership or 
investment interest in the hospital.
    Procedure room means a room in which catheterizations, 
angiographies, angiograms, and endoscopies are performed, except such 
term shall not include an emergency room or department (exclusive of 
rooms in which catheterizations, angiographies, angiograms, and 
endoscopies are performed).
    (b) General requirements. (1) Physician ownership and provider 
agreement. The hospital had physician ownership or investment on 
December 31, 2010; and a provider agreement under section 1866 of the 
Act in effect on that date.
    (2) Prohibition on facility expansion. The hospital may not 
increase the number of operating rooms, procedure rooms, and beds 
beyond that for which the hospital is licensed on March 23, 2010 (or, 
in the case of a hospital that did not have a provider agreement in 
effect as of this date, but does have a provider agreement in effect on 
December 31, 2010, the effective date of such agreement), unless an 
exception is granted by the Secretary pursuant to section 1877(i)(3) of 
the Social Security Act.
    (3) Disclosure of conflicts of interest.
    (i) At such time and in such manner as specified by CMS, the 
hospital must submit an annual report to CMS containing a detailed 
description of the identity of each owner or investor in the hospital 
and the nature and extent of all ownership and investment interests in 
the hospital.
    (ii) The hospital must--
    (A) Require each referring physician owner or investor who is a 
member of the hospital's medical staff to agree, as a condition of 
continued medical staff membership or admitting privileges, to provide 
written disclosure of his or her ownership or investment interest in 
the hospital (and, if applicable, the ownership or investment interest 
of any treating physician) to all patients whom the physician refers to 
the hospital. Disclosure must be required by a time that permits the 
patient to make a meaningful decision regarding the receipt of care.
    (B) Not condition any physician ownership or investment interests 
either directly or indirectly on the physician owner or investor making 
or influencing referrals to the hospital or otherwise generating 
business for the hospital.
    (C) Disclose on any public Web site for the hospital and in any 
public advertising that the hospital is owned or invested in by 
physicians.
    (4) Ensuring bona fide investment. The hospital satisfies the 
following criteria:
    (i) The percentage of the total value of the ownership or 
investment interests held in the hospital, or in an entity whose assets 
include the hospital, by physician owners or investors in the aggregate 
does not exceed such percentage as of March 23, 2010.
    (ii) Any ownership or investment interests that the hospital offers 
to a physician owner or investor are not offered on more favorable 
terms than the terms offered to a person who is not a physician owner 
or investor.
    (iii) The hospital (or any owner or investor in the hospital) does 
not directly or indirectly provide loans or financing for any 
investment in the hospital by a physician owner or investor.
    (iv) The hospital (or any owner or investor in the hospital) does 
not directly or indirectly guarantee a loan, make a payment toward a 
loan, or otherwise subsidize a loan, for any individual physician owner 
or investor or group of physician owners or investors that is related 
to acquiring any ownership or investment interest in the hospital.
    (v) Ownership or investment returns are distributed to each owner 
or investor in the hospital in an amount that is directly proportional 
to the ownership or investment interest of such owner or investor in 
the hospital.
    (vi) Physician owners and investors do not receive, directly or 
indirectly, any guaranteed receipt of or right to purchase other 
business interests related to the hospital, including the purchase or 
lease of any property under the control of other owners or investors in 
the hospital or located near the premises of the hospital.
    (vii) The hospital does not offer a physician owner or investor the 
opportunity to purchase or lease any property under the control of the 
hospital or any other owner or investor in the hospital on more 
favorable terms than the terms offered to an individual who is not a 
physician owner or investor.
    (5) Patient safety. The hospital satisfies the following criteria:
    (i) If the hospital does not have a physician available on the 
premises to provide services during all hours in which the hospital is 
providing services to the patient, the hospital must disclose this 
information to the patient. Before providing services to the patient, 
the hospital must receive a signed acknowledgment from the patient 
stating that the patient understands that a physician may not be 
present during all hours services are furnished to the patient.
    (ii) The hospital must have the capacity to provide assessment and 
initial treatment for all patients, and the ability to refer and 
transfer patients to

[[Page 72261]]

hospitals with the capability to treat the needs of the patient that 
the hospital is unable to address. For purposes of this paragraph, the 
hospital inpatient stay or outpatient visit begins with the provision 
of a package of information regarding scheduled preadmission testing 
and registration for a planned hospital admission for inpatient care or 
an outpatient service.
    (6) Prohibition on conversion from an ambulatory surgery center. 
The hospital must not have been converted from an ambulatory surgical 
center to a hospital on or after March 23, 2010.

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

0
9. The authority citation for part 412 continues to read as follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh), and sec. 124 of Pub. L. 106-113 (113 Stat. 
1501A-332).


0
10. Section 412.105 is amended by--
0
a. Revising paragraph (f)(1)(ii).
0
b. Revising paragraph (f)(1)(iii)(C).
0
c. Adding a new paragraph (f)(1)(iii)(D).
0
d. Revising paragraph (f)(1)(iv)(B).
0
e. Revising paragraph (f)(1)(iv)(C).
0
f. Revising paragraph (f)(1)(ix).
    The revisions and addition read as follows:


Sec.  412.105  Special treatment: Hospitals that incur indirect costs 
for graduate medical education programs.

* * * * *
    (f) * * *
    (1) * * *
    (ii) In order to be counted, the resident must be assigned to one 
of the following areas:
    (A) The portion of the hospital subject to the hospital inpatient 
prospective payment system.
    (B) The outpatient department of a hospital that meets provider-
based status as defined at Sec.  413.65(a)(2) of this subchapter.
    (C) The portions of a hospital located in Puerto Rico that are 
subject to the hospital inpatient prospective payment system, including 
off-campus outpatient departments that meet provider-based status as 
defined at Sec.  413.65(a)(2) of this subchapter.
    (D) The portions of a hospital that are reimbursed under a 
reimbursement system authorized under section 1814(b)(3) of the Act.
    (E) Effective for discharges occurring on or after October 1, 1997, 
the time spent by a resident in a nonprovider setting in patient care 
activities, as defined in Sec.  413.75(b) of this subchapter, under an 
approved medical residency training program is counted towards the 
determination of full-time equivalency if the criteria set forth in 
Sec.  413.78(c), (d), (e), (f), or (g) of this subchapter, as 
applicable, are met.
    (iii) * * *
    (C) Effective for cost reporting periods beginning on or after 
January 1, 1983, except for research activities described in paragraph 
(f)(1)(iii)(B) of this section, the time a resident is training in an 
approved medical residency program in a hospital setting, as described 
in paragraphs (f)(1)(ii)(A) through (f)(1)(ii)(D) of this section, must 
be spent in either patient care activities, as defined in Sec.  
413.75(b) of this subchapter, or in nonpatient care activities, such as 
didactic conferences and seminars, to be counted. This provision may 
not be applied in a manner that would require the reopening of settled 
cost reports, except those cost reports on which, as of March 23, 2010, 
there is a jurisdictionally proper appeal pending on direct GME or IME 
payments.
    (D) Effective for cost reporting periods beginning on or after 
January 1, 1983, the time spent by a resident in an approved medical 
residency program on vacation, sick leave, or other approved leave that 
does not prolong the total time the resident is participating in the 
approved program beyond the normal duration of the program is 
countable. This provision may not be applied in a manner that would 
require the reopening of settled cost reports, except those cost 
reports on which, as of March 23, 2010, there is a jurisdictionally 
proper appeal pending on direct GME or IME payments.
    (iv) * * *
    (B)(1) Effective for portions of cost reporting periods beginning 
on or after July 1, 2005, a hospital's otherwise applicable FTE 
resident cap may be reduced if its reference resident level, as 
determined under Sec.  413.79(c)(1)(ii)(A) of this subchapter, is less 
than its otherwise applicable FTE resident cap in a reference cost 
reporting period, in accordance with the provisions of Sec.  
413.79(c)(3) of this subchapter. The reduction is 75 percent of the 
difference between the otherwise applicable FTE resident cap and the 
reference resident level.
    (2) Effective for portions of cost reporting periods beginning on 
or after July 1, 2011, a hospital's otherwise applicable FTE resident 
cap may be reduced if its reference resident level, as determined under 
Sec.  413.79(c)(1)(ii)(B) of this subchapter, is less than its 
otherwise applicable FTE resident cap in a reference cost reporting 
period, in accordance with the provisions of Sec.  413.79(m) of this 
subchapter. The reduction shall take into account the hospital's FTE 
resident cap as reduced under paragraph (f)(1)(iv)(B)(1). The reduction 
is 65 percent of the difference between the otherwise applicable FTE 
resident cap and the reference resident level.
    (C)(1) Effective for portions of cost reporting periods beginning 
on or after July 1, 2005, a hospital may qualify to receive an increase 
in its otherwise applicable FTE resident cap (up to 25 additional FTEs) 
if the criteria specified in Sec.  413.79(c)(4) of this subchapter are 
met.
    (2) Effective for portions of cost reporting periods beginning on 
or after July 1, 2011, a hospital may qualify to receive an increase in 
its otherwise applicable FTE resident cap (up to 75 additional FTEs) if 
the criteria specified in Sec.  413.79(n) of this subchapter are met.
* * * * *
    (ix)(A) A hospital may receive a temporary adjustment to its FTE 
resident cap to reflect residents added because of another hospital's 
closure if the hospital meets the criteria specified in Sec. Sec.  
413.79(h)(1) and (h)(2) of this subchapter. If a hospital that closes 
its residency training program agrees to temporarily reduce its FTE 
resident cap according to the criteria specified in Sec. Sec.  
413.79(h)(1) and (h)(3)(ii) of this subchapter, another hospital(s) may 
receive a temporary adjustment to its FTE resident cap to reflect 
residents added because of the closure of the residency training 
program if the criteria specified in Sec. Sec.  413.79(h)(1) and 
(h)(3)(i) of this subchapter are met.
    (B) A hospital may receive a permanent adjustment to its FTE 
resident cap as a result of slots that were redistributed from a closed 
hospital, as defined at Sec.  413.79(h)(1)(i) of this subchapter, if 
the hospital meets the requirements at Sec.  413.79(o) of this 
subchapter.
* * * * *

0
11. Section 412.113 is amended by revising paragraph (c)(2)(i)(A) to 
read as follows:


Sec.  412.113  Other payments.

* * * * *
    (c) * * *
    (2)(i) * * *
    (A) The hospital or CAH is located in a rural area as defined in 
Sec.  412.62(f) and is not deemed to be located in an urban area under 
the provisions of Sec.  412.64(b)(3). Effective December 2, 2010, the 
hospital or CAH is either located in a rural area as defined at

[[Page 72262]]

Sec.  412.62(f) and is not deemed to be located in an urban area under 
the provisions of Sec.  412.64(b)(3) or the hospital or CAH has 
reclassified as rural under the provisions at Sec.  412.103.
* * * * *

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR 
END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED 
PAYMENT RATES FOR SKILLED NURSING FACILITIES

0
12. The authority citation for part 413 continues to read as follows:

    Authority: Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i), and 
(n), 1861(v), 1871, 1881, 1883, and 1886 of the Social Security Act 
(42 U.S.C. 1302, 1395d(d), 1395f(b), 1395g, 1395l(a), (i), and (n), 
1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww); and sec. 124 of Pub. 
L. 106-133 (113 Stat. 1501A-332).

0
13. Section 413.75 is amended by--
0
a. Revising paragraph (2) of the definition of ``All or substantially 
all of the costs for the training program in the nonhospital setting''.
0
b. Adding a definition of ``Nonprovider setting that is primarily 
engaged in furnishing patient care''.
    The revision and addition read as follows:


Sec.  413.75  Direct GME payments: General requirements.

* * * * *
    (b) * * *
    All or substantially all of the costs for the training program in 
the nonhospital setting means--
* * * * *
    (2) Effective for cost reporting periods beginning on or after July 
1, 2007 and before July 1, 2010, at least 90 percent of the total of 
the costs of the residents' salaries and fringe benefits (including 
travel and lodging where applicable) and the portion of the cost of 
teaching physicians' salaries attributable to nonpatient care direct 
GME activities.
* * * * *
    Nonprovider setting that is primarily engaged in furnishing patient 
care means a nonprovider setting in which the primary activity is the 
care and treatment of patients.
* * * * *

0
14. Section 413.78 is amended by--
0
a. Revising the introductory text of paragraph (f).
0
b. Revising paragraph (f)(1).
0
c. Adding a new paragraph (g).
0
d. Adding a new paragraph (h).
    The revisions and additions read as follows:


Sec.  413.78  Direct GME payments: Determination of the total number of 
FTE residents.

* * * * *
    (f) For cost reporting periods beginning on or after July 1, 2007, 
and before July 1, 2010, the time residents spend in nonprovider 
settings such as freestanding clinics, nursing homes, and physicians' 
offices in connection with approved programs may be included in 
determining the number of FTE residents in the calculation of a 
hospital's resident count if the following conditions are met--
    (1) The resident spends his or her time in patient care activities 
as defined at Sec.  413.75(b), except that for cost reporting periods 
beginning on or after July 1, 2009, the time spent training in 
nonpatient care activities, such as didactic conferences and seminars, 
but excluding research not associated with the treatment or diagnosis 
of a particular patient, in a nonprovider setting that is primarily 
engaged in furnishing patient care activities, as defined at Sec.  
413.75(b), also may be counted.
* * * * *
    (g) For cost reporting periods beginning on or after July 1, 2010, 
the time residents spend in nonprovider settings such as freestanding 
clinics, nursing homes, and physicians' offices in connection with 
approved programs may be included in determining the number of FTE 
residents in the calculation of a hospital's resident count if the 
following conditions are met--
    (1) The resident spends his or her time--
    (i) In patient care activities as defined at Sec.  413.75(b); or
    (ii) In nonpatient care activities, such as didactic conferences 
and seminars, but excluding research not associated with the treatment 
or diagnosis of a particular patient, in a nonprovider setting that is 
primarily engaged in furnishing patient care activities, as defined at 
Sec.  413.75(b).
    (2) The hospital or hospitals must incur the costs of the salaries 
and fringe benefits of the resident during the time the resident spends 
in the nonprovider setting. If more than one hospital incurs these 
costs, either directly or through a third party, the hospitals must 
count a proportional share of the time that residents train at the 
nonhospital setting(s) as recorded in a written agreement between the 
hospitals.
    (i) Hospitals must have a reasonable basis for establishing that 
proportion of the cost and the FTE time that each will incur and count.
    (ii) If hospitals already arrange payment to the nonhospital site 
via a written agreement as described in paragraph (g)(3)(ii) of this 
section, the proportion may be recorded in that agreement.
    (iii) If hospitals choose to pay the nonhospital site concurrently 
as described in paragraph (g)(3)(i) of this section, the hospitals must 
record the proportion of cost and FTE time they are incurring and 
counting in a written agreement between the hospitals.
    (3) The hospital or hospitals must comply with one of the 
following:
    (i) The hospital or hospitals must incur the costs of the salaries 
and fringe benefits of the resident during the time the resident spends 
in the nonprovider setting by the end of the third month following the 
month in which the training in the nonhospital site occurred.
    (ii) There is a written agreement between the hospital or hospitals 
and the outside entity that states that the residents' salaries and 
fringe benefits (including travel and lodging where applicable) during 
the time the resident spends in the nonhospital setting is to be paid 
by the hospital(s). Hospitals may modify the amounts specified in the 
written agreement by the end of the academic year (that is, June 30) to 
reflect that the costs of the training program in the nonhospital site 
have been incurred.
    (4) The hospital is subject to the principles of community support 
and redistribution of costs as specified in Sec.  413.81.
    (5) For cost reporting periods beginning on or after July 1, 2010, 
a hospital must maintain and make available records of the FTE count 
determined for direct GME purposes under this section that its 
residents spend in nonprovider sites, in order to compare that time to 
the time spent by its residents in nonprovider sites in the base year 
of cost reporting periods beginning on or after July 1, 2009, and 
before June 30, 2010. The hospital must supply the CMS contractor with 
the data for each of its primary care programs on a program-specific 
basis, and with data for its nonprimary care programs on an overall 
basis.
    (6) The provisions of paragraphs (g)(1)(ii), (g)(2), (g)(3), and 
(g)(5) of this section cannot be applied in a manner that would require 
the reopening of settled cost reports, except those cost reports on 
which there is a jurisdictionally proper appeal pending on direct GME 
or IME payments as of March 23, 2010.
    (h) Effective for cost reporting periods beginning on or after 
January 1, 1983, the time spent by a resident in an approved medical 
residency program on vacation, sick leave, or other approved leave that 
does not prolong the total

[[Page 72263]]

time the resident is participating in the approved program beyond the 
normal duration of the program is countable. This provision cannot be 
applied in a manner that would require the reopening of settled cost 
reports, except those cost reports on which there is a jurisdictionally 
proper appeal pending on direct GME or IME payments as of March 23, 
2010.

0
15. Section 413.79 is amended by--
0
a. Revising paragraph (c)(1)(ii).
0
b. Revising the introductory text of paragraph (c)(2).
0
c. Revising paragraph (c)(2)(iv).
0
d. Revising the heading of paragraph (c)(3).
0
e. Revising the heading of paragraph (c)(4).
0
f. Revising the heading of paragraph (c)(5).
0
g. Revising paragraph (d)(6).
0
i. Adding a new paragraph (m).
0
j. Adding a new paragraph (n).
0
k. Adding a new paragraph (o).
    The revisions and additions read as follows:


Sec.  413.79  Direct GME payments: Determination of the weighted number 
of FTE residents.

* * * * *
    (c) * * *
    (1) * * *
    (ii)(A) For purposes of paragraph (c)(3) of this section, reference 
resident level refers to a hospital's resident level in the applicable 
reference period specified under paragraph (c)(3) of this section.
    (B) For purposes of paragraph (m) of this section, reference 
resident level means with respect to a hospital, the highest resident 
level for any of the three most recent cost reporting periods ending 
before March 23, 2010, for which a cost report has been either settled 
or submitted (subject to audit) to the Medicare contractor by March 23, 
2010.
* * * * *
    (2) Determination of the FTE resident cap. Subject to the 
provisions of paragraphs (c)(3) through (c)(6) and (m) through (o) of 
this section and Sec.  413.81, for purposes of determining direct GME 
payment--
* * * * *
    (iv) Hospitals that are part of the same Medicare GME affiliated 
group or the same emergency Medicare GME affiliated group (as described 
under Sec.  413.75(b)) may elect to apply the limit on an aggregate 
basis as described under paragraph (f) of this section.
* * * * *
    (3) Determination of the reduction to the FTE resident cap due to 
unused FTE resident slots under section 422 of Public Law 108-173. * * 
*
    (4) Determination of an increase in the otherwise applicable 
resident cap under section 422 of Public Law 108-173. * * *
    (5) Special rules for hospitals that participate in demonstration 
projects or voluntary resident reduction plans for purposes of section 
422 of Public Law 108-173. * * *
    (d) * * *
    (6)(i) Subject to the provisions of paragraph (h) of this section, 
FTE residents who are displaced by the closure of either another 
hospital or another hospital's program are added to the FTE count after 
applying the averaging rules in this paragraph (d), for the receiving 
hospital for the duration of the time that the displaced residents are 
training at the receiving hospital.
    (ii) If a hospital receives a permanent increase in its FTE 
resident cap under paragraph (o)(1) of this section due to 
redistribution of slots from a closed hospital, the displaced FTE 
residents that the hospital receives are added to the FTE count after 
applying the averaging rules only in the first cost reporting period in 
which the receiving hospital trains the displaced FTE residents. In 
subsequent cost reporting periods, the displaced FTE residents are 
included in the receiving hospital's rolling average calculation.
* * * * *
    (m) Determination of the reduction to the FTE resident cap due to 
unused FTE resident slots under section 5503 of Public Law 111-148. If 
a hospital's reference resident level, as defined under paragraph 
(c)(1)(ii)(B) of this section is less than its otherwise applicable FTE 
resident cap as determined under paragraph (c)(2) of this section or 
paragraph (e) of this section in the reference cost reporting period 
(as described under paragraph (m)(6) of this section), for portions of 
cost reporting periods beginning on or after July 1, 2011, the 
hospital's otherwise applicable FTE resident cap is reduced by 65 
percent of the difference between the otherwise applicable FTE resident 
cap and the reference resident level. The reduction shall take into 
account the hospital's FTE resident cap as reduced under paragraph 
(c)(3) of this section. Under this provision--
    (1) Exemption for certain rural hospitals. A rural hospital, as 
defined at subpart D of Part 412 of this subchapter, with fewer than 
250 beds (as determined at Sec.  412.105(b)) in its most recent cost 
reporting period ending on or before March 23, 2010, for which a cost 
report has been either settled or submitted (subject to audit) to the 
Medicare contractor by March 23, 2010, is exempt from any reduction to 
its otherwise applicable FTE resident cap under paragraph (m) of this 
section.
    (2) Exemption for certain hospitals that participate in 
demonstration projects or voluntary residency reduction plans. A 
hospital that was participating in a demonstration project under 
section 402 of Public Law 90-248 or the voluntary reduction plan under 
Sec.  413.88, is exempt from any reduction to its otherwise applicable 
FTE resident cap under paragraph (m) of this section if, by January 21, 
2011, it submits a plan to CMS for filling all of its unused FTE 
resident slots by not later than March 23, 2012.
    (3) Exemption for a hospital described at section 1886(h)(4)(H)(v) 
of the Act. A hospital described at section 1886(h)(4)(H)(v) of the 
Act, is exempt from any reduction to its otherwise applicable FTE 
resident cap under paragraph (m) of this section.
    (4) Exemptions for certain other hospitals. A hospital training at 
or above its otherwise applicable FTE resident cap as determined under 
paragraph (c)(2) of this section for all three most recent cost 
reporting periods ending prior to March 23, 2010, for which a cost 
report has been either settled or submitted (subject to audit) to the 
Medicare contractor by March 23, 2010, is exempt from any reduction to 
its otherwise applicable FTE resident cap under paragraph (m) of this 
section.
    (5) New teaching hospital. A new teaching hospital that does not 
have an otherwise applicable FTE resident cap as determined under 
paragraph (e)(1) of this section for all three most recent cost 
reporting periods ending prior to March 23, 2010, for which a cost 
report has been either settled or submitted (subject to audit) to the 
Medicare contractor by March 23, 2010, is exempt from any reduction to 
its otherwise applicable FTE resident cap under paragraph (m) of this 
section.
    (6) Reference cost reporting period. (i) To determine a hospital's 
reference resident level, CMS determines, for a hospital's three most 
recent cost reporting periods ending before March 23, 2010, for which a 
cost report has been either settled or submitted (subject to audit) to 
the Medicare contractor by March 23, 2010, the cost reporting period 
with the highest resident level.
    (ii) If the cost report that is used to determine a hospital's 
otherwise applicable FTE resident cap in the reference period is not 
equal to 12 months, the Medicare contractor may make appropriate 
modifications to apply the provisions of paragraph (m) of this section 
based on the equivalent of a 12-month cost reporting period.

[[Page 72264]]

    (7) Affiliated cap. If a hospital is a member of a Medicare GME 
affiliated group during its reference cost reporting period, and its 
reference resident level is less than its otherwise applicable FTE 
resident cap as adjusted by the terms of the Medicare GME affiliation 
agreement, the hospital's FTE resident cap will be reduced by 65 
percent of the difference between the otherwise applicable FTE resident 
cap and the reference resident level. The reduction will take into 
account the hospital's FTE resident cap as reduced under the provisions 
of paragraph (c)(3) of this section.
    (n) Determination of an increase in the otherwise applicable 
resident cap under section 5503 of Public Law 111-148. (1) For portions 
of cost reporting periods beginning on or after July 1, 2011, a 
hospital may receive an increase in its otherwise applicable FTE 
resident cap (as determined by CMS) of not more than 75 additional FTEs 
if the hospital meets the requirements and qualifying criteria of 
section 1886(h)(8) of the Act and implementing instructions issued by 
CMS and if the hospital submits an application to CMS within the 
timeframe specified by CMS.
    (2) A hospital that receives an increase in the otherwise 
applicable FTE resident cap under paragraph (n)(1) of this section must 
ensure, during the 5-year period beginning on July 1, 2011 and ending 
on June 30, 2016, that--
    (i) The number of FTE primary care residents, as defined in Sec.  
413.75(b), excluding any additional positions under this paragraph, is 
not less than the average number of FTE primary care residents (as so 
determined) during the three most recent cost reporting periods ending 
prior to March 23, 2010 (and submitted to the Medicare contractor by 
March 23, 2010); and not less than 75 percent of the positions 
attributable to such increase are in a primary care or general surgery 
residency programs.
    (ii) CMS may determine whether a hospital has met the requirements 
under paragraph (n)(1) of this section during the 5-year period of July 
1, 2011 through June 30, 2016, in such manner and at such time as CMS 
determines appropriate, including at the end of such 5-year period.
    (iii) In a case where the Medicare contractor determines that a 
hospital did not meet the requirements in a cost reporting period 
within the 5-year time period, the Medicare contractor will reduce the 
otherwise applicable FTE resident cap of the hospital by the amount by 
which such limit was increased under paragraph (n)(1) of this section 
from the earliest cost reporting period that is reopenable in which it 
would be determined that the hospital did not meet the requirements.
    (o) Determination of an increase in the FTE resident cap due to 
slots redistributed from a closed hospital. (1) Except in the case of 
the closure of the hospital with Medicare Provider Number 05-0578, in 
the instance of a hospital closure, as defined at paragraph (h)(1)(i) 
of this section, the FTE resident cap of the closed hospital would be 
redistributed, and a hospital that meets the requirements and 
qualifying criteria of section 1886(h)(4)(H)(vi) of the Act and 
implementing instructions issued by CMS, including submission of a 
timely application to CMS, may receive an increase in its FTE resident 
cap, as determined by CMS.
    (2)(i) Except in the case of the closure of the hospital with 
Medicare Provider Number 05-0578, in redistributing the FTE resident 
cap of a closed hospital, consideration shall be given to ensure that 
there is no duplication of FTE slots between FTE slots redistributed 
under this paragraph and temporary adjustments to FTE resident caps 
provider under paragraph (h)(2) of this section.
    (ii) The provisions of this paragraph (o) will not be applied in a 
manner that will require the reopening of settled cost reports, except 
where the provider has a jurisdictionally proper appeal pending on 
direct GME or IME payments as of March 23, 2010.

PART 416--AMBULATORY SURGICAL SERVICES

0
16. The authority citation for part 416 continues to read as follows:

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


0
17. Section 416.160 is amended by--
0
a. Revising paragraph (a)(1).
0
b. Revising paragraph (a)(4).
0
c. Adding a new paragraph (a)(5).
    The revisions and addition read as follows:


Sec.  416.160  Basis and scope.

    (a) * * *
    (1) Section 1833(i)(2)(D) of the Act requires the Secretary to 
implement a revised payment system for payment of surgical services 
furnished in ASCs. The statute requires that, in the year such system 
is implemented, the system shall be designed to result in the same 
amount of aggregate expenditures for such services as would be made if 
there was no requirement for a revised payment system. The revised 
payment system shall be implemented no earlier than January 1, 2006, 
and no later than January 1, 2008. The statute also requires that, for 
CY 2011 and each subsequent year, any annual update to the ASC payment 
system be reduced by a productivity adjustment. There shall be no 
administrative or judicial review under section 1869 of the Act, 
section 1878 of the Act, or otherwise of the classification system, the 
relative weights, payment amounts, and the geographic adjustment 
factor, if any, of the revised payment system.
* * * * *
    (4) Section 1834(d) of the Act specifies that, when screening 
colonoscopies or screening flexible sigmoidoscopies are performed in an 
ASC or hospital outpatient department, payment shall be based on the 
lesser of the amount under the fee schedule that would apply to such 
services if they were performed in a hospital outpatient department in 
an area or the amount under the fee schedule that would apply to such 
services if they were performed in an ambulatory surgical center in the 
same area. Section 1834(d) of the Act also specifies that, in the case 
of screening flexible sigmoidoscopy and screening colonoscopy services, 
the payment amounts must not exceed the payment rates established for 
the related diagnostic services.
    (5) Section 1833(a)(1) of the Act requires 100 percent payment for 
preventive services described in section 1861(ww)(2) of the Act 
(excluding electrocardiograms) to which the United States Preventive 
Services Task Force (USPSTF) has given a grade of A or B for any 
indication or population. Section 1833(b)(1) of the Act also specifies 
that the Part B deductible shall not apply with respect to preventive 
services described in section 1861(ww)(2) of the Act (excluding 
electrocardiograms) to which the USPSTF has given a grade of A or B for 
any indication or population.
* * * * *

0
18. Section 416.171 is amended by adding a new paragraph (a)(2)(iii) to 
read as follows:


Sec.  416.171  Determination of payment rates for ASC services.

    (a) * * *
    (2) * * *
    (iii) Productivity adjustment. (A) For calendar year 2011 and 
subsequent years, the Consumer Price Index for All Urban Consumers 
determined under paragraph (a)(2)(ii) of this section is reduced by the 
productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of 
the Act.
    (B) The application of the provisions of paragraph (a)(2)(iii)(A) 
of this section may result in the update being less than

[[Page 72265]]

0.0 for a year, and may result in payment rates for a year being less 
than the payment rates for the preceding year.
* * * * *

PART 419--PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL OUTPATIENT 
DEPARTMENT SERVICES

0
19. The authority citation for part 419 continues to read as follows:

    Authority: Secs. 1102, 1833(t), and 1871 of the Social Security 
Act (42 U.S.C. 1302, 1395(t), and 1395hh).


0
20. Section 419.21 is amended by revising paragraph (e) to read as 
follows:


Sec.  419.21  Hospital outpatient services subject to the outpatient 
prospective payment system.

* * * * *
    (e)(1) Effective January 1, 2005 through December 31, 2008, an 
initial preventive physical examination, as defined in Sec.  410.16 of 
this chapter, if the examination is performed no later than 6 months 
after the individual's initial Part B coverage date that begins on or 
after January 1, 2005.
    (2) Effective January 1, 2009, an initial preventive physical 
examination, as defined in Sec.  410.16 of this chapter, if the 
examination is performed no later than 12 months after the date of the 
individual's initial enrollment in Part B.
0
21. Section 419.22 is amended by--

0
a. Revising paragraph (m).
0
b. Adding a new paragraph (t).
    The revision and addition read as follows:


Sec.  419.22  Hospital outpatient services excluded from payment under 
the hospital outpatient prospective payment system.

* * * * *
    (m)(1) Services provided on or before December 31, 2010, for 
patients with ESRD that are paid under the ESRD composite rate and 
drugs and supplies furnished during dialysis but not included in the 
composite rate.
    (2) Renal dialysis services provided on or after January 1, 2011, 
for patients with ESRD that are paid under the ESRD benefit, as 
described in Subpart H of Part 413 of this chapter.
* * * * *
    (t) Effective January 1, 2011, annual wellness visit providing 
personalized prevention plan services as defined in Sec.  410.15 of 
this chapter.

0
22. Section 419.32 is amended by revising paragraph (b)(1)(iv) to read 
as follows:


Sec.  419.32  Calculation of prospective payment rates for hospital 
outpatient services.

* * * * *
    (b) * * *
    (1) * * *
    (iv)(A) For calendar year 2003 and subsequent years, by the 
hospital inpatient market basket percentage increase applicable under 
section 1886(b)(3)(B)(iii) of the Act.
    (B) The percentage increase determined under paragraph 
(b)(1)(iv)(A) of this section is reduced by the following for the 
specific calendar year:
    (1) For calendar year 2010, 0.25 percentage point; and
    (2) For calendar year 2011, 0.25 percentage point.
* * * * *

0
23. Section 419.43 is amended by revising paragraph (c) to read as 
follows:


Sec.  419.43  Adjustments to national program payment and beneficiary 
copayment amounts.

* * * * *
    (c) Wage index factor.--(1) CMS uses the hospital inpatient 
prospective payment system wage index established in accordance with 
Part 412 of this chapter to make the adjustment specified under 
paragraph (a) of this section.
    (2) For services furnished beginning January 1, 2011, the wage 
index factor provided for in paragraph (c)(1) of this section 
applicable to any hospital outpatient department that is located in a 
frontier State, as defined in Sec.  412.64(m) of this chapter, may not 
be less than 1.00.
    (3) The additional payments made under the provisions of paragraph 
(c)(2) of this section are not implemented in a budget neutral manner.
* * * * *

0
24. Section 419.70 is amended by--
0
a. Revising paragraph (d)(2) introductory text.
0
b. Adding a new paragraph (d)(6).
    The revision and addition read as follows.


Sec.  419.70  Transitional adjustments to limit decline in payments.

* * * * *
    (d) * * *
    (2) Temporary treatment for small rural hospitals on or after 
January 1, 2006. For covered hospital outpatient services furnished in 
a calendar year from January 1, 2006, through December 31, 2010, for 
which the prospective payment system amount is less than the pre-BBA 
amount, the amount of payment under this part is increased by 95 
percent of that difference for services furnished during 2006, 90 
percent of that difference for services furnished during 2007, and 85 
percent of that difference for services furnished during 2008, 2009, 
and 2010, if the hospital--
* * * * *
    (6) Temporary treatment for sole community hospitals on or after 
January 1, 2010, and through December 31, 2010. For covered hospital 
outpatient services furnished on or after January 1, 2010 through 
December 31, 2010, for which the prospective payment system amount is 
less than the pre-BBA amount, the amount of payment under this part is 
increased by 85 percent of that difference if the hospital is a sole 
community hospital as defined in Sec.  412.92 of this chapter or is an 
essential access community hospital as described under Sec.  412.109 of 
this chapter.
* * * * *

PART 489--PROVIDER AGREEMENTS AND SUPPLIER APPROVAL

0
25. The authority citation for part 489 continues to read as follows:

    Authority:  Secs. 1102, 1819, 1820(e), 1861, 1864(m), 1866, 
1869, and 1871 of the Social Security Act (42 U.S.C. 1302, 1395i-3, 
1395x, 1395aa(m), 1395cc, 1395ff, and 1395hh).


0
26. Section 489.20 is amended by revising paragraph (w) to read as 
follows:


Sec.  489.20  Basic commitments.

* * * * *
    (w)(1) In the case of a hospital as defined in Sec.  489.24(b), to 
furnish written notice to all patients at the beginning of their 
hospital stay or outpatient visit if a doctor of medicine or a doctor 
of osteopathy is not present in the hospital 24 hours per day, 7 days 
per week, in order to assist the patients in making informed decisions 
regarding their care, in accordance with Sec.  482.13(b)(2) of this 
subchapter. The notice must indicate how the hospital will meet the 
medical needs of any patient who develops an emergency medical 
condition, as defined in Sec.  489.24(b), at a time when there is no 
physician present in the hospital. For purposes of this paragraph, the 
hospital stay or outpatient visit begins with the provision of a 
package of information regarding scheduled preadmission testing and 
registration for a planned hospital admission for inpatient care or 
outpatient service.
    (2) Before admitting a patient or providing an outpatient service, 
the hospital must receive a signed acknowledgment from the patient 
stating that the patient understands that a physician may not be 
present during

[[Page 72266]]

all hours services are furnished to the patient.
* * * * *

[[Page 72267]]

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; Program No. 93.774, Medicare--
Supplementary Medical Insurance Program; and Program No. 93.778 
(Medical Assistance))

    Dated: October 26, 2010.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: October 29, 2010.
Kathleen Sebelius,
Secretary.

    Note:  The following addenda will not appear in the Code of 
Federal Regulations:

BILLING CODE 4120-01-P

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[FR Doc. 2010-27926 Filed 11-2-10; 4:15 pm]
BILLING CODE 4120-01-C


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